CASES CITED IN THIS REPORT
SHORT TITLES USED IN THIS REPORT
ABBREVIATIONS USED IN THIS REPORT
SHORT TITLES OF FREQUENTLY CITED MEASURES AND OTHER INSTRUMENTS REFERRED TO IN THIS REPORT
1. INTRODUCTION
1. 1. Complaint by the European Union
1. 2. Arbitration Panel establishment and composition
1.3 Arbitration Panel proceedings
1.3.1 General
1.3.2 Terms of reference
2. FACTUAL ASPECTS
2.1 General information provided by the European Union on forest protection in Ukraine
2.2 General information about Ukraine’s forests, as provided by the Respondent
2.3 The Products at issue
2.3.1 "Rare and valuable" species
2.3.2 Unprocessed timber products
2.4 The measures at issue
2.4.1 The "2005 export ban"
2.4.2 The "2015 temporary export ban"
2.5 Measures other than "measures at issue"
3. ARGUMENTS OF THE PARTIES
3.1 European Union
3.2 Ukraine
3.3 Additional arguments made during the Hearing
3.3.1 Ukraine
3.3.2 Comments by the European Union
4. FINDINGS
4.1 Preliminary issues
4.1.1 Whether the present dispute arises under Chapter 13 or Chapter 14 of the AA
4.1.1.1 The Parties’ arguments
4.1.1.1.1 Ukraine
4.1.1.1.2 The European Union
4.1.1.2 The Arbitration Panel’s findings
4.1.1.2.1 On the timeliness of the jurisdictional objection
4.1.1.2.2 On the merit of the jurisdictional objection
4.1.2 Applicability of Article 35 of the AA during the 10-year transitional period
4.1.2.1 The Parties’ arguments
4.1.2.2 The Arbitration Panel’s findings
4.1.3 The emergency situation in international relations affecting Ukraine
4.1.3.1 The Parties’ arguments
4.1.3.2 The Arbitration Panel’s findings
4.2 Whether the bans are incompatible with Article 35 of the AA
4.2.1 Introduction
4.2.1.1 Article 35 of the AA and Article XI:1 of the GATT 1994
4.2.1.2 The Arbitration Panel’s sequence of analysis
4.2.2 On the relationship between Article 35 of the AA and Article XI:1 of the GATT 1994
4.2.2.1 The Parties’ arguments
4.2.2.1.1 Whether the obligations under Article 35 of the AA are different from those under Article XI of the GATT 1994
4.2.2.1.2 Actual effects
4.2.2.2 The Arbitration Panel’s analysis
4.2.2.2.1 Whether Article XI:1 of the GATT 1994 is incorporated into Article 35 of the AA
4.2.2.2.2 Whether Article 35 of the AA and Article XI: 1 of the GATT 1994 impose identical obligations
4.2.2.2.2.1 Requirement of an "actual effects" test
4.2.2.2.2.2 Whether Article 35 of the AA applies exclusively to goods "destined to the other Party"
4.2.2.3 The Arbitration Panel’s findings on the compatibility of the export bans with Article 35 of the AA
4.2.3 On the relation between Article 35 of the AA and Chapter 13 of the AA
4.2.3.1 The Parties’ arguments
4.2.3.1.1 Ukraine
4.2.3.1.2 The European Union
4.2.3.2 The Arbitration Panel’s analysis and finding
4.2.3.3 Conclusions on the relationship between Article 35 of the AA and Chapter 13
4.2.4 Overall finding on the compatibility of the bans with Article 35 of the AA
4.3 Whether the bans are justified under Article 36 of the AA and Article XX of the GATT 1994
4.3.1 Introduction
4.3.2 Whether the 2005 export ban is justified by Article XX(b) of the GATT 1994
4.3.2.1 "Provisional" justification by Article XX(b) of the GATT 1994
4.3.2.1.1 The Parties’ arguments
4.3.2.1.1.1 Ukraine
4.3.2.1.1.2 The EU
4.3.2.1.2 Whether the 2005 export ban is designed to protect plant life or health
4.3.2.1.2.1 Applicable principles
4.3.2.1.2.2 The Arbitration Panel’s analysis
Whether the claimed objective of the measures is a "plant life or health" objective within the meaning of Article XX(b) of the GATT 1994
Whether the 2005 export ban is designed to protect plant life or health
4.3.2.1.3 Whether the 2005 export ban is necessary to protect plant life or health
4.3.2.1.3.1 Applicable principles
4.3.2.1.3.2 The Arbitration Panel’s analysis
The importance of the interests or values at stake
Existence of a material contribution
The trade restrictiveness of the measure
Existence of alternative measures
4.3.2.1.4 The Arbitration Panel’s finding
4.3.2.2 The requirements of the chapeau of Article XX of the GATT 1994
4.3.2.2.1 Applicable principles
4.2.2.2.2 The Arbitration Panel’s analysis
4.3.2.2.3 The Arbitration Panel’s finding
4.3.2.3 Overall finding on whether the 2005 export ban is justified by Article XX(b) of the GATT 1994
4.3.3 Whether the 2015 temporary export ban is justified by Article XX(g) of the GATT 1994
4.3.3.1 The nature of the 2015 temporary export ban
4.3.3.2 "Provisional" justification under Article XX(g) of the GATT 1994
4.3.3.2.1 Introduction
4.3.3.2.2 Whether the measure relates to "the conservation of exhaustible natural resources"
4.3.3.2.2.1 The Parties’ positions
Ukraine
The EU
4.3.3.2.2.2 The Arbitration Panel's analysis
Introduction
Applicable principles
The conservation of exhaustible natural resources
4.3.3.2.3 Whether the measure is "made effective in conjunction with restrictions on domestic production or consumption"
4.3.3.2.3.1 The Parties’ positions
Ukraine
The EU
4.3.3.2.3.2 The Arbitration Panel’s analysis
Applicable principles
Whether the measure is "made effective in conjunction with restrictions on domestic production or consumption"
4.3.3.2.4 On the relevance of Chapter 13 for justifying the 2015 temporary export ban
4.3.3.3 Overall finding on whether the 2015 temporary export ban is justified by Article XX(g) of the GATT 1994
5. INTERIM REVIEW
Section 1.2 Arbitration Panel establishment and composition
Section 1.3.1 Arbitration Panel proceedings -General
Section 2 Factual Aspects
Section 2.2.1 Rare and valuable species (now Section 2. 3. 1)
Section 2.2.2 Unprocessed timber products (now Section 2. 3. 2)
Section 4 Findings
Section 4.1.1.2.1 On the timeliness of the jurisdictional objection
Section 4.1.1.2.2 On the merit of the jurisdictional objection
Section 4.1.2 Applicability of Article 35 AA during the 10-year transitional period
Section 4.1.3 The emergency situation in international relations affecting Ukraine
Section 4.2.2.2.2.2 Whether Article 35 AA applies exclusively to goods "destined to the other Party"
Section 4.3.2.1 "Provisional" justification of the 2005 export ban under Article XX (b) of the GATT 1994
Section 4.3.2.1.2 Whether the 2005 export ban is designed to protect plant life or health
Section 5 Clarifications requested by Ukraine
Section 6.2 Recommendations
6. CONCLUSIONS AND RECOMMENDATIONS
6.1 Conclusions
The Arbitration Panel
6.2 Recommendations
ANNEX A - Working Procedures of the Arbitration Panel (with Timetable)
Working Procedures
ANNEX B - List of Exhibits
ANNEX C - Executive Summaries
Executive Summary of the European Union
Executive Summary of Ukraine
Introduction
Factual background regarding the measures at issue
Threats faced by the Ukrainian forests and forestry resources.
The European Union's claim in context.
Legal Arguments
The Arbitration Panel is not competent to address the dispute brought before it by the European Union.
Ukraine submits that the challenged measures are not inconsistent with Article 35 of the Association Agreement per se.
Even if Article 35 is engaged, the Ukrainian measures are exempted based on Article 36 of the Association Agreement and, by reference, under Article XX of the GATT 1994.
Conclusion

Final Report of the Arbitration Panel established pursuant to Article 307 of the Association Agreement between Ukraine, of the one part, and the European Union and its Member States, of the other part

CASES CITED IN THIS REPORT

Short Title	Full Case Title and Citation
Argentina – Hides and Leather	Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and the Import of Finished Leather, WT/DS155/R and Corr. 1, adopted 16 February 2001, DSR 2001: V, p. 1779
Australia – Salmon	Appellate Body Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998: VIII, p. 3327
Brazil – Retreaded Tyres	Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007: IV, p. 1527
Brazil – Taxation	Panel Reports, Brazil – Certain Measures Concerning Taxation and Charges, WT/DS472/R, Add. 1 and Corr. 1 / WT/DS497/R, Add. 1 and Corr. 1, adopted 11 January 2019, as modified by Appellate Body Reports WT/DS472/AB/R / WT/DS497/AB/R
Canada – Dairy	Appellate Body Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WT/DS103/AB/R, WT/DS113/AB/R, and Corr. 1, adopted 27 October 1999, DSR 1999: V, p. 2057
China – Publications and Audiovisual Products	Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010: I, p. 3
China – Rare Earths	Appellate Body Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, adopted 29 August 2014, DSR 2014: III, p. 805
China – Rare Earths	Panel Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431/R and Add. 1 / WT/DS432/R and Add. 1 / WT/DS433/R and Add. 1, adopted 29 August 2014, upheld by Appellate Body Reports WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, DSR 2014: IV, p. 1127
China – Raw Materials	Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012, DSR 2012: VII, p. 3295
China – Raw Materials	Panel Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, Add. 1 and Corr. 1 / WT/DS395/R, Add. 1 and Corr. 1 / WT/DS398/R, Add. 1 and Corr. 1, adopted 22 February 2012, as modified by Appellate Body Reports WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, DSR 2012: VII, p. 3501
Short Title	Full Case Title and Citation
Colombia – Ports of Entry	Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366/R and Corr. 1, adopted 20 May 2009, DSR 2009: VI, p. 2535
Colombia – Textiles	Appellate Body Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear, WT/DS461/AB/R and Add. 1, adopted 22 June 2016, DSR 2016: III, p. 1131
Dominican Republic – Import and Sale of Cigarettes	Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005, DSR 2005: XV, p. 7367
EC – Asbestos	Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001: VII, p. 3243
EC – Fasteners (China)	Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, DSR 2011: VII, p. 3995
EC – Seal Products	Appellate Body Reports, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted 18 June 2014, DSR 2014: I, p. 7
EC and certain member States – Large Civil Aircraft	Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011, DSR 2011: I, p. 7
Guatemala – Cement I	Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998: IX, p. 3767
India – Quantitative Restrictions	Panel Report, India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/R, adopted 22 September 1999, upheld by Appellate Body Report WT/DS90/AB/R, DSR 1999: V, p. 1799
India – Solar Cells	Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R and Add. 1, adopted 14 October 2016, DSR 2016: IV, p. 1827
Short Title	Full Case Title and Citation
India – Solar Cells	Panel Report, India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R and Add. 1, adopted 14 October 2016, as modified by Appellate Body Report WT/DS456/AB/R, DSR 2016: IV, p. 1941
Japan – Alcoholic Beverages II	Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996: I, p. 97
Japan – Apples	Panel Report, Japan – Measures Affecting the Importation of Apples, WT/DS245/R, adopted 10 December 2003, upheld by Appellate Body Report WT/DS245/AB/R, DSR 2003: IX, p. 4481
Korea – Dairy	Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000: I, p. 3
Korea – Various Measures on Beef	Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001: I, p. 5
Mexico – Corn Syrup (Article 21. 5 – US)	Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21. 5 of the DSU by the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001: XIII, p. 6675
Russia – Traffic in Transit	Panel Report, Russia – Measures Concerning Traffic in Transit, WT/DS512/R and Add. 1, adopted 26 April 2019
US — 1916 Act (EC)	Appellate Body Report, United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000: X, p. 4793
US - FSC	Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000: III, p. 1619
US – Gambling	Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005: XII, p. 5663 (and Corr. 1, DSR 2006: XII, p. 5475)
US – Gasoline	Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996: I, p. 3
Short Title	Full Case Title and Citation
US – Gasoline	Panel Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body Report WT/DS2/AB/R, DSR 1996: I, p. 29
US – Poultry (China)	Panel Report, United States – Certain Measures Affecting Imports of Poultry from China, WT/DS392/R, adopted 25 October 2010, DSR 2010: V, p. 1909
US – Shrimp	Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998: VII, p. 2755
US — Wool Shirts and Blouses	Appellate Body Report, United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India. WT/DS33/AB/R. adopted 23 May 1997, and Corr. 1, DSR 1997: 1, p. 323

SHORT TITLES USED IN THIS REPORT

European Union
EU's Written Submission	Written Submission by the European Union "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and the European Atomic Energy and their Member States and Ukraine in the dispute "Ukraine - Export prohibitions on wood products", 17 February 2020
EU's Responses to Ukraine's Questions	Responses by the European Union to Ukraine's Questions "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and its Member States of the one part, and Ukraine, of the other part in the dispute "Ukraine - Export prohibitions on wood products", 4 June 2020
EU's Responses to the Arbitration Panel's Questions	Responses by the European Union to the First List of Questions to the Parties from the Arbitration Panel "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and its Member States of the one part, and Ukraine, of the other part in the dispute "Ukraine - Export prohibitions on wood products", 15 May 2020
EU's Opening Statement	Opening Oral Statement of the European Union "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and the European Atomic Energy and their Member States and Ukraine in the dispute "Ukraine -Export prohibitions on wood products", 22 September 2020
EU's Closing Statement	Closing Statement of the European Union "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and the European Atomic Energy and their Member States and Ukraine in the dispute "Ukraine - Export prohibitions on wood products", 23 September 2020
EU's Responses at the Hearings	Responses by the European Union to the questions of the Arbitration Panel at the hearing "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part in the dispute "Ukraine - Export prohibitions on wood products", 7 October 2020
EU's Executive Summary	Integrated Executive Summary of the European Union "To the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and the European Atomic Energy and their Member States and Ukraine in the dispute "Ukraine - Export prohibitions on wood products", 7 October 2020 (Annex C)
EU's Comments on the Interim Report	Comments on the Interim Report by the European Union to the Arbitration Panel established pursuant to Article 306 of the Association Agreement between the European Union and the European Atomic Energy and their Member States and Ukraine in the dispute "Ukraine - Export prohibitions on wood products", 27 November 2020
Ukraine
Ukraine's Written Submission	Written Submission of Ukraine "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 11 March 2020
Ukraine's Answers to the Arbitration Panel's Questions	Ukraine's Answers to the First List of Questions to the Parties from the Arbitration Panel "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood, 15 May 2020
Ukraine's Opening Statement	Opening Oral Statement of Ukraine "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 22-23 September 2020
Ukraine's Closing Statement	Closing Statement of Ukraine "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 22-23 September 2020
Ukraine's Responses at the Hearings	Ukraine's Answers to the Arbitration Panel's Questions Addressed at the Hearings "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 22-23 September 2020
Ukraine's Executive Summary	Ukraine's Executive Summary of the Opening Statement of Ukraine made during the Hearings "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 22-23 September 2020 (Annex C)
Ukraine's Request to Review the Interim Report	Request of Ukraine for the Arbitration Panel to Review Precise Aspects of the Interim Report circulated on 13 November 2020, "Ukraine – Measures related to Certain Ukrainian Export Restrictions on Wood", 27 November 2020

ABBREVIATIONS USED IN THIS REPORT

Abbreviation	Description
Agency	Ukraine's State Agency for Forest Resources
Association Agreement (AA)	Association Agreement between the European Union and their Member States, of one part, and Ukraine, of the other part
DCFTA	Deep and Comprehensive Free Trade Area
DSB	Dispute Settlement Body
DSU	Understanding on Rules and Procedures Governing the Settlement of Disputes or Dispute Settlement Understanding (Annex 2 to the WTO Agreement)
CJEU	Court of Justice of the European Union (formerly European Court of Justice)
EU	European Union
IUCN	International Union for Conservation of Nature
FAO	Food and Agriculture Organization
FTA	Free Trade Agreement
GATT 1994	General Agreement on Tariffs and Trade 1994
HS	Harmonized Commodity Description and Coding System
MEA	Multilateral Environmental Agreement
MFN	Most-Favored Nation
ORDLO	Occupied territory of certain areas of the Donetsk and Luhansk regions of Ukraine
OSCE	Organization for Security and Co-operation in Europe
TFEU	Treaty on the Functioning of the European Union
UAH	Ukrainian hryvnia (National currency of Ukraine)
UKR	Ukraine
UKTZED/UCG FEA	Ukrainian Classification of Goods and Foreign Economic Activity
UNECE	United Nations Economic Commission for Europe
UNEP	United Nations Environment Programme
VCLT	Vienna Convention on the Law of Treaties, 23 May 1969
VRU	Verkhovna Rada of Ukraine (Parliament of Ukraine)
WTO	World Trade Organization

SHORT TITLES OF FREQUENTLY CITED MEASURES AND OTHER INSTRUMENTS REFERRED TO IN THIS REPORT

Abbreviation	Definition
2005 export ban	Law of Ukraine No. 2860-IV of 8 September 2005, On Elements of the State Regulation of Business Operators’ Activities Related to the Sale and Export of Timber, Information from the Verkhovna Rada of Ukraine, 2006, No. 2-3, p. 34
2015 temporary export ban	Law of Ukraine No. 325-VIII of 9 April 2015, On Amendments to the Law of Ukraine "On elements of the State Regulation of Business Operators’ Activities Related to the Sale and Export of Timber" Concerning the Temporary Export Ban for Unprocessed Timber, Information from the Verkhovna Rada of Ukraine, 2015, No 31, p. 291
2018 Amendment	Law of Ukraine No. 2531-VIII of 6 September 2018, On Amendments to Certain Legislative Acts of Ukraine on the Preservation of Ukrainian Forests and preventing the Illegal Export of Unprocessed Timber, Information from the Verkhovna Rada of Ukraine, 2018, No. 42, p. 327
Law 2860-IV	Law of Ukraine No. 2860-IV, of 8 September 2005, On Elements of the State Regulation of Business Operators’ Activities Related to the Sale and Export of Timber, Information from the Verkhovna Rada of Ukraine, 2006, No. 2-3, p. 34
Law 325-VIII	Law of Ukraine No. 325-VIII of 9 April 2015, On Amendments to the Law of Ukraine on "Elements of the State Regulation of the Business Operators’ Activities Related to the Sale and Export of Timber" Concerning the Temporary Export Ban for Unprocessed Timber, Information from the Verkhovna Rada of Ukraine, 2015, No 31, p. 291
Law 2531-VIII	Law of Ukraine No. 2531-VIII of 6 September 2018 On Amendments to Certain Legislative Acts of Ukraine on the Preservation of Ukrainian Forests and preventing the Illegal Export of Unprocessed Timber, Information from the Verkhovna Rada of Ukraine, 2018, No. 42, p. 327
EUTR	Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market, OJ L 295, 12 October 2010, pp. 23-34
Flood Directive	Directive 2007/60/EC of the European Parliament and of the Council of 23 October 2007 on the assessment and management of flood risks, OJ L 288, 6 November 2007, pp. 27-34

1. INTRODUCTION

1. 1. Complaint by the European Union

On 15 January 2019, the European Union ("the complaining Party" in the AA or "the Complainant" in this Report) requested consultations with Ukraine ("the Party complained against" in the AA or "the Respondent" in this Report) pursuant to Article 305 of the AA with respect to the measures and claims set out below.¹

Consultations were held on 7 February 2019 with the aim of reaching a mutually agreed solution. The consultations did not resolve the dispute.

1. 2. Arbitration Panel establishment and composition

On 20 June 2019, the European Union requested the establishment of an arbitration panel pursuant to Article 306 of the AA, and in accordance with the procedure for the composition of the arbitration panel set out in Article 307 of the AA and the relevant provisions of the Rules of Procedure for Dispute Settlement in Annex XXIV to the Association Agreement.²

By diplomatic note of 9 August 2019, the European Union proposed to Ukraine the nomination of three members of the Arbitration Panel together with the terms for remuneration and reimbursements necessary to comply with the formal requirements for concluding the nomination process.³ On 20 August 2019, Ukraine accepted by diplomatic note the proposal of the European Union.⁴

By this exchange of diplomatic notes both Parties agreed, in accordance with paragraph 41 of Annex XXIV to the Association Agreement, to use the English language for the dispute settlement proceedings and, in accordance with paragraph 43 of the same Annex, to instruct the members of the Arbitration Panel to deliver the interim report and the final ruling in that language.

