RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/98
20 March 2001
(01-1359)
Dispute Settlement Body
1 February 2001
MINUTES OF THE MEETING
Held in the Centre William Rappard
on 1 February 2001
Chairman:  Mr. S. Harbinson (Hong Kong, China)
Prior to the adoption of the agenda, the item concerning the Panel Report on "United States –
Safeguard Measures on Imports of Fresh, Chille d or Frozen Lamb Meat from New Zealand and
Australia" was removed from the agenda following the US decision to appeal this 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 agricultural  products:  Status report by Japan ................................8
(c) Canada – Measures affecting the importation of milk and the exportation of dairy
products:  Status re port by Canada ............................................................................................. 9
(d) India – Quantitative restrictions on imports of agricultural, textile and industrial
products:  Status re port by India .............................................................................................. .10
(e) Turkey – Restrictions on imports of textil e and clothing products:  Status report by
Turkey......................................................................................................................... ..............11
(f) Chile – Taxes on alcoholic beverage s:  Status report by Chile.................................................11
2. Korea – Measures affecting imports of fresh, chilled and frozen beef...............................12
(a) Implementation of the reco mmendations of the DSB...............................................................12
3. Canada – Measures supporting exports of aircraft .............................................................13
(a) Statement by Brazil......................................................................................................... ..........13
4. Brazil – Measures affect ing patent protection .....................................................................17
(a) Request for the establishment of  a panel by the United States .................................................17
5. Belgium – Administration of measures establishing customs duties for rice ....................17
(a) Request for the establishment of  a panel by the United States .................................................17WT/DSB/M/98
Page 2
6. Chile – Price band system and safeguard measures relating to certain
agricultural products.......................................................................................................... ....18
(a) Request for the establishmen t of a panel by  Argentina ............................................................18
7. Brazil – Export financing programme for aircraft..............................................................20
(a) Recourse to Article 21.5 of the DSU by Canada ......................................................................20
8. United States – Anti-dumping measures on stainless steel plate in coils and
stainless steel sheet a nd strip from Korea.............................................................................24
(a) Report of the Panel ......................................................................................................... ..........24
9. Proposed nominations for the indicative list of governmental and
non-governmental panelists ...................................................................................................26
10. Statement by Brazil concern ing the US Patents Code.........................................................26
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 an d clothing products:  Status report by Turkey
(f) Chile – Taxes on alcoholic beverages:  Status report by Chile
1. 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.15)
2. The Chairman drew attention to document WT/DSD27/51/Add.15 which contained the status
report by the European Communities on its progress in the implementation of the DSB's
recommendations concerning its banana import regime.
3. The representative of the European Communities said that since the 12 December 2000 DSB
meeting, the EC had taken some important steps with a view to finding a permanent solution to the
banana dispute, which would be compatible with its international obligations towards both WTO
Members and ACP partners.  The EC's banana tr ade regime was based on Council Regulation (EEC)
No. 404/93, amended in 1998, and on the Commission's regulations concerning the administration of
tariff quotas established by the Council Regulation.  On 29 January 2001, the Council had adopted aWT/DSB/M/98
Page 3
legal amendment to Regulation (EEC) No. 404/93.  Accordingly, the three tariff quotas would be
open to all banana imports regardless of their origin.  The adoption of this Council Regulation would
ensure the swift adoption of the regulation concerning the administration of tariff quotas, which would
be based on a first come, first served (FCFS) system.  He recognized that some Members would prefer
a different system of administration.  However after many years of negotiations, a system based onthe agreement of all parties to the dispute was highly unrealistic, given the widely divergent interests
of certain Members and the companies concerned.
4. This case had been going on far too long and it was time that a permanent solution was found
which would be compatible with all international obligations of the EC.  The EC had no other option
but to establish a system of quota administration which, as recognized by all, was WTO-compatible.
The EC was currently finalizing the technical details for effective implementation of this regime,
which would be put in place shortly.  Given the importance of the subject, he wished to spell out indetail the modifications of the EC's banana import regime.  These modifications covered three tariff
quotas open to all imports irrespective of their origin:  (i) there was no longer a quantity reserved for
ACP imports;  (ii) a first tariff quota of 2,200,000 tonnes at a rate of €75/tonnes bound under the
WTO and a second autonomous quota of 353,000 tonnes at a rate of €75/tonnes;  and (iii) a third
autonomous quota of 850,000 tonnes at a rate of €300/tonnes.  A tariff preference of €300/tonneswould be given to ACP imports.  This level of  preference would protect ACP interests without
involving a level of tariff which would be prohibitive.  In case this assessment proved to be incorrect,
the European Commission would have the power to reduce the maximum level of tariff during the
year.
5. He noted that tariff quotas were a transitional measure leading ultimately to a flat tariff.
Before a flat tariff could be applied, the European Commission would have to conduct negotiations
with the main suppliers under Article XXVIII of the GATT 1994.  The European Commission had to
report on the result of these negotiations to the Council for its approval.  The application of an
FCFS system had several positive characteristics:  (i) it was WTO-compatible and was recognized as
a valid instrument for quota management following  the Panel's rulings on the EC's banana regime;
(ii) it was a straightforward, transparent and flexible way of administering quotas with no special
management tools (e.g. licence allocation or  definition of operator);  and (iii) the current distinction
between traditional operators and newcomers would disappear.  He drew attention to the following
main characteristics of the envisaged FCFS system:  (i) three quotas which would be managed on a
fortnightly or weekly basis (sub-quotas) to ensure a regular import flow to the EC market;  (ii) a
requirement to commit bananas to the vessel before submitting a declaration of intent to import and to
lodge a sufficiently high security would be part of the system.  This measure was aimed at deterringspeculation and fraud;  and (iii) a pre-allocation procedure based on operators declaring their intention
to import a specified quantity.  The pre-allocation would be decided when vessels were at a sailing
distance from Europe to avoid discrimination against countries that were further away.
6. He recalled that in October 2000, after more than one year of discussions and negotiations,
the European Commission had drawn its conclu sion on another option based on historical
performance.  This conclusion was still valid.  However, in view of the Panel's condemnation of the
present system, a method based on historical references carried a risk of being challenged either
before domestic courts or the WTO.  The only realistic chance to avoid challenges would be to ensure
the agreement of all Members concerned.  However, such an agreement had been impossible to
obtain.  Therefore, the EC had to choose a management method that could be implemented on anautonomous basis and was widely used and recogniz ed as being WTO-compatible.  That method was
also specifically referred to as a WTO-compatible allocation system by the Article 21.5 panel
pertaining to the complaint by Ecuador.  An FCFS system was fully non-discriminatory, because it
was based only on a product and not on the quality or origin of the importer or trader.  It was also
straightforward and transparent.WT/DSB/M/98
Page 4
7. He noted that some delegations had made claims about discrimination.  For example, at the
20 December 2000 DSB meeting, Panama had stated that an FCFS method was discriminatory, but
had not provided any legal reasoning to this effect.  At the 12 December 2000 DSB meeting,
Honduras had alleged that the adapted FCFS syst em would amount to a system of simultaneous
examination which would  perpetuate a de facto discrimination.  This was not correct because the
system was based on effective commitments to import bananas, requiring the physical presence of the
bananas on the vessel in the port of destination, backed by documentation and guaranteed by an
appropriate security:  this would eliminate speculative requests.  Furthermore, the subdivision of the
TRQs over the year in weekly or fortnightly allocations would ensure the smooth functioning of the
quota system.  Another criticism made by the United States and Honduras was that the level of the
tariff preference for ACP imports in the third quota maintained a de facto discrimination in favour of
ACP bananas.  This was not correct since the proposed tariff was not prohibitive for Latin Americanbananas and there was a guarantee that Latin American bananas would effectively compete in the
third quota.
8. The representative of Colombia said that, as in dicated in the status report, legal instruments
modifying the EC's banana import regime would be adopted in the near future.  He noted that the
delay was due to technical and administrative adjustments.  The obstacles relating to the lack of on-line customs, insufficient control, serious risks of fraud and other types of difficulties that would
result from the implementation of the new regime, had not yet been resolved.  His country was
concerned about the economic and social implications of a regime based on an FCFS system.  Such a
regime would have a negative impact on the price of bananas.  Colombia was also analysing carefully
the high tariff under quota C and the discrimination that would result from a new regime in countrieswith limited logistical capacity.  Colombia continued to believe that it would still be possible to enter
into negotiations in which the interests of all parties in this dispute could be taken into account.
9. The representative of the United States thanked the EC for its detailed statement.  The United
States regretted that no mutually acceptable solution had yet been found in this long-standing dispute,
and hoped that more could be made to resolve this dispute in the near future.
10. The representative of Honduras expressed his country's dissatisfaction with the status report
submitted by the EC at the present meeting.  His country had previously pointed out that the EC's
status reports lacked content.  Honduras objected to this report because it was devoid of content and
was proposing a system that would destroy the banana  industry in Honduras as well as in many other
countries.  That system would have negative effects not only on bananas but on many other
agricultural products.  It was paradoxical that, month after month, an illegal regime was gradually
being replaced with another that was even worse while the views of Latin American countries whohad rejected this system, had not been taken into account.  The administration of import licences
under the EC's proposal which was based on an FCFS system, had been described by the EC as a
procedure for simultaneous examination with pre-allocation of licences.  He reiterated that this system
would lead to a result whereby the ACP countries would receive licences because their access was
greater than their production and, therefore, it would not be necessary for them to load a vessel withbananas above that volume.  On the other hand, bananas from Latin American countries would be
eliminated from the EC's market.  This would be illegal.  The FCFS system violated Articles I and
XIII of the GATT 1994.  It was also an infringement of Articles I, II and XVII of the GATS since
bananas from Latin America would be discriminated against because of their origin.
11. The representative of Guatemala said that the status report submitted by the EC indicated that
important steps had been taken by the EC in its decision-making process.  However, she pointed out
that this decision-making process was unilateral since the EC had disregarded the views, proposals
and positions of the majority of the parties involved in this case.  It was regrettable that the EC
continued to undermine the credibility of the dispute settlement system.  The system proposed by the
EC was incompatible with the WTO rules and had been rejected by most of the countries which, likeWT/DSB/M/98
Page 5
Guatemala, were prepared to take legal action against it.  Guatemala urged the EC to take into account
the views expressed by the banana-producing Latin American countries, the United States, the
Caribbean countries and some African countries.  The EC should also take into account the views of
many of its member States who had spoken out against that system.  There was a need to resolve this
dispute.  However, this would only be possible when the EC ceased to follow the course it had takenthus far and took into account in its internal decision-making process the views of other parties
representing the greater part of banana production and marketing.
