RESTRICTED
WORLD TRADE WT/DSB/M/26
15January 1997
ORGANIZATION(97-0114)
DISPUTE SETTLEMENT BODY
20November 1996
MINUTES OFMEETING
Held intheCentre William Rappard
on20November 1996
Chairman: Mr.Celso Lafer (Brazil)
Subjects discussed: Page
1. United States -TheCuban Liberty andDemocratic Solidarity Act 1
- Request bytheEuropean Communities andtheirmember States forthe
establishment ofapanel 1
2. Japan -Taxes onAlcoholic Beverages 3
- Implementation oftherecommendations oftheDSB 3
3. Rules ofConduct fortheUnderstanding onRules andProcedures Governing the
Settlement ofDisputes 5
- Report bytheChairman oftheInformal Group ontheRules ofConduct 5
4. Proposed nominations fortheindicative listofgovernmental andnon-governmental
panellists 6
5. India -Patent protection forpharmaceutical andagricultural chemical products 6
- Request bytheUnited States fortheestablishment ofapanel 6
1. United States -TheCuban Liberty andDemocratic Solidarity Act
- Request bytheEuropean Communities andtheirmember States forthe
establishment ofapanel (WT/DS38/2 andCorr. 1).
TheChairman recalled thattheDSBhadconsidered thismatter atitsmeeting on16October
1996, andhadagreed torevert toitatthepresent meeting. Hedrew attention tothecommunication
from theEuropean Communities inWT/DS38/2 andCorr.1.
Therepresentative oftheEuropean Communities saidthatashisdelegation hadnotobserved
anychange intheUnited States 'position since themeeting oftheDSB on16October 1996, the
Communities 'request fortheestablishment ofapanel remained asoutlined indocument WT/DS38/2.
Apanel should therefore beestablished withstandard terms ofreference.
Therepresentative oftheUnited States saidthatthismatter wasontheAgenda ofthepresent
meeting forthesecond timefollowing therequest bytheCommunities andtheirmember States forWT/DSB/M/26
Page2
theestablishment ofapanel regarding certain provisions oftheCuban Liberty andDemocratic Solidarity
(Libertad) Actandother USmeasures governing theUnited States 'economic relations withCuba.
Herecalled thatwhen thismatter hadbeenbrought totheDSBoveramonth ago,theUnited States
hadexplainedthattheCommunitieshadincludedintheirrequestforapanelthemeasureswhichreflected
long-standing USforeign policy andsecurity concerns withregard toCuba. TheLibertad Act,in
particular, hadbeenenacted intheimmediate aftermath oftheshoot down byCuba oftwounarmed
civilaircraft inbroad daylight andwithout justification, inblatant violation ofinternational law.The
Actwasdesigned topromote aswift transition todemocracy inCuba, agoalthattheUnited States,
theCommunities andtheirmember States, andmany other Governments shared.
Certain oftheother measures included intheCommunities 'request hadbeeninforce forsome
years, ordecades, andhadbeenexpressly justified bytheUnited States under theGATT 1947 as
measures taken inpursuit ofessential USsecurity interests. Asindicated attheDSBmeeting on16
October 1996, given theforeign andsecurity policy concerns underpinning decades oftheUnited States '
relations withCuba, andinthelightofthecommon interests thattheUnited States shared withits
European friends inregard toCuba, theUnited States wassurprised andconcerned thattheirdifferences
overCuba hadbeenraised before amultilateral trade forum.
TheUnited States regretted thattheCommunities andtheirmember States haddecided tobring
these differences toapanel. TheUnited States reiterated thatitsdispute withtheCommunities was
notfundamentally atradeissueandthusthetradepanel should notberequested todecide onthismatter.
There wasnosuggestion thatanyofthemeasures raised bytheCommunities reflected trade
protectionism. TheUnited States didnotbelieve thatrecourse toatradepanel would leadtoaresolution
ofthisdispute, butrather believed thatproceeding further withthismatter would poseserious risks
forthisnewandinvaluable organization, which wasonlyintheearly stage ofitsdevelopment. The
United States strongly urged theCommunities toexplore other, more appropriate andfruitful avenues
forpursuing theirinterests inthismatter.
TheDSBtooknoteofthestatements andagreed toestablish apanel withstandard terms of
reference inaccordance withtheprovisions ofArticle 6oftheDSU.
Therepresentatives ofMexico andCanada reserved theirthird-party rights toparticipate in
thepanel proceedings.1
Therepresentative ofNewZealand saidthathisdelegation didnotwishtoreserve third-party
rights. NewZealand recognized theconcern which hadledtheUnited States toimpose theadditional
measures, subject ofthepresent dispute. Nevertheless, measures taken inresponse should bein
accordance withinternational lawandshould notbebroadened unilaterally tothirdcountries andtheir
nationals. NewZealand attached greatimportance toanearlyresolution bytheparties ofthisdispute.