On 28 January 2020, the Parties exchanged diplomatic notes confirming for each Party the completion of the Arbitration Panel selection procedure.⁵ The Parties confirmed that the deadlines applicable under Chapter 14 of the Association Agreement, including the issuance of the Interim Panel Report⁶ and the Arbitration Panel Ruling,⁷ would be counted as of 28 January 2020.⁸

The Parties also confirmed therein the establishment of the Arbitration Panel pursuant to Article 307(6) of the AA as of 28 January 2020 with the following composition:

Chairperson: Mr Christian Haberli

Members: Mr Giorgio Sacerdoti

Mr Victor Muraviov

The Arbitrators were not supported by a Secretariat.⁹ Therefore, they made use of the possibility to appoint personal assistants, as provided for in paragraph 4 of the Arbitration Panel's Working Procedures.¹⁰ The Arbitrators appointed two assistants who provided substantial inputs, research, translation, and logistics support.

Assistants: Ms Ilaria Espa

Ms Nataliia Mushak

1.3 Arbitration Panel proceedings

1.3.1 General

On 29 January 2020, the organisational meeting of the Parties with the Arbitration Panel was held in Brussels. The Working Procedures¹¹ and the Timetable for the proceedings were adopted pursuant to paragraph 8 of Annex XXIV to the Association Agreement.

10.

On 4 February 2020, the European Union published on the website of the European Commission a notice concerning the establishment of the Arbitration Panel, which indicated that the deadline for amicus curiae submission was 27 February 2020.¹² On 4 February 2020, Ukraine published a similar notice on the website of the Ministry for Development of Economy, Trade and Agriculture of Ukraine.¹³ One amicus curiae submission was received by the non-governmental organization "Ukrainian Association of the Club of Rome" on 20 February 2020 in Ukrainian language. This submission was informally translated into English by the Arbitration Panel and is part of the record. However, neither of the Parties referred to it in their submissions.¹⁴

11.

On 17 February 2020, the European Union filed its written submission (EU’s Written Subsmission).

12.

On 11 March 2020, Ukraine submitted its written submission (Ukraine's Written Submission).

13.

In those documents, and throughout the proceedings, the Parties kept referring to the dispute using different names: Ukraine - Export prohibitions on wood products (European Union) and Ukraine - Measures Related to Certain Ukrainian Export Restrictions on Wood (Ukraine). The Arbitration Panel has consistently used the name Restrictions applied by Ukraine on export of certain wood products to the European Union, as referred to in the Note Verbale of 20 June 2019.¹⁵

14.

Following the outbreak of the Covid-19 pandemic and the subsequent travel restrictions, the Timetable had to be revised, pursuant to Rules 14 and 15 of Annex XXIV and to paragraph 31 of the Working Procedures, a first time on 17 March 2020 and shortly thereafter on 6 April 2020. The original dates of the Hearing (30-31 March 2020) were thereby postponed, first to 19 May 2020, and then 16-17 June 2020. In parallel, the deadlines for the submission of the Arbitration Panel's questions to the Parties and the Parties' answers were also postponed. The Arbitration Panel sent questions to the Parties on 27 April 2020 and the Parties answered on 15 May 2020. Partis exchanged questions on 20 May 2020, with answers made available on 4 June 2020. A list of issues that the Panel suggested could be addressed by the Parties during the Hearing was sent to the Parties on 16 June 2020.

15.

Due to the prolongation of travel restrictions as a result of the continuation of the pandemic situation, the Timetable had to be further adjusted on 18 July 2020 and on 14 September 2020, respectively. The modifications mainly postponed the Hearing foreseen in paragraphs 21-31 of Annex XXIV to a time when it would be possible to hold them in person (22-23 September 2020).

16.

Against the backdrop of a prolonged period of travel restrictions in the wake of the Covid-19 pandemic and the prospect of significant further delays, however, the hearings had to be held in a virtual mode. This was not an easy decision to take. Especially the Respondent deserves credit for accepting to hold an online hearing, whereas the hearing should have taken place in Kyiv in accordance with Article 22 of the Rules of Procedure (Annex XXIV to the AA).

17.

Both Parties published the notice regarding dates and time of the Hearing on the relevant websites of the European Commission and of the Ministry for Development of Economy, Trade and Agriculture of Ukraine, respectively, pursuant to Article 318(2) of the AA and the Rules of Procedure.

18.

On 22 and 23 September 2020, the Arbitration Panel held the hearing with the Parties virtually, via Webex. This implied considerable technical challenges. The Hearing could not be open to the public, as it would have been difficult to arrange live public access to the hearing without potentially compromising the server capacities and thus the technical quality of the meeting. However, pursuant to Article 318(2) of the AA and the Rules of Procedure, both Parties published their oral opening statement, oral closing statement, responses to the Arbitration Panel's questions at the Hearing, and the executive summary on the relevant websites of the Parties.

19.

After the oral opening statements, the Arbitrators and their assistants invited the Parties to reply to a set of oral questions. Initial replies were provided by the Parties during the hearing. On 7 October, both Parties submitted the final versions of their oral opening and closing statements, together with their executive summaries and their written replies to the oral questions of the Arbitration Panel.

20.

The Parties did not ask questions to each other, but Ukraine raised a number of new procedural issues. Those issues will be addressed in paragraphs 26-28 below and in Section 4.1.

21.

On 13 November 2020 the Arbitration Panel issued its Interim Report. The issuance of the final report was scheduled for either 11 December 2020 (without a review meeting) or 18 December 2020 (with a review meeting).

22.

Since the Parties did not request a review meeting, the final report was is being issued on 11 December 2020.

1.3.2 Terms of reference

23.

In its written submission, the Complainant requested the Arbitration Panel to rule on the matter in accordance with the standard terms of reference set out in Article 306(3) of the AA. This had been agreed by the Parties in their exchange of Notes of 9 and 20 August 2019 (see above, para. 4).¹⁶ Article 306(3) of the AA reads as follows:

Unless the Parties agree otherwise within five days of the establishment of the panel the terms of reference of the arbitration panel shall be: "to examine the matter referred to in the request for establishment of the arbitration panel, to rule on the compatibility of the measure in question with the provision of this Agreement referred to in Article 304 of this Agreement and to make a ruling in accordance with Article 310 of the Agreement."

24.

Accordingly, the European Union requested the Arbitration Panel to issue a ruling in accordance with Article 310 of the AA to the effect that:

1) the 2005 export ban and the 2015 export ban are inconsistent with Ukraine's obligations under Article 35 of the Association Agreement [under Title IV, Chapter 1 of the Association Agreement]; and

2) therefore, Ukraine is required to take any measure necessary to comply with those obligations.¹⁷

25.

During the Hearing, the Respondent raised a new point in its oral statement concerning "the rules applicable to the subject matter of this case."¹⁸ According to Ukraine, the European Union erred in seizing the standard dispute settlement procedures under Chapter 14 of the AA, instead of invoking the procedures set out in Chapter 13 ["Trade and Sustainable Development"]. In addition, Ukraine contended that the Arbitration Panel "is not competent to address the dispute brought before it by the European Union because this dispute is a matter arising under Chapter 13 of the Association Agreement"¹⁹ and not under Chapter 14, in conjunction with Article 35 of the AA.²⁰ Accordingly, Ukraine submitted that the European Union should have brought its claims "according to the procedures provided for in Articles 300 and 301 of the Association Agreement."²¹ It therefore requested the Arbitration Panel to rule that:

1. Since the European Union did not bring its case before the relevant body, in accordance with the Association Agreement relevant provisions, its claim should be rejected as inadmissible, or rejected for lack of jurisdiction of the Arbitration Panel;

2. should the Arbitration Panel consider that the matter pertains to its jurisdiction under the Association Agreement, to reject the European Union's conclusions on the merits;

or;

3. should the Arbitration Panel find that the European Union's claim is not devoid of merit, to clarify what measures would be required to comply with the Association Agreement.²²

26.

The EU objected to Ukraine's arguments by raising two main counter-arguments. Firstly, on the procedural side the EU considered Ukraine's objection to jurisdiction as "manifestly untimely", because Ukraine has failed to raise the objection "seasonably and promptly" in the proceedings in accordance with the principle of good faith and due process.²³ Secondly, from a substantive point of view, the EU considers Ukraine's objection as being without merit. In the EU's view, its claims are based on Article 35 of the AA (which is found in Title IV of the AA, "Trade and Trade-Related Matters"). Accordingly, the EU contends that Article 304 of the AA, which is included in Chapter 14 on "Dispute settlement", applies:

The provision of this Chapter apply in respect of any dispute concerning the interpretation and application of the provisions of Title IV of this Agreement except as otherwise expressly provided.

27.

The EU further points out that neither Article 300(7) of the AA nor any other provision excludes "expressly" disputes concerning the interpretation and application of Article 35 of the AA from the scope of Chapter 14. According to the EU, the present dispute does not involve a "matter" under Chapter 13 because the EU has not brought claims on the basis of a provision included in Chapter 13 with regard to a "measure" within the scope of the same Chapter.²⁴

28.

The findings of the Arbitration Panel in respect of these preliminary issues are in Section 4.1.

2. FACTUAL ASPECTS

29.

This Section, first, takes note of the presentation of certain facts, by both Parties, in relation to the protection of Ukrainian forests and their importance for this case (Sections 2.1 and 2.2). Secondly, the products at issue are presented in their context (Section 2.3). Section 2.4 then lists the measures at issue indicated in the claims made by the EU. Finally, Section 2.5 lists a number of measures brought forward by Ukraine that have possible relevance in the present case, but are different from the "measures at issue" in Section 2.4. This somewhat unusual upfront listing allows us to look at the arguments made by the Parties in a dynamic context of ongoing and envisaged reforms (Section 3).

2.1 General information provided by the European Union on forest protection in Ukraine

30.

The European Union recalls that, according to the Ukraine Forest Agency, over the last fifty years Ukraine forests have increased by almost half and that Ukraine is the ninth country in Europe according to forested area and the sixth in terms of forest stocks.²⁵ Moreover, according to the Agency, the stock of standing timber is increasing by an average of 35 million cubic meter annually²⁶ and there is "a steady tendency to increase the area of forests in the whole country."²⁷

31.

Ukraine has clarified that more than 44% of Ukraine forested areas has been already assessed and certified based on the international requirements towards forest management and forest exploitation subject to the principles of sustainable development and that, in any event, the lack of a certification does not indicate any problems²⁸. In this connection, the European Union outlined that it supports Ukraine's efforts to protect its forests and that it has constantly encouraged Ukraine to strengthen those efforts, in particular by ensuring an adequate enforcement of its forest management regime.²⁹

32.

The European Union emphasised that the present case is not about whether Ukraine is entitled to adopt measures for protecting its forests, which is beyond question.³⁰ The European Union acknowledged the persistent challenges faced by Ukraine's forestry sector, including illicit felling activities and corruption.³¹ The European Union has stressed that it fully cooperates with Ukraine in order to support Ukraine's efforts to meet those challenges and protect effectively its forests. It has provided in Annex EU-1 to its Responses to the First List of Questions from the Panel an extensive overview of such past and ongoing European Union cooperation and assistance measures.³²

33.

At same time, the European Union outlined that - in parallel with the 2015 Export Ban on all unprocessed timber - Ukrainian exports of sawn wood picked up, thereby confirming that the measure is essentially concerned with supporting Ukraine's domestic wood processing industry, rather than protecting Ukrainian forests, or aiming at an overall reduction of domestic felling or wood production.³³

2.2 General information about Ukraine’s forests, as provided by the Respondent

34.

Forests are a national treasure of Ukraine. Depending on purposes and localisation, Ukrainian forests perform a wide array of environmental and other functions that restrict their commercial use (water management, protective, sanitary-hygienic, recreative and others).³⁴

35.

The total area covered by forests in Ukraine is 10.4 million hectares, of which 9.4 million hectares are stocked forests (15.9 % of the total area of Ukraine's territory).³⁵ The forest area per capita in Ukraine is on average 14 times smaller compared to other Eastern European countries. Ukraine takes only 34th place in Europe in parameters such as forest area in relation to the total area.³⁶

36.

As a result of natural conditions and anthropogenic influences over a long period of time, Ukrainian forests today are irregularly distributed over the country. More than half of the country's forests are human-made and need enhanced care. The average age of the forests in Ukraine is more than 60 years, resulting in over-aging and in deterioration of their sanitary status.³⁷

37.

The forests grow in three natural zones (zone of mixed forests, forest-steppe, steppe), in Crimea and in the Carpathians mountains. While the optimal percentage of forest cover for the country should constitute 20% of the total territory of Ukraine (presently 15.9 %), the planned and the actual forest covers differ widely for the different zones: for Polissya (Forest zone) it should amount to 32.0% of the total area of this zone (actually 26.8 %), for Lisostep (Forest-steppe zone) it should be 18% (presently 13%), while for Step (Steppe zone) it is presently 5.3% instead of 9.0%.³⁸

38.

The Chornobyl Nuclear Power Plant Disaster contaminated around 3.5 million hectares of forest. Today, 157 000 hectares of forest have a high level of radioactive contamination of Caesium-137. Forest exploitation is limited there. The largest territories of contaminated forest are situated in the Zhytomyr region (60%), Kyiv region (52.2%), and Rivne region (56. 2 %). In Volyn, Chernihiv, Cherkasy, Vinnytsya and Sumy Regions 20% of forests are contaminated. In the Red Forest, which is located within the 10km² area surrounding the Chornobyl Nuclear Power Plant, the pines planted after the accident have grown without a central leading stem, rendering them odd-looking dwarfs more like bushes than trees.³⁹ Therefore, these forests are not exploited.⁴⁰

39.

In 2002, the State Programme "Forests of Ukraine" for 2002-2015 was adopted as one of the basic plans for the forest management in Ukraine.⁴¹ The programme recognised that the actual size of the woodland (15. 6% of the total territory of Ukraine) was insufficient and the woodland should be expanded by 2 to 2. 5 million hectares in order to meet the above-mentioned optimal coverage of 20%.⁴²

40.

In 2010, the Ukrainian Parliament adopted the Law "On Main Principles of State Environmental Policy of Ukraine for the Period until 2020."⁴³ According to this law, the total woodland should expand by more than 2 million hectares of new forests in order to meet the optimal coverage of 20%. This optimal woodland coverage would thus be reached in 20 years.⁴⁴

41.

This law was replaced by the Law "On Main Principles of State Environmental Policy of Ukraine for the Period of up to 2030."⁴⁵

42.

The State Forest Resources Agency of Ukraine reported the same level of annual increment for 2018 and 2019 (35 million cubic metres).⁴⁶ The forest utilisation rate (i. e., the ratio of the average annual felling relative to the average annual increment) was 63% in 2018 and 60% in 2019. Ukraine writes that, according to the European Environment Agency "a felling-to-annual-increment ratio of approximately 70 % is recommended to ensure the sustainable management of forests."⁴⁷

43.

The State Forest Resources Agency of Ukraine also recalls that the average age of Ukrainian forests is over 60 years and that this age is still increasing. This should be seen as an opportunity from an environmental point of view since, as the European Commission has acknowledged that "newly planted forests cannot replace primary forests, which have high carbon stocks, and are characterised by their great age, unique ecological features and the established protection they provide to biodiversity."⁴⁸ However, protecting the biodiversity of primary forests, and the carbon stocks they contain, also implies that harvests must be strictly controlled, especially where their age leads to a deterioration of their sanitary status.⁴⁹ Depending on the type of forest, it could take decades for carbon stocks in harvested areas to return to prior levels. An increase in the harvest is therefore equivalent to an increase in carbon dioxide emissions to the atmosphere, which is the opposite of what should be done in terms of protection of the environment.⁵⁰ Hence, the quality and sustainability of the stock of standing timber in Ukrainian forests remains a source of concern.⁵¹

44.

One of the main challenges are illegal logging and smuggling practices.⁵² In 2019, the total volume of illegal logging was reported at 118 thousand cubic metres with the total damage amounting to UAH 814.2m. The ineffectiveness of measures taken to ensure the proper protection of forests is evidenced by the fact that in 2019 the State Forest Resources Agency of Ukraine detected illegal logging of 6 446 cubic metres in the forests of Kharkiv Region, with a total damage amounting to UAH 51.7m; of 1 333 cubic metres in the forests of Kherson Region Administration with a total damage of UAH 16.9m; and of 1000 cubic metres in the forests of Zhytomyr Region Administration with a total damage of UAH 5m.

45.

The causes for illegal logging are, first and foremost, social: a low level of social and economic development of rural regions (high unemployment rate among the population that harvests timber to meet vital needs, low salaries, low investment activity etc.). The second cause is economic: obtaining quick profits by individual citizens or organised groups that harvest large size and valuable wood for further processing or commercial sale. The main consumers of such timber are sawmills, operating beyond the law. Investigations into the circumstances of illegal logging show that the main reasons for their increase are the activities of technically well-equipped criminal groups, the low level of financial support of the population, which is forced to meet their basic needs in an illegal way, and the large number of uncontrolled private sawmills, purchasing illegally harvested wood. To a large extent, the spread of illegal logging in the southern and eastern regions of Ukraine is facilitated by the lack of budgetary funding to finance the work of state forest protection workers, which prompts them to leave their jobs and, as a result, large forest areas are left unattended.⁵³

46.

With a view to increasing the effectiveness of work on the prevention of, and fight against, illegal logging, the prevention of the theft of forest products and other violations of forest legislation of Ukraine, the territorial bodies of the State Forest Resources Agency held joint meetings with the representatives of the regional state administrations, territorial bodies of the prosecutor's offices, police, the Security Service of Ukraine and the State Environmental Inspectorate of Ukraine in order to develop, approve and carry out joint measures for the protection of forests and carrying out systematic inspections of sawmills and other wood processing enterprises to check the legality of timber purchases.⁵⁴ Based on the result of such meetings, the police officers became involved in joint raids conducted by mobile raid groups established by enterprises belonging to the State Forest Resources Agency.⁵⁵

47.

For a country facing since 2014 an "emergency in its international relations", Ukraine considers that is difficult to focus efficiently on the fight against illegal logging and felling, when the absolute priority is the recovery of territorial integrity, and access to sufficient energy. Ukraine claims that it does as much as it can.⁵⁶ This "emergency in international relations" between Ukraine and the Russian Federation began in 2014 and has led inter alia to the extermination of flora and fauna of the part of Ukraine where military actions are conducted; a great part of the forests was destroyed.⁵⁷

48.

In support of its position, Ukraine notes that the "emergency in international relations" has been recognised multiple times and analysed by the UN environment programme (UNEP):

"The forests in the Donetsk and Lugansk provinces of Donbas region play a crucial role in the natural and man-made landscapes, by preventing wind and water erosion and by ensuring the stability of water supply bodies.

Besides creating a favourable environment for the local fauna and flora, the region's massive pine forests play a key social and economic role, as they are often used for recreation, hunting, and mushrooms, berries, and herbs picking.

According to an assessment carried out by UN Environment’s Science-Policy Platform on Environment and Security, the conflict has affected, damaged, or destroyed ecosystems within an area of at least 530, 000 hectares, including 18 nature reserves covering an area of 80, 000 hectares. Furthermore, 150, 000 hectares of forests have been impacted, with 12, 500 forest fires blazing through the military operations zone and adjacent areas.

In 2014 alone, the lack of forest protection and the fighting led to the near irreversible destruction of 479 hectares of forests. The fighting has had direct mechanical and chemical impacts on trees, including shrapnel damage of barks, branches, tops, ground vegetation, weakening or killing individual trees and entire plantations. The military operations zone has also been contaminated by unexploded ordnance whose elimination could take years or decades, based on the experience of other countries such as Bosnia and Herzegovina, Serbia, and Macedonia.⁵⁸

49.

Ukraine submits that the "emergency in international relations" that currently exists on its territory affects a great number of spheres of daily life not only in the region but also in the entire country. Due to the occupation of a considerable part of Ukraine the rest of the country resorts to an increased consumption of wood products for the purpose inter alia of heating. Moreover, not only significant parts of forests are located in the occupied territory but this is also the case for some of the biggest coal mines and plants.⁵⁹

50.

Altogether 305 objects of the natural reserve fund are situated in the Donetsk and Lugansk regions.⁶⁰ More than half of such objects in the Donetsk region - in the Lugansk region, about a third - are now located in the occupied territory. In particular, there are many nature reserves in the region (Luhansky and Ukrainian Steppe), as well as the national natural parks Svyati Hory and Meotida.⁶¹ These objects of the Ukrainian natural wealth have suffered from a number of different factors. One of the greatest problems is the forest fires caused by the explosions of ammunition or deliberate arson connected with warfare tactics. As a result of fires caused by military action, the plantations along the collision line suffered the most. Furthermore, damage to the territories by shelling was found in the national natural park Svyati Hory, branches of the Ukrainian Steppe Kalmius and Kreydyana flora, the regional landscape park Donetsky Kriaghgh and the Slavyansky Resort, the Lugansk Natural Reserve, and the Belogorivsky and Perevalsky Reserves. The forest plantations in the ORDLO also are affected by the cutting down of forest for military needs, e.g. building dugout shelters and trenches.⁶²

51.

