WTO Dispute Settlement Bulletin
Monthly Bulletin: November 2001
Australia and WTO Dispute Settlement
RESOLVING EXPORT ACCESS PROBLEMS THROUGH THE WTO SYSTEM
If you have answered "yes" to those questions, the WTO Trade
Launch of Doha Round of Trade Negotiations Agreement was reached on 14 November at the Fourth Ministerial Conference
of the WTO in Doha on a new three-year Doha round of multilateral trade
negotiations (to be concluded by January 2005). Of relevance to dispute
settlement, this included agreement to negotiations on improvements and
clarifications of the Dispute Settlement Understanding with a deadline of May
2003. The Ministerial Conference also saw the accession of China and
Chinese Taipei to the WTO. Further information can be found on the WTO
web-site at: www.wto.org
Article 25 Arbitration on Level of Nullification or Impairment of
The award of the Arbitrators in United States: Section 110(5) Copyright
Act (Homestyle exemption) (WT/DS160) was released on 9 November.
This is the first time that parties to a dispute have made recourse to
arbitration under Article 25 of the Dispute Settlement Understanding to
establish the level of compensation. A paper examining the legal and
policy management issues arising from this use of Article 25 arbitration, as
well as the conceptual approaches and methodologies used by the Arbitrators,
is attached to this Bulletin.
Australian Official to Serve on Panel
Mr Michael Mulgrew of the Australian Customs Service has been selected to
serve as a panellist in United States Countervailing Measures
Concerning Certain Products from the European Communities. This
panel was established by the DSB at its 10 September 2001 meeting, at the
request of the European Communities (EC).
A list of Australian nationals who have served or are serving as WTO
panellists (prior to Mr Mulgrew's appointment) and of Australian experts who
have advised WTO Panels was attached to the October Bulletin, and an updated
list can be found on DFAT's web-site at www.dfat.gov.au/trade/negotiations/wto_disputes.html
Retiring Appellate Body Members to Complete Current Appeals
The WTO Appellate Body has authorised retiring Members Claus-Dieter
Ehlermann (EC), Mr Florentino Feliciano (the Philippines) and Mr Julio Lacarte-Muro
(Uruguay) to continue as AB Members beyond the 10 December 2001 expiry of
their terms of office so that they may complete the Appeal cases they are
currently hearing. Mr James Bacchus (US), Mr Georges Michel Abi-Saab
(Egypt), Mr A V Ganesan (India), and Mr Yasuhei Taniguchi (Japan) are the four
continuing Members of the seven member body, who will be joined shortly by new
Members the Hon John Lockhart, AO, QC (Australia), Mr Luiz Olavo Baptista
(Brazil) and Mr Giorgio Sacerdoti (EC).
A copy of Mr Vaile's media release congratulating Mr Lockhart on his
appointment to the Appellate Body was included with the September Bulletin.
Waivers of WTO Obligations
The WTO Agreement and its covered agreements include provisions that enable
Members to decide to waive a Member's WTO obligation. This provides
that Member with immunity from a challenge in the DSB to what would otherwise
be a WTO-inconsistent action. Recent examples include the waivers
granted to the EC in Doha for its proposed banana import regime (see below)
and the extension requests granted by the Council for Trade in Goods under the
TRIMS Agreement that allow several developing countries further time to phase
out their WTO-inconsistent TRIMS.
Australia as a Complainant (2)
United States: Safeguard measure on imports of fresh, chilled and frozen
lamb meat (WT/DS177 and WT/DS178)
The US has implemented the DSB recommendations on lamb meat by removing its
WTO-inconsistent safeguard measure on lamb meat with effect as of midnight 14
November. All lamb imports arriving in the US after this time will be
subject instead to the MFN rate of duty. The US informed the DSB Meeting
on 21 November that it had completed all necessary legal steps to remove the
safeguard measure, a move that was welcomed by Australia and New Zealand.
United States: Continuing Dumping and Subsidy Offset Act of 2000 (Byrd
Amendment) (WT/DS217 and WT/DS234)
The Panel examining the complaint of eleven Members (including
Australia) against the US Continued Dumping and Subsidy Offset Act of 2000(the
Byrd Amendment) has issued its timetable and working procedures.
