WORLD TRADE
ORGANIZATIONWT/DS165/R/Add.1
17 July 2000
(00-2916)
Original:  English
UNITED STATES – IMPORT MEASURES ON CERTAIN PRODUCTS
FROM THE EUROPEAN COMMUNITIES
Report of the Panel
Addendum
The present Addendum contains the Appendices of the Report of the Panel which is contained
in document WT/DS165/R.WT/DS165/R/Add.1
Page 2
Appendix 1.1 The First Submission of the European Communities (10 November 1999)
Appendix 1.2 The EC oral presentation at the First Substantive Meeting (16 December 1999)Appendix 1.3 The EC final statement at the First Substantive Meeting (17 December 1999)Appendix 1.4 The EC Responses to Questions of Panel and Parties (13 January 2000)Appendix 1.5 Rebuttal Submission of the European Communities (21 January 2000)Appendix 1.6 The EC letter dated 25 January 2000 concerning the scope of the Panel's terms of
reference (25 January 2000)
Appendix 1.7 The EC Responses to Additional Questions of Panel (8 February 2000)Appendix 1.8 The EC oral presentation at the Second Substantive Meeting (9 February 2000)
Appendix 1.9 The EC final statement at the S econd Substantive Meeting (9 February 2000)
Appendix 1.10 The EC Responses to Additional Questions of Panel (10 February 2000)Appendix 2.1 The First Submission of the United States (6 December 1999)
Appendix 2.2 The US oral presentation at the First Substantive Meeting (16 December 1999)Appendix 2.3 The US closing remarks at the First Substantive Meeting (17 December 1999)
Appendix 2.4 The US Responses to Questions of Panel and Parties (13 January 2000)
Appendix 2.5 Rebuttal Submission of the United States (including its cover letter)
(21 January 2000)
Appendix 2.6 The US Responses to Additional Questions of Panel (8 February 2000)
Appendix 2.7 The US oral presentation on matters relating to the scope of this dispute at the
Second Substantive Meeting (9 February 2000)
Appendix 2.8 The US oral presentation at the Second Substantive Meeting (9 February 2000)
Appendix 2.9 The US closing statement at the S econd Substantive Meeting (9 February 2000)
Appendix 2.10 The US Responses to Additional Questions of Panel (10 February 2000)
Appendix 3 Oral presentation of Dominica and St. Lucia at Third Party session
(17 December 1999)
Appendix 4 Oral presentation of Ecuador at Third Party session (17 December 1999)Appendix 5 Third Party Submission of India (10 December 1999)Appendix 6 Third Party Submission of Jamaica (8 December 1999)Appendix 7 Oral presentation of Japan at Third Party session (17 December 1999)WT/DS165/R/Add.1
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Appendix 1.1
First Submission of the European Communities
(10 November 1999)
I. THE SCOPE OF THIS PROCEDURE AND THE OBJECTIVE PURSUED BY THE
EC
1. The European Communities have requested the DS B to establish the present Panel against the
United States with a view to arrive at a ruling recommending the US to withdraw the illegal trade
measure taken on 3 March 1999 and confirmed on 19 April 1999 (hereinafter: the "Measure"),
limiting the importation of selected products originating in the European Communities. The EC
considers that the facts of the case are straightforward and do not need, therefore, lengthy debates.The EC accordingly requests the Panel to proceed expeditiously within the shortest possible time-
frame with the examination of the matter under its te rms of reference. In this respect, the EC would
like to draw the Panel's attention to the fact that the illegal US measures continue to deploy their
detrimental effects on the EC economic operators.
II. THE FACTS AT ISSUE
2. On 7 January 1998, the Arbitrator Dr. El-Naggar ruled that
"…pursuant to Article 21.3 (c) [of the DSU], the 'reasonable period of time' for the
European Communities to implement the recommendations and rulings of the DSB
adopted on 25 September 1997 in European Communities - Regime for Importation,
Sale and Distribution of Bananas, shall be the period from 25 September 1997 to1 January 1999"
1.
3. The Council of the European Union adopted Regulation (EC) No. 1637/98 of July 20, 1998
amending Regulation (EEC) 404/93 on the common or ganisation of the market in bananas (OJ L 210
of July 27, 1998). Regulation 1637/98 entered into force on July 31, 1998 and was applicable as fromJanuary 1, 1999. Making use of the delegated powers attributed to it by the Council, the European
Commission adopted Commission Regulation (EC)  No. 2362/98 of October 28, 1998 laying down
detailed rules for the implementation of Council Regulation (EEC) No. 404/93 regarding the imports
of bananas into the Community (OJ L 293 of October 31, 1998). It entered into force on
1 November 1998 and was applicable in its entirety as from 1 January 1999.
4. The modifications introduced by these Regulations created a completely new set of rules
addressing specifically those elements of the previous banana regime which were found to be
incompatible with WTO rules both with respect to GATT and to GATS.
5. Well before the conclusion of the reasonable period of time granted by the Arbitrator to the
EC, and at a time when the EC had not yet adopted the entirety of the envisaged measures in order to
comply with the recommendations and rulings of the DSB adopted on 27 September 1997, the United
States published three notices in the US Federal Register respectively on 22 October, 10 Novemberand 29 December 1998
2 (EC Annex I, II and III) of proposed determination of action by imposing
prohibitive (100 per cent ad valorem ) duties on selected products from the European Communities.
This proposed action was based on the unilateral determination by the United States that «the
measures the EC has undertaken to apply as of January 1, 1999 fail to implement the WTO
                                                     
1 WT/DS27/15, paragraph 20.
2 Vol. 63, page 56687, page 63099 and page 71665.WT/DS165/R/Add.1
Page 4
recommendations concerning the EC banana regime». The actions proposed are intended to be in
place «beginning as early as February 1, 1999».
6. The publication of the above-mentioned notices was the enactment of a political commitment
taken by the US president vis-à-vis the US congress (EC Annex IV ), which explicitly refers to a bill
which was discussed at that time in the US congress. The commitment made in the letter was thus
clearly aimed at preventing the US legislator to adopt legislation imposing immediate economicsanctions against the EC (EC Annex V and VI).
7. On 14 January 1999, without having requested a dispute settlement procedure as it was
required to do under Article 21.5 of the DSU, the US nevertheless requested authorisation from the
DSB under Article 22 of the DSU to suspend the application to the EC of tariff concessions and
related obligations under the GATT.
8. After thorough debates in the DSB and in the General Council that underlined the
extraordinary nature of the US request and the danger that such action was creating for the WTOdispute settlement system
3, in order to limit as much as possible the damage for its economic
operators, on 29 January 1999 the EC objected to the level of suspension proposed by the
United States and the matter was referred to arbitration pursuant to article 22.6 of the DSU.
9. On 2 March 1999, the Arbitrator issued an "initial" decision4. The cover letter sent to the
parties to the procedure stated the following
"I write to inform you that the Arbitrators have today issued an initial decision to the
parties in which we rule on matters related to the scope of our work and to certain
aspects of the methodology and calculations of the United States for determining the
level of suspension of concessions.  In addition, we have requested the parties to
supply us with additional information.  This information should enable us to take afinal view on the level of nullification or impairment based on the WTO
inconsistency, if any, of the revised EC banana regime, and, if relevant, to determine
the level of suspension of concessions or other obligations equivalent to the level of
such nullification or impairment.  Following our receipt and analysis of that
information, we expect to be in a position to issue a final decision in this matter soonthereafter."
10. Notwithstanding this very clear statement by the Arbitrator, on the basis of its unilateral
determination that the European Communities ha d failed to implement the DSB's recommendations
on this regime, the USTR announced on the following day (3 March 1999) that the U.S. CustomsService would begin as of that date withholding liquidation and reviewing the sufficiency of bonds on
imports of selected European products covering trade in an amount of $520 million (EC Annex VII).
Normally, a customs debt is incurred upon importation of goods liable to import duties and is
established on the basis of the duty applicable to the product that is currently imported. The level of
the duty is the one determined in the US tariff no menclature and its level should not exceed the level
set out in the US WTO Schedule of commitments.
In practice, the US measure suspended the liquidation of a customs debt on importation according to
the normal rules, rendering thus impossible the paym ent of duties as they appeared in the US customs
nomenclature. In addition to this action, the US measure imposed the deposit of a bond (or security),
which could not be released until such time as the customs debt in respect of which it was given was
extinguished or could no longer arise. The level of the security was calculated not on a level derived
                                                     
3 See WTO doc. WT/DSB/M/54, in particular page 30 et sequitur .
4 WT/DS27/48.WT/DS165/R/Add.1
Page 5
from but not exceeding the US bound duties (i.e. the ordinary customs debt), but to a level far higher,
in fact at 100% ad valorem  (i.e. the arbitrary level of retaliation unilaterally set by the US) (EC
Annex VIII).
In addition, the decision to withhold customs li quidation on 3 March 1999 imposed upon importers of
selected European products a contingent duty liability of 100 percent ad valorem , discriminated
against European products and importers since importers of like products of other origins were onlyexposed to a duty liability corresponding to the bound customs tariff.
11. On 9 April 1999, the Arbitrator issued a decision determining the level of nullification or
impairment of the US at US $191.4 million
5. On the same day (9 April 1999), the United States
requested the DSB authorisation to suspend concessions or other obligations to the EC for that
amount. The authorisation was granted on 19 April 19996.
12. Effective as from 19 April 1999, the USTR confirmed (EC Annex IX and X) that a 100%
ad valorem  rate of duty is applied retroactively to the EC products listed in the notice that had entered,
or withdrawn from warehouse, for consumption on or after 3 March 1999.
III. THE VIOLATION OF US WTO OBLIGATIONS
A. THE VIOLATION OF ARTICLE 22 OF THE DSU
13. According to Article 22.6, last sentence, of the DSU
"Concessions or other obligations shall not be suspended during the course of the
arbitration".
14. By implementing its 3 March measure, the US has breached this rule. In fact, while the
arbitration procedure was still on-going, the US imposed a requirement exclusively on products
imported from the EC of a contingent duty liability of 100 percent, while importers of like products ofother origins were subject to a duty liability corresponding to the bound customs tariff. The bonds on
imports from the EC corresponded (or were committed as to correspond) to that higher contingent
duty liability covering trade in an amount of $520 million.
15. The real purpose and effect of the measure was to deter imports altogether, as importers
would logically be very reluctant to accept a risk of having to pay 100% ad valorem  duties
retroactively. As the Deputy USTR P. Scher indicated at a press conference held on 3 March 1999
(EC Annex XI),
"we retaliated by effectively stopping trade as of March 3 in response to the harm
caused by the EC's WTO-inconsistent banana regime".
Moreover, as is demonstrated by the Arbitrator's final decision, the amount of US$ 520 millions of the
value of EC imports subject to suspension of concessions or other obligations, unilaterally determined
by the US authorities, has no basis under WTO law.
B. T
HE VIOLATION OF ARTICLES I, II, XI AND VIII OF THE GATT 1994
16. In addition, it is evident from the facts mentioned above that the Measure at issue is
inconsistent with:
                                                     
5 WT/DS27/ARB.
6 WT/DSB/M/59, at page 11.WT/DS165/R/Add.1
Page 6
(a) Article I of the GATT 1994 since it discriminates between products originating in the
EC and the products originating in all other countries. On 3 March 1999 only selected
products originating in the EC were burdened by the US measure while other
Members' like products were not;
(b) Article II of the GATT 1994 insofar as it denies as from 3 March 1999 the
unconditional right to import the selected EC products at a tariff not in excess of thatset forth and provided in the US Schedule. The US measure meant that every EC
operator importing one of the products unilaterally targeted by the US measure was
liable to pay a tariff incomparably higher than the duty bound in the US Schedule;
(c) Article XI of the GATT 1994, insofar as the consequence of the "retaliatory" measure
was, in the Deputy USTR's own language, to "effectively stopping trade as of
March 3";
(d) Articles II.2(a) and VIII.1 of the GATT 1994, insofar as the requirement to submit or
commit bonds beyond the bound rate duty upon importation of selected EC products
results in increased costs for importers th at constitute "other charges" imposed in
connection with importation that are prohibited.  It is undeniable that the deposit of a
security (or posting of a bond) necessarily imposes a financial burden since each and
every operator (or its customs agent) subject to such a measure is obliged:
- either to deposit a lump sum (which entails necessarily one of the following
situations: either the sum is ready and available for the operator, in which case
it suffers a loss of interests and thus a cost; or must borrow the money, in
which case it is liable for the payment of the interests for the loan)
- or to deposit a financial guarantee, which the financial institutions deliver
only at a cost related to the guaranteed amount.
- or, finally, to commit part of a general security (or continuous bond). If the
general security is not sufficient, an additional security is required or an
increase of the general security must be provided.
17. The Measure in fact obliged the operators or their customs agents to follow the second or
third option described in paragraph 16 (d) above (EC Annex VIII and X). Both options entailed a
burden additional to what was required by the US customs authorities in application of ordinary
customs duties.
C. THE VIOLATION OF ARTICLE 23 AND ARTICLE 3 OF THE DSU.
18. The USTR made clear in a public notice requesting comments on the planned 3 March 1999
action that it was required under Sections 301-310 to implement that action on that date:
Given that the reasonable period of time for the EC's implementation of the WTO
recommendations concerning the EC banana regime expires on January 1, 1999, the
USTR must make the determination required by section 306(b) no later than
January 31, 1999, and, in the event of an affirmative determination, must implement
further action no later than 30 days thereafter.7
                                                     
7 Federal Register, Vol.63. No.204, Thursday, October 22, 1998, pages 56688 and 56689.WT/DS165/R/Add.1
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19. The USTR thus considered itself bound to take retaliatory action 60 days after the expiry of
the implementation period in response to a perceived failure to implement rulings or
recommendations of the DSB. The USTR added
"these time frames permit the USTR to seek recourse to the procedures for
compensation and suspension of concessions provided in Article 22 of the DSU"8.
20. However, when it turned out that the Article 22 procedures were not completed on
3 March 1999 and that the United States could therefore not obtain the necessary DSB authorisation at
the time required by its domestic legislation, the USTR nevertheless imposed trade sanctions by
"effectively stopping trade". This course of events  confirms that the USTR implemented the further
action (unilaterally) decided upon only on the basis of its domestic legislation and thus irrespective  of
whether that action conformed to the requirements of Article 23; paragraphs 1 and 2, of the DSU.
21. Under Article 23 of the DSU, the United States has accepted an unconditional and unqualified
obligation to impose suspension of concessions or other obligations only with DSB approval but has
applied its domestic legislation in breach of such fundamental obligation under the WTO Agreements.
Moreover, the US measure is at odds with WTO law with regard to its timing, its amount and the total
disregard of WTO procedures, thus fundamenta lly undermining the authority of the WTO bodies
dealing with dispute settlement. It also undermines the expectation that WTO Members would ensurethe conformity of their domestic administrative procedures with WTO law, in particular with the
requirement of the DSU.
As the Panel on " US-Sections 301-310 "
9 has indicated:
"Article 23.1 (…) prescribes a general duty of a dual nature.  First, it imposes on all Members
to "have recourse to" the multilateral process set out in the DSU when they seek the redress ofa WTO inconsistency.  In these circumstances, Members have to have recourse to the DSU
dispute settlement system to the exclusion of  any other system, in particular a system of
unilateral enforcement of WTO rights and obligations.  This, what one could call "exclusive
dispute resolution clause", is an important new element of Members' rights and obligations
under the DSU.  Second, Article 23.1 also prescribes that Members, when they have recourseto the dispute settlement system in the DSU, have to "abide by" the rules and procedures set
out in the DSU.  This second obligation under Article 23.1 is of a confirmatory nature:  when
having recourse to the DSU Members must abide by all DSU rules and procedures.
Turning to the second paragraph under Article 23, Article 23.2 – which, on its face, addresses
conduct in specific disputes – starts with the words "[i]n such cases".  It is, thus, explicitly
linked to, and has to be read together with and subject to, Article 23.1.
Indeed, two of the three prohibitions mentioned in Article 23.2 – Article 23.2(b) and (c) – are
but egregious examples of conduct that contradicts the rules and procedures of the DSU
which, under the obligation in Article 23.1 to "abide by the rules and procedures" of the DSU,
Members are obligated to follow.
10  These rules and procedures clearly cover much more than
the ones specifically mentioned in Article 23.2.11   There is a great deal more State conduct
                                                     
8 Id., page 56689.
9 Cf. paras. 7.43-7.45 of the panel report, WT/DS 152/R.
10 [original footnote] Article 23.2(a), in contrast, prohibiting Members from making certain
determinations, is not covered elsewhere in the DSU.
11 [original footnote] One could refer, for example, to the requirement to request consultations pursuant
to Article 4 of the DSU before requesting a panel under Article 6.WT/DS165/R/Add.1
Page 8
which can violate the general obligation in Article 23.1 to have recourse to, and abide by, the
rules and procedures of the DSU than the instances especially singled out in Article 23.2.12
22. It finally undermines the achievement of the fundamental objectives under Article 3 of the
DSU. Article 3 of the DSU describes the dispute settlement system of the DSU as "a central element
in providing security and predictability to the mult ilateral trading system". As the Appellate Body has
indicated in the " LAN" report13, the objective of the "security and predictability of the multilateral
trading system" is also an object and purpose of the substantive WTO Agreements themselves. It is
the reflection of the general principle of public international law " pacta sunt servanda " (Article 26 of
the Vienna Convention of the Law of Treaties), which requires that international agreements be
performed in good faith.
D. THE VIOLATION OF ARTICLE 21.5 OF THE DSU.
23. Article 21.5 of the DSU provides that
"where there is a disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings such
dispute shall be decided through recourse to these dispute settlement procedures,
including whenever possible resort to the original Panel. The Panel shall circulate its
report within 90 days after the date of referral of the matter to it"
24. This provision, and in particular the terms "shall", "Panel" and "these dispute settlement
procedures" must be interpreted in accordance with the principles of the Vienna Convention on the
Law of Treaties, i.e. it must be interpreted
"in good faith in accordance with the ordinary meaning to be given to the terms of the
treaty in their context and in the light of its object and purpose" (Article 31.1).
25. It is the EC's view that the ordinary meaning of the term "shall" is "expressing a command or
duty"14. In the WTO context, the term "Panel" is defined in Articles 6, 7 and 8 of the DSU. The terms
"these dispute settlement procedures" interpreted in "good faith" in the context of Article 21.5 meannothing else than a dispute settlement procedure under the DSU, which includes a Panel as defined in
Articles, 6, 7 and 8 (and thus not just an arbitration procedure whose legal nature, scope of action,
procedural and substantial guarantees with respect to the right of defense, access to the AppellateBody, access for third parties is incomparable to a panel procedure).
26. As the Appellate Body stated in the " India - Mailbox " case
15, paragraph 45,
"The duty of a treaty interpreter is to exam ine the words of the treaty to determine the
intentions of the parties.  This should be done in accordance with the principles of
treaty interpretation set out in Article 31 of the Vienna Convention .  But these
principles of interpretation neither require nor condone the imputation into a treaty of
words that are not there or the importation into a treaty of concepts that were not
intended."
                                                     
12 [original footnote] Not notifying mutually agreed solutions to the DSB as required in Article 3.6 of
the DSU or not abiding by the requirements for a request for consultations or a panel as elaborated in Articles 4
and 6 are some other examples of conduct that would be contrary to DSU rules and procedures but is not
mentioned specifically in Article 23.2.
13 WT/DS62/AB/R - WT/DS67/AB/R - WT/DS68/AB/R.
14 Oxford English Reference Dictionary, 1995.
15 WT/DS50/AB/R.WT/DS165/R/Add.1
Page 9
27. Thus, "where there is a disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings" there is an obligation
("shall") to have recourse to a Panel procedure under Article 21.5 of the DSU (unless the complainantdecides not to proceed as it is allowed under Article 3.7, first sentence, of the DSU).
28. The US did nothing of the sort. Well before the conclusion of the 'reasonable period of time'
and at a time when not all the EC measures necessary to implement recommendations and rulings ofthe DSB had yet been adopted by the competent EC Institutions, the US had already unilaterally
determined that the EC measures violated the EC's WTO obligations. On the basis of a unilateral
determination, driven exclusively by a domestic political agenda prone to intensive lobbying by
industry interests, the US has unilaterally suspende d tariff concessions to the EC for selected products
as from 3 March 1999 up to a level that was both legally unjustified and economically unjustifiable.
29. As the Panel report on " US - Sections 301 - 310 "16 pointed out at paragraph 7.75:
"Providing security and predictability to the multilateral trading system is another
central object and purpose of the system which could be instrumental to achieving the
broad objectives of the Preamble.  Of all WTO disciplines, the DSU is one of the most
important instruments to protect the security and predictability of the multilateral
trading system and through it that of the market-place and its different operators.
DSU provisions must, thus, be interpreted in the light of this object and purpose and ina manner which would most effectively enhance it".
Notwithstanding, the US measure ignored completely such fundamental reason for the existence,
under the WTO Agreements, of a multilateral system for settling disputes and for authorising
measures aimed at re-balancing the concessions between Members in case of violation of a WTOobligation.
Conclusions
The EC requests the Panel to find that the US measure under its scrutiny has breached Articles 3,
21.5, 22 and 23 of the DSU and Articles I, II, XI a nd VIII of the GATT 1994. Th e US should be urged
to take all the necessary measures to comply with such findings.
                                                     
16 WT/DS152/R.WT/DS165/R/Add.1
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Appendix 1.2
The EC oral presentation at the First Substantive Meeting
(16 December 1999)
Mr. Chairman, distinguished Members of the Panel,
1. The European Communities have initiated this  procedure with the aim to make the DSB
re-affirm, and rule on, some principles of fundamental importance for every system whose
functioning is based on law and not on sheer force: nobody can be judge and jury on the same issue,
nobody can take justice in their own hands without a prior review by an independent and neutral
judge, nobody can disregard the procedures set forth in that legal system, which are aimed at assuring
the correct and orderly functioning of that system and, most importantly, the rights of defence.
2. In sum, we are before you to have the principles of a rules based dispute settlement system
affirmed against a system of power based bullying.
3. What you, Mr. Chairman and Members of the Panel, are required to do by the terms of
reference of this panel is thus to examine and make recommendations on a US measure taken on
3 March 1999 and confirmed on 19 April 1999 which limits the importation of selected products
originating in the European Communities. You are not required,  because this is in fact completelyirrelevant for the resolution of the present dispute,  to review the work of other bodies established by
the DSB in the context of another dispute settlement procedure or to redraw history, as the US would
wish you to do, by qualifying events in a way which simply does not match the reality.
4. In this respect, while the EC is fully prepared at any time - right now, tomorrow or in the next
few weeks - to clarify any issue you may deem appropriate, the EC will refrain from analysing indetail all the  incorrect presentations concerning the facts which were at the basis of earlier disputes
that the US has made in 17 out of 28 pages of its first written submission. The EC believes that such
an exercise would amount to a waste of everybody's time.
5. The European Communities considered in its fi rst written submission that the facts of this
case were straightforward and did not need much elaboration from our part. The US first writtensubmission confirms the EC's understanding.
6. It may be worth while to recapitulate briefly where we stand on the assessment of the facts as
a result of the first exchange of written submissions:
(a) The United States does not contest that the US Measure of 3 March 1999 has an
effect on the duties to be paid. At page 16 of its submission, the US affirms that
1. "Entry procedures in the United States permit timely or
immediate release of goods into the United States.  Since liquidation
of an entry usually is performed after the goods are in the stream of
commerce, bonding is required in order to guarantee the payment of
these additional duties or fees."17 (emphasis added)
Thus, according to the US itself, as soon as the goods were cleared through the US
customs on or after 3 March 1999 and a bond amounting to a 100% ad valorem  duty
was submitted or committed, the importer was bound to pay the (prohibitive)
increased duty at the time of liquidation of the customs debt. The US confirms
moreover that the bonding requirement was essential in order to ensure the collection
                                                     
17 Paragraph 32, in fine .WT/DS165/R/Add.1
Page 11
of the (unauthorised) 100% ad valorem  duties as from 3 March 1999. It is also
confirmed that the bonding requirement was imposed upon a list of products
amounting to a trade value of over half a billion US$, while, as we all know, the
Arbitrator eventually set the level of nullification or impairment of US benefits, andthe corresponding equivalent level of suspension of concessions, at 191.4 million
US$, a third of the initial amount.
(b) The United States does not contest, and cannot contest, the declaration made by the
Deputy USTR attached as Annex X to the EC's first written submission, according to
which
2. "we retaliated by effectively stopping trade as of March 3 in
response to the harm caused by the EC's WTO-inconsistent banana
regime".
Thus, it is confirmed that as a result of the imposition by the US customs of the
bonding requirements under (1) above, a unilateral disproportionate and unauthorised
US retaliatory measure was put in place effective as from 3 March 1999, even though
the arbitration procedure was still on-going.
(c) In its first written submission, the US attempts to confuse the issue by affirming in
paragraph 31, in fine , that
3. "Th[e requirement of a single transaction bond equal to the
entered value of the merchandise, corresponding to 100% ad
valorem ] did not actually assess duties, nor did it prejudge the
amount of the total value of the products which would be assessed
higher duties."
However, the US is unable to contest not only the affirmation of the Deputy USTR
under (2) above, but also that it was not possible for any importer as from
3 March 1999 to import a product included in the unilaterally established retaliation
list just by paying  a duty not exceeding the tariff bound in the US Schedule of tariff
concessions for that product (i.e. without application of the 100% ad valorem  duty).
Apart from the stopping of the trade, this is the other main consequence in practice of
the 3 March US measure of "withholding liquidation", which literally prevents theimmediate liquidation of any customs debt.
(d) While insisting on subjective (and, as a matter of fact, incorrect) descriptions of what
happened before and during the arbitration procedure which was concluded on 19April 1999, the US does not seriously contest, and  cannot contest, two important
statements of the Arbitrator in the initial decision
18 and in the final decision19
respectively:
4. "(…) we have requested the parties to supply us with
additional information.  This information should enable us to take a
final view on the level of nullification or impairment based on the
WTO inconsistency, if any, of the revised EC banana regime , and, if
relevant, to determine the level of suspension of concessions or other
obligations equivalent to the level of such nullification or
impairment."
                                                     
18 WT/DS27/48.
19 WT/DS27/ARB, at paragraph 4.7.WT/DS165/R/Add.1
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5. "(…) [W]e could resort to the option of measuring the level
of nullification or impairment on the basis of our findings in the
original dispute, as modified by the Appellate Body and adopted by
the DSB.  To do that would mean to ignore altogether the undisputed
fact that the European Communities has taken measures to revise its
banana import regime".
Thus, it may well be that an excess of polemics got the US lawyers carried away
when they affirmed in the first US submission that
6. "(…) the arbitrators thus concluded that what the EC now
characterizes as a completely new set of rules for its bananas regime
was in great part a repackaging of those very same elements which
the panel and Appellate Body originally found inconsistent with the
EC's WTO obligations (…)"
Polemics or not, the fact remains that the Arbitrator on 2 March 1999 had not yet
taken any decision on the level of nullification or impairment, "if any", concerning
the "revised" banana import regime that had been "undisputed[ly]" adopted by the EC
before the end of the reasonable period of time. This is all the more confirmed when
considering the following statement of the Arbitrator20:
7. "We also note that both parties accept  that it is the
consistency or inconsistency with WTO rules of the new EC regime -
and not of the previous regime - that has to be the basis for the
assessment of the equivalence between the level of nullification
suffered and the level of the proposed suspension."
(e) The United States does not contest, finally, that the requirement to submit or commit
bonds beyond the bound rate duty upon importation of selected EC products resulted
in increased costs for importers that constitute "other charges" imposed in connection
with importation.
7. In the EC's view, therefore, the undisputed facts of this case are confirmed as follows:
The United States did not pursue any prior dispute settlement procedure under Article 21.5 of the
DSU, as it should have done, with respect to the revised banana regime that the EC had adopted
undisputedly before the end of the reasonable period of time. It undertook on 3 March 1999 to
unilaterally impose retaliatory measures on selected products originating from the EC for an amount
of over half a billion US$. This action was put in place notwithstanding the fact that an arbitrationprocedure was still  under way and was not concluded before 19 April 1999 when a level of
nullification or impairment was set at one third of the level unilaterally determined and imposed by
the US.  The practical effect of this imposition was (1) to effectively stop the trade on the selected
products as from 3 March 1999 and (2) in any case, to deprive as from 3 March 1999 the importers of
the their right of importing those products subject to a duty not exceeding the tariff bound under the
US Schedule of tariff concessions. Moreover, it triggered additional costs for importers that constitute
"other charges" imposed in connection with importation.
8. If we now turn to the legal consequences that s hould be drawn from the facts as they have just
been summarised, the EC considers that the task of the panel has been considerably eased by the
presentation made by the United States in its first written submission.
                                                     
20 Ibid., at paragraph 4.5.WT/DS165/R/Add.1
Page 13
The EC is firmly of the view that the authorisation of suspension of concessions or other obligations
by the DSB under Article 22.2 or 22.7 of the DSU can in no case be granted retroactively. The United
States claims in its first written submission that the DSU is silent on this question21, but this is
incorrect. In fact, Article 22.6, last sentence, contains  the following rule that  limits the right of the
complainant to apply the suspension of concessions or other obligations:
"Concessions or other obligations shall not be suspended during the course of the
arbitration."
This provision would become meaningless if the suspension of concessions or other obligations could
be applied retrospectively after having been authorised by the DSB. As the present case illustrates, it
is in fact impossible in practice to apply the suspension of concessions or other obligations
retrospectively unless some kind of contingency measure has already been taken which clearly
announces the future definitive measure and ensures its enforceability. This contingency measure by
itself is however inconsistent with the clear and unqualified obligation not to resort to the suspension
of concessions or other obligations during the course of the arbitration procedure, because – as is
again illustrated by the present case – such contingency measure will have exactly the same trade
effect as the suspension of concessions or other obligations itself. This is because no importer will be
prepared to take the risk of being subject to a prohibitive duty after the event, since the importation assuch cannot be undone once the product has been put on the market of the importing country.
9. Thus, there is no way in which the US measures in this case could be justified by the alleged
silence of the DSU or by referring to a "liability" of the EC as from the end of the reasonable period
of time. Any such "liability" presupposes that, before there can be a question about what measuresmay or may not be justified as a response to an alleged violation of WTO obligations, that this
allegation has been confirmed by the appropriate WTO body under the appropriate procedures
provided for under the multilateral dispute settlement system. Such "liability" can thus in no case be
invoked by any WTO Member before the relevant procedures under the DSU have been completed.
10. We would also like to observe, in this context, that the date chosen by the United States for
the retroactive application of the suspension of concessions or other obligations, i.e. 3 March 1999,
finds its basis in sections 306(b)(2) and 305(a)(1) of the US Trade Act of 1974 (as amended), because
under those provisions the US Trade Representative is  required to take action at the latest two times
30 days after the end of the reasonable period of time
22. This also follows very clearly, in spite of the
US denial in its first written submission, from the notices published in the Federal Register on thesubject. One of these notices contains the following official statement by the US authorities:
"Given that the reasonable period of time for the EC's implementation of the WTO
recommendations concerning the EC banana regime expires on January 1, 1999, the
USTR must  make the determination required
 by section 306(b) no later than
                                                     
21 Cf. para. 39 of the first written submission of the United States.
22 Section 306(b)(2): "If the measure [...] concerns the implementation of a recommendation made
pursuant to dispute settlement proceedings under the World Trade Organization, and the Trade Representative
considers that the foreign country has failed to implement it, the Trade Representative shall make thedetermination [what further action the Trade Representative shall take under section 301(a)] no later than 30days after the expiration of the reasonable period of time provided for in such implementation under paragraph
[sic!] 21 of the Understanding on Rules and Proced ures Governing the Settlement of Disputes [...]".
Section 305(a)(1): "Except as provided in paragraph (2), the Trade Representative shall implement the
action the Trade Representative determines [...] to take under section 301, subject to specific direction, if any, bythe President regarding such action, by no later than 30 days after the date on which such determination ismade."WT/DS165/R/Add.1
Page 14
January 31, 1999, and, in the event of an affirmative determination, must  implement
further action no later than 30 days thereafter"23 (emphasis added).
The EC would note in this context that it is certainly no coincidence that the time limit of 30 days
after 31 January 1999 expired precisely on 2 March 1999 (given that in 1999, February had 28 days).
11. This is confirmed by another Federal Register notice which reads in relevant part as follows:
"The dates on which the USTR intends to implement action – February 1 or no later
than March 3, 1999 – correspond to the dates contemplated by sections 306(b) and
305(a) of the Trade Act  as well as Article 22 of the DSU"24 (emphasis added).
Thus, the statement that no action was taken by the USTR under section 301 et seq.  on 3 March 1999
contained in the first written submission of the United States in the present procedure25 is in open
contradiction with contemporaneous official notices published in the Federal Register which is
nothing less than the official gazette of the US government.
12. The legal construction submitted by the US in  the present dispute according to which the
action taken on 3 March 1999 was based on a so-called "potential liability" of the EC26 resulting from
its alleged failure to implement the recommendations of the DSB in the Bananas dispute is thus
nothing else than an ex post facto  attempt to provide a justification to a measure which was taken for
reasons related exclusively to domestic political developments in the United States.27 The EC would
like to draw the attention of the Panel to the flagrant contradiction between this action and theexplicit, official, repeated and unconditional commitment which the US representatives gave when
they appeared before the panel on " United States - Sections 301-310 of the Trade Act of 1974 "
according to which the US Trade Representative would "base any section 301 determination that there
has been a violation or denial of US rights under the relevant agreement on the panel or Appellate
Body findings adopted by the DSB"
28.
13. As we have already explained in detail in our first written submission, the US measures that
are the subject matter of the present complaint by the European Communities were taken in flagrant
violation of the obligations of all WTO Members to  respect the provisions of Article 23 of the DSU
which is entitled " Strengthening of the Multilateral System ". The US claims in its first written
submission that "[i]t is difficult to respond to th e EC's vague arguments with respect to Article 23
inasmuch as the EC never identifies the precise obligations in question"29.
14. If the United States has difficulties with the identification of the rules contained in Article 23
of the DSU to which the EC refers in the present case, this only confirms the fundamental disregard of
those rules by the United States, since these rules were analysed in great detail in the recent panel
report on " United States – Sections 301-310 of the Trade Act of 1974 ". The guiding principle of
Article 23 is contained in its paragraph 1 which also governs the more detailed provisions of
paragraph 2 since this paragraph starts with the words "In such cases, Members shall" by which
paragraph 1 is incorporated into paragraph 2. As the panel on sections 301-310 has stated, Article 23.1
of the DSU prescribes that
                                                     
23 Cf. Federal Register, Thursday October 22, 1998, page 56689/90 (EC Annex I).
24 Cf. Federal Register, Tuesday November 10, 1998, page 63099 (EC Annex II)
25 Cf. para. 49 of the first written submission of the United States.
26 Cf. para. 41 of the first written submission by the United States.
27 Cf. the Bill for a "Uruguay Round Agreements Compliance Act of 1998" (H.R. 4761 dated 9 October
1998, EC Annex V to the its first written submission) pending in the US Congress at the relevant time.
28 Cf. para. 7.115 of the report of the panel on United States – Sections 301-310 of the Trade Act of
1974 , doc. WT/DS152/R.
29 Cf. para. 46 of the first written submission of the United States.WT/DS165/R/Add.1
Page 15
"Members have to have recourse to the DSU dispute settlement system to the
exclusion of any other system, in particular a system of unilateral enforcement of
WTO rights and obligations" 30 (emphasis added).
15. Moreover, Article 23.2(c) clearly requires that Members shall
"follow the procedures set forth in Article 22 to determine the level of suspension of
concessions or other obligations and obtain DSB authorization in accordance with
those procedures before  suspending concessions or other obligations under the
covered agreements in response to the failure of the Member concerned to implement
the recommendations and rulings within that reasonable period of time" (emphasis
added).
The EC submits that the measures complained of in the present case are obviously in breach of this
explicit provision concerning the sequence between the procedures under Article 22 of the DSU andthe recourse to the suspension of concessions or other obligations.
16. Moreover, in the present case the United States has not followed the correct procedures under
the DSU before resorting to a request for authorisation of the suspension of concessions or other
obligations under Article 22.2 and 22.7 of the DSU.
17. While the United States claims in its first written submission that there are no rules governing
the sequence between the procedures under these tw o provisions, the EC would like to recall the
mandatory terms of the first sentence of Article 21.5 of the DSU which read as follows
"Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings such
dispute shall be decided through recourse to these dispute settlement procedures,
including wherever possible resort to the original panel" (emphasis added).
18. The letter of the US Trade Representative Charlene Barshefsky of 13 July 1999, which is
contained in Exhibit 1 to the first written submission of the US in the present case, recognises the
existence of a disagreement between the parties to the Bananas  dispute about the measures taken by
the EC in order to implement the recommendations and rulings of the DSB of 27 September 1997.The letter further recognises the applicability of Article 21.5 of the DSU to this situation. Thus, it is
not even in dispute that the correct multilateral procedure available in this situation is recourse to the
procedures under Article 21.5 of the DSU. The US arguments regarding their decision to "economise"
the procedures under Article 21.5 in order to be able to have recourse immediately to Article 22.2 of
the DSU are simply specious.
19. The request for the EC's "agreement to help ensure that an Article 21.5 procedure [...] will be
completed before January 1, 1999"
31 is just another example of bullying tactics by the United States.
As is apparent from the description of the sequence of envents given in the first written submission of
the United States, the real objective of the United States was to ensure that the schedule of the dispute
settlement procedure would conform to the domestic deadlines under sections 306(b) and 305(a) of
the US Trade Act of 1974. In fact, this request by the United States to waive the time frames provided
for under the DSU demonstrates once again that the United States could not accept a multilateralprocedure that was not fully in line with the timetable established under US domestic law.
                                                     
30 WT/DS152/R, particularly para. 7.4.
31 Cf. the second paragraph of Ms. Barshefsky’s letter of 13 July 1999, Exhibit 1 to the first written
submission of the United States.WT/DS165/R/Add.1
Page 16
20. As the evolving practice has meanwhile clearly shown, it is perfectly possible to safeguard the
complainants' rights with regard to the suspension of concessions or other obligations in cases where
the complainant first requests the establishment of a panel under Article 21.5. There are as of today
five cases where the correct sequence between Article 21.5 and 22 has been respected: In the Bananas
dispute, this has happened in the complaint submitted by Ecuador32; in the dispute on Australia –
Measures Affecting Importation of Salmons , the arbitration procedure under Article 22.6 was
suspended33 until such time as the procedure under Article 21.5 will be completed34; in the two
Aircraft disputes between Canada and Brazil, procedures under Article 21.5 were requested35 before
resorting to suspension of concessions; and last, but not least, the United States itself has resorted to
Article 21.5 procedures in the Automotive Leather  dispute36 with Australia before having recourse to
the suspension of concessions. Thus, the mandatory language of Article 21.5 has been respected in all
other cases except the dispute between the EC and the US on Bananas .
21. As is well known to the Panel, in the aftermath of the EC/US dispute on Bananas , an attempt
has been made to resolve the diverging positions on the sequence between Article 21.5 and Article 22
procedures by negotiations on an amendment of the DSU. However, the perspective for a negotiated
solution is presently anything but certain, given the failure of the Ministerial Conference in Seattle to
come to a conclusion on the DSU review. These negotiations can thus not serve as an excuse for the
United States to oppose a finding by this panel on the present obligations under the DSU as it standstoday and as it stood at the time of the relevant facts.
22. The EC therefore maintains its position that the measures taken by the United States that are
the subject matter of the present dispute were taken in violation of the procedural obligations of the
United States under Article 21.5 of the DSU.
23. Finally, the EC would like to repeat that the application of the measures under dispute also
constitutes a violation of the relevant GATT provisions, namely Articles I, II, XI and VIII of GATT
1994. The EC will not elaborate further on this aspect of its complaint unless the panel has questions
in this regard.
Mr. Chairman, members of the Panel,
With this I would like to conclude. Thank you for your attention.
                                                     
32 Cf. doc. WT/DS27/41 dated 18 December 1998.
33 Cf. Canada’s request for authorisation of the suspension of concessions or other obligations under
Article 22.2 of the DSU, doc. WT/DS18/12 dated 15 July 1999, Australia’s request for arbitration under Article22.6 of the DSU, doc. WT/DS18/13 dated 3 August 1999, and the debate on this subject in the DSB meeting of28 July 1999, doc. WT/DSB/M/66, page 4 et seq. .
34 Cf. Canada’s request for the establishment of a panel under Article 21.5 of the DSU, doc.
WT/DS18/14 dated 3 August 1999
35 Cf. doc. WT/DS70/9 dated 23 November 1999 (recourse by Brazil to Article 21.5 of the DSU) and
doc. WT/DS46/13 dated 26 November 1999 (recourse by Canada to Article 21.5 of the DSU).
36 Cf. doc. WT/DS126/8 dated 4 October 1999.WT/DS165/R/Add.1
Page 17
Appendix 1.3
The EC final statement at the First Substantive Meeting
(17 December 1999)
Mr. Chairman, distinguished Member of the Panel,
As we have explained at the outset of this m eeting, the European Communities have initiated this
procedure with the aim to make the DSB re-affirm, and rule on, some principles of fundamental
importance for every system whose functioning is based on law and not on sheer force
This position is shared by a large majority of WTO Members and the intervening third Parties in this
procedure.
The US position is different: it wants to be judge and jury on the question of implementation and take
justice in its own hands without a prior review by an independent and neutral Panel.
In order to defend the indefensible, the US tries to hold the EC responsible for its own disregard of the
multilateral procedures by alleging inexistent attempts by the EC to prevent, or delay, a 21.5
procedure in the Bananas dispute.
Mr. Chairman, it is still our firm conviction that what was decided by other Bodies of the WTO
during the Bananas dispute is not directly relevant for the present case. This case is not limited to a
specific trade dispute, it concerns fundamental systemic issues created by the US interpretation of
fundamental rules concerning the multilateral functioning of the dispute settlement system, which
could arise in other cases. Thus we simply do not wish to follow the US in sterile polemics whose
only purpose is to try to re-write history and distract the attention of the Panel.
However, the EC takes note that the Panel has requested some clarification on the EC's position
during the Bananas dispute, in particular with regards to the reasonable period of time and the 21.5
procedure. We will obviously answer these questions in detail but we can announce as of today thatthe US allegations in this context are entirely incorrect.
The United States has raised during this meeting for the first time a question concerning the terms of
reference of this Panel. It claims that these terms of reference are limited to what they call the 3
March "action".
As is apparent from EC's request for the establishment of this Panel in document WT/DS165/8 and
the 2 annexes thereto, the EC considers that the matter before the Panel pursuant to Article 7 of the
DSU is the US measure effective on 3 March 1999 on a list of products, contained in Annex 1, and
confirmed for "a subset of the products" in a "reduced list" adopted on 19 April 1999, contained inAnnex 2.WT/DS165/R/Add.1
Page 18
Appendix 1.4
The EC Responses to Questions of Panel and Parties
(13 January 2000)
Questions from the Panel to Both Parties
1. Is the withholding of the suspension of liquidation (including the bond requirement) a
suspension of concessions or other obligations under the DSU?
Reply
The EC reads this question as referring to the withholding or suspension of liquidation in the
alternative.
In general, to the extent that it prevents the importation of a product against payment of a customs
duty not in excess of the bound tariff rate, such a measure is in breach of the tariff binding andtherefore of the GATT 1994.
In this particular case, the US measure under dispute was taken without any WTO justification or
DSB authorisation and thus without respecting the relevant multilateral procedures. It corresponds
therefore to an unauthorised suspension (breach of Articles 3, 21, 22 and 23 of the DSU) of
concessions (breach of Article II GATT 1994) and other obligations (breach of Articles I, XI and VIII
GATT 1994).
2. What is the impact on trade and traders involved in a suspension of liquidation
(including the bond requirement)?
Reply
In general, the effect on the trade would depend on the contingent liability imposed on the economic
operator by the bonding requirement. For technical reasons, a bonding requirement must identify the
precise amount to be guaranteed. Moreover, in order to respect WTO law this amount must be
justified by a cost or charge approximate to the cost of services rendered and/or a duty not exceeding
the rate bound in the Member's Schedule of tariff concessions.
3. What is the legal link between the date of assessment of the nullification caused by the
EC's non-implementation of the Bananas III recommendations and the need to be able to
suspend concessions as of 3 March 1999?
Reply
Given that the DSB has found on 6 May 1999  that the revised  EC banana regime was inconsistent
with certain WTO obligations of the EC, the only legal link that can be established between the
revised EC banana regime and the US measure effective on 3 March 1999 is the US domestic
legislation under Sections 301-310 of the US Trade Act of 1974, as amended37.
                                                     
37 See evidence provided by the EC in its first written submission (Annexes I and II) and the references
provided in paragraphs 10 and 11 of the EC’s oral statement at the first substantive meeting with the panel on 16December 1999.WT/DS165/R/Add.1
Page 19
4. Is a new measure (an implementing measure) presumed to be compatible or
incompatible with WTO obligations after the rea sonable period of time? Which party bears the
burden of proof after the reasonable period of time to prove consistency (or lack thereof) with
WTO provisions?   Is it correct to state that the losing party becomes liable as of the expiry of
the reasonable period of time?  And liable for what?
Reply
The EC fails to see how the legal status under the WTO of a new measure could be influenced or
determined by the status of a measure which was previously in place and that has been withdrawn in
accordance with Article 3.7 of the DSU and the recommendations and rulings of the DSB.
For that reason, no presumption of inconsistency is expressly provided for in the DSU. On the
contrary, as was confirmed recently by the Appellate Body report on "Chile – Taxes on Alcoholic
Beverages"38 at paragraph 74: "Members of the WTO should not be assumed, in any way, to have
continued  previous protection or discrimination through the adoption of a new measure. This would
come close to a presumption of bad faith" (emphasis in the original).
Consequently, the burden of proof follows the normal  rules as indicated by the Appellate Body in its
report on "United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from
India"39 and remains with the Member alleging the inconsistency of a measure of another Member.
The very notions of "losing" party and "liability at the end of the reasonable period of time" suggested
by the US is entirely inaccurate in this context. On the one hand, if a new measure is adopted by the
end of the reasonable period of time, the oblig ation on the respondent in the previous dispute
settlement procedure to withdraw its original inconsistent measure has been fulfilled. Thus, even
referring to the "losing" party in such a case is inappropriate. On the other hand, the notion of"liability" is simply out of context in a procedure covered by the DSU, where the notions ofWTO-consistency of a given measure and of the equivalent level of reciprocal concessions
 provide
the appropriate reference.
5. Who has the responsibility to raise an Article 21.5 case? When should such a request
under Article 21.5 take place?
Reply
Article 21.5 does not specifically address the issue of whose responsibility it is to raise a procedure
under that provision but declares "these dispute settlement procedures" applicable. Except in the case
of the recourse of the EC to Article 21.5 in the Bananas dispute (that will be discussed in response to
question 7), all other cases mentioned in the EC's oral statement on 16  December 1999 at paragraph
20 were submitted by the Member alleging the inconsistency.
In case of disagreement as to the consistency with a covered agreement of measures taken to comply
with recommendations and rulings of the DSB, an Article 21.5 procedure cannot be requested before
the time of the adoption of the implementing measure. Of course, in case of a disagreement on the
existence of measures taken to comply with recommendations and rulings of the DSB it is not
possible to start a 21.5 procedure before the end of the reasonable period of time.
The DSU does not provide for any statute of limitation or other outer time limit with regard to
requests for a procedure under Article 21.5.
                                                     
