RESTRICTEDWORLD TRADE
ORGANIZATIONWT/DSB/M/78
12 May 2000
(00-1930)
Dispute Settlement Body
7 April 2000
MINUTES OF MEETING
Held in the Centre William Rappard
on 7 April 2000
Chairman:  Mr. Stuart Harbinson (Hong Kong, China)
Prior to the adoption of the Agenda, the Chairman announced that due to his personal
involvement in the arbitration proceedings in relation to item 3 of the Agenda, he would excuse
himself from presiding over the proceeding of item 3.  In accordance with the Rules of Procedure, he
would invite the Chairman of the General Council, Mr. Kåre Bryn, to take over from him for that
item.
Subjects discussed:
1. Surveillance of implementation of recommendations adopted by the DSB.....................1
(a) European Communities - Regime for the importation, sale and distribution of bananas:
Status report by the European Co mmunities ..........................................................................2
(b) Japan - Measures affecting agricultura l products: Status re port by Japan..............................4
2. United States – Tax treatment for "Foreign Sales Corporations"...................................5
(a) Implementation of the reco mmendations of the DSB.............................................................5
3. European Communities - Regime for the importation, sale and distribution of
bananas - Recourse to arbitration by the European Communities under Article 22.6
of the DSU - Decision by the Arbitrators............................................................................6
(a) Statement by Ecuador ........................................................................................................ .....6
4. Nicaragua - Measures affecting imports from Honduras and Colombia ......................12
(a) Request for the establishmen t of a panel by  Colombia.........................................................12
5. Canada - Patent protection of pharmaceutical products ................................................15
(a) Report  of the Panel ...............................................................................................................15
6. Appointment of Appellate Body members .......................................................................16
1. Surveillance of implementation of recommendations adopted by the DSB
(a) European Communities - Regime for the importation, sale and distribution of bananas: Status
report by the European Communities (WT/DS27/51/Add.7)
(b) Japan - Measures affecting agricultural products: Status report by Japan (WT/DS76/Add.3)
1. The Chairman recalled that Article 21.6 of the DSU required that "unless the DSB decides
otherwise, the issue of implementation of the recommendations or rulings shall be placed on the
agenda of the DSB meeting after six months following the date of establishment of the reasonableWT/DSB/M/78
Page 2
period of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue is
resolved".  He proposed that the two sub-items be considered separately.
(a) European Communities - Regime for the importation, sale and distribution of bananas:  Status
report by the European Communities
2. The Chairman drew attention to document WT/DS27/51/Add.7 which contained the status
report by the European Communities on its progress in the implementation of the DSB's
recommendations concerning its banana regime.
3. The representative of the European Communities said that the Chairman's decision in relation
to item 3 of the Agenda was wise and prudent.  He believed that in the situation at hand the way of
proceeding proposed by the Chairman was correct.  The status report submitted by the EC at the
present meeting was short since there was not much to report.  He confirmed that the EC continued its
ongoing bilateral discussions with the concerned Memb ers and that it was always its intention to find
a solution which would be accepted by all stakeholders in this case.  He regretted that it was not yet
possible to bridge the very divergent positions expressed by the main parties concerned.  He noted
that those who urged the EC to implement were, in practice, urging it to decide on one side or the
other of the argument which would leave half of the stakeholders unsatisfied.
4. The most difficult question faced by the EC was the distribution of licences in the context of a
tariff-rate quota system.  On this key issue, one of the EC's partners was claiming that, as a basis for
issuing of licences, the only acceptable period to determine the operators' rights for licences was a
pre-1993 period;  i.e. before the completion of the internal market for bananas.  This position was also
reflected in the proposal of the Caribbean exporters.  On the other hand, as indicated at the 20 March
DSB meeting, Ecuador insisted on a diametrically opposed position, namely, that the reference periodshould be very recent and in all cases post-1993.
5. The EC was doing its best but there were very serious divergences of views.  At the 20 March
DSB meeting, the United States had claimed that the divergent views which caused problems were
among the EC member States rather than among the supplying countries.  It was disingenuous for the
United States to claim that and to urge the EC to "assume responsibility for its own failure to complywith its WTO obligations, and not try to shift it to others".  The EC was facing major divergences on
all sides.  It was not trying to shift the responsibility but to reach an agreement acceptable to all the
parties.  This was a classic case where difficulties were being experienced at the implementation
stage.  In order to try to find a basis for an acceptable solution it was necessary to discuss with the
parties concerned.  In view of the divergent positions on how to manage a tariff-rate quota system
another solution might have to be envisaged.  The EC would  keep the DSB informed of any further
developments.
6. The representative of Ecuador said that his delegation noted the status report submitted by the
EC.  Since its previous report, the EC had requested the Council for Trade in Goods to extend the
Lomé waiver.  In the view of the EC, that waiver was necessary for the implementation of its new
banana import regime.  However, it was contradictory for the EC to request the extension of a waiver
for a regime which had not yet been put in place.
7. The representative of Panama said that his delegation shared the view expressed by the EC
with regard to the Chairman's decision in relation to item 3 of the Agenda.  Panama believed that this
was a correct approach.  The status report submitted by the EC at the present meeting did not contain
any new information.  There were still differences of views as to why it had not been possible to reach
an agreement and with regard to the nature of the differences amongst the parties.  He reiterated hiscountry's position stated at previous DSB meetings.  Panama wished to make an appeal that the matterWT/DSB/M/78
Page 3
be discussed with all the parties concerned, in particular in the light of the developments referred to
by Ecuador.
8. The representative of Guatemala said that on the basis of the status report one could only
conclude that no progress had been made that would demonstrate the EC's willingness to bring its
banana import regime into conformity with its WTO obligations.  Furthermore, even though thewaiver covering the preferences under the Lomé Convention had expired and procedures for a new
waiver had been initiated, no settlement had yet been found in the Bananas case.  On the contrary, the
waiver request contained no information with regard to the new banana regime.  Instead, the result
was left uncertain, putting not only the complainants but also the dispute settlement system at a great
risk.  That waiver request was closely linked to the status report;  i.e. if both documents were to be
read together, it was clear that the stalling tactics adopted thus far had a purpose.  Guatemala hoped
that the system would protect its rights and that, in the interest of the system, the EC's unwillingnessto implement the DSB's recommendations would be br ought to an end.  The responsibility for the lack
of progress was with the EC and should not be shifted to the complainants.
9. The representative of Honduras expressed his delegation's frustration at the lack of progress
with regard to this matter.  The Bananas case ha d been concluded almost three years ago with the
adoption of the DSB's recommendations on 25 September 1997.  He regretted that no genuine efforthad yet been made to bring the regime into conf ormity with the WTO rules.  His country's economy
was extremely vulnerable with a lower GDP than in most countries in the western hemisphere.  In
1999, Honduras had a negative GDP growth of 3 per cent.  Honduras which was dependent on its
agricultural exports, in particular exports of bananas, had been severely affected by the EC's banana
import regime.  His country had had recourse to the dispute settlement system in the hope that itsrights would be restored, but despite winning the case Honduras was still waiting. Furthermore, new
initiatives were being put forward which placed countries such as Honduras at a disadvantage, and
were aimed at permanently shirking the responsibilities arising from the DSB's recommendations.
These actions represented a  clear message of non-compliance.  He reiterated that since the 20 March
DSB meeting no consultations had taken place between Honduras and the EC in order to seek asolution to the Bananas case.  In the year 2000, only one meeting had been held to report on the
discussions carried out with Ecuador and the United States.  He wished to remind the EC that
Honduras was a party to this dispute.  His country was concerned about how much longer  it would
continue to lose millions of dollars a year.  He asked whether it was fair that cases could be prolonged
for such a long period of time since that jeopardiz ed the results of the dispute settlement mechanism
and the multilateral trading system.
10. The representative of the United States said that, as the EC had indicated, the status report
was short because no new developments had taken place since the past couple of meetings.  In the
interest of resolving this dispute, the United States had demonstrated considerable flexibility in its
bilateral discussions with the EC;  the EC had not.  As a result, there had been no movement toward a
resolution.  At the end of 1999, the United States, as well as most of the Latin American banana
exporting countries, had endorsed a proposal put forward by Prime Minister Edison James ofDominica on behalf of Caribbean exporters.  The EC had not accepted the proposal and continued to
cite differences among the complaining parties, when that was not where the real differences lay.  The
United States asked that the EC refrain from blaming the complaining parties for its failure to
implement a WTO-consistent banana regime.  The EC's obligation was to come into compliance with
the DSB's rulings and recommendations.  The reason that the EC could not come into compliance wasthe divergent views among its 15 member States, some of which insisted on maintaining provisions
that discriminated in their favour and benefited their interests.  The United States hoped that it would
be possible to hear positive results from the EC and that the next time the EC intervened on bananas,
it would not continue to try to shift blame on others for its failure to comply with its WTO
obligations.WT/DSB/M/78
Page 4
11. The representative of Mexico said that in his delegation's view it was not necessary for the
Chairman to decide not to chair the meeting in relation to item 3.  No Member had ever questioned
the impartiality and objectivity with which the Chairman had conducted the procedure initiated by
Ecuador.  In any case, Mexico welcomed transparency with regard to this matter.  He recalled that it
was not necessary for the complaining parties to ag ree to a new regime provided that such a regime
was compatible with the EC's WTO obligations.  He reiterated that Mexico's preference was a tariff-
only regime with tariffs set at such a level so as to ensure Mexico's access to the EC's banana market.
