WORLD TRADE
ORGANIZATIONWT/DS27/RW/ECU
12 April 1999
(99-1443)
Original:  English
EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
- RECOURSE TO ARTICLE 21.5 BY ECUADOR -
REPORT OF THE PANEL
The report of the Panel on European Communities - Regime for the Importation, Sale and Distribution
of Bananas - Recourse to Article 21.5 by Ecuador - is being circulated to all Members, pursuant to theDSU.  The report is being circulated as an unr estricted document from 12 April 1999 pursuant to the
Procedures for the Circulation and Derestriction of WTO Documents (WT/L/ 160/Rev.1).  Members are
reminded that in accordance with the DSU only partie s to the dispute may appeal a panel report.  An
appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed
by the Panel.  There shall be no ex parte  communications with the Panel or Appellate Body concerning
matters under consideration by the Panel or Appellate Body.WT/DS27/RW/ECU
Page i
TABLE OF CONTENTS
I. INTRO DUCTION................................................................................................................. .....1
(i) Terms of reference.........................................................................................1
(ii) Panel com position .........................................................................................1
II. FACTUAL ASPECTS ............................................................................................................. ..2
A. A CCESS QUANTITIES AND COUNTRY ALLOCATIONS ..........................................................2
(i) Traditional ACP imports...............................................................................2
(ii) Third-country and non-tr aditional ACP imports ..........................................2
B. T ARIFF TREATMENT .............................................................................................................3
C. A DMINISTRATIVE ASPECTS OF THE BANANA IMPORT REGIME .........................................4
(i) Eligible operators..........................................................................................4
(ii) Determination of traditional oper ators' reference quantities and newcomer
allocations .....................................................................................................5
(iii) Import licensing  procedures..........................................................................6
D. L OMÉ WAIVER .......................................................................................................................7
III. PROCEDURAL  ISSUES.......................................................................................................... .8
IV. MAIN ARG UMEN TS.............................................................................................................. 10
A. G ENERAL ..............................................................................................................................1 0
B. I SSUES RELATED TO THE GATT.........................................................................................10
1. Article I Issues...........................................................................................................11
(i) Traditional ACP bananas............................................................................11
(ii) Non-traditional ACP bananas.....................................................................13
2. Article XI II issu es .....................................................................................................15
C.ISSUES RELATED TO THE GATS .........................................................................................23
(i) General........................................................................................................23
(ii) Central Product Classifica tion....................................................................25
(iii) Issues of "Actual Importer" and of de facto discrimination ........................28
(iv) Issues concerning customs clearance..........................................................30
(v) Newcomers ..................................................................................................36
(vi) Remedial action...........................................................................................37
D. C ONCLUSION ........................................................................................................................38
V. ARGUMENTS BY TH IRD PART IES...................................................................................40
A. B RAZIL ............................................................................................................................... ..40
B. C AMEROON AND COTE D 'IVOIRE .......................................................................................40WT/DS27/RW/ECU
Page ii
1. Issues related to the GATT ......................................................................................40
(i) Traditional ACP bananas............................................................................40
(ii) Non-traditional ACP bananas.....................................................................42
2. Issues related to the GATS.......................................................................................44
C. T HE CARIBBEAN STATES ....................................................................................................45
1. Issues related to the GATT ......................................................................................46
(i) Traditional ACP bananas............................................................................46
(ii) Non-traditional ACP bananas.....................................................................47
(iii) Article XI II issu es ........................................................................................48
2. Issues related to the GATS.......................................................................................50
D. C OLOMBIA ...........................................................................................................................53
1. Article XI II Issues.....................................................................................................54
E. C OSTA RICA.........................................................................................................................56
1. Issues related to the GATT ......................................................................................58
F. E CUADOR 'S RESPONSE TO THIRD PARTIES .......................................................................61
VI. FINDINGS.................................................................................................................... ............62
A. W ORKING PROCEDURES AND TIMETABLE ........................................................................62
B. T ERMS OF REFERENCE .......................................................................................................62
C. A RTICLE XIII OF GATT 1994 ............................................................................................64
1. The 857,700 tonnes reserved for traditional imports from ACP States...............66
(a) The Applicability of Article XIII ........................................................................67
(b) The Requirements of Article XIII and the 857,700 Tonne Tariff Quota for
Traditional ACP Imports.....................................................................................67(i) Article XIII:1 ...............................................................................................68
(ii) Article XIII:2 ...............................................................................................68
(c) The Requirements of the Appellate Body report in Bananas III ........................69
2. Ecuador's Share of the MFN Tariff Quota.............................................................69
(a) The Requirements of Article XIII .......................................................................70
(b) The Represen tative Pe riod ..................................................................................72
(c) Special Factors ....................................................................................................73
(d) Ecuador's Country-Speci fic Tariff-Quota Share .................................................73
D. A
RTICLE I OF GATT 1994 ..................................................................................................74
1. The Lomé Waiver .....................................................................................................74
2. The Requirements of the Lomé Convention...........................................................74
3. Preferences for Traditional ACP Imports..............................................................76
(a) The Level of 857,700 Tonnes and Pre-1991 Best-Ever Export Volumes...........76
(b) Collective Allocation to Traditional ACP States ................................................77WT/DS27/RW/ECU
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4. Preferential Tariffs for Non-Traditional ACP Banana Imports ..........................78
(a) The Preferential Tariff of Zero for Non-Traditional ACP Bananas....................78
(b) The Tariff Preference of 200 Euro per tonne for Non-Traditional ACP
Bananas ...............................................................................................................79
E. GATS I SSUES .......................................................................................................................80
1. The Scope of the EC's Commitments on "Wholesale Trade Services" ...............80
2. Licence Allocation Procedures.................................................................................81
(a) Articles II and XVII of GATS ............................................................................82
(b) The Findings in Bananas III  on Articles II and XVII of GATS .........................83
(c) The Revised EC Licensing Regime ....................................................................83
(d) The Requirements of Arti cles XVII and II of GATS..........................................84
(e) The Parties' Arguments .......................................................................................86
(i) Ecuador .......................................................................................................86
(ii) European Communities ...............................................................................86
(f) The Panel's Analysis  of the Claim ......................................................................88
(i) General EC arguments................................................................................88
(ii) Licence allocations unde r the revised regime .............................................89
(iii) The structure of the revised regime.............................................................90
(iv) Overall evaluation.......................................................................................92
(g) The "Single Pot" Li cence Allocation ..................................................................92
3. The Rules for "Newcomer" Licences......................................................................94
4. General observations ................................................................................................95
F. S UGGESTIONS ON IMPLEMENTATION .................................................................................96
G. S UMMARY .............................................................................................................................97
H. C ONCLUDING REMARK .......................................................................................................98
VII. CONCL USIONS ................................................................................................................ ......99
ANNEX 1 ........................................................................................................................ ................100
ANNEX II ....................................................................................................................... ................101
ANNEX III...................................................................................................................... ................102WT/DS27/RW/ECU
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I. INTRODUCTION
1.1 On 18 August 1998, Ecuador, Guatemala, Hondur as, Mexico and the United States acting
jointly and severally, requested consultations (WT/DS27/18) with the European Communities in
relation to the implementation of the recommendations  of the Dispute Settlement Body (DSB) in the
matter of the EC's regime for the importation, sale and distribution of bananas established by C ouncil
Regulation (EEC) No. 404/93 as amended by Counc il Regulation (EC) No 1637/98.  Consultations
were held on 17 September 1998.  These consultations did not result in a mutually satisfactory solution of
the matter.
1.2 On 13 November 1998, Ecuador requested the reactivation of the 17 September 1998
consultations (WT/DS27/30 and Add.1).  Consul tations were held between the European
Communities and Ecuador on 23 November 1998.  As these consultations did not result in a mutually
satisfactory solution of the matter, Ecuador requested, on 18 December 1998, the DSB to reconvene
the original panel in accordance with Article 21.5 of the DSU to examine the implementation of the
DSB recommendations in the light of the General Agreement on Tariffs and Trade (GATT), the
General Agreement on Trade in Services (GATS), and the Agreement on Import Licensing
Procedures (WT/DS27/41).
1.3 The DSB, at its meeting on 12 January 1999, established a panel with the original panel
members in accordance with Article 21.5 of the DSU.  Brazil, Belize, Camer oon, Colombia, Costa
Rica, Côte d'Ivoire, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Mauritius, Nicaragua,
Saint Lucia, and Saint Vincent and the Grenadines rese rved their third party rights to make a submission
and to be heard by the Panel in accordance with Article 10 of the DSU.
(i) Terms of reference
1.4 The following standard terms of reference applied to the work of the Panel:
"To examine, in the light of the relevant provisions of the covered agreements cited by Ecuador
in document WT/DS27/41 the matter referred to the DSB by Ecuador, in that document and to
make such findings as will assist the DSB in making the recommendations or in giving the
rulings provided for in those agreements."
(ii) Panel composition
1.5 The Panel was composed as follows:
Chairman: Mr. Stuart Harbinson
Members: Mr. Kym Anderson
Mr. Christian Häberli
1.6 The Panel submitted its report to the parties to the dispute on 6 April 1999.WT/DS27/RW/ECU
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II. FACTUAL ASPECTS
2.1 The complaint examined by the Panel relate s to the EC implementation of the DSB's
recommendations in the matter European Communities - Regime for the Importation, Sale and
Distribution of Bananas concerning the EC's import measures for bananas.  The EC implementation
measures at issue are contained in the following regulations: (i) Regulation (EC) No. 1637/98
("Regulation 1637") amending Regulation (EEC) No. 404/93 ("Regulation 404") on the commonorganization of the market in bananas, and (ii) Regulation (EC) No. 2362/98 ("Regulation 2362")
laying down detailed rules for the implementation of Regulation 404.  Regulations 1637 and 2362
have been applied as from 1 January 1999.
A. A
CCESS QUANTITIES AND COUNTRY ALLOCATIONS
2.2 Regulation 1637 provides for access to the EC market for three categories of banana imports:
traditional ACP imports, non-traditional ACP imports , and imports from third (non-ACP) countries.
(i) Traditional ACP imports
2.3 Traditional ACP imports are defined as banana imports from twelve ACP countries1 up to an
annual aggregate limit of 857,700 tonnes.2    As part of its implementation measures of the above-
mentioned DSB recommendations, the EC has eliminated the country-specific allocations that
previously existed for each of the twelve ACP countries.  The aggregate import volume is not bound
in the EC Schedule and there is no provision in the EC regulations for an increase in the level of the
traditional ACP quantity.
(ii) Third-country and non-traditional ACP imports
2.4 The EC has a tariff quota commitment for banana imports of 2.2 million tonnes (net weight)
bound in its Schedule.  Regulation 1637 provides for additional tariff quota access of 353,000 tonnes
per year.3  This latter quantity is not bound in the EC Schedule (autonomous tariff quota).
2.5 The aggregate tariff quota quantity of 2.553 million tonnes has been allocated to Colombia,
Costa Rica, Ecuador, and Panama and an "others" category in the proportions set out in Table 1.
According to Regulation 2362, the country-specific allo cations are based on imports into the EC during
the years 1994 to 1996.4  There are no specific provisions for r eallocating unfilled portions of the country-
specific allocations or the "others" category.5  The "others" category of the tariff quota is reserved for
imports of third-country bananas as well as non-traditional ACP bananas.
                                                     
1 Belize, Cameroon, Cape Verde, Côte d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia,
St. Lucia, St. Vincent and the Grenadines, and Suriname, see Annex to Regulation 1637.
2 Annex I to Regulation 2362.
3 Article 18.2 of Regulation 1637.
4 Paragraph (2) of Regulation 2362.
5 The provisions which allowed the reallocation of unfilled portions of the country-specific allocations have
been repealed, see Article 31 of Regulation 2362.WT/DS27/RW/ECU
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Table 1 – EC Tariff Quota Allocations
Country Share (%) Volume ('000 tonnes)
Colombia 23.03 588.0
Costa Rica 25.61 653.8
Ecuador 26.17 668.1
Panama 15.76 402.4
Other 9.43 240.7
Total of the above 100.00 2,553.0
Note:  Calculation of shares done by Secretariat based on 2.553.0 million tonne tariff quota and the percentage shares
according to Annex I to Regulation 2362.
2.6 Non-traditional imports from ACP countries cover any quantities supplied in excess of
traditional quantities supplied by ACP countries (i.e. in excess of 857,700 tonnes) or any quantities
supplied by ACP countries which are not traditional suppliers to the EC, such as the Dominican
Republic.  Non-traditional bananas may be imported duty-free under the "others" category of the tariff
quota and are limited to 240,748 tonnes (9.43 per cent of the 2.553 million tonne tariff quota).  Thecountry-specific allocations for non-traditional ACP imports provided for in EC Regulation 478/95 as
the result of the Banana Framework Agreem ent (BFA) (totalling 90,000 tonnes) have been
eliminated.
6
B. TARIFF TREATMENT
2.7 Table 2 shows the EC tariffs applicable to traditional ACP, non-traditional ACP as well as
third-country banana imports.  It also summarizes the key modifications of the banana import regime
with respect to tariffs, country-specific allocations and volumes which the European Commun ities has
undertaken as part of its implementation measures.
                                                     
6 Article 31 of Regulation 2362.WT/DS27/RW/ECU
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Table 2 – The EC Import Regime for Bananas since 1 January 1999
Category of
banana
importsAccess
volumeSource/definition Tariffs appliedModifications of the EC tariff
quota regime under Regulations
1637 and 2362
TraditionalACP bananas857,700
tonnesImports without country-
specific quantitative limitsfrom 12 traditional ACPcountries.*Duty-free - elimination of country-specific
allocations.
Non-traditional
ACP bananasImports of traditional ACP
quantities above the
857,700 tonnes or anyquantities supplied byACP countries which are
non-traditional suppliers.Duty-free up to
240,748 tonnes.  For
additional imports thebound out-of-quota duty(currently 737 Euro per
tonne minus 200 Euro per
tonne) applies.- elimination of country-specific
allocations and "other" category
totalling 90,000 tonnes.
- increase in duty-free access
opportunities from 90,000 tonnes
to 240,748 tonnes under the"others" category of the2.553 million tonnes tariff quota.
- increase of the margin of
preference for out-of-quotaimports from 100 to 200 Euro per
tonne.
Third-country
bananas2,553,000
tonnes Imports from any non-
ACP source.75 Euro per tonne up to
2.553 million tonnes.There are 4 country-
specific allocations plus an
"others" category.  Foradditional imports thebound out-of-quota tariffapplies (currently
737 Euro per tonne).- modified country-specific
allocations allocated to fourMembers and an "others"category
- transferability of unfilled
portions of country-specificallocations eliminated
- increase in access opportunities
by 90,000 tonnes to 2.553 million
tonnes as the result of the
elimination of country-specificallocations to non-traditionalACP suppliers.
*Belize, Cameroon, Cape Verde, Côte d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia, St. Lucia, St. Vincent and the
Grenadines, and Suriname.
C. ADMINISTRATIVE ASPECTS OF THE BANANA IMPORT REGIME
(i) Eligible operators
2.8 The tariff quota of 2.553 million tonnes and traditional ACP quantities (857,700 t onnes) are
made available to two categories of operators – traditional operators and newcomers.  Under the EC'samended banana import regime, the operator categories (A, B and C) and the activity functions
(primary importer, secondary importer/customs clearer and ripener) have been abolished.
2.9 Under the amended regime, operators have access to the above quantities in the following
proportions:
7
traditional operators 92 per centnewcomers   8 per cent.
                                                     
7 Article 2.1 of Regulation 2362.WT/DS27/RW/ECU
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This distribution between the two operator categories may be amended to "make better use of the
tariff quotas and the traditional ACP quantities".8  The quantities available in one operator category
after requests have been fulfilled may be allocated to the other category.
2.10 To be eligible as a traditional operator, operators must be established in the European
Communities during the period determining their reference quantity (explained below) and must haveimported a minimum quantity of third-country and/or ACP-country bananas on their own account for
subsequent marketing in the European Communities during the reference period.
9
2.11 To qualify as a newcomer, an operator must be established in the European Communities at
the time of registration and must have been engaged "independently and on his own account in the
commercial activity of importing fresh fruit and vegetables falling within Chapters 7 and 8 of the
Tariff and Statistical Nomenclature and the Common Customs Tariff, or products under Chapter 9
[coffee, tea, maté and spices] thereof if he has also imported products falling within Chapters 7 and 8in one of the three years immediately preceding the year in respect of which registration is sought …".
The declared customs value of such imports during that three-year period must be at least
Euro 400,000.
10
2.12 For the purposes of registration, newcomer operators are to provide, inter alia , to the
competent authority in one of the EC member States certified evidence of having imported theproducts referred to above (import licences used or customs documents, as appropriate) and of having
complied with the above minimum import value requirement.
11  Applications for registration must be
made by 1 July of each year in not more than one of the member States.  Renewal of a newcomer's
registration is subject to submission of proof that at least 50 per cent of the quantity allocated was
imported on the newcomer's own account.12
(ii) Determination of traditional operators' reference quantities and newcomer allocations
2.13 For each traditional operator, import entitlements are established (i.e. the annual "reference
quantity") on the basis of quantities of bananas "actually imported" during the reference period.13 The
reference period for 1999 covers the years 1994-1996.14  Written applications for reference quantities
have to be submitted in one of the member States by 1 July of each year.15  In their applications,
operators have to provide data of the total volume of imports from origins covered by the tariff quota
and of traditional ACP bananas during each year of the applicable reference period.  Import volumes
("actual imports") are to be documented through both (i) copies of the import licences used either by
the holder, or in the case of a transfer of the licence, by the transferee, and (ii) proof of payment of the
customs duties.  A traditional operator who furnishes proof of payment of customs duties, for therelease into free circulation of a given quantity of bananas, without being the holder or the transferee
holder of the relevant import licence, is considered to have actually imported the declared quantity
provided that he has actually registered in a member State under Regulation (EEC) 1442/93 and/or
fulfils the conditions of Regulation 2362 for registration as a traditional operator.
16
                                                     
8 Article 2.2 of Regulation 2362.
9 The minimum import quantity is 100 tonnes in any one year of the reference period, or 20 tonnes for
bananas equal to or shorter than 10 cm.  Article 3 of Regulation 2362.
10 Article 7 of Regulation 2362.
11 Article 8 of Regulation 2362.
12 Idem .
13 Article 4 of Regulation 2362.
14 For operators established in the new member States (Austria, Finland and Sweden) the corresponding
reference period is 1994 and the first three quarters of 1995, see Article 5.4 of Regulation 2362.
15 Article 5 of Regulation 2362.
16 Article 5.3 of Regulation 2362.WT/DS27/RW/ECU
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2.14 There are no reference quantities for newcomers.  Applications for an annual quota must not
exceed 10 per cent of the total annual quantity reserved for newcomers.17  A new operator may
become a traditional operator after three years of commercial activity.18
(iii) Import licensing procedures
2.15 Imports of traditional ACP, non-traditional ACP and third-country bananas are subject to
licensing procedures.
2.16 For the purpose of issuing import licences, the Commission of the European Communities
may fix an "indicative quantity" of the annual tariff quota for the first three quarters of the year in
accordance with the proportions set out in Table 1 above.  It may be decided that during that period,
applications for licences may not exceed a certain percentage of the reference quantity of each
traditional operator or of the quantity allocated to each newcomer.19
2.17 Applications for import licences have to be submitted in the European Communities member
State where the operator is registered.  Import licences are then issued, on a quarterly basis, following
a two-round licensing procedure.  In the first round, operators must specify, inter alia , the quantities
requested from the origins specified in Table 1 above or from traditional ACP sources.20
2.18 A reduction coefficient is applied if licence requests, in any quarter and for any source,
exceed significantly the indicative quantities or exceed the annual quantities available.21  T h e
reduction coefficients for each origin, if any, proportionally reduce the quantities indicated on theoperators' licence requests.
22
2.19 After the first round, the EC Commission publishes the origins and quantities for which new
import licence applications can be made.  For licence requests for origins that are subject to a
reduction coefficient, operators may either renounce their licence requests or make new licence
requests for the unfulfilled portion of their original licence request.23  Import licences cannot be used
to import from origins other than the origin indicated on the licence.24
2.20 Unused import licences are, if requested, re-allocated to the same operator, whether a licence
holder or transferee, for use in a subsequent quarter in the same year as the original licence.  Such
applications are not subject to the reduction coefficient that may apply in that quarter.25
2.21 Import licences are transferable once:
(a) between traditional operators;
(b) from traditional operators to eligible newcomers;
(c) between eligible newcomers.
                                                     
17 Article 9 of Regulation 2362.
18 Article 10 of Regulation 2362.
19 Article 14 of Regulation 2362.
20 Article 15 of Regulation 2362.
21 Article 17 of Regulation 2362.
22 For the applicable reduction coefficients in the first quarter of 1999, see Regulation (EC)
No.  2806/98 and Regulation (EC) No.102/1999.
23 Article 18 of Regulation 2362.
24 Article 15.4 of Regulation 2362.
25 Article 20 of Regulation 2362.WT/DS27/RW/ECU
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2.22 In the event of an import licence transfer among traditional operators, the reference quantity
of the transferor and the transferee are, respectively, decreased and increased accordingly.  In turn,
traditional operators' reference quantities are reduced when transferred to a newcomer.  Quantities
transferred to a newcomer are credited when the new operator applies for traditional operator status.26
Newcomers are not permitted to transfer import licences to traditional operators.27
D. LOMÉ WAIVER
2.23 The Fourth Lomé Convention, signed on 15 December 1989 between the European
Communities and 68 African, Caribbean and Pacific (ACP) developing countries contains a protocol
concerning bananas, along with provisions applying to products more generally.  Like its
predecessors, the Fourth Lomé Convention was notified to GATT and considered by a working party.
2.24 In December 1994, the European Commun ities was granted a waiver by the CONTRACTING
PARTIES from the EC's obligations under Article I:1 of GATT 1947 as concerns the Lomé
Convention.28  The waiver provides, in paragraph 1 of the decision, as follows:
"[T]he provisions of paragraph 1 of Article I of the General Agreement shall be waived, until
29 February 2000, to the extent necessary to permit the European Communities to provide
preferential treatment for products originating in ACP States as required by the relevant
provisions of the Fourth Lomé Convention, without being required to extend the same
preferential treatment to like products of any other contracting party." 29
2.25 In October 1996, the Lomé waiver was extended until 29 February 2000 (in accordance with
the procedures mentioned in paragraph 1 of the Understanding in respect of Waivers and those of
Article IX of the WTO Agreement).30
                                                     
26 Article 21.3 of Regulation 2362 .
27 Article 21 of Regulation 2362.
28 GATT document L/7539 of 10 October 1994 and L/7539/Corr.1.
29 Paragraph 1 of GATT document L/7604 of 19 December 1994.
30 WT/L/186 of 18 October 1996.WT/DS27/RW/ECU
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III. PROCEDURAL ISSUES
3.1 The European Communities  contested the original complainants' position that consultations
were not required under Article 21.5 of the DSU, since that provision referred explicitly to "these
dispute settlement procedures", i.e. the entirety of the DSU.  Consultations were in fact held on
17 September 1998 with all the original complainants on the amendments to Regulation 404 as set out
in Regulation 1637.  Also, in a communication of 13 November 199831, Ecuador requested the
"reactivation" of the consultations, which had st arted on 17 September 1998.  In this communication,
Ecuador explicitly referred to Regulation 2362.  The consultations were held on 23 November 1998 in
the presence of Ecuador and Mexico as original complainants.
3.2 The European Communities submitted that the alleged WTO-inconsistency of the revised EC
import regime for bananas raised during consultations related exclusively to Articles I and XIII of
GATT and Articles II and XVII of GATS.  The European Communities was of the opinion that some
claims raised by Ecuador in its first written submission went beyond the scope of this Panelprocedure, which was limited to the settlement of a dispute "where there is disagreement as to the
existence or consistency with a covered agreement of measures taken to comply with the [original]
recommendations and rulings" (Article 21.5 of the DSU).  The matter which was within the terms of
reference of this Panel was therefore to be limited to the matters on which the DSB had adopted its
recommendations and rulings based on the original panel and AB reports.
3.3 The European Communities was of the view that Ecuador's reference to Article 19 of the
DSU, amounted to an attempt to transform this Panel procedure into a sort of arbitration " ex aequo et
bono"  which, in the opinion of the European Communities, had no legal basis under Article 21.5, and
whose suggested recommendations would have the ef fect of imposing a modification of the existing
bindings in the EC Schedules as they were negotiated in the Uruguay Round.  However, a panelestablished in accordance with Article 21.5 had to apply "these dispute settlement procedures", i.e. the
DSU.
3.4 According to the European Communities, this Panel could therefore only verify the
consistency of measures taken to comply with th e original recommendations and rulings of the DSB
by "clarify[ing] the existing provisions" and "preserv[ing] the rights and obligations of membersunder the covered agreements".  Panels should, in accordance with Article 19.1, "recommend that the
Member concerned bring that measure into conformity with that agreement".  However, they were not
empowered to "recommend specific, immediate actions" as Ecuador had suggested.
32  Article 19.1,
last part, allowed panels to "suggest ways" (i.e. technical means) in which a Member could implement
the recommendation.  This should be read in its context, i.e. paragraph 2 of the same Article, whichexplicitly forbade panels to "add to or diminish the rights and obligations provided in the covered
agreements".  The European Communities did not agree and will not allow that any of its negotiated
rights and obligations bound in its Schedule be modified or affected outside a trade negotiation.
3.5 Ecuador  submitted that the terms of Article 21.5 left no doubt that the issue in an Article 21.5
panel was not merely whether the new measures were consistent with specific rulings and
recommendations of the DSB but also whether the meas ures that were taken allegedly for that purpose
were consistent with the rules of the WTO Agreement.  The plain language of Article 21.5 caused noinjustice to the defending party, and EC claims to the contrary in this dispute would be frivolous.
While the panel process was accelerated under Article 21.5, the defending party had the benefit of
panel and perhaps AB rulings, as it designed remedial measures over a "normal" 15-month period
with frequent DSB meetings.  Further extraneous matters would be avoided, since only measures
taken and not taken to comply with the rulings and recommendations would be at issue, even though
                                                     
31 WT/DS27/30 of 16 November 1998.
32 Ecuador's first submission, paragraph 27.WT/DS27/RW/ECU
Page 9
the question was conformity with any WTO covered agreement.  Finally, any rights of the defending
party needed to be balanced against the rights and in terests of the complainant party or parties.  By the
time of an Article 21.5 proceeding against a recalcitrant defendant, the complaining parties would
have been suffering nullification or impairment for two and a half years or more with no
compensation.
3.6 In this proceeding, Ecuador submitted, it was evident that every Ecuadorian complaint
concerned an EC measure that had either been maintained contrary to panel rulings or that had been
modified or extended without conforming to the WTO rules.  If the European Communities was
seeking to invoke a procedural defence under Article 21.5, Ecuador submitted that more than a
footnote was required to meet the burden of such a defence.  As concerns Ecuador's request for
specific recommendations and suggestions under Article 19 of the DSU, Ecuador submitted that
nothing in its request was inconsistent with the language of the DSU or with the WTO agreements.
The suggestion of "ways" to comply was not limited on its face to "technical means", as claimed bythe European Communities.  Further, the past history of this dispute, was ample grounds for the Panel
to use the authorities granted by the DSU.  Ecuador further submitted that while repealing non-
conforming measures was an important part of compliance, it was not a remedy insofar as some
illegal measures were not fully remedied and other measures inconsistent with the WTO were
substituted.WT/DS27/RW/ECU
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IV. MAIN ARGUMENTS33
A. GENERAL
4.1 Ecuador  challenged the conformity of the EC's revised system for the importation, sale and
distribution of bananas with:
(a) Articles I and XIII of the General Agreement on Tariffs and Trade 1994 (GATT
1994);
(b) Articles II and XVII of the General Agreement on Trade in Services (GATS);  and
the rulings and recommendations of the original panel in its report on European
Communities - Regime for the Importation, Sale and Distribution of Bananas34
(hereinafter "Panel report"), as modified by the AB in its report on European
Communities - Regime for the Importation, Sale and Distribution of Bananas35
(hereinafter "AB report");
(c) Ecuador requested the Panel not only to reaffirm its prior rulings and interpretations,
as confirmed and modified by the AB, but also to provide the European Communities
with a more explicit recommendation and guidance how to comply.
4.2 The European Communities  requested that the Panel reject all the allegations made by
Ecuador both under the GATT and the GATS and find that the European Communities had complied
with the original recommendations and rulings of the DSB adopted on 25 September 1997.
B. ISSUES RELATED TO THE GATT
4.3 Ecuador  claimed that the revised EC system retained the same three categories of imports as
the previous system and the same tariff treatment of those categories36 except as follows:
(a) there were no individual country quotas in the ACP quantity for traditional ACP
bananas;37
(b) for non-traditional ACP bananas38, there was no longer any 90,000 tonne limit on the
amount that could enter the European Communities duty-free under the "other"
category of the third-country quotas.  For quantities above the third-country quotas,
the tariff preference for non-traditional ACP bananas had been increased from
100 Euro per tonne to 200 Euro per tonne;
(c) there were no country allocations to non-substantial suppliers.
                                                     
33 Footnotes in this part of the report are those of the parties when not otherwise stated.
34 22 May 1997, WT/DS27/R/ECU.
35 9 September 1997, WT/DS27/AB/R.
36 See Table 2 above under Factua l Aspects, Secretariat remark.
37 Traditional ACP bananas were defined as bananas originating in the following countries up to a limit
of 857,700 tonnes: Belize, Cameroon, Cape Verde, Côte d’Ivoire, Dominica, Grenada, Jamaica, Madagascar,St. Lucia, Somalia, St. Vincent and the Grenadines and Suriname.  Article 16.1 of Council Regulation(EEC) 404/93 as amended by Article 1 of Council Regulation (EC) 1637/98.
38 Non-traditional ACP bananas were defined as quantities of bananas exported by the ACP countries
which exceeded the quantity defined above.  Article 15.1 of Council Regulation (EEC) 404/93 (as amended).WT/DS27/RW/ECU
Page 11
1. Article I Issues
(i) Traditional ACP bananas
4.4 Ecuador  submitted that the revised system did not comply with Article I of GATT 1994 and
the rulings of the panel and the AB, as concerns trad itional ACP bananas, in three respects.  First, the
total allotment of 857,700 tonnes was equal to the sum of the previous individual traditional ACP
country allocations prior to 1 January 1999, and the panel and the AB had already found that thoseallocations exceeded what was required under the Lomé waiver.
39  The European Communities could
not rectify the problem of excessive individual allocations by cumulating them into one basket
allotment in excess of that required for the sum of the shares of the countries participating in the
basket.  Ecuador argued that the revised system, by assigning a cumulative share to all traditional
ACP suppliers, aggravated the violation of Article  I since there were no individual limits, which
meant that each country was in principle allowed to exceed its pre-1991 duty-free best-ever level.
4.5 Nor could the European Communities circumvent this obligation by devising new pretexts to
justify the same quantities whose original rationale was rejected by the panel and the AB40 before both
of which the European Communities had stated that the figure of 857,700 tonnes included expected
increases in banana exports after 1990.  They were therefore outside the scope of the Lomé waiver,
and were accordingly inconsistent to that degree with the EC's obligations under Article I of
GATT 1994.41  The discriminatory effect of this violation would also be exacerbated in practice
because the revised import licensing system penalized the failure to use fully all licence quantities, for
all countries.  Together with the elimination of country limits for each traditional ACP country, the
effect was to encourage maximum usage of the 857,7 00 tonne duty-free quota, and within that quota,
to encourage a shift to the relatively more efficient suppliers and away from the less competitive
among the ACP countries.
4.6 Second, Ecuador argued, the revised system's removal of individual country ceilings on duty-
free access exacerbated the degree to which the EC's preferences exceeded what was "required" by the
Lomé Convention and accordingly increased the degree of non-conformity with Article I of
GATT 1994.  As a consequence, every traditional ACP supplier could in principle ship
857,700 tonnes duty-free, whereas the panel and the AB held that any quantity for any country inexcess of its pre-1991 "best-ever" was not required under the Lomé Convention and therefore not
covered by the Lomé waiver.  In Ecuador's view, this was more than a technical legal contravention,
since the result was adverse commercial consequences.  The traditional ACP suppliers would be more
likely to ship the full available total of tradit ional ACP bananas, since the more productive and
efficient among them would be able to plan, compete and invest accordingly.
4.7 The non-conformity with Article I could not, Ecuador argued, be off-set by a decrease in
imports from less efficient traditional ACP suppliers since the panel's and AB's findings were very
clear on that account, i.e. that the Lomé waiver applied for each traditional ACP supplier only up to
that supplier's best-ever year before 1991.
42  Presumably, some or even many traditional ACP
suppliers would effectively lose duty-free access to the European Communities because importers
would naturally tend to buy from the most efficient and cheapest sources within a basket of countries.
                                                     
39 Panel report at paragraph 7.102;  AB report at paragraph 175.
40 Panel report at paragraph 4.131 and following; AB Report at paragraph 28.
41 Panel report at paragraph 7.103;  AB report at paragraph 175.
42 As was noted by the AB in interpreting Article III, less favourable treatment for some cannot be
balanced with more favourable treatment for others.  See  United States - Standards for Reformulated and
Conventional Gasoline,  adopted on 20 May 1996, WT/DS2/AB/R and WT/DS2/R.WT/DS27/RW/ECU
Page 12
4.8 Referring to Article 168(2)(a)(ii) of the Lomé Convention43, in particular, the European
Communities  responded that it had to honour its obligations under the Lomé Convention.  Moreover,
it noted that Protocol 5 of the Lomé Convention44 had been interpreted to mean that "the European
Communities is 'required' under the relevant provisions of the Lomé convention to provide duty-free
access for all traditional ACP bananas".45  The European Communities was thus providing duty-free
treatment to traditional banana imports from ACP countries for a maximum volume of 857,700 tonneswhich was an "additional preferential treatment for traditional ACP bananas over and above the
preferential treatment for all ACP bananas that is required by Article 168(2)(a)(ii)".
46 This
corresponded therefore to the limitation of the volume of bananas, i.e . traditional imports, which
could benefit from this preferential treatment, as envisaged by the terms of the Lomé waiver resulting
from the interpretation by the AB.
4.9 Maintaining the maximum of 857,700 tonnes of traditional ACP bananas per year was fully
justified after having applied the new interpretative criterion set out by the AB in its report(paragraphs 175 and 178).  Traditional ACP bananas were not imported under the third-country tariff
quotas, but competed with all the bananas that could be imported outside the bound tariff rate quota
(and the autonomous quota), albeit with a preferential (duty-free) treatment as required by the Lomé
Convention and permitted under the Lomé waiver.  The margin of preference to the benefit of
traditional ACP bananas outside the (bound and autonomous) tariff quotas was at present 737 Europer tonne.
47  The European Communities recalled that the panel and the AB had considered that only
pre-1991 best-ever import volumes from the traditional ACP banana suppliers could serve as
justification to allow imports of traditional ACP bananas outside the tariff quotas.  On the basis of the
historical figures that were now available for pre-1991 best-ever import volumes of traditional ACP
bananas (i.e. 952,933 tonnes), a maximum of 857,700 t onnes, duty-free, from all the traditional ACP
banana suppliers was therefore entirely legitimate.48
4.10 The European Communities submitted that the original panel and the AB had agreed that the
zero duty preference was "required" for traditional ACP bananas up to the level, for each supplier, of
its pre-1991 best-ever exports to the European Communities, but that allowances for any country
above that level were not within the waiver and were therefore inconsistent with Article I ofGATT 1994.  The sum of the individual country allocations for traditional ACP bananas under the
prior system was 857,700 tonnes, which included for each traditional ACP country its best-ever
exports to the European Communities, and for some countries an extra duty-free allotment based on
expected increased production as a result of recent investments.  The revised EC system created a
single duty-free quota of 857,700 tonnes for all traditional ACP countries, with no limit on anyindividual ACP country's duty-free access within that overall quota.
4.11 Ecuador submitted in response, that a comparison of Annex 1 of the EC's first submission
with the country limits of the prior system indicated that every country allocation was the same or less
under Annex 1, except for Jamaica and Somalia, both of which were stated to have had a larger best-
ever year in 1965 and 1966.  Since the European Communities was putting forward this data as a
defence after many years of not considering such data as valid for Lomé Convention, GATT or WTO
purposes, the European Communities needed to do far more to explain why today such data should be
                                                     
43 I.e. " … take the necessary measures to ensure mo re favourable treatment than that granted to third-
countries benefiting from the most-favoured-nation clause for the same products".
44 I.e. " … [i]n respect of its banana exports to the Community markets, no ACP State shall be placed,
as regards access to its traditional markets and its advantages on those markets, in a less favourable situation
than in the past or at present".
45 AB report at paragraph 178.  See also paragraph 172.
46 AB report at paragraph 170.
47 It was scheduled to decrease to 708 Euro as from 1 July 1999.
48 The relevant historical figures justifying the quantitative limitation of the importation of traditional
ACP bananas at 857,700 tonnes are contained in Annex 1.WT/DS27/RW/ECU
Page 13
accepted as valid, required by the Lomé Convention, and within the scope of the Lomé waiver.  The
years in question all pre-dated the EC's agreements with traditional Lomé countries, or even the
accession of the United Kingdom to the European Communities.  Further, having found this data,
there was no explanation why the European Communities did not consider itself "required" to grant
the additional quantities to Somalia and Jamaica.  Ecuador considered that even if the Panel were to
accept as valid this data, and thus increase the "requirement" of the Lomé Convention and expandingthe scope of the Lomé waiver, the revised EC syst em would still be inconsistent with Article I of
GATT 1994 with respect to traditional ACP bananas,  since it allowed any traditional ACP supplier
duty-free access beyond its "best-ever" level.
49
4.12 The European Communities  noted that the AB had overruled the panel in the original
dispute with regard to the coverage of th e Lomé waiver which in the view of the AB50 did not extend
to Article XIII of GATT.  The European Communitie s therefore considered itself to be compelled to
abandon the country-allocation for the imports of traditional ACP bananas, since in spite of thepreference, none of the banana-exporting ACP States was a substantial supplier of bananas to the EC's
market.  Under such circumstances, the European Communities did not see how it would be possible
to allocate shares of the overall volume to individu al ("specific") ACP States as long as the European
Communities did not distribute its MFN tariff quotas among non-substantial suppliers.  In this regard,
the European Communities did no more than respect its WTO obligations the way it understood them,but the European Communities had an open mind if it was clarified in unambiguous terms that other
options were available to it.  Moreover, the inconsistency alleged by Ecuador did not relate to
Article I of GATT, but, in the opinion of the European Communities, rather to an alleged
inconsistency of the EC's banana import regime with  the requirements of Article 1 of Protocol 5 on
bananas because of the absence of country allocations for the preferential import volume fortraditional ACP bananas.
4.13 Referring to the EC's argument in paragraph 4.12 above, Ecuador  submitted that the AB, in
ruling that the Lomé waiver did not apply to the EC's infringement of Article XIII, did not find that
the European Communities was thereby excused from compliance with Article I of GATT 1994,
including the AB's express affirmation that duty-free quantities in excess of a traditional ACPcountry's pre-1991 "best-ever" level were not within the scope of the Lomé waiver
51 and therefore
infringed Article I.  That infringement of Article I existed whether or not the Panel accepted the "new"
old data on Jamaica and Somalia.
(ii) Non-traditional ACP bananas
4.14 Ecuador  argued that, under the terms of the Lomé Convention, the more favourable tariff
treatment in the revised system of non-traditional ACP bananas was not required by, and hence was
not within the scope of, the Lomé waiver.52  Ecuador considered that it was not justifiable to expand,
in the amended system, the preferences allowed in the old system.  Neither the limited finding
regarding the previous system, nor the language of the Lomé waiver could justify such an increase.
The panel and the AB affirmed, according to Ecuador, that the Lomé waiver covered duty-free
treatment for 90,000 tonnes of non-traditional ACP bananas and a 100 Euro per tonne preference for
such bananas above the overall tariff-rate quota (TRQ).  Under the revised EC system, however, the90,000 tonne cap on duty-free importation had been removed, and the preference for above-quota
                                                     
