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Arbitration under Article 21.3 (c) of the Understanding on Rules and Procedures Governing the Settlement of Disputes - Award of the Arbitrator

I. INTRODUCTION

2.
Consultations between Canada and the European Communities on the duration of the reasonable period of time for implementation occurred but these did not result in agreement.
3.
By joint letter of 20 June 2000, Canada and the European Communities notified the DSB that they had agreed that the duration of the reasonable period of time for implementation should be determined through binding arbitration, under the terms of Article 21.3(c) of the DSU, and that I should act as Arbitrator. The parties also indicated in that letter that they had agreed to extend the time period for the arbitration, fixed at 90 days by Article 21.3(c) of the DSU, until 31 August 2000. Notwithstanding this extension of the time period, the parties stated that the arbitration award would be deemed to be an award made under Article 21.3(c) of the DSU. My acceptance of this designation as Arbitrator was conveyed to the parties by letter of 21 June 2000.
4.
Written submissions were received from Canada and the European Communities on 6 July 2000, and an oral hearing was held on 20 July 2000.

II. ARGUMENTS OF THE PARTIES

A. CANADA

5.
Canada submits that the implementation of the DSB's recommendations and rulings in this case can be accomplished through regulatory change rather than through legislative amendment, which Canada submits is usually more time consuming.2 Given the extent of consultations required in this contentious field, Canada believes that the regulatory process can be carried out and finalized in a maximum of 11 months' time from the date of adoption of the Panel Report.
6.
In its submission, Canada explains the process by which changes are made to its regulatory regime. According to Canada, the Government of Canada Regulatory Policy ("Regulatory Policy") states that the use of the government's regulatory powers should result in "the greatest net benefit to Canadian society". Accordingly, authorities who propose the exercise of regulatory power are obliged to demonstrate that the benefits of regulating clearly outweigh the costs, and that an effort has been made to structure the regulatory measures so as to maximize the benefits to Canadians and minimize the costs.
7.
Canada explains that, in the normal course, the department with responsibility for the area in which the problem has arisen, in this case, the Department of Industry, should include information about the problem in its Report on Plans and Priorities, a document which is tabled in the Canadian Parliament. Where a potential regulatory initiative has not been so planned and reported, the department must nevertheless explain the rationale for its planned regulatory proposal regarding the problem in its Departmental Regulatory Plan. In the Department of Industry, that information is reviewed by the Department's Senior Policy Committee, which evaluates and categorizes the proposal.
8.
The responsible department is then required to draft a proposed regulation. The department must also prepare a Regulatory Impact Analysis Statement (the "RIAS"), which describes the purpose of the draft regulation, the alternatives considered, a cost-benefit analysis, the results of consultations with interested parties, the department's response to the concerns raised, and how the regulation will be enforced.
9.
Canada further clarifies that, pursuant to the provisions of the Canadian Statutory Instruments Act, the proposed regulation and supporting documentation, including the RIAS, must be produced in both English and French, Canada's two official languages. They must then be approved by the responsible department's legal services and senior management, and sent to the Clerk of the Privy Council and to the Deputy Minister of Justice for review. The Privy Council Office ensures that the proposal is consistent with the government's overall program and that the responsible department has adequately considered the communications aspects of the proposed regulatory action. The Regulations Section of the Department of Justice examines the regulation to ensure that it has a proper legal basis and, in particular, that "it does not trespass unduly on existing rights and freedoms and is not, in any case, inconsistent with the purposes and provisions of the Canadian Charter of Rights and Freedoms and the Canadian Bill of Rights".3
10.
Canada explains that the Regulatory Policy also requires that the complete documentation in support of a proposal be sent to the Regulatory Affairs and Orders in Council Secretariat of the Privy Council Office, which is the agency responsible for administering the Policy. The Secretariat reviews the proposal to ensure that it is consistent with the Policy and, in particular, that: the responsible department has considered other alternatives; the benefits of regulation clearly outweigh the costs; adequate consultation with the public has taken place, to allow Canadians to understand the proposed regulation and to participate in the process; and the responsible department has cooperated with Canada's provincial governments to ensure that the proposed regulation does not duplicate or overlap any provincial measure.
11.
Once these reviews have been completed, the Minister of the responsible department approves the regulation and supporting documentation and submits them to the Privy Council Office for consideration by the Cabinet's Special Committee of Council (the "SCC"), which is the Cabinet committee that gives Governor in Council approval for the pre-publication of a draft regulation and its accompanying RIAS. The Regulatory Policy requires pre-publication of a regulation in order to provide the Canadian public at large, as opposed to the more limited constituencies initially consulted by the responsible department, with an opportunity to comment. Upon approval by the SCC Ministers, the regulation and its RIAS are published in the Canada Gazette, Part I, and must be open for public comment for at least 30 days.