38 WT/DS87/AB/R and WT/DS110/AB/R.
39 Cf. doc. WT/DS33/AB/R, p. 14.WT/DS165/R/Add.1
Page 20
6. What is the consequence of failing to raise an Article 21.5 claim before the end of the
reasonable period? If it is not done during this period does the right to an Article 21.5
assessment lapse?
Reply
None.
No. See the EC's response to the previous question.
7. Assuming the US is correct in stating that an Article 21.5 panel should be triggered (by
either party) within the reasonable period of ti me, what is the consequence if this 21.5 panel is
never requested or not established?  Does the absence of an Article 21.5 assessment result in a
presumption that the new measure is compatible or that it is incompatible with WTO
obligations? Does the absence of an Article 21.5 panel exclude recourse to Articles 22.6-7?
Reply
The EC considers the US assumption to be entirely incorrect and thus does not wish to elaborate
further on what it considers an incorrect interpretation of the DSU.
Consistently with the reply to question 4 the EC s ubmits that in the absence of a decision by the DSB
declaring the inconsistency of an implementing m easure with a covered agreement, the measure at
issue must indeed be presumed compatible. As the EC explained during the procedures before the
panel on European Communities - Regime for the Im portation, Sale and Distribution of Bananas -
Recourse to Article 21.5 by the European Communities , "a presumption of inconsistency  would
gravely affect the security and predictability of th e international trading system because of the ensuing
uncertainty".40
The absence of an Article 21.5 ruling or recommendation by the DSB excludes recourse to Article22.6 and 22.7 of the DSU in all cases except where there is no disagreement as to the existence or the
consistency of measures taken to comply with recommendations and rulings of the DSB. This latter
situation occurred in the Hormones  dispute between the US, Canada and the EC.
8. Who determines whether a new measure nullifies WTO benefits?
Reply
In case of disagreement as to the consistency with a covered agreement of measures taken to comply
with recommendations and rulings of the DSB, the DS B determines as a result of a procedure under
Article 21.5 of the DSU whether there is nullification or impairment of the complainant's benefits
under the WTO agreement resulting from the new measure.
In the absence of such disagreement, as is illustrated by the Hormones  case, it is possible to have
recourse to Arbitration that will determine the level of the nullification or impairment.
                                                     
40 Cf. doc. WT/DS27/RW/EEC, para. 2.18 (emphasis in the original).WT/DS165/R/Add.1
Page 21
9. Is there an implicit assessment of compatibilit y of any measure that is the object of an
Article 22.6-7 Arbitration in view of the Arbitrator mandate to assess whether the level of
suspension is equivalent to the level of nullification of benefits?
Reply
The terms of reference of the arbitrator are laid down in Article 22.6 and 22.7 of the DSU. These
terms of reference do not extend to findings with regard to the consistency or otherwise of animplementing measure with a covered agreement. In case of disagreement on the consistency of an
implementing measure, Article 21.5 of the DSU requires that "such dispute shall be decided through
recourse to these dispute settlement procedures, in cluding wherever possible resort to the original
panel". An implicit assessment by the arbitrator under Article 22.6 of the compatibility of a measure
with a covered agreement would usurp the task of a panel under Article 21.5 of the DSU and thus, if
an arbitrator were to make such an assessment, the arbitrator would act ultra vires .
10. Please discuss the practice of WTO Members in their use of Articles 21.5 and 22
procedures
Reply
The EC discussed the practice of WTO Members when having recourse to Articles 21.5 and 22
already in para. 20 of its oral statement during the first substantive meeting of the parties with the
Panel on 16 December 1999.
Questions from the Panel to the EC
11. Please comment on the US allegations that  the EC blocked an Article 21.5 action before
the end of the reasonable period of time.
12. If the EC was of the opinion that an Ar ticle 21.5 procedure must precede an Article 22
authorization, why did the EC repeatedly refuse to participate in the US Article 21.5 requested
before the reasonable period of time?
Common reply to questions 11 and 12
It is incorrect that the EC "blocked an Article 21.5 action before the end of the reasonable period of
time"  and that it "repeatedly refuse[d] to participate in the US Article 21.5 requested before thereasonable period of time" as alleged by the United States. In fact, under Article 21.5 of the DSU,
"[w]here there is disagreement as to the existence or consistency with a covered agreement of
measures taken to comply with the recommendations and rulings such dispute shall be decided
through recourse to these dispute settlement procedures" (emphasis added). Thus, Article 6.1 of the
DSU is applicable with regard to the procedure to be followed for the establishment of a panel under
Article 21.5 of the DSU. That means that the party complained against is not in a position to "block"
the establishment of a panel because the decision is taken by the DSB under the "reversed consensus"
rule nor can the party complained against refuse to participate without seriously jeopardising its legal
position.
The reference to "these dispute settlement procedures" is of course also relevant with regard to other
elements of the procedure to be followed, including consultations under Article 4 of the DSU. The EC
therefore expressed the view that such consultations must precede the establishment of a panel underArticle 21.5 of the DSU.
41 It is surprising to note in this context that, on the one hand, the
                                                     
41 Cf. the statement made by the EC representative at the DSB meeting on 22 September 1998,
DSB/M/48, p. 7 et seq .WT/DS165/R/Add.1
Page 22
United States claimed that the EC's position on the need to hold consultations in the framework of an
Article 21.5 procedure leads to "unnecessary, hollow procedural steps"42, while the United States is
complaining in the present dispute, on the other hand, that the EC was unwilling to enter into
consultations during the reasonable period of time43. This latter complaint is factually simply
incorrect, as demonstrated by the statements made by its representatives in the DSB meetings at the
relevant time44.
The EC believes that these statements clearly demonstrate that the EC did not "block" the
establishment of a panel under Article 21.5 of the DSU, nor did the EC claim that such a panel could
not be established during the reasonable period of time. Rather, the arguments turned around the need
to hold consultations under Article 4 of the DSU before resorting to the establishment of a panel under
Article 21.5 of the DSU and were also related to the question whether the dispute settlement
procedures under Article 21.5 of the DSU could be initiated before the relevant implementing
measures had been adopted ( quod non ).
As the events at the end of 1998 and at the beginning of 1999 have shown, the EC tried everything it
could in order to convince the United States to engage in Article 21.5 procedures, going as far as
taking the unprecedented step of requesting a panel under Art. 21.5 of the DSU at its own initiative45.
Thus, the record shows that it was not the EC that "blocked" an Article 21.5 panel procedure nor that
it refused to participate in such a procedure. Quit e on the contrary, it was the United States that had
decided to "skip" the procedure under Article 21.5 of the DSU, because the United States wanted to
invoke Article 22 of the DSU as soon as the reasonable period of time had ended in order to be able to
live up to the requirements of the schedule foreseen under its domestic legislation under sections
306(b) and 305(a) of the Trade Act of 1974, as amended.
Question from the US to the EC
In paragraph 16(d) of the EC's first written submission and paragraph 6(e) of its oral
statement, the EC raises several arguments with respect to its claim that the March 3rd action
imposed an "other charge" inconsistent with Articles II:2(a) and VIII:1 of the GATT 1994.
a) Is it the EC's position that this "other charge" arises only in connection with the
March 3rd action?
b) Could the EC confirm that it does not consider surety systems in general, which
are contemplated in Article 13 of the Customs Valuation Agreement and
maintained by numerous Members (including the EC), as imposing an "other
charge"?
c) If so, how does the EC differentiate the "other charge" it claims is associate with
the March 3rd surety requirements from these surety requirements in general?
Reply to the general question by the United States
The question refers to paragraph 16(d) of the EC's first written submission which reads in relevant
part:
                                                     
42 Cf. doc. WT/DS27/18 of 31 August 1998.
43 Cf. first written submission of the United States of 6 December 1999, para. 3.
44 Cf. doc. WT/DSB/M/48, p. 7 et seq. (DSB meeting of 22 September 1998); doc. WT/DSB/M/49, p. 4
(DSB meeting of 21 October 1998); doc. WT/DSB/M/51, p. 3 (DSB meeting of 25 November 1998) and doc.WT/DSB/M/51/Add.1, p. 2 (DSB meeting of 21 December 1998).
45 Cf. doc. WT/DS27/40 of 15 December 1998.WT/DS165/R/Add.1
Page 23
"Articles II.2(a) and VIII.1 of the GATT 1994, insofar as the requirement to submit or commit bonds
beyond the bound rate duty upon importation of selected EC products results in increased costs for
importers that constitute 'other charges' imposed in connection with importation that are prohibited."
As is evident from the context, the reference to Article II.2(a) should in fact read II.2(c).
It is undisputed that the increased charges and costs for importers, because they are calculated on the
basis of a duty in excess of the bound rate without any multilateral authorisation or justification, arenot limited in amount to the approximate costs in administration in accordance with Article VIII.1(a)
and II.2(c) and thus also violat e Article II.1(b) of the GATT 1994
46.
Reply to sub-question (a)
It appears that this question is based on an artificial distinction between different "actions", with
which the EC does not agree. The EC has demonstrated that the increased costs and charges resulting
from the US measure are in violation of Articles II and VIII of the GATT.
Reply to sub-questions (b) and (c)
The EC does not see how the issue of customs valuation is at all relevant in the context of the present
case. The EC does not believe that Article 13 of the Customs Valuation Agreement is applicable to
the measures under dispute in the present procedure.
Moreover, as the Panel on " EEC – Programme of Minimum Import Prices, Licences and Surety
Deposits for Certain Processed Fruits and Vegetables"  (referred to in footnote 9 to this document)
clearly indicated, the increased costs and charges resulting from the imposition of a security imposed
in addition to the ordinary customs duties exceed the bound rate and are therefore not covered by the
requirements of Article II.1(b) GATT, but by Arti cle II.2(c) GATT to the extent that the amount of
the increased charge or cost is limited to the approximate costs of administration in accordance with
Article VIII.1(a) GATT.
See therefore what is already mentioned in the reply to the general question.
                                                     
46 Cf. panel report on EEC – Programme of Minimum Import Prices, Licences and Surety Deposits for
Certain Processed Fruits and Vegetables, BISD 25S/68, paragraph 4.6.WT/DS165/R/Add.1
Page 24
Appendix 1.5
Rebuttal Submission of the European Communities
(21 January 2000)
I. INTRODUCTION
1. The European Communities believe that this second submission serves mainly two functions:
− to recall the main claims and arguments of the EC in this case and
− to rebut certain statements and affirmations by the US which were expressed during
the first substantive meeting with the Panel and the US replies to the questions from
the Panel and the EC.
Of course, the other points of law and procedure which were advanced by the EC during the first
stages of this dispute settlement procedure (includi ng the answers to the questions from the Panel and
from the United States) should also be considered entirely confirmed here. This is true in particular
for the EC's claims and arguments concerning the violation of Article I and XI of the GATT 1994 and
Articles 3 and 23 of the DSU by the US measure.
2. As a brief preliminary point, the EC also submits that the statistical data provided by the US
in its Exhibit 5 do not refute Deputy USTR P. Scher's affirmation47 that "we retaliated by effectively
stopping trade as of March 3 in response to the harm caused by the EC's WTO-inconsistent banana
regime".
On the one hand, statistical data concerning March 1999 and April 1999 cover periods that precede
and follow the entry into force of the 3 March measure and of its 19 April confirmation on a reduced
list.
On the other hand, these statistics show for many products a dramatic decrease in imports as from
March 1999. This provides confirmation of the point made by the EC that discriminatory suspensionsof concessions and other obligations were in force as from 3 March 1999.
Finally, the intention of the US authorities on 3 March 1999 was explicit and is irrefutably
demonstrated by their public statements, and the measure made effective as of 3 March 1999 violates
in itself the US obligations under the WTO regardless of whether the facts of the trade eventually
correspond to the US authorities' initial expectations.
II. THE SCOPE OF THE PRESENT DISPUTE
3. The US has raised in its answers to the questions from the Panel and from the EC three
objections concerning the scope of the present panel procedure. They will be examined in the
following sub-chapters.
B. T
HE US MEASURE EFFECTIVE ON 3 M ARCH 1999 AND ITS CONFIRMATION ON 19 A PRIL 1999.
4. As the EC pointed out in its request for the establishment of this Panel, the measure under
dispute "impose[s] a contingent liability for 100% duties" and "has deprived EC imports into the US
of the products in question of the right to a duty not in excess of the rate bound in the US Schedule".
This request also contains, in the Annex, the product lists published by the United States on 3 March
                                                     
47 The US tries to mislead the Panel when it pretends in its reply to question 21 of the Panel that such
assertion comes from the EC.WT/DS165/R/Add.1
Page 25
and on 19 April 1999, which shows that the EC considers these as being part of one and the same
measure. The United States never raised any objection against this request, neither during the DSB
meeting where the request was adopted nor at any other time.
5. The issue of the potential duty liability is intimately linked to the question of the scope of the
present dispute.
6. Contrary to the position expressed by the United States before the Panel, the EC is of the view
that the measure at issue in the present dispute is not limited to an increase in surety deposit
requirements, but also includes by necessity an increase of duty liability  for imports of the products
listed in the instructions addressed to US customs services on 3 March 1999 under the revealing title
of "European Sanctions"48.
In the view of the EC, the increased duty liability was operated on that date and not only on a later
date, as the United States would have it now. In the view of the EC, all that happened on 19 April was
that the increased duty liability was simply confirmed for most of the listed products, while some
products were de-listed at that time49. Thus, the "contingent" duty liability was changed into a "final"
one (admittedly with some exceptions)50.
7. There is no difference, neither in economic terms nor under WTO law, whether a duty beyond
the bound rate is called a "potential" or "contingent" duty or a "final" or "definitive" one. What counts
is the expected trade effect of the measure. That trade effect is exactly the same, whether the duty is"potential" or "final", not least because the customs procedures of the United States do not allow
importers to obtain immediate confirmation of the pr ecise amount of the duty at the time of physical
entry of the product.
Moreover, there is no difference, neither in economic terms nor under US domestic law, whether a
surety deposit in excess of the approximate costs of the services rendered is "contingent" or"potential" or "final" or "definitive". As the US recognises in its answers to questions 22 and 23 from
the Panel, the US customs does not reimburse "any fees which private sureties may have charged US
importers" (or, for that matter, EC exporters) or do not pay any interest on an "additional bond
requirement or an increased bond amount".
8. The technicalities of how the United States enforced the increased duty liability on or after
3 March 1999 are of limited relevance for the present dispute. The issues concerned with the ancillary
nature of the surety deposit and with the date on which a customs debt is incurred are of much greater
importance in the context of the present dispute.
1. The ancillary nature of the surety deposit
9. It is clear that customs surety deposits serve to ensure the payment of the duties and fees
owed by the importer. In that sense, customs sure ty deposits are ancillary to the (anticipated) amounts
                                                     
48 Cf. Annex VIII to the first written submission of the EC dated 10 November 1999.
49 The EC believes that this understanding of the product lists published on 3 March and 19 April 1999
is corroborated by the United States in para. 35 of its first written submission dated 6 December 1999 where itstates that the United States "assess[ed] 100% duties on a subset of the products previously indicated on March
3, 1999" and where the list published on 19 April 1999 is called a "reduced list". This choice of words indicates
that the 19 April publication is a confirmation of the earlier 3 March publication, to the extent that the listcontains the same products, and a withdrawal for the re mainder of the products which are no longer mentioned
in the reduced list.
50 For obvious reasons, the EC does not complain about the de-listing, but it complains about the
increase in duty liability effective as from 3 March and introduced by instructions to customs services on thatdate. It also complains about the additional costs of  the increased surety deposit requirements, which are
inconsistent with Article VIII of the GATT 1994.WT/DS165/R/Add.1
Page 26
of customs duties and fees the payments of which they serve to guarantee. The amount of any surety
deposit is determined by the anticipated duty liability and entirely depends on it.
10. Thus, a self-standing surety deposit could not be justified under WTO law. In fact, it would
amount to "a duty or charge of any kind imposed on or in connection with the importation in excess
of" the bound rates, which is inconsistent with Articles II and VIII of the GATT 199451.
11. The United States accepts this fundamental point of principle. As the US pointed out in its
oral statement at the first substantive hearing of the Panel (paragraph 4):
"the United States Customs Service allows [...] release of merchandise into the United
States so long as the importer has provided [...] assurances in the form of a cash
deposit or bond that it will pay the potential duties and fees owed"  (emphasis added).
2. The date on which a customs debt is incurred
12. Under WTO law, the obligation not to subject imported products to duties and other charges
in excess of the bound rates under the relevant Schedule of tariff concessions relates to the time of
importation52.
That means that, in a situation where the duty liability varies over time, the relevant date on which the
amount of the duty liability depends is the date of importation of the product in the customs territory
of the importing WTO Member, not any other date (in EC customs terminology, this is the date onwhich the "customs debt is incurred").
13. Thus, assuming that the customs duty for a given product decreases on 1 January of a given
year as the result, for example, of a commitment contained in the Schedule of the importing WTO
Member, the duty liability for a like product imported on 30 December of the preceding year would
not be affected by this decrease. The same is true where the customs duty increases over time
53.
14. There can thus not be a duty which is at the leve l of X at the time of entry of the product into
the customs territory of a WTO Member that decreases to X-1 or that increases to X+1 for the already
imported product at some later time.
The argument that the duty liability may change after the entry of the product into the customs
territory to which the Schedule relates is simply not in line with existing WTO law (nor would it be inline with current United States customs law and practice, as the US has recognised before this Panel).
It is obvious that, were the customs law of a WTO Member different on this point, this would justify a
complaint based on the violation by that WTO Member of Article II of the GATT 1994.
3. The application of the above-mentioned principles to the US measure
15. It follows that the surety deposit increase for selected products on 3 March 1999 could not
have any justification other than the increase of the duty liability that was operated also on
3 March 1999 with immediate effect, and not at any later time. Only in this way could the
                                                     
51 Panel report on EEC – Programme of Minimum Import Prices, Licences and Surety Deposits for
Certain Processed Fruits and Vegetables, adopted on 18 October 1978, BISD 25S/68, para. 4.15.
52 Cf. the wording of Article II.1 (b) and II.1 (c) of GATT 1994 which uses the terminology "on [...]
importation into the territory to which the Schedule relates" (Art. II.1 (b)) or "upon importation into the territory
to which the Schedule relates" (Art. II.1 (c)). This language clearly refers to the time of importation, not to anyother date.
53 The United States has confirmed, in response to a question from the EC, that this general rule is also
applicable in the United States (cf. US an swer to question 3, at paras. 6 and 7).WT/DS165/R/Add.1
Page 27
United States require increased surety deposits from importers and justify the confirmation of the
increase in duty liability on 19 April to be effective as of 3 March. Only in this way could the US
collect increased 100% duties on imports of listed products as from 3 March 1999.
For the reasons already explained, a duty increase operated on 19 April could not have had any effect
on products imported into the customs territory of the United States at any earlier date.
16. The EC reiterates that both the increase in duty liability, whether potential or definitive, and
the corresponding increase in the requirements concerning surety deposits with US customs are
inconsistent with the United States' obligations under Articles II.1 (b), II.2 (c) and VIII.1 (a) of the
GATT 1994. This is corroborated, in the view of the EC, by the adopted panel report on EEC –
Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits
and Vegetables54.
17. These claims are explicitly part of the "matter" subject to the scrutiny of this Panel pursuant to
Article 7 of the DSU as per the request for the establishment of this Panel55.
The measure taken by the US on 3 March 1999 contained already both these elements and was merely
confirmed on 19 April 1999 (apart from the partial withdrawal, which was operated on that date).
There is thus no question of two different measures taken at different dates (except with regard to the
partial withdrawal of the 3 March measure on 19 April, which is not under dispute).
18. The EC therefore fundamentally disagrees with the mischaracterization of the measure under
dispute contained in the US submissions to date. It also opposes any attempt by the US to the effect of
reducing the scope of the present dispute.
B. THE TERMS OF REFERENCE OF THIS PANEL EXPLICITLY COVER THE MATTER THAT A MEMBER
IS OBLIGED TO PURSUE A PANEL PROCEDURE UNDER ARTICLE 21.5 OF THE DSU BEFORE
RESORTING TO THE SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS UNDER
ARTICLE  22 OF THE DSU IN CASE OF DISAGREEMENT ON THE CONSISTENCY WITH A COVERED
AGREEMENT OF MEASURES TAKEN TO IMPLEMENT A RECOMMENDATION OR RULING OF THE
DSB
19. The US measure was adopted in the context of an on-going arbitration procedure under
Article 22 of the DSU. The EC will summarise below the compelling reasons that justify its claim thatthe US measure breached Article 22 of the DSU.
However, the EC claims also that the US measure breached Article 21.5 of the DSU.
This claim is explicitly part of the EC's request for the establishment of this Panel contained in the
WTO doc. WT/DS165/8 of 11 May 1999. The latter claim is different from the former, since it has
more far-reaching implications, as the EC will show below.
20. In the context of the present dispute, the core of the EC's claims is the fact that the US took
justice in its own hands and unilaterally decided th at the revised EC Banana regime that entered into
force on 1 January 1999 breached the EC's WTO obligations.
It must be recalled here that the revised Banana regime repealed and replaced the previous EC regime
that had been declared inconsistent with the EC's  obligations under the WTO in an adopted panel and
Appellate Body report.
                                                     
54 Report of the Panel adopted on 18 October 1978, BISD 25S/68, paragraphs 4.6 and 4.15.
55 Cf. WTO doc. WT/DS165/8.WT/DS165/R/Add.1
Page 28
The US request for suspension of concessions or other obligations pursuant to Article 22 of the DSU
was based on a unilateral determination that the revised EC Banana regime was inconsistent with the
EC's WTO obligations56. The US measure on 3 March 1999, as confirmed on 19 April 1999, was
directly dependent upon this US unilateral determination of non-compliance which was made by the
US without an objective verification by a Panel, in application of the provisions of Article 21.5 of the
DSU.
21. The EC will discuss further (see chapter No. 4 below) the substantive legal reasons on which
its claims on this issue are founded.
However, as a preliminary matter concerning the terms of reference of this Panel, the EC would like
to repeat that the issue of the relationship between an arbitration procedure under Article 22 of the
DSU and the necessary prior findings of inconsistency under Article 21.5 of the DSU is central in
order to correctly resolve the dispute at issue and thus cannot be avoided.
22. Not only should the US not have adopted its 3 March 1999 measure: there was also no
justification to confirm it with a reduced list on 19 April 1999. As will be shown below, the WTO-
inconsistency of the 3 March measure was not "healed", or in any other way "undone", by the
authorisation of the DSB of 19 April 1999 and even less so by the US confirmation of its 3 March
measure on that same date.
In the EC's view, the US measure is still inconsistent with the United States' obligations under
Articles 21.5, 22 and 23 of the DSU (and several substantive GATT 1994 obligations) and must be
withdrawn.
23. The US claims now that "[L]ike the Section 301  panel, this Panel need not reach the issue of
the relationship between Articles 21.5 and 22"57.
24. The EC responds that, in our view, the Panel ha s no choice: in order to correctly perform its
tasks as described in Article 11 of the DSU, the relationship between Articles 21.5 and 22 - in the
light of Article 23 of the DSU, as interpreted by the Section 301  panel report - has to be addressed.
25. The panel report on Section 301  circulated on 22 December 1999 states the following:
"Whatever the outcome of other pending panel proceedings, on which we have no
view, the fact that the USTR did make a determination of non-implementation beforethe completion of Article 21.5 procedures in Bananas III, even if it turns out
eventually that this was illegal, is not, in our view, an act of bad faith."
26. As is apparent from this quotation, the panel on Section 301  was convinced that this issue was
sub judice  at the time it took its final decision. The EC does not believe it appropriate or necessary to
debate here the correctness of this appreciation of the Section 301  panel on an issue on which it has
itself acknowledged it has "no views". The important point here is that the EC, as a WTO Member,
has a right under the covered agreements to have th is fundamental issue of law resolved as it stands
within the only correct WTO procedure, i.e. the dispute settlement procedures.
27. A debate de lege ferenda  cannot and must not have any influence on the duties to be
performed by a Panel under Articles 7 and 11 of the DSU in a specific DS procedure. Rather, a
consistent practice by the WTO membership can have an influence on the interpretation of existing
                                                     
56 Cf. the US answer to question 10 by the Panel, at paragraph 25: "Following the conclusion of the
reasonable period of time, the complaining Member is entitled to request DSB-authorization for the suspensionof concessions pursuant to Article 22.2 if it believes the implementing Member has failed to comply".
57 US answer to question 9 from the Panel, at para. 23.WT/DS165/R/Add.1
Page 29
and applicable WTO provisions such as Articles 21.5 and 22 of the DSU (see, again, chapter No. 4
below).
28. The EC can understand that a panel, such as the Section 301  panel, may decide that another
on-going panel is a better forum to deal with the interpretation of certain WTO provisions, even if
those provisions were part of its terms of reference. But it is not ready to accept the line of action
suggested by the US according to which, notwithstanding the explicit terms of reference of a panelestablished by the DSB, no panel procedure is the correct forum where existing
 and fully applicable
rules of the DSU can be interpreted and applied.
29. The EC urges therefore the Panel to reject this unjustified request by the US that, if granted,
would amount to a denial of justice.
C. THIS PANEL 'S TERMS OF REFERENCE INCLUDE THE QUESTION AS TO WHICH MEMBER HAS TO
BEAR THE BURDEN OF PROOF THAT A MEASURE TAKEN BY A MEMBER IN ORDER TO COMPLY
WITH EARLIER RECOMMENDATIONS AND RULINGS OF THE DSB IS INCOMPATIBLE WITH THE
WTO OBLIGATIONS OF THAT MEMBER
30. As was mentioned in the preceding sub-chapter, the core of the EC's claims is the fact that the
US took justice in its own hands and unilaterally decided that the revised EC Banana regime that
entered into force on 1 January 1999 breached the EC's WTO obligations (after having repealed and
replaced the previous EC regime that a Panel report adopted by the DSB had found inconsistent withthe EC's obligations under the WTO).
The US request for suspension of concessions or other obligations pursuant to Article 22 of the DSU
was based on such unilateral determination
58. The US measure on 3 March 1999, as confirmed on
19 April 1999, was directly dependent upon the US unilateral determination of non-compliance taken
by the US without an objective verification by a Panel, in application of the provisions of Article 21.5of the DSU.
31. In the EC's view, when dealing with the issue of the interpretation and correct application of
Articles 21.5 and 22 of the DSU, the Panel will also have to address another issue which is equally
important (and logically and legally connected), namely the question as to which Member has to bear
the burden of proof that a new measure adopted by a Member in order to comply with earlierrecommendations and rulings of the DSB is incomp atible with WTO obligations of that Member.
32. As the EC has already indicated in its reply to the Panel's question No 4 and as will be
discussed further in chapter No. 5 of this submission, the burden of proof follows the normal rules as
indicated by the Appellate Body in its report on " United States – Measures Affecting Imports of
Woven Wool Shirts and Blouses from India "
59 and remains with the Member alleging the
inconsistency of a measure of another Member. The US has never brought such evidence before a
Panel with respect to the revised EC banana regime.
33. The EC therefore urges the Panel to reject th e unjustified attempt by the US to reduce the
scope of the present procedure by suggesting that "it is not necessary or appropriate to reach in the
context of this dispute a conclusion concerning the burden of proof following the reasonable
period"60.
                                                     
58 Cf. the quotation from the US answer to question 10 from the Panel reproduced in footnote 9.
59 Cf. doc. WT/DS33/AB/R, p. 14.
60 US answer to question 10 from the Panel, at paragraph 26.WT/DS165/R/Add.1
Page 30
III. THE VIOLATION OF THE PROCEDURAL REQUIREMENTS UNDER
ARTICLES 22 AND 23 OF THE DSU
A. UNDER NO CIRCUMSTANCE IS A WTO M EMBER ALLOWED TO ADOPT AND /OR IMPLEMENT
SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS AGAINST ANOTHER MEMBER BEFORE
THE COMPLETION OF AN ON -GOING ARBITRATION PROCEDURE AND ITS AUTHORISATION BY
THE DSB
34. The increase in (potential) duty liability and in surety deposit requirements for the listed
products as of 3 March 1999 is clearly in breach of the United States' obligation under Article 22.6,
last sentence, of the DSU not to resort to the suspension of concessions or other obligations before the
completion of the arbitration procedure and the obligation pursuant to Article 23.2(c) of the DSU to
await the authorisation by the DSB before taking such action.
35. On the basis of the panel report on EEC – Programme of Minimum Import Prices, Licences
and Surety Deposits for Certain Processed Fruits and Vegetables , the increase in surety deposit
requirements for duties exceeding the bound duty rates alone is already in breach of Articles II.1 (b),
II.2 (c) and VIII.1 of the GATT 1994.
36. The increase in duty liability is even more cl early in breach of Article II.1 (b) of the GATT
1994.
37. Actions of this kind, when taken on a discriminatory basis, fall under the definition of
"suspension of concessions or other obligations" as contained in Articles 22.6, last sentence, and
23.2(c) of the DSU. This is a broad concept encompassing discriminatory actions taken as a reaction
to the breach of WTO obligations by another Member.
38. That the element of discrimination is an integral part of the concept of suspension of
concessions and other obligations clearly appears in  Article 3.7, last sentence, of the DSU which reads
as follows:
"The last resort which this Understanding provides to the Member invoking the
dispute settlement procedures is the possibility of suspending the application of
concessions or other obligations under the covered agreements on a discriminatory
basis vis-à-vis the other Member, subject to authorization by the DSB of such
measures" (emphasis added).
39. The US measure on 3 March 1999 corresponds perfectly to the definition of a discriminatory
suspension of concessions or other obligations61. It was adopted against selected imports from the EC
before the arbitration procedure had been completed and obviously when no DSB authorisation had
been granted. The disregard by the US of its WTO obligations went as far as adopting the suspensionof concessions and other obligations the day after the Arbitrator had issued the following "initial
decision"
62:
"On 2 March 1999, the Chairman of the Arbitrators informed the Chairman of the
DSB as follows (WT/DS27/48):
"I write to inform you that the Arbitrators have today issued an initial
decision to the parties in which we rule on matters related to the scope
                                                     
61 This is not a surprising conclusion in light of the Deputy USTR's public declaration made on
3 March 1999: "we retaliated by effectively stopping trade as of March 3 in response to the harm caused by the
EC's WTO inconsistent banana regime".
62 Arbitration decision on " Bananas " (doc. WT/DS27/ARB), at paragraph 2.10.WT/DS165/R/Add.1
Page 31
of our work and to certain aspects of the methodology and
calculations of the United States for determining the level of
suspension of concessions.  In addition, we have requested the parties
to supply us with additional information.  This information should
enable us to take a final view on the level of nullification or
impairment based on the WTO inconsistency, if any, of the revisedEC banana regime, and, if relevant, to determine the level of
suspension of concessions or other obligations equivalent to the level
of such nullification or impairment.  Following our receipt and
analysis of that information, we expect to be in a position to issue a
final decision in this matter soon thereafter."
40. The EC reiterates that the US 3 March 1999 measure breached Articles 22.6, last sentence,
and 23.2(c) of the DSU. There can be no excuse or justification under the covered agreements forsuch a breach. The only (self-admitted
63) reason for pursuing such WTO-inconsistent route was that
the US decided to grant priority to its domestic law over its WTO obligations, in particular the
requirements of Sections 301-310.
B. IN ANY CASE , A RTICLE 22.6 DOES NOT WARRANT THE WTO- COMPATIBILITY OF THE
ADOPTION OF A SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS IN PRESENCE OFPROCEDURAL DEFICIENCIES
41. As was indicated in the previous sub-chapter, actions such as the US measure of suspension
of concessions and other obligations, when taken on a discriminatory basis, fall under the definition of
"suspension of concessions or other obligations" as contained in Articles 22.6, last sentence, and23.2(c) of the DSU.
The EC submits that these actions can be adopted and implemented only on the ground of a breach of
WTO obligations by another WTO Member positively established by the findings contained in a
panel or Appellate Body report adopted by the DSB.
42. Article 22.6 begins with the following words:
"When the situation described in paragraph 2 occurs, (…)"
Article 22.2 illustrates the "situation" as follows:
"If the Member concerned fails to bring the measure found to be inconsistent with a
covered agreement into compliance therewith or otherwise comply with the
recommendations and rulings within the reasonable period of time determined
pursuant to paragraph 3 of Article 21 (…)".
In addition, Article 23 of the DSU clarifies that:
"When Members seek the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements (…)
                                                     
63 See the notice published in the US federal register, vol. 63, No. 204 of Thursday, 22 October 1998
(EC Annex I): "Section 306(b) [of the Trade Act of 1974, as amended] requires the USTR to determine what
further action it shall take under section 301(a) of the Trade Act if the USTR considers that a foreign countryhas failed to implement a recommendation made pursuant to dispute settlement proceedings under WTO. TheUSTR shall make this determination no later than thirty days after the expiration of the reasonable period of
time provided for such implementation under Article 21.3 of the DSU. Section 305(a)(1) requires the USTR to
implement such action by no later than 30 days after the date on which that determination is made."WT/DS165/R/Add.1
Page 32
[I]n such cases, Members shall
(a) not make a determination to the effect that a violation has occurred, that benefits
have been nullified or impaired (…) except through recourse to dispute settlement in
accordance with the rules and procedures of this Understanding (…)".
Finally, Article 21.5 of the DSU provides that:
"Where there is disagreement as to (…) th e conformity with a covered agreement of
measures taken to comply with the recommendations and rulings such dispute shall
be decided through recourse to these dispute settlement procedures, including
wherever possible resort to the original panel. The panel shall circulate its report
within 90 days after the date of referral of the matter to it (…)".
43. In the present case, the revised EC banana regime that entered into force on 1 January 1999
was never determined to be incompatible  with the EC's WTO obligations in a dispute settlement
procedure initiated by the US.
44. The United States attempts to justify its measure effective on 3 March 1999 and confirmed on
19 April 1999 with the claim that the "liability" of a WTO Member for its non-compliance with
recommendations and rulings of the DSB "accrues"64 on the day which follows the end of the
"reasonable period of time" referred to in Article 21.3 of the DSU.
45. The EC does not dispute the fact that the end of the reasonable period of time is relevant
when examining whether the WTO Member to whom the recommendations and rulings are addressed
has implemented them. The EC challenges however the empty notion of "liability" that, it submits,
makes no sense in the WTO context. Rather, the examination of the DSU shows a radically different
picture.
46. According to Article 3.7 of the DSU, an initial alternative is open:
− either a Member withdraws the measure which was found to be inconsistent with its
WTO obligations or
− it does not.
47. In the case of non-withdrawal, at the latest at the end of the reasonable period of time, the
Member concerned will not have implemented the recommendations and rulings of the DSB at the
required time. It will thus have to accept to offer compensation or face the prospect of an
authorisation by the DSB for a suspension of concessions or other obligations by the complainingMember(s).
This situation occurred in the " EC-Hormones " dispute, where the EC decided for public health
reasons not to withdraw the measures that had been found inconsistent with its WTO obligations
65. It
consequently offered compensation. The US rejected the offer and thus the EC faced suspension of
concessions or other obligations, after an arbitrator had determined the level of such suspension withrespect to the nullification and impairment caused by the EC's inconsistent measure, which was still in
place.
48. In case of withdrawal of the measure, as was the case for the EC banana regime, according to
Article 3.7 of the DSU, the Member concerned has achieved the "first objective of the dispute
                                                     
64 US answer to question No. 9, paragraph 17
65 The mention of this case in the US reply to question 16 from the Panel is therefore irrelevant.WT/DS165/R/Add.1
Page 33
settlement mechanism [that] is usually to secure the withdrawal of the measures concerned if these are
found to be inconsistent with the provisions of any of the covered agreements".
49. However, if the measure that was withdrawn is replaced by another measure, as was also the
case for the revised EC banana regime, then  the issue can be raised as to whether this new  measure is
compatible with the adopting Member's WTO obligations as spelled out in the earlier
recommendations and rulings of the DSB. In case of disagreement and to that effect, the DSUprovides for an accelerated procedure under Article 21.5.
50. In no case can the authorisation for the suspension of concessions or other obligations be
granted immediately at the end of the reasonable period of time because the DSU clearly foresees
some additional procedural steps after the end of the reasonable period of time before the
authorisation for the suspension of concessions or other obligations may be granted.
51. In the above legal context, WTO law is thus concerned with a proper procedure to be
followed before concessions or other obligations may be suspended.
If the new measure replacing the measure that was withdrawn is found to be inconsistent with the
earlier recommendations and rulings of the DSB, and no agreement on compensation can be reached
within the schedule foreseen in Article 22.2 of the DSU, the complainant may request authorisation
for the suspension of concessions or other obligations.
52. It is however not specified anywhere in the DSU that compensation or the suspension of
concessions or other obligations must be effective as of the day immediately following the end of the
reasonable period of time. Compensation is a negotiated solution of the dispute, and there is no legal
obligation to grant such compensation as from a particular point in time.
53. The level of suspension of concessions or other obligations may be assessed in the course of
an arbitration procedure which may be requested by the Member to whom such suspension would beapplied.
As already mentioned, such arbitration implies some further procedural steps which can only be taken
after the end of the reasonable period of time and will be completed only at some later time. Since
Article 22.6 of the DSU specifically provides that  concessions or other obligations may not be
suspended during the course of the arbitration procedure, such suspension will necessarily only beavailable some time after the end of the reasonable period of time.
54. In the present case, apart from the issue of the application of Article 21.5 of the DSU, that
will be discussed in the following chapter, the arbitration procedure concerning the US request for
authorisation to suspend concessions or other obligations was still ongoing at the time the US adopted
and applied its 3 March 1999 measure.
55. Moreover, WTO law is concerned with the concept of equivalence between the level of
nullification or impairment suffered by the complaining Member and the level of suspension of
concessions or other obligations that may be authorised by the DSB (cf. in particular Article 22.4 and
22.7, first sentence, of the DSU).
Again, at the time the US adopted and applied its 3 March 1999 measure, the Arbitrator had taken no
decision concerning that equivalence and the US had implemented a measure that was almost three
times greater than the level that was eventually set by the Arbitrator.
56. Consequently, the concept of immediate "liability for non-compliance" as advocated by the
United States in the present dispute has no basis in WTO law. In the EC's view, there can be no doubt
that the US measure has breached the provisions of Article 22 of the DSU.WT/DS165/R/Add.1
Page 34
IV. THE OBLIGATION TO RESORT TO THE PROCEDURES UNDER ARTICLE 21.5
OF THE DSU IN CASE OF DISAGREEMENT ABOUT THE CONSISTENCY WITH
A COVERED AGREEMENT OF AN IMPLEMENTING MEASURE
57. The United States continues to claim that there is no obligation to have recourse to the
procedure under Article 21.5 of the DSU in case of a disagreement about the existence or consistency
with a covered agreement of an implementing m easure before resorting to a request for the
authorisation of the suspension of concessions or other obligations under Article 22.2 of the DSU.
58. This position is not only in flagrant contradiction with the wording of Article 21.5 of the
DSU, which contains the auxiliary "shall" by which this procedure is made mandatory. It is also
contradicted by the practice of WTO Members as it has developed in the meantime, not least in cases
involving the United States itself.
59. The United States omits to mention in its replies to questions by the Panel submitted on
13 January 2000 that it has concluded, in the context of the dispute on United States - Import
Prohibition of Certain Sh rimp and Shrimp Products  (WT/DS58), an understanding with Malaysia on
22 December 199966. This understanding contains the following elements (cf. paragraph 2 of the
exchange of letters):
"If Malaysia [...] decides that it may wish to initiate proceedings under Articles 21.5
and 22 of the DSU, Malaysia will initiate proceedings under Article 21.5 prior to anyproceedings under Article 22. [...] Malaysia will not request authorization to suspend
concessions or other obligations under Article 22 until the adoption of the Article
21.5 panel report. If on the basis of the proceedings under Article 21.5 Malaysia
decides to initiate proceedings under Article 22: the United States will not assert that
Malaysia is precluded from obtaining DSB authorization because Malaysia's requestwas made outside the 30-day time period specified in the first sentence of Article
22.6."
60. This is exactly what the EC explained in 1998 and 1999 to be its reading of the relation
between Article 21.5 and 22 of the DSU.
61. The EC is not convinced that it is necessary to have this kind of bilateral agreement in order
to apply Articles 21.5 and 22 of the DSU correctly. In fact, the EC does not believe that the legal right
accruing to any WTO Member, which was a successful complainant in a DS procedure, under the
DSU to request and obtain authorisation to suspend concessions or other obligations could be put at
risk by the attitude of the defending party in that individual dispute.
The only determinant element in this issue is th at the successful complaining party must follow
correctly all  the procedures set out in the DSU.
62. The EC would like to draw the attention of the Panel to the following fact.
Assuming arguendo  that the interpretation on the sequence between Article 21.5 and 22 of the DSU,
suggested by the EC, would reduce the "negative consensus rule to a nullity in those cases in which
the implementing party does not implement until the completion of the reasonable period"67, quod
non, then a bilateral understanding such as the US/Malaysia agreement would be totally insufficient to
avoid that risk.
                                                     
66 Cf. WTO doc. WT/DS58/16 dated 12 January 2000.
67 See US answer to question No. 12 from the Panel, at paragraph 33.WT/DS165/R/Add.1
Page 35
Any Member would in fact be able to prevent the authorisation to suspend concessions or other
obligations from being granted by opposing the consensus in the DSB.
63. Under the interpretation suggested by the US, the signature of an understanding (i.e. a
bilateral agreement such as the one between the US and Malaysia) would be devoid of any real effect
in case of opposition of another WTO Member which might even act in the DSB as an ally of the
defending Member.
64. The Panel should not condone this scenario, inspired by the US, of tailor-made dispute
settlement procedures on a bilateral basis.
There is simply no compelling reason in law why Articles 21.5 and 22 of the DSU should not be
implemented in their logical sequence as their terms command (the EC refers the Panel again in
particular to text of Articles 21.5 and 22.2, firs t sentence, of the DSU), thus avoiding useless
confusion and unnecessary prolongation of this debate.
A good faith interpretation68 of Articles 21.5 and 22 in their logical sequence and in the light of the
requirements of Article 23 of the DSU does not result in any change in (or loss of) the "reversed
consensus" voting rules in the DSB.
Under these Articles, the "reversed consensus" rule is fully justified where the Member concerned
follows the dispute settlement procedures correctly. Where these procedures are not followed, the
application of the "reversed consensus" rule becomes a tool for imposing unilateral determinationsunder a multilateral disguise, which conflicts with the fundamental objective of these provisions.
65. The fact that the reading of the above-men tioned provisions of the DSU that was always
suggested by the EC has been accepted by both the complainants and the respondents in all dispute
settlement procedures having reached the implementation stage after the entry into force of the WTOAgreement, with the only exception of the US in the Bananas dispute, shows that the DSU procedures
are perfectly viable and can be applied correctly as they stand in the interest of all Members
concerned.
As the five years experience of the WTO Agreement shows, a good faith performance of the existing
rules under the DSU is thus the obvious and sufficient recipe to achieve a correct and satisfactory
conclusion of the implementation stage of any DS procedure.
66. As was already mentioned in our oral statement at the first substantive meeting with the Panel
on 16 December 1999 (paragraph 20), the United States has been able to accept this kind of
proceeding in the Automotive Leather  case against Australia, i.e. even in a situation where it acted as
the complainant.
In any case, an agreement of this nature was acceptable to the EC in the context of the Bananas
dispute, and the EC has reiterated its readiness to follow a similar line throughout the debate with the
United States in the second half of 1998 and the beginning of 199969.
67. The United States claims that Canada shares its earlier uncompromising position, but this is
not borne out by the facts. In the two relevant dispute settlement procedures in which Canada was
involved as a complainant, Australia Salmon  and Brazil Aircraft , Canada has allowed the procedure
                                                     
68 In line with Articles 26 and 31 of the Vienna Convention on the Law of Treaties, applicable as per
Article 3.2 of the DSU.
69 The references to the relevant statements of the EC representatives in the DSB are contained in
footnote 8 to the replies of the European Communities to questions from the Panel and the United States dated13 January 2000.WT/DS165/R/Add.1
Page 36
under Article 21.5 of the DSU to be completed before resorting to the suspension of concessions or
other obligations.
68. In one case ( Australia Salmon ) this was achieved by suspending the procedure under Article
22 of the DSU in order to allow Article 21.5 procedures to follow their course. In the other case,
Canada did not yet resort to procedures under Article 22 of the DSU but simply requested Article 21.5
procedures first.
69. In any case, as explained in the opening chapter of this submission, whatever the position of
different WTO Members, according to Article 11 of the DSU the Panel must make an objective
assessment of the issues before it, without giving too much weight to the tactical positions of
individual WTO Members.
70. For the same reason, the discussions on the DSU review are of limited relevance for the
present dispute, which is subject to the existing provisions of the DSU. Improvements by negotiation
are of course always possible and may lead to an amendment of the present rules and procedures. That
does not mean that panels are not called upon, as Article 3.2 of the DSU specifically provides, to
clarify the rights and obligations of WTO Members under the dispute settlement rules and procedures
as they presently stand.
71. A denial of justice is no solution and will not help WTO Members to come to grips with the
diverging positions that were at the basis of the Bananas  dispute, which even the United States does
not appear to defend anywhere else than in the present proceedings.
72. Finally, the EC believes it appropriate to rebut some statements made by the US while
answering question 14 from the Panel. However, it wishes to make clear that it does not accept or
share all the other affirmations by the US with re spect to the interpretation of Article 21.5 of the DSU
as expressed in these panel proceedings.
73. In answering the Panel's question No 14 on "Who determines whether a new measure nullifies
WTO benefits", the US stated70 that
"As defined in DSU Article 22.7, the Article 22.6 arbitrator's task is to determine
'whether the level of suspension is equivalent to the level of nullification or
impairment.'  As the Bananas  arbitrator pointed out, the concept of equivalence
between the proposed suspension and the level of nullification or impairment would
be 'devoid of meaning' if either of these variables were unknown.71  Consequently, the
Article 22.6 arbitrator must examine the new measure to determine the level of
nullification or impairment before it can determine whether that level is equivalent to
the level of suspension proposed by the complaining party.72"
74. The decision by the Arbitrator in the Bananas  dispute between the US and the EC quoted
above, as any other decision adopted in an Arbitration procedure, was not adopted by the DSB. Thus,
an arbitration decision cannot have the effects that are reserved to adopted panel or Appellate Bodyreports in accordance with Articles 3.7, 16, 19 and 23 of the DSU.
It is barely necessary to repeat here the obvious: in the WTO DS system, panels and the Appellate
Body reports are the basis for the recommendations and rulings of the DSB. The power to adopt and
to make recommendations and rulings in an individual DS procedure binding upon the WTO
Members concerned pertains exclusively  to the DSB, i.e. the WTO Members collectively.
                                                     
