RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/94
15 February 2001
(01-0762)
Dispute Settlement Body
12 December 2000
MINUTES OF MEETING
Held in the Centre William Rappard
on 12 December 2000
Chairman:  Mr. S. Harbinson (Hong Kong, China)
Prior to the adoption of the agenda, the item concerning the Panel Report on "European
Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India" was
removed from the agenda following the EC's  decision to appeal the Panel Report.
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) Japan – Measures  affecting agricultur al products: Status report by Japan ................................4
(c) Canada – Measures affecting the importation of milk and the exportation of dairy
products: Status re port by Canada .............................................................................................. 5
(d) India – Quantitative restrictions on imports of agricultural, textile and industrial
products: Status re port by India ............................................................................................... ...6
(e) Turkey – Restrictions on imports of textile and clothing products: Status report by
Turkey......................................................................................................................... ................6
(f) Chile – Taxes on alcoholic bevera ges: Status report by Chile....................................................7
2. Guatemala – Definitive anti-dumping measures on grey Portland cement from
Mexico......................................................................................................................... ...............7
(a) Implementation of the reco mmendations of the DSB.................................................................7
3. Brazil – Export financing programme for aircraft................................................................8
(a) Statement by Brazil concerning implementation of the recommendations of the DSB..............8
4. Chile – Measures affecting the transi t and importation of swordfish................................12
(a) Request for the establishment of a panel by the European Communities.................................12
5. Mexico – Measures affecting te lecommunications services.................................................13
(a) Request for the establishment of  a panel by the United States .................................................13
6. Brazil – Export financing programme for aircraft..............................................................15
(a) Recourse by Canada to Article 22.7 of the DSU and Article 4.10 of
the SCM Agreement. ............................................................................................................. ...15WT/DSB/M/94
Page 2
7. Proposed nominations for the indicative list of governmental and
non-governmental panelists ...................................................................................................19
8. Special meeting of the DSB ................................................................................................... .19
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) Japan - Measures affecting agricultural products:  Status report by Japan(c) Canada - Measures affecting the importation of milk and the exportation of dairy products:
Status report by Canada
(d) India - Quantitative restrictions on imports of agricultural, textile and industrial products:
Status report by India
(e) Turkey - Restrictions on imports of textile and clothing products:  Status report by Turkey
(f) Chile – Taxes on alcoholic beverages:  Status report by Chile1. 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".  He proposed that the six sub-items to which he had just referred be considered separately.
(a) European Communities – Regime for the importation, sale and distribution of bananas: Status
report by the European Communities (WT/DS27/51/Add.14)
2. The Chairman drew attention to document WT/DS27/51/Add.14 which contained the status
report by the European Communities on its progress in the implementation of the DSB's
recommendations concerning its banana regime.
3. The representative of the European Communities said that, in previous meetings, the EC had
informed the DSB of its intentions regarding the implementation of its new banana import regime
which it considered to be fully in compliance wi th the DSB's recommendations.  Since then the EC
had continued to hold discussions both internally and with interested parties with a view to finalizing
the new banana import regime.  The EC had done everything it could to find a solution in the
consultations with interested Members and, in particular, with the two Members who had successfully
challenged the present regime.  He regretted that the consultations had revealed deep divisions among
countries and that demands had been made to change certain commitments which had not beensuggested by the Panel.  The EC continued its internal discussions with the most interested parties and
hoped that it would soon be in a position to inform the DSB that a successful conclusion had been
reached in this case.
4. The representative of Colombia reiterated his country's surprise that although the European
Commission had received a mandate to explore three possible options for resolving the banana
dispute, thus far, it had concentrated on a first come , first served system.  Colombia stressed that the
majority of non-preferential suppliers and the United States had expressed serious doubts about thisWT/DSB/M/94
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system.  It was important to ensure that this process was not concluded without an agreement with the
United States and the other parties to the dispute.
5. The representative of Panama noted that according to the EC there were two categories of
parties to the dispute.  One category was considered to be the most interested parties.  In the EC's
view, the most interested parties were those who had been authorized to impose sanctions.  However,
this was incorrect.  For example, Panama which had not requested such an authorization was
considered to be a less interested party in this disput e.  If the EC continued to insist on this, retaliatory
measures could be taken and the situation would become even more complicated.  Panama was
disappointed with the course of action taken by th e EC and urged the EC to enter into discussions
with all the parties in order to find a solution.  At the 17 November DSB meeting suggestions and
proposals had been made by Members and Panama had stated that discussions should be carried out
on the basis of the Caribbean proposal.  Since th e EC's status report did not contain any new
information, Panama reiterated its statement made at the 17 November DSB meeting.
6. The representative of the United States said that, once again, the EC had nothing new to
report since the 17 November DSB meeting.  Her country was particularly disappointed that the EC
was once again proceeding with a solution that would not resolve this dispute.  The United States,
together with the Latin American and Caribbean countries, had developed a viable alternative as afinal solution to this long-standing dispute.  The Un ited States urged the EC to reconsider its position.
7. The representative of Guatemala said that th e EC's status report did not contain any new
information on the progress in its implementation.  In its report, the EC had limited itself to stating
that it was finalizing its internal decision-making process, but contrary to what had been asserted,
given that more than three years had lapsed since the adoption of the Reports, the EC's internalprocess was not aimed at implementing rapidly a new WTO-compatible banana import regime.  The
EC's procrastination harmed the complainants.  Guatemala believed that the EC's proposal to put in
place a first come, first served system would not br ing its banana import regime into conformity with
the WTO rules.
8. In an effort to help finding a final solution to this dispute, Guatemala had sent letters to the
European Commission and to the Ministers of the memb er States responsible for this matter.  In those
letters, Guatemala had stated its objections with re gard to the first come, first served system, to the
high level of preferences, and, in general, to other elements that would preserve a discriminatory
system which had repeatedly been condemned.  Furthermore, the Latin American Ministers had met
with the EC's officials and had made public stat ements condemning the EC's proposal.  Moreover,
while expressing its reasoned and legally justified dissent, Guatemala had also indicated its flexibility
by stating that the Caribbean proposal, submitted in December 1999, could be used as a basis for anew banana import regime.  Guatemala hoped that these efforts would reverse the situation, otherwise
it would have to have recourse to the DSU provisions.  It was up to the EC member States, even at
this very late stage, to restore the credibility of the dispute settlement system by bringing their banana
import regime into conformity with the WTO rules.
9. The representative of Honduras expressed her country's dissatisfaction with the progress
report submitted by the EC at the present meeting.  The report did not contain any information on
progress in the implementation.  On the contrary, th e information contained therein constituted a step
backwards in terms of the EC's discrimination agai nst bananas from Honduras and ultimately against
her country's economy.   She recalled that the prop osal currently being examined by the EC contained
a multitude of discriminatory elements.  First, it comprised a first come, first served system ofadministration of licences, which in reality constituted a system of simultaneous examination and
discriminated according to the origin of the fruit.  That system was opposed by the Caribbean and
European countries, the United States and the Latin American countries.  Second, the level of
preferences was excessively high and illegal.  Third, the three quotas' structure were designed in suchWT/DSB/M/94
Page 4
a way so as to undermine, as much as possible, th e market share of her country's exports.  One could
also point to further illegalities.  The EC did not s eem to have the political will to comply with the
DSB's rulings and to bring its banana import regime in to conformity with the WTO rules.  First, it was
delaying the implementation process at every stage since the period for implementation had elapsed.
