WORLD TRADE WT/DS69/R
12March 1998
ORGANIZATION(98-0921)
Original: English
European Communities -Measures Affecting the
Importation ofCertain Poultry Products
Report ofthePanel
Thereport ofthePanel onEuropean Communities -Measures Affecting theImportation ofCertain
Poultry Products isbeing circulated toallMembers, pursuant totheDSU. Thereport isbeing circulated
asanunrestricted document from 12March 1998 pursuant totheProcedures fortheCirculation and
Derestriction ofWTO Documents (WT/L/160/Rev.1). Members arereminded thatinaccordance with
theDSU onlyparties tothedispute mayappeal apanel report. Anappeal shallbelimited toissues
oflawcovered inthePanel report andlegalinterpretations developed bythePanel. There shallbe
noexparte communications withthePanel orAppellate Body concerning matters under consideration
bythePanel orAppellate Body.
NotebytheSecretariat: ThisPanel Report shallbeadopted bytheDispute Settlement Body (DSB) within 60daysafterthedateofitscirculation
unless aparty tothedispute decides toappeal ortheDSBdecides byconsensus nottoadopt thereport. IfthePanel Report isappealed
totheAppellate Body, itshallnotbeconsidered foradoption bytheDSBuntilafterthecompletion oftheappeal. Information onthecurrent
status ofthePanel Report isavailable from theWTO Secretariat.WT/DS69/R
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TABLE OFCONTENTS
I. INTRODUCTION ..........................................1
Terms ofreference ..........................................1
Panel composition ..........................................1
II. FACTUAL ASPECTS ........................................2
Background ..............................................2
Current ECSchedule LXXX ....................................2
Licensing requirements forthepoultry TRQ ..........................2
Special safeguards forout-of-quota volumes offrozen poultry meat ...........3
III. MAIN ARGUMENTS ........................................4
General .................................................4
Article XXVIII:4 ofGATT .....................................5
(i) General .......................................5
(ii) Modifications ofschedules ...........................7
(iii) TheVienna Convention ontheLawofTreaties ..............8
(a) Article 59(1) oftheVienna Convention ..............8
(b) Article 30(3) oftheVienna Convention ..............9
(c) Article 31oftheVienna Convention ................10
(iv) Incorporation ...................................11
(v) MFN andArticle XXVIII ............................12
(vi) Principle ofnon-discrimination ........................13
(vii) TheEC'sUruguay Round Schedule -minimum access .........14
(viii) Protection oflegitimate expectations .....................15
(ix) Theimplementation ofthefrozen chicken TRQ ..............15
(x) Compensation ...................................16
(xi) Interpretation of"global" ...........................18
Article XIIIofGATT ........................................19
(i) byagreement ...................................21
(ii) byallocation onthebasis ofpastperformance ..............21
TheAgreement onImport Licensing Procedures .......................23
(i) Notification ....................................24
(ii) Changes tothelicensing rules .........................25
(iii) Distortion oftrade ................................26
(iv) Licence entitlement based onexport performance ............27
(v) Speculation inlicences .............................28
(vi) Economic quantities ...............................29
(vii) Newcomers .....................................31
(viii) Transparency ...................................31
(ix) Compensation ...................................32
(x) Burden ofproof ..................................33
TheAgreement onAgriculture ..................................34
(i) Article 4......................................34
(ii) Article 5:safeguards ..............................34
(a) Theprice safeguard ..........................35
(b) C.i.f. prices ...............................36
(c) Injury requirement ...........................37
(d) Therepresentative price ........................39
Article X................................................41
Article IIofGATT ..........................................43WT/DS69/R
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Article III...............................................45
IV. ARGUMENTS PRESENTED BYTHIRD PARTIES ....................47
Terms ofReference .........................................47
Article XXVIII ofGATT ......................................48
Article XIIIofGATT ........................................49
TheLicensing Agreement ......................................50
TheAgreement onAgriculture ..................................50
Article II................................................51
Nullification orImpairment ....................................52
V. INTERIM REVIEW .........................................53
VI. FINDINGS ...............................................56
A. CLAIMS OFTHE PARTIES ..............................56
B. THE OILSEEDS AGREEMENT ............................56
(i) Relevance oftheOilseeds Agreement tothisdispute ...........56
(ii) Relationship between theOilseeds Agreement and Schedule
LXXX ........................................57
(iii) TheOilseeds Agreement ascompensatory adjustment under Article
XXVIII:2 ......................................59
(a) Ordinary meaning oftheterms ...................60
(b) Object andpurpose oftheOilseeds Agreement .........60
(c) Preparatory work ofArticle XXVIII ................62
(iv) Summary ......................................62
C. LEGITIMATE EXPECTATIONS ...........................62
D. ARTICLE XIIIOFGATT ................................63
(i) Agreement ontheallocation oftheTRQ ..................63
(ii) Participation ofnon-Members andEastEuropean countries inthe
TRQ .........................................65
(a) Non-Members ..............................65
(b) Members inEastEurope .......................66
E. LICENSING AGREEMENT ...............................67
(i) Notification ....................................67
(ii) Changes tothelicensing rules .........................68
(iii) Distortion oftrade ................................68
(iv) Licence entitlement based onexport performance ............69
(v) Speculation inlicences .............................70
(vi) Issuance oflicences ineconomic quantities andnewcomers ......71
(vii) Transparency ...................................71
(viii) Summary ......................................72
F. ARTICLE XOFGATT ..................................72
G. ARTICLE IIOFGATT ..................................73
H. ARTICLE IIIOFGATT .................................74
I. AGREEMENT ONAGRICULTURE .........................74
(i) Article 5.1.....................................75
(a) Market entry price andthec.i.f. price ...............75
(b) Injury requirement ...........................76
(c) Representative price ..........................77
(ii) Article 4.2.....................................77
(iii) Opinion byamember ofthePanel ......................77
J. NULLIFICATION ORIMPAIRMENT ........................78WT/DS69/R
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VII. CONCLUSIONS AND RECOMMENDATIONS .......................79
ANNEX I.....................................................80
ANNEX II....................................................81WT/DS69/R
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I. INTRODUCTION
1. On24February 1997, Brazil requested consultations withtheEuropean Communities ("the
Community"orthe"EC")pursuanttoArticle4oftheUnderstandingonRulesandProceduresgoverning
theSettlement ofDisputes ("DSU"), Article XXIII oftheGeneral Agreement onTariffs andTrade 1994
("GATT") andArticle 6oftheAgreement onImport Licensing Procedures ("Licensing Agreement"),
regarding theECregime fortheimportation ofcertain poultry products (CNcodes 0207 4110,
0207 4141and02074171)andtheimplementation bytheECofthetariffratequota intheseproducts
agreed innegotiations between Brazil andtheECunder Article XXVIII ofGATT (WT/DS69/1).
2. Consultations wereheldon11April and21May1997. Astheydidnotresult inamutually
satisfactory solution ofthematter, Brazil, inacommunication dated 12June1997, requested the
establishment ofapanel toexamine thismatter inlightoftheGATT, theLicensing Agreement and
theAgreement onAgriculture (WT/DS69/2).
3. TheDispute Settlement Body ("DSB"), atitsmeeting on30July1997, established apanel
withstandard terms ofreference inaccordance withArticle 6oftheDSU (WT/DS69/3). Thailand
andtheUnited States reserved theirthirdparty rights tomake asubmission andtobeheard bythe
Panel inaccordance withArticle 10oftheDSU.
Terms ofreference
4. Thefollowing standard terms ofreference applied tothework ofthePanel:
"Toexamine, inthelightoftherelevant provisions ofthecovered agreements cited byBrazil in
document WT/DS69/2, thematter referred totheDSBbyBrazil inthatdocument andtomake such
findings aswillassist theDSBinmaking therecommendations oringiving therulings provided for
inthose agreements."
Panel composition
5. Theparties tothedispute agreed on11August 1997tothefollowing composition ofthePanel:
Chairman: Mr.Wilhelm Meier
Members: Mr.Peter May
Ms.Magda Shahin
6. ThePanel metwiththeparties on29-30 October andon18November 1997 andwiththird
parties on30October 1997.
7. ThePanel submitted itsinterim report totheparties ofthedispute on23January 1998 and
thefinalreport on12February 1998.WT/DS69/R
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II. FACTUAL ASPECTS
Background
8. Following thecompletion ofthepanel ontheEuropean Economic Community -Payments and
Subsidies PaidtoProcessors andProducers ofOilseeds andRelated Animal-feed Proteins ("Oilseeds
panel")1,theECwasauthorized bytheGATT CONTRACTING PARTIES on19June1992 toenter
intonegotiationsunderArticleXXVIIIofGATT-ModificationofSchedules-withinterestedcontracting
parties. Suchnegotiations wereentered intowithBrazil aswellaswithnineother contracting parties.2
Thenegotiations withBrazil were terminated inJuly1993 andtheAgreed Minutes were signed by
bothparties on31January 1994.
9. TheAgreement setoutintheAgreed Minutes between Brazil andtheECresulting from
negotiations pursuant toArticle XXVIII, modified concessions inEC'sSchedule LXXX concerning
oilseeds, adding interaliaanew,duty-free, global tariffratequota (TRQ) of15,500 tonnes onfrozen
poultry meatunder CNsub-headings 02074110,02074141and02074171.Thepoultry meatTRQ
wasalsofreefrom variable levies. Tariff quotas werealsoestablished formeatofturkey andbeef.
Thetariff ratequotas wereopened asfrom 1January 1994 byCouncil Regulation (EC) No774/94,
dated 29March 1994. Those concerning frozen poultry meatwerecontained inArticle 3which stated
that"...anannual quota of15,500 tonnes ishereby opened forpoultry meatfalling within CNcodes
0207 4110,0207 4141and02074171." Rules foradjustment ofthevolumes andother conditions
ofthetariff quotas were alsoprovided for(Article 8). Regulation 774/94 wasamended in
September 1995byRegulation 2198/95 totakeaccount oftheAgreement onAgriculture resulting from
theUruguay Round negotiations.
Current ECSchedule LXXX
10. Thecurrent ECSchedule LXXX (PartI-Most Favoured Nation Tariff, Section I-Agricultural
Products, Section IB-Tariff Quotas) provided foraduty-free tariffquota upto15,500 tonnes ofpoultry
meat3while theout-quota basedutyratewas1,600 ECU/tonne, 940ECU/tonne and1,575 ECU/tonne,
respectively. Thenewdecreasing bound out-of-quota ratesreplaced thevariable levythatconstituted
theECcommitmentunderitspreviousScheduleasmodifiedbytheArticleXXVIIIOilseedsnegotiations.
There were nolicensing requirements forout-of-quota imports offrozen poultry meat.
Licensing requirements forthepoultry TRQ
11. Council Regulation 774/94 opened, inter alia,atariff quota foranannual volume of
15,500 tonnes fortherelevant poultry meatproducts andprovided thatdetailed rulesfortheapplication
oftheRegulationshouldbeadoptedinaccordancewiththeproceduresinArticle27ofRegulation805/68
orinthecorresponding Articles ofother Regulations onthecommon organization ofthemarkets
concerned. Suchdetailed rulesweresubsequently setoutinCommission Regulation 1431/94, dated
22June1994. Article 1ofRegulation 1431/94 provided thatallimports under thetariff quotas for
therelevant poultry meatproducts weresubject "tothepresentation ofanimport licence." 25percent
ofthequantity ofthequota wasallocated foreachquarter oftheyear, savefor1994when 50percent
wasallocated foreachhalfoftheyear. Applicants forimport licences hadtobenatural orlegalpersons
who, atthetimeapplications weresubmitted, hadimported notlessthan100tonnes (product weight)
ofproducts falling within CNcodes 02071410,02071450and02071470ineachofthetwoprevious
1Panel Report adopted on25January 1990, BISD 37S/86 andDS28/R, dated 31March 1992.
2Argentina, Canada, Hungary, India, Pakistan, Poland, Sweden, theUnited States andUruguay.
3HS0207 1410,0207 1450and0207 1470.WT/DS69/R
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calendar years4whether in-quota orout-of-quota product. Licence applications andlicences should
show thecountry oforigin. Applicants hadtolodge asecurity. Licences werenottransferable.5If
applications exceeded thevolume available forthequarter, theCommission fixed "asingle percentage
ofacceptance forthequantities applied for". Ifthispercentage waslessthan5percent,theCommission
wasauthorized nottoaward those quantities inwhich casethesecurity wasreleased (Article 4.4of
Regulation 1431/94).
Special safeguards forout-of-quota volumes offrozen poultry meat
12. TheECSchedule forout-of-quota frozen poultry meat reserved theright tointroduce an
additional duty(special safeguards) onimports ofsuchmeat iftheconditions ofArticle 5ofthe
Agreement onAgriculture werefulfilled. TheECrulespertaining tospecial safeguards forout-of-quota
poultry meatwere contained inRegulation 1484/95, dated 28June1995, andprovided that,unless
thepoultry imports wereunlikely todisturb theECinternal market, anadditional dutywould belevied
iftheimport price fellbelow aspecific trigger price6setoutinAnnex IIofRegulation 1484/95 for
eachproduct. Theimport pricetobetaken intoaccount "should bechecked against therepresentative
prices ontheworld market orontheCommunity import market fortheproducts inquestion;" (recital 7
ofRegulation 1484/95). Such representative prices were tobedetermined taking intoaccount in
particular (i)theprices onthird country markets; (ii)free-at-frontier offer prices; and(iii)prices
atthevarious stages ofmarketing intheECforimported products.7Recital 8provided thattheimporter
could choose adifferent basisfromtherepresentative price8forthecalculation oftheadditional duty.
Article 3allowed forthepossibility, attherequest oftheimporter, toestablish theadditional duty
onthebasis ofthec.i.f. price, ifthisprice washigher thantheapplicable representative price. Ifthe
importer hadchosen tousethec.i.f.price, hewould havetoprovide tothecompetent authorities (i)the
purchasing contract (orequivalent document); (ii)theinsurance contract; (iii)theinvoice; (iv)the
certificate oforigin; (v)thetransport contract; and(vi)thebilloflading (where applicable).9
4Article 3ofRegulation 1431/94 asamended byRegulation 958/96.
5Article 5ofRegulation 1431/94.
6ECU 333.5, 235.7 and316.6, respectively, forCN0207 4110,0207 4141,0207 4171,respectively.
7Article 2of1484/95.
8Therepresentative prices were setoutinAnnex 1toRegulation 1484/95. Anexample ofacalculation oftheadditional
dutywassupplied tothePanel, bytheEC,onaconfidential basis. Seeparagraphs 191and192.
9Article 3ofRegulation 1484/95.WT/DS69/R
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III. MAIN ARGUMENTS *
General
13. ThecomplaintexaminedbythePanelwasrelatedtotheEC'smeasuresgoverningtheimportation
ofpoultry meatfalling within CNcodes 02071410,02071450and02071470(formerly 02074110,
0207 4141and0207 4171).
14. Brazil requested thePanel tofind
(a) thattheEChadfailed toimplement andadminister thecompensation TRQ incertain
poultry meatproducts inlinewiththebilateral agreement reached withBrazil within
thecontext ofArticle XXVIII:4 ofGATT;
(b) thattheprovisions ofArticles IandXIIIofGATT didnotnecessarily apply to
compensation TRQs;
(c) inthealternative, thattheEChadfailed toimplement theTRQ inaccordance with
Article XIII, since theECdidnotfollow theallocation procedures contained in
Article XIII;
(d) thattheEChadfailed tocomply withtheprovisions ofArticles 1and3ofthe
Agreement onImport Licensing intheadministration oftheimport licences;
(e) thatthelicensing system didnotcomply withthetransparency provisions ofArticle X
andthespecific provisions ofArticles IIandIIIofGATT;
(f) thatthelicensing system didnotcomply withthespecific provisions ofArticles IIand
IIIofGATT;
(g) thattheEChadfailed tocomply withtheprovisions ofArticles 4and5ofthe
Agreement onAgriculture intheimplementation ofthespecial safeguards thatapply
fortrade inpoultry meatoutside theTRQ.
15. IntheviewofBrazil, suchinfringements ofthecovered Agreements implied thenullification
orimpairment ofbenefits accruing toBrazil. Accordingly, Brazil asked thePanel torecommend that
theECbring itsmeasures intoconformity withitsobligations under theGATT, theAgreement on
Import Licensing Procedures andtheAgreement onAgriculture.
16. TheECrequested thePanel todismiss theclaims advanced byBrazil either asinadmissible
orunfounded. Inparticular, thePanel should find
(a) thatthere hadbeennobreach bytheECofArticles XXVIII, XIII, X,IIandIIIof
GATT, Articles 4and5oftheAgreement onAgriculture andArticles 1and3ofthe
Agreement onImport Licensing Procedures; and
(b) that,consequently, there hadbeennonullification orimpairment ofBrazil 'srights
under theWTO.
_________________________
*Note thatfootnotes inthisandthefollowing chapter arethose oftheparties.WT/DS69/R
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Article XXVIII:4 ofGATT
(i) General
17. Quoting paragraph 4(b)ofArticle XXVIII anditsreference toparagraph 3(b),Brazil submitted
thattherewasabalance inArticle XXVIII between therecognition oftheindividual needs ofMembers
andtheglobal needtomaintain anoverall balance ofconcessions within amultilateral framework.
InBrazil 'sopinion, there wasnothing intheArticle which prevented twoMembers from agreeing
onacountry-specific package ofcompensatory measures. Norwasthere anything which mandated
thatcompensation should becountry-specific. Article XXVIII maintained afinebalance between these
twopossibilities. Itallowed certain defined Members tonegotiate andagree. Then itprovided that
other Members which might bedissatisfied withtheagreement orwhich might wishtobenefit from
theagreement should havetherighttoensure thattheagreement didnotprejudice theirownrights
andobligations. Atimelimitwasplaced onthisrightsoastopromote legalcertainty ofthebilateral
agreement within themultilateral framework. Inthisparticular case,theECcreated aseries ofdistinct
bilateral agreements, eachwithadistinct package ofcountry-specific compensatory measures. These
agreements were accepted bytheother Members andhadtostand within themultilateral system as
country-specific agreements. NoMember notified itsintention totheCONTRACTING PARTIES
towithdraw equivalent concessions.
18. TheECsubmitted thatthepurpose oftheprocedure under Article XXVIII wastoensure that
the"securityandpredictabilityofGATTtariffbindings,aprinciplewhichconstitutedacentralobligation
inthesystem oftheGeneral Agreement", waspreserved, inaccordance withtheprovisions ofArticle II.
Inrecognising thattheprocedure under Article XXVIII hadbeen successfully completed, the
CONTRACTING PARTIES accepted thattheECSchedules ofconcessions hadbeenmodified with
theiragreement andrepresented thenewtariff commitments oftheECfortheproducts concerned.
TheECnoted thatnoGATT contracting party objected totherevised Schedule within thethreemonth
period setoutintheDecision oftheCONTRACTING PARTIES of26March 1980. Onthecontrary,
theyhadallagreed by30March 1994toanewECSchedule ofcommitments, asaresult oftheUruguay
Round, which included theoutcome ofArticle XXVIII Oilseeds negotiations withrespect tothefrozen
poultry meat.
19. Brazil submitted thatthequestion ofthecompatibility withtheGeneral Agreement ofbilateral
agreements concluded outside, asopposed towithin, theframework oftheGATT wasconsidered at
thenineteenth Session oftheCONTRACTING PARTIES in1961. Referring toanotebytheExecutive
Secretary10,andwhile disagreeing thatthere werenoprovisions within theGATT itself forbilateral
agreements,BrazilagreedwiththeviewthattherewasnoprovisionintheGATTforbilateralagreements
between contracting parties andnon-contracting parties. TheExecutive Secretary wasconcerned with
theeffect ofbilateral agreements onother contracting parties. Thisconcern was,intheviewofBrazil,
addressedinthemultilateralaspectsofArticleXXVIII.However,inrelationtotheExecutiveSecretary's
concerns, Brazil submitted thattheopening ofacountry-specific frozen chicken TRQbytheCommunity
didnotgiverisetoanegative impact onthetradeinterests ofother Members. There wasconsiderable
over-quota tradeandthistradecontinued andwould continue whether ornotaTRQ hadbeenopened.
Acountry-specific TRQ merely increased atrade opportunity foroneMember butdidnotpreclude
ordiminish continued trading onanMFN basis forallMembers.
10"TheGeneral Agreement contains noprovisions dealing specifically withtheuseofbilateral agreements. IfaContracting
Party concludes abilateral agreement withanother contracting party oragovernment notparty totheGATT, whatisrelevant
fortheGeneral Agreement istheeffect onthetrade ofother Contracting Parties ofanymeasures affecting trade which that
Government takes tomake effective theprovisions ofthebilateral agreement ...itistherefore necessary toknow thenature
ofthequota obligation provided forinthebilateral agreement anddetails ofanymeasures affecting imports which aretaken
forthefulfilment ofthebilateral obligation."WT/DS69/R
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20. TheECsubmitted thatArticle XXVIII ofGATT wasnotasubstantive provision butprovided
onlytheprocedural requirements bywhich aMember could legally modify, change orwithdraw, totally
orpartially, oneofitsconcessions. These changes were justified bycommercial considerations or
bythecreation ofacustoms union. Inthelatter case, Article XXIV:6 referred explicitly "tothe
procedures setforthinArticle XXVIII", thusunderlining again theprocedural nature ofthatprovision.
Under Article XXVIII, there wasnoobligation toreach anagreement butthere wasanobligation to
seekanagreement, inparticular withMembers having aparticular trade interest. Detailed rules to
berespected inorder toensure theparticipation ofthose Members wereprovided intheUnderstanding
ontheinterpretation ofArticle XXVIII oftheGeneral Agreement onTariffs andTrade 1994 which
wasannexed totheGATT 1994. Further guidelines were detailed intheDecision oftheGATT
CONTRACTING PARTIES adopted on10November 1980. TheECargued thatBrazil hadnot
complained, either during theconsultations orinitsrequest fortheestablishment ofthePanel or,finally,
initswritten andoralinterventions before thisPanel, ofanyviolation bytheECoftheprocedural
requirements setoutinthatprovision. Ithadsigned anagreement withtheECon31January 1994,
thusacknowledging thattheprocedures hadbeenfullyrespected tothesatisfaction ofthetwoparties
concerned. Anysubsequent latercomplaint withrespect totheprocedure followed inorder toreach
thatagreement wasclearly "estopped" bynow. Brazil could nottherefore claim today, three years
aftertheconclusion ofthatprocedure, thataviolation ofArticle XXVIII hadoccurred. Moreover,
noevidence hadbeen provided tosupport such aclaim byBrazil. Thenegotiating history of
Article XXVIII indicated thattheGATT CONTRACTING PARTIES hadexpressed theirviews to
theeffect thatnoviolation ofthenon-discrimination principle through anArticle XXVIII procedure
waspossible. TheECbelieved thatthiswasstillthecase.
21. Brazil argued thatthere wasnoobligation toconclude anagreement under Article XXVIII
butBrazil andtheECdidreach anagreement. Andthisagreement reflected thespecification ofthe
general rights andobligations. TheECcould withdraw concessions, without thefearofcounter
withdrawals, oncondition thatitopened upother concessions. Brazil hadagreed toforego itsright
tocounter withdraw. These rights andobligations weredirectly applicable byreason ofArticle XXVIII.
TheCONTRACTING PARTIES authorized these specifications oftheArticle XXVIII rights andno
contracting party hadobjected totheagreements reached within Article XXVIII. Under theterms
ofArticle XXVIII:3(b), contracting parties which werenotparty tothenegotiations werefreewithin
sixmonths oftheconclusion ofnegotiations, towithdraw substantially equivalent concessions ifthey
were notsatisfied withthebilateral country-specific agreements between theMembers principally
concerned. Nocontracting party tooksuchaction sotherefore itcould beconcluded thatallthe
contracting parties weresatisfied. Brazil submitted, moreover, thatinorder todetermine thenature
oftheEC'scurrent commitments toBrazil within theWTO, thisPanel hadtolookattheOilseeds
Agreement. Thedispute between Brazil andtheECdidnotrelate towhether theECwascomplying
withitsSchedule butwhether theEC'sSchedule reflected thecommitments made bytheECtoBrazil
following theOilseeds negotiations.11Brazil maintained thatacommitment hadbeenmade, within
theterms ofArticle XXVIII ofGATT, toopen acountry-specific TRQ of15,500 tonnes offrozen
chicken. TheECmaintained, Brazil argued, thatacommitment hadbeenmade toopensuchaTRQ
butonanMFN basis. Brazil believed thatthedifference between theparties could onlyberesolved
bythePanel byreference totheOilseeds Agreement itself andbyreference totheimplementation of
theother TRQs opened aspartofthatagreement.
11These commitments were contained intheOilseeds Agreement.WT/DS69/R
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(ii) Modifications ofschedules
22. TheECsubmitted thatthepurpose oftheprocedure under Article XXVIII wastoensure that
the"securityandpredictabilityofGATTtariffbindings,aprinciplewhichconstitutedacentralobligation
inthesystemoftheGeneralAgreement"12,waspreserved,inaccordancewiththeprovisionsofArticleII.
Inrecognizing thattheprocedure under Article XXVIII hadbeen successfully completed, the
CONTRACTING PARTIES accepted thattheECSchedules ofconcessions hadbeenmodified with
theiragreement andrepresented thenewtariff commitments oftheECfortheproducts concerned.
TheECexplained thattheECSchedule13provided, asaresult oftheUruguay Round negotiations with
respect tothethree products atissue inthisdispute14foraduty-free tariff quota upto15,500 tonnes
forthefrozen poultry meat15while theout-quota basedutyratewas1,600 ECU/tonne, 940ECU/tonne
and1,575 ECU/tonne, respectively. Theduty-free in-quota rateaftertheUruguay Round negotiations
corresponded exactly totheresults oftheArticle XXVIII Oilseeds negotiations. However, market
access forthefrozen poultry meatwasthesubject offurther negotiation asaresult ofthetariffication
exercise thatconsisted intheintroduction ofout-quota decreasing bound rates. Thenewdecreasing
bound rates hadreplaced thevariable levythatconstituted theECcommitment under itsprevious
Schedule asmodified bytheArticle XXVIII Oilseeds negotiations. Thus, there wasaseries of
modifications totheECGATT Schedule ofcommitments withrespect tothefrozen poultry meatall
ofwhich were effected withtheactive support andagreement ofalltheother Members (GATT
contracting parties atthetime), including Brazil. Insummary, first, theECSchedule wasmodified
asaresult oftheconclusion oftheArticle XXVIII Oilseeds Agreement. Secondly, itwasthen
re-negotiated andmodified asaresult oftheUruguay Round.
23. Brazil replied thatduring thetimeinwhich theOilseeds Agreement determined theEC's
obligations toBrazil, theEChadcommitments under Article XXVIII ofGATT which werenotreflected
initsSchedule. IftheEChadnotchanged itsSchedule soastoreflect theopening ofa15,500 TRQ
(whatever itsnature) could aMember nothaveasked adispute settlement panel toensure thattheEC's
Schedule didreflect thecommitments ithadmade? Thus, acloser examination oftheEC'stwo
agreements argument, giving riseto"successive modifications", revealed, according toBrazil that(i)the
ECdidnottwice modify itscountry schedule; (ii)theEChadcommitments under Article XXVIII
thatwerenotreflected initsSchedule; and(iii)whatever those commitments were, theECdidnot
offer security andpredictability toWTO Members.
24. TheEC,recalling apassage intherecent Banana IIIpanel report16,submitted thatitseemed
indisputable thatthetariff ratesspecified intheEC'sUruguay Round Schedule, including theTRQs,
werethevalidECtariffbindings inrespect offrozen poultry meat. Nodeclaration which would amount
toareservation oranybelated afterthought could affect thevalidity andtheeffects ofthevoluntary
acceptance byBrazil oftheresults oftheUruguay Round negotiation.
12Panel Report onNewsprint ,adopted 20November 1984, BISD 31S/114, 131-133, paragraph 52.
13LXXX, PartI-Most Favoured Nation Tariff, Section I-Agricultural Products, Section IB-Tariff Quotas.
14Which hadbeenindicated under thetariff number 0207 4110,0207 4141and0207 4171andwere presently indicated
under thetariff lines 0207 1410,0207 1450and0207 1470.
15Schedule CXL after theArticle XXIV:6 negotiations following themost recent ECenlargement willnotentail any
modification oftheconcessions oftheECinthisrespect.
16"itwasforallprospective members oftheWTO todecide whether theywould accept thenewagreements [resulting
from theUruguay Round], including thenewbindings proposed byother participants. Under Article XVI:5 oftheWTO
Agreement, reservations arenotpermitted, except totheextent provided forinaWTO agreement; there isnosuchprovision
inGATT 1994. Inthisregard,werecogni zetheimportanceofnotunder miningthestabilityandpredictabilityoftariffbindings"
(paragraph 7.139 ofWT/DS27R/GTM).WT/DS69/R
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25. Asconcerns thequestion ofentering areservation because thecountry-specific nature ofa
TRQ wasnotapparent fromtheSchedule, Brazil observed thatnoreservations werepermissible to
theMarrakesh Agreement which established theWTO.17Secondly, ashadbeenestablished bythe
Appellate Body18,thepresence ofareservation wasnotaprerequisite forthechallenge byaMember
ofanother Member 'sschedule.
(iii) TheVienna Convention ontheLawofTreaties
(a) Article 59(1)19oftheVienna Convention
26. TheECsubmitted itsanalysis wasconfirmed bytheapplication tothiscaseofthecustomary
rules ofinterpretation ofpublic international law. Inapplying Article 3.2oftheDSU, anumber of
recentWTOdisputesettlementdecisions20hadindicatedthatcertainprovisionsoftheViennaConvention
ontheLawofTreaties (Vienna Convention) hadattained thestatus ofrulesofcustomary orgeneral
international law.Thishadbeenspecifically indicated forArticle 31and32oftheVienna Convention.
TheECwasoftheviewthatthatwasalsothecaseforArticles 59(1) and30(3). These provisions
weretheexpression ofthegeneral international lawprinciple concerning thesuccession oflegalacts
having anidentical binding force between thesame parties.21Citing Article 59(1) oftheVienna
Convention22,theECsubmitted thatinthecaseindispute, thetwoparties, ECandBrazil, werenot
onlyparties tothebilateral agreement concluding theArticle XXVIII Oilseeds negotiations under the
GATT butalsotothelaterMarrakesh agreement encompassing theresults oftheUruguay Round.
Bothagreements related, interalia,tothetarifflevels forfrozen poultry products atissueinthisdispute.
BothBrazil andtheECratified theMarrakesh Agreement which contained theagreed newsetofrules
withrespect, interalia,tothetarifftreatment ofthefrozen poultry meat. Theruleunder Article 59(1)
solved theissue ofthecoexistence ofthetwoagreements inthiscasebyconsidering thatthe
Article XXVIII Oilseeds Agreement wasnolonger applicable. TheECwastherefore oftheviewthat
themodified ECSchedule which resulted fromtheUruguay Round negotiations hadreplaced theearlier
Article XXVIII Oilseeds Agreement. Itwasnolonger possible forBrazil toallege aviolation bythe
ECoftheArticle XXVIII Oilseeds Agreement andthere wasnoviolation bytheECoftheexisting
commitments under theECSchedule LXXX. Asasubsidiary argument, theECrecalled briefly that
17Article 19oftheVienna Convention specifically recognized thatareservation wasonlyallowable ifitwasnotprohibited
bytheTreaty.
18Appellate Body Report onEuropean Communities -Regime fortheImportation, SaleandDistribution ofBananas ,
adopted on25September 1997, WT/DS27/AB/R.
19Article 59(1) (entitled "Termination orsuspension oftheoperation ofatreaty implied byconclusion ofalatertreaty")
provided that:
"1. Atreaty shallbeconsidered asterminated ifalltheparties toitconclude alatertreaty relating tothesame subject
matter and
(a) itappears from thelatertreaty orisotherwise established thattheparties intended thatthematter should
begoverned bythattreaty; (...)
(b) theprovisions ofthelatertreaty aresofarincompatible withthose oftheearlier onethatthetwotreaties
arenotcapable ofbeing applied atthesame time.
2. Theearlier treaty shallbeconsidered asonlysuspended inoperation ifitappears fromthelatertreaty orisotherwise
established thatsuch wastheintention oftheparties."
20Appellate Body Report onUnited States -Standards forReformulated andConventional Gasoline ,WT/DS2/AB/R;
Appellate Body Report onJapan -Taxes onAlcoholic Beverages ,WT/DS8/AB/R; Panel Report onEuropean Communities
-Regime fortheImportation, SaleandDistribution ofBananas ,adopted on25September 1997, WT/DS27/R, para.7.272.
21Thesame principle wasreflected alsoinArticle 39,40(2) and54(b) oftheVienna Convention.
22FortextofArticle 59(1), seefootnote above.WT/DS69/R
Page9
inanyevent, Article 30(3) oftheVienna Convention would notallow anydifferent conclusion: "When
alltheparties totheearlier treaty areparties alsotoalatertreaty buttheearlier treaty isnotterminated
orsuspended inoperation under Article 59,theearlier treaty applies totheextent thatitsprovisions
arecompatible withthose ofthelatertreaty".
27. Brazil submitted thattheEChadnotshown thattheconditions ofArticle 59(1)(a) and(b)had
beenfulfilled inrelation totheArticle XXVIII negotiations. Brazil considered, however, thatBrazil
hadshown thatthere wasnoincompatibility between PartIoftheUruguay Round schedules, andin
particular theECschedule, withcountry-specific TRQs. ItwasclearfromtheECschedule thatcountry-
specific TRQs were provided for.Secondly, theECaccepted thatcountry-specific provisions were
compatible withtheWTO Agreements. Thus, incompatibility could notbetheground fortheautomatic
termination ofthecommitments agreed tounder Article XXVIII. NorhadtheECshown thatitwas
theclear intention oftheparties thatthematter ofcompensation begoverned bythelatertreaty and
notbytheterms oftheearlier agreement. TheEChaditself observed thattheearlier agreement had
been"incorporated" intothelateragreement. Theordinary meaning oftheword "incorporation" did
notinclude theideaof"modification". Incorporation meant, according toBrazil, thattheterms of
thefirstagreement were incorporated astheystood intothesecond agreement. Thus, theEC's
Article XXVIII commitment wasincorporated intotheUruguay Round agreement. Brazil concluded
therefore that,ifArticle 59wasfound tobedeclaratory ofcustomary international law,theEChad
notshown thattheearlier agreement hadbeenterminated orsuspended byoperation ofArticle 59.
28. TheECreplied thatArticle 59(1)(a) oftheVienna Convention wasfullyrelevant tothiscase.
Brazil haddisregarded thatArticle 59(1) provided, under (a)and(b),fortwohypotheses which were
separate andalternative. Contrary towhatBrazil seemed tosuggest, theECwasoftheopinion that
thetextofArticle 59(1) didnotrequire cumulation ofthese twohypotheses.
(b) Article 30(3) oftheVienna Convention
29. Citing Article 30(3) oftheVienna Convention23,theECsubmitted thattheArticle XXVIII
Oilseeds Agreement between theECandBrazil modified theECSchedule asof1January 1994. The
Uruguay Round agreement thenentered intoforce on1January 1995 andbecame applicable for
agricultural products on1July1995. Thistreaty covered interaliathesame subject matter (theEC
concessions onthefrozen poultry meat) among thesamecontracting parties astheearlier treaty (Brazil
andtheEC). ECbelieved thatthere wasnodisagreement between Brazil andtheEConthecontent
ofthecurrent concessions bytheECwithrespect tothefrozen poultry meat. Neither party contested
thataduty-free tariff quota hadbeenestablished, there wasnodisagreement onthedecreasing duties
applicable totheout-quota imports bound asaresult oftheUruguay Round negotiations, neither was
there disagreement onthesizeoftheTRQ. Therevised ECSchedule which incorporated the
Article XXVIII Oilseeds Agreement withrespect tofrozen poultry meat, theECsaid,hadbeenreplaced,
asfrom 1January 1995, bytheECSchedule ofcommitments resulting from theUruguay Round
consistently withArticle 59(1) oftheVienna Convention. Reference totheearlier Article XXVIII
Oilseeds Agreement wastherefore nolonger relevant. Inanyevent, inapplication ofArticle 30(3)
oftheVienna Convention, should thePanel reach anydifferent conclusion (contrary totheEC's
submissions) andinparticular thattheArticle XXVIII Oilseeds Agreement wasnotapplicable ona
MFN basisandwasstillrelevant, thenitcould beapplicable onlytotheextent itwascompatible with
theEC'slaterSchedule resulting fromtheUruguay Round which wasaMFN TRQ. Boththese lines
ofargument ledtotheinevitable conclusion thattheECfrozen poultry meatTRQ wasapplicable on
aMFN basis.