12. The representative of Saint Lucia said that little had changed since the previous DSB meeting.
It was still the case that one could be misled into assuming that there was no serious attempt to devise
a new WTO-consistent banana import regime.  However, the real obstacle to progress was a basic
contradiction;  i.e. many companies and countries wanted the new system to permit them increased
sales of bananas, but should they all succeed there would be an oversupply of bananas leading to acollapse of prices.  That would inevitably hurt all suppliers and would be a disaster to the weakest and
most vulnerable.  Saint Lucia urged an end to the acrimonious unhelpful bickering which, like the
continuing trade sanctions, soured the atmosphere and undermined the prospects for an amicable and
constructive approach to working out a compromise among the various parties.  She expressed the
hope that it would soon be possible to find a way out  of this quagmire.  Saint Lucia and other ACP
countries certainly had the most to lose in this dispute.  A bad result would not simply lead to a drop
in the export tonnage of bananas, but rather the loss of the banana export industry with calamitous
consequences for them.  Her delegation welcomed the EC's statement promising continued
consultations.  Saint Lucia, too, had a right to particip ate in the consultations so as to contribute to the
search for and the preparation of a new regime which would safeguard legitimate trading interests ofall suppliers.
13. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.
(b) Japan - Measures affecting agricultural products: Status report by Japan
14. The Chairman drew attention to document WT/DS76/11/Add.3 which contained the status
report by Japan on its progress in the implementation of the DSB's recommendations with regard to its
measures affecting agricultural products.
15. The representative of Japan said that his country and the United States continued to consult
with a view to reaching an agreement.  These consultations were being held in a constructive manner
and Japan believed that the parties would be able to resolve any remaining technical issues in the very
near future.
16. The representative of the United States said that her country was continuing to work with
Japan to resolve the differences with regard to the remaining technical issues on implementation.  The
United States hoped to be able to do so in the very near future.
17. The representative of Brazil said that his country had a particular interest in Japan's fruits
market.  Brazil and Japan had held extensive consultations regarding certain products.  Brazil hoped
that the results of the Panel might serve as an incentive to conclude its consultations with Japan in asatisfactory  manner.
18. The DSB took note of the statements and agreed
 to revert to this matter at its next regular
meeting.WT/DSB/M/78
Page 5
2. United States – Tax Treatment for "Foreign Sales Corporations"
(a) Implementation of the recommendations of the DSB
19. The Chairman recalled that in accordance with the DSU provisions, the DSB kept under
surveillance the implementation of recommendations and rulings of the DSB in order to ensure
effective resolution of disputes to the benefit of all Members.  In this respect, Article 21.3 of the DSU
provided that the Member concerned shall inform the DSB, within 30 days after the adoption of the
Panel or Appellate Body report, of its intentions in respect of implementation of the recommendations
and rulings of the DSB.  He recalled that at its meeting on 20 March 2000, the DSB had adopted the
Appellate Body Report on United States – Tax Treatment for "Foreign Sales Corporations" and the
Panel Report on the same matter, as modified by the Appellate Body Report.  He invited the United
States to inform the DSB of its intentions in respect of implementation of the DSB's
recommendations.
20. The representative of the United States said that at the 20 March DSB meeting, her country
had indicated that it disagreed with the Reports of the Appellate Body and the Panel with regard to the
FSC provisions of the US Internal Revenue Code.  At that meeting, the United States had not engaged
in a detailed critique of those Reports and did not wish to do so at the present meeting.  As previously
indicated, the United States suspected that scholars would have much to say about the analysis of theReports of the Appellate Body and the Panel in this case.  Instead, in recognition of  the fact that the
Reports had been adopted, it was now the responsibility of  the United States under Article 21.3 of the
DSU to inform the DSB of its intentions in respect of the implementation of the DSB's
recommendations and rulings.  She said that it was the intention of the United States to implement the
DSB's recommendations and rulings in a manner which respected its WTO obligations and wasconsistent with the goal of ensuring that US  exporters were not placed at a disadvantage vis-à-vis  their
foreign competitors.
21. The representative of the European Communities said that his delegation welcomed the US
statement to the effect that the US intention was to  put its tax regime into full conformity with the
WTO obligations.  That was a basic obligation of any losing party which was found to be in violationof its WTO obligations.  However, the United States had not referred in its statement to a time-period
for implementation.  He recalled that the Panel had recommended that the United States had to
implement in this case by 1 October 2000.  Article 4.7 of the SCM Agreement, which was the main
agreement in question in this case, provided that prohibited export subsidies had to be withdrawn
"without delay".  That had been interpreted by different Panels as being not more than 90 days.  The
date of 1
 October 2000 set by the Panel for the implementation was much longer and took into
account the fact that a tax regime could only be chan ged in consistency with the US fiscal years which
started on 1 October of each year.  Therefore the EC understood why the Panel had chosen that date
and expected the United States to comply with the Panel's recommendations by 1 October 2000.
22. The representative of the United States said that her delegation had no obligation at the
present meeting to commit to any time-frame.  The United States was aware of the DSB's
recommendations and rulings in this case.  The United States had always complied with its WTOobligations, had always met its obligations and had always respected the DSB's decisions.
23. The representative of the European Communities reiterated that the Panel Report had been
adopted by the DSB at its meeting on 20 March 2000.  That Panel had recommended that the United
States bring its measures into compliance by 1 October 2000.
24. The DSB took note of the statements and of the information provided by the United States
regarding its intentions in respect of implementation of the DSB's recommendations.WT/DSB/M/78
Page 6
3. European Communities - Regime for the importation, Sale and Distribution of Bananas
- Recourse to Arbitration by the European Communities under Article 22.6 of the DSU -
Decision by the Arbitrators (WT/DS27/ARB/ECU)
(a) Statement by Ecuador
25. The Chairman invited Mr. Kåre Bryn, the Chairman of the General Council, to come to the
podium and to preside over the proceedings of item 3.  Mr. Kåre Bryn said that the item had been
placed on the Agenda at the request of Ecuador and invited the representative of Ecuador to speak.
26. The representative of Ecuador said that due to the importance of this case his country wished
to make a statement reaffirming its commitment to  the multilateral trading system.  Ecuador was
aware of the systemic implications of its recourse to Article 22.2 of the DSU and, therefore, wished to
make its position clear with regard to the result of the arbitration requested by the EC, as well as to
hear views of other Members before requesting authorization from the DSB to suspend concessionsand obligations pursuant to the Arbitrators' d ecision contained in document WT/DS27/ARB/ECU.
27. Four years ago, Ecuador had initiated its complaint with regard to the EC's banana import
regime, only one month after its accession to the WTO.  His country had hoped to obtain a swift
resolution to a situation which was causing a great deal of damage to Ecuador's banana industry and
its economy.  After it had gone through all the stages of the dispute settlement procedures duringwhich the EC had been found to be in breach of its WTO obligations, Ecuador had begun to lose faith
that the EC would implement the DSB's rulings  and recommendations.  In those circumstances,
Ecuador had decided to make use of its rights under Article 22 of the DSU and to seek authorization
from the DSB to suspend concessions and obligations under the WTO Agreement.  The sole objective
of Ecuador's action was to restore the balance of rights and obligations under the WTO Agreementand to induce the EC and its member States to meet their WTO obligations.  He underlined that
Ecuador's action to exercise its right under Article 22 of the DSU should not be viewed as a move to
sanction or punish the EC.
28. The DSB members should ask the question that Ecuador had asked when it had decided to
invoke Article 22 of the DSU, namely, how could th e balance of rights and obligations be restored in
a situation in which a relatively small country was confronted with a trading partner such as the EC?
The answer to this question was by making the EC amend its banana import regime in a WTO-
consistent manner.  However, that was not the EC's immediate plan.  Ecuador recognized that some of
the EC's member States had made significant efforts to resolve this problem.  Although the EC had to
implement the DSB's recommendations by 1 January 1999, a decision on this matter was not a
priority for the EC.  The DSB's recommendations had been adopted more than 30 months ago and
now the Arbitrators had estimated that the damage caused by the EC's non-compliance cost EcuadorUS$201.6 million a year.  If all the time during which the EC had been in breach of its WTO
obligations were to be taken into account as well as the damage caused to other countries involved in
the Bananas dispute, the total amount would be exorbitant.  It would not be difficult to calculate the
overall damage but, at present, it was sufficient to know that the overall value of the damage was
shocking, particularly since that damage was being caused by the world's richest economic bloc to anumber of developing countries.
