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1 US —1916 Act, hereafter the “Appellate Body Report” and US —1916 Act (EC), hereafter the “Panel Report”, the panel in this dispute being referred to as the “original Panel”. The Appellate Body Report also upheld the report of the panel in the complaint brought by Japan, US —1916 Act (Japan).

2 Minutes of the DSB meeting of 11 September 2001, WT/DSB/M/107, paragraph 66.

3 WT/DS136/15, 11 January 2002.

4 WT/DS136/16, 18 January 2002.

5 WT/DS136/18, 4 March 2002.

6 We note the parties thus agreed both to postpone the beginning of the proceeding, and to extend the time-frame foreseen in Article 22.6 of the DSU. The Arbitrators agreed to these arrangements.

7 Council Regulation (EC) No. 2238/2003, described below.

8 The submissions of the European Communities referred to its proposed measure alternately as a “mirror regulation” or “mirror legislation.“

9 Panel Report, paragraph 2.1.

10 Ibid.

11 Panel Report, paragraph 6.228.

12 Appellate Body Report, paragraph 155.

13 WT/DS136/15, 11 January 2002.

14 Ibid. The request also stated that “[i]n considering what obligations to suspend, the European Communities has applied the principles and procedures set forth in Articles 22.3 and 22.4 of the DSU.“

15 WT/DS136/16, 18 January 2002.

16 Methodology Paper of the European Communities,6 October 2003, paragraphs 8-9.'

17 Ibid., paragraph 10.

18 Decision by the Arbitrators, EC —Hormones (US) (Article 22.6 —EC), paragraphs 9-11. Original emphasis.

19 Other arbitrators have similarly referred to the burden of proof enunciated by the arbitrators in the EC —Hormones decisions. See, for example: Decision by the Arbitrators, EC —Bananas III (Ecuador) (Article 22.6 —EC), paragraphs 37-38; Decision by the Arbitrators, Brazil —Aircraft (Article 22.6 —Brazil), paragraph 2.8 and footnote 12; Decision by the Arbitrator, US — FSC (Article 22.6 — US), paragraph 2.10 and footnote 18.

20 The European Communities argues that: “Article 22.2 of the DSU (and Article XXIIL2 GATT) offers to the Member which is suffering from nullification and impairment the possibility to request the suspension of concessions or other obligations or both. This choice falls within the Member's discretion which escapes a review by the arbitrators by virtue of Article 22.7 of the DSU.“ Written Submission of the European Communities, 3 November 2003, paragraph 8. Original emphasis. Although the United States objected to the EC request on other grounds, it did not challenge the EC choice to seek the suspension of “obligations“: “[T]he choice of whether to suspend “concessions” or “other obligations” would appear to be the choice of the complaining party, and there is nothing in the DSU that would indicate a basis for an arbitrator to find that the choice had been exercised inappropriately, other than the procedures under Article 22.3. At the same time, the distinction would appear to make little difference since the two terms are used interchangeably in Article 22. The United States is not raising a claim in this proceeding that requires distinguishing between a ‘concession’ and an ‘other obligation.“ Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 2.

21 Written Submission of the United States, 20 October 2003, paragraph 35.

22 Answers of the European Communities to the Questions of the Arbitrator, 20 November 2003, paragraphs 40-41.

23 Canada —Aircraft Credits and Guarantees (Article 22.6 —Canada), paragraph 4.1.

24 Brazil —Aircraft (Article 22.6 —Brazil), paragraph 4.1. Although both Canada —Aircraft Credits and Guarantees and Brazil — Aircraft primarily involved requests for “appropriate countermeasures” under the SCM Agreement, in both disputes the requests for countermeasures also cited DSU Article 22.2.

25 EC —Bananas III (Ecuador) (Article 22.6 —EC), paragraph 173.

26 EC — Bananas III (US) (Article 22.6 — EC), paragraph 8.1; EC — Hormones (US) (Article 22.6 — EC), paragraph 84; EC — Hormones (Canada) (Article 22.6 —EC), paragraph 73.