Therepresentative ofCuba saidthathiscountry didnotwishtoreserve third-party rights to
participate inthepanel. However, sincetheUnited States hadbased itsarguments onnational security
criteria andthealleged threat posed byCuba, hisdelegation wished tospeak onthisissue. Cuba wished
torecall andremind theUnited States thatalthough ithadnever invaded theUnited States militarily,
Cuba hadbeenoccupied forfouryears byUStroops. Cuba'sParliament hadnever adopted any
legislation against theUnited States, buttheUSCongress hadadopted legislation relating toanumber
ofCuba'ssovereign rights. Thatlegislation included anauthorization fortheUnited States tointervene
whenever itfelttheneedtore-establish lawandorder inCuba. While hiscountry occupied nopart
ofUSterritory, theUnited States, against thewilloftheCuban people, hadanaval baseinGuantánamo.
1After themeeting Japan, Malaysia andThailand reserved their third-party rights.WT/DSB/M/26
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Cuban ships hadnever threatened theUSterritory, butCuba had,onanumber ofoccasions, been
theobject ofsuchactions bytheUnited States. Cuba hadnever organized troops ofmercenaries to
invade ortotakeanykindofhostile action against theUnited States norhadallowed terrorist groups
toactagainst theUnited States fromitsterritory, orforaircrafts taking offfromitsnational territory
toactagainst civilormilitary targets intheUnited States. Cuba'sintelligence services hadnever
organized orplanned anyactions against USleaders. Hebelieved thatthisforum wasnotappropriate
toenumerate anendless listofsuchgrievances. InfactCuba would beinabetter position thanthe
UStoresort toArticle XXIofGATT 1994 which referred tonational security concerns.
TherepresentativeofNorwaysaidthatthiscasewascomplicatedbecauseofthetrade,economic,
andpolitical implications. Hisdelegation didnotreserve third-party rights butsupported thestatement
made byNewZealand.
TheDSBtooknoteofthestatements.
2. Japan -Taxes onAlcoholic Beverages (WT/DS8/11, WT/DS10/11, WT/DS11/8
- Implementation oftherecommendations oftheDSB
TheChairman recalled thattheDSU provisions required theDSBtokeepunder surveillance
theimplementation ofrecommendations andrulings oftheDSBinorder toensure effective resolution
ofdisputes tothebenefit ofallMembers. Inthisrespect, Article 21.3oftheDSUrequired theMember
concerned toinform theDSB, within 30daysafterthedateofadoption ofpanel andAppellate Body
report, ofitsintentions inrespect ofimplementation ofrecommendations andrulings oftheDSB.
On1November 1996, theDSBhadadopted theAppellate Body report on"Japan -Taxes onAlcoholic
Beverages" andthepanel report onthesame matter asmodified bytheAppellate Body report. He
informed Members thatthisitemhadbeeninscribed ontheAgenda attherequest ofJapan.
Therepresentative ofJapan reiterated hiscountry 'sdeepregret thattheAppellate Body report
hadconcluded thatJapan'sliquor taxsystem wasnotconsistent withArticle IIIofGATT 1994. His
delegation, however, noted thatthereport hadaccepted some ofJapan'sarguments andsubsequently
hadmade several corrections toerrors contained inthepanel report. Under Article 21.3oftheDSU,
Japan hadtheobligation toinform theDSBofitsintentions inrespect oftheimplementation ofthe
recommendations oftheDSBandhiscountry intended tomeetthisobligation.
Thetaxreform process forthe1997 fiscal yearduring which theimplementation ofthe
recommendations oftheDSBwould beexamined, hadjustbegun inJapan. Therefore, hewasnot
inaposition atthisstage toindicate anydetails ofthetaxreform which would beformulated during
thisprocess. Thequestion ofhowthedistilled liquor taxsystem should beamended inorder to
implement therecommendation oftheDSB, would beexamined inthelightofthefollowing conclusions
setoutintheAppellate Body report: (i)under theJapanese distilled liquor taxsystem imported vodka
wastaxed inexcess ofdomestic shochu; and(ii)theJapanese distilled liquor taxsystem didnottax
distilled liquors other thanvodka similarly todomestic shochu thereby affording protection todomestic
production.
Pursuant toArticle 21.3oftheDSU, Japan requested areasonable period oftimetocomply
withtherecommendations oftheDSB. Itintended toconsult withtheother parties tothedispute,
namely Canada, theEuropean Communities andtheUnited States, todetermine apossible period
oftime.