23Seeparagraph 26.WT/DS69/R
Page10
30. Referring toArticle 30(3) oftheVienna Convention andtoparagraph 1(b)ofGATT 199424,
Brazil submitted thattheECagreed thatatariffconcession hadbeengiven, andhadentered intoforce,
prior totheentry intoforce oftheWTO agreements andthatthisconcession wasbased onthe
Article XXVIII ofGATT negotiations withBrazil. Bytheterms oftheWTO Agreement itself, that
priorconcessionwasincorporatedintotheEC'sGATT1994ArticleIISchedule.Thespecificconcession
hadtobeincorporated andnotmodified. IftheEChadfailed toincorporate theTRQ agreed with
Brazil andopened onthebasis ofanArticle XXVIII Agreement, itcould notusethatfailure toclaim
thattheTRQincluded intheSchedule wasamodification oftheoriginal concession. ThisPanel should
uphold Brazil 'sclaim inrespect oftheEC'sfailure toincorporate theagreed concession. Secondly,
Brazil reiterated, theprovision ofacountry-specific concession toBrazil wasnotincompatible, as
required bytheterms ofArticle 30(3) oftheVienna Convention citedabove bytheEC,withtheterms
oftheUruguay Round Agreement. Brazil argued thattheEC'sandother Members 'schedules provided
asignificant number ofexamples ofcountry-specific TRQs. Inanyevent, theECitselfaccepted that
Article XXIV ofGATT andArticle IXofWTO gaverisetosuchcommitments sothattheytherefore
werenotincompatible withtheterms ofthesecond treaty. Brazil concluded, therefore, thattheEC
hadnotdemonstrated incompatibility oftheprovisions oftheearlier treaty withtheterms ofthelater
treaty within theterms ofArticle 30(3) oftheVienna Convention.
(c) Article 31oftheVienna Convention
31. ReferringtothegeneralruleofinterpretationlaiddowninArticle31oftheViennaConvention25,
theECsubmitted that,together withthecontext, theinterpreter should alsotakeintoaccount "any
subsequentagreementbetweenthepartiesregardingthe...applicationofitsprovisions"and"anyrelevant
rules ofinternational lawapplicable intherelations between theparties" (Article 31(3)(c)). Thus,
theECconsidered thattheterm"global" should begiven itsordinary meaning initscontext andin
thelightofitsobject andpurpose. Irrespective ofthephilological meaning oftheterm"global", Brazil
could notdisregard thefactthattheArticle XXVIII Oilseeds negotiations were undertaken inthe
framework oftheGATT. Theobject andpurpose ofthenegotiations wastore-establish thebalance
ofrights andobligations, following theOilseeds panel report, within thescope oftheGATT andin
particular itsArticles IandII.TheECfound itdifficult toconceive ofaviolation ofArticles Iand
IIofGATT thatwould bemore obvious andindefensible thanadiscrimination onthedutyapplied
uponimportation of(like) products based ontheorigin ofthose products.26TheECnoted thatduring
thediscussions oftheprovisions which became thepresent Article XXVIII, intheTariff Agreement
Committee atGeneva in1947, theChairman insumming upthediscussions concerning thepossibility
ofwithdrawing concessions, stated: "...Therefore, theintent isclear: thatinnowayshould this
Article interfere withtheoperation oftheMost-Favoured-Nation clause".27TheECalsonoted that
thisstatement wasmade inthecontext ofretaliatory trade measures against aunilateral modification
orreduction byaMember ofitsownconcessions. Thesame considerations mustapply afortiori to
theagreed modification ofaMember 'sSchedule asaresult ofauthorized Article XXVIII:4 negotiations.
24"(b)theprovisions ofthelegal instruments setforth below thathaveentered intoforce under theGATT 1947 before
thedateofentry intoforce oftheWTO Agreement:
(i)protocols andcertifications relating totariff concessions; ..."
25"Atreaty shall beinterpreted ingood faithinaccordance withtheordinary meaning tobegiven totheterms ofthe
treaty intheir context andinthelightofitsobject andpurpose."
26Therecent Appel lateBody Repor tintheBananaIIIdisputestatedinparagraph190"theessence ofthenon-di scrimination
obligations isthatlikeproducts should betreated equally, irrespective oftheir origin".
27Analytical Index oftheGATT, Article XXVIII -Modification oftheSchedules, Volume 2,1995 ed.,page 947.WT/DS69/R
Page11
32. Brazil observed thattheprinciple ofgood faithwasafundamental element ininterpreting,
understanding andimplementing agreements. Interpreting agreements ingoodfaithmeant thatallparties
hadtointerpret theclearintention oftheparties totheagreement andnotreadtheagreement inaway
thatwould leadtoanunreasonable orabsurd interpretation. Intheopinion ofBrazil, theordinary
meaning oftheBrazil/EC Oilseeds Agreement wasclear. Within thecontext ofArticle XXVIII of
GATT, Brazil hadagreed thatitwould notobject totheECwithdrawing certain concessions onthe
condition that,inreturn, theECwould openanewcompensatory concession specifically forBrazil.
Theagreement wasmade within theframework ofArticle XXVIII which ensured thatallMembers
which hadaninterest would notbeprejudiced. Intheopinion ofBrazil, noother Member wasso
prejudiced. Brazil claimed thattheEChadagreed inwriting, andwithin themultilateral GATT
framework, acountry-specific compensation package withBrazil. ItwasBrazil 'sopinion thattheEC
hadnotrespected thispackage. Moreover, Brazil said,Article 26oftheVienna Convention setout
oneofthefundamental principles oflaw,ofwhatever nature, namely "pacta suntservanda ",providing
that"Every treaty inforce isbinding upon theparties toitandmust beperformed bythem ingood
faith". Intheopinion ofBrazil, theEChadnotimplemented ingoodfaiththeagreement withBrazil.
33. TheECreplied thatArticles IandXIIIofGATT were alsoclearprovisions ofatreaty that
wasbinding uponBrazil: didBrazil suggest thattheprinciple "pacta servanda sunt"authorized Brazil
tobreach those other clearinternational obligations? ItwastheEC'sviewthatthistheory wasdeprived
ofanylegalandlogical foundation ininternational lawandintheWTO system. TheEChadfully
compliedwithitsinternationalobligationsunderboththegeneralprovisionsoftheGATTandthespecific
commitments oftheArticle XXVIII Oilseeds Agreement: theECopened asfrom1January 1994 an
MFN frozen poultry meatTRQ andBrazil obtained immediate access toashare ofthattariff quota
which corresponded toitsshare oftheoverall ECimports.
(iv) Incorporation
34. Brazil argued thattheCommunity didnotadminister theTRQ asacountry-specific TRQ in
theperiod fromJanuary 1994toJuly1995. Moreover, thefrozen chicken TRQhadbeenagreed within
theterms ofbilateral Article XXVIII negotiations andthemultilateral checks andbalances thatwere
provided forinthatArticle. Itwasdistinct fromagreements reached within thecontext ofmultilateral
negotiations. Thebilateral Oilseeds Agreement made nomention oftheUruguay Round. Nordid
itleave theCommunity theunilateral right toamend theagreement andchange thenature ofthe
concessioninlinewithotherbilateralOilseedsagreements.28BrazildidnotagreethattheArticleXXVIII
country-specific commitments werechanged byreason oftheirincorporation intotheUruguay Round.
Thefactthattheincorporation wasunilaterally made under theheading "minimum access" didnot
actsoastomodify thecommitment. Nordidtheinclusion oftheTRQ within theschedule actsoas
todiminish thecommitment. Ifthecommitments werecountry-specific before theUruguay Round,
theyremained country-specific aftertheUruguay Round.
35. TheECsubmitted thatBrazil hadnotcontested thelegalanalysis made bytheEC.Thelegal
issue herewasnotwhether theArticle XXVIII Oilseeds Agreement hadbeen"incorporated" inthe
Uruguay Round but,more fundamentally, what thecurrent obligations oftheECunder theGATT
werewithrespect tofrozen poultry meat. TheVienna Convention gaveaclearandconvincing answer
tothisproblem: theUruguay Round ECSchedule wastheonlyrelevant obligation oftheECinthis
respect. Thisobligation hadbeenundertaken infullrespect ofArticles IandXIIIofGATT. Brazil
hadnotadvanced anyargument tothecontrary. TheECinsisted that,inaccordance withArticle 3.2
oftheDSU, Article 59(1) or,inthealternative, Article 30(3) inconnection withArticle 31oftheVienna
Convention, should beusedbythePanel tosolve thisdispute.
28Argentina, Poland andSweden.WT/DS69/R
Page12
36. Brazil replied thattherights andobligations ofMembers oftheWTO should bedetermined
onthebasisoftheclearandprecise terms oftheWTO Agreements and,where necessary, thedispute
settlement mechanism, inclarifying theprovisions ofthose rights andobligations, should dosoin
accordance withcustomary rules ofinterpretation ofpublic international law.29Ininterpreting the
scope ofArticle 3.2oftheDSU, theAppellate Body30hadfound thatpartsoftheVienna Convention,
inparticular Articles 31and32,hadattained thestatus ofcustomary international law.
(v) MFN andArticle XXVIII
37. Brazil noted thatthestructure ofArticle XXVIII wassuchthatitbothdistinguished between
Members andallowed themacertain flexibility inreaching bilateral agreements, subject tothereview
ofallMembers. Theobject ofthenegotiations wastoensure thatthegeneral level oftrade was
maintained butthere wasnorequirement inArticle XXVIII thatthetrade tobemaintained bymeans
ofcompensation inother products hadtobeonanMFN basis. Brazil argued thatArticle XXVIII
could beanexception totheMFN rulecontained inArticle Iiftheparties negotiating theagreement
sochose andtheother Members didnotobject. ItwasBrazil 'sviewthattheECandBrazil hadchosen
tomake theTRQs country-specific andchosen thattheMFN principle should notapply. Norwas
thereanything,inBrazil'sopinion,inthenatureortextofArticleIofGATTwhichmadeitautomatically
applicable tocompensation agreements. Citing Article IofGATT, Brazil submitted thatameasure
given incompensation wasbased onthegranting ofrestitution, notonthegiving ofanadvantage,
favour orprivilege. Norwascompensation animmunity. Forthese reasons, Article Ididnotapply
tocompensation TRQs agreed within theframework ofArticle XXVIII:4. Inconclusion, Brazil argued,
Article XXVIII wasalexspecialis inthatitprovided forbilateral solutions within amultilateral
framework. Article XXVIII:4 negotiations wereinitially conducted withthose specific Members who
wereprimarily concerned. Itwasonlywhen abilateral agreement wasreached thatalimited number
ofMembers whohadasubstantial interest gained rights. Therights ofthese parties werelimited in
time. Finally, allcontracting parties under Article XXVIII hadtherighttointervene toensure the
reasonableness oftheparties, intheabsence ofagreement.
38. TheECsubmitted thatBrazil 'sclaims concerning theMFN nature oftheECfrozen poultry
meatTRQ could notbeconsidered inthecontext ofaviolation ofArticle XXVIII since thatprovision
onlycontained procedural obligations. Thiswasarather belated complaint concerning thecontent
ofaSchedule thatwasnegotiated during theUruguay Round andnotabout theprocedures followed
inorder torevise theECSchedule thatwasapplicable before thecurrent Uruguay Round Schedule
wasnegotiated. Brazil hadratified theUruguay Round agreements andwasanoriginal Member of
theWTO within theterms ofArticle XIoftheWTO Agreement. Itcould notrequest nowthere-opening
ofthetariffnegotiations withtheECthrough adispute settlement procedure. Brazil could notrequest
either, intheopinion oftheEC,thatthePanel re-do theArticle XXVIII negotiations which were
concluded in1993. Thiswould beclearly outside theterms ofreference ofthisPanel. Moreover,
itwould amount, inpractice, torequesting thePanel tosubstitute itselffortheGATT CONTRACTING
PARTIES byreplacing theirjudgement onwhether offers andcounter-offers were"adequate" andin
considering the"value" ofthedifferent elements oftheOilseeds package which wentfarbeyond the
frozen poultry meat. TheECconsidered thatthisaction bythePanel would clearly breach Article 3.2
oftheDSUandwould notassist theDSBindischarging itsresponsibilities inaccordance withArticle 11
oftheDSU. TheECsubmitted thatBrazil confused thelegalnature ofaparticular tariff treatment
granted through theprocedures foreseen inArticle XXVIII -which wasbased ontheMFN clause -
withtheeconomic effects ofthatparticular tariff treatment.
29SeeArticle 3.2oftheDSU.
30Appellate Body Report onUnited States -Standards forReformulated andConventional Gasoline ,WT/DS2/AB/R and
Appellate Body Report onJapan -Taxes onAlcoholic Beverages ,WT/DS8/AB/R.WT/DS69/R
Page13
39. Brazil submitted thattheparties agreed thattherewereexceptions totheMFN principle within
theterms oftheGATT Articles. Itcould alsobeseenfromthepractice oftheMembers thatexceptions
totheMFN principle werecommon andthatthese exceptions wereincluded intheschedules under
thepartsdealing withMFN commitments. Members 'schedules werepublic documents andformed
anintegral partoftheGATT (andwerethuswithin thestandard terms ofreference). Theschedules
didnotshow, however, fromwhere thecountry-specific commitments flowed. Inpractice, theyflowed,
intheopinion ofBrazil, fromArticles XXIV andXXVIII ofGATT andfromotherbilateral agreements.
Itwas,therefore, perfectly reasonable forBrazil toconsider, onthebasisoftheprovisions ofGATT
andofMembers practice, thattheEChadcommitted itselftoopening acountry-specific TRQinBrazil 's
favour. Brazil claimed thattheEC'sprincipal arguments didnotaddress theissueofcountry-specific
commitments butwerebased onfundamental GATT/WTO principles andthesuccession ofinternational
agreements within theterms oftheVienna Convention. Thefirstquestion tobeaddressed, according
toBrazil, wastheextent towhich MFN wasanoverriding principle intheGATT andtheextent to
which exceptions wereallowable. Brazil considered thatithadshown thattheprocedure tobefollowed
inArticle XXIV wasthesame asinArticle XXVIII. Brazil hadalsoshown thattheobject ofboth
Articles wasthesame, namely theneedtocompensate contracting parties forchanges totheschedules.
Under Article XXIV thechange totheschedule came about byreason oftheformation ofacustoms
union while thechanges under Article XXVIII weremade forother reasons. Inbothsituations, the
changes wereunilateral bytheMember making thechange, which inturngaverights toother Members
either toagree tothechanges andaccept compensation ortocounter-withdraw equivalent concessions.
(vi) Principle ofnon-discrimination
40. Brazil claimed thattheEChadunilaterally decided thatinstead ofaTRQ ascompensation
of15,500 tonnes, itshould be7,100 tonnes. Thearbitrariness ofthisdecision anditsconsequences
wereinconsistent withtheprinciple ofnon-discrimination. Thisgeneral principle oflawunderlay the
GATT/WTO Agreements. Itwasalsoafundamental principle ofinternational lawandthusshould
beapplied bythePanel under Article 3.2oftheDSU. TheMFN principle wasnottobeconfused
withtheconcept ofdiscrimination. According toBrazil, these twoconcepts were distinct intheir
meaning. Within theglobal balance oftheGATT, including Articles IandXXVIII, Brazil andthe
EChadsought toachieve anon-discriminatory balance. Thebalance wasbetween thewithdrawal
ofanadvantage andtheoffering ofcompensation inanother product. IftheECfailed torespect the
agreement which fixed thatbalance, itwasdiscriminating against Brazil soastodenyBrazil itsrights
within themultilateral system. Intheopinion ofBrazil, Regulation 1431/9431discriminated tothe
extent thatitallocated thefrozen chicken TRQ among other Members thatwere notentitled to
compensation under Article XXVIII andconsequently hadnotconcluded bilateral agreements with
theECorwere notevencontracting parties totheGATT orMembers oftheWTO.
41. TheECreplied thatthepurpose andobject ofthenegotiations under Article XXVIII could
nothavebeen, asBrazil claimed, toachieve aresult thatwould constitute afundamental violation of
thebasic principle ofnon-discrimination among Members, which wasoneofthefounding elements
oftheentire GATT (andnowWTO) system. AstoBrazil 'sassertion thatadifference existed between
theprinciple ofnon-discrimination andtheMFN principle, theECcould theoretically accept thatthe
general principle ofnon-discrimination could encompass situations going beyond themereapplication
oftheMFN principle. TheECcould nevertheless notaccept theconsequence implied inBrazil 's
approach thattheimplementation oftheMFN principle could correspond toaviolation oftheprinciple
ofnon-discrimination. Thiswasabsurd andshould beclearly rejected bythePanel. (Seealso
paragraphs 62and60.)
31Commission Regulation 1431/94 of22June 1994. O.J.L156/9 of23.6.1994.WT/DS69/R
Page14
(vii) TheEC'sUruguay Round Schedule -minimum access
42. Brazil submitted thatiftheTRQ intheEC'sSchedule wasaminimum access TRQ, thenthe
Community hadfailed toinclude theBrazilian Article XXVIII TRQinitsSchedule. TheCommunity
subsequently amended itsschedule inlinewiththecommitments ithadundertaken within thecontext
oftheUruguay Round butthesechanges weretheresult ofadifferent series ofcommitments andwere
distinct inlaw. TheCommunity Schedule appeared therefore tobeinconsistent withitsobligations
under Article XXVIII. Itwasunderstood between theparties thattheECwould submit totheGATT
thechanges toitsSchedule atthesame timeasitwould submit itsUruguay Round changes. When
theECsubmitted aSchedule withafrozen chicken TRQ of15,500 tonnes, Brazil presumed thatthis
TRQ referred totheTRQ agreed tobespecifically forBrazil.
43. Atthesame timeastheArticle XXVIII procedures were being completed, theECreplied,
theUruguay Round wasalsocoming toanend. Inaletter signed byAmbassador TranVanThinh
on14December1993,theECrequestedMr.P.Sutherland,Director-GeneraloftheGATT,todistribute
arevised version oftheECdraftlistsofcommitments together withsupporting tables, inorder to
establish final commitments. Inthatletter, an"Information Note Concerning theECOffer on
Agriculture" wasincluded. ThatInformation Noteindicated thecontent ofthetables attached thereto.
ForTable 3-Minimum Access -thefollowing wasspecifically indicated:
- "theagreement onoilseeds negotiated under Article XXVIII hasbeenincorporated
- tariffquotas, including in-quota tariffrates, agreed inbilateral negotiations havebeen
incorporated."
Finally, thetable"Agricultural Negotiations: ListofCommitments -Market access: EC-ListsRelating
toMinimum Access" provided forazeropercentTRQ fortariff items 0207 4110,0207 4141and
02074171upto15,500 tonnes. Theletter wasdistributed toallGATT CONTRACTING PARTIES.
Inthemeantime, therevised Schedule wasapplied bytheECasfrom 1January 1994. Within the
three-month period setoutintheDecision oftheCONTRACTING PARTIES of26March 1980, no
GATT CONTRACTING PARTY objected totherevised Schedule. Onthecontrary, theyhadallagreed
by30March 1994 toanewECSchedule ofcommitments, asaresult oftheUruguay Round, which
included theArticle XXVIII Oilseeds Agreement results withrespect tothefrozen poultry meat.
44. Thus,theECclaimed,theformalnotificationtotheGATTofaseparaterevisedScheduleLXXX
oftheEChadbeencarried out:allGATT contracting parties were thusaware oftheresults ofthe
Article XXVIII Oilseeds negotiations andoftheintentions oftheEC.Theresults oftheArticle XXVIII
Oilseeds negotiations weretherefore anintegral partoftheUruguay Round formal negotiations. This
procedure wasconsidered correct andaccepted byalltheinterested Members. Itwastherefore not
correct toaffirm, thatthecomplainant wasnotaware oftheinterpretation tobegiven tothe
Article XXVIII Oilseeds Agreement withrespect tothepoultry meatTRQ, orofthecontent ofthe
Oilseeds agreements entered intowiththeotherprimarily concerned andsubstantially interested GATT
contracting parties andthatnonotification hadbeenprovided totheGATT. TheECclaimed thatBrazil
wasfullyinformed onallthese matters.
45. Brazil considered thatithadnoreason tounderstand fromthetextoftheCommunity 'sSchedule
andfromthefactthatthechanges totheSchedule would beincluded intheUruguay Round changes
andthattheArticle XXVIII negotiations were taking place against thebackground oftheUruguay
Round negotiations, thatthecountry-specific chicken TRQwasaminimum access TRQ. Itwassettled
GATT andWTO law,Brazil argued, thataschedule could nottakeprecedence overunderlyingWT/DS69/R
Page15
GATT/WTO obligations. TheSugar panel andtheBanana IIIreport32(asconfirmed bytheAppellate
Body) provided thatinclusion orexclusion ofameasure inaschedule could notjustify inconsistencies
inthatschedule withrequirements ofgenerally applicable GATT/WTO rules. ThefactthattheEC
excluded from(orfailed toinclude in)itsSchedule aTRQ agreed forBrazil, meant thattheECwas
inclearbreach ofthebasiccompensatory ruleinArticle XXVIII:4. TheECdidnotcompensate Brazil
asitwasobliged todo,andhadagreed todo.Brazil submitted thatthekeytodetermining theEC's
current commitments toBrazil wasnotrestricted toanexamination oftheEC'sSchedule. AMember
could anddidhavecommitments beyond thestrict terms ofitsschedule.
(viii) Protection oflegitimate expectations
46. Brazil submitted thatthebenefits accruing toBrazil under theGATT included theprotection
oftheexpectation thatprevailed inJuly1993, when thenewconcessions wereagreed, thatBrazil would
befullycompensated. Brazil hadhadareasonable expectation thatthevalue oftheconcession agreed
would notbenullified orimpaired bythesubsequent introduction ofalesser TRQ fortheproducts
concerned.33Brazil alsohadalegitimate expectation thattheECwould notattempt tochange the
country-specific nature oftheTRQ when Brazil agreed thatthechanges would bemade atthetime
theECsubmitted itsUruguay Round schedule. Brazil wasentitled toexpect thattheECwould
implement theOilseeds Agreement TRQ inamanner compatible withtheterms andobjectives ofthe
Agreed Minutes. Brazil signed thebilateral agreement because thecompensation package addressed
itsspecific concerns.
47. TheECreplied thatthisPanel wasnotconcerned with anon-violation case under
Article XXIII:1(b) ofGATT. Thenotion of"legitimate expectations" wasdeveloped onlyinthe
framework ofsuchcases and,therefore, itwasnotrelevant here. TheECconsidered alsothat
Article II:5wasirrelevant inthepresent context: thatprovision was,likeArticle XXVIII, aprocedural
onesince itprovided forthepossibility toenter negotiations. Itwasevident, theECbelieved, that
none oftheconditions setoutinthatprovision were fulfilled hereandArticle II:5should notbe
considered relevant fortheresolution oftheissues raised inthiscase.
(ix) Theimplementation ofthefrozen chicken TRQ
48. BrazilsubmittedthatsincetheEChadratifiedtheOilseedsAgreementinCouncilDecision87/94
of20December 1993, itconsidered theagreement tobedistinct fromother agreements (andnotpart
oftheUruguay Round agreement). Thefrozen chicken TRQwasopened byCouncil Regulation 774/94
andallocated among supplying countries byCommission Regulation 1431/94. According totherecitals
to774/94 thepurpose ofopening thefrozen chicken TRQ (aswellastheother TRQs provided for
intheRegulation) wastocomply withtheArticle XXVIII commitments which required thattheTRQ
beopened by1January 1994. There wasnoreference toanyother GATT commitments tobemet.
Itwasclear therefore, intheopinion ofBrazil, thattheECconsidered thatitwasfulfilling its
commitments under Article XXVIII only.
49. TheECreplied thatthenegotiations between Brazil andtheECfurther totheArticle XXVIII:4
procedure resulted inanagreement intheformofAgreed Minutes inJuly1993, formally concluded
bytheECinstitutions on20December 1993andformally signed bybothparties on31January 1994.
TheAgreement waspublished intheOfficial Journal oftheECon18February 1994. Onthesame
date,anumber ofparallel agreements signed withotherprimarily concerned andsubstantially interested
32Panel Repor tonUnitedStates-RestrictionsonImportsofSugar,adoptedon22June1989, BISD36S/331, paragraph58.
Panel Report onBanana III,op.cit.,(WT/DS27/R/USA), page 360. Appellate Body Report onBanana III,op.cit.
33Ibid.WT/DS69/R
Page16
GATT contracting parties34waspublished. Whilst thecontent ofthose agreements varied, theywere
identical totheextent thattheystated thatanagreement hadbeen reached innegotiations under
Article XXVIII:4 ofGATT concerning theelimination oftheimpairment ofthetariff concessions as
recommended bythepanel report onEEC-Payments andSubsidies paidtoProcessors andProducers
ofOilseeds andRelated Animal-Feed Proteins .By17February 1994 atthelatest, therefore, theEC
argued, alltheprimarily concerned andsubstantially interested GATT contracting parties had
acknowledged thattheprocedure under Article XXVIII:4 which hadbeenauthorized on19June1992,
hadbeensuccessfully completed.
50. With respect tothequestion ofwhether therights ofother Members could bediminished by
afinding thataschedule submitted aspartofamultilateral negotiating process didnotreflect thefull
range ofthatMember 'scommitments, Brazil wasoftheviewthatthisquestion should beexamined
inrespect oftheconclusion oftheArticle XXVIII negotiations. TheEChadstated thatithadnotified
theCONTRACTING PARTIES oftheconclusion oftheArticle XXVIII negotiations atthelatest on
17February 1994. Under theterms ofArticle XXVIII, contracting parties whowere notparties to
thenegotiations werefree(under theterms ofArticle XXVIII:3(b)), within sixmonths oftheconclusion
ofnegotiations, towithdraw substantially equivalent concessions iftheywere notsatisfied withthe
bilateral country-specific agreements between theMembers principally concerned. Nocontracting
party tooksuchaction. Therefore, Brazil concluded thatallcontracting parties were satisfied.
(x) Compensation
51. Brazil submitted thattheimportance ofcompensation asanelement ofthemultilateral system
wasapparent from theranking ofGATT/WTO remedies inthecaseofnullification orimpairment.
Thepreferred remedy inthecaseofafinding ofnullification orimpairment wasthechanging ofthe
GATT/WTOinconsistentprovisions.Thesecondremedywasthegrantingofcompensatoryconcessions
andthethirdwasthewithdrawal ofconcessions. According toBrazil, "compensation" wasabroad
concept notspecifically defined intheGATT/WTO. Itsobjective wastoensure thatthesame level
ofreciprocal tradewasmaintained infavour oftheMember withaprincipal supplying interest. Brazil
wasoftheviewthatcompensation hadanelement ofspecificity about it.Itwasnot,therefore, something
towhich theMFN principle necessarily applied. Thedrafters ofArticle XXVIII didnotconsider it
tobesoastheyallowed forbilateral negotiations within itsframework. Brazil argued thatcompensation
wasusually intheformofaconcession toincrease market access (ortrade) inanother product. Where
thecompensation wasintheformofalower tariff, theintention oftheMember wasclearly togrant
itonanMFN basis. Where theconcession wasgranted intheformofaTRQ, intheopinion ofBrazil,
theintention oftheMember wastoensure thesamelevelofreciprocal tradebetween thetwonegotiating
parties. Thequestion oftheallocation oftheTRQwasaseparate issuetobeagreed between theparties.
52. Brazilsubmittedthatthecompensationpackagewasnotbuiltuponanexactcompensationfigure.
Thevalue hadnever beenclearly defined bytheparties andwasnotdeemed necessary forthepurpose
ofconcluding thebilateral negotiations. InthecaseoftheArticle XXVIII:4 negotiations between Brazil
andtheEC,achoice wasmade toavoid thedifficulties created bythecalculation ofanexact amount
oftotalcompensation. Therefore, Brazil accepted theEC'sproposal toconduct thenegotiations by
working fromalistofoffers which included thefrozen chicken TRQ, andnotfromanexact orfixed
compensation value. Negotiation resulted intheagreed finaloffers. Brazil submitted thatthePanel
should onlytakeintoconsideration thatthere wasnowanagreed compensation package made upof
different elements, thatthe15,500 tonnes TRQ infrozen chicken waspartofthatpackage andthat
itshould havebeenallocated toBrazil.
34Argentina, Canada, Poland, Sweden andUruguay.WT/DS69/R
Page17
53. TheECrecalledthattheECandBrazilreachedanagreementinaccordancewithArticleXXVIII,
which wasaccepted bybothparties. Whether eachoftheparties negotiated andobtained certain
concessions onthebasis ofaspecific value which theyattributed tosuchconcessions wasnotonly
irrelevant oncethenegotiating process wascompleted, butwasalsonotnecessarily capable ofbeing
reduced toastraightforward calculation. Theagreement reached wastheconsequence ofaGATT
panel'sfinding thattheEC'ssupport system foroilseeds hadtheeffect ofreducing thevalue ofthe
tariff concessions granted bytheCommunity in1962 andtheagreed outcome ofthenegotiations not
onlycomprised newtariff concessions oncertain products including frozen poultry meatproducts (to
which theECdidnotatthetimeapply fixed tariffs, butvariable levies), butalsomodifications tothe
EC'sinternal regime onoilseeds. Asconcerns thefrozen poultry meatTRQ, theBrazilian allocation
oftheTRQ(7,100 tonnes) corresponded toBrazil 'sshare oftheoverall imports ofthose frozen poultry
meatproducts atthetimeofthenegotiations.
54. Referring toArticle XIX:3 andArticle XXIII:2 ofGATT which, according toBrazil, both
authorized country-specific compensation, Brazil argued thattherewasverylittleguidance inthereports
ofprevious panels oroftheAppellate Body onwhich tobasethejustification thatagreements within
theterms ofArticle XXIV:6 wereanexception tothegeneral MFN rule. Ithadbeenaccepted that,
bynature, thesecompensatory agreements hadtobecountry-specific astherights ofspecific Members
hadbeendiminished bythecreation ofcustom unions. Nodistinction could bemade either inprocedure
orinintention between thecompensation agreements under Articles XXIV andthose ofXXVIII. In
practice, Brazil continued, there wereexamples ofbothcountry-specific andMFN TRQs offered and
implemented bytheECascompensation under Article XXIV:6 ofGATT. Those considered tobe
ergaomnes orMFN wereusually stated tobesobymeans oftheletters "MFN" orthewords "erga
omnes "inbrackets aftertheTRQ.35There werealsoexamples ofcountry-specific TRQs.36TheGATT
therefore recognized anumber ofexceptions totheMFN rule. These exceptions wereprovided for
inboththetextoftheGATT andpractised bytheMembers. They were alsowellrecognized by
academic writers.37
55. TheECindicated that,initsview, theagreement resulting fromtheArticle XXVIII Oilseeds
negotiations andtheUruguay Round agreement hadthesame objective albeit a(partially) different
purpose. Theybothpursued theobjective ofensuring aparticular (reduced) tariffrateforfrozen poultry
meatascompared tothenormal bound dutyrateapplicable toimports intotheEC. They bothalso
pursued theobjective ofensuring thattarifftreatment wasbound intheECSchedule ofcommitments.
IntheEC'sview, since theybothwereundertaken intheframework oftheGATT, theybothhadalso
theobjective ofcomplying withthegeneral principles ofnon-discrimination assetoutinArticles I
andXIIIofGATT. Otherwise, theywould haveviolated thegeneral principle ofcustomary public
international lawpacta servanda sunt.However, theECcontinued, thetwonegotiations wereinitiated
forpartially different reasons: theearlier Article XXVIII negotiations were justified bythelimited
purpose ofensuring compensation aftertheOilseeds panel while thelaterUruguay Round agreements
hadamuch wider purpose ofensuring anoverall balance ofconcessions between Members where tariff
35Seeforexample Agreement between theUnited States andtheECpublished inO.J.L098of10April 1987 aswell
asCouncil Decision 95/592 of22December 1995.
36Seeforexample Council Decision 95/592 of22.12.95 andpublished inO.J.L334of30.12.95.
37Merciai (Patricio Merciai, Safeguard Measures inGATT, 15Journal ofWorld Trade Law(1981)) stated thatitwas
standard practice thatcountry-specific trade benefits were theresult ofnegotiations toavoid retaliatory action under
Article XIX:3 orXXIII:2. Bronckers (Marco Bronckers, Selective Safeguard Measures inMultilateral Trade Relations,
TMAsser Instituut, (1995)) stated thatthiscompensation needed notbeadministered onanMFN basis.WT/DS69/R
Page18
concessions incertain products could balance (or"compensate") tariffconcessions forother products.38
Thus, inorder tocreate anewlevelofreciprocal commitments, thelaternegotiations incorporated
theresults oftheearlier morelimited negotiation which hadbeenreflected intherevised ECSchedule.39
However, theECSchedule resulting fromtheUruguay Round negotiations maintained unaltered the
leveloftariff treatment agreed intheArticle XXVIII Oilseeds negotiations withrespect tothefrozen
poultrymeatTRQ."Compensation"couldthereforenotchangethelegalrealityundertheWTOcovered
agreements: theECwasbound, onaMFN basis, byitscurrent Schedule ofcommitments forthe
tariff treatment offrozen poultry meatwhich wastheresult oftheUruguay Round. Theapplication
oftheprinciples oftheVienna Convention, andinparticular Articles 59(1), 30(3) and31,fullysupported
thisview. (Seealsoparagraphs 146and150).
(xi) Interpretation of"global"
56. Brazil submitted thattherewasoneword intheAgreed Minutes, i.e."global", which required
special consideration astheCommunity hadplaced greatemphasis onthiswordinbilateral consultations
priortothecommencement ofthedispute settlement procedure. IntheviewofBrazil, theword"global"
hadnofixedorestablished meaning inGATT laworpractice. Itwasnotequivalent tothewords "erga
omnes "orto"MFN". These words haddistinct meanings andwereavailable foruseshould theparties
toanagreement wishtousethem inthesense thattheyhad. Theparties totheAgreed Minutes did
notwishtousethese words, according toBrazil, andtherefore didnotdoso.Theword global, Brazil
continued, hadbeenusedinrelation toalltheTRQs which wereopened bytheCommunity inallthe
Oilseeds agreements, except themaize TRQopened forArgentina. Themaize TRQ wastheonlyone
encompassing onlyonetariff line,sothere wasnoneedtousetheword "global" tocover avariety
oftariff lines. Inrelation totheBrazil-EC Agreement theword "global" wasusedinrespect ofall
threeTRQs. When theECopened thequotas bymeans ofCouncil Regulation 774/94, itaccumulated
thethree Hilton beefTRQs provided forinthree oftheagreements, andallocated thequota among
those countries, butdidnotaccumulate thethree frozen chicken TRQs inalikemanner. BothTRQs
weredescribed asbeing "global". "Global" wasnottherefore equivalent totheMFN principle. Brazil
observed thattheuseoftheword "global" intheAgreed Minutes didnotprevent theCommunity from
interpreting theAgreed Minutes insuchawaysoasnottoopentheTRQ onan"ergaomnes "basis.
TheTRQwasallocated,albeitincorrectlyandinconsistentlywiththeOilseedsAgreement,amongcertain
supplying countries byCommission Regulation 1431/94. "Global" wasnottherefore tobereadas
meaning ergaomnes .
57. Theonlyelement ofdisagreement, theECsaid, resided intheclaim byBrazil thatthe
15,500 tonnes TRQshould bereserved onlyforBrazil. Brazil 'sclaims inthisrespect rested onareading
oftheword "global"40oftheArticle XXVIII Oilseeds Agreement which wasdifferent fromthenormal
meaning, understood bytheECtobeequivalent to"general", "universal", "comprehensive", "catch-all"
or,inWTO terms, MFN orergaomnes .According toBrazil 'sinterpretation, thatword meant that
theECwascommitting itselfonlyvis-à-vis Brazil foraquantity thatglobally encompassed thefrozen
poultry meat. TheECwasfirmly oftheviewthatthisinterpretation hadnovalue forthefollowing
38Thiswasclearly expressed forinstance inparagraph 4oftheMarrakesh Protocol totheGeneral Agreement onTariffs
andTrade 1994. Itwasapparent fromthatprovision thattheECcould havebeen theoretically entitled towithhold orwithdraw
thefrozen poultry meatconcession intheevent thatBrazil 'sSchedule hadnotyetbecome aschedule toGATT 1994. However,
paragraph 4oftheMarrakesh protocol wasfurther evidence ofthefactthattheCONTRACTING PARTIES totheUruguay
Round considered thenewagreements asanewsetofrules andcommitments replacing earlier concessions (such astheones
resultingfromArticleXXVIII Oilseeds negotiation),whichwasfullyinaccordance withArticle59.1oftheViennaConvent ion.
39Asindicated expressly inAmbassador TranVanThinh 'sletter on14December 1993, annexed totheEC'sfirstwritten
submission.