70 At paragraph 37.
71 [Original footnote] "Article 22.6 Arbitration, para. 4.7."
72 [Original footnote] "Id., paras. 4.7-4.8."WT/DS165/R/Add.1
Page 37
75. As to the Arbitrator's tasks, they are confined to those set out in Article 22.6 and 22.7 that do
not include any of the tasks that are listed in Article 11 of the DSU (whose title is, not surprisingly,
"Function of Panels") and are not subject to the provisions of Article 6.2 and 7 of the DSU nor to an
appeal under Article 17 of the DSU.
76. Thus, regardless of how the Arbitrator quoted by the US decided to justify its decision
concerning the level of suspension or other obligations requested by the US, which is irrelevant in thiscontext
73, its decision is not binding and cannot be binding on any WTO Member outside the scope of
its mandate under Article 22.6 and 22.7 of the DSU.
77. The decision as to the consistency with a covered agreement of measures taken by a Member,
in casu the EC, to comply with earlier recommendations  and rulings of the DSB only pertains to the
DSB when adopting a report of a panel or the Appe llate Body at the conclusion of a procedure under
Article 21.5 of the DSU.
78. However, in the case of the US, such a decision by the DSB was missing on 3 March 1999,
was also missing on 19 April 1999 and is still missing today.
79. The US cannot rely on the decision taken by the DSB when it adopted on 6 May 1999 the
report in the separate panel procedure on " Bananas - Recourse to Article 21.5 of the DSU by
Ecuador ". According to the Appellate Body report on " Japan - Alcoholic Beverages "74,
"Adopted panel reports are an important part of the GATT acquis .  They are often
considered by subsequent panels. (…) However, they are not binding, except with
respect to resolving the particular dispute between the parties to that dispute.75
                                                     
73 The EC draws the attention of the Panel to the evident non sequitur  in the US answer to question
No. 14. The US affirms, following the Arbitrator, that "the concept of equivalence would be 'devoid of meaning'if either of these variables (i.e. the level of suspension and the level of nullification or impairment) wereunknown". It then concludes that "Consequently, the Article 22.6 arbitrator must examine the new measure to
determine the level of nullification or impairment before it can determine whether the level is equivalent to thelevel of suspension proposed by the complaining party".
The conclusion suggested by the US is inconsistent with the arbitrator's tasks under Article 22.6 and
22.7 of the DSU. In the EC's view, there are only two alternative consequences that can be drawn under theDSU from the fact that one of the two "variables" is unknown:
(1) either the nullification or impairment is not determined "consistent with the findings contained in a
panel or Appellate Body report adopted by the DSB" due to the failure of the complaining Member to challenge
the compliance with earlier recommendations and rulings of the DSB of the new measures taken by the
defending Member. A claim of nullification or impairment in this case is thus not compatible with Article 23 of
the DSU. In such a case, since that "variable" is missing, the Arbitrators must set the level at zero.
(2) Or, a claim that the new  measures violate a covered agreement is "consistent with the findings
contained in a panel or Appellate Body report adopted by the DSB" (and thus with Article 23 DSU) but thecomplaining Member has failed to in dicate correctly the level of the concessions or other obligations which it
proposes to be suspended. Here again, since the other "variable" is missing, the level must be set at zero by the
Arbitrator, if requested.
The US assertion quoted above refers to the first alternative only. The EC fails to see how it could be
justified under the DSU that an arbitrator usurps the task of an Article 21.5 panel.
74 WT/DS8, 10, 11/AB/R, at page 13. In the very recent report on " Turkey-Textiles " (WT/DS34/R, at
paragraph 9.11), that panel stated that "we recall in this context that Panel and Appellate Body reports are
binding on the parties only".
75 [Original footnote] "It is worth noting that the Statute of the International Court of Justice has an
explicit provision, Article 59, to the same effect.  This has not inhibited the development by that Court (and itspredecessor) of a body of case law in which considerable reliance on the value of previous decisions is readily
discernible."WT/DS165/R/Add.1
Page 38
80. Moreover, as the Panel on " India - Patent Protection - Complaint by the European
Communities and their Member States "76 stated in paragraph 7.30:
"[I]t can thus be concluded that panels are not bound by previous decisions of panels
or the Appellate Body even if the subject-matter is the same."
81. In conclusion, the EC reiterates that the contested US measure of 3 March 1999, confirmed on
19 April 1999, is inconsistent with Article 21.5 of the DSU.
82. This inconsistency was not healed by the adoption by the DSB of a panel report in the context
of a separate panel procedure pursued by another  WTO Member in accordance with Article 21.5 of
the DSU.
It was equally not healed by the authorisation to suspend concessions or other obligations benefiting
the EC granted by the DSB on 19 April 1999 up to an equivalent of 191.4 million US$. That
authorisation is a necessary condition but not  a sufficient  condition to warrant the WTO-consistency
of a measure of suspension of concessions or other obligations, which was taken by the US in
disregard of procedural and substantial rules under the DSU.
V. THE PRESUMPTION OF GOOD FAITH
83. The United States claims in its replies to questions from the Panel77 that the concept of a
"presumption" of compatibility or non-compatibility of a Member's implementation is not provided
for in the DSU.
84. This statement is in open contradiction to the recent Appellate Body report on " Chile – Taxes
on Alcoholic Beverages "78 which contains the following statement at paragraph 74:
"Members of the WTO should not be assumed, in any way, to have continued
previous protection or discrimination thr ough the adoption of a new measure. This
would come close to a presumption of bad faith" (emphasis in the original).
85. It is also contradicted by the language of the DSU, particularly Articles 3.7 and 23.
Article 3.7, fourth sentence, of the DSU contains the following guiding principle
"In the absence of a mutually agreed solution, the first objective of the dispute
settlement mechanism is usually to secure the withdrawal of the measures concerned
if these are found to be inconsistent with the provisions of any of the covered
agreements" (emphasis added).
86. Article 23.1 and 23.2(a) of the DSU specify that such a finding (which in the terminology of
Article 23 is called a "determination") can only be made under the rules and procedures of the DSU.
87. The only presumption to which the DSU refers is the presumption mentioned in Article 3.8
according to which
"there is normally a presumption that a breach of the rules has an adverse impact on
other Members parties to th[e] covered agreement, and in such case, it shall be up to
the Member against which the complaint has been brought to rebut the charge".
                                                     
76 WT/DS79.
77 Cf. US answer to question 10 from the Panel, at paragraph 24.
78 WT/DS87/AB/R and WT/DS110/AB/R.WT/DS165/R/Add.1
Page 39
88. For the rest, the burden of proof follows the normal rules as indicated by the Appellate Body
in its report on " United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from
India"79 and remains with the Member alleging the inconsistency of a measure of another Member.
There is no basis for any other approach in the DSU.
VI. CONCLUSIONS
89. The EC reiterates that the US measure taken on 3 March 1999 and confirmed on
19 April 1999 is inconsistent with Articles 3, 21, 22 and 23 of the DSU and Articles I, II, VIII and XI
of the GATT 1994. It respectfully requests the Panel that it recommends the DSB that the US bring
the measure under dispute into conformity with its WTO obligations.
                                                     
79 Cf. doc. WT/DS33/AB/R, p. 14.WT/DS165/R/Add.1
Page 40
Appendix 1.6
The EC letter dated 25 January 2000 concerning the scope of the Panel's terms of reference
(25 January 2000)
Dear Chairman,
The European Communities note with some surprise th e request by the United States, contained in the
accompanying letter to its second written submission of 21 January 2000, that the Panel clarify "prior
to the outset of the second substantive meeting, the measures that it considers to be within the Panel's
terms of reference". The Panel should not accede to this request at this late stage of the proceedings
before it.
According to paragraph 11 of the working procedur es, a request for a preliminary ruling cannot be
made at this stage of the proceedings, unless the United States were able to show "good cause" forgranting an exception. The United States does not even attempt to show such good cause.
The Panel's terms of reference are contained in document WT/DS165/8 which refers in its main body
and in the Annexes to product lists published by the United States on 3 March 1999 and 19 April
1999. There is thus no surprise in the EC's reliance, as from its first written submission, on both these
documents, which were the basis of the establishment of the Panel by the DSB. The United Statesnever raised any objection against this request, neither at the DSB meeting where the Panel was
established nor at an early stage of the panel procedure. In fact, only in the closing remarks made on
17 December 1999, the US raised a doubt for the first time and stated: "we may need to return to the
Panel for a preliminary ruling".
Now that the second written submissions have already been exchanged and more than a month has
passed since the US raised a doubt for the first time, the EC cannot see "good cause" to depart from
the working procedures for the Panel.
As the EC pointed out in its second written submission of 21 January 2000, the Panel will have to
consider the scope of the complaint as a matter of substance. There is no separate procedural matter
involved in the United States' request for "clarificatio n of the terms of reference" that the Panel needs
to address at this late stage.
Yours sincerely,WT/DS165/R/Add.1
Page 41
Appendix 1.7
The EC Responses to Additional Questions of Panel
(8 February 2000)
Question 48
The United States argues in paragraph 35 of its Rebuttal Submission that "assum[ing] for the
sake of argument that … the March 3 bonding requirements impose a 'charge' under Article II
or VIII, these bonding requirements cannot, by definition, be subject to Article XI…."  Please
further elaborate the distinction between the scope of Article II and VIII, and that of Article XI,
keeping in mind the bonding requirements in question.
Reply
1. The legal qualification of the increased bonding requirements in this case depends in the view
of the EC on the (self-standing or ancillary) nature of these bonding requirements. As Deputy USTR
Peter Scher pointed out in a press conference on 3 March 1999, it was the intention of the United
States to „stop all trade" in the listed products from the E80 1. To the extent that the increased bonding
requirement is of a self-standing nature, as the United States claims in the present dispute, it is in the
view of the EC a trade restriction „other than duties, taxes or charges" in the sense of Article XI.1 ofthe GATT 1994.
2. The EC is aware that the GATT 1994 does no t contain a provision dealing with measures
"equivalent to quantitative restrictions" that take the form of a duty, tax or charge. The legal
qualification of the increased bonding requirement thus depends on the question whether a trade
restrictive measure that may be „bought off" by the payment of an amount of money could, for thispurely formal reason alone, be considered as a duty, charge or tax.
3. Assuming arguendo  that in a given WTO Member, customs clearance could only be achieved
by paying a bribe to the customs officials, and that the WTO Member in question would tolerate this
practice, would that practice qualify as a duty, tax or charge or, in the alternative, as a trade restriction
other than a duty, tax or charge? If the former alternative were correct ( quod non  in the view of the
EC), any trade restriction the non-observance of which could lead to the imposition of a fine would
presumably also qualify as a „duty, tax or charge". The EC therefore considers that it is more
appropriate to base the legal qualification on the substance, rather than on the form, of the measure at
issue.
4. It follows from these considerations that a trade restriction the prevailing purpose of which is
to „stop trade" and that does not provide any revenue for the treasury of the importing WTO Member
does not qualify as a „duty, tax or charge", but as a trade restriction of a different nature.
5. However, as the Panel is aware, the EC has qualified the bonding requirements in this case as
being ancillary to a simultaneous increase in the (contingent) duty liability for the listed products. The
EC's main argument therefore is that the increased bonding requirements should be legally qualified
as a charge in close connection with the (increased) customs duty, the payment of which it serves to
guarantee, and for which there is no justification under Articles II and VIII of the GATT 1994. Only
                                                     
80 Cf. also the quotation in a recent article in the "Time" magazine of 7 February 2000 on "How to
Become a Top Banana" (EC Annex XI), according to which an official of the office of the USTR expressed
"amazement" about the fact that a US importer was still doing business in one of the listed products because theUS authorities were under the impression that the increased tariff had "cut off the industry – shut it down" (at p.38, top of left column).WT/DS165/R/Add.1
Page 42
in the alternative that the Panel considers it established that the United States in the present case
introduced an increased bonding requirement without having made the relevant customs tariffs
effective at the same time, the line of argument developed in the preceding paragraphs becomes
relevant and would lead to the conclusion that the increased bonding requirements constitute a
violation of Article XI.1 of the GATT 1994.
6. In any event, both legal qualifications under consideration are meant to complement each
other in a seamless manner and would therefore always lead to the finding of a violation of the US
obligations under the WTO Agreement.
Question 49
In claiming that the increase in the amount of a required security was to cover 100% tariff
which might eventually be due (after the arbitration panel has completed is work), the US
appears to assume that the applicable obligation , in the form of tariffs, can change after the
entry of a listed product into the customs territory of a WTO Member.  Is this retroactive
change of the applicable law and applicable  obligation, acceptable in international law?
Reply
7. As explained in the EC's second written submission of 21 January 2000, the EC is not
convinced by the US arguments that the increased customs duties in this case were imposed on
19 April 1999 with retroactive effect as from 3 March 1999. Rather, the EC considers that the dutyliability for listed products was in fact increased as from 3 March 1999 and only confirmed on
19 April 1999 on the basis of a reduced list. As the EC has pointed out, the retroactive imposition of
increased import duties is at odds with the requirements under US customs law as the US itself has
explained them throughout the present dispute, particularly in response to the EC's written questions.
The EC would like to recall that under customs law principles, a bonding requirement may only be
justified by a doubt concerning a specific imported product (e.g. correct classification, valuation,
origin), but never by a contingency on future changes in law or a doubt on the law itself.
8. Thus, in the view of the EC, the question of the legal restrictions regarding the retroactive
imposition of taxes or other financial burdens does not arise in the circumstances of the present case.
However, the EC is of course ready to provide its  views in the unlikely event that the Panel were to
take a different position on this preliminary issue.
9. The restrictions regarding the retroactivity of legal instruments which impose legal
obligations or financial burdens on the parties to whom they are applicable are based on the problems
created in respect of legal certainty and, where relevant, the legal protection of acquired rights.
10. The achievement of legal certainty is also one of the basic objectives of the WTO and of its
dispute settlement system. According to Article 3.2 of  the DSU, „the dispute settlement system of the
WTO is a central element in providing security and predictability to the multilateral trading system".
As the Appellate Body has found: „the security and predictability of 'the reciprocal and mutually
advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade' is
an object and purpose of the WTO Agreement , generally, as well as of the GATT 1994
81.
                                                     
81 Cf. Appellate Body report on „ European Communities - Customs Classification of Certain Computer
Equipment " dated 5 June 1998, doc. WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, at para. 82. Cf. also
the recent panel report on „ United States – Sections 301-310 of the Trade Act of 1974 " adopted on
27 January 2000, doc. WT/DS152/R, according to which „[p]roviding security and predictability to the
multilateral trading system is another central object and purpose of the system" (at para. 7.75).WT/DS165/R/Add.1
Page 43
11. Legal certainty requires that import charges not be increased retroactively after an item has
been lawfully imported into the customs territory of a WTO Member. Such retroactive increase is in
open contradiction with the purpose of the WTO to allow international trade to take place on a
predictable legal and economic basis. While the imposition of tariffs on imported products is in
principle a permissible policy instrument at the disposal of WTO Members, provided that the tariff
bindings under the relevant GATT schedule of tariff concessions and the MFN rule are respected, theretroactive increase of a tariff, even in situations where the tariff binding is not breached by such
action, is clearly in violation of one of the most basic WTO obligations, namely to permit
international trade to take place on a secure and predictable basis.
12. For similar reasons, Article 28 of the Vienna Convention on the Law of Treaties provides for
a presumption of non-retroactivity of international treaties. This means that, unless a different
intention can be established, an international treaty does not apply to acts or facts that took place or
situations that ceased to exist before the entry into force of the treaty. On this basis, it has been ruledthat under the European Convention on Human Rights, a claim of violation is not admissible
ratione temporis with regard to acts that took place before  the Convention entered into force for the
contracting party concerned, even where the consequences of the act complained about remain in
place after the entry into force of the Convention (e.g., in case of an expropriation without adequate
compensation)
82.
13. Against this legal background, particularly with regard to the requirement to ensure legal
certainty, it can be excluded that the suspension of concessions or other obligations could be
authorised by the DSB under Article 22.2 or 22.7 of the DSU with retroactive effect. Nor can the
suspension of concessions or other obligations be applied retroactively once authorised by the DSB
under these provisions. Such retroactive effect of the authorisation is not only without any basis in therelevant provisions of Article 22 of the DSU, it would also be in open conflict with fundamental
principles of international law and with the object and purpose of the WTO Agreement in general and
the dispute settlement system in particular, as witnessed by Article 3.2 of the DSU and the Appellate
Body report in the (already quoted) case on European Communities - Customs Classification of
Certain Computer Equipment
83.
14. In the present case, there can thus not be the shadow of a doubt that a retroactive increase of
tariffs by the United States on listed items imported from the EC would be both in breach of existing
tariff bindings and thus in breach of US obligations under GATT, and in breach of the fundamental
rule that tariffs may not be increased retroactively for any item once it has been cleared through
customs for home use in the importing Member. The United States cannot rely on the DSB decisionof 19 April 1999 to justify the retroactive imposition of the customs duties either.
                                                     
82 The expropriations were considered as instan taneous acts and not as continuing violations, see,
e.g., joined applications No. 18890/91, 19048/91, 19342/92 and 19549/92, Mayer et al v. Germany , decision of
4 March 1996.
83 Cf. footnote 2 above.WT/DS165/R/Add.1
Page 44
Appendix 1.8
The EC oral presentation at the Second Substantive Meeting
(9 February 2000)
I. RESPONSE OF THE EC TO THE US STATEMENT ON "MATTERS RELATING
TO THE SCOPE OF THIS DISPUTE"
The EC considers the US request for a preliminary ruling for matters relating to the scope of the
dispute as untimely. The EC has referred in its request for the establishment of the Panel to two lists
of selected products originating in the EC, i.e. a larger list published on 3 March and a reduced list
containing a "subset" of products published on 19 April 1999.
It was thus obvious to the United States from the outset that the EC intended to address violations of
the WTO provisions identified in the request by making use of both lists.
Moreover, the consultations requested on 4 March 1999 referred to the larger list of products which
covered all the products contained in the 19 April list. We cannot see then how the US could claim
now that the reference to a reduced list, which contained no addition of products, could enlarge the
scope of the present dispute and thus affect its rights of defence.
Finally, the legal qualification of the 3 March 1999 instruction is part of the substance of the present
dispute. It cannot be addressed or decided in the context of a preliminary ruling concerning
exclusively procedural matters.
II. THE FAILURE BY THE US TO HAVE RECOURSE TO THE MULTILATERAL
DISPUTE SETTLEMENT PROCEDURES UNDER ARTICLES 23, 21 AND 22 OF
THE DSU BEFORE RESORTING TO SUSPENSION OF CONCESSIONS
After the debate on the procedural issues that we have had at the beginning of today's meeting, we
would now like to go into the substance of our case. The substance is of course to a large extent also
dependent on the scope of the present dispute, and that is the first matter that we would like to address
in our oral statement today.
Mr. Chairman,Members of the Panel,
You are meanwhile familiar with the basic plea of the EC, namely that the US measures are
inconsistent with the fundamental WTO rule accord ing to which no Member can take justice in its
own hands. It has to follow the rules and procedures  governing the settlement of disputes consigned in
the DSU before being able to seek redress for any perceived breach of WTO obligations by anotherWTO Member. As the Appellate Body has found in the recent report in the case on Chile – Taxes on
Alcoholic Beverages , there is moreover a presumption of good faith performance of WTO obligations
by WTO Members, which is equivalent to the presumption of innocence recognised under criminal
law as one of the principles of law recognised by all civilised nations.
It is the breach of this basic prescript of the WTO in general and the DSU in particular that has led the
United States in the Bananas  dispute to have recourse to a request for authorisation of the suspension
of concessions or other obligations based on a unilateral determination that the EC failed to honour itsWTO obligations.WT/DS165/R/Add.1
Page 45
Thus, it refrained from following the procedures that are foreseen in Article 21.5 of the DSU in case
of disagreement about the consistency with a covere d agreement of a measure taken to implement the
recommendations and rulings of the DSB on the basis of an earlier panel or Appellate Body report.
This has led to the present situation in which the US applies increased tariffs to a number of items
imported from the EC without having followed the correct proced ures under the DSU.
In this context, the United States cannot invoke the fact that, on 19 April 1999, the DSB authorised it
to suspend concessions or other obligations in the amount established by arbitration under Article 22.6
of the DSU. The DSB authorisation is a necessary, but not a sufficient prerequisite for the lawfulness
of the suspension of concessions or other obligati ons. The United States was also under an obligation
to respect the dispute settlement procedures with re gard to the disagreement on the consistency with a
covered agreement of the implementing measures taken by the EC.
As the Panel is aware, the breach of Articles 21 and 23 of the DSU is specifically mentioned in the
EC's request for the establishment of this Panel and is thus part of its terms of reference.
This aspect of the present case has a bearing not only on the legal basis for the violations about which
the EC complains, but also on the question whether the violation is of a continuing nature. As the
Panel will easily understand, this aspect of the case is therefore of fundamental importance for the EC.
If the Panel finds in favour of the EC on this decisive point, the suspension of concessions is and
remains inconsistent with the US obligations both for the initial list of 3 March 1999, whichconstitutes Annex 1 to the EC's request for the esta blishment of the Panel, and for the reduced list of
19 April 1999 which constitutes Annex 2 to the EC's request for the establishment of the Panel. The
EC believes that it is entitled to receive an answer  from the Panel with regard to this important claim
on which the parties clearly have a disagreement with very important legal and practical consequences
in the present case. A denial of justice on this point would necessarily lead to continuing legaluncertainty and more litigation.
The EC has already pointed out in its written submissions that there was no justification to resort to
the suspension of concessions or other obligations in the present case, neither on 3 March 1999 nor on
19 April 1999. The WTO-inconsistency of the 3 March measure could not "healed", by the
authorisation of the DSB of 19 April 1999 simply because it was legally flawed from the outset. TheEC repeats that in this context, the DSB authorisation of 19 April 1999 was a necessary, but not a
sufficient prerequisite for the suspension of concessions or other obligations.
III. EXAMINATION OF THE LEGAL CHARACTERISTICS OF THE US MEASURE
AND OTHER COMMENTS
Mr. Chairman, Distinguished Members of the Panel
The EC suggests that we start from the beginning, i.e. that we examine once more the US measure at
issue. Thanks to your request, the EC is now able  to examine the text of the unpublished instructions
that the USTR addressed to the US Customs service on 3 March 1999 (US Exhibit 12).
The text is very revealing:
(a) the USTR describes the aim of the instruction as follows: "The USTR now seeks to
preserve its right to impose 100 percent duties as of March 3 , pending  the release of
the arbitrators' final decision" (emphasis added);
(b) as a consequence the following instruction was given: "Therefore, I am hereby
requesting that until further notice the Customs Service withhold  liquidation  of
entries of all articles identified in the attachment to this letter (…)" (emphasis added);WT/DS165/R/Add.1
Page 46
(c) moreover, as further consequence, the following additional instruction was given: "I
further request that the Customs Service today instruct  port directors to review the
sufficiency of bonds posted with respect to entries described in the previous sentence,
and to take steps to provide adequate additional security (…) (emphasis added);
(d) finally, it should be noted that the instruction refers explicitly to "(…) 63 Fed. Reg.
63099 and 63 Fed. Reg. 71665 giving notice of the proposed increase in duties on
selected products".
The above confirms therefore that:
a) On 3 March 1999, the US authorities considered to have the right to impose 100
percent duties on selected products of a total value of 520 million US$ as from that
date. However, the US does not indicate, once more, from where it derives this
alleged "right". The EC reiterates that this determination of a self-attributed "right" is
in open conflict with central provisions of the DSU such as Article 23, 21 and 22.
b) The US determined that it had the right to the 100 percent increased duties as from
3 March even  pending the arbitrators' decision. This proves the EC's point that the
US measure violates Article 22.6, last sentence, of the DSU which reads as follows:"Concessions or other obligations shall not be suspended during the course of the
arbitration".
c) The text instructs customs to "withhold liqu idation". The EC would recall in passing
that the US has so far asserted that this expression has no legal meaning and was just
for the press release. The EC also notes that this measure is unqualified and gives
instruction not to allow customs clearance at the bound MFN rate. What matters for
the resolution of this case is the content a nd the effects of a specific instruction given
by the USTR to "withhold liquidation", i. e. not to proceed with the liquidation of
customs duties. The effect of this instruction was to prevent as from 3 March 1999
any importer of selected products originating in the EC from clearing those products
through customs at a tariff rate not exceeding the rate bound in the US Schedule of
tariff concessions as they were entitled under the WTO.
d) The "withholding" of liquidation was made effective "until further notice", i.e. in a
totally open-ended manner. The instruction thus undermines "the security and
predictability of 'the reciprocal and mutually advantageous arrangements directed to
the substantial reduction of tariffs and other barriers to trade' [which] is an object and
purpose of the WTO Agreement , generally, as well as of the GATT 1994" as the
Appellate Body report on " European Communities - Customs Classification of
Certain Computer Equipment " indicated (paragraph 82).
e) The USTR instruction contains also an ancillary order to "review the sufficiency of
bonds" and to provide  "adequate additional security" in order to ensure the
implementation of the suspension of tariff concessions as from 3 March 1999.
f) The USTR instruction cross references to the text of a notice published in the Federal
Register of 10 November 1998, at page 63099, which reads as follows: "(…) [T]hedates on which the USTR intends to implement action – February 1 or no later than
March 3, 1999 – correspond to the dates contemplated by sections 306(b) and 305(a)
of the Trade Act  as well as Article 22 of the DSU".WT/DS165/R/Add.1
Page 47
As is apparent from the above, the US instruction on 19 April 1999 did not add any further burden
upon importation of selected products from the EC. Rather, while confirming the 3 March instruction,
it reduced the list of products. The EC does not complain against such reduction.
Mr. Chairman, Members of the Panel,
The US explanations in response to the additional questions of the Panel are simply not credible.
For example, the intention of the US authorities st ated in the 3rd March instruction was to make the
suspension of concessions effective immedi ately ("now") on 3 March without pursuing the
multilateral dispute settlement procedures under Article 21.5 and 23 of the DSU. This is a clear
breach of fundamental principles of the WTO that still persists today.
In addition, the US did not bother to await the determination of the level of nullification or
impairment, if any, before resorting to the application of suspension of concessions, in clear breach of
Article 22.6, last sentence, of the DSU. Therefore, any reference to a "particular risk" or any other
"risk" evoked by the US in its answers to the Pa nel's questions amounts to an attempt to mislead the
Panel on the reality of the situation.
Moreover, no elaborate explanation concerning the 19 April instruction is capable to dissimulate the
events of 3 March.
The sentence in paragraph 18 of the 8 February US document is revealing:
"[I]n the absence of the April 19 action, each and every entry subject to changed
bonding requirements would be liquidated at the entered, MFN rate – precisely
because no liability was imposed on March 3".
This flies in the face of the stated  purpose of the 3 March instructions:
"the USTR seeks to preserve its right to impose 100 percent duties as of March 3".
The text of the 3 March instruction simply does not permit to assert, as the US does in its 8 February
document at paragraph 20, that
"[T]here was no legal relationship between the March 3 action (changed bonding
requirements) and the April 19 action (increasing the duty rate for certain products)".
No more credible is the attempt by the US to rewrite the GATT 1947 adopted panel report on
"Minimum Import Prices".
Contrary to the allegations in paragraph 30 of the 8 February document, that panel accepted the US
argument that
"these interest charges and costs [in connection with the lodging of the security] were
in excess of the bound rate(…)".
The US recognises that there are interest charges and costs associated with the increased bonding
requirements at a level that the US has identified up to 20 US$ per thousand dollars of bond value
(paragraph 12 of the 8 February document ).WT/DS165/R/Add.1
Page 48
The cumulative effect of such measure applied to the aggregate value of the selected products worth
520 million US$ reaches approximately 10 million US $, which cannot be reasonably considered as
negligible.
According to the 3 March instruction, the increased bonding requirements are a necessary pre-
requisite in order to be able to collect (increas ed) customs duties, the payment of which it serves to
guarantee. Such increase should be qualified as a charge in connection with importation in excess ofthe US bound rate for which there is no justification under Articles II and VIII of the GATT 1994.
As was the case for the "Minimum Import Prices" panel report, in this case surety deposits usually
take the form of a bank guarantee. Without providing such guarantee, no import would take place.
There again, that panel report is relevant for the solution of the present dispute.
As the Panel will recall, the US stated in paragraph 6 of its 13 January document that
"[l]iability for payment of duties is incurred at the time the goods arrive on a vessel
within a Customs port when there is an intent to unlade (sic) the goods at that port or,if arrival is otherwise than by vessel, at the time of arrival within the Customs
territory of the United States".
Thus, according to the US, the liability cannot chan ge after the arrival of the imported good in the
customs territory of the Unites States.
The EC agrees with this explanation. As a matter of fact, the EC applies the same rule.How can the US claim at the same time that "the April 19 action changed this rate for certain
products" (paragraph 23 of the 8 February document) although the products had entered the customs
territory before that date?
As the Panel is aware the reality is that the duty liability was assessed on the basis of 100 percent
ad valorem duty as of 3 March 1999, subject to confirmation at a  later date, i.e. 19 April of the sameyear.
As a matter of principle, upon importing a product into the US, the customs clearance is based on two
different types of factors:
- a factor which is related to the assessment of the correct classification,
customs valuation and origin of the goods. This depends on the specificities ofeach individual import operation which must be declared by the importer; and
- a factor which is determined by the relevant customs legislation applicable on
the date on which the customs liability is incurred, i.e., in the case of the US,
the date of entry into the US customs territory. That legislation sets among
other things the applicable duty rate.
A bonding requirement serves the purpose of guaranteeing the correctness of the operators'
declarations concerning the first factor. However, the US 3 March instruction explicitly imposed a
bonding requirement in order to cover the collection of increased duties as a result of a change of thesecond factor. However, WTO law does not allow Members to create or maintain uncertainty with
regards to the upper limit of the applicable duty rate, which cannot exceed the bound rate.
The US can point to no other legal basis for its WTO-inconsistent action. The fact that the WTO
Agreement on Anti-dumping measures allows retroactive imposition of AD duties under strictlydefined circumstances does not prove the US point in this case. On the contrary, it is clearly a limitedWT/DS165/R/Add.1
Page 49
exception to the fundamental principle under Article II of the GATT 1994 and thus applicable only
where specifically provided for (General Interpretative Note to Annex 1A of the WTO Agreement).
Moreover, the Kyoto Convention obliges to ("shall")
"specify the point in time to be taken into consideration for the purpose of determining
the rates of import duties and taxes chargeable on goods declared for home use"
(Standard 47 of Annex B.1).
As was just mentioned, the US has indeed chosen such a point in time, namely the date of entry of
imported goods into the US customs territory. In this context and as a matter of pure logic, a measure
of "withholding" of liquidation of a customs debt is not relevant for the determination of the point in
time in which that customs debt is incurred.
Consequently, there was no additional "risk" associated with the action of importation of selected
products from the EC that could justify the increase of the bonding requirements. No other "risk"could justify "withholding" of liquidation or an increase in duty liability.
The US explanations are thus no more than a smokescreen intended to dissimulate the increase of the
duty liability as of 3 March 1999 which was adopted on that date in violation of Articles I, II, VIII
and/or XI of GATT and 3, 21, 22 and 23 of the DSU.
This concludes the presentation of the European Communities. Mr Chairman, Distinguished Members
of the Panel, thank you for your attention.WT/DS165/R/Add.1
Page 50
Appendix 1.9
The EC Final Statement at the Second Substantive meeting
(9 February 2000)
Mr. Chairman,
Distinguished Members of the Panel
the United States appears to have difficulty with the perception of the reality of this case.
The US seems to forget that the Deputy USTR, Mr. P. Scher, has declared on 3 March 1999 to the
press that “we retaliated by effectively stopping trade as of March 3 in response to the harm caused by
the EC’s WTO-inconsistent banana regime”. It also disregards quotations from the USTR officials
made after 3 March when the affected US industry complained about the effects of the measure.
Those USTR officials are quoted in recent US publications as stating that they thought that “the tariffwould cut off industry – shut it down”.
We now discover that the US representatives in the present procedure are not fully aware of these
realities which are part of the unrebutted evidence before this Panel. They have stated this morning
that the EC asserts that “the bonding requirements effectively stopped trade. They did not”.
The EC has looked once more at Exhibits 5, 7 and 10 submitted by the United States in the present
procedure. It has converted the figures submitted by the US into a graph.
Mr. Chairman and Members of the Panel: if the United States’ assertions of this morning were
correct, i.e. that there was no instruction to customs authorities, no withholding of liquidation, no
increase in duty liability, how could these trade effects have occurred?
The EC submits that the text of the USTR notices published in the Federal Register in 1998 and of the
USTR 3 March instruction are utterly clear: these trade effects were the direct, intended and
unequivocal result of the US measure, by which the duty liability was increased to 100 percent
ad valorem as from 3 March in order to stop trade as from that date.
The US described its customs liquidation cycle as allowing immediate release of the imported goods
after the provisional assessment of the relevant duty elements. After that provisional assessment, thefinancial obligations resulting from the importation are liquidated between 314 days and one year
after the entry of the imported goods.
The EC operates a similar system, although the periods of financial liquidation are much shorter.
However, as already stated and as a matter of logic, any bond requirement in this context must be
related to secure the deferred payment, or to cove r possible mistakes in the initial assessment of the
duty elements (misclassification, under-valuation, inva lid origin claims). All these elements “relate
either to credit worthiness of the importer, or to the nature of the merchandise being imported” (US
second submission, paragraph 29).
When we compare these principles with the situation in the present case we discover that the financial
obligations, for which duty payment was deferred on or after 3 March 1999 for the listed products,
were rather based on government action increasing the US duty rates to 100 percent ad valorem, in
breach of the US GATT bindings.
Moreover, the Kyoto Convention provides no justification to allow increased sureties to cover
changes to the applicable rates of duty after the poin t in time in which the duty liability is incurred.
The EC draws the attention of the Panel also to the purpose of the Kyoto Convention which is toWT/DS165/R/Add.1
Page 51
facilitate and simplify customs procedures. No good faith interpretation of such Convention could
justify measures, such as the US measure, which undermine the security and predictability of the
international trading system.
A further point of clarification concerns the scope of the Panel’s review of the US measure. The US
representative has this morning repeatedly asserted that the EC “is asking the Panel to violate several
WTO provisions in order to find that the Article 22.6 arbitral panel in Bananas somehow violatedother DSU provisions” (paragraph 12 of US 9 February statement).
The EC submits that it is the US that is confusing procedures here. We confirm that this Panel does
not need to even mention the Arbitrators’ decision under Article 22.6, since the EC does not request
this Panel to review the level of nullification or impairment determined under that procedure,
regardless of how it was justified.
The EC insists, however, on the fact that no panel or Appellate Body report adopted  by the DSB and
involving the United States has ever determined th at the EC “fail[ed] to bring the measure found to be
inconsistent with the covered agreement into co mpliance therewith or otherwise comply with the
recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3
of Article 21 (…)” (Article 22.2 of the DSU).
Thus, the EC repeats that while the authorisation by the DSB under Article 22 of the DSU is a
necessary pre-requisite in order to implement a suspension of concessions or other obligations, it isnot a sufficient condition where there is a disagreement on the “consistency with a covered agreement
of measures taken to comply with the recommenda tions and rulings” of the DSB (Article 21.5 of the
DSU). That necessary condition is only fulfilled once a Panel or Appellate Body report under Article
21.5 of the DSU has been adopted by the DSB.
If the US were to prevail on this central point, this would amount to accepting that a WTO Member
can take the law in its own hands. This would undermine the multilateral character of the dispute
settlement system and, consequently, of the WTO system as a whole.
US imports of EU products NOT included on final list* - January 1997 until September 1999
010,000,00020,000,00030,000,00040,000,00050,000,00060,000,000
Ja
n-
97Fe
b-
97Ma
r-
97Ap
r-
97Ma
y-
97Ju
n-
97J
ul-
97Au
g-
97Se
p-
97Oc
t-
97No
v-
97De
c-
97Ja
n-
98Fe
b-
98Ma
r-
98Ap
r-
98Ma
y-
98Ju
n-
98J
ul-
98Au
g-
98Se
p-
98Oc
t-
98No
v-
98De
c-
98Ja
n-
99Fe
b-
99Ma
r-
99Ap
r-
99Ma
y-
99Ju
n-
99J
ul-
99Au
g-
99Sep-
99
Series1 18,34 14,30 20,11 19,60 20,74 33,00 30,70 37,67 26,13 21,89 17,41 20,95 18,77 22,77 30,87 37,42 47,73 35,46 23,33 31,78 16,22 14,98 20,12 25,85 35,29Jan-
97Feb-
97Apr-
97May-
97Jun-
97Aug-
97Sep-
97Oct-
97Dec-
97Jan-
98Feb-
98Apr-
98May-
98Jun-
98Jul-98Sep-
98Oct-
98Nov-
98Jan-
99Feb-
99Mar-
99May-
99Jun-
99Jul-99Sep-
99
* (Prosciutto, pecorino, cookies, candles, plastic film, sweaters, coffee makers). Source: US exhibits 5, 7 and 10WT/DS165/R/Add.1
Page 52
Appendix 1.10
The EC Responses to Additional Questions of Panel
(10 February 2000)
Question 50
Do parties consider that there is an opportunit y cost arising from the bonding requirement, in
particular if cash is deposited in lieu of a bond?
Reply
The EC would like to repeat that the financial liquidation process associated with deferred payment of
duties is much shorter in the EC system than in the US system.
Under the US system, a cash deposit in lieu of a bond  would remain available to the US government
until the conclusion of the financial liquidation process in relation to the importation, i.e. not earlier
than 314 days. This sum of money, the EC understands, is additional to the amount equivalent to the
duties due (possibly already deposited in view of final liquidation) for that particular consignment.
Therefore, the US government would benefit from positive interests for almost one year for that
additional amount of money and, correspondingly, the importer would loose money equivalent to
negative interests on that sum, increased by the ratio of inflation. Moreover, the importer is restricted
in its financial opportunities that the availability of that amount of money would entail since it
restricts or makes more expensive its access to credit.
In the case at hand, most of the EC originated products listed in the US measure were subject to 'zero'
or marginal duty liability until 2 March 1999. On 3 March 1999, the unilateral US measure increased
the duty liability for these products to 100 percent ad valorem .
Any operator wishing to utilise the cash deposit in lieu of a bond on or after that date would have been
subject to a disproportionate deposit requirement as compared to the negligible or non-existent pre-3
March deposit. This is within a situation where the increase in cash deposit was imposed in order to
cover unilaterally increased duties, a governmental measure that has no relation with the purpose of a
cash deposit, i.e. to cover uncertainties related to a specific consignment.
In any case, in the scenario described by the Panel's question, the US measure produced a significant
increase in "opportunity costs", which finds no justification under the WTO agreements or any other
legal instrument.WT/DS165/R/Add.1
Page 53
Appendix 2.1
The First Submission of the United States
(6 December 1999)
I. INTRODUCTION
1. On March 3, 1999, the United States Customs Service began to require that bonds posted on
certain imports from the European Communities (EC) cover the potential liability due if the DSB
were to authorize the suspension of concessions for the EC's continued non-compliance in the
Bananas  dispute.  The sole issue in this dispute is whether, in the specific context of efforts by the
European Communities to avoid at all costs complying with its WTO obligations in the Bananas
dispute, that U.S. response was proper.  The EC does not contest that it failed to bring its banana
import regime into compliance with its WTO obligations by January 1, 1999, the end of its"reasonable period of time" for doing so.  Nor does the EC contest that WTO arbitrators reached this
conclusion on April 6, 1999.  Nor does the EC cont est that the Dispute Settlement Body (DSB)
approved a U.S. request for the suspension of concessions in full accordance with the terms of
Article 22 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU) on April 19, 1999.  Rather, the EC argues that despite confirmation by the arbitrators that the
EC has been violating its WTO obligations since January 1, 1999, the United States did not have the
right to increase bonding requirements on March 3, 1999 in order to preserve its ability to redress
such violations as of that date following DSB appr oval of the amount of nullification or impairment.
As shown in this submission, the March 3 bonding re quirements were consistent with the letter and
purpose of the DSU.
2. Under the DSU, the EU was liable for its nul lification or impairment as of January 2, 1999,
one day after the end of the reasonable period of time.  The date eventually chosen, March 3, was one
day after the date by which Article 22.6 required the WTO arbitrators in the  Bananas  case to have
determined the level of nullification or impairment of  U.S. benefits resulting from the EC's violation
of its WTO obligations.
3. That the arbitral panel was unable to complete its work by March 2, 1999 was in large part
due to the efforts of the EC to delay referral of the matter to the panel and to delay the panel's
subsequent work.  These efforts were but the latest by the EC to delay compliance with its
international obligations in connection with its banana import regime.  The EC's efforts extended back
even to before the 1995 creation of the WTO, to th e EC's refusal to bring itself into compliance with
two adverse GATT panel rulings on bananas.  These efforts continued after the EC's banana import
regime was again found in violation of its international obligations by a WTO dispute settlement
panel and the WTO Appellate Body.  The EC refused to consult with the complaining parties during
the reasonable period of time on the EC's revisions to its banana import regime, instead making
changes that would again be found inconsistent wi th EC obligations.  Moreover, during the reasonable
period, the EC first repeatedly obstructed the establishment of an Article 21.5 panel on the question of
the EC's non-compliance, and then sought to delay until after January 31, 1999 any U.S. request tosuspend concessions – which would have denied the United States the benefit of the negative
consensus rule under paragraphs 6 or 7 of DSU Article 22.  While the EC failed in its effort to prevent
the United States from presenting to the DSB its rightful request to suspend concessions, it succeeded
in delaying the work of the Article 22.6 arbitrators beyond the DSU-mandated time frame for
completion of their work on March 2, 1999.  Thus, in the year leading up to March 3, 1999, the ECrepeatedly and without exception obstructed the mechanisms provided for in the DSU to address its
failure to comply.
4. When the WTO replaced the GATT in 1995, the DSU was expected to be one of the major
improvements, in that it was structured so as to ensure prompt settlement of disputes, in particularWT/DS165/R/Add.1
Page 54
prompt compliance.84  The WTO record for the settlement of disputes from 1995 to 1998 was a good
one, but the EC's failure to comply in the banana case threatened to change the pattern.  The Bananas
dispute involved the first time a defending party used the reasonable period to make changes that
would clearly not involve full compliance by the end of it, and then obstructed DSU procedures for
addressing the situation.  These actions leading up to March 3, 1999 seriously threatened the
credibility of the new dispute settlement system.
5. The U.S. action of March 3, 1999 addressed the threat posed to the credibility of the WTO
dispute settlement system by the EC's concerted strategy of delay, and it did so in a manner consistent
with U.S. WTO obligations.  By requiring importers to post bonds sufficient to cover any duties
which the DSB might ultimately authorize as a result of the EC's continued non-compliance with its
WTO obligations, the United States preserved its ability to impose DSB-authorized duties and at the
same time demonstrated to the EC that it could no t hope to benefit from its efforts to undermine DSU
rules through delay.  This action was consistent with U.S. WTO obligations, and the Panel shouldreject the EC's claims to the contrary.
II. PROCEDURAL BACKGROUND
6. By letter dated 4 March 1999, the EC requested consultations with the United States
regarding the U.S. decision of March 3 to require that bonds posted on certain EC imports to cover the
potential liability due if the DSB were to authorize the suspension of concessions with respect to ECimports for the EC's continued non-compliance in the Bananas  dispute (WT/DS165/1).  Consultations
were held on 21 April 1999, but failed to resolve the dispute.
7. By letter dated 11 May 1999, the EC requested establishment of a panel with standard terms
of reference pursuant to Article 7 of the DSU (WT/DS165/8).  On 16 June 1999, the Dispute
Settlement Body ("DSB") established a panel pursuant to the EC request (WT/DS165/9).
8. The following terms of reference apply to this proceeding:
To examine, in the light of the relevant provisions of the covered agreements cited by
the European Communities in document WT /DS165/8, the matter referred to the DSB
by the European Communities in that document and to make such findings as will
assist the DSB in making the recommendations or in giving the rulings provided forin those agreements.
9. On 29 September 1999, the EC requested the Director-General to determine the composition
of the Panel pursuant to Article 8.7 of the DSU.  On 8 October 1999, the Director-General composed
the Panel.
10. Ecuador, India, Jamaica, Japan, St. Lucia and Dominica reserved their rights as third parties
to the dispute.  (WT/DS 165/9, WT/DS165/9/Corr.1).
III. FACTUAL BACKGROUND
11. A full recounting of the EC's actions in the year and a half preceding March 3, 1999 illustrates
the threat these actions posed to the DSU's credibility and provides the necessary perspective on U.S.
action on that date to address this threat and to preserve its rights under the DSU.
12. On September 25, 1997, the Dispute Settlement Body adopted panel and Appellate Body
rulings against the EC in European Communities - Regime for the Importation, Sale and Distribution
                                                     
84 See DSU Arts. 3.3, 21.1.WT/DS165/R/Add.1
Page 55
of Bananas , a dispute addressing the complaints of Ecuador, Guatemala, Honduras, Mexico and the
United States.85  These findings were broad and comprehensive, and included findings that the EC's
banana import regime (1) wrongly allocated its market as between the access opportunities afforded to
Latin American and African, Caribbean and Pacific (ACP) countries, respectively and (2)
discriminated in favor of EC banana distribution service suppliers and against U.S. and Latin
American service suppliers under the General Agreement on Trade in Services (GATS).
13. At the DSB meeting at which the EC was required to state its intentions concerning
implementation, and in subsequent negotiations with the complaining parties under Article 21.3
concerning the "reasonable period of time" for co mpliance, the EC refused to commit to implement
"all" of the DSB recommendations and rulings.  The EC spoke only vaguely about meeting its
"international obligations" and refused to commit to implement all the rulings and recommendations
of the DSB in the reasonable period of time.86  It eventually recognized its obligations during
questioning by the arbitrator appointed pursuant to Article 21.3 of the DSU on the reasonable periodof time.
87
14. As a result of that arbitration, the EC was given a fifteen-month "reasonable period of time"
to bring its banana import regime into compliance with the EC's WTO obligations, ending on January
1, 1999.88  Despite the extent of the WTO findings and the complexity of the EC's measures, however,
European Commission officials refused to consult with the United States following the WTO rulingsin the fall of 1997.  Instead, the Commission began to develop proposed changes to the EC banana
regime that ignored the concerns that the complaining parties had expressed.
15. On January 14, 1998 the Commission submitted a proposal to its member States.  The
inconsistencies of that proposal with the DSB's recommendations were readily apparent.  The
Commission proposal made only token changes in its allocation of the market, and left open the
possibility of maintaining the discrimination against U.S. service suppliers under the GATS.
Commission officials simply asserted that their proposal was fully WTO-consistent.  During meetings
with U.S. officials in early 1998, Commission representa tives stressed that they now had no latitude to
make any substantive changes to this proposal.
16. Beginning in January 1998, the United States, the four Latin American countries who were
complaining parties in the original case, and Panama, a more recent WTO member, also began raising
the banana issue on a monthly basis before the DSB.
89  The complaining parties explained to the EC
and other WTO Members in great detail the WTO-inconsistencies of the EC proposal and requested
negotiations based on a new approach.  In response, the EC suggested only that the complaining
parties were subverting the DSB process, and it declined to engage in substantive negotiations.
17. During subsequent months, the EC position became even more entrenched, despite U.S.
efforts to press for a negotiated resolution.  In June 1998,  the EC Agriculture Council agreed to the
Commission's proposal, on the basis of an agreement,  recorded in public minutes, that the licensing
regime would be based on the reference period 1994-96, which would have the effect of perpetuating
the discriminatory treatment applied to favor Eu ropean distribution companies receiving licenses.90
                                                     