49 First Ecuador Submission at paragraphs 56-63.
50 Paragraph 188 of the AB report in the original dispute, doc. WT/DS27/AB/R of 9 September 1997.
51 AB report at paragraph 174, footnote 94.
52 The relevant provision of the Lomé Convention in this regard was Article 168(2)(a)(ii), which
provided that:  " … the Community shall take the necessary measures to ensure more favourable treatment  than
that granted to third-countries benefiting from the most-favoured-nation clause for the same products"
(emphasis added).WT/DS27/RW/ECU
Page 14
imports had been increased to 200 Euro per tonne.  Ecuador argued that this Panel should find that the
expansion of the preference was more than what was required by the Lomé Convention, and hence not
justified under the Lomé waiver, and therefore not consistent with Article I of GATT 1994.
4.15 The European Communities  noted that non-traditional imports of ACP bananas were
currently benefiting from duty-free treatment within  the tariff quotas (which amounted in practical
terms to a preference of 75 Euro per tonne) and a duty preference of 200 Euro per tonne outside thetariff quotas.  According to the European Commun ities, the fact that the AB had mentioned a volume
of 90,000 tonnes for duty-free banana imports within the (bound) tariff quota and a figure of 100 Euro
for any further preference was not an indication of an upper limit of the preference for non-traditional
ACP bananas.  The AB had limited itself to examin ing "whether the particular measures chosen by
the European Communities to fulfil the obligations in [Article 168(2)(a)(ii)] to provide 'more
favourable treatment' to non-traditional ACP bananas are also in fact 'necessary' measures …".
53
According to the European Communities, the AB had stated very clearly that "Article 168(2)(a)(ii)
does not say that only one kind of measure is 'necessary'.  Likewise, that Article does not say what
kind of a measure is 'necessary'.  Conceivably, the European Communities might have chosen some
other 'more favourable treatment' in the form of a tariff preference for non-traditional ACP
bananas." 54
4.16 The European Communities further noted that the above figures were the ones on which the
previous EC banana import regime was based.  The Lomé waiver covered preferential treatment of
ACP bananas over and above these figures to the extent that the waiver from Article I was only
qualified by the condition that the preferential treatment had to be "required" by the Lomé
Convention.  Article 168(2)(a)(ii) of the Lomé C onvention required preferential treatment of  all ACP
banana imports55 unlike the requirements contained in Article 1 of Protocol 5 which were limited to
traditional ACP banana suppliers.  In the opinion of the European Communities, there was no basis
for a volume limitation of such preferential treatment in Article 168(2)(a)(ii) of the Lomé Convention,
nor for a limitation of the margin of preference to 100 Euro per tonne of non-traditional ACP bananas
imported outside the tariff quotas.
4.17 Ecuador  submitted that the revised EC system increased the preferences for non-traditional
ACP bananas, both by eliminating the 90,000 tonne cap on duty-free entry and by increasing the
preference for over-quota bananas to 200 Euro per tonne.  These increases went beyond what the
panel had found required under the Lomé Convention, and thus did not fall within the Lomé waiver,
and were inconsistent with Article I of GATT 1994.  In Ecuador's opinion, the AB's observation that
other  forms of tariff preference might have been chosen was used by the European Communities as a
pretext to justify greater preferences of the same type.  In granting the Lomé waiver, WTO Members
did not give carte blanche  to the European Communities and ACP States.  The EC's actions and
rationale for its substantial increase of those preferences were abusive, and unjustifiable in terms of
the Lomé waiver or past rulings.
4.18 The European Communities  argued that contrary to Ecuador's allegations in paragraphs 4.14
and 4.17 above, the elimination of the tariff quota share for non-traditional ACP bananas reduced  the
value of the preference granted under the previous EC banana import regime, since these bananaswere now imported in competition with bananas from other sources under the general "others"
category of the tariff quota that was not allocated to bananas of a particular origin.  The European
Communities thus considered that the abolition of the tariff quota share allocated to imports of non-
traditional ACP bananas did not "expand" the preference for non-traditional ACP bananas beyond the
requirements of Article 168(2)(a)(ii) of the Lomé C onvention.  In order to partly compensate for the
                                                     
53 Paragraph 173 of the AB report.
54 Idem .
55 Paragraph 170 of the AB report.WT/DS27/RW/ECU
Page 15
loss of the allocation of the 90,000 tonne tariff quota share for non-traditional ACP suppliers, the
European Communities continued, it had agreed with these suppliers to increase the margin of
preference for out-of-quota imports from 100 Euro per tonne to 200 Euro per tonne.  In conclusion,
the European Communities saw no valid basis for Ecuador's complaint regarding the preferential
treatment of non-traditional imports of ACP bananas under the present regime.
2. Article XIII issues
4.19 Ecuador  argued that the revisions of the EC's system were not sufficient to conform with the
obligations of Article XIII, and in some respects aggravated the contraventions of Article XIII in the
previous system.  Indeed, even the size of the respective TRQ baskets was unchanged:
857,700 tonnes of duty-free access for traditional ACP bananas, and 2,553,000 tonnes of preferential
tariff access for other bananas.  The revised system retained the use of two TRQ regimes, and
maintained the same overall quota level for each group as in the previous system, resulting in more
favourable treatment of bananas from traditional ACP countries than from Ecuador or other countries.The panel and the AB had held that the EC's esta blishment of two banana import regimes, or use of
different terminology, did not justify a separate ev aluation of those regimes in terms of Article XIII.
Ecuador considered that there was no exemption from the obligations of Article XIII for measures that
favoured products of a group of countries where the same favouritism was not permitted for a single
country, as was evident, for example, in the evaluation of the BFA by the panel and the AB.
4.20 Ecuador submitted that the questions with respect to the allocation of the TRQs were, firstly,
whether the European Communities had complied with Article X III, and the findings and
recommendations in that regard, by according to traditional ACP countries, as a group, a share of the
TRQ that was equal to the sum of the individual country shares for ACP bananas;  and secondly
whether the allocation assigned to Ecuador, relative to  the share allotted to the ACP and to the import
regime of the EC generally, conformed with Article XIII.  Ecuador contended that in both respects the
European Communities had failed to conform with Article X III and the pertinent findings and
recommendations of the panel.
4.21 Ecuador asserted, moreover, that the original panel had found that Article XIII did not permit
the European Communities to allocate country shares to some non-substantial suppliers, while notdoing so to others.
56  Ecuador noted that the particular country shares allotted to each traditional ACP
supplier were based on the "best-ever" performance of each country prior to 1991, with a supplement
even beyond that for some of the traditional ACP suppliers.  However, actual imports from the
traditional ACP countries as a group had been in the range of 200,000 tonnes less than the
857,700 tonnes in total allotments.  In line with past rulings57, the panel had found that the chapeau in
Article XIII:2 constituted a "general rule" to which the provisions of Article XIII:2(d) were
subordinate.58  The panel had also found that the European Communities could leave in place the
TRQs for traditional ACP bananas because it was of the view that the Lomé waiver applied to
Article XIII violations as well as to violations of Article I.59  This panel finding had been overruled by
the AB.60
4.22 Ecuador argued that a discriminatory quota in favour of one country could not be cured by
combining that quota share with another excessive country quota share.  Indeed, were it otherwise,Article XIII would become meaningless.  WTO members could then freely discriminate simply by
                                                     
56 Panel report at paragraphs 7.90-7.118.
57 See working party report on "Quantitative Rest rictions", adopted on 2, 4, and 5 March 1955,
BISD 3S/170, 176, paragraph 24, cited at Bananas III  panel report at paragraph 7.68, footnote 365.
58 Panel report at paragraph 7.70.
59 Panel report at paragraph 110.
60 AB report at paragraph 188.WT/DS27/RW/ECU
Page 16
allocating quotas by blocks of two or more country quotas, instead of individual quotas.  There was
nothing in the findings of the panel or AB, or in the plain language of Article XIII, to suggest that
such discrimination by blocks of countries was admissible.  By eliminating the sub-allotments,
Ecuador submitted, it was more likely that more of the quota would be filled, since more efficient
traditional ACP suppliers would face little limit and would have an incentive for investment.  The
TRQ for traditional ACP bananas was isolated from competition from other sources such as Ecuador,both under the previous system and in the amended system, another advantage for traditional ACP
bananas which was not accorded to other bananas.
4.23 The European Communities  submitted that according to the findings of the panel and the
AB with regard to Article XIII of GATT
61, tariff quota shares could not be allocated only to some
non-substantial suppliers of a product.  In examining the old EC banana regime, the AB had
considered that (partial) allocation was an advantage which had not been extended to all non-
substantial suppliers.  Thus, the European Communities was not permitted under Article XIII:2(d) ofGATT 1994 to allocate a specific tariff quota share only to non-traditional ACP banana suppliers.
Therefore, the European Communities would have to allocate tariff quota shares to all non-substantial
suppliers which the European Communities considered was difficult in practice.  It would introduce
undesirable rigidity in the administration of the tariff quota, as some tariff quota shares for non-
substantial suppliers would have to be very small indeed.  On the basis of these considerations, theEuropean Communities had decided to introduce a general (undistributed) "others" category without
allocation of country-specific tariff quota shares.
4.24 In order to respect the ruling of the AB, the European Communities continued, according to
which breaches of Article XIII of GATT were not covered by the Lomé waiver, and in particular its
finding in paragraph 188, the European Communities had refrained from allocating shares to anyspecific traditional ACP banana supplying country.  The European Communities did not understand
how the absence of a distribution of the quantity between traditional ACP suppliers could negatively
affect Ecuador's export interests, since imports of traditional ACP bananas were in any case not
counted against the (bound and autonomous) tariff quotas, on the one hand, while full competition
outside the tariff quotas was already established by the Uruguay Round, on the other hand.  The onlydifferential treatment between Ecuadorian bananas and ACP traditional bananas was the tariff applied
(duty-free vs. bound rate) but this was consistent with the Lomé waiver.
4.25 The European Communities submitted that a number of fundamental principles of
GATT/WTO had to be observed when addressing this matter.  They included the following:  the
Lomé waiver was a decision of the CONTRA CTING PARTIES which was foreseen by the
Marrakesh Agreement, Article IX.3, and was obligatory upon all the WTO Members.  According to a
general principle of public international law applied in the WTO by the AB, " …  an interpreter is not
free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to
redundancy or inutility …".
62  Therefore, this Panel was not free to interpret Article XIII of GATT in
such a way as to render the Lomé waiver " a redundancy or an inutility".  To put it otherwise, it must
be possible to apply the Lomé waiver in the context of the existing  WTO rights and obligations.
4.26 According to the same principle, no interpretation of Article XIII of GATT could enlarge its
scope to such an extent that Article I of GATT would be reduced, in casu , to "redundancy or
inutility".  Both these provisions were concerned with the MFN principle.  However, they had their
separate scope and purpose that could not be superposed or confused.  The AB affirmed in the LAN
                                                     
61 Paragraph 7.90 of the panel report and paragraph 161 of the AB report.
62 AB report on United States – Standards for Reformulated and Conventional Gasoline , adopted
20 May 1996, AB-1996-1, page 23.WT/DS27/RW/ECU
Page 17
case63 that " the security and predictability of 'the reciprocal and mutually advantageous
arrangements directed to the substantial reduction of tariffs and other barriers to trade' is an object
and purpose of the WTO Agreement, generally, as well as of GATT 1994 ".  The Newsprint  panel
report 64 was a practical application of this important principle which in the EC opinion was relevant
for the solution of the present case.  As the AB in the " India patent " case had indicated, "…  both
panels and the AB (…) must not add to or diminish rights and obligations provided in the WTOAgreement. This conclusion is dictated by two separate and very specific provisions of the DSU .
 (…)
These provisions speak for themselves.  Unquestionably, both panels and the AB are bound by
them".65  Any claim or suggestion by the complainant, the European Communities submitted, had to
be dealt with by the Panel with this fundamental principle in mind.
4.27 The European Communities submitted that it could not possibly be in Ecuador's best interest
that imports of duty-free traditional ACP bananas be counted against imports at in-quota rates from
other sources, including from Ecuador, since this would necessarily reduce the share of imported non-ACP bananas.  The European Communities stressed that imports of traditional ACP bananas were not
counted against any MFN tariff quota.  They were imported duty-free outside  the existing (bound and
autonomous) MFN tariff quotas.  If it were not for the conditions attached to the Lomé waiver, as
interpreted by the panel and the AB in the original dispute, the European Communities would not
have indicated any specific volume for such imports.  It therefore considered that Article XIII ofGATT did not apply to duty-free imports of tradit ional ACP bananas which were not counted against
a tariff quota but to which a cap to the tariff preference was applied.
4.28 The European Communities considered that Article XIII:5 of GATT 1994 would not be
applicable in the absence of the AB interpretation of the Lomé waiver limiting duty-free imports of
traditional ACP bananas in the European Communities to a volume of 857,700 tonnes.  This volumefound therefore its basis exclusively in the conditions attached to the Lomé waiver, not in the EC's
tariff bindings, nor in Article XIII which was meant, in the final analysis, to protect those bindings.
Thus, the volume limitation for duty-free imports of traditional ACP bananas was inseparably
attached to the Lomé waiver and was both required and permitted by the waiver. Referring to its
obligations under Article 1 of Protocol 5, as confirmed by the AB
66, the European Communities
submitted that it had an obligation to allow imports of traditional ACP bananas into the European
Communities under an import arrangement that was separate from the import arrangement applying to
bananas from other sources, because any other solution would negatively affect the bound tariff quota
and thus reduce the share of non-ACP banana imports, breaching the principle set out in the AB report
on LAN.67  While it was true that, in accordance with the findings of the AB in the earlier dispute, the
waiver only waived obligations of the European Communities under Article I:1 and not under
Article XIII of GATT 1994, this waiver had to be given its full scope and meaning (see
paragraph 4.25 above).  The European Communities submitted that it would not be entitled to count
preferential imports that were not included in a tariff binding against imports under the bound tariff
quota.  This question was extensively dealt with in the 1984 panel on Newsprint68  which was relevant
to the claim submitted by Ecuador in this case. 69  The European Communities quoted the Newsprint
                                                     
63 European Communities - Customs Classification of Certain Computer Equipment , AB-1998-2,
paragraph 82.
64 Adopted 20 November 1984, BISD 31S/114, 130, notably paragraphs 50 to 52.
65 Paragraphs 46 and 47 (emphasis added).
66 Paragraph 178.
67 European Communities - Customs Classification of Certain Computer Equipment , AB-1998-2,
paragraph 82.
68 Adopted 20 November 1984, BISD 31S/114, 130, notably paragraphs 50 to 52.
69 In the Newsprint case, the complainant (Canada) argued that the respondent (EC) had not respected
its tariff commitment for newsprint, because it had bound a duty-free MFN tariff quota of 1.5 million tonnes butin 1984 had only allowed a volume of 500,000 tonnes to be imported duty-free in the European Communities.
The European Communities responded that the MFN tariff rate quota had in the past been shared betweenWT/DS27/RW/ECU
Page 18
panel as saying "[...] It is in the nature of a duty-free tariff quota to allow specified quantities of
imports into a country duty-free which would otherwise be dutiable, which is not the case for EFTA
imports by virtue of the free-trade agreements.  Imports which are already duty-free, due to a
preferential agreement, cannot by their very nature participate in an M.F.N. duty-free quota"
(emphasis added).
4.29 While the MFN tariff quotas for bananas were  not duty-free, the European Communities
continued, but allowed imports at reduced rates of duty, the logic of the above findings was even more
compelling in that situation.  If preferential duty-free imports were counted against an MFN tariff
quota at reduced rates, this would completely undermine the value of the MFN tariff quota and thus
the balance of rights and obligations negotiated in tariff negotiations between WTO Members.  "[T] he
security and predictability of the reciprocal and mutually advantageous arrangements directed to the
substantial reduction of tariffs and other barriers to trade",  as the AB had indicated, would be put at
serious risk.
4.30 On the other hand, duty-free imports of non-traditional ACP bananas were counted against
the MFN quota.  However, the EC's tariff binding for bananas specifically referred to imports of such
non-traditional ACP bananas, for which a quota share of 90,000 tonnes had been allocated under the
binding (see also paragraph 4.17 above).  The situation of non-traditional ACP bananas which were
specifically referred to in the EC’s tariff binding,  the European Communities submitted, was thus
entirely different from that of traditional ACP bananas which were never the subject of any tariff
negotiations under GATT  or the WTO.  The AB had recognised70 that the European Communities was
required, in accordance with Article 1 of Protocol 5, to grant traditional ACP bananas a tariff
treatment that was preferential even in compar ison to the import regime for non-traditional ACP
bananas.71   A "tariff quota share" in this context could only mean a defined import volume at a
preferential tariff level.  The value of a tariff preference resided in the preferential margin, much more
than in the volume.  The preferential margin of traditional ACP bananas was presently at 737 Euro per
tonne, since these bananas were imported in compet ition with bananas imported out of quota, while
the preferential margin for non-traditional ACP bananas was 200 Euro if imported out of quota and
only 75 Euro if imported under the MFN tariff quota.   Including traditional ACP bananas in the MFN
tariff quota would thus mean (independently of the volume limitation) that the margin of preference
would be reduced by 662 Euro per tonne (737 Euro – 75 Euro = 662 Euro).
4.31 In the opinion of the European Communities, there was no basis in the original panel or AB
reports for such a drastic reduction of the margin of preference for traditional ACP bananas.  The
volume limit was thus a cap to this very substant ial preference, but not an advantage to be shared
under Article XIII of GATT with other (MFN) suppliers.  Article XIII was a special MFN clause with
regard to the distribution of (tariff) quotas, not a provision that governed volume limitations imposed
on preferential suppliers.  It was the preference that constituted the economic advantage for traditional
ACP banana imports, whereas the volume limitation was a disadvantage.  The volume limitation was
thus inseparably linked to the tariff preference, but did not by itself constitute the preference.
                                                                                                                                                                    
Canada and some Northern European countries (Finla nd, Norway, Sweden) which had in the meantime been
granted duty-free access in the context of the EC-EFTA free trade agreements.  For this reason, the imports fromthese countries were no longer counted against the MFN tariff quota.  Under these circumstances, the EuropeanCommunities had reduced duty-free access under the MFN tariff quota to 500,000 tonnes which corresponded to
the share of non-EFTA imports under that quota.  During the proceedings of the Newsprint panel, the European
Communities argued that if the panel held that this action was inconsistent with the EC's GATT obligations,then the European Communities would have no option but to count the duty-free imports from EFTA countriesagainst the imports under the MFN tariff quota.
70 Paragraph 173 of the report of the AB in the original dispute, doc. WT/DS27/AB/R of
9 September 1997.
71 Paragraph 178 of the AB report, doc. WT/DS27/AB/R of 9 September 1997.WT/DS27/RW/ECU
Page 19
4.32 If Ecuador's approach were correct, the European Communities continued, the European
Communities would have to distribute the 857,700 tonnes in part to substantial suppliers, including
Ecuador.  However, Ecuador would not have access to the preferential zero duty rate.  Thus, since this
volume was beyond the bound tariff quota of 2.2 million tonnes, the base rate of presently Euro 737
would apply to any quantities imported from Ecuador under such an additional "tariff quota".  Of the
857,700 tonnes of the so-called "tariff quota", Ecuador would receive a share of 26.17 per cent(224,460 tonnes).  This would be absurd since Ecuador was entitled to import into the EC's unlimited
quantities of bananas at 737 Euro per tonne.  The traditional ACP supplying countries would have
access to 9.43 per cent of the same volume which was less than a tenth  of the volume of imports from
those countries that the European Communities was required by the Lomé Convention to allow at a
duty-free level.  In the view of the European Communities, it was self-evident that Ecuador would
have no interest whatsoever to import under this "tariff quota", because it could much more easily
import outside the quota at the same base rate, while importing under this "tariff quota" would implyadditional customs procedures in order to count the import against the quota.
4.33 Ecuador  recalled that the establishment of two banana import regimes or use of different
terminology did not justify separate evaluation of those regimes in terms of Article XIII.  Referring to
the EC's invocation of the Newsprint  case attempting to persuade the Panel that the entire
857,700 tonne quota should be viewed as merely a cap on the preferences for ACP suppliers, Ecuadorsubmitted that the 857,700 tonne quota was not simply a capped tariff preference, as the European
Communities had sheltered this traditional ACP quota from all competition, given that the over-quota
tariff was prohibitive.  Ecuador and other suppliers thus could not compete for this allocation.  In this
respect, the traditional ACP quota was very different from the quantitative "competitive need" limits
set by the generalized system of preferences.  Though such limits were a tariff rate quota, they werenot an allocation in the sense of  Article XIII, because  other suppliers could compete with the
beneficiaries, subject only to the difference in  duty.  The European Communities could do the same
thing in this case, since then the European Comm unities would only be granting a tariff preference,
not an allocation contrary to Article XIII.
4.34 Ecuador agreed with the European Communities that "Article XIII is a special MFN clause
with regard to the distribution of (tariff) quotas, not a provision that governs volume limitations
imposed on preferential tariffs" (see above, paragraph 4.31).  Volume caps on preferential tariffs
were, in the opinion of Ecuador, an Article I matter, covered by the Lomé waiver, as long as they
were limited to a tariff  preference.  As the original panel had stated in paragraph 7.80 of its report,
constructing tariff preferences in such a way that the "tariff quota construction" became an additionaladvantage was an Article XIII matter, which was not covered by the Lomé waiver.  To the extent that
the European Communities argued that its ACP "tariff quota construction" had nothing to do with
Article XIII, Ecuador referred to the new Articl e 18(9) of Regulation 404 which was inserted by
Regulation 1637.
72
4.35 The EC response was also not convincing, Ecuador submitted, in regard to Ecuador's
complaint with respect to the continuing infringement of the fundamental non-discrimination
obligations of Article XIII, i.e. the prohibition in paragraph 1 against restricting products from oneMember unless like products of other members were "similarly restricted," and the general rule of
paragraph 2 that any allocation system must approximate as closely as possible the allocations that
would be expected to prevail in the absence of restrictions.  Ecuador noted that the European
Communities, Colombia and Costa Rica had all objected to Ecuador's request that the Panel
recommend that the European Communities drop the use of country allocations, on the basis that thisrequest would deprive the European Communities of its  "right" to allocate under Article XIII:2(d) and
would deprive Colombia (and Costa Rica) of an alleged right to a country quota negotiated in the
                                                     
72 "Third State, traditional AC P and non-traditional ACP bananas re-exported from the Community
shall not be counted against the corresponding tariff quotas " (emphasis added).WT/DS27/RW/ECU
Page 20
Uruguay Round.  Ecuador stressed that it did not seek to deny any WTO Member its rights under the
WTO in this dispute.  The European Communities was indeed free to allocate by country, as long as it
followed the requirements of Article XIII:1, the chapeau of Article XIII:2, and the provisions of
Article XIII:2(d).  However, as the original panel had ruled, neither the Uruguay Round schedules nor
the allocation provisions of Article XIII:2(d) permitted violation of the requirements of Articles XIII:1
and XIII:2.
4.36 The provisions of Article XIII did not require  the European Communities to allocate quotas,
and Ecuador believed that the absence of country allocation would produce the most equitable result,
given the manifold restrictions that had distorted the EC market for many years.  But if the European
Communities instead chose to allocate, then it must use a combination of recent representative period
and special factors that resulted in a distribution approximating as closely as possible the shares that
might be expected to prevail in the absence of rest rictions, and that entailed similar restrictions on
bananas from all sources.  Ecuador did not believe that those requirements of Article XIII were metby the two systems chosen by the European Communities and by the use of a 1994-1996 period
without adjustments for special factors.
4.37 The European Communities  submitted that in accordance with the panel and AB reports, the
European Communities applied the same method of allocation of import licences for all categories of
bananas, irrespective of the source of supply to the extent that import licences were necessary in orderto count the imports against a tariff quota or to administer the volume limitation for traditional ACP
bananas.  In this respect, the distribution rules were identical in all cases, since only substantial
suppliers had been attributed country-specific sh ares under the MFN tariff quotas.  Since no ACP
country was a substantive supplier on the EC's market, no country-specific shares were allocated to
any ACP country in respect of the volume limitation for traditional ACP banana imports.  TheEuropean Communities noted, as concerns BFA allocations, that Nicaragua's shares were reallocated
to Colombia in full in 1995 and in part in 1996, and Venezuela's share was partially transferred to
Colombia in 1995.  The European Communities confirmed Costa Rica's statement that it did not
benefit from any transfers of shares under the BFA.
4.38 Ecuador  submitted  that the amended system did not correct, and even intensified, the non-
conformity with Article XIII in the preferential tr eatment of BFA countries.  The shares of Columbia
and Costa Rica had been permanently increased by the amount of the reallocation of the shortfall that
they were granted inconsistently with Article XIII under the previous system.  Ecuador was further of
the view that the revised system was inconsistent with  the obligations of Article XIII to ensure that a
TRQ allocation system approximated as closely as possible the distribution of shares that could be
expected in the absence of restrictions.  In additi on to providing individual country allocations for the
12 ACP suppliers of traditional ACP bananas within the 857,700 tonne quota, the old EC system
granted country allocations to four individual ACP countries and an "Other ACP" category for a total
of 90,000 tonnes of bananas within the TRQ.  The share assigned by the European Communities to
Ecuador in the new system was less than warranted by any objective standard, including the trend of
Ecuador's exports and, even more markedly, Ecuador's much larger share of the world market outside
the EC's market. Ecuadorian bananas were subject to restrictions that were not similarly imposed onlike bananas from other sources, contrary to the requirements of Article XIII:1.  The European
Communities had allotted individual country shares pursuant to the BFA to two substantial suppliers
(Colombia and Costa Rica) and two non-substantial suppliers (Nicaragua and Venezuela), who also
had shared in a system of preferential reallocation of shortfalls among themselves.  Other countries,
such as Ecuador, did not have a specific country allocation in the old system, and fell within an"others" category of the 2,553,000 tonne quota.
4.39 Ecuador submitted that Article XIII established two general rules, i.e. Article XIII:1 required
that imports from one Member not be restricted unless imports of the like products from other sourcesWT/DS27/RW/ECU
Page 21
were "similarly restricted."73 Further, the original panel noted that if Members applied quotas to a
product, then, in the terms of the chapeau to Article XIII:2, "Members shall aim at a distribution of
trade in such product approaching as closely as possible the shares which the various Members might
be expected to obtain in the absence of such restrictions."74  This interpretation was confirmed by the
AB.75  While Article XIII:2(d) allowed the use of country allocations, the panel noted that that
authorization was subject to observance of the general rule of the chapeau.76  That finding was
likewise confirmed by the AB.77
4.40 According to Ecuador, the amended system still had to conform to these requirements.  The
EC regulations listed the shares of Ecuador and other substantial supplying countries as a proportion
of the 2.553 million tonne tariff rate quota.78  As a proportion of the entire quota of 3.41 million
tonnes, however, the allocations would be different.79  Ecuador claimed that its share had been limited
relative to that of other countries as a result of this system and compared to the share that Ecuador
could have expected to achieve in the absence of restraints.  In other words, a country allocation or, inthe case of the traditional ACP countries, a block allocation, benefited countries whose
competitiveness was decreasing relative to others, by isolating part of the market from competition
from other suppliers.  Country allocations further restricted large and efficient suppliers' opportunities,
such as Ecuador, to compete, both with producers in  the restricted market and with other exporting
countries that might be less efficient
4.41 Ecuador asserted that the non-conformity of the amended system with Article XIII as regards
Ecuador could be shown objectively in terms of the evolution of Ecuador's share of the EC's market
and, even more markedly, in Ecuador's share of worl d markets (see Chart 1 in Annex II).  According
to Ecuador, Chart 1 demonstrated that Ecuador's share of the EC's market had grown and far exceeded
the share assigned to Ecuador in the present system.  However, the object of Article XIII was not tofreeze shares of the past, especially if those past periods had been distorted by restrictions.  Charts 2
and 3 in Annex II, Ecuador submitted, were even more instructive in considering what share Ecuador
might be expected to have in the absence of restrictions.  Chart 2 indicated that Ecuador had a
substantially larger share of the world market than of the EC's market.  Chart 3 measured Ecuador's
market share of the world outside of the EC's market.  In a product such as bananas, Ecuador believedit was appropriate to consider relatively unrestricted markets elsewhere as much more indicative of
what Ecuador might anticipate in the EC's market, if the restrictions were removed.  Ecuador
concluded that the share assigned to Ecuador was less than what Ecuador could expect in the absence
of restrictions, in view of the provisions of Article XIII:1.
4.42 Ecuador further argued that the revised EC system contravened not only the general rule of
Article XIII:2, but also specific provisions of Ar ticle XIII:2(d) which requ ired that the allocation
among substantial suppliers had to be based upon the proportions supplied "during a previous
representative period, due account being taken of any special factors which may have affected or may
be affecting the trade in the product."  Referring to EC's claim that the allocations accorded to
suppliers (other than traditional ACP suppliers) under the revised EC system were determined in
accordance with average shares of the EC's market in the 1994 to 1996 period
80, Ecuador noted that
                                                     
73 Panel report at paragraph 7.69;  AB report at paragraph 160.
74 Panel report at paragraph 7.68.
75 AB report at paragraph 161.
76 Panel report at paragraph 7.70.
77 AB report at paragraph 161.
78 Ecuador:  26.17 per cent ;  Costa Rica:  25.61 per cent;  Colombia:  23.03 per cent;  Panama:
15.76 per cent;  Other:  9.43 per cent.  Regulation 2362.
79 Traditional ACP:  25.15 per cent;  Ecuador:  19.59 per cent ;  Costa Rica:  19.17 per cent;  Colombia:
17.24 per cent;  Panama:  11.8 per cent;  Other:  7.1 per cent.
80 Preambular Clause (2) of Regulation 2362.WT/DS27/RW/ECU
Page 22
the original panel had found that this period was distorted by the non-consistent aspects of the BFA,
as well as other distortions related to the EC's licensing system.
4.43 In the opinion of Ecuador, it was not clear whether any country-share allocation system could
be devised based on a representative period and special factors that would meet the requirements of
Article XIII:2.  The original panel confirmed what had been held by prior panels, that periods
distorted by trade restrictions could not be considered representative.81  Ecuador submitted that neither
the period during which the previous banana import regime was in force (1 July 1993–
31 December 1998), nor the period prior to that could be seen as "representative" since none of those
periods were free of distortions.  Ecuador further argued that since relative productive efficiency and
capacity varied over time, the older the period chosen, the less likely it was to be representative,
bearing in mind that the objective of Article XIII - and the requirement of the chapeau in
Article XIII:2 - was to achieve an allocation that came as close as possible to that which would prevail
in the absence of restrictions.  The intent of Article XIII was not, in the opinion of Ecuador, to createeverlasting entitlements based on past trading patterns.
4.44 Ecuador submitted that the  result of the EC's system was that ACP countries, as a group, were
assigned to a quota to which they had exclusive access.  Other countries did not get an allocation by
group.  The ACP allocation was also far higher, being based on a cumulated pre-1991 best-ever
formula, than could be justified by any formula or rule of Article XIII.  If the 1994-1996 base periodapplied to Ecuador and other third countries were applied to the traditional ACP suppliers, the latter
would receive a much lower share, while those of Ecuador and other third countries would rise.
4.45 The European Communities  submitted that the "historical performance" scheme had to be
based on some period in the recent past.  While it was the least trade-disruptive option, it admittedly
had the disadvantage of "freezing" the situation to a certain extent.  However, on balance, theEuropean Communities Ministers for Agriculture decided that a higher degree of certainty and
predictability to importers than the "first-come, firs t-served" scheme was to be preferred at this stage
and, contrary to the "auctioning" scheme, it was appropriate to leave the quota rent with the operators,
thus avoiding an important financial impact on operators at a moment when already a major change in
the rules was imposed upon them.  The allocation of shares of the quota to those countries with asubstantial interest in supplying the EC market was based on the reference period 1994-96 as were the
quantities effectively imported by each importer on average during the recent three-year period.  Data
for 1997 was available but it was provisional at the time of preparing Regulation 2362.  This period
was the most favourable period for Ecuador since on the basis of the available data at the time, it
represented Ecuador's best years.  The allocations were calculated on the basis of the average of theactual import years and with a proportional distribution of unidentified sources.  Therefore, Ecuador
received a higher quota than it would have received based on actual 1994-96 figures only (26.17 per
cent as compared to 25.38 per cent) (see also paragraph 4.52).  The European Communities believed
that the "historical performance" (or traditional/new comers) scheme could only be legitimate if it was
devised taking into account the conditions listed in Article 3.5(j) of the Licensing Agreement 
82,
namely licences had to be issued to applicants in the past and their distribution must be based on their
full utilization during a recent representative period.83  In the opinion of the European Communities,
the new EC licensing system created by Regulation 2362 was entirely in line with Article 3.5 of the
Licensing Agreement.
                                                     
81 Panel report at paragraph 7.94, footnote 365 quoting  the panel report on EEC Restrictions on Imports
of Dessert Apples – Complaint by Chile , adopted 10 November 1980, BISD 275/98, 113, paragraph 4.8.
82 " … consideration should be given as to whether li cences issued to applicants in the past have been
fully utilized during a recent representative period."
83 Ecuador's first written submission paragraph 97 et sequitur.WT/DS27/RW/ECU
Page 23
C. ISSUES RELATED TO THE GATS
(i) General
4.46 Ecuador  argued that the new licensing system resulted in distribution of most of the import
licences to those who had received them under the previous regime, including those who had obtained
licences pursuant to criteria ruled inconsistent with the EC's obligations under the GATS.  Further, the
amended regime's newcomer category had been expanded and itself had criteria favouring ECoperators over service suppliers of Ecuadorian and other non-EC origins.  Ecuador concluded that the
amended system, like its predecessor, created conditions of competition favouring service suppliers of
EC and ACP origin, to the detriment of service suppliers of Ecuadorian and other third-country origin
in contravention of Articles II and XVII of GATS.
4.47 The European Communities  recalled that under Article 1 of the Licensing Agreement, an
import licence was defined as "… an application or other document (other than that required for
customs purposes) to the relevant administrative body as a prior condition for importation into acustoms territory of the importing Member".  Thus, the full utilization of a licence had to refer to the
moment in which the use of the licence became indispensable, i.e. the clearance of bananas through
customs.  Before  that moment, there was no import of bananas into the Community, but rather export
operations from the country of production.  After  that moment, there was trading within the European
Communities of already imported bananas, which were indistinguishable from any other banana in theEC market from any origin.  The only objective and indisputable way of proving the "effective"
importation was the payment of duties, either directly or through a customs agent on a fee or contract
basis.  This was the system chosen by the European Communities in Regulation 2362.  Since operator
categories had been abolished and any need for any third-country operator (indeed any operator in
general) to purchase licences "in order to maintain [its] previous market share"
84 had consequently
become obsolete.
4.48 Ecuador noted that Article XVII of GATS provided for national treatment for services and
service suppliers whereas Article II of GATS required Members to accord the services and service
suppliers of any other Member most-favoured-nation treatment.  The AB upheld the original panel's
conclusion that "treatment no less favourable" in Article II:1 of GATS should be interpreted toinclude de facto , as well as de iure , discrimination.  Ecuador recalled that under the old EC banana
import system, import licences for in-quota imports of third-country and non-traditional ACP bananas
were allocated by "operator categories" and "activity functions".  Operator categories A and B were
subdivided into three types of activities.  Performing one of these activities during a three-year
reference period entitled the operator concerned to a portion of the future import licences that werelinked to the imported quantities (see Annex III for details).  In addition, Ecuador noted, the European
Communities allowed operators who included or represented European Communities and traditional
ACP producers to import third-country bananas and non-traditional ACP bananas to compensate for
damage suffered from tropical storms (under so-called hurricane licences).
4.49 Ecuador recalled that the original panel had made a number of findings concerning the old
regime which in Ecuador's opinion provided the factual and legal context for assessing whether the
revised EC regime for allocating in-quota import licences complied with the EC's WTO obligations.
85
Referring to various paragraphs in the original panel's findings, Ecuador noted that86 the original panel
had found, with regard to the old regime's operator categories, activity functions, and hurricane
licences, that:
                                                     
84 Paragraph 7.339 of panel report.
85 See in particular the panel report at paragraphs 7.286, 7.293, 7.297, 7.330 and 7.331.
86 Panel report at paragraphs 7.334,7.3 35, 7.362, 7.350, 7.363 and 7.392.WT/DS27/RW/ECU
Page 24
(a) the allocation to Category B operators of licences allowing the importation of third-
country and non-traditional ACP bananas at in-quota tariff rates created less
favourable conditions of competition for like service suppliers of complainants' origin
and was therefore inconsistent with the requirements of Articles XVII and II of
GATS;87
(b) the allocation to ripeners of Category A and B licences allowing the importation of
third-country and non-traditional ACP bananas at in-quota tariff rates created less
favourable conditions of competition for like service suppliers of complainants' origin
and was therefore inconsistent with th e requirements of Article XVII of GATS;88  and
that
(c) the allocation of hurricane licences exclusively to operators who included or directly
represented European Communities or ACP producers created less favourable
conditions of competition for like service suppliers of complainants' origin and was
therefore inconsistent with the requirements of Articles XVII and II of GATS.89
Ecuador noted that the above findings were upheld by the AB.90
4.50 The European Communities  submitted that already during the period 1994 to 1996, the
factual situation of the banana imports into the European Communities could no longer support the
findings of a  de facto  discrimination that the original panel made on the basis of earlier statistical
data.  Indeed, in that period already, third-country  wholesale trade suppliers had gained a substantial
share of the trade that was previously in the hands of mainly EC/ACP wholesale trade service
suppliers.  This was the case, for example, of the Category B operators that were no longer attributed,
as the panel determined on the basis of 1992 data, almost exclusively to European Communities/ACP.
The European Communities noted that two of the Ca tegory B operators referred to in the panel
report91 (Compagnie Fruitière and CDB/Durand) were both non-EC owned and Coplaca was no
longer registered as an operator following the changes to the regime to base licence allocation on
proof of imports.  According to the European Co mmunities, third-country operators already had some
involvement in ACP imports prior to the regime and their reference quantities more than doubled
from 1993 to 1996 (from 132,614 tonnes to 274,822 tonnes).  In addition to the increase in their
licence share through acquisition of, or partnerships with, formerly traditional EC/ACP operators,third-country operators also increased their licence allocations through transfer of licences from other
companies and the purchase of licences.  The European Communities considered that it would have
been almost impossible for a panel which had these more accurate and more recent figures at its
disposal to reach the conclusion of the original panel.
92  This was particularly true for the Ecuador-
owned Noboa Group that continuously gained market  access opportunities in the importation of third-
country bananas into the European Communities.
4.51 As concerns the activity function rules, more accurate and more recent data pointed exactly in
the same direction as those mentioned above.  According to 1994 to 1996 statistics, three out of four
of the biggest ripeners were non-EC owned and these three alone represented around 20 per cent of
the total ripening capacity of the European Comm unities.  The European Communities submitted that
if the original panel had disposed of such data it could not have arrived at the conclusion that "… the
allocation of such licences according to activity functions modifies conditions of competition in
                                                     