27 EC —Hormones (US) (Article 22.6 —EC), footnote 16. We note that the arbitrators in EC —Bananas III (Ecuador) (Article 22.6 — EC) also quoted this statement. EC —Bananas III (Ecuador) (Article 22.6 —EC), footnote 12.

28 Council Regulation (EC) No. 2238/2203 of 15 December 2003 (OJ L 333 of 20.12.2003, p. 1).

29 Letter from the United States to the Arbitrators, 5 January 2004, and Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 29.

30 Letter from the European Communities to the Arbitrators, 7 January 2004.

31 Ibid. Original emphasis.

32 Ibid. Original emphasis.

33 EC —Hormones (US) (Article 22.6 —EC), paragraph 12. Footnotes omitted.

34 EC —Bananas (Ecuador) (Article 22.6 —EC), paragraphs 12-13.

35 Decision by the Arbitrator, Canada —Aircraft Credits and Guarantees (Article 22.6 — Canada), paragraph 3.51, footnote omitted.

36 Written Submission of the European Communities, 3 November 2003, paragraph 6.

37 According to the United States, “[s]uch a purpose would confirm that there should be no suspension authorized if the complaining party is not suffering nullification or impairment. Otherwise the complaining party would enjoy a greater level of benefits than it had negotiated under the covered agreements.” The United States is also of the view that” [w]hatever the purposes for the suspension of concessions or other obligations, the standard under Article 22.7 is equivalence.” Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 33 and footnote 15.

38 Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 68.

39 EC -Bananas III (US) (Article 22.6 -EC), paragraph 6.3.

40 EC — Bananas III (Ecuador) (Article 22.6 — EC), paragraph 76.

41 Canada —Aircraft Credits and Guarantees (Article 22.6 — Canada), paragraph 3.105. The arbitrator in that case also stated that: “[u]nder Article 22.1 of the DSU and Article 4.10 of the SCM Agreement, non-compliance is the very event justifying the adoption of countermeasures.” Moreover, they noted that: ”… the EC —Bananas Arbitrators, referring to [DSU Article 22.1], expressed the view that suspension of concessions or other obligations was intended to induce compliance because it was temporary.” Ibid.

42 Written Submission of the European Communities, 3 November 2003, paragraphs 3, 17-18.

43 Ibid., paragraph 18.

44 On 3 December 2003, subsequent to this US submission, the United States District Court for the Northern District of Iowa issued a damage award against a Japanese company under the 1916 Act. This was the first such award under the 1916 Act. This is discussed below.

45 Oral Statement of the United States, 13 November 2003, paragraph 6.

46 EC —Hormones (US) (Article 22.6 —EC), paragraph 20, original emphasis; and EC —Hormones (Canada) (Article 22.6 —EC), paragraph 20, original emphasis.

47 Decision by the Arbitrator, US —FSC (Article 22.6 — US), paragraphs 5.46-5.47.

48 We recall that we asked the United States if “reciprocal or ‘mirror’ retaliation — suspension of the same obligations which have been breached by the Member which is the object of the retaliation — is in principle permissible under the DSU provided that the level of suspension is equivalent to the level of nullification or impairment.” The United States indicated in its reply that it “agrees that the suspension of the same obligations is, in principle, permissible under the DSU provided that the level of suspension is equivalent to the level of nullification or impairment.” Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 38. Original emphasis.

49 The European Communities agrees that obligations cannot be suspended in a punitive manner: ” [O]ne could very well imagine that the best means to induce compliance would be to provide for punitive sanctions. However, the DSU does not allow for such a possibility. Instead, it explicitly limits the level of suspension of concessions or other obligations to the level of nullification, Article 22.4 of the DSU.“ Oral Statement of the European Communities, 13 November 2003, paragraph 14.