12.
Comments received from the public must be weighed on their merits and changes to the proposed regulation must be considered. If the proposed regulation is changed, the Department of Justice Regulations Section must again examine and approve the revised version before it is sent for final approval by SCC Ministers. If the proposed regulation is amended, the RIAS must also be changed to reflect the amendment.
13.
Ministers consider each proposed regulation on its own merits. If they approve the regulation, it is registered under a statutory orders and regulations number within seven days of the Governor General's signature. The regulation will come into force on a date specified by the Governor in Council or, where not so specified, on the day of registration. The approved regulation and its RIAS are then forwarded for publication in the Canada Gazette, Part II, which is published by the Queen's Printer every second Wednesday. Pursuant to subsection 11(1) of the Statutory Instruments Act, publication must take place no later than 23 days after registration. Once published, the regulation becomes enforceable as law, as the public is deemed to have notice of the change in the regulatory regime.
15.
Canada submits that although the above breakdown totals 8-9 months, it may not be possible to carry out the needed consultations during that time, or to receive the views and advice from all of the relevant constituencies, since critical aspects of the process will occur during the summer vacation period of July and August. Accordingly, in order to ensure that these essential steps are properly carried out, Canada argues that the total period should be increased to approximately 10-11 months.
16.
Having explained its regulatory process, Canada turns next to a review of previous arbitrations under Article 21.3(c) of the DSU. Canada submits that, in previous arbitrations, arbitrators have consistently begun their assessments by considering the guideline contained in Article 21.3(c) itself. A guideline for the arbitrator should be that the reasonable period of time to implement DSB recommendations should not exceed 15 months from the date of adoption of a panel or Appellate Body report.
17.
Canada submits that the reasonable period of time may be shorter or longer, depending on particular circumstances. Canada recalls that, as the arbitrator in Australia - Measures Affecting Importation of Salmon ("Australia – Salmon") put it, "what constitutes a 'reasonable period of time' depends upon the action which [the implementing Member] takes under its legal system to implement the recommendations and rulings of the DSB."5
18.
Canada believes that as it has undertaken to achieve compliance in significantly less time than is contemplated by the Article 21.3(c) guideline, the onus is clearly on the European Communities, as the complaining Member, to establish that there are "particular circumstances" to justify an even shorter period of time. Canada adds that, in determining whether the European Communities has discharged its burden of proof in this case, it will be important to bear in mind that Canada, as the implementing Member, is not obliged to take unusual steps in order to bring its law into compliance with its obligations.
19.
Canada emphasizes the statement of the arbitrator in Korea - Taxes on Alcoholic Beverages ("Korea – Alcoholic Beverages") that, while the reasonable period of time should be the shortest possible within the legal system of the implementing Member, "this does not require a Member, in my view, to utilize an extraordinary legislative procedure, rather than the normal legislative procedure, in every case."6 Canada considers that this approach is in keeping with the discretion that is afforded to WTO Members by Article 1.1 of the Agreement on Trade-related Aspects of Intellectual Property Rights (the "TRIPS Agreement") "to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice".
20.
Canada considers that it will achieve compliance with its obligations under the TRIPS Agreement by revoking the regulations that are essential to the existence of the stockpiling exception. According to Canada, Subsection 55.2(2) of the Patent Act will thereby be rendered of no legal force or effect. Revocation of the Regulations will completely deprive subsection 55.2(2) of the Patent Act of any meaning or effect. As a result, no one who has availed themselves of the protection of subsection 55.2(1) -- the "regulatory review" exception -- for the purposes of developing and submitting samples of a competing version of a patented product to regulatory authorities for their review will, on the coming into force of the revoking regulation, be entitled to further manufacture or further stockpile products prior to the expiration of the term of the relevant patent. The protection from infringement liability created by the combination of the theory expressed in subsection 55.2(2) and the practical substance given to that theory by the Regulations will be wholly terminated by the revocation.
21.
Canada emphasizes, however, that "the revocation of the Manufacturing and Storage of Patented Medicines Regulations will be a very sensitive political matter in Canada", and, thus, that extensive consultations with stakeholders, interest groups and the general public will be required.7 In Canada's view, a maximum of 11 months' time is, therefore, needed in order to conduct the necessary consultations, as well as to comply with the various procedural requirements of the Statutory Instruments Act and the Regulatory Policy.
22.
Canada, therefore, requests the arbitrator to rule that 11 months from 7 April 2000, the date of adoption of the Panel Report by the DSB, is the reasonable period of time for the implementation of that ruling in this case. Thus, Canada proposes a "reasonable period of time" for implementation that would end on 7 March 2001.

