RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/153
24 September 2003
(03-5061)
Dispute Settlement Body
21 and 23 July 2003
MINUTES OF MEETING
Held in the Centre William Rappard
on 21 and 23 July 2003
Chairman:  Mr. Shotaro Oshima (Japan)
Subjects discussed: Page
1. Surveillance of implementation of recommendations adopted by the DSB.........................2
(a) United States – Anti-Dumping Act of 1916:  Status report by the United States.......................2
(b) United States – Section 211 Omnibus Approp riations Act of 1998:  Status report by
the United States .............................................................................................................. ...........3
(c) United States – Anti-dumping measures on certain hot-rolled steel products from
Japan:  Status report by the United States...................................................................................4
(d) Egypt – Definitive anti-dumping measures on steel rebar from Turkey:  Status report
by Egypt....................................................................................................................... ...............4
2. Korea – Measures affecting tr ade in commerci al vessels......................................................5
(a) Request for the establishment of a panel by the European Communities...................................5
3. United States – Measures affecting the cross-border supply of gambling and
betting s ervices ............................................................................................................... ...........9
(a) Request for the establishment of a panel by Antigua and Barbuda ............................................9
4. Australia – Certain measures affecting the importation of fresh fruit and
vegetables..................................................................................................................... ............11
(a) Request for the establishment of  a panel by the Philippines.....................................................11
5. European Communities – Export subsidies on sugar..........................................................12
(a) Request for the establishmen t of a panel by Australia..............................................................12
(b) Request for the establishm ent of a panel by Brazil...................................................................12
(c) Request for the establishmen t of a panel by  Thailand ..............................................................12
6. United States – Rules of origin for textiles and apparel products ......................................20
(a) Report of the Panel ......................................................................................................... ..........20
7. Appointment of Appellate Body members ...........................................................................26
8. Proposed nomination for the indicative list of governmental and
non-governmental panelists ...................................................................................................28WT/DSB/M/153
Page 2
9. United States – Countervailing measures concerning certain products from the
European Communities..........................................................................................................2 8
(a) Statement by the United States .............................................................................................. ...28
1. Surveillance of implementation of recommendations adopted by the DSB
(a) United States – Anti-Dumping Act of 1916:  Status report by the United States
(WT/DS136/14/Add.17 – WT/DS162/17/Add.17)
(b) United States – Section 211 Omnibus Appropri ations Act of 1998:  Status report by the
United States (WT/DS176/11/Add.10)
(c) United States – Anti-dumping measures on certain hot-rolled steel products from Japan:
Status report by the Unit ed States (WT/DS184/15/Add.10)
(d) Egypt – Definitive anti-dumping measures on steel rebar from Turkey:  Status report by
Egypt (WT/DS211/7/Add.2)
1. The Chairman recalled that Article 21.6 of the DSU required that "unless the DSB decides
otherwise, the issue of implementation of the recommendations or rulings shall be placed on the
agenda of the DSB meeting after six months following the date of establishment of the reasonable
period of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue isresolved".  He proposed that the four sub-items to which he had just referred be considered separately.
(a) United States – Anti-Dumping Act of 1916:  Status report by the United States
(WT/DS136/14/Add.17 – WT/DS162/17/Add.17)
2. The Chairman drew attention to docume nt WT/DS136/14/Add.17 – WT/DS162/17/Add.17,
which contained the status report by the United States on progress in the implementation of the DSB's
recommendations in the case concerning the US Anti-Dumping Act of 1916.
3. The representative of the United States said that his country had provided an additional status
report in this dispute on 10 July 2003, in accordance with Article 21.6 of the DSU.  As noted in the
report, legislation repealing the 1916 Act and terminating all pending cases had been introduced in the
US Senate on 19 May 2003.  Other bills repealing the 1916 Act had been introduced in the House of
Representatives on 4 March 2003 and in the Senate on 23 May 2003.  The US administration was
continuing to work with Congress to achieve furt her progress in resolving this dispute with the EC
and Japan.
4. The representative of the European Communities said that since the introduction of the
repealing bills in the Senate two months ago, no progress had been made.  The EC recalled that the
US failure to meet the implementation deadlines had led EC companies to face claims in three cases.
These companies had to bear substantial litigation costs and the threat of a treble damagecondemnation as a result of claims brought under a law condemned almost three years ago.
Moreover, claims had been brought after the deadline for implementation.  The EC had accepted to
extend the implementation deadline and to suspend the arbitration on its request for retaliation on the
express understanding that the repealing Act would also terminate the pending litigation.  Only one of
the three bills introduced in Congress provided for the termination of the pending litigation.  In the
last Congress, the implementation process stalled at this stage and had never materialised.  The EC
urged the US administration to convey upon Congress the need to repeal the 1916 Anti-Dumping ActWT/DSB/M/153
Page 3
and terminate pending litigation prior to the congressional summer recess.  In the absence of such
action, the EC would proceed to exercise its WTO rights and would resume the suspended arbitration.
5. The representative of Japan said that one more month had been added to the long period of
time following the adoption of the Panel and the Appe llate Body Reports in these proceedings, but the
United States had not yet implemented the DSB's recommendations and rulings.  Japan had repeatedlystated that the United States must have the bills repealing the 1916 Act passed before the summer
recess of the current session of the 108th Congress.  It was, therefore, extremely disappointing that the
Congress was approaching the recess with not much sign of progress.  As had been stated by the
United States, three bills had indeed been introdu ced to the Congress.  Like the EC, Japan also
regretted that two of these bills were without the required effect to terminate the pending cases.  In
order to prevent damages additional to those already suffered by the respondent Japanese companies,
the termination of these cases had to be secured by the retroactive effect.  The United States shouldreport to the DSB in more detail, especially on how the three bills and any future bills might be
handled in the US Congress, and what the United States was doing for the earliest passage of the
repealing bills with the proper retroactive effect.  Japan reminded the United States of its right to
suspend concessions or other obligations.  Her delegation had taken careful note of the statement
made by the EC.  It was also considering what action it might take.
6. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.
(b) United States – Section 211 Omnibus Appropriat ions Act of 1998:  Status report by the
United States (WT/DS176/11/Add.10)
7. The Chairman drew attention to document WT/DS176/11/Add.10 which contained the status
report by the United States on progress in the implementation of the DSB's recommendations in the
case concerning US Section 211 Om nibus Appropriations Act of 1998.
8. The representative of the United States said that his country had provided a status report in
this dispute on 10 July, in accordance with Article 21.6 of the DSU.  In a communication dated
30 June 2003, the United States and the EC had informed the DSB that they had agreed to extend thereasonable period of time for implementation in this dispute until 31 December 2003.  The US
administration was continuing to work closely with the US Congress on appropriate statutory
measures to resolve this dispute.
9. The representative of the European Communities said that in June 2003, there had been a
positive move in this case with the introduction of a bill in the US Congress that would, inter alia ,
repeal Section 211.  This repeal was part of a whole scheme of measures that would ensure an
effective protection of intellectual property rights both in Cuba and the United States.  It reaffirmedthe US attachment to ensure adequate protection of intellectual property rights, which should not be
affected by a special interest legislation.  The EC hope d that this would offer a solution to this dispute
to the benefit of all.  Against this background, the EC had agreed to give more time to the United
States to comply with the DSB's rulings and recommendations.  The EC expected the US
administration to clearly convey to the US Congress that the extended time-frame should result in full
implementation of the DSB's rulings and recommendations.
10. The representative of Cuba said that her country had noted the statements made by the United
States and the EC.  Cuba was obliged, once again, to express its criticism about the delay by the
United States in implementing the DSB's recommendations.  Cuba hoped that within the new time-
period for implementation, the United States woul d comply with its obligations and would refrain
from undermining the credibility of the dispute settlement system.WT/DSB/M/153
Page 4
11. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
(c) United States – Anti-dumping measures on ce rtain hot-rolled steel products from Japan:
Status report by the Unit ed States (WT/DS184/15/Add.10)
12. The Chairman drew attention to document WT/DS184/15/Add.10 which contained the status
report by the United States on progress in the implementation of the DSB's recommendations in the
case concerning US anti-dumping measures on certain hot-rolled steel products from Japan.
13. The representative of the United States said that his country had provided a status report in
this dispute on 10 July 2003, in accordance with Article 21.6 of the DSU.  The US administration
continued to work with the US Congress to addr ess the recommendations and rulings of the DSB that
had not yet been dealt with.  Specifically, the US administration had expressed its support for specific
legislative amendments that would implement these recommendations and rulings, and was workingfor passage of these amendments.
14. The representative of Japan said that her country was concerned that the United States had not
shown any evidence to prove that it meant to support the required legislation, although
Ambassador Zoellick and Secretary Evans had stated so in their joint letter more than three months
ago.  Nor did the United States seem to take very seriously its obligation as a WTO Member tofaithfully implement the DSB's recommendations and rulings before the end of the first session of the
108th Congress.  Japan had been urging the United States to ensure the passage of the necessary
legislation before the impending summer break of the US Congress.  Appallingly enough, no
amendments of the relevant US statute were in sight.  Japan's repeated statements had apparently been
ignored.  Japan requested that the United States heed to Japan's well-warranted concern, have a muchkeener sense of urgency, and secure the introduction and passage of the relevant legislation as early as
possible.  The United States must also consult more closely with Japan on the status and contents of
the implementation, including any progress on the legislation.
15. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.
(d) Egypt – Definitive anti-dumping measures on steel rebar from Turkey:  Status report by
Egypt (WT/DS211/7/Add.2)
16. The Chairman drew attention to document WT/DS211/7/Add.2, which contained the status
report by Egypt on progress in the implementation of the DSB's recommendations in the case
concerning definitive anti-dumping measures on steel rebar from Turkey.
17. The representative of Egypt said that on 24 June 2003 his country had submitted to the DSB
its second status report on progress in the implementation of the DSB's recommendations and rulings
in the case under consideration.  At the present mee ting, Egypt wished to inform the DSB that it had
already submitted its revised injury assessment and revised dumping assessment to the interested
parties.  The investigating authorities were now  examining the comments received from Turkey.
Egypt would continue to work with Turkey to im plement the DSB's recommendations and rulings in a
satisfactory manner.
18. The representative of Turkey said that his co untry recognized the efforts of Egypt to comply
with the DSB's recommendations.  Egypt had acted in good faith by stating that the comments made
by Turkey with regard to the revised assessments would be taken into serious consideration.
However, he stressed that there was still no tangible resolution to this dispute and that only 10 days
were left before the expiry of the reasonable period of time, which was 31 July 2003.  TurkeyWT/DSB/M/153
Page 5
expected that the comments made and the evidence submitted with regard to dumping margin
calculations reported in the revised disclosure of findings would be taken fully into account and that
the dumping duties imposed inconsistently with the Anti-Dumping Agreement be revoked before the
end of the reasonable period of time.
19. The DSB took note of the statements and agreed  to revert to this matter at its next regular
meeting.
2. Korea – Measures affecting trade in commercial vessels
(a) Request for the establishment of a panel by the European Communities (WT/DS273/2;
WT/DS273/3)
20. The Chairman recalled that the DSB had considered this matter at its meeting on
24 June 2003 and had agreed to revert to it.  He drew attention to the communications from the
European Communities contained in documents WT/DS273/2 and WT/DS273/3 respectively.
21. The representative of the European Communities said that at the 24 June DSB meeting, the
EC had explained in detail the reasons for which it was requesting the establishment of a panel on
Korean shipbuilding subsidies, therefore, there was no need to repeat them at the present meeting.  It
was sufficient to say that the EC had exceptionally accepted – against its interpretation of Article 7.4
of the SCM Agreement (and without prejudice of its WTO rights in the future) – to make a secondrequest for the establishment of a panel follow ing an agreement with Korea on the simultaneous
establishment of the panel, the initiation of th e Annex V procedures and the appointment of the
facilitator.  On the basis of this agreement, the EC had held extensive consultations with Korea on the
appointment of a facilitator.  During the consultations the parties had been able to agree that
Mr. A. Szepesi be designated as an Annex V facilitator.  The EC thanked Mr. Szepesi for acceptanceand looked forward to excellent cooperation with him and Korea during the Annex V proceedings.
