WORLD TRADE
ORGANIZATIONWT/DS27/ARB/ECU
24 March 2000
(00-1207)
Original:  English
EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
- RECOURSE TO ARBITRATION BY THE EUROPEAN COMMUNITIES
UNDER ARTICLE 22.6 OF THE DSU -
DECISION BY THE ARBITRATORS
The Decision of the Arbitrators on European Communities - Regime for the Importation, Sale and
Distribution of Bananas - Recourse to Arbitration by the European Communities under Article 22.6 of theDSU - is being circulated to all Members, pursuant to  the DSU.  The report is being circulated as an
unrestricted document from 24 March 2000 pursuant to the Procedures for the Circulation and
Derestriction of WTO Do cuments (WT/L/160/Rev.1).WT/DS27/ARB/ECU
Page i
TABLE OF CONTENTS
I. PROCEDURAL B ACKGRO UND..........................................................................................1
A. E CUADOR 'S REQUEST FOR AUTHORIZATION OF SUSPENSION OF CONCESSIONS OR
OTHER OBLIGATIONS PURSUANT TO ARTICLE 22.2 OF THE DSU ..............................................1
B. T HE EUROPEAN COMMUNITIES ' REQUEST FOR ARBITRATION PURSUANT TO ARTICLE
22.6 OF THE DSU ........................................................................................................................1
II. THE JURISDICTION OF ARBITRATOR S UNDER ARTICE 22 OF  THE DSU............2
III. PROCEDURAL  ISSUES.......................................................................................................... 3
A. E CUADOR 'S REQUEST UNDER ARTICLE 22.2 OF THE DSU AND ITS DOCUMENT ON THE
METHODOLOGY USED FOR CALCULATING THE LEVEL OF NULLIFICATION AND
IMPAIRMENT ............................................................................................................................... .3
B. B URDEN OF PROOF IN ARBITRATION PROCEEDINGS PURSUANT TO ARTICLE 22.6 OF
THE DSU ............................................................................................................................ .........8
IV. PRINCIPLES AND PROCEDURES SET FORTH IN ARTICLE 22.3 OF THE
DSU ............................................................................................................................ ................9
A. T HE SCOPE OF REVIEW BY ARBITRATORS UNDER ARTICLE 22.3.............................................11
B. E CUADOR 'S REQUEST FOR SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS IN
THE SAME SECTOR WHERE VIOLATIONS WERE FOUND ............................................................15
C. E CUADOR 'S REQUEST FOR SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS
UNDER ANOTHER SECTOR OR AGREEMENT THAN THAT WHERE VIOLATIONS WERE
FOUND ............................................................................................................................... ........16
1. General Interpretation of the Prin ciples and Procedures Set Forth in
Article 22.3................................................................................................................... ............17
2. Review of Ecuador's Request for Suspension Pursuant to Subparagraph (c) in
the Light of the Principles and Pro cedures Set Forth in Article 22.3 ................................21
V. REMARKS ON THE SUSPENSION  OF TRIPS OBLIGATIONS...................................29
A. T HE SCOPE OF THE SUSPENSION TO BE AUTHORIZED UNDER THE TRIPS A GREEMENT ..........29
B. T HE SUSPENSION OF TRIPS O BLIGATIONS AND THE RELATION WITH THE
CONVENTIONS ADMINISTERED BY WORLD INTELLECTUAL PROPERTY
ORGANISATION (WIPO)............................................................................................................31
C. T HE EFFECT ON THIRD -COUNTRY WTO M EMBERS OF THE SUSPENSION OF CERTAIN
TRIPS O BLIGATIONS BY ECUADOR WITH RESPECT TO THE EUROPEAN COMMUNITIES .........32
D. T HE SUSPENSION OF TRIPS O BLIGATIONS AND INTERFERENCE WITH PRIVATE
RIGHTS ............................................................................................................................... .......33
E. C ONCLUDING OBSERVATIONS ON THE SUSPENSION OF TRIPS O BLIGATIONS ........................33
VI. THE CALCULATION OF THE LEVEL OF NULLIFICATION AND
IMPAIRMENT ..................................................................................................................... ..35
VII. CONCLUSIONS AND SUGGEST IONS..............................................................................36WT/DS27/ARB/ECU
Page 1
I. PROCEDURAL BACKGROUND
A. ECUADOR 'S REQUEST FOR AUTHORIZATION OF SUSPENSION OF CONCESSIONS OR OTHER
OBLIGATIONS PURSUANT TO ARTICLE 22.2 OF THE DSU
1. On 8 November 1999, Ecuador requested authorization by the DSB to suspend concessions or
other obligations under the TRIPS Agreement, the GATS and GATT 1994 in an amount ofUS$450 million.
1
2. With respect to the withdrawal of concessions in the goods sector, Ecuador submitted that
such suspension is at present not practicable or effective, and that the circumstances are serious
enough to request authorization to suspend concessions and other obligations under the GATS and the
TRIPS Agreement.
3. As regards trade in services, Ecuador proposed to suspend the following subsector in its
GATS Schedule of specific commitments:
B. Wholesale trade services (CPC 622)
4. As regards intellectual property rights, Ecuador specified that its request concerned the
following categories set out in Part II of the TRIPS Agreement:
Section 1: Copyright and related rights, Article 14 on "Protection of performers,
producers of phonograms (sound recordings) and broadcasting
organizations";
Section 3: Geographical indications;
Section 4: Industrial designs.
5. At the same time, Ecuador noted in its request under Article 22.2 that it reserved the right to
suspend tariff concessions or other tariff obligations granted in the framework of the GATT 1994 in
the event that these may be applied in a practicable and effective manner.
6. Ecuador intends to apply the suspension of concessions or other obligations, if authorized by
the DSB, against 13 of the EC member States.2
B. THE EUROPEAN COMMUNITIES ' REQUEST FOR ARBITRATION PURSUANT TO ARTICLE 22.6 OF
THE DSU
7. On 19 November 1999, the European Communities requested arbitration pursuant to
Article 22.6 of the DSU.3  The relevant part of that provision reads:
                                                     
1 WTO document WT/DS27/52, dated 9 November 1999.
2 According to Ecuador's request, the Netherlands and Denmark would be exempted.
3 The relevant parts of the EC Request under Article 22.6 of the DSU read:
"Pursuant to Article 22.6 of the Dispute Settlement Understanding, the European
Communities object to the level of suspension of concessions or other obligations requestedby Ecuador on 9 November 1999 in document WT/DS27/52.  The European Communitiesconsider that the request by Ecuador does not correspond, and by far, to the level of
nullification and impairment of benefits presently suffered by Ecuador as a result of the failure
of the European Communities to implement the recommendations and rulings of the DisputeWT/DS27/ARB/ECU
Page 2
"… However, if the Member concerned objects to the level of suspension proposed, or claims
that the principles and procedures set forth in paragraph 3 have not been followed where a
complaining party has requested authorization to suspend concessions or other obligations
pursuant to paragraph 3(b) or (c), the matter shall be referred to arbitration. …"
8. The European Communities considered (i) that the amount of suspension of concessions or
other obligations requested by Ecuador is excessive since it has suffered by far less nullification or
impairment than alleged;  and (ii) that Ecuador has not followed the principles and procedures set
forth in Article 22.3 of the DSU in suspending concessions or other obligation across sectors and
agreements.
9. At its meeting on 19 November 1999, the DSB referred the matters to arbitration in
accordance with Article 22.6 of the DSU.
10. The Arbitrators are the members of the original panel:
Chairman: Stuart Harbinson
Members: Kym Anderson
Christian Häberli
II. THE JURISDICTION OF ARBITRATORS UNDER ARTICE 22 OF THE DSU
11. Before addressing the procedural and substantive issues raised by the parties, we recall the
powers of Arbitrators under paragraphs 6 and 7 of Ar ticle 22 of the DSU.  The relevant parts of these
provisions read:
"The arbitrator[s] acting pursuant to paragraph 6 shall not examine the nature of the
concessions or other obligations to be suspended but shall determine whether the
level of such suspension is equivalent to the level of nullification or impairment.  …
However, if the matter referred to arbitration includes a claim that the principles and
procedures set forth in paragraph 3 have not been followed, the arbitrator[s] shallexamine that claim.  In the event that the arbitrator[s] determine that those principles
and procedures have not been followed, the complaining party shall apply them
consistent with paragraph 3. …"
Accordingly, the jurisdiction of the Arbitrators in cludes the power to determine (i) whether the level
of suspension of concessions or other obligations requested is equivalent to the level of nullification
or impairment; and (ii) whether the principles or procedures concerning the suspension of concessions
or other obligations across sectors and/or agreements pursuant to Article 22.3 of the DSU have beenfollowed.
12. In this respect, we note that, if we were to find the proposed amount of US$450 million not to
be equivalent, we would have to estimate the level of suspension we consider to be equivalent to the
                                                                                                                                                                    
Settlement Body in the procedure "European Communities - Regime for the Importation, Sale
and Distribution of Bananas - Recourse to Article 21.5 by Ecuador".  In accordance with theprovisions of Article 22.7 of the Dispute Settlement Understanding, the EuropeanCommunities request, therefore, that th is matter be submitted to arbitration.
Moreover, the European Communities considered  that Ecuador has not complied at all with
the provisions under Article 22.3 of the Dispute Settlement Understanding.  Therefore, the
European Communities further request that this matter be also submitted to arbitration."WT/DS27/ARB/ECU
Page 3
nullification or impairment suffered by Ecuador.  This approach is consistent with Article 22.7 of the
DSU which emphasizes the finality of the arbitrators' decision:
"… The parties shall accept the arbitrator's decision as final and the parties concerned
shall not seek a second arbitration.  The DSB shall be informed promptly of the
decision of the arbitrator and shall upon request, grant authorization to suspendconcessions or other obligations where the request is consistent with the decision of
the arbitrator, unless the DSB decides by consensus to reject the request."
13. We recall that this approach was followed in the US/EC arbitration proceeding in  EC –
Bananas III
4 and the arbitration proceedings in EC – Hormones ,5 where the arbitrators did not
consider the proposed amount of suspension as equivalent to the nullification or impairment suffered
and recalculated that amount in order to be able to render a final decision.
14. Regarding the question which "measures" and "DSB rulings" are relevant for assessing the
level of nullification or impairment in this case, we note that both parties agree that the basis for the
assessment of the level of nullification or impairment is the revised EC banana regime as contained in
EC Regulations 1637/98 and 2362/98 which entered into force on 1 January 1999.  According to the
report of the original panel reconvened, pursuant to Article 21.5 of the DSU, upon request by
Ecuador,6 and adopted by the DSB on 6 May 1999, the revised EC banana regime was found to be
inconsistent with Articles I and XIII of GATT and Articles II and XVII of GATS.
III. PROCEDURAL ISSUES
A. ECUADOR 'S REQUEST UNDER ARTICLE 22.2 OF THE DSU AND ITS DOCUMENT ON THE
METHODOLOGY USED FOR CALCULATING THE LEVEL OF NULLIFICATION AND IMPAIRMENT
15. The European Communities alleged that Ecuador's request under Article 22.2 of the DSU and
the document of 6 January 2000 describing its methodology for calculating the amount of retaliation
requested were not detailed enough, especially when compared to the US methodology paper in the
previous arbitration proceeding.  Ecuador stated, however, explicitly in the methodology document
that a more detailed explanation would follow in its first submission.
16. Upon receipt of Ecuador's first submission, the European Communities protested in a letter,
dated 14 January 2000, that Ecuador had withheld substantial factual elements from the document on
methodology and requested the Arbitrators to discard the additional information contained therein.
17. Ecuador contended, in a letter dated 17 January 2000, that it had met several times with the
European Communities to discuss the nature of its claims and the methodology used to estimate the
harm caused to it by the EC banana regime.  It emphasized that it had not had access to the
methodology document submitted by the United States in the US/EC Bananas III  arbitration
                                                     
4 Decision by the Arbitrators in European Communities - Regime for the Importation, Sale and
Distribution of Bananas - Recourse to Arbitration by  the European Communities under Article 22.6 of the DSU
(WT/DS27/ARB, dated 9 April 1999), paras. 2.10 ff.
5 Decision by the Arbitrators in European Communities - Measures Concerning Meat and Meat
Products (Hormones) - Original Complaint by the United States - Recourse to Arbitration by the European
Communities under Article 22.6 of the DSU  (WT/DS26/ARB, dated 12 July 1999), para. 12.  Decision by the
Arbitrators in European Communities - Measures Concerning Me at and Meat Products (H ormones) - Original
Complaint by Canada - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU
(WT/DS48/ARB, dated 12 July 1999), para. 12.
6 Panel Report by the Reconvened Panel on European Communities - Regime for the Importation, Sale
and Distribution of Bananas - Recourse to Article 21.5 of the DSU by Ecuador (WT/DS27/RW/ECU) of
12 April 1999, adopted on 6 May 1999.WT/DS27/ARB/ECU
Page 4
proceeding and that this document could not in any case represent a recognized standard for such a
methodology document which is not provided for in the DSU.  Ecuador also pointed out that the
European Communities criticised the methodology document only eight days after its filing.
Furthermore, the data contained in Ecuador's first submission derives from publicly available sources.
18. On 19 January 2000, the Arbitrators communicated the following letter to the parties:
"With reference to your letter dated 14 January 2000, in which you request that the
Arbitrators make a preliminary ruling, deciding that all the information concerning
the methodology (i.e. paras. 17–28 of Ecua dor's submission and Exhibits F and G)
submitted after 6 January 2000, be considered inadmissible and, therefore, discarded
by the Arbitrators.
The Arbitrators, noting that Article 22.7 of the DSU provides that "the parties shall
accept the arbitrator's decision as final and shall not seek a second arbitration", are ofthe opinion that it is inappropriate to give a ruling on the admissibility or relevance of
certain information at this early stage of the proceeding.  It may also be noted that in
past arbitration cases, arbitrators have developed their own methodology for
calculating the level of nullification or impairment as appropriate and have requested
additional information from the parties until they were in a position to make a finalruling.
However, the Arbitrators have decided, in light of the concerns regarding due
process, to extend the deadline for the submission of rebuttals for both parties to
Tuesday, 25 January, 5 p.m.  This should give both parties adequate time to respond
to the factual information and legal arguments submitted by the other party."
19. We wish to supplement our reasoning for the approach taken in that letter with the
considerations set out in the following paragraphs 20-36.
20. The DSU does not explicitly provide that the specificity requirements, which are stipulated in
Article 6.2 for panel requests,
7 apply mutatis mutandis  to arbitration proceedings under Article 22.
However, we believe that requests for suspension under Article 22.2, as well as requests for a referralto arbitration under Article 22.6, serve similar due process objectives as requests under Article 6.2.
8
First, they give notice to the other party and enable  it to respond to the request for suspension or the
request for arbitration, respectively.  Second, a request under Article 22.2 by a complaining party
defines the jurisdiction of the DSB in authorizing suspension by the complaining party.  Likewise, a
request for arbitration under Article 22.6 defines the terms of reference of the Arbitrators.
Accordingly, we consider that the specificity standards, which are well-established in WTO
jurisprudence under Article 6.2, are relevant for requests for authorization of suspension underArticle 22.2, and for requests for referral of such matter to arbitration under Article 22.6, as the case
may be. They do, however, not apply to the document submitted during an arbitration proceeding,
setting out the methodology used for the calculation of the level of nullification or impairment.
                                                     