B. EUROPEAN COMMUNITIES

23.
The European Communities submits that to implement fully the recommendations and rulings of the DSB, Canada must repeal Section 55.2(2) of its Patent Act, which the Panel in this dispute found to be inconsistent with the requirements of Article 28(1) of the TRIPS Agreement.
24.
The European Communities is of the view that implementation of the DSB recommendations in this case requires the repeal of Section 55.2(2) of the Patent Act, that is, legislative, and not regulatory action. The European Communities considers that "it is only necessary to repeal a single subparagraph, which is separable from the remainder of the provisions of which it forms part".8 The European Communities argues that "this can be performed in a period of time significantly shorter than the indicative maximum period" of 15 months provided for in Article 21.3(c) of the DSU.9 The European Communities argues that, in any event, the "reasonable period of time" in this matter must not be a period longer than 12 months counted from 7 April 2000, the date of the adoption of the Panel Report in this dispute by the DSB.
25.
The European Communities submits that the ordinary meaning of the language in Article 21.3(c) of the DSU indicates that 15 months is a guideline for the arbitrator and "sets an outer limit or a maximum in the usual case".10 Thus, the European Communities contends that when implementation can be effected by administrative means, the reasonable period of time should be considerably shorter than 15 months. In addition, the European Communities asserts that Article 21.3(c) of the DSU must be interpreted in context, and, in particular in the context of Articles 3.3 and 21.1 of the DSU, which place particular emphasis on the prompt compliance of recommendations and rulings of the DSB.
26.
The European Communities also highlights the statement of the arbitrator in the EC Measures Affecting Meat and Meat Products (Hormones) ("European Communities – Hormones") arbitration, that the reasonable period of time under Article 21.3(c), "should be the shortest period possible within the legal system of the Member to implement the recommendations and rulings of the DSB."11
27.
The European Communities acknowledges that it is not within the mandate of the arbitrator under Article 21.3(c) of the DSU to decide on the precise ways and means Canada must use to implement the recommendations and rulings of the DSB. However, in order to be able to assess if implementation can occur immediately, and in case this proves to be impracticable to assess the length of the reasonable period, "it is fundamental for the arbitrator to define the nature of the measure necessary to implement the recommendations and rulings of the DSB".12
28.
According to the European Communities, it is important to note that "implementation of the recommendations and rulings" in Article 21 of the DSU means full implementation, as opposed to provisional or partial implementation. The European Communities argues that, in accordance with Article 3.7 of the DSU, which stipulates that the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements, Canada has to repeal Section 55.2(2) of its Patent Act, which can only be achieved through another legislative act (actus contrarius). The abrogation of the regulations, as proposed by Canada, cannot achieve this goal.
29.
The European Communities observes that, while law-making procedures differ in the various WTO Members, it is nevertheless instructive to see that the reasonable periods of time for implementation measures of a legislative nature, that have been granted in the past, cover periods ranging from 11 months and 2 weeks to 15 months and 1 week. The European Communities notes further that this includes cases where the reasonable period had been decided by arbitration under Article 21.3(c) of the DSU as well as cases where the parties agreed by consensus under Article 21.3(b) of the DSU.
30.
The European Communities submits that, in Canada – Certain Measures Concerning Periodicals ("Canada – Periodicals"), Canada agreed to take a number of implementation measures legislatively within 15 months from the adoption of the Appellate Body Report by the DSB. The implementation measures in that dispute covered a wide variety of subject-matter, including the elimination of the entire Part V.1 of Canada's Excise Tax Act. Although the European Communities concedes that the agreement between the parties in that dispute is not authoritative for the case at hand, it argues that that agreement "can serve as an indicative yardstick".13 By comparing the degree of complexity of the measures to be adopted for implementation in the Canada – Periodicals case with the measure to be adopted in this case, it becomes apparent that the "reasonable period of time" in the present case must be "significantly shorter than in [that] case."14.
31.
According to the European Communities, in Canada – Periodicals, Canada undertook to take a variety of measures, including the repeal of a customs tariff, the elimination of Part V.1 of the Excise Tax Act, the restructuring of the administration of the postal subsidy program and the harmonization of the commercial postal rates. In this case, the European Communities argues, all that is needed is the repeal of a single subparagraph of Section 55 of the Patent Act without the need for any other action. Furthermore, the fact that tax legislation tends to be subject to special procedural terms, to which general economic legislation such as patent laws are not subject, further militates, in the view of the European Communities, for a reduction of the "reasonable period of time".
32.
The European Communities, therefore, requests the arbitrator to rule that 12 months from 7 April 2000, the date of the adoption of the Panel Report by the DSB, is the "reasonable period of time" for the ruling in this dispute. Thus, the European Communities proposes a "reasonable period of time" for implementation that would end on 7 April 2001.