The EC also thanked Korea for its cooperative approach in this difficult process as well as the
Chairman of the DSB and the Secretariat for their time and effort devoted to this matter.  The EC
hoped that both parties would continue to cooperate on all matters related to the Annex V proceedings
so as to resolve this dispute as expeditiously as possible.  The EC was confident that the DSB wouldagree, at the present meeting, to appoint Mr. Szepesi, in accordance with the provisions of Annex V of
the SCM Agreement.
22. The representative of Korea said that since this item was on the agenda for the second time,
his country recognized that the panel would be established at the present meeting.  He wished to
briefly refer to the statement made by the EC at the present meeting with regard to Article 7.4 of the
SCM Agreement.  At the 24 June DSB meeting, Korea had presented its interpretation of Article 7.4
and believed that its interpretation was airtight.  It  remained Korea's firm position that its government
had not provided any support that was inconsistent with the SCM Agreement.  The main issue in this
case was whether actions taken by Korea's financial institutions, into which the government had been
forced to inject funds due to a financial crisis, constituted prohibited or actionable subsidies.  He
reiterated that those actions had been taken on a commercial basis, and that no specific company or
industrial sectors had been targeted.  While the EC would have Members believe that this dispute wasabout alleged subsidies to shipbuilders, the core issue was about each Member's continued ability to
take the financial measures necessary to respond to a financial crisis.  In the wake of the Asian
financial crisis, the IMF and the World Bank had provided Korea with emergency bailout loans, and
the Korean government had pursued policies that were designed to overcome economic problems.  In
this process, funds had been injected into the fina ncial sector, resulting in a temporary increase in the
government's stake in Korean financial institutions.  The re-privatization of commercial banks had
been underway for some time now and the Korean go vernment had faithfully abided by the principleWT/DSB/M/153
Page 6
that even under government ownership, the financial institutions shall operate on an exclusively
commercial basis.
23. In accordance with its understanding with the IMF, the Korean government had set up a
mechanism through which debtors and creditors could make use of the out-of-court workout debt
restructuring programme.  These restructuring measures had been taken on a commercial basis, andthe corporate restructuring programme did not target any specific companies or industrial sectors.
The strong performance of Korean shipyards was due to their competitive edge based on efficiency,
lower costs of production and the market's devaluati on of the Korean currency following the financial
crisis.  Besides, Korea could not have caused injury or prejudice to the European shipyards, as
European and Korean yards largely operated in di fferent market segments.  European yards were
mainly focused on the market for ships that were sm aller in size and higher in value, whereas Korean
shipyards produced larger vessels, a market segment in which European shipyards had not recentlybeen involved.  Korea believed the panel would clarify all the issues and arrive at the correct findings
and conclusions in this dispute.
24. With regard to the designation of the DSB representative under Annex V of the SCM
Agreement, Korea said that, since the 24 June DSB meeting it had worked with the EC on this matter
and had reached an agreement.  Korea hoped that the decision to designate the Annex Vrepresentative would be taken at the present meeting.  Korea also wished to take this occasion to
express its appreciation to the Chairman and the Secretariat for assisting Korea and the EC in reaching
an agreement in this regard.  At the same time, Korea wished to make clear that its agreement to
participate in the Annex V procedures was without prejudice to its basic position that measures taken
by Korea in restructuring its financial and corporate sector did not constitute support that wasinconsistent with Korea's WTO obligations.
25. He recalled that at the 24 June DSB meeting, Japan had expressed its intention to participate
in this dispute as a third party and had requested access to the information developed under Annex V
of the SCM Agreement. While Korea understood that third parties might wish to have access to such
information, Annex V did not grant them this right.  Paragraph 5 of Annex V provided that theinformation obtained during the Annex V process sha ll be submitted to the panel, in accordance with
the provisions of Part X of the SCM Agreement which simply referred to the DSU.  Under the DSU,
third-party rights to information were limited to th e first submissions of the parties to the dispute.
Nothing in the DSU nor in Annex V of the SCM Agreement envisaged third-party access to the
information gathered during the Annex V process.  In the Indonesia – Autos case, third parties had not
been granted access to the information developed under Annex V.
26. With regard to the issue of third-country markets, in its communication dated 10 July 2003
and contained in WT/DS273/3, the EC had identi fied Japan and China as third-country Members
within the meaning of Annex V of the SCM Agreement.  Korea was disturbed by the fact that the EC
had withheld this information until just 10 days pr ior to the establishment of the panel.  This late
notification had limited Korea's ability to develop its own questions pertaining to those third-country
Members.  More importantly, Korea was seriously concerned that the EC's panel request failed toidentify adequately either the specific type of serious prejudice under Article 6.3 of the SCM
Agreement that it alleged had been suffered by EC interests, or the markets in which it alleged such
serious prejudice occurred.  All the EC had done was to identify Japan and China as third-country
markets for the purposes of Annex V.  This was a ve ry different matter than identifying the markets in
which serious prejudice had allegedly occurred.  Korea believed that the EC had fallen short ofmeeting its requirements under Article 6.2 of the DSU, and noted that this failure continued to
seriously limit Korea's ability to defend itself.  In this regard, Korea reserved all its rights under the
DSU and the SCM Agreement.WT/DSB/M/153
Page 7
27. The representative of Japan said that, as her delegation had already stated at the 24 June DSB
meeting and as had been pointed out by Korea, Japan would participate as a third party in these
proceedings.  With regard to the procedures und er Annex V of the SCM Agreement, Japan reiterated
its request for any information gathered thereunder to be provided to third parties to this dispute. With
regard to the issue raised by Korea, it was true th at there was no specific reference to such provision
of information to third parties under Annex V.  However, as Japan had pointed out at the 24 June DSB
meeting, it was essential for third parties to fully develop their arguments so that they could fully
participate in these proceedings as third parties with substantial interest in this case. Japan had been a
party to the Indonesia – Autos case, but had not invoked the Annex V proceedings.  Therefore, Japan
was not sure what kind of considerations had been taken into account at that time when it had been
decided not to provide such information to third parties.  Japan believed that the parties could still
agree during the organizational meeting or in othe r fora to provide third parties with information
necessary for them to fully participate in the pro ceedings.  Japan wished to reiterate its request that
Korea reconsider this issue and would pursue this matter further once the panel had been established
and an Annex V representative had been designated.
28. Japan also noted the communication from the EC contained in WT/DS273/3, which read as
follows:  "the European Communities intends to address questions under the Annex V procedure tothe following third-country Members:  Japan and China".  She recalled that at the 24 June DSB
meeting, the EC in response to Korea's question had stated that it intended to designate Japan as a
third-country Member under Annex V of the SCM Agreement.  Japan then had requested an official,
written communication from the EC to that effect.  It was, therefore, rather unfortunate that Japan had
only become aware of the EC's communication after it had been circulated to Members.  It was truethat Annex V did not provide for any specific, precis e procedures to be followed for the designation
of third-country Members, notification of the organisation responsible for the administration of these
procedures, presentation of questions, and so forth.  However, its should be noted that paragraph 1 of
Annex V provided that "Every Member shall cooperate in the development of evidence."  In addition,
the last sentence of paragraph 3 of that Annex read as follows:  "if a party to a dispute undertakes adetailed market analysis at its own expense, the task  of the person or firm conducting such an analysis
shall be facilitated by the authorities of the third-country Member and such a person or firm shall be
given access to all information which is not normally maintained confidential by the government."
Therefore, Japan would be bearing legal obligation as a third-country Member, which could be more
than just provision of information, because it had b een designated as such by the EC.  This raised a
systemic concern, at least from the point of view of Japan, as to what kind of procedures should be
devised for the application of Annex V in order to balance legitimate rights and interests of the partiesto the dispute, third parties to the dispute, and third-country Members.  Since the Annex V procedure
had actually been used only once in the past, this issue remained to be addressed.  In this regard,
Japan wished to recall two provisions of Annex V.  First, paragraph 3 stated that the collection of
information "should be administered in such a way as not to impose an unreasonable burden on the
third-country Member".  Second, paragraph 4 stated that "the representative may suggest ways tomost efficiently solicit necessary information as well as encourage the cooperation of the parties".
Japan looked forward to being informed of, or if necessary being consulted on, the exact procedures
to be followed in the information-gathering process in this particular case.  Japan, of course, would do
its best to cooperate with an Annex V representative and the parties.
29. The representative of the United States said that he wished to refer to one point raised by
previous speakers and recalled that when this matter had been considered at the 24 June DSB meeting,
some delegations had suggested that third parties s hould be entitled to participate in the procedures
under Annex V of the SCM Agreement.  The United States could not endorse participation in the
Annex V process by third parties and in this instance that would include the United States.  As his
country had explained in the context of another di spute, Annex V did not c ontemplate participation by
third parties in that process nor did it contemplate third parties having access to information that was
compiled in that process.  As stated by Korea, in the Indonesia – Autos dispute the informationWT/DSB/M/153
Page 8
gathered had not been provided to third parties.  The United States believed that that was the
appropriate approach.
30. The representative of Korea said that he wished to briefly respond to Japan's expectations to
have access to the information developed under the Annex V procedures.  He said that in his previous
statement he made clear enough that the scope of third-party rights to information was limited to thefirst submission of the parties to the dispute.  Korea did not see any reason for adopting a broader
interpretation on third-party rights for information in this particular case. Presumably, sensitive
information would be involved in this process.  With regard to Japan's statement about the need to
ensure the balance of rights of parties to the dispute, third parties and third countries in the meaning of
Annex V, he noted that paragraph 3 specified that "such a Member is not expected to make a marker
or price analysis specially for that purpose.  The information to be supplied is that which is already
available or can be readily obtained by this Member."  Therefore, in providing information there wasno specific criteria to be met by third countries.
31. The representative of Japan said that one should distinguish between the participation in the
Annex V information-gathering process and the provis ion of information gathered thereunder to third
parties to the dispute.  Japan was obliged to participate in the information-gathering process as it had
been designated by the EC as a third-country Member .  With regard to the provision of information to
third parties, she noted that Japan regarded this in formation to be important in order to be able to
participate in the Panel proceedings.  Japan was aware that there was no specific provision to allow
third parties to the dispute access to the informat ion gathered under Annex V.  However, given the
nature of the dispute, Japan believed that the parties could agree that third parties be provided
adequate information gathered thereunder.  With re gard to the elements contained in the statement
made earlier by Japan which had been quoted by Korea, her delegation would wish to distinguish the
two issues, namely, the access to the information gathered under Annex V and the procedures to be
followed in the information-gathering process.  The latter was a broader question of what kind of
procedures would be necessary for notification, presentation of questions, responding to questions,
etc. for the benefit of all the Members concerned, including the parties, third parties and third-countryMembers, as was demonstrated by the issue of not getting an advance copy of the communication by
the EC before its circulation to all Members.  Japan, as a third-country Member, was obliged to
comply with the request by the DSB representative an d the parties to provide information.  Therefore,
this was a legitimate question that the third-country Member should be able to ask in this context.
32. The representative of Brazil said that, as had already been stated at the 24 June DSB meeting,
his country had systemic and concrete interests in the proper functioning of the Annex V procedure.
Brazil was glad to see that the EC and Korea had been able to agree on a name of a representative andthat the Annex V procedure would now follow its pr oper course.  Brazil recalled that paragraph 1 of
Annex V required that "Every Member shall cooperate in the development of evidence to be
examined by a panel in procedures under paragraph 4 through 6 of Article 7."  Brazil hoped that the
EC and Korea would continue to make progress in the utilization of Annex V and that any unresolved
matters in this dispute could be satisfactorily worked out.  This could show to the Membership that ifMembers cooperated, the Annex V procedure could be helpful in the development of evidence.
33. The representative of Korea said that Japan had raised the question of the scope of third-
country Members rights in the Annex V procedure and had referred to some possible mechanisms
under which third-country Members might have access to information or participate in the Annex V
procedure.  Korea understood Japan's concern, but believed that a part of this concern was due to whathad been done by the EC.  Therefore, Korea did not feel responsible nor had an obligation to alleviate
Japan's concerns in this regard.  However, it was not the task of the DSB nor a facilitator or a panel to
make a ruling on these broad issues, but more for the negotiating table on rules.WT/DSB/M/153
Page 9
34. The DSB took note of the statements and agreed  to establish a panel in accordance with the
provisions of Articles 4.4 and 7.4 of the SCM Agreement and Article 6 of the DSU with standard
terms of reference.