7 The relevant part of Article 6.2 of the DSU reads:  "The request for the establishment of a panel shall
be made in writing.  It shall indicate whether consultations were held, identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. …".
8 "A panel's terms of reference are important for two reasons.  First, terms of reference fulfil an
important due process objective - they give the parties and third parties sufficient information concerning the
claims at issue in the dispute in order to allow them an opportunity to respond to the complainant's case.Second, they establish the jurisdiction of the panel by defining the precise claims at issue in the dispute."
Appellate Body Report on Brazil - Measures Affecting Desiccated Coconut , adopted on 20 March 1997
(WT/DS22/AB/R), p. 22.WT/DS27/ARB/ECU
Page 5
21. In respect of a request under Article 22.2, we share the view of the arbitrators in the
Hormones  arbitration proceedings who described the minimum requirements attached to a request for
the suspension of concessions or other obligations in the following way:
"(1) the request must set out a specific level of suspension, i.e. a level equivalent to the
nullification and impairment caused by the WTO-inconsistent measure, pursuant to Article22.4;  and (2) the request must specify the agreement and sector(s) under which concessions
or other obligations would be suspended, pursuant to Article 22.3.
9"
22. As to the first minimum requirement, Ecuador's request for suspension under Article 22.2 of
the DSU, dated 8 November 1999,10 sets out the specific amount of US$450 million as the level of
proposed suspension of concessions or other obligations.
23. In the methodology paper and submissions, Ecuador submitted that the direct and indirect
harm and macro-economic repercussions for its entire economy amount to altogether US$ 1 billion.
While Ecuador stated that it does not intend to incr ease its initial request for suspension, it argued that
the total economic impact of the EC banana regime should be taken into account by the Arbitrators by
applying a multiplier when calculating the level of nullification and impairment suffered by Ecuador.
In this respect, Ecuador makes reference to Article 21.8 of the DSU.11
24. In the light of our considerations above concerning specificity requirements that apply with
respect to Article 22, we believe that the level of suspension specified in Ecuador's request under
Article 22.2 is the relevant one and defines the amount of requested suspension for purposes of this
arbitration proceeding.  Additional estimates adva nced by Ecuador in its methodology document and
submissions were not addressed to the DSB and thus cannot form part of the DSB's referral of thematter to arbitration.  Belated supplementary requests and arguments concerning additional amounts
of alleged nullification or impairment are, in our view, not compatible with the minimum specificity
requirements for such a request
12 because they were not included in Ecuador's request for suspension
under Article 22.2 of the DSB.
25. As to the second minimum requirement referred to above, we recall which sectors and
agreements Ecuador lists in its request under Article 22.2 as those under which it intends to suspend
concessions or other obligations.  Under the GATS, it specifies the service subsector of "wholesale
trade services (CPC 622)".  Under the TRIPS Ag reement, Ecuador requests suspension, pursuant to
Article 22.3(c), of Article 14 on "Protection of performers, producers of phonograms (sound
recordings) and broadcasting organizations" in Section 1 (Copyright and related rights), Section 3
(Geographical indications) and Section 4 (Industrial designs).
                                                     
9 "The more precise a request for suspension is in terms of product coverage, type and degree of
suspension, etc…., the better.  Such precision can only be encouraged in pursuit of the DSU objectives of
'providing security and predictability to the multilateral trading system' (Article 3.2) and seeking prompt andpositive solutions to disputes (Articles 3.3 and 3.7).  It would also be welcome in light of the statement inArticle 3.10 that 'all Members will engage in DSU procedures in good faith and in an effort to resolve thedispute'".
10 WT/DS27/52.
11 Article 21.8 of the DSU:  "If the case is one brought by a developing country Member, in considering
what appropriate action might be taken, the DSB shall ta ke into account not only the trade coverage of measures
complained of, but also their impact on the economy of developing country Members concerned."
12 We also note that it may well be that a Member chooses to request suspension only for a part of the
nullification or impairment suffered from WTO-inconsistent measures taken by another Member.  We will
address below the question of total economic impact as opposed to nullification and impairment of trade in
goods and services in our discussion concerning subparagraph (d) of Article 22.3.WT/DS27/ARB/ECU
Page 6
26. We determine that these requests by Ecuador under the GATS and the TRIPS Agreement
fulfil the minimum requirement to specify the agreement(s) and sector(s) with respect to which it
requests authorization to suspend concessions or other obligations.
27. In its request under Article 22.2, Ecuador notes in addition that it "reserves the right to
suspend tariff concession or other tariff obligations granted in the framework of the GATT 1994 inthe event that these may be applied in a practicable and effective manner."
28. Regarding this last statement we would like to make the following remarks.  We recall our
considerations that the specificity requirements of Article 6.2 are relevant for requests under
Article 22.2.  According to well-established dispute settlement practice under Article 6.2 of the
DSU,
13 panels and the Appellate Body have consistently ruled that a measure challenged by a
complaining party cannot be regarded to be within the terms of reference of a panel unless it is clearly
identified in the request for the establishment of a panel.  In past disputes concerning Article 6.2,where a complaining party intended to leave the possib ility open to supplement at a later point in time
the initial list of measures contained in its panel request (e.g. with the words "including, but not
limited to measures listed" specifically in the panel request), the terms of reference of the panel were
found to be limited to the measures specifically identified.
29. Based on an application of these specificity standards to requests under Article 22.2, we
consider that the terms of reference of arbitrators, acting pursuant to Article 22.6, are limited to those
sector(s) and/or agreement(s) with respect to which suspension is specifically being requested from
the DSB.  We thus consider Ecuador's statement that it "reserves the right" to suspend concessions
under the GATT as not compatible with the minimum requirements for requests under Article 22.2.
Therefore, we conclude that our terms of reference in this arbitration proceeding include onlyEcuador's requests for authorization of suspension of concessions or other obligations with respect to
those specific sectors under the GATS and the TRIPS Agreement that were unconditionally listed in
its request under Article 22.2.
30. Even if Ecuador's "reservation" of a request for suspension under the GATT were
permissible, there would be a certain degree of inconsistency between making a request underArticle 22.3(c) – implying that suspension is not practicable or effective within the same sector under
the same agreement or under another agreement – and simultaneously making a request under
Article 22.3(a) – which implies that suspension is practicable and effective under the same sector.  In
this respect, we note that, although Ecuador did not in fact make both requests at the very same point
in time, if it were likely that the suspension of concessions under the GATT could be applied in a
practicable and effective manner, doubt would be cast on Ecuador's assertion that at present only
suspension of obligations under other sectors and/or other agreements within the meaning ofArticle 22.3(b-c) is practicable or effective in the case before us.
31. In other words, we fail to see how it could be possible to suspend concessions or other
obligations for a particular amount of nullification or impairment under the same sector as that where
a violation was found (which implies that this is practicable and effective) and simultaneously for the
same amount in another sector or under a different agreement (which implies that suspension under
                                                     
13 Appellate Body Report on European Communities - Customs Classification on Certain Computer
Equipment , adopted on 26 June 1998 (WT/DS62/AB/R), paras. 64-73.  Appellate Body Report on EC - Bananas
III, adopted on 25 September 1997 (WT/DS27/AB/R), paras. 141-143.  Appellate Body Report on Korea -
Definitive Safeguard Measure on Imports of Certain Dairy Products,  adopted on 11 February 2000
(WT/DS98/AB/R), paras. 114-131, citing previous reports concerning the interpretation of Article 6.2.  PanelReport on Japan- Measures Affecting Consumer Photographic Film and Paper , adopted on 22 April 1998
(WT/DS44/R), paras. 10.8-10.10, 10.15-10.19.  Appellate Body Report on Australia - Measures Affecting
Importation of Salmon , adopted on 6 November 1998 (WT/DS18/AB/R), paras. 90-105.WT/DS27/ARB/ECU
Page 7
the same sector14 – or under a different sector under the same agreement – is not practicable or
effective). But we do not exclude the possibility that, once a certain amount of nullification or
impairment has been determined by the Arbitrators, suspension may be practicable and effective
under the same sector(s) where a violation has been found only for part of that amount and that for the
rest of this amount of suspension is practicable or effective only in (an)other sector(s) under the sameagreement or even only under another agreement.
32. However, we do not exclude the possibility that the circumstances which are relevant for
purposes of considering the principles and procedures set forth in Article 22.3 may change over time,
especially if the WTO-inconsistencies of the revised EC banana regime are not removed and the
suspension of concessions or other obligations should, as a result, remain in force for a longer period.
But we do not believe that changes with respect to trade sectors or agreements affected by such
suspension could be implemented consistently with Article 22 of the DSU in the absence of a specificauthorization by the DSB and, if challenged, a further review by arbitrators acting pursuant to
Article 22.6.
33. In this context, we further recall the general principle set forth in Article 22.3(a) that
suspension of concessions or other obligations should be sought first with respect to the same
sector(s) as that in which the panel or Appellate Body has found a violation or other nullification orimpairment.  Given this principle, it remains the preferred option under Article 22.3 for Ecuador to
request suspension of concessions under the GATT as one of the same agreements where a violation
was found, if it considers that such suspension could be applied in a practicable and effective manner.
At any rate, if we were to find in our review of Ecuador's considerations that it did not (entirely)
follow the principles and procedures of Article 22.3 in making its request under Article 22.2, or thatthe requested level of suspension exceeds the level of nullification or impairment suffered, Ecuador
would be required to make another request for authorization by the DSB for suspension of
concessions or other obligations under Article 22.7.  This new request could include, inter alia ,
suspension of concessions under the GATT for all or part of the nullification and impairment actually
found, if this should turn out to be necessary to ensure that such a request be consistent with theArbitrators' decision within the meaning of Article 22.7.
34. We further recall that in our letter, dated 19 January 2000, responding to the EC objections to
Ecuador's methodology document and the additional in formation contained in its first submission, we
also stated that Article 22.7 of the DSU foresees that the Arbitrator(s) decision is final, that there is no
appeal, and that the entire proceeding normally has to be completed within a certain time-frame.
15  We
also confirm that, similarly to the approach chosen by us in the US/EC Bananas III arbitration and by
the Arbitrators in the Hormones  arbitration proceedings, we requested the parties to provide additional
information until we felt we were in a position to render our final decision.
35. We now turn specifically to the EC's request that the Arbitrators disregard certain information
concerning the methodology used by Ecuador for calculating nullification or impairment because it
was submitted only in Ecuador's first submission, but not in the methodology document submitted by
Ecuador on 6 January 2000.  We recall that we introduced the procedural step of submitting amethodology document in the US/EC Bananas III  arbitration proceeding because we reckoned that
certain information about the methodology used by th e party for calculating the level of nullification
or impairment would logically only be in the possession of that Member and that it would not be
possible for the Member requesting arbitration pursuant to Article 22 of the DSU to challenge this
                                                     
14 We note that within a sector, suspension may be possible with respect to certain types of products,
while it is not practicable or effective wi th respect to other categories of products.
15 We note that in this arbitra tion proceeding the partie s agreed to postpone the beginning of the
proceeding and to extend the time-frame foreseen in Arti cle 22.6 of the DSU.  The Arbitrators agreed to these
arrangements.WT/DS27/ARB/ECU
Page 8
information unless it was disclosed .  Obviously, if such information were to be disclosed by the
Member suffering impairment only in its first submission, the Member requesting arbitration could
only rebut that information in its rebuttal submission, while its first submission would become
necessarily less meaningful and due process concerns could arise.  It was out of these concerns that
the United States was requested to submit a document explaining the methodology used forcalculating impairment before the filing of the first submission by both parties.  Unlike in panel
proceedings, where parties do not file their first submissions simultaneously, it has been the practice
in past arbitration proceedings under Article 22 that  both rounds of submissions take place before a
single oral hearing of the parties by the Arbitrators and that in both these rounds parties file their
submissions simultaneously.
36. However, we agree with Ecuador that such a methodology document is nowhere mentioned in
the DSU.  Nor do we believe, as explained in de tail above, that the specificity requirements of
Article 6.2 relate to that methodology document rather than to requests for suspension pursuant to
Article 22.2, and to requests for the referral of such matters to arbitration pursuant to Article 22.6.
For these reasons, we reject the idea that the specificity requirements of Article 6.2 apply mutatis
mutandis  to the methodology document.  In our view, questions concerning the amount, usefulness
and relevance of information contained in a methodology document are more closely related to thequestions of who is required at what point in time to present evidence and in which form, or in other
words, the issue of the burden of proof in an arbitration proceeding under Article 22.6.
B. B
URDEN OF PROOF IN ARBITRATION PROCEEDINGS PURSUANT TO ARTICLE 22.6 OF THE DSU
37. On the point of who bears the burden of proof in an arbitration proceeding under Article 22 of
the DSU, we find the considerations of the Arbitrators in the Hormones  arbitration proceedings
persuasive:
"9. WTO Members, as sovereign entities, can be presumed  to act in conformity
with their WTO obligations.  A party claiming that a Member has acted
inconsistently  with WTO rules bears the burden of proving that inconsistency.  The
act at issue here is the US proposal to suspend concessions.  The WTO rule inquestion is Article 22.4 prescribing that the level of suspension be equivalent to the
level of nullification and impairment.  The EC challenges the conformity of the US
proposal with the said WTO rule.  It is thus for the EC to prove that the US proposal
is inconsistent with Article 22.4.  Following well-established WTO jurisprudence,
this means that it is for the EC to submit arguments and evidence sufficient to
establish a  prima facie  case or presumption that the level of suspension proposed by
the US is not equivalent to the level of nullification and impairment caused by the EChormone ban.  Once the EC has done so, however, it is for the US to submit
arguments and evidence sufficient to rebut that presumption.  Should all arguments
and evidence remain in equipoise, the EC, as the party bearing the original burden of
proof, would lose.
10. The same rules apply where the existence of a specific fact is alleged; … it is
for the party alleging the fact to prove its existence.
11. The duty that rests on all parties to produce evidence and to collaborate in presenting
evidence to the arbitrators – an issue to be di stinguished from the question of who bears the
burden of proof – is crucial in Article 22 arbitration proceedings.  The EC is required to
submit evidence showing that the proposal is not equivalent.  However, at the same time and
as soon as it can, the US is required to come forward with evidence explaining how it arrived
at its proposal and showing why its proposal is equivalent to the trade impairment it has
suffered.  Some of the evidence – such as data on trade with third countries, exportWT/DS27/ARB/ECU
Page 9
capabilities and affected exporters – may, indeed, be in the sole possession of the US, being
the party that suffered the trade impairment.  This explains why we requested the US to
submit a so-called methodology paper."16
38. We agree with the Arbitrators in the EC - Hormones  arbitration proceedings that the ultimate
burden of proof in an arbitration proceeding is on the party challenging the conformity of the request
for retaliation with Article 22.  However, we also share the view that some evidence may be in the
sole possession of the party suffering nullification or impairment.  This explains why we requested
Ecuador to submit a methodology document in this case.
39. The methodology documents submitted by the United States and Canada in the EC - Bananas
III and EC - Hormone s arbitration proceedings are not available to Ecuador and hence cannot be seen
as setting a standard as to the minimum content of such documents.  Ecuador's methodologydocument explained counterfactuals and the basic approach to measuring nullification and
impairment.  Even though it did not contain all the data necessary to reconstruct Ecuador's
calculations,
17 it stated that "an accurate application of the conceptual methodology here presented
based on empirical data" would be provided in Ecuador's first submission.
40. In this respect, we wish to remark that th e concept of an "arbitration" has an important
adversarial component in the sense that Arbitrators weigh and decide the matter on the basis of the
evidence and arguments presented by each party and rebutted by the other party.  We note that the
later in a proceeding one party submits relevant evidence, the more difficult it becomes for the other
party to address and rebut this evidence.  In this sense, the submission of an informative methodology
document is not only in the EC's interest, but also  in Ecuador's own interest because it enables
Ecuador to rebut the EC's response to that docum ent already in its second submission, while the EC's
response to information contained in Ecuador's first submission cannot be rebutted by Ecuador before
the oral statement at the meeting of the Arbitrators with the parties.
41. We note that Ecuador could have submitted more of its evidence at earlier stages of this
arbitration proceeding.  Nonetheless, we are satisfied that Ecuador has ultimately provided us with allthe evidence which is in its sole possession and that in this proceeding the European Communities
was given sufficient opportunity and time to address and rebut this evidence in its written
submissions, oral statements, answers to questions by the Arbitrators and responses to the other
party's answers.
18
IV. PRINCIPLES AND PROCEDURES SET FORTH IN ARTICLE 22.3 OF THE DSU
42. The European Communities claims that Ecuador has not followed the principles and
procedures set forth in Article 22.3 of the DSU.  In particular, it alleges that Ecuador has not shownwhy it is not practicable or effective for it to suspend, to the extent it has suffered any nullification or
impairment, concessions or other obligations in the same sector(s) as those in which the revised EC
                                                     