III. DETERMINATION

33.
Canada has agreed to implement the recommendations and rulings of the Dispute Settlement Body ("DSB") in Canada – Pharmaceutical Patents.15 Canada has also, however, availed itself of Article 21.3 of the Dispute Settlement Understanding ("DSU"), which states in relevant part:

If it is impracticable to comply immediately with the recommendations and rulings, the Member concerned shall have a reasonable period of time in which to do so. (emphasis added)

34.
As the duration of the "reasonable period of time" in this case has not been agreed by either the DSB, under Article 21.3(a), or the parties to the dispute, under Article 21.3(b), the parties have requested that I determine this period of time through binding arbitration under Article 21.3(c). This provision of the DSU refers to the possibility of "binding arbitration within 90 days after the date of adoption of the recommendations and rulings".
35.
In this Article 21.3 proceeding, Canada has requested a period of 11 months from the date of adoption of the Panel Report to implement the recommendations and rulings of the DSB, by means of regulations made under Canada's Patent Act.16 The European Communities contests both this form of implementation and also the period of time requested for implementation by Canada. To fulfill my responsibilities as arbitrator, I will look first at the issue of the means of implementation, then at the meaning of a "reasonable period of time" for implementation, and, finally, at Canada's proposed timetable for implementation, before making my determination.