40Tobefound inthetextoftheAgreed Minutes ofArticle XXVIII Oilseeds Agreement between theECandBrazil, in
particular intheAnnex, partD-newconcessions, footnote No.2.WT/DS69/R
Page19
reasons. Aninterpretation ingood faithoftheword "global" inthelightoftheobject andpurpose
ofanegotiation under Article XXVIII could notmean, ECargued, anything elsethan"ergaomnes "
or"MFN". Thiswasindeed themanner inwhich theEChadimmediately andconsistently implemented
itsagreement withBrazil, together withalltheother parallel agreements concluded withother GATT
contracting parties inthecontext oftheOilseeds casesettlement.41Moreover, Brazil could nothave
disregarded theinterpretation oftheword "global" asmeaning "MFN" thatresulted fromthepractice
ofthemanagement oftheTRQ andfrom theECSchedule astheywereformally usedinthecontext
oftheUruguay Round finalnegotiations andverification process. ThefactthatBrazil andtheEC
(together withalltheother WTO Members), byratifying theMarrakesh Agreement, agreed tothe
ECSchedule withrespect totheMFNTRQconcerning thefrozen poultry meatcould certainly bedefined
asa"subsequent agreement between theparties regarding the...application ofitsprovisions". The
ECdidnotadmit, even forthesakeofargument, thatanambiguity existed withregard tothe
interpretation oftheword "global" atthemoment ofthesignature oftheArticle XXVIII Agreement
inJanuary 1994. Inanyevent, thealleged ambiguity could notreasonably persist aftertheagreed
conclusions oftheUruguay Round negotiations. Should thePanel consider, quodnon,thattheword
"global" intheearlier treaty meant country-specific, thentheECsubmitted thattherewould beaclear
conflict between theprovisions intheearlier treaty andtheECMFN Schedule inthelatertreaty.
Inapplication ofArticle 30(3) oftheVienna Convention, theformer could therefore continue toapply
only"totheextent oftheircompatibility withthelatertreaty". Thisnecessarily meant thattheduty-free
poultry TRQ, which continued toexist, necessarily hadtobeapplied onanergaomnes basis.
58. Brazil further submitted thatitwasobvious fromreferences totheword "global" intheGATT
academic literature thattheword didnotmean MFN orergaomnes .IntheHandbook ofGATT42,
reference wasmade totheestablishment ofaglobal quota intheheadnotetotheChilean Apples case43
butinthetextofthecommentary reference wasbeing made tothe"total amount ofpermitted imports".
Furthermore, intheAnalytical Index oftheGATT44reference wasmade to"global quotas forleather".45
Itwasclearfromthiscasethatreference wasbeing made tothetotalamount ofimports under allthe
quotas which were, inpractice, country-specific. Brazil argued thatinthepresent context theword
"global" should bereadinitsordinary sense inlightofitsobjective andpurpose andingood faith.
Aglobal annual tariff quota of15,500 tonnes made upofthree product classifications wasreferring
tothefactthatthreedifferent products werebundled within thesameglobal TRQvolume. Thus, within
the"global" TRQ of15,500 tonnes there wastobenosubdivision between thedifferent products.
Inconclusion, therefore, thetextoftheBrazil-EC Oilseeds Agreement wasclearandprecise. There
wasnospecial meaning tobegiven toanyterms usedintheAgreement. Nottointerpret theAgreement
initsordinary sense would leadtoresults thatwere manifestly absurd orunreasonable.
Article XIIIofGATT
59. IntheviewofBrazil ,Article XIIIdidnotapply tocompensatory, country-specific TRQs which
hadtheirorigins inArticle XXVIII, unless theparties agreed thattheTRQ should beMFN. Brazil
argued thatthereason Article XIIIdidnotapply totheallocation ofthefrozen chicken TRQ wasthat
41Brazil indicated inthisrespect thattheEChadcreated some country-specific TRQs forother products. TheECdenied
thisallegation withforce. Allproducts negotiated under Article XXVIII, including those mentioned byBrazil, wereprovided
dutytreatment onanMFN basis.
42Handbook ofWTO/GATT Dispute Settlement, ed.Pierre Pescatore, William Davey andAndreas Lowenfeld, New
York, Transnational Publishers, Inc., 1995, atCS43/2 andCS43/3.
43Panel Report onEEC -Restrictions onImports ofDessert Apples ,adopted on10November 1980, BISD 275/98.
44GATT, Analytical Index: Guide toGATT LawandPractice, updated 6thedition (1995) page 298.
45Panel Report onJapanese Measures onImports ofLeather ,adopted on6November 1979, BISD 26S/320.WT/DS69/R
Page20
itwasaTRQ agreed within thecontext ofabilateral agreement negotiated between Brazil andtheEC
underArticleXXVIIIwiththespecificpurposeofcompensatingBrazilforthemodificationorwithdrawal
ofaconcession. Referring totheobservation ofaprevious panel thatArticle XIIIwas"basically a
provision relating totheadministration ofrestrictions authorized asexceptions tooneofthemostbasic
GATT provisions -thegeneral banonquotas andothernon-tariff restrictions contained inArticle XI"46,
Brazil argued thatthefrozen chicken TRQ wasnotarestriction ontrade prohibited byArticle XIof
GATT. There wasconsiderable trade inpoultry products intotheCommunity overandabove the
volume oftheTRQ. TheTRQ wascompensation forthewithdrawal ofaconcession. Itprovided
formarket access atatariffratelower thanthatgenerally applicable withthepurpose ofcompensating
oneMember foralosselsewhere. Brazil noted thattheAppellate Body hadrecently ruled that
Article XIIIapplied toTRQs.47Intheview ofBrazil, thisdidnotmean thatArticle XIIIapplied
automatically toallTRQs. Itdidnotnecessarily apply tocountry-specific TRQs.
60. TheECargued thatithaddemonstrated thatanycountry-specific tariff advantage (likea
country-specific, reduced-rate orduty-free TRQ), bound asaresult ofare-scheduling negotiation under
Article XXVIII would becontrary toArticle I:1ofGATT andcould notbejustified either byreference
toArticle XXIV ofGATT orbyanydecision under Article IXoftheWTO Agreement. TheECfailed
therefore toseehow, intheabsence ofanylegaljustification under those Articles the"basic principle
ofnon-discrimination" would notapply totheallocation ofanyTRQ established asaresult ofan
Article XXVIII negotiation. Thequoted paragraph oftheBanana IIIAppellate Body report, albeit
limited totheparticular issue ofMembers nothaving asubstantial interest thatwasspecific tothat
case, clearly indicated, intheviewoftheEC,thatthiswasindeed thecase.
61. Brazil submitted that,totheextent thatcountry-specific quotas existed inMembers 'schedules,
Article XIIIdidnotapply. Itwould beillogical, intheviewofBrazil, toapply Article XIIIinsuch
asituation. TheECSchedule provided foraseries ofcountry-specific agricultural TRQs, allofwhich
wereincluded in"Part IMost-Favoured-Nation Tariff, Section I-BTariff Quotas". Brazil considered
thattheECwasnotconsistent initsarguments inrelation toArticle XIIIasevidenced byitspractice
inrelation toother TRQs initsSchedule. Article XIIIwasnotapplied byMembers tocountry-specific
TRQs, andasthefrozen chicken TRQ wasspecific toBrazil, Article XIIIdidnotapply. However,
ifthisPanel wastoconsider thatArticle XIIIdidapply tothefrozen chicken TRQ, asanalternate
pleaBrazil claimed theEChadnotcomplied withtheterms ofArticle XIII.
62. TheECreplied thattherecent Appellate Body report intheBanana IIIdispute48addressed
theissue oftheapplicability ofthe"basic principle ofnon-discrimination" toMembers nothaving a
substantial interest. TheAppellate Body stated inparticular "when thisprinciple ofnon-discrimination
isapplied totheallocation oftariff quota shares toMembers nothaving asubstantial interest, itis
clearthataMember cannot, whether byagreement orbyassignment, allocate tariff quota shares to
some Members nothaving asubstantial interest while notallocating shares toother Members who
likewise donothaveasubstantial interest. Todosoisclearly inconsistent withtherequirement in
Article XIII:1".
63. Referring toparagraph 1andparagraph 2(d)ofArticle XIII, Brazil noted thatArticle XIII
provided thataTRQcould beallocated among supplying countries inoneoftwo,mutually exclusive,
ways, i.e.(i)byagreement; or,intheabsence ofagreement, (ii)byallocation onthebasis ofpast
supply performance during aspecific reference period, dueaccount being taken ofspecial factors.
Brazil considered thatthere wasaclearprioritization between these twooptions. Thefirstoption was
46ThePanel Report onBanana III,op.cit.,page 344.
47TheAppellate Body Report onBanana III,op.cit.
48Ibid,paragraph 159to163.WT/DS69/R
Page21
toreach agreement withMembers having asubstantial interest. Only intheabsence ofagreement
could aMember allottheshares onthebasis ofpastperformance.
(i) byagreement
64. Brazil heldtheviewthattheEChadreached anagreement withBrazil in1993ontheallocation
ofthefullTRQ toBrazil. There hadbeennochange tothatagreement andBrazil hadmade itsviews
known totheCommunity priortothecountry allocation oftheTRQinJune1994. Noother Member
didseekanagreement withtheEContheallocation oftheTRQ. Frozen chickens were thesubject
ofagreement withotherMembers negotiating withtheEConOilseeds compensation. However, Brazil
wasoftheviewthatneither Argentina norPoland hadarealinterest insupplying frozen chicken to
theCommunity. Brazil hadconsistently maintained thattherewasanagreement onthefullallocation
ofthefrozen chicken TRQ exclusively toBrazil. TheEChadfailed torespect thisagreement.
65. TheECreplied thattheECandBrazil hadagreed, interalia-firstly inJanuary 1994andlater
attheendoftheUruguay Round negotiations -ontheprinciple ofanerga omnes TRQ upto
15,500 tonnes forthethree poultry products concerned withthisdispute. They hadalsoagreed on
thelevelofduties thatshould beapplied within thatTRQ (duty-free tariff treatment). Bycontrast,
theydidnotagree -either inJanuary 1994 orattheconclusion oftheUruguay Round negotiation or
atanylatermoment -ontheallocation oftheTRQ. Therefore, theEChaddecided autonomously,
inaccordance withtherulesofArticle XIII:2(d), toassign totheMembers having asubstantial interest
insupplying theproduct concerned ashare oftheTRQ withtheaimtoachieving "adistribution of
trade insuchproduct[s] approaching asclosely aspossible theshares which thevarious contracting
parties might beexpected toobtain intheabsence ofsuchrestriction".49
(ii) byallocation onthebasis ofpastperformance
66. Brazil argued thattheECappeared tohaveapplied thesecond method fortheallocation of
aTRQ setoutinArticle XIII. Brazil noted thatthepastperformance method required thattheTRQ
beallocatedamongsupplyingcountriesbasedontheirpastsupplyperformanceduringaspecificreference
period, dueaccount being taken ofspecial tradefactors. Itwasunderstood thattheECchose theperiod
1991-1993 asthereference period. Onthatbasis, three categories oforigins were created: Brazil,
Thailand andothers. Thesizeofthe"others" category reflected, according toBrazil, thepercentage
ofECimports offrozen chicken fromChina. Itwasdesigned tofacilitate thecontinuation ofthistrade
(until imports were stopped because ofphytosanitary problems). China filled most ofthe"others"
category. Bythismethod theCommunity granted anon-Member access toaTRQwhich wasdesigned
tocompensate GATT Members only.
67. Brazil 'sassumption wasincorrect, ECreplied: Article XIII:2(d), firstsentence, clearly referred
to"supplying countries" ingeneral. Itusedtheexpression "contracting parties" onlywithrespect to
"contracting parties having asubstantial interest insupplying theproduct concerned" withwhich an
agreement could besought ortowhich ashare could beautonomously allotted bytheimporting Member.
TheEChadcomplied totheletter withthese requirements. Thetotalamount oftheTRQ, theEC
submitted, wasallocated inaccordance withthequantities shown inAnnex 1ofRegulation 1431/94
andincompliance withtheprovisions ofArticle XIIIofGATT. Thequantities allocated toGroups 1
(Brazil) and2(Thailand) werespecific tothose countries sincelicences carried withthemanobligation
toimport from those countries (Article 1ofCommission Regulation 997/97). Licences forGroup 3
countries were notcountry-specific buttheycould notbeusedinrespect ofproducts originating in
BrazilorThailand(CommissionRegulation1514/97).Licencesforallgroupsofcountrieswereallocated
onaquarterly basisinaccordance withtheprocedures setoutinArticle 4ofRegulation 1431/94 which
49Article XIII:2, firstsentence.WT/DS69/R
Page22
provided forthefixing ofasingle percentage ofacceptance ofthequantities applied for.There was
noallocation ona"first-come, first-served" basis.
68. Brazil submitted thattheBanana IIIpanel examined theconcept ofan"others" category in
theallocation ofTRQs. Thepanel considered thatthistypeofcategory hadavalue inallowing new
trade patterns todevelop. Italsoconsidered thatcountry allocations ofTRQs needed tobereviewed
ontheaccession ofnewMembers totheWTO. However, Brazil argued, theECcould notunilaterally
grant tonon-WTO members therighttoparticipate inacompensatory TRQ. Norcould theECoperate
aTRQallocation system which allowed anon-WTO member toparticipate bydefault. TheWTO was
asystem forthebenefit ofMembers whohadchosen tobebound byitsobligations. Inaddition, Brazil
continued, theECallowed Members withother privileged market access topartake oftheTRQ. This
practice wasdeclared tobeinconsistent withtheGATT intheNewsprint panel.50TheEastEuropean
countries which hadassociation agreements withtheEChadallbeenallocated privileged access to
theECmarket inchicken products. Byallowing these countries toparticipate intheTRQ, theEC
wasreducing thebenefit toother Members. Inconclusion, Brazil said,theEChadusedArticle XIII
toavoid itscommitments under theArticle XXVIII Oilseeds Agreement withBrazil. Secondly, the
Community hadmisinterpreted theterms ofArticle XIIIand,finally, theEChaddenied Brazil
compensation within theglobal balance ofbenefits thathadexisted prior totheArticle XXVIII
negotiations.
69. TheECnoted thattheallocation ofashare ofaTRQ hadbeenconsidered anadvantage by
therecent Appellate Body report intheBanana IIIdispute51tosuchanextent thatthe"basic principle
ofnon-discrimination" applied strictly when allocating shares ofaTRQ, including forMembers not
having asubstantial interest. Byassigning ashare oftheTRQtoallsubstantially interested Members,
including Brazil, theEChadtherefore provided thecomplainant withthebestpossible (andlegally
sound) situation inthetrade ofthepoultry products within theTRQ. TheEChadmade useofthe
mostrecent statistics available atthetimeofthenegotiations (1991-1993) toelaborate the"previous
representativeperiod"requiredunderArticleXIII:2(d)andhadfollowedacriterion52thatwasconsidered
correct bytherecent Banana IIIpanel.53Thatpanel hadalsoaccepted (andthepointwasnotoverturned
bytheAppellate Body) thecreation ofaresidual category "others" "forallsuppliers otherthanMembers
withasubstantial interest insupplying theproduct".54(emphasis added)
70. Brazil considered thatiftheTRQ wasgiven incompensation toMembers, theECcould not
justify theadministration oftheTRQ insuch awaythatnon-Members benefited whether that
administration wasjustified under Article XIIIornot. Theproper question wasnotonlywhether
non-Members came within theterms ofArticle XIII,which theyclearly didnot,buttheextent towhich
non-Members could benefit from compensation atall.Itwaswithin thecontext oftheexamination
ofthenature ofcompensation thatthePanel should examine theadministration oftheTRQ. Ifthe
ECwaspermitted tooffer WTO-specific compensation tonon-WTO members, Brazil continued, it
haddiminished thatcompensation whether itwas"MFN" compensation ornot.Even ifitwasMFN
(which Brazil denied), itremained compensation toWTO Members. ItwasnotaTRQ which could
beadministeredsothatnon-WTOmembersbenefited.Finally,theEChaderredinapplyingArticleXIII
50Panel Repor tonNewsprint,op.cit.;paragraph55ofthefindingsandconclusions:"Impor tswhicharealreadyduty-free,
duetoapreferential agreement, cannot bytheir verynature participate inanMFN duty-free quota".
51Appellate Body Report onBanana III,op.cit.,paragraphs 161and162.
52Theaverage ofthelastthree fullyears oftrade intheproduct concerned forwhich reliable official statistics areavailable
atthetimeofthenegotiation.
53Paragraph 7.83.
54Paragraph 7.75.WT/DS69/R
Page23
byallowing Members withprivileged access inthesame products tobenefit from thecompensation
TRQ.
71. TheECconsidered thatthetextofArticle XIII:2(d) wasclear: when proceeding totheallocation
ofaTRQ, there wasanobligation toallocate ashare toMembers having asubstantial interest and
thiswaswhattheECdid,interalia,withBrazil. Bycontrast, therewasnoobligation todiscriminate
against non-Members oftheWTO intheiraccess totheTRQ intheresidual category under "others".
TheECmaintained thatwhile there wasageneral principle totreatonanMFN basis anyMember
withrespect toadvantages granted eventoanon-Member, therewasnoprovision intheWTO forbidding
theMembers from providing market access tonon-Members onanMFN basis. Moreover, Brazil 's
claim thattheECshould exclude anynon-Member-supplying country fromtheallocation oftheTRQ
would inevitably entail anincrease ofitsshare ofthetariff quota. Thiswas,intheviewoftheEC,
anunjustified request inthelight ofthechapeau ofArticle XIII:2: Brazil would thenobtain a
significantly higher share ofimports thanit"might beexpected toobtain intheabsence ofsuch
restriction", thusviolating theprovision itallegedly wished toseeapplied bytheEC.TheECalso
noted thatwhatmarket access totheresidual partofaTRQandtowhom itwasgiven bytheimporting
country following theallocation amongst thesubstantially interested Members, wasamatter thatcould
notharm inanymanner thetrade interests ofMembers having asubstantial interest, iftheirshares
hadbeencorrectly allocated inaccordance withtherelevant provisions ofArticle XIII. Thiswas
certainly thecaseforBrazil withrespect totheallocation oftheduty-free TRQ concerning thefrozen
poultry meat.
TheAgreement onImport Licensing Procedures55
72. BrazilsubmittedthattherehadbeensomedebateontheextenttowhichtheLicensingAgreement
applied toTRQs. Thisdebate hadbeentoalarge measure resolved inthefindings oftheBanana III
panel according towhich theLicensing Agreement didapply toTRQs. TheCommunity hadchosen
tooperate anon-automatic licensing system within theterms ofArticle 3oftheLicensing Agreement.
TheECpoultry licensing system wastherefore subject tothedisciplines setoutinArticles 1and3
oftheLicensing Agreement andtotheprinciples oftransparency andcertainty which underlay the
Agreement. Article 1.3oftheLicensing Agreement provided thatMembers hadtoensure thatthe
administrative procedures usedtoimplement licensing regimes werenotoperated inappropriately so
astogiverisetotradedistortions. Thisgeneral prohibition, Brazil argued, wasrepeated andamplified
inArticle 3.2which provided thatnon-automatic licensing should nothavetraderestrictive ordistortive
effects onimports additional tothose caused bytheimposition oftherestriction. Thelicensing
procedures setoutinCommission Regulation 1431/94, asamended, foradministering thefrozen chicken
TRQ didnot,intheopinion ofBrazil, meetthestrict requirements oftheLicensing Agreement and
infactdistorted trade within theTRQ. Aswillalsobeseenbelow, thelicensing system operated as
todistort non-quota trade.
73. TheECreplied thatinitsBanana IIIreport56,theAppellate Body hadclarified thenature of
theobligations imposed ontheMembers bytheLicensing Agreement. Inparticular, theAppellate
Body hadstated thattheLicensing Agreement pertained totheapplication andadministration ofimport
licensing procedures, andrequired thatthisapplication andadministration be"neutral ...fairand
equitable".57TheAppellate Body continued: "Asamatter offact,none oftheprovisions ofthe
Licensing Agreement concerns import licensing rules,perse.Asismade clear bythetitleofthe
LicensingAgreement,itconcernsimportlicensingprocedures.ThepreambleoftheLicensingAgreement
55Hereafter theLicensing Agreement.
56Appellate Body Report onBanana III,op.cit.
57Ibid,paragraph 197.WT/DS69/R
Page24
indicates clearly thatthisagreement relates toimport licensing procedures andtheiradministration,
nottoimport licensing rules. Article 1.1oftheLicensing Agreement defines itsscope asthe
administrative procedures usedfortheoperation ofimport licensing regimes".58Inthelightofthis
clarification, itwasclear totheECthattheonlyissue before thePanel inthiscasewaswhether the
EC'slicensing regime fortheTRQcomplied withtheadministrative procedures setoutintheLicensing
Agreement.
74. Brazil submitted thattheAppellate Body report onBanana III59made clearthattheLicensing
Agreement required thatthe"application andadministration (oflicensing rules) beneutral ...fairand
equitable".TheAppellateBodyfoundthatthisterminologywasequivalenttothetermsofArticleX:3(a)
ofGATT which provided thatrulesbe"neutral inapplication andadministered inafairandequitable
manner". These weresubstantive obligations which hadtoberespected byMembers. Secondly, the
Appellate Body hadruledthatsubsequent panels should examine thecontext inwhich particular findings
ofprevious panels ortheAppellate Body weremade.60Theobject oftheAppellate Body inBanana III
wastodetermine theextent towhich theECwasentitled todesign different licensing rules forthe
same product from different origins. TheAppellate Body found thatdifferent rules could apply to
thesame product fromdifferent origins. Onthereasoning oftheAppellate Body inShirts andBlouses
itwasopentothisPanel, intheviewofBrazil, tofindthattheprovisions oftheLicensing Agreement,
mentioned inparagraph 75below, weremandatory andthattheEChadfailed tocomply withthese
provisions.
75. Brazil submitted further thattheLicensing Agreement hadextensive provisions toguide panels
intheinterpretation ofwhatwasneutral, fairandequitable intheadministration oflicensing procedures.
These included therequirements: nottodistort trade (Article 1.3); thatlicences beallocated onthe
basisofimportperformance(Article3.5(j));thattradersandtheirgovernmentsshouldbeabletobecome
familiar withthelicensing procedures (Articles 1.4,3.3,3.5(b), 3.5(c) and3.5(d)); thatnothing should
hinder thefullutilization oflicences (Article 3.5(j)); thatlicences beissued ineconomic quantities
(Article 3.5(i)); andthatprovision bemade fornewcomers (Article 3.5(j)). Ifthese provisions of
theLicensing Agreement were notmandatory then, itappeared toBrazil, theyshould stillbetaken
intoconsideration bypanels when determining what wasthenature oftheobligation ofneutrality,
fairness, equality, impartiality anduniformity intheadministration ofthelicensing procedures. Brazil
maintained thattheEChadnotcomplied withtheLicensing Agreement whether ornotitwasconsidered
thatthesubstantiveprovisionscontainedthereinweremandatoryorwereinstancesofuniformity,fairness
andneutrality.
(i) Notification
76. Brazil submitted thatArticle 1.4oftheLicensing Agreement provided thatalltherules and
regulations hadtobepublished andtheplace ofpublication notified totheWTO Committee onImport
Licensing insuchamanner thatgovernments andtraders could become familiar withthem. Articles 1.4,
3.3,3.5(b), 3.5(c), 3.5(d) made repeated reference totheneedfortraders tobecome acquainted with
theterms andconditions oflicensing procedures. TheECappeared tohavefailed tocomply withthe
terms oftheLicensing Agreement andhadnotnotified totheCommittee onImport Licensing thesources
inwhich EClicensing provisions were published andthespecific import licensing rules forfrozen
58Ibid.
59Ibid,paragraphs 192to198.
60AstheAppellate Body stated inUnited States -Measures Affecting Imports ofWoven Wool Shirts andBlouses from
India (Shirts andBlouses): "Given theexplicit aimofdispute settlement thatpermeates theDSU, wedonotconsider that
Article 3.2oftheDSUismeant toencourage either panels ortheAppellate Body to'make law'byclarifying existing provisions
oftheWTO Agreement outside thecontext ofresolving aparticular dispute. Apanel needonlyaddress those claims which
must beaddressed inorder toresolve thematter inissue inthedispute."WT/DS69/R
Page25
chicken products. TheCommunity had,however, published thelicensing procedures intheOfficial
Journal oftheECandthus,itcould besaid,hadallowed governments andtraders tobecome familiar
withthem. Brazil maintained, however, thattheconstant andcontradictory amending oftheregulations
wassuchastonullify therequirements oftransparency setoutinArticle 3.3oftheLicensing Agreement.
77. TheECsubmitted thatintheBanana IIIreport, theAppellate Body hadconfirmed thatimport
licensing procedures fortariffquotas fellwithin thescope ofapplication oftheLicensing Agreement.61
TheECobserved inthisrespect thatnotification wasaprocedural, rather thanasubstantive, requirement
andsince thequestion ofwhether theLicensing Agreement applied toTRQs hadonlybeenclearas
fromthedateoftheAppellate Body'sdecision intheBanana IIIcase,themerefactofnon-notification
ofthelicensing regime atissue inthiscasecould notbeconsidered torender thisregime illegal in
anyway. Alldetails relating tothelicensing system hadbeenpublished intheOfficial Journal ofthe
European Communities inallofficial languages, including Portuguese, thusensuring transparency and
thatbothgovernments andtraders were aware oftherequirements oftheregime.
78. Brazil submitted thattheobject ofnotification wasthatgovernments andtraders should become
familiar withtherulesandprocedures governing imports. Non-notification invalidated theunderlying
objective oftransparency intheLicensing Agreement. Notification intheOfficial Journal orGazette
didnotsatisfy thetransparency requirement. Governments andtraders ofaMember could notbe
expected toread,onaregular basis, theofficial publications ofallMembers justincaseanewprovision
inrelation totrade waspublished. Notification totheWTO removed thisneedandensured that
governments andtheirtraders didbecome familiar withtheimport rulesandprocedures. Notification
wasasubstantive obligation which theEChadfailed tosatisfy.
79. TheECreplied thatBrazil hadfullyutilized itsallocation under thefrozen poultry meatTRQ
during itsperiod ofapplication. Thelicensing procedures atissue inthisPanel related onlytothe
management oftheTRQ. There wasnoevidence whatsoever thatadistortion orreduction oftrade
intheproducts atissue hadbeencaused byoperation oftheimport licensing system. Theevidence
wasrather tothecontrary: thelicensing system hadnever prevented theBrazilian poultry products
from fully exploiting thetariff reduction under theTRQ. Moreover, evenifthemarket (in-and
out-quota) wastaken asawhole, volumes ofBrazilian imports infrozen poultry meat hadsteadily
increased during theperiod ofapplication oftheTRQ. Brazil 'ssubmissions appeared tobebased
onamisunderstanding ofthetransparency provision oftheLicensing Agreement. What wasimportant,
ECsaid,andaswasclearfromthetextofArticle 1.4,wasthatlicensing procedures werepublished .
Moreover,theEChadnotifiedtotheWTOtheadministrationofallitsagriculturaltariffquotasincluding
thefrozen poultry meatTRQ.62
(ii) Changes tothelicensing rules
80. Brazil submitted thattheEChadchanged thelicensing rules andprocedures atleastseven
times, making itdifficult forgovernments andtraders tobecome familiar withtherules. Thechanges
themselves were evidence ofalackofcertainty andtransparency intheEC'slicensing procedures.
Inaddition, thechanging rulesonlyacted toconfuse traders. Brazil observed thatnotallthechanges
hadbeenforthepurpose oftheelimination ofspeculation. Those changes thathadaddressed theissue
ofspeculation hadnotresulted initselimination. Thecombination ofthese twoconsiderations was
thatthechanges inthelicensing rulesdidnotallow traders andtheirgovernments tobecome familiar
withthem asrequired bytheLicensing Agreement.
61Appellate Body Report onBanana III,op.cit.,paragraph 195.
62Seedocuments G/AG/N/EEC/1, G/AG/N/EEC/3 andG/AG/N/EEC/3/Corr.1.WT/DS69/R
Page26
81. TheECreplied thatiftheECweretohavechanged thesystem andnotpublished thechanges
effected, thiswould haveledtolackoftransparency inthesystem. Butthatthechanges, ofthemselves,
created lackoftransparency, theEChaddifficulties inunderstanding. Moreover, there wasnothing
intheLicensing Agreement which saidthatimport licensing procedures could notbechanged. Brazil
would havebeenthefirsttocomplain ifthesystem hadremained identical during theentire period
oftheTRQ andtheCommunity could havebeenaccused ofnottaking account oftherealities ofthe
commercial situation. TheCommunity noted, furthermore, thatthe"100tonnes rule" hadinfactnot
beenchanged since1June1996. Thechanges inmarket access conditions effected bytheCommission
were designed toensure areasonable distribution oflicences amongst aneverincreasing number of
applicants. Thechanges made tothese criteria were necessary toensure theproper functioning of
thelicensing system and,aswasclear from themotivation given inthevarious Regulations, were
necessary totakeaccount ofexperience gained intheoperation oftheregime.
(iii) Distortion oftrade
82. Brazil asserted thatitspercentage share intheECmarket hadbeenfalling sincetheintroduction
oftheTRQ in1994.63Prior totheopening oftheTRQ, Brazil hadafairly constant market share of
45percentto47percent. In1993, Brazil 'spercentage market share was45.6percent. After the
opening oftheTRQ, in1994, Brazil 'stotalmarket share (made upofbothquota andnon-quota trade)
fellto42.5percent; in1995 itfellfurther to36.2percentandin1996 to33.2percent. Brazil
considered thatthefallinoverall market share, made upofbothin-quota andout-quota product, was
evidence ofthedistortion oftraderesulting fromtheintroduction oftheTRQcontrary totheprovision
ofArticle 1.2oftheLicensing Agreement. Innormal trading circumstances, Brazil would havebeen
expected toincrease market share asaresult oftheintroduction oftheTRQ. Thisdidnotoccur.
Brazil considered thattheprincipal cause ofthefallinmarket share wasthedisturbance intrading
relations which hadbeenbuiltupovertime. Brazil wasnotarguing thatonlytraditional importers
should beentitled tobenefit, norwasBrazil suggesting whattheappropriate number ofimporters should
be.Brazil argued thattheadministration oftheTRQ hadresulted inspeculation andinasharp decline
initsmarket share. Thecause inthedecline inmarket share wasnotcompetition from competing
supplying countries. Thestatistics showed that,in1993, despite themarked increase inexports from
China, Brazil maintained itsmarket share. Thestatistics alsoshowed thatthere wasnocorrelation
between thefallinBrazil 'smarket share andanincrease inmarket share ofanyoneother source.
83. TheECrepliedthatBrazilhadnotcontestedtheEC'sevidencethattherehadbeenfullutilization
oftheTRQ. Despite thedecrease inmarket share ofBrazil, theoverall volumes ofimports fromBrazil
hadincreased (from 21,493 to28,701 tonnes). Brazil hadnotexplained howitconsidered thatthe
overall market share wasrelevant totrade within theTRQ. Itappeared itself toconcede thatfactors
suchasthecompetitivity ofBrazilian exports vis-à-vis other exporters wererelevant tooverall market
share. TheEChadnoted thatanother relevant factor wastheharmonization ofveterinary standards
within theCommunity which hadcontributed totheopening upoftheCommunity market toimported
products (imports hadalmost doubled overtheperiod 1992-1997). TheECsubmitted thatBrazil had
notdemonstrated aprima facie case. Itsallegations regarding distortions oftrade were vague and
unsubstantiated. There hadbeenfulluseoftheTRQ andvolumes oftrade hadincreased.
84. Brazil submitted thatMembers wererequired, under Article 1.2oftheLicensing Agreement,
toensure thattheadministrative procedures wereinconformity withtherelevant provisions ofGATT
1994sothattradedistortions,arisingfromtheinappropriateoperationoftheimportlicensingprocedures,
didnotoccur. Thisappeared tobeamandatory requirement thatdistortions totradebeavoided. The
requirement nottodistort tradewasnotlimited totradewithin theTRQ. Itapplied toalltrade, whether
within theTRQ oroutside it.Article 3.2provided thatnon-automatic licensing "shall nothave
63BrazilconfirmsthePanel'sunder standingthatthestatisticsprovidedreferbothtoTRQ andnon-TRQ tradeintheproducts
under consideration.WT/DS69/R
Page27
trade-restrictive or-distortive effects onimports additional tothose caused bytheimposition ofthe
restriction". Theword "shall" wasnot"should" or"might" or"best efforts". Bymeans oftheword
"shall", theAgreement setoutanobligation which hadtoberespected.
85. TheECsubmitted thatduring theperiod ofapplication oftheTRQ, Brazil 'sexports ofpoultry
products intotheEChadincreased substantially. IntheEC'sview, Brazil hadfailed todischarge
theburden ofproof incumbent onittoshow thattheprocedures usedintheapplication oftheTRQ
hadcaused distortions oftrade. Thestatistics which Brazil claimed constituted prima facieevidence
appeared torelate toitsoverall market share rather thantoimports within theTRQ. TheECconsidered
thatthesestatistics could notconstitute probative evidence indemonstrating thatthelicensing procedures
fortheTRQ hadbeenresponsible forwhat Brazil alleged were distortions intrade. TheTRQ had
beenfullyutilized, hence thelicensing procedures hadnotaffected thepossibility forBrazilian traders
tobenefit completely from theadvantageous conditions provided under theTRQ. Trade outside the
TRQ wasnotsubject toanylicensing procedures. During theperiod ofapplication oftheTRQ, the
overall volume ofimports from Brazil intotheCommunity hadincreased. AsBrazil itself appeared
toconcede, increases inmarket share could beduetoother factors unrelated totheTRQ. Thus,
decreases inmarket share could alsobeattributable toother factors including theoverall competitivity
ofBrazilian imports andharmonization ofveterinary standards within theECwhich hadcontributed
totheopening upoftheCommunity market toimports from thirdcountries.
(iv) Licence entitlement based onexport performance
86. Article 1.3oftheLicensing Agreement provided thattheprocedures should beadministered
inaneutral, fairandequitable manner. Itcould notbesaid,Brazil argued, thattheEC'sallocation
ofimport licences onthebasis ofexport performance wasneutral andfair. Itautomatically biased
thelicensing system infavour ofCommunity traders andproducers whowereexporters. Theterms
ofArticle 3.5(j) andtheunderlying intent oftheLicensing Agreement were thatlicence entitlement
should bebased onimport performance andnotonexport performance. Theveryinclusion ofexports
asacriteria forlicence entitlement wasadefactoanddejurebreach oftheprovisions oftheLicensing
Agreement.
87. TheECrecalled thattheLicensing Agreement applied onlyinrespect oftheprocedures and
nottherules applied tolicensing systems. TheECargued thatthequestion ofwhether alicensing
system functioned through import orexport licences constituted arulerelating totheoperation ofthe
system andnotaprocedure relating toitsadministration. Hence, thisissue wasnotregulated bythe
Licensing Agreement, which contained noprovisions detailing thecriteria tobeapplied totheoperation
andfunctioning oflicensing systems. TheECwould note,inanyevent, thatasamatter offact,export
performance wasonlytaken intoaccount fortheperiod from 26June1994 to1June1995.64In
consequence,theECargued,thisclaimshouldbedismissedasinadmissible,firstlybecauseitfelloutside
thescope ofapplication oftheLicensing Agreement, andsecondly because itrelated toasituation
which asamatter offactnolonger existed andtherefore there could benonullification orimpairment
ofanyofBrazil 'srights under theWTO. There were, according totheEC,nocontinuing effects of
theprevious useofexport performance. Eligibility wasbased onlyonimport performance.
88. Intheevent thatthePanel were toconsider, contrary totheprimary submission oftheEC
onthispoint, thatBrazil 'sclaim wasadmissible, intheviewoftheEC,Article 1.3oftheLicensing
Agreement stated nomore thanthatrules forimport licensing should beneutral inapplication and
administered inafairandequitable manner. Itwasnotpossible, asBrazil asserted, todiscern from
theplain wording ofArticle 1.3,readinthelight oftheobjective andpurpose oftheLicensing
Agreement, thatanyinclusion ofcriteria relating toexport automatically biased thesystem infavour
64Asfromtheadoption ofRegulation No.1244/95 on1June1995, thecriterion ofexport performance nolonger applied.WT/DS69/R
Page28
ofimporters. Theonlyrelevant provision intheLicensing Agreement, intheviewoftheEC,was
Article 3.5(j) which stipulated thatMembers should "consider theimport performance oftheapplicant"
and"inthisregard, consideration should begiven astowhether licences issued toapplicants inthe
pasthavebeenfullyutilized". Hence, therequirement totakeaccount ofimport performance was
linked totheneedtoensure fullutilization oflicences issued. TheEChadadapted itsadministration
ofthelicensing system onanumber ofoccasions inorder tofulfil thisrequirement. Furthermore,
Article 3.5(j) didnotstipulate thatlicence entitlement should bebased onlyonimport performance
andthatanycriterion relating toexport wasprecluded. Thatprovision simply required thatMembers
should"considertheimportperformanceoftheapplicant".Article3ofCommissionRegulation1431/94
fulfilled thisrequirement inthatitstipulated thatimport performance should betaken intoaccount.
89. Brazil maintained thatduring thetimethatrulesinrelation toexports wereinforce there was
distortion andbecause licences wereallocated onthebasisofpastperformance, those distortions carried
forward intothepresent (seealsoparagraph 153).