35. The representatives of China, Chinese Taipei , Japan , Mexico , Norway  and the United States
reserved their third-party rights to participate in the Panel's proceedings.
36. The Chairman said that, with regard to the issu e of the procedures for developing information
concerning serious prejudice under Annex V of the SCM Agreement, which the EC had requested to
be initiated pursuant to paragraph 2 of that Annex, he wished to propose that the DSB agree, as
requested by the European Communities in document WT/DS273/3, to initiate the procedures under
paragraph 2 of Annex V of the SCM Agreement.
37. It was so agreed.
38. The Chairman further stated that as Members were aware, the EC had also requested the DSB
to designate a representative to serve the function of facilitating the information-gathering process,
pursuant to paragraph 4 of Annex V of the SCM Agreement.  As had been indicated at the 24 June
DSB meeting, the EC had held consultations with Korea on the question of the designation of such a
representative.  As Members were aware, the parties to the dispute had now reached a common view
regarding this matter.  He had also offered all other Members an opportunity to consult on thisappointment and had heard no objection.  He, therefore, proposed that the DSB appoint this
representative at the present meeting.  Accordingl y, he proposed that the DSB designate Mr. Andras
Szepesi as a representative to serve the function of facilitating the information-gathering process,
pursuant to paragraph 4 of Annex V of the SCM Agreement.
39. It was so agreed.
40. On behalf of the DSB, the Chairman thanked Mr. Szepesi for his willingness to undertake this
task.  He recalled that under Annex V of the SC M Agreement, the information-gathering process
should be completed within 60 days.  In view of the shortness of this deadline, he suggested that Mr.
Szepesi meet with the parties as soon as possible to establish a timetable, together with any working
procedures necessary for completion of this task.
41. The DSB took note of the statement.
3. United States – Measures affecting the cross-border supply of gambling and betting
services
(a) Request for the establishment of a panel by Antigua and Barbuda (WT/DS285/2)
42. The Chairman recalled that the DSB had considered this matter at its meeting on
24 June 2003 and had agreed to revert to it.  He drew attention to the communication from Antigua
and Barbuda contained in document WT/DS285/2.
43. The representative of Antigua and Barbuda said that his country was disappointed that since
the last time the DSB had met on 24 June, the United States had not indicated a willingness to
recognise the validity of the compliant and to settle this dispute.  His country greatly valued its
relations with the United States and would have preferred not to have a dispute at all.  But, his
government was very mindful of its responsibility to its people to maintain their jobs and to defend itssmall and vulnerable economy in a highly competitive world.  In the circumstances, Antigua and
Barbuda was obliged to continue to seek the establishment of a panel to adjudicate the dispute.  His
government wished to make it clear that since the meeting of the DSB on 24 June, carefulWT/DSB/M/153
Page 10
consideration had been given to the remarks made by the United States on that occasion.  One of the
observations that had been made was that the US ban on cross-border gambling was intended to
protect its citizens, and particularly children, from risks related to betting.  At the present meeting, he
wished to make two responses to this.
44. First, underage gambling was prohibited by Antigua and Barbuda, and the prohibition was
strictly enforced by an independent statutory Commission which had legally defined Internet gaming
entities as financial institutions.  Internet gaming entities were subject to heavy fines and
imprisonment for offences, which included money laundering, terrorism financing, fraud and other
breaches of the law such as underage gambling.  His country had explained this to the United States
during GATS Article 23 consultations held with the United States.  During the consultations, his
country had offered to implement any proposals that would strengthen its regulatory process even
further.  Second, the United States knew very well that the GATS rules did not prevent it fromreasonably regulating an industry to address a legitimate public interest.  The GATS rules did,
however, prevent the United States from regulating in a discriminatory and trade-distortive manner.
The United States had also stated that cross-border gambling and betting services were prohibited
under US law "from domestic and foreign service suppliers alike".  But, he wished to point out that a
ban on the cross-border supply of services had a very different effect depending on whether one wasinside or outside the borders of the United States.  The GATS sought to create equal conditions of
competition for domestic and foreign service suppliers.  In this context, it was not a reasonable
argument to contend that a measure prohibiting cross-border supply had an equal effect on foreign and
domestic service suppliers.  After all, the US domestic service suppliers were not crossing any borders
when they supplied the US market to the exclusion of others who were outside US borders.
45. The United States further stated that "cross-border gambling and betting services are not
within the scope of the US specific market access commitments under the GATS".  During the GATS
Article 23 consultations, Antigua and Barbuda had provided the United States with a detailed oral and
written explanation of the legal basis for its interpretation of the US Schedule.  It had received no
explanation from the United States of its legal position, other than the flat denial that "cross bordergambling and betting services were not within the scope" of its "specific market access commitments
under the GATS".  His country had also not received any explanation as to why its interpretation
could be wrong.
46. Finally, the United States had raised a number of procedural issues and had stated that the
Annex to the panel request by Antigua and Barbuda cont ained:  first, certain items that did not qualify
as "measures";  second, certain measures that had not been included in the consultation request;  and
third, measures that did not relate to cross-border gambling and betting.  Antigua and Barbuda wishedto point out that, in its Report in the FSC case, the Appellate Body had wisely held that:  "The
procedural rules of WTO dispute settlement ar e designed to promote, not the development of
litigation techniques, but simply the fair, prompt and effective resolution of trade disputes." The
Appellate Body had also found that the purpose of Article 6.2 of the DSU was to inform the defending
party of the complaint so as to allow it to defend itself.  US legislation on the cross-border supply ofgaming services was complex and opaque.  It appeared that, even inside the United States, different
authorities had taken different views on the precise inte rpretation of some of the specific rules.  In this
dispute, however, the United States agreed w ith Antigua and Barbuda that the United States
maintained a blanket prohibition on the cross-border supply of gaming services.  The United States
had repeated that very clearly at the 24 June DSB meeting. This blanket ban was precisely what hiscountry was complaining about.  In this respect his country found it difficult to see how the United
States could have difficulties in understanding what was at issue in this dispute.  Nonetheless, Antigua
and Barbuda was willing to try to answer any specific questions that the United States might have,
just as it would welcome a US detailed and written explanation of what it did not understand about its
panel request.  In the meantime, his country had to, once again, respectfully ask the DSB to establish apanel pursuant to Article 6 of the DSU.WT/DSB/M/153
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47. The representative of the United States said that, as indicated at the 24 June DSB meeting, his
country was disappointed that consultations had failed to resolve this dispute.  It was very clear that
cross-border gambling and betting services were not within the scope of US specific market access
commitments under the GATS.  It was also clear that these services were prohibited under US law –
from domestic and foreign service suppliers alike.  As explained at that previous meeting, theseservices presented psychological dangers to some segments of society, as well as creating serious
social problems and law enforcement difficulties.  The United States had also previously noted the
particular deficiencies in this panel request.  They included:  (i) reference to a number of items that
did not constitute "measures" and could not properly be included within the scope of a panel request;
(ii) reference to several measures that appeared not to have been included in the 1 April 2003
consultation request;  and (iii) reference to a number of measures that were unrelated to cross-border
gambling and betting.  The United States recognized that despite these deficiencies, a panel would beestablished at the present meeting in response to Antigua and Barbuda's request.  The United States
was confident that, in addition to making findings sustaining these procedural deficiencies, a panel
would reject the allegations raised by Antigua and Barbuda, and would confirm that the US measures
were consistent with the GATS.
48. The DSB took note of the statements and agreed
 to establish a panel in accordance with the
provisions of Article 6 of the DSU with standard terms of reference.
49. The representatives of Canada, Chinese Taipei , the European Communities  and Mexico
reserved their third-party rights to participate in the Panel's proceedings.
4. Australia – Certain measures affecting the importation of fresh fruit and vegetables
(a) Request for the establishment of a panel by the Philippines (WT/DS270/5/Rev.1)
50. The Chairman drew attention to the communication from the Philippines contained in
document WT/DS270/5/Rev.1.
51. The representative of the Philippines said that his country had consistently raised concerns
regarding Australia's import measures, in particular on fresh fruit and vegetables including fresh
bananas, fresh plantains and fresh papayas.  These measures had effectively prevented access of thePhilippines exporters of these products into the Australian market.  Despite continued and persistent
efforts, including bilateral talks and exchanges of information, the products in question continued to
face unreasonable restrictions.  Therefore, in accordance with Article 4 of the DSU, his country had
requested consultations with Australia to discuss these as well as other related issues and concerns.
These consultations, which had been held on 15 November 2002, had unfortunately failed to resolve
the dispute and, thus, the Philippines had to request the establishment of a panel.
52. The representative of Australia said that his c ountry was disappointed with the decision by the
Philippines to proceed with a request for the estab lishment of a panel.  As Australia had indicated to
the Philippines throughout its ongoing discussions, Australia’s quarantine system was fully WTO
consistent.  Australia was confident that the dispute settlement process would reach the same
conclusion, if the Philippines continued to pursue this matter.  While it was the right of every WTO
Member to use the dispute settlement procedures, it was unfortunate that the Philippines considered itnecessary to use these procedures to seek to resolve concerns which could be addressed more
constructively through bilateral mechanisms.  Australia remained open to further consultations with
the Philippines. Given these circumstances, Australia could not agree to the establishment of a panel
at the present meeting.
53. Australia would like to take this opportunity to raise its serious concerns, which it expected
would also be shared by other Members, about the specific approach taken by the Philippines inWT/DSB/M/153
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framing its panel request.  The Philippines appeared to be interested in making a broad systemic
challenge to Australia’s quarantine regime, rather than contesting the WTO-consistency of import
conditions contained in specific SPS measures.  Such a challenge would strike at the fundamental
right of WTO Members to have quarantine systems providing for the WTO-consistent application of
measures to achieve the level of SPS protection deemed appropriate to protect human, animal or plantlife or health within their territory.  Many WTO Members maintained approaches to quarantine which
were either similar to Australia’s system, or had similar elements.  Australia expected they would
share its serious concerns about the implications of a challenge to the fundamental right of WTO
Members to maintain an appropriate quarantine regime.  Given the broad and all encompassing nature
of the Philippines’ panel request, as well as its lack of specificity in relation to any particular fruit or
vegetable product, Australia had strong doubts about the consistency of the request with the
requirements of Article 6.2 of the DSU.  Australia had previously raised with the Philippines relatedconcerns with the lack of specificity in its request for consultations.  At this stage, his country was
continuing to examine these issues, but wished to take this early opportunity to signal its concerns and
to reserve its WTO rights in this regard.
54. The DSB took note of the statements and agreed
 to revert to this matter.
5. European Communities – Export subsidies on sugar
(a) Request for the establishment of a panel by Australia (WT/DS265/21)
(b) Request for the establishment of a panel by Brazil (WT/DS266/21)
(c) Request for the establishment of a panel by Thailand (WT/DS283/2)
55. The Chairman proposed that the three sub-items to which he had just referred be considered
together.  First, he drew attention to the communication from Australia contained in document
WT/DS265/21.
56. The representative of Australia said that his country had joined with Brazil and Thailand in
seeking at the present meeting the establishment of a panel to consider its concerns regarding the EC
sugar export subsidies.  The details of Australia’s request were set out in document WT/DS265/21.
However, given the number of misrepresentations and factual inaccuracies in some official statementsconcerning Australia’s request, his delegation wished to set out clearly, at the present meeting, what
Australia’s request was about and what it was not about.
57. He first wished to outline was this complaint was about.  This request for a panel concerned
the application of the WTO treaty rules to the EC sugar regime in relation to subsidies on sugar
exported by the EC.  It concerned the existing WT O export subsidy obligations that the EC owed to
Australia, which Australia paid for in the Uruguay Round.  Australia exported around 80 per cent of
its sugar production and Australian sugar producers were entitled to hold a legitimate expectation thatAustralia would protect its WTO treaty rights.  The measures at issue constituted direct and indirect
subsidies on the export of EC sugar, which Australia considered were inconsistent with the EC’s
WTO export subsidy obligations.  The export subsidies were provided to EC sugar producers under a
regime whose design, construction and application were expressly for the purposes of remunerating
the EC sugar industry.
