WORLD TRADE
ORGANIZATIONWT/DS165/AB/R
11 December 2000
(00-5330)
Original: English
UNITED STATES – IMPORT MEASURES ON CERTAIN PRODUCTS
FROM THE EUROPEAN COMMUNITIES
AB-2000-9
Report of the Appellate BodyWT/DS165/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Arguments of th e Participants............................................................................................... ......4
A. Claims of Error by the European Communities – Appellant .........................................4
1. The Measure at Issue.........................................................................................4
2. The Mandate of Arbitrators Appointed  Under Article 22.6 of the DSU...........4
3. The Effect of DSB Authorization to Suspend Concessions or Other
Obligati ons ........................................................................................................5
B. Arguments of the United States – Appellee ....................................................................6
1. The Measure at Issue.........................................................................................6
2. The Mandate of Arbitrators Appointed  Under Article 22.6 of the DSU...........6
3. The Effect of DSB Authorization to Suspend Concessions or Other
Obligati ons ........................................................................................................7
C. Claims of Error by the United States – Appellant ..........................................................8
1. Articles II:1(a) and II:1(b), fi rst sentence, of the GATT 1994 ..........................8
2. Articles 23.2(a), 3.7 and 21.5 of the DSU .........................................................9
(a) Article 23.2(a) of the DSU ...................................................................9
(b) Article 3.7 of  the DSU..........................................................................9
(c) Article 21.5 of the DSU......................................................................10
D. Arguments of the European Communities – Appellee ..................................................10
1. Articles II:1(a) and II:1(b), fi rst sentence, of the GATT 1994 ........................10
2. Articles 23.2(a), 3.7 and 21.5 of the DSU .......................................................11
(a) Article 23.2(a) of the DSU .................................................................11
(b) Article 3.7 of  the DSU........................................................................11
(c) Article 21.5 of the DSU......................................................................12
III. Arguments of the Third Part icipan ts........................................................................................ .12
A. Dominica and St. Lucia ................................................................................................12
1. The Measure at Issue.......................................................................................12
2. The Mandate of Arbitrators Appointed  Under Article 22.6 of the DSU.........12
B. Ecuador ........................................................................................................................13
C. India .............................................................................................................................13
D. Jamaica ........................................................................................................................13
E. Japan ............................................................................................................................14
1. The Mandate of Arbitrators Appointed  Under Article 22.6 of the DSU.........14
2. Articles II:1(a) and II:1(b), fi rst sentence, of the GATT 1994 ........................14
3. Articles 23.2(a), 3.7 and 21.5 of the DSU .......................................................14WT/DS165/AB/R
Page ii
IV. Issues Raised in this Appeal ................................................................................................ .....15
V. The Measure at Issue ......................................................................................................... .......16
VI. The Mandate of Arbitrators Appoint ed Under Article 22.6 of the DSU ..................................24
VII. The Effect of DSB Authorization to Su spend Concessions or Other Obligations....................26
VIII. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994..................................................28
IX. Articles 23.2(a), 3.7 a nd 21.5 of the DSU.................................................................................30
(a) Article 23.2(a) of the DSU .................................................................30
(b) Article 3.7 of  the DSU........................................................................33
(c) Article 21.5 of the DSU......................................................................34
X. Findings and Conclusions..................................................................................................... ....36WT/DS165/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
United States – Import Measures on Certain
Products from the European Communities
European Communities,  Appellant/Appellee
United States,  Appellant/Appellee
Dominica,  Third Participant
Ecuador,  Third Participant
India,  Third Participant
Jamaica,  Third Participant
Japan,  Third Participant
St. Lucia,  Third ParticipantAB-2000-9
Present:Bacchus,  Presiding Member
Lacarte-Muró,  MemberTaniguchi,  Member
I. Introduction
1. The European Communities and the United States appeal from certain issues of law and legal
interpretations in the Panel Report,  United States – Import Measures on Certain Products from the
European Communities (the "Panel Report").1  The Panel was established under the Understanding on
Rules and Procedures Governing the Settlement of Disputes  (the "DSU") to consider a complaint
relating to measures taken by the United States with respect to certain imports from the EuropeanCommunities.
2. The background to this dispute is set out in detail in the Panel Report.
2  O n
25 September 1997, the Dispute Settlement Body (the "DSB") adopted the reports of the panel and the
Appellate Body in  European Communities – Regime for the Importation, Sale and Distribution of
Bananas  ("European Communities – Bananas ").3  The DSB recommended that the European
Communities bring its banana import regime into conformity with its obligations under the Marrakesh Agreement Establishing the World Trade Organization  (the " WTO Agreement ").  On
1 January 1999, the period of time for implementation, established under Article 21.3(c) of the DSU,expired.  At the DSB meeting of 2 February 1999, the United States alleged that the EuropeanCommunities had failed to bring its banana import regime into compliance with the recommendationsand rulings of the DSB in this dispute, and requested authorization to suspend the application of                                                     
1WT/DS165/R, 17 July 2000.
2Panel Report, paras. 2.1-2.37.
3Panel Reports, WT/DS27/R/ECU, WT/DS27/ R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX,
WT/DS27/R/USA and Appellate Body Report, WT/DS27/AB/R.  The complaining parties in the dispute wereEcuador, Guatemala, Honduras, Mexico and the United States.WT/DS165/AB/R
Page 2
concessions or other obligations in accordance with Article 22.2 of the DSU.  At the same meeting,
the European Communities requested that the level of the suspension of concessions or otherobligations proposed by the United States be referred to arbitration by the original panelists, inaccordance with Article 22.6 of the DSU.
3. In accordance with the 60-day time-frame provided for in Article 22.6 of the DSU, the
decision of the arbitrators appointed under Article 22.6 was to be circulated on 2 March 1999.  Onthat date, the arbitrators informed the United States and the European Communities that they were
unable to circulate their decision, and requested additional information from the parties.
4  O n
4 March 1999, the Director of the Trade Compliance Division of the United States Customs Serviceissued a memorandum entitled "European Sanctions", in which he instructed Customs Area and PortDirectors to take certain action with respect to designated products imported from the EuropeanCommunities, with effect from 3 March 1999.
4. The Article 22.6 arbitrators circulated their decision on 9 April 1999.
5  On 19 April 1999, the
United States requested, and received, authorization from the DSB to suspend the application ofconcessions or other obligations in the amount determined by the arbitrators.  Subsequent to thisauthorization, the United States imposed 100 per cent customs duties on designated products imported
from the European Communities, an action referred to in this dispute as the "19 April action".
5. The Panel identified the measure at issue in this dispute as the "increased bonding
requirements" imposed by the United States on a list of products imported from the EuropeanCommunities as of 3 March 1999, and called this the "3 March Measure".  In its Report circulated toMembers of the World Trade Organization (the "WTO") on 17 July 2000, the Panel concluded:
Although the 3 March Measure is no longer in existence, we conclude
that:
(a) The 3 March Measure was seeking to redress a WTO violation
and was thus covered by Article 23.1 of the DSU;  when it put
in place the 3 March Measure the United States did not abideby the rules of the DSU, in violation of Article 23.1.
(b) By putting into place the 3 March Measure, the United States
made a unilateral determination that the EC implementing
measure violated the WTO, contrary to Articles 23.2(a) and
21.5, first sentence.  In doing so the United States did notabide by the DSU and thus violated Article 23.1 together with
Article 23.2(a) and 21.5 of the DSU;
                                                     
4WT/DS27/48, 2 March 1999.
5WT/DS27/ARB, 9 April 1999.WT/DS165/AB/R
Page 3
(c) The increased bonding requirements of the 3 March Measure
as such led to violations of Articles II:1(a) and II:1(b), first
sentence; the increased interest charges, costs and fees
resulting from the 3 March Measure violated Article II:1(b)
last sentence.  The 3 March Measure also violated Article I of
GATT;  and
(d) In view of our conclusions in paragraph (c) above, the
3 March Measure constituted a suspension of concessions or
other obligations within the meaning of Articles 3.7, 22.6 and
23.2(c) imposed without any DSB authorization and during
the ongoing Article 22.6 arbitration process.  In doing so the
United States did not abide by the DSU and thus violated
Article 23.1 together with Articles 3.7, 22.6 and 23.2(c) of theDSU.
6
The Panel recommended that the DSB request the United States to bring its measure into conformity
with its obligations under the  WTO Agreement .7
6. On 12 September 2000, the European Communities notified the DSB of its decision to appeal
certain issues of law covered in the Panel Report and certain legal interpretations developed by thePanel, pursuant to Article 16.4 of the DSU
8, and filed a Notice of Appeal with the Appellate Body,
pursuant to Rule 20 of the  Working Procedures for Appellate Review  (the " Working Procedures ").
On 22 September 2000, the European Communities filed an appellant's submission.9  The United
States filed its own appellant's submission on 27 September 2000.10  Both the European Communities
and the United States filed appellee's submissions on 9 October 2000.11  On the same day, Ecuador,
India, Jamaica, and Japan each filed separate third participant's submissions, while Dominica and
St. Lucia filed a joint third participant's submission.12
7. The oral hearing in the appeal was held on 18 October 2000.13  The participants and the third
participants presented oral arguments and responded to questions put to them by the Members of theAppellate Body Division hearing the appeal.
                                                     