Ukraine notes that during the period of armed aggression by Russia in the territory of ORDLO some natural landscapes were totally destroyed. Military action led to the pollution of water, soil, air and to forest cutting. The impact on the natural resources is horrifying and the expectations of experts are that the rehabilitation of these landscapes will take a considerable period of time. Unfortunately, the lack of full control of Ukraine over the entire territory, the lack of control bodies and the constant shelling do not allow for an objective assessment of the damage caused to the natural environment during the period of hostilities. Each and every day of the war, the natural wealth and resources of the occupied Donbass territory, especially forestry, are further destroyed, the scale of the environmental consequences increases exponentially, and their prevention or elimination becomes more complicated.⁶³

52.

According to Ukraine, these data demonstrate both the ongoing efforts made by Ukraine to improve the protection of its environment in a difficult context, and the need to achieve better results.⁶⁴

2.3 The Products at issue

53.

In the present dispute, two main categories of products are at issue: raw timber and sawn wood of ten specific wood species which are referred to in the relevant Ukrainian law as (i) "rare and valuable species" and (ii) all "unprocessed timber".

2.3.1 "Rare and valuable" species

54.

The first category consists of timber and sawn wood of ten species listed in Article 1 of the Law of Ukraine "On Elements of the State Regulation of Business Operators’ Activities Related to the Sale and Export of Timber" of 08 September 2005, No. 2860-IV (hereinafter Law 2860-IV) and referred to in that law as "rare and valuable".⁶⁵

55.

These ten species consist of six wood genera⁶⁶ and four wood species.⁶⁷ All of them fall within the UKTZED Code 4403. According to Article 2 of Law 2860-IV, "sawn wood" made from such "rare and valuable" species falls within the UKTZED Code 4407.

56.

Ukraine regulates these products as part of its forestry resources and its biodiversity.⁶⁸ Five species are listed in the Red Book of Ukraine.⁶⁹ Ukraine explains that "The Red Book of Ukraine" is an official government document that contains the list of endangered species of animals, plants and fungi on the territory of Ukraine. By listing the animals and plants of Ukraine, which are on the verge of extinction and must therefore be protected, the Red Book assists in their preservation and gradual recovery. The Red Book contains general information about areas, the current state and causes of endangered species and the possibilities for preserving valuable and rare wood species. At the same time, it does not set time frames for determining the period during which plants will be assessed as "endangered" and "valuable and rare." However, the Red Book alone cannot protect the listed species: there must be further action in this regard, and the 2005 law is one of them.⁷⁰

57.

Overall, the industrial exploitation of the species concerned is limited. A number of them are cultivated especially in view of the production of fruits and nuts or other products from flowering and for landscaping. Article 70 of the Forest Code of Ukraine provides that "valuable and rare wood" is to be preserved during felling operations.⁷¹

58.

Some of the wood species concerned are also included in the International Union for Conservation of Nature Red List of Threatened Species (also known as the IUCN Red List or Red Data List).⁷² This is the case of acacias, junipers, acers, walnut trees, cherry trees. However, the EU argues that they are not included under a category that would suggest that their existence is currently under serious threat at a global level.⁷³

59.

All ten "rare and valuable" species are covered by the "2005 export ban" described in Section 2.4.1.

2.3.2 Unprocessed timber products

60.

The second category of products at issue consists of unprocessed timber products (UKTZED Code 4403), also found in Article 1 of Law 2860-IV.

61.

The Parties consistently define "timber" as "[w]ood materials that are extracted by dividing into parts felled trees and logs (along and across) further processing."⁷⁴ "Sawn wood" is defined in Article 1 of Law 2860-IV as "[s]awn goods of a certain size and quality that have at least two planar parallel layers."⁷⁵

62.

Unprocessed timber products are covered by the "2015 temporary export ban" which will be described in Section 2.4.2.

2.4 The measures at issue

63.

The European Union identified two measures in its request for the establishment of the Arbitration Panel in connection with its claims: the "2005 export ban" and the "2015 temporary export ban".⁷⁶ Since also Ukraine has used these terms, the Arbitration Panel will use them as well for reasons of expediency.

2.4.1 The "2005 export ban"

64.

The Complainant asserts that Ukraine prohibits the exportation of both timber and sawn wood of ten "rare and valuable" species since 2005 (the "2005 export ban").

65.

The EU indicates that the "2005 export ban" is reflected in Article 2 of Law 2860-IV, which states:

Export of timber and sawn wood of valuable and rare wood species beyond the customs territory of Ukraine is prohibited.

66.

The EU also notes that the prohibition instituted by the "2005 export ban" is permanent. lt has been applied since Law 2860-IV entered into force (13 December 2005) and is not subject to any temporary limitation.

2.4.2 The "2015 temporary export ban"

67.

The EU further asserts that Ukraine introduced a temporary prohibition, for a period of ten years, on all exports of unprocessed timber since 2015 (the "2015 temporary export ban"). In the case of wood species other than pine, the temporary prohibition applies from 1 November 2015. In the case of wood species of pine trees, it applies from 1 January 2017.

68.

The EU indicates that the "2015 temporary export ban" is described in Article 2-1 of Law No. 325-VIII:

1) temporarily, for a 10-year period, it is prohibited to export unprocessed timber outside the customs territory of Ukraine [Harmonized System Code 4403 of section IX, group 44];

2) for wood species other than pine - from November 1, 2015; and

3) for wood species of pine - from January 1, 2017.⁷⁷

2.5 Measures other than "measures at issue"

69.

In order to comprehend the context of these proceedings, it is useful to list a number of other measures with possible relevance in the present case but different from the measures at issue in Section 2.4. In the course of the proceedings, Ukraine referred to the following measures as being part of its forestry policy:

1) Law of Ukraine No. 2531-VIII of 6 September 2018 "On Amendments to Certain Legislative Acts of Ukraine on the Preservation of Ukrainian Forests and preventing the Illegal Export of Unprocessed Timber" No. 2531-VIII, dated 6 September 2018, Information from the Verkhovna Rada of Ukraine, 2018, No. 42, p. 327);

2) Decree of the President of Ukraine "On Certain Measures for the Conservation of Forests and the Rational Use of Forest Resources" No. 511/2019, of 9 July 2019;

3) Resolution of the Cabinet of Ministers of Ukraine "On Approval of the Procedure for Monitoring Internal Consumption of Domestic Raw Timber and Control of Excessive Domestic Consumption of Domestic Unprocessed Timber" No. 1142, of 4 December 2019; and

4) the draft law on amendments to the Forest Code for implementing the National Forestry Inventory, adopted on 5 February 2020 in the first reading the Parliament of Ukraine.⁷⁸

70.

Ukraine also recalls that in order to effectively prevent illegal logging in Ukraine, the following measures have been taken:

1) Introduction of an electronic timber tracking system;.

2) Increased penalties for illegal logging and criminal liability for illegal logging and illegal timber exports;

3) Transition to European standards as of January 1, 2019, which makes it impossible to differentiate the allocation of quality categories in Ukraine and the European Union;

4) Increased area of certified forests;

5) Improved public access to information on the legality of logging and harvesting permits;

6) Possibility of verifying the legality of timber harvesting on the official site of the administrator of the unified state electronic timber tracking system of the State Forest Innovation and Analytical Centre through the Forest in Smartphone system;

7) Online checking of timber legality by label number, waybill and vehicle number.⁷⁹

3. ARGUMENTS OF THE PARTIES

71.

This Section summarises the arguments of each Party in accordance with paragraph 8 of the Working Procedures adopted by the Arbitration Panel.⁸⁰

3.1 European Union

72.

The EU makes the following claims with respect to the two measures referred to in Section 2.4 above.

73.

The 2005 export ban is a "prohibition" inconsistent with Article 35 of the AA.⁸¹ Moreover, Ukraine "has not showed that it is designed and it is necessary to protect plant life or health" in accordance with Article XX(b) of the GATT 1994 and therefore the measure cannot be justified under Article 36 AA.⁸²

74.

The 2015 temporary export ban is also a "prohibition" inconsistent with Article 35 AA.⁸³ Furthermore, Ukraine "has not demonstrated that it is part of its policy for the preservation and sustainable exploitation of its forests, and that it contributes to the declared conservationist objective" in accordance with Article XX(g) of the GATT 1994.⁸⁴ Ukraine could not demonstrate that "it is...even-handed because it imposed a complete ban on export, while allowing for a very high and unprecedented level of domestic consumption" in contrast to what is required pursuant to Article XX(g) of the GATT 1994.⁸⁵ Therefore, the measure cannot be justified under Article 36 of the AA.

75.

The Complainant concludes that both measures cannot be justified under Article 290(1) of the AA as a self-standing exception because "the 'right to regulate' recognised in Article 290(1) of the AA must be exercised in accordance with the requirements of other provisions of the AA that give expression and operationalise the 'right to regulate', including the policy exceptions mentioned in Article 36 of the AA".⁸⁶ The same holds true for any of the provisions of Chapter 13 of the Association Agreement that Ukraine invoked as defences.⁸⁷

76.

Besides, this "right to regulate" is not at issue in this case.⁸⁸ In any case, it is not an unqualified right.⁸⁹

77.

The EU adds that should Ukraine contend that the bans are justified by Article XX of the GATT 1994, the burden of proof would be on Ukraine.⁹⁰

3.2 Ukraine

78.

Ukraine contends that the measures at issue "are not inconsistent with Article 35 of the Association Agreement per se."⁹¹ The European Union was not able to prove that they have the "effect" of restricting exports of the products concerned "destined for the territory of the other party" (that is, the European Union) as therein provided.⁹²

79.

Even if Article 35 of the AA is applicable, the 2005 export ban and the 2015 temporary export ban are justified in accordance with Article 36 of the AA. The two measures are justified by Article XX(b) and Article XX(g) of the GATT 1994, respectively.⁹³

80.

Indeed, the measures at issue "are a mere exercise of [Ukraine's] right to regulate its own level of environmental protection [as] recognized in... Article 290" of the AA.⁹⁴ They must be read in conjunction with Articles 294 and 296(2) in Chapter 13 of the Association Agreement ("Trade and Sustainable Development)."⁹⁵

3.3 Additional arguments made during the Hearing

3.3.1 Ukraine

81.

During the Hearing, Ukraine raised additional arguments, which called into question the admissibility of the European Union's claims based on Article 35 of the AA.

82.

In the first place, Ukraine argued that the Arbitration Panel lacks jurisdiction to address the dispute brought before it by the European Union, because "this case is plainly a Chapter 13 of the Association Agreement case"⁹⁶ and thus "must be resolved only according to the procedures provided for in Articles 300 and 301 of the Association Agreement."⁹⁷

83.

Ukraine remarks that Chapter 13 has its own consultation mechanism for handling differences in addressing sustainability issues, "the procedures of which have not been activated by the European Union."⁹⁸

The European Union has therefore erred in seizing the current Arbitration Panel for addressing a matter arising under Chapter 13 of the Association Agreement. As a consequence, the Arbitration Panel cannot address this matter, because it has no jurisdiction, or because the request for the establishment of an arbitration panel is inadmissible.⁹⁹

84.

Secondly, even if the EU's claim is considered admissible, Article 35 of the AA is inapplicable "in any arbitration proceedings until the end of the 10-year period agreed between the Parties to progressively establish a free trade area, i.e. by the end of 2025."¹⁰⁰ This is laid down in Article 25 of the Association Agreement.¹⁰¹

85.

Finally, Ukraine has asked the Arbitration Panel "to take into consideration", in the present case, "the specific circumstances, in particular the "emergency in international relations" within the meaning of Article XXI(b) of GATT 1994 which began in 2014 between Ukraine and the Russian Federation.¹⁰² According to Ukraine, this "emergency in international relations [...] has lead, inter alia, to the destruction of a great part of the forests."¹⁰³

3.3.2 Comments by the European Union

86.

During the Hearing and thereafter, in its responses to the oral questions of the Arbitration Panel at the Hearing, the EU counter-argued that Ukraine's jurisdictional objection is "manifestly untimely and, in any event, 'manifestly without merit'."¹⁰⁴

87.

Ukraine's objections would imply that "all measures 'relating to trade in forest products' and more generally all measures 'relating' to the protection of the environment would be subject exclusively to the disciplines of Chapter 13, to the exclusion of any other provisions of the AA."¹⁰⁵

88.

In addition, Ukraine's reading of Article 25 of the AA would run counter to Article XXIV(8)(b) of the GATT 1994 and lead to "manifestly unreasonable... consequences."¹⁰⁶ Moreover, Article 35 of the AA clearly states that "Article XI of the GATT 1994 [...] are incorporated into, and made an integral part of, this Agreement."¹⁰⁷

89.

The Arbitration Panel will address all these claims and additional arguments in its findings in Section 4.1.

4. FINDINGS

90.

Before considering the Complainant's claims about the two export bans in their context, we will address the "preliminary" issues arising from the Hearing (Section 4.1). We will then examine whether the measures at issue are compatible with Article 35 of the AA, having due regard to its relation with the provisions of Chapter 13 of the AA (Section 4.2). We will finally turn to the analysis of whether the measures at issue are justified under Article 36 AA, should they be found incompatible with Article 35 of the AA (Section 4.3).

4.1 Preliminary issues

91.

In the course of the Hearing, three issues have been raised by the Respondent:

1. That the dispute arises under Chapter 13 of the AA (Trade and Sustainable Development, Articles 289-302) instead of under Chapter 14 (Dispute settlement, Articles 303 -326) (Sub-Section 4.1.1).

2. That Article 35 of the AA invoked by the EU is inapplicable during the 10-year transitional period provided for in Article 25 of the AA (Sub-Section 4.1.2).

3. The emergency situation in international relations affecting Ukraine (Sub-Section 4.1.3).

92.

The Arbitration Panel now addresses each of these issues in turn.

4.1.1 Whether the present dispute arises under Chapter 13 or Chapter 14 of the AA

4.1.1.1 The Parties’ arguments

4.1.1.1.1 Ukraine

93.

Ukraine, as recalled above, has postulated for the first time in its oral opening statement at the Hearing of 23 September 2020, that this Arbitration Panel "cannot address" the matter submitted to it by the EU because "the current dispute definitely relates to the trade in forest products (unprocessed timber; timber and sawn wood from 10 valuable and rare species listed in Article 1 of Law 2860-IV). It is therefore arising under Chapter 13 of the AA and it must be resolved only according to the procedures provided for in Articles 300 and 301 of the Association Agreement."¹⁰⁸

94.

According to Ukraine, "the European Union has therefore erred in seizing the current Arbitration Panel, for addressing a matter arising under Chapter 13 of the Association Agreement. Consequently, the Arbitration Panel cannot address this matter because it has no jurisdiction or the request for the establishment of an arbitration panel is inadmissible."¹⁰⁹

95.

To support its argument Ukraine refers to Article 300(7) of the AA which is part of Chapter 13 and has as its title "Institutional and monitoring mechanism":

For any matter arising under this Chapter [on "Trade and sustainable development"], the Parties shall only have recourse to the procedures provided for in Articles 300 and 301 of this Agreement.

96.

In turn, Articles 300 and 301 of the AA provide for consultations "regarding any matter arising under this Chapter", followed, if the matter is not satisfactorily resolved through such governmental consultations, by referral of the matter to a Group of Experts entrusted to present a report to the Parties. Thereupon "[t]he Parties shall make their best efforts to accommodate advice or recommendations of the Group on the implementation of this Chapter."¹¹⁰

97.

Ukraine further notes that "there is no rule in the Association Agreement, nor in the Working Procedures, that prohibits a Party to raise a jurisdictional/admissibility issue at any time during the procedure".¹¹¹

98.

Finally, Ukraine also submits that the examination by the Arbitration Panel of the jurisdictional objection raised by Ukraine in the present case would be consistent with WTO jurisprudence and international practice.¹¹²

4.1.1.1.2 The European Union

99.

The EU raises two objections to the above position of Ukraine. The first objection is procedural and the second one is on the merits.

100.

Procedurally, the EU submits that Ukraine's objection to jurisdiction is "manifestly untimely", because Ukraine has failed to raise it "seasonably and promptly" in the proceedings.¹¹³ In the EU's view, previous DSB rulings clearly indicate that claims over "procedural deficiencies" shall be brought in accordance with the principle of good faith and due process.¹¹⁴ As Ukraine did not file this objection in a timely manner the consequence is that Ukraine "may be deemed to have waived its right to have a panel consider such objections."¹¹⁵

101.

On the substance, the EU considers that Ukraine's objection to jurisdiction is without merit.¹¹⁶ The EU stresses that its claims are based on Article 35 of the AA (which is found in Title IV AA, "Trade and Trade-Related Matters"), so that Article 304 of the AA, which is included in Chapter 14 ("Dispute settlement"), applies.¹¹⁷ Article 304 of the AA states:

The provision of this Chapter apply in respect of any dispute concerning the interpretation and application of the provisions of Title IV of this Agreement except as otherwise expressly provided.

102.

The EU further points out that neither Article 300(7) of the AA nor any other provision expressly excludes disputes concerning the interpretation and application of Article 35 of the AA from the scope of Chapter 14. Article 300(7) of the AA alludes to "matters arising under Chapter 13". In this respect, the EU contends that:

For a "matter" to "arise" under Chapter 13 within the meaning of Article 300(7), it is not enough to show that a measure "relates" to "trade in forest products" or the "protection of the environment". Rather a "measure arises" under Chapter 13 where the complaining party brings a "claim" on the basis of a provision included in Chapter 13 with regard to a "measure" within the scope of the same Chapter.¹¹⁸

103.

The EU submits that it has not brought any claims on the basis of any provision included in Chapter 13 so that Article 300(7) of the AA is not relevant in casu.¹¹⁹

104.

Even if it were correct that, as Ukraine claims, the current dispute "definitely relates to trade in forest products," the subject matter of the dispute is that raised by the EU in its request for the establishment of the Arbitration Panel pursuant to Article 306(3) of the AA.¹²⁰ In this respect, the EU recalls that the "matter" referred to the Arbitration Panel is whether the measures at issue (the 2005 and 2015 export bans) are in breach of the provision invoked by the EU, i.e. Article 35 of the AA.

105.

The EU further points out that Ukraine's jurisdictional objection is based on the assumption that "all measures 'relating to trade in forests' and more generally all measures 'relating' to the protection of the environment would be subject exclusively to the disciplines of Chapter 13, to the exclusion of any other provisions of the AA."¹²¹ According to the EU, however, the provisions of Chapter 13 "do not seek to replace the provisions of other Chapters of Title IV, but rather to complement those provisions by imposing additional obligations on the Parties with regard to the protection of the environment."¹²² The EU does support Ukraine's efforts to protect its forests, in particular by ensuring the adequate enforcement of its forest management regime. The EU also acknowledges the persistent challenges faced by Ukraine, including illicit felling activities and systemic corruption.¹²³

106.

However, in this case the Parties disagree on whether the two disputed specific measures, that is, the 2005 and the 2015 export bans can be regarded as adequate measures to achieve the alleged objective of protecting Ukraine's forests. The EU believes that "Ukraine's position that the measures at issue are not export prohibitions or restrictions incompatible with Article 35 is untenable and disingenuous."¹²⁴ In conclusion "[t]he EU cannot accept that measures whose essential objective is to protect a domestic industry be shielded from scrutiny under the guise of environmental measures."¹²⁵

4.1.1.2 The Arbitration Panel’s findings

4.1.1.2.1 On the timeliness of the jurisdictional objection

107.

The Arbitrators first note Ukraine's acceptance, at the time of the establishment of the Arbitration Panel, of its competence to examine the matter of the compatibility of Ukraine's restrictions with Article 35 of the AA as discussed hereunder.

108.

In the Note Verbale of the EU of 20 June 2019 the EU requested "the establishment of an arbitration panel pursuant to Article 306 of the Association Agreement".¹²⁶ The Note states that "the request concerns restrictions applied by Ukraine on exports of certain wood products to the European Union, specified in the following sentences"and goes on to state that:

The export restriction applied by Ukraine appear to be incompatible with Article 35 of the Association Agreement, which sets out a prohibition of export restrictions and measures having an equivalent effect.

109.

The Note further states that consultations between the Parties "with regard to the measures at issue with a view to reaching a mutually agreed solution of the matter" held in Kyiv on 7 February 2019 had unfortunately not resolved the matter. Therefore, the EU was requesting the establishment of an arbitration panel to examine the matter, with the standard terms of reference as set out in Article 306(3) AA, and according to the procedure for the composition of the arbitration panel pursuant to Article 307 AA and the relevant provisions in the Rules of Procedure for Dispute Settlement in Annex XXIV to the Association Agreement.

110.

Ukraine confirmed the receipt of the request in its Note Verbale of 27 June 2019.¹²⁷

111.