12. The representative of Panama said that, as had already been stated by previous speakers, the
EC had not taken any steps forward towards a mutually acceptable solution that would be in line with
WTO rules and its WTO commitments.  At the present meeting, the EC had stated that Panama had
not provided any legal reasoning regarding its criticism of a new system.  He noted that many legal
arguments had already been made in bilateral, multilateral and plurilateral discussions held on thissubject.  He regretted that the legal arguments made by the Latin American countries had not been
taken into account by the EC.  Panama wished to have more information on the three tariff quotas
under this new system which would be open to all, irrespective of the origin of the product.  More
details were required on how exactly the EC intended to achieve this objective with the €300 tariff in
the third tariff quota.  Honduras and Guatemala had already stated that Latin American bananas wouldbe eliminated from the EC's market and, therefore, it was difficult to envisage how an increase in the
tariff would improve the situation.  The EC blamed countries which suffered from discrimination for
that situation.  The EC had also stated that under the new regime it would not be necessary to decide
on who would receive licences on the basis of an agreed definition.  He had some doubts about who
would provide a licence for products already on board and who would take a decision thereon.Panama wished to join the previous speakers who had urged the EC to try, in good faith, to reach a
solution which was compatible with its obligations.  If the EC were to replicate the features of the
system already declared as illegal there would be a problem.  He noted that there was a discrepancy
between the English and the Spanish versions of the EC's status report.  In the English version the
system was described as "first come, first served", but in the Spanish version as a "chronological orderof receipt of requests".  He sought clarification on this point.
13. The representative of Jamaica said that her country noted the decision of the Agricultural
Council of the EC to direct the Commission to prepare a revised EC banana import regime based on
the principle of FCFS.  Jamaica did not believe that the proposal was consistent with the EC's
commitment under the Cotonou Agreement "aimed at ensuring the continued viability of (ACP)
banana export industries and a continuing outlet for their bananas on the Community market".
Jamaica believed that the FCFS proposal would lead to the destruction of the local banana industryand would result in severe economic and social damage and dislocation.  If the EC were to opt for an
FCFS-based system, it should include appropriate pr ovisions to ensure market access and a viable
return for banana growers in the Caribbean.  Caribbean banana exporting countries had suggested
several approaches which would achieve a mutually acceptable solution.  In Jamaica's view, the most
effective means to ensure access was through an appropriate tariff quota allocated primarily on thebasis of past trade.  Jamaica noted with regret, the failure of EC/US negotiations to arrive at such a
solution.  Jamaica strongly urged that negotiations be resumed among the EC, the US and other key
interested parties in a constructive spirit.  An FCFS-based system that did not ensure continued access
to the EC's market on an economically viable basi s would turn the banana trade into a lottery for
Caribbean growers with the odds stacked against them and in favour of dominant Latin American
traders.
14. The representative of Saint Lucia, speaking also on behalf of Dominica
, said that there had
been few certainties in the long and damaging banana dispute characterized by dubious
decision-making, unparalleled misinformation and distortion of facts and most worryingly, special
interests becoming a proxy for responsible national decision-making.  However, there was now onecertainty and that was that the parties were now into the "end game".  Perhaps, the end would be aWT/DSB/M/98
Page 6
system unimpeachable under WTO rules which would once and for all put the dispute to rest.
Sanctions had taken their toll, as too had all the bickering.  In such circumstances, the search for a
system unimpeachable under WTO rules might, unwittingly, be tainted by a measure of callousness in
defining a WTO-compatible solution.  The countries in question had continued to advance a vision of
WTO-compatibility that protected the legitimate interests of all parties – not one which foretold aquick and cataclysmic demise for some.  She drew attention to headlines
1 regarding multinationals on
the verge of bankruptcy protection, "like a banana boat captain hit by a hurricane" – the apparent "first
casualty" of the banana war.  If those in the Press would visit the Islands their reporting would be a bit
better informed.  The ongoing attacks on the banana regime had cost the Windward Islands
proportionately more than any other. In 1991, they accounted for almost 10 per cent of banana
imports into the EC, its sole market.  Now, there were down to 4.5 per cent.  In the past, they had
presented details of the contribution of bananas to employment and foreign earnings and would notrepeat these statistics.  It was sufficient to remind that they were overwhelmingly dependent on their
banana exports to the EC market and would suffer a veritable catastrophe, if they were to lose that
which was their only market.  The stability of their economies depended on market access on a
predictable and viable basis.  This would necessitate taking into account their inherent vulnerability.
Vulnerability, some suggested was simply a "non-trade concern" – a subject for deliberations in theSpecial Session on Agriculture.  She, like virtually every farmer in the Windward Islands, hoped that
the FCFS system was never implemented, otherwise there would be no trade concerns to discuss in
any negotiations.  In December 2000, the US and the EC negotiators had made considerable headway
in the search for a resolution to this dispute on the basis of past trade and in a manner which could be
fair to suppliers whilst offering market access on a predictable and remunerative basis.  The onlyprospect of averting calamity would be for those discussions to resume, but this time with a clear
commitment to being flexible, to compromise and to safeguard the interests of supplying states,
especially the most vulnerable.
15. The representative of Ecuador said that his delegation had taken note of the statement made
by the EC.  He acknowledged the information which had been given on the latest steps taken by the
EC and its member States to modify its illegal banana import regime.  It was difficult to justify the
EC's banana import regime which had entered into force with Regulation 404/93 in 1993.  Further
illegalities were subsequently added through the 1994 Framework Agreement on Bananas.  The
Banana III case in 1997 had produced a non-exhaustive list of the regime's illegalities.  In
January 1999, with the expiry of the reasonable period of time for the EC to modify its regime for the
importation of bananas two additional regulations had been introduced, namely, Council Regulation
(EC) No. 1637/98 and Commission Regulation 2362/98.  Under Article 21.5 of the DSU, Ecuador had
obtained a multilateral determination that the EC's  banana import regime continued to maintain a
considerable number of illegalities which, in a discriminatory manner, were harmful to exports of
bananas from Ecuador.  Regardless of the information provided at the present meeting, these two
Regulations – 1637/98 and 2362/98 – were still in force for an indefinite period of time. The new
Regulation adopted on 29 January 2001 by the EC Council was not yet in force and was designed tomodify only partially the previous regulations, which remained in force.  In Ecuador's view, many of
the illegalities had not been eliminated, and Ecuador had doubts as to the way in which the EC
planned to correct them with the proposed regulation.  Ecuador did not exclude the possibility that
what the EC was now proposing might correct the current situation which was causing serious
damage to Ecuador.  With regard to the distribution of import licences to administer tariff quotas, theEC had provided very little information, and the questions raised by Ecuador in previous DSB
meetings still remained to be answered.
16. He noted that the Panel that had examined the EC's banana import regime had pointed out that
there were various methods for distributing import licences for the allocation of tariff quotas.  It had
also pointed out that the way in which the EC applied one method for distributing licences was
                                                     
1 Richard Miniter, Thursday, 25 January 2001 (The Scotsman).WT/DSB/M/98
Page 7
WTO-inconsistent.  The fact that the EC was ready to adopt another of the possible methods of
distributing licences did not mean that that method would automatically be consistent with WTO
rules.  At this point, it was difficult to give the EC the benefit of the doubt in this respect.  Thus far,
the EC had neither modified its Regulation 2362/98, which established the way in which licences
were distributed, nor the illegal manner in which the tariff quotas were subdivided.  In Ecuador's viewthe EC was still far from meeting its obligations.  The Regulation recently adopted by the EC still
raised many doubts.  While it might contain certain elements that would suggest that what had been
proposed could be better than the current situation, there were still many details which gave rise to
serious concerns.  The new regulation reduced by 7,000 tonnes the total imports of bananas to the EC
market under tariff quotas.  It imposed one quota, a tariff of €300 per tonne, and increased the
preference for ACP countries from €75 to €300 per tonne.  These levels could not be accepted as
favourable changes for the countries that had challenged the illegality of the EC's banana importregime.  Without any justification, the EC had incr eased the preference for ACP countries in terms of
tariff levels and market access volume.  The EC had simply raised the price of the exemption required
under the regime and hoped to unload the additional cost of this new exemption on Latin American
countries, while many of them were poorer than a number of the ACP countries benefiting from the
EC's preference.  There was no other option but to wait while the EC continued to report on itsinability to meet its WTO obligations, to the detriment of developing countries, which could derive
benefits from fairer trade in their efforts to overcome their extreme poverty.
17. The representative of Costa Rica said that his country had noted the decision taken by the EC
at the Council of Ministers in December 2000 a nd was concerned about the future banana import
regime of the EC.  Although no regulation had yet been available he was aware that such a regulationwas likely to contain certain elements which implied that a new banana regime might continue to
create problems.  Costa Rica would examine this in a more comprehensive manner at an appropriate
time once the legislation was available.  Costa Rica was particularly concerned that the discriminatory
measures against exports from the most efficient producers, namely, Latin American countries had
been made even more stringent in terms of volume .  With the enlargement of the EC, the volume had
increased while the volume of exports of other countries had not.  Furthermore, the way in which high
tariffs had been established could also put constraints on the expectations of Latin American countries
to expand their exports because any increase in demand should be supplied by the most efficient
producers.  Once the full legislation was available Costa Rica would refer to this issue in greater
detail.
18. The representative of Mexico said that his delegation had noted the concerns expressed at the
present meeting and that some Members had stated that consultations should be held on possible
modifications to the EC's banana import regime.  Mexico's position was well-known in this regard and
his country also wished to participate in such consultations.
19. The representative of the European Communities said that on the basis of the statements made
at the present meeting one could be left with the impression that the EC was closing its market.
However, this was not the EC's intention.  The EC was and would remain an important importer ofbananas and its consumers appreciated bananas from different origins.  If this was an easy case it
would have been settled a long time ago.  The fact that a good deal of the exports of bananas were
managed by US companies should not be overlooked as well as the fact that all parties sought the
biggest market share.  A dispute like the one at hand should be settled politically and efforts should be
made to obtain a negotiated settlement.  However, in spite of its efforts, the EC had not been able tocome to that point due to many contradictions and many different interests of exporters.  The EC
hoped that until the implementing regulation was adopted it would still have an opportunity to discuss
this matter with its partners.