29. Ecuador was patient and had exhausted all bilateral and multilateral channels to find a fair
settlement to this dispute with the EC and other Members.  The aspirations and hopes of Ecuador's
banana producers had been frustrated.  Ecuador had tried to reach an agreement with the EC on
suitable compensation in accordance with Article 22.1 of the DSU.  The EC's response to Ecuador'srequest had not been favourable.  Furthermore, the EC had not encouraged Ecuador to continue to
seek such compensation.  At the present meeting, he wished to make it clear that not only wasWT/DSB/M/78
Page 7
Ecuador ready to enter into a dialogue with the EC, but would prefer compensation over the
suspension of concessions.
30. Ecuador understood the spirit in which the DSU had been negotiated during the Uruguay
Round.  It was clear that the negotiators had sought to ensure greater participation of developing
countries in the multilateral trading system.  Article  22.3 of the DSU was viewed  as an opportunity to
guarantee the necessary balance of rights and obligations to ensure such participation.  During the
proceedings, Ecuador had confirmed that Article 22.3 of the DSU was clear and precise:  its reasoning
was simple and it contained all the procedural steps which should be followed if a decision were to be
taken to suspend concessions or obligations under other covered agreements.  Article 22 were to be
invoked in cases of non-compliance, such as the Bananas case.  That Article made it clear that it was
the complaining party which had the prerogative to select the nature of the concessions to be
suspended.  Likewise, it was clear that it was up to the complaining party to decide whether thesuspension of concessions was practicable or effective, particularly if the circumstances were serious
enough.  There was no doubt that the EC's non-compliance was extremely serious for Ecuador.  The
banana trade was vital for an extremely large sector of Ecuador's population.  The number of people
in his country which was dependent on the banana industry was considerably greater than in any of
the other countries involved in the Bananas dispute.
31. The Arbitrators had estimated that the damage caused by the EC's banana import regime to
Ecuador was US$201.6 million.  However, that amount  only covered the direct damage of Ecuador's
banana trade, and did not take into account a greater amount of the damage caused to other sectors of
the economy such as unemployment, the displacement of rural population and other social conditions
and effects which were extremely serious and very difficult to quantify.  The Arbitrators hadconcluded that US$201.6 million was the value of the damage suffered by Ecuador every year.  That
figure had been determined by comparing the situ ation of the EC's banana trade during 1999 with a
counterfactual regime that would be WTO-consistent.  Ecuador considered that the counterfactual
regime used by the Arbitrators was not appropriate, since it was the same as in the US/EC Banana III
Arbitration.
1  As such it had not taken into account developments from the past year.  For example,
the counterfactual assumed the existence of a waiver for unlimited tariff preferences for ACP bananas,
which did not correspond to the waiver in force during 1999, nor with a waiver which Ecuador was
prepared to accept.  The waiver referred to in the counterfactual was neither consistent with the latest
reforms proposed by the EC nor with the fact th at the EC envisaged a transition period towards a
tariff-only system.
32. Despite the fact that Arbitrators had used what Ecuador considered a mistaken counterfactual,
the total damage was considerable and it had serious effects for a developing country.  He was awarethat the EC might now indicate that the figure determined by the Arbitrators was less than the claim
initially put forward by Ecuador.  If the Arbitrators had determined the value of the damage at only
US$1, that dollar would have been sufficient to show that 15 of the world's richest countries harmed a
developing country's economy, despite the fact that they were aware that they were in breach of their
obligations under the multilateral trading system.
33. Ecuador was confident that once the proceedings had reached a stage where the serious harm
caused by the EC's banana import regime had been quantified, even partially, the EC member States
would meet their commitments in a responsible manner without further delay and would clearly show
their good faith and political willingness to proceed to a swift settlement of the dispute.  Ecuador
hoped that those presiding over the proceedings of  the EC Council would show their leadership to
ensure that this situation did not continue beyond the current Presidency of the Council.
                                                     
1 WT/DS27/ARB, dated 9 April 1999.WT/DSB/M/78
Page 8
34. He recalled that at the April meeting of the Council for Trade in Goods, Ecuador had
expressed its appreciation with regard to the EC's commitment to grant preferential treatment to
developing countries.  However, there could be no such treatment when the cost substantially
outweighed the benefit that was supposed to be bestowed.  The EC could not defend its protectionist
practices by giving preferential treatment to some developing countries at the cost of others whichwere equally poor.  The social cost of the EC's protectionist policies extended beyond its borders and
caused serious and irreparable damage to countries which were not fortunate enough to be as
advanced as those of the EC member States.  Ecuador would now identify with the EC how to settle
this dispute in order to bring the banana import regi me into conformity with WTO rules.  If the EC's
response was not satisfactory, Ecuador would proceed to request authorization from the DSB to
suspend concessions or obligations in line with the Arbitrators' report.
35. The representative of the European Communities said that his delegation had noted  Ecuador's
statement.  The EC recognized, in particular, th at Ecuador, unlike other Members, had followed all
the correct steps under the DSU in order to defend its rights.  At the present meeting, the
representative of Ecuador had correctly recalled some of the problems involved in this complex case.
Ecuador had initiated its action four years ago after joining the WTO.  One of the complexities
involved in the Bananas case, which could have been avoided, was that banana exporters with interestin goods had acted together with service exporter s who did not grow bananas.  That introduced a
series of different elements into this complex case.  At present, there were two arbitration cases and
authorization had been granted in one case in the amount of US$201.6 million  and in the other case
in the amount of  US$191.4 million.  The EC had a choice either to satisfy Ecuador and to remain
under sanctions of US$191.4 million or to satisfy the United States and to remain under sanctions ofUS$201.6 million.  The EC was trying to reach agreement with both parties and to eliminate
sanctions.  Ecuador had not yet applied any measures but had the right to do so.  The EC was not
questioning that right.  He reiterated that the EC was committed to implementing a new WTO-
compatible banana regime as soon as possible.  Its commitment was not affected by the retaliation that
could be taken by either a big or small partner.  If  a party obtained authorization to retaliate it was free
to do so, but the EC would prefer to find a solution to this problem.
36. At the present meeting, he wished to refer to a number of systemic issues with regard to the
process and the arbitration procedure.  Three arbitration cases, the reports of which had been issued
thus far, could help to focus on problems and address ways in which similar cases could be dealt with
in future.  The matter under consideration was not only of interest to the EC, but was also of interest
to the entire membership of the WTO.  For that reason, he wished to express the EC's concerns with
regard to the systemic deficiencies resulting from th e ruling in this case.  He started with the way the
basic tasks of an arbitrator under Article 22.7 of the DSU had been performed in this case;  i.e. to
verify the level of nullification and impairment.  The EC had carefully considered the Report and had
found that the only justification for US$201.6 million was a vague reference in one paragraph to the
Arbitrators' assumptions.  It could not find any objective factual element supporting the determination
of this amount.  Unlike the Hormones case, the ruling in the present case did not contain any reasonedresponse to the lengthy submissions by both the EC and Ecuador.
37. This was no longer a situation of "discovering" the question, as in the EC/US Arbitration case
which was the first case.  At that time, it had been stated that Members were entitled to clearer and
more transparent indications with regard to the reasons that had led the Arbitrators to their decision.
Furthermore, the EC was concerned by the fact that it did not know whether it had been made liabletwice for the same nullification and impairment since the Arbitrators had not justified their
computations.  Although the EC was confident that  this was not the case, there was no indication to
that effect in the Report.  Ambiguity in this area was not the best way to improve the predicability of
the multilateral trading system.  Furthermore, the EC was very concerned by the fact that private
parties who were or would be affected by reta liation remained uninformed about the way the WTO
had decided on the level of the suspension of concessions.  The EC was not in a position to respond toWT/DSB/M/78
Page 9
their queries.  This created a real problem of legitimacy for the dispute settlement system vis-à-vis  the
constituents.  This matter was being currently addressed by Members in other fora.
38. Another problem was related to the rather flexible interpretation of the procedural provisions
of the DSU, in particular, with regard to due process considerations.  The EC had some concerns
about the way the Arbitrators had addressed the possible use of cross-retaliation in general and itsapplication to the TRIPS, in particular, when taking into account the specific nature of intellectual
property rights.  This was even more regrettable since this was the first application of cross-retaliation
and should have been addressed more squarely.  One would have expected to have a stronger
reasoned argument as a basis for authorizing retaliatory measures under one agreement when the
violation occurred under another.  The important issues that he had just underscored were linked to
the absence of a detailed methodology for calculating the level of nullification and impairment and to
the question of equivalence of the level of suspension of concessions, i.e. the core task of Arbitratorsunder Article 22.7 of the DSU.  Members should be concerned about this since the credibility of the
dispute settlement system was at stake.  There was a need to reflect on this matter and to consider
ways to overcome the current deficiencies by developing a sufficiently detailed methodology.  This
could be undertaken in the context of a more general reflection on the implementation of panel
reports.  The EC did not expect any reaction to this issue at the present meeting.  He believed thatMembers should seriously reflect thereon and consider it in the context of implementation questions
during the DSU Review.