6Panel Report, para. 7.1.
7Ibid., para. 7.3.
8WT/DS165/10, 12 September 2000.
9Pursuant to Rule 21 (1) of the  Working Procedures .
10Pursuant to Rule 23 (1) of the  Working Procedures .
11Pursuant to Rules 22 (1) and 23 (3) of the  Working Procedures .
12Pursuant to Rule 24 of the  Working Procedures .
13Pursuant to Rule 27 of the  Working Procedures .WT/DS165/AB/R
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II. Arguments of the Participants
A. Claims of Error by the European Communities – Appellant
1. The Measure at Issue
8. The European Communities submits that the measur e at issue in this dispute, to which the
Panel refers as the 3 March Measure, included not only an increase in bonding requirements imposedon a list of products imported from the European Communities, but also an increase in the dutyliability incurred upon the importation of the listed products.  The European Communities considersthat an increase in bonding requirements is, by necessity, based on an increase in the underlyingcustoms duties, since a bonding requirement is ancillary to, and cannot be legally separated from, theunderlying primary obligation.
9. According to the European Communities, there is no difference, in law or in fact, between a
"contingent" increase in duty liability that is operated with the uncertain prospect of a return to bound
rates at some later occasion, and an unqualified increase in duty liability.  The European Communitiesargues that nothing changed in real terms for the products which remained on the reduced listpublished on 19 April 1999:  their legal situation remained the same as before that date in that theywere subject to an increased duty liability, with the only difference being that it was no longer called a"contingent" one.
10. The European Communities disagrees with the Panel's finding that the 19 April action, i.e.,
the imposition of 100 per cent duties, was not included in the Panel's terms of reference.  TheEuropean Communities contends that the 19 April action and the 3 March Measure are not legally
distinct measures and that, in fact, the 19 April action is a continuation of the 3 March Measure, and,
therefore, falls within the terms of reference of the Panel.  The European Communities submits that itsrequest for the establishment of a panel referred specifically to the 19 April action.
11. Finally, the European Communities contends that , in addition to the incorrect and artificial
distinction the Panel makes between the 3 March Measure, and its confirmation on 19 April 1999, thePanel also erred in finding that "the 3 March Measure is no longer in existence".
2. The Mandate of Arbitrators Appoint ed Under Article 22.6 of the DSU
12. The European Communities submits that the Pa nel erroneously considered that the WTO-
consistency of an implementing measure can be determined in arbitration proceedings under
Article 22.6 of the DSU.  In the view of the European Communities, the reasoning of the Panel creates
basic systemic problems which severely affect the carefully balanced results of the Uruguay Round.WT/DS165/AB/R
Page 5
13. The European Communities submits that the text of Article 22.7 charges the arbitrator with
one main task, and two more possible tasks.  The ma in task is to determine whether the level of the
suspension of concessions or other obligations is equivalent to the level of nullification or impairment.The arbitrator may also determine whether the proposed suspension of concessions or otherobligations is allowed under the covered agreements, and whether the principles and procedures setout in Article 22.3 of the DSU have been followed.
14. The European Communities asserts that the Panel's reading of the relevant procedural
provisions of the DSU entirely ignores the fundamental difference between the role of the parties to a
dispute in a panel procedure to determine the WTO-consistency of a contested measure, and the roleof the parties in an arbitration procedure under Article 22.6 of the DSU.  The European Communitiesalso argues that the Member requesting an arbitration procedure under Article 22.6 would have itsrights of defence seriously undermined if it had to develop a fully fledged defence of the WTO-consistency of its measure.  Further, the European Communities notes that there can be no appealfrom an Article 22.6 arbitrator's decision.  The European Communities also submits that panel andAppellate Body procedures provide for the active pa rticipation of third parties, unlike arbitration
proceedings.  The European Communities also notes that decisions of arbitrators are not subject to
adoption by the DSB.  The European Communities, therefore, submits that Article 22.6 arbitration
proceedings ensure none of these procedural rights and guarantees, and the Panel's interpretationshould be reversed.
15. The European Communities also considers that the interpretation by the Panel of the terms
"these dispute settlement procedures, including wherever possible resort to the original panel", inArticle 21.5 of the DSU, is incorrect.  According to the European Communities, a panel procedure isthe ordinary "dispute settlement procedure" in the sense of Article 21.5.  In the view of the EuropeanCommunities, it is apparent that the terms "including wherever possible resort to the original panel"
constitute nothing other than an adjust ment of the ordinary panel procedure.
3. The Effect of DSB Authorization to Suspend Concessions or Other
Obligations
16. The European Communities submits that the Pane l incorrectly considered that, as a general
rule, once a Member imposes DSB-authorized suspension of concessions or other obligations, that
Member's measure is  ipso facto  WTO-compatible because it has received DSB authorization.
According to the European Communities, DSB authorization is a necessary, but not sufficient,condition to legally implement the suspension of concessions or other obligations.WT/DS165/AB/R
Page 6
B. Arguments of the United States – Appellee
1. The Measure at Issue
17. The United States submits that the Panel was correct in finding, as a factual matter, that the
3 March Measure consisted only of increased bonding requirements legally distinct from the 19 Aprilaction, which imposed increased customs duties.  The United States contends that, while this factualfinding is beyond the scope of appellate review, it is amply supported by the evidence of the actuallegal status of the 3 March Measure under United States law.
18. The United States asserts that, on 4 March 1999, the European Communities requested
consultations with respect to the 3 March Measure.  On that date, the United States had not yet takenthe 19 April action.  According to the United States, the 19 April action could, therefore, not havebeen the measure identified in either the request for consultations, or in the subsequent request for the
establishment of a panel.  As a result, the 19 April action could not have been within the terms ofreference of the Panel.
19. The United States submits that, in arguing that WTO law does not distinguish between an
increase in "contingent" duty liability and an increase in actual duty liability, the EuropeanCommunities incorrectly assumes, with no evidence in United States law or regulation, that the
3 March Measure increased the actual duties, and that the only changes made on 19 April 1999 were
to remove duty liabilities already imposed.  Moreover, the European Communities assumes, with nobasis in United States law or regulation, that "contingent liability" exists under United States law.
20. Finally, the United States submits that, before the Panel, it explained that the increased
bonding requirements of 3 March 1999 were removed for entries of merchandise which were not to beincluded on the 19 April 1999 list within a few days of the arbitrators' decision of 9 April 1999, and
were removed on 19 April 1999 for all remaining products.  The United States, therefore, submits thatthe Panel's statement that the 3 March Measure "is no longer in existence" is correct.
2. The Mandate of Arbitrators Appoint ed Under Article 22.6 of the DSU
21. The United States contends that the Panel need not, and should not, have reached the issue of
the relationship between Articles 21.5 and 22 of the DSU.  Firstly, the United States points out thatMembers of the WTO broadly recognize that this relationship requires clarification.  The UnitedStates considers that it is for the membership of the WTO to provide such clarification.  Secondly, theUnited States argues that the Panel need not have reached the issue of the relationship because thisissue is not implicated by the measure at issue, nor by the Panel's analysis of how a violation ofArticle 21.5 is established.WT/DS165/AB/R
Page 7
22. The United States submits, however, that, while the Panel need not, and should not, have
reached the issue of the relationship between Articles 21.5 and 22, it ultimately reached the correctsubstantive conclusion, namely, that an Article 22.6 arbitrator can determine the WTO-consistency ofan implementing measure in determining the equivalent level of suspension of concessions or otherobligations.
23. The United States asserts that an analysis of the text of Article 22 supports the Panel's finding.
The text of Article 22.2 contains no reference to either Articles 21 or 23 of the DSU.  Had the drafters
intended to make the suspension of concessions or other obligations conditional upon the completion
of another proceeding, they "would not have written the text of Article 22 to refer all deadlines under
Article 22 back to the end of the 'reasonable period of time' for implementation" provided for inArticle 21.3 of the DSU.
14
24. The United States submits that Article 21.5 does not qualify the phrase "these dispute
procedures", with the exception of providing for resort to the original panelists, wherever possible,and establishing an upper limit of 90 days for proceedings.  There is, thus, no basis for excluding anydispute settlement procedure that could be used to determine the WTO-consistency of animplementing measure.
25. The United States argues that, if, as the European Communities suggests, Article 21.5
requires that "ordinary" dispute settlement procedures apply, except as specifically provided inArticle 21.5, this would lead to the absurd result that "referral to the panel" under Article 21.5 wouldhave to be preceded by consultations, adding an additional 60 days to the process.  Even withoutconsideration of this additional time, the 90-day time-frame provided for in Article 21.5 would renderinoperative the negative consensus rule in Articles 22.6 and 22.7 of the DSU, if Article 21.5 were readto require separate proceedings under Article 21.5 before a WTO Member could invoke Article 22.
26. The United States argues that the European Communities' arguments on "procedural rights
and guarantees", that is, its arguments relating to burden of proof, notice requirements and third party
rights, are policy, and not legal, arguments.  In making these arguments, the European Communities
objects to the text as it stands, and does not explain how the Panel read that text incorrectly.
3. The Effect of DSB Authorization to Suspend Concessions or Other
Obligations
27. The United States submits that the Panel's statement on this point, like other of its statements
and conclusions on the mandate of arbitrators appointed under Article 22.6, was not germane to the
                                                     
14United States' appellee's submission, para. 48.WT/DS165/AB/R
Page 8
dispute at hand.  Accordingly, the United States submits that it was not necessary for the Panel to
reach the issue of the WTO-consistency of DSB-authorized measures suspending the application ofconcessions or other obligations.  The United States argues, however, that the decision to authorizethe suspension of concessions or other obligations is within the sole authority of the DSB, and it is,therefore, impossible to draw any conclusion other than that a suspension of concessions or otherobligations which has been authorized by the DSB is WTO-consistent.
C. Claims of Error by the United States – Appellant
1. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994
28. The United States appeals the Panel's finding that the increased bonding requirements are
inconsistent with Articles II:1(a) and II:1(b), first sentence, of the GATT 1994.  According to theUnited States, the Panel made its finding based, not on the conclusion that the bonding requirementsthemselves breached the obligations in question, but because the duties they might be called upon toenforce, if imposed, would breach those obligations.
29. The United States argues that this approach is inconsistent with the Panel's duty to base its
analysis of a measure's WTO-consistency on the measure itself, and not to attribute to that measurethe effects or breaches of another measure.  Article II:1(a) requires each Member to provide treatment
no less favourable than that provided for in its tariff  Schedule.  Article II:1(b), first sentence, exempts
products listed in a Member's Schedule from "ordinary customs duties in excess of those set forth andprovided therein," while the second sentence exempts such products from "other duties or charges".The additional bonding requirements in this dispute did not themselves impose additional duties evenif, as the Panel concluded, they imposed additional costs.
30. The United States submits that the GATT panel reports cited by the Panel either do not
support the Panel's position, or else provide no reasoning to support that position.
15  The United States
submits that the Panel quoted a statement by the panel in  United States – Section 337 , but ignored the
context of that statement and the nature of the analysis which followed it.  In the view of the
United States, the analysis in the panel report in  EEC – Minimum Import Prices  cannot be read to
support the conclusion that a breach by a measure may be attributed to the measures enforcing it.With respect to the panel report in  EEC – Animal Feed Proteins , the United States argues that the
                                                     
