INTRODUCTION AND FACTUAL BACKGROUND

On 16 June 1999, the Dispute Settlement Body (“the DSB”) adopted the report and recommendations of the Panel in the dispute Australia - Subsidies Provided to Producers and Exporters of Automotive Leather (WT/DS126/R) (“Australia - Automotive Leather”). In that report, the Panel found that payments under a grant contract between the Government of Australia, and Howe and Company Proprietary Ltd. (“Howe”) and Howe's parent company Australia Leather Holdings, Ltd. (“ALH”) were subsidies within the meaning of Article 1 of the Agreement on Subsidies and Countervailing Measures (“the SCM Agreement”) contingent upon export perform ance within the meaning of Article 3.1(a) of that Agreement, The Panel accordingly recommended, pursuant to Article 4.7 of the SCM Agreement, that Australia withdraw those subsidies without delay, which the Panel specified to be within 90 days.

On 6 July 1999 Australia submitted a communication to the Chairman of the DSB pursuant to Article 21.3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), regarding “surveillance of implementation of recommendations and rulings- time-period for implementation” (WT/DS126/6). In that communication, Australia stated that the United States had been informed at a bilateral meeting in Canberra on 25 June 1999 that Australia intended to implement the DSB recommendations, and that Australia intended to implement the DSB recommendations within the time-frame provided for in the panel report.

On 17 September 1999, Australia submitted to the Chairman of the DSB a “status report by Australia” to inform the DSB of Australia's progress in implementing the recommendations and rulings in the dispute (WT/DS126/7). In that communication, Australia stated that on 14 September 1999, Howe had repaid the Australian Government $A8.065 million, an amount which covered any remaining inconsistent portion of the grants made under the grant contract. Australia further stated that the Australian Government had also terminated all subsisting obligations under the grant contract. Australia concluded that this implemented the recommendations and rulings in the dispute to withdraw the measures within 90 days.

On 4 October 1999, the United States submitted a communication seeking recourse to Article 21.5 of the DSU (WT/DS126/8). In that communication, the United States indicated its view that the measures taken by Australia to comply with the recommendations and rulings of the DSB were not consistent with the SCM Agreement and the DSU.