20. There were a number of misconceptions regarding the possible effects of an FCFS system.  It
was only in practice that EC partners and exporters would be able to appreciate whether or not thatWT/DSB/M/98
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system could ensure fair and equitable treatment of exporters currently supplying the EC's market.  He
underlined that the quotas would be managed in such a way as to ensure a fair deal for ACP countries
while not being prohibitive vis-à-vis  other trading partners.  However, one had to see in practice
whether this new system would be managed in a fair and equitable manner.  He recognized that it
would have been preferable to reach a political solution, but since this had not been possible, it wasnecessary to resort to the DSU provisions.
21. The representative of Brazil said that, like Mexico, his country had a potential interest in this
matter because it had initial negotiating rights regarding the subject.
22. The representative of Ecuador said that the date for the entry into force of this new system to
be governed by tariffs could be brought forward.  This would clarify the situation.  The banana case
did not help to build confidence among Members.  Developing countries wished to export and to have
market access to the EC's market, but had not been able to obtain that access nor had due accountbeen given to WTO Agreements which prevented Members from placing restrictions against the
exports of developing countries.  This was a clear demonstration of the failure to apply certain WTO
Agreements.  It also prevented developing countries from reaping benefits in accordance with their
comparative advantage.  There was a lack of equity not only from a systemic point of view but also
from a trade point of view.
23. The representative of Honduras said that the arguments had been made by ACP countries
claiming poverty.  He therefore wished to highlight that this was not a race in terms of who was the
poorest.  He noted that the Windward Islands had a three times higher per capita income than
Honduras.  This was not a question of who was the poorest but a question of market access.
24. 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.11)
25. The Chairman drew attention to document WT/DS76/11/Add.11 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.
26. The representative of Japan said that, as indicated in the status report, his country was
holding consultations with the United States in a constructive and friendly manner.  At the present
meeting, he wished to inform the DSB that all the remaining technical issues had basically been
resolved.  There was only one procedural or administrative matter that still had to be straightened out.
In view of this development Japan hoped that the two countries would be able to finalize their
consultations in a very near future.  He was awar e that other countries also wished to know the
outcome in this case.  For the sake of transparency, Japan would notify the DSB of the results of its
consultations with the United States as soon as their agreement had been finalized.
27. The representative of the United States said that, as stated by Japan, all technical issues had
been resolved.  The United States believed that Japan would proceed as expeditiously as possible with
all administrative steps necessary to complete the implementation of its new quarantinemethodologies.
28. The representative of Australia said that his country was one of the countries which Japan had
acknowledged had a substantial interest in this case.  He noted that the reasonable period of time for
implementation had now expired and that from the status report provided by Japan there was an
expectation that an agreed solution had been reached, but that there were some procedural matters thatWT/DSB/M/98
Page 9
remained outstanding.  Australia would therefore appreciate an elaboration by Japan of the main
elements of its proposed implementation as soon as possible.
29. 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.6 - WT/DS113/12/Add.6)
30. The Chairman drew attention to docume nt WT/DS103/12/Add.6 – WT/DS113/12/Add.6
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 of
dairy products.
31. The representative of Canada said that his country was submitting a final status report on its
implementation of the DSB's rulings and recommendations.  He recalled that Canada had held another
set of consultations with the United States and New Zealand on 7 and 8 December 2000, in
accordance with the terms of the implementation agreement 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 to 31 January 2001.2  At the present meeting, Canada
wished to confirm that it had implemented fully the DSB's recommendations and rulings.  The processfor marketing milk for use in dairy products exported from Canada had changed dramatically in order
to respond to the DSB's rulings.  The prices and volumes of such milk sales were determined
commercially between the producer and the processor.  The government did not decide the volume of
exports nor did it negotiate the export price.  In other words, it had no role in these commercial
contracts.  This complete lack of government involvement confirmed that exports under thesecommercial contracts were taking place in Canada free of export subsidies.  Accordingly, Canada was
now compliant with its obligations under the Agreement on Agriculture not to provide export
subsidies beyond its reduction commitments.
32. The representative of New Zealand recalled that on 19 January 2001, Canada had circulated
its final status report pursuant to Article 21.6 of the DSU.  In that report, Canada had affirmed "that it
will be in full compliance with the rulings and recommendations of the DSB by the conclusion of the
implementation period" on 31 January 2001.  At this stage, he wished to indicate that New Zealand
very much appreciated the spirit in which Canada had participated in the regular consultations held
between New Zealand, Canada and the United States to discuss the state of implementation.  He
regretted that these discussions had not resolved the ongoing difference of view regarding the
consistency of Canada's implementation with its WTO obligations.  Accordingly, New Zealand could
not agree with Canada's view that it had fully complied with the DSB's recommendations and rulingsin this case.  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 of 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 or Article 10.1 of the Agreement on Agriculture.
The effect of these schemes was that Canada was still exporting subsidized dairy products without
counting these against its export subsidy reduction commitment levels.  As a result, Canada was again
in violation of its obligations under Article 3.3 a nd Article 8 of the Agreement on Agriculture.  Faced
with this situation, New Zealand was compelled to seek further consultations with Canada.  As
envisaged in the 21 December 2000 agreed procedures between New Zealand and Canada, shouldthese consultations not result in an acceptable solution, New Zealand would request the establishment
                                                     
2 WT/DS103/13-WT/DS113/13.WT/DSB/M/98
Page 10
of a panel under Article 21.5 of the DSU to review Canada's implementation of the DSB's
recommendations and rulings.
33. The representative of the United States said that in December 2001 the United States, Canada,
and New Zealand had held their final consultation under the implementation agreement concluded at
the end of 1999.  The United States regretted that the parties had failed to reach a consensus as towhether Canada's new provincial measures implem ented the DSB's recommendations in this dispute.
As noted at previous DSB meetings, in the US vi ew Canada had not brought its export regime for
dairy products into compliance with its export subsidy obligations under the Agreement on
Agriculture.  Indeed, Canada's provinces had introduced programmes that in effect continued the
previous export subsidies and had made the changes necessary at the federal level to accommodate the
provincial initiatives.  While it might be true that elements of the Special Class Export Subsidy
Programme had been altered, this did not disguise the fact that Canada's milk regime still functionedto provide exporters with milk at prices that were below those prevailing on Canada's domestic
market.  Access to such low priced milk appeared to be entirely contingent on its export.  In fact,
dairy processors who exported were prohibited from selling products made from such milk into
Canada's domestic market.  It was thus with a profound sense of disappointment that the United States
was informing the DSB that it found it necessary to request Canada to consult further on this matter.The United States would be submitting its request to Canada in the very near future.  In the absence of
a resolution of their differences in such consultations, the United States would have no choice but to
request, pursuant to Article 21.5 of the DSU that a panel be established at a future DSB meeting to
review Canada's compliance with the DSB's recommendations and rulings.
34. The representative of Canada expressed his c ountry's disappointment that there was still a
difference of views on the changes that had been made.  Canada looked forward to trying to bridge the
gap between those views in the consultations to be held shortly.
35. The DSB took note of the statements.
(d) India – Quantitative restrictions on imports of agricultural, textile and industrial products:
Status report by I ndia (WT/DS90/16/Add.5)
36. The Chairman drew attention to document WT/DS90/16/Add.5 which contained the status
report by India on its progress in the implementation of the DSB's recommendations with regard to
quantitative restrictions on imports of agricultural, textile and industrial products.
37. The representative of India said that his count ry's sixth status report contained in document
WT/DS90/16/Add.5 was brief but clear.  India was committed to removing quantitative restrictions
maintained for balance-of-payments reasons in two instalments in a balanced fashion.  Fifty per cent
of the residual quantitative restrictions had been removed on 1 April 2000 and a reasonable period oftime for the remaining quantitative restrictions would expire by April 2001.  Thus, India was on
course in implementing its commitments.
38. The representative of the United States thanked the delegation of India for its status report.
He noted that the implementation deadline of 1 April 2001 was now just two months away.  The
United States would therefore appreciate hearing details of India's implementation plans at the nextDSB meeting.
39. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.WT/DSB/M/98
Page 11
(e) Turkey – Restrictions on imports of textile and clothing products:  Status report by Turkey
(WT/DS34/12/Add.5)
40. The Chairman drew attention to document WT/DS34/12/Add.5 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 and clothing products.
41. The representative of Turkey said that, as indi cated in the status report, the relevant Turkish
authorities had continued their work on all aspects in full cognizance of the time-period, and were
making efforts to resolve the issue.
42. The representative of India thanked Turkey for its status report informing that the Turkish
authorities had arrived at a "highly advanced stage in their work" with the intention of finding the
most appropriate solution to this dispute.  He recalled that a reasonable period of time for
implementation, mutually agreed between Turkey  and India, would expire on 19 February 2001.
Status reports submitted by Turkey under Article 21.6 of the DSU for each of the meetings of the
DSB, including the one submitted at the present meeting, had not given any clear indication of the
details of the progress made in implementing the DSB's rulings and recommendations.  India was
disappointed and concerned about this matter and looked forward to full and timely compliance by
Turkey with the DSB's rulings and recommendatio ns. Timely implementation of the DSB's rulings
and recommendations by Turkey continued to be a matter of utmost importance to India.  At the same
time, he reiterated India's concern, already highlighted at the 12 December DSB meeting with regard
to additional restrictions recently imposed by the Turkish authorities on imports of fabrics from India.
It was India’s expectation that Turkey would fully comply with the DSB's rulings and
recommendations by the deadline of 19 February 2001.
43. The representative of Turkey said that since the reasonable period of time for implementation
in this case would expire on 19 February 2001, it was therefore still possible to find a solution.
Recently, there had been some developments which his authorities viewed as positive, and India was
fully aware of these developments.  However, at the present meeting he wished to exercise restraint in
order not to jeopardize the chances of reaching a mutu ally agreed solution in this case.  With regard to
the other restrictions referred to by India, he did not think that any discriminatory treatment had been
accorded to India.  He noted that Turkey had given sufficient explanation to India on this matter at a
bilateral level.
44. 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/Add.1 -
WT/DS110/16/Add.1)
45. The Chairman drew attention to document  WT/DS87/17/Add.1 – WT /DS110/16/Add.1 which
contained the status report by Chile on its progress in the implementation of the DSB's
recommendations with regard to its taxes on alcoholic beverages.