1  As the Commission itself had noted, it was a closed regime.2 The facts were
straightforward:  (i) the EC system of export subsidies on sugar was tried – and found wanting –
                                                     
1 Paragraph (2) of Council Regulation (EC) No 1260/2001 on the Common Organisation of the
Markets in the Sugar Sector.
2 Evidence by Falkenberg, EU Commission offici al, to House of Commons Select Committee on
International Development.WT/DSB/M/153
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under prior GATT rules, but the EC had not made any adjustments to its regime to bring it into
GATT-conformity;  (ii) as noted by Commissioner Fischler, the EC sugar regime had kept its
fundamental elements virtually unchanged for the past thirty years3;  (iii) as an outcome of the
Uruguay Round, strengthened disciplines on agricultural export subsidies now applied to all WTO
Members;  (iv) in accordance with its obligations  under the WTO Agreement on Agriculture, the EC –
like all other WTO Members – was required to limit its budgetary outlays for export subsidies and the
quantities benefiting from such subsidies;  (v) the EC budgetary outlays for export subsidies on sugar
and the quantities benefiting from such subsidies were in excess of those limits4;  (vi) the EC had
neither sought – nor received – a waiver for non-observance of its WTO obligations in respect of
export subsidies on sugar.
58. A simple examination of the factual aspects of the EC sugar regime made it clear that the EC
did not intend to deliver on its WTO obligations in the sugar sector.  The EC regime ensured that mostsurplus-to-consumption sugar produced in its member States was always exported, through a
combination of direct and indirect export subsidies and a mandatory requirement to export all surplus
to quota sugar.  The EC sugar regime delivered a structural surplus of over 6 million tonnes – well in
excess of its WTO export subsidy obligations.
5  The regime ensured the neutralization of domestic
competition from imports under WTO tariff quota bindings, by including the so-called “equivalent” ofimports from the ACP and India in the quantities of EC-produced sugar eligible for direct export
subsidies.  The EC sugar produced in excess of quota – currently over 3 million tonnes – was
prohibited from entering the domestic supply chain and must be exported.
59. He then outlined what Australia's request was not about. Contrary to what had been said in
official statements from the EC and elsewhere, the complaint was not about EC preferential accessarrangements.  Australia had given assurances that it would not challenge the preferential
arrangements that the EC accorded to some ACP sugar exporters.  As was clear from its panel request,
Australia honoured those assurances.  No one could accuse Australia of bad faith in that regard. Any
claim to the contrary was a smokescreen designed to  deflect the debate from the central issue of the
EC’s non-observance of its export subsidy obligations in the sugar sector.  There was nothing inAustralia’s complaint that would affect the capacity of the EC to deliver on its treaty obligations to
developing countries, but the EC has refused to pr ovide assurances that it would continue to honour
those commitments.  The EC Commission had not elaborated on its unfounded assertion that a
legitimate WTO complaint about the subsidies that the EC granted to its sugar exporters would hurt
developing countries.
6  Was the EC suggesting that the cost of implementation of its own WTO and
other treaty obligations must be met by other countries, in addition to the price that other WTO
members had already paid in negotiating strengthened WTO rules, many of them of significant benefitto the EC?  All WTO Members should be rightly concerned about the implications for EC observance
of its WTO and other treaty obligations – as well as the value of any of the EC's negotiating offers in
the Doha Round.
60. In concluding, he said that the EC's export subsidies on sugar were clearly in excess of its
WTO obligations to limit such subsidies.  Australia's consultations with the EC in November 2002had been characterized by a refusal on the part of the EC to provide factual information on the EC
sugar regime, including information which the EC had itself commissioned. It was regrettable that the
EC had refused to respond to requests of a factual nature as part of the dispute settlement
                                                     
3 Speech by Commissioner Fischler to 50th CEFS Congress, Vienna, 16 June 2003.
4 By the EC’s own estimates, EC direct export subsidies on sugar have ranged between €1 –
€1.6 billion a year over the period 1997-2000.  EC sugar exports are now of the order 6 million tonnes.
5 Average annual domestic consumption is significantly lower (less than 13 million tonnes) than the
quantities of EC sugar eligible for direct domestic and export subsidies under quota guarantees to member States
(in total around 15 million tonnes).
6 Commission press release of 10 July 2003.WT/DSB/M/153
Page 14
consultations and also in the context of WTO transparency provisions.  In accordance with its rights
under the DSU and other WTO Agreements, Australia, therefore, requested the establishment of a
panel to examine the claims contained in document WT/DS265/21.
61. The Chairman drew attention to the communication from Brazil contained in document
WT/DS266/21.
62. The representative of Brazil said that his country requested the establishment of a panel to
examine the EC sugar regime, the Common Organization of the Markets in the Sugar Sector.  This
regime was characterized by import quotas, high tariffs, high domestic intervention prices and export
subsidies.  It grossly distorted world trade in sugar.  During the Uruguay Round, the EC had agreed to
a number of limitations in relation to this regime.  Most notably, in accordance with the Agreement on
Agriculture, the EC had been committed to limit its export subsidies, both as to quantity and as to
budgetary outlays.  The EC's own notifications to the Committee on Agriculture admitted that theEC's subsidized exports of sugar had exceeded those commitments.  Brazil had tried to resolve this
difficulty in discussions with the EC.  On 21 and 22 November 2002, consultations had been held
with a view to resolving the dispute.  Unfortunatel y, the consultations had failed to reach a mutually
satisfactory solution.  Thus, Brazil had no alternative, but to request the establishment of a panel.
Brazil drew Members' attention to document WT /DS266/21, dated 9 July 2003, which contained the
panel request to examine the conformity of certain aspects of the EC sugar regime with WTO rules.
His delegation believed that it was important that Members had a proper understanding of this
dispute.  Therefore, Brazil would like to take this opportunity to clarify what this dispute was about,
and what it was not about.  This dispute was about the observance and implementation of the
obligations that the EC had undertaken during the Uruguay Round.  It referred to the lack offulfilment by the EC of commitments already agreed upon, and in force since 1995.  It was not about
the agricultural negotiations currently underway in the Doha Round.  This dispute was about the
export subsidization of sugar provided by the EC in excess of its reduction commitments.  It was not
about the right of the EC to export or re-export su gar within its reduction commitment levels, or to
export sugar without export subsidies.  This dispute was about the provision of export subsidies inviolation of the Agreement on Agriculture and the SC M Agreement.  It was most definitely not about
the preferential import arrangements for sugar from a number of ACP countries and other
beneficiaries, or the trade preferences that the EC accorded to those countries pursuant to the waiver
granted by Ministers in the context of the Doha Conference with regard to the "ACP-EC Partnership
Agreement".  He recalled that Brazil had supported then, and continued to support, that waiver.
63. He said that it was necessary to be absolutely clear on this issue:  if any changes were to be
made to the conditions of access of ACP sugar to the EC market, these changes would result from aunilateral decision of the EC.  In plain words, they  would result from a decision of the EC not to pay
for the development aid it claimed to extend to some ACP countries, who held a 94 per cent share of
all the EC imports.  In Brazil's view, the EC sugar regime, as it currently operated was incompatible
with the EC's multilateral commitments and caused serious harm to Brazilian sugar producers.  It was
the responsibility of the EC to co mply with its obligations under the WTO and, while observing them,
provide any aid it desired to developing country Me mbers, including ACP countries.  Therefore, while
the question for the panel was whether the EC's subsidized exports of sugar had exceeded its Uruguay
Round commitments, as a result of consultations and other statements made, Brazil anticipated that
the panel would be asked to focus on two aspects of  the EC sugar regime. First, the payments on the
so-called C sugar to enable it to be produced and exported at prices below its total cost of production.These payments were financed by virtue of the high prices that the EC regime secured for growers
and processors of A and B sugar quotas.  These were export subsidies within the meaning of Article 9
of the Agreement on Agriculture, and were subject to reduction commitments.  Second, the export
subsidies the EC provided to an amount of white sugar ostensibly equivalent to the quantity, of raw
sugar that it imported under its preferential import arrangements.  This amount was reported by theEC to be approximately 1.6 million tonnes annually.  Brazil had no quarrel with the preferentialWT/DSB/M/153
Page 15
imports.  As he had noted, Brazil supported the waiver that permitted them. Brazil objected, however,
to the EC's unjustifiable exclusion of these subsidies from the calculation of the total amount of export
subsidies that it provided for sugar.  The total amount of sugar thus subsidized by the EC substantially
exceeded its export subsidy reduction commitment levels.  As such, these exports constituted a
violation of the EC's obligations under Articles 3.3, 8, 9.1 (a) and (c), or, alternatively, Article 10.1 of
the Agreement on Agriculture, as well as other provisions of the covered agreements, including
Article 3 of the SCM Agreement.
64. The Chairman drew attention to the communication from Thailand contained in document
WT/DS283/2.
65. The representative of Thailand said that on 14 March 2003, her country had requested
consultations with the EC concerning certain subsidie s provided by the EC in the sugar sector.  In that
request, Thailand noted that it was concerned about export subsidies granted by the EC under itsCouncil Regulation (EC) No. 1260/2001 of 19 June  2001, and other relevant legislation.  Thailand
was concerned that under the EC regime, the export subsidies on sugar classified as C-sugar.  In
failing to notify these subsidies to the WTO, the EC violated its obligations under the Agreement on
Agriculture.  Thailand also expressed its concern with the EC's provision of export subsidies to an
amount of sugar that the EC claimed was equivalent to the amount of sugar imported under the ECpreferential import arrangements.  Thailand and the EC had held consultations in Geneva on
8 April 2003.  Those consultations had failed to resolve the matter.  Accordingly, Thailand requested
that the DSB establish a panel to consider the matter as set out in its request for the establishment of a
panel contained in document WT/DS283/2.
66. Thailand had significant trade interests in th e sugar sector. Together with Australia and
Brazil, it was among the world's most competitive exporters of sugar:  Thailand's share of world white
sugar exports was about 6 per cent of total exports.  Thailand's national development depended mainly
on exports, of which sugar exports formed an essential component.  The sugar industry employed
almost 1.5 million workers.  It was Thailand's goal to boost the incomes received by sugar producers.
The subsidies granted by the EC to its sugar export s were an impediment to Thailand's development
of its sugar sector.  It was well documented that the EC routinely produced more sugar than it could
consume.  Under the EC regime, sugar in excess of requirements had to be exported.  Thailand
submitted that it was profitable for EC sugar exporters to export this sugar because they benefited
from illegal and WTO-inconsistent export subsidies provided by the EC.
67. As well as having a substantial interest in the sugar sector, Thailand as a WTO Member had a
systemic interest in the observance of WTO rules, and was concerned about appropriate
interpretations of the WTO's subsidy disciplines.  Thailand was particularly concerned about the usethat developed countries appeared to be making of export subsidy schemes that encouraged
production in excess of domestic consumption, and guaranteed the export of excess production.
Thailand was concerned that such practices circumvented WTO rules, and resulted in situations where
exports from developing countries were not able to  compete with subsidized exports from developed
countries.  Thailand, therefore, had both substantial trade and systemic interests in the EC's sugarregime.  At the time that Thailand had requested consultations with the EC, there were several aspects
of the EC's sugar regime that were of concern to her country.  Thailand was, however, mindful of
Article 3.7 of the DSU which called upon Members to exercise judgement as to whether action would
be fruitful.  Accordingly, Thailand had taken the decision to challenge only the export subsidies
granted under the EC sugar regime.  Thailand reserved its rights to bring claims relating to nationaltreatment and other claims on another occasion.  Thailand was aware that various ACP states that
enjoyed preferential access to the EC's market under the Sugar Protocol to the Cotonou Agreement
had expressed their dissatisfaction with Thailand's exercise of its rights under the DSU.  Thailand
wished to reassure these WTO Members that its challenge of the EC export subsidy schemes was not
intended to affect their preferential import arrangements with the EC.  Thailand emphasized that itWT/DSB/M/153
Page 16
challenged only the export subsidies that the EC provided to exports of sugar.  This dispute concerned
the EC's failure to abide by its reduction commitments under the Agreement on Agriculture, and to
adhere to the disciplines of the SCM Agreement.  Thailand, therefore, did not seek to prevent the
imports of preferential sugar to the EC.
