RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/116
31 January 2002
(02-0484)
Dispute Settlement Body
18 December 2001
MINUTES OF MEETING
Held in the Centre William Rappard
on 18 December 2001
Chairman:  Mr. R. Farrell (New Zealand)
Subjects discussed: Page
1. Surveillance of implementation of recommendations adopted by the DSB.........................2
(a) European Communities – Regime for the importation, sale and distribution of
bananas:  Status report by  the European Communities...............................................................2
(b) Thailand – Anti-dumping duties on angels, shapes and sections of iron or non-alloy
steel and H-beams from Poland:  Status report by Thailand.......................................................3
(c) United States – Section 110(5) of the US Copyright Act:  Status report by the United
States......................................................................................................................... ..................4
(d) United States – Anti-Dumping Act of 1916: Status report by the United States........................5
2. Argentina – Definitive safeguard measure on imports of preserved peaches .....................6
(a) Request for the establishm ent of a pane l by Ch ile......................................................................6
3. Canada – Measures affecting the importation of milk and the exportation of
dairy products:  Recourse to Article 21.5 of the DSU by New Zealand and the
United States.................................................................................................................. ............7
(a) Report of the Appellate Body and Report of the Panel...............................................................7
4. Canada – Measures affecting the importation of milk and the exportation of
dairy products:  Second recourse to Article 21.5 of the DSU by New Zealand andthe United States .............................................................................................................. .......13
(a) Request for the establishment of a panel by New Zealand .......................................................13
(b) Request for the establishment of  a panel by the United States .................................................13
5. Review of the Dispute Settlement Understanding................................................................15
(a) Statement by  the Chairman................................................................................................... ....15
6. Proposed nominations for the indicative list of governmental and
non-governmental panelists ...................................................................................................19
7. Chairmanship of the DSB ...................................................................................................... 19
8. Turkey – Restrictions on imports of textiles and clothing products ..................................20
(a) Statement by India .......................................................................................................... ..........20WT/DSB/M/116
Page 2
1. Surveillance of implementation of recommendations adopted by the DSB
(a) European Communities – Regime for the importation, sale and distribution of bananas:
Status report by the European Communities
(b) Thailand – Anti-dumping duties on angles, shapes and sections of iron or non-alloy steel and
H-beams from Poland:  Status report by Thailand
(c) United States – Section 110(5) of the US Copy right Act:  Status report by the United States
(d) United States – Anti-Dumping Act of 1916:  Status report by the United States1. The Chairman recalled that Article 21.6 of the DSU required that "unless the DSB decides
otherwise, the issue of implementation of the recommendations or rulings shall be placed on the
agenda of the DSB meeting after six months following the date of establishment of the reasonable
period of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue is
resolved".
(a) European Communities – Regime for the importation, sale and distribution of bananas:
Status report by the European Communities (WT/DS27/51/Add.24)
2. The Chairman drew attention to document WT/DS27/51/Add.24 which contained the status
report by the European Communities on progress in the implementation of the DSB's
recommendations concerning its banana import regime.
3. The representative of the European Communities sa id that the EC welcomed the fact that the
waivers from Articles I and XIII of the GATT 1994 had been granted by the Ministerial Conference.
These waivers constituted the pre-requisite for the implementation by the EC of phase II of the
Understandings on Bananas reached with the United States and Ecuador.  In accordance with the EC's
internal procedures, the Regulation implementing pha se II would be adopted by the EC Council on
19 December 2001 and would enter into force on 1 January 2002.  The EC thus considered that it hadfaithfully completed its implementation of phase I of the Understandings on Bananas.
4. The representative of Ecuador said that his country hoped that at the next meeting of the DSB,
the EC would be in a position to notify the DSB that it had effectively complied with its obligations.
Ecuador welcomed the optimism expressed by the EC at the present meeting that this would be the
case.  The new regulation should result in the implementation of the terms agreed upon in the
Understandings on Bananas.  Ecuador reiterated th at these Understandings constituted a very good
basis for a new WTO-consistent EC banana import regime.  Ecuador noted that the most importantcommitment undertaken by the EC, as stipulated in the Understandings and in its Regulation as well
as in the terms of the waiver, was to introduce from 1 January 2006 a banana import regime based
only on tariffs.  This substantial commitment implie d that the application of the current regime was
transitional until 31 December 2005.  Therefore, it was expected that the EC would begin negotiations
in order to determine the conditions for the application of a tariff-only regime by mid-2004 at thelatest.  At the present meeting, Ecuador also wished to have some explanation from the EC
concerning the investigation being carried out by the EC Commission with regard to the illegal
granting of import licences by one EC member State.  This situation had again occurred in recent
weeks and represented a failure by the EC to comply with its regulations and the Understandings on
Bananas.
5. The representative of Honduras said that his country believed in the multilateral trading
system and for that reason it had worked constructively towards resolving this case.  At the present
meeting, he did not wish to recall all the events that had happened over the past years.  However, he
only wished that Members should not exert pressure.  They should rather work on a constructive basisWT/DSB/M/116
Page 3
in accordance with the WTO rules.  Honduras hoped that the EC would refrain from imposing
prohibitive tariffs, which could have a negative impact on its economy.  Honduras also hoped that the
EC would implement its obligations in good faith.  He recalled that his country, together with other
countries, had made great efforts to accommodate the needs of the ACP countries concerning the
waiver.
6. The representative of Panama said that his country welcomed the progress made with regard
to this matter.  Panama also wished to be informed about the problem raised by Ecuador at the present
meeting concerning licences granted by one EC member State in a WTO-inconsistent manner.  In
particular, Panama wished to know how the EC could guarantee the proper implementation of the
Understandings.  This would have implications for the effective application of the rights of the
countries involved.  Panama also wished to be provided with a copy of the new regulation as soon as
it was adopted by the EC.
7. The representative of Colombia said that his country shared the optimism expressed by the
EC at the present meeting that all the problems concerning the banana case would be resolved to the
benefit of all the parties involved.  Colombia shared the concern expressed by Ecuador with regard to
the illegal granting of licences by one EC member State.  If the situation described by Ecuador had
really taken place, Colombia wished to know what the EC would do to redress this.  Colombia notedwith satisfaction that the issue of the waiver for the ACP countries had finally been resolved.  His
country had done its best at Doha to successfully conclude this matter.  Colombia hoped that the
agreement reached with the EC in this regard would be reflected in a full application of the banana
regime by 2006.  Colombia also hoped that a tariff -only system would guarantee market access for the
countries involved in the banana trade on an MFN basis.
8. The representative of Saint Lucia expressed her country's gratitude to Members for granting
the ACP/ EC waiver requests at Doha.  Saint Lucia welcomed this as providing a measure of security
to its farmers.  The stability of its economy depended on access to markets on a predictable basis and
the granting of that waiver certainly enhanced and provided a basis for this.  Since progress had been
made she hoped that a debate on this matter could be avoided for at least another few years.
9. The representative of the United States said that her country was pleased that Members had
approved the EC's request for waivers at Doha.  The United States appreciated Members' cooperation
in reaching agreement on the waivers and looked forward to final resolution of the banana dispute.
The United States was continuing to work closely with the EC as well as with other Members to
address any issues that might arise as a result of the EC move to a tariff-based system for bananas and
its implementation of the terms of the bilateral Understandings on Bananas, including the increase of
100,000 tonnes in the quota for Latin American countries, effective as of 1 January 2002.
10. The representative of the European Communities said that his delegation had noted the
statements made at the present meeting and said that once the regulation was adopted it would be
made public and would be notified to Members.  The EC had taken practical measures regarding the
transfer of 100,000 tonnes of bananas starting from the first trimester of 2002.  With regard to the
point raised by Ecuador concerning import licences, the EC had taken all the necessary internalmeasures to resolve this matter.
11. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.
(b) Thailand – Anti-dumping duties on angels, shapes and sections of iron or non-alloy steel and
H-beams from Poland:  Status report by Thailand (WT/DS122/9)
12. The Chairman drew attention to document WT /DS122/9 which contained the status report by
Thailand on progress in the implementation of the DSB's recommendations in the case concerning itsWT/DSB/M/116
Page 4
anti-dumping duties on angles, shapes and sections or iron or non-alloy steel and H-beams from
Poland.