90. TheECreplied thattherewerenocontinuing effects oftheprevious useofexport performance.
Eligibility wasbased onlyonimport performance andsotheECfailed toseehowtheprevious inclusion
ofexport performance could haveanycontinuing effects.
(v) Speculation inlicences
91. BrazilnotedthatthethirdsubparagraphofArticle5ofCommissionRegulation1431/94provided
thatlicences should notbetransferable. Thisrequirement wastoensure thatlicences wereonlyused
bythose towhom licences were allocated andtoavoid speculation. Article 3.5(j) oftheLicensing
Agreement required thatlicences issued befullyutilized. According toBrazil, speculation inlicences
discouraged theirfullutilization incontradiction oftherequirement inArticle 3.5(h) oftheLicensing
Agreement. When licences became theobject oftradeinthemselves, itwasnotcertain thattheywould
beusedtoeffect import. Aspeculative market gaverisetoitsownrules andlogic andinthese
circumstances licences could beusedtodisrupt thebehaviour ofcompetitor importers orcould bebought
upbyECexporters whoproduced onthedomestic market soastoprotect themarket. Mostimportantly,
Brazil argued, therapid movement oflicences among importers andnon-importers (i.e.ECexporters
whohadnever imported fromBrazil) made itimpossible forBrazilian exporters tomake contact with,
andeffect sales to,importers, soastoeffect trade andensure thatthere wasfullutilization ofthe
licences. Finally, Article 3.5(j) provided thatinallocating licences, Members should consider theimport
performance oftheapplicants. Thisobligation didnotonlyrefer tomaking licence entitlements
dependant onpastimport performance butalsotoensuring thatlicences issued inthepasttoapplicants
hadbeenfullyutilized. TheEChadnotshown thatalllicences hadinfactbeenused.
92.TheECsubmitted thattheabove-mentioned provisions were exhortatory innature anddidnot
impose mandatory requirements: Article 3.5(h) saidMembers "shallnotdiscourage fullutilization
ofquotas" andArticle 3.5(j) thatMembers should "giveconsideration "towhether licences issued in
thepasthavebeenfullyutilized during arepresentative period". Asamatter ofcommercial reality,
itwould beimpossible foraMember tocontrol thebehaviour ofeconomic operators soastoensure
fullutilizationoflicencesgranted.Moreover,asmentionedabove,thelegalrealitywas,theECasserted,
thatcommitments exchanged under theWTO agreements related toconditions ofcompetition fortrade
andtomarket access opportunities andnottovolumes oftrade. TheECstressed thatArticle 5of
Regulation 1431/94 stipulated thatlicences werenottransferable withaviewtoavoiding speculation
inlicences. TheEChaddonenothing todiscourage thefullutilization oflicences; indeed Brazil 's
claims asregards utilization ofthequota appeared tobeentirely unfounded since according tothe
statistics available totheCommission, theTRQ hadinfactbeenfullyutilized (seeAnnex II).Brazil
hadbeeninformed ofthisduring theconsultations. Regulation 1431/94 hadbeenmodified onanumber
ofoccasions totakeaccount ofexperience gained intheoperation ofthelicensing system. This
demonstrated thatthesystem wassubject toconstant monitoring andadaptation, ifnecessary, toensureWT/DS69/R
Page29
thatitoperated inafairandequitable manner andtofulfiltheobligations imposed under Article 3.5(h)
and(j)oftheLicensing Agreement. Moreover, theECsubmitted, noresponsibility oftheECcould
beincurred asaresult ofthealleged action ofprivate companies orbodies thathadnodirect orindirect
relation orconnection withtheECauthorities. TheECconfirmed, andthiswasnotcontested bythe
complainant, thattherewerenolegalrequirements imposing charges orduties additional tothose which
were bound intheECSchedule ofcommitments.
93. Brazil submitted thattheEChadnotshown thatthequota hadbeenfilled inallof1994 and
inthefirstquarter of1996. TheECdidnotprovide thisinformation during consultations. Speculation
inlicences distorted patterns oftrade. Established trading relationships could notbemaintained.
Furthermore, exporters would notknow whether ornottheyhadtrading relations withserious or
non-serious importers.
94. TheECreplied thattheCommunity 'sinformation gathering andprocessing ofstatistics had
beenimproved during theoperation oftheTRQ. However, in1994, Member States didnotsupply
abreakdown ofutilization ofthequota bycountry oforigin. Forthefirstquarter of1996, thedata
waslostbecause ofinternal databankproblems.
95. Brazilsubmittedthattherewasspeculationinlicencesandthatthevalueofalicencewasbetween
2.30and3DMperkilo. Thespeculation inlicences hadnotstopped evenwiththechanges tothe
rules. More andmore operators wereapplying forlicences. Thisbothdecreased thelicence volume
andincreased thespeculation. Brazil hadsetouttheaverage number ofimporters ineachquarter in
1997. Similar analysis revealed thattheaverage number ofimporters in1996was181,andfor1995
was187. Itwasclearthatthenumber ofimporters wasincreasing andthustherateofspeculation.
96. TheECreplied thatbecause there hadbeenanincrease inthenumber ofimporters thisdid
notmean, ipsofacto,thatspeculation hadincreased. There hadbeenanacross-the-board increase
inthenumber ofimporters inthefrozen poultry meat market. ThiswasduetotheCommunity 's
enlargement andthefactthatimporters hadestablished legally separate subsidiary companies.
(vi) Economic quantities
97. ReferringtoArticle3.5(h)whichprovidedthatMembersshouldnotdiscouragethefullutilization
ofquotas, andinparticular toArticle 3.5(i) which stated thatMembers hadtotakeintoaccount the
desirability ofissuing licences ineconomic quantities, Brazil considered thattheallocation oflicences
suchthateachapplicant received alicence allowing imports ofabout 5tonnes could notbeconsidered
tobeaneconomic quantity. Article 3.5(i) didnotmandate thatlicences always hadtobeissued in
economic quantities butitrecognized thedesirability thattheyshould beso.Article 3.5(i) should be
readwithin thecontext oftherequirement thatthelicensing system should notdistort trade. Ifalicence
wasforanuneconomicquantityitbecamedifficultanduneconomicforexporterstomakesalesespecially
fromdistant supplier countries. Moreover, theeconomic consequences foranimporter nottoutilize
thelicence were notsevere.65
98. TheECreplied, asmentioned above, thatthelicensing system hadbeenconstantly modified
inorder toensure thatlicences wereallocated onthebasis ofeconomic quantities amongst whathad
beenaneverincreasing number ofimporters. Amongst the200"serious" importers, theCommission
hadmade efforts toensure thattherewasaminimum distribution of5percentofthequantity requested.
TheECsubmitted thatthereality thatthequota hadbeenfullyutilized provided corroboration ofthe
factthatthelevelofsecurity required (ECU 500pertonne, or38percentofthedutypayable) was
sufficient toensure fulluseofthelicences granted. Thequarterly average licence quantity forimports
65ECU 50per100kg.WT/DS69/R
Page30
from Brazil under theTRQ in1997 was5.6tonnes. Thisresulted from thefactthatthemaximum
quantity anoperator could apply forinaccordance withArticle 3ofRegulation 1431/94 was10per
centofthequarterly volume (1,775 tonnes) andtheaverage attribution percentage aspublished every
quarter was3.17percent. Onthebasis ofthese figures 315importers applied forlicences in1997.
Ascould beseenfrom thetableinANNEX IIthelicence quantity for1997 wasnotrepresentative
ofthelicence quantities fortheperiod ofapplication oftheTRQ. Twohundred wasthenumber of
importers intheCommunity when theTRQ wasestablished. TheCommunity hadalready observed
above thatthenumber ofimporters overtheperiod oftheTRQ hadincreased.
99. Brazil replied thatimporters didnotgetaminimum of5percentofthequantity requested.
Commission Regulation ECNo2120/9766of28October 1997, setthepercentage figure forthe
acceptance oflicence applications forthefourth quarter of1997, theAnnex ofwhich provided that
only3.24percentofthelicence applications forBrazil hadbeenaccepted, afigure which didnotamount
"aminimum distribution of5percentofthequantity requested". (Thefigure forthethirdquarter
1997 was3.13percent, 3.13percentforthesecond quarter and3.19percentforthefirstquarter.)
Brazil maintained thatthelicence volume of5,751 tonnes wasuneconomic. Trade infrozen chickens
between Brazil andtheECwasbycontainer ship. Containers wereeither 20or40footwhich held
16-18 tonnes or26-28 tonnes, respectively. Thecostofshipping 5.5tonnes pertonne alone ina
container wasUS$320 while thecostpertonne ofshipping afullcontainer wasUS$115. Itwastherefore
uneconomic toshipatUS$320 atonne. Inaddition, animporter hadtoshow imports of100tonnes
inaprevious twoyearrepresentative period foreligibility forlicences. Animporter whowished to
import fromBrazil onlywasnotinaposition toobtain entitlement onthebasisofTRQ imports alone
buthadtoimport fromother sources oroverthequota. Ineachquarter there were, onaverage, 315
licences issued to,onaverage, 315importers. Thus, iftheECconsidered thattherewere200"serious"
importers, there were, onaverage, 115non-"serious" importers. Brazil didnotunderstand whatthe
ECmeant bytheword "serious" inrelation totheimporters. Didthismean thattheECaccepted that,
onaverage, 115importers wereapplying forlicences forthepurposes oftrade inlicences asopposed
toimports from Brazil?
100. TheECsubmitted thatthequarterly average licence quantity forimports from Brazil under
theTRQ in1997 was5.6tonnes. Thisresulted fromthefactthatthemaximum quantity anoperator
could apply forinaccordance withArticle 3ofRegulation 1431/94 was10percentofthequarterly
volume (1,775 tonnes), andtheaverage attribution percentage aspublished every quarter was
3.17percent. Onthebasis ofthese figures 315importers applied forlicences in1997. Moreover,
theCommunity considered thatsincethequota hadbeenfullyutilized therewasnoevidence tosuggest
thatthelicence quantities wereuneconomic orthatimporters had,asaresult ofthelicence quantity,
been deterred from making useoftheadvantages intrading conditions offered under theTRQ.
Article 3.5(i)oftheLicensing Agreement stated thatMembers "should takeintoaccount thedesirability
ofissuing licences forproducts ineconomic quantities" (emphasis added). Thiswas,however, merely
onefactor tobetaken intoaccount inensuring thatthelicensing procedure wasadministered, in
accordance withArticle 1.3,inaneutral, fairandequitable manner. Consideration should alsobe
given tothefactors enumerated inArticle 3.5(j), inparticular, theneedto"give consideration" to
ensuring areasonable distribution oflicences tonewimporters. TheECwas,furthermore, oftheview
thatthesizeofconsignments ofpoultry wasirrelevant. There wasnothing intheLicensing Agreement
which supported Brazil 'ssuggestion thatthevolume ofalicence should bedetermined byreference
tothemethod oftransportation ofaproduct. Moreover, since alicence could beusedforpartofa
consignment andneeded notcover theconsignment initsentirety, average consignment sizewasof
norelevance when considering theusemade oftheTRQ. TheECunderstood thatthecompanies of
Brazilian origin which had,inBrazil 'swords, "atraditional presence ontheECmarket" wereinfact
themostimportant exporters ofpoultry meatproducts. Asalready explained elsewhere, thenumber
66L295/21, published intheOfficial Journal of29October 1997.WT/DS69/R
Page31
ofimporters intheCommunity hadincreased mainly because oftheenlargement oftheCommunity
andtheestablishment bytraditional importers oflegally separate subsidiary companies.
(vii) Newcomers
101. Brazil submitted thatthere were noprovisions intheECrules inrelation tonewcomers.
Article 3.5(j) oftheLicensing Agreement provided, however, thatconsideration should begiven to
ensuringthattherewasareasonabledistributionoflicencestonewcomers.Theabsenceofthenewcomer
provision meant thatBrazilian exporters could notbegin importing byestablishing themselves inthe
Community andqualifying asnewimporters.
102. TheECreplied thattheTRQwasnotrestricted onlytotraditional importers whohadimported
fromBrazil. Therequirements imposed relating toquantities imported overatwocalendar yearperiod
weredesigned toensure abalance between access totheTRQ forallimporters andtheneedtoissue
licences ineconomic quantities. TheECargued thatthere wasnoincompatibility withtheprovisions
ofArticle 3.5(j) oftheLicensing Agreement. Thenumber ofimporters hadincreased overtheperiod
ofapplication oftheTRQ. Furthermore, according toevidence available totheCommission, contrary
totheassertion made byBrazil, most oftheimportant Brazilian exporters had,infact,established
salesoffices intheECfrom which theytooapplied forimport licences.
103. Brazil responded thatnotmany Brazilian exporters hadbecome ECimporters, contrary to
theECassertions. Only twocompanies ofBrazilian origin had,inassociation withECcompanies,
atraditional presence intheECmarket. Theallocation ofimport licences onthebasis ofpast
performance meant thatitwasnoteconomic forBrazilian exporters toestablish themselves intheEC
forthepurposes ofimporting andapplying forlicences.
104. TheECretorted thatitwasamatter ofmathematical impossibility, toexpect thatthelicence
quantities could beincreased without reducing thenumber ofimporters whohadaccess totheTRQ.
Therequirements imposed inrespect ofaccess totheTRQweredesigned toensure abalance between
access totheTRQ forallimporters andtheneedtoissuelicences ineconomic quantities. Iftherules
were tobeadjusted sothatthelicence quantity were tobethesizeofacontainer asBrazil asserted
(16-18 tonnes or26-28 tonnes) thiswould have theeffect ofrendering itimpossible toensure "a
reasonable distribution oflicences tonewimporters" asrequired byArticle 3(5)(j) oftheLicensing
Agreement.
(viii) Transparency
105. Brazil argued thatunderlying theLicensing Agreement wastheprinciple oftransparency.
Thepublication provisions inArticles 1.4and3.2along withtheconsultation andinformation provisions
inArticles 1.4and3.5werespecific instances ofthisrightoftransparency. Under thelicensing and
trade monitoring system inplace forfrozen chicken, ithadnotbeenpossible fortheEC,letalone
Brazil, todetermine definitively whether ornotthere were distortions oftrade duetotheoperation
ofthelicensing system. However, there wasprima facieevidence ofsuchdistortion andtheEChad
donenothing toaddress theissues raised byBrazil inthisregard. Theinability todetermine which
consignments were being imported within oroutside theTRQ andthefailure oftheECtoconfirm
toBrazil thatthatpartoftheTRQ which hadbeenallocated toBrazil hadinfactbeenfulfilled meant,
intheopinion ofBrazil, thattheECwasnotadministering thelicensing system inatransparent manner.
106. TheECreplied thattheclaim thatthere was"prima facieevidence" oftrade distortion was
entirely unsubstantiated andfailed tomeetthestandards ofevidence determined bytheAppellate Body
assetoutbelow. Thisclaim should therefore berejected asinadmissible bythePanel. With respect
toBrazil 'sclaims thattheEChadnotcomplied withtheLicensing Agreement 'sprovisions on
transparency inrespect ofthechanges made tothecriteria relating tolicence entitlement, theECWT/DS69/R
Page32
submitted thatthechanges inmarket access conditions effected bytheCommission weredesigned to
ensure areasonable distribution oflicences amongst anumber ofapplicants whohadserious intentions
ofimporting poultry products intotheEC.AsBrazil itselfnoted, fulldetails ofthelicensing procedures,
including thecriteria usedintheirapplication, hadbeenpublished intheOfficial Journal oftheEuropean
Communities. Inconsequence, transparency inthecriteria applied fortheallocation oflicences had
beenassured. Thechanges made tothese criteria were necessary toensure theproper functioning
ofthesystem andaswasclear from themotivation given inthevarious Regulations werenecessary
totakeaccount ofexperience gained intheoperation oftheregime.
107. Brazil submitted thattheECwasobliged under Article 3.5(a)(iii) and(iv)oftheLicensing
Agreement toprovide complete andrelevant information onthedistribution oflicences among supplying
countries andstatistics onvolumes andvalues. Intheview ofBrazil, theEChadfailed todoso.
Inaddition, thetransparency provisions underlying theLicensing Agreement werenotrespected by
theEC.Exporters didnotknow whattrademeasures wereapplicable inrespect ofanyoneconsignment
offrozen chicken senttotheEC. Forexports within theTRQ, noduties oradditional duties were
payable. Forexports outside theTRQfullbound duties werepayable andinaddition theimports were
subject toprice safeguards. Price safeguards could result inadditional duties iftheexporter didnot
maintain ac.i.f. price attheCommunity frontier. Thelicensing system wasadministered insucha
waythattheexporter didnotknow whattrade rules applied inbreach ofthefundamental objective
oftheLicensingAgreement.67Itwasimperativethatthelicensingsystembeadministeredinatransparent
manner suchthatexporters were notinhibited inachieving fullmarket access andprices.
108. TheECreplied thattherequirement tosupply statistics wassubject toarequest fromaWTO
Member. TheEChadproduced therelevant information when requested todoso.Moreover, the
EC'ssystem wasbyitsverynature transparent. Thefigures relating bothtotheallocation ofthequota
andthepercentage ofthelicence applications granted hadbeenpublished. Inconsequence, asBrazil 's
submissions tothepanel hadamply demonstrated, itwasverywellabletodetermine thedistribution
oflicences andtheirvolumes.
(ix) Compensation
109. Brazil submitted thatcompensation should serve tore-establish theoriginal overall balance
ofconcessions. Itdidsobyproviding foranimprovement intheconditions ofcompetition under which
theproduct inquestion could besoldontheimporting market. Thiscould beachieved either through
improved price concession68or-inthecaseofaTRQ -through theconcession ofafinancial benefit
totheexporters. Iftherewasnoimprovement intheconditions ofcompetition andthefinancial benefits
failed tomaterialize, thenitcould beconsidered thatnocompensation hadinfactbeenprovided.
Moreover,Brazilconsideredthatitwasinthenatureofazerotariffcompensatory-TRQ,thattheMember
entitled tobenefit fromtheTRQshould beallowed tocompete onanequal footing withlocalproducers
intheimporting market. Thismeant thattheexporters hadtobeabletobenefit fromthecompetitive
conditions prevailing ontheimport market. Theprice obtainable ontheimport market wasonesuch
benefit. Sotheexporter hadtobeabletoobtain thatprice. Lack oftransparency oftheTRQ had,
however, theeffect thattheexporter could notobtain thatprice. Ifthecostofproduction onthe
67TheLicensing Agreement provided initsPreamble:
"Convi ncedthatimportlicensing,particularlynon-aut omaticimportlicensing,shouldbeimplement edinatranspar ent
andpredictable manner;
"Desiring tosimplify, andbring transparency to,theadministrative procedures andpractices usedininternational
trade, andtoensure thefairandequitable application andadministration ofsuch procedures andpractices;"
68Panel Report onEuropean Economic Community -Payments andSubsidies PaidtoProcessors andProducers ofOilseeds
andRelated Animal-feed Proteins ,adopted on25January 1990, BISD 37S/86, paragraph 148.WT/DS69/R
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exporting market waslessthantheaverage costofproduction intheimporting market, thiswasabenefit
thatshould beavailable totheexporter. Anyadministration oftheTRQ which attempted toprevent
theexporter frombenefiting fromthecostadvantages thathehadwas,intheopinion ofBrazil, adenial
ofthecompensation which theTRQ wasdesigned tocreate.
110. TheECreplied thatwithout anyclear reference toarelevant provision oftheLicensing
Agreement orindeed anyother WTO provision, theECfound itdifficult toreply toavague assertion
concerning"nocompensation"andthereforesimplyrecalledthattheprovisionsoftheGeneralAgreement
hadbeenconsistently interpreted asprovisions establishing conditions ofcompetition. Consequently,
thecommitments exchanged insuchnegotiations were"commitments onconditions ofcompetition"
fortrade, notonvolumes oftrade.69Brazil 'sassertions were, intheopinion oftheEC,contrary to
thisbasicprinciple totheextent thattheyrequired thattheexporter hadtobeabletoobtain aparticular
price onthemarket oftheimporting country.
111. Inconclusion,Brazilargued,thecombinationofalltheseelementshadtheeffectofundermining
theobjectives oftheLicensing Agreement, inparticular therequirements astotransparency,
non-distortion oftrade andthatthelicensing system betheleastburdensome possible. Itwasthis
combination ofinconsistencies alongside theindividual inconsistencies which hadanegative effect
ontrade bothwithin andoutside theTRQ andwhich impeded theachievements oftheprinciples
underlying theAgreement onAgriculture.
(x) Burden ofproof
112. TheECunderlined theneedforBrazil, inmaking itsvarious allegations, todemonstrate at
leastaprima facieinfringement ofthecitedprovisions oftheLicensing Agreement. AstheAppellate
Body stated initsreport onShirts andBlouses ,"aparty claiming aviolation ofaprovision oftheWTO
Agreement mustassert andprove itsclaim" (emphasis added).70Itwasthusfortheparty asserting
aviolation ofaWTO obligation toputforward evidence andlegalarguments sufficient todemonstrate
itsclaim. Inrespect ofanumber oftheclaims made inrelation totheoperation ofthelicensing regime
atissueinthiscase,theECwasoftheviewthatBrazil hadfailed toadduce any,oratleastanysufficient
evidence, thatthere hadbeenaviolation oftheobligations oftheECunder theLicensing Agreement.
Some ofBrazil 'sclaims amounted tolittlemore thanunsubstantiated assertions.
113. Recalling Article 3.8oftheDSU71,Brazil replied thattheAppellate Body report ontheShirts
andBlouses hadstated that"Inthecontext oftheGATT 1994 andtheWTO Agreement, precisely
howmuch andprecisely whatkindofevidence willberequired toestablish suchapresumption will
necessarily varyfrommeasure tomeasure, provision toprovision andcasetocase." Brazil considered
thatithadmetthestandard ofproof thatwasnecessary tosustain itsclaims. TheEChadnotaddressed
thefactsthathadbeenputbefore thisPanel andhadnotindicated howBrazil hadfailed tomeetthe
burden ofproof standard. Quoting thefindings oftheAppellate Body inShirts andBlouses72,Brazil
69See,forexample, Ibid, paragraphs 150-151.
70Seepage 16,section IVoftheAppellate Body Report onShirts andBlouses, op.cit.
71"Incases where there isaninfringement oftheobligations assumed under acovered agreement, theaction isconsidered
prima facietoconstitute acaseofnullification orimpairment. Thismeans thatthere isnormally apresumption thatabreach
oftherules hasanadverse impact onother Members parties tothatcovered agreement, andinsuchcases, itshall beup
totheMember against whom thecomplaint hasbeen brought torebut thecharge."
72"Also, itisagenerally accepted canon ofevidence incivillaw,common lawandinfact,most jurisdictions, thatthe
burden ofproof restsupon theparty, whether complaining ordefending, whoasserts theaffirmative ofaparticular claim
ordefence. Ifthatparty adduces evidence sufficient toraise apresumption thatwhat isclaimed istrue, theburden then
shifts totheother party, whowillfailunless itadduces sufficient evidence torebut thepresumption." TheAppellate BodyWT/DS69/R
Page34
wasoftheopinion thatithadadduced evidence offactandoflawthattheEChadnotcomplied with
itsobligations under theWTO Agreement. Brazil considered thatithadestablished aprima faciecase.
Brazil believed thattheweight oftheevidence adduced wassuchthatithadpassed thethreshold at
which theburden ofproof shifted totheEC.ItwasnowuptotheECtorebut thisevidence. Brazil
wasnotinaposition toadduce allthefactual evidence inthiscaseand,inparticular, inrelation to
licence usage, themethods usedtodetermine therepresentative priceortherepresentative priceitself.
These were factswhich onlytheECcould provide andtheEChad,intheopinion ofBrazil, failed
toprovide them. Brazil considered that,bynotaddressing theissues offactestablished byBrazil,
andbynotpresenting, toBrazil ortothePanel, those issues offactwhich onlytheECcould provide,
theECwasnotfulfilling itsroleinestablishing thefactsofthisdispute.
114. IntheEC'sviewBrazil hadfailed todischarge theburden ofproof incumbent onittoshow
thattheprocedures usedintheapplication oftheTRQ hadcaused distortions oftrade. Brazil was
notabletosubmit sufficient factual evidence because thatevidence didnotexist.
TheAgreement onAgriculture
(i) Article 4
115. Brazil submitted thattheAgreement onAgriculture constrained WTO Members tobinding
commitments inagricultural products formarket access, domestic support andexport competition,
aswellastoagreeing onsanitary andphytosanitary issues. Referring tothemarket access provisions
contained inArticle 4.273anditsfootnote74,Brazil argued thatArticle 4wasacomprehensive prohibition
against themaintenance ofanytypeofborder protection measures other thantariffs. Itwasthe
embodiment oftheprinciple oftariffication andwasoneofthepillars oftheAgreement. However,
thetextofArticle 4provided fortwoexceptions tothegeneral prohibition, i.e.the"special treatment
clause" (Annex 5)and"thespecial safeguard clause" (Article 5).Asexceptions tothegeneral rule,
Brazil pointed out,both"clauses" hadtobeinterpreted strictly. Brazil made twodistinct claims in
relation topricesafeguards. Firstly, thattheterms ofArticle 5.1(b) oftheAgreement onAgriculture
required anexamination oftheprice atwhich theproduct entered theEC'scustoms territory; and
secondly, thattherepresentative price wasincompatible withArticle 5.
(ii) Article 5:safeguards
116. Brazil wasoftheviewthatspecial safeguards could notbeusedinallcases. TheEChad,
however, retained thepossibility ofintroducing special safeguards forpoultry andinparticular for
thethree specific frozen chicken products which werethesubject ofthiscomplaint. Brazil noted that
theEChadinvoked thespecial pricesafeguards forfrozen chickens asofthedateofitsimplementation
oftheUruguay Round agricultural provisions on1July1995. Intheopinion ofBrazil, ithaddone
soinbreach ofthestrict provisions ofArticle 5oftheAgreement onAgriculture. Themaintenance
further stated that"Weagree withthePanel thatit,therefore, wasuptoIndia toputforward evidence andlegal argument
sufficienttodemonst ratethatthetransitionalsafeguar dactionbytheUnitedStateswasinconsi stentwiththeobligationsassumed
bytheUnited States under Articles 2and6oftheATC. India didsointhiscase. And, withIndia having done so,theonus
thenshifted totheUnited States tobring forward evidence andargument todisprove theclaim."
73"Members shallnotmaintain, resort to,orrevert toanymeasures ofthekindwhich havebeenrequired tobeconverted
intoordinary customs duties, except asotherwise provided forinArticle 5andAnnex 5."
74"These measures include quantitative import restrictions, variable import levies, minimum import prices, discretionary
import licensing, non-tariff measures maintained through statetrading enterprises, voluntary export restraints, andsimilar
border measures other thanordinary customs duties, whether ornotthemeasures aremaintained under country-specific
derogations form theprovisions ofGATT 1947 ..."WT/DS69/R
Page35
ofthisvariable additional dutyforfrozen chicken bytheCommunity wastherefore abreach ofthe
obligation toremove allvariable levies incompliance withArticle 4.
117. TheECrepliedthatArticle5wasaspecialsafeguardprovisionapplyingtoagriculturalproducts.
Citing Article 21.1oftheAgreement ofAgriculture75,theECrecalled thattheAppellate Body in
applying thatArticle intheBanana IIIreport stated that:"theprovisions ofGATT 1994apply tomarket
access commitments concerning agricultural products, except totheextent thattheAgreement on
Agriculture contains specific provisions dealing specifically withthesame subject matter".76TheEC
wasoftheviewthattherecould benodoubt thatArticle 5could beconsidered toconstitute a"specific
provision" dealing specifically withsafeguards intheagricultural sector. Inconsequence, itformed
acomplete, self-contained codefortherulestobefollowed forspecial agricultural safeguards which
might benecessary asaresult oftariffication. TheECwasoftheviewthatithadapplied correctly
thespecial safeguards provisions under Article 5.Brazil 'sclaims inthisrespect, related, inparticular,
tothedefinition ofthec.i.f. price andthealleged obligation ofshowing injury prior tothe
implementation oftheSSG, amounted insubstance toare-writing ofthatAgreement which wasclearly
beyond thepowers andtheterms ofreference ofthisPanel.
118. Brazil submitted thatArticle 5allowed fortheimposition ofanadditional customs duty, over
andabove thebound customs duty(ortariffied duty), when a"trigger" price ora"trigger" volume
wasreached fortheproduct inquestion.77Theuseofthespecial safeguards required twopreconditions
which weresetoutinthefirstpartofsubparagraph 1,i.e."tariffication" (ortheconversion intoordinary
customs duties ofnon-tariff border measures) oftheproducts towhich thespecial safeguard wasto
apply; andthedesignation oftheproduct inquestion withthesymbol "SSG" intheMember 'sschedule.
Ifthese twopreconditions weremet,Brazil said,aMember could invoke thespecial safeguard clause.
Brazil noted thattheEChadnotified totheCommittee onAgriculture thatitmaintained apricesafeguard
inrespect offrozen chicken parts.
(a) Theprice safeguard
119. Referring tosubparagraphs (a)and(b)ofparagraph 5ofArticle 578oftheAgreement on
Agriculture, Brazil argued thatitwasclear from thestructure ofArticle 5(1)thattheprovisions of
paragraph 5could onlybeinvoked iftheconditions setoutinparagraph 1and,inaddition, theconditions
75"The provisions ofGATT 1994 andofother Multilateral Trade Agreements ...shallapply subject totheprovisions
ofthisAgreement."
76Appellate Body Report onBanana III,op.cit.,paragraph 204.
77(a) "thevolumeofimportsofthatproduct enteringthecustomsterritoryoftheMember grantingtheconcessi on
during anyyearexceeds atrigger level which relates totheexisting market access opportunity asset
outinparagraph 4;or,butnotconcurrently:
(b) theprice atwhich imports ofthatproducts mayenter thecustoms territory oftheMember granting the
concession, asdetermined onthebasis ofthec.i.f. import price oftheshipment concerned expressed
interms ofitsdomestic currency, fallsbelow atrigger price equal totheaverage 1986-1988 reference
price fortheproduct concerned."
78"The additional dutyimposed under subparagraph 1(b)shall besetaccording tothefollowing schedule:
(a) ifthedifference between thec.i.f. import price oftheshipment inexpressed interms ofthedomestic
currency (hereinafter referred toasthe"import price") andthetrigger price asdefined under that
subparagraph islessthanorequal to10percentofthetrigger price, noadditional dutyshallbeimposed;
(b) ifthedifference between theimport price andthetrigger price (hereinafter referred toasthe"difference")
isgreater than10percentbutlessthanorequal to40percentofthetrigger price, theadditional duty
shall equal 30percentoftheamount bywhich thedifference exceeds 10percent;"WT/DS69/R
Page36
ofsubparagraph 1(b), weremet. Tosatisfy theconditions fortheapplication ofsubparagraph 1(b),
itwasnecessary todetermine thepriceatwhich theproduct entered thecustoms territory oftheMember
invoking thesafeguard. However, Brazil claimed thattheCommunity hadnotintroduced asystem
formeasuring theprice atwhich theproduct entered theCommunity market. Itmerely measured the
c.i.f. price andshould thatprice fallbelow thetrigger price itimposed anadditional duty.
120. TheECreplied thatBrazil 'sassertion thatArticle 5oftheAgreement onAgriculture stipulated
thattheprice ofaproduct hadtobemeasured "after" theproduct hadentered themarket wasclearly
contradicted bythetextofArticle 5.1(b) which referred totheprice atwhich imports "mayenter"
thecustoms territory. TheECsubmitted thatthefigures presented byBrazil, andwhich wereintended
toshow adecline inthevolume ofimports intotheEC,werenotrepresentative oftheentire period
overwhich thespecial safeguard wasapplied. Thespecial safeguard hadbeenapplied since1July1995.
In1995 thetotalvolume ofimports was53,067 tonnes andthisfigure increased to86,501 tonnes in
1996. These statistics showed thatthere hadbeenanupward trend inimports.
(b) C.i.f. prices
121. Brazil submitted thatthewhole phrase "determined onthebasis ofthec.i.f. import price"
inArticle 5needed tobeexamined bythePanel, notonlytheletters c.i.f. Thispricewasnotthec.i.f.
price itself; itwassomething more thanthec.i.f. price, itwas"theprice atwhich imports ofthat
product mayenterthecustoms territory oftheMember granting theconcession". Thec.i.f.pricewas
theprice atthefrontier prior toentry orotherwise thefreeatfrontier price which theECreferred
toinArticle 2ofRegulation 1484/95.79Theprice (asdetermined onthebasis ofthec.i.f. price but
notthec.i.f. price itself) atwhich theproduct could enter thecustoms territory wasthec.i.f. price
plusthebound duty. Thiswas,according toBrazil, theclearmeaning ofthetext. Brazil didnotshare
theview thatasthetrigger price wasbased onthec.i.f. unitvalue oftheproduct concerned the
comparative price forthepurposes ofArticle 5(1)(b) hadtobethec.i.f. price. Amarket entry price
determined onthebasis ofthec.i.f. price allowed forfaircomparison ifthenon-c.i.f. element was
thefixed andbound tariff intheSchedule.
122. TheECreplied thatBrazil 'sclaim asregards theinterpretation tobegiven to"onthebasis
ofthec.i.f. price" wasnotsupported bythetextwhich intheCommunity 'sview clearly and
unambiguously stated precisely theopposite ofwhatBrazil asserted. TheECconsidered thatBrazil 's
assertion undermined entirely theplain meaning ofthewords usedbytheauthors oftheAgreement.
There wasnothing intheAgreement onAgriculture tosuggest thattheparties intended thatthe"c.i.f.
import price" should haveanyspecial meaning inthiscontext. Therefore, theECsubmitted, thePanel
should givethephrase "onthebasis ofthec.i.f. import price" itsnormal meaning, i.e.costofthe
product plusinsurance andfreight charges. Further support could bedrawn fromthemanner inwhich
Article 5(1)(b) wasstructured andthefactthatitenvisaged thatthecalculation would takeplace prior
totheentry oftheproduct ontotheCommunity market. TheECargued that"onthebasisof"meant
"founded on"80andinconsequence thepurpose oftheauthors oftheAgreement inusing thisterminology
wasthatthec.i.f. price should betheprincipal reference point. TheEChadnotdeviated from this
standard. Brazil 'ssuggestion ofthemarket entry priceonthecontrary borenorelation to,andindeed
constituted asubstantial deviation from, thestandard setinArticle 5.Brazil appeared tobeadvocating
are-writing bythePanel oftheAgreement onAgriculture.
123. Moreover, theECindicated thatArticle 5.1(b) oftheAgreement onAgriculture referred to
theprice atwhich imports "may enter" thecustoms territory. Thiswording confirmed thattheprice
79Official Journal L145/47 of29June 1995.
80TheOxford English Dictionary entry for"basis" reads: "foundation, main ordetermining principle oringredient;
starting-point fordiscussion".WT/DS69/R
Page37
atissue wasthatwhich wascalculated atthemoment ashipment arrived prior toitsentry ontothe
Community market, atwhich point taxes andduties become payable. Moreover, footnote 2to
Article 5.1(b) stated thatthereference price tobeusedtoinvoke theprovision ofthatsubparagraph
"shall, ingeneral betheaverage c.i.f. unitvalue oftheproduct concerned". Thisconfirmed the
Community 'sinterpretation ofthewording ofArticle 5.1(b). Anyother interpretation rendered
nonsensical thecomparison between theimport priceandthetrigger pricesincethecomparison would
notbeoneoflikewithlike.
124. Brazil submitted thatthenegotiating history ofthespecial safeguard mechanism inArticle 5
showed thatitwastobeusedwhen thetariffied dutyunder thetariffication principles wasinsufficient
toprotect thedomestic market. If,inexceptional circumstances, thisnewtariff wasinsufficient to
protect markets thatwere onceprotected byvariable levies, thenprice safeguards were applicable.
Theprotection ofthemarket wasnotanabstract concept.
125. TheECreplied thatBrazil hadputbefore thePanel extracts from thenegotiating history of
theAgriculture Agreement. Since, however, theplain wording oftheAgreement wasclear, the
negotiating history was,intheopinion oftheEC,oflittlerelevance tothePanel'sdeliberations on
thisissue.81
(c) Injury requirement
126. Brazil submitted thatthetextofArticle 5(1)(b) gavenoexact measure ofwhatthemarket entry
price was. Itprovided thatitwastobedetermined "onthebasis ofthec.i.f. import price". Inthe
opinion ofBrazil, itwasclearly notthec.i.f. priceitself. Norwasitthecustoms value oftheproduct
inquestion. Itwassomething more. Thewhole purpose ofthespecial safeguard provisions wasto
protect Members 'markets. However, therehadtobeameasure ofinjury before anysafeguard measure
could betaken. TheCommunity notonlydidnotmeasure amarket entry price butalsoithadno
mechanisms forexamining theeffects ontheCommunity market. TheCommunity hadthusfailed
toshowoneoftheessentialpreconditionsfortheapplicationofthespecialsafeguardmeasure.Itapplied,
intheview ofBrazil, theadditional dutyintheabsence ofanexamination ofpossible harm tothe
Community market.