16 Decision by the Arbitrators in EC - Hormones  (Original Complaint by the United States) Recourse to
Arbitration by the EC under Article 22.6 of the DSU (WT/DS26/ARB) of 12 July 1999, paras. 9-11.
17 We recall that the US methodology document in the US/EC Bananas III  arbitration did set out the
counterfactuals and contained a formula for calculating nullification and impairment.  But that document did not
provide statistics and data necessary to reconstruct the calculation.
18 Ecuador submitted a methodology document on 6 January 2000;  both parties filed their first
submissions on 13 January 2000;  the rebuttal submissions were filed on 25 January 2000;  the parties made oralstatements at the meeting of the Arbitrators with the parties on 7 February 2000;  the parties replied to theArbitrators' first set of questions on 11 February;  the European Communities reacted to Ecuador's answers tothe Arbitrators' first set of questions on 16 Febr uary 2000;  Ecuador reacted to the EC's reaction on
17 February 2000;  both parties replied to the Arbitrators' second set of questions on 22 February 2000;  the
European Communities reacted to Ecuador's answers to  the second set of questions on 24 February 2000.WT/DS27/ARB/ECU
Page 10
banana regime was found to be WTO-inconsistent.  The European Communities, therefore, requests
that Ecuador should not be given authorization to suspend concessions or other obligations across
sectors and agreements.
43. Ecuador contends that it has followed the principles and procedures set forth in Article 22.3
and that it has demonstrated why it is not practicable or effective for Ecuador to suspend concessionsor other obligations under the same sector(s) or agreement(s) as those in which WTO-inconsistencies
were found.  Ecuador argues, given the wording of subparagraphs (b) and (c) of Article 22.3 of the
DSU, that it is essentially the prerogative of the Member suffering nullification or impairment to
decide whether it is "practicable or effective" to choose the same sector, another sector or another
agreement for purposes of suspending concessions or other obligations.
44. Before we address these arguments, we recall the relevant parts of Article 22.3 of the DSU:
"In considering what concessions or other obligations to suspend, the complaining
party shall apply the following principles and procedures:
(a) the general principle is that the complaining party should first seek to suspend
concessions or other obligations with respect to the same sector(s)  as that in which
the panel or Appellate Body has found a violation or other nullification or
impairment;
(b) if that party considers that it is not practicable or effective  to suspend concessions or
other obligations with respect to the same sector(s), it may seek to suspend
concessions or other obligations in other sectors under the same agreement ;
(c) if that party considers that it is not practicable or effective  to suspend concessions or
other obligations with respect to other sectors under the same agreement, and that thecircumstances are serious enough , it may seek to suspend concessions or other
obligations under another covered agreement ;
(d) in applying the above principles, that party shall take into account:
(i) the trade in the sector under the agreement  under which the panel or
Appellate Body has found a violation or other nullification or impairment,and the importance of such trade to that party ;
(ii) the broader economic elements  related to the nullification or impairment and
the broader economic consequences  of the suspension of the concessions or
other obligations; …" (emphasis added).
(e) if that party decides to request authorization to suspend concessions or other
obligations pursuant to subparagraphs (b) or (c) , it shall state the reasons therefore
in its request.  At the same time as the request is forwarded to the DSB, it also shallbe forwarded to the relevant Councils and also, in the case of a request pursuant to
subparagraph (b) the relevant sectoral bodies;
(f) for purposes of this paragraph, " sector"  means:
(i) with respect to goods, all goods ;
(ii) with respect to services, a principal sector  as identified in the current
"Services Sectoral Classification List" which identifies such sectors.WT/DS27/ARB/ECU
Page 11
(iii) with respect to trade-related intellectual property rights , each of the
categories of intellectual property rights covered in Section 1, or Section 2,
or Section 3, or Section 4, or Section 5, or  Section 6, or Section 7 of Part II,
or the obligations under Part III, or Part IV of the Agreement on TRIPS;
(g) for purposes of this paragraph, " agreement " means:
(i) with respect to goods , the agreements listed in Annex 1A  of the WTO
Agreement, taken as a whole as well as the Plurilateral Trade Agreements in
so far as the relevant parties to the dispute are parties to these agreements;
(ii) with respect to services , the GATS ;
(iii) with respect to intellectual property rights , the  Agreement on TRIPS .
(emphasis added, footnotes omitted).
A. THE SCOPE OF REVIEW BY ARBITRATORS UNDER ARTICLE 22.3
45. In view of Ecuador's interpretation of the discretion of Members in selecting the sectors
and/or agreements in which to suspend concessions or other obligations, we recall the considerations
from the US/EC Bananas III  arbitration proceeding19 regarding the scope of review of Arbitrators
with respect to Article 22.3 of the DSU:
"3.5. Article 22.7 of the DSU empowers the Arbitr ators to examine claims concerning the
principles and procedures set forth in Article 22.3 of the DSU in its entirety, whereas Article
22.6 of the DSU seems to limit the competence of Arbitrators to such examination to cases
where a request for authorization to suspend concessions is made under subparagraphs (b) or
(c) of Article 22.3 of the DSU.  However, we believe that there is no contradiction between
paragraphs 6 and 7 of Article 22 of the DSU, and that these provisions can be read together ina harmonious way.
3.6 If a panel or Appellate Body report contains findings of WTO-inconsistencies only
with respect to one and the same sector in th e meaning of Article 22.3(f) of the DSU, there is
little need for a multilateral review of the choice with respect to goods or services or
intellectual property rights, as the case may be, which a Member has selected for the
suspension of concessions subject to the DSB's authorization.  However, if a Member decides
to seek authorization to suspend concessions under another sector, or under another
agreement, outside of the scope of the sectors or agreements to which a Panel's findings
relate, paragraphs (b)-(d) of Article 22.3 of the DSU provide for a certain degree of discipline
such as the requirement to state reasons why that Member considered the suspension of
concessions within the same sector(s) as that where violations of WTO law were found as notpracticable or effective.
3.7 We believe that the basic rationale of these disciplines is to ensure that the suspension
of concessions or other obligations across sectors or across agreements (beyond those sectors
or agreements under which a panel or the Appellate Body has found violations) remains theexception and does not become the rule.  In our view, if Article 22.3 of the DSU is to be given
full effect, the authority of Arbitrators to review upon request whether the principles and
procedures of sub-paragraphs (b) or (c) of that Article have been followed must imply the
Arbitrators' competence to examine whether a request made under subparagraph (a) should
have been made – in full or in part – under subparagraphs (b) or (c).  If the Arbitrators were
                                                     
19 Decision of the Arbitrators in the US/EC Bananas III  arbitration, paras. 3.4.-3.7.WT/DS27/ARB/ECU
Page 12
deprived of such an implied authority, the principles and procedures of Article 22.3 of the
DSU could easily be circumvented.  If there were no review whatsoever with respect to
requests for authorization to suspend concessions made under subparagraph (a), Members
might be tempted to always invoke that subparagraph in order to escape multilateral
surveillance of cross-sectoral suspension of concessions or other obligations, and thedisciplines of the other subparagraphs of Article 22.3 of the DSU might fall into disuse
altogether."
46. Having established the authority of Arbitrators to review whether a request for authorization
of suspension made under subparagraph (a) of Article 22.3 should have been made – in full or in part
– under subparagraphs (b) and/or (c) of that Article, we next address the question of the scope of
review by the Arbitrators in cases where authorization to suspend concessions or other obligationsacross sectors and/or across agreements is sought.
47. We recall Ecuador's argument that the wording of Article 22.3(b)-(d) suggests that it is
essentially the prerogative of the Member suffering nullification or impairment to decide whether it is
"practicable or effective" to choose the same sector, another sector or another agreement for purposes
of suspending concessions or other obligations.  Ecuador bases its interpretation especially on theterms " if that party considers  that it is not practicable or effective to suspend …" (emphasis added)
(… "with respect to the same sector(s)" in subparagraph (b); … "in other sectors under the same
agreement" in subparagraph (c), respectively)" and on the terms "shall take into account" in
subparagraph (d) of Article 22.3.  In Ecuador's view, these words connote no substantive conditions
and thus it remains at the discretion of the Member seeking authorization to request suspension acrosssectors and/or agreements to do so or not.  Arbitrators, acting pursuant to Article 22.6, may verify
only whether the procedural requirements of Article 22.3 have been followed.
48. The European Communities advocates a different interpretation.  First, Ecuador would have
to show, based on objective and reviewable evidence, that it is not practicable or effective for it to
suspend concessions or other obligations in the same sector(s) as that where a violation was found bythe panel or Appellate Body.  In this case that  would mean under the GATT or in the distribution
service sector under the GATS.  Second, Ecuador would have to show why it is not practicable or
effective to suspend commitments under the same agreement in the ten service sectors other than
distribution services covered by the GATS.  Third, Ecuador would have to demonstrate that
circumstances are serious enough to seek suspension under another agreement.  Fourth, Ecuador
would have to establish that it has taken into account trade in sectors or under agreements where
violations have been found and the importance of such trade to it.  Fifth, it would have to show that ittook account of broader economic elements related to the nullification or impairment and the broader
economic consequences of the suspension of the con cessions or other obligations.  In the EC's view,
Ecuador has not done so with respect to any of those steps.
49. We note that the relevant parts of paragraphs 6 and 7 of Article 22 of the DSU provide:
"… if the Member concerned … claims that the principles and procedures set forth in
paragraph 3 have not been followed where a complaining party has requested authorization to
suspend concessions or other obligations pursuant to paragraph 3(b) or (c), the matter shall be
referred to arbitration. …"
"… If the matter referred to arbitration includes a claim that the principles and procedures set
forth in paragraph 3 have not been followed, the arbitrator shall examine that claim.  In the
event the arbitrator determines that those principles and procedures have not been followed,
the complaining party shall apply them consistent with paragraph 3. …"WT/DS27/ARB/ECU
Page 13
50. The US/EC Bananas III  arbitration decision quoted above expounds that the authority of
Arbitrators under Article 22.3(b)-(c) implicitly in cludes the power to review whether a request made
under subparagraph (a) should have been made (in part) under subparagraphs (b) or (c).  In our view,
the fact that the powers of Arbitrators under subp aragraphs (b)-(c) are explicitly provided for in
Article 22.6, implies a fortiori  that the authority of Arbitrators includes the power to review whether
the principles and procedures set forth in these subparagraphs have been followed by the Member
seeking authorization for suspension.
51. A close examination of the ordinary meaning of the terms of the subparagraphs of
Article 22.3 makes clear that the scope of the review of the request for suspension varies slightly with
the nature of the obligations contained in the different subparagraphs.  The introductory clause of
Article 22.3 provides that the complaining party shal l apply the following principles and procedures in
considering what concession or other obligations to suspend:
(a) Subparagraph (a) imposes the principle that suspension is sought first in the same
sector as that in which there was a violation.
(b) Subparagraph (b) requires a consideration of whether it is not practicable or effective
to seek suspension in the same sector(s) where a violation has been found by the
panel or the Appellate Body.
(c) Subparagraph (c) requires a consideration of whether it is not practicable or effective
to seek suspension in the same agreement and that the circumstances are serious
enough to seek suspension under another agreement.
(d) Subparagraph (d) requires that certain factors shall be taken into account when
applying the principles of subparagraphs (a), (b) and (c).
(e) Subparagraph (e) requires a complaining party that makes a request under
subparagraphs (b) or (c) to state the reasons therefore.
52. It follows from the choice of the words "if that party considers"  in subparagraphs (b) and (c)
that these subparagraphs leave a certain margin of appreciation to the complaining party concerned in
arriving at its conclusions in respect of an evaluation of certain factual elements, i.e. of thepracticability and effectiveness of suspension within the same sector or under the same agreement and
of the seriousness of circumstances.  However, it equally follows from the choice of the words "in
considering what concessions or other obligations to suspend, the complaining party shall  apply the
following principles and procedures" in the chapeau  of Article 22.3 that such margin of appreciation
by the complaining party concerned is subject to revi ew by the Arbitrators.  In our view, the margin of
review by the Arbitrators implies the authority to broadly judge whether the complaining party in
question has considered the necessary facts objectively and whether, on the basis of these facts, itcould plausibly arrive at the conclusion that it was not practicable or effective to seek suspension
within the same sector under the same agreements , or only under another agreement provided that the
circumstances were serious enough.
20
53. The choice of the words "that party shall take into account" in subparagraph (d) makes clear
that the Arbitrators have the authority to fully review whether the factors listed in subparagraphs (i)-(ii) of Article 22.3(d) have been taken into account by the complaining party in applying all the
                                                     
20 Article 11 of the DSU provides in relevant part:  "[A] panel should make an objective assessment of
the matter before it, including an objective assessment  of the facts of the case and the applicability of and
conformity with the relevant covered agreements, and make such other findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in the covered agreements."WT/DS27/ARB/ECU
Page 14
principles and procedures set forth in subparagraphs (a)-(c).  By the same token, the choice of the
words "it shall state the reasons therefore" in subparagraph (e) implies that the Arbitrators are to
review the reasons stated therefore by a complaining party in making a request under
subparagraphs (b) or (c).
54. Consequently, our margin of review of the complaining party's considerations under
subparagraphs (b) and (c) will be slightly different from our review of whether account has been taken
of the factors listed in subparagraph (d) and whether reasons have been stated pursuant to
subparagraph (e).  It bears pointing out, however, that  our margin of review of the complaining party's
considerations under subparagraphs (b) and (c) will inevitably be coloured by our review of the
question whether the factors listed in subparagraphs (i)-(ii) of Article 22.3(d) have been taken into
account when applying the principles of (b) and (c).
55. A systematic interpretation of the subparagraphs of Article 22.3 also reveals that these
provisions read in their context imply a sequence of steps towards WTO-consistent suspension of
concessions or other obligations which respects both a margin of appreciation for the complaining
party in question as well as a margin of review by Arbitrators, if a request for suspension under
Article 22.2 is challenged pursuant to Article 22.6.  The final phrases of subparagraphs (b) and (c)
provide that a complaining party "may seek to suspend concessions or other obligations", they do not
provide that the complaining party "may suspend" concessions or other obligations without any other
condition.  Furthermore, subparagraph (e) provides that if a party decides to request authorization for
such suspension, "it shall state the reasons therefor e".  Thus the apparent right of the complaining
party to consider itself the practicability and effectiveness of suspension under a particular sector
and/or agreement is only an initial or temporary right.  Subsequently, this initial assessment by theparty requesting authorization from the DSB, if cha llenged by the other party through the initiation of
an arbitration proceeding, has to withstand scrutiny by the Arbitrators in respect of the conditions and
factors under the different subparagraphs as described above.  This sequence of procedural steps
under Article 22 is similar to the sequence of procedural steps in dispute settlement proceedings
before panels and the Appellate Body.
21  The multilateral nature of the WTO dispute settlement
system implies the possibility of a multilateral assessment of the WTO-consistency of a measure or
action by one party, if challenged by another party.
56. We believe that this interpretation is consistent with the purpose of an arbitration proceeding
under Article 22, as far as it concerns an examination of a claim that the principles and procedures of
Article 22.3 have not been followed.  Article 22.7 stip ulates that in the event the Arbitrators determine
that those principles have not been followed, the complaining party shall apply them consistent with
paragraph 3 and also that the DSB can only authorise a request for suspension if it is consistent withthis paragraph.  These objectives could not be accomplished if the authority of the Arbitrators would
not include the right to review the initial consideration by the complaining party within its margin of
appreciation of the principles and procedures set forth in subparagraphs (b)-(c), whether the factors in
subparagraph (d) have been taken into account in the particular circumstances of a case, and whether
the complaining party has stated the reasons in accordance with subparagraph (e) of Article 22.3.
57. In our view, such a scope of review by the Arbitrators does not and need not question the
"nature of the concessions or other obligations to be suspended" within the meaning of Article 22.7.
But we also note that Article 22.3(a) leaves discretion to the complaining party concerned first to
select concessions or other obligations to be suspended up to the level of nullification or impairment
allegedly suffered within the same sector(s) where a violation has been found, while the discretion to
                                                     