87 Panel report at paragraphs 7.314 and 7.353.
88 Panel report at paragraph 7.368.
89 Panel report at paragraphs 7.393 and 7.397.
90 AB report at paragraphs 220, 225,  239, 244, 246, 248.
91 Footnote 502 (Secretariat remark).
92 Paragraph 7.336 in fine.WT/DS27/RW/ECU
Page 25
favour of service suppliers of EC origin given that the vast majority of ripeners who are actually
supplying, or capable of supplying, wholesale services are of EC origin".93
4.52 The European Communities noted that, irrespective of the share of the market that wholesale
trade suppliers of third-country, EC or ACP origin could have had in the past, only operators that had
effectively imported bananas during the period 1994 to 1996, could be considered traditional
importers under the new regime.  There were no longer transfers of quota rent between operators,unless the operators themselves judged that economic or trade considerations justified a transfer of
licences.  Nor was it possible any longer to claim licence ownership on the basis of a name on a
licence:  it was now necessary to show, through proo f of duty payment that the holder of the licence
was also the legal holder of the bananas.  The mo ment of customs clearance was the point in time that
determined whether an export of bananas became an import.  Only imports were relevant for the
import licences and were covered by the import licensing procedures as defined in the Licensing
Agreement.  Finally, the European Communities submitted, it was no longer possible to claim non-existent "grandfather" rights in the trade either of ACP or of Latin American bananas, since the new
EC licensing regime made no distinction between the origin of bananas that the operators wished to
import, except for the sake of administering the co untry-specific tariff quota shares reserved for the
four WTO Members having a substantial interest in supplying bananas to the European Communities.
According to more recent statistics based on the applications by traditional importers filed accordingto the new EC licensing regime, the distribution of licences between third-country, ACP and EC
wholesale service suppliers was now the following:   68 per cent:  third-country wholesale service
suppliers;  24 per cent:  EC/ACP wholesale servi ce suppliers;  8 per cent:  newcomers who could be
either from third-country or EC /ACP wholesale service suppliers.
(ii) Central Product Classification
4.53 The European Communities  submitted that the DSB had recommended that it bring its
regime for bananas into conformity with its obligations under the GATS on a number of points
referred to in the original panel report
94 and upheld by the AB.  The DSB recommendations and
rulings in this case were limited to the compatib ility with the EC obligations under the EC Market
Access Specific Commitments set out in the EC-12 GATS Schedule "Distribution services, B.Wholesale Trade Services (CPC 622)".  The original panel had indicated in particular
95 that the
specific item 62221 CPC relating to "wholesale trade services of fruit and vegetables" was the
appropriate CPC line describing the services in the EC's Schedule concerned with the case under
dispute.  The EC-15 Schedule (not bound yet for formal reasons) did not change the legal situation
with respect to that specific commitment.  In acco rdance with Article 21.5 of the DSU and its related
terms of reference, this panel had thus the task of  verifying the compliance with the above-mentioned
recommendations and rulings of measures taken by the European Communities.
4.54 Referring to the findings in the panel and AB reports concerning in particular the CPC,
integrated companies and the conformity of the previous banana import regime 96, the European
Communities submitted that after the adoption by the DSB of the original recommendations and
rulings, the Provisional Central Product Classification elaborated by the Statistical Office of the
United Nations  had been replaced by the Central Product Classification (CPC) - Version 1.0.97
According to the "Correspondence Tables betw een the CPC Version 1.0 and Provisional CPC 98,
                                                     
93 Idem .
94 Panel report at paragraphs 7.293, 7.297, 7.304, 7. 306, 7.341, 7.353, 7.368, 7380, 7385, 7.393, 7.397.
95 Paragraph 7.292.
96 Panel report  paragraphs 7.292 and 7.293;  AB: paragraphs 225-227.
97United Nations document, Statistical Papers, Series M, No. 77, Ver. 1.0, 1998 (see UN
Website www.un.org).
98 Idem , page 351.WT/DS27/RW/ECU
Page 26
item 62221 "Wholesale trade services of fruit and vegetables" matched the CPC Version 1.0 to 61121
"Wholesale trade services, except on a fee or contract basis,  of fruit of vegetables" (emphasis added).
The new Head note to the CPC Version 1.0 stated that "This group includes - the services of
wholesalers that purchase goods usually in la rge quantities and sell them to other businesses,
sometimes after breaking bulk and re-packing the product into smaller packages".  The conformity of
the new EC banana import regime with the WTO agreements, including the original recommendations
and rulings of the DSB, the European Communities argued, should therefore be assessed on the basis
of this new reality.  The European Communities added, however, that its Uruguay Round
commitments were still valid.
4.55 According to Part One, Chapter II, Section B, of the CPC99, "CPC, covering all goods and
services (…), is a system of categories that are both exhaustive and mutually exclusive."  Moreover,
"the classification of products other than transportable goods, mainly services, shall be determined
according to the terms and categories as described in the divisions, groups, classes or subclasses insections 5 to 9 of the CPC.
100  In practical terms, the European Communities continued, with respect to
the activities related to the importation, sale and distribution of bananas into the Community, a
number of categories of services were involved (a) to h)).  However, it was apparent from the
description in the CPC and from the original panel and AB reports that the issue at stake in this
Article 21.5 procedure concerned only item f),  i.e. 61121 wholesale trade services of fruits andvegetables.  The AB made clear that the definition of operator in Regulation 404 concerned only the
provision of services under the "wholesale trade services, CPC 622" category and nothing else.
Referring to paragraphs 7.294 and 7.296 of the original panel's report, the European Communities
further argued that the new EC banana import regime  should be considered only with respect to the
EC's obligations under Articles II and XVII of GATS concerning the supply of services undermode (3).
4.56 Referring to several findings by the panel
101 and AB which had deemed various EC measures
inconsistent with Articles II and XVII of GATS, the European Communities submitted that in order to
live up to its WTO obligations as contained in its Schedules of GATS commitments, it had adopted an
entirely new banana import regime as set out in Regulations 1637 and 2362.  With respect to itsGATS obligations, Articles 16 to 20 of Title IV of Regulation 404 had been withdrawn and replaced
by Article 1 of Regulation 1637.
102  Moreover, the hurricane licences had been abolished and replaced
by a system under Article 18.8 of Regulation 404 which explicitly was based on the principle of non-
discrimination "between supply origins".
4.57 Further, the European Communities explained, Regulation 2362 made the tariff quotas and
the traditional ACP bananas quantities available to two categories of operators, i.e.  traditional
importers and newcomers and based licence allocations on "actual imports".  (For definitions and
other details of Regulation 2362 see "Factual Aspects" above).  The European Communities
considered that by repealing the old banana import system and introducing new rules, it had complied
with all of the seven points found inconsistent with the GATS by the original panel and AB.  The new
EC rules under Regulations 1637 and 2362 provided market access opportunities with no restraint to
operators involved in wholesale trade services wh ich were established in the European Communities
(mode 3) within the CPC version 1.0 definitio n under item 61121.  Any wholesaler commercially
present in the European Communities, directly or through its subsidiary or other form of commercial
presence, could be registered as traditional importer or newcomer, depending on the compliance with
                                                     
99 Paragraph 15, page 7.
100 Part One, Chapter V, Section A, paragraph 56, page 19.
101 Panel report at paragraphs 7.314, 7.320, 7.324, 7.326, 7.334-7.337, 7.339, 7.347, 7.349, 7.360-
7.362, 7.364-7.367, 7.392 and 7.396.  AB report at 231 and 234.
102 In this document, the reference to provisions of Regulation 404 without any other precision should
be understood as referring to the text as amended by Regulation 1637.WT/DS27/RW/ECU
Page 27
the definitions in the EC's regulations (Article 12 of Regulation 2362).  The European Communities
further explained that, in case the service was not supplied directly by a juridical person but through
other forms of commercial presence, this did not imply that the benefit of these market access
opportunities was extended to any other parts of the supplier which were located outside the territory
where the service was supplied (Article XXVIII (g), footnote 12 of GATS).
4.58 Responding to the EC's arguments concerning the CPC above , Ecuador  submitted that even
if it were agreed that Members who identified  their GATS commitments by reference to the
Provisional CPC would now be defined by reference to the CPC Version 1.0, an identification of
commitments according to item numbers in the CPC Version 1.0 would have to be done by using the
concordance between the provisional and revised CPC103 so that, although the item numbers used to
define a commitment might change from those of the Provisional CPC, the scope of the commitment
would not.  In Ecuador's opinion, the "revised" classification scheme pertaining to the wholesale
services at issue was a distinction without a difference.  In no way did it warrant the conclusion putforward by the European Communities in paragraph 4.57 above that "[t]he new EC rules … provide
market access opportunities with no restraint to operators involved in wholesale trade services  which
are established in the European Communities (mode 3) within the CPC Version. 1.0 definition under
item 61121"  (emphasis added).
4.59 Ecuador submitted that the provisional CPC and the CPC Version 1.0, items 62221 and
61121, respectively, were identical but for the phrase in CPC Version 1.0 "except on a fee or contract
basis, of fruit and vegetables" which, in the opinion of Ecuador, only clarified the existing  scope of
the category since commission agent activities were in a separate item (621) in the Provisional CPC as
well.  In both classifications, the items fell within section 6, covering distributive trade services, the
Head note to the section in the Provisional CPC of which was quoted by the panel.
104  Within
section 6 of the Provisional CPC was group 622, "Wholesale trade services".  Version 1.0 had no
Head note to the section, but rather an explanatory note to group 611, which the European
Communities quoted in its submission.105  If the EC's point was to suggest that the scope of group 611
in the CPC Version 1.0 was narrower than the scope of item 622 of the Provisional CPC, Ecuador
submitted it was incorrect.  To the extent the Head note to CPC section 6 said anything different aboutwholesaling than was said in the explanatory note to group 611 of Version 1.0, it was that wholesalers
might perform related, subordinated services in addition to their principal activity of reselling
merchandise.  That, however, was also true under th e CPC Version 1.0.  As the AB had observed, "[i]t
is difficult to conceive how a wholesaler could engage  in the 'principal service' of 'reselling' a product
if it could not also purchase or, in some cases, import the product."
106
4.60 As concerns the "both exhaustive and mutually exclusive" phrase in CPC Version 1.0,
Ecuador was of the view that the categories of the Provisional CPC were equally exhaustive and
mutually exclusive107, and services related to the importation, sale and distribution of bananas into the
Community was virtually identical to its arguments before the original panel that the complainant
countries' services providers were engaged in every service but the ones covered by EC's GATS
                                                     
103 CPC Version 1.0 at pages 339-608.
104 Panel report at paragraph 7.290. "Distributive trade  services consisting in selling merchandise to
retailers, to industrial, commercial, institutional or other professional business users, or to other wholesalers, or
acting as agent or broker (wholesaling services) or selling merchandise for personal or household consumption
including services incidental to the sale of the goods (retailing services).  The principal services rendered by
wholesalers and retailers may be characterized as reselling merchandise , accompanied by a variety of related,
subordinated services, such as: maintaining inventories of goods, physically assembling, sorting and gradinggoods in large lots; breaking bulk and redistribution in smaller lots; delivery services; refrigeration services;sales promotion services rendered by wholesalers" (emphasis added;  underlining original).
105 CPC Version 1.0 at page 187.
106 AB report at paragraph 226.
107 Compare  Provisional CPC at paragraph 21 at page 7 with CPC Version 1.0 at page 7, paragraph 15.WT/DS27/RW/ECU
Page 28
commitments.108  In its report, the original panel addressed at length the nature and scope of the EC's
GATS commitments and whether Ecuadorian and other third-country service suppliers engaged in
importing and distribution of bananas in the European Communities were covered by those
commitments.109 In this proceeding, the European Communities appeared to argue that wholesaling
began after customs clearance  and ended before ripening.110  Ecuador was of the view that the
European Communities was trying to separate its licensing system from services covered by its GATScommitments, in order to exclude from its GATS commitments the wholesale distribution services
provided by Ecuadorian and other third-country banana marketers who, through a commercial
presence in the Community, imported bananas and sold them on the EC market.  The original panel
and the AB had already decided that the European Communities had GATS obligations to those
services suppliers, and there was nothing in the appearance of CPC Version 1.0 that could justify a
different result.
(iii) Issues of "Actual Importer" and of de facto discrimination
4.61 Ecuador  submitted that the de facto  discrimination in the EC's old licensing system persisted
in the new system because of the EC's choice of criteria.  By allocating licences on the basis of "actual
importer", the European Communities had ensure d that the predominantly EC and ACP services
suppliers, to whom Category B, ripener, and hurricane licences were granted for importing Latin
American bananas in the old system, would retain rights to most of those licences in the new one.Ecuador considered that the entire EC analysis of the GATS issues focused not on whether its
amended system was in conformity with its GATS obligations, but on particular modifications that it
claimed were responsive to the panel and AB findings.
111
4.62 In the opinion of Ecuador, the heart of the EC's argument was that - as a matter of law - there
could be no de facto  discrimination in the amended system because the European Communities had
changed the facts.  There is no de facto discrimination  did not follow from (i) the Panel found the
prior system to discriminate de facto;  and (ii) the European Communities had abolished aspects of
the old system found to discriminate .  Ecuador did not claim that nothing had changed in the EC
licensing system. The question in this Article 21.5 proceeding, however, was not whether the prior
system had changed, but whether the system that replaced it was de iure  or de facto  discriminatory
against Ecuadorian and other third-country services suppliers, and thus inconsistent with the EC's
GATS obligations.  Ecuador submitted that the persistence of the discrimination in the old system in
the new system was not an "assumption" by Ecuador, but was inherent in the architecture of the new
system, in particular in its reliance on the EC's definition of "actual importer" to determine who
qualified for licences.  That is, the  logic  of the prior system was that rational operators would
generally have ensured that their licences were used in their names rather than traded.  In defining
"actual importer" by that behaviour, the European Communities  had ensured that operators who were
in the "abolished" categories would retain licence allocations in the amended system, but as "actual
importers."
4.63 Ecuador also argued that the amended system went further to tilt this system toward EC and
ACP service suppliers.  The pass-through effect of the "actual importer" criterion combined in the
new system with a unified licence system to mean that those who had traditionally imported EC andACP bananas would have an even higher proportion of total licences, which they, like other
importers, would use to import Latin American bana nas first.  Ecuador claimed that the previous
importers of ACP bananas were largely EC and ACP service suppliers.  They were granted rights to
                                                     
108 See panel report at paragraphs 4.661, 4.662,  4.663, 7.291; AB report at paragraph 225, 226.
109 See generally panel report at paragraphs 4.651-4.675, 7.287-7.296.
110 See First EC Submission at paragr aph 47 (list of services activities).
111 For example:  First EC Submission, heading preceding paragraph 55;  First EC Submission at
paragraph 56;  First EC Submission  at paragraph 56(b).WT/DS27/RW/ECU
Page 29
import Latin American bananas through the operator categories.  Through the revised system, they not
only "inherited" licences derived from the operator categories, but could freely use the licences they
"earned" as importers of ACP bananas to try instead to import high-quota-rent Latin American
bananas.  All this was to the competitive detriment of Ecuadorian services suppliers to whom the
European Communities owed GATS-consistent treatment.
4.64 The European Communities  submitted that the notion of "actual imports" in the definition
of traditional operators (Article 5 of Regulation 2362) ensured that the true and real importers during
the representative period kept their traditional rights without losing the attached quota rent.  Since the
operators' categories had been eliminated there was no effect on the conditions of competition which
were contrary to Article XVII.2 of GATS of the kind that the original panel had found as a matter of
fact112 in the previous regime.  The less favourable conditions of competition that were found in the
"opportunity to benefit from tariff quota rents equivalent to that which accrues to an initial licence
holder, given that licence transferees are usually Category A operators who are most often servicesuppliers of foreign origin and since licence sellers are usually Category B operators who are most
often service suppliers of EC (or ACP) origin"
113 were no longer existent.  In particular, it was no
longer possible to assert that the new regime "is intended to 'cross-subsidize' the latter category of
operators with tariff quota rents in order to offset the higher costs of production, to strengthen their
competitive position and to encourage them to continue marketing bananas of EC and traditional ACPorigin".
114  The abolition of operator categories therefore put the new EC regime into compliance with
Article XVII of GATS.  In its original findings in paragraph 244, based on a de facto discrimination
analysis 115, the AB ruled that "the allocation to Category B operators of 30 per cent of the licences for
importing third-country and non-traditional ACP banana at in-quota tariff rates is inconsistent with the
requirements of Article II of the GATS".  The abolition of operator categories therefore put the newEC regime into compliance also with Article II of GATS.
4.65 Since, as mentioned above, the activity function rules had also been abolished, there was no
longer any effect on the conditions of competition contrary to Article XVII.2 of GATS of the kind
that the original panel had found as a matter of fact
116 in the previous regime.  The less favourable
conditions of competition that were found in the fact that "… service suppliers of EC as well as third-
country origin do have comparable opportunities to file claims as to primary and secondary
importation activities performed with the EC authorities, whereas service suppliers of complainants'
origin do not enjoy equal competitive opportunities to make claims for the performance of ripening
activities as service suppliers of EC origin"117 was no longer present.  Moreover, it could no longer be
affirmed that "allowing third-country and non-traditional ACP imports at in-quota tariff rates toripeners regardless of whether they have previously imported bananas is intended to strengthen their
bargaining position in the supply chain towards primary importers".
118  The abolition of activity
function rules therefore put the new EC regime into compliance with Article XVII of GATS.
4.66 A new set of rules, the European Communities continued, was now also in operation with
respect to "exceptional circumstances affecting pr oduction or importation" which, in turn, "affect
supply to the Community market" (Article 18.8 of Regulation 1637).  The original panel had noted
that "… our findings are limited to the present factual situation where hurricane licences are issued tooperators who exclusively include or represent EC (or ACP) producers".  The European Communities
                                                     
112 See findings in paragraph 239 of AB report.
113 Paragraph 7.336, Secretariat remark.
114 Paragraph 7.339, Secretariat remark.
115 Which was again subject to the findings in paragraph 239.  See also footnote 153 of the same AB
report.
116 See paragraph 239 of the AB report.
117 Paragraph 7.362, Secretariat remark.
118 Paragraph 7.367, Secretariat remark.WT/DS27/RW/ECU
Page 30
submitted that this was no longer the case under the new rules, given the abolition of operator
categories.  Moreover, Article 18.8, second sentence, of Regulation 1637 explicitly indicated that any
specific measure taken in order to counter the exceptional circumstances in Article 18.8, "must not
discriminate between supply origin".  This new provision therefore put the European Communities
into compliance with Article XVII of GATS.  For the same reasons, it also complied with Article II of
GATS.
(iv) Issues concerning customs clearance
4.67 Ecuador  noted that the EC's amended system no longer had operator categories and activity
functions, but in the opinion of Ecuador their effect on distribution of licences was still present in the
new system.  Under Regulation 2362, licences were allocated to only two categories of operators:  i.e.
to "traditional operators", who would normally obtai n 92 per cent of the in-quota import licences, and
to "newcomers", who would obtain 8 per cent.  The new Regulation, however, adopted a criterion for
licence eligibility for traditional operators that, acco rding to Ecuador, largely replicated the effect of
the old operator categories and activity functions, resulting in service suppliers of EC and ACP origin
being allocated nearly the same volume of licences under the new regime as under the old.
4.68 Referring to Article 4 of Regulation 2362, Ecuador noted that import licences were allocated
to each "traditional operator" based on its "reference quantity," which was determined by "the
quantities of bananas actually imported during the reference period."119  For 1999, the reference
period was 1994-1996, the same as for 1998.120  Under Article 5, the "actual importer" was the
operator in whose name customs duties were paid.121  In other words, an operator which was credited
under the amended system with being the "actual importer" had, during the reference period, either
itself cleared a shipment through customs (and therefore paid any customs duties due) or was named
on the customs documentation as the owner on w hose behalf the customs duties were paid by
someone else, and as a result, would be allocated import licences.  Ecuador considered that codifying
a pattern of treatment that was developed based on discriminatory criteria was itself discriminatory.
The European Communities had thus produced the same result by relying on the technicality of who
paid the customs duties.
4.69 Ecuador argued that by the very nature of the previous system's licence allocations, a
substantial proportion of the imports of in-quota third-country and non-traditional ACP bananas were
physically imported by Ecuadorian and other third-country service suppliers, but were customs
cleared into the European Communities by or on be half of a holder of a Category B, ripener, or
hurricane licence.  Under the amended system, those former holders of Category B, ripener, and
hurricane licences consequently were in a position to prove payment of duties for those imports andbe deemed to be the "actual importers" entitled to import licences, even though they were not, in the
opinion of Ecuador, the true importers in a commercial sense or would not have been but for the
artificial distortions created by the prior system.
4.70 Thus, Ecuador argued, in order to import th eir bananas into the European Communities,
Ecuadorian importers, had to enter into unfavourable contractual arrangements with the holders of
Category B, ripener, or hurricane licences.  In practice, four different types of arrangements were
used:
(a) Licence transfers,  in which the service provider who purchased the licence became
the officially recognized transferee pursuant to Article 9 of Commission Regulation
(EEC) No 3719/88.  Licence transfers were rare.
                                                     
119 Regulation 2362, Article 4.1.
120 Idem.  Article 4.2.
121 For details, see Factual Aspects above (Secretariat remark).WT/DS27/RW/ECU
Page 31
(b) Licence "leases" in which the Ecuadorian service supplier imported bananas and
fulfilled customs formalities, but used a licence in the name of the original licence
holder.  These arrangements were also relatively uncommon.
(c) Buy-back arrangements.   These were paper transactions in which third-country
bananas were imported by an Ecuadorian service supplier but another service supplier
was credited with entry of the goods.122
(d) T1-sale s, i.e. sales in the European Communities before customs clearance.123
4.71 Ecuador argued that the Ecuadorian service supplier was the real importer in a commercial
sense in all four cases, but only in the first two cases did the new EC regulations give the Ecuadorian
service supplier recognition as the "actual importer" and it was only in those two cases that the true
importer would be able to prove payment of customs duties.  In the two other cases, the holder of the
Category B, ripener, or hurricane licence (under the old system) was considered as the "actual
importer" under the new system.
4.72 Buy-back and particularly T1 sales covered a very large volume of bananas landed in the
European Communities by Ecuadorian suppliers.  Buy-back arrangements, Ecuador argued, were
designed to keep reference quantities and licence entitlements in the hands of ripeners and other
beneficiaries of the former allocation scheme.  T1 sales were by definition what a primary importer
was intended to do under the previous regime, but reflected also the unfavourable conditions ofcompetition for Ecuadorian service providers under the old licence allocation rules.
4.73 Referring to the contractual arrangements in (a) and (b) of paragraph 4.70 above (licence
transfer and licence lease) which included the payment of duties by the licence transferee or the
licences leaser, the European Communities  said that under the new EC regime the licence transferee
or leaser was covered by the definition of traditional importer in Regulation 2362 and was also thelegal holder of the bananas.  In the contractual arrangement described under (c) in paragraph 4.70
(buy-back), there were two separate operations of selling and purchasing bananas.  The first took
place before the customs clearance (an export activity), the second after the customs clearance, a
wholesale trade activity disconnected from any import activity which could include bananas of any
origin already in free circulation in the European Communities and thus indistinguishable.
4.74 The European Communities submitted that there was no evidence that:  (i) these contracts
existed;  (ii) that they existed in a relevant numbe r so that they could be of any importance in these
proceedings;  (iii) that a legally relevant link was established between the two separate contracts of
selling and purchasing.  The simple affirmation ex post  by a party to that effect could not be a reliable
source of evidence in these matters and certainly did not reach the minimum standard of evidence
                                                     
122 The Ecuadorian service supplier bought or produced bananas in Ecuador, shipped them to the
European Communities, and unloaded the goods at an EC port.  The Ecuadorian importer then "sold" the
bananas to a holder of a Category B, ripener or hurricane licence, who presented the licence and paid customs
duties and immediately "sold" the bananas back to the Ecuadorian service supplier.  The price of the second"sale" was the price of the first "sale" plus the cust oms duties and a payment (the quota rent) for use of the
import licence.  The Ecuadorian service supplier retained custody of the goods throughout, and resold ordistributed them in the European Communities.
123 In these transactions, an Ecuadorian service supplier bought or produced bananas in Ecuador,
shipped them to the European Communities, and unloaded the goods at an EC port.  In order to enter thebananas, the Ecuadorian service supplier sold them to another operator who was the holder of a Category B,ripener or hurricane licence.  The licence holder fulfilled customs formalities and resold or distributed thebananas in the European Communities.  As in the buy-back arrangement, the importer in fact paid the duties,because the sale price to the competing service supplier was discounted by both the amount of the duty and the
quota rent.WT/DS27/RW/ECU
Page 32
under the principle on the burden of proof elabor ated by the AB in the "Blouses and Shirt"124 report.
Referring to (d) of paragraph 4.70 above, the European Communities submitted that the contractual
arrangement described therein (T1-sales) fit perfectly into the definition of an exporter.  Ecuador itself
admitted that there was no activity of importation involved.  If the existence of a so-called T1-sales
were able to qualify any exporter as a 'traditional importer' in the sense of Regulation 2362, this would
be tantamount to the elimination of the definition all together.  Given that the market access to thewholesale trade services in the European Communities was not limited but that the present level of the
tariff represented an implicit limit on the number of bananas that could be imported into the European
Communities, the possible number of bananas that could be exported (and of operators willing to
export them) would always outnumber the bananas that were really imported (and the operators
established in the European Communities).  The activity of exporting bananas had, therefore in the
opinion of the European Communities, no relevance when determining the "traditional" rights to
import under Regulation 2362.  No violation of the GATS could therefore be retained against the newEC licensing system.
4.75 Ecuador  argued that since Ecuadorian service providers did not get a sufficient number of
licences, they were effectively forced to make contractual arrangements with licence holders to stay in
business.  Only the European Commission, which managed the licensing system, had access to
records documenting the volume of bananas that, for a given year, was physically imported into theEuropean Communities by an Ecuadorian service supplier but customs cleared by another service
supplier with a Category B, ripener or hurricane licence.  In Ecuador's opinion, however, it followed
from the nature of the system that holders of Category B, ripener or hurricane licences were the likely
participants in arrangements with third-country importers, for two reasons.
4.76 First, they held the greatest volume of potentially available licences.
125  Secondly, Ecuador
argued, most EC or ACP service suppliers with Category B, ripener or hurricane licences were not
themselves equipped to import Latin American bananas and thus use their licences for their own
imports.  Importing bananas into the European Communities from Latin America required a
sophisticated organization in both producing countries and the European Communities and an
integrated transport chain involving specialized refrigerated cargo ships.  Most holders of Category B,ripener and hurricane licences therefore chose an easier way to realize the economic value of licences
to import Latin American bananas:  in return for significant payments, they used them in buyback or
T1 arrangements with the true importers - Ecuadorian or other third-country service suppliers.  As a
result of the way the prior system worked, Ecuador said, the EC's choice of customs clearance as the
basis for allotting licences under the amended system had the effect of allocating licences to thosewho had them under the system found to be inconsistent with the GATS.
4.77 Ecuador submitted, as an example, the 1998 and 1999 licence allocation experience of the
Antwerp-based company nv Firma Léon Van Parys (LVP) owned by Noboa, and therefore for GATS
                                                     
124 WT/DS33/AB/R, page 14.
125 (a)  Category A "primary importer" licences accounted for 37.905 per cent (57 per cent of 66.5 per
cent of the total import licences for in-quota third-country and non-traditional ACP bananas;  (b)  Category C ornewcomer licences accounted for only 3.5 per cent of the total volume of licences for in-quota third-country andnon-traditional ACP imports.  Newcomer licences were normally for small volumes;  (c)  Category A"secondary importer or customs clearer" licences gradually "migrated" to holders of other types of Category A
licences.  That is, the prior system encouraged holders of  Category A "primary importer" or "ripener" licences to
ensure that bananas imported under those licences were customs cleared in their own names, both to beregistered as the official licence user to ensure against losing reference quantities and to gain access to future"secondary importer" licences reference quantities;  (d)  Category B and ripener licences accounted for48.62 per cent (30 per cent and 28 per cent of 66.5 per cent, or 18.62 per cent) of the available licences for in-quota third-country and non-traditional ACP imports.  Hurricane licences and the secondary importer licences
that came into the hands of ripeners increased this volume.WT/DS27/RW/ECU
Page 33
purposes had been found to be an Ecuadorian service supplier.126  The following table shows, for
1994-1996, LVP's imports of bananas into the European Communities, and the import licences LVP
was allocated:127
Year LVP imports (tonnes)128Licences allocated (tonnes)
1994 97,620 32,631
1995 95,512 33,045
1996 90,403 36,285
During those years, Ecuador claimed, LVP was comp elled for most of its imports to seek access to
import licences that had been allocated to other operators.  It did so through the various types of
contractual arrangements discussed above.
4.78 The years 1994-1996 were the reference period both for 1998 under the prior system, and for
1999 under the amended system.  Consequently, the change in LVP's licence allocation from 1998 to
1999 demonstrated the degree to which the amended system departed from or merely perpetuated the
prior system.  For these years LVP was allocated import licences for the following volumes:
1998: 39,828 tonnes
1999: 41,055 tonnes
Thus, the new licensing regime had improved LVP's licence allocation by only three per cent, while
the licences that LVP paid for to cover most of its 1998 imports remained allocated to the original
holders of Category B, ripener and hurricane licences, because they could show duty payment.  Since
its volume of physical imports to the European Communities had not dropped, LVP would be obliged
to continue to seek access to other operators' licences for most of its imports in 1999.  Indeed, in 1999
LVP was making the same contractual arrangements with the same licence holders as it did under the
previous system.
4.79 Ecuador recalled that the original panel found that service suppliers of complainants' origin
would "possibly" be able to claim reference quantities for customs clearance, and that it had been
presented with insufficient information to determine whether companies carrying out customs
clearance activities were predominantly in European Communities or third-country ownership orcontrol.
129  The panel had therefore concluded that "service suppliers of European Communities as
well as third-country origin do have comparable opportunities to file claims as to primary and
secondary importation activities performed with the EC authorities. …"130  In the opinion of Ecuador,
these findings should not comfort the European Communities since the panel had been addressing
customs clearance as one, relatively minor, aspect of banana marketing, not as practically the entirebasis for future licence allocations.  Also, the European Communities itself had acknowledged that
using customs formalities as the criterion for allocating import licences would freeze licence
                                                     
126 See panel report at paragraphs 7.330–7.331;  AB report at paragraphs 225 and 239.
127 For reasons of confidentiality the figures have been changed but the proportions have been
maintained.  The actual data were available to the European Commission.  While there could be minordifferences between these figures and data retained by the Commission, any such minor differences would notaffect the validity of the example.
128 The figures used were based upon the volumes of bananas that were physically imported by LVP
and customs cleared in the European Communities by LVP or another company.  The figures exclude importsthat were re-exported to non-EC countries.  For clarity,  also excluded were volumes subject to dispute between
LVP and the European Commission concerning whether they were customs cleared in the EuropeanCommunities or re-exported;  their exclusion here was without prejudice to LVP's position in the dispute.
129 Panel report at paragraph 7.362.
130 Idem .WT/DS27/RW/ECU
Page 34
allocations.131  The European Communities had done in its amended system precisely what the
Commission warned would occur:  by basing licence allocations on licence usage (i.e. customs
clearance) in the 1994-1996 reference period, it had "fossilized" licence allocations that discriminated
against Ecuadorian and other third-country service suppliers.
4.80 The European Communities  was of the view that the new EC measures could not be
compared with the old regime.  Therefore, any allegation by Ecuador that a "drag-on effect" of the oldinconsistencies of the GATS existed under the new regime should be rejected by the Panel.  Ecuador's
assumption was erroneous in law and in fact.  As a matter of law, the European Communities argued,
it was not easily understandable how the effects of a discrimination de facto  that the panel had found
with respect to certain aspects of the old EC licensing regime could continue at present when these
aspects had been abolished all together.  The inconsistencies with the GATS found by the original
panel were caused by transfers of quota rent from certain, mainly third-country, wholesale trade
service suppliers to certain EC/ACP  wholesale trade service suppliers as a de facto consequence of
the previous EC licensing regime.  The panel had considered those transfers as discriminatory under
Article XVII of GATS (and in certain more lim ited circumstances under Article II of GATS).
4.81 In the EC's view, its licensing system in its new modalities ensured full neutrality with respect
to the wholesale service suppliers in the banana trade.  Therefore, any transaction of licences between
operators was now only justified by trade-related or economic considerations over which theEuropean Communities had no control. According to the original panel, the old EC regime was
judged discriminatory on the basis of Article XVII.2 of GATS not because the system per se  created
modifications in the conditions of competition but because it forced a transfer of quota rent from the
mainly third country Category A operators to the mainly EC/ACP Category B operators.  This latter
aspect prevented the modification of conditions of competition from being "cured" by thetransferability of licences.  However, there was no comparison between the new system and the old
system.  No forced transfer of quota rent could now be claimed, as it was in the previous panel
procedure on the basis of the 1992 figures presented by the original complainants.
4.82 Moreover, data shown in the EC rebuttal submis sion demonstrated that the factual situation
that was available to the original panel when it took its decisions, did not appropriately reflect thereality as it developed already under the old regime in the period 1994 to 1996.  These figures showed
beyond any possible doubt that the very assumption of de facto discrimination in favour of EC or
ACP wholesale service suppliers to the detriment of  third-country wholesale service suppliers was no
longer justified. To affirm that discrimination "liv es on" in the new EC regime was contrary to the
facts as had been demonstrated by the European Communities.
4.83 The European Communities recalled the original panel's affirmation:  "Therefore, service
suppliers of EC as well as third-country origin do have comparable opportunities to file claims as to
primary and secondary importation activities performed with the EC authorities".
132 The European
Communities considered therefore that the accomplishment of primary or secondary importation
activities was not discriminatory under the old EC regime and did not breach Articles XVII or II of
GATS.  A fortiori , the new EC regime that had eliminated all distinction between activity functions
had to be in line with the EC GATS' obligations in this respect.  The European Communities noted
that the fact that ripeners were entitled to import bananas was not  per se  contrary to any provision in
any covered agreement, including the GATS.  The original panel did not find any formal or  de facto
discrimination in the access to the activity of ri pener in the European Communities.  Any operator,
irrespective of its origin, was entitled to act as a ripener provided it met the conditions under the old
                                                     
131 European Commission, "Working Document on Determination of Reference Quantities from 1995
Onwards", 6 October  1993, at paragraph 5, attached as Exhibit 15 to Ecuador's first submission to the panel of9 July 1996.
132 Paragraph 7.362 of the panel report.WT/DS27/RW/ECU
Page 35
EC Regulation 1442.  What was considered contrary to the GATS was de facto  discrimination that the
original panel found, based mainly on 1992 data submitted by the complainants.133
4.84 The discrimination was therefore due to the fact, the European Communities continued, that
ripeners sold licences and thus reaped quota rent from mainly primary importers.  According to the
data available to the panel at that time, the "vast majority" of ripeners were EC owned and the
majority of primary importers were third-country owned.  Ripeners who had sold licences under theold EC regime could no longer impor t under the new EC regime, since they had not paid the duties at
the moment of the customs clearance of the bananas.  Ripeners who had not sold licences under the
old EC regime but had acted as importers, did not r eap quota rent from primary importers.  Thus, any
traditional importer, including a ripener, if it met the conditions under the new EC licensing regime,
was entitled to import within the strict (non-discriminatory) new limits set out in Regulation 2362.
The European Communities recalled that, at the mome nt when the new EC licensing system entered
into force, the majority of ripeners were of th ird-country origin and not of EC or ACP origin.
4.85 The European Communities further submitted that Ecuador confused export and import
activity.  It was erroneous to suggest that the volumes of exports of Ecuadorian bananas should be
compared to the volumes that Ecuadorian wholesal e service suppliers with a commercial presence in
the European Communities imported into the Community.  Traditionally, Ecuador was a producing
and an exporting country.  Wholesale service suppliers of Ecuadorian origin appeared on the importmarket in the European Communities quite late, coin ciding with the entry into force of the old EC
regime.  The activity of the Ecuadorian companies involved in the importation of bananas into the
European Communities had grown steadily and substantially during all the years of application of the
old EC regime.  It had increased even more as from the entry into force of the new EC regime.
4.86 The import licensing regime of the EC was concerned with the importation of bananas and
not with the activity connected with the export of bananas from the places of production.  Under the
conditions stipulated in Regulation 2362, in order to be an importer it was necessary to be registered
in one of the member States of the EC.  Ecuador enjoyed a very favourable situation among the
producing countries since it was the only producing country which had a major group established in
the European Communities (Noboa group) performing import activities.  By contrast and incomparison, Costa Rica, Colombia and Panama had no significant presence in the supplying of
services connected to the importation of bananas into the European Communities (apart from a very
small company for Costa Rica, Banatico, and a middle-sized company for Colombia, Banana
Marketing).  Moreover, another company from Ecuador, UBESA, traded mainly bananas for the Dole
group (thus acting as a pure exporter) and Chiquita also exported from Ecuador (and imported into theEuropean Communities).  At the same time, a very limited producer and non-exporter like the United
States had companies which had developed a major export activity from Latin American producing
countries and an important activity of import into the European Communities.
4.87 Ecuador  submitted that the European Communities should modify its import licensing
system to allocate licences to the true importers who were the primary service providers and who took
most of the commercial risk in marketing bananas in the European Communities.  This could be done
by basing reference quantities on submission by importers of evidence of their activities, in the formof:  (i) invoices for purchase of bananas in the country of origin;  (ii) shipping documents (bills of
lading);  and (iii) commercial invoices proving a first sale on EC territory.  In the past, similar
documentation was required by the European Communities to demonstrate reference quantities.
134
Ecuador argued that such a licensing system would not give an advantage to service providers of non-EC origin, but would create, for both non-EC and EC service suppliers, the fair opportunities required
by Articles II and XVII of GATS.  Ecuador asked that the Panel accompany its findings with these
                                                     
133 Paragraph 7.363 of Panel report.
134 See Article 7 of Regulation 1442;  panel report at paragraph 7.192.WT/DS27/RW/ECU
Page 36
specific recommendations to ensure that action by  the European Communities to bring its import
licensing system into conformity with the GATS  would be forthcoming in the immediate future.
4.88 The European Communities contended that no WTO right could be derived from vague
notions like "true importer in a commercial sense", "records documenting the volume of bananas that,
for a given year, was physically imported in the European Communities", "true importer, i.e. the
service supplier who in fact was in a position to and did undertake the critical steps in movingbananas from producing origins into the EC's market", 
 etc.  As the AB had indicated in its original
report135, it was the definition which could be found in the relevant EC regulations that determined the
scope of the analysis on whether the European Communities had complied with its commitments and
its obligations under the GATS.  There was no definition of operator in the GATS, nor in the EC's
Schedules of commitments;  there was an EC commitment on wholesale trade services that was
relevant insofar as it included activities covered in the definition of operator under the relevant EC
regulations.
4.89 In Ecuador's  view, the European Communities had not demonstrated why, in late 1998, it did
not choose the more recent 1995-1997 period as the 1999 reference period since, in principle, any
licensing system based on traditional trade flows shou ld reflect the most recent trade flows.  Ecuador
stressed, however, that in its opinion, the reference period per se  was not the source of the new
system's inconsistency.  It was, rather, the EC's decision to use the technicality of payment of customsduties to determine the "actual importer", instead of  using commercial evidence to identify the  true
importer, i.e . the service supplier who was in a position to and did undertake the critical steps in
moving bananas from producing countries into the EC market.
4.90 The reality of trade showed, the European Communities res ponded, that there was no factual
or logical connection, let alone any legal necessity, between being a producer and exporter ofbananas, on the one hand, and an importer in the European Communities, on the other hand.
4.91 The European Communities  responded that the payment of customs duties was the only
objective criterion that allowed the European Communities to verify which operator was entitled to
the quality of traditional importer since it concerned the crucial moment for importation i.e. the
customs clearance.  The suggestions that Ecuador had put forward in paragraph 4.87 above (internaldocuments of private companies should provide evidence in order to be granted the traditional
operator status) was the best recipe to engulf the European Communities and the operators into
endless litigation in front of jurisdictions all over the world.  In the opinion of the European
Communities, no administrative power, including the EC internal offices, could decide on the validity
of these documents without immediately raising a concern for other operators disposing of differentconcurring documents.
(v) Newcomers
4.92 Ecuador  noted that the European Communities had awarded eight per cent of all banana
import licences to "newcomers" in its amended system
 136 and established criteria which companies
must fulfil to qualify.137 Ecuador submitted that certain of the newcomer criteria constituted both  de
iure and de facto  discrimination against Ecuadorian and other third-country service suppliers in
general, and against foreign service suppliers engaged in banana importing and wholesaling inparticular.  The newcomer criteria required a potential newcomer to have imported into the EC fresh
fruits and vegetables (or a combination of fresh produce and coffee and tea), with a declared value of
400,000 Euro, in the one to three years preceding registration.  This implied that a qualified newcomer
                                                     
135 Paragraph 225.
136 Article 21 of Regulation 2362.
137 Idem,  Article 7.  (Secretariat remark:  for details see Factual Aspects above.)WT/DS27/RW/ECU
Page 37
was established in the Community, had been able to create the necessary physical and commercial
infrastructure, and had been able to secure licences for any designated products requiring import
licences.  These requirements favoured EC services suppliers, Ecuador argued, since they measured
commercial activity only with respect to the EC ma rket.  It was not apparent to Ecuador why a non-
EC origin services supplier with a newly established commercial presence in the Community should
not qualify as a "newcomer" if it documented an equivalent value of imports of fresh produce intoEcuador, or into any one or several other non-EC countries.  Ecuador submitted that the failure of
Regulation 2362 to permit a foreign origin services supplier established in the European Communities
to demonstrate equivalent import experience elsewhere in the world was de iure  discrimination in
contravention of Article XVII of GATS.
4.93 The discrimination arose because of the interaction of the newcomer criteria with the EC's
separate discrimination in the allocation of banana import licences, under both the previous and the
amended licensing systems, in favour of EC origin service suppliers.  Potential newcomers ofEcuadorian or other third-country origin faced extremely high barriers to entering the banana
wholesale market in Europe.  Such potential newcom ers could only gain access by buying, for at least
a year, the use of import licences allocated to holders of Category B ripener and hurricane licences in
the previous system.  Moreover, Ecuador argued, no  entitlement to future newcomer status could be
gained in 1999 unless the use of licence access was bought, under the amended licensing system, fromthe same former holders of Category B, ripener, or hurricane licences.  The cost of having to buy
access to banana import licences was a serious de facto  barrier to entering the EC banana market,
which exacerbated the de iure  discrimination.
4.94 The European Communities  responded that, in its opinion, the condition for newcomers was
non-discriminatory de iure , since there was no distinction in Regulation 2362 between EC and non-
EC service suppliers, on the one hand, and between non-EC service suppliers, on the other hand.
Further, the condition was non-discriminatory de facto, since the basic assumption made by Ecuador
to that effect was wrong. An importer of fruits and vegetables established in the European
Communities was not necessarily an EC operator (service supplier) within the definition of
Article XXVIII of GATS.  Nor could it simply be assumed that there was an imbalance of EC originoperators in the fruits and vegetables sectors compared to non-EC operators to the detriment of the
latter.  The European Communities recalled that the biggest wholesale trader in fruits and vegetables
in the world was Dole, a non-EC service supplier. The European Communities also recalled the rules
on the burden of proof as expressed by the AB in the "Blouses and Shirts" report.
(vi) Remedial action
4.95 Ecuador  argued that a system in conformity with the obligations of Articles I and XIII would
include:
(a) a unified tariff-rate quota of 3.41 million tonnes within which all countries would
compete, subject to different tariffs but  without individual country allocations;
(b) each traditional ACP country would be entitled to duty-free treatment up to a quantity
of bananas equal to its pre-1991 best-ever quantity;
(c) non-traditional ACP suppliers would be accorded duty-free treatment up to the first
90,000 tonnes they collectively exported to the European Communities;
(d) other exporters would pay a duty of 75 Euro per tonne, which rate would also apply
to imports from ACP countries above their duty-free levels;WT/DS27/RW/ECU
Page 38
(e) for over-quota imports (i.e. above 3.41 million tonnes), ACP bananas would have a
100 Euro per tonne tariff preference over other bananas;
(f) the duty-free levels would not represent entitlements, in that non-ACP bananas could
compete for the full 3.41 million tonnes but they would not get the duty-free benefits
given to certain levels of ACP imports;
(g) for distribution of licences, newcomer criteria favouring EC service providers should
be amended to remove such bias.  For other licences, the definition of "actual
importer" should be modified to remove the prejudice in favour of European
Communities and ACP service providers, assuring that those who took the true
commercial risk obtained equal rights to import licences.
4.96 Ecuador requested furthermore that the Panel recommend that the above system be
implemented immediately.  All elements of the system that would be inconsistent with the WTO but
for the Lomé waiver (e.g. the tariff preferences) had to be terminated as of 29 February 2000, unlessand until the waiver was extended.
4.97 Referring to Ecuador's suggestions concerning certain remedial actions to be taken by the
European Communities under Article 19.1 (last sentence) of the DSU, the European Communities
noted that there had been continuous contacts between the original complainants and the European
Communities in order to resolve the divergences about the way in which this dispute could beresolved.  The suggestions for remedial action that Ecuador was putting before the Panel had all been
discussed during these contacts and had been discarded by the European Communities because they
would not allow it to maintain a sufficient margin  of preference for traditional and non-traditional
imports of bananas from ACP countries.  The panel, as the AB in the India patent  case, reminded,
was not a negotiating body and could only pronounce itself on the consistency or otherwise of the
present EC banana import regime with its WTO obligations ( de lege lata ).  The Panel had no
authority to design, in lieu and place of the European Communities, its banana import regime ( de lege
ferenda ) nor could it assess the legal and political obligations that the European Communities
assumed vis-à-vis  the banana-exporting ACP States.
4.98 The European Communities submitted that panels and the AB were not well equipped to
determine legislative action to be taken by individual WTO Members.  The European Communities
believed that it had fulfilled its duty under the WTO.  In the unlikely event that the Panel disagreed
with this position, it might be helpful to receive some indication on what steps could be considered an
appropriate remedy for any remaining inconsistency, provided such indications were no more than a
clarification of existing WTO obligations rather than  a substitute for future tariff negotiations.  The
European Communities considered the suggestions made by Ecuador to be totally outside the scope of
the present dispute, particularly where Ecuador requested the European Communities to establish a
single tariff quota of 3.41 million tonnes, while the EC's present tariff binding for bananas was no
more than for a tariff quota of 2.2 million tonnes.  Any extra tonnage over and above this bound tariff
quota could only be agreed upon as the result of future tariff negotiations and not by a panel as the
result of a dispute settlement procedure.  Recommendations and rulings of the DSB could not add to
or diminish the rights and obligations provided in the covered agreements.
D. C
ONCLUSION
4.99 For the reasons set forth above, Ecuador  considered that the European Communities had
failed to conform its measures with the rulings of the original panel and the obligations of the GATT
1994 and the GATS.  The failure of the European Communities to take appropriate and expeditious
action to fulfil its obligations meant that Ecuador, a developing country, continued to be deprived ofthe competitive opportunities to which Ecuador was entitled as a WTO Member.  Finally, EcuadorWT/DS27/RW/ECU
Page 39
urged the Panel to be as specific as possible in its recommendation for a remedy, so that this dispute
could finally be resolved.
4.100  The European Communities  requested that the Panel reject all the allegations made by
Ecuador both under the GATT and the GATS and find that the European Communities has complied
with the original recommendations and rulings of the DSB adopted on 25 September 1997.WT/DS27/RW/ECU
Page 40
V. ARGUMENTS BY THIRD PARTIES
A. BRAZIL
5.1 Brazil  submitted that, as the world's second largest producer of bananas, it had an interest in
starting exports of the "cavendish" variety to the European Communities and had drawn the
Government's attention to the need for provisions in the EC's new banana regime that would permit
access for new entrants.
5.2 Brazil argued with respect to the creation of the "others" category within the EC's tariff quota
that there was no longer any 90,000 tonne ceiling for duty-free imports of non-traditional ACP
bananas.  This implied, contrary to paragraph 255(g) of the AB report, that up to 241,000 tonnes of
non-traditional ACP bananas could be imported duty-free.  There was no guarantee that imports under
the "others" category would be made from origins benefitting from duty-free treatment.  However, for
new entrants restricted to an "others" category in a market dominated by traditional suppliers, a
negative tariff differential applicable to the full amount of the quota to which they had access wouldconstitute a very serious obstacle to participation in the market.  In practice, it would transform the
"others" category into a market reserved for non-traditional ACP bananas.   
5.3 Brazil did not contest the creation of the "others" category, nor did it wish to address the EC's
calculation of the volume of the quota allocated to that category.  Brazil questioned the manner in
which that category would actually operate, as a result of unlimited duty-free access for non-traditional ACP bananas. If the current EC regime for the allocation of the tariff quota were to be
maintained in terms of the "others" category, coupled with an unlimited duty-free access for non-
traditional ACP bananas, a Member like Brazil, which had an unquestionable possibility of
developing its export potential, would be shut off from the EC's market on a permanent basis.  Brazil
argued that, while substantial suppliers were shielded by their specific shares of the quota andtraditional ACP bananas could be exported duty-free under a separate quota, non-substantial suppliers
were the only exporters which had to compete on an unequal footing without any guarantee of access
to the EC banana market.
5.4 In view of the reading that the AB had given to the term "required", and with reference to the
findings and recommendations of the AB on this matter, Brazil submitted that the EuropeanCommunities should not have provided duty-free access to non-traditional ACP bananas for the full
amount of the "others" category of the tariff quota. This preferential treatment went beyond what was
deemed to be "required" by the AB, and beyond a narrow interpretation of the Lomé waiver.  It
defeated one of the main functions of the "others" category, as laid out in paragraph 7.76 of the panel
report, which consisted in avoiding the continuation of a distortion that was inherent to the operationof tariff quotas.   
B. C
AMEROON AND COTE D 'IVOIRE
1. Issues related to the GATT
5.5 Cameroon and Côte d'Ivoire  submitted that each of the EC's new provisions on preferential
treatment afforded to the APC States was in conf ormity with Article I of GATT and consistent with
the recommendations of the panel and the AB.
(i) Traditional ACP bananas
5.6 Referring to Ecuador's claim that the European Communities went beyond the requirements
of the Lomé Convention by setting a global figure for duty-free imports of traditional ACP bananas atWT/DS27/RW/ECU
Page 41
the level of pre-1991 best-ever import volumes, Cameroon and Côte d'Ivoire argued that this was
irrelevant for several reasons:
(a) the tariff preference established by the Lomé Convention for all ACP bananas did not
have any quantitative limit;
(b) the only quantitative limit applied to traditional ACP bananas since they enjoyed
guaranteed access ("additional preferential treatment"138);  and
(c) guaranteed duty-free access for traditional ACP bananas did not exceed the pre-1991
best-ever level.
5.7 Cameroon and Côte d'Ivoire referred to the AB statement that "Article 168(2)(a)(ii) … applies
to all ACP bananas" whether traditional or non-traditional139, and to the requirement in
Article 168(2)(a)(ii) that, for all ACP bananas, the European Communities shall take "… the
necessary measures to ensure more favourable treatment than that granted to third-countries
benefiting from the most-favoured-nation clause fo r the same products".  In the view of Cameroon
and Côte d'Ivoire, for all tariff measures taken pursuant to Article 168(2)(a)(ii), the European
Communities, by virtue of the Lomé waiver, was not bound by the provisions of Article I of GATT.According to Article 168(2)(a)(ii), the European Commun ities could therefore legitimately grant duty-
free access for imports of ACP bananas.  Consequently, the tariff preference granted to traditional
ACP bananas could not be contested under Article I of GATT.
5.8 Cameroon and Côte d'Ivoire argued that the AB had stated that Protocol 5 of the Lomé
Convention allowed the granting of "additional preferential treatment" as well as "more favourabletreatment" in Article 168(2)(a)(ii).  In the view of Cameroon and Côte d'Ivoire, "additional
preferential treatment" included guaranteed access for the ACP countries.  According to Protocol 5,
this guaranteed access was confined to the situation that had prevailed previously on their traditional
markets.  Under the EC's former banana regulations, the European Communities had decided, in order
to provide guaranteed access within this quantitative  limit, to allocate shares among ACP countries in
the amount of their pre-1991 best-ever export volumes.  The method, in principle, was not contested
by the AB
140 although it was criticized on the grounds that this allocation did not give third countries
specific shares.141  The European Communities was therefore obliged to find another formula to
guarantee access to ACP States.  The new method adopted was to set an aggregate volume of imports
reserved for traditional ACP countries, on the basis of the same uncontested reference quantity.
5.9 Cameroon and Côte d'Ivoire submitted further that there was nothing in the WTO rules that
made it obligatory to allocate import volumes among suppliers.  The AB itself had described the
allocation among ACP countries as simply one option for the European Communities.142  Moreover,
the provisions of the Lomé Convention allowed the European Communities to make such a choice.
Article 168(2)(a)(ii) provided for more favourable  treatment for "products originating in the ACP
States".  More favourable treatment was therefore not on an individual basis.  The same applied to
Protocol 5 which stated that "no ACP State" shall be placed in a less favourable situation, and this
applied to each ACP State or all ACP States together.  In the absence of any GATT obligations and in
view of the freedom of choice afforded by the Lomé Convention, and reaffirmed by the AB, the
European Communities could legitimately decide to set a global volume for the traditional ACP
bananas.
                                                     
138 Paragraph 170 of the AB report.
139 Paragraphs 172 and 173 of the AB report.
140 Paragraph 174 of AB report.
141 Paragraph 162 of the AB report.
142 Paragraph 174 of the AB report.WT/DS27/RW/ECU
Page 42
5.10 Cameroon and Côte d'Ivoire argued that the pre-1991 best-ever exports of the 12 ACP
countries exceeded 900,000 tonnes and this fact had already been submitted to the panel and the AB
in the course of their previous proceedings.  The relevant official statistics collected by the European
Communities showed a figure of 952,939 tonnes.  By fixing a level of 857,700 tonnes, the European
Communities had not exceeded the limits of the requirements under Protocol 5 to the Lomé
Convention and traditional ACP bananas did not therefore benefit from any preference that theyshould not receive.
5.11 Cameroon and Côte d'Ivoire claimed that Ecua dor's argument that a global figure would
encourage full utilization of the traditional ACP volume was irrelevant since full utilization of import
quotas, where established in conformity with WTO rules, was a general requirement in the WTO rules
and could be found, inter alia, in Article XIII:2(d) of GATT or Article 3.5(h) of the Agreement on
Import Licensing Procedures (ILA).
(ii) Non-traditional ACP bananas
5.12 Cameroon and Côte d'Ivoire submitted that with regard to the measures that might be taken by
the European Communities to apply Article 168(2)( a)(ii) of the Lomé Convention, the AB had stated
as a principle that this provision of the Lomé Convention made it obligatory to grant "more favourable
treatment" for all ACP bananas and consequently for all non-traditional ACP bananas.
143  T h i s
provision did not indicate what kind of measure was necessary.  The European Communities wastherefore free to choose what necessary measures on "more favourable treatment" should be
established.
5.13 Cameroon and Côte d'Ivoire argued that under the previous EC banana regime, non-
traditional ACP bananas were guaranteed, first, access within the tariff quota of 2.2 million tonnes up
to a limit of 90,000 tonnes, with a tariff preference of 75 Euro per tonne, and second, a tariffpreference of 100 Euro per tonne for imports outside the tariff quota. The first measure was deemed
necessary and required by the Lomé Convention and could not therefore be contested under Article I
of GATT.  The change in the new EC regulations, i.e. the elimination of reserved access for
90,000 tonnes of non-traditional ACP bananas was to the detriment of the ACP countries.
Consequently, the new measure taken by the Eu ropean Communities could only be found to be
legitimate since it was less favourable than the previous one.
5.14 In the view of Cameroon and Côte d'Ivoire, the EC measure to increase the tariff preference to
200 Euro per tonne for imports outside the tariff quota should be endorsed because the panel and the
AB had already found that the European Communities was free to fix the kind and level of preference
to be afforded. It was "required" and "necessary" even more today since, first, the ACP countries hadlost the guaranteed access for 90,000 tonnes of non-traditional bananas and had lost the marketing
guarantee afforded by the former licensing system. Second, third countries had been given a separate
tariff quota of 353,000 tonnes, and, third, under Article 168 of the Lomé Convention it was necessary
to ensure that the conditions of competition for non-traditional ACP bananas were satisfactory.
(a) Article XIII issues
5.15 Cameroon and Côte d'Ivoire submitted that the volume fixed for traditional ACP bananas
should not be considered a quantitative restriction as such since its purpose was mainly to administerthe tariff preference granted for traditional ACP bananas.  As this was more of a tariff measure, it
should not be examined in the light of Article XIII because this Article only dealt with the application
of quantitative restrictions.  If the Panel were to consider that the measure in question should be
examined in the light of Article XIII of GATT, Cameroon and Côte d'Ivoire submitted that the
                                                     
143 Paragraph 173 of the AB report.WT/DS27/RW/ECU
Page 43
European Communities had complied with the provisions of that Article as well as the conclusions
and recommendations of the AB with regard to Article XIII.
5.16 Cameroon and Côte d'Ivoire submitted that the only reproach made by the AB with regard to
Article XIII was that "[a Member may not allocate] tariff quota shares, whether by agreement or
assignment, to some, but not to others, Members not having a substantial interest …".144  In the view
of Cameroon and Côte d'Ivoire, the new EC regime complied with these requirements since it did notallocate individual shares to each  of the 12 traditional ACP States.
5.17 Referring to the AB statement that "… the non-discrimination provision applies to all imports
of bananas, irrespective of whether and how a Member categorizes or sub-divides these imports for
administrative or other reasons"
145, Cameroon and Côte d'Ivoire submitted that this conclusion
demonstrated that the European Communities was free to fix one quantitative restriction for certain
volumes of imports (the tariff quotas for third-country bananas) and another for other import volumes
(the traditional ACP volume).  In the view of Cameroon and Côte d'Ivoire, the only condition imposed
by Article XIII on the imposition of several quantitative restrictions for a like product according to its
origin was that the restrictions imposed should be similar.
5.18 Cameroon and Côte d'Ivoire submitted that the volume of 857,700 tonnes of traditional ACP
bananas corresponded to the distribution of trade which these countries could expect in terms of the
requirements of the chapeau to Article XIII:2.  This could only be defined in relation to the favourabletreatment they received under the Lomé Convention.  For traditional ACP bananas, Protocol 5 to the
Lomé Convention obliged the European Communities to grant "additional preferential treatment"
(according to the expression used by the AB), whic h consisted of guaranteed access.  As defined in
relation to the pre-1991 best-ever export figure.  Consequently, the share of trade which the ACP
States could expect corresponded to this guaranteed access.  Moreover, the share of trade attributed tothe ACP States by the European Communities for th eir traditional exports was far from exceeding the
volume they had a right to expect, given pre-1991 best-ever exports of 952,939 tonnes.  The global
figure of 857,700 tonnes for the traditional ACP volume was therefore consistent with the
requirements of Article XIII:2 of GATT.
5.19 Cameroon and Côte d'Ivoire argued further that since the European Communities had the
option and indeed was obliged to set a global import volume for traditional ACP suppliers, and since
traditional ACP volumes corresponded to the level of trade, these countries had a right to expect, and
since the European Communities could maintain this volume separately from tariff quotas in order to
fulfil its commitments under the Lomé Convention, nothing in the GATT could prohibit the ACP
countries from fully utilizing the volume that had been allocated to them.
5.20 Referring to Ecuador's claim that its specific share was lower than what it could expect in
view of its world market share, Cameroon and Côte d'Ivoire submitted that these figures were of no
relevance in determining the share of trade which Ecuador might expect in the European
Communities since Article XIII limited the elements to  be taken into account to the volume of imports
of countries which applied quantitative restrictions.  The tariff quota share allocated to Ecuador was
fixed in Regulation 2362.  To adjust this share, Ecuador would have to follow the normal procedures
in Article XIII:4, i.e. it would have to requ est consultations with the European Communities or
consult with Members before any readjustment could be initiated.
5.21 As concerns the representative period selected by the European Communities this was the
most appropriate having regard to the GATT rules and Ecuador's interests.  In the view of Cameroon
and Côte d'Ivoire, the EC's bound tariff quota of 2.2 million tonnes for third-countries had to be taken
                                                     
144 Paragraph 162 of the AB report.
145 Paragraph 190 of the AB report.WT/DS27/RW/ECU
Page 44
into account when applying the rule of the previous representative period because it constituted a
"special factor" within the meaning of Article XIII.2(d).  Neither the panel nor the AB had questioned
the quota of 2.2 million tonnes.  As restrictions on imports of bananas into the European Communities
had existed for a long time, it was not unreasonable for the European Communities to conclude that
the most appropriate base period for allocating shares to countries having a substantial interest would
be the most recent period.
2. Issues related to the GATS
5.22 Cameroon and Côte d'Ivoire submitted that the new EC regulations were in conformity with
the conclusions and recommendations of the panel and the AB with regard to Articles II and XVII of
GATS.
5.23 Cameroon and Côte d'Ivoire considered that the inconsistency of the old import licence
allocation system was due to the fact that 30 per cent of the licences, within the tariff quota of
2.2 million tonnes, was reserved for operators marketing EC bananas and traditional ACP bananas,most of which operators were of EC origin.  The new regulations no longer made any reference to
operator categories nor established any link between trade in the European Communities and
traditional ACP bananas and access to import licences under tariff quotas.  The new regulations went
even further than the findings of the  AB, since they provided for a single licensing system applicable
to tariff quotas and the quantity of traditional ACP bananas.
5.24 Cameroon and Côte d'Ivoire submitted that the definition of "traditional importer" adopted by
the European Communities was consistent with GA TT rules relating to licensing procedures.  The
acceptance of import licence applications on the basis of the operator's import performance during a
recent period was fully consistent with Article 3.5(j) of the Licensing Agreement.  Ecuador's claim
that the European Communities should have restricted the definition of "traditional importer" toshipments of bananas was incompatible with the above-mentioned provisions.  Indeed, Ecuador's
statement that "the European Communities should modify its import licensing system to allocate
licences to the true importers who (…) are the primary service providers and take the vast majority of
the commercial risk in marketing bananas to the European Communities"
146 referred to operators
whose activity function had more to do with exports than imports.
5.25 Cameroon and Côte d'Ivoire submitted that the new import licence allocation rules were
consistent with the principle of non-discrimination.  The system was identical for all origins of
bananas and, therefore, for all operators, whether EC or third-country operators.  Furthermore, the
new licence allocation rules had provisions with regard to the reference period, establishment in the
European Communities, period of validity, transferabil ity of licences, guarantee, etc., irrespective of
the origin of operators.
5.26 In the view of Cameroon and Côte d'Ivoire, Ecuador's sole claim related to the selection of the
reference period 1994-1996 enabling, in Ecuador's view, all operators holding import licences under
the old system (Categories A, B and C) and which had actually used those licences to engage in
importation, to submit references quantities for the grant of new licences.  Cameroon and
Côte d'Ivoire submitted that the method selected by the European Communities was in conformity
with the rules set out in Article 3.5(j) of the Licensing Agreement.  Given the allowance of anadditional 353,000 tonnes of imports, the accession of Austria, Sweden and Finland into the European
Communities and the non-availability of official data for the year 1997 at the time the new regulations
were adopted, any reference period other than 1994-1996 would not have been sufficiently
representative of recent banana trading conditions in the European Communities.  That this period had
enabled certain EC or ACP operators previously holding B licences to participate in the allocation of
                                                     
146 Paragraph 141 of Ecuador's first submission.WT/DS27/RW/ECU
Page 45
new rights did not give rise to a situation of discrimination.  On the contrary, what would have
constituted unacceptable discrimination was a prohibition of those operators from participating in the
new licence allocation system.
5.27 In the view of Cameroon and Côte d'Ivoire it wa s also incorrect to claim that the new import
licence allocation system "perpetuated" the situation criticized by the panel and the AB since, under
Article 4.2 of Regulation 2362, the reference period of 1994-1996 applied only to the granting ofimport licences for the year 1999.
5.28 Cameroon and Côte d'Ivoire argued further that it was not correct to claim that all holders of
B licences were able to present reference quantities for the period 1994–1996, in conformity with the
"traditional importer" criterion, and to recover all the imports rights granted in the past to the
detriment of third-country operators, such as Ecuador.  According to information available to
Cameroon and Côte d'Ivoire, operators holding B licences in the former system had to a very large
extent lost their reference quantities to operators importing bananas from Latin America.  The officialstatistics on the evolution of reference quantities between 1998 and 1999, following the introduction
of the new regime, showed that Spanish and French operators, who accounted for most of the B
licence holders on account of their links with European Communities and ACP production, had lost
41.21 per cent and 20.17 per cent, respectively, of their reference quantities.
147  Operators established
in the northern EC countries, which were traditional importers of bananas from Latin America, hadincreased their reference quantities substantially:  Sweden (+114.26 per cent), Finland (+85.14 per
cent), Austria (+118.82 per cent) and Benelux (+374.90 per cent).
5.29 With regard to procedures for the allocation of import licences to "newcomers", Cameroon
and Côte d'Ivoire submitted that the European Communities had adopted a broad definition of the
term "new operator" which extended to all operato rs who had engaged in trade in any fruit and
vegetables and in products such as coffee or spices.  This definition made it possible to expand
considerably the category of new operators, which today numbered more than 1,000.  Ecuador's claim
that this category should have included operators on the basis of their world-wide commercial
reference quantities, outside the European Communitie s, was not only inconsistent with any of the
GATT rules, but would have precluded proper implementation of Article 3.5(j) of the LicensingAgreement.  It would have led to a proliferation of new operators and made it impossible for them to
be issued licences for products in economic quantities.
5.30 Cameroon and Côte d'Ivoire concluded that Ec uador's claims should be rejected since the
European Communities had conformed with the conclusions and recommendations of the panel and
the AB as well as the GATT rules.  Moreover, from a tariff point of view, the preferences afforded toACP States by the European Communities under the new regulations were in conformity with the
requirements of Article 168(2)(a)(ii)) of the Lomé Convention, both for traditional and non-traditional
bananas.  From the point of view of guaranteed access, the preference given to the ACP States by the
European Communities for the importation of traditional bananas was consistent with the
requirements of the Lomé Convention (Protocol 5) .  Consequently, taking into account the Lomé
waiver, Ecuador had no grounds for claimi ng a violation of Article I of GATT.
C. T
HE CARIBBEAN STATES
5.31 The Governments of Belize, Dominica, Domini can Republic, Grenada, Jamaica, St. Lucia,
and St. Vincent and the Grenadines ("Caribbean States") submitted that they supported the arguments
of the European Communities in its request that the Panel affirm the conformity of its new regime
with the covered agreements and to find that Guatemala, Honduras, Mexico and the United States
must be deemed to have accepted that conformity.
                                                     
147 Annex 2 of the submissions of Cameroon and Côte d'Ivoire.WT/DS27/RW/ECU
Page 46
5.32 The Caribbean States  submitted that they were heavily dependent upon the production of
bananas and relied on the availability of their traditional markets in the European Communities, the
protection of which had been assured by various Lomé Conventions, most recently Lomé IV ("the
Lomé Convention") as amended.  Each State had a significant interest in the outcome of these
proceedings. Their economic well-being, social cohesion and political stability were dependent upon
proper effect being given to the relevant provisions of the Lomé Convention.
5.33 The banana industry in the Caribbean States generated a large percentage of gross domestic
product and foreign exchange earnings.  In the Windward Islands some 34 per cent of the workforce
in these islands was engaged in the industry and bananas provided a steady source of income to
growers.  While the Caribbean States' Windward Islands recognized and accepted the need to
diversify their economies, any significant reduction in their traditional sales to the European banana
market would be detrimental to the efforts made  at national development and economic growth, all
aimed at reducing poverty and integrating these economies into the global market.  Undermining thenew EC banana regime and, in particular, the guaranteed access and advantages of Caribbean States'
bananas into the European Communities would destroy their banana industries.  This would cause
grave economic and social problems.  The uncertainty which these proceedings generated were
themselves highly destabilizing.  It was not possible to invest in and develop the industry in the face
of constant attacks on the EC banana import regime, attacks which were scarcely reconcilable withthe Lomé waiver granted in 1994 which Ecuador itself had supported when it was extended in 1996.
5.34 The Caribbean States had difficulty in reconciling Ecuador's interpretation of the Lomé
waiver with the broader societal commitments reflected in the Preamble to the WTO Agreement.
This binding preambular language emphasized that the WTO system did not call for the mechanical
application of rules in such a way as to give absolute precedence to market efficiencies.  The legalprovisions which this Panel was called upon to interpret and apply must be applied consistently with
the "needs and concerns" of all WTO Members, taking account of their economic and social
circumstances, the geographical conditions in which they found themselves, and their commitment to
sustainable development.
5.35 The Caribbean States submitted that the EC's new tariff and quota system for bananas did not
violate the GATT and that the new import li censing system did not violate the GATS.
1. Issues related to the GATT
(i) Traditional ACP bananas
5.36 The Caribbean States also submitted that, inter alia , the ACP tariff preferences were required
by the Lomé Convention.
5.37 The Caribbean States argued that Ecuador was wrong in claiming that the 857,700 tonne limit
on duty-free traditional ACP banana imports was a quantity which was "in excess of that justified by
the requirements of the Lomé Convention".  The European Court of Justice in Germany v Council
148
had referred to the Lomé requirement (Protocol 5) as  being a level up to the "best ever exports prior to
1991".  This interpretation of the Lomé requirement was confirmed and applied by the panel and AB
decisions in relation to Protocol 5 of the Lomé Convention.  The only issue for this Panel was,
therefore, whether the figure of 857,700 tonnes exceeded "best ever exports prior to 1991".  The "bestever" quantities exported by the traditional ACP exporters to Europe in the years prior to 1991 were
approximately 940,000 tonnes.
                                                     
148 Case C – 280 192, ECR 1994, pI-4973, Judgment of 5 October 1994.WT/DS27/RW/ECU
Page 47
5.38 The Caribbean States submitted further that the elimination in the revised regime of
individual country ceilings on duty-free access did not lead to EC preferences in excess of what was
required.  The total quantities from traditional ACP sources entitled to special protection under
Protocol 5 of the Lomé Convention amounted to  940,000 tonnes.  The fact that the European
Communities had allocated 857,700 tonnes in the previous regime did not affect the entitlement of the
ACP States under Protocol 5 of the Lomé Convention to the higher quantity or the obligation on theEuropean Communities to protect the higher quantities.
149
5.39 The Caribbean States argued that the individual quotas had been found to have infringed
Article III, a violation which was found by the AB not to be covered by the Lomé waiver. This was
the reason why the European Communities had dropped country-specific ACP tariff quota allocations.
The panel and the AB had considered that their function was not to prescribe the detailed
arrangements that must be implemented by the European Communities in order to comply with its
Lomé Convention obligations. Rather, their function was to determine whether the methodologychosen by the European Communities to determine tariff quota allocations could reasonably be
considered to have been "required" to meet obligations under the Lomé Convention.  The AB had
recognised that other methods might also be "required" by the Lomé Convention.  The fact that the
panel and the AB had accepted that the tariff quota allocation to individual ACP countries was
"required" by the Lomé Convention did not preclude the use of a global tariff allocation to ACPcountries.  The Caribbean States submitted that the general allocation of 857,700 tonnes may equally
be considered to be required by the Lomé Convention.  However, it did not fall foul of Article XIII
because the preferential agreement established by the Lomé Convention did not constitute a quota.
(ii) Non-traditional ACP bananas
5.40 The Caribbean States submitted that the expansion of duty-free access to "non-traditional"
ACP bananas (previously limited to 90,000 tonnes) was "required" by the Lomé Convention.  In the
view of the Caribbean States, the AB had sought to emphasize that the duty-free benefit for non-
traditional bananas applied to "all ACP non-traditional bananas" and had not suggested that the duty-
free entry for such bananas should be limited to the 90,000 tonnes.  The reference to 90,000 tonnes
was merely for identification purposes to clarify the quantities to which the AB was referring.  TheLomé waiver provided clearly that enhanced access of non-traditional bananas was "required" by the
Lomé Convention.  The relevant provision was Article 168(2)(a)(ii), which conferred duty-free entry
on all ACP bananas.  With regard to the argument that the European Court of Justice had ruled that
Protocol 5 of the Lomé Convention superseded Article  168(2)(a)(ii), with the result that the European
Communities was not "required" to give non-traditional ACP bananas more favourable treatmentpursuant to that provision, the Caribbean States referred to paragraph 7.135 of the panel report and
paragraph 173 of the AB report.  By removing the limitation to 90,000 tonnes of duty-free access, the
European Communities had chosen another form of "more favourable treatment", removing a cap on
duty-free access that, as recognized by the AB, it had not been required to impose.
5.41 The Caribbean States concluded that the allocation of 857,700 tonnes in respect of traditional
bananas, the duty-free treatment within the tariff quotas and the tariff preference of 200 Euro per
tonne outside the tariff quota in respect of non-traditional bananas were, first, "required" by the LoméConvention, second, provided for by the Lomé waiver , and third, were not incompatible with the
GATT.
                                                     
149 Paragraph 7.101 of the panel report and paragraphs 174 and 177 of the AB report.WT/DS27/RW/ECU
Page 48
(iii) Article XIII issues
5.42 The Caribbean States submitted that the ACP tariff preferences did not constitute a quota
within the meaning of Article XIII of GATT.  In the alternative, the new regime had been designed
consistently with Article XIII of GATT.
5.43 The Caribbean States argued that at no time since the adoption of Regulation 404 had the
European Communities treated the preferences granted to the traditional ACP countries as part of thebound tariff quota in accordance with its obligations under Article 168(1) of the Lomé Convention
which stated that "products originating in the AC P States shall be imported into the Community free
of customs duties and charges having equivalent ef fect."  Under Article 169 of the Lomé Convention,
the European Communities was bound "not to apply to imports of products originating in ACP States
any quantitative restrictions or measures having equivalent effect".  If the Panel should rule that ACP
preferences fell within the bound tariff quota, and if the European Communities fulfilled its
obligations under the Lomé Convention to ensure  access and advantages in the market for the
appropriate quantity of traditional ACP bananas, third-country access to the European Communities
would be reduced from 2.553 million to 1.7 million tonnes.
5.44 The Caribbean States argued further that whilst the imposition of a tariff constituted a
restriction on imports, it did not come within the ambit of Articles XI and XIII of GATT.
150  Th e
alternative view would have the result that Article XIII:1 applied to every tariff preference andtherefore every discrimination within the meaning of Article I would necessarily also offend
Article XIII.  This could not have been the intention of the drafters of the GATT.  Or if it was, the
waiver of Article I must be accommodated by some other means within Article XIII.  The Panel
should, therefore, distinguish between those situations which Article XIII sought to address and those
that were more properly covered exclusively by the provisions of Article I.  The Caribbean Statessubmitted that the preferential arrangements established by the Lomé Convention were governed by
Article I and not Article XIII.  Further, the histor y of the special trade agreements between the Lomé
countries and the European Communities showed that the benefits and advantages to which the ACP
traditional suppliers were entitled did not constitute a quota within the meaning of Article XIII.  No
reference was made in the Lomé Convention, includin g Protocol 5 thereof, to the award of a quota to
ACP suppliers.
5.45 The Caribbean States argued that the above was confirmed, inter alia , by the Lomé waiver,
including the context in which it was adopted.  Following the finding that the Lomé Convention was
not protected by the Article XXIV of GATT exemption for free-trade areas, the European
Communities was required to obtain a waiver under Article XXV.  The waiver was adopted expresslyto accommodate the requirements of the Lomé Convention.  It was unambiguously the intention of the
C
ONTRACTING PARTIES  that the European Communities should continue to be able to meet its historic
obligations under the Lomé Convention which establ ished a preferential agreement entitling ACP
States to sell bananas (up to a limit) on a duty-free basis.  It was scarcely credible that the
CONTRACTING PARTIES  could have intended to adopt a waiver under Article I which would
nevertheless subject ACP bananas to the quota constraints of Article XIII. A finding by this Panel to
the effect that the new regime had been established in breach of Article XIII would defeat the expressintention of the waiver and the intention of those granting the waiver.
5.46 The Caribbean States supported their argument that the entitlement of ACP States to duty-free
access did not constitute a quota by reference to the Newsprint  panel finding that "imports, which are
already duty free, due to a preferential agreement, cannot by their very nature participate in an MFN
duty free quota".
151  In terms of its purpose and objectives, the Lomé Convention was a preferential
                                                     
150 Paragraph 7.154 of the panel report.
151 Newsprint  panel, L5680, BISD31, page 114;  adopted November 1984.WT/DS27/RW/ECU
Page 49
agreement and the waiver confirmed that ACP banana imports were duty-free.  When subjected to the
rigours of Article XIII they were in the words of the Newsprint  panel "already duty-free".  They could
not therefore participate in a duty-free quota, or themselves constitute a quota.
5.47 In the view of the Caribbean States, the imposition of a quantitative limit on the special tariff
preference granted to traditional ACP bananas did not have the effect of transforming their special
tariff and other preferential arrangements into a "quota".  The ACP States had argued at the time ofthe adoption of Regulation 404 that there should not be a quantitative limit on the advantages
accorded to ACP traditional suppliers.  The advantages they had obtained under the individual
national regimes were not subject to any quantitative limit and it was argued by the ACP States that
there should not be a ceiling limiting the ability of ACP banana industries to develop.  Indeed, one of
the express purposes of the Lomé Convention was to encourage the increased production and
development of industries and exports from the ACP countries to the European Communities.
Nevertheless, despite the understanding of the Caribbean States as to the broader meaning and effectof the Lomé Convention, it was recognized that fo r WTO purposes the AB had ruled that the benefits
of Protocol 5 did not apply without limit to banana s from traditional ACP States.  For these purposes
it was accepted that the limit of 857,700 tonnes was necessary to give practical effect to the
conclusion of the AB regarding best ever pre-1991 levels.
5.48 The Caribbean States submitted that, if the Panel were to find that the preferences for
traditional ACP suppliers constituted a tariff quota within the meaning of Article XIII:5 of GATT, the
new EC regime had been designed consistently with Article XIII, specifically Article XIII:2(d).  This
was particularly the case when Article XIII was read in the context of the objectives and specific
obligations of the Lomé Convention incorporated into the WTO system by the Lomé waiver.
5.49 The Caribbean States argued that Article XIII:1 set out the general obligation that restrictions
applied to one Member must be "similarly" applied to other Members.  The language clearly
envisaged that there may be differences in the manner in which restrictions between Members were
applied.  The restrictions had to be "similar"
152 but need not be identical.  The chapeau to
Article XIII:2 sought to illuminate what could be considered to be "similar" prohibitions.  The
"expectations" of the ACP States were that the new EC banana regime was designed to meet the EC'sobligations under the Lomé Convention and its Banana Protocol.  Thus, in providing for duty-free
imports of 857,700 tonnes of bananas from traditional ACP countries and a margin of tariff preference
for any non-traditional ACP banana imports outside the tariff quota, the European Communities was
doing no more than aiming "at a distribution of trade in such product approaching as closely as
possible the share which the various Members might be expected to obtain in the absence of suchrestrictions", given its obligations under the Lomé Convention.
5.50 In the view of the Caribbean States, the sub-paragraphs of Article XIII:2 set out the principles
which applied when a Member sought to meet the obligation of applying "similar" restrictions.
However, Article XIII:2(d) had no application to traditional ACP bananas since the quantity allocated
to the ACP States had not been assigned to the traditional ACP States individually.
5.51 The Caribbean States argued that the European  Communities, by carving out the traditional
ACP bananas, before calculating allocations to suppliers with substantial interest, was acting inaccordance with the specific provisions of Article XIII:2(d) which required it to take due account of
any special factors.  In the view of the Caribbean States "any special factors" were not related to those
states having a "substantial interest" (in other words the "special factors" could arise outside the
interests of those states).  Nor did the words "special factor" relate to the determination of a "previous
representative period".  The "special factors" which determined both the decision of the EuropeanCommunities and the expectations of the European market were the provisions of the Lomé
                                                     
152The Caribbean States submitted that the French word (" semblable ") had an even wider meaning.WT/DS27/RW/ECU
Page 50
Convention, including its underlying principles, i.e. the importance of a secure and stable European
banana market for the socio-economic fabric and the sustainable development of these countries.
2. Issues related to the GATS
5.52 The Caribbean States submitted that the re-structuring consequential to the adoption of
Regulation 404 had led to a massive transfer of lice nces from EC origin companies to foreign-owned
companies.  Mere allegation that the EC's new licensing regime was discriminatory and violatedArticles II and XVII of GATS did not relieve Ecuador of its fundamental obligation to prove its case.
It was unsupported by any evidence and should be rejected by the Panel.
5.53 The Caribbean States submitted that Ecuador misunderstood the basis upon which the EC's
new regime granted licences to operators.
153  The final paragraph of Article 5(3) of Regulation 2362
made clear that where there was a contradiction in the documentation, licences were awarded to the
operator that actually paid the customs duty directly or via a customs agent or representative,
regardless of whether that operator was the named holder or transferee of the import licence.  TheEuropean Communities had taken positive steps to remove the benefit of having been a named holder
of import licences. This departure from what would otherwise have been an administratively simpler
system was designed specifically to benefit foreign owned companies which may have felt
disadvantaged as a result of the previous Category B operator system.
5.54 The Caribbean States argued that Ecuador pointed to the factual situation pertaining to only
one company - Leon van Parys (LVP) - which was a relatively small Belgian-registered and
Ecuadorian-owned operator.  It failed to provide any information on the numerous other companies
associated with Ecuador or even owned by Ecuadorian nationals, e.g. Pacific Fruit Europe NV, Bana
Trading Gmbh, Noboa Inc.
5.55 The Caribbean States submitted that Ecuador claimed that LVP's imports in 1994-1996 were
"physically imported by LVP and customs cleared in the European Communities by LVP or another
company".
154  If these quantities were customs-cleared by another company which was not acting as
the agent of LVP, it must be questioned whether they were LVP imports.  Ecuador provided no
explanation as to the identity of these "other companies".  Since LVP did not pay the customs duty
and did not apparently own the bananas as they were "actually imported", it had to be assumed thatLVP transported the goods by ship:  the presumption must be that LVP was neither the owner of the
goods nor responsible for them at the time that they cleared customs within the European
Communities.  If LVP had "actually imported" those bananas, its licence volumes would be
substantially greater.
5.56 The Caribbean States argued that Ecuador provided no evidence to support the alleged
distortion in favour of companies of EC and ACP origin.  Licences in respect of at least
350,000 tonnes had been transferred from or sold by what were previously categorized as Category B
operators to other operators, principally of non-EC origin.  There was ample evidence that most if not
all foreign-owned subsidiaries of wholesale banana suppliers had substantially increased their share of
licences as a result of the new regime.  Dole and Chiquita had increased their licence awards in excess
of 100,000 tonnes.  On the other hand, those companies which were awarded licences under the old
regime were subject to a substantial reduction in their licences.  Those tonnages, which they continuedto hold, were only on the basis that they carried out the importation activity in the "relevant" period.
Whether the licences granted to such EC and ACP origin companies arose directly as a result of them
being awarded B licences originally, or whether the B licences were sold and the subsequent licences
                                                     
153 Paragraphs 119-120 of Ecuador's first submission.
154 Footnote 84 in Ecuador's first submission.WT/DS27/RW/ECU
Page 51
which they were now awarded arose out of joint venture arrangements with Latin American banana
importers independent of their ownership of Category B licences, was not proven.
5.57 The Caribbean States submitted that recent statistics comparing reference quantities in 1998
and 1999 showed that there had been a significant transfer of reference quantities from operators
which were previously awarded Category B licences to operators that imported third-country bananas.
Figures compiled by Odeadom demonstrated that operators from Spain and France, which held themajority of Category B licences under the previous regime, had lost approximately 41 and 20 per
cent, respectively, of their reference quantities.  Operators from the Northern European countries
which imported almost exclusively Latin American bananas had made significant gains:  Sweden had
gained approximately 114 per cent, Finland 85 pe r cent, Austria 118 per cent and Germany 12 per
cent.
5.58 The Caribbean States argued that Ecuador's claim that its companies had been almost unable
to buy licences appeared to be inconsistent with the statement to the effect that "Ecuadoriancompanies had to invest some $40 million annually – a total of about $200 million – simply to buy
back access for their imports".
155  At an estimated US$5 per box, this amounted to approximately
200,000 tonnes of licences which had been "bought back" by Ecuadorian companies.  Given that
Ecuador accounted for approximately 20 per cent of EC imports, on a proportionate basis, almost
1 million tonnes of licences were "bought back" each year by foreign owned companies.  Thus,according to Ecuador, all Category B and ripener licences would have effectively been bought back
by foreign-owned companies.  Category B operators in France and Spain alone had sold or transferred
approximately 300,000 to 350,000 tonnes of licences per annum.
5.59 The Caribbean States submitted that Ecuador effectively purported that import licences
should no longer be awarded to importers, but to exporters. Ecuador expressed the desire that importlicences should be based not on the "actual importer" but on the basis of a submission by importers of
evidence of their activities, in the form of invoices for purchase of bananas in the country of origin,
shipping documents (bills of lading) and commercial invoices proving a first sale on EC territory.
156
The Panel had no authority to accept this suggestion, which must be rejected. It ran contrary to thenormal practice throughout the world of awarding import licences to the "actual importer".  The
person bearing the greatest risk was normally the "actual importer" who undertook to dispose of the
fruit in the European market place and in many instances would have entered into long term
commercial contracts with the "shipper", which ha d purchased the bananas from producers in Latin
America.  The importer would have invested in di stribution networks, ripening centres and marketing
programmes, all of which were essential to the business of importing.  The definition offered byEcuador, namely purchase of bananas in the country of origin, shipping and an invoice, could be met
by an operator that was no more than a pure export er and arranger of shipping that would have a
tenuous link with the country of eventual imports.
5.60 The Caribbean States argued further that licence allocations based on submissions which may
frequently be contradictory or incomplete would pose an unnecessary burden on importers and
remove the transparency.  Such a system would vi olate and undermine fundamental principles of the
Licensing Agreement, specifically Article 3.2 and 3.3 thereof, as well as Article X:3(a) of GATT.
5.61 In the view of the Caribbean States there was no evidence that Ecuador's proposal based on
invoices and shipping documents would "cure" th e perceived wrong.  Ecuador provided no evidence
to show that under the factual situation as developed between 1993 and 1999 the award of licences on
the basis of such "submissions" would be different from the licence procedures being challenged. The
only evidence which Ecuador offered related to one company, LVP.  Ecuador did not even attempt to
                                                     
155 Paragraph 19 of Ecuador's first submission.
156 Paragraph 141 of Ecuador's first submission.WT/DS27/RW/ECU
Page 52
demonstrate that LVP would have benefited by an increased award of licences, should the system
proposed by the Ecuador, have been adopted.  Given that LVP was a member of the Noboa group of
companies, it was likely that neither it nor its pa rent company would have met the requirements of
"primary importer".  Historically, Noboa did not qualify as a "primary importer" under the old regime
for a number of its large contracts as it was deemed to take no commercial risk where a contract to
purchase bananas at a fixed price from a European based importer existed and where the contract withNoboa amounted to no more than a c.i.f. contract.  In such situations, the importer, based in Europe,
would have qualified as the "primary importer" and the "secondary importer" .
5.62 Referring to Ecuador's statement that "Because … activity function (b) – was itself a source
of entitlement to future licences under the prior system, licence holders had a powerful incentive to
ensure that they were registered as the official licence users.  Customs clearance was therefore done
by them or in their names.  A rational ripener with a licence, for example, would insist on buying
bananas from a primary importer before customs clearance, so that the ripener could claim futurereference quantity not only for ripening but also as a 'secondary importer'"
157, the Caribbean States
submitted that this statement was not true.  The amount of import licences in the hands of ripeners
and/or secondary importers was minimal compared to the quantities of licences held by the primary
importers.  There were only four or five major primary importers in Europe and the secondary
importer and ripener licences were divided between a number of different small operators.  Thosewho were not already owned by or tied to a primary importer had little ability to control access to
third county imports.  If they did not respond to the demands of the powerful primary importers, the
only bananas that would enter their ripening rooms or be handled by them, as secondary importers,
would be those bananas they could obtain under their licences.  All secondary importers of
Category A combined would have licences equivalent to 65.5 per cent (operator category rules)multiplied by 15 per cent (activity function rules), i.e. 9.7 per cent (multiplied by a reduction
coefficient).  Thus no secondary importer was granted more than 10 per cent of its normal import
requirements as a result of the previous banana regime.  This quantity was insufficient relative to its
need to make any demands on the primary importers.
5.63 The Caribbean States argued that Ecuador's case appeared to be premised on the belief that
companies which were awarded ripener licences might actually have used those to import fruit and
may benefit under the new regime.  However, no evidence was given as to the extent to which
ripeners were successful in subsequently becoming "importers".  The Caribbean States submitted that
the position of ripeners, which had a minimal amount of import licences, was extremely weak
compared to the power of the multi-national companies such as Chiquita, Dole, Del Monte andNoboa, which controlled large quantities of licences and which, in practical terms, from the
commencement of the operations refused to provide fruit to ripeners, which would not transfer their
licences to them.  The ripeners were fully dependent on such large companies because, even if they
could use their own licences, the volumes accorded to them with their own licences were insignificant
compared to the need they had for volumes to main tain high through-put of bananas in their ripening
centres in order to pay the fixed overheads.  Thus, even the ripener's quantities migrated to the large
foreign owned companies.  The major primary impor ters had the ability to carry out the secondary
importation themselves and to use their own ripening centres.  They began to do this immediately
after Regulation 404 came into force.
5.64 The Caribbean States referred to the four methods of arrangements concerning importation
under Regulation 404 described by Ecuador in paragraph 4.70 above.  The Caribbean States submitted
that it was incorrect and unsupported by any evidence to claim that licence transfers "were rare".Licence transfers were in fact a most common occurrence.  Ecuador's own statement in relation to
"purchasing" US$40 million per annum of licences was evidence of this fact.  Licence leases, where
licences remained in the name of the original licen ce holder, were rare.  Buy-back arrangements were
                                                     
157 Paragraph 124 of Ecuador's first submission.WT/DS27/RW/ECU
Page 53
extremely rare in 1994-1996.  While it was correct that the person who paid the duty in T1-sales
might not be the person who purchased the bananas in the country of origin, this was a normal c.i.f.
type transaction.  The risk was wholly borne by the importer and there was no reason why the shipper
or person who purchased from the producer should be recognized as the appropriate person to hold
future licences.  This would not be the normal prac tice in any other substantial trading country, or for
other European imports.  In the view of the Caribbean States it was incorrect to claim that "in all fourcases, the Ecuadorian service supplier was the true importer in a commercial sense".
158  In particular
in relation to T1-sales, Ecuador had provided no evidence that the offshore company selling on a c.i.f.
basis had any presence in the European Communities.  The Caribbean States submitted that no such
evidence existed.
5.65 The Caribbean States argued that Ecuador sought to dismiss the finding of the panel in
relation to secondary importers on the ground that this was one issue in a case involving many other
issues.159  Ecuador now claimed "that this is the entire basis for future licence allocations".  The
Caribbean States did not believe that the panel dismissed claims of certain parties solely on the
grounds that the issue raised was of relatively lesser importance than other issues.  Ecuador, having
pointed out that the panel had dismissed the case for lack of evidence, failed to offer any evidence to
support the charge that most secondary importers were of EC origin.
5.66 The Caribbean States submitted that the essence of Ecuador's claims was that the Panel
should close its eyes to the existence of almost six years of trading history and view the position as
between competing suppliers of wholesale banana services prior to Regulation 404.  What Ecuador
sought to do was to convert the WTO system into  a legal system which would award damages or undo
the wrongs that may have arisen as a result of a previous illegal regime.  This was not the purpose of
the WTO system.  Article 1:1 of GATS provided  that the GATS "applies to measures by Membersaffecting trade and services".  Measures which were no longer in existence did not constitute
"measures" and could not be the subject of a WTO dispute settlement procedure.  Were the Panel to
seek to address the consequences of a regime, considered previously to be illegal, the WTO dispute
settlement system must be prepared to receive a flood of disputes in relation to all regimes which had
been found illegal since the commencement of the GATT and which, prior to their being overturned,
produced consequences which had in effect been continued as a result of the advantages granted
improperly to previous Members or companies from those Members.
5.67 The Caribbean States requested that the Panel apply the "principle of effectiveness" identified
by the AB.  It must give practical meaning and effect to the Lomé waiver.  This meant that ACP
bananas were entitled to "access to and advantages on" the EC market "in the amount of their pre-1991 best-ever export volumes".  Only this would promote the economic and social development of
the Caribbean States consistently with the objectives of the WTO Agreement and the Lomé
Convention.  The Caribbean States submitted that the new EC banana import regime achieved these
objectives consistently with the GATT and the GATS.  The tariff preference was required by the
Lomé waiver and was consistent with Articles I and XIII of GATT.  The new licensing arrangements
were consistent with the GATS.  Ecuador had not provided the evidence required to displace its
burden in proving its case.  The Panel should reject Ecuador's request in its entirety.
D. C
OLOMBIA
5.68 In the view of Colombia, Article 21.5 of the DSU was a procedure applicable to situations
where there was disagreement as to the existence or consistency with a covered agreement of
measures taken to comply with the recommendations and rulings.  The terms of reference of the Panel
were limited to examining the consistency of Regulations 1637 and 2362 with the relevant covered
                                                     
158 Paragraph 127 of Ecuador's first submission.
159 Paragraph 136 of Ecuador's first submission.WT/DS27/RW/ECU
Page 54
agreements.  Colombia submitted that at this stage the complainant could not include new claims, nor
could the Panel examine issues not raised by the complainant.
5.69 Colombia 's concerns related to a situation where all imports (MFN, traditional and non-
traditional ACP supplies) were credited against the existing tariff quota which would result in a 23 per
cent reduction of current access to the EC market.  Colombia would also be concerned about a
situation where all imports would be credited against the existing tariff quota but an additional tariffquota for all suppliers would be opened with a volume equivalent to the ACP imports and at a tariff
higher than 75 Euro per tonne but lower than th e bound tariff. This situation would also lead to a
reduction of current market access opportunities.
5.70 Colombia argued that the modalities for the Uruguay Round negotiations in agriculture
indicated that "current access opportunities shall be maintained as part of the tariffication process".
160
It did not define "current access opportunities" which could refer to total imports, MFN imports, orimports from GATT Contracting Parties.  In the case of the European Communities, the criteriaselected to establish "current access opportunities" for bananas were very important since imports
under preferential access accounted for more than 20 per cent of total imports and MFN imports from
non-GATT contracting parties accounted for nearly 40 per cent of total imports.  The reference
volume of the "current access opportunities" was based on the average MFN trade for 1989-1991, i.e.
at 1.9 million tonnes, while the average total imports exceeded 2.5 million tonnes.  As a result of theBFA, the tariff quota volume was set at 2.1 million tonnes for 1994 and 2.2 million tonnes for 1995,
of which 90,000 tonnes were allocated to imports from non-traditional ACP suppliers.  The
negotiation of the tariff quota also involved a commitm ent to increase the originally agreed volume in
order to take account of the EC enlargement.
5.71 Colombia submitted that the market access commitment of the EC-15 was a tariff quota of
2,553,000 tonnes at 75 Euro per tonne for MFN suppliers and 90,000 tonnes duty-free for non-
traditional ACP suppliers.
1. Article XIII Issues
5.72 Colombia submitted that a tariff quota administration through country-specific allocations
was both a right and an obligation of the European Communities and that Ecuador had no legal rightto request the elimination of country allocations to substantial suppliers.  Colombia argued that the
right of the European Communities to administer its tariff quota through the allocation of country
shares was implicitly recognized by the panel in pa ragraph 7.85 of its report stating that at the time of
the negotiation of the BFA, Colombia and Costa Rica were GATT contracting parties with a
substantial interest.  This right was distinct from the actual share allocated to each country which, inaccordance with Article XIII:4 of GATT, could be adjusted.  The right granted by Article XIII to an
importing Member became an obligation for the European Communities by virtue of the
commitments in its Schedule.  One of the terms and conditions included under the market access
commitment for bananas was a country allocation for Colombia as adjusted in accordance with
Article XIII:4.
5.73 Colombia submitted that in accordance with  Article XIII of GATT an importing Member
could legitimately provide for country allocations to substantial suppliers while leaving open theopportunity to any other Member to compete for the remaining part of the quota.  Moreover, in this
case, the European Communities had bound itself to do so under "terms and conditions" established in
its Schedule.  Ecuador had no right to request denial of such rights.
                                                     
160 Modalities for the Establishment of Specific Binding Commitments under the Reform Programme.
Doc. MTN.GNG/MA/W/24, 20 December 1993.  These modalities where used as non-binding guidelines.WT/DS27/RW/ECU
Page 55
5.74 Colombia submitted further that if the country-specific allocations conformed with the
provisions set out in Article XIII:2(d) of GATT, it must be assumed that they complied with the
obligation to make an allocation that aimed at a distribution that resembled the shares the parties
might obtain in the absence of the restriction.  The chapeau of Article XIII:2 reflected an obligation
with respect to means, not results.  An obligation to  attain a result would be impossible to achieve as it
referred to a future situation (the distribution that would exist in the market if the restriction was notapplied).  Hence, the obligation under Article XIII:2 was to allocate country shares in accordance with
criteria that were objective, reasonable and non-discriminatory rather than an obligation to allocate
shares resulting in the distribution that would exist in the absence of a restriction.  Given that a future
event could not be foreseen, Article XIII:4 allowed any substantial supplier to request adjustment of
the proportion determined or adjustment of the representative period in order to ensure a dynamic
allocation of the import market.
5.75 In Colombia's view, one of the criteria that w ould result in a distribution that aimed at what
the parties could expect in the absence of the restriction was provided for in the second sentence of
Article XIII:2(d) which stated that when agreement was not reasonably practicable, the importing
Member shall allot shares based upon the proportions supplied during a previous representative
period.  According to GATT practice, "a previous representative period" was a recent period and one
that reflected three years of trade flows.  Consequently, when a distribution was made based on arecent representative period, the importing Member fulfilled the requirement of aiming at the
distribution that the parties might obtain in the absence of the restriction.
5.76 Colombia submitted that in the present case the European Communities had consulted with all
four substantial suppliers seeking an assignment by agreement.  When it became apparent that this
was not possible, it had selected 1994 to 1996 as the recent representative period for which definitivedata was available and made the corresponding allocations.  The allocations corresponded to the
distribution of the MFN trade during the selected representative period.
5.77 Colombia submitted that Ecuador's claim that the 1994-96 period was not representative due
to the Article XIII violation found by the panel, was contrary to the principle that parties to a treaty
were required to implement it in good faith.  When the BFA was negotiated, there was no precedentindicating that it was not in conformity with Article XIII.  On the contrary, all principles thereof and
past practice were followed.  Ecuador had never used its right under Article XIII:4 to request an
adjustment of the reference period, country allocations or re-allocation rules until it brought an
Article XIII action.  Furthermore, Ecuador's sugges tion implied that the implementation of the panel
recommendations had retroactive effect and, since the re-allocation rules were found to beinconsistent with Article XIII, imports made under such allocation be discounted from Colombia's
share.  Ecuador's claim was without any legal basis under the dispute settlement mechanism which
operated in a way that ensured that remedial action was forward-looking.  Colombia argued that
Costa Rica and Colombia should not be penalized for rules agreed and implemented in good faith.
5.78 With regard to Ecuador's argument that it should be granted a quota on the basis of its share
of world trade, Colombia submitted that this was not a criterion relevant to Article XIII of GATT.
Article XIII:2(d), second sentence referred to "shares based upon the proportions, supplied by suchcontracting parties during a previous representative period, of the total quantity or value of imports".
This referred to supplies to the market of the importing Member applying the restriction.  Two
examples demonstrated that the criteria suggested by Ecuador were inapplicable:  in 1994-1996, the
Philippines, a marginal supplier to the European Communities, had over 9 per cent participation in
world exports while Panama, a substantial supplier to the European Communities, had only 5 per centof total world exports.  Colombia submitted that the shares provided for in Regulation 2362 were
consistent with Article XIII of GATT since they were based on the proportion of imports from each
supplier in the period 1994-1996 which was a recent representative period.WT/DS27/RW/ECU
Page 56
5.79 Colombia submitted that the terms of reference of the Panel were precisely defined by
Article 21.5 of the DSU.  Consequently the scope of the review could not include new claims and was
limited to an analysis of Regulations 1637 and 2362 adopted by the European Communities pursuant
to the reports of the panel and AB.  Ecuador's suggestions for remedial actions exceeded the scope of
review.
5.80 Colombia had demonstrated that the country-specific allocations made by the European
Communities complied with its GATT obligations.  First, because the EC's obligation was to make a
distribution that aimed at, not one that resulted in, the distribution that would exist in the absence of
the restriction.  Second, because the distribution corresponded to the proportions supplied by each
supplier during a previous representative period.  Colombia therefore requested the Panel to find that
the country allocations made to the substantial suppliers were in accord ance with Article XIII of
GATT.
E. COSTA RICA
5.81 Costa Rica submitted that the complaint by Ecuador concerned matters of direct interest to
Costa Rica.  Ecuador challenged the obligation of the European Communities to accord a country-
specific tariff quota allocation to Costa Rica and the other Members having a substantial interest in
supplying bananas to the European Communities.  It also challenged the methods used by the
European Communities to determine the quota shares and hence the relative size of the quotasallocated to Costa Rica and Ecuador.  The current rules of the DSU permitted only Ecuador to defend
its interests as party whereas Costa Rica could merely participate in the proceedings as a third party.
5.82 Costa Rica argued that the Panel must go further than granting "enhanced" third-party status
to Costa Rica and the other third parties.  The Panel’s task was to interpret multilateral agreements in
respect of measures affecting Members other than the parties to this dispute. In the view of CostaRica, the Panel must therefore, as Article 10.1 of the DSU confirmed, take into account the interests
of third parties throughout the Panel process, including in the drafting of the findings.  It was not
sufficient to permit third parties to be present and to  record their views in the descriptive part of the
report.  Their arguments, to the extent that they differed from those of the parties, must also be
explicitly addressed in the Panel's findings.
5.83 Costa Rica submitted that in its first submission Ecuador did not clearly distinguish between
claims relating to measures implementing the rulings of the panel and AB by the European
Communities and claims relating to matters which neither the panel nor the AB had addressed.
Ecuador's arguments did not take into account the limitation of Article 21.5 procedures to "measures
taken to comply with the recommendations and rulings" of the DSB.  Instead, on the allocation of thequota among supplying countries, Ecuador went so far as to ask the Panel "not only to reaffirm its
prior rulings and interpretations, as affirmed a nd modified by the AB, but also to provide the
European Communities with a more explicit recommendation and guidance as to how to comply
…".
161
5.84 For these reasons it was not clear to Costa Rica which findings Ecuador expected the Panel to
make on the EC's creation and distribution of country-specific quotas for Members with a substantial
supplying interest and which rulings or recommendations of the DSB these measures failed to complywith.  Costa Rica assumed that Ecuador claimed th at the allocation of country-specific quotas to the
four Members with a substantial interest in supplying bananas and the distribution of the shares of the
quota among those Members on the basis of their shares in the EC market in the period 1994-1996
were measures "taken to comply with the recommendations and rulings [of the DSB]" within the
                                                     
161 Paragraph 98 of Ecuador's first submission.WT/DS27/RW/ECU
Page 57
meaning of Article 21:5 of the DSU, and that both these measures were inconsistent with Article XIII
of GATT.  Costa Rica submitted that, if these were the claims of Ecuador, they must be rejected.
5.85 Costa Rica submitted that the allocation of country-specific quotas and the distribution of the
quota shares among Members with a substantial supplying interest were matters on which neither the
original panel nor the AB had made any ruling or recommendation and which could therefore not be
raised as compliance issues in a proceeding under Article 21.5 of the DSU.  Ecuador failed to takeinto account that there was an important distinction between the scope of ordinary panel procedures
and that of procedures initiated in accordance with Article 21.5 of the DSU.  In an ordinary panel
procedure, a complaint could relate to any measure.
162  Proceedings under Article 21.5 were, however,
limited to disputes on measures taken to comply with the recommendations or rulings of the DSB, i.e.
exclusively about matters on which a panel or the AB had already made rulings and corresponding
recommendations.  This followed from the wording of Article 21.5, which accorded Members the
right to resort to these procedures only in respect of a "disagreement as to the existence or consistencywith a covered agreement of measures taken to comply with the recommendations and rulings [of the
DSB]".  If a new matter could be submitted to a panel under an Article 21.5 procedure, the party
complained against would be deprived of many of the procedural rights it would have enjoyed had the
matter been submitted to an ordinary panel proceeding, including the right to an implementation
period of 15 months.  Moreover, an examination of entirely new issues within the constrainedtimeframe of Article 21.5 procedures amounted to a denial of due process.
5.86 Costa Rica submitted further that Ecuador was of the view that the European Communities
should abandon country-specific quotas altogether.  Ecuador, while conceding that country-specific
quotas were permitted under Article XIII, essentially argued that a single global quota would be more
efficient.  Ecuador therefore did not distinguish between what it considered to be desirable de lege
ferenda  and the recommendations the Panel was entitled to make de lege lata .  Furthermore, neither
the panel nor the AB had made any rulings or reco mmendations calling into question the right of the
European Communities to allocate country-specific quotas.  On the contrary, their rulings and
recommendations relating to the manner in which the country-specific quotas were to be administered
implied that the European Communities had the right to make country-specific allocations.
5.87 According to Costa Rica, Ecuador was also of the view that the allocation of shares among
the Members with a substantial interest in supplyin g bananas was inconsistent with Article XIII:2(d),
second sentence, of the GATT, because the European Communities had selected 1994-1996 as the
previous representative period, which could not be considered to be representative within the meaning
of that provision, and because the European Communities should have taken into account specialfactors justifying the allocation of a larger share to Ecuador.  However, neither the panel nor the AB
had addressed the question of how the shares of the quota would have to be allocated among Members
with a substantial supplying interest once the EC 's separate regimes for ACP bananas and other
bananas had been merged for the purposes of Article XIII.  In the view of Costa Rica, the panel had
made it explicit that it considered this matter to be a subsidiary issue that it need not examine.
163
5.88 According to Costa Rica it was therefore clear that Ecuador was asking the Panel to address
aspects of the banana import regime that had not yet been examined, to develop an entirely newinterpretation of the concepts of "representative period" and "special factors" and to apply this
interpretation to an extremely complex factual situation which was not the subject of a finding by the
panel in the original proceeding.  Ecuador's requests therefore fell outside the framework of
Article 21.5 of the DSU and must consequently be rejected by the Panel.
                                                     
162 Article 7 of the DSU.
163 Paragraphs 7.94 and 7.88 of the panel report.WT/DS27/RW/ECU
Page 58
1. Issues related to the GATT
5.89 Costa Rica submitted that the European Communities was not only permitted to allocate
country-specific quotas to Costa Rica and the other Members with a substantial interest in supplying
bananas under Article XIII of GATT but obliged to do so under Article II of GATT.  The European
Communities was entitled to allocate the quota shares on the basis of a previous representative period
irrespective of any difficulties in determining a period that was representative.164
5.90 Costa Rica argued that the allocation of country-specific quotas was a right of the European
Communities under Article XIII:2 of GATT.  Article XIII:2 did not state that this right may only be
exercised when there were no difficulties in establishing a period that was representative.  The
assumption underlying this provision was that a Member, by selecting a base period and appraising
any special factors that may have affected or may be affecting the trade in the product, could arrive at
a distribution of quota shares that satisfied the principle of non-discrimination.  The drafters of
Article XIII took into account the fact that no allocation method guaranteed a distribution of tradeidentical to that which would prevail in the absence of the restriction.  They declared the non-
discrimination requirement therefore to be satisfied when the measures taken "aim" at a distribution of
trade "approaching as closely as possible" the distribution which "might be expected" in the absence
of the quota.  In the view of Costa Rica, it was therefore incorrect when Ecuador stated that "country
allocations are allowed at least in some circumstances"
165 implying that there were circumstances in
which a country-specific allocation was a priori  excluded.
5.91 Costa Rica claimed further that the European Communities was obliged to allocate country-
specific quotas to Costa Rica and the other Members with a substantial supplying interest in
accordance with the tariff quota concession for bananas incorporated in its Schedule.  This agreement
was consequently part of the EC's obligations under Article II of GATT.  For the purposes of anexamination of the issues raised by Ecuador, tw o sets of obligations of the European Communities
under the BFA could be distinguished:
(a) to allocate shares of the tariff quota established by the European Communities to
countries with a substantial supplying interest, such as Costa Rica;  and
(b) to allocate shares of this quota to countries not having a substantial supplying interest
and to distribute, and under certain circumstances, redistribute, the quota shares in
certain proportions.
5.92 Costa Rica argued that the first set of BFA obligations listed above had not been found to be
inconsistent with the EC's obligations under the GATT.  The panel had found that "it was not
unreasonable for the European Communities to conclude that at the time the BFA was negotiated
Colombia and Costa Rica were the only contracting part ies that had a substantial interest in supplying
the EC banana market in terms of Article XIII:2(d)"
166.  The European Communities therefore
continued to observe those clauses of the BFA that were consistent with the GATT by allocating a
share of its tariff rate quota to all Members with a substantial supplying interest. Only the second set
of BFA obligations listed above was found by the panel to be inconsistent with Article XIII which hadgiven the European Communities a valid ground for suspending the operation of those provisions.
167
However, the European Communities was under a legal obligation to continue to observe thoseclauses of the BFA that were not found to be invalid  by the panel.  This was confirmed by Article 44
of the Vienna Convention on the Law of Treaties, entitled "Separability of treaty provisions", which
                                                     
164 Paragraph 95 of Ecuador's first submission.
165 Paragraph 105 of Ecuador's first submission.
166 Paragraph 7.85 of the panel report.
167 Paragraph 7.90 of the panel report.WT/DS27/RW/ECU
Page 59
codified the rules of customary international la w governing the partial invalidity of a treaty.
Paragraph 3 thereof provided:
"If the ground [for suspending the operation of the treaty] relates solely to particular clauses,
it may be invoked only with respect to those clauses where:
(a) the said clauses are separable from the remainder of the treaty with regard to their
application;
(b) it appears from the treaty or is otherwise established that acceptance of those clauses
was not an essential basis of the consent of the other party or parties to be bound by
the treaty as a whole;  and
(c) continued performance of the remainder of the treaty would not be unjust."
5.93 Costa Rica claimed that all of the above conditions for the separability of treaty provisions
were met in the present case.   The clauses of the BFA providing for allocation of quota shares to
countries with a substantial supplying interest could be applied separately from the clauses that called
for a discriminatory administration of the quotas.  Moreover, discrimination against the two non-BFAcountries with a substantial supplying interest (Ecuador and Panama) was not an essential basis for the
BFA countries and the EC's consent to the allocation of quota shares for the two BFA countries with a
substantial supplying interest (Costa Rica and Colombia).  No circumstances had arisen which would
render the continued performance of the GATT-consistent provisions of the BFA unjust.  On the
contrary, the concession of the European Communities incorporating the BFA was "paid for" by theBFA countries through counter-concessions.  It was therefore appropriate that the European
Communities continued to perform those obligations under the BFA that it could implement
consistently with the GATT, including the obligat ion to accord a country-specific quota to BFA
countries with a substantial supplying interest.
5.94 The principles of international law governing the separability of treaty provisions, Costa Rica
submitted, were particularly relevant in the case of the provisions contained in GATT Schedules of
Concessions.  The concessions incorporated in the Schedules generally resulted from a process of give
and take during multilateral trade negotiations.  The trade opportunities a Member must provide in
accordance with its Schedule were therefore normally "paid for" by counter-concessions of other
Members.  If a concession was subsequently declared to be partly inconsistent with the GATT, thebeneficiaries of that concession lost advantages without being able to withdraw the counter-
concessions they had made to obtain that advantage, and the negotiated balance of concessions was
consequently upset.  To minimize such imbalances, the part of the concession that could be carried
out consistently with the WTO agreements should be presumed to be separable from the part found to
be inconsistent with such an agreement.
5.95 In the view of Costa Rica the European Communities had therefore the obligation under
Article II of GATT to accord a country-specific quota to Colombia and Costa Rica and underArticle XIII of GATT the obligation to extend this benefit to Ecuador and Panama.  The European
Communities could therefore not abandon its system of country-specific quotas for Members with a
substantial supplying interest without violating its obligations under the GATT.   Costa Rica
submitted that Ecuador's request for the Panel to call upon the European Communities to eliminate
country-specific quotas must therefore be rejected.
5.96 Costa Rica contended that the allocation of the quota shares among the Members with a
substantial interest in supplying bananas on the basis of the 1994-1996 period met the requirements of
Article XIII of GATT and that Ecuador bore the bur den of proving that the EC's selection of a base
period and appraisal of special factors was inconsistent with Article XIII.WT/DS27/RW/ECU
Page 60
5.97 According to the generally accepted rules on the distribution of the burden of proof,
Costa Rica argued, Ecuador, as the party claiming that the EC's regime remained inconsistent with
Article XIII, must provide evidence supporting the above claim.168  If any uncertainty were to remain
after the evaluation of the evidence before the Panel, the European Communities would have to be
given the benefit of the doubt.  This followed from the fact that Article XIII:4 specified that "the
selection of a representative period for any product and the appraisal of any special factors affectingthe trade in the products shall be made initially by the Member applying the restrictions" and that it
then was for those Members which considered that there was a "need for an adjustment of the
proportions determined or of the base period selected, or for the reappraisal of the special factors
involved" to request consultations with the Member applying the restrictions.  Costa Rica submitted
that Ecuador had not met its burden of proof.
5.98 Costa Rica argued further that Ecuador objected to the selection of the 1994-1996 period
because trade was distorted by measures which had been found to be inconsistent by the panel.However, there was nothing in the panel report suggesting that the European Communities should
have chosen a more recent base period.  Under the banana regime originally examined by the panel
the European Communities had based the distribution of trade shares in 1995 on market shares in the
1989-1991 period.  The Panel concluded that it was reasonable for the European Communities to base
its determination that Colombia and Costa Rica were substantial suppliers in 1995 on their marketshares during a three-year period ending four years before 1995.  The European Communities was
now basing the distribution of trade shares in 1999 on market shares during a period ending three
years before 1999.  Under the new banana import regime the base period selected was thus more
recent than the period which the Panel considered to be relevant for the purpose of determining the
substantial supplier status.  Against this background it was difficult to see on which basis one couldconclude that the choice of the base period was inconsistent with the recommendations and rulings the
DSB made on the basis of the original panel's report.
5.99 Costa Rica recalled that Ecuador's share in the world market during the relevant base period
would not justify a re-appraisal of the special factor s affecting banana trade since, according to the
data provided by Ecuador, the average share of Ecuador in the world market during the 1994-1996period was 26.36 per cent which was almost identical to the quota share of 26.17 per cent allocated by
the European Communities.  In any case, trade statistics, as such, were not a special factor within the
meaning of Article XIII:2. Statistics served to establish the shares of trade during a previous
representative period; factors other than trade statistics could be used to determine whether the quota
shares should differ from the trade shares during that period.
5.100  Furthermore, Costa Rica contended that Ecuador claimed that the increase in Costa Rica's
country-specific quota share established under Annex I of Regulation 2362 was attributable to the
shortfall reallocation carried out under the BFA.
169  Ecuador also claimed that the increase in
Costa Rica's quota share, as a result of the recent changes introduced to the allocations of the country-
specific quota, based on the 1994-1996 period, "precisely coincide with the shares taken from
Venezuela and Nicaragua".170  Costa Rica submitted that at no time during the years 1994, 1995 and
1996 did it benefit from the reallocation of country shares originally allocated to other BFA countries.The percentage allocated to Costa Rica faithfully reflected its share in the EC market during the
representative period.
5.101  Costa Rica submitted that the allocation of country-specific quotas to Costa Rica and the
other Members with a substantial interest in supplying bananas and the distribution of the quota shares
                                                     
168 See AB report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses
from India  (WT/DS33/AB/R) Section II. A. 1.
169 Paragraph 15 of Ecuador's first submission.
170 Paragraph 80, subparagraph 4, and paragraph 94 of Ecuador's first submission.WT/DS27/RW/ECU
Page 61
among those Members on the basis of their shares in the EC market during 1994-1996 were measures
on which neither the panel nor the AB had made recommendations or rulings for adoption by the
DSB.  Costa Rica therefore considered that these measures were not "measures to comply with the
recommendations and rulings" of the DSB and that they could not be examined in the framework of a
proceeding under Article 21.5 of the DSU.
5.102  Costa Rica further considered that, if the Panel were to examine these measures, it would
have to find that:
(a) the European Communities not only had the right to allocate country-specific quotas
to Costa Rica and the other Members with a substantial interest in supplying bananas
under Article XIII of GATT, but was obliged to do so under Article II of GATT;  and
(b) Ecuador failed to demonstrate that the distribution of the quota shares on the basis of
the shares of imports during the 1994-1996 period did not meet the requirements ofArticle XIII.
5.103  In either case Ecuador's request that the Panel recommend the elimination of country-specific
quotas or a redistribution of the quota shares would therefore have to be rejected.
F. E
CUADOR 'S RESPONSE TO THIRD PARTIES
5.104  In response to the argument presented by the Caribbean States concerning the company Leon
Van Parys (LVP) (see paragraph 5.54 above), Ecuador  submitted that LVP was a substantial importer
and wholesaler of Ecuadorian bananas on the EC ma rket, and it was the largest EC company in the
Noboa Group.
5.105  Ecuador submitted further that the Caribbean States had misunderstood Ecuador's statement
that its services providers had invested some US$200 million under the prior system to buy-back
market access (see paragraph 5.58 above).171  The investment was the price of buying the ability to get
bananas entered into the European Communities – in effect, the quota rent granted to EC and ACP
services suppliers under the prior system – without obtaining the licences themselves.
5.106  Ecuador submitted that the Odeadom data cited by the Caribbean States showed only changes
in licence allocations by member State and did not show changes in licence allocations by services
provider.  While some former Category B licence holders (in France and Spain or elsewhere) may not
have always ensured that they had title at customs clearance, such that other operators could now
claim reference quantities for those, that was not shown by data on shifts in licence allocations by
member State.  Indeed, a shift from one member Sate to another could as easily result from internalshifts in the operations of an operator group, or from licence transfers from one former Category B
holder to another EC or ACP services provider in another member State, as from any shift to
wholesalers of third-country bananas
5.107  In response to allegations that Ecuador's evidence was insufficient to substantiate continuing
discrimination against Ecuadorian services suppliers, Ecuador submitted that the Noboa Group's
licence allocations covered less than half of th e volumes it physically imported into the European
Communities  (i.e. imports that were customs cleared either by a Noboa company or by an unrelatedcompany).
                                                     
171 Paragraphs 81, 82 and  96 of the submission of the Caribbean States.WT/DS27/RW/ECU
Page 62
VI. FINDINGS
6.1 This case arises out of a challenge by Ecuador of the WTO-consistency of measures taken by
the European Communities to implement the recommendations and rulings of the Dispute Settlement
Body ("DSB") in European Communities – Regime for the Importation, Sale and Distribution of
Bananas  (DS/27/R/ECU & DS/27/ AB/R).  In particular, Ecuador claims that Regulations 1637/98 and
2362/98 are inconsistent with the EC's obligations under Articles I and XIII of GATT 1994 andArticles II and XVII of GATS.  Ecuador also  invokes Article 19 of the Dispute Settlement
Understanding ("DSU") and requests the Panel to suggest how the European Communities could
implement any recommendations that the Panel might make.  We first consider certain procedural
issues and our terms of reference and then examine Ecuador's claims.
A. W
ORKING PROCEDURES AND TIMETABLE
6.2 On 15 January 1999, we met with the parties to establish our working procedures and a
timetable for the panel proceeding.  Given the short period of time available to complete a proceedingunder Article 21.5 of the DSU, we did not include in  the timetable an interim review period.  Both
parties requested that we reconsider the possibility of having an interim report.  We ultimately
concluded that the time necessary to draft the report would not allow us to issue an interim report and
still meet the 90-day deadline of Article 21.5.  Accordingly, we confirm our initial decision not to
provide an interim report.
B. T
ERMS OF REFERENCE
6.3 The European Communities argues that the terms of reference of this Panel are limited by
Article 21.5 of the DSU to the "matters" on which the DSB adopted its recommendations or rulings
based on the original panel and Appellate Body reports in this case.172  In the EC's view, this Panel
can only verify the consistency of measures taken to comply with those recommendations and notconsider other claims raised by Ecuador.
173  In particular, the European Communities notes that it
would be disadvantaged if new claims were allowed because the shorter period of time allowed for an
Article 21.5 panel process (90 days compared to a normal panel timetable of at least six months)
would affect its ability to defend its measures and because it would not be entitled to a new reasonable
period of time to implement any new panel recommendations or rulings.  It also argues that it wouldbe inappropriate for the Panel to make recommendations on implementation of the sort requested by
Ecuador.
6.4 In Ecuador's view, the limitation proposed by the European Communities is not found in the
text of Article 21.5, which refers to disagreements as to the consistency with covered agreements of
measures taken to comply with DSB recommendations and rulings.  As to the shorter period of time,Ecuador notes that the European Communities has spent 15 months considering the implementation of
the original recommendations and rulings and thus does not need as much time as might be necessary
in a first-time challenge to an import regime.  It also notes that it has waited a long time for the
European Communities to comply with its obligations under the WTO Agreement.  As to its request
that the Panel make specific recommendations and suggestions, Ecuador argues that it has the right to
make such a request under Article 19 of the DSU.
                                                     
172 Colombia and Costa Rica make a similar argument as third parties.
173 According to the European Communities, such cl aims include Ecuador's arguments concerning its
share of the tariff quota (e.g. concerning the "representa tive period", "special factors" and the effect of the so-
called BFA reallocation), its request that the Panel suggest that the European Communities implement a global
tariff quota for bananas, and its GATS arguments in respect of "actual" importers and newcomers.WT/DS27/RW/ECU
Page 63
6.5 In considering the scope of our terms of reference, we recall that when this case was referred
to the Panel by the DSB, it was provided that the Panel would have standard terms of reference.  Such
terms of reference are defined in Article 7.1 of the DSU and, as adapted to this case, are as follows:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Ecuador in document WT/DS27/41, the matter referred to the DSB by Ecuador in
that document and to make such findings as will assist the DSB in making therecommendations or in giving the rulings provided for in those agreements".
174
6.6 As recently explained by the Appellate Body:
"'[T]he matter referred to the DSB for purposes of Article 7 of the DSU … must be
the 'matter' identified in the request for establishment of a panel under Article 6.2 of
the DSU.  That provision requires the complaining Member, in a panel request, to
'identify the specific measures at issue  and provide a brief summary of the  legal
basis of the complaint  sufficient to present the problem clearly'.  The ' matter  referred
to the DSB', therefore, consists of two elements: the specific measures  at issue and
the legal basis of the complaint  (or the claims )."175
6.7 Thus, pursuant to our terms of reference, we are to consider the matter referred to the DSB by
Ecuador and that matter consists of the measures and claims specified by Ecuador in WT/DS27/41.
The limitation suggested by the European Communities cannot be found in our terms of reference.
6.8 That limitation also cannot be found in the ordinary meaning of the terms of Article 21.5 of
the DSU.  The text of Article 21.5 provides (emphasis added):
"Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings  such
dispute shall be decided through recourse to these dispute settlement procedures,including wherever possible resort to the original panel."
Article 21.5 refers to the "consistency with a covere d agreement of measures taken to comply with the
recommendations and rulings".  Here it is clear that the two measures specified by Ecuador
(Regulations 1637/98 and 2362/98) were "taken [by the European Communities] to comply" with the
DSB's recommendations, as they modify aspects of the EC's banana import regime found by theoriginal panel and Appellate Body reports to be inconsistent with the EC's WTO obligations.  There is
no suggestion in the text of Article 21.5 that only certain issues of consistency of measures may be
considered.  Nor is there a suggestion that the term "measures" has a special meaning in Article 21.5
that would imply that only certain aspects of a measure can be considered.
6.9 This interpretation of Article 21.5 of the DSU is supported by its context and the object and
purpose of the DSU.  For example, Article 21.1 of the DSU states that "[p]rompt compliance with the
recommendations and rulings of the DSB is essential in order to ensure effective resolution of
disputes to the benefit of all Members".  Article 3, which sets out the general provisions of the DSU,
provides in its paragraph 3:
"The prompt settlement of situation in which a Member considers that any benefits
accruing to it directly or indirectly under the covered agreements are being impairedby measures taken by another Member is essential to the effective functioning of the
                                                     
174 WT/DS27/44.
175 Appellate Body report on Guatemala – Anti-dumping Investigation Regarding Portland Cement
from Mexico , adopted on 25 November 1998, WT/DS60/AB/R, paragraph 72.WT/DS27/RW/ECU
Page 64
WTO and the maintenance of a proper balance between the rights and obligations of
Members."
Acceptance of the EC argument would mean in many cases that two procedures would be necessary.
One expedited panel procedure to ascertain if the offending measures have been removed, and a
second normal panel procedure to consider the overall consistency with WTO obligations of the new
measure.  Such a process would not promote and would not be consistent with the prompt settlementof disputes.
176
6.10 As to the EC's argument that it is unfair to expect it to defend itself in respect of new issues in
an expedited panel process, we note that the issues raised by Ecuador in this proceeding are quite
similar to those raised in Bananas III .  As to the EC's argument that it will be deprived of a reasonable
period of time in which to implement any new reco mmendations and rulings of the DSB, that would
not justify limiting the scope of an Article 21.5 proceeding.  In any event, in our view, thesearguments to restrict the scope of Article 21.5 on the grounds of alleged unfairness are not based on
the text of Article 21.5 and do not offset the arguments outlined above concerning the need to resolve
promptly implementation issues in one panel proceeding.
6.11 As to the question of whether we have the authority to make suggestions in respect of
implementation, it is clear from Article 19.1 of the DSU that panels do have such authority.  There isnothing in Article 19.1 that suggests that it does not apply to panels established pursuant to
Article 21.5.  Indeed, the need for prompt resolution of disputes would support more frequent use of
that authority in Article 21.5 cases than in others.  However, whether we should make suggestions in
this case is an issue for later consideration.
6.12 Accordingly, we find that our terms of re ference cover all of the claims raised by
Ecuador in this proceeding and that we are authorized by Article 19.1 of the DSU to make
suggestions on implementation should we consider it appropriate to do so.
C. A
RTICLE XIII OF GATT 1994
6.13 We first address Ecuador's claims under Article XIII of GATT 1994 since that Article
regulates tariff quotas, the operation of which is the focus of this case.  Ecuador claims thatRegulations 1637/98 and 2362/98, in the way in which they (i) establish a tariff quota providing duty-
free treatment for 857,700 tonnes of traditional banana imports from 12 ACP States and (ii) assign to
Ecuador a country-specific share of the EC's MFN tariff quota for bananas, are inconsistent with the
EC's obligations under Article XIII of GATT 1994.
6.14 In this regard, we note that Regulation 1637/98 confirms the tariff quota of 2,200,000 tonnes
bound in the EC Schedule and an additional autonomous tariff quota of 353,000 tonnes.
177  These are
at the same levels as in the prior regime.  Given that an agreement on the allocation of country-
specific allocations could not be achieved with the substantial suppliers, in Regulation 2362/98 the
European Communities assigned the following country shares to each of the substantial suppliers
pursuant to Article XIII:2(d) (i.e. Colombia, Costa Rica, Ecuador and Panama):
                                                     
176 Further support for our interpretation of Article 21.5 can be found in Article 9 of the DSU,
paragraph 3 of which provides:  "If more than one panel is established to examine the complaints related to thesame matter, to the greatest extent possible the same persons shall serve on each of the separate panels and thetimetable for the panel process in such disputes shall be harmonized."  Such harmonization would be impossibleif the limitation on the scope of Article 21.5 proposed by the European Communities were to be accepted.
177 Article 18, paragraphs 1 and 2 of Regulation 1637/98.WT/DS27/RW/ECU
Page 65
Table 1 – EC tariff quota allocations for third-country and
non-traditional ACP banana suppliers
Country Share (%)178Volume ('000 tonnes)179
Colombia 23.03 588.0
Costa Rica 25.61 653.8
Ecuador 26.17 668.1
Panama 15.76 402.4
Other 9.43 240.7
Total of the above 100.00 2,553.0
6.15 The Annex to Regulation 1637/98 provides for an aggregate quantity of 857,700 tonnes for
traditional imports from ACP States.  Under the revised EC regime, there are no longer any country-
specific allocations to the 12 traditional ACP States (i.e. Belize, Cameroon, Cape Verde,
Côte d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia, St. Lucia, St. Vincent & theGrenadines, and Suriname).
180
6.16 The relevant provisions of Article XIII are the following:
"Non-discriminatory Administration of Quantitative Restrictions
1. No prohibition or restriction shall be applied by any Member on the
importation of any product of the territory of any other Member or on the exportation
of any product destined for the territory of any other Member, unless the importationof the like product of all third countries or the exportation of the like product to all
third countries is similarly prohibited or restricted.
2. In applying import restrictions to any product, Members shall aim at
a distribution of trade in such product approaching as closely as possible the shares
which the various Members might be expected to obtain in the absence of suchrestrictions and to this end shall observe the following provisions:
…
 (d) In cases in which a quota is allocated among supplying countries the Member
applying the restrictions may seek agreement with respect to the allocation of shares
in the quota with all other Members having a substantial interest in supplying theproduct concerned. In cases in which this method is not reasonably practicable, the
Member concerned shall allot to Members having a substantial interest in supplying
the product shares based upon the proportions, supplied by such Members during a
previous representative period, of the total quantity or value of imports of the product,
due account being taken of any special factors which may have affected or may be
                                                     
178 Annex I to Regulation 2362/98.
179Calculation of absolute shares based on the 2,553,000 tonne tariff quota and the shares of substantial
suppliers according to Annex I to Regulation 2362/98.
180 Annex to Regulation 1637/98 and Annex I to Regulation 2362/98.WT/DS27/RW/ECU
Page 66
affecting the trade in the product. No conditions or formalities shall be imposed
which would prevent any Member from utilizing fully the share of any such total
quantity or value which has been allotted to it, subject to importation being made
within any prescribed period to which the quota may relate.
4. With regard to restrictions applied in accordance with paragraph 2 ( d)
of this Article or under paragraph 2 ( c) of Article XI, the selection of a representative
period for any product and the appraisal of any special factors affecting the trade in
the product shall be made initially by the Member applying the restriction;  Provided
that such Member shall, upon the request of any other Member having a substantial
interest in supplying that product or upon the request of the C ONTRACTING PARTIES ,
consult promptly with the other Member or the C ONTRACTING PARTIES  regarding the
need for an adjustment of the proportion determined or of the base period selected, or
for the reappraisal of the special factors involved, or for the elimination of conditions,formalities or any other provisions established unilaterally relating to the allocation of
an adequate quota or its unrestricted utilization.
5. The provisions of this Article shall apply to any tariff quota instituted
or maintained by any Member, and, in so far as applicable, the principles of this
Article shall also extend to export restrictions."
6.17 In examining the revised EC banana regime and its consistency with Article XIII, we recall
that in Bananas III  the Appellate Body overruled the panel's interpretation of the scope of the Lomé
waiver and held that the Lomé waiver does not co ver inconsistencies with Article XIII.  Accordingly,
in considering Article XIII issues, we do not consider what is or is not required by the Lomé
Convention.  We address that issue in connection with Ecuador's claims under Article I of GATT.
1. The 857,700 tonnes reserved for traditional imports from ACP States
6.18 Ecuador alleges that the division of the revised EC import regime for bananas into (i) an MFN
tariff quota of 2,553,000 tonnes, in combination with (ii) an amount of 857,700 tonnes reserved for
traditional imports from ACP States at a zero-duty level fails to conform to the non-discrimination
requirements of Article XIII and amounts to a continued application of "separate regimes" of the sortfound to be inconsistent with Article XIII by the original panel and the Appellate Body in
Bananas III .
6.19 The European Communities responds that a single import regime exists under
Regulations 1637/98 and 2362/98.  It is the EC's pos ition that for purposes of Article XIII the quantity
of 857,700 tonnes for traditional ACP imports is outside the MFN tariff quota of 2,553,000 tonnes andEcuador should therefore have no interest in it.  In the EC's view, the amount of 857,700 tonnes
constitutes an upper limit for the zero-tariff preference for traditional ACP imports.  It notes that the
tariff preference is required by the Lomé Convention and is covered by the Lomé waiver as to any
inconsistency with Article I:1 of GATT.  In addition, the European Communities relies on the panel
report on EEC - Imports of Newsprint
181 in arguing that imports under preferential arrangements
should not be counted against an MFN tariff quota.  The European Communities also argues that its
collective allocation of an amount of 857,700 tonnes  for traditional imports from ACP States is
effectively required by the Appellate Body report in Bananas III.
                                                     
181 Panel report on EEC - Imports of Newsprint , adopted on 20 November 1984, BISD 31S/114,
130-133.WT/DS27/RW/ECU
Page 67
(a) The Applicability of Article XIII
6.20 Article XIII:5 provides that the provisions of Article XIII apply to "tariff quotas".  The
European Communities essentially argues that the amount of 857,700 tonnes for traditional imports
from ACP States constitutes an upper limit on a tariff preference and is not a tariff quota subject to
Article XIII.  However, by definition, a tariff quota is a quantitative limit on the availability of a
specific tariff rate.  Thus, Article XIII applies to the 857,700 tonne limit.
6.21 In our view, the Newsprint  case does not affect the applicability of Article XIII to the tariff
quota for traditional imports from ACP States.  In that case, the European Communities had
unilaterally reduced a 1.5 million tonnes tariff quota for newsprint to 500,000 tonnes on the grounds
that certain past supplying countries under the tariff quota had entered into free-trade agreements with
the European Communities and that the tariff quota should be reduced to reflect that fact.  The panel
held that the European Communities could not unilaterally make such a change.  In passing, the
Newsprint  panel stated:  "Imports which are already duty-free, due to a preferential agreement, cannot
by their very nature participate in an MFN duty-free quota."182  The Newsprint  panel did not deal with
the applicability of Article XIII to a case such as this one.  Moreover, our findings do not imply that
the European Communities must count from ACP States imports against its MFN tariff quota.
6.22 As to the EC's suggestion that Ecuador has no interest in the collective allocation to
traditional ACP suppliers, we note that the price a nd even the volume of Ecuador's exports could be
affected by the price and volume of traditional ACP exports.  In any event, under Bananas III , it is
clear that Ecuador may bring this claim.183
6.23 Accordingly, we find that the 857,700 tonne limit on traditional ACP imports is a tariff
quota and therefore Article XIII applies to it .
(b) The Requirements of Article XIII and the 857,700 Tonne Tariff Quota for Traditional ACP
Imports
6.24 Ecuador raises claims in respect of the 857,700 tonne tariff quota under both paragraphs 1 and
2 of Article XIII.  We address these claims in that order.  In assessing the 857,700 tonne tariff quota
for traditional ACP exports in light of the requirem ents of Article XIII, we recall the Appellate Body's
findings in Bananas III concerning "separate regimes":
"The issue here is not whether the European Communities is correct in stating that two
separate regimes exist for bananas, but whether the existence of two, or more,
separate EC import regimes is of any relevance for the application of the non-
discrimination provisions of the GATT 1994 and the other Annex 1A agreements.
The essence of the non-discrimination obligations is that like products should betreated equally, irrespective of their origin.  As no participant disputes that all
bananas are like products, the non-discrimination provisions apply to all imports of
bananas, irrespective of whether and how a Member categorises or subdivides these
imports for administrative or other reasons.  If, by choosing a different legal basis for
imposing import restrictions, or by applying different tariff rates, a Member could
avoid the application of the non-discrimination provisions to the imports of like
products from different Members, the object and purpose of the non-discriminationprovisions would be defeated.  It would be very easy for a Member to circumvent the
non-discrimination provisions of th e GATT 1994 and the other Annex 1A
                                                     
182 Ibid. , paragraph 55.
183 Panel reports on Bananas III , paragraphs 7.47-7.52;  Appellate Body report on Bananas III ,
paragraphs 132-138.WT/DS27/RW/ECU
Page 68
agreements, if these provisions apply only within regulatory regimes established by
that Member."184
6.25 We also recall the Appellate Body finding that the Lomé waiver does not justify
inconsistencies with Article XIII.  As stated by the Appellate Body:
"In view of the truly exceptional nature of waivers from the non-discrimination
obligations under Article XIII, it is all the more difficult to accept the proposition thata waiver that does not explicitly refer to Article XIII would nevertheless waive the
obligations of that Article.  If the CONTRACTING PARTIES had intended to waive
the obligations of the European Communitie s under Article XIII in the Lomé Waiver,
they would have said so explicitly."
185
We, therefore, in our examination of the WTO-consistency of the EC's revised regime, have to applyfully the non-discrimination and other requirements of Article XIII to all "like" imported bananas
irrespective of their origin, i.e. regardless of whether imports occur under the MFN tariff quota of2,553,000 tonnes or under the tariff quota of 857,700 tonnes reserved for traditional ACP imports.
(i) Article XIII:1
6.26 In this regard, we note that under the revised regime, on the one hand, bananas may be
imported under the MFN tariff quota on the basis of past trade performance by exporting countriesduring a previous representative period (i.e. the three-year period from 1994 to 1996).  On the other
hand, bananas from traditional ACP supplier countries may be imported up to a collective amount of
857,700 tonnes, which was originally set to reflect the overall amount of the pre-1991 best-ever
exports by individual traditional ACP suppliers, with allowance made for certain investments.
186  We
further note that exports under the tariff quota by some non-substantial suppliers (i.e. third-countryand non-traditional ACP suppliers) are restricted, in aggregate, to 240,748 tonnes (i.e. the "other"
category of the MFN tariff quota), whereas exports from other non-substantial sources of supply (i.e.
traditional ACP suppliers) are restricted, in aggregate, to 857,700 tonnes.  Moreover, some non-
substantial suppliers, namely the ACP suppliers, could benefit from access to the "other" category of
the MFN tariff quota once the 857,700 tonne tariff quota was exhausted.  On the other hand, non-substantial suppliers from third countries have no access to the 857,700 tonne tariff quota once the
"other" category of the MFN tariff quota is exhausted.  Individual Members in these two groups –
traditional ACP suppliers and the other non-substantial suppliers – are accordingly not similarly
restricted.  This disparate treatment is inconsistent with the provisions of Article XIII:1, which require
that "[n]o … restriction shall be applied by any Member on the importation of any product of theterritory of any other Member … unless the importation of the like product of all third countries … is
similarly prohibited or restricted".
(ii) Article XIII:2
6.27 The general rule laid down in Article XIII:2 of GATT requires Members to "aim at a
distribution of trade … approaching as closely as  possible the shares which the various Members
might be expected to obtain in the absence of such  restrictions".  To this end, where the option of
allocating a tariff quota among supplying countries is chosen, Article XIII:2(d) provides thatallocations of shares (i.e. country-specific allocations for substantial  suppliers;  and a global allotment
in an "other" category for non-substantial  suppliers unless country-specific allocations are allotted to
                                                     
184 Appellate Body report on Bananas III , paragraph 190.
185 Appellate Body report on Bananas III , paragraph 187.
186 The country-specific allocations for, e.g. Belize, Cameroon, Côte d'Ivoire and Jamaica seem to
include allowances for investment made.WT/DS27/RW/ECU
Page 69
each and every non-substantial supplier) should be based upon the proportions supplied during a
previous representative period.  The European Communities explains that it chose the three-year
period from 1994 to 1996 as the most recent three-year period for which reliable import data were
available.
6.28 According to the information available to us, for traditional ACP supplier countries the
average exports during the three-year period from 1994 to 1996 were collectively at a level ofapproximately 685,000 tonnes, which is only about 80 per cent of the 857,700 tonnes reserved for
traditional ACP imports under the previous as well as under the revised regime.  In contrast, the MFN
tariff quota of 2.2 million tonnes (autonomously increased by 353,000 tonnes) has been virtually filled
since its creation (over 95 per cent) and there have been some out-of-quota imports.  Thus, the
allocation of an 857,700 tonne tariff quota for tr aditional banana imports from ACP States is
inconsistent with the requirements of Article XIII :2(d) because the EC regime clearly does not aim at
a distribution of trade approaching as closely as possible the shares which various Members might beexpected to obtain in the absence of restrictions.
6.29 In light of the foregoing, and in light of the Appellate Body findings that the Lomé
waiver does not cover inconsistencies with Article XIII, we find that imports from different non-
substantial  supplier countries are not similarly restricted in the meaning of Article XIII:1 of
GATT.  Moreover, we find that the allocation of a collective tariff quota for traditional ACPStates does not approach as closely as possible the share which these countries might be
expected to obtain in the absen ce of the restrictions as required by the chapeau to Article XIII:2
of GATT.  Therefore, we find that the reservation of the quantity of 857,700 tonnes for
traditional ACP imports under the revised regime is inconsistent with paragraphs 1 and 2 of
Article XIII of GATT .
(c) The Requirements of the Appellate Body report in Bananas III
6.30 The European Communities recalls that the panel and the Appellate Body held in  Bananas III
that it is required by the Lomé Convention to provide duty-free access to traditional exports from
ACP suppliers in an amount of their pre-1991 best-ever exports (i.e. 857,700 tonnes) and that the
Appellate Body held that it could not assign country-specific allocations to those suppliersinconsistently with Article XIII.  It argues that in consequence the Appellate Body report in
Bananas III  requires it to provide a collective allocation of 857,700 tonnes to those suppliers.
6.31 We note, however, that the panel and Appellate Body reports made it clear that what was
required by the Lomé Convention was not necessarily covered by the Lomé waiver.  And, as the
Appellate Body found in Bananas III , the European Communities is not authorized by the Lomé
waiver to act inconsistently with its obligations under Article XIII.  The Appellate Body also upheld
the panel finding that the European Communities co uld not allocate country-specific shares to some
non-substantial suppliers (e.g. traditional and non-traditional ACP countries and BFA signatories)
unless country-specific allocations were also given to all non-substantial suppliers.
6.32 We stress that the foregoing analysis does not render the Lomé waiver meaningless (see
paragraphs sections D.4 and F below).  We have taken appropriate account of the EC's admonition
that we should not interpret Article XIII so as to reduce the Lomé waiver or Article I to inutility.  Norhave we added to or reduced the rights or obligations of Members contrary to Article 3.2 of the DSU.
2. Ecuador's Share of the MFN Tariff Quota
6.33 Article XIII:2(d) provides that if a Member decides to allocate a tariff quota it may seek
agreement on the allocation of shares in the quota with those Members having a substantial interest in
supplying the product concerned.  In the absence of such an agreement, the Member:WT/DS27/RW/ECU
Page 70
"shall allot to Members having a substantial interest in supplying the product shares
based upon the proportions, supplied by such Members during a previous
representative period , of the total quantity or value of imports of the product, due
account being taken of any special factors  which may have affected or may be
affecting the trade in the product" (emphasis added).
6.34 Ecuador challenges the EC's allocation of the MFN tariff quota to it on the grounds that its
share does not approximate the share that it might be expected to obtain in the absence of restrictions.
It also argues that given the history of trade-distortive EC banana measures, it is far from clear that
any country-share allocation system could be devised based on the idea of a representative period and
special factors that would meet the requirements of Article XIII:2 (see paragraphs 6.47-6.48).
6.35 The European Communities notes that it based its calculation of country allocations under the
MFN tariff quota of the revised regime on the three-year period from 1994 to 1996.  In the EC's view,
this was the most recent three-year period for which reliable data were available at the time.
(a) The Requirements of Article XIII
6.36 In considering Ecuador's claims regarding its tariff quota share under Article XIII, we recall
our findings in Bananas III :
"The wording of Article XIII is clear.  If quantitative restrictions are used (as an
exception to the general ban on this use in Arti cle XI), they are to be used in the least
trade-distorting manner possible.  In the terms of the general rule of the chapeau of
Article XIII:2:
'In applying import restrictions to any product, Members shall aim at a distribution of
trade in such product approaching as closely as possible the shares which the various
Members might be expected to obtain in the absence of such restrictions …'
In this case we are concerned with tariff quotas, which are permitted under GATT
rules, and not quantitative restrictions  per se .  However, Article XIII:5 makes it
clear, and the parties agree, that Article XIII applies to the administration of tariff
quotas.  In light of the terms of Article XIII,  it can be said that the object and purpose
of Article XIII is to minimize the impact of a quota or tariff quota regime on tradeflows by attempting to approximate under such measures the trade shares that would
have occurred in the absence of the regime."
187
6.37 We also noted the following:
"[I]n order to bring its banana import regulations into line with Article XIII, the
European Communities would have to take account of Article XIII:1 and XIII:2(d).In order to allocate country-specific tariff quota shares consistently with the
requirements of Article XIII, the European Communities would have to base such
shares on an appropriate previous representative period
375 and any special factors
would have to be applied on a non-discriminatory basis."
______________________________
375"In this regard, we note with approval the statement by the 1980 Chilean Apples
panel:
                                                     
187 Panel reports on Bananas III , paragraph 7.68.WT/DS27/RW/ECU
Page 71
'[I]n keeping with normal GATT practice the Panel considered it appropriate to use as
a 'representative period' a three-year period previous to 1979, the year in which the
EC measures were in effect.  Due to the existence of restrictions in 1976, the Panel
held that that year could not be considered as representative, and that the year
immediately preceding 1976 should be used instead.  The Panel thus chose the years
1975, 1977, 1978 as a 'representative period'.'
[Citation omitted.]  In the report of the 'Panel on Poultry' issued on
21 November 1963, GATT Doc. L/2088, paragraph 10, the panel stated: '[T]he shares
in the reference period of the various exporting countries in the Swiss market, which
was free and competitive, afforded a fair guide as to the proportion of the increased
German poultry consumption likely to be taken up by United States exports'.  See also
Panel report in 'Japan – Restrictions on Imports of Certain Agricultural Products,
paragraph 5.1.3.7 [citation omitted]'."
6.38 It is to accomplish the chapeau's requirement that a "Member shall aim at a distribution of
trade … approaching as closely as possible the shares which the various Members might be expected
to obtain in the absence of restrictions", that Article XIII:2(d) requires, as one alternative, the
allocation of shares on the basis of a previous representative period (adjusted for special factors if and
to the extent appropriate).
6.39 If data from a period are out of date or imports distorted because the relevant market is
restricted, then using that period as a representative period cannot achieve the aim of the chapeau.
Thus, under GATT practice it is necessary that the "previous representative period" for purposes of
Article XIII:2(d) be the most recent period not distorted by restrictions.  As noted above, the panel on
EEC - Restrictions on Imports of Apples from Chile188, dealt with the question whether import
restrictions reflected the proportion of imports to the European Communities "prevailing during a
previous representative period" in the context of Article XI:2(c).  That panel excluded the year 1976
from the most recent three-year period previous to 1979, the year when the EC restriction in dispute
was in effect, and chose 1978, 1977 and 1975 instead.  It held that 1976 could not be considered
representative due to the existence of restrictions during that year.
6.40 The panel on Japan - Restrictions of Imports of Certain Agricultural Products189 addressed
the question of the absence of a "previous representati ve period" in the context of Article XI:2(c).  It
noted that:
"… in the case before it the import restrictions maintained by Japan had been in place
for decades and there was, therefore, no previous period free of restrictions in whichthe shares of imports and domestic supplies could reasonably be assumed to resemble
those which would prevail today. … The Panel realized that a strict application of this
burden of proof rule had the consequence that Article XI:2(c) could in practice not be
invoked in cases in which restrictions had been maintained for such a long time that
the proportion between imports and domestic supplies that would prevail in the
absence of restrictions could no longer be determined on the basis of a previous
representative period. … The Panel considered for these reasons that the burden ofproviding evidence that all requirements of Article XI:2(c)(i), including the
proportionality requirement, had been met must remain fully with the contracting
party invoking that provision."
                                                     
188 Panel report on EEC - Restrictions on Imports of Apples from Chile , adopted on 10 November 1980,
BISD 27S/98, paragraph 4.8.
189 Panel report on Japan - Restrictions on Imports of Certain Agricultural Products , adopted on
22 March 1988, BISD 35S/163, paragraph 5.1.3.7.WT/DS27/RW/ECU
Page 72
6.41 We note that Article XI:2(c), which stipulates that quotas must be such as not to reduce the
total of imports relative to domestic production which might reasonably be expected to rule between
the two in the absence of restrictions, is an except ion from the prohibition of quantitative restriction in
Article XI:1.  Article XIII regulates the non-discriminatory administration of quantitative restrictions,
including, where applied, the allocation of shares among Members.  The determination of a previous
representative period under Article XIII raises similar problems as under Article XI:2.  Thus we deemthe above considerations pertinent to the case before us.  The effect of a lack of a representative
period under Article X III is much less far-r eaching than the lack of such a period under
Article XI:2(c).  In the Japan – Restrictions  case, the lack of a suitable previous representative period
precluded the use of the Article XI:2(c) exception.  Under Article XIII, the lack of a suitable previous
representative period would only preclude allocation of a tariff quota unilaterally.  It would not
preclude the use of a global tariff quota nor of country-specific allocations by agreement.
(b) The Representative Period
6.42 With regard to the selection of a "previous representative period" for applying the tariff-quota
regime for imports of bananas to the European Communities, we recall that prior to 1993, EC member
States applied different national import regimes.  Some member States applied import restrictions or
prohibitions, while imports to other member States were subject to a tariff-only regime or could enter
duty-free.
190  Thus, that period could not serve as a previous representative period (see
paragraph 6.37).
6.43 With the introduction of the common market organization for bananas in mid-1993, we note
traditional ACP supplier countries were guaranteed country-specific allocations at pre-1991 best-ever
import levels, which were far beyond their actual trade performance in the recent past.  As of 1995,
the Banana Framework Agreement (BFA) alloca ted shares of the 2,200,000 tonne tariff quota
established by Regulation 404/93 to the substantial suppliers Colombia and Costa Rica.  Given the
distortions in the EC market prior to the BFA, the shares assigned to Colombia and Costa Rica could
not have been based on a previous representa tive period.  Moreover, the BFA contained WTO-
inconsistent rules concerning the export certificate requirements and re-allocations of unused portions
of country-specific allocations exclusively among BFA signatories, which further aggravated suchdistortions.  The shares of non-traditional ACP supplier countries were also distorted because of the
country-specific allocations within the quantity of 90,000 tonnes that were reserved for non-traditional
ACP suppliers.
6.44 It could be argued that within the "other" category of the 2,200,000 tonne tariff quota
(autonomously enlarged by 353,000 tonnes as of 1995 for the EC-15), Ecuador, Panama and the non-substantial third-country suppliers without allocated shares were competing on a relatively undistorted
basis during the period when the previous regime was in force (although less so after the BFA entered
into force).  However, given that, for purposes of applying the requirements of Article XIII, it does
not matter whether imports from some supplier countries were relatively less distorted than others
since distortions with respect to one (group of) supplier countries will have repercussions on the
import performance of other substantial or non-substantial supplier countries within a single-product
market.
6.45 Accordingly, in our view, the 1994-1996 period co uld not serve as a previous representative
period because of the presence in the market of the foregoing distortions.
6.46 We also note that the world market excludin g the European Communities is of limited value
for purposes of calculating country shares based on a previous representative period because different
                                                     
190 For a description of the market, see panel report on EEC – Member States' Import Regime for
Bananas , issued on 3 June 1993 (not adopted), GATT Doc. DS32/R, pages 3-7.WT/DS27/RW/ECU
Page 73
banana-exporting countries have quite different market shares in different regions of the world.  For
example, Ecuador's world market share has increased from 26 to 36 per cent during the last decade
and thus is significantly higher than its country allocation under the EC revised regime.191  Panama
had a world market share of approximately 2-3 per cent of the market outside the European
Communities during the past decade which is much lower than its country allocation under the revised
regime.  The Philippines had a share of approximately 13-14 per cent of that market outside theEuropean Communities during the past decade, but it does not export significant quantities to Europe.
Thus, data on world-market shares of various supplier countries during any past period (regardless of
whether such data includes or excludes exports to the European Communities) could hardly be
relevant for purposes of calculating country shares based on imports to the European Communities
reflecting a previous representative period.  Because different banana-exporting countries have quite
different market shares in different regions of the world, it would also be difficult, if not impossible,
to use a regional or specific country market as a basis for allocating tariff quota shares.
(c) Special Factors
6.47 Ecuador suggests that the European Communities could comply with Article X III by basing
its system on the 1995-1997 period, with adjustments both for the need to cure the distortions that
existed in the EC market and the changes in relative economic efficiency and competitiveness.
6.48 However, the European Communities did not use special factors to adjust the country-specific
tariff quota share allocated to substantial suppliers under its new banana regime.  While in theory
special factors could be used to adjust shares based on a previous unrepresentative period so as to
meet the requirements of the chapeau to Article XIII:2, at least in the present case it would be difficult
to do so in practice.  We recall that, according to the Notes  Ad Article XIII:4 and Article XI:2 of
GATT, "the term 'special factors' includes changes in the relative productive efficiency as betweendomestic and foreign producers, or as between different foreign producers, but not changes artificially
brought about by means not permitted under the Agreement."  We note that in the past, GATT dispute
settlement panels have appraised the consideration of special factors, such as "an overall trend
towards an increase in Chile's relative productive efficiency and export capacity … [as well as] the
temporary reduction of export capacity caused by [an] earthquake".
192  In our view, however, it would
be inconsistent with paragraphs 2(d) and 4 of Article XIII to take account of special factors with
respect to only one Member (see paragraph 6.37).
(d) Ecuador's Country-Specific Tariff-Quota Share
6.49 The reliance by the European Communities on a previous unrepresentative period, and
without adjustment for special factors, would su ggest that Ecuador's country-specific tariff-quota
share does not approach the share that it might be expected to obtain in the absence of restrictions, as
required by the chapeau to Article XIII:2.  This is  confirmed by the significant growth over the past
decade in Ecuador's share of the EC193 and world194 markets.  This growth indicates that Ecuador's
country-specific tariff-quota share is less than it should be under the rules of Article XIII:2.
                                                     
191 Ecuador's world market share outside the European Communities in different three-year periods
were approximately as follows:  1988-1990: 25 per cent;  1990-1992: 28 per cent;  1993-1995: 30 per cent;
1994-1996: 32 per cent;  1995-1997: 36 per cent.
192 Panel report on EEC - Restrictions on Imports of Apples from Chile , adopted on 10 November 1980,
BISD 27S/98, paragraph 4.17;  panel report on United States - Imports of Sugar from Nicaragua , adopted on
13 March 1984, BISD 31S/67, paragraph 4.3;  panel report on  EEC - Restrictions on Imports of Apples from
Chile , adopted on 22 June 1989, BISD 36S/93, paragraph 12.24.
193 Annex II.
194 Annex II.WT/DS27/RW/ECU
Page 74
6.50 While Members have a degree of discretion in choosing a previous representative
period, it is clear in this ca se that the period 1994-1996 is not a "representative period".
Accordingly, we find that the country-specif ic allocations assigned by the European
Communities to Ecuador as well as to the other substantial suppliers are not consistent with the
requirements of Article XIII:2.
D. ARTICLE I OF GATT 1994
6.51 Ecuador raises several claims under Article I.  In respect of the preferential tariff of zero for
the traditional imports from ACP States, Ecuador claims that the level of 857,700 tonnes exceeds
what is required by the Lomé Convention and that the excess is therefore not covered by the Lomé
waiver.  Similarly, it claims that the collective allocation of 857,700 tonnes to the 12 traditional ACP
States (as opposed to country-specific allocations) is not required by the Lomé Convention and
therefore not covered by the Lomé waiver.  Ecuador also challenges (i) the unlimited access to the
"other" category of the MFN tariff quota at a zero-tariff level of non-traditional ACP imports and (ii)the tariff preference of 200 Euro per tonne for out-of-quota imports of ACP origin.  In the previous
EC regime, there was a 90,000 tonne limit on duty-free imports of non-traditional ACP bananas and
the tariff preference for out-of-quota imports of ACP origin was 100 Euro per tonne.
6.52 The European Communities argues that these various provisions for ACP bananas are
required by the Lomé Convention and are therefore covered by the Lomé waiver.  It argues, inparticular, that it was necessary to change the form of its preferential treatment of ACP imports to
offset the limitations on such treatment imposed  by the panel and Appellate Body reports in
Bananas III .
1. The Lomé Waiver
6.53 In addressing Ecuador's claims under Article I:1, it is necessary to consider the scope of the
Lomé waiver.  In this regard, we recall that the operative paragraph of the Lomé waiver provides as
follows:
"Subject to the terms and conditions set out thereunder, the provisions of paragraph 1
of Article I of the General Agreement shall be waived, until 29 February 2000, to the
extent necessary  to permit the European Communities to provide preferential
treatment  for products originating in ACP States as required by the relevant
provisions  of the Fourth Lomé Convention, …"
195
6.54 In considering the scope of the Lomé waiver in Bananas III , both the panel and the Appellate
Body applied a two-stage analysis:  first, consid eration was given to the requirements of the Lomé
Convention since only preferential treatment requi red by the Lomé Convention is covered by the
waiver;  second, the scope of the Lomé waiver was considered.  This second question is of limited
relevance in this case as the Appellate Body made clear in the previous case that the Lomé waiver
permits inconsistencies only with Article I:1.
2. The Requirements of the Lomé Convention
6.55 In considering the requirements of the Lomé Convention, the relevant provisions of the
Convention are Article 183 and Protocol 5 thereto, on the one hand, and Article 168, on the other.
6.56 Article 183 of the Lomé Convention deals specifically with bananas and provides:
                                                     
195 WT/L/186.WT/DS27/RW/ECU
Page 75
"In order to permit the improvement of the conditions under which bananas
originating in the ACP States are produced and marketed, the Contracting Parties
hereby agree to the objectives set out in Protocol 5."
Protocol 5 in turn provides:
"In respect of its banana exports to the Community markets, no ACP State  shall be
placed as regards access to its traditional markets  and its advantages on those
markets , in a less favourable situation than in the past  or at present ."
We recall that Article 183 and Protocol 5 were interpreted by the panel and the Appellate Body in the
original dispute as applying only to traditional  ACP banana imports.
6.57 Article 168 of the Lomé Convention deals more generally with preferences for ACP States.  It
provides as follows:
"(1) Products originating in the ACP States shall be imported into the Community
free of customs duties and charges having equivalent effect.
(2)(a) Products originating in the ACP States:
- listed in Annex II to the Treaty where they come under a common
organization of the market within the meaning of Article 40 of theTreaty, or
- subject, on import into the Community, to specific rules introduced
as a result of the implementation of the common agricultural policy,
shall be imported into the Community, notwithstanding the general arrangements
applied in respect of third countries, in accordance with the following provisions:
(i) those products shall be imported free of customs duties for which
Community provisions in force at the time of import do not provide,
apart from customs duties, for the application of any measure relating
to their import;
(ii) for products other than those referred to under (i), the Community
shall take the necessary measures to ensure more favourable
treatment  than that granted to third countries benefitting from the
most-favoured-nation clause for the same products."
We note that the preferential treatment foreseen by Article 168(2)(a)(ii) is not limited to traditional
ACP exports to the European Communities; it covers any imports from ACP sources of productswhich are subject to a common market organiza tion in the European Communities, i.e. also non-
traditional  ACP exports to the European Communities.
6.58 Given the factual circumstances under the previous regime, the Appellate Body summarized
the preferential treatment required by the relevant provisions of the Lomé Convention - in keeping
with the limits of its terms of reference in the original dispute - as follows:
"Thus, of the relevant provisions of the measures at issue in this appeal, we conclude
that the European Communities is "required " under the relevant provisions of the
Lomé Convention to:  provide duty-free access for all traditional ACP bananas;WT/DS27/RW/ECU
Page 76
provide duty-free access for 90,000 tonnes of non-traditional ACP bananas;  provide
a margin of tariff preferences in the amount of 100 ECU/tonne for all other non-
traditional ACP bananas;  and allocate tariff quota shares to the traditional ACP
States that supplied bananas to the European Communities before 1991 in the amount
of their pre-1991 best-ever export volumes.  We conclude also that the European
Communities is not "required"  under the relevant provisions of the Lomé Convention
to:  allocate tariff quota shares to some traditional ACP States in excess of their pre-
1991 best-ever export volumes;  allocate tariff quota shares to ACP States exporting
non-traditional ACP bananas;  or maintain the import licensing procedures that are
applied to third country and non-traditional ACP bananas.  We therefore uphold the
findings of the Panel in paragraphs 7.103, 7.204 and 7.136 of the Panel Reports." 196
6.59 In light of these Appellate Body findings in the original dispute, we will discuss in turn which
elements of the revised EC regime are " required " by the Lomé Convention in respect of (i) traditional
ACP imports and (ii) non-traditional ACP imports.
3. Preferences for Traditional ACP Imports
6.60 Ecuador claims that (i) the  preferential tariff of zero on 857,700 tonnes of traditional ACP
imports exceeds the volume on which such a preference is required by the Lomé Convention and (ii)
the collective allocation of that volume to 12 AC P States is not required by the Lomé Convention.
(a) The Level of 857,700 Tonnes and Pre-1991 Best-Ever Export Volumes
6.61 In considering Ecuador's challenge to the level of 857,700 tonnes, we recall the statement by
the Appellate Body quoted above that the Lomé Convention requires the European Communities to
"allocate tariff quota shares to the traditional ACP States that supplied bananas to the European
Communities before 1991 in the amount of their pre-1991 best-ever export volumes".  In reaching thisconclusion it referred to the requirement of Protocol 5 that "no ACP State shall be placed as regards
access to its traditional markets and its advantages on those markets, in a less favourable situation
than in the past or at present".  Thus, the question arises which quantities reflect the pre-1991 best-
ever exports by traditional ACP suppliers, individually and collectively.
6.62 As defended by the European Communities before the original panel and the Appellate Body,
the level of 857,700 tonnes included allocations to Belize, Cameroon, Cote d'Ivoire and Jamaica in
excess of their pre-1991 best-ever exports to the European Communities.  These allocations were
defended by the European Communities on the grounds that they took account of investments made in
those countries which would subsequently expand their export capacities.  We recall that the
Appellate Body concluded that, inter alia , the European Communities is not "required" under the
relevant provisions of the Lomé Convention to allocate tariff quota shares to traditional ACP States in
excess of their pre-1991 best-ever export volumes to reflect such investments.
197
6.63  In its submissions to this Panel, the European Communities argues that the total pre-1991
best-ever ACP exports to the European Communities in fact amounted to 952,939 tonnes.  It states
that the conclusion of the panel and Appellate Bo dy reports that the Lomé Convention requires the
European Communities to give duty-free treatment to pre-1991 best-ever ACP exports caused it to re-
examine its calculation of the pre-1991 ACP banana export data.  It appears that the increase in thetotal of pre-1991 best-ever exports is due mainly to the addition of an amount of approximately
100,000 tonnes to the totals of Jamaica and Somalia, based on 1965 exports.  We note that at least
some of the data on which the European Communities now bases its calculations of pre-1991 best-
                                                     
196 Appellate Body report on Bananas III , paragraph 178.
197 Appellate Body report on Bananas III , paragraph 175.WT/DS27/RW/ECU
Page 77
ever exports was put forward by certain ACP States in the Bananas III  dispute, but at that time not
endorsed by the European Communities.  While the European Communities has refrained from
increasing the 857,700 tonne quantity reserved for tr aditional ACP imports, it argues that this amount
can now be justified without reference to any amounts taking account of investments.
6.64 In the original panel report, we chose not to fix a starting date for consideration of pre-1991
best-ever exports by ACP States.  We continue to ta ke that position.  In our view, there is no textual
basis in the Lomé Convention for holding that only  pre-1991 best-ever exports since a specific cut-off
date should be taken into consideration for that calculation.  While it is true that the first Lomé
Convention entered into force in 1975, Protocol 5 does not set a limit on its reference to "the past".
6.65 Accordingly, we find that on the basis of  the data now offered by the European
Communities, it is not unreasonable for the European Communities to conclude that the level of
857,700 tonnes for duty-free traditional ACP exports can be considered to be required by the
Lomé Convention because it appears to be based on pre-1991 best-ever exports and not onallowances for investments.
(b) Collective Allocation to Traditional ACP States
6.66 Ecuador's argument that the allocation by the European Communities of a collective share of
857,700 tonnes, accessible by all, to 12 traditional ACP States is not required by the Lomé
Convention and, as such, is not covered by the Lomé waiver.  Consequently, Ecuador argues that thepreferential tariff of zero assigned to that volume of imports is inconsistent with Article I:1.  The
European Communities defends this collective allocation by reference to the Appellate Body's
decision, based on Protocol 5 to the Lomé Convention, that it is required to give zero-tariff treatment
to pre-1991 best-ever ACP exports and that it cannot allocate country-specific shares.
6.67 In considering this claim, we note that the Appellate Body explicitly concluded that the
European Communities is required under the Lomé Convention to "allocate tariff quota  shares  to the
traditional ACP States  that supplied bananas to the European Communities before 1991 in the amount
of their pre-1991 best-ever export volumes ".
198 (emphasis added).  In our view, the Appellate Body's
choice of the plural in this sentence indicates that the requirements of the Lomé Convention refer to
country-specific pre-1991 best-ever volumes.  To put it differently, Protocol 5 to the LoméConvention does not "require" the European Communities to allow certain traditional ACP suppliers
to exceed their individual pre-1991 best-ever import quantity within the "collective" allocation of
857,700 tonnes reserved for all traditional ACP suppliers under the revised regime.
6.68 In our view, it is evident that the existence of a "collective" reservation of 857,700 tonnes
entails the possibility that individual - more compe titive - traditional ACP suppliers will exceed their
individual pre-1991 best-ever import quantities at the expense of other - less competitive - traditional
ACP suppliers.  Such de facto  reallocation to the benefit of more competitive traditional ACP
suppliers within the collective allocation for tr aditional ACP suppliers would mean that those
suppliers would obtain a preferential tariff of zero for volumes beyond those required by Protocol 5 of
the Lomé Convention.  Absent any other applicab le requirement of the Lomé Convention, those
excess volumes would not be covered by the Lomé waiver and the preferential tariff thereon would
therefore be inconsistent with Article I:1.  In this regard, we note the similarity between thisconclusion and the Appellate Body's conclusion that the European Communities was not required to
allocate country-specific shares in respect of non-traditional ACP bananas.
6.69 Accordingly, we find that it is not reas onable for the European Communities to
conclude that Protocol 5 of the Lomé Convention  requires a collective allocation for traditional
                                                     
198 Appellate Body report on Bananas III , paragraph 178.WT/DS27/RW/ECU
Page 78
ACP suppliers.  Therefore, duty-free treatment of imports in excess of an individual ACP
State's pre-1991 best-ever export volumes is not required by Protocol 5 of the Lomé Convention.
Absent any other applicable requirement of th e Lomé Convention, those excess volumes are not
covered by the Lomé waiver and the preferential tariff thereon is therefore inconsistent with
Article I:1.
4. Preferential Tariffs for Non-Traditional ACP Banana Imports
6.70 Ecuador claims that the unlimited preferential tariff of zero for non-traditional ACP banana
imports within the "other" category of the MFN tariff quota and the tariff preference of 200 Euro per
tonne for all other ACP banana imports are not required by Article 168(2)(a)(ii) of the Lomé
Convention and therefore are preferential tariffs in consistent with Article I:1 of GATT that are not
covered by the Lomé waiver.
6.71 In this regard, we recall the Appellate Body's findings in Bananas III :
"[T]he obligation imposed on the European Communities by Article 168(2)(a)(ii) to
'take the necessary measures to ensure more favourable treatment' for all ACP
bananas 'than that granted to third countries benefiting from the MFN clause for the
same product' does apply.  … Both the duty-free access afforded to the 90,000 tonnes
of non-traditional ACP bananas, imported in-quota, and the margin of tariff
preference in the amount of 100 ECU/tonne afforded to all other non-traditional ACPbananas by the European Communities are clearly 'more favourable treatment' than
that afforded by the European Communities to bananas from third countries
benefiting from MFN treatment.  Therefore the remaining issue under
Article 168(2)(a)(ii) is whether the particular measures chosen by the European
Communities to fulfil the obligations in that Article to provide 'more favourabletreatment' to non-traditional ACP bananas are also in fact 'necessary' measures, as
specified in that Article.  In our view, they are.  Article 168(2)(a)(ii) does not say that
only one kind of measure is 'necessary'.  Likewise, that Article does not say what  kind
of measure is 'necessary'.  Conceivably, the European Communities might have
chosen some other 'more favourable treatment' in the form of a tariff preference fornon-traditional ACP bananas.  But it seems to us that this particular measure can, in
the overall context of the transition from individual national markets to a single
Community-wide market for bananas, be deemed to be 'necessary'. … ".
199
(a) The Preferential Tariff of Zero for Non-Traditional ACP Bananas
6.72 We recall that under the previous regime the preferential tariff of zero for non-traditional
ACP bananas was limited to 90,000 tonnes of non- traditional ACP imports, with specific-country
allocations to Belize, Cameroon, Cote d'Ivoire and the Dominican Republic.  We note that under the
revised regime the limitation of 90,000 tonnes was ab olished in light of the Appellate Body finding
that the European Communities is not required under the Lomé Convention to allocate tariff quota
shares to ACP States exporting non-traditional ACP bananas.
6.73 The European Communities (and the ACP States) submit that the abolition of the allocations
of overall 90,000 tonnes removes the protection that non-traditional ACP bananas enjoyed fromcompetition by third-country, e.g. Latin American bananas.  In that sense the preferential tariff of zero
per se  is insufficient to prevent non-traditional ACP imports from being displaced from the EC market
by imports from Latin America.
                                                     
199Appellate Body report on Bananas III , paragraph 173.WT/DS27/RW/ECU
Page 79
6.74 Ecuador, however, argues that the abolition of the 90,000 tonnes limitation enables non-
traditional ACP imports to compete with imports from Latin America based on a preferential tariff of
zero within the entire "other" category of 240,748 tonnes under the MFN tariff quota.  In this sense,
the preferential tariff of zero for non-traditional ACP bananas has been extended potentially up to
240,748 tonnes.
6.75 We recall that the obligation, contained in Article 168 of the Lomé Convention, to ensure
duty-free or at least more favourable than most-favoured-nation treatment for products of ACP origin
is in theory unlimited.  As the Appellate Body put it, "Article 168(2)(a)(ii) does not say that only  one
kind of measure is 'necessary'.  Likewise, that Article does not say what  kind of measure is
'necessary'.  Conceivably, the European Communities might have chosen some other 'more favourable
treatment' in the form of a preferential tariff for non-traditional ACP bananas."200
6.76 Moreover, given the competitive conditions between ACP bananas and third-country bananas
on the world market, we believe that the country-specific allocations in aggregate of 90,000 tonnes fornon-traditional ACP imports free of in-quota tariffs was in overall terms an advantage in the sense of
a protection from third-country competition rather than a limitation on exports to the European
Communities which would otherwise have expanded.
6.77 While the reference by the Appellate Body to the possibility for the European Communities to
have chosen "other" forms of preference does not necessarily imply that the European Communities isfree at any time to expand significantly the scope of ACP preferences covered by the Lomé waiver,
the statement by the Appellate Body suggests to us that the European Communities has some
discretion as to what kind of preference it affords to the ACP States so as to offset the elimination of a
preference that it cannot provide under WTO rules.
6.78 In light of these considerations, we find that it is not unreasonable for the European
Communities to conclude that non-traditional ACP imports at zero tariff within the "other"
category of the MFN tariff quota is required by Article 168 of the Lomé Convention.  Therefore,
we find that the violation of Article I:1, as alleged by Ecuador, is waived by the Lomé waiver .
(b) The Tariff Preference of 200 Euro per tonne for Non-Traditional ACP Bananas
6.79 We next address the issue whether the increase of the tariff preference for all other non-
traditional ACP imports from 100 to 200 Euro per tonne is required by the Lomé Convention.  Again,
we recall that the scope of the obligations of Article 168 to provide duty-free or more favourable
treatment to ACP is not limited to preferences enjoyed in the past before a given point in time.  We
also believe that the increase of the out-of-quota preferential tariff under the revised regime could
constitute some other "more favourable treatment" in the form of a preferential tariff for non-traditional ACP bananas that the Appellate Body could conceive of in the original dispute and that the
European Communities might have chosen to accord to non-traditional ACP suppliers with a view to
offsetting the effect of the abolition of the allocation for these non-traditional ACP suppliers of
90,000 tonnes within the MFN tariff quota.
6.80 Therefore, we find that it is not unreasonable for the European Communities to
conclude that including the tariff preference of 200 Euro per tonne for out-of-quota imports of
non-traditional ACP bananas is within the scope of what the European Communities isrequired to accord to non-traditional ACP supplies by virtue of the Lomé Convention.
Therefore, we find that the violation of Article I:1, as alleged by Ecuador, is covered by the
Lomé waiver .
                                                     
200Appellate Body report on Bananas III , paragraph 173.WT/DS27/RW/ECU
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E. GATS I SSUES
6.81 Ecuador claims that Regulations 1637/98 and 2362/98 are inconsistent with the EC's
obligations under Articles II and XVII of GATS.  More specifically, Ecuador alleges that (i) the
criteria for qualifying as "traditional operator" based on the payment of customs duties, (ii) the choice
of the period from 1994 to 1996 for the calculation of reference quantities for the allocation of
licences, and (iii) the so-called "single pot" appr oach for issuing licences under the revised licensing
procedures perpetuate the violations of Articl es II and XVII of GATS (i.e. GATS' most-favoured
nation and national treatment clauses) found by the original panel and the Appellate Body in
Bananas III .  Furthermore, Ecuador alleges that the (i) enlargement of the licence quantity reserved
for "newcomers" to 8 per cent and (ii) the criteri a for acquiring "newcomer" status under the revised
licensing procedures violate Article XVII of GATS.
1. The Scope of the EC's Commitments on "Wholesale Trade Services"
6.82 The European Communities raises one prelim inary issue in respect of Ecuador's GATS
claims.  It contends that the revision of the UN Central Product Classification system affects the
interpretation of the scope of its market access and national treatment commitments on "wholesale
trade services" which the European Communities has bound in its GATS Schedule.
6.83 The European Communities submits that the Provisional CPC has been replaced in the
meantime by the Central Product Classification (CPC) - Version 1.0 ("Revised CPC"), and that theRevised CPC seeks to create a system of service categories that are both exhaustive and mutually
exclusive.  Therefore, in the EC's view, any services related to wholesale trade transactions which at
the same time fall into another CPC category should be assessed on the basis of this new reality, i.e.
should not be considered to be covered by the EC's commitments on "wholesale trade services".
201
The EC adds that the specific commitments bound in its GATS Schedule are still valid.
6.84 Ecuador contends that the scope of the EC's specific commitments under the GATS, which
were bound in the EC GATS Schedule, cannot be affected by the subsequent modification of the
Central Product Classification by the UN.  Consequently, it is still the Provisional CPC that matters
for purposes of interpreting the scope of the EC's commitments on "wholesale trade services".
6.85 We note that the specific commitments bound by the European Communities in its GATS
Schedule with respect to the service sectors202 or sub-sectors at issue in the original case were
categorized according to the Services Sectoral Classification List which refers to the more detailed
Provisional CPC.
6.86 We also recall that in Bananas III , the parties disagreed as to whether the panel's terms of
reference comprised the narrower sub-sector of "wholesale trade services", or encompassed thebroader sector of "distributive trade services" as described in a headnote to section 6 of the provisional
CPC.  The panel and Appellate Body findings in Bananas III  were limited to service supply in the
sub-sector of "wholesale trade services".  The relevant definition of the Provisional CPC for
"wholesale trade services " reads:
                                                     
201 The European Communities notes that, according to the "Correspondence Tables between the CPC
Version 1.0 and Provisional CPC", item 62221 "Wholesale trade services of fruit and vegetables" corresponds in
the CPC Version 1.0 to 61121 "Wholesale trade services, except on a fee and contract basis, fruit andvegetables."
202 Article XXVIII (e) of GATS:  "'sector' of a service means,
(i) with reference to a specific commitment, one or more, or all, subsectors of that
service, as specified in a Member's Schedule,
(ii) otherwise, the whole of that service sector, including all of its subsectors;"WT/DS27/RW/ECU
Page 81
"Specialized wholesale services of fresh, dried, frozen or canned fruits and vegetables
(Goods classified in CPC 012, 013, 213, 215)"
The description for " distributive trade services ", in turn, provides:
"Distributive trade services consisting in selling merchandise to retailers, to
industrial, commercial, institutional or other professional business users, or to otherwholesalers, or acting as agent or broker (wholesaling services) or selling
merchandise for personal or household cons umption including services incidental to
the sale of the goods (retailing services).  The principal services rendered by
wholesalers and retailers may be characterized as reselling merchandise,accompanied by a variety of related, subordinated services, such as:  maintaining
inventories of goods, physically assembling, sorting and grading goods in large lots;
breaking bulk and redistribution in smaller lots; delivery services; refrigerationservices; sales promotion services rendered by wholesalers …"
6.87 We recall that with respect to both wholesale and distributive trade services, the European
Communities had bound specific commitments on liberalization of market access and national
treatment without specific conditions or limitations, and without scheduling any MFN exemptions.
The original panel limited its findings to the narrower sub-sector of "wholesale trade services".
6.88 It is not entirely clear to us in which way, in the EC's view, the new categorization of service
sectors according to the Revised CPC should affect the classification of service sectors on the basis of
which the European Communities bound its specific commitments on market access and national
treatment in its GATS Schedule.  Therefore, it is not clear how the principle of the mutually exclusive
categorization of service sectors could affect the reach of the EC's "wholesale trade services"commitments to those service transactions that do not fall into any other category of the Revised CPC.
In any event, we do not see how the revision of the CPC could retroactively change the specific
commitments listed and bound in the EC GATS Schedule on the basis of the Provisional CPC.
Indeed, at the hearing, the EC stated that such a change in the EC's specific commitments bound in its
GATS Schedule could only be made consistently wi th the requirements of Article XXI of GATS on
the "Modification of Schedules".
6.89 In our view, what matters for purposes of inte rpreting the scope of the EC's commitments on
"wholesale trade services" is that, according to the Provisional CPC descriptions quoted above, the
principal  services rendered by wholesalers  relate to reselling merchandise, accompanied by a variety
of related, subordinated  services, such as, maintaining inventories of goods; physically assembling,
sorting and grading goods in large lots; breaking bulk and redistribution to smaller lots; delivery
services; refrigeration services; sales promotion services.
6.90 In light of these considerations, we find that it is this range of  principal  and subordinated
"wholesale trade services" with respect to which the European Communities has committed
itself to accord no less favourable treatment in the meaning of Articles II and XVII of GATS to
services and service suppliers of other Members.
2. Licence Allocation Procedures
6.91 Ecuador claims that the revised EC licensing regime is inconsistent with Articles II and XVII
of GATS because it perpetuates or carries on the discriminatory elements of the previous licensing
system in that licences are allocated to those who used licences to import, and paid customs duties on,
bananas during the 1994-1996 period.  Moreover, it claims that the new, so-called "single pot"
licensing allocation rules, under which, inter alia , past importers of ACP bananas may apply forWT/DS27/RW/ECU
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import licences to import Ecuadorian and other non-ACP bananas on the basis of reference quantities
derived from their ACP banana imports, exacerbates the discriminatory elements of the past regime.203
6.92 The EC contends that it has abolished the previous licensing system including operator
categories, activity functions, export certificates and hurricane licences.  The new criterion for the
allocation of licences to "traditional operators", i.e. proof of payment of customs duties, eliminates
any "carry-on effects" from the previous to the revi sed licence allocation system and ensures that "true
and real" importers in the past obtain licence entitlements for the future.
(a) Articles II and XVII of GATS
6.93 Before addressing Ecuador's claims, we reca ll the relevant GATS provisions.  The most-
favoured-nation clause of GATS is Article II:1, which provides:
"With respect to any measure covered by this Agreement, each Member shall accord
immediately and unconditionally to services and service suppliers of any other Member
treatment no less favourable than that it accords to like services and service suppliers ofany other country."
204
Article XVII of GATS, its nationa l treatment clause, provides:
"1. In the sectors inscribed in its Sche dule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and service
suppliers of any other Member, in respect of all measures affecting the supply ofservices, treatment no less favourable  than that it accords to its own like services and
service suppliers.
2. A Member may meet the requirement of paragraph 1 by according to services and
service suppliers of any other Member, either formally identical treatment  or formally
different treatment  to that it accords to its own like services and service suppliers.
3. Formally identical or formally different treatment shall be considered to be less
favourable if it modifies the conditions of competition  in favour of services or service
suppliers of the Member compared to like se rvices or service suppliers of any other
Member" (emphasis added, footnote omitted).
6.94 The adjudication of claims under the national treatment and MFN clauses usually presupposes
a two-step examination.  For purposes of Article XVII, it is necessary to examine (i) whether the
domestic and foreign services or service suppliers at issue are "like" and (ii) whether services or
service suppliers of the complainant's origin are trea ted less favourably than those of domestic origin.
For purposes of Article II, it is necessary to examine (i) whether services or service suppliers
originating in different foreign countries are "like" and (ii) whether services or service suppliers of thecomplainant's origin are subject to less favourable treatment than those of other Members' origin.
6.95 In this context, we recall that issues such as the origin of services and service suppliers and
the "likeness" of services or service suppliers of the complainant's origin and of those of EC or other
third-country origin, as the case may be, were resolved in the original case and need not be addressed
                                                     
203 Ecuador refers in this regard to the reservation of 30 per cent of the licences required for in-quota
imports of third-country and non-traditional ACP bananas to Category B operators, the reservation of 28 percent of such import licences to ripeners under the activity function rules, and the allocation of hurricane licencesexclusively to certain Category B operators.
204 We note that MFN exemptions as foreseen in Article II:2 of GATS and the Annex on Article II
Exemptions were not relevant in the original dispute.WT/DS27/RW/ECU
Page 83
by this reconvened Panel.  We also note that the panel and the Appellate Body - albeit on different
legal grounds - found that the national treatment obligation as well as the MFN treatment obligation
under the GATS prohibit de iure  and de facto  discrimination.  For purposes of resolving the claims
before us, we need, therefore, not discuss whether the notion of de facto  discrimination under
Article II is similar to or narrower than the notion of de facto  discrimination under Article XVII, and
in particular under paragraphs 2 and 3 of that Article.  We only need to recall that the original panel,but also the Appellate Body found that Article II of GATS, too, covers de facto  discrimination:  "…
For these reasons we conclude that 'treatment no less favourable' in Article II:1 of the GATS should
be interpreted to include de facto  as well as de iure , discrimination …".
205  Therefore, we consider it
appropriate to examine jointly the question whether or not the revised licence allocation procedures
accord less favourable treatment in the meanings of Articles II and XVII of GATS to services or
service suppliers of Ecuador.
(b) The Findings in Bananas III  on Articles II and XVII of GATS
6.96 We recall our findings with respect to particular aspects of the licence allocation procedures
which applied under the previous regime to third-country and non-traditional ACP imports within the
tariff quota, to the extent they are relevant to the claims before this Panel, i.e.:
"… that the allocation to Category B operators of 30 per cent of the licences
allowing the importation of third-country  and non-traditional ACP bananas at in-
quota tariff rates created less favourable conditions of competition for like service
suppliers of Complainants' origin and was therefore inconsistent with the
requirements of Articles II and XVII of GATS."206
"… that the allocation to ripeners of 28 per cent of Category A and B licences
allowing the importation of third-country  and non-traditional ACP bananas at in-
quota tariff rates created less favourable conditions of competition for like service
suppliers of Complainants' origin and was therefore inconsistent with the
requirements of Article XVII of GATS."207
"… that the allocation of hurricane licences exclusively to operators who
included or directly represented EC (or ACP) producers created less favourableconditions of competition for like service suppliers of Complainants' origin and was
therefore inconsistent with the requirements of Article XVII (or II) of GATS."
208
These findings were upheld by the Appellate Body.
(c) The Revised EC Licensing Regime
6.97 Under the revised EC licensing regime, licences are allocated to importers on the basis of
their reference quantities.  These reference quantities are allocated to "traditional operators" (defined
below) to the extent that they are able to show that they actually imported bananas in the 1994-1996
period.  More particularly, Article 3 of Regulation 2362/98 provides:
"'[T]raditional operators'  shall mean economic agents established in the European
Community during the period for determin ing their reference quantity … who have
actually imported a minimum quantity of third-country and/or ACP-country bananas
                                                     
205 Appellate Body report on Bananas III , paragraph 234.
206 Panel reports on  Bananas III , paragraphs 7.341 and 7.353.
207 Panel reports on Bananas III , paragraph 7.368.
208 Panel reports on  Bananas III , paragraph 7.393 (and paragraph 7.397).WT/DS27/RW/ECU
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on their own account for subsequent marketing in the Community during a set
reference period.  The minimum quantity … shall be 100 tonnes imported in any one
year of the reference period … [or] … 20 tonnes where the imports entirely consist of
bananas with a length of 10 centimetres or less."
6.98 Article 5 of Regulation 2362/98 provides:
"3.  Actual import shall be attested by both of the following:(a)  by presenting copies of the import licences used  either by the holder  or, in the
case of a transfer … duly endorsed by the competent authorities, by the transferee , in
order to release the relevant quantities for free circulation;  and
(b)  by presenting proof of payment of the customs duties  due on the day on which
customs import formalities were completed.  The payment shall be made either
direct  to the competent authorities or via a customs agent  or representative .
Operators furnishing proof of payment of customs duties , either direct to the
competent authorities or via a customs agent or representative, for the release into
free circulation of a given quantity of bananas without being the holder or transferee
holder of the relevant import licence  … shall be deemed to have actually imported the
said quantity provided that they have been registered in a Member State under
Regulation No. 1442/93  and/or that they fulfil the requirements of this Regulation  for
registration as a traditional operator .  Customs agents or representatives may not call
for the application of this subparagraph."  (emphasis added).
6.99 Article 31 of Regulation 2362/98 repeals Regu lations 1442/93 and 478/95, which were the
basis of the previous licensing regime.  We note, however, that according to Article 5(3) of
Regulation 2362/98, operators that have been registered under Regulation 1442/93 may acquire thestatus of a "traditional operator" under the revised licensing procedures.
(d) The Requirements of Arti cles XVII and II of GATS
6.100  In analyzing the EC's revised licensing regime under Article XVII of GATS, we recall that we
noted in our decision in Bananas III  that:
"In order to establish a reach of the national treatment obligation of Article XVII,
three elements need to be demonstrated:  (i) the EC has undertaken a commitment in
a relevant sector and mode of supply;  (ii) the EC has adopted or applied a measure
affecting the supply of services in that sector and/or mode of supply;  and (iii) the
measure accords to service suppliers of any other Member treatment less favourable
than that it accords to the EC's own like service suppliers."
209
As to the first two issues, we found that they had been demonstrated in Bananas III  and they are not at
issue here.
6.101  In respect of the third issue, we noted that there were four preliminary issues to be considered.
Those were "(i) the definition of commercial presence and service suppliers;  (ii) whether operators in
the meaning of the EC banana regulations are service suppliers under GATS, (iii) the definition of
services covered by EC commitments;  and (iv) to  what extent services and service suppliers of
                                                     
209 Panel reports on Bananas III , paragraph 7.314.WT/DS27/RW/ECU
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different origin are like".210  These are not at issue in the present case, except for point (iii), which we
have dealt with above.
6.102  For an analysis of the EC revised licensing regime under Article II of GATS we also recall
our decision in Bananas III , where we stated:
"In addressing the claim under Article II, we note that two elements need to be
demonstrated in order to establish a violation of the GATS MFN clause:  (i) the EChas adopted or applied a measure covered by GATS;  (ii) the EC's measure accords to
service or service suppliers of Complainants' origin treatment less favourable than
that it accords to the like services or service suppliers of any other country."
211
6.103  As to the first element, we have already determ ined in the original dispute that the EC import
licensing procedures for bananas are measures affecting trade in services.212  We also recall our
discussion on the absence of MFN exemptions in the EC list of Article II exemptions which would be
relevant to the claims before us.213
6.104  We now have to ascertain, for purposes of Article XVII, whether, by applying its revised
licensing regime, the European Communities accords less favourable treatment to Ecuadorian services
and service suppliers than it accords to its own like service and service suppliers.  For purposes of
Article II, we also have to ascertain whether, under the revised regime, less favourable treatment is
being accorded to Ecuadorian services and service suppliers than to services and service suppliers ofother Members.  In this context, we recall our consideration above (see paragraph 6.95) that we deem
it appropriate to examine jointly whether the EC's revised regime accords less favourable treatment in
the meanings of both Article II and XVII to services or service suppliers of Ecuador.  The crucial
issue in respect of these claims against the EC's revised licensing procedures is whether the allocation
of licences based on the criterion of " actual payment " of customs duties by " traditional operators "
under the revised regime prolongs the allocation of licences on the basis of those aspects of the
previous licensing system which were f ound to be inconsistent with the GATS in  Bananas III .
6.105  In framing this issue for consideration, we do not imply that the European Communities is
under an obligation to remedy past discrimination.  Article 3.7 of the DSU provides that "… the first
objective of the dispute settlement is usually to secure the withdrawal of the measures concerned ifthese are found to be inconsistent with the provisions of any of the covered agreements."  This
principle requires compliance ex nunc  as of the expiry of the reasonable period of time for compliance
with the recommendations and rulings adopted by the DSB.  If we were to rule that the licence
allocation to service suppliers of third-country origin were to be "corrected" for the years 1994 to
1996, we would create a retroactive effect of remedies ex tunc .  However, in our view, what the EC is
required to ensure is to terminate discriminatory patterns of licence allocation with  prospective  effect
as of the beginning of the year 1999.
6.106  At the outset of our analysis, we note that Ecuador does not claim that the new EC regime is
de iure  discriminatory.  The issue, as in Bananas III , is whether it is de facto  discriminatory in a way
that is inconsistent with Articles XVII and II of GATS.  In this regard, we recall that, pursuant to
Article XVII:2, a Member may ensure no less favourable treatment for foreign services or service
suppliers by according formally identical treatment or  formally different treatment to that it accords to
its own like service suppliers.  Moreover, accord ing to Article XVII:3, formally identical treatment
may, nevertheless be considered to be less favourable treatment if it adversely modifies conditions of
                                                     
210 Panel reports on Bananas III , paragraph 7.317.
211 Panel reports on Bananas III , paragraph 7.344.
212 Panel reports on Bananas III , paragraph 7.277 et seq .
213 Panel reports on Bananas III , paragraph 7.298.WT/DS27/RW/ECU
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competition for services or service suppliers of other Members.  We also recall the panel and
Appellate Body findings in the original dispute that the MFN clause of GATS includes prohibitions of
both de iure  and de facto  discrimination.
(e) The Parties' Arguments
(i) Ecuador
6.107  Ecuador argues that the de facto  discrimination in the EC's previous licensing regime persists
because of the EC's choice of criteria for allocating licences.  By basing licence allocation on the
"actual importer" criterion, the European Communities ensures that the predominantly EC/ACP
services suppliers to whom Category B, ripener and hurricane licences were issued in the previous
regime will retain rights to most of those licences in the new regime.  Overall, Ecuador argues that
under the new regime, non-EC/ACP operators can be expected to receive only 44.6 per cent of the
licences they should receive. 214
6.108  Ecuador submits statistics on exports and licence allocations to individual companies under
the previous and under the revised regime.  In essence, these statistics show that Noboa, the principal
Ecuadorian service supplier, is able to claim reference quantities for licence allocations in 1999 of
approximately only half of its actual exports to the EC in the past.
6.109  Ecuador's position is that these statistics demonstrate that its wholesale service suppliers face
less favourable conditions of competition than EC /ACP suppliers because they cannot obtain licences
to import their bananas on terms as favourable as those EC/ACP suppliers who continue to benefit
under the revised regime from the carry-on of GATS-inconsistent licence allocation criteria under the
previous regime.  In particular, we note in this regard Ecuador's view that this is to be expected
because Ecuadorian service suppliers were forced to enter into unfavourable contractual arrangements
with initial licence holders under the previous regi me.  Under many of those arrangements, according
to Ecuador, original licence holders, whether or not they physically imported, may prove payment of
customs duties which makes them "actual importers" for purposes of licence allocations under the
revised regime.  Such contractual arrangements continue under the revised regime.  Therefore,
Ecuador alleges that its suppliers of wholesale services are subject to less favourable treatment than
suppliers of such services of EC/ACP origin.
(ii) European Communities
6.110  The European Communities argues at the outset that the facts on which the original panel had
based its conclusions had so changed by 1994-1996 that the panel would not have made the same
findings had it disposed of the 1994-1996 facts.
6.111  With respect to the major third-country operators (i.e. Chiquita, Dole, Del Monte and Noboa),
the European Communities contends that the allocations of licences for the importation of third-
country and non-traditional ACP bananas to these operators increased by 35 per cent between 1994
                                                     
214 In calculating estimates for third-country service suppliers in their entirety, Ecuador submits that
under the previous regime, Category A primary importers obtained 37.905 per cent of the reference quantitiesunder the previous regime (i.e. 57 per cent of 66.5 per cent).  With respect to customs clearers, Ecuador assumesthat two-thirds of the customs clearers were of non-ACP third-country origin, whereas one-third was of EC/ACPorigin.  Accordingly, 6.65 per cent of customs clearance reference quantities (i.e. 10 per cent of 66.5 per cent)went to third-country operators.  This results in an overall licence entitlement of 44.6 per cent of the quantities
physically imported for non-ACP third-country operators under the previous regime.WT/DS27/RW/ECU
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under the previous regime and 1999 under the revised regime.215  According to the European
Communities, this occurred because of two reasons:  investments and licence transfers.
6.112  First, there were investments by third-country  operators in EC/ACP operators. The European
Communities mention investments in Compagnie Fruitière and CDB/Durand by Dole and Chiquita,
respectively, and concludes that reference quantities based on EC/ACP operations for major third-
country operators doubled between 1993 and 1996.216  The European Communities further point out
that the original panel found that there was no de iure  discrimination, based on an operator's origin,
with respect to the access to the activity of ripening which entitled operators to licence allocations and
thus to reap quota rents under the previous regime.  However, the original panel had found that de
facto less favourable conditions of competition existed for third-country suppliers of wholesale
services because ripeners in the European Communities were predominantly EC owned or
controlled217 and thus licence allocations and quota rents accrued largely to service suppliers of EC
origin.  Before this Panel, the European Communities emphasizes that, based on 1994 to 1996statistics, three out of the four biggest ripeners are now non-EC owned and that these alone represent
around 20 per cent of the total ripening capacity of the European Communities.
6.113  The second reason why licence allocations to third-country operators have increased is that
there have been licence transfers under conditions that allow these operators to claim reference
quantities under the revised regime.  In the EC's view, this could explain why there has been a declinein the number of operators receiving licences.  According to the European Communities, under the
previous regime 1568 Category A and B operators were registered, whereas under the revised regime
the number of traditional operators has decreased to 629 operators.  For the European Communities,
this shows that the mainly EC-owned operators th at received licences in the past without being
engaged in actual importation were ipso facto  excluded from the allocation of licences by the
introduction of the revised regime, i.e. mainly ripeners and EC producer organizations.
6.114  In response to Ecuador's argument that the new regime carries forward the old regime's
allocation of licences in that the non-EC operators receive an amount of only 44.6 per cent of the
licences they should, the European Communities argues that the correct "base" figure is 50.35 per cent
if certain adjustments are made.
218  The European Communities then increases the "base" figure by
                                                     
215 The European Communities also submits that licence allocations to these major third-country
operators were as follows:  1994: 598,857;  1995: 651, 266;  1996: 726,782;  changes:  1994-1995: 8.8 per cent;
1995-1996: 11.6 per cent;  1994-1996: 21.4 per cent.
216 EC figures: 1989: 21,305 (reference quantities in tonnes); 1990: 30,514; 1991: 45,532; 1992:
72,592; 1993: 132,614; 1994: 267,511; 1995: 276, 804; 1996: 272,822.
217 In the original dispute, the panel drew this conclusion on the basis that the average estimated
volume ripened by EC-owned ripeners was, according to the complainants, 83.7 per cent of the overall ripeningvolume in the European Communities.  The European Communities stated that between 20 and 26 per cent ofthe ripening capacity in the European Communities were foreign-owned, i.e. mainly by Chiquita, Dole andDel Monte.  Panel reports on  Bananas III , footnote 514.
218 The EC accepts Ecuador's figures for primary importation and customs clearance, but recalculates
Ecuador's figures concerning the distribution of reference quantities for ripening activities as follows.  Forpurposes of breaking down ripening activities by third-country and EC/ACP origin, the ripening activities ofboth Category A and B operators were subdivided usin g a ratio of 78.5 per cent for EC/ACP operators and
21.5 per cent for non-ACP third-country operators.  This results for Category A operators in 4 per cent for third-
country operators and in 14.6 per cent for EC/ACP operators of the 18.6 per cent which represent the licence
allocation for Category A ripening activities (i.e. 28 per cent of 66.5 per cent).  For Category B operators thisresults in 1.8 per cent for third-country operators and in  6.6 per cent for EC/ACP operators of the 8.4 per cent
which represent the licence allocation for Category B ripening activities (i.e. 28 per cent of 30 per cent).Consequently, in calculating the total share of reference quantities for non-ACP third-country wholesalers, theEuropean Communities adds 4 per cent and 1.8 per cent for ripening activities effectuated by Category A and B
operators of non-ACP third-country origin to Ecuador's estimate of 37.9 and 6.65 per cent so that the overallWT/DS27/RW/ECU
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35 per cent (see paragraph 6.111) to conclude that non-EC operators are now getting some 68 per cent
of licence allocations.  Since 8 per cent of allocations go to newcomers, only 24 per cent go to
EC/ACP service suppliers.  The European Co mmunities suggests that the licences have been
legitimately allocated to EC/ACP service supplie rs under the revised regime since these operators
actually imported Latin American bananas under the previous regime.
6.115  The European Communities also makes three more  general arguments.  In the first instance,
the European Communities insists that GATS does not guarantee any particular market shares over
time, i.e. there are no provisions for grandfather rights.  Second, the European Communities argues
that it has a right to choose "actual imports" as a basis for licence allocation.  In particular, the
European Communities refers to Article 3.5(j) of the Import Licensing Agreement,219 pursuant to
which consideration should be given to "full utilisation of licenses" as a criterion for future
allocations.  In the EC's view, the only objective and indisputable way of proving the "effective"
importation is the payment of duties, either directly or through a customs agent on a fee or contractbasis, i.e. the system chosen by Regulation 2362/98.  Third, the European Communities argues that
the fact that Noboa exports to the European Communities more than it imports to the European
Communities means that it is primarily an exporter and not an importer and that the two businesses
are different.
(f) The Panel's Analysis of the Claim
6.116  In analyzing whether the new EC regime is de facto discriminatory, we will first consider the
three general EC arguments set out in the preceding paragraph and thereafter evaluate the evidence
presented by the parties on actual licence allocations and consider its relevance to Ecuador's claim.
We will then consider the regime's structure and the extent to which it is based on or related to the
previous regime found to be inconsiste nt with Articles XVII and II in Bananas III .
(i) General EC arguments
6.117  As to the EC argument that there are no grandfather rights in the GATS or guarantees of
market shares, we agree, but note that this does not rule out the possibility that de facto  less
favourable conditions of competition may be found and prolonged in violation of GATS rules.
6.118  As to the EC's claimed right to choose "actual imports" as a basis for licence allocation, here
again, we agree that the European Communities is not precluded from basing licence allocation on
past usage.  However, we note that the Import Licensing Agreement's provision that "consideration
should be given" to full utilisation of licences does not rule out the possibility that the choice of how
to assure that may be limited where de facto  discrimination has been found in the past, and where
reliance on licence usage may result in a prolongation of the results of a violation of GATS rules.  Theavailability of the past performance allocation method, which is an option and not required by the
Import Licensing Agreement, would not justify such a violation.  In other words, even if Members are
normally free to base licence allocation on past usage, that does not mean they are free to do so
without regard to their GATS obligations.  Moreover, we note that proof of payment of customs
duties, directly or through a representative or customs agent, does not necessarily prove licence usage
by a particular operator.
                                                                                                                                                                    
estimate for the share of licence entitlements of non- ACP third-country operators increases from Ecuador's
estimate of 44.6 per cent to the EC's estimate of 50.35 per cent.
219 Article 3.5(j) of the Agreement on Import Licensing Procedures provides that:  "… consideration
should be given as to whether licences issued to applican ts in the past have been fully utilised during a recent
representative period".WT/DS27/RW/ECU
Page 89
6.119  As to the EC's argument that Noboa is principally an exporter and not an importer, we note
that Noboa is an Ecuadorian service supplier commercially present in the European Communities that
provides wholesale services in respect of bananas.  Therefore, it is irrelevant for purposes of this case
whether Noboa is primarily an exporter or importe r.  In our view, what matters for purposes of
Articles XVII and II, is whether Noboa is adversely affected in its conditions of competition as a
wholesale service supplier under the revised regime because import licences are allocated based onthe 1994-1996 reference period when the GATS-inconsistent allocation criteria were in force.
(ii) Licence allocations under the revised regime
6.120  In examining the evidence on licence allocations under the revised regime, we note that we
based our original findings on the facts available at the time.  Our findings explicitly foresaw that one
of the effects of the previous regime would be to encourage service suppliers of non EC/ACP origin to
invest in EC/ACP banana production and marketin g and to acquire licences from EC/ACP service
suppliers.  Although these effects were anticipated, our findings were based on the fact that theprevious EC regime modified the conditions of co mpetition in violation of Articles XVII and II.
220
6.121  As to Noboa, we note that the parties generally agree on the evidence concerning the level of
Noboa's exports and licence allocations.  The European Communities challenges Ecuador's arguments
that its service suppliers had to enter into unfavourable contractual arrangements.  It notes, for
instance, that an example of such a contract cite d by Ecuador was a proposed contract, not an actual
one.  We are not generally persuaded by this EC argument, however, as there is evidence of such
arrangements even if the extent of their use is unclear.  The licence allocation data for 1999 support
Ecuador's claim that in general Noboa did not ob tain licences for imports in a manner that would
allow it to claim reference quantities under the revised regime for its export interest.
6.122  As to the evidence presented by the European Communities concerning the increase in licence
allocations to non-EC suppliers as a result of their investments in ACP operators, we note that there is
evidence from third parties that raises some questions as to whether at least one of these investments
was sufficient to make these firms non-EC controlled for purposes of GATS.221  According to
Cameroon and Côte d'Ivoire, 60 per cent of Compagnie Fruitière, the principal exporter in each
country, remains in the control of a French family.  In this regard, we recall that, according toArticle XXVIII(n) of GATS, a service supplier in the form of a legal person has the origin of a WTO
Member if it is owned by more than 50 per cent by natural or juridical persons of that Member, or if it
is controlled by those persons in the sense that they  have the power to name the majority of directors.
Moreover, in respect of investments in ripeners and licence transfers, we note that the EC's evidence
was not comprehensive, which means that we are not in a position to ascertain the extent to whichthese factors have led to a change in licence allocations compared to the previous regime.
6.123  As to the EC argument that there were 1568 Category A and B operators registered under the
previous regime, but that there are only 629 traditional operators under the revised regime, we note
that the European Communities did not include information on ownership or control of these
remaining traditional operators.  Therefore, we are not in a position to ascertain whether the decline in
the number of registered operators had an impact on the competitive conditions of non-ACP third-
country service suppliers.
                                                     
220 Panel reports on Bananas III , paragraphs 7.341, 7.353, 7.368, 7.393, 7.397.
221 According to Article XXVIII(n) of GATS, a juridical person is:
(i) 'owned' by persons of a Member if more than 50 per cent of the equity interest in it is beneficially
owned by persons of that Member;
(ii) 'controlled' by persons of a Member if such persons have the power to name a majority of its
directors or otherwise to legally direct its actions.WT/DS27/RW/ECU
Page 90
6.124  Even if the precise extent is uncertain, however, it is clear to us that an increase in licence
allocations to non-EC/ACP operators has occurred.  Indeed, such an increase would be in line with
our considerations in the original dispute, that  increases in licence allocations to non-ACP third-
country suppliers during the period when the previous regime was in force could be the result of the
"cross-subsidization" effect that induced such service suppliers who were previously engaged in the
non-ACP third-country market segment into entering th e EC/ACP market segment,  or to engage in the
ripening and customs clearance activities in order to qualify for licence allocations in the future.
6.125  In our view, it is not particularly relevant for purposes of this case to what extent precisely
licence allocations to Noboa or other third-country suppliers of wholesale services increased under the
revised regime in comparison to the previous low level.  An increase only indicates that the carry-on
effect of the revised regime is less than 100 per cent.  The evidence submitted by Ecuador shows that
in Noboa's attempts to supply wholesale trade services in the European Communities, in respect of
part of its business it must purchase or lease licences from or otherwise enter into contractualarrangements with those who have access to licences but who do not wish to distribute bananas in the
European Communities under the revised regime.  Given the structure of the previous regime, those
licence holders would be in the group of service suppliers in favour of which the previous EC regime
altered competitive conditions.  Thus, Noboa and other third-country service suppliers are faced with
a competitive disadvantage that is not equally inflicted on service suppliers of EC/ACP origin.  Whilewe cannot ascertain the precise extent of this carry-on effect, it appears to be not unsubstantial,
particularly in respect of Noboa.  Therefore, an increase, even if it is within the order of the EC
estimates, may not be considered as evidence that conditions of competition for non-ACP third-
country suppliers are not less favourable than for like EC/ACP suppliers under the revised regime.
6.126  Therefore, we conclude that the ACP/EC operators who continue to get licences on the basis
of the revised regime, remain in a competitively advantaged position compared to non-EC operators
and that advantage comes from the "carry on" effects of the GATS-inconsistent aspects of the
previous regime.  Even if such ACP/EC operat ors do deal in Latin American bananas and do not
simply sell or lease their licences, they are able to compete on more favourable conditions in the
market for distribution of bananas than their non-EC competitors because of the licence allocationsthat are derived from the previous discriminatory regime.  In this way, the revised regime carries
forward the de facto  discrimination of the previous regime.
(iii) The structure of the revised regime
6.127  We also examine the structure of the revised regime because the Appellate Body has noted in
the past, in Japan - Alcoholic Beverages
222, that a measure's "protective application can most often be
discerned from the design, the architecture and th e revealing structure of a measure".  Although the
dispute on Japan - Alcoholic Beverages  concerned claims under the GATT, we believe that this
approach may also give some guidance in analyzing whether there is de facto  discrimination under the
GATS.
6.128  In our examination of the structure of Regulation 2362/98, we start from the proposition that
if, in its new licensing regime, the European Communities had simply provided that licences would be
issued to those to whom licences had been issued  in the 1994-1996 period when those aspects of the
previous licence allocation procedures which were found to be WTO-inconsistent in the original
dispute by the panel and the Appellate Body, were in force, we would find that such a revised regime
did not remove the GATS inconsistencies of the old regime, even if technically different rules for
licence allocation had been implemented.  This would be so because the less favourable conditions of
competition for Ecuadorian (and other) service suppliers would continue to exist.  The revised regime
                                                     
222 Appellate Body report on Japan - Taxes on Alcoholic Beverages , WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted on 1 November 1996, page 29.WT/DS27/RW/ECU
Page 91
is not, however, based on license issuance during the 1994-1996 period, but rather on licence usage
and payment of customs duties during that period.  According to Article 4 of Regulation 2362/98, the
reference quantities for 1999 of "traditional operators" under the revised regime are calculated on the
basis of the average quantity of bananas actually imported during the 1994-1996 period.
6.129  The choice of the years from 1994 to 1996 as the reference period is explained in Recital 3 of
Regulation 2362/98 as follows:
"[W]hereas, for the purpose of implementing the new arrangements in 1999, it is
advisable, in the light of available knowledge on the de facto patterns of importation ,
to determine the rights of traditional opera tors in accordance with their actual imports
during the three-year period 1994 – 1996". (emphasis added).
In this context, we also note that the Commission Working Document "Determination of Reference
Quantities from 1995 Onwards"223 acknowledges that licence allocation on the basis of the "licence
usage method" would "maintain the same pattern of licence allocation between different types ofoperators as is seen at present" and "fossilize licence allocation in its current form.  Traders could not
obtain more quota by expanding their business; the only way to do so would be by buying licences
from another operator, or by taking over another company".
224
6.130  We acknowledge, however, that where Ecuadorian service suppliers entered into contractual
arrangements with initial licence holders under cond itions where they are able to present proof of
actual payment of customs duties and of licence usage, there is no carry-on effect.  However, in cases
where the contractual arrangements between initial licence holders and Ecuadorian service suppliers
do not allow them to prove actual payment of customs duties and licence usage during the 1994-1996
reference period (e.g. licence buy-back arrangements or licence "pooling"), they cannot claimreference quantities as "traditional operators" for licence allocations from 1999 onwards.
6.131  In the latter case, the revised licensing regime facilitates the continuance of past patterns of
licence allocation based on WTO-inconsistent elements of the previous allocation.  In particular e.g.
where former Category B operators and/or ripeners are able to prove licence usage and payment of
customs duties for imports made with such licences during the 1994-1996 period, such operators areable to claim reference quantities for 1999 regardless of whether they imported in fact.
6.132  In conclusion of our examination of the structure of the revised regime, we note that licence
allocations under the revised regime are based on licence usage (and payment of customs duties),
which according to the cited Commission Document is likely to "fossilize" or "maintain the same
pattern of" past licence allocations.  We further note that the base period (1994-1996) is one in whichthe rules for licence allocation had been in certain aspects found to be WTO-inconsistent in
Bananas III .  On its face, the choice of the 1994-1996 reference period in combination with the
licence usage/actual tariff payment criteria would seem likely to continue at least in part the less
favourable conditions of competition for foreign service suppliers found under the previous licensing
regime.  Consequently, in our view, the EC's revi sed licence allocation system, which reflects licence
usage during the 1994-1996 period, displays de facto  discriminatory structure.  While this is not in
                                                     
223 Exhibit 15 to Ecuador's First Submission of the panel in the original dispute of 9 July 1996, referred
to again in Ecuador's First Submission to the reconvened Panel of 2 February 1999.
224 Commission Working Document "Determination of Reference Quantities from 1995 Onwards" of
6 October 1993".  The document further notes "… Obviously the licence usage method can only be used for the
years when the common market organization was in place .  Thus if it is decided to adopt this method there
would be three years (1995-97) when both methods [i.e. licence usage and operator categories/activity
functions] would have to be applied." (emphasis added).WT/DS27/RW/ECU
Page 92
itself sufficient to find the new regime to be inconsistent with Articles XVII and II, it usefully informs
our analysis.
(iv) Overall evaluation
6.133  In light of all these considerations, we conclude that Ecuador has established a presumption225
that the revised licence allocation system prolongs - at least in part - less favourable treatment in the
meanings of Articles II and XVII for wholesale se rvice suppliers of Ecuadorian origin.  Ecuador has
also shown that its service suppliers do not have opportunities to obtain access to import licences on
terms equal to those enjoyed by service suppliers of EC/ACP origin under the revised regime and
carried on from the previous regime.  Accordingly, it was for the EC to adduce sufficient evidence to
rebut this presumption.  In light of our evaluation of the factual and legal arguments presented, we
conclude that the European Communities has not succeeded in doing so.  This result is consistent with
our conclusion that the revised licence allocation system reflecting licence usage and payment of
customs duties during the 1994-1996 period displays  de facto  discriminatory structure.
6.134  Accordingly, we find that under the revised regime Ecuador's suppliers of wholesale
services are accorded de facto less favourable treatment than EC/ACP suppliers of those
services in violation of Articles II and XVII of GATS.
(g) The "Single Pot" Licence Allocation
6.135  Regulation 1637/98 introduced a so-called "single pot" licence allocation system under which
reference quantities claimed under the tariff quota of 2,553,000 tonnes are pooled with those claimed
under the quantity of 857,700 tonnes reserved for traditional ACP imports.  Thus, under the revised
regime, a traditional operator may use its reference quantities based on past imports of traditional
ACP bananas to apply for licences to import third-country bananas and vice versa .
6.136  Ecuador alleges that this "single pot" solution for calculating reference quantities aggravates
the carry-on de facto  discrimination from the previous regime and further erodes the licence
allocations to Ecuadorian service suppliers.  Specifically, Ecuador submits that less than 60 per cent
of licence applications by Noboa and its subsidiaries granted in the quarterly licence allocation
procedures due to oversubscription and the application of reduction coefficients with respect to
Ecuador's country allocation.  In Ecuador's view, these results are due to the "single pot" licenceallocation under the revised regime.
6.137  The European Communities contends that, in  compliance with the DSB rulings, it has
abolished the different licensing procedures of the previous regime for traditional ACP imports, on the
one hand, and for third-country and non-traditional ACP imports, on the other.  It has introduced a
single licensing regime for banana imports from all sources of supply and has created a "single pot" or"pool" for purposes of calculating reference quantities under the revised regime.  The European
Communities emphasizes that there cannot be a protection of "grandfather" rights as to licence
entitlements, especially not in the transiti on from the previous to the revised regime.
6.138  We note the results of the quarterly two-round licence allocation procedures for the first and
the second quarter of 1999.  Due to the oversubscription of available licence quantities during the first
                                                     
225 "… [T]he burden of proof rests upon the party, whether complaining or defending, who asserts the
affirmative of a particular claim or defense.  If that party adduces evidence sufficient to raise a presumption that
what is claimed is true, the burden then shifts to the other party, who will fail unless it adduces sufficientevidence to rebut the presumption."  Appellate Body report on United States - Measures Affecting Imports of
Woven Wool Shirts and Blouses from India , adopted on 23 May 1997, WT/DS33/AB/R, page 14.WT/DS27/RW/ECU
Page 93
round of the licence allocation procedures for the first quarter of 1999226, reduction coefficients of
0.5793, 0.6740 and 0.7080  were applied to applications for licences for imports from Colombia, Costa
Rica and Ecuador , respectively.  While licence quantities of 77,536.711 tonnes and 41,473.846 tonnes
for imports from Panama and "other" (i.e. non-substantial third-country and non-traditional ACP
supplier countries) were transferred to the second round, these quantities were exhausted in the second
round, when reduction coefficients of 0.9701 and 0.7198 were applied to applications for licencesallowing imports from Panama and "other", respectively.
227  Licence quantities for
148,128.046 tonnes of traditional ACP imports were not applied for in the first round, and apparently
also not exhausted in the second round.  In the first round of the allocation procedure for the second
quarter of 1999228, reduction coefficients of 0.5403, 0.6743 and 0.5934  were applied to applications
for licences allowing imports from Colombia, Costa Rica and Ecuador , respectively.  However,
licence quantities for 120,626.234 tonnes and 7,934.461 tonnes of imports from Panama and from
other third-country and non-traditional ACP sources, respectively, were transferred to the secondround of the allocation procedure for the second quarter of 1999.
6.139  The parties agree that the so-called "single pot" solution is not  de iure  discriminatory.  We
agree also.  The pooling of reference quantities claimed under the tariff quota of 2,553,000 tonnes
with those under the quantity of 857,700 tonnes rese rved for traditional ACP imports in a single
licensing regime can be expected to intensify competition between the operators who apply for
licences in the quarterly allocation procedures.  Given that it is more profitable to market Latin
American bananas than ACP bananas, it is evident that profit-maximizing operators have an incentive
to apply in the two-round quarterly licence allocation procedures first for low-cost Latin American
sources of supply.  This obvious effect is confirmed by the fact that in the first two quarterly licence
allocation procedures under the revised regime, available licences for most Latin American sourceswere oversubscribed in the first round (i.e. country-allocations for the substantial suppliers Ecuador,
Colombia and Costa Rica), and the remaining licences for imports from Latin America (i.e. Panama
and "other" non-substantial suppliers) were exhausted in the second round.  However, licence
applications for imports within the quantity of 857,700 tonnes reserved for traditional ACP suppliers
were generally made in the second round and this quantity was not exhausted.
6.140  We next examine whether the alleged de facto  discriminatory effects of pooling third-country
and traditional ACP licences in a "single pot" derive from the fact that under the revised regime
reference quantities are calculated based on the 1994-1996 period when those allocation criteria that
were found to be GATS-inconsistent were in force.  We recall that the previous regime provided for
two separate sets of licensing procedures for traditional ACP imports, on the one hand, and for third-country and non-traditional ACP imports, on the other.  Under the latter licensing system, Category B
operators, based on reference quantities for marketing traditional ACP or EC bananas, were allocated
30 per cent of the licences required for the importation of third-country and non-traditional ACP
bananas reserved for those B operators in addition to the right to continue importing traditional ACP
bananas.  Likewise, ripeners were allocated 28 per cent of the third-country import licences.  Under
the revised, single licensing regime, there is no comparable reservation of licence quantities for
former Category B operators or for ripeners.
6.141  However, to the extent that former Category B operators and ripeners may prove licence
usage and payment of customs duties with respect to imports carried out during the 1994-1996
reference period with licences obtained from the GATS-inconsistent quantities reserved for those
operators under the previous regime, these operators are able to claim reference quantities under the
revised regime for licence allocations from 1999 onwards.  Therefore, former Category A servicesuppliers of Ecuadorian origin who have not benefited from licence allocations based on GATS-
                                                     
226 Regulation (EC) No. 2806/98 of 23 Decem ber 1998, O.J. L 349/32 of 24 December 1998.
227 Regulation (EC) No. 102/99 of 15 January 1999, O.J. L 11/16 of 16 January 1999.
228 Regulation (EC) No. 608/99 of 19 March 1999, O.J. L 75/18 of 20 March 1999.WT/DS27/RW/ECU
Page 94
inconsistent criteria under the previous regime enjoy de facto  less favourable opportunities to obtain
access to import licences under the revised regime than those EC/ACP service suppliers who, as
former Category B operators or ripeners, may prove payment of customs duties and licence usage for
licences obtained on the basis of GATS-inconsistent allocation rules.
6.142  We note that the so-called single pot solution does not in itself raise problems of WTO
inconsistency.  On the contrary, it would seem at least in theory to provide for equal conditions of
competition between wholesale service suppliers, against a background of varying degrees of
economic incentive to import bananas from varying sources.  However, it may well be that, when a
single pot solution relies on a skewed reference period (i.e. 1994-1996), combined with certain criteria
for licence allocation (such as actual importer/payment of customs duties), the  de facto  less
favourable conditions of competition for Ecuadorian service suppliers are aggravated through the
carry-on effects of the previous regime.
3. The Rules for "Newcomer" Licences
6.143  Ecuador alleges that (i) the enlargement of the licence quantity reserved for "newcomers "
from 3.5 per cent in the previous regime to 8 per cent in the revised regime (i.e. licences for up to
272,856 tonnes of imports) and (ii) the criteria for demonstrating competence in order to acquire
"newcomer" status under the revised regime result in less favourable treatment for Ecuadorian
wholesale service suppliers and thus are inconsiste nt with the EC's obligations under Article XVII of
GATS.
6.144  The European Communities responds that the enla rgement of the licence quantity reserved for
"newcomers" is de iure  and de facto  non-discriminatory for foreign service suppliers.  It indicates that
EC licence allocation procedures for other EC products have set aside quantities as high as 20 per cent
for "newcomers".  As regards the criteria fo r demonstrating competence in order to acquire
"newcomer" status, the European Communities argues that there is no distinction in
Regulation 2362/98 between EC and non-EC servi ce suppliers, on the one hand, and between non-EC
service suppliers of different origins, on the other hand.  It points out that importers of fruits and
vegetables established in the European Communities are not necessarily EC-owned or EC-controlled
service suppliers, nor does Regulation 2362/98 precl ude companies newly established in the European
Communities in, e.g. 1998, from applying as a "newcomer".  The European Communities also
submits that the figure of 400,000 Euro of declared customs value was chosen because it represented
the size of a company which would have sufficient capacity to be viable in the sector.  It adds that
there are third country-owned companies which have qualified as "newcomers" under the revised
regime.
6.145  We recall that Article 7 of Regulation 2362/98 provides:
"…'newcomers ' shall mean economic agents established in the European Community
who, at the time of registration:
(a)  have been engaged independently  and on their own account  in the commercial
activity of importing fresh fruit and vegetables  falling within chapters 7 and 8, of the
Tariff and Statistical Nomenclature and the Common Customs Tariff, or products
under Chapter 9 thereof if they have also imported products falling within Chapters 7
and 8 in one of the three years immediately preceding the year in respect of which
registration is sought ; and
(b) by virtue of this activity, have undertaken imports to a  declared customs value of
ECU 400 000  or more during the period referred to in point (a)."  (emphasis added).WT/DS27/RW/ECU
Page 95
6.146  We do not see how the enlargement of the licence quantity to 8 per cent of the tariff quotas
and the traditional ACP quantities229 in itself could create less favourable conditions of competition
for service suppliers of third-country origin.
6.147  In respect of the criteria for acquiring "newcomer" status, we note that the parties agree that
Article 7 of Regulation 2362/98 does not contain conditions which discriminate de iure  against
service suppliers on the basis of their foreign as opposed to EC origin.  However, we note thatpotential "newcomers" must have a certain degree of ongoing relationship to the European
Communities because they need to be established within the European Communities and they must
have been engaged in the commercial activity of importing fruits or vegetables in one of the three
years immediately preceding the year for which registration as "newcomer" is sought.  More
importantly, service suppliers of other Members may prove expertise with respect to the commercial
activity of importing fresh fruit and vegetables only through imports carried out to the European
Communities but not through the same type of commercial activity of trading in fruits or vegetableswith other countries.  If it is indeed the level of ex perience that this criterion is designed to ensure, in
our view, experience with trade in fruit or vegetables in or to other countries should equally be
deemed sufficient to ensure a requisite level of ex pertise.  If it is the commercial viability of the
enterprise in question that is at issue, we believe that it should also be possible to establish that
viability on the basis of commercial activity outside the European Communities.
6.148  Thus, while any potential service supplier originating in third countries is not de iure
precluded from acquiring "newcomer" status, in our view, the criteria for demonstrating the requisite
expertise in order to qualify as an importer of bananas as "newcomer" create in their overall impact
less favourable conditions of competition for service suppliers of Ecuador or other Members than for
like service suppliers of EC origin.  In this resp ect, we recall the Appellate Body's statement in  Japan
- Alcoholic Beverages
230 that a measure's "protective application can most often be discerned from the
design, the architecture and the revealing structure of a measure".
6.149  In light of these considerations, we find that the criteria for acquiring "newcomer"
status under the revised licensing procedures accord to Ecuador's service suppliers de facto  less
favourable conditions of competition in the mean ing of Article XVII than to like EC service
suppliers.
4. General observations
6.150  We wish to emphasize that our findings do not deprive any WTO Member of its right to
choose WTO-consistent licence allocation methods based on, e.g. first-come, first-served, auctioning,
or past trade performance.  In principle, the WTO agreements leave Members a significant degree ofdiscretion to choose the beneficiaries of licence allocations.  We note that while, e.g. the Agreement
on Import Licensing Procedures aims to ensure that licensing procedures do not constitute an
additional restriction on trade in goods, the objectives of the GATS non-discrimination clauses are
different.  Articles XVII and II of GATS aim at ensuring that service suppliers of other Members are
accorded conditions of competition no less favourable than those accorded to like service suppliers of
national origin or of any other Member.  However, the fact that the agreements under Annex 1A to the
WTO Agreement and the GATS provide for different requirements, address different issues andpursue different objectives, does not imply that they are incompatible.
6.151  If a Member chooses an import regime which necessarily generates quota rents, such as a
tariff quota, the requirement to ensure for service suppliers of other Members no less favourable
                                                     
229 Article 2.1(b) of Regulation 2362/98.
230 Appellate Body report on Japan - Taxes on Alcoholic Beverages , WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted on 1 November 1996, page 29.WT/DS27/RW/ECU
Page 96
treatment than for like service suppliers of national origin or of any other Member may have
consequences on the choice of allocation criteria and the selection of licence beneficiaries under a
licensing system that is based on past trade performa nce.  However, we also recall that the obligation
to accord no less favourable treatment under the GATS non-discrimination clauses requires a WTO
Member to provide service suppliers of other Members with at least equal opportunities to compete
with suppliers of national origin or of any other Member, regardless of the results which suchopportunities might produce in terms of particular trade volumes or market shares.
6.152  The EC stresses that there cannot be a presumption of non-compliance with the requirements
of Articles II and XVII of GATS if, statistically, the number of domestic importers or beneficiaries of
licence allocations happened to be higher than the number of service suppliers of other Members who
obtain licence allocations.  In principle, we agree with that statement.  If one of the WTO-consistent
licence allocation methods is introduced in a market situation where service suppliers of national
origin and those of other Members enjoy equal opportunities to benefit from licence allocations (andthus equal opportunities to reap quota rents generated by a WTO-consistent tariff quota), service
suppliers of other Members presumably enjoy no less favourable treatment.  However, where in a pre-
existing market situation, a licence allocation system is introduced (or maintained) which involves
allocation criteria that accord more favourable opportunities for service suppliers of national origin or
of certain other Members to benefit from licence allocations, competitive conditions are modified tothe detriment of like service suppliers of other Members.
6.153  In the present case, the supply of wholesale services is affected by conditions of access to
available import licences.
231  If less favourable opportunities to obtain access to licence allocations
adversely affect the conditions of competition for service suppliers of another Member, ensuring no
less favourable treatment requires equal opportunities to obtain access to licence allocations.  Asdiscussed in detail above, under the revised regime service suppliers of Ecuadorian origin continue to
be subject to less favourable conditions of competition for a number of reasons.  In light of these
considerations, we found that the revised licence allocation procedures accord less favourable
treatment for Ecuador's service suppliers than for like service suppliers of EC/ACP origin. Thus we
consider that EC licence allocation procedures should allow service suppliers of other Members equalcompetitive opportunities to expand their wholesal e business as like EC/ACP suppliers of those
services.
F. S
UGGESTIONS ON IMPLEMENTATION
6.154  Ecuador requests this Panel to make specific suggestions to the European Communities on
how it might implement our findings in this proceeding under Article 21.5 of the DSU.  In this regard,we recall Article 19.1 of the DSU, which provides:
"Where a panel or the Appellate Body concludes that a measure is inconsistent with a
covered agreement, it shall recommend that the Member concerned bring the measure
into conformity with that agreement.  In addition to its recommendations, the panel or
Appellate Body may suggest ways  in which the Member concerned could implement
the recommendations."  (Emphasis added, footnotes omitted.)
Panels have not often made suggestions pursuant to Article 19.1.  While Members remain free to
choose how they implement DSB recommendations and rulings, it seems appropriate, after one
                                                     
231 The Appellate Body notes that "obviously, a wholesaler must obtain the goods by some means in
order to resell them.  In this case, for example, it would be difficult to resell bananas in the EuropeanCommunities if one could not buy them or import them in the first place."  Appellate Body report on
Bananas III , paragraph 226.WT/DS27/RW/ECU
Page 97
implementation attempt has proven to be at least partly unsuccessful, that an Article 21.5 panel make
suggestions with a view toward promptly bringing the dispute to an end.
6.155  In light of our findings and conclusions with  respect to Articles I and XIII of GATT, the
requirements of the Lomé Convention and the coverage of the Lomé waiver, above, in our view, the
European Communities has at least the following options for bringing its banana import regime into
conformity with WTO rules.
6.156  First, the European Communities could choose to implement a tariff-only system for bananas,
without a tariff quota. This could include a tariff preference (at zero or another preferential rate) for
ACP bananas.  If so, a waiver for the tariff preference may be necessary unless the need for a waiver
is obviated, for example, by the creation of a free-trade area consistent with Article XXIV of GATT.
This option would avoid the need to seek agreement on tariff quota shares.
6.157  Second, the European Communities could choose to implement a tariff-only system for
bananas, with a tariff quota for ACP bananas covered by a suitable waiver.
6.158  Third, the European Communities could maintain its current bound and autonomous MFN
tariff quotas, either without allocating any country-specific shares or allocating such shares by
agreement with all substantial suppliers consiste ntly with the requirements of the chapeau to
Article XIII:2.  The MFN tariff quota could be combined with the extension of duty-free treatment (or
preferential duties) to ACP imports.  In respect of such duty-free treatment, the EuropeanCommunities could consider with the ACP States whether the Lomé Convention can be read to
"require" such treatment within the meaning of the Lomé waiver. We recall that some important
preferences found by the original panel and Appellate Body reports to be required by the Lomé
Convention cannot be implemented consistently with WTO rules (the most important being the
quantitative protections foreseen in Protocol 5).  If  such a view of the Lomé Convention is challenged,
a waiver covering such duty-free treatment could be sought.  The MFN tariff quota could also be
combined with a tariff quota for ACP imports, whether traditional or not, provided an appropriate
waiver of Article XIII is obtained.  We note that waivers for duty-free treatment for developing
country exports have been granted on several occasions by Members.
232  In this context, some action
may be required soon in respect of the Lomé waiver since it expires on 29 February 2000.
6.159  We make no specific suggestions in respect of licence allocation, but note that licences would
not be needed at all in a tariff-only regime.
G. SUMMARY
6.160  In respect of Article XIII of GATT, we find that the 857,700 tonne limit on traditional
ACP imports is a tariff quota and therefore Article XIII applies to it.  We further find that thereservation of the quantity of 857,700 tonnes for traditional ACP imports under the revised
regime is inconsistent with paragraphs 1 and 2 of Article XIII of GATT.  We also find that the
country-specific allocations to Ecuador as well as to the other substantial suppliers are not
consistent with the requirements of Article XIII:2.
6.161  In respect of Article I of GATT, we find that the level of 857,700 tonnes for duty-free
traditional ACP imports can be considered to be required by the Lomé Convention because it
appears to be based on pre-1991 best-ever exports and not on allowances for investments.However, we also find that it is not reasonabl e for the European Communities to conclude that
                                                     
232 See WT/L/104 (United States – Caribbean Basin Economic Recovery Act); WT/L/183 (United
States – Former Trust Territory of the Pacific Islands); WT/L/184 (United States - Andean Trade Preferences
Act); WT/L/185 (Canada – CARICAN).WT/DS27/RW/ECU
Page 98
Protocol 5 of the Lomé Convention require s a collective allocation for traditional ACP
suppliers.  Therefore, duty-free treatment of imports in excess of an individual ACP State's
pre-1991 best-ever export volumes is not required by Protocol 5 of the Lomé Convention.
Accordingly, absent any other applicable requi rement of the Lomé Convention, those excess
volumes are not covered by the Lomé waiver a nd the preferential tariff thereon is therefore
inconsistent with Article I:1.
6.162  Also in respect of Article I of GATT, we find that in respect of preferences for non-
traditional ACP imports, it is not unreasonable for the European Communities to conclude that
(i) non-traditional ACP imports at zero tariff within the "other" category of the tariff quota and
(ii) the tariff preference of 200 Euro per tonne for out-of-quota imports, are required by
Article 168 of the Lomé Convention.  Therefore, we find that the violations of Article I:1, as
alleged by Ecuador in respect of preferences for non-traditional ACP imports, are covered by
the Lomé waiver.
6.163  In respect of GATS, we define the range of wholesale trade services and find that
(i) under the revised regime Ecuador's suppl iers of wholesale services are accorded de facto  less
favourable treatment in respect of licence allocation than EC/ACP suppliers of those services in
violation of Articles II and XVII of GATS and (ii) the criteria for acquiring "newcomer" status
under the revised licensing procedures accord to Ecuador's service suppliers de facto  less
favourable conditions of competition than to like EC service suppliers in violation of
Article XVII of GATS.
H. CONCLUDING REMARK
6.164  We recall that the fundamental principles of the WTO and WTO rules are designed to foster
development, not impede it.  As illustrated by our suggestions on implementation above, the WTOsystem is flexible enough to allow, through WTO-consistent trade and non-trade measures,
appropriate policy responses in a wide variety of circumstances across countries, including countries
that are heavily dependent on the production and commercialization of bananas.WT/DS27/RW/ECU
Page 99
VII. CONCLUSIONS
7.1 The Panel concludes that for the reasons outlined in this Report aspects of the EC's import
regime for bananas are inconsistent with the EC's obligations under Articles I:1 and XIII:1 and 2 of
GATT 1994 and Articles II and XVII of GATS.  We therefore conclude that there is nullification or
impairment of the benefits accruing to Ecuador under the GATT 1994 and the GATS within the
meaning of Article 3.8 of the DSU.
7.2 The Panel recommends that the Dispute Settlement Body request the European Communities
to brings its import regime for bananas into conformity with its obligations under the GATT 1994 and
the GATS.WT/DS27/RW/ECU
Page 100
ANNEX 1
"Pre-1991 best-ever" Imports of Bananas into the European Communities
from Traditional ACP Supplying Countries
Country Best year Tonnes
Belize 1989 26,580
Cameroon 1962 127,171
Cape Verde 1970 4,766
Côte d'Ivoire 1972 135,189
Dominica 1988 70,322
Grenada 1977 14,017
Jamaica 1965 201,000
St Lucia 1990 127,225
St Vincent & the Grenadines 1990 81,536
Madagascar 1976 5,986
Somalia 1965 121,537
Suriname 1975 37,610
Total 952,939
Source: 1962-75 UN Comtrade.
1976-1990 Eurostat (Comext) and member States (Annex 1 Commission report on the functioning of
the regime in the banana sector SEC(95) 1595 final).
Note: Table provided by the European Communities.WT/DS27/RW/ECU
Page 101
ANNEX II
Chart 1:  Ecuador's Share of Total EC Banana Imports from all Sources
Year Per cent Year Per cent
1989 11.77 1994 16.12
1990 12.77 1995 19.95
1991 19.96 1996 21.09
1992 21.84 1997 23.63
1993 19.67
Source:  European Commission.  (Chart submitted by Ecuador.)
Chart 2:  Ecuador's Share of World Exports
Year World exports Ecuador exportsEcuador exports as
per cent of world
exports (%)
1990 9,334,529 2,156,617 23.10
1991 10,380,249 2,662,750 25.65
1992 10,601,392 2,682,831 25.30
1993 11,127,156 2,563,223 23.03
1994 12,525,825 3,007,925 24.01
1995 13,422,197 3,665,182 27.30
1996 13,914,285 3,866,079 27.78
1997 13,990,158 4,462,099 31.89
Source:  FAO Statistical Database (visited 29 Janua ry 1999) (http:\\www.fao.org).  (Chart submitted by
Ecuador.)
Chart 3:  Ecuador's Share of World Banana Exports other than to the EC
YearWorld exports
minus EC
importsEcuador's exports
minus exports to the
ECEcuador's proportion
of world exports
minus exports to the
EC (%)
1990 6,037,561 1,804,417 29.29
1991 6,703,507 2,084,550 31.1
1992 6,399,039 2,008,331 31.4
1993 7,451,371 1,958,023 26.3
1994 8,988,806 1,458,525 27.4
1995 9,991,793 3,032,982 30.4
1996 10,323,065 3,201,479 31.0
1997 10,828,638 3,733,599 34.5
Source:  FAO and EUROSTAT and Statistical Offices:  Austria, Sweden, Finland .  (Chart submitted by
Ecuador.)WT/DS27/RW/ECU
Page 102
ANNEX III
Prior EC System:  Operator Categories under the Tariff Quota
for Third-Country/Non-Traditional ACP Imports
Operator category
definitionAllocation of import
licences allowing the
importation of
bananas at in-
quota rates (%)Basis of determining
operator entitlement
Category A:   operators that
have marketed third-countryand/or non-traditional ACP
bananas.66.5Average quantities of third-
country and/or non-traditionalACP bananas marketed in a
three-year reference period.
Category B:   operators that
have marketed EC and/ortraditional ACP bananas.30Average quantities of
traditional ACP and/or ECbananas marketed in a three-
year reference period.
Category C:  operators who
started marketing bananas otherthan EC and/or traditional ACPbananas in 1992 or thereafter
("newcomers").3.5Divided pro rata among
applicants.
Source:  Article 19, Council Regulation (EEC) 404/93.  (Submitted by Ecuador.)
Prior EC System:  Activity Functions under the Tariff Quota
for Third-Country/Non-Traditional ACP Imports
Activity functions DefinitionsWeighting
coefficients (%)
Activity (a): "primary
importer""the purchase of green third-country
bananas and/or ACP bananas from theproducers, or where applicable, theproduction, consignment and sale of suchproducts in the Community"57
Activity (b):
"secondary importeror customs clearer""as owners, the supply and release for free
circulation of green bananas and sale with aview to their subsequent marketing in the
Community"15
Activity (c): "ripener""as owners, the ripening of green bananas
and their marketing within the Community" 28
Source:  Article 3, Commission Regulation (EEC) 1442/93 of 10 June 1993.  (Submitted by Ecuador.)
__________