85 WT/DSB/M/37.
86 See WT/DSB/M/38.
87 See WT/DS27/15, para. 12.
88 WT/DS27/15, para. 20.
89 See WT/DSB/M/41 (DSB meeting of 22 January); WT/DSB/M/42 (13 February meeting);
WT/DSB/M/44 (25 March meeting); WT/DSB/M/45 (22 April meeting); WT/DSB/M/46 (22 June meeting);
WT/DSB/M/47 (23 July meeting); WT/DSB/M/48 (22 September meeting); WT/DSB/M/49 (21 October
meeting); WT/DSB/M/51 (25 November meeting).
90 See report of 2110th Council meeting -Agriculture- Luxembourge, 22/23/24/25 June 1998, 9558/9
(Presse 214-G), page 18 ("The Commission confirms that in managing import licenses in accordance with themethod of "traditionals/newcomers", it will use the years 1994-96 as the initial reference period for determiningWT/DS165/R/Add.1
Page 56
The EC Council adopted the proposal in Regulation (EC) 1637/98 of July 20, 1998, which, as the EC
explains in its First Submission,91 entered into force on July 31, 1998 and was applicable from
January 1, 1999.  The EC provided further implementing rules for licensing -- on the basis of the
Council-approved 1994-1996 reference period -- on October 28, 1998.  These entered into force on
November 1, 1998 and were applicable in their entirety from January 1, 1999.
18. Beginning in early July 1998, the United States and its co-complainants repeatedly asked the
EC to submit to a DSU Article 21.5 panel its claim that its newly adopted measures were, in fact,
WTO-consistent.  On July 8, U.S. Trade Representative Charlene Barshefsky asked European
Commission Vice President Sir Leon Brittan to agree to reconvene the original panel pursuant to DSU
Article 21.5 to review the EC measures before the end of the "reasonable period.92  She indicated that
if the EC was not in compliance by the end of the year, the United States would invoke its right to
withdraw trade concessions under Article 22 of the DS U.  The EC responded at the end of July that it
saw "no reason" to reconvene the panel, and stated that "normal procedures" beginning with a requestfor consultations should be followed.
93  The complaining parties asked the same of the EC at a July 23
meeting of the DSB; the EC representative replied that he was not in a position to respond.94
19. In August 1998, the EC insisted on holding formal consultations under DSU Article 4 before
it would agree to reconvene the original panel.95  In response, the complaining parties requested
consultations with the EC, while reserving their legal positions that this step was not required.However, the EC's insistence on formal 60-day consu ltations turned out to be just another tactic for
delaying the reconvening of the panel.  During the consultations, the EC merely reiterated again its
position that the revisions to its banana regime were WTO consistent and declined to agree to
re-establish a panel at the next DSB meeting.
20. In September, 1998, the complaining parties requested the intervention of the Chairman of the
DSB to help persuade the EC to agree to procedures to reconvene the panel by early November.  The
EC said that it was only willing to reconvene the pa nel if its review were limited to violations of the
GATT.  The EC insisted that any panel review under the GATS of its services measures must occur
separately at some later unspecified date.  The complaining parties could not agree to such a split in
the case, which would have been contrary to the manner in which the panel originally considered it.
As the original panel noted, the GATT and GATS violations in the case were related.  Moreover,
there is no basis in the DSU for a defending party to condition its participation in dispute settlement
proceedings on the limitation of a complaining party's right to assert any WTO claim.  The EC's
demand for split proceedings would merely have achieved its goal of delaying panel proceedings.
21. The EC first devoted serious attention to the complaining parties only in November 1998 after
the United States began contingency preparations for suspension of concessions.  The U.S.
preparations were based on the schedule provided for in DSU Article 22.  Under Article 22.6, the
DSB is required to authorize a request to suspend concessions within 30 days of the end of the
reasonable period of time unless there is a consensus not to do so, or unless the Member concerned
objects to the level of suspension proposed.  In that case, the matter is to be referred to an arbitral
panel to determine whether the level of suspension of concessions is equivalent to the level of
                                                                                                                                                                    
operators.")  The 1994-96 reference period agreed upon was one in which the GATS-inconsistent regime had
been in place, and could accordingly be predicted to pe rpetuate the inconsistencies previously found by the
DSB, as the arbitrators eventually concluded.
91 First Written Submission of the European Communities, para. 3.
92 Letter from Charlene Barshefsky to the Honorable Sir Leon Brittan, July 13, 1998 (U.S. Exhibit 1).
93 Letter from Sir Leon Brittan to Ms. Charlene Barshefsky, 30 July 1998 (U.S. Exhibit 1).
94 See WT/DSB/M/47.
95 The EC argued that, with the exception of the 90 day time frame for circulating the report and resort
to the original panel, Article 21.5 procedures involved "normal dispute settlement procedures," such asconsultations and, presumably, another reasonable period of time for compliance.  See WT/DSB/M/48 (minutes
of DSB meeting of 22 September 1998).WT/DS165/R/Add.1
Page 57
nullification or impairment.  Pursuant to Article 22.6, the arbitrators must complete their work within
60 days of the conclusion of the reasonable period of time, following which the DSB must, under
Article 22.7, authorize suspension in the amount found by the arbitrators absent a negative consensus.
In order to be placed on the agenda of a DSB meeting to be held on January 31, 1999 –  within
30 days of the end of the "reasonable period" – the United States had to request suspension by
January 21, 1999.
22. Unfortunately, by the end of November -- five months after the original U.S. request -- the
prospects for completing Article 21.5 panel proceedings by January 21 were becoming increasingly
slim.  Nonetheless, on November 19, 1998, in meetin gs with the Chairman of the DSB, the United
States made a third proposal to reconvene the panel pursuant to Article 21.5, under an accelerated
timetable that would permit a panel report to be issued before January 21.
23. From November 30 to December 3, 1998, the United States and the EC engaged in intensive
discussions concerning an expedited panel procedure.  These talks did not resolve the outstandingprocedural issues for three principal reasons.   First, the EC required as a precondition to reconvening
the panel that the United States waive its right under the DSU to suspend trade concessions, i.e.,
forego submitting its request to the DSB between January 21 and 31, the narrow window provided for
under Article 22.  Second, the EC was unwilling to permit the Latin American co-complainants in the
original case --  Ecuador, Guatemala, Honduras and Mexico -- to participate in the expeditedproceeding.  Third, the EC's proposed schedule exte nded into June of 1999, with no date certain or
provisions for the United States to obtain DSB authorization to suspend concessions.
96
24. On January 14, 1999, the United States requested authorization to suspend concessions in the
amount of $520 million under DSU Article 22.2, and placed this request on the agenda of the DSB
meeting scheduled to take place on January 25, 1999.97  Again, Article 22.6 requires that the DSB,
upon request, grant authorization to suspend concessions or other obligations within  30 days of the
end of the "reasonable period," unless there is a consensus not to do so.
25. Faced with this prospect, the EC responded th rough the unprecedented step of attempting to
block the adoption of the agenda of a meeting of the Dispute Settlement Body.98  Having delayed and
obstructed the establishment of an Article 21.5 panel,  the EC now insisted that such a panel process
precede any request to suspend concessions under Article 22.  The EC therefore demanded that the
U.S. Article 22 request be stricken from the agenda before the agenda could be adopted by consensus.
In the debate which took place on January 25, 1999 on adoption of the agenda, the Chairman noted,
"In accordance with past practice and the spirit of the WTO, the consensus rule [for
adopting the agenda] had never prevented the right of a government to include issueson the agenda.
99  In arguing for the adjournment of that day's meeting, the Director-
General stated that several delegations including Turkey and Mexico had rightly
underlined the fundamental systemic issues in the discussion, which not only
concerned bananas but the entire system and its functioning.  The proposal to adjourn
the meeting [rather than close the meeting, the consequence of a failure to adopt the
agenda] … was the best way to oppose the idea that a few delegations could block one
item on the agenda or adoption of the agenda.  It was correct to oppose this bysuspending the meeting …".
100
                                                     
96 While the United States and the EC were also far apart on the estimated number of days it would take
to complete a proceeding, it was these three EC demands that foreclosed an agreement.
97 WT/DS27/43.
98 See WT/DSB/M/54, at 3-10.
99 Id. at 5.
100 Id. at 8.WT/DS165/R/Add.1
Page 58
Upon reconvening on January 28, 1999, the DSB adopted the agenda, and, after lengthy debate and
further procedural objections by the EC spanning two days, accepted the EC's request submitted on
January 29, 1999 for arbitration of the level of suspension and nullification or impairment pursuant to
Article 22.101
26. Under Article 22.6, the arbitration panel on the level of suspension was required to complete
its work within 60 days of the end of the reasonable period of time, or March 2, 1999.102  Because of
the EC delaying tactics, the arbitrators were unable to do so.  The EC hampered the arbitrators' work
in several ways.  First, the blocking of the DSB agenda delayed referral of the matter to the Article
22.6 arbitrators and the setting of the schedule by a full week in an already tight time frame.  Second,
in the arbitral proceeding, the EC insisted that the arbitrators accept its compliance as presumed,
declared that the arbitrators could not enter into an inquiry on compliance, and refused until the
hearing to enter into a comprehensive discussion of the merits of its regime.
27. Accordingly, on March 2, 1999, the arbitrators issued only an initial decision on matters
relating to the scope of the arbitration and aspects of the methodology for determining the level of
suspension of concessions.103  The arbitrators rejected EC arguments on the relationship of DSU
Articles 21.5 and 22.  It also rejected the EC's claim that the Article 22 proceedings must, as a legal
matter, be suspended pending completion of Article 21.5 proceedings.104  The arbitrators stated that
contrary to the EC's arguments, they were bound by Article 22 to examine whether the EC's revisedregime was consistent with its WTO obligations.  However, since the EC had failed to address US
arguments on this issue, they stated that they were not in a position at that time to make that
determination, and that they required further information from the parties to assist them before they
could issue a report.
105
28. After considering additional information submitted by the parties, the arbitrators issued their
final decision on April 6, 1999, determining that the level of nullification or impairment suffered by
the United States as a result of the continued EC violations is $191.4 million dollars per year.106  The
arbitrators concluded that the EC's 1998 revisions to its banana import regime continued to violate the
General Agreement on Tariffs and Trade 1994 and the General Agreement on Trade in Services.107  In
particular, the arbitrators concluded that the EC's separate tariff rate quota for 857,000 tons of bananaimports from ACP States is inconsistent with pa ragraphs 1 and 2 of GATT 1994 Article XIII, just as
had the original combined allocations amounting to 857,000 tons which the revised regime
replaced.
108   The arbitrators similarly found that the revised regime's licensing provisions had the
effect of carrying over the previous discrimination against U.S. service suppliers originally found to
                                                     
101 Id. at 10-34.
102 Article 22.6 provides that arbitration " shall  be completed within 60 days after the date of expiry of
the reasonable period of time." (Emphasis added.)
103 See WT/DS27/48 (March 2, 1999); Arbitration under Article 22.6 of the DSU in European
Communities – Regime for the Importation, Sale and Distribution of Bananas (Article 22.6 Arbitration) ,
WT/DS27/ARB, paras. 2.10 - 2.13, Parts III, IV and VI (April 6, 1999).
104 Article 22.6 Arbitration , paras. 2.9, 4.11-4.15.
105  See Article 22.6 Arbitration, paras. 2.11, 5.1.
106 Article 22.6 Arbitration , para. 8.1.  The reports in the two Article 21.5 proceedings were also issued
to the parties on April 6, 1999.  Report of the Panel, European Communities -Regime for the Importation, Sale
and Distribution of Bananas -Recourse to Article 21.5 by Ecuador  (WT/DS27/RW/ECU); European
Communities -Regime for the Importation, Sale and Distribution of Bananas -Recourse to Article 21.5 by  the
European Communities  (WT/DS27/RW/EEC).
107 The arbitrators concluded that the EC’s regime violated paragraphs 1 and 2 of GATT 1994 Article
XIII, and GATS Articles II and XVII.  Arbitration under Article 22.6 of the DSU in European Communities –
Regime for the Importation, Sale and Distribution of Bananas (Article 22.6 Arbitration) , WT/DS27/ARB, paras.
5.17, 5.33, 5.97 (9 April 1999).
108 Article 22.6 Arbitration , WT/DS27/ARB, paras. 5.33, 5.97.WT/DS165/R/Add.1
Page 59
violate the GATS.109  Thus, U.S. benefits had continued to be nullified and impaired, without
interruption.
29. The arbitrators thus concluded that what the EC now characterizes as a "completely new set
of rules110 for its bananas regime was in great part a repackaging of those very same elements which
the panel and Appellate Body originally found inconsistent with the EC's WTO obligations, and
which the EC had eventually committed to bring into compliance by the end of the reasonable periodof time.  In fact, comments by senior EC officials after both the initial and final decisions made clear
that the EC had long understood that its revisions to the banana import regime continued to violate its
WTO obligations.  For example, External Relations Commissioner Sir Leon Brittan stated following
the March 2 initial decision that the arbitrators' request to the United States for a new damage estimate
meant that the WTO arbitrators would likely find that damages amounted to between $200 and
$300 million – an apparent acknowledgement that the EC's violation continued.
111  More blunt were
the comments of Industry Commissioner Bangemann, who admitted that while he had been forced todefend the EC's position, it was groundless.
112
30. In light of the schedule provided for in DSU Article 22.6, the United States undertook
contingency plans to suspend concessions in early March in accordance with the arbitrators' award
and DSU rules.  As a legal matter, the DSU envisages redress as of the end of the reasonable period of
time.113  This meant that as of the expiration of the reasonable period of time on January 1, 1999, the
EC was no longer permitted to deny U.S. benefits with impunity.  U.S. plans were based on this
assumption.  Nevertheless, the United States intended to apply any authorized suspension only after
the date on which the DSU required the arbitrators to complete their work, March 2, 1999.
31. Because EC delaying tactics prevented the arbitrators from completing their work by the
March 2, 1999 date called for under the DSU time frame, the United States took steps to preserve itsability to suspend concessions as from that date.  Accordingly, the United States announced on March
3, 1999 that the U.S. Customs Service would review the sufficiency of bonds on certain EC
merchandise entered on or after March 3, 1999 to ensure that any duties ultimately authorized by the
arbitrators could be assessed on those entries.  Since any duties which might be assessed would be
equal to 100% of the appraised value of the merchandise, the U.S. Customs Service began requiring asingle transaction bond equal to the entered value of the merchandise, or a "continuous bond"
covering multiple entries equal to 10% of the total entered value of the covered merchandise imported
by a particular importer over the previous year.
114  This requirement did not actually assess duties, nor
did it prejudge the amount of the total value of the products which would be assessed higher duties.
32. U.S. importers are required to deposit estimated duties at the time of entry; in the event that
additional duties or fees are due, Customs is required to collect these on liquidation, that is, when
                                                     
109 In addition, the Panel concluded that the EC’s country-specific quota allocations to substantial
suppliers is inconsistent with GATT 1994 Article XIII:2,  and that the criteria for acquiring "newcomer" status
under the EC’s revised licensing pro cedures accord U.S. service suppliers de facto  less favorable treatment than
is accorded to EC service suppliers in  violation of Article XVII of GATS.  Article 22.6 Arbitration ,
WT/DS27/ARB, paras. 5.33, 5.95, 5.97.  The arbitrat ors reached the same conclusions in their capacity as
Article 21.5 panelists. Article 21.5 Panel Report on European Communities – Regime for the Importation, Sale
and Distribution of Bananas - Recourse to Article 21.5 by Ecuador (Article 21.5 Ecuador Report) ,
WT/DS27/RW/ECU, paras. 6.160 - 6.163 (12 April 1999).
110 First Written Submission of the European Communities, para. 4.
111 See Inside U.S. Trade, March 12, 1999, at 3.
112 A newspaper report indicated that Commissioner Bangemann welcomed the arbitrators’ decision
against the EC, and quoted him as stating, "As a commissioner, I’ve had to defend our position.  But I can tell
you it’s bullshit."  The Wall Street Journal Europe , 22 April 1999, at 1.
113 This legal issue is discussed further in Section IV.A  infra.
114 Memorandum to Customs Area and Port Dir ectors, CMC Directors From Director, Trade
Compliance Division, U.S. Customs Service, Regarding European Sanctions (March 3, 1999).WT/DS165/R/Add.1
Page 60
Customs makes the final determination of the rate and amount of duty.115  Entry procedures in the
United States permit timely or immediate release of goods into the United States.  Since liquidation of
an entry usually is performed after the goods are in the stream of commerce, bonding is required in
order to guarantee the payment of these additional duties or fees.
33. The Customs Service requires single transaction bonds or continuous bonds for entries of
merchandise as a matter of course.  As a rule, all entries must be accompanied by evidence that a bondis posted with Customs to cover any potential duties, taxes, and charges that may accrue.  Pursuant to
its regulatory authority,
116 a port director may require additional bonding or additional security in
order to ensure that the acceptance of an entry will be adequately protected against any duties or other
liabilities imposed by law.  In this case it was necessary to impose additional bonding requirements to
ensure that 100% ad valorem duties would be paid if assessed as a result of DSB authorization.  Thus,
Customs on March 3 required an increase in the amount of the bond required for the goods that could
possibly be subject to the imposition of the 100% tariff rate.
34. The increased bonding requirement constituted the only legal action taken by the United
States on March 3, 1999.  While press announcements referred to "withholding liquidation," no
special legal significance can be attributed to this term.  Entries of merchandise are deemed liquidated
by law one year from the date of entry unless liquidation is either extended or suspended as required
by statute or court order.117  Customs may liquidate an entry at any time within that year.  However, in
order to preserve administrative flexibility and to allow sufficient time for review of entries before the
final determination of duties upon liquidation, Customs does not normally initiate the liquidation of an
entry until the 314th day after the date of entry.118  The reference to "withholding liquidation" merely
indicated that Customs would not take action outside of its normal administrative procedure, i.e.,
would not initiate liquidation prior to the 314th day.  In fact, no changes were made in Customsprocedures as a result of the announced intention to "withhold liquidation."
35. On April 19, 1999, following DSB authorization to suspend concessions in accordance with
the Article 22.6 arbitrators award, the United States published notice that it would actually assess
100% duties on a subset of the products previously indicated on March 3, 1999.  The reduced list
conformed with the level of nullification and impairment which the arbitrators determined, $191.4million.  Duties on the other products on the March 3 list are to be assessed in accordance with the
usual, MFN rates set forth in the Harmonized Tariff Schedule of the United States.
IV. LEGAL ARGUMENT
A. T
HE MARCH 3 R EVIEW OF BONDING REQUIREMENTS WAS NOT INCONSISTENT WITH DSU
ARTICLE 22.6 AND GATT A RTICLES I, II, XI AND VIII.
36. The EC asserts that the action taken on March 3, 1999 constitutes a suspension of concessions
or other obligations during the pendency of a proceeding under Article 22.6, in violation of that
article.119  The EC also claims that the U.S. action taken on March 3, 1999 is inconsistent with
Articles I, II, XI and VIII of the General Agreement on Tariffs and Trade 1994.120
37. The Panel should reject these claims because the EC was liable for its nullification or
impairment of U.S. benefits immediately after the conclusion of the "reasonable period of time," that
is, after January 1, 1999.  Because the EC objected to the level of suspension proposed, that level
                                                     
115 19 U.S.C. § 1505.
116 19 Code of Federal Regulations § 113.13.
117 19 U.S.C. § 1504(a).
118 See Memorandum dated May 26, 1997, file number ENT-1 FO:TC:C:E AD to all interested parties,
http://www.cebb.customs.treas.gov/public/cgi/ cebb.exe?mode=fi&area=13&name=T-ENTRY5.TXT
119 EC First Written Submission, paras. 13-15.
120 EC First Written Submission, paras. 16-17.WT/DS165/R/Add.1
Page 61
required confirmation by an Article 22.6 arbitral panel.  Nevertheless, the liability itself, once
confirmed by the DSB, extended from the end of the reasonable period.  As a matter of policy, the
United States chose to apply duties on entries from March 3, 1999, 60 days later, as this was the date
by which the DSU required the Article 22.6 arbitrators to complete their work.  In reviewing th e
sufficiency of bonds posted for entries from March 3, 1999, the Customs Service did no more than
preserve the U.S. ability to assess duties in accordance with the determination of the Article 22.6arbitrators upon authorization of the DSB.
38. That authorization was granted on April 19, 1999.  The DSB agreed to grant authorization to
suspend the application of concessions to the European Communities and its member States of tariff
concessions and related obligations under GATT 1994, consistent with the decision of the arbitrators
contained in document WT/DS27/ARB.
121  As the United States noted at the April 19 DSB
meeting,122 the arbitrators were silent with regard to the specific date for the suspension of
concessions, referring only to the maximum amount of $191.4 million per year.
39. The provisions of the DSU also are silent on the specific date for the application of the
suspension of concessions.  DSU Article 22.7 states only that the request for suspension must be
consistent with the arbitrators' decision.123  While the DSU itself is silent on the date on which DSB-
authorized suspension may be applied, the context and purpose of the provisions on suspension of
concessions make clear that this date may fall at any time after the expiration of the reasonable period.
40. A violation of WTO rules upsets the balance of rights and obligations agreed to by WTO
Members.  While this effect on the balance of rights and obligations is immediate, WTO dispute
settlement procedures permit the resulting nullification or impairment of a Member's benefits to
continue until the adoption of DSB rulings and recommendations.  Even then, DSU Article 21.3
provides a non-complying party with a further "rea sonable period of time" to bring its measure into
compliance, if immediate compliance is not practicable.  Inasmuch as the complaining Member's
rights continue to be violated and benefits impaired during the pendency of the "reasonable period,"
that period is to be the shortest period possible within the non-complying Member's domestic legal
system to bring its measure into compliance.124
41. Recognizing that governments may in some cases  need time to complete domestic processes,
the DSU tolerates continued nullification and impairment during the pendency of dispute settlement
proceedings and the reasonable period of time which follows.  However, that tolerance ends upon the
completion of the reasonable period.  DSU Article 22.1 explains that the suspension of concessions or
other obligations is available "in the event that the recommendations and rulings [of the DSB] are not
implemented within a reasonable period of time."  A reasonable period of time is available only toMembers which commit to implement DSB rulings a nd recommendations, and a failure to fulfill this
commitment compounds the continued impairment of the other Member's benefits inherent in the
original violation.  At that point, a Member must bear the consequences of its failure to comply, and it
becomes potentially liable for its continued impairment, subject only to DSB authorization and the
confirmation of the Article 22.6 arbitral panel, if any, to which the matter may have been referred.
42. DSU Article 3.2 provides that the WTO dispute settlement system "serves to preserve the
rights and obligations of Members under the covered agreements."  The system achieves this purposein part by ensuring that there are consequences for violations of another Member' s rights, in the form
                                                     
121 WT/DSB/M/59.
122 Id.
123 Article 22.7 provides, in relevant part, "The DSB shall be informed promptly of the decision of the
arbitrator and shall upon request, grant authorization to suspend concessions or other obligations where the
request is consistent with the decision of the arbitr ator, unless the DSB decides by consensus to reject the
request."
124 Arbitration Award under Article 21.3(c) in EC Measures Concerning Meat and Meat Products
(Hormones) , WT/DS26/15 & WT/DS48/13, para. 26 (29 May 1998).WT/DS165/R/Add.1
Page 62
of compensation or suspension of concessions.  This purpose would be undermined were a non-
complying Member not subject to the consequences of non-compliance at the end of the reasonable
period, but instead only from completion of proceedings confirming that it has continued to nullify or
impair another Member's benefits.  Indeed, the latter interpretation would create a perverse incentive
for a non-complying Member to seek to delay completion of those proceedings.
43. This, in fact, is precisely what occurred in the Article 22.6 arbitration in Bananas .  Beyond
delaying the referral of the matter to the arbitral panel,125 the EC initially refused to address the
arguments raised by the United States in its submissions concerning the consistency of the EC's
revised regime with the WTO Agreements.  This forced the Panel to accompany its initial decision of
March 2, 1999 with a request to the EC to respond to the U.S. arguments by March 15, 1999, since
this was "necessary for [the panel] to complete [its] task.126  In its final report, the arbitrators
explained, "At our request, the European Communities responded to the US arguments.127  Thus, the
EC sought to exploit for delaying purposes precisely the interpretation it advocates in this case, thatany suspension of concessions be applied only following completion of Article 22.6 proceedings.
44. While DSU rules subjected the EC to potential liability for nullification or impairment of U.S.
benefits from January 2, 1999, the end of the reasonable period of time, the United States chose as a
matter of policy to apply any DSB-authorized duties only from March 3, 1999, one day after the date
provided for in DSU rules for the Article 22.6 panel to complete its calculation of the level ofnullification or impairment (sixty days following the end of the reasonable period of time).  Any
further delay in applying duties after March 2 w ould reward the EC for its efforts to delay the
arbitrators' work.  It would also contribute to th e perception that the WTO dispute settlement system
would be plagued by the very same deficiency which ruined the credibility of GATT dispute
settlement -- namely, that non-complying parties could obstruct multilateral action to imposeconsequences for non-compliance.
45. When, ultimately, the EC succeeded in delaying the work of the Article 22.6 panel, the U.S.
acted only to preserve its ability to apply any duties ultimately authorized by the DSB from March 3,
1999.  Again, by increasing bonding requirements for entries on or after March 3, the Customs
Service merely placed itself in a position to suspend concessions on these entries upon DSBauthorization.  It did not actually assess those duties.
B. T
HE EC H AS NOT DEMONSTRATED THAT THE MARCH 3 R EVIEW IS INCONSISTENT WITH
DSU A RTICLE 23, AND HAS NOT ASSERTED A VIOLATION OF DSU A RTICLE 3.
46. The EC asserts at paragraphs 18-22 of its First Written Submission that the March 3 review of
bonding requirements was inconsistent with paragraphs 1 and 2 of Article 23 of the DSU, as well asDSU Article 3.  It is difficult to respond to th e EC's vague arguments with respect to Article 23
inasmuch as the EC never identifies either the precise obligations in question or how the March 3
review was inconsistent with those obligations.
47. The EC refers to the "timing," "amount" and  "total disregard of WTO procedures" which the
U.S. measure allegedly involved, but, as explained above, the March 3 review did no more than
preserve the ability of the United States to assess duties from that date if, as ultimately occurred, the
Article 22.6 arbitrators were to confirm that the EC  was continuing to nullify or impair U.S. WTO
benefits.  As described above, the EC was potentially liable for this continued nullification or
impairment from the conclusion of the reasonable period of time on January 1, 1999.  The March 3
review of bonding requirements did not actually assess duties, nor did it prejudge the total value of the
                                                     
125 See WT/DSB/M/54, at 3-10; supra  paras. 24-25.
126 Article 22.6 Arbitration, para. 2.11.
127 Id., para. 5.1.WT/DS165/R/Add.1
Page 63
products which would be assessed duties.  These decisions were made in April as a result of, and in
accordance with, WTO procedures authorizing the suspension of concessions.
48. Likewise, the EC presents only the vaguest outline of an argument with respect to DSU
Article 3.  It asserts no violation, but only that the March 3 review undermines the "objectives under
Article 3," namely "providing security and predictability."  Indeed, no violation of this provision is
possible, since it is descriptive, not prescriptive.  Inasmuch as the EC asserts no violation, the UnitedStates notes only that the U.S. decision on March 3 to preserve its ability to assess duties from that
date came in response to an extended series of EC actions which posed a genuine and serious threat to
the authority and credibility of the WTO dispute settlement system.  In its very first WTO dispute
settlement loss, the EC not only refused to comply, but refused to state clearly at the outset that this
was in fact the course of action it intended to pursue, as it was required to under DSU Article 21.3.
Even now it continues to represent the cosmetic changes it made to its banana import regime as "a
completely new set of rules.
128  Moreover, the EC repeatedly thwarted U.S. efforts to resort to DSU
procedures under DSU Articles 21.5 and 22 to address the EC's failure to comply, going so far as to
block the adoption of the agenda of the January 25, 1999 DSB meeting in order to avoid the automatic
authorization for suspension of concessions which DSU Article 22 guarantees.129  Far from
undermining the authority of the WTO dispute settlement system, as the EC charges, the U.S.
response to the EC provided assurances that WTO dispute settlement would not, like the GATT, behamstrung by the efforts of non-complying parties to avoid the consequences of their non-compliance.
49. Finally, the EC makes the inaccurate and irrelevant claim that the United States was required
under Sections 301-310 to implement action on March 3, 1999.  The March 3 review of bonding
requirements was not made pursuant to Section 301, nor was the United States required under U.S.
law to take this step.  Rather, as explained above, the U.S. decision to review bonding requirementswas undertaken as a matter of policy to preserve the ability of the United States to assess duties from
that date if, as ultimately occurred, the Article 22.6 arbitrators were to confirm that the EC's liability
for continuing to nullify and impair U.S. WTO benefits.
C. T
HE EC H AS FAILED TO DEMONSTRATE THAT THE MARCH 3 R EVIEW VIOLATES DSU
ARTICLE 21.5.
50. The EC resurrects its argument that DSU Article 21.5 required the United States to first seek a
panel under that provision before requesting authorization to suspend concessions pursuant to
Article.130  The Panel should reject the EC's argument for the same reasons that the arbitrators
conducting the Article 22.6 proceeding and the Article 21.5 panels brought by Ecuador and the EC
rejected the same argument.131
51. Article 22 does not by its terms, context or purpose require that a Member first resort to
Article 21.5 proceedings.  All time frames in Article 22 are measured against the end of the
reasonable period of time, and Article 21.5 is not even mentioned once.  Likewise, Article 21.5 is not
mentioned at all in Article 23.2(c), which only requires that Article 22 proceedings be pursued before
suspension of concessions may be undertaken.  Article 22 represents a central element in the
credibility and effectiveness of WTO dispute settlement, since it provides that non-complying
Members may no longer block suspension of concessi ons against them.  However, the EC's claim that
Article 21.5 proceedings must first be completed would deprive prevailing parties of this right to
suspend concessions since Article 22 only applies th e negative consensus rule to requests to suspend
concessions if such requests are made within 30 days of the conclusion of the reasonable period.
                                                     
128 EC First Written Submission, para. 4.
129 See supra  paras. 24-25.
130 See EC First Written Submission, paras. 23-29.
131 The United States notes that the EC made the same arguments before the panel in United States --
Sections 301-310 of the Trade Act of 1974.WT/DS165/R/Add.1
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Members whose rights have already been found to have been violated, and who have already lived
with these violations through the year-and-a-half panel process and additional year of implementation,
would find themselves, as they were under the GATT 1947, again at the mercy of the very party that
had denied their rights and impaired their trade.  The EC argument on "sequencing" was rejected in
January 1999 for these reasons and must be rejected again by this Panel.132
52. Moreover, in response to the concern that there must first be a multilateral determination of
violation, we note that, as the Article 22 arbitrat ors found, Article 22 proceedings cannot result in
suspension of concessions where a Member has in fact brought its measure into compliance, because
the level of nullification and impairment in that case would be zero.133
53. The EC asserts in paragraph 28 of its submission that the United States had already
"unilaterally determined" that the EC violated WTO rules "well before the conclusion of the
'reasonable period of time' and at a time when not all the EC measures necessary to implement
recommendations and rulings of the DSB had yet been adopted by the competent EC institutions.134
54. These EC arguments ring particularly hollow in light of its efforts to thwart the establishment
of an Article 21.5 panel to address its July 1998 revisions to its banana regime.  The EC impeded
every attempt by the United States and other complaining parties to have the EC 's revised regime
reviewed by a multilateral Article 21.5 panel.  The United States asked the EC on a monthly basis
between July and November 1998 to reconvene the orig inal panel; each time the EC either refused or
insisted on conditions that would have required the United States to waive its WTO rights.135
55. In response to the EC claim that it had not yet completed implementation, we note that the
July 1998 regulation provided for a separate tariff rate quota for 857,000 tons of banana imports from
African, Caribbean and Pacific States, a provision which the Article 22 Arbitrators and Article 21.5
panel ultimately concluded is inconsistent with paragraphs 1 and 2 of GATT 1994 Article XIII.136  As
the EC explains,137 the EC regulation providing for this TRQ "entered into force on July 31, 1998 and
was applicable from January 1, 1999."   Likewise, the EC's July decision to adopt a reference period
of 1994 -1996 was the central element in the arbitrators' conclusion  that the revised banana regime
continued to violate the GATS.138  Under well-established GATT and WTO panel precedent, a panel
may find a measure inconsistent with GATT or WTO rules if the measure mandates such a violationat some point in the future.
139  An early Article 21.5 review of the July TRQ and choice of reference
period would thus have been fully consistent with GATT and WTO jurisprudence, and would also
have made clear to the EC that its implementati on was deficient before the time to make further
adjustments had expired.  Instead, the EC sought to delay and to characterize as "unilateral
determinations" attempts by the U.S. to resolve this matter through DSU proceedings.
                                                     
132 In addition, the Panel should not reach this issue because doing so would preempt the ongoing DSU
review negotiations and encroach upon the rights of all WTO Members (not just parties to a single dispute) to
negotiate the balance of rights and obligations under the WTO Agreement.  Only the Members may amend oradopt interpretations of the DSU (WTO Agreement Arts. IX:2 and X), and Panels cannot add to or diminish the
rights and obligations provided in the covered agreements (DSU Arts. 3.2 and 19.2).  The results of the Third
Ministerial Conference action on the DSU review are likely to lead to amendment of DSU provisions includingArticle 21.5.
133 See Article 22.6 Arbitration, WT/DS27/ARB, para. 4.11.
134 EC First Written Submission, para. 28.
135 See supra  paras. 18-23.
136 Article 22.6 Arbitration, paras. 5.17, 5. 96; Article 21.5 Ecuador Report, para. 6.160.
137 First Written Submission of the European Communities, para. 3.
138 Article 22.6 Arbitration, para. 5.78.
139 Panel Report on United States -- Taxes on Petroleum and Certain Imported Substances, adopted 17
June 1987, BISD 34S/136, 159-60, para. 5.2.2 ("U.S. -- Superfund")WT/DS165/R/Add.1
Page 65
56. The March 3 review of the sufficiency of bonds in no way violates Article 21.5, and the Panel
should reject this claim.
V. CONCLUSION
57. For the above reasons, the United States respectfully requests that the Panel reject the EC's
claims in their entirety, and find that the action taken by the United States on March 3 is not
inconsistent with DSU Articles 3, 21.5, 22.6 or 23, nor with GATT 1994 Articles I, II, XI or VIII.Beyond failing to meet its burden of demonstrating any actual violations, the EC is seeking a result
that would reward it for its efforts to deny the Un ited States the possibility of prompt resort to
Article 22 procedures, and would inequitably permit the EC to postpone liability for its failure to use
the reasonable period of time to come into compliance.WT/DS165/R/Add.1
Page 66
Appendix 2.2
The US oral presentation at the First Substantive Meeting
(16 December 1999)
Introduction
1. Mr. Chairman, members of the Panel, it is my honor to represent the United States before you
today.  I will keep my remarks brief.  Let me start by responding to two gross factual errors by the EC
in their statement today.  The EC is correct in sayi ng that the facts in this dispute are simple, but they
have the wrong so-called "facts."  First, contrary to what we just heard, no duties were raised on
March 3.  The EC has provided no evidence to support their claim, nor can they.  Second, theMarch 3rd action was not based on, and had nothing to do with, Section 306.  Again, the EC has
provided no evidence to show this.  I will come back to this briefly at the end of my statement.
2. Mr. Chairman, members of the Panel, we are here now because the European Communities
("EC") found itself in the embarrassing position of failing to comply with its WTO obligations in the
Bananas  dispute, the first WTO Member to do so (a dubious accomplishment which the EC has since
repeated in another dispute).  The EC's embarrassment was compounded by its very vocal
protestations of having complied, and of being the victim of improper accusations of non-compliance,protestations found baseless by the Article 22 arbitrator and Article 21.5 panel in Bananas .  The EC's
response to this situation has been to bring this case  in order to continue to portray itself as a victim,
and as the defender of dispute settlement procedures.  This position is remarkable, in that it was the
EC's refusal to abide by those DSU procedures and their attempt to "game" them for the purpose of
delay which created the crisis that confronted WTO Members earlier this year.  And now the EC hasinvoked those same dispute settlement procedures to challenge the United States March 3rd action in
an effort to seek approval of the EC's own delaying tactics.
3. The U.S. March 3rd action consisted of reviewing the sufficiency of importer bonds for
certain EC imports.  The review was intended to ensure that the United States would be in a position
to collect duties which might be authorized by the DSB, in accordance with DSU rules and timeframes.  The U.S. March 3rd action was consistent with U.S. rights and obligations, and enhanced,
rather than undermined, the credibility of WTO dispute settlement procedures in light of the EC's
obligation to have brought its measures into compliance as of January 1, 1999, and in light of the U.S.
right under the DSU to a decision by the Article 22 arbitrator no later than March 2, 1999.
The Entry System of the United States and the Risk Created by the EC's Non-Compliance
4. I would first like to review the operation of th e U.S. system for entering merchandise.  It is
our understanding that the EC is not challenging this  system.  As contemplated by Article 13 of the
Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994  –
the "Customs Valuation Agreement" – the United States has long employed a surety system which
allows for the early release of merchandise into the United States.  Rather than holding merchandise
for the days, weeks or months which might be required to confirm a product's proper valuation or
classification, or an importer's compliance with all administrative formalities, the United StatesCustoms Service allows virtually immediate release of merchandise into the United States – often in a
matter of hours – so long as the importer has provided minimal information on the entry, as well as
assurances in the form of a cash deposit or bond that it will pay the potential duties and fees owed.
Those assurances are necessary to address the risks assumed by Customs, which no longer controls
the merchandise and thus has no recourse against it, that the full amount of duties and fees owedmight not ultimately be paid.
5. The EC's persistent breach of its WTO obligations in the Bananas  dispute and its failure to
provide adequate compensation meant that EC imports would, upon DSB authorization, be subject toWT/DS165/R/Add.1
Page 67
suspension of tariff concessions in the amount of the nullification or impairment of U.S. benefits, and
existing bonds therefore might not prove adequate.   The EC thus created a new risk for the United
States concerning its ability to collect the full amount of duties which might be due.
6. The March 3 review of bond sufficiency addressed this risk.  In increasing the bonding levels,
the United States did not suspend any concessions – it did not assess duties, nor did it pre-judge the
total value of imports which might be assessed higher duties as a result of DSB authorization.  TheUnited States did not decide to assess higher duties, and did not decide which imports would be
assessed these duties, until DSB authorization on April 19, 1999.  We note that these April 19
decisions are not within the terms of reference of this Panel, however.  The Panel's terms of reference
examine the action taken on one day, March 3, 1999.
The EC's Liability for Its Non-Compliance
7. The United States decision to increase bonding levels on March 3 reflected its attempt to
preserve its ability to apply any DSB-authorized suspension of concessions from that date.  Thechoice of that date was made based on the schedule provided for in the DSU.  March 3 fell 61 days
after the EC's "reasonable period of time" for compliance expired, and is the day after an Article 22.6
arbitral panel was required under that provision to complete its work on whether the proposed level of
suspension was equivalent to the level of nullification or impairment to U.S. benefits.
8. While the United States had decided not to apply any DSB-authorized suspension prior to
March 3, the EC's liability for its continued nullification or impairment of U.S. benefits in fact
accrued from January 2, the day after the reasonable period of time expired.  As explained in the U.S.
submission, the DSU tolerates the ongoing nullifica tion or impairment by one Member of another
Member's benefits through the initial panel proceedings and adoption of DSB rulings and
recommendations, as well as through a "reasonable period of time" for compliance when a Member isunable to comply immediately.  However, this tolerance ends at the conclusion of the reasonable
period of time.  As Article 22.1 explains, suspension of concessions is then available.  Indeed, there
would be little logic to designating a "reasonable period of time" for compliance – and little meaning
to the requirement that the Member be in compliance by the end of the period – if a Member were
entitled to continue its breach well beyond the reasonable period without consequences.  The absenceof such consequences would invite the very delaying tactics the EC employed to such effect in the
Bananas  dispute.
9. As outlined in detail in the U.S. submission, the EC record of non-compliance and delay in
connection with its banana import regime extends back for years, and continued through the
reasonable period (and in fact persists even now, almost 8 months after the arbitrator's conclusions).The EC refused to consult with the United States and other complaining parties before deciding on
revisions to its banana regime, ignored explanat ions from the complaining parties as to how the
revisions would remain inconsistent with EC obligations and prevented the early formation of an
Article 21.5 panel to confirm this non-compliance.  The EC next took the extraordinary step of
seeking to block adoption of the agenda of the January 1999 DSB meeting at which the U.S. request
to suspend concessions was to be considered.  After delaying adoption of the agenda and referral of
the question of the level of suspension to an Article 22.6 arbitrator, it then refused to engage U.S.arguments on its continued nullification and impairment of U.S. benefits.  As a result, the panel was
unable to complete its work by its DSU-mandated March 2 deadline.
10. The EC's concerted effort at delay demonstrated its lack of respect for DSU procedures and
the DSU admonition to seek mutually satisfactory solutions, and threatened to undermine the very
authority and credibility of the DSU itself.  The EC's actions recalled its efforts under the GATT 1947to obstruct adverse panel proceedings, and raised doubts among many that WTO dispute settlement
procedures would live up to their initial promise.  The United States action of March 3 was a
measured response intended to make clear that the EC's efforts at delay would not be rewarded.  ByWT/DS165/R/Add.1
Page 68
ensuring that the U.S. Customs Service would be in a position to collect DSB-authorized duties from
March 3, it reaffirmed that the new WTO dispute settlement system, unlike the old GATT system,
could not be gamed to avoid compliance or the consequences of non-compliance.
11. I would now like to further address several errors in the EC's oral statement.  First, as
discussed earlier, the March 3rd action did not increase duties on EC products.  The EC states at
paragraph 6(a) of its oral statement that, as a result of the March 3rd action, "the importer was boundto pay the (prohibitive) increased duty at the time of liquidation of the customs debt."  This is simply
incorrect.  The United States did not require additional duties on any entries until April 19, following
DSB authorization.  Likewise, in paragraph 6(c), the EC incorrectly states that the March 3rd action
prevented the immediate liquidation of any customs debt.  The March 3rd action had no impact on the
timing of liquidation.  Under U.S. law, there is no right to immediate liquidation.  Customs' normal
liquidation cycle is 314 days, and importers would not have received liquidation before then.
12. The EC also at various points in its statement raises arguments with respect to the relationship
between Articles 21.5 and 22 of the DSU.  I ask that this Panel decline, as have all prior panels and
arbitrators and the General Council, to endorse the EC's erroneous view of the relationship between
DSU Articles 21.5 and 22.  I would be happy to address any questions the Panel may have with
respect to the specific examples cited in the EC submission.  Finally, with respect to Section 301, I
would like to reiterate the point made earlier that neither this provision nor others in the relatedlegislation served as the basis for the March 3rd action.  I am surprised that the EC appears to be
saying that it knows better than the United States the legal basis for U.S. domestic legal action.
Further, the EC persists in several misunderstandings concerning the Section 301 statute, which is
surprising in light of the fact that we have just completed a lengthy panel process in which the details
of the operation of this statute were addressed at length.  The report of that panel will be issuedshortly.
Conclusion
13. The EC is correct in asserting that this disp ute involves the authority and credibility of the
WTO dispute settlement system, and the actions of one Member which undermined that authority.
That Member is the EC.  The Panel should reject the EC's attempt to seek approval through thisproceeding for its efforts to delay and obstruct the operations of the DSU.WT/DS165/R/Add.1
Page 69
Appendix 2.3
The US closing remarks at the First Substantive Meeting
(17 December 1999)
1. Mr. Chairman, members of the Panel, I will not recount here again the long series of actions
by the EC which have shown their disrespect for WTO dispute settlement procedures, except to note
that it is at odds with their current claims to be the defender of the DSU.
2. Having said that, I would like to clarify again the precise nature of the action taken on
March 3, 1999.  That action consisted solely of reviewing  the bonding requirements on certain EC
imports.  Nothing more.  That action did not itself assess duties on these entries.  No action was taken
in that regard until April 19.
3. We note that the EC in its closing statement just now has for the first time raised this matter
relating to the terms of reference of this Panel.  I am reading the EC's panel request and that request
indicated that the measure was the decision, effective March 3, concerning withholding liquidation,
contingent liabilities and bonding.  In other words, this is what it understood to be the actions taken onMarch 3, 1999.  Given that the EC is raising this i ssue relating to the terms of reference at this late
stage in the proceeding, we may need to re turn to the Panel for a preliminary ruling.
4. Thank you very much.WT/DS165/R/Add.1
Page 70
Appendix 2.4
The US Responses to Questions of Panel and Parties
(13 January 2000)
Q1: Assuming that an importer wished to clea r through the US customs on 4 March 1999 a
tonne of "Uncoated felt paper and paperboard in rolls or sheets" (US HTS 4805 50 00)
originating in Switzerland, what would have b een the duty liability for such import on that
date?  What would be the answer if su ch a product originated in the EC?
1. The duty liability would have been based on a "free" rate of duty, regardless of whether the
product originated in Switzerland or an EC Member State.
Q2: Assuming that an importer wished to clea r through the US customs on 4 March 1999 a
tonne of "Sweet biscuits, waffles and wafers" (US HTS 1905 30 00) originating in Switzerland,
what would have been the requirements on that date (in particular with regard to the amount to
be guaranteed) with regard to the posting of a security (bond) for an individual importation or
concerning the commitment of a general security (continuous bond)?  What would be theanswer had this situation occurred concerning  such a product originating in the EC?
2. Assuming a commercial formal entry was filed, a bond would have been required.  The bond
could have been guaranteed by a surety or by a deposit of cash in lieu of a surety.  The bond could
have been a continuous entry bond or a single entry bond.
3. An importer of the Swiss-origin product would have been required to post either:
(a) a single transaction bond in the amount of three times the entered value of the
merchandise, or
(b) a continuous bond in the amount of 10% of the duties, taxes and fees paid by the
importer of record for all products during the calendar year preceding the date of the
bond application, but in no case less than $50,000.
4. An importer of such goods originating in a Member State of the European Communities not
listed in the Customs instruction
140 would have been subject to the requirements listed above.  An
importer of such listed goods would have been required to post either:
(a) a single transaction bond in the amount of three times the entered value of the
merchandise; or
(b) a continuous bond in the amount of 10% of the entered value of the covered
merchandise which the importer imported during the previous year.
5. The amount of the single transaction bond for the above product was three times the entered
value because it was subject to additional requirements of the U.S. Food and Drug Administrationrelating to public health or safety.  Merchandise not subject to such other agency requirements would
have been subject to the following single transaction bond requirements:
Product not on list:  a single transaction bond in the amount of the entered value of the
merchandise plus any duties, taxes and fees for the entry;
Product on list:  a single transaction bond in the amount of the entered value of the
merchandise.
                                                     