13. The representative of Thailand said that on 5 April 2001, the DSB had adopted the Appellate
Body Report and the Panel Report as modified by the Appellate Body Report in the above-mentioned
case.  In accordance with the findings of these Reports, it had been recommended that the DSBrequest Thailand to bring its anti-dumping measure, found to be inconsistent with the Agreement on
the Implementation of Article VI of the GATT 1994, into conformity with its obligations under that
Agreement.  On 25 May 2001, in accordance with Article 21.3(b) of the DSU, the parties to the
dispute had agreed that the reasonable period of time for implementation by Thailand in this case
would be until 20 October 2001.   He noted that in order to implement the DSB's recommendations,
Thailand had undertaken a re-examination of those aspects of the injury determination found in the
Panel Report to be inconsistent with the Anti-Dumping Agreement, in particular Articles 3.1, 3.2, 3.4and 3.5 thereof.  The re-examination had been limited to the original investigation period (July 1995 –
June 1996) and had been based, in light of the findings of the Appellate Body, on the entire record of
the proceeding, namely both the non-confidential and confidential parts thereof.  In August 2001, a
detailed report on the results of this re-examination had been issued to Polish authorities and
producers as well as the domestic industry.  Interested parties had been provided with opportunities tocomment in writing and to request to be heard orally.  However, no comments had been received from
any interested party.  On 9 October 2001, Thailand's Committee on Dumping and Subsidy had
approved the report on the re-examination of injury, determining that the anti-dumping measure
should be maintained.  On 17 October 2001, Thailand's Department of Foreign Trade had issued an
announcement reconfirming material injury to the domestic industry pursuant to Article 3 of theAnti-Dumping Agreement.  Thus, Thailand cons idered that it had fully implemented the
recommendations and rulings in this dispute.  Thailand further considered that its anti-dumping
measure, found in the Reports to be inconsistent with the Anti-Dumping Agreement, was in
conformity with its obligations under that Agreement.
14. The representative of Poland said that after pr eliminary examination of the status report and
its analysis of Thailand's report on "Re-Examination of Injury of the Anti-Dumping Duties on Angles
Shapes and Sections of Iron or Non-Alloy Steel and H-Beams  from Poland", his country found it
difficult to accept the way in which Thailand had implemented the DSB's recommendations.  Poland
considered that Thailand had not rescinded or modified the measure at issue, but had only changed the
justification for the imposition of the measure.  For that reason, Poland wished to reserve its rights to
take further steps under Article 21.5 of the DSU once it had finalized its examination of documents
submitted by Thailand.
15. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(c) United States – Section 110(5) of the US Copyri ght Act:  Status report by the United States
(WT/DS160/18)
16. The Chairman drew attention to document WT /DS160/18 which contained the status report
by the United States on progress in the implementation of the DSB's recommendations in the case
concerning Section 110(5) of the US Copyright Act.
17. The representative of the United States said that her country had been engaged in discussions
with the EC in order to find a positive and mutually acceptable resolution to the dispute.  In
connection with those discussions, the United States and the EC had resorted to arbitration underArticle 25 of the DSU, in order to determine the level of nullification or impairment of benefits
caused by Section 110(5)(B) of the US Copyright Act.  In light of the award of the Arbitrators, the EC
and the United States were engaged in productive di scussions with a view to resolving the dispute.WT/DSB/M/116
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She noted that the reasonable period of time for implementation would expire on the date on which
the current session of the US Congress adjourned or on 31 December 2001, whichever came earlier.
18. The representative of the European Communities said that the EC and its member States
considered that the resolution of this dispute required the United States to amend its
WTO-inconsistent legislation.  At the same time, the EC was engaged in productive discussions with
the United States aiming at determining the modalities for a possible temporary arrangement.  Of
course, this did not dispense the United States from making all the necessary efforts towards the
amendment of Section 110(5) of the US Copyright Act.  The EC considered that the United States
should regularly inform the DSB of the progress made in this regard.  If it was not possible to
conclude such an arrangement before the end of the reasonable period of time due to lack of action by
Congress, the EC would have to request the authorization to suspend concessions or other obligations
under Article 22.2 of the DSU.
19. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(d) United States – Anti-Dumping Act of 1916: Status report by the United States (WT/DS136/14
– WT/DS162/17)
20. The Chairman drew attention to document WT/DS136/14 – WT/DS162/17 which contained
the status report by the United States on progress in the implementation of the DSB's
recommendations in the case concerning US Anti-Dumping Act of 1916.
21. The representative of the United States said that, as indicated in the status report, the US
Administration had transmitted to the US Congress on 23 July 2001 proposed legislation
implementing the DSB's recommendations and rulings in this case.  The proposed legislation would
repeal Section 801 of the Revenue Act of 1916, with application to all actions under Section 801
pending on the date of enactment and to all actions filed after the date of enactment.  Since the
US Congress had not yet adjourned, the Administrati on continued to seek passage of such proposed
legislation.
22. The representative of Japan noted that, as indicated by the United States, the reasonable
period of time for implementation in this case would expire on 31 December 2001, or on the date on
which the current session of the United States Congress adjourned, whichever came earlier.  Japan
recognized that the United States had made efforts towards implementation of the DSB's
recommendations and rulings, but Japan had yet to be informed that the proposed legislation to repeal
Section 801 of the Revenue Act of 1916 had been passed by the US Congress.  Since not much time
was left, Japan urged the United States to comple te the implementation within the reasonable period
of time, which had already been extended once at the request of the United States.  Japan also urgedthe United States to ensure that all ongoing court proceedings currently pending under the Act in the
US domestic courts should be terminated immediately upon passage of the proposed legislation.  In
the event of non-compliance by the United States by the end of the reasonable period of time, Japan
intended to invoke its rights under Article 22 of the DSU.
23. The representative of the European Communities said that the EC was concerned about the
current situation.  He noted that the EC had done its best to facilitate the United States' compliance
with the DSB's decision.  He recalled that at th e July 2001 DSB meeting, the EC had not opposed the
US request to extend the reasonable period of time for implementation in this case.  The reasonable
period of time would expire in the coming days.  However, the US Congress had not yet acted to
adopt the necessary legislation repealing the 1916 Anti-Dumping Act and terminating pending cases.At this stage, such legislation had not even been introduced in the US Congress and, as a result, EC
firms were facing judicial challenges brought on the basis of the 1916 Act.  This situation was of
concern to the EC and if the United States faile d to comply within the required deadlines, the ECWT/DSB/M/116
Page 6
would have no choice but to request the authorization from the DSB to suspend concessions or other
obligations pursuant to Article 22.2 of the DSU.
24. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
2. Argentina – Definitive safeguard measure on imports of preserved peaches
(a) Request for the establishment of a panel by Chile (WT/DS238/2)
25. The Chairman drew attention to the communication from Chile contained in document
WT/DS238/2.
26. The representative of Chile said that he wished to highlight some aspects of Argentina's
safeguard measure.  First, neither the records of the investigating authority (National Foreign Trade
Commission) or the Technical Report indicated th e existence of "unforeseen developments" (as
stipulated in Article XIX.1(a) of the GATT 1994).  There had been no increase in imports, in absoluteor relative terms, that caused or threatened to cause serious injury.  Nor had there been a
demonstration that the industry had suffered serious injury.  Furthermore, there were no arguments or
evidence of a possible causal link between alleged increased imports and alleged injury or threat
thereof.  On the contrary, the record established the existence of factors other than the alleged increase
in imports which might be responsible for the loss in market share claimed to be suffered by thedomestic industry.  However, there was no analysis of the impact of those other factors in giving rise
to the alleged serious injury or threat of serious injury.  Without conducting any prior causal analysis,
Argentina's investigating authority had attributed all of the alleged injury or threat of injury to an
alleged increase in imports.  Finally, the record did not contain any statement of all of the matters of
facts and law which, in accordance with Article XIX of the GATT 1994 and the Agreement onSafeguards, had to be investigated, analysed, established, found and verified.  In Chile's view, all of
this was contrary to Article XIX of the GATT 1994 and Articles 2, 3, 4 and 12 of the Agreement on
Safeguards.