46. The representative of Chile said that since the previous status report submitted at the
12 December DSB meeting, the Bill aimed at bringing the Additional Tax on Alcoholic Beverages
into line with WTO rules  had been adopted by a clear majority in both the Chamber of Deputies and
the Senate.  Its full entry into force now awaite d only the promulgation by the President of the
Republic and a publication in the Official Journal.  Under this legislative reform, the current tax rate
of 27 per cent would be maintained for pisco and from 21 March 2003, the same rate would be
applied to other alcoholic beverages.  In the meantime, the tax applied to those spirits would beprogressively reduced to 27 per cent.  Thus, among the possible alternatives, it had been decided toWT/DSB/M/98
Page 12
establish the lowest tax rate applicable prior to the entry into force of the new tax scheme.  This
solution which satisfied different interests required a considerable effort on the part of the Chilean tax
authorities as their tax revenue would decrease by about US$10 million per year.  Once again Chile
was fulfilling its international obligations and reaf firmed its commitment to the multilateral trading
system.  His country wished to thank the EC for its flexibility which was necessary to reach a solutionwhich would ensure a satisfactory conclusion to this dispute.
47. The representative of the European Communitie s said that the EC was pleased with the
adoption by the Chilean Congress of the new alcoholic tax law on the terms agreed by both parties.
This case demonstrated the EC's willingness to find amicable solutions to disputes, which took into
account the interests of both parties and respected the WTO Agreements.
48. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
2. Korea – Measures affecting imports of fresh, chilled and frozen beef
(a) Implementation of the recommendations of the DSB
49. 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 to
ensure effective resolution of disputes to the benefit of all Members.  In this respect, Article 21.3 ofthe DSU provided that the Member concerned shall 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
recommendations and rulings of the DSB.  He recalled that at its meeting on 10 January 2001, the
DSB had adopted the Appellate Body Report on "Korea – Measures Affecting Imports of Fresh,
Chilled and Frozen Beef" and the Panel Reports on the same matter, as modified by the AppellateBody Report.  He invited Korea to inform the DSB of its intentions in respect of implementation of
the DSB's recommendations.
50. The representative of Korea said that the Panel and the Appellate Body Reports on "Korea -
Measures Affecting Imports of Fresh, Chilled and Frozen Beef" had been adopted at the 10 January
DSB meeting.  At the present meeting, he wished to express Korea's intention to implement the DSB's
recommendations in a manner which respected Korea's WTO obligations.  Korea had already
implemented the DSB's recommendations regarding the Simultaneous Buy and Sell System and the
distribution system involving the Livestock Produc ts Marketing Organization for imported beef.  As
for the dual retail system, Korea had initiated a process to examine different options for compliance
with the DSB's recommendations.  Korea thus needed a reasonable period of time for implementation
and, to this end, it was ready to enter into consultations with Australia and the United States in a very
near future.
51. The representative of the United States said that his delegation noted Korea's statement
regarding its intention to comply with the DSB' s rulings and recommendations.  The United States
expected that Korea would implement those recommendations promptly.  Early implementation of the
DSB's recommendations relating to Korea's separate retail sales regime for imported and domestic
beef was essential to establishing equal competitive opportunities for imported beef in the Koreanmarket.  The United States commended Korea on the action already taken to eliminate its import
quota on beef and to remove the requirement that all beef be imported either through the Livestock
Products Marketing Organization or a very limited number of government approved importers.  The
United States looked forward to continuing discussions with Korea on a reasonable period of time for
implementation in this case.  As implementation of the DSB's recommendations and rulings relating
to the dual store retail regime required only modifications to the applicable regulations, the United
States anticipated that the appropriate changes could be made expeditiously.WT/DSB/M/98
Page 13
52. The representative of Australia said that his delegation noted Korea's statement and welcomed
its advice that it intended to implement the DS B's recommendations and rulings in this case.
Australia stood ready to discuss with Korea issues relating to implementation and a reasonable period
of time.
53. The DSB took note of the statements and of the information provided by Korea regarding its
intentions with respect to implementation of the DSB's recommendations .
3. Canada – Measures supporting exports of aircraft
(a) Statement by Brazil
54. The Chairman said that the item was on the agenda of the present meeting at the request of
Brazil.
55. The representative of Brazil said that on 10 January 2001, the highest official of the Canadian
Ministry of Industry had publicly announced that Canada would use the Export Development
Corporation (EDC) loans and loan guarantees from Investissement Quebec to "match" financing
offers made by the Brazilian aircraft manufacturer to Air Wisconsin.  In his statement, the Minister of
Industry had publicly announced that Canada would be "... using the borrowing strength and the
capacity of the government to give a better rate of interest on a loan than could otherwise be secured
by Bombardier."  Furthermore, he had made clear that the measure was " ... a specific response, to aspecific company, and a specific country."  His reference was directed at Brazil.  Thus, Canada had
finally decided to publicly concede the nature of its practices with regard to regional jets.  For more
than four years, Embraer had been vigorously complaining about the overly generous financial
support granted by the Canadian Government to its rival, Bombardier.  Despite the absolute secrecy of
the programmes supporting the Canadian company, the presence of an elusive but heavy hand in themarket of regional jets had always been felt.  Therefore, what had recently been announced was not a
surprise.  It was what Canada had been doing sin ce Embraer had become a player in the market.  In
this sense, Canada's announcement conveyed no revelations.  The events had just provided further
proof that Canada's resourcefulness in the area of export support was without limits, and that Canada
was determined to impose its views by force in blatant disregard for the multilateral trading system.
56. He said that the announcement of the Canadian Minister of Industry and subsequent press
reports contained some elements to which he wished to draw Members' attention at the present
meeting.  First, while accusing Brazil of providing "below market" financing, Bombardier's CEO had
affirmed to the press that EDC's "matching" loan ... "is not illegal in the way it is being structured".
Countries were accustomed to this line of reasonin g.  According to Canada, two equivalent loans were
covered differently by the WTO disciplines.  Brazil's loan was obviously portrayed as illegal, while
Canada's loan was presented as fully consistent with the WTO Agreements.  Canada seemed tobelieve that the means mattered not the outcome; the form not the substance.  In Canada's reasoning, a
developed country could slash down prices of each aircraft by US$2 million, using credit guarantees
that a developing country could not possibly "match", even if it wished to do so.  However, if a
developing country was forced to spend more resources in an attempt to offer the very same financing
terms with a different financing structure, this developing country was violating the SCM Agreement.
According to Canada, what mattered was the way one participated in the market and not how a
programme measured up to the market.
57. Second, the Canadian Minister of Industry had also stated that Canada was retaliating.  His
precise words were as follows:  "what we are doing is  retaliating".  In response to a question regarding
the legality of such action, that official had explained that Canada was "... given consent, permissionby the WTO to impose sanctions", and had further pointed out that the Canadian Government "...
would soon come forward with further proposals fo r additional retaliation, as has been granted toWT/DSB/M/98
Page 14
Canada by the WTO".  Brazil noted that the DSB had not approved any sanctions of the nature
announced by Canada on 10 January 2001 or at any othe r occasion.  Furthermore, such retaliation was
not contemplated under the WTO Agreements.  The m easures announced were not only unilateral, but
they also constituted an act of economic violence without precedent.  The Canadian authorities were
fully aware that the proclaimed targeted and non-authorized retaliation was a flagrant violation ofCanada's obligations under the WTO Agreements.
58. Third, the Canadian press had widely reported that the EDC loans announced on
10 January 2001 would be provided through the Canada Account.  He noted that this programme had
been ruled to be inconsistent with the WTO Agreem ents three times.  Canada's implementation of the
DSB's recommendations was long overdue.  Throughout the bilateral consultations held after
completion of the Article 21.5 process, the Canadian authorities had assured their Brazilian
counterparts that the programme would be changed and that new regulations were being drafted.Brazil had taken those assurances at face value and had avoided any further action in the WTO
regarding the programme.  However, Brazil had proved to be wrong and it was, therefore,
re-examining all its options.  These recent developments demonstrated the empty Canadian
commitments to follow WTO rules.  Unlike Brazil, who had revised its PROEX programme, Canada
had never made any attempt to change Canada Account. Complementing this unabashed disregard forthe DSB's recommendations, Canada had tried to force Brazil into following the findings of the Panel
that the Appellate Body had ruled to be "moot" and "of no legal effect".  He noted that Canada would
have liked Brazil to follow the Panel's conclusions that the Appellate Body had unequivocally
overruled, and had not been adopted by the DSB.  Frustrated by Brazil's refusal to agree to
"WTO-plus" conditionalities, Canada had been escalating its belligerent and unilateral actions in orderto force Brazil into following financing paramete rs that had never been adopted by the DSB, and
would severely and unfairly tilt the playing field in favour of the Canadian aircraft exporter.
59. Brazil firmly believed that the multilateral trading system could only be effective if all
Members were truly and equally committed to observe its disciplines.  Unlike Canada, Brazil had
revised the programme found to be inconsistent with its obligations under the WTO Agreements inaccordance with the DSB's recommendations.  With regard to past transactions, Brazil had stated that
its commitments would be honoured and had carried out consultations with Canada on the subject of
adequate compensation.  Canada, however, had never altered Canada Account regulations, despite all
promises to this effect, and it was very clear that its other programmes were also being used in ways
that were inconsistent with the SCM Agreement and, thus, further distorted the market in favour of
Bombardier.  In order to clarify this matter, Brazil had submitted its request for consultations with
Canada, which had been circulated on 25 January 2001 in document WT/DS222/1.
60. The representative of Canada said that, in response to Brazil's statement, he welcomed the
opportunity to inform Members of the details of this export financing proposal.  He was also pleased
to be able to put this transaction in its proper context. First, he wished to briefly raise several essential
points.  On 10 January 2001, Canada had announced that for one specific transaction, it would be
prepared to provide financing on the same terms that Brazil was now using to support the sale of
Embraer aircraft under its PROEX programme.  He emphasized that this was a measured and focused
response to Brazil's persistent refusal to withdraw PROEX financing for regional aircraft and its latest
modifications to its PROEX programme made in December 2000.  What Canada was proposing to do
was nothing more than what Brazil was now doing under this latest version of PROEX.  If Brazil
considered Canada's actions to be WTO-inconsistent, Canada was at a loss as to Brazil's justificationof its latest PROEX scheme.  If Brazil's programme was now WTO-consistent, as Brazil contended,
Canada was puzzled by Brazil's complaint against Canada for doing the same.