Second, every time a new scheme had been proposed, such a scheme was even more illegal anddiscriminatory than the previous one.  Hondura s urged the EC to comply rapidly with the WTO
rulings and to refrain from schemes which served only to aggravate the discrimination.  It wished to
point out to the EC that at this point it did not have any discretion as to whether or not to comply, it
had to comply.
10. The representative of Mexico noted that, since the 17 November DSB meeting, no
consultations had taken place between his country and the EC.  He reiterated that the EC did not need
to seek a consensus on its implementation, but to ensure that its measures were in conformity with itsWTO obligations.  He reiterated that Mexico's preference was a tariff-only system at a level that
would ensure access to the EC's market.
11. The representative of Ecuador said that the EC's status report did not contain any new
information and its non-compliance continued to persist.  He noted that negotiations were ongoing,
however, no new disciplines or obligations should be envisaged while the EC continued its non-compliance with the WTO rules.  The EC should reflect on the systemic implications of its actions.
On the one hand, developing countries were obliged to comply with the WTO rules, and on the other
hand, there was one Member who had no intention to do so.  In its statement, the EC had referred to
its consultations.  He underlined that during these consultations, the EC had not provided any answers
to the questions previously raised by Ecuador.
12. The representative of Jamaica said that her country, like many other countries, was anxious
for a speedy and lasting resolution of this dispute.   Jamaica remained committed to work with all the
parties concerned to find an equitable arrangement so as to safeguard the legitimate trading interest of
all suppliers and to preserve market access on a viable basis.
13. The representative of the European Communities said that his delegation had noted the
statements made at the present meeting, which would be conveyed to his authorities.  In response to
Panama's comment, he said that all countries who had made statements at the present meeting were
considered by the EC to be interested parties in this dispute.  The EC had tried, for a long time, to
square the circle but the exporting countries had different interests and there were deep divisions
among them.  If it was easy to solve this case, a solution would have already been found a long time
ago.  He noted that some countries were not happy with the process and with the solution pursued at
this stage.  The EC would continue to try to find a WTO-compatible solution to this matter in the near
future.
14. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(b) Japan – Measures  affecting agricultural products: Status report by Japan
(WT/DS76/11/Add.10)
15. The Chairman drew attention to document WT/DS76/11/Add.10 which contained the status
report by Japan on its progress in the implementation of the DSB's recommendations with regard to its
measures affecting agricultural products.
16. The representative of Japan said that his country had held consultations with the United States
in a constructive and friendly manner.  However, despite those efforts some technical issues still had
to be resolved.  He assured Members that both Japan and the United States had been doing their bestWT/DSB/M/94
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in order to reach a mutually satisfactory solution in the near future.  Japan would notify the DSB of
the result of the consultations with the United States as soon as a satisfactory agreement was reached.
17. The representative of the United States said that her country also hoped to conclude its work
with Japan in the near future.
18. The representative of the European Communities said that his delegation welcomed the fact
that Japan had started informal contacts with the EC in November in the area of agriculture and that
those contacts were ongoing.  The EC looked forw ard to a resolution of this matter and continued to
watch this matter very closely.
19. The representative of Australia reiterated his country's expectation that any new measure
would be implemented consistently with paragraphs 5 and 7 of Article 3 of the DSU.
20. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(c) Canada – Measures affecting the importation of milk and the exportation of dairy products:
Status report by Canada (WT/ DS103/12/Add.5 – WT/DS113/12/Add.5)
21. The Chairman drew attention to docume nt WT/DS103/12/Add.5 – WT/DS113/12/Add.5
which contained the status report by Canada on its progress in the implementation of the DSB's
recommendations with regard to its measures affecting the importation of milk and the exportation ofdairy products.
22. The representative of Canada said that over the past year, as described in previous status
reports, Canada's industry stakeholders had taken steps to implement new mechanisms for the
commercial export of milk.  On 7 and 8 December 2000, another set of consultations had been held
with the United States and New Zealand, in accordance with the terms of the implementationagreement reached between the parties pursuant to Article 21.3(b) of the DSU. During these
consultations, the parties had mutually agreed to extend the reasonable period of time for
implementation until 31 January 2001.  A copy of the letter notifying the Chairman of the DSB of this
modification to the agreement between the parties would be circulated to all Members.
1  Canada
reaffirmed its commitment to implement fully the DSB's recommendations and rulings in this case.
23. The representative of New Zealand said that, as noted by Canada, consultations had been held
on 7-8 December 2000 between Canada, the United States and New Zealand to discuss this matter.
Notwithstanding these consultations New Zealand's concerns about the steps that Canada had taken in
response to the rulings of the Panel and the Appellate Body remained.  As had been indicated at
previous DSB meetings, New Zealand had regrette d that Canada had, in recent months, introduced
new export mechanisms for dairy products which did not comply with the rulings of the Panel and the
Appellate Body.  Accordingly, New Zealand continued to reserve all its WTO rights in relation to this
matter.
24. The representative of the United States said that, in the past week, Canada, New Zealand and
the United States had held final consultations under the implementation agreement concluded in
December 1999.  The United States regretted that the parties had failed to reach a consensus as to
whether Canada's new provincial measures were in compliance with the DSB's recommendations.  As
noted by the United States in previous DSB meetings, Canada had not brought its export regime for
dairy products into compliance with its export subsidy obligations under the Agreement on
Agriculture.  As not much time was left, it appeared unlikely that this would be accomplished.
                                                     
1 WT/DS103/13 – WT/DS113/13.WT/DSB/M/94
Page 6
Despite its disagreement with Canada regarding the adequacy of its actions taken to implement the
DSB's recommendations, the United States wished to acknowledge and commend the spirit in which
Canada had approached the consultative process prov ided for in the implementation agreement.  Over
the past year, Canada had regularly advised the parties of the steps it was taking in the process, and
had engaged in a candid and constructive exchange of views regarding those actions.
25. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(d) India – Quantitative restrictions on imports of agricultural, textile and industrial products:
Status report by I ndia (WT/DS90/16/Add.4)
26. The Chairman drew attention to document WT/DS90/16/Add.4 which contained the status
report by India on its progress in the implementation of the DSB's recommendations with regard to its
quantitative restrictions on imports of agricultural, textile and industrial products.
27. The representative of India said that his country's status report was brief but clear. India was
committed to removing restrictions maintained for balance-of-payments reasons in two instalments in
a balanced fashion.  On 1 April 2000, India had already removed 50 per cent of the residual
quantitative restrictions and the reasonable period of time for the remaining quantitative restrictions
would expire in April 2001.  Thus India was on course in implementing its commitments.
28. The representative of the United States said that her country looked forward to future reports
from India as the deadline of 1 April 2001 was approaching.
29. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(e) Turkey – Restrictions on imports of textile and clothing products: Status report by Turkey
(WT/DS34/12/Add.4)
30. The Chairman drew attention to document WT/DS34/12/Add.4 which contained the status
report by Turkey on its progress in the implementation of the DSB's recommendations with regard to
its restrictions on imports of textile and clothing products.
31. The representative of Turkey said that, as stated in the status report, his country's relevant
authorities had intensified their work on different aspects of the implementation.  Turkey was aware
of the time-period for implementation and expected that the results of the work would be revealed in
due course.