27. Second, the definitive safeguard measure imposed by Argentina corresponded to a specific
duty which, in ad valorem  terms, amounted to approximately 70 per cent.  This prohibitive surcharge
was much higher than what was needed to prevent or remedy the alleged serious injury or threat of
injury and facilitated adjustment as required in Article 5.1 of the Agreement on Safeguards.  In
practice, the measure had closed Argentina's market to imports.  In fact, since the introduction of the
provisional measure there had been no imports of preserved peaches from Chile or from any other
country.  Third, the problem of the preserved peaches industry in Argentina was not the result of
Chilean imports, but of subsidized imports from a European country.  This had been recognized by
Argentina's producers.  Those had been the same European imports that had caused injury in Chileand in other markets.  Consequently, the safeguard was not the proper remedy to this problem.  The
WTO Agreement contained other trade remedies for such cases, which did not provide that exporters
legitimately wishing to compete had to pay for agricultural policies of some Members.  Chile raised
these points in the course of the consultations held in Geneva on 2 November 2001 which, had
provided an opportunity for a better understanding of the respective positions, but had not resulted inthe resolution of this case.  Therefore, Chile was requesting the establishment of a panel to examine
this matter.  Without prejudice to this request, Chile continued to be open to seeking other solutions
which, in addition to being mutually satisfacto ry, were consistent with the WTO Agreement.
28. The representative of Argentina said that Chile was requesting the establishment of a panel to
examine a definitive safeguard measure applied by Argentina on imports of peaches preserved in
water containing added sweetening matter, including syrup, preserved in any other form or in water
(Resolution No. 348/2001).  In Argentina's view th e above-mentioned safeguard measure was adopted
in conformity with Article XIX.1(a) of the GATT 1994 and with Articles 2, 3, 4, 5, and in particularWT/DSB/M/116
Page 7
the notification obligations contained in Article 12 of the Agreement on Safeguards.  This was
justified before the Chilean authorities during the various meetings held pursuant to Article XXIII.1 of
the GATT 1994, Article 4 of the DSU and Article 14  of the Agreement on Safeguards, in particular
during the consultations that had taken place on 2 November 2001.  Argentina regretted that Chile
was requesting a panel.  At the present meeting, his country wished to oppose the establishment ofthat panel and affirmed, as Chile had already done, its readiness to explore alternative solutions
alongside these proceedings.
29. The DSB took note of the statements and agreed
 to revert to this matter.
3. Canada – Measures affecting the importation of milk and the exportation of dairy
products:  Recourse to Article 21.5 of the DSU by New Zealand and the United States
(a) Report of the Appellate Body (WT/DS103/AB/ RW – WT/DS113/AB/RW) and Report of the
Panel (WT/DS103/RW – WT/DS113/AB/RW)
30. The Chairman recalled that at its meeting on 1 March 2001, the DSB had decided, in
accordance with Article 21.5 of the DSU, to refer to the original Panel the matter raised by New
Zealand and the United States concerning Canada's implementation of the DSB's recommendations in
this case.  The Report of the Panel containe d in document WT/DS103/ RW – WT/DS113/RW had
been circulated on 11 July 2001.  On 4 September 2001, Canada had notified the DSB of its intentionsto appeal certain issues of law covered in the Panel Report and certain legal interpretations developed
by the Panel.  The Report of the Appellate Body contained in document WT/DS103/AB/RW –
WT/DS113/AB/RW had been circulated on 3 December 2001.  The Chairman recalled that in
accordance with the Decision on Procedures for the Circulation and Derestriction of WTO Documents
contained in WT/L/160/Rev.1, the Appellate Body Re port and the Panel Report had been circulated as
unrestricted documents.  The Reports were now before the DSB at the request of Canada.  He noted
that the adoption procedure was without prejudice to the right of Members to express their views on
the Reports.
31. The representative of Canada recalled that in the beginning of 2001, an Article 21.5 panel had
found that the supply of commercial export milk by domestic milk producers to domestic dairy
processors was inconsistent with Canada's export subsidy commitments under the Agreement on
Agriculture .  Subsequently on 3 December 2001, the Appellate Body had reversed this finding.
Consequently, the finding of WTO-inconsistency, which had been erroneously made by the Panel had
no legal force or effect.  Canada was pleased with this determination of the Appellate Body.  In close
cooperation with its provincial governments and dairy industry, Canada had put forward a strong case.
For Canadian dairy exports, it remained business as usual.  Canada thanked the Appellate Body, the
Panel, and the Secretariat for their work, and was pleased to join in the consensus to adopt theReports.  However, Canada was disappointed that the complaining parties were seeking an immediate
second recourse to Article 21.5 of the DSU.  He said that he would revert to this point under the next
agenda item.
32. The representative of the United States said that her country was disappointed that the
Appellate Body had not resolved this dispute by affirming the findings of the Panel under Article 21.5
of the DSU pertaining to this case.  The Panel had made its findings in this dispute after a long,
extensive and thorough analysis of the facts and relevant legal provisions.  In particular, the United
States thanked the panelists who had agreed to serve again in this phase of the dispute, and regretted
that this case had not yet been concluded.  Instead, the Appellate Body had developed a new
definition of "payment".  Subsequently, based on this new definition, the Appellate Body had reversedthe Panel's findings that Canada had failed to comply with the recommendations and had found that it
was unable to complete the analysis because of an inadequate factual record.  The Appellate Body had
specifically stated that it was not making a finding regarding the consistency or inconsistency of
Canada's measures.  As a result of this Report, a disagreement between Canada and the complainingWT/DSB/M/116
Page 8
parties in this case remained with regard to Canada's implementation.  As evidenced by the US
request for the establishment of a second panel pursuant to Article 21.5 of the DSU, the United States
was still of the view that Canada continued to be out of compliance with the DSB's recommendations
and rulings in this case.
33. The United States did not intend to re-argue the case at the present meeting.  The United
States recognized that, like most disputes involving agricultural measures, the parties had presented
the Panel and the Appellate Body with a complicated factual and legal situation.  Her country
appreciated the time and effort devoted to the dispute by the Panel, the Secretariat, and the Appellate
Body.  However, there were several aspects of the analysis in the Appellate Body Report that the
United States was compelled to comment upon, and at least some of these should be of concern to
other Members from a systemic standpoint.  First, and most disturbing, was the new test that the
Appellate Body had read into the text of the Agreement on Agriculture for purposes of determiningwhether a "payment" existed under Article 9.1(c) of that Agreement.  The Appellate Body had stated
that to determine whether a "payment" existed, one had to compare the price of the good to the
"proper value" of the good, and for the Appellate Body, "proper value" meant the cost of production
of the good.  Cost of production appeared nowhere in  the text of the Agreement on Agriculture, nor
was it clear why "proper value", which itself was a term that did not appear in the Agreement onAgriculture  equated to cost of production.  There were several questions raised by the Appellate
Body's reliance on the cost of production.  Cost of production was not a general benchmark under the
WTO.  The Appellate Body had rejected the use of any market price as representing the proper value
of a good.  It was odd that the WTO would not consider the market as being a good indicator of the
value of goods.
34. It was also odd that items such as profit were not considered to be included in the proper
value of goods.  Furthermore, cost of production was a specific and detailed standard.  Normally, the
negotiators of an agreement would have spent a long and difficult negotiation in reaching agreement
on such a particular standard and they certainly would be expected to reflect it in the text itself.  There
was nothing in the Agreement on Agriculture to suggest that Members had agreed that the cost ofproduction for a private party, not even a government entity, would be relevant in determining
whether another private party was receiving a "payment" under Article 9.1(c) of the Agreement on
Agriculture.  Just as a practical matter, it struck the United States as a particularly unworkable
standard given that most Members would not have access to a private party's cost of production data.
The Appellate Body had relied upon two paragraphs of the Illustrative List in Annex I to the SCM
Agreement  which explicitly provided that the cost to the government  (not a private party) was the
standard for determining whether a subsidy had been granted.  Neither of these two items dealt withthe cost of production.  Rather they referred to financing costs.  Moreover, in relying upon these two
paragraphs, the Appellate Body had never explained why the "benefit to recipient" standard which
applied to the general definition of subsidy in Article 1 of the SCM Agreement did not provide the
appropriate context.
