Australia and WTO dispute settlement

MONTHLY BULLETIN: November 2002

RESOLVING EXPORT ACCESS PROBLEMS
THROUGH THE WTO SYSTEM

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Recent Developments (1)

Australian Official Appointed as Panel Member in United States: Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada (WT/DS/274)

Mr Remo Moretta, an Australian official from the Office of Trade Negotiations at the Department of Foreign Affairs and Trade has been appointed as a member for the panel established on 1 October 2002 to hear the United States: Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada dispute.

Australia as a Complainant (2)

United States Continued Dumping and Subsidy Offset Act of 2000 (the "Byrd Amendment") (WT/DS217 and WT/DS204)

The panel found that the US measures were inconsistent with Articles 11.4 and 32.1 of the SCM Agreement, as well as Articles 5.4 and 18.1 of the Anti-Dumping Agreement. However, claims under Article 8.3 of the Anti-Dumping Agreement, Articles 5(b) and18.3 of the SCM Agreement and Article X:3(a) of GATT 1994 were not established. The United States has appealed the report. Australia made its oral submission to the Appellate Body on 28 November.

The panel was established at the request of Australia, Brazil, Canada, Chile, the European Communities (EC), India, Indonesia, Japan, Korea, Mexico and Thailand.

European Communities Export Subsidies on Sugar Request for Consultations by Australia (WT/DS/265)

Australia and Brazil (WT/DS/266) held joint consultations with the European Communities in Geneva on 21-22 November over their sugar regime. The consultations were attended by a record number of third parties (seventeen), mainly ACP (African, Caribbean and Pacific) countries and Canada, Colombia and India. Opening Statements were made by the parties, all ACP participants and India (See below for a copy of Australia's Opening and Closing Statements). Third Party participation was made possible by a decision of Australia and Brazil to follow a procedural path that allowed third countries to join the consultations (as an alternative to a private meeting with the EC). The EC did not exercise its power to veto third party participation. The ensuing discussion was based on Australia and Brazil's lists of questions which had been passed to the EC prior to the consultations. These dealt with issues such as the amount of quota and non-quota sugar produced and exported, the price received for this sugar, how much had been paid in export refunds, the costs of production and processing in EC countries and details of the EC's incorporated products regime as it relates to sugar, including refunds paid on the export of such products. The basis of Australia and Brazil's cases are that the EC has exceeded its WTO export subsidies commitments and has breached obligations in regard to National Treatment. The complaint does not involve access to EC sugar markets.

ACP countries, two of which (Mauritius and Guyana) were represented at Ministerial level, expressed their strong concern that the case would negatively effect their preferential access to the EC market. This access is guaranteed to ACP countries under a special EC-ACP protocol. India's access is also agreed through a bilateral treaty. Both Australia and Brazil provided assurances to the ACP delegates that the case did not challenge their preferential access. Australia and Brazil also called on the EC to make an assurance that it would continue to honour its commitments to ACP sugar exporters, which the EC refused to, do. Oxfam has supported Australia and Brazil's cases, criticising the impact of the EC's policies on developing countries. Oxfam's press release can be found at www.oxfam.co.uk. Mr Vaile's press release on this issue can be found at: http://www.trademinister.gov.au/releases/2002/mvt125_02.html.

The EC was unable to answer many of Australia and Brazil's questions and has agreed to advise within 7-10 days whether responses will be provided. Decisions regarding next steps in the case will be taken once this advice has been received.

Australia as a Respondent (2)

Australia- Certain Measures Affecting the Importation of Fresh Fruit and Vegetables (WT/DS/270)

On 18 October 2002 Philippines requested consultations with Australia regarding its quarantine measures for fresh fruit and vegetables (including bananas).

Australia- Certain Measures Affecting the Importation of Fresh Pineapple Fruit (WT/DS/271)

On 18 October 2002 Philippines also requested consultations with Australia regarding its quarantine measures for fresh pineapple fruit.

Disputes Involving Australia as a Third Party (7)

Mexico Measures Affecting Telecommunications Services (WT/DS204)

Australia lodged its Third Party submission on 14 November. (A copy of Australia's Third Party submission is attached at the end of this document) The Panel hearing is scheduled for 18 December 2002. The US alleges that Mexico has failed to implement its GATS commitments for the cross-border supply of basic telecommunications services. It alleges that certain measures largely embodied in Mexico's International Long Distance Rules breach Sections 1 and 2 of the basic telecommunications Reference Paper incorporated into Mexico's Schedule of Commitments, and Section 5 of the GATS Annex on Telecommunications.

Australia, Brazil, Canada, Cuba, the EC, Guatemala, Honduras, India, Japan and Nicaragua reserved third party rights in this dispute.

European Communities (EC): Measures Affecting Meat and Meat Products (Hormones) (WT/DS26)

No new developments. The EC is still facing WTO authorised retaliation by the U.S and Canada because of its failure to implement within a reasonable period of time. It was earlier reported that the U.S and the EC were engaged in discussions on a compensation arrangement. Australia has registered its expectation that any compensation will be applied on a non-discriminatory basis. The rights of third parties form part of Australia's proposal to the Doha round negotiation on the review of the Dispute Settlement Understanding (TN/DS/W/8).

Canada: Measures Affecting the Importation of Milk and the Exportation of Dairy Products (WT/DS103 and WT/DS113)

Canada has appealed some of the findings of the Article 21.5 Implementation Report. Australia made an oral statement to the Appellate Body hearing on 31 October. The Appellate Body is unlikely to report before the end of this year.

On 26 July the Panel released its finding that, through its CEM scheme and the continued operation of Special Milk Class 5(d), Canada acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(c) in excess of its quantity commitment levels specified in its Schedule for exports of cheese and "other dairy products". Alternatively, the Panel found that the CEM scheme was inconsistent with Article 10.1 of the Agreement on Agriculture, and therefore that Canada acted inconsistently with its obligations under Article 8 of this Agreement.

United States: Section 110(5) Copyright Act ("Homestyle" exemption) (WT/DS160)

At the DSB meeting on 15 November, the U.S confirmed that in accordance with Article 21.6 of the DSU the US Administration continues to work towards a mutually acceptable resolution consistent with WTO rules and will continue to engage the US Congress on the issue, when it resumes work early next year.

The EC and US sought arbitration under Article 25 of the DSU to determine the level of nullification or impairment of benefits to the EC as a result of the operation of section 110(5)(B) of the US Copyright Act. The arbitrator assessed the level of nullification and impairment at US$1.1 million per year.

United States: Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (WT/DS202)

The WTO issued the arbitrator's report regarding the compliance period in this matter on 26 July. It was not necessary for the arbitrator to issue an award in this arbitration given that the parties agreed that the reasonable period of time (RPT) for the U.S. to implement the recommendations and rulings of the DSB shall expire on 1 September 2002. The agreement on the RPT between the parties was circulated on 31 July.

United States: Tax Treatment for "Foreign Sales Corporations" (WT/DS108)

On 29 January 2002, the Dispute Settlement Body adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report. The revised US Foreign Sales Corporations (FSC) scheme was found to be WTO inconsistent.

On 30 August the arbitrator ruled that the EU has right to apply countermeasures to the value of US$4 billion.

Japan: Measures Affecting the Importation of Apples (WT/DS245)

Australia's third party submission was submitted on 14 October. The panel timetable provides for the final report to be circulated on 4 April 2003.

The Japanese quarantine measures complained of by the U.S. include the prohibition of imported apples from orchards where fire blight is detected (or if it is detected within a 500 metre buffer zone), a requirement for three orchard inspections a year and post-harvest treatment of exported apples with chlorine. The U.S argues that these measures are inconsistent with Japan's obligations under Article XI of GATT 1994, the SPS Agreement and Article 14 of the Agreement on Agriculture. The U.S has also claimed non-violation. A Panel was established at the 3 June DSB meeting on request by U.S. Australia reserved its third party rights. Brazil, Taiwan, New Zealand and the EC also reserved third party rights.

Disputes in which Australia has a Policy or Economic Interest (10)

European Communities: Measure Affecting Imports of Wine (WT/DS263/1)

On 4 September 2002 Argentina requested dispute settlement consultations with the EC in relation to the EC's requirements concerning wine acidification processes. Argentina claims EC regulations and measures are inconsistent with Articles 2 and 12 of the Agreement on Technical Barriers to Trade; Articles I.1 and III.4 of the General Agreement on Tariffs and Trade (GATT 1994); and Article XVI.4 of the WTO Agreement.

Korea - Measures Affecting Trade In Commercial Vessels (WT/DS273)

On 21 October 2002 the EC requested consultations with the Republic of Korea regarding shipbuilding subsidies. The request was circulated to all other WTO Members on 24 October.

United States: Section 211 Omnibus Appropriations Act (WT/DS176)

The Panel and Appellate Body Reports adopted at the 1 February DSB meeting found that portions of the U.S legislation were inconsistent with U.S obligations under the WTO Agreement. In the light of these findings, which call for legislative action by the U.S Congress, the U.S and the EC have agreed that the reasonable period of time will expire on 31 December 2002, or on the date on which the current session of the U.S Congress adjourns, whichever is later, and in no event later than 3 January 2003. The most recent Status Report lodged by the US notes that the United States Administration has held consultations with the US Congress concerning appropriate statutory measures and continues to work with the Congress on resolving the dispute.

EC: Generalized System of Preferences (WT/DS242)
Thailand has requested consultations with the EC under Article XXIII of GATT 1994 in respect of measures under the EC's Generalized System of Preferences ("GSP") scheme. Consultations took place on 14 February. Thailand is claiming that, through its GSP scheme as implemented, the EC fails to carry out its obligations under Article I of GATT 1994 (Most-Favoured-Nation Treatment) and the Enabling Clause, as incorporated into GATT 1994. Thailand has also made a non-violation claim. This dispute raises a number of systemic issues of interest/concern to Australia, including jurisprudence on GSP graduation, the application of non-economic conditionality to the grant of GSP preferences and the potential for this issue to be divisive for developing countries.

EC: Conditions for the Granting of Tariff Preferences to Developing Countries (WT/DS246)
India has requested consultations with the EC on similar issues to Thailand's request above. India has cited Article I.1 of GATT 1994 (Most-Favoured-Nation Treatment) and the Enabling Clause as the legal basis for its concerns with regard to tariff preferences to selected countries under special arrangements for combating drug production and trafficking, and tariff preferences accorded under special incentive arrangements related to EC-determined standards on the protection of labour rights and the environment. This dispute raises similar systemic issues for Australia as EC: Generalized System of Preferences (above).

United States: Equalizing Excise Tax Imposed by Florida on Processed Orange and Grapefruit Products (WT/DS250)

At the Dispute Settlement Body meeting on the 1 October a panel was established regarding US measures on processed orange and grapefruit products. Brazil claims that the exemption from this tax of products produced in whole or in part from citrus fruit grown within the US treats imported products less favourably than domestic products and is in violation of national treatment obligations under Article III.2 of GATT 1994. Brazil also makes other national treatment violation claims, including that the use of the proceeds of the tax to advertise and promote Florida grown citrus and citrus products with no promotion of imported citrus products violates Article III.4 and III.1 of GATT 1994.

A US judicial decision recently overturned the way in which the excise was applied, ruling that it should be payable by all juices in Florida. U.S States previously exempt from paying the tax are now objecting to paying a tax which is used exclusively to promote Florida juice.

US: Definitive Safeguard Measures on Imports of Certain Steel Products (WT/DS248, WT/DS249, WT/DS251, WT/DS252, WT/DS253, WT/DS254, WT/DS258, WT/DS259)

A panel was established to hear this matter on 29 July 2002. The eight complainants (Brazil, China, the European Communities, Japan Korea, New Zealand, Norway and Switzerland ) argue that the definitive safeguard measures imposed by the U.S in the form of an increase in duties on imports of certain flat steel, hot-rolled bar, cold-finished bar, rebar, certain welded tubular products, carbon and alloy fittings, stainless steel bar, stainless steel rod, tin mill products and stainless steel wire and in the form of a tariff rate quota on imports of slabs (all effective as of 20 March 2002) are inconsistent with U.S obligations under the GATT 1994 and the Agreement on Safeguards.

On 11 November Chinese Taipei made a separate request for consultation with the US regarding definitive safeguard measures on certain steel imports (WT/DS274).

Turkey Import Ban on Pet Food from Hungary (WT/DS256)

Hungary has requested consultations with Turkey over its ban on the importation of pet food from any European country. Turkey has claimed that the ban is necessary to protect it from BSE. Brazil has said that the pet food is not made from ruminants and is for cats and dogs, the ban is unscientific and inconsistent with the WTO. Specifically, Article XI of GATT 1994, Articles 2.2, 2.3, 5.1, 5.2, 5.6, 6.1, 6.2 and 7 and Annex B of the SPS Agreement and Article 14 of the Agreement on Agriculture.

Peru Certain Taxes on Agricultural Products (WT/DS255)

Chile has formally withdrawn this matter from further attention under the provisions of the Dispute Settlement Understanding.

European Communities - Trade Description of Sardines (WT/DS231)

The Appellate Body found that the EC Regulation was a "technical regulation" under the  TBT Agreement, that Article 2.4 of the  TBT Agreement  applied to measures that were adopted before 1 January 1995 but which have not "ceased to exist", and, that Article 2.4 of the  TBT Agreement  applied to existing technical regulations, including the EC Regulation. The Appellate Body also upheld the Panel's finding that Codex Stan 94 was a "relevant international standard" under Article 2.4 of the  TBT Agreement and that Codex Stan 94 was not used "as a basis for" the EC Regulation within the meaning of Article 2.4 of the  TBT Agreement.

The Appellate Body reversed the Panel's finding regarding burden of proof. The Appellate Body said Peru needed to demonstrate that Codex Stan 94 was an effective and appropriate means to fulfil those "legitimate objectives". In this dispute, Peru was found to have satisfied this burden of proof. As a separate procedural issue, the Appellate Body also found that the amicus brief submitted by a WTO member, which did not have third party status, was admissible.

Negotiations on the Dispute Settlement Understanding (DSU Review)

Australia continues to actively participate in the negotiations for review of the DSU to improve and clarify its provisions. Negotiations will intensify over the following months as members work to produce a draft negotiating text in early 2003 to meet the DSU Review deadline of May 2003. The next Dispute Settlement Body Special Session on DSU Review is scheduled for 16-17 December

see www.dfat.gov.au/trade/negotiations/wto_bulletin/wto_bulletin_021122.html for further information on the DSU Review.

Meeting of the Dispute Settlement Body: November 2002

Dispute Settlement Body (DSB) meetings were held on 1, 11 and 28 November. The next regular DSB meeting is scheduled for 19 December. A special session of the DSB will be held on 5 December.

Australia uses DSB meetings to monitor progress and to register its views on disputes of interest. The agenda of the August DSB meeting was as follows:

DSB Meeting 1 November 2002

Adoption of WTO Panel Report

United States: Preliminary Determinations with respect to Certain Softwood Lumber from Canada (WT/DS236).

The panel report was adopted.

 

DSB Meeting 11 November 2002

Implementation Status Report

United States: Section 110(5) Copyright Act ("Homestyle" exemption) (WT/DS160)

 

The U.S. confirmed that in accordance with Article 21.6 of the DSU an additional status report in this dispute was provided on 31 October 2002.

 

United States: Anti-Dumping Act of 1916 (WT/DS136 and WT/DS162)

 

The U.S confirmed that in accordance with Article 21.6 of the DSU an additional status report in this dispute was provided on 31 October 2002. The U.S noted that the bills have been introduced which would repeal the 1916 Act and apply to all pending court cases.

 

United States: Section 211 Omnibus Appropriations Act (WT/DS176)

 

The U.S confirmed that in accordance with Article 21.6 of the DSU a status report was provided on 31 October 2002. It was noted in the report that the reasonable period of time agreed by the US and the EC would expire on 31 December 2002.

 

United States: Anti-Dumping Measures on Hot Rolled Steel from Japan (WT/DS 184)

 

The U.S confirmed that in accordance with Article 21.6 of the DSU a status report was provided on 31 October 2002. It was noted in the report that the US Department of Commerce had proposed a change to the "at arm's length" test that is meant to implement the rulings of the DSB.

 

Implementation of Recommendations

Chile- Price Brand System and Safeguard Measures Relating to Certain Agricultural Products (WT/DS207)

Chile confirmed its intention to comply within a reasonable period of time.

 

European Communities Trade Description of Sardines (WT/DS231).

The EC confirmed its intention to comply within a reasonable period of time.

 

DSB Meeting 28 November 2002

Implementation Status Report

United States: Section 110(5) Copyright Act ("Homestyle" exemption) (WT/DS160)

 

The U.S. confirmed that in accordance with Article 21.6 of the DSU an additional status report in this dispute was provided on 15 November 2002

 

United States: Anti-Dumping Act of 1916 (WT/DS136 and WT/DS162)

 

The U.S confirmed that in accordance with Article 21.6 of the DSU an additional status report in this dispute was provided on 15 November 2002. The U.S noted that the bills have been introduced which would repeal the 1916 Act and apply to all pending court cases.

 

United States: Section 211 Omnibus Appropriations Act (WT/DS176)

 

The U.S confirmed that in accordance with Article 21.6 of the DSU a status report was provided on 15 November 2002. It was noted in the report that the reasonable period of time agreed by the US and the EC would expire on 31 December 2002.

 

United States: Anti-Dumping Measures on Hot Rolled Steel from Japan (WT/DS 184)

The U.S confirmed that in accordance with Article 21.6 of the DSU a status report was provided on 15 November 2002. The US has requested that the "reasonable period of time" be extended until 31 December or until the end of the first session of the next Congress, whichever is the earlier.

 

Implementation of Recommendations of the DSB

United States: Final Countervailing Duty Determination with respect to certain Softwood Lumber from Canada (WT/DS236)

The US advised that as the measures at issue were no longer in effect and that provisional cash had been refunded, no action was required to comply with the DSB's recommendations and rulings in the dispute.


WTO: EC CONSULTATIONS - SUGAR REGIME

WT/DS265/20

OPENING STATEMENT BY THE HEAD OF THE AUSTRALIAN DELEGATION AND AMBASSADOR TO THEWTO

21 NOVEMBER 2002

Australia's decision to seek consultations with the EC on its sugar export policies was based on the concerns and considerations which have been so well articulated a few moments ago by Ambassador Seixas Correa.

Australia has sought consultations with the EC with the aim of securing a positive solution consistent with the provisions of the Dispute Settlement Understanding.

We are pleased that other WTO members with an interest in international trade in sugar are participating in the consultations.

This has been made possible, of course, by the fact that Australia and Brazil have requested consultations under Art XXII of GATT 1994. There was an alternative, to which we would of been entitled, and that was of keeping the consultations a private matter between the parties, but we opted for transparency and openness precisely because we anticipated considerable interest in the matter by other WTO members.

Australia's request addresses the consistency of the EC sugar regime in the context of:

-the export subsidy commitments of the Agreement on Agriculture

-the prohibited subsidies under the SCM agreement and GATT 1994 subsidy provisions

-the national treatment provisions of GATT 1994

-the incorporated products provision of the Agreement on Agriculture

We have not sought to address any aspect of the EC's access arrangements with any country.

We are conscious that the Communities sugar regime is not a static one and that it is likely to evolve over time as a result of various influences such as: the introduction of EBA preferences, such as the enlargement of the EU; such as the internal sectoral review of the sugar policy which the Commission will undertake next year; such as the recent decision of the European Council to place a ceiling on the CAP budget; and the negotiations under the Doha Development Agenda. Moreover, for the first time, respected NGO's such as Oxfam, are openly questioning the massive costs of the protectionist policy and the long-term detrimental effect it has had on the development aspirations of many developing countries.

We can well understand that there is considerable concern and anxiety among those developing countries beneficiaries of preferences under the EC regime about the likely consequences of these developments.

But they are not germane to the consultations that we and Brazil have requested. Our requests have been deliberately framed to focus exclusively on the EC's commitments under its WTO obligations. We do not question the EC's preferences to developing countries. After all, Australia was the first country to introduce a generalised system of preferences way back in the 1960's and has recently announced that all products from Least Developed countries will enter Australia free of any duties or quotas. Unlike the EBA system there will be no qualifications or delayed implementation or safeguards under Australia's approach.

Australia and Brazil have had a long-standing concern with the EC's approach to its international treaty obligations on sugar. In the eighties, we initiated a challenge to the damaging effects of its sugar policies under the old GATT. Subsequently, in the Uruguay Round which followed shortly thereafter, we negotiated a number of new disciplines which we hoped would of had some ameliorating effect and lead to the eventual reform of world sugar markets. Regrettably, the EC sugar regime has remained effectively quarantined from genuine reform.

EC exports have increased substantially, despite the new agreements and disciplines negotiated in the Uruguay Round and the EC has maintained subsidies in order to increase production levels in some regions.

Commission officials are now saying privately to us that we should wait to see the impact of the reforms they will consider next year and have claimed that the consequences of the recent CAP budget decision will automatically lead to reform of the sugar regime and to the reduction in sugar export subsidies.

Unfortunately we have heard it all before. The fact is that our sugar producers are now suffering. They are suffering from the disastrous impact of protectionist agricultural policies in Europe and elsewhere. Specifically, they are suffering because the EC has failed to live up to the treaty obligations it assumed in the Uruguay Round.

We will be happy to discuss with everyone in this room how we should tackle the future of the world sugar market - how we can make it a fairer environment for all producers; how we can phase out massive export subsidies; how we can substantially reduce trade-distorting domestic support; and how we can substantially increase market access. But this is not the subject of today's consultations which will focus exclusively on the EC's sugar export regime.

We have provided the Commission with an indicative list of questions relevant to the issues that we have filed in our request and would like to discuss those matters in a structured and constructive way.


WTO: EC CONSULTATIONS SUGAR REGIME

WT/DS265/20

CLOSING STATEMENT BY THE AUSTRALIAN DELEGATION
22 NOVEMBER 2002

We thank the European Communities and third parties for their participation in these consultations. We have come to these consultations in good faith.

We have listened with interest to the responses provided by the EC to the questions of Australia and Brazil and India.

While appreciating the effort the EC has made, we have to register our disappointment that in some key areas, the answers fall short of the basic level of factual detail we would expect of a response. While the Commission itself may not "collect" the information, we would expect that Member States, and therefore the European Communities and the Commission, would either have this information or be able to obtain it. We would hope and expect therefore that the European Communities, through the Commission, would provide further information in response to those questions it has taken on notice. We will also reflect further on the information already provided in considering the way forward.

We particularly appreciate the interest shown by ACP and other countries in this consultation process. As we noted in our opening statement, Australia and Brazil deliberately sought Article XXII consultations that would allow for third party participation - to maximise transparency. We have made it very clear, and repeat our assurance, that Australia is not challenging the preferential import access arrangements for ACP and India into the EC. We have nonetheless listened carefully to the concerns registered here by ACP countries on the importance of preferential access to the EC to them. We therefore again invite the EC to assure the ACP countries that this preferential access is not under threat. The power on this matter is in the hands of the EC not Brazil and Australia.

Reference has been made to the timing of this dispute settlement action, and calls made to address this matter in the negotiations are outside the scope of these consultations. Australia has a longstanding concern with the EC's approach to its international treaty obligations on sugar. Our request for dispute settlement consultations reflects our concerns that the EC has failed to fulfil its obligations. This is not therefore a matter for Doha negotiations, as they are concerned with future liberalisation of the agriculture sector, but rather re-visiting commitments and obligations that have already been made and which, in our view, have not been met.

Finally, while we note the view that the threads of the EC sugar regime are woven so thickly as to make the system very difficult to understand, we repeat that it is in the hands of the EC to ensure a sugar policy which not only guarantees the continuation of its treaty commitments to the ACP but is also consistent with its export subsidy and other WTO commitments.


Mexico Measures Affecting Telecommunications Services

(WT/DS204)

Third Party Submission of Australia

22 November 2002

Table of Contents

 

I INTRODUCTION

II THE INFORMAL UNDERSTANDING ON ACCOUNTING RATES

III SCOPE OF 'INTERCONNECTION'

A. In-country and international interconnection

B. Interconnection and Accounting Rates

IV MEANING OF 'COST-ORIENTED RATES'

I Introduction

1. Australia's third party submission addresses the following legal issues relevant to this dispute:

2. Australia reserves the right to comment further on these issues, and on other issues raised in this dispute, at the Panel hearing.

II Informal Understanding on Accounting Rates

3. The dispute raises the issue of the informal Understanding on Accounting Rates (informal Understanding). The informal Understanding has been in place since the 1996 Negotiations on Basic Telecommunications, and is reflected in the Report of the Group on Basic Telecommunications of 15 February 1997.[3] The Group noted that a number of countries had taken exemptions under Article II of the General Agreement on Trade in Services (GATS) in respect of the application of differential accounting rates to services and service suppliers of other Members. It then stated:

In the light of the fact that the accounting rate system established under the International Telecommunications Regulations is the usual method of terminating international traffic and by its nature involves differential rates, and in order to avoid the submission of further such exemptions, it is the understanding of the Group that:

4.Australia is of the view that, as the informal Understanding was never affirmed by the Council for Trade in Services or the General Council, and so did not become a formal Understanding, it therefore does not present a legal barrier to disputes being taken by WTO Members in respect of the application of accounting rates.

5. Alternatively, even if the moratorium did at any time present a legal barrier to such disputes, then that legal barrier no longer exists as it expired on 1 January 2000, in accordance with the clear intention of the WTO Members as reflected in the informal Understanding.

III Scope of 'interconnection' in section 2 of the Reference Paper

6. The dispute raises the issue of the scope of the term 'interconnection' as used in section 2 of the Reference Paper. In particular:

(a) whether that expression should be understood as applying only to interconnection within the borders of a Member that has inscribed the Reference Paper in its Schedule of Commitments (in-country interconnection), or whether it also applies to the interconnection of public telecommunications networks within such a Member's borders with telecommunications networks external to that Member's borders (international interconnection); and

(b) whether 'interconnection' as used in section 2 of the Reference Paper covers accounting rates.

7. The scope of 'interconnection' clearly has important implications for the application of the obligations in section 2 of the Reference Paper.

A. In-country and international interconnection

8. Australia is of the view that, as the Reference Paper does not explicitly restrict interconnection to in-country interconnection then, in principle, the Reference Paper obligations relating to interconnection apply to international interconnection.

B. Interconnection and accounting rates

9. In Australia's view, 'accounting rates' are specific sets of arrangements for the pricing of a subset of interconnection arrangements (namely, international interconnection of the public switched telephone network). As the Reference Paper applies to international interconnection, these pricing arrangements must be consistent with the Reference Paper obligations with respect to interconnection.

10. Underpinning the informal Understanding on Accounting Rates is the assumption of Members that interconnection obligations under the Reference Paper would apply to international interconnection and, in the absence of the Understanding, give rise to disputes.

IV Meaning of 'cost-oriented' rates in section 2.2(b) of the Reference Paper

11. Australia considers that a key focus of the Reference Paper is to provide a framework for the competitive supply of telecommunications services in markets where there is a major supplier that can affect the terms of participation through control over essential facilities or by use of its market position. Accordingly, the Reference Paper addresses such issues as anti-competitive practices, terms governing interconnection, transparency, dispute settlement and regulatory independence.

12. While each of these issues is of considerable interest to Australia, a pivotal concern is to develop greater clarity concerning, and acceptance of, interconnection obligations, and particularly in relation to the requirement in paragraph 2.2 of the Reference Paper that interconnection be 'on terms, conditionsand cost-oriented rates that are transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled'.

13. The Reference Paper does not elaborate on what is meant by 'cost-oriented rates'. Australia submits that any interpretation of 'cost-oriented rates' should be consistent with these criteria of transparency, reasonableness, economic feasibility and unbundled elements. Australia submits that the Panel must form a view of the meaning of 'cost-oriented rates' that is consistent with these criteria so that the Reference Paper promotes telecommunications competition (and through that, trade in telecommunications services). An interpretation of 'cost-oriented rates' that is too broad would undermine the effect of the Reference Paper as a whole, and is clearly contrary to its intent.

14. Recommendations of the International Telecommunication Union (ITU)[4], such as ITU-T, Recommendation D.140, provide some guidance on relevant cost components in the development of cost-based rates.[5] In addition, Australia submits that the Panel should, in its interpretation of 'cost-oriented rates', consider the application of dynamic costing models for interconnection in GATS Member countries that are encouraging the competitive supply of telecommunications networks and services.


[1] To subscribe please send an email to wto.disputes@dfat.gov.au with "subscribe" in the subject line and your contact details in the body of the email. If you want to be removed from the mailing list please send an email to wto.disputes@dfat.gov.au with "unsubscribe" in the subject line.

[2] This publication is intended to provide a general update and the information within it should not be relied on as complete or definitive.

[3] S/GBT/4.

[4] The GATS Annex on Telecommunications specifically recognises the role of the International Telecommunication Union (ITU) in the development of relevant standards.

[5] For example, Recommendation D.140 lists possible direct costs as:

Indirect or common costs are those that cannot be solely attributed to the international telephone service and thus must be allocated. They may include:

 

This publication is intended to provide a general update and the information within it should not be relied on as complete or definitive.


The Monthly Bulletin is an overview of Australian involvement in WTO Dispute Settlement from the WTO Trade Law Branch of the Department of Foreign Affairs and Trade . It updates Australian involvement in specific WTO disputes and, more generally, in disputes in which Australia has a policy or economic interest. Also included are the agendas of meetings of the WTO Dispute Settlement Body (DSB), with specific reference to any Australian interventions.

For more information and copies of previous issues, visit Australia and WTO dispute settlement.

For more general information relating to the Doha Round of Trade negotiations, see the WTO Doha Round Bulletin.