39. The representative of Guatemala said that his delegation welcomed the result of the
Arbitration's Report.  He regretted that, for the second time, one of the countries which had initiated
the Bananas dispute had to have recourse to Article 22 of the DSU, and that the EC had not yetimplemented the DSB's recommendations. In the view  of those developing countries which had spent
time and effort in order to restore their rights, the procedure showed that the system had provided
another way of making the EC bring its banana  import regime into conformity with its WTO
obligations.  In particular, the possibility to reta liate in other sectors than in those in which the
violation had occurred removed the obstacles faced by small and weak economies such as that ofGuatemala.  His country was glad to note that not only the dispute settlement procedure was available
to developing countries, but that the drafters had considered the need for a suitable and effective
solution to ensure that the results of such proceedin gs were not merely theoretical.  Countries such as
Guatemala were therefore indebted to Ecuador for having restored their faith in the dispute settlement
system.  Other developing countries which had witnessed frustration and had serious doubts about the
effectiveness of the dispute settlement mechanism could now be certain that their efforts would bring
results.
40. The representative of Honduras said that this was the first time in many months that Members
had received an encouraging sign as a result of the Arbitrators' decision.  Even those Members who
could not withdraw tariff concessions because of their weak economies could take measures in other
sectors.  This had given some breathing space to the multilateral trading system.  However, it would
be a shame if, despite the recent ruling in favour of a developing country, the EC did not bring itsregime into conformity with the WTO rules.  Ecuado r's success in this case should be seen as a great
achievement for all developing countries.  Ecuador had shown them the way and now, depending on
the EC's actions, Honduras would decide whether to follow in Ecuador's footsteps.
41. The representative of Saint Lucia said that her delegation complimented Ecuador for its
respect for proper procedure and its scrupulous adherence to the DSU.  The Arbitrators' Report would
undoubtedly attract much analysis and comments given the imbalance between the parties, the request
for cross-retaliation and suspension of TRIPS obligations.  The discussion on the nature of a
"practicable or effective" remedy in the context of Article 22.3, subparagraphs (b)-(e) of the DSU was
a significant feature of the Report.  In paragraph 27 of the Report the Arbitrators stated that "the thrust
of this criterion empowers the party seeking suspension to ensure that the impact of that suspension isWT/DSB/M/78
Page 10
strong and has the desired result, namely to induce compliance by the Member who failed to bring
WTO-inconsistent measures into compliance with DSB rulings within a reasonable period of time."
The primary logic for sanctions was, therefore, to penalise a country, thereby pressuring its
government into removing the offending measure or otherwise conforming with the Panel's ruling.
This case, however, was not straightforward and did not lend itself to such treatment for a number ofreasons.  Indeed, the Arbitrators appeared, to some degree, to acknowledge this as well.  They
conceded in the final paragraph:  "The present text of the DSU does not offer a solution ...".
Retaliation even when authorized was not always practicable.  The concept of cross-retaliation,
particularly involving the TRIPS Agreement was clearly not a straightforward process.  The
complicated nature of implementing a suspensi on of TRIPS obligations pursuant to the DSB
authorization was illustrated in the Report.
42. This case was not straightforward for still other reasons with possible systemic implications.
In a dispute with several interested parties, accordi ng to the Arbitrators, the DSU "empowers the party
seeking suspension to ensure that the impact of that suspension ... has the desired result"
(paragraph 72).  The desired result was naturally that which was most advantageous to the
complainant.  This had certain practical implications  to circumstances of the present dispute.  The EC
was to formulate a new WTO consistent regime which for practical purposes should be negotiatedwith the parties concerned and be acceptable by them .  Consequently, the imposition of sanctions first
by the United States and now the possibility of sanctions also being imposed by Ecuador complicated
the negotiating process.  It gave to those countries an inordinate influence over the process which was
not necessarily related, in any way, to their relative underlying right or interests in the dispute.  In
other words, the EC, given its understandable anxiety to get the sanctions lifted, would inevitably payundue deference to the preferences of those countries which imposed and could terminate the
sanctions.  These countries could even wield a de facto  veto in the search for a replacement regime
since, for fear of the measures not being immediatel y lifted, the EC would be unlikely to risk settling
on any new arrangement which did not have their support unless it was obviously and unimpeachably
WTO consistent.  Furthermore, sanctions in this case had the perverse result of giving to the countryauthorised to impose them, an actual potential st ake in the continuation of the dispute since that
Member continued to enjoy a benefit whilst the dispute remained unresolved.  Given the number of
parties involved in this dispute, such a situation of one or two Members which did not necessarily
have a real interest in ending the dispute, enjoying overwhelming influence over its progress even to
the extent of a veto did not promote a positive solution to the dispute, at least not one which was
mutually acceptable to all the parties.
43. The peculiar circumstances of this case rendered the application of sanctions
counterproductive as rather than facilitating and expediting the resolution of the dispute, such
sanctions merely complicated and possibly would retard the process.  Her delegation was anxious for
early resolution of the dispute and urged those parties which had the right to impose sanctions to
exercise restraint or, in case they were already in place, to suspend them.  That would certainly make
for a more conducive atmosphere for the negotiations which would only make progress if undertakenin good faith. In this regard, her delegation was encouraged by press reports attributed to the
Ecuadorian authorities indicating that Ecuador would not actually impose trade sanctions against the
EC.
44. The representative of the United States said that her delegation was not surprised that the
Arbitrators had found that the EC was nullifying or impairing Ecuador's rights under the WTO in the
amount of US$201.6 million annually.  The finding underscored the damage that the EC's failure to
comply was causing to developing country exporters of bananas.  One of the central elements of the
Uruguay Round package was the ultimate right of a Member to cross-retaliate when it considered it
necessary under Article 22.3 of the DSU.  However, the United States had some concerns about the
Arbitrators' reading of their mandate under the DSU, and the development of their reasoning, inparticular as it was reflected in the portion pertaining to retaliation on trade in goods.  That raisedWT/DSB/M/78
Page 11
broader issues beyond this immediate dispute.  Ecuador had stated that first it had sought to suspend
concessions in the same sector, namely, trade in goods, but considered that it would be neither
practicable nor effective.  Ecuador had thus applied the principles and procedures of Article 22.3 of
the DSU.  Therefore, it was not appropriate for the Arbitrators to second-guess Ecuador's
considerations in reaching their conclusions.  It was clear that the Arbitrator's mandate was todetermine whether the Member had followed the principles and procedures, not to examine the nature
of the concessions.  This meant its task should have been limited to examining whether Ecuador had
in fact considered the principles set forth in Article 22.3, not whether its considerations were
"plausible".  The Arbitrators had purported to adopt a standard of "plausibility" to review Ecuador's
own considerations.  But a reading suggested that a harsh choice could be imposed on countries
seeking to take measures that produced the greatest likelihood of compliance with minimal damage to
their own economies.  Ecuador had only to show that  it had considered whether retaliation in trade in
goods was practical or effective, and had concluded that it was not, before seeking to suspend
concessions beyond trade in goods.  Among the reasons accepted by the Arbitrators with respect to
some non-consumer goods was that the small amount of retaliation would not have any significant
effect on the EC, and therefore would not be "effective" (paragraph 95).  Then, despite the fact that
the same concern arose in the context of consumer goods, the Arbitrators' report inexplicably hadignored this factor, cited the absence of further argumentation and concluded that Ecuador could not
plausibly have concluded that it would be ineffective to retaliate on consumer goods (paragraph 100).
45. That approach not only went beyond the mandate of the Arbitrators, it also risked tipping the
balance in favour of the Member that has not complied with its obligations.  The practical result
seemed to be that if a country wished to use the maximum leverage with the EC, i.e. to cross-retaliate
to the full extent of its nullification or impairment, it would be asked to cut off or impair the
importation of each and every consumer good imported from the EC, in Ecuador's case its full
US$60 million annually.  The practical and political difficulties that this kind of option could present
in many countries was obvious.  The only alternative would be to forgo some or all of the retaliation.
There were also other concerns raised by the reasoning in this Report which she did not wish to raiseat the present meeting.  But in terms of the overall result, given the continued absence of a solution to
the Bananas dispute, the United States welcomed any new developments that would lead the EC to
comply with its WTO obligations.  The important th ing was that the DSB had to authorize Ecuador to
suspend concessions.  With regard to the EC's statement that it had a choice between one country or
another namely, the United States or Ecuador, this was a flawed conclusion.  The EC did not have a
choice and the answer to the questions of sanctions was the EC's compliance.
46. The representative of Panama said that his country recognized the efforts made by Ecuador.
One would now have to see whether this result would help to reach a solution to the Bananas dispute
or would restore the balance sought by Ecuador.  Wi th regard to the issue referred to by the EC that
private parties were not aware of the reasons for which sanctions were or would be imposed, it was
neither the responsibility of the Arbitrators, nor the DSB or the WTO to inform them.  That
responsibility was on governments.  In the case at hand, the EC could inform private parties thatsanctions were imposed due to continued non-compliance with the WTO obligations.  Panama also
noted other points raised by the EC and would give them due consideration.  With regard to the
concern that the two arbitrations would complicate th e process of negotiations, he underlined that this
did not mean that there was no obligation to comply.  If the EC believed that the measures were not
compatible with the WTO obligations, it could request the establishment of a  panel to examine suchmeasures.