15Panel Report,  United States - Section 337 of the Tariff Act of 1930  ("United States - Section 337 "),
adopted 7 November 1989, BISD, 365/345;  Panel Report,  EEC - Measures on Animal Feed Proteins  ("EEC -
Animal Feed Proteins "), adopted 14 March 1978, BISD, 255/49;  Panel Report,  EEC - Programme of Minimum
Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables  ("EEC - Minimum
Import Prices "), adopted 18 October 1978, BISD, 255/68.WT/DS165/AB/R
Page 9
panel in that case provides no persuasive reasoning in support of its conclusion, and the Panel in this
dispute should not have followed it.
2. Articles 23.2(a), 3.7 and 21.5 of the DSU
(a) Article 23.2(a) of the DSU
31. The United States submits that the Panel erred in finding that the 3 March Measure was
inconsistent with Article 23.2(a) of the DSU, both because the European Communities neither
requested nor argued for this finding, and failed to meet its burden of establishing a violation of this
provision, and because the Panel based its finding on the erroneous conclusion that a "determination",
within the meaning of Article 23.2(a), may be inferred from other actions.
32. The United States argues that the European Communities did not refer to Article 23.2(a)
"outside of … passing references".16  At no point in its statements or submissions did the European
Communities ever request the Panel to make a finding with respect to Article 23.2(a).  Throughout itssubmissions, the European Communities argued and presented a case only with respect toArticles 23.1 and 23.2(c).
33. The United States submits that, while the simple fact that the European Communities did not
make a claim under Article 23.2(a) is sufficient for the Appellate Body to reverse the Panel's finding
because the Panel relieved the European Communitie s of its burden in this dispute, the Appellate
Body also should conclude that the Panel's finding under Article 23.2(a) should be rejected because ofthe inadequacy of the European Communities' panel request, and the prejudice to the United States
which resulted.
34. The United States submits that the Appellate Body should also reverse the Panel's finding
because the Panel relied on the erroneous conclusion that a "determination" within the meaning ofArticle 23.2(a) may be inferred from other actions.  The United States considers that the Panelwrongly interpreted the term "determination".  The United States submits that a "determination" is a
formal decision that is made explicitly, as a result of a domestic legal process, and one which has
some legal status.
(b) Article 3.7 of the DSU
35. The United States submits that the Panel erred in finding that the 3 March Measure was
inconsistent with Article 3.7 of the DSU.  The Panel improperly relieved the European Communities
                                                     
16United States' appellant's submission, para. 38.WT/DS165/AB/R
Page 10
of its burden of establishing a violation of Article 3.7, because the European Communities neither
requested nor argued for this finding.  Furthermore, the United States argues that, even if theEuropean Communities  had argued that the 3 March Measure was inconsistent with Article 3.7, it is
not clear how it could have demonstrated a violation, since the last sentence of Article 3.7 contains noobligation which might be breached.  The United States considers that the last sentence of Article 3.7is merely descriptive and does not contain an obligation, in the sense of providing that a Member"shall" or "shall not" undertake any action.
(c) Article 21.5 of the DSU
36. The United States submits that the Appellate Body should reverse the Panel's finding that the
3 March Measure is inconsistent with Article 21.5 because this finding is based on argumentation notpresented by the European Communities, and on the Panel's erroneous conclusion that the 3 MarchMeasure is inconsistent with Article 23.2(a) of the DSU.
D. Arguments of the European Communitie s – Appellee
1. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994
37. The European Communities agrees with the United States that the Panel erred when it found
that the increased bonding requirements are inconsistent with Article II:1(a) and (b), first sentence,
simply because they enforce a measure which is inconsistent with those provisions.  The European
Communities submits that it did not claim that the bonding requirements "as such" are inconsistentwith those provisions on that ground.
38. The European Communities submits that the error appealed by the United States stems from
the Panel's mischaracterization of the 3 March Measure as consisting merely of an increase in thegenerally applicable bonding requirements.  The Panel failed to recognize that such increase was onlyan ancillary measure to enforce the main decision taken by the United States on 3 March 1999, that is,the "contingent" increase of customs duties on listed products to 100 per  cent  ad valorem .
39. The European Communities asserts that, had the Panel properly characterized the 3 March
Measure as also including that duty increase, it would necessarily have come to the conclusion that, as
claimed by the European Communities, the duty increase is in breach of Article II:1 (a) and (b), first
sentence, whereas the increased bonding requirements "as such" are inconsistent with Article II:1 (b),second sentence of the GATT 1994.WT/DS165/AB/R
Page 11
2. Articles 23.2(a), 3.7 and 21.5 of the DSU
(a) Article 23.2(a) of the DSU
40. The European Communities submits that in its request for the establishment of a panel, it
cited Articles 3, 21, 22 and 23 of the DSU as being those provisions in respect of which the European
Communities claimed violations.
41. The European Communities submits that the United States does not contest, and could not
contest, that the European Communities' claim of  violation of Article 21.5 of the DSU was raised
sufficiently clearly in the present case.  According to the European Communities, there is a very close
link that flows from Article 23.2(a) of the DSU between the obligation to resort to Article 21.5procedures in the circumstances of the present case, and the prohibition on making unilateraldeterminations concerning the WTO-consistency of a trade measure taken in order to implement anearlier DSB recommendation.
42. The European Communities submits that the Panel did not err in finding that a determination
could be "implied" from the actions taken by the United States.  The European Communities submitsthat, as determined by the panel in  United States – Sections 301-310 of the Trade Act of 1974 , a
"determination" only constitutes a violation under Article 23.2(a) of the DSU when it is made in the
context of seeking redress of a perceived WTO-inconsistency committed by another WTO Member.
17
An action seeking to impose trade retaliation must therefore be considered relevant when determining
whether a breach of the obligations under Article 23.2(a) has been committed.  The EuropeanCommunities submits that, where a WTO Member concludes that another WTO Member has actedinconsistently with its WTO obligations, and this conclusion forms the basis of a measure seekingredress of the perceived WTO-inconsistency without following the dispute settlement procedures,such conclusion is a prohibited "determination", with in the meaning of Article 23.2(a), in conjunction
with Article 23.1 of the DSU.
(b) Article 3.7 of the DSU
43. The European Communities submits that Article 3.7, last sentence, of the DSU contains an
obligation not to resort to the suspension of concessions or other obligations without authorization bythe DSB.  This provision is in line with Article 23.2(c) of the DSU, and the United States cannotargue that the European Communities did not make a claim of violation of the latter provision.  Abreach of the prohibition contained in Article 23.2(c) of the DSU entails by necessity a breach of theprovision contained in Article 3.7, last sentence, of the DSU.
                                                     
17WT/DS152/R, adopted 27 January 2000.WT/DS165/AB/R
Page 12
(c) Article 21.5 of the DSU
44. The European Communities submits that in its written submissions and oral statements before
the Panel, the European Communities presented a claim and arguments according to which the UnitedStates violated Article 21.5 of the DSU when it applied the disputed measure, and requested theauthorization of suspension of concessions in the absence of a finding that the EuropeanCommunities' implementing measures were inconsistent with its WTO obligations.
III. Arguments of the Third Participants
A. Dominica and St. Lucia
1. The Measure at Issue
45. Dominica and St. Lucia submit that the European Communities' request for the establishment
of a panel appears to cover sufficiently all the measures which gave effect to the United States'decision to impose 100 per cent retroactive duty liability, as of 3 March 1999, on selected productsimported from the European Communities.
46. Dominica and St. Lucia argue that subsequent actions which modify the legal form, but
confirm the substance of a previous measure identified in a panel request, may fall within a panel'sterms of reference.  According to Dominica and St. Lucia, the fundamental test is one of due process,
that is, whether all parties received adequate notice of the claims raised.  As such, subsequent actions
merely modifying the legal form of an original measure that remains in force  in substance , and that is
the subject of a complaint, may fall within a panel's terms of reference.
2. The Mandate of Arbitrators Appoint ed Under Article 22.6 of the DSU
47. Dominica and St. Lucia submit that the Panel erred in its conclusion that the arbitration
procedure under Article 22.6 of the DSU constitutes a proper WTO dispute settlement procedure todetermine the WTO-consistency of implementing measures, as mandated by the first sentence ofArticle 21.5 of the DSU.
48. According to Dominica and St. Lucia, an Articl e 22.6 arbitrator has authority to determine the
"level of suspension equivalent to the level of nullification", while an Article 21.5 panel has authority
to determine the WTO-consistency of an implementing measure.  Their mandates are distinct,irrespective of the possibility that the members of the original panel may serve both on theArticle 21.5 panel and as Article 22.6 arbitrators.  Dominica and St Lucia further submit that theconclusions of the Panel raise serious systemic concerns.WT/DS165/AB/R
Page 13
B. Ecuador
49. Ecuador fully shares the Panel's opinion that Members of the WTO should not take unilateral
action in the resolution of WTO disputes.  Should a situation arise in which Members of the WTO
disagree as to whether a WTO violation has occurred, the only remedy available is to initiate disputesettlement procedures under the DSU.
50. In Ecuador's view, the possible conflict between the time frames of Article 21.5 and those of
Article 22 cannot be used as an excuse to take unilateral action, just as this conflict cannot serve as a
basis for any Member's "losing its fundamental rights", such as the right to suspend the application of
concessions or other obligations.
18
C. India
51. India strongly disagrees with the Panel's finding that the WTO-consistency of measures taken
by the implementing Member can be determined through an Article 22.6 arbitration procedure.  Indiasubmits that the panel procedures which were design ed to address and rule on the merits of disputes,
involving substantive obligations of Members of the WTO, are fundamentally different from thearbitration procedures provided under Articles 21.3 and 22.6 of the DSU.  These arbitrationprocedures are given the limited task of determining, in the case of Article 21.3, the "reasonable
period of time" for implementation and, in the case of Article 22.6, the level of suspension of
concessions and whether the procedures and principles of Article 22.3 were followed.
52. India submits that, if an arbitration procedure under Article 22.6 could be used to determine
the consistency of implementing measures, Article 21.5 of the DSU would lose its relevance andeffect.  India argues that, if the Panel's interpretation of Articles 21.5 and 22.6 of the DSU is allowedto stand, the use and relevance of Article 21.5 would be minimal, and Members of the WTO couldconveniently bypass the procedures under Article 21.5, and proceed directly to Article 22.6.
D. Jamaica
53. Jamaica disagrees with the Panel's interpretation of the relationship between Articles 21.5 and
22 of the DSU, and supports the European Communities' grounds of appeal on this issue.  Jamaica
submits that the function of an Article 22.6 arbitrator is restricted to a specific role in a particularcircumstance, namely to determine the appropriateness of the level of suspension of concessions orother obligations.
                                                     