35. She noted that the Appellate Body had stated that a payment occurred when a producer sold
its product to a processor at a price that was less than the cost of production, which would tend to
imply that each sale would have to be examined to determine if there was a payment, but then the
Appellate Body had concluded that it would be appropriate to compare average prices against the
average cost of production.  Under this approach, sa les at below the cost of production could be offset
against sales at above the cost of production, so that while there would be a "payment" for some sales,it would be "excused" based on unrelated sales by other producers.  The Appellate Body had departed
from its first Report, which had been adopted and had, therefore, been unconditionally accepted by
the parties to this dispute in adopting the "cost of production" standard.  In its first Report, the
Appellate Body had used the test of "below market  rates".  It was not clear why market rates were
relevant for the Appellate Body in the first Report but were no longer relevant for this second Reportin the same dispute.WT/DSB/M/116
Page 9
36. In paragraph 76 of its Report, the Appellate Body stated that "it is necessary to scrutinize
carefully the facts and circumstances of a disputed measure, ... to determine the appropriate basis for
comparison in assessing whether the measure involves "payments" under Article 9.1(c)."  It was not
clear what the Appellate Body meant by this statement.  For example, it was not clear whether the
Appellate Body intended to suggest that it had found that the cost of production was only relevant for
this dispute and that some other standard would be applied in other disputes, based on the facts of
those disputes.  Imputing a different legal standard that depended upon the facts of the particular
dispute at hand would not be supported by the text of Article 9.1(c) nor any other provision of the
Agriculture Agreement.  There was nothing in Article 9.1(c) to suggest that Members had agreed that
the standard would vary depending upon the facts of the case, or that this particular standard would
apply under these facts.  Indeed, the United States  were not aware of any other provision in any
agreement where Members had consented to an unknown legal standard that would depend upon thefacts of the particular case.
37. Furthermore, as a general matter, an approach of varying the legal standard according to the
facts of the dispute would undermine the security and predictability which the dispute settlement
system should provide.  In order to conform their measures to their WTO obligations, Members had to
know the rules.  With a "floating" legal standard which changed depending upon the facts of the case,there was no way for a Member to know, when it adopted a measure, whether that measure conformed
to its obligations.  Finally, putting aside for the moment the merits of the new legal standard
developed by the Appellate Body, the United States was concerned that in this case the legal standard
had never been the subject of discussion during the Appellate Body's proceeding.  The standard
appeared for the first time in the final Report.  The United States believed that under thecircumstances it was critical that the Appellate Body had the benefit of the views of the parties and
third parties on the issues involved prior to deciding to adopt such a new standard.
38. With respect to the issue of whether any payments under Canada's new measures would be
financed by virtue of government action, the United States first noted and appreciated that the
Appellate Body had not made findings on the issue.  However, the United States was unclear as to thepurpose of the somewhat lengthy discussion of an issue on which the Appellate Body had
acknowledged it did not need to reach a decision.  One aspect of that discussion was particularly
confusing to the United States.  In paragraph 117 of its Report, the Appellate Body appeared to
conclude that since producers were not obliged to produce milk above their quota amount, then it was
difficult to see how they were obliged to sell over-quota milk for export.  The United States did not
see how this conclusion followed.  The Appellate Body  appeared to be confusing two very different
issues.  There was no real disagreement that once a producer, for whatever reason, has produced over-
quota milk, then the producer had no real choice but to sell it for export.
39. The representative of New Zealand said that, in a perfect world, the adoption of the Panel and
the Appellate Body Reports in this case would bring this long-standing dispute with Canada over its
export subsidy practices for dairy products to a close.  Unfortunately, this was not a perfect world and,
under the next agenda item, these two Reports would in no way be the final word on this dispute.This unfortunate lack of closure was the result of the Appellate Body's in ability to complete the
analysis of the claims that had been brought before it by New Zealand and the United States.  In
paragraph 103 of its Report the Appellate Body stated that: "... we are unable to complete the analysis
by determining whether the supply of CEM [commercial export milk] involves 'payments' under
Article 9.1(c) of the Agreement on Agriculture.  Ye t, we do not wish to be understood as holding that
the supply of CEM does not involve 'payments' under Article 9.1(c).  We are simply not in a position
to make a ruling on this issue".  The Appellat e Body had further gone on to underline this in
paragraph 104 of the report where it stated that its rejection of the Panel's approach to certain issues
"does not amount to a finding that the measure at issue is WTO consistent".  The inconclusive ruling
of the Appellate Body had left New Zealand with no other option than to pursue further disputesettlement proceedings under Article 21.5 of the DSU to address further the Canadian measures which
New Zealand continued to consider to be inconsis tent with Canada's WTO obligations.  This issueWT/DSB/M/116
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would be taken up as the next agenda item.  At th is stage, however, New Zealand wished to take the
opportunity to make some observations, of both a procedural and substantive nature, on the Appellate
Body Report.  First, in the absence of any definitive ruling, New Zealand had been forced to seek a
second recourse to Article 21.5 of the DSU.  This form of dispute settlement "ping-pong" was hardly
the most efficient or timely way to secure settlement of disputes.  The Appellate Body Report had,accordingly, highlighted the need for the issue of "remand" to be addressed in the context of the DSU
review process.  In the view of New Zealand, pr oviding for such a "remand" function would enable
Members to avoid the initiation of further Article 21.5 proceedings in a situation like the one before
the DSB at the present meeting.
40. Second, some of the key conclusions that the Appellate Body arrived at in its Report were
surprising, given that they had not been the subject of any exploration with any of the parties at the
hearing.  Nor had they been the subject of follow -up in any questions posed by the Appellate Body to
the parties after the hearing.  New Zealand recognized that this was not the first occasion on which
this issue had come up.  It also recognized that it was unrealistic to expect the Appellate Body to
provide the parties with an opportunity to comment on every aspect of the reasoning that they were
developing.  However, it should be incumbent on the Appellate Body, as the WTO court of last resort,
to provide adequate opportunity for the parties to  comment at least on key ideas or arguments that
ended up forming an essential part of its ultimate Report.  This would help to ensure procedural
fairness, and also to contribute to the goal of "satisfactory settlement" of disputes emphasized in
Article 3.4 of the DSU.
41. With regard to the substance of the Report, the core findings were focused upon the question
of "payments", as found in Article 9.1(c) of the Agreement on Agriculture.  Some of the statements
made by the Appellate Body on this issue tended to sit uneasily with statements it had made in their
earlier report on the Canada-Dairy  dispute.  For example, the Appellate Body had reiterated its earlier
statements that there could be "payments" under Article 9.1(c) where products were sold at "reduced
rates (that is, at below market-rates )" (paragraph 73 of the Appellate Body Report).  However, the
Appellate Body had then rejected the Panel's use of  the price at which milk was sold by producers in
the domestic market:  i.e. the domestic market price as the appropriate benchmark in this case
(paragraph 81 of the AB Report).  Instead the Appellate Body equated its earlier statement that
payments could be made under Article 9.1(c) when products were sold at below market rates, with a
new proposition that "payments" were made "when th e price charged by the producer of the milk was
less than the milk's proper value to the producer" (paragraph 73 of the AB Report).
42. With respect to this "proper value to the pr oducer" determination, the Appellate Body stated
that:  "Where the alleged payment is made by an independent economic operator and where thedomestic price is administered, the average total cost of production represents the appropriate
standard for determining whether sales of CEM involve 'payments' under Article 9.1(c) of the
Agreement on  Agriculture .  The average total cost of production would be determined by dividing the
fixed and variable costs of producing all milk, whether destined for domestic or export markets, by
the total number of units of milk produced for both these markets" (paragraph 96 of the AB Report).
43. In New Zealand's view, the Appellate Body did not adequately explain how this new standard
for Article 9.1(c) for determining a "payment" squared with the approach they had adopted to the
concept and interpretation of "payment" in the original Appellate Body proceedings.  Nor did the
Appellate Body adequately explain why "proper value"  equated to "cost of production".  As indicated
previously, the Appellate Body had not completed its analysis of the disputed measures on the basis ofthe new "costs of production" standard as there were no factual findings in the Panel Report that
would assist their analysis in this regard.  As noted previously, given the significance of this issue in
the context of the Report, New Zealand believed it would have been useful for the Appellate Body to
explore the views of the parties in this regard during or after the Appellate Body's hearing.  Finally,
New Zealand wished to note that the Appellate Body had made it clear that its test of the average totalcost of production was limited to those instances where the "alleged payment is made by anWT/DSB/M/116
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independent economic operator and where the domestic price is administered" (paragraph 96 of the
AB Report) and that it had not decided that the domestic price was an unwarranted benchmark in
other situations.  This suggested that in the Appe llate Body's view this standard would only apply in
specific circumstances.  Yet it was by no means clear on what basis the Appellate Body was seeking
to differentiate between different standards or benchmarks in Article 9 of the Agreement onAgriculture and this area would need clarification in the future.