Therepresentative ofCanada saidthatasstated previously Canada waspleased withthepanel
andAppellate Body recommendations onthismatter. Itwasalsopleased thatJapan intended torespectWT/DSB/M/26
Page4
theserecommendations bybringing itsmeasures intoconformity withtheWTO. Theneedfor"prompt
compliance" required bytheDSUshould beemphasized. Consequently, theseJapanese measures must
beamended intheverynearfuture. Thefactthatthismatter hadbeenanissue between Japan and
anumber ofitstrading parties formany years mustbetaken intoaccount inconsidering the"reasonable
period oftime" within which Japan would need tobring itstaxsystem intoconformity withthe
recommendations. Canada 'sMinister forInternational Trade hadurged Japan "tocarry outtheruling
quickly". InCanada 'sview, toomuch commercial damage hadalready beensustained byJapan's
trading partners; therefore, thiswasthetimeforaction. Inthisconnection, theApril budget cycle
wastheappropriate opportunity forJapan toenact therequired changes. Canada requested thatJapan
implement therecommendations oftheDSBwithout delay, bothinletter andinspirit, inorder tobring
thislong-standing dispute toanend.Inthisconnection, Canada would beclosely examining thedetails
ofhowtheimplementation would becarried out.
Therepresentative oftheEuropean Communities thanked Japan foritsstatement concerning
itsintention toimplement theDSB'srecommendations. TheCommunities noted thatJapan wasnot
yetinaposition toindicate themanner andtime-period inwhich itintended toimplement theDSB's
recommendations. Herecalled thatfullimplementation must takeplace promptly, which meant
immediately oratthelatest within areasonable period oftime, which should normally notexceed 15
months. Given Japan'ssystemic interest inpreserving respect forthedispute settlement provisions
byallMembers, theCommunities expected Japan tocomply fully withthese provisions. The
Communities considered thattheonlywayforJapan toachieve fullimplementation without anyrisk
ofanewWTO condemnation wastointroduce asingle taxrateperdegree ofalcohol forallspirits.
Ifanytaxation difference remained between directly competitive orsubstitutable products itwould
runtheriskofbeing more than"deminimis "andwould again befound unjustified. Theterm"de
minimis" meant negligible anditshould betaken literally.
With respect tothereasonable period oftime toimplement therecommendations, the
Communities observed thatthisdispute already hadalonghistory, covering aten-year period. During
thattime, theJapanese taxsystem forspirits hadbeencondemned bytwopanels andbytheAppellate
Body. TheCommunities therefore expected Japan tomake every effort toachieve fullimplementation
oftheDSBrecommendations aspromptly aspossible, wellwithin thetime-frame of15months stipulated
inArticle 21.4oftheDSU.
Therepresentative oftheUnited States saidthathisauthorities welcomed theannouncement
thatJapan would implement theDSBrecommendations ontaxation ofdistilled spirits. TheUnited
States looked forward, pursuant toArticle 21.3oftheDSU, todiscussing withJapan inthenextfew
weeks whatconstituted areasonable period oftimeforimplementation oftheDSBrecommendations
andthemanner ofthisimplementation. Herecalled thatattheDSBmeeting on29October and1
November, theUnited States hadnoted thattheadoption ofthereports hadcome ingood timefor
thenecessary changes tobemade inthecontext ofthebudget forthenextJapanese fiscal year, which
would begin on1April 1997. Ithadalsonoted thatthisdispute hadalonghistory. TheUnited States
would closely follow Japan'simplementation measures withthehopeandexpectation thatJapan would
adopt amarket-opening solution, andthatitwould benofurther needforthisissue tobebrought to
theWTO.
TheChairman recalled thatArticle 21.3(b)oftheDSU required theparties tothedispute to
agree toatime-period necessary forimplementation oftheDSBrecommendations.
TheDSBtooknoteofthestatements andoftheinformation provided byJapan regarding its
intentions toimplement therecommendations oftheDSB.WT/DSB/M/26
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3. Rules ofConduct fortheUnderstanding onRules andProcedures Governing theSettlement
ofDisputes
- Report bytheChairman oftheInformal Group ontheRules ofConduct
TheChairman recalled thatthework doneontheRules ofConduct fortheUnderstanding on
theRules andProcedures Governing theSettlement ofDisputes hadbeenforwarded bythePreparatory
Committee totheWTO asapossible basisforfurther work. On31January 1995, theGeneral Council,
inthecontext oftheadoption ofthePreparatory Committee report contained inPC/R, hadforwarded
thismatter totheDSBforconsideration. Subsequently, thework hadbeencarried outbytheInformal
Group ontheRules ofConduct under theChairmanship ofMr.Armstrong. Periodically, Members
hadopportunities tohearprogress reports byMr.Armstrong. Thelastreport onthismatter hadbeen
presented inSeptember 1995. Inaccordance withthisreport there hadbeenaconsensus onthedraft
textoftheRules ofConduct circulated toMembers on24July1995, except foroneoutstanding issue
intheareaoftheTextiles Monitoring Body (TMB). ThefinaltextoftheRules ofConduct hadbeen
circulated on15November 1996, indocument WT/DSB/RC/W/1.
