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WTO Dispute Settlement Bulletin

Monthly Bulletin: November 2002

Australia and WTO dispute settlement

RESOLVING EXPORT ACCESS PROBLEMS
THROUGH THE WTO SYSTEM

  • Are you an exporter or intending to export?
  • Do you export to one or more of the 144 markets that belong to the World Trade Organization?
  • Are you experiencing access problems in one or more of those markets?
  • Is the access problem caused by a regulation or directive of the importing government (at central, regional or local government
    level?)

If you have answered "yes" to those questions, the WTO
Trade Law Branch of the Department of Foreign Affairs and Trade
stands ready to assist in developing options for resolution of your
access problems. Exporters can contact WTO legal specialists
in the Department on the following numbers:

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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

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 THE
WTO

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:

  • the informal Understanding on Accounting Rates;
  • the scope of the term 'interconnection' as used in section 2 of the Reference
    Paper on telecommunications; and
  • the interpretation of 'cost-oriented rates' as used in section 2.2(b)
    of the Reference Paper.

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:

  • the application of such accounting rates would not give rise to action
    by Members under dispute settlement under the WTO; and
  • that this understanding will be reviewed not later than the commencement
    of the further Round of negotiations on Services Commitments due to begin
    not later than 1 January 2000.

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:

  • Investment costs, i.e. depreciation, interest expenses
    on loans and a reasonable return on equity;
  • Operation and maintenance costs;
  • Rental and lease costs of telecommunications facilities
    including direct transit leasing costs where applicable;
  • Switched transit costs where applicable;
  • Cost of access to national or local networks, if applicable;
  • Directly attributable research and development costs.

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

  • General administration (e.g. head office expenses,
    overheads, training, etc);
  • Management
    systems (e.g. accounting systems);
  • Other
    research and development;
  • Appropriate
    taxes (or equivalent).

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
.

Last Updated: 9 January 2013
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