44. The Appellate Body Report also raised a number of questions about the nature of the
agricultural disciplines, not only in relation to export subsidy practices, but also domestic support.  At
the present meeting, he did not wish to dwell at  length on the relationship between the domestic
support and export subsidies disciplines, as suggested by the Appellate Body.  However, he believed
that a number of Members would be interested to consider the implications of paragraphs 90 and 91 of
the Report.  The suggestion seemed to be that Members with administered domestic prices and,unfortunately many Members had such prices, would wish to look carefully to ensure their domestic
support measures did not result in export subsidisation.  He noted that New Zealand had taken careful
note of the Appellate Body's views on the requisite standard for Article 9.1(c) and would be pursuing
this further in its second recourse to Article 21.5 of the DSU.  New Zealand believed that, on the basis
of both the new standard articulated by the Appellate Body, as well as the earlier standard, theCanadian measures constituted export subsidies under Article 9.1(c) of the Agreement on Agriculture.
45. The representative of Australia said that, as a third party with an interest in this case, his
country had serious concerns with the conclusions reached by the Appellate Body.  Australia had both
systemic and commercial interests in this case in  ensuring that the export subsidy commitments
arising from the Uruguay Round were fully implemented.  Australia noted that this issue had been along-standing one, the effect of which was the continuing utilization of export subsidies on dairy
products by Canada above its commitment levels.  His delegation noted the statements made by New
Zealand and the United States at the present meeting and had considerable sympathy for the
observations and comments they had made about the Appellate Body Report.  Australia was of the
view that the Agriculture Agreement commitments in relation to domestic support and exportsubsidies are to be assessed in terms of their trade and production-distorting effects.  This was clear
from the ordinary meaning and text of the Agriculture Agreement, its negotiating history and its
relationship to the Agreement on Subsidies and Countervailing Measures.  The Appellate Body noted
in paragraph 89 of its Report the potential for "spill over" effects of domestic support to provide
certain benefits to export production.  It also acknowledged that the domestic support and export
subsidy disciplines would be eroded if a Member was entitled to use domestic support, without limit,
to provide support for exports of agricultural products.  Australia had concerns that the AppellateBody had considered that, in this dispute, the ap propriate benchmark or standard to determine the
existence of "payments" was the "average total cost of production".  In other words, the Appellate
Body's approach appeared to require an examination of payments against a benchmark based on the
cost of making and selling the product, but failed to take into account the existence or effect of a
subsidy on the cost of production.  In Australia’s view, this approach ignored the fact that theadministered price which was subsidized by the Canadian Government had an effect on the cost of
production.  The subsidy provided to domestic production through administered prices might also
have a cross-subsidization effect for product intended for export.  These aspects needed to be
examined on a case-by-case basis.  As New Zealand had stated, Australia also noted that the
Appellate Body's reasoning appeared to be at odds with its previous examination on the existence of"payments", namely that "where milk is sold at reduce d rates (that is, at below market-rates ),
'payments' were, in effect, made to the recipient of the portion of the price that is not charged."  The
Appellate Body supported its approach on the benchmark to be applied by an interpretation of item (j)
of the Illustrative List of the SCM Agreement.  It in terpreted this as an example that the standard was
the "overall cost to the government".   Australia wished to recall the findings of the Appellate Body in
the Canada – Aircraft case relating to export subsidies and, in particular, the analysis of the definition
of a subsidy and the interpretation of "benefit".  In  that case, the Appellate Body had determined that
benefit was not "cost to government".  The Appellate Body in paragraph 84 of its Report in the DairyWT/DSB/M/116
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products case, noted that the crucial question was "whether Canadian export production has been
given an advantage".  There was clearly an apparent inconsistency in the approach adopted.
Notwithstanding its reservations about the rulings given by the Appellate Body, and taking account of
concerns expressed by others, Australia would be prepared to join in a consensus in adopting the
Reports in deference to the Panel, and to the in stitutions of the Appellate Body and the DSB.  In
conclusion, the representative of Australia referred to  the agreement reached in Doha to eliminate all
forms of agricultural export subsidies.  He said  that a success in this area, which Members intend to
achieve, might avoid similar disputes in the future.
46. The representative of the European Communitie s said that the EC considered that the
Appellate Body had again produced an admirable Report.  The Appellate Body had been faced with
intricate legal issues regarding the precise reach of the export subsidy disciplines in the Agreement on
Agriculture and their relationship to the domestic support commitments.  The specific question raisedby the Appellate Body was whether the new Canadian measure constituted "payments on the export
of an agricultural product that are financed by virtue of governmental action" within the meaning of
Article 9.1(c) of the Agreement on Agriculture.  At the outset, the EC wished to make clear that it
continued to be of the view that the term 'payme nts" in Article 9.1(c) exclusively referred to the
transfer of money.  Only because the Appellate Body had upheld the Panel's finding that this termcovered also "payments-in-kind", was it then faced with the problem of determining the correct
benchmark price.  The EC strongly supported the A ppellate Body where it had reversed the Panel's
use of the administered domestic market price as a benchmark.  The Appellate Body had not only
acknowledged the clear distinction between domestic support and export subsidies, but had also
clarified that the right to provide domestic support within the limits of the commitments could not beeviscerated by an overly broad interpretation of the export subsidy disciplines.
47. However, the EC was somewhat perplexed by the new "below average total production cost
standard" developed by the Appellate Body which focused on producer motivations.  First, the EC
failed to see any legal foundation for such benc hmark.  Second, the EC wondered how this new
standard could operate in practice.  Third, the EC noted with concern that the new benchmark hadbeen developed by the Appellate B ody without it having been argued by any party or been subject to
comments by them during the proceedings.  The EC expected that the Appellate Body would have an
opportunity to consider more closely the implications of this question when the matter was referred to
it again in the review proceeding.  Overall, the EC was still examining the ramifications of the new
test and reserved its position on that issue.
48. With regard to the second element of Article 9.1(c), the EC welcomed the Appellate Body
Report, where it reversed the overly broad "cause and effects" test applied by the Panel.  In particular,the Appellate Body gave some meaning to the term "financed" by clarifying that a regulatory
framework merely enabling a third person to freely make and finance "payments " was insufficient for
the payments to be regarded as "financed by virtue of governmental action".  The EC fully agreed
with the Appellate Body where it fa iled to see how producers in the situation at hand were "obliged or
driven" to produce additional milk for export sale.  It was regrettable that the Appellate Bodyconsidered that it could not complete the analysis on this point and had cut off its analysis somewhat
abruptly.  The findings and conclusions of the Appellate Body left the dispute unresolved and in effect
"remanded" to the Panel.  The EC would specifical ly comment on the procedural issues resulting from
this new situation later in its statement in relation to the request by the United States and New Zealand
for a second panel, pursuant to Article 2.15 of the DSU.
49. The representative of Argentina said that although his country had neither participated as a
party or a third party in the proceedings of this case, it wished to express its systemic concerns with
regard to the Report of the Appellate Body.  Ar gentina was concerned that the Appellate Body had
refrained from taking a position on the claim under Article 10.1 of the Agreement on Agriculture
because it considered that, although it could not be determined that the challenged measuresconstituted an export subsidy listed in Article 9.1(c) of the Agreement, the possibility existed that thisWT/DSB/M/116
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was the case.  In Argentina's view, the fact that it was impossible to classify precisely an export
subsidy as falling under Article 9.1 should not prevent an analysis being made, subsidiarily, as to
whether it was applied in a manner that constituted or threatened to constitute circumvention of
commitments regarding export subsidies.  Argentina did not see why an export subsidy which might
perhaps not comply with the commitments adopted in this area, but which could not be preciselydefined should be in a better position than the export subsidies which could be reliably determined as
being listed, or not listed, under Article 9.1 of the Agreement.  Thus, Argentina did not understand
how this conclusion by the Appellate Body was compatible with the "residual character" which the
Appellate Body recognized for the standard contained in Article 10.1 of the Agreement in
paragraph 121 of its Report.  Argentina hoped that the case under consideration would not be a
precedent for future cases involving an analysis of  compatibility with the rules of the Agreement on
Agriculture in the case of export subsidies which could be precisely defined as falling underArticle 9.1.