A. MEANS OFIMPLEMENTATION

36.
The Panel found that "Section 55.2(2) of Canada's Patent Act is not consistent with the requirements of Article 28.1 of the TRIPS Agreement."17 Accordingly, the Panel "recommend[ed] that the Dispute Settlement Body request that Canada bring Section 55.2(2) into conformity with Canada's obligations under the TRIPS Agreement." The DSB adopted the Panel Report on 7 April 2000.18
37.
Canada proposes to implement the recommendations and rulings of the DSB, not by means of legislation, but by means of administrative action in the form of a regulation. The European Communities responds that, in order to implement the recommendations and rulings of the DSB properly, Canada "has to repeal Section 55.2(2) of its Patent Act, which can only be achieved through another legislative act (actus contrarius)."19 For this reason, the European Communities states that "it is fundamental for the arbitrator to define the nature of the measure necessary to implement the recommendations and rulings of the DSB."20 Canada, in turn, maintains that I have no such authority or mandate.
38.
In considering the argument by the European Communities on the means of implementation, I note first that the Panel Report in Canada – Pharmaceutical Patents does not specify, or even mention, how Canada should implement the recommendations and rulings. The Panel simply recommends that the DSB request Canada to "bring Section 55.2(2) into conformity" with Canada's obligations under the TRIPS Agreement. The DSB has done so.
39.
Thus, it has been left for Canada to decide what form the implementing action should take. As the arbitrator in European Communities – Hormones stated:

An implementing Member … has a measure of discretion in choosing the means of implementation, as long as the means chosen are consistent with the recommendations and rulings of the DSB and with the covered agreements.21

B. THE MEANING OF A "REASONABLE PERIOD OF TIME"

46.
Other provisions of the DSU suggest that implementation of recommendations and rulings of the DSB must be achieved, if not "immediately", then promptly. Article 21.1, for example, states that "prompt compliance with recommendations and rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members".26 Similarly, Article 3.3 states:

The prompt settlement of situations in which a Member considers that any benefits accruing to it directly or indirectly under the covered agreements are being impaired by measures taken by another Member is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members. (emphasis added)

The Concise Oxford Dictionary defines the word, "prompt", as meaning "acting with alacrity; ready", and "made, done, etc. readily or at once".27

C. CANADA'S PROPOSED "REASONABLE PERIOD OF TIME"

53.
In its submission, Canada offers a detailed timetable for implementation of the recommendations and rulings of the DSB. Canada estimates that the regulatory process it has chosen as the means of implementation will take 11 months from the date of adoption of the Panel Report, which was 7 April 2000. Thus, Canada proposes to complete administrative implementation by 7 March 2001. In contrast, in its submission, the European Communities stresses that Canada should implement legislatively, and argues that Canada should complete legislative implementation in a period not exceeding 12 months from the date of adoption of the Panel Report, that is, by 7 April 2001. The European Communities did not address, in its submission, the issue of a "reasonable period of time" for administrative implementation by Canada. However, in the oral hearing, the European Communities said that, if I were to decide that it is not within my mandate to identify the appropriate means of implementation, and if, as a result, my inquiry were to focus on administrative implementation, then a "reasonable period of time", in the view of the European Communities, would be "45 to 60 days from pre-publication", which I take to mean 45 to 60 days following the conclusion of the 30-day period required by Canadian law for pre-publication of the proposed regulatory change in the Canada Gazette.31
56.
In my judgement, some of the administrative steps Canada has identified to me, and has already taken toward implementation, could have been accomplished sooner, simultaneously, or both. That said, and given what has already transpired toward implementation, I point now to one of the additional steps identified by Canada that has not yet been completed. In paragraph 19(2)(e) of Canada's written submission, Canada states with respect to the step following the required pre-publication in the Canada Gazette:

Response to public comments; amendment of regulation and RIAS as required; resubmission to Department of Industry legal services and Department of Justice Regulations Section; review and approval for final publication and signature of the Minister of Industry. Time: 1-3 months (depending on the complexity and contentiousness of the proposal).