TheChairman oftheInformal Group ontheRules ofConduct, Mr.Armstrong, reported on
theresults ofmore thantwoyears ofnegotiation ontheRules ofConduct fortheUnderstanding on
Rules andProcedures Governing theSettlement ofDisputes. Herecalled thaton9November 1994,
aproposal hadbeencirculated foradraftCode ofEthics inPC/IPL/W/12 applicable toallpersons
involved inthedispute settlement process oftheWTO. Hehadthenbeenasked tochair informal
consultations towhich allinterested delegations hadbeeninvited. Herecalled thaton31January 1995,
theGeneral Council hadtaken noteofhisprogress report totheWTO Preparatory Committee and
hadreferred thematter totheDSB. On14February 1995, hehadbeenasked bytheDSBtocontinue
open-ended informal consultations withaviewtoconcluding afinaldrafttextoftheRules ofConduct
forconsideration bytheDSB assoon aspossible. Duetotheveryactive participation ofmany
delegations, thetextoftheRules ofConduct hadbeensubstantially changed totakeintoaccount the
concerns ofmany countries. On24Julyand27September 1995, hehadreported totheDSBthat
aconsensus hadbeenreached amongst theparticipants intheopen-ended consultations onadrafttext
oftheRules ofConduct, except forthesingle issueoftherelationship between theTMB andtheRules
ofConduct. Subsequently, thetextoftheRules ofConduct, astheythenstood, hadbeenadopted
bytheAppellate Body on15February 1996asAnnex IIofWorking Procedures forAppellate Review.2
Following hisprogress report attheDSBmeeting on27September 1995, hehadsought to
address thesingle outstanding issueoftheTMB, bycontinuing informal consultations withanumber
ofexporter andimporter countries inthetextiles sector. Subsequently, hehadbrought arevised text
oftheRules ofConduct towider informal consultations fordiscussion. Lastweek, thistexthadbeen
faxed toallHeads ofDelegations prior toanopen-ended meeting. On15November 1996, thistext
hadbeencirculated inWT/DSB/RC/W/1. Hewaspleased toreport that,based onthisextensive process
ofconsultations andmeetings, itappeared thataconsensus hadbeenreached onthetextcontained
inWT/DSB/RC/W/1.
Therepresentative ofNorway thanked Mr.Armstrong fortheeffective work doneinthisarea.
Although thisprocess hadbeenlong, without Mr.Armstrong 'scontribution delegations would still
bestruggling withthisissue. Hesupported theadoption ofthetextcontained inWT/DSB/RC/W/1.
Hebelieved thatagood solution hadbeenreached withregard totheoutstanding problem ofthe
relationship between theTMB andtheRules ofConduct.
2WT/AB/WP/1WT/DSB/M/26
Page6
Therepresentative ofIndia thanked Mr.Armstrong forfinalizing theRules ofConduct. His
delegation hadbeeninvolved inthisprocess from thebeginning andhewasaware oftheamount of
timeandenergy thatMr.Armstrong haddevoted tothiswork inorder tobring ittoasuccessful
conclusion. LikeNorway, hebelieved thatithadtaken averylongtimetofinalize thiswork because
ofthecomplex andvarious issues related tothisquestion andtothefactthatthiswasthefirsttime
thatMembers hadundertaken suchanexercise. Hisdelegation could goalong withthetextproposed
byMr.Armstrong.
Therepresentative ofPakistan thanked Mr.Armstrong forfinalizing theRules ofConduct
andsaidthathisdelegation fullysupported thetextinWT/DSB/RC/W/1.
Therepresentative ofBrazil saidthathisdelegation thanked Mr.Armstrong forthework done
ontheRules ofConduct. Thelength oftimededicated tothenegotiation ofthistexthadledtoan
undoubted improvement ofthetextandhisdelegation fully supported theadoption ofthistextin
WT/DSB/RC/W/1.
TheChairman alsothanked Mr.Armstrong forhisefforts andhissuccessful accomplishment.