50. The DSB took note of the statements and adopted 
the Appellate Body Report contained in
WT/DS103/AB/RW – WT/D S113/AB/RW and the Panel Report contained in WT/DS103/RW –
WT/DS113/RW, as reversed by the Appellate Body Report.
4. Canada – Measures affecting the importation of milk and the exportation of dairy
products:  Second recourse to Article 21.5 of the DSU by New Zealand and the United
States
(a) Request for the establishment of a panel by New Zealand (WT/DS113/23)
(b) Request for the establishment of a panel by the United States (WT/DS103/23)
51. The Chairman proposed that the DSB take up these two sub-items together since they
pertained to the same matter.  First, he drew  attention to the communication from New Zealand
contained in document WT/DS113/23.
52. The representative of New Zealand said that the background to this request had been
discussed earlier in the context of the consideration of the Appellate Body and Panel Reports arising
from the original Article 21.5 proceedings.  New Zealand continued to consider that Canada hadfailed to comply with the original DSB's recommenda tions and rulings.  As highlighted previously –
on more than one occasion – in substitution for the dairy export measures that had been ruled in
contravention of Canada's WTO commitments, Canada had put in place "new measures" for the
export of dairy products.  In New Zealand's view, these new measures, which were comprised in new
provincial schemes that were designed to provide ongoing support to Canadian dairy exports, equally
involved the provision of export subsidies within the meaning of Article 9.1(c) or Article 10.1 of the
Agreement on Agriculture.  The effect of these schemes was that Canada was exporting subsidiseddairy products without counting these against its export subsidy reduction commitment levels.  As a
result, Canada continued to be in violation of its obligations under Articles 3.3, 8, 9.1(c), 10.1 and
10.3 of the Agreement on Agriculture.  The Appellate Body's Report in relation to the earlier
Article 21.5 proceedings had reversed some of the Article 21.5 Panel's findings, but the Appellate
Body had declined to rule on the consistency of th e measure in question.  Instead the Appellate Body
had concluded that, in light of the factual findings made by the Panel and the uncontested facts in the
Panel record, it was unable to complete the analysis of the claims made by New Zealand under
Articles 9.1(c) and 10.1 of the Agreement on Agriculture.  In its Report, the Appellate Body made it
clear that its ruling "does not amount to a finding that the measure at issue is WTO-consistent, but
simply that the Panel's findings were vitiated by error of law" (paragraph 104 of the AB Report).
53. Accordingly, there continued to be "a disagreement as to the existence or consistency with a
covered agreement of measures taken to comply with the recommendations and rulings of the DSB"
between Canada and New Zealand, within the te rms of Article 21.5 of the DSU.  New ZealandWT/DSB/M/116
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therefore requested, pursuant to Article 21.5 of the DSU, that the matter be referred to the original
Panel.  Despite the fact that the dispute between New Zealand and Canada, as well as between the
United States and Canada remained unresolved, New Zealand welcomed the recent constructive
cooperation between the three principal parties which had resulted in agreement being reached on the
terms of additional procedures that would apply to the further actions being pursued underArticle 21.5 and 22.6 in this matter.  The additional understandings reached by the parties in this
regard were being circulated to Members.
54. The Chairman drew attention to the communication from the United States contained in
document WT/DS103/23.
55. The representative of the United States said that in its decision on 3 December 2001, the
Appellate Body had declined to make a ruling regarding the consistency of Canada's replacement
export measures with Canada's obligations under the Agreement on Agriculture  or the Agreement on
Subsidies and Countervailing  Measures.  The Appellate Body stated that its ruling "does not amount
to a finding that the measure at issue is WTO-c onsistent" and that "it remained possible that the
measure as such was an export subsidy".  As previously noted by the United States in its comments on
the adoption of the Article 21.5 Reports, the Appellate Body had disagreed with some aspects of the
Panel's legal analysis but had concluded that the Panel had not made sufficient findings of facts toenable it to come to a decision.  Because the Appellate Body had not reached a conclusion regarding
the consistency of the Canadian measures, there continued to be a disagreement between the United
States and Canada regarding the consistency of the measures taken to comply with the DSB's
recommendations and rulings.  Accordingly, the United States was requesting the establishment of a
second panel pursuant to Article 21.5 of the DSU.
56. The representative of Canada said that, as previously indicated, his country was displeased
and disappointed that New Zealand and the United States had chosen to continue their challenges of
Canada's commercial export milk mechanisms.  Canada had made extensive changes to its approach
to dairy exports after the adoption of the original Panel and the Appellate Body Reports in this case, to
ensure full conformity with its WTO obligations.  The United States and New Zealand were wellaware of this, as there was an unprecedented level of engagements with complainants throughout the
implementation process.  He said that Canada had implemented the DSB's rulings fully and in good
faith.  At present, contracts were negotiated between producers and processors with no government
intervention (including by marketing boards) on quantities, prices, products or export markets.
Marketing boards and government agencies were confined to the operation of the domestic supply
managed system as well as to ensuring health and sanitary standards, functions that were routine
among agencies of other WTO governments, a nd which were fully consistent with its WTO-
obligations.  Despite Canada's full compliance with the DSB's rulings, and the decision of the
Appellate Body, the complainants continued to pursue further litigation on this issue.  In Canada's
view, these issues were best dealt with in the current agriculture negotiations.  This situation of
"double jeopardy" reflected a serious flaw in the DSU rules that, Canada believed, needed to be
corrected.  He recalled that it was a former US trade representative who had coined the phrase"endless loop of litigation".  Clearly, Members were now facing such an "endless loop" in this
dispute.
57. Canada believed that this situation should be of systemic concern to all Members.  The
complainants had failed to win before the Appellate Body.  The DSB had adopted that Report  and yet,
the United States and New Zealand were back hoping for better luck this time around.  He then raisedthe following questions:  (i) If they were to lose  again, would they be seeking a third recourse to
Article 21.5?  (ii) Would there be a fourth recourse as well?  (iii) When would this end?  There had to
be finality to WTO dispute settlement.  It could not be an endless situation of "better luck next time".
In addition, he noted that the United States had extensively criticized, under the previous agenda item,
the Appellate Body's use of cost of production as being the appropriate benchmark for Article 9.1(c)cases.  Canada was puzzled by the US statement given the fact that the United States had firstWT/DSB/M/116
Page 15
introduced that concept of cost of production before the Panel.  It was, therefore, difficult to see how
one could have it both ways.  The commercial uncertainty created by these requests might well serve
the interests of the co-complainants, but was extremely harmful to those of Canada.  Over the past few
days, Canada had been engaged in discussions to try and resolve its differences in a constructive
spirit.  Canada had put forward suggestions that could have ended these challenges.  Unfortunately,Canada's suggestions had not been accepted.  Accordingly, Canada would pursue this case on the
merits before the second Article 21.5 panel.  Canada was confident of its case, and expected another
successful outcome.  In earlier disputes, in which Canada was a complaining party, it had expressed
its view to the DSB that the clear intent of the drafters of Article 21.5 was to provide a rapid
determination of the WTO-consistency of implementing measures.  That remained Canada's view.
Therefore, Canada accepted the first request of the complainants for an Article 21.5 panel, and made
no attempt to block it.  He also wished to inform  the DSB that an extension and modification of the
trilateral sequencing agreement between the parties to the dispute had been reached.  A copy had been
provided to the Secretariat for circulation to Members.
58. The representative of the European Communities said that the EC noted with concern that,
contrary to the requirement contained in Article 6.2 of the DSU, the request for the establishment of a
second 21.5 Article panel did not mention whether consultations had been held between the parties.The EC had repeatedly emphasized that the procedural step of holding consultations was of
fundamental importance for the dispute settlement sy stem.  The EC would not repeat this point again,
but noted that the Appellate Body in a recent case had clearly emphasized the importance of
consultations before having recourse to a panel pursuant to Article 21.5 of the DSU.  The Appellate
Body emphasized that "through consultations parties exchange information, assess the strength andweaknesses of their respective cases, and narrow the scope of the differences between them".  These
considerations applied equally to a "remand" situation arising in the case at hand.  Consultations
between Canada, the United States and New Zealand could help to clarify certain new facts, which
had not been looked at in the panel's proceedings and would, therefore, accelerate the final resolution
of this dispute .
59. The DSB took note of the statements and agreed
, pursuant to Article 21.5 of the DSU, to refer
to the original Panel, if possible, the matter ra ised by New Zealand in document WT/DS113/23 and
the matter raised by the United States in docu ment WT/DS103/23.  The Panel would have standard
terms of reference.