18Ecuador's third participant's submission, para. 3.WT/DS165/AB/R
Page 14
54. Jamaica submits that a new dispute over the WTO-consistency of implementing measures is
to be resolved through "these dispute settlement procedures", as provided in Article 21.5 of the DSU.Jamaica submits that "these dispute settlement procedures" are the good offices, conciliation andmediation procedures in Article 5 of the DSU.  Jamaica contends that "these dispute settlementprocedures" are also the ordinary panel procedures, with the possibility of appeal to the AppellateBody.  Jamaica requests that the Appellate Body find that arbitration under Article 22.6 of the DSU
serves a specific and limited role which does not include any authority to determine the WTO-
consistency of measures taken to comply with the recommendations and rulings of the DSB.
E. Japan
1. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU
55. Japan supports the European Communities' appeal of the Panel's finding that the WTO-
consistency of implementing measures can be determined in the course of arbitration proceedingsunder Article 22.6 of the DSU.  Japan submits that Article 21.5 and Article 22.6 proceedings serveentirely different functions and are governed by separate procedural requirements.  In the view ofJapan, the Panel did not take into account the distinction between proceedings under Article 21.5 andthose under Article 22.6, and thus disregarded the intended structure of the dispute settlement process.
2. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994
56. Japan does not support the United States' appeal of the Panel's finding that the bonding
requirements imposed by the United States on 3 March 1999 violated Articles II:1(a) and II:1(b) ofthe GATT 1994.  Japan considers that a bonding requirement is an integral part of the tariff collectionprocess, and, therefore, should not be considered separate and apart from the imposition of the tariffitself.  Japan, therefore, agrees with the Panel's finding that the imposition by the United States of theincreased bonding requirements violated Articles II:1(a) and II:1(b), first sentence, of theGATT 1994.
3. Articles 23.2(a), 3.7 and 21.5 of the DSU
57. Japan does not support the United States' contention that the Panel erred in finding that the
3 March Measure was inconsistent with Article 3.7 of the DSU because that provision does not setforth an obligation which can be breached.  Japan considers that like Article 23.2(c), Article 3.7indicates that Members of the WTO only have the right to suspend concessions on a discriminatorybasis subject to authorization by the DSB.  Japan submits that, as the 3 March Measure constituted asuspension of concessions or other obligations wi thout DSB authorization, the United States acted
inconsistently with Article 3.7.WT/DS165/AB/R
Page 15
IV. Issues Raised in this Appeal
58. The Panel found that, by adopting the 3 March Measure, the United States acted
inconsistently with its obligations under Articles I and II:1(a) and (b) of the GATT 1994 as well asArticles 3.7, 21.5, 22.6, 23.1, 23.2(a) and 23.2(c) of the DSU.
19  The United States appeals the Panel's
findings of inconsistency with Articles II:1(a) and II:1(b), first sentence, of the GATT 1994, andArticles 3.7, 21.5 and 23.2(a) of the DSU.  The United States does not appeal the Panel's findings ofinconsistency with Articles I and II:1(b), second sentence, of the GATT 1994, and Articles 22.6, 23.1
and 23.2(c) of the DSU.  In our view, therefore, the United States has accepted the conclusions of the
Panel that, by adopting the 3 March Measure, the United States acted inconsistently with itsobligations under Articles I and II:1(b), second sentence, of the GATT 1994, and with the obligationin Article 23 of the DSU not to take unilateral action in redressing perceived breaches of WTOobligations by other WTO Members.  To us, the most significant aspect of this case may well be thePanel's conclusions, which were not appealed, about the failure of the United States to comply withthe legal imperative found in Article 23.1 of the DSU
20, which states:
When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements oran impediment to the attainment of any objective of the covered
agreements, they shall have recourse to, and abide by, the rules and
procedures of this Understanding.
59. The following issues are raised in this appeal:
(a) Whether the Panel erred in finding that the measure at issue in this dispute is the
3 March Measure, which is the "increased bonding requirements as of 3 March on EC
listed products", that this measure is no longer in existence, that the 19 April action islegally distinct from the 3 March Measure and that the 19 April action is not withinthe terms of reference of the Panel;
(b) Whether the Panel erred by stating that the WTO-consistency of a measure taken by a
Member to comply with recommendations and rulings of the DSB can be determined
by arbitrators appointed under Article 22.6 of the DSU;
                                                     
19Panel Report, para. 7.1.
20Ibid., paras. 6.34, 6.87 and 7.1(a) and (d).WT/DS165/AB/R
Page 16
(c) Whether the Panel erred by stating that "[o]nce a Member imposes DSB authorised
suspensions of concessions or obligations, that Member's measure is WTO-consistent(it was explicitly authorised by the DSB)"
21;
(d) Whether the Panel erred in finding that the increased bonding requirements of the
3 March Measure are inconsistent with Articles II:1(a) and II:1(b), first sentence, ofthe GATT 1994;  and
(e) Whether the Panel erred in finding that, by adopting the 3 March Measure, the
United States acted inconsistently with its obligations under Articles 23.2(a), 3.7 and
21.5 of the DSU.
V. The Measure at Issue
60. The Panel found that the measure at issue in this dispute is the "increased bonding
requirements as of 3 March on EC listed products"
22, and called this the 3 March Measure.  The Panel
found that this measure is "no longer in existence".23  The Panel also found that the 19 April action,
i.e., the imposition of 100 per cent duties on certain designated products imported from the EuropeanCommunities, is a measure that is legally distinct from the 3 March Measure, and that the 19 Aprilaction, therefore, does not fall within the terms of reference of the Panel.
24  The European
Communities appeals these findings of the Panel.
61. The Panel was established by the DSB on 16 June 1999.25  In accordance with Article 7.1 of
the DSU, the Panel had the following standard terms of reference:
To examine, in the light of the relevant provisions of the covered
agreements cited by the European Communities in document
WT/DS165/8, the matter referred to the DSB by the EuropeanCommunities in that document and to make such findings as will
assist the DSB in making the recommendations or in giving the
rulings provided for in those agreements.
26
62. With respect to the measure at issue in this  dispute, we note that the request for the
establishment of a panel submitted by the European Communities refers to:
                                                     
21Panel Report, para. 6.112.
22Ibid., para. 6.21.
23Ibid., para. 7.1.
24Ibid., para. 6.89 and 6.128.
25WT/DS165/9, 18 October 1999 and WT/DS165/9/Corr.1, 5 November 1999.
26Ibid.WT/DS165/AB/R
Page 17
… the US decision, effective as of 3 March 1999 , to withhold
liquidation on imports from the EC of a list of products, together
valued at $520 million on an annual basis, and to impose a contingent
liability for 100% duties on each individual importation of affected
products as of this date (annex 1). This measure includes
administrative provisions that foresee, among other things, the postingof a bond to cover the full potential liability.
This measure has deprived EC imports into the US of the products in
question of the right to a duty not in excess of the rate bound in the US
Schedule.  Moreover, by requiring the deposit of a bond, US Customs
effectively already imposed 100% duties on each individual
importation as of 3 March 1999, the return of which was uncertain,depending on future US decisions. …
27 (emphasis added)
63. With respect to these "future US decisions", the European Communities stated in the panel
request:
When the US received WTO authorisation on 19 April 1999 to
suspend concessions as of that date on EC imports of products with an
annual value of only $191.4 million, a more limited list of products
was selected from the previous list (annex 2).  At the same time, the
US confirmed, despite the prospective nature of the WTO
authorisation, the liability for 100% duty on the products on the list inannex 2 that had entered the US for consumption with effect from
3 March 1999.
28
64. The "US decision, effective as of 3 March 1999", to which the panel request refers, is
contained in a memorandum, dated 4 March 1999, from Mr. Philip Metzger, Director, TradeCompliance Division, United States Customs Service,  to the Customs Area and Port Directors and
CMC Directors, regarding "European Sanctions" (the "Metzger Memorandum")
29, as clarified by a
memorandum dated 16 March 1999.30  The Metzger Memorandum provided:
                                                     
27WT/DS165/8, 11 May 1999.
28Ibid.
29Panel Report, para. 6.29.
30Ibid., para. 6.30.  This memorandum, entitled "Clarification of Bond Requirements for European
Sanctions", was also sent to Customs Area and Port  Directors and CMC Directors by Mr. Philip Metzger.WT/DS165/AB/R
Page 18
Effective for all merchandise classifiable under the Harmonized Tariff
Schedule (HTS) subheadings listed below, entered, or withdrawn from
warehouse, for consumption, on or after March 3, 1999, and produced
in the listed countries, Area and Port Directors must require a Single
Transaction Bond (STB) equal to the entered value of the
merchandise.  The only exception to this requirement is, at thediscretion of the Port Director, the importer of record may use a
continuous bond equal to 10 per cent of the total of the entered value
of the covered merchandise imported by the importer for the
preceding year.  Ports should process increased continuous bonds
immediately.
No entry shall be scheduled to liquidate earlier than the 314th day,
thereby ensuring the withholding of liquidation as requested by
USTR. … 
31
65. It follows from the Metzger Memorandum that the "US decision, effective as of
3 March 1999", to which the panel request refers, concerned a change in bonding requirements andthe withholding of liquidation on imports of certain products from the European Communities.
66. With respect to the withholding of liquidation, the Metzger Memorandum instructed
United States customs authorities to withhold liquidation until at least the  314
th day after entry of the
designated products.  The United States argued before the Panel that this was, in fact, already the
usual practice of the Customs Service and, therefore, did not constitute a change in treatment.32  The
Panel did not view the withholding of liquidation as part of the measure at issue in this dispute.33
67. With respect to the change in bonding requir ements, the Metzger Memorandum, as clarified
by the memorandum dated 16 March 1999, instructed the United States customs authorities to changethe bonding requirements with respect to certain designated products imported from the EuropeanCommunities.  The customs authorities were instructed to demand a   single transaction bond  equal to
the entered value of the designated imports, or to add to the  continuous bond  an amount equal to
10 per cent of the entered value of the designated products imported by an importer during theprevious year.
34  The Panel found that the change relating to continuous bonds led to  increased
                                                     
