RESTRICTED
WORLD TRADE WT/DSB/M/35
18July1997
ORGANIZATION(97-3049)
Dispute Settlement Body
25June 1997
MINUTES OFMEETING
Held inCentre William Rappard
on25June1997
Chairman: Mr.Wade Armstrong (New Zealand)
Subjects discussed: Page
1. Surveillance ofimplementation ofrecommendations adopted bytheDSB ........1
- United States -Standards forreformulated andconventional gasoline:
Status report bytheUnited States ............................1
2. European Communities -Measures affecting importation ofcertain poultry
products .................................................3
- Request fortheestablishment ofapanel byBrazil .................3
3. Indonesia -Certain measures affecting theautomobile industry ..............5
- Request fortheestablishment ofapanel bytheUnited States ..........5
4. Terms ofoffice ofAppellate Body members (Article 17.2oftheDSU) .........6
- Statement bytheChairman ................................6
5. Proposed nominations fortheindicative listofgovernmental andnon-governmental
panelists .................................................7
1. Surveillance ofimplementation ofrecommendations adopted bytheDSB
- United States -Standards forreformulated andconventional gasoline:
Status report bytheUnited States (WT/DS2/10/Add.5)
TheChairman recalled thatthisitemwasontheagenda pursuant toArticle 21.6oftheDSU
which required that: "Unless theDSB decides otherwise, theissue ofimplementation ofthe
recommendations orrulings shallbeplaced ontheagenda oftheDSBmeeting aftersixmonths following
thedateofestablishment ofthereasonable period oftimepursuant toparagraph 3andshallremain
ontheDSB'sagendauntiltheissueisresolved."HethendrewattentiontodocumentWT/DS2/10/Add.5
which contained afurther status report bytheUnited States withregard toprogress intheimplementation
oftheDSB'srecommendations onthismatter.
Therepresentative oftheUnited States saidthatasprovided forinArticle 21.6oftheDSU,
hiscountry hadsubmitted itssixthreport ontheimplementation oftheDSB'srecommendations. AtWT/DSB/M/35
Page2
theDSBmeeting on23May1997, theUnited States hadstated thaton29April 1997, theadministrator
oftheUSEnvironmentalProtectionAgency(EPA)hadissuedtheproposedruleforcomment.Consistent
withnormal USregulatory procedures, theEPAhadinvited allinterested parties tocomment onthe
specifics ofitsproposal. Thecomment period hadended on19June1997. TheEPAhadreceived
comments from abroad range ofinterested parties. These comments were allavailable forpublic
inspection attheEPAwhich would beconsidered prior tothefinalization oftheGasoline Rule.
Therepresentative ofVenezuela thanked theUnited States fortheinformation justprovided
andsaidthatasithadbeenannounced attheDSBmeeting on23May1997, hisGovernment andthe
representatives ofthestateenterprise Petróleos deVenezuela SAhadalready submitted comments on
theproposed amendments totheGasoline Rule. On3June1997, theVenezuelan Minister ofIndustry
andTrade hadsentacommunication totheUSTrade Representative outlining hiscountry 'sconcerns
withrespect toanumber ofprovisions intheproposed amendments relating toconventional gasoline
which, ifincluded intherevised Gasoline Rule, would contravene theDSB'srecommendations and
would onceagain result inthediscriminatory treatment ofimported gasoline.
Inparticular, Venezuela wasconcerned about theprovisions which could subject foreign refiners
totheUnited States civilandcriminal jurisdiction. Inaccordance withtheEPAproposal, theforeign
refiner wishing touseitsownbaseline would havetowaive itsrights tosovereign immunity. Where
questions ofsovereignty wereinvolved, Venezuela didnotpermit anycountry toimpose itsdomestic
lawsonindividuals orcommercial entities foractivities which thelatter carried outinVenezuelan
territory. Onmany occasions, hisGovernment hadindicated thattherewereviable alternatives which
would enable theUnited States toensure thatitsobjectives inthisareawere fulfilled inamanner
consistentwithitsWTOobligations.Forexample,theUnitedStatescouldmaketheimporterresponsible
foranyviolation oftheGasoline Rule, while allowing theforeign refiner touseitsownbaseline, like
theUSrefiner. There were numerous precedents inother sectors where theimporter waslegally
responsible forthequality ofproducts produced outside oftheUnited States.