In the subsequent Note Verbale of 9 August 2019 the EU confirmed the agreement between the Parties reached pursuant to Article 307(2) of the AA on the composition of the Arbitration Panel and stated, inter alia, that the terms of reference of the Arbitration Panel shall be as set out in Article 306(3) of the AA: to examine the matter referred to in the request for establishment of the arbitration panel, to rule on the compatibility of the measure in question with the provisions of this Agreement referred to in Article 304 of this Agreement and to make a ruling in accordance with Article 310 of this Agreement.

112.

Ukraine answered by Note Verbale of 20 August 2019 referring to the Note Verbale of the EU dated 9 August 2019: concerning the arbitration procedure on temporary restrictions applied by Ukraine on export of certain wood products to the European Union, pursuant to Section 1 of Chapter 14 of Title IV of the Association Agreement.¹²⁸

113.

In the same Note Verbale, Ukraine confirmed the agreement with the EU as to the composition of the Arbitration Panel and other related procedural matters set out in the Note Verbale of 9 August 2019 of the EU, and specifically that the terms of reference of the Arbitration Panel would be those set out in Article 306(3) of the AA.

114.

Second, the Arbitrators note that Ukraine's position has remained unchanged during the proceedings in its various submissions up until the Hearing of 22-23 September 2020, when it raised the jurisdictional objection.

115.

Specifically, in its (first) written submission of 11 March 2020, Ukraine did not object to the subject matter of the dispute brought to arbitration by the EU, nor to the competence of this Arbitration Panel to rule on it according to the terms of reference agreed by the Parties and the procedure laid down in Section 1 of Chapter 14 of the AA (Articles 303 to 310 of the AA). Rather, it opposed the EU claims on their merits. It argued in particular that the measures at issue were adopted for environmental reasons and conservation purposes and invoked the defences available pursuant to Article XX (b) and (g) of the GATT 1994, as applicable by virtue of the reference to Article XX of the GATT 1994 contained in Article 36 of the AA.¹²⁹

116.

The Arbitration Panel concludes from the above review of relevant statements and defences of Ukraine that Ukraine has never challenged the subject matter of the dispute as defined by the EU since the Note Verbale of 20 June 2019, which requested the establishment of an Arbitration Panel concerning the alleged conflict of Ukraine's 2005 and 2015 export bans with Article 35 of the AA. On the contrary, Ukraine has explicitly accepted to engage in the proceedings concerning the above matter as raised by the EU without any further reservations.

117.

Having consistently accepted to engage in the dispute as defined in the Notes Verbales by the EU, and to enter in the merits, Ukraine has implicitly waived its right to raise the jurisdictional objection at issue. The Arbitration Panel therefore concludes that Ukraine is thereby precluded from raising, at the Hearing, the alleged lack of jurisdiction of the Arbitration Panel.¹³⁰

118.

Irrespective of the above conclusion, the Arbitration Panel will now consider whether the fact that Ukraine has waited until a late stage in the proceedings to raise this jurisdictional objection makes the objection inadmissible by itself. The Arbitration Panel will do so both for the sake of completeness of its analysis and because the Parties have discussed this point at some length. For the same reasons, the Arbitration Panel will also examine thereafter the merit of Ukraine's jurisdictional objection (Section 4.1.1.2.2).

119.

As to the the issue of timing for raising such a jurisdictional exception, the Arbitration Panel notes that neither the AA in its Chapter 14, nor the Rules of Procedure for Dispute Settlement provide language on this issue. However, Rule 18 of the Working Procedures, adopted by the Parties in agreement with the Arbitration Panel to govern this arbitration, following their drafting at the organisational session held in Brussels on 29 January 2020, states:

Any request for a preliminary ruling (including rulings on jurisdictional issues) shall be submitted at the earliest possible moment, and in any event no later than in a Party's first written submission. If a Party requests such a preliminary ruling, the other Party shall submit its comments within a time limit specified by the Panel. Exceptions to this procedure may be granted in exceptional circumstances.

120.

Respect of procedural rules, notably those that the Parties have explicitly agreed to, is important for due process reasons. Compliance with these rules is especially important where due process is at stake, since what is at issue here is the proper timing to raise an objection on jurisdiction, which is inherently of a preliminary nature. In this respect, the Panel considers that the statement in Rule 18, which states that "[a]ny request for preliminary rulings (including rulings on jurisdictional issues) shall be submitted as early as possible," indicates that objections to the jurisdiction of the Arbitration Panel must be raised at the earliest possible stage of the proceedings, and not a late stage as Ukraine did. In casu, the earliest possible opportunity would have been Ukraine's first written submissions.

121.

This temporal requirement is in line with the provisions applicable to, and the rulings made on, this issue in other international adjudicatory proceedings.¹³¹ More specifically, as for the proceedings under the DSU, the EU recalled that the rulings of the WTO Dispute Settlement Body - which this Arbitration Panel has take into account in accordance with Article 320 of the AA - are clear and consistent in this respect.¹³² The Appellate Body has more than once stated that the requirements of good faith and due process demand that a respondent raises procedural objections "seasonably and promptly" in order to promote "the fair, prompt and effective resolution of trade disputes":¹³³

A Member that fails to raise its objections in a timely manner, notwithstanding one or more opportunities to do so, may be deemed to have waived its right to have a panel consider such objections.¹³⁴

122.

Respect of timeliness is especially important in respect of jurisdictional objections because of judicial economy reasons. Should such an objection, though logically preliminary, be admissible and admitted only at a late stage in the proceedings, it would render previous activities useless.

123.

In conclusion, Rule 18 of the Working Procedures provides for an additional reason for holding that Ukraine's jurisdictional objection is inadmissible because it has not been made in a timely manner.

124.

In the light of the foregoing, we conclude that Ukraine explicitly accepted that this Arbitration Panel has been duly established on 28 January 2020, in accordance with Section 1 of Chapter 14 of Title IV of the Association Agreement to rule on the matter raised by the EU, namely the compatibility of the measures at issue with Article 35 of the AA.

125.

The Arbitration Panel therefore finds that Ukraine's jurisdictional objection is untimely.¹³⁵

4.1.1.2.2 On the merit of the jurisdictional objection

126.

Notwithstanding the above findings that Ukraine's jurisdictional objection is inadmissible, for the sake of completeness of our analysis we will now examine whether the jurisdictional objection of Ukraine is grounded in the merit for the reasons outlined above (Section 4.1.1.2.1).

127.

The Arbitration Panel first notes that the relevant provisions of Chapter 14 of the AA make it clear that in case of a dispute concerning the provisions of Title IV ("Trade and Trade Related Matters"), which could not be resolved by consultation, a Party may request the establishment of an arbitration panel to settle such dispute under Chapter 14, "except as otherwise expressly provided" (Article 304 of the AA).

128.

The Arbitration Panel notes that Article 302(2) of the AA provides that in the request for the establishment of an arbitration panel, to be made in writing to the Party complained against and to the Trade Committee,

The complaining Party shall identify in its request the specific measure at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.

129.

This is what the EU did in its Note Verbale of 20 June 2019. The alleged breach of Article 35 of the AA by Ukraine's 2005 and 2015 export bans is clearly identified. As already recalled in Section 4.1.1.2.1, pursuant to Article 306(3) of the AA the Parties agreed in the exchange of Notes Verbales of 9 and 20 August 2019 to establish the present Arbitration Panel with the following standard terms of reference:

to examine the matter referred to in the request for establishment of the arbitration panel of this Agreement, to rule on the compatibility of the measure in question with the provisions of Title IV in compliance with Article 304 and to make a ruling in accordance with Article 310 of this Agreement.

130.

The matter as identified in the EU request, namely the compatibility of the 2005 and 2015 export bans with Article 35 of the AA, is therefore the subject of the present dispute on which the Arbitration Panel has jurisdiction.

131.

Ukraine objects nevertheless that the present dispute can still arise under Chapter 13 of the AA by virtue of Article 304 of the AA, which provides that disputes under Title IV are covered by the dispute settlement provisions of Chapter 14 of the AA "except as otherwise expressly provided". Ukraine argues that such an express exclusion is found in Article 300(7) of the AA in Chapter 13, according to which "For any matter arising under this Chapter, the Parties shall only have recourse to the procedures provided for in Articles 300 and 301 of this Agreement." The EU in contrast argues that Article 300(7) of the AA is not an express provision to the contrary, referring, as an example of such an exclusion, to Article 52 of the AA: "Chapter 14 of Title IV of this Agreement shall not apply to Sections 1, 4, 5, 6 and 7 of this Chapter."

132.

In the Arbitration Panel's view, the provisions governing the issues mentioned above indicate that the decisive factor for determining whether a dispute falls under the alternative mechanism set out in Article 300(7) of the AA envisaged for Chapter 13 disputes is not so much the language used, but the "matter" which is the subject of the dispute as raised and defined by the complaining Party. The Arbitration Panel considers that it cannot question the identification of the matter raised by the Complainant, as long as the Respondent has not made a timely objection to that identification.

133.

In this respect, the relevant provisions of Title IV are those whose "interpretation and application" the complaining Party has identified as being in dispute in accordance with Article 304 of the AA, firstly in its request for consultation, and thereafter in its request for the establishment of the arbitration panel.¹³⁶ Thus Article 305(2) of the AA on the initial prescribed consultations in case of a dispute, requires that a Party seeking consultations shall do so by means of a written request "identifying the measure at issue and the provisions of this Agreement referred to in Article 304 of this Agreement that it considers applicable," namely provisions included in Title IV on "Trade and Trade-Related Matters."

134.

If consultations fail to resolve the matter, as in the present case, in the subsequent written request for the establishment of an arbitration panel according to Article 306(2) of the AA "[T]he complaining Party shall identify in its request the specific measure at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly." This is in turn the "matter" on which the arbitration panel must rule when standard terms of reference are agreed by the Parties as in the present case, in accordance with Article 306(3) of the AA.

135.

With reference to the two relevant elements of a matter in dispute, that is, the measure alleged to breach a treaty obligation and the claim identifying the provision thereby allegedly breached, the EU has clearly identified them as, respectively, the 2005 and 2015 export bans adopted by Ukraine, and the alleged breach thereby of Article 35 of the AA. This is therefore the "matter" on which the present Arbitration Panel must rule and which falls within its jurisdiction because it concerns the breach of a provision in Title IV, namely Article 35 of the AA, for which the dispute settlement mechanism is that provided in Chapter 14.¹³⁷ There is no explicit provision in Article 304 of the AA that excludes such a dispute from the purview of Chapter 14.

136.

Ukraine's contention that the measures at issue "relate" to trade in forest products and were enacted for environmental and conservation purposes cannot, as a matter of procedure, suffice to make the present dispute a Chapter 13 case to be resolved in accordance with Articles 300 to 301 of the AA.

137.

Ukraine is of course perfectly entitled, and it has consistently done so in its submissions, to argue on the merits that the 2005 and the 2015 export bans are not in breach of Article 35 of the AA, inter alia, because provisions of Chapter 13 of the AA may justify the measures challenged by the EU.¹³⁸ The Arbitration Panel will examine such defences on their merit in the relevant parts of the present Report.

138.

In light of the foregoing, the Arbitration Panel therefore rejects Ukraine's objections to the jurisdiction of the Arbitration Panel and finds that it is competent in accordance with Chapter 14 of the AA to resolve the present dispute.

4.1.2 Applicability of Article 35 of the AA during the 10-year transitional period

4.1.2.1 The Parties’ arguments

139.

Ukraine has raised a second objection of a preliminary character, namely that Article 35 of the AA becomes applicable only at the end of a 10-year transitional period provided for in Article 25 of the AA for the full establishment of a free trade area between the EU and Ukraine.

140.

This objection, or rather exception or defence since it concerns the merits of the case, can be seen as "preliminary" because, should the Arbitration Panel accept it as applicable, the dispute would be thereby resolved without the need to go further into the merits. As is the case for the previous objection, the Respondent has raised this objection for the first time in its oral opening statement at the Hearing. In Ukraine's view, "Article 35 of the Association Agreement cannot be opposed by one Party against another, in any arbitration proceeding, until they agree to consider that Article 35 is in full force, or at the end of the 10-year period agreed between the Parties to progressively establish a free-trade area."¹³⁹

141.

In support of its position, Ukraine mainly relies on textual arguments, referring to certain articles of Title IV that expressly provide that they become applicable "upon entry into force of this Agreement."¹⁴⁰ Ukraine submits that "since the obligation of Article 35 does not take its full effects "upon entry into force" of the Agreement, it does so at the expiry of the 10-year period."¹⁴¹

142.

The EU opposes Ukraine's contention, which it defines as "novel" and having "manifestly unreasonable and unacceptable consequences for the Parties".¹⁴² The EU points out that Article 25, the first provision in Title IV, sets out in its very title ("Objectives"), and in its content, the commitment of the Parties to establish between them a free trade area in conformity with Article XXIV of the GATT 1994 "over a transitional period of a maximum of 10 years."¹⁴³

143.

The EU points out that the elimination of customs duties is subject to a transitional period within the outer limit of Article 25, the length of which varies according to the product concerned, as is normal in the establishment of FTAs in conformity with Article XXIV of the GATT 1994.

144.

All other provisions of Chapter I of Title IV are not subject to any transitional period. The rationale therefore is straightforward in the view of the EU, since "those provisions restate previous obligations of both Parties under the GATT 1994. Accordingly, there was no reason to delay the application of those provisions beyond the date of entry into force of the AA."¹⁴⁴

4.1.2.2 The Arbitration Panel’s findings

145.

The Arbitration Panel has to look first at Ukraine's textual arguments in support of its reading of the basic provisions on trade in goods in Chapter 1 of Title IV of the AA. The question here is whether under such a reading the entry into force of all provisions not specifically qualified by the terms "upon the entry into force of this Agreement" would be postponed to the end of the transitional period.

146.

First of all, the textual references made by Ukraine do not support its position because most of articles it mentions do not belong to Chapter 1.¹⁴⁵ Moreover, the proposed interpretation would be in direct contradiction with provisions that, although not containing the words "upon the entry into force of this Agreement", are clearly meant to enter into force immediately. This is the case of Article 30 ("Standstill"), Article 31 ("Custom duties on exports"), Article 33 ("Fees and other charges") and Article 34 ("National Treatment") of the AA. These provisions are, as is the case of Article 35 of the AA, all part of Sections 2 and 3 of Chapter 14 where the basic rules on trade in goods are set out.

147.

More generally, one has to take into account the fact that the Association Agreement intends to establish between the Parties a Deep and Comprehensive Free Trade Area that goes beyond the GATT 1994 as to liberalisation of trade.¹⁴⁶ In the absence of an explicit provision to the contrary, it would run counter to the object and purpose of the Agreement

to hold that the entry in force of provisions that replicate pre-existing GATT 1994 obligations would be postponed to a future date.

148.

The Arbitrators further consider that such an interpretation appears contrary to the obligation laid down in Article 35 of the AA, which not only prevents the Parties from adopting but also from maintaining any export prohibition and restriction. In this context, the fact that the prohibition is temporary and is due to expire at the end of the transitional period is not relevant.¹⁴⁷

149.

The statement in Article 35 that "Article XI of the GATT 1994 and its interpretative notes are incorporated into, and made an integral part of this Agreement" reinforces this conclusion since the prohibition of export restrictions contained in Article XI:1 of the GATT 1994 is unconditional (notwithstanding the exceptions listed in Article XI:2 of the GATT 1994, which Ukraine has not invoked here).

150.

The Arbitration Panel therefore finds that, in order to determine whether Ukraine's measures at issue challenged by the EU are in conformity with the Association Agreement or not, Article 35 of the AA is fully applicable.

4.1.3 The emergency situation in international relations affecting Ukraine

4.1.3.1 The Parties’ arguments

151.

Ukraine has asked the Arbitration Panel "to take into consideration", in the present case, "the specific circumstances, in particular the "emergency in international relations" within the meaning of Article XXI(b) of GATT 1994 which began in 2014 between Ukraine and the Russian Federation.¹⁴⁸ The determination and existence of a such situation was recognised by the WTO Panel in Russia - Traffic in Transit.¹⁴⁹ As relevant in this case, this "emergency in international relations [...] has lead, inter alia, to the destruction of a great part of the forests."¹⁵⁰

152.

Ukraine further explains that this situation has been recognised in many instances, and analysed by the UN Environment Programme (UNEP). In 2018, UNEP reported that:

the conflict has damaged, or destroyed ecosystems within an area of at least 530,000 hectares, including 18 nature reserves covering an area of 80,000 hectares. Furthermore, 150,000 hectares of forests have been impacted, with 12,500 forest fires blazing through the military operations zone and adjacent areas. In 2014 alone, the lack of forest protection and the fighting led to the near irreversible destruction of 479 hectares of forests.¹⁵¹

153.

Ukraine submits that the situation of "emergency in international relations" which currently exists on its territory affects a great number of spheres of a daily life not only in the region but also in the entire country. Some of the biggest coal mines and plants were situated in those occupied territories.¹⁵²

154.

In this respect Ukraine recalls that the panel in Russia-Traffic in Transit recognised that such a situation of emergency in international relations allows WTO Members to "depart from their GATT 1994 and WTO obligations."¹⁵³ Ukraine submits that such a situation "does not restrict the right of a Party to take action under Article XXI(b)(iii) having effect only vis-à-vis the Party or Parties directly involved in the situation of emergency."¹⁵⁴

155.

Finally, in its Answer to the Arbitration Panel's questions, Ukraine has clarified its claims in this respect as follows

It is important to clarify that by speaking of an "emergency in international relations" in the context of Article XXI of GATT 1994, Ukraine does not justify the contested restrictions with the provisions of this Article. Ukraine mentions the "emergency situation in international relations", the existence of which was confirmed by the Panel in the case of Russia - Traffic in Transit in order to emphasize that the situation affects, in particular, on the state of Ukraine's forest.¹⁵⁵

156.

The EU recognises the existence of an emergency situation between Ukraine and Russia. The EU however opposes Ukraine's argument that these circumstances are objectively connected with the 2015 temporary export ban and should be considered by the Arbitration Panel in its assessment of Ukraine's defence. The EU considers that "this argument is simply an ex-post rationalisation."¹⁵⁶

157.

Firstly, there is no mention of the conflict with Russia neither in any of the parliamentary documents which describe the objectives and causes of the 2015 temporary export ban, nor in the legislative instrument that laid out the ban."¹⁵⁷

158.

Secondly, according to the EU Ukraine never argued during the "institutional dialogue" concerning the 2015 temporary export ban that this ban was related to the consequence of the conflict with Russia.¹⁵⁸

159.

Thirdly, if it were true that as a consequence of the conflict wood consumption in the rest of Ukraine increased and this threatens the conservation of forests, the EU wonders why Ukraine did not introduce a real and effective limitation on domestic consumption together with the temporary export ban in 2015 but waited until 2018 before doing so.¹⁵⁹

4.1.3.2 The Arbitration Panel’s findings

160.

The Arbitration Panel starts by looking at the above arguments by Ukraine. As a matter of fact, if Ukraine had invoked Article XXI of the GATT 1994 (referred to by Article 36 of the AA) as a "Security Exception" to its obligations under the Association Agreement, and pleaded that its measures at issue were taken in time of emergency in international relations as necessary for the protection of its essential security interests, we would have had to analyse in light of relevant DSB rulings whether the conditions for the application of this exception were fulfilled.¹⁶⁰ In case of a positive determination, the Arbitration Panel should have dismissed the EU claims without entering into the merits.

161.

It is however clear from the above arguments that Ukraine has not invoked Article XXI of the GATT 1994 as a defence. Ukraine has instead asked the Arbitration Panel "to take the situation as described above into account and consider the highly particular circumstances from which Ukraine has been severely suffering during the last years."¹⁶¹

162.

Ukraine further explained that:

the situation of emergency in international relations that Ukraine was facing in 2014 and is still facing is the relevant factual background to be taken into account when assessing whether Ukraine could have adopted measures other than the erga omnes temporary ban to implement its legitimate environmental protection policy.¹⁶²

163.

Ukraine also argues that:

The factual background, demonstrating both the ongoing efforts made by Ukraine to improve the protection of its environment in a difficult context and the need to achieve better results, is the one against which the measures challenged by the European Union must be assessed. Ukraine claims that they are part and parcel of this overall policy and that they were the only workable measures that Ukraine could take in the situation it was confronted to.¹⁶³

164.

Based on Ukraine's Answers to the Arbitration Panel's Questions, the Arbitration Panel is satisfied that Ukraine has not raised the above mentioned "emergency situation" as an exception under Article XXI of the GATT 1994.¹⁶⁴ Consequently, the Arbitration Panel's competence to rule in the present dispute in the merit remains intact. On the other hand, the above situation should be taken into account as far as relevant in the Arbitration Panel's further analysis, as factual context affecting the situation of Ukraine's forests which may influence its conservation policies.