60. The representatives of Australia and the European Communities  reserved their third-party
rights to participate in the Panel's proceedings.
5. Review of the Dispute Settlement Understanding
(a) Statement by the Chairman
61. The Chairman said that at the outset he wished to note that, under this agenda item, he had
used the term "the DSU Review" only for convenience.   He recalled that much work had been done in
1998 and 1999 in the general review of the DSU.  This was very useful work, but one should not
repeat the exercise.  Instead, Members had a specific mandate to negotiate improvements andclarifications of the DSU.  It seemed that these negotiations should be launched on this occasion,
consistent with the Doha Ministerial Declaration.  He drew attention to the text of the mandate
contained in the Doha Declaration on the DSU negotiations, which read as follows:  "We agree to
negotiations on improvements and clarifications of the Dispute Settlement Understanding.  The
negotiations should be based on the work done thus far as well as any additional proposals byMembers, and aim to agree on improvements and clarifications not later than May 2003, at which
time we will take steps to ensure that the results enter into force as soon as possible thereafter."WT/DSB/M/116
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62. It was clear that the Declaration focused on:  (i) improvements and clarifications of the DSU;
(ii) the work done thus far;  (iii) additional proposals to be submitted by Members;  (iv) a deadline for
completion of the negotiations no later than May 2003;  and (v) the results entering into force as soon
as possible.  He believed that it was not for him to prescribe the process or the substance of the
negotiations, but he wished to outline a few options for proceedings.  In light of all the hard workalready done, along with further ideas expressed by delegations, he was confident that one could
achieve satisfactory results in these negotiations.  However, this would only be possible if one found
the best, most efficient process and ensured that the submission of proposals by delegations was well
organized.  He recalled that in some of the informal consultations which had been held before the
Doha Ministerial, there were suggestions that there should be a consensus reached, at some desirable
point, on specifying which were the improvements and clarifications that had to be focussed on, so
that further progress could be made.
63. He wished to suggest some elements which Members might like to contemplate in terms of
the process.  He would invite delegations to comment on both this and the substance, if they wished to
do so at the present meeting.  However, the discussion might naturally need to spill over to other
meetings.  First there was the question of who should chair the DSU negotiations.  There was a range
of options:  (i) the Chair of the DSB could convene both formal and informal sessions;  (ii) or a Vice-Chair could do the same;  (iii) or a permanent Chair for the duration of the negotiations could be
appointed so as to provide continuity;  (iv) clearly, however, occasional reporting back to the DSB
would be necessary and the DSB would presumably take  the eventual decisions;  (v) at the same time
it might be proper and advisable to separate the negotiations from the ongoing work of the DSB;
(vi) it might also be the case that informal consultations would provide the best way of proceedinginitially, with proposals being submitted informally as job numbers by delegations.  All Members
would then have the opportunity to debate proposals on all submitted issues;  (vii) the Chair could
submit framework papers at various points which would provide summaries of the proposals put
forward, and summaries of the discussions;  (viii)  at informal sessions, delegations would strive to
achieve consensus on which specific items to pursue;  (ix) at the final stage of the process the Chaircould propose a Chairman’s draft of actual amendments and, if appropriate, interpretative language;
and (x) this would be reported back to the DSB for decision.
64. These were just some preliminary thoughts to consider in relation to the process.  He noted
that in the informal discussions prior to the Doha Ministerial, most delegations expressed an interest
in defining the scope of the negotiations.  Perhaps it would be useful for delegations to consider
before the next regular meeting of the DSB how best the scope of the negotiations should be defined.
At the present meeting he wished to invite any thoughts from delegations at this point, in particular onthe issues of:  (i) the institutional set-up of the ne gotiations;  and, (ii) the issue of the Chairmanship.
Any initial comments regarding the scope of the negotiations would also be welcome.  Subsequently,
at the next regular meeting of the DSB, this agenda item could be returned to with a view to deciding
on the process and procedure.  If necessary, informal consultations could also be held on this question
in order to facilitate reaching a consensus decision in the DSB on the way ahead.  He understood thatit was a little early for delegations to make statements on this subject at the present meeting and that
informal consultations might be useful.  Finally, he wished to propose that the DSB agree at the
present meeting to launch the negotiations on improvem ents and clarifications of the DSU.  He would
return to this point once delegations made their comments, if they so wished.
65. The representative of the European Communitie s said that it was premature to discuss the
elements outlined by the Chairman at this stage in the DSB.  Improvements and clarifications of the
DSU were part of the Doha Development Agenda.  They were part of the negotiating agenda and in
this respect they would be part of the overall disc ussions in the context of the TNC preparations for
the 28 January meeting.  It would not be a good procedure to have a piece-meal type of negotiations.
66. The representative of Canada said that in response to the Chairman's statement his delegation
wished to make some preliminary comments.  Canada believed that some answers to the questionsWT/DSB/M/116
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raised by the Chairman would have to be discussed in subsequent meetings of the DSB or in informal
consultations.  First, Canada believed that given the importance of the mandate and the fact that many
Members attached importance to this matter, substantive DSU negotiations should begin as soon as
possible.  Second, successful DSU negotiations within the specified time-frame would demand that
agreement on the scope and the issues for negotiations should emerge shortly.  Third, Canada believedthat there was a need to focus on core matters and that Members should not be timid to revisit
fundamental elements of the dispute settlement system.  In this regard, Canada intended to make
written proposals and looked forward to playing an active and constructive role in these negotiations.
Canada was in favour of having the negotiations chaired by an individual who could guide the process
until at least the Fifth Ministerial Conference.  Th is continuity would be important for the overall
success.  This would point to a designated chair for the negotiations, rather than the Chair or Vice-
Chair of the DSB.  In this regard, Canada wished to hear comments from other delegations.
67. The representative of Japan said that his delegation wished to make some preliminary
comments on how the DSU negotiations should be organized.  Japan believed that one could use the
working methods that had proved to be effective during the pre-Seattle period.  That meant the
combination of a formal process under the DSB chairperson and an informal process that could be
chaired either by the DSB chairperson or another individual.  Since the DSB and its chairperson mightbe asked to handle difficult cases at any time, it would be practical to separate the DSU negotiations
from the regular DSB process.  However, since the DSU negotiations were not part of the single
undertaking and should be concluded within a shorter time-period, instead of establishing a  separate
track, they should be carried out under the DSB process.  He noted that it might not be possible to
decide on the scope at the beginning of the process.  However, at some stage, there was a need to havea clear "universe" that could form a basis for consensus.  The DSB could meet a couple of times at the
early stage, in dedicated sessions, to have a general discussion and to allow Members to table their
proposals.  These proposals could then be discussed in informal mode in order to arrive at a
reasonable "universe".  At a later stage, this matter should be taken up again more formally in the
DSB for transparency purposes as well as to formalize the result of the substantive work by theinformal process.
68. The representative of the United States welcomed the Chairman's initiative to raise these
issues for reflection now and in the beginning of January.  However, she sought clarification from the
Chairman as to what had been meant by the phase:  "launching the negotiations today".  The United
States believed that the scope of the DSU review had to track the mandate provided in paragraph 30
of the Doha Ministerial Declaration, which provided, inter alia , that "… negotiations should be based
on the work done thus far as well as any additional proposals by Members".  For organizationalpurposes, it would be reasonable to set a deadline for Members to present their proposals for inclusion
on the negotiating agenda.  Based on the mandate set out in paragraph 30, there was, however, no
basis for limiting the substantive scope of the issues that Members might request to be included on the
agenda.
69. The representative of Norway said that, like the EC, his country believed that it was too early
at this stage to go into details on how to organize the process of the DSU negotiations.  Norway
welcomed the Chairman's initiative to start thinking  about the process.  However, all the negotiations,
whether part of the single undertaking or not, should be considered in the context of the TNC
preparations.  On the other hand, like Japan, Norway also considered that, at this stage, it seemed
most productive for the process to be closely linked to the DSB.  However, his delegation was notsure whether the process should be organized as outlined by Japan, but the statement provided a
logical sequence to how this should be done.  No rway believed that some time was required and that
informal consultations should be held so that in early February, when a new DSB Chairperson would
be appointed, Members would have some views on how the work should be organized.