47. The DSB took note of the statements.WT/DSB/M/78
Page 12
4. Nicaragua - Measures Affecting Imports from Honduras and Colombia
(a) Request for the establishment of a panel by Colombia (DS188/2)
48. The Chairman drew attention to the communication from Colombia contained in document
WT/DS188/2.
49. The representative of Colombia said that on 7 December 1999, Nicaragua had enacted
Law 325, "Establishing a Tax on Goods and Services Coming from or Originating in Honduras and
Colombia".  Article 1 of that Law had established a tax applicable to any good or service imported,
manufactured or assembled, coming from or originating in Honduras or Colombia.  The tax of 35 per
cent had been calculated on the basis of the sum of  the c.i.f. value plus pre-existing tariffs.  On
13 December 1999, Nicaragua had issued Decree 129/99 establishing the regulations to Law 325, and
on 15 December 1999, it had issued Ministerial Order 041/99 cancelling the fishing licences of all
fishing vessels under Colombian and Honduran flags.
50. Given the discriminatory nature of Nicaragua's measures and their inconsistency with
multilateral disciplines, on 17 January 2000 Colombia had requested consultations with Nicaragua.
These consultations, which had been held on 4 February 2000, had not resulted in a satisfactory
settlement of the dispute.  Colombia considered th at Nicaragua's measures were incompatible with its
WTO obligations, in particular with Articles I and II of GATT 1994 and Articles II and XVI ofGATS, and had nullified or impaired benefits accruing to Colombia under these Agreements.
Colombia was therefore requesting that a panel be established to consider and find that:  (i) Law 325
of 1999 and Decree 129/99 were inconsistent with Articles I and II of GATT 1994, and that they,
together with Ministerial Order 041/99, were inconsistent with Articles II and XVI of GATS;
(ii) these measures nullified or impaired benefits accruing directly or indirectly to Colombia under theGATT 1994 and the GATS;  (iii) Nicaragua should bring these measures into conformity with its
WTO obligations.  Furthermore, Colombia was requesting that a panel be established with the
standard terms of  reference as set out in Article 7 of  the DSU.
51. The representative of Nicaragua said that on 2 August 1986, in the world marked by the cold
war, Honduras and Colombia, motivated by the situation in the Central American region as a result of
the East/West conflict, had signed a Treaty on Maritime Delimitation in the Caribbean Sea (the
Ramírez – López Treaty).  The Treaty was signed immediately after Nicaragua had brought a case2
against Honduras before the International Court of Justice.  From the outset, Nicaragua had protestedvigorously against the signing of the Treaty between Colombia and Honduras because it had
considered that the Treaty violated its sovereign rights.  With the peace process in Central America, a
new phase had begun in the region.  Nicaragua, affirming its strong desire for peace, and as an
indication of its good faith, had initiated a dialogue with Honduras and had agreed to withdraw itscase against Honduras at the International Court of Justice.  At the same time, Honduras had
undertaken not to ratify the Treaty with Colo mbia.  However, on 30 November 1999 the Honduran
authorities, and then Colombia's authorities had announced the ratification of the Ramírez – López
Treaty.  That Treaty infringed Nicaragua's sovere ign rights in the Caribbean Sea by imposing limits
unilaterally, illegally and arbitrarily through reciprocal recognition by Honduras and Colombia oftheir expansionist aims in the Caribbean Sea to the detriment of Nicaragua's territorial rights.  The aim
was to try to deprive Nicaragua of over 130,000 kilometres of the maritime shelf in the Caribbean Sea
particularly rich in fish, hawksbill turtles, shrimps and lobsters, and with an important hydrocarbons
potential.  The Treaty totally disregarded the rights of a third country, namely Nicaragua, and
constituted what in legal terms was defined as " res inter alios acta ".  In other words, the Treaty had
not provided any right in respect of Nicaragua.  It was a rule of customary international law and the
                                                     
2 Case concerning Border and Transborder Armed Actions.WT/DSB/M/78
Page 13
law of treaties that a legal instrument should not create any obligations or rights for a third State
without its consent.
52. Nicaragua considered and reaffirmed that the ratification of the Ramírez – López Treaty had
violated its sovereignty and political independence, and had created serious international tension in
the form of:  (i) immediate despatch of Hondur an troops and military equipment to the northern
border of Nicaragua;  (ii) the complaints made by Miskito communities bordering Honduras;  (iii) the
increase in the defence budget of Honduras adopted by the Congress of the Republic;  and (iv) the
military manoeuvres carried out in the region by war planes and by a Colombian corvette on
Nicaragua's continental shelf.  Implementation of the Treaty had created a highly complex maritime
situation as Nicaragua regularly sent out maritime patrols to control the drugs traffic and to preserve
its fisheries resources.  It meant that, if Colombia and Honduras tried to impose a naval presence in
the region, there could be regrettable incidents of unpredictable scope that might jeopardize peace andstability in the region.
53. Accordingly, using the mechanisms provided by  international law, Nicaragua had brought the
matter up and had denounced the situation in the appropriate fora.  The serious international tension
had been recognized, and had led to a decision to appoint a special envoy approved by consensus at an
emergency meeting of the Permanent Council of the Organization of American States (OAS) with aspecial mandate to:  "to assess the situation, facilitate dialogue and make recommendations to
eliminate tension and prevent acts that might affect peace in the Americas".  In that way, the OAS had
recognized the state of serious international tension.
54. In such a situation and bearing in mind the serious international tension caused by the above-
mentioned facts, Nicaragua had been obliged to adopt the measures it deemed necessary to safeguardits security.  These measures included Law No. 325 of 6 December 1999, published in La Gaceta,
Official Journal No. 237 on 13 December 1999, establishing a tax calculated on the sum of the c.i.f.
value plus pre-existing tariffs amounting to 35 per cent on all goods or services imported,
manufactured or assembled, coming from or originating either in Colombia or Honduras, and
Ministerial Order No. 041/99 of the Ministry of Development, Industry and Trade (MIFIC), dated15 December 1999, which cancelled fishing licences for vessels under Honduran and Colombian flags
operating under any commercial fishing authorization granted by that Ministry.  Nicaragua considered
that its measures were consistent with the international, regional and trade law and were based on
Article XXI of GATT 1994 and Article XIV bis of GATS, which reflected a State's inherent right to
protect its security, and therefore constituted a general exception to multilateral trade rules.
55. Nicaragua considered that the Ramírez – López Treaty, by seeking to encroach on
Nicaragua's maritime areas - the continental shelf and its exclusive economic zone as well as islands,cays, banks, reefs and other geographical features situated therein or emerging from them - and by
claiming that some of these belonged to another country, had violated the rules of international law
and had constituted a threat to Nicaragua's sovereignty.  For that reason, Nicaragua had turned to the
Permanent Council of the OAS.  Nicaragua had not adopted the measures in question for trade
purposes.  The measures were not intended to protect domestic industry but to safeguard the essentialinterests of Nicaragua's security.  In addition, when applying Article XXI of GATT 1994, Nicaragua
had taken into account the provision in the Decision of 30 November 1982 on Article XXI, the
preamble of which stated that " the exceptions envisaged in Article XXI of the General Agreement
constitute an important element for safeguarding the right of contracting parties when they consider
that reasons of security are involved" and that "in taking action in terms of the exceptions provided inArticle XXI of the General Agreement, contracting pa rties should take into consideration the interests
of third parties which may be affected".
56. He emphasized that, despite the scope of such exception, Nicaragua had exercised its right
with prudence and responsibility.  The measures did not affect trade with third parties nor did theyWT/DSB/M/78
Page 14
impede the transit of goods through Nicaragua.  With regard to products coming from or originating
in Honduras and Colombia, the measures were of limited scope as the tax imposed did not exceed the
ceiling bound by Nicaragua in the WTO, taking into account the reasonable expectations of the
countries concerned in conformity with the GATT 1994.  Moreover, the tax did not apply to imports
amounting to less than US$500 and goods such as medicines, inputs and raw materials for educationaland cultural activities, which were exempt from tax as stipulated in Nicaragua's Constitution.
57. It was premature to draw conclusions concerning the impact of the measures adopted by
Nicaragua on Colombia's trade flows.  However, the figures available for December 1999, January
and February 2000, appeared to indicate that trade remained at the previous level.  Nicaragua's
imports from Colombia during those months had amounted to a total of US$1,800,000, a figure that
was comparable with the total imports in the previous two years, which was about US$8 million.