4.2 Whether the bans are incompatible with Article 35 of the AA

4.2.1 Introduction

4.2.1.1 Article 35 of the AA and Article XI:1 of the GATT 1994

165.

The Complainant asserts that the 2005 export ban and the 2015 temporary export ban are inconsistent with Article 35 of the AA because they constitute a de iure "prohibition" on exports from Ukraine to the European Union, which is incompatible with Article 35 of the AA, first sentence, and Article XI: 1 of the GATT 1994, as incorporated in Article 35 of the AA, second sentence.¹⁶⁵

166.

Article 35 of the AA provides that:

No Party shall adopt or maintain any prohibition or restriction or any measure having an equivalent effect on the import of any good of the other Party or on the export or sale for export of any good destined for the territory of the other Party, except as otherwise provided in this Agreement or in accordance with Article XI of GATT 1994 and its interpretative notes. To this end, Article XI of GATT 1994 and its interpretative notes are incorporated into, and made an integral part of, this Agreement.

167.

Article XI:1 of the GATT 1994 states in its relevant part that:

No prohibitions or restrictions [...] shall be instituted or maintained by any contracting party on the [...] on the exportation or sale for export of any product destined for the territory of any other contracting party

[...].

168.

Ukraine does not dispute that the measures at issue prohibit all exports of the products concerned from Ukraine to the European Union.¹⁶⁶ It contends, however, that Article 35 of the AA only outlaws those export prohibitions or restrictions that have the "actual effect" of restricting trade.¹⁶⁷ This effect was not successfully demonstrated by the European Union.¹⁶⁸ It furthermore argues that only those export prohibitions or restrictions that apply specifically to trade to the other Party, as opposed to those applied erga omnes, fall within the remit of Article 35 of the AA so that Article 35 of the AA would not be applicable in the present case.¹⁶⁹ Accordingly, Ukraine contends that the measures at issue are not incompatible with Article 35 of the AA.¹⁷⁰

169.

Ukraine's interpretation of Article 35 of the AA stems from its contention that:

(i) Article XI of the GATT 1994 is not incorporated in its entirety into Article 35 of the AA,¹⁷¹ and

(ii) Article 35 AA and Article XI:1 of GATT 1994 do not establish identical obligations.¹⁷²

4.2.1.2 The Arbitration Panel’s sequence of analysis

170.

The Arbitration Panel first of all observes that a preliminary issue discussed by the Parties in respect of the interpretation and application of Article 35 of the AA concerns its relation with Article XI of the GATT 1994. This issue is equally relevant in respect of the 2005 export ban and the 2015 temporary export ban.

171.

The Arbitration Panel will therefore begin its analysis with a brief review of the scope of the obligation contained in Article 35 of the AA as compared to Article XI: 1 of the GATT 1994, and then turn to the examination of the compatibility of each ban with Article 35 of the AA (Section 4.2.2).

172.

The Arbitration Panel will then examine the effects that the provisions of Chapter 13 on trade and sustainable development may have on the compatibility of Ukraine's export prohibitions with Article 35 of the AA (Section 4.2.3).

173.

Finally, the Arbitration Panel will present its overall findings on the compatibility of the measures at issue with Article 35 of the AA (Section 4.2.4).

4.2.2 On the relationship between Article 35 of the AA and Article XI:1 of the GATT 1994

4.2.2.1 The Parties’ arguments

4.2.2.1.1 Whether the obligations under Article 35 of the AA are different from those under Article XI of the GATT 1994

174.

In its submissions Ukraine claims that

Article XI:1 of the GATT 1994 is not 'incorporated by reference' as a whole by Article 35 of the Association Agreement. What is incorporated by reference are the exceptions to the prohibition as set out in Article XI of the GATT 1994. The prohibition is the one indicated by Article 35 of the Association Agreement. The exact meaning of the prohibition as set out in Article 35 AA can therefore not be deemed "a copy-cat of the interpretation of Article XI: 1 of the GATT 1994.¹⁷³

175.

According to Ukraine, this excludes Article XI:1 of the GATT 1994 as an applicable "legal standard" for this case. Article XI of the GATT 1994 is relevant "to the sole extent that it provides exceptions to the basic rule set out in Article 35 of the Association Agreement, as provided for in the Article XI:2 of GATT 1994."¹⁷⁴

176.

The EU objects to the above position of Ukraine. The European Union considers that Article 35 of the AA incorporates by reference Article XI of GATT 1994 in its entirety, and not just the exclusions listed in Article XI:2 of the GATT 1994. According to the European Union, all measures that are inherently trade restrictive are incompatible per se with Article XI of GATT 1994. The EU submits that "Ukraine's narrow interpretation of the obligations imposed by Article 35 of the AA would be inconsistent with the object and purpose of the AA. In the first place, it would be inconsistent with the objective to build upon the Parties' pre-existing WTO obligations in order to establish a DCFTA "leading towards Ukraine's gradual integration in the EU Internal Market" as per Article 1(2) of the AA, because it would allow the Parties to maintain between them export restrictions that are incompatible with Article XI:1 of GATT 1994. For the same reason, it would also be inconsistent with the specific objective expressed in Article 25 of the AA to establish a FTA in accordance with Article XXIV of GATT 1994.¹⁷⁵

4.2.2.1.2 Actual effects

177.

Ukraine considers that Article 35 AA prohibits measures characterised as having an "effect" "on the export" of a good destined for the territory of the other Party. A measure which restricts exportation but which does not have such an effect is allowed.¹⁷⁶ In Ukraine's view, this is due to the fact that Article 35 of the AA is not identical to Article XI: 1 of the GATT 1994The difference stems from the inclusion in the text of Article 35 of the AA of the words "any measure having an equivalent effect" which are not present in the text of Article XI of the GATT 1994.¹⁷⁷

178.

The EU rejects this argumentation and claims that the effect of the measure is irrelevant. According to the EU, it is well-established that in order to substantiate a violation of Article XI:1 of the GATT 1994, it is not necessary to show that a measure has actually the effect of restricting exports or imports.¹⁷⁸

179.

Ukraine rebuts that this position is not convincing because customs duties, taxes, and other charges mentioned are "inherently trade restrictive," but not incompatible eo ipso with Article XI of GATT 1994.¹⁷⁹

180.

The European Union concludes instead that the 2005 export ban constitutes a de iure prohibition on exports from Ukraine to the European Union. It is therefore incompatible with Article 35 of the AA, first sentence, and Article XI: 1 of the GATT 1994, as incorporated in Article of the 35 AA, second sentence.¹⁸⁰

181.

Finally, the EU contends that Ukraine's interpretation of Article 35 of the AA would call into question the compatibility of the Association Agreement with Article XXIV of the GATT 1994 to the extent that paragraph 8(b) reads:

A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.

4.2.2.2 The Arbitration Panel’s analysis

182.

The Arbitration Panel refers to the text of Article 35 of the AA and of Article XI of the GATT 1994. Article 35 of the AA provides that:

183.

Article XI:1 of the GATT 1994 states in its relevant part that:

184.

The Arbitration Panel now examines first whether Article 35 of the AA incorporates Article XI of the GATT 1994 in its entirety. Based on that analysis, the Arbitrators will then turn to the question of whether the obligation contained in Article 35 AA is identical with the obligation imposed by Article XI:1 of the GATT 1994 or should be interpreted more narrowly, as suggested by Ukraine.

4.2.2.2.1 Whether Article XI:1 of the GATT 1994 is incorporated into Article 35 of the AA

185.

Article 35 of the AA is composed of two sentences. The first sentence provides the general rule on the elimination of import and export restrictions, followed by the exceptions to this rule. Article XI of the GATT 1994 is referred to in this first sentence insofar as it provides for exceptions ("except as otherwise provided in this Agreement or in accordance with Article XI of the GATT 1994 and its interpretative notes"). Both Parties agree that Article 35 of the AA, first sentence, incorporates by reference the exclusions listed in Article XI:2 of the GATT 1994.¹⁸¹

186.

Article XI of the GATT 1994 is also referred to in the second sentence of Article 35 of the AA:

To this end, Article XI of GATT 1994 and its interpretative notes are incorporated into, and made an integral part of, this Agreement.

187.

According to Ukraine, the term "to this end" which introduces the second sentence of Article 35 of the AA refers only to the last part of the first sentence.¹⁸² The European Union argues instead that it refers to the first sentence as a whole.¹⁸³

188.

In examining the wording of Article 35 of the AA, second sentence, the Arbitration Panel notes that it refers to "Article XI of the GATT 1994" without distinguishing between the first and the second paragraph of Article XI of the GATT 1994. This is in contrast to Article 35 of the AA, first sentence, which explicitly refers to Article XI:2 of the GATT 1994. Furthermore, the Arbitration Panel considers that interpreting the words "to this end" that introduce the second sentence of Article 35 of the AA as referring only to the last part of the first sentence of Article 35 of the AA would make the second sentence of Article 35 of the AA redundant and deprive it of its effet utile.¹⁸⁴ In conclusion, the Arbitration Panel is not persuaded that the wording of Article 35 of the AA, second sentence, as interpreted in the context of Article 35 of the AA, first sentence, lends itself to the conclusion that the drafters intended to limit the incorporation by reference to the second paragraph of Article XI of the GATT 1994.

189.

The Arbitration Panel further notes that this conclusion that Article 35 of the AA, second sentence, incorporates by reference Article XI of the GATT 1994 as a whole is consistent with the object and purpose of the Association Agreement. Based on Article 1(2) of the AA, the Association Agreement aims at setting up a Deep and Comprehensive Free Trade Area (DCFTA) "leading towards Ukraine's gradual integration in the EU Internal Market".

190.

The Arbitration Panel considers that a removal of (import and) export restrictions as of the entry into force of the Association Agreement would be congruent with an ambitious level of trade liberalisation. It seems therefore logic that the Parties intended to build on their pre-existing WTO obligations in order to facilitate Ukraine's integration in the EU Internal Market.¹⁸⁵ In the absence of transitional provisions stating the contrary, a different interpretation of Article 35 of the AA, allowing the introduction of export bans, would lead to a result that is at odds with the object and purpose of the Association Agreement.

4.2.2.2.2 Whether Article 35 of the AA and Article XI: 1 of the GATT 1994 impose identical obligations

191.

As discussed in the previous subsection, Article 35 of the AA incorporates Article XI of the GATT 1994 as a whole. Ukraine argues that, even in the case the Arbitration Panel considers Article XI of the GATT 1994 to be fully incorporated into Article 35 of the AA, the different wording of Article 35 of the AA, first sentence, calls for a different interpretation of the word "prohibition" in Article 35 of the AA as compared to Article XI:1 of the GATT 1994.

192.

The Arbitration Panel recalls that Article 35 AA incorporates Article XI of the GATT 1994 in its entirety, as discussed in Section 4.2.2.2.1, It therefore considers that the obligations stemming from Article 35 of the AA cannot logically be a quid minus than those contained in Article XI:1 of the GATT 1994.

193.

Based on this interpretation the Arbitration Panel will now consider each argument made by Ukraine on their merits.

4.2.2.2.2.1 Requirement of an "actual effects" test

194.

Ukraine argues that only measures having the "actual effect" to limit trade and applying specifically to trade "to the other Party" (in casu, the European Union) are covered by Article 35 of the AA, since the Association Agreement is bilateral and applicable only between the two Parties.

195.

Firstly, Ukraine contends that the notion of "effect" is central to Article 35 of the AA because it qualifies the three different categories of measures prohibited by the Article ("prohibitions", "restrictions" and "measures having equivalent effect").¹⁸⁶ Secondly, Ukraine argues that the European Union has the burden of proof with regard to the effect of the 2005 export ban and that the EU has failed to provide facts to this end.¹⁸⁷

196.

According to the EU, the term "effect" in Article 35 of the AA does not qualify the term "prohibitions" and "restrictions", which are measures that prohibit or restrict (import and) exports de iure, but only the third category of measures ("measures having an equivalent effect").¹⁸⁸ The EU contends that this third category of measures borrows from Article 35 of the Treaty on the Functioning of the European Union.¹⁸⁹ Its aim is to explicitly prohibit de facto (import and) export prohibitions and restrictions by Article 35 of the AA.¹⁹⁰ The EU furthermore observes that this would be in line with the legal reasoning by WTO panels and the Appellate Body on Article XI: 1 of the GATT 1994.¹⁹¹ Accordingly, the EU argues that Article 35 of the AA and Article XI: 1 of the GATT 1994 impose identical obligations, so that it is not necessary to demonstrate the "actual effect" of a de iure export prohibition to substantiate its claim under Article 35 of the AA.¹⁹²

197.

The Arbitration Panel will first consider whether Article 35 of the AA should be interpreted as to preclude only export prohibitions or restrictions that are shown to have "actual effects".

198.

The Arbitration Panel recalls that Article 35 of the AA provides in relevant part that:

No Party shall adopt or maintain any prohibition or restriction or any measure having an equivalent effect on [....] export or sale for export of any good destined for the territory of the other Party [...].

199.

In turn, Article XI of the GATT 1994 states in the relevant part that:

200.

The Arbitration Panel notes that both Article 35 of the AA and Article XI: 1 of the GATT 1994 capture any "prohibitions" or "restrictions" on (import and) exports. In addition, Article of the 35 AA includes the words "or any measure having an equivalent effect"). The Arbitration Panel furthermore recalls that Article 35 of the AA, second sentence, incorporates by reference Article XI of the GATT 1994 as a whole, as it found in Section 4. 2. 2. 2. 1. It follows that the terms "or any measures having an equivalent effect" cannot be interpreted as to allow for a limitation in the scope of the obligation imposed by Article 35 of the AA as compared to Article XI: 1 of the GATT 1994.¹⁹³ Accordingly, the Arbitration Panel is not persuaded by Ukraine's interpretation that Article 35 of the AA only prohibits those measures, including "prohibitions" or "restrictions", that are shown to have the actual "effect" of prohibiting or restricting exports.

201.

The Arbitration Panel considers that Ukraine's interpretation is not supported by the wording of Article 35 of the AA because this provision expressly prohibits three categories of measures: "prohibitions", "restrictions" and "measures having an equivalent effect". Article 35 of the AA clearly distinguishes between those three categories by separating them through the conjunction "or". The Arbitration Panel thus interprets the term "effect" as a qualifier of the third category of measures only ("measures having an equivalent effect").

202.

The Arbitration Panel further notes that this third category replicates Article 35 of the TFEU and has consistently been interpreted by the Court of Justice of the European Union in the sense of prohibiting measures that limit (imports and) exports de facto.¹⁹⁴ Even though the CJEU has no jurisdiction on Ukraine, the Arbitration Panel considers this aspect relevant insofar as it aligns Article 35 of the AA with the interpretation of Article XI:1 of the GATT 1994 that is consistently given in several WTO disputes.¹⁹⁵ There is no record of Ukraine having objected to this reading by the EU before the ratification of the AA. In other words, the Arbitration Panel is satisfied that the wording "or measures having equivalent effects" serves to make explicit that Article 35 of the AA is about prohibiting both de iure and de facto prohibitions and restrictions in line with the scope of the obligations contained in Article XI:1 of the GATT 1994 as interpreted by WTO jurisprudence.

203.

The Arbitration Panel does not see how the different, broader obj ectives of the Association Agreement (to establish a DCFTA between the Parties), as compared to GATT's objective to reduce barriers to trade, would justify a more restrictive interpretation of the term "prohibition." Measures having equivalent effect have been included in Article 35 of the AA as compared to Article XI of the GATT 1994 to the list of prohibitions and restrictions which Parties shall not adopt or maintain. If anything, the broader trade liberalisation objectives of the Association Agreement justify a more rigorous scrutiny of restrictive measures which go against those objectives. This addition does not make a difference for the purposes of applying Article 320 to the interpretation of Article 35 of the AA.

204.

In light of the foregoing, the Arbitration Panel concludes that Article 35 of the AA and Article XI:1 of the GATT 1994 impose identical obligations. Article 320 AA requires that Article 35 of the AA shall be interpreted in a way that is "consistent with any relevant interpretation established in rulings of the WTO Dispute Settlement Body."

205.

The Arbitration Panel further notes that it is well-established in tWTO jurisprudence that in order to substantiate a violation of Article XI: 1 of the GATT 1994, it is not necessary to show that a measure has had the actual effect of restricting exports or imports.¹⁹⁶ The Arbitration Panel therefore concludes that interpreting Article 35 of the AA as requiring the complainant to prove the actual effect of a de iure (import and) export prohibition would create a significant divergence between Article XI:1 of GATT 1994 and Article 35 of the AA in violation of the consistency obligation imposed by Article 320 of the AA.

206.

The Arbitration Panel also concludes that Article 35 of the AA does not imply that the European Union bears the burden of proving that the 2005 export ban has an actual effect of restricting exports to the European Union, over and above all trade regulations taken to this effect by Ukraine.

207.

As concerns the 2015 temporary export ban, the Arbitration Panel notes that the data provided by the Parties on exports of unprocessed timber from Ukraine (HS 4403) shows that, after the entry into force and full application of the ban in 1 January 2017, such exports to the EU have in fact ceased.¹⁹⁷ Thus, even Ukraine's alleged requirement that an export prohibition should actually have a trade restrictive effect in order to be covered by the prohibition of Article 35 of the AA would be met in any case.

4.2.2.2.2.2 Whether Article 35 of the AA applies exclusively to goods "destined to the other Party"

208.

The Arbitration Panel now turns to Ukraine's claim that Article 35 of the AA only addresses prohibitions or restrictions specifically aimed at exports of goods "destined for the territory of the other Party" (in casu, the European Union), to the exclusion of prohibitions or restrictions on goods that apply to any good shipped "beyond the customs territory of Ukraine" (that is erga omnes).¹⁹⁸

209.

The Arbitration Panel notes that Ukraine's interpretation is based on the words "destined for" in Article 35 of the AA. According to Ukraine, the terms "destined for" suggest an "actual destination, that is the intended destination of the exportation of a certain good."¹⁹⁹ In other words, export prohibitions would only be caught by Article 35 of the AA to the extent that they are applied to goods that are "destined to" the European Union.

210.

The European Union contends that Article 35 of the AA includes the term "destined for the territory of the other party" because the obligation concerns exclusively trade between the Parties. This does not imply that only those export restrictions that apply exclusively to exports to the territory of the other Party are prohibited by Article 35 of the AA.²⁰⁰ According to the European Union, the term "destined for the territory of the other party" paraphrases the wording of Article XI: 1 of the GATT 1994, which forbids prohibitions or restrictions on exports of goods "destined for the territory of any other contracting party" and which has consistently been interpreted as covering non-discriminatory export (or import) restrictions.²⁰¹

211.

The Arbitration Panel recalls that, as discussed in Section 4.2.2.2.1, Article 35 of the AA, second sentence, incorporates by reference Article XI of the GATT 1994 as a whole. The Arbitration Panel further recalls that, as discussed in Section 4.2.2.2.2.1, Article 35 of the AA and Article XI:1 of the GATT 1994 impose identical obligations, so that the former has to be interpreted in accordance with the consistency obligation imposed by Article 320 of the AA. The Arbitration Panel is satisfied that the difference in wording between Article 35 of the AA ("destined for the territory of the other Party") and Article XI: 1 of the GATT 1994 ("destined for the territory of any other contracting party") is attributable to the bilateral nature of the Association Agreement between the European Union and Ukraine, as opposed to the GATT 1994 which is a multilateral agreement. The slightly different wording does not have further implications.

212.

The Arbitration Panel further notes that Article XI:1 of the GATT 1994 has never been interpreted as targeting discriminatory export (or import) restrictions only. On the contrary, WTO jurisprudence is consistent in considering that export (or import) restrictions in general fall within the scope of application of, and are thus prohibited by, Article XI: 1 of the GATT 1994 irrespective of whether they are discriminatory or not. This does not preclude that further compatibility issues with Articles 1:1 of the 1994 or XIII of the GATT 1994 may arise in the case of discriminatory export (or import) restrictions.²⁰²

213.

The scope of the obligation set out in Article 35 of the AA is thus not limited to measures that apply exclusively to goods "destined to the other Party"", but also covers measures that are applied erga omnes, notwithstanding any more favourable agreement applicable between the Parties.

214.

In light of the foregoing, the Arbitration Panel concludes that Article 35 of the AA applies regardless of whether the prohibitions apply only to goods destined to the European Union ("to the other Party") or also to like goods destined to other countries.

4.2.2.3 The Arbitration Panel’s findings on the compatibility of the export bans with Article 35 of the AA

215.

The Arbitration Panel is now in a position to draw conclusions and make findings on the compatibility of the 2005 and 2015 bans with Article 35 of the AA.

216.

The Arbitration Panel recalls that, as concluded in Section 4.2.2.2.1, Article 35 of the AA incorporates by reference Article XI:1 of the GATT 1994. The Arbitration Panel further recalls that Article 35 of the AA contains an obligation to eliminate, inter alia, (import and) export "prohibitions" irrespective of whether they are de iure or de facto, discriminatory or not discriminatory, which is identical to the obligation contained in Article XI:1 of the GATT 1994.