The Panel is expected to release its final report on 10 July 2002. The
Byrd Amendment requires US customs authorities to distribute anti-dumping and
countervailing duties assessed on imports to US domestic parties that
supported the original petition for anti-dumping or countervailing duties to
be imposed. The co-complainants are arguing that the Act is, in several
respects, not in conformity with US obligations under GATT 1994, the
Anti-Dumping Agreement and the Agreement on Subsidies and Countervailing
Disputes involving Australia as a Third Party (8)
Chile: Price band system and safeguard measures relating to certain
agricultural products (WT/DS207)
The Panel has advised that it will not be possible to complete its work as
scheduled in February 2002, and that it expects to release its final report in
EC: Measures affecting meat and meat products (Hormones) (WT/DS26)
No new developments. The EC is still facing WTO-authorised retaliation by
the US and Canada because of its failure to implement within a reasonable
period of time.
United States: Import prohibition of certain shrimp and shrimp products
(the shrimp/turtle" case) (WT/DS58)
The Article 21.5 Panel and Appellate Body Reports were adopted at the 21
November DSB meeting. In its Report, the Appellate Body rejected
Malaysia's challenge against the Article 21.5 panel report and upheld the
Panel's core finding that the US measure was justified under the GATT
exception provision (Article XX(g)) so long as certain stated conditions, in
particular the ongoing serious good faith efforts to reach a multilateral
agreement, remain satisfied. Australia's intervention on this item at
the 21 November DSB meeting is set out below.
Canada: Measures affecting the importation of milk and the exportation
of dairy products (WT/DS103 and WT/DS113)
Canada appealed the Article 21.5 Panel finding in favour of the US and New
Zealand that the revised Canadian measures are export subsidies under the
Agriculture Agreement. In its recently released report, the Appellate
Body reversed certain findings by the Panel which resulted in it also
reversing the Panel's decision that the measures are export subsidies.
However, the Appellate Body was unable to complete the analysis of the claims
made by NZ and the US due to an insufficient factual basis. As such, the
Appellate Body's findings do not amount to a finding that the measures are
WTO-consistent. NZ and the US retain the right to request an
implementation panel on these aspects.
United States: Section 110(5) Copyright Act (Homestyle exemption)
The award of the Arbitrators was released on 9 November. The
Arbitrators awarded an amount of US$1.1 million per year. The
Arbitrators rejected the EC's argument that the level of nullification and
impairment corresponded to the licensing revenue potentially foregone
by EC right holders as a result of the US measure. Instead, they
calculated the royalty which EC right holders could reasonably have
expected to realise in the absence of the US measure, based on the
royalties that EC right holders were receiving prior to the introduction of
the measure. Australia has registered its expectation that any
compensation will be non-discriminatory.
United States: Definitive safeguard measures on imports of circular
welded carbon quality line pipe from Korea (WT/DS202)
The US has appealed the Panel's finding that the US line pipe measure was
imposed inconsistently with certain provisions of GATT 1994 and the Safeguards
Agreement. An oral hearing has been scheduled for 15 December and the
Appellate Body's report is due by 15 February 2002.
United States: Tax Treatment for Foreign Sales Corporations
The US has appealed the finding by the Article 21.5 compliance panel that
its revised FSC scheme is inconsistent with US WTO obligations (including that
the scheme is a prohibited export subsidy). The EC has also appealed
certain issues of law and legal interpretation made by the panel. An
oral hearing was held on 26-27 November. The Appellate Body's report
is due by 14 January 2002.
Canada: Export credits and loans guarantees for regional aircraft
No new developments. The Panel informed the DSB in August that it would not
be possible to complete its work with the 3 months deadline from its
composition. The panel expects to complete its work shortly.
Disputes in which Australia has a policy or economic interest (4)
Japan: Measures affecting agricultural products (Varietal testing)
No new developments. Japan outlined its agreement with the US on a
mutually satisfactory solution at the 25 September DSB meeting. Australia has
registered its expectation that the outcome will be applied in a
non-discriminatory manner to the products of all WTO members.
EC: Regime for the Importation, Sale and Distribution of Bananas
At the Doha Ministerial Conference, the EC was granted the two waivers it
requires for its proposed new banana import regime, implementing its bilateral
settlements with the United States and Ecuador in this dispute. The
waivers, from Article I and Article XIII of GATT 1994, will allow the EC to
give tariff preferences to certain African, Caribbean and Pacific countries,
and additionally to continue to reserve an import quota allocation exclusively
for banana exports from these countries.