140 See U.S. Exhibit 7 and EC Annex VIII.WT/DS165/R/Add.1
Page 71
Q3:  What is the relevant date under US customs law on which the customs debt is incurred
(in order to determine the duty applicable to imports of a product):
- the date of physical importation or
- the date of the final liquidation of the customs debt or- any other date?
6. Liability for payment of duties is incurred at the time the goods arrive on a vessel within a
Customs port when there is an intent to unlade the goods  at that port, or, if arrival is otherwise than by
vessel, at the time of arrival within the Customs territory of the United States.  The applicable rate of
duty is the rate for the date the merchandise was entered for consumption or for immediate
transportation of goods from one U.S. port to another (so that Customs documentation can besubmitted at the latter port).
Q4: What is the US customs practice in this reg ard in case of a duty decreasing over time as
a result, for example, of the US obligations under a WTO Agreement? Does the US customs
practice differ in case of a duty increasing over time as a result, for example, of a US action in
application of a trade defence instrument?
7. As indicated in the previous paragraph, the duty ultimately paid is that applicable for the date
of entry.  Hence, it would not be relevant that a duty might decrease at some point after that date --
unless the decrease were made effective from that date or earlier.  The practice would not differ for aduty increase.
Q5: In the light of the answers to the previous  questions, can the US explain what is the
meaning of its statement made in the oral submission of 16 December 1999 (paragraphs 3, 4 and
5) where it refers initially to "potential duties ... owed" as a result of the "risk created by theEC's non-compliance" and then that "the March 3 review of bond sufficiency addressed this
risk"?  What was this "potential risk" on 3 March 1999?
8. As explained in the U.S. First Submission at paragraphs 37-42 and the U.S. Oral Statement at
paragraphs 7-8, the EC's liability for its failure to  bring its measure into compliance by the conclusion
of the reasonable period of time extended from that date.  The EC's failure to comply with the DSB's
rulings and recommendations meant that EC Members' imports into the United States after that date
would potentially be subject to the application of duties in excess of bound rates, subject to
confirmation by the Article 22 arbitrator and authorization by the DSB.  There was a risk that the
arbitrator would, as turned out to be the case, confirm that the level of nullification or impairment was
above zero (that the EC was failing to comply) and that the DSB would accordingly authorize the
suspension of concessions.  From the perspective of the United States Customs Service, the resultingrisk was that bonds on entries from March 3 would not be sufficient to cover the higher duties (100%
ad valorem ) which would be due if the suspension were authorized, in the event that the importers
would not pay the additional duties at liquidation.  The United States increased bonding levels to
ensure that such duties, if any, could be collected.
Q6: Assuming arguendo  the existence of such a risk, what  was the basis for the US to take
action as from 3 March 1999 in the absence of a multilateral determination on the EC revised
banana regime?
9. The basis for action was the need to ensure that all duties could be collected on entries of
goods released into the United States, and thus beyond Customs' control.  The EC presumably would
not have had Customs hold the merchandise until completion of the Article 22 proceedings it was
working to delay.WT/DS165/R/Add.1
Page 72
10. As noted previously,141 the revised bonding requirements did not actually impose higher
duties.  The U.S. action imposing higher duties came on April 19, 1999, following the arbitrator's
multilateral determination and the DSB's multilateral authorization.  In the absence of the arbitrator's
determination, DSB authorization and the U.S. April 19 action, the duties payable on each and every
entry subject to the revised bonding requirements would have been at the applied, MFN rate.  Thus,
the EC incorrectly asserts that the March 3 action de prived importers of the right to import products at
bound rates.142
Q7: Is the withholding of the suspension of liquidation (including the bond requirement) a
suspension of concessions or other obligations under the DSU?
11. We wish to emphasize again that the only action taken on March 3 was the change of bonding
requirements on certain entries.  As we noted at paragraph 34 of the U.S. First Submission, no actionwas taken with respect to "withholding" or "suspe nding" liquidation, notwithstanding press statements
on this point.  Entries on and after March 3 were subject to precisely the same liquidation cycle as
those prior to March 3, that is, they were scheduled for liquidation between 314 days and one year
following entry.
143  The normal 314-day liquidation cycle allows adequate time for all information
relating to entries (testing analysis and results, submission by importers of corrected or supplementalinformation, verification of information) to be collected and to allow the proper ascertainment of the
value and classification of entered merchandise.  The normal 314-day liquidation cycle employed in
the United States is not within the terms of reference of this dispute.
144
12. Likewise the ordinary bonding requirements associated with surety systems are not within the
terms of reference of this dispute.  Such bonding requirements applied to entries both before and after
March 3, 1999.  They were, and continue to be, applicable to every commercial formal entry of
merchandise into the United States, regardless of origin.  Article 13 of the Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade 1994  -- the "Customs
Valuation Agreement"  –  specifically contemplates  the use of surety systems which allow for the
early release of merchandise.145  The alternative to the U.S. surety system would be the far more
trade-restrictive approach of holding the merchandise for the days, weeks or months necessary to
confirm a product's proper valuation or classification, or an importer's compliance with all
administrative formalities.
13. At the first substantive meeting of the Panel, the EC for the first time raised questions about
the scope of the Panel's terms of reference.  The United States noted this, and noted that the only
action within the terms of reference of this dispute is that taken on March 3, 1999146: the change in
                                                     
141 See U.S. First Submission, paras. 31, 45; U.S. Oral Statement, paras. 6.
142 See EC Oral Statement, para. 7.
143 See Memorandum dated May 26, 1997, file number ENT-1 FO:TC:C:E AD to all interested parties,
http://www.cebb.customs.treas.gov/public/cgi/ce bb.exe?mode=fi&area=13&name=T-ENTRY5.TXT (U.S.
Exhibit 2).
144 While "withholding liquidation" has no legal significance under U.S. law, "suspension of
liquidation" is a statutory term of art  referring to delaying liquidation beyond one year based on a statute or
court order.  U.S. law also provides for "extension of liquidation" beyond one year, by Customs on its own
initiative or in response to a request by the importer, in order to obtain missing information on appraisement orclassification or to ensure the importer’s compliance with applicable law.  The U.S. March 3 action involvedneither "extension" or "suspension."
145 Likewise, the Kyoto Convention on the Simplification and Harmonization of Customs Procedures
provides that Customs authorities may require importers to furnish security to ensure compliance with
undertakings to Customs, and may condition release on condition that security is furnished to ensure collection
of any additional import duties and taxes that might become chargeable.  Kyoto Convention on theSimplification and Harmonization of Customs Procedures, (done at Kyoto on 18 May 1973 and entered intoforce on 25 September 1974), Annex B.1, 59-61(on the release of goods).
146 Customs made this action effective as of March 4, 1999.WT/DS165/R/Add.1
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bonding requirements for certain products originating in EC Member States.  As described in the U.S.
First Submission and the U.S. Oral Statement, the EC  has failed to meet its burden of demonstrating
that this action represents a suspension of concessions or other obligations under the DSU.
Q8: What is the impact on trade and traders involved in a suspension of liquidation
(including the bond requirement)?
14. Again, no "suspension of liquidation" took place on March 3, 1999.  In further clarification of
the U.S. system, entries are normally liquidated no earlier than 314 days after entry, but are required
by law to be liquidated within one year of entry, unless liquidation is "extended" or "suspended."  A
suspension of liquidation would occur, for example,  if an antidumping proceeding were under way in
which final antidumping duties could not be calculated and assessed within one year of entry.  An
extension would occur, for example, to obtain necessary information on classification orappraisement.
15. Accordingly, since there was no "suspension of liquidation," there was no impact on trade and
traders from such a suspension.  However, the United States would note that, for the claims at issue in
this dispute, the impact on trade and traders is not a consideration in determining whether there hasbeen a violation.  The United States would further note that, as described in response to the previous
question, the use of a surety and bonding system is trade-facilitating, inasmuch as it allows for the
early release of merchandise into the United States.
Q9: What is the legal link between the date of assessment of the nullification caused by the
EC's non-implementation of the Bananas III recommendations and the need to be able to
suspend concessions as of 3 March 1999?
16. As explained at paragraphs 39-42 of the U.S. First Submission, a Member's liability for
failing to comply with DSB rulings and recommendations within the "reasonable period of time"accrues from that date.  DSU Article 22.1 is clear.  It makes the suspension of concessions or other
obligations available "in the event that the recommendations and rulings [of the DSB] are not
implemented within a reasonable period of time."  The purpose of the reasonable period of time -- to
provide a grace period for a Member to bring itself into compliance without consequences -- in its
very enunciation implies that the consequences of non-compliance accrue from the conclusion of thatperiod.  To deny a Member recourse once another Member has failed to come into compliance by the
end of the reasonable period of time would be to alter the balance of rights and obligations under the
WTO.  Further, the requirement that a Member br ing its measure into compliance by the conclusion
of the reasonable period would be drained of meaning if, in fact, a Member were entitled to continue
its breach without consequences.  Such an interpretation of DSU requirements would be at odds with
the purpose of the DSU itself, "to preserve the rights and obligations of Members under the covered
agreements,"
147 since Members would be encouraged to follow the lead of the EC in delaying DSU
procedures for DSB authorization of suspension of concessions.148
17. A further contextual element supporting the conclusion that a Member's liability for
non-compliance accrues from the end of the reasonable period is the fact that compensation under
Article 22.2 is available immediately upon expiration of the reasonable period.  Article 22.2 provides
that compensation negotiations must begin no later than  the conclusion of the reasonable period.
There would be little logic to providing for im mediate liability for non-compliance in the case of
compensation but not suspension of concessions.  Moreover, such a distinction in the timing of the
liability would create a strong disincentive for pursuing the mutually agreed remedy of compensation
- and another incentive for delay.
                                                     
147 DSU Art. 3.2.
148 See U.S. First Submission at paras. 24-27, 43; WT/DSB/M/54, at 3-10.WT/DS165/R/Add.1
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18. The United States' intention to apply any DSB-authorized suspension of concessions from
March 3, 1999 must be understood in light of the EC's legal liability for its non-compliance in
Bananas  which accrued as from January 2, 1999.  Notwithstanding this legal liability, the United
States intended to apply the suspension only after the date by which the DSU required the Article 22
arbitrator to complete its work, March 2, 1999.149  The March 3 action of reviewing bonding levels
was a response to the EC's long record of delay, including delay of the Article 22 proceedings, andenabled the United States to suspend concessions from that date in accordance with its rights upon
DSB authorization.
General response to Questions 10 - 16:
19. Questions 10-16 deal generally with procedures applicable in the context of DSU Articles
21.5 and 22.  These issues are not directly relevant to this dispute, since it has already beendetermined pursuant to these provisions that the EC  did, in fact, fail to comply with the DSB's rulings
and recommendations, just as it has already been decided by the arbitrator whether the level of
suspension proposed by the United States in response was equivalent to the level of nullification or
impairment.  Put in these terms, the EC's goal wi th respect to its Article 21.5 claim is apparent: to
relitigate an issue it lost before other panels; namely, whether those panels had jurisdiction under theDSU to consider issues relating to the level of suspension of concessions without the convening of an
Article 21.5 panel.
20. The Panel must recognize that the consequence of accepting the EC argument that an Article
21.5 panel is a prerequisite to a request for suspension of concessions under Article 22 would be tofind that the Article 22.6 proceeding conducted in Bananas,  and the suspension of concessions
authorized by the DSB in that case, was illegitimate and illegal, a violation of DSU rules.  The EC in
its oral statement expresses the view that the Panel is not required "to review the work of other bodies
established by the DSB in the context of another dispute settlement procedure."
150  The EC is thus
encouraging the Panel to ignore the reasoning and conclusions of the Bananas arbitrator/panelists, and
to unnecessarily and incorrectly make findings at odds with those panelists.  In other words, the EC is
asking the Panel to join it in expressing the EC's lack of respect for the Bananas arbitral panel and its
decisions, and for the DSB-approved suspension of concessions based on those decisions.  This
attitude exemplifies the EC's disregard for the impact of its actions and positions on the integrity of
the dispute settlement system throughout proceedings relating to Bananas , an attitude reflected in the
EC's refusal to consult the complaining parties, it s refusal to reconvene an Article 21.5 panel and its
efforts to block the agenda of a DSB meeting.151
21. The extreme sensitivity of the relationship between DSU Articles 21.5 and 22 is apparent both
from record of DSB discussions on this issue over the course of the reasonable period and in the
context of the DSU review.152  The confusion arising from the impossibility of conducting a 90-day
                                                     
149 See U.S. First Submission at paras. 37, 44.  The United States is of course entitled to delay the
application of the suspension of concessions to a later date better suited, for example, to providing advancenotification to its importers of the potential change.
150 EC Oral Statement, para. 3.
151 See U.S. First Submission, paras. 18-27.
152 The relationship between Articles 21.5 and 22 has been the subject of extensive discussion among
WTO Members.  The Members broadly recognize that the relationship between Articles 21 and 22 requiresadditional clarification.  See. e.g., DSU Review, Discussion Paper from the European Communities (30 June
1999), Document No. 3864 (acknowledging that "some other Members have interpreted" Articles 21, 22 and 23differently than the EC, and proposing principles to clarify and elaborate these Articles); Review of the DSU,
Note by the Secretariat, Compilation of Comments Submitted by Members – Rev. 3 (12 December 1998) (Para.
296 – Australia noting that implementation procedures lack clarity; Para. 298 – Guatemala suggesting thatArticle 21.5 proceedings should include authorization to apply countermeasures, to make clear that two
proceedings are unnecessary; Paras. 306-316 – expressing various views on Article 22; Para. 316 -- Singapore
notes that Article 21.5 does not include a moratorium on suspension of concessions pending conclusion of theWT/DS165/R/Add.1
Page 75
Article 21.5 proceeding153 within the time frames for requesting suspension (30 days from the end of
the reasonable period) and for arbitration on the level of suspension (60 days from the end of the
reasonable period), has led the Members to conclude that Article 21.5 itself should be deleted and
completely rewritten.154
22. As the United States noted at footnote 49 of its First Submission, the Panel may not reach the
issue of the relationship between Articles 21.5 and 22 because doing so would preempt the ongoing
DSU review negotiations and encroach upon the rights of all WTO Members (not just parties to a
single dispute) to negotiate the balance of rights and obligations under the WTO Agreement.  Only theMembers may amend or adopt interpretations of the DSU (WTO Agreement Arts. IX:2 and X), and
Panels cannot add to or diminish the rights and obligations provided in the covered agreements (DSU
Arts. 3.2 and 19.2).  To adopt the EC position in this dispute would effectively amend DSU Article 22
by reading out the application of the negative consensus rule to requests for suspension of
concessions, and would diminish the Members' rights under the current text of DSU Article 22 both to
receive the benefit of the negative consensus rule and to receive a decision on the level of suspension
as early as 60 days following the expiry of the reasonable period of time.  The Members may yet
agree to extend the time frames for arbitral decisions on the level of suspension and for the
authorization of suspension, but that must take place through amendment of the DSU by all Members,and not through a panel proceeding brought by one.
23. Not only the Bananas  arbitrator and Article 21.5 panels, but the panel in Sections 301-310,
recognized that the DSU review is addressing the issue of the relationship of Articles 21.5 and 22.
155
Like the Section 301 panel, this Panel need not reach the issue of the relationship between Articles
21.5 and 22.  The EC is claiming that the March 3 action is inconsistent with Article 21.5.  It has
failed to explain, however, how changing bonding requirements can be inconsistent with a provision
relating to dispute settlement procedures available when there is a disagreement on implementation.
The EC has not shown, nor can it show, that the measure at issue (changed bonding requirements) is
inconsistent with an obligation provided for in Article 21.5.  There is simply no tenable link to bedrawn.
                                                                                                                                                                    
proceedings like that found in Article 22.6, and suggesting that such a moratorium be included); Review of the
DSU, Chairman’s Summary of Informal Meeting of 16 March 1999 (22 March 1999), Doc. No. 1660
(summarizing discussion of issues relating to Articles 21, 22 and presumptions in Article 21.5 and 22
proceedings, including statements by Members that Article  22 should be amended to refer to the end of Article
21.5 proceedings instead of the reasonable period of time (para. 19)); Review of the DSU, Chairman’s Summaryof Informal Meeting of 19 May 1999 (25 May 1999), Doc. No. 2957 (noting that "[s]ome Members were of theview that recent difficulties in regard to implementation  and suspension of concessions were due in part to lack
of clarity of current DSU language", and that proposal s had been made to delete Article 21.5 and replace it);
Review of the DSU, Draft Proposal on Implementation (June 8, 1999), Doc. No. 3276 (compilation of formaland informal proposals related to implementation provisions).  See, also, Minutes of the General Counsel
Meeting Held on 8 March 1999 (WT/GC/M/37)(the Director-General stated that "there were differentinterpretations of the assumptions which had to be taken into account in applying compensatory measures - thequestion of Articles 21.5 and 22...").
153 The EC would add to this 90 days a further 60 days for consultations.
154 See Proposed Amendment of the Dispute Settlement Understanding, WT/MIN(99)/8 (22 November
1999) (U.S. Exhibit 3).
155 See Panel Report on European Communities – Regime for the Importation, Sale and Distribution of
Bananas – Recourse to Article 21.5 by the European Communities, WT/DS27/RW/EEC, para. 4.17 (12 April1999) (the Panel stated, "in respect of the EC arguments concerning Articles 21, 22 and 23 of the DSU, we are
well aware of the controversy in the DSB over the interpretation of these Articles and their relationship, but we
view that question as one best resolved by Members in the context of the on-going DSU review . . .");Arbitration under Article 22.6 of the DSU in European Communities – Regime for the Importation, Sale andDistribution of Bananas (Article 22.6 Arbitration), WT/D S27/ARB, para. 4.11, note 11 (April 6, 1999); Panel
Report on Sections 301-310 of the Trade Act of 1974, WT/DS152/R, para. 7.154 (22 December 1999).WT/DS165/R/Add.1
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Q10: Is a new measure (an implementing measure) presumed to be compatible or
incompatible with WTO obligations after the rea sonable period of time? Which party bears the
burden of proof after the reasonable period of time to prove consistency (or lack thereof) with
WTO provisions?   Is it correct to state that the losing party becomes liable as of the expiry of
the reasonable period of time?  And liable for what?
24. For the reasons described in response to question 9 and in the U.S. First Submission, it is
correct to state that the losing party is liable at the conclusion of the reasonable period of time if it has
failed to comply with the rulings and recommendatio n s  o f  t h e  D S B .   I t  i s  l i a b l e  f o r  i t s  c o n t i n u e d
nullification or impairment of the benefits of the complaining party under the covered agreements.
Article 22 provides for compensation or suspension of concessions in the amount of this liability.
25. The concept of a "presumption" of compatib ility or non-compatibility of a Member's
implementation is not provided for in the DSU, and is unnecessary to the resolution of questions
relating to the suspension of concessions following the reasonable period.  Following the conclusion
of the reasonable period of time, the complaining Member is entitled to request DSB-authorization for
the suspension of concessions pursuant to Article 22.2 if it believes the implementing Member has
failed to comply.  If the implementing Member choos es not to contest the level of the suspension, it
has effectively assented to the conclusion that it has failed to comply.  On the other hand, if the
implementing Member believes it has complied, it is likewise entitled under Article 22.6 to request
arbitration of the level of the suspension, and argue that the level is zero because of its compliance.
This in fact occurred in the Bananas  dispute.  (By contrast, in Hormones , the EC only contested the
level of suspension, and did not claim it had complied.)  As the Article 22.6 arbitrator in Bananas
noted, "any assessment of the level of nullification or impairment presupposes an evaluation of
consistency or inconsistency with WTO rules of the implementation measures taken by the European
Communities."156
26. Just as it is not necessary or appropriate to for this Panel to address whether there is a
presumption of compliance or non-compliance, it is not necessary or appropriate to reach in the
context of this dispute a conclusion concerning the burden of proof following the reasonable period.
In the Article 22.6 proceeding in Bananas , the arbitrator did not make an explicit ruling on this issue.
On the other hand, in Hormones , the arbitrator concluded that the burden of proving that a proposed
level of suspension is inconsistent with the Article 22.4 requirement that this level be equivalent to thelevel of nullification or impairment lies with the party challenging the proposed level of suspension,
namely, the implementing party.
157
27. Regardless of where presumptions or burdens may or may not lie in a proceeding dealing with
the issue of compliance, any conclusion resulting from that proceeding that the implementing Member
has failed to comply necessarily means that the Member has not been complying -- and has nullified
and impaired the complaining Member's benefits – since the adoption of the DSB recommendationsand rulings, and since the end of the reasonable period of time .  For the reasons set forth in response
to question 9, the non-complying Member is liable for that nullification or impairment from the end of
the reasonable period.
Q11: Who has the responsibility to raise an Article 21.5 case?  When should such a request
under Article 21.5 take place?
28. The complaining party may (but need not) request an Article 21.5 review of the implementing
party's measures.  The DSU does not provide a time limitation on when an Article 21.5 review may be
                                                     
156 Article 22.6 Arbitration, para. 4.3.
157 See Article 22.6 Arbitration, para. 4.13; Arbitration under Article 22.6 of the DSU in European
Communities -- Measures Concerning Meat and M eat Products (Hormones), WT/DS26/ARB, para. 9
(12 July 1999).WT/DS165/R/Add.1
Page 77
requested.  The Article 22.6 arbitrator in Bananas  observed, "The express wording of Article 21.5 of
the DSU does not exclude the possibility of initiating such a proceeding before  or after  the expiry of
the reasonable period of time."158
29. The United States sought to undertake an Article 21.5 proceeding prior to the conclusion of
the reasonable period of time in Bananas  because it was apparent that the implementation measures
that the EC had already taken failed to comply with the EC's WTO obligations.  By requesting an
early Article 21.5 panel ruling prior to the conclusion of the reasonable period, the United States
hoped to avoid the need to suspend concessions by making clear to the EC before its reasonable
period for compliance expired that its violations had not been corrected, and that other measures
would therefore be necessary, and thus permit the EC to promptly adopt those other measures.  The
EC chose instead to delay.
30. Thus, the United States request for an Article 21.5 panel was not, as the EC would have it,159
an admission that a complaining party must resort to Article 21.5 proceedings before proceeding to
Article 22.  The United States strongly disputes the EC assertion that this or other points are "not even
in dispute."160
31. Further, as noted in the U.S. First Submission,161 the Article 22.6 arbitrator rejected the EC
position that a complaining party must resort to Article 21.5 proceedings before making an Article 22
request to suspend concessions.162  The EC has failed to address the logic of either the arbitrator or the
United States on this point.
Q12: What is the consequence of failing to raise an Article 21.5 claim before the end of the
reasonable period? If it is not done during this period does the right to an Article 21.5
assessment lapse?
32. As noted in response to question 11, the Article 22.6 arbitrator in Bananas  explained, "The
express wording of Article 21.5 of the DSU does not exclude the possibility of initiating such a
proceeding before  or after  the expiry of the reasonable period of time."163  Thus, the right to pursue an
Article 21.5 panel would not lapse if no request were made during the reasonable period, and there are
no consequences for failing to raise an Article 21.5 claim before the end of the reasonable period.
33. The Article 22.6 arbitrator emphasized the importance of giving effect to both Article 21.5
and Article 22.  While Article 21.5 proceedings may be requested at any time, including after the
reasonable period of time, an Article 22  request for suspension may only occur within the terms
specified in that article – within 30 days of the end of the reasonable period of time – if the negative
consensus rule is to be given effect.164  Because an Article 21.5 proceeding by its terms requires 90
                                                     
158 Article 22.6 Arbitration, n.11.
159 EC Oral Statement, para. 18.
160 See id.,   para. 18; see, also, id. , para. 6 (the United States contests each and every point the EC
argues is uncontested).
161 See U.S. First Submission, para. 50.
162 See Article 22.6 Arbitration, paras. 4.10-4.15.
163 Article 22.6 Arbitration, n.11.
164 Article 22.6 Arbitration , para. 4.11.  The arbitrator explained,
For those Members that for whatever reasons do not wish to suspend concessions, Article 21.5 will
remain the prime vehicle for challenging implementation measures.  However, if we accepted the EC’s
argument, we would in fact read the time-limit foreseen in Article 22.6 out of the DSU since an Article 21.5
proceeding, which in the EC view includes consultations  and an appeal, would seldom, if ever, be completed
before the end of the time-limit specified within Article 22.6 (i.e., thirty days of the expiry of the reasonableperiod of time).WT/DS165/R/Add.1
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days, the conclusion that an Article 21.5 proceeding must precede an Article 22 request would thus
render the Article 22 right to DSB authorization with the negative consensus rule a nullity in those
cases in which the implementing party does not implement until the completion of the reasonable
period.  On the other hand, concluding that an Article 22 request need not be preceded by an Article
21.5 proceeding would not deny effect to Article 21.5, since that proceeding would still remain
available to complaining parties not wishing to susp end concessions, and to those willing to have the
DSB decide by positive consensus whether to authorize the suspension of concessions.165
34. Further, as explained in the U.S. First Submission at paragraph 51, neither Articles 22.2 and
22.6 nor Article 23.2(c) make any reference to Article 21.5 proceedings as a prerequisite to a request
for, DSB authorization of, or implementation of, a suspension of concessions.  Rather, Article 22
provides time frames measured from the end of the reasonable period, and Article 23.2(c) requires
that Article 22 procedures be followed before suspending concessions.  The EC is thus incorrect insuggesting that there is an obligation to pursue Article 21.5 proceedings before pursuing a suspension
of concessions under Article 22.
Q13: Assuming the US is correct in stating that an Article 21.5 panel should be triggered (by
either party) within the reasonable period of ti me, what is the consequence if this 21.5 panel is
never requested or not established?  Does the absence of an Article 21.5 assessment result in a
presumption that the new measure is compatible or that it is incompatible with WTO
obligations? Does the absence of an Article 21.5 panel exclude recourse to Articles 22.6-7?
35. The United States does not take the position that an Article 21.5 panel should  be requested
during the reasonable period.  As described in response to question 11, the United States attempted to
avail itself of Article 21.5 procedures during the reasonable period in Bananas  in order to demonstrate
to the EC, while the EC still had time to revise its measure, that this measure would have to be
changed in order to comply with the DSB's rulings and recommendations.  The possibility of
requesting an Article 21.5 panel before the end of the reasonable period presented itself in Bananas
because the EC did, in fact, put into effect changes to its regime well before the end of the reasonable
period, even if these changes were not to be applied before the end of the reasonable period.
166  Had
the EC not taken steps until the expiry of the reasonable period, this option would not have been
available.167
36. As noted in response to questions 10 and 12, there are no consequences if an Article 21.5
panel has not been requested or constituted, and there is no need to consider whether there is a
presumption of compliance or non-compliance at the conclusion of the reasonable period.  Further, as
noted in response to question 11, the absence of an Article 21.5 panel does not preclude resort to
Article 22.6-22.7, as the Article 22.6 arbitrator concluded in Bananas.
Q14: Who determines whether a new measure nullifies WTO benefits?
37. As defined in DSU Article 22.7, the Article 22.6 arbitrator's task is to determine "whether the
level of suspension is equivalent to the level of nullification or impairment."  As the Bananas
arbitrator pointed out, the concept of equivalence between the proposed suspension and the level of
nullification or impairment would be "devoid of meaning" if either of these variables were
                                                     
165 See id.
166 See U.S. First Submission, para. 55.
167 Thus, in Australia Salmon , Canada could not attempt to request an Article 21.5 panel before the
expiry of the reasonable period because Australia had not implemented any measure.  Canada therefore had torequest suspension under Article 22 within 30 days of the expiry of the reasonable period to preserve its right toDSB authorization with the benefit of the negative-consensus rule.  See WT/DSB/M/66, at 5-6; supra  response
to Question 16.WT/DS165/R/Add.1
Page 79
unknown.168  Consequently, the Article 22.6 arbitrator must examine the new measure to determine
the level of nullification or impairment before it can determine whether that level is equivalent to the
level of suspension proposed by the complaining party.169
38. As described in response to question 10, following the conclusion of the reasonable period of
time, the complaining Member is entitled to request DSB-authorization for the suspension of
concessions pursuant to Article 22.2 if it believes the implementing Member's measure nullifies its
agreement benefits.  If the implementing Member chooses not to contest the level of the suspension, it
has effectively assented to the conclusion that its new measure nullifies WTO benefits.  On the other
hand, if the implementing Member believes its measure does not nullify benefits, it is likewise entitled
under Article 22.6 to request arbitration of the level of the suspension, and argue that the level is zero
because its measure does not nullify WTO benefits.  This in fact occurred in the Bananas  dispute.
(By contrast, in Hormones , the EC only contested the level of suspension, and did not claim the level
of nullification was zero.)
Q15: Is there an implicit assessment of compatibil ity of any measure that is the object of an
Article 22.6-7 Arbitration in view of the Arbitrator mandate to assess whether the level of
suspension is equivalent to the level of nullification of benefits?
39. This is indeed the conclusion of the Article 22.6 arbitrator in Bananas,  a conclusion with
which the United States concurs.  As the arbitrator noted, "we cannot fulfill our task to assess the
equivalence  between the two levels before we have r eached a view on whether the revised EC regime
is . . . fully WTO consistent."170  The arbitrator also noted, "any assessment of the level of
nullification or impairment presupposes an evaluation of consistency or inconsistency with WTO
rules of the implementation measures taken by the European Communities."171
Q16: Please discuss the practice of WTO Members in their use of Articles 21.5 and 22
procedures .
40. The practice of WTO Members supports the interpretation of the United States and the
Bananas  arbitrator that Article 21.5 proceedings need not be undertaken as a condition for suspending
concessions under Article 22.  The EC description of this practice at paragraph 20 of its oral statement
is highly misleading in this regard.
41. For example, the EC fails to point out with respect to the Automotive Leather  dispute that the
United States and Australia agreed to extend DSU Article 22.6 deadlines in that case pursuant to
specific authority to do so in the Agreement on Subsidies and Countervailing Measures.172  Footnote 6
to the SCM Agreement explicitly authorizes partie s to a dispute under the SCM agreement to agree to
extend the deadlines provided for in SCM Agreement Article 4, which include those in DSU Article
22.6.  It was only because of footnote 6 that this procedure was possible, as reflected in the pointsmade by the United States at the DSB meeting of October 14, 1999.  At that meeting, the United
States said:
• "I know, Mr. Chairman, that many delegations may be somewhat surprised to see that the
United States has agreed with Australia to pursue Article 21.5 now and only later pursue DSU
Article 22 and/or SCM Article 4.10 proceedings.
                                                     
168 Article 22.6 Arbitration, para. 4.7.
169 Id., paras. 4.7-4.8.
170 Article 22.6 Arbitration, para. 4.8.
171 Article 22.6 Arbitration, para. 4.3.
172 See WT/DS126/8, p.2, point 6.WT/DS165/R/Add.1
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• "This is not a fundamental change in the U.S. position on the applicability of those articles.
This dispute, since it is under Article 4 of the SCM Agreement, presents special
circumstances and unique opportunities.  In particular, unlike in normal dispute settlement
proceedings, here the parties may agree to extend the deadline for exercising the right to
request Article 22 procedures.  We and Australia have so agreed.  This permits the parties
additional time to resort to Article 21.5 proceedings, and we have been willing to
accommodate the other party's desires in this respect.
• "The approach we have agreed to follow here is not required under the DSU.  It is a special
agreement for this dispute only.  But it does reflect a process which many Members are
supporting in the current discussions on the DSU, and we hope that it will demonstrate that
such a process – and timetable – is workable, efficient and prompt."173
42. As in the Leather  dispute, the two Aircraft  disputes between Brazil and Canada involved the
SCM Agreement.  As did the parties in the Leather  dispute, Brazil and Canada explicitly relied on
Article 4 and footnote 6 of the SCM Agreement in agreeing to extend the Article 22.6 deadlines to
permit prior completion of Article 21.5 panels without waiving the benefit of the negative-consensus
rule in the DSB's authorization of suspension of concessions.174
43. With respect to Australia Salmon , Canada did not first resort to Article 21.5 procedures
before requesting suspension under Article 22.  It first preserved its rights under Article 22 by
requesting suspension within 30 days of the expiry of the reasonable period, without any request for
an Article 21.5 panel.175  At the DSB meeting held on July 27-28, 1999, Canada did, ultimately, agree
to pursue an Article 21.5 proceeding, but it insisted on the need to also form an Article 22 panel (since
Australia disagreed with the proposed level of suspension), which it would agree to suspend pendingthe outcome of the Article 21.5 panel.  Canada noted that while it had tabled a proposal at the DSU
Review requiring an Article 21.5 panel before a suspension request could be made under Article 22,
no agreement had yet been reached on the proposal.  Absent such an agreement,
Canada had to pursue its rights in accordance with the existing provisions  of the DSU.
At this stage, it was not possible for Canada to proceed with the Article 21.5 panel
proceedings only, because such proceedings would be concluded after the expiry of
the 30-day period provided for in Article 22, within which Canada had the right to
request suspension of concessions by negative consensus.  Canada could have
initiated such proceedings during the compliance period, if Australia had put in placeits implementing measures, which it had not done.
176
44. Canada thus concurred with the U.S. interpretation that Article 22 requires a request for
suspension within 30 days of the expiry of the reasonable period, regardless of whether Article 21.5
proceedings have been conducted, and that Article 21.5 proceedings can be conducted during the
reasonable period only if a measure has been implemented during that period.  Canada did choose to
accommodate Australia's desire for an Article 21.5 panel by consenting to waive its right underArticle 22 to have the arbitrator complete its work within 60 days of the end of the reasonable period
of time.  However, Canada's decision to waive this Article 22 right cannot be read to mean that these
rights do not exist.
                                                     
173 Statement of the United States at DSB Meeting of 14 October 1999; see WT/DSB/M/69.
174 See WT/DS70/9, dated 23 November 1999, Annex at point 5; WT/DS46/13, dated 26 November
1999, Annex at point 5.
175 Canada requested a special meeting of the DSB to  seek authorization to suspend concessions in a
communication dated 15 July 1999.  The communication made no mention of Article 21.5.  See WT/DS18/12,
dated 15 July 1999.
176 WT/DSB/M/66, at 4-5 (emphasis added).WT/DS165/R/Add.1
Page 81
45. Likewise, in pursuing an Article 21.5 panel in Bananas  without requesting suspension within
30 days of the expiry of the reasonable period, Ecuador waived its right to receive DSB authorization
to suspend concessions with the benefit of th e negative consensus rule.  Although the EC has
purportedly agreed not to oppose Ecuador's request for suspension, Ecuador cannot be assured that a
third party will not.  Ecuador's decision to waive its rights in its case cannot be read as waiving the
rights of other Members in other disputes.  Further, Ecuador's pursuit of an Article 21.5 panel merelyconfirms the point made by the Bananas  arbitrator that Article 21.5 is always available to parties not
wishing to suspend concessions with the benefit of the negative consensus rule, and that pursuit of
suspension pursuant to Article 22 without an Article 21.5 panel would not deny effect to Article 21.
177
46. Finally, the EC neglects to mention its own decision in the EC -- Hormones  dispute to
participate in Article 22.6 proceedings on the level of suspension proposed by the United States, and
without insisting on Article 21.5 proceedings to confirm its non-compliance.
47. Thus, the Aircraft  and Leather examples are inapplicable because the SCM Agreement
provided authority to extend deadlines, while the Salmon  and Ecuador  Bananas  examples merely
stand for the proposition that Members may waive their rights in a particular dispute.  As noted,
Canada's actions in Salmon  in fact support the U.S. position that Article 21.5 is not a prerequisite to a
request for suspension, and that such a request must be made within 30 days of the expiry of the
reasonable period in order to preserve one's rights to suspend concessions with the benefit of the
negative consensus rule.
Q19: What exactly is involved from an admi nistrative perspective in the withholding of
liquidation and the related requirements for bond s? What alternative types of instruments does
Customs accept for the posting of bonds?
48. Again, the term "withholding liquidation" has no legal significance under U.S. law, and no
such action was taken in this regard on, or effective on, March 3, 1999.  The normal liquidation cyclefor the U.S. Customs Service is between 314 days and one year. This merely means that Customs
makes its final determination of duties and other fees during that period, and bills or refunds importers
(or liquidates their entries as entered) accordingly.  The alternatives to surety bonds are set forth in 19
CFR § 113.40.  Essentially, in lieu of surety bonds, the port director may accept U.S. money, U.S.
bonds (other than U.S. savings bonds), U.S. certificates of indebtedness, Treasury notes or Treasurybills,  in an amount equal to the amount of the bond.
Q20: How many of such bonds (and for how much and for which products) were posted
during the period between 3 March and 19 April 1999?
49. As previously described, such bonds were required for 100% of formal entries of all goods
from commercial sources, regardless of country of origin, both before, during and after the period3 March to 19 April 1999.  Normal bonding levels are set forth in the 1991 Customs Directive
provided at U.S. Exhibit 4, and are described in response to question 2.   The requirements applicable
for most of the EC products listed in the Customs instructions (see U.S. Exhibit 7) announcement
were as follows:  a single transaction bond in the amount of the entered value of the merchandise,
178
or a continuous entry bond in the amount of 10% of the entered value of the merchandise which the
importer imported during the previous year.  The value of imports of all listed products for the months
of March and April (including March 1-2 and April 20-30) was approximately 42 million dollars.  The
                                                     
177 See Article 22.6 Arbitration , para. 4.11; discussion supra  at paras. 30-31.
178 described in response to Question 2, certain products are subject to single transaction bond levels of
three times the entered value of the merchandise because they are subject to requirements of other agencies,such as the public health and safety requirements of the Food and Drug Administration.  For such products, theMarch 3 action did not change single transaction bond levels.WT/DS165/R/Add.1
Page 82
value of the products subject to the changed bonding requirements was the fraction of those imports
entered between March 3 and April 19.
Q21: Please provide statistics on the level of trade between the EC and US by each listed
product in 1997, 1998 and 1999 on a monthly and calendar year basis.
50. Please see U.S. Exhibit 5.  As is clear from those figures, the additional bonding requirements
did not, as the EC asserts, "effectively stop the trade in the affected products as from
3 March 1999."179
Q22: If a bond is required and then duties are never assessed or assessed at a lower level,
what level of interest does the Customs Service pay to the importer?
51. Customs is authorized and required to pay interest on excess duties, fees and taxes deposited
by an importer.  No interest would be paid on an additional bond requirement or an increased bond
amount.
Q23: Following the reduction in the authoriz ed level of suspension of concessions on
19 April 1999, were the EC importers reimbursed for any additional costs? If so, how? How, if
at all, did you compensate importers/exporter s that were inhibited from trading prior to
19 April?
52. There was no government reimbursement for any fees which private sureties may have
charged U.S. importers of the listed products as a result of the additional bonding requirements.  The
additional bonding requirements did not result in additional payments to the government.
Q24: What is the average period of delay for liquidation for these types of products?
53. Liquidation of these products was based on the normal liquidation schedule applicable to all
commercial goods entering the United States, between 314 days and one year.
Q25: What are the exact differences in US in ternal law between the ordinary and standard
customs practice for imports and what was decided on 3 March 1999 with regard to those listedimports? Please elaborate on every single difference.
54. As described in response to question 2, for entries of the listed goods entered or withdrawn
from warehouse for consumption on or after March 3, U.S. Customs reviewed the sufficiency of the
bond and required a single transaction bond in the amount of the entered value of the merchandise,
180
or a continuous entry bond in the amount of 10% of the entered value of the merchandise which theimporter imported during the previous year. These amounts differed slightly from the bonding levelsapplicable to other entries, a typical example of which is provided in response to question 2.  All
bonding levels are set forth in the Customs Directive provided in U.S. Exhibit 4.
55. Apart from this change in the bonding levels, no other changes were made in the ordinary
procedures applied to imported goods.  All goods were subject to the normal liquidation period (i.e.,between 314 days and one year).
                                                     
179 E.g., EC Oral Statement, para. 7.
180 As described in response to Question 2, certain products are subject to single transaction bond levels
of three times the entered value of the merchandise because  they are subject to requirements of other agencies,
such as the public health and safety requirements of the Food and Drug Administration.  For such products, theMarch 3 action did not change single transaction bond levels.WT/DS165/R/Add.1
Page 83
Q26: On what domestic legal authority did th e USTR rely to require the Customs Service to
begin the suspension of liquidation? Was this an ad ministrative action that could be done at any
time?
56. As described earlier, no suspension of liquidation was required or occurred as a result of the
March 3 action.  With respect to the revision of bonding levels, as described at paragraph 33 and note33 of the U.S. First Submission, 19 CFR §  113.13 provides port directors with authority to require
additional bonding or additional security to ensure that the acceptance of an entry will be adequately
protected against any duties or other liabilities imposed by law.  This discretionary authority may be
exercised at any time when Customs becomes aware of a risk that normal bonding requirements will
be inadequate.
181  The March 3 bonding review was implemented by Customs in response to the fact
that the goods in question might, upon DSB authorization, be subject to a substantially higher rate of
duty.  USTR had informed Customs of this risk.
Q27: Please provide copies of the legislative authority and related regulations upon which
USTR and the Customs Service relied.
57. 19 CFR § 113.13 is provided at U.S. Exhibit 6.
Q28: Did the US really need to be able to calculate the level of duties between 3 March and
19 April in order to preserve its rights to eventu ally impose suspension of concessions or other
obligations?  How exactly was the ability of the US to suspend concessions or other obligations
impaired by not withholding liquidation on 3 March?
58. Again, the United States did not take action on March 3 to "withhold" or "suspend"
liquidation.  The only action taken was to revise bonding levels for certain imports.  In the absence of
these changes in bonding levels on entries between March 3 and April 19, this merchandise would
have been released into the United States with bonds inadequate to cover the full amount of duties thatmight ultimately be authorized by the DSB.  Because of this, and because estimated duty payments
during the period March 3 to April 19 were made at the MFN rates normally in effect, Customs would
not have had adequate recourse against either the surety or the merchandise in the event that the
importer failed to pay the difference between the estimated duties and the duties ultimately authorized
by the DSB.
Q29: On what products did the US begin susp ension of liquidation as of 3 March 1999? On
what principles were the listed products select ed? Which were the products that were dropped
after 19 April 1999 and on what basis?
59. The United States did not "suspend" or "withhold" liquidation on any products as of
March 3, 1999.  The United States revised bonding requirements.  The list of products subject to therevised bonding requirements is set forth at U.S. Exhibit 7.  The products were selected based on the
principles set forth in DSU Article 22.3.  Products were dropped from the final list in order to ensure
that duties would be assessed at a level equivalent to the level of nullification or impairment
calculated by the Article 22.6 arbitrator and authorized by the DSB.  The items dropped from the final
list are indicated in U.S. Exhibit 7.
                                                     
181 The 1991 Customs Directive provided in U.S. Exhibit 4 also discusses the role of risk evaluation in
setting bonding levels.WT/DS165/R/Add.1
Page 84
Q30: What is the total annual level of EC exports to the US for 1997, 1998 and 1999 calendar
years?
60. The total annual level of U.S. imports from EC member States was as follows:
1997:  157.5 billion dollars1998:  176.4 billion dollars1999 (first ten months): 159.8 billion dollars.
Q31: What were/are the tariff bindings and the applied rates on the listed imports in the
absence of the 3 March decision?
61. The applied rates on the listed imports (which are also the bound rates) are provided in U.S.
Exhibit 7.  These rates were not changed by the March 3 decision.  Had no further action been taken
on April 19, 1999, each and every entry of a product subject to the revised bonding requirements
would have been liquidated at these rates.WT/DS165/R/Add.1
Page 85
Appendix 2.5
Rebuttal Submission of the United States (including its cover letter)
(21 January 2000)
Dear Chairman:
Attached is the second submission of the United States in the dispute United States - Import
Measures on Certain Products from the European Communities.
Part II of this submission addresses the issue of the scope of the Panel's term of reference.
This issue, which was only identified at the first substantive meeting of the Panel, is of great
significance.  Accordingly, the United States respect fully requests the Panel to clarify, prior to the
outset of the second substantive meeting, the measures that it considers to be within the Panel's terms
of reference so that the United States may, in accordance with basic due process concerns, have full
knowledge of the measures at issue and an adequate opportunity to respond to all of the claims madeagainst all U.S. measures that may be the subject of the Panel's report.  Had this issue been identified
at the outset, the United States would have requested a preliminary ruling pursuant to paragraph 11 of
the Panel's working procedures.  It is no less important now that this issue be clarified promptly.
A copy of this submission and request for a preliminary ruling has been provided directly to
the European Communities.
Sincerely,
Rebuttal Submission of the United States
I. INTRODUCTION
1. While the EC is correct that the facts of this ca se are straightforward, it is incorrect as to the
facts.  On March 3, 1999, the day after the Article 22.6 arbitrator in Bananas  was required by the
DSU to complete its work, the United States decided to modify bonding requirements on certain EC
entries.  The United States took this step to preserve its ability to collect any duties which might
ultimately be authorized by the DSB as a result of  the EC's failure to comply with the DSB's rulings
and recommendations in Bananas .  The bonding requirements did not increase the duty liability on
those entries.  The EC on March 4 requested consultations on the March 3 decision, and ultimately
requested the establishment of this Panel based on those consultations, thereby limiting the measure
under dispute to the March 3 bonding requirements.  The Panel's task in this proceeding is to make
findings on whether the EC has met its burden of demonstrating that the March 3 bonding
requirements are inconsistent with GATT 1994 Articl es I, II, VIII and XI.  Because the EC has failed
to meet this burden, the Panel must find that the March 3 bonding requirements are not inconsistent
with these articles, nor with DSU Articles 22.6 and 23.2(c).
2. The Panel should also reject the EC's DSU Artic le 3 and 21.5 claims.  In this dispute, the EC
seeks to have the Panel declare ultra vires  the work of the Article 22.6 arbitrator in Bananas  based on
arguments on the relationship between DSU Articles 21.5 and 22 it has presented in four prior
proceedings.  Time after time, panels and arbitrators have turned down or rejected these ECarguments.  This Panel should as well.
II. THE ONLY MEASURE WITHIN THE TERMS OF REFERENCE IS THE U.S.
DECISION TO INCREASE BONDING REQUIREMENTS.
3. The EC has attempted throughout this proceeding to avoid identification of the specific U.S.
measure it is challenging.  Its reasons are easily understood: it has based its arguments on anWT/DS165/R/Add.1
Page 86
erroneous understanding of what actions the United States actually took on March 3, and any
recognition of this on its part would undermine its claims.  Further, the EC hopes to obtain Panel
findings on measures which are not part of the terms of reference of this dispute.  The Panel must
reject these EC efforts at obfuscation, confirm that the only measure within the terms of reference of
this dispute is the U.S. modification to bonding requirements, and base its findings on a determination
of whether the EC has met its burden of demonstrating that this measure is inconsistent with the WTOprovisions identified in the EC's panel request.
4. The terms of reference provide for this Panel to examine "the matter referred to the DSB by
the European Communities in" document WT/DS165/8.
182  That document is the EC's 11 May 1999
request for the establishment of this Panel.  There, the EC identified the measure as
the U.S. decision, effective as of 3 March 1999, to withhold liquidation on
imports from the EC of a list of products, together valued at $520 million on
an annual basis, and to impose a contingent liability for 100% duties on each
individual importation of affected products as of this date ….  This measure
includes administrative provisions that foresee, among other things, the
posting of a bond to cover the full potential liability.183
5. The EC panel request followed its request for consultations of 4 March 1999, which described
the measure using similar language:
the U.S. decision, effective as of 3 March 1999, to withhold liquidation on
imports from the EC of a series of products …, together valued at over $500
million on an annual basis, and to impose a contingent liability for 100%
duties on each individual importation of affected products as of this date ….
According to information provided by the United States Trade
Representative (USTR), this measure includes administrative provisionswhich foresee, among other things, the posting of a bond to cover the full
potential liability.
184
6. As described in the U.S. First Submission, Oral Statement and Responses to Panel and EC
Questions,185 the EC's reference to "withhold[ing] liquidation" does not describe any U.S. "decision,
effective as of 3 March 1999."  The term "withhold liquidation" has no legal significance in U.S. law,
and the United States neither "suspended" nor "extended" liquidation with respect to entries of any of
the listed products referenced in the EC's panel request.186  The United States continued to apply its
normal 314-day liquidation cycle with respect to these products.  Inasmuch as that 314-day liquidation
cycle is not a "decision, effective 3 March 1999,"187 it cannot, under any interpretation, be considered
to fall within the terms of reference of this dispute.
7. Likewise, the bonding requirements normally im posed by the U.S. Customs Service cannot be
considered part of the measure subject to this dispute.  The requirement that importers post bonds has
been part of Customs practice for decades, and the specific bonding requirements now in force were
                                                     