57.
Canada acknowledges that this period of "1-3 months" is not required by law but is part of the Regulatory Policy, and Canada also acknowledges that the duration of "1-3 months" is an estimate that is not specifically mandated by the Regulatory Policy. Yet Canada maintains that this period of "1-3 months" is necessary nonetheless to allow for the amending of the proposed regulation and RIAS, if needed, as well as for further approvals of the amended text. In explanation, Canada states in part that "comments received from the public must be weighed on their merits and changes to the proposed regulation must be considered."34 The amount of time it should reasonably take to complete this step that Canada says will take "1-3 months" seems, to me, as Canada has stated, to "depend" in part on the "complexity" of the proposed regulatory change. The more complex the proposed regulatory change, the more "reasonable" a period of "1-3 months" will seem to accomplish this step in the change.
58.
With this in mind, I turn to the substantive part of Canada's proposed regulatory change, which reads in its entirety:

The Manufacturing and Storage of Patented Medicines Regulations are repealed.35

I see nothing in this proposed regulatory change that can be described as complex. What is more, in this case, comments from the public could not be expected to result in much alteration of the one substantive sentence of Canada's proposed regulatory change, which merely repeals the existing regulation. After all, how many other ways could this one sentence be written? Likewise, in this case, any consideration of any changes that might conceivably be needed in the solitary substantive sentence of the proposed regulatory change could not be expected to take very long. After the several years of this dispute, once these final public comments have been received, how much more can be left to be said? If this proposed regulatory change were more complex, I might reach a different conclusion. Yet it is not complex at all. And, given the sheer simplicity of the wording, function and purpose of this proposed regulation, I consider it implausible that this particular implementation step in this case should take as much time as claimed by Canada.

59.
This is not to say that the dispute between Canada and the European Communities that has given rise to the need for this change is in any way a simple one. Far from it. This dispute is complicated indeed. And the parties, the Panel, and the DSB have all given the many facets of this dispute the sustained attention that has been warranted by the considerable stakes involved. Nor is this to say that only complex laws or regulations have significant results. Again, far from it. Some of the most significant of legal changes can be stated in the simplest of terms, and with the most telling of effects. And, in contrast, some of the most Byzantine by-products of administrative and legislative endeavour sometimes have little real effect once they are enacted. Instead, this is only to say that, in my view, it should not take Canada as much as three months to finalize this proposed regulatory change once the required 30-day period for pre-publication in the Canada Gazette has ended.
61.
In looking for additional justification for the time period proposed by Canada, I note that Canada also requests that "the summer vacation period of July and August" should be taken into account in calculating the "reasonable period of time" for implementation, and should, as a consequence, add approximately two months to the period for implementation.37 I see no reference to "summer vacations" in the DSU. Nor, for that matter, has Canada shown me anything in Canadian law or regulatory policy about such "summer vacations". This argument by Canada is irrelevant. Beyond this, it seems to me that Canada has offered little in the way of additional, persuasive justification for the notion that much more than a few more weeks following the end of the required pre-publication period should be needed to complete implementation. Moreover, I am not aware of, nor has Canada suggested the existence of, any additional step that may be required by Canadian law or in some way mandated as part of the Regulatory Policy before implementation can be completed.
63.
When they wish to do so, and when they have the lawful discretion to do so, administrative agencies can act, in the language of the DSU, "promptly". There is evidence on record in this proceeding that administrative agencies in Canada have acted quickly in cases where intellectual property rights have been known to be at risk.39 As I see it, the commitment made by Canada to the DSB to comply fully with the recommendations and rulings of the DSB in this case, and thereby to fulfill Canada's international obligations as a Member of the WTO, should give rise to, if not equal, then comparable, urgency in Canada. Whatever their disagreements on a "reasonable period of time" for implementation in this dispute, doubtless Canada and the European Communities will agree on this: the desire of a WTO Member to comply with its treaty obligations under the WTO Agreement should occasion, domestically, some modicum of dispatch.

IV. AWARD

64.
I determine that the reasonable period of time for Canada to implement the recommendations and rulings of the DSB in this case is six months from the date of adoption of the Panel Report by the DSB on 7 April 2000. The reasonable period of time will thus end on 7 October 2000.

Signed in the original at Geneva this 11th day of August 2000 by:

James Bacchus

Arbitrator

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