32. The representative of India said that a reasonable period of time for implementation in this
case, as mutually agreed with Turkey, would expire on 19 February 2001.  She noted that the status
reports previously submitted by Turkey, including the one submitted at the present meeting, had not
given any indication of the details on the progress made thus far.  India was deeply disappointed thatthe implementation reports had been sketchy and that Turkey had merely indicated its "intentions of
finding the most appropriate solution", and that deta ils would be revealed in due course.  India urged
Turkey to submit details regarding its implementation of the DSB's rulings and recommendations.  As
the expiry of the reasonable period of time drew close, she reiterated India's expectation that Turkey
would fully comply with its WTO obligations by 19 February 2001.
33. She also wished to underline India's concern with regard to the restrictions imposed recently
by the Turkish authorities on imports of fabrics from India.  It seemed that the Turkish licensing
authorities were now seeking an undertaking from applicants for a "Teshvik licence" that they wouldWT/DSB/M/94
Page 7
not import fabrics from India.  She said that a " Teshvik licence" permitted a Turkish exporter to
import fabrics without any tax or quota obligation.  The recently introduced undertaking from
applicants not to import fabrics from India amounted to a selective restriction and discriminated
against Indian suppliers of fabrics.  It evidently lacked legal basis under the Agreement on Textiles
and Clothing and the GATT 1994.  India therefore requested Turkey to clarify this situation.
34. The representative of Turkey said that his delegation would look into this alleged
discriminatory treatment accorded to products origina ting in India.  His authorities would be in touch
with India's authorities in order to clarify this issue.
35. The representative of Australia said that his country regarded this as an important case with
significant implications for the WTO.  In light of the recent discussions in the General Council on
regional trading arrangements, and the work of the Committee on the Regional Trade Agreements, he
wished to reiterate Australia's strong systemic in terest in ensuring that Members involved in the
regional trading arrangements and customs unions acted consistently with Article XXIV of the
GATT 1994 and  Article V of the GATS.
36. The representative of Turkey noted that any systemic issues concerning regional trade
agreements and arrangements would be discussed in relevant fora.
37. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(f) Chile – Taxes on alcoholic beverages: Status report by Chile (WT/DS87/17 – WT/DS110/16)
38. The Chairman drew attention to document WT/DS87/17 – WT/DS110/16 which contained
the status report by Chile on its progress in the implementation of the DSB's recommendations with
regard to taxes on alcoholic beverages.
39. The representative of Chile noted that a reasonable period of time for implementation in this
case would expire on 21 March 2001.  His authorities were currently in the process of drafting a
legislation which would ensure full compliance with the DSB's recommendations.  Efforts were being
made to ensure that all interested parties agree to  the content of that legislation in order to reach
consensus which would expedite the approval of the legislation by the parliament.  Work continued tothis effect and he believed that the parties were close to reaching a consensus.  His country had also
been in very close contact with the EC in order to ensure that the draft legislation was consistent with
the EC's views in order to avoid future disputes.
40. The representative of the European Communities said that the EC was confident that Chile
would comply with the WTO ruling by 21 March 2001.  The EC hoped that as the deadline for
implementation was approaching, a bill would soon be sent to Congress for approval.  He underlined
that in order for a new tax system to be WTO-compatible a harmonized and uniform tariff rate shouldbe applied on spirits and any discrimination against EC producers should be avoided.
41. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.
2. Guatemala – Definitive anti-dumping measures on grey Portland cement from Mexico
(a) Implementation of the recommendations of the DSB
42. The Chairman recalled that in accordance with the DSU provisions, the DSB was required to
keep under surveillance the implementation of recommendations and rulings of the DSB in order toWT/DSB/M/94
Page 8
ensure effective resolution of disputes to the benefit of all Members.  In this respect, Article 21.3 of
the DSU provided that the Member concerned should inform the DSB, within 30 days after the date of
adoption of the panel or Appellate Body report, of its intentions in respect of implementation of the
DSB's recommendations and rulings.  He recalled that at its meeting on 17 November 2000, the DSB
had adopted the Panel Report on "Guatemala – Definitive Anti-Dumping Measures on Grey PortlandCement from Mexico".  In accordance with Article 21.3 of the DSU, he invited Guatemala to inform
the DSB of its intentions in respect of implementation of the DSB's recommendations.
43. The representative of Guatemala said that in order to strengthen the dispute settlement system
her country did not wish to delay the implementation in this case.  She recalled that at the
17 November DSB meeting, Guatemala had explained why it had decided not to appeal the Panel
Report.  Likewise, recognizing that prompt comp liance with the DSB's recommendations and rulings
was essential, Guatemala had decided not to seek a reasonable period of time for implementation.  Atthe present meeting,  pursuant to Article 21 of the DSU, Guatemala wished to inform the DSB that, by
Resolution 1128, dated 2 October 2000, it had repealed the definitive anti-dumping duty imposed on
all imports of grey portland cement entering Guatemala's territory and coming from the Mexican
company Cooperative La Cruz Azul S.C.L. This was due to the fact that the conditions that had given
rise to the anti-dumping duty had changed as a result of the supply situation in the domestic market.In accordance with a procedural requirement, a copy of this Resolution had been published in the
Diario de Centroamérica.  This action demonstrated that Guatemala had effectively implemented the
DSB's recommendations and rulings in this case.
44. The representative of Mexico thanked the delegation of Guatemala for the information
provided at the present meeting.  Mexico welcomed the expeditious manner in which Guatemala had
withdrawn its measure.
45. The DSB took note of the statements and of the information provided by Guatemala regarding
its implementation of the DSB's recommendations.
3. Brazil – Export financing programme for aircraft
(a) Statement by Brazil concerning implementation of the recommendations of the DSB
46. The Chairman said that the item was on the agenda of today's meeting at the request of Brazil.
47. The representative of Brazil said that since the circulation of the Appellate Body Report
pursuant to Article 21.5 proceedings on " Brazil - Export Financing Programme for Aircraft", Brazil
and Canada had held consultations with a view to finding a mutually satisfactory solution.  At the
4 August 2000 DSB meeting, when the Reports of the Appellate Body and the Panel had been
adopted, his delegation had unequivocally stated that Brazil would bring all its future PROEX
operations in line with the DSB's recommendations.  At the same time, Brazil had reaffirmed that it
would honour its commitments with regard to the previously concluded operations.  Brazil had
faithfully abided by those statements.  In fact, a Monetary Council Resolution enacted last week
(Banco do Brasil Resolution N. 002799, dated 6 December 2000) had put into force new regulations
for PROEX which had brought Brazil into full conformity with its WTO obligations.  Brazil had held
active consultations with Canada on adequate compensation for commitments incurred under previousPROEX regulations.  He believed that such co mpensation would benefit not only Bombardier, a
Canadian corporation interested in this dispute, but also a number of other Canadian companies and
economic sectors.  The envisaged compensation would be fully consistent with Brazil's obligations
under the multilateral trading disciplines and wo uld constitute a "win-win " scenario for the two
economies.  He stressed that, from the outset, Canada had accepted the option of compensation andthe two countries had worked constructively towards that goal.  However, efforts to find a mutuallyWT/DSB/M/94
Page 9
satisfactory solution had been hampered by Canada's unreasonable demands concerning the
regulations of a modified PROEX.