United States: Section 129(c)(1) of the Uruguay Round Agreements Act
No new developments. Canada is challenging the legality of a specific
aspect of the US statute controlling the US implementation of DSB rulings.
A panel with standard terms of reference was established at the 23 August 2001
DSB meeting, and was constituted on 30 October. Third party rights were
reserved by the EC, India, Japan and Chile.
United States Section 211 Omnibus Appropriations Act (WT/DS176)
No new developments. The EC has appealed certain issues of law and
legal interpretations in the panel report, including the finding that WTO
intellectual property rules do not cover trade names (company or business
names that are not registered as trademarks). The Panel had ruled that a
U.S. law known as Section 211, which prevents U.S. recognition of trademarks
and other intellectual property used in connection with confiscated property,
was partially inconsistent with the WTO TRIPS Agreement. Other of the
EC's claims relating to the inconsistency of Section 211 with Article 42 of
the TRIPS Agreement were rejected by the Panel.
Meetings of the Dispute Settlement Body: November 2001
The DSB, consisting of all the Members of the WTO, met on 5 November and 21
November 2001. The next regular DSB meeting will be held on 18 December 2001,
and special DSB meetings have been scheduled for 5 December and 10 December.
Australia uses DSB meetings to monitor progress and to register its views on
disputes of interest. The agendas of the November DSB meetings were as follows
(any Australian interventions are indicated):
DSB Meeting 5 November 2001
EC Regime for the Importation, Sale and Distribution of
The EC presented a further status report on progress in the
2. Panel Request
US Preliminary Determinations with respect to Certain Softwood
Panel was not established as the United States opposed the request.
3. Report of the Panel
Argentina Definitive Anti-Dumping Measures on Imports of
The Panel Report was adopted.
4. Report of the Appellate Body and Report of the Panel
US Transitional Safeguard Measure on Combed Cotton Yarn from
The Appellate Body and Panel Reports were adopted.
Prior to adoption of the Reports, both parties commented critically
Special DSB Meeting 21 November 2001
1. Implementation of the Recommendations of the DSB
US Transitional Safeguard Measure on Combed Cotton Yarn from
The US informed the DSB that it had implemented the DSB's
2. Report of the Appellate Body and Report of the Panel
US Import Prohibition of Certain Shrimp and Shrimp Products
The Appellate Body and Panel Reports were adopted.
Australia said that our participation in this dispute as a third
We said that we appreciated the positive US response to the issue of
This dispute, in Australia's view, had highlighted that genuine,
While unilateral measures are not ruled out in all instances, as
In particular, we stated that Australia believes that the Panel
We said that the key issue, in our mind, should have been whether the
The progress of the Indian Ocean initiative on sea turtle
If the United States believes that, in addition to these actions,
3. Report of the Appellate Body and Report of the Panel
Mexico Anti-Dumping Investigation of High Fructose Corn Syrup
The Appellate Body and Panel Reports were adopted.