68. Thailand also wished to emphasize that this dispute was not linked, in any way, to the
ongoing preparations for the upcoming Fifth Sessi on of the WTO Ministerial Conference that was
scheduled to be held in Cancun in September 2003.  The issues that Thailand raised in its request
related to the undertakings and commitments made by the EC during the Uruguay Round.  It was the
implementation of the EC's obligations under the Uruguay Round Agreements that Thailand sought to
ensure.  Finally, Thailand wished to endorse the statements made by Australia and Brazil, who had
joined Thailand in requesting that panels be established to consider claims relating to the EC's sugar
regime.  Thailand wished to confirm, that although the three requests presented to the DSB at thepresent meeting had been differently worded, the three WTO Members, Australia, Brazil and
Thailand, made substantially the same claims.  Thailand, therefore, joined Brazil and Australia in
requesting that the DSB establish a single panel to consider the matters raised in those requests.
69. The representative of the European Communities said that the EC wished to express its deep
regret and surprise over the requests for the establishment of a panel presented by Australia, Brazil
and Thailand.  Panel requests at this juncture were difficult to reconcile with the Doha Development
Agenda negotiations on agriculture.  The EC was totally convinced of the WTO consistency of its
sugar regime.  The EC was acting in full conformity with its WTO commitments and schedule of
concessions and invited Australia, Brazil and Thailand to similarly respect the rules agreed upon in
the Uruguay Round.  He noted that EC exports had remained stable for many years and could not beblamed for low prices on the world sugar market.  By contrast, Brazil had dramatically increased its
sugar exports from 1.6 million tonnes in the early 1990s to over 11 million tonnes in the current year.
The EC was deeply disappointed that Australia, Brazil and Thailand had chosen to ignore that the EC
sugar regime had been granting preferential access to the EC market to ACP countries for decades.
More recently, the EC "Everything but Arms" initiative had started the full liberalization of trade insugar with the LDCs.  These Panel requests were introducing a major factor of instability for many
sugar-dependant developing countries as they were de facto attacking the mechanisms that allow the
ACP countries and the LDCs to benefit from preferential access.  The EC would appeal to Australia,
Brazil and Thailand to reflect very carefully once more upon their course of action which might
hamper efforts by the EC and other WTO Members to address the developmental needs of developing
countries.  Nevertheless, if Australia, Brazil and Thailand remained committed to pursuing this
regrettable action, the EC, whilst opposing the estab lishment of the panel at this meeting, would
vigorously defend its interests and those of all AC P and LDCs beneficiary countries in the framework
of the WTO dispute settlement system.
70. The representative of Mauritius, speaking on behalf of the ACP sugar supplying states, said
that since the Ministerial spokesman for sugar was chairing the 8th ACP Ministerial Conference on
Sugar in Fiji, he had been instructed to make a statement on behalf of the ACP sugar supplying statessignatories to the Sugar Protocol, namely:  Barbados, Belize, Côte d'lvoire, Fiji, Guyana, Jamaica,
Kenya, Madagascar, Malawi, Mauritius, the Republ ic of Congo, St Kitts & Nevis, Swaziland, Zambia
and Zimbabwe.  The decision by Australia, Brazil and Thailand to request a panel at this stage with
regard to the EC Common Market Organisation of Sugar was rather disappointing. The ACP states
who were suppliers of sugar under the Sugar Protocol, which incorporated long-standing tradingarrangements, had repeatedly been assured by Australia and Brazil that they would not take steps in
their dispute with the EC which would directly or in directly affect the interest of the ACP countries
concerned.  It now appeared that, despite those assurances which had been made at the highest
political level, the concerns of these ACP states , most of whom were vulnerable LDCs, landlocked
and small island States, and mostly single commodity producers/exporters, had been ignoredcompletely.  This was very unfortunate and it was equally a big surprise as the conditions of ACPWT/DSB/M/153
Page 17
preferential access to the EC market were well-k nown to all Members involved in the Uruguay Round
negotiations.
71. The steps now being followed by Australia, Brazil and Thailand large multi-commodity
producers/exporters were a further demonstration of the use of legal rules in the context of the WTO
to further marginalize the interest of the small and vulnerable economies.  This was against both thespirit and the letter of WTO Agreements.  Furthermore, the challenge could deny the LDCs the
benefits which they could expect from the EC's "E verything but Arms" (EBA) initiative.  He regretted
that the ACP submission to all the parties in this dispute that the challenge, if successful, would
directly affect the lives of hundreds of thousands of poor farmers and would lead to the destruction of
their livelihood, had fallen on deaf ears.  One could wonder about the significance which some
competitive WTO Members accorded to the development needs of vulnerable Members, especially at
a time when Members were engaged in the Doha Development Agenda negotiations.  The ACP sugarsupplying states, in their consultations with both Australia and Brazil, had stressed the importance of
demonstrating goodwill in addressing their concerns in the context of the current WTO negotiations in
Agriculture in Geneva and in the context of the Fifth WTO Ministerial Conference in Cancun
(Mexico).  However, their plea had again fallen on deaf ears.
72. To have a full grasp of the issues involved, he said that it would be useful to recall the
conditions that had brought about the preferential trade agreements in sugar and equally to underscore
the specificities of those ACP states concerned by these agreements.  He also wished to point out the
strengths of those challenging them and to the significant strides they had made since 1975, in terms
of market shares.  The Sugar Protocol had been concluded in 1975 as a successor to the
Commonwealth Sugar Agreement of 1951.  In the early seventies, when the United Kingdom hadstarted negotiating its accession to the Treaty of Rome, the developing countries of the
Commonwealth as well as the United Kingdom had strongly urged the EC to take on board the
commitments of the United Kingdom under the Comm onwealth Sugar Agreement.  Consequently, the
EC had taken on board the obligations of the United Kingdom and Protocol 22 of the Act of
Accession of the United Kingdom to the Treaty of Rome unequivocally stated that "The Communitywill have as its firm purpose the safeguarding of the interests of all the countries referred to in this
Protocol whose economies depend to a considerable extent on the export of primary products and
particularly of sugar".  The UK sugar obligations had been grouped together with those of other EC
member States at the inception of the Sugar Protocol.  Owing to its status as a highly industrialized
developed country, Australia's sugar quota had not been carried forward.  However, the interests of
those products which were important to Australia,  namely, wool, dairy products and sheep meat had
been taken on board.  Under the Sugar Protocol, the ACP countries were given the triple guarantee ofprice, access and indefinite duration.  These three elements had provided the fundamental premises
for economic development in ACP sugar supplying States.  The same guarantees were enjoyed by
India under a separate agreement for some 10,000 tonnes.  Under these two unique North-South trade
accords, the ACP sugar-supplying countries and India accounted for a total of about 1.3 million
tonnes of EC imports.  In 2001, the EC had also co me with the EBA initiative, whereby the access of
49 LDCs had been facilitated, through increasing quotas in the first instance and then via duty and
quota – free access as from 2009.  Brazil also had a preferential quota, secured in the context of the
accession negotiations of Finland to the EC.  To enable the EC to fulfil its obligations, the Sugar
Protocol had become an integral part of the EC  Common Organisation of the Market in the Sugar
Sector, also known as the sugar regime.  The sugar exports of the ACP sugar-supplying states underthe Sugar Protocol did not affect the balance of interests established between the various stakeholders
under the EC's sugar regime.  All th e elements of the sugar regime were interlinked:  if you attack
one, the whole system would be destabilized and the orderly management of the system would be
upset.  Therefore, any assertion that an attack was on a part of the regime and not on the whole, was
obviously erroneous.  The EC had, in the context of the Uruguay Round, made a certain number ofcommitments in respect of market access, domestic support and export competition which had the
overall effect of giving substance to the undertaking of 1975 at multilateral level.  The EC compliedWT/DSB/M/153
Page 18
with its historical, traditional, legal and moral obligations.  The Sugar Protocol arrangements had been
known to the then GATT and subsequently WTO for decades and positively endorsed over time.
73. The arguments raised by Brazil and Australia in their request for consultations questioned the
balance of concessions reached at the conclusion of the Uruguay Round. This balance of concessions
was clear at the time and had been agreed by all.  Australia, Brazil and Thailand were now seeking togo back on what had been agreed.  A single undertaking had been agreed in 1994 and countries were
now engaged in negotiations, which would lead to th at single undertaking.  The attitude of these three
countries trying to unravel what had been agreed in 1994 was in this context a matter of very serious
concern for the ACP states.  The stability and predictability procured by the three fundamental
guarantees of the Sugar Protocol provided the necessary impetus for economic development.  The
stable and predictable earnings from sugar exports under the Protocol had made up, to a certain
extent, for the loss of foreign direct investments in to the ACP states and had also laid down the basis
for industrialization and diversification into other sectors.
74. The ACP exports to the EC under the Sugar Protocol had remained unchanged since 1975 i.e.
1.3 million tonnes.  In comparison, Brazilian exports to world market had grown from some
1.7 million tonnes in 1975 to a forecasted 13.5 million tonnes in 2003.  In the case of Australia,
exports to world market had increased from some 2 million tonnes in 1975 to 3.7 million tonnes in2002.  Thailand had witnessed similar growth.  These figures required no further comments.  Brazil
had tremendous scope to increase production and exports and its sugar policies had been conducive to
such expansion.  Moreover, the ethanol/sugar mix, the related policies to shift cane from ethanol to
sugar and vice-versa in the light of market circumstances, the substantial currency depreciation,
economies of scale and natural endowments had resulted in making Brazil the most competitive sugarproducing country in the world.  The optimum production conditions that applied in Brazil were such
that it could export some 12.5 million tonnes in 1999 at a time when the world market price was
estimated at 6.27 cents/lb, the lowest level in the past decade. Indeed, Brazil, controlling more than a
third of world trade, was a pre-eminent exporter, with the unique capacity to be a price-setter.
75. By contrast, all were price takers and price followers.  Australia had a comprehensive sugar
policy which provided direct and indirect subsidies to the sugar industry.  Only recently, Australia had
provided a package equivalent to $A 150 million to  support its sugar producers.  Australia was fully
aware as to why its sugar industry was facing problems since 1998.  Australia and Thailand were no
doubt aware that Brazil could, within a short-time span, substantially step up its export, drive prices
down and crowd them out of markets.  This had nothing to do with the points made in the panel
request.  He wished to make it clear, that his motivation was not to cast aspersions on whatever
policies Australia, Brazil or Thailand had chosen to boost their production and exports.  The messagehe was trying to convey was that the ACP states for example, St. Kitts and Nevis with its annual
exports of 15,000 tonnes of sugar, were just world apart from Australia, Brazil and Thailand.  Unlike
Brazil, the ACP states could never have the pretension of becoming world-class multi-commodity
exporters.  Australia was a large multi-commodity exporter and a developed country and, therefore,
the issue of comparison did not even rise.  Because of all these reasons and because of the leadershiprole that Brazil played in the developing world, it was surprising when, a few years ago, difficulties
had been raised in respect of preferential access for soluble coffee for some countries.  To date, it was
even more difficult to understand this attempt to undermine the conditions of access of vulnerable
ACP countries into the EC market, especially afte r the Banana case had already brought to the fore
the vulnerability of smaller countries such as the ACP sugar-supplying states.  Many ACP states hadmade the argument about their vulnerability over and over again in the agriculture negotiations.  An
understanding had been shown on this glaring diff erence between production conditions in vulnerable
countries and large multi-commodity exporters.  The ACP countries were convinced that Australia,
Brazil and Thailand, which were world leaders in the export of so many commodities and primary
products, could not be insensitive to the conditi ons of vulnerability that permeate the ACP sugar
producers.  Surely they could not underestimate what the negative impact of engaging into a disputeWT/DSB/M/153
Page 19
would have on ACP countries.  The uncertainty that  this could provoke would discourage reform,
dissuade investments into the LDCs, beneficiarie s of the EBA initiative, and lay the ground for a
difficult conclusion of the agriculture negotiations.