48. Brazil could have implemented the DSB's recommendations immediately.  However, the
parties had entered into consultations on both compensation and modifications of PROEX.  High-
level delegations from the two capitals had met several times, in New York, Geneva, Montreal,São Paulo, New York again, and Rio de Janeiro, with a view to creating a confidence-building
atmosphere in order to reach a comprehensive negotiated solution.  He regretted that these discussions
had not been successful.  Canada had always insisted on sine qua non  conditions that had clearly gone
beyond the parameters set forth in the Reports.  In this process Canada had tried to obtain certain
outcomes such as a verification mechanism that would imply commitments neither provided for in the
DSB's recommendations nor in the WTO Agreements.  In addition, Canada had argued that Brazil
should observe the Panel's findings declared by the Appellate Body to be "moot, and, thus, of no legaleffect".  Under Canada's proposals, financing support to the Brazilian exporter would have to observe
limitations that the Canadian export credit agency had admittedly never followed.
49. Given the lack of progress of in the bilateral negotiations, as well as the need to urgently
comply with the DSB's recommendations, Brazil had no choice but to proceed with its adjustments of
PROEX.  As he had already stated, a Monetary Council Resolution with new PROEX regulations hadbeen approved in the past week and was now fully operational.  Under the revised programme, no
equalization would be authorized in amounts that would bring the net interest rate below the relevant
Commercial Interest Reference Rate  (CIRR).  He recalled that the Appellate Body had found that to
establish that PROEX payments "... are not used to secure a material advantage in the field of export
credit terms, Brazil must prove either:  that the net interest rates under the revised PROEX are at orabove the relevant CIRR ... or, that an alternative 'market benchmark', other than the CIRR, is
appropriate, and that the net interest rates under the revised PROEX are at or above this alternative
market benchmark".  In implementing the Appellat e Body's finding, Brazil, instead of using any
"alternative market-benchmark", had chosen to revi se PROEX in order not to allow for payments that
resulted in interest rates below the relevant CIRR.  Furthermore, the Committee on Export Creditswould approve equalization for regional aircraft financing having as a benchmark the financing
conditions existing in the international market.  With these parameters, PROEX had been brought into
full conformity with Brazil's obligations  under the SCM Agreement and the GATT 1994.
50. The representative of Canada said that Brazil had announced that it had revised the PROEX
programme in such a way so to bring itself into compliance with the WTO rulings.  In an attempt to
resolve the dispute over the PROEX programme, Canada and Brazil had held extensive consultations.
Canada was aware of the broad outlines of the pr oposed revisions to PROEX, and looked forward to
studying carefully the details.  However, on the basis of its initial assessment, Canada considered that
Brazil's proposal did not constitute compliance.  During the six negotiating sessions no details had
been provided by Brazil on its replacement measure other than to state that the CIRR would be the
applicable reference rate.  Canada did not consider that the simple insertion of CIRR as a minimum
rate below which PROEX would not buy down export financing constituted compliance.  Rather, itwas a continued debasing of the market.  Full and complete compliance on the part of Brazil would
require the introduction of a number of additional disciplines to PROEX, as outlined in the Panel and
the Appellate Body rulings, and as Canada had indicated repeatedly to the Brazilian authorities.
Brazil had persistently stated that it would not comply with these other conditions, which Canada
considered to be essential to a compliant export financing transaction.
51. While the dispute under consideration was about export subsidies on aircraft, the PROEX
programme also applied to most other Brazilian exports.  In fact, Canada had recently taken a
countervailing duty action against imports of certain steel products from Brazil which had received
subsidies, including under the PROEX programme.  On a more general level, one should also keep in
mind that there had been four separate multilatera l determinations on the WTO-inconsistency of theWT/DSB/M/94
Page 10
PROEX programme:  twice by the Panel and twice by the Appellate Body.  Therefore, a mere
unilateral assertion of compliance by Brazil did not, and could not, change this.  Indeed, a Member
could not seek to escape indefinitely the consequences of its non-compliance simply by asserting that
it had complied as soon as the complaining member invoked its right to impose countermeasures.  If
Brazil believed that the revised PROEX programme was WTO-consistent, then it should be preparedto demonstrate this through an appropriate panel process.  However, this had no bearing on the
decision of the DSB with regard to Canada's request for countermeasures.  It was clear that provided
that Canada's request for countermeasures was consistent with the decision of the Arbitrators – which
was the case – then the DSB would have to grant the authorization for countermeasures, unless there
was a consensus to reject the request.  There were no other options.  He noted that this matter would
be taken up under item 6 of the agenda of the present meeting.
52. Brazil had stated that it would honour its previous commitments and that it would provide
PROEX payments found to be a prohibited export subsidies as a result of possible implications under
its domestic law.  It was well established that domestic law could not be used to avoid international
obligations.  He noted that Canada had been faced with a similar conflict between domestic and
international obligations with regard to its modifications to Technology Partnerships Canada.  At that
time, Canada had not hesitated and contracts had been reopened and payments had been cancelled.Brazil had also referred to a WTO-plus issue.  He said that Canada had entered into negotiations with
Brazil with the sincere desire to find a mutually satisfactory resolution to this long-standing dispute.
In the discussions on compensation, a number of areas of complementarity between the two
economies had been identified which could have provided the basis for a WTO-consistent negotiated
settlement.  However, from the start of the negotiations, Canada had explicitly made its position that asuccessful resolution of the dispute was predicated  on full and complete compliance for the PROEX
export subsidy programme.  Canada had not gone  beyond the DSB's recommendations, but insisted
and continued to insist on full compliance, which Brazil appeared unwilling to undertake.  The
comments that Canada's offer was simply impossible for the Brazilian side should be categorically
refused.
53. The representative of the European Communities said that since the adoption of the
Article 21.5 Panel and the Appellate Body reports, the EC had looked forward to a clear indication
from Brazil as to how it intended to bring itself in compliance with the DSB's recommendations and
rulings.  The EC expected that Brazil would refrain from issuing NTN-I bonds for the sale of the
outstanding aircrafts for which commitment had been made and would stop providing new export
subsidies under the mandated PROEX scheme.  Moreover, the EC believed that changes to the
PROEX scheme should take into account the OECD provisions on interest rates and those on theduration and the basic conditions of the loans.  The EC would monitor closely Brazil's compliance
with the Panel and the Appellate Body Reports and reserved its rights on this matter.
54. The representative of Brazil said that he wi shed to respond to some comments made by
Canada.  First, Brazil had not made a unilateral declaration regarding its compliance in this case.  On
the contrary, Brazil strictly followed the Appellate Body's recommendations.  Members were aware ofthe course of action under item 6 of the agenda of the present meeting, and this was the price to be
paid for "wilder manifestation of unilateralism".  Although the DSB's decision under item 6 would be
automatic, it did not mean that Brazil was in agreement with Canada's assertions.  On the contrary,
Brazil believed that Canada was making a unilateral determination regarding Brazil's implementation
in this case.  As had been stated previously, Brazil would honour its past commitments.  For thatreason Brazil was willing to offer to compensate and Canada seemed to be agreeable to this idea.  He
did not agree with the comment made by Canada concerning the conflict between domestic and
international law.  The question of honouring pr evious commitments was not a question of domestic
versus international law, but a question of general principles of law.  If Canada was prepared to
undertake discussions on compensation, he questioned whether it wished to disguise the fact that itused retaliation for one purpose and tried to justify it with another.  Canada was free to do so but thereWT/DSB/M/94
Page 11
was a price to pay in terms of consistency and coherence.  Canada had paid that price when it had
insisted on certain sequencing of events which did not correspond to its position on the application of
the DSU rules.