31The memorandum dated 16 March 1999, which clarified the Metzger Memorandum, stated:
If the importer of record provides a statement at the time of entry (release)
certifying that it has reviewed its continuous bond and has added to it anamount equal to 10 percent of the total of the entered value imported by theimporter for the preceding year of the merchandise presently subject to thesanctions, the Port Director will accept the continuous bond.
32See first written submission of the United States, para. 34, and the United States' responses to
questions of the Panel and parties (13 January 2000), para. 11.  The European Communities did not challengethis assertion.
33Panel Report, para. 6.21.
34Ibid., paras. 2.24-2.25 and 6.29-6.30.WT/DS165/AB/R
Page 19
bonding requirements.35  It is this aspect of the "US decision, effective as of 3 March 1999" that is in
contention in this dispute.  The Panel, therefore, found that "[t]he measure in the present dispute isincreased bonding requirements as of 3 March on EC listed imports."
36
68. As the request for the establishment of a panel by the European Communities refers to the
"US decision, effective as of 3 March 1999" as the measure in dispute, and, as the contentious aspectof this decision is the increase in bonding requirements, we agree with the Panel's finding that themeasure at issue in this dispute is the 3 March Measure, which is the "increased bonding
requirements" that were imposed as a result of the Metzger Memorandum  on designated products
imported from the European Communities.
69. We note that, in its request for the establishment of a panel, the European Communities, after
describing the "US decision, effective as of 3 March 1999" with respect to which the establishment ofa panel was requested, refers to the fact that, after this "US decision" was taken, the United Statesreceived WTO authorization on 19 April 1999 to suspend concessions and, at the same time,"confirmed … the liability for 100% duty on the products on the list in annex 2 that had entered theUS for consumption with effect from 3 March 1999."
37  Undeniably, the panel request by the
European Communities does refer to the 19 April action.  Yet it is not possible for us to conclude on
the basis of this  reference  alone that the measure at issue in this dispute is not only the 3 March
Measure, but also the 19 April action.  Therefore, it is not possible for us to conclude, on this basisalone , that the 19 April action is within the Panel's terms of reference.
70. Furthermore, we note that, in our Report in  Brazil – Export Financing Programme for
Aircraft , we stated that:
Articles 4 and 6 of the DSU … set forth a process by which a
complaining party must request consultations, and consultations must
be held, before a matter may be referred to the DSB for the
establishment of a panel.
38
The European Communities' request for consultations of 4 March 1999 did not, of course, refer to the
action taken by the United States on 19 April 1999, because that action had not yet been taken at thetime.  At the oral hearing in this appeal, in response to questioning by the Division, the EuropeanCommunities acknowledged that the 19 April action,  as such , was not  formally  the subject of the
                                                     
35Panel Report, para. 6.51.  With respect to single transaction bonds, the Panel noted that the change in
the bonding requirements did not lead to an increase in bonding requirements.
36Ibid., para. 6.21.
37WT/DS165/8, 11 May 1999.
38WT/DS46/AB/R, adopted 20 August 1999, para. 131.WT/DS165/AB/R
Page 20
consultations held on 21 April 1999.  We, therefore, consider that the 19 April action is also, for that
reason, not a measure at issue in this dispute and does not fall within the Panel's terms of reference.
71. We note the European Communities' contention, before the Panel as well as before us, that the
3 March Measure, in fact, includes not only an increase in bonding requirements, but also theimposition of a "contingent" liability for duties of 100 per  cent on a specific list of products importedfrom the European Communities.
39  The European Communities argues that the 19 April action,
which provides for the imposition of 100 per cent duties on a reduced list of products imported from
the European Communities, is not legally distinct from the 3 March Measure, but rather is a
"confirmation" of the 3 March Measure.40  The European Communities sees the increase in bonding
requirements effected on 3 March 1999 as inextricably linked with the imposition of 100 per centduties on 19 April 1999.  According to the European Communities, the 3 March Measure "is the basicmeasure by which the United States imposed sanctions on EC imports ... while the 19 April action ismerely partly the confirmation, partly a withdrawal of a pre-existing measure."
41  According to the
European Communities, "[t]he legal situation did not change" for products from the EuropeanCommunities that were maintained on the second list "by the  19 April 1999 confirmation  of the
increase in duty liability for those items".
42 (emphasis added)
72. The action taken by the United States customs authorities as of 3 March 1999 is set out in the
Metzger Memorandum.43  The action taken by the United States on 19 April 1999 is described in the
notice of the United States Trade Representative on "United States suspension of tariff concessions",dated 19 April 1999 and published in the Federal Register (the "USTR Notice").
44  The USTR Notice
stated that:
                                                     
39European Communities' appellant's submission, para. 17.  This list of products is contained in the
Metzger Memorandum.
40The 19 April 1999 list of products is contained in the USTR Notice, dated 19 April 1999.  The
reduced coverage of the list was the result of the Decision of the Arbitrators, circulated 9 April 1999, that theappropriate level of suspension of concessions or ot her obligations was $191.4 million, rather than $520 million,
the level proposed by the United States.
41European Communities' appellant's submission, para. 38.
42Ibid., para. 26.
43See  supra , paras. 64-65.
4464 Fed. Reg. 19,209 (1999).WT/DS165/AB/R
Page 21
The United States Trade Representative (USTR) has decided to
suspend the application of tariff concessions and to impose a 100%
ad valorem  rate of duty on the articles described in the Annex to this
notice …
The USTR has determined that, effective April 19, 1999, a 100%
ad valorem rate of duty shall be applied to the articles described in the
Annex to this notice … and that are entered … on or after
March 3, 1999.
73. It cannot be disputed that the 3 March Measure and the 19 April action are related actions of
the government of the United States, in as much as both measures were taken by the United States to
redress what it saw as the failure of the Euro pean Communities to implement the recommendations
and rulings of the DSB in the  European Communities – Bananas  dispute.  We note that the official
USTR press release of 3 March 1999 announcing the 3 March Measure and the letter fromMr. Peter Scher, Special Trade Negotiator of the USTR for Agriculture, to Mr. Raymond W. Kelly,Commissioner of the United States Customs Service, dated 3 March 1999, stated, respectively, thatthe 3 March Measure "imposes contingent liability for 100 per cent duties" and that the 3 MarchMeasure was intended "to preserve [the United States'] right to impose 100 percent duties as of March3, pending the release of the arbitrators' final decision".
45  However, these and other statements made
by USTR officials do not, in and of themselves, allow us to conclude that the 3 March Measure and
the 19 April action are not legally distinct measures.  In order to determine the legal relationshipbetween these two measures, we must examine, on the basis of factual findings of the Panel, what theUnited States actually  did on 3 March 1999 and 19 April 1999, irrespective of how the United States
described its actions publicly at the time.
74. As noted above, what the United States did on 3 March 1999 is set forth in the Metzger
Memorandum; what it did on 19 April 1999 is described in the USTR Notice on "United States
suspension of tariff concessions".  On the basis of the Metzger Memorandum and the USTR Notice, itis clear that there are a number of differences between the 3 March Measure and the 19 April action.
The most important of these differences is that the 3 March Measure provides for  increased bonding
requirements  for certain designated products imported from the European Communities, while the
19 April action provides for the   imposition of 100 per cent duties  on some, but not all, of the
designated products that were previously subject to the increased bonding requirements.
46
                                                     
45Panel Report, para. 2.23.
46For the difference in product coverage between the 3 March Measure and the 19 April action, see
supra , footnotes 39 and 40 of this Report.WT/DS165/AB/R
Page 22
75. Moreover, the 3 March Measure was a measure taken by the United States Customs Service
and, as explicitly stated in the Metzger Memorandum, a measure taken on the basis of Section 113.13of the Code of Federal Regulations (the "CFR "), Volume 19.  The authority granted to the
United States Customs Service under this provision of the CFR does not include the authority toincrease customs duties.  In contrast, the decision on 19 April 1999 to impose 100 per  cent duties oncertain designated products imported from the European Communities was an action by the USTRand, as explicitly stated in the USTR Notice dated 19 April 1999
47, an action taken pursuant to the
authority granted to the USTR under Section 301 of the Trade Act of 1974.48  This alone need not
necessarily make the 3 March Measure and the 19 April action separate and legally distinct measures.It is perfectly possible for more than one governmental agency to be involved in taking a singlemeasure.  However, in our view, in this case, the fact that two separate agencies of the United Statesgovernment acted separately on two separate occasion s, and pursuant to two distinctly separate legal
authorities, tends to reinforce the notion that the 3 March Measure and the 19 April action were twoseparate and legally distinct measures.
76. Furthermore, and more significantly, we note that nothing in the 3 March Measure in any way
required the United States to impose 100 per cent duties on 19 April 1999.  This measure was taken
pursuant to Section 113.13 of the CFR.  We note that there is nothing in this particular regulation that
requires that increased bonding be accompanied by increased customs duties.  Nor doesSection 113.13 permit customs authorities to increase customs duties, irrespective of whether bondingrequirements are increased or not.
77. We also note that the 3 March Measure was not in any way a prerequisite for the imposition
of 100 per cent duties on 19 April 1999.  The 19 April action was taken by the USTR under authorityfound in Section 301 of the Trade Act of 1974.  We note that there is nothing in Section 301 that inany way requires an increase in customs duties to  be preceded or accompanied by any change in
bonding requirements.  Moreover, we think it significant that there is no perceptible correlation
between the amount of the increase in bonding requirements implemented on 3 March 1999 and the
100 per cent customs duties provided for by the 19 April action.  The increase in bondingrequirements implemented on 3 March 1999 was not calculated on the basis of the imposition of100 per cent duties, but was fixed at an amount equal to 10 per cent of the entered value of thedesignated products in the preceding year.
49  All this, in our view, reinforces the legal distinctiveness
of what the United States did on 3 March and what it did on 19 April 1999.
                                                     
4764 Fed. Reg. 19,210 (1999).
4819 U.S.C. § 2411.
49Panel Report, para. 6.47.WT/DS165/AB/R
Page 23
78. The European Communities has stressed, and we are mindful that, when the United States
decided on 19 April 1999 to impose 100 per cent duties on certain designated products from theEuropean Communities, that decision applied  retroactively  to those designated products imported on
or after 3 March 1999.  However, this retroactive application of duties as of 3 March 1999 does notmean that the United States had already decided, as a matter of law, on 3 March 1999, to impose100 per cent duties.  As we have just explained, under Section 301 of the Trade Act of 1974, theUnited States could just as easily have imposed the increased duties retroactively to 3 March 1999
without having increased the bonding requirements on 3 March 1999.  Thus, unlike the European
Communities, we do not see this element of retroact ivity as necessarily leading to the conclusion that
the 3 March Measure and the 19 April action are one and the same.
79. Reinforcing this view is the fact that, as the United States explained to the Panel:
… the increased 3 March bonding requirements were removed for
entries of merchandise not to be included on the April 19 list within a
few days of the Article 22.6 Arbitrator’s April 6 report, and wereremoved on April 19 for all remaining products.
50
Thus, as of 19 April 1999, imports of the products from the European Communities on which
100 per cent duties are imposed were subject once again to the normal United States bondingrequirements.
80. In the "Conclusions and Recommendations" section of the Panel Report, the Panel, on the one
hand, found that "the 3 March Measure is no longer in existence"
51 and, on the other hand,
recommended "that the Dispute Settlement Body request the United States to bring its measure intoconformity with its obligations under the WTO Agreement."
52  We note that the European
Communities appeals the Panel's finding that "the 3 March Measure is no longer in existence".  As wehave discussed, the European Communities contends that the 3 March Measure includes the
imposition of the 100 per cent duties currently applied to certain designated products imported from
the European Communities.  For the reasons we have stated, we disagree.
81. We note, though, that there is an obvious inconsistency between the finding of the Panel that
"the 3 March Measure is no longer in existence" and the subsequent recommendation of the Panel thatthe DSB request that the United States bring its 3 March Measure into conformity with its WTO
                                                     