4. Other Business
US: Safeguard Measure on Imports of Fresh, Chilled and Frozen Lamb
The US made a statement announcing that it had completed, on 14
Australia welcomed the withdrawal of the WTO-inconsistent safeguard
We noted that this withdrawal took place almost two and a half years
Australia urged the United States to apply its safeguards legislation
US: Section 110(5) Copyright Act (Homestyle exemption)
The EC made a statement criticising the approach taken by the
WTO: EC/US HOMESTYLE COPYRIGHT DISPUTE ARBITRATION ON THE LEVEL OF
NULLIFICATION AND IMPAIRMENT
This paper addresses the legal and policy management issues arising from
the decision of the European Community and the United States to engage in
arbitration procedures of Article 25 of the WTO Dispute Settlement
Understanding (DSU). The paper addresses the following issues:
- The policy and legal implications of recourse to Article 25 procedures
as an alternative to other WTO arbitration and litigation processes,
including the rights of third parties
- Conceptual approaches to defining nullification and impairment
- Methodologies for assessing nullification and impairment
The paper draws the following conclusions:
Article 25 arbitration as an alternative to litigated dispute settlement
- Article 25 arbitration procedures may be a useful and more expeditious
option to standard dispute processes, or in circumstances where there are
no specific procedures to assist the parties in resolving an issue
- However, there are constraints on recourse to Article 25 procedures and
potentially adverse policy implications:
- Recourse to Article 25 procedures requires mutual agreement and mutual
agreement is also necessary for working procedures and selection of the
- The arbitration award is binding on the parties and would therefore
preclude an appeal
- Third parties do not have automatic rights to intervene, but may be
affected by the jurisprudence of the arbitration award
Conceptual approaches to defining nullification and impairment
- The arbitrators rejected the concept of hypothetical potential opportunity
in favour of reasonable expectations, taking into account
Methodologies for assessing nullification and impairment
- There is some flexibility in determining a methodology, but much would
depend on the quality of the factual data supplied by the parties and the
willingness of commercial operators to supply data. An Article 25
arbitrator will not impose a methodology on the parties, but will select
the most credible of options proposed by the parties that would reduce
guesstimates and that would be based on standard burden of proof in
THE EC-US HOMESTYLE COPYRIGHT DISPUTE
1. On 26 January 1999, the EC requested consultations with the US
under Article 4 of the WTO DSU and Article 64.1 of the WTO Agreement on
Trade-Related Aspects of Intellectual Property Rights(TRIPS). The
consultations involved Section 110(5) of the US Copyright Actas amended by the
Fairness in Music Licensing Act of 27 October 1998. 
2. The dispute concerned limitations on the exclusive rights provided
to owners of copyright in Section 106 of the Copyright Act in respect of
certain performances and displays. The principal issue related to the
extended exemption from licensing in regard to the transmission of
non-dramatic musical works in small eating drinking and retail establishments
by audio or audiovisual apparatus commonly sold for private use (homestyle
transmission). The EC alleged that the exemptions were incompatible with
Article 9.1 of the TRIPS Agreement, together with Articles 11(1)(ii) and 11bis
of the Berne Convention.
3. The consultations failed to resolve the dispute. The EC
subsequently requested the establishment of a panel in accordance with Article
6 of the DSU and Article 64.1 of TRIPS. A panel was established on 26
May 1999. Australia, Brazil, Canada, Japan and Switzerland joined as
4. The Panel submitted its report to the parties on 5 May 2000.
WTO Members adopted the report on 27 July 2000, giving legal effect to the
Panel findings. The report (which was not appealed) made the following
finding of inconsistency:
Subparagraph (B) of Section 110(5) of the US Copyright Act does not meet
the requirements of Article 13 of the TRIPS Agreement and is thus inconsistent
with Articles 11bis(1) (iii) and 11(1)(ii) of the Berne Convention as
incorporated into the TRIPS Agreement by Article 9.1 of that Agreement.
5. As the EC and the US were unable to agree on a reasonable period
of time for bringing the measure into WTO consistency, an Arbitrator was
appointed under the terms of Article 21.3(c) of the DSU. The Arbitrator
awarded a 12-month period from date of adoption of the panel report, expiring
on 27 July 2001.
The Arbitrator's award is binding on the parties. In accordance with
Article 22 of the DSU, failure to implement within the arbitrated period gives
rise to a right to seek compensation or to request WTO-authorized suspension
of concessions (retaliation rights).
6. In a highly irregular procedure developed between the EC and the
US, the US lodged a request on 18 July 2001 for DSB approval to extend the
arbitrated time period. The US requested extension of the time period to
31 December 2001 or the date on which the current session of Congress
adjourned whichever was the earlier. The US requested that the DSB
approve its request at the DSB meeting of 24 July 2001.
The DSB did not disapprove of the US request.
7. On 3 August 2001, the EC and the US requested arbitration, in
accordance with 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 Copyright Act. The request (which does not require
approval by the DSB) included agreed procedures and a timetable for completion
of the process by 25 September 2001. In accordance with their Article 25
rights, the parties determined that third parties would be excluded from the
8. On 9 November 2001, the Arbitrators issued their report. The
Arbitrators determined that the level of EC benefits being nullified or
impaired is US$1.1 million a year.