55. Canada had referred to countervailing duties that had been applied under the PROEX
programme to items other than aircraft. He was not aware whether this was the case.  Brazil wascarefully examining other aspects of the Reports such as the Appellate Body's view that some of
Canada's practices with regard to the Export Development Corporation constituted a prima facie
evidence of possible subsidies.  Brazil would examine carefully this issue while pursuing its efforts to
find a constructive solution to this dispute.  He noted that this was a case between a developed country
which had thus far the monopoly of a certain field of technology and a developing country which was
successful in defining that monopoly.  He believed that by avoiding to end this dispute through
negotiations, Canada wished to suffocate the Brazilian aircraft industry. Nevertheless, Bombardierwould continue to exist along with Embraer.  He believed that Brazil had a better and cheaper plane,
and that that plane would continue to exist in the market.
56. The representative of Canada said that Brazil's comment that Canada "used wild
unilateralism" was unfortunate and incorrect.  He noted that five different and well-reasoned panel
decisions had been made in this dispute.  With regard to the issue of compensation, he recognizedthat, as stated by Brazil, the issue of compensation had been put on the table by both parties to the
dispute.
57. The Chairman noted that Brazil had requested a point of order.
58. The representative of Brazil said that he had not stated that Canada threatened Brazil with
wilder unilateralism but that the dispute settlement procedures constituted an insurance policy against
wilder unilateralism.  When Members had decided in 1994 to accept the automatic dispute settlement
procedures the objective was to avoid wilder manifestations of unilateralism, and that was why they
had paid the price of accepting such automatic dispute settlement procedures.
59. The Chairman said that it was his understanding that the question of wilder unilateralism had
not been directed specifically at Canada but it was a general statement.
60. The representative Canada said that the issue of compensation had been put on the table by
both parties to the dispute.  As he had stated in his opening statement, Canada had never deviated
from its insistence on full compliance with the WTO's rulings and that was why it had referred to the
question of unilateralism.  With regard to a request for retaliation and its coherence as well as the
issue of sequencing, he would provide elaborated explanation thereon under item 6.  With regard to
the reference in the context of the PROEX programme to steel products, he believed that it was
relevant to mention this and there was a need to be objective.  When Brazil had referred to the EDC,the Canada Account, which was part of this original decision provided clear evidence.  Canada was in
the process of drafting a compliance measure that would ensure that Canada Account transactions in
the regional aircraft sector complied fully with its WTO obligations and with the rulings of
Article 21.5 Panel in the Canada Aircraft case.  Since the Article 21.5 Panel's rulings had been issued,
only one Canada Account transaction had taken place in the regional aircraft sector and thattransaction had been carried out so as to comply fully with the Panel's ruling.  He assured Brazil, as
well as other Members, that any additional transactio ns to be completed prior to finalization of the
implementing measure would fully comply with the Panel's rulings.
61. Brazil had alleged that Bombardier was trying to suffocate Embraer and he believed that this
was a serious and "wild" allegation.  He underlined that Canada was only asking the Brazilian aircraftmanufacturer and Brazil to abide by the WTO rules.  Brazil had to comply fully with the WTO rules.
Whether Embraer could produce a cheaper aircraft without subsidies remained to be seen and whetherWT/DSB/M/94
Page 12
it was a better aircraft would be determined by the market.  The Canadian Bombardier had no
insecurity in competing on the market.  This was not a question of suffocation but a question of
respecting the WTO rules.  Equally, it was also not an issue, as alluded to by Brazil, of a large
developed country trying to go after a developing country's status.  It was neither an issue of special
and differential treatment for developing countries.  In certain circumstances such treatment wasprovided for in the SCM Agreement as long as certain preconditions were met.  However, both the
panel and the compliance panel had found that Brazil had lost its developing country exemption for
PROEX, in part, because it had increased its level of export subsidies.  Therefore, Brazil had failed to
comply with the conditions set out in Article 27. 4 of the SCM Agreement.  Consequently, Brazil by
its own actions disentitled itself to special and differential treatment for developing countries under
the SCM Agreement.
62. The DSB took note of the statements.
4. Chile – Measures affecting the transit and importation of swordfish
(a) Request for the establishment of a panel by the European Communities
63. The Chairman recalled that the DSB had considered this matter at its meeting on
17 November 2000 and had agreed to revert to it.  He drew attention to the communication from the
European Communities contained in document WT/DS193/2.
64. The representative of the European Communities recalled that at the 17 November DSB
meeting, he had stated that on the EC's preference was that Chile enter into negotiations with the EC
and all other parties concerned with a view to achieving within a reasonable delay an agreement on
the long term conservation of sustainable use of swordfish resources in the South Pacific, while
allowing, in the meantime, a limited and regulated access to exports for the EC's vessels.  Thisposition had once again been detailed and put forward as a compromise proposal by the EC
Commissioners in a joint letter of the 28 November 2000 addressed to the Chilean Deputy Minister of
Foreign Affairs.  This letter which contained a proposal both reasonable in terms of a sustainable
management of the swordfish resources in the South East Pacific and respectful of Chile's and EC's
respective rights and obligations under the UN Convention of the Law of the Sea and the WTO,constituted a last stage effort by the EC to find a mutually acceptable solution.  The EC hoped that on
this basis it would be able to reach an agreement with Chile within the shortest possible period and
thereby resolving this dispute.  The EC hoped that a solution could still be found before the
constitution of a panel.  He emphasized, once again, the EC's firm belief that the most effective way to
tackle international environmental issues such as the conservation of migratory stock was to do so
multilaterally within the framework of a negotiated agreement, and ensuring that any trade measures
contained therein were agreed by consensus.  This was the best way to guarantee against unilateraland discriminatory actions and the use of trade measures for protectionist purposes.  In the meantime,
pending a satisfactory solution, the EC reiterated  its request for the establishment of a panel.
65. The representative of Chile said that the EC's panel request should remain outside of the
WTO and should not have been placed on the DSB's agenda for the second time.  While Chile could
not oppose the request at the present meeting, it wished to stress once again that it was committed andresolved to working with the EC an d all interested countries so as to achieve an understanding for the
conservation of a marine resource that was currently being exploited.  Chile believed that there was
room for such an agreement, and the EC's proposals,  including those posted on the Internet, as well as
its response, the text of which was available to all Members, contained all the elements for attaining
the overriding objective of swordfish conservation with the least possible trade distortions.
66. Chile had taken strict conservation measures which, inter alia,  barred Chilean-registered
vessels from landing swordfish caught on the high seas when obtained in violation of the conservationWT/DSB/M/94
Page 13
measures in force.  In its discussions with the EC a few years ago, Chile had not been able to obtain
statistics concerning the EC's catches on the high seas adjacent to Chile and still less on the
conservation measures applied by the EC.  He que stioned whether Chile should discriminate against
its own fishermen by allowing port access to foreign ships that had been unable to demonstrate that
they had fulfilled the slightest conservation measures.
67. Chile had had recourse to the procedure provided for in the Convention on the Law of the Sea
in order to force the EC to fulfil its obligations, i.e. to cooperate with Chile in conserving a marine
resource.  Under the WTO provisions it was not possible to oblige the EC to conclude conservation
agreements but only to discourage irresponsible, unregulated and untransparent fishing.  Chile and the
EC had signed an agreement on an ad referendum  basis for a special Chamber of the Tribunal for the
Law of the Sea to examine this case.  Chile believed that this special Chamber of the Law of the Sea
Tribunal should examine this issue prior to a panel, establishing the ways and means and content ofconservation efforts for this resource if the parties failed to reach agreement on the issue, while
leaving for consideration within the WTO, including by recourse to a panel, if necessary, those issues
that properly fell within its sphere of competence.