182 WT/DS165/9.
183 See WT/DS165/8.
184 See WT/DS165/1.
185 See U.S. First Submission, para. 34; U.S. Oral Statement, para. 11; U.S. Responses to Panel and EC
Questions, responses to questions 7, 8, 19, 25, 28, 29.
186 The terms "extend liquidation" or  "suspend liquidation" are explained in paragraph 14 and note 5 of
the U.S. Responses to Panel and EC Questions.
187 The 314-day liquidation cycle was instituted on May 26, 1997.  See Memorandum dated
May 26, 1997, file number ENT-1 FO:TC:C:E AD to all interested parties,http://www.cebb.customs.treas.gov/public/cgi/ce bb.exe?mode=fi&area=13&name=T-ENTRY5.TXT(U.S.
Exhibit 2).WT/DS165/R/Add.1
Page 87
established in 1991.188  They did not result from any "decision, effective 3 March 1999."  In its
submissions, the EC appears to recognize that th e normal bonding requirements of the United States
are not part of this dispute, and at times does not appear to be challenging them.  For example, the EC
at paragraph 16(d) of its first written submissi on purports to set forth the bonding requirements
imposed by the measure at issue, then states in paragraph 17 that these requirements "entailed a
burden additional  to what was required by the US customs authorities in application of ordinary
customs duties."189  Likewise, in its replies to Panel and US questions, the EC in its clarification of
paragraph 16(d) refers to the " increased  charges and costs for importers ... calculated on the basis of a
duty in excess of the bound rate,"190 suggesting that it is not challenging any charges and costs it
claims might exist with respect to bonding requirements normally in effect.  For the reasons described
below in Section III.B, the United States denies that there are charges or costs within the meaning of
GATT 1994 Articles II:2(c) and VIII:1 associated w ith either normal bonding requirements or those
additional requirements nominally imposed on March.191  Nevertheless, the distinction the EC appears
to be drawing is evidence that it does not consider the normal bonding requirements of the United
States to be part of the measure in dispute.
8. On the other hand, the EC has refused to respond to the invitation in the U.S. question to the
EC to draw a tenable distinction between the changed bonding requirements of March 3 and the
normal bonding requirements in the United States, since its arguments would implicate both.192   The
U.S. question was directed at the fact that the EC's argument that bonding requirements are a
prohibited "other charge" would, if accepted, render all such bonding systems, in the United States
and elsewhere (including the EC), a WTO violation.  Instead of addressing this issue, the EC vaguely
responded, "this question is based on an artificial distinction between different 'actions', with which
the EC does not agree."  Given the possible implic ation that the EC believes that the normal bonding
requirements of the United States are subject to this  dispute, the Panel should clarify that this is not
the case, and base its analysis on the fact that only the additional bonding requirements imposed on
March 3 are within the terms of reference.
9. The Panel should also reject the EC's attempt to ascribe to the March 3 bonding requirements
legal or practical impacts they simply did not have.  Thus, the Panel must reject the EC's unsupported
assertions that the measure "effectively already imposed 100% duties on each individual importation
as of 3 March 1999, the return of which was uncertain, depending on future US decisions"193 or that
the effect of the measure was "to deprive as from 3 March 1999 the importers of their right ofimporting those products subject to a duty not exceeding the tariff bound under the US Schedule of
tariff concessions."
194  As the United States has explained from the outset of this dispute,195 the March
3 bonding requirements did not create any additional duty liability.  Had the United States taken no
further action on April 19 following DSB authorization, each and every entry subject to the changed
bonding requirements would have been liquidated at the MFN, entered rate.
                                                     
188 See Customs Directive Regarding Monetary Guidelines for Setting Bond Amounts (U.S. Exhibit 4).
189 EC First Submission, para. 16(d), 17 (emphasis added).
190 EC Replies to Panel and US Questions, at 6-7 (reply to U.S. question) (emphasis added).
191 By way of clarification, while the United Stat es announced the increased bonding requirements on
March 3, the Customs instructions to increase bonding requirements were actually issued on March 4, and wereeffective for entries from that date.
192 See U.S. Question to the EC; EC Responses to Panel and US Questions, at 6-7.
193 WT/DS165/8.
194 EC Oral Statement, para. 7.  Similarly, and equally incorrectly, the EC asserts that as a result of the
March 3 bonding requirements, "the importer was bound to pay the (prohibitive) increased duty at the time ofliquidation of the customs debt."  EC Oral Statement, para. 6(a).
195 U.S. First Submission, paras. 31, 45; U.S. Oral Statement, para. 6; U.S. Responses to Panel
Questions, paras. 10, 60.WT/DS165/R/Add.1
Page 88
10. An important element of the entry process is the deposit of estimated duties, which must
occur at the time of entry or shortly thereafter.196  A bond provides assurances to U.S. authorities that,
upon liquidation, any duty not covered by those estimated duties can be collected if the importer fails
to pay.  This is necessary precisely because the bonding requirement itself does not impose any
additional liability.  Had any such additional liability existed at the time of entry, Customs would haverequired higher deposits of estimated duties.
11. Estimated duty deposits on entries from March 3 to April 19 were only in the amount of the
MFN duties, because this was the only duty liability these entries were subject to.  However, it was
known that, as a result of DSB authorization, the duties on these entries might ultimately be higher.
As a consequence, in the absence of increased bonding requirements, Customs could not have been
assured that importers would pay the difference be tween the MFN duty deposits and any higher duties
which might ultimately be authorized by the DSB.  When that authorization came on April 19, theduty liability increased to 100%, and Customs began to require higher deposits of estimated duties.
With such higher deposits in hand, there was no longer a gap between the estimated duty deposits and
the known potential duty liability.  The risk that Customs would not be able to collect the full amount
of duties owed returned to normal levels,
197 and normal bonding requirements applied.
12. The EC confuses the effect of the U.S. March 3 action with that of action taken on April 19.
However the April 19 action is not at issue in this proceeding because that measure could not have
been the subject of a consultation request made on March 4.  A Member may request the
establishment of a Panel with respect to a measure only if it has first requested consultations on that
measure.198  On March 4, the measures taken on April 19 did not exist.  The EC was free, after April
19, to request consultations on the April 19 measures, but chose not to.  It must not now be permitted
to circumvent the rules of the DSU by mischaracterizing the March 3 measures to encompass those on
April 19.
13. The EC itself has long recognized and relied on the principle that dispute settlement
proceedings cannot be undertaken before the measure in question has been taken.  For example, the
EC was insistent over the course of U.S. efforts to form an Article 21.5 panel that such a panel could
not be formed because one point of its implementation, the licensing regime, had allegedly not been
undertaken until late October 1998.  The EC stated at the September 22, 1998 DSB meeting,
The Community was therefore not in a position to accept this point since no
measures had yet been taken.  Although this issue had also been subject to
consultations, the Community could not accept the position of the
complaining parties since legally the measures had not been taken and there
was no decision on the import licensing regime.199
14. The EC went so far as to threaten to block the agenda of the September 1998 DSB meeting
until it received assurances that the DSB would not act on the request of the Bananas  complaining
                                                     
196 Details on this and other aspects of the entry process are described at the web-site of the U.S.
Customs Service at http://www.customs.ustreas.gov/imp-exp2/pubform/import/index.htm   Excerpts from this site are
provided in U.S. Exhibit 8.
197 The risk under normal circumstances, after deposit of estimated duties, would be covered by the
normal bonding requirements for such goods and relates to the possibility, for example, that the merchandise ismisclassified or misvalued, or that the goods are found to  be inadmissible because they fail to comply with U.S.
health or safety requirements.
198 See  DSU Arts. 4.2-4.5, 4.7.  Article 4.2 provides for consultations on "measures ... taken within the
territory" of a Member.  The EC’s consultation request thus could not have been made for a measure which hadnot been "taken" as of March 4, namely, the April 19 actions.
199 WT/DSB/M/48 (Minutes of DSB Meeting of 22 September 1999).WT/DS165/R/Add.1
Page 89
parties for the establishment of an Article 21.5 panel.200  This is how the EC managed to circumvent
the DSU rule that the DSB must establish a panel in the absence of a negative consensus, a rule the
EC cites in denying that it could have "blocked" the establishment of an Article 21.5 panel.201  The EC
is technically correct: it did not block panel establishment; instead, it threatened to block all work at
the September DSB meeting, including  panel establishment.  (Its willingness to carry out such a threat
was confirmed by the events of the January 27, 1999 DSB meeting.202)
15. Unlike the EC, the United States would not have claimed any right to block the formation of
this Panel had it believed the EC would attempt to litigate measures not subject to a consultation
request.  A ruling on such issues is the responsibility of the Panel formed under multilateral rules, and
not the unilateral decision of one party.  Leaving aside the accuracy of the EC's claims as to whether
part of its implementation measure was ripe for Article 21.5 review, or its position that the party
complained against, rather than a panel, should decide that question, the EC's explanation of when ameasure is ripe for panel review is accurate: if a measure has not yet been taken, it cannot be the
subject of dispute settlement proceedings, including the consultations which are a prerequisite to
panel establishment.  The EC six years earlier also enunciated this principle, when it explained that a
December 1992 meeting of the EC Council
did not in fact result in a formal decision on [its banana import] regime:  the
result of the debate was limited to a political orientation about some of the
features of the future common market organization for bananas which still
need to be formalized in the internal decision-making process of the
Community institutions.  The present preparatory works cannot therefore beconsidered as a measure under Article XXII:1 or XXIII:1 of the General
Agreement allowing for formal consultations under one of these
provisions."
203
The April 19 measures increasing duty liability had not been taken as of the EC's March 4consultation request, and therefore could neither have been the measure provided for in that request or
in the panel establishment request which subsequently followed.
16. In its closing statement at the first substant ive meeting of the Panel, the EC attempted to
recast its description of its measure in the hope of drawing into this proceeding the actions taken onApril 19.  It stated that the matter before the Panel is "the US measure effective on 3 March 1999 on a
list of products, contained in Annex 1, and confirmed for 'a subset of the products' in a 'reduced list'
adopted on 19 April 1999, contained in Annex 2."
204  This reformulation of the measure does not
correspond to that in the EC's Panel or consultation requests.  The EC's consultation request obviously
does not reference the April 19 action, both because it had not yet been taken, and because it was not
then clear how much longer the EC would succeed in delaying the Article 22 panel.  Furthermore,
while the EC panel request does reference the April 19 action, it describes it only as having"confirmed" the liability imposed by the March 3 de cision.  None of these formulations would permit
                                                     
200 See id.  at 1-2 ("Prior to the adoption of the agenda, the representative of the European Communities
... inquired whether ... item [4 of the agenda entitled "Recourse to Article 21.5 of the DSU by Ecuador,
Guatemala, Honduras, Mexico and the United States"] ha d been included on the agenda for information only.
Depending on the answer he would indicate whether he could accept item 4 to remain on the agenda. "
(Emphasis added)).
201 In its response to the Panel’s question concerning  the EC’s repeated refusal to participate in an
Article 21.5 proceeding, the EC stated that it was incorrect to assert that it blocked an Article 21.5 action.  The
EC explained: "the party complained against is not in a position to ‘block’ establishment of a panel because the
decision is taken by the DSB under the ‘reversed consensus’ rule."  EC Responses to Panel and US Questions, at
5-6 (Replies 11, 12).
202 See WT/DSB/M/54, at 3-10; U.S. First Submission, para. 25.
203 DS38/4, cited in Analytical Index (6th ed.), at 570.
204 EC Closing Statement at the First Substantive Meeting of the Panel (17 December 1999).WT/DS165/R/Add.1
Page 90
the April 19 actions to be drawn into this dispute.  The April 19 actions were not part of the EC's
consultation request, and the March 3 action created no duty liability that could be "confirmed" on
April 19.  The Panel must reject the EC's attempt to  redefine the terms of reference in this dispute.
17. The Appellate Body in Shirts and Blouses stated with respect to the burden of proof, "we find
it difficult, indeed, to see how any system of judi cial settlement could work if it incorporated the
proposition that the mere assertion of a claim might amount to proof ... [T]he party who asserts a fact
... is responsible for providing proof thereof."205  In this proceeding, the EC has attempted, through
mere assertions, to argue that the United States on March 3 took action it did not take.  The United
States has responded to the EC with facts  concerning what action it did, and did not, take on March 3.
The only measure at issue in this dispute is the March 3 modification to bonding requirements on
certain products from the EC.  The Panel should cons ider arguments with respect to that action only.
For the reasons set forth in the U.S. First Submission and the following sections of this submission,the EC has failed to demonstrate that the March 3 bonding requirements are inconsistent with U.S.
WTO obligations.
III. THE EC HAS FAILED TO MEET ITS BURDEN OF DEMONSTRATING THAT THE
MARCH 3 ACTION WAS INCONSISTENT WITH GATT 1994 ARTICLES I, II, VIIIAND XI
18. The burden is on the EC, as the complaining party in this dispute, to present arguments and
evidence sufficient to establish a prima facie  case in respect of the various elements of its claims.  The
Panel's task is to balance all evidence on the record and decide whether the EC, as the party bearingthe original burden of proof, has convinced the Panel of the validity of its claims.  In cases of
uncertainty, i.e., when the evidence and arguments remain in equipoise, the Panel must give the
benefit of the doubt to the United States as the defending party.
206  The EC has failed to meet its
burden in this dispute with respect to any of its claims.
A. THE EC H AS FAILED TO DEMONSTRATE THAT THE MARCH 3 A CTION WAS INCONSISTENT
WITH GATT 1994 A RTICLE I
19. The EC has asserted that the March 3 bonding requirements are inconsistent with Article I
because they allegedly discriminate between products originating in the EC and products originating
in other countries.207  This assertion is incorrect, because the U.S. action of increasing bonding
requirements merely addressed the particular risks associated with these entries, risks not present with
respect to entries of other products from other countries.
20. The particular risks associated with these EC entries were the result of the EC's failure to
bring its banana import regime into compliance wi th the DSB's rulings and recommendations by the
end of the reasonable period.  As a result, upon confirmation by the Article 22.6 arbitrator of the
nullification of U.S. benefits and DSB authorizatio n to suspend concessions, these EC entries would
be subject to higher duties.  In the absence of higher deposits of estimated duties (which Customs did
                                                     
205 Appellate Body Report on United States – Measure Affecting Imports of Woven Wool Shirts and
Blouses from India (Shirts and Blouses), adopted 25 April 1997, WT/DS33/AB/R, at 14.
206 Appellate Body Report on EC -- Measures Affecting Meat and Meat Products (Hormones) , adopted
16 January 1998, WT/DS26/AB/R, WT/DS48/AB/R, para. 109; see, also , Shirts and Blouses,  WT/DS33/AB/R,
at 16 ("a party claiming a violation of a provision of the WTO Agreement by another Member must assert andprove its claim"); and Appellate Body Report on India – Patent Protection for Pharmaceutical and Agricultural
Chemical Products , adopted 16 January 1998, WT/DS50/AB/R, para. 74 (noting that the Panel had "properly
requir[ed] the [complaining party] to establish a prima facie  case" before proceeding to the next step of its
evaluation of the claim at issue); Panel Report on Sections 301-310 of the Trade Act of 1974 , WT/DS152/R,
para. 7.14 (22 December 1999).
207 EC First Submission, para. 16(a).WT/DS165/R/Add.1
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not collect because the liability on these entries remained at MFN rates), Customs faced the risk that
existing bonds would not provide sufficient recourse if importers refused to pay the difference
between estimated duties and the higher duties which might ultimately be assessed.  Thus, in
imposing different bonding requirements on these entries, the United States did no more than respond
to the special risks associated with these entries.
21. Finally, the United States notes that, even if the Panel were to consider the March 3 bonding
requirements to provide different treatment to en tries of certain products from the EC than those of
other Members, notwithstanding the particular risks associated with these EC entries, only the
requirements applied to continuous entry bonds could even arguably be viewed as less favorable.  As
described in response to EC question 2 and panel question 20, the single transaction bond
requirements applied to the listed products were actually lower than those applied to normal entries
for most of the products, and the same for others.208
22. However, the Panel should, together with the EC's other claims, reject the EC's argument that
the March 3 bonding requirements provided EC entries with treatment different and less favorable
than that accorded product of other Members.  The March 3 bonding requirements were consistent
with GATT 1994 Article I.
B. THE EC H AS FAILED TO DEMONSTRATE THAT THE MARCH 3 A CTION WAS INCONSISTENT
WITH GATT 1994 A RTICLES II AND VIII
23. The March 3 bonding requirements either do not impose an "other charge" within the
meaning of GATT 1994 Articles II:1(b) and VIII:1, or, if they do, these charges are "commensurate
with the cost of services rendered," and thereby permitted under Articles II.2(c) and VIII:1.  Under
either interpretation, the March 3 bonding requirements are not inconsistent with these provisions.
24. As described above, the only measure within the terms of reference of this dispute is the
March 3 change in bonding requirements.  The normal bonding requirements of the United States are
neither within the terms of reference of this dispute, nor does it appear that the EC is challenging these
requirements.209  Nevertheless, the EC has failed to draw  a tenable distinction between the changed
bonding requirements of March 3 and the normal bonding requirements in the United States and
numerous WTO Members, including  several EC member States.210  In simply arguing that such
bonding systems impose "other charges" inconsistent  with Articles II and VIII becau se there may be
costs associated with obtaining the bonds,211 the EC would, presumably unintentionally, implicate all
bonding systems.
                                                     
208 As described in response to questions 2 and 20, products subject to requirements of agencies such as
the Food and Drug Administration were subject to a single transaction bond rate of three times the entered valueof the merchandise, regardless of whether it was a listed product.  Products not subject to such other agencyrequirements are normally subject to a single tran saction bond requirement of the entered value of the
merchandise plus any duties, taxes and fees for the entry, while single transaction bonds for listed products from
the EC had only to be in the amount of the entered value of the merchandise.
209 See discussion in Section II at paras. 7-8 regard ing the terms of reference, and the EC’s argument
that it is challenging the "additional" burden allegedly created by the March 3 action and the "increased" chargesallegedly imposed by that action.
210  It is our understanding that at least several EC  member State customs administrations (e.g., those of
the United Kingdom and Germany) provide for a surety system allowing the early release of goods without final
payment of duties.  It is also our understanding that such systems can differ among member States (e.g., forsome, a surety may only be required for goods considered to be "high risk" for compliance purposes, such asliquor and cigarettes), and that not every member State (e.g., Italy) provides for a surety system.
211 EC First Submission, para. 16(d).WT/DS165/R/Add.1
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25. The problem is highlighted by the U.S. question to the EC, and the EC's failure to respond.
The U.S. explicitly asked the EC whether surety systems in general impose "other charges" within the
meaning of Articles II and VIII, and, if so, how the EC would distinguish these from any "other
charges" associated with the March 3 action.  The EC refused to answer the question, merely
reiterating its argument that the March 3 actio n imposed an "other charge" not limited to the
approximate costs of administration.212
26. The U.S. question pointed out that surety systems are explicitly contemplated in Article 13 of
the Customs Valuation Agreement, to which the EC responded that valuation issues are not relevant
to this dispute.213  The EC response misses the point:  the EC cannot propose a definition of "other
charges" under Article II which would lead to the conclusion that surety systems in general violate
Article II, since such systems are explicitly contemplated in Article 13 of the Customs Valuation
Agreement.  An agreement provision must not be interpreted so as to create a conflict with anotherprovision.
214  If, merely because there may be costs associated with bonding requirements, all surety
systems would impose prohibited "other charges," then the EC's interpretation of "other charges" is
creating precisely such a conflict.
27. In addition to Article 13 of the Customs Valuation Agreement, surety systems are explicitly
provided for in the Kyoto Convention on the Simplification and Harmonization of Customs
Procedures.215  The Convention, like the Customs Valuation Agreement, encourages the early release
of merchandise, and permits the adoption of surety systems to ensure compliance with regulatory
undertakings, as well as to ensure collection of any additional  import duties and taxes that might
become chargeable.216  Thus, the Convention explicitly contemplates that, as a necessary consequence
of the early release of merchandise, it might become necessary to impose bonding requirements to
ensure collection of duties beyond those for which an importer might be liable based on information
at the time of entry, and which might become due as a result of events subsequent to entry.217
28. In light of the specific provision for surety systems both in the Customs Valuation Agreement
and the Kyoto Convention, this Panel should find that surety systems used by customs authorities to
ensure collection of duties, taxes and fees and compliance with other importer undertakings following
the release of merchandise are not "other charges" within the meaning of GATT Articles II and VIII.
The facts concerning the full range of surety systems employed by Members in connection with the
early release of goods is not before the Panel, and the Panel should avoid findings which could have
                                                     
212 EC First Submission, para. 16(d); EC Response to Panel and US Questions, at 6-7 (Reply to U.S.
question).
213 EC Responses to Panel and US Questions, at 6-7.
214 See, e.g.,  Panel Report on Indonesia – Certain Measures Affecting the Automotive Industry , adopted
23 July 1998, WT/DS54/R, WT/DS55/R,  WT/DS64/R, WT/DS69/R, para. 14.28 (the panel stated, "we recall
first that in public international law there is a presump tion against conflict.[footnote omitted]  This presumption
is especially relevant in the WTO context [footnote omitted] since all WTO agreements, including GATT 1994which was modified by Understandings when judged necessary, were negotiated at the same time, by the sameMembers and in the same forum.").
215 Kyoto Convention on the Simplification and Harmonization of Customs Procedures, (done at Kyoto
on 18 May 1973 and entered into force on 25 September 1974), Annex B.1, 59-61 (on the release of goods)
(Kyoto Convention ) (U.S. Exhibit 9).  The Convention Members include [virtually all] WTO Members.  The
Convention is a relevant rule of international law applicable in the relations between the Members, and istherefore relevant to the interpretation of  a WTO Agreement provision, such as the meaning of "other charges"under GATT 1994 Articles II and VIII.  Vienna Convention on the Law of Treaties, Art. 31.3(c).
216 Kyoto Convention , Annex B.1, 59-61.
217 Similarly, the International Chamber of Commerce International Customs Guidelines provide in
Guideline 19 that a modern, efficient and effective cust oms administration: "19. operates a corporate surety
bonding system, or other appropriate means, such as a duty- and tax-deferral system, to protect the revenue andensure compliance with customs laws without unnecessarily delaying the release of goods." ICC InternationalCustoms Guidelines, 
www.iccwbo.org/home/statements_rules/rules/1997/customsdoc.asp  (10 July 1997).WT/DS165/R/Add.1
Page 93
unintended consequences on these trade-enhancing measures.  The Customs Valuation Agreement
and Kyoto Convention provide for surety systems precisely because these are acknowledged to be a
necessary component of customs systems which allow release of merchandise in the shortest possible
time.
29. The bonding requirements imposed by the United States do not entail any payments to the
United States Government.  Rather, importers must provide evidence that they have obtained either
single transaction bonds or continuous entry bonds (or cash in lieu of surety on a bond) for the entry
or entries in question.  These bonds are obtained from private surety companies, who charge the
importers based on the risk involved with the tran saction.  That risk can relate either to the
credit-worthiness of the importer, or to the nature of the merchandise being imported.  While the
actual costs charged by surety companies will vary for these and other commercial reasons, the typical
cost for a single transaction bond would be $3.50 per thousand dollars of bond value (0.35%), whilethe typical cost for a continuous entry bond would be $10-20 per thousand dollars of bond value.
218
30. If, on the other hand, the Panel concludes that surety systems providing for the early release
of merchandise impose an "other charge," the Panel mu st also conclude that costs associated with the
March 3 bonding requirements are "commensurate with the cost of services rendered" and "limited inamount to the approximate cost of services rendered,
219 and thus justified under Article II:2(c) and
Article VIII:1.220  Again, the Panel must not make findings which would render Article II violations
the surety systems contemplated in the Valuation Agreement and the Kyoto Convention.
                                                     
218 These costs are only approximate values based on informal inquiries and could vary widely
depending on the parties to the transaction.
219 The panel in Customs User Fee  concluded that differences in wording between Article II:2(c) and
VIII:1 were not intended to have a different meaning, but merely resulted from the different paths by which the
provisions entered the GATT 1947.  Panel Report on United States – Customs User Fee , adopted 2 February
1988, BISD 35S/245, 275, para. 75.
220 The service in question is the early release of merchandise into the United States.  As indicated in
the U.S. First Submission, such early release of the merchandise can come within hours of its arrival, whereasestimated duties are not routinely deposited until 10 working days (or two weeks) later.  Prior to the widespreaduse of early release, U.S. importers frequently paid dock storage charges, had higher administrative costs for
obtaining release of their goods and other increased costs associated with their inability to use "just-in-time"
inventorying.
The cost to Customs of early release is the risk that duties, taxes and fees will not be paid, or
that the entries violate quota or other regulatory requirements.  In part, this risk relates to the total value of the
potential liability in the transaction (e.g., duties, other f ees, or liquidated damages.)  It also relates to the
credit-worthiness of the importer.  For example, continuous entry bonds will, by definition, be used by importerswith a history of importations establishing a credit history.  By tying bonding requirements to the level of riskassociated with the entries, Customs is "charging" importers based on the cost of early release.
The March 3 action responded to the higher level of risk associated with imports of listed
products from the EC.  The particular risks associated with these EC entries, were, as described in earlier
submissions ( See U.S. Responses to Panel and EC Questions, para. 8; U.S. Oral Statement, paras. 4-6), the result
of the EC’s failure to bring its banana import regime into compliance with the DSB’s rulings andrecommendations by the end of the reasonable period.  As a result, upon confirmation by the Article 22.6arbitrator of the nullification of U.S. benefits and DSB authorization to suspend concessions, these EC entries
would be subject to higher duties.  In the absence of higher deposits of estimated duties (which Customs did not
collect because the liability on these entries remained at MFN rates), Customs faced the risk that existing bonds
would not provide sufficient recourse if importers refused to pay the difference between estimated duties and thehigher duties which might ultimately be assessed.  Thus, in imposing different bonding requirements on theseentries, the United States did no more than respond to the special risks associated with these entries, and the
additional bonding requirements were an appropriate "charge" commensurate with this cost to Customs.WT/DS165/R/Add.1
Page 94
31. Nevertheless, as the United States has demonstrated, the Panel should find that surety systems
used in connection with the early release of merchandise are not "other charges" within the meaning
of Articles II and VIII, or  should decline to make findings with respect to these claims if not necessary
to resolve this dispute.
C. THE EC H AS FAILED TO DEMONSTRATE THAT THE MARCH 3 A CTION WAS  INCONSISTENT
WITH GATT 1994 A RTICLE XI
32. The EC merely asserts that the effect of the March 3 bonding requirements was to "effectively
stop trade in the affected products as from 3 March 1999,"221 and on this basis asks the Panel to find
that the requirements are inconsistent with Article XI.222  The EC argument with respect to GATT
Article XI constitutes "mere assertion,"223 and falls woefully short of meeting the EC's burden with
respect to this claim.
33. Even were the Panel to conclude that the March 3 action is not an "other charge," the EC has
failed to meet its burden of demonstrating that the action is inconsistent with Article XI.  The EC's
sole argument in this connection is its assertion that the March 3 action "effectively stopped trade."
As a factual matter, this is simply incorrect, as the United States explained in response to question.224
U.S. Exhibit 5 demonstrates that a substantial trade in listed products continued after March 3.  In
particular, if the impact of the March 3 action is segregated from that of the April 19 action, the
figures indicate there was little if any impact from the March 3 action.  This is clear from an
examination of the nine-month import values for products not included on the final list (see U.S.
Exhibit 10).  The 1998 total imports of these products totaled $213,991,343, while the 1999 figurewas $212,574,917.
34. The EC's argument with respect to Article XI thus consists of a single, inaccurate assertion.
For this reason, the Panel should find that the EC ha s failed to meet its burden with respect to this
claim, if the Panel concludes that the March 3 action falls within the scope of Article XI and is notexcluded because it is an "other charge."
35. As a technical matter, if one were to assume for the sake of argument that the EC were correct
that the March 3 bonding requirements impose a "cha rge" under Article II or VIII, then these bonding
requirements cannot, by definition, be subject to Article XI, which explicitly only covers prohibitionsor restrictions "other than duties, taxes or other charges."  To the extent this Panel were to find that the
March 3 action constitutes an "other charge" -- whether or not within the meaning of Articles II and
VIII, and whether or not meeting the requirements of Article II:2(c) -- the March 3 action cannot fall
within the scope of Article XI.
IV. THE EC HAS FAILED TO MEET ITS BURDEN OF DEMONSTRATING THAT THE
MARCH 3 ACTION WAS INCONSISTENT WITH DSU ARTICLES 23.2(C) AND 22.6
36. In its oral statement at the first panel meeting, the EC for the first time identifies the provision
of DSU Article 23 it claims the U.S. has violated, Article 23.2(c).
225  DSU Article 23.2(c) requires that
                                                     
221 EC Oral Statement, para. 7.
222 E.g., EC First Submission, para. 16(c); EC Oral Statement, para. 23.
223 The Appellate Body in Shirts and Blouses stated with respect to the burden of proof, "we find it
difficult, indeed, to see how any system of judicial settlement could work if it incorporated the proposition that
the mere assertion of a claim might amount to proof ... [T]he party who asserts a fact ... is responsible for
providing proof thereof."  Appellate Body Report on United States – Measure Affecting Imports of Woven Wool
Shirts and Blouses from India (Shirts and Blouses),  adopted 25 April 1997, WT/DS33/AB/R, at 14.
224 See U.S. Responses to Panel and EC Questions, para. 50.
225 EC Oral Statement, para. 15.WT/DS165/R/Add.1
Page 95
a complaining party follow Article 22 procedures and obtain DSB authorization before suspending
concessions or other obligations.  Similarly, DSU Article 22.6, last sentence, requires that concessions
or other obligations not be suspended during the course of the arbitration.  Inasmuch as the EC has
failed to demonstrate that the March 3 bonding requirements are inconsistent with GATT 1994
Articles I, II, VIII or XI, it has failed to demonstrate that these requirements involved a U.S.
suspension of concessions or other obligations.  Thus, the EC has failed to meet its burden ofdemonstrating that the March 3 bonding requirements were inconsistent with either DSU Article
23.2(c) or DSU Article 22.6, last sentence.
V. THE EC HAS FAILED TO MEET ITS BURDEN OF DEMONSTRATING THAT THE
MARCH 3 ACTION WAS INCONSISTENT WITH DSU ARTICLE 21.5
37. The EC is asking this Panel to make findings it should not and need not make: that Article
21.5 proceedings must precede an Article 22 request for suspension of concessions.  This is now the
fifth time the EC is seeking to have a panel legislate on this point, to "add to" and "diminish" the
rights and obligations of Members in violation of  DSU Article 3.2.  No previous panel has accepted
the EC's invitation to legislate, and this Panel must decline to do so as well.
38. The EC in its January 13 answers makes explicit that, as the United States pointed out in its
January 13 submission,
226 the EC's goal is to have this Panel declare the work of the Bananas  Article
22.6 arbitrator, and the DSB-authorized suspension of concessions which followed, illegitimate and
illegal, a violation of DSU rules.  According to the EC,
An implicit assessment by the arbitrator under Article 22.6 of the compatibility of a
measure with a covered agreement would usurp the task of a panel under Article 21.5
of the DSU and thus, if an arbitrator were to make such an assessment, the arbitrator
would act ultra vires.227
Yet the Article 22.6 arbitrator in Bananas  concluded that such an implicit assessment of compatibility
was, necessarily, part of its task, and undertook such an assessment.228
39. The aim of the dispute settlement mechanism is "to secure a positive solution" to a dispute;229
it is not to seek repeated justification for a Member's efforts to delay and obstruct the consequences of
its non-compliance with DSB rulings and recommendations, nor to seek the condemnation by one
panel for the work of another for the political benefi ts this might offer.  Having failed before the two
Bananas  Article 21.5 panels, the Bananas Article 22.6 arbitral panel, and the Section 301  panel to
justify its position on the relationship between Ar ticle 21.5 and 22, the EC now comes before this
Panel.  Presumably, if this Panel as well does not accept the EC's reasoning, the EC will ask yet
another panel to ignore or reject this Panel's work.  One hopes for early agreement on appropriate
amendments to the DSU considered in the DSU Review last year, which would completely rewriteArticle 21.5 procedures, so that the Members can formally declare this issue moot and put behind
them once and for all the EC's seemingly unending attempts to justify its delaying tactics in Bananas.
40. The United States will not repeat in full its arguments on why this Panel must not make
findings with respect to Article 21.5 which woul d preempt the DSU Review negotiations, amend or
adopt an interpretation (functions which may be performed only by the Members), or add to or
                                                     
226 U.S. Responses to Panel and EC Questions, paras. 19-20.
227 EC Replies to Panel and US Questions, at 4 (Reply 9).
228 The arbitrator stated:  "we cannot fulfill our task to assess the equivalence  between the two levels
[of nullification or impairment and of the proposed suspension] before we have reached a view on whether therevised EC regime is ... fully WTO consistent."  Article 22.6 Arbitration , para.4.8.
229 DSU Art. 3.7.WT/DS165/R/Add.1
Page 96
diminish the rights and obligations of Members.  Instead it refers the Panel to note 49 of the U.S. First
Submission and paragraphs 19-23 of the U.S. Responses to Panel and EC Questions.
41. Nor will the United States fully recount again the reasoning of the Article 22.6 arbitrator on
this relationship, with which the United States concurs.  This reasoning can be found at paragraphs
4.10-4.15 of the Article 22.6  Arbitration , and is discussed at paragraphs 51-52 of the U.S. First
Submission and paragraphs 32-34 and 37-39 of the U.S. Responses to Panel and EC Questions.  In
summary:  (1) neither Article 22 nor Article 23.2(c) reference Article 21.5 proceedings at all, let alone
as a prerequisite for request for, DSB authorization of, or implementation of, a suspension of
concessions; (2) the EC interpretation would deny effect to the Article 22.6 right to
DSB-authorization to suspend concessions with the benefit of the negative consensus rule, while the
Article 22.6 arbitrator's interpretation would give effect to both Articles 21.5 and 22; and (3) the goal
of multilateral determination of non-compliance is met through an examination of this question by anArticle 22.6 arbitrator of whether the level of nullification or impairment is above zero.
42. Further, as discussed in response to Panel questions 9, 10 and 14, it is not necessary or
appropriate in this proceeding to address the existence or non-existence of presumptions or burdens in
Article 21.5 or Article 22.6 proceedings, since this proceeding is neither.  The panel in the EC'sArticle 21.5 proceeding in Bananas noted, "the issue of whether a claim may be made in a particular
dispute is best left for determination in that procedure."
230  Likewise, the issue of burdens or
presumptions in Article 21.5 and Article 22  proceedings should be left to those proceedings (or to the
Members acting in the DSU Review).  Moreover, as described in response to Question 10, DSU
procedures are adequate to resolve questions rela ting to suspension of concessions following the
reasonable period, without need for the concept of a "presumption" of compatibility or
incompatibility.
43. For the above reasons, the Panel should not make findings on the relationship between
Articles 21.5 and Article 22, nor accept the EC's interpretation of that relationship.  Beyond that,however, there is no need for this Panel to make such a ruling because the EC has done no more than
assert that there has been a violation of Article 21.5, without drawing any tenable link between the
measure -- increased bonding requirements -- and any obligation allegedly found in Article 21.5 to
resort (exclusively) to Article 21.5 proceedings in the event of a disagreement.  Even under the EC's
reading of Article 21.5, the measure that would presumably implicate Article 21.5 would be adecision not to resort to Article 21.5 proceedings in the event of a disagreement on compliance.
However, the measure in this dispute is increased bonding requirements relating to a customs-related
risk, not a decision not to pursue Article 21.5 proceedings.  The EC appears to suggest that anything  a
complaining Member does while an implementation issue is pending violates Article 21.5 if that
Member has not requested and completed Article 21.5 proceedings.  However, the purpose of Article
21.5 is not to provide a club to a non-complying Member to distract attention from its
non-compliance, it is to provide procedures to help resolve disputes.
44. The self-serving manner in which the EC has attempted to wield Article 21.5 is further
highlighted by its response to the Panel's question regarding when an Article 21.5 proceeding should
be requested.  The EC states,
an Article 21.5 procedure cannot be requested before the time of the adoption of theimplementing measure.  Of course, in case of a disagreement on the existence of
measures taken to comply with recommendations and rulings of the DSB it is not
possible to start a 21.5 procedure before the end of the reasonable period of time.
231
                                                     
230 Panel Report on European Communities – Regime for the Importation, Sale and Distribution of
Bananas  – Recourse to Article 21.5 by the European Communities, WT/DS27/RW/EEC, para. 4.16 (12 April1999).
231 EC Replies to Panel and US Questions, at 3 (Reply 5).WT/DS165/R/Add.1
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45. Thus, according to the EC, the complaining party must resort to Article 21.5 procedures if
there is a disagreement over implementation, and can be found in violation of Article 21.5 (at the
discretion of the (non-)implementing Member if it desires to assert this claim),  unless  the
(non-)implementing Member unilaterally determines that the measure does not exist, in which case it
may veto the Article 21.5 procedure.  Hence, the EC considered itself entitled to threaten to block the
adoption of the agenda at the September 1999 DSB meeting at which a request by the complainingparties for an Article 21.5 panel was to be considered, because the EC considered it appropriate for it,
and not the Article 21.5 panel, to decide whether the EC's implementation was ripe for review.
232
Article 21.5 makes the procedure under that article available "when there is disagreement as to theexistence or consistency with a covered agreem ent of measures taken to comply with the
recommendations and ruling."
233  The EC would have the Panel create a one-sided obligation
applicable only to challenging parties and not implementing parties.
46. The Panel should decline to create any such obligation, applicable to either party.  It is simply
not relevant to this dispute given that the m easure in question is a decision to increase bonding
requirements, and nothing in Article 21.5 relates to this.  The EC argues that the March 3 action
suspended concessions or other obligations.  Issues relating to the conditions for suspension of
concessions or other obligations are found in Article 23.2(c), and not in Article 21.5.  The Panel mustreject the EC's attempt to have this Panel condemn the work of the Article 22.6 arbitrator in Bananas .
VI. THE PANEL SHOULD REJECT THE EC'S UNSUPPORTED ASSERTIONS THAT
THE MARCH 3 ACTION WAS UNDERTAKEN PURSUANT TO SECTIONS 305 OR
306 OF THE TRADE ACT OF 1974
47. Just as the EC is attempting to relitiga te issues it lost in connection with the Bananas  panels
and arbitration, it is also seeking to relitigate issues it lost in the panel on Sections 301-310  of the
Trade Act of 1974 .  The EC attempts to attribute to Section 305 and 306 responsibility for the March 3
bonding requirements, in disregard for the conclusions of the Section 301 panel.  The Panel must
reject the EC's groundless assertions, which only serv e to further highlight the EC's political goals in
this case.
48. As described in paragraph 33 and note 33 of the U.S. First Submission and in paragraph 55 of
the U.S. Responses to Panel and EC Questions, the authority for the March 3 modification to bondingrequirements is found in 19 CFR § 113.13.  This provision provides Customs with authority to
increase bonding requirements to address risks associated with particular entries.  The EC provides no
evidence of any U.S. determination or action indicating that the March 3 bonding requirements were
based on or compelled by Sections 305 and 306.
49. The EC argues that October and November 1998 Federal Register notices indicate that
Sections 305-306 somehow forced the United States to adopt the March 3, 1999 bondingrequirements, or that these provisions provided the authority for the requirements.
234  However, the
EC raised the very same arguments concerning the 1998 Federal Register notices in the Section 301
panel proceeding, and the panel rejected them.235   T h e  Section 301 panel concluded as a factual
matter that Sections 305 and 306 provide the U.S. government with discretion to await the completion
                                                     
232 See WT/DSB/M/48 (Minutes of DSB Meeting of 22 September 1999), at 1-2 ("Prior to adoption of
the agenda, the representative of the European Co mmunities ... inquired whether ... item [4 of the agenda
entitled "Recourse to Article 21.5 of the DSU by Ecuador, Guatemala, Honduras, Mexico and the United
States"] had been included on the agenda for information only.  Depending on the answer he would indicate
whether he could accept item 4 to remain on the agenda. " (Emphasis added)).
233 DSU Art. 21.5 (emphasis added).
234 E.g.,  EC Oral Statement, para. 10.
235 See Section 301 , paras. 4.949-4.950.WT/DS165/R/Add.1
Page 98
of WTO proceedings on implementation, even if these proceedings extend well beyond 60 days after
the expiry of the reasonable period.236  In other words, Sections 305 and 306 did not force the United
States to adopt the March 3 bonding requirements, and even this indirect a connection between
Sections 305 and 306 and those requirements cannot be drawn.  The Section 301  panel examined the
factual issues in that dispute in great detail before reaching its conclusions, and this Panel should
reject the EC's attempt to have this Panel summarily reject those conclusions for the purpose ofadvancing the EC's political goals for this dispute.  The March 3 action was not taken pursuant to
Sections 305 and 306, nor was it compelled by these provisions.
VII. CONCLUSION
50. For the above reasons, the United States respectfully requests that the Panel reject the EC's
claims in their entirety, and find that the action taken by the United States on March 3 is notinconsistent with DSU Articles 3, 21.5, 22.6 or 23, nor with GATT 1994 Articles I, II, XI or VIII.
                                                     
236 Section 301 , paras. 7.147, 7.175, 7.181, nn.721, 722, 724.  Among other conclusions, the Section
301 panel noted its agreement with the United States that the U.S. government had discretion to delay any action
decided upon for a total of 240 days following the expiry of the reasonable period, and that this "should besufficient for the USTR to await in all cases the completion of both Article 21.5 and Article 22.6 procedures aswell as DSB authorization to suspend concessions."  Id., n.724.WT/DS165/R/Add.1
Page 99
Appendix 2.6
The US Responses to Additional Questions of Panel
(8 February 2000)
Q32. The following five legal documents seem to be relevant to the Panel's examination:
− relevant statutory provisions providing for the normal procedures for the early release
of merchandise into the US, including thos e authorizing the director of the customs
office to release merchandise into the United  States in advance of liquidation, on the
condition of the lodging of a bond;
− the federal regulation concerning the amount of bonds (US Exhibit 6);
− the Directive Concerning Monetary Guidelines for Setting Bond Amounts (the
"Directive") (US Exhibit 4);
− the Memorandum to Customs Area and Port Directors, CMC Directors from Director,
Trade Compliance Division, US Customs Serv ice, Regarding European Sanction, dated
3 March 1999 (the "Memorandum") (EC Exhibit VIII); and
− the USTR's notification and request , as referred to in the Memorandum.
(a) Please provide the text of the relevant statutory provisions, and the USTR's
notification and request.
(b) Please explain the relationship between  the legal documents enumerated above.
For example, please explain the legal basis on which the Director of the TradeCompliance Division issued the Memo randum to the customs area and port
directors, and the Memorandum overrode the Directive in respect of the amount
of bonds required for EC products on list, thus binding on the customs area and
port directors.
(c) Please briefly explain the ordinary bonding mechanism to help the Panel better
understand what happened as of 3 March 1999.
1. The relevant statutory and regulatory sections are provided in U.S. Exhibit 11, and the USTR
letter to Customs in U.S. Exhibit 12.  The statutory provisions include 19 U.S.C. §§ 1484, 1504 and
1623.  The regulatory sections include 19 CFR §§ 142.4 and 142.12.
2. The statute and regulations do not refer to "early release" as such.  Rather, they provide for
release of merchandise upon filing of a bond and proper documentation, and for liquidation within a
year of entry for consumption (19 CFR § 142.4(a) & 19 U.S.C. § 1504).  Thus, the importer canobtain early release by Customs merely by submitting a bond and filing proper documentation.  By
way of comparison, a system not providing for "early release" would condition release upon final
determination and payment of all duties, taxes and charges.  This can takes weeks or months, which is
why obtaining the release of imported goods in many countries which do not have a surety system or
similar type of procedure can often be a lengthy process.
3. The legal basis on which the Memorandum was issued was 19 CFR § 113.13.  This regulation
provides port directors with authority to require additional bonding or additional security to ensure
that the acceptance of an entry will be adequately protected against any duties or other liabilities
imposed by law.  This discretionary authority may be exercised at any time when Customs becomesWT/DS165/R/Add.1
Page 100
aware of a risk that normal bonding requirements will be inadequate.  USTR had informed Customs
of this risk, and the Memorandum then conveyed this information to the port directors.
4. It is not accurate to describe the Memorandum as "overriding" the Directive in U.S. Exhibit 4
in respect to the amount of bonds.  To the contrary, the Directive itself explains on page 3 that
standard bonding amounts are to apply to entries,
unless any district director is aware that either extraordinary circumstances or a
greater risk to the government  is involved.  When such extenuating circumstances are
involved, the district director with such knowledge shall contact the district where the
bond is filed and convey the supporting facts so that appropriate action, if required,
can be taken.  For example:  when th e amount of a continuous bond does not cover
the duty on a particular shipment and the district director suspects that a greater risk
to the government is involved , the district director shall:
1. secure, at the time of release, deposit of the estimated duty due on the
shipment, or,
2. request a single entry bond for that shipment, or
3. request that a new continuous bond in a higher amount be filed.237
5. The Directive thus makes clear that, in the ordinary course of Customs operations, and in the
exercise of its regulatory authority under 19 CFR § 113.13,238 it may be necessary for Customs to
adjust the bonding requirements for particular entries because of particular risks associated with those
entries.  The particular risk associated with the entries affected by the Memorandum was that the DSB
might authorize higher duties with respect to those entries, and Customs might be unable to collect
such duties from importers.  The letter from USTR and the Memorandum respectively informedCustoms and its port directors of the risk, and indicated that the appropriate response would be
changed bonding requirements (options 2 and 3 above).
6. With respect to the operation of the ordinary bonding mechanism, as discussed in previous
submissions, importers obtain bonds from private surety companies.  The importer presents the bond
at the time of formal entry for consumption in order to obtain Customs' release of the merchandise.Importers using a continuous bond which has already been filed with Customs merely refer to the
bond in their Customs documentation.  On March 4, as a result of the modified bonding requirements,
importers wishing to use their continuous bonds had to provide a statement to the port director that
these continuous bonds were sufficient to meet the modified requirements.  Some importers chose to
provide the statement.  Others chose to employ single transaction bonds for entries of listed products,rather than reviewing the adequacy of their continuous bonds.  Customs did not undertake an entry-
by-entry review of continuous bonds to ensure that they met the new requirements.
Q33. The Directive indicates that "[t]he purpose of the bond is to protect the revenue and
ensure compliance".  (para. 3.B)   The "Guidelines for Determining Amounts of Bonds" (the
"Guidelines") attached to the Directive indicate s that the amount of a continuous bond shall be
determined on the basis of not only applicable tariffs, but also "taxes and fees".  (Section
"Activity 1 – Importer or Broker - Continuous," paragraph a, page 4)
(a) Please explain whether it is possible to legally distinguish part of a continuous bond that
is to guarantee the payment of tariffs, from the remaining part which is to cover "taxes
and fees" and to "ensure compliance" with applicable laws and regulations. For
                                                     