76. The ACP states questioned how the complaints by Brazil and Australia could be compatible
with statements made by them that their actions were not meant to undermine ACP preferences andbenefits.  For ACP countries a concrete expression of their assurances would be a definitive end of
this procedure.  They believed that the Doha Development Round was the appropriate forum to
address, on the one hand, the concerns of Australia, Brazil and Thailand and, on the other hand, the
concerns of the preference-receiving countries.  Accordingly, they were reiterating their call to these
countries to bring forward their concerns in the ongoing agricultural negotiations, where collectively
countries would come up with an equitable and balanced outcome that reasonably satisfied all.
However, they wished to point out that the current negotiating proposals of Australia, Brazil andThailand were so radical that they entertained the worst fear about their impact on ACP preferences.
In this regard also, Australia, Brazil and Thailand should give the ACP states an undertaking
commensurate with their assurances on preferences.  The ACP countries concerned were determined
to defend their vital trade interests, wondered whether the same WTO rules and disciplines should
continue to apply to larger competitive developing  countries, such as Brazil and Thailand, on the one
hand, and small economics and vulnerable small island developing countries, on the other hand.  The
ACP countries would participate in the Ministeria l Conference in Cancun with this development in
mind and would bring home the point that there were no permanent friends or allies, only permanent
interests.  The ACP countries would take appropriate actions and decisions in Cancun to protect their
interests.
77. The representative of Australia said that in suggesting that this was a de facto attack on the
policy under which the EC extended preferences to some countries, the EC seemed to be claiming that
preferential access for developing countries must be contingent on the EC's capacity to subsidize the
export of more than three times as much sugar than it imported.  Clearly there was no reason why, in
the event of a WTO finding against the EC, the preferences currently accorded to ACP countries bythe EC could not continue to be honoured, if the EC really wished to do so.  If the EC had given the
ACP countries a guarantee that preferences would be extended indefinitely, Australia were sure the
EC would honour the guarantee.  The three complainan ts were not insensitive to the concerns of ACP
sugar suppliers.  But the answer lay with the EC  not the three complainants.  The issue could be
clarified here and now if the EC was prepared to  give an unambiguous undertaking that in the event
the WTO found against the EC on export subsidies,  the EC would continue to honour its undertakings
on preferential access.  The equity of the problem was graphically underlined in a recent report of theBritish House of Commons International Development Committee which stated that, "… although it
costs $660 to produce a tonne of white sugar in the EC compared with around $280 in Brazil,
Colombia, Guatemala, Malawi and Zambia, EC producers have a 40 per cent share of the white sugar
export market".
78. The representative of Brazil said that his delegation wished to be associated with the
statement made by Australia.  He recalled that the panel requests under consideration were against the
EC and not against the ACP countries. Brazil re gretted that the ACP countries had decided to
intervene at this stage in such an unwarranted way against Brazil and its trade policies.  Once the
panel were to rule in favour of Brazil, the concerns of the ACP countries would be addressed through
actions to be taken by the EC.  Brazil did not hold the key to the future of the sugar production in theACP countries, but the EC did.  He underlined that the biggest sugar exporter in the world was the
EC, not Brazil.  He said that his previous statement referred to all the concerns raised in the statement
by Mauritius and that all these concerns had been taken care of.  Brazil wished to reiterate the
assurances given to the ACP countries that it did not intend to create any direct or indirect harm to
their production.  The key was not in the hands of Brazil but in the hands of the EC and the attitude itwould take in relation to this panel request.  Brazil hoped that threats against it and the argumentsWT/DSB/M/153
Page 20
about the Doha negotiations, that had nothing to do with this panel request, would be reconsidered by
the ACP countries.
79. The representative of Thailand said that, in response to the comments made by Mauritius, her
delegation wished to state that Thailand, as a developing country, was always sympathetic to the
problems faced by other developing countries. It fully shared the needs of developing countries forforeign earnings.  First, Thailand did not object to  the preferential treatment granted by the EC to
some ACP countries.  However, as already stated, Thailand was also a developing country that was
not only indebted to the IMF but its per capita income was less than US$2,000.  Thailand did not
understand why it should bear the trade distorting cons equences caused by the EC sugar regime.  The
multilateral trading system was supposed to be a rules-based system, rules which applied to all.  The
EC could not use trade preferences it granted to some developing countries as an excuse for not
abiding by its WTO obligations to the detriment of other developing countries.  Thailand was sure thatMembers did not need to be reminded that the EC had also had a scheme struck down as being WTO-
inconsistent, which, according to the EC and the recipients of that scheme, was meant to benefit
developing countries.  The damage being caused by the EC's illegal and WTO-inconsistent subsidies
was such that Thailand had been left with no other option but to seek recourse to the DSU.  Her
country had attempted to settle this matter with the EC, but it had not been successful.  Thailandwished to reassure the ACP countries that it did not oppose the preferential import arrangements as
long as they were consistent with the WTO Agreements.  Thailand believed that the ACP countries
could work with the EC to ensure mutually adva ntages arrangements that complied with the EC's
WTO obligations.
80. The representative of the European Communities said that his delegation had noted the
statements made.  The EC had no indications that Australia, Brazil and Thailand would not pursue
their panel requests at the next meeting and, under those conditions, the EC was not prepared to enter
into any dialogue at this stage, but would make its case before the panel.
81. The DSB took note of the statements and agreed  to revert to these matters.
6. United States – Rules of origin for textiles and apparel products
(a) Report of the Panel (WT/DS243/R and Corr.1)
82. The Chairman recalled that at its meeting on 24 June 2002, the DSB had established a Panel
to examine the complaint by India.  The Report of the Panel contained in WT/DS243/R and Corr.1
had been circulated on 20 June 2003 as an unrestricted document, pursuant to the Procedures for the
Circulation and Derestriction of WTO Documents co ntained in WT/L/452.  He noted that the Panel
Report was before the DSB for adoption at the request of the United States.  He said that this adoption
procedure was without prejudice to the rights of Members to express their views on the Panel Report.
83. The representative of the United States said that his country was pleased with the outcome of
this dispute and wished to thank the members of the Panel and the Secretariat for their hard work on
this matter.  The United States welcomed the Panel's findings that the US rules of origin at issue in the
dispute were not inconsistent with its obligations  under the Agreement on Rules of Origin.  As the
United States maintained from the outset, the US rules were not discriminatory and did not distort ordisrupt international trade.  The Report was very cogent and well-reasoned, and had ably dealt with
the extensive and difficult issues before the Panel.  In particular, the United States appreciated the
careful approach taken by the Panel to the many novel legal issues it faced.  This was the first dispute
involving the Agreement on Rules of Origin, and the United States commended the Panel for focusing
on its task of resolving the dispute, and addressing only those issues necessary for this purpose.  TheUnited States requested that the Report of the Panel be adopted.  It, once again, wished to thank the
Panel and Secretariat for their efforts.WT/DSB/M/153
Page 21
84. The representative of India said that he wish ed to express his country's disappointment with
this fundamentally flawed Panel Report.  India regretted that this Report did not meet the high
standards that Members had come to expect from WTO panels.  As noted in Article 11 of the DSU
"the function of panel is to assist the DSB in disc harging its responsibilities under this Understanding
and the covered agreements.  Accordingly, a panel should make an objective assessment of the matterbefore it, including an objective assessment of the facts of the case and the applicability of and
conformity with the relevant covered agreement, and make such other findings as will assist the DSB
in making recommendations or in giving the rulin g provided for in the covered agreements."  This
Panel Report did not assist the DSB.  This was the first time the Agreement on Rules of Origin (ARO)
was interpreted by a panel, and India had looked to the Panel for its interpretations of key provisions
in the ARO.  Instead of making clear legal interpretations of the provisions at issue, the Panel had
couched its analyses in arguendo  and had made many of its interpretations in the same vein.  It had
then made its finding of fact based on those interpretations that it had made for the sake of argument.
India believed that this Panel Report should not be adopted.  The approach of the Panel was unhelpful
not just to India, but to WTO Members as a whole.  It was difficult for India to appeal a panel report,
which was based largely on interpretations made in arguendo .  India believed that in the interest of
maintaining the credibility of the dispute settlement system, the approach adopted by this Panelshould not be emulated by future panels.
85. This dispute concerned the rules of origin, which the United States applied to textile and
apparel products under Section 334 of the Urugua y Round Agreement Act, subsequent modifications
made by section 405 of the Trade and Development Act of 2000, and the implementing regulations.
India had challenged these measures under Article 2 of the ARO.  The Report was circulated toMembers on 20 June 2003.  India considered the whole Panel Report to be fundamentally flawed.
Nevertheless, there were a few particularly egregious aspects in the Panel Report to which India
would like to draw the attention of the DSB.  India noted the following specific concerns with the
Panel Report.  First, in paragraph 6.43, the Panel stated, "... we believe that interpreting the term 'trade
objectives' as suggested by India is consistent with the objective of Article 2(b).  In our view,Article 2(b) is intended to ensure that rules of origin are used to implement and support trade policy
instruments, rather than to substitute for, or to supplement, the intended effect of trade policy
instruments."  India's claim was that Section 334 brought more items under quota, thus strengthening
the impact of the quota regime, which had been put in place to protect the (US) domestic industry, and
had, therefore, showed that the US rules of origin were being used in pursuit of the trade objective of
protecting the domestic textile industry.  However, the Panel stated, in paragraph 6.84 that:  "using
rules of origin which render a quota regime more restrictive may be consistent with using rules oforigin to implement and support such a regime."  India considered that this statement was not correct.
Moreover, India noted that this statement by the Panel was inconsistent with the test that it had set out
itself to determine whether a rule of origin was used to pursue a trade objective, the test that a rule of
origin used to supplement a trade policy instrument by making it more restrictive would be used to
pursue a trade objective.
86. Second, the Panel had incorrectly viewed Articl e 2(d) of the ARO as requiring that the
obligation that rules of origin could not discriminate between Members must only apply to goods that
were the same.  By finding that the product scope of the non-discrimination obligation was limited to
discrimination on the same good, the Panel had essentially deprived this provision of any meaning.
The ordinary meaning of "the good concerned" in Article 2(d) was that the good was "affected" by or"involved" in the practice that was regulated by th at provision, namely the discriminatory treatment
between Members.  However, the Panel's interpretation that Article 2(d) applied only to the "same
good" meant, if such an interpretation was followed  in the future, that this provision would have a
narrower definition of the non-discrimination standard than that contained in similar
non-discrimination provisions in other WTO Agreements.  As a result, the Panel's conclusionappeared to mean that, under Article 2(d), Members might "discriminate" between other Members onWT/DSB/M/153
Page 22
the basis of goods that were "like", "directly competitive" or "substitutable".  The drafters of the ARO
in no way intended to thus limit the effectiveness of Article 2(d).
87. Third, another major weakness in the Panel Report was the methodology employed to assess
whether the US measures were in violation of Article 2(c) of the ARO.  In accordance with GATT
and WTO jurisprudence, the Panel should have assessed the WTO-consistency of the measure basedon a "conduct-oriented approach".  This required that Members refrained from adopting and
maintaining rules of origin which established conditions of competition with restrictive, disruptive or
distorting effects on international trade. According to this "conduct-oriented approach", the incentives
and disincentives created by the rules of origin themselves and not their impact on the marketplace
was the decisive factor in determining their WTO-consistency.  The immediate impact of a rule of
origin was to change the investment and other business plans of producers and investors engaged in
international trade.  Given that market conditions constantly changed and that rules of origin wereonly one of many factors that determined trade flows, a Member could not foresee, with any degree of
accuracy, how producers and traders would react to a new rule of origin.  Members controlled and
foresaw only the conditions of competition they imposed.  Yet the Panel had ignored all this,
essentially finding that Article 2(c) regulated not only the rules of origin adopted by Members, but
rather the reaction of producers and traders to those rules.  There was simply no basis for such aninterpretation in accordance with the jurisprudence of the WTO.  If, as the Panel had assumed, one
had to examine the trade impact of a rule of orig in in order to assess its WTO-consistency, then a
complaint could not be brought against a rule of origin immediately upon its adoption, but only after
several years, after its trade impact had become apparent.  Clearly this requirement to wait two or
three years to bring a dispute settlement procee ding was nowhere found in the text of the ARO.