HisGovernment believed thattheproposed amendments which hadunnecessarily complex
andstrict requirements intended tobeapplied exclusively togasoline from foreign refineries would
result inasignificant reduction inimports ofgasoline totheUSmarket. From theenvironmental point
ofview, itshould alsobeborne inmind thatthemaximum volume ofgasoline regulated bythese
amendments would besignificantly small compared toadailyconsumption ofabout 8.5million barrels
intheUnited States. Venezuela, which wasoneoftheprincipal suppliers ofconventional gasoline
totheUnited States, wasexporting about 60,000 barrels perday. Thus, thesmall share ofimported
conventional gasoline intotaldomestic consumption made thelessfavourable treatment which the
proposedamendmentsimposedonimportedgasoline,ascomparedwithUSgasoline,evenlessjustifiable.
Hereiterated thatVenezuela didnotquestion theright oftheUnited States toestablish itsown
environmental standards forthegasoline itconsumed. Onthecontrary, itwould cooperate withthe
United States, asithaddoneinthepast,inorder tocontinue improving thequality ofitsgasoline.
Venezuela expected thatsuchstandards would beapplied inanon-discriminatory manner andthatthe
EPAwould takedueaccount oftheseandother similar comments which ithadreceived fromitstrading
partners andincorporate them initsfinalregulation duetoenter intoforce nextSeptember.
Therepresentative oftheEuropean Communities asked thefollowing questions: (i)howwould
theUnited States reconcile theDSB'srecommendations withtheproposed Gasoline Rulewhere only
imported gasoline -andnotdomestic gasoline -would besubject toaquality benchmark, amonitoring
mechanism andthepossibility toincrease thestatutory baseline, while deteriorations intheoverall
quality ofconventional gasoline werepossible fordomestic products? (ii)howwould theUnited States
justify thatcertain surveillance requirements were onlyapplicable toimports andnottodomestic
products? TheCommunities would beinterested toreceive replies from theUSauthorities tothese
questions. Theybelieved thatthecorrect implementation oftheDSB'srecommendations would requireWT/DSB/M/35
Page3
thesame treatment forlikeimported anddomestic products unless differences could bejustified by
precisely identified environmental concerns.
Therepresentative ofBrazil welcomed theUnited States 'efforts tobring itslegislation into
conformitywiththePanel'srecommendationswhichhadbeenupheldbytheAppellateBody.Herecalled
thatthedeadline forcompliance withtheDSB'srecommendations onthismatter was20August 1997,
andthatprior tothatdateonlyoneregular meeting oftheDSBwasscheduled. Although Brazil had
expressed itsconcerns thatcompliance might nottakeplace within therequired time-period, ithad
accepted thereassurances oftheUnited States inthisregard. Brazil hadanumber ofquestions with
regard totheEPA'sproposed amendments totheGasoline Rule. Although these amendments should
eliminate lessfavourable treatment forforeign refiners byallowing themtoobtain individual baselines
fortheirgasoline, nevertheless itcontained elements thatcould create asituation ofdiscrimination
against foreign refiners. Inthisregard, theBrazilian gasoline producer hadalready expressed itsmain
technical concerns totheUSauthorities. However, inBrazil 'sview, twoaspects oftheproposal had
systemic relevance andshould bebrought totheDSB'sattention.
Oneaspect related totheproposal foraburdensome, expensive andtrade-restrictive requirement
forgasoline exporters topostbonds. Thereason forthisrequirement wastoprovide afundthatwould
ensure thepayment offinesorpenalties imposed onforeign refiners forpossible future violations of
theEPA'sregulations. Brazil believed thatthisproposal raised serious questions inrelation tothe
GATT 1994, including Articles IIandIIIthereof. Ifexporters would berequired topostbonds to
ensure thatpenalties forpossible future violations oflawwerepaid, alltradecould beseriously affected,
since thispayment created atrade barrier which, inBrazil 'sview, wastantamount toatariff.