50 EC —Hormones (Canada) (Article 22.6 —EC), paragraph 41. Footnotes omitted.

51 Ibid., paragraph 21.

52 Award of the Arbitrators, US —Section 110(5) Copyright Act (Article 25.3).

53 Ibid., paragraph 3.18.

54 Ibid., footnote 38. The arbitrators also provided examples of prior decisions in which the determination of benefits was calculated in economic terms: “See, e.g., the Decisions of the Arbitrators on EC —Bananas III (22.6) (US), supra, para. 6.12 (benefits nullified or impaired: losses in US exports of goods and losses by US service suppliers in services supply); European Communities —Regime for the Importation, Sale and Distribution of Bananas —Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB/ECU, 24 March 2000, footnote 52 (benefits nullified or impaired: losses by Ecuador of actual trade and of potential trade opportunities in bananas and the loss of actual and potential distribution service supply); European Communities —Measures Concerning Meat and Meat Products (Hormones) — Original Complaint by the United States —Recourse to Arbitration by the European Communities under Article 22.6 of the DSU (hereafter “EC — Hormones (22.6) (US)“), WT/DS26/ARB, 12 July 1999, para. 41 (benefits nullified or impaired: foregone US exports of hormone-treated beef and beef products); European Communities — Measures Concerning Meat and Meat Products (Hormones) — Original Complaint by Canada —Recourse to Arbitration by the European Communities under Article 22.6 of the DSU (hereafter “EC -Hormones (22.6) (Canada)“), WT/DS48/ARB, 12 July 1999, para. 40 (benefits nullified or impaired: foregone Canadian exports of hormone-treated beef and beef products).” Ibid., footnote 39.

55 Brazil —Aircraft (Article 22.6 —Brazil), paragraph 4.2.

56 Written Submission of the European Communities, 3 November 2003, paragraph 59.

57 Ibid., paragraph 60.

58 Answers of the United States to the Arbitrator's Questions to the Parties, 20 November 2003, paragraph 62.

59 In a reply to a question by the Arbitrators, the European Communities stated that: ” [the] arbitrators may attach conditions that they consider necessary in order to ensure the equivalence between the two relevant levels. For instance, if the European Communities had the intention to adopt a mirror legislation whereby treble special duties could be imposed without showing a specific intent of destroying the EC industry etc. the arbitrators could ask the European Communities to insert this condition in order to ensure equivalence. Similarly, if the European Communities would provide for the imposition [of] special duties of ten times the damage suffered by the EC company or companies the arbitrators could decide that the equivalent level permits only the imposition of special duties of three times the damage suffered (analogous to the treble damages award of the 1916 Act).“ Answers of the European Communities to the Questions of the Arbitrator, 20 November 2003, paragraph 25.

60 EC —Hormones (US) (Article 22.6 —EC), paragraphs 18-19, original emphasis; EC —Hormones (Canada) (Article 22.6 —EC), paragraphs 18-19, original emphasis.

61 Written Submission of the United States, 20 October 2003, paragraph 27.

62 Written Submission of the European Communities, 3 November 2003, paragraphs 14-15.

63 EC —Bananas III (US) (Article 22.6 —EC), paragraph 6.10, quoted in the Written Submission of the United States, 20 October 2003, paragraph 27.

64 Answers of the European Communities to the Questions of the Arbitrator, 20 November 2003, paragraph 16.

65 EC —Hormones (US) (Article 22.6 —EC), paragraph 41. Emphasis added. In support of this position, the EC —Hormones (US) (Article 22.6 —EC) arbitrators quoted from EC —Bananas HI (US) (Article 22.6 —EC): “We are of the view that the benchmark for the calculation of nullification or impairment of US trade flows should be losses in US exports of goods to the European Communities and losses by US service suppliers in services supply in or to the European Communities. However, we are of the opinion that losses of US exports in goods or services between the US and third countries do not constitute nullification or impairment of even indirect benefits accruing to the US under the GATT or the GATS for which the European Communities could face suspension of concessions.“ EC —Bananas III (US) (Article 22.6 —EC), paragraph 6.12, italics in original.

66 EC —Hormones (US) (Article 22.6 —EC), paragraph 77.

67 Canada —Aircraft Credits and Guarantees (Article 22.6 — Canada), paragraph 3.22.

68 Written Submission of the European Communities, 3 November 2003, paragraph 31.

69 Ibid., paragraph 32.

70 US — Section 301 Trade Act, paragraph 7.81.

71 Written Submission of the European Communities, 3 November 2003, paragraph 33.

72 Ibid., paragraph 34.

73 Answers of the United States to the Arbitrator's Additional Questions to the Parties, 16 December 2003, paragraphs 2-3.