88. Fourth, the Panel had erred in its interpretation of the terms "on international trade" in
Article 2(c).  India had argued that its trade was adversely affected by the challenged US measures.
However, the Panel was not convinced that "demonstrating an adverse effect on one Member's trade
would always and necessarily be sufficient" to demonstrate a violation of this provision.  This was not
in accordance with the ordinary meaning of the wo rd "international".  The New Oxford Dictionary of
English defined "international" as "existing, occurring or carried on between two or more nations".
Needless to say, India and the United States were tw o such nations that carried on trade.  Furthermore,
the Panel's interpretation was not borne out by any other GATT or WTO case interpreting provisions
with similar wording.  For example, Article XX of GATT 1994, the SPS and the TBT Agreements all
employed the terms "on international trade", but their provisions had never been interpreted to require
showing effects on more than one Member's trade.
89. India was also concerned that the Panel had failed to give the parties an opportunity to
comment on the evidence it had sought on its own in itiative without the knowledge of the parties.  In
paragraph 6.73, in rebutting India's assertion that, to India's knowledge, no other country in the world
used the fabric formation rule, the Panel noted, en passant  that "within the framework of the
harmonization work programme, a significant number of those Members expressing a view on this
issue have indicated support for the fabric formation rule for flat textile goods."  First, it wasinappropriate for a panel to examine the negotiating positions of Members in order to ascertain the
WTO-consistency of a challenged measure.  Second, the Panel had not given the parties an
opportunity to comment on the information that it had researched on its own.  More importantly, as
mentioned before, this was the first time the Agreement on Rules of Origin had been interpreted by a
Panel.  As such, the level of evidence required to discharge the burden of proof of the complainingparty was not as clear as it was in other more well-established GATT provisions.  India fully accepted
that, as the complainant in this di spute, it had the burden of proof.  Throughout the Panel proceeding,
India stated that it did not consider it necessary to provide trade data as a result of its reliance on the
"conduct-oriented approach".  If the conduct-oriented approach had been properly applied, then India
believed it would have met its burden of proof.  Despite the fact that the Panel had asked over70 questions to the parties and third parties in this dispute, the Panel had never once specificallyWT/DSB/M/153
Page 23
requested India to provide the trade data that it believed was necessary to demonstrate the adverse
trade effects as set out in Article 2(c).  Only when the Panel Report had been issued, India had learned
that the Panel had consistently found that India had failed to provide the necessary evidence.  India
considered that if the Panel considered the trade da ta was necessary, then it should have availed itself
of the vehicle of asking questions of the parties or, indeed, of its discretion under Article 13 to seekthe information that it considered necessary.  As the Appellate Body had noted in Canada - Measures
Affecting the Export of Civilian Aircraft, ".... a panel is vested with ample and extensive discretionary
authority to determine when it needs information to  resolve a dispute and what information it needs.
A panel may need such information before or after a complaining or a responding Member has
established its complaint or defence on a prima facie basis. A panel may, in fact, need the information
sought in order to evaluate evidence already before it in the course of determining whether the
claiming or the responding Member, as the case may be, has established a prima facie case ordefence .  … We have concluded that a panel has broad legal authority to request information from a
Member that is a party to a dispute, and that a party so requested has a legal duty to provide such
information."
7
90. Finally, India was concerned that the Panel had ignored the well-established principle of
burden of proof applicable in WTO cases by holding I ndia to a higher standard than that of the United
States, when it was asserting a fact.  The applicable burden of proof had been enunciated by the
Appellate Body in the case on United States – Wool Shirts and Blouses:  "In addressing this issue, we
find it difficult, indeed, to see how any system of judicial settlement could work if it incorporated the
proposition that the mere assertion of claim might amount to proof.  It is, thus, hardly surprising that
various international tribunals, including the International Court of Justice, have generally andconsistently accepted and applied the rule that the party who asserts a fact, whether the claimant or the
respondent, is responsible for providing proof thereof.  Also, it is a generally-accepted canon of
evidence in civil law, common law and, in fact, most jurisdictions, that the burden of proof rests upon
the party, whether complaining or defending, who asserts the affirmative of a particular claim or
defence.''
8  The Panel had clearly held India to this standard, rejecting India's claims because of India's
alleged failure to meet the required burden of proof.  In this regard, the Panel had noted that India had
not established that the measures at issue created restrictive effects on international trade because
India had not provided any evidence or data regarding:  (i) which countries were under quota in the
United States with respect to relevant downstream goods (e.g., cotton bed linen);  (ii) which countries
were important suppliers of the relevant upstream goods (e.g., cotton fabric);  and (iii) the price and
quality of the upstream goods made by those countries and their production capacity.  However, the
Panel had not applied the same standard to the United States when it had "asserted facts" or "assertedthe affirmative of a particular defence".  For example, the Panel had accepted – at face value – the US
assertion that at the time the rules of origin had been implemented, and thereafter, six out of the top
ten world exporters of cotton fabrics accounting for 50 per cent in world trade in cotton fabric were
countries that were not subject to quota on fabric or bed linen in the United States.  The Panel had
relied on this "fact" in determining that "the evidence and argument adduced by India do not supportthe conclusion that the fabric formation rule necessarily, or in fact, bring more imports of made-up
articles under quota in the United States" by observing that origin could have shifted to those six
countries that were not under quota.  However, as the Panel had noted in footnote 199, "the United
States has not, however, provided any evidence in support of its statement".
91. The Panel had had a task – admittedly a difficult one – to accomplish in this dispute.
However, the Panel had failed in its task for several reasons.  It had adopted an interpretation of
Article 2 which acknowledged exclusively the discretion of a Member to determine the use of its rules
                                                     
7 Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/AB/R, paras. 192 and 197, respectively.
8 Appellate Body Report, United States – Measures Affecting Imports of Woven Wool Shirts and
Blouses from India, WT/DS33/AB/R, page 14.WT/DSB/M/153
Page 24
of origin, without drawing the line at an abuse of rules of origin. Second, the Panel had adopted an
interpretation of the non-discrimination provision of Article 2(d) of the ARO that narrowed the scope
of this provision as compared to other non-discrimination provisions in the WTO Agreement, in
particular Article 1 of GATT 1994.  Third, it had avoided making clear legal interpretations by
couching its interpretations in arguendo  and then making findings of fact based on these
interpretations.  Finally, the Panel had failed to seek the information from India that it considered so
necessary for the proper evaluation of this dispute.  Given the failure of the Panel to accomplish these
tasks, it did not appear that its Report formed the proper basis for an appeal.  These were complex
issues, which, India believed were of grave concern to Members.  India hoped that the debate amongst
Members would focus on these issues, both with a view to address clearly the issues relating to
burden of proof and the evidence required to meet as well as to the application of rules of
interpretation.  There was a need to address them effectively in the appropriate fora in order to
develop a thorough and balanced interpretation of the relevant provisions in the ARO.
92. The representative of the Philippines said that while his country fully respected the Panel's
decision in this case, it could not but share India's disappointment regarding the outcome of the
Panel's deliberations and wished to be associated with the concerns raised by India.  As a third party
to this dispute, given the circumstances, there was fairly limited scope to what the Philippines coulddo in terms of subsequent action, and in this context, it was constrained to merely notifying from its
perspective some of the Panel's decisions which it found unfortunate and had serious systemic
concerns for Members.  Generally, the Panel appeared to have set the standard of evidence required to
be provided by the complainant to prove an inconsistency with Article 2 of the Agreement on Rules of
Origin at such an inordinately high level that it was doubtful whether any other outcome could havebeen possible.  Furthermore, while the Panel might have validly observed that Article 2 provided the
rules as to what a Member should not do during the transition period that the Harmonized Work
Programme was being negotiated, rather than what a Member should do, the Panel, in interpreting the
scope of what the Member should not do in such a stultifying fashion, had virtually condoned an
overly expansive scope of measures that a Member could undertake during this transition period.  Bydoing so, it would not surprise the Philippines to find certain Members encouraged to further prolong
the ongoing negotiations on the Harmonized Work Programme given the practically unlimited ambit
they had now in the interim period.
93. In interpreting Article 2(b) of the ARO, while the Panel had recognized the relevance of the
approach established by the Appellate Body in both the Japan - Alcoholic Beverages  and Chile –
Alcoholic Beverages  in ascertaining the true objectives of a measure through an analysis of its design,
architecture and structure, the Panel nonetheless had not appeared to have genuinely applied this testin examining the consistency of Section 334 of the US URAA with Article 2(b).  Rather, the Panel
seemed to put weight on the fact that the United States was not the only country which used the fabric
formation rule and had further noted with interest th at within the framework of the HWP, a significant
number of Members had indicated support for fabric formation rule for flat textile goods.  With regard
to the latter point, the Philippines understood on th e basis of India's statement that the Panel had
independently sought this information on its own initiative, without however affording the parties
opportunity to comment on the information thus obtained.  The Philippines was uncertain whether this
approach undertaken by the Panel in this instance was appropriate.  In particular, where the approach
seemed to be selectively applied, which would be demonstrated later.  Moreover, again rather than
going deeply into the design, architecture and structure of Section 334, the Panel appeared to havechosen to accord more importance to the effects of th e fabric formation rule and in this respect, noted
India's non-provision of evidence and/or data regarding India's assertion that "the fabric formation
rule had resulted in a range of textile products being subjected to the strict quotas of [India]
[developing countries], whereas previous to Section 334, these products would not have been
attributable and not subject to quota of this country".WT/DSB/M/153
Page 25
94. Without acknowledging that the priority given by the Panel to this approach was appropriate,
the Philippines wondered whether the Panel could at the very least have requested India to provide
this supporting information in the context of more than 70 questions it had propounded to India in the
course of the Panel's proceedings, given that the Panel had been inclined to accord that much
importance to this data, and was generally not satisfied with the initial supporting informationprovided by India to buttress its assertion.  On the other hand, the Panel noted that it readily accepted
a contrary US assertion even though the United States did not provide any evidence in support of its
statement (footnote 199).  However, it was disconcerting to read in paragraph 6.84 of the Panel Report
that "even if India had established to the Panel's satisfaction that under the fabric formation rule, more
imports would be under quota in the United States, this would only prove that there would be more
restrained imports than under the pre-section 334 rules of origin.  This circumstance would not prove
however that the fabric formation rule was being used as an instrument to protect the US textileindustry."  This, along with other subsequent statements of the Panel
9 seemed to ignore the fact that
domestic policies were not formulated in a vacuum, but rather with concrete trade objectives in mind.
However, more egregiously, the Panel seemed to imply that, even if India had provided the necessary
factual evidence suggested by the Panel as critical, it would not have sufficed to meet the Panel's
standard to prove inconsistency with Article 2(b).  In analysing the second US measure at issue, i.e.,Section 405's consistency with Article 2(b), the Panel had again appeared to have disregarded the
"design, architecture and structure" test.  Instead, the Panel had examined the intentions of the EC and
the United States in entering the settlement agreement as later enacted in section 405.  The Panel had
further stated that "even if section 405 had the practical effect of favouring goods imported from the
European Communities over competitive goods imported from other Members, that effect might beincidental rather than intentional.  In other words .... the mere effect of favouring EC imports over
imports from other Members [does not] in itself justif y the inference that creating such an effect is an
objective pursued by the US".  Again, this statement by the Panel seemed to assume that such policies
were drawn up in a vacuum without the benefit of a clear trade objective in mind, which as
negotiators were aware, and as simple reality dictated, was simply not the case.  It was likewisecurious to note the statement made by the Panel in paragraph 6.113 of its Report that "there is no
evidence that the EC requested the US to create exceptions from the fabric formation rule so that it
could enjoy an advantage, competitive or otherwise, vis-à-vis  other Members."  And yet two
paragraphs down, in paragraph 6.115, the Panel had accepted that the United States had been
"persuaded [by the EC] that it would be appropri ate to amend section 334 and return to the DP2
(dyeing, printing plus two other finishing processes) rule for the [relevant] products."