217.

The Arbitration Panel notes that it is undisputed by the Parties that the 2005 and 2015 export bans are de iure export prohibitions specifically designed to ban all exports of the goods concerned. The Arbitration Panel further recalls that, in accordance with the consistency obligation in Article 320 of the AA, there is no requirement for the complainant to demonstrate actual effects, nor for the Arbitration Panel to consider such evidence of actual trade effects of the 2005 and 2015 export ban under Article 35 of the AA.

218.

The above considerations bring the Arbitration Panel to find that the 2005 and 2015 export bans are incompatible with Article 35 of the AA, without prejudice to the Arbitration Panel's further analysis taking into account Chapter 13 of the AA and the defences available and invoked by Ukraine under Article 36 of the AA which includes Article XX of the GATT 1994.

4.2.3 On the relation between Article 35 of the AA and Chapter 13 of the AA

219.

Having found that the measures at issue are incompatible with Article 35 AA, the Arbitration Panel now turns to the analysis of the effects that the provisions of Chapter 13 of the on trade and sustainable development may have on the compatibility with the Agreement of Ukraine's export prohibitions.

220.

In this respect the Arbitration Panel is called to examine a further defence raised by Ukraine against the incompatibility of the 2005 and 2015 export bans with Article 35 of the AA based on the invocation of Articles 290, 292, 294, and 296 of Chapter 13 of the AA.

221.

The Arbitration Panel considers that this defence raises more generally the issue of the relation between the provisions of Chapter 13 on trade and sustainable development and Article 35 of the AA.

4.2.3.1 The Parties’ arguments

4.2.3.1.1 Ukraine

222.

Ukraine criticises the EU for building "its entire argumentation on the sole Article 35 of the Association Agreement, as if it were arguing under the GATT 1994 and seeming it to consider that the unique purpose of this Agreement is to remove indiscriminately all impediments to any sort of commerce between the two Parties", that is, ignoring the presence in the Agreement of Chapter 13 on Trade and Sustainable Development.²⁰³

223.

In respect of the 2005 export ban, Ukraine invokes as justification that "this law was not adopted in the pursuit of commercial or economic aims, but for environmental reason".²⁰⁴ Ukraine submits in this context that "in 2005 the Legislator considered as 'rare and valuable' species those defined in Article 1 of Law No. 2860-IV, as species "which are threatened (i.e. assessed as Critically Endangered, Endangered or Vulnerable) and therefore having a high risk of extinction."²⁰⁵ It further argues that some of the above-mentioned wood species (i. e. checker trees, common yews) are listed on the Red Book of Ukraine, whereas other species are included in the IUCN Red List.²⁰⁶

224.

Another point made by Ukraine is that "the species listed in Article 1 of Law No. 2860-IV are not intended for the industrial production of sawn wood. As is apparent, their purpose is the production of fruits and nuts or other products from flowering."²⁰⁷

225.

As to the 2015 temporary export ban, Ukraine claims that maintaining this ban reduced the "overall commercial logging by 44. 3%" and thus contributes to develop the sustainable use of its forests.²⁰⁸

226.

For these reasons, Ukraine submits that "the challenged measures are a mere exercise of its right to regulate its own level of environmental protection, a right which is duly recognised in Chapter 13 of the Agreement, at Article 290."²⁰⁹

227.

Ukraine also refers specifically to Article 296(2) AA as "a standstill clause."²¹⁰ Ukraine derives from this clause that "Ukraine cannot reduce the level of its existing environmental protections as established before the entry into force of the Association Agreement, as is the case of the 2005 export ban and of the 2015 temporary export ban, with a view to encourage trade of wood with the European Union."²¹¹

228.

Furthermore, Ukraine contends that the measures at issue must be considered in the context of the wide range of international obligations arising from the many multilateral environmental agreements that Ukraine has acceded to, and hence have to be assessed in light of Article 292 of the AA.²¹²

229.

Finally, with reference to Article 294 of the AA ("Trade in forest products") Ukraine complains that "[t]he European Union has not cooperated with Ukraine to promote the sustainable management of the latter's forest resources." Specifically, the EU has not effectively implemented EU Regulations No. 995/2010 and No. 363/2012 to address the "dramatic" issue of illegal logging in Ukraine.²¹³

230.

Ukraine concludes that "the bans are the most effective answers, in context, to Ukraine's forestry issues."²¹⁴

4.2.3.1.2 The European Union

231.

The EU opposes as misleading Ukraine's suggestion that the European Union builds its entire argumentation solely on Article 35 of the AA, as if it were arguing under GATT 1994 alone. The EU recognises that the Association Agreement is different from GATT 1994, but contests Ukraine's claim that Chapter 13 is covered by the sentence in Article 35 of the AA specifying that its provisions shall apply "except as otherwise provided in this Agreement."²¹⁵ In the EU's view, "none of the provisions of Chapter 13 invoked by Ukraine provides an exception or affirmative defence with regard to Ukraine's obligations in accordance with Article 35 AA."²¹⁶

232.

With regard to Article 290 of the AA, the EU recognises that each Party has the right to establish and regulate its own level of environmental protection but it submits that

Such recognition, however, cannot be construed as conferring an unlimited right to derogate from any other provision of the Association Agreement, including Article 35. Rather, the right to regulate recognised in Article 290(1) must be exercised in accordance with the requirements of other provisions of the Association Agreement that give expression and operationalise the "right to regulate", including the policy exceptions mentioned in Article 36.²¹⁷

233.

The EU also contests that Article 296(1) of the AA could be considered as a "standstill clause". According to the EU, Article 296(1) of the AA does not prevent a Party from introducing new measures that provide for a higher level of environmental protection. However, in the view of the EU, Article 296 of the AA does not seek to derogate from the Parties' obligations under other provisions of the AA, but instead to ensure that each Party upholds its own environmental laws, regulations and standards.²¹⁸ Nonetheless, those laws, regulations or standards must be compatible with that Party's obligations under any other provision of the Association Agreement, including Article 35 of the AA.²¹⁹

234.

The EU further denies that complying with the EU's request to lift the export bans would create a conflict with Ukraine's obligations set out in Article 296(2) of the AA, which enjoins the Parties to refrain from weakening or reducing the environmental or labour protection afforded by its laws in order to encourage trade or investment.²²⁰

235.

According to the EU, the interdiction of Article 296(2) of the AA covers exclusively the granting of "waivers" and "derogations" from generally applicable rules with a view to encouraging trade or foreign investment. Thus, Article 296(2) of the AA does not concern the enactment of new generally applicable measures which amend or replace such previous measures. Indeed, such a view would be in contradiction with Article 290(1) of the AA which recognises each Party's right to "establish and regulate [its] own levels of domestic environmental [...] protection." The European Union does not claim that Ukraine should "waive" or "derogate from" a generally applicable measure (the 2005 and 2015 export bans) only in order to confer a benefit on certain exporters to the European Union, but rather that Ukraine should repeal altogether the 2005 and 2015 export bans.²²¹

236.

In the view of the EU, Article 35 and Article 296(2) of the AA "can and must be interpreted in a harmonious manner."²²² For the EU, this presupposes that that the "laws, regulations or standards" mentioned therein must be compatible with a Party's obligations under any other provisions of the Association Agreement.²²³

237.

With reference to Article 294 of the AA ("Trade in forest products"), the European Union underlines that it has already provided vast support to Ukraine. In particular, the EU notes that its support consisted of the transfer of best practices in the establishment of a sustainable Forestry Policy Strategy²²⁴ and a Forest Policy Action Plan.²²⁵ The EU still hopes that Ukraine will finally adopt these legal documents. Furthermore, the EU supports the institutional reform of the State Forest Resources Agency of Ukraine. The Forestry Policy Strategy was in fact approved by the Cabinet of Ministers of Ukraine in May 2018, but has so far not been endorsed by the Prime Minister. Some of the measures recently adopted or planned by Ukraine to which Ukraine refers in its written submission are mentioned in those documents.²²⁶

238.

Finally, as to Ukraine's reference to multilateral environmental agreements, the EU accepts that "in assessing whether a measure is 'designed' to achieve the objectives of Article XX(b) or Article XX(g) of the GATT 1994, it may be relevant whether the measure's objective can be sustained within the objectives pursued by a multilateral environmental agreement or by an environmental principle referred to in Article 292 of the Association Agreement."²²⁷

239.

According to the EU any conflict between the Association Agreement (including Articles 35 and 36 of the AA) and the multilateral environmental agreements would have to be resolved in accordance with the generally applicable rules of international law, as codified in the VCLT, in particular in Articles 30 and 59 VCLT.²²⁸ The EU, however, contends that none of the multilateral environmental agreements listed by Ukraine prescribes the imposition of export bans for forestry protection purposes.²²⁹

240.

The EU concludes that "the provisions of Chapter 13 [invoked by Ukraine] do not provide an exception from Article 35, but they may provide relevant 'context' for assessing whether a measure may be justified under Article 36" of the AA.²³⁰

4.2.3.2 The Arbitration Panel’s analysis and finding

241.

The Arbitration Panel has examined carefully the above arguments of the Parties and notes that both Parties recognise the importance in the Association Agreement of the Chapter on trade and sustainable development. They differ, however, on how to read the provisions of Chapter 13 in conjunction with the obligations stemming from Article 35 of the AA.".

242.

In this respect, the Arbitration Panel has to examine the effects the provisions of Chapter 13 ("Trade and Sustainable Development") may have with regard to the compatibility of Ukraine's Article 35-incompatible export prohibitions. The presence in the Association Agreement of a specific chapter on trade and sustainable development strikes a balance between the regulation of purely trade matters and the taking into account of non-trade and environmental concerns in the AA that is different from GATT 1994.

243.

The Arbitration Panel notes that Chapter 13 of the AA is part of the same Title IV (Trade and trade-related matters), where Article 35 AA is also found (Chapter 1). The Arbitration Panel also notes that Article 289(1) of the AA, which sets the "Context and Objectives" of Chapter 13 states, in the relevant part:

The Parties reaffirm their commitment to promoting the development of international trade, in such a way as to contribute to the objective of sustainable development and to ensuring that this objective is integrated and reflected at every level of their trade relationship (emphasis added).

244.

In the Arbitration Panel's view, the language of Article 289(1) AA indicates that the provisions of Chapter 13 are not intended to replace the provisions of other chapters of Title IV, which contains specific disciplines on the promotion of international trade such as Article 35 of the AA. In other words, the provisions of Chapter 13 are not in and of themselves self-standing or unqualified exceptions to justify measures that are in breach of other provisions such as Article 35 of the AA.

245.

The Arbitration Panel is rather persuaded that, in such cases, Chapter 13 provisions complement the provisions of other chapters of Title IV as relevant "context." If a domestic measure, challenged as being incompatible with the Association Agreement, is claimed to be an environmental measure in view of its object, purpose and design, it may as such come within the purview of any of the provisions contained in Chapter 13.²³¹

246.

The Arbitration Panel is also persuaded that in examining a Party's measure that on its face appears incompatible with a provision of other chapters of Title IV, which contain specific disciplines on the development of international trade such as Article 35 of the AA, due regard must be paid to any relevant provision of Chapter 13 as invoked by the respondent. The Arbitration Panel notes that, in casu, Ukraine has invoked Article 290 of the AA on "Right to regulate", Article 292 of the AA on "Multilateral environmental agreements", Article 294 on "Trade in forestry products" and Article 296 on "Upholding levels of protection."

247.

Looking at the provisions of Chapter 13 which Ukraine has referred to in its submissions, the Arbitration Panel offers the following considerations.

248.

Firstly, all of the provisions invoked may be of relevance when a domestic measure relates to trade in forest products (Article 294 of the AA) or more generally to the protection of the environment, either as a matter of autonomous national legislation (Article 290 and Article 296 of the AA) or as a matter of compliance with international obligations arising out of MEAs (Article 290 of the AA).

249.

Secondly, to the extent that legitimate environmental concerns may justify measures in derogation from other obligations, including the obligations imposed by Article 35 of the AA, Article 36 of the AA allows taking account of those legitimate environmental concerns. The Arbitration Panel considers this to imply that the provisions of Chapter 13 may serve as relevant "context" when assessing whether Article 35 of the AA-incompatible measures can be justified under Article 36 of the AA. This conclusion is applicable to the present dispute, provided that the domestic measures at issue apply to forestry products and have as an objective the protection of the environment. The Arbitration Panel further considers that this approach satisfies the requirement to interpret harmoniously different provisions of the same treaty.

250.

Thirdly, many of the invoked provisions of Chapter 13 (e.g. Article 294 of the AA) appear to have a "promotional" or "programmatic" nature, so that they may not give rise to immediate and precise obligations.²³² This is in contrast to the provisions contained in Chapter 1, which often contain detailed, specific, compulsory rules as it is the case for Article 35 of the AA. This corroborates the Arbitration Panel's view that mere references to provisions of Chapter 13 cannot in and of themselves cure any conflict of a domestic provision with Article 35 of the AA.

251.

In light of the foregoing, the Arbitration Panel finds that the provisions of Chapter 13 are not self-standing or unqualified exceptions that could justify measures that are per se in breach of Article 35 of the AA. The Arbitration Panel is nonetheless persuaded that the provisions of Chapter 13 serve as relevant "context" for the interpretation of other provisions of Title IV, which allow the Parties to introduce or maintain measures in derogation to Article 35 of the AA, including for environmental reasons based on Article 36 of the AA in conjunction with Article XX of the GATT 1994, as discussed below in Section 4.3.

252.

Accordingly, the Arbitration Panel will refer back to the relevance of the provisions of Chapter 13 of the AA invoked by Ukraine when it examines Ukraine's defence of the measures at issue based on Article XX (b) or (g) of the GATT 1994 by virtue of Article 36 of the AA in Section 4.3 below.

4.2.3.3 Conclusions on the relationship between Article 35 of the AA and Chapter 13

253.

The Arbitration Panel concludes that the provisions of Chapter 13 are not self-standing or unqualified exceptions, which can be relied upon for the purposes of providing a legal shelter for Article 35 of the AA-incompatible export bans. In the Arbitration Panel's view, Chapter 13 provisions can serve as relevant context for the purposes of assessing whether Article 35-incompatible export bans can be justified under other provisions of the Association Agreement, which allow the Parties to introduce or maintain measures in derogation of Article 35 of the AA, namely the policy exceptions mentioned in Article 36 of the AA.

4.2.4 Overall finding on the compatibility of the bans with Article 35 of the AA

254.

The Arbitration Panel finds that: (i) the 2005 export ban and the 2015 temporary export ban are incompatible with Article 35 of the AA; (ii) reference to the provisions of Chapter 13 cannot cure the incompatibility of the measures at issue with Article 35 of the AA; and (iii) Chapter 13 provisions can serve as relevant context for the purposes of assessing whether the 2005 export ban and the 2015 temporary export ban are justified under Article 36 of the AA and, in particular, Article XX (b) and (g) of the GATT 1994 as incorporated therein.

4.3 Whether the bans are justified under Article 36 of the AA and Article XX of the GATT 1994

4.3.1 Introduction

255.

Having found that the 2005 export ban and the 2015 temporary export ban are incompatible with Article 35 of the AA and cannot be justified by the provisions of Chapter 13 as self-standing defences, the Arbitration Panel now turns to examining whether the two export bans can be justified in accordance with Article 36 of the AA.

256.

The Arbitration Panel notes that it is undisputed by the Parties that Article XX of the GATT 1994 is incorporated in its entirety in Article 36 of the AA, which reads:

Nothing in this Agreement shall be construed in such a way as to prevent the adoption or enforcement by any Party of measures in accordance with Articles XX and XXI of GATT 1994 and its interpretative notes, which are hereby incorporated into and made an integral part of this Agreement.

257.

Accordingly, the Arbitration Panel will first examine the defences invoked by Ukraine in accordance with Article XX of the GATT 1994. The conclusions will then allow us to establish whether Ukraine's measures can be justified under Article 36 of the AA.

258.

Labelled "General Exceptions", Article XX lists a number of legitimate public policy goals - paragraphs (a) to (j) - which may be invoked to justify a violation of, in casu, Article 35 of the AA, provided that such measure is not applied, as specified in the chapeau of Article XX, "in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade".

259.

In this respect, a consolidated body of WTO jurisprudence has established that Article XX of the GATT 1994 requires a so-called "two-tiered" test. First, the measure at issue must fall within the scope of one of the particular exceptions listed under Article XX of the GATT 1994 and meet the requirements specified therein. Second, a measure "provisionally" justified under one of the listed exceptions must satisfy the conditions imposed by the chapeau of Article XX.²³³ The burden of proof in this test is on the defending party invoking an exception.²³⁴

260.

Among the exceptions listed under paragraphs (a) to (j) of Article XX of the GATT 1994, Ukraine has invoked those provided by paragraphs (b) and (g).

261.

In respect of the 2005 export ban, Ukraine invokes Article XX(b) of the GATT 1994, which permits a WTO Member to "adopt and enforce" a measure that is "necessary to protect human life or health."

262.

In respect of the 2015 temporary export ban, Ukraine invokes Article XX(g) of the GATT 1994, which allows measures "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption."

263.

The Arbitration Panel will first examine Ukraine's defences specific to the 2005 export ban pursuant to Article XX(b) of the GATT 1994 (Section 4.3.2). It will then analyse Ukraine's defences which are specific to the 2015 temporary export ban in relation to Article XX(g) of the GATT 1994 (Section 4.3.3).

4.3.2 Whether the 2005 export ban is justified by Article XX(b) of the GATT 1994

264.

Article XX(b) of GATT 1994 and its chapeau read as follows:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

[...]

(b) necessary to protect human, animal or plant life or health;

265.

Article XX(b) of the GATT 1994 thus allows a Member to "adopt and enforce" any measure, inter alia, necessary to protect plant life or health, even though that measure is inconsistent with another provision of GATT 1994.²³⁵

266.

We will now examine the Parties' arguments as to whether the 2005 export ban is "provisionally" justified by Article XX(b) of GATT 1994 (Section 4.3.2.1). In the affirmative, the Arbitration Panel will analyse whether the 2005 export ban satisfies the requirements of the chapeau (Section 4.3.2.2).

4.3.2.1 "Provisional" justification by Article XX(b) of the GATT 1994

4.3.2.1.1 The Parties’ arguments

4.3.2.1.1.1 Ukraine

267.

Ukraine claims that the measure at issue concerns "plant life": its sole subject-matter is the timber and sawn wood from ten wood species, the exportation of which is prohibited. It is also obvious that the measure is neither discriminatory - it applies to exports to all countries - nor a disguised trade restriction - since its object is clearly stated. Therefore, for Ukraine the only point that the Arbitration Panel would have to address is the European Union's contention that this export ban is not necessary to protect these ten wood species and that other less-trade restrictive measures would be available.

268.

To reply to this question, Ukraine repeatedly notes that the Ukrainian Law No. 2860-IV which introduced the 2005 export ban is not and should not be construed separately from the rest of the Ukrainian environmental policies regarding forestry resources. Indeed, the Ukrainian Law No. 2860-IV prohibits the exportation of ten species of wood but only because these species are considered "rare and valuable." Yet, the combination of the two adjectives - "valuable" and "rare" - refers to a category of wood species repeatedly referenced in Ukrainian environmental policies as species subject to additional and specific protections. Notably the Forest Code of Ukraine provides that "valuable and rare wood" is to be preserved during felling operations.²³⁶ According to Article 70 of the Forest Code of Ukraine:

[d]uring timber harvesting [it] is not allowed [to] fell [...] and damage [...]: valuable and rare trees and shrubs listed in the Red Book of Ukraine".

269.

By qualifying the six wood genera and the four wood species concerned by the 2005 export ban as "rare and valuable", Ukraine has decided to highlight the importance of these species - five of which are listed in the Red Book of Ukraine - for the conservation and protection of its forestry resources and its biodiversity and therefore, to limit their industrial exploitation, save for the production of fruits and nuts or other products from flowering.²³⁷

270.

Ukraine underlines that the 2005 export ban constitutes an external (trade) measure complementing the domestic restrictions aimedaiming at protecting the protection of ten covered species with a view to effectively prevent the industrial exploitation, exportation and excessive logging of the specified rare and valuable species of wood and therefore to protect the lives of these plants. By barring the export of these species, the Ukrainian authorities are "limiting the possible outlets for timber and sawn woods that would be produced from those species, securing a better control over any illegal or irregular felling."²³⁸ The interests protected by the 2005 export ban are fundamental, vital and important in the highest degree.

271.