50United States' appellee's submission, para. 23, referring to United States' second written submission,
para. 11 and the United States' responses to questions by the Panel (8 February 2000), para. 21.
51Panel Report, para. 7.1.
52Ibid., para. 7.3.WT/DS165/AB/R
Page 24
obligations.  The Panel erred in recommending that  the DSB request the United States to bring into
conformity with its WTO obligations a measure which the Panel has found no longer exists.
82. For all these reasons, we conclude that the Panel correctly found that the measure at issue in
this dispute is the 3 March Measure, which is the "increased bonding requirements as of 3 March onEC listed products"
53,  that this measure is no longer in existence, that the 19 April action is a legally
distinct measure from the 3 March Measure and that the 19 April action is not within the terms ofreference of the Panel.
VI. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU
83. In paragraphs 6.121 to 6.126 of the Panel Report, the Panel stated,  inter alia :
… We consider that the arbitration process pursuant to Article 22 may
constitute a proper WTO dispute settlement procedure to perform the
WTO assessment mandated by the first sentence of Article 21.5 of the
DSU.  … [Article 22.7 of the DSU] gives the arbitration panel the
mandate and the authority to assess the WTO compatibility of the
implementing measure.  Since the Article 22.6 arbitration was giventhe authority to determine "a level of suspension equivalent to the
level of nullification", it has the authority to assess both variables of
the equation.
54
… Since the Article 22.6 arbitration process was given the authority todetermine "a level of suspension equivalent to the level of
nullification", it has the authority to assess both variables of the
equation, including whether the implementing measure nullifies anybenefit and the level of such nullified benefits.
55
. . .
… we consider that the WTO compatibility determination mandated
by the first sentence of Article 21.5 can be performed by the original
panel or other individuals through the Article 22.6-7 arbitrationprocess. …
56
84. The European Communities appeals these statem ents of the Panel.  According to the
European Communities, the WTO-consistency of a measure taken by a Member to comply with
recommendations and rulings of the DSB cannot be determined by arbitrators appointed underArticle 22.6 of the DSU.
                                                     
53Panel Report, para. 6.21
54Ibid., para. 6.121.
55Ibid., para. 6.122.
56Ibid., para. 6.126.WT/DS165/AB/R
Page 25
85. In our view, the question that arises with respect to the Panel's statements on the mandate of
Article 22.6 arbitrators is the following:  was the issue of the mandate of arbitrators appointed underArticle 22.6 of the DSU in any way pertinent to the Panel's determination of the claims relating to themeasure at issue in this dispute?
86. The sequence of events that provides the bac kground to this dispute is relevant to resolving
this issue.  On 2 February 1999, in the dispute in  European Communities – Bananas , the
United States requested authorization from the DSB to suspend the application of concessions or other
obligations with respect to the European Communities  pursuant to Article 22.2 of the DSU.  On the
same day, the European Communities requested, pursuant to Article 22.6 of the DSU, arbitration onthe level of suspension of concessions or other obligations proposed by the United States.  Thearbitrators were unable to issue their decision on 2 March 1999, which was the deadline for thecirculation of their decision, in accordance with the 60-day time-frame provided for in Article 22.6 ofthe DSU.  On the following day, the United States took the 3 March Measure "as a retaliationmeasure", with the aim of redressing "a perceived WTO violation by the European Communities".
57
The arbitrators circulated their decision on 9 April 1999.  On 19 April 1999, the United Statesrequested, and received, authorization from the DSB to suspend the application of concessions or
other obligations in the amount determined by the ar bitrators. Subsequent to this authorization, the
United States took the 19 April action.
87. This sequence of events is not contested by the parties.  In particular, it is not contested that
the United States took the 3 March Measure  before   the Article 22.6 arbitrators had issued their
decision.  Thus, the issue of whether it is within the mandate of arbitrators appointed underArticle 22.6 to determine the WTO-consistency of implementing measures was not, and could nothave been, relevant to the Panel's determination of  the claims relating to the 3 March Measure.  This
issue could only be relevant with respect to claims relating to the 19 April action, a measure takenafter  the decision of the Article 22.6 arbitrators and the subsequent authorization of the DSB based on
that decision.
88. However, as we have already concluded, the Panel correctly found that the measure at issue in
this dispute is the 3 March Measure and that the 19 April action is not within the terms of reference ofthe Panel.
89. Having found that the 3 March Measure is the measure at issue in this dispute, and that the
19 April action is outside its terms of reference, the Panel should have limited its reasoning to issuesthat were relevant and pertinent to the 3 March Measure.  By making statements on an issue that is
                                                     
57Panel Report, paras. 6.33-6.34.WT/DS165/AB/R
Page 26
only relevant to the 19 April action, the Panel failed to follow the logic of, and thus acted
inconsistently with, its  own finding  on the measure at issue in this dispute.  The Panel, therefore,
erroneously made statements that relate to a measure which it had  itself  previously determined to be
outside its terms of reference.
90. For these reasons, we conclude that the Panel erred by making the statements in
paragraphs 6.121 to 6.126 of the Panel Report on the mandate of arbitrators appointed underArticle 22.6 of the DSU.  Therefore, these statements by the Panel have no legal effect.
91. In coming to this conclusion, we are cognizant of the important systemic issue of the
relationship between Articles 21.5 and 22 of the DSU.  As the United States correctly points  out in itsappellee's submission, the terms of Articles 21.5 and 22 are not a "model of clarity" and therelationship between these two provisions of the DSU has been the subject of intensive and extensivediscussion among Members of the WTO.
58  We note that, on 10 October 2000, eleven Members of the
WTO presented a proposal in the General Council to amend,  inter alia , Articles 21 and 22 of the
DSU.59
92. In so noting, we observe that it is certainly not the task of either panels or the Appellate Body
to amend the DSU or to adopt interpretations within the meaning of Article IX:2 of the  WTO
Agreement .  Only WTO Members have the authority to amend the DSU or to adopt such interpretations.
Pursuant to Article 3.2 of the DSU, the task of panels and the Appellate Body in the disputesettlement system of the WTO is "to preserve the rights and obligations of Members under the coveredagreements, and to  clarify the existing provisions  of those agreements in accordance with customary
rules of interpretation of public international law." (emphasis added)  Determining what the rules and
procedures of the DSU ought to be is not our responsibility nor the responsibility of panels;  it is clearlythe responsibility solely of the Members of the WTO.
VII. The Effect of DSB Authorization to Suspend Concessions or Other Obligations
93. The European Communities appeals the following statement of the Panel:
Once a Member imposes DSB authorised suspensions of concessions
or obligations, that Member's measure is WTO compatible (it was
explicitly authorised by the DSB).
60
                                                     
58United States' appellee's submission, para. 39 and footnote 85.
59WT/GC/W/410.
60Panel Report, para. 6.112.WT/DS165/AB/R
Page 27
94. The European Communities argues that this stat ement is incorrect and should be reversed.
According to the European Communities, DSB authorization to suspend concessions or otherobligations does not have the automatic and unrebuttable effect of rendering a measure suspending theapplication of concessions or other obligations WTO-consistent.  The European Communities arguesthat DSB authorization is a necessary, but not a sufficient, condition in order to implement legally asuspension of concessions or other obligations.
95. We note that the claims before the Panel, as they related to the 3 March Measure, were that
the United States had suspended the application of concessions or other obligations  without  DSB
authorization.  Thus, the issue before the Panel was that of the  absence  of DSB authorization.
96. The statement of the Panel relates to the effect of DSB authorization,  once granted .  In the
context of this dispute, the issue of the effect of DSB authorization,  once granted , could only arise
with respect to the 19 April action, which is a measure taken to suspend concessions  after the
United States had  received  DSB authorization.  However, as we have already established, the Panel
correctly found that the measure at issue in this di spute is the 3 March Measure, and that the 19 April
action is not within its terms of reference.  Having found that the 3 March Measure is the measure atissue in this dispute, and that the 19 April action is outside its terms of reference, the Panel should
have limited itself to issues that were relevant and pertinent to the 3 March Measure.  By making a
statement on an issue that is only relevant to the 19 April action, the Panel acted inconsistently withits  own finding on the measure at issue in this dispute.  The Panel erroneously made a statement that
relates to a measure which it had  itself  previously determined to be outside its terms of reference.
97. For these reasons, we consider that the Panel erred by stating that "[o]nce a Member imposes
DSB authorised suspensions of concessions or obligations, that Member's measure is WTOcompatible (it was explicitly authorised by the DSB)".
61  Therefore, this statement by the Panel has no
legal effect.
                                                     
61Panel Report, para. 6.112.WT/DS165/AB/R
Page 28
VIII.  Articles II:1(a) and II:1(b), first sentence, of the GATT 1994
98. The Panel found that:
… the increased bonding requirements of the 3 March Measure, as
they provided a treatment less favourable than in the United States'
Schedules, violated Article II:1(a) of GATT.  The 3 March Measurealso violated Article II:1(b), first sentence, as it was guaranteeing and,
therefore, enforcing tariffs above their bound levels.
62
99. The Panel also found that:
… any additional interest, charges and costs incurred in connection
with the lodging of the additional bonding requirements of the
3 March Measure violated Article II:1(b) of GATT.63
100. The United States does not appeal the Panel's finding of inconsistency with Article II:1(b),
second sentence, of the GATT 1994.  During the oral hearing in this appeal, the United States
conceded that it follows from this finding of th e Panel that the increased bonding requirements are
inconsistent with Article II:1 (b), second sentence.  We agree.
101. The United States appeals only the Panel's findings that the increased bonding requirements
of the 3 March Measure were inconsistent with Article II:1(a) and the first sentence of Article II:1(b)of the GATT 1994.  In support of its appeal, the United States submits that:
[t]he Panel … made its finding[s] based not on the conclusion that the
bonding requirements themselves breached the obligations in
question, but because the duties they might be called upon to enforce
(if imposed) would breach those obligations.64
102. The Panel's findings on the inconsistency of the increased bonding requirements with
Article II:1(a) and the first sentence of Article II:1(b) are based on the reasoning that the increasedbonding requirements were linked to the collection of 100 per cent duties, insofar as the increasedbonding requirements were imposed at a level that would guarantee the collection of these duties.Thus, the Panel reasoned that:
                                                     