95. The foregoing suggested that, to borrow the Panel's favoured opening line, "even if" the
United States and the EC had every right to settle their bilateral trade dispute, it could not be ignored
that the intention thereof was to de facto favour imports of certain goods from the EC, vis-à-vis
closely related, if not essentially similar goods from other Members.  Regarding the Panel's
interpretation of Article 2(c), specifically that the phrase "international trade" should be construed as
referring beyond the trade effects suffered by a Member, again "even if" this were appropriate, it wasworth noting that, among others, the Philippines, as a third party, had stated that its trade with the
United States was being affected by the US rules of origin effected in 1996.  India had incorporated
by reference the Philippines' submission in India' s own submission and yet the Panel seemed to have
largely ignored these submissions which alluded to effects on international trade beyond that suffered
by one Member:  i.e. India. Indeed, this perhaps lent  credence to the need to enhance third-party rights
being discussed in the context of the review of the DSU.  Likewise, the Philippines wished to add its
voice of concern that where the Panel had found that the data was indispensable for proving India's
                                                     
9 Paragraph 6.94 – "Even assuming that the fabric formation rule rendered relevant US textile quotas
more restrictive, India has failed to establish that any restrictive effects of the fabric formation rule are not
incidental to the pursuit of legitimate objectives."WT/DSB/M/153
Page 26
case, at the same time, it had been reluctant to ask the same of India in the context of more than
70 questions it had provided to India in the proceedings.
96. Finally, in interpreting Article 2(d), the Panel's conclusion that Article 2(d) applied only to the
same goods meant that this provision now contained a narrow conception of the non-discrimination
standard.  Indeed, the Panel's conclusion appeared to imply that, under Article 2(d), Members mightdiscriminate between other Members on the basis of goods that were "like", "directly competitive", or
"substitutable", but not between the goods that were closely related or were the "same".  While the
Philippines were in a way frustrated by the choice of the directly affected Member not to appeal the
case, at the same time, it was cognisant of the wisdom behind the decision.  Members should take
careful note of the Panel's decision in this case and duly consider it for what it was, and see that
decision as unusual rather than setting the norm or a precedent.
97. The representative of China said that his country had participated in this dispute as a third
party.  China was disappointed at the conclusion of the Panel.  There were several aspects about the
Panel's approach and its finding that might be of concern to WTO Members with respect to the
Agreement on Rules of Origin.  China wished to draw attention to the Panel's finding concerning the
interpretation of "the good concerned" in Article 2(d) of the Agreement on Rules of Origin.  There,
the Panel had interpreted that Article 2(d) only applied to goods that were the "same", but not the"like", "directly competitive" or "substitutable" goods.  He questioned whether this interpretation
could lead to a narrow definition of the non-discrimination standard than that contained in similar
non-discrimination provision on other WTO Agreements if it was followed in the future.   To China, it
was clear that Article 2(d) of Agreement on Rules of Origin should apply to all Members equally, and
any distinction with regard to application this section among WTO Members would violate theobligation under the WTO Agreements.
98. The DSB took note of the statements and adopted
 the Panel Report contained in
WT/DS243/R and Corr.1.
7. Appointment of Appellate Body members
99. The Chairman recalled that at the informal DSB meeting on 16 July 2003, he had informed
Members of his intention to ask the DSB to take a decision on certain matters relating to the process
leading up to an eventual decision on four positions on the Appellate Body.  He also recalled that on
10 December 2003, Mr. James Bacchus' second and final term of office as Appellate Body Member
would expire.  On the same date, Mr. Yasuhei Taniguchi's first term of office would also expire.  In
addition, on 31 May 2004, the first terms of office of two other Appellate Body Members,
Messrs. Georges Abi-Saab and A.V. Ganesan, would expire.  As provided for under Article 17.3 of
the DSU, "The Appellate Body shall comprise persons of recognized authority, with demonstratedexpertise in law, international trade and the subject matter of the covered agreements generally.  They
shall be unaffiliated with any government.  Th e Appellate Body membership shall be broadly
representative of membership in the WTO. …".  He further recalled that under Article 17.2 of the
DSU "The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each
person may be reappointed once."  The reappointment of Appellate Body Members for a second termof office was not automatic and required consideration by, and a formal decision of, the DSB.  In the
past, the DSB had renewed the terms of office of five Appellate Body Members.
10  In fact, the DSB
had always reappointed Appellate Body Members who wished to serve a second term.  It was,
therefore, for the DSB to take action to ensure th at the impending expiry of the terms of Appellate
                                                     
10In 1997, the DSB renewed the term of office of three Appellate Body Members (Ehlermann;
Feliciano;  and Lacarté Muró);  in 1999, the DSB renewed the term of office of two Appellate Body Members(Bacchus;  and Beeby).  In two cases, Appellate Body Members have not wished to serve a second term (El-
Naggar; and Matsushita).WT/DSB/M/153
Page 27
Body Members did not disrupt the smooth and con tinuous functioning of the Appellate Body.  In
making this proposal, he had fully taken into consideration this important requirement.
100. This year, the DSB had to appoint at least one new person to the Appellate Body to replace
Mr. Bacchus, whose second term of office woul d expire on 10 December.  The DSB must also
consider what decision to take on the positions currently held by the three other Appellate BodyMembers who were eligible to serve a second term of office, under Article 17.2 of the DSU.  These
Appellate Body Members were Messrs. Taniguchi, Abi-Saab and Ganesan.  All three gentlemen had
indicated that they would welcome the opportunity to serve on the Appellate Body for a second term.
The term of office of Mr. Taniguchi would expire on 10 December 2003 and the DSB must, therefore,
take a decision on the position he currently held in the coming months.  The terms of office of
Messrs. Abi-Saab and Ganesan would not expire until 31 May 2004.  Although the DSB could
theoretically take a decision on these two positions early in 2004, he wished to suggest that it wouldbe more efficient for the DSB to deal with these positions together with the two other positions for
which the terms of office would expire on 10 December 2003 (the positions currently held by Messrs
Bacchus and Taniguchi), all as part of the same process.  The decision of the DSB regarding the
positions currently held by Messrs. Abi-Saab and Ganesan would not, of course, take effect until
1 June 2004.  Given all of these circumstances, he  hoped that, at the present meeting, the DSB would
take a decision on several matters.  As explained in the informal meeting held on 16 July he wished to
propose that the DSB agree on the following five points:  (i) to launch, as from the date of the present
meeting the process for selecting a new Appellate Body Member to replace Mr. Bacchus, and also the
process leading up to a decision on the positions held by Messrs. Taniguchi, Abi-Saab and Ganesan;
(ii) with respect to the process for selecting a new Appellate Body Member to replace Mr. Bacchus,that the DSB follow the procedures set out in the decision of the DSB dated 10 February 1995
(WT/DSB/1), and, in accordance with them, agree to establish a selection committee consisting of the
Director-General and the 2003 Chairpersons of th e General Council, the Goods Council, the Services
Council, the TRIPs Council and the DSB;  (iii) with respect to this process of selecting a new
Appellate Body Member to replace Mr. Bacchus, that the closing date for the nomination ofcandidates by delegations be Friday, 5 September 2003, and that the selection committee make its
recommendation to the DSB by 24 October 2003;  (iv) that the decisions on the four positions in the
Appellate Body be taken by the DSB at its mee ting on 7 November;  and (v) with regard to the
positions currently held by Messrs. Taniguchi, Abi-Saab and Ganesan, that he carry out consultations
with delegations, over the next three weeks, with  a view to informing the DSB, by 15 August 2003, of
the results of these consultations.
101. The representative of the United States said that his country wished to thank the Chairman for
all his efforts to set up a process for Members to fo llow over the next few months.  The United States
agreed with the Chairman that it would be most effi cient to take a decision with respect to all four of
the Appellate Body positions at the same time.  The United States also agreed that the schedule and
procedures proposed by the Chairman offered an appropriate means of going forward.
102. The representative of the European Communities said that the EC agreed with the Chairman's
proposal.
103. The representative of Egypt said that his countr y welcomed the Chairman's initiative to start
the process of informal consultations to appoint or re-appoint Appellate Body members.  Egypt fully
supported the Chairman's efforts in this regard.
104. The representative of Chile said that his country supported the Chairman's proposal and
thanked the Chairman for having taken into account some of Chile's ideas on this subject.
105. The representative of Japan said that her country fully supported the Chairman's proposal.WT/DSB/M/153
Page 28
106. The representative of India said that his country wished to express support for the Chairman's
proposal.
107. The DSB took note of the statements and agreed  to the Chairman's proposal.
108. The Chairman invited any delegations with views on the positions currently held by
Messrs. Taniguchi, Abi-Saab and Ganesan to contact him before 8 August 2003 so as to ensure that
their views were considered.  He would inform the DSB by, at the latest, 15 August, of the results of
these consultations.  If necessary, the DSB could take a decision on the process to be used in dealing
with these three positions in mid-August. He looked forward to receiving delegation's views on these
issues.
109. The DSB took note of the statement.
8. Proposed nomination for the indicative list of governmental and non-governmental
panelists (WT/DSB/W/235)
110. The Chairman drew attention to document WT/DSB/W/235 which contained an additional
name proposed for inclusion on the indicative list in accordance with Article 8.4 of the DSU.  He
proposed that the DSB approve the name contained in document WT/DSB/W/235.
111. The DSB so agreed.
9. United States – Countervailing measures concerning certain products from the
European Communities
(a) Statement by the United States
112. The representative of the United States, speaking under "Other Business", said that the United
States wished to inform the DSB of developments  in connection with the US implementation in the
so-called "privatization" dispute (DS212).  On 23 June 2003, the US Department of Commerce, after
receiving and analysing public comments, had published a notice of modifications to Commerce's
privatization methodology.  The notice could be found in volume 68 of the US Federal Register, the
Monday 23 June edition, beginning on page 37,125.  For those Members interested in reviewing it,
the notice could be obtained in electronic form on the website for the US Government Printing Office.
The notice announced a modification in Commerce's privatization methodology so as to render theapplication of that methodology consistent with the provisions of the SCM Agreement, as clarified by
the Appellate Body in its Report, WT/DS212/AB/ R.  The new methodology had been applied from
30 June 2003.  The US Department of Commerce stated in the notice that it would rely on a "baseline
presumption" that non-recurring subsidies could benefit a firm over a period of time.  This baseline
presumption could be rebutted by a demonstration th at, during the period of time over which subsidies
were allocated, a privatization had occurred in which the Government had sold its ownership of all or
substantially all of a company or its assets, reta ining no controlling interest in the company or its
assets, and the sale was an arm's-length transaction for fair market value.  The notice then elaborated
on the factors that Commerce would consider in de termining whether the requisite demonstration had
been made.  If it had, Commerce would presume that pre-privatization subsidies had been
extinguished and were no longer countervailable.  The Appellate Body had found that while an
arm's-length, fair market value privatization created a presumption that prior subsidies had beenextinguished, this presumption was rebuttable.  Accordingly, the Federal Register notice had set forth
a non-exhaustive list of factors that Commerce woul d examine for purposes of determining whether a
company continued to benefit from prior subsidies, notwithstanding its privatization in an
arm's-length, fair market value transaction.WT/DSB/M/153
Page 29
113. The representative of the European Communities thanked the United States for its statement
on this important case.  The EC was still studying the new methodology adopted by the US
Department of Commerce.  The EC had a number of  concerns with respect to the draft methodology
and not all of these concerns had been satisfactorily taken into account in the final methodology
adopted by the US Department of Commerce on 23 J une 2003.  The EC had also raised a number of
concerns with respect to the application of this methodology to the 12 CVD measures covered by this
case.  These 12 CVD measures had to be brought into conformity with the United States' WTO
obligations before 8 November 2003.  The EC and its member States were fully co-operating with the
Department of Commerce's current "Section 129" revision of these 12 CVD measures, and would
draw the appropriate conclusions at the end of this  process.  At that time, the EC would be in a
position to give a full assessment of the measures taken by the US to comply with the DSB rulings in
this dispute.
114. The representative of Mexico said that his country was also examining the new methodology.
Given that the previous methodology had been condemned as such – and not only in relation to the
12 measures identified by the EC – as being inconsistent with WTO rules, Mexico would follow with
interest developments regarding the countervailing duties applied to Mexico on the basis of the
previous methodology.
115. The DSB took note of the statements.
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