127. TheECrepliedthatasafeguardelementwasalreadyencompassedinthetriggerpricemechanism
under Article 5oftheAgreement onAgriculture andthatthere wastherefore noneedforaseparate
demonstration ofinjury. Inother words, oncethec.i.f. price fellbelow thetrigger price there was
ipsofacto adisruptive effect ondomestic production. Intheopinion oftheEC,thiswasclearfrom
Article 5.1which provided thatthedesignation "SSG" could beusedeither where "thevolume of
products ...exceeds atrigger level" orwhere "theprice atwhich imports ofthatproduct mayenter
thecustoms territory ofthemember granting theconcession ...fallsbelow atrigger price equal to
theaverage 1986 to1988 reference price fortheproduct concerned". There wasnoprovision in
Article 5which introduced afurther requirement thatthecountry imposing theSSGdemonstrate the
nature andextent ofthedisruptive effect onitsdomestic market.82TheECrecalled that,asmentioned
above, the"special safeguard provision" dealtspecifically withagricultural products. Iftheauthors
oftheagreement hadintended thattheadditional hurdle ofademonstration offurther injury should
81Article 31oftheVienna Convention which setoutfundamental canons oftreaty interpretation andwhich hadnowbeen
referred toinseveral Appellate Body reports above, provided thatthewords ofthetreaty form thefoundation ofthe
interpretative process.
82Itcould besaidthatan"additional" requirement flowed from Article 5(7)which stated thatMembers undertook not
toinvoke Article 5(1)(b) when imports were declining buttheECnoted thatMembers onlyundertook todothis"asfaras
practicable" andthatinanyevent noevidence hadbeen putforward tosuggest thatimports were doing anything elsethan
increasing orremaining constant.WT/DS69/R
Page38
beincluded, theywould surely haveinserted thisinthetextoftheAgreement. TheECunderlined
thatunder Article 3.2oftheDSU, theobjective ofadispute settlement procedure wastoclarify the
existing provisions ofthecovered agreements andnottoaddtoexisting obligations provided forin
those agreements. Brazil 'sclaim infringed thisbasic principle.
128. Brazil didnotagree withtheEC'sviewthattherewasnoneedtodemonstrate injury totrigger
theprice safeguard mechanism. Northat,ifthec.i.f. price fellbelow thetrigger price, there was
"ipsofacto"adisruptive effect ondomestic production. Intheopinion ofBrazil, injury ordamage
tothemarket hadtobeshown. TheEChadnotdoneso.Thedrafters ofthetextofArticle 5.1(b),
Brazil submitted, didnotconsider itnecessary todefine theprice atwhich theproduct entered the
customs territory other thantostatethatitshould be"determined onthebasis ofthec.i.f. price".
Entry tothecustoms territory ofaMember required thepayment ofalltaxes andthecompletion of
alladministrative requirements. Themarket entry price wastherefore thec.i.f. price plusthebound
tariff provided forintheMember 'sschedule. Thefailure tomeasure thismarket entry price orto
make thispricethedeterminant fortriggering theapplication ofanadditional dutywas,intheopinion
ofBrazil, afundamental breach ofArticle 5.Itmeant thattheadditional dutywasnota"safeguard"
intheordinary meaning ofthatword. Itwasac.i.f. price maintenance system andwasindependent
ofanysafeguard element. Theadditional duties which theECapplied tofrozen chicken products were
therefore outside thescope oftheexception tothebasic prohibition onvariable levies. There was
noother exception totheprohibition onvariable levies towhich theECcould haverecourse. Thus,
theadditional levies were, intheopinion ofBrazil, aclear breach ofArticle 4.
129. Brazil submitted thatthere wasnothing inthenegotiating history ofthespecial safeguard
provisions tojustify theimposition ofadditional duties based ontheneedtomaintain ac.i.f. entry
price. Thespecial safeguard provisions weredesigned toprotect markets against possible disturbances
asaresult oftariffication. Thevolume safeguards werenotdesigned toprotect theCommunity market
fromvolume surges indeliveries totheCommunity frontier butonlyfromvolume surges ofimports
ontothemarket. Inthesameway,thepricesafeguards werenotdesigned tomaintain theworld market
priceoreventhec.i.f.pricebuttokeepthepriceontheCommunity market fromfalling below acertain
level. Brazil believed thatthisunderstanding oftheterms ofArticle 5wasinlinewiththeoverall
scope oftheAgreement onAgriculture andthehistory ofthenegotiation oftheAgreement. Brazil
submitted thattheconcern ofthenegotiators oftheAgreement onAgriculture hadbeentofinda
mechanism thatwould dealwiththeproblem ofpossible import surges orexcessive world price
movements oncetariffication hadbeencompleted andgradual tariff reductions hadcommenced. It
wasconsidered thattariff increases might beallowable inthese special circumstances (thus theterm
special safeguard clause) and"would remain inforce onlyaslongastheconditions which ledtotheir
implementation remained inplace".83
130. Theintent ofthenegotiators, according toBrazil, wasto"sweeten thepill"oftariffication.
Should theprice safeguard betriggered, theadditional dutywould bebased ondifferences between
thec.i.f. import price andthetrigger price. However, Brazil believed thatthisadditional dutywas
onlytobetriggered ifthere wasadanger todomestic production orthedomestic market. The
negotiators agreed thattheprice atwhich thewhole mechanism would betriggered wastheprice at
which theproduct "entered thecustoms territory" (andnot"arrived attheportofentry"). Intheopinion
ofBrazil thenegotiators ofthespecial safeguard clauses wereconcerned withsafeguarding markets,
notmerely maintaining c.i.f.prices. TheECappeared tohavemisunderstood thisfundamental objective
oftheclause which should onlycome intoplaywhen thetariffs resulting from tariffication proved
insufficient tosafeguard amarket inthecaseofexchange rateorworld market price fluctuations.
83MTN/GNG/NG5/W/194.WT/DS69/R
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131. TheECreplied thatitwasnotnecessary forthePanel toconsider thenegotiating history of
Article 5.Even ifthiswere tobetaken intoaccount, itprovided nosupport forBrazil 'sarguments
since itconfirmed thatthetextofArticle 5reflected fullytheintentions oftheauthors ofthetreaty.
(d) Therepresentative price
132. Brazil submitted thattheCommunity hadnotcomplied withitsowninterpretation oftheprice
safeguard mechanism. TheCommunity hadintroduced amechanism formeasuring thec.i.f. price
soastoverify whether anadditional dutywaspayable. Thismechanism, known astherepresentative
price, wassetoutinArticle 2(1)ofCommission Regulation 1484/95. Forthepurposes oftheapplication
ornotofanadditional levy, animporter could choose toestablish theactual c.i.f. price ofthe
consignment inquestion or,inthealternative, could payanadditional dutybased ontherepresentative
price. Iftheimporter hadchosen toestablish theactual c.i.f.price, thenabondequal totheadditional
dutywaspayable justasiftheconsignment price wastherepresentative price. Inpractice, Brazil
understood thatalltraders hadchosen nottoestablish theactual consignment c.i.f. price asthe
requirements andtiming made itpractically impossible toestablish.
133. TheECstressed thattherepresentative price wasanaverage price which provided afacility
tooperators, should theydecide toavailthemselves ofit.Thefigures which weretaken intoaccount
indetermining therepresentative price wereaverage c.i.f. prices. There wasnorequirement, either
inlaworinfact,thattherepresentative price mechanism hadtobeusedandoperators were freeto
optfortheactual c.i.f.import price. Thedocuments which hadtobesupplied byimporters asevidence
oftheactual c.i.f. price weredocuments which werenormally available. Theimporter hadaperiod
ofonemonth fromthedateofsaleoftheproducts inquestion, subject toalimitoffourmonths from
thedateofacceptance ofthedeclaration ofrelease forfreecirculation, tosupply therelevant
documentation. Thistimelimitcould beextended onthebasis ofadulysubstantiated request ofthe
importer (Article 3ofRegulation 1484/95).
134. Brazil submitted thattherepresentative price wascalculated onthebasis ofthree elements
setoutinArticle 2(1)ofCommission Regulation 1484/95, namely external market prices, internal
market prices andprices adjusted forquality. Brazil was,however, oftheopinion thatthemethod
ofcalculation oftheadditional dutywasnottransparent. This, initself, wasabreach oftheunderlying
GATT/WTO principle oftransparency. Inaddition, theCommunity could nottakeaninternal market
price asthedeterminant fortheexternal c.i.f. price. There wasnothing inArticle 5orelsewhere in
theAgreement onAgriculture which justified theuseofinternal market prices todetermine external
c.i.f. prices. Finally, theCommunity hadfailed toindicate howthequality element provided forin
itsexamination oftheinternal market price wastobefactored. Brazil concluded therefore thatthe
EChadimplemented thespecial price safeguard inamanner suchthatitfunctioned asavariable levy
inbreach ofArticle 4andinawaythatdidnotbring itwithin theexception toArticle 4ofthe
Agreement onAgriculture provided forinArticle 5.1(b). There wasnothing inthetextofArticle 5,
orintheobject orpurpose ofthespecial safeguard provisions, orinthenegotiating history ofthe
provision, thatcould justify themeasures thattheEChadintroduced onthebasis ofArticle 5.
135. TheECreplied thattherepresentative price wasbased onprices ontheworld market andon
theCommunity market, i.e.bothweretaken intoaccount inthecalculation according toArticle 2of
Regulation 1484/95. Therepresentative pricewaspublished intheOfficial Journal andwastherefore
known totraders. Article 2ofRegulation 1484/95 required Member States tosupply regularly statistics
relatingtoArticle5ofRegulation1484/95sothattherepresentativepricecouldbeadjusted,ifnecessary.
Thisrepresentative pricewasanaverage c.i.f.pricewhich excluded taxesandduties andwastherefore
avalid comparative price. Thismechanism constituted anopportunity afforded toimporters, should
theychoose toavailthemselves ofit,toreduce theformalities tobecompleted bythem byavoiding
ashipment byshipment approach which wasmore burdensome andwasthusmore favourable than
theshipment byshipment approach advocated byArticle 5oftheAgreement onAgriculture.WT/DS69/R
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136. Brazil submitted thatifnoimporter could comply withtheprocedures necessary toprove the
shipment byshipment c.i.f.price, thenitwasclearthattheEChadnotmetitsobligations under Article 5
tomeasure c.i.f. prices onashipment byshipment basis. Oneofthereasons whyimporters didnot
usetheshipment byshipment approach wasthatiftheyfailed tosatisfy theCommunity astotheactual
c.i.f. price, thebond payable onimport wasforfeited. Inaddition tothebond, theimporter hadto
payinterest. Theimporter was,therefore, penalized fortrying toestablish theshipment byshipment
c.i.f. price. Article 5oftheAgreement onAgriculture didnotprovide forac.i.f. price "policing"
mechanism. Therefore, thismechanism ofitselfwasnotcompatible withtheprovisions ofArticle 5.
Thiswasparticularly thecaseasadutywaspayable onthebasis oftherepresentative price either in
theform ofabond orintheform ofthedutyitself. Moreover, therepresentative price wasnotthe
c.i.f. price. Article 2ofRegulation 1484/95 provided thattherepresentative price bebased onthree
elements, oneofwhich wasthedomestic price. Thiswasnotthec.i.f. price andnoprovision was
made intheregulations forextrapolating thec.i.f. price fromthedomestic price. Theresult ofthese
inconsistencies, Brazil said,wasthattheadditional dutywasalways, asamatter offactandpractice,
payable andthattraders werenotgiven areasonable opportunity tomaintain theirprices andthusavoid
theimposition ofthepenalty duty. Thiswas,intheopinion ofBrazil, aclearbreach bothoftheterms
ofArticle 5oftheAgreement onAgriculture itself andArticle X:3(a) oftheGATT. Finally, Brazil
observed, atthetimethepricesafeguard wasintroduced bytheEC,inJuly1995, thevolume ofimports
wasdeclining. Article 5.7oftheAgreement onAgriculture provided thatMembers undertook, as
faraspracticable, nottotakerecourse topricesafeguards when thevolume ofimports wasdeclining.
137. AsBrazilnotedinitssubmission,theECsubmitted,importerswerenotpreventedfromadopting
ashipment byshipment approach. Under Article 3ofRegulation 1484/95 theycould request thatthe
additional dutybeestablished onthebasis ofthec.i.f. import price ifthisprice washigher thanthe
applicable representative price. Hence, ifimporters sodesired theywerefreetoestablish theindividual
c.i.f. price oftheirconsignment andtorequest thattheadditional dutybedetermined onthatbasis.
Ineither case, alltheelements tobetaken intoaccount were specified andthecalculation wasclear
andfullytransparent. TheECalsoobserved thatBrazil advanced noevidence ofanyreduction in
thecompetitive opportunities opentoBrazilian products asaconsequence oftheadministration ofthe
additional duties pursuant totheSSG.
138. Brazil submitted thatifanimporter chose tousetheshipment byshipment approach under
Community law,thatimporter wasrequired topayabondequal totheamount oftheadditional duty.
Thisbond wasredeemable ifcertain conditions were met. Article 3ofRegulation 1484/95 setout
whatthose conditions were. ItwasBrazil 'sunderstanding thatnoimporters made useofthisfacility
astheprocedure wastooburdensome. Brazil wasnotinaposition toprove thisassertion asthe
information wasnotavailable toBrazil. However, theEChadrecognized, according toBrazil, that
theprocedure could beburdensome andtherefore ithadprovided importers withtheopportunity of
using therepresentative price.
139. TheECreplied thatinaccordance withtheprovisions ofArticle 2ofRegulation 1484/95,
representative prices weredetermined atregular intervals taking account ofc.i.fprices onthirdcountry
markets, c.i.f. prices within theCommunity andprices atthevarious stages ofmarketing inthe
Community forimported products. Member States wererequested tosupply information onamonthly
basis. Prices recorded referred toaverage quality. TheCommission alsomade useofspecial price
recordings fromtheprocessing industry which provided rapid access toup-to-date prices. Suchprice
recordings werecarried outinthose Member States which imported significant quantities ofboneless
chicken meat(Germany, Netherlands, Austria andBelgium). There wasnopredetermined formula
todetermine therelative weight tobeafforded tothefactors tobetaken intoaccount inaccordance
withArticle 2ofRegulation 1484/95. Asmentioned above, representative prices werecalculated on
thebasis ofanaverage ofc.i.f. prices communicated bytheMember States which included imports
under theTRQ which tended toresult inahigher representative price thanthatwhich would ariseif
onlyimports outside theTRQweretaken intoaccount. TheECnoted thatimporters hadafreechoiceWT/DS69/R
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between theshipment byshipment approach andtherepresentative price. Thelatter wasasimplified
version oftheformer andbyusing it,importers could avoid theneedtoshow every time, byappropriate
documentation, theexact value oftheimports concerned when thatvalue equalled orwaslower than
therepresentative price. However, theshipment byshipment approach wasalways available and
according tothestatistics available totheCommunity, approximately fivepercentoftraders usedthis
approach.TheCommunitydidnotseehowimportersfounditimpossibletosupplypurchasing,transport
andinsurance contracts, therelevant invoice, origin certificates and,where appropriate, thebillof
lading especially when theyhadaperiod ofuptofourmonths todoso.These werenormally available
documents which wererequired fortheshipment oftheproducts. There wasnothing "uncertain" about
thenature oftheproof required.
Article X
140. Brazil submitted thattobeabletobenefit fromtherequirements, orconstraints, ofexporting
either within oroutside theTRQ, thetraders needed toknow which trade regime wasapplicable to
anyoneconsignment.ThiswasarightwhichthetradersenjoyedundertheWTOtransparencyprovisions
andwhich wasnot,inBrazil 'sview, respected bytheCommunity regime. Brazil claimed that
Community traders usedthelackoftransparency inthelicensing system todrive down prices forall
consignments, whether within oroutside theTRQ, tothedisadvantage ofBrazilian traders. Because
ofspeculation inlicences andthesaleofthose licences totraders other thanthose firstentitled tothem,
alltraders claimed thattheywerenotimporting under licence andwithin theTRQ andtheBrazilian
exporter hadthentoquote prices forover-quota trade, i.e.asifallsaleswere subject toduties. In
practice, individual consignments were customs cleared partly within theTRQ andpartly outside.
Thiscommon in-TRQ andout-TRQ price wasthenusedtodetermine therepresentative price driving
thisartificial price down even further. Thelackoftransparency intheECtrade regime forthe
importationoffrozenchickenpartswasnotconsistentwiththeunderlyingobjectandpurposeofArticleX
ofGATT. Article Xaddressed thepublication andnotification ofmeasures affecting trade. Thepurpose
ofsuchpublication andnotification wastoenable "governments andtraders" tobecome acquainted
withthem. Traders, inparticular, needed tobecome acquainted withtherulesgoverning tradesothat
theycould comply with, andbenefit from, those measures. Brazil considered, however, thatthemere
publication ofmeasures, ortheirnotification totheWTO, wasnotsufficient tosatisfy therequirement
ofensuring thattraders become familiar withthem. Article Ximplied, andhadtobeinterpreted so
astomean, thattraders hadtoknow, notonlytherules themselves, buttowhich products or
consignments these rules applied. Ifthiswere notsothentheobject ofpublication andnotification
would notbeserved.
141. Referring toBrazil 'sclaims thattradeinfrozen poultry meatproducts subject totheTRQwas
nottransparent, theECreplied thattheexact nature ofBrazil 'sclaim inthisrespect wasunclear since
itdidnotstatespecifically which aspects ofeither theadministration oftheTRQ orofthespecial
safeguard provision itconsidered werecontrary toArticle X.Brazil referred tothefactthatArticle X
ofGATT "addresses thepublication andnotification ofmeasures affecting trade" ofwhich thepurpose
was"toenable governments andtraders tobecome acquainted withthem". However, Brazil didnot
indicate clearly which provision ofArticle Xitintended toinvoke. Moreover, theECargued, the
question ofpublication andtransparency oflicensing procedures wasdealt withspecifically inthe
Licensing Agreement, inparticular inrespect ofnon-automatic licensing procedures inArticle 3of
thatAgreement. Theinter-relationship between thegeneral transparency provisions ofArticle Xand
thespecific provisions oftheLicensing Agreement wasrecently considered bytheAppellate Body
intheBanana IIIreport. Inthatreport, theAppellate Body confirmed thattheLicensing Agreement
tookprecedence overArticle XoftheGeneral Agreement since itdealt"specifically, andindetail,
withtheadministration oflicensing procedures".84Inconsequence, theCommunity considered that
84Appellate Body Report onBanana III,op.cit.,paragraph 204.WT/DS69/R
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thePanelshoulddismissBrazil'sclaimasinadmissible.ShouldthePanelconsideritnecessarytoaddress
theissues raised byBrazil inrespect ofArticle Xinthelightoftheprovisions oftheLicensing
Agreement, there hadbeennobreach oftheobligations under thatAgreement. Insummary, the
administration ofthepoultry meat TRQ didnot,intheopinion oftheEC,create adiscrimination,
either dejureordefacto,between imported products anddomestic products. Theallegations byBrazil
should therefore bedismissed.
142. BrazilsubmittedthattheEChadmisunderstoodthenatureoftheclaimunderArticleX.Brazil's
claim under Article Xwasrelated totheadministration ofallthetradeinfrozen chickens, bothwithin
andoutside theTRQ. Referring totheAppellate Body'sfinding concerning theLicensing Agreement
inBanana III85,Brazil claimed thattheAppellate Body didnotstatethatArticle Xwasredundant when
examining aMember 'sobligations. Itstated thatifalicensing system wasfound tobeinconsistent
withtheLicensing Agreement therewasnoneedtocompare thesepractices withtheterms ofArticle X.
Thefinding oftheAppellate Body inBanana IIIwasinrelation toanECregime fortheimportation
ofbananas where there wasnooverquota trade. Themain concern oftheAppellate Body was,
therefore, theexamination oftheTRQ licensing regime. Thiswas,however, notthesituation with
respect tofrozen chickens. There wasoverquota trade. There were, therefore, twodistinct setsof
rulesapplicable ontheimportation offrozen chickens fromBrazil andbothsetsofmeasures werewithin
theterms ofreference ofthisPanel. Citing parts ofArticle X86,Brazil submitted thattheobjective
ofArticle Xwasclear: trade regulations hadtobepublished sothattraders (aswellasgovernments)
could become acquainted withthem andrelyonthem. Once theywere published, theyshould be
administered inareasonable manner sothattraders were notsubject toarbitrary behaviour. Mere
publication wasnot,therefore, theonlyrequirement. Theunderlying requirement wasthatpublication
hadtobedoneinsuchawaythattraders could know andbecertain which trade rulesapplied. The
applicable trade rulesshould notbeapplied inanarbitrary manner. Intheopinion ofBrazil, theEC
regime fortheimportation offrozen chicken didnotmeet therequirements ofreasonableness and
certainty fortraders setoutinsome detail inArticles X:1andX:3(a) ofGATT. Anexporter offrozen
chickens totheECdidnotknow whattraderulesapplied toanyoneparticular consignment ofproduct
exported. There wasnocertainty.
143. Brazil further argued thattheobligation ofuniformity, impartiality andreasonableness was
notconfined toensuring, when morethanonesetofruleswasapplicable toimports ofthesameproduct,
thateachdifferent setofruleswasadministered reasonably. There wasnothing inthetextofArticle X
tojustify sucharestrictive interpretation. Therequirement ofreasonableness applied asbetween the
setsofapplicable rules. Thearbitrary nature oftheadministration ofthefrozen chicken trade rules
andthelackofknowledge onthepartofthetrader astowhich rules applied wasparticularly acute
when price safeguards were applied. Under theofsetrules applicable toimports within theTRQ,
thetrader didnothavetobeconcerned withtheprice atwhich theproduct wasexported orsoldon
theECmarket, whereas under those applicable tothenon-quota trade, thetrader wasobliged toensure
thataparticular price wasmaintained bothattheborder andontheECmarket. Iftheexporter did
notmaintain thatprice under onesetofrules, theexporter waspenalized byanadditional dutywhile
under theother setofrules theexporter wasnot. Brazil concluded, therefore, thattheinability of
theexporter toknow which traderulesapplied toaparticular consignment ofthesamegoods imported
intotheECwasabreach oftheterms ofArticle X.Afinding thattheTRQ licensing rules were
85"thePanel, inourview should have applied theLicensing Agreement first, since thisagreement deals specifically,
andindetail, withtheadministration ofimport licensing procedures. IfthePanel haddone so,thenthere would havebeen
noneed forittoaddress thealleged inconsistency withArticle X:3(a) oftheGATT 1994."
86Article X:1provided inpartthat"Laws, regulations (etc.) ...shallbepublished promptly insuchamanner astoenable
governments andtraders tobecome acquainted withthem."
Article X:3(a) provided that:"Each contracting party shall administer inauniform, impartial andreasonable manner all
itslaws, regulations, decisions andrulings ofthekinddescribed inparagraph 1ofthisArticle."WT/DS69/R
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inconsistent withtheterms oftheLicensing Agreement would notaddress thisinconsistency. Brazil 's
claim under Article Xwasseparate from, andinaddition to,itsclaims under theLicensing Agreement.
There wasnothing inthefinding oftheAppellate Body inBanana IIIwhich precluded theexamination
oftheEC'sfrozen chicken import rules under thisArticle.
144. ECreplied thatimports outside theTRQwerenotsubject toanylicensing procedure, although
certain ofthem weresubject tothespecial safeguard provisions. Brazil made claims foraprovision
which wasconcerned principally withtransparency. TheECsubmitted thatithadcomplied fullywith
therequirements ofArticle Xasfarasthespecial safeguard regime wasconcerned andunderlined
thatBrazil didnotallege thatanyspecific aspects ofthisregime, theentirety ofwhich hadbeenpublished
intheOfficial Journal, wascontrary tothetransparency requirements ofArticle X.
Article IIofGATT
145. Brazil noted thatschedules wereprovided forinArticle IIofGATT andweredesigned to
reflect thecommitments thatMembers made inrespect ofeachother. Ifaschedule didnotreflect
thecommitments made under acovered agreement (inBrazil 'scaseArticle XXVIII ofGATT), the
question tobeaddressed bythisPanel wastheextent towhich aMember could berequired tohonour
itscommitments. TheAppellate Body inBanana III87examined theextent towhich theEC'sSchedule
inrespect ofbananas wasconsistent withArticle XIIIofGATT. TheAppellate Body recalled the
Sugar Headnote case88andquoted thatpanel assaying "...Article IIpermits contracting parties to
incorporateintotheirSchedulesactsyieldingrightsundertheGeneralAgreementbutnotactsdiminishing
obligations under thatAgreement". TheAppellate Body thenquoted paragraph 3oftheMarrakesh
Protocol89andfound thatMembers could notdiminish rights intheirschedules. Schedules hadtoreflect
thecommitments made byMembers and,totheextent thattheydidnot,theschedules were subject
tomultilateral review bytheMembers. Brazil claimed thattheEChadnotreflected initsSchedule
thecommitments made withBrazil within theterms ofArticle XXVIII ofGATT.
146. TheECreplied thatexcept forpreferential treatment justified under Article XXIV ofGATT
orArticle IXoftheWTO Agreement90,theconcessions thatwerecontained ineachMember 'sschedule,
established pursuant toArticle IIofGATT, weretheonlycommitments withrespect tothelevelof
duties andother charges imposed onorinconnection withimportation bywhich thatMember was
bound under theWTO. ThetextofArticle IIofGATT, andinparticular itsparagraph 1,wasthe
expression ofthisbasic principle which hadfar-reaching implications fortheentire WTO system of
agreements. Themereidea,suggested byBrazil 'scomplaint, oftheexistence ofadditional obligations
inrelation totheduties andother charges imposed onorinconnection withimportation ofaspecific
setofproducts, which didnotflowfromanypreferential agreement justified under Article XXIV of
GATT orArticle IXoftheWTO Agreement andnotinserted intheschedules, rancounter totheclear
provisions ofArticle IIofGATT. More importantly, suchasuggestion would introduce intheWTO
system theunpredictability andinstability which thatprovision wasdesigned toprevent.
147. Brazil argued thattheissuance oflicences inuneconomic quantities, andthetrade inthese
licences forvalue, meant thatapayment hadtobemade toobtain licences ineconomic quantities prior
87Appellate Body Report onBanana III,op.cit.
88Panel Report onSugar, op.cit.
89"The implementation oftheconcessions andcommitments contained intheschedules annexed tothisProtocol shall,
upon request, besubject tomultilateral examination bytheMembers. Thiswould bewithout prejudice totherights and
obligations ofMembers under Agreements inAnnex 1AoftheWTO Agreement."
90SeethePanel Report onNewsprint .WT/DS69/R
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toimport. Thispayment orcharge wasinaddition tothatprovided forintheEC'sSchedule which
setoutthatwithin thepoultry TRQ nodutyshould bepayable. According toBrazil, inpractice, a
dutyofbetween twoandthree German Marks perkilowaspayable prior toimports being effected.
Itwas,therefore, inallrespects, acharge payable inassociation withimport andwasaclearbreach
oftherequirement inArticle IIthatnocharges inaddition tothose provided forintheschedule be
payable.
148. TheECsubmitted thattheGATT (andother WTO agreements) wereinternational agreements
concluded between sovereign states andorganizations which were binding between those parties.
International responsibility fortheviolation ofthese agreements could onlybeengaged, except where
otherwise explicitly provided, when theviolation could beattributed directly toaMember asaresult
ofagovernmental measure. Thiswasclearly thecaseforArticle II:1(b) ofGATT where areference
wasmade toother duties andcharges "imposed atthedateofthisAgreement orthose directly and
mandatorily required tobeimposed thereafter bylegislation inforce intheimporting territory onthat
date." (emphasis added) Thiswasconfirmed byArticle 19oftheDSU which indicated that"where
apanel ortheAppellate Body concludes thatameasure isinconsistent withacovered agreement, it
shallrecommend thattheMember concerned bring themeasure intoconformity withthatagreement."
(emphasisadded)TheECstressedthattherewasnolegislationoranylegislativerequirementwhatsoever
within theEClegalsystem which imposed extracharges ontopoftheordinary duties andother duties
andcharges which were bound initsSchedule. Anypayment orcharge inrelation toeconomic
transactions concerning those import licences werestrictly private andresponsibility forsuchcharges
could notbeattributed totheEC. Moreover, Article 5,paragraph 3ofRegulation 1431/94, stated
expressly thatimport licences tobeusedfortheCommunity poultry meatTRQwerenottransferable.
TheECurged thePanel, therefore, toreject theclaims fromBrazil inthisrespect astotally unfounded
andunjustified (seealsoparagraphs 146and150).
149. BrazilagreedthatGATT(andotherWTOagreements)wereinternationalagreementsasbetween
sovereign States. They gaverisetointernational obligations asbetween States. Brazil didnotagree,
however, thatbecause theGATT wasaninternational agreement andasthespeculative charges for
licences were notimposed bylaw,thattheEChadnoresponsibility orobligations inrespect ofthe
extra charges thatwereinfactpayable. Brazil wasoftheviewthattheEC'sobligations inrelation
toArticle IIwerenotonlyinconnection tomandatory legislation butalsoto"allother duties orcharges
ofanykindimposed onorinconnection withtheimportation inexcess ofthose imposed onthedate
oftheAgreement". Thescope andobject oftheArticle wasnot,intheview ofBrazil, therefore
restricted tomandatory legislation. Brazil noted thatthenumber oflicence holders wasincreasing
aswellastheincidence ofspeculation. TheEChadaccepted theneedtoprevent speculation. However,
inBrazil 'sopinion, thelegislative attempts toprevent speculation hadnotbeensuccessful.
150. Citing Article II:1(a) and(b)91ofGATT, theECsubmitted, Article I:1ofGATT applied equally
tobound andunbound rates.92Thiswording matched theexplicit reference inArticle I:1ofGATT.93
Itflowed fromthis,theECargued, thatthecurrent bound ratesintheECSchedule, including in-quota
tariffrates, weretheonlyobligations oftheCommunity withrespect tothelevelofduties tobeapplied
91Article II:1(a): "Each contracting party shallaccord tothecommerce oftheother contracting parties treatment noless
favourable than thatprovided forintheappropriate Partoftheappropriate Schedule annexed tothisAgreement."
Article II:1(b): "theproducts described inPartIoftheSchedule relating toanycontracting party, ...,shall, ...,beexempt
from ordinary custom duties inexcess ofthose setforth andprovided therein".
92Panel Report onSpain -Tariff Treatment ofUnroasted Coffee ,adopted 11June1982, BISD 28S/102, paragraph 4.3.
93"Withrespect tocustom duties andcharges ofanykindimposed onorinconnection withimportation orexportation
...anyadvantage, favour, privilege orimmunity granted byanycontracting party toanyproduct originating inordestined
foranyother country shallbeaccorded immediately andunconditionally tothelikeproducts originating inordestined for
theterritories ofallother contracting parties ".(emphasis added).WT/DS69/R
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toimported products, withtheexceptions already mentioned above. TheECwasobliged toapply
totheresultsofanArticleXXVIIInegotiationtheMFNprinciplewhichbenefitedalltheotherMembers.
Article III
151. Brazil submitted thattheECregime fortheadministration oftheTRQhadtheeffect ofimported
products being treated inamanner thatwaslessfavourable thanthataccorded tolikedomestic products.
Domestic products didnotrequire alicence forthesaleonthedomestic market whereas products
imported within theTRQ didsorequire. Ontheassumption thatlicences were avalid mechanism
fortheadministration ofTRQs, Members werestillobliged toensure thattheadministration oflicensing
systems weresuchthattheydidnotactasdefacto measures giving risetolessfavourable treatment.
Intheopinion ofBrazil, theEChadfailed toensure thatthisobligation wasrespected. Theissuing
oflicences inuneconomic amounts, thetolerance ofillegal speculation inlicences, thefailure toensure
thatexporters knew which importers wereinpossession oflicences, andlackofknowledge ofwhich
trade regime wasapplicable toanyoneimport consignment had,incombination, theeffect thatthe
imported products werecompeting onlessfavourable terms withdomestic products. Inaddition, Brazil
said,thegranting ofimport licences toexporters which weredomestic producers accorded abenefit
todomestic production which imported products didnotenjoy. Eachoftheseelements bythemselves,
andincombination, hadtheeffect, intheview ofBrazil, ofplacing theimported product inaless
favourable position thanthedomestic product inclear breach oftheterms ofArticle IIIofGATT.
152. TheECreplied thattheadministration ofaTRQ waseffected through border measures, to
which some provisions oftheGATT wereapplicable94,andnotbyinternal measures towhich other
provisions applied, inparticular Article III.Thiscleardistinction corresponded, according toalong
tradition intheinterpretation oftheGeneral Agreement, totheacknowledged common willand
understanding oftheCONTRACTING PARTIES totheGATT and,byvirtue oftheMarrakesh protocol
totheWTO Agreement, ofallMembers oftheWTO, asconfirmed inthepanel report onItalian
Discrimination against Imported Agricultural Machinery .95Asimilar approach hadalready been
suggested bythepanel report onBelgian Family Allowances (Allocations familiales) .Theimport
licensing rulesmanaging thefrozen poultry meatTRQ, theECstressed, wereborder measures "par
excellence" andcould notviolate Article IIIofGATT, concerned onlywithinternal measures, i.e.
measures applicable aftertheproducts concerned hadcleared through customs. TheECdenied that
anylinkwhatsoever could bemade, insubstance orintheformalities, between thiscaseandtheso-called
Banana IIIcaseinregard toArticle III.TheECrecalled thatthatpanel andtheAppellate Body had
confirmedthevalueofthelong-standinginterpretationoftheGATTwhichdistinguishedbordermeasures
andinternal measures.
153. Brazilsubmittedthatthepaymentschargedbyimportersonthespeculativesaleofimportlicences
wassimilar innature toaspecial feepayable onimports only. Moreover, totheextent thatEC
legislation didprovide thatECtraders whoexported domestic product wereentitled toimport licences,
there wasabreach oftheterms ofArticle III.Intheopinion ofBrazil, itwasnodefence fortheEC
toclaim thattheexport qualification forlicence entitlement hadbeenremoved. Licence entitlement
wasbased onpastimports. Illegality inthepastallocation ofimport rights carried forward intothe
present. 1997 licences wereallocated onthebasis ofpastperformance inthetwoprevious years for
which statistics wereavailable, namely 1995and1996. Theexport criteria fortheallocation ofimport
licences resulted inacurrent inconsistency withArticle III.
94Like Article I:1,Article II,XIIIandtheLicensing Agreement.
95"Itwasconsidered,moreover,thattheintentionofthedraftersoftheAgreement wasclearlytotreattheimportedproducts
inthesame wayasthelikedomestic products oncetheyhavecleared through customs. Otherwise, indirect protection could
begiven". BISD 7/S60,adopted on23October 1958.WT/DS69/R
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154. TheECreplied thatapartfromsome unsubstantiated allegations concerning practices relating
totheadministration ofthepoultry meatTRQ, Brazil didnotindicate anyreason thatcould justify
theclaim thatEClegislation applicable tothepoultry products subject tothisdispute afterthoseproducts
hadcleared customs, treated imported poultry products inalessfavourable waythandomestic products.
Moreover, theclaim thatgranting import licences forthepoultry meatTRQtoexporters wasinbreach
ofArticle IIIwasnotonlytotally unsupported bymotivation butshowed apoorreading oftheEC
legislation. Whilst Article 3(a)ofRegulation 1431/94 indicated that"Applicants forimport licences
mustbenatural orlegalpersons who, ...canprove ...thattheyhaveimported orexported notless
than...ofproducts within thescope ofRegulation (EEC) No.2775/75 ...",Commission Regulation
1244/95 amended thatprovision, eliminating anyreference toexporters whowerenolonger entitled
toapply forimport licences. Thus, ECsaid,Brazil 'sclaim related toasituation which asamatter
offactnolonger existed andwhich inconsequence could notentail anynullification and/or impairment
ofBrazil 'srights under theWTO. Insummary, Article IIIofGATT was,intheopinion oftheEC,
notapplicable totheissue raised byBrazil. Theallegations byBrazil should therefore bedismissed.WT/DS69/R
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IV. ARGUMENTS PRESENTED BYTHIRD PARTIES
Terms ofReference
155. Referring tothePanel'sterms ofreference (seeparagraph 4above), theUnited States submitted
thatthe"covered agreements" were defined inArticle 1.1oftheDSU as"theagreements listed in
Appendix 1tothisUnderstanding". Thelistofsuchagreements inAppendix 1wasaclosed list,which
didnotinclude theBrazil-EC bilateral agreement. TheBrazil-EC bilateral agreement wasalsonot
oneoftheinstruments included within GATT 1994, according totheGATT 1994incorporation clause.