21 This situation is similar to the right of a Member under Article 3.3 of the DSU to decide whether or
not to initiate a dispute settlement proceeding by requesting consultations and the establishment of a panel.  This
is a decision entirely within the discretion of a Member  while the decision whether a measure complained of is
in fact WTO-inconsistent is left to the panel, the Appellate Body and the DSB.WT/DS27/ARB/ECU
Page 15
seek suspension across sectors and/or agreements remains limited by the requirements of
Article 22.3(b)-(e) and, if challenged by the other party, is subject to review by the Arbitrators as
described above.
58. For all these reasons, we reject Ecuador's interpretation of the scope and degree of review by
the Arbitrators, acting pursuant to Article 22.6, of whether a complaining party, in seekingauthorization for suspension under subparagraphs (b)-(c), considered the principles and procedures set
forth in Article 22.3.
59. But we also reject the EC's argument that Ecuador bears the burden of establishing that it has
respected the principles and procedures set forth in Article 22.3.  Given our considerations concerning
the burden of proof in arbitration proceedings under Article 22 above, we believe that it is for the
European Communities to challenge Ecuador's considerations of the principles and procedures set
forth in Article 22.3(b)-(d).  Once the European Communities has shown prima facie  that these
principles and procedures have not been followed, and that the factors listed in subparagraph (d) were
not taken into account, however, it is for Ecuador to rebut such a presumption.
60. In view of our considerations concerning the burden of proof above, we also believe that
certain information as to how Ecuador considered the principles and procedures set forth in
Article 22.3(b)-(c), and took into account the factor s listed in Article 22.3(d) may indeed be in the
sole possession of Ecuador.  Also given the requirement in subparagraph (e) that the party requesting
authorization for suspension "shall state the reasons therefore", it is our position that Ecuador had to
come forward and submit information giving reasons and plausible explanations for its initial
consideration of the principles and procedures set forth in Article 22.3 that caused it to request
authorization under another sector and agreement than those where violations were found.
61. In the light of this general interpretation of Article 22.3, we address in the following sections
first Ecuador's request to suspend commitments in respect of the "wholesale trade services" sector
under GATS as one of the same sectors with respect to which the EC was found to have taken WTO-
inconsistent measures by the panel, reconvened upon request by Ecuador pursuant to Article 21.5.
Second, we address Ecuador's request, pursuant to Article 22.3(c), for suspension of concessions orother obligations across sectors and agreements.
B. E
CUADOR 'S REQUEST FOR SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS IN THE
SAME SECTOR WHERE VIOLATIONS WERE FOUND
62. In its request under Article 22.2, Ecuador lists as a sector with respect to which it seeks to
suspend commitments under the GATS the subsector of "wholesale trade services" (CPC 622).  We
recall that the report of the reconvened panel in the proceeding between Ecuador and the European
Communities under Article 21.5 of the DSU22 found the revised banana regime to be in violation of
Articles I and XIII of GATT as well as Articles II and XVII of GATS with respect to the EC's
commitments on wholesale trade services within the sector of distribution services.
63. Therefore, we believe that Ecuador's request to suspend commitments on "wholesale trade
services" falls within the scope of Article 22.3(a) as it concerns one of the same sectors as those
where the reconvened panel found a violation.  We note that subparagraph (a) provides that acomplaining party should first seek suspension in su ch sectors.  In this respect, we recall the
considerations concerning the interpretation of Article 22.3(a) in the US/EC Bananas III  arbitration
decision:
                                                     
22 WT/DS27/RW/ECU (dated 12 April 1999, adopted on 6 May 1999).WT/DS27/ARB/ECU
Page 16
"3.9 … However, the obligations of subparagraphs (b) or (c) to substantiate why
suspensions of concessions under the same sector or under the same agreement were
not practicable or effective would only be relevant if the suspension of concessions
proposed by the United States would be outside the scope of the panel or Appellate
Body findings, e.g. if the proposed suspension would concern other service sectorsthan distribution services, or trade-related intellectual property rights.
3.10 We recall that subparagraph (a) of Article 22.3 of the DSU refers to the
suspension of "concessions or other obligations with respect to the same sector(s) as
that in which the panel or Appellate Body has found a violation or other nullification
or impairment."  We note that the words "same sector(s)" include both the singular
and the plural.  The concept of "sector(s)" is defined in subparagraph (f)(i) with
respect to goods as all goods , and in subparagraph (f)(ii) with respect to services as a
principal sector  identified in the "Services Sectoral Classification List".  We,
therefore, conclude that the United States has the right to request the suspension of
concessions in either of these two sectors, or in both, up to the overall level of
nullification or impairment suffered, if the inconsistencies with the EC's obligations
under the GATT and the GATS found in the original dispute have not been removedfully in the EC's revision of its regime.  In this case the "same sector(s)" would be "all
goods" and the sector of "distribution services", respectively.  Our conclusion, based
on the ordinary meaning of Article 22.3(a), is also consistent with the fact that the
findings of violations under the GATT and the GATS in the original dispute were
closely related and all concerned a single import regime in respect of one product, i.e.bananas."
64. In view of these considerations, and given that Ecuador's request to suspend commitments on
"wholesale trade services" falls under subparagraph (a) of Article 22.3, there is obviously no need for
us to examine whether the principles and procedures set forth in subparagraph (b-d) of Article 22.3
have been followed.
23  We conclude that Ecuador may obtain authorization by the DSB to suspend
commitments on "wholesale trade services" because th is subsector is within the same (distribution
service) sector as that in which the reconvened panel found violations of Articles II and XVII of
GATS.
C. ECUADOR 'S REQUEST FOR SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS UNDER
ANOTHER SECTOR OR AGREEMENT THAN THAT WHERE VIOLATIONS WERE FOUND
65. Ecuador specifies in its request for suspension of other obligations under the TRIPS
Agreement, pursuant to subparagraph (c) of Article 22.3, as obligations which it intends to suspendacross sectors and agreements:
24
(i) Article 14 on "Protection of performers and producers of phonograms (sound
recordings) and broadcasting organisa tions" under Section 1 (Copyrights and
related rights) of the TRIPS Agreement;
                                                     
23 We note that the principles and procedures set forth in subparagraphs (a) and (b)-(c) and thus the
standard of our review are different in these subparagraphs.  Under subparagraph (a) no consideration or review
of whether or not suspension of commitments with respect to "wholesale trade services" as one of the samesectors where violations were found is practicable or effective for Ecuador.  Consequently, our conclusions in
this section do not detract from our conclusions below that suspension under the GATS of commitments in othersubsectors of the distribution service sector as well as suspension of commitments under principal servicesectors other than distribution services is not practicable or effective for Ecuador in view of the country-specific
and case-specific circumstances.
24 See above subparagraphs (f)(i)-(iii) and (g)(i)-(iii) of Article 22:3 of the DSU.WT/DS27/ARB/ECU
Page 17
(ii) Section 3 (Geographical Indications); and
(iii) Section 4 (Industrial Designs).
66. We recall that there were no findings of violations under the TRIPS Agreement in the report
of the reconvened panel in the proceeding between Ecuador and the European Communities under
Article 21.5 of the DSU.25
67. The European Communities alleges that in making these request for suspension of TRIPS
obligations Ecuador has not followed the principles and procedures set forth in subparagraphs (b) and
(c).  In the EC's view, Ecuador has in particular no t demonstrated why it is not practicable or effective
for it to suspend concessions under the GATT or commitments under the GATS in service sectors
other than distribution services; nor that circumstances are serious enough for requesting suspension
under another agreement; nor that it has taken into account the parameters in subparagraphs (i) and
(ii) of Article 22.3(d).
68. Ecuador contends that it did not request suspension entirely under the GATT and/or in service
sectors under the GATS other than distribution services because it considered that it would not be
practicable or effective in the meaning of Article 22.3(b) and (c) of the DSU, that circumstances in
Ecuador's bananas trade sector and the economy on the whole are serious enough to justify suspension
under another agreement, and that the parameters in Article 22.3(d)(i)-(ii) corroborate this conclusion.
1. General Interpretation of the Principles and Procedures Set Forth in Article 22.3
69. In addressing these issues, we recall our interpretations above of the jurisdiction and the scope
of review of the Arbitrators, acting pursuant to pa ragraphs 6 and 7 of Article 22.  In this case, our
examination of the EC's claim that Ecuador has not followed the principles and procedures set forth in
subparagraphs (a-e) of Article 22.3 requires us to analyze the following issues:26
(a) First, whether suspension of concessions under the GATT as one of the same sectors
as those where violations were found by the reconvened panel is "not practicable or
effective";
(b) Second, whether suspension of commitments under the GATS in another subsector
than wholesale trade services within the sector of distribution services is "notpracticable or effective";
(c) Third, whether suspension of commitments under the GATS in another service sector
than distribution services is "not practicable or effective";
(d) Fourth, whether "circumstances are serious enough" to seek suspension under another
agreement than those where violations were found;
(e) Fifth, whether the trade in the sector(s) under the agreement(s) under which violations
were found and the "importance of such trade to the party" suffering nullification orimpairment were taken into account; and
                                                     
25 WT/DS27/RW/ECU (dated 12 April 1999, adopted on 6 May 1999).
26 We have already dealt with Ecuador's request to suspend commitments on "wholesale trade services"
which falls under subparagraph (a) of Article 22.3 as a request for suspension with respect to the same sector(s)
as that in which a violation was found.WT/DS27/ARB/ECU
Page 18
(f) Sixth, whether "broader economic elements" related to nullification or impairment
and the "broader economic consequences" of the requested suspension were taken
into account.
70. Several of these issues require the party seeking suspension to consider whether an alternative
suspension with respect to the same sectors or agreements under which a violation was found is "notpracticable or effective".  In this regard, we note that the ordinary meaning of "practicable" is
"available or useful in practice; able to be used" or "inclined or suited to action as opposed to
speculation etc.".
27  In other words, an examination of the "practicability" of an alternative suspension
concerns the question whether such an alternative is available for application in practice as well as
suited for being used in a particular case.
71. To give an obvious example, suspension of commitments in service sub-sectors or in respect
of modes of service supply which a particular complaining party has not bound in its GATS Scheduleis not available for application in practice and thus cannot be considered as practicable.  But also other
case-specific and country-specific situations may exist where suspension of concessions or other
obligations in a particular trade sector or area of WTO law may not be "practicable".
72. In contrast, the term "effective" connotes "powerful in effect", "making a strong impression",
"having an effect or result".
28  Therefore, the thrust of this criterion empowers the party seeking
suspension to ensure that the impact of that suspen sion is strong and has the desired result, namely to
induce compliance by the Member which fails to bring WTO-inconsistent measures into compliance
with DSB rulings within a reasonable period of time.
73. One may ask whether this objective may ever be achieved in a situation where a great
imbalance in terms of trade volume and economic  power exists between the complaining party
seeking suspension and the other party which has failed to bring WTO-inconsistent measures into
compliance with WTO law.  In such a case, and in situations where the complaining party is highly
dependent on imports from the other party, it may happen that the suspension of certain concessions
or certain other obligations entails more harmful ef fects for the party seeking suspension than for the
other party.29  In these circumstances, a consideration by the complaining party in which sector or
under which agreement suspension may be expected to be least harmful to itself would seem
sufficient for us to find a consideration by the co mplaining party of the effectiveness criterion to be
consistent with the requirement to follow the principles and procedures set forth in Article 22.3.
74. A consideration by the complaining party of the practicability and the effectiveness of an
alternative suspension within the same sector or under the same agreement does not need to lead to
the conclusion that such an alternative suspension is both not practicable and not effective in order to
meet the requirements of Article 22.3.  This is so because in no instance do subparagraphs ofArticle 22.3 require that an alternative suspension within the same sector or under the same agreement
be neither practicable nor effective.  Thus a consideration by the complaining party that an alternative
suspension which does not concern other sectors or other agreements is either not practicable or not
effective is sufficient for that party to move on to seek suspension under another sector or agreement.
75. In this context, we recall our considerations above concerning the allocation of the burden of
proof in arbitration proceedings under Article 22 that in the light of the requirement in Article 22.3(e),
the complaining party requesting suspension has to come forward and submit information giving
reasons and explanations for its initial consideration of the principles and procedures set forth in
                                                     