62Panel Report, para. 6.59.  See also Panel Report, para. 6.72.  We note that one panelist disagreed with
this majority view, see Panel Report, paras. 6.60-6.61.
63Panel Report, para. 6.67.  See also Panel Report, para. 6.72.
64United States' appellant's submission, para. 5.WT/DS165/AB/R
Page 29
The 3 March additional bonding requirements were established at a
level which would guarantee the collection of 100  per cent duties.  We
have found that the bonding requirements should be assessed together
with the rights/obligations they purport to protect, being in this case,
the right to collect tariffs at bound levels.  The 3 March Measure
imposed additional bonding requirements to guarantee collection of100 per cent tariff duty. The 3 March additional bonding requirements
increased the contingent tariff liability for EC listed products above
their bound levels, all of which are much lower than 100  per cent
ad valorem (the highest is 18 per cent).  In fact, on 3 March, with the
additional bonding requirements on EC listed imports, the
United States began 'enforcing' the imposition of 100 per cent tariff
duties on the EC listed imports, contrary to the levels bound in itsSchedule.
65
The Panel, thus, found that the increased bonding requirements of the 3 March Measure are
inconsistent with Article II:1(a) and also with the first sentence of Article II:1(b) of the GATT 1994
because  the 100 per cent duties to which they were linked, would, if imposed, be duties above bound
levels, and thus, inconsistent with these provisions.
103. We have previously upheld the findings of the Panel that the measure at issue in this dispute is
the increased bonding requirements imposed by the 3 March Measure and that the 19 April action,which imposes 100 per cent duties, is not within the terms of reference of the Panel.
66  The task of the
Panel, as the Panel had itself defined it in its finding on the terms of reference, was, therefore, toexamine the GATT 1994-consistency of the increased bonding requirements;  the Panel's task was notto examine the GATT 1994-consistency of the imposition of 100 per cent duties.
104. Nevertheless, the Panel examined the GATT 1994-consistency of the increased bonding
requirements  in the light of  the GATT 1994-consistency of the imposition of 100 per cent duties, and
concluded, on the basis of this examination, that the increased bonding requirements are inconsistentwith Articles II:1(a) and II:1(b), first sentence, of the GATT 1994.  As the Panel had previouslyconcluded that the imposition of 100 per cent duties and the increased bonding requirements werelegally distinct measures, and that the imposition of 100 per cent duties was not in the Panel's terms ofreference, the Panel could not, based on this reasonin g, have come to the conclusion that the increased
bonding requirements are inconsistent with Articles II:1(a) and II:1(b), first sentence, of theGATT 1994.
105. We, therefore, conclude that the Panel erred in finding that the increased bonding
requirements are inconsistent with Article II:1 (a) and Article II:1(b), first sentence, of the
GATT 1994, and we reverse these findings of the Panel.
                                                     
65Panel Report, para. 6.58.
66See  supra, para. 82.WT/DS165/AB/R
Page 30
IX. Articles 23.2(a), 3.7 and 21.5 of the DSU
106. The Panel found that, by adopting the 3 March Measure, the United States acted
inconsistently with its obligations under Articles 3.7, 21.5, 22.6, 23.1, 23.2(a) and 23.2(c) of the DSU.The United States appeals the Panel's findings of inconsistency with Articles 23.2(a), 3.7 and 21.5 ofthe DSU.
(a) Article 23.2(a) of the DSU
107. We first examine the appeal of the United States relating to Article 23.2(a) of the DSU.  The
Panel found that:
… the 3 March Measure constituted a unilateral determination
contrary to Article 23.2(a) …
67
108. The United States contends that the European Communities' request for the establishment of a
panel referred only to Article 23 of the DSU, and that the Appellate Body should reverse the Panel's
finding of inconsistency with Article 23.2(a) on th e basis that the panel request of the European
Communities was insufficient to "present the problem clearly" as required by Article 6.2 of the DSU.The United States also argues that the European Communities "never requested or argued for"findings under Article 23.2(a), and that the European Communities failed to meet its burden ofestablishing a  prima facie  case of inconsistency with Article 23.2(a) of the DSU.  The United States
further submits that the Panel incorrectly found that a "determination as to the effect that a violationhas occurred", within the meaning of Article 23.2(a) of the DSU, could be "implied" from the actionstaken by the United States.
109. The request for the establishment of a panel of the European Communities stated:
The European Communities considers that this US measure is in
flagrant breach of the following WTO provisions:
- Articles 3, 21, 22 and 23 of the DSU;
- Articles I, II, VIII and XI of GATT 1994.
68
                                                     
67Panel Report, para. 6.107.
68WT/DS165/8, 11 May 1999.WT/DS165/AB/R
Page 31
110. Article 23 of the DSU states, in relevant part:
1. When Members seek the redress of a violation of obligations
or other nullification or impairment of benefits under the
covered agreements or an impediment to the attainment ofany objective of the covered agreements, they shall have
recourse to, and abide by, the rules and procedures of this
Understanding.
2. In such cases, Members shall:
(a) not make a determination to the effect that a violation
has occurred, that benefits have been nullified or
impaired or that the attainment of any objective of the
covered agreements has been impeded, except
through recourse to dispute settlement in accordance
with the rules and procedur es of this Understanding,
and shall make any such determination consistent
with the findings contained in the panel or Appellate
Body report adopted by the DSB or an arbitration
award rendered under this Understanding;  …
111. Article 23.1 of the DSU imposes a general obligation of Members to redress a violation of
obligations or other nullification or impairment of benefits under the covered agreements only byrecourse to the rules and procedures of the DSU, and not through unilateral action.Subparagraphs (a), (b) and (c) of Article 23.2 articulate specific and clearly-defined forms ofprohibited unilateral action contrary to Article 23.1 of the DSU.  There is a close relationship betweenthe obligations set out in paragraphs 1 and 2 of Article 23.  They  all concern the obligation of
Members of the WTO not to have recourse to unilateral action.  We therefore consider that, as the
request for the establishment of a panel of the European Communities included a claim of
inconsistency with Article 23, a claim of inconsistenc y with Article 23.2(a) is within the Panel's terms
of reference.
112. However, the fact that a claim of inconsistency with Article 23.2(a) of the DSU can be
considered to be within the Panel's terms of reference does not mean that the European Communitiesactually made such a claim.  An analysis of the Panel record shows that, with the exception of twoinstances during the Panel proceedings
69, the European Communities did not refer  specifically  to
Article 23.2(a) of the DSU.  Furthermore, in response to a request from the United States to clarify the
scope of its claim under Article 23, the European Communities asserted only claims of violation                                                     
69In paragraph 42 of its oral statement at the second Panel meeting, the European Communities cites
Article 23.2(a) in support of its argument in paragraph 43 that "the revised EC banana regime ... was never
determined to be incompatible with the EC's WTO obligations in a dispute settlement procedure initiated by the
US".  In paragraph 86 of its second written submission, the European Communities argues that Articles 23.1 andArticle 23.2(a) "specify that such a [determination] can only be made under the rules and procedures of theDSU".WT/DS165/AB/R
Page 32
of Articles 23.1 and 23.2(c) of the DSU;  no mention was made of Article 23.2(a).70  Our reading of
the Panel record shows us that, throughout the Panel proceedings in this case, the EuropeanCommunities made arguments relating only to its claims that the United States acted inconsistentlywith Article 23.1 and Article 23.2(c) of the DSU.
71
113. The Panel record does show that the European Communities made several references to what
it termed the "unilateral determination" of the United States.72  However, in those references, the
European Communities did not specifically link the alleged "unilateral determination" to a claim of
violation of Article 23.2(a)  per se .  The European Communities' arguments relating to the alleged
"unilateral determination" of the United States were made with reference to the alleged failure on thepart of the United States to redress a perceived WTO violation through recourse to the DSU asrequired by Article 23.1 of the DSU.  At no point did the European Communities link the notion of a"unilateral determination" on the part of the United States with a violation of Article 23.2(a).
114. On the basis of our review of the European Communities' submissions and statements to the
Panel, we conclude that the European Communities did not specifically claim before the Panel that,
by adopting the 3 March Measure, the United States acted inconsistently with Article 23.2(a) of theDSU.  As the European Communities did not make a specific claim of inconsistency with
Article 23.2(a), it did not adduce any evidence or arguments to demonstrate that the United States
made a "determination as to the effect that a violation has occurred" in breach of Article 23.2(a) of the
                                                     