Theterms ofthatagreement, andtheissue ofwhether ECactions hadviolated those terms, were
therefore, intheopinion oftheUnited States, notwithin theterms ofreference ofthisPanel. The
United States submitted thatunder Article 31(3)(c) oftheVienna Convention, thePanel should take
intoaccount "anyrelevant rules ofinternational lawapplicable intherelations between theparties";
those "rules ofinternational law" mayinclude thebilateral agreement thatwasreached under
Article XXVIII:4. Thebilateral agreement could thusserve asameans ofclarifying theconcessions
iftheconcessions were ambiguous.
156. Brazil contested theviewexpressed bytheUnited States, concerning theterms ofreference.
ThisPanel hadstandard terms ofreference under Article 7oftheDSU which made specific mention
ofArticles XXVIII, X,IIIandIIofGATT, theAgreement onAgriculture andtheLicensing Agreement.
Itwascleartobothparties thatthisPanel hadtoconsider thenature oftheEC'scommitment under
Article XXVIII, asreflected intheOilseeds Agreement. Referring tothesection related toTerms
ofReference intheHandbook ofGATT96,Brazil submitted thattheterms ofreference weredefined
bythecomplaining party which unilaterally defined thesubject matter ofthedispute. Itwasnota
bilateral system. Brazil hadclearly stated thatitwished thisPanel toconsider theEC'scommitments
under theArticle XXVIII Oilseeds Agreement andtheextent towhich theywerenotreflected inthe
EC'sSchedule under Article II.Brazil hadnotonlycitedArticles XXVIII andIIinitscomplaint but
hadalsomade reference totheissues which thisPanel should consider soastobeabletodetermine
theEC'sobligations andBrazil 'srights. Panels should examine thecomplaint inthelightoftherelevant
GATT provisions. Thisforestalled objections astoultraviresinacasewhere apanel chose tobase
itsfindings onprovisions notspecifically relied onbytheparties. Thus, thePanel haddiscretion as
towhattotakeintoconsideration when examining acomplaint.
157. Thereference toprovisions oftheGATT hadalways, according totheauthor oftheHandbook,
beeninterpretedtomeannotonlythecoveredagreementsbutalsothewholeWTOlegalsystemincluding
secondary andsupplementary GATT law.97Brazil maintained thattheagreement agreed within the
framework ofArticle XXVIII andsubmitted bytheECtotheCONTRACTING PARTIES was
supplementary GATT lawwithin theterms ofthestandard terms ofreference. IntheviewofBrazil,
Article 7.2oftheDSU confirmed thebroad scope ofthestandard terms ofreference byproviding
that"Panels shalladdress therelevant provisions inanycovered agreement oragreements cited by
theparties tothedispute". Thus, panels hadtolooktocovered agreements and"agreements cited
bytheparties". Brazil hadcitedArticle XXVIII ofGATT andtheOilseeds Agreement adopted within
theframework ofthatArticle. Article 3.2oftheDSU provided thatthedispute settlement system
oftheWTO "serves topreserve therights andobligations ofMembers under thecovered agreements
andtoclarify theexisting provisions ofthose agreements". Brazil 'sclaim wasthattheEChadnot
complied withitsobligations under Article XXVIII ofacovered agreement. Those obligations were
setoutintheOilseeds agreements. Toknow whatthose obligations were, thePanel hadtoconsider
theOilseeds Agreement.
96Handbook ofWTO/GATT Dispute Settlement, op.cit. ,p.12.
97Ibid,p.13.WT/DS69/R
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158. Brazil submitted further thatthere wasnothing intheterms ofArticles 7and10oftheDSU,
intheWorking Procedures contained inAnnex 3totheDSU, orinthestandard terms ofreference
themselves, which gaveinterested thirdparties therighttoquestion theterms ofreference ofapanel.
Interested thirdparties maybeheard byPanels within theterms ofArticle 10oftheDSUandArticle 6
oftheWorking Procedures. Article 10didnotlimittheissues which could beraised byinterested
thirdparties. However, more importantly, itdidnotgivethirdparties therighttooverride theterms
ofreference ofthePanel ortodetermine theproper interpretation ofthose terms when theyhadbeen
accepted bytheparties. Theobject oftheWTO dispute settlement procedures assetoutinArticle 3
oftheDSU, wastosecure apositive solution toadispute.
159. TheECsubmitted thatthePanel wascertainly entitled, inaccordance withArticle 10.2of
theDSUtotakeintoconsideration anyrelevant element thatathirdparty submitted toitsappreciation
aslongasthiselement waswithin theterms ofreference ofthePanel asadopted bytheDSB. The
ECconsidered thatitwaswithin theterms ofreference ofthePanel totakeaccount ofthearguments
advanced intheUSstatement; however, theECwasnotconvinced thatthePanel needed toaddress
thisissuepriortodealing withthequestions raised bytheECconcerning theapplication ofArticle 59(1)
or,inthealternative, ofArticle 30(3) and31oftheVienna Convention. TheECconsidered thatboth
these linesofargument would leadthePanel totheinevitable conclusion thatwhatwasapplicable and
applied wasthecurrent Uruguay Round ECSchedule ofcommitments which provided foraMFN frozen
poultry meatTRQ. Consequently, theArticle XXVIII Oilseeds Agreement assuchwassimply not
relevant.
Article XXVIII ofGATT
160. TheUnited States submitted thatArticle XXVIII wasaconditional provision which permitted
aMember tolegally renegotiate (modify orwithdraw) itsconcessions atcertain times onthecondition
thatcertain procedures werecomplied withinwhich caseitwasreleased from itsobligations under
Article IIwithrespect tothatconcession. However, iftherewasnoagreement, themodifying Member
could goahead andchange itsapplied tariff, andtheinitial negotiating rightholders, principal suppliers
andsubstantial suppliers thenwere freetomake counter-withdrawals onatimely basis. Theonly
provision inArticle XXVIII thatspoke tothelevelofcompensation wasArticle XXVIII:2, which was
merely precatory innature. Consequently, theUnited States didnotseethepossibility thataMember
could befound tohave"violated" Article XXVIII except ifithadrefused tonegotiate withaparty
havingrights,suchasaninitialnegotiatingrightholder.TheUnitedStatesfurthersubmittedthatnothing
inthetextofArticle XXVIII provided anyexception toArticles IorXIII. Thenegotiating history
alsoconfirmed thatArticle XXVIII concerned theunwinding orsubstitution onanMFN basis of
concessionsthatwerenegotiatedonanMFNbasis.98TariffcompensationprovidedunderArticleXXVIII
hadconsistently been provided onanMFN basis, asitwasrequired tobyArticle I:1. Parallel
conclusions hadtobedrawn fortariff ratequotas andtherequirements ofArticle XIII.
161. Brazil hadnotevenshown, theUnited States argued, thatithadareasonable expectation that
theentire TRQforfrozen poultry wasassigned exclusively toBrazil. Thebilateral agreement between
Brazil andtheECreferred toa"global quota" forpoultry meatequal to15,500 tonnes. Nothing in
thelanguage ofthebilateral agreement committed theECtoaspecific quota of15,500 tonnes exclusively
toBrazil. Indeed, thecontemporaneous excerpts fromvarious ECpublications thatBrazil hadappended
toitsinitial Panel submission supported theviewthatthetariff quota wasintended tobeavailable on
98"Itwasagreed thatthere wasnointention tointerfere inanywaywiththeoperation ofthemost-favoured-nation clause.
ThisArticle isheaded "Modification ofSchedules". Itrefers throughout toconcessions negotiated under paragraph 1of
Article II,theSchedules, andthere isnoreference intheArticle toArticle I,which istheMost-Favoured-Nation clause.
...theintent isclear: thatinnowayshould thisArticle interfere withtheoperation oftheMost-Favoured-Nation clause."
(Chairman 'ssumming upintheTariff Agreement Committee, 1948, EPCT/TAC/PV/18, p.46,citedatp.947,Analytical
Index/Guide toGATT LawandPractice (1995 ed.))WT/DS69/R
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anon-discriminatory basis. Inaddition, theGeneral Agreement andtheWTO provided nolegalsupport
foranyexpectation thatconcessions pursuant toArticle XXVIII proceedings could beprovided other
thanonanon-discriminatory basis. Intheappellate proceedings inBanana III,theUnited States
continued,theCommunityhadarguedthatitsmarketaccessconcessionsmadepursuanttotheAgreement
onAgriculture permitted ittoactinconsistently withArticle XIIIoftheGATT 1994. TheAppellate
Body observed thatwithrespect toconcessions, aMember could yield rights andgrant benefits, but
could notdiminish itsobligations. TheAppellate Body explained thatthisinterpretation wasconfirmed
byparagraph 3oftheMarrakesh Protocol.99
Article XIIIofGATT
162. Thailand wasoftheviewthatanyMember 'sagricultural tariff schedule under theUruguay
Round negotiations waspartandparcel ofthatMember 'sschedule inaccordance withparagraph 1
oftheMarrakesh Protocol.100Inthisrespect, theallocation oftariff quotas wasgoverned by,andhad
tobeconsistent with, theprovisions ofArticle XIIIoftheGATT 1994, especially Article XIII:2.
Nothing intheGATT, oranyother WTO Agreement, provided anyspecial treatment tothetariffquotas
derived fromanegotiation under Article XXVIII ofGATT. Referring toArticle XIII:2(d), Thailand
submitted thattheinterest ofThailand asaMember withasubstantial interest insupplying poultry
totheECmarket hadtobetaken intoaccount, andtheallocation oftheannual tariff quota of
5,100 tonnes toThailand bytheEC,ifdoneinaccordance withtheprovisions ofArticle XIII:2(d)
would beconsistent withtheGATT. Once aquota hadbeenestablished, Thailand said,themanner
inwhichtheapplyingcountryadministeredthequotawasalsoveryimportantandsubjecttotheprovision
ofArticle XIII:2(d). TheMember applying therestriction, inthiscasetheEC,wasobligated to
administer those quotas insuchawaythattheywere fullyutilized. Thailand submitted thatithad
experienced difficulties inutilizing fullyitsquota dueto,inThailand 'sview, theexcessive formalities
andmeasures imposed bytheEC,suchasthefragmentation oftheimport quantity allotted toimporters
andtheimposition ofsafeguard measures based uponitsownrepresentative price. Thailand believed
thattheseformalities andmeasures werenotconsistent withtheECsobligations under thelastsentence
ofArticle XIII:2(d), andshould besoheldbythisPanel. Thailand submitted further thattheAgreement
onAgriculture didnotchange therules regarding theallocation oftariff quotas ascontained in
Article XIII, especially Article XIII:2(d) ofGATT assetoutintheBanana IIIpanel report.101The
Appellate Body'sdecision inthesame Banana IIIcaseconfirmed thatArticle XIII, inparticular
Article XIII:2(d), governed theallocation oftariff quotas.
163. TheUnited States submitted thatnoevidence hadbeenpresented tosuggest thatthenon-
discrimination provision inArticle XIIIwassuperseded byconcessions negotiated pursuant to
Article XXVIII. Thereport oftheAppellate Body inBanana IIIprovided, intheviewoftheUnited
States, useful guidance onthenature ofthenon-discrimination obligation under Article XIII. There,
theAppellate Bodyfound thatArticle XIIIrequired thenon-discriminatory administration ofquantitative
restrictions andthatparagraph 5ofArticle XIIIalsoapplied totariffquotas (paragraph 160). Asmost,
ifnotvirtually all,tariff quotas weretheresult ofnegotiated concessions, itwasimplicit inthelegal
conclusion oftheAppellate Body thattheorigin ofaparticular tariff quota hadnoeffect onthe
applicability ofthenon-discrimination obligation. Areview ofthebilateral agreement between the
ECandBrazil incorporating theirresolution oftheOilseeds dispute reflected thattheparties didnot
99"The implementation oftheconcessions andcommitments contained intheschedules annexed tothisProtocol shall,
upon request, besubject tomultilateral examination bytheMembers. Thiswould bewithout prejudice totherights and
obligations ofMembers under theAgreements inAnnex 1AoftheWTO Agreement". (emphasis added)
100Paragraph 1oftheMarrakesh Protocol totheGATT 1994stated that"...(t)heschedule annexed tothisProtocol relating
toaMember shall become aSchedule toGATT 1994 relating tothatMember onthedayonwhich theWTO Agreement
enters intoforce forthatMember ...".
101ThePanel Report onBanana III,op.cit.,paragraphs 7.124, 7.125, and7.126.WT/DS69/R
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agree toamethod ofallocating thetariff ratequota. ThetextofArticle XIII:2(d) wasclear -there
wasanobligation toallocate ashare toMembers having asubstantial interest. Brazil hadnotidentified
anyprovision oftheWTO Agreements thatwould permit theentire TRQ tobeassigned toBrazil.
Infact,theAppellate Body inBanana IIIfound thatArticle XIIIcould notbeconstrued topermit such
aresult.
TheLicensing Agreement
164. Thailand submitted thatatariffquota of5,100 tonnes ofpoultry meatwasallocated toThailand
bytheECin1994.ThisamountwasalsoconfirmedduringtheUruguayRoundnegotiations.Therefore,
Thailand sproduction andexport planforfrozen poultry meathadbeenadjusted accordingly. Thailand
was,however, oftheviewthatthere were uncertainty inutilizing thetariff quota andnoflexibility
inthequota arrangement dueto(i)thelackofinformation concerning which importers weregranted
aquota andtheamount ofquota granted toeachimporter; and(ii)theallocation ofimport licence
toeachapplicant ineachquarter wasfragmented. According toRegulations 774/94, 1431/94, 641/95
and997/97, aslastamended byRegulation 1514/97, import licences ofnomore than10percentof
thequarterly quota would beallocated toeachapplicant. Ifthequantities forwhich licences hadbeen
applied exceeded thequarterly quota, areduction coefficient wasapplied tothequantities requested.
Forexample, inthesecond quarter of1997, thetariff quota allocated toThailand was1,275 tonnes.
Theamount ofimport licences was127.5 tonnes perapplicant. Inthecasewhere import applications
exceeded thequarterly quota, areduction coefficient wasapplied, at4.9percent, andeachimporter
would begranted import licences for6.25tonnes. Thisamount was,intheopinion ofThailand, not
commercially meaningful. Referring totheadministration ofimport licences, Thailand wasofthe
viewthattheprovisions oftheLicensing Agreement should apply. Those provisions included, inter
alia,Article 3.2,3.3and3.5(h). Inviewoftheseprovisions, Thailand considered thattheECimport
licensing procedures concerning thefrozen poultry meatquota administration were inconsistent.
165. TheUnited States submitted thattheAppellate Bodyfound inBanana III102thatimport licensing
procedures fortheadministration oftariff quotas weresubject totheLicensing Agreement. TheEC
didnotdispute these conclusions. TheEClicensing system forfrozen poultry meatwasthussubject
totherequirement ofArticle 1.3oftheLicensing Agreement, which provided thatMembers hadto
ensure thattheadministrative procedures usedtoimplement licensing regimes were notoperated
inappropriatelysoastogiverisetotradedistortions.ThisgeneralprohibitionwasrepeatedinArticle3.2
which provided thatnon-automatic licensing should nothavetrade restrictive ordistortive effects on
imports additional tothose caused bytheimposition oftherestriction. IftheEC'sadministration of
thelicensing regime forfrozen poultry discouraged imports ofpoultry meatfromBrazil byvirtue of
thealleged eligibility restrictions onlicence applicants, thevolume limitations imposed inindividual
licences, andageneral lackofprocedural transparency, itwould seem thattheCommunity 'slicensing
regime thenwasincontravention ofArticles 1.3and3.2oftheLicensing Agreement. Ifindeed the
Community hadconditioned access toitsimport TRQ onperformance asanexporter ,asasserted by
Brazil, intheviewoftheUnited States, theCommunity 'sadministration oftheTRQ didintroduce
tradedistortions which would contravene Articles 1.3and3.2oftheLicensing Agreement. Similarly,
iflicences weregranted onlyforsmall, "uneconomic quantities", thelicensing system waslikely to
haverestricted trade inappropriately incontravention ofparagraphs 3.2,3.5(i) and3.5(j) ofArticle 3
oftheLicensing Agreement.
TheAgreement onAgriculture
166. Thailand submitted thattheAppellate Body hadconfirmed thedecision andreasoning ofthe
panel inBanana IIIthattheAgreement onAgriculture didnotchange therulesregarding theallocation
102Paragraphs 193-194.WT/DS69/R
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oftariff quotas ascontained inArticle XIIIoftheGATT103,concluding that"Forthese reasons, we
agree withthePanel'sconclusion thattheAgreement onAgriculture doesnotpermit theEuropean
Communities toactinconsistently withtherequirements ofArticle XIIIoftheGATT 1994". Inlight
oftheabove, Thailand requested thePanel tofindthatallofthetariff quota allocations wasgoverned
byandhadtobeconsistent withArticle XIIIofGATT andthattheEC'sadministration system of
thetariff quota wasnotconsistent withtheprovisions ofArticle XIII:2(d) lastsentences, andthe
Licensing Agreement, especially itsArticle 3.
167. IntheviewoftheUnited States ,thelanguage oftheAgreement onAgriculture didnotprovide
support foreither oftheconditions claimed byBrazil tobeprerequisites totheexercise ofthesafeguard
provisions pursuant toArticle 5oftheAgreement. First, Article 5,which incorporated allofthe
pertinent language withrespect tothesafeguard measures applicable under thatAgreement, contained
noreference toanyinjury criteria. Clearly, ifthenegotiators hadintended forsuchaprecondition
toapply, itwould havebeenexpressly specified intheAgreement. Second, Article 5.1(b) stated that
therelevant import price forpurposes ofactivation ofthespecial safeguard should bedetermined on
thebasisofthec.i.f.import priceoftheimports inquestion. There wasnosuggestion inthelanguage
ofArticle 5thatanypriceother thanthec.i.f.pricewastobeusedforcomparison withtheapplicable
"trigger" orreference price. Themore troublesome question posed bytheEC'simplementation of
special safeguard provisions, intheviewoftheUnited States, wasthepossibility thattheCommunity
wasusing some amalgam ofinternal prices andexternal prices inestablishing the"entry price" that
wassubject tocomparison withtheso-called "trigger" orreference price. Ifthiswastheprevailing
situation, thentheECcould beimposing special safeguard duties based onamethodology thatwas
inconsistent withthatexpressly prescribed inArticle 5oftheAgreement onAgriculture.
168. Inconclusion,theUnitedStatessubmitted,thisPanelshouldfindthatBrazilhadfailedtoprovide
evidence thatthebilateral agreement between Brazil andtheECjustified anyexpectation thattheEC
would issue atariff ratequota relating tofrozen poultry meatthatwould befortheexclusive benefit
ofBrazil. Inaddition, itwasclearthattheECcould nothavegranted atariff ratequota exclusively
toBrazil withrespect tofrozen poultry meat without violating theobligations ofArticles I,II,and
XIIIofGATT. ThePanel should alsogiveserious consideration towhether thelicensing regime
established bytheECtoadminister thepertinent tariffratequota hadserved inappropriately todistort
orrestrict trade, thereby violating theLicensing Agreement. Finally, intheviewoftheUnited States,
theECmight haveviolated thespecial safeguard provision ofArticle 5oftheAgreement onAgriculture
byadopting amechanism forestablishing theapplicable "c.i.f. entry" pricethatwasinconsistent with
theexpress language ofArticle 5.1(b).
Article II
169. Inanswer toaquestion byBrazil, theUnited States submitted thattheprotection oflegitimate
expectations inrespect oftariff treatment ofabound itemwasoneofthemost important functions
ofArticle II.Indeed, theimportance oflegitimate expectations ininterpretation oftariffcommitments
could beconfirmed bythetextofArticle IIitself, specifically thereferences to"treatment contemplated"
inArticle II:5. Thisconclusion wasalsosupported bytheobject andpurpose oftheWTO Agreement
andthose ofGATT 1994. Thesecurity andpredictability of"thereciprocal andmutually advantageous
arrangements directed tothesubstantial reduction oftariffs andother barriers totrade" (anexpression
common tothepreambles ofthetwoagreements) cannot bemaintained without protection ofsuch
legitimate expectations. Thiswasconsistent withtheprinciple ofgood faithinterpretation under
Article 31oftheVienna Convention. Itmight bethecasethatinnearly allinstances, theordinary
meaning oftheterms oftheactual description inatariff schedule accurately reflected andexhausted
thecontent ofthelegitimate expectations. Butitshould remain possible, atleastinprinciple, thatparties
103TheAppellate Body'sreasons withrespect tothismatter appear inparagraphs 157and158ofitsreport.WT/DS69/R
Page52
hadlegitimately formed expectations based onother particular supplementary factors. However, in
thiscase, theconcession onfrozen poultry inSchedule LXXX clearly didnotassign theentire TRQ
exclusively toBrazil. Indeed, thecontemporaneous excerpts fromvarious ECpublications thatBrazil
hadappended toitsinitial Panel submission supported theviewthatthetariff quota wasintended to
beavailable onanon-discriminatory basis. TheGATT Agreement andtheWTO Agreement provided
nolegalsupport foranyexpectation thatconcessions pursuant toArticle XXVIII proceedings could
beprovided other thanonanon-discriminatory basis. Indeed, areading ofthose provisions would
dispel anyunfounded illusions thatconcessions could beimplemented totheexclusive benefit ofasingle
Member.
170. TheECdidnotagree withtheUnited States 'views concerning theinterpretation ofArticle II
ofGATT andthealleged existence ofso-called "legitimate expectations" under thatprovision. This
Panel wasnotconcerned withanon-violation caseunder Article XXIII:1(b) ofGATT. Thenotion
of"legitimate expectations" wasdeveloped onlyintheframework ofsuchcases and,therefore, itwas
notrelevant here. TheECconsidered alsothatArticle II:5wasirrelevant inthepresent context: that
provision was,likeArticle XXVIII, aprocedural onesince itprovided forthepossibility toenter
negotiations. Itwasevident, theECbelieved, thatnone oftheconditions setoutinthatprovision
werefulfilled hereandArticle II:5should notbeconsidered relevant fortheresolution oftheissues
raised inthiscase.
Nullification orImpairment
171. Thailand submitted thatsince theEC'simport licensing regime violated theprovisions ofthe
GATT andtheLicensing Agreement, itconstituted aprima faciecaseofnullification andimpairment
tothebenefits ofThailand. Thailand noted thatArticle 3.8oftheDSU, asitspredecessor the1979
Understanding, didnotrefertotheadverse impact ofthemeasures concerned. Consequently, when
theprima facie casehadbeenestablished, theactual volume oftrade intheproduct concerned was
immaterial. ThepastGATT/WTO jurisprudence testified tothis.WT/DS69/R
Page53
V. INTERIM REVIEW
172. On30January 1998, Brazil requested thePanel toreview, inaccordance withArticle 15.2
oftheDSU, theinterim report thathadbeenissued totheparties on23January 1998. Brazil also
requested thePanel toholdafurther meeting withtheparties todiscuss thepoints raised initswritten
comments. TheECdidnotrequest areview, butindicated thatitwould address anissue of
confidentiality inthecontext oftheinterim review. ThePanel metwiththeparties on3February 1998,
reviewed theentire range ofarguments presented byBrazil andtheEC,andfinalized itsreport, taking
intoaccount thespecific aspects ofthese arguments itconsidered toberelevant.
173. Regarding whatarenowparagraphs 210and211ofthefinalreport, Brazil commented that
thePanel hadnotconsidered thefullordinary meaning oftheterms oftheOilseeds Agreement and
appeared tohaverestricted itsanalysis tothemeaning ofthewords "global tariff quota". According
toBrazil, theordinary meaning oftheagreement wasclear: itwasanagreement which allowed the
ECtowithdraw concessions under certain conditions. Brazil 'sarguments astothemeaning ofthe
word "global" hadbeenonlytoshow thatthisword didnotaltertheordinary meaning oftheterms
oftheagreement.
174. ThePanel reviewed therelevant partsoftheinterim report inlightofthecomments byBrazil,
butfound noreason tochange itsoriginal language. Accordingly, thePanel maintained paragraphs
210and211.
175. Regarding whatarenowparagraphs 212to218ofthefinalreport, Brazil made thefollowing
comments. First, inparagraph 212,thePanel appeared tomisinterpret Brazil 'sarguments. Brazil
didnotargue thatArticles IandXIIIofGATT never applied tocompensation TRQs agreed within
theterms ofArticle XXVIII negotiations. Brazil hadargued thattheydidnotautomatically apply if
theparties tothenegotiations agreed thattheTRQ wascountry-specific andtheother Members did
notobject. Second, regarding paragraph 214,Brazil considered thatithadbeenGATT -andwasWTO
-practice tocreate country-specific TRQs onthebasis ofArticle XXVIII negotiations andthatthe
Panel didnotexamine thispractice. Third, regarding paragraph 216,Brazil recalled itsargument to
theeffect thattheoilseeds compensation package wasmade upofaseries ofelements some ofwhich
wereclearly intended tobeMFN andsome not.Brazil claimed thatthispoint wasnotaddressed by
thePanel. NordidthePanel, according toBrazil, address thefactthattheECnegotiated separately
withthedifferent Members having asubstantial interest andthatthecompensatory elements ofthese
agreements wasdifferent ineachagreement. ThiswasinBrazil 'sviewclearly anissue which must
beconsidered under theVienna Convention intheinterpretation oftheOilseeds Agreement. Brazil
questioned whythecontents ofthecompensation package should bedifferent ineachbilateral agreement
iftheyhadbeenintended tobeMFN. Fourth andfinally, regarding paragraph 215,Brazil recalled
thatitwastheright andobligation oftheMembers themselves tomonitor theresults ofbilateral
agreements made under Article XXVIII. Thatwaswhy, according toBrazil, Members which were
notparties tothenegotiations weregiven therighttoobject toanyagreement reached within sixmonths.
BrazilnotedthatnoMembersobjectedtothecompensationpackagecontainedintheOilseedsAgreement.
176. Withrespect tothefirstpointraised byBrazil, thePanel considered thatithadfullyunderstood
Brazil 'sargument. Inorder toavoid anyimpression ofmisinterpretation bythePanel, however, the
Panel decided toinsert theword"necessarily" inparagraph 212aswellasinparagraph 218,asrequested
byBrazil. Regarding thesecond point onparagraph 214,thePanel acknowledged thatitwasBrazil 's
position thatsuchapractice existed. However, thePanel considered thatitsviewonthispoint was
clearly expressed inparagraph 213. Regarding thethird point onparagraph 216,thePanel wasof
theviewthatBrazilwasconfusingtheoveralloilseedspackagewiththeOilseedsAgreement.Asreferred
toinChapter VI(findings) ofthisreport, theOilseeds Agreement isthebilateral agreement between
Brazil andtheEC. Toclarify thispoint, thePanel modified paragraph 194slightly. InthePanel's
view, whathadbeenagreed between theECanditstrading partners other thanBrazil wasnotrelevantWT/DS69/R
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tothepresent dispute. Under theVienna Convention, suchagreements could beregarded asa
supplementary means ofinterpretation under Article 32because theymight indicate thecircumstances
oftheconclusion oftheOilseeds Agreement between Brazil andtheEC. However, inviewofthe
conclusion reached inparagraph 216,thePanel considered thatitwasunnecessary tohaverecourse
tosuchasupplementary source. Regarding thefourth andfinalpoint presented byBrazil, thePanel
noted thatinparagraph 215itwasnotaddressing theissueofwhether theprocedure forsafeguarding
therightsofthirdpartieswascorrectlyfollowed.Rather,itwasaddressingamorefundamental,systemic
issue thatwould negatively affect allMembers oftheWTO, including Brazil inthiscase. Forthese
reasons, thePanel didnotalteritsfindings, except themodifications inparagraphs 194,212and218
mentioned above.
177. Regarding whatisnowparagraph 227ofthefinalreport, Brazil noted thatonthebasis ofan
interpretation ofthetextofdiplomatic letters sentbytheBrazilian Ambassador inBrussels tovarious
officials intheECCommission, thePanel found thatthere wasnoevidence ofagreement between
theparties ontheallocation oftheTRQ. Brazil commented thatthePanel could notsubstitute
interpretation oftheordinary meaning oftheterms oftheOilseeds Agreement withtheinterpretation
ofdiplomatic correspondence which hadbeencitedbyBrazil asevidence ofthebreach oftheagreement.
178. ThePanel noted thatintherelevant section oftheinterim report thePanel wasnotinterpreting
theterms oftheOilseeds Agreement between Brazil andtheEC.InthePanel'sview, thisdiplomatic
correspondence,contrarytoBrazil'sassertion,didnotdemonstratetheexistenceofanexplicitagreement
regarding theallocation oftheTRQs. Accordingly, thePanel maintained itsconclusion reached in
paragraph 227.
179. Regarding whatisnowparagraph 239ofthefinalreport, Brazil pointed outthatithadargued
initssubmission that"thepastperformance requirement method requires thattheTRQ isallocated
among supplying countries based ontheirpastsupply performance during aspecific reference period
dueaccount being taken ofspecial trade factors".
180. ThePanel wasaware ofBrazil 'sreference tospecial factors initssubmission. However, what
waslacking, inthePanel'sview, wasidentification andelaboration ofthose special factors which might
haveexisted inrelation tothebeneficiaries oftheInterim Agreements. ThePanel therefore didnot
change itsconclusion inparagraph 249.
181. Regarding whatisnowparagraph 249ofthefinalreport, Brazil contested thePanel'sreading
ofArticles 1.2and3.2oftheLicensing Agreement, which inBrazil 'sviewobligated Members toensure
thatthelicensing arrangements didnotdistort trade additional totherestriction, without making
distinction between trade within oroutside theTRQ. Brazil recalled thatithadargued thatafalling
market share inagrowing market wasinfactevidence ofdistortion oftrade outside theTRQ since
thefallinthemarket share began aftertheintroduction oftheTRQ licensing system. According to
Brazil, ithadaconstant market share ofaround 46percentuntil1994. Itthenfelloffradically from
1994 onwards toreach 33percentin1996.
182. ThePanel noted these comments, butwasnotconvinced thatthese were sufficient grounds
tochange thePanel'sconclusion inparagraph 249because, inthePanel'sview, Brazil failed toestablish
theexistence oftrade distortion inanymeasurable way. Asstated inparagraph 249,decline inthe
percentage share alone, inthePanel'sview, didnotconstitute adequate evidence oftrade distortion.
Accordingly, thePanel didnotalteritsfindings inparagraph 249.
183. Regarding whatisnowparagraph 257ofthefinalreport, Brazil requested thatreference be
made tothefactthatBrazil provided proof ofspeculation, which wasnotcontested bytheEC.The
Panel noted thatBrazil hadsubmitted twoletters (inGerman) inthisregard. However, inthePanel's
view, theydidnotaddmore information thanwhatwasalready contained inparagraph 95above.WT/DS69/R
Page55
184. Paragraph 107oftheinterim report, aswellaswhatarenowparagraphs 264and265ofthe
finalreport, hadreferred toArticle 3.4oftheLicensing Agreement. However, Brazil stated thatits
reference toArticle 3.4wasduetoatypographical errorandrequested thatanyreference toArticle 3.4
bedeleted from thefinalreport, which thePanel accepted.
185. Regarding whatarenowparagraphs 267to270ofthefinalreport, Brazil commented thatthe
Panel made arestrictive reading ofBrazil 'sarguments concerning thebreach ofArticle X.Brazil
essentially claimed thatthealleged violations oftheLicensing Agreement andtheAgreement on
Agriculture ipsofactoconstituted aviolation ofArticle XofGATT because theywere"unreasonable".
ThePanel considered thatthiswasanewargument thatwentbeyond thereview of"precise aspects
oftheinterim report" ascalled forinArticle 15.2oftheDSU.
186. Brazil further reiterated thattheveryinability oftraders tobeabletodistinguish between the
twosetsofmeasures (i.e., those relating toin-quota trade andover-quota trade) wasanunreasonable
administration ofallmeasures applicable totheimport offrozen poultry totheECunder Article X:3(a)
ofGATT andabreach ofArticle X:1. However, asstated inparagraph 269ofthefinalreport, in
thePanel'sview, Brazil 'sclaim pertained tospecific measures outside thescope ofArticle X.
Consequently, thePanel maintained theoriginal language inparagraphs 267to270.
187. Intheinterim report, whatarenowparagraphs 285and286hadasubheading entitled "reference
price" andonesentence inwhat isnowparagraph 285referred to"reference price (trigger price)".
Brazil pointed outthatitdidnotraiseanyclaims inrelation tothereference ortrigger prices regarding
thespecific issueof"representative price". Rather, Brazil hadargued thatthe"representative price",
which wasaninternal ECmechanism fortheverifying or"policing" thec.i.f.priceofimports offrozen
poultry, wasnotconsistent withArticle 5oftheAgreement onAgriculture.
188. ThePanel accordingly corrected therelevant parts oftheinterim report. These changes,
however, didnotalterthePanel'sconclusions.
189. Brazil alsomade otherdrafting suggestions concerning thedescriptive partoftheinterim report,
some ofwhich thePanel accepted andintroduced initsfinalreport. These changes arereflected in
paragraphs 79and99ofthefinalreport.
190. Attheinterim review meeting, theECcommented thatitdidnotagree withtheamendments
orcorrections suggested byBrazil, except those regarding paragraphs 79and285.
191. Theinterim report contained Annex III,entitled "Comparison ofAdditional Duties forBoneless
Broilermeat (0207 1410)Imported fromBrazil inNovember 1997", based oninformation submitted
bytheEC. Inseveral communications addressed tothePanel, theEChadmaintained thatthedata
included inAnnex IIIshould notbemade public. Attheinterim review meeting, theECstated as
follows. Theunfortunate breach ofconfidentiality which hadoccurred during thisPanel procedure
aswellasother pastexperiences convinced theECthattherewasnoother waytosecure anappropriate
levelofconfidentiality aftertheissuance ofthereport thanbyeliminating theconfidential datafrom
thetext. They should therefore bereplaced byablank pagewiththeindication oftheexistence of
arestricted document. Intheevent thataMember requested anon-confidential summary oftherestricted
information, theECwould provide suchinformation incompliance withthelastsentence ofArticle 18.2
oftheDSU.
192. Inlightoftheforegoing, thePanel deleted Annex IIIandreferences thereto inthefinalreport.WT/DS69/R
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VI. FINDINGS
A. CLAIMS OFTHE PARTIES
193. Thisdispute concerns atariff ratequota (TRQ) forfrozen poultry meatunder CNheadings
02074110,0207 4141and0207 4171maintained bytheEuropean Communities (EC). Under the
EC'sUruguay Round Schedule (Schedule LXXX)104,thequantity oftheTRQ issetat15,500 tonnes
withanin-quota dutyratebound atzeropercent. Outofthistotalquantity, theEChas,through a
regulation105,allocated 7,100 tonnes annually toproducts originating inBrazil.
194. Brazil claims thattheEChasfailed toimplement andadminister theTRQinlinewithabilateral
agreement between Brazil andtheEC("the Oilseeds Agreement") reached within thecontext of
negotiations under Article XXVIII oftheGeneral Agreement onTariffs andTrade (GATT) resulting
fromtheEC'smodification ofconcessions onoilseeds products because, inBrazil 'sview, under the
bilateral agreement thetariff quota wasintended tobecountry-specific, withBrazil being thesole
beneficiary. Insupport ofthisclaim, Brazil argues thatArticles IandXIIIofGATT donotnecessarily
apply toTRQs given ascompensation under Article XXVIII. Brazil claims inthealternative thatthe
EChasfailed toimplement theTRQ inaccordance withArticle XIIIofGATT. Brazil further claims
thatintheadministrationofimportlicences,theEChasfailedtocomplywiththeprovisionsofArticles1
and3oftheAgreement onImport Licensing Procedures (Licensing Agreement), andArticles X,II
andIIIofGATT. Moreover, according toBrazil, theEChasfailed tocomply withtheprovisions
ofArticles 4and5oftheAgreement onAgriculture intheimplementation ofthespecial safeguards
thatapply toimports ofpoultry products outside theTRQ. Finally, Brazil claims thatthese measures
nullify orimpair thebenefits accruing toBrazil under thecitedagreements.
195. TheECrejects these claims.
B. THE OILSEEDS AGREEMENT
(i) Relevance oftheOilseeds Agreement tothisdispute
196. Brazil refers initspanel request totheOilseeds Agreement andthealleged breach ofitby
theEC.106However, aquestion arises whether theagreement itselfiscovered bytheterms ofreference
ofthisPanel because itisnota"covered agreement" within themeaning oftheUnderstanding onRules
andProcedures Governing theSettlement ofDisputes (DSU).107Wetherefore takeuptheissue of
therelevance oftheOilseeds Agreement tothiscaseasapreliminary question thathastobeaddressed
before theexamination ofsubstantive claims.
104ThecurrentECSchedul e(Schedul eCXL), whichwasnegotiatedastheresultoftheEC'senlargement toincludeAustria,
Finland andSweden, hasnotyetbeen certified bytheDirector-General. Inanyevent, since thetreatment ofthepoultry
products inquestion isidentical inbothSchedule LXXX andSchedule CXL, weregard Schedule LXXX astheECtariff
schedule currently inforce forthepurposes ofthisdispute. Seeparagraph 22.