68. This would also ensure the necessary accommodation and complementarity between the
WTO rules and those under multilateral environmental agreements.  Both Chile and the EC as well asmany other Members had argued that two systems should be mutually supportive.  Chile believed that
it is important to stress its readiness to negotiate an  agreement to end this dispute taking into account
three elements:  (i) both parties should agree on the priority objective of protecting this highly
migratory resource in the high seas adjacent to Chile's exclusive economic zone, as demonstrated by
the communications that had been exchanged;  (ii) the priority should be to consider this issue in the
framework of the Convention on the Law of the Sea;  and (iii) the desirability of achieving a solution
that was in line with the WTO's stated objective of promoting sustainable development.
69. The DSB took note of the statements and agreed
 to establish a panel in accordance with the
provisions of Article 6 of the DSU, with standard terms of reference.
70. The representatives of Australia, Canada , Ecuador , Iceland , India , Norway  and the United
States reserved their third-party rights to participate in the Panel's proceedings.
71. The representative of the European Communities said that Chile and the EC had shared
objectives as far as the conservation of swordfish resources were concerned and had discussed this
matter for a very long period of time.  However, there were still some divergences as to how this
should be done.  He was optimistic that once the panel had been established discussions would
continue.  He hoped that it would be possible to move closer to a solution and that it would not be
necessary to pursue panel procedures until the end.
72. The DSB took note of the statement.
5. Mexico – Measures affecting telecommunications services
(a) Request for the establishment of a panel by the United States
73. The Chairman drew attention to the communication from the United States contained in
document WT/DS204/2.
74. The representative of the United States said that her country was requesting the establishment
of a panel to examine Mexico's measures affecting telecommunications services.  Mexico's
telecommunications regime prevented service suppliers from availing themselves of key GATS
commitments undertaken by Mexico.  For instance, Mexico's International Long Distance RulesWT/DSB/M/94
Page 14
prevented service suppliers from stippling cross-bor der telecommunications services over leased lines.
These rules also prevented service suppliers from obtaining competitive rates and conditions for such
telecommunications traffic.  In addition, it appeared that Mexico had failed to abide by its key
obligations under the Reference Paper, particularly with respect to ensuring timely and cost-oriented
interconnection with Telmex – Mexico's major telecommunications supplier.  For example,competitive service providers had been unable to obta in local interconnection with Telmex in a timely
manner – in one case for over a year.  Competitive service providers had also been unable to obtain
from Telmex cost-oriented rates for interconnection at the local, long-distance, and international
levels, including for calls to regions where competitors lacked their own facilities.  These measures
denied the service suppliers the opportunity to supply the Mexican markets consistent with Mexico's
GATS commitments.
75. The United States acknowledged the positive steps taken by Mexico in the past few months to
issue rules to regulate the anti-competitive practices of Telmex and to reduce long-distance
interconnection rates for 2001.  Notwithstanding these steps forward the United States remained
concerned as to whether these steps would be implemented, given Telmex's legal challenges against
both measures and Mexico's apparent reluctance to enforce its new rules against Telmex.  The United
States was also concerned that Mexico had not yet addressed Telmex's failure to ensure timelyinterconnection at the local level and the lack of competitive alternatives to the above-cost rates for
phone calls between the United States and Mexico.  The United States considered that its dialogue
with Mexico had been useful and appreciated its cooperation on this issue.  However, unfortunately it
had not yet been possible to reach a mutually satisfactory solution.  Therefore, the United States had
to conclude with regret that its interests were best served by moving forward with its panel request atthis time.  It had therefore taken the logical step of bringing this matter before the DSB.  The United
States remained open to further discussions with Mexico and expected that both sides would continue
their efforts to resolve this matter on a mutually ag reeable basis.  However, since the matter remained
unresolved at this time, the United States was requesting the establishment of a panel.
76. The representative of Mexico said that his delegation had noted the US statement requesting
the establishment of a panel pursuant to document WT/DS204/2.  However, his authorities had
instructed him not to agree to the establishment of a panel at the present meeting.  Notwithstanding
the fact that Mexico was not obliged to accept the establishment of a panel at the present meeting, his
delegation wished to point out that the US request did not specify the problem clearly, as required
under Article 6.2 of the DSU.  Thus, for example, in its request, the United States had repeatedly
stated that Mexico appeared to have failed to do certain things, which from the very peculiar US
viewpoint should have been done in order to comply  with what the United States considered to have
been agreed in the GATS.  While the United States had indicated what it would like Mexico to do,
these apparent failures had not been clearly linked to any specific measure which would enable the
problem to be presented clearly.  Furthermore, both the request for consultations and the panel request
had sought to widen the matter that was the subject of the dispute by undue recourse to expressions
such as "including" or "among other things" which only created confusion as to which concretemeasures were at issue and the legal basis for the US complaint.
77. Mexico had hoped that the consultations held on 10 October 2000 in Guadalajara, Jalicso
could have served to remove the US doubts.  Unfortunately, although during the consultations a full
and detailed explanation had been given of the nature and scope of its obligations in the
telecommunications sphere and the reasons why Mexico had fully complied with each and every oneof its GATS obligations, the United States had only partly understood these reasons.  Consequently,
instead of entirely withdrawing its complaint, it had confined itself to reducing the number of its
original assertions and requesting the conduct of new consultations on further measures in the area of
telecommunications services.  Mexico considered that since the United States had presented this
second request for consultations on the same day as it had submitted its request for the establishmentof a panel showed once again that the United States did not have a very clear idea of the basis for itsWT/DSB/M/94
Page 15
complaint is.  It would be most useful for the United States to review the actual situation before again
requesting the establishment of a panel.  This could save the resources of the WTO as well as those of
Mexico and  the United States.
78. The DSB took note of the statements and agreed  to revert to this matter.
6. Brazil – Export financing programme for aircraft
(a) Recourse by Canada to Article 22.7 of the DSU and Article 4.10 of the SCM Agreement
(WT/DS46/25)
79. The Chairman recalled that at the DSB meeting on 22 May 2000, Canada had requested
authorization from the DSB to take appropriate countermeasures against Brazil pursuant to
Article 4.10 of the SCM Agreement and Article 22.2 of the DSU.  At that meeting Brazil had objected
to Canada's proposed level of suspension and the matter was referred to arbitration in accordance with
Article 22.6 of the DSU.  He drew attention to document WT/DS46/ARB which contained the
Arbitrators' decision on this matter as well as to the communication from Canada contained in
document WT/DS46/25.
80. The representative of Canada said that, at the present meeting, his country was requesting
authorization to take countermeasures against Brazil as a result of its failure to comply with the WTO
rulings in the PROEX aircraft dispute.  His country sought authorization from the DSB to suspend theapplication to Brazil of tariff concessions or ot her obligations covering trade in a maximum amount of
Can$344.2 million per year. Such a suspension of concessions constituted "appropriate
countermeasures" within the meaning of Article 4.10 of the SCM Agreement.  He emphasized that
despite the step that Canada had been forced to take to protect its rights in this dispute, it continued to
enjoy excellent relations with Brazil.  There were longstanding close links between the two countrieswho cooperated closely on a wide range of bilateral and multilateral issues.  At the same time, he
stressed that Brazil had to comply with its bind ing obligations under the Agreement.  The reason for
Canada's action was due to one irrefutable fact:  Brazil provided illegal export subsidies in the
regional aircraft sector under its PROEX programme.  This had been affirmed repeatedly by the
Arbitrator.