70. The representative of Australia stated that, like previous speakers, his country appreciated the
fact that this matter had been placed on the agenda of the present meeting and welcomed the statementWT/DSB/M/116
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made by the Chairman.  He noted that complaints about transparency were often made and that too
much of the discussion about procedure and how to move forward was not raised in open fora.  Thus,
a discussion at the present meeting was helpful.  Like previous speakers, Australia was in two minds
as to how quickly one should proceed to launch the work agreed by Ministers at Doha.  However, he
was mindful of the fact that it was back in November 2001 that Ministers had reached agreement, andif one were to leave this matter until the end of January, one would move into an uncomfortable
situation which would make it very difficult to achieve the objective set by Ministers.  Therefore,
Australia wished that the process would move forw ard as soon as possible.  This was not only with
regard to the DSU review, but the whole process of the work programme that had been adopted at
Doha.  Therefore, one could begin the process of thinking on how to proceed.  However, some
informal work on how to move forw ard would be required.  With regard to the process, like others,
Australia believed that it should come under the jurisdiction of the DSB, but as stated by Canada, aseparate chairperson would be necessary to see through this process.  It was very important that in this
review as well as in other areas of the work programme adopted at Doha there was a chairperson who
could see the process through in a committed way as it was only through that process that the deadline
could be met.  As far as scope was concerned, the terms of reference had been determined by the
Ministers, but there should be an opportunity for further discussion on this matter.  It was importantnot to limit the scope.  At the same time, effectiveness and productivity might lead Members to
conclude later on that they should focus on particular areas.  A substantive review of the DSU should
not be limited.  It would be very helpful to continue this discussion and Australia welcomed the
opportunity to do this at the present meeting.
71. The representative of New Zealand said that it was useful and timely for the Chairman to
raise these issues at the present meeting, which had been illustrated by the very useful and interesting
observations made by a number of delegations.  However, further time to give thought to the issues
raised was required.  New Zealand was flexible on the question of the Chairmanship of the review
process.  However, it was attracted to the idea of a permanent chairperson who could see the process
through and was committed to the review process as a whole.  New Zealand also recognized and hadnoted other views that this question would probably need to wait for some of the more horizontal
organizational questions to be resolved by the TNC.  With regard to the scope of negotiations, New
Zealand agreed with other speakers that the Ministers at Doha had essentially given the parameters for
the scope of this review.  Of course, it would be up to the Members to provide the specifics and the
priorities.  Finally, the Chairman had raised a few issues about the format and nature of the
discussions in the DSB.  He noted that New Zealand was entirely flexible in that regard, but believed
that as progress was made and further work was being done, any discussions on this matter should beas transparent as possible.
72. The representative of Mexico said that his country welcomed the fact that this matter had
been raised by the Chairman.  However, in Mexico's  view, it was premature to take this matter at the
present meeting.  It was useful to raise this issu e, but it might be a good idea to reflect, during the
holiday period, on how to approach this matter.  At the present meeting, he wished to make somecomments.  First, the negotiations should be separate from the whole negotiating process of the Doha
agenda and should be organized by the DSB under a different chairmanship.  Second, with regard to
the scope, it should be at the outset unlimited, but there should be a deadline for inclusion of new
issues.  Otherwise one would be faced with a situation where new issues for negotiation would make
the process too complicated and Members would not be able to meet the deadlines set by Ministers.
73. The representative of Thailand said that his delegation welcomed the Chairman's statement on
the question of the process.  Thailand believed that the negotiations on this matter should be
conducted in an informal setting under a separate chairperson from the DSB, but with some kind of
link to the formal process through the DSB.  With regard to the scope, it was Thailand's understanding
of the Doha mandate that  the phrase "work done th us far" should include all formal proposals made
by Members up to Doha.WT/DSB/M/116
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74. The representative of Chile said that his delegation welcomed the statement made by the
Chairman.  Although no decision woul d be taken at the present meeting, it was necessary to start
thinking about this subject.  In terms of the process, one should examine what had been done thus far
and begin to draw conclusions in order to be able  to organize the next review process mandated at
Doha.  At this stage, Chile was not sure about th e scope or coverage of the review, but did not wish
the scope to be limited.  He recalled that New Zealand had raised an important point about priority on
the way coverage should be approached and this stemmed from the Doha mandate.  There was one
issue which required to be carefully examined, namely, the lack of coherence regarding French,
English and Spanish versions of the DSU text and its implication on a modified version of the DSU.
75. The representative of the European Communities said that his delegation wished to make
some additional comments.  The EC considered that the mandate in paragraph 30 of the Doha
Declaration was a new mandate.  Therefore, proposals by Members should be on an equal footing.  Inthis regard, he noted that the EC would table such proposals and welcomed the fact that Canada
would do the same.  However, it was clear that at a certain moment a time-limit within which
Members could table proposals would have to be established because this exercise had to be
terminated by May 2003.  Second, the EC was in favour of a separate track with a separate chairman
until May 2003.  With regard to the scope of the work to be done, the EC welcomed the fact thatmany delegations considered that the scope should be large enough to include all substantive
contributions which might be put forward.
76. The Chairman thanked delegations for their preliminary thoughts and comments.  As had
been mentioned, this subject was not part of a single undertaking and it was his understanding that the
DSB had authority on this matter.  He was aware that there was no full consensus on this matter at thepresent meeting.  However, one could launch the DSB negotiations on a conceptual basis at the
present meeting on the understanding that further consultations would be held in the beginning of
2002.  He thus sought confirmation as to whether the European Communities was totally tied to the
TNC as against a notion that this was perhaps a quite separate negotiation.  There was a need to have
a consensus on this, otherwise one would have to move forward next year.
77. The representative of the European Communities said that, as indicated by the Chairman,
there was no consensus on this matter at the present meeting.
78. The Chairman said that there was no consensus on this matter but delegations had had a
useful discussion.  He proposed that the DSB revert to this matter in the beginning of 2002.
79. The DSB took note of the statements and agreed  to revert to this matter.
6. Proposed nominations for the indicative list of governmental and non-governmental
panelists (WT/DSB/W/179)
80. The Chairman drew attention to document WT/DSB/W/179 which contained additional
names proposed for inclusion on the indicative list in accordance with Article 8.4 of the DSU.  Unless
there was any objection, he proposed that the DSB approve the names contained in document
WT/DSB/W/179.
81. The DSB so agreed
7. Chairmanship of the DSB
82. The Chairman said that due to his imminent departure from Geneva he had consulted the
Chairman of the General Council who had held consultations with delegations on the question of a
future Chairperson of the DSB in order to serve out his remaining term of office.  In light of these
consultations, he wished to propose that the DSB agree to designate Mr Kåre Bryn (Norway) asWT/DSB/M/116
Page 20
Chairperson of the DSB to serve out the remaining term of office pending the election of a new
Chairperson.  He said that Mr Bryn was a person with considerable expertise and knowledge of the
DSB.  He proposed that the DSB agree to designat e Mr Bryn to chair the DSB on an interim basis.
83. The DSB so agreed.
8. Turkey – Restrictions on imports of textiles and clothing products
(a) Statement by India
84. The representative of India, speaking under "Other Business", recalled that her country had
reached a mutually satisfactory solution with Turkey  with regard to its implementation of the DSB's
recommendations in the above-mentioned dispute.  Based on an exchange of letters, dated
6 July 2001, Turkey and India had agreed that, as compensation, Turkey would remove quantitative
restrictions on textile categories 24 and 27 on imports from India by 30 June 2001, pending its
compliance with the DSB's recommendations.  In addition, Turkey had also agreed to carry out tariffreductions on the applied rate basis in respect of certain products by 30 September 2001.  India was
concerned that Turkey had not yet notified its tariff reductions, due to be implemented by
30 September 2001.  On previous occasions, Turkey had delayed the notification regarding removal
of quantitative restrictions on textiles categories 24 and 27 on imports from India by more than three
months.  Thus, India was requesting Turkey to comply immediately, as had been agreed in theexchange of letters of 6 July 2001.  Undue delay by Turkey in notifying the measures taken for
compensation had adversely affected trade interests of her country, and had created considerable
uncertainty regarding the implementation of the mutually agreed solution.
85. The representative of Turkey said that his delegation had noted the statement made by India at
the present meeting  and would convey this statement to his authorities.  He added that Turkey was in
the process of completing its work in this area.  In this regard, the new legislation would come into
force on 1 January 2002.
86. The DSB took note of the statements.
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