105Commission Regulation (EC) No1431/94 of22June 1994.
106Brazil 'spanel request (WT/DS69/2) contains thefollowing sentence: "The Government ofBrazil considers thatthe
EChasfailed ...toimplement andadminister acompensation tariff ratequota inlinewiththebilateral agreement reached
between Brazil andtheECwithin thecontext ofGATT Article XXVIII:4 negotiations."
107Article 1.1oftheDSU defines covered agreements as"theagreements listed inAppendix 1tothisUnderstanding".WT/DS69/R
Page57
197. First, wenotethat,although theUnited States initsthird-party submission argues thatthe
agreement isnotcovered bytheterms ofreference108,theEChasnotexplicitly objected tothe
examination oftheOilseeds Agreement bythisPanel.
198. Second,thereareprecedentswhereabilateralagreementwasexaminedinaGATT/WTOdispute
inorder todetermine thescope ofrights andobligations inthemultilateral context.
199. Werecall inthisregard thatintheBanana IIIcase, inorder tointerpret aWTO waiver, the
panel andtheAppellate Body hadtoexamine theLomé Convention, which isreferred tointhatwaiver.
Thefollowing statement bythepanel inthatcasewasaffirmed bytheAppellate Body:
"Wenotethatsince theGATT CONTRACTING PARTIES incorporated areference tothe
Lomé Convention intotheLomé waiver, themeaning oftheLomé Convention became a
GATT/WTO issue, atleasttothatextent. Thus, wehavenoalternative buttoexamine the
provisions oftheLomé Convention ourselves insofarasitisnecessary tointerpret theLomé
waiver."109
200. Also, werecall thatthearbitrator inthe1990Canada/EC Wheat case,which involved abilateral
agreement establishing thetime-periods forexercising Article XXVIII rights, stated asfollows:
"Inprinciple aclaim based onabilateral agreement cannot bebrought under themultilateral
dispute settlement procedures oftheGATT. Anexception iswarranted inthiscasegiven the
close connection ofthisparticular bilateral agreement withtheGATT, thefactthatthe
Agreement isconsistent withtheobjectives oftheGATT, andthatbothparties joined in
requesting recourse totheGATT Arbitration procedures."110
201. Third, inthepresent case, theOilseeds Agreement wasnegotiated within theframework of
Article XXVIII ofGATT.111Insofar asthecontent oftheOilseeds Agreement isincorporated into
Schedule LXXX -apoint notdisputed bytheparties -there isaclose connection between thetwo.
202. Forthesereasons,weproceedtotheexaminationoftheOilseedsAgreementtotheextentrelevant
tothedetermination oftheEC'sobligations under theWTO agreements vis-à-vis Brazil.
(ii) Relationship between theOilseeds Agreement andSchedule LXXX
203. Since theTRQinquestion isprovided forintheEC'scurrent tariffschedule (Schedule LXXX),
westartwithanexamination oftherelationship between theOilseeds Agreement -which gaverise
totheopening oftheTRQ -andSchedule LXXX.
204. Asnoted above, theOilseeds Agreement wasconcluded within thecontext ofArticle XXVIII
negotiations. Under ordinary circumstances, theresulting modification oftheECtariffschedule would
have been certified bytheDirector-General pursuant tothe1980 procedure formodification and
108Paragraph 155.
109Panel Reports onEuropean Communities -Regime fortheImportation, SaleandDistribution ofBananas ,adopted
on25September 1997, WT/DS27/R, para. 7.98, cited intheAppellate Body Report (WT/DS27/AB/R) atpara. 167.
110Award bytheArbitrator onCanada/European Communities Article XXVIII Rights ,BISD 37S/80, at84.
111Seeparagraph 8.WT/DS69/R
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rectification ofschedules.112However, astheconclusion oftheOilseeds Agreement coincided with
thesubstantive conclusion oftariffnegotiations intheUruguay Round, thisprocedure wasnotstrictly
followed. TheECdirectly incorporated thesubstance oftheOilseeds Agreement intoitsthen-current
tariffschedule, effective 1January 1994, andalsointoSchedule LXXX attheconclusion oftheUruguay
Round negotiations.113Thisprocedural anomaly, inourview, doesnotaffect thelegalcharacterization
oftheOilseeds Agreement asabilateral agreement concluded within thecontext ofArticle XXVIII
negotiations, asisevidenced bythefactthatthenegotiations leading toitsconclusion wereauthorized
bytheCONTRACTING PARTIES. Itissufficient tonoteatthisjuncture thattheEC"multilateralized"
theresult oftheoilseeds compensation negotiations (including theOilseeds Agreement between Brazil
andtheEC)through acommunication totheTNC Chairman andthatnoGATT contracting party or
other participant oftheUruguay Round raised anobjection tothiscommunication atthattime.114In
anyevent, theECexplains thatitsowntariff regulations onpoultry products werefirstmodified as
aresult oftheconclusion oftheOilseeds Agreement andthatthese modifications weremaintained in
principle intheregulations adopted inorder toimplement theresults oftheUruguay Round.115
205. TheECclaims thatwhatever hadbeenagreed intheOilseeds Agreement wassuperseded by
Schedule LXXX under therules ofArticles 59(1) or,alternatively, Article 30(3) oftheVienna
Convention ontheLawofTreaties (Vienna Convention). Article 59(1) oftheVienna Convention reads
asfollows:
"Atreaty shallbeconsidered asterminated ifalltheparties toitconclude alatertreaty relating
tothesame subject-matter and:
(a) itappears fromthelatertreaty orisotherwise established thattheparties intended that
thematter should begoverned bythattreaty; or
(b) theprovisions ofthelatertreaty aresofarincompatible withthose oftheearlier one
thatthetwotreaties arenotcapable ofbeing applied atthesame time."
Article 30(3) oftheVienna Convention further reads asfollows:
"When alltheparties totheearlier treaty areparties alsotothelatertreaty buttheearlier treaty
isnotterminated orsuspended inoperation under Article 59,theearlier treaty applies only
totheextent thatitsprovisions arecompatible withthose ofthelatertreaty."
206. Although wenotethatthese provisions oftheVienna Convention (which generally pertain to
thelegalmaxim lexposterior derogat prior)arecodification ofthecustomary rules ofinterpretation
ofpublic international lawwithin themeaning ofArticle 3.2oftheDSU116,wealsonotethatpastpanels
havebeencareful about theapplication ofthelexposterior ruleontariff schedules. Indeed, inthe
1990 EEC-Oilseeds case, which gaverisetotheOilseeds Agreement inthepresent case, thepanel
stated asfollows:
112Procedure forModification andRectification ofSchedules ofTariff Concessions ,Decision oftheCONTRACTING
PARTIES on26March 1980, BISD 27S/25.
113Paragraph 43.
114Ibid.
115Paragraph 22.
116Seeparagraph 209.WT/DS69/R
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"Inthesecircumstances, thepartners oftheCommunity inthesuccessive renegotiations under
Article XXIV:6 could legitimately assume, intheabsence ofanyindications tothecontrary,
thattheoffertocontinue atariff commitment bytheCommunity wasanoffernottochange
thebalance ofconcessions previously attained. ThePanel noted thatnothing inthematerial
submitted toitindicated thattheCommunity hadmade itcleartoitsnegotiating partners that
thewithdrawal andreinstitution ofthetariffconcessions foroilseeds aspartofthewithdrawal
ofthewhole oftheCommunity Schedule meant thattheCommunity wasseeking anewbalance
ofconcessions withrespect tothese items. There isinparticular noevidence thatthe
Community, inthecontext ofthesenegotiations, offered tocompensate itsnegotiating partners
foranyimpairment ofthetariff concessions through production subsidies orthatitaccepted
compensatory tariff withdrawals byitsnegotiating partners totakeintoaccount anysuch
impairment. Thebalance ofconcessions negotiated in1962 inrespect ofoilseeds wasthus
notaltered inthesuccessive Article XXIV:6 negotiations. ThePanel therefore found thatthe
benefits accruing totheUnited States under theoilseed tariff concessions resulting from the
Article XXIV:6 negotiations of1986/87 include theprotection ofreasonable expectations the
United States hadwhen these concessions were initially negotiated in1962."117
TheOilseeds panel didnotrulethatbyapplication ofthelexposterior rule,theCommunity wasbound
onlybythenewest oftariff schedules, being released from alltheprevious commitments. Onthe
contrary, thepanel found thatthebalance ofconcessions negotiated in1962inrespect ofoilseeds was
notaltered inthesuccessive tariff negotiations.
207. Inourview, asimilar situation exists inthepresent case. ThefactthattheOilseeds panel
dealtwithanon-violation complaint doesnotalterthevalidity ofthisanalysis. Ifanimporting Member
must respect allofitscommitments intheprevious rounds inrespect ofreasonable expectations in
anon-violation case,bylogical extension, suchexpectations would alsoberelevant totheinterpretation
ofatariffcommitment inaviolation case. Inotherwords, wecannot summarily dismiss thesignificance
oftheOilseeds Agreement intheinterpretation ofSchedule LXXX byrecourse tothepublic international
lawprinciples embodied intheVienna Convention.
(iii) TheOilseeds Agreement ascompensatory adjustment under Article XXVIII:2
208. Nowweturntoanexamination ofthesubstance oftheOilseeds Agreement. Under theterms
oftheAgreement, itwasagreed that:
"Duty exemption shallbeapplicable forcutsfalling within subheadings 0207.41.10, 0207.41.41
and0207.41.71 within thelimits ofaglobal annual tariffquota of15,500 tonnes tobegranted
bythecompetent Community authorities".118
Thesubstance ofthisagreement isincorporated intotherelevant partofSchedule LXXX (PartI,Most-
favoured-nation Tariff; Section I,Agricultural Products; Section I-B,Tariff Quotas; Minimum Access
Quotas) corresponding tothesame tariff itemnumbers. Therefore, theanalysis oftheOilseeds
Agreement isequally relevant intheinterpretation ofSchedule LXXX.
209. Under Article 3.2oftheDSU, wearerequired toexamine therelevant partoftheOilseeds
Agreement "inaccordance withcustomary rulesofinterpretation ofpublic international law". Ashas
117Panel Repor tonEuropeanEconomicCommunity-PaymentsandSubsidiesPaidtoProcessorsandProducersofOilseeds
andRelated Animal-feed Proteins ,adopted on25January 1990, BISD 37S/86, para. 146.
118Annex 1toBrazil 'sfirstwritten submission. Thesame language canbefound, e.g.intheagreed minutes between
theECandPoland, published intheOfficial Journal oftheEuropean Communities NoL47/22, dated 18February 1994.WT/DS69/R
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beennoted bymany previous panels andtheAppellate Body, Article 31(1) oftheVienna Convention
describes suchcustomary rules asfollows:
"Atreaty shallbeinterpreted ingoodfaithinaccordance withtheordinary meaning tobegiven
totheterms ofthetreaty intheircontext andinthelightofitsobject andpurpose."
Accordingly, wefollow these rules intheanalysis oftheOilseeds Agreement.
(a) Ordinary meaning oftheterms
210. Brazil claims thatthetotalTRQunder theOilseeds Agreement should bereserved exclusively
forproducts originating inBrazil. Theordinary meaning oftheterms usedinthisparticular provision,
onitsface, doesnotappear tosupport theBrazilian claim. There isnothing inthisprovision that
suggests thatthisTRQisacountry-specific tariffquota withBrazil being thesolebeneficiary. According
toBrazil,however,theterm"global"means"coveringavarietyoftarifflines",inthiscaseencompassing
thethree listed subheadings.119TheECclaims thattheterm"global" asusedinthisprovision means
"general", "universal", "comprehensive", "catch-all" orinWTO terms, most-favoured-nation (MFN)
orergaomnes .120
211. Various arguments made byBrazil inparagraph 58indicate thattheterm"global quota" could
mean something other thanMFN, butdonotconstitute conclusive evidence totheeffect thatthe
particular terms usedintheOilseeds Agreement mustbereadthewayclaimed byBrazil. Wenote,
however, thattheterm"aglobal annual tariff quota" isaloosely defined, non-legal term. Pursuant
toArticle 31(1) oftheVienna Convention, weneedtotakeintoaccount thecontext andtheobject
andpurpose oftheOilseeds Agreement inorder todetermine theprecise meaning oftheterms used
therein. Since thecontext oftheterm"global annual tariff quota" doesnotgiveusanyadditional
guidance, weturntotheobject andpurpose oftheOilseeds Agreement.
(b) Object andpurpose oftheOilseeds Agreement
212. Brazil 'sclaim thatthetotalTRQ should bereserved exclusively foritsproducts derives from
itsunderstanding ontheobject andpurpose oftheOilseeds Agreement ascompensatory adjustment
within themeaning ofArticle XXVIII:2 ofGATT, which reads asfollows:
"Insuchnegotiations andagreement, which mayinclude provision forcompensatory adjustment
withrespect toother products, Members concerned shallendeavour tomaintain ageneral level
ofreciprocal andmutually advantageous concessions notlessfavourable totrade thanthat
provided forinthisAgreement prior tosuchnegotiations."
Brazil argues thattheMFN principle under Articles IandXIIIofGATT doesnotnecessarily apply
toTRQs opened asaresult ofthecompensation negotiations under Article XXVIII ofGATT.121
According toBrazil, since thepurpose oftheOilseeds Agreement wastocompensate Brazil forthe
modification ofECconcessions onoilseeds, Brazil isentitled toanexclusive benefit inthemodified
tariffschedule. TheECresponds thatthenature ofcompensation cannot change thelegalreality under
theGATT/WTO agreements: i.e.theECwasbound, onanMFN basis, byitstariffcommitments.122
119Paragraph 56.
120Paragraph 57.
121Paragraphs 37and59.
122Paragraph 55.WT/DS69/R
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213. First, weexamine whether Brazil 'sargument issupported byspecific provisions intheWTO
agreements, decisions oftheMinisterial Conference/General Council or"thedecisions, procedures
andcustomary practices followed bytheCONTRACTING PARTIES".123Wenotethat,despite Brazil 's
assertions thatthere areexamples ofcountry-specific TRQs inpractice andthatthose TRQs arewell
recognized byacademic writers,124thereisnoprovision intheWTO agreements thatallows departure
from theMFN principle inthecaseofTRQs resulting from Article XXVIII negotiations.125Noris
thereanydecision oftheCONTRACTING PARTIES oroftheMinisterial Conference/General Council,
oranyadopted panel orAppellate Body report thatpermits suchdeparture.
214. Inourview, pastGATT practice supports theapplicability oftheMFN principle inthese
situations. Forinstance, inresponse toacomplaint oftheBenelux countries regarding thefailure by
Germany tobring down totheleveloftheBenelux ratestheGerman duties oncereal starch andpotato
flour aswellasonsome derivatives, apanel in1955 made thefollowing observation:
"ThePanel tooknoteoftheagreement reached between thedelegations concerned onthebasis
oftheofferwhich, intheopinion ofbothparties, represents afirststeptoward thefulfilment
ofthepromise contained intheletter of31March 1951, andnoted alsotheassurance given
bytheGerman delegation thattheglobal custom quotas envisaged forpotato starch would be
administered inaccordance withtheprovisions ofArticle XIIIoftheGeneral Agreement."126
Although nottechnically aresult ofArticle XXVIII negotiations, theTRQopened byGermany inthis
casecould becharacterized asaform ofcompensation fornotfulfilling itstariff commitments inthe
previous round. Intheapplication oftheTRQ, Germany followed theMFN principle contained in
Article XIIIandthepanel (andtheCONTRACTING PARTIES) accepted itasapositive move toward
thesolution ofthedispute. Thus, wefindthatBrazil 'sargument isnotsupported either bythetext
oftheWTO Agreement orpastGATT practices.
215. Second,andmoreimportantly,wenotethattheconcessionsmodifiedastheresultoftheOilseeds
Agreement regarding soyabeans andother oilseeds were MFN commitments tobindthetariff rates
onthose products asduty-free. InviewoftheEC'sobligations under Article XXVIII:2 to"maintain
ageneral levelofreciprocal andmutually advantageous concessions notlessfavourable totrade than
thatprovided for"initsprevious tariff schedule, compensation forthewithdrawal ormodification of
MFN commitments should begiven inanMFN manner also. Ifapreferential treatment ofaparticular
trading partner notelsewhere justified ispermitted under thepretext of"compensatory adjustment"
under Article XXVIII:2, itwould create aserious loophole inthemultilateral trading system. Such
aresult would fundamentally altertheoverall balance ofconcessions Article XXVIII isdesigned to
achieve.
216. Brazil argues thatbyfailing torespect thebalance between thewithdrawal ofaconcession
andtheoffering ofcompensation inanother product, theEChasdenied Brazil 'srights within the
multilateral system.127Inourview, however, thebalance mustbesought notonlybilaterally butalso
within themultilateral context, asrequired under Article XXVIII:2 ofGATT. Indeed, most tariff
123Article XVI:1 oftheAgreement Establishing theWorld Trade Organization.
124Paragraph 54.
125Wedonotconsider Brazil 'sreference toGATT Articles XIX:3 andXXIII:2 (paragraph 54)toberelevant tothiscase.
Those provisions address withdrawal ofconcessions inspecific situations involving safeguard measures ordispute settlement.
126Panel Report onGerman Import Duties onStarch andPotato Flour ,noted bytheCONTRACTING PARTIES on
16February, BISD 3S/77, para. 7.
127Paragraph 40.WT/DS69/R
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concessions arenegotiated bilaterally, buttheresults ofthenegotiations areextended onamultilateral
basis. Thefactthatthepoultry TRQ wasopened asaresult ofbilateral negotiations between theEC
andBrazil doesnotmean thattheECwasobligated toaccord thebenefit exclusively toBrazil. In
conclusion, wefindthattheobject andpurpose oftheOilseeds Agreement doesnotsupport Brazil 's
argument thatthetotalTRQ should bereserved exclusively foritsproducts.
(c) Preparatory work ofArticle XXVIII
217. Theconclusion thattheECisbound, onanMFN basis, byitstariff commitments forfrozen
poultry meatunder theOilseeds Agreement isconfirmed bythepreparatory work ofArticle XXVIII
ofGATT.128Regarding theprovision which eventually became Article XXVIII:3, theChairman of
theTariff Agreements Committee atGeneva in1947 concluded asfollows:
"Itwasagreed thatthere wasnointention tointerfere inanywaywiththeoperation ofthe
most-favoured-nation clause. ThisArticle isheaded 'Modification ofSchedules '.Itrefers
throughout toconcessions negotiated under paragraph 1ofArticle II,theSchedules, andthere
isnoreference intheArticle toArticle I,which istheMost-Favoured-Nation clause. Therefore,
Ithink theintent isclear: thatinnowayshould thisArticle interfere withtheoperation of
theMost-Favoured-Nation clause."129
(iv) Summary
218. Tosumupourfindings inthissection, wefindnoproof (either inthetextorintheobject
andpurpose oftheOilseeds Agreement) insupport oftheBrazilian claim thatthepoultry TRQopened
astheresult oftheOilseeds Agreement wasintended tobeacountry-specific tariff quota withBrazil
being thesolebeneficiary. Inother words, wefindthattheECisbound, onanMFN basis, byits
tariff commitments forfrozen poultry meat. Wealsoreject Brazil 'sargument thatArticles IandXIII
ofGATT donotnecessarily apply toTRQs given ascompensation under Article XXVIII.
C. LEGITIMATE EXPECTATIONS
219. Before moving ontotheexamination ofBrazil 'salternative claim onArticle XIIIofGATT,
weaddress Brazil 'ssupplementary claim regarding legitimate expectations byBrazil concerning the
tariff treatment ofthepoultry products bytheEC.130Brazil doesnotinvoke particular provisions of
theWTO agreements tosupport itsclaim. Inthisregard, wenotethattheAppellate Body inarecent
reportemphasizedtheimportanceofdistinguishingbetween(a)theconceptofprotectingtheexpectations
ofMembers astothecompetitive relationship between theirproducts andtheproducts ofotherMembers
and(b)theconcept oftheprotection ofthereasonable expectations ofMembers relating tomarket
accessconditions.AccordingtotheAppellateBody,theformerwasdevelopedinthecontextofviolation
complaints involving Articles IIIandXIofGATT, while thelatter wasdeveloped inthecontext of
non-violation complaints.131
128Article32oftheViennaConvent ionprovides:"Recour semaybehadtosupplement arymeans ofinterpretation,including
thepreparatory work ofthetreaty andthecircumstances ofitsconclusion, inorder toconfirm themeaning resulting from
theapplication ofArticle 31...".
129EPCT/TAC/PV/18, p.46,reproduced intheAnalytical Index (1995) atp.947.
130Paragraph 46.
131Appellate Body Report onIndia -Patent Protection forPharmaceutical andAgricultural Chemical Products ,adopted
on16January 1998, WT/DS50/AB/R, para. 36.WT/DS69/R
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220. Inthepresent case,because Brazil doesnotinvoke specific provisions andmakes nodistinction
between "expectations astothecompetitive relationship" and"reasonable expectations relating tomarket
access conditions", intheabsence ofanyfurther elaboration, wearenotabletoreach afinding on
thispoint.
D. ARTICLE XIIIOFGATT
221. Wenowturntotheexamination ofBrazil 'salternative claim under Article XIIIofGATT.
Themainargument presented byBrazil involves Article XIII:2, which reads inrelevant partasfollows:
"Inapplying import restrictions toanyproduct, Members shallaimatadistribution oftrade
insuchproduct approaching asclosely aspossible theshares which thevarious Members might
beexpected toobtain intheabsence ofsuchrestrictions andtothisendshall observe the
following provisions: ...;(d)Incases inwhich aquota isallocated among supplying countries
theMember applying therestrictions mayseekagreement withrespect totheallocation ofshares
inthequota withallother contracting parties having asubstantial interest insupplying the
product concerned. Incases inwhich thismethod isnotreasonably practicable, theMember
concerned shallallottoMembers having asubstantial interest insupplying theproduct shares
based upontheproportions, supplied bysuchMembers during aprevious representative period,
ofthetotalquantity orvalue ofimports oftheproduct, dueaccount being taken ofanyspecial
factors which mayhaveaffected ormaybeaffecting thetrade intheproduct. Noconditions
orformalities shallbeimposed which would prevent anyMember fromutilizing fullytheshare
ofanysuchtotalquantity orvalue which hasbeenallotted toit,subject toimportation being
made within anyprescribed period towhich thequota mayrelate."
222. Article XIIIofGATT generally requires thenon-discriminatory administration ofquantitative
restrictions. Article XIIIalsoapplies totariff quotas, asprovided inparagraph 5,which reads:
"The provisions ofthisArticle shallapply toanytariff quota instituted ormaintained byany
Member, and,insofarasapplicable, theprinciples ofthisArticle shallalsoextend toexport
restrictions."
These points wereaffirmed bytheAppellate Body intheBanana IIIcase132,andarenotcontested by
theparties. However, theparties havedivergent views ontheapplication ofArticle XIIItotheactual
operation oftheTRQ inthisparticular case.
(i) Agreement ontheallocation oftheTRQ
223. Brazil claims thattheECreached anagreement withBrazil in1993 ontheallocation ofthe
totalTRQ toBrazil within themeaning ofArticle XIII:2(d).133TheECrejects thisclaim.134
132Appellate Body Report onBanana III,op.cit.,para. 160.
133Paragraph 64.
134Paragraph 65.WT/DS69/R
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224. Consistent withtheviews ontheburden ofproof putforward bytheAppellate Body inthe
Shirts andBlouses case135,wefirstexamine evidence produced byBrazil todetermine whether ithas
successfully raised apresumption thatanagreement regarding theallocation oftariff quotas exists.
225. Brazil hasdemonstrated thatitcomplained about theoperation oftheTRQ asearly as
28March 1994.136Thefirstletter ofcomplaint -fromtheBrazilian Ambassador inBrussels toasenior
ECofficial -reads asfollows (emphasis added):
"Ihavejustreceived information thattheCouncil issupposedly about todecide ontheallocation
ofthe15,500 tonnes ofchicken and2,500 tonnes ofturkey resulting from theoilseeds
compensation agreement. Theproposal tobesubmitted would divide thetonnage equally into
threegroups (a:Brazil; b:Thailand; c:China, USAandtheremaining countries), eachreceiving
onethirdofthecontingent. ...[T]his distribution ,inmyopinion, definitely isnotcompatible
withthespirit oftheoilseeds compensations agreement signed withBrazil. Iwould, therefore,
appreciate yourlooking intothismatter withtheutmost urgency."
Another letter of20May1994 from theAmbassador toanother ECofficial reads inpartasfollows
(emphasis added):
"Wehavebeeninformally advised thatitwould betheintention oftheCommission topropose
thedivision ofthatamount [15,500 tonnes forpoultry meatand2,500 tonnes forturkey meat]
allocating only45percentofthepoultry meatquota and71percentoftheturkey meatquota
toBrazil. ItistheviewoftheBrazilian Government thatsuchquota allocation would bea
breach oftheintent andspirit oftheagreement, since itwould notensure thatBrazil isduly
compensated forthelosses itsuffered ...."
Finally, on15April 1997, theAmbassador wrote totheVice-President oftheEuropean Commission,
stating (emphasis added):
"...[W]e havenever willingly concurred withtheterms dictated bytheCommission in1994
forthedistribution andmanagement ofsaidquotas. ...Thefirsttwoletters [cited above] clearly
statethat,inourview, theirproposed distribution would beinbreach oftheintent andspirit
oftheagreement reached inGeneva tocompensate Brazil forthelosses incurred asaresult
ofthechanges intheEUoilseeds regime."
226. Itisalsoworth noting herethatBrazil atthispoint hadnotexplicitly claimed thatthetotal
TRQ wastobereserved exclusively forBrazil. Rather, Brazil refers tothe"intent andspirit" ofthe
Oilseeds Agreement andappears toprotest against thewayinwhich thetariff quota isdistributed or
allocated.
227. Itappears from these letters thatthere wasnoexplicit agreement regarding theallocation of
tariff quotas between Brazil andtheEC.
135Appellate Body Report onUnited States -Measure Affecting Imports ofWoven Wool Shirts andBlouses fromIndia,
adopted on23May1997, WT/DS33/AB/R, p.14.Thereport alsostates: "...aparty claiming aviolation ofaprovision
oftheWTO Agreement byanother Member must assert andprove itsclaim" (p.16).
136Letters ofcomplaint attached toBrazil 'sfirstwritten submission. WenotethattheECdidnotrespond toanyofthese
letters inwriting.WT/DS69/R
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(ii) Participation ofnon-Members andEastEuropean countries intheTRQ
228. Brazil additionally claims thattheEChasfailed tofollow therules ofArticle XIII:2(d) by
granting China, which isanon-Member, access totheTRQ137andalsobyallocating licences toproducts
fromMembers inEastEurope, which haveprivileged access totheECmarket.138Weaddress these
twoissues separately.
(a) Non-Members
229. Wefirstexamine theissue ofnon-Members. Brazil claims thattheECcannot unilaterally
grant tonon-Members therighttoparticipate inacompensatory TRQ. TheECclaims thatthere is
noobligation todiscriminate against non-Members under Article XIII:2(d). According totheEC,
iftheECweretoexclude non-Members fromthescope oftheallotment, theresulting share ofBrazil
would behigher than"theshares which thevarious Members might beexpected toobtain intheabsence
ofsuchrestrictions" under theopening sentence ("chapeau") ofArticle XIII:2.139
230. WenotethatArticle XIIIcarefully distinguishes between Members ("contracting parties" in
theoriginal textofGATT 1947) and"supplying countries" or"source". There isnothing inArticle XIII
thatobligates Members tocalculate tariff quota shares onthebasisofimports fromMembers only.140
Ifthepurpose ofusing pasttrade performance istoapproximate theshares intheabsence ofthe
restrictions asrequired under thechapeau ofArticle XIII:2, exclusion ofanon-Member, particularly
ifitisanefficient supplier, would notserve thatpurpose.
231. Thisinterpretation isalsoconfirmed bytheuseinArticle XIII:2(d) oftheterm"ofthetotal
quantity orvalue ofimports oftheproduct" without limiting thetotalquantity toimports fromMembers.
232. Theconclusion above isnotaffected bythefactthattheTRQ inquestion wasopened as
compensatory adjustment under Article XXVIII because Article XIIIisageneral provision regarding
thenon-discriminatory administration ofimport restrictions applicable toanyTRQs regardless oftheir
origin.
233. Forthese reasons, wefindthattheEChasnotacted inconsistently withArticle XIIIofGATT
bycalculating Brazil 'stariff quota share based onthetotalquantity ofimports, including those from
non-Members.
137Paragraph 66.
138Paragraphs 68and70.
139Paragraph 71.WenotethatiftheECwere toexclude non-Members from thebasis ofthecalculation oftariff quota
shares, suchanexclusion initself would notconstitute aviolation ofArticle XIII:2. Thequestion weneedtoaddress here
iswhether theECisrequired toexclude non-Members from thebasis ofthecalculation oftariff quota shares.
140Wenoteinthisregard thatintheBanana IIIcase, thepanel made thefollowing observation (which wasnotaffected
bythesubsequent appeal): "The consequence oftheforegoing analysis isthatMembers maybeeffectively required touse
ageneral ‘others ’category forallsuppliers other thanMembers withasubstantial interest insupplying theproduct. The
factthatinthissituation tariff quota shares areallocated tosome Members, notably those having asubstantial interest in
supplying theproduct, butnottoothers thatdonothaveasubstantial interest insupplying theproduct, would notnecessarily
beinconflict withArticle XIII:1. While therequirement ofArticle XIII:2(d) isnotexpressed asanexception tothe
requirements ofArticle XIII:1, itmayberegarded, totheextent thatitspractical application isinconsistent withit,aslex
specialis inrespect ofMembers withasubstantial interest insupplying theproduct concerned". Seepanel reports onEuropean
Communities -Regime fortheImportation, SaleandDistribution ofBananas ,op.cit.,para. 7.75. Thequoted passage,
particularly theuseofthephrase "allsuppliers other thanMembers withasubstantial interest insupplying theproduct"
(emphasis added), indicates thattheBanana IIIpanel didnottaketheview thatallocation ofquota shares tonon-Members
under Article XIII:2(d) wasnotpermitted.WT/DS69/R
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(b) Members inEastEurope
234. Nowwemove ontotheissueofMembers inEastEurope. According totheevidence submitted
bytheEC,licences inthe"others" category areallocated topoultry products originating inEastEurope,
notably Hungary andPoland. Wenoteinthisregard thattheECandthethenCzech andSlovak
Republic, Hungary andPoland in1992jointly notified theCONTRACTING PARTIES thattheInterim
Agreements aimed attheestablishment offreetrade areas under Article XXIV ofGATT came into
force asof1March 1992.141Brazil claims thattheallocation oflicences toimports ofpoultry products
fromEastEuropean countries isinconsistent withArticle XIIIofGATT because theEChasreduced
thebenefit toother Members byallowing these countries toparticipate intheTRQ.
235. Inaddressing thisissue, wefirstnotethatthecalculation oftariff quota shares andthe
participation ofsupplying countries inthetariff quota aretwodistinct issues. Asnoted above, itis
clearfromthechapeau ofArticle XIII:2 thattheshare calculation mustapproximate theshares which
theexporting Members might beexpected toobtain intheabsence oftherestrictions. However, such
calculated shares donotnecessarily determine which Members arepermitted toparticipate intheactual
allocation oflicences, particularly inan"others" category.
236. Inthepresent case,thetotalTRQ quantity of15,500 tonnes isagiven figure forthepurposes
ofArticle XIII, notcontested bytheparties. Brazil hasnottaken aposition ontheECassertion that
theannual figure of7,100 tonnes allocated forimports fromBrazil corresponds toBrazil 'sshare among
thetotalimports intotheECduring therepresentative period.142Inthiscontext, Brazil doesnot
specifically address thecalculation oftariff quota shares. Rather, itclaims thattheparticipation of
EastEuropean countries inthe"others" category isinconsistent withArticle XIII:2.
237. WenotethatBrazilcitestheNewsprintpanelasaprecedent.143ThefactualbasisoftheNewsprint
casewasasfollows. TheEuropean Economic Community (EEC) opened aduty-free tariff quota of
500,000 tonnes fornewsprint fortheyear1984whereas thecommitment oftheEECinitstariffschedule
provided foranannual duty-free tariff quota of1.5million tonnes. Thereason forthereduction in
thescope ofthetariffquota wastotakeaccount ofthefreeaccess totheEECmarket ofsuppliers from
theEuropean FreeTrade Association (EFTA), which wasagreed uponsubsequent tothetariffschedule.
Inresponse toacomplaint byCanada, theEECnoted thatifitwererequired torespect the1.5million-
tonne level, itmight count EFTA exports against thatlevel. Inrespect ofthiscourse ofsuggested
action bytheEEC, thepanel made thefollowing statement:
"Itisinthenature ofaduty-free tariff quota toallow specified quantities ofimports intoa
country duty-free which would otherwise bedutiable, which isnotthecaseforEFTA imports
byvirtue ofthefree-trade agreements. Imports which arealready duty-free, duetoapreferential
agreement, cannot bytheirverynature participate inanm.f.n. duty-free quota. Thesituation
inthisrespect could onlychange ifthefree-trade agreements withtheEFTA countries were
tobediscontinued; inthiscasethese countries would beentitled tofallbackontheirGATT
rights vis-à-vis theEC,which rights continue toexist."144
238. There issome similarity between theNewsprint caseandthepresent caseregarding thisspecific
issue. AsintheNewsprint case, thepurpose ofthepoultry TRQ istoallow specified quantities
141L/6992, 3April 1992.
142Paragraph 53.
143Panel onNewsprint ,adopted on20November 1984, BISD 31S/114.
144Ibid,para. 55.WT/DS69/R
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(15,500 tonnes) ofimports intotheECduty-free which would otherwise bedutiable. However, there
arethree important factual differences. First, intheNewsprint case, EFTA suppliers wereaccorded
duty-free access totheEEC market without restriction. Inthepresent case, imports from Hungary
andPoland under theInterim Agreements arestilldutiable.145Second, intheNewsprint case,thelevel
oftheMFN duty-free quota wasreduced inorder tomake room forpreferential access while inthe
present casenosuchreduction hasoccurred. Third, intheNewsprint case, theEFTA agreement was
concluded aftertheopening oftheMFN quota whereas inthiscasetheInterim Agreements preceded
theopening ofthepoultry TRQ.
239. Thus, thepresent caselacks thebasis thatledtotheconclusion bytheNewsprint panel. We
alsonotethatbefore making thestatement citedinparagraph 237above, theNewsprint panel stated
that"thePanel could findnoGATT specific provision forbidding suchaction".146IfBrazil hadintended
toclaim aviolation ofArticle XIII:2 onthisspecific issue, ataminimum, itshould haveelaborated
onthenature ofpreferences accorded topoultry products imported fromEastEurope andshould have
tiedittointeralia"anyspecial factors which mayhaveormaybeaffecting thetrade intheproduct"
referred toinArticle XIII:2(d). Ithasnotdoneso.
240. Accordingly, wedonotfindthattheEChasacted inconsistently withArticle XIIIwithrespect
tothetariff quota allocation forimports from Members inEastEurope.
E. LICENSING AGREEMENT
241. Brazil 'sclaim regarding theLicensing Agreement canbesub-divided intoissues involving
(i)notification; (ii)changes tothelicensing rules; (iii)distortion oftrade; (iv)licence entitlement
basedonexportperformance;(v)speculationinlicences;(vi)issuanceoflicencesineconomicquantities
andnewcomers; and(vii)transparency.147Weexamine these issues inturn.
(i) Notification
242. Brazil claims thattheEChasfailed tonotify thenecessary information regarding thepoultry
TRQtotheWTO Committee onImport Licensing under Article 1.4(a) oftheLicensing Agreement.148
TheECresponds thatitdidnotmake anotification because itwasunclear whether theLicensing
Agreement applied toTRQs before theAppellate Body report ontheBanana IIIcase. TheECfurther
claims thatthemerefactofnon-notification cannot beconsidered torender thewhole regime illegal.149
145According totheannexes attached tothenotification referred toinparagraph 234, onecategory ofpoultry meat
(0207 4110)originating inHungary andPoland benefit fromcertain special non-MFN quotas under theInterim Agreements.
However ,importsunder thesequotasaredutiableatreduced rates.SeeOfficialJournalNoL348/1. SinceBrazilhassubmi tted
noevidence regarding thenature ofpreferences onpoultry products from EastEurope, wearenotinaposition toknow
what kindofpreferential treatment, ifany,isgiven toother categories (0207 4141and0207 4171).
146Panel Report onNewsprint, op.cit.,para. 55.
147Inaddition tothese seven issues, Brazil refers tothenature ofcompensation inthecontext oftheLicensing Agreement
also. Seeparagraph 109. However, since wehavealready addressed thisissue inouranalysis oftheOilseeds Agreement,
wedonotconsider itnecessary torepeat thediscussion.
148Paragraph 76.WenotethatBrazil doesnotrefer toArticle 5oftheLicensing Agreement, which isamore general
provision about notification. Article 1.4(a) onlydeals withthesources ofpublication.