58. Colombia was requesting the establishment of a panel to examine the measures adopted by
Nicaragua.  His country recognized Colombia's right to do so.  However, it was not clear what the
panel could do.  It was not the first time that Article XXI was applied.  That general exception had
been included in the provisions of the Havana Charter and since its inclusion as Article XXI in the
GATT 1947 it had been the customary practice in the WTO that the contracting party applying the
measure should be the sole judge in matters that concerned its essential security interests, in particularif such interests could be threatened by any actual or potential danger.
59. In addition, case law on measures adopted for reasons of security was virtually non-existent.
The only panel
3 established under the GATT that finished its work and submitted a report, which had
not been adopted, had referred to the case on the trade embargo imposed  on Nicaragua in 1985 and
its mandate did not allow it "to examine or judge the validity or motivation for the invocation ofArticle XXI".  In paragraph 5.2 of  its report, the Panel had indicated that "both by the terms of
Article XXI and by its mandate, it was precluded from examining the validity of the United States'
invocation of Article XXI".  In paragraph 5.18 of its report, the Panel had also noted that "… in 1982
the CONTRACTING PARTIES had taken a 'Decisi on Concerning Article XXI of the General
Agreement' which refers to the possibility of a formal interpretation of Article XXI and to a furtherconsideration by the Council of this matter (BIS D 29S/23-24)".  Nicaragua considered that the
General Council should make such an interpretation.  A panel established with standard terms of
reference as requested by Colombia could only conclude that Colombia's rights under Article I of
GATT 1994 and Article II of the GATS had been curtailed as a result of the measures applied by
Nicaragua.  If the panel gave itself powers that belonged to political fora that could result in a
dangerous and unacceptable precedent.
60. Nicaragua considered that:  (i) the measures had been adopted for reasons of national security
and were fully justified under Article XXI(b)(iii) of GATT 1994 and Article XIV bis,
paragraph 1(b)(iii) of GATS;  (ii) Article XXI constituted an exception to the provisions in the GATT
with global effect that  measures taken under Article XXI could, under no circumstances, constitute a
violation of GATT 1994;  (iii) there had been no nullification or impairment of Colombia's rights
under Article II of GATT 1994 because the measures applied by Nicaragua did not exceed the tariffceilings bound in its schedule of concessions and did not violate Article XVI of the GATS as fisheries
did not form part of the Nicaragua's specific WTO commitments;  and (iv) before establishing a panel
to examine this matter, the General Council should  take a decision on the competence of panels to
deal with highly political issues and should make a formal interpretation of Article XXI of
GATT 1994.
61. The representative of Honduras said that initially his delegation did not wish to make a
statement on this matter, but in light of Nicaragua's statement it had decided to do so.  First of all,
                                                     
3 Panel Report on "United States - Trade Measures Affecting Nicaragua" (L/6053).WT/DSB/M/78
Page 15
Honduras wished to urge Nicaragua to reconsider its measures affecting imports from Honduras and
Colombia in the hope that a mutually satisfactor y solution could be found.  Second, the subject of
maritime limits did not fall within the WTO mandate, and should be dealt with by the competent
forum such as the International Court of Justice.  Third, there had been no movement of troops or
military equipment by Honduras or Nicaragua, as its press correspondents showed.  Nicaragua wastrying to find an excuse to continue to apply its discriminatory measures against Honduras and
Colombia.  His delegation noted Nicaragua's statement and pointed out that the dispute settlement
system and the DSU provided Honduras with the possibility of restoring its rights.
62. The DSB took note of the statements and agreed
 to revert to this matter.
5. Canada - Patent protection of pharmaceutical products
(a) Report  of the Panel  (WT/DS114/R)
63. The Chairman recalled that at its meeting on 1 February 1999, the DSB had agreed to
establish a panel to examine the complaint by the European Communities and their member States.
The Report of the Panel contained in document WT/DS114/R had been circulated on 17 March 2000,
and it was now before the DSB for adoption at the request of Canada.  In accordance with Article 16.4
of the DSU, the adoption procedure was without prejudice to the right of Members to express their
views on the Panel Report.
64. The representative of Canada said that his delegation thanked both the Panel and the
Secretariat for their work in preparing the Report.  Canada was generally pleased with the conclusions
reached by the Panel in its Report.  The Panel had confirmed that the early working exception in
Canada's patent law was fully consistent with its obligation under the TRIPS Agreement.  Canada's
early working exception allowed manufacturers of competing products to begin the process of seekingregulatory approval for competing versions of patented products prior to the expiration of the patent
term.  In the Panel's proceedings Canada had argued that the early working exception was a limited
exception to the rights of patent holders, and as such was permitted under the TRIPS Agreement.
Canada was pleased that the Panel had confirmed the consistency of this exception with the TRIPS
Agreement.  The Panel's ruling had affirmed Canada commitment to a sound and healthy environmentfor innovation, investment and growth.  His country was disappointed with the Panel's ruling on the
stockpiling exception, but nevertheless was prepared to join in a consensus to adopt the Panel Report
at the present meeting.
65. The representative of the European Communities said that the Panel Report under
considerations was one of a few reports which, to some extent, satisfied and dissatisfied both parties
to the dispute.  The EC was disappointed that the Panel's the conclusions only partially recognized the
EC's rights.  However, the EC could not disregard the fact that the Panel, to some extent, hadendorsed the reasoning developed by the EC.  The Panel had thus clearly established that the short
period of exclusive rights after the expiry of patents was part of protection. Furthermore, the sale of
products made at the end of that period was not compatible with the obligations under the TRIPS
Agreement.  Finally, the limited exception permitted under Article 30 of the TRIPS Agreement did
not make it possible to sidestep the obligation not to discriminate in different areas of technology.The above-mentioned elements provided some degree of satisfaction to the EC.  The EC considered
that the Panel Report provided useful clarifications and for that reason it was joining in a consensus in
favour of the adoption of the Panel Report.
66. The representative of Switzerland said that her delegation noted the Panel's decision in
relation to the case under consideration.  In the view of Switzerland, the patent term of 20 years was
the result of a very careful balance between various interests, and should not be undermined by
exceptions which were not minor in terms of principle and results.  As a country with an industry veryWT/DSB/M/78
Page 16
actively engaged in highly expensive research and development of new and innovative
pharmaceuticals, Switzerland noted with concern that the Panel had found the "regulatory review
exception", as contained in the Canadian patent legislation, to comply with the three conditions for an
exception under Article 30 of the TRIPS Agreement and therefore to be in conformity with the
Agreement. Switzerland was concerned that, in practice, the decision of the Panel might haveprejudicial effects on research and development of new pharmaceuticals.  Despite the fact that
Switzerland would have preferred this case to have another outcome, there were at least some positive
elements in the Panel's decision.  Namely, it seemed that one of the major steps leading to the
conclusion that Canada's regulatory review exception was not contrary to the TRIPS Agreement had
been the Panel's refusal to decide, through adjudication, a normative policy issue that was a matter of
unresolved political debate (paragraph 7.82, last sentence).  It should not be the task of panels to
resolve open policy issues that Members were unable or unwilling to agree upon.  Nevertheless,Switzerland considered that Article 30 of the TRIPS Agreement was sufficiently clear to have led to a
different result in this particular case.  Switzerland welcomed the Panel's conclusion that the
stockpiling exception of the Canadian Patent Act was inconsistent with the TRIPS Agreement.
Switzerland shared the view that such an exception unjustifiably violated the basic concept and idea
of exclusive rights conferred by a patent to its owner during the 20 years term of protection.
67. The representative of India said that his country had participated in this dispute as a third
party.  India welcomed the Panel Report and noted with appreciation the Panel's decision that the
regulatory review exception rule was permissible under the TRIPS Agreement.  This would end the
monopoly of the patent holder and enhance the competition in the market after the expiry of patent
term.  His country welcomed the Panel's refusal to equate the concept of "legitimate interests" withlegal rights as a third condition of Article 30 of TRIPS Agreement.  India appreciated, in particular,
the Panel's statement that, "legitimate interests concept should not be used to decide, through
adjudication, a normative policy issue that is still obviously a matter of unresolved political debate".
India noted the Panel's interpretation of the related stockpiling exception rule as not qualifying to be a
"limited exception" under Article 30 and thereby conferment of the privilege of extended period ofmarket exclusivity/monopoly, how so ever short it might be, on the Patent holders after expiry of their
patents (paragraph 7.35).  His country continued to reflect on this interpretation.
68. The representative of Malaysia said that the outcome in this case had important systemic
implications for all Members.  This was notwithstand ing the fact that the Panel's decision should not
be considered as precedent setting.  Malaysia welcomed the decision of the Panel that Section 55.2(1)
of Canada's Patent Act was not inconsistent with Canada's obligations under Articles 27.1 and 28.1 of
the TRIPS Agreement.  Malaysia had closely followed this case and would have liked to participate asa third party in the Panel's proceedings, but could not have done so due to the lack of resources.
69. The DSB took note of the statements and adopted
 the Panel Report contained in
WT/DS114/R.