74 We note that if the 1916 Act has a “chilling” effect — an issue on which we take no position — the EC's proposed suspension of obligations would presumably have the same effect. Concomitantly, if the 1916 Act has no “chilling” effect, then the EC's proposed suspension of obligations presumably would have no “chilling effect” either.

75 Comments of the United States on the Answers of the European Communities to the Additional Questions of the Arbitrator, 22 December 2003, paragraph 3.

76 Answers by the European Communities to the Additional Questions of the Arbitrator, 16 December 2003, paragraph 1.

77 Comments of the European Communities on the US Replies to the Additional Questions of the Arbitrator, 22 December 2003, paragraph 8.

78 Methodology Paper of the European Communities, 6 October 2003, paragraph 4. The European Communities also referred to related costs, including “the hidden business costs for those companies that are obliged to defend themselves.” Answers of the European Communities to the Questions of the Arbitrator. 20 November 2003, paragraph 48.

79 Written Submission of the United States, 20 October 2003, paragraph 30.

80 Written Submission of the European Communities, 3 November 2003, paragraph 30.

81 Written Submission of the European Communities, 3 November 2003, paragraph 29.

82 Answers of the European Communities to the Questions of the Arbitrator, 20 November 2003, paragraph 49.

83 Comments of the United States on the Answers of the European Communities to the Additional Questions of the Arbitrator, 22 December 2003, paragraph 8.

84 Comments of the United States on the Answers of the European Communities to the Additional Questions of the Arbitrator, 22 December 2003, paragraph 14.

85 The European Communities stated that: “Despite its efforts, the European Communities has not been able to obtain the text of the settlement agreements. In the case Goss International vs. MAN Roland, Koenig &Bauer the European Communities was informed that the US company objected to the disclosure of the agreement. The European Communities has no legal means to enforce the disclosure of the terms of the agreement as provided for under the confidentiality terms of the agreement. Finally, the European Communities is informed that even a direct request by the arbitrators to the companies would not satisfy the conditions in the settlement agreement and that unauthorized release of the document could expose the European companies to further legal action in the United States.“ Comments of the European Communities on the US Replies to the Additional Questions of the Arbitrator, 22 December 2003, paragraph 10.

86 The United States advised that it had contacted parties to the recent 1916 Act litigation to seek information on the terms of settlement in those cases. However, according to the United States: ”… those settlement agreements between the private litigants in each case are subject to confidentiality provisions that preclude access by non-parties. These confidentiality provisions are court-enforced, separate and apart from any concerns of business confidentiality. Neither party has the authority to reveal the terms of the settlement. Consequently, the United States cannot gain access to the terms of the settlement and is therefore not in a position to judge their impact, if any.“ Answers of the United States to the Arbitrator's Additional Questions to the Parties, 16 December 2003, paragraph 7.

87 The European Communities put before the Arbitrators a damage award against a Japanese company under the 1916 Act, issued on December 3, 2003 by the United States District Court for the Northern District of Iowa. The European Communities noted that this constituted the first award issued under the 1916 Act. The European Communities argued that: ”… the company Goss International obtained the first ever damages award under the 1916 Act against the Japanese company TKS. The damages were set at US-$ 31,5 million ….The European Communities would note that… European companies … were originally sued in the same process that was brought against TKS until they entered into a settlement agreement with Goss in December 2002. However, if the damage award against TKS were to be extrapolated to both companies they could have easily faced damages up to US-S 100 million plus even more extended legal fees and hidden stalled business costs.“ Answers of the European Communities to the Additional Questions of the Arbitrator, 16 December 2003, paragraphs 10-11. We decline to “ extrapolate”, and reaffirm our view that the calculation of the level of nullification or impairment can be based only on credible, verifiable information.

88 Canada —Aircraft Credits and Guarantees (Article 22.6 —Canada), paragraph 3.111.

89 Canada —Aircraft Credits and Guarantees (Article 22.6 — Canada), paragraph 3.110.

90 EC —Hormones (US) (Article 22.6), paragraph 82.