81. He then provided a brief history of some of the key points in relation to this long-standing
dispute.  Canada had first requested consultations with Brazil in 1996.  It had also requested the
establishment of a panel in 1996, but subsequently the panel request had been withdrawn in an effort
to seek a negotiated solution.  In 1998, after negotiations had failed to resolve the dispute, Canada had
requested a panel.  In April 1999, the original Panel had found that Brazil violated its obligations
under Article 3 of the SCM Agreement by providing prohibited export subsidies to regional aircraft
under PROEX.  In August 1999, the Appellate Body had upheld this finding.  Brazil had beenrequired to withdraw its illegal export subsidies within 90 days, or by 18 November 1999.  However,
it had failed to do so.  In May, 2000, the Article 21.5 Panel had found that Brazil's measures to
comply with the DSB rulings either did not exist or had not been consistent with the SCM Agreement,
and that Brazil had failed to withdraw the export  subsidies.  In July 2000, the Appellate Body had
upheld the findings of the Article 21.5 panel that Brazil had not implemented the DSB's rulings.  InAugust 2000 an arbitrator had determined that the su spension by Canada of tariff concessions or other
obligations in a maximum amount of Can$344.2 million per year would constitute "appropriate
countermeasures" within the meaning of the SCM Agreement.  Thus, there had been five separate
rulings against Brazil in this case:  twice by the or iginal Panel,  twice by the Appellate Body, and once
by the Arbitrators.  The decisions had been clear and overwhelming, but nothing had changed.
Contrary to its previous statement, Brazil had not respected the rulings of panels and the Appellate
Body and had not withdrawn its prohibited export subsidies.WT/DSB/M/94
Page 16
82. He emphasized that when Canada had first made its request for appropriate countermeasures
in May 2000, it had made it clear that it would fully respect the principle of sequencing, and that it
would not apply any countermeasures unless and until the Appellate Body had affirmed the
conclusions of the Article 21.5 Panel on the WTO-inconsistency of the Brazilian measures.  Since
then, the Appellate Body had circulated its Report. Thus Canada's request for suspension ofconcessions was fully consistent both with the determinations of the Appellate Body on the
WTO-inconsistency of the Brazilian measures, and with the conclusions of the Arbitrators as to what
constituted appropriate countermeasures in this case.  He noted that although the Arbitrators' Report
had been issued more than three months ago, Ca nada had not sought the DSB's authorization to
impose countermeasures immediately. Instead it had tried, as it had done so in the past, to seek a
negotiated solution with Brazil.  It had negotiated in the utmost of good faith in an effort to reach a
settlement.  The last set of negotiations had taken place as recently as in the past month.  However,Brazil had repeatedly demonstrated its unwillingness to comply with its obligations.
83. As noted under item 3, Brazil continued to make payments that had been found to comprise
prohibited export subsidies.  The ongoing damage to Canadian interests as a result of Brazil's illegal
measures was real.  Every month, 13 new Brazilian regional aircraft were being  delivered, with this
number slated to increase by 2001.  Moreover, every month, Brazil was granting more thanCan$35 million worth of illegal subsidies.  As st ated at the May 2000 DSB meeting, retaliation was
not Canada's preferred option.  But Brazil now ga ve Canada no choice but to request the DSB's
authorization to impose appropriate countermeasures so as to preserve Canada's rights under the WTO
Agreement.
84. Brazil's failure to comply was not just damaging to the commercial interests of Canada as a
complaining party.  It also inflicted institutional harm on the WTO, and the integrity of the dispute
settlement process. He stated that if, a Member disregarded the binding rulings of the DSB, the
credibility of the WTO dispute settlement system and the respect for the rule of law would be
affected. The report of the Arbitrators included a reminder that Article 22.8 of the DSU states that:
"the suspension of concessions or other obligations shall be temporary and shall only be applied untilsuch time as the measure found to be inconsistent with a covered agreement has been removed …".
Canada needed no reminder of this.  Indeed, Canada would like nothing better than to terminate the
suspension once Brazil had complied fully with its WTO obligations.  Yet it would be up to Brazil,
not Canada, to determine how long the suspension of concessions would last.  It was up to Brazil to
respect the commitments it had undertaken when it had accepted the WTO Agreement.  Some regard
retaliation as the final stage in a dispute.  Canada did not.  In Canada's view, the final stage was not
retaliation but compliance.  Canada was therefore taking the penultimate step by seekingcountermeasures.  It called on Brazil to take the final step by complying with its obligations and
thereby bringing this long dispute to an end.
85. The representative of Brazil recalled that under item 3 of the agenda, he had announced that a
Monetary Council Resolution which had been enacted in the past week had put in force new
regulations for PROEX that had brought that programme in full conformity with its WTO obligations.Canada had accepted the option of compensation for the past contracts and that the two countries had
worked constructively towards that goal.  Nevertheless, Canada was now seeking authorization to
suspend concessions or other obligations and/or to take countermeasures, pursuant to Articles 22.7 of
the DSU and 4.10 of the SCM Agreement, under the presumption that the new PROEX did not
constitute compliance with the DSB's recommendations. Therefore, Canada had unilaterallydetermined that the measure that had never been s ubject to a multilateral review was inconsistent with
the WTO Agreement.  He underlined, once again, that the revised PROEX was operating under the
parameters that were different from those examin ed by the Panel and the Appellate Body pursuant to
Article 21.5 procedures.WT/DSB/M/94
Page 17
86. Under item 3 of the agenda, he had outlined the main characteristics of the new programme
which was fully compatible with Brazil's obligations under the SCM Agreement and the DSB's
recommendations.  It was unacceptable for Canada to unilaterally determine that the new measures
did not comply with the DSB's recommendations simply because it could not have persuaded Brazil
to accept unwarranted demands that would amount to  a WTO-plus framework.  This undermined the
multilateral nature of the dispute settlement mechanism and of the WTO.  This was one of the first
cases in which retaliation would be authorized against a developing country.  In Brazil's view, the
amount determined by the Arbitrators was very high and unjust but he did not wish to dispute it.  The
decision would penalize developing countries' efforts to compete in a high-technology area and in the
market for medium-sized passenger airplanes which was monopolized by a developed country.  This
was done on the basis of the rules that were against the interests of developing countries which had
neither participated nor had access to details regarding the OECD.  Brazil was also concerned thatlitigation and threat of countermeasures were preferred to negotiations and compromise.  In particular
since this had gone beyond what was reasonable and fair.  This would not be beneficial for the future
of the WTO.
87. The representative of Japan said that his country recognized Canada's rights under
Article 22.7 of the DSU and Article 4.10 of the SCM Agreement.  However, Japan was not quite
comfortable that Canada had requested the DSB's authorization to impose countermeasures based on
its unilateral determination concerning compliance of the new measures taken by Brazil with the
DSB's recommendations.  He underlined that Japan did not wish to take sides either with Canada or
Brazil.  Its intention was only to highlight another systemic shortcoming of the DSU provisions.  The
current DSU rules did not provide Members with an appropriate mechanism to deal with suchsituations.  This case once again demonstrated that there was a need to reflect seriously on how the
DSU provisions could be improved.
88. The representative of the European Communities said that in his delegation's view, Canada's
request for authorization to impose countermeasures should have specified not only the amount of
trade to be covered in line with the Arbitrators' rulings, but also the type of countermeasure for whichit was seeking authorization.  If countermeasures were in the form of suspension of tariff concessions,
Canada should have indicated the list of products and the way it had calculated the amount of trade
affected so that the DSB could verify that amount  corresponded with the Arbitrators' findings.  If
Canada intended to apply countermeasures by suspending obligations under the Textile Agreement or
the Agreement on Import Licensing Procedures, it should have also indicated how it would respect the
amount determined by the Arbitrators.
89. The representative of the Philippines said that his country had two systemic concerns.  First,
the Philippines supported the concerns expressed by Japan with regard to the shortcomings of the
DSU provisions.  Second, his country was concerned about the Arbitrators' rulings to the effect that
countermeasures could go beyond reparations of nullification and impairment.  The Arbitrators'
decision seemed to endorse a concept that the suspension of concessions had a punitive character. He
believed that this matter required further discussions in the DSB.  The WTO system providedreciprocal concessions.  If a Member's benefits were adversely affected it was expected that
compensation or suspension of concessions would only be to the extent of the level of nullification or
impairment.  However, as it appeared in the Report, the suspension of concessions could go beyond
nullification and impairment and could thus have a punitive character.
90. The representative of Australia said that his country wished to be associated with the
statement made by Japan.  Australia encouraged the parties to the dispute to continue to seek a
pragmatic resolution of the issue as quickly as possible through further recourse to an expedited
dispute settlement process.WT/DSB/M/94
Page 18
91. The representative of Canada said that his comments made under item 3 with regard to the
unilateral determination on conformity of the implementing measures were relevant with respect to
the present item.  Brazil had stated that this case involved the question of developed versus
developing countries.  It had also stated that Brazil's plane was the biggest, the best, the fastest and the
cheapest.  However, this case was not about developing country issues but about the need to respectthe rules.  Brazil had stated that Bombardier had sought to monopolize the market for medium-sized
passenger airplanes.  He believed that this was not the case as the company only sought to produce a
quality product.  The success of the  product or lack thereof would be determined by the market.  The
intention was not to monopolize the market but to ensu re that all including Bombardier played by the
same rules.  He assured that Canada had resorted to retaliation in this case as a last resort.  However
retaliation was not Canada's preferred option.  After four years of negotiations and panel decisions it
had become clear that Canada continued to remain prepared to settle this issue honourably.  However,at the same time, Canada had to protect its rights under the WTO and that was why, at the present
meeting, it was seeking authorization to impose countermeasures.
92. The representative of the United States said that the consensus rule under Article 22.7 of the
DSU entitled Canada to receive authorization to suspend concessions, if it so requested.  A simple
declaration of compliance was not enough to prevent such an authorization.  The United States wasfollowing this case with interest and hoped that Canada and Brazil would ultimately find a way to
resolve their differences.
93. The representative of Brazil said that in response to Canada's statement he wished to clarify
that he had only stated that the Brazilian plane was the best and the cheapest.  He believed that this
case was about developing versus developed countries.  He recognized that Brazil's argument tocontinue using exports subsidies was disqualified because there were two possible ways to look at this
matter:  i.e. budget allocations or actual expenditures.  The Panel had referred to this and the
Appellate Body had upheld the way which did not favour Brazil.  Nevertheless, his country was free
to make comments as to what was fair or unfair.  His statement with regard to fairness and developed
versus developing countries was not only about competition between products, but about competitionbetween financial packages.  It was much more difficult for a developing country which had not
participated in the establishment of  the rules that had been made for  developed countries.  Brazil had
signed the Uruguay Round Agreement but considered th at now it was a learning process.  There was a
need to change the rules on export finance which were not fair for developing countries.  One had
hoped that they might have been interpreted in different ways and, at different stages of this dispute,
Brazil had hoped that this would be the case.  Ther efore, first statements made by the Appellate Body
were encouraging.  However, the quasi-judicial process, which was complicated, did not favourBrazil.  There was a fundamental imbalance that had to be corrected.  For that reason, he had
emphasized the question of  developed versus developing countries.
94. Brazil wished to be associated with the syst emic concerns raised by the Philippines and
supported the statement made by Japan.  At the present meeting, he did not wish to further elaborate
on the question raised by the Philippines, but to underline that it was important to keep in mind whatretaliation was meant to be in the WTO system.  Several references had been made to be punitive
character of retaliation.  Even if the word punitive was not used and instead the word to induce
compliance were to be used that word was being used for sanctions in the Security Council.  He
believed that this was not the objective of the dispute settlement mechanism in the WTO.  He hoped
that there would be further possibilities that this matter be considered by Members in a moreconceptual manner.
95. The Chairman said that he was not in a position to sum up and touch on all of the points made
at the present meeting. He only wished to draw attention to a few general points.  A number of
delegations had expressed some concerns as to whether the procedure in the DSU, as it stood, were
fully able to deal with the situation at hand where authorization to suspend concessions was  more orWT/DSB/M/94
Page 19
less automatic while one of the parties felt that it was either in compliance or in the process of
complying with the DSB's recommendations.  This was an interesting question.  For a party finding
itself in that situation the provisions of the DSU were available if it felt that its rights were being
transgressed but whether these provisions were adequate in this situation was another matter.  There
were also some concerns as to the manner in which the suspension of concessions might beimplemented. This was another point for reflection.  He drew attention, as Canada had done, to the
final report of the Arbitrators which quoted from Article 22.8 of the DSU to the effect that "the
suspension of concessions shall be temporary and only apply until such time as the measure found to
be inconsistent has been removed."  Finally, assuming that the DSB authorized this it was only an
authorization and it was not an actual trigger of the implementation of suspensions of concessions.  A
number of Members had expressed hopes that Canada and Brazil would find a way to resolve their
differences.  He then drew attention to paragraph 7 of Article 22 of the DSU which stated that "theDSB shall be informed promptly of the decision of the arbitrator and shall upon request grant
authorization to suspend concessions or other obligations were the request is consistent with the
decision of the arbitrator, unless the DSB decides by  consensus to reject the request."  He believed
that there was no consensus to reject the request.  Therefore, he proposed that the DSB take note of
the statements and pursuant to Canada's request under Article 22.7 of the DSU and Article 4.10 of theSCM Agreement contained in document WT/DS46/25, dated 1 December 2000, agree to grant
authorization to suspend the application to Brazil of tariff concessions or other obligations consistent
with the Arbitrators' decision c ontained in document WT/DS46/ARB.
96. The DSB so agreed.
7. Proposed nominations for the indicative list of governmental and non-governmental
panelists
97. The Chairman drew attention to document WT/DSB/W/150 which contained additional
names proposed for inclusion on the indicative list in accordance with Article 8.4 of the DSU.  He
proposed that the DSB approve the names contained in document WT/DSB/W/150.
98. The DSB so agreed.
8. Special meeting of the DSB
99. The Chairman, speaking under "Other Business" said that two Appellate Body reports had
recently been circulated:  (i) Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef
and (ii) United States – Import Measures on Certain Products from the European Communities".
Those reports together with the relevant Panel reports would have to be adopted by the DSB at the
latest on 10 January 2001.  In order to convene the meeting on 10 January 2001, the airgram would
have to be issued on 29 December 2000.  Since this was a holiday period, he proposed that theSecretariat circulate the airgram for that meeting on Friday, 22 December 2000, which was the last
working day before the Christmas holiday.
100. The DSB took note of the statement.
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