6. Appointment of Appellate Body members
70. The Chairman said that it was a matter of urgency that the Appellate Body be strengthened.
Currently, only four members of the Appellate Body  remained in office;  i.e. one division of the
Appellate Body with one member left over.  On the other hand, the workload of the Appellate Body
continued apace and was gathering pace.  It was therefore necessary to exercise the utmost
responsibility and care in order to ensure that the operation of that vital body of the WTO was not
disrupted.  He proposed to give his overview on how to conduct consideration of this item at thepresent meeting.  That would help to avoid any conf usion in a resulting debate. He proposed that first
it was necessary to proceed reasonably quickly to a decision on the recommendations of the Selection
Committee which were set out in the fax circulated by the Council Division on 3 April 2000.
Secondly, he could give some ideas for consid eration on the relationship between those proposedWT/DSB/M/78
Page 17
appointments and the question of how to proceed on filling the remaining vacancy in the Appellate
Body.  Subsequently, he would invite delegations wishing to make statements or comments on both
the appointments which had been recommended and/or the filling of the remaining vacancy.  Finally,
he would sum up based on the discussion and the comments received.  Those elements would enable
delegations to organize the discussion in the most efficient way.  He asked whether the way ofproceeding just outlined by him was acceptable to delegations.
71. The DSB so agreed.
72. He recalled that Members had received the fax from the Council Division, dated 3 April 2000,
which conveyed the Selection Committee's recommendations on filling the vacancies left by the
departures of Messrs. Said El-Naggar and Mitsuo Matsushita.  That fax contained a proposal that
those recommendations be approved by the DSB at the present meeting.  He then drew attention to the
text of the fax:
"The Chairman of the Selection Committee established by the DSB, Ambassador Kåre Bryn,
wishes to notify Members of the following conclusions which have been reached by the
Committee.
"The Selection Committee was established by the DSB with a view to making
recommendations on appointments to replace Messrs. Said El-Naggar and Mitsuo Matsushita,
whose (extended) terms of office expired on 31 March 2000.  The Selection Committee
conducted thorough interviews with the seven candidates nominated, and made itself
available to hear the views of Members.  Throughout the process, the Committee had
constantly in their minds the guidelines, rules and procedures in the DSU and WT/DSB/1governing the selection and appointment of Appellate Body members.  The Committee also
had regard to the (then) Chairman of the DSB's statement in November 1995 to the effect that
composition of the Appellate Body could vary over time, that no rights should be derived
from the initial composition, and that initial appointments did not compromise the scope for
different regional or national compositions in future (WT/DSB/M/9).  The Committee's taskwas far from easy, owing to the excellence of the candidates.  In the Committee's view, the
DSB should extend its appreciation and gratitude  to all the individuals who came forward,
and to their respective governments.  The Committee has now reached firm recommendations
that the following persons be appointed (in alphabetical order):
Professor Georges Abi-Saab
Mr. A. V. Ganesan
"The Committee is of the view that these outstanding individuals are highly qualified for
appointment to the Appellate Body.
"In the light of the foregoing, the Chairman of the DSB proposes that, at its meeting on
7 April 2000 under Item 6 of the Agenda, the DSB decide to appoint Messrs. Abi-Saab and
Ganesan as members of the Appellate Body for four years as from the date, to be fixed in the
near future, on which their contracts commence."
73. The Chairman further stated that the reasons for not fixing the date for the appointments at
this stage was that the Appellate Body Secretariat would need to have some discussions with the
appointees with a view to fixing a mutually agreeable date for the start of their contracts.  Therefore,
at this stage, it was necessary to leave a degree of flexibility as to the exact date.WT/DSB/M/78
Page 18
74. As he had indicated in his introductory re marks, the Chairman would later provide more
information about the exercise and how it related to the filling of the remaining vacancy.  He was also
aware that some Members were keen to express their views on the appointment.  Before doing that
however, he suggested that the DSB first address the formal decision.  He accordingly proposed that
Prof. Georges Abi-Saab and Mr. A.V. Ganesan be appointed as members of the Appellate Body forfour years from the date to be fixed in the near future on which their contracts were to commence.
75. The DSB so agreed.
76. Subsequently, the Chairman expressed gratitude and appreciation for the excellent service
rendered by Mr. El-Naggar and Mr. Matsushita who had played a vital part in establishing the
Appellate Body on a sound basis.  Members owne d them a debt of gratitude for that.  He
congratulated Prof. Abi-Saab and Mr. Ganesan on their appointments.  Members were confident that
those two appointees would apply their expertise and experience to very good effect.  He thanked allthe candidates and their sponsoring Governments for coming forward and enriching the process.  The
members of the Selection Committee found the whole exercise and, in particular, the interviews both
educational and inspiring.  He recalled that, in presenting the conclusions of the Selection Committee,
Amb. Kåre Bryn, the Chairman of the General Council had stressed that the Committee's task had
been far from easy owing to the excellence of the candidates.  This was one of those situations in
which there were more qualified candidates than vacancies.  In the circumstances, it should be left
open for those candidates who wished to do so to carry their names forward into any new exercise to
select Mr. Beeby's replacement.  In that case, they should be considered on an equal footing with any
new candidates.
77. The Chairman then commented on the relationsh ip between the appointments that had just
been made and the next exercise to select Mr. Beeby's replacement.  He proposed that a new Selection
Committee be formed and that Members be invited to submit or re-submit candidatures to the
Selection Committee for its consideration no later than 5 May 2000.  This seemed to be an appropriate
period of time.  One had to bear in mind that there was an Easter break.  The Selection Committee
would then go through its considerations, interview any candidates that it felt it needed to see andwould present its proposal to the DSB at the earliest possible opportunity thereafter.
78. He recalled that at the informal DSB meeting on 30 March 2000, this matter had been
discussed and a number of delegations had stated that, for the sake of maintaining continuity and of
simplifying procedures, the same Selection Committee which had just finished its exercise on the
appointment of the previous two vacancies be reappointed to examine the candidatures for the third
vacancy.  At that meeting, it was his impression that there was no objection to that proposal.  He
therefore proposed that the DSB agree along those lines in order to preserve full continuity and themaximum of coherence in the conduct of the whole selection process.  This would involve the present
Selection Committee which was composed of the 1999 Chairpersons of the General Council, DSB,
Councils for Trade in Goods, Services, TRIPS and the Director-General.  The Committee was chaired
by Amb. Kåre Bryn, the 1999 DSB Chairman.  He then invited delegations wishing to comment either
on the appointments that had just been made and/or on his proposal concerning the procedure forreplacement of Mr. Beeby.
79. The representative of Egypt expressed her delegation's gratitude to the members of the DSB
for the decision taken by consensus to adopt the recommendations of the Selection Committee
concerning the appointment of two members of th e Appellate Body, Prof. Abi-Saab and Mr. Ganesan.
In particular, she wished to express Egypt's gratitude to all delegations who had supported thecandidature of Prof. G. Abi-Saab, the Selection Committee and those who had supported the
recommendations and had joined in the consensus at the present meeting.  There was no doubt that all
candidates had excellent credentials and merits.  Egypt recognized and appreciated an excellent work
done by the Selection Committee in a thorough, objective and profound manner which hadWT/DSB/M/78
Page 19
commended the consensus of the DSB at the present meeting.  Egypt felt particularly privileged that
the DSB had found two of its nationals:  Prof. El-N aggar and Prof. Abi-Saab perfectly qualified and
enjoying outstanding qualities to merit selection and appointment consecutively to this very important
and vital body.  She was confident that the appointment of Prof. Abi-Saab together with Mr. Ganesan
would bring to the Appellate Body the necessary ba lance, expertize and confidence needed to further
strengthening of the objectives of the WTO to the benefit and in the interest of its membership.  Egypt
fully supported the Chairman's proposal on the procedure concerning the filling of the remaining
vacancy in the Appellate Body.
80. The representative of Japan expressed his delegation's appreciation to the Selection
Committee for having conducted the difficult task of selecting the new Appellate Body members.  He
also wished to congratulate Prof. Abi-Saab and Mr. Ganesan for their appointment.  He had had the
pleasure to meet with them and found that both were very impressive persons and would make avaluable contribution to the dispute settlement mechanism.  It should not come as a surprise that Japan
was disappointed with the recommendations of the Selection Committee because it had put forward
Prof. Y. Taniguchi as a candidate for a member of the Appellate Body since it believed that he was as
well qualified as the other two who had just been recommended by the Selection Committee both in
terms of competence and personality.  In this connection, it was reassuring to hear the Chairman'scomment that the selection process was a difficult one because there were more qualified candidates
than the seats available.  Japan continued to believe that if Prof. Taniguchi were to be selected as a
member of the Appellate Body, he would make a valuable contribution to an effective and a fair
functioning of the dispute settlement mechanism and to the strengthening of the WTO.  The Chairman
had just announced that a new deadline for the third vacancy was 5 May 2000. It was the intention ofJapan to register Prof. Taniguchi for the vacancy left by Mr. Beeby.  He also wished to thank those
Members who had supported Prof. Taniguchi in the previous selection process and hoped that there
would be renewed and wider support fo r him in the new selection process.