237 U.S. Exhibit 4, page 3 (emphasis added).
238 See U.S. Exhibit 4, page 1, 3.A ("The amount of the bond shall be set by utilizing information on
the bond application prescribed in Section 113.12, Customs Regulations (CR), in conjunction with the criteria
set forth in Section 113.13 CR, and the guidelines attached to this Directive.").WT/DS165/R/Add.1
Page 101
example, can the whole amount of a bond required for the early release of a given
import be forfeited in order to cover fees (if the actual amount of fees exceeds its amount
estimated at the time of determination of the amount of the bond) or any penalty or
financial obligations arising from a violation of relevant laws or regulations?  If not
distinguishable, please explain whether such covered fees (or any other financial
obligations than tariffs and taxes) are to be  collected in return for "services rendered to
imports" within the meaning of GATT Article VIII (assuming for the sake of argument
that the bonding requirements are deemed to  impose "charges" on imports within the
meaning of Articles II and VIII).
7. It is not possible to legally distinguish part of a continuous bond that is to guarantee payment
of tariffs from that covering taxes and fees and ensuring compliance with applicable laws and
regulations.  In the event of non-payment of either duties, taxes or fees, or in the event of non-
compliance with laws and regulations giving ri se to liquidated damages, Customs would have
recourse against the bond up to the amount owed for the non-payment or non-compliance, or the full
amount of the bond, whichever is less.  Recourse would not be limited to some percentage of the bond
amount.
8. While we do not agree that bonding requirements are charges, if, for the sake of argument,
they were, they would be commensurate with the cost of services rendered, regardless of the fact thatthey are intended to cover financial obligations other than tariffs and taxes.  As explained in the U.S.
Second Submission,
239 the service rendered to the importer is the early release of the merchandise,
without delaying release until the amount of duties, taxes or fees are finally determined and paid, and
until it has been definitively determined that other obligations have been met.   The cost to Customs is
the risk that it will be unable to collect any amounts owed by importers if they do not depositestimated duties, taxes and fees, if finally assessed duties, taxes and fees differ from those deposited,
or if the imported goods do not meet other agency requirements.  This risk is present because the
merchandise will already have been released before estimated duties, taxes and fees have been
deposited, and before the full amounts owed are finally determined; there is thus no recourse against
the merchandise if the importer refuses to pay.  The amount of the risk (the cost to Customs) relates tothe full amount which might be due, which includes more than just duties.  Thus, the EC is incorrect
when it asserts, "The amount of any surety deposit is  determined by the anticipated duty liability and
entirely depends on it."
240  The amount of the surety deposit is in fact determined by the level of risk,
which depends not only on the anticipated duty liability but on the full amount of all liabilities (taxes,fees, liquidated damages) which might accrue.
241
9. The question asks whether "covered fees" or other financial obligations are collected in return
for "services rendered to imports."  This would depend on the fees in question, and cannot be
answered in the abstract.  With respect to financial obligations in connection with other agency
obligations, this too would depend on the specific obligation.  Such fees and other obligations are not
themselves at issue in this dispute.  Nor are the normal bonding requirements which ensure payment
of these fees and other obligations.242  The measure in question only includes the changes to bonding
requirements made on March 3 in connection with the possibility that higher duties might be assessedon certain products from EC countries.  The Panel's findings on Articles II and VIII should be limited
                                                     
239 U.S. Second Submission, n.39.
240 EC Second Submission, para. 9 (emphasis added).
241 Likewise, as described in note 29 of the U.S. Second Submission, it is our understanding that the
United Kingdom employs a surety system with respect to "high risk" merchandise such as tobacco and alcohol.
This provides a good example of the fact that the risk extends beyond the mere duty owed.
242 While not at issue in this dispute, we note that  the Kyoto Convention provides that the importer may
be required to furnish security to ensure compliance with undertakings to Customs.  See U.S. Exhibit 9, Kyoto
Convention, Annex B.1, 59-62.WT/DS165/R/Add.1
Page 102
to this measure, and made only if necessary to resolve this dispute.  Our view, again, is that bonding
requirements are not "other charges."
(b) Can the same apply to a single transaction bond, in particular, that in case where the
bond in the amount of three times the entered value of imports, for example, because
they are subject to any administrative requirements imposed by the Food and Drug
Administration?
10. Again, neither the penalties imposed for failure to comply with health and safety laws nor the
bonding requirements normally in place to ensure compliance are within the terms of reference of this
dispute.  Only the changes to bonding requirements made on March 3 are within the terms of
reference.  Single transaction bond requirements applicable to products subject to other agencyrequirements, such as those of the FDA, did not change as a result of the March 3 action.  Having said
that, we note that the Kyoto Convention provides fo r customs authorities to require security to ensure
compliance with undertakings and the payment of penalties for non-compliance, in order thatmerchandise may be released early.
243
Q34. Can importers normally choose between a continuous bond and a single transactionbond for a given entry, at their discretion?  Please provide your statistics or estimate on the
percentage of imports (those from the EC and all imports) which were covered by continuous
bonds rather than single transaction bonds before 3 March 1999.
11. Importers may normally choose between continuous bonds and single transaction bonds, at
their discretion.  It has not been possible in the time provided to collect data on the percentage of
imports covered by continuous and single transaction bonds.  We hope to have this data shortly.
Q35. Paragraphs 3 and 4 of the US Responses to Panel and EC Question, dated 13 January
2000 indicates that the amount of a continuous bond for non-EC products on list was "10% of
the duties, taxes and fees paid by the importer  of record for all products during the calendar
year preceding the date of the bond application," while that for EC products on list was "10%
of the entered value of the covered mercha ndise which the importer imported during the
previous year."  Please confirm whether the total amount of "the duties, taxes and fees paid by
the importer ¼ for all products ¼" is smaller than "the entered value of the coveredmerchandise".
12. This would depend on the circumstances of the particular importer.  For example, if the
covered merchandise represented only a small proportion of the products imported during the
previous year, it is possible that the duties, taxes and fees on all products might exceed the entered
value of the covered merchandise included among those products.  To clarify further, with respect tocontinuous bonds Customs gave importers of the covered merchandise the option of providing a
statement that their existing continuous bonds met the new requirements, or employing single
transaction bonds for the covered merchandise.  Importers choosing to supplement their existing
bonds to meet the new requirements did so by increasing the bond value by an amount equal to 10%
of the entered value of covered merchandise included in the merchandise for which the bond was
originally calculated.  In other words, if the continuous bond had been calculated based on entries
during the previous year valued at $1,000,000, and $50,000 of this was covered merchandise, thecontinuous bond would be supplemented by $5,000 ( 10% of $50,000).  A typical amount which a
private surety might charge for this additional coverage would be approximately $50 - $100 (based on
a rate of $10-20 per thousand dollars of bond value, as described in paragraph 29 of the U.S. Second
Submission).
                                                     
243 U.S. Exhibit 9, Kyoto Convention, Annex B.1, 60, n.2, 62.WT/DS165/R/Add.1
Page 103
Q36. Please provide the Panel with the bindings (y ou provided the Panel with only the applied
tariffs) of all listed products on 3 March.
13. The rates provided in U.S. Exhibit 7 are the bound, as well as applied, rates.
Q37. To the EC's question "Assuming that an  importer wished to clear through the US
customs on 4 March 1999 a tonne of 'Uncoated felt  paper and paperboard in rolls or sheets' (US
HTS 4805 50 00) originating in Switzerland, what would have been the duty liability for suchimport on that date?  What would be the answer  if such a product originated in the EC?," the
US answer was that the duty liability would have been based on a "free" rate of duty.  Please
provide the Panel with an intelligent explanation of the consequences of the 3 March decision on
EC imports of listed products, such as the "Uncoated felt paper and paperboard in rolls or
sheets" in comparison with a situation where the same imported products would come from
Switzerland.
14. The duty liability as of March 3 would have been zero, regardless of whether the product
originated in Switzerland or an EC member State.  The March 3 decision had absolutely no
consequences for the duty liability; it only affected the bonding requirements.  As noted in the U.S.
Answers to Panel and EC Questions,244 with respect to all products listed on March 3, in the absence
of further action on April 19, each and every product would have been liquidated at the MFN, applied
(and bound) rate.  Because the April 19 action specified that duties were to increase for "uncoated feltpaper and paperboard in rolls or sheets," entries of this product from EC countries are being liquidated
at the rate of 100%.
Q38. In paragraph 5 to the US Responses, the US  seems to conclude that products on the list
could be imported into the US only upon the submission of a "single transaction bond" in the
amount of "the entered value of the merchandises", while the products not on the list could beimported subject to more requirements, i.e. upon the submission of a single transaction bond in
the amount of "the entered value of the mercha ndise plus any duties, taxes and fees for the
entry".  Is the US stating that as of 3 March  1999 the EC listed products benefitted from
positive discrimination vis-à-vis  other imports of like products from other WTO Members?
15. The single transaction bond amount for listed products was, in fact, less than that for non-
listed products.  This was intended to minimize the burden on importers wishing to employ single
transaction bonds rather than amending their c ontinuous bonds.  Importers which normally would
have employed single transaction bonds were, in fact, subject to lower bonding requirements, except
for importers of listed products subject to ot her agency requirements, for whom the bonding
requirement was three times the entered value.  This requirement was unchanged by the March 3action.
Q39. The official USTR notification (EC Annex VII) entitled "UNITED STATES TAKES
CUSTOMS ACTION ON EUROPEAN IMPORTS" provides that "¼effective today, the US
Customs Service will begin 'withholding liquidati on' on imports valued at over $500 million of
selected products from the European Union (EU), consistent with US rights under the WTO
Agreements.  Withholding liquidation imposes contingent liability for 100% duties on affected
products as of March 3, 1999"
                                                     
244 See U.S. Answers to Panel and EC Questions, paras. 10, 60; see, also, U.S. Second Submission,
para. 9.WT/DS165/R/Add.1
Page 104
Throughout its answers to the Panel's questions the US repeated that on 3 March 1999, no
action with regard to "withholding or suspension of liquidation" took place.  Does the US imply
that as of 3 March duties on imports of listed products were indeed "liquidated" and that duties
were effectively collected as of 3 March?
16. The United States wishes to clarify that Exhibit 7 is a press release, with no legal status under
U.S. law.  The press release's reference to "withholding liquidation" in fact is a non-technical orcolloquial reference to the understanding that these entries would not be liquidated outside the normal
314-day liquidation cycle.  This does not mean that duties were either "liquidated" or "effectively
collected" on March 3.  As explained in prior submissions, liquidation (the final determination of
duties, taxes and fees) takes place between 314 days and one year after entry.  At the time of
liquidation, Customs has completed the process of confirming the correct amount of the duties, taxes
and fees due for a given entry (including analysis of matters relating to this such as classification and
valuation).  If there is a difference between the estimated duties, taxes and fees deposited at entry andthe finally determined duties, taxes and fees, the difference is either collected or refunded.
17. For entries between March 3 and April 19, Cust oms would, at liquidation, review the entries
of the listed products.  For products not listed on April 19, liquidation has and will occur at the
entered (MFN) rate, and no further collections or refunds are necessary to supplement the MFN duty
deposits provided at entry.  For products listed on  April 19, the correct duty rate for the entry would
have been 100% of the entered value, based on the DSB authorization and the April 19 action, and the
difference between estimated duty deposits at the MFN rate and the higher duty amount would be
collected.  Customs would have recourse against bonds for those importers not paying the difference.
18. The March 3 bonding requirements imposed no liability, effective or otherwise.  They merely
reduced the risk that Customs would not be able to collect additional duties if any such duties were
imposed as a result of – and after – DSB authorization.  In the absence of the April 19 action, each
and every entry subject to changed bonding requirements would be liquidated at the entered,
MFN rate – precisely because no liability was imposed on March 3.
Q40. USTR official notification of its 3 Ma rch decision anticipates a future event, the
arbitrators decision, that would then lead to  the US collecting 100% duties on selected EC
products: "The United States will refrain from collecting higher duties until the release of the
arbitrators' final decision.  When the arbitration is complete, the US will assess 100% duties on
selected products imported as of 3 March as nece ssary to offset the harm to the US interests as
determined by the arbitrators".  How does th e US assess the legal relationship between the
3 March decision and the eventual decision of the arbitrators?
19. As explained in response to question 39, EC A nnex VII is a press release with no legal status
under U.S. law.  It is not an "official notification. "  Its statement that the United States would assess
100% duties as determined by the arbitrators was merely descriptive of the arbitral process and the
intentions of the United States in response to that process.  If the arbitrators had determined that the
appropriate level of suspension was zero, the United States would have taken no action on April 19 to
assess 100% duties on any entries.  In the absence of such action, each and every entry between
March 3 and April 19 would have been liquidated at the entered, MFN rate.  In the actual event, thearbitrators determined a level of suspension which the United States implemented through the April
19 action.  As described in response to previous questions, the March 3 action did not assess any
additional duty liability, nor did it result in the collection of higher duty deposits.  It only changed the
bonding requirements on certain entries in response to the risk that DSB-authorized higher duties
might not be paid for these entries.WT/DS165/R/Add.1
Page 105
Q41. In paragraph 60 the US Responses, the US states "Had no further action been taken on
19 April 1999, each and every entry of a product subject to the revised bonding requirements
would have been liquidated at these rates" (see also paragraph 9 of the US Rebuttal
Submission).  What action exactly was taken on 19 April and what is the legal relationship, if
any, between the 3 March decision and the 19 April action referred to by the US and what are
the legal consequences of the 19 April 1999 decision?
20. On April 19, following DSB authorization to suspend concessions, the port directors were
instructed to assess 100% duties on products included in a list issued on that date.  As a result, for
entries from April 19, 100% duty deposits were required at the time of entry.  At liquidation, such
duties would be assessed.  For entries between March 3 and April 19 of products listed on April 19,
Customs would, at liquidation, collect the difference between MFN duty deposits and the 100% duties
assessed.  Entries between March 3 and April 19 of products not listed on April 19 were unaffected by
the April 19 action.  They would be liquidated at the entered, MFN rate.  There was no legalrelationship between the March 3 action (changed bonding requirements) and the April 19 action
(increasing the duty rate for certain products).
Q42. If the 19 April action had not taken place, or  if for the sake of arguments, the decision of
the arbitrator had been that the EC new Bananas measure did not nullify nor impair the US
rights, when would the importer of listed products get their bonding requirements reduced?When did the importers of products included on the 3 March list but not on the 19 April list, get
their bonding requirement reduced? were they offered any compensation for the increased
bonding requirement?
21. In fact, the United States restored bonding requirements to normal levels for products not
included on the final list on April 14, shortly after the arbitrators completed their work and a revisedlist was prepared.  The arbitrator's decision eliminated the additional risk that higher duties would be
applicable to these particular products (and that importers might not pay).  From April 19, the bonding
requirements returned to normal levels for the re maining products, since entries of these products
from that date were subject to 100% duty deposits, thereby reducing to normal levels the risk that
these deposits would be inadequate.
245  Thus, regardless of the decision which the arbitrators might
have reached, bonding requirements would have changed to normal levels following that decision.
Inasmuch as importers made no additional payments to the government in connection with the
changed bonding requirements, there were no refunds to be made.  We are unaware of what
arrangements might have been made between the importers and the private surety companies.
Q43. What happened exactly to the importers of cookies (EU 13 HS 34060000) as of 3 March
1999 and as of 20 April 1999 with regard to all entry requirements into the United States?  Have
duties on imports of cookies in March been liqui dated?  And if so how much duty was collected
on such items?
22. Importers of cookies, HS19053000, (and candles, HS3406000) were, from March 4, subject
to the bonding requirements described in response to question 2.246  For cookies, the single transaction
bonding requirement was unaffected by the March 3 action since this product was subject to health
and safety requirements.  The bonding requirement remained unchanged at three times the enteredvalue of the product.  (For candles, the single entry bonding requirement changed from the entered
value plus duties, taxes and fees, to the entered value.)  On April 14, the bonding levels for cookies
(and candles) returned to normal levels.  No other entry requirements changed for these products as a
result of either the March 3 or April 19 actions.
                                                     
245 See U.S. Second Submission, para. 11.
246 See U.S. Responses to Panel and EC Questions, paras. 3-5.WT/DS165/R/Add.1
Page 106
23. Attached at U.S. Exhibit 13 is a copy of Customs form 7501, the entry summary.  This
document is completed by importers and submitted with the estimated duties at, or shortly after, the
time of entry.  The importer indicates in column 34 the applicable duty rate.  An importer of cookies
or candles, regardless of source, would have indica ted "zero" in this column.  Customs would have
accepted this document as accurate, and, because the rate of duty was zero, would not have required
the deposit of estimated duties.  Further, Customs would have liquidated the entries of these products
at the entered rate of zero because nothing would have occurred between the time of entry and
liquidation to indicate that this rate should be other than zero.  The April 19 action changed this rate
for certain products -- but not for cookies or candles and the other products omitted from the April 19
list.
24. Data on liquidated duties collected for products on the March 3 list is provided in Exhibit 14.
Some liquidations have occurred.  An explanation of Exhibit 14 is provided in response to
question 45.  For cookies and candles, any such liquidations would have been, and will be, at theMFN, entered rate – zero.
Q44. Have the tariffs on "Hand Bags (HS 4 2023210)" imported into the US in March 1999
been liquidated?  And if so what is the value of th e duties so far collected on these items?   Is the
collection of duties for these product dating back to 3 March?
25. Data on liquidated duties collected for products on the March 3 list is provided in Exhibit 14.
Some liquidations have occurred.  An explanation of Exhibit 14 is provided in response to
question 45.  The duties assessed would be 100% for this product, including entries dating back to
March 3, as a result of the actions taken on April 19.
Q45. Could the US provide the Panel with the product-by-product data on the amount of
duties collected on all listed imports as of 3 March for which duties have been liquidated?
26. Data on duties collected is provided in U.S. Exhibit 14.  Customs records data for liquidated
duties for entries, rather than products included on those entries.  An entry may have included one or
more listed products; it may also have included one or more non-listed products.   As a result, it is not
possible to provide the precise amount of liquidated duties collected for the products in question.Rather, Exhibit 14 provides information on the estimated duties collected for each product at, orshortly after, the time of entry.  These estimated duties were at the MFN rate for all products on the
March 3 list, since the March 3 action did not affect duty liability.  Exhibit 14 also includes the total
estimated duties collected for entries which included the listed products.  Because these entries
included other products, the total estimated duties collected for the entries which included the listed
products is higher than the estimated duties collected for the listed product.  Finally, Exhibit 14includes the liquidated duties collected for entries which included the listed products.  Where the
liquidated duties for the entry precisely equals the estimated duties collected for the entry, this
confirms that the liquidation occurred at the entered, MFN rates.  Where these amounts are different,
this may be attributable either to the fact that the entry included other products for which the duty
changed as a result of the April 19 action, or it may, for example, be attributable to the fact that other
products included in the entry were misclassified or misvalued.  Thus, for the products omitted from
the April 19 list, the total liquidated duties for the entries equaled the total estimated duty deposits forentries including pork and cheese, were slightly higher or lower for entries including plates and
sweaters, and were higher by varying degrees for entries including sweet biscuits and candles.
Products included on the final list indicate liquidated duties by entry higher than the estimated duties
by entry in all cases.WT/DS165/R/Add.1
Page 107
Q46. Why was the "risk" - to which the US refer s as a justification for its 3 March increased
bonding requirement and which relates to the possibility of an arbitration award that would
conclude that the new EC measure still nullifie s and impairs the US WTO, different on 2 March
than on 3 or 4 March?
27. In fact, the risk that existing bonds would be inadequate to ensure payment of DSB-
authorized higher duties existed from the conclusion of the reasonable period of time, since the ECwould be liable from that point for its failure to  comply with its WTO obligations, subject to DSB
authorization.  This risk heightened from March 3 because the Article 22.6 arbitrator in Bananas
rejected the EC's argument that the arbitrator lacked  jurisdiction to proceed with its examination of the
level of nullification or impairment, reached decisions on certain methodological issues, and indicated
that it would focus more intensively on determining the level of nullification or impairment (once the
EC provided information it had previously refused to submit).
247  Moreover, the EC's own statements
confirm that it anticipated that this level would be above zero, i.e., that it knew its allegedly "new"measure would continue to violate the EC's WTO obl igations.  As described at paragraph 29 of the
U.S. First Submission, External Relations Commissioner Sir Leon Brittan stated following the March
2 initial decision that the arbitrators' request to the United States for a new damage estimate meant
that the WTO arbitrators would likely find that damages amounted to between $200 and $300
million.
248  More blunt were the comments of Industry Commissioner Bangemann, who admitted that
while he had been forced to defend the EC's position, it was groundless.249  These factors, in
combination, indicated an increased risk that th e DSB would, ultimately, authorize higher duties.
Q47.  In paragraph 55 of the US Rebuttal Submission, the US wrote that "USTR informed
Customs of this risk".  Can the US provide the Panel with a copy of such communication
between USTR and Customs identifying and defining such risk and any other relevantinstruction.
28. Please see U.S. Exhibit 12.
Q48. The United States argues in paragraph 35 of its Rebuttal Submission that "assum[ing]
for the sake of argument that ¼ the March 3 bonding requirements impose a 'charge' under
Article II or VIII, these bonding requirements cannot, by definition, be subject to Article XI¼."Please further elaborate the distinction between the scope of Article II and VIII, and that of
Article XI, keeping in mind the bonding requirements in question.
29. Beyond the explanation provided in paragraph 35 of the U.S. Second Submission, the United
States notes again that the March 3 bonding requirements did not involve any payments to or charges
by the United States government.  Importers were required to provide evidence that they obtainedeither single transaction bonds or continuous entry bonds (or provide a guarantee through a cash
deposit in lieu of surety on a bond) for the entry or entries in question.  Such bonds are obtained from
private surety companies.  Customs authorities typically impose several documentation and other
requirements.  Such requirements do not become "charges" merely because there may be costs
associated with them.
30. The EC has cited the GATT dispute on Minimum Import Prices (MIPs)
250 as supporting its
view that the March 3 changes to bonding requirements should be considered "other charges."251  The
MIPs dispute involved the lodging of two separate securities which guaranteed that importations
                                                     
247 See Article 22.6 Arbitration,  paras. 2.11, 3.1-4.15, 6.27.
248 See Inside U.S. Trade, March 12, 1999, at 3.
249 See U.S. First Submission, para. 29 & n.29.
250 GATT Panel Report on EEC – Programme of Minimum Import Prices. Licenses and Surety
Deposits for Certain Processed Fruits and Vegetables (MIPS), adopted 18 October 1978, BISD 25S/68.
251 E.g., EC Second Written Submission, para. 16.WT/DS165/R/Add.1
Page 108
would be made in accordance with importer undertak ings and that importations of tomato concentrate
would be made at, or above, a minimum import price.  The securities would be forfeit if the
importations were not effected or if the prices for tomato concentrate were below the minimum import
price.252   The EC fails to mention the MIPs  panel's conclusion that the provisions providing for
forfeiture of these securities were not considered other charges subject to Articles II and VIII, since
they were either a penalty for not fulfilling oblig ations or a mechanism for enforcing the minimum
import price system.253  The sureties at issue in this disput e are enforcing the importer's obligation to
pay duties, and thus should not be considered "other charges" under Articles II and VIII.   In addition,
the MIPs  panel examined interest charges and costs in connection with the securities at issue in that
dispute.  It is not clear from the MIPs  report whether these charges were collected by governmental
authorities.  If so, the MIPs  conclusions would not be applicable here, since the U.S. government
charges nothing for the bonds it requires.  Moreover, the EC fails to mention the MIPs  panel's
findings that even though these interest charges and costs were "other charges," for one of thesecurities they were quite small, and "commensurate with the cost of services rendered."
254  To the
extent that the Panel considers that charges by priv ate sureties would be "other charges," they too are
quite small, and should be considered commensurate with the cost of services rendered.  As described
in paragraph 29 of the U.S. Second Submission, a typical charge by a private surety would be $3.50
per thousand dollars of bond value for single transaction bonds and $10-20 dollars per thousanddollars of bond value for continuous bonds.  However, it would be troubling precedent for a panel to
review the price charged by private entities for the services rendered by those entities.
Q49. In claiming that the inc rease in the amount of a required security was to cover 100%
tariff which might eventually be due (after the arbitration panel has completed is work), the US
appears to assume that the applicable obligation , in the form of tariffs, can change after the
entry of a listed product into the customs territory of a WTO Member.  Is this retroactive
change of the applicable law and applicable  obligation, acceptable in international law?
31. As an initial matter, we note that the March 3 action did not itself change the duty rate
applicable to entries from March 3.  It merely changed bonding requirements for these entries.
32. As the EC observes in its second submission, the duty liability for a given product is that on
the date of importation.255  However, it is not always the case that the duty applicable for the date of
importation is that anticipated on that date.  For example, if an importer misclassifies a product on
importation, it may be some time after importation that customs authorities or the importer recognize
the misclassification, and change the duty rate accordingly.256  Likewise, an error in valuation of a
product could result in a higher duty liability than that anticipated at the time of entry, and this mightnot be discovered, and changed, until sometime after entry.  An importer is thus not always entitled to
pay the duties it thought were due at the time of entry.
33. Likewise, in antidumping investigations, there may be instances in which duties might be
applied to past entries based on a decision made some time after entry.  Article 10 of the Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the
Antidumping Agreement) provides for the imposition of duties from the date of imposition of
provisional measures following final determinations of dumping and injury (Article 10.2).  Further,antidumping duties may be imposed on entries made even prior to the application of provisional
measures (that is, before even preliminary determinations of dumping and injury have been made)
under specified circumstances (Article 10.6).
                                                     
252 MIPs , para. 2.6.
253 MIPs,  paras. 4.7 and 4.16.
254 MIPs , paras. 4.2, 4.6.
255 EC Second Submission, para. 12.
256 In fact, it is our understanding that customs authorities of EC member States can reclassify and
thereby apply higher duty rates to goods for up to three years after such goods have been entered.WT/DS165/R/Add.1
Page 109
34. As discussed at paragraph 38-42 of the U.S. Fi rst Submission and paragraphs 16-18 of the
U.S. Answers to Panel and EC Questions, the context and purpose of the provisions on suspension of
concessions make clear that this date may fall at any time after the expiration of the reasonable period.
DSU Article 22.7 states only that the request for suspension must be consistent with the arbitrators'
decision.257  Article 22.1 is clear that the suspension of concessions or other obligations is available
"in the event that the recommendations and ruling s [of the DSB] are not implemented within a
reasonable period of time."  The purpose of the reasonable period of time -- to provide a grace period
for a Member to bring itself into compliance with out consequences -- in its very enunciation implies
that the consequences of non-compliance accrue from the conclusion of that period.  Likewise,
compensation under Article 22.2 is available from the end of the reasonable period, and it would only
encourage delay, and discourage agreements on compensation, if liability for suspension of
concessions were delayed after that point.
35. Thus, WTO rules provide both in the context of suspension of concessions and otherwise that
the duty applicable on the date of entry may not be that anticipated on that date.  Looking beyond
WTO rules, as noted in paragraph 27 of the U.S. Second Submission, the Kyoto Convention, like the
WTO Customs Valuation Agreement, encourages the early release of merchandise, and permits the
adoption of surety systems to ensure compliance with regulatory undertakings, as well as to ensure
collection of any additional  import duties and taxes that might become chargeable.258  Thus, the
Convention explicitly contemplates that, as a necessary consequence of the early release of
merchandise, it might become necessary to impose bonding requirements to ensure collection of
duties beyond those for which an importer might be liable based on information at the time of entry,
and which might become due as a result of events subsequent to entry.  In this way, the Kyoto
Convention as well makes clear that the duties ultimately assessed may exceed those anticipated at thetime of entry.
                                                     
257 Article 22.7 provides, in relevant part, "The DSB shall be informed promptly of the decision of the
arbitrator and shall upon request, grant authorization to suspend concessions or other obligations where the
request is consistent with the decision of the arbitr ator, unless the DSB decides by consensus to reject the
request."
258 Kyoto Convention , Annex B.1, 59-61.WT/DS165/R/Add.1
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Appendix 2.7
The US oral presentation on matters relating to the scope of this dispute
at the Second Substantive Meeting
(9 February 2000)
1. Mr. Chairman, Members of the Panel, the United States appreciates this opportunity to
address the EC's attempt to mischaracterize the measure in question and the terms of reference of this
dispute.  Mr. Chairman, the United States has asked the Panel for a preliminary ruling on this issue.  A
preliminary ruling is important for the United States – as well as the EC – to know what measures are
at issue in this Panel proceeding so that the parties can direct their evidence and arguments to claims
within the Panel's terms of reference, and not burd en the Panel with material that goes to claims
outside those terms of reference.  We are now at the second meeting of the Panel.  The writtensubmissions have all been filed, the oral statements all prepared.  This is the last opportunity to
respond to arguments.  If the United States does not know at this meeting which measures the Panel
considers to be before it in this proceeding, how can the United States be expected to have an
opportunity to respond?
2. In its January 24 letter, the EC asserts that the U.S. request for a preliminary ruling on the
measure at issue is untimely.  However, the timing of the U.S. request has been a function of the
timing of the EC's own attempt to expand the terms of reference.  Recognizing that the actions taken
on March 3 were limited to bonding, the EC for the fi rst time in its statement at the first substantive
meeting attempted to recast the scope of this proceeding.  It would be unfair and a denial of due
process to preclude the United States from responding and seeking clarification as to the measures atissue.  Beyond this, questions concerning the terms of reference can, and should, be raised at any time
in the dispute settlement process, since they are jurisdictional in nature and relate to a Panel's
competence to consider a measure.  In India - Patent Protection for Pharmaceutical and Agricultural
Chemical Products (19 December 1997, WT/DS50/AB/R, para. 92), the Appellate Body found that
the parties could not agree to jurisdiction over a claim that was not in the panel request.  TheAppellate Body stated:
The jurisdiction of a panel is established by that panel's terms of reference, which are
governed by Article 7 of the DSU.  A panel may consider only those claims that it
has the authority to consider under its terms of reference.  A panel cannot assume
jurisdiction that it does not have.
3. Mr. Chairman, DSU Article 4.2 provides for consultations on "measures . . . taken," while
DSU Article 4.7 provides that a complaining party may request the establishment of a panel if the
consultations on that measure fail to resolve the dispute.  The basic principle that a measure must have
been taken before it may be subject to a consultation request and subsequent panel proceedings is
fundamental to the WTO dispute settlement process.  We do not think the EC disputes this,
particularly in light of the vehemence with which it refused the request by the complaining parties in
Bananas to convene an Article 21.5 panel on this basis.  As we have noted elsewhere, the EC went so
far as to threaten to block the agenda of the September 1998 DSB meeting rather than see the DSB
authorize the formation of a panel on what the EC considered a measure not yet taken.
4. The EC submitted its consultation request on March 4, 1999, the day following the U.S.
announcement of its decision to change bonding requirements.  Obviously, the consultation requestcould not, and so did not, include any measures taken on April 19.  Moreover, at the consultations the
United States made clear that the April 19 actions were not within the scope of the consultations, and
there were no consultations on them.  We assume that the EC officials at the consultations informed
their counterparts responsible for this Panel proceeding as to what transpired at the consultations.  As
the U.S. actions taken on April 19 following DSB authorization to suspend concessions were notsubject to a consultation request or consultations, th e EC's panel request could not have covered them.WT/DS165/R/Add.1
Page 111
Nevertheless, the EC is attempting to draw the actions of April 19 into the scope of this proceeding,
based on its late appreciation that the March 3 action involved nothing more than changes to U.S.
bonding requirements.
5. The March 3 action in no way affected duty liabilities.  Any duty deposits for products
imported from March 3 to April 19 were made at the MFN, bound rates.  The only change in the entry
procedures for these importers was the modified bonding requirements.  As with normal bondingrequirements, the changed bonding requirements did not entail any payment to the government.  Nor
did these bonding requirements alter in any way th e ultimate duty liability, notwithstanding the mere
assertions to the contrary by the EC.  In the absence of the April 19 action, each and every entry
subject to increased bonding requirements would have been liquidated at the entered, MFN rate.
6. The EC asserts in paragraph 7 of yesterday's responses to questions that it "is not convinced"
that the March 3 action did not increase any duty liability.  However, as explained by the Appellate
Body in Shirts and Blouses, the burden of demonstrating a fact lies with the party asserting it.  Mereassertions do not suffice.  The EC has merely asserted that the bonding requirements increased duty
liability, with no explanation of how this would be the case under U.S. law.  The United States is
confident that it has a better grasp than does the EC  regarding the operation of U.S. law, and the EC is
simply wrong.
7. The EC incorrectly theorizes that it could draw into the scope of this dispute actions of April
19, even though they could not have been subject to a March 4 consultation request, by claiming that
its panel request refers to the April 19 action as confirming the duty liability imposed on March 3.
Again, however, there was no duty liability imposed on March 3, and so it could not have been
"confirmed."  Even this theory fails.
8. In its January 24 letter, the EC also argues that because it included the list issued on April 19
as an attachment to its panel request, the April 19 actions are within the terms of reference.  However,
the inclusion of this list cannot cure the fact that the EC's March 4 consultation request could not have
included measures not yet taken.  Moreover, the inclusion of this list cannot cure the fact that in the
EC's panel request, the only reference to the April 19 action is that just mentioned – namely, that this
action allegedly confirmed a non-existent liability said to have been imposed on March 3.  The listincluded with the panel request can be viewed as no more than informational.
9. The terms of reference of this dispute do not provide jurisdiction to address the actions taken
on April 19, and we urge the Panel to reject the EC's  attempts to draw these actions into the scope of
this dispute.  We look forward to your decision.WT/DS165/R/Add.1
Page 112
Appendix 2.8
The US oral presentation at the Second Substantive Meeting
(9 February 2000)
Introduction
1. Mr. Chairman, thank you for your preliminary ruling that the April 19 actions are not within
the scope of this proceeding.  At the same time, we appreciate the panel's recognition that it is
important that we understand these actions.  This importance will become clearer in a few moments.
2. Mr. Chairman, distinguished members of the Panel, it is again my honor to represent the
United States before you today.  It is now the second meeting of this Panel, and the issues in this
dispute have become clearer.  For example, it is now clear that the only measure taken on March 3
was the modification of bonding requirements with respect to certain merchandise from EC countries,
and that this change in bonding requirements did not impose any duty liability beyond the MFN,bound rates applicable to all imports from all sources.  It is also clear that this action came in the
context of EC efforts to delay the completion of Article 22.6 proceedings required, under DSU rules,
to finish by March 2.  Further, it is clear that the EC's efforts at delay were but the most recent of its
attempts to undermine the operation of the WTO dispute settlement system in order to escape the
consequences of its failure to comply with DSB rulings and recommendations in Bananas .
3. Unfortunately, the EC's argumentation in this dispute has shown its continued desire to
obfuscate the issues and its lack of regard for the consequences of its actions on the dispute settlement
and international trading system.  The EC has explicitly asked this Panel to find the work of another
panel ultra vires , and has implicitly asked this Panel to violate WTO rules which reserve to the
Members the right to amend WTO provisions.  Moreover, the EC has conveniently put aside itsinsistence during the reasonable period that only a measure actually taken may be subject to dispute
settlement procedures, and instead has sought to have this Panel consider actions not taken on
March 3 which are not within the Panel's terms of reference.  Further, the EC has shown itself willing
to make overly broad arguments which would undermine trade-enhancing early-release bonding
systems in its single-minded effort to receive Panel sanction for its delaying tactics in Bananas .
4. Mr. Chairman, this Panel must focus not on what the EC asserts to have occurred on March 3,
but on the actions actually taken on that date.  Moreover, this Panel should analyze those actions for
their consistency with U.S. WTO obligations with a sober eye, making only those findings necessary
to complete its task.  It should refuse the EC's inv itation to legislate, to exceed the terms of reference,
and to make sweeping pronunciations of law with uncertain consequences for international trade.When the actions actually taken on March 3 are examined against applicable U.S. obligations, it is
clear that they were consistent with those obligations.
The Measure
5. I would first like to briefly address some of the points which the EC raised today.  Regarding
the USTR letter to the U.S. Customs Service, it is  important to recognize that, as is clear from the
language used in the letter, this was a request, not an "instruction."  The only authority for action cited
in the letter is that which Customs employed to undertake the changed bonding requirements, 19 CFR§ 113.13.  The letter resulted from an interagency process, and reflected that process, but the only
legal authority under which action was taken was that of Customs.  With respect to "withholding
liquidation," it must be recognized that there is no right to immediate liquidation.  Customs
procedures already called for a 314-day to one-year liquidation period.  Thus, the first request in the
USTR letter regarding "withholding liquidation" could not be honored, since Customs was alreadyemploying a 314 liquidation cycle, and this was not changed.WT/DS165/R/Add.1
Page 113
6. Regarding the April 19 actions, notwithstanding the EC's arguments, these actions did make
duties retroactive to entries from March 3.  All that the United States did on March 3 was to change
bonding requirements so that Customs would have a better chance of collecting duties if the DSB
authorized suspension of concessions and if the United States acted to increase duties.  That action
came on April 19.
7. I would like to review again how the U.S. syst em works for imports.  When an import arrives
in the United States, the importer provides curs ory documentation regarding the import, along with
evidence of a bond.  Upon presentation of this documentation and evidence of a bond, the
merchandise is immediately released.  At or shortly after release, the importer deposits estimated
duties.  Yesterday we submitted Exhibit 14, which provided data on duties for listed products.  That
exhibit includes a column for estimated duties paid.  For every item on that list the estimated duties
paid were at the MFN rate.  Customs accepted the deposits as accurate because this was the only duty
liability at that time.  There was no instruction to port directors to increase duties, and therefore theports did not collect higher duty deposits.  At liquidation, Customs finalizes its determination of the
duty liability.  It looks at the classification and valuation, for example, to confirm that they are correct.
Once it has confirmed the liability, it sends a notice to the importer.  If there is a difference between
the duty deposits and the actual duty liability, the difference is either collected or refunded.  A short
time after liquidation has occurred, the door is closed for Customs to review the duty liability.Customs can't go back, except in cases of fraud, and reliquidate the entry.  It is our understanding that
the U.S. system is different from others in this regard.  In other systems, the statute of limitations
permits customs authorities to go back and correct duty liabilities up to the statute of limitations of
around three years.  In the United States this is capped at one year.  Customs must liquidate between
314 days and one year.
8. I would like to reiterate that the only measure within the terms of reference of this dispute is
the March 3 change in bonding requirements on certain products from EC countries.  The March 3
press release is not itself a measure, nor is the USTR letter to Customs.  The EC requested
consultations on March 4 with reference to actions taken on March 3, and only those actions may
properly be the subject of these dispute settlement proceedings.  Nothing the United States did onMarch 3 affected duty liabilities, nor did it delay liquidation.  Any deposits for products imported
from March 3 to April 19 were made at the MFN, bound rates.  The only change in the entry
procedures for these importers was the modified bonding requirements.  As with normal bonding
requirements, the changed bonding requirements did not entail any payment to the government.  Nor
did these bonding requirements alter in any way the ultimate duty liability, notwithstanding mere
assertions to the contrary by the EC.  In the absence of the April 19 action, each and every entry
subject to increased bonding requirements would have been liquidated at the entered, MFN rate.
GATT Articles , and DSU Articles 22.6 and 23.2(c)
9. The EC added little new in its answers to panel questions or second submission on issues
relating to GATT Articles I, II, VIII or XI.  As described in the U.S. submissions, the EC has failed to
meet its burden of demonstrating that the March 3 action is inconsistent with any of these provisions.
In particular, the United States wishes to draw attention to the EC's arguments concerning Articles IIand VIII.  The EC appears to argue that only th e changes to bonding requirements instituted on March
3 should be considered prohibited other charges, but its arguments would implicate all bonding
systems.  In its determination to obtain findings  against the March 3 action, the EC would have the
Panel undermine a trade-facilitating mechanism which speeds the early release of goods by customs
authorities, and which is contemplated – and encouraged – by the WTO Customs ValuationAgreement and the Kyoto Convention.  Many WTO Members employ surety systems to guarantee the
collection of customs duties and to address risks relating to specific imports of merchandise.
10. When customs authorities release goods into their territories before duties and other fees have
been deposited or finally determined, and before it has been possible to definitively confirmWT/DS165/R/Add.1
Page 114
compliance with all relevant importer undertakings, this obviously involves an assumption of risk by
those customs authorities.  The risk directly relates to the total liabilities which might be due,
including not only duties, but also other taxes and fees, as well as liquidated damages for failure to
comply with other undertakings to Customs.  Should  importers choose not to pay their customs debts,
customs authorities could find themselves without th e ability to collect these debts.  Faced with this
risk, customs authorities may choose to hold the merchandise until the importer's total liabilities havebeen finally determined and paid, and until it has b een definitively determined that the importer has
met other requirements.  However, as contemplated in the Customs Valuation Agreement and the
Kyoto Convention (as well as the International Chamber of Commerce International Customs
Guidelines), early release of merchandise is still possible, and should be undertaken, if customs
authorities employ surety systems to address the risks inherent in that practice.
11. The EC's arguments on Articles II and VIII would implicate all bonding systems, and create
conflicts both with the Customs Valuation Agreement and the Kyoto Convention.  Suchinterpretations are unnecessary, and should be avoided.  The U.S. bonding requirements in connection
with early release of goods do not require a payment to the government, and do not impose an "other
charge" within the meaning of Articles II and VIII.   This includes the revised bonding requirements of
March 3.  The government collected no fees in connection with the bonds for entries subject to the
revised bonding requirements.  Obviously, this case is not about the fee structure of private banks for
providing sureties, a normal financial service.  We want to note that the EC on page 4 of its statement
today suggests that the fees charged by these private sureties would total $10 million dollars on $520
million in trade.  This figure is pure fantasy.  The EC ignores the fact that the continuous bond amount
is only 10% of the entered value, and that these bonding requirements were in place for only about a
month.  We believe private sureties typically charge about $10-20 per thousand dollars of bondamount for continuous bonds, so the numbers these private sureties would charge bear no resemblance
to the EC figure.
12. The EC in paragraph 4 of yesterday's answers appears to acknowledge that a measure which
"does not provide any revenue for the treasury of the importing WTO Member does not qualify as a
'duty, tax or other charge.'"  The EC made this statement in the context of its discussion of Article XI,regarding which the EC has failed to demonstrate a violation.  Nevertheless, the EC cannot argue that
if the bonding requirements do not qualify as a "charge" for purposes of Article XI, they may still be a
"charge" purposes of Article II.  There is no basis for drawing this distinction.  Beyond the fact that
the government received no payment or revenue in connection with the bonding requirement, the
bonding requirement is not an "other charge" because the bonds are merely enforcing the obligation topay duties, and such sureties as enforcement mechanisms are not an other charge under the  MIPs
precedent, which we note was followed in the Bananas II  GATT panel (DS38/R, 11 February 1994).
13. However, even if the Panel were to conclude that the bonding requirements were an "other
charge" covered by Articles II and VIII, any such "charges" must be considered commensurate with
the cost of services rendered, namely, the risk that importers may not pay their duty and other
liabilities.  Should the Panel consider it necessary to reach the question of whether any "charges"
specifically associated with the March 3 bonding requirements are consistent with Articles II andVIII, it should find that such "charges" are commensurate with the additional "cost" associated with
early release of the affected entries, that is, the risk that additional duties authorized by the DSB
would be imposed on these entries, and that importers might choose not to pay them.
14. With regard to Article XI, and its relationship to Articles II and VIII, we would like to note
that the EC yesterday stated in paragraph 5 that it s Article XI arguments would only be relevant if the
bonding requirements did not also increase the customs tariffs.  Since the bonding requirements did
not, the EC is admitting that Articles II and VIII are not implicated.  However, the EC argument with
respect to Article XI fails on its own.  As noted in our submissions, the EC's Article XI argument has
rested solely on the incorrect assertion that the bonding requirements effectively stopped trade.   They
did not.  Further, in yesterday's submission, the EC  suggests at paragraph 4 that the "purpose" to stopWT/DS165/R/Add.1
Page 115
trade also creates an Article XI violation.  However, the purpose of a measure is not relevant to
whether it violates Article XI.  In Bananas II , the Panel considered the argument of the complaining
parties that a high over-quota rate was inconsistent with Article XI:1 because it adversely affected
trade.  At paragraph 139 of its report the panel agreed with the EEC Oilseeds  and Japan Leather
panels that the actual impact of a measure is irrelevant to an Article XI analysis, and noted that
commercial impact is nowhere mentioned in Arti cle XI.  Likewise, allegations concerning the
"purpose" of a measure are nowhere mentioned in Article XI, and are irrelevant to that analysis.
15. For this reason, and for the reasons discussed in our submissions, the EC has failed to
demonstrate that the March 3 bonding requirements were inconsistent with GATT Articles I, II, VIII
and XI.  In light of this, the EC has also failed to demonstrate that the March 3 action involved a
suspension of concessions or other obligations.  Therefore, the EC has also failed to demonstrate that
the March 3 actions were inconsistent with Articles 22.6 or 23.2(c), which set forth conditions for the
suspension of concessions or other obligations.
Article 21.5
16. I would now like to address the EC's arguments with respect to Article 21.5.  I would like to
begin by quoting DSU Article 22.7: "The parties shall accept the arbitrator's decision as final and the
parties concerned shall not seek a second arbitration."  This is a firm obligation.  And yet this seems
very much at odds with the EC's request to find the Article 22.6 arbitrator's decision ultra vires , as
well as with the statement made this morning by the EC that if the Panel agrees with the EC on
Article 21.5, the suspension of concessions determined by the arbitrators and authorized by the DSB
"is and remains" inconsistent with U.S. obligations -- and that includes both after March 3 and after
April 19.  This is anything but acceptance, and by its very asking calls into question the EC's
compliance with Article 22.7
17. It is now clear that the EC's arguments on Article 21.5 have nothing to do with the measure at
issue in this dispute, increased bonding requirements .  The EC itself has been unable to draw any
connection between the bonding requirements and Article 21.5 beyond the tenuous and unsustainable
argument that the March 3 measure "was directly dependent upon" actions which allegedly violate
Article 21.5 (actions not within the terms of reference of this dispute), rather than that the March 3measure itself violates Article 21.5 (see EC Second Written Submission, para. 20).
18. The EC is asking this Panel to violate several WTO provisions in order to find that the Article
22.6 arbitral panel in Bananas  somehow violated other DSU provisions.  This transparently political
exercise has nothing to do with resolving the issues in this dispute concerning increased bonding
requirements, but is instead merely an attempt to circumvent the DSU review process and violate theexclusive right of all WTO Members to amend the DSU.  Moreover, we do not see how the EC
reconciles asking this Panel to declare the work of the Bananas  arbitrator ultra vires  with the EC's
obligation under DSU Article 22.7 to "accept the arbitrator's decision as final."  We are particularly
troubled by the EC's implication that the arbitrator's report is "not binding" or can otherwise be
disregarded with respect to the right of the Un ited States to suspend concessions (EC Second
Submission, paragraphs 74-76).  The EC's direct challenge to the validity of the Article 22.6
arbitrator's decision represents anything but the acceptance of the arbitrator's report required byArticle 22.7.
19. The simple consideration that bonding require ments have nothing to do with a DSU article
providing for a mechanism to settle disputes on implementation exposes the utter lack of foundation
of the EC's Article 21.5 claim.  The EC purports to find in Article 21.5 a firm obligation on the part of
complaining parties (but, of course, not the party accused of non-implementation) to resort to Article21.5 procedures, to the exclusion of Article 22 procedures explicitly provided for in the DSU and
which, by their terms, do not so much as reference Article 21.5.  Neither the Bananas  arbitrators nor
the Section 301  panel found such an obligation to exist, and we agree that it does not.  However, evenWT/DS165/R/Add.1
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if there were such an obligation, the EC has offered no credible explanation of how increased bonding
requirements violate such an obligation.  Instead, the EC believes it may infer actions which violate
Article 21.5, just as it believes it may, through mere assertion, include within the scope of this dispute
actions not taken on March 3, or actions not within the terms of reference.  According to the EC, if a
non-implementing party believes it has implemented DSB rulings and recommendations, and a
complaining party has not requested Article 21.5 proceedings, then anything the complaining party
does violates Article 21.5.  Requesting multilateral proceedings under Article 22 violates Article 21.5,
providing evidence to an Article 22 arbitrator violates Article 21.5, increasing bonding requirements
violates Article 21.5 – virtually anything that highlights the EC's non-compliance in Bananas  violates
Article 21.5.  This is simply not a tenable interpretation.
20. Let us step back for a second and recall that the purpose of Article 21.5 is to provide a
multilateral, expedited mechanism to resolve disputes on implementation.  It is not intended to serve
as a justification for delaying multilateral consequences for non-compliance.  Nor is it intended tonullify multilateral rights to have the DSB authorize suspension of concessions under the negative
consensus rule within 30 days of the end of the reasonable period, or to have an Article 22 arbitrator
complete its work within 60 days.   And Articl e 21.5 is not intended to provide non-implementing
parties with a club to deter complaining parties from pursuing their WTO rights to request
DSB-authorized suspension.   The EC's reading of Article 21.5 would turn the purpose of Article 21.5on its head and make it a tool to undermine WTO provisions central to ensuring that Members comply
with their WTO obligations.
21. The EC argues that it is entitled to a ruling from this Panel on the relationship between Article
21.5 and Article 22, that failure to make such a ruling would be a denial of "justice."  However, the
Panel may rule on the EC's Article 21.5 claim without implicating or nullifying Article 22 by simplyrejecting the Article 21.5 claim on the grounds that the bonding requirements do not implicate any
conceivable obligation under Article 21.5.  Should the Panel reach this conclusion, or choose not to
reach the EC's Article 21.5 claim, justice would indeed be well-served.  There would be no justice in
findings that another WTO panel has acted ultra vires , that rights under Article 22 on the negative
consensus rule and on the timing of Article 22.6 proceedings should be nullified, that the DSU Article3.2 requirement that Panels neither add to or diminish rights should be ignored, or that Panels may
exercise the right to amend the DSU granted exclusively to Members under WTO Agreement Article
X.  Such findings might serve the EC's polit ical goals, but they would not serve justice.
22. I would like to briefly respond to several matters relating to the EC's Article 21.5 arguments
from its second submission.  The first is the EC's claim that its implementation was a "new" measure.As we have explained, the novelty of a member's implementation actions is irrelevant to this dispute.
However, we do not wish the Panel to be left with a misleading impression concerning the EC's
changes to its bananas import regime.  The elements of the so-called "new" banana import regime
which violated the EC's obligations were virtually identical to the old regime, and violated it for the
same reasons – it provided for separate, discriminatory banana regimes in violation of GATT 1994
Article XIII and assigned licenses based on a reference period which guaranteed discriminatory
results in violation of GATS Articles II and XVII.  The Bananas complaining parties pointed this out
to the EC from as early as January 1998, but the EC ignored them, considering that it had the right to
continue to nullify and impair the WTO benefits of the complaining parties through the expedient of
repackaging its old regime.  This has been the EC's practice throughout the nearly ten years of the
Bananas  dispute.  In part this has made the various panels' work easier – when the WTO Bananas
panel examined an earlier example of the EC's repack aging efforts, the panel was able to complete its
analysis by merely quoting several pages from th e report of its GATT predecessor, and add "we
agree."  ( Bananas  Panel Report, paras. 7.179-7.180.)  Just as the continued violation of the EC's
repackaged regime was apparent to the complaining parties and to the Bananas arbitrator/panelists, it
was apparent to EC officials.  I refer the Panel to paragraph 29 of the U.S. First Submission, which
quotes EC officials acknowledging that the EC's cl aim to have instituted a WTO-consistent "new"
regime were groundless.WT/DS165/R/Add.1
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23. Another point from the EC's second submission which the United States would like to address
relates to U.S. actions with respect to Article 21.5 in Shrimp Turtle .  The U.S. agreement with
Malaysia only reinforces the fact that DSU rules as they now stand compel parties to undertake such
agreements if they wish to delay Article 22 proceedings without opening the door to the possibility of
a defending party blocking authorization to suspend concessions.  The EC at paragraphs 62-63 of its
Second Submission points out that such agreements do not prevent third parties from still blockingconsensus, and this is true.  However, the EC does not explain how its interpretation of Articles 21.5
or Article 22 would overcome this deficiency.  In f act it would heighten it.  As these provisions are
currently drafted, if Article 21.5 proceedings were required prior to Article 22 proceedings, then not
only third parties, but also non-implementing parties, could deny complaining parties the benefit of
the negative consensus rule under Article 22, and complaining parties would also be denied the right
under Article 22 to have the arbitrators complete their work within 60 days of the end of the
reasonable period.  In other words, entire provisions of Article 22 would be denied legal effect.Avoiding such a result is the "compelling reason in law" not to adopt the EC interpretation,
notwithstanding the EC's difficulty in understanding this (EC Second Submission, paragraph 64).
24. However much the WTO Members may or may not agree that procedures similar to Article
21.5 should or should not precede a request for suspension, DSU rules as they now stand do not
provide for this.  The Members of the WTO have been working on amendments to the DSU that
would provide for this, and would cure the problems relating to the negative consensus rule which
exist in the current DSU text.  However, only the Members can amend the DSU.  A single member
cannot ask a single panel to legislate such changes by fiat, in violation of DSU Article 3.2 and in the
exercise of the Member's exclusive rights under WTO Agreement Article X.
25. That the EC is asking the Panel to do just this  is even clearer in the EC's demand that the
Panel legislate the creation of burdens and presumptions applicable in Article 21.5 and Article 22
proceedings.  There is no possible basis for the EC to demand that this Panel dictate to other panels
how they must conduct their proceedings, on the basis of new rights and obligations pulled out of thinair.  As the EC notes at paragraph 87 of its second submission, the only presumption referred to in the
DSU is that in DSU Article 3.8, that a breach of the rules is presumed to have an adverse effect.  The
EC refers to the statement of the Appellate Body in Chile Liquors  that there is no presumption of bad
faith - not that there is a presumption of good faith, as the EC asserted this morning - but this only
reinforces the point that panels should not engage  in the wholesale creation of presumptions not found
in the WTO Agreements.  The issue of burdens and presumptions in Article 21.5 proceedings is
irrelevant to this dispute, and there is no need to make findings on this topic to resolve it.
26. The March 3 bonding requirements simply do not relate to Article 21.5.  We urge the Panel to
reject the EC's flexible and self-serving approach to defining the measure in this dispute so as to
achieve improper legislative pronouncements, just as we urged the Panel to reject the EC's flexible
interpretation of the terms of reference to cover measures outside the scope of the EC's consultation
request.
Conclusion
27. As the complaining party in this dispute, the EC has the burden of demonstrating that the
March 3 bonding requirements were inconsistent with U.S. WTO obligations.  It has failed to meet
this burden, and the Panel should reject the EC's claims in their entirety.  Thank you very much.WT/DS165/R/Add.1
Page 118
Appendix 2.9
The US closing statement at the Second Substantive Meeting
(9 February 2000)
1. Mr. Chairman, members of the Panel, I want to begin this statement by thanking you both for
your efforts to date in sifting through the various arguments of the parties, and for the efforts you will
now undertake in reaching your decision.  As the parties are now concluding their arguments both on
what happened on March 3 and on whether this complied with U.S. WTO obligations, I think it is
important to step back and ask how we got here t oday, and to summarize where we are.  Simply put,
we are here because, at the same time that the EC continues to deny the United States over $191
million per year in negotiated and agreed WTO benefits, the EC is complaining about less than seven
weeks of changed bonding requirements.
2. Since the beginning of the WTO, the EC has maintained a banana regime in breach of its
WTO obligations.  It is now firmly established that this regime nullifies and impairs U.S. benefits
under the WTO in an amount of $191.4 million per year.  This multimillion dollar nullification and
impairment persisted, without any compensation for the United States, through consultations, over a
year of panel proceedings, then Appellate Body proceedings, then a reasonable period of time of over15 months.  Finally, when all other avenues of re dress failed, the United States sought and was
granted authorization by the DSB to suspend concessions.  Even that authorization was delayed
beyond the date promised the United States under the DSU by the failure of the EC to provide the
arbitrator with the necessary information.
3. No sooner did it become apparent that the United States was going to be provided some
redress than the EC immediately challenged the small step the United States took to try to preserve its
ability to put the DSB authorized suspension of concessions into effect.  The EC is complaining about
less than seven weeks of changed bonding requirements, even though it has not yet seen fit to remedy
years of multimillion dollar nullification and impairment.
4. Which brings us to exactly what did and did not happen on March 3.  The EC relies on press
statements and requests – not instructions – from USTR to argue that Customs began to withhold
liquidation.  We have provided and referenced official Customs statutes, notices and regulations
concerning their pre-existing policy of liquidating entries between 314 days and one year.  We have
pointed out that the March 3 actions had no effect on the implementation of this policy, and that there
is no such measure under U.S. law as "withholding liquidation."  The EC argues that the United Statesrevised bonding requirements, and we did – continuous bonds were increased by 10% (not 100%) of
the value of covered merchandise previously imported.  This entailed no payment to the government.
Further, as the example in our response to question 35 makes clear, there were at most negligible
payments to private sureties associated with the bonds.
5. Which brings us to the heart of the matter.  The bonding requirements – the only action taken
on March 3 and the only measure in existence at the time this dispute was commenced – did not
impose any duty liability.  The EC's argument that the United States "effectively increased" dutyliability is made without reference to a single U.S. law allegedly imposing such a liability.  There is
no such thing as an "effectively increased" duty liability.  There is either a duty liability or there is
not.  Had there been a duty liability the instructions to port directors on March 3 would have indicated
that they should collect such duties, and these port directors would have required deposits of
estimated duties to match such higher liability.  This did not happen on March 3.  Only on April 19was a higher duty assessed, and higher duty deposits collected.  The EC claims that the U.S. could not
under U.S. law retroactively increase duties on April 19.  This is simply not true.  Our response to
question 4 makes clear that duty increases or decreases may be made effective retroactively under
U.S. law.  Without such authority, there would be  no way to implement, for example, antidumping
duties under the circumstances specified in Article 10.6 of the Antidumping Agreement, or, for thatWT/DS165/R/Add.1
Page 119
matter, duty decreases made retroactively in accordance with the Generalized System of Preferences.
And such authority is necessary when implemen ting DSB-authorized suspension of concessions.
However, while the April 19 action applied duties to entries commencing from March 3, that action is
not within the terms of reference of this dispute.  It could not have been, since it had not taken place
on March 4, the date of the EC's consultation request.
6. All that a bond provides is assurances that if a duty liability is later found to be higher than at
importation, the risk that Customs will not be paid is reduced.  The United States made changes to its
bonding requirements to ensure that if the DSB authorized concessions, the U.S. would be in a better
position to collect them from March 3.  It must be remembered that the Bananas  arbitrator/panel's
decisions made clear that the measure the EC had in place from January 2 was inconsistent with WTO
obligations, and continued the nullification or impairment of U.S. benefits from that date.  For the
reasons described in the U.S. submissions, the U.S. had the right, upon DSB authorization, to suspend
concessions from January 2.  The March 3 bonding requirements helped to preserve this right.
7. But since the March 3 measure consisted only of revised bonding requirements, which
imposed no duty liability, where does this leave the EC's claims?  As an initial matter, it is clear that
bonding requirements have nothing to do with Article 21.5, and that claim can be dismissed, without
undertaking the condemnation of the work of another WTO dispute proceeding requested by the EC.
With respect to GATT 1994 Article I, the March 3 bonding requirements, like all bondingrequirements, were addressed to risks associated with particular entries.  Numerous WTO Members
provide their customs authorities with the ability to address specific risks through changed bonding
requirements.  With regard to Articles II and VIII, the March 3 bonding requirements imposed no
additional duty liability, and provided no additional revenue to the U.S. Treasury.  Under the EC's
own construction, the bonding requirements are therefore not subject to Article II and VIII, as they arenot a "charge."  This is not a dispute about whether private banks' fees for sureties are set too high.
Moreover, the EC has failed to make any subs tantive case that the changed bonding requirements
were inconsistent with Article XI.
8. Mr. Chairman, let me now turn briefly to the ch art just distributed.  I would first like to point
out that it indicates that trade was not stopped.  There was a big surge in imports before March 1999,
so it should be no surprise that there was no n eed to import as much after that, since there was so
much inventory on hand.  Furthermore, imports continued even after April 19.  This suggests that the
United States has not, in fact, suspended the full amount of concessions authorized by the DSB.
9. Mr. Chairman, members of the Panel, we ask you now to address your findings to what
actually happened on March 3 – a change in bonding requirements – and to find that these bondingrequirements did not violate the U.S. WTO obligations  asserted by the EC.  I want to thank you again
for your work to date, and from now until the end of this case.WT/DS165/R/Add.1
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Appendix 2.10
The US Responses to Additional Questions of Panel
(10 February 2000)
Q50. Do parties consider that there is an opportunity cost arising from the bonding
requirement, in particular if cash is deposited in lieu of a bond?
1. "Opportunity cost" is not a WTO legal term, a nd is found nowhere in the text of the WTO
Agreement.259  As an economic concept, it is irrelevant to a consideration of the claims in this dispute.
Moreover, as a factual matter, the opportunity costs associated with delayed release of goods until
duties have been paid (inventory carrying expenses, delayed sales, dock storage charges, higher
administrative costs) far exceed any opportunity costs associated with bonding systems allowing for
early release of goods.  This is why such systems are encouraged.  We reiterate that the U.S.government receives no revenue from its bonding requirement, and is not a "charge" within the
meaning of Articles II and VIII.
Q51. Please provide copies of any Customs' advisory notices concerning the 3 March
measure.
2. Apart from the March 4 instructions, the only Customs advisory notice in connection with the
March 3 measure was a March 16 document clarifying the bonding requirements set forth in the
March 4 instructions.  It is provided in U.S. Exhibit 15.
Q52. Please provide the data contained in US  Exhibits 5 and 10, in an Excel format.
3. Excel file copies of U.S. Exhibits 5 and 10 are attached to the electronic version of this
response.
Q53. Please inform us whether any importer of li sted products chose to deposit money in lieu
of a bond, as permitted under Section 1623(e) of the Tariff Act of 1930 (US Exhibit 11), during
the period from 3 March 1999 to 19 April. Further, in general, in what circumstances do
importers choose to deposit money in lieu of a bond?
4. It is our understanding based on a review of relevant import records that no importer chose to
deposit cash in lieu of a bond for entries of the listed products during the period from March 3 to
April 19, 1999.  It is also our understanding that, in general, it is rare for importers to avail themselves
of this option.  While we do not have information on the situations in which an importer would choose
to deposit cash, it is conceivable that this might occur if the credit history of an importer were to lead
surety companies to refuse to provide a bond to the importer.
Q54. What is the basis for the US statement th at the costs incurred on a bonding requirement
are small?  To what extent, if any, did the costs change following the 3 March measure?
5. This statement is based on our understanding of typical fees charged by private sureties, as
described in paragraph 29 of the U.S. Second Submission.
260  It is our understanding that a typical
amount charged for a single transaction bond is $3.50 for thousand dollars of bond value (0.35%).  It
is our understanding that the fees for continuous bonds are typically between $10 - 20  per thousand
dollars of bond value (1-2%).  The typical continuous bond requirement is 10% of the duties, taxes
                                                     