Should the US fail to implement by the extended time period, that figure would
be used as the basis for compensation negotiations, in accordance with Article
22.1 of the DSU, or as the level of a request for DSB authorization to
retaliate in accordance with the provisions of Article 22.2 of the DSU.
The assessed level could presumably be used as an offset in regard to US
retaliation currently applied against EC exports arising from other WTO
Article 25 of the DSU
9. This is the first dispute involving recourse to the procedures of
Article 25 of the Dispute Settlement Understanding (DSU).
10. Article 25 provides:
1. Expeditious arbitration within the WTO as an alternative means
of dispute settlement can facilitate the solution of certain disputes that
concern issues that are clearly defined by the parties
2. Except as otherwise provided in the Understanding, resort to
arbitration shall be subject to mutual agreement of the parties, which shall
agree on the procedures to be followed. Agreements to resort to
arbitration shall be notified to all Members sufficiently in advance of the
actual commencement of the arbitration process.
3. Other Members may become party to an arbitration proceeding
only upon agreement of the parties which have agreed to have recourse to
arbitration. The parties to the proceedings shall agree to abide by the
arbitration award. Arbitration awards shall be notified to the DSB [Dispute
Settlement Body] and the Council or Committee of any relevant agreement
where any Member may raise any point relating thereto.
4. Articles 21 and 22 of this Understanding
shall apply mutatis mutandis to arbitration awards.
11. Article 25 allows for an alternative route to all other dispute
settlement processes embodied in the DSU, such as the three-tier process of
consultations (Article 4), panel (article 6) appellate review (Article 17) as
well as the arbitration procedures for determining a reasonable period of time
(Article 21.3(c) and the level of retaliation (Article 22.6).
The Article 25 option sits halfway between the formal litigated processes and
those of the Chair's Good Offices (Article 5), in that the Arbitrators issue
a report of a juridical nature that binds the parties to a dispute.
12. In addition, Article 25 serves to fill a procedural vacuum.
Parties may agree to invoke Article 25 in circumstances where the DSU does not
expressly provide for a particular issue to be arbitrated or litigated.
For instance, the DSU does not specifically provide for arbitration on the
level of compensation that might be agreed between the parties (Article 22.1).
Moreover, the DSU does not specifically provide for arbitration on retaliation
levels until the expiry of a reasonable period of time, following a request
for DSB authorization to apply retaliation (Article 22.6).
13. Article 25 may also offer a more expeditious means of arriving at
an outcome. Article 25 allows parties to develop their own working procedures
and timetables, subject only to the reasonableness of the timetable for
the arbitrators to issue a report.
14. Article 25 reports are made publicly available. WTO Members
are free to raise any issues connected to the report at meetings of the DSB.
THE ARTICLE 25 ARBITRATION REPORT
Mandate of the Arbitrators
15. The arbitrators essentially assumed a mandate comparable to that
of an arbitrator assessing the level of retaliation in accordance with Article
22.6-7 of the DSU, as modified by the terms of reference agreed between the
parties. The arbitrators noted that there was nothing in Article 22.2 of
the DSU that would prevent arbitration that might assist the parties to arrive
at mutually acceptable compensation as an alternative to retaliation.
16. The Arbitrators addressed two conceptual issues before proceeding
to examine the level of benefits nullified or impaired.
A. Nature and Level of Benefits Nullified or Impaired
17. The Arbitrators addressed opposing EC and US contentions:
- the EC claimed that the nature and benefits in this instance should be
examined as a special case, in that the benefits involved exclusive
rights, compared to other cases involving expectations as to
the legal framework and factual conditions in which economic activities
could be pursued.
- the US considered that the level should be measured by reference to the
licensing royalties lost by EC right holders, but lost benefits should not
involve those that might be hypothetically collectible. Those
benefits could be quantified by determining the benefits that EC right
holders were receiving prior to the enactment of Section 110(5)(B) in
Nature of the benefits
16. The Arbitrators took the position that benefits should be
considered on the basis that, while the United States is under an obligation
to provide right holders with exclusive rights, the exercise and exploitation
of those rights was a matter for the EC, not the US. Consistent with past
arbitration proceedings, the WTO benefits in question accrued to the
EC, not the EC right holders, but the nullification or impairment involved
benefits foregone by EC right holders arising from the US amendment.