61. With respect to the specific transaction about which Brazil had complained, he noted that the
Canadian aircraft company involved in this bid, Bombardier, had initially approached the buyer, Air
Wisconsin, with a proposal that had not involved any government financing.  However, it had quicklyWT/DSB/M/98
Page 15
become evident that, as in other past contracts, Brazil had been offering the buyer a financing package
in support of Embraer that had made it impossible for Bombardier to compete fairly for this sale.  The
financing that Canada had proposed to Air Wisconsin mirrored the terms and conditions that had been
offered to Air Wisconsin by Brazil.  In other words, Canada had sought merely to level the playing
field.  As Canada's Minister of Industry had made cl ear in the past month after more than four years of
negotiations and dispute settlement proceedings, Canada was not prepared to stand idly by while
Embraer was winning major contracts with the assistance of Brazilian export subsidies.
62. Therefore, Canada was prepared to act to protect Canadian interests, including Canadian jobs.
He wished to clarify that Canada's decision to prov ide financing equivalent to that available under the
latest version of PROEX was a response to different Brazilian subsidies than those for which Canada
had received authorization to take appropriate countermeasures.  He recalled that there had now been
no fewer than five separate rulings against the PROEX programme:  twice by the original Panel, twiceby the Appellate Body, and once by an arbitrator.  He also recalled that the DSB had authorized
Canada to suspend the application to Brazil of tariff concessions or other obligations covering trade in
a maximum amount of Can$344.2 million per year.  Th at authorization had been granted for Brazil's
failure to withdraw the prohibited subsidies under its earlier PROEX schemes.  Brazil had been
granting, and had stated that it would continue to grant, illegal subsidies under those schemes pursuantto Embraer sales contracts made prior to Brazil's December 2000 PROEX revisions, in blatant
disregard of the DSB's rulings.  For example, in  the latter half of 2000, Brazil had used PROEX to
enable Embraer to secure at least two deals:  one with China Southern Airlines and the other with
South African Airlink.  On 31 December 2000, the Brazilian newspaper Folha de São Paulo had
carried out an interview with the then Minister of Foreign Affairs who had stated that:  "our defeat byCanada was expected.  Our granting of subsidies wa s flagrant".  It would therefore appear that this
senior Brazilian official had no longer even maintained a pretence as to the WTO-consistency of the
ongoing illegal subsidies under the earlier PROEX scheme.  Canada had not yet imposed the
authorized countermeasures in relation to these ea rlier PROEX schemes, but retained the full right to
do so at any time.
63. Brazil had also referred to its status as a developing country being a relevant factor in this
dispute.  Brazil had made two principal points in  this regard.  First, it had argued that PROEX
subsidies were necessary to compensate for the high er cost of borrowing for a developing country –
the so-called "Brazil's risk".  Second, Brazil had ar gued that the special and differential treatment
provisions of the SCM Agreement should apply.  With respect to Brazil's risk, he emphasized that the
PROEX programme did not compensate for Brazil's higher cost of borrowing.  The programme was
not used to buy down the interest rates from the level that Brazil, as a developing country, had toborrow.  Instead, the programme had been used to  buy down the interest rates applied to loans
assumed by Embraer customers outside Brazil.  As previously noted the subsidy amounted to a
transfer of resources from a developing country a nd its taxpayers to prosperous North American and
European airlines.  The subsidy was also prohibited by the SCM Agreement.  Equally, the special and
differential treatment provisions of the SCM Agreement were not relevant.  All panels which hadexamined this case had found that Brazil had lost its developing country exemption for PROEX, in
part because it had increased its level of export subs idies.  Thus, Brazil had failed to comply with the
conditions set out in the Agreement.  He noted that Canada had proposed to establish a bilateral, third
party verification procedure to ensure that all financing offers to purchasers of regional aircraft
occurred at market rates.  Yet Brazil had not accepted this offer.  The offer remained on the table andwould provide a credible means to ensure that the disciplines of the SCM Agreement were fully
respected.  Canada believed there was only one viable solution to this dispute, namely, Brazil had to
comply with its obligations, as the WTO had ruled repeatedly.  The onus remained on Brazil to
respect and implement fully the DSB's rulings and to bring to an end the systemic use of its aircraft
subsidies.  He also stressed that, as had been repeatedly made clear to Brazil, Canada remainedwilling and able to negotiate in good faith in an  effort to reach a mutually satisfactory solution.
However, any such solution had to be premised on compliance by Brazil with its WTO commitments.WT/DSB/M/98
Page 16
64. The representative of Paraguay said that his delegation had followed and continued to follow
all disputes which had been brought into the WTO because it believed that this was the only forum for
small and developing countries which could enable them to ensure the effectiveness of the existing
rules to solve disputes.  Paraguay was concerned about the use of the term "retaliation".  It believed
that actions authorized by the DSB in this regard usually referred to compensation.  It was notcustomary to refer to retaliation.  This term and the use thereof was of concern to developing
countries.  Paraguay did not like the use of the term "retaliatory measures" and believed that the term
"compensation" as specified in the DSU should be used.  Paraguay was also concerned about the use
of subsidies in international trade.  This problem was linked to other areas such as agriculture where
subsidies were distorting international trade.  He believed that this use was unjustified and for that
reason it wished to register his country's concern in this regard.
65. The Chairman noted that, in accordance with the Rules of Procedure, delegations should try
to the extent that the situation permitted to keep their oral statements brief.  However, there was
always the possibility to develop a position on a particular matter through a written version, which
could be incorporated in the record of the meeting.
66. The representative of Brazil said that the consultations recently requested by his country
would cover some points referred to by Canada at  the present meeting.  With regard to Canada's
reference to a statement made by the Brazilian Minister, although he was confident that the translation
services of the Canadian Embassy in Brasilia were of very high standard, he wished to note some
misleading elements contained in the reference made by Canada.  In this regard, he believed that the
word "flagrant" had been translated incorrectly.  He recalled that the subsidies initially given under
the PROEX programme were transparent, but Brazil had thought that it was acting in accordance withWTO rules, particularly in the light of the provisions of Article 27 of the Subsidies Agreement.
However, in the course of the dispute as to whether one should use budget or real outlays it had been
proved that Brazil was incorrect.  Therefore, the meaning of this word only implied that, as had been
considered initially by Brazil, those subsidies were transparent and legitimate.  It was thus misleading
to state that the Brazilian authorities had now admitted that Brazil knew it was violating WTO rules.He also pointed out that Canada's reasoning in this case could be reversed;  i.e. Canada considered
that Brazil's action was illegal and had decided to do something equally illegal.  However, if Canada
considered that what Brazil was doing was legal then its decision to seek authorization from the DSB
to suspend concessions was questionable.
67. The representative of Canada said that his country's action was based on measured reasons
and noted that under item 7 of the agenda, Canada would seek a multilateral determination of Brazil's
implementing measures.  Responding to remarks regarding the Canada Account, he explained thatCanada was in the process of drafting compliance measure that would ensure that the Canada Account
transactions in the regional aircraft sector complied fully with Canada's WTO obligations and the
rulings of the Article 21.5 Panel in the Canada – Aircraft case.  With regard to the reference to the
statement made by the Brazilian official, he clarified that when some of the quotes had been handed
over to him in preparation for this particular meeting, the quote which had caught his eye was the oneto which he had referred and he had sent it back to his Embassy in Brasilia to make sure that this
quote taken from a newspaper, dated 31 December 2000, was correct.  It had come back and it was
double checked and it was very clear and categorical: "our defeat by Canada was expected.  Our
granting of subsidies was flagrant".  He had not taken this quote loosely, but had checked it because
he did not wish to put words in anyone's mouth.
68. The DSB took note of the statements.WT/DSB/M/98
Page 17
4. Brazil – Measures affecting patent protection
(a) Request for the establishment of a panel by the United States (WT/DS199/3)
69. The Chairman recalled that the DSB had considered this matter at its meeting on
19 January 2001 and had agreed to revert to it.  He drew attention to the communication from the
United States contained in document WT/DS199/3.
70. The representative of the United States said that, as mentioned at the 19 January DSB
meeting, his country was requesting the establishment of a panel because it had considered that
Brazil's law discriminated between patented products that were imported and those that were locally
produced.  Brazil required that all patented products be manufactured in Brazil, or else the patent
would be compulsorily licensed.  This requirement  was in apparent violation of Articles 27.1 and 28.1
of the TRIPS Agreement.  He noted that at the 19 January DSB meeting, Brazil had claimed that the
US patent law discriminated against imported products.  These assertions were inaccurate as well asirrelevant.  The United States welcomed the establishment of a panel at the present meeting.  At the
same time, it would also welcome any additional clar ifications that Brazil wished to make regarding
its law and stood ready to resolve this dispute with Brazil if a settlement agreement could be reached.
Until then, the United States would continue with this panel process.
71. The representative of Brazil said that his country disagreed with the US decision to seek the
establishment of a panel on this matter.  As stated at the 19 January DSB meeting, Brazil had hoped
that the United States would have given more emphasis to discussions in order to understand more
clearly the consistency of the Brazilian Law on Industrial Property with the TRIPS Agreement, rather
than resort to litigation.  His country firmly believed that the United States had not given careful
consideration to the political implications of its decision, nor had it examined the many technicalaspects of the case.  He recalled that the TRIPS Agreement reflected a delicate balance that had taken
developing countries to the limits of acceptability.  This delicate balance was reflected, in the case of
Brazil, in internal legislation which was fully consis tent with the letter and the spirit of the TRIPS
Agreement.  The United States was now seeking an interpretation of the TRIPS Agreement which
threatened to upset this balance.  Brazil was confident that a panel would only confirm that itslegislation was fully consistent with the TRIPS Agreement and that the US action amounted to a
demand for commitments which went beyond the Agreement through resort to dispute settlement
procedures.  As stated previously, this was not only legally unfounded, but might also prove
politically disastrous.  He said that under "Other Business" Brazil would inform the DSB of its request
for consultations with the United States regarding the US Patent Code.
72. 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.
73. The representatives of the Dominican Republic, Honduras , India  and Japan  reserved their
third-party rights to participate in the Panel's proceedings.
5. Belgium – Administration of measures establishing customs duties for rice
(a) Request for the establishment of a panel by the United States (WT/DS210/2)
74. The Chairman drew attention to the communication from the United States contained in
document WT/DS210/2.
75. The representative of the United States said that his country was requesting the establishment
of a panel to examine Belgium's measures relating to the imposition of customs duties on imports of
US rice.  For certain shipments of rice imported from the United States, between 1 July 1997 andWT/DSB/M/98
Page 18
31 December 1998, Belgian customs authorities had rejected transaction values for purposes of
establishing the relevant customs values.  By failing to use transaction values for purposes of
assessing duties, the Belgian customs authorities had assessed duties on imports of US rice higher
than those permitted under Belgium's WTO obligations.  In addition, the Belgian customs authorities'
actions with regard to these imports of rice from the United States had raised questions regardingBelgium's treatment of confidential customs valuation information,  (i) its provision of written notice
to the affected importer;  (ii) the uniform, impartial and reasonable administration of its customs
valuation determinations;  and (iii) use of specific and limited product characteristics for purposes of
determining customs value.  The United States cons idered that these measures were inconsistent with
Belgium's obligations under the Customs Valuation Agreement, the GATT 1994, and the Agreement
on Technical Barriers to Trade.  The United States also considered that the Belgian measures were
nullifying or impairing benefits accruing to the United States directly or indirectly under the citedagreements, within the meaning of Article XXIII:1(b) of the GATT 1994.  The United States
continued to hope that this matter could be resolved without recourse to a panel and remained open to
further discussions with Belgium towards that end.
76. The representative of the European Communitie s said that the EC was more than a little
bewildered by the US request since it had not been able to identify the exact reasons for which the
United States was reproaching the Belgian customs authorities.  He noted that the US request
contained a number of allegations of violation of several WTO Agreements without any precise
indication as to which measures supposedly caused such violations.  The EC had noted that reference
had been made to the Belgian authorities' refusal to use a certain transaction value for customs
valuation.  However, this could not be the subject of the present dispute since the rejection in questionhad taken place only in November 2000.  The US request for consultations was dated 12 October
2000, therefore, the measure the US wished to challenge should have been in place earlier and not
later than the date of the request.  The EC had also noted that the United States had referred to the
Commission Regulation No. 703/97, which was dated 18 April 1997.  However, this could not be the
incriminated measure since that Regulation had expired on 31 December 1998 and thus was no longerin force at the time the request for consultations had been made.  Consequently, the EC was opposing
the establishment of a panel requested by the United States.  The EC also considered that the US
request did not conform to the criteria laid down in Article 6.2 of the DSU and could not, therefore,
constitute the first request for the establishment of a panel.
77. The DSB took note of the statements and agreed
 to revert to this matter.
6. Chile – Price band system and safeguard measures relating to certain agricultural
products
(a) Request for the establishment of a panel by Argentina (WT/DS207/2)
78. The Chairman drew attention to the communication from Argentina contained in document
WT/DS207/2.
79. The representative of Argentina said that pursuant to Article XXIII of the GATT 1994,
Articles 4 and 6 of the DSU, Article 19 of the Agreement on Agriculture and Article 14 of the
Agreement on Safeguards, his country was requesting the establishment of a panel to examine Chile's
price band system, the provisional and definitive sa feguard measures on imports of wheat, wheat flour
and edible vegetable oils, and the extension of those measures.  In Argentina's view, the price band
system applied by Chile, Laws 18.525, 18.591 and 19.546, and the regulations and complementary
provisions and/or amendments did not ensure certainty in respect of market access for agriculturalproducts and had resulted in a breach of Chile's commitments on tariff bindings in relation to the
concessions set forth in its Schedule.  Therefore, the above-mentioned legislation was inconsistent
with Article II of the GATT 1994 and Article 4 of the Agreement on Agriculture.  With respect toWT/DSB/M/98
Page 19
safeguards on imports of wheat, wheat flour and edible vegetable oils, on 26 November 1999 Chile
had adopted provisional measures which had become definitive on 18 January 2000 and had been
extended on 25 November 2000 after consultations with Argentina. His country considered this
measures to be inconsistent with the obligations imposed by the Agreement on Safeguards for the
reasons set forth in its request for the establishment of a panel contained in WT/DS207/2.  Argentinaconsidered that the safeguards in question were inconsistent with, inter alia,  Articles 2, 3, 4, 5, 6 and
12 of the Agreement on Safeguards and with Article XIX, paragraph 1(a) of the GATT 1994.
80. On 5 October 2000, Argentina had requested consultations with Chile in respect of both the
price band system and the safeguard measures imposed, with a view to seeking a mutually satisfactory
solution.  These consultations had taken place on 21 November 2000, but the parties had been unable
to reach any understanding.  In fact, Argentina and Chile had held informal consultations on these
matters for more than a year.  In a broader sense, he stressed that Argentina was concerned aboutChile's persistent recourse to protectionist mechanisms in the agricultural sector.  This concern, which
was shared by other Members, had led to the submission of other requests for consultations with
Chile.
81. For more than a year Argentina had been exploring options and alternatives for negotiations.
First at the bilateral level and then in the framework of the various instruments to which bothArgentina and Chile were parties and finally within the WTO system, but without success.  On the
contrary, after each set of consultations, Chile had systematically stepped up its protectionist measures
in what would appear in some cases to be a sort of retaliation against the concerns expressed by
Argentina.  In the light of the above considerations, Argentina had no choice but to request the
establishment of a panel with standard terms of reference.  At the same time, Argentina remained
open to dialogue in order to try to find a mutually satisfactory solution to this dispute.
82. The representative of Chile said that he wished to raise a number of points with regard to
Argentina's request for the establishment of a panel.  Argentina had a commercial interest in trade
with Chile of products such as wheat, wheat flour and vegetable oils.  The situation had obliged Chile
to adopt such exceptional measures as safeguards which had prompted Argentina to take action and torequest a panel.  Chile had to face international prices which were highly distorted for these and other
products, and this was something which did not benefit Chile or Argentina.  On the contrary, it was
extremely harmful.  This was directly linked to the impact of substantial subsidies on exports and
production used by the major trading powers in the c ontext of their agricultural policies.  This was
why two neighbouring developing countries, which had a close economic and political relationship,
had been moved to adopt measures and to react to them as a result of circumstances which had
nothing to do with them.  This should be noted as a further benefit of multi-functionality ofspecificity, or non-trade concerns with which cer tain parties claimed to justify the maintenance of
policies and instruments that caused distortion.  It was ironic and certainly unjust.
83. This situation demonstrated once more the pressing need for progress in negotiations on
agriculture which would allow similar instruments to be eliminated.  In addition, he pointed out that
since mid-December 2000 the total level of tariff protection for wheat and wheat flour was well belowthe level of Chile's tariff binding, i.e. 31.5 per cent.  With regard to vegetable oils, the situation was
different, since, although Chile was above the binding level, this had not prevented Argentina from
continuing to supply 95 per cent of oils imported into Chile (January-September 2000, Central Bank
of Chile).  He wished to emphasize the fact that Argentina's panel request included the extension of
the safeguard measures in question, which had not been the subject of the consultations held inNovember 2000 – and could hardly have been, since that measure had been adopted thereafter and
had resulted from a new investigation which in turn had resulted in the extension of the measure for a
second year.  Chile believed that there was a need to clarify whether the subject of the extension of
the measure was included in Argentina's request for consultations.  If not, there might be a procedural
problem.  On 21 November 2000 a productive consultation meeting had been held at which bothWT/DSB/M/98
Page 20
parties had expressed their points of view.  Therefore, the bilateral route was not yet closed.  There
had been recent meetings between the respective authorities the conclusions of which had given hope
that a mutually satisfactory solution was not far away.  Therefore, in order to allow time to find a
bilateral solution it was not appropriate to establish a panel at the present meeting.
84. The representative of Argentina said that the subject of the extension of the measure was
included in the request for consultations since there was a legal similarity between the original
measure and the subsequent extension thereof.
85. The DSB took note of the statements and agreed  to revert to this matter.
7. Brazil – Export financing programme for aircraft
(a) Recourse to Article 21.5 of the DSU by Canada (WT/DS46/26)
86. The Chairman drew attention to the communi cation from Canada contained in document
WT/DS46/26.
87. The representative of Canada said that his country was requesting an Article 21.5 panel to
examine the WTO-consistency of Brazil's latest revisions to its PROEX programme.  At the
12 December DSB meeting, Brazil had explained that, in its view, the revised PROEX programme
was now fully consistent with its obligations under the SCM Agreement.  Canada remained
unconvinced.  For the past four years, Brazil had insisted that the previous versions of its PROEXsubsidy programme were fully consistent with the SCM Agreement.  After the Panel and the
Appellate Body had ruled against Brazil in 1999, Brazil had modified the original programme and had
claimed that it was now acting consistently with its obligations.  When the Panel and the Appellate
Body had again ruled against the second version of  PROEX, Brazil had refused to comply with the
DSB's recommendations and rulings.  In December 2000, Brazil's then Foreign Minister had admittedthat "our granting of subsidies was flagrant" and that Brazil had expected to lose the case.  In the same
month, Brazil had modified its PROEX scheme, which it had again asserted was fully consistent with
its WTO obligations.  This claim was no more credible than Brazil's previous claims regarding the
earlier versions of PROEX.  Brazil had now admitted it knew that its claims were false when it had
made them.
88. In Canada's view, Brazil had not complied with the DSB's rulings, and continued to violate its
obligations under the SCM Agreement.  This position would be raised vigorously before the
Article 21.5 panel.  He underlined that Canada was invoking Article 21.5 of the DSU in the interest of
further legal clarity.  As noted in the request,  this new Article 21.5 proceeding was in no way a
precondition to the implementation of the authorized countermeasures.  That authorization had been
granted as a result of Brazil's ongoing failure to withdraw the prohibited subsidies under its earlier
PROEX schemes.  Brazil had been granting, and had stated that it would continue to grant, illegalsubsidies under those schemes pursuant to Embraer sales contracts made prior to Brazil's latest
PROEX revisions, in disregard of the DSB's ruli ngs.  Although Canada had not yet imposed the
authorized countermeasures, it retained the full right to do so at any time.  There was no legal
obligation to seek another panel ruling before implementing countermeasures.  Without prejudice to
its legal rights, Canada was prepared to have a panel examine the latest version of PROEX.  Brazilinsisted that the changes it had made to the PR OEX programme brought it into full conformity with
its WTO obligations with respect to new transactions.  Now Brazil could try to prove it to the
Article 21.5 panel.
89. The representative of Brazil said that at the 12 December DSB meeting, his country had
announced that a Monetary Council Resolution - Banco do Brasil Resolution No. 002799, dated
6 December 2000 – had put in force new regulations for PROEX that had brought that programmeWT/DSB/M/98
Page 21
into full conformity with Brazil's WTO obligations.  Brazil had informed Members that under the
revised programme, no equalization payments unde r PROEX would be authorized in amounts that
could bring the net interest rate of the supported loan below the relevant Commercial Interest
Reference Rate (CIRR).  This action was entirely consistent with the findings of the Appellate Body,
which had stated that:  "to establish that subsidies under the revised PROEX are not 'used to secure amaterial advantage in the field of export credit terms', Brazil must prove ... that the net interest rates
under the revised PROEX are at or above the releva nt CIRR".  This standard set by the Appellate
Body had been introduced into PROEX regulations on 6 December 2000.