70In its response to the United States' request for clarification, the European Communities explained as
follows:
As we have already explained in detail in our first written submission, the USmeasures that are the subject matter of the present complaint by the EuropeanCommunities were taken in flagrant violation of the obligations of all WTO
Members to respect the provisions of Article 23 of the DSU. . .
The guiding principle of Article 23 is contained in its paragraph 1 which also
governs the more detailed provisions of paragraph 2 . . .
The European Communities then quoted Article 23.2(c) of the DSU in full and argued:
The EC submits that the measures complained of in the present case are
obviously in breach of this explicit provision concerning the sequence
between the procedures under Article 22 of the DSU and the recourse to the
suspension of concessions or other obligations.
See paragraphs 13-15 of the European Communities' oral statement at the first Panel meeting.
71The two specific references to Article 23.2(a) of the DSU, in paragraph 42 of the European
Communities' oral statement at the second Panel meeting and in paragraph 86 of the European Communities'
second written submission (see  supra , footnote 70), were made in the context of the European Communities'
arguments on its claim of violation of the general obligation in Article 23.1 of the DSU.
72European Communities' first written submission, paras. 5, 10, 20, and 28;  European Communities'
second written submission, para. 30;  and European Communities' oral statement at second Panel meeting,
Addendum to the Panel Report, p. 44.WT/DS165/AB/R
Page 33
DSU.73  And, as the European Communities did not adduce any evidence or arguments in support of a
claim of violation of Article 23.2(a) of the DSU, the European Communities could not have
established, and did not establish, a  prima facie  case of violation of Article 23.2(a) of the DSU.74
115. For these reasons, we conclude that the Panel erred in finding that the United States acted
inconsistently with Article 23.2(a) of the DSU.  Therefore, we reverse this finding of the Panel.
(b) Article 3.7 of the DSU
116. We next examine the appeal of the United States relating to Article 3.7 of the DSU.  In
paragraph 6.87 of the Panel Report, the Panel found that:
… the 3 March Measure constituted a suspension of concessions or
other obligations within the meaning of Articles 23.2(c), 3.7 last
sentence and 22.6 last sentence, …  Having reached the prior
conclusion that the 3 March Measure was a measure seeking to
redress a WTO violation within the meaning of Article 23.1, we find
that when it put in place the 3 March Measure, prior to any DSBauthorization … the United States did not abide by the rules of the
DSU - violating Articles 23.2(c), 3.7 and 22.6 of the DSU ...
117. We recall that the United States does not appeal the Panel's findings of inconsistency with
Articles 22.6 and 23.2(c) of the DSU.  Instead, the United States appeals the Panel's finding of
inconsistency with Article 3.7 of the DSU.  The United States argues that the European Communities"never requested or argued for" findings under Article 3.7 of the DSU.
75  Furthermore, the
United States submits that the Panel erred in concluding that Article 3.7, last sentence, contains aspecific obligation which can be the subject of a dispute under the DSU.
                                                     
73We note that in addition to the 3 March Measure, the European Communities referred in its
submissions and statements to the Panel, to various public notices published in the United States' Federal
Register (first written submission, para. 18, and oral statement at first Panel meeting, paras.10-11), as well as tostatements made by the Deputy USTR at a press conference held on 3 March 1999 (first written submission,para. 15).  However, the European Communities has not argued, let alone demonstrated, that any of thesenotices or statements constitute a "determination as to the effect that a violation has occurred" within the
meaning of Article 23.2(a).
74We recall that in our Report in  EC Measures Concerning Meat and Meat Products (Hormones)
("European Communities - Hormones "), we held that:
. . . a  prima facie  case is one which, in the absence of effective refutation by
the defending party, requires a panel, as a matter of law, to rule in favour ofthe complaining party presenting the  prima facie  case.
See WT/DS26/AB/R, WT/DS44/AB/R, adopted 13 February 1998, para. 104.
75United States' appellant's submission, para. 56.WT/DS165/AB/R
Page 34
118. Article 3.7, last sentence, of the DSU states:
The last resort which this Understanding provides to the Member
invoking the dispute settlement procedures is the possibility of
suspending the application of concessions or other obligations underthe covered agreements on a discriminatory basis vis-à-vis the other
Member,  subject to authorization by the DSB of such measures .
(emphasis added)
119. Article 3.7 is part of Article 3 of the DSU, which is entitled "General Provisions" and sets out
the basic principles and characteristics of the WTO dispute settlement system.  Article 3.7 itself lists
and describes the possible temporary and definitive outcomes of a dispute, one of which is the
suspension of concessions or other obligations to which the last sentence of Article 3.7 refers.  Thelast sentence of Article 3.7 provides that the suspension of concessions or other obligations is a "lastresort" that is  subject to DSB authorization.
120. The  obligation  of WTO Members not to suspend concessions or other obligations  without
prior DSB authorization is explicitly set out in Articles 22.6 and 23.2(c), not in Article 3.7 of theDSU.  It is, therefore, not surprising that the European Communities did not explicitly claim, oradvance arguments in support of, a violation of Article 3.7, last sentence.  The European Communitiesargued that the 3 March Measure is inconsistent with Articles 22.6 and 23.2(c) of the DSU.  We
consider, however, that if a Member has acted in breach of Articles 22.6 and 23.2(c) of the DSU, that
Member has also, in view of the nature and content of Article 3.7, last sentence, necessarily actedcontrary to the latter provision.
121. Although we do not believe that it was necessary or incumbent upon the Panel to find that the
United States violated Articles 3.7 of the DSU, we find no reason to disturb the Panel's finding that,by adopting the 3 March Measure, the United States acted inconsistently with "Articles 23.2(c), 3.7and 22.6 of the DSU".
76
(c) Article 21.5 of the DSU
122. Finally, the United States appeals the Panel's finding of inconsistency with Article 21.5 of the
DSU.  The United States argues that this finding was based on "argumentation" that was not presented
by the European Communities and on the "Panel's erroneous conclusion" that the 3 March Measure isinconsistent with Article 23.2(a) of the DSU.
77
                                                     
76Panel Report, para. 6.87.
77United States' appellant's submission, para. 64.WT/DS165/AB/R
Page 35
123. This appeal by the United States raises the question whether a panel is entitled to develop its
own legal reasoning in reaching its findings and conclusions on the matter under its consideration.  Inour Report in  European Communities - Hormones , we held:
Panels are inhibited from addressing legal claims falling outside their
terms of reference.  However, nothing in the DSU limits the faculty of a
panel freely to use arguments submitted by any of the parties - or to
develop its own legal reasoning - to support its own findings and
conclusions on the matter under its consideration.
78
The Panel in this case exercised its discretion to develop its own legal reasoning.  Contrary to what
the United States argues, the Panel was not obliged to limit its legal reasoning in reaching a finding toarguments presented by the European Communities.  We, therefore, do not consider that the Panelcommitted a reversible error by developing its own legal reasoning.
124. The United States further argues that the Panel's finding under Article 21.5 should be reversed
because, in making this finding, the Panel relied on its "erroneous Article 23.2(a) finding".
79
According to the United States, the Panel did not undertake any analysis separate from that underArticle 23.2(a) in finding a violation of Article 21.5.  The United States submits that the Panel:
… simply quoted the language of Article 23.2(a), stated that this
provision prohibits "unilateral determinations" and that the 3 March
Measure "necessarily implies" such a unilateral determination, and
concluded that this unilateral determination was "contrary to
Article 23.2(a) and 21.5 of the DSU".
80
125. The Panel stated in relevant part:
We consider that the obligation to use the WTO multilateral dispute
settlement mechanism (i.e. as opposed to unilateral or even regional
mechanisms) to obtain any determination of WTO compatibility, is a
fundamental obligation that finds  application throughout the DSU.
For us, the prohibition against unilateral determinations of WTOviolation contained in the first sentence of Article 21.5 of the DSU is
comparable to that of Article 23.2(a) of the DSU.
81
                                                     
78Appellate Body Report,  supra,  footnote 74,  para. 156.
79United States' appellant's submission, para. 66.
80Ibid.
81Panel Report, para. 6.92.WT/DS165/AB/R
Page 36
We conclude, therefore, that Article 21.5, first sentence is another
DSU obligation (similar to Article 23.2(a)) which, although not
explicitly listed in Article 23.2, is covered by Article 23.1, when the
measure at issue was seeking to redress a WTO obligation.82
… when the United States put in place the 3 March Measure, no WTOadjudicating body had determined that the EC implementing measurewas WTO incompatible.  The United States, therefore, when it put in
place the 3 March Measure violated Article 21.5 of the DSU …
83
126. Our reading of the Panel Report does not lead us to conclude that the Panel based its finding
of the inconsistency of the 3 March Measure with Article 21.5 on its conclusion that the measure wasinconsistent with Article 23.2(a).  Although the Panel considered that the obligation underArticle 21.5 was "comparable" and "similar" to the obligation under Article 23.2(a), it explicitly statedthat "Article 21.5, first sentence is another DSU obligation … which, although not explicitly listed in
Article 23.2, is covered by Article 23.1 …".
84  The Panel's references to Article 23.2(a) cannot be
construed as the basis upon which the Panel reached its conclusions under Article 21.5.  On thecontrary, the Panel based its finding of inconsistency on the uncontested fact that, when theUnited States put in place the 3 March Measure, the WTO-consistency of the European Communities'implementing measure had not been determined through recourse to the WTO dispute settlementprocedures as required by Article 21.5 of the DSU.
85
127. We, therefore, uphold the Panel's finding that, by adopting the 3 March Measure, the
United States acted inconsistently with its obligations under Article 21.5 of the DSU.
X. Findings and Conclusions
128. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's findings that the measure at issue in this dispute is the 3 March
Measure, which is the "increased bonding requirements as of 3 March on EC listedproducts", that this measure is no longer in existence, that the 3 March Measure islegally distinct from the 19 April action and that the 19 April action is not within theterms of reference of the Panel;
                                                     
82Panel Report, para. 6.129.
83Ibid., para. 6.130.
84Ibid., para. 6.129.
85Ibid., para. 6.130.WT/DS165/AB/R
Page 37
(b) concludes, for the reasons stated in paragraph 89 of this Report, that the Panel erred
by stating that the WTO-consistency of a measure taken by a Member to comply withrecommendations and rulings of the DSB can be determined by arbitrators appointedunder Article 22.6 of the DSU, and, thus, concludes that the Panel's statements on thisissue have no legal effect;
(c) concludes, for the reasons stated in paragraph 96 of this Report, that the Panel erred
by stating that "[o]nce a Member imposes DSB authorised suspensions of
concessions or obligations, that Member's measure is WTO compatible (it was
explicitly authorised by the DSB)", and, thus, concludes that this statement has no
legal effect;
(d) reverses the Panel's findings that the increased bonding requirements are inconsistent
with Articles II:1(a) and II:2(b), first sentence, of the GATT 1994;  and
(e) reverses the Panel's finding that, by adopting the 3 March Measure, the United States
acted inconsistently with Article 23.2(a) of the DSU, finds no reason to disturb thePanel's finding that the United States acted inconsistently with "Articles 23.2(c), 3.7and 22.6 of the DSU", and upholds the Panel's finding of inconsistency of the
3 March Measure with Article 21.5 of the DSU.
129. As we have upheld the Panel's finding that the 3 March Measure, the measure at issue in this
dispute, is no longer in existence, we do not make any recommendation to the DSB pursuant toArticle 19.1 of the DSU.WT/DS165/AB/R
Page 38
Signed in the original at Geneva this 10th day of November 2000 by:
_________________________
James Bacchus
Presiding Member
_________________________ _________________________
Julio Lacarte-Muró Yasuhei Taniguchi
Member Member