259 C.f., the Appellate Body’s caution against reliance on terms not found in the WTO Agreement.
Appellate Body Report on EC Measures Concerning Meat and Meat Products (Hormones) , WT/DS26/AB/R,
para. 181.
260 Also as described in paragraph 29, these can vary.WT/DS165/R/Add.1
Page 121
and fees incurred by the importer in the previous year.  As a rough estimate, duties, taxes and fees are
typically around 5% of the entered value for imports into the United States.  Thus, the typical
continuous bond amount would be 10% of 5% of the ente red value, or 0.5% of entered value, and the
amount paid for the bond would be 1-2% of this, or 0.005-0.01% of entered value.  This is subject to
the caveat that the minimum continuous bond amount is $50,000, which would cost between $500 -
$1000, assuming a rate of $10-20 per thousand dollars of bond value.
6. The March 3 bonding requirements increased  the continuous bond requirements for listed
products to 10% of the entered value of these products in the previous year.  Thus, the amount paid
for the bond would be 1-2% of 10% of the entered value, or 0.1-0.2% of entered value.  Our response
to question 35 illustrates the impact on an importer.  To repeat that example, if the normal continuous
bond had been calculated based on entries during the previous year valued at $1,000,000, and $50,000
of this was covered merchandise, the continuous bond would be supplemented by $5,000 (10% of
$50,000) to meet the revised bonding requirements.  A typical amount which a private surety mightcharge for this additional coverage would be approximately $50 - $100, based on a rate of $10-20 per
thousand dollars of bond value.
Q55. In what respects did the duty deposit requirements for the listed products imported
between 3 March 1999 and 19 April change after 19 April 1999?
7. Duty deposit requirements for listed products imported between March 3 and April 19, and
for which duty deposits were made before April 19, 1999, did not change after April 19, 1999.  If the
duty deposits were not made until on or after April 19,261 and the product was on the April 19 list, a
100% duty deposit would have been required.
Q56. To what extent did the US Customs have to have recourse against the bond for those
importers not paying the difference between the estimated duty deposit at the MFN rate and thehigher duty amount following the 19 April action?
8. It is not possible to make this determination at this time.  To the extent estimated duties are
not sufficient to cover a duty liability, importers have six months following liquidation to pay the
difference before Customs would make a claim against the bond.  Thus, it is not yet clear how often it
will be necessary to make claims against bonds.
Q57. What happens, if anything, to the bond when the estimated duty deposits are paid?  Is it
reduced by the amount paid?  If the bond is not reduced by such payments, why would the
importer choose to pay the increased estimated duty deposits rather than allow Customs to have
recourse against the bond?
9. It is important to recall that a bond is nothing more than a guarantee, backed by a private
surety company.  The importer pays a minimal fee for the bond, as described in response to
question 54.
10. Nothing happens to the bond itself once estimated duties are deposited.  Most fundamentally,
the deposit of estimated duties is only one of the conditions which must be satisfied under a bond.
The bond guarantees that duties, taxes and fees will be paid, and that the laws and regulations relating
to the merchandise will be satisfied.  Therefore, the bond amount is not modified or reduced when one
of the conditions, deposit of estimated duties, has been satisfied.  Of course, Customs would not haverecourse against the bond to cover any liabilities accounted for by the duty deposit.
                                                     
261 As described in the U.S. Second Submission at footnote 39 and in yesterday’s oral statement, the
importer may deposit estimated duties up to ten working days (two weeks) after entry.  Thus, for example, animporter which entered merchandise on April 18 could have deposited estimated duties on that date, or couldhave chosen to wait for up to ten working days to do so.WT/DS165/R/Add.1
Page 122
11. Again, the bond is nothing more than a guarantee that if the importer refuses to pay any
liability relating to the merchandise, Customs can collect from the third-party surety providing the
bond.  The importer purchases the bond for a fixed amount from the private surety.  Even were it
theoretically possible to reduce the bonding amount upon satisfaction of one bond condition, it would
not make economic sense for an importer to obtain a separate bond at a lower level.  An importer
would not want to return to a surety to obtain another bond in the lower amount, since this wouldtypically entail an additional cost, however small.  The existing bond would be sufficient to meet even
a lower bonding level.  The Customs bond may be analogized to an insurance policy.  If a consumer
purchases auto insurance on January 1 for a non-refundable fee of $200 covering accidents in that
year for up to $500,000, he or she would not purchase for $100 a second policy on July 1 to cover
$250,000 in accidents for the remainder of the year, even if the risk were reduced to that level.
12. With regard to payments of estimated duty deposits, as described in response to question 55,
importers were not required after April 19 to deposit increased estimated duties if they had alreadydeposited estimated duties at the MFN rate prior to that date.  With respect to estimated duty deposits
made from April 19, an importer would likely choose to pay the higher duty deposits rather than
allowing Customs to have recourse against the bond in order to maintain its credit rating.  Moreover,
failure to pay the estimated duty deposits at all could expose the importer to liquidated damages.
Given that the private surety would have to pay the liability, it is quite possible the surety would notbe willing to provide bonds in the future to that importer, or would raise its premiums for the bond.  It
is worth recalling that the surety is typically only being paid well under 1% of the entered value of the
goods for the bond (see response 54), as opposed to the duty deposits of 100% being collected after
April 19.  If the importer were unable to obtain a bond because it had failed to fulfill an earlier
obligation, it would have to provide a cash deposit in lieu of surety.
Supplemental Responses to Earlier Questions
Question 34, use of single transaction and continuous bonds
13. Based on data for February 1999, continuous bonds were used for approximately 97% of all
entries made in that month, versus 3% use of single transaction bonds.  For entries from EC countries,
approximately 94% of entries in February 1999 were made using continuous bonds, versus 6% use ofsingle transaction.
Question 45, data on duties for listed products
14. In our response to this question, we explained that, with respect to the data in U.S. Exhibit 14,
where liquidated duties for an entry differ from the estimated duties for the entry, this could be
because the entry included products on the April 19 list, or because products on the entry weremisclassified or misvalued.  We also noted that the liquidated duties for entries which included
candles (a product not on the April 19 list) were higher than the estimated duties for these entries.
Upon further investigation, we determined that se veral entries which included candles also included
bath preparations, folding cartons or both.  Both bath preparations and folding cartons were on the
April 19 list, and were thus subject to 100% duties, thus explaining the difference between estimated
and liquidated duties for entries which included candles.WT/DS165/R/Add.1
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Appendix 3
Oral presentation of Dominica and St. Lucia at Third Party session
(17 December 1999)
The interest of the Commonwealth of Dominica and St Lucia in this case derives from the continuing
effect of the illegal trade measure imposed by the US on March 3, 1999.  These measures were so
excessive as to have frightened economic actors and the public so as to influence and pressure
governments to conform to a US vision of WTO comp atibility without the sanction of the multilateral
trading system.  This was its tactical and strategic purpose - to secure a wrongful trade advantage with
continuing legal, political and psychological impact.
The issue in this case is whether the measures taken by the US on March 3, 1999 limiting the
importation of selected EC products is WTO incompatible.  We are not going to recap the eventssurrounding the legitimate exercise of DSU rights by the EC in the year and a half preceding March
3
rd. Suffice it to say that the account provided in the Respondent's First Written Submission does not
address the issue the way African, Caribbean & Pacific (ACP) countries see it.  Our intervention is
focussed on the matter before this Panel.
The US measure of March 3,1999 is a violation of basic GATT norms
The mere US announcement of its intention of withholding liquidation on $520 million  worth of
targeted EC products subject to a contingent duty liability of 100% directly impacted trade flows.  To
appropriate the words of Deputy USTR Peter Scher, the US "retaliated by effectively stopping trade
as of March 3".262
The illegal March 3rd measure resulted in severe competitive disadvantages for the selected list of EC
products.  The equal treatment principle was not applied to targeted EC exports.  These products faced
discriminatory duties in excess of US tariff bindings.  Importation of targeted EC goods entailed
increased risks, costs, fees and other charges.  We submit that the de jure and de facto  discrimination
against EC products in this regard constitutes a breach of GATT rules as advanced in the First Written
Submission of the Complainant.  We further support the assertion of the Complainant that the USmeasure is a restriction "other than duties, taxes or other charges" within the meaning of Article XI:1
of the GATT 1994.
We ask - would an importer of targeted EC products, aware of the risk of having to pay 100%
ad valorem  duties, continue to purchase such goods?  He is placed in a quandary - If he puts the goods
up for sale he might attempt to pass on the contingent liability - though 100% duties might make theproduct unsaleable.  But if he does not pass on the duty once the goods have already been sold he will
not be able to recoup the duty if it subsequently becomes payable.  So why would he handle the goods
at all given the significant losses he could face?  He won't.  Peter Scher was right .
GATT Article XI, "General Elimination of Qu antitative Restrictions", provides that
XI.1 No prohibitions or restrictions other than duties, taxes or other charges,
whether made effective through quotas, import or export licences or other measures,
shall be instituted or maintained by any contracting party on the importation of anyproduct of the territory of any other contracting party ...
                                                     
262 Press conference held on March 3rd 1999; see First Wr itten Submission of the European
Communities, EC Annex XI.WT/DS165/R/Add.1
Page 124
This wording indicates clearly that any measure inst ituted or maintained by a Member which restricts
the importation of products is covered by this provision, irrespective of the legal status of the
measure.  The language used is comprehensive.263
The March 3rd measure is a fundamental violation of the DSU
The abuse of process demonstrated in the March 3rd illegal measure undermines the strengthened
multilateral system and the rule of law. It subjects the international rule of law to power-orientedtheories of 'justified unilateralism'.
On 19 April 1999, the US confirmed the retroactive imposition of 100% duties on a reduced category
of EC products under the ostensible cover of the arbitrators' ruling.  The initial figure of $520 million
was scaled back to $191.4 million. This underscoring the maxim, nemo debet esse judex in propria
causa  - no man ought to be a judge in his own cause.  A Member cannot be relied upon to objectively
determine the level of concessions to be suspended in such circumstances.
The Respondent in its submission states: "Because EC delaying tactics prevented the arbitrators from
completing their work by the March 2, 1999 date called for under the DSU time frame, the United
States took steps to preserve its ability to suspend concessions as from that date."
264 The Respondent
further states "The EC hampered the arbitrators' work in several ways.  First, the blocking of the DSB
agenda delayed referral of the matter to the Article 22.6 arbitrators and the setting of the schedule by a
full week in an already tight time frame."265
The importance of a rules-based system is that everyone has a voice.  What the record actually shows
is that it was two small Member states, Dominica an d St Lucia, which objected to the adoption of the
DSB agenda.  DSB proceedings were thereby temporarily delayed out of respect for the rule of law -
there was no attempt to obstruct due process.  Our concern was that the US request was untimely.
What we sought to uphold concerned f undamental rules of procedural justice.266
The DSU provides that a Member may request authorization to suspend concessions or other
obligations in certain limited circumstances, that is, where another Member has failed to bring the
measure found to be inconsistent with a covered agreement into compliance therewith or otherwise
comply with the recommendations and rulings of the DSB within a reasonable period of time.267  No
Member shall make a determination to the effect that a violation has occurred except through recourseto dispute settlement in accordance with the rules and procedures of the DSU.
268  Moreover, Members
shall obtain DSB authorization in accordance with the rules of the DSU before suspending
concessions or other obligations under the covered agreements in response to the failure of the
Member concerned to implement the recommendations and rulings within that reasonable period of
time.269
The language of the DSU is prospective.  The su ggestion that a Member is entitled to suspend
concessions from the end of the reasonable period is counter to basic principles of interpretation.
There is a presumption in international law that treaties do not permit retroactive measures where
these measures limit or deprive Members of their rights or privileges and effectively confiscate the
property of economic actors.270 To suggest otherwise, to permit the retroactive withdrawal of
                                                     
263 See Report of panel on Japan - trade in semi-conductors , BISD 35S/116 (1989), paras 106 et seq.
264 First Written Submission of the United States, para. 31.
265 Ibid. , para. 26.
266 See WT/DSB/M/54, esp pp 3-6.
267 DSU, Article 22.2.
268 DSU, Article 23.2(a).
269 DSU, Article 23.2(c).
270 E.g. Report of Appellate Body on US - restrictions on imports of cotton and man-made fibre
underwear, WT/DS24/AB/R, 1997, sec. IV.1.WT/DS165/R/Add.1
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concessions or other obligations would bring about an unacceptable level of uncertainty in trade.  It
would undermine the predictability and security of the multilateral trading system.
An Effective Remedy
Article 3.7 of the DSU provides that "the first objective of the dispute settlement mechanism is
usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with
the provision of any of the covered agreements."  However, situations arise where mere withdrawal isinadequate.  International obligations do not come to an end simply because they are infringed. Some
wrongs have a continuing character. In such cases the process of recommencing compliance with a
continuing obligation may be little different from that of providing a remedy for having broken it, i.e,
reparation.  Some violations of the DSU, for example, as instanced in this case, undermine the
fundamental basis of the rules-based system which poses a continuing threat to us all.  The mere
withdrawal of such measure without further ac tion would leave the dispute settlement system
fundamentally impaired.
The only legal option open to the US with respect to the measures imposed on March 3
rd was, in
relation to the targeted EC exports, to termin ate the bonding requirement, release any bonds, refund
any cash deposits and terminate the suspension of liquidation of entries made during the period of
application of the inconsistent measures.  Instead, on April 19th the US confirmed the retroactive
application of 100% duties on a subset of these products.  The duties levied on these productsretroactively to March 3
rd should have been reimbursed.  These duties should not have been levied at
all.
Some who now argue for the right to retroactively im pose duties, have in the past denied the right of
panels to suggest retroactive remedies.271 Thus it is said that "no GATT 1947 or WTO panel ever has
awarded monetary compensation to an exporting coun try for lost trade, even when blatantly-illegal
quantitative restrictions had been imposed."272  The issue here is not merely blatantly illegal trade
measures but unbridled unilateralism that undercuts the very foundation of the rules-based system.
An effective remedy is one which preserves the stability and predictability of the multilateral trading
system.  It must provide assurance to all Members, including the poorest and most vulnerable - those
without the capacity to effectively retaliate.
If a Member can unilaterally withdraw concessions without prior DSB authorization, and flout the
explicit provision that "[c]oncessions or other obligations shall not be suspended during the course of
the arbitration"273, without facing effective multilateral sanctions, we will witness the increasing use
of unilateral reprisals.  The WTO will simply be a cloak for  "power politics in disguise".  Power-
oriented theories of "justified disobedience" and unilateralism have no place in the strengthened rules-based system which provides protection for all Members and the transnational exercise of rights.
Let me Chairman take this opportunity to make a comment of a general nature .
We commend the advances made within recent months both in recognising the serious constraints
facing small vulnerable developing countries and the commitment to adopting tangible measures to
address them.  Also, worthy of acknowledgement are the initiatives such as the recent "Geneva week"
which sought to enhance and facilitate the functioning of the non-Geneva based missions such as my
own.
                                                     
271 E.g. US in Report of panel on Guatemala - anti-dumping investigation regarding portland cement
from Mexico, WT/DS60/R, 1998, paras 5.61 et seq.
272 Ibid. , para 5.64.
273 DSU, Article 22.6.WT/DS165/R/Add.1
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I must assure you that it is not due to any lack of vital trading interests to be protected that we are not
resident in Geneva.  We want to contribute in whatever modest way we can to the regulation of the
global trading system.  We do not have a resident mi ssion here simply because we cannot afford one.
But this should not negate our rights as a WTO Member.
With this in mind I thought it necessary to draw to your attention the additional impediments which
we faced in preparing for this meeting.  Although we are third parties, we did not receive thesubmission of the US until the afternoon of Tuesday this week leaving us precious little time to
analyse it and prepare our intervention, effectively precluding any prospect of a written submission.  I
expect that the US would have made its submission on schedule which means that, unlike ourselves,
parties resident in Geneva would have had sufficient time for study.
It is regrettable that, often our constraints are not taken into account but we are obliged to operate
under more demanding conditions than others who are already better endowed.
In closing, Dominica and St Lucia insist that this Panel establish the rules on this matter so as to
ensure that the US measure of March 3,1999 is no more than an aberration in WTO practice and does
not establish a precedent for the conduct of future trading relations and will not be emulated.WT/DS165/R/Add.1
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Appendix 4
Oral presentation of Ecuador at Third Party session
(17 December 1999)
(Spanish original)
Ecuador is closely following this case as an interested third party.  The delegation of Ecuador
would like to take this opportunity to make th e following two remarks, bearing in mind that its
interest in the case is based on systemic considerations and on the fact that it involves the subject of
bananas:
- Almost a year after the events which gave rise to this dispute, the European Communities has
still not fulfilled its obligation to implement the recommendations adopted by the DisputeSettlement Body in the banana case.
- In the banana case, Ecuador has shown that the multilateral procedures can indeed move
forward in spite of any contradictions or gaps in the interpretation of Articles 21 and 22 of the
Dispute Settlement Understanding.  However, as regards the multilateral implementation ofthese procedures, Ecuador has had to show considerable good faith.  And it is probably the
absence of good faith they can give rise to situations such as the one which has arisen in this
dispute.
Ecuador repeats its interest in this case and has decided to continue to seek a rapid solution to
this dispute.
Thank you.WT/DS165/R/Add.1
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Appendix 5
Third Party Submission of India
(10 December 1999)
Introduction
India has a strong systemic interest in this dispute. The fundamental question is whether a prevailing
Member in a dispute can unilaterally determine the compliance or non-compliance of the measures
taken by the implementing Member pursuant to the recommendations and rulings of the Dispute
Settlement Body (DSB) and based on this determ ination take unilateral measures suspending the
concession of the implementing Member without formal authorization for such suspension of
concessions by the DSB. At the heart of this matter are issues such as sequencing of multilateral
determination of compliance and suspension of concessions or the relationship between Article 21 and22 of the DSU.
Facts of the Dispute
In the EC – Banana dispute, the reasonable period of time (RPT) for compliance with the
DSB rulings by the EC was to expire on 1.1.99 as per the arbitration held under Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Pursuant tothese DSB rulings, EC claimed to have amended or revised in July and November 1998 its banana
importation regime, which was to be applicable from 1.1.99 onwards i.e., at the end of RPT.
In the period between October – December 1998, i.e., before the expiry of RPT, the US had
published three notices in its Federal Registry proposing to impose 100% ad valorem duties on
imports of certain products of EC from 3.3.99 onw ards. Accordingly, the US Customs Service had
required importers of the EC products to post bonds to cover the contingent duty liability, which could
be realized if the DSB authorized suspension of concessions.
The US did not request the DSB to refer to the original panel under Article 21.5 for
determination on the compliance of EC measures with the DSB rulings. Instead it sought on 14.1.99
the DSB authorisation to suspend the tariff concessions and related GATT obligations under the DSUArticle 22. When EC objected to the level of concessions sought to be suspended by the US and
requested for arbitration, the DSB referred the matter to arbitration under the DSU Article 22.6 on
29.1.99. The arbitrator issued his final decision on 9.4.99 and the DSB authorised US for suspension
of concessions at a reduced level of US $ 191.4 million (from $ 520 million) on 19.4.99. On the same
date the US confirmed the application of 100% ad velorem duty on the EC products retroactively
from 3.3.99 onwards.
Aggrieved by the US Customs Service decision requiring importers of EC products to post
100% duty bonds, the EC requested consultations with the US on that decision. The consultations
were held on 21.4.99, but failed to resolve the dispute. By a letter dated 11.5.99 EC requested for a
panel, which was established by the DSB on 16.6.99 with standard terms of reference.
LEGAL ARGUMENT
In the light of the above factual background, the main issue of systemic concern to India in
this dispute is: whether the US decision, made on a unilateral basis, that the EC's measures were not in
conformity with the DSB rulings is permissible under the DSU. Further, pending a decision by Article
22.6 arbitrator on the level of suspension of concessions and formal authorization by the DSB for such
suspension of concession under Article 22.7, can the US proceed with its so-called contingency
measures of requiring bonds from the importers of the EC products.WT/DS165/R/Add.1
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Articles 3, 21.5 and 23 of the DSU
Article 3 is a general provision. It states that the dispute settlement system as provided in the
WTO  "is a central element in providing security a nd predictability to the multilateral trading system".
Article 23 obligates the Members of the WTO to ("shall")  "have recourse to, and abide by, the rules
and procedures" of the DSU in resolving their disputes. By doing so and by not resorting to unilateral
measures, the Members, as indicated by the title of the Article, are expected to 'strengthen themultilateral system' as established by the DSU/WTO.
US argued in its first written submission that EC  had failed to show that its March 3 review of
bonding requirements were violation of its obligations  under Article 23. Further it dismissed Article 3
as only a "descriptive, not prescriptive" provision (at para 48 of the submission. However, it cited the
same Article 3.2 at para 42 in support of its action violating the DSU Article 22.6. It asserted there
that the purpose of the WTO dispute settlement system – i.e., to preserve the rights and obligations of
Members – would be undermined if suspension of concessions was to await completion of arbitralproceedings under Article 22.6).
It may, however, be noted that these two articles stress the importance of multilateral decision
making and dispute settlement system in the international trading system. And they are part of an
international treaty, to which the US, as an important trading State, has subscribed and become a
party.  One of the general principles of International Law is that treaty provisions shall be observed ingood faith by the parties. This is codified in the Article 26 of the Vienna Convention on the Law of
Treaties.
The March 3 decision by US regarding bonding requirements was clearly without the DSB
authorisation; furthermore, the requirement was imposed, pending the completion of Article 22.6
arbitration. Also, this requirement was not based on any multilateral decision of the DSB but based ona unilateral decision by the US that the EC measures were not in conformity with the DSB
recommendations and rulings. Thus US actions, which were clearly unilateral in nature, were contrary
to the letter and spirit of Articles 3 and 23 of the DSU.
Further, if there is any disagreement on the conformity of measures of a Member with the
DSB rulings, the Members are required by the DSU Article 21.5 to follow dispute settlementprocedures, including resorting to the original pane l to decide upon compliance or otherwise of those
measures. However, as outlined above, the US chose not to invoke this provision; rather, it
unilaterally decided that EC measures were not in compliance with the DSB rulings and
recommendations.
India strongly rejects the US assertion that the DSU allows a Member to proceed to Article 22
without first traversing Article 21.5. It is India's vi ew that the only possible interpretation of the DSU
procedures is that it is obligatory to go through Article 21.5 before resorting to Article 22.
Article 22.6 of the DSU
The last sentence of Article 22.6 lays down that "Concessions and other obligations shall not
be suspended during the course of arbitration". Despite this clear provision, the US decided to take so-
called contingency measures on 3.3.99, before the decision by the arbitrator on 9.4.99. This was in
clear violation of Article 22.6 of the DSU.
We do not agree with the US assertion that the DSU is silent as to the date of the suspension
of concessions. We believe that any measures suspending the concessions of a Member can be taken
only after completion of dispute settlement proceedings under the DSU. Otherwise it would
undermine the multilateral system of dispute settlement, as established by the DSU and would set a
bad precedent of far reaching consequences for the whole WTO system. If a Member is free toWT/DS165/R/Add.1
Page 130
determine and suspend unilaterally the trade concessi ons to another Member, there is nothing in DSU
requiring it to adhere to any maximum level of suspension of concessions. Members would normally
tend to resort to suspension at a higher level than th eir actual loss. This could result in enormous loss
to the traders.
In the present case, while the arbitrator had decided the level of nullification/impairment of
benefits to the US due to non-compliance of DSB rulings by the EC at $191.4 million, the US had inadvance determined that level at $520 million, and went ahead of enforcing it by requiring the
importers of the EC products to deposit the enhanced duty-bonds. This unilateral action of US had
done enough damage by imposing additional financial burden on the trade operators as explained by
EC at paras 16(d) & 17 of its first submission.
Conclusion
In conclusion, it is India's view that the US  violated key provisions of the DSU such as
Articles 3, 21, 22 and 23 by taking arbitrary and unilateral measures with regard to imports of certainproducts from the European Communities.WT/DS165/R/Add.1
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Appendix 6
Third Party Submission of Jamaica
(8 December 1999)
Jamaica has sought third party participation in the present dispute hearing between the European
Communities and the United States of America as it believes that the action taken by the United States
of America  on the 3rd March 1999, which is the subject of the present dispute, was contrary to the
WTO rules and if not determined to be illegal  by way of a Panel's ruling, will have a fundamental
impact on the future of the Dispute Settlement Mechanism (DSM).
The multilateral trading system as defined by the WTO agreements creates rights and obligations for
all participating members countries. The maintenance of the balance between these rights and
obligations is crucial to the success of this global trading system.  The Dispute Settlement Mechanismwith its accompanying rules and procedures, plays a fundamental role in the maintenance of the
balance within the WTO and therefore is " a central element in providing security and predictability to
the multilateral trading system " (Article 3:1 , Dispute Sett lement Understanding [DSU] ).
In this respect, Jamaica , as a developing country member of the WTO  is concerned about any threat
to the functioning of the DSM and has thus chosen to exercise its right to participate in this dispute asa means of seeking to preserve the integrity of the DSM .
The Dispute Settlement Understanding (DSU) requires parties to " seek the redress of a violation of
obligations [by way of]  the rules and procedures of [the DSU]"  ( Article 23:1 )
Furthermore, parties are not to make a " determination to the effect that a  violation has occurred...
except through recourse to dispute settlement in accordance with the rules and procedures of thisUnderstanding" (Article 23:2(a) )
According to Jamaica's  understanding of the rules in  this present matter, where a party is seeking to
enforce sanctions such as suspension of concessions against another Member, Article 21:2 requires
firstly that authorisation must be sought from  the Dispute Settlement Body (DSB) to suspend
concessions.  Additionally, where the level of suspension is being determined by way of arbitration,Article 21:6 states that concessions or other obligations shall not be suspended during the course of
arbitration  ".
The United States of America , like members of the European Communities and any other WTO
Member, has agreed to be bound by the rules and procedures of the DSU. As such, the United States
like every other WTO Member has the right to seek judicial determination of, and remedy for, analleged injury by another WTO Member.  However, the United States, and every other WTO Member
must exercise this right within the prescribed boundaries of the DSU.
The voluntary disregard of  DSU provisions, in favour of a unilateral determination of injury and
subsequent enforcement of remedial action unauthorized by the DSB, such as those put into effect by
the United States of America, is clearly a breach of the multilaterally agreed rules and procedures;
rules and procedures which the United States of America itself helped to design and adopt in 1994.
This breach by the United States of America sets a dangerous precedent. If the illegality of this
measure is not determined through the available avenues under the WTO such as this Panel process
and is subsequently relied upon by other WTO members, it would have the effect of undermining the
whole purpose of the WTO , that of providing a reliable rules-based global trading system.
Jamaica, therefore, calls on the Panel to uphold the WTO rules by finding that the United States of
America acted contrary to its obligations under the DSU.WT/DS165/R/Add.1
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Appendix 7
Oral presentation of Japan at Third Party session
(17 December 1999)
Mr. Chairman,
(SUPREMACY OF A MULTILATERAL DECISION OVER A UNILATERAL DECISION)
1. At the DSB meeting in April of this year, Japan, as a third party to the EC-Banana case,
registered its view on the importance of multilateral determination over unilateral determination.  We
emphasised that the maintenance of a sequence between Articles 21.5, and 22.6 or 22.7, is one of the
key elements in safeguarding the multilateral character of the Dispute Settlement Mechanism, and
more broadly of the organisation of the WTO.
2. While the EC deserves condemnation for the fact that it failed to fully implement the rulings
and recommendations of the Panel and Appellate B ody within the reasonable period of time, Japan
cannot but register its concern at the actions taken by the United States on 3 March, 1999.
(ARTICLE 22.6 OF THE DSU)
3. No matter how the United States characterises its action taken on 3 March, be it "contingency
plans" or "preservation of its ability to suspend concessions", the fact remains that the action"effectively stopped trade" and thus had an effect equivalent to the suspension of concessions.  This
constitutes a violation of Article 22.6.  We therefore fully support the EC's argument in paragraph 14
of its submission.
4. The counter-argument presented in the US submission in this regard, that the "withholding of
liquidation" was undertaken to "preserve administrative flexibility" and has no special legalsignificance , runs counter to the basic tenet of WTO law, i.e., ensuring predictability and stability in
trade.  The US argument should therefore be rejected.
(ARTICLES 23 AND 3.7 OF THE DSU)
5. We cannot but also register our grave concern at the argument of the United States that it may
start suspending the concessions anytime after the end of RPT regardless of the whether the DSB hasauthorised the suspension.  Such an argument is inconsistent with the objectives of Articles 23 and 3.7
of the DSU and has no basis in any of the DSU provisions.
6. The United States also argues that the EC has not demonstrated that the action of 3 March is
inconsistent with DSU Article 23 and has not assert ed a violation of DSU Article 3, and that the US
did no more than preserve the ability of the United States to assess duties from 3 March.  Thisargument of the US does not stand the test of scrutiny against the specific provisions of Article 23.
Article 23.2(a) clearly states that "Members shall not make a determination to the effect that a
violation has occurred, that benefits have been nullified or impaired".  The US action on 3 March to"preserve the ability to assess duties from 3 March", directly contradicts the provision of Article 23.2,
because the US action was indeed based on the determination to the effect that the violation has
occurred.
7. The Arbitrators also noted in paragraph 4.14 of its report that "the DSB has the ability to
reject its decision on the level of suspension as it does to reject panel and Appellate Body reports".
The language contained in Article 23.2(c) of the DSU is unequivocal to the effect that a DSB
authorisation is a prerequisite for suspending concessions or other obligations.  Thus, the justificationWT/DS165/R/Add.1
Page 133
advanced by the US in its submission for the US action taken on March 3, 1999 falls short of fulfilling
the provision of Article 23.2.
(ARTICLES I, II, XI, AND VIII OF THE GATT 1994)
8. In addition to the observation above, we also support the EC's argument that the measure
taken by the United States violates Articles I, II, XI, and VIII of the GATT 1994 as is established in
the First Submission of the EC.
(ARTICLE 21.5 OF THE DSU)
9. As the EC clearly demonstrates in paragraphs 23, 24 and 27 of their First Submission, it is the
obligation of the parties to have recourse to a Panel established under Article 21.5, where there is a
disagreement as to the consistency with a covered agreement of measures taken to comply with the
recommendations and rulings.  This provision of Article 21.5 is an expression of supremacy of
multilateral decision over unilateral decision, and is the bedrock of the multilateral trading system
upon which the WTO was founded.
10. We hereby request that the Panel conduct its analysis in a way that preserves such foundation
of the multilateral trading system and declare that the US measure has breached Articles 3, 21.5. 22
and 23 of the DSU and Articles I, II, XI and VIII of the GATT 1994.
Thank you.
__________