As a result, despite the European Union's attempt to demonstrate "alternative obvious measures that could have been taken to achieve Ukraine's objectives."²³⁹ such as establishing a limitation of the quantity of trees/wood of the species covered by the 2005 export ban, Ukraine contends that there are no other practical alternatives within Ukraine's means "given the grave issue at hand: the continuous survival of those species in a country still striving to put in place modern and effective governance of its forests".²⁴⁰ Therefore, the maintenance of the 2005 export ban is required during the time needed to effectively implement the "obvious alternative measures" referred to by the EU.

4.3.2.1.1.2 The EU

272.

The EU asserts that in order to support the sustainable management of its forest resources, Ukraine could resort to other measures that are fully compatible with the international obligations assumed by Ukraine and which do "not restrict trade." The EU underlines that it has provided vast support to Ukraine, in particular in the transfer of best practices in the establishment of a sustainable Forestry Policy Strategy and a Forest Policy Action Plan, in addition to supporting the Ukrainian Government in establishing the institutional reform of the State Forest Resources Agency of Ukraine.²⁴¹ Such alternative measures could be represented by a limitation at a sustainable level of the quantity of trees/wood of the species covered by the 2005 export ban that can be harvested each year, or by a selective moratorium.²⁴²

273.

The EU also recalls to, with regards to Article XX (b) of the GATT 1994, WTO jurisprudence has clarified that the notion of protection implies the existence of some risk to human, animal or plant life or health. It follows that Ukraine should demonstrate the existence of a concrete risk either in quantitative or qualitative terms, and not simply presuppose or allege that a risk exists without any concrete data substantiating it.²⁴³

274.

According to the EU, "Ukraine has confirmed that its assessment about the rarity of the ten wood species covered by the 2005 export ban is not based on scientific evidence or empirical observation, but it is just a vague approximation. Indeed, in response to question 5 of the Panel, Ukraine has noted that the 'study of species composition is still in its infancy and accurate data on the area and stock of designated species requires separate research, but approximately their share in the forest stock of Ukraine does not exceed 2%.’"²⁴⁴

275.

The EU recalls that, in order to assess the contribution of a measure to the achievement of its objective, consideration of the actual effects may prove useful. Indeed, a panel must always assess the actual contribution made by the measure to the objective pursued. This being said, the EU admits that "[h]owever, when particular circumstances makes it impossible or too difficult to observe the concrete effects of the measure (such as when the measure forms part of a broader policy scheme, and it is not yet having a discernible impact on its objective), the Appellate Body recognised that it is nevertheless possible to determine the level of contribution to be made by the measure, by assessing whether the measure 'is apt to produce a material contribution to the achievement of its objective.'"²⁴⁵

276.

The EU concludes that "[t]he absence of any quantification or concrete estimation of the effects of the 2005 export ban on the preservation of these wood species clearly confirms that the measure's contribution to the objective is inexistent or too small to be observed."²⁴⁶

277.

Finally, the EU recalls that the Appellate Body has already clarified with regards to Article XX (b) of the GATT 1994 in order to be considered as "necessary" a measure must be located significantly closer to the pole of "indispensable" than to the opposite pole of simply "making a contribution to". Hence, a measure like the 2005 export ban, which makes no or a very limited contribution to the preservation of the "rare and valuable" wood species cannot be considered as necessary for the protection compatible with that provision.

4.3.2.1.2 Whether the 2005 export ban is designed to protect plant life or health

278.

The Arbitration Panel recalls that, under a consistent body of WTO jurisprudence, a measure can be justified under Article XX(b) of the GATT 1994 if the respondent demonstrates that:

(i) the challenged measure addresses the particular interest specified in subparagraph (b) of Article XX, that is, the measure is "designed to" protect human, animal or plant life or health, and

(ii) there is a sufficient nexus between the measure at issue and the interest protected, that is, whether the challenged measure is "necessary" to protect human life or health.²⁴⁷

279.

The Arbitration Panel will thus first examine whether the 2005 export ban falls within the range of policies designed to protect human, animal or plant life or health.

4.3.2.1.2.1 Applicable principles

280.

The Arbitration Panel recalls that past WTO rulings have established that, for a measure to fall within the range of policies that protect human, animal and plant life or health within the meaning of Article XX(g) of the GATT 1994, the first step is to determine the existence of a risk to human, animal or plant life or health.²⁴⁸ To this end, WTO adjudicatory bodies "enjoy a margin of discretion in assessing the value of the evidence, and the weight to be ascribed to that evidence."²⁴⁹

281.

Once that risk is found to exist, the second step is to examine whether the measure is "designed to" reduce such a risk. WTO rulings have clearly stated that Members have the right to determine the level of protection that they deem appropriate.²⁵⁰ This requires adjudicators to examine whether the measure at issue is "not incapable" of protecting human, animal or plant life or heath²⁵¹ based on its design, including "its content, structure, and expected operation."²⁵²

4.3.2.1.2.2 The Arbitration Panel’s analysis

282.

The Arbitration Panel now examines whether the 2005 export ban falls within the range of policies designed to protect human, animal or plant life or health.²⁵³ In a first step, the Arbitration Panel looks at whether the measure's declared objective is to protect plant life or health within the meaning of Article XX(b) of the GATT 1994. In a second step, the Arbitration Panel looks at whether the 2005 export ban is "designed to" protect plant life or health.

Whether the claimed objective of the measures is a "plant life or health" objective within the meaning of Article XX(b) of the GATT 1994

283.

Law No. 2860-IV prohibits the export of timber and sawn wood of "valuable and rare" wood species, that is, those wood species which are "threatened (ie assessed as Critically Endangered, Endangered or Vulnerable)" and therefore subject to a risk of extinction.²⁵⁴ In this context we note that some, albeit not all, of the wood species covered by the 2005 export ban are included in the list of the Red Book in Ukraine²⁵⁵ or on the IUCN Red List.²⁵⁶ We understand the EU to contend that this partial overlapping would imply that Ukraine has not substantiated the existence of a risk to plant life or health as required by Article XX(b) of the GATT 1994.²⁵⁷ Related to this observation, the EU points to the absence of any statistical or other quantitative data in relation to the ten wood species covered by the 2005 export ban that could prove the existence of some risk of extinction.²⁵⁸ The EU also notes that in the IUCN Red List those species fall within the category "Least concerned."

284.

The Arbitration Panel agrees with the EU that Ukraine's protective regime for the ten species covered by the 2005 export ban presents some inconsistencies, considering that Ukraine claims that they are all equally rare, valuable and endangered.²⁵⁹ Thus, of the ten species covered by the 2005 ban, only two enjoy the maximum protection deriving from their insertion in Ukraine's Red Book.²⁶⁰ Five other species are included in the International Union for Conservation of Nature Red List of Threatened Species list which, as Ukraine states, has been adopted as a benchmark for protection²⁶¹. Three other species (pear trees, chestnuts, black cherries) are not included in either list. Ukraine explains that these species are not intended for industrial use and are not commercially exploited.²⁶² Ukraine has not supplied statistics as to quantity, coverage or use for any of these species.

285.

Ukraine has documented that the lack of more accurate data has to be attributed to "Ukraine's realities."²⁶³ Ukraine reports in particular substantial limitations in Ukraine's forest governance, namely with respect to the persistent challenges of illegal logging.²⁶⁴ In the view of Ukraine, it is in light of such challenges that the highly protective regime for the ten covered species should be appreciated rather than based on an ascertained vulnerability of each and every covered species.²⁶⁵

286.

In line with relevant DSB rulings, the Arbitration Panel is prepared to take these constraints into account, and to show deference to Ukraine's policy choices and chosen level of protection.²⁶⁶ A measure could be considered as having as its object the protection of plant life or health also if it covers species beyond those exhibiting the highest risk of extinction.

287.

In this connection, the Panel considers appropriate to look at the features, classification and use of the ten covered species as a whole, since the 2005 export ban covers all of them and the EU has challenged the export ban it in its entirety. In light of the above, the Panel is satisfied that the species covered by the 2005 export ban deserve protection because of an existing or prospective risk to their conservation ("plant life or health") within the meaning of Article XX (b) of the GATT 1994.²⁶⁷ The Panel is not in a position to assess which kind of protection is appropriate for each individual species. The Panel considers that a measure may be justified under this provision also if the risk may develop in the future should no protective measure preventively be adopted based on precaution.

288.

The Arbitration Panel is therefore satisfied that a risk to plant life or health exists within the meaning of Article XX(b) of the GATT 1994.

Whether the 2005 export ban is designed to protect plant life or health

289.

Having determined that there is a risk to plant life or health, we can now proceed to the second step under our analysis, namely whether the measure is "designed" to reduce a risk to human, animal or plant life or health. We recall that this standard has consistently been interpreted as requiring that the measure at issue is "not incapable" of protecting human, animal or plant life or health.²⁶⁸

290.

We also recall Ukraine's contention that the 2005 export ban is part of a comprehensive environmental policy, which consists of several national legal instruments aimed at achieving forest protection in line with Ukraine's international obligations arising out of a number of multilateral environmental agreements (MEAs) to which Ukraine is party.²⁶⁹ The EU does not dispute that Ukraine maintains a comprehensive policy for forest protection purposes, but it contends that Ukraine did not explain how the export ban fits within the legal framework or makes the protection more effective.The EU also mantains that Ukraine was not able to indicate any concrete reference to the export ban in that legal framework.²⁷⁰

291.

The Arbitration Panel has examined the broad collection of documents composing Ukraine's comprehensive environmental policy. In doing so, we were mindful that a "mere assertion" that export restrictions form part of a comprehensive policy is not sufficient to demonstrate that they are designed to achieve such objectives.²⁷¹ Accordingly, we looked for persuasive evidence of a connection between the declared environmental goal and the 2005 export ban.

292.

We can offer the following four considerations.

293.

Firstly, we recognise that Ukraine's overall legal framework aims at mitigating the problem of extensive felling, on the one hand, and illegal logging, on the other hand, which are both due to the traditional prominence of economic considerations over environmental priorities in Ukraine's governance of forests.²⁷² In this respect, the Explanatory Note to Law No. 2860-IV apparently fits within the legal framework: "Passing of this Law will allow to take a decisive fight against unauthorized felling in the forests of Ukraine, which in recent years have gained considerable size."²⁷³ Accordingly, the Arbitration Panel takes note of the statement of Ukraine that the 2005 export ban covers only wood species listed that are not primarily intended for the industrial production of sawn wood, but rather for "the production of fruits and nuts or other products from flowering."²⁷⁴ In this connection, the Arbitration Panel notes that the 2005 export ban is not designed to promote domestic products that use the raw materials at issue in this dispute as inputs. The Arbitration Panel recognises that this was a crucial element in prior DSB rulings for the purposes of determining whether export restrictions could be considered to be designed to protect public health.²⁷⁵

294.

The second consideration is about the connection between the 2005 ban and Ukraine's general legislation aimed at the conservation or protection of forests. To the extent that the legal instruments cited by Ukraine as the relevant context for the introduction of the 2005 export ban predate Law No. 2860-IV, it could not be expected that the 2005 export ban would be cited therein as a means to achieve forest protection goals.²⁷⁶ Neither could it be expected that these instruments would mention how the measure would operate to this end. Rather, the subsequent introduction of the 2005 export ban seems to corroborate Ukraine's contention that the measure at issue is "complementary... to effectively prevent the industrial exploitation, exportation and excessive logging of these specific rare and valuable species of wood and therefore to protect these plant lives".²⁷⁷ Moreover, the Forest Code of Ukraine has always prescribed that "valuable and rare" species be preserved during felling operations.²⁷⁸ The Arbitration Panel also notes that the instruments cited by Ukraine, which were adopted after 2005, focus on tightening felling and logging regulations, including illegal logging prohibitions, in line with the declared objective of the 2005 export ban.²⁷⁹

295.

Thirdly, as recalled in Section 4.2.3.1.1, Ukraine is party to a wide range of MEAs relevant for forest protection. While this is not dispositive in and of itself, the Arbitration Panel considers that participation in such international instruments by Ukraine is directly relevant inasmuch as it informs Ukraine's legal framework for forest protection.²⁸⁰ The Parties' right to regulate in line with relevant international standards and agreements is explicitly recognized in Chapter 13 of the Association Agreement (namely in Articles 290, 292 and 296 of the AA). The Arbitration Panel has already concluded that Chapter 13 constitutes relevant context to interpreting Article 36 of the AA (and hence Article XX of the GATT 1994) defences in Section 4.2.3.

296.

Finally, the Arbitration Panel recalls that, based on prior WTO rulings, the examination of the design of the measure is "not a particularly demanding step" in contrast to the assessment of the necessity of a measure, which involves "a more in-depth, holistic analysis."²⁸¹ In particular, the Appellate Body has emphasized that "[a] panel must not... structure its analysis of the ["design" step] in such a way as to lead it to truncate its analysis prematurely and thereby foreclose consideration of crucial aspects of the respondent's defence relating to the 'necessity' analysis."²⁸²

297.

In light of the foregoing, the Arbitration Panel is satisfied that the 2005 export ban is capable of protecting plant life or health, such that there is a relationship between the measure and the protection of plant life or health.

4.3.2.1.3 Whether the 2005 export ban is necessary to protect plant life or health

4.3.2.1.3.1 Applicable principles

298.

Once a measure is found to be designed to protect human, animal or plant life or health, the next step involves determining whether it is "necessary" to achieve that objective. In EC - Seal Products, the Appellate Body found that the necessity analysis under Article XX "involves a process of 'weighing and balancing' a series of factors, including the importance of the objective, the contribution of the measure to that objective, and the trade-restrictiveness of the measure."²⁸³

299.

As to the first factor, that is, the importance of the interests or values at stake, the Appellate Body clarified in Korea - Various Measures on Beef that the more vital or important those interests or values are, the easier it would be to accept as "necessary" a measure otherwise found to be inconsistent with GATT 1994.²⁸⁴

300.

As to the second factor, that is the contribution of the measure to the objective pursued, the Appellate Body stated in Brazil - Retreaded Tyres, that "a contribution exists when there is a genuine relationship of ends and means between the objective pursued and the measure at issue."²⁸⁵ The Appellate Body has also clarified that there is not a generally applicable standard requiring the use of a pre-determined methodology or of a pre-determined threshold of contribution in the analysis of "necessity" under Article XX of the GATT 1994.²⁸⁶

301.

As to the third factor to be "weighed and balanced", that is, the level of trade-restrictiveness of the measure, consistent WTO jurisprudence states that "[t]he less restrictive the effects of the measure, the more likely it is to be characterized as 'necessary.’"²⁸⁷ In China - Audiovisuals the Appellate Body further considered that when a Member adopts a highly trade-restrictive measure, "it will have to ensure that the measure is carefully designed so that the other elements to be taken into account in weighing and balancing the factors relevant to an assessment of the 'necessity’ of the measure will 'outweigh’ such restrictive effect."²⁸⁸

302.

Finally, the necessity analysis involves a comparison between the measure at issue and possible alternative measures which are "reasonably available" to the Member concerned.²⁸⁹ According to the Appellate Body, an alternative measure is not reasonably available "where it is merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties."²⁹⁰ Prior DSB rulings have also established that the complaining party has to demonstrate that such measures are not only less trade-restrictive than the measure at issue, but also contribute to the achievement of the pursued objective to an equal or greater extent than the challenged measure.²⁹¹

303.

Once each of these four factors has been examined individually, they must be assessed holistically for an overall determination of whether or not a particular measure is "necessary", and therefore justified pursuant to subparagraph (b) of Article XX.²⁹²

304.

The Arbitration Panel will thus turn to the necessity analysis of the 2005 export ban required by Article XX(b) of the GATT 1994. In accordance with WTO jurisprudence, the Arbitration Panel will refrain from reaching any intermediate conclusion before completing the entire analysis.

4.3.2.1.3.2 The Arbitration Panel’s analysis

305.

The Arbitration Panel recalls that, based on prior DSB rulings, "[i]n order to determine whether a measure is "necessary" within the meaning of Article XX(b) of GATT 1994, a panel must consider the relevant factors, particularly the importance of the interests or values at stake, the extent of the contribution to the achievement of the measure's objective and its trade restrictiveness."²⁹³

306.

If such analysis leads to the preliminary conclusion that the measure is necessary, the second step is to assess whether other least restrictive measures could be reasonably available to achieve the same level of protection sought by the defendant party.

The importance of the interests or values at stake

307.

The Arbitration Panel starts its necessity analysis by assessing the degree of importance of the environmental objectives attached to the 2005 export ban.

308.

The Arbitration Panel considers that it is undisputed by the Parties that the interests protected by the 2005 export ban, that is, the restoration of forests (reforestation and afforestation) more generally and the preservation of rare and valuable species more specifically,²⁹⁴ are "fundamental, vital and important in the highest degree" as claimed by Ukraine.²⁹⁵ The Arbitration Panel notes that the EU "agrees that the preservation from extinction of any wood species is a legitimate interest of high importance."²⁹⁶

309.

The Arbitration Panel agrees with the Parties and notes that what is disputed is whether the measure at issue contributes to the achievement of the stated objective within the meaning of the necessity test of Article XX(b) of the GATT 1994. The Arbitration Panel therefore turns to analysing whether the 2005 export ban "brings about" a material contribution or is "apt to make" a material contribution to the achievement of the declared environmental goal.

Existence of a material contribution

310.

The Arbitration Panel recalls that prior DSB rulings have clarified that the necessity test imposes two sub-requirements: firstly, the measure must "bring about" or be "apt to make" a material contribution to the achievement of its objective.²⁹⁷ Secondly, there needs to be a "genuine relationship of ends and means between the objective pursued and the measures at issue".²⁹⁸

311.

As to the first sub-requirement, the Arbitration Panel notes that prior DSB rulings have recognised that a measure could contribute to one of the objectives recognised under Article XX(b) of the GATT 1994 as part of a broader policy scheme "comprising a multiplicity of interacting measures."²⁹⁹ In such cases, WTO jurisprudence has accepted that a measure could be justified under Article XX (b) of the GATT 1994 even if the contribution of the measure is not immediately observable due to the difficulty in isolating the contribution "of one specific measure from those attributable to the other measures that are part of the same comprehensive policy."³⁰⁰

312.

In this connection, previous DSB rulings have recognised that the contribution of the measure can be demonstrated quantitatively or qualitatively:

Such a demonstration can of course be made by resorting to evidence or data, pertaining to the past or the present, that establish that the import ban at issue makes a material contribution to the protection of public health or environmental objectives pursued. This is not, however, the only type of demonstration that could establish such a contribution. Thus, a panel might conclude that an import ban is necessary on the basis of a demonstration that the import ban at issue is apt to produce a material contribution to the achievement of its objective. This demonstration could consist of quantitative projections in the future, or qualitative reasoning based on a set of hypotheses that are tested and supported by sufficient evidence (emphasis added).³⁰¹

313.

The Arbitration Panel notes that according to the EU the matter of contention is whether "Ukraine has also failed to show that the 2005 export ban is in any way apt to prevent those wood species from being harvested and industrially processed and consumed domestically and without any limitation."³⁰² The Arbitration Panel also notes that the EU does not dispute that "when concrete data are missing or non-representative, for apprehending whether the measure is apt to contribute to its objective a Panel will have to rely again on the design of the measure."³⁰³

314.

The Arbitration Panel therefore recalls, first, its four considerations on the nature and the extent of the connection between the declared environmental goal and the 2005 export ban.(Section 4.3.2.1.2.2).

315.

Secondly, the Arbitration Panel observes that the 2005 export ban fits within the broader legal framework set by Ukraine to achieve forest preservation goals. Accordingly, the Arbitration Panel considers that the question is whether the 2005 export ban, together with the other measures taken or envisaged within the comprehensive policy programme, is apt to contribute to its environmental objective.

316.

The Arbitration Panel notes that it is undisputed by the Parties that in this case a quantitative assessment of the contribution of the 2005 export ban is neither possible nor indispensable.

317.

Based on the consolidated WTO jurisprudence recalled above, the Arbitration Panel will therefore proceed with a qualitative analysis based on the following set of hypotheses: (i) the 2005 export ban forms part of Ukraine's broader policy on forestry preservation, resulting in synergies with domestic measures targeting illegal felling; (ii) the 2005 export ban aims at drastically reducing any demand from abroad giving rise to illegal logging.

318.

In this connection, the Arbitration Panel finds it appropriate that the "sufficient evidence" required to test and support such hypotheses is to be calibrated in light of the level of trade in the covered species occurring before the ban was enacted. In this respect, the Panel notes that in the EU's view there is a lack of evidence pointing to the existence of any substantial volumes of export (from Ukraine)/import (into the EU) activities concerning the ten covered species.³⁰⁴ The Panel considers that such lack of evidenceindicates that the Arbitration Panel cannot but expect that the magnitude of the contribution to the stated goal of the measure at issue is commensurate to the economic importance of such minimally traded ten species.

319.