90. However, Canada seemed to disagree that a net interest rate above CIRR constituted
appropriate implementation of the DSB's recommendations.  Canada's views relied on the findings of
the Panel that the Appellate Body had ruled to be "moot, and, thus, of no legal effect".  Canada
wanted Brazil to follow the Panel's conclusions th at the Appellate Body had unequivocally overruled,
and that consequently had not been adopted by the DSB.  These overruled Panel conclusions with no
legal effect, would require Brazil to adhere strictly to OECD consensus regulations that would
severely and unfairly tilt the playing field against the Brazilian exporter.  He noted that Canada did
not follow those regulations since its programmes  operated in the so-called "market window";  i.e.
under terms that were by definition more generous than those allowed by the OECD consensus.  Thiswas a strange notion of fairness and equity.  Since the Monetary Council Resolution had been
published, no operation had been, or would be approved that might result in net interest rates below
CIRR.  This had been publicly announced on 12 December 2000.  Brazil was therefore surprised
when Canada had decided to seek authorization to apply countermeasures even after Brazil's
announcement that it had implemented the DSB's recommendations.  Brazil had consistently affirmedthat it would honour commitments regarding "old" contracts and, in line with standard WTO
procedures, it had entered into consultations with Canada with a view to agreeing on compensation.
Canada, however, was seeking authorization to retaliate on the grounds that the revised PROEX was
not in conformity with the DSB's recommendations.
91. Brazil considered that Canada was, in effect, making a unilateral determination of
non-conformity by the Panel.  He therefore noted with satisfaction that now Canada had opted for the
course of action it should have taken from the outset.  He wished to draw attention to some
developments which had taken place since the 12 December meeting.  As he had pointed out under
item 3 of the present meeting, on 10
 January 2001, the highest official of the Canadian Ministry of
Industry had publicly announced that Canada would use EDC loans and loan guarantees from
Investissement Quebec  to match financing offers made by the Brazilian aircraft manufacturer in a
recent contract bid.  As he had already mentioned, Canada had not fulfilled pledges to alter theCanada Account Programme, which seemed to be one of the main sources of support in the illegal
"retaliation" package announced on 10 January.  Furthermore, it was apparent that other Canadian
programmes were also being used to support Bombardier in ways that were inconsistent with the
SCM Agreement.  In order to clarify this situation and to pave the way for any further action, Brazil
had requested consultations with Canada (WT/DS222/1).  Given this outlook of acute uncertainty andlack of transparency concerning the present situation of the regional aircraft market, and since the
functioning of the market had been and would continue to be a crucial element in the deliberations of
this dispute, Brazil believed that consultations on this matter were essential.  Since Brazil had also
requested consultations on a number of Canadian programmes affecting the regional aircraft industry,
it considered that it would be useful to hold formal bilateral consultations on the revised Brazilianexport financing programme.  However, although consultations would be helpful in the process of
achieving a mutually agreed solution, Canada had not requested such consultations.  Canada's request
for a panel referred exclusively to Article 21.5 of the DSU which provided that the disagreement of
the parties "shall be decided through recourse to these dispute settlement procedures".  It was Brazil's
understanding that Canada was not resorting to, and could not resort, to the procedures of Article 4.4of the SCM Agreement.  Article 4.1 consultations had not been held – which was a requisite for action
under Article 4.4 – and the SCM Agreement did not differentiate between procedures in the originalWT/DSB/M/98
Page 22
dispute and the Article 21.5 review process.  Brazil's understanding that Canada was not proceeding
under Article 4 of the SCM Agreement was also supported by the fact that Canada's request for a
panel did not refer to that provision.  This did not exhaust Canada's options.  Brazil recognized, that
under Article 6.1 of the DSU a panel "shall be established at the latest at the DSB meeting following
that at which the request first appears as an item on the DSB's agenda".  Consequently, Canada wasfree to submit a second request for the establishment of the panel at a future DSB meeting when,
according to the DSU provisions and DSB precedents, the panel would be established unless the DSB
decided otherwise by consensus.  However, a better option would have been to follow the normal
procedures set out in Article 4 of the SCM Agreement and to hold consultations.  Either way, Brazil
did not agree to the establishment of the panel at the present meeting.
92. The representative of Japan said that his country was concerned that the disputes between
Brazil and Canada continued without arriving at definitive resolutions.  This situation was affecting
the credibility of the dispute settlement system and was against the spirit of the DSU, which stipulated
that "the prompt settlement of situations" was "essential to the effective functioning of the WTO".
Japan urged both Brazil and Canada to redouble their efforts to obtain, through bilateral consultations,
a mutually satisfactory solution for a full compliance of the DSB's recommendations.  However, in
case the Article 21.5 process was to be initiated, once again, he believed that it was necessary andappropriate for the panel to provide clear and specific guidance in order to enable the parties to
resolve these disputes.
93. The representative of the United States said that his country had been following this dispute
with interest and hoped that Canada and Brazil would ultimately find a way to resolve their
differences.  The United States believed that it was in keeping with the intent of the drafters ofArticle 21.5 of the DSU to promote expedited resoluti ons of disputes over compliance with the DSB's
rulings and recommendations.  Therefore protracted delays in the treatment of Article 21.5 requests
should be avoided as they only undermined the dispute settlement process and the credibility of the
WTO.  Furthermore, with respect to consultations, it was the US view that it was up to a panel to
decide on this issue in accordance with the past practice.
94. The representative of the European Commun ities said that the EC shared the concern
expressed by Japan to the effect that the parties to the dispute should try to find an amicable solution.
The EC also shared the position of Brazil that under Article 21.5 of the DSU consultations would be
necessary.
95. The representative of Argentina said that whil e the questions raised at the present meeting
were still pending clarification, his country believed that it was preferable that decisions on those
issues were not taken by panels but by Members.  Argentina therefore considered that the partiesshould exercise extreme caution and resolve such problems through consultations which should be as
exhaustive as possible with a view to reaching an agreement.
96. The representative of Uruguay said that his country shared the concerns expressed at the
present meeting not only with regard to this case  but also with regard to the impact which such
prolonged cases had on dispute settlement procedures and on the WTO's image.  The pressure whichthe system was being subjected to was a threat to its integrity and undermined the confidence that
many Members had in the system which enabled them to defend and promote their interests.  In an
effort to defend their interests some delegations had pushed the limits of the DSU text too far due to
existing ambiguities.  He reiterated that it was up to the General Council to interpret the WTO rules.
The aim of the dispute settlement system was to help Members to solve disputes, not to givelegitimacy to trade disputes and that was why it was even more important for the parties to exhaust all
possible remedies in an effort to finding a solution and consultations were one of those remedies.  He
therefore believed that such consultations should be  held in all cases.  The two parties to the dispute
had stated more than once that they were prepared to discuss this matter and to hold consultations.WT/DSB/M/98
Page 23
Uruguay strongly encouraged them to do so, and hoped that through these consultations they would
be able to solve the problems before proceeding to a panel.  Some delegations had asked that the panel
provide clarification on this issue, but his delegation believed that it was not up to a panel to do so.
97. The representative of Canada said that his delegation had noted the statements made by some
Members in which they had referred to the need to protect the credibility of the system.  He stressed
that Canada had always stood ready to do that.  He wished to respond to one procedural argument
raised by Brazil, namely, the need for two DSB mee tings in order to refer the matter to the original
Panel in accordance with Article 21.5 of the DSU.  In Canada's view there was no need for two DSB
meetings in order to do so.  No such a requirement was stipulated in Article 21.5 of the DSU.  The
object and purpose of Article 21.5 of the DSU, as pointed out by the United States, was to provide for
a rapid adjudication of an implementation dispute.  Since the process was only 90 days it would be
absurd to read into Article 21.5 the requirement for two DSB meetings.  He believed that many
Members would consider this highly undesirable precedent with concern.  The fact that Brazil claimed
to be in full compliance puzzled Canada because if this was the case why did it want to delay the
process in the first place.  He therefore questioned Brazil's intentions since, on the one hand, it
claimed full compliance and, on the other hand, it sought to delay a multilateral process under an
Article 21.5 panel.
98. The representative of Brazil noted that, as indicated in the minutes of the 21 December 1998
DSB meeting, in the context of the item on "European Communities – Regime for the Importation,
Sale and Distribution of Bananas" the Chairman had stated that there was no consensus on the
establishment of an Article 21.5 panel and had proposed that the DSB take note of statements, agree
to revert to the matter and that consultations would be held before the next meeting with a view tofinding an agreement on pending issues.  At the subsequent meeting reference had been made to the
fact that this was a second DSB meeting at which the item was on the agenda.  He noted that many
delegations had appropriately emphasized the need for prior consultations.  Brazil was confident that
it was in full compliance with the DSB's recommendations but, based on its experience, it believed
that it would take a long time to convince Canada that this was the case.
99. The representative of the European Communitie s reiterated that his delegation shared the
point made by Brazil with regard to the need for consultations.  The EC believed that the provisions of
Article 6 of the DSU prevailed and were part of the Article 21.5 procedure.  However, since the
Article 21.5 process was short the parties could agree that such consultations be carried out within a
relatively short period of time.
100. The representative of Canada said that the problem for Brazil was not that it had been unable
to convince Canada, but that it had been unable to convince five Panels. A number of Members had
referred to the need for consultations as well as fo r two DSB meetings in order to refer the matter to
the original panel in accordance with Article 21.5 of the DSU.  It was not that Canada did not wish to
hold discussions with Brazil.  The parties had been discussing this matter for five years.  However,
Canada fundamentally disagreed with the view that Article 4 consultations were a precondition to the
establishment of an Article 21.5 panel.  No such agreement was stipulated in Article 21.5 of the DSU.Moreover, there had been several panels established under Article 21.5 despite the fact that no
consultations had preceded such panel requests.  These included the Salmon case (WT/DS18), the
Australian Leather case (WT/DS126) and the Shrimp case (WT/DS58) as well as the two previous
panels pertaining to both Aircraft cases.   To re quire prior consultations would not be in keeping with
the object and purpose of such consultations which was to enable Members to clarify and resolvecomplaints prior to a panel process.  After more than four years of dispute settlement and its own
intransigence, Brazil could not possibly pretend that it required clarification as to the nature of
Canada's complaint or that another set of  consultations were now a prerequisite to a solution to this
dispute.   Furthermore, a requirement for prior consultations would run counter to the object and
purpose of Article 21.5, which as pointed out by some Members provided for a rapid adjudication ofWT/DSB/M/98
Page 24
an implementation dispute.  Since the entire process was only 90 days it would be absurd to read into
Article 21.5 the requirement of a 60-day consultation period.  Therefore, in the absence of a
requirement for consultations, the DSB had no choice but to apply the negative consensus rule and to
refer the matter to the original Panel.