Brazil wasevenmoreconcerned withthesecond aspect oftheproposal, namely therequirement
thatstate-owned orstate-operated foreign refiners agree towaive theirrights tosovereign immunity
withregard toprosecution intheUnited States forcivilandcriminal violation oftheClean AirAct
andofTitle18oftheUSCode. Therighttosovereign immunity wasfundamental inpublic international
law,andassuch, hadimplications reaching farbeyond thisparticular matter. NoMember could impose
awaiver ofrights under international lawasacondition forgranting national treatment oranyother
WTO benefits. These points hadbeenmade totheEPAbytheBrazilian exporter, andhiscountry
hoped thattheEPAwould reconsider these proposals, which hadserious implications fortheWTO.
Therepresentative oftheUnited States noted thatthecomments made atthepresent meeting,
inparticular those ofBrazil andVenezuela, hadalready beensubmitted totheEPA. Hereiterated
thatthecomment period hadended on19JuneandthattheEPAwasnowintheprocess ofreviewing
these comments. Heassured delegations thatallcomments thathadbeenreceived would betaken
intoaccount. Healsoreiterated thattheUnited States tookseriously itscommitments tothetimely
implementation ofitsobligations withrespect tothiscaseandthatitwasontrack towards meeting
itscommitments.
TheDSBtooknoteofthestatements andagreed torevert tothismatter atitsnextregular
meeting.
2. European Communities -Measures affecting importation ofcertain poultry products
- Request fortheestablishment ofapanel byBrazil (WT/DS69/2)
TheChairman drew attention tothecommunication from Brazil contained indocument
WT/DS69/2.WT/DSB/M/35
Page4
Therepresentative ofBrazil saidthatalthough hiscountry 'srequest fortheestablishment of
apanel contained inWT/DS69/2 wassufficiently clear, hewished tomake some comments onthis
matter.InJuly1992,inthecontextofArticleXXVIII:4negotiationsonthemodificationoftheEuropean
Communities 'concessions withregard tocertain oilseeds andoil-cakes included intheirschedule, Brazil
hadinformed theCommunities ofitsprincipal supplying interest insoyaoil-cakes, itssubstantial interest
insoya beans anditsexport interest insunflower oil-cakes. Thenegotiations pursuant to
Article XXVIII:4 hadbeenasecond-best solution made available totheCommunities bythereconvened
Oilseeds panel1andhadbeenauthorized bytheGATT Council on19June1992.2
Inthecourse ofArticle XXVIII:4 bilateral negotiations concluded inJuly1993, Brazil had
beenflexible andhadnotonlyaccepted thechanges proposed bytheCommunities withregard toits
oilseeds sector, buthadalsoaccepted apackage ofcompensation inother agricultural products. This
package, which hadbeentabled bytheCommunities attheoutset ofthenegotiations andwhich had
onlybeenmodified inthefollowing yeartoalimited degree, hadbeenaccepted ontheunderstanding
thatthespecific elements ofthecompensation offer, suchasconcessions onpoultry, would benefit
Brazil. Hiscountry wastherefore surprised thatinimplementing thepartoftheagreement related
topoultry meat, theagreed compensation hadbeenreduced. Theallocation oflessthanhalfofthe
chicken partsquota toBrazil hadbeenacleardeparture fromthebilateral agreement. Thisquota had
beendesigned tocompensate Brazil foritslosses intheoilseeds sector andnottoreflect alleged market
shares intheCommunities 'chicken partsmarket. Afterall,thecompensation hadbeenlinked tochanges
inthemarket access conditions foroilseeds andnottochicken exports. Brazil hadbeenentitled to
anarrangement which would guarantee benefits beyond itsactual share inthechicken parts market.
Furthermore, theallocation ofpartoftheBrazilian quota tocountries thathadnotparticipated inthe
Article XXVIII:4 negotiations asinterested parties, ortoacategory ofothers, including non-WTO
Members, could notbeconsidered asacompensation toBrazil.