27 The New Shorter Oxford English Dictionary ("Oxford English Dictionary"), Oxford (1993), p. 2317.
28 Oxford English Dictionary, p. 786.
29 Of course, suspension of concessions or other obligations is always likely to be harmful to a certain,
limited extent also for the complaining party requesting authorization by the DSB.WT/DS27/ARB/ECU
Page 19
Article 22.3 which led it to request authorization unde r another sector or another agreement than those
where a violation was found.  However, by the same token, it would then be for the other party to bear
the ultimate burden of showing that suspension within the same sector or under the same agreement is
both practicable and effective for the party requesting suspension.  This implies for the case before us
that once Ecuador has laid out its considerations under Article 22.3, it is ultimately for the EuropeanCommunities to establish that suspension of concessions on goods under the GATT or suspension of
commitments in service sectors other than distribution services under the GATS are both practicable
as well as effective for Ecuador given the case-specific and country-specific circumstances.
76. Our interpretation of the "practicability" and "effectiveness" criteria is consistent with the
object and purpose of Article 22 which is to induce compliance.  If a complaining party seeking the
DSB's authorization to suspend certain concessions or certain other obligations were required to select
the concessions or other obligations to be suspended in sectors or under agreements where suchsuspension would be either not available in practi ce or would not be powerful in effect, the objective
of inducing compliance could not be accomplished and the enforcement mechanism of the WTO
dispute settlement system could not function properly.
77. In our view, it is important to point out that Article 22.3 sets out the criteria of practicability
and effectiveness in the negative.  On the one hand, establishing that something does not exist is oftendeemed more difficult than proving that it does exist.  On the other hand, subparagraph (b) implies
that Ecuador's considerations need to show that suspension is not practicable or effective with respect
to the same sector(s) as those where a violation was found.  That provision does not imply
establishing that suspension is practicable and effective in other sectors under the same agreement.
Likewise, subparagraph (c) implies showing that suspension is not practicable or effective withrespect to other sectors under the same agreement(s) as those where a violation was found, it does not
imply establishing that suspension is practicable and effective under another agreement.
78. This has important consequences for the examination of the case before us.  They imply that
our review of the effectiveness and practicability criteria focuses, in the light of the legal and factual
arguments submitted by both parties, on Ecuador's considerations why it is not practicable or effectivefor it (i) to suspend concessions under the GATT or (ii) commitments under the GATS with respect to
the distribution service sector for purposes of subparagraph (b), or (iii) to suspend commitments under
the GATS with respect to service sectors other than distribution services for purposes of subparagraph
(c).  We emphasize that Article 22.3(b) and (c) does not require Ecuador, nor us, to establish that
suspension of concessions or other obligations is practicable and/or effective under another agreement
(i.e. the TRIPS Agreement) than those under which violations have been found (i.e. the GATT and the
GATS).  The burden is on the European Communities to establish that suspension within the samesector(s) and/or the same agreement(s) is effective and practicable.  However, according to
subparagraph (c) of Article 22.3, it is our task to review Ecuador's consideration that the
"circumstances are serious enough" to warrant suspension across agreements.
79. From a contextual perspective, it should be stressed that the criteria of practicability and
effectiveness are not set forth in subparagraphs (b) and (c) in isolation from the other subparagraphsof Article 22.3.  These criteria have to be read in combination especially with the factors set out in
subparagraphs (i) and (ii) of Article 22.3(d) which, as the introductory clause of subparagraph (d)
stipulates, the complaining party seeking authorization for suspension shall take into account in
applying the above principles, i.e. those provided for in subparagraphs (a)-(c).
80. We also note that the threshold for consider ing a request for suspension in another sector
under the same agreement (e.g. service sectors other than distribution services) pursuant to
subparagraph (b) is lower than the threshold for considering a request for suspension under another
agreement pursuant to subparagraph (c) of Article 22.3.  Suspension across sectors under the same
agreement is permitted if suspension within the same sector is "not practicable or effective".WT/DS27/ARB/ECU
Page 20
However, an additional condition applies when the complaining party considers a request for
suspension across agreements.  Such suspension under another agreement is not justified unless
"circumstances are serious enough".
81. The concepts of "circumstances" and the degree of "seriousness" that are relevant for the
analysis of this condition remain undefined in subparagraph (c).  The provision specifies no thresholdas to which circumstances are deemed "serious" enough so as to justify suspension under another
agreement.  We find useful guidance in the ordinary meaning of the term "serious" which connotes
"important, grave, having (potentially) important, especially undesired, consequences; giving cause
for concern; of significant degree or amount worthy of consideration".
30  Arguably, the factors listed
in subparagraph (d) provide at least part of the context for further defining these meanings.
82. More specifically, subparagraphs (i) of Article 22.3(d) provide that, in applying the principles
set forth in subparagraph (a-c), the complaining pa rty seeking authorization shall take into account,
inter alia, the trade in the sector or under the agreement under which WTO-inconsistencies were
found, as well as the "importance of … trade" to that party.
83. The European Communities argues that this criter ion concerns the trade in the sector(s) and/or
the agreement(s) in question in their entirety, i. e. all trade in goods under the GATT, all trade in
distribution services and/or all trade in services under the GATS .  In contrast, Ecuador implies that inthis case the "importance of such trade" refers to trade in goods and services in the bananas sector
because the findings of the reconvened panel concern the revised EC regime for the importation, sale
and distribution of bananas.
84. We do not exclude the possibility that trade in the relevant sector(s) and/or agreement(s) in
their entirety may be relevant under subparagraph (d)(i).  In particular, we deem it appropriate toconsider the proportion of the trade area(s) affected by WTO-inconsistent measure(s) covered by the
terms of reference of the reconvened panel in relation to the entire trade under the sector(s) and/or
agreement(s) in question.  However, we believe that the criteria of "such trade" and the "importance
of such trade" to the complaining party relate primarily to trade nullified or impaired by the WTO-
inconsistent measure at issue.  In the light of this interpretation, we attribute particular significance tothe factors listed in subparagraph (i) in the case before us, where the party seeking suspension is a
developing country Member, where trade in bananas and wholesale service supply with respect to
bananas are much more important for that developing country Member than for the Member with
respect to which the requested suspension would apply.
31
85. In contrast, subparagraph (ii) of Article 22.3(d) requires the complaining party to take into
account in addition "broader economic elements" related to the nullification or impairment as well as
"broader economic consequences" of the suspension of concessions or other obligations.  The fact thatthe former criterion relates to "nullification or im pairment" indicates in our view that this factor
primarily concerns "broader economic elements" rela ting to the Member suffering such nullification
or impairment, i.e. in this case Ecuador.
86. We believe, however, that the fact that the latter criterion relates to the suspension of
concessions or other obligations is not necessarily an indication that "broader economicconsequences" relate exclusively to the party which was found not to be in compliance with WTO
law, i.e. in this case the European Communities.  As noted above, the suspension of concessions may
not only affect the party retaliated against, it may also entail, at least to some extent, adverse effects
                                                     
30 Oxford English Dictionary, p. 2785.
31 Moreover, the proportion of trade in bananas and related services in relation to trade in goods and
services overall is comparably high for Ecuador, and certainly higher than the proportion of banana imports
relative to total imports to the European Communities.WT/DS27/ARB/ECU
Page 21
for the complaining party seeking suspension, especi ally where a great imbalance in terms of trade
volumes and economic power exists between the two pa rties such as in this case where the differences
between Ecuador and the European Communities in regard to the size of their economies and the level
of socio-economic development are substantial.
2. Review of Ecuador's Request for Suspension Pursuant to Subparagraph (c) in the Light
of the Principles and Procedures Set Forth in Article 22.3
87. In the light of the arguments presented by both parties, we review in the following
subsections (a)-(f) the issues arising under subparagraphs (b)-(d) of Article 22.3 as laid out in the
introductory enumeration in paragraph 69 above.
(a) Whether suspension of concessions under the GATT is "not practicable or effective"
88. First, we discuss Ecuador's consideration that suspension of concessions under the GATT is
not practicable or effective for Ecuador in this case.  We note that Ecuador's argumentationdistinguishes between "primary" and "investment" goods, on the one hand, and "consumer" goods, on
the other.  While emphasising that these product categories do not correspond to any internationally
agreed product classification system, the EC's rebuttal arguments nonetheless differentiate between
the same product categories as introduced by Ecuador.  In these circumstances, we consider it
appropriate for purposes of our review of Ecua dor's and EC's argumentation to follow the same
pattern in this case.
89. Ecuador submits that it imports mostly primary goods and investment goods from the
European Communities.  According to data submitted by Ecuador, imports of goods other than
consumer goods amount to approximately 85 per cent of total imports from the European
Communities in recent years.  Ecuador argues that suspension of concessions with respect to thesegoods is not practicable and effective because they are used as inputs in the domestic manufacturing
process and imposing prohibitive tariffs on EC imports of such goods would harm Ecuador more than
the European Communities.
90. The European Communities notes that the notions of investment or capital goods, inputs or
consumer goods are not internationally defined a nd that the Harmonised System or the UN System of
International Trade Classification make only a basic distinction between primary goods and
manufactured goods.  According to EC statistics, Ecuador's imports of goods from the European
Communities that are used in Ecuador's manufacturing and processing industry amount to US$260.5
million or less than 30 per cent of total imports by Ecuador from the European Communities.
91. We first discuss the parties' arguments concerning primary goods and investment goods.  As a
starting-point of our analysis, we presume that th e suspension of concessions on imports by Ecuador
from the European Communities of those types of goods and the imposition of additional tariffswould increase the cost of domestic production in the absence of alternative sources of supply at
similar prices.
92. The European Communities contends that alternativ e sources of supply exist in respect of the
primary goods and investment goods that are being imported by Ecuador from the European
Communities.  In this respect, the European Communities submits information concerning worldexports for five product groups
32 and argues that alternative sources of supply in respect of these
products are either located closer to Ecuador or available at lower prices than those of EC origin.
                                                     
32 In response to a question by the Arbitrators, the European Communities submitted statistics on world
exports concerning five product groups, i.e. machinery … for the industrial preparation or manufacture of foodWT/DS27/ARB/ECU
Page 22
93. We believe that statistics on world exports in five selected product groups are insufficient
proof for the EC's proposition that alternative sources exist for virtually hundreds of different product
groups which are being imported by Ecuador from the European Communities.  More importantly, we
have not been provided with information about whether the price levels of alternative sources of
supply for these products, if any, are similar to those of imports from the European Communities.  Inour view, if supplies at lower prices than EC supplies were available, presumably Ecuadorian
importers would have already chosen to procure from these sources.
94. In any event, even if supplies from other than EC sources at similar prices were to exist, the
European Communities has not succeeded in rebutting Ecuador's arguments that switching to other
than EC sources of supply would involve transitiona l costs of adjusting to those sources of supply,
costs which Ecuador claims are relatively significant in view of its developing country status.
95. Moreover, given the fact that Ecuador, as a small developing country, only accounts for a
negligible proportion of the EC's exports of these products, the suspension of concessions by Ecuador
vis-à-vis the European Communities is unlikely to have any significant effect on demand for these EC
exports.
33
96. In the light of these considerations, we therefore conclude that the European Communities has
not shown that suspension of concessions under the GATT with respect to primary goods andinvestment goods is both practicable and effective for Ecuador.
97. We next turn to the parties' arguments concerning consumer goods.  Ecuador submits that
approximately 10 per cent of total imports ar e non-durable consumer goods and, in addition,
approximately 5 per cent are durable consumer goods.  In absolute figures, Ecuador's imports from the
European Communities of non-durable consumer goods amount to approximately US$43.9 millionand imports of durable consumer goods are approximately US$16.9 in 1999, totalling
US$60.8 million for consumer goods.
98. In contrast, the European Communities submits different data on Ecuador's imports of
consumer goods from the European Communities in 1998, indicating that these imports amount to
US$194 million.  The European Communities argues that these consumer goods are not essential forEcuador's manufacturing and processing industries and that alternative sources of supply are readily
available at similar price levels.  As a result, suspension of such trade is feasible and practicable for
Ecuador in the EC's view.
99. We believe that the discrepancy between the statistics submitted by the parties concerning
Ecuadorian imports of consumer goods of EC origin results, at least in part, from the different ways in
which the parties categorise products into, e.g. consumer goods, primary goods or investment goods.
We note that, according to Ecuador's own statistics, imports of consumer goods from the EuropeanCommunities amount to at least US$60.8 million.
100. Suspension of concessions with respect to consumer goods cannot cause any direct adverse
effects on Ecuador's domestic manufacturing and processing industries.  Thus Ecuador's main
argument with respect to investment goods and primary goods referred to above cannot apply with
respect to consumer goods.  It is also true that resulting price increases from the suspension ofconcessions on consumer goods could cause welfare losses to end-consumers in the country
suspending concessions.  However, lacking further argumentation by Ecuador on this point, we
                                                                                                                                                                    
or drink; fishing vessels;  dish-washing machines etc.;  parts suitable for use solely or principally with electric
motors and generators, electric generating se ts and rotary converters;  antibiotics.
33 The EC's exports to Ecuador are less than 0.1 per cent of the EC's total merchandise exports
(excluding intra EC exports).WT/DS27/ARB/ECU
Page 23
conclude that, on the basis of the facts and considerations presented, Ecuador could not plausibly
arrive at the conclusion that suspension of conc essions on consumer goods is not practicable and
effective for Ecuador in this case.
101. In the light of the foregoing considerations, it is our view that the degree of practicability and
effectiveness of suspension of concessions under the GATT may vary between different categories ofproducts imported from the European Communities to Ecuador. We conclude that the European
Communities has not established that suspension of concessions with respect to primary goods and
investment goods is both practicable and effective for Ecuador in this case.  However, with respect to
consumer goods, we conclude that Ecuador has not fo llowed the principles and procedures of Article
22.3 in considering that suspension of concessions on consumer goods is not practicable or effective
for it in this case.
102. In this context, we recall that our mandate under Article 22.6 is to review whether Ecuador
has followed the principles and procedures set fort h in Article 22.3 with respect to "sectors" and/or
"agreements" as defined in subparagraphs (f) and (g) of that Article.  If we were to make detailed,
product-specific determinations as to whether suspension of concessions should have been deemed
not practicable or effective by Ecuador, we would run the risk of contravening the requirement that
Arbitrators "shall not examine the nature of concessions or other obligations to be suspended"explicitly set out in Article 22.7.
(b) Whether suspension of commitments under the GATS in subsectors other than wholesale
trade services within the sector of distribution services is "not practicable or effective"
103. We next review Ecuador's consideration that suspension of commitments or other obligations
under the GATS in respect of service subsectors ot her than "wholesale trade services" within the
principal sector of distribution services is not practicable or effective for Ecuador in this case.  We
note that, according to the Services Sectoral Classification List
34 cited in Article 22.3(f)(ii), the
principal sector of distribution services comprises the sub-sectors of "commission agents' services",
"wholesale trade services", "retailing services", "franchising" and "others".  Ecuador has not entered
into specific commitments on market access or nationa l treatment in any of those sub-sectors with the
exception of "wholesale trade services".35  It is, therefore, evident for us that Ecuador cannot suspend
commitments or other obligations in sub-sectors of the distribution service sector in respect of which
it has not entered into specific commitments in the first place.36
104. Therefore, we conclude that Ecuador has followed the principles and procedures of
Article 22.3 in considering that it is not practicable or effective for it to suspend commitments or other
obligations under the GATS with respect to subsecto rs other than "wholesale trade services" within
the principal sector of "distribution services".
(c) Whether suspension of commitments under the GATS in another sector than distribution
services is "not practicable or effective"
105. We now turn to examining Ecuador's considerati ons that suspension of commitments or other
obligations under the GATS in principal service sectors other than distribution services is not
practicable or effective for Ecuador in this case.
                                                     