101. The representative of Brazil said that if Canada had requested the Article 21.5 panel before
seeking authorization to retaliate, he believed that his country would not have objected to it.
However, the procedural sequencing in this case was incorrect. Canada had first asked for
authorization to retaliate and then there had been an announcement that Canada was already
retaliating. In other words, it was trying to legitimize something it had already done.  Canada could
try to do it but should not expect Brazil to have the same attitude as it would have had if this request
had been made before the request for authorization to retaliate and before the actual demonstration of
willingness to retaliate. Legal arguments had been made in this regard and there were someprecedents.  He reiterated that Brazil could not agree to the establishment of a panel at the present
meeting.
102. The representative of Canada said that Canada had obtained authorization to retaliate in
relation to the earlier PROEX schemes.  However, the purpose of this new Article 21.5 panel was to
examine the most recent modifications made to PROEX.
103. The Chairman proposed that the DSB take note of the statements.  Since Canada's request for
an establishment of an Article 21.5 panel remained on the table he also proposed that the DSB agree
to revert to this matter at its next meeting.
104. The DSB so agreed.
8. United States – Anti-dumping measures on stai nless steel plate in coils and stainless steel
sheet and strip from Korea
(a) Report of the Panel (WT/DS179/R)
105. The Chairman recalled that at its meeting on 19 November 1999, the DSB had agreed to
establish a panel to examine the complaint by Korea.  The Report of the Panel contained in document
WT/DS179/R had been circulated on 22 December 2000.  He reminded delegations that in accordancewith the Decision on Procedures for the Circulation and Derestriction of WTO Documents contained
in WT/L/160/Rev.1, the Panel Report had been circulated as an unrestricted document.  The Panel
Report was now before the DSB for adoption at the request of Korea.  In accordance with Article 16.4
of the DSU, the adoption procedure was without prejudice to the right of Members to express their
views on the Panel Report.
106. The representative of Korea expressed his country's gratitude to the Panel and to the
Secretariat for their work.  The parties to this dispute had submitted extensive and complex arguments
on a number of issues of anti-dumping law.  It was clear from the Report that the Panel had dealt with
these arguments fully and fairly.  Korea appreciated the Panel's diligence in carrying out its functions.
With this decision, the Panel had affirmed the importance of the dispute settlement system in the
anti-dumping area.  While scrupulously adhering to the deferential standard of review stipulated in the
Anti-Dumping Agreement, the Panel had nevertheless been able to effectively ascertain whether ornot the methodology used by the investigating authority to measure the "margin of dumping"
conformed with WTO disciplines.  He then drew at tention to the three key conclusions of the Panel.
First, with respect to sales that POSCO
3 made to a US customer that the later had gone bankrupt
without paying POSCO, the investigating authority had treated the full costs arising from the
                                                     
3 Pohang Iron and Steel Company.WT/DSB/M/98
Page 25
non-payment as "direct selling expenses" and had taken those costs into account in the comparison of
export price to normal value.  The investigating authority had done so, even though it had conceded
that there was no reason for POSCO to have known when it had made the sale that the customer
would not pay.  The Panel had concluded that it was wrong for the investigating authority, under those
circumstances, to attribute the unanticipated cost of the customer's failure to pay as a cost to POSCOin the price comparison.
107. Second, with respect to so-called "multiple averaging", the investigating authority had divided
the periods of investigation into two sub-periods, be fore and after the devaluation of the Korean Won
in late 1997.  The investigating authority had then  calculated a separate dumping margin for each
sub-period, treated a sub-period of "negative dumping" as that of "zero dumping", and had then
recombined the separate calculations into a total figure that was higher than would have resulted from
the calculation of a single average for the entire period.  The Panel had concluded that it was wrongfor the investigating authority to "split the period" in this manner, because a single average should be
calculated for all comparable sales and the change in  the value of the Korean Won did not affect the
comparability of the sales.  Korea noted that the Panel had not made any finding in this dispute on the
issue of "zeroing".  In the case on the EC – Bed Linen (WT/DS141), the Panel had recently found the
practice of "zeroing" to be inconsistent with the Anti-Dumping Agreement.  Korea strongly supportedthat conclusion.
108. Third, with respect to sales in Korea that had be en invoiced in US dollars, the investigating
authority looked past the dollar price on the invoice to the Won amount recorded in POSCO's
accounting records and then converted that Won price into dollars.  The effect, therefore, was not to
include in the price comparison the actual dollar-denominated value of these home-market sales.Instead, a "double converted" amount had been included, i.e. the dollar price from the invoice had
been converted into Won at one exchange rate in POSCO's records and that amount had then been
converted back to dollars at a different exchange rate.  The Panel had concluded that such "double
conversions" were inconsistent in principle with the Anti-Dumping Agreement.  If one were to
attempt to find a common theme among these three conclusions, it would be this:  an exporter shouldnot be found to be dumping based on factors beyond its control.  The "margin of dumping" was to be
determined by a price comparison between the exporter's home-market prices (normal value) and
export prices.  That comparison should not be influenced by extraneous factors, such as a customer's
failure to pay.  In particular, the price comparison should not be done in a manner susceptible to
distortion, such as could arise from the vagaries of exchange rates if "double conversion" were
permitted or from "zeroing" if "splitting the period" were permitted.
109. There were certain aspects of the Panel's reasoning with which Korea disagreed.  Some of
these had been reflected in the comments that Korea had made at the interim stage.  But that was only
to be expected in a complex case raising so many issues.  In general, Korea was fully satisfied with
the Panel's decision.  With the adoption of the Panel Report, Korea looked forward to the prompt
implementation of the Panel's recommendations.  In view of the nature of the violations found by the
Panel, Korea considered that the United States ought  to be able to complete its implementation within
a few months.
110. The representative of the United States said that his country wished to thank the Panel and the
Secretariat for its work.  He noted that this dispute involved some very technical aspects of particular
anti-dumping investigations and, at the same time, the technical aspects meant that the Panel's
findings were limited to the unique facts of this case.  Therefore, he wished to reflect the US view thatthe Panel's conclusions should be narrowly interpreted upon the basis of those facts.  The United
States appreciated the Panel's acceptance of the US position that the use of multiple averaging periods
in the plate and sheet investigations had  not been inconsistent with Article 2.4.1 of the Anti-Dumping
Agreement, or with the first sentence of the chapeau of Article 2.4.  He believed that the Panel was
correct in concluding that adjustments for constructing export price sales were not limited based onWT/DSB/M/98
Page 26
whether the adjustment arose between import and sale in a strictly temporal sense.  The United States
also believed that the Panel had correctly concluded that Article X of the GATT 1994 did not provide
a proper basis for examining the consistency with domestic law of an anti-dumping determination.
However, he wished to register the US continued disagreement with certain aspects of the Panel's
conclusions concerning the treatment of bad debt and certain local sales.  In particular, the UnitedStates wished to note its disagreement with the Panel's conclusion on the use of multiple averaging
periods.  It continued to believe that the United States' determination in these investigations – that
sales before a severe currency devaluation were not comparable to sales after the devaluation – rested
on a "permissible" interpretation of Article 2.4.2, within the meaning of Article 17.6(ii) of the
Anti-Dumping Agreement.  In view of these continuing concerns, the United States did not join in a
consensus to adopt the Panel Report, but recognized that, in the absence of a consensus to reject it, the
Report would be adopted at the present meeting.  The United States would follow the procedures inthe DSU for stating its intentions in a timely manner with respect to implementation, bearing in mind
that the Panel had explicitly declined Korea's requ est for a panel to suggest that the United States
revoke the anti-dumping duties at issue in this dispute.
111. The DSB took note of the statements and adopted
 the Panel Report contained in
WT/DS179/R.
9. Proposed nominations for the indicative list of governmental and non-governmental
panelists (WT/DSB/W/155)
112. The Chairman drew attention to document WT/DSB/W/155 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/155.
113. The DSB so agreed.
10. Statement by Brazil concerning the US Patents Code
114. The representative of Brazil, speaking under "Other Business", said that his country had
detected several discriminatory provisions in the US Patents Code, (United States Code – Title 35 –
Patents), in particular those of Chapter 18 [38] – "Patent Rights in Inventions Made with FederalAssistance".  The United States Patents Code stipulated that no small business firm or non-profit
organization which received title to any subject in vention and no assignee of any such small business
firm or non-profit organization should grant to any person the exclusive right to use or sell any subject
invention in the United States, unless such person agreed that any products embodying the subject
invention or produced through the use of the subject invention would be manufactured substantially in
the United States.  In addition, each funding agreement with a small business firm or non-profit
organization should contain appropriate provisions to effectuate the above-mentioned requirement.The Patents Code also imposed statutory restrictions which limited the right to use or sell any
federally owned invention in the United States only to a licensee that agreed that any products
embodying the invention or produced through the use of the invention would be manufactured
substantially in the United States.  In this sense, Brazil had requested consultations with the United
States in order to examine these and other provisions of the US Patents Code, with a view tounderstanding how the United States justified the consistency of such requirements with its
obligations under the TRIPS Agreement, especially Articles 27 and 28, the TRIMs Agreement,
Article 2, in particular, and Articles III and XI of GATT 1994.
115. The representative of the United States said that his delegation noted the clarification
provided by Brazil.  This was obviously a reaction by Brazil to the panel that had been established
under item 4 of the present meeting with regard to Brazil's local manufacturing requirement.
However, there was no parallel between these two laws.  The chapter of the US law that was ofWT/DSB/M/98
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concern to Brazil contained contractual terms for anyone who wished to license a patent owned by the
US Government, or would like the US Government to  fund their research and development projects.
These were contractual agreements that anyone could voluntarily enter into.  They were not
conditions on the enjoyment of patent rights.  This was a "far cry" from Brazil's requirement that all
patents, regardless of who owned them or who fund ed their creation, be subject to compulsory license
unless locally manufactured.  The United States was confident that its patent law was consistent with
its WTO obligations, and would be glad to consult with Brazil on this matter.
116. The DSB took note of the statements.
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