Henoted thatitappeared thatthere wasaconsensus infavour ofadoption oftheRules ofConduct
andproposed thattheDSBrevert tothismatter atitsnextregular meeting tobeheldon3December
inorder toformally adopt oftheRules ofConduct.
TheDSBtooknoteofthestatements, oftheconsensus infavour ofadoption oftheRules of
Conduct andagreed torevert tothismatter atitsnextregular meeting inorder toformally adopt the
Rules ofConduct.
4. Proposed nominations fortheindicative listofgovernmental andnon-governmental panellists
(WT/DSB/W/43)
TheChairmandrewattentiontodocumentWT/DSB/W/43containingadditionalnamesproposed
byMembers forinclusion ontheindicative listofgovernmental andnon-governmental panellists in
accordance withArticle 8.4oftheDSU. Heproposed thattheDSBapprove thenames contained therein.
TheDSBsoagreed.
5. India -Patent protection forpharmaceutical andagricultural chemical products
- Request bytheUnited States fortheestablishment ofapanel (WT/DS50/4)
TheChairmandrewattentiontothecommunicationfromtheUnitedStatescontainedindocument
WT/DS50/4.
Therepresentative oftheUnited States saidthathiscountry hadrequested consultations with
India on2July1996, onthelatter'sfailure either toprovide patent protection forpharmaceutical and
agricultural chemical products ortocomply withtheobligations ofArticle 70.8and70.9oftheTRIPS
Agreement. India, asadeveloping country, wasentitled totakeadvantage ofthetransitional provisions
inArticle 65oftheTRIPS Agreement anddefer modifying itspatent system tomake patent protection
available consistent withArticle 27oftheTRIPS Agreement. However, because Indiahadnotprovided
patentprotectionforpharmaceuticalandagriculturalchemicalproductson1January1995,itwasobliged
tocomply withArticle 70.8and9oftheTRIPS Agreement asofthatdate.WT/DSB/M/26
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Article 70.8oftheTRIPS Agreement required India toestablish procedures topermit entities
tofileproduct patent applications drawn topharmaceutical andagricultural chemical inventions, which
weresometimesreferredtoas"mailbox"applications.Article70.8oftheTRIPSAgreementalsoobliged
India toensure thatwhen itprovided patent protection forpharmaceutical andagricultural chemical
products, all"mailbox" applications would bepromptly examined based ontheirpriority date, and
patents granted would bebased onthestandards established intheTRIPS Agreement.
Article 70.9required India toestablish asystem which would provide exclusive marketing
rights inproducts thatwerethesubject ofa"mailbox" application, where theproduct hadbeenpatented
andgranted marketing approval inanother Member andhadbeengranted marketing approval inIndia.
Although over22months hadelapsed since these obligations hadbecome mandatory, India hadnot
introduced thenecessary changes toitslawstomeetthese obligations. TheUnited States hadheld
unsuccessfulconsultationswithIndiawithregardtothismatter.Accordingly,theUnitedStatesrequested
theestablishment ofapanel toexamine thismatter.
Therepresentative ofIndiasaidthathehadcarefully listened totherequest made bytheUnited
States fortheestablishment ofapanel toexamine theUnited States 'assertion thatIndia'slegalregime
hadfailed toconform totheobligations under Articles 27,65and70oftheTRIPS Agreement, and
hadnullified orimpaired benefits accruing directly orindirectly totheUnited States under theTRIPS
Agreement. India hadresponded positively totheUnited States 'request forconsultations pursuant
toArticle 4oftheDSUandArticle 64oftheTRIPS Agreement regarding thealleged absence inIndia
ofeither patent protection forpharmaceutical andagricultural chemical products orformal systems
thatpermitted thefiling ofpatent application forpharmaceutical andagricultural chemical products
andthatprovided exclusive marketing rights insuchproducts.
During theconsultations heldinGeneva on27July1996, India haddoneitsbesttorespond
totheUnited States 'concerns, butitwasnotnecessary togointodetails atthisstage. India was
disappointed withtheUnited States 'decision torequest theestablishment ofapanel. However, it
recognized andrespected therightofaMember torequest theestablishment ofapanel inaccordance
withtheDSU provisions afterconsultations failed tosettle adispute. India didnotwishtostand in
thewayifother DSBmembers deemed itappropriate toagree atthepresent meeting totherequest
oftheUnited States fortheestablishment ofapanel, ascontained indocument WT/DS50/4.
TheDSBtooknoteofthestatements andagreed toestablish apanel withstandard terms of
reference inaccordance withtheprovisions ofArticle 6oftheDSU.
Therepresentative oftheEuropean Communities reserved third-party rights toparticipate in
thepanel proceedings.