34 Document MTN.GNS/W/120.
35 Ecuador's Schedule of Specific Commitments under the GATS (Document GATS/SC/98 of
24 April 1996).
36 The same conclusion would apply if Ecuador had scheduled exemptions from MFN treatment under
the GATS with respect to a particular service sector or sub-sector.WT/DS27/ARB/ECU
Page 24
106. We recall that such suspension of commitments is possible only with respect to those service
sectors and those modes of supply which Ecuador has bound in its country-specific Schedule of
specific commitments.  Ecuador has made commitments on market access and/or national treatment,
e.g. in business services, communications, construction and engineering, financial services, health and
social services, different types of transport services, tourism, travel, recreational and culturalservices.
37  However, in most of the service sectors or sub-sectors covered by its commitments,
Ecuador did not bind all four modes of service supp ly within the meaning of Article I:2 of GATS.  In
fact, many of Ecuador's specific commitments exclude supply mode one (cross-border supply) and are
limited to delivery modes two and/or three (consumption abroad and commercial presence).
107. We note that Ecuador's argumentation varies between different modes of service supply.  It
distinguishes in particular between service supply across borders (mode one) and supply through
commercial presence (mode three).
108. Given this particular structure of its Schedule of specific commitments, Ecuador submits that
suspension of its specific commitments under the GATS could largely not concern cross-border
service supply from the European Communities to Ecuador.  We agree that for the predominant part,
such suspension of commitments would invariably concern the third mode of service supply through
commercial presence of EC service suppliers in Ecua dor, or in other words, foreign direct investment.
109. As regards the suspension of commitments concerning commercial presence, Ecuador argued
that the suspension of such commitments would distort the investment climate in Ecuador for actual
and potential investors from the European Communities.  Therefore, Ecuador considered that such
suspension would be ineffective because it would harm Ecuador more than the European
Communities.
110. We believe that the effects of the suspension of commitments concerning commercial
presence could be particularly detrimental to a developing country Member such as Ecuador because
it is highly dependent on foreign direct investment.  We arrive at this conclusion for the following
reasons.
111. EC service suppliers which are currently commercially present in Ecuador (i.e. in the post-
establishment stage) would be adversely affected by  the impact of such suspension until they transfer
their investment to another country which would entail additional cost to them.  The withdrawal of
commitments on commercial presence would of course not require the immediate closure of a
commercial presence owned or controlled by EC nationals, but EC service suppliers would
immediately lose the legal protection, predictability and certainty which the GATS standards provide.
If such suspension of commitments causes EC service suppliers who are currently commercially
present in Ecuador to transfer investments, significant harm would be caused to Ecuador's economy.
112. EC service suppliers who are potential investors in Ecuador (i.e. in the  pre-establishment
stage) could easily turn to other host countries than Ecuador with a view to avoiding the impact of the
suspension of commitments on commercial presence.  Again, significant harm would be caused to
Ecuador's economy.
113. Furthermore, Ecuador submitted that suspension of commitments on commercial presence
would not be practicable.  It argued that a party could, if authorized by the DSB, e.g. order a
commercially present service supplier to stop its activities or impose a supplementary tax on each unit
of its service output.  Such actions against service suppliers of a particular foreign origin could lead in
many jurisdictions to conflicts with rights to, e.g. equal treatment embodied in national legislation or
international treaties and would entail substantial administrative difficulties.
                                                     
37 Ecuador has listed MFN exemptions in the audio-visual sector.WT/DS27/ARB/ECU
Page 25
114. In our view, it does not seem difficult to prevent EC service suppliers (in the pre-
establishment stage) from establishing themselves in Ecuador.  However, it may be possible in theory,
but difficult to implement in practice, to prevent already locally established service suppliers of EC
origin (in the post-establishment stage) from supplying services within Ecuador's territory.  For
example, it may cause administrative difficulties to close or limit the service output of a commercial
presence in the form of a branch or representative office.38  Additional legal and administrative
difficulties may arise when closing or limiting the output of a commercial presence in the form of an
establishment enjoying legal personality in its own right due to the legal protection granted to juridical
persons by national or international law.
115. Next, we address Ecuador's considerations conc erning cross-border service supply.  Ecuador
submitted that the suspension of such commitments would create practical difficulties and remain
ineffective in certain service sectors.  For example, it would be technically difficult to cut certainservice trade across borders such as telecommunications flows.
116. With respect to a limited range of service sectors or sub-sectors, Ecuador has entered not only
into commitments on cross-border supply (first m ode of service supply), but also into commitments
on other modes of supply such as consumption abroad (second mode) and/or commercial presence
(third mode).  This is the case, e.g. for construc tion and engineering; environmental services; health-
related and social services; tourism and travel; recreational, cultural and sporting services.
117. We believe that for many of these service transactions commitments on different modes of
supply provide alternative channels for supplying services.  This means that it is technically feasible
in practice to provide such services either through cross-border supply or consumption abroad or
commercial presence.  To the extent that this is the case, it becomes difficult for Ecuador toimplement the suspension of such commitments with respect to one of those bound supply modes
only.  Moreover, if Ecuador were to suspend commitments concerning cross-border supply in service
sectors where it has also bound supply through co mmercial presence and where these supply modes
may serve as alternative channels of service supply, our considerations above concerning the
ineffectiveness and practical difficulties Ecuador would face when suspending commitments oncommercial presence would again apply.
118. We emphasize that our considerations concerning commitments on several supply modes
which provide alternative channels for supplying certain service transactions are essentially based on
the particular, country-specific structure in terms of service sectors and modes of supply bound in
Ecuador's Schedule on specific commitments.  It is evident that no country-specific GATS schedule of
any other Member is entirely identical to the particular configuration and structure of the bindings
contained in Ecuador's GATS schedule.
119. We also consider the EC's submission that in  1998 trade in services between the European
Communities and Ecuador is estimated to be equivalent to US$197.54 million.  However, the parties
have not provided us with information on which proportion of this trade in services is covered by
Ecuador's commitments under the GATS.  We therefore cannot ascertain to what extent such trade
concerns modes of supply which Ecuador has bound in service sectors covered in its GATS Schedule.Accordingly, we believe that these statistics do not undermine our analysis of the effectiveness and
practicability of suspending Ecuador's commitments on services with respect to different modes of
supply.
120. Therefore, we conclude that Ecuador has followed the principles and procedures of
Article 22.3 in considering that it is not practicable or effective for it in this case to suspend
                                                     
38 See Article XXVIII(d) of GATS.WT/DS27/ARB/ECU
Page 26
commitments or other obligations under the GATS with respect to principal sectors other than
"distribution services".
(d) Whether "circumstances are serious enough" to seek suspension under another agreement
121. Having concluded that suspension is not practicable or effective under the same sectors (i.e.
under the GATT and the distribution service sector under the GATS), nor in other sectors under thesame agreement (i.e. under the GATS in bound sectors other than distribution services), as those
where violations were found, we next review Ecuador's consideration that "circumstances are serious
enough" within the meaning of Article 22.3(c) to request suspension of concessions or other
obligations under another agreement than those where violations were found (i.e. under the TRIPS
Agreement).  We find contextual guidance for defining the "seriousness" of circumstances in the
factors which subparagraph (d) requires the complain ing party to take into account when considering
in which sector(s) or under which agreement(s) to seek the DSB's authorization for suspension.
122. We thus review Ecuador's consideration of whether circumstances are serious enough within
the meaning of subparagraph (c) for Ecuador to seek suspension under the TRIPS Agreement in the
context of the factors set forth in subparagraphs (i) and (ii) of Article 22.3(d).  According to
subparagraph (i) of Article 22.3(d), we need to examine whether the trade in the sector(s) or under the
agreement(s) where violations were found and the "im portance of such trade to the party" suffering
nullification or impairment was taken into account by Ecuador.  Furthermore, we need to analyze
whether "broader economic elements" related to nullification or impairment and "broader economic
consequences" of the requested suspension within the meaning of subparagraph (ii) of Article 22.3(d)
were taken into account by Ecuador.
123. In this context, we note Ecuador's argument that if it were to request suspension of
concessions under the GATT with respect to goods, e.g. sound recordings which obviously
incorporate intellectual property rights, such a request would fall within subparagraph (a) of
Article 22.3.  The limited scope of review in an arbitration proceeding under Article 22.6 of such
requests for suspension within one of the same sect ors as those where violations were found should, in
Ecuador's view, be taken into account by the Arbi trators in interpreting their scope of review of
requests for suspension under another agreement than those where violations were found.
124. We agree with Ecuador that the extent of scrutiny under Article 22.3(a) is limited.  But we
also believe that the case of suspension of obligations under the TRIPS Agreement is different from
the situation described above by Ecuador because such suspension does not only affect cross-border
trade in goods involving intellectual property rights.  It also involves the use of such rights in local
production within a country as well as, to the extent feasible, use of such rights detached from goods
or services.
125. Ecuador submitted the statistics
39 that display the inequality between Ecuador and the
European Communities in support of its argumentation that circumstances are serious enough to
justify suspension across agreements:  Ecuador's population is 12 million, while the EC's population is
375 million.  Ecuador's share of world merchandise trade is below 0.1 per cent, whereas the EC's
world merchandise trade share is in the area of 20 per cent.  In terms of world trade in services, theEC's share is 25 per cent, while no data are available for Ecuador because its share would be so small.
The GDP at market prices in 1998 was US$20 billion for Ecuador and US$7,996 billion for the 15 EC
member States.  In 1998, the EC's GDP per capita is US$22,500, whereas per capita income is
US$1,600 in the case of Ecuador.
                                                     
39 These data derive from WTO Statistics, Eurostat's "The European Union Figures for the Seattle
Conference" (Memo 9/99) and the "Economist Intelligence Unit Country Report" (4th Quarter 1999).WT/DS27/ARB/ECU
Page 27
126. In our view, these figures illustrate the considerable economic differences between a
developing WTO Member and the world's largest trader.  We believe that these differences confirm
our considerations above that it may not be practicable or effective for Ecuador to suspend
concessions or other obligations under the GATS or with respect to all product categories under the
GATT.  However, to some extent, the same ra tionale could hold true also for suspension of
obligations under the TRIPS Agreement by a developing country Member in a situation involving a
substantial degree of economic inequality between the parties concerned.
127. In this respect, we note Ecuador's argument that it has limited its request for suspension under
the TRIPS Agreement to only three areas of protection of intellectual property rights where adverse
effects for Ecuador and difficulties in implementing suspension would seem to arise the least.  We
recall that Article 22.3(a-b) requires us to review  the complaining party's considerations as to why
suspension is not practicable or effective in the same sector(s) or in (an)other sector(s) under the sameagreement(s) where violations were  found.  Article 22.3(c) requires in addition a review of whether
circumstances are serious enough to justify suspension across agreements.  Finally, Article 22.3(d)
requires a review of whether the complaining party has taken into account certain factors in applying
these principles and procedures just mentioned.  None of these provisions requires the complaining
party to establish that suspension with respect to another sector or under another agreement is in factand at present practicable and effective, or will become so at some point in the future.  Nor are we, as
Arbitrators, in our review pursuant to subparagraphs 6 or 7 of Article 22, required to establish that the
suspension of certain TRIPS obligations is effective and practicable for Ecuador in this case.
(e) Whether "the trade in the sector(s) under the agreement(s)" under which violations were
found and the "importance of such trade to the party" were taken into account
128. We next analyze whether Ecuador has taken into account the factors of trade in the sector(s)
or under the agreement(s) where violations were found and the importance of such trade for the
complaining party within the meaning of subparagraph (i) of Article 22.3(d).  We recall our
interpretation above that these factors relate primarily to the trade nullified or impaired by the WTO-
inconsistent measures which have not been brought into compliance, and that trade in the goods orservice sectors or under the GATT and GATS agreements in their entirety are of subsidiary
importance for our review.  Therefore, in this case we consider mainly whether Ecuador has taken
into account in particular the importance of trade in bananas and their distribution, but also the
importance of such trade in the banana sector relative to trade in the goods and service sectors on the
whole.
129. More specifically, Ecuador emphasizes that the banana sector is the lifeblood of its economy.
Ecuador is the largest exporter of bananas in the world and the largest exporter to the Europeanmarket.  Banana production is also the largest source of employment and the largest source of foreign
earnings.  Nearly 11 per cent of Ecuador's population is totally dependent on this sector.  Banana
exports (in goods only) represent 25.45 per cent of Ecuador's total merchandise exports.  Banana
production represents nearly 5.2 per cent of the GDP.  In Ecuador's view, the banana industry is of
greater importance to its economy than the whole agricultural sector in most developed countries.Ecuador concluded that it would be difficult to find an economic sector where it would be possible to
hurt Ecuador more than in the banana sector.
130. This information demonstrates that Ecuador has taken into account that its economy is highly
dependent upon bananas and is highly sensitive to  any changes in international trade flows and
conditions of competition abroad.  We conclude that Ecuador has taken into account within themeaning of subparagraph (i) of Article 22.3(d) the trade in the sector(s) and agreement(s) where
violations of WTO-law have been found and the importance of such trade to Ecuador.WT/DS27/ARB/ECU
Page 28
(f) Whether the "broader economic elements" related to nullification or impairment and the
"broader economic consequences" of the requested suspension were taken into account
131. Finally, we review whether Ecuador has taken into account "broader economic elements"
related to nullification or impairment and "broader economic consequences" of the requested
suspension within the meaning of subparagraph (ii) of Article 22.3(d) in applying the principles andprocedures of Article 22.3, and in particular in considering that "circumstances are serious enough" to
justify suspension under another agreement than those where violations were found.
132. In these respects, Ecuador offered the following argumentation.  On the one hand, Ecuador
argued that it currently faces the worst economic crisis in its history.  Ecuador pointed at the fact that
its economy shrank by 7 per cent in 1999 and that total imports declined by 52 per cent.
Unemployment rose to 17 per cent.  We do not question the alarming nature of these economic
indicators.  However, the European Communities contended that Ecuador has not clearly established acausal link between the EC's failure to comply with the DSB rulings within the reasonable period of
time and the economic crisis in Ecuador.  In the EC's view, this crisis may be due to multiple reasons,
including natural disasters and domestic political problems.
133. We note that subparagraph (ii) of Article 22.3(d) does not require the complaining party to
establish a causal connection between nullification or impairment suffered and "broader economicelements" to be taken into account.  It is suffic ient to show that there is a relation between the
"broader economic elements" considered by Ecuador and the nullification and impairment caused by
the EC import regime for bananas.  We consider Ecuador's argument plausible that the nullification
and impairment caused by the WTO-inconsistent as pects of that EC import regime have aggravated
these economic problems, especially in view of the importance of trade in bananas and relateddistribution services for Ecuador's economy.
134. As to "broader economic consequences" of the suspension of concessions or other
obligations, Ecuador submitted that such consequences for the European Communities would be
virtually non-existent.  In Ecuador's view, given the economic disparity between the parties, such
consequences would be felt rather by Ecuador.
135. We have addressed and accepted Ecuador's arguments that it has taken account of this factor
in considering whether to seek suspension under another agreement.  We are thus satisfied that
Ecuador has taken into account within the meaning of subparagraph (ii) of Article 22.3(d) "broader
economic elements" and "broader economic consequences" in applying the principles and procedures
set forth in Article 22.3.
136. In this context, we note that our interpretation and application of the factors listed in
subparagraph (d) of Article 22.3 is corroborated by the provisions of Article 21.8
40 which require the
DSB, in considering which action might be appropriate if a case is brought by a developing country
Member, to take into account not only the trade co verage of the measures complained of, but also
their impact on the economy of the developing country Members concerned.
137. In the light of the foregoing discussion, we conclude that Ecuador has followed the principles
and procedures set forth subparagraph (c) in considering that "circumstances are serious enough" toseek suspension under another agreement than those where violations were found and that it has taken
into account the factors listed in subparagraph (d) in applying the principles and procedures set forth
in Article 22.3.
                                                     