149Paragraph 77.WT/DS69/R
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243. Article 1.4(a) oftheLicensing Agreement reads asfollows:
"The rules andallinformation concerning procedures forthesubmission ofapplications,
including theeligibility ofpersons, firms andinstitutions tomake suchapplications, the
administrative body(ies) tobeapproached, andthelistsofproducts subject tothelicensing
requirement shallbepublished, inthesources notified totheCommittee onImport Licensing
provided forinArticle 4(referred tointhisAgreement as"theCommittee"), insuchamanner
astoenable governments150andtraders tobecome acquainted withthem. Such publication
shalltakeplace, whenever practicable, 21daysprior totheeffective dateoftherequirement
butinallevents notlaterthansucheffective date. Anyexception, derogations orchanges
inorfromtherulesconcerning licensing procedures orthelistofproducts subject toimport
licensing shall alsobepublished inthesame manner andwithin thesame timeperiods as
specified above. Copies ofthese publications shallalsobemade available totheSecretariat."
244. While wenotetheEC'sexplanation fornon-notification, wefindthisomission tobeinconsistent
withArticle 1.4(a) oftheLicensing Agreement. Thefactthatalltherelevant information ispublished
andthattheadministration ofallagricultural TRQs intheEChasbeennotified totheWTO Committee
onAgriculture doesnotinourviewexcuse theECfromnotifying thesources ofpublication pursuant
tothissubparagraph.
(ii) Changes tothelicensing rules
245. Brazil claims thatfrequent changes tothelicensing rulesandprocedures regarding thepoultry
TRQ havemade itdifficult forgovernments andtraders tobecome familiar withtherules, contrary
totheprovisions ofArticles 1.4,3.3,3.5(b), 3.5(c) and3.5(d). Brazil further notes thatnotallthe
changes havebeenforthepurpose oftheelimination ofspeculation inlicences andthatthose changes
thataddressed theissue ofspeculation havenotresulted intheelimination ofspeculation.151TheEC
responds thatthere isnothing intheAgreement thatprohibits changes inlicensing procedures.152
246. Wenotethatthetransparency requirement under thecitedprovisions islimited topublication
ofrulesandother relevant information. While wehavesympathy forBrazil regarding thedifficulties
caused byfrequent changes totherules, wefindthatchanges inrulespersedonotconstitute aviolation
ofArticle 1.4,3.3,3.5(b), 3.5(c) or3.5(d).
(iii) Distortion oftrade
247. Brazil claims thatitspercentage share intheECpoultry market hasbeenfalling since the
introduction oftheTRQin1994, contrary toBrazil 'sexpectations. InBrazil 'sview, thisisattributable
tothedistortions oftrade caused bytheoperation oftheTRQ.153Inparticular, Brazil claims thatthe
EChasviolated theprovisions ofArticles 1.2and3.2oftheLicensing Agreement.
150Footnote 3tothissubparagraph reads asfollows: "Forthepurpose ofthisAgreement, theterm'governments 'isdeemed
toinclude thecompetent authorities oftheEuropean Communities."
151Paragraph 80.Seealsoparagraph 76.
152Paragraph 81.
153Paragraphs 82and84.WT/DS69/R
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248. Article 1.2oftheLicensing Agreement provides asfollows (emphasis added):
"Members shallensure thattheadministrative procedures usedtoimplement import licensing
regimes areinconformity withtherelevant provisions ofGATT 1994 including itsannexes
andprotocols, asinterpreted bythisAgreement, withaviewtopreventing trade distortions
thatmayarisefrom aninappropriate operation ofthose procedures, taking intoaccount the
economicdevelopmentpurposesandfinancialandtradeneedsofdevelopingcountryMembers."
Article 3.2oftheLicensing Agreement further provides:
"Non-automatic licensing shall nothave trade-restrictive or-distortive effects onimports
additional tothose caused bytheimposition oftherestriction. Non-automatic licensing
procedures shallcorrespond inscope andduration tothemeasure theyareusedtoimplement,
andshallbenomore administratively burdensome thanabsolutely necessary toadminister the
measure."
249. Inexamining these claims, wefirstnotethatBrazil 'sreference tothepercentage share relates
toitstotalexports ofpoultry products totheECmarket, themajority ofwhich consists ofover-quota
(duty paid)trade. TheLicensing Agreement, asapplied tothisparticular case,onlyrelates toin-quota
trade. Second, thelicences issued toimports fromBrazil arefullyutilized, which strongly suggests
thatanytrade-distortive effects oftheoperation ofthelicensing ruleshavebeenovercome byexporters.
Third, thetotalvolume ofpoultry exports from Brazil hasgenerally beenincreasing (seeAnnex I).
Therefore, wefailtounderstand therelevance ofthedecline inthepercentage share intotaltrade to
aviolation oftheLicensing Agreement. Thus, based ontheevidence presented byBrazil regarding
itspercentage share oftheECpoultry market, wedonotfindthattheEChasacted inconsistently with
Articles 1.2and3.2oftheLicensing Agreement.
(iv) Licence entitlement based onexport performance
250. Brazil claims thattheEC'sallocation ofimport licences onthebasis ofexport performance
isinconsistent withArticles 1.3and3.5(j) oftheLicensing Agreement.154TheECresponds thatnothing
intheLicensing Agreement prohibits theuseofacriterion relating toexports andthatinanyevent
thealleged measure isnolonger inplace(export performance wasonlytaken intoaccount fortheperiod
from 26June1994 to1June1995).155
251. Article 1.3oftheLicensing Agreement provides:
"The rules forimport licensing procedures shallbeneutral inapplication andadministered
inafairandequitable manner."
Article 3.5(j) inrelevant partprovides:
"inallocating licences, theMember should consider theimport performance ofthe
applicant ...."
252. Although themeasure isnolonger inplace, Brazil claims thatthere arecertain lingering
effects.156Therefore, wedonotreject thisclaim onthegrounds ofmootness.
154Paragraph 86.
155Paragraphs 87and88.
156Paragraph 89.WT/DS69/R
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253. Therequirement ofexport performance fortheissuance ofimport licences onitsfacedoes
seem unusual. However, Brazil hasnotelaborated onhowtheexport performance requirement was
administered andhowithasaffected thein-quota exports ofpoultry products from Brazil.
254. WealsonotethattheAppellate Body intheBanana IIIcasemade thefollowing observation:
"Byitsveryterms, Article 1.3oftheLicensing Agreement clearly applies totheapplication
andadministration ofimport licensing procedures, andrequires thatthisapplication and
administration be'neutral ...fairandequitable '.Article 1.3oftheLicensing Agreement does
notrequire theimport licensing rules,assuch, tobeneutral, fairandequitable. Furthermore,
thecontext ofArticle 1.3-including thepreamble, Article 1.1and,inparticular, Article 1.2
oftheLicensing Agreement -supports theconclusion thatArticle 1.3doesnotapply toimport
licensing rules."157
Inourview, theissue oflicence entitlement based onexport performance isclearly thatofrules, not
thatofapplication oradministration ofimport licensing procedures. Thus, Article 1.3isnotapplicable
onthisspecific issue.
255. Furthermore, theprovision ofArticle 3.5(j) inthisregard ishortatory anddoesnotnecessarily
prohibit theconsideration ofother factors thanimport performance.
256. Forthese reasons, wedonotfindthattheEChasacted inconsistently withArticle 1.3or
Article 3.5(j) oftheLicensing Agreement inthisregard.
(v) Speculation inlicences
257. Brazil claims thatspeculation inlicences discourages thefullutilization ofthepoultry TRQ
andthatthisconstitutes aviolation ofArticles 3.5(h) and3.5(j)158.TheECclaims thattheseprovisions
donotimpose amandatory requirement. Furthermore, theECpoints outthattherelevant ECregulation
stipulates thatlicences arenottransferable withaviewtoavoiding speculation. Finally, theECnotes
thatthepoultry TRQ hasinfactbeenfullyutilized.159
258. Article 3.5(h) provides:
"when administering quotas, Members shallnotprevent importation from being effected in
accordance withtheissued licences, andshallnotdiscourage thefullutilization ofquotas ...."
Article 3.5(j) inrelevant partprovides:
"...consideration should begiven astowhether licences issued toapplicants inthepasthave
beenfullyutilized during arecent representative period. Incases where licences havenotbeen
fully utilized, theMember shall examine thereasons forthisandtakethese reasons into
consideration when allocating newlicences ...."
259. While itmaybetruethatBrazilian exporters havehadadditional difficulties inexporting to
theECmarket duetothespeculation inlicences, wenotethatthelicences allocated toimports from
Brazil havebeenfullyutilized. Inother words, thespeculation inlicences hasnotdiscouraged the
157Appellate Body Report ontheBanana III,op.cit.,para. 197.
158Paragraph 91.
159Paragraph 92.WT/DS69/R
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fullutilization oftheTRQ. Thus, wedonotfindthattheEChasactedinconsistently withArticles 3.5(h)
or3.5(j) oftheLicensing Agreement inthisregard.
(vi) Issuance oflicences ineconomic quantities andnewcomers
260. Brazil claims thattheallocation oflicences where eachapplicant receives alicence allowing
imports ofabout 5tonnes cannot beconsidered tobeinconformity withtheprovisions ofArticle 3.5(i)
regarding issuance oflicences ineconomic quantities.160Asarelated matter, Brazil claims thatthe
absence ofanewcomer provision intheregulation regarding theoperation ofthepoultry TRQ is
inconsistent withArticle 3.5(j) oftheLicensing Agreement.161TheECclaims thatthelicences are
indeed issued tonewcomers162andthattheallocation ofthelicences insmall quantities wasmade in
response toaneverincreasing number ofimporters.163
261. Article 3.5(i) provides asfollows:
"when issuing licences, Members shalltakeintoaccount thedesirability ofissuing licences
forproducts ineconomic quantities ...."
Article 3.5(j) further provides inrelevant part:
"inallocating licences, theMember should consider theimport performance oftheapplicant...
Consideration shall alsobegiven toensuring areasonable distribution oflicences tonew
importers, taking intoaccount thedesirability ofissuing licences forproducts ineconomic
quantities. Inthisregard, special consideration should begiven tothose importers importing
products originating indeveloping country Members and,inparticular, theleast-developed
country Members ...."
262. WenoteBrazil 'sargument thatitsexporters arefacing difficulties indealing withlicences
forsmall quantities, which isechoed inThailand 'sthird-party submission also.164While thedecline
intheaverage quantity perlicence maycause problems fortraders, wenoteatthesame timethatthe
totalTRQ hasbeenfullyutilized. Theveryfactthatthelicences havebeenfullyutilized suggests
tousthatthequantities involved arestill"economic", particularly incombination withthesignificant
amount oftheover-quota trade.
263. Thus, wedonotfindthattheEChasacted inconsistently withArticles 3.5(i) or3.5(j) ofthe
Licensing Agreement inthisregard.
(vii) Transparency
264. Brazil claims thatthereisalackoftransparency intheoperation ofthepoultry TRQ. According
toBrazil, theinability oftraders todetermine which consignments arebeing imported within oroutside
160Paragraphs 97and99.Brazil alsorefers toArticle 3.5(h), which wehavediscussed inrelation tospeculation inlicences.
Wenotehereagain thatthelicences inquestion have fully been utilized.
161Paragraph 101.
162Paragraph 102.
163Paragraph 98.
164Paragraph 164.WT/DS69/R
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theTRQ means thatECisnotadministering thelicensing system inatransparent manner.165Brazil
specifically claims aviolation bytheECofArticle 3.5(a)(iii) and(iv)regarding theprovision of
information.166TheECresponds thatithasproduced therelevant information when requested.167
265. Article 3.5(a) inrelevant partreads asfollows:
"Members shallprovide, uponrequest ofanyMember having aninterest intradeintheproduct
concerned, allrelevant information concerning: ...(iii)thedistribution ofsuchlicences among
supplying countries; (iv)where practicable, import statistics (i.e.value and/or volume) with
respect totheproducts subject toimport licensing. Developing country Members would not
beexpected totakeadditional administrative orfinancial burdens onthisaccount; ...."
WenotethatArticle 3.5(a) addresses specific situations intheoperation ofanimport licensing scheme,
subject torequests fromMembers. ItisclearthatArticle 3.5(a) doesnotobligate Members toprovide
voluntarily complete andrelevant information onthedistribution oflicences among supplying countries
andstatistics onvolumes andvalues. Brazil hasnotdemonstrated thatthere hasbeenacasewhere
theEChasfailed toprovide therequired information despite arequest byBrazil. Thus, wedonot
findthattheEChasacted inconsistently withArticle 3.5(a) oftheLicensing Agreement inthisregard.
(viii) Summary
266. Tosumupourfindings inthissection, wefindthatBrazil hasnotdemonstrated aviolation
oftheLicensing Agreement bytheEC,except forthefailure tonotify thenecessary information
regarding thepoultry TRQ totheWTO Committee onImport Licensing under Article 1.4(a) ofthe
Licensing Agreement.
F. ARTICLE XOFGATT
267. Brazil claims thattobeabletobenefit fromtherequirements orconstraints ofexporting either
within oroutside theTRQ, traders needtoknow which trade regime (i.e.duty-free ordutiable) is
applicable toanyoneconsignment. Brazil argues thatthisinterpretation isimplied inArticle Xof
GATT. Ifthiswerenotthecase,according toBrazil, theobject ofpublication andnotification would
notbeserved.168Brazil argues thatthisisarequirement under Article XofGATT aswellasunder
theLicensing Agreement. Inresponse, theECrefers theAppellate Body report intheBanana III
case169andargues thatthisclaim should berejected because theLicensing Agreement takesprecedence
overArticle XofGATT.170
268. Inourview, however, thefactual situation isdifferent inthepresent casefrom thatinthe
Banana IIIcase. AsBrazil correctly points out,thisfinding oftheAppellate Body wasmade inrelation
165Paragraph 105. Since thisissue involves bothin-quota andover-quota trade, weaddress itinSection Fbelow when
wediscuss Article XofGATT.
166Paragraph 107.
167Paragraph 108.
168Paragraph 140.
169Appellate Body Report onBanana III,op.cit.,para. 204.
170Paragraph 141.WT/DS69/R
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toanECregime fortheimportation ofbananas where therewasnoover-quota trade.171Inthepresent
case, there issignificant over-quota trade, andBrazil 'scomplaint focuses onthedifficulty of
differentiating between in-quota andover-quota trade. Therefore, inourview, theexamination of
Article XofGATT aswellastheLicensing Agreement iswarranted since, inthepresent case, the
Licensing Agreement isrelevant toin-quota tradeandArticle XofGATT isrelevant tothetotaltrade.
269. Brazil argues thattheECisobligated toestablish asystem thatenables exporters toknow in
advance whether eachconsignment isgoing tobetreated asin-quota imports orasover-quota imports
under Article X,particularly Article X:3(a), which requires theadministration oftrade rules "ina
uniform, impartial andreasonable manner". Wenote, however, thatArticle Xisapplicable onlyto
laws, regulations, judicial decisions andadministrative rulings "ofgeneral application". Inthisregard,
werecall thatthepanel intheUnderwear casestated asfollows:
"Themerefactthattherestraint atissuewasanadministrative order doesnotprevent usfrom
concluding thattherestraint wasameasure ofgeneral application. Nordoesthefactthatit
wasacountry-specific measure exclude thepossibility ofitbeing ameasure ofgeneral
application. If,forinstance, therestraint wasaddressed toaspecific company orapplied to
aspecific shipment, itwould nothavequalified asameasure ofgeneral application. However,
totheextent thattherestraint affects anunidentified number ofeconomic operators, including
domestic andforeign producers, wefindittobeameasure ofgeneral application."172
Conversely, licences issued toaspecific company orapplied toaspecific shipment cannot beconsidered
tobeameasure "ofgeneral application". Inthepresent case, theinformation which Brazil claims
theECshould havemade available concerns aspecific shipment, which isoutside thescope ofArticle X
ofGATT.
270. InviewofthefactthattheEChasdemonstrated thatithascomplied withtheobligation of
publication oftheregulations under Article Xregarding thelicensing rules ofgeneral application173,
withoutfurtherevidenceandargumentinsupportofBrazil'spositionregardinghowArticleXisviolated,
wedismiss Brazil 'sclaim onthispoint.
G. ARTICLE IIOFGATT
271. Brazil claims thattheissuance oflicences forthepoultry TRQ inuneconomic quantities and
thetradeintheselicences isabreach oftherequirement under Article II:1(b) ofGATT.174Article II:1(b)
provides:
"TheproductsdescribedinPartIoftheSchedulerelatingtoanyMember,whicharetheproducts
ofterritories ofother Members, shall, ontheirimportation intotheterritory towhich the
Schedule relates, andsubject totheterms, conditions orqualifications setforthinthatSchedule,
beexempt from ordinary customs duties inexcess ofthose setforth andprovided therein.
Such products shallalsobeexempt from allother duties orcharges ofanykindimposed on
orinconnection withtheimportation inexcess ofthose imposed onthedateofthisAgreement
171Paragraph 142.
172Panel Report onUnited States -Restrictions onImports ofCotton andMan-made Fibre Underwear fromCosta Rica,
adopted on25February 1997, WT/DS24/R, para. 7.65.
173Paragraph 144.
174Paragraph 147.WT/DS69/R
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orthose directly andmandatorily required tobeimposed thereafter bylegislation inforce in
theimporting territory onthatdate."
TheECrejects thisclaim byasserting thatthere isnolegislation oranylegislative requirement inthe
ECthatimposes extra charges ontopoftheordinary duties andother duties andcharges which are
bound initstariffschedule andthatthealleged payment isnotagovernmental measure. Onthecontrary,
therelevant ECregulation explicitly prohibits transfer oflicences.175
272. WenotethattheWTO Agreement isaninter-governmental agreement concluded among States
orseparate customs territories. Inorder toprevail initsargument, Brazil hastodemonstrate thatthe
alleged payment isagovernmental measure, andithasfailed todoso.Wetherefore reject Brazil 's
claim onaviolation ofArticle II:1(b) ofGATT.
H. ARTICLE IIIOFGATT
273. Brazil claims thattheEC'sadministration oftheTRQhastheeffect ofimported products being
treated inamanner thatislessfavourable thanthataccorded tolikedomestic products inviolation
ofArticle IIIofGATT.176TheECresponds thattheTRQisaborder measure tobestrictly distinguished
from internal measures thataresubject tothedisciplines ofArticle III.177
274. Wenotethatdiscrimination between imported anddomestic products isprohibited under
Article IIIofGATT, which isaruleapplicable tointernal measures. Conversely, certain differential
treatment between imported anddomestic products arepermitted attheborder solongastheyarein
conformity withtheother GATT provisions thatregulate measures attheborder. Indeed, thishas
beenawell-established practice followed bytheCONTRACTING PARTIES. Asearly as1958, the
Italian Agricultural Machinery panel characterized theobject andpurpose ofArticle IIIasfollows:
"Itwasconsidered, moreover, thattheintention ofthedrafters oftheAgreement wasclearly
totreattheimported products inthesame wayasthelikedomestic products oncetheyhad
beencleared through customs."178
275. Brazilhasnotdemonstratedtheexistenceofanydiscriminatorymeasureoncethepoultryproducts
havebeencleared through customs. Therefore, Brazil 'sclaim regarding Article IIIofGATT isrejected.
I. AGREEMENT ONAGRICULTURE
276. Brazil claims thattheEChas,initsapplication ofprice-based special safeguard ontheimports
offrozen poultry meat, violated Articles 4.2and5.1oftheAgreement onAgriculture. Article 4.2
provides asfollows:
175Paragraph 148.
176Paragraph 151.
177Paragraph 152.
178Panel Report onItalian Discrimination Against Imported Agricultural Machinery ,adopted on23October 1958,
BISD 7S/60, para.11.WT/DS69/R
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"Members shallnotmaintain, resort to,orrevert toanymeasures ofthekindwhich havebeen
required tobeconverted intoordinary customs duties179,except asotherwise provided forin
Article 5andAnnex 5."
Article 5.1inrelevant partprovides asfollows:
"Notwithstanding theprovisions ofparagraph 1(b)ofArticle IIofGATT 1994, anyMember
maytakerecourse totheprovisions ofparagraphs 4and5below inconnection withthe
importation ofanagricultural product, inrespect ofwhich measures referred toinparagraph 2
ofArticle 4ofthisAgreement havebeenconverted intoanordinary customs dutyandwhich
isdesignated initsSchedule withthesymbol "SSG" asbeing thesubject ofaconcession in
respect ofwhich theprovisions ofthisArticle maybeinvoked, if:...(b)theprice atwhich
imports mayenterthecustoms territory oftheMember granting theconcession, asdetermined
onthebasis ofthec.i.f. import price oftheshipment concerned expressed interms ofits
domestic currency, fallsbelow atrigger price equal totheaverage 1986 to1988 reference
price180fortheproduct concerned.
(i) Article 5.1
(a) Market entry price andthec.i.f. price
277. Weaddress theissue ofArticle 5.1first. Brazil claims thatthemarket entry price under
Article 5.1(b) oftheAgreement onAgriculture should bethec.i.f.priceplusthebound duty. Therefore,
according toBrazil, theEChasviolated thisprovision because itmerely measures thec.i.f. price and
should thatprice fallbelow thetrigger price itimposes anadditional duty.181TheECresponds that
theterm"onthebasis ofthec.i.f. import price" inArticle 5.1(b) means thec.i.f. price itself.182
278. Generally speaking, Article 5.1(b) permits theuseofaspecial safeguard ifthepriceofimports
oftheproduct concerned isbelow adefined trigger price. Therelevant priceoftheimports concerned
isreferred toinArticle 5.1(b) intwoways: i.e.thetextofArticle 5.1(b) refers toboth"theprice at
which imports mayenter thecustoms territory oftheMember granting theconcession" and"thec.i.f.
import price". Theordinary meaning ofthephrase "thepriceatwhich imports mayenterthecustoms
territory oftheMember granting theconcession" would include thepayment ofapplicable duties since
those duties must bepaidprior toentry andtherefore arepartof"theprice". Theterm"thec.i.f.
import price" inArticle 5.1(b) isqualified bythephrase "determined onthebasisof",which indicates
thatthemarket entry price issomething thathastobeconstructed using thec.i.f. price asoneofthe
parameters. Ifthedrafters ofthisprovision hadintended tomake theinvocation ofspecial safeguards
contingent solely uponthec.i.f.price, theywould havesimply stated "ifthec.i.f.priceofthatproduct
179Footnote 1tothisparagraph reads: "These measures include quantitative import restrictions, variable import levies,
minimum import prices, discretionary import licensing, non-tariff measures maintained through state-trading enterprises,
voluntary export restraints, andsimilar border measures other thanordinary customs duties, whether ornotthemeasures
aremaintained under country-specific derogations from theprovisions ofGATT 1947, butnotmeasures maintained under
balance-of-payments provisions orunder other general, non-agriculture-specific provisions ofGATT 1994 oroftheother
Multilateral Trade Agreements inAnnex 1AtotheWTO Agreement."
180Footnote 2tothisparagraph reads: "The reference price usedtoinvoke theprovisions ofthissubparagraph shall, in
general, betheaverage c.i.f. unitvalue oftheproduct concerned, orotherwise shall beanappropriate price interms of
thequality oftheproduct anditsstage ofprocessing. Itshall, following itsinitial use,bepublicly specified andavailable
totheextent necessary toallow other Members toassess theadditional dutythatmaybelevied."
181Paragraphs 119, 121and124.
182Paragraph 122.WT/DS69/R
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imported intothecustoms territory oftheMember granting theconcession, expressed interms ofits
domestic currency, fallsbelow atrigger price...". They could haveentirely disposed ofthenotion
ofthemarket entry price. Thus, theordinary meaning oftheterms usedinArticle 5.1(b) would appear
tosupport theinterpretation advanced byBrazil, i.e.thatthemarket entry price mustinclude duties
paid.
279. Toclarify theinterpretation oftheterms ofArticle 5.1(b) further, itisalsoappropriate to
examine thecontext, object andpurpose oftheprovision.
280. Thecontext ofArticle 5.1(b) isclear. Itisaspecific derogation fromtheprinciples contained
inArticle 4.2.Assuch, theterms ofArticle 5.1(b) mustbeconstrued narrowly, soasnottofrustrate
theattainmentofthesecurityandpredictabilityintradethroughthetariffs-onlyregimeunderArticle4.2.
281. Theobject andpurpose ofArticle 5.1(b) istoprovide additional protection against significant
decline inimport prices during theimplementation period oftheAgreement onAgriculture afterall
agricultural products havebeen"tariffied" under Article 4.2.Byitsnature, ithastoaddress asituation
thathasoccurred afterthetariffication process. Ifthemarket entry price isequated withthec.i.f.
import price, andthencompared withthetrigger price calculated using thec.i.f. price only, itwould
disregard theeffect ofprotection granted byhighduties resulting from tariffication. Thus, although
thedrafting ofArticle 5.1(b) isnotamodel ofclarity, inlightoftheobject andpurpose ofthat
subparagraph, itwould beappropriate tointerpret themarket entrypriceunder Article 5.1(b) toinclude
duties paid.
282. Wetherefore findthattheEChasnotinvoked thespecial safeguard provision withrespect
tothepoultry products inquestion inaccordance withArticle 5.1(b).183
(b) Injury requirement
283. Brazil further claims thattheEChasviolated theprovisions ofArticle 5.1(b) because itapplies
thespecial safeguards without examining injury ordamage totheECmarket.184TheECrejects this
claim.185
284. WefindthatBrazil 'sclaim onthispoint isnotsupported bythetextofArticle 5.1(b), which
doesnotrequire afinding ofinjury ordamage unlike inthecaseofordinary safeguards under
Article XIXofGATT andtheAgreement onSafeguards orthetransitional safeguards under the
Agreement onTextiles andClothing.
183Onemember ofthePanel does notendorse thisconclusion. Seeparagraphs 289to292.
184Paragraphs 126, 128, 129and130.
185Paragraphs 127and131.WT/DS69/R
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(c) Representative price
285. Finally, Brazil argues thatthemechanism fordetermining therepresentative price isnot
transparent andthattheECshould nottakeaninternal market priceasthedeterminant fortheexternal
c.i.f. price. Furthermore, Brazil claims thattheEChasfailed toindicate howthequality element
provided forinitsexamination oftheinternal market price istobefactored.186Inresponse, theEC
claims thattherepresentative price ispublished intheOfficial Journal andistherefore known to
traders.187Furthermore, theEChassubmitted onaconfidential basis188ademonstration oftheway
inwhich theadditional dutyisactually calculated.
286. WenotethatBrazil 'sargument onthispoint appears toaddress theissue ofwhether theEC
hasfollowed itsownregulations concerning theoperation ofspecial safeguards. Totheextent that
Brazil 'sclaim isdirected totheappropriateness ofthespecial safeguard mechanism within theEC,
weareunable tofindanyviolation oftheWTO rules. Although Brazil refers toArticle 5ofthe
Agreement onAgriculture andArticle X:3ofGATT, ithasnotspecified inwhatmanner theEChas
violated these provisions. Inanyevent, since wehavealready found aviolation ofArticle 5.1(b) by
theEC,forthesakeofjudicial economy, wedonotexamine thisclaim anyfurther.
(ii) Article 4.2
287. Brazil claims thattheEChasviolated Article 4.2because thespecial safeguard measure on
poultry products ismaintained inviolation oftheprovisions ofArticle 5andtherefore cannot be
justified.189TheECclaims thatArticle 5isacomplete, self-contained codeofrulesfortheapplication
ofspecial safeguards andthatithasapplied those rules correctly.190
288. Since wehavealready found aviolation ofArticle 5.1(b) bytheEC,itisnotnecessary for
ustoreach aseparate finding onArticle 4.2.
(iii) Opinion byamember ofthePanel
289. Regrettably, Iamnotabletoendorse theconclusion reached bythePanel inparagraph 282.
290. While onepossible viewoftheordinary meaning oftheterm"thepriceatwhich imports may
enter thecustoms territory oftheMember granting theconcession, asdetermined onthebasis ofthe
c.i.f.import priceoftheshipment concerned expressed interms ofitsdomestic currency" (hereinafter
referred toas"therelevant import price") inArticle 5.1(b) could bethatitmeans thec.i.f. price plus
theduties paid, suchareading, inmyopinion, isnotaconvincing one. Therelevant import price
could inprinciple beequal tothec.i.f. import price itself ifoneconsiders, forinstance, thatthe
expression "theprice atwhich imports mayenter thecustoms territory oftheMember granting the
concession" isarequirement soastoavoid price constructions deviating arbitrarily from thec.i.f.
import price. Ifthedrafters ofthisprovision hadintended toinclude customs duty, theycould have
referred tothe"duty paidc.i.f. import price", anotion thatappeared inpreliminary discussion papers
ofthenegotiators. ThePanel'sinterpretation, inmyopinion, isinappropriate inlightofthecontext
186Paragraph 134.
187Paragraph 135.
188Seeparagraphs 191and192.
189Paragraph 116.
190Paragraph 117.WT/DS69/R
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ofArticle 5.1(b), including itsfootnote 2andArticle 5.5,which unambiguously referto"theaverage
c.i.f. unitvalue" and"thec.i.f. import price" respectively. Article 5.1(b), footnote 2andArticle 5.5
must beinterpreted inaconsistent andcoherent manner inorder tohaveameaningful functioning
ofthespecial safeguard provisions within theframework oftariffication process while avoiding undue
restraint onthepossible recourse tothose provisions. InotethatArticle 5doesnotqualify whether
thesafeguard should beusedsparingly ornot.However, when including theordinary customs duties
intherelevant import price, anomalies withthefunctioning ofthesafeguard occur.
291. Theinclusion oftheordinary customs dutyintherelevant import price under Article 5.1(b)
creates aparticular problem when theordinary customs dutyislevied asaspecific duty. Ifthelevel
ofthespecific dutyishigher thantheleveloftrigger pricedefined infootnote 2,theprice-based special
safeguard cannever beinvoked regardless oftheextent ofthedropinprices because, under thePanel's
interpretation, therelevant import price never fallsbelow thetrigger price. Inthecaseofadvalorem
duty, while withhighduties therecourse toArticle 5.5isalsostrongly limited, thissingularity does
notarise. Here however, aswellasinthecaseofspecific duty, when higher duties areapplied,
significant price distortions canoccur fordifferent shipments duetotheapplication oftheadditional
dutycalculated under Article 5.5.These price distortions aremostprominent when c.i.f. prices are
closetothec.i.f.pricethattriggers thespecial safeguard provision. Inother words, ashipment having
attheborder alower c.i.f. import price, compared toanother shipment withaslightly higher c.i.f.
price thathowever doesnottrigger thespecial safeguard, could have, afterclearing thecustoms, a
significantly higher price thanthelatter. Thissituation could onlybecorrected ifoneincludes the
duties paidinthe"c.i.f. import price" under Article 5.5indisregard ofitsclear wording.
292. Forthese reasons, IamoftheviewthatArticle 5oftheAgreement onAgriculture requires
animporting Member tocalculate therelevant import price within themeaning ofArticle 5.1(b) on
thebasis ofthec.i.f. import price only.
J. NULLIFICATION ORIMPAIRMENT
293. Brazil claims thatthemeasures discussed above nullify orimpair thebenefits accruing toBrazil
under thecitedagreements.191Although itmaybepossible tointerpret thenullification orimpairment
claim asanon-violation complaint within themeaning ofArticle XXIII:1(b) ofGATT, Brazil hasnot
substantiated thisclaim anyfurther. Brazil hasnotattempted toestablish nullification orimpairment
ofthevalue ofconcessions accruing toitinrespect ofpoultry products, except through itsclaim on
theviolation ofthevarious WTO rules bytheEC. WethusfindthatBrazil hasfailed toestablish
aseparate non-violation complaint.
191Paragraph 15.WT/DS69/R
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VII. CONCLUSIONS AND RECOMMENDATIONS
294. Inlightofourfindings inSection BandCabove, weconclude thatBrazil hasnotdemonstrated
thattheEChasfailed toimplement andadminister thepoultry TRQ inlinewithitsobligations under
theWTO agreements.
295. Inlightofourfindings inSection Dabove, weconclude thatBrazil hasnotdemonstrated that
theEChasfailed toimplement theTRQ inaccordance withArticle XIIIofGATT.
296. Inlightofourfindings inSection Eabove, weconclude thatBrazil hasnotdemonstrated that
theEChasfailed toimplement theTRQinaccordance withArticles 1and3oftheLicensing Agreement,
except onthepoint thattheEChasfailed tonotify thenecessary information regarding thepoultry
TRQ totheWTO Committee onImport Licensing under Article 1.4(a) oftheLicensing Agreement.
297. Inlight ofourfindings inSection F,GandHabove, weconclude thatBrazil hasnot
demonstrated thattheEChasfailed tocomply withtheprovisions ofArticles X,IIandIIIofGATT
inrespect oftheimplementation andadministration ofthepoultry TRQ.
298. Inlightofourfindings inSection Iabove, weconclude thattheEChasfailed tocomply with
theprovisions ofArticle 5.1(b) oftheAgreement onAgriculture regarding theimports ofthepoultry
products outside theTRQ.
299. Werecommend thattheDispute Settlement Body request theECtobring themeasures found
inthisreport tobeinconsistent withtheLicensing Agreement andtheAgreement onAgriculture into
conformity withitsobligations under those agreements.WT/DS69/R
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ANNEX I
Total ECImports ofPoultry Meat (0207 1410,0207 1450and0207 1470)1
(tonnes)
TOTAL 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997p
extra-ec
12/1515,073 21,252 34,032 32,672 44,746 47,171 60,731 53,067 86,501 37,169
Brazil 7,115 9,809 12,990 14,377 21,203 21,493 25,798 19,196 28,701 17,394
China * * 79 639 2,639 9,015 16,684 14,541 22,958 1,419
Thailand 1,609 4,675 13,998 12,413 16,123 12,064 13,400 9,184 15,022 10,383
Hungary 3,630 4,121 3,802 3,192 3,295 3,393 3,652 7,649 5,983 2,267
Poland 122 153 990 199 56 242 1,730 1,746
Czech
Republic* * * * * 191 2 66 144 294
Slovenia * * * * 64 46 18 * 53 60
Croatia * * * * 114 157 234 228 36 *
Romania 583 344 33 161 172 423 570 182 23 114
Bulgaria * * 4 5 88 1 24 6 5 *
Czecho-
slovakia1,612 1,822 1,834 961 314 * * * * *
Yugoslavia 307 61 * 282 329 * * * * *
extra-ec
notdet.* * * * * 15 * 1,070 11,112 2,978
OTHERS 95 268 303 444 405 373 294 702 733 514
(percentages)
TOTAL % 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997p
extra-ec
12/15100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Brazil 47.2 46.2 38.2 44.0 47.4 45.6 42.5 36.2 33.2 46.8
China * * 0.2 2.0 5.9 19.1 27.5 27.4 26.5 3.8
Thailand 10.7 22.0 41.1 38.0 36.0 25.6 22.1 17.3 17.4 27.9
Hungary 24.1 19.4 11.2 9.8 7.4 7.2 6.0 14.4 6.9 6.1
Poland 0.8 0.7 2.9 0.6 0.0 0.0 0.1 0.5 2.0 4.7
Czech
Republic* * * * * 0.4 0.0 0.1 0.2 0.8
Slovenia * * * * 0.1 0.1 0.0 * 0.1 0.2
Croatia * * * * 0.3 0.3 0.4 0.4 0.0 *
Romania 3.9 1.6 0.1 0.5 0.4 0.9 0.9 0.3 0.0 0.3
Bulgaria * * 0.0 0.0 0.2 0.0 0.0 0.0 0.0 *
Czecho-
slovakia10.7 8.6 5.4 2.9 0.7 * * * * *
Yugoslavia 2.0 0.3 * 0.9 0.7 * * * * *
extra-ec
notdet.* * * * * 0.0 * 2.0 12.8 8.0
OTHERS 0.6 1.3 0.9 1.4 0.9 0.8 0.5 1.3 0.8 1.4
1Submitted byBrazil.WT/DS69/R
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ANNEX II
TRQ-licences issued under Regulation 1431/942
Quantity issued
TonnesNooflicences Average
quantity
perlicence
Annual Quarterly Annual Quarterly Kg.
Group 1 BRAZIL 1994 7.100 3.550 322 161 22.050
1995 7.100 1.775 751 188 9.454
1996 7.100 1.775 728 182 9.753
1997 7.100 1.775 1.260 315 5.635
Group 2 THAILAND 1994 5.100 2.550 298 149 17.114
1995 5.100 1.275 750 188 6.800
1996 5.100 1.275 730 183 6.986
1997 5.100 1.275 1.256 314 4.061
Group 3 OTHER 1994 3.300 1.650 331 166 9.970
1995 3.300 825 754 189 4.377
1996 3.300 825 737 184 4.478
1997 3.300 825 1.204 301 2.741
Note: In1994, licences onlyissued in2quarters.
__________
2Information submitted bytheEuropean Communities.