Level of the benefits
17. The Arbitrators considered this issue from the perspective of the
royalty income which EC right holders could expect to receive if the US were
to comply with its WTO obligations. The principal issues involved the
- the EC argument that the level should be considered as the economic
value of rights corresponding to income potentially realisable by
EC right holders.
- whether the level of royalty income which EC right holders could expect
to receive should include the royalty income of which they would be
deprived by all unauthorized use of their works (the piracy
- whether account should be given to the fact that 100% licensing would
not be countenanced on economic grounds
16. The Arbitrators considered that the benefits should be
those that the EC could reasonably expect to accrue to it, that is, the
licensing revenue from the number of users that would be licensed.
Applying the reasonable expectation test, the Arbitrators queried
whether the EC should expect that all users of the works would be
licensed and would pay licensing fees. The nullification and
impairment derived from the US measures that actually prevented licensing
of such premises. It was pertinent that the relevant WTO obligation did
not extend to a duty to enforce exclusive rights on behalf of right holders.
In that context, the US argued that the number of licences sought by agents of
the right holder is a function of the expected cost and revenue per licence.
Licensing levels of 100% would involve significant costs that might deliver a
lower return than a much lower level of licensing.
B. Royalties Collected versus Royalties Distributed
17. The arbitrators applied a reasonable expectation test
in considering whether the benefits should be assessed on the basis of
the royalty income actually collected on behalf of the right holders or
the amount distributed to right holders.
18. The arbitrators considered that authorization by right holders to
agents to license works does not translate to a reasonable expectation
that they would receive any benefits directly from the licensed users, but
rather from their arrangements with their agents.
19. The arbitrators rejected the US argument that the level of
benefits should be measured as foregone earnings in the EC `s current account
transactions with the US, partly on the grounds that such a basis would not
take into account payments made to EC royalty holders in non-EC countries.
20. The arbitrators determined that the basis should be one of the
amounts that might be reasonably distributed.
21. The choice of methodology was not determined by the arbitrators
as such, but rather turned on the legal question of the burden of proof.
The parties had instructed the arbitrators to follow the allocation of the
burden of proof applied by arbitrators under the DSU Article 22.6 procedures
(level of retaliation). In the current case, the burden of proof would
therefore rest on the US to make a prima facie demonstration that the
EC-proposed methodology and calculations were inconsistent with the
requirements of Article 22 of the DSU.
22. The EC had proposed a bottom-up approach, involving the
number of establishments that may qualify for the exemption. On that
basis, the EC calculated the level as US$25.5 million.
23. The US had proposed a top-down approach, involving the
three-year average (1996-98) of the total royalties paid to EC right holders,
subject to deductions. On that basis, the US calculated the level at
between US$446,000 to $US733, 000.
28. The arbitrators accepted that the US had established a prima
facie case that the EC-proposed methodology and estimates were not
appropriate and that the EC had failed to rebut that presumption.
The arbitrators therefore adopted a top-down approach, justifying that
approach on the following grounds:
- the number of establishments actually licensed at the time of the entry
into force of the 1998 amendment provided a starting point of historical,
verified facts, adjustable in light of the date of referral to the
- it limited the number of assumptions required as compared to a
counterfactual approach (as used in other disputes where there had
been an absence of historical trade)
- there was insufficient data or cooperation by the private sector to give
adequate precision to calculations under a bottom-up approach
Elements in the calculations:
29. At the request of the EC, the Arbitrators excluded the following
- indirect or potential harm (the potential detrimental effects for the
exploitation of other rights)
- activities of one of the three collective management organizations
acting as agents for EC licence holders , on grounds of insignificance
- music broadcast through the Internet
29. The arbitrators used the following elements in its calculations
(some based on estimates because of inadequate data)
- amount of royalties received by EC right holders prior to the entry into
force of the 1998 Amendment, for use of broadcast music from the types of
establishment newly exempted by the 1998 legislation
- representative period of 3 year average prior to the 1998 amendment
(following standard GATT practice)
- share of royalties from eating, drinking and retail establishments
- amount of revenue collected attributable to playing radio and television
music (approximately US$1.5 million a year)
- exempt establishments that fell within the statutory size or equipment
- annual growth assumptions starting from 1997, based on growth in the US
Legal and Policy Management, including the rights of third parties
29. In the current dispute, recourse to the Article 25 process has
filled a procedural vacuum which could facilitate mutual resolution of a
dispute as an alternative to litigation and retaliation, consistent with the
objectives of the WTO dispute settlement system. Recourse to Article 25
process will also serve to reduce the time frames for outcomes, whether
negotiated or imposed by WTO-authorization. If the US has not
implemented by the expiry of the implementation period, the negotiation of
compensation could be relatively swift (Article 22.2 of the DSU provides a
small window of 20 days for the negotiation of compensation from the date of
expiry of the implementation period). Alternatively, the EC could move
to obtain DSB authorization to retaliate, without need for recourse to
arbitration on the level of retaliation, thus saving 60 days (Article
22.6 of the DSU provides for a 60 day period for arbitration).