40 Article 21.8 of the DSU:  "If the case is one brought by a developing country Member, in considering
what appropriate action might be taken, the DSB shall ta ke into account not only the trade coverage of measures
complained of, but also their impact on the economy of developing country Members concerned.".WT/DS27/ARB/ECU
Page 29
138. Accordingly, we conclude that Ecuador has followed the principles and procedures set forth
in Article 22.3 in requesting authorization from the DSB to suspend certain obligations under the
TRIPS Agreement.
V. REMARKS ON THE SUSPENSION OF TRIPS OBLIGATIONS
A. THE SCOPE OF THE SUSPENSION TO BE AUTHORIZED UNDER THE TRIPS A GREEMENT
139. We recall that Article 19 of the DSU provides that "the panel or the Appellate Body may
suggest ways in which the Member concerned could implement the recommendations".  While
Article 19 does not explicitly mention arbitration proceedings under Article 22, in our view, there is
nothing in the DSU that would preclude Arbitrat ors, acting pursuant to Article 22.6, from making
suggestions on how to implement their decision.  Gi ven that this case is the first one involving
subparagraphs (b)-(e) of Article 22.3 and the first one concerning the suspension of TRIPS
obligations, we believe that it is particularly appropriate to set out our views on the suspension ofTRIPS obligations.  We also note that Ecuador has expressed its interest in hearing our views on these
issues.
140. We first note that Article 1.3 of the TRIPS Agreement defines in general the reach of the
TRIPS Agreement:
"Members shall accord the treatment prov ided for in this Agreement to the nationals
of other Members.  In respect of the relevant intellectual property right , the nationals
of other Members shall be understood as those natural or legal persons  that would
meet the criteria for eligibility for protection provided for in the Paris Convention
(1967), the Berne Convention (1971), the Rome Convention and the Treaty on
Intellectual Property in Respect of Integrated Circuits, were all Members of the WTOmembers of those conventions. …". (emphasis added, footnotes omitted).
141. Thus, an authorization by the DSB of the request for suspension vis-à-vis  the European
Communities would permit Ecuador to suspend the trea tment provided for in the TRIPS provisions in
question with respect to nationals  within the meaning of Article 1.3 of those 13 EC member States
41
which the request for suspension by Ecuador refers to.
142. Article 1.3 of the TRIPS Agreement further specifies that the criteria for determining which
persons  are entitled to the treatment provided for under the TRIPS Agreement are those that meet the
criteria for eligibility  for protection laid down in the main pre-existing intellectual property
conventions, including the Paris Convention, the Berne Convention, the Rome Convention, and the
Treaty on Intellectual Property in Respect of Integrated Circuits (IPIC Treaty).42
143. We recall that Ecuador's request for the suspension of TRIPS obligations refers to Article 14
of Section 1 of the TRIPS Agreement on "Copyright and related rights" as well as Section 3 on"Geographical indications" and Section 4 on "Industrial designs".
144. In respect of the protection of performers , producers of phonograms  (sound recordings) and
broadcasting organisations  within the meaning of Article 14 of the TRIPS Agreement, criteria for
eligibility for protection of persons are defined in the Rome Convention.  In this respect, it is
important to point out that, in the case of suspension of obligations under Article 14, as requested byEcuador, there may be different right holders of the different rights related to phonograms and that
                                                     
41 Ecuador's request for suspension under Article 22.2 excludes Denmark and the Netherlands.
42 These eligibility criteria apply whether or not a WTO Member is a party to these pre-existing
Conventions.WT/DS27/ARB/ECU
Page 30
these right holders do not necessarily all have the na tionality, within the meaning of Article 1.3 of the
TRIPS Agreement, of one of those 13 member States in question, even if the phonogram concerned
has been produced in one of those member States.  The performer having rights to a phonogram under
Article 14 may be a non-national of these 13 member States, but the producer of the phonogram may
be a national of those member States.  Such complicated situations will have to be carefullyconsidered by Ecuador in implementing the suspension of TRIPS obligations, if authorized by the
DSB, so as not to adversely affect right holders who cannot be regarded as nationals of those 13 EC
member States.
145. In respect of the criteria for eligibility for the protection of industrial designs , the Paris
Convention is relevant.
146. The legal protection of  geographical indications
43 is enjoyed by "interested parties" within
the meaning of Articles 22.2 and 23.1 of the TRIPS Agreement.44  Article 22.1 of the TRIPS
Agreement creates a clear link between a region, locality or territory and a protectable geographical
indication.  This implies that the suspension of protection of geographical indications would concern
parties interested in geographical indications whic h identify a good as originating in the territory of
one of the respective 13 EC member States, or a region or locality in that territory.
147. It should be emphasized that in its relation to all other WTO Members and the natural or legal
persons that are their nationals, Ecuador continues to be bound by its obligations under the TRIPS
Agreement and that all these WTO Members continue to be entitled to exercise their rights under the
DSU with respect to Ecuador.
                                                     
43 Geographical indications are defined in Article 22.1 of the TRIPS Agreement as indications which
identify a good as originating in the territory of a Member , or a region or locality in that territory, where a given
quality, reputation or other characteristics of the good is essentially attributable to the geographical origin.
44 Article 22.2 of the TRIPS Agreement:
"2. In respect of geographical indications, Members shall provide the legal means for interested parties to
prevent:
(a) the use of any means in the designation or presentation of a good that indicates or suggeststhat the good in question originates in a geographi cal area other than the true place of origin in a
manner which misleads the public as to the geographical origin of the good;
(b) any use which constitutes an act of unfair competition within the meaning of Article 10 bis of
the Paris Convention (1967).
3. A Member shall, ex officio  if its legislation so permits or at the request of an interested party, refuse or
invalidate the registration of a trademar k which contains or consists of a geographical indication with respect to
goods not originating in the territory indicated, if use of the indication in the trademark for such goods in thatMember is of such a nature as to mislead the public as to the true place of origin.
4. The protection under paragraphs 1, 2 and 3 shall be applicable against a geographical indication which,
although literally true as to the territory, region or localit y in which the goods originate, falsely represents to the
public that the goods originate in another territory."
Article 23.1 of the TRIPS Agreement:  Additional Protection for Geographical Indications for Wines
and Spirits:  "Each Member shall provide the legal means for interested parties to prevent use of a geographical
indication identifying wines for wines not originating in the place indicated by the geographical indication in
question or identifying spirits for spirits not originati ng in the place indicated by the geographical indication in
question, even where the true origin of the goods is indicated or the geographical indication is used in translationor accompanied by expressions such as 'kind', 'type', 'style', 'imitation' or the like." Footnote 4 to Article 23.1:"Notwithstanding the first sentence of Article 42, Members may, with respect to these obligations, insteadprovide for enforcement by administrative action."
As regards the notion of "interested parties", guidance could be sought from Article 10.2 of the Paris
Convention.WT/DS27/ARB/ECU
Page 31
B. THE SUSPENSION OF TRIPS O BLIGATIONS AND THE RELATION WITH THE CONVENTIONS
ADMINISTERED BY WORLD INTELLECTUAL PROPERTY ORGANISATION (WIPO)
148. The parties disagree on whether Article 2.2 of the TRIPS Agreement prevents or permits the
suspension of TRIPS obligations which have a relation to the Paris Convention, Berne Convention,
the Rome Convention or the IPIC Treaty.  Article 2.2 provides:
"Nothing in Parts I to IV of this Agreemen t shall derogate from existing obligations that
Members have to each other under the Paris Convention, the Berne Convention, the Rome
Convention and the Treaty on Intellectual Propert y Right in Respect of Integrated Circuits."
149. This provision can be understood to refer to the obligations that the contracting parties of the
Paris, Berne and Rome Conventions and the IPIC Treaty, who are also WTO Members, have between
themselves under these four treaties.  This would mean that, by virtue of the conclusion of the WTOAgreement, e.g. Berne Union members cannot derogate from existing obligations between each other
under the Berne Convention.  For example, the fact that Article 9.1 of the TRIPS Agreement
incorporates into that Agreement Articles 1-21 of the Berne Convention with the exception of
Article 6 bis does not mean that Berne Union members would henceforth be exonerated from this
obligation to guarantee moral rights under the Berne Convention.
150. In any event, Article 2.2 only refers to Parts I to IV of the TRIPS Agreement, while the
provisions on "Dispute Prevention and Settlement" are embodied in Part V.  This Part of the TRIPS
Agreement contains, inter alia , Article 64.1
45 which provides that the DSU applies to disputes under
the TRIPS Agreement unless otherwise specifically provided therein.  Examples for something
"otherwise specifically provided" are paragraphs 2 and 3 of that same Article 64.  These paragraphsspecifically provide that so-called "non-violation" and "situation" complaints within the meaning of
subparagraphs 1(b) and 1(c) of Article XXIII of GATT cannot be lodged during a transitional period
and that the Council for TRIPS should examine the scope and modalities for these types of complaints
under the TRIPS Agreement.  However, nothing in Article 64 or other Articles of the TRIPS
Agreement provides specifically that Article 22 of the DSU does not apply to the TRIPS Agreement.
151. We further note that subparagraphs (f)(iii) and (g)(iii) of Article 22.3 of the DSU
46 explicitly
define that Sections of the TRIPS Agreement are "sectors", and that the TRIPS Agreement is an
"agreement", in respect of which the suspension of TRIPS obligations may be sought, pursuant to
subparagraphs (b-c) of Article 22.3, by a complaining party and authorized by the DSB.  Provided that
Ecuador's request for the suspension of certain TRIPS obligations is consistent with all the
requirements of Article 22 of the DSU, including paragraphs 3 and 4 thereof, neither Article 2.2 read
in context with Article 64 of the TRIPS Agreement, nor any other provision of the WTO agreementsindicate that an authorization by the DSB of that request would in theory be prohibited under WTO
law.
152. It is not within our jurisdiction as Arbitrators, acting pursuant to Article 22.6 of the DSU, to
pass judgment on whether Ecuador, by suspending, once authorized by the DSB, certain TRIPS
obligations, would act inconsistently with its international obligations arising from treaties other than
                                                     
45 Article 64.1 of the TRIPS Agreement:  "The provisions of Article XXII and XXIII of GATT 1994 as
elaborated and applied by the Dispute Settlement Understanding shall apply to consultations and the settlement
of disputes under this Agreement except as otherwise specifically provided therein."
46 Article 22.3(f) of the DSU:  "for purposes of this paragraph, 'sector' means: …
(iii) with respect to trade-related intellectual property rights, each of the categories of intellectualproperty rights covered in Section 1, or Section 2, or Section 3, or Section 4, or Section 5, or Section 6,or Section 7 of Part II, or the obligations under Part III, or Part IV of the Agreement on TRIPS;"
Article 22.3(g) of the DSU:  "for purposes of this paragraph, 'agreement' means: …
(iii) with respect to intellectual property rights, the Agreement on TRIPS."WT/DS27/ARB/ECU
Page 32
the agreements covered by the WTO (e.g. the Paris, Berne and Rome Conventions which Ecuador has
ratified).47  It is, if at all, entirely for Ecuador and the other parties to such treaties to consider whether
a specific form chosen by Ecuador for implementing such suspension of certain TRIPS obligations
gives rise to difficulties in legal or practical terms under such treaties.
C. THE EFFECT ON THIRD -COUNTRY WTO M EMBERS OF THE SUSPENSION OF CERTAIN TRIPS
OBLIGATIONS BY ECUADOR WITH RESPECT TO THE EUROPEAN COMMUNITIES
153. It is evident that an authorization by the DSB for Ecuador to suspend certain TRIPS
obligations would concern Ecuador only.  Such authorization does not exonerate any other WTO
Member from abiding by its WTO obligations, including those under the TRIPS Agreement.
154. The obligations of other WTO Members include those in respect of action against imports of
goods which involve other infringements of intellectual property rights.  In this context, Article 5148
in Section 449 on "Special Requirements Related to Border Measures", contained in Part III of the
TRIPS Agreement, provides that "Members shall … adopt procedures to enable a right holder who
has valid grounds for suspecting that the importation of counterfeit trade or pirated copyright goods
may take place", to request customs authorities to suspend release into free circulation of such goods.
According to footnote 14 to Article 51, "pirated copyright goods"50 include copies made without the
consent of the right holder or person duly authorized by the right holder in the country of production,where the making of that copy would have constituted an infringement of a copyright or a related
right under the law of the country of importation.
155. We note that, as a result of an authorization by the DSB of Ecuador's request to suspend
Article 14 of the TRIPS Agreement, phonograms would be produced in Ecuador consistent with WTO
law.  However, such phonograms would still be copi es made without the consent of the right holder or
a person duly authorized by the right holder in the country of production.  Pursuant to footnote 13 to
Article 51,
51 WTO Members are under no obligation to apply procedures concerning "special
requirements related to border measures" to imports of goods put on the market in another country by
or with the consent of the right holder.  However, with respect to phonograms produced in Ecuador
without the consent of the right holder, but consistent with an authorization by the DSB under Article22.7 of the DSU, the obligations of Article 51 of the TRIPS Agreement to apply such procedures
would remain in force for all WTO Members.
                                                     
47 We also refer in this respect to our considerations in Section D on the suspension of TRIPS
obligations and the interference with private rights.
48 Article 51 of the TRIPS Agreement:  "Members shall, in conformity with the provisions set out
below, adopt procedures to enable a right holder who has valid grounds for suspecting that the importation of
counterfeit trade or pirated copyright goods may take place,  to lodge an application in writing with competent
authorities, administrative or judicial, for the suspension by the customs authorities of the release into freecirculation of such goods.  Members may enable such an application to be made in respect of goods whichinvolve other infringements of intellectual property rights, provided that the requirements of this Section are
met.  Members may also provide for corresponding procedures concerning the suspension by the customs
authorities of the release of infringing goods destined fo r exportation from their territories." (footnotes omitted).
49 Members are obliged to provide border measures in respect of goods embodying related rights, but
may apply them also in respect of goods which involve infringements of geographical indications or industrialdesigns.
50 Footnote 14 to Article 51 of the TRIPS Agreement:  "For the purposes of this Agreement: …
(b) "pirated copyright goods" shall mean any goods which are copies made without the consent of
the right holder or person duly authorized by the right holder in the country of production and which are madedirectly or indirectly from an article where the making of  that copy would have constituted an infringement of a
copyright or a related right under the law of the country of importation."
51 Footnote 13 to Article 51 of the TRIPS Agreement:  "It is understood that there shall be no obligation
to apply such procedures to imports of goods put on the market in another country by or with the consent of the
right holder, or to goods in transit."WT/DS27/ARB/ECU
Page 33
156. Distortions in third-country markets could be avoided if Ecuador would suspend the
intellectual property rights in question only for the purposes of supply destined for the domestic
market.  An authorization of a suspension requested by Ecuador does of course not entitle other WTO
Members to derogate from any of their obligations under the TRIPS Agreement.  Consequently, such
DSB authorization to Ecuador cannot be construed by other WTO Members to reduce theirobligations under Part III of the TRIPS Agreement in regard to imports entering their customs
territories.
D. T
HE SUSPENSION OF TRIPS O BLIGATIONS AND INTERFERENCE WITH PRIVATE RIGHTS
157. We are conscious that the requested suspension of certain TRIPS obligations ultimately
interferes with private rights owned by natural or legal persons.  These persons are highly unlikely to
have any connection with the ongoing failure of the European Communities to fully comply with the
DSB rulings in the proceeding under Article 21.5 of the DSU in Bananas III  between Ecuador and the
European Communities.  The same logic holds true for the suspension of concessions or other
obligations under the GATT (or other agreements in Annex 1A) and the GATS as well.  However, the
interference with private property rights of individuals or companies may be perceived as more far-
reaching under the TRIPS Agreement, given the potentially unlimited possibility to copy phonograms
or use other intellectual property rights.  In cont rast, producers of goods and service suppliers which
are affected by the suspension of concessions or other obligations under the GATT or the GATS may
stop exporting to the Member imposing such suspension.
158. We are aware that the implementation of the suspension of certain TRIPS obligations may
give rise to legal difficulties or conflicts within the domestic legal system of the Member so
authorized (and perhaps even of the Member(s) affect ed by such suspension).  The resolution of such
difficulties is of course a matter entirely within the prerogatives of the Member requesting
authorization.  Obviously, the degree of such difficulties is likely to depend on the means chosen by
Ecuador for implementing the suspension of certain TRIPS obligations in relation to the 13 EC
member States.
E. CONCLUDING OBSERVATIONS ON THE SUSPENSION OF TRIPS O BLIGATIONS
159. As far as the examination of the equivalence between the level of nullification or impairment
suffered and the level of the proposed suspension of concessions or other obligations is concerned, the
mandate of the Arbitrators under paragraphs 6 and 7 of Article 22 of the DSU is in our view limited to
estimating Ecuador's losses in actual and potential trade and trade opportunities in the relevant goods
and service sectors (i.e. trade in Ecuadorian bananas and distribution services by suppliers of
Ecuadorian origin).  However, in the light of the provisions of Article 19.1 of the DSU referred to
above, we wish to make some remarks on Ecuador's intentions on how to implement the suspensionof certain TRIPS obligations, if authorized by the DSB.
160. We note with approval that, in implementing the suspension of certain TRIPS obligations at a
level not exceeding the level authorized by the DSB, Ecuador intends to account not only for the
actual  impact of the suspension of intellectual property rights currently used subject to the
authorization by the right holder and subject to the payment of remuneration.
52  The mechanisms
described in detail below reflect Ecuador's intention to consider also the potential impact of such
                                                     