Brazil contended thattheimplementation ofthetariff-rate quota forpoultry meatascontained
inthebilateral agreement hadnotproperly maintained "...ageneral levelofreciprocal andmutually
advantageous concessions notlessfavourable totradethanthatprovided ...priortosuchnegotiations"
asdefined inArticle XXVIII. Thecompensatory adjustment insome products hadnotmaterialized
asaresult oftheallocation andadministration ofthequota. Since 1994, when theCommunities had
begun implementing theAgreement intheformofAgreed Minutes onCertain Oilseeds between Brazil
andtheCommunities Pursuant toArticle XXVIII oftheGATT ,hisGovernment hadconveyed tothe
Communities itsunderstanding oftheterms oftheagreement anditsviews onhowitshould beproperly
implemented.
Apart fromnumerous oralrepresentations made byBrazil onthismatter, itsposition hadalso
beenconveyed inaseries ofletters sentinMarch, April andMay1994 aswellasinApril 1995 and
inMayandJuly1996. Thecontinuing lackofresponse bytheCommunities --todatenoreply to
anyofthese letters hadbeenreceived --anditsfailure toactonproposals made during bilateral
consultations, hadledBrazil torequest consultations under Article XXIII ofGATT 1994, andtoinvoke
itsrights under thedispute settlement mechanism. Atthetimeofthisrequest andduring thetworounds
ofconsultations heldwiththeCommunities, Brazil 'sintention hadbeentotryonceagain toseeka
mutually agreed solution tothismatter inaccordance withthespirit ofArticle 3.7oftheDSU.
While theconsultations hadfailed tosettle thisdispute, theyhadprovided information onthe
possibility thattheproblems withregard toBrazilian exports ofpoultry meatwere notonlylimited
1Follow-uponthePanelReport"EuropeanEconomicCommunity-PaymentsandSubsidiesPaidtoProcessors
andProducers ofOilseeds andRelated Animal-Feed Proteins" (DS28/R).
2C/M/257.WT/DSB/M/35
Page5
totrade within thequota. Thelackoftransparency oftheECadministration concerning areduced
share ofthetariff-rate quota allocated toBrazil hadalsoaffected trade outside thequota. Hiscountry
wasnotinaposition toknow whether itsdutiable exports which hadbeensubject tospecial safeguard
provisions under Articles 4and5oftheAgreement onAgriculture, benefitted fromthemarket access
opportunities which hadbeenagreed during theUruguay Round negotiations.
Inorder tomake hiscountry 'sposition clear, hesaidthatBrazil 'scomplaint could besummed
upintwowords, namely, compensation andtransparency. Compensation wasasecond-best option
tocompliance withmultilateral rules. ThisGATT principle wasreflected inArticle 22oftheDSU.
Therefore, compensatory agreements, assubstitutes forcompliance, should bestrictly adhered to.
Transparency, oneofthepillars ofthemultilateral trading system, didnotrequire anyfurther comments.
Brazil wanted fullcompensation inchicken meat, which hadbeenagreed during theArticle XXVIII:4
negotiations. Italsowanted theCommunities toadminister thetariff-rate quota inatransparent manner.
Thiswould enable Brazil toidentify which saleswerebeing made inside andoutside thequota, and
would ensure thatitsWTO rights were being respected.
Duringtheconsultations,theCommunitieshaddefendedthepositionthatthisdisputewaslimited
totheinterpretation ofwhathadbeenagreed. InBrazil 'sview, theCommunities 'interpretation had
resulted inanullification andimpairment ofBrazil 'srights under theWTO Agreement. Therefore,
hiscountry requested theestablishment ofapanel toexamine thismatter. Herecalled thefollowing
statement made byBrazil on19June1992atthetimewhen theGATT Council hadagreed toauthorize
theCommunities toconduct thenegotiations pursuant toArticle XXVIII:4: "Brazil alsoregretted that
theCommunity hadchosen thesecond ofthetwooptions suggested bythereconvened Panel members
fortheresolution ofthedispute, forthiswould entail alongandburdensome process, theoutcome
ofwhich noonecould ensure".3Inretrospect, hebelieved thatthiswasaveryvalid comment given
theproblems currently faced byBrazil.
Therepresentative oftheEuropean Communities thanked Brazil fortheextended statement
ofitsposition, which hisdelegation haddulynoted. Thiswasthefirsttimethattherequest forapanel
wasontheagenda oftheDSB. Aspointed outinthestatement, theCommunities hadheldconsultations
withBrazil onthisimportant issue. Hisauthorities considered thatthere werecertain elements inthe
Brazilian arguments andposition thatrequired further examination. Therefore theCommunities could
notagree totheestablishment ofapanel atthepresent meeting.
TheDSBtooknoteofthestatements andagreed torevert tothismatter.
3. Indonesia -Certain measures affecting theautomobile industry
- Request fortheestablishment ofapanel bytheUnited States (WT/DS59/6)
TheChairmandrewattentiontothecommunicationfromtheUnitedStatescontainedindocument
WT/DS59/6.
Therepresentative oftheUnited States saidthatfornearly ayear,hisGovernment hadconsulted
withIndonesia onitspolicies intheautomobile sector. TheUnited States wasseriously concerned
about thismatter andhoped thatallMembers would adhere toWTO rulesinthedevelopment oftheir
policies intheautomobile sector. Hiscountry hadheldintensive discussions withIndonesia overthe
pasttwoweeks onthisissue. While positive, thesediscussions hadnotresulted inamutually satisfactory
solution tothismatter. Therefore, theUnited States requested theestablishment ofapanel toconsider
3C/M/257, p.17.WT/DSB/M/35
Page6
itsclaims regarding Indonesia 'sautomobile policies. However, itexpected tocontinue constructive
discussions withIndonesia andhoped toreach amutually satisfactory solution tothismatter inthe
nearfuture.
Therepresentative ofIndonesia saidthatherGovernment appreciated theconstructive attitude
oftheUnited States initsefforts toseekamutually agreeable solution todifferences withregard to
Indonesia 'sautomobile policy. Indonesia recognized thattheUnited States wished tojointhePanel
recently established attherequests oftheEuropean Communities andJapan.4However, itbelieved
thatitwaspreferable tocontinue theefforts toexplore whether thismatter could besettled. Therefore,
Indonesia could notsupport theestablishment ofapanel atthepresent meeting.
TheDSBtooknoteofthestatements andagreed torevert tothismatter.
4. Terms ofoffice ofAppellate Body members (Article 17.2oftheDSU)
- Statement bytheChairman
TheChairman saidthatasaresult ofhisextensive informal consultations withMembers in
recent weeks concerning theissue oftheexpiry oftheterms ofthree oftheseven Appellate Body
members inDecember 1997, hewished topropose acourse ofaction toachieve theobjectives which
Members hadexpressed tohim. During thecourse oftheseconsultations Members hadindicated their
acceptance thatthethree Appellate Body members tobedetermined bylot,pursuant totheprovisions
ofArticle 17.2oftheDSU, should bereappointed forafinaltermoffouryears. Such adecision
didnothaveanybearing ontheintegrity oftheDispute Settlement Understanding. Furthermore, it
didnotsetaprecedent fortheactions oftheDSBinthefuture when theterms ofother Appellate Body
members would expire.
Based ontheabove understanding, heproposed thattheDSBundertake thefollowing process
atthepresent meeting, inorder toensure theorderly reappointment ofthethreeAppellate Body members
whose terms would expire thisyear. Following thisstatement, hewould suspend thismeeting inorder
toundertake thedrawing oflotsasrequired byArticle 17.2oftheDSU, todetermine which three
Appellate Body members would haveinitial two-year terms. Inaccordance withArticles 2and17.2
oftheDSU, which identified theDSB'sresponsibility toadminister theDSUandtoappoint orreappoint
persons toserve ontheAppellate Body, andconsistent withtheDSBDecision on"Establishment of
theAppellate Body", WT/DSB/1 of19June1995, hebelieved thatthedrawing oflotsshould be
conducted byhimself asChairman oftheDSB inthepresence oftheChairpersons oftheGeneral
Council, theCouncil forTrade inGoods, theCouncil forTrade inServices andtheCouncil forTRIPS
aswellastheDirector-General, ifpossible. Immediately afterthedrawing oflots,itwashisintention
toresume themeeting andtoinform those present ofthenames oftheAppellate Body members who
would serve theinitial two-year terms asdetermined bylot.Finally, heproposed thattheDSBtake
adecision atthepresent meeting toreappoint, effective 11December 1997forafinalfour-year term,
thethree Appellate Body members determined bylotpursuant totheprovisions ofArticle 17.2ofthe
DSU. Ontheunderstanding thattheDSBwould proceed toadecision onthismatter atthepresent
meeting, heproposed thattheDSB adopt theoutlined process inorder toensure theorderly
reappointment ofthethree Appellate Body members whose terms were duetoexpire thisyear.
TheDSBagreed totheChairman 'sproposal.
412June 1997, WT/DSB/M/34WT/DSB/M/35
Page7
Upon resumption ofthemeeting, theChairman saidthatinthepresence ofMr.Celso Lafer,
Chairman oftheGeneral Council andMs.Carmen LuzGuarda, Chairperson oftheCouncil forTRIPS,
hehaddrawn lotspursuant toArticle 17.2oftheDSU inorder todetermine thethree Appellate Body
members whowould haveaninitial termoftwoyears thatexpired thisyear. Thenames ofthethree
Appellate Body members, selected bylotwere thefollowing: Mr.Claus-Dieter Ehlermann,
Mr.Florentino P.Feliciano andMr.JulioLacarte-Muró. Heproposed tofollow thecourse ofaction
agreed earlier andproceed toreappoint thethree named Appellate Body members, pursuant toArticle
17.2oftheDSU, forafinaltermoffouryears commencing on11December 1997.
TheDSBsoagreed.
5. Proposed nominations fortheindicative listofgovernmental andnon-governmental panelists
(WT/DSB/W/56)
TheChairman drew attention todocument WT/DSB/W/56 which contained additional names
proposed forinclusion ontheindicative listinaccordance withArticle 8.4oftheDSU. Heproposed
thattheDSBapprove thenames contained therein.
TheDSBsoagreed.
TheChairman saidthatattheDSBmeeting on22January 1997, theoutgoing Chairman of
theDSBhadrecalled thatinaccordance withtheproposal fortheadministration oftheindicative list
ofpanelists approved bytheDSBon31May(WT/DSB/5), thelistshould becompletely updated every
twoyears. Tothisend,Members wererequired, within thefirstmonth ofeachtwo-year period, to
forward updated curricula vitae ofthepersons contained ontheindicative list. Since thecurrent
indicative listhadbeenconstituted on27September 1995, theSecretariat would circulate anupdated
listinSeptember 1997. Hereminded delegations oftheneedtoforward updated curricula vitaeof
allpersons onthelistinorder tomaintain itscredibility. Heemphasized thatthisnewupdated indicative
listwould contain onlythenames ofpersons forwhich theupdated curricula vitaewould bereceived.
Thenames notreconfirmed would notappear ontheindicative listtobecirculated inSeptember. He
therefore emphasized theimportance ofsubmitting updated curricula vitae.
Furthermore, heinformed Members thattheSecretariat hadmade thenecessary arrangements
formaking thecurricula vitaeofpanelists ontheindicative listavailable intheDocument Dissemination
Facility. Thisinformation would beavailable onlytoMembers andwould include notonlythesummary
curricula vitaeofpanelists, ashadbeeninitially foreseen butalsothefullcurricula vitae. Itwashoped
thatthese arrangements would facilitate theprocess ofconsulting thecurricula vitaeofthepanelists.
TheSecretariat would shortly circulate anoteexplaining those arrangements.5
TheDSBtooknoteofthestatement.
5Subsequently circulated inWT/DSB/W/58