81. The representative of the Philippines, speaking on behalf of the ASEAN Members
, expressed
gratitude to the Selection Committee for its thorough work.  In view of the excellent qualifications of
the candidates the task of the Selection Committee was not easy.  He thanked all the candidates and
their respective Governments for their readiness and willingness to come forward at the time when the
organization urgently needed highly qualified individuals for this important positions.  In that sense
they had showed their firm commitment and belief and had contributed to the cause to which all were
adhering, namely, the strengthening of the multilateral trading system.  He congratulated Prof. Abi-
Saab and Mr. Ganesan for their appointment as  members of the Appellate Body.  The ASEAN
Members were convinced that the knowledge and wi sdom of the two appointees would benefit the
organization and its Members.  He wished them success in their new function.  The ASEAN Members
fully supported the Chairman's proposal that the Selection Committee be retained and that the
deadline for submissions be no later than 5 May 2000.
82. The representative of Israel said that his delegation congratulated the selected candidates and
wished them all success in their task.  Israel accepted the recommendations of the Selection
Committee.  He said that his country fully respected the WTO principle of decision-making by
consensus.  He thanked the Selection Committee and Members for considering the candidature of
Prof. Weiler who had been put forward by Israel.  He informed the DSB that his authorities had
decided not to resubmit the candidature of Prof. J.H.H.Weiler for the third vacancy in the
Appellate Body.
83. The representative of Poland, speaking on behalf of the CEFTA Members, Estonia and
Latvia, said that the above-mentioned countries were joining in the consensus on the
recommendations of the Selection Committee and congratulated the selected candidates,
Prof. Abi Saab and Mr. Ganesan.  They believed that the selected individuals would contribute
substantially to the functioning of the dispute settlement mechanism.  The Appellate Body was aWT/DSB/M/78
Page 20
particularly sensitive organ of the multilateral trading system.  It was therefore essential that in
addition to the criteria of substance, its composition reflected a broad representation of the WTO
membership.  It was in that context that the above-mentioned countries had met with sympathy the
candidate from their region who was highly qualified  and who met all the criteria set out in the DSU.
In this context, they would have been very pleased if that person had been selected and it was to their
disappointment that he had not been selected.  With respect to the new selection process for the third
vacancy, the above-mentioned countries recognized the difficulty and complexity of that process but
still hoped that they would be able to identify them selves in the practical reflection of the principle of
a broad representation of the WTO in the Appellate Body.  The countries in question encouraged the
candidate whom they supported to continue.  They supported the Chairman's proposal with regard to
the procedure on the Selection Committee and believed that it should be as easy and efficient as
possible to allow the candidates wishing to maintain their candidatures to do so.
84. The representative of the European Communities said that the question of appointment of the
Appellate Body members was one of the most impor tant things that Members had to consider from
time to time.  During the selection process, the EC had had a number of concerns aimed at ensuring
that this exercise was conducted with due care and attention.  He was glad that all these concerns had
been practically resolved.  Although in another context he had stated that there was a need for moretransparency in terms of methodology and calculation, he would abstain in this context from making
such remarks.  He congratulated the successful candidates who were supported by the EC.  He
welcomed the Chairman's proposal on the procedures.  He recalled that the EC had expressed a view
that for reasons of dispatch there was an urgent need to fill all the posts that were vacant.  It had also
expressed the preference for using the present process to recommend all three names with a littledelay for any new candidates.  The EC could go al ong with the Chairman's proposal and believed that
the primary criterion which would guide the selection process was merit, experience and skills of
candidates.  The EC also believed that a certain balance in terms of their experience would be
desirable: there were now six members of the Appellate Body and the balance was two and four.  This
situation should also be kept in mind by the Selection Committee in its deliberations.  The ECsupported the idea that the present Selection Committee should continue since it had a considerable
advantage of having seen all the present candidates.  The EC did not wish to be isolated in opposing
the deadline of 5 May but at the same time it would prefer to proceed more quickly.  This matter had
been under discussion for some time and new candidates, if any, could be quite rapidly available.  He
therefore proposed to set a deadline of 15 days or by Easter so that the Selection Committee could
begin its work in early May which would save a considerable amount of time.
85. The representative of the United States sa id that her delegation thanked the Selection
Committee for its work in relation to this task which was of utmost importance to her country.  This
was a difficult task since all the candidates were highly qualified.  The United States also wished to
congratulate the new members of the Appellate Body and believed that they would make a valuable
contribution.  The United States supported the Chairman's proposal concerning the next selection
process.  She recalled that at the informal meeting on 30 March, the question of the terms ofappointment of new members of the Appellate Body ha d been raised.  The United States believed that
it would be preferable to avoid separate nomination processes to be carried out in a short period of
time.  To this end, she proposed to hold informal consultations on the question of how to restore the
situation with a view to ensuring that the terms of the three members expired at the same time and that
the terms of the other four members expired together.  She sought clarification as to whether it wouldbe possible to ensure that the starting date for the two new members was the same.
86. The Chairman said that it would be the intention to fix one date for the appointments of
Prof. Abi-Saab and Mr. Ganesan.
87. The representative of India said that his delegation thanked the Selection Committee for
completing the task of recommending two names fo r the two vacancies in the Appellate Body.  HeWT/DSB/M/78
Page 21
praised the Selection Committee for accomplishing this difficult task of choosing two names from the
slate of excellent candidates from different countries.  He congratulated the Selection Committee for
making its recommendations in a timely fashion.  As indicated by the Chairman, all Members were
aware of how important it was to fill the post in the Appellate Body at the earliest possible date.  India
thanked the Selection Committee for making its recommendations in accordance with Article 17 ofthe DSU and the guidelines for selection contained in document WT/DSB/1.  India was grateful to
Members for approving the recommendations of the Selection Committee by consensus.  He
congratulated Prof. Abi-Saab on his appointment.  W ith regard to the process for filling the remaining
vacancy, India supported the procedure outlined by the Chairman and believed that the process could
be expedited subject to the convenience of all the delegations who might be interested in submitting
new names.  India supported the US proposal to hold informal consultations in order to ensure that the
terms of members expired at the same time and wished to participate in any such informalconsultations.
88. The representative of Mexico thanked the Selection Committee and congratulated Members
for reaching the consensus on the appointment of two excellent individuals as members of the
Appellate Body.  This was of particular importance since it was currently difficult to reach consensus
in certain bodies of the WTO.  Under the current circumstances it would be useful for the existingSelection Committee to carry out the process of selection for the third vacancy in the Appellate Body.
Mexico welcomed the Chairman's proposal.  However,  since this was a special situation no precedent
should be set with regard to future selections.  His delegation expressed its intention to participate in
the informal consultations proposed by the United States on the term of contracts of members of the
Appellate Body, should such consultations take place.
89. The representative of Australia wished to join other Members in congratulating the selected
candidates for the Appellate Body vacancies.  He noted that Australia consistently supported a merit-
based selection process with due regard for the diversity of the legal systems represented by
Members, and did not support a rigid system of regional seats.  Australia welcomed the work
undertaken by the Selection Committee in reaching its conclusions and recommendations.  Australiasupported the Chairman's proposal with regard to the procedures for the replacement of Mr. Beeby
and would strongly prefer the deadline proposed by the Chairman.
90. The representative of Canada thanked the Selection Committee for its work and congratulated
the two successful candidates:  Prof. Abi-Saab and Mr. Ganesan.  Canada considered that the US
proposal to hold informal consultations on possibl e harmonization of the terms of the Appellate Body
members was useful and wished to participate in such consultations.  With regard to the date for
nominations to fill the remaining vacancy Canada, supported the deadline of 5 May as proposed bythe Chairman.
91. The Chairman said that the DSB should take note of the statements, which were
magnanimous.  It was quite clear that Members' self-interest was being subordinated in this exercise
for the good of the system and this was very encouraging.  He noted that many delegations had
supported the US proposal to hold informal consultations on the question of possible harmonization ofthe terms of office of the Appellate Body members.  Accordingly, he would undertake such
consultations and would be in touch with delegations on this matter.  On the date of any nomination
period, based on the discussions on 30 March and at the present meeting, with all due regard to the
EC, he sensed that most delegations would be more comfortable with a slightly longer nomination
period although not too long.  Therefore, if the EC could go along, he would propose 5 May as the
deadline for submission of candidatures.  He proposed that the DSB authorize the previous Selection
Committee to continue its work in relation to the selection of an additional candidate to fill the
vacancy left by Mr. Beeby.  He also proposed that the DSB agree to invite Members wishing to do so
to submit or resubmit candidates to this third vacancy by no later than 5 May 2000.WT/DSB/M/78
Page 22
92. The DSB took note of the statements and  agreed  to the Chairman's proposal.
93. The Chairman said that the appointments made at the present meeting resulted in some subtle
shift in the representative balance in the composition of the Appellate Body.  He asked delegations to
reflect on how to bring the Appellat e Body up to full strength in accordance with all of the relevant
guidelines and provisions of the DSU and document WT/DSB/1.
94. The DSB took note of the statement.
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