30. The parties now have a benchmark for proceeding to negotiate an
outcome, thus limiting the harassment leverage of a successful
complainant in threatening retaliation or in inflating an amount for
negotiating compensation as an alternative to retaliation. The
relatively small level of nullification determined in this instance might not
be a strong inducement for the US to bring its measure into WTO conformity,
but on the other hand, the United States has a major systemic export interest
in securing observance by others of TRIPS obligations.
31. Recourse to Article 25 procedures as an alternative to the
standard litigation procedures could substantially reduce time frames for
outcomes and could therefore be helpful to exporters subject to shorter term
trade remedy measures (such as anti-dumping, countervailing and 3 year
safeguards arrangements). However, recourse to Article 25 would need the
agreement of the other party. From a systemic perspective, a complainant
party would also need to factor in a loss of appeal rights (arbitration is
binding on the parties).
32. In terms of the rights of third parties:
- Although the parties can exclude third parties from the arbitration
process (Article 25.3 of the DSU), such exclusion has no practical effect
in relation to alternative arbitration on the level of retaliation or
reasonable period of time (third parties have no such rights under Article
21.3(b) or Article 22.6).
- However, if Article 25 were to be used as an alternative to the standard
consultations, panel, Appellate and implementation panel procedures
(Articles 4.3, 6,10,17.4 and 21.5), third parties could be totally
excluded from intervention in legal processes and would not have automatic
right of access to the submissions of the parties.
- The arbitrators recognised the indirect rights of third parties in
relation to compensation, noting the erga omnes character of
A respondent party is under no obligation to negotiate compensation with a
third party, but should it negotiate a form of compensation that serves to
discriminate against other WTO members, those members could seek to
exercise their WTO rights of non-discrimination.
- If Australia wished to clearly establish its own WTO legal rights as a
direct party Australia could seek Article 25 arbitration subject to US
agreement - in regard to its own WTO rights and level of benefits
nullified or impaired. This would be a much faster route than the standard
process of consultations/panel etc. Recourse to any such process
would involve considerable collection of credible commercial data from the
Conceptual approaches to nullification and impairment
29. The arbitrators rejected an approach of calculating benefits on
the basis of potential, as compared to reasonable expectations
of benefits that might be realisable from a commercial perspective.
Methodologies for assessing levels of nullification and impairment
30. Consistent with the practice followed by other WTO arbitrators,
the arbitrators would not impose their own methodology. The methodology
adopted would depend on the strength of the claims and arguments of the two
parties and the strength of empirical data, from official and commercial
sources. Business-in-confidence procedures can be utilised, but either
party is heavily reliant on the cooperation of the private sector to advance
its claims and arguments.
29 November 2001
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 This publication is
intended to provide a general update and the information within it should
not be relied on as complete or definitive.
 United States Section
110(5) of the US Copyright Act: Recourse to Arbitration under Article
25 of the DSU Award of the Arbitrators WT/DS160/ARB25/1. It cannot be
assumed that the views expressed in this paper represent the views of the
Department of Foreign affairs or of the Australian government.
 WT/DSB/M/107, p.13
 Article 21 procedures
include provision for arbitration on a reasonable period of time for
implementation and for implementation panels. Article 22 provisions
include arbitration on the level of retaliation.
 A complainant party
must request authorization to retaliate at a specified level. If that
level is disputed, the other party may seek arbitration. The DSB would then
grant authorization to retaliate the arbitrated level.
 Para 2.5 of
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