52 We also wish to emphasise that in calculating the level of nullification and impairment suffered by
Ecuador, we considered the entire value of losses of actual trade and of potential trade opportunities in bananas
and the loss of actual and potential distribution service supply.  We have not based our calculations on the lossesin profits incurred by banana producers or companies supplying distribution services.  It would facilitate
implementing an equivalent level of suspension of TRIPS obligations if actual and potential effects of such
suspension of the protection of the intellectual property rights at issue would be taken into account.WT/DS27/ARB/ECU
Page 34
suspension in terms of the additional use of the intellectual property rights in question.  Such use may
be expected to increase as a result of the fact that the DSB's authorization would allow using such
intellectual property rights without payment of remuneration to EC right holders and without their
authorization, provided that prices for the products incorporating the intellectual property rights
concerned decrease.
161. More specifically, we note that in its response to questions by the Arbitrators, Ecuador
submits that it never had the intention to simply abolish all rules on "related rights" and to put all EC
produced phonograms in the public domain which it could arguably do only if it had requested
suspension of Article 9 of the TRIPS Agreement, too.  If Ecuador were authorized by the DSB to
suspend the application of "related rights" under Article 14 vis-à-vis the European Communities, it
would consider installing a system whereby companies or individuals established in Ecuador could
obtain an authorization from the Ecuadorian government to apply the suspension of concessionsderived from Article 14 of the TRIPS Agreement within the Ecuadorian territory.  This authorization
would be granted through a licensing system which limits the suspension of concessions in terms of
quantity, value and time.  The Ecuadorian government would reserve its right to revoke these licences
at any time.  Each reproduction of a sound recording under this licensing scheme would correspond to
a "suspension value" equivalent to the "related ri ght value" of a new, commercially most interesting
sound recording.  For that purpose, Ecuador would use the average "related right value" of sound
recordings in Europe as estimated by the International Federation of the Phonographic Industry
(IFPI).  A certain proportion of this value would represent the performer's share and another, larger
part would represent the producer's share.  If the level of suspension thus calculated were to risk
reaching (together with authorized suspension in other sectors and/or under other agreements, if any)the level of nullification and impairment suffered by Ecuador, the authorization scheme would be
stopped.  Ecuador believes that the chances that this would happen are very close to nil.
162. Regarding geographical indications, Ecuador notes that the analysis should be different from
the analysis with regard to Article 14 of the TRIPS Agreement.  The non-respect of "related rights" on
a sound recording results in a product that is identica l in all respects to the product that is put on the
market with the authorization of the "related righ ts" holder.  The CD that would be produced under
Ecuador's licensing scheme would be cheaper th an a CD produced with the authorization and
remuneration of the "related rights" holder, and the former would become a substitute for the latter.
For products identified by a geographical indication that would be clearly different.  For these
products it is only possible to make use of the geographical indication, which is different from
reproducing the original product. However, the use of geographical indications could be licensed in
similar terms as explained for sound recordings above.  Licences could be granted for a determinedproduct and a determined value, quantity and time.  The licences would be granted for the exclusive
use of the holder of the licence and the Ecuadorian government would reserve its rights to revoke
these licences at any time.  The test for determin ing the level of suspension would be the extent to
which protected EC products would be replaced by non-protected products from other sources.
163. With respect to industrial designs, Ecuador envisages a similar licensing system as described
above even though it considers that the economic effect of suspending the protection of industrial
designs would be limited.
164. In our view, the mechanisms envisaged by Ecuador for implementing the suspension of
certain sections of the TRIPS Agreement, if authorized by the DSB, would take account of many of
our remarks made in the preceding sections.WT/DS27/ARB/ECU
Page 35
165. Finally, we recall that, according to Article 22.8 of the DSU,53 an authorization by the DSB of
a request for the suspension of concessions or other obligations is in principle a temporary action,
pending the removal of the WTO-inconsistent measure at issue, a solution remedying the nullification
or impairment of benefits, or a mutually satisfactory solution.  Given this temporary nature of the
suspension of concessions or other obligations, economic actors in Ecuador should be fully aware ofthe temporary nature of the suspension of certain TRIPS obligations so as to minimise the risk of them
entering into investments and activities which might not prove viable in the longer term.
VI. THE CALCULATION OF THE LEVEL OF NULLIFICATION AND IMPAIRMENT
166. There are various counterfactual regimes that would be WTO-consistent.  We have evaluated
the various counterfactuals and we have decided to choose the same counterfactual as in the US/EC
Bananas III  arbitration
54 to ensure that there is consistency and in particular no double-counting with
respect to the nullification and impairment borne by the United States.
167. The counterfactual we have chosen is a global tariff quota equal to 2.553 million tonnes
(subject to a 75 Euro per tonne tariff) and unlimited access for ACP bananas at a zero tariff (assuming
the ACP tariff preference would be covered by a waiver55).  Since the current quota on tariff-free
imports of traditional ACP bananas is in practice non-restraining, this counterfactual regime would
have a similar impact on prices and quantities as the current EC regime.  However, import licenceswould be allocated differently in order to remedy the GATS violations.
168. We calculated the effect on relevant Ecuadorian imports of the revised EC banana regime,
compared with the counterfactual described in the previous paragraph, based on the assumption that
the aggregate volume of EC banana imports is the same in the two scenarios.  This implies that EC
banana production and consumption, and the f.o.b., c. i.f., wholesale and retail prices of bananas, also
are the same in the two scenarios.  This in turn implies that the aggregate value of wholesale banana
trade services after the f.o.b. point, and the aggregate value of banana import quota rents, are the same
in the two scenarios.  Both of those values are readily calculated from the price and quantity data
made available to us.  The only difference between the scenarios is in the shares of those aggregates
that are enjoyed by Ecuador and other goods and service suppliers.
169. We assume the volume of Ecuador's banana exports to the EC would increase (at the expense
of other suppliers) to the level of its best-ever exports
56 during the past decade, that the share of those
bananas distributed in the EC by Ecuadorian service suppliers would rise to 60 per cent, and that the
proportion of those distributed bananas for which Ecuadorian service suppliers are given import
licences would rise to 92 per cent (assuming that the remaining 8 per cent of the available import
licences are those reserved for newcomers, consistent with the assumption used in the US/EC
Bananas III  arbitration).
                                                     
53 Article 22.8 of the DSU:  "The suspension of concessions or other obligations shall be temporary and
shall only be applied until such time as the measure found to be inconsistent with a covered agreement has beenremoved, or the Member that must implement recommendations or rulings provides a solution to thenullification or impairment of benefits, or a mutually satisfactory solution is reached. …"
54 European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse
to Arbitration by the European Communities under Artic le 22.6 of the DSU, Decision by the Arbitrators
(WT/DS27/ARB), dated 9 April 1999;  suspension of concessions by the United States in an amount ofUS$191.4 million authorized by the DS B at its meeting on 19 April 1999.
55 We note the Request for a WTO Waiver from the European Commission on behalf of the European
Communities and from Tanzania on behalf of the African, Caribbean and Pacific States concluding negotiationson a New ACP-EC Partnership Agreement, dated 29 February 2000 (WTO document G/C/W/187 of
2 March 2000).
56 Ecuador's exports to the European Co mmunities peaked at 745,058 tonnes in 1992.WT/DS27/ARB/ECU
Page 36
170. Using the various data provided and our knowledge of the current quota allocation and what it
would be under the WTO-consistent counterfactual chosen by us, we determine that the level of
Ecuador's nullification and impairment is US$201.6 million per year.
VII. CONCLUSIONS AND SUGGESTIONS
171. For the reasons explained in detail in the preceding sections, we have concluded above that
Ecuador's request under Article 22.2, dated 9 November 1999,57 has not followed, albeit to a limited
extent, the principles and procedures set forth in Article 22.3, especially regarding the suspension of
concessions under the GATT with respect to goods destined for final consumption.  Moreover, our
calculations have led us to conclude that the level of suspension requested by Ecuador exceeds the
level of nullification and impairment suffered by it as a result of the EC's failure to bring the EC
banana import regime into compliance with WTO law within the reasonable period of time foreseen
for that purpose.
172. In this context, we recall that the relevant part of Article 22.7 provides:
"… The parties shall accept the arbitrator's decision as final and the parties concerned shall
not seek a second arbitration.  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 arbitrator, unless the DSBdecides by consensus to reject the request."
173. Consequently, and consistent with past practice in arbitration proceedings under Article 22,
58
we suggest to Ecuador to submit another reques t to the DSB for authorization of suspension of
concessions or other obligations consistent with our conclusions set out in the following paragraphs:
(a) Ecuador may request, pursuant to paragraph 7 of Article 22, and obtain authorization
by the DSB to suspend concessions or other obligations of a level not exceeding
US$201.6 million per year which we have estimated to be equivalent within the
meaning of Article 22.4 to the level of nullification and impairment suffered by
Ecuador as a result of the WTO-inconsistent aspects of the EC import regime forbananas.
(b) Ecuador may request, pursuant to subparagraph (a) of Article 22.3, and obtain
authorization by the DSB to suspend concessions or other obligations under the
GATT concerning certain categories of goods in respect of which we have been
persuaded that suspension of concessions is effective and practicable.
Notwithstanding the requirement set forth in Article 22.7 that arbitrators "shall not
examine the nature of the concessions or other obligations to be suspended", we notethat in our view these categories of goods do not include investment goods or primary
goods used as inputs in Ecuadorian manufacturing and processing industries, whereas
these categories of goods do include goods destined for final consumption by end-
                                                     
57 WT/DS27/52.
58 Recourse by the United States to Article 22.7 of the DSU in reaction to the Arbitrators' Decision in
the US/EC Bananas III  arbitration proceeding, dated 9 April 1999 (WT/DS27/49). Recourse by the United
States to Article 22.7 of the DSU in reaction to the Arbitrators' Decision in the US/EC Hormones arbitration
proceeding, dated 15 July 1999 (WT/DS26/21).  Recourse by Canada to Article 22.7 of the DSU in reaction to
the Arbitrators' Decision in the Canada/EC Hormones arbitration proceeding, dated 15 July 1999
(WT/DS48/19).WT/DS27/ARB/ECU
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consumers in Ecuador.59  In making its request for suspension of concessions with
respect to certain product categories, we note that, consistent with past practice in
arbitration proceedings under Article 22,60 Ecuador should submit to the DSB a list
identifying the products with respect to which it intends to implement such
suspension once it is authorized.
(c) Ecuador may request, pursuant to subparagraph (a) of Article 22.3, and obtain
authorization by the DSB to suspend commitments under the GATS with respect to
"wholesale trade services" (CPC 622) in the principal sector of distribution services.
(d) To the extent that suspension requested under the GATT and the GATS, in
accordance with subparagraphs (b) and (c) above, is insufficient to reach the level of
nullification and impairment indicated in subparagraph (a) of this paragraph, Ecuador
may request, pursuant to subparagraph (c) of Article 22.3, and obtain authorization bythe DSB to suspend its obligations under the TRIPS Agreement with respect to the
following sectors of that Agreement:
(i) Section 1: Copyright and related rights, Article 14 on "Protection of
performers, producers of phonograms (sound recordings) and broadcasting
organisations";
(ii) Section 3: Geographical indications;
(iii) Section 4: Industrial designs.
174. We recall the general principle set forth in subparagraph (a) of Article 22.3 that the
complaining party should first seek to suspend concessions or other obligations with respect to the
same sectors as those in which the panel or Appellate Body has found a violation or other nullificationor impairment.  In this respect, we recall that, according to the report in the proceeding between
Ecuador and the European Communities under Article 21.5, the GATT and the sector of distribution
services under the GATS are those sectors within the meaning of subparagraph (f) of Article 22.3 in
which violations were found by the reconvened panel.
175. More specifically, we recall that the reconvened panel in the above-mentioned proceeding
under Article 21.5 found the revised EC banana regime, inter alia , to be inconsistent with Articles I
and XIII of GATT.  Therefore, our reasoning and conclusions in respect of "wholesale trade services"
in the above section entitled "Ecuador's request for suspension of concessions or other obligations in
the same sector where violations were found" would apply mutatis mutandis  to a request, pursuant to
subparagraph (a) of Article 22.3, for suspension of concessions or other obligations under the GATT.
176. We emphasize that it is obviously impossible to suspend concessions or other obligations for
a particular amount of nullification or impairment  under one sector or agreement and simultaneously
for that same amount under another sector or a different agreement.  However, once a certain level of
nullification or impairment has been determined by the Arbitrators, suspension may be practicable
                                                     
59 We would expect that a request by Ecuador under subparagraph (a) of Article 22.3 for suspension of
concessions under the GATT with respect to the product categories just mentioned would be at least of the
amount identified in paragraph 99 above.
60 Decision by the Arbitrators in European Communities - Measures Concerning Meat and Meat
Products (Hormones) - Original Complaint by the United States - Recourse to Arbitration by the EuropeanCommunities under Article 22.6 of the DSU  (WT/DS26/ARB, dated 12 July 1999), paras. 18-23.  Decision by
the Arbitrators in European Communities - Measures Concerning Meat and Meat Products (Hormones) -
Original Complaint by Canada - Recourse to Arbitration by the European Communities under Article 22.6 of
the DSU  (WT/DS48/ARB, dated 12 July 1999), paras. 18-21.WT/DS27/ARB/ECU
Page 38
and effective under the same sector(s) and/or agreement(s) where violations have been found only for
part of that amount.  In such a situation, suspension for the residual amount of nullification or
impairment may be practicable or effective in another sector under the same agreement or possible
only under another agreement as is the case in this dispute.
177. We have made extensive remarks above on the suspension of obligations under the TRIPS
Agreement and in particular concerning the legal and practical difficulties arising in this context.
Given the difficulties and the specific circumstances of this case which involves a developing country
Member, it could be that Ecuador may find itself in a situation where it is not realistic or possible for
it to implement the suspension authorized by the DS B for the full amount of the level of nullification
and impairment estimated by us in all of the sectors and/or under all agreements mentioned above
combined.  The present text of the DSU does not offer a solution for such an eventuality.  Article 22.8
of the DSU merely provides that the suspension of concession or other obligations is temporary andshall only be applied until the WTO-inconsistent measure in question has been removed, or the
Member that must implement recommendations or rulings provides a solution to the nullification or
impairment of benefits, or a mutually satisfactory solution is reached.  We trust that in this eventuality
the parties to this dispute will find a mutually satisfactory solution.
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