Having this in mind, the Arbitration Panel turns of the question of whether the 2005 export ban, together with the other measures envisaged within the broader policy scheme, is apt to contribute to its environmental objective. In this connection, the Arbitration Panel recalls that, in previous DSB rulings concerning export restrictions, WTO adjudicatory bodies have focused on whether the responding Party had adopted any corresponding domestic measure within its broader policy programme, which addressed domestic exploitation and not just foreign consumption.³⁰⁵

320.

Accordingly, the Arbitration Panel notes that Ukraine has implemented a number of internal measures aimed at fighting unauthorised felling, as found in Section 4.3.2.1.2.2. Such measures do not prohibit harvesting of each and all of the covered species in and of itself, but they overall attempt at governing domestic felling for the purposes of excluding industrial and commercial exploitation of "rare and valuable species" covered by the ban.³⁰⁶ In the view of the Arbitration Panel, the 2005 export ban is complementary to and reinforces such domestic framework in the sense of further discouraging unauthorised felling that might originate from foreign demand of the covered species. In this connection, the Arbitration Panel further observes that Ukraine has also started to reinforce measures against illegal logging.³⁰⁷

321.

At the same time, the Arbitration Panel notes Ukraine's contention that "Ukraine's environmental safety policy aimed at the preservation of forests did not result in decrease of felling and the increase of the woodland."³⁰⁸ The Arbitration Panel appreciates the challenges of ensuring forest preservation in a country "still striving to put in place modern and effective governance of its forests."³⁰⁹ The Arbitration Panel understands these challenges as requiring a variety of internal measures and corresponding external measures. In this connection, the Arbitration Panel is satisfied that "by barring the export market for those species, the Ukrainian authorities are limiting the possible outlets for timber and sawn woods that would be produced from these species, securing a better control over any illegal or irregular felling."³¹⁰

322.

The Arbitration Panel considers that this conclusion is not frustrated by the fact that Ukraine's internal measures do not make it per se illegal to harvest the trees species covered by the 2005 export ban, as the EU contends. Concluding otherwise would be tantamount to say that an export ban cannot be justified under Article XX (b) of the GATT 1994 except when it is implemented in connection with a total harvesting prohibition for domestic purposes. The Panel however considers that such a complete correspondence between internal and external measure is not required under Article XX (b) of the GATT 1994, which does not contain explicit language on evenhandeness, as opposed to Article XX (g) of the GATT 1994. The Panel furthermore considers that this conclusions holds in particular in light of the circumstances of the case and their implications as set out above in paragraph 318.

323.

In the view of the Arbitration Panel, the analysis above shows that the 2005 export ban, in combination with Ukraine's internal measures, purport to prevent industrial and commercial exploitation of the "rare and valuable species." For this reason, the Arbitration Panel is satisfied that the the 2005 export ban is apt to contribute to its environmental goals based on qualitative evidence that the Arbitration Panel considers sufficient in light of the specific circumstances of the case as explained in paragraph 318 above.

324.

The Arbitration Panel now turns to the second sub-requirement, that is, to the analysis of whether there is a "genuine relationship of ends and means between the objective pursued and the measures at issue."³¹¹

325.

The Arbitration Panel recalls that the EU contends that "Ukraine has failed to show the existence of a particular link between export and the risk of extinction of those wood species."³¹² The Arbitration Panel understands the EU's contention to be based on "the absence of any quantification or concrete estimation of the effects of the 2005 export ban on the preservation of these wood species."³¹³

326.

The Arbitration Panel notes that the lack of data on the actual effects of the 2005 export ban on the restoration of land is not dispositive for excluding that the measure bears a rational connection to its stated environmental goal within the meaning of Article XX(b) of the GATT 1994, nor can it be equated to a confirmation that "the measures' s contribution to the objective is inexistent or too small to be observed."³¹⁴ In this connection, the Arbitration Panel recalls its previous finding that the 2005 export ban is synergetic with the broader set of internal measures adopted by Ukraine to achieve the restoration of forest land. In the view of the Arbitration Panel, this is tantamount to considering that a rational connection between the measure at issue and the environmental goal cannot be appreciated in isolation from the broader policy framework designed in Ukraine to achieve forest protection.

327.

The Arbitration Panel is therefore satisfied that Ukraine's policies altogether genuinely seek to improve sustainable forest management and to achieve forest protection and restoration via rules governing felling and logging, including specific rules on rare and valuable species.³¹⁵ In the view of the Arbitration Panel, the fact that Ukraine's measures altogether "did not result in decrease of felling and the increase of the woodland"³¹⁶ does not compromise this conclusion; rather, if anything, it corroborates the urgency of continuing to fight excessive/illegal logging by all adequate means, that is, by internal and external (trade) measures.

328.

As relevant factual context, it has finally to be taken into account that the ten species at issue do not constitute extensive forests, but at most just woods (as is the case of chestnuts). Cherries, pears, for instance, are mostly cultivated species for fruit collection and pleasure.³¹⁷

The trade restrictiveness of the measure

329.

The Arbitration Panel turns now to assessing the trade restrictiveness of the measure. The Arbitration Panel notes that this element of its weighing and balancing analysis bears particular importance in connection with the alternative measures analysed in the following sub-section.

330.

The Arbitration Panel notes that Ukraine does not dispute the EU's contention that the 2005 export ban is "as trade restrictive as it can be, since it prohibits any export of timber and sawn wood of the listed wood species."³¹⁸ The Arbitration Panel also notes, however, that Ukraine claims that the measure at issue is a mere exercise of its right to regulate its own level of environmental protection, a right which is duly recognised in Article 290 of the AA, belonging to Chapter 13. The Arbitration Panel understands that Ukraine further contends that the 2005 export ban falls within the ambit of Article 294 of the AA, because it targets illegal logging and thus aims at improving forest law governance and promoting trade in legal and sustainable forest products.³¹⁹

331.

The Arbitration Panel recalls its conclusion in paragraph 253 above:

The provisions of Chapter 13 are not self-standing or unqualified exceptions that could justify measures that are per se in breach of Article 35 of the AA. The Arbitration Panel is nonetheless persuaded that the provisions of Chapter 13 serve as relevant "context" for the interpretation of other provisions of Title IV which allow the Parties to introduce or maintain measures in derogation to Article 35 of the AA including for environmental reasons based on Article 36 of the AA in conjunction with Article XX of the GATT 1994, as discussed below in Section 4.3.

332.

Accordingly, the Arbitration Panel considers that the requirement to interpret Article 36 of the AA harmoniously with the provisions of Chapter 13 comports with admitting that a highly trade restrictive measure such as an export ban may still be found necessary within the meaning of Article XX(b) of the GATT 1994, as incorporated into Article 36 of the AA. The Arbitration Panel considers that the provisions of Chapter 13 (in casu, Article 290 on the right to regulate and Article 294 on trade in forest products) serve as relevant context for the purposes of "weighing and balancing" with more flexibility any of the individual variables of the necessity test, considered individually and in relation to each other. In casu, as a consequence, the high trade restrictive effect inherent to an export ban cannot be considered to automatically outweigh the other elements to be taken into account in weighing and balancing the factors relevant to an assessment of the "necessity" of the measure.

333.

In light of the foregoing, the Arbitration Panel concludes that the restrictiveness of the 2005 export ban does not exclude that the measure be found necessary within the meaning of Article XX(b) of the GATT 1994.

Existence of alternative measures

334.

The Arbitration Panel proceeds now with the analysis of the last element to be weighed and balanced, that is, the determination of whether less trade restrictive alternative measures are available to Ukraine that could still ensure an equal contribution to the stated objective.

335.

The Arbitration Panel first of all recalls that, according to a consolidated WTO jurisprudence on Article XX(b) of the GATT 1994, the burden of proof to demonstrate that that there are reasonably available alternative measures which would make at least the same contribution to the protection of human, animal or plant life or health lies on the complaining party.³²⁰ If the complainant identifies alternative measures, the burden of proof then shifts to the respondent to show that the identified measures are not reasonably available or make the same contribution.³²¹

336.

The Arbitration Panel notes that the EU has identified an alternative measure, namely the introduction of "a limitation of the quantity of trees or wood of the species covered by the ban that can be harvested or placed on the market each year at a sustainable level."³²²

337.

The Arbitration Panel further notes that Ukraine does not dispute that the identified alternative measure would be less trade restrictive.³²³ Ukraine rather contends that such an alternative measure is not reasonably available within the meaning of Article XX(b) of the GATT 1994 to the extent that it argues, at several instances, that "there are no other practical alternatives."³²⁴

338.

In this connection, the Arbitration Panel considers that the EU recognises that the alternative measure "would presuppose that Ukraine has at its disposal data on the population level of these wood species in its forests and possibly on their development trends".³²⁵ The Arbitration Panel further observes that the EU admits that Ukraine does not have such data at its disposal.³²⁶ The Arbitration Panel notes that the implementation of such an alternative measure would thus imply, as clarified by the EU, a quantitative analysis in relation to the ten wood species based on a scientific assessment of the sustainable level of exploitation of those wood species.³²⁷

339.

The Arbitration Panel recalls that in Section 4.3.2.1.2.2 it already acknowledged that the lack of such data is due to Ukraine's struggle towards a more effective governance of its forests. The Arbitration Panel is satisfied that the challenges faced by Ukraine authorities, including the emergency in international relations, make it difficult for Ukraine to immediately implement the EU's suggested alternative measure. Tthis applies even more in respect of species that by their nature do not grow in substantial quantities in the wild and whose stock is therefore difficult to assess accurately.

340.

Similar criticalities are entailed by another alternative measure suggested by the EU, namely the implementation of the National Forestry Inventory as part of Ukraine's ongoing efforts to strengthen its legislation regarding forest management and protection.³²⁸ Based on the information provided by Ukraine, the Inventory "will enable a reliable assessment of plantations shared stocks and indicators of its current growth rates required for the assessment of the level of the forest management intensity."³²⁹ The EU infers from this statement that this could be a viable alternative not only to the 2015 temporary export ban but also to the 2005 export ban.³³⁰

341.

The Arbitration Panel first notes that such inventory was far from being available at the time of the establishment of the Arbitration Panel.³³¹ Second, the Arbitration Panel considers that, once ready, Ukraine's Inventory might arguably allow collecting data on the population of the ten covered species. It may also likely provide a basis for running an assessment of the exploitation rate that such species can sustain. In this respect, the prospective adoption of the Inventory may in principle create more favourable conditions for the implementation of the first alternative measure suggested by EU and described in paragraph 332. At the same time, however, the Panel cannot but consider the struggles that Ukraine convincingly refers to, including the emergency in international relations. In the view of the Panel, such difficulties likely make the reaching of such a scenario, and the prospects for a successful implementation of such a system, not immediate and still very challenging - in addition to remaining prone to abuses. For these reasons, the Panel is not satisfied that the implementation of a National Forestry Inventory was, and today is, a reasonably available alternative that could make the same contribution to the stated objective with regards to the ten "rare and valuable" species.

342.

Finally, the Arbitration Panel notes that the EU also suggests that another alternative measure could be to adopt "a moratorium on cutting trees of these wood species in the areas where illegal logging occurs the most."³³² The Arbitration Panel however notes that it is undisputed by the Parties that there is a lack of reliable data on the extent and the localisation of illegal logging in relation to the ten covered species.³³³ The Arbitration Panel therefore concludes that such an alternative would be difficult to implement effectively and would thus in practice not make the same contribution to the stated objective.

343.

In light of the foregoing, the Arbitration Panel is not convinced that any of the alternative measures identified by the complainant were reasonably available to Ukraine at the time of the establishment of the Arbitration Panel or make the same contribution to the protection of plant life or health of the ten covered species.

4.3.2.1.4 The Arbitration Panel’s finding

344.

For the reasons set out above, the Arbitration Panel concludes that the 2005 export ban is (i) designed to protect plant life or health; and (ii) necessary to protect plant life or health. The Arbitration Panel therefore finds that the 2005 export ban is "provisionally" justified in accordance with Article XX(b) of the GATT 1994.

4.3.2.2 The requirements of the chapeau of Article XX of the GATT 1994

345.

Having found that the challenged measure is provisionally justified under subparagraph (b) of Article XX of GATT 1994, as being necessary for the protection of plant life and health, we must now proceed to the final step of our analysis in order to determine whether the measure satisfies the requirements of the chapeau of Article XX of the GATT 1994.

346.

We shall thus assess whether the discriminatory aspects of the 2005 export ban have been "applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade."

4.3.2.2.1 Applicable principles

347.

Prior DSB rulings have clarified that the chapeau aims at addressing the manner in which a measure is applied and preventing abuses of Article XX exceptions.³³⁴ In this respect, the requirements imposed by the chapeau "impart meaning to one another [so that] the kind of considerations pertinent in deciding whether the application of a particular measure amounts to 'arbitrary or unjustifiable discrimination' may also be taken into account in determining the presence of a 'disguised restriction' on international trade."³³⁵

348.

As to the "arbitrary or unjustifiable discrimination" clause, WTO jurisprudence has clarified that it imposes three conditions: (i) the application of a measure must result in discrimination; (ii) the discrimination must be arbitrary or unjustifiable; and (iii) it must occur in countries where the same conditions prevail.³³⁶

349.

The first requirement refers to both MFN and national treatment types of discrimination.³³⁷ The Appellate Body has however explained that the standard of discrimination under GATT obligations is not the same as under Article XX exceptions. In particular, the Appellate Body stated that "the nature and quality of this discrimination is different from the discrimination in the treatment of products which was already found to be inconsistent with one of the substantive obligations of the GATT 1994."³³⁸ In EC - Seal Products, the Appellate Body clarified that "[t]his does not mean, however, that the circumstances that bring about the discrimination that is to be examined under the chapeau cannot be the same as those that led to the finding of a violation of a substantive provision of the GATT 1994."³³⁹

350.

Likewise, for the purpose of our analysis in this case, we will also look at the standard of discrimination under the GATT 1994 obligations and look at the context in which the 2005 export ban has been adopted.

351.

As to the second requirement, the Appellate Body in Brazil-Retreaded Tyres stated that the analysis of whether discrimination is justifiable or not under the chapeau of Article XX should be based on whether the "reasons given for this discrimination bear no rational connection to the objective falling within the purview of a paragraph of Article XX, or would go against that objective", and also take into account, as a relevant factor, the effects of the discrimination.³⁴⁰ According to US-Gasoline, moreover, discrimination may be arbitrary or unjustifiable "where alternative measures exist which would have avoided or at least diminished the discriminatory treatment."³⁴¹

352.

As to the third requirement, the Appellate Body considered that "only 'conditions' that are relevant for the purpose of establishing arbitrary or unjustifiable discrimination in the light of the specific character of the measure at issue and the circumstances of a particular case are relevant under the chapeau."³⁴² The Appellate Body also stated that "the identification of the relevant 'conditions' under the chapeau should be understood by reference to the applicable subparagraph of Article XX under which the measure was provisionally justified and the substantive obligations under the GATT 1994 in respect of which a violation has been found."³⁴³ A respondent arguing that conditions in the compared countries are not the same bears the burden of proving its claim.³⁴⁴

353.

Finally, in respect of whether the measure constitutes a "disguised restriction on international trade", the Appellate Body confirmed in US - Gasoline that

It is clear to us that "disguised restriction" includes disguised discrimination in international trade. It is equally clear that concealed or unannounced restriction or discrimination in international trade does not exhaust the meaning of "disguised restriction." We consider that "disguised restriction", whatever else it covers, may properly be read as embracing restrictions amounting to arbitrary or unjustifiable discrimination in international trade taken under the guise of a measure formally within the terms of an exception listed in Article XX. Put in a somewhat different manner, the kinds of considerations pertinent in deciding whether the application of a particular measure amounts to "arbitrary or unjustifiable discrimination", may also be taken into account in determining the presence of a "disguised restriction" on international trade. The fundamental theme is to be found in the purpose and object of avoiding abuse or illegitimate use of the exceptions to substantive rules available in Article XX.³⁴⁵

4.2.2.2.2 The Arbitration Panel’s analysis

354.

The Arbitration Panel turns now to the analysis of whether the 2005 export ban is applied in a manner that satisfies the requirements of the chapeau of Article XX of the GATT 1994.

355.

First, with respect to the question of whether the 2005 export ban is applied in a manner that constitutes arbitrary or unjustifiable discrimination between countries where the same conditions prevail, Ukraine argues that the measure at issue satisfies this requirement in that it applies erga omnes, that is, "to all countries and not only to the European Union."³⁴⁶ The.Arbitration Panel understands Ukraine's defence to mean that the 2005 export ban would meet the first chapeau requirement inasmuch as it does not discriminate "among like products originating in or destined for different countries" in accordance with the most-favoured nation principle.³⁴⁷

356.

The Arbitration Panel recalls that according to relevant WTO jurisprudence, the chapeau covers both MFN and national treatment discrimination scenarios. In China - Rare Earths, WTO adjudicatory bodies have already ruled against export restrictive measures (in casu, export duties imposed by China) to the extent that they resulted into a "national treatment-type discrimination arising from the difference in treatment accorded to the like product when destined for export, as compared with the treatment of the like product when destined for domestic consumption."³⁴⁸

357.

The Arbitration Panel therefore observes that in order to be compliant with this requirement, the 2005 export ban must not result in a national treatment-type of discrimination. The matter to be assessed is therefore whether such discrimination is rationally connected to the goal of the measures and arises between countries where different conditions prevail. The Arbitration Panel further recalls that, according to prior DSB rulings, the burden of proof in this connection lies on the respondent.³⁴⁹

358.

The Arbitration Panel notes that Ukraine has focused its argument on the fact that its export ban applies to all exports of the covered species, without discrimination between countries of possible destination. This showing is however not sufficient to discharge Ukraine's burden of proof. Ukraine should have also demonstrated that there is no discrimination in treatment between the EU (on whose market the placement of wood of these species originating in Ukraine is precluded by the ban) and its domestic market, provided that the same conditions prevail in the two markets.

359.

Any existing discrimination should in turn be rationally connected to the stated goal of the measure and occur between countries (in casu, Ukraine and the EU) where hypothetically different conditions prevail.

360.

The effect on the EU export market has to be compared to the effects of the various Ukrainian measures restraining the use of the wood of the ten species on its domestic market. The Arbitration Panel has examined this question in Section 2. 3. 1 above. Those effects have to be evaluated taking into account the fact that the wood of the ten species is not meant for industrial use.

361.

The Arbitration Panel is persuaded that, as a consequence of those measures (strict limitations to felling of the species listed in the Red Book, unsuitability for industrial exploitation also of the other three non-included species in the IUCN either: pears, chestnuts, black cherries), the wood of these ten species is not marketable or marketed within Ukraine, at least not in measurable quantities.³⁵⁰

362.

In this connection, the Arbitration Panel notes that in response to a specific question by the Arbitration Panel the EU has answered that "[t]he EU does not dispose of specific import statistics for the ten wood species covered by the 2005 export ban, which can only mean that imports of wood of these species were not particularly significant in terms of trade volume to justify a dedicate reporting."³⁵¹

363.

The Arbitration Panel interprets this to mean that there was no sizeable industrial demand for these species from Ukraine on the EU market. No information is available on exports to other countries. In other words, imports of wood of these ten species from Ukraine to the EU were, if not inexistant, at best so small as not to warrant statistical attention. The 2005 export ban appears in practice not to have changed the previous situation, with the exception of rendering illegal any export of wood from Ukraine of those species obtained by illegal felling.

364.

This conclusion is confirmed by the fact that the issue of the pre-existing ban was not raised during the negotiation of the Agreement, or thereafter before the introduction of the 2015 temporary export ban, as confirmed by the EU's answer to the specific question put to it by the Arbitration Panel.³⁵²

365.

The Arbitration Panel concludes therefore that this ban, in context, does not create discrimination between the domestic Ukrainian market and EU imports of wood from Ukraine of the ten species covered by the 2005 export ban.

366.

This conclusion is reinforced, in the Arbitration Panel's view, by the fact that the 2005 export ban does not aim at the conservation of forests in general, but is focused specifically on the ten endangered species. Secondly, the Arbitration Panel notes that the 2005 export ban also prohibits export of sawn wood of these species. This is in line with Ukraine's measures restricting the placement on the domestic market of wood of the ten species, which also restrains sawing. The general prevention of commercial exploitation of the wood from the ten species, without discrimination, is thereby enhanced.

367.

Finally, the last requirement to be ascertained is whether the alleged arbitrary or unjustifiable discrimination is found to exist "between countries where the same conditions prevail." The Arbitration Panel considers that it is irrelevant whether in Ukraine and the EU "the same conditions prevail," since it has reached the conclusion that the ban, having regard to the context, does not discriminate between the Ukrainian market and the EU imports of wood from Ukraine of the ten species.

Victor Muravyov	Appointed by the respondent
Giorgio Sacerdoti	Appointed by the claimant
Christian Häberli	President

European Union v. Ukraine (Ukraine wood exports ban)

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary