WORLD TRADE WT/DS27/R/USA
22May1997
ORGANIZATION
(97-2070)
Original: English
European Communities -Regime fortheImportation,
SaleandDistribution ofBananas
Complaint bytheUnited States
Report ofthePanel
Thereport ofthePanel onEuropean Communities -Regime fortheImportation, SaleandDistribution
ofBananas isbeing circulated toallMembers, pursuant totheDSU. Thereport isbeing circulated
asanunrestricted document from 22May1997 pursuant totheProcedures fortheCirculation and
Derestriction ofWTO Documents (WT/L/160/Rev.1). Members arereminded thatinaccordance with
theDSU onlyparties tothedispute mayappeal apanel report, anappeal shallbelimited toissues
oflawcovered inthepanel report andlegalinterpretations developed bythepanel, andthatthereshall
benoexpartecommunications withthepanel orAppellate Body concerning matters under consideration
bythepanel orAppellate Body.
NotebytheSecretariat: ThisPanel Report shallbeadopted bytheDispute Settlement Body (DSB) within 60daysafterthedateofitscirculation
unless aparty tothedispute decides toappeal ortheDSBdecides byconsensus nottoadopt thereport. IfthePanel Report isappealed
totheAppellate Body, itshallnotbeconsidered foradoption bytheDSBuntilafterthecompletion oftheappeal. Information onthecurrent
status ofthePanel Report isavailable from theWTO Secretariat.
Thereports ofeachoftheComplaining parties inthedispute have identical paragraph and
footnote numbering. IntheFindings section ofeach report, however, certain paragraph
andfootnote numbers arenotused.-i-
TABLE OFCONTENTS
I. INTRODUCTION ..........................................1
Terms ofreference ....................................1
Panel composition .....................................2
II. PROCEDURAL ISSUES .....................................3
(a) Adequacy oftheconsultations andspecificity oftherequest for
panel establishment ...............................3
(b) Therequirement oflegal interest ......................8
(c) Multiple panel reports .............................13
III. FACTUAL ASPECTS ........................................15
(a) Banana production andtrade .........................15
(b) TheEC'scommon organization ofthebanana market ........15
(i)Tariff treatment .........................16
(ii)Quantitative aspects, including country allocations ..17
(iii)Licensing requirements ....................20
(c) Trade policy developments concerning bananas .............24
(i)Disputes relating tobananas under theGATT .....24
(ii)Framework Agreement onBananas ............24
(iii)Tariff changes ..........................24
(iv) Lomé waiver ...........................25
(v)Accession ofAustria, Finland andSweden tothe
EC.....................................25
IV. MAIN ARGUMENTS .......................................26
A. GENERAL .........................................26
B. TRADE INGOODS ...................................28
1. GENERAL OVERVIEW OFTHE CASE .................28
(a) Overview oftheclaims presented bytheComplaining
parties ...................................28
(i)Tariff issues .......................28
(ii)Allocation issues ....................28
(iii)Import licensing issues ................29
(b) Overview oftheresponses presented bytheEuropean
Communities ..............................29
(i)Separate regimes ....................29
(ii)GATT schedules andArticles IandXIIIinthe
context oftheAgreement onAgriculture .......30
(iii)Thenon-applicability oftheAgreement on
Import Licensing Procedures totariff quotas ....31
(iv)Thenon-applicability ofArticles III:4 andX
ofGATT toborder measures ...............32
(v)TheLomé waiver ...................32
2. DETAILED ARGUMENTS ..........................34
(a) Tariff issues ...............................34
(i)Tariff preferences fornon-traditional ACP
banana imports ........................34
Arguments oftheComplaining parties ....34
Arguments oftheEC...............35-ii-
TheLomé waiver .................35
Parties 'subsequent arguments -non-
traditional ACP tariff preferences .......51
(ii)Third-country tariff rates ..............54
(b) Allocation issues ............................59
(i)General allocations ..................59
Article XIII:2 ofGATT ..................59
Arguments oftheComplaining parties ....59
Arguments oftheEC...............66
Separate regimes ..................66
GATT schedules andArticles IandXIIIin
the context ofthe Agreement on
Agriculture .....................71
Parties 'arguments -interpretive issues ...78
Article XIII:1 ofGATT ..................95
Article IofGATT ......................96
TheLomé waiver ......................97
(ii)Reallocation ofshortfalls ...............100
(c) Import licensing issues ........................104
(i)Thelicensing regime asawhole ..........104
Arguments oftheComplaining parties ....104
Arguments oftheEC...............108
Thenon-applicability oftheAgreement on
Import Licensing Procedures totariff
quotas .........................108
Thenon-applicability ofArticles III:4 and
XofGATT toborder measures ........111
Parties 'subsequent arguments -the
licensing regime asawhole ...........113
Claims under theGATT .............119
Claims under theLicensing Agreement ...130
ClaimsundertheAgreementon
Agriculture .....................141
(ii)Operator category licence allocation .......143
Claims under theGATT .............145
Claims under theLicensing Agreement ...157
Claims under theAgreement onTrade-
Related Investment Measures ..........164
(iii)Activity function licence allocation ........169
Licence distribution issues ............169
Claims under theGATT .............171
Claims under theLicensing Agreement ...176
Issues concerning "over-filing" or"double-
counting" .......................180
(iv) Export certificates ..................185
Claims under theGATT .............185
Claims under theLicensing Agreement ...189
(v) Publication ofregulations andtiming of
licences .............................192
Claims under theGATT .............192
Claims under theLicensing Agreement ...197
(vi) Licences provided toECbanana producers ..198
(vii) Hurricane licences ..................200-iii-
C. GENERAL AGREEMENT ONTRADE INSERVICES (GATS) ......205
Introduction ....................................205
Issues ofscope ..................................209
(a) The relationship between theGATS and the
multilateral agreements ontrade ingoods ......209
(b) Standard ofdiscrimination under theMFN and
national treatment obligations ..............213
(i)Measures affecting trade inservices -
Articles I:1andXXVIII(c) ...........213
(ii)Measures affecting trade inservices -
Article XVII:1 ...................214
(iii)Standard ofdiscrimination: Article II..217
(c) Wholesale trade services ..................219
Operator category licence allocation ....................228
(a) Article XVII ..........................228
(b) Article II............................240
Activity function licence allocation -Articles IIandXVII ......242
Hurricane licences -Articles IIandXVII .................245
Export certificates -Articles IIandXVII ................246
V. ARGUMENTS PRESENTED BYTHIRD PARTIES ....................249
ACP THIRD PARTIES .................................249
Introduction ....................................249
TheLomé Convention andtheLomé waiver ...............254
Article IofGATT ................................259
Article XIIIofGATT .............................261
Article XofGATT andtheLicensing Agreement ...........262
TheGATS .....................................263
Conclusion .....................................265
CANADA ..........................................266
Therelationship between trade ingoods andtrade inservices ...266
TheLomé waiver ................................267
Conclusion .....................................268
COLOMBIA, COSTA RICA, NICARAGUA AND VENEZUELA .....269
Introduction ....................................269
Principal legal arguments ...........................269
Subsidiary legal arguments ..........................273
Conclusions ....................................279
INDIA .............................................281
TheLomé Convention andtheLomé waiver ...............281
Conclusion .....................................281
JAPAN ............................................282
Non-applicabilityoftheAgreementonImportLicensingProcedures
totariff quota systems .............................282
Conclusion .....................................282
THE PHILIPPINES ...................................283
Preliminary arguments .............................283
Specific legal arguments ............................284
Conclusion .....................................285
VI. INTERIM REVIEW .........................................286-iv-
VII. FINDINGS ...............................................288
A. ORGANIZATIONAL ISSUES .............................288
1. PARTICIPATION OFTHIRD PARTIES .................288
2. PRESENCE OFPRIVATE LAWYERS ...................290
B. PRELIMINARY ISSUES ................................291
1. ADEQUACY OFTHE CONSULTATIONS ................292
2. SPECIFICITYOFTHEREQUESTFORPANEL
ESTABLISHMENT ...............................293
(a) Article 6.2andtherequest forestablishment ofthe
Panel ...................................293
(b) Thearguments oftheparties ....................294
(c) Analysis oftheArticle 6.2claim ..................294
(i)Ordinary meaning oftreaty terms .............295
(ii)Context ...............................297
(iii)Object andpurpose .......................298
(iv)Pastpractice ...........................298
(v)Cure ................................300
3. REQUIREMENT OFLEGAL INTEREST .................301
4. NUMBER OFPANEL REPORTS ......................303
C. SUBSTANTIVE ISSUES ................................304
1. THE ECMARKET FOR BANANAS: ARTICLE XIIIOFGATT ..305
(a) Article XIII ...............................306
(i)Separate regimes .........................310
(ii)Members withasubstantial interest ............312
(iii)Members without asubstantial interest ..........314
(iv)Newmembers ...........................315
(v)Other arguments .........................315
(b) Theallocation oftariff quota shares toACPcountries: The
Lomé waiver ..............................316
(i)Preferential treatment required bythe Lomé
Convention ...........................317
(ii)Application oftheLomé waiver totheEC'sArticle XIII
obligations ...........................319
(c) Theallocation oftariff quota shares toBFA countries ...321
(i)Inclusion oftheBFA tariff quota shares intheEC
Schedule ............................321
(ii)Agreement onAgriculture ...................325
(d) Tariff quota share allocations andArticle I:1.........326
2. TARIFF ISSUES .................................327
3. THE ECBANANA IMPORT LICENSING PROCEDURES .....328
(a) General issues ..............................329
(i)Scope oftheLicensing Agreement ..............329
(ii)GATT 1994 andtheAnnex 1AAgreements .......332
(iii)Separate regimes .........................333
(iv)Examination ofthelicensing claims ............334
(b) Operator categories ..........................334
(i)Article III:4 ofGATT .....................334
(ii)Article 2oftheTRIMs Agreement .............340
(iii)Article IofGATT ........................340
(iv)Application oftheLomé waiver totheEC'sArticle I
obligations ...........................344
(v)Article X:3(a) ofGATT ....................348
(vi)Other claims ............................350-v-
(c) Activity functions ...........................350
(i)Article III:4 ofGATT .....................350
(ii)Article I:1ofGATT .......................350
(iii)Article X:3(a) ofGATT ....................351
(iv)Other claims ............................351
(d) BFA export certificates ........................352
(i)Article I:1ofGATT .......................352
(ii)Other claims ............................354
(e) Hurricane licences ...........................355
(i)Article III:4 ofGATT ......................355
(ii)Article I:1ofGATT .......................355
(iii)Application oftheLomé waiver ...............356
(iv)Article 1.3oftheLicensing Agreement ...........356
(v)Other claims ............................357
(f) Other claims ..............................357
(i)General ...............................357
(ii)Article 1.2oftheLicensing Agreement ...........357
4. THEECBANANAIMPORTLICENSINGPROCEDURESANDTHE
GATS ........................................358
(a) Introduction ..............................358
(b) General issues ..............................358
(i)Measures affecting trade inservices ............358
(ii)Wholesale trade services ...................361
(iii)Modes ofsupply .........................363
(iv)Thescope oftheArticle IIobligation ...........365
(v)Thescope oftheArticle XVII commitment .......367
(vi)Effective dateofGATS obligations .............368
(vii)Claims byMexico ........................369
(c) Operator categories ..........................369
(i)Article XVII ofGATS .....................369
(ii)Article IIofGATS ........................378
(d) Activity functions ...........................380
(i)Article XVII ofGATS .....................380
(ii)Article IIofGATS ........................384
(e) Export certificates ...........................384
(i)Article XVII ofGATS .....................384
(ii)Article IIofGATS ........................386
(f) Hurricane licences ...........................387
(i)Article XVII ofGATS .....................387
(ii)Article IIofGATS ........................388
5. NULLIFICATION ORIMPAIRMENT ...................389
D. SUMMARY OFFINDINGS ..............................390
VIII. FINAL REMARKS ..........................................394
IX. CONCLUSIONS ...........................................394
ATTACHMENT ...........................................395WT/DS27/R/USA
Page1
I. INTRODUCTION
1.1 On5February 1996, Ecuador, Guatemala, Honduras, Mexico andtheUnited States acting
jointly andseverally, requested consultations withtheEuropean Communities ("the Community" or
the"EC") pursuant toArticle 4oftheUnderstanding onRules andProcedures governing theSettlement
ofDisputes ("DSU"), Article XXIII oftheGeneral Agreement onTariffs andTrade 1994("GATT"),
Article 6oftheAgreement onImport Licensing Procedures (totheextent thatitrelated toArticle XXIII
ofGATT), Article XXIII oftheGeneral Agreement onTrade inServices, Article 19oftheAgreement
onAgriculture (totheextent thatitrelated toArticle XXIII ofGATT), andArticle 8oftheAgreement
onTrade-Related Investment Measures (totheextent thatitrelated toArticle XXIII ofGATT) regarding
theECregime fortheimportation, saleanddistribution ofbananas established byCouncil Regulation
(EEC) 404/931,andthesubsequent EClegislation, regulations andadministrative measures, including
those reflecting theprovisions oftheFramework Agreement onBananas, which implemented,
supplemented andamended thatregime (WT/DS27/1).
1.2 Consultations were heldon14and15March 1996. Astheydidnotresult inamutually
satisfactory solution ofthematter, Ecuador, Guatemala, Honduras, Mexico andtheUnited States, in
acommunication dated 11April 1996, requested theestablishment ofapanel toexamine thismatter
inlightoftheGATT, theAgreement onImport Licensing Procedures, theAgreement onAgriculture,
theGeneral Agreement onTrade inServices ("GATS") andtheAgreement onTrade-Related Investment
Measures (WT/DS27/6).
1.3 TheDispute Settlement Body ("DSB"), atitsmeeting on8May1996, established apanel with
standard terms ofreference inaccordance withArticle 6oftheDSU (WT/DS27/7). Belize, Canada,
Cameroon, Colombia, Costa Rica, Côted'Ivoire, Dominica, Dominican Republic, Ghana, Grenada,
India, Jamaica, Japan, Nicaragua, thePhilippines, Saint Vincent andtheGrenadines, Saint Lucia,
Senegal, Suriname, Thailand andVenezuela reserved theirthird party rights tomake asubmission
andtobeheard bythePanel inaccordance withArticle 10oftheDSU. Several ofthese countries
alsorequested additional rights (seeparagraph 7.4). Thailand subsequently renounced itsthirdparty
rights.
Terms ofreference
1.4 Thefollowing standard terms ofreference applied tothework ofthePanel:
"Toexamine, inthelightoftherelevant provisions ofthecovered agreements cited
byEcuador, Guatemala, Honduras, Mexico andtheUnited States indocument
WT/DS27/6,thematterreferredtotheDSBbyEcuador,Guatemala,Honduras,Mexico
andtheUnited States inthatdocument andtomake suchfindings aswillassist the
DSBinmaking therecommendations oringiving therulings provided forinthose
agreements."
1Official Journal oftheEuropean Communities No.L47of25February 1993, pp.1-11.WT/DS27/R/USA
Page2
Panel composition
1.5 On29May1996,theDirector-GeneralwasrequestedbyEcuador,Guatemala,Honduras,Mexico
andtheUnited States tocompose thePanel byvirtue ofparagraph 7ofArticle 8oftheDSU.
1.6 On7June1996 theDirector-General announced thecomposition ofthePanel asfollows:
Chairman: Mr.Stuart Harbinson
Members: Mr.Kym Anderson
Mr.Christian Häberli
1.7 ThePanel submitted itsinterim report totheparties tothedispute on18March 1997andthe
finalreport on29April 1997.WT/DS27/R/USA
Page3
II. PROCEDURAL ISSUES2
2.1 Inthissection, theparties 'arguments aresetoutwithrespect tothreeprocedural issues: (i)the
adequacy oftheconsultations andthespecificity oftherequest forpanel establishment; (ii)the
requirement oflegalinterest; and(iii)multiple panel reports. Theorganizational matter withrespect
totheparticipation ofthirdparties inthese proceedings andpresence ofprivate lawyers inmeetings
ofthePanel isaddressed inthe"Findings" section ofthisreport. Arguments presented bythirdparties
ontheirparticipation inthese proceedings aresummarized inSection V.
(a) Adequacy oftheconsultations andspecificity oftherequest forpanel establishment
2.2 TheECnoted thatconsultations ontheECbanana regime wereheldintheautumn of1995
between theEC,anumber ofbanana producing countries, parties totheLomé Convention, Guatemala,
Honduras, Mexico andtheUnited States. These consultations wereinconclusive andwereterminated
when anewround ofconsultations started. After Ecuador hadbecome aWTO Member on
26January 1996, Ecuador aswellasGuatemala, Honduras, Mexico andtheUnited States requested
consultations withtheEConitsbanana regime byletter dated 5February 1996 andcirculated to
Members asdocument WT/DS27/1 on12February 1996. Itcontained, intheviewoftheEC,only
thebarest outline ofthecomplaints against theECbanana regime. Bilateral consultations wereheld
witheachoftheComplaining parties on14and15March 1996 inGeneva.
2.3 TheEC,being oftheview thatconsultations were intended notonlyto"give sympathetic
consideration" totheconsiderations andthequestions oftheComplaining parties, butalsotoenable
theresponding party toobtain aclear view ofthecaseheldagainst it,prepared alarge number of
questions inanattempt tobetter understand thecomplaints ofEcuador, Guatemala, Honduras, Mexico
andtheUnited States. These questions weretransmitted on3April 1996. Inthemeantime, theEC
waspreparing itsanswers tothenumerous questions posed bytheComplaining parties. On
11April 1996, however, Ecuador, Guatemala, Honduras, Mexico andtheUnited States submitted
arequest fortheestablishment ofapanel totheChairman oftheDSB(WT/DS27/6). Under these
circumstances, theEC,concluding thattheComplaining parties wereoftheviewthattheconsultation
phase wasover, decided nottosubmit itsanswers tothese questions norreceived anyanswers toits
ownquestions.
2.4 TheECconsidered that,although theparties totheearlier consultations didexchange questions
andanswers inwriting, these documents could not,intheopinion oftheEC,berelied upon inthe
present procedure. During theconsultations bothsidesagreed thattheparties would re-exchange these
questions andanswers fromtheearlier consultation soastoinclude them intherecord ofthepresent
consultations. Thiswould alsohaveenabled Ecuador toobtain thismaterial since, asanon-participant
intheearlier consultations, ithadnoaccess toit.Suchre-exchange ofquestions andanswers didnot
takeplace, however, andhence these questions andanswers werenotpartoftheconsultation anddid
notform abasis forthepresent dispute settlement procedure.
2.5 Intheopinion oftheEC,theconsultation stage preceding apossible panel procedure should
serve toafford thepossibility tocome toamutually satisfactory solution asforeseen inArticle 4.3
oftheDSU. Theobligation toseeksuchasolution could notbefulfilled unless theindividual claims,
ofwhich amatter oraproblem brought todispute settlement wascomposed, were setoutinthe
consultation phase oftheprocedure.3TheECnoted thattheparties hadexchanged aconsiderable
number ofquestions andanswers andthattheoralconsultations within twohalf-days could notpossibly
2Note: When nototherwise indicated, thefootnotes inthissection arethose oftheparties.
3"United States -Imposition ofAnti-Dumping Duties onImports ofFresh andChilled Atlantic Salmon from Norway",
ADP/87 para. 335. Confirmed bythe(unadopted) panel report on"Japan-Audiocassettes", ADP/136, para. 295ff.WT/DS27/R/USA
Page4
cover allquestions andinreality werehighly perfunctory, thelargest partoftheconsultations being
spent bytheComplaining parties reading outidentical statements. Itwasevident, therefore, inthe
viewoftheEC,thattheseconsultationshadnotfulfilledtheirminimumfunctionofaffordingapossibility
forarriving atamutually satisfactory solution andforaclearsetting outofthedifferent claims ofwhich
thedispute consisted.
2.6 Intheview oftheEC,therequest fortheestablishment ofapanel wasintended tobethe
culmination ofthepreparatory stage ofthedispute settlement procedure. Thiswasnotthecasein
thisdispute. Therequest fortheestablishment ofapanel wasinseveral respects astepbackward from
thesomewhat greater clarity provided during theconsultations (apoint illustrated bytheECwith
examples). TheECasserted that,inthecaseofseveral claims, itwasnotinaposition toknow whether
theclaims advanced during theconsultations were maintained, altered, refined ordropped.
2.7 TheECnoted that,aftertherequest forapanel hadbeendiscussed forthesecond timeby
theDSBatitsmeeting on8May1996, theDSBdecided toestablish thePanel under standard terms
ofreference (WT/DS27/7) which implied thatthematter atissuewasentirely defined inthedocument
requesting theestablishment ofapanel (WT/DS27/6).
2.8 TheECclaimed thatthisrequest wasunacceptably vague inthelightofArticle 6.2oftheDSU
andpastpractice from earlier panels. Article 6.2oftheDSU prescribed, interalia,thattherequest
fortheestablishment ofapanel:
"shall ...identify thespecific measures atissue andprovide asummary ofthelegalbasis of
thecomplaint sufficient topresent theproblem clearly."
Intheopinion oftheEC,these twofunctions could beproperly fulfilled onlyiftherequest forthe
establishment ofapanel didnotmerely restate thematter atissueinitsbroadest terms, asdidtherequest
bytheComplaining parties, butcontained alistofconcrete claims, i.e.briefstatements which linked
aspecific measure (andnotthewhole banana regime) withtheinfringement ofaspecific ruleor
obligation under theWTO (andnotjustawhole listofprovisions).
2.9 Therequest fortheestablishment ofapanel thusclearly infringed, intheopinion oftheEC,
theterms ofArticle 6.2oftheDSU. Itdidnotidentify specific measures atissue -itmerely cited
"theregime". Anditdidnotrelate thespecific measures tothealleged infringement ofaspecific
obligation -itmerely citedalistofArticles. Itwastherefore impossible toknow which Article might
berelated towhich specific measure and,thus,which claim wasbeing made against theEC.TheEC
wasoftheviewthattheconsultations inthepresent casehadnotbeenabletofulfiltheirfunction because
theComplaining parties were notprepared towaitforafurther exchange ofquestions andanswers
asagreed during theoralconsultations on14and15March 1996. Hence therequest wasanullity
and,attheveryleast, theconsultations should berestarted andleadtoaproper request forapanel
responding totherequirements ofArticle 6.2.TheECtherefore requested thePanel todecide this
issue prior toanyexamination ofthesubstance ofthecaseandprescribe anyremedial action deemed
necessary inlimine litis.TheECargued thatatthestage ofthefirstsubmission procedural illegalities
could stillbe"healed" without much damage. If,atthelaststage oftheproceeding before thisPanel,
orbefore theAppellate Body, therequest fortheestablishment ofapanel wereruled tobecontrary
toArticle 6.2oftheDSU, intheviewoftheEC,thecomplications would beconsiderable.
2.10 TheECconsidered thatitwastimetoimpose discipline where itconcerned theformulation
oftherequest fortheestablishment ofapanel. Although there werelarge variations inpractice, such
requests sometimes clearly fellbelow theminimum standard necessary toinform boththedefending
party andpossibly interested thirdparties ofthescope ofthecase. Inthepresent case, ComplainingWT/DS27/R/USA
Page5
parties hadclearly notmettheminimum requirements ofArticle 6.2oftheDSU andoftheSalmon
Panel .4
2.11 TheComplaining parties responded thattheEC'sclaims were without basis intheDSU.
Referring tothetextofArticle 4.2oftheDSU, theComplaining parties argued thattheECwasobliged
toaccord theComplaining parties sympathetic consideration andafford adequate opportunity for
consultation regarding representations made bytheComplainants. Thisobligation wasnotreciprocal.
Article 4.5oftheDSU stated thatMembers "should attempt" toobtain asatisfactory adjustment of
thematter inconsultations, butitreferred to"attempt" anddidnotrequire thatMembers succeed in
settling matters bilaterally. Article 4.7oftheDSUwasunconditional inproviding fortheestablishment
ofapanel uponrequest oftheComplaining partyorparties aftertheexpiration ofthe60-day consultation
period.5
2.12 TheComplaining parties considered thattheyhadprovided theECwithample notice and
explanation oftheirconcerns during theconsultation phase going beyond anyDSU requirement by
providing adetailed seven-page jointstatement andahundred questions detailing themany aspects
oftheECbanana regime about which theyhadconcerns. Thestatement andtheappended "Non-
Exhaustive ListofQuestions" identified specific measures atissueandvarious legalbases forconcern
withadegree ofspecificity wellbeyond what wasnormally provided inanystage before thepanel
procedure. TheEC’scurrent insistence thattheconsultations hadtopermit theECtoidentify each
andevery legal argument thatwould bepresented inthepanel proceeding was,intheview ofthe
Complaining parties, without basis intheDSU. Thebanana regime intheEChadinanyevent been
thesubject ofexhaustive andrepeated consultations, negotiations, andGATT dispute settlement
procedures evenbefore 1991. There wasnowhere intheWTO agreements anyrequirement thatthe
consultations beadress rehearsal forapanel proceeding.
2.13 With reference totheEC'sarguments concerning thenullity oftherequest forestablishment
ofapanel, theComplaining parties argued thatArticle 6.2oftheDSU required allpanel requests to
contain twoelements. First, therequest should "identify thespecific measures atissue". Second,
itshould "provide abriefsummary ofthelegalbasisofthecomplaint sufficient topresent theproblem
clearly".ContrarytotheECclaim,theprimaryqualifyingemphasisofthisprovisionwas,intheopinion
oftheComplaining parties, brevity, continuing theprior GATT emphasis onbrevity enunciated in
theMontreal Rules.6Nowhere didArticle 6.2require adetailed exposition tyingeachspecific measure
toeachprovision oflawtobeclaimed bytheComplaining parties. Thiswaswhat submissions to
thepanel hadtodotoenable thepanel toperform thetaskofexamining particular measures inthe
lightofthecovered agreements. TheComplaining parties considered thattheirrequest of11April 1996
complied fullywiththerequirement ofArticle 6.2. Therequest identified thespecific measures at
issuebycitation tothe"basic" enabling regulation andalllaws, regulations andadministrative measures
thatimplemented,supplementedoramendedthatregulation(whichnumberedinthehundreds),including
specifically those reflecting theBFA. Therequest thenprovided a"brief summary ofthelegalbasis
ofthecomplaint", withalisting ofthespecific agreements andparticular Articles implicated bythe
4"US-NorwaySalmonPanel"("UnitedStates-Imposi tionofAnti-Dumpi ngDutiesonImpor tsofFreshandChilledAtlantic
SalmonfromNorway")ADP/87, paras.335-336; seealsothepanel reporton"Japan-Audi ocasset tes",ADP/136, para.295ff.
5TheComplaining parties noted thateven under earlier GATT practice, itwasclear thatitwasnotnecessary forboth
parties toagree before apanel could beestablished; suchacondition would mean thatoneparty could indefinitely block
theprocedures simply bysaying thatbilateral consultations hadnotyetbeen terminated. SeeStatement ofLegal Adviser
totheDirector-General inrelation toJapan’sattempt in1986 toblock establishment ofapanel onJapan'staxes onalcoholic
beverages, C/M/205 p.10, cited inWTO "Analytical Index" (1995 ed.), p.673.
6"Improvements totheGATT Dispute Settlement Rules andProcedures", Decision of12April 1989, BISD 36S/61,
para. F(a)("The request forapanel ...shallindicate whether consultations were held, andprovide abriefsummary ofthe
factual andlegal basis ofthecomplaint sufficient topresent theproblem clearly.").WT/DS27/R/USA
Page6
regime. Alloftheclaims made bytheComplaining parties inthisdispute werecovered bythisrequest.
None oftheclaims related toaspects oftheregime thatwere notidentified asproblems inthe
consultations.
2.14 TheComplainingpartiessubmittedseveralexamplesofpanelrequestsfiledsince1January1995
thatintheirviewreflected alevelof"specificity" comparable totherequest inthisdispute. Ifany
requests forestablishment ofapanel filedsince 1January 1995 didprovide more detail, itwas,in
theopinion oftheComplaining parties, notdetail compelled byArticle 6.2. Ifsome Members saw
fittoprovide amore detailed exposition oftheproblems thanthatcontained intheComplaining parties '
request, theywere freetodoso,buttheirproviding suchdetail didnotamount to"practice" under
theDSU thatwould dictate howArticle 6.2should beinterpreted. Thearguments withrespect tothe
panel report onUnited States -Imposition ofAnti-Dumping Duties onImports ofFresh andChilled
AtlanticSalmonfromNorway(SalmonPanel),adoptedon30November1992(ADP/87),weremisplaced
intheviewoftheComplaining parties. Totheextent theSalmon Panel declined toexamine claims
raised inthataction, itdidsofortworeasons thatwereinapplicable inthecurrent case. Thefirstwas
thatcertain claims wereoutside thepanel'sterms ofreference. Theother wasthatvarious claims were
notthesubject ofconsultations andconciliation inaccordance withArticle 15.3oftheAgreement on
Implementation ofArticle VIofGATT. Neither finding hadanybearing ontheclaim that"alack
ofspecificity" intherequest failed tomeettherequirements ofanentirely different agreement, the
DSU.
2.15 TheComplaining parties hadrequested theestablishment ofapanel attwomeetings ofthe
DSB: on24April andon8May1996. Atneither oneofthose meetings didtheECoranyother
Member complain thattherequest wastoovague to"present theproblem clearly". Ontheseoccasions,
theECrepresentative mentioned numerous other issues, including itsreservation ofrights under
Article 9.2oftheDSU, butdidnotrequest anyfurther explanation oftherequest. Thenumber of
thirdparties participating inthisproceeding further illustrated thatother Members certainly understood
the"problem" sufficiently togauge theirrespective national interests inthisproceeding.
2.16 TheComplaining parties further argued that,asalegalmatter, theECwasasking thePanel
totakeanaction outside itsterms ofreference. ThePanel wasbound tocomplete itstaskofexamining
theECmeasures inlightofthecovered agreements, asspecified inthose terms ofreference. Those
terms ofreference didnotpermit thePanel to"dissolve itself": theDSUwasnotoneoftheagreements
covered bythePanel'sterms ofreference. TheECargument thatitneeded anearly decision onthis
issuetoavoid "prejudice" was,intheComplaining parties 'view, without basis. TheEChadhadmore
thanadequate notice oftheaspects oftheregime thatwere ofconcern totheComplaining parties.
Ifanything, theComplaining parties hadonlynarrowed theirfocus since theconsultations which
amounted toawindfall, notprejudice, totheEC.Thefurther contention thatparticipating inthesecond
meeting withthePanel andfurther proceedings constituted prejudice wasequally misguided. Indeed,
itmisapprehended entirely thenature ofdispute settlement proceedings under theDSU. Article 3.10
reflected theMembers 'understanding that:
"theuseofdispute settlement procedures should notbeintended orconsidered ascontentious
actsandthat,ifadispute arises, allMembers willengage inthese procedures ingood faith
inaneffort toresolve thedispute."
TheDSUthusconsidered participation indispute settlement proceedings anobligation ofmembership
thatimproved trade relations, notaprejudicial process initself. Theremedy sought bytheEC-
additional timetodefend itself-wasonlyfurther proof oftheopportunistic nature ofthis"procedural"
claim. Itwasnotlikely thatadditional timewould havechanged theEC'spresentation ofitsdefence,
asthefirstmeeting ofthePanel confirmed. TheEC'sclaim ofharm resulting from alleged lackof
specificity should therefore berejected.WT/DS27/R/USA
Page7
2.17 TheECresponded thattheComplaining parties mischaracterized itsposition onthispoint.
TheEC'sposition wasverysimple: therequest fortheestablishment didnotsatisfy therequirements
ofArticle 6.2oftheDSU because of(i)lackofidentification ofspecific measures atissue (i.e.the
regime); and(ii)lackofabriefsummary ofthelegalbasisofthecomplaint sufficient topresent the
problem clearly (i.e.alistofArticles). Therefore, therequest fortheestablishment ofthePanel was
nullandvoid.
2.18 On21January 1996, theECcontinued, Ecuador became aMember oftheWTO; by
5February 1996, theother Complaining parties hadconvinced Ecuador tojointhem andstartnew
consultations which theyrequested onthatday. Because ofproblems concerning themodalities of
consultations andscheduling problems, these consultations tookplace onlyon14-15 March 1996.
Mutual promises weremade toreply tolongquestionnaires, butbefore theprocess hadrunitscourse
arequest forapanel wasfiled. IntheviewoftheEC,undue haste hadresulted inthepanel request
being toobriefasummary topresent theproblem clearly, inparticular inacasewhere anewagreement,
i.e.theGATS, wasbrought upforthefirsttimeinapanel procedure. Asaseparate identification
wasnotmade andthelistofrelevant Articles wassolong, itwasnotevenpossible forthereader of
therequest tocreate hisownlinkbetween thespecific issues andthealleged infringement ofaspecific
provision. Thiswasatleastpossible insome earlier requests forestablishment ofpanels which were
attheborder lineofwhatcould bedeemed acceptable under Article 6.2oftheDSU.
2.19 TheECexplained thatinnotmentioning theissueofthetoosummarized character oftherequest
attheDSBmeeting, theECfollowed thebythenwell-established linethattherespect forthebasic
procedural rulesofthedispute settlement system wasataskforthepanels. Given thatthiswasawell-
established practice, raising thematter intheDSBandtrying toprevent theDSBfrom establishing
thepanel forthatreason would havebeenseenasastalling tactic andonslaught onthe"right toapanel"
recently confirmed intheMarrakesh Agreement. Seeninthislight, theargument advanced bythe
Complaining parties thatthePanel, byruling onArticle 6.2,would betransgressing itsterms of
reference, wassomewhat disturbing. Thisamounted tosaying thattheterms ofreference prevailed
overtheDSU. IfthePanel were notbound bywhat wasineffect theconstitution ofthedispute
settlement system andwould notbeheldtoapply therulesoftheDSU, Members might justaswell
nothavenegotiated theDSU intheUruguay Round. TheComplaining parties hadfinally asserted
thatArticle 6.2should notbeupheld because theEChadsuffered noprejudice asaconsequence.
Thisposition wasmisconceived infactandinlaw. Infact,theEChadsuffered aprejudice, i.e.the
lackofminimal clarity handicapped theECinthepreparation ofitsdefence, which wasnotunimportant
given thattherespondent normally hadlesstimethanthecomplaining Member tomake itswritten
submission. Inlaw,procedural rules, andinparticular therulethattherespondent musthaveaclear
viewofthecaseheldagainst it,hadacertain value inthemselves. Andthatvalue should bedefended
bythePanel. Asthe"healing" measures suggested atthestage oftheEC'sfirstsubmission wereno
longer feasible atthestage oftherebuttal submissions, there wasnoalternative forthePanel butto
draw theconsequences oftheserious defects inherent inthisimportant document: nullity ofthis
procedure.
2.20 Inresponse toaquestion bythePanel, theECanalyzed, inlightofArticle 6.2oftheDSU,
eightpanel requests thatwerebrought totheWTO (some ofwhich withmultiple Complaining parties).
Asapreliminary matter, theECnoted thatitwaspuzzled astohowtheWTO practice withrespect
toArticle 6.2could already havechanged theinterpretation tobegiven tothisArticle asitappeared
fromthe(adopted) Salmon Panel report. Time hadbeentooshortandpractice hadbeentooinconsistent.
Intheview oftheEC,several oftheeight analyzed panel reports didnotmeet orbarely metthe
requirements ofArticle 6.2inthesense thatthere wasaclear indication ofthespecific measure at
issue, oftheprovision oftheagreements allegedly infringed, andalinkbetween thetwo.Aconsiderable
number ofthese requests, however, posed lesser problems inthelightofArticle 6.2thanthepresent
panel request since theywereconcerned withonespecific measure onlyorwithalimited number of
clearly defined measures which made iteasier tolinkthemeasures toanalleged infringement iftheWT/DS27/R/USA
Page8
number ofprovisions citedinthepanel request waslimited. Inthepresent case, however, there was
atotallackofspecificity inthedescription ofthemeasures, ontheonehand, andanextremely long
andunspecified listoftheallegedly infringed WTO provisions, ontheother hand. According tothe
EC,thiswasclearly contrary toArticle 6.2anddidnotfulfil thefunction ofproperly giving notice
totheECofthecaseheldagainst it.
(b) Therequirement oflegal interest
2.21 TheECargued thatinanysystem oflaw,including international law7,aclaimant musthave
alegalrightorinterest intheclaim hewaspursuing. Therationale behind thisrulewasthatcourts
existed todecide casesandnottoreplytoabstract legalquestions; thecourtsystem (intheWTO context,
thepanel system) should notbeburdened needlessly bycases without legalorpractical consequences.
Likewise, therespondent should notbeforced tobearthecosts andinconvenience ofconducting a
panel case, when thecomplaining Member hadnolegalright, ornolegalormaterial interest inthe
outcome ofthecase. TheECsubmitted thatinthepresent casetheUnited States hadnolegalright
ornolegalormaterial interest inthecasethatithadbrought under theGATT andtheother Agreements
contained inAnnex 1AtotheWTO Agreement since noneoftheremedies itcould obtain would be
ofanyavailtoit:compensation orretaliation would notbedue,since theUnited States hadonlya
token production ofbananas andhadnottraded inbananas withtheEC,notevenwiththosegeographical
sectors which under theoldregime hadmaintained virtually freeaccess oronly alowtariff.
Furthermore, theECconsidered thatadeclaratory judgement would beofnointerest since there was
noserious indication thatbanana production intheUnited States could make exports feasible within
theforeseeable future. TheECreferred totheWorking party report onBrazilian Internal Taxes (first
report) which hadmade itclear, intheviewoftheEC,thatacountry mustatleasthavepotentialities
asanexporter inorder tobeabletofileaclaim against another Member.8Moreover, under the
GATT/WTO system theUnited States could notsetitself upasprivate attorney-general andsuein
thepublic interest andtherewerenoindications thattheGATT/WTO system accepted anactiopopularis
byallMembers against anyalleged infringement byanyother Member. There were noindications
sofarintheGATT/WTO system thatpanels were willing togivedeclaratory rulings attherequest
ofMembers which hadnolegalrightorinterest insucharuling, either intheformofapotential trading
interest orintheformofarighttocompensation orretaliation under Article XXIII ofGATT (Article 22
oftheDSU). TheECconcluded that,ontheissues raised under theGATT andother instruments
ofAnnex 1A,theUnited States hadnolegal right orinterest inobtaining aruling from thePanel.
Therefore, theECrequested thatthePanel should decide, inlimine litis,thatitwould notruleonthe
issues withrespect totheUnited States.
2.22 Itwasobvious totheECthattheinterest ofcompanies, suchasChiquita andDole Foods,
wasnotthesameasalegalinterest oftheUnited States inbringing acaseunder theGATT. TheGATT
wasconcerned withthetreatment ofproducts, notcompanies ortheirsubsidiaries. Insofarasthe
United States hadasystemic interest inthecase, where itprofessed tobeconcerned about thegeneral
law-abidingness oftheEC,itadvanced aninterest asintervenor withageneral interest inthe
interpretation oftheGATT. IfthePanel weretotakeposition ontheissueoftheUnited States 'legal
interest inthismatter, theUnited States might perhaps beadmitted asintervenor, i.e.thirdparty, in
theGATT-related partofthecase.
2.23 TheUnited States responded thatithadasignificant commercial interest inseeing theEC
comply withitsGATT andother WTO obligations withrespect toitsbanana regime. TwoUSfruit
7SeetheSouth-West Africa cases, 1966 ICJReports, pp.4 etseq.
8BISD Vol.II/181, para. 16.According totheEC,thepanel'sinterpretation ofGATT Article III:2 thatitmade no
difference "whether imports from other contracting parties were substantial, small ornon-existent" should bereadinthis
light.WT/DS27/R/USA
Page9
companies, Chiquita andDoleFoods, hadplayed amajor roleovermany decades indeveloping the
European market forbananas. Although these bananas were mainly grown inLatin America, US
companies were seriously affected bythemanner inwhich theECwasdistributing market share
opportunities onabasisthatwasunrelated topastimports ofthird-country bananas orability toimport
third-country bananas. TheEC'smeasures hadtheeffect ofconstraining UScompanies 'import,
delivery, anddistribution flexibility andrequired themtoexpand substantial capital justtotrytorestore
theirformer business. Aregime violating GATT rulescould beexpected toadversely affect suchmajor
participants inthemarket. Bothcompanies expressed concerns about thediscrimination intheEC
banana regime andsought anendtoit.
2.24 TheUnited States further argued thattheECwaswellaware oftheinterests andconcerns of
theUnited States since theyhadbeenexplained totheECbydiplomatic efforts thathadbegun over
fiveyears agoandthathadintensified aftertwoGATT panel proceedings hadonlyresulted inadditional
GATT violations bytheEC. TheUnited States hadreiterated itsconcerns during efforts tomore
formally negotiate asolution tothese problems withtheECCommission. TheEC'sarguments with
respect toUSbanana production hadnobearing onthisproceeding. However, theUnited States did
produce bananas inboththestateofHawaii andinPuerto Rico, which waswithin theUScustoms
territory. TheHawaiian producers hadexpressed theirconcerns thattheECbanana regime waslowering
theprice ofbananas inthefreemarket, adversely affecting theirability tocontinue toproduce and
potentially export bananas. TheUnited States considered thatitwasnotfortheECtodecide which
producers intheworld hadaninterest orpotential toexport.
2.25 Asfaraslegalrights orinterests wereconcerned, theUnited States wasaMember oftheWTO
andafounding contracting party oftheGATT. Article XXIII ofGATT, asamplified intheDSU,
permitted theinitiation ofdispute settlement proceedings when anyMember wasconcerned about the
inconsistency ofanother Member 'smeasures. Infact,dispute settlement proceedings could beinstituted
toconsider measures thatwere notevenalleged tobeinconsistent withanyWTO agreement. The
"interest" thataMember hadtohaveinorder toinitiate proceedings wasself-defined: aMember could
initiate procedures whenever (initsjudgement) itconsidered thatbenefits accruing toit,directly or
indirectly, under theGATT were being nullified orimpaired orwhenever itconsidered, initsown
judgement, thattheattainment ofanyobjective ofGATT wasbeing impeded orimpaired asaresult
ofanother Member 'sfailure tocarry outitsGATT obligations. Thiswasthemultilateral procedure
under which governments hadagreed toaddress suchdisputes.
2.26 Mexico considered thattheviewexpressed bytheECthatMexico didnothaveasubstantial
interest inparticipating inthisPanel asaComplaining party since itsbanana exports totheECwere
minimal ornon-existent wasincorrect bothfromthepoint ofviewofMexico 'srights under theGATT
andfromthepointofviewofitsinterest intheinternational banana trade. Ithadbeenclearly established
thatitwasnotnecessary toprove theexistence ofadverse effects forapanel toconfirm theinconsistency
ofaparticular measure withtheprovisions oftheGATT. Mexico hadtherefore refrained fromproviding
amore detailed explanation oftheimpact oftheEC'sregime onitsbanana sector. Intheview of
Mexico, theconsistency ofameasure withWTO obligations should beexamined inlegalterms and
notinterms ofitsimpact ontheeconomies ofother Members. Anyother approach would imply,
wrongly, thatcertain Members hadmore rights thanothers orthattheinterpretation oftheWTO 's
provisions varied according tothecharacteristics ofthecountries involved inadispute.
2.27 Inorder toavoid anymisconception astoMexico 'sinterest intheinternational banana trade
andultimately intheECmarket, Mexico made, however, thefollowing points: (i)Mexico wascurrently
theeighth largest banana producer intheworld; (ii)totalexports fromMexico exceeded 250,000 tonnes
in1992 and1993, andfelltojustunder 200,000 tonnes in1994; (iii)bananas occupied thefourth
place inMexico 'sfruitproduction interms ofareaunder crop, andthesecond afteroranges interms
ofbothproductionvolumeandvalue;(iv)bananasnowoccupiedthefirstplaceinMexico'sfruitexports;
(v)anestimated 50,000 persons were directly employed inbanana production inthetropical areasWT/DS27/R/USA
Page10
ofMexico, nottomention thepersons indirectly employed intransport andmarketing ofbananas;
(vi)theSoconusco region inthestateofChiapas wasthemostimportant banana exporting region of
Mexico (itwaswellknown thatChiapas wasoneofthepoorest ruralstates inthecountry); (vii)bananas
provided theonlyactivity oftheportFrancisco I.Madero, theonlyportinChiapas; and(viii) the
international banana tradewasofvitalimportance totherecovery ofinvestment inthebanana producing
regions. Withrespect toservices, Mexico argued thatitslegalinterest inparticipating intheproceeding
didnotdepend onthemarket share ofitsservice suppliers, butthatinanyevent, amajor banana
distribution company, DelMonte, remained inMexican ownership.
2.28 TheECsubsequently clarified itsposition regarding Mexico 'slegal interest inthisdispute
withthestatement that,although Mexico hadnever exported bananas totheECother thaninsymbolic
quantities, theECdidnotcontest thelegalinterest ofMexico inthisprocedure under theGATT since
itclearly wasapotential exporter ofbananas totheECwithaconsiderable capacity.
2.29 TheComplaining parties considered thatthemanner inwhich theEChadcontinuously and
increasingly defied therulesoftheinternational trading system, affecting somany countries, impeded
theobjectives oftheGATT, andoftheWTO Agreement, toeliminate discrimination ininternational
commerce.
2.30 Withrespect tothisclaim, theUnited States noted thatwitheachGATT proceeding andeach
opportunity toreform itsregime, theEChadonlyadded newlayers ofdiscrimination against imports
from third countries. Intheview oftheUnited States, thispattern wasunprecedented inpostwar
international commerce.
2.31 TheComplaining parties noted thatthenature andscope ofthePanel'sinquiry wassetby
itsterms ofreference. AlltheComplaining parties 'claims before thePanel fellwithin itsterms of
reference. Those terms didnotprovide authority tothePanel simply nottoconsider theComplaining
parties claims. Moreover, theDSU hadnolocus standi limitation. TheWTO agreements atissue
inthisdispute andtheDSU setforth comprehensive, detailed rulesandprocedures governing WTO
dispute settlement. HadtheDSU drafters intended toinstitute alimitation ofthesortbeing advanced
bytheEC,theywould havedoneso.Instead, Article 3.7oftheDSU simply requested that:
"Before bringing acase, aMember shallexercise itsjudgement astowhether action under
these procedures would befruitful."
TheDSU ineffect already recognized thatrecourse todispute settlement under theWTO agreements
wasself-limiting inthataMember would notinitiate andpursue aresource-intensive proceeding unless
itconsidered itself adversely affected; itrespected eachMember ’sdetermination inthatregard.
2.32 TheComplaining parties considered thatthefindings thatwould result from thisproceeding
werenecessary tobring about apositive solution tothedispute. Itwasaccordingly clearthatallfive
Complaining parties werefullywithin theirlegalrights toassert allclaims being advanced inthisaction
withrespect tobothgoods andservices, andtobenefit fromthePanel'sfindings. TheComplaining
parties were notstanding intheplace ofothers, inactio popularis ,astheECsuggested. The
Complaining parties were raising issues intheircapacity asMembers oftheWTO, andsought EC
compliance withspecific disciplines which theEChad,intheWTO agreements, agreed tosubmit to
dispute settlement proceedings forinterpretation inaccordance withtheDSU.
2.33 Where theDSU addressed nullification andimpairment, itdidnotaddress rights toengage
indispute settlement, nordiditlimitthepanel'sconsideration oftheextent towhich themeasures
atissueviolated theagreements. Referring toArticle 3.8oftheDSU, theComplaining parties argued
thatthisprovision defined nullification andimpairment quite broadly, tocover any"adverse impact"
onaMember, presupposing aprior finding ofaninfringement. Thekindofeconomic predictionsWT/DS27/R/USA
Page11
thattheECwould require todetermine "trade potentiality" would, intheview oftheComplaining
parties, involve verydifficult andspeculative calculations ofthetypepanels hadwisely eschewed.
From aglobal perspective, theECapproach would protect onlycurrent exporters orinvestors, atthe
expense offirms thatmight laterinvest inthecountry, orgoods thatmight laterbeproduced forexport
intheabsence oftrade orinvestment barriers. Such arulecould haveaparticularly adverse effect
ondeveloping countries. Itwasessential foremerging economies toguard future trade opportunities
evenbefore"potentialities"becameapparent.Otherwise,opportunitiestopromotetradeanddevelopment
could beforever limited orforeclosed. Since oneofthebasic objectives oftheGATT wastoraise
thestandard ofliving andprogressively develop theeconomies ofallMembers, particularly developing
country Members,9governments hadtohavetheopportunity toseekdispute settlement proceedings
astheysawfitinorder topreserve theirpotential interests.
2.34 TheComplaining parties submitted thatasrecently as1993, inthepanel report onUnited States
-Restrictions onImports ofTuna (Tuna Panel ),10theEChadargued thatanytimeacountry produced
aproduct, eveniftheapplication ofanother country ’smeasure toitsexports wasonlyhypothetical,
thepotential effect onprice initsmarket gaverisetoa"legal interest". TheEChadstated thatit
waschallenging UStrade sanctions thatwere notapplicable totheEConthebasis that:
"Itisclearthatsuchsanctions canhaveanenormous impact onthirdcountries, especially when
fishandfishproducts normally exported totheUnited States havetobesoldonother markets.
Itisprimarily forthatreason thattheEChasaninterest inseeking thecondemnation [bythe
panel]."
TheEChadlateraffirmed thatitsprincipal concern waswithpotential price depression initsown
market resulting fromglobal trade diversion. TheECalsohadgonesofarastosaythatevenatariff
binding provided benefits tonon-suppliers. Atthefirstmeeting withthepanel inthatdispute, the
EChadacknowledged thatthetwomeasures itwaschallenging were"presently notapplicable tothe
Community," buthadadmonished that:
"The GATT doesnotprotect actual trade flows, buttrading opportunities created bytariff
bindings andother rules. Even though acontracting party isnotaprincipal supplier atall
(perhaps evenanon-supplier), itprofits fromthetariffconcessions concluded between principal
suppliers."
TheComplaining parties concluded thatasafactual matter, bysuchastandard, thenullification and
impairment issue would beconclusively resolved withrespect toalltheComplaining parties. With
respect togoods, theUnited States produced more bananas thanseveral oftheEC’sdomestic andACP
supplying sources; withrespect toservices, alltheComplaining parties hadbanana service suppliers
within theirownterritories thatwereorwould beaffected bymeasures discriminating against foreign
service suppliers intheEC.More tothepoint, however, theDSUandWTO agreements didnotpermit
theECorapanel tolimitrecourse todispute settlement proceedings toonlysome Members whom
theECmight consider tohave"potential trade" orwhatever other concepts theECmight wishto
superimpose ontheDSU onthebasis ofso-called "natural justice". Such anapproach would
fundamentally undercut themultilateral nature ofthese agreements.
2.35 TheECresponded thatitcontested thelegal (andmaterial) interest oftheUnited States in
obtaining apanel ruling under theGATT. Inturn,theUnited States hadcontested thisbutdidsofrom
theangle offormal requirements ofstanding oradmissibility. Thiswasperhaps understandable since
inthecommon lawcountries thedistinction between absence oftheformal requirements forstanding
9GATT, PartIV,Article XXXVI:1(a).
10DS29/R, circulated 16June 1994.WT/DS27/R/USA
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andthelackoflegalinterest tosuewasoftennotsharply made. Bothwerecalled "standing". However,
intheopinion oftheEC,itsreference tothemaxim "point d'intérêt, point d'action" should havemade
things clear totheUnited States. Inanycase, theECfailed toseehowaffirmations oftheUnited
States fulfilling theformal requirements toappear before thePanel could detract from theEC's
demonstration thattheUnited States could notpossibly derive anylegalormaterial benefit from its
caseunder theGATT (nocompensation, noretaliation, whilst adeclaratory judgement wasofnointerest
totheUnited States either).
2.36 TheECnoted thataccording toofficial USstatistics, theUnited States formany years has
not,anddoesnotnow, export bananas. TheECfurther noted thatitdidnotcontest theaccuracy of
theseofficial USstatistics. TheECargued thattheUnited States hadclaimed that,although theUnited
States hadnoinformation thatwould contradict USexport figures (which werenil),import statistics
weremore reliable andthese showed thattheUnited States hadexported over1,000 tonnes ofbananas
annually totheECsince 1990. Intheview oftheEC,thiswasamisrepresentation ofthefacts.
Itwaswell-known andaccepted thattheUnited States didnotexport bananas andthattherelevant
USstatistics werecorrect. Furthermore, ECimport statistics didnotshow theorigin ofbananas, but
theirprovenance. Thismeant thatashipload ofbananas from Costa Rica, forexample, which first
might haveheaded foraUSportandsubsequently beenbound fortheECwould beregistered asof
USprovenance. Or,asanother example, intra-EC tradeshowed significant banana imports intoFrance
from theBenelux countries. Thisclearly proved thatimport statistics registered thecountries of
provenance, notoforigin (since theBenelux countries didnotproduce anybananas). TheECnoted
thattheUnited States hadalsosubmitted FAO dataonproduction andexports, according towhich
theUnited States hadproduced between 5,126 and6,210 tonnes annually between 1990 and1995,
buthadexported between 337,365 tonnes and383,216 tonnes annually inthesame period. Inthe
viewoftheEC,thisagain demonstrated howmisleading statistics relying onaggregate imports from
therestoftheworld might be.According totheEC,anytrade fromPuerto Ricowasobviously with
theUSmainland andother USterritories, suchastheVirgin Islands. Since thiswasasituation that
hadexisted formany years, theECwasoftheviewthattheUnited States wasnotapotential entrant
inthebanana trade, could notpossibly suffer anynullification orimpairment, didnotevenhavean
interest inadeclaratory judgement because itcould nottakeadvantage ofthepossible competitive
opportunities and,hence, hadnolegalinterest inaruling under theGATT.
2.37 TheUnited States submitted thatithadnobasis forcontradicting FAO figures thatshowed
exports ofbananas fromPuerto Rico, andthatitdidnotpossess theadministrative ability toascertain
itsexport quantities withthesame precision thatithadwithrespect toimports.
2.38 TheECargued thatthequestion oflegalormaterial interest inthiscasewasaserious matter
anddeserved aserious answer. Thiswasbestdemonstrated bytheUnited States reverting totheTuna
Panel .TheEC'sapproach intheTunaPanel proceeding wasentirely consistent withtheEC'spresent
approach. TheEChadargued initssecond submission intheTuna Panel case: "...potential entrants
intoatrade havealegitimate interest inabreach ofGATT provisions". Inthepresent case, theEC
consideredthattheUnitedStateshaddemonstratedovermanyyears,bynotenteringthetradeinbananas,
thatitwasnotapotential entrant asreferred tointheTuna Panel .
2.39 TheUnited States observed withrespect totheTuna Panel proceeding thattheEChad
challenged three USmeasures, thethirdofwhich hadnopotential effect onanyECexports, andthat
theEChadexplained its"legal interest" inthatparticular measure solely onthebasis ofcollateral
price effects onproducts soldinitsownmarket.
2.40 TheECargued further thattheComplaining parties werehiding behind aformalistic approach
tonullification andimpairment. IntheviewoftheEC,itwaslogical toapply theruleoflackoflegal
interest, ifonecould already seeatanearly stage thatnullification andimpairment would notoccur.
Ithaddemonstrated thatthere wasnosuchinterest, noteveninterms ofadeclaratory judgement.WT/DS27/R/USA
Page13
Moreover, itwasnotnecessary toengage in"difficult andspeculative calculations" inorder tosee
thattheUnited States hadnotrade interest inthematter.
2.41 TheECargued that,evenifthePanel werenottoaccept theCommunity 'sargument onthe
lackofalegal rightorinterest oftheUnited States topursue thecaseunder theGATT, theUnited
States hadnotsuffered anynullification orimpairment under Article XXIII ofGATT. Ifinthepresent
caseaninfringement oftheGATT weretobefound, itwas,unlike inother cases, notdifficult torebut
thepresumption ofnullification orimpairment: theUnited States hadnever exported anybananas
totheECanditdidnotdoso,notbecause itwasblocked inanywaybytheCommunity 'smeasures,
butbecause itdidnothavethecapacity toexport and,through acombination ofclimatic andeconomic
reasons, wasunlikely tohavesuchcapacity inthenearormedium term. Under these circumstances,
theUnited States could notbeconsidered tosuffer nullification orimpairment asaresult ofthe
Community 'smeasures under thebanana regime.
(c) Multiple panel reports
2.42 TheECargued thatthepresent procedure wasaprocedure withmultiple Complaining parties
andhence theEChadtherighttorequest thatthePanel organize itsexamination andpresent itsfindings
totheDSBinsuchamanner thattherights, which theECwould haveenjoyed hadseparate panels
examined thecomplaints, were innowayimpaired. Inparticular, theEChadarighttoaseparate
report oneachcomplaint, ifitsorequested (Article 9.2oftheDSU). TheECmade sucharequest
attheDSBmeeting of8May1996. Inthecourse ofthisproceeding, theEChadreiterated thisrequest
andhadasked thePanel toprepare fourseparate reports, withthereports forGuatemala andHonduras
being joined, since theyhadfiledajointsubmission.
2.43 Referring tothetextofArticle 9.2oftheDSU, theComplaining parties conceded thatthe
DSU appeared torequire thePanel toaccede totheEC'srequest, iftheECinsisted onseparate panel
reports -inspiteoftheadministrative burden onthePanel andtheSecretariat, andthepotential waste
ofresources. IftheECcontinued toinsist onseparate reports, theComplaining parties would assume
that,inkeeping withageneral policy favouring uniformity ofresults, thePanel'sfourdifferent reports
would make thesame findings andconclusions withrespect tothesame claims. Pastpanels had
accomplishedthiswithease.11However,theComplainingpartiesbelievedthattherewereseveralreasons
whytherights which theEC"would haveenjoyed" inseparate proceedings could besatisfied bya
singlereport.AstheComplainingparties'firstsubmissions,theirjointoralpresentationof10September
1996, andtherebuttal submission made clear, withtheexception ofthetariff ratesbeing challenged
byGuatemala andHonduras, alltheComplaining parties were challenging thesame aspects ofthe
ECbanana regime. Asingle panel report could easily identify theseparate claims,12ifany,made by
eachcountry, since theclaims allrelated tothesame measures. Ecuador ’sseparate legalclaim under
Article 4.2oftheAgreement onAgriculture wasbased onthesame aspects oftheEC'sregime as
theclaims made bytheother Complaining parties. Such anapproach would preserve anyrights the
ECwould havehadwithseparate reports. Thedifferent "legal situations" ofanyoftheComplaining
parties were, intheopinion oftheComplaining parties, irrelevant tothePanel'sability tocarry out
itstask: toexamine themeasures identified bytheComplaining parties inlight ofthecovered
agreements.
11See"Republic ofKorea -Restrictions onImports ofBeef-Complaint byAustralia", adopted 7November 1989, BISD
36S/202; "Republic ofKorea -Restrictions onImports ofBeef-Complaint byNewZealand", adopted 7November 1989,
BISD 36S/234; and"Republic ofKorea -Restrictions onImports ofBeef -Complaint bytheUnited States", adopted
7November 1989, BISD36S/268(inwhichthefindingswereidenticalexcept whereauniqueclaimwasmade byacompl aining
party). Seealso"EEC -Restrictions onImports ofDessert Apples -Complaint byChile", adopted 22June1989, BISD 36S/93
and"EEC -Restrictions onImports ofApples -Complaint bytheUnited States", adopted 22June 1989, BISD 36S/135
(inwhich findings werelargely identical except forarguments relating toPartIVandgoods enroute uniquely made byChile).
12See"United States -Taxes onPetroleum andCertain Imported Substances", adopted 17June1987, BISD 34S/136.WT/DS27/R/USA
Page14
2.44 TheECreplied thattheComplaining parties haddeliberately followed acourse during this
procedure ofeffacing thedifferences between them. Intheirsecond submission theypresented, in
asingle submission, theclaims made bydifferent Complaining parties asiftheyhadbeenmade by
all.There wasthusaconstant threat ofconfusion about which oftheComplaining parties claimed
what. Itwasveryimportant torecall thatdifferent Complaining parties hadmade different claims
(especially withregard toservices) andthattheywereindifferent legalsituations (especially withrespect
tolegalinterest). Thecommon second submission evenseemed totaketheposition thatinsituations,
where there hadbeenaclaim onlybyoneComplaining party, suchclaim wasextended toall.This
should befirmly rejected. According totheEC: (i)Ecuador hadmade claims withrespect toboth
goods andservices. These claims were contested bytheEContheirmerits. Ecuador wastheone
countrymakingaclaimunderArticle4.2oftheAgreementonAgriculture;(ii)GuatemalaandHonduras
hadmade noclaims onservices; theirclaims inthefirstsubmission related onlytogoods. TheEC
contested theclaims withrespect togoods ontheirmerits. Guatemala wastheonlycountry making
aclaim under Article IIofGATT; (iii)Mexico hadmade claims ongoods andservices, butitsclaims
onservices inthefirstsubmission wereextremely limited andtotally unsubstantiated. TheECcontested
theclaims inbothdomains ontheirmerits; (iv)theUnited States hadmade claims ontrade ingoods
andontrade inservices. TheECcontested theclaims ontrade ingoods forreasons oflackoflegal
interest onthepartoftheUnited States. TheUnited States claims onservices werecontested ontheir
merits.
2.45 TheECfurther argued thattheComplaining parties were inverydiverse legalpositions as
demonstrated intheforegoing paragraph. Iftherewasonesituation inwhich therighttoseparate reports
inthecaseofmultiple complaining parties hadafunction, itwasinthepresent case,asitwasfarfrom
clear thatthePanel could reach thesame findings andconclusions withrespect tothesame claims
forallComplaining parties. Itwasofgreat importance fortheECthatitbeclearly established at
theendofthisprocedure which oftheComplaining parties hadseenwhich claims accepted bythe
Panel andwhich not.Inthese circumstances, theECconsidered itonlylogical toinvoke whatwas
itsperfect rightunder Article 9.2oftheDSU.
2.46 TheComplaining parties considered thattheEChadmisstated thenature oftheirclaims.
Allfiveweremaking alltheclaims made intheirjointpresentations, bothwithrespect togoods and
services. While some hadmade oneortwoadditional claims inthegoods area, these wereminimal.WT/DS27/R/USA
Page15
III. FACTUAL ASPECTS
3.1 Thecomplaint examined bythePanel relates totheEC'scommon market organization for
bananas introduced on1July1993.
(a) Banana production andtrade
3.2 World production ofbananas in1995isestimated at54.5million tonnes (FAO). Thelargest
producer countries wereIndia(9.5million tonnes) andBrazil (5.7million tonnes) followed byEcuador
(5.4million tonnes), China (3.3million tonnes) andthePhilippines (3.2million tonnes). Banana
production oftheComplaining parties, other thanEcuador, wasasfollows: Mexico 2.1million tonnes,
Honduras 0.8million tonnes, Guatemala 0.5million tonnes andtheUnited States (including Puerto
Rico) 54,500 tonnes.13In1994 (themostrecent yearforwhich FAO dataareavailable) thelargest
exporters were: Ecuador (2.35 million tonnes), Costa Rica(2million tonnes), Colombia (1.7million
tonnes), thePhilippines (1.2million tonnes) andPanama (0.7million tonnes). According tothesame
source, Honduras, Guatemala andtheUnited States14eachexported 0.4million tonnes andMexico
0.2million tonnes.
3.3 In1994, theECwastheworld 'ssecond largest importer ofbananas, aftertheUnited States
(3.7million tonnes) andfollowed byJapan (0.9million tonnes).15According todatasubmitted by
theEC,supplies offresh bananas intheEC-12totalled approximately 3.5million tonnes in1994,
2.1million tonnes ofwhich originated inLatin American countries and727,000 tonnes inAfrican,
Caribbean andPacific (ACP) countries thatareparties totheLomé Convention. Theleading suppliers
ofLatin American bananas totheECwere Costa Rica, Ecuador, Colombia, Panama andHonduras
(indescending order).16Theleading suppliers ofACPbananas totheECwereCameroon, Côted'Ivoire,
St.Lucia, theDominican Republic, Jamaica, Belize andDominica (indescending order). Formany
ACPcountries, banana exports totheECrepresent averyhighproportion oftheirtotalbanana exports
(seetheAttachmenttothisreport).DomesticECproducerssupplied,accordingtotheEC,approximately
645,000 tonnes ofthebananas consumed intheEC,withtheproducing areas being theCanary Islands,
Martinique, Guadeloupe, Madeira, theAzores andtheAlgarve, andCrete andLakonia. Theconditions
ofproduction differ among allcountries andsodothecosts ofproduction.
(b) TheEC'scommon organization ofthebanana market
3.4 The common market organization for bananas, asestablished byCouncil
Regulation (EEC) 404/93 ("Regulation 404/93"), replaced thevarious national banana import regimes
previouslyinplaceintheEC'smemberStates.SubsequentEClegislation,regulationsandadministrative
measures implemented, supplemented andamended thatregime.
3.5 Under theprevious national import regimes, France, Greece, Italy, Portugal andtheUnited
Kingdom restricted imports ofbanana bymeans ofvarious quantitative restrictions andlicensing
13Source: FAO.
14InthecaseoftheUnited States, theFAO export dataarecontested bytheEC(seeparagraph 2.36above insection II-
procedural issues). Itwould appear thataccording toUSexport figures there areno,oronlynegligible, quantities ofbananas
exported.
15Eurostat andFAO.
16ECimport statistics for1989-95 arecontained intheAttachment tothisreport, although itshould benoted thatsome
ofthese data, which were submitted bytheEC,arecontested bytheComplaining parties.WT/DS27/R/USA
Page16
requirements. Spain maintained adefacto prohibition onimports ofbananas.17TheFrench market
wassupplied principally fromtheoverseas departments ofGuadeloupe andMartinique, withadditional
preferential access granted totheACPStates ofCôted'Ivoire andCameroon. TheUnited Kingdom
grantedpreferentialaccesstobananasfromtheACPStatesofJamaica,theWindwardIslands(Dominica,
Grenada, St.Lucia andSt.Vincent andtheGrenadines), Belize andSuriname. Bananas from ACP
countries were permitted duty-free intoallECmember States. TheSpanish market wasalmost
exclusively supplied bydomestic production from theCanary Islands. Amajor partofPortuguese
supply came fromMadeira, theAzores andtheAlgarve, withadditional volumes being imported from
Cape Verde andanyremaining requirements being imported fromthirdcountries. TheGreek market
wasinpartsupplied bybananas from domestic sources (Crete andLakonia) andinpartbythird
countries. Italyoffered preferential access tobananas fromSomalia. Belgium, Denmark, Germany,
Luxembourg,IrelandandtheNetherlandsdidnotapplyquantitativerestrictionsand,exceptforGermany,
useda20percenttariff asthesoleborder measure (paragraph 3.31below refers). These countries
almost exclusively imported bananas from Latin America. Germany hadaspecial arrangement, set
outinthebanana protocol oftheTreaty ofRome, permitting duty-free imports ofthird-country bananas
reflecting thelevelofestimated consumption.
3.6 Regulation 404/93 consists offiveseparate titles. Titles ItoIIIregulate theinternal aspects
ofthecommon market organization. TitleIprovides thatcommon quality andmarketing standards
forbananas aretobeestablished insubsequent regulations. TitleIIcontains rulesconcerning producers '
organizations and"concentration mechanisms" topromote theestablishment oforganizations forthe
purposes of,interalia,concentrating supply, regulating prices attheproduction stage, andimproving
ECproduction structures andquality. TitleIIIestablishes ECassistance forthedomestic banana sector.
Under thistitle,members ofrecognized ECproducer organizations (andindividual producers under
certaincircumstances)areeligibleforcompensationofanyincomelossresultingfromtheimplementation
oftheECbanana regime, themaximum quantity forsuchcompensation being fixed at854,000 tonnes
ofbananas fortheECasawhole.
(i)Tariff treatment
3.7 TitleIV,which regulates trade withthirdcountries, establishes three categories ofimports:
(i)traditional imports fromtwelve ACPcountries18;(ii)non-traditional imports fromACPcountries
which aredefined asbothanyquantities inexcess oftraditional quantities supplied bytraditional ACP
countries andanyquantities supplied byACPcountries which arenottraditional suppliers oftheEC;
and(iii)imports fromthird(non-ACP) countries. TheECapplies thefollowing tariffs tothesebanana
imports:
17See"Panel onEEC -Import Regime forBananas", DS38/R (notadopted), paras. 17etseq.
18Belize,Cape Verde,Côted'Ivoire,Camer oon,Dominica,Grenada, Jamai ca,Madagascar ,Suriname, Somalia,St.Lucia,
andSt.Vincent andtheGrenadines (Article 15.1ofCouncil Regulation (EEC) 404/93 (asamended) andtheAnnex thereto).WT/DS27/R/USA
Page17
ECtariff treatment ofbanana imports
Category ofbanana imports Source/Definition Tariffs applied
Traditional ACP bananas Bananas within country-specific
quantitative limits totalling 857,700
tonnes established foreach of12ACP
countries.Duty-free.
Non-traditional ACP bananas Either ACP imports above the
traditional allocations fortraditional
ACP countries oranyquantities
supplied byACP countries which are
non-traditional suppliers.Duty-free upto90,000 tonnes,
divided intocountry-specific
allocations andan"other ACP
countries" category;
ECU 693pertonne forout-of-quota
shipments in1996/97.
Third-country bananas Imports from anynon-ACP source. ECU 75pertonne upto2.11 million
tonnes asprovided intheEC
Schedule. Anadditional
353,000 tonnes were made available
in1995 and1996. Country-specific
allocations were made forcountries
party totheFramework Agreement
onBananas (BFA), plusan"others"
category19;
ECU 793pertonne forout-of-quota
shipments in1996/97.
(ii)Quantitative aspects, including country allocations
(1) Traditional ACP imports
3.8 ImportsofbananasfromthetwelvetraditionalACPcountriesenterduty-freeuptothemaximum
quantity fixedforeachACPcountry (seetablebelow which alsoincludes allocations fornon-traditional
ACPcountries).20These allocations collectively amount to857,700 tonnes. These quantities arenot
bound intheECSchedule. There isnoprovision intheECregulations foranincrease inthelevel
oftraditional ACP allocations.
19TheEChasopened additional tariff quota access under hurricane licences (para. 3.15 below refers).
20Article 15.1 ofCouncil Regulation (EEC) 404/93 (asamended) andtheAnnex thereto.WT/DS27/R/USA
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Allocations forduty-free banana imports from ACP countries
Country Traditional quantities assetoutin
ECRegulation 404/93 (tonnes)Non-traditional quantities assetoutin
ECRegulation 478/95 (tonnes)
Belize 40,000 15,000
Cameroon 155,000 7,500
Cape Verde 4,800
Côte d'Ivoire 155,000 7,500
Dominica 71,000
Dominican Republic 55,000
Grenada 14,000
Jamaica 105,000
Madagascar 5,900
Somalia 60,000
St.Lucia 127,000
St.Vincent andtheGrenadines 82,000
Suriname 38,000
"Other"215,000
Total 857,700 90,000
(2) Non-traditional ACP andthird-country imports
3.9 Imports ofnon-traditional ACPbananas andbananas fromthirdcountries aresubject toatariff
quota (alsoreferred tobytheECasthe"basic tariffquota") of,originally, 2million tonnes (netweight).
Thistariffquota wasincreased to2.1million tonnes in1994andto2.2million tonnes asof1January
1995. These tariffquota quantities werebound intheECUruguay Round Schedule.22Thetariffquota
canbeadjusted onthebasis ofa"supply balance" tobederived from production andconsumption
forecasts prepared inadvance ofeachyear.23In1995and1996, avolume of353,000 tonnes wasadded
tothetariff quota asaresult of"consumption andsupply needs" resulting fromtheaccession ofthree
newECmember States, Austria, Finland andSweden. Thisadditional volume isnotbound inthe
ECSchedule. Inpractice, however, theEC'stariff quota fornon-traditional ACP andthird-country
banana imports wasincreased to2.553 million tonnes.24
3.10 Ofthetariff quota referred toabove, 90,000 tonnes arereserved forduty-free entries ofnon-
traditional ACP bananas. Thisvolume isbound intheECSchedule asaresult oftheBFA. By
21E.g.Ghana andKenya.
22Schedule LXXX -European Communities.
23Article 16ofCouncil Regulation (EEC) 404/93 (asamended).
24Inaddition, theECissued hurrican licences, seepara. 3.15 below.WT/DS27/R/USA
Page19
regulation, theECallocated thisimport volume largely among specific supplying countries (seetable
inparagraph 3.8above).25
3.11 Under theterms oftheBFA, theECallocated initsSchedule specific shares ofthebound tariff
quota of2.1million tonnes in1994 and2.2million tonnes in1995, respectively, asfollows.26
BFA allocations under thebound tariff quota forthird-country and
non-traditional ACP banana suppliers
Country Share
Costa Rica 23.40 %
Colombia 21.00 %
Nicaragua 3.00 %
Venezuela 2.00 %
Others (1994) 46.32 %
(1995) 46.51 %
Dominican Republic andother ACP countries
concerning non-traditional quantities 90,000 tonnes
3.12 TheBFA alsoprovides that,"Incaseofforce majeure ,acountry listed inparagraph 3.11
above, may, onthebasis ofanagreement notified inadvance totheCommission, fulfil allorpartof
itsquota withbananas originating inanother country listed inparagraph 3.11above. Inthiscase,
thedeliveries fromthetwocountries concerned shallbeadjusted accordingly inthefollowing year."27
3.13 Furthermore, "Ifabanana exporting country withacountry quota informs theCommunity
thatitwillbeunable todeliver thequantity allocated toit,theshort-fall shallbereallocated bythe
Community inaccordance withthesame percentage shares indicated under paragraph 3.11above
(including 'others ').However, countries withcountry quotas mayjointly request andtheCommission
shallagree toadifferent allocation amongst those countries."28
3.14 TheECalsoundertook toallocate anyincrease intheECtariffquota inproportion totheshares
setoutinparagraph 3.11, including to"others". However, according totheBFA, "...countries with
country quotas mayjointly request andtheCommission shallagree toadifferent allocation amongst
those countries."29
25Article 1ofCommission Regulation (EC) 478/95 (asamended) andAnnex 1thereto.
26"Framework Agreement onBananas", Annex toPartI,Section I-B(tariff quotas) inSchedule LXXX -European
Communities.
27Idem, para. 3.
28Idem, para. 4.
29Idem, para. 5.WT/DS27/R/USA
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(3) Hurricane licences
3.15 From November 1994toMay1996, theECissued 281,605 tonnes ofsupplemental "hurricane
licences". Hurricane import volumes enter inaddition tothe2.553 million tonne tariff quota andare
subject tothethird-country (non-ACP) in-quota tariff (ECU 75pertonne). Hurricane licences may
beusedtoimport bananas from anysource.30
(iii)Licensing requirements
3.16 Imports ofbothtraditional ACPandnon-traditionalACP/third-country bananas aresubject to
licensing procedures.
3.17 According toCommission Regulation (EEC) 1442/93 ("Regulation 1442/93"), banana imports
intotheECaremanaged onaquarterly basis. Foreachofthefirstthreequarters inanyyear,"indicative
quantities" areestablished based onpasttrade patterns, seasonal trends, andthesupply anddemand
balance prevailing intheECmarket. These indicative quantities determine thevolumes oftraditional
ACP bananas andnon-traditional ACP/third-country bananas, respectively, thatareavailable fora
given quarter forthepurpose ofissuing import licences.31Theimport volumes thusavailable aredivided
proportionally among origins inaccordance withtheallocations indicated inthetables inparagraphs
3.8and3.11above.32Thelicences available inthefourth quarter ofanycalendar yeararedetermined
bysubtracting those issued inthefirstthree quarters fromthetotalquantity available foreachorigin.
Import licence applications aretobelodged withthecompetent authority ofaECmember Statewithin
aspecified period oftimeforthepurpose ofobtaining alicence forthesubsequent quarter.33Inthe
caseof"unused" quantities covered bylicences, there isaprocedure forreallocation tothesame
operators inanysubsequent quarter.34
(1) Traditional ACP imports
3.18 Licence applications forimports oftraditional ACPbananas muststatethequantity andorigin
fromwhich operators intend tosource theirbananas. Applications arealsorequired tobeaccompanied
byanACP certificate oforigin testifying tothestatus astraditional ACP bananas.35When licence
applications exceed theindicative quantities oftraditional bananas fixed foraparticular country of
origin, asingle reduction coefficient isapplied toallapplications (areduction coefficient serves to
reduce importers 'licence applications proportionally totheavailable volume).36
3.19 Licences areissued bythecompetent member State authority nolaterthanthe23rddayof
thelastmonth ofthepreceding quarter (where thatdayisnotaworking day,thelicences areissued
30Seee.g.Commission Regulation (EC) 2791/94.
31Article 16ofCouncil Regulation (EEC) 404/93 (asamended); Articles 9and14Commission Regulation (EEC) 1442/93
(asamended).
32Article 14Commission Regulation (EEC) 1442/93 (asamended); Article 1ofCommission Regulation (EC) 478/95
(asamended).
33Commission Regulation (EEC) 1442/93 (asamended), Articles 9and14.
34Idem, Articles 10and17.
35Idem, Articles 14.4 and15.
36Idem, Article 16.2.WT/DS27/R/USA
Page21
onthefirstsubsequent working day). Thevalidity ofimport licences expires ontheseventh day
following theendofthequarter inquestion.
(2) Non-traditional ACP andthird-country imports
3.20 Import licences forthird-country bananas andnon-traditional ACP bananas areallocated on
thebasisofseveral cumulatively applicable procedures, including: (i)allocation oflicences based on
three operator categories; (ii)allocation oflicences according tothree activity functions; (iii)export
certificate requirements forimports fromCosta Rica, Colombia andNicaragua; and(iv)atwo-round
quarterly procedure toadminister licence applications.
3.21 Operator categories :Under theEC'soperator category rules, import licences aredistributed
among three categories ofoperators based onquantities ofbananas marketed during thelatest three
yearperiod forwhich dataareavailable (seetablebelow).37Asoperators inCategory C("newcomers")
donothavereference quantities based onpasttrade, theirallocation isdependent onthevolume of
licence applications thenewcomer portion ofthetariff quota.38Category AandBlicences are
transferable (tradeable) among operators, including tooperators inCategory C.Category Clicences
are,however, nottransferable toCategories AandB.Transferred licences aretaken intoaccount
inestablishing reference quantities.39
Operator categories under thetariff quota forthird-country/non-traditional ACP imports
Operator category
definition40Allocation ofimport licences
allowing theimportation of
bananas atin-quota ratesBasis of
determining operator
entitlement
Category A:operators thathave
marketed third-country and/or non-
traditional ACP bananas.66.5% Average quantities ofthird-country
and/or non-traditional ACP bananas
marketed inthethree most recent
years forwhich dataareavailable.
Category B:operators thathave
marketed ECand/or traditional ACP
bananas.30% Average quantities oftraditional ACP
and/or ECbananas marketed inthe
three most recent years forwhich data
areavailable.
Category C:operators whostarted
marketing bananas other thanEC
and/or traditional ACP bananas as
from 1992 orthereafter ("newcomer
category").3.5% Divided prorataamong applicants.
3.22 Activity functions :Theoperator Categories AandBarefurther subdivided intothree types
ofqualifying entities ("activity functions"), assetforth inthetable below. Inorder toqualify as
Category Aand/or Boperators, economic agents musthaveperformed atleastoneofthese activities
37Article 19ofCouncil Regulation (EEC) 404/93 (asamended).
38Commission Regulation (EEC) 1442/93 (asamended), Article 4.4.
39Idem, Article 13.
40Article 19ofCouncil Regulation (EEC) 404/93 (asamended) andArticle 2ofCommission Regulation (EEC) 1442/93
(asamended).WT/DS27/R/USA
Page22
in"marketing"41bananas during therolling three-year reference period (i.e.theperiod determining
theirreference quantities ;for1993, theyears 1989-91). Inaddition, operators mustbeestablished
intheECandhavetraded aminimum of250tonnes ofbananas inanyoneyearofthereference period.42
Activity function system under thetariff quota forthird-country/non-traditional ACP imports
Activity functions Definitions43Weighting
coefficients
Activity (a):
"primary importer""thepurchase ofgreen third-country bananas and/or ACP bananas from the
producers, orwhere applicable, theproduction, andtheir subsequent
consignment toandsaleofsuch products intheCommunity"57percent
Activity (b):
"secondary importer
orcustoms clearer""asowners, thesupply andrelease forfreecirculation ofgreen bananas
andsalewithaview totheir subsequent marketing intheCommunity; the
risks ofspoilage orlossoftheproduct shall beequated withtherisktaken
onbytheowner"15percent
Activity (c):
"ripener""asowners, theripening ofgreen bananas andtheir marketing within the
Community"28percent
3.23 Theweighting coefficient assigned toeach typeofactivity function multiplied bythe
average quantity ofbananas marketed byeachoperator ofCategories AandBinthethreemostrecent
years, determines theindividual operator 'sreference quantity.44According toRegulation 1442/93,
theweighting coefficients aredesigned toreflect thelevelofcommercial riskborne byoperators for
eachoftheactivities inthemarketing chain forbananas.45
3.24 Operators areexpected toidentify theactivity function orfunctions uponwhich theyaremaking
theirclaim oflicence entitlement (operators mayhaveperformed morethanoneactivity andthusobtain
aweighting coefficient ofuptoonehundred percent). Thereference quantities are,aftertheapplication
ofasingle provisional reduction coefficient foroperator Categories AandB,respectively, usedin
calculating anindividual operator ’sprovisional annual entitlement tobanana import licences.46These
entitlements arenormally determined afewmonths before thebeginning oftheapplicable year,although
theymaybe,andgenerally are,subject tochanges throughout theyear(including theapplication of
afinalreduction coefficient).47Inpractice, thetotalreference quantities established bytheECfor
eachofthemarketing years since theintroduction ofthecommon market organization forbananas
haveexceededthevolumeofthetariffquotaavailablefordistributionamongstoperatorssothatreduction
coefficients were applied.
41According toArticle 15.5ofCouncil Regulation (EEC) 404/93 (asamended), "'market 'and'marketing 'mean placing
onthemarket, notincluding making theproduct available tothefinalconsumer". Furthermore, Article 3.2ofCommission
Regulation (EEC) 1442/93 (asamended) provides that"wholesalers andretailers shall notbeconsidered operators solely
byvirtue ofsuch activities" (i.e.theactivities assetoutinthetable below) butdoes notdefine these terms.
42Commission Regulation (EEC) 1442/93 (asamended), Article 3.
43Idem, Article 3.
44Idem, Article 5.
45Idem, Recitals.
46Idem, Article 6.
47E.g.Commission Regulation (EC) 2947/94.WT/DS27/R/USA
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3.25 Export certificates :Pursuant totheBFA, supplying countries thathavecountry allocations
maydeliver special export certificates forupto70percentoftheirallocations. Colombia, Costa Rica
andNicaragua havechosen toissue suchcertificates. According toECregulation, presentation of
suchcertificates ("export licences") byCategory AandCategory Coperators constitutes aprerequisite
fortheissuance, bytheEC,oflicences fortheimportation ofbananas from these countries.48
3.26 Two-round quarterly licence applications :Regulation 478/95 (asamended) establishes two
rounds ofimport licence applications within eachquarter. Inthefirstround, AandBoperators can
request licences uptotheirquarterly entitlements. Category Coperators mayapply fortheirfullannual
entitlement inanygiven quarter. Intheirapplications, companies mustdesignate thesource fromwhich
theyplantoimport andthedesired volumes. Category AandCoperators importing fromBFAcountries
other thanVenezuela mustattach special export certificates. Alllicence applications aretransmitted
bythecompetent authorities oftheECmember States totheECCommission which, iftheapplications
foranycountry oforigin exceed theindicative quantity available forthatorigin (inanygiven quarter),
applies acountry-specific reduction coefficient which reduces suchapplications proportionally. "First
round" licences aretobeissued bythecompetent authorities bythe23rddayofthemonth preceding
therelevant quarter (where thatdayisnotaworking day,thelicences areissued onthefirstsubsequent
working day).
3.27 After thefirstround, theECpublishes thesources andquantities thatwerenotexhausted (so
far,mainly quantities from BFAcountries andcertain non-traditional ACP countries49)forpurposes
ofasecond round allocation. Those operators whose initial licence applications arescaled backby
areduction coefficient havetheoption toparticipate inasecond round ofapplications inrespect of
thedifference between theiroriginal application andtheirallocation foroneoftheorigins where the
allocations arenotexhausted.50After theECpublishes thefirstround reduction coefficients, bythe
23rddayofthemonth prior tothebeginning ofthequarter, theoperators havetendaystore-apply
forthesecond round. Onthebasis ofapplications received, theECCommission determines, if
necessary, reduction coefficients andthenpublishes thequantities forwhich licences maybeissued
inthesecond round. Inpractice, publication ofthese quantities often occurred twoweeks intothe
quarter forwhich thelicences wereissued.51Both"first" and"second" round licences arevaliduntil
theseventh dayofthemonth following theendofthequarter.
(3) Hurricane licences
3.28 Hurricane licences aregranted, onanadhocbasic, tooperators who"include ordirectly
represent" aproducer adversely affected byatropical storm andarethusunable tosupply theEC
market.52Asnoted above, hurricane licences maybeusedtoimport bananas fromanysource. Bananas
imported withhurricane licences maybecounted asreference quantities forfuture eligibility for
Category Blicences.
48Article 3.2ofCommission Regulation (EC) 478/95 (asamended).
49Seee.g.Commission Regulations (EC) 704/95, 1387/95, 2234/95 (asamended) and2913/95.
50Article 4ofCommission Regulation (EC) 478/95 (asamended).
51SeeCommission Regulations (EC) 2500/95, 45/96, 670/96, 1371/96, respectively.
52E.g.Article 2ofCommission Regulation (EC) 2791/94.WT/DS27/R/USA
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(c) Trade policy developments concerning bananas
(i)Disputes relating tobananas under theGATT
3.29 Elements ofthepresent ECmarket organization forbananas werethesubject ofacomplaint
byColombia, Costa Rica, Guatemala, Nicaragua andVenezuela in1993. Thepanel which was
established bytheGATT CONTRACTING PARTIES toexamine thematter submitted itsreport on
11February 1994 (second Banana panel).53Prior totheestablishment ofthecommon market
organization forbananas on1July1993, thebanana regimes ofindividual ECmember States were
thesubject ofacomplaint bythesame countries mentioned above. Theresulting GATT panel (first
Banana panel) issued itsreport on3June1993.54Neither panel report wasadopted bytheGATT
CONTRACTING PARTIES.
(ii)Framework Agreement onBananas (BFA)
3.30 In1994, theECnegotiated theBFAwithColombia, Costa Rica, Venezuela andNicaragua.
Asdescribed above, theBFAcontains provisions concerning thesizeofthebasic tariff quota, thein-
quota tariff (ECU 75pertonne), country-specific allocations andtransferability ofthose allocations,
the90,000 tonne allocation fornon-traditional ACPbananas, andexport certificates. ThefourLatin
American parties totheBFA agreed nottopursue theadoption ofthereport ofthesecond Banana
panel. Guatemala, thefifthcomplaining contracting party tothesecond Banana panel, isnotaparty
totheBFA. TheBFAwasincorporated intotheEC'sUruguay Round Schedule inMarch 1994.55
TheBFAcame intoforce on1January 199556anditsfunctioning isscheduled tobereviewed "before
theendofthethirdyear" withfullconsultations withMember Latin American suppliers. TheBFA
isapplicable until31December 2002.57
(iii)Tariff changes
3.31 From 1963, theEChadaconsolidated tariff of20percentadvalorem onbananas. Initial
negotiating rights wereheldbyBrazil. Withtheintroduction ofthecommon market organization for
bananas on1July1993, atariff quota wasestablished withanin-quota tariff ofECU 100pertonne
forthird-country bananas andECU 850pertonne forout-of-quota imports. Out-of-quota imports of
ACP bananas weresubject toatariff ofECU 750pertonne. On26October 1993, theECnotified
theCONTRACTING PARTIES ofitsintention torenegotiate the1963 concession onbananas in
accordance withtheprovisions ofArticle XXVIII:5 ofGATT 1947. On1July1995, theEC'sUruguay
Round Schedule, including itstariff concession onbananas, became effective (seealsoparagraph 3.7
above).58
3.32 Inaccordance withtheECreduction commitments asaresult oftheUruguay Round, thelevel
ofthebound tariff wasreduced on1July1995 toECU 822pertonne andon1July1996 to
ECU 793pertonne. Thefinalbound MFN rateattheendofthesix-year implementation period of
53Panel on"EEC -Import Regime forBananas", DS38/R (notadopted).
54Panel on"EEC -Member States 'Import Regimes forBananas", DS32/R (notadopted).
55Schedule LXXX -European Communities.
56Commission Regulation (EC) 3223/94 (asamended).
57Paragraph 9oftheAnnex "Framework Agreement onBananas" inSchedule LXXX -European Communities.
58Insigning theFinal Act,Guatemala submitted aletter stating thatitwasreserving "allGATT andWTO rights" relative
totheEC'sSchedule asregards bananas.WT/DS27/R/USA
Page25
theUruguay Round results willbeECU 680pertonne. Inaccordance withtheBFAentered intoby
theECwithColombia, Costa Rica, Nicaragua andVenezuela, theMFN in-quota tariffratewasreduced
andbound atECU 75pertonne from 1July1995 (though itwasapplied from 1January 1995).
(iv)Lomé waiver
3.33 TheFourth Lomé Convention, signed on15December 1989between theECand70African,
Caribbean andPacific developing countries, many ofwhich areMembers oftheWTO, contains a
protocol concerning bananas, along withprovisions applying toproducts more generally. Likeits
predecessors, theFourth Lomé Convention wasnotified totheGATT andconsidered byaworking
party.
3.34 On10October 1994, theECrequested, together withtheACPcontracting parties, awaiver
from theEC'sobligations under Article I:1ofGATT 1947.59Thewaiver wasgranted bythe
CONTRACTING PARTIES on9December 1994andprovides, inparagraph 1ofthewaiver decision,
asfollows:
"[T]he provisions ofparagraph 1ofArticle IoftheGeneral Agreement shallbewaived, until
29February 2000, totheextent necessary topermit theEuropean Communities toprovide
preferential treatment forproducts originating inACP States asrequired bytherelevant
provisions oftheFourth Lomé Convention, without being required toextend thesame
preferential treatment tolikeproducts ofanyother contracting party."60
3.35 On14October 1996, theLomé waiver asgranted bydecision oftheGATT CONTRACTING
PARTIES atitsDecember 1994session wasextended until29February 2000(inaccordance withthe
procedures mentioned inparagraph 1oftheUnderstanding inrespect ofWaivers andthose ofArticle IX
oftheWTO Agreement).61
(v)Accession ofAustria, Finland andSweden totheEC
3.36 Following theaccession ofAustria, Finland andSweden totheECon1January 1995, the
ECautonomously increased access under in-quota tariff conditions (ECU 75pertonne) by353,000
tonnes.62Theadministration ofthese additional quantities issubject tothesame procedures asthe
bound tariff quota, although theyhavenotbeenbound intheECSchedule.
59GATT document L/7539 of10October 1994 andL/7539/Corr.1.
60Para. 1ofGATT document L/7604 of19December 1994.
61WT/L/186 of18October 1996.
62According todatasubmitted bytheEC,thisvolume corresponds totheaverage yearly consumption ofbananas inthese
three countries intheperiod 1991-93.WT/DS27/R/USA
Page26
IV. MAIN ARGUMENTS63
A. GENERAL
4.1 Intheirrequest fortheestablishment ofthePanel, Ecuador, Guatemala, Honduras, Mexico
andtheUnited States ,acting jointly andseverally, submitted thattheECmaintained aregime for
theimportation, saleanddistribution ofbananas asestablished byRegulation 404/93 (O.J. L47of
25February 1993, page1),andsubsequent EClegislation, regulations andadministrative measures,
including those reflecting theprovisions oftheFramework Agreement onBananas. TheComplaining
parties considered thattheregime andrelated measures wereinconsistent withthefollowing Agreements
andprovisions among others:
- Articles I,II,III,X,XIandXIIIoftheGeneral Agreement onTariffs andTrade 1994
("GATT"),
- Articles 1and3oftheAgreement onImport Licensing Procedures ("Licensing
Agreement"),
- theAgreement onAgriculture,
- Articles II,XVIandXVII oftheGeneral Agreement onTrade inServices ("GATS"),
and
- Article 2oftheAgreement onTrade-Related Investment Measures ("TRIMs
Agreement").
Inaddition, theyclaimed thatthemeasures alsoproduced distortions which nullified orimpaired benefits
accruing toEcuador, Guatemala, Honduras, Mexico andtheUnited States, directly orindirectly, under
thecited Agreements; andthemeasures impeded theobjectives oftheGATT andtheother cited
Agreements (WT/DS27/6).
4.2 Following thejoint request fortheestablishment ofthePanel, itscomposition andthe
establishment ofterms ofreference, Ecuador, Guatemala, Honduras, Mexico andtheUnited States
made submissions tothePanel. Thefirstsubmissions weremade byeachComplaining partyseparately,
withtheexception ofGuatemala andHonduras which made ajointsubmission. Aspects oftheEC's
measures applying tobananas were cited asbeing inconsistent withthefollowing provisions and
Agreements inthose submissions:
Ecuador :
-concerning tariff issues: Article I:1ofGATT;
-concerning allocation issues: Article XIIIofGATT; and
-concerning theimport licensing regime: Articles I:1,III:4andXofGATT; Articles 1.2,
1.3and3.2oftheLicensing Agreement; Articles 2and5oftheTRIMs Agreement;
Article 4.2oftheAgreement onAgriculture; andArticles IIandXVII ofGATS.
Guatemala andHonduras :
-concerning tariff issues: Articles I:1andIIofGATT;
-concerning allocation issues: Articles I:1andXIIIofGATT; and
-concerning theimport licensing regime: Articles I:1,III:4, XandXIIIofGATT; Articles 1.3
and3.2oftheLicensing Agreement; andArticles 2and5oftheTRIMs Agreement;
63Note: Unless otherwise indicated, footnotes inthe"Main Arguments" section arethose oftheparties.WT/DS27/R/USA
Page27
Mexico :
-concerning tariff issues: Article I:1ofGATT;
-concerning allocation issues: Article XIIIofGATT; and
-concerningtheimportlicensingregime:ArticlesI:1,III:4,XandXIIIofGATT;Articles1.2,
1.3,3.2and3.5oftheLicensing Agreement; Article 2oftheTRIMs Agreement; and
Articles IIandXVII ofGATS.
United States :
-concerning tariff issues: Article I:1ofGATT;
-concerning allocation issues: Article XIIIofGATT; and
-concerning theimport licensing regime: Articles I:1,III:4andXofGATT; Articles 1.3,
3.2and3.5oftheLicensing Agreement; Articles 2and5oftheTRIMs Agreement; and
Articles IIandXVII ofGATS.
4.3 Following thefirstsubmissions, theComplaining parties generally made jointstatements and
submissions tothePanel, including ajointrebuttal submission andjointresponses toquestions posed
bythePanel. Intheirjointstatements andsubmissions, theycitedthefollowing aspects oftheEC’s
measures applying tobananas asbeing inconsistent withthefollowing provisions andAgreements:
-concerning tariff issues: Article I:1oftheGATT;
-concerning allocation issues: Article XIIIoftheGATT; and
-concerning theimport licensing regime: Articles I,III,X,XIandXIIIoftheGATT;
Articles 1.3,3.2and3.5oftheLicensing Agreement; Article 2oftheTRIMs Agreement;
andArticles IIandXVII ofGATS.
4.4 TheECrequested thePanel tofindthattheECbanana regime wasnotincompatible withthe
General Agreement onTariffs andTrade andother instruments ofAnnex 1AoftheWTO Agreement.
InsofarasthePanel might arrive attheopposite conclusion, theECsubmitted thatthePanel should
findthattheECbanana regime wascovered bytheLomé waiver. TheECfurther submitted thatthe
ECbanana regime wasnotincompatible withtheGeneral Agreement onTrade inServices.WT/DS27/R/USA
Page28
B. TRADE INGOODS
4.5 Thispartbegins withageneral overview oftheclaims presented bytheComplaining parties
andtheresponses oftheEuropean Communities. Itisnotintended tobeadetailed orexhaustive
presentation, buttoprovide aclearpicture ofthestructure ofthearguments atabroad level. Inthis
regard ithighlights thethreemajor areas focused onbytheComplaining parties andincludes anumber
ofhorizontal issues raised bytheEC. Inorder toprovide aformat forthemany detailed claims, a
measure-by-measure approach hasthenbeentaken addressing thedetailed arguments concerning trade
ingoods under threemajor headings: tariffissues, allocation issues andlicensing issues. Within these
general headings, arguments bytheComplaining parties andtheECarebroken down intomorespecific
sub-headings withtheappropriate references made tohorizontal issues ateachstage.
1. GENERAL OVERVIEW OFTHE CASE
(a) Overview oftheclaims presented bytheComplaining parties
4.6 TheComplaining parties presented theirclaims within threebroad headings: (i)tariffissues;
(ii)allocation issues; and(iii)import licensing issues. Additional specific claims werepresented in
allareasassetoutinthesection which follows theoverview. Theresponses oftheComplaining parties
withrespect tothemore horizontal arguments submitted bytheECinreply totheComplaining parties
initial claims arealsogiven inthesection dealing withthedetailed arguments.
(i)Tariff issues
4.7 Withrespect toissues concerning thetariffs applied totheimportation ofbananas bytheEC,
theComplaining parties submitted thatthetariff quota'stariff structure waschallengeable because it
imposed differential ratesasbetween third-country bananas ontheonehand, andnon-traditional ACP
bananas ontheother. Theapplication ofsuchdifferential customs duties onthebasisofforeign source
contradicted inadirect waytheGATT 'smost fundamental guarantee of"non-discriminatory tariff
treatment" setforth inArticle I:1.
4.8 Inaddition, Guatemala andHonduras claimed thattheratesapplicable tothird-country bananas
breached thelong-standing EC'sGATT-bound tariffof20percentadvalorem fortheproduct, towhich
Guatemala continued toholdaclaim.
(ii)Allocation issues
4.9 TheComplaining parties submitted thattheEChadallocated shares toitsmarket among
supplying countries inamanner inconsistent withGATT Article XIII:2. Itprovided country-specific
allocations tosome countries (ACP andBFA signatories), while notproviding them toothers with
similar orgreater historical levels oftrade. Furthermore, intheirviewmostoftheallocations provided
tothose favoured countries greatly exceeded theshares oftrade theywould beexpected toobtain in
theabsence ofrestrictions assetoutinthechapeau toArticle XIII:2. TheComplaining parties
considered thattheECalsodisregarded theprinciples ofArticle XIIIwhen itprovided theBFA
signatories theexclusive righttoincrease theiraccess when other BFAcountries experienced ashortfall
inthequantity theycould supply totheEC.
4.10 Inaddition, Guatemala andHonduras submitted thatthebanana regime 'sdifferential volume
restrictions bysource fellwithin theprohibition ofArticle XIII:1 ofGATT and,insofarasthesystem
conferred market advantages tosome foreign sources overothers, itwasaviolation ofArticle I:1.
Mexico andEcuador submitted thatthedifferential treatment didnot"similarly prohibit orrestrict"
imports ofthird-country bananas andtherefore wasnotconsistent withArticle XIII:1.WT/DS27/R/USA
Page29
(iii)Import licensing issues
4.11 TheComplainingpartiesarguedthattheECregulationsimposedonimportsfromLatinAmerica,
alicensing scheme thatwashighly complex. Thesystem, bothinitstotality andinitsindividual
elements, created highly unfavourable conditions ofcompetition compared tothesimple arrangements
fortraditional ACPbananas. Unnecessarily burdensome, discriminatory, trade-restrictive andtrade-
distortive, thelicensing regime implicated boththebasicprovisions oftheGATT andthenewer Uruguay
Round disciplines pertaining specifically tolicensing procedures andtrade-related investment measures,
intheviewoftheComplaining parties. Theimplementation ofthescheme, including thenumber of
implementing regulations issued, administrative procedures suchasthetwo-round procedure usedto
allocate licences, andthedelays intheissuance ofimport licences, wasnot,intheirview, consistent
withtheprovisions oftheGATT andcertain aspects oftheLicensing Agreement.
4.12 Within theimport licensing system, theComplaining parties argued thatthecoreoftheimport
licensing system, i.e.theCategory Boperator criteria, wasdiscriminatory under, interalia,Articles I
andIIIofGATT andalsoinconflict withtheAgreement onTrade-Related Investment Measures.
Thirty percentofthein-quota quantity forthetariff quota wasallocated tocompanies, known as
Category Boperators, onthebasis ofthree previous years'marketings ofECbananas andimports
ofACP bananas. Theexemption from export certificate requirements andtheexclusive receipt of
hurricane licences provided additional advantages toCategory Boperators. Export certificates also
constituted violations ofnon-discrimination andneutrality requirements intheirownright.
4.13 Furthermore, theComplaining parties submitted thattheactivity function rule,under which
43percentofthelicences were distributed toparties other thanprimary importers, andthemanner
inwhich therulewasadministered, additionally burdened anddiscriminated against imports fromLatin
America. Byitsnature, itincreased transaction costs because itdistributed licences toparties that
didnotpreviously import andwhodidnothavethecapacity todoso.Theactual importers (those
whowere engaged inprocuring thebananas from overseas) hadtolinkupwithparticular ripeners
orcustoms clearers oreveninvest inripening facilities, inorder nottoloseaportion oftheirentitlement
toimport inthefollowing year.
4.14 Inaddition,EcuadorarguedthattheECimportlicensingregimewasinconsistentwithArticle4.2
oftheAgreement onAgriculture because various features ofitinvolved discretionary import licensing
which wasnotpermitted bythatArticle.
(b) Overview oftheresponses presented bytheEuropean Communities
4.15 Inaddition toresponding tospecific claims (often onasubsidiary basis), theECresponded
withseveral broad arguments ofprinciple, orhorizontal arguments. These arguments covered, inmost
cases, anumber ofspecific claims setoutbytheComplaining parties. Therelevant arguments included:
(i)thepresence oftwoseparate banana access regimes; (ii)GATT schedules andArticles IandXIII
inthecontext oftheAgreement onAgriculture; (iii)thenon-applicability oftheAgreement onImport
Licensing Procedures totariff quotas; and(iv)thenon-applicability ofArticles III:4andXofGATT
toborder measures. Inaddition, insofarasthePanel found thatanyaspects oftheECbanana regime
were incompatible withGATT andother agreements specified bytheComplaining parties, theEC
argued thePanel should findthatthebanana regime wascovered bytheLomé waiver. Thedetails
ofthese horizontal arguments, along withrelated arguments bytheComplaining parties, areprovided
inthesection containing detailed arguments which follows theoverview.
(i)Separate regimes
4.16 TheECargued thattheexternal aspects oftheECcommon organization ofthemarkets for
bananas consisted oftwodistinct regimes:WT/DS27/R/USA
Page30
(a) theregime forso-called traditional ACPbananas which should betreated inaccordance
withtheLomé Convention andbegiven preferential treatment. Thisregime wasnow
covered bythewaiver from theobligations oftheEuropean Communities under
paragraph 1ofArticle IofGATT withrespect totheFourth ACP-CEEConvention
ofLomé; and
(b) abound rateofdutyforimports inexcess oftariff quota quantities andatariff quota
allocation forallother bananas. Thiswas,intheviewoftheEC,anormal tariffquota
asexists formany agricultural products inmany Members.
With respect to(b),non-traditional ACPbananas benefited frompreferential treatment which, inthe
EC'sview, wascovered, asthetraditional ACP regime, bytheLomé waiver.
4.17 Given thetwoseparate external regimes forbananas, intheviewoftheECnodiscrimination
(andconsequentviolation)couldbeallegedagainstthecountryallocationwithinthetariffquotacontained
intheECSchedule ascompared tothetraditional ACPallocation. Article XIIIofGATT wasrelevant
andapplicable onlyinsofarasonespecific quota ortariff quota wasconsidered, andspecifically its
administration. Noargument could bemade under Article XIII, inparticular Article XIII:1, alleging
discrimination intheadministration oftwodifferent regimes, which were independent onefrom the
other andeachlegally justified onadifferent basis. Likewise, anycomparison between thelicensing
system fortraditional ACPbananas andthetariff quota licensing system forallother bananas hadno
legalvalue andwasnotrelevant. TheECargued thatitwasevident thatthefactthatthetwoseparate
andindependentregimeshadmarginaldifferencesintheirrespectivelicensingsystemswasnotaviolation
ofanyGATT provision.
4.18 IntheviewoftheEC,theconclusion thatArticle XIIIcould notbeapplied simultaneously
tothetwodifferent andseparate parts oftheECbanana regime, wasconfirmed bytheinterpretation
ofthescope ofArticles IandXIIIofGATT 1994. While bothArticles contained ageneral principle
ofnon-discrimination withregards totheimportation ortheexportation oflikeproducts originating
inallthirdcountries, theevidence didnotimply thatthetwoprovisions overlapped. Article XIIIwas
concerned onlywiththeadministration ofeachoftheparts oftheregime, and,inparticular, allthe
border measures related totheimportation orexportation oftheproducts subject toaspecific quota.
IntheviewoftheEC,thisimplied that,inGATT terms, comparing, under theauthority ofArticle XIII,
theinternal licensing requirements within theACP traditional allocation totherequirements ofthe
tariff quota bound intheECSchedule waslegally wrong.
(ii)GATT schedules andArticles IandXIIIinthecontext oftheAgreement onAgriculture
4.19 TheECsubmitted thatasbananas wereanagricultural product, thetariff andtariff quota on
bananas wereconsolidations under theAgreement onAgriculture. Even though theoldconsolidated
tariff oftheECforbananas wasdeconsolidated andnegotiations begun under Article XXVIII of
GATT 1947 withthecountries which were (then) countries withinitial negotiating rights orwitha
principal supplying interest, intheendthetariff andtariff quota wereconsolidated intheframework
oftheUruguay Round. TheECargued thattheconsolidation andscheduling ofconcessions and
commitments intheagricultural sector followed itsowndynamic anditsownrulesduring theUruguay
Round andthisled,forinstance, tothewidespread recourse totariffquotas intariffscheduling; many
ofthese tariff quotas being country-specific, i.e.theylisted alimited number ofcountries towhich
theyapplied andforwhich certain quantities werereserved, while whatwasleftwasallocated toan
"others" category.
4.20 IntheECview, thespecificity oftheagricultural market access concessions wasimplicitly
recognized inArticle 4oftheAgreement onAgriculture, where theexistence ofmarket access
concessions inthiseconomic sector wasspecifically recorded andaspecial reference wasmade initsWT/DS27/R/USA
Page31
paragraph 1toschedules. Thisgavetheseschedules aparticular status which wasallthemoreimportant
ifonealsodrew Article 21oftheAgreement onAgriculture intotheanalysis which confirmed the
"agricultural specificity" initsclearest form anddemonstrated thattherules oftheAgreement on
Agriculture, including theSchedules specifically referred toinArticle 4.1,superseded, ifnecessary,
theprovisions ofGATT 1994 andanyagreement inAnnex IAoftheWTO Agreement.
4.21 Moreover, theECconsidered that,asArticle II:7ofGATT 1994 clearly indicated, theEC
banana concession wasanintegral partofPartIoftheGATT andwas,therefore, tobeconsidered
anintegral partofArticle IandArticle IIasappropriate. Thiswastheacknowledgement ofthefact
thatconcessions weretheresult ofmultilateral negotiations afterasometimes longanddifficult give-and-
takeprocess. Theparties solemnly accepted, byexplicit andbinding agreement dulyreflected byinternal
ratification orapproval procedures, thecontent oftheschedules mutually exchanged butonlyifand
when theyconsidered that,asawhole, thegive-and-take process wassatisfactory or,atleast, acceptable
forthem. Thisentailed theconsequence thatanyapplication oftheMFN principle setoutinArticle I
could notprevail perseontheterms andconditions ofaconcession sincethiswould mean giving priority
toonepartofArticle Iontopofother partsofthesame Article assupplemented bytheconcessions.
4.22 Inthespecific caseoftheECbanana concession, theECargued thattheCONTRACTING
PARTIES hadagreed forthefirsttimeattheendoftheUruguay Round totheECnewbanana regime
based ontheestablishment oftheECtariff quota afterthedeconsolidation oftheoldandobsolete
20percentadvalorem bound rateandthecreation oftheEC-wide internal banana market. Allthe
parties hadagreed explicitly, knowingly anddeliberately tothisnewconcession: nothing could
subsequently justify anyMember reopening thenegotiations bycontesting theinternal balance ofthe
negotiation thathadrecently ended. IntheECview, thiswould beviolating thefundamental principle
"pacta servanda sunt"asexpressed intheVienna Convention onthelawoftheTreaties andthe
customary international law.
4.23 Theprovision ofArticle IofGATT thuscould notbeconsidered applicable assuchtothe
actual content oftheECbanana tariff quota without taking intoaccount theresults oftheUruguay
Round negotiations. Members hadnegotiated theircommitments onbananas during theUruguay Round
intheframework oftheagreed "agricultural specificity" and,therefore, noviolation ofArticle XIII
ofGATT could beclaimed withrespect totheconsolidated ECbanana regime.
(iii)Thenon-applicability oftheAgreement onImport Licensing Procedures totariff
quotas
4.24 TheECsubmitted theopinion that,asfartheAgreement onImport Licensing Procedures
(Licensing Agreement) wasconcerned, thetextspecified thatitsscope wastoregulate alltheprocedures,
others thancustoms operations, prior totheimportation. Theprovisions ofthatagreement appeared
thenasfurther specifications ofsome oftherulescontained inArticle XIIIofGATT inwhich, interalia,
explicitreferencewasmade"toimportlicencesissuedinconnectionwithimportrestrictions".However,
nothing intheLicensing Agreement specified (likeArticle XIII:5 ofGATT) thatitapplied alsotocases,
suchasthebanana tariff quota, where noimport restriction wasapplied attheborder. Intheview
oftheEC,theLicensing Agreement could not,therefore, bedeemed applicable tocases where no
import restriction wasapplied attheborder and,specifically, thebanana tariff quota.
4.25 Furthermore, theECargued thattheexistence ofthelicence could notbeconfused withthe
physical importation ofbananas: thelicences wereonlyneeded tobenefit fromaparticular dutyrate
within thetariff quota, butnottophysically import bananas, from anyorigin, intotheECcustoms
territory. Licences were tradable, andtraded, andwere nota"prior condition" toanyimportation
asreferred toinArticle 1.1oftheLicensing Agreement; theywereneeded onlyfortheapplication
ofaspecific dutyrate. Thefactthatnolimitation inquantities existed under theGATT-boundWT/DS27/R/USA
Page32
commitments wasofparamount importance and,intheviewoftheECshould besufficient todismiss
theapplicability oftheLicensing Agreement totariff quotas.
(iv)Thenon-applicability ofArticles III:4 andXofGATT toborder measures
4.26 TheECsubmitted thatthebanana tariffquota wasasetofborder measures ensuring thecorrect
management oftheregime, andnotasetofrulesapplicable tobananas aftertheyhadcleared customs.
IntheviewoftheEC,practically allmeasures concerning thefunctioning andtheadministration of
thetariff quota which concerned operators while importing bananas intotheECmarket wereborder
measures andnotinternal rulesapplicable toallbananas aftertheyhadbeenintroduced intheECmarket.
Thissimple andundisputable reality hadanimportant legal implication when applying GATT: the
internal saleanddistribution system pertained totheinternal rules applicable tothatmarket andwas
relevant totheimported goods onlyifandwhen those goods hadcleared customs.
4.27 Onthecontrary, provisions likeArticles XIandXIIIofGATT andtheLicensing Agreement
clearly applied onlytoborder measures atthemoment oftheimportation ortheexportation ofaproduct
anddidnotconcern anyalleged discrimination intheapplication ofinternal measures aftertheproduct
hadbeencleared through customs. Consequently, theECargued, itwasimpossible toallege thata
specific measure violated atthesame timeArticles III:4andXofGATT andArticle XIIIofGATT
and/or theLicensing Agreement.
(v)TheLomé waiver
4.28 Onthebasis oftheresponses outlined above andspecific arguments made bytheEC,theEC
requested thePanel tofindthattheECbanana regime wasnotincompatible withGATT andother
instruments ofAnnex 1AoftheWTO Agreement. InsofarasthePanel might arrive attheopposite
conclusion, theECargued thatthePanel should findthattheECbanana regime wascovered bythe
Lomé waiver. TheECsubmitted thattheLomé Convention wasoneofthemostimportant instruments
oftheEC'spolicy ofdevelopment cooperation andassuchwasintended to"promote andexpedite
theeconomic, cultural andsocial development oftheACPStates". TheConvention covered various
fields ofcooperation, oneofthemostimportant being trade. Various provisions oftheConvention
dealtdirectly withtradeand,alltheseprovisions, aimsandobjectives applied equally totradeinbananas.
Moreover, theConvention alsoincluded aProtocol which covered bananas specifically andstated,
inter alia, that"noACP State shall beplaced, asregards access toitstraditional markets andits
advantages onthose markets, inalessfavourable situation thaninthepastoratpresent". On19
December 1994, theGATT Council, attherequest oftheEC,decided that"Subject totheterms and
conditions setout...,theprovisions ofparagraph 1ofArticle IoftheGeneral Agreement shallbe
waived, until29February 2000, totheextent necessary topermit theEuropean Communities toprovide
preferential treatment forproducts originating inACP States asrequired bytherelevant provisions
oftheFourth Lomé Convention, without being required toextend thesame preferential treatment to
likeproducts ofanyother contracting party".
4.29 Intheview oftheEC,inanalysing thewaiver thefollowing elements hadtobetaken into
account:
(a) theLomé waiver clearly stated thattheprovisions ofparagraph 1ofArticle IofGATT
shallbewaived totheextent necessary topermit theECtoprovide preferential treatment for
products originating inACP States; and
(b) inthesecond partofparagraph 1ofthewaiver, theGATT Council hadindicated that
thepreferential treatment tobeaccorded bytheECwaslimited towhatwasrequired bythe
relevant provisions oftheFourth Lomé Convention.WT/DS27/R/USA
Page33
TheECsubmitted thatbythefirstpartofparagraph 1ofthewaiver, theCONTRACTING PARTIES
hadaccepted theprinciple thattheECshould beputintheposition offullyrespecting itsobligations
vis-à-vis ACPcountries toprovide thepreferential treatment forproducts, including bananas, originating
inthose countries. According tothewaiver, thepreferential treatment was"designed topromote the
expansion oftradeandeconomic development ofbeneficiaries inamanner consistent withtheobjectives
oftheGeneral Agreement andwiththetrade, financial anddevelopment needs ofthebeneficiaries"
while notraising "undue barriers" orcreating "undue difficulties forthetradeoftheother contracting
parties". TheECargued that,asaconsequence, anymeasure necessary topermit ittofulfil its
obligations under theLomé Convention toprovide apreferential treatment toACPcountries forproducts
originating inthose countries wascovered bythewaiver.
4.30 Furthermore, theECsubmitted thattheparties totheLomé Convention understood their
agreement asimplying thattheECwassubject totheobligations of:(a)contributing toremedy the
instability intherevenues flowing fromthemarketing ofACPagricultural products bypromoting trade
betweenthosepartiesandbytakingmeasuresensuringatreatmentmorefavourablethantheoneaccorded
toother countries benefiting oftheMFN treatment fortheproduct concerned; and(b)ensuring that
noACP States shallbeplaced, asregards access toitstraditional banana markets anditsadvantages
onthose markets, inalessfavourable situation thaninthepastoratpresent. TheLomé waiver,
therefore, covered anymeasure taken bytheECinorder tofulfilitslegalobligations asindicated under
theLomé Convention withregards toanyproduct originating inACP countries, including bananas.
Inthecaseofbananas, thelegalobligations werefulfilled bytheECby:(a)creating aspecific and
separate regime fortheimportation totheECmarket oftheACPtraditional banana production; (b)by
theallocation toACP countries ofalimited share ofthebound tariff quota ataduty-free rate,that
waslower thattheMFN bound rate; (c)byamarginal reduction ofthetariff rateapplicable forthe
importation ofbananas outside thetariff quota; and(d)byfacilitating trade andcommercial relations
between theECandtheACPcountries through thecreation oftheso-called Category Boperator licences
toensure thatthequantities forwhich access opportunities weregiven could actually besoldandthat
theECcould thusfulfilitsobligations toguarantee traditional ACPbananas theirexisting advantages,
while notproviding bythismean anyincentive topurchase ACP bananas.
4.31 TheECalsoargued thatthePanel wasnotempowered togiveauthoritative interpretation on
anyagreement other thanthose under theagreements covered bytheUruguay Round ofmultilateral
trade negotiations asrelevant forthesettlement ofthedispute within theterms ofreference agreed
bytheDSBinitsmeeting ofthe8May1996. Inparticular itcould notinterpret theextent ofreciprocal
obligationsunderanagreementespeciallyanyinterpretationthatcontradictedthecommonunderstanding
ofthecontracting parties tothatagreement.WT/DS27/R/USA
Page34
2. DETAILED ARGUMENTS
(a) Tariff issues
4.32 Thissection outlines thecaseconcerning issues involving tariff matters. After apresentation
oftheclaims oftheComplaining parties, theresponses oftheECareoutlined. Assuch, thissection
contains themajor arguments, including background andgeneral interpretative issues, oftheECand
theComplaining parties surrounding theLomé waiver, which wasthemain argument presented by
theECinresponse totheclaims oftheComplaining parties. Further arguments concerning theLomé
waiver alsoappear inthefollowing sections: (b)allocation issues; and(c)import licensing issues,
although inthese cases, thebasic arguments presented inthissection arenotrepeated indetail.
4.33 TheComplaining parties submitted thatthetariff quota tariff structures arising outof
Regulation 404/93 were challengeable inthatthose structures imposed differential ratesasbetween
third-country bananas, ontheonehand, andnon-traditional ACPbananas, ontheother. Inaddition,
Guatemala andHonduras submitted thattheratesapplicable tothird-country bananas breached the
long-standing 20percentadvalorem ECGATT-bound rate,towhich Guatemala continued tohold
aclaim.
(i)Tariff preferences fornon-traditional ACP banana imports
Arguments oftheComplaining parties
4.34 TheComplaining parties argued thattheECgranted preferential treatment toso-called non-
traditional ACP bananas, which designation hadcome tomean notonlycountries thathadnotbeen
traditional suppliers, butamounts fortraditional suppliers overandbeyond theexcessive quantities
already allocated tothem. Within thetariffquota forthirdcountries, 90,000 tonnes ofnon-traditional
ACPbananasentereddutyfree,whilethird-countrybananasweredutiedattherateofECU75pertonne.
Over-quota, non-traditional ACP bananas received aECU 100pertonne reduction below theMFN
rateapplied toLatin American bananas. TheComplaining parties considered thatthisdifferential
treatmentwasaviolationofthemost-favoured-nationobligationtreatmentandtherefore,intheiropinion,
wasinconsistent withArticle IoftheGATT.
4.35 GuatemalaandHondurassubmittedthatthepreferentialtariffsfornon-traditionalACPbananas
were notincluded intheEC'sUruguay Round Schedules orother parts oftheUruguay Round
Agreements. Theapplication ofsuch differential customs duties onthebasis offoreign source
contradicted inadirect waytheGATT 'smostfundamental guarantee oftariff non-discrimination set
forth inArticle I:1.Guatemala andHonduras argued thatGATT panels hadstrictly construed this
tariffnon-discriminationrequirement,disallowingexceptionstobereadintoitthatwerenevernegotiated
oragreed tobythecontracting parties. InSpain -Tariff Treatment ofUnroasted Coffee ,thepanel
ruled thatdifferences intheentered product arising from geographical orother factors could notbe
considered abasis foravoiding Article Iobligations.64InEEC-Member States 'Import Regimes for
Bananas ,thepanel further found thatthetrade impact ofdiscriminatory tariff rateswasirrelevant to
anArticle I:1violation.65Inboththatbanana caseandthesubsequent oneinvolving bananas, thepanels
64BISD 28S/102, para. 4.4(adopted 11June1981); seealso"EEC -Member States 'Import Regimes forBananas",
DS32/R, paras. 211, 375(issued May 1993).
65DS32/R, paras. 214,364-375 (issued 3June1993) (wherein thepanel gavenoweight toRespondent 'sargument that
the20percentadvalorem tariff discrimination among suppliers could notbeconsidered discriminatory because therate
hadnotradeeffect). Seealso"United States -Taxes onPetroleum andCertain Imported Substances", BISD 34S/136 (adopted
17June 1987) (wherein thepanel rejected ananalogous argument bytheUnited States thatitsdiscriminatory taxes andtax
differential were deminimis ,andtherefore didnotnullify orimpair benefits under theGeneral Agreement).WT/DS27/R/USA
Page35
condemned preferential tariffratesaccorded ACPbananas under Article I:1.66According toGuatemala
andHonduras, theECignored thatlegalstandard byconferring atrade advantage onnon-traditional
ACP bananas over third-country bananas "inorder toensure satisfactory marketing ofbananas
...originating intheACP States."67Admitted tariff discrimination hadthusoccurred, forwhich no
legitimate WTO defence could beshown.
Arguments oftheEC
4.36 TheECsubmitteditwasclearthatnon-traditionalACPbananashadbeenallocatedaconsolidated
share ofthetariff quota upto90,000 tonnes. However, non-traditional ACPbananas benefited from
apreferential treatment which wascovered, justastheACPtraditional allocation, bytheLomé waiver,
consisting induty-free importation forthequantities indicated inthetariff quota. Moreover, non-
traditional ACPbananas benefited fromapreferential treatment ofECU 100pertonne reduction from
thebound rateforimports outside thetariff quota. Thispreferential treatment wasequally covered
bytheLomé waiver.
TheLomé waiver
Background ontheConvention
4.37 TheECsubmitted thattheLomé IVConvention wasanextremely broad treaty between the
ECanditsmember States ontheonehandand70States ofAfrica, theCaribbean andthePacific (ACP
States) ontheother hand. Itwasoneofthemost important instruments oftheEC'spolicy of
development co-operation andassuchwasintended to"promote andexpedite theeconomic, cultural
andsocial development oftheACPStates" (Article 1oftheConvention). TheConvention hadexisted
inoneformoranother since themoment thatmany ofthese countries became independent fromone
ofthemember States oftheCommunity intheearly1960s, andtherewastheneedforthereplacement
oftheAssociation regime foroverseas territories aslaiddown inArticle 131oftheECTreaty.
Originally called theYaoundé Convention, thetreaty hadevolved through many versions following
thelatest insights ofdevelopment policy intothepresent instrument fordevelopment cooperation,
including provisions onfreetrade, accompanied bymany variegated cooperation provisions, a
stabilization system foragricultural commodities ("Stabex"68),aspecial financing system forcountries
which wereverydependent onmining activities ("Sysmin"), aswellasadevelopment fund("EDF")
ofconsiderable size.
4.38 Among thevarious fields covered bytheConvention, theECconsidered thattradewascertainly
among themostimportant. Especially withrespect tothetrade issues involved inthepresent case,
theECreferred tothefollowing provisions oftheConvention:
Article 15(a) oftheConvention:
"trade development shallbeaimed atdeveloping, diversifying andincreasing theACPStates '
trade andimproving theircompetitiveness.... TheContracting Parties undertake touseall
66"EEC -Member States 'Import Regimes forBananas", DS32/R, para. 375(issued 3June1993); "EEC -Import Regime
forBananas", DS38/R, para. 155(issued 11February 1994).
67Council Regulation (EEC) No.404/93, recital fifteen.
68Stabex could beapplied forashortfall inincome frombanana exports totheCommunity (Article 187). Because Stabex
resources werefinite andmany products were covered byit,inreality itcould not,andwasnotintended to,fullycompensate
forsuchshortfalls. Itaimed atstabilization instead ofcompensation. Itprovided atemporary cushion incaseshortfalls
were veryabrupt.WT/DS27/R/USA
Page36
themeans available under thisConvention, including tradecooperation, financial andtechnical
cooperation fortheachievement ofthisobjective."
TitleIonTrade Cooperation stated further inArticle 167,which wasoneoftheinstruments oftrade
development:
"Inthefieldoftrade cooperation, theobject ofthisConvention istopromote trade between
theACP States andtheCommunity",
andcontinued with:
"Inpursuit ofthisobjective, particular regard shall behadtosecuring effective additional
advantages forACP States 'trade withtheCommunity, andtoimproving theconditions of
access fortheirproducts tothemarket inorder toaccelerate thegrowth oftheirtrade and,
inparticular, oftheflowofexports totheCommunity.".
Allthese provisions, aimsandobjectives applied equally totrade inbananas.
4.39 Moreover, attached totheLomé Convention wasProtocol 5onbananas. Under thisProtocol,
theEChadmade another undertaking (inArticle 1)toensure that:
"Inrespect ofitsbanana exports totheCommunity markets, noACP State shallbeplaced
asregards access toitstraditional markets anditsadvantages onthose markets, inaless
favourable situation thaninthepastoratpresent.".
Similar preferential treatment wasgranted toACP bananas under theearlier Lomé Conventions and
under thetwoYaoundé Conventions, allofwhich hadbeennotified totherelevant GATT bodies and
examined byworking parties69.
4.40 TheECnoted thatoriginally thefreetrade provisions oftheYaoundé Conventions were
reciprocal; later, attheinsistence oftheACPStates themselves, aswellassome thirdstates, including
theUnited States, theyweremade unilateral infavour oftheACPStates. Thiswaspresently thecase
andthissystem offreetrade infavour oftheACP States, withtheexception ofsome primarily
agricultural products (forwhich favourable tariff quotas were opened) waslaiddown inArticle 168
oftheLomé Convention. ThisArticle alsostipulated thatevenforthose products which were not
subject tofullfreetrade treatment bytheCommunity, interalia,because aftertheentry intoforce
oftheConventiontheyhadbeenmadesubjecttoacommonorganizationofthemarketunderthecommon
agricultural policy, apreference should begiven totheACPcountries (Article 168(2)(a)(ii) together
with168(2)(d)). Thiswasthecaseforbananas.
4.41 During thenegotiations oftheLomé Convention, theECsingle market programme wasalready
under wayanditcould beforeseen thatthiswould havesome repercussions onthewayinwhich the
Banana Protocol wasgoing tobeapplied. Hence aJointDeclaration relating toProtocol 5wasagreed
andincluded inAnnex LXXIV totheLomé Convention. According tothisinterpretative declaration,
theCommunity wasnotprevented byArticle 1ofProtocol 5from establishing common rules for
bananas, aslongasnoACP State which wastraditional supplier totheCommunity, wasplaced as
regards access toandadvantages intheCommunity, inalessfavourable situation thaninthepastor
atthetimeofconclusion oftheLomé Convention. Thisinterpretative declaration, while leaving the
liberty totheCommunity tounify theheterogeneous national rules which were inplace atthetime
when theLomé Convention wasconcluded, putanobligation ontheCommunity topreserve the
69Yaoundé I:BISD 14S/22 and100; Yaoundé II:BISD 18S/1333; Lomé I:BISD 23S/46; Lomé II:BISD 29S/119;
Lomé III:BISD 35S/321.WT/DS27/R/USA
Page37
pre-existing situation asfarasaccess toandadvantages intheCommunity market fortraditional ACP
bananas were concerned70.
Background onthewaiver
4.42 TheECfurther noted thatintheautumn of1994 ittooktheinitiative toobtain awaiver for
theFourth Lomé Convention. Although theCommunity disagreed thoroughly withthereport ofthe
so-called second Banana panel andcould notaccept thattheLomé Convention didnotrespond tothe
criteria ofArticle XXIV, itnevertheless availed itself thepossibility toobtain suchawaiver. This
wasintheinterest oflegalsecurity bothfortheCommunity andforitspartners intheLomé Convention.
Themost important provision ofthewaiver (L/7604), point 1,wasasfollows:
"Subject totheterms andconditions setouthereunder, theprovisions ofparagraph 1ofArticle I
oftheGeneral Agreement shallbewaived, until29February 2000, totheextent necessary
topermit theEuropean Communities toprovide preferential treatment forproducts originating
inACPStates asrequired bytherelevant provisions oftheFourth Lomé Convention, without
being required toextend thesamepreferential treatment tolikeproducts ofanyothercontracting
party."
4.43 TheECargued thattheLomé waiver wasofgreat importance inpermitting theCommunity
togivepreferential treatment pursuant totheprovisions oftheConvention, andtheBanana Protocol
inparticular. Inthiswaythepartners totheConvention could pursue theirdevelopment strategy with
theminimum legalsecurity andcontinuity thatwasabsolutely required. There could benodoubt that
forbananas therelevant provisions oftheLomé Convention were suchArticles as15a,168andthe
BananaProtocolasinterpretedbythedeclarationcontainedinAnnexLXXIV.Thepreferentialtreatment
contained inthese provisions wasnotmerely restricted tosimple tariff preferences, butextended to
advantages onthemarket.
4.44 Inreaching thisposition, theECsubmitted thatthefollowing elements should betaken into
account. Firstly, theLomé waiver clearly stated thattheprovisions ofparagraph 1ofArticle IofGATT
shallbewaived totheextent necessary topermit theECtoprovide preferential treatment forproducts
originating inACP States. Bythisfirstpartofparagraph 1ofthewaiver, theCONTRACTING
PARTIES accepted theprinciple thattheECshould beputintheposition offully respecting its
obligations, vis-à-vis ACPcountries, toprovide thepreferential treatment forproducts originating in
those countries. Bananas were products originating inthose countries. Further, thepreferential
treatment, waived from theapplication ofArticle I:1ofGATT, was"...designed topromote the
expansion oftradeandeconomic development ofbeneficiaries inamanner consistent withtheobjectives
oftheGeneral Agreement andwiththetrade, financial anddevelopment needs ofthebeneficiaries..."
while notraising "undue barriers" orcreating "undue difficulties forthetradeoftheother contracting
parties". Consequently, intheviewoftheEC,anymeasure necessary topermit ittofulfilitsobligations
under theLomé Convention toprovide preferential treatment toACPcountries forproducts originating
inthose countries wascovered bythewaiver.
4.45 TheECsubmitted thatthesecond element tobetaken intoaccount related tothesecond part
ofparagraph 1ofthewaiver. TheGATT Council, hadindicated thatthepreferential treatment to
beaccorded bytheECwithin thelimits explained above waslimited towhatwasrequired bytherelevant
provisionsoftheLoméConvention.TherelevantprovisionsoftheLoméConventionasregardsbananas
were, interalia,Articles 15a,24,168andProtocol 5.
70TheCommunity made adeclaration, contained inAnnex LXXV totheLomé IVConvention totheeffect thatthe
newACP States party totheConvention (i.e.Haiti andtheDominican Republic) werenotconsidered astraditional suppliers.WT/DS27/R/USA
Page38
4.46 Before theentry intoforce ofthecommon organization ofthemarkets (COM) forbananas,
ACP bananas entered theCommunity dutyfreeunder Article 168(2)(a)(i) oftheLomé Convention.
These traditional quantities were therefore tobemarketed enjoying thesame advantages onthe
Community market as"inthepastoratpresent", asguaranteed inProtocol 5,theyhadtotherefore,
intheviewoftheEC,continue toenjoy duty-free access. Asregards non-traditional quantities, the
ECsubmitted thatsince theentry intoforce oftheCOM, these fellunder thescope of
Article 168(2)(a)(ii) which stated: "theCommunity shalltakethenecessary measures toensure more
favourable treatment thanthatgranted tothirdcountries benefiting fromthemost-favoured-nation clause
forthesame products". Moreover, Article 168(2)(d) firstindent stated: "ifduring application ofthe
Convention, theCommunity subjects oneormore products tocommon organisation ofthemarket,
[which isthecaseforbananas] itshallreserve therighttoadapt theimport treatment forthose products
originating intheACP States, following consultations within theCouncil ofMinisters".
4.47 When thecommon organization ofthemarkets forbananas wassetup,theCouncil ofMinisters,
inaccordancewiththeaboveprovision,decidedthatnon-traditionalACPquantitieswouldenjoyduty-free
access (Article 18.1ofCouncil Regulation 404/93) within thetariffquota, thusensuring thattheywere
treated more favourably thanother third-country supplies which were subject toadutyofECU 75
pertonne. Outside thetariff quota, more favourable treatment wasalsoensured asnon-traditional
ACPimports weresubject, in1995, toadutyrateofECU 722pertonne asopposed toECU 822per
tonne forother third-country supplies.
4.48 Insummary, theECsubmitted thattheParties totheLomé Convention understood their
agreement asimplying thattheECwassubject totheobligations of:(a)contributing toremedy the
instability intherevenues flowing fromthemarketing ofACPagricultural products bypromoting trade
betweenthosepartiesandbytakingmeasuresensuringatreatmentmorefavourablethantheoneaccorded
toother countries benefiting oftheMFN treatment fortheproduct concerned; and(b)ensuring that
noACP States shallbeplaced, asregards access toitstraditional banana markets anditsadvantages
onthose markets, inalessfavourable situation thaninthepastoratpresent. TheECargued, therefore,
thattheLomé waiver should bedeemed tocover anymeasure taken bytheECinorder tofulfil its
legalobligations asindicated under theLomé Convention withregards toanyproduct originating in
ACP countries, including bananas.
4.49 TheECargued thatthelegalobligations itsetoutwere fulfilled by:(a)creating aspecific
andseparate system fortheimportation intheECmarket oftheACP traditional banana production;
(b)bytheallocation toACPcountries ofalimited share ofthebound tariff quota atadutyfreerate,
thatislower thattheMFN bound rate; (c)byamarginal reduction ofthetariff rateapplicable for
theimportation ofbananas outside thetariff quota; (d)byfacilitating trade andcommercial relations
between theECandtheACPcountries through thecreation oftheso-called Category Boperator licences
soastoensure thatthequantities forwhich access opportunities were given could actually besold
andthattheECcould thusfulfil itsobligations toguarantee traditional ACP bananas theirexisting
advantages, while notproviding bythismean anyincentive topurchase ACP bananas.
4.50 TheECwentontoremind thePanel thatthescope ofthepresent procedure wastoconsider
theextent ofthereciprocal obligations fortheMembers, parties tothisprocedure, under theAgreements
covered bytheUruguay Round ofMultilateral Trade Negotiations asrelevant forthesettlement of
thedispute within theterms ofreference agreed bytheDSBinitsmeeting of8May1996. Onthe
contrary, thePanel wasnotempowered, intheECview, togiveauthoritative interpretation onany
other agreement, inparticular regarding theextent ofthereciprocal obligations under anagreement
forthecontracting parties tothatagreement, letalone anyinterpretation contradicting thecommon
understanding ofthecontracting parties tothatagreement oftheirownreciprocal obligations.WT/DS27/R/USA
Page39
4.51 IntheviewoftheComplaining parties ,notonemeasure atissue intheaction fellwithin the
narrow parameters oftheLomé waiver. TheLomé waiver accordingly wasnotadefence forthe
measures thatwere thesubject ofthisdispute thatwere inconsistent withArticle IofGATT.
4.52 TheComplaining parties argued thatthewaiver onlyapplied toviolations ofArticle I"tothe
extent necessary topermit theECtoprovide preferential treatment" toACP products "asrequired
bytherelevant provisions" oftheLomé Convention. Thewaiver didnotapply toallmeasures that
theECmight adopt under theLomé Convention ’sobjectives. Intheirview, theLomé Convention
lefttheECwithbroad discretion permitting ittocomply withitsWTO obligations asitsought todevelop
common rulesforbananas. Inorder todetermine whether anECmeasure which might violate Article I
wascovered bythewaiver, thePanel hadtherefore toreach aconclusion thatsuchameasure was
"required" bytheLomé Convention.
4.53 TheComplaining parties submitted thattheEChadattempted toportray thisdispute asbeing
"allabout" theEC’sneedtomeetitsobligations under theLomé Convention. TheECwassubject
tonumerous requirements under theLomé Convention, many ofwhich involved direct assistance and
development.71However, theConvention didnot,according totheComplaining parties, cover non-
traditional ACP bananas atall,didnotrequire thekindoflicensing arrangements applied toLatin
American bananas, didnot"guarantee" anyspecific levelofimports from ACP countries, andwas
therefore notcovered bytheGATT waiver obtained in1994forviolations ofGATT Article I"required"
bytherelevant provisions oftheConvention. Moreover, theECprovided tradepreferences withrespect
toabroad variety ofexports, buthadnotseenfittoimpose thekinds oflicensing requirements in
itsMFN trade withrespect tothose other products.
4.54 According totheComplaining parties, theEChadmisidentified theprovisions oftheLomé
Conventionthatwerecoveredbythewaiverandignoredthelong-standingGATTinterpretiveframework
requiring thestrict construction ofwaivers. Upon proper analysis, intheviewoftheComplaining
parties, thePanel could onlyconclude thattheEC’sLomé obligations withrespect totradeinbananas
didnotrequire ittoadopt themeasures forbanana imports thatwerethesubject ofthisdispute. The
Complaining parties submitted thatGATT panels hadconsistently considered thatwaivers fromGATT
obligations weregranted onlyinexceptional casesandshould beconstrued narrowly within theirexplicit
terms. IntheSugar Headnote case, forexample, thepanel noted thatbecause waivers abrogated
obligations under thebasic rules oftheGATT, they"aregranted according toArticle XXV:5 only
in‘exceptional circumstances ',"and"their terms andconditions consequently havetobeinterpreted
narrowly."72Thisapproach wasconsistent withtheapproach ofpastpanels ininterpreting GATT
exceptions.73
71SeeArticle 186,guaranteeing export earnings under Stabex andtheFinancial Protocol, which required specific amounts
ofECaidtobeearmarked forregional projects andemergency assistance.
72See"United States -Restrictions ontheImportation ofSugar andSugar-Containing Products Applied under the1955
Waiver andunder theHeadnote totheSchedule ofTariff Concessions", adopted 7November 1990, BISD 37S/228, para. 5.9;
seealso, E/PC/T/C.V/PV/9, p.8.
73See"United States -Countervailing Duties onFresh, Chilled andFrozen Pork from Canada", adopted 11July1991,
BISD 38S/30, para. 4.4(Article VI:3); "United States -Measures Affecting Alcoholic andMalt Beverages", adopted
19June1992, BISD39S/206, para.5.41(ArticleXX(d)); "Canada -Impor tRestrictionsonIceCreamandYoghur t",adopted
5December 1989, BISD 36S/68, para. 59(Article XI:2(c)).WT/DS27/R/USA
Page40
4.55 TheComplainingpartiesfurthersubmittedthattheLoméwaiverhadbeenpreciselyandnarrowly
drawn upbytheCONTRACTING PARTIES towaive onlyArticle I:174,andonly"totheextent
necessary ...toprovide preferential treatment for...ACPStates asrequired bytherelevant provisions
oftheFourth Lomé Convention."75InOctober 1994, theECoriginally hadrequested abroader waiver,
onethatextended to"preferential treatment ...asforeseen bytherelevant provisions oftheFourth
Lomé Convention." TheUnited States andGuatemala hadinsisted thattheoriginally-proposed language
bechanged to"preferential treatment ...asrequired bytherelevant provisions oftheFourth Lomé
Convention."76Thedeletion oftheterm"foreseen" hadclarified theintent toexclude fromtheLomé
waiver ’scoverage anymeasure based solely upon an"authorization" or"exhortation" intheLomé
Convention. Theinsertion oftheterm"asrequired" hadfurther clarified thatonlythose measures
thatweremandatory andlegally binding under theLomé Convention weretobeprotected bythewaiver.
Thisdrafting correction, combined withtheGATT principles ofwaiver interpretation, didnotpermit
theLomé waiver tocover EClegislation allegedly based onLomé Convention objectives, authorizations
andexhortations. These werenot,intheopinion oftheComplaining parties, "requirements" ofthe
Lomé Convention. Asalsoobserved inthecontext ofArticle XIIIoftheGATT, theLomé waiver ’s
explicit application toArticle Icould notbereadtoextend directly orindirectly beyond Article Ito
include other GATT orWTO obligations. Thewaiver fortheLomé Convention wasnotdrafted to
takecareofthebanana problem; itapplied toallproducts covered bythetreaty. Itcould notbe
presumed, indisregard ofitsexplicitly limited application toArticle I,tolegitimize allECbanana
measures inforce asofDecember 1994. Thiswould becontrary tothedrafting history oftheLomé
waiver andGATT practice. Asstated bytheworking party examining theUnited States
Section 22waiver :
"Since the[waiver] Decision refers totheprovisions ofArticles IIandXIoftheAgreement,
itdoes notaffect theobligations oftheUnited States under anyother provisions ofthe
Agreement. Inparticular, asitsobligations under Article XIIIarenotaffected, theUnited
States would acquire noright byvirtue ofthiswaiver todeviate from theruleofnon-
discrimination provided forinthatArticle."77
4.56 TheComplaining parties wereoftheviewthatthedeliberately chosen language oftheLomé
waiver andestablished principles ofwaiver interpretation confirmed thattheECborethefullburden
ofdemonstrating howitsnumerous discriminatory measures inconsistent withArticle I:1werelegally
"required" bytherelevant provisions oftheLomé Convention. TheComplaining parties considered
thattheEChadfailed tomeetthatburden inallrespects.
4.57 TheECreiterated thatitrequested thewaiver on10October 1994 withtheaim"toimprove
legalcertainty forthetrade ofACPcountries". Inresponse toaquestion bythePanel, theECnoted
thatwhile theword "foreseen" intheoriginal request wasreplaced by"required", thechange wasnot
asubstantial onesince theword "foreseen" wassupposed todescribe exactly thesame intention as
"required". Bothwords covered thepreferential treatment which hadbeenmutually agreed between
theparties totheLomé Convention, ACP ontheonesideandEContheother. Subject tominor
modifications, thetextapproved bytheCONTRACTING PARTIES corresponded totheoneproposed
74Working Parties havebeencareful inwriting thetextofwaivers toensure thatthelanguage covered onlythose measures
forwhich thewaiver wassought. Seee.g."United States -Caribbean Basin Economic Recovery Act", adopted
15February 1985, BISD 31S/20, para. 1(wherein thelanguage ofthewaiver specifically limited ittoduty-free treatment
forproducts ofCaribbean Basin countries benefiting from theCBI).
75Lomé waiver, para. 1.
76SeeMinutes oftheCONTRACTING PARTIES, SR50/1.
77"Import Restrictions Imposed bytheUnited States Under Section 22oftheUnited States Agricultural Adjustment Act",
5March 1955, BISD 3S/141, para. 10.WT/DS27/R/USA
Page41
bytheEC. Indeed, during theprocedure forapproval under Article XXV, Guatemala asked for
consultations inaletter dated 22November 1994. Consultations were heldthe30November 1994
inthepresence ofarepresentative from Jamaica onbehalf oftheother ACP countries. During that
meeting, Guatemala hadasked forsome amendments tothetext,inparticular: preferential treatment
inparagraph 1tobelimited to"customs duties"; theword "unduly" inparagraph 3tobedeleted;
andthatthewaiver nottocover fresh bananas. None ofthese suggestions were retained bythe
Contracting parties. IntheECview, thismeant, interalia,thatnodoubt whatsoever could beraised
onthefactthatthewaiver covered preferential treatment resulting from measures taken bytheEC
other thancustoms duties andthatitconcerned fresh bananas.
4.58 IntheECviewitwasclearfromthetextofthewaiver itself, thattheLomé waiver concerned
"'preferential treatment 'forproducts originating inACPStates asrequired byrelevant provisions of
theFourth Lomé Convention...". Thewaiver didnotrefertomeasures ofanykind, letalone measures
ofmandatory nature which should beallegedly present intheLomé Convention. Asalready stated,
theECandtheACPcountries hadundertaken acertain number ofobligations. Among them, theEC
considered itwasbound: (i)toensure thatnoACP State shallbeplaced, asregards access toits
traditional markets anditsadvantages onthose markets, inalessfavourable situation thaninthepast
oratpresent (Protocol 5,Article 1);(ii)toensure more favourable treatment thanthatgranted tothird
countries benefiting fromthemost-favoured-nation clause forthesameproduct (Article 168(2)(a)(ii));
(iii)touseallmeans available under theConvention, including tradecooperation andthose onfinancial
andtechnicalcooperation,fortheachievementoftheobjectiveoftradedevelopmentaimedatdeveloping,
diversifying andincreasing theACPStates 'trade andimproving theircompetitiveness (Article 15a);
and(iv)toprovide special arrangements fortheECimport ofcertain ACPproducts inorder topromote
anddiversify trade between thecontracting parties (Article 24,second indent).
4.59 IntheECview, whattheLomé waiver wasabout wasthepossibility fortheECnottoextend
aparticular preferential treatment, required bytheLomé Convention under theabove mentioned
provisions, totheother Members. What theLomé waiver wasnotabout wastheexamination ofthe
possible violation ofanyWTO provision bythemeasures taken bytheECtofulfilitsobligations under
theLomé Convention. There wastherefore noreason whytheComplaining parties (andthePanel)
should examine thecontent ofthesingle measures taken bytheECwithrespect tothewaiver and
Article I:1ofGATT 1994andnottheirendresult, thepreferential treatment, which wastheonlymatter
thatwascovered bythewaiver. Even lessevident wastheargument raised thatthemeasures taken
bytheECtofulfil itsobligations under theLomé Convention should belinked toany"mandate",
"exhortation" or"authorization". Theword "required" wasgrammatically andlogically linked tothe
words "toprovide preferential treatment" intheLomé waiver. Thepreferential treatment wastherefore
thecentral issue fortheinterpretation ofthescope oftheLomé waiver: thePanel should verify if
andwhenpreferentialtreatmentwasrequiredbytheLoméConventionand,accordingtothisverification,
ifthatpreferential treatment should beextended onanMFN basistotheother Members inapplication
ofArticle I:1orbewaived fromthisobligation. Themeans bywhich thepreferential treatment was
achieved wasofnoavail forArticle I:1and,accordingly, fortheinterpretation ofthescope ofthe
waiver. Forthisreason, anyreference toECsecondary legislation wasillplaced andnotrelevant
inthiscontext. TheECsubmitted thatthePanel should consider onlythetreatment forACPbananas
which wastheresult ofsuchlegislation. Anydifferent interpretation would radically change aposteriori
theunderstanding among theCONTRACTING PARTIES onthescope ofthewaiver andundermine
thelegalcertainty thatwastheparamount reason thatconvinced theECtorequest itinthefirstplace.
TheLomé Convention allowed fulldiscretion, therefore, astowhich means (andspecific measures)
theECusedtofulfil itsobligations, inorder thattheoverall objectives were met.
4.60 Furthermore, theterm"preferential treatment" werenotageneric expression buttheevidence
ofaspecific willoftheCONTRACTING PARTIES towaive thattreatment from theobligations of
Article I:1,irrespective ofthemeasures taken bytheECtoachieve it.Previous waivers ofsimilar
nature likeUnited States -Caribbean Basin Countries ,United States -Andean Trade Preferences Act,WT/DS27/R/USA
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United States -Imports ofAutomotive Products ,Canada -Commonwealth Caribbean Countries referred
much more specifically to"...provide duty-free treatment" andnotto"preferential treatment". The
different wording underlined theextended scope ofthewaiver covering anypreferential treatment
required bytheLomé Convention. Aprecedent inthesame linecould befound inthewaiver
United States -Former Trust Territory ofthePacific Islands .
4.61 According totheEC,thisinterpretation wasindisputable: thewhole textofthewaiver referred
onlytothepreferential treatment. TheECreferred inparticular tothelanguage inparagraph 5where
reference wasmade toarequirement foran"annual report ontheimplementation ofthepreferential
treatment forproducts originating inACPStates", andparagraph 2where anobligation wasimposed
upon theparties totheLomé Convention to"promptly notify thecontracting parties ofanychanges
inthepreferential treatment toproducts originating inACP States". Thus, theobject ofthePanel's
examination was,according totheEC,limited totheverification oftwoelements: (i)theexistence
ofaprovision intheLomé Convention requiring thatapreferential treatment begranted tobananas
originating inACPStates; and(ii)thatthepreferential treatment accorded didnotmanifestly "raise
undue barriers orcreate undue difficulties forthetrade ofother contracting parties" asindicated in
thethirdconsidering clause ofthepreamble tothewaiver.
4.62 TheECsuggested thatthePanel, having verified theexistence oftheobligations fortheEC
togrant apreferential treatment forthebananas originating inACP countries, accept thattreatment
could notbeextended toother Members unless evidence wassubmitted bytheComplaining parties
thatundue barriers orundue trade difficulties were created forthebananas imported from those
Complaining parties. According totheEC,thishadnever beenshown byanyoftheComplaining
parties. Onthecontrary, thelegalandfactual reality showed thatwhile Latin American bananas entered
theECmarket making fulluseoftheECtariffquota -whose sizewasnotaffected atallbytheexistence
ofacompletely separate regime forACPtraditional bananas -theACP traditional bananas werenot
abletofilltheirquota under theACP regime inspiteofthepreference granted tothose countries by
theEC.
4.63 TheComplaining parties noted thatpastreports hadconsidered thattheparty invoking an
exception boretheburden ofdemonstrating thateachmeasure inconsistent withtheGATT metevery
condition oftheexception.78BoththeECandtheACP countries hadsought toavoid thisrigorous
examination byarguing thattheLomé Convention could onlybeinterpreted byitssignatories. The
secondBananapanelhadrejectedasimilarargumentinthecontextoftheLoméConvention’sconsistency
withGATT Article XXIV, finding thatreview oftheLomé Convention wasrequired inorder to
determine theEC’sobligations. Thepanel declared:
"Ifthisviewwereendorsed,amerecommunicationofacontractingpartyinvokingArticleXXIV
could deprive allother contracting parties oftheirprocedural rights under Article XXIII:2,
andtherefore alsooftheeffective protection oftheirsubstantive rights."79
4.64 TheComplaining parties submitted thattheDSBhadconferred onthisPanel broad terms of
reference. Paragraph 6oftheLomé waiver, readincombination withArticle 3oftheUnderstanding
inRespect ofWaivers ofObligations Under theGeneral Agreement onTariffs andTrade 1994,further
clarified thataMember could request apanel toreview theconsistency ofanymeasure withtheterms
andconditions oftheLomé waiver. Article IXoftheWTO Agreement further reflected theintent
78"EEC -Restrictions onImports ofDessert Apples -Complaint byChile", adopted 22June1989, BISD 36S/93, and
"EEC -RestrictionsonImpor tsofApples-Compl aintbytheUnitedStates",adopted22June1989, BISD36S/135, para.12.3.
Seealso"Canada -Administration oftheForeign Investment Review Act", para. 5.20; "United States -Countervailing
Duties onFresh, Chilled andFrozen Pork from Canada", para. 4.4.
79Second Banana panel, paras. 156-158.WT/DS27/R/USA
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oftheMembers tolimittheuseofwaivers byincreasing thenumber ofvotes required toapprove a
waiver. Given theEC’sclaims thatitwasexempted from itsArticle I:1obligations under theterms
oftheLomé waiver forseveral measures atissue, thePanel hadnochoice buttoreview theconformity
ofallsuchmeasures inorder tosatisfy itsterms ofreference. Unless thePanel undertook suchareview,
onlytheparties totheLomé Convention could determine thecoverage ofaWTO waiver, enabling
themtodeviate fromgeneral WTO rulesandobligations astheysawfitandimpinge ontheprocedural
andsubstantive rights ofother Members.
4.65 TheComplaining parties thuscontested theEC'sright topreclude thePanel from deciding
whatwasandwhatwasnotrequired orrelevant under theLomé Convention, byreserving forLomé
signatories anexclusive righttointerpret thetreaty. Thisviewwasplainly inconsistent withthenature
ofthePanel proceedings; ifthewaiver wasconditioned onaparticular application oftheLomé
Convention 'srelevant provisions (andthewaiver wasclearly arelevant provision oftheWTO), the
Lomé Convention 'srelevant provisions effectively amended theEC’sWTO obligations, andtherefore,
were obviously within thePanel'sterms ofreference. Justasdomestic lawsandregulations were
routinely reviewed byGATT dispute settlement panels, themeaning ofanother agreement simply
presented aquestion offactforthePanel todetermine. IfthePanel weretoaccept theargument put
forthbytheEC,itwould mean thattheparties totheLomé Convention could unilaterally determine
thescope ofcoverage ofaWTO waiver, while Members oranypanel interpreting theWTO could
not.Thiswould beabsurd intheComplaining parties view. TheComplaining parties claimed that
asanexception totheGeneral Agreement, awaiver mustbestrictly construed andtheparty invoking
thewaiver boretheburden ofshowing thatitapplied. Inthisparticular instance, theburden washeavy
indeed, sincethewaiver wasonlyfor"required" violations. Intheopinion oftheComplaining parties,
thewaiver didnotgivetheECcarte blanche toadopt anydiscriminatory banana measure thatit
considered consistent withtheobjectives oftheLomé Convention.
4.66 TheECreturned toitsopinion thatthePanel wasnotempowered toprovide aninterpretation
ofaninternational agreement, onwhich ithasnojurisdiction, which wasdifferent fromtheoneupon
whichthepartiestothatinternationalagreementagree.IntheECview,thesituationwaslegallydifferent
fromtheonedescribed bytheComplaining parties. When Panels wererequested tojudge onanalleged
violationofcertainWTOrulesbymeasuresimplementedbyaMemberwhichwereadoptedinapplication
ofdomestic lawsorregulations, those lawsorregulations wereanelement oftheviolation itself and
therefore should betaken intothepicture. Inthepresent case, onthecontrary, theLomé Convention
wasnotanelement ofanyalleged violation ofanyWTO provision. Moreover, withrespect tothe
Complaining parties 'argument, thoselawsorregulations concerned onlyoneMember andnotanagreed
provision between twoMembers, or,between aMember andanon-member, aswasalsothecasehere.
Intheparticular case,anagreed interpretation about theextent ofreciprocal obligations -astheVienna
Convention stipulated inArticle 31.3(a) and(b)and31.4-wasanessential element ofthecorrect
interpretation(andimplementation)ofthecontentoftheagreement.Contrarytothedescriptionprovided
bytheComplaining parties, theLomé waiver wasconcerned withpreferential treatment accorded by
theECtoproducts originating inACP countries. Nomeasure wasreferred tointhewaiver since
nospecific measure wasactually "required" bytheLomé Convention.
4.67 What thePanel should therefore verify when examining thescope ofthewaiver andits
application, wasifacertain preferential treatment accorded byECtoACP originating bananas was
"required" bytheLomé Convention itself; thatwasifitwasfounded onanobligation flowing from
thatTreaty. Theprovisions quoted earlier wereofplain anddirect comprehension, theECargued,
anddidnotneedanyinterpretative exercise soonemight suggest thattheRoman wisdom should be
(easily) followed: "inclaris nonfitinterpretatio ".However, should anydoubt concerning the
interpretation ofaspecific provision beraised, thenonlytheparties totheLomé Convention should
betheultimate authorities fortheauthentic interpretation ofthatclause. Thiswasevenmorenecessary,
intheECview, considering thattheother parties totheLomé Convention -thatistheACPStates -
didnothavetheopportunity fullytodefend theircaseinfrontofthePanel. Itcould notbeadmittedWT/DS27/R/USA
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thataparty toaninternational agreement should bebound toaninterpretation ofthatagreement that
thecontracting parties might notshare andagainst which theywere notevenallowed toexercise
completely theirrightofdefence.
4.68 Inresponse toaquestion posed bythePanel, theECfurther submitted thatthelastparagraph
oftheLomé waiver meant thatanyMember could complain ofalackofobservance oftheterms or
conditions ofthewaiver. Iftheterms andconditions ofawaiver werenotfulfilled, thisconstituted
abreach ofthewaiver andapanel could make anyrulings andrecommendations pertaining tosuch
waiver, justasitcanmake suchrulings andrecommendations inrespect ofabreach oftheGATT
andAnnex IAAgreements. TheECwas,however, firmly convinced thatapanel could notruleon
anon-violation complaint inrespect ofawaiver. Article 3(b)ofthe1994 Understanding inRespect
ofWaivers wasclearly decided inerror, because itwasincoherent withstanding caselawonnon-
violation complaints. Non-violation complaints could onlybegranted ifthecomplaining party had
reasonable expectations thatcertain benefits would accrue toit,buttheyhadbeennullified orimpaired
byanactwhich waslawful under theGATT.80Inthecaseofbananas, suchreasonable expectations
hadbeenentirely destroyed bythegranting oftheLomé waiver asrecently as1994, when thebanana
regime wasalready inforce. Theonlyreasonable expectation thataMember could have, intheEC's
view, wasthattheterms ofthewaiver would berespected andthiscould leadtoacomplaint concerning
theviolation ofthewaiver. Inthecasethequestion didnotariseastheComplaining parties hadnever
seriously advanced anon-violation claim, whether during consultations, intheir request forthe
establishment ofapanel, intheirsubmissions, orduring thefirstmeeting withthepanel. Moreover,
theComplaining parties hadfailed todischarge theirspecial burden ofjustification under Article 26(a)
oftheDSU. Allthisdemonstrated, theECargued, thatthePanel should notentertain anon-violation
claim.
4.69 TheComplaining parties considered thattheEC’sassertion thatthewaiver covered anyand
allkinds ofpreferential treatment thattheECdecided toattribute toitsLomé Convention obligations
wasalarming andwithout anybasis. They asked howmany measures, andwithrespect tohowmany
products, theECwould attempt toslipunder suchabroad waiver. IntheviewoftheComplaining
parties, afterhaving accepted aWTO waiver interms ofcertain preferential treatment required by
theLomé Convention, theECcould notnowdemand thatdispute settlement panels refrain fromany
examination oftherelationship between thetwosetsofobligations, inparticular whatwas"required
by"theConvention. TheEC’stheory thatthewaiver covered ACP benefits negotiated between the
parties totheConvention (allegedly pursuant tobroad Convention objectives) provided nosecurity
toMembers thathadprovided thewaiver. Granting theECtheexclusive righttointerpret thewaiver
would onlyencourage future violations ofGATT Article Iwhich would beinconsistent withWTO
objectives andpractice. Thiswaswholly contrary tothepurpose ofWTO obligations; onlytheWTO
could interpret theLomé waiver, andinorder todoso,thePanel wasrequired toexamine whatwas
strictly required bytheLomé Convention.
4.70 With respect tothespecific provisions oftheLomé Convention, Guatemala andHonduras
argued thatbothProtocol 5andAnnex LXXIV, thetwoLomé Convention provisions thatmostdirectly
addressed thetreatment ofACPbananas, pointedly emphasized thatLomé Convention benefits extended
onlytotraditional ACP suppliers. Article 1ofProtocol 5contained thestatement that:
"noACPStateshallbeplaced, asregards access toitstraditional markets anditsadvantages
onthose markets, inalessfavourable situation thaninthepastoratpresent".
Annex LXXIV, paragraph one,added emphasis tothistraditional-supplier limitation:
80See"Treatment byGermany ofImports ofSardines", BISD 1S/58, para. 16and"EEC -Payments andSubsidies Paid
toProcessors andProducers ofOilseeds", BISD 37S/86, paras. 128-129.WT/DS27/R/USA
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"[t]he Contracting parties agree thatArticle 1ofProtocol 5doesnotprevent theCommunity
from establishing common rules forbananas, infullconsultation withtheACP, aslongas
noACP State, traditional supplier totheCommunity, isplaced asregards access to,and
advantages in,theCommunity, inalessfavourable situation thaninthepastoratpresent."
InitsReport oftheACP-EEC Council ofMinisters ,theECfurther confirmed thenarrow reach ofthe
benefits promised tothose traditional ACPbanana suppliers bytheLomé Convention. TheECrejected
inthatReport theACP claim thattheLomé Convention guaranteed them "quantities, market shares
andprices ..."; explaining that:
"thebanana protocol onlyguaranteed thefullapplication ofArticle 2Lomé [now Article 168]
incaseoftheestablishment ofacommon market organisation."81
Article 168oftheLomé Convention, asdelimited byProtocol 5andAnnex LXXIV, could onlybe
interpreted toauthorize tariffpreferences anddirect aidasameans ofensuring thatnotraditional ACP
State received lessfavourable access andadvantages thanthose previously received.
4.71 TheComplaining parties argued thatinthefirstinstance, theEChadmis-identified the
Lomé Convention 'srequirements pertaining tobananas. Itslistofrelevant provisions included articles
thatdidnotfallwithin thereach oftheLomé waiver andomitted keyprovisions thatdid. Byany
standard, Article 15(a) wasnotobligatory onthesubject ofbananas, buthortatory andnon-specific.
Indeed,totheextentthelanguagethereinprovidedinterpretiveguidanceontheissueofLoméConvention
requirements, itcutdirectly against theclaim thatpreferential ACPaccess hadtobeenhanced through
discriminatory licensing procedures forLatin American imports. Asacknowledged bytheECinits
information memorandum regarding thesigning inMauritius oftheAgreement Amending theFourth
ACP-EC Convention ofLomé:
"[a]ccording tothisArticle [15(a)], themainaimoftradedevelopment istoimprove theACP
States 'competitiveness rather than, asinthepast,extract maximum value from preferential
arrangements ....ThePreferential regime isjustoneamongst many waysofdeveloping trade
...".82
4.72 Article24oftheLoméConventionwas,accordingtotheComplainingparties,evenmoregeneral
thanArticle 15(a), providing norequirement withrespect toACP bananas:
"Inorder topromote anddiversify tradebetween theContracting Parties, theCommunity and
theACPStates areagreed on:general tradeprovisions; special arrangements forCommunity
import ofcertain ACPproducts; arrangements topromote thedevelopment oftheACPStates '
tradeandservices, including tourism; [and]asystem ofreciprocal information andconsultation
designed tohelpapply thetrade cooperation provisions ofthisConvention effectively."
TheEuropean Court ofJustice ("ECJ"), too,considered theEC'sonlyLomé Convention obligations
intheareaofbananas tobethose laiddown inArticle 168(2)(a)(ii), asexclusively defined andqualified
byProtocol 5andAnnexes LXXIV andLXXV.83Thelatter two"joint declarations" spoke directly
81See"Report oftheACP-EEC Council ofMinisters", 1976-1980, Brussels, 1980, p.44. SeealsoManganza, G.,"La
Convention deLomé", Collection Mégret-droit delaCEE, vol.13,p.317.
82ECInformation Memorandum "Signing inMauritius oftheAgreement Amending theFourth ACP-EC Convention
ofLomé (4November 1995) -ResultsoftheMid-TermReviewandPresentationoftheContentsoftheAgreement ",para.2.3.3,
Brussels, 25October 1995.
83"Federal Republic ofGermany v.Council oftheEuropean Union", ECJCase C-280/93, para. 101(5October 1994).WT/DS27/R/USA
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totheissueofbanana obligations, butwereomitted fromtheEC'sapparent listof"relevant provisions".
Article 168provided intherelevant partthatforACP products suchasbananas thatweresubject to
acommon organization ofthemarket orforwhich ECmeasures wereinforce relating totheimported
product: "theCommunity shalltakethenecessary measures toensure more favourable treatment than
thatgranted tothirdcountries benefiting fromthemost-favoured-nation clause forthesameproducts."84
Protocol 5onbananas, annexed totheConvention, setforth specific provisions relevant tobanana
trade. These provisions clearly superseded themore general provisions inArticle 168.85Theprotocol
opened withastatement that:
"TheCommunity andtheACPStates agree totheobjectives ofimproving theconditions under
which theACPStates 'bananas areproduced andmarketed andofcontinuing theadvantages
enjoyed bytraditional suppliers inaccordance withtheundertakings ofArticle Iofthisprotocol
andagree thatappropriate measures shallbetaken fortheirimplementation."
Article 1ofProtocol 5provided:
"Inrespect ofitsbanana exports totheCommunity markets, noACP State shallbeplaced,
asregards access toitstraditional markets anditsadvantages onthose markets inaless
favourable situation thaninthepastoratpresent."
Annex LXXIV contained ajointdeclaration appended totheProtocol thatpermitted theECtoderogate
fromitsobligations under theLomé Convention inorder toestablish common rulesforbananas, subject
toonecondition. Thedeclaration stated:
"The Contracting Parties agree thatArticle 1ofProtocol 5doesnotprevent theCommunity
from establishing common rules forbananas, infullconsultation withtheACP, aslongas
noACP State, traditional supplier totheCommunity, isplaced asregards access to,and
advantages in,theCommunity, inalessfavourable situation thaninthepastoratpresent."
4.73 TheComplaining parties submitted thatAnnex LXXV explicitly clarified thatHaiti andthe
Dominican Republic, because they"donotatpresent export totheCommunity", were"accordingly
notconsidered astraditional suppliers", andtherefore didnotbenefit from theProtocol orJoint
Declaration. TheECtherefore hadnospecial obligations withrespect totheirexports ofbananas.
Withrespect totraditional suppliers, assetoutinAnnex LXXIV, theECwasfreetoestablish those
common rules forbananas itdeemed appropriate (andpresumably, consistent withitsinternational
obligations) solongasitsafeguarded acertain "situation" asregards pastorpresent advantages with
respect totraditional suppliers. Asnoted above, theECJwasasked toreview Article 168asitrelated
tonon-traditional bananas andfound thatthe"more favourable treatment" language ofArticle 168
wasdelimited byProtocol 5,Annex LXXIV andAnnex LXXV tocover onlyaccess andadvantages
accordedtotraditionalACPbananasuppliers.86TheECJ'snarrowrelianceonProtocol5,AnnexLXXIV
andAnnex LXXV todefine theLomé Convention ’sbanana requirements was, according tothe
Complaining parties, entirely consistent withrecent ECstatements regarding theEC'sLomé Convention
obligations onbananas.
84Article 168(2)(a)(ii).
85According totheComplaining parties, even iftheydidnot,Article 168didnotrequire duty-free treatment fornon-
traditional ACP exports.
86"Federal Republic ofGermany v.Council oftheEuropean Union", ECJcasec-280/93, para. 101. ("Inaccordance
withProtocol 5,theCommunity isobliged topermit theaccess, freeofcustoms duty, onlyofthequantities ofbananas actually
imported atzerodutyinthebestyearbefore 1991 fromeachStatewhich isatraditional supplier. Moreover, Annexes LXXIV
andLXXV relating tothatProtocol confirm thattheCommunity 'sonlyobligation istomaintain theadvantages, withrespect
toaccess ofACP bananas totheCommunity market, which theACP States hadbefore theLomé Convention.")WT/DS27/R/USA
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4.74 TheECreferred tothereference made bytheComplaining parties toAnnexes LXXIV and
LXXV totheLomé Convention, indicating thattheEChadnotlisted them because, intheview of
theEC,theydidnotaddanything tothemain provisions, i.e.Article 168(2)(a)(ii) andProtocol 5of
theLomé Convention, which setoutthefundamental obligations forthepreferential treatment forACP
bananas. Inparticular, Annex LXXV didnothing more thanwhat theEChadacknowledged from
theverybeginning oftheprocedure, thatisthatbananas fromHaitiandtheDominican Republic should
notbeconsidered astraditional andshould notbesubject totheprovisions ofProtocol 5.They were
nevertheless covered bytheprovisions ofArticle 168(2)(a)(ii). According totheEC,andassetout
inArticle 368oftheLomé Convention, theProtocols totheLomé Convention formed anintegral part
oftheConvention. Therefore, theyconstituted provisions ofidentical legalvalue astheonescontained
inthemainbodyoftheAgreement, withthesame legalvalue meaning identical binding effect onthe
contracting parties. Butidentical didnotmean more value or,worse, repealing force ofoneprovision
vis-à-vis another existing provision under thesame Agreement. Moreover, according totheEC,the
Panel didnotevenneedtoenter intothedifficult subject ofexamining therelation between thetwo
provisions sincenoconflict existed between them: Protocol 5applied onlytotraditional ACPbananas,
thussupplementing Article 168(2)(a)(ii) which, inturn,applied toACPbananas ingeneral andtonon-
traditional ACPbananas inparticular. Contrary towhattheComplaining parties affirmed, there was
nocontradiction between theposition expressed bytheCourt ofJustice oftheEuropean Communities
initsjudgement inthecaseGermany v.Council oftheEuropean Union, C-280/93, published inECJ
Reports, 1994, I-5071 andthearguments developed bytheECinthisprocedure. Inthatdecision
(paragraph 101,abinitio)theCourt ofJustice stated: "with respect totheestablishment ofatariff
quota, theimport ofbananas fromACPStates fallsunder Article 168(2)(a)(ii) oftheLomé Convention."
TheCourt thenadded: "Inaccordance toProtocol 5,theCommunity isobliged topermit theaccess,
freeofcustoms duty, onlyofthequantities ofbananas actually imported "atzeroduty" inthebest
yearbefore 1991fromeachACPStatewhich isatraditional supplier." TheCourt ofJustice therefore
clearly distinguished thetworegimes, thefirst, under thetariff quota (ofwhich alimited amount is
allocated tonon-traditional ACPbananas) andthesecond, under thetraditional ACPallocation. The
correct conclusion was,astheCourt ofJustice hadclearly indicated, thatbothprovisions wereinforce
andapplied.
4.75 TheComplaining parties submitted thatthecombined effect ofArticle 1ofProtocol 5and
AnnexesLXXIVandLXXVwasthattheEC'sobligationswerelimited,first,tobananasfromtraditional
suppliers onthetraditional markets and,second, toproviding onlyarough approximation toeachsuch
ACP supplier ofthe"situation" "asregards" access andadvantages thateachsupplier enjoyed in
particular ECmarkets before 1991, anobligation thathadalsotobereadinlightoftheEC'sneed
toestablish common rulesforbananas. Theycontained nospecific obligations withrespect toquantities
orprices fortraditional suppliers, nordidtheycontain anyobligations whatsoever withrespect tonon-
traditionalsuppliers.IntheopinionoftheComplainingparties,nothinginProtocol5orotherprovisions
oftheLomé Convention required theECtoimport certain volumes ofbananas, tomaintain acertain
free-on-board price, ortoimplement measures additional totariff preferences. Moreover, theLomé
Convention didnotrequire country-specific allocations orevenageneral tariffquota forACPbananas.
Furthermore, theComplaining parties submitted, theEChadnoobligations whatsoever withrespect
tobananasfromACPStatesexceedinghistoricalamountsortonon-traditionalshippers.Therequirement
wasageneral one,relating onlytothe"situation" "asregards" access andadvantages prevailing in
particular markets before Regulation 404/93.
4.76 TheComplaining parties noted theEChadindeed admitted thatitwasnotrequired tomaintain
anyfree-on-board price, noranyparticular volume, aninterpretation thatwasconsistent withtheview
ofECministers expressed toACP ministers in1980. TheComplaining parties considered thatthe
EChadconceded thatitsonlyobligation wastomaintain conditions bywhich eachtraditional ACP
State’sbananas could beeffectively soldontheECmarket, andthatithadadmitted that"themeans
toachieve thisarediverse, andarenotnecessarily limited totariff changes". TheEChadalsoby
implication acknowledged thatwithrespect toatleastsome traditional ACP exports, amere tariffWT/DS27/R/USA
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reduction fromMFN rateswould besufficient toensure thattheEChadmetitsobligations toensure
arealandeffective opportunity toimport. According totheComplaining parties, iftheEC'sobligations
withrespect toanACPStatecould bemetbytariffpreferences alone, thenalltheother measures were
obviously notcovered bythewaiver.
4.77 Thisinterpretation ofProtocol 5andAnnex LXXIV wasconfirmed, intheview ofthe
Complaining parties, bytheverydifferent language employed byother provisions oftheLomé
Convention inwhich suchguarantees wereexplicitly provided. Forexample, Article 213contained
special undertakings onsugar, andProtocol 8,containing thetextofProtocol 3onACPsugar provided
that:
"The Community undertakes foranindefinite period topurchase andimport, atguaranteed
prices, specific quantities ofcanesugar, raworwhite, which originate intheACPStates and
which these states undertake todeliver toit."
Other Articles intheProtocol alsosetforthspecific quantities thathadtobeguaranteed. Inaddition,
Protocol 7onbeefandvealstated:
"TheCommunity andtheACPStates agree totakethespecial measures setoutbelow toenable
ACP States which aretraditional exporters ofbeefandvealtomaintain theirposition onthe
Community market, thusguaranteeing acertain levelofincome fortheirproducers."
Thus, iftheEChadwanted to"guarantee" alevelofaccess oradvantages, itwould, intheopinion
oftheComplaining parties, haveusedtheappropriate language todoso.Instead, theBanana Protocol
onlyrequired themaintenance ofageneral "situation" asregards access andadvantages withrespect
toeachsupplier. Intheopinion oftheComplaining parties, a"situation" meant acombination offactors
contributing toa"snapshot" ofthewhole. TheuseofthistermintheLomé Convention implied that
nosingle element ofthatsituation wasguaranteed.
4.78 Toanalyze what"advantages" wererelevant tothepre-404 "situation" of"each ACPState",
itwas,according totheComplaining parties, necessary toidentify precisely thoseadvantages thatexisted
foreachparticular stateinthepastandatthetimeRegulation 404/93 waspromulgated. Anexamination
ofthisissuerevealed thattheaccess andadvantages being provided toeachACPStateunder thecurrent
regime substantially exceeded theaccess andadvantages provided byEuropean countries toanysingle
ACP Stateunder previous national regimes. Before theimplementation ofRegulation 404/93, ACP
exports toallmember States weredutyfree. IntheNetherlands, Belgium, Luxembourg, Denmark,
Ireland and(beginning in1990) Greece, eachACPStatehadtocompete solely onthebasis ofatariff
preference of20percent. InGermany, there wasnosuchtariff preference atall,andtheimport
quantities permitted reflected German demand. Spain didnotauthorize access ofACPbananas, and
Portugal subjected most ACP bananas toquantitative restrictions established toprotect domestic
production, withLatin American bananas supplying thebulkofimports under thequota. InItaly,
theonlyACPStatewithreserved access wasSomalia. France andtheUnited Kingdom, which normally
didnotallow significant imports fromLatin America, weretheonlycountries towhich ACPsuppliers
onthewhole hadsubstantial access reserved forthem. Even there, however, noACP State hada
country-specific allocation "reserved" forit.Indeed, traditionally established trading practices -such
asGeest’sdomination ofUnited Kingdom imports fromtheWindward Islands, andFrance 'sdivision
ofitsmarket intotwo-thirds foritsdomestic suppliers andone-third foritsformer colonies inWest
Africa -limited access forvarious ACP origins.87
87First Banana panel, paras. 19-39.WT/DS27/R/USA
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4.79 Asalegalmatter, therefore, theComplaining parties submitted, withtheexception ofSomalia,
eachindividual ACPStatehadreceived protection fromcompetition inonlyoneoftwomember States -
theUnited Kingdom orFrance. Inneither casedidtheACP bananas inquestion haveaguarantee
thateither output orpastshipment levels would beadmitted. InFrance, totalimports werelimited
bygovernment estimates ofFrench consumption needs. Thehighprice ofbananas keptpercapita
consumption low-atone-half ofGermany ’slevel. TheUnited Kingdom, which wassupplied primarily
byJamaica andtheWindward Islands, imported mostofwhatthese countries produced. Geest, the
exclusive importer ofWindward Island bananas, soldbananas onaconsignment basis, didnotinvest
inbanana production and,therefore, wasinterested inshipping asmany bananas aspossible (with little
regard toquality). Inneither country wasanyindividual ACPStateprotected against competition from
other ACP bananas. While importers inthese closed markets experienced littlecompetition, ACP
bananas hadtocompete withother ACPbananas toentereventhese protected markets. Forexample,
Jamaica, theWindward Islands, Belize andSuriname competed fortheUnited Kingdom market.
Cameroon, Madagascar andCôted'Ivoire competed forone-third oftheFrench market. ACPsales
inbothmarkets depended onanannual assessment ofconsumption needs andprice conditions bythe
relevant competent authorities.
4.80 Moreover, theComplaining parties noted, noneoftheEuropean regimes everguaranteed that
anyACP country could sendtheirbestshipments from 1962, 1972 oranyother period oftime. An
examinationofthedatesfortheACP'sso-called"bestever"exportsdemonstratedthispoint.Ifcountries
wereguaranteed salesatsuchaleveluntil1993, whywould their"best ever" levels ofexports tothe
EChaveoccurred 20to30years ago? Forexample, Jamaica stated thatits"best ever" shipment
(201,000 tonnes) totheECtookplace in1965; yetdespite theEC’sclaims thatJamaica wasguaranteed
thisbesteverlevelfromthemid-1970s onward, Jamaica chose toshipannual amounts thatwereusually
onethird, andoften lessthat10percent, ofthis"best ever" quantity.
4.81 Insum, theComplaining parties argued, the"situation" forACP bananas before
Regulation404/93washardlyasfavourableasthesituationcreatedbyRegulation404/93.Theexcessive
country-specific allocations provided byRegulation 404/93, theduty-free treatment fortheseamounts,
thespecial provisions forso-called non-traditional ACP bananas, theCategory Blicence criteria,
hurricane licences andtheexcessively burdensome import licensing system imposed onLatin American
bananas provided ACP States withacompetitive advantage theynever previously enjoyed. Thefact
thattheLomé Convention didnotprovide anyrequirement toimport certain volumes, tomaintain a
certain priceortoimplement anyothermeasures toguarantee market presence wasindirectly recognized
bytheECJinthecaseinterpreting theEC’sobligations. Indistinguishing theEC’sobligations with
respect tonon-traditional bananas, theECJnoted thattheECwasonlyrequired "topermit theaccess"
freeofdutywithrespect tohistorical quantities ofbananas.88EventheECJ,therefore, onlyconsidered
Protocol 5toapply toaccess opportunities, notsales guarantees. TheCommission 's25-page
interdepartmental options report prepared in1992, Setting UptheInternal Market intheBanana Sector ,
reflectedabroadervarietyofpossibleapproaches.Thatreportexploredseveralsingle-marketalternatives
thattheCommission deemed satisfied theEC'sLomé Convention commitments onbananas.89The
alternativesincludedtariffpreferences,aprogrammeoffinancialandtechnicalassistance,acompensation
mechanism,a"flexible"dollar-zonequotawhereinannualgrowthwouldbeguaranteedandthepossibility
ofsafeguards, aswellasapartnership arrangement through which traditional marketers ofLatin
American bananas would beprovided licences onthebasis ofpurchases ofACP andECbananas.
Thisreport didnotinclude theparticular measures currently inforce.
4.82 TheECreiterated itsviewthatProtocol 5,Article 1,wasselfexplanatory inindicating clearly
theobligations ontheEC.AstheEChadspelled out,theEChadfulfilled itsobligations by:(i)creating
88"Federal Republic ofGermany v.Council oftheEuropean Union", para. 101.
89Indescribing those commitments, thereport speaks onlyofProtocol 5.See,e.g.paras. 16and41.WT/DS27/R/USA
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aspecific andseparate system fortheimportation intheECmarket oftheACP traditional banana
production; and(ii)byfacilitating tradeandcommercial relations between theECandtheACPcountries
through thecreation oftheso-called Category Blicences soastoensure thatthequantities forwhich
access opportunities were given aneffective andnotonlytheoretical opportunity tobesold, thus
guaranteeing traditional ACPbananas theirexisting advantages, while notproviding bythismean any
incentive topurchase ACPbananas. TheECwasunder alegalobligation under theLomé Convention
toensure, fortraditional quantities ofACP bananas, notjusttheopportunity ofpre-existing access
totheECmarket, butalsotheexisting advantages ontheCommunity market attheleveloftheirhighest
sendings inanyoneyearuptoandincluding 1990(theyeartheLomé Convention entered intoforce).
Thiswascertainly anobligation toensure arealandeffective opportunity toimport butdidnotmean
thattheECwasobliged toeffectively import certain volumes ofbananas.
4.83 TheECreminded thePanel thattheregime wasamarket organisation. Itsetoutconditions
governing themarket, butitwasnottheCommission itself, orECmember States whodidtheimporting.
Thus theguarantee wasnotthatcertain volumes wereimported, butthatmarket access, inprinciple
andinpractice, wasmaintained, i.e.thatthemarket organisation wasstructured insuchawaythat
thetraditional ACPsuppliers wereabletofindoutlets fortheirbananas. Thiswasmuch more subtle,
andinfactmore difficult thansimply agreeing topurchase theirbananas, because itimplied creating
acommercial climate inwhich traditional ACP bananas were attractive tocommercial companies.
Inthesamelineofreasoning, theECnoted thatevenifitwasnotobliged tomaintain acertain free-on-
board price, itwascertainly obliged tomaintain conditions bywhich theACPbananas could effectively
besoldontheECmarket, thusguaranteeing theadvantages onthatmarket. Themeans toachieve
thiswerediverse andwerenotnecessarily limited totariffchanges. Theso-called Category Blicences
wereanother means toguarantee theadvantages ontheECmarket through thereinforced andeffective
opportunity toimport ACPbananas. Onepoint toberetained inanycasewasthatACPbananas were
nowexposed tomore competition thantheywerebefore theentry intoforce oftheECwidebanana
market, notless.
4.84 Inthislight, theECrecalled thedifferences inconditions ofproduction hadbeendocumented
inastudyonACPbananaproductionconductedbyCIRAD90.Thisstudyfoundthatfor1993,production
costsaveraged onanational basis, ranged fromECU 325pertonne toECU 440pertonne ($381-$515
pertonne or$6.9-$9.4 per40lbbox(18.14 kg))depending onthecountry. Consideration off.o.b.
prices showed thatin1995, Caribbean ACPcountries received approximately $9perboxandAfrican
ACPcountries approximately $8perbox(these figures hadchanged littlesince1994). Acorresponding
examination of1994 f.o.b. prices forLatin American bananas senttoEurope (source UNSO) ranges
from$3.7perboxinGuatemala, through $3.8perboxinHonduras, $4.21 perboxinEcuador, $5.1
perboxinColombia to$5.2perboxinCosta Rica. TheECnoted, therefore, thateventhemost
competitive ACPcountries hadproduction costswellabove theprices paidtoeventhemostexpensive
Latin American suppliers, andthatFOB prices forACP bananas were approximately double those
forLatin American sourced fruit; thusACPcountries required special preferential treatment tomarket
theirbananas. (Further arguments concerning, interalia,ACP production costs aregiven below in
section IV.B.2(c) -Import licensing issues.)
4.85 TheECsubmitted thattheComplaining parties attempted toreduce thescope ofArticle 1of
Protocol 5oftheLomé Convention bymainly twomeans: firstofallbyestablishing comparisons
betweentheprovisionsonbananasundertheConventionandthoseconcerningotheragriculturalproducts
likesugar, beeforvealetc.Thiswasanextraordinary wayofinterpreting aninternational agreement
intheEC'sview. Under Article 31,paragraphs 1and3,oftheVienna Convention ontheLawof
theTreaties, theneedtodepart fromthetextoftheagreement inorder tointerpret itsprovisions was
limited toacasewhere thetextitself wasunclear orambiguous andwhen theparties could notagree
90Centre deCoopération Internationale enRecherche Agronomique pour leDéveloppement, Montpellier.WT/DS27/R/USA
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onitsinterpretation. Article 1ofProtocol 5wasaccording totheEC,clear andunambiguous.
Moreover, thecontracting parties totheLomé Convention agreed completely about howitshould be
interpreted. Thisinterpretation wasacknowledged bytheparties tohavebeencorrectly reflected in
theEClegislation providing forpreferential treatment fortheACP traditional bananas. Thesecond
wayofreducing thescope ofArticle 1ofProtocol 5wastotrytoshifttheinterpretation tosubtle,
andrather arcane differences between a"guarantee ofalevel ofaccess" andthe"maintenance ofa
general situation asregards access andadvantages withrespect toeachsupplier". Theattempt was
sosubtle thatittended tobeinvisible andonemight findtheendresult surprisingly identical. Infact,
theECcould agree thatthetextofProtocol 5oftheLomé Convention referred to"situations". But
thisinacontext ofanegative phrase stating that"noACP State shallbeplaced, asregard access to
itstraditional markets anditsadvantages onthose markets, inalessfavourable situation thaninthe
pastoratpresent". Thecontracting parties totheLomé Convention agreed thatthisunambiguous
textmeant whatitsaid: anyaspect oftheaccess totheECmarket ofACP bananas and,moreover,
anyadvantage onthose markets should bemaintained inanotlessfavourable situation thaninthepast
(before theentry intoforce oftheLomé Convention) oratpresent (taking intoaccount existing realities
which werenotpresent inthepastbutstillaffected theaccess ofbananas totheECmarket andtheir
advantages onthismarket). Asituation wasacombination ofcircumstances atagiven moment: this
meant thatthesingle elements might change through timewhile notaffecting thecompliance with
Article 1ofProtocol 5iftheoverall result, thesituation ofaccess totheECmarket andofadvantages
onthatmarket, wasmaintained. Thiswasagain something theEChadalways indicated andthat
fundamentally contradicted andundermined theComplaining parties 'suggestion thatthewaiver was
concerned with"required" measures andnot,more correctly astheEChadalways maintained, with
theendresult oftheirapplication, the"preferential treatment". TheEC'sanalysis showed beyond
anydoubt, intheview oftheEC,thatthereading theComplaining parties havemade Article 1of
Protocol 5wasnotonlyrestricted but,more fundamentally, wrong.
4.86 TheComplaining parties considered thattheEChadadmitted thatitsonlyrealrequirement
under theConvention wastomaintain "conditions ofeffective sale" forACPbananas. Although the
EChadconceded thatthisdidnotrequire guaranteed volumes, prices ormarket shares, ithadshed
nofurther lightonthisalleged requirement. Instead, ithadasked Members togiveitunlimited discretion
topromote ACPinterests asitsawfit,evenifitmeant choosing options thatweremostlikely tocreate
unnecessary barriers andburdens forother developing countries intheWTO -withrespect notonly
tobananas buttothegreat number ofother products covered bytheConvention. TheComplaining
parties considered suchatheory wasinconsistent withwhat theWTO represented fordeveloping
countries. Inparticular, ifthewaiver waspermitted toerectsuchnon-tariff barriers against exports
ofnon-ACP developing countries, theWTO could hardly meet itsobjective ofensuring thatall
developing countries secured a"share inthegrowth ofinternational trade". TheComplaining parties
further stated thattheydidnotseekthedestruction ofACP banana production, butonlyasked that
preferences beprovided inaccordance withtheWTO. Furthermore, theydidnotseewhytheneeds
ofACPcountries should bemetattheexpense ofthemostbasic principle ofinternational trade upon
which allcountries relied todevelop, thatofcomparative advantage. Finally, theComplaining parties
considered thatiftheECwerereally interested inhelping developing countries, itwould adopt asystem
thatencouraged banana consumption intheECandpermitted themarket togrow atitsprevious rate.
Such acourse would create jobsinallbanana exporting countries.
Parties 'subsequent arguments -non-traditional ACP tariff preferences
4.87 TheECreferred tothehorizontal issue oftheLomé waiver andnoted ithadshown thatit
covered notonlytraditional ACPtariffpreferences, butalsotariffpreferences applied tonon-traditional
ACP banana imports. Specifically withrespect totheComplaining parties argument thattheEC
preferential treatment tonon-traditional ACP bananas wasinconsistent withArticle IoftheGATT,
theECrecalled thatthepreferential treatment accorded toACP bananas within thetariff quota (duty
freefor90,000 tonnes) andwhen applying dutybeyond thetariffquota (ECU 100pertonne lessthanWT/DS27/R/USA
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thebound duty) wasnotpartoftheECSchedule LXXX, since itflowed directly from therelevant
obligations under theLomé Convention andwastherefore covered bytheLomé waiver. Although
non-traditionalACPbananaswerenotcoveredbytheobligationsoftheECunderArticle1ofProtocol5,
under Article 168(2)(a)(ii) theEChadundertaken to"take thenecessary measures toensure more
favourable treatment thanthatgranted tothirdcountries benefiting fromthemost-favoured-nation clause
forthesame product". Thisprovision didnotexclude bananas. Thecomplainants argument wasthus
based onthewrong assumption thattheLomé waiver covered onlythepreferential treatment accorded
bytheECtoACP countries which wasrelated tothesoleobligations under Protocol 5totheLomé
Convention, and,more particularly, tothesoleArticle 1ofthatProtocol. Thegeneral interpretative
arguments setoutabove showed, intheviewoftheECwhythisunderstanding waswrong anddid
notcorrespond either tothewillofthecontracting parties totheLomé convention ortothescope of
theLomé waiver itself.
4.88 Aduty-free treatment wasamore favourable treatment thanaECU 75pertonne dutyimposed
asMFN treatment within thetariff quota. Areduction ofECU 100pertonne wasmore favourable
treatment thantheMFN treatment forquantities imported outside thetariff quota. Noextension of
thistreatment toanyother Member under Article I:1ofGATT could beclaimed inthelightofthe
terms oftheLomé waiver. Asfarasthefactthatacertain quantity ofbananas ofACP origin were
benefiting from thismore favourable treatment (andnotcountries, asthecomplainants hadphrased
it),morefavourable treatment included notonlytariffpreferences butanyotherpreference which might
beappropriate inthecircumstances ofthecasetoachieve theobjectives under theLomé Convention.
While implementing thismore favourable treatment obligation byaccording adutyfreetreatment to
non-traditional ACPbananas, theEChadsubstantially limited thattreatment toacapped quantity of
bananas, thusstriking averydifficult political balance between different interests onthemarket; it
amounted toaconcerted effort between theACPandtheECtomaintain afairbalance between their
access totheECmarket andthegeneral MFN treatment. Itwasreally paradoxical, intheopinion
oftheEC,thatthislimitation should beseenasaviolation ofWTO rules: thisapproach should be
dismissed.
4.89 Moreover, theECsubmitted, Article 168(2)(d), firstindent, stated that:
"Ifduring application oftheConvention, theECsubjects oneormore products tocommon
organisation ofthemarket..., itshallreserve therighttoadapt theimport treatment forthose
productsoriginatingintheACPStates,followingconsultationswithintheCouncilofMinisters".
Consequently, when thecommon organisation ofthemarket forbananas wassetup,theCouncil of
Ministers decided thatnon-traditional ACP quantities ofbananas should enjoy duty-free access
(Article 18(1) ofRegulation 404/93) within theECtariff quota, thusensuring thattheyweretreated
more favourably thanother third-country suppliers whoweresubject toadutyofECU 75pertonne.
4.90 AccordingtoGuatemalaandHonduras,theyhadshownthattheLoméConvention,asqualified
byProtocol 5andAnnex LXXIV, solely required theprovision ofduty-free access andspecified direct
aidtotraditional ACP banana suppliers. Since non-traditional banana preferences werenotcovered
bytheLomé Convention, theycould notbeconsidered tobe"required bytherelevant provisions of
theFourth Lomé Convention" suchthattheLomé waiver would apply.91Thetariff discrimination
atissue likewise found nosupport under thethree limited exceptions toArticle I:1contained in
Articles I:2,XXandXXIV ofGATT.
4.91 TheComplainingpartiessubmittedthattheEChadnotdeniedthatitsapplicationofpreferential
tariffratestoso-called non-traditional ACPbananas wasinconsistent withArticle I:1ofGATT. Rather,
91Lomé waiver, para. 1.WT/DS27/R/USA
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theEChadclaimed thatArticle 168oftheLomé Convention required ittoprovide thistreatment and
that,accordingly, thediscrimination atissue wasallowed bytheLomé waiver. TheEC’sclaim
contradicted, intheopinion oftheComplaining parties, itsstatement initsReport ontheOperation
oftheBanana Regime that"theCommunity 'sobligations totheACPStates asembodied bytheLomé
Convention havetobehonoured. Onbananas, these aresetoutinProtocol 5totheConvention."92
TheEC’sclaim alsocontradicted theunderstanding ECCommission officials hadconcerning EC
obligations under theLomé Convention in1992when making plans forasingle market. Inconsidering
various options, ECCommission officials didnotconsider thattheLomé Convention required theEC
toprovide anything more thanmost-favoured-nation treatment tonon-traditional ACP bananas. For
example, theCommission ’sMay1992options paper stated that"bananas fromthenon-traditional ACP
suppliers andnon-traditional quantities from traditional ACP suppliers would betreated inthesame
wayasbananas fromthedollar zone."93Areview oftherelevant provisions oftheLomé Convention,
confirmed thatnothing required theECtoprovide thispreferential treatment tobananas from non-
traditional ACP suppliers orwithrespect toquantities exceeding historical shipments oftraditional
ACP suppliers.
4.92 Asdiscussed above, theComplaining parties argued that,Article 168oftheLomé Convention
wasexclusively defined andqualified byProtocol 5andAnnexes LXXIV andLXXV. Since Protocol 5
andthetworelevant Annexes spoke onlyoftraditional suppliers andreferenced thepastorpresent
"situation" (upto1991), the"non-traditional" quantities receiving anypreference under theregime
could notpossibly beconsidered required bytheLomé Convention. Bydefinition, withrespect to
traditional suppliers, non-traditional bananas werethose exceeding traditional amounts. Annex LXXV
explicitly excluded thenon-traditional suppliers fromECobligations. Moreover, theECCommission
recognized inits1992options report thatpreferential allocations ortarifftreatment for"non-traditional"
ACP bananas were notrequired bytheLomé Convention when itdiscussed whatitdeemed tobea
Lomé Convention -consistent "partnership" option inwhich "non-traditional ACPsuppliers andnon-
traditional quantities fromtraditional ACPsuppliers [were to]betreated inthesame wayasbananas
from thedollar zone."94
4.93 Withrespecttotheduty-freetreatmentprovidedtonon-traditionalACPbananas,theComplaining
parties considered thatoneneeded tolooknofurther thantotheEC’sownhighest legalauthority for
acontradiction oftheEC’sposition inthiscase. InitsJudgment of5October 1994, onthechallenge
brought byGermany against theECCouncil (Case C-280-93), theECCourt ofJustice interpreted
Protocol 5oftheLomé Convention aslimiting theEC’sobligations onbananas. TheCourt declared
thattheECwasobliged topermit theaccess, freeofcustoms duty, onlyofthequantities ofbananas
actually imported atzerodutyinthebestyearbefore 1991 from eachtraditional ACP State. The
Court noted thatAnnexes LXXIV andLXXV "confirm thattheEC’sonlyobligation istomaintain
theadvantages, withrespect toaccess ofACP bananas totheECmarket, which theACP States had
before theLomé Convention." Insum, thismeant, according totheComplaining parties, thatthere
wasnorequirement toprovide duty-free treatment tosuppliers suchastheDominican Republic, that
hadnotbeenparty totheearlier Lomé Conventions, andthere wasnoaccess oradvantage obligation
whatever withrespect toquantities thatexceeded theso-called traditional amounts supplied bytraditional
suppliers suchastheCôted’Ivoire andCameroon. Protocol 5,which wasspecifically applicable to
bananas, superseded anymore general obligations intheLomé Convention. Therefore, since the
discrimination wasnotrequired bytheLomé Convention, theECwasobliged, byArticle I:1ofthe
GATT, toaccord immediately andunconditionally tothirdcountries thesame treatment asitaccorded
tonon-traditional ACP bananas.
92"Report ontheOperation oftheBanana Regime", Commission oftheEuropean Communities, SEC(95)1565final, p.2.
93"Setting UptheInternal Market", para. 69.
94Idem.WT/DS27/R/USA
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4.94 Withrespect tothespecific reference made bytheComplaining parties totheCourt ofJustice
oftheEuropean Communities initsjudgement inthecaseGermany v.Council oftheEuropean Union.
TheECsubmitted thatthere wasnocontradiction between theposition expressed. Inthedecision
theCourt ofJustice stated: "with respect totheestablishment ofatariff quota, theimport ofbananas
from ACP States fallsunder Article 168(2)(a)(ii) oftheLomé Convention". TheCourt thenadded:
"Inaccordance toProtocol 5,theCommunity isobliged topermit theaccess, freeofcustoms duty,
onlyofthequantities ofbananas actually imported "atzeroduty" inthebestyearbefore 1991 from
eachACPStatewhich isatraditional supplier." TheCourt ofJustice therefore clearly distinguished
thetworegimes. Thecorrect conclusion was,astheCourt ofJustice hadclearly indicated, thatboth
provisions were inforce andapplied.
(ii)Third-country tariff rates
4.95 Guatemala andHonduras submitted thatprior toRegulation 404/93, theECapplied a
20percentadvalorem tariff ratetofresh bananas, aratewhich hadbeenbound intheGATT 1947
andineffect since 1963. Theadvalorem bound rateforbananas wasrevoked byRegulation 404/93
etseq.andreplaced withatwo-tiered structure. Thisnewtariff structure raised thebound ratein
twoways. First, itintroduced tworatesofduty, where previously there wasonlyone,thehigher
ofwhich wassetatatrade-prohibitive leveltoprevent over-quota shipments. Second, itchanged the
valuation method from advalorem tospecific, which conversion further increased thetariff liability
andmade thatliability harder topredict. Well afterthe20percentadvalorem binding hadbeen
withdrawn,theECnotifiedtheGATTCONTRACTINGPARTIES,on19October1993,ofitsintention
torenegotiate the1963 binding pursuant toArticle XXVIII:5 oftheGATT 1947. ForCosta Rica,
Colombia,NicaraguaandVenezuela,thosenegotiationsledtotheBFA.ForGuatemala,norenegotiation
ofthebinding occurred. When Guatemala signed theMarrakesh Agreement, itssignature was
accompanied byanexpress reservation ofallpast,present, andfuture traderights relative totheEC's
treatment ofbananas. Guatemala accordingly reasserted theclaim ithadsuccessfully putforward in
thesecond Banana panel, butwhich continued togounheeded bytheEC,thatthenewtariff rates
effectuated byRegulation 404/93 etseq.wereinconsistent withenduring Article IIrights arising from
theEC's20percentadvalorem tariff binding.
4.96 According toGuatemala andHonduras, Article II:1(a) oftheGATT imposed onMembers
anabsolute requirement to"accord tothecommerce oftheother contracting parties treatment noless
favourable thanthatprovided forintheappropriate Partoftheappropriate Schedule annexed tothis
Agreement". GATT panels hadrigorously applied thisrequirement, recognizing the"fundamental
importance ofthesecurity andpredictability ofGATT tariff bindings, aprinciple which constitutes
acentral obligation inthesystem oftheGeneral Agreement."95Toprotect thatsecurity, evensmall
changes totariff bindings, including those thatdidnotevenincrease theprotective effect ofthetariff
inquestion, hadbeendisallowed.96Thesecond Banana panel remained faithful tothatstrictArticle II
construction, ruling thatbecause thespecific nature ofthebanana tariffs ofRegulation 404/93 "led
tothelevying ofadutyonimports ofbananas whose advalorem equivalent was,either actually or
potentially, higher than20percent advalorem", Article IIhadclearly beenbreached.97Thepanel
stressed that,consistent withpriorArticle IIinterpretations, themerepossibility thatthespecific tariff
rates applied tothird-country bananas bytheECmight behigher thanthecorresponding bound
advalorem raterendered them inconsistent withArticle II.Guatemala andHonduras submitted data
95"Panel onNewsprint", BISD 31S/114, para. 52(adopted 20November 1984).
96"Exports ofPotatoes toCanada", BISD 11S/88, para. 18(adopted 16November 1962); "Increase inImport Duties
onProducts Included inSchedule XXV (Greece)", BISD 1S/51 (adopted 3November 1952); "Panel onNewsprint",
BISD 31S/114, paras. 50,52(adopted 20November 1984).
97DS38/R, para. 134(issued 11February 1994).WT/DS27/R/USA
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showing thefollowing three-month average advalorem equivalencies: (a)based on1993 data:
(i)ECU 100pertonne -30.03 percent;and(ii)ECU 75pertonne -22.6percent;and(b)based on
1995 data: (i)ECU 850pertonne -255.3 percent; and(ii)ECU 822pertonne -247.3 percent.98
Since inthepresent action, alltariff quota third-country rates, pastandpresent, had,according to
Guatemala andHonduras, exceeded inactuality the20percentrate,nodifferent conclusion could
bereached.
4.97 Guatemala andHonduras noted thatthesecond Banana panel further observed thattheArticle II
inconsistency arising outofRegulation 404/93 wasinnowayaltered bytheEC'sArticle XXVIII:5
notification regarding itsintention tomodify the20percenttariff binding. Thatnotification wasof
nolegalconsequence tothebreach, thepanel concluded, because theEChadimproperly commenced
Article XXVIII negotiations following thewithdrawal oftheconcession, rather thanprior tothe
withdrawal, asrequired byArticle XXVIII. Thus, theEC'sselective undertaking ofArticle XXVIII
negotiations withCosta Rica, Colombia, Nicaragua, andVenezuela should beconsidered tohavehad
absolutely noimpact onGuatemala 'scontinuing Article IIrights. Those Article IIrights alsoremained
unaltered byGuatemala 'saccession totheWTO. Guatemala fullypreserved itspre-WTO Article II
claim byexpressing areserve during theUruguay Round verification process andagain byposting
aformal reservation totheMarrakesh Agreement asto"allGATT andWTO rights relative totheEC's
Schedule ofconcessions foragricultural products asregards bananas."99Moreover, evenwithout that
reservation, thepanel onUnited States -Restrictions onImports ofSugar found thatcountries would
notbeinferred tohaveaccepted, oracquiesced to,terms contained within aschedule ofconcessions
arising outofamultilateral negotiation ifthose terms wereotherwise actionable under theGATT100.
Thispointwasconfirmed inthefirstBanana panel case.101Similarly, inEEC-Production AidsGranted
onCanned Peaches, Canned Pears, Canned Fruit Cocktail andDried Grapes ,thatcase'sfinding of
tariff impairment waspredicated ontheprinciple thattariff binding rights were notextinguished by
subsequent tariffnegotiations.102Thus, here,where Guatemala hadexpressly dissented, notconsented,
totheEC'sbreach ofthe20percentbinding andhadreserved allclaims related toit,itsrights also
should beruled tohavecarried through tothenewWTO. Thetariffstructure accorded tothird-country
suppliers should consequently bedeemed inconsistent withArticle IIandbrought intofullconformity
withtherelevant provisions oftheGATT.
4.98 TheECsubmitted firstofall,thatitdidnotaccept thecalculations made. Second, andmore
importantly, inestablishing thetariff quota theEChadviolated noGATT ruleincluding Article II.
TheECnoted thereference totheunadopted report ofthesecond Banana panel. Without eventhe
needofentering intotheexamination ofthatpanel report -which, likeevery unadopted panel report,
hadnoauthority whatsoever sincetheGATT CONTRACTING PARTIES never accepted norendorsed
itsconclusions -itwould besufficient tosaythatthepanel worked onafactual situation totally different
fromthepresent one. Atthetimeofthereport, theUruguay Round hadnotbeencompleted andthe
98TheECU pertonne figures usedbyGuatemala andHonduras reflected thein-quota andout-of-quota tariffs applied
tobananas intheperiods concerned.
99Seeletter dated 15April 1994 toMr.Peter Sutherland, GATT Director-General, from Mrs. M.Ruíz deVielman,
Guatemala'sMinisterofForeignAffairs,notifyingtheGATT ofGuatemala'sreservationstotheEC'sUruguay Round Schedul e
ofConcessions relating tobananas.
100"United States -Restrictions onImports ofSugar", BISD 36S/331, paras. 5.1-5.3 (adopted 22June 1989).
101DS32/R, paras. 361-363 (issued 3June 1993).
102L/5778, paras. 71and75(issued 20February 1985) (wherein thepanel ruled thatmultilateral tariff negotiations in
1979 didnotextinguish tariff binding rights oncanned peaches accruing totheUnited States from tariff concessions granted
in1974 prior totheEC'sintroduction ofprocessing aidsoncanned peaches).WT/DS27/R/USA
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tariff quota wasnotinforce. TheECcould notseehowthereport could beofanyuseorrelevance
under these circumstances.
4.99 Moreover, Members freely signed andratified theUruguay Round which included, interalia,
theECSchedule LXXX which hadbeen, therefore, unconditionally accepted byall.Anycomparison
withthepast,inasituation where anewgeneral negotiation hadtaken place, wasnotonlyunacceptable
butdeprived ofanylogical baseunless theMembers were ready toaccept thattheUruguay Round
negotiations werenotoverafterall,andanynewsettlement under thatRound wassusceptible tobe
reopened atthegood willofanyofthecontracting parties. There wasnodoubt thatanyguidelines
thatexisted forscheduling intheagricultural sector were leftoutoftheAgreement onAgriculture
onpurpose. Itwastheclearviewoftheparticipants inthenegotiation that,aftertheverification process
ofearly1994, therewould benochance tosecond-guess theagricultural bindings agreed intheUruguay
Round.
4.100 TheECalsosubmitted thatnone oftheprevious GATT litigations quoted were relevant to
thepresent dispute: Thepanel report United States -Restrictions onImports ofSugar indicated only
thataschedule ofconcessions "cannot justify themaintenance ofquantitative restrictions ...inconsistent
withtheapplication ofArticle XI:1". Theissue solved bythatpanel wastherefore related tothe
existence ofanyviolation ofaGATT provision (outside PartIoftheGeneral Agreement) thatcould
notbejustified bythecontrary indications oftheschedule. Thiswasnotrelevant tothepresent case
where thepossibility ofshaping differently theschedules (from anadvalorem dutytoatariff quota)
wasdisputed. Theunadopted second Banana panel report never addressed theissue claimed: the
issuethere wasabout theapplicability ofthewell-known international lawprinciple ofthe"estoppel"
anditsconsequences onthatdispute. Theunadopted panel report justunderlined thatthe"mere fact
thattheEEChadnotified [these] restrictions totheCONTRACTING PARTIES, andthatsuchmeasures
hadnotbeenacted upon untilnowhadnotchanged theobligations under theGeneral Agreement".
Thepresent situation wasnotoneof"amere" notification ofarestriction tootherwise passive parties:
aschedule wasnegotiated during anofficial Round andexpressly accepted bytheCONTRACTING
PARTIES bytheirratification andthe"estoppel" principle wassimply notanissue here. Lastly, the
unadopted panel report EEC-Production AidsGranted onCanned Peaches, Canned Pears, Canned
Fruit Cocktail andDried Grapes dealt witha"non-violation" claim concerning theintroduction of
subsidies which could haveimpaired tariff concessions granted bytheECunder theSchedule. The
unilateral introduction ofcertain subsidies, while theECSchedule concerning those products remained
unmodified, setoffthedispute. TheECargued hereagain thatnothing inthatprocedure wasrelevant
tothepresent situation which dealtwiththeexplicitly accepted modification bytheECofoneofits
Schedules during anofficial Round ofnegotiations.
4.101 Guatemalaargued thatithadshown thattheEChadonlycompleted its20percenttariffbinding
renegotiations withCosta Rica, Colombia, Nicaragua andVenezuela, buthadyettoconclude those
ArticleXXVIIIrenegotiationswithallotherMembersthathadatradeinterestinthatbinding.Guatemala
argued thatithadlikewise shown thattheverification process withrespect totheEC’stariffs on
third-country bananas wasnotconcluded priortotheUruguay Round ratification. Withtheseprocedures
unfinished, GATT lawmade clear thatallrights andinterests attaching totheEC’sbreach ofits
20percentbinding continued tobeenforceable. TheECdisagreed, according toGuatemala, arguing
thatalllegalshortcomings relating tothebinding werecured byGuatemala ’ssignature inMarrakesh.
According totheEC,underpinning thatargument weretheconcepts of"acquiescence" and"estoppel".
ThefirstBanana panel report made clear, however, that"acquiescence" and"estoppel" weregenerally
onlyrelevant under GATT lawincases where contracting parties expressly hadconsented toforego
theirGATT rights.103Guatemala could notbesaidtohavegranted itsconsent, express orimplied,
103First Banana panel, citing "Report ofthePanel onJapan -Imports ofCertain Agricultural Products", adopted
2February 1988, 35S/163; and"United States -Measures Affecting Alcoholic andMaltBeverages", adopted 19June1992,
DS23/R.WT/DS27/R/USA
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tothetariffquota tariffrates. Other panel reports reinforced Guatemala 'sopinion thattheEC’sbreach
ofbinding wasnotcured bytheEC’sUruguay Round Schedule. TheSugar Panel found thatcountries
would notbeinferred tohaveacquiesced toterms contained within aschedule ifthose terms were
otherwise GATT-illegal.104TheEC’sattempt tonarrow thereach ofthesugar decision toGATT
obligations outside ofPartIwas,intheopinion ofGuatemala, notsupported bythatpanel’sunqualified
languagethat"[ArticleII]couldnotjustifyinconsistencieswithanyArticleoftheGeneralAgreement".105
4.102 TheEC’srejection oftheadvalorem equivalency calculations presented byGuatemala was
alsowithout merit. IftheECwished todisprove thetechnical breach ofthebinding atissue, itshould
providesupportingdetails.Nosuchsupportingdetailsexisted.Calculationscomparabletothosesupplied
inthefirstsubmission ofGuatemala andHonduras werealsosubmitted inthesecond Banana panel,
leading thepanel toconclude that:
"The EEC hadneither argued norsubmitted evidence thatthistariff could never exceed
20percentadvalorem ....ThePanel consequently found thatthenewspecific tariffs led
tothelevying ofadutyonimports ofbananas whose advalorem equivalent was,either actually
orpotentially, higher that20percentadvalorem."106
4.103 Guatemala submitted thatsince thatArticle IIfinding hadneither beenredressed norlegally
altered bysubsequent events, ithadtobereaffirmed inthepresent action. Although Guatemala alone
hadasserted theArticle IIclaim, thePanel’sruling onthisissue should havelegaleffect forallother
Members thathadatrade interest inthe20percentECbinding. Their righttothisArticle IIclaim
wasconfirmed bythefirstBanana panel report, which made clearthatthemere failure ofacountry
tomake aclaim wasnotanexpression ofthatcountry ’sconsent torelease theECfrom itsGATT
obligations relating tothatmeasure.107
4.104 TheECreplied thatthelegalsituation wasclear: theMarrakesh Protocol indicated that"The
schedule annexed tothisProtocol relating toaMember shallbecome aschedule toGATT 1994relating
tothatMember onthedayonwhich theWTO Agreement enters intoforce". Byratifying theUruguay
Round package, Guatemala hadaccepted thewhole ECSchedule LXXX andthebanana tariff quota
thatappeared inthatSchedule. Guatemala thenclaimed ithad"preserved" itsrights under adeclaration
attached totheMarrakesh Agreement. Ifanyeffect wasgiven tosuchadeclaration, itwould reduce
thescope ofGuatemala 'sratification oftheMarrakesh Protocol which wasanintegral parttoGATT.
Adeclaration withthatpurpose could not,according totheEC,bedefined differently asareservation.108
4.105 Furthermore, theECsubmitted, Article XVI:5 oftheWTO Agreement indicated that"no
reservations maybemade inrespect ofanyprovision ofthisAgreement. Reservations inrespect of
anyoftheprovisions oftheMultilateral Trade Agreements mayonlybemade totheextent provided
forinthose Agreements". TheGATT didnotprovide foranyrighttointroduce areservation. Thus,
anydeclaration tothateffect wasinadmissible under theGATT andwould bedeemed ashaving no
legalvalue. Consequently, allreferences toprevious panels quoted bytheComplaining parties were
ofnoavailforthesimple reason thatthose panels could nothavetaken intoaccount, intheiranalysis,
theexistence ofprovisions likeArticle XVIoftheWTO approved aftertherelease ofthose reports.
10436S/331, paras. 5.1-5.3.
10536S/331, para. 5.8.
106Second Banana panel, para. 134.
107First Banana panel, para. 363.
108Vienna Convention ontheLawoftheTreaties, Article 17,para. 1.WT/DS27/R/USA
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4.106 Concerning theissue withrespect tothenon-verification oftheECSchedule asraised ina
question bythePanel, theECsubmitted thatnoevidence hadbeenpresented tosubstantiate thisclaim,
asindeed none could besince theChairman oftheTrade Negotiations Committee didnotmention
theECScheduleamongthenon-verifiedonesatthatCommittee'snext-to-lastmeetingof30March1994.
Guatemala itself, which hadreserved itsposition ontheECbanana offeratthesame meeting, didnot
seefittopursue thematter atthefollowing andlastmeeting oftheCommittee on7April 1994. The
ECalsoreferred tothenoteoftheGATT Secretariat indocument MTN.GNG/MA/W/25 inwhich
theclosing datefortheverification period forschedules wasindicated as31March 1994. TheEC's
corrigendum onitsbanana concession wasdated 29March 1994. Nevertheless, there wasnolegal
effect onthebinding nature oftheECSchedule even assuming thatsuch lackofcompletion of
(re)negotiation andverification wasindeed thecase. TheMarrakesh Protocol totheGATT 1994 was
extremely blunt inthisrespect:
"Theschedule annexed tothisProtocol relating toaMember shallbecome aSchedule toGATT
1994 relating tothatMember onthedayonwhich theWTO Agreement enters intoforce for
thatMember."
Byratifying theUruguay Round package, including theschedules annexed toit,Members hadaccepted
theschedules asbinding onthemselves andothers. Even ifirregularities hadoccurred during the
procedures leading uptotheestablishment ofthese schedules (assuming thatthese procedures were
subject tobinding rules), thefinalratification oftheschedules andtheimpossibility tomake any
reservations toanyprovision (including theschedules) oftheAgreement, unless suchreservations were
provided forintheAnnex IAagreements (which wasnotthecaseinrespect oftheschedules), made
itimpossible tocallintoquestion theschedules ascontained intheresults oftheUruguay Round
(Article XVI:5, WTO Agreement). Theparties inthiscasehadnotalleged fraud, corruption orcoercion
(Articles 49-51 oftheVienna Convention of1969) inorder toinvalidate theschedules. Hence the
schedules, including theECconsolidated tariff onbananas andthetariff quota, were partofaduly
ratified agreement andcould notbecalled intoquestion anymore.WT/DS27/R/USA
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(b) Allocation issues
4.107 Thissection outlines thecaseconcerning allocation matters. Itsetsoutfirstgeneral allocation
issues andthentheissue ofthereallocation ofshortfalls inthecontext oftheBFA.
(i)General allocations
4.108 Thegeneral arguments oftheComplaining parties concerning therequirements ofArticle XIII:2
ofGATT aresetbelow, followed bytheECresponses totheclaims andsubsequent arguments by
theComplaining parties. TheECresponses include themajor horizontal issues raised bytheEC:
(i)thepresence oftwoseparate banana access regimes; and(ii)theAgreement onAgriculture and
itsrelationship toArticles IandIIofGATT. Following theArticle XIII:2 arguments, parties 'arguments
inrelation toArticle XIII:1 andArticle I:1arecovered. Finally, arguments concerning theapplication
oftheLomé waiver toallocation issues arepresented.
4.109 TheComplaining parties submitted thattheEChadallocated access toitsmarket among
supplying countries inamanner inconsistent withGATT Article XIII:2. Guatemala, Honduras,
Ecuador andtheUnited States argued thattheECprovided country-specific allocations tosome
countries (ACP andBFAsignatories), while notproviding themtoothers withsimilar orgreater levels
ofpasttrade. Furthermore, theComplaining parties submitted thatmostoftheallocations provided
tothose favoured countries greatly exceeded theshares oftrade theywould beexpected toobtain in
theabsence ofrestrictions. TheComplaining parties considered thattheECalsodisregarded the
principles ofArticle XIIIentirely when itprovided BFA signatories theexclusive right toincrease
theiraccess when other BFAcountries experienced ashortfall inthequantity theycould supply tothe
EC.Inaddition, Guatemala, Honduras, Ecuador andMexico considered these aspects oftheEC
allocations violated Article XIII:1, andGuatemala andHonduras considered that,inthealternative,
theywere inconsistent withArticle I.
Article XIII:2 ofGATT
Arguments oftheComplaining parties
4.110 TheComplaining parties submitted thattheEChadnotcomplied withArticle XIII:2 ofGATT,
which setsoutthegeneral principle thatgoverned theallocation ofamarket among various supplying
countries. Under thatprovision, "Inapplying import restrictions toanyproduct," Members "shall
aimatadistribution oftradeinsuchproduct approaching asclosely aspossible theshares which [third
country Members] might beexpected toobtain intheabsence ofsuchrestrictions." Paragraph 5of
Article XIIIconfirmed thattheprovisions ofArticle XIIIapplied toanytariff quota instituted or
maintainedbyanyMember.ReferringtothepanelonDessertApples,Ecuador,Guatemala,Honduras
andtheUnited States considered thatArticle XIIIwaslexspecialis withrespect totheprovision of
country allocations109.
4.111 TheComplainingpartiesconsideredthatArticleXIII:2(d)setforthtwowaysinwhichaMember
could divide upitsmarket andbepresumed tocomply withthegeneral principle. Either theECcould
haveallocated shares toallsubstantially interested parties (ifitobtained theconsent ofeachandevery
one), or,intheabsence ofsuchagreement, itcould have provided shares according tohistorical
shipments during arepresentative period (inotherwords, intheabsence ofrestrictions). If,inaddition,
theEChadchosen toassign shares toparties thatdidnothavesubstantial interests, ithad,nonetheless,
toabide bythegeneral principle ofArticle XIII:2. TheEC,according totheComplaining parties,
hadnotcomplied withanyofthese requirements.
109Repor tofthePanel on"EEC-RestrictionsonImpor tsofDesser tApples-Compl aintbyChile",adoptedon22June1989,
BISD 36S/93 at133.WT/DS27/R/USA
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4.112 TheUnited States noted thatpartoftheECmarket wasreserved forcountry-specific allocations
(whichwerenotboundintheECSchedule)providedtotraditionalLomécountries110,includingnon-WTO
Members, whereas access totherestofthemarket waslimited bythethird-country tariffquota, divided
among country-specific allocations fornon-traditional Lomé bananas (bound onlyintheirtotality) and
forbananas exported byLatin American countries thathadsigned theBFA, which were alsobound
intheEC'sSchedule. Theremainder ofthethird-country tariff quota wasallocated toaresiduary
"other" category forcountries nototherwise receiving country-specific allocations.
4.113 Ecuador noted thattheEChadallocated country specific shares oftheECimport market to
traditional ACPcountries, toLatin American countries which hadsigned theBFA, andtocertain non-
traditional ACPsuppliers. Theremaining portion oftheimport market hadbeenallocated toacatch-all
"others" category, which included allthird countries notincluded inthefirstthree categories. This
allocation scheme violated, according toEcuador, Article XIIIoftheGATT intwoways. First, the
scheme provided country-specific allocations tocertain countries while denying country-specific
allocations toother countries suchasEcuador which hadasubstantial interest inexporting bananas
totheEC.Second, theallocation oftheshares between thevarious countries andgroups ofcountries
didnotreflect commercial orhistorical trade patterns.
4.114 Inbothoftheoptions setoutinArticle XIII:2, Ecuador considered, allocations hadtobemade
toallcountrieshavinga"substantialinterest."Undervirtuallyanycriteria,Ecuadorhadtobeconsidered
ashaving asubstantial interest inexporting bananas totheEC.Ecuador wasoneofthelargest suppliers
ofbananas totheECmarket andthebanana industry wasthesecond largest sector ofEcuador 's
economy. Ecuador 'sinterest inexporting bananas totheECwasclearly more substantial thanthat
ofother countries which weregiven country specific allocations under thetariffquota. ACPcountries
andcertain oftheBFAsignatory countries which weregiven country-specific allocations historically
accounted foronlyaverysmall portion ofallexports totheEC. Many ofthese countries, suchas
Belize, Cape Verde, theDominican Republic, Grenada, Haiti, Venezuela, andMadagascar, accounted
forlessthan1percentofallimports between 1989and1991. Other countries inthiscategory, such
asCameroon, Côted'Ivoire, Dominica, Jamaica, Nicaragua, Somalia, St.Lucia, St.Vincent andthe
Grenadines, andSuriname accounted forlessthan5percentofallimports ofbananas intotheEC
during thisperiod. Despite thefactthatEcuador hadamore substantial interest thananyother country
inexporting bananas totheEC,theEChadfailed toagree upon acountry-specific allocation with
Ecuador. Intheopinion ofEcuador, theECregime was,therefore, inconsistent withArticle XIII.
4.115 According toGuatemala andHonduras ,theallocation discrimination found nosupport in
theprovisions ofArticle XIII:2(d) which allowed quota allocations among supplying countries under
specially circumscribed conditions. Article XIII:2(d) required thattheECeither obtain anagreement
regarding allocations fromallMembers having a"substantial" supplying interest or,where thatapproach
was"notreasonably practicable," accord allocations thatcorresponded toshares during anunrestricted
representativeperiod.GuatemalaandHondurasnotedthattheterm"substantialinterest"wasnotdefined
inArticle XIIIandwaselsewhere established as"notcapable ofaprecise definition."111Nevertheless,
theEChadnotattempted tofollow anydiscernable "substantial interest" analysis based onwhat"might
beexpected ...intheabsence ofsuchrestrictions." Themost thatcould besaidabout itsvolume
methodology wasthatitdrewfromperiods oftimeinwhich illegal ECnational policies wereineffect.
Even within those periods, however, a"substantial interest" approach wasnotpursued. Some ofthe
preferential allocations, asinthecaseofCape Verde andSomalia, were conferred tocountries that
werenotevensignatories oftheWTO. Guatemala andHonduras, ontheother hand-bothofwhich
wereMembers andbothofwhich hadgreater tradeinterests thansome oralltraditional ACPsuppliers -
weredenied thebenefit ofequivalent agreements. While theECprovided specific allocations even
110Regulation 404/93, Annex.
111Interpretative Note AdArt.XXVIII, para. 1,note7.WT/DS27/R/USA
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tothesmallest ACPsupplying countries, theEChadnotawarded allocations tomany thirdcountries,
including Guatemala andHonduras, thathistorically shipped greater volumes totheEC. Thus, the
ECquiteclearly ignored the"substantial interest" standard ofArticle XIII:2(d). TheEClikewise could
notdefend itsdiscriminatory tariff quota allocations onthegrounds thattheComplaining parties had
theopportunity toaccept source-specific allocations, butdeclined todoso.TheEChadmade clear
thatallocations would notbeaccorded totheComplaining parties unless theyacquiesced toallillegalities
inherent intheregime. Suchan"opportunity" could notbeseenasalegitimate exercise offairtrading
interests. Tariff quota allocations were accordingly inconsistent withArticle XIII:1 andXIII:2, and
should beeliminated fromtheregime. Theirregular allocation oftariffquota market share alsoviolated
theestablished requirement ofArticle XIII:2 thatMembers accord adistribution oftrade comparable
tothatwhich would occur under unrestricted circumstances. Here, shares wereguaranteed forcertain
sources, butnotforsimilarly-placed othersources, aphenomenon thatobviously would notoccur under
unrestricted market circumstances.
4.116 Guatemala andHonduras submitted thatwhen Regulation 478/95 incorporated theBFAinto
thetariffquota, effective March 1995, itincluded tariffquota source allocations which assured inflated
country-specific shares orvolumes tonumerous countries based onshares thatprevailed under the
national regimes, while forcing adeflated single "basket" portion toallothers. Theinflation ofshares
forevery oneoftheBFAbeneficiaries, andthedeflation ofshares forallothers, pointedly demonstrated
thatpreferential allocations were notonlyaccomplished, butintended, bythisapportionment.
4.117 TheUnited States wasoftheviewthattheEC’sdistribution ofmarket access didnotreflect
anattempt atadistribution oftradeapproaching asclosely aspossible theshares which Members could
havebeenexpected toobtain intheabsence ofrestrictions. Withrespect tocountries witha"substantial
interest," thedistribution didnotreflect either ofthetwoprescribed methods dependent onproportions
supplied during arepresentative period. Indeed, theECdidnotappear tohaveusedconsistently any
criterion orsetofcriteria inallocating access toitsmarket. Inthefirstinstance, theECdidnoteven
useasacriterion membership intheGATT orWTO. TheEChadawarded allocations toCape Verde
andSomalia, neither ofwhich wasasignatory oftheGATT ortheWTO agreements, while notawarding
allocations tolong-standing larger banana suppliers thatwere signatories.
4.118 With respect toMembers, theECdidnotappear tohaveconsidered anyparticular historical
period asbeing representative forpurposes ofallocating shares ofitsmarket. Theperiod 1989-91,
which theECclaimed tohaveusedtodetermine thesizeoftheinitial third-country tariff quota and
toallocate import licences among thevarious "operators" could hardly, intheopinion oftheUnited
States, beconsidered "representative" inanyevent, since GATT-inconsistent restrictions onnon-ACP
bananas were inforce atthetimeinseveral ECmember States. However, evenin1989-91, with
discriminatory restrictions inplace, Ecuador wasoneoftheEC’slargest suppliers, with15.53 per
centofglobal (including ACP) imports intotheEC-12 (18.65 percentin1990-92). Counting only
Latin American andother third-country suppliers, Ecuador hadsupplied wellover20percentofthe
EC-12 market intheyears before Regulation 404/93. Since Ecuador hadnotagreed totheECshares,
theEChadsurely failed toallocate thetariffquota inaccordance witheither ofthemethods prescribed
byArticle XIII:2(d) withrespect tosubstantially interested parties. Incontrast, theUnited States argued,
although noneoftheACP nations achieved evena5percentshare during the1989-91 period, the
ECawarded them allspecific shares oftheECmarket. Several ACP nations towhich theEChad
awarded allocations didnotevensupply 1percentoftotalECimports during the1989-91 period;
Madagascar shipped aslittleas23tonnes. Likewise, theEChadallocated aspecific share toaBFA
signatory, Venezuela, which supplied only90tonnes during 1989-91. TheUnited States presented
thefollowing table:WT/DS27/R/USA
Page62
EC-12 Imports: 1989-91 and1990-92
compared tocountry allocations
Country Average imports
1989-91
(tonnes)Average imports
1990-92
(tonnes)ECallocation
(tonnes)
Belize* 23,412 24,050 55,000
Bolivia 6 6 None
Cameroon* 83,180 101,394 162,500
Cape Verde* 2,820 2,534 4,800
Côte d’Ivoire* 98,914 119,283 162,500
Dominica* 52,897 54,355 71,000
Dominican Republic* 4,994 17,539 55,000
Ecuador 408,937 543,324 None
ElSalvador 31 29 None
Ghana* 817 730 5,000
Grenada* 8,214 7,463 14,000
Guatemala 28,128 19,988 None
Honduras 136,910 153,223 None
Jamaica* 57,505 69,374 105,000
Madagascar* 23 3 5,900
Nicaragua 47,292 46,457 66,000
Panama 470,845 496,916 None
Somalia* 41,783 22,048 60,000
St.Lucia* 115,387 117,816 127,000
St.Vincent andthe
Grenadines*70,732 72,516 82,000
Suriname* 28,465 28,466 38,000
United States 1,975 2,135 None
Venezuela 90 45 44,000
AllOther Imports 940,989 1,011,732 -
*ACP country
Further, theUnited States noted thatArticle XIIIdidnotappear tobaracountry from providing
allocations tocountries thatdidnotmeet thesubstantial interest criteria but,intheopinion ofthe
United States, theEChadtodosoconsistently withthegeneral principle inArticle XIII:2. Inthe
opinion oftheUnited States, theEC’sregime wasnotbased onsuchconsiderations. Assetoutin
theabove table theEChadprovided allocations tomany very small suppliers, buthadnot
awarded allocations tomany other countries withgreater ornearly equivalent historical shipments.
Forexample, during theEC’sclaimed representative period (1989-91), ECfigures showed thatElWT/DS27/R/USA
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Salvador shipped roughly thesame verysmall level ofexports totheECasVenezuela, andthe
United States exported over20times thequantity asVenezuela. YettheECgaveonlyVenezuela
aspecific allocation. Likewise, theEChadawarded Belize andNicaragua specific allocations
based onaverage exports of23,412 tonnes and47,292 tonnes, respectively, while notgranting an
allocation toeither Guatemala orHonduras, which hadaverage exports of28,128 tonnes and
136,910 tonnes, respectively. Thus, whatever criteria theEChademployed inestablishing
allocations forsome countries, those same criteria hadnotbeen applied toother countries
supplying similar orgreater proportions ofECtrade. Thefirstsentence ofArticle XIII:2 didnot
permit theECtoprovide country-specific allocations tosome countries, andnottoothers, with
disregard forthesimilarity ofthecountries ’historic shipments. IfCape Verde, Dominican
Republic, Somalia andSuriname hadsufficient trade towarrant specific allocations, thensodid
Guatemala, Honduras andtheUnited States.
4.119 Moreover, theUnited States pointed outthattheECdidnotapply consistently its1989-91
"representativeperiod"oranyotherapparenteconomiccriterionwhendeterminingthepreciseallocations
forthose nations towhich itgavesuchallocations. Forexample, St.Lucia supplied anaverage of
115,387 tonnes during 1989-91 andreceived anallocation equal toabout 4.15percentoftheEC’s
market, while theCôted’Ivoire shipped lessthanSt.Lucia (anaverage of98,914 tonnes) andreceived
agreater allocation (5.07 percent). Likewise, Jamaica shipped anaverage of57,505 tonnes andreceived
anallocation equal to3.43percent, andSt.Vincent andtheGrenadines supplied anaverage of
70,732 tonnes andreceived anallocation equal to2.68percent. Similar inconsistencies would have
prevailed iftheEChadusedalaterrepresentative period, suchas1990-92.
4.120 TheUnited States further claimed thattheECmarket allocation didnotreflect historical shares
within thethird-country tariffquota. Forexample, among those countries currently subject tothetariff
quota, Colombia ’s1990-92 share oftheEC-15 market, wasunder 19percent,compared toitsallocation
of21percentpresently. Also, theEChadfailed toobtain theagreement ofEcuador, oneofitsmajor,
obviously substantial, suppliers, ortoprovide Ecuador withanappropriate allocation along historical
patterns oftrade, asrequired byArticle XIII:2(d). Moreover, thearbitrary manner inwhich theEC
hadprovided country-specific allocations, evenassuming thattherestrictive, discriminatory period
of1989-91 wererepresentative, demonstrated theEC’sfailure withrespect toeventhesmallest suppliers
toallocate itsmarket toapproximate theshares thatwould prevail intheabsence ofrestrictions, in
accordance withthefirstsentence ofArticle XIII:2.
4.121 Ecuador argued thatinaddition totheportion oftheECimport market allocated totraditional
ACP suppliers, theEChadallocated additional shares toCosta Rica, Colombia, Nicaragua and
Venezuela, andtocertain non-traditional ACP sources. These allocations were created through the
BFAandtheregulations implementing thisagreement. TheEC,Colombia, Costa Rica, Venezuela
andNicaragua concluded theBFAaspartofasettlement ofanearlier GATT challenge totheECbanana
regime brought bythefourLatin American countries along withGuatemala. In1994, Colombia,
Nicaragua, Venezuela, Costa Rica, andGuatemala challenged theECimport regime before aGATT
panel. Although thepanel found thatseveral aspects oftheregime violated GATT, theECblocked
theadoption ofthepanel report. However, asacondition fordropping theircaseagainst theEC,four
ofthefivecomplaining countries concluded theBFAwiththeEC.TheBFAgranted eachoftheLatin
American signatories country-specific shares ofthetariffquota andadopted various other preferential
anddiscriminatory import procedures. Theallocation oftariff quota shares tothesignatory countries
didnotrepresent, according toEcuador, anyrational distribution based onhistorical orcommercial
factors. Rather, theallocation wasthearbitrary result ofapolitical compromise.
4.122 According toEcuador, theBFAallocated thethird-country tariff quota asfollows:WT/DS27/R/USA
Page64
Colombia
Costa Rica
Nicaragua
Venezuela
Dominican Republic andother
ACP countries
Other21%
23.4%
3%
2%
90,000 tonnes
46.51%
4.123 Thecategory "other" listed inthetableincluded allother third-country suppliers, including
Ecuador.Ecuadorconsideredthatthecountry-specificallocationsforBFAcountriesviolatedArticleXIII
since nosimilar allocation wasmade forthirdcountries inthe"other" category despite thatmany of
these countries hadasubstantial interest inexporting bananas totheEC,including Ecuador.
Regulation 478/95, theregulation which implemented theBFA, alsoincluded, inAnnex I,acountry-
specific allocation fornon-traditional ACP sources which wasnotpartoftheBFAitself:
Dominican Republic
Belize
Côte d'Ivoire
Cameroon
Other ACP countries55,000 tonnes
15,000 tonnes
7,500 tonnes
7,500 tonnes
5,000 tonnes
Intheopinion ofEcuador, theEChadnotsatisfactorily explained whythese suppliers were given
country-specific allocations. Infact,theCommission hadnotprovided asatisfactory explanation for
howitcalculated anyofthecountry-specific allocations setoutintheBFAandRegulation 478/95.
4.124 TheUnited States observed thattheEC’sallocation method hadresulted inasubstantial
reduction ofthecombined shares ofthelargely Latin American suppliers thatwere notsignatories
totheBFA. During 1989-91, these non-BFA signatories supplied over40percentofEC-12 imports;
yet,onthebasisoftheEC’smethod ofgranting allocations, thesenon-BFA signatories werepermitted,
collectively, tosupply theEC-12 withlessthan34percentoftotalimports.
ECenlargement
4.125 Ecuador argued thattheshare allocated tothirdcountries included inthe"other" category
wassubstantially lower thantheshare which these countries heldprior totheimposition oftheEC
bananaregime.TheEChadfailed,accordingtoEcuador,toprovideasatisfactoryexplanationjustifying
thediscriminatory treatment ofthird-country suppliers inthe"other" category. TheECeffectively
reduced themarket access ofLatin American bananas evenfurther when, on1January 1995, itadopted
transitional measures permitting theimportation ofonly353,000 additional tonnes ofbananas112under
thethird-country tariff quota totakeaccount oftheaccession ofAustria, Finland andSweden tothe
EC. TheEuropean Commission explained thattheadditional volume represented "theaverage net
importsofthesecountriesduringthe1991-1993referenceperiod."113However,Ecuadornoted,Eurostat
dataindicated thatthese countries imported anaverage of388,000 tonnes annually during thisperiod,
112SeeCommission Regulation (EC) No.3303/94, 21December 1994; Commission Regulation (EC) No.479/95,
1March 1995; Commission Regulation (EC) No.702/95, 30May 1995; Commission Regulation (EC) No.1924/95,
3August 1995; andCommission Regulation (EC) No.2008/95, 18August 1995.
113See"Report ontheOperation oftheBanana Regime", Commission oftheEuropean Communities, SEC(95)1565
final, p.11.WT/DS27/R/USA
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99percentofwhich, wasimported fromLatin American countries. Infact,thevolume ofthird-country
banana imports intothethree newmember States in1994 alone was465,900 tonnes, or32percent
above thevolume allowed under thetransitional measures. Thedatathusonceagain demonstrated
thearbitrariness ofthetariff quota allocations, especially compared totheACP allocations.
4.126 TheUnited States remarked thattheECdidnothing toalleviate thediscrimination inits
allocation method when Austria, Finland andSweden joined itscustoms union in1995. TheECCouncil
hadnotapproved anincrease inthetariff quota toaccount forLatin American access tothese three
countries. In1995, theUnited States said, theECCommission expanded thetariff quota by
353,000 tonnes under itsdiscretionary authority toensure anadequate market supply. TheEC
Commission wasexpected tomake thissame adhocexpansion ofthetariffquota inthefourth quarter
of1996toaccommodate consumption needs. Before 1995, thethreenewECmembers imported almost
alloftheirbananas fromLatin American sources. Bynotapproving apermanent increase inthetariff
quota corresponding toimports bythenewmember States, theECwasineffect allocating shares for
theEC-15 inthesame proportions asfortheEC-12. Since thenewmember States hadpurchased
almost nobananas fromACP nations, thisapproach further skewed theallocation ofthetariff quota
away frombeing based onarepresentative period andhighlighted thearbitrary nature oftheoverall
allocation.
4.127 Even assuming theECweretoapprove anincrease inthetariff quota toaccount forthethree
newmember States, theUnited States considered thatthemarket shares theECawarded tocountries
would remain inequitable when compared tohistorical imports. TheECgave, asshown inthetable
below (provided bytheUnited States), ACP countries access to27.8percentoftheEC-15 market,
significantly more thantheirshares during either the1989-91 period orthe1990-92 period. Atthe
same time, theECfailed toprovide access evenclose tothehistorical shares ofcountries which did
notjointheBFA.
EC-15 historical market shares for
groups ofcountries
compared tocurrent allocations
Group Share of
imports
1989-91
(percent)Share of
imports
1990-92
(percent)EC
allocation
(percent)
ACP countries 20.0 19.5 27.8
Framework
Agreement
countries37.4 36.1 37.0
Non-
Framework
Agreement
countries42.6 44.4 35.2
Total 100.0 100.0 100.0
4.128 Mexico argued thatthereduction inaccess totheECmarket hadbeen maintained and
increased duetothelackofadefinitive increase intheEC'stariffquota totakeaccount oftheaccessions
ofAustria, Finland andSweden totheEC,asfrom 1995. Inthiscase, despite thefactthatimports
originating innon-ACP countries tothose markets amounted to465,700 metric tonnes, theECregime
onlyauthorized, onatransitional basis(during 1995), anamount of353,000 metric tonnes. In1996,WT/DS27/R/USA
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there wasnodefinitive increase totakeintoaccount theaccession ofthethree newmember States,
andtherefore thetotalamount oftheECtariffquota wasstillbelow whatshould beapplied inaccordance
withtheGATT.
Arguments oftheEC
4.129 TheECpresented itsmain arguments concerning theclaims oftheComplaining parties on
allocation issues under twomain headings: (i)thattheapplication ofArticle XIIIofGATT wasnot
legally correct ifapplied tothetotality oftheECmarket which consisted oftwoseparate regimes;
and(ii)thattheapplication ofArticle XIIIwasnotappropriate given thenature ofthetariff bindings
foragricultural products suchasbananas andthespecificity oftheAgreement onAgriculture with
respect tothose bindings. Details ofthese matters aresetoutbelow along withthearguments ofthe
Complaining parties concerning them. Thearguments concerning Article XIIIissues thathavenot
beencovered elsewhere, forexample those concerning arepresentative period forallocation, arethen
reported. TheECalsoreiterated itsarguments concerning theLomé waiver. Inthislightitnoted
thatwhile Article XIIIcould notbeapplied totwoseparate regimes assetoutabove, theComplaining
parties hadraised issues concerning theallocations toACPcountries. Thisallocation was,intheEC
view, alsocovered bytheprovisions oftheLomé waiver: arguments concerning thisaspect ofthe
Lomé waiver aresetoutattheendofthesection ongeneral allocation issues (seealsoparagraph 4.173
below).
Separate regimes
4.130 Withrespect totheallegations raised bytheComplaining parties concerning allocation issues,
theECsubmitted thatnoconfusion should beallowed toarisebetween theACPtraditional allocation
andthetariff quota allocation bound under ECSchedule LXXX. Specifically, theECnoted thatthe
external aspects oftheCOM forbananas consisted oftwodistinct regimes:
(a) theregime fortraditional ACPbananas which mustbetreated inaccordance withthe
Lomé Convention andmust begiven preferential treatment. Thisregime wasnow
covered bythewaiver from theobligations oftheEuropean Communities under
paragraph 1ofArticle IofGATT withrespect totheLomé Convention; and
(b) abound rateofdutyforbanana imports inexcess ofatariff quota andatariff quota
allocation forallother bananas. Thiswasanormal tariffquota, asitexisted formany
agricultural products inmany Members.
4.131 TheECnoted thattheregime forACPbananas involved theallocation oftraditional quantities
toACPStates. Thequantities traditionally supplied (according tothe"best ever" criterion uptoand
including theyear1990) byvarious ACPStates, added upto857,700 tonnes altogether, andentered
theEC,asbefore, atzeroduty(seeArticle 15(1) andtheAnnex ofRegulation 404/93). Thetotal
of857,700 tonnes wasarrived atbyadding uptheindividual allocations based onthebesteverexports
ofthetraditional ACP exporters totheCommunity. "Best ever" exports were interpreted broadly
inthe12thpreambular paragraph ofRegulation 404/93. TheECrecalled thatinitsmeeting of
14-17 December 1992, theECAgriculture Council decided that:
"The Lomé commitments willbemetbyallowing tariff-free imports from eachACP State
uptoatraditional level reflecting itshighest sendings inanyoneyearuptoandincluding
1990. Incases where itcanbeshown thatinvestment hasalready been committed toa
programme ofexpanding production, ahigher figure maybesetforthatACP State."
Itwasclear thatreasons ofrational development policy inspired thisdecision togiveabroad
interpretation tothenotion of"best ever" export performance; otherwise considerable investments,WT/DS27/R/USA
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including ininfrastructural works andtherefore ofbenefit tothestructure ofalarger partoftheeconomy
thanthebanana sector alone, might havebeenredundant. Some ofthese investments inthebanana
industry andtheinfrastructure surrounding itwereevencarried outwithsubstantial funding fromthe
EDFandother development funds. Some ofthese investments, notably those relating toadaptation
tonewmeans oftransport were necessary tomaintain exports ataviable level.
4.132 Inparticular when establishing the"best ever" performances ofJamaica, Côte d'Ivoire,
Cameroon andBelize suchcommitted investments were taken intoaccount. Obviously estimating
"best ever" export performance bytaking intoaccount committed investments inbanana plantations
andbanana related infrastructure wasnotanexact science, buttheresults were notexcessive or
unreasonable. Côted'Ivoire wasagood example. Itclaimed its"best ever" export yearwas1972
with146,200 tonnes exported totheEC.Theresult ofaninquiry intoinvestments committed over
1989-1992 showed thatmore productive plantvarieties werebeing usedandthatadditional irrigation
anddrainage works were being planned which, itwasclaimed, would raise production toover
200,000 tonnes. Intheend,anamount of155,000 tonnes wasputintheAnnex toRegulation 404/93.
4.133 TheECcontinued thatJamaica wasaspecial casebecause itwasreinvesting afterextensive
damage suffered fromthehurricane Gilbert in1988 andevenfromthe1980 hurricane Allen which,
between them, hadvirtually destroyed banana production. Oneoftheprojects taken intoaccount by
theECinthiscasewasthecomplete reconstruction ofthebanana partofPortAntonio withthehelp
ofconsiderable ECfunds. Many newplantings werealsonecessary. TheECstated thatitwasestimated
thatthiswould leadtoexports of105,000 tonnes in1994andthiswasthefigure included intheAnnex
toRegulation 404/93. InthecaseofCameroon, special attention waspaidtothefactthatbanana
production haddropped considerably during the1980s andthatinreaction thereto, theCameroon
Development Corporation, together withtheWorld Bank, hadundertaken important rehabilitation
anddevelopment projects ofthree large plantations, which wereintended tomeettheneeds oflarger
vessels andhigher freight costs. Theprojects included drainage, irrigation, palletisation andpacking
stations. Estimated exports were over200,000 tonnes asaconsequence ofthese projects; afigure
of155,000 tonnes wasadopted.
4.134 Belize washighly dependent onagricultural exports, ofwhich bananas formed animportant
part. TheEuropean Development Fund, theWorld Bank andtheCommonwealth Development
Corporation cooperated inaproject thatwascomparable tothatofCameroon, aimed atadaptation
tonewer andbigger vessels, withresulting investment notonlyintheplantations themselves, butalso
inroads andaport. Estimated production asaresult was59,000 tonnes by1994, rising toayearly
average of100,000 tonnes by1996; theamount accepted as"traditional exports" was40,000 tonnes,
theECsubmitted.
4.135 TheECwentontoshow tothePanel thatseparate import licensing regimes werealsoapplied
totradition ACP bananas -thisaspect istaken upmore fullyinsection IV.B.2(c), below.
4.136 With respect toother banana imports, theECnoted thatithadoriginally setatariff quota
forbananas at2million tonnes onayearly basis andnospecific shares forthevarious exporting
countries were foreseen. Theamount of2million tonnes wasbased ontheaverage yearly imports
during theperiod 1989-1991, thelastthree years forwhich according totheECcomplete statistics
hadbeenavailable. TheECprovided thefollowing data:WT/DS27/R/USA
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Imports ofLatin American andnon-traditional ACP bananas
(tonnes)
Year 1989 1990 1991 Average: 1989-91
Imports 1,716,931 2,023,660 2,294,414 2,011,669
TheECwentontonotethatthetablewasoflittlefurther relevance, however, asthetotalamount
ofthetariff quota hadbeenconsolidated intheUruguay Round.
4.137 TheUruguay Round, concluded inMarrakesh on15April 1994, resulted inthe
consolidation ofwhich wasnowpartoftheSchedule oftheEC. Itapplied tofresh bananas, other
thanplantains, which appeared intariff itemnumber 0803.00.12. TheECMFN bound rateofduty
forbananas wassetoutinPartI-Most-Favoured-Nation tariff, Section I-Agricultural Products,
Section I-ATariffs. Theinitial bound ratewasECU 850pertonne, withafinalratefor2000 of
ECU 680pertonne, implemented insixequal annual reduction instalments. Theratefor1996 was
ECU 793pertonne. Inaddition, theECincluded thefollowing market access commitment inPart
IMost-Favoured-Nation tariff, Section I-Agricultural Products, Section I-BTariff quotas: initial
andfinaltariffquota quantity (2,200,000 tonnes) andanin-quota tariffrate(ECU 75pertonne) subject
totheterms andconditions indicated intheAnnex tothatpartoftheschedule.
4.138 TheAnnex specified themarket access commitments made under theAgreement ofAgriculture
andincluded theallocation ofthetariff quota between theparties having asubstantial interest in
supplying theproduct concerned. Thetotalwasthusallocated, according totheSchedule, among
various banana producing countries. Theallocation reflects theshares inquantities ofbananas imported
intheECasdetermined onthebasis ofthemost recent statistical dataavailable atthetimeofthe
negotiation, concerning thelatest three years'representative ofnormal trade flows ofimportation of
bananas intotheEC.TheAnnex included theresults oftheconclusion oftheBFAwhich implemented
thesame rules.
4.139 TheECwentontoobserve that,asitappeared clearly from theECSchedule LXXX, non-
traditional ACPbananas wereallocated aconsolidated share ofthetariff quota upto90,000 tonnes.
However, non-traditional ACP bananas benefited from apreferential treatment which wascovered,
justastheACPtraditional allocation, bytheLomé waiver consisting ofduty-free importation forthe
quantities indicated inthetariff quota. Moreover, thenon-traditional ACP bananas benefited from
preferential treatment ofECU 100pertonne from thebound ratefornon-tariff quota imports. This
preferential treatment wasequally covered bytheLomé waiver, asexplained elsewhere.
4.140 Ecuador recalled thattheEChadallocated 857,700 tonnes oftheimport market among twelve
traditional ACPcountries. TheEChadstated thatthisallocation wasbased onthe"best ever" import
levels foreachofthese suppliers uptoandincluding 1990. However, invirtually every case, the
amounts allocated tothetraditional ACPcountries exceeded those countries '"bestever" import levels.
Infact,thedataindicated thatthere wasnohistorical orcommercial basis whatsoever tojustify the
allocation ofthemarket given totraditional ACPsuppliers. Ecuador considered thatthe"best ever"
import levels foreachofthetraditional ACP countries given acountry-specific allocation were far
below theshares ofthetariff quota allocated toeachofthese countries under Regulation 404/93. In
theaggregate, thetraditional ACPvolume was25percenthigher thanthe"best ever" import volumes
fortraditional ACP countries uptoandincluding 1990.
4.141 Thedisparity between thetraditional ACPcountries 'historical imports andtheirshare ofthe
totalECimport market wasevenmore acute, according toEcuador, ifonefocused onthese countries 'WT/DS27/R/USA
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trade levels inthefewyears immediately before thesigning oftheLomé Convention. According
toEurostat statistics, ACPbanana exports totheECaveraged roughly 471,200 tonnes from1986 to
1989, or17.6percentoftheEC'stotalimports. However, Regulation 404/93 guaranteed duty-free
treatment fortraditional ACPbananas foralmost twice thisamount. Thedisparity between theACP
countries '"best ever" import levels andtheshares oftheECimport market which theyhadbeen
allocated under theEC'scurrent banana regime wasexacerbated evenfurther bythefactthatpart
ofthethird-country tariff quota wasallocated tonon-traditional ACP sources, i.e.bananas from
traditional ACPsuppliers imported above thetraditional ACPtariffquota levels orbananas originating
innon-traditional ACPcountries. In1995, theECallocated 90,000 tonnes ofthethird-country tariff
quota tonon-traditional ACP sources.114With thissupplemental ACP share, ACP countries were
allocated 947,700 tonnes.
4.142 TheUnited States noted thatwhen allocating shares toACP countries, theECclaimed to
haveusedthe"best ever" shipments upto1990, presumably beginning thisexercise afterthefirst
Lomé Convention wassigned in1975. Thisapproach was,intheviewoftheUnited States, inconsistent
withArticle XIII. Itinherently discriminated against other Members, since bydefinition using "best
ever" meant thattheshares ofanyother country would bereduced below itshistorical percentage.
Moreover, theECallocations hadexceeded eventhe"best ever" figures forseveral countries. For
example, Cameroon ’sactual "bestever" shipment was79,596 tonnes, buttheECgaveitanallocation
of162,500 tonnes. Furthermore, theEC’smethod ofallocating shares wasevenmore discriminatory
thanifithadusedtheactual "bestever" dataforeachACPcountry anda1989-91 representative period
forLatin America. Using sucha"combined" method, theCôte d’Ivoire would havereceived an
allocation oftheEC-12 market of3.96percent,instead oftheactual 5.31percent. Since thevery
premise ofusing a1989-91 baseperiod was,intheopinion oftheUnited States, already flawed, the
inequity formost Latin American banana-producing countries wasallthemore striking.
4.143 Mexico argued thattheECregime granted ACPcountries access above theaccess thatthey
should havereceived iftheEChadapplied thesamereference period thatitimposed ontheremaining
contracting parties, instead ofcomputing itsallocations onthebasis oftheexports made by
ACP countries inthebestyearavailable. Thissituation could havebeencompatible withtheobligations
oftheECinlightofthewaiver of9December 1994, iftheincrease/advantage infavour ofACP
countries hadbeenprovided inaddition tothetariff quota fornon-ACP countries. However, asthe
ECpreferred totakepartofthetariff quota ofnon-ACP countries andgiveittotheACP countries,
thissituation resulted inaviolation ofArticle XIIIbecause itwasnolonger acaseofanadvantage
(giving more toACP) butofdiscrimination against non-ACP countries (taking away fromnon-ACP
andgiving toACP).
4.144 TheComplaining parties referred totheEC'smaincontention withrespect totheallocation
ofitsmarket thatithadcreated discrete, legally separate regimes forACPcountries, BFAsignatories
andnon-BFA signatories. They submitted thatthenotion ofadistinct traditional ACP "regime"
independent ofthetariffquota wascontradicted bythelanguage ofRegulation 404/93 andbytheEC's
many references toasingle "banana regime." TheEC’sinternal decision totreatproducts ofthese
countries differently didnotrelieve theECofitsinternational obligations toapportion access toits
market inaccordance withArticle XIII. However, eveniftheECconsidered thatithadcreated several
regimes, nothing inArticle XIII'srulesoncountry allocations limited itsapplication to"onespecific
quota ortariff quota" without regard tohowother imports were treated. Article XIII:2(d) applied
totheallocation ofshares ofamarket. Totheextent aMember created different types ofrestrictions,
theMember hadacted inconsistently withArticle XIII:1 which required thatimports fromallsources
besimilarly restricted. Topermit Members tocircumvent thecentral GATT obligation ofnon-
discrimination byallocating country shares under separate discriminatory "regimes" according tosource
114Commission Regulation (EC) No.478/95, 1March 1995, Annex 1.WT/DS27/R/USA
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would eviscerate Article XIII. TheECattempt todistinguish theDessert Apples report onthebasis
thatthereport wasonly"confronted withonesystem", asopposed tothetwoarrangements atissue
herewasnotappropriate asthepanel inthatcasefound thatbecause "likeproducts ofallthirdcountries
hadnotbeen similarly prohibited" intheadministration ofimport licences, theEChadacted
inconsistently withitsArticle XIIIobligations.115TheEC’sclaim thatseparate quota allocation schemes
(onepreferential system andanother system notified intheschedules) routinely existed among Members
onlyunderscored thedanger ofthisapproach. TheComplaining parties wereunaware ofanyother
Members thatallocated theirmarkets inthemanner described bytheEC. IftheECwasroutinely
engaginginsuchpractices,itwas,accordingtotheComplainingparties,routinelyviolatingArticleXIII.
4.145 TheComplaining parties argued thatevenusing theso-called "best ever" shipments byACP
countries discriminated against other Members. Bydefinition, "best ever" foroneormore countries
meant thattheshares ofother Members would bereduced below their historical, representative
percentages. According totheComplaining parties, theEChadadmitted thatitalsowentbeyond even
the"bestever"shipmentsofsomeACPcountriestotakeintoaccount"investments"beingcontemplated.
These allocations exceeded, intheirview, anyaccess opportunities provided byECmember States
inprevious years, which, inthecaseofFrance andtheUnited Kingdom, weredefined notonthebasis
ofpending investments orindividual historical shipments, butonannual consumption needs inthose
countries.
4.146 Astotheconcern thatECinvestments would havebeenwasted iftheallocations hadnotbeen
overstated, thesamecould justaseasily besaidofthenational banana investments under wayorplanned
intheLatinAmericansupplyingcountries.Moreover,theWorldBankandothereconomistshadpointed
outthatrelative to"waste" thatmight derive fromuncounted ACPinvestments, anECfunding waste
ofimmensely greater magnitude hadresulted fromthisECregime, which hadcostconsumers $13.25
totransfer only$1.00 ofbenefit toACPbanana suppliers.116More tothepoint, other Members should
nothavetopayfortheEC’sbudget mistakes.
4.147 TheECreiterated thatthere should benoconfusion astothetotally separate nature ofthe
twobanana regimes oftheCommunity: theACP traditional allocation; andtheECregime forall
other bananas. Thisreality wasadirect result ofboththeUruguay Round negotiations andofthe
existence oftheLomé Convention(s): anysuggestion thatthiswasdesigned inorder toavoid a
comparison oftreatment under Article XIIIwas,intheviewoftheEC,alegalandfactual nonsense.
TheECsubmitted thattheallocation oftheECtariff quota andtheaccess totheECmarket werenot
atallthesame thing. TheECundertook attheendoftheUruguay Round toallow theimportation
ofbananas intoitscustoms territory under theconditions contained initsSchedule LXXX. Those
bound commitments were: (i)unrestricted access totheECmarket under adutyratefor1996 of
ECU 793pertonne andwithafinalrateofECU 680pertonne intheyear2000; (ii)atariff quota
of2,200,000 tonnes subject toadutyrateofECU 75pertonne andtheconditions andterms indicated
intheAnnex totheSchedule. Inthisspecific context, theonlysensible meaning oftheword"allocation"
(andtheonlyappropriate legaluseofthatconcept), according totheEC,wastorefertotheinternal
distribution ofthetariff quota. Itwasthelimited possibility ofbenefiting fromtheECU 75pertonne
rate-thatisthenormal andaccepted consequence ofanytariff quota -thatimposed asharing out
ofthetariffquota inaccordance withtherelevant provisions oftheGATT and,subject totheresolution
ofthelegal issue concerning theprevailing application oftheAgreement onAgriculture tothe
agricultural section oftheschedules, eventually ofArticle XIII:5 ofGATT. Allocation wastherefore
notsynonymous withmarket access. Intheview oftheEC,thislegal evidence hadenormous
consequences onthearguments presented bytheComplaining parties.
115Dessert Apples, para. 12.21.
116See"Beyond EUBananar ama" Annex (1)at22;seealsoBrentBorrell,"EUBananar amaIII",PolicyResear chWorking
Paper 1386, TheWorld Bank (1994), Annex (2).WT/DS27/R/USA
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4.148 Firstly, theECconsidered thattheycould notclaim thataftertheUruguay Round there was
arestriction ofaccess totheECbanana market: theonlything theEChaddonewastoarticulate its
tariff concessions intwosections without restrictions ofanykindonvolumes ofimportation. Any
allocation wastherefore relevant onlywithrespect toaspecial tariff rateandnottoavolume. The
sizeofthetariff quota, i.e.theactual extent oftheconcession made andbound bytheECattheend
oftheUruguay Round hadbeenaccepted byratification byallMembers andwasnotandcould not
beunder review inaDispute Settlement procedure. Secondly, theECargued, irrespective ofthe
outcome ofthelegalanalysis oftheissueconcerning theAgreement onAgriculture, theComplaining
parties could notclaim thatArticle XIIIwasapplicable tototally separate regimes likethetraditional
ACP andtheMFN regime under theWTO. Article XIIIwasintheviewoftheEConlyapplicable
totariff quotas byvirtue ofArticle XIII:5 which extended the"provisions ofthisArticle ...toany
tariff quota instituted ormaintained byanycontracting party". Itwasonlywhen allocating thetariff
quota thattheComplaining parties might bejustified torequest theapplication ofArticle XIII, if
appropriate, andinparticular ofArticle XIII:2. Thishadnothing todowiththeseparate allocation
ofapreferential regime, likethetraditional ACP, which wasgoverned byitsownrulesandprocedures.
TheECfurther argued thatconfusing allocation andaccess ledtotheparadoxical suggestion that
Article XIII:2(d) applied to"theallocation ofshares ofamarket". According totheEC,the
Complaining parties viewwould inevitably entail themerging oftheECtariffquota andthetraditional
ACPallocations which should beanalyzed under thatprovision asoneregime andnotastwoseparate
ones. TheECconsidered thistobelegally wrong: ifArticle XIIIwastobeapplied obligatorily to
shares ofamarket, andnottoshare ofonequota orofonetariff quota, theconsequence would be
thattheentire access ofbananas totheECmarket would bedistributed inaccordance withArticle XIII-
inside andoutside ofthetariff quota -evenifthatmarket wasnotrestricted inanyway. TheEC
considered thatthecorrect conclusion wastheopposite: Article XIII:5 indicated thatinthisparticular
context theprovisions concerning allocations might berelevant withrespect totheECtariff quota.
Onacompletely separate ground, other provisions, notcontained intheECcommitments under the
GATT, governed thepreferential treatment oftheACP traditional allocation.
GATT schedules andArticles IandXIII inthecontext oftheAgreement on
Agriculture
4.149 TheECnoted thatbananas wereanagricultural product andhence thetariff andtariff quota
onbananas wereconsolidations under theAgreement onAgriculture. Eventhough theoldconsolidated
tariffoftheECforbananas wasdeconsolidated andnegotiations begun under Article XXVIII ofGATT
withthecountrieswhichwere(then)countrieswithinitialnegotiatingrightsorwithaprincipalsupplying
interest, intheendthetariffandtariffquota wereconsolidated intheframework oftheUruguay Round.
Further, aswellknown toallMembers, theconsolidation andscheduling ofconcessions and
commitments intheagricultural sector followed itsowndynamic anditsownrulesduring theUruguay
Round andled,forinstance, tothewidespread recourse totariff quotas intariff scheduling. Many
ofthese tariff quotas, were country-specific, i.e.theylisted alimited number ofcountries towhich
theyapplied andforwhich certain quantifies were reserved, while whatwasleftofthetariff quota
wasallocated to"others".
4.150 Thespecificity oftheagricultural market access concessions wasimplicitly recognized in
Article 4oftheAgreement onAgriculture, theECsubmitted, where theexistence ofmarket access
concessions inthiseconomic sector wasspecifically recorded andaspecial reference wasmade in
paragraph 1to"Schedules relating tobindings andreductions oftariffs ...asspecified therein". This
gavethese schedules aparticular status which wasallthemore important when Article 21ofthe
Agreement onAgriculture wasdrawn intotheanalysis: "The provisions ofGATT 1994andofother
Multilateral Trade Agreements inAnnex IAtotheWTO Agreement shallapply subject totheprovisions
ofthisAgreement". ThisArticle confirmed the"agricultural specificity" initsclearest form and
demonstratedthattherulesoftheAgreementonAgriculture,includingtheschedulesspecificallyreferred
toinArticle 4,superseded, ifnecessary, theprovisions ofGATT andtheotheragreements inAnnex IAWT/DS27/R/USA
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oftheWTO Agreement. TheECsubmitted thatMembers negotiated theircommitments onbananas
during theRound intheframework ofthisagreed "agricultural specificity" and,therefore, noviolation
ofArticle XIIIofGATT could beclaimed withrespect totheECbanana regime consolidated inthe
GATT.
4.151 Moreover, theECnoted thatthegeneral most-favoured-nation treatment principle asexpressed
inArticle IofGATT waspartofPartIoftheGATT andreadasfollows:
"With respect tocustoms duties andcharges ofanykindimposed onorinconnection with
importation orexportation orimposed ontheinternational transfer ofpayments forimports
orexports, andwithrespect tothemethod oflevying suchduties andcharges, andwithrespect
toallrules andformalities inconnection withimportation andexportation, andwithrespect
toallmatters referred toinparagraphs 2and4ofArticle III,*anyadvantage, favour, privilege
orimmunity granted byanycontracting party toanyproduct originating inordestined for
anyother country shall beaccorded immediately andunconditionally tothelikeproduct
originating inordestined fortheterritories ofallother contracting parties" (emphasis added).
Inaddition Article II:1(a) and(b)read:
"(a) Each contracting party shallaccord tothecommerce oftheother contracting parties
treatment nolessfavourable thanthatprovided forintheappropriate Partoftheappropriate
Schedule annexed tothisAgreement.
(b) Theproducts described inPartIoftheSchedule relating toanycontracting party,
which aretheproducts ofterritories ofother contracting parties, shall, ontheirimportation
intotheterritory towhich theSchedule relates, andsubject totheterms, conditions or
qualifications setforth inthatSchedule, beexempt from ordinary customs duties inexcess
ofthose setforth andprovided therein. Such products shallalsobeexempt from allother
duties orcharges ofanykindimposed onorinconnection withtheimportation inexcess of
those imposed onthedateofthisAgreement orthose directly andmandatorily required to
beimposed thereafter bylegislation inforce intheimporting territory onthatdate."
Furthermore, Article II:7clarified that"theschedules annexed tothisAgreement arehereby made
anintegral partofPartIofthisAgreement".
4.152 AsArticle II:7clearly indicated, theECbanana concession wasanintegral partofPartIof
GATT andwas,therefore, tobeconsidered integral partofArticle IandArticle IIasappropriate.
TheECsubmitted thatthisentailed theconsequence thatanyapplication oftheMFN principle set
outinArticle Icould notprevail perseontheterms andconditions oftheconcession, inthepresent
casetheECbanana concession, since thiswould mean giving priority toonepartofArticle Iontop
ofother parts ofthesame Article, assupplemented bytheconcessions. There wasnoevidence in
theGATT thattheCONTRACTING PARTIES werenotaware oftheeffects ofArticle II:7. Onthe
contrary, numerous indications supported thisinterpretation andexcluded thatitcould beconsidered
asunwanted orunwished bytheCONTRACTING PARTIES (asortof"lapsus calami ").
4.153 TheECsubmittedthattheCONTRACTINGPARTIEStotheGATT1947explicitlyrecognized
thatconcessions were made partofPartIoftheAgreement. Thiswasacknowledgement ofthefact
thatconcessionsweretheresultofmultilateralnegotiationsafterasometimeslonganddifficultgive-and-
takeprocess. Theparties thensolemnly accepted, byexplicit andbinding agreement dulyreflected
bytheinternal ratification orapproval procedures, thecontent oftheschedules mutually exchanged
butonlyifandwhen theyconsidered that,asawhole, thegive-and-take process wassatisfactory or,
atleast, acceptable forthem. Without prejudice towhathadbeenargued withrespect ofagricultural
products 'commitments under theUruguay Round, theother parts oftheGATT weretobeappliedWT/DS27/R/USA
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taking intoaccount atthesame timetwoelements: thecontent oftheconcessions andtheMFN
principle, assupplemented bytheconcessions.
4.154 Inthespecific caseoftheECbanana concession, theECcontinued, theCONTRACTING
PARTIES agreed forthefirsttimeattheendoftheUruguay Round totheECnewbanana regime
based ontheestablishment ofthetariffquota afterthedeconsolidation oftheoldandobsolete 20percent
advalorem bound rateandthecreation oftheEC-wide internal banana market. Alltheparties agreed
explicitly, knowingly anddeliberately tothisnewconcession: nothing could justify nowanyofthe
Members reopening surreptitiously thenegotiations bycontesting within thepresent Panel procedure
theinternal balance ofthenegotiation thathadjustended, violating thefundamental principle "pacta
servanda sunt"asexpressedintheViennaConventiononthelawofTreatiesandcustomaryinternational
law.
4.155 Furthermore, thepanel procedure Canada/Japan -Import ofSpruce, Pine, Fir(SPF) Dimension
Lumber (adopted on19July1989), examined Canada 'sclaim thatJapan'sapplication ofan8percent
tariff onSPFdimension lumber wasinconsistent withArticle I:1because SPFdimension lumber and
dimension lumber ofother types, which benefited from azerodutyrate,were likeproducts within
themeaning ofArticle I:1.Thepanel found that:
"...atariffclassification going beyond theharmonized system 'sstructure isalegitimate means
ofadapting thetariffscheme toeachcontracting party'stradepolicy interests, comprising both
itsprotection needs anditsrequirements forthepurposes oftariff andtrade negotiations...
ThePanel considered thatthetariffs referred tointheGeneral Agreement arequiteevidently,
those oftheindividual contracting parties. Itfollowed thatifaclaim oflikeness wasraised
byacontracting party inrelation tothetariff treatment ofthegoods onimportation bysome
other contracting parties, suchclaim should bebased ontheclassification ofthelatter, i.e.the
importing country 'stariff."117
Evidently, thepanel andtheGATT Council which adopted thereport retained theinterpretation that
Article IofGATT wastobereadtogether withtheindividual concessions fortherelevant product
contained intheschedules thatwere anintegral partofPartIofGATT. Thisinterpretation was,
therefore, totally consistent withthewording andthepurpose ofArticle II:7ofGATT.
4.156 Inconcluding onthese issues, theECargued thattheprovisions ofArticle IofGATT could
notbeconsidered applicable assuchtotheactual content oftheECbanana tariffquota without taking
intoaccount theresults oftheUruguay Round negotiations.
4.157 TheComplaining parties rejected theECclaim thatitsbanana regime enjoyed immunity from
general WTO obligations, including GATT Article IandArticle XIII, totheextent thatitsregime
wasreflected initsSchedule 'smarket access concessions, which were generally referenced inthe
Agriculture Agreement. TheComplaining parties noted thatonlyafewelements oftheECbanana
regime were specified intheECSchedule andprovided thefollowing table:
117BISD 36S/167, paras. 5.9and5.13.WT/DS27/R/USA
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ECUruguay Round Schedule relating tobananas
Specified Notmentioned
ECU 75andECU 850pertonne tariffs "Non-traditional" ACP tariffs (0andECU 750per
tonne)
2,200,000 tonnes tariff quota access "Traditional" ACP allocations
BFA, including country allocations forBFA
signatories and90,000 tonnes setaside for
non-traditional ACP supplies"Non-traditional" ACP country-specific allocations
laiddown inRegulation 478/95
Licensing arrangements forallforeign sources,
including incentives topurchase ECbananas
Thus, thisEC"defence" wasirrelevant toalllegal claims regarding discrimination against Latin
American bananas infavour ofACP(andEC)bananas, andirrelevant tothelegalanalysis ofimport
licensing procedures forbananas.
4.158 TheComplaining parties submitted thattheEC'sclaim thatitscountry allocations were
immunized because ofasupposed conflict withtheAgreement onAgriculture wasunsubstantiated.
IntheComplaining parties 'opinion, noprovision oftheAgreement onAgriculture pertained tonon-
discriminatory administration ofquantitative limitations. Article 4oftheAgreement onAgriculture,
theonlyprovision thatevenrelated tomarket access concessions atall,simply reminded Members
that"[m]arket access concessions contained inschedules relate tobindings andreductions oftariffs,
andtoother market access commitments asspecified therein." According totheComplaining parties,
noprovision intheAgreement onAgriculture conflicted withtheEC’sobligations toallocate market
access inaccordance withArticle XIIIofGATT. TheAgreement onAgriculture didnotaddress the
allocation oftariff quotas andwasnever intended tore-write long-standing GATT rulesonhowsuch
allocations hadtobemade ortoallow members todeviate intheirschedules fromfundamental GATT
principles suchasthenon-discrimination principle underlying Article XIII. IfthePanel weretoaccept
sucharesult, itwould fundamentally undermine theAgreement onAgriculture andtheWTO itself.
Thepurpose, asstated inthepreamble, oftheAgreement onAgriculture wastocreate, "strengthened
andmore operationally effective GATT rules anddisciplines," rather thantoweaken theprotection
against discriminatory allocations ofthetariff quotas. Asapractical matter, those countries among
Members which hadallocated theirmarkets aspartoftheUruguay Round considered themselves bound
byArticle XIII. Itwould behighly inequitable ifthePanel weretoallow theECtoescape these same
disciplines.
4.159 TheComplaining parties argued thattheECassertion concerning agricultural specificity was
irrelevant totheanalysis ofwhether theEChadviolated Article XIIIwithrespect toitsACPallocations,
sincetheEC'sScheduledidnotreflectcountry-specificallocationsforeithertraditionalornon-traditional
ACPbananas. Moreover, thisargument waswithout basis inthetextsoftheWTO agreements. Not
onlywastherenoprovision oftheAgreement onAgriculture thatconflicted withtheEC'sobligations
under Article XIII, itwasalsowellestablished thatthemarket access concessions intheschedules
could notdiminish Members 'obligations under GATT andother WTO agreements. Referring to
paragraph 1oftheMarrakesh Protocol, theComplaining parties agreed thatinturn, Article II:7of
GATT provided: "TheSchedules annexed tothisAgreement arehereby made anintegral partofPartI
ofthisAgreement." Thus, allmarket access concessions inagriculture were considered anintegral
partoftheGATT, andnotoftheAgreement onAgriculture, andtherefore theycould notpresent a
conflict between theAgreement onAgriculture andanyother agreement. Article 4.1oftheAgreement
onAgriculture wasnothing more thanacross reference tomarket access concessions -areminder
toMembers thattheresult ofthethirdelement oftheagriculture negotiations waslargely containedWT/DS27/R/USA
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elsewhere. Incontrast, Article 21.2made theAnnexes totheAgriculture Agreement "anintegral part
ofthisAgreement." Hadthedrafters intended tomake theschedules anintegral partoftheAgreement
onAgriculture, theycould havedoneso.
4.160 TheComplaining parties noted thatArticle 21.1oftheAgriculture Agreement stated that"the
provisions ofGATT 1994 andofother Multilateral Trade Agreements inAnnex 1AtotheWTO
Agreement shallapply subject totheprovisions ofthisAgreement." Thisstatement, inserted intandem
withArticle 13oftheAgreement onAgriculture, wasintended toensure thatArticle 13would supersede
theseparate disciplines oftheAgreement onSubsidies andCountervailing Measures. TheECargument
thatthisArticle exempted anyaspects ofitsbanana regime mentioned initsSchedule fromGATT and
otherWTOobligationswasunsupportedbythetext.Sincethemarketaccessconcessionsintheschedules
didnotconstitute a"provision" oftheAgreement onAgriculture, andnoother provision inthat
Agreement pertained toallocation ofmarket shares oranyoftheother aspects oftheregime thatwere
inconsistent withtheGATT, Article 21.1provided nodefence totheEC'sviolations oftheGATT
oranyother WTO agreement.
4.161 TheECreiterated thattheprovision ofArticle IofGATT could notbeconsidered applicable
assuchtotheactual content oftheECbanana tariff quota without taking intoaccount theresults of
theUruguay Round negotiations. Members hadnegotiated theircommitments onbananas during that
Roundintheframeworkoftheagreed"agriculturalspecificity",andthereforenoviolationofArticleXIII
ofGATT could beclaimed withrespect totheECbanana regime consolidated intheGATT. Asfor
theseparate preferential regime withregard totraditional Lomé suppliers, theEChadnever claimed
thattheAgreement onAgriculture applied toit,since itwasnotincluded intheagricultural section
ofitsSchedule. Itwasawholly separate regime which originated inapreferential agreement covered
byawaiver granted bytheGATT contracting parties.
4.162 Inreply toaquestion bythePanel, theECnoted thataccording totheMarrakesh Protocol,
theschedulesassuchwereincorporatedintotheGATTandnotdirectlytotheAgreementonAgriculture.
Nevertheless, thisformal element wasnot,intheEC'sopinion, atalldecisive while addressing the
issue concerning thespecificity ofagricultural market access concessions andthepriority oftherules
oftheAgreement onAgriculture, including theschedules referred toinArticle 4,ontheprovisions
oftheGATT andtheother Agreements ofAnnex 1A.TheECargued onbothformal, i.e.based on
theletter oftheWTO texts, andsubstantive, i.e.based onthewillofthecontracting parties andthe
logic ofthewhole Uruguay Round negotiating process, grounds. From theformal point ofview,
paragraph 1oftheMarrakesh Protocol stated that"theschedule annexed tothisProtocol relating to
aMembershallbecomeascheduletoGATT1994relatingtothatMember...".TheMarrakeshProtocol
initself waspartoftheGATT (GATT 1994, paragraph 1(d)). Thatbeing said,Article 1(g)ofthe
Agreement onAgriculture defined, according totheEC,market access concessions as"allmarket access
commitments undertaken pursuant tothisAgreement". "All" commitments included, according to
theEC,commitments other thanbindings andthereduction oftariffs (asmade clear inArticle 4.1
oftheAgreement onAgriculture) -including market access allocations. Article 4.1oftheAgreement
onAgriculture further specified thenotion ofmarket access concessions, clarifying that"market access
concessions contained inschedules relate tobindings andreduction oftariffs, andtoother market
access commitments asspecified therein". Therefore theconcept of"commitments undertaken pursuant
tothisAgreement", under Article 1(g)oftheAgreement onAgriculture was,theECargued, further
specified bytwoelements present inArticle 4.1oftheAgreement onAgriculture, i.e."contained in
theschedules" and"specified therein" anditcould consist of"bindings", "reduction oftariffs" and
"other market access commitments asspecified therein" (i.e.allocations).
4.163 TheECthussubmitted, onthebasis ofArticle 4.1andArticle 1(g),itcould beaffirmed that
market access commitments (including allocations) contained inPartI,Section I-Agriculture tariff
schedules were commitments undertaken pursuant totheAgreement onAgriculture. Therefore the
provisions oftheAgreement onAgriculture applied tothem. According toArticle 21,provisions ofWT/DS27/R/USA
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theGATT applied subject totheAgreement onAgriculture provisions. Inconclusion, thequestion
tobeasked wasnotwhether theschedules were "incorporated" intotheAgreement onAgriculture,
butrather whether theprovisions oftheAgreement onAgriculture applied tothem. Intheopinion
oftheEC,theAgreementonAgricultureprovisionsdidindeedapplytoPartI,SectionIoftheschedules.
More specifically, therelevant provision wasArticle 4.1,readinconjunction withArticle 1(g): market
access commitments undertaken pursuant totheAgreement werethose contained intheschedule. This
provision thusprevailed ontheGATT. Moreover, paragraph 3oftheMarrakesh Protocol indicated
clearlythattheimplementationoftheconcessionsandcommitmentscontainedintheschedules"...would
bewithout prejudice totherights andobligations ofMembers under Agreements inAnnex 1Aofthe
WTO Agreement". When raising theissue oftheapplicability ofArticle XIIIorofother provisions
under anyAgreement inAnnex 1Atotheprovisions contained intheagricultural schedules, the
Complaining parties were, according totheEC,referring themselves totheadministration ofthose
concessions (heading ofArticle XIIIofGATT itself). Thesame Protocol, however, clarified thatany
rightaccruing under those concessions wassubject, intheimplementation oftheconcession, tothe
provisions oftheAgreements inAnnex 1A.InthecaseoftheAgreement onAgriculture, therefore,
while implementing those concessions, therights oftheparties werelimited to"bindings andreduction
oftariffs andtotheothermarket access commitments asspecified therein" (Article 4.1oftheAgreement
onAgriculture) andnotmore. Andnoother GATT provision wasapplicable (Article 21.1ofthe
Agreement onAgriculture).
4.164 TheECconsidered thattheactual drafting oftheAgreement onAgriculture wasalsojustified
byanumber ofsubstantive reasons. Market access concessions were thesubject ofArticle 4ofthe
Agreement onAgriculture. ThisArticle stated theobvious, according totheEC,namely thatthese
concessions were contained inschedules, thattheyrelated tobindings andreductions oftariffs and
toother market access commitments asspecified, andthatMembers would notrevert tothepractices
which theyconverted intotariffs during theUruguay Round agricultural tariffication exercise. As
theArticle stated theobvious, theonlyfunction oftheArticle could betocreate aspecial linkbetween
theagricultural schedules, which hadbeenincluded withtheotherschedules intotheMarrakesh Protocol
totheGATT andtheAgreement onAgriculture. Through thisspecial link,theagricultural schedules
profited fromtheagricultural specificity aslaiddown inArticle 21oftheAgreement onAgriculture.
Itwould beabsurd torestrict thescope ofArticle 21onlytotheprovisions oftheAgreement on
Agriculture andnotextend ittotheresults ofagricultural tariffication, andoftheresults ofthe
negotiations oncommitments onexport subsidization andinternal support. Themethods ofthis
negotiation, theresulting rules andfinally theconcessions made andcommitments taken were none
ofthemfullyorthodox under therulesoftheGATT, theAgreement onSubsidies andCountervailing
Measures ortheAgreement onSafeguards, buttheyconstituted asufficient protection ofanexceptional
regime foragriculture forsome andasufficient stepinthedirection ofultimate coverage ofagriculture
bythegeneral rulesofGATT, tobeacceptable toall.118Ontheother hand, itwasgenerally recognized
thatso-called agricultural specificity under Article 21wasnecessary inorder togivelegalprotection
tothisstepintheright direction. Onepartoftheoverall result, i.e.theresult ofthetariffication
exercise, could notnowbeexcluded fromthisagricultural specificity without unbalancing theoverall
result ofthenegotiations. Thewidespread useoftariff quotas which wereallocated according tothe
same method asthatusedbytheEC(i.e.some country-specific allocations andan"other" category)
inthecaseofbananas, wasaclear indication thatthispractice wasconsidered acceptable under the
Agreement onAgriculture.
4.165 Fortheabove-mentioned reasons, theECwasoftheviewthatArticle 21oftheAgreement
onAgriculture implied thatschedules onmarket concessions might contain commitments which were
inconsistent withtheobligations oftheGATT andother Agreements ofAnnex 1A.TheECstressed
118TheECpointed out,however, thatthere were alsosimilarities between theAgreement onAgriculture andtheGATT.
Both laiddown anumber ofprovisions which could notjustexistbythemselves, butfortheirfulleffect were dependent
onthecommitments laiddown inschedules.WT/DS27/R/USA
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thatparagraph 1oftheMarrakesh Protocol indicated that"theschedule annexed tothisprotocol relating
toaMember shallbecome aschedule toGATT 1994 relating tothatMember onthedayonwhich
theWTO Agreement enters intoforceforthatMember". TheECconsidered thusthatterms, conditions
andqualificationscontainedinmarketaccessconcessionsenjoyedcompleteimmunityfromlegalchallenge
onthebasis ofanyoftheagreements listed inAnnex 1A.
4.166 TheECreferredtotheComplainingpartiesclaimthatArticle21oftheAgreementonAgriculture
shallprevail withregard toprovisions ofGATT andoftheother Agreements under Annex 1Aand
wasonlyconnected toArticle 13oftheAgreement inorder toensure thattheprovisions ofthatArticle
would prevail ontheAgreement onSubsidies. TheECresponded thatitwassufficient tolookatthe
textoftheAgreement tocontradict suchaninterpretation. There wasnoindication inthetextofthe
Agreement thatArticle 21waslimited inscope. Onthecontrary, thereader wasimmediately struck
bythegeneral coverage ofArticle 21,ascompared toArticle 13itself, which specifically setoutits
prevalence withrespect totheSubsidies Agreement. ThetextoftheAgreement supported noother
conclusion buttheonethatArticle 21concerned allprovisions oftheAgreement onAgriculture.
Furthermore, referring totheComplaining parties 'affirmation thatschedules werenotprovisions of
theAgreement onAgriculture andthattherefore Article 21provided nodefence fortheEC'sviolations,
theECmaintained thatthiswasnotwhatArticle 21said. Article 21stated thattheprovisions ofthe
GATT shallapply subject totheprovisions oftheAgreement onAgriculture. Article 21didnotrequire
schedules tobeprovisions oftheAgreement: itregulated prevalence ofapplication ofsuchprovisions.
TheECwasoftheviewthattheprovisions oftheAgreement onAgriculture applied tothemarket
access commitments oftheagricultural schedule oftheEC,andprevailed onGATT.
4.167 TheComplaining parties maintained thattheEChadsimply disregarded thetexts ofthe
Agriculture Agreement inarguing thattheincorporation ofcertain country-specific allocations inits
Uruguay Round Schedule somehow relieved itfromitsArticle XIIIobligations. Intheirview, although
theEChadnowadmitted thattheschedules were notincorporated intheAgriculture Agreement, it
haddismissed thelegaleffect ofthispoint bycharacterizing thetextasamere "formality."
4.168 Furthermore, theComplaining parties rejected theECclaims thatArticle XIIIrequirements
didnotapply toitsmarket allocations andspecifically thatnochallenge could bebrought because the
allocations forColombia, Costa Rica, Nicaragua andVenezuela were located intheEC’sUruguay
Round Schedule: while theComplaining parties understood thattheEChadprovided tariff bindings
protected byArticle IIofGATT tofourcountries, these bindings, intheirview, didnotrelieve the
ECofitsobligations under Article XIIIoranyotherWTO disciplines. Asconcerns theEC'sArticle II:7
argument generally, theComplaining parties referred totheSugar Headnote case119which waspresented
withtheclaim, inrelation toaprovision intheUnited States Schedule XX,thatArticle II:1(b) permitted
acountry toplace conditions initsschedule thatwould override other obligations oftheGATT. The
Sugar Headnote panel rejected thisclaim afteranalysing thewording, purpose anddrafting history
ofArticle IIandGATT practice. Withrespect tothewording, thepanel considered thatArticle II:1(b)
might permit parties toqualify theobligation toexempt products fromcustoms duties inexcess ofthe
levels specified intheschedule, butnottoqualify theirobligations under other Articles oftheGATT.
Thepanel alsonoted thatthetitleofArticle IIwas"Schedule ofConcessions" andthattheordinary
meaningof"toconcede"was"togrant,yield,"whichfurthersuggestedthatArticleIIpermittedcountries
toincorporate intotheirschedules actsyielding rights under theGATT, butnotactsdiminishing their
obligations. Thepanel thenconfirmed thisinterpretation inlightofthepreamble totheGATT, which
noted thattheAgreement consisted of"mutually advantageous arrangements directed tothesubstantial
reduction oftariffs andother barriers totrade", language thatwasrepeated inthepreamble totheWTO
Agreement. Thepanel observed thatwhere theGATT referred tospecific types ofnegotiations, it
119Report ofthepanel on"United States -Restrictions ontheImportation ofSugar andSugar-containing Products applied
under the1955 Waiver andunder theHead Note totheSchedule ofTariff Concessions", adopted 7November 1990,
BISD 37S/228.WT/DS27/R/USA
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referred tonegotiations aimed atthereduction ofbarriers totrade(Articles IV(d), XVII:3 andXXVIII
bis),which further supported theassumption that:
"Article IIgives contracting parties thepossibility toincorporate intothelegalframework of
theGeneral Agreement commitments additional tothose already contained intheGeneral
Agreement andtoqualify such additional commitments, nothowever toreduce their
commitments under other provisions ofthatAgreement."
Thepanel further considered thatother parts oftheGATT, notably Article XVII:3, supported the
interpretation thatGATT obligations could notbediminished through anegotiation andthatpastpractice
showedthatcontractingparties"didnotenvisagethatqualificationsinschedulesestablishedinaccordance
withArticleII:1(b)couldjustifymeasuresinconsistentwiththeotherArticlesoftheGeneralAgreement."
Finally, thepanel noted thatthedrafting history ofArticle IIdidnotsupport acontrary interpretation.120
Intheopinion oftheComplaining parties, thereasoning andconclusions oftheSugar Headnote panel
werenolessvalidwithrespect totheEC’sUruguay Round Schedule. Arguments thatthisinterpretation
would destabilize themarket access concessions agreed tointheRound were anexaggeration. The
Uruguay Round market access negotiations, particularly those concerning agricultural trade, were
concluded withthefullknowledge ofthisreport.
4.169 ReferringtotheComplainingpartiesreferencetotheSugarHeadnotepanel,andnotwithstanding
theEC'sconviction thatnoviolation ofGATT hadbeendemonstrated withregard totheECconcession
onbananas, theECunderlined thatthepanel predated theentry intoforce oftheWTO andofthe
Multilateral Agreements onTrade inGoods assetoutinAnnex 1AofthatAgreement. TheEC
considered thatinlightofthegeneral interpretative notetoAnnex 1A,121therelationship between GATT
andtheagreements ontrade ingoods, andmore specifically inlightofArticle 21oftheAgreement
onAgriculture which reinforced, inaway,sucharulewithrespect totheAgreement onAgriculture,
theSugar Headnote ruling hadtobereviewed totakeaccount oftheprevalence oftheprovisions of
theother Agreements onGATT 1994. Itcould notinanycasebetransposed assuchintothepresent
case.
Parties 'arguments -interpretive issues
4.170 Specifically withrespect totheComplaining parties claims concerning analleged violation
ofArticle XIIIconcerning thestructure ofthetariff quota, theECrecalled itsremarks inwhich it
clearly indicated thatthetariff andtariff quota consolidations onbananas were current access
consolidations under theAgreement onAgriculture. Theconsequence ofthatanalysis wasthatArticle 21
oftheAgreement onAgriculture confirmed the"agricultural specificity" initsclearest form and
demonstratedthattherulesoftheAgreementonAgriculture,includingtheschedulesspecificallyreferred
toinArticle 4,superseded, ifnecessary, theprovisions oftheGATT andtheother Agreements of
Annex IA.Therefore, theECcontinued, provisions ofArticle XIIIofGATT, inparticular, could
notbeconsidered applicable totheactual content ofthetariff quota andtheECwasoftheopinion
thatnoviolation ofthisArticle could beclaimed withrespect totheECbanana regime consolidated
aftertheUruguay Round.
4.171 Itwastherefore solely onthesubsidiary basisthattheECwould examine theclaims presented
bytheComplaining parties about thealleged violation ofArticle XIIIbythestructure ofthebound
tariff quota. Inthisnarrow andspecific context, theECargued thatapreliminary distinction hadto
bemade between twoseries ofallegations: (i)noclaim ofdiscrimination (andconsequent violation
120Sugar Headnote case, paras. 5.2-5.7.
121"Intheevent ofaconflictbetween aprovisionoftheGATT 1994andaprovisionofanotherAgreement inAnnex 1A...,
theprovision oftheother Agreement shall prevail totheextent oftheconflict."WT/DS27/R/USA
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ofArticle XIII)could beraised against thecountry allocation within theMFN tariffquota ascompared
totheallocation within theACPtraditional quota. TheEChadalready demonstrated thatArticle XIII
related onlytothenon-discrimination intheadministration ofaquota oratariff quota. Therefore
Article XIIIwasrelevant andapplicable onlyinsofaronespecific quota ortariffquota wasconsidered,
andspecifically itsadministration. Noargument could onthecontrary bemade under Article XIII,
inparticular Article XIII:1, alleging discrimination intheadministration oftwodifferent regimes, which
areindependent onefromtheother andeachlegally justified onadifferent basis; and(ii)noviolation
ofArticle XIII, andinparticular paragraph 2,hadoccurred inthestructuring oftheECMFN tariff
quota.
4.172 Asapractical matter, theEC,bymeans ofagraph showing supply trends and,inparticular,
theincrease inthird-country imports intotheECafterthefalloftheBerlin Wallin1989, argued that:
inevery yearsince thestartoftheregime, quantities significantly above thebound tariff quota had
beenimported from"others" alone, notcounting anynon-traditional ACPvolumes; thelevelofthe
bound quota wassignificantly above anyvolumes which came intotheEC-15 upuntil1990; andthe
dramatic effect onbanana imports ofthefalloftheBerlin Wallandthesubsequent reunification of
Germany. Inthislight, theECcontinued, volumes rosesharply fromtheendof1989 through 1990
andinto1991(when theeffects ofspeculation alsobegan topushupvolumes temporarily) asthemarket
anddistribution systems developed. Theincrease wastheresult of16million additional consumers
being added totheEC,andwasnotduetoanyincrease inindividual propensity toconsume bananas -
itwasaone-off increase andnotevidence ofatrend toincreased consumption.
4.173 TheECcontinued thatthegraph showed thatthepolicy hadnotledtodramatic increases in
supply fromeither domestic sources orACPcountries, thusrefuted thearguments thattheECbanana
policy represented suchadvantages forECandACPproducers thatthese would become thepreferred
sources ofsupply andthattraders would rushtoimport thesebananas inpreference toLatin American
fruit. IntheviewoftheECthegraph clearly demonstrated theemptiness oftheComplaining parties '
chiefarguments inthat:thecreation oftheECsingle market forbananas hadnothadunduly restrictive
effects onLatin American exporting countries; thevolume ofthetariff quota wasjustifiable and
reasonable; thevolume imported under thetariffquota hadalways beensignificantly above itsbound
level; theadministrative procedures governing imports were clearly notacting asadeterrent tothe
utilization ofthetariff quota; andthere wasnodiscernable shiftinsources ofsupply from "others",
which hadremained remarkably constant throughout thethree andahalfyearlifeoftheECbanana
policy at63-64 percentoftotalsupply.
4.174 With respect toArticle XIII:2, theECargued firstly thatinapplying it,oneshould referto
thechapeau oftheparagraph where itwasindicated that:
"inapplying import restrictions toanyproduct, contracting parties shallaimatthedistribution
oftrade insuchaproduct approaching asclosely aspossible theshares which thevarious
contracting parties might beexpected toobtain intheabsence ofsuchrestrictions andtothis
endshallobserve thefollowing provisions".
Thelastpartofthatchapeau made itclearthattheprinciple stated inthefirstpartofthechapeau was
respected assoonasoneofthealternative provisions inparagraph 2(a)to(d)wascorrectly observed.
Consequently thefulfilment oftheobligations ofoneofthealternative provisions listed in
Article XIII:2(a) to(d)entailed automatically thefulfilment oftheobligations ofnon-discrimination
under theArticle. Secondly, inallocating thetariffquota among supplying countries theECfollowed
theprinciple ofArticle XIII:2(d). Under Article XIII:2(d) twomethods ofpossible allocation ofthe
(tariff) quota wereindicated: (i)through anagreement withrespect totheallocation ofshares inthe
quota withallother contracting parties having asubstantial interest insupplying theproduct concerned;
and(ii)when method (i)was"notreasonably practicable", through allocation tocontracting parties
having asubstantial interest insupplying theproduct ofshares based upon proportions, supplied byWT/DS27/R/USA
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suchcontracting parties during aprevious representative period, ofthetotalquantity orvalue ofimports
oftheproduct, dueaccount being taken ofanyspecial factors which haveaffected ormaybeaffecting
thetrade intheproduct. Inaresponse toaquestion posed bythePanel, theECsubmitted thatunder
Article 31oftheVienna Convention ontheLawoftheTreaties, "atreaty shallbeinterpreted ingood
faithinaccordance withtheordinary meaning tobegiven totheterms ofthetreaty intheircontext
andinthelightofitsobject andpurpose". ThetextofArticle XIII:2(d) imposed ahierarchy ofcriteria:
method (i)above wastobeapplied prior tomethod (ii)above, butnothing inthatArticle indicated
thatthefirstcriteria wasanabsolute alternative tothesecond. Thatwastosaythatincases when
anagreement could bereached onlywithsome oftheparties which wereMembers having asubstantial
interest, while agreement could notbereached withother similar parties, thenthetwocriteria could
(andperhaps should) becombined.
4.175 Inthislight, afterthedeconsolidation oftheobsolete 20percentadvalorem tariff rate,the
ECnegotiated, during theUruguay Round, thecreation ofatariffquota where theshares inimporting
quantities wereallocated, intheirmajor part,among parties having "asubstantial interest insupplying
theproduct concerned". Theallocation among thecountries signatories oftheBFAwasbased onthe
statistical dataofthereference period which wasbased onthelatest three years ofimportation which
could beconsidered representative ofnormal tradeflows. Thesametreatment wasoffered toGuatemala
withwhich theECsought agreement inapplying thetariff quota -indeed Guatemala, wasoffered,
in1993, 1.5percentofthetariff quota (compared totheaverage imports totheECfromGuatemala
fortheperiod 1989-91 of1.56percent) while afteritsentry intoforce, Guatemala hascontinued to
supply similar quantities (1.3percentin1993and1.0percentin1994according tothelatest official
statistics). Even Ecuador, Honduras andPanama, while notcontracting parties totheGATT, were
offered ashare intheallocation onthebasisofthesameobjective statistical evidence. They allrefused.
4.176 TheECsubmitted thatitproceeded todistribute thequota according totheagreement reached
withtheBFAononesideandthe"others" ontheother side,while atsame timeitpreserved entirely
"thedistribution oftrade ofbananas approaching asclosely aspossible theshares which thevarious
contracting parties might beexpected toobtain intheabsence" ofsuchtariff quota. Asithadalready
beenindicated, many ofthetariff quotas consolidated intheUruguay Round were country-specific,
i.e.theylisted alimited number ofcountries towhich theyapplied andforwhich certain quantities
werereserved, while whatwasleftofthetariff quota wasallocated to"others". IntheECview, it
could notbeheldresponsible forthelackofwillandcooperation ofaComplaining party under the
Uruguay Round negotiations toachieve adifferent result.
4.177 Thirdly, theECargued, thesizeofthetariff quota itself ortheveryexistence ofthetariff
quota could notbedisputed inthisprocedure. Theestablishment ofatariffquota waslegally admissible
under theGATT andwasoneofthreepossible tariffstructures thatcould beconceded intheschedules
inapplication ofArticle II,theothers wereaspecific dutyandanadvalorem duty. Acombination
ofthem wasalsopossible andaccepted. From thestructure andthedrafting history oftheGATT it
wasclearthatacontracting party, evenincaseoflegally bound tariffs (which wasthecaseof99percent
oftheproducts imported todeveloped countries under thepresent conditions aftertheUruguay Round)
wasentitled tobindthematalevelthatitconsidered appropriate andevensubsequently modify them
under certain conditions (Article XXVIII ofGATT). Aparty wasentitled toapply atariff thatcould
be,forinstance, 100percent,1000percentor10,000 percentofthevalue ofagiven product expressed
interms ofspecific amount oradvalorem. Thesame result could legally beachieved through the
creation ofatariff quota which wasneither prohibited norimpeded provided thatArticles IIandXIII
wererespected.122Thebanana tariffquota wasbound under theUruguay Round inECSchedule LXXX,
andrespected theprovisions ofArticles IIandXIII. Theother parties signatories oftheMarrakesh
122"EEC -Import ofBeeffrom Canada", BISD 28S/92, adopted 10March 1981 -"Newsprint", BISD 31S/114, adopted
20November 1984.WT/DS27/R/USA
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Protocol andtheparties acceding latertotheWTO explicitly accepted themultilateral result ofthese
negotiations.
4.178 With respect tothespecific arguments made bytheComplaining parties concerning the
enlargement oftheEC,theECreplied thattheaccession ofAustria, Finland andSweden totheEC
became effective on1January 1995. Aswasusual insuchcircumstances, theECengaged inthe
procedure ofArticle XXIV:6 ofGATT, i.e.theECmade itself available fornegotiations under
Article XXVIII withanyMember having initial negotiating rights orhaving asubstantial interest in
thetrade ofspecific products. Although considerable interest wasexpressed byvarious Members in
theadjustment ofagricultural tariff quotas subsequent toaccession, inparticular inthegrains sector,
noneofthetraditional trading partners oftheECinbananas manifested itself foradjustment ofthe
tariff quota onbananas. Inthese circumstances, theECCommission decided thattheECshould act
autonomously. Itensured thatthere wasanincrease inthetariff quota by353,000 tonnes asfrom
thedateofaccession. Thisamount corresponded totheaverage yearly consumption ofbananas in
these three countries overtheperiod 1991-1993.123Although theincrease wasautonomous, itwas
notadhoc,aswasborne outbythetablebelow provided bytheEC. Thisadditional quantity had
become partoftheoverall system andwassubject tothesame rules astherestofthetariff quota.
Theactual consolidation ofthetariffquota intheSchedule oftheEC-15, however, remained thesame
asitwasunder theEC-12, i.e.2.2million tonnes.
Netimports, intonnes, ofbananas bythethree newmember States
during theperiod 1991-93
1991 1992 1993 Average
Austria 121,597 120,355 115,896 119,283
Finland 73,041 80,836 72,187 75,355
Sweden 159,449 161,725 152,342 157,839
Total 354,087 362,916 340,425 352,476
According totheEC,these were thestatistics supplied bytherelevant authorities inAustria,
Finland andSweden andusedtoestablish theappropriate volume tobeadded tothetariff quota.
TheECsubmitted, inananswer toaquestion bythePanel, atable thatshowed thevolume ofre-
exports ofbananas from thethree newmember States. In1994, re-exports totalled 119,408
tonnes. Theimport figures supplied bytherelevant authorities inAustria, Finland andSweden,
which were usedtocalculate theappropriate volume oftariff quota (353,000 tonnes) were netof
re-exports.
4.179 Guatemala andHonduras considered thattheEC’ssummary assertion thatduring the
enlargement oftheEC,"none ofthetraditional trading partners oftheCommunity manifested itself
fornegotiations under Article XXIV:6" ignored theaccession circumstances surrounding thebanana
regime in1995. When Austria, Finland andSweden acceded totheEC,itremained unclear howthose
countries weretobeintegrated intoRegulation 404/93 etseq.Forthewhole of1995, banana imports
intotheEFTA-3 weregoverned by"transitional" measures. In1996, when theEFTA-3 werebrought
under theregime created byRegulation 404/93, Guatemala andHonduras werealready beginning to
prepare foracomprehensive WTO challenge, inwhich allrights andinterests were tobepursued.
Even so,throughout the"transition" period, Guatemala andHonduras hadmade theirconcerns known
123TheECnoted thatatotalofover464,000 tonnes in1994 hadbeen mentioned asimports inthethree newmember
States. Thistotalwasfrom ayearwhich could notserve asreference yearfortheadditional quantities. There wasalso
serious doubt thatthisfigure wasanetfigure, i.e.re-exports might nothave been subtracted from it.WT/DS27/R/USA
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totheECthatEFTA-3 accession would compound restrictions anddistortions inECbanana trade.
Their concerns infactproved valid, aseventoday, more thanayearandahalfaftertheaccession
oftheEFTA-3 totheEC,theCommission hadnotfullyincorporated theEFTA-3 volumes intothe
banana regime. TheJuly1996 regulation increasing thetariff quota by353,000 tonnes was
"autonomously" implemented, meaning thatthe1997tariffquota would return to2.2million tonnes,
unless changed byECCouncil action oranother autonomous increase.
4.180 More generally, theComplaining parties claimed thattherequirements ofArticle XIIIdid
notpermit theECtoinvite some Latin American countries toobtain acountry-specific allocation under
theterms oftheBFA, andthen, aftertheyrefused, proclaim thattheECcould notbeheldresponsible
forthelackofwillandcooperation oftheother parties. TheComplaining parties wereoftheopinion
thattheECwas"responsible" under Article XIII. IftheECcould notreach agreements with
substantially interested parties, thenithadtodivide itsmarket onanhistorical basis, consistent with
theaimofproviding shares thatwould beexpected toprevail intheabsence ofrestrictions. Itcould
notprovidegenerouscountry-specificallocationstoBFAsignatoriesandACPcountriesthatdiscriminated
against other Members which haddecided nottowaive theirGATT andWTO rights. Itwasprecisely
thiskindofconditionality thatwasbarred byArticle XIII'srequirement thattheECobtain agreement
ofallsubstantially interested parties.
4.181 TheComplaining parties argued thatwithrespect tothemeaning ofArticle XIIIrequirements,
theEChadblurred thedistinctions inparagraph 2(d)between thetwomethods forallocating quotas
among suppliers. TheComplaining parties considered thatthetextofArticle XIII:2(d) wasclear:
themethods presented alternative options, either oneofwhich must besatisfied inorder tocomply
definitively withthegeneral principle stated inthefirstsentence ofparagraph 2.Theuseoftheword
"all"inthefirstsentence ofparagraph 2(d)required, according totheComplaining parties, acountry
toobtain agreement withallcountries withasubstantial interest. Itdidnotallow agreement tobe
reached withonlysome selected countries. Therequirement thatagreement bereached withall
substantially interested countries wasrecognized bythepanel inNorway -Restrictions onImports of
Certain Textile Products,124which concluded thatanagreement reached withsixoutofseven substantial
supplying countries wasnotsufficient tosatisfy thefirstsentence ofArticle XIII:2(d).
4.182 Moreover, theword "method" inthesecond sentence ofparagraph (d)further implied that
thefirstsentence represented asingle approach, notanexample ofawaytodealwithonesubstantially
interested trading partner andnotothers. Itmight wellbethatacountry employing thesecond method
could alsohavetheagreement ofsome ofthesubstantially interested parties, butthiswould notbe
legally required, norwould itamount toa"combined method." Article XIII:2(d) ’sprovision for
alternative options wasalsoconfirmed bythedrafting history ofthisprovision relating tothetwo
methods. TheLondon Report ofthePreparatory Committee fortheHavana Conference listed a
"desirable setofprinciples" in"applying theprinciple ofnon-discrimination toimport restrictions,"
which included thefollowing:
"therestrictions might taketheformofaquota allocated among thevarious sources ofsupply.
Inthiscasethegeneral principle should betoallocate thequotas oncommercial principles
suchasprice, quality andcustomary sources ofsupply. These commercial principles might
beapplied inprinciple ineither oftwoways -firstly, agreement might besought between the
exporters whohaveasubstantial interest insupplying theproduct, andsecondly, where this
course isnotreasonably practicable, reference should bemade toshares inaprevious
representative period. ..."125
124"Norway -Restrictions onImport ofCertain Textile Products", adopted 18June1980, BISD 27S/119, paras. 15-16.
125See"Report oftheFirstSession oftheLondon Preparatory Committee oftheUnited Nations Conference onTrade
andEmployment" (UNDocument EPCT/33), October 1946, at14.WT/DS27/R/USA
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Although the"commercial considerations" principle wasdropped intheGeneva conference inAugust
1947 because itsapplication bygovernment authorities might notalways bepracticable, thedraft’s
reference to"either oftwoways" ofapplying theoverriding principle explicitly confirmed thatthe
twomethods should bereadasalternatives.126
4.183 TheECreiterated thaton26October 1993 itnotified thatitwanted todeconsolidate itstariff
binding of20percentforbananas andmodify itsSchedule onbananas under Article XXVIII of
GATT 1947. Hence theECsought negotiation withthe"contracting parties primarily concerned",
andwiththose having "asubstantial interest" intheEC'sbanana concession. Ashad,intheEC's
opinion, rightly beenindicated bycertain thirdparties, byaconstant practise under GATT 1947that
hadnever beenquestioned aftertheUruguay Round, theterm"substantial interest" wasmeant tocover
onlythose Members which had"asignificant share inmarket", asitwasconfirmed byparagraph 7
ofthenotetoparagraph 1ofArticle XXVIII ofGATT 1994. Thatwasinterpreted under GATT 1947
asreferring tocontracting parties thatcould account foratleast10percentofthemarket. Colombia
andCosta Rica(which could bothclaim tohavea"substantial interest" inthetrade, eachwithashare
ofaround 20-25 percent)wereincluded along withBrazil which hadtheinitial negotiating rightfor
theproduct. Atthattime, othercountries exporting totheEC,suchasEcuador, Panama andHonduras,
werenotcontracting parties totheGATT and,therefore, hadnorights under theGeneral Agreement.
Honduras became aMember on1January 1995 andEcuador on26January 1996. Panama wasin
theprocess ofacceding totheWTO. They were nevertheless keptaware ofthediscussions. Also
included inthediscussions withthecountries having asubstantial interest intheEC'sbanana concession
were other countries which hadbeeninvolved ascomplaining parties inthesecond Banana panel.
These were Venezuela, Nicaragua andGuatemala. Thenegotiations under Article XXVIII became
bound upwiththeUruguay Round negotiations andthescheduling exercise thatwasgoing onfor
agricultural products ingeneral. Bananas being anagricultural product, theirtariff re-consolidation
hadtorespond tothecriteria forscheduling intheagricultural sector, asaso-called current access
commitment.127Theconsolidations ofcurrent access commitments ledtothewidespread useoftariff
quotas. These negotiations anddiscussions resulted intheBFAwhich wasintegrated intheEC'sfinal
Uruguay Round Schedule.
4.184 Indeed theoffer theECmade toitsnegotiating partners intheUruguay Round, on
14December 1993, represented anextraordinary effort bytheECtohaveanagreed allocation ofthe
tariff quota wellbeyond anyobligations thatanyMember might bedeemed tohave, under other
circumstances, under Article XIII. None ofthepresent Complaining parties could haveclaimed at
thetimetobeentitled toanyofferunder Article XIII:2(d) foranagreed distribution ofthetariff quota
nortoanyspecific allocation under thesame provision. NotEcuador orHonduras -which werenot,
asnoted above, contracting parties; notGuatemala -which with0.6percentshare oftrade inthe
yearbefore theoffer wasmade could havehardly beenconsidered having aninterest, letalone a
substantial interest under Article XIII; notMexico -which hadnever exported totheECother than
symbolic quantities; andnottheUnited States which wasneither producing more thanasymbolic
quantity norafortiori exporting totheEC.TheECagreed withtheComplaining parties thatunder
arigorous interpretation ofArticle XIIItheECshould haveobtained agreement ofallsubstantially
interested parties. Andthisisexactly what itdidwhen itpassed anagreement withColombia and
126Intheview oftheComplaining parties, the"commercial considerations" principle wasinanyevent made somewhat
redundant withtheintroduction oftheprinciple nowsetforth inthefirstsentence ofArticle XIII:2, which firstappeared
inthedraft resulting from theNew York Conference (January andFebruary 1947). According totheReport oftheNew
York Conference, subsequent redrafting oftheother aspects ofpara. 2,including those pertaining tothetwomethods, were
made "soastomake theprovisions more clearandmore consequential". "Report oftheDrafting Committee ofthePreparatory
Committee oftheUNConference onTrade andEmployment" (UNDocument EPCT/34) Lake Success, NY,5March 1947,
p.23.
127According totheEC,these criteria became obsolete aftertheUruguay Round results weresigned andnolonger appear
intheAgreement onAgriculture.WT/DS27/R/USA
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Costa Rica. Unfortunately, noneoftheComplaining parties could atthetimebereasonably included
inthatcategory.
4.185 Intheend,theECremarked, oftheeightcountries engaged inthenegotiations anddiscussions
withtheEC128,fouraccepted acountry-specific tariff quota (Colombia, Costa Rica, Nicaragua and
Venezuela) aswellastheBFA. Anallocation fornon-traditional ACPbananas of90,000 tonnes was
alsomade.129What remained ofthetariff quota wasplaced inthecategory "others". These results
werethenconsolidated intheUruguay Round Schedule andconstituted, intheopinion oftheEC,the
outcome ofafreely negotiated agreement. There wasnothing todistinguish theEC'stariff quota on
bananas frommany other tariff quotas foragricultural products agreed intheUruguay Round. Tariff
quotas wereallocated onalimited basis toafewcountries andacategory of"others" fortherestof
thetariff quota. Theother aspects oftheBFAwerealsoadjusted tothefactthatonlyfourcountries
nowparticipated. Onlythesefourcountries could issueexport licences thatwould needtobematched
withECimport licences; onlythese wereaccorded transferability incaseofunder-utilization oftheir
quota allocation asaresult offorce majeure .
4.186 Withrespect totheUnited States specifically, theECnoted thattheUnited States, having no
banana exports totheEC,could notclaim anyapplication ofArticle XIII:2(d), since theycould not
show having "asubstantial interest" asindicated inthatprovision. Their export interests weretherefore
perfectly anddulyprotected under the"others" category intheECtariff quota. TheECwasofthe
opinion thattheevents described above clearly distinguished thepresent situation fromtheonetaken
intoaccount bythepanel inNorway -Restrictions onImports ofCertain Textile Products ,adopted
18June1980, where nosuchofferhadbeenmade byNorway andnosuchrefusal hadbeenadvanced
byHong Kong. Evenlessrelevant wasthequotation ofthepanel report EEC-Quantitative Restrictions
against Imports ofCertain Products ofHong Kong,adopted 12July1983, where thepanel didnot
enter intoanyquestion concerning thealleged violation ofArticle XIIIsince ithadalready found that
therelevant provisions ofArticle XIwere notcomplied with.
4.187 TheECsubmitted specifically withrespect toGuatemala, which hadprevious access tothe
ECmarket ofaround 1.5percentonaverage, thatitfailed toseehowitsinclusion -intheabsence
ofanyagreement -under thecategory "others" ofthetariffquota which entitled theimportation under
thetariff quota ofupto49percentofthetotaltariff quota volumes, wasbyanymeans supposed to
reduce Guatemala 'sopportunities toexport itsbananas totheEC.TheECfurther recalled thatMexico
exported negligible quantities ofbananas intotheECatthemoment theUruguay Round negotiations
wereconcluded (andnosignificant change inthesituation hadoccurred lateron).Noclaim whatsoever
byanyofthese Members wastherefore admissible under Article XIII.
4.188 TheComplaining parties noted thattheEC,byitsownadmission, provided country shares
tocountries thatitdidnotconsider tohavea"substantial interest" (Nicaragua andVenezuela, each
ofwhich exported onaverage, inthethree years prior to1993, justunder 50,000 tonnes, andless
than50tonnes, respectively). TheEChadprovided these countries guaranteed percentage allocations
thatwereclearly outofproportion withtheirhistorical shipments. Atthesame time, theEChadalso
provided country-specific allocations toalltheACPsuppliers, mostofwhich hadshipped quantities
totheECassmall as,orevensmaller than,Nicaragua ’s,under theirpreferential access arrangements.
MostoftheACPcountries hadbeenprovided allocations thatgreatly exceeded eventheiraverage recent
128Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Nicaragua, Panama andVenezuela.
129According totheEC,thisquantity of90,000 tonnes could notjustbeadded tothetotalofallocations fortraditional
bananas. Thisquantity fellunder thetariff quota of2.2million tonnes andwastreated exactly thesame asother bananas
under thetariff quota; normal tariff quota licences must beobtained forthese quantities. Only their duty-free treatment
wasbased onArticle 168(2)(a)(ii) oftheLomé Convention.WT/DS27/R/USA
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shipments under theprevious discriminatory national European regimes. They evenexceeded their
so-called "best ever" shipments, thecriterion claimed tohavebeenthebasisfortheEC’sallocations.
4.189 According totheComplaining parties, thetextofArticle XIII:2 didnotrequire aMember
torefrain fromaccording allocations tocountries thatdidnothavea"substantial interest insupplying"
theproduct. However, thefirstsentence ofArticle XIII:2, which setouttheoverriding principle to
befollowed, circumscribed themanner andbasisonwhich itcould accord suchallocations. Acountry
might reach agreement withallsubstantially interested countries andalsoreserve partofitsmarket
forlesser suppliers. Under suchanapproach, anyallocations tothelesser suppliers would needto
aimatadistribution oftrade approaching asclosely aspossible theshares thatsuchcountries might
beexpected toobtain intheabsence ofrestrictions. TheComplaining parties ’wereoftheviewthat
theEChadfailed tosatisfy either ofthetwomethods forcountries theComplaining parties considered
substantially interested parties, andhadalsofailed toobserve thefirstsentence ofArticle XIII:2 for
those thatitapparently didnotconsider tohaveasubstantial interest.130Itprovided noallocation to
Ecuador, acountry withmore trade thanColombia during whattheECconsidered therepresentative
period, andthushadfailed toreach anagreement pursuant tothefirstsentence. ThefactthatEcuador
wasnotparty totheGATT atthetimetheBFAallocations weremade didnotobviate itspresent right
asaMember toanagreed allocation oranallocation inaccordance withthesecond sentence of
Article XIII:2(d). With respect toother countries, noneofthetariff quota allocations werebased on
anunrestricted representative period; moreover, theywereprovided tosome countries andnotothers
onabasis thatcould onlybeexplained bypolitical favouritism. Asapractical matter, theaccess
available toremaining Latin American exports (relegated tothe"others" category intheEC’stariff
quota forthird countries) hadfallen 27percentbelow theComplaining parties 'access before
Regulation 404/93 wasimplemented inthemember States. Country-specific allocations provided to
theBFAsignatories were attheexpense oftherestofLatin American countries.
4.190 Withrespect totheclaim oftheComplaining parties thataccess forthe"others" category had
fallen 27percentbelow theaccess levelpriortoRegulation 404/93, theECindicated thatcalculations
based onsupply totheECshowed thatbetween 1985 and1990, theshare of"others" inthesupply
ofallLatin American bananas (short-hand forallnon-ACP production, because itincluded verysmall
quantities from Israel andthePhilippines, forexample) declined steadily every yearfrom 61.7per
centin1985to50.7percentin1990. Thiswasareduction of11percentage points, or17.8percent
ofeffective access. There wasnoreason tobelieve thatthisdecline would nothavecontinued inthe
absence ofthespeculation which occurred in1991and1992immediately prior totheentry intoforce
oftheECregime, thusresulting inevenlower access forthe"others" category. Thespeculation resulted
inahalttothedeclining trend, andanupturn insupply, butnottoprevious levels. Equally ifthe
situation wasconsidered interms ofvolume rather thanpercentages, theallocation under theECtariff
quota to"others", which currently stood at1,201,818 tonnes washigher thananyquantity supplied
totheECapartfromduring thehighly speculative years 1991-93. IntheEC'sviewitwasnotpossible
fortheComplaining parties toargue thattheiraccess hadbeenrestricted asaresult oftheEC'spolicy.
4.191 Furthermore, theECsubmitted thattheECnegotiated itsbanana tariff quota inthecontext
oftheUruguay Round atthetimewhen neither Ecuador norHonduras wereacontracting party. The
ECnoted thatnowhere didtheComplaining parties contest thestandard GATT notion of"substantial
interest" as10percentmarket share; anyspecific claim wasinfactmade onlywithregard toEcuador,
andnomention wasmade ofHonduras (indeed, notevenofGuatemala, which wasacontracting party
atthetime). TheECfurther argued thatunder Article XIIoftheWTO Agreement "[a]ny State ...
mayaccede tothisAgreement, onterms tobeagreed between itandtheWTO". AstheProtocol of
Accession ofEcuador indicated, theWTO Agreement towhich Ecuador acceded included theMarrakesh
Protocol totheGATT, i.e.theotherMembers 'Uruguay Round schedules. Nospecial terms concerning
130TheECclaimed thatColombia andCosta Ricawere theonlyGATT contracting parties in1993 thatwere substantially
interested suppliers.WT/DS27/R/USA
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theECSchedule, letalone itsconcession onbananas including country allocations, were present in
Ecuador 'sProtocol ofAccession. Ecuador hadtherefore, intheopinion oftheEC,fullyaccepted
theECSchedule. Furthermore, theECSchedule withregard toagricultural products contained market
access concessions undertaken pursuant totheAgreement onAgriculture. These market access
concessions, assetoutinArticle 4.1oftheAgreement, were composed of"bindings, reduction of
tariffs" and"other market access commitments" -namely country allocations. Inacceding totheWTO,
Ecuador didnotnegotiate anyspecial terms applicable totheECmarket access concession onbananas.
Itaccepted theECSchedule asitwas. Intheview oftheEC,Ecuador wasattempting togoback
ontheengagement ittookupon accession totheWTO. Itclaimed itwasentitled tomarket access
commitments thatwerethefruitofnegotiations among theGATT contracting parties intheUruguay
Round, andwhich, paradoxically, Ecuador itselfrefused when theywereoffered bytheEC.Ecuador
didnotnegotiate anymarket access commitment ontheoccasion ofitsaccession, andcould nothope
toobtain through dispute settlement whatothers wereentitled tosolely asaresult ofnegotiations. In
conclusion, theECsaid, theComplaining parties 'argument thatArticle XIIIentitled Ecuador asa
Member withasubstantial interest tobeallocated acountry share uponitsaccession totheWTO was
notrelevant here, astheECbanana concession wasamarket access concession under theAgreement
onAgriculture, which prevailed ontheGATT. Byaccepting theECSchedule, Ecuador hadaccepted
theagricultural concessions astheywere, andArticle XIII(even inthecaseinwhich itshould be
considered applicable toacceding Members) could notbeapplied tothem. Ontopofthisoverwhelming
legal analysis, from amarket access point ofview, withthecreation ofthecategory of"others" in
thetariffquota andtheentry intoforce oftheEC-wide banana market, some Complaining parties like
Ecuador nowhadcompetition fromfewer competitors thantheydidbefore, when theyhadtocompete
against allLatin American producers andalsocame upagainst theclosed protected markets restricting
access fortheirbananas.
4.192 AsregardsapplicationofArticleXIIItoaccedingMembersconcerningmarketaccessconcessions
negotiated prior tothose Members 'accession, theECfurther submitted that: (i)either anyallocation
ofatariff quota under theGATT hadobligatorily from thestarttobenefit allsupplying countries,
including non-Members oftheWTO; or(ii)anylateaccession hadtoreopen thenegotiation ofall
theschedules containing quotas ortariff quotas withtheeffect ofannulling thelegalcertainty ofall
theschedules andofalltheconcessions negotiated withother Members. Intheopinion oftheEC,
bothsuggestions contradicted thetextoftheGATT (Article XIII:2 talked about "allother contracting
parties having asubstantial interest") andtheintention andthepractise oftheGATT andtheWTO.
Secondly, theECargued, Ecuador itselfhadnever relied onArticle XIIItoclaim any"right". Ecuador
acceded asfromthe21January 1996. Inthisparticular context, Ecuador andtheEChadsigned an
exchange ofletters inwhich Ecuador hadagreed "toseekremedy bybilateral negotiations" ifitfelt
theECregime "adversely affected Ecuadorian commercial interest". On13September 1995, while
stillnotaMember, Ecuador requested negotiations. TheCommission metwith Ecuador on
21November 1995, andreplied thatwhile happy todiscuss atanytime, itunderstood thecommitment
toapply when Ecuador became aMember. Atthatmoment, itwould holdnegotiations. On
24January 1996(three daysafterjoining), Ecuador wrote totheECannouncing itsintention toseek
formal consultations pursuant toWTO dispute settlement rules(because theEChadnotagreed tohold
bilateral negotiations). On5February 1996, itrequested suchconsultations (with theother four
complainants). Ameeting tookplace between theCommission andEcuador on30January, where
norequest forashare ofaquota wasmade byEcuador. TheECCommission metagain withEcuador
onanumber ofoccasions, including avisittoQuito byECCommission officials. Ecuador never
specified itsrequests, letalone requested anallocation ofthequota. Afurther meeting tookplace in
Miami on9April 1996. Itwasorganized byUSTR "todetermine whether amutually acceptable
alternative tothecurrent EUregime could bedeveloped" (inthewords ofUSTR 'sChief, M.Kantor).
Inthecourse ofthemeeting, Ecuador announced thatthedecision torequest apanel hadalready been
taken. On11April, thefiveComplaining parties requested thepanel. According totheEC,even
beyond theformal application ofWTO rules, theclaims concerning thealleged violation ofArticle XIIIWT/DS27/R/USA
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while allocating theECbanana tariff quota werewrong andshould berejected. There hadnever been
agenuine intention byEcuador tofindanegotiated solution tothisissue.
4.193 According toEcuador ,aparty acceding totheWTO wasnotrequired toreserve itsrights
toraise aclaim under theGATT/WTO. Ecuador considered thattheverypurpose ofacountry ’s
accession totheGATT wastoenable ittoclaim therights andobligations specified intheterms of
thetreaty, andthatitwould bearedundant andmeaningless exercise foracountry toissue aseparate
statement which provided that,uponitsaccession, itreserved therighttoexercise allofitsrights under
thetreaty. Forexample, acountry clearly hadarighttoexpect, uponitsaccession totheGATT, that
anexisting Member 'stariff schedule accorded treatment under Article IofGATT, anditwould be
meaningless fortheacceding country toberequired toissue aseparate statement reserving theright
tochallenge thetariffs under Article I.Ecuador submitted thatnocountry could beexpected toreview
every existing import regime forevery single product inevery country intheworld before itsaccession
totheGATT todetermine whether anyreservation ofrights wasnecessary. Given theextraordinary
burden sucharequirement would impose, suchasystem would likely result inagutting ofthemain
purpose oftheWTO system, i.e.tocreate aregime forenforcing rulesandopening markets. Ecuador
clarified, moreover, thattheEC’sstatements concerning itsexchange ofletters withEcuador were
incorrect withrespect tobothprocess andsubstance. First, theexchange ofletters tookplace on
19May1995, eightmonths before 21January 1996, thedateonwhich Ecuador acceded totheWTO.
During theinterim period, Ecuador requested theECseveral times tobegin bilateral negotiations, but
theECnever responded toanyofEcuador ’srequests. Second, Ecuador noted thatthetextoftheletters
exchangedwiththeECcontainedanagreementtoattempttofindasolutionthroughbilateralnegotiations,
butnowhere stated thatEcuador ’smembership intheWTO wasaprerequisite tosuchnegotiations.
Indeed, withthisunderstanding inmind, Ecuador presented several requests totheECafterMay1995
tonegotiate anagreement thatwould address Ecuador ’sconcerns regarding theillegalities oftheEC
banana regime, without result.
4.194 TheComplaining parties considered thattheEChaddeveloped anewtheory, without any
support inthetextoftheGATT, thatthenewest Members oftheGATT andWTO suchasHonduras
andEcuadorlosttheirGATTandWTOrightswhentheyaccededwithouthavingobtainedtheelimination
ofallexisting Members 'illegal quota allocation schemes. Theynoted familiarity withtheEC'sprevious
efforts todelay Ecuador 'saccession totheWTO inorder toobtain Ecuador 'sacceptance oftheEC's
banana regime. According totheComplaining parties, suchefforts wereinconsistent withallthatwas
provided byWTO membership, andthattheordinary meaning ofArticle XIIIwasthatitapplied to
allMembers, oldandnew.
Representative period
4.195 TheComplaining parties noted thatArticle XIIIrecognized thatacountry might notalways
beabletoobtain anagreement withallsubstantially interested parties. Insuchcases itstated thatshares
could simply beassigned among suppliers, following thegeneral principle ofArticle XIIIthatallocations
hadtoapproximate shares prevailing during a"representative" (unrestricted) period. TheComplaining
parties submitted thatnoneofthecountry-specific allocations werebased onshipments during atruly
representative period, andevenifoneexamined shipments during therestricted period of1990-1992,
itwasclearthattheEChadusednocommon criterion inallocating itsmarket butpolitical favouritism.
Themanner inwhich ithadallocated itsmarket clearly wasinconsistent withArticle XIII.
4.196 Mexico argued thattheuseoftheperiod 1989-1991 bytheECwascontrary tothemeaning
given tothe"previous representative period" inthecontext oftheGATT. Theconcept ofprevious
representative period usedinthisparticular Article wasnotprecisely defined. However, under
Article XXVIII ofGATT andtheUnderstanding ontheInterpretation ofArticle XXVIII ofGATT 1994
(Article XXVIII Understanding ),ithadbeenspecified thatitwasthelastthree years forwhich data
wasavailable. Hadthecorrect approach beenfollowed, theperiod usedwould havebeenthetrienniumWT/DS27/R/USA
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1990-1992, instead ofthetriennium 1989-1991 usedintheECregime. Theaverage ofimports
originating innon-ACP countries andnon-traditional ACPcountries during thetriennium 1990-1992
exceeded thetariff quota imposed bytheECregime asaresult ofitsowncalculations. Thisaccess
reduction wasclearly contrary totheinterests oftheMembers thatweresuppliers and,byanalogy,
towhatwasagreed intheArticle XXVIII Understanding131.
4.197 Asconcerns thespecific representative period usedbytheEC,theECsubmitted inananswer
toaquestion bythePanel, thesecond sentence under Article XIII:2(d) wasnotapplicable tothespecific
situation oftheallocation oftheECbanana tariff quota since thepre-requisite oftheexistence ofa
party having asubstantial interest nothaving agreed toanarranged allocation under thefirstsentence
wasnotpresent. Thatpointed out,theECnevertheless usedcriteria ofallocation ofthetariff quota
whenproposinganagreementunderArticleXIII:2(d)firstsentencethatwerebasedonobjectivestatistical
datareproducingproportionsofthetotalquantityofimportsofbananasintheECsuppliedbycontracting
parties (andevennon-contracting parties) during aprevious representative period. Inthisrespect,
Article XIII:2(d) setouttwoelements: (i)theperiod shallbeprevious: there wasnoobligation of
taking intoaccount anydataattheverymoment ofthenegotiation; and(ii)theperiod shall be
representative. Theword representative means "exemplary" or"emblematic" ofacertain situation.
Tobelogical intheconnection withtheword "previous" then, anyallocating party must choose a
criterium thatcould helptoadistribution thatisemblematic ofapastreality. However, thispastreality
could notbe,under thepurpose ofArticle XIII,toofaraway fromthemoment oftheactual allocation
(otherwise itwould notrepresent thatreality) andatthesame timecould notbeapplied automatically,
otherwise itcould riskdistorting thereality thatitwasdeemed torepresent. Moreover, andmore
importantly, thewhole "representation" wasdeemed todescribe thereality oftheexisting tradeflows
ofacertainproductbetweenMembers.Theprovisioncouldnot,onthecontrary,beassumedasimplying
thatthe"previous representative period" should represent anabstract (andnever existed) situation of
theoretical "unrestricted" tradeinthatproduct. Following apractice known andapplied bynumerous
Members innumerous circumstances, theECdecided therefore todistribute thetariff quota among
those whowerewilling toreach anagreement onthebasis ofthelatest statistical dataofthree years
prior totheoffer(1989 to1991). TheECtherefore applied "àlalettre"Article XIII:2(d). Although
there wererestrictions onthetotalvolume ofLatin American bananas which werepermitted toenter
those member States withprotected markets prior tothecreation ofthecommon organization ofthe
market forbananas, therestrictions didnotdiscriminate between thedifferent Latin American supplying
countries. Proportions ofbananas fromthose various supplying countries werenotaffected andwere
representative.
4.198 TheECalsorecalled thattheonlycontracting parties having atthetimeasubstantial interest
insupplying theproduct concerned wereColombia andCosta Rica. None ofthecomplainants could
havebeincluded inthecategory. Since theissue oftherepresentative period wasdirectly linked to
theallocation ofthetariff quota, theComplaining parties hadthentoshow howtheycould possibly
justify aninterest toaskthePanel toaddress thisissue without having asubstantial interest pursuant
toArticle XIII:2(d). Secondly, andevenmore importantly, theECcontinued, thelevelofthetariff
quota wasnot-andcould notbe-atissueasitwasbound intheUruguay Round Schedule, precisely
asamarket access commitment (indeed thecomplainants didnotopenly claim thatthelevel ofthe
131Mexico referred inparticular to:
"6.When anunlimited tariff concession isreplaced byatariff ratequota, theamount ofcompensation provided
should exceed theamount ofthetrade actually affected bythemodification oftheconcession. Thebasis forthe
calculation ofcompensation should betheamount bywhich future trade prospects exceed thelevel ofthequota.
...
(a) theaverage annual trade inthemost recent representative three-year period increased bytheaverage
annual growth rateofimports inthesame period, orby10percent, whichever isthegreater; or
(b) trade inthemost recent yearincreased by10percent."WT/DS27/R/USA
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tariff quota violated anyGATT orWTO rule,because theyknew thatsuchclaim could notstand).
Nevertheless, theECcould rebut thesuggestions putforward bytheComplaining parties thattheEC
should haveused1990-92 or1991-93 astherepresentative period toestablish theallocation ofthe
tariff quota instead ofthe1989-1991 period.
4.199 TheECsubmitted thatwhen thevolume ofthetariff quota wasfixed, statistics werenotyet
available for1992, so1989-91 represented thelatest three years forwhich figures existed, andthe
tariffquota reflected thereality ofthetrading situation. Thesizeoftheoriginal tariff quota wasfixed
inRegulation 404/93, adopted on13February 1993. Thenegotiations concerning theBFA, which
resulted inthetariff quota being increased toabound volume of2.2million tonnes, andalsointhe
allocation ofshares inthetariffquota toallcontracting parties withasubstantial interest, wereconducted
during thelatter partof1993, when finalstatistics forimports during 1992 were stillnotavailable.
4.200 TheECfurther submitted thatevenhad1992 statistics beenavailable intime, itwould not
havebeenappropriate tousethem, since1992wasanabnormal year,andcould innowaybeconsidered
a"representative period". 1992 wasapeakyearregarding imports totheEC,duetothestrategic
decisions ofbigplayers toflood themarket inorder toposition themselves inpreparation fortheEC
single market, which wasscheduled tostartinJanuary 1993. Thissudden increase inimports had
adramatic effect onprices which fellsharply. TheComplaining parties themselves recognized "the
kindoflosses suffered byprimary importers during theperiod oflowprices in1992-1993". The
Commission 'sReport ontheOperation oftheBanana Regime made itveryclear that1992 wasan
abnormal year,bothinthetext,andalsointheannexed statistics. Statistics showed thattheimportation
ofbananas from Latin America intotheECfollowed acontinuously upward trend overmany years,
thanks totheECmember States import policies. Suggesting thattheECshould havetaken adifferent
reference period would imply thatthesituation oftheComplaining parties would havebeenworse
off,while theECusedthemost favourable period, representative ofaprevious normal trade flow
between theMembers.
4.201 Assuming thattheallocation tothecountries inthe"other" category boresome relationship
toimport levels during the1989-1991 reference period onwhich theECpurportedly relied incalculating
thethird-country tariff quota volumes, Ecuador wasoftheopinion thatthisperiod could notbe
considered "representative" ofaperiod without restrictions ontheimportation ofthird-country bananas.
TheUnited Kingdom, Spain andFrance hadeffectively closed theirmarkets tothird-country imports
during thistime. Three other member States, Italy, Portugal andGreece, alsolimited theaccess of
third-country bananas, though toalesser extent. Atthesame time, theECmember States provided
preferential treatment toimports oftraditional ACP bananas. Inanycase, eventhough themarket
waspartially closed tothird-country bananas during thistime, theECallocation ofthethird-country
tariffquota hadactually reduced theshare allotted tonon-BFA third-country suppliers from40percent
ofallEC-12 imports during theperiod 1989-1991 tolessthan34percentin1993.132
4.202 According totheComplaining parties ,thefirstsentence ofArticle XIII:2 made clear that
a"representative period" hadtobeonereflecting proportions oftradethatmight beexpected toprevail
intheabsence ofrestrictions. Previous panel reports alsoprovided guidance onhowtoestablish a
"representative" period. They hadrecognized thatindetermining arepresentative period invarious
GATT contexts, datahadtobeadjusted totakeaccount ofdiscriminatory quantitative restrictions.
Forexample, inthe1980 panel report onEEC-Restrictions onImports ofApples fromChile, the
panel wasfaced withdetermining therepresentative period inconnection witharestriction imposed
under Article XI. Thepanel considered itappropriate, inkeeping withGATT practice, tochoose
thethree-year period immediately previous totheyearinwhich therestriction wasputintoeffect in
1979. However, itdetermined thattheyear1976should notbeused"duetotheexistence ofrestrictions
132Adjusted Eurostat Import Data 1980-1994 (EC-12).WT/DS27/R/USA
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in1976, andthattheyearimmediately preceding 1976should beusedinstead."133TheEC’sallocations
totheACPcountries -onthebasisof"best ever" shipments dating backoverthirty years -wereonly
oneillustration ofthemanner inwhich theEChadignored theconcept ofa"representative" baseperiod.
Bydefinition, allocating the"best ever" amounts forselected countries wasinconsistent withthis
principle.
4.203 TheComplaining parties recalled thatin1963 apanel wasestablished torender anadvisory
opinioninthedisputebetweentheUnitedStatesandtheEuropeanCommunityregardingtherenegotiation
ofcertain ECbound tariffs onpoultry under Article XXIV:6, which required thedetermination of
arepresentative reference period fromwhich toassess theextent ofcompensation owed withrespect
tolostUnited States exports toGermany. Thereport provided some guidance about howtomake
appropriate adjustments toareference period inorder tomake it"representative":
"The Panel wassatisfied thatitwasinaccordance withthenormal practice oftheGATT for
acorrection tobemade tothefigures forthereference period totakeaccount ofthe
discriminatory quantitative restrictions existing intheFederal Republic ofGermany during
thatperiod. ItwasthePanel’sviewthat,intheabsence ofquantitative restrictions, United
States exports would havehadalarger share oftheexisting German market. Moreover, the
unrestricted entry oflower-priced United States poultry would havebrought about anincrease
inGerman consumption andUnited States exports would alsohavehadashare inthisincrease.
ThePanel thenattempted toassess whattheUnited States could reasonably haveexpected that
thevalue oftheir exports would have been inthereference period hadthere been no
discriminatory quantitative restrictions."134
Thepanel thenwentontofindthattheUnited States would nothaveexclusively supplied anyincrease
inconsumption inGermany. Inorder todetermine howexports from theUnited States would have
fared against those ofother suppliers, thepanel usedtheshares ofthevarious supplying countries in
Switzerland, which wasa"free andcompetitive" market, asthebasis forcalculating thetrade that
would havebeenobtained bytheUnited States intheabsence ofrestrictions. Theapproach ofthis
panel demonstrated thatitwaspossible toapproximate arepresentative share by"subtracting out"the
effect ofillegal quantitative restrictions.
4.204 Furthermore, mostrecently, thefirstBanana panel hadalsoexamined thephrase "representative
period" under Article XIinthelightoflongstanding ECmember Staterestrictions onbananas. The
panel found thattheECwasunder theburden todemonstrate thatshares allocated toimports reflected
theproportionality ofimports todomestic production thatwould haveprevailed intheabsence of
restrictionsduringa"representative"periodandthatlongstandingrestrictionsthatmadethistaskdifficult
"could notexcuse" theECfromdemonstrating thiscondition.135TheComplaining parties argued that
inaccordance withtheabove principles, themostrecent timeperiod thatwould berepresentative of
unrestricted ECbanana import levels would betheyears justprior toRegulation 404/93, butonlyin
those ECmember States inwhich noGATT-inconsistent restrictions wereinplace. TheECshould
takethethree mostrecent years prior toJuly1993forwhich datawereavailable (1990 through 1992,
orevenmid-1991 tomid-1993) inthemember States thathadnoGATT-inconsistent restrictions -
Belgium, Denmark, Germany, Ireland, Luxembourg andtheNetherlands -andusethatdatatodetermine
whatshares ofthese combined markets eachsupplying country hadduring thatrepresentative period.
ECimports fromLatin America in1992werenotatypical, asconfirmed byECimport dataandprices
133"EEC -Restrictions onImports ofApples from Chile", adopted 10November 1980, BISD 27S/98, para. 4.8.
134L/2088, reprinted inGATT, "Analytical Index: Guide toGATT LawandPractice" (Updated 6thedition, 1995) p.948.
135First Banana panel report, para. 338citing "Japan -Restrictions onCertain Agricultural Products", adopted
2February 1988, BISD 35S/163, para. 5.1.3.7.WT/DS27/R/USA
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onmember States 'markets. TheComplaining parties observed thatthere wasnoevidence thatEC
imports ofbananas in1992wereunusually high; indeed, thedatashowed quitethecontrary, i.e.growth
slowed considerably in1992 andwasthereafter stopped byRegulation 404/93. Onthebasis ofEC
Commission data,theEC-12 'sgrowth rateofimports ofLatin American bananas from1991to1992
wasunder 1percent. Thisgrowth of1percentwasconsiderably lower thantherateofgrowth of
EC-12 banana imports during the1986-92 period, which wasover10percentperyear. Likewise,
price datademonstrated thatsupplies ofLatin American bananas ontheECmarket in1992 werenot
excessive. InitsReport ontheOperation oftheBanana Regime ,theCommission 'sdataindicated
thatprices of"dollar zonebananas" (Latin American) onmost member States 'markets were about
thesamein1989and1990astheywerein1992. Considering thatAustria, Finland andSweden applied
Regulation 404/93 beginning in1995, arepresentative period todetermine allocations toaccount for
theirECmembership would beaverage imports during 1992-94. TheComplaining parties suggested
thattheECcould avoid theimpact thatsuchadrastic stepwould haveonACPsuppliers bychoosing
nottoallocate itstariff quota atallamong supplying countries, andrelyonlyontariff differentials
toprovide preferential access toACP suppliers.
4.205 With respect totheEC’sclaims thatarepresentative period upon which allocations mustbe
based neednotberepresentative atallifaMember hasalways restricted itsmarket, theComplaining
parties considered thatthetextofArticle XIII:2 andGATT practice confirmed theopposite -precisely
toensure thatcountries were notrewarded formaintaining GATT-inconsistent measures foralong
period oftime. Inthiscontext, theEC’sposition withrespect totherepresentative period itselected
toallocate shares toLatin America hadbecome more extreme withtheprogress ofthisproceeding.
Atfirst,forexample, theECfocused onimports during 1992asbeing excessively high, pointing only
toChiquita 'sfinancial losses asevidence -sinceneither pricenorimport dataindicated anyoversupply
during 1992. (Infactshipments fromACPandECproducers alsoincreased during 1992.) TheEC
claimedwithoutexplanationthatitsimportsfromLatinAmericaduringtheentireperiodof1991through
1993 were abnormal -again without supporting evidence based onimport growth orprice. The
Complaining parties considered itwasmost convenient fortheECtoseektodisregard these years
because theyshowed asubstantial growth bynon-BFA suppliers involume andrelative share ofEC
imports. TheComplaining parties wentontostatethatnexttheyexpected theECtoclaim thatin
anticipationofthesinglemarket,theentiregrowthofLatinAmericanimportsbeginninginthemid-1980s
wasduetobigmonopolies forcing ECconsumers toeatbananas against theirwill. Infact,thisgrowth
onlydemonstrated thestrong consumer demand forbananas, which should betaken intoaccount in
establishing arepresentative period.
4.206 TheECretortedthat,contrarytotheComplainingparties'statement,theReportontheOperation
oftheBanana Regime made itveryclearthat1992wasanabnormal year, bothinthetextofthereport
andintheannexed statistics. Forexample, itstated that"1992 sawverylowprices forbananas in
Europe, largely asaresult ofbanana companies 'marketing strategies, many ofwhom made lowprofits
orevenlosses inthatyear." TheECalsonoted thatthefirstBanana panel report wasbeenquoted.
TheECstressed thatthekindofaffirmation found inthatreport wasanextrapolation fromaprevious
panel thathadnever examined Article XIIIbutonlyArticle XI:2(c)(i). Thiswasaverydifferent
provision indeed andnobody could besurprised ifthecontracting parties refused atthattimetoadopt
thereport. Having saidthat,theECwasastonished bytheargument putforward bytheComplaining
parties: statistics showed quiteevidently thattheimportation ofbananas fromLatin America intothe
ECfollowed acontinuously upwards trend overmany years. So,suggesting thattheECshould have
taken adifferent reference period would imply thatthesituation oftheComplaining parties would have
beenworse off-theECusedthemost favourable period representative ofaprevious normal trade
flowbetween Members. TheECtheadded thatnoneoftheComplaining parties could haveclaimed,
atthetimetheBFAwasnegotiated, tobeentitled toanyofferunder Article XIII:2(d) foranagreed
distribution oftheECtariff quota ortoanyspecific allocation under thesame provision. Neither
Ecuador norHonduras werecontracting parties atthattime. Guatemala could hardly beconsidered
ashaving aninterest, letalone asubstantial interest, since ithadonly0.6percentshare oftrade inWT/DS27/R/USA
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theprevious year. Mexico hadnever exported more thansymbolic quantities totheECandtheUnited
States produced onlysymbolic quantities anddidnotexport anybananas atall.
Special factors
4.207 AccordingtotheComplainingparties,thesecondmethodforallocatingcountryshares,i.e.that
based onrepresentative historical proportions, required thecountry promulgating themeasure totake
"dueaccount" ofany"special factors" which might haveaffected ormight beaffecting thetrade in
theproduct. TheEChadnotspecifically invoked thespecial factors language tojustify itsallocations,
buthadit,suchaninvocation would, intheopinion oftheComplaining parties, fail. Asfurther
discussedbelow,GATTtext,GATTpracticeandGATTpanelreportsconfirmedthattherelevantfactors
thatmustbetaken intoaccount inestablishing theallocations would require theECtoprovide smaller
allocations tocountries whose production capacity wasonthedecline andlarger allocations tocountries
whose production capacity wasgrowing. TheEChadnotprovided anyevidence thatithadconsidered
therelative ability ofcountries toproduce andexport when establishing allocations. Ifithad,theEC
clearly would haveprovided greater access toLatin American countries thantoACPcountries, since
Eurostat dataintheEC'sfirstsubmission made clearthatLatin American countries weremuch more
competitive thanACPcountries. Indeed, eveniftheEChadusedrecent export performance trends,
countries inthe"others" category would havebeenprovided much better access totheECmarket than
theyinfactreceived. Countries inthe"others" category hadamuch higher rateofexport growth to
theECthanboththeACPcountries, forwhich theECgranted additional non-traditional allocations
andtheBFAcountries. Thiswasthecaseeventhough eachoftheACP countries wasshipping to
itsprotected market, andtheLatin American "others" countries hadtocompete forshare.
4.208 According totheComplaining parties, themore favourable allocations forlesscompetitive
imports wasconsistent withtheregime ’soverall policy ofkeeping thepriceofbananas intheEChigh
enough toavoid competition withother EC-grown fruit. IntheEC’sMay1992 options paper, the
Commission observed thataregime based onlyonthebound tariff rateof20percentwould have
a"prejudicial effect onother types offruitoncertain Community markets asaresult ofcheaper bananas
andconsequently higher demand."136TheComplaining parties provided thefollowing dataconcerning
export growth intheyears prior toRegulation 404/93:
136"Setting uptheInternal Market", para. 15.WT/DS27/R/USA
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Country Growth ofEC-12 imports 1990-1992
(percentage change)
Belize (ACP) 18.5
Cameroon (ACP) 42.6
Côte d’Ivoire (ACP) 53.7
Jamaica (ACP) 18.4
Colombia (BFA) 29.0
Costa Rica (BFA) -15.6
Nicaragua (BFA) -44.2
Venezuela (BFA) -10.0
Ecuador ("others") 92.3
Guatemala ("others") 299.2
Honduras ("others") 60.2
Mexico ("others") 24,263.0
4.209 TheComplaining parties submitted thattheInterpretative Note AdArticle XIII:4 clarified
thattheterm"special factors" wastobereadinlightoftheInterpretative NoteAdArticle XI,which
stated thatthetermincluded "changes inrelative productive efficiency asbetween domestic andforeign
producers, orasbetween different foreign producers, butnotchanges artificially brought about by
means notpermitted under theAgreement." Thelastphrase added specificity totherequirement in
thefirstsentence ofparagraph 2ofArticle XIIIthatanallocation aimed toapproximate theshares
thatMembers would beexpected toobtain intheabsence ofrestrictions. Inreviewing theanalogous
provision oftheITOCharter, asub-committee attheHavana Conference hadstated that:
"...itwasdesirable tomake clear that,incases where separate import quotas were allotted
tothevarious foreign suppliers, acountry whose productive efficiency orability toexport
hadincreased relatively toother foreign suppliers since therepresentative period onwhich
import quotas were based should receive arelatively larger import quota."137
4.210 TheUnited States argued, moreover, thattheECwasnotfreetoconsider political factors
inproviding acountry-specific allocation anddetermining theprecise allocation. Apanel reviewing
aUnitedStatesreductioninNicaragua'ssugarallocationfounditinconsistentwithArticleXIII:2because
"thisreduction hadnotbeenmotivated byanyfactor which might haveaffected ormaybeaffecting
tradeinsugar."138Thefactthatsignatories totheBFAagreed nottochallenge theEC'sbanana regime
infurther GATT dispute settlement proceedings wasnotafactor under Article XIIIthatpermitted the
ECtofavour suchcountries overothers.
4.211 According totheComplaining parties ,Article XIII:2(d) didnotpermit aMember totake
a"special factor" intoaccount foronesupplier anddisregard thesame factor withrespect toanother.
TheEChadobviously made noeffort totakeproductivity andexport capacity ofthe"other" Latin
American countries intoaccount. Even ifithad,thecomparison would beunfair given thatinvestment
inLatin American countries wastempered bytherestrictions inplace prior toRegulation 404/93 and
some (justified) uncertainty regarding thepost-404/93 regime. Fortherecord, however, banana
investments priortothenewregime werehardly unique totheACP. InGuatemala, forexample, over
137Havana Reports at95-96.
138"United States -Imports ofSugar from Nicaragua", adopted on13March 1984, BISD 31S/67 at73.WT/DS27/R/USA
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$30million wereinvested intheearly1990s fortherehabilitation ofaportintended forbanana exports.
Anequivalent amount wasinvested atthattimeforlocalbanana infrastructure. Expansion plans were
alsounderwaytoincreasebananaproductioninGuatemalaby3,000hectares,alldedicatedtoproduction
fortheECmarket. InHonduras, in1991 and1992 alone, wellover$40million were invested to
improve infrastructure related tothebanana sector. InMexico, totalinvestment of$6million was
made inPuerto Madero, inthestateofChiapas, tofacilitate exportation ofbananas fromtheSoconosco
zoneinthatstate. Other important investments weremade intheSoconosco zonetoimprove production
forexport, aswellasforotherpurposes. None oftheseorotherinvestment activities oftheComplaining
parties (including those planned forthefuture) weretaken intoconsideration bytheECindesigning
thebanana regime.
4.212 TheComplaining parties noted thattheywere notarguing thatinvestment inanycountry ’s
banana sector should betaken intoaccount, inandofitself, asaspecial factor. ItwastheECthat
hadclaimed thatinvestments were relevant initsallocation ofcountry shares. Thepoint made by
theComplaining parties wasthatsuchfactors should notbepermitted tobeapplied selectively. In
thecaseoftheACP, theECappeared notonlytohavetaken intoaccount "investments committed,"
butevidently alsoinvestments thatmight thenhavebeenenvisioned forthefuture .Inthecaseof
Jamaica, forexample, theECapparently found awaytofactor intoitsallocation that"many new
plantings were necessary." InthecaseofCôte d’Ivoire, theECtookintoaccount "that additional
irrigation anddrainage works were being planned." Judging simply bythese unmeasurable
considerations, theEChadseriously understated itsadmission thatitsallocations didnotrepresent
"anexact science." InthecaseofVenezuela, theECwentsofarastoprovide anallocation asareward
fornotpursuing theillegalities intheregime. Thatallocation served tostimulate Venezuelan exports
totheECwhere nonepreviously hadoccurred.
4.213 More tothepoint, though, theComplaining parties submitted, investments inthemselves,
investments "under way" orinvestments onlyintheminds ofgovernment officials didnotconstitute
"special factors" thatshould beusedtoadjust historical shipments. ThetextofArticle XIIIstated
thattheonlyspecial factors tobetaken intoaccount werethose "which mayhaveaffected ormaybe
affecting thetrade intheproduct," notthose which might orwould inthefuture affect trade inthe
product. Special factors included evidence ofspecial productive efficiency andcapacity toexport that
hadmadeaparticularcountry’sexportsmorecompetitivethanotherexportsonpurelyeconomicgrounds;
actsofforce majeure ,suchasanearthquake,139thatcaused anuncharacteristic disruption during the
baseperiod; or,ontheother hand, declines inacountry ’scompetitiveness orinterest insupplying
theproduct. Productive efficiency andcapacity toexport could, according totheComplaining parties,
bemeasured by,among other factors, unitcostofproduction andoutput perhectare. Even ifacountry
actuallyincreasedplantingsinitsbananasectorintheyearspriortoRegulation404/93,thoseinvestments
would onlycontribute toincreased production efficiency andexport capacity iftheywerecost-effective
relative totheproduction andexport capacity ofother producers. Looking strictly atproductive
efficiency andexport capacity, theEC'sdataonexport growth andproduction costswould justify the
EC'sproviding much greater access toLatin American countries thantoACP countries. Thefact
thatseveral ACP andBFAcountries could notevenfilltheirallocations onlyunderscored theEC's
failure toobserve theprinciples ofArticle XIII:2.
4.214 TheECsubmitted thattheterm"special factors which mayhaveaffected ormaybeaffecting
thetrade intheproduct" wasaverybroad definition encompassing allsituations thatcould notbe
considered theexpression ofanormal tradeofacertain product between Members concerned. Those
special factors were inparticular theoneswhich, byabnormally affecting trade inthatproduct ata
certain moment, affected aswellthepossibility ofrepresenting objectively thepasttradeinthatproduct
inthatprevious period. TheNote AdArticle XI(extended toArticle XIII) didnothing more than
139"EEC -Restrictions onImports ofDessert Apples -Complaint ofChile", adopted 22June 1989, BISD 36S/93,
para. 12.24.WT/DS27/R/USA
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precise thatthose special factors included equally changes inproductive efficiency asbetween domestic
andforeign producers, orasbetween different foreign producers. TheNotedidnotexclude, onthe
contrary, factors suchasabnormal speculative phenomena liketheonethatappeared inthebanana
tradetotheECin1992(andsomehow continued in1993). Thevolumes ofbananas thatweremarketed
intheECintheyears immediately priortothecreation ofthebanana regime, especially inthosemember
States where onlyatariff applied, were much higher thanhadeverpreviously beenthecase. This
sudden largeinflux oftonnage wasaccompanied bydramatic pricefallsassupply significantly exceeded
normal demand.
4.215 TheECcontinued thatitwaswidely accepted andevenacknowledged incompanies 'annual
reports, thatthismarket situation wascaused bycertain large companies deliberately oversupplying
themarket, inthehopes ofincreasing market share tostrengthen theirposition fortheimplementation
ofthesingle market. Chiquita particularly suffered asaresult ofthisstrategy, incurring highdebts
tofinance expansion, recording progressively reduced margins in1991and1992inspiteofincreased
shippings, andculminating inalossof$80million in1992. Thissituation could onlybeconsidered
asashort-term strategy, since itwasobvious thatitwasnotsustainable foranycompany inthelong
termtocontinually incur losses ofthisnature inanattempt tocapture anever-increasing share ofthe
market andtoputpressure oncompetitors. Thisprovided further justification fortheEC'sposition
that1992 wasanabnormal yearandcould notconstitute anacceptable basis torepresent "previous
normal trade flows" inbanana trade totheEC.
4.216 Asfarasaspecific country thatconcluded theagreement under Article XIII:2(d) firstsentence,
Venezuela, theECtookintoaccount thefactthatsubstantial investment wasunder wayinthatcountry
withtheaimofexporting totheECand,therefore, anappropriate portion oftheallocation wasdestined
tothatcountry eventhough Venezuela didnotexport significant quantities totheECduring theperiod
1989-1991.
Article XIII:1 ofGATT
4.217 Ecuador argued withrespect toArticle XIII:1 thattheEChadprovided norationale justifying
whycertain countries should begranted allocations farabove theirrecent historical import levels while
abasket of"other" countries hadbeengiven anallotment farbelow those countries 'aggregate historical
import levels. Asaresult ofthese measures, theECbanana regime didnot"similarly prohibit or
restrict" imports ofthird-country bananas, BFAsignatory bananas, andACPbananas, andtherefore
wasnotconsistent withArticle XIII:1.
4.218 Guatemala andHonduras submitted thatthebanana regime 'sdifferential volume restrictions
bysource fellsquarely within theprohibition ofparagraph 1ofArticle XIIIofGATT. Article XIII:5
specifically extended application ofthisprinciple to"anytariff quota instituted ormaintained byany
contracting party." According toGuatemala andHonduras, pastpanels hadbeenrigorous indisallowing
volume discrimination bysource under Article XIII. InEEC-Quantitative Restrictions against Imports
ofCertain Products fromHong Kong,forexample, thepanel found thatadifferentiation bytheEC
intextile quota shares among suppliers according totheirdifferent geographical zones wascontrary
tothenon-discrimination requirement ofArticle XIII.140Similarly, inNorway -Restrictions onImports
ofCertain Textile Products ,thepanel ruled thatNorway hadacted inconsistently withArticle XIII
when itimplemented global import quotas onvarious textile items, butreserved certain market shares
forother similarly situated countries.141
140BISD 30S/129, para. 33(adopted 12July1983).
141BISD 27S/119, paras. 15-16 (adopted 18June 1980).WT/DS27/R/USA
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4.219 Applying these findings andtheplain language ofArticle XIII:1 tothepresent facts, where
therehadbeentrade-expansive quantities setasidefordesignated ACPcountries andatrade-restrictive
overall tariff quota volume forother similarly situated import sources, thePanel should, according
toGuatemala andHonduras, equally conclude thatthe"importation ofthelikeproduct ofallthird
countries [hasnotbeen] similarly ...restricted" inviolation ofArticle XIII:1.
4.220 TheECsubmitted that,asstated above, Article XIIIwasrelevant andapplicable onlyinso
farasonespecific quota ortariffquota wasconcerned, andspecifically itsadministration. Noargument
could, bycontrast, bemade under Article XIII, inparticular XIII:1, alleging discrimination inthe
administration oftwodifferent regimes, which wereindependent onefromtheother andeachlegally
justified onadifferent basis. Traditional ACPbananas hadtobequantities traditionally supplied, as
setoutabove, entered theECatzeroduty. Thisregime wascovered bytheLomé waiver assetout
below. Thetariff quota regime wasadirect result oftheUruguay Round andcontained in
Schedule LXXX -European Communities. Theconcessions werenegotiated intheframework ofthe
Agreement onAgriculture 'sspecificity and,therefore, noviolation ofArticle XIIIofGATT 1994could
beclaimed.
Article IofGATT
4.221 Although Guatemala andHonduras considered Article XIIItobethemostapplicable principle
oflawtothepresentmeasure,theyclaimedthatdiscriminatorytariffquotaallocationswerealsounlawful
under theArticle I:1prohibition against discriminatory "rules ...inconnection withimportation" that
conferred an"advantage, favour, [and] privilege" tosome foreign sources overothers. Both the
guarantee ofmarket share forsome, butnotothers, andtheinflated assignment ofshares tosome over
others represented distinct market advantages thathadnotbeen"immediately andunconditionally"
conferred toalllikeforeign suppliers. Perseviolations ofArticle I:1ofGATT had,intheopinion
ofGuatemala andHonduras, consequently occurred.
4.222 Guatemala andHonduras submitted thattheaccess volume arrangements laiddown under
Regulation 404/93 etseq.hadbeenimposed intwodiscrete stages, eachofwhich wasunlawfully
discriminatory under theprinciples oftheGATT. Thefirstofthevolume arrangements, which arose
outoftheregime 'senabling regulations, provided terms ofaccess thatdiscriminated against Guatemala
andHonduras infavour oftraditional ACP suppliers. Thesecond arrangement, effectuated ayear
andahalflaterwiththesigning oftheBFA, created adistinct additional volume discrimination against
Guatemala andHonduras, thistimeinfavour ofBFAsignatory countries. Bothlayers ofdiscrimination
required independent analysis andcondemnation under Articles IandXIIIofGATT.
4.223 Guatemala andHonduras argued thattheamount allocated under thetariff quota forimported
bananas other thanfrom traditional ACP sources hadevery yearfallen farshort ofeventheaccess
thatprevailed forsuchsources under theECnational regimes ineffect prior toRegulation 404/93.
Access under those regimes wasat2,431,118 tonnes in1992,142which volume, ifanything, waslow
relative tothepreceding five-year robust annual growth pattern evidenced intheEC-12 forproduct
fromsuchsources. Under Regulation 404/93 etseq.,byusing 1989-91 asreference period fortariff
quota bananas, EC-12 access wascapped forthelatter halfof1993 at1million tonnes andfor1994
at2.118 million tonnes. In1995, when theEFTA-3 acceded, andagain in1996, theofficial volume
fortariff quota bananas wasroughly stagnant at2.2million tonnes, witha"transitional" (1995) and
"autonomous" (1996) EFTA-3 volume authorized at353,000 tonnes. Thatadditionally authorized
volume was9percentbelow the1991-93 average EFTA-3 banana imports fromtariff quota sources.
Theregime 'shighly restrictive volume methodology chosen fortariff quota sourced bananas wasnot
applied totraditional ACP-sourced bananas. Products from traditional ACP origins wereaccorded,
142Eurostat Import Data.WT/DS27/R/USA
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instead, access ceilings onacountry-by-country basis thattheECcharacterized tohavebeenset"in
principle" astheindividual ACP countries '"best ever" sendings uptoandincluding 1990, which
sendingswereaccomplishedunderthequotaprotectionofthenationalregimes.However,theECgranted
substantial, apparently discretionary additional allotments toACPsupplying countries evenontopof
thiscomparatively more favourable "best ever" methodology.
4.224 Guatemala andHonduras submitted thatthesource-specific quota andtariff quota volume
requirements could alsobeseentocontravene themost-favoured-nation principle ofArticle I:1.
Inequitable anddiscriminatory tariff quotas hadbeenfound inpastGATT panel disputes toconstitute
"rules andformalities inconnection withimportation" thatviolated Article I:1.InEEC-Imports of
BeeffromCanada ,forexample, thepanel found thatanEECregulation implementing alevy-free tariff
quota oncertain beefeffectively denied access oflikeproducts from countries other thantheUnited
States inviolation ofArticle I:1.143Here, where country-specific ACPvolumes accorded asubstantial,
intended import advantage thathadnotbeenaccorded bytheEConan"immediate andunconditional"
basisto"thelikeproduct originating in...theterritories ofallother contracting parties," anArticle I:1
breach hadalsotobefound.
4.225 Mexico argued thatthedifference between thegranting ofadvantages (Article I)andthenon-
discriminatory application ofmeasures (Article XIII) wasofparamount importance formaintaining
thestructure andscope thatthefounders oftheGATT gavetoeachofthese concepts asdistinct and
independent Articles. Aconsequence ofthiswasthattherecould, intheopinion ofMexico, beviolation
ofArticle Iwithout automatic violation ofArticle XIII,andvice-versa. Ifthegranting ofanadvantage
were tobeassimilated totheapplication ofreverse discrimination, itwould havemade nosense to
draw upprovisions onnon-discrimination because thelatter would havebeenincluded intheformer.
Therefore, Article Ishould beexamined independently ofArticle XIII.
4.226 TheECrecalled thearguments setoutabove concerning thenature ofthetwodistinct regimes
which were legally justified onadifferent basis andcould notbethesubject ofallegations of
discrimination oftheallocation within thetariff quota ascompared tothetraditional ACPallocation.
Asfarasthealleged violation ofArticle I:1wasconcerned, theACPtraditional allocation wascovered,
assetoutbelow, bytheLomé waiver andnoMember could claim anextension ofthattreatment outside
thepreferential framework thatjustified it.Withrespect tothebound tariffquota, theECargued that
thegeneral most-favoured-nation treatment principle asexpressed inArticle IwaspartofPartIof
GATT aswasArticle IIconcerning tariffconcessions. Article II:7clarified that"theschedules annexed
tothisAgreement arehereby made anintegral partofPartIofthisAgreement". AsArticle II:7clearly
indicated, theECbanana concession wasanintegral partofPartIofGATT andwastherefore tobe
considered anintegral partofArticle IandArticle IIasappropriate. Thisentailed theconsequence,
intheopinion oftheEC,thatanyapplication oftheMFN principle setoutinArticle Icould notprevail
perseontheterms andconditions oftheconcession, inthiscasetheECbanana concession, since
thiswould mean giving priority toonepartofArticle Ioverother parts ofthesame Article, as
supplemented bytheconcessions.
TheLomé waiver
4.227 Thegeneral discussion oftheLomé waiver canbefound insection IV.2(a)(i) above, dealing
withissues concerning tariffs. Inthatsection theECsubmitted thatithadshown thatinorder tofulfil
itsobligations withrespect totheLomé Convention inthecaseofbananas, ithadimplemented aseries
ofmeasures assetoutabove. Intheview oftheEC,theLomé waiver covered anymeasure taken
bytheECinorder tofulfilitslegalobligations asindicated under theLomé Convention withregards
toanyproduct originating inACP countries, including bananas.
143BISD 28S/92, paras. 4.1-4.3 (adopted 10March 1981).WT/DS27/R/USA
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4.228 With respect tothearguments putforward bytheComplaining parties concerning allocation
issues, theECrecalled thegeneral arguments setoutearlier withrespect tothenature ofthetwodistinct
regimes which were legally justified onadifferent basis andcould notbethesubject ofallegations
ofdiscrimination oftheallocation within thetariffquota ascompared tothetraditional ACPallocation.
Inaddition, theECargued thatasfarastheviolation ofArticle IofGATT alleged bycertain
Complaining parties wasconcerned, theACPtraditional allocation wascovered bytheLomé waiver
and,therefore,noMembercouldclaimtheextensionofthattreatmentoutsidethepreferentialframework
thatjustified it.
4.229 Inthislight, however, theECnoted thattheComplaining parties hadraised thequestion
concerning theactual coverage ofthewaiver asitreferred tothequantities allocated toindividual ACP
countries under theACPtraditional allocation. Astheirreasoning went, noquantity above the"best
ever" importation ofbananas intheECmarket byeachindividual ACP country should beadmitted
under theLomé waiver. IntheECview, thisargument wasbased onatleasttwoerrors andtheresulting
analysis ofthelegalandfactual situation wastherefore wrong andshould berejected: (i)itwasnot
correct, asalready demonstrated, thattheECobligations under theLomé Convention were limited
tothecontinuation oftraditional access totheECmarket andtheadvantages onthismarket: this
misconception wasrooted inthewrong belief thattheLomé waiver, asfarasbananas wereconcerned,
waslimited totheapplication ofProtocol 5onbananas, thusfailed totakeintoaccount theother
obligations flowing from other provisions oftheConvention; and(ii)itwasnotcorrect that,even
ifonlytheProtocol 5totheLomé Convention wasconsidered, thepreferential treatment should be
calculated onlythestatistical individual "best ever" importation ofbananas ontheECmarket. As
noted above, initsmeeting of14-17 December 1992, theECCouncil decided that:
"The Lomé commitments willbemetbyallowing tariff-free imports from eachACP State
uptoatraditional levelreflecting itshighest sendings "best ever" inanyoneyearuptoand
including 1990. Incases where itcanbeshown thatinvestment hasalready beencommitted
toaprogramme ofexpanding production, ahigher figure maybesetforthatACP State."
Thereasons forthisdecision weretobefound notonlyinProtocol 5itself -which concerned equally
common ACP/EC measures toimprove theconditions fortheproduction andmarketing ofthebananas -
butalsointheobvious neednottowaste ECpublic money andthetrade opportunities thattheEC
financial intervention wastrying toestablish. Inother words, theECcould nothaverestricted the
advantages expected toaccrue tosome ACPcountries asaresult ofthecomplete realization ofprojects
aimed atimproving andincreasing banana production, which werewellunder wayatthemoment the
decisions were taken andwhich were mostly financed together withtheEC. Theeffects ofthese
measures weretherefore logically taken intoaccount when allocating eachindividual partwithin the
ACP traditional quota. Failure todosowould haveresulted inproviding noaccess totheincreased
production concerned andinviolating theobligations ofpreserving theadvantages already expected
"atpresent" asaresult oftheapplication oftheLomé Convention. Thealleged violation ofArticle I
should, theECargued, therefore berejected.
4.230 Inresponse toaquestion bythePanel, theECsubmitted ithadnever claimed thattheLomé
waiver wasconcerned withobligations under Article XIII. Whenever theComplaining parties had
requested theextension ofaparticular regime orprocedure profiting ACPbananas, however, theEC
hadevoked, where appropriate, theLomé waiver tooppose anyextension oftheMFN clause, that
isofArticle I:1ofGATT andinaccordance withthewaiver.
4.231 Inthislight, theECrecalled thattwofactual andlegalerrors hadtobeavoided: noconfusion
could beallowed asforthetotally separate nature ofthetwobanana regimes oftheCommunity: the
ACP traditional allocation, ontheonehand, andtheECregime forallother bananas, ontheother
hand. Thisreality was,intheECview, adirect result ofboththeUruguay Round negotiations and
oftheexistence oftheLomé Convention(s) foralongtime: anysuggestion thatitwasa"carvingWT/DS27/R/USA
Page99
up"ofthemarket inorder to"avoid acomparison ofcountry treatment" under Article XIIIwasalegal
andfactualnonsense.Onthecontrary,theComplainingpartiessuggestionshowedclearlytheirintention:
toundermine thelegalsecurity oftheLomé waiver bytheattempt toapprehend, under Article XIII
(stretching itsscope wellbeyond contracting parties 'common will), whatwaswaived bythewaiver
because itconcerned Article I:1.
4.232 TheComplaining parties noted thatpastGATT practice reflected agreatreluctance towaive
Article XIIIobligations.144TheComplaining parties noted thatArticle IofGATT wasaseparate Article
fromArticles XandXIII,andnotevenpartofthesameagreement astheLicensing Agreement. There
wasnolegalbasiswhatsoever forassuming thatawaiver withrespect toArticle Iapplied inanyway,
directly orindirectly, tootherGATT articles thatalsoprohibited distinctions based oncountry oforigin.
4.233 TheComplaining parties considered theissueofcountry-specific allocations tobeconclusively
addressed under Article XIII, making theLomé waiver withrespect toArticle Iviolations irrelevant
tothese measures. Moreover, theEChadadmitted initsanswers toPanel questions thatitdidnot
consider theLomé waiver covered violations ofArticle XIII. However, itwasworthwhile tocorrect
therecord withrespect totheEC’sjustification ofitstraditional ACPallocations. TheEChadadmitted
thatitsACP allocations exceeded "best ever" levels, butattempted tojustify them onthebasis that:
(i)theywere consistent with"other obligations flowing from other provisions oftheConvention;"
(ii)theyfellwithin the"advantages onthose markets ...atpresent" phrase ofProtocol 5;(iii)the
ECCouncil instructed thatsuchallocations takeintoaccount "investment [that] hasalready been
committed,"; and(iv)ECpublic money would bewasted hadACP allocations notbeeninflated.
Intheopinion oftheComplaining parties, every oneofthose claims wereeither inerror orirrelevant.
The"other obligations" oftheLomé Convention relevant totraditional ACPallocations hadnotbeen
specified bytheECand,aspreviously demonstrated, didnotinanycaseexistintheareaofbanana
trade. The"advantages onthosemarkets ...atpresent" language ofProtocol 5,under itsplainmeaning,
could notbesaidtoextend toanyACPinvestment activity thatmight havebeenunder wayorenvisioned
atthepoint ofproduction. France andtheUnited Kingdom certainly didnotinterpret theProtocol
thatwayprior toRegulation 404/93. They accorded access tobananas ofACP origin solely onthe
basis ofannual demand forbananas intheirrespective markets.145What theECCouncil might have
instructed inthewayofsupplementary ACPbenefits wasofnoWTO consequence; afterall,theEC
Council hadauthorized theentire banana regime, which hardly made itWTO-consistent.
4.234 Astotheconcern thatECinvestments would havebeenwasted iftheallocations hadnotbeen
overstated, thesamecould justaseasily besaidofthenational banana investments under wayorplanned
intheLatin American supplying countries. Moreover, asalready noted, theWorld Bank andother
economists hadpointed outthatrelative to"waste" thatmight derive fromuncounted ACPinvestments,
anECfunding waste ofimmensely greater magnitude hadresulted from thisECregime, which had
costconsumers $13.25 totransfer only$1.00 ofbenefit toACPbanana suppliers146,andmore tothe
point, other Members should nothavetopayfortheEC'sbudget mistakes.
144SeeNote bytheExecutive Secretary on"Questions Relating toBilateral Agreements, Discrimination andVariable
Taxes" (wherein itwasstated "thatinnocasehasawaiver onimport restrictions authorized anydeviation fromtheprovisions
ofArticle XIII"), L/1636, p.2. Infact,there hasbeenoneinstance inwhich awaiver toArticle XIIIwaspermitted bythe
contracting parties (theDecision of10November 1952 onthe"Waiver Granted inConnection withtheEuropean Coaland
SteelCommunity", 1S/17, para. 3).TheCONTRACTING PARTIES haveotherwise refused toforgive discriminatory measures
inconsi stentwithArticleXIII. Seee.g.Decisionon"ProblemsRaisedforContractingPartiesinEliminatingImpor tRestrictions
Maintained During aPeriod ofBalance-of-Payments Difficulties", BISD 3S/38, para. 2.
145First Banana panel, paras. 19-22 and37-38.
146See"Beyond EUBananar ama",Annex (1)at22;seealsoBrentBorrell,"EUBananar amaIII",PolicyResear chWorking
Paper 1386, TheWorld Bank (1994), Annex (2).WT/DS27/R/USA
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4.235 Withrespect toArticle IofGATT, Guatemala andHonduras submitted thatwithin thestrict
interpretive framework ofwaiver interpretation, theLomé waiver could notbesaidtorequire
discriminatory volume arrangements. Byitsexpress terms, allthattheLomé Convention required,
orevencontemplated, astoACPtradeinbananas was:(i)duty-free access fortraditional ACPbananas
under Article 168oftheLomé Convention modified byProtocol 5andAnnex LXXIV; (ii)technical
andfinancial assistance totraditional ACPsuppliers toimprove theproduction andmarketing ofbananas
under Article 183andProtocol 5,asmodified byAnnex LXXIV; and(iii)intervention fromStabex
funds tostabilize export earnings fortraditional ACP suppliers under Article 186.
4.236 Thus, insofarasthequantity preferences extended toACP suppliers were wellbeyond the
scope oftariffpreferences andaidpromised bytheLomé Convention -andtheEChaditselfconfirmed
thatACP volumes were notguaranteed bytheLomé Convention -these measures could hardly be
saidtofallwithin thesharply restricted reach oftheLomé waiver. What made thisparticularly so
wasthatthedifferentiated volume treatment atissue hadbeenstructured forthestated purpose of
curtailing Guatemala andHonduras 'shipments, something theLomé waiver expressly sought toavoid.
Since thevolume arrangements denied Guatemala andHonduras market access advantages thatwere
otherwise being conferred toACP bananas, andsuchadvantages werenototherwise forgiven bythe
Lomé waiver, abreach ofArticle I:1hadoccurred.
4.237 Guatemala andHonduras further considered thattheLomé waiver offered nojustification for
infractions concerning theallocation toBFA countries. AsCosta Rica, Colombia, Nicaragua and
Venezuela werenoteventhesubject oftheLomé Convention, theirreceipt ofdiscriminatory allocations
could notbeconsidered excused bytheLomé waiver. TheLomé waiver andtheLomé Convention
werelikewise irrelevant totariff quota volume allocations forthenon-traditional ACPsuppliers -the
Dominican Republic, Belize, Côted'Ivoire, Cameroon andothers. Protocol 5andAnnex LXXIV
carefully circumscribed theextension oftheLomé Convention tariff preferences anddirect aidto
traditional ACPsuppliers only. Theapplication ofquantity reserves fornon-traditional suppliers, was,
thus, manifestly beyond thescope ofbothinstruments. Discriminatory tariff quota allocations were,
intheopinion ofGuatemala andHonduras, accordingly abreach ofGATT 'smost-favoured-nation
ruleandhadtobediscontinued.
4.238 TheECreiterated thattraditional ACPbananas hadtobetreated inaccordance withProtocol
5andtheJointDeclaration inAnnex LXXIV oftheLomé Convention. Non-traditional ACPbananas
didnotfallunder theobligation tosecure access to,andadvantages on,theECmarket atthelevel
ofthebestyear'sperformance byeachACPbanana exporting country, buthadtobegiven preferential
treatment. Thisregime wascovered bytheLomé waiver. ForACPbananas, thequantities traditionally
supplied (according tothe"best ever" criterion uptoandincluding theyear1990) byvarious ACP
States entered theEC,asbefore 1July1993, atzeroduty147.
(ii)Reallocation ofshortfalls
Article XIIIofGATT
4.239 TheUnited States wasoftheview thattheEC'sprovisions regarding shortfalls inBFA
signatories 'allocations werealsoinconsistent withtheobligations inArticle XIII. Paragraph 4ofthe
BFAprovided that:
"[i]fabanana exporting country withacountry quota informed theECthatitwillbeunable
todeliver thequantity allocated toit,theshort-fall shallbereallocated bytheECinaccordance
withthesame percentage shares [provided bytheBFA] (including "others")."
147Article 15(1) andtheAnnex ofRegulation 404/93.WT/DS27/R/USA
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However,paragraph4alsoprovidedthat,nonetheless,"countrieswithcountryquotasmayjointlyrequest
andtheCommission shallagree toadifferent allocation amongst those countries". Article 2ofEC
Regulation 478/95 implemented these provisions. In1995, thefirstyearoftheBFA, bothNicaragua
andVenezuela informed theECthattheywould notbeabletofilltheirallocations. Asaresult of
these countries ’agreements withColombia, allofNicaragua 's3percentshare and70percentof
Venezuela 's2percentshare were transferred toColombia forthatyear. Inasimilar arrangement
for1996, allofNicaragua 's3percentshare and30percentofVenezuela 's2percentshare were
transferred toColombia.148Thus, theECprovided additional access of96,800 and79,200 tonnes in
1995 and1996, respectively, toColombia alone instead ofallocating these amounts onanon-
discriminatory basisamong allthehistorical suppliers, according totheEC’sobligations inArticle XIII.
Permitting twoBFAsignatories todecide among themselves howtoreallocate theshortfall wasnot,
intheopinion oftheUnited States, consistent withthese obligations.
4.240 Ecuador considered thatthepreferential treatment ofBFA-signatory countries referred toabove
wasmade evenmore egregious byoperation ofArticle 2ofECRegulation 478/95. Onthebasis of
Article 2,theBFAsignatory countries reallocated, according toEcuador, among themselves theirshares
ofthethird-country tariffquota. Forexample, in1995, allofNicaragua 's3percentshare and70per
centofVenezuela 's2percentshare weretransferred toColombia.149Again, in1996, allofNicaragua 's
share and30percentofVenezuela 'sshare were transferred toColombia.150Thetransferability of
shares among theBFAsignatory countries further removed thesesuppliers fromtheconstraints placed
onother third-country suppliers. Thetotalthird-country tariff quota andtheshare allocated tothird
countries inthe"other" category werenominally (though notactually) based onrecent historical import
levels. However, thetransferability ofthecountry-specific tariff quotas among theBFA countries
enabled these countries totailor theirshares tocurrent commercial conditions. BFAtransferability
intensified, according toEcuador, thediscrimination inherent intheoriginal BFA allocations by
permitting certain BFA countries toobtain shares ofthethird-country tariff quota wellinexcess of
theirrecent historical import levels.
4.241 Article 2ofRegulation 478/95 compounded, according toGuatemala andHonduras ,these
discriminatory allocations byentitling Costa Rica, Colombia, Nicaragua andVenezuela totransfer
their tariff quota allocations among andbetween oneanother, inanymanner approved bythe
Commission.Thatvolume-shiftingadvantagehadnotbeenmadeavailabletoothertariffquotasuppliers.
TheBFAsignatories hadtaken liberal advantage ofthediscriminatory quota-shifting allowance. All
ormuch oftheallotments accorded Nicaragua andVenezuela weretransferred toColombia in1995
andagain in1996, largely because those countries didnothaveforthese twoyears (orforanyofthe
years before that)theproduction wherewithal tosatisfy theirartificially inflated allocations. The
selectively applied transferability mechanism hadthereby gained Colombia amarket share in1995
and1996ontopofitsalready inflated original allocation ofrespectively 4.3percentand3.6percent.
Guatemala andHonduras submitted thatthevolume-shifting mechanism forBFAcountries authorized
byRegulation 478/95 didnotobserve either ofthetwoquota apportionment rulesofArticle XIII:2(d).
Thetransfer ofquota shares among BFAcountries wasnotpredicated ontheagreement ofallsubstantial
supplying interests, onlytheapproval oftheECCommission andBFAsignatory countries. Likewise,
thesource-exclusivity ofthatmechanism prevented, under anypossible application, aquota distribution
resembling theshares thatvarious countries would havebeenexpected toattain inanentirely unrestricted
market (which theEChadnever accorded itsLatin American suppliers).
148Commission Regulation (EC) No. 2568/95, 31October 1995; Commission Regulation (EC) No. 356/96,
28February 1996.
149Commission Regulation (EC)No.703/95, 30March 1995; Commission Regulation (EC)No.1889/95, 28July1995.
150Commission Regulation (EC) No. 2568/95, 31October 1995; Commission Regulation (EC) No.356/96,
28February 1996.WT/DS27/R/USA
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4.242 Mexico argued thattheover-allocation oftariffquotas toallACPcountries, referred toabove,
wasalsoapplicabletoBFAcountries.Moreover,inthiscase,incontrasttowhathappenswithnon-ACP
andACPcountries, BFAcountries wereallowed tomake transfers among themselves ofthetariffquota
notused, which wasclearly discriminatory against theother Members andcontrary totheprovision
under which thedistribution oftradeshould approach asclosely aspossible theshares which thevarious
contracting parties might beexpected toobtain intheabsence ofsuchrestrictions.
4.243 TheECrejected theallegations raised against thepossibility, provided inthetariff quota, of
transferring quotas orparts ofaquota toeachcountry party totheBFAtoanother BFAcountry, as
compared toother supplying countries which, under thetariffquota, werenotadmitted tobenefit from
suchtransfers. According totheComplaining parties, thisprovision violated Articles XIII:2(d) and
I:1ofGATT. TheECsubmitted thatunder Article XIII:2(d) "noconditions orformalities shallbe
imposed which would prevent anycontracting party from utilizing fullytheshare ofanysuchtotal
quantity orvalue which hasbeenallotted toit...."FortheBFA countries, limitations ofimports
intotheECduetotheallocation ofquotas shared outbycountry would result inanunfair disadvantage
ifnotassorted withthepossibility oftransferring quotas orpartofquotas when unused. Thiswas
perfectly inconformity withArticle XIII:2(d). Thecountries under "others" intheBFA disposed
already, bytheverynature ofthenon-shared outpartofthetariff quota, ofthewidest possibility of
transfer ofthetariff quota orpartsofthetariff quota. Inthisrespect noviolation ofArticle XIII:2(d)
could bealleged. Duetothespecific structure oftheEC'stariff quota, therequested extension of
access tothetransfer ofunused quota oftheBFAcountries bynon-BFA countries would amount to
anadvantage fornon-BFA countries which theECdidnotintend togrant andwhich, intheviewof
theEC,would violate Article XIII.
4.244 According totheComplaining parties ,theEChadfailed toabide byArticle XIIIrequirements
bypermitting aBFAsignatory suchasColombia toobtain exclusive access toashortfall insupply
inVenezuela ’sallocation. TheEChadclaimed thatthespecial quota transfer provisions of
Regulation 478/95, Article 2,which permitted Costa Rica, Colombia, Nicaragua andVenezuela to
shiftmarket share among themselves, wasinconformity withArticle XIII:2(d) because the"others"
suppliers hadthe"widest possibility oftransfer ofquota" andwould be"advantaged" ifspecial transfer
provisions werenotinplace. However, Article XIII:2(d) provided specific rulesforallocating quotas.
Permitting afewcountries (BFA signatories) todecide among themselves howtoreallocate thequota
wasmanifestly inconsistent withtheseprinciples. Thesuggestion thatvolume-shifting preferences were
needed asacounter-balance totheinherent transferability afforded suppliers inthe"others" category
wasnotonlyirrelevantunderArticleXIII;itignoredtheEC’sexclusiveprovisionofadistinctmarketing
advantage toselected supplying countries. Thetransfer measure onlyadded tothatdiscrimination,
making itaseparately identifiable violation ofArticle XIII:2(d) thathadtobediscontinued. The
Complaining parties considered thatthemanner inwhich theECcontinued toprovide Colombia with
portions ofVenezuela ’sandNicaragua ’sannual allocations contradicted itsownoriginal allocation
ofthethird-country tariffratequota. IfColombia wasnotentitled toalarger share oftheEC’stariff-rate
quota tobegin with, itwasnotnowentitled tobetheexclusive recipient ofanadditional amount made
available asaresult ofanother country ’sshortfall insupply.
Article IofGATT
4.245 Guatemala andHonduras submitted thatthespecial quota transfer provisions contained in
Regulation 478/95, compounded thediscrimination created inthefirstinstance byirregular tariffquota
allocations. TheBFAcountries alone hadbeenconferred theprivilege ofshifting market shares among
andbetween BFAthemselves iftheCommission soapproved. It'sdiscriminatory application constituted
aseparately identifiable violation ofArticle I:1.
4.246 Noviolation ofArticle I:1could, intheopinion oftheEC,beclaimed bytheComplaining
parties onthisissue since, ontheonehand, thetransferability ofthequota within theBFAcountryWT/DS27/R/USA
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section amounted toequal theposition ofnon-BFA countries withthatofBFAcountries, theformer 's
position being likely tobeotherwise better offunder thepresent structure oftheECtariff quota. In
other words, anon-advantage wasnotobligatorily extended onanMFN basis under theGATT. On
theother hand, theactual structure oftheECtariff quota waspartoftheECSchedule which wasan
integral partofPartIofGATT asindicated inArticle II:7.Nopriority could beinvoked forArticle I
under theGATT overtheconcessions consolidated intheGATT andaccepted through theirratification
byalltheMembers asargued inmore detail elsewhere. TheEC,referring tothecomplaints concerning
thepossibility oftransferring quotas orparts ofaquota allocated toeachcountry party totheBFA
toanother BFA country onlyascompared totheother supplying countries, rejected theallegations
thatthisprovision violated Articles I:1andXIII:2(d) ofGATT.WT/DS27/R/USA
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(c) Import licensing issues
4.247 Thissection presents theimport licensing issues raised inthecase. Itfirstsetsoutthearguments
oftheComplaining parties concerning theimport licensing regime asawhole, andcontinues withthe
ECresponses totheclaims, andsubsequent arguments bytheComplaining parties. Thisincludes the
preliminary issues raised bytheEC:(i)thenon-applicability oftheAgreement onImport Licensing
Procedures totariff quotas; and(ii)thenon-applicability ofArticles III:4andXofGATT toborder
measures. Inaddition, theECreiterated itsarguments setoutearlier concerning horizontal issues:
(i)thepresence oftwoseparate banana access regimes; and(ii)theapplicability oftheLomé waiver
tospecific aspects oftheComplaining parties 'allegations. These issues arereverted toinrelation
tospecific claims. Following thearguments presented concerning theimport licensing regime asa
whole, claims andarguments relating toindividual aspects arerecorded.
4.248 TheComplaining parties argued thattheEC’sregulations imposed onimports from Latin
Americaalicensingschemethatwashighlycomplex.Thesystem,bothinitstotalityandinitsindividual
elements, created highly unfavourable conditions ofcompetition compared tothesimple arrangements
fortraditional ACPbananas. Unnecessarily burdensome, discriminatory, trade-restrictive andtrade-
distortive, thelicensing regime implicated boththebasicprovisions oftheGATT andthenewer Uruguay
Round disciplines pertaining specifically tolicensing procedures andtrade-related investment measures.
Ecuador alsoargued thatthelicensing regime wasinconsistent withtheAgreement onAgriculture,
inparticular.
(i)Thelicensing regime asawhole
Arguments oftheComplaining parties
4.249 Onthebasis ofthefollowing flowcharts submitted byEcuador, Guatemala, Honduras and
theUnited States, theComplaining parties considered thattheEClicensing regime forLatin American
bananas washighly complex andburdensome forexporters andimporters ofbananas. Thatsuchlayers
ofcomplexity werenotrequired foradministrative purposes wasevident fromthesimple andtransparent
procedures applicable totraditional ACPbananas. Anyinvestor orpurchaser ofbananas, seeing the
twoschemes, would quickly understand thatthesystem forLatin American bananas amounted toa
non-tariff barrier totrade.WT/DS27/R/USA
Page105
Arrangement 1:ECBananas
Noaccess limitations .
Nolimitations on
internal sales ordistribution .
Deficiency aidprovided for
854,400 tonnes -alevel well
above present ECproduction.
Arrangement 2:"Traditional ACP Bananas"
Country-specific quotas setatlevels
wellabove traditional imports.
Total access: 857,700 tonnes
Noduty
Import licences issued routinely andpromptly to
interested parties holding acertificate oforigin.
Quarter 1 Quarter 2 Quarter 3 Quarter 4WT/DS27/R/USA
Page106
WT/DS27/R/USA
Page107
4.250 Ecuador argued thatECRegulation 1442/93 setouttwoseparate application procedures -a
procedureforobtaininglicencestoimporttraditionalACPbananasandadifferentprocedureforobtaining
licences toimport third-country bananas. According toArticle 14ofRegulation 1442/93, anyoperator
wishing toimport traditional ACPbananas would beabletodosoafterfiling anapplication withthe
competent ECmember Stateaccompanied byacertificate oforigin andbilloflading.151Incontrast
tothisstraightforwardprocedure,theapplicationprocedureforoperatorswishingtoimportthird-country
bananas waslongandarduous, andinvolved thefollowing major elements: (i)theallocation ofthe
third-country tariffquota among BFAandnon-BFA signatories; (ii)theallocation ofthethird-country
tariffquotaamongoperatorcategories;(iii)theallocationofoperatorcategoryallocationsamongactivity
functions; (iv)thereduction ofentitlement duetoselective auditing andtoapplication ofinequitable
reduction coefficients; (v)thetwo-round application procedure; (vi)thedistribution andpurchase
ofspecial export certificates; (vii)thereallocation ofunused licences toasubsequent quarter ofthe
year; and(viii) theissuance ofhurricane licences toCategory Boperators. Thedifferences inthese
twosetsofapplication procedures clearly discriminated against third-country bananas andthird-country
operators andthusnotonlyviolated numerous provisions oftheGATT asoutlined elsewhere, butalso
oftheLicensing Agreement.
4.251 Guatemala andHonduras submitted thatthetariff quota licensing scheme wasillegal,
discriminatory andunfair when contrasted withthefarsimpler, essentially automatic traditional ACP
licensing arrangement. Second, thescheme wasdiscriminatory andunfair when contrasted withthe
freeandopeninternal saleanddistribution arrangement accorded ECbananas. Finally, because of
boththose forms ofdiscrimination, andbecause oftheoverwhelmingly onerous requirements thetariff
quotalicensingschemeitselfcontained,thetotaltariffquotalicensingarrangementrestrictedanddistorted
trade, andotherwise posed unnecessary administrative burdens indefiance ofWTO law. According
toGuatemala andHonduras, Regulation 404/93 etseq.subjected bananas from tariff quota sources
toacomplex, multi-layered, non-automatic licensing regime thatdictated inmicro-detail theentities
andextensive procedures through which tariff quota bananas could beentered anddistributed.
Guatemalan andHonduran producers were notfreetoselltopurchasers oftheirchoice, buthadto
selltoarbitrarilydefinedclassesof"operators,"overhalfofwhichhadnoexperiencein,orinfrastructure
for,theimportation, distribution, andtransport ofLatin American bananas prior totheinstitution of
Regulation 404/93. Moreover, tariff quota bananas could notbepromptly distributed through such
designated entities, buthadtoawait multiple rounds ofapplications thatconfused themarketplace and
precluded importation oftheComplaining parties 'bananas forthefirstthree weeks ofevery quarter.
Therules governing allsuchprocedures andentities werevoluminous andchanged constantly. This
unnatural, heavily constrained, andever-changing distribution scheme forLatin American bananas
hadreconfigured historical distribution patterns, caused pricedistortions, curtailed delivery flexibility,
andhadcreated widespread uncertainty andconfusion inthemarketing oftheComplaining parties '
bananas.
4.252 Bycontrast, Guatemala andHonduras argued, traditional ACP-sourced bananas weresubject
toadistinctly different, greatly simplified, andessentially automatic licensing system. Traditional
ACPbananas could beentered simply andpromptly through anyfirm. Theautomatic licensing approach
appliedtotraditionalACPbananaspermittedcommercialflexibility,simplicity,predictability,continuity
andotherwise undistorted tradeflow. Theapproach wassoradically preferable totariffquota licensing
thatECimporters, overwhelmed bytheenormity andrestrictiveness oftariff quota licensing rules,
would overtimeplace investment andmarketing emphasis ontraditional ACPsources ifonlytoavoid
therigours andconfusion ofthetariff quota licensing system.
4.253 Incontrast tothesystem fortraditional ACPbananas, theUnited States argued, theECbanana
regime subjected Latin American bananas toamulti-layered licensing scheme thatoperated toconstrain
151Regulation 1442/93, Title II,Articles 14-17.WT/DS27/R/USA
Page108
importer flexibility atevery turn. Latin American imports weresubject torules, e.g.distribution of
licences onthebasisofCategory Boperator criteria andactivity functions (b)and(c),thatattempted
toshiftimports away from those whohadtheskill, distribution networks andinfrastructure tosell
them, andtoward those withlittleornoexperience inimporting bananas from Latin America, orin
some cases, from anywhere else.
Arguments oftheEC
4.254 TheECpresented itsarguments concerning theclaims oftheComplaining parties concerning
import licensing issues firstly bysubmitting twopreliminary issues: (i)thenon-applicability ofthe
AgreementonImportLicensingProcedurestotariffquotas;and(ii)thenon-applicabilityofArticlesIII:4
andXofGATT 1994 toborder measures. Details ofthese matters aresetoutbelow along withthe
arguments oftheComplaining parties concerning them. Inaddition, asnoted above, theECreiterated
itsarguments setoutearlier concerning horizontal issues: (i)thepresence oftwoseparate banana access
regimes; and(ii)theapplicability oftheLomé waiver tospecific aspects oftheComplaining parties '
allegations. These issues arerecorded insections ofthetextdealing withspecific claims. Finally,
arguments concerning import licensing issues astheyrelate totheregime asawhole thathavenot
beencovered elsewhere arereported including those withrespect tospecific agreements andprovisions.
Thenon-applicability oftheAgreement onImport Licensing Procedures totariff
quotas
4.255 Inresponse totheallegations under theAgreement onImport Licensing Procedures (Licensing
Agreement), theECsubmitted thatthetextofLicensing Agreement itselfspecified thatitsscope was
toregulate alltheprocedures, others thancustoms operations, priortotheimportation. Theprovisions
ofthatagreement appeared thenasfurther specifications ofsome oftherulescontained inArticle XIII
ofGATT inwhich, interalia,explicit reference wasmade inparagraph 3(a),"toimport licences issued
inconnection withimport restrictions". However, nothing intheLicensing Agreement specified (like
Article XIII:5) thatitapplied alsotocases where noimport restriction wasapplied attheborder and,
therefore, itshould notbedeemed applicable tosuchcases asinthecaseofatariff quota ofthekind
oftheECbanana tariff quota.
4.256 TheUnited States argued thattheLicensing Agreement provided themostspecific disciplines
onimport licensing among thevarious WTO agreements. Inparticular, asreflected initspreamble,
itsought toplacedisciplines onnon-automatic licensing, namely thoselicensing schemes where approval
wasnotgranted inallcases, suchastheregime applicable toECimports ofbananas.
4.257 According totheComplaining parties ,Article 1.1oftheLicensing Agreement, which defined
itscoverage, didnotlimititsprovisions toabsolute quotas. Thereference tothelicences being "aprior
condition forimportation" didnotmean thattheagreement didnotapply totariff quotas. Alicence
wasrequired asaprior condition forimporting fruitunder thetariff itemsubject tothein-quota duty,
which would always bethefirsttoenterthemarket, while over-quota licence-free volumes would only
beimported, ifatall,when thetariff levels andother market conditions soallowed. Thus, thefact
thatlicences were notrequired toimport fruitattheover-quota ratewasirrelevant.
4.258 IntheviewoftheComplaining parties, theEC’sclaim thattheLicensing Agreement applied
solely withrespect to"restrictions" overlooked thefactthatArticle 1.1oftheLicensing Agreement,
setting outthescope oftheagreement, made nomention of"restrictions". Theexpansive language
ofArticle 1.1clarified thatitapplied toall"administrative procedures usedfortheoperation ofimport
licensing regimes", whether ornotanimport restriction applied attheborder. Other aspects ofthe
Agreement tended, intheviewoftheComplaining parties, tosupport itsapplication totariff quotas.
Article 3.3conferred averybroad scope totheAgreement byreferring specifically tolicensing
requirements "forpurposes other thantheimplementation ofquantitative restrictions". Although thereWT/DS27/R/USA
Page109
wereafewreferences to"restrictions", mostreferences toquantitative limitations wereto"quotas",
which bydefinition included tariff quotas. Moreover, totheextent theword "restriction" wasused
insome instances, itshould notbereadinthesense ofArticle XI(which prohibited "restrictions",
atermwhich inthatcontext didnotcover tariff quotas). Rather, theAgreement ’suseoftheterm
"restriction", should beunderstood inthesense ofitsuseinArticle XIIIofGATT, which made
application totariff quotas explicit.
4.259 Article XIIIwasclosest inpurpose totheLicensing Agreement inthatitgoverned the
administration ofameasure, whereas Article XIsimply prohibited restrictions andsetforthexceptions
totheprohibition. Inthissense, given thejudgment made bythecontracting parties in1947 that
administrative disciplines applying toabsolute quotas should beequally applicable totariffquotas, there
would benoreason todistinguish between theminanagreement thatexpanded uponthose disciplines
fortyorfiftyyears later. Theintent tocover tariff quotas could further beinferred fromthereference
intheAgreement ’spreamble tothe"provisions oftheGATT 1994 astheyapply toimport licensing
procedures": themost explicit reference toimport licensing wasinArticle XIIIofGATT, which
covered tariff quotas. Other parts oftheGATT thatapplied more specifically toimport licensing -
among them Articles VIIIandX-applied totariff quotas aswell. Thepurposes oftheLicensing
Agreement, asreflected initspreamble, didnotreveal, intheopinion oftheComplaining parties,
anyreason whytariff quotas would beremoved fromitscoverage. Concerns suchasimplementation
oflicensing ina"transparent andpredictable manner", "fairandequitable application", preventing
theinappropriate useoflicensing from impeding the"flow ofinternational trade", andsoonwere
allconcerns thatwere justasvalid withrespect totariff quotas.
4.260 In1994, intheImport Licensing Committee under theTokyo Round Code, theUnited States
twice raised thediscriminatory aspects oftheEC'simport licensing regime forbananas andtheEC's
failure toproperly notify theImport Licensing Committee oftheregime under theImport Licensing
Agreement. Several countries expressed support fortheUnited States 'view. TheECdidnotcontest
theapplicability oftheLicensing Agreement totariff quotas, stating onlyitsconfidence thatthenew
regime was"inconformity withthenewAgreement onImport Licensing Procedures."152Finally,
theComplaining parties argued thattheAgreement should beinterpreted inlightofthebroader context
oftheUruguayRoundnegotiationsandtheprogressachievedintheagriculturenegotiationsinparticular.
Amajor achievement oftheUruguay Round agriculture negotiations wasthelarge-scale conversion
ofnon-tariffbarrierstotariffquotas.MakingtariffquotasanexceptiontothedisciplinesoftheLicensing
Agreementdirectlycontradictedthetrendtowardtransparencyandpredictability.153UnlesstheLicensing
Agreement wasrigorously applied consistent withitsbroad terms anddisciplines, themajor Uruguay
Round advances inmarket access foragriculture intended bytariffication could beconsiderably
underminedthrougharbitraryandburdensomelicensing.Thiswassurelynotintendedbythenegotiators.
4.261 TheECargued thatinaddition tothepoints made earlier, Japan, initsthirdparty submission
hadusefully introduced supplementary evidence justifying theECinterpretation. TheEC,referring
tothetextofArticle 1.1oftheLicensing Agreement, noted thattheAgreement wasofutmost clarity.
Theerror theComplaining parties weremaking, according totheEC,wastorelate theexistence of
thelicence withthephysical importation ofbananas: those licences wereonlyneeded tobenefit from
aparticular dutyratewithin thetariff quota butnottophysically introduce bananas, fromanyorigin,
intotheECcustoms territory. Licences were therefore tradeable, andtraded, andwere notaprior
condition toanyimportation; theywereneeded onlyfortheapplication ofaspecific dutyrate. This
152SeeMinutes oftheMeeting oftheCommittee onImport Licensing heldon5May1994, LIC/M/34, 10June1994
andMinutes oftheMeeting oftheCommittee onImport Licensing heldon3November 1994, LIC/M/35, 6December 1994.
153TheComplaining parties noted thatitwasalsolikely thatnegotiators oftheAgreement onAgriculture would have
stipulated suchamajor exception. Other exemptions were explicit suchasinArticle 13oftheAgreement onAgriculture,
which exempted domestic subsidies from theAgreement onSubsidies andCountervailing Measures.WT/DS27/R/USA
Page110
waswhythefactthatnolimitation inquantities existed under thepresent GATT bound commitments
wasofparamount importance andshould besufficient todismiss theComplaining parties insistence
ontheapplicability oftheLicensing Agreement totariff quotas.
4.262 Further, theECrejected theComplaining parties 'analysis concerning theword "restriction".
TheECsubmitted thatiftheword "restriction" which wasfound inArticle XIIIofGATT wastobe
interpreted differently thanthesame word usedinArticle XI,thespecific provision ofArticle XIII:5
would nothavebeennecessary atall,sincethemeaning oftheword "restriction" found inArticle XIII
would already include, following theComplaining parties reasoning, notonlyvolume restrictions but
alsotheconditions applied intheadministration ofatariffquota. According totheEC,however, this
wasnotthecase: without theexplicit provision ofArticle XIII:5, Article XIIIwould nothavebeen
applicable totariff quotas simply because atariff quota didnotconstitute arestriction toimports and
theArticle XIIIlanguage wasequivalent intheletter andintheintention oftheCONTRACTING
PARTIES totheoneusedinArticle XI.Sowhen Article 3.3oftheLicensing Agreement referred
to"restrictions" itmeant whatitsaid,i.e.thesame concept astheonecovered inArticles XIandXIII
butwithout anyprovision equivalent toArticle XIII:5. Asmentioned before, theLicensing Agreement
didnotapply totariff quotas butsolely toquantitative restrictions. However, there wasnoloophole
inthecoverage oftheGATT, sincespecific provisions inArticle II:5andArticle XIII:2(d), lastphrase,
were applicable where appropriate.
4.263 Inthislight, inresponse toaquestion posed bythePanel, theECsubmitted thatwhere atariff
quota wasbound intheappropriate schedule, Members expected thentobeabletomake fulluseof
thattariff quota inaccordance withtheprovisions oftheappropriate schedule and,consequently, in
compliance withArticle II:1ofGATT. Thatprinciple could notbeundermined byanyprovision
concerning theadministration ofthequota, inparticular anylicensing procedure, thatcould modify
thetreatment theproduct wassupposed toreceive under theschedule. Article II:5,firstpart,further
developed thisprinciple through itsreference totreatment to"aproduct". Moreover, andmore
specifically, Article XIII:2(d), lastpart,indicated that"noconditions orformalities shallbeimposed
which prevent anycontracting party fromutilizing fullytheshare ofanysuchtotalquantity orvalue
which hasbeenallotted toit,subject toimportation being made within anyprescribed period towhich
thequota mayrelate". Thisprovision, while reinstating theprinciple contained inArticle II:1and
II:5,pointed more specifically toconditions andformalities which werenormally related toalicensing
scheme used, interalia,toadminister atariffquota. Itdefined more clearly thegeneral limits towhich
theprinciple ofArticle II:1andII:5wassubmitted withrespect toformalities: Article XIII:2(d) in
fact,accorded explicitly thepossibility oftaking anyprescription related totheperiod towhich the
quota refers, intheopinion oftheEC.Bysodoing, thepractice ofannual licences, forinstance, was
expressly acknowledged asbeencompatible withArticle XIII:2(d) and,afortiori ,Article II:1andII:5.
Thisdidnotimply, however that,under Articles IIandXIII,thetreatment under theschedule included
anycommercial consideration, inparticular withrespect tolicensing procedures. AdArticle XIII:2(d)
stated: "nomention wasmade of'commercial considerations 'asarulefortheallocation ofquotas
because itwasconsidered thatitsapplication bygovernmental authorities might notalways be
practicable". Ifthiswasnotpossible, andinanycasenotmandatory, fortheallocation ofshares of
tariffquotas among supplying countries, itwascertainly evenlesspossible, andcertainly notmandatory
atall,when administering those tariffquotas. Commercial riskoranyother commercial consideration
could notandshould notbetaken intoaccount when assessing thecompliance withthose Articles since
itconcerned thebehaviour ofoperators onthemarket while theGATT, andinparticular Articles II
andXIII, wasconcerned onlywiththeproducts while imported orexported.
4.264 TheComplaining parties replied thattheEC'sargument thattheGATT andLicensing
Agreement didnotapply totheECpreferential schemes forACP andBFAcountries because these
schemes applied toimporters andnottoproducts wasalsowithout anysupport intheWTO. Itwas
wellestablished thatadvantages provided toparticular producers onthebasisofthecountry oforigin
oftheproduct theyhandled (subsidies wereaprime example) wereconsidered toenhance thecompetitiveWT/DS27/R/USA
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opportunities fortheproduct. Similarly anyadditional bargaining leverage provided bytheregime
tobanana growers insome countries andnottoothers wasdiscrimination against products onthebasis
ofcountry oforigin. Anybenefits accruing toimporters ofACP bananas thatwerenotprovided to
importers ofLatin American bananas alsowerediscriminatory withrespect tobananas. Moreover,
asconfirmed bynumerous panels, theEC'sarguments thatthesedisadvantages hadnothadtradeeffects
werelegally irrelevant. Withrespect totheEC'sartificial distribution oflicences thatweredeliberately
unconnected toimport shares thatwould prevail inafreemarket, theComplaining parties considered
them inconsistent withthegeneral principle reflected inArticle XIIIagainst administrative measures
based onfactors other thaneconomic efficiencies.
Thenon-applicability ofArticles III:4 andXofGATT toborder measures
4.265 TheECemphasized thattheComplaining parties addressed intheirarguments thesameissues
withrespect toimport licensing bothasviolations ofGATT provisions preventing discrimination in
regard tomeasures taken attheborder while importing bananas intotheECandasviolations ofthe
non-discrimination principle intheapplication ofinternal rulesapplicable afterbananas hadbeencleared
through customs andcirculated within theECmarket. TheECconsidered thattheComplaining parties
mustchoose which legalavenue theywished tofollow buttheycould nothaveitbothways. Infact,
aspecific contested measure wasobjectively (andnotmerely relying ontheparticular adhocinterest
ofaComplaining party) either ameasure attheborder oraninternal measure. IftheComplaining
parties considered thatsome aspects oftheECregime fellwithin thefirstcategory while others fell
within theother, theburden ofproof layontheirshoulders todemonstrate whatpertained towhat.
What wascertainly unacceptable totheEC,andwhatshould, intheEC'sview, berejected bythe
Panel, wasthemixing ofbothissues, asifitwerepossible toescape thisfundamental question. This
wasindispensable toacorrect interpretation oftheGATT. AsfarastheECwasconcerned, itwas
itsunderstanding thatpractically allmeasures concerning licensing rules andprocedures inthe
administration oftheECbanana tariff quota which concerned operators while importing bananas into
theECmarket were border measures andnotinternal rules applicable irrespectively toallbananas
aftertheyhadbeenentered intotheECmarket.
4.266 Asanillustration oftheunacceptable confusion between border measures andinternal measures,
theECreferred totheclaims ofsome Complaining parties thatcompared thelicensing system needed
foradministering alegitimate tariffquota while importing bananas intheECtoasaleanddistribution
system ofaninternal product: thelatter, evidently, didnotcross anyborder andtherefore didnot
needtobesubmitted toanylicensing system. Many oftheclaims oftheComplaining parties failed
toindicate howrulesunder Articles III:4andXofGATT could beapplicable toborder measures and,
moreover, howtheycould bereasonably coupled withtheallegations under Article 1.3oftheLicensing
Agreement atthesame time. Asthe1958 Panel Report onItalian discrimination against imported
agricultural machinery indicated, thepurpose ofArticle IIIofGATT was"clearly totreattheimported
productsinthesamewayasthelikedomesticproductsoncetheyhaveclearedtroughcustoms.Otherwise
indirect protection should begiven". Onthecontrary, provisions likeArticles XIandXIIIandthe
Licensing Agreement (which provided precise rulesconcerning those Articles ofGATT) applied clearly
onlytoborder measures atthemoment oftheimportation ortheexportation ofaproduct anddidnot
concern anyalleged discrimination intheapplication ofinternal measures aftertheproduct hadcleared
through customs. Consequently, theECsubmitted that,inGATT terms itwasimpossible toallege
thataspecific measure violated, atthesametime, Articles III:4andXIIIofGATT and/or theLicensing
Agreement. Finally, theECwasoftheviewthatthelegally correct interpretation oftheECbanana
licensing system, andinparticular requirements under Article 19(b) ofRegulation 404/93, asaborder
measure atthemoment oftheimportation, didnotimply thatthose measures violated anyGATT rules
andinparticular notArticles 1.3,3.2and3.5oftheLicensing Agreement.
4.267 TheComplaining parties responded thatthesecond Banana panel found thattheCategory B
licences were inconsistent withtheArticle IIInational treatment requirement ofGATT. TheEC'sWT/DS27/R/USA
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licensing scheme alsofellsquarely within thefirstillustrative example ofanArticle IIIviolation, set
forth intheTRIMs Agreement. Thisexample specified asanArticle IIIviolation anymeasure
"compliance withwhich isnecessary toobtain anadvantage" (theadvantage herebeing thereceipt
ofanimport licence), "andwhich require thepurchase ...byanenterprise ofproducts ofdomestic
origin" (inthiscaseECbananas) "specified interms ofvolume ...ofproducts". TheEC'streatment
ofthisissuemissed thepoint thatan"advantage" provided could beintheformofaborder measure,
while thefavour accorded toECproducts could beoneaffecting purchasing anddistribution decisions
intheEC.
4.268 TheComplaining parties further considered thatArticle IIIofGATT covered anyregulation
orrequirement thataffected internal conditions ofcompetition infavour ofECbananas.154Thiswas
confirmed (notcontradicted, astheECcontended) bytheItalian Discrimination Against Imported
Agricultural Machinery report:
[t]heselection oftheword "affecting" [inArticle III:4] would imply, intheopinion ofthe
Panel, thatthedrafters oftheArticle intended tocover inparagraph 4notonlythelawsand
regulations which directly governed theconditions ofsaleorpurchase butalsoanylawsor
regulations which might adversely modify theconditions ofcompetition between thedomestic
andimported products ontheinternal market.155
Thecondition upon which theECgranted Category Blicences adversely modified theconditions of
competitionbetweenthedomesticandimportedproductontheinternalmarketbyprovidingagovernment
benefit based onthepurchases ofthedomestic product. Therefore, thesecond Banana panel report
properly concluded thattheprovisions ofArticle III:4applied totheECbanana import regime and
theCategory Blicence wasinconsistent withtheEC'sobligations under Article III:4.
4.269 Further, theComplaining parties noted thatthelawsandpractices covered byArticle Xof
GATT comprised all"trade regulations," which included, among many others, licensing regulations.
Hence, there wasanoverlap between theArticle Xrequirement thatlicensing rules andprocedures
be"uniform, impartial andreasonable", andtherequirement inArticle 1.3oftheLicensing Agreement
thatthose same rulesandprocedures be"neutral", "fair", and"equitable". TheEC’sargument that
ArticleXrelatedsolelyto"internalrules"andhencewasincompatiblewithaclaimbasedonArticleXIII
ofGATT was,according totheComplaining parties, notsupported bytheplainlanguage ofArticle X
orpanel interpretations ofitsmeaning. Thescope ofArticle Xwasobvious fromitsfirstparagraph
anditstitle:theArticle X:3obligation wasapplicable toall"trade regulations". TheDessert Apples
report alsoclarified thatArticle XIIIandArticle Xcould apply tothesame measure.156
4.270 Inresponse toaquestion posed bythePanel, theECnoted thattheComplaining parties had
referred toapossible violation ofArticle IIIofGATT because "anadvantage provided could bein
theform ofaborder measure, while thefavour accorded toECproducts could beoneaffecting
purchasing anddistribution decisions intheEC". Intheopinion oftheEC,thisaffirmation wasvery
important fortworeasons: (i)theparties finally agreed withtheECthatborder measures were at
issue andnotinternal measures: afurther important reason toaddtoallthose arguments theEChad
produced demonstrating thattheunadopted second Banana panel waswrong onthisissue initslegal
analysis; and(ii)thereasoning wasalsolegally wrong. Inthislight, theECprovided anexample:
154Second Banana panel report, DS38/R, para. 148.
155BISD 7S/60, para. 12(adopted 23October 1958). Seealso, United States -Section 337oftheTariff Actof1930,
para.5.10; Repor tofthepanel on"UnitedStates-Measur esAffect ingAlcoholicandMaltBever ages",adopted19June1992,
BISD 39S/206, para. 5.31.
156"Dessert Apples", para. 12.29.WT/DS27/R/USA
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ifcountryAwishedtolegallyprotectitsdomesticproductiononitsmarket,itcoulduseabordermeasure
"parexcellence ",thatis,itcould impose punitive customs duties of,forinstance, 1,000 percent.
Thisdutywould certainly create anadvantage which affected internal purchasing anddistribution
(domesticproductswouldbeimmenselymorecompetitivethanimportedonesonthatmarket).However,
nobody would evercontest thismeasure under Article IIIofGATT which, under constant practise
andlaw,wasconcerned onlywithmeasures applicable aftertheproduct hadcleared customs. Thus,
toconclude theexample, theECsubmitted thatiftheintroduction ofthe1,000 percentdutywasmade
incompliance withtherulesconcerning thatspecific border measure (e.g.anArticle XXVIII procedure),
noother claim could bemade against country A,evenunder Article III.
4.271 TheComplaining parties rejected theEC'sassertion thattheincentive topurchase could not
violate Article III:4anditsclaim thatArticle IIIcould notapply toanything connected toimport licences
because licences wereborder measures. TheComplaining parties considered thattheEC’sillustrative
example, thatatariff of1,000 percentalsowould provide protection todomestic production butthat
suchatariffwould notviolate Article III:4, onlyconfirmed theirposition, since tariffs wereaGATT -
consistent waytoprotect domestic production, while incontrast, non-tariff means ofencouraging the
internal purchases ofdomestic products werenot.They wereviolations ofArticle III:4. Intheview
oftheComplaining parties, thefirstillustrative example intheTRIMs Agreement established thiswith
certainty. Thisexample wasintended tocodify thefindings ofthepanel intheECParts andComponents
dispute, inwhich thebenefit fordomestic products involved thesuspension ofcertain anti-dumping
procedures against companies agreeing topurchase domestic products. Thepoint wasthat,regardless
ofthemeans thegovernment usedtoprovide anincentive toencourage theinternal purchase ofdomestic
goods, ifitdidnotprovide asimilar incentive topurchase imports, theincentive violated Article III:4.
Itwasnottheformofthemeasure towhich theincentive wasconnected, buttheincentive itprovided
withrespect topurchases within theECthatwasatissue.
Parties 'subsequent arguments -thelicensing regime asawhole
4.272 TheECreiterated thatitwasitsunderstanding thatpractically allmeasures concerning licensing
rules andprocedures intheadministration oftheECbanana tariff quota which concerned operators
while importing bananas intotheECmarket wereborder measures andnotinternal rules applicable
toallbananas aftertheyhadbeenintroduced intotheECmarket. Consequently theECresponded
totheallegations within thislegalframework. Inaddition, allthelegalanalysis withrespect tothe
Licensing Agreement should bedeemed tobeunder thegeneral reservation thatthePanel needed to
solve thequestion ofprinciple -theapplicability oftheLicensing Agreement totariff quotas -prior
toexamining anyother issue.
4.273 TheECargued thatthefirsterror theComplaining parties made wastoconsider thatatariff
quota wasan"import restriction" while theunadopted second Banana panel report hadexcluded this
argumentandnoevidenceofadifferent(inexistent)realityhadbeenshown.Startingwiththecomparison
between theECtariffquota licensing system andtheACPtraditional quota licensing system, itshould
firstofallbenoted thattheComplaining parties didnotexplain howthiscomparison could berelevant.
TheECrecalled thattheexternal aspects oftheECcommon organization ofthemarkets forbananas
consisted oftwodistinct regimes: theregime forso-called traditional ACPbananas which should be
treated inaccordance withtheLomé Convention andtheLomé waiver andbegiven preferential
treatment; andabound rateofdutyforimports inexcess oftariff quota quantities andatariff quota
allocation forallother bananas asinstituted formany agricultural products bymany Members.
4.274 With respect toimport licensing issues, theECsubmitted thatanycomparison between the
tariff quota licensing system andtheACP traditional quota licensing system hadnolegalvalue and
wasnotrelevant. Itwasevident, intheviewoftheEC,thatthefactthattwoseparate andindependent
regimes, theACP traditional andtheECtariff quota, hadmarginal differences intheirrespective
licensing systems wasneither initself aviolation ofanyGATT provision norwasitevidence ofanyWT/DS27/R/USA
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violation ofGATT provisions byanyofthetwosystems. Secondly, asthetables below showed, the
twosystems didnotcreate anysubstantial differences intheirexternal effects onbananas imported
fromdifferent sources; theonlydiscrepancies thatremained wereonthesideoftheinternal procedures
tobefollowed bythecompetent authorities. Thefirsttablesubmitted bytheECwasanannotated
version ofthechart submitted bytheComplaining parties (seeparagraph 4.249). Theshaded parts
intheEC'sversion ofthechart which follows represent those thattheECconsidered tobeerroneous
andmisleading.WT/DS27/R/USA
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WT/DS27/R/USA
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Imports under thetariff quota Traditional ACP imports
1.Operator applies forareference quantity bysending
details ofvolumes bananas marketed inpastthree years
totherelevant competent authority.
(1.bis Optional: Operator obtains special export
certificates (SECs) ifhewishes toimport from
Colombia, Costa Rica orNicaragua withaCategory A
orClicence. (This stage applies toonly33percentof
thevolume ofthetariff quota.)
2.During thefirst7daysofthemonth prior tothestart
ofthequarter, operator applies forimport licences for
thequarter. SEC included ifrequired.
3.Import licences issued tooperator; quantity requested
reduced ifrequired bytheapplication ofareduction
coefficient.
(3.bis Optional: Ifoperator hasnotreceived allthe
quantity requested, hemayapply forthebalance during
thesecond round.)
4.Operator imports bananas.1.Operator obtains special certificates oforigin from the
issuing authority intherelevant ACP State.
2.During thefirst7days ofthemonth prior tothestart
ofthequarter, operator applies forimport licences forthe
quarter. Allapplications must beaccompanied bya
special certificate oforigin.
3.Import licences issued tooperator; quantity requested
reduced ifrequired bytheapplication ofareduction
coefficient.
4.Operator imports bananas.
4.275 TheComplaining parties responded thatalthough theprocedures surely werealsoburdensome
fortheEC’s"competent authorities", thisdidnotmake them anylessburdensome forimporters.
Looking atthetwoprocedures foradministering imports, thatforACP bananas andthatforLatin
Americanbananas,theComplainingpartieshadnodoubtastowhichaninvestororprospectivemarketer
would choose tosubject himself, given achoice.
4.276 TheComplaining parties considered thatthefollowing comparison tableclarified thedifferences
inlicensing treatment:
Latin America (LA) African, Caribbean andPacific (ACP)
1.Entitlement tothetariff quota isdivided among A,B,
C"operator" categories -66.5%, 30%, 3.5%. This
requires (1)historic importers ofLAbananas either to
losetraditional pastaccess orbuyback rights toimport
from companies withnopastinvolvement inLAtrade, or,
forthelonger term, rebuild their distribution structure in
order todistribute bananas from ECorACP areas, and
(2)LAexporters toestablish and/or restructure
commercial relationships withfirms notpreviously
competitive inLAimports andpersons, including EC
farmers, without potential tobecome so.1.Nocomparable provisions.WT/DS27/R/USA
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Latin America (LA) African, Caribbean andPacific (ACP)
2.Licence eligibility isbased on(a),(b),(c)"activity
functions" ("primary importer", "secondary importer" and
ripener). Thisshifts import entitlement away from
traditional importers, andrequires operators toexpend
significant resources toensure adequate licence access,
either bybuying licences, thusentering into(forced)
commercial arrangements withother licence grantees, or
byexpanding intoadditional activity functions totryto
maintain historic reference volumes.2.Nocomparable provision.
3.Theoperator applies forareference quantity oneyear
inadvance byproviding details ofvolumes andorigins of
bananas marketed inthepast3years (beginning twoyears
before current year) totherelevant competent authority.3.Nocomparable requirement; historical shipments
irrelevant toECimport licence distribution.
4.Duelargely toambiguous operator definitions
developed through administrative fiats, over-filing of
claims occurs. Anacross-the-board reduction coefficient
isapplied, regardless ofauditing ofsome operators whose
quantities have been adjusted ordeemed correct, creating
inequity anduncertainty regarding theoperator ’sannual
shipment entitlement, andconstraining operator flexibility.
Final operator entitlements, which aredelayed untilthe
third quarter oftheactual yearofimport, have been well
below provisional entitlement established prior totheyear
ofimport.4.Because EClicence eligibility isnotbased on
historical shipments, there arenocompeting claims
regarding pastactivities. Occasionally, theEChas
applied reduction coefficients forcertain African countries
where there isanoversubscription ofbidstoimport.
5.Operator applies forimport licences during thefirst7
days inthemonth before thestartofeach quarter. Any
Category Aoperator importing from Colombia, Costa
RicaorNicaragua must bothobtain anexport licence and
beeligible foranimport licence specifically applicable to
thatcountry ("matching") before animport licence forthat
country maybeissued. Once obtained, theimport
licences must bephysically distributed toports ofarrival
forpresentation tocustoms authorities forimportation to
bepermitted. The"matching" requirement imposes
significant costs, limits flexibility andcreates market
irregularities forallLAsuppliers.5.Operator applies forimport licences during thefirst7
days inthemonth before thestartofeach quarter.
Applications require submission ofACP certificates of
origin (which areobtained promptly -within afewweeks
after application, andatnocost, from theissuing
authority intherelevant ACP country). No"matching" is
required. Licences areissued oneweek inadvance of
each quarter.
6.Once quarterly indicative quantities areset,aquarterly
two-round licensing procedure isused. First-round
applications arecutbyreduction coefficients toforce
imports from specific sources. Second-round applications
arenotprocessed, andlicences arenotgranted, untiltwo
weeks intothequarter. Thisprocedure limits flexibility
andcreates uncertainty andirregularities inthemarket.6.Nocomparable two-round system.
7.Because ofambiguities ineligibility criteria (see4
above), following importation, theoperator must gather
andmaintain forfiveyears proof ofproduction,
transportation, insurance, ECsale, labelling andbrand
names toavoid losing future entitlement tothatvolume.7.Nocomparable documentation requirements.
4.277 TheComplaining parties argued thattheyhadshown thelicensing practices intheirtotality
presented aburden onimports thatwasincomparable toanyother licensing system onearth. The
mosttelling evidence ofitsburden -anddiscriminatory nature -wasthattheEChadproposed moving
non-traditionalACPbananasfromthissystemtothesimplesystemapplicabletotraditionalACPbananas.
Theresponsive charts proffered bytheEConlyrecorded theburden onCommission staffandWT/DS27/R/USA
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conspicuously omitted theextraordinary constraints andadjustments imposed uponimporters, reflecting
attempts tohideunwelcome realities concerning these burdens.
4.278 TheECresponded thatalthough anycomparison between theACPtraditional licensing system
andtheECtariff quota licensing system wasofnolegaluse,there wasaneedtoconcentrate onthe
tablepresented bytheComplaining parties assetoutabove. TheECargued thatithadshown the
diagram originally submitted bytheComplaining parties waserroneous andmisleading. Insubmitting
asecond, much simpler diagram theyhadacknowledged thetruth ofthis. However, theyhadstill
notgotitrightasthefollowing corrected version showed, intheEC'sopinion. TheECpointed out
thatitsimply corrected thematerial errors intheComplaining parties 'tabletodemonstrate howthey
hadonceagain attempted tomislead thePanel. TheEChadretained, asfaraspossible, thestructure
oftheirtable, eventhough itincluded repetition andactivities which were nottheresponsibility of
operators. Itdoesnotrepresent, therefore, therealsituation, which remained, asithasalways been,
asoriginally portrayed intheEC'stable(seeparagraph 4.274 -second table).
Tariff quota imports Traditional ACP imports
1.Entitlement toimport based onhistoric trade volumes
andactivity functions which spread licences throughout
themarketing chain.1.Entitlement toimport based onobtaining aspecial
certificate oforigin. Noapriori licence distribution
therefore nodirect comparison, butanyoperator atany
point inthemarketing chain mayseekspecial certificates
oforigin
2.Theoperator applies forareference quantity based on
pasttrade.2.Theoperator must obtain special certificates oforigin
3.Licence entitlements calculated from reference
quantities ofpreviously imported bananas, which are
verified toeliminate double counting.
NB: verification ofdouble counting isan
activity bythecompetent authorities totackle
error andfraud inthedeclarations3.Entitlement toimport based onvolume ofspecial
certificates oforigin.
5.Quarterly indicative quantities set
NB: activity ofCommission thatdoes not
require operator 'sactivity5.Quarterly indicative quantities set
6.Operator applies forimport licences during first7
daysofmonth prior tostartofquarter, including special
export certificate ifrequired (for35% ofvolume).
Import licence must bepresented tocustoms
authorities torelease fruitintofreecirculation.6.Operator applies forimport licences during first7
daysofmonth prior tostartofquarter, including special
certificate oforigin (for100% ofvolume).
Import licence must bepresented tocustoms
authorities torelease fruitintofreecirculation
7.Reduction coefficients applied tothose origins where
demand exceeds indicative quantity.
Second round permits utilization ofremaining
quantities.7.Reduction coefficients applied tothose origins where
demand exceeds indicative quantity.
8.Operator maintains normal commercial records, and
submits them toapply forCategory Areference quantity.8.Operator maintains normal commercial records, and
submits them toapply forCategory Breference quantity.WT/DS27/R/USA
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Claims under theGATT
Article I:1ofGATT
4.279 TheComplaining parties submitted thatinaddition topresenting other violations assetout
below, theEC’slicensing regime wassubject tothemore general discipline ofArticle IofGATT,
which applied toallrulesandformalities inconnection withimportation. Themorefavourable licensing
rules applicable totraditional ACP country bananas constituted, intheopinion oftheComplaining
parties, aclear regulatory "advantage" thathadnotbeenaccorded immediately andunconditionally
toLatin American bananas inviolation ofArticle I:1.Thepresence ofanArticle I:1violation was
supported byNon-Rubber Footwear ,inwhich thepanel found thatArticle I:1strictly prohibited a
contracting party fromaccording aprocedural orregulatory advantage toaproduct originating inone
country, while denying thatsame advantage tothelikeproduct originating intheterritories ofother
contracting parties.157
4.280 Mexico considered thatArticle IofGATT wasapplicable tothecaseunder consideration by
thePanel because theECregime granted advantages, favours, privileges orimmunities toproducts
originating incertain WTO members (ACP countries andBFAcountries) thatwerenotgranted tolike
products (bananas) originating intheterritories ofallotherMembers (non-ACP countries andnon-BFA
countries) through aregime thatcontained import formalities which wasalsorelated tocertain issues
referred toinparagraph 4ofArticle IIIofGATT (Category Boperators). Intheview ofMexico,
thishadbeenconfirmed bythesecond Banana panel.
4.281 TheECconsideredthatalicensingsystemcouldnotbeconsideredbyanymeansasanadvantage,
favour, privilege orimmunity andtherefore could notbecovered bytheprovisions ofArticle Iof
GATT. Ifonlyforthesakeofargument onemight accept theideathatalicensing system could be
considered anadvantage within thescope ofthatArticle, theECmaintained thattheLomé waiver was
applicabletotheparticularlicensingsystemusedfortheimportationofbananasundertheACPtraditional
allocation, because thesystems, intheirrespective regimes ofapplication, responded totheneedof
preserving theadvantages oftheACPcountries ontheECmarket (Article 1ofProtocol 5oftheLomé
Convention) andto"improve theconditions for...themarketing ofbananas" (Article 2ofProtocol 5
oftheLomé Convention).
4.282 TheECrecalled thattheLomé waiver covered anymeasure taken bytheECinorder tofulfil
itslegalobligations asindicated under theLomé Convention withregards toanyproduct originating
inACP countries, including bananas. Inthecaseofbananas, thelegalobligations werefulfilled by
theECby:(a)creating aspecific andseparate system fortheimportation totheECoftheACP
traditional banana production; (b)bytheallocation toACPcountries ofalimited share ofthebound
tariff quota ataduty-free rate,thatwaslower thattheMFN bound rate; (c)byamarginal reduction
ofthetariffrateapplicable fortheimportation ofbananas outside thetariffquota; and(d)byfacilitating
trade andcommercial relations between theECandtheACPcountries through thecreation oftheso-
called Category Boperator licences toensure thatthequantities forwhich access opportunities were
given could actually besoldandthattheECcould thusfulfil itsobligations toguarantee traditional
ACP bananas theirexisting advantages, while notproviding bythismean anyincentive topurchase
ACP bananas.
157"United States -Denial ofMost-Favoured Nation Treatment astoNon-Rubber Footwear from Brazil", adopted
19June 1992, BISD 39S/128, para. 6.11.WT/DS27/R/USA
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4.283 TheEC’sunexplained claim, intheviewoftheComplaining parties ,that"alicensing system
cannot beconsidered byanymeans asanadvantage, favour, privilege orimmunity" wascontradicted,
theyasserted, bytheEC'sownReport ontheOperation oftheBanana Regime ,inwhich theECasserted
thattheproposaltosubjectnon-traditionalACPbananastothemorefavourablelicensingrulesapplicable
totraditional ACP bananas would provide "assistance" tocertain non-traditional suppliers.158
4.284 Ecuador submitted thatthepreferential licensing scheme fortraditional ACP bananas asa
whole, andincluding withrespect toadvantages provided toCategory Boperators, could notbeexcused
bytheLomé waiver which protected onlycertain historical tariffpreferences given totraditional ACP
suppliers.
4.285 Guatemala andHonduras considered thattheLomé waiver provided nocover forlicensing
discrimination bysource. Itslanguage hadbeencarefully andnarrowly drawn towaive Article I:1
ofGATT onlyforthatpreferential treatment thatwas"required bytherelevant provisions oftheLomé
Convention" andthatpreferences beextended soas"nottoraiseundue barriers ortocreate undue
difficulties forthetrade ofother contracting parties". Intheview ofGuatemala andHonduras, no
provision oftheLomé Convention could bereadtorequire theECtoconfer asimple, prompt licensing
arrangement ontraditional ACP bananas while withholding suchtreatment forbananas from Latin
American sources. Since thetariffquota licensing scheme denied Guatemala andHonduras alicensing
advantage thatwasbeing conferred onbananas fromother thirdcountries, which advantage fellbeyond
thescope oftheLomé waiver, ithadtoberuled down under theprovisions ofArticle I:1ofGATT.
4.286 Referring totheECclaim thatitspreferential licensing rulesasbetween traditional ACPand
Latin American bananas wereexcused bytheLomé waiver pursuant toArticles 1and2ofProtocol 5
oftheLomé Convention, theComplaining parties ,submitted thatArticle 2ofProtocol 5,contained
nolegalrequirement toafford preferential licensing totraditional ACP suppliers, butsetforth only
non-binding objectives regarding traditional ACPbanana marketing andproduction, making thatArticle
irrelevant totheLomé waiver. Although Protocol 5,Article 1,didcontain aLomé Convention
requirement, thatrequirement didnot,intheopinion oftheComplaining parties, authorize theEC
togobeyond permitting preferential access.159Neither Articles 1nor2oftheBanana Protocol could
therefore bereadtorequire discriminatory licensing rulesthatsolely erected undue barriers toLatin
American fruit.
4.287 IntheComplaining parties 'opinion, theEC'sassertion inthealternative thattheLomé waiver
excused suchdiscriminatory licensing advantages misrepresented theLomé requirements. TheEC
claimed thattheseadvantages wererequired byArticles 1and2ofProtocol 5oftheLomé Convention.
However, Article 2ofProtocol 5wasirrelevant totheLomé waiver, since itcontained nolegal
obligation. Article 1ofthatProtocol solely required themaintenance ofapast"situation" asregards
access andadvantages. Nopastadvantages existed forACPproducts withrespect toimport licensing
forLatin American bananas. Ifanything, withrespect toimport licensing generally, theLomé
requirements pertained tothefacility ofaccess forACP fruit; theydidnotrequire discriminatory
licensing rules thaterected undue barriers toLatin American fruittotheentire ECmarket.
4.288 TheECsubmitted thatapoint oflegalinterest deserved tobehighlighted: theComplaining
parties hadasserted thatthelicensing system devised bytheECtoadminister theACP traditional
allocation was,firstofall,apreferential oneand,secondly, itwasnotrequired bytheLomé Convention
andtherefore could notbecovered bytheLomé waiver. TheComplaining parties hadconcluded with
158"Report ontheOperation oftheBanana Regime", p.19.
159"Federal Republic ofGermany v.Council oftheEuropean Union", para. 101.WT/DS27/R/USA
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thefollowing: "neither Article 1nor2oftheBanana Protocol cantherefore bereadtorequire
discriminatory licensing rules thatsolely erect undue barriers toLatin American fruit". According
totheEC,thewhole reasoning wasflawed andshould berejected. TheACP traditional allocation
wasaspecific regime thatwasgoverned byspecific rules. Asithadbeenrepeatedly demonstrated,
therewasnofundamental difference between theACPlicensing system andtheECtariffquota system.
However, theregime ofaccess oftheACPtraditional bananas wasapreferential oneandthelicensing
system wasameans ofadministering itaccording toitsspecificity. TosaythattheLomé Convention
didnotrequire "...licensing arrangements ...anddoesnotguarantee specific levels ofimports ..."
wasdisingenuous. These measures were required inasmuch astheywereessential inenabling the
ECtoprovide thepreferential treatment (access andadvantages ontraditional markets) specified in
andrequired byProtocol 5.Inthiscontext itwascovered bytheLomé waiver aspartoftheoverall
preference forACP bananas. Moreover, thefactthatalicensing system wasnotexpressly required
bytheLomé Convention might paradoxically goagainst whattheComplaining parties considered their
interest: theymight beconfronted withtherequest bytheACPStates toabolish anykindoflicensing.
Thereality wasnevertheless simpler: thecontracting parties totheLomé Convention hadrecognized
theneedforalicensing system toensure acorrect andbalanced implementation oftheACPtraditional
allocation. Nobarriers toLatin American fruitwere erected asaconsequence oftheexistence ofa
licensing system forACP traditional bananas. Indeed, nobarrier existed atalltotheentry ofany
bananas ofwhichever origin: theonlyprovisions concerned thelicensing system administering the
useoftheECtariff quota, which wasnotarestrictive regime.
4.289 Guatemala andHonduras considered thattheLomé waiver, wasnoanswer totheEC’s
discriminatory export licence provisions. Selective export licensing requirements werefortheexclusive
benefit ofCosta Rica, Colombia, andNicaragua, countries thatwereentirely irrelevant totheLomé
Convention. WithArticle I:1ofGATT thereby violated, theexport licences selectively mandated by
Regulation 478/95 hadtoberuled nullandvoid, anddeleted fromtheregime. Furthermore, according
toGuatemala andHonduras, theLomé waiver wasirrelevant totheselective imposition ofactivity
functions ontariffquota bananas. Therecitals toRegulation 1442/93 themselves made clearthatactivity
function requirements solely related tothedistribution oftariffquota bananas, notLomé undertakings,160
andsocould notbeseenasrequired topreserve traditional ACP banana access andadvantages.
Article III:4ofGATT
4.290 Guatemala andHonduras submitted thattariffquota bananas hadtobesoldthrough arbitrarily
defined classes ofoperators, including those, suchasripeners, thatfellsquarely within theECinternal
distribution chain, allinspecifically prescribed amounts. Even then, tariff quota bananas might not
bedistributed promptly through suchentities, buthadtoawait several rounds ofapplications, which
served atvarious points throughout theyeartodelay access fortariff quota bananas. Theburden and
complexity ofthese requirements, andthefrequency withwhich theywere changed, hadserved to
distort theComplaining parties 'prices, disrupt historical trade arrangements, interrupt trade flows,
andsurround themarketing ofLatin American bananas withpervasive uncertainty, inflexibility and
confusion. ECbananas, ontheother hand, could besoldthroughout thedistribution chain entirely
freeofrestriction. Thisenabled ECproducers toselltoanypurchaser onanyschedule oftheirchoosing,
making thedistribution andsaleofECbananas uncomplicated, flexible, transparent, predictable,
uninterrupted, andotherwise commercially attractive. Given thechoice between theECsaleand
distribution arrangement andthetariff quota licensing arrangement, ECpurchasers overtimewould
inevitably opttopursue theformer because ofitsfree-trade distribution advantages. Bycreating this
gapingdisparityinrequirementsaffectingthesaleanddistributionofLatinAmericanversusECbananas,
theEChaddirectly contravened, according toGuatemala andHonduras, thenational treatment and
160Seerecitals twoandthree.WT/DS27/R/USA
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fairtrade regulation principles ofArticles III:4andXofGATT, andArticle 1.3oftheLicensing
Agreement.
4.291 According toGuatemala andHonduras, Article III:4ofGATT provided theessence ofthe
national treatment principle intheGATT. Thislanguage hadbeeninterpreted consistently byprevious
panels asestablishing theobligation toaccord imported products "competitive opportunities" inthe
market place nolessfavourable thanthose accorded todomestic products.161Underscoring the
importance ofthatobligation, panels hadapplied itbroadly:
"notonly[to]thelawsandregulations which directly governed theconditions ofsaleorpurchase
butalso[to]anylawsorregulations which might adversely modify theconditions ofcompetition
between thedomestic andimported products ontheinternal market".162
4.292 Theobligation alsobroadly applied "whether imports from other contracting parties [are]
substantial, small ornon-existent."163Within thatexpansive context, theconcept oflessfavourable
"competitive opportunities" hadbeenruled toinclude regulations thatcreated layers ofdomestic agents
through which foreign, butnotdomestic, products hadtobesold.164Thesecond Banana panel added
thatsuchopportunities might alsoarisefromregulations thatcaused discriminatory price-distortions,
irrespective ofexport effect.165
4.293 Allsuchprior interpretation compelled, intheview ofGuatemala andHonduras, asimilar
finding ofArticle III:4inconsistency inthepresent action, where distortionary tariff quota licensing
hadunquestionably skewed conditions ofcompetition infavour ofECbananas. ECproducers could
selltoanyoperator oftheirchoosing, including directly toretailers, enabling them tobypass the
middlemen altogether should theysodesire. TheComplaining parties 'producers hadbeendenied
thisoption. Theywereforced tosellthrough micro-defined operators, suchasripeners, whofellwithin
theinternal ECmarketing chain. Thepanels were clear inboththeForeign Investment Review Act
andUnited States Measures Affecting Alcohol casesthatdistributiondifferentiationofthissort-requiring
foreign interests toselltodesignated middlemen, while exempting domestic interests from such
requirement -wassquarely contrary toArticle III:4ofGATT. Thepricedistortions being forced upon
theComplaining parties 'fruitbythese differentiated arrangements were likewise recognized inthe
second Banana panel tobethetypeofcompetitive discrimination thatfellwithin theArticle III:4
proscription. Additionally, thetariffquota licensing requirements sooverwhelmed ECoperators that
161"United States -Taxes onPetroleum andCertain Imported Substances", BISD 34S/136, para. 5.1.9 (adopted
17June 1987); "United States -Section 337oftheTariff Actof1930", BISD 36S/345, paras. 5.11-5.13 (adopted
7November 1989); "United States -Measures Affecting Alcoholic andMaltBeverages", BISD 39S/206, para. 5.31(adopted
19June 1992); "EEC -Import Regime forBananas", DS38/R, para. 146(issued 11February 1994).
162"Italian Discrimination Against Imported Agricultural Machinery", BISD 7S/60, para. 12(adopted 23October 1958).
163"Report oftheWorking Party onBrazilian Internal Taxes", BISD Vol.II/185, para. 16(adopted 30June1949) as
confirmed by"United States -Taxes onPetroleum andCertain Imported Substances", BISD 34S/136, para. 5.1.9 (adopted
17June 1987); "EEC -Import Regime forBananas", DS38/R, para. 146(issued 11February 1994).
164"United States -Measures Affecting Alcoholic andMaltBeverages", BISD 39S/206, para. 5.30(adopted 19June1992);
"Canada -Administration oftheForeign Investment Review Act", BISD 30S/140, para. 5.9(adopted 7February 1984).
165Second Banana panel DS38/R, para. 146(issued 11February 1994). Although thepanel wasasked toruleonwhether
thetwodistinctly different arrangements affecting thesaleanddistribution oftariff quotas andECbananas constituted an
Article III:4violation, itdeclined todoso,focusing instead onthemore narrow issue ofwhether operator categories violated
Article III:4.WT/DS27/R/USA
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theywereinevitably influenced tofavour ECbanana purchases. Allsuchdisadvantages accorded "less
favourable" treatment inviolation ofArticle III:4.
4.294 TheECargued thatnosensible reason could beadvanced forcomparing thelicensing system
needed foradministering alegitimate tariffquota toasaleanddistribution system ofaninternal product:
thelatter didnotcross anyborder andtherefore didnotneedtobesubmitted toanylicensing system.
Thiswasthereason whyECproducts wereneither partofthetariffquota norincluded intheECbanana
schedule. Thissimple andundisputable reality hadanimportant legalimplication when applying the
GATT: theinternal saleanddistribution system pertained totheinternal rulesapplicable tothatmarket
andwasrelevant totheimported goods onlyifandwhen those goods hadcleared customs. Asthe
1958 panel report onItalian Discrimination against Imported Agricultural Machinery indicated, the
purpose ofArticle IIIofGATT was"clearly totreattheimported products inthesame wayasthe
likedomestic products oncetheyhavecleared through customs. Otherwise indirect protection should
begiven". Bycontrast, provisions likeArticles XIandXIIIofGATT andtheLicensing Agreement
(which wasdestined todetail therules concerning those Articles ofGATT) applied clearly onlyto
border measures atthemoment oftheimportation ortheexportation ofaproduct anddidnotconcern
anyalleged discrimination intheapplication ofinternal measures aftertheproduct hadcleared customs.
Consequently, inGATT terms itwasimpossible, according totheEC,toallege thataspecific measure
violated atthesame timeArticle III:4andArticle XIIIofGATT and/or theLicensing Agreement.
TheComplaining parties were therefore obliged tochoose which legalavenue theywere interested
inpursuing, butthePanel should reject anymixing ofthetwolegalissues.
Article XofGATT
4.295 Guatemala andHonduras submitted thatparagraphs 1and3ofArticle XofGATT required
allMembers toadminister:
"[l]aws[and]regulations...pertainingto...requirements,restrictionsorprohibitionsonimports
...oraffecting theirsale,distribution, transportation ...warehousing, [or]inspection ...in
auniform, impartial andreasonable manner...".
A1968 Note bytheDirector-General interpreted thisrequirement asfollows:
"[t]hese lastwords ["auniform, impartial andreasonable manner"] would notpermit ...the
application ofonesetofregulations andprocedures withrespect tosome contracting parties
andadifferent setwithrespect totheothers."166
Again, GATT rulings wereclearthatwhere suchdifferential regulations bysource could beshown,
theburden shifted totheMember applying suchregulations toprove thatinspiteofthedifferential
treatment, theimplicated GATT obligation wasnevertheless satisfied.167Because thetraditional ACP
licensingschemeaffordedmoremarketingstability,predictability,flexibility,uninterruptedproduct-flow,
andprice-neutrality thanthataccorded bythetariff quota licensing scheme, theECcould notprove,
accordingtoGuatemalaandHonduras,thatthe"uniform,impartialandreasonable"standardofArticleX
hadbeenmet.Thus,GuatemalaandHondurassubmittedthatthedifferentiationbetweenLatinAmerican
andACPbananas violated Article X:1andX:3. Likewise, thedifferentiation between thetariffquota
166L/3149 (29November 1968). Seealso"EEC -Restrictions onImports ofDessert Apples -Complaint byChile",
BISD 36S/93, para. 6.5(adopted 22June 1989) (wherein thispassage wasreferenced).
167See"United States -Section 337oftheTariff Actof1930", BISD 36S/345, para. 5.11(adopted 7November 1989).WT/DS27/R/USA
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andECbanana distribution violated Article X.Where distinctly different distribution requirements
could beshown, theburden ofproof shifted totheMember responsible forthatdifferentiation to
demonstrate thattheGATT obligation atissue hadstillbeenmet.168Here, theECwould failinthat
burden, asitcould notinanyrespect show thattherelative disadvantages indistribution, flexibility,
predictability, trade flow, andprice effect being forced upon theComplaining parties constituted
"uniform, impartial andreasonable" treatment.
4.296 According totheUnited States ,Article X:3ofGATT imposed averybasic obligation on
Members thattheyadminister regulations pertaining torequirements onimports ina"uniform, impartial
andreasonable manner." Theapplication ofaburdensome setofimport requirements toonegroup
ofcountries andasimple system forothers could notbeconsidered "uniform" or"impartial" under
anydefinition ofsuchterms. TheEC,while defending some member State'smeasures ina1989
panel dispute, interpreted theuniformity andimpartiality obligations inArticle X:3asmeaning "in
substance" that"theadministration oftrademeasures ..should notbediscriminatory among contracting
parties."169A1968 NotebytheGATT Director-General hadearlier recognized that"[t]hese [words]
would notpermit ...theapplication ofonesetofregulations andprocedures withrespect tosome
contracting parties andadifferent setwithrespect toothers."170IfArticle X:3hadanymeaning at
all,itprohibited theEC’sestablishment ofonesetofrulesforimporting third-country bananas, and
another more favourable setofimport rulesforimporting traditional ACPbananas. Asnoted above,
inthewords oftheEC,itwas"discriminatory among contracting parties", andtherefore violated this
basic obligation.
4.297 Mexico argued thatthefactthattheECimposed burdensome import requirements onacertain
group ofcountries andanother, simple, requirement foranother group ofcountries could notbe
considered as"uniform" and"impartial" under anycircumstance. Theimport requirements ofthe
ECregime were discriminatory asamong Members, because itapplied rules fortheimportation of
bananas fromnon-ACP which weredifferent fromtherulesapplied forthesame purposes toimports
oftraditional ACPbananas. These requirements included theapplication forobtaining import licences.
Fornon-ACP countries thisprocedure wasbothcomplicated andburdensome, whereas fortraditional
ACPimports theprocedure wasverysimple. Thisconstituted, intheopinion ofMexico, aviolation
ofArticle X:3(a) ofGATT.
4.298 TheComplainingpartiesconsidered thatArticle X:3ofGATT required Members toadminister
trade rules ina"uniform, impartial andreasonable manner". With respect totheprima facie case
required, theComplaining parties submitted thatArticle X:3ofGATT, likeArticle 1.3oftheLicensing
Agreement, required ataminimum thatthesame rulesandprocedures apply toaproduct originating
inonecountry andthelikeproduct originating inanother, ashadpreviously beenexpressed bythe
Director-General.171TheEC’slicensing arrangements, which differentiated onthebasis ofcountry
oforigin, violated thatobligation. TheComplaining parties didnotargue thatthere wasalackof
uniformity intheEC’streatment ofbananas throughout thedifferent member States thatresulted in
aviolation ofArticle X.Rather, theComplaining parties considered thatthelackofuniformity,
impartiality andreasonableness between Members onthebasisoftheproduct ’scountry oforigin was
aviolation ofArticle X.TheviewofArticle Xrequirements expressed bytheDirector-General in
thequoted Note wasthatArticle X:3didnotpermit theapplication ofonesetofregulations and
168Idem.
169Dessert Apples, p.117.
170L/3149, dated 29November 1968.
171Note bytheDirector-General, L/3149 (29November 1968).WT/DS27/R/USA
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procedures withrespect toproducts originating insome contracting parties andadifferent setwith
respect toproducts originating inothers. TheECitselfhadargued inDessert Apples thatArticle X:3(a)
wasintended toestablish that"theadministration oftrademeasures bythevarious administrations should
notbediscriminatory among contracting parties."172TheComplaining parties wereoftheviewthat
theapplication ofArticle X:3,ascorrectly explained inDessert Apples bytheEC,wasobviously not
satisfied bylicensing measures suchasthese thatexplicitly andsignificantly discriminated among
Members. Furthermore, thedifferences intheadministration oftheECbanana regime bycountry
oforigin didnotconstitute thekindof"minor administrative variations" thatthepanel found tobe
"minimal" (andtherefore notinconsistent withArticle X:3)intheDessert Apples dispute.173
4.299 TheECreplied thattheposition oftheComplaining parties wasbased onnumerous flawed
legalarguments andshould therefore berejected. Among them were: (i)thequoted sentence ofthe
1968NoteoftheDirector-General oftheGATT wasnotanauthoritative interpretation oftheGATT.
TheCONTRACTING PARTIES hadnever endorsed thestatement saveforanindecisive reference
inanadopted panel report thatcould not,intheopinion oftheEC,beconsidered asattributing avalue
ofinterpretation tothenote. Moreover, there wasnoindication thatsuchageneric reference, out
ofitscontext,correspondedheretoanythingusefulforthesolutionofthepresentcase;and(ii)ArticleX
provided onlyfortheprocedural rules tobefollowed intheapplication ofinternal rules pertaining
tocustom 'sactivities, including requirements, restrictions orprohibitions ofimports. Inthepanel
report Republic ofKorea -Restrictions onImports ofBeef174thepanel incidentally indicated thatunder
Article X:
"laws, regulations, judicial decisions andadministrative rulings ofgeneral application, made
effective byanycontracting party, pertaining to...ratesofduty, taxes orother charges orto
requirements, restrictions orprohibition ofimports...shall bepublished promptly ...",
while under Article XIII:3(b):
"inthecaseofimport restrictions involving thefixing ofquotas, thecontracting party applying
therestrictions shallgivepublic notice ofthetotalquantity orvalue oftheproducts which
willbepermitted tobeimported during aspecific future period...".
4.300 TheECconsidered thatArticle XIIIandArticle XofGATT didnotandcould notoverlap,
sincetheformer wasrelated totheadministration ofborder measures involving aquota oratariffquota
while thelatter concerned onlytheprocedural rulestobefollowed intheapplication ofinternal rules
pertaining tocustom 'sactivities, including requirements, restrictions orprohibitions ofimports. The
ECargued thatpractically allmeasures concerning licensing rulesandprocedures intheadministration
oftheECbanana tariff quota which concerned operators importing bananas intotheECmarket were
border measures andnotinternal rules applicable irrespectively toallbananas after having been
introduced intheECmarket. Itwasnotpossible, therefore, tocomplain against alleged violations
ofArticle Xwithrespect tothesame requirements, laws, regulations etc.forthesame reason asa
violation ofArticle XIIIwascontested. Moreover, Article Xhadnot(andcould nothave) theeffect
ofreintroducing anMFN obligation withrespect totheseparate regime applied toimports oftraditional
ACP bananas which wasalready waived bytheCONTRACTING PARTIES, norextend thescope
ofArticle XIIIbeyond thelimits theGATT hadfixed forit.With respect toalleged discriminations
172Dessert Apples, para. 6.5.
173Idem, para. 12.30.
174BISD 36S/268, adopted 7November 1989.WT/DS27/R/USA
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between thetariff quota regime andthedistribution ofECbananas, theECrecalled itsarguments set
outunder claims concerning Article III:4above.
4.301 TheComplaining parties responded thatthelawsandpractices covered byArticle Xcomprised
all"trade regulations", which included, among many others, licensing regulations. Hence, therewas
anoverlap between theArticle Xrequirement thatlicensing rulesandprocedures be"uniform, impartial
andreasonable", andtherequirement inArticle 1.3oftheLicensing Agreement thatthose same rules
andprocedures be"neutral", "fair", and"equitable". TheEC'sargument thatArticle Xrelated solely
to"internal rules" andhence wasincompatible withaclaim based onArticle XIIIwas,according to
theComplaining parties, notsupported bytheplain language ofArticle Xorpanel interpretations of
itsmeaning. Thescope ofArticle Xwasobvious fromitsfirstparagraph anditstitle: theArticle X:3
obligation wasapplicable toall"trade regulations". TheDessert Apples report alsoclarified that
Article XIIIandArticle Xcould apply tothesame measure.175
4.302 TheComplaining parties added thattheECwasmistaken inrelying onRepublic ofKorea -
RestrictionsonImportsofBeeftosupportitsclaimthatArticlesXandXIIIwereincompatible.Although
thatpanel didnotconsider itnecessary tomake formal findings under Articles XandXIII,itsdiscussion
ofthoseprovisionsstillsupportedtheDessertApplesconclusionthatArticlesXandXIIIwerecompatible
andcumulative obligations.
Article XIofGATT
4.303 TheComplaining parties ,intheirsecond submission, alsonoted thatArticle XIofGATT
applied toimport licensing:
"Noprohibitions orrestrictions otherthanduties, taxesorothercharges, whether made effective
through quotas, import orexport licences orother measures, shallbeinstituted ormaintained
byanycontracting party ontheimportation ofanyproduct oftheterritory ofanyother
party ...."176
Panels hadconfirmed thattheterm"restrictions" should begiven thebroadest possible reading toensure
coverage notonlyofquotas stricto sensu,butalsooflicensing andother restrictive measures thatlimit
trade through means other thanasimple dutyattheborder.177
4.304 TheComplaining parties noted thatpreliminary 1995 EC-15 Eurostat datashowed imports
ofonly2,471,700 tonnes fromtariff quota origins, avolume approximately 9percentbelow thetotal
175Dessert Apples, para. 12.29.
176GATT Article XI:1.
177See"EEC -Programme ofMinimum Import Prices, Licences andSurety Deposits forCertain Processed Fruits and
Vegetables", adopted 18October 1978, BISD 25S/68, para. 4.9(aminimum import price considered arestriction within
themeaning ofArticle XI:1); "Japan -Trade inSemi-conductors", adopted 4May1988, BISD 35S/116, paras. 105and
118(aminimum import price andnon-automatic licence system considered restrictions under Article XI:1); and"Canada -
Import, Distribution andSaleofAlcoholic Drinks byCanadian Provincial Marketing Agencies", adopted 22March 1988,
BISD 35S/37, paras. 4.24-4.25 (Article XI:1considered toinclude measures thatrestricted thenumber ofmarketing outlets
forimported products).WT/DS27/R/USA
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volume amounting to2,708,765 tonnes authorized thatyearfortariff quota suppliers.178Inamarket
thatwasotherwise characterized byrobust growth before theinstitution ofRegulation 404/93, theonly
possibleconclusionfromthedatawasthatthetariffquotalicensingarrangementhadeffectedarestriction
ontheimportation ofbananas from tariff quota origins inviolation ofArticle XI.
4.305 With respect to1995 data, theECindicated thatnofinaldatawere available for1995 from
Eurostat, andthattheonlyreliable figures concerning banana imports intotheEC-15 for1995 came
from thetariff quota licence usage figures quoted bytheCommission. These figures showed thata
totalof2,653,441 tonnes ofbananas wereimported under thetariffquota in1995, avolume 21percent
above theEC'sbound tariff quota of2,200,000 tonnes, andrepresenting 98percentutilization of
theautonomously increased tariff quota. TheECalsonoted thatevenwhen validated finalEurostat
figures for1995became available, itwould stillnotbepossible todetermine theutilization ofthetariff
quota from thisdatasource because there wasnodistinction between traditional andnon-traditional
ACP imports orbetween tariff quota andnon-tariff quota imports. Moreover, inresponse toother
claims theECsubmitted inresponse toaquestion bythePanel thatthetariff quota onbananas was
notarestrictive measure: there werenorestrictions imposed onimports andMembers could import
asmany bananas astheywished intotheECmarket (seealsoparagraph 4.190).
Article XIII:1 ofGATT
4.306 Guatemala andHonduras submitted thattheArticle XIII:1 obligation wasunambiguous in
prohibiting differentiated import restrictions bysource. ThetitleofArticle XIIIofGATT, Non-
discriminatory Administration ofQuantitative Restrictions ,thestipulation inArticle XIII:5 thattariff
quotas werecovered bythislanguage, andtheexpress reference inArticle XIII:3(a) toimport licensing
"administration", individually andcollectively made clearthatthedifferences inlicensing procedures
forthetariff quota andACP quotas herein atissue were fullycovered byArticle XIII:1. Thatsuch
licensing procedures werecovered under thisprovision wasreinforced bytheLicensing Agreement 's
recognition that"theflowofinternational trade could beimpeded bytheinappropriate useofimport
licensing procedures."179Thus, unless differential import licensing rules were included within the
"restriction ...ontheimportation ofproduct" language ofArticle XIII:1, anArticle XIIIloophole
would existthrough which trade-restrictive discrimination could bepractised withimpunity. Previous
panels hadconfirmed thatArticle XIII:1 wasbreached byanimport licensing administration thatvaried
bysupplying country. InDessert Apples ,thepanel hadruledthatapplying oneimport licensing practice
toChilean apples andanother toapple imports from allother sources constituted anArticle XIII:1
illegality onthebasis thatlikeproducts ofallthird countries hadnotbeensimilarly restricted.180
Similarly, inEEC-Quantitative Restrictions Against Imports ofCertain Products fromHong Kong,
thepanel made clearthatimport licensing measures thatweredifferentiated byregion implicated the
prohibition ofArticle XIII.181
4.307 GuatemalaandHondurasnotedthatthesecondBananapaneldidnotaddresstheissueofwhether
thedifferences inimport licensing rules asbetween traditional ACP andLatin American sources
178Thisfigure includes 2.2million tonnes plus353,000 tonnes EFTA-3 transitional volume, and155,765 tonnes hurricane
volume.
179Agreement onImport Licensing Procedures, recital eight.
180Dessert Apples, BISD 36S/93, paras. 12.20-12.21 (adopted 22June 1989).
181BISD 30S/129, paras. 31-33 (adopted 12July1983).WT/DS27/R/USA
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constituted anArticle XIII:1 breach.182Nevertheless, thedicta ofthesecond Banana panel fully
supported afinding ofillegality inthepresent action. Thesecond Banana panel reasoned that
discriminationin"thedistributionoflicencesamongsupplyingcountries"wouldconstituteanArticleXIII
restriction. Suchdiscrimination among supplying countries wasreadily evident fromthepresent facts.
Regulation 404/93 licences weredistributed fortraditional ACPbananas routinely andpromptly, with
norestrictive limitations orimpact. Regulation 404/93 licences weredistributed forLatin American
bananas non-automatically, withdeeply restrictive limitations andimpact. Latin American bananas
could passonlythrough designated entities under cumbersome requirements thatdistorted price,
complicated commercial transactions, andcreated instability andconfusion inthemarketplace. So
restrictive wasthislicensing scheme thatforthefirstthree weeks ofevery quarter, theCommission
delayed theissuance oflicences forLatin American sourced bananas. Alicensing scheme characterized
bythislevelofrestriction anddisturbance, when contrasted withthesimple licensing fortraditional
ACP fruit, inevitably depressed marketplace interest inbananas from Latin America. According to
GuatemalaandHonduras,ArticleXIII:1expresslycondemnedsubstantiveandproceduraldiscrimination
ofthissort.
4.308 TheECreplied thatitwasamistake toconsider thatatariffquota wasan"import restriction"
while theunadopted second Banana panel report excluded thisargument andnoevidence ofadifferent
reality hadbeenshown. Withrespect tothecomparison between theECtariff quota licensing system
andtheACP traditional quota licensing system theComplaining parties didnotexplain howthis
comparison could berelevant. Itwasevident thatthefactthattwoseparate andindependent regimes,
theACPtraditionalandtheECtariffquota,hadmarginaldifferencesintheirrespectivelicensingsystems
(asshown bythesecond table inparagraph 4.274) wasneither initself aviolation ofanyGATT
provision, norwasthere evidence ofanyviolation ofGATT provisions byanyofthetwosystems.
Intheopinion oftheEC,thetwosystems didnotcreate anysubstantial differences intheirexternal
effects ontheimported bananas fromdifferent origins; theonlydiscrepancies remaining wereonthe
sideoftheinternal procedures tobefollowed bythecompetent authorities.
4.309 TheECreiterated that,asstated elsewhere, withregard alsotothesituation ofcompanies,
noonewaslosing traditional pastaccess, being forced tobuybackrights, ortorebuild theirdistribution
structure. With regard totheactivity function allocation, forinstance, itwaslicence entitlement and
notimport entitlement which wasbeing distributed. Theconsequence ofthisdistinction wasvery
important indeed: activity function allocation hadnotaffected thevolumes shipped bytraditional
importers, whocontinued toshipbananas forrelease intofreecirculation either bythemselves, orby
others, astheydidpreviously.
4.310 IntheviewoftheEC,theconclusion thatArticle XIIIcould notbeapplied simultaneously
tothetwodifferent andseparate partsoftheECbanana regime, wasconfirmed bytheinterpretation
ofthescope ofArticles IandXIIIofGATT. While bothArticles contained ageneral principle of
non-discrimination withregards totheimportation ortheexportation oflikeproducts originating in
allthirdcountries, theevidence didnotimply thatthetwoprovisions overlapped. Article XIIIwas
concerned onlywiththeadministration ofeachoftheparts oftheregime, and,inparticular, allthe
border measures related totheimportation orexportation oftheproducts subject toaspecific quota.
IntheviewoftheEC,thisimplied that,inGATT terms, comparing, under theauthority ofArticle XIII,
theinternal licensing requirements within theACP traditional allocation totherequirements ofthe
tariff quota bound intheECSchedule waslegally wrong.
4.311 Further, theECwasoftheopinion that,ifforthesakeofargument, theimpact ontrade of
theresidual (andlimited) differences between thetworegimes weretobeconsidered meaningful, no
182DS38/R, para. 66(issued 11February 1994).WT/DS27/R/USA
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violation ofArticle XIII:1 could beclaimed inthisrespect because thisArticle concerned theapplication
oftheprinciple ofnon-discrimination intheadministration ofaparticular quota andwastherefore
notuseful indetermining anycomparison between licensing systems applied under different licensing
regimes andwhich responded torealities which werepartially different. Inthisrespect, thepanel report
onChilean Dessert Apples was, intheview oftheEC,notrelevant tothepresent case. Inthat
procedure, thepanel wasasked toconsider, interalia,whether theprohibition ofimports ofChilean
apples, issued bytheECseven daysbefore thepublication ofimport quotas, while likeproducts of
allthirdcountries hadnotbeensimilarly prohibited, wascompatible withArticle XIII:1 ofGATT.
Thepanel wasthenconfronted withonesingle licensing system within which adifferent treatment
wasputinplace distinguishing bytheorigin thesame likeproduct. TheECargued thatitwasquite
clearthat,contrary totheabove-mentioned panel report, whatthePanel hadtofindoutinthepresent
casewasifthebanana ECtariff quota licensing system responded totherules concerning its
administration setoutinArticle XIII. Thatshould notbeaffected bytherulesapplicable inaseparate
regime, justified under separate andspecific rules andconditions.
4.312 According totheComplaining parties ,Article XIII:1 prohibited theapplication ofarestriction
toproducts ofoneMember thatwasnotalsoapplied toproducts ofother countries. Although the
ECinsisted thattheregime foradministering thetariffquota wasentirely separate, Regulation 404/93
onlycreated oneregime, nottwo. Regardless ofhowmany regimes might beatissue, however,
Article XIIIstillrequired thatimports from allsources besimilarly restricted. (Inaddition, as
specifically discussed below asimilar restriction wasnotinplace asbetween BFA andnon-BFA
signatories, since BFAsignatories could useexport licences andnon-BFA signatories could not.) The
EC'sreliance onthefindings ofthesecond Banana panel todenythepresence oflicensing discrimination
bycountry oforigin misread, according totheComplaining parties, thefindings ofthatreport. That
panel didnotaddress theissueofwhether thedifferences inimport licensing rulesasbetween traditional
ACPandLatin American countries constituted anArticle XIIIviolation. Itonlyexamined thelicensing
rulesastheyrelated toLatin American bananas (before theintroduction oftheBFA). Totheextent
thepanel rejected anArticle XIIIclaim, itdidsoonthebasis thatthedistribution oflicences wasan
"internal measure", aproposition withwhich theECdisagreed. Thesecond Banana panel recognized
thatdiscrimination in"thedistribution oflicences among supplying countries" would constitute an
Article XIIIrestriction.183
4.313 TheComplaining parties further responded thattheECattempt todistinguish theDessert Apples
report onthebasis thatthereport wasonly"confronted withonelicensing system", asopposed to
thetwoarrangements atissue here184wasnotappropriate. Itwasirrelevant under Article XIIIhow
many structural arrangements maybepresent; theissuewasonlywhether products ofallorigins were
being similarly restricted. Thepanel inthatcasefound thatbecause "likeproducts ofallthirdcountries
hadnotbeen similarly prohibited" intheadministration ofimport licences, theEChadacted
inconsistently withitsArticle XIIIobligations.185
4.314 TheComplaining parties didnotconsider theconcept oflexspecialis toberelevant inthis
instance regarding therelation between theLicensing Agreement andArticle XIIIofGATT. Two
separate agreements wereinvolved, eachofwhich weregiven equal forceunder theMarrakesh Protocol
unless therewasconflict between theirprovisions. Since therewasnoconflict between theprovisions
atissue, itwasentirely permissible toassert abreach ofArticle XIIIobligations intandem withthe
LicensingAgreementviolationsdiscussedabove.TheComplainingpartiesarguedthatoneoftheprimary
183Second Banana panel, paras. 141-142.
184First ECSubmission at59.
185Dessert Apples, para. 12.21.WT/DS27/R/USA
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purposes oftheLicensing Agreement, "toensure thatimport licensing procedures arenotutilized in
amanner contrary totheprinciples andobligations ofGATT 1994,"186made clearthattheLicensing
Agreement wasnotintended tosupplant, butrather toextend, clarify andcomplement existing GATT
principles.
4.315 TheECrebutted thattheComplaining parties seemed toconfuse theallocation ofatariffquota
withitsadministration. Theformer concerned thedistribution ofshares oftheECtariff quota to
supplying countries, which isreflected intheECSchedule, while thelatter wasconcerned withthe
management oftheimportation ofbananas under theterms andtheconditions ofthatparticular tariff
quota.
Claims under theLicensing Agreement
Article 1.2oftheLicensing Agreement
4.316 Referring tothetextofArticle 1.2,Ecuador considered thattheapplication procedures for
obtaining licences toimport third-country bananas werenotinconformity withtheGATT. Moreover,
theseprocedureswerealsonotimplemented"withaviewtopreventingtradedistortions".Consequently,
theEClicensing procedures were notconsistent withArticle 1.2oftheLicensing Agreement. The
EClicensing procedures werenotconsistent withtheGATT since theprinciples inArticles I:1andX
wereviolated because the"rules andformalities", i.e.thelicence application procedures, relevant to
traditional ACP bananas were farlesscostly andburdensome thanthose applicable tothird-country
bananas.
4.317 Thesameaspects oftheimport licensing regime, Ecuador continued, which violated Articles I:1
andXofGATT alsocaused significant tradedistortions. Thecomplex import licence application regime
applicabletothird-countrybananasimposedsignificantadministrativecostsonimportersofthird-country
bananas, andthuscreated animportant barrier totrade insuchbananas. Furthermore, theexcessive
andunjustifiable delays inissuing theimport licences forthird-country bananas distorted trade by
hindering access ofthird-country bananas totheECmarket. Thequarterly two-round application
procedure generally spanned atleastsixweeks andwasusually notconcluded untilatleastthreeweeks
intothequarter forwhich licences were tobeissued. Imports oftraditional ACP bananas were not
burdened withsuchdelays. Thepreferential treatment accorded toimports oftraditional ACPbananas
created arelatively cheap andeasymeans ofaccess totheECmarket, thereby creating anincentive
tomarket suchbananas rather thanthird-country bananas. Thediscriminatory licensing procedures
applicable toimports ofthird-country bananas were, according toEcuador, therefore, inconsistent with
Article 1.2oftheLicensing Agreement.
4.318 Mexico alsoconsidered thatsincetheECregime violated Articles I:1,III:4, andXofGATT,
itcould notbeinconformity withArticle 1.2oftheLicensing Agreement, andallthemore sowhen
theregime notonlydidnotprevent import distortions butreinforced them. Furthermore, thelicensing
procedures applied totraditional imports fromACPcountries werelessburdensome thanthose applied
tonon-ACP countries, including Latin American countries.
4.319 With respect totheclaims ofEcuador andMexico under Article 1.2andinresponse tothe
EC'sclaims, theComplaining parties wereoftheviewthatthisArticle wasnotageneric reminder
butafirmobligation, nordiditrequire proof oftrade distortion. IfthePanel examined theoperation
186Recital seven.WT/DS27/R/USA
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ofthelicensing procedures inlightoftheplain language andmeaning ofArticle 1.2itwould finda
clear violation.
4.320 Withrespect tothealleged violations ofArticle 1.2oftheLicensing Agreement, theECstated
thatasnobreach oftheGATT provision citedcould beproved theclaims should berejected.
Article 1.3oftheLicensing Agreement
4.321 Referring totheArticle 1.3standard that"therules forimport licensing procedures ...be
neutral inapplication andadministered inafairandequitable manner," theComplaining parties argued
thatthelanguage inthatArticle wasquite similar totherequirements inArticle X:3ofGATT that
regulations be"uniform, impartial andreasonable". Accordingly, pastinterpretations ofArticle X
offered probative interpretive guidance forArticle 1.3oftheLicensing Agreement. IntheDessert
Apples case, theEChadagreed withtheDirector-General 'sNote concluding thattherequirements
of"uniformity" and"impartiality" werenotsatisfied bytheapplication ofonesetofregulations and
procedures withrespect toproducts fromonesetofcontracting parties andadifferent setwithrespect
totheproducts ofother contracting parties.187Ifsuchregulations andprocedures werenotuniform,
impartial orreasonable, theyshould equally besaidtolack"neutrality", "fairness", and"equity".
Moreover, consistent withthisview, oncethelicensing rulesofanyMember explicitly differentiated
onthebasisofcountry oforigin alone, theburden shifted tothatMember toprove thatitsdifferentiated
rules andprocedures reflected "neutrality", "fairness", and"equity." Thedifferences inprocedures
forACP andLatin American bananas presented, intheopinion oftheComplaining parties, aprima
faciecaseofanArticle 1.3violation. Nojustification could overcome theobvious substantial differences
inthetwoprocedures.
4.322 TheUnited States argued thattheECbanana regime explicitly imposed onesetofimport
licensing rulesontraditional ACPbananas, andanother setofrulesonthirdcountries bananas. The
ECCommission hadrecognized thatthetreatment ofACPbananas wasmorefavourable. Anydefinition
of"neutral application" oflicensing ruleswould havetopreclude theapplication ofdifferent andless
favourable rulestobananas fromcertain Members onaccount oftheirorigin. Accordingly, initstotality
theECregime epitomized aviolation ofArticle 1.3oftheLicensing Agreement.
4.323 Ecuador argued thattheLicensing Agreement placed clearrestrictions onhowMembers could
administer import licensing regimes. Referring toArticle 1oftheLicensing Agreement, Ecuador
considered thattheLicensing Agreement generally covered administrative procedures regarding the
application for,andallocation of,licences toimport bananas intotheEC.Because thecurrent Licensing
Agreement wasadopted aspartoftheUruguay Round Agreements, noprior GATT panel hadyet
interpreted therequirements setoutinArticle 1.3.However, although theLicensing Agreement went
wellbeyond therequirements ofArticle XofGATT, Ecuador wasoftheview thatauthoritative
interpretations ofArticle Xwerehelpful toshedlightonthescope andintent oftheprinciples setout
intheLicensing Agreement. Withregard toArticle X,andreferring totheNoteoftheDirector-General
ofGATT,188Ecuador considered thatArticle 1.3oftheLicensing Agreement should beinterpreted
inasimilar manner andshould notpermit Members toapply different setsoflicence application
procedures depending onthesource oftheproduct theapplicant wished toimport. Thisprinciple was
particularly important when thedifferent procedures imposed vastly different administrative burdens.
Asalreadymentioned,theapplicationprocedureforobtaininglicencestoimporttraditionalACPbananas
wasstraightforward.Incontrast,theapplicationproceduresforobtaininglicencestoimportthird-country
187Note oftheDirector-General, L/3149 (29November 1968).
188L/3149. Alsoreference tothispassage inDessert Apples, BISD 36S/93 at117,para. 6.5(adopted 22June1989).WT/DS27/R/USA
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bananas wereextraordinarily complex andburdensome. Suchdisparate treatment was,intheopinion
ofEcuador, notneutral, fairorequitable, andtherefore wasnotconsistent withArticle 1.3ofthe
Licensing Agreement.
4.324 Guatemala andHonduras ,referring tothetextofArticle 1.3,submitted thattheECbore
theburden ofproving thatlicensing rulesthatexplicitly differentiated bysource satisfied the"neutral",
"fairandequitable" standard inapplication andadministration.189Theimport instability, uncertainty,
inflexibility, product interruption, andprice distortion imposed bythetariff quota licensing scheme
relative tothesimple traditional ACPscheme made itimpossible fortheEC,intheopinion ofGuatemala
andHonduras, tosatisfy thatburden. Abreach ofArticle 1.3oftheLicensing Agreement was
accordingly present. Furthermore, aswiththedifferentiated arrangement between tariff quota and
traditionalACP-sourcedbananas,thedifferentiatedarrangementasbetweenECandtariffquotabananas
alsofailed under Article 1.3oftheLicensing Agreement instruction that"[t]he rulesforimport licensing
procedures ...beneutral inapplication andadministered inafairandequitable manner." Theinstability,
uncertainty, inflexibility, product-flow interruption, andprice distortion imposed bythetariff quota
licensing scheme relative totheentirely unrestricted ECdistribution arrangement made itimpossible
fortheECtodemonstrate "neutrality", "fairness andequity" inthese twoarrangements. Guatemala
andHonduras were oftheviewthattheimposition ofdifferential arrangements asbetween ECand
Latin American bananas contravened, interalia,Article 1.3oftheLicensing Agreement -thetariff
quotalicensingarrangementhadtobeconsideredillegalinitsentiretytobereplacedwithanarrangement
commercially andprocedurally equivalent totherestriction-free arrangement being accorded toEC
bananas.
4.325 Mexico argued thattheECregime explicitly prescribed theapplication oftwodifferent systems
forgranting licences within thetariff quota, depending ontheorigin ofproducts, andtheresult was
averyheavy andburdensome licensing system forimports originating innon-ACP countries, including
Latin American countries, whereas thislicensing system wasnotapplied tocountries, parties tothe
Lomé Convention, towhich asimple system wasapplied. IntheviewofMexico, itwasclear that
theabsence of"neutrality", "fairness andequity" intheapplication ofthelicensing system resulted
inaviolation ofArticle 1.3oftheLicensing Agreement.
4.326 TheECmaintained, withrespect totheclaims under Article 1.3oftheLicensing Agreement,
thatthelicensing system toadminister thetariff quota wasstable, certain, flexible, predictable and
created nodistortion onprices intheECmarket which could bedetrimental tobananas produced in
thecomplaining countries. Thestructure ofthetariffquota licensing system didnotcorrespond under
anypossiblecircumstancestoadistributionoflicencestoECcompaniesasopposedtoforeigncompanies.
"Neutrality", "fairness andequity" werein-built qualities oftheECtariffquota licensing system which
wasbased ontheapplication ofobjective criteria ofeligibility toobtain tariff quota licences onthe
basis ofpasttrade inbananas: trade volumes andnotcompanies werethecommanding principle of
thesystem.
4.327 Inreply toaquestion bythePanel, theECnoted thatanydirect comparison between the
requirements of"uniformity, impartiality andreasonableness" inArticle X:3(a) ofGATT andthose
of"neutrality inapplication" and"fairandequitable administration" inArticle 1.3oftheLicensing
Agreement seemed inappropriate. TheLicensing Agreement wasconcerned withimport licensing
procedures usedfortheoperation ofimport regimes which required aspecific documentation (other
thanthatrequired forcustoms purposes) priortotheimportation inthecustoms territory oftherelevant
product. Ontheotherhand, Article Xapplied to"laws, regulations, judicial decisions andadministrative
189SeeNote bytheDirector-General, L/3149 (29November 1968); "United States -Section 337oftheTariff Actof
1930", BISD 36S/345, para. 5.11 (adopted 7November 1989).WT/DS27/R/USA
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rulings ofgeneral application, made effective byanycontracting party, pertaining totheclassification,
orthevaluation ofproducts forcustoms purposes, ortoratesofduty, taxes orother charges orto
requirements, restrictions orprohibition ofimports ..."oraffecting "sale, distribution, transportation,
insurance, warehousing inspection, exhibition, processing, mixing orother use...".Even ifArticle X
language, ascompared totheLicensing Agreement waslessprecise, itappeared thatitwasmore
concerned withevery operation related tocustoms (andinparticular theactivities ofcustoms authorities)
ortheadministrative activities after theproduct hadcleared customs, andnotsomuch withthe
procedures priortocustoms clearance which concerned thepossibility ofimporting theproduct aspre-
requisite toanyimportation within thetariff quota (andcustoms operation).
4.328 EventhoughitcomparedArticleXIIIwithArticleX,theECcontinued,thepanelreportRepublic
ofKorea -Restrictions onImports ofBeef,adopted 7November 1989, reasoned along these lines.
TheECconsidered therefore thattheLicensing Agreement, when applicable, andArticle Xdidnot
overlap, since theformer wasrelated totheadministration ofimport procedures while thelatter
concerned onlytheprocedural rulestobefollowed intheapplication ofprovisions pertaining tocustoms
activitiesortointernalrulesapplicableafteraproducthadclearedcustoms.Whenapplicable,Article1.3
oftheLicensing Agreement required neutrality inapplication: nodiscrimination ofanykindshould
beadmissible intheadministration ofaparticular licensing scheme, notably withreference totheorigin
oftheproduct. Moreover, "fairandequitable administration" wasimposed: nounfair treatment of
theoperators concerned wasadmissible andpossibility ofcomplaint andremedy should beprovided.
Bothwere fullyrespected intheECtariff quota licensing scheme andinitsinternal legalsystem in
general.
4.329 Moreover, asfarastherelation between thetariff quota andtheinternal ECbananas saleand
distribution system wasconcerned, theECrecalled itsviewthatnosensible reason could beadvanced
forcomparing thelicensing system needed foradministering alegitimate tariff quota while importing
bananas intheECtoasaleanddistribution system ofaninternal product: thelatter, evidently, did
notcross anyborder andtherefore wasnottobesubmitted toanylicensing system. Atthesame time,
Article 1.3oftheLicensing Agreement wasperfectly complied with.
4.330 TheComplaining parties responded thattheECcould notbeconsidered tohavesatisfied
itsburden ofshowing thatthelicensing procedures were neutral inapplication andapplied inafair
manner bymerely asserting thatthelicensing system applicable toLatin American bananas "isstable,
certain, flexible, predictable andcreates nodistortion onprices intheECmarket which could be
detrimental tobananas produced inthecomplaining countries."190Thisassertion didnotevenaddress
theneutrality andequity requirements ofArticle 1.3.Nothing inthebananas themselves justified the
inequity anddiscrimination inthese procedures. Even theEChadadmitted that"assistance" would
flowto"non-traditional" ACP banana suppliers bymoving them under thesimpler traditional rules
forACPbananas.191Theonlyjustification provided bytheECwithrespect tothelicences allocated
toitsownfarmers (i.e.Category Boperators performing theactivity (a)function) wasobviously
protectionist andtherefore lacking inneutrality andequity:
190According totheComplaining parties, theEC'sclaim thattherules applicable toLatin American bananas contained
"objective" criteria ofeligibility, eveniftrue,would provide nodefence tothelackofneutrality. Ameasure could bebased
onmeasurable criteria forexample, andstilllackneutrality inapplication. Even ifthelicensing criteria were objective,
thetwolicensing arrangements would stillnotbeconsidered neutral, fairorequitable unless banana imports from allsources
were subject tocomparable rules, notjustastoeligibility, butastoevery aspect ofthelicensing system. Thepreferential
licensing regime accorded toACP imports definitively violated Article 1.3oftheLicensing Agreement.
191"Report ontheOperation oftheBanana Regime", p.19.WT/DS27/R/USA
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"Individual producers andproducers ’organizations which arenotthemselves necessarily
"importers" ofbananas havebeenallocated Category Blicences. Since ingeneral theyhave
nointerest inimporting dollar bananas, theselicences aresold,providing asupplement totheir
income inaddition tothesupport provided bytheprovisions onaidtocompensate fortheloss
ofincome."192
4.331 TheECwasoftheviewthatitslicensing scheme didnotviolate Article 1:3oftheLicensing
Agreement, where theemphasis oftheComplaining parties wasputonthealleged violation ofthe
obligation ofneutrality under thatprovision, while acorrect andcomplete quote oftheArticle would
disclose that:"Therulesforimport licensing procedures shallbeneutral inapplication andadministered
inafairandequitable way." TheECclaimed thattheCONTRACTING PARTIES hadagreed on
atextthatexplicitly required neutrality intheapplication andadministration oftherules creating a
particular licensing scheme. Nowhere inthatArticle hadtheCONTRACTING PARTIES committed
themselves nottoshape aparticular import licensing procedure inthewaytheEChaddone, where
alloperators ofanycountry were freely competing within andamong different categories setoutin
Article 19ofRegulation 404/93. Within thatparticular licensing scheme, neutrality wasabsolutely
respected andnoevidence hadbeenshown tothecontrary. Anyoperator could beeligible forany
category oflicence iftheoperator fulfilled theobjective conditions therein. Furthermore, theECwas
oftheviewthatnoevidence hadbeenprovided bytheComplaining parties thatthelicensing scheme
wasadministered inanunfair andinequitable manner. Intheopinion oftheEC,theComplaining
parties should havedemonstrated thatthewaythelicensing scheme wasadministered wasunfair and
inequitable. TheComplaining parties wereonthecontrary trying todemonstrate, through Article 1.3
oftheLicensing Agreement, thatthelicensing scheme itself wasunfair (which wasinanycase
unfounded). Intheopinion oftheEC,thishadnothing todowiththewaytheLicensing Agreement
hadbeenagreed upon andthecommon willoftheCONTRACTING PARTIES thatwasexpressed
inthatwording.
Articles 3.2and3.5(h) oftheLicensing Agreement
4.332 Ecuador claimed thattheECimport licensing regime distorted trade andhindered thefull
utilization ofthequota inviolation ofArticle 3.2oftheLicensing Agreement. According toEcuador,
intheyearimmediately preceding theimposition ofthetariffquota, imports ofthird-country bananas
intotheECwere2,431,100 tonnes. However, theshare allocated tothirdcountries for1993and1994
wassetatonly1,000,000 tonnes forthesecond halfof1993193and2,171,000 tonnes for1994(including
thenominal 2.118 million tonnes allocated tothirdcountries plusanadditional 53,400 tonnes permitted
tobeimported under so-called "hurricane licences" issued toCategory Boperators). Theallocation
tothirdcountries wasthussetfarbelow thethirdcountries 'historical import levels. Nevertheless,
according toEurostat statistics, imports ofthird-country bananas totalled only967,161 tonnes during
thesecond halfof1993.194During thefullyearof1994, imports ofthird-country bananas totalled
2,043,100 tonnes, wellbelow thethird-country tariffquota volume. Thefactthatthird-country imports
failed tofillthetariff quota inthose years, andthatcurrent import levels were significantly below
historical import levels clearly demonstrated, inEcuador 'sopinion, thatthelicensing regime hadtrade
restrictive effects beyond those caused bytheimposition ofthetariff quota. TheEClicensing regime
thusdirectly violated Article 3.2oftheLicensing Agreement. According toEcuador thefactthat
third-country imports failed tofillthethird-country tariff quota alsohighlighted theinconsistency of
192"Report ontheECBanana Regime", European Commission, July1994, pp.10-11.
193SeeRegulation 1442/93, which opened thetariff quota forthesecond halfof1993.
194According toEcuador, imports ofthird-country bananas during thefirsthalfof1993 were 1,186,862 tonnes.WT/DS27/R/USA
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thelicensing regime withArticle 3.5(h) oftheLicensing Agreement which stated thatMembers "shall
notdiscourage thefullutilization ofquotas".
4.333 Ecuadorclaimedfurtherthatthelicensingproceduresapplicabletothird-countrybananaimports
werefarmore burdensome thanabsolutely necessary toadminister thetariffquota. Twelve traditional
ACPcountries weregiven country specific allocations; yettheimport licensing procedures applicable
totraditional ACPbananas werefarsimpler thanthose forthird-country bananas. Forexample, imports
oftraditional ACPbananas werenotburdened withsuchrequirements asmatching import andexport
certificates. Infact,third-country bananas weretheonlyproduct forwhich itwasnecessary tosubmit
bothexport certificates andimport licences inorder toimport intotheEC.IntheviewofEcuador,
theECcould notclaim thatthecomplex licensing system forthird-country banana imports wasnecessary
toimplement thetariffquota because theECitselfhaddevised regimes foradministering quotas which
werefarlessburdensome thanthatwhich itapplied toadminister thethird-country tariff quota. For
example, Council Regulation 520/94195setforth"General Administrative Principles" togovern quotas.
Article 2ofthisRegulation listed threespecific methods under which quotas weretobeadministered:
(i)amethod based ontraditional trade flows; (ii)a"first-come, first-served" method governing the
order inwhich applications weresubmitted; and(iii)amethod allocating quotas inproportion tothe
quantities requested when theapplications weresubmitted. These alternative administrative procedures
setoutinRegulation 520/94 clearly demonstrated, according toEcuador, thatthere were farless
burdensome methods foradministering atariff quota thanthatwhich theECusedtoadminister the
third-country tariff quota. TheECimport licensing regime thuswasnot"absolutely necessary" to
administer thetariff quota, andwasconsequently indirect violation ofArticle 3.2oftheLicensing
Agreement.
4.334 Guatemala andHonduras submitted thatArticle 3.2oftheLicensing Agreement contained
twoinstructions thatwere contravened bythetariff quota licensing scheme, that:
"[n]on-automatic licensing shall nothavetrade-restrictive or-distortive effects onimports
additional tothose caused bytheimposition oftherestriction ..."and"shall benomore
administratively burdensome thanabsolutely necessary toadminister themeasure".
Onacomparative orstand-alone basis, tariff quota licensing rules hadtrade-distortive effects onthe
Complainants 'bananas wellbeyond those caused bytherestrictive 2.2million tonne first-tier quota.
TheCategory Bprovisions thattiedalicensing advantage tothepurchase ofbananas fromcertain sources
onarolling three-year basis meant sourcing distortions were bothintended andinevitable. The
assignmentoftariffquotavolumetoarbitrarilydefinedmiddlementoodistortedtheComplainingparties'
prices andpre-Regulation 404/93 commercial relationships. Themulti-round application procedures
served todelay ECimportation oftheComplaining parties 'bananas atvarious times oftheyear. The
multitude oftariff quota licensing rules, andtheir frequency ofchange, created disincentives and
confusion inthepurchasing oftariff quota fruit. Allsuchburdens andcomplexities ofthetariff quota
licensing scheme relative tothenon-restrictive simplicity ofthetraditional ACPandECarrangements
skewed conditions ofcompetition infavour oftraditional ACP andECbananas.
4.335 GuatemalaandHondurasarguedfurtherthatinadditiontobeingtrade-restrictiveand-distortive,
thelicensing scheme applicable totheirbananas violated theArticle 3.2provision thatnon-automatic
licensing"benomoreadministrativelyburdensomethanabsolutelynecessarytoadministerthemeasure".
Thatprovision 'suseofthelanguage "absolutely necessary" underscored, intheopinion ofGuatemala
andHonduras, thedrafters 'intention totolerate onlythemostminimal administrative burdens. Indeed,
195Council Regulation establishing anECProcedure forAdministering Quantitative Quotas.WT/DS27/R/USA
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theEChasinstituted numerous tariff quotas atitsborder foravastnumber ofproducts, notasingle
oneofwhich wasadministered byalicensing scheme thatrivalled thislevelofadministrative burden
andconfusion.HondurasandGuatemalasuspectedthatfewlicensingschemesaroundtheworldmatched
thisoneforadministrative burden. Theburdens andadverse effects ofthisscheme hadtobeconsidered
violative oftheprohibitions against restriction, distortion, andunnecessary burden contained in
Article 3.2oftheLicensing Agreement. Intheopinion ofGuatemala andHonduras, aconclusion
ruling otherwise would render meaningless thenewWTO licensing disciplines codified inArticle 3.1
andgiverisetoaproliferation ofcomparable licensing schemes throughout theglobe, undermining
thereform, transparency, andpredictability thatUruguay Round negotiators hadintended tobe
accomplished bytariff quota conversions.
4.336 AccordingtoMexico,ECbananaimportsoriginatinginthirdcountries,includingLatinAmerican
countries, weresubject toanimport regime socomplicated thattheveryexistence oftheregime, as
wellasthemodalities ofitsadministration, could notbeconsidered asabsolutely necessary. Mexico
alsoconsidered thatthecomplex system oflicences applied bytheECdiscouraged thefullutilization
oftariffquotas allocated tonon-ACP countries inviolation ofArticle 3.5(h) oftheLicensing Agreement.
4.337 TheUnited States argued thattheLicensing Agreement provided themostspecific disciplines
onimport licensing among thevarious WTO agreements. Inparticular, asreflected initspreamble,
itsought toplacedisciplines onnon-automatic licensing, namely thoselicensing schemes where approval
wasnotgranted inallcases, suchastheregime applicable toECimports ofbananas. Article 3.2ofthe
Licensing Agreement required, intherelevant part,that"[n]on-automatic licensing procedures ...shall
benomore administratively burdensome thanabsolutely necessary toadminister themeasure".
Article 3.5(h) further required thatMembers "shall notdiscourage thefullutilization ofquotas." The
numerous layers ofadministrative complexity burdens applied toLatin American banana imports were
notneeded, intheopinion oftheUnited States, toadminister aquantitative limitation, letalone were
they"absolutely necessary". Inthefirstinstance, theECrequirements fortheLatin American tariff
quota imports wentbeyond whatwasneeded toadminister imports ofbananas subject toquantitative
limitations, since aparallel import licensing system (fortraditional ACP bananas) wasamodel of
simplicity without anyofthecomplex features applied toimports under thethird-country tariffquota.
ACPimport licences weregranted uponpresentation ofacertificate oforigin, withasingle reduction
coefficient applied toallapplicants ifthere wasanover-subscription. Thetreatment afforded to
traditional ACPbananas, themanner inwhich thecurrent regime forthird-country bananas developed,
themanner inwhich member States administered quantitative limitations onbananas before
Regulation 404/93, andinternational andECgeneral lawandpractice, allunderscored whythisregime
didnotneedtobeasburdensome asitwasandwhyitviolated Article 3.2. Thecomplex scheme
discouraged imports from Latin America, andwasthusinconsistent withArticle 3.5(h) aswell.
4.338 TheUnited States considered thattheEClicensing regime forthird-country bananas wasalso
irregular under theEC’sgeneral legislation andpractice. Council Regulation 520196,establishing an
ECprocedure foradministering "quantitative quotas," professed tosetforth"General Administrative
Principles" togovern quotas. Article 2listed three specific methods under which quotas weretobe
administered, allofwhich, incontrast tothebanana regime, appeared toresemble normal international
practice: (i)amethod based ontraditional trade flows; (ii)amethod based ontheorder inwhich
applications weresubmitted (ona"first-come, first-served" basis); and(iii)amethod allocating quotas
inproportion tothequantities requested when theapplications weresubmitted. Although Article 2
didnotprofess tosetoutanexhaustive listofmethods thatcould beused, thespecific examples
highlighted thatthemeans chosen bytheECto"administer" thetariffquota forthird-country bananas
wasoutoftheordinary. Although theECmaintained quantitative limitations onavariety ofproducts,
196Regulation 520/94 establishing anECProcedure forAdministering Quantitative Quotas, 1994 O.J.(L66)1.WT/DS27/R/USA
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thebanana import regime wasunique inrequiring bothimport andexport certificate requirements on
thesame import. Indeed, theECmaintained several tariff quotas which wereadministered without
either.197Thebanana regime wasalsotheonlyregime distributing licences onthebasis of"activity
functions" andtheresulting problems associated withcompeting claims anderosion oflicensing
entitlements. Thecombination ofallthese elements washardly needed toadminister thetariff quota.
4.339 Thereason theECdidnotabandon anyoneormore ofthese elements wasnot,intheopinion
oftheUnited States, because allwere necessary toadminister thetariff quota. Rather, theproblem
faced bytheECwasthateachelement ofitsregime wasconceived toeffectuate ECpolicies unrelated
toadministrativeconcerns,amongwhichwere:keepingquotarentswithintheEC(useofimportlicences
generally); providing business toEC-owned orcontrolled distribution companies (Category Bcriteria
andactivity functions); providing income intheformofquota rentstoECfarmers (Category Bcriteria
anddistribution ofhurricane licences); andattempting toprevent aWTO challenge toitsentire regime
(BFA export certificates). Intheopinion oftheUnited States, theLicensing Agreement didnotpermit
Members toimpose administrative requirements inanimport licensing regime asameans ofeffectuating
policies separate andapart fromadministrative concerns. InApril 1996, theECCommission issued
aproposal foraCouncil Regulation toremove non-traditional ACPbananas fromthislicensing system
andsubject themtothesimple system applicable totraditional ACPbananas.198TheECCommission
hadthusapparently recognized thattheeffect oftheoverall tariff quota licensing scheme was
burdensome, discouraging purchases fromthird-country tariffquota sources, andthatthescheme was
notnecessary foradministrative purposes.
4.340 TheUnited States argued thatwhile import licensing systems werecommon ininternational
practice, andwhile export certificates wereemployed occasionally inother instances, theComplaining
parties inthisdispute were unaware ofanyother instance anywhere inwhich theywere required in
combination. Indeed, theEConlyadded theexport certificate requirement pursuant totheBFA
(implemented inMarch 1995), almost twoyears afterestablishing thetariff quota. Thisadditional
layercould hardly bedescribed as"necessary"; itsobject wastopermit BFAsignatories toenjoy quota
rents sothattheywould cease challenging theEC’sbanana regime intheGATT orWTO. Before
Regulation 404/93, several ofthemember States hadpermitted imports fromLatin America onalimited
basis. While import rights wereoftenallocated exclusively tonational companies, eventhesepre-1993
import regimes werefrequently administered inalesscumbersome fashion thanthecurrent third-country
tariff quota. Forexample, Italyusedafirst-come, first-served system. There wasnoadministrative
reason whyalessonerous approach wasnotfeasible EC-wide.
4.341 TheECreplied thatinorder todemonstrate analleged violation toArticle 3.2oftheLicensing
Agreement, theComplaining parties needed toprove, first,thatthenon-automatic licensing had"trade-
restrictiveor-distortiveeffectsonimportsadditionaltothosecausedbytheimpositionoftherestriction".
TheComplaining parties should havedemonstrated thatbananas imported intotheECmarket were
restricted bytheadministration ofthetariff quota beyond theeffects ontrade oftheveryexistence
ofthetariff quota, which wascompatible withtheGATT andpartoftheconcessions accepted byall
contracting parties wascommon practice inGATT agricultural negotiations. Intheopinion ofthe
EC,notasingle evidence hadbeengiven ofthese supposed andtotally unproved additional trade
restrictive ordistortive effects. Notasingle evidence wasshown, demonstrating anyhindering inthe
access oftheComplaining parties 'bananas totheECmarket whose parts ofthetariff quota were
immediately andcompletely used. Theveryexistence ofthetariffquota, however, was,intheopinion
oftheEC,aclear improvement interms ofmarket liberalization ascompared tothesituation prior
197TheUnited States mentioned mineolas andalmonds asexamples.
198Proposal foraCouncil Regulation amending Regulation 404/93 onthecommon organization ofthemarket inbananas,
1996 O.J.(C121) 9.WT/DS27/R/USA
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totheconclusion oftheUruguay Round andcreated conditions forhigher prices intheECmarket
ascompared toworld market prices andthiswasabenefit totheComplaining parties banana production.
4.342 Secondly, theECcontinued, theComplaining parties needed todemonstrate thatthelicensing
system didnot"correspond inscope andduration tothemeasure theyareusedtoimplement". No
serious argument, intheopinion oftheEC,hadbeenbrought contesting theEC'scompliance with
these obligations. TheComplaining parties alsoneeded todemonstrate thatthelicensing system
administering theECtariff quota was"more administratively burdensome thenabsolutely necessary
toadminister themeasure". ThisthirdpartofArticle 3.2oftheLicensing Agreement could not,as
already mentioned, bereadinisolation butshould beseeninthecontext ofthewhole paragraph (where
reference wasspecifically made to"effects onimports") andtoArticle 1.1oftheLicensing Agreement
(where thescope oftheAgreement waslimited to"regimes requiring thesubmission ofanapplication
orother documentation totherelevant body").
4.343 Itwasclear, theECargued, thatthePanel wasnotasked orgiven authority todecide ingeneral
andabstract terms whatsystem, inabstracto ,wasabsolutely necessary toadminister alegitimate tariff
quota (e.g.abanana tariffquota) butonlyiftheburdens imposed ontheoperators ofimporting countries
when making useofthetariff quota fortheimportation oftheirproducts were absolutely necessary
toadminister themeasure. Theadministrative steps usedinthecaseofthebanana tariff quota were
thefollowing: (i)operators (firms) submitted evidence oftheirpasttrade inthirdcountries, ACP
andECbananas. Asaresult ofthatdata,annual rights toimport wereeventually given toeachoperator
prior tothebeginning ofthecalendar year; (ii)operators lodged aquarterly request toimport, using
partoftheirannual rights toimport. Asaresult ofthatrequest, animport licence wasdelivered to
eachoperator; and(iii)since thetariff quota wasdivided bycountry allocations, andinorder to
facilitate afullutilization ofthedifferent allocations and,hence, ofthetotaltariff quota, whenever
aspecific country allocation wasover-subscribed foraspecific quarter, interested operators hadthe
possibility ofrequesting toimport from anyother, non-fully subscribed origin inasecond round of
licence allocations (orwithdraw theirrequest without anycharge). According totheEC,noother
obligations orcomplexities existed. Foroperators withCategory AorCategory Clicence rights willing
toimport fromtheBFAcountries Colombia, Costa RicaandNicaragua, asecurity hadtobelodged,
together withtheirquarterly request, inorder tofulfil BFAobligations.
4.344 TheECbelieved thatthese administrative stepswerenotuncommon toanyadministration of
existing tariff quotas inother sectors andtheycould notbeconsidered asunnecessary forthecorrect
functioning ofthesystem since theyresponded tothespecific needs ofthetariff quota asbound in
theECSchedule. TheECconcluded therefore thatallrequirements under Article 3.2oftheLicensing
Agreement hadbeencomplied withandthattheComplainant 'sallegations inthisrespect should be
rejected. TheECfurther argued thatclaims concerning Article 3.5(h) oftheLicensing Agreement
should alsoberejected. Indeed, thisprovision referred toadministration of"quotas" andnotto"tariff
quotas" aswasclearly indicated forinstance inArticle 3.5(a) where reference wasmade to"the
administration oftherestrictions". Ashadbeenunderlined above (andequally stressed bytheunadopted
second Banana panel report), atariff quota, astheECbanana tariff quota, wasnotaquantitative
restriction andbyitsnature didnotprevent importation ordiscourage useofimport rights under the
ECtariff quota oroutside theECtariff quota.
4.345 TheComplaining parties reiterated thatthewhole tariff quota licensing scheme, interalia,
violated thevarious requirements ofArticle 3.2oftheLicensing Agreement. Contrary totheEC's
suggestion, inconsistency withanyoneofthefourrequirements amounted toaviolation. Thetariff
quota licensing rules had,first, "trade-distortive effects" and,second, "trade-restrictive effects" on
Latin American bananas wellbeyond those caused bythetariff quota access limitations. Third, theWT/DS27/R/USA
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rulesdidnot"correspond inscope andduration tothemeasures theyareusedtoimplement". Fourth,
theywere more burdensome "than absolutely necessary" toadminister thetariff quota.
4.346 TheComplaining parties claimed thattheuseoftheterm"distortive effects" inArticle 3.2
required under itsordinary meaning ademonstration thatconditions ofcompetition hadbeendistorted
ordisrupted compared towhat would otherwise have been thecaseabsent those licences. The
ComplainingpartieshadshownthatRegulation404/93anditsimplementingregulationssubjectedbananas
from tariff quota sources toacomplex licensing arrangement thatdictated indetail theentities and
extensive procedures through which tariff quota bananas could beentered anddistributed. Latin
American producers werenotfreetoselltopurchasers oftheirchoice, buthadtoselltoarbitrary classes
of"operators" defined onthebasisoftheorigin oftheirpurchases andactivities performed. Moreover,
tariff quota bananas could notbedistributed through suchdesignated entities onanormal marketing
cycle,butwereforcedeveryquarterthroughanuncommontwo-roundapplicationprocedurethatrequired
amatching ofimport licences toexport licences andartificially segmented trade flows bycountry of
origin andtime. Asubstantial percentage oftariff quota quarterly licences wasnotdistributed until
twotothree weeks intothequarter forwhich theyapplied. Therulesgoverning allsuchprocedures
andentities werevoluminous andchanged constantly. Thisunnatural, heavily constrained distribution
scheme forLatinAmerican bananas hadreconfigured historical distribution patterns, created anirregular
marketing cycle, curtailed delivery flexibility andgenerated widespread uncertainty andconfusion in
themarketing oftariff quota bananas. Bycontrast, traditional ACPbananas could beentered simply
andpromptly through anyfirm. Unlike licences forLatin American bananas, thesimple licensing
approachthatwasappliedtotraditionalACPbananaspermittedcommercialflexibilityandpredictability.
4.347 TheComplainingpartiesnotedthatArticle3.2oftheLicensingAgreementprovidedthat"[n]on-
automatic licensing shallnothavetrade-restrictive ordistortive effects onimports additional tothose
caused bytheimposition oftherestrictions." TheEClicensing regime amounted toanon-tariff barrier
beyond therestriction caused byvolume limitations. Theregime 'seffects included theperpetual
uncertainty regarding thevolumes thatwould beavailable forimport, andthesources fromwhich those
volumes could beobtained. Operators seeking toimport under thetariff quota needed continuously
topurchaselicences,enterintomarketingagreementswithspecificripenersorinvestinripeningfacilities
merely toavoid thelicence erosion created bytheadministration oftheregime, i.e.merely tomaintain
thesamebusiness aspreviously. Inaddition, throughout theyear,theywereuncertain astotheirimport
volumes because ofcontinuous auditing andtheapplication ofthereduction coefficient toaddress
systematic over-filing. Moreover, allthewayintothefirstfewweeks ofeachquarter, theEC
Commission would nothaveadvised them oftheresults ofthesecond round allocation, sothatthey
could notascertain inadvance thevolume andsources oftheirsupplies. Since operators didnotknow
theirfinalentitlement untilthethirdquarter oftheactual yearofentitlement, theywereconstrained
fromengaging inmarket planning andnormal risk-taking. TheCategory Bcriteria alsohaddistortive
effects ontrade bycreating linkages between imports ofLatin American bananas ontheonehand,
andACPorECbanana purchases ontheother. Incombination, these elements (i.e.reduced operator
flexibility,uncertaintyandsource-basedlinkages)actedasanon-tariffbarrierthatrestrictedanddistorted
theimportation ofthird-country bananas beyond whatmight beexpected fromthemere operation of
atariff quota, inviolation ofArticle 3.2oftheLicensing Agreement.
4.348 Addressing thefourth requirement ofArticle 3.2,theComplaining parties claimed thatthey
hadshown howthetariff quota licensing arrangement was"more administratively burdensome than
absolutely necessary toadminister themeasure." Thestandard ofproof forestablishing aprima facie
violation ofthisrequirement clearly wassatisfied bydemonstrating thatamuch lessburdensome set
oflicensing ruleswasapplied tothesameproduct fromadifferent source, andwhere major components
oftherulesandprocedure deviated sharply fromcustomary licensing practice, oreventheMember ’s
ownpractices forother products. Theadministrative procedures atissue herewere burdensome in
anunprecedented wayandhighly discriminatory onthebasisofproduct origin. Noother proceduresWT/DS27/R/USA
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weredesigned toprovide licence rights tothose whohadnocapacity, orevenshowed anydesire, to
enterthebusiness ofimporting fromLatin America. Asnoted above: although theprocedures surely
werealsoburdensomefortheEC's"competentauthorities",thisdidnotmakethemanylessburdensome
forimports. Looking atthetwoprocedures foradministering imports, thatforACPbananas andthat
forLatin American bananas, theComplaining parties hadnodoubt astowhich aninvestor orprospective
marketer would choose tosubject himself to,given achoice. Theburden thusshifted totheECto
demonstrate administrative necessity.
4.349 TheECreiterated thattheComplaining parties needed todemonstrate thatthelicensing system
administering theECtariff quota was"more administratively burdensome thenabsolutely necessary
toadminister themeasure". According totheEC,thisprovision wastobeinterpreted asreferring
totheburdensome character ofthemeasure (thetariffquota) vis-à-vis thelicensee importing theproduct
concerned. ThisthirdpartofArticle 3.2oftheLicensing Agreement could not,intheopinion ofthe
EC,bereadinisolation butshould beseeninthecontext ofthewhole paragraph (where reference
wasspecifically made to"effects onimports") andtoArticle 1.1oftheLicensing Agreement (where
thescope oftheAgreement waslimited to"regimes requiring thesubmission ofanapplication orother
documentation totherelevant body"). ThePanel wasnotasked todecide ingeneral andabstract terms
what system wasabsolutely necessary toadminister thebanana tariff quota, butjustiftheburdens
imposed onoperators only(andnotoninternal custom administrations orother offices, independent
from theoperators activity) from importing countries when making useofthetariff quota forthe
importation oftheirproducts, were absolutely necessary toadminister themeasure.
4.350 Inresponse toaquestion bythePanel, theECsubmitted thatthenotion of"necessary" was
already present intheGATT practise under Article XX(a) (b)and(d).Inthatcontext therecent
Appellate Body Report United States -Standards forReformulated andConventional Gasoline ,adopted
on29April 1996, explicitly indicated thatthechapeau ofArticle XXwas"animated bytheprinciple
thatwhile theexceptions ofArticle XXmaybeinvoked asamatter oflegal right, theyshould not
beapplied astofrustrate ordefeat thelegalobligations oftheholder oftherightunder thesubstantive
rules oftheGeneral Agreement".199Itwasinthatcontext, therefore, thatthenotion of"necessary"
hadbeendevelopedasmeaningameasureforwhich"noalternativemeasurewhichitcouldbereasonably
expected toemploy andwhich isnotinconsistent withother GATT provisions isavailable toit".200
Theprovision ofArticle 3.2oftheLicensing Agreement, onthecontrary, wastotally outside ofthat
context since itwasnotanexception toanyother WTO provision anddidnotimply thatanyGATT
inconsistent ruleswasapplied tothespecific licensing system. Thenotion ofnecessity inthiscontext
was,therefore, governed byordinary rulesconcerning theburden ofproof under which theparty that
alleges aviolation ofaprovision should provide forsufficient evidence demonstrating thatviolation.
Nothing ofthekindhadbeendemonstrated bytheComplaining parties: onthecontrary, theEChad
beenabletoshow, bypresenting factsandtables, thattheburden onoperators dependent from the
administration ofthetariffquota wasreduced toitsminimum andwasneeded toadminister thatmeasure.
4.351 Moreover, theECsubmitted, contrary toanyassertion bytheComplaining parties, thebanana
traders'understandingofthesystemwastotallysatisfactory.Therequirementsonoperatorsrepresented,
intheview oftheEC,anextremely small partoftheadministration ofthetotalsystem. These
requirements were straightforward andwellknown toalltraders. Forexample, therequirement to
apply forimport licences during thefirstseven daysofthemonth preceding thestartoftherelevant
quarter existed since thestartoftheregime. Traders appeared tohavenodifficulty understanding
therules ofthesystem, asshown bythealmost complete utilization ofthetariff quota, which would
199WT/DS2/AB/R, p.22.
200L/6439, para. 5.26.WT/DS27/R/USA
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notbepossible ifoperators weremissing application deadlines orotherwise failing toclaim theirentire
entitlement.
4.352 TheComplaining parties responded thattheseparate useoftheterm"restrictive effects" in
Article 3.2required apresent orpotential tradeflowimpact onsuppliers. Asarecent economic report
made clear, thetariffquota licensing scheme wascreating precisely suchanimpact.201Preliminary 1995
EC-15 Eurostat dataappeared toconfirm thedropindemand forLatin American bananas arising from
thelicensing scheme. Those datashowed imports ofonly2,471,700 tonnes fromtariff quota origins,
avolume approximately 9percentbelow thetotaltariffquota (2.2million tonnes), autonomous increase
of353,000 tonnes and"hurricane" volume (155,765 tonnes) amounting to2,708,765 tonnes authorized
thatyearfortariff quota suppliers.
4.353 Furthermore, theComplaining parties were unaware ofanytrader whose understanding of
thesystem was"totally satisfactory". Moreover, theywereunaware ofanylicensing scheme anywhere
thatsubjected itsparticipants tothecollection ofburdens present forthird-country bananas. Evenwithin
thecontext ofthebanana regime, theECitself hadobviously made thedetermination thatthetariff
quota licensing procedures wereunduly burdensome, sincetheyhadexempted traditional ACPbananas
fromthose rulesandhadproposed thatnon-traditional ACPbananas likewise beexempted fromthem.
Thefactthattraditional ACP bananas wereexempted from allsuchburdens wasaclearviolation of
the"neutrality" standard ofArticle 1.3.Likewise, theburdens andadverse effects ofthetariff quota
licensing scheme wereextreme andinconsistent withArticle 3.2.Ifthissystem wasnotinconsistent
withthese newdisciplines, itwashardtoimagine systems thatwould come under theirheading.
4.354 TheECretorted thatthePanel should notoverlook thefactthatimports under theECtariff
quota in1995 amounted to123percentofthebound tariff quota volume andto98percentofthe
autonomously increased tariff quota. Thesituation wassimilar in1994. Intheopinion oftheEC
tradehadnotbeendistorted andtherefore thelicensing system could notbeaccused oftradedistortion.
Claims under theAgreement onAgriculture
4.355 Ecuador argued thattheECimport licensing regime wasinconsistent withArticle 4.2ofthe
Agreement onAgriculture. Ecuador claimed thattheprincipal purpose oftheUruguay Round
negotiations onagriculture wastoeliminate thenumerous systems throughout theworld foragricultural
protection which relied heavily onnon-tariff barriers asameans ofgiving authorities discretion and
latitude tocontrol imports. Tariffication wasseenasthefirststepinmaking agricultural protection
transparent andsubject toprogressive reduction, bothintheUruguay Round andinsubsequent global
rounds ofnegotiations. Moreover, thepreamble totheAgreement onAgriculture made itclearthat
animportantpurposeoftheAgreementwastoprovidegreateraccessforproductsofdevelopingcountries
inthemarkets ofdeveloped countries, including "...thefullest liberalization oftrade intropical
products ...".
4.356 Referring toArticle 4.2oftheAgreement onAgriculture anditsfootnote, Ecuador considered
thatthethreshold question waswhether theimport licensing regime setforth inRegulation 1442/93
constituted discretionary import licensing. Ifso,itwasclearthatunder Article 4.2,Members were
notpermitted tomaintain suchmeasures. According toEcuador, there werevarious features ofthe
licensing regime which involved elements ofdiscretion. Butitwasthetotality ofthese features and
themanner inwhich theyinteracted which resulted ingranting Commission authorities exceedingly
broad discretion tolimit, control andevenprevent imports. Intheopinion ofEcuador, agoodexample
201"Beyond Bananarama", p.25.WT/DS27/R/USA
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wastheinteraction between theactivity function allocation, theauditing procedure, andtheuniform
reduction coefficient. Since theverybeginning ofthissystem, totalCategory Aoperator reference
volume claims ofthose applying forlicences hadexceeded actual banana imports bythose same firms
during therelevant reference period. Asexplained elsewhere, thisover-filing (ordouble-counting)
problem wasduebothtotheconfusion arising outofthedefinitions of"primary importer", "secondary
importer" and"ripener" andtofraudulent over-claiming.
4.357 Regulation 1442/93 provided fortwomeasures toaddress over-filing: theexecution ofaudits
andtheapplication ofareduction coefficient. However, theCommission 'sauditing procedures were
highlydiscretionary.TheCommissionapparentlyhadbroadlatitudetoselecttheoperatorstobeaudited,
instruct themember States 'authorities ontheclaims tobequestioned andthenruleonthelegitimacy
ofthose claims. There werenopublished guidelines orofficial explanations onhowtheCommission
selected theoperators thatweretobeaudited. Although theCommission didnotrelease information
which would enable outside parties toverify thisfact,itappeared thattheauditing procedure was
operated insuchawayastosubject non-EC operators togreater scrutiny, thereby enabling EC-owned
operators tocontinue benefiting fromoverfiling202.Those unfortunate enough tobeaudited werestill
subjected totheapplication ofthereduction coefficient, eveniftheauditing revealed nooverfiling,
thereby making them payfortheoverfiling ofothers, whowerepermitted tobenefit from theirown
fraud. Although itwasimpossible foranyone except theCommission toverify these facts, theoverall
impact wasclear: inpractice theresult ofthisprocess wastheincrease inthenumber ofimport licences
inthehands ofEuropean operators.203Thus, theCommission wasusing ahighly discretionary system
totakeaway licences from many historical importers ofLatin American bananas.
4.358 Ecuador further argued thatanother important discretionary weapon wastheability todelay
licences. Asexplained elsewhere, itwasnormal practice nottogrant thefulllicence quantity before
theapplicablequarterbegan.Theseunjustifiabledelayshinderedoperatorsfrommarketingthird-country
bananas inatimely manner. Asaresult ofthisdiscretionary practice, incombination withthequarterly
two-round procedure, aconsiderable volume ofthird-country bananas didnotenter themarket until
atleastthree weeks intothequarter forwhich thelicences weretobeissued.204There wasnoofficial
explanationforthesefrequentdelays.Onecouldassume,then,thatthisrepresentedanotherdiscretionary
practice todelay theentry intotheECofthird-country bananas.
4.359 Forthese reasons, Ecuador considered thatthediscretionary import licensing regime violated
Article 4.2oftheAgriculture Agreement. Afinding tothecontrary would permit governments to
circumvent Article 4.2merely byestablishing ahighly complex licensing system withamixof
discretionary andnon-discretionary features, andthenoperating thatsystem inamanner designed to
make importation virtually impossible except under circumstances contemplated bythelicensing
authorities. TheEC'suseofadiscretionary import licensing system hadactually worsened, rather
thanimproved, market access conditions compared tothesituation pre-existing thenewregime. Several
major markets which werepreviously freefromanylicensing restrictions nowfaced amajor non-tariff
barrier. Thisdeterioration inaccess was,according toEcuador, obviously contrary tothepurpose
andobjective oftheAgreement onAgriculture.
202Ecuador noted thatitwasareality thatmost ofthedirect importers were non-EC operators while theother operators
involved inthemarketing ofbananas were European.
203Explanatory Memorandum oftheCommission Proposal foraCouncil Regulation onthecommon organization ofthe
market inbananas (COM (92)359final, 7August 1992).
204According toEcuador, because ofthetransit timethrough thePanama Canal, thetimebetween loading andunloading
wasthree weeks. Unloading tookplace atleastfourtofiveweeks afterthetimethattheorder wasfirstplaced bytheimporter.WT/DS27/R/USA
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4.360 TheECretorted thatEcuador ’sassertion should berejected because thenecessary elements
toapply Article 4.2oftheAgreement onAgriculture were missing. Theexisting ECbanana tariff
wastheresult ofthenegotiation under theUruguay Round afterthattheprevious obsolete 20percent
advalorem ratehadbeen deconsolidated. Thetariff quota, thatneeded alicensing system tobe
administered, hadnotbeenrequired tobeconverted intoordinary custom duties but,onthecontrary,
wastheresult ofanegotiated deconsolidation ofanadvalorem customs duty. Inaddition, theEC
import licensing wasnotadiscretionary licensing system since itwasbased onstrict andobjective
rulesofgeneral application which attributed individual rights tooperators ontheECmarket andwhich
weredulyandthoroughly published. Certain aspects ofthelicensing system provided foradministrative
powerstoberetainedbytheCommissionasanyotherpublicauthorityinanyothercountryadministering
anylikeprocedure: these powers were, inanycase, always awarded totheCommission bytheEC
applicable law.Thisdidnotandcould notchange atallthenature ofastrictly legally bound licensing
procedure.
4.361 Inresponse toaquestion posed bythePanel, theECrecalled that,initsopinion, theLicensing
Agreement didnotapply totariff quotas. Thelegal analysis concerning "non-automatic" and
"discretionary" licensing wasdone, therefore, with theunique purpose ofhelping thePanel's
interpretative tasks. IntheECview, theterm"non-automatic licensing" referred toanadministrative
procedural stepnecessary toimport aproduct inpresence ofaquantitative restriction ortoprofit from
atariff rateinpresence ofatariff quota. AsArticle 3.5(e) oftheLicensing Agreement pointed out,
inthislight, "anyperson, firmorinstitution which fulfils thelegalandadministrative requirements
oftheimporting Member shallbeequally eligible toapply andtobeconsidered foralicence". The
term"discretionary licensing", onthecontrary, referred toasituation inwhich anadministration of
animporting Member retained the-fullorpartial -discretion onwhether todistribute thelicences
andtowhom. Thisadministrative discretion was,inparticular, concerned withthepublic interest
asopposed totherights oftheindividual operators: theauthorities could therefore depart frompre-
established criteria ofdistribution inorder totakeintoaccount theexistence ofaspecific public interest.
Whatever theWTO provisions applicable totheECtariff quota onbananas, thelicensing system for
administering itcertainly fullycorresponded tothedefinition of"non-automatic licensing" andnot
tothatof"discretionary licensing".
4.362 Asconcerns thequestion ofwhether theterms "non-automatic licensing" and"discretionary
licensing" werecoterminous, theComplaining parties considered thattheywerenot.TheLicensing
Agreement defined non-automatic licensing asasystem which didnotgrant approval oflicence
applications inallcases. However, anon-automatic licensing system wasnotnecessarily adiscretionary
system. Inanon-automatic system, applicants could besubject tospecific requirements withwhich
theyhadtocomply inorder toreceive animport licence. Ontheother hand, adiscretionary licensing
system wasoneinwhich anadministrative body (inthiscase, theCommission) reserved toitself the
righttodenyalicence evenifcertain objective criteria were met. Ecuador hadargued thattheEC
banana regime wasadiscretionary import licensing system because theEChadputinpractice asystem
(throughcomplicateddistributionoflicences,thetwo-roundsystem,selectiveauditingandtheapplication
ofreduction coefficients despite auditing having taken place) soastoallow ittodecide toissuealicence
ornotbased onnon-objective, non-binding criteria.
(ii)Operator category licence allocation
4.363 TheComplaining parties argued thatalthough thecoreoftheimport licensing system, i.e.the
Category Boperator criteria, wasfound tobediscriminatory under Articles IandIIIofGATT bythe
second Banana panel, theEChadmade noeffort since thattimetodiminish thatdiscrimination. As
mentioned above, 30percentofthein-quota quantity forthetariff quota wasallocated tocompanies,
known asCategory Boperators, onthebasis ofthree previous years’marketings ofECbananas andWT/DS27/R/USA
Page144
imports ofACPbananas. Anobvious advantage, ahighly valued import licence, wasbeing provided
asanincentive topurchase ACP andECbananas. Thisrepresented theArticle III:4andArticle I
violations thattheECstillhadmade noeffort toaddress. Indeed, intheinterim italsodecided to
provide additional advantages tothose Category Boperators, suchastheexemption from export
certificate requirements andtheexclusive receipt ofhurricane licences, which further favoured purchases
ofACP andECbananas.
4.364 TheUnited States noted thaton11February 1994, thesecond Banana panel found the
Category Boperator eligibility criteria tobeinconsistent withArticles I:1andIII:4ofGATT, because
theyprovidedincentivestopurchaseotheroriginbananas.205Thepanelwentontosay(inparagraph145)
thattheGATT didnotsetforthspecific provisions regarding thedistribution ofimport licences, and
thattheECcould havechosen toallocate licences onthebasisofimporting companies 'previous trade
shares. Itnoted, however, that:
"Theabsence ofanyprovisions intheGeneral Agreement specifically regulating theallocation
oftariff quota licences alsomeant thatcontracting parties, inallocating suchlicences, hadto
fullyobserve thegenerally applicable provisions oftheGeneral Agreement, inparticular those
ofArticle III:4, which prescribes treatment ofimported products nolessfavourable thanthat
accorded todomestic products, andArticle I:1,which requires most-favoured-nation treatment
withrespect tointernal regulations."
Thepanel concluded thattheCategory Beligibility criteria wereinconsistent withbothArticle I:1and
Article III:4. Intheopinion oftheUnited States, theEChaddonenothing tochange theCategory B
criteria, ortheincentives mentioned above, since thesecond Banana panel issued itsreport. Indeed,
barely amonth afterthedecision, theECcompounded thediscrimination byinsisting, initsnegotiations
withColombia andCosta Rica, thatCategory Boperators beexempted fromitscommitment torequire
thepresentation ofexport certificates asacondition forimporting bananas fromtheBFAsignatories
thatissued them. Implemented on1March 1995,206thisexemption amounted toanadditional violation
ofArticles I:1andIII:4ofGATT.
4.365 Ecuador recalled thatArticle IofGATT required thatMembers accord most-favoured-nation
treatment toimports ofproducts fromotherMembers, while Article IIIofGATT required thatMembers
accord national treatment toother Members 'products. Thesecond Banana panel report found that
theCategory Ballocation violated bothofthese requirements. According toEcuador, theEChad
notamendedtheCategoryBlicenceallocationschemesincethe1994panelreportwasissued.Therefore,
thepanel'sreasoning thattheCategory Ballocation violated themost-favoured-nation andnational
treatment provisions oftheGATT remained persuasive.
4.366 TheComplaining parties recalled thatinits1995review oftheoperation ofthebanana regime,
theECCommission characterized theallocation of30percentofthethird-country tariff quota to
operators onthebasis oftheirpastmarketings ofACP andECbananas (Category B)as"theresult
ofadifficultpoliticalcompromisein1993".Commissiondocumentsusedtheterm"cross-subsidization"
toexplain more specifically whyitgranted suchrights toCategory Bfirms, which hadscarcely any
history ofdistributing ortransporting non-ACP andnon-EC bananas:
205Para. 144ofthesecond Banana panel report (DS38/R).
206Regulation 478/95.WT/DS27/R/USA
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"Fromtherangeofalternativemethodsthatcouldbeused...theapproachofcross-subsidisation,
through issuing licences toimport "dollar bananas" tothose whotraded inCommunity orACP
bananas, waschosen because itnotonlyprovides some financial compensation forthehigher
production costsofthese bananas, butalsoactsasanincentive forthemarket tobecome more
integrated, andtoencourage operators totrade inbothdollar andEC/ACP fruit."207
4.367 They further noted thatthe66.5percent-30percent-3.5percentlicensing distribution
wasnowineffect forallEC-15 imports. Because Sweden, Austria andFinland imported bananas
onlyfrom non-ACP thirdcountries andnon-traditional ACP countries, expanded application ofthe
66.5percent-30percent-3.5percentdistribution toinclude EFTA-3 imports significantly increased
Regulation 404/93 'spre-accession cross-subsidization effect.
4.368 TheECsubmitted thatthecategory allocation, inparticular theCategory Blicence, was
consistent witheachoftheprovisions oftheGATT andother agreements citedbytheComplaining
parties.
Claims under theGATT
Article IofGATT
4.369 TheUnitedStatesclaimedthatthesecondBananapanelfoundtheCategoryBoperatoreligibility
criteria tobeinconsistent, interalia,withArticle I:1ofGATT, totheextent thattheyprovided an
advantage tobananas fromsome countries (ACP beneficiaries), intheformofanincentive topurchase
andmarket theirfruit. Since theEChadnotchanged thesecriteria, thedistribution ofimport licences
based onhistorical purchases ofACPfruitremained, intheopinion oftheUnited States, inconsistent
withArticle I.Forthesamereasons found bythesecond Banana panel withrespect tothedistribution
oflicences, exemption ofCategory Boperators from theexport certificate requirement withrespect
toimports from BFAcountries wasalsoinconsistent withArticle I:1.208
4.370 Ecuador argued further thattheMFN clause prohibited discrimination based ontheorigin
ofgoods withrespect, interalia,to:
"allrulesandformalitiesinconnectionwith...importationandexportation,"to"internalcharges
ofanykindinexcess ofthose applied, directly orindirectly, tolikedomestic products,"209
andtoany"requirements affecting theirinternal sale,offering forsale,purchase, transportation,
distribution oruse."
TheCategory Ballocation scheme required thatoperators market ECortraditional ACP bananas in
order toobtain Category Blicences. TheCategory Ballocation scheme thusprovided anincentive
topurchase ECand/or traditional ACPbananas inorder toobtain alarger share ofthelicences toimport
third-country bananas. Theadvantage given toACP bananas through theCategory Ballocation
mechanism thusdirectly violated Article I:1ofGATT.
207"Note forInformation -Impact ofCross-Subsidization within theBanana Regime", European Commission. Seealso
Report ontheOperation oftheBanana Regime, ECCommission, SEC(95)1565 p.11.
208Second Banana panel, paras. 146-147.
209Seethedirect reference inArticle IofGATT incorporating Article III:2 and4.WT/DS27/R/USA
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4.371 Recalling Article 6oftheBFA andArticle 3ofRegulation 478/95, Ecuador argued that
Category Boperators wereexcluded fromtherequirement toobtain special export certificates toimport
bananas from BFA signatory countries. Thisdiscrimination between operators violated, according
toEcuador, theGATT (andtheLicensing Agreement). ThefactthattheBFAallocations wereincluded
aspartoftheEC'sUruguay Round Schedules could notexcuse theGATT incompatibility ofthis
discriminatory licensing requirement. TheneedforCategory AandCoperators toobtain special export
certificates toimport bananas fromBFAsignatory countries (except Venezuela) violated, intheview
ofEcuador, Article I:1ofGATT. AnyCategory Boperator could market bananas from Colombia,
Costa RicaandNicaragua without anexport certificate. Theexport certificate "requirement" thus
intensified thediscrimination created bytheoriginal Category Ballocation mechanism byproviding
anadditional incentive toqualify forCategory Blicences bymarketing ECbananas. Thisdiscrimination
wasaclear violation ofArticle IofGATT.210
4.372 GuatemalaandHondurassubmittedfurtherthatthesecondBananapanelanalyzedthepreferred
allocation toCategory Bentities thatpurchased traditional ACP bananas andfound ittobecontrary
totheArticle I:1requirement thatanyadvantage accorded toonethirdcountry hadto"beaccorded
immediatelyandunconditionallytothelikeproductoriginatingin...theterritoriesofallothercontracting
parties." AswithArticle IIIofGATT, thepanel found thattheincentive created under Category B
topurchase ACP bananas accorded aclearACP advantage thatwasdisallowed byArticle I:1.The
panel reiterated thatneither thetrade flowimpact ofsuchincentive, northeentitlement requirements
ofCategory A,militated against thisperseviolation. TheLomé waiver likewise didnotjustify the
violation. Thatdecision excused theobligations ofArticle I:1onlytothemostnarrow extent "required"
bytheLomé Convention. AllthattheLomé Convention required, wasthattariffpreferences andcertain
forms ofdirect aidbeafforded sothattraditional ACP bananas werenotplaced inalessfavourable
position relative totheaccess andadvantages previously accorded tothem.211TheACP purchasing
incentives linked toLatin American import entitlement constituted neither ofthese and,indeed, were
nowhere tobefound inthepre-Regulation 404/93 national regimes. Moreover, theprimary underlying
agenda fortheCategory Brules wastosupport privileged ECmarketers, notLomé undertakings.
Thus, anyinterpretation thattheCategory Bentitlement ruleswererequired bytheLomé Convention,
suchthatArticle I:1ceased toapply, would subvert thedeliberately constrained language oftheLomé
waiver andpermit expansive discrimination inways never intended bythecontracting parties that
approved thedecision. Accordingly, Guatemala andHonduras wereoftheviewthattheArticle I:1
ruling withrespect totheCategory Binthesecond Banana panel should stand.
4.373 Mexico considered thatArticle IofGATT wasapplicable totheincentive given infavour
ofACPbananaimportsthroughthemechanismwhichreserved30percentoftotalimportstoCategoryB
operators.
4.374 Guatemala andHonduras submitted thatRegulation 404/93 stipulated thatthirdcountry and
non-traditional ACPbananas mayonlybeentered anddistributed within thequota byspecifically defined
"operator" categories. Onesubstantial operator category, Category B,purchased onlyademinimis
volume ofbananas fromLatin America forentry anddistribution intheECpriortoRegulation 404/93.
Theimposition ofthiscategory onLatin American bananas accordingly required thatthose suppliers
terminate pre-Regulation 404/93 commercial relationships andforge entirely newones. Guatemala
andHonduras considered thatthisundesirable andinflexible commercial reconfiguration disrupted
conditions oftrade andmarket competitiveness forthirdcountry andnon-traditional ACP bananas.
Traditional ACPandECsuppliers, ontheother hand, wereaccorded fardifferent tradearrangements
210Ecuador noted thatthespecial export certificate requirement wasnotprotected from scrutiny bytheLomé waiver
since, atmost, thewaiver could cover certain historical tariff preferences given totraditional ACP bananas.
211Lomé Convention, Protocol 5,Article 1.WT/DS27/R/USA
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thathadnosuchdefined operator categories, enabling perfect continuity intradeflowandpre-existing
commercial relationships forthose sources. Guatemala andHonduras argued thatother panels had
considered thatunder Article I:1,aregulatory advantage maynotbeconferred tooneforeign origin
without conferring thesame advantage toallothers.212Yet,Regulation 404/93 etseq.conferred
unlimited discretion tosuppliers ofACP-sourced bananas totransact withentities oftheirchoosing,
while denying thatsame advantage tosuppliers ofbananas from tariff quota origins.
4.375 TheECnoted thatRegulation 404/93 provided inArticle 19:"Thetariffquota shallbeopened
from 1stJuly1993 for:...(b)30%tothecategory ofoperators whomarketed community and/or
traditional ACPbananas;". AlltheComplaining parties hadquoted thesecond Banana panel report
(unadopted) inwhich thepanel stated that"theabsence ofanyprovisions intheGeneral Agreement
specifically regulating theallocation oftariff quota licences alsomeant thatcontracting parties, in
allocating such licences, hadtofully observe thegenerally applicable provisions oftheGeneral
Agreement, inparticular those ofArticle III:4which prescribes treatment ofimported products no
lessfavourable thanthataccorded todomestic products, andArticle I:1,which requires most-favoured-
nation treatment withrespect tointernal regulations". With respect totheclaims concerning Article
I:1,noevidence had,intheEC'sopinion, beenprovided astohowtheCategory Breservation inthe
licensing administration oftheECtariff quota affected, ifatall,theinternal ECdistribution market
ofbananas. Onthecontrary, itwasalltoological thatoperators thathadinthepasttraded in
Community andACPbananas would availthemselves oftheopportunity tosellpartofthetariffquota
where themargins ofprofit were, inprinciple, higher thanforECorACP traditional bananas. In
anycase, notasingle piece ofevidence hadbeenprovided demonstrating thattheexistence ofthe
Category Blicence hadshifted trade from Latin American toACP/EU bananas. TheCategory B
licensing system didnotcreate anyincentive topurchase anyparticular product butonlyfavoured the
avoidance oftheeffects ofoligopolistic tradebyoperators relying onlyonbananas ofaparticular origin,
stimulating bysodoing effective competition between operators trading indifferent sources ofsupply.
Thisdidnotmean atallthatimported bananas ofanysource werediscriminated against orfavourably
inanysense since, whatever thenationality ofthetrader, provided thatitqualified fortheappropriate
category under Regulation 404/93, anybanana could beimported bythattrader, whatever theorigin
(seealsoparagraphs 4.393 and4.394).
4.376 Norwasthereanylinkbetweentheallocationoflicences,whichwereused"tocrosstheborder",
thatwastoputbananas intofreecirculation intheECmarket, andthemarket share inprocessing or
selling those bananas intheECmarket. Moreover, thefactthatlicences weretradeable should not
bedisregarded andlicences should notbeconfused withthephysical handling ofbananas either prior
totheirimportation orwhen disposed ofontheECmarket. Inthese circumstances, itwasdifficult,
ifnotimpossible, toseewhatshould beextended onanMFN basistoothers inapplication ofArticle I:1,
when notonesingle ACPtraditional banana wastraded ontopoftheexisting separate ACPtraditional
regime andnotasingle Latin American banana lesswasimported under theECtariff quota -which
wasconstantly fullyusedbytheapplication ofArticle 19(b) ofECRegulation 404/93. Infact,no
advantage, favour, privilege orimmunity wasgranted toanybanana ofwhichever origin through the
Category Blicensing system.
4.377 However, if,forthesakeoftheargument, Article I:1should bedeemed applicable tothe
Category Blicence category with regards totheACP traditional bananas thenArticle 19of
ECRegulation404/93shouldbeconsideredcoveredbytheLoméwaiverinsofaritreservedCategoryB
licences foroperators whocould demonstrate theyhadimported ACPtraditional bananas. Protocol 5,
Article 1,oftheLomé Convention stated: "noACPStateshallbeplaced, asregards ...itsadvantages
212"United States -Denial ofMost-Favoured-Nation Treatment astoNon-Rubber Footwear fromBrazil", BISD 39S/128,
para. 6.11 (adopted 19June 1992).WT/DS27/R/USA
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onthose markets, inalessfavourable situation thaninthepastoratpresent". Thebanana trade was
ofvitalimportance tomany traditional ACP suppliers, notonlyinterms ofrevenue generation and
employment, although thiswasfrequently crucial, butalsobecause ofroleofbanana boats inimporting
essential supplies toisolated island nations. Consignments ofbananas ensure regular shipping links,
andalsosubsidize thecostofimports, because theboats arefullbothways.
4.378 Inananswer toaquestion posed bythePanel, theECpointed toaCIRAD213study which
demonstrated production costswereverycloseto,andinsomecasesevenabove theFOBprices received
byACPcountries. Thisclearly showed thatthetariff wasnotsufficient tocompensate forthehigher
costsofbanana production inACPcountries. Thequality problems afflicting some ACPbananas also
made them lessattractive tothemarket, asananalysis ofimport andwholesale prices showed. Thus
evenifthetariffwassetatalevelwhich would equalise duty-paid import prices, Latin American bananas
would stillbemore sought-after forthemost part. Moreover, evenwithamuch higher tariff than
thecurrent one,whilst some ACPproduction maybeafforded sufficient protection tobetraded, many
suppliers would stillbeunable tocompete intheviewoftheEC.Unfortunately, those leastableto
compete werealsoforthemostpartthose countries which weremostdependent onbananas, andso
would experience thegreatest effects ontheirentire economies fromanydisruption tothebanana trade.
Insuchcases, forexample intheCaribbean, thedegree ofeconomic inter-dependence intheregion
would mean thatanyeconomic collapse would haveanimmediate knock-on effect ontheeconomic
stability oftheregion asawhole. Thiswould threaten notonlythebanana industry ofother islands
dependent onshipping routes, butother industries, forexample tourism, dependent onstable export
earnings. Itwould alsodeterinvestment andjeopardise diversification efforts. Thelong-term economic
survival anddevelopment oftheregion wasinextricably linked tothecontinuation ofthebanana industry
toprovide astable levelofexport earnings. Itwastherefore necessary, theECargued, totakecertain
additional preferential measures infavour ofimportation oftraditional ACP bananas soastoenable
them actually tobesoldonthemarket andgivethem areasonable basis forcompetition withLatin
America bananas.
4.379 Intheopinion oftheEC,theCategory Blicensing system, byproviding astabilized environment
intheACPbanana trade, concurred inmaintaining the"advantages", which werepresent before the
entering intoforceoftheECbanana regime, onthecommunity markets andwastherefore fullycovered
bytheLomé waiver. Moreover, reservation fortraders whohadsystematically traded ACPbananas
within thetariffquota licensing scheme served thepurpose ofavoiding thedistortive effects oftrading
oligopolies based ontheorigin oftheproduct andstimulated anincreased presence oftraders throughout
allsources ofsupply. Thismechanism favoured theeconomies ofACP countries byincreasing the
reliability ofthetrade chain ofbananas bound fortheECmarket andfulfilled theobligation ofthe
ECtoavoid reductions inrealterms ofaccess oftraditional ACP supplies (Article 1ofProtocol 5).
Noviolation could thusbeclaimed concerning Article I:1ofGATT bytheCategory Blicence system
asnoadvantage, favour, privilege orimmunity wasgranted toACPbananas ascompared withother
sources bananas. Inanycase, Article I:1waswaived totheextent topermit theECtofulfil its
obligations vis-à-vis theACP countries under Article 23andProtocol 5,Article 1,oftheLomé
Convention.
4.380 TheComplaining parties argued thattheEC'svarious claims withrespect totheCategory B
allocation scheme wereinternally inconsistent. Ontheonehand, theECasserted thatCategory Bdid
notcreate anyincentive topurchase product ofACP origins andthatnotonesingle ACP traditional
banana wastraded ontopoftheexisting separate ACPtraditional regime. Ontheother hand, itinsisted
thatthe"first andforemost aimofthe[allocation] system [is]tohelpproducers ofACP bananas."
Thiswasaccomplished, itsaid, "byproviding astabilized environment intheACP banana trade",
213Centre deCoopération Internationale enRecherche Agronomique pour leDéveloppement, Montpellier.WT/DS27/R/USA
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"byincreasing thereliability ofthetradechain" forACPbananas, andbyotherwise ensuring thatACP
quantities "would actually besoldonthemarket". TheEChadargued thatassistance ofthissortwas
legally required byProtocol 5.Either waytheECtriedtoargue alegalneedforCategory B(trade
neutrality ortrade favouritism), intheopinion oftheComplaining parties theLomé waiver was
inapplicable. Thesecond Banana panel report confirmed thattrade effects were irrelevant where a
measure provided acompetitive advantage; thepreferred allocation oflicences tooperators who
purchased bananas from ACP countries wasinconsistent withArticle IofGATT because itdidnot
accord thesame advantage tobananas from other sources.214Thisviolation wasnotcovered bythe
Lomé waiver, sincetheECwasnotrequired bytheLomé Convention togobeyond simply permitting
access opportunities andadvantages fortraditional ACPbananas. TheECCouncil ofMinisters had
confirmed thattheLomé Convention didnotguarantee access forACPquantities.215Hence, measures
allegedly designed toguarantee thatACP quantities "would actually beabsorbed inthemarket" had
nobasisinanyLomé Convention requirement andweretherefore notcovered bythewaiver. Moreover,
anyobligation tomaintain previous access andadvantages applied withrespect tosalesoftheACP
bananas themselves. Itdidnotrequire providing anentirely unrelated advantage inconnection with
theimport licensing procedures forLatin American bananas. Intheopinion oftheComplaining parties,
theEC’s1992 options report provided additional evidence thatCategory Ballocations were nota
requirement oftheLomé Convention. Several options wereconsidered inthatreport thatwould not
havecalled foranysuchallocation. Although oneofseveral options discussed wasanapproach that
would havedivided aLatin American quota, with90percenttotraditional Latin American marketers
and10percenttotraditional ACP/EC marketers,216those proposed figures onlyconfirmed how
discretionary thefinal30percentallocation infactwas.
4.381 TheComplaining parties argued further thatthedistribution ofCategory Blicences onthebasis
ofACPbanana marketings wasnotrequired tofulfilanyLomé Convention obligation. TheECCourt
ofJustice hadalready stated thatunder Protocol 5,theEC’sonlyobligation wasto"maintain the[prior]
advantages, withrespect toaccess ofACPbananas". Theadvantages being provided toACPbananas
under thecurrent regime, from theexcessive country-specific allocations, totheduty-free treatment
fortheseamounts, tothespecial provisions fornon-traditional ACPbananas, totheCategory Blicence
criteria,andtotheexcessivelyburdensomeimportlicensingsystemimposedonLatinAmericanbananas,
substantially exceeded theaccess andadvantages provided byECcountries toACP bananas under
previous national regimes.
4.382 TheECasked thePanel toconcentrate onthesubstance: theLomé Convention wasaimed
atcreating apreferential treatment inorder toensure thattheACP States, asregards access totheir
traditionalbananamarketsandtheiradvantagesonthosemarkets,"shallnotbeplacedinalessfavourable
situation thaninthepastoratpresent". TheEChadonnumerous occasions during thisprocedure
underlinedtheabsoluteneedtheACPStateshadtodisposeofaproceduralmean(theCategoryBlicence)
which wasaimed atmaintaining theveryexistence ofaregular tradechain fortheirbananas. Without
thisassurance, itwould beimpossible fortheECtoensure anolessfavourable situation asregards
access toitsmarket andevenlessasregards theadvantages onitsmarket, forthesimple reason that
theACP bananas would havetheirtrade disrupted bytheirregularity ofthetrade relations. The
Category Blicensing system provides astabilized environment intheACP banana trade.
4.383 TheECargued thatitwasonething tosupport theACP banana trade byappropriate means
aimed atcreating theconditions bywhich thebananas could reach theECmarket inorder tobeallowed
214Second Banana panel, para. 147.
215"Report oftheACP-EEC Council ofMinisters", Brussels, 25July1980, p.44, para. 2.1.2.4.
216"Setting UptheInternal Market", para. 61(a).WT/DS27/R/USA
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topreserve theiraccess tothatmarket andtheiradvantages onthatmarket. Thiswasinclearconformity
withProtocol 5,Article 1,andcovered bytheLomé waiver. Moreover, thiswasthepreservation
ofarealandeffective opportunity tosellbutbynomeans aguarantee oftheselling ofanyspecific
volume ofbananas norofanyminimum price ontheECmarket forthepurchase ofthose bananas
onthatmarket. Itwasacompletely different thing toclaim thattheCategory Blicensing intervened
ontheECmarket, thatisafterthefruithadcleared customs. Thiswasabsolutely andthoroughly
incorrect. Notasingle ACPbanana more wassoldontheECmarket because oftheexistence ofthe
Category Blicence. Notasingle Latin American banana lesswassoldontheECmarket because of
theexistence oftheCategory Blicence.
Article IIIofGATT
4.384 Ecuador argued thatArticle III:1ofGATT stated thatinternal laws, taxes andregulations
"should notbeapplied toimported ordomestic products soastoafford protection todomestic
production." Arequirement topurchase adomestic product inorder toobtain therighttoimport a
product atalower rateofdutyunder thetariff quota clearly wasamarketing incentive designed to
"protect domestic production." Therighttoobtain Category Blicences forimporting third-country
bananaswascontingentuponthemarketingofdomesticortraditionalACPbananas.Nosimilarincentive
wasprovided forthemarketing ofLatin American fruit. Theincentive topurchase ECfruitprovided
through theCategory Ballocation scheme thusviolated thenational treatment requirements ofArticle III
ofGATT.
4.385 TheUnited States noted thatthesecond Banana panel haddrawn (inparagraph 146)the
following conclusion withrespect totheincentives provided tobuybananas from domestic sources:
"The Panel thenproceeded toexamine theEEClicensing scheme inthelightoftheincentive
provided under theregulations tobuybananas fromdomestic sources .ThePanel noted that
Article III:4hadbeeninterpreted consistently byprevious panels asestablishing theobligation
toaccord imported products competitive opportunities nolessfavourable thanthose accorded
todomestic products. Aprevious panel hasstated:
'Thewords 'treatment nolessfavourable 'inparagraph 4callforeffective equality
ofopportunities forimported products inrespect oftheapplication oflaws, regulations
andrequirements affecting theinternal sale,offering forsale,purchase, transportation,
distribution oruseofproducts. '217
"ThePanel further noted thatprevious panels hadfound consistently thatthisobligation applies
toanyrequirement imposed byacontracting party, including requirements 'which anenterprise
voluntarily accepts toobtain anadvantage fromthegovernment. '218IntheviewofthePanel,
arequirement topurchase adomestic product inorder toobtain therighttoimport aproduct
atalower rateofdutyunder atariff quota istherefore arequirement affecting thepurchase
ofaproduct within themeaning ofArticle III:4. ThePanel further noted that,injudging
whether effective equality ofopportunities forimported products under Article III:4was
accorded, thetradeimpact ofthemeasure wasnotrelevant. TheCONTRACTING PARTIES
217Report ofthepanel on"United States -Section 337oftheTariff Actof1930", adopted 7November 1989, BISD 36S/345
at386("Section 337oftheTariff Actof1930").
218Repor tofthePanel on"EEC-Regul ationonImpor tsofPartsandComponent s",adoptedon16May1990, BISD37S/132
at197.WT/DS27/R/USA
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determined in1949thattheobligations ofArticle III:4'wereequally applicable whether imports
fromothercontractingpartiesweresubstantial,smallornon-existent,'219andtheyhaveconfirmed
thisviewinsubsequent cases.220Thus itwasnotrelevant that,atpresent, theincentive under
theEEC regulations tobuydomestic ortraditional ACP bananas mayonlyresult inraising
theirprice, andnotinreducing theexports ofthethird-country bananas, since these exports,
because ofthehighover-quota tariff, were limited, defacto, totheamount allocated under
thetariff quota. Thediscrimination ofimported bananas under thelicensing scheme could
therefore notbejustified bymeasures ontheimportation thatcurrently prevented, defacto,
bananas fromentering intotheinternal market. ThePanel therefore found thatthepreferred
allocation ofpartofthetariff quota toimporters whopurchase EECbananas wasinconsistent
withArticle III.4."
4.386 Mexico claimed thatArticle III:4ofGATT wasapplicable tothecaseunder consideration by
thePanel because theECregime hadaregulation withrequirements affecting theinternal sale,offering
forsale,purchase, transportation, distribution oruseoftheseproducts (imported bananas) intheinternal
market, granting them less-favourable treatment thanthataccorded tolikeproducts (ECbananas) in
thedomestic market. Theless-favourable treatment fortheimportation ofnon-ACP bananas wasdue
tothefactthataccording totheECregime, 30percentoflicences required toimport non-ACP bananas
within thetariffquota wasreserved fortheCategory Boperators, thatis,those operators thathistorically
hadmarketed ECortraditional ACP bananas, onarolling three-year reference period basis. In
conformity withtheconclusions ofthesecond Banana panel andinaccordance withinformation from
theECitself, themechanism relating toCategory Boperators resulted inanincentive infavour of
ECbananas tothedetriment ofbananas imported fromnon-ACP countries. According tothesecond
Banana panel, thisincentive infavour ofECbananas wasinconsistent withArticle III:4ofGATT.
4.387 Mexico further claimed thatthere wereother violations ofArticle IIIthatwerenotexamined
bythesecond Banana panel because theydidnotexistthen. These violations referred totheadvantages
accorded toECbanana producers through theECregime tothedetriment ofimports. Thisincluded
theexemption granted toCategory Boperators toimport partofitsbanana imports fromBFAcountries
without having topresent theexport certificates from those countries necessary forCategory Aand
Category Coperators. Thiscreated anincentive infavour ofthepurchase andmarketing ofECbananas
which wasnotenjoyed byimported bananas.
4.388 Guatemala andHonduras argued thatthetariffquota category allocations violated Article III
ofGATT inthreedistinct ways. First, according toGuatemala andHonduras, Regulation 404/93 etseq.
required Category Bentities topurchase domestic andtraditional ACP bananas inorder togain
entitlement toimport tariffquota bananas within thequota. Thatsource-specific purchasing incentive
hadalready beenruled inconsistent onceinthesecond Banana panel andhadtoberuled soagain on
thesame, aswellasnew,grounds. Thepanel inthesecond Banana casecarefully analyzed thepreferred
allocation toCategory Bentities thatpurchased ECbananas andfound ittobeinconsistent with
ArticleIII:4.Drawingfrompastcaselaw,inwhichitwasruledthatArticleIII:4appliedtorequirements
that"anenterprise voluntarily accepts toobtain anadvantage fromthegovernment," thepanel found
thattheCategory Brequirements topurchase ECbananas inorder toobtain therighttoimport tariff
quotabananasatthein-quotarateofdutyconstitutedarequirementfavouringthepurchaseofECbananas
219Report oftheworking party on"Brazilian Internal Taxes", adopted 30June 1949 BISD Vol.II/181 at185.
220Report ofthepanel on"United States -Taxes onpetroleum andcertain imported substances", adopted on17June 1987
BISD 34S/136, 158,para. 5.1.9; report ofthepanel on"United States -Measures affecting alcoholic andmaltbeverages",
adopted on19June 1992, BISD 39S/206, para. 5.65.WT/DS27/R/USA
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inviolation ofArticle III:4.221Thepanel arrived atthisconclusion without regard totariffquota trade
impact. Thepanel stressed thatbecause Article III:4protected "equality ofopportunities," evenif
thepurchase incentive served onlytoraise ECbanana prices, andnotreduce tariff quota imports,
ArticleIII:4wasneverthelessviolated.ThepaneladdedthatCategoryA'sentitlementbasedonhistorical
tariff quota purchases innowayoffset orlegally justified theinconsistency ofCategory Bwith
Article III:4. Asnocorrective actions hadbeentaken bytheECtoremove theCategory Bpurchasing
incentive,thesecondBananapanelrulinghad,intheopinionofGuatemalaandHonduras,tobesustained
inthepresent action.
4.389 Guatemala andHonduras further submitted thatRegulation 404/93 etseq.imposed ontariff
quota banana producers theunique, unexpected burden ofhaving toselltospecifically defined and
arbitrarily allocated categories ofoperators. Fully 30percentoftheiralready-restricted access was
assigned toCategory Bfirms andproducers thathistorically hadnotbeensufficiently competitive to
import bananas from Latin American sources. Thatarbitrary Category Ballocation, through which
considerable tariff quota goods nowhadtoflow, wasdistributed tofirms andproducers solely onthe
basis oftheirpastpurchases oftraditional ACPandECbananas under arolling three-year reference
period. The30percenttariff quota licensing entitlement toCategory Bfirms accordingly meant that
Latin American suppliers hadnochoice buttousethevarious distribution, landtransport, inspection,
ripening andrelated services thosefirms supplied, eventhough suchfirms historically hadnomeaningful
experience inthedistribution andsaleofLatin American bananas andwerecompetitively unable to
handle suchfruitprior toreceiving the30percentlicensing entitlement gift. ECsuppliers, onthe
other hand, weregiven unlimited flexibility tosellanddistribute bananas without disrupting historical
distribution ties.
4.390 According toGuatemala andHonduras, Category Blicences violated Article IIIinathirdway,
being distributed, among others, toECproducers to"cross-subsidize" thesaleofECbananas within
theEC. TheEChaditself explained howCategory Bimport licences accomplished thatbenefit:
"Individual producers andproducers 'organizations which arenotthemselves necessarily
'importers 'ofbananas havebeenallocated Category Blicences. Since ingeneral theyhave
nointerest inimporting dollar bananas, theselicences aresold,providing asupplement totheir
income inaddition tothesupport provided bytheprovisions onaidtocompensate fortheloss
ofincome."222
Producers inLatin America didnotshare inthisexpressly admitted licensing benefit. Guatemala and
Hondurasweretherebybeingaccordeddifferential,lessfavourableregulatorytreatmentthanECsuppliers
indisregard ofArticle III:4ofGATT andother WTO provisions.
4.391 AsconcernsArticleIII:4,GuatemalaandHondurassubmittedthatthatArticlestrictlyprohibited
Members from extending treatment toforeign suppliers "less favourable thanthataccorded tolike
products ofnational origin inrespect ofalllaws, regulations, andrequirements affecting theirinternal
sale[or]offering forsale." Thatprohibition hadbeeninterpreted expansively tocover "anylawsor
regulations which might adversely modify theconditions ofcompetition between thedomestic and
221Second Banana panel, DS38/R, para. 146(issued 11February 1994), citing "EEC -Regulation onImports ofParts
andComponents", BISD 37S/132, para. 5.21 (adopted 16May 1990).
222See"Report ontheECBanana Regime", European Commission, July1994, pp.10-11, prepared fortheJuly1994
Food andAgriculture Organization Conference inJamaica.WT/DS27/R/USA
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imported products ontheinternal market."223Here, astheECopenly conceded, Category Blicences
were intended toprovide acompetitive benefit toECproducers byproviding asupplement to
Regulation 404/93 deficiency payments. Other foreign sources werenotreceiving thatsame benefit.
Thus, through thetoolofCategory Ballocations, theEChadtipped conditions ofcompetition infavour
ofdomestic interests, thereby avoiding itsArticle III:4national treatment obligation.
4.392 TheECsubmitted thatparagraph 145oftheunadopted second Banana panel report wasbased
inparticular ontheassumption that:
"thewords treatment nolessfavourable inparagraph 4callforeffective equality ofopportunities
forimportedproductsinrespectoftheapplicationoflaws,regulationsandrequirementsaffecting
theinternal sale,offering forsale,purchase, transportation, distribution oruseofproducts."
From thiswellknown interpretation ofArticle III:4, which theECagreed withandaccepted, thepanel
wentonwith, intheviewoftheEC,anunjustified andincorrect consequence fortheECbanana tariff
quota that:
"arequirement topurchase adomestic product inorder toobtain therighttoimport aproduct
atalower rateofdutyunder atariff quota istherefore arequirement affecting thepurchase
oftheproduct within themeaning ofArticle III:4."
Therelevant parts ofthequotations from thepanel report ("arequirement topurchase adomestic
product" and"arequirement affecting thepurchase oftheproduct within themeaning ofArticle III:4") -
which wastheessential linkbetween thegeneral andcorrect interpretation ofArticle III:4, anditsactual
concrete application totheECbanana tariffquota -wasincorrect intheopinion oftheEC.Thelicensing
system asitfunctioned within theECtariff quota didnotconcern thepurchasing ofanyquantity of
bananas ontheECmarket butprovided themeans tomanage correctly, andaccording totheECoverall
economic strategy, theimportation ofthird-country bananas intothatmarket inarequired, satisfactory
quantity. Thebananas produced intheComplaining parties 'countries entered theECmarket andwere
soldattheECmarket price, which wassubstantially higher thantheaverage world price andprofited
largely anyseller tothatmarket.
4.393 IntheviewoftheEC,inorder todemonstrate abreach ofArticle III:4, evenintheextended
generous interpretation which ensured "equal competitive opportunities" inthebanana market, the
Complaining parties hadtoshow thatatleastonesingle banana originating inoneoftheircountries
andimportable within thelegitimate tariffratequota, asbound intheUruguay Round Schedule LXXX,
wasactually notimported, orrisked notbeing imported, orsuffered alower import price because of
theexistence oftheCategory Blicence. However, nothing ofthekindhadeverbeendemonstrated
orproven because suchcompetitive disadvantage intheECmarket didnotexist.
4.394 TheECclaimedthattherewascompetitionbetweenover2.2milliontonnesoflow-cost,low-duty
Latin American bananas andnon-traditional ACP bananas ontheonehand anda,defacto, limited
quantity ofECbananas ontheother hand, bananas which werehighcost,butnotsubject toanyduty.
Themere existence ofadutywasnotrelevant since tariffs were thebasis oftheGATT system and
werelegitimate trademeans intraderelations between theMembers. Outside theexistence oftheduty
223"United States -Taxes onPetroleum andCertain Imported Substances", BISD 34S/136, para. 5.1.9 (adopted
17June 1987); "United States -Section 337oftheTariff Actof1930", BISD 36S/345, paras. 5.11-5.13 (adopted
7November 1989); "United States -Measures Affecting Alcoholic andMaltBeverages", BISD 39S/206, para. 5.31(adopted
19June 1992); "EEC -Import Regime forBananas", DS38/R, para. 146(issued 11February 1994).WT/DS27/R/USA
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itself, thecompetitive relation wasnotaffected bysharing outtheamount ofthequota between operators.
There wasnoincentive nottosellthefullquota of2.2million tonnes. Onthecontrary, thedifferent
production prices, totally infavour ofimported, cheap Latin American bananas, ensured thattheLatin
American bananas weresold, probably soldfirstandcertainly soldwithapremium. Then, theEC
continued, thesuppliers oftheECmarket, wherever based, were freetomarket their bananas to
whomever theywished, onwhatever price ordelivery terms, andthere wasnoindication inthe
Complaining parties 'allegations thatbanana exporters could notfreely negotiate about priceanddelivery
terms withthose whohadaccess tothetariff quota. Moreover, theECsaid,noevidence hadbeen
providedofhowtheCategoryBreservationinthelicensingadministrationoftheECtariffquotaaffected,
ifatall,theinternal ECdistribution ofbananas. Onthecontrary, itwasalltoological thatoperators
thathadinthepasttraded inECandACP bananas would availthemselves oftheopportunity tosell
partofthetariffquota, where margins ofprofit wereinprinciple higher thanforECorACPtraditional
bananas. Inanycase, notasingle piece ofevidence had,intheopinion oftheEC,beenprovided,
demonstrating thattheexistence ofCategory Blicences hadshifted trade from Latin American to
ACP/EC bananas.
4.395 Norwasitpossible fortheComplaining parties toshow, theECargued, thatanyoperator
involved intrade inLatin American bananas waslosing market share intheECduetotheexistence
oftheCategory Blicences, since statistics tended todemonstrate quitetheopposite, namely thatthese
companies wereactually increasing theirmarket share oftheprimary import ofACP bananas andin
marketing ECbananas. Theabove legal andfactual analysis showed, according totheEC,thatthe
unadopted second Banana panel report wasnotinconformity withreality: thelicensing system for
administering theECbanana tariff quota wasnotalaw"affecting theinternal sale,offering forsale,
purchase, distribution oruse"ofECandimported bananas. Itwasalawwhich wasconcerned with
whathappened atthemoment ofimportation; itwasnotrelevant towhathappened afterthebananas
hadpassedcustoms.Moreover,itdidnotdeterminethesaleorofferingforsaleofthe2.2milliontonnes
tariff quota once these bananas were intheinternal ECmarket andwere therefore totally
undistinguishable frombananas ofanyother source (ECorACPtraditional). Whatever thecorrectness
oftheinterpretation given toArticle III:4, inabstracto ,bytheunadopted second Banana panel report,
thatpanel argued erroneously onthebasis ofthatArticle 'sapplicability to,inparticular, Article 19
ofRegulation 404/93. TheECstressed thatthelicensing system fortheadministration oftheECbanana
tariffquota wasapplied attheborder atthemoment ofimportation andnotafterthebananas hadcleared
customs. Assetoutinthehorizontal discussion concerning theapplicability ofArticles III:4andX
ofGATT toborder measures, theECargued allthearguments based onArticle III:4should berejected
(together withthearguments based onArticle X)-theallegations about which were, inanyevent,
totally unfounded.
4.396 TheComplaining parties responded thatthesecond Banana panel found thattheCategory B
licences wereinconsistent withtheArticle IIInational treatment requirement, andnothing hadoccurred
tochange thevalidity ofthatpanel’sconclusion. Onthecontrary: theEC’slicensing scheme fell
squarelywithinthefirstillustrativeexampleofanArticleIIIviolation,setforthintheTRIMsAgreement
assetoutinthegeneral discussion oftheapplicability ofArticles III:4andXofGATT toborder
measures. Thisexample specified asanArticle IIIviolation anymeasure "compliance withwhich
isnecessary toobtain anadvantage" (theadvantage herebeing thereceipt ofanimport licence), "and
which require thepurchase ...byanenterprise ofproducts ofdomestic origin" (inthiscaseECbananas)
"specified interms ofvolume ...ofproducts." TheEC'streatment ofthisissueinitssubmission missed
thepoint thatan"advantage" provided could beintheform ofaborder measure, while thefavour
accorded toECproducts could beoneaffecting purchasing anddistribution decisions intheEC.WT/DS27/R/USA
Page155
4.397 TheComplainingpartiesfurtherconsideredthatArticleIIIcoveredanyregulationorrequirement
thataffects internal conditions ofcompetition infavour ofECbananas.224Thecondition uponwhich
theECgranted theCategory Blicence adversely modified theconditions ofcompetition between the
domestic andimported product ontheinternal market byproviding agovernment benefit based on
thepurchases ofthedomestic product. Therefore, thesecond Banana panel report properly concluded
thattheCategoryBlicencewasinconsistentwiththeEC’sobligationsunderArticleIII:4.Inthisdispute,
thegranting oftheCategory Blicences, theexemption fromexport certificates forCategory Boperators,
andthespecial additional import licences given toCommunity producers when there wasanatural
disaster inaCommunity banana zone, allcreated anincentive forthepurchase andmarketing ofEC
bananas notenjoyed byimported bananas.
4.398 TheComplaining parties considered thatthesewereallplainviolations ofArticle IIIofGATT
andother WTO obligations. Itwasnotnecessary forthemtoshow thattheEC'sviolations hadalready
resulted inlower imports fromLatin America. AstheECwellknew, theArticle IandIIIobligations
required theECtopreserve equal conditions ofcompetition; trade effects were irrelevant tothat
question. Given thattheECreduced access forLatin American exports in1993, inthehopes thatEC
andcertain ACPbananas would eventually capture anygrowth inEuropean consumption, fulfilment
oftheLatin America tariff quota might become evenmore difficult inthenextfewyears.
Article X:3ofGATT
4.399 GuatemalaandHondurassubmittedthatthestipulationofArticleXofGATTthatallregulatory
requirements beimposed ina"uniform, impartial andreasonable manner", wasmanifestly violated
bytheCategory Blicensing requirements thatcaused licensing rights toaccrue solely onthebasis of
purchases fromdesignated sources. Thissource-specific purchasing incentive wasintentionally partial
toECandACP interests. Article Xdisallowed thisverytypeofpartiality intheadministration of
trade regulations. Moreover, the"uniform, impartial andreasonable" standard arising outof
paragraphs 1and3ofArticle Xwasnegated byalicensing allocation procedure thatconferred an
exclusive benefit onECproducers. Interpretive lawhadconfirmed thataprocedure thatoperated in
onefavourable wayforcertain interests andquiteanother, lessfavourable way,forothers didnotfulfil
theuniformityrequirementofArticleX.225Inshort,everyfeatureandeffectoftheCategoryBallocation
-fromitslicensing tietoACP/EC sources, toitscomparatively burdensome import anddistribution
requirements, toitsexemption from theneedtoobtain export certificates from BFA countries and
finally, toitsselective distribution oflicences toECproducers -deprived theComplaining parties of
theirWTO righttonon-discrimination, licensing fairness, andtrade-neutrality. TheECwasaccordingly
obliged under theWTO, intheviewofGuatemala andHonduras, todiscontinue thismeasure without
delay.
4.400 Mexico alsoclaimed thattherelevant provisions oftheECregime made acleardifferentiation
between those provisions thatwould beapplied toimports from non-ACP countries, including from
Latin America, andthose applicable toimports fromtraditional ACPcountries. Thisdifferentiation
resulted intheallocation ofimport licences toCategory Boperators fortheimportation ofbananas
from non-ACP countries onthecondition ofhaving marketed orimported bananas from traditional
ACP countries. This differentiation ofprovisions relating tothesupply source alsoviolated
Article X:3(a) ofGATT because itcould notbeconsidered as"uniform" and"impartial".
224Second Banana panel, para. 148.
225NotebytheDirector-General, L/3149 (29November 1968). SeealsoDessert Apples, BISD 36S/93, para. 6.5(adopted
22June 1989).WT/DS27/R/USA
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4.401 TheUnitedStatesalsoconsideredtheseorigin-basedcriteriatobeinconsistentwithArticleX:3,
which theEChadadmitted prohibited discrimination asbetween contracting parties.
4.402 TheECrecalled thegeneral issueoftheapplicability ofArticles III:4andXofGATT toborder
measures andstressed thatthelicensing system fortheadministration oftheECbanana tariff quota
wasapplied attheborder atthemoment ofimportation andnotafterthebananas hadcleared customs.
Therefore, theECargued, allthearguments based onArticle Xshould berejected along withthose
based onArticle III:4.
4.403 Asdiscussed earlier, theComplaining parties considered thatArticle X:3ofGATT required
Members toadminister trade rules ina"uniform, impartial andreasonable manner." Thelawsand
practices covered byArticle Xcomprised all"trade regulations," which included, among many others,
licensing regulations.
Article XIIIofGATT
4.404 Assetoutwiththearguments concerning Article I:1ofGATT, Guatemala andHonduras
submitted thatRegulation 404/93 stipulating thespecifically defined "operator" categories, inparticular
CategoryB,requiredthattariffquotasuppliersterminatepre-Regulation404/93commercialrelationships
andforge entirely newones. Thisundesirable andinflexible commercial reconfiguration disrupted
conditions oftradeandmarket competitiveness forthirdcountry andnon-traditional ACPbananas and
wascontrary toanumber ofGATT articles andWTO agreements. Article XIII:1 ofGATT inparticular
banned allimport restrictions thatweredifferentiated onthebasisofforeign origin byproviding that:
"[n]o prohibition orrestriction shallbeapplied byanycontracting party ontheimportation
ofanyproduct oftheterritory ofanyother contracting party ...unless theimportation ofthe
likeproduct ofallthirdcountries ...issimilarly ...restricted."
Previous panels hadapplied thisprinciple toimport licensing administration thatvaried bysupplying
country.226Although thesecond Banana panel reviewed category allocations andfound thatno
discrimination among supplying countries occurred therefrom, thefactsdidnot,according toGuatemala
andHonduras, support anaffirmation ofthatfinding. TheComplaining parties concurred withthat
panel'sconclusion thatthecategory requirements, instrict isolation, didnotthemselves discriminate
among supplying countries. Discrimination among supplying countries became readily apparent,
however, when thoseallocation ruleswerecontrasted withtheimport arrangement available forbananas
ofACPorigin. Tariff quota suppliers hadtoenterbananas through specially designated ECmiddlemen
eventhough asubstantial portion ofthose middlemen previously didnotimport anddistribute tariff
quota bananas. Traditional ACPsuppliers hadbeenpermitted tomaintain theirhistorical commercial
relationships across-the-board, sparing themthesevere disruption effectuated bycategory allocations.
Such import licensing discrimination among supplying countries could notbeconsidered tobein
conformity withArticle XIII:1.
4.405 TheECrecalled itsviewthatitwasamistake toconsider thatatariff quota wasan"import
restriction" while theunadopted second Banana panel report excluded thisargument andnoevidence
ofadifferent reality hadbeenshown andalsothatitwasevident thatthefactthattwoseparate and
independent regimes, theACP traditional andtheECtariff quota, hadmarginal differences intheir
respective licensing systems wasneither initself aviolation ofanyGATT provision, norwasthere
226Dessert Apples, BISD 36S/93, paras. 12.20-12.21 (adopted 22June1989); "EEC -Quantitative Restrictions Against
Imports ofCertain Products from Hong Kong", BISD 30S/129, paras. 31-33 (adopted 12July1983).WT/DS27/R/USA
Page157
evidence ofanyviolation ofGATT provisions byanyofthetwosystems. Furthermore, intheopinion
oftheEC,thetwosystems didnotcreate anysubstantial difference intheirexternal effects onthe
imported bananas from different origins; theonlydiscrepancies remaining were onthesideofthe
internal procedures tobefollowed bythecompetent authorities.
4.406 Asdiscussed above, theComplaining parties responded tothisassertion bynoting that
Article XIII:1 prohibited theapplication ofarestriction toproducts ofoneMember thatwasnotalso
applied toproducts ofother countries. Although theECinsisted thattheregime foradministering
thetariffquota wasentirely separate, Regulation 404/93 onlycreated oneregime, nottwo.Regardless
ofhowmany regimes might beatissue, however, Article XIIIstillrequired thatimports fromallsources
besimilarly restricted.
Claims under theLicensing Agreement
Article 1.2oftheLicensing Agreement
4.407 Ecuador noted thatArticle 1.2oftheLicensing Agreement required thatMembers "ensure
thatadministrative procedures usedtoimplement import licensing regimes areinconformity withthe
relevant provisions oftheGATT 1994 ...withaviewtopreventing trade distortions thatmayarise
fromaninappropriate operation ofthose procedures." TheCategory Ballocation scheme, asexplained
above, didnotcomply withtheGATT 1994andcreated significant tradedistortions. TheEC’sfailure
toeliminate thisscheme wasadirect violation ofArticle 1.2.Astheprevious discussion made clear,
theallocation oflicences toCategory Boperators wasclearly notenacted "with aviewtopreventing
tradedistortions." Infact,theallocation oflicences ofCategory Boperators wasinlargepartdesigned
tocreate trade distortion byincreasing themarketing ofECandtraditional ACPbananas. Article 1.2
oftheLicensing Agreement wasdesigned precisely toprevent thesetypes oftradedistortive measures.
4.408 According toEcuador, theexemption oftheCategory Boperators from therequirement to
match special export certificates withimport licences asacondition forimporting fromBFAcountries
provided anextra incentive foroperators toobtain Category Blicences which inturncreated trade
distortions andreinforced thenational treatment andMFN incompatibility inherent intheoriginal
allotmenttoCategoryBoperators.Article1.2oftheLicensingAgreement,whichrequiredthatlicensing
procedures beinconformity withtheGATT andimplemented "with aview topreventing trade
distortions," wasdevised precisely toprevent these types oftrade distortive measures.
4.409 IntheviewofMexico ,byviolating Article I:1ofGATT, theexport certificate requirement
needed forCategory AandCoperators toimport bananas fromBFAcountries, alsoviolated Article 1.2
oftheLicensing Agreement.
4.410 TheECsubmitted thatasnobreach ofthecitedGATT provisions hadbeenproved, theclaims
concerning Article 1.2oftheLicensing Agreement should berejected.
Article 1.3oftheLicensing Agreement
4.411 Ecuador recalled thatArticle 1.3oftheLicensing Agreement stated thattherulesforimport
licensing procedures hadtobeneutral inapplication andbeadministered inafairandequitable manner.
Category Boperators werenotrequired tomatch theirimport licences withthespecial export certificates
when theyimported BFA bananas which eased theimportation ofthird-country bananas forthose
operators. Theexemption thusreinforced theincentive tomarket ECandtraditional ACP bananasWT/DS27/R/USA
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inorder toobtain Category Blicences. Theexemption ofCategory Boperators fromtherequirement
topresent special export certificates inorder toimport BFAbananas was,according toEcuador, not
neutral andwasnotadministered inafairandequitable manner, andwastherefore inviolation of,
interalia,Article 1.3oftheLicensing Agreement.
4.412 Guatemala andHonduras alsoclaimed thatlicensing requirements thatbuiltinpurchasing
incentivesforspecifiedsourceshadequallytofailthestandardsofArticle1.3oftheLicensingAgreement
thatalllicensing rules be"neutral inapplication andadministered inafairandequitable manner."
Asorigin-specific purchasing incentives could notbeconsidered "neutral," "fair," or"equitable" under
anypossible definition ofthose terms, theCategory Bprovisions should, intheopinion ofGuatemala
andHonduras, beinvalidated. Moreover, Guatemala andHonduras claimed, thesource-discriminatory
application ofoperator limitations likewise could notbesaidtosatisfy thestipulation inArticle 1.3
oftheLicensing Agreement thatlicensing procedures be"neutral," "fairandequitable" inapplication
andadministration. Neutrality, fairness, andequity could hardly beconsidered present when the
Complainants 'bananas weresubject tocategory allocations thatconstrained flexibility, disrupted trade
flows, anddistorted prices, while ECandtraditional ACP banana importation anddistribution were
completely freeofsuchconstraints.
4.413 TheUnited States argued thatArticle 1.3oftheLicensing Agreement provided inrelevant
partthat"[t]he rulesforimport licensing procedures shallbeneutral inapplication." Nothing could
befurther from"neutral" thanascheme which awarded nearly athirdofthelicences toimport bananas
from Latin America toentities based ontheirmarketing ofbananas from competing sources -EC
members States orACPcountries. Assuch, thedistribution oflicences toCategory Boperators, and
theexemption theywere provided withrespect toexport certificate requirements, were blatantly
inconsistent withArticle 1.3.
4.414 TheComplaining parties argued thattheEC’slicensing scheme haddeliberately allocated
third-country licences tofirms withnohistory ofimporting from thirdcountries, andtherefore was
inconsistent withtheneutrality requirement ofArticle 1.3oftheLicensing Agreement.
4.415 TheECsubmitted thatthere wasevidence thattheComplaining parties were notverysure
oftheactual correctness ofthelegalanalysis oftheunadopted second Banana panel report. Thiswas
indicated bythefactthat,while contesting theviolation ofArticle III:4, andtherefore considering that
theECbanana licensing system wasaninternal measure, theyhadaffirmed theviolation bythesame
ECprovisions oftheLicensing Agreement and,inparticular, Articles 1.3and3.2.These werecertainly
notrelated tointernal measures sincetheLicensing Agreement provided forrulesfor"import licensing
regimes requiring thesubmission ofanapplication orother documentation ...totherelevant
administrativebodyaspriorconditionforimportationintothecustomterritoryoftheimportingMember"
(Article 1.1). Nevertheless, theECwasoftheviewthatthelegally correct interpretation oftheEC
banana licensing system asaborder measure atthemoment oftheimportation didnotimply thatthose
measures violated anyGATT rules including Article 1.3oftheLicensing Agreement.
4.416 Inrespect ofthatArticle, theECargued thattheComplaining parties hadputtheemphasis
onthealleged violation oftheobligation ofneutrality under thatprovision, while acorrect andcomplete
quote oftheArticle would disclose that: "The rulesforimport licensing procedures shallbeneutral
inapplication andadministered inafairandequitable way." TheCONTRACTING PARTIES had
agreed onatextthatexplicitly required neutrality intheapplication andadministration oftherules
creating aparticular licensing scheme. Nowhere inthatArticle theCONTRACTING PARTIES
committed themselves nottoshape aparticular import licensing procedure inthewaythattheEChas
adopted, where alloperators ofanycountry arefreely competing within andamong different categories
assetoutinArticle 19ofECRegulation 404/93. Within thatparticular licensing scheme, neutralityWT/DS27/R/USA
Page159
isabsolutely respected andnoevidence hasbeenshown tothecontrary. Anyoperator canbeeligible
foranycategory licence ifitfulfils theobjective conditions herein. Noevidence hadbeenfurther shown
thatthelicensing scheme wasadministered inanunfair andunequitable manner. Theword "manner"
wasnormally defined, according totheEC,as"awayofdoing something orawayinwhich athing
isdoneorhappens" (American Heritage Dictionary oftheEnglish language). SotheComplaining
parties should havedemonstrated thatthewaythatlicensing scheme (the"thing" inthedefinition) is
administered ("happens" inthedefinition) isunfair andinequitable. TheComplaining parties were,
onthecontrary, trying todemonstrate through Article 1.3thatthelicensing scheme itself wasunfair
(which wasinanycaseunfounded): butthishadnothing todowiththewaytheLicensing Agreement
wasagreed upon orthecommon willoftheCONTRACTING PARTIES thatwasexpressed inthe
wording.
4.417 TheComplaining parties retorted thattheECsought tosatisfy itsburden ofexplaining its
discriminatory andburdensome regime byurging anunduly narrow reading oftheLicensing Agreement
tocover onlylicensing "procedures," which itdefined toexclude operator eligibility criteria. The
distinction between procedure andeligibility was,intheopinion oftheComplaining parties, afalse
one. TheEC'sclaim ignored theconsiderable administrative burdens associated withthetariffquota
eligibility criteria. TheEChadacknowledged theprocedural character oflicensing distributions by
stating thatCategory B"provides themeans tomanaging ...theimportation ofthird-country bananas".
Moreover because theywerefarmore onerous onLatin American imports thanonACPimports they
were not"neutral" under Article 1.3.
Article 3.2oftheLicensing Agreement
4.418 TheComplaining parties noted thatArticle 3.2oftheLicensing Agreement provided that
"[n]on-automatic licensing shallnothavetrade-restrictive ordistortive effects onimports additional
tothose caused bytheimposition oftherestrictions." TheCategory Bcriteria haddistortive effects
ontrade bycreating linkages between imports ofLatin American bananas ontheonehand, andACP
orECbanana purchases ontheother.
4.419 EcuadorarguedthatforthesamereasonsthattheCategoryBlicenceallocationschemeviolated
Article 1.2oftheLicensing Agreement, thescheme alsoviolated Article 3.2. Thetrade distortive
effects caused bytheCategory Ballocation scheme were clearly inaddition tothose caused bythe
tariff quota itself. Whereas thetariff quota wasdesigned tolimittheaccess offoreign bananas, the
Category Ballocation scheme distorted trade byproviding anincentive tomarket ECandtraditional
ACP bananas. Thescheme therefore conflicted, according toEcuador, withtherequirements of
Article 3.2.
4.420 Mexico argued thattheverynature oftheECbanana import licensing regime wasdesigned
topromote marketing ofECbananas andbananas fromACPcountries attheexpense ofbanana imports
from other countries, including from Latin America. Therequirement forCategory Boperators to
market ECandACPbananas inorder toobtain licences toimport non-ACP bananas, including Latin
American bananas, wasrelevant here. Thisaction distorted, according toMexico, theECimport trade
patterns bysupply source because itgranted aclearadvantage toimports fromACP countries tothe
detriment ofthose originating innon-ACP countries, including theLatin American countries. The
advantage forACP countries hadtwodifferent aspects: firstly, there wastherequirement toimport
ACP bananas inorder tobeabletoimport non-ACP bananas, andsecondly, there wasthefactthat
ACP countries werenotsubject totherequirements imposed bytheECregime onnon-ACP banana
imports, relating totheallocation oflicences tooperators. Thedistribution oflicences according to
thetypeofoperator, including Category Boperators wasnotabsolutely necessary according toMexico.WT/DS27/R/USA
Page160
4.421 Mexico wasalsooftheviewthattherequirement ofobtaining anexport certificate toimport
bananas from BFAcountries totheECrepresented anelement thatcontributed tothedistortion of
import trade fornon-ACP countries, because besides discouraging Category AandCoperators from
importing bananas from BFA countries, itexempted Category Boperators from thisrequirement.
Thisviolated Article 3.2oftheLicensing Agreement.
4.422 Guatemala andHonduras alsoconsidered thattheproscription inArticle 3.2against "trade-
distortive", non-automatic licensing wascontravened bytheCategory Bprovisions. Withnon-automatic
licensingprovisionsinplacethattiealicensingadvantagetothepurchaseofbananasfromcertainsources
onarolling three-year basis, sourcing distortions werebothintended andinevitable. Moreover, those
category allocations hadrescinded pre-Regulation 404/93 commercial relationships andforced new
oneswithentities thatwere never sufficiently competitive tomarket Latin American bananas prior
toRegulation 404/93; introduced price distortions byspecifying arbitrarily defined categories of
eligibility; curtailed import flexibility; andotherwise havethrown intodisarray themarketing ofLatin
America bananas. Under anyconceivable interpretation oftheArticle 3.2standard, intheopinion
ofGuatemala andHonduras, theseeffects mustbeconsidered tradedistortions additional tothosearising
fromthetariff quota volume limitation attheborder. When contrasted withtheentirely unrestricted
terms ofpurchase anddistribution available toACPandECsuppliers, these allocation requirements
servedtoshiftECpurchasingpreferencestowardsACPandECsources,therebyrestrictinganddistorting
thetradeofGuatemala andHonduras overtimebeyond thatcaused bythetariffquota volume limitation.
Thetrade-restrictive and-distortive effects banned under Article 3.2oftheLicensing Agreement were,
thus, squarely implicated bycategory allocations.
4.423 Incontrast tothesystem fortraditional ACPbananas, theUnited States argued, Latin American
imports weresubject torules, e.g.distribution oflicences onthebasisofCategory Boperator criteria
thatattemptedtoshiftimportsawayfromthosewhohadtheskill,distributionnetworksandinfrastructure
tosellthem, andtoward those withlittleornoexperience inimporting bananas fromLatin America,
orinsome cases, from anywhere else. These distributions were inthemselves burdensome, and
inconsistent withthegeneral international principle ofdistributing licences tothose whohadperformed
and/or could efficiently perform, theactual importation.227
4.424 TheECrecalled thatinitsview, theComplaining parties werenotverysureofthelegalanalysis
oftheunadopted second Banana panel concerning Article III:4-which considered thattheECbanana
licensing system wasaninternal measure -because theywere claiming aviolation bythesame EC
provisions oftheLicensing Agreement andin,particular, Articles 1.3and3.2.These werecertainly
notrelated tointernal measures. Nevertheless, theECwasoftheview thatthelegally correct
interpretation oftheECbanana licensing system asaborder measure atthemoment oftheimportation
didnotimply thatthose measures violated anyGATT rules, including Article 3.2oftheLicensing
Agreement.
4.425 With respect tothatArticle, apart from unmotivated andunsubstantiated statements hinting
thatasaresult oftheCategory Bprovisions, distortions werebothintended andinevitable orthattrade
distortive effects wereadditional tothose caused bythetariffquota itself, notasingle concrete evidence
wasshown ofthese affirmations. TheECinsisted thatnoviolation ofArticle 3.2hadbeencommitted
andthatnoextra unnecessary burden fortheoperators attheborder while importing wascaused by
theexistence oftheCategory Blicences. Thesame could besaidforArticle 3.5(h) oftheLicensing
227TheUnited States noted thatthisprinciple wasreflected inArticle 3.5(h), (i)and(j)oftheLicensing Agreement.
Thebasis fortheprinciple wasaninterest inpreventing measures thatinterfere witheconomic efficiency, apolicy reflected
throughout theLicensing Agreement.WT/DS27/R/USA
Page161
Agreement: firstthisprovision wasnotapplicable and,inanycase, noproof ofviolation whatsoever
hadbeenexposed.
4.426 Inorder todemonstrate analleged violation toArticle 3.2oftheLicensing Agreement, the
Complaining parties needed toprove, first,thatthenon-automatic licensing had"trade-restrictive or-
distortive effects onimports additional tothose caused bytheimposition oftherestriction". The
Complaining parties should havedemonstrated thatbananas imported intotheECmarket wererestricted
bytheadministration ofthetariff quota beyond theeffects ontrade oftheveryexistence ofthetariff
quota, which wasareality compatible withtheGeneral Agreement andpartoftheconcessions accepted
byallcontracting parties, besides thefactthatthatwascommon practice inGATT agricultural
negotiations. Asnoted above, intheopinion oftheEC,notasingle evidence hadbeengiven ofthese
supposed andtotally unproved additional trade restrictive ordistortive effects. Notasingle evidence
wasshown, demonstrating anyhindering intheaccess oftheComplaining parties bananas totheEC
market whose partsofthetariff quota wereimmediately andcompletely used. Theveryexistence of
thetariff quota, however, was,intheopinion oftheEC,aclear improvement interms ofmarket
liberalization ascompared tothesituation prior totheconclusion oftheUruguay Round andcreated
conditions forhigher prices intheECmarket ascompared toworld market prices andthiswasabenefit
totheComplaining parties 'banana production.
4.427 TheECfurther submitted thattheeffect oftheECinstitutional working procedures wasthat
themanagement oftheimport licensing system wasmade byofficial acts(ECCommission Regulations)
which weredutifully andtimely published intheOfficial Journal oftheEC.Theentire structure of
thelicensing system waspublished ingeneral ECCouncil andCommission regulations, which were
alsoregularly andtimely published. Theframework regulations (404/93 and1442/93) werethebase
forallsubsequent management ofECCommission Regulations. Theadministrative activity oftheEC
tariffquota licensing system wasgoverned bythelaw,i.e.bypre-determined criteria andruleswhich
applied objectively toallbananas ofwhichever origin. TheECanditsmember States, theECasserted,
provided forfulljudicial review ofallaspects ofthelicensing system, inparticular itsadministration,
allowing anyoperator 'scomplaint tobeexamined inanindependent andfairwayandanyindividual
righttobeprotected.
4.428 Withrespect totheseparate "administrative burden" requirement ofArticle 3.2oftheLicensing
Agreement, theComplaining parties argued thatsince theEChadacknowledged theprocedural
character oflicensing distributions bystating thatCategory B"provides themeans tomanaging ...
theimportation ofthird-country bananas," theassociated procedures werehardly minimally burdensome
or"absolutely necessary" toadminister thetariff quota. TheComplaining parties considered thatthe
standard ofproof forestablishing aprima facieviolation ofthisrequirement clearly wassatisfied by
demonstrating thatamuch lessburdensome setoflicensing ruleswasapplied tothesameproduct from
adifferent source, andwhere major components oftherules andprocedure deviated sharply from
customary licensing practice, oreven theMember 'sownpractices forother products. Noother
procedures weredesigned toprovide licence rights tothose whohadnocapacity, orevenshowed any
desire, toenter thebusiness ofimporting from Latin America.
4.429 TheComplaining parties further argued thatthediscrimination andextraordinary burdens could
notbejustified bytheEC'sassertion thattheywere"notuncommon" orthat"they respond tothespecific
needs ofthetariffquota." Theonlyspecific needidentified bytheECwasahighly dubious explanation
thattheCategory Blicence criteria andtheactivity functions weredriven bycompetition concerns -
because theLatin American banana sector wasalleged tobeuniquely characterized by"oligopoly or
evenmonopoly". Thiswasnotalegitimate justification fortworeasons. First, competition concerns
withrespect toindividual companies were more appropriately dealt withthrough competition laws
andenforcement, which theEChadnotbeenhesitant touseagainst multinationals inthepast. TheWT/DS27/R/USA
Page162
EChadprovided noexplanation forwhyitscompetition lawswerenotadequate towhatever taskit
claimed tohavebeentrying toaccomplish withthelicensing regime. Second, asfurther elaborated
below, theclaim wasobviously aposthocrationalization thatprovided nobasis orfactual support
forburdening imports ofLatin American bananas.
4.430 TheComplaining parties claimed thattheLatin American banana distribution sector wasin
factmore competitive thandistribution forother fruitingeneral, andfordistribution ofACPbananas
inFrance andtheUnited Kingdom inparticular. Beyond EUBananarama 1993pointed outthatbanana
trade wasinreality lessdominated bymultinational corporations thanwere trade inwheat, maize,
cotton, tobacco, coffee, cocoa beans, tea,timber, juteandjuteproducts, copper, ironore,bauxite,
andother important products. Ifoligopoly concerns heavily influenced thebanana tariffquota licensing
scheme, itshould further beasked whether theECwould likewise feeljustified imposing thesame
orasimilar regime onthewidearray ofother traded products thatweremore heavily controlled by
transnational companies thanwerebananas. Infact,however, eventheECCommission hadrecognized
thathealthy competition existed inthemarketing ofLatin American bananas. Insurveying available
options inanticipation ofacommon market, theCommission noted that:
"[t]here isastrong element ofcompetition between these multinational companies andthe
independentsuppliers[astothesalesofLatinAmericanbananas],withtheindependentsworking
hardtoboost theirshare ofthemarket attheexpense ofthemultinationals."228
Infact,theworld-widetrendwasthatup-and-comingdistributorsfromEcuador,Colombiaandelsewhere
hadbeensteadily taking market share away from thetraditional distributors, Chiquita, Dole Foods
andDelMonte, during the1980s andearly 1990s. IntheUnited States market, forexample, Latin
American-owned firms increased theirmarket share from12percentin1981 to47percentin1993.
4.431 Moreover,legitimatecompetitionconcernscouldhardlybethebasisforthepreferentiallicensing
arrangements accorded toACP bananas, insofarasthemarkets inwhich ACP fruitwasprimarily
sold-France andtheUnited Kingdom -werenotoriously anti-competitive. Court decisions inboth
countries confirmed thispattern.229Also, a1983 United Kingdom court proceeding, which upheld
theUnited Kingdom ’spre-404 banana regime astechnically consistent withUnited Kingdom law,
nevertheless criticized theUnited Kingdom ’slicence allocation system aspromoting orreinforcing
anear-monopoly.230The90percent-plus entitlement toimport Latin American bananas given tothe
"bigthree" intheUnited Kingdom market corresponded totheirover-90 percentshare ofACPimports.
Notonlydidthese three firms dominate theimportation ofbananas intotheUnited Kingdom, they
were alsohighly vertically integrated, owning shipping fleets and,unlike theLatin American and
United States firms, owning thefirms thatripened theirbananas.
4.432 Thisbackground suggested, according totheComplaining parties, thatrather thanhaving any
basisin"legitimate" competition policy, theEC’sarrangements wereintended toperpetuate andextend
forFrench andUnited Kingdom firms theuncompetitive conditions they enjoyed before
Regulation 404/93. From theEC’sperspective, theLatin American banana import market wasperhaps
toocompetitive forFrench andUnited Kingdom companies. Measures implemented toreduce that
228"Setting uptheInternal Market", para. 18.
229See"Decision oftheFrench Competition Council Relating toPractices Found intheBanana Market" against theBanana
Industry Interprofessional Committee ("CIB") andtheBanana Industry Economic Interest Group ("GIEB"), 12June1990.
230"R.v.Secretary ofState forTrade exparte Chris International Foods Ltd.", Queen ’sBench Division, Crown Office
List, CO/1020/82.WT/DS27/R/USA
Page163
competitiveness didnotamount tolegitimate competition policy. TheEC’scurrent emphasis on
competition policy wasanewdevelopment. IntheEC'sReport ontheOperation oftheBanana Regime ,
theECcitedonlythree objectives oftheregime, noneofwhich related tocompetition policy:
"Incompleting thesingle market forbananas, thebanana regime seeks tofulfil arange of
objectives. Firstly, there arethecommitments toCommunity producers asoutlined inthe
Treaty ....Secondly, theCommunity 'sobligations totheACP States asembodied bythe
Lomé Convention havetobehonoured ....Finally, theregime hastoensure thatthemarket
(i.e.theconsumer) isadequately supplied withbananas ofgood quality."231
Similarly inthesecond Banana panel proceeding, noreference wasmade tothecompetition policy
objective.232
4.433 TheComplaining parties further argued thatiftheECdidhaveagenuine interest inimproving
competition forbananas andother products, itcould bestachieve thatbycreating alarge andopen
market inwhich competitive forces wereallowed toprevail. Instead, ithaddistorted themarket in
favour ofcompanies thathadpreviously operated inanon-competitive market.
4.434 TheECsubmitted thattheexistence oftheCategory Blicence, hadnothing todowiththe
actual amounts ofbananas thattheEChadaccepted toconcede under itsSchedule LXXX annexed
toGATT 1994, norwiththebound dutyapplicable MFN toanyimported bananas imported inexcess
ofthetariff quota. Inthepresence orintheabsence ofCategory Blicences, theaccess ofLatin
American bananas totheECmarket would beregulated inexactly thesame wayandopportunities
ofLatin American bananas would beexactly thesame. Inpresence ofalegitimate regulation bya
Member ofitsimportations ofaproduct likebananas -suchasinthecaseoftheestablishment ofa
tariffquota andthesetting ofrelatively highout-of-quota tariffrates-theveryexistence ofalicensing
scheme created quota rents, irrespective ofthesystem ofdistribution ofthelicences theMember in
question hadchosen. Thesameeffect would becreated, forinstance, byasystem of"first-come, first-
served" which wasextremely unpractical tomanage. Theexistence ofthisquota renthadnolinkeither
withtheGATT (which wasnever intended toregulate theflows ofgains andlosses ofoperators) or
withtheimportationofbananas,forthesimplereasonthattheimportationoftheproductwasnotaffected
atall.TheComplaining parties werestilltoindicate aprovision oftheGATT orotherWTO agreement -
apartfromArticle IIIofGATT thatwasnotapplicable ingeneral tothismatter andwasnotconcerned
withoperators butonlywithproducts -which wasviolated bytheCategory Blicensing system with
respect tobananas (asopposed tooperators andtheirgains andlosses).
4.435 Inaddition, there wasnophysical linkbetween alicence (oraCategory Blicence) andthe
importation ofbananas fromLatin America. Licences weretransferable andtradable. Theoperators
whotraded ECbananas might choose tosellaCategory Blicence toanother operator whomight wish
touseittoimport Latin American bananas. Inthisexample, thetrader inECbananas might gainpart
ofaquota rentandthetrader inLatin American bananas might benefit from lessthanthefullquota
rent. Butnotasingle ECbanana more would besoldontheECmarket because ofthiscommercial
relation. Notasingle Latin American banana lesswould beimported intotheECmarket because
ofthese commercial relationships. Theexistence ofCategory Blicences didnotaffect thevolume of
Latin American bananas soldontheECmarket (thevolume wasgoverned bythesizeofthetariff
quota), northecountry oforigin ofthese bananas. Neither theamount ofimport dutyduenorthe
231"Report ontheOperation oftheBanana Regime", pp.1-2 .
232Second Banana panel, paras. 10-16.WT/DS27/R/USA
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price ofbananas toECconsumers would change because oftheexistence ofthree types oflicence
forimport under thetariff quota.
4.436 According totheEC,inapplication ofexisting ECgeneral rules, anyoperator isentitled to
aCategory Blicence. TheComplaining parties referred themselves tounspecified statistics which
indicated thatEC-based operators havebeenissued 57percentoftheCategory Blicences. Even
iftheargument weretobetrue,itwould notdemonstrate other thanthecorrectness oftheECsystem.
AnEC-based company doesnotmean atallEC-owned: thisofcourse means thatmany United States
andforeign owned companies tradeACPandECbananas fromEC-based companies andthereference
toEC-based companies doesnotshow anything withrespect toCategory Blicences. Itshould not
beforgotten, infact,thatunder Article 58oftheECTreaty, acompany established inoneoftheEC
member States -irrespective ofitsownership -isallowed totrade inanyother ECmember State.
Asamatter offact,statistics show thatUnited States companies andtheirsubsidiaries inside andoutside
Europe receive asignificant proportion ofallCategory Blicences issued (seealsoparagraph 4.470).
Claims under theAgreement onTrade-Related Investment Measures
Articles 2.1and5oftheTRIMs Agreement
4.437 Ecuador argued thattheCategory Blicensing system wasinconsistent withArticle 2ofthe
TRIMs Agreement. According toEcuador, thisAgreement setoutspecific restrictions ontheMembers '
authority toimplement investment measures related tothetrade ofgoods. Referring tothenational
treatment provision inArticle 2oftheTRIMs Agreement, Ecuador considered thattheCategory B
allocation scheme directly violated Article IIIofGATT. Referring totheIllustrative ListofTRIMs
intheAnnex totheAgreement, Ecuador submitted, moreover, thatArticle 19(1) ofRegulation 404/93
stated that30percentofthelicences forimporting third-country tariffquota bananas weretobeawarded
toCategory Boperators. Regulation 404/93 thusmade eligibility foralarge portion ofthelicences
toimport third-country tariffquota bananas contingent uponthemarketing ofdomestic bananas. This,
inturn,required foreign operators toinvest inECproduction, ripening andmarketing facilities inorder
toobtain access toCategory Blicences. Thiswasprecisely, intheopinion ofEcuador, thetypeof
regulation specified intheIllustrative Listasinconsistent withofArticle 2oftheTRIMs Agreement.
Inaddition, Article 5.1oftheTRIMS Agreement required Members tonotify totheCouncil onTrade
inGoods, bytheendofMarch 1995, TRIMs thattheywereapplying thatwerenotinconformity with
theAgreement. Article 5.2required thatdeveloped country members eliminate allsuchmeasures by
theendof1997. TheEChadnotnotified theWTO ofitsmeasures providing advantages toCategory
Boperators, butitwasunder nolessofanobligation toeliminate them.
4.438 Guatemala andHonduras noted thatthenewnational treatment discipline oftheTRIMs
Agreement applied toall"investment measures related totrade ingoods ...".233Referring tothe
Illustrative ListintheAnnex totheAgreement, Guatemala andHonduras submitted thattheyhadshown
intheirArticle III:4analysis ofCategory Bthattheverytypeofmeasure prohibited byArticle 2,as
further defined intheAnnex totheTRIMs Agreement, arose inconnection withtheCategory Brules.
Inorder forCategory Bfirms toobtain therighttoimport tariffquota bananas within thetariffquota,
theywere required topurchase bananas ofdomestic orACP origin. Thus, forforeign investors to
haveanyhopeofbecoming eligible forCategory Blicences, theyhadtofirstinvest inECandACP
bananas.
233TRIMs Article 1.WT/DS27/R/USA
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4.439 Guatemala andHonduras further submitted thatArticle 5oftheTRIMs Agreement setforth
notification requirements forallnon-consistent TRIMs andestablished amandatory transition period
fortheirelimination. TheEChad,intheiropinion, breached Article 5.1byfailing tonotify theCouncil
forTradeinGoodsofitsArticle2violationarisingoutofCategoryB'strade-relatedinvestmentmeasure.
Pursuant tothelanguage ofArticle 5.2,theEC,asadeveloped country Member, had,according to
Guatemala andHonduras, until1January 1997, twoyears aftertheWTO Agreement entered intoforce,
toeliminate thismeasure.
4.440 Mexico argued thattheECregime violated Articles 1and2aswellastheIllustrative List
oftheTRIMs Agreement. TheAgreement wasapplicable tothecaseunder consideration bythePanel
because theECregime affected those enterprises thatimported bananas and,hence, theinvestment
requiredtoestablishsuchenterprisesorthatwouldberequiredtoestablishtheminthefuture.Moreover,
suchinvestment wasrelated totrade ingoods (bananas) andaGATT panel hadalready found that
theECbanana regime violated Article III:4ofGATT. TheECregime wasthusincompatible with
theAgreement onTRIMs because itmade theobtention oftheadvantages granted toCategory B
operators conditional onthepurchase oruse,byenterprises wishing toimport bananas intotheEC,
ofspecified particular products ofdomestic origin orfromdomestic sources, inthiscaseECbananas.
IntheopinionofMexico,violationoftheTRIMsAgreementwasevenmoreevidentwhenoneconsidered
thattheonlyenterprises thatwereabletoprofit effectively fromtheadvantages enjoyed byCategory
Boperators were those enterprises thatmarketed significant volumes ofECbananas already before
theentry intoforceoftheECregime, because theseimports werebased onpastmarketing byCategory
Boperators andonreference periods thatensured theirpermanence. The3.5percentshare given
toCategory Coperators (operators thatbegan marketing in1992) wassosmall andadministratively
cumbersome thatitwaseconomically unviable fornewsuppliers touseit.
4.441 TheUnited States argued thatforthereasons described inparagraph 146ofthesecond Banana
panel report theCategory Beligibility criteria were inconsistent withArticle III:4ofGATT, tothe
extent thattheyprovided rights toimport bananas andexempted operators fromtheexport certificate
requirement. Forthesamereasons, thesemeasures werealsoinconsistent withtheTRIM 'sAgreement.
Referring toArticle 2.1andtotheillustrative listofTRIMs intheAnnex totheAgreement, theUnited
States argued thatinthecaseathand, purchases ofdomestic bananas wererequired inorder toobtain
theadvantages of:(i)future ability toimport bananas within 30percentofthetariff quota; and
(ii)future ability toimport bananas from BFAcountries without theadditional burden ofanexport
certificate requirement. Asapractical matter, investment ineither ECproduction orECripening
facilities wasrequired toobtain thebenefit, yeartoyear, ofthese advantages, since upto57percent
oflicence entitlements based onthemarketing ofECbananas wasdistributed toECfarmers orfarmer
cooperatives and28percenttoripeners. Themeasures thatlinked marketing ofdomestic bananas
totheadvantages enjoyed byCategory Blicence-holders werethus,intheopinion oftheUnited States,
trade related investment measures inconsistent withtheTRIMs Agreement.
4.442 Moreover, theUnited States continued, Article 5.1oftheTRIMs Agreement required Members
tonotify theCouncil onTrade inGoods bytheendofMarch 1995allTRIMs theywereapplying that
were notinconformity withtheAgreement. Article 5.2required developed country Members to
eliminate allsuchmeasures bytheendof1997. TheEChadnotnotified itsmeasures providing
advantages toCategory Boperators totheWTO, butwasunder nolessofanobligation toeliminate
them.
4.443 TheECreplied, quoting Article 2oftheTRIMs Agreement, thatitwasself-evident thatthe
application ofTRIMs wasrelated totheapplication ofArticle III(national treatment) orXI(quantitative
restrictions) ofGATT. TheCategory Blicence provided forinArticle 19ofECRegulation 404/93
didnotfallwithin thescope ofArticle XI,since theCategory Blicence waspartofatariff quota thatWT/DS27/R/USA
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implied noquantitative restriction. Nordiditfallwithin thescope ofArticle III:4because, astheEC
haddemonstrated, theECbanana licensing scheme wasaborder measure thatconcerned theoperators
atthemoment oftheimportation ofthebananas intheECmarket, andnotaninternal measure affecting
theECrules ofsaleafterimported bananas hadcleared customs. TheECthusdisputed theclaims
astheTRIMs Agreement wasanextension, interalia,ofArticle IIIofGATT, andthatnoArticle III
violation waspresent.
4.444 If,forthesakeoftheargument, theECwanted toexamine theapplicability ofArticle 2of
theTRIMs Agreement tothesubject matter, inorder fortheTRIMs Agreement tobeapplicable one
needed, according totheEC: (i)aninvestment tobemade within aparticular country; and(ii)a
purchase oruserequirement byanenterprise ofproducts ofdomestic origin inorder tobeallowed
tomake theinvestment.234Under theCategory Blicence requirement neither ofthese pre-requisites
existed. While importing acertain amount ofbananas using theECtariff quota, noinvestment inthe
ECwasmade norwasitrequired; itwasjustatrade operation between aseller andapurchaser.
Moreover, while selling imported Latin American bananas, theComplaining parties werenotrequired
topurchase anydomestic good. Article 2oftheTRIMs Agreement wastherefore, according tothe
EC,notapplicable totheCategory Blicence provision oftheECbanana tariffquota. AsfarasArticle 5
oftheTRIMs wasconcerned, theECargued, thesameremarks asforArticle 2oftheTRIMs Agreement
wereappropriate although theECconsidered theArticle 5claim inadmissible because itdidnotappear
intherequest made forthePanel. TheECwastherefore oftheopinion thatthisprovision wasnot
applicable either tothesubject matter.
4.445 TheComplaining parties submitted thattheyhadshown thattheCategory Bpurchasing tie
wassquarely prohibited byArticle 2oftheTRIMs Agreement andtheIllustrative Listannexed tothe
Agreement which, when readincombination, prohibited anylawrequiring "thepurchase oruseby
anenterprise ofproducts ofdomestic origin" inorder "toobtain anadvantage". TheComplaining
parties claimed tohavealready shown, however, thatthe30percentCategory Ballocation directly
contravened thenational treatment obligations ofArticle IIIofGATT. According totheComplaining
parties, theECfurther misstated therelationship between Article IIIandtheTRIMs Agreement. First,
Article 2.2oftheTRIMs Agreement made itclearthatameasure contained intheAnnex totheTRIMs
Agreement automatically violated Article III:4. Itreferred tothemeasures intheAnnex totheTRIMs
Agreement asanillustrative listofmeasures "that areinconsistent withtheobligation ofnational
treatment" inArticle III:4. Second, Article 2.1alsomade itclear thataMember didnotcedeany
ofitsrights under Article IIIbyraising aclaim under theTRIMs. Thus, aMember wasnotrestricted
toarguing thatameasure violated theTRIMs Agreement when there wasanindependent argument
under Article III.Such measures werecovered byboththeTRIMs andtheGATT, andnotonlyby
theTRIMs Agreement aslexspecialis .
4.446 Thisattempted interpretive framework misstated, according totheComplaining parties, the
coverage andreach ofbothArticle III:4ofGATT andtheTRIMs Agreement. TheComplaining parties
submitted thatthefirstillustrative example ofanArticle III:4violation intheTRIMs Agreement in
factcorresponded tothekindofinvestment measure found inconsistent withArticle III:4bythepanel
inEEC-Regulation onImports ofParts andComponents .235Inthatcase,thepanel considered incentives
provided bytheECtoavoid companies 'useofcertain imported partsandmaterials. Thepanel found
that"thecomprehensive coverage" ofArticle III"suggests thatnotonlyrequirement which anenterprise
islegally bound tocarry out,suchasthose examined bytheFIRA Panel ...butalsothose which an
enterprise voluntarily accepts inorder toobtain anadvantage from thegovernment constitute
234Inthesame sense: thepanel report on"Canada -Administration oftheForeign Investment Review Act", adopted
on7February 1984.
235"EEC -Regulation onImports ofParts andComponents", adopted 16May 1990, BISD 37S/132, para. 5.21.WT/DS27/R/USA
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'requirements 'within themeaning ofthatprovision." IntheTRIMs negotiations, the"advantage"
language intheParts andComponents casewasdiscussed extensively andformed thebasis forthe
firstillustrative example.
4.447 TheComplaining parties submitted thatinthiscase, theEChadprovided, intheform ofa
valuable licence, anadvantage orbenefit connected tothepurchase ofdomestic production thatithad
notprovided withrespect tothepurchase ofimported bananas, thusgiving acompetitive advantage
todomestic products. Purchasing domestic product obviated theneedtobuylicences atahighprice;
therefore, onewasrequired topurchase domestic products inorder toobtain thegovernment benefit
ofafreelicence. Thesaleoflicences atahighprice indeed onlyconfirmed thebenefit accorded to
domestic production; thepurchase ofdomestic products ultimately enabled thedomestic product to
compete withadefinite advantage notavailable toimports. AsintheParts andComponents case,
thePanel should conclude thattheincentive provided toimprove conditions ofcompetition fordomestic
production unfairly skews conditions ofcompetition forimports.
4.448 TheComplaining parties submitted thatifameasure described intheIllustrative Listofthe
TRIMs Agreement wasbeing applied, nothing more needed tobeshown toestablish anArticle 2
violation.TheTRIMsAgreementanditsnegotiatinghistorydrewnodistinctionbetweenproduct-related
trade measures andproduct-oriented trade-related investment measures. Thenegotiators recognized
thatifanyMember, inwhatever context, required thepurchase byanenterprise ofadomestic product
inorder toobtain anadvantage, thatrequirement bydefinition hadinvestment consequences forsuch
anenterprise, putting themeasure within thecoverage oftheTRIMs Agreement.236Theinvestment
implications ofCategory Bwere, according totheComplaining parties, manifestly apparent. The
purchasing requirement hadforced United States andLatin American firms importing anddistributing
intheEC,andthose which hadnothistorically chosen topurchase ECbananas, toinvest byacquiring
ECproduction, byacquiring Category Bfirms, orbyentering intocostly marketing arrangements
simply tomaintain theirhistorical access totheECmarket. TheTRIMs Agreement applied tosuch
investments whether undertaken byprivate enterprises orgovernment enterprises. According tothe
Complainingparties,theForeign Investment Review Actreportrecognizedthatgovernmentrequirements
orregulations making thegrant ofanadvantage dependent onpurchases byprivate enterprises or
investors ofdomestic product inpreference toimported goods werestillalsoinbreach ofArticle III:4
ofGATT.237IfArticle III:4applied toadvantages made dependent onpurchases byprivate enterprises
orinvestors ofadomestic product, sodidtheTRIMs Agreement.
4.449 TheComplaining parties further argued thatevenifaninvestment requirement werenecessary
toprove inconsistency withtheTRIMs Agreement, theCategory Blicence criterion stillfulfilled that
pre-condition, since itnecessitated aninvestment inECorACP bananas (either through marketing
arrangements ordirect production) inorder toqualify forthedirect receipt ofthose licences. Similarly,
theactivity function added aninvestment dimension tothelicensing requirements. BytheEC'sown
admission, thethree-function approach required operators topurchase ECripening rooms inorder
toobtain the"advantage" ofretaining theirhistoric reference volume, theonlyother option being the
purchase ofimport licences inthemarketplace:
236SeeSubmission bytheEuropean Communities totheNegotiating Group onTrade-Related Investment Measures,
MTN.GNG/NG12/W/8, p.1(23June 1987) (wherein theECrecognized thatcertain measures e.g.local content, relating
toaccess togoods result inforeign acquisitions inorder toobtain suchgoods andtherefore should beconsidered "investment
measures").
237See"Canada -AdministrationoftheForeignInvest mentReviewAct",adopted7February1984, BISD30S/140, para.5.6;
seealso"EEC -Regulation onImports ofParts andComponents", adopted 16May 1990, BISD 37S/132, para. 5.21.WT/DS27/R/USA
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"Anoperator whoisefficient andcompetitive andsoincreases hisbusiness willobtain more
licence inthefuture ...[Itgives] astrong incentive foroperators tochange theirtradepatterns
inorder tomaximize theirlicence allocation, e.g.byripening bananas forthefirsttime."238
Asapractical matter, thishasencouraged vertical integration forthose whowished toremain importers
ofLatin American bananas. Thatprivate operators tookthedecision toinvest insuchripening facilities
didnotnegate thefactthatagovernment measure, Regulation 1442/93, waseffectuating aninvestment
policy.
4.450 Inreply toaquestion posed bythePanel, theECconsidered thatthearguments ofthe
Complaining parties rested onafundamental misinterpretation ofthescope oftheTRIMs Agreement.
Asthefirstpreambular paragraph, quoting from thePunta delEsteDeclaration, putsit,thedrafters
oftheTRIMs Agreement were concerned, according totheEC,about investment measures, when
theyhad"trade-restrictive anddistorting effects", andtheywanted todraftfurther provisions inorder
"toavoid suchadverse effects ontrade". Thisorientation, which wasconfirmed inthelastpreambular
paragraph, demonstrated thattheTRIMs Agreement wasnotconcerned withtheinvestment effects
ofinvestments measures (i.e.theextent towhich investment measures succeed inorienting investment
inaparticular way) andnotevenwiththeinvestment consequences oftrade measures.
4.451 Intheview oftheEC,theTRIMs Agreement wasexclusively concerned withthefactthat
certain measures concerning investment (i.e.measures which werelinked toobtaining aninvestment
permit ortoobtaining investment premiums orinvestment taxrebates, etc.)could haveadistortive
effect ontrade, because theywerelinked toe.g.localcontent requirements intheproduction orexport
performance requirements oftheinvestment tobemade. Suchdistortive effects ontradewerecontrary
toArticles IIIorXIofGATT. However, theinvestment consequences ofameasure wereofnoconcern
toGATT ortheTRIMs Agreement (they wereandareclearly outside thescope ofboth, andthiswas
confirmed bythefactthatinvestment wasasubject beginning tobediscussed delegeferenda inthe
context oftheOECD MAI negotiations andoftheSingapore Ministerial Meeting); onlythetrade
consequences ofsuchameasure fallunder thescope ofGATT andtheTRIMs Agreement.
4.452 Moreover, according totheEC,itiswell-known thattheTRIMs negotiations didnotgoa
stepbeyond themeasures which hadalready beencondemned earlier under Articles IIIandXIofGATT.
Thiswasclearly confirmed byArticle 2.1oftheTRIMs Agreement, where itwasmade clear that
theAgreement merely prohibited "anyTRIM thatisinconsistent withtheprovisions ofArticle IIIor
Article XIofGATT 1994". Eventheillustrative listofTRIMs annexed totheAgreement self-avowedly
didnotgobeyond thesetwoArticles (seeArticle 2.2oftheTRIMs Agreement). Therefore, thedrafters
didnotevencaretospecify theinvestment character ofthemeasures mentioned intheirillustrative
list,unless theybelieved thattheacronym TRIMs asdefined inArticle 1saiditall.Thus itwasnot
specified thatmandatory orenforceable investment measures wereinthenature ofinvestment permits
orpermits toimport thenecessary capital forinvestment. Norisitclarified thattheadvantages of
"measures compliance withwhich isnecessary toobtain anadvantage", were investment related
advantages, suchasinvestment premiums, taxholidays, etc.Itisundisputable, however, thatthe
measures themselves, aslisted under (a)and(b)ofparagraph 1andunder (a),(b),and(c)ofparagraph 2
oftheillustrative listaretrade measures.
4.453 Inthelightoftheabove, theECtooktheviewthatitwasclearthattheonlydifference between
TRIMs andother similar measures prohibited under Articles IIIandXIofGATT wasthattheformer
werelinked tothepermission toinvest ortoother government advantages granted inconnection with
238"Workingdocument ,DeterminationofReferenceQuant itiesfrom1995Onwar d",European Communi ties,6October1993,
VI.E.1, p.3.WT/DS27/R/USA
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investment. TheTRIMs Agreement merely confirmed whatwasalready clearaftertheCanadian FIRA
case, namely thatmeasures which were ordinarily contrary toArticles IIIorXIwere nottaken out
oftheambit ofthese Articles because theywereinvestment-linked (inother words: investment assuch
maybeoutside theGATT andtheWTO andbeunder exclusive national sovereignty, butinsofar
asinvestment measures havetrade distortive andGATT incompatible consequences, theyarenot).
4.454 Therefore,theECargued,trademeasureswhichmustbeobeyedinordertoobtainaninvestment
permit orinvestment related advantages, werecovered byboththeTRIMs Agreement andbyArticles III
orXIofGATT (notbybothArticles atthesame time, because theywere mutually exclusive). It
followed fromtheabove thattheEClicensing system forbananas setconditions neither forinvestment
assuch(permit toinvest ortoimport capital) norforadvantages related toinvestment (investment
premiums, taxholidays, etc.)andcould notpossibly becontrary totheTRIMs Agreement.
4.455 Moreover, intheEC'sopinion, thelicensing system wasaborder measure, andassuchnot
covered byArticle IIIofGATT, anditrelated toatariff quota andwasnotaquantitative restriction
under Article XI.AstheTRIMs Agreement didnotgobeyond these twoArticles, thiswasanother
reason whytheEClicensing system forbananas didnotcome under theTRIMs Agreement. Inaddition,
andwithout prejudice totheabove, therewasnonecessity foroperators tocomply, sinceimport licences
could bepurchased onthemarket place. Furthermore, theinvestment measures subjected totheTRIMs
Agreement weregovernment measures (e.g.investment permits etc.made conditional oncertain trade
measures ortrade performance goals tobeobserved bytheprospective investor), whereas the
Complaining parties 'concern waswithprivate investment andtheeffect thatcertain trade measures
mayhavethereon. Thatissuewasnotcovered byeither theTRIMs Agreement orGATT intheview
oftheEC. Itcould onlybecovered byaninvestment agreement.
4.456 Finally, theECpointed outthat,asamatter offactandwithout prejudice towhatwassaid
above, large firms registered asoperators inbothCategory AandCategory B(taking intoaccount
thefactthatalmost allthelarger operators areregistered inbothcategories) werevertically integrated
toasignificant extent prior tothecreation oftheregime, either through theirsubsidiary companies
orthrough long-term links withcommercial partners.
(iii)Activity function licence allocation
4.457 TheComplaining parties argued thattheactivity function rule,under which 43percentof
thelicences weredistributed toparties other thanprimary importers, andthemanner inwhich itwas
administered, additionally burdened anddiscriminated against imports from Latin America. Byits
nature, itincreased transaction costs because itdistributed licences toparties thatdidnotpreviously
import andwhodidnothavethecapacity todoso.Theactual importers (those whowereengaged
inprocuring thebananas from overseas) hadtolinkupwithparticular ripeners orcustoms clearers
("licence pooling", astheECadmitted), oreveninvest inripening facilities, inorder nottolosea
portion oftheirentitlement toimport inthefollowing year.
Licence distribution issues
4.458 TheUnited States noted thataccording totheEC,theweighting coefficients assigned toeach
"activity" werebased onthetypeof"risk" taken bythevarious operators inmarketing bananas. The
EChad,however, provided noexplanation forthespecific coefficients applied, anyelucidation of"risk"
orhowanyoperators other thantheprimary importers assumed anyriskatall.Moreover, theEC
Commission hadprovided littleexplanation ofthemeaning ofthethreeactivities. Activity (a)appeared
todesignate thefirstentity established intheECwhich purchased green bananas before theywereWT/DS27/R/USA
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entered intothecustoms territory ofamember State, shipped them andsoldthem toothers inthe
Community(forCategoryB,thisfunctionlargelydesignatedECproducersandproducers'organizations).
Activity (b)wasintheory meant todesignate theentity thatcleared thebananas through amember
State'scustoms authority (often following overland transport away from aEuropean seaport) for
subsequent saletoaripener/distributor. However, there hadbeen considerable confusion and
disagreement between importers andripeners astowhich entities inthechain ofdistribution qualified
forthisfunction. Anentity might forashort period haveowned thebananas andreleased them for
"free circulation" intheEC(i.e.cleared customs), butmaynotinfacthaveborne theriskofspoilage
andloss-inwhich caseboththeoriginal importer andthisentity might haveclaimed entitlement to
(b)licences forthesame bananas. According totheUnited States, theactivity function rulehadalso
given import rights toripeners thathadnever before imported bananas (activity (c)). Theactivity
function rulehadthusresulted inthefurther lossofimport rights offirms thathadimported Latin
American bananas intotheECbefore theimplementation oftheregime.
4.459 Attheestablishment oftheECbanana regime, animportant element thatwastaken intoaccount
inrelation tothecreation andallocation ofquota rentinthetariff quota system wastherepercussions
itmight haveonthedifferent operators inthesupply chain. IntheECview, tohavehanded the
commercialandfinancialpowerassociatedwiththetariffquotaimportlicencestooneparticularcategory
inthesupply chain would havemeant giving tosuchoperators extraordinary powers ofbargaining
overtheirtrading partners inthesupply chain, which would havebeendetrimental totheirnegotiating
ability and,hence, totheirbusinesses. Thewhole internal ECbanana market would havesuffered from
thisunbalanced andpotentially anti-competitive situation. Therefore, itwasconsidered necessary,
indetermining thecriteria which operators inthesupply chain forbananas would havetomeetinorder
tobeconsidered as"operators" within themeaning ofRegulation 1442/93 to:(i)takeaccount ofthe
complex anddiffering market structure inthemember States; (ii)ensure thatoperators whose
specialized business activity depended onaccess tothetariff quota, enjoyed suchaccess without any
disruption tonormal trading relations; and(iii)takeaccount ofthedifferent commercial burdens and
riskstaken bydifferent traders inthemarketing chain.
4.460 TheECthusexplained thatunder ECCommission Regulation 1442/93, inparticular Article 5,
thequantities ofbananas marketed intheECbymaking useofthetariff quota through Category A
andCategory Clicences -which wereissued under theauthority ofArticle 19ofRegulation 404/93
anditsimplementing legislation -should bemultiplied byacoefficient, designed toreflect thatlevel
ofcommercial risktaken, depending ontheeconomic activity asreferred toinArticle 3(1)ofthe
Regulation. Inorder tobean"operator" inthetechnical sense, anoperator musthaveperformed at
leastonefunction inthemarketing ofbananas. "Marketing" meant placing onthemarket anddid
notinclude thewholesale andretail stages (Article 3.2ofRegulation 1442/93). Thedifferent functions
could roughly bedescribed asfollows:
- activity (a):57percent (primary importers: purchaser ofgreen third-country and/or
ACP bananas from theproducer or,where applicable, the
production, consignment andsaleofsuchproducts intheEC);
- activity (b):15percent (secondary importers: asowners, thesupply andrelease for
freecirculation ofgreen bananas andsalewithaviewtotheir
subsequent marketing); and
- activity (c):28percent (ripeners: asowners, theripening ofgreen bananas andtheir
marketing within theEC).
4.461 Inaddition "operators" musthavebeenestablished intheECandhavetraded aminimum of
250tonnes ofbananas inoneyearofthereference period. Thetotalquantity thatanyoperator could
actually import intotheECdepended ontheapplication oftheabove-mentioned coefficients. AnWT/DS27/R/USA
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operator 'sentitlement wasbased ontheaverage volume ofhistrade inthereference period (for1993,
theyears 1989-91, etc.)foreachofthefunctions, multiplied bytheweighting factor.
4.462 TheECsetoutthefollowing, bywayofexample ofhowoperators 'reference quantities were
becalculated: Aprimary importer whoimported anaverage of1,000 tonnes ofbananas overthethree
yearreference period would haveareference quantity of1,000 x0.57=570tonnes. Anoperator
ripening 1,000 tonnes onaverage overthereference period would have areference quantity of
1,000 x0.28=280tonnes. Foranoperator performing thefunction ofasecondary importer inthe
same circumstances, thereference quantity would be150tonnes. Andanoperator whoperformed
allthree functions foranaverage of1,000 tonnes ofbananas would receive areference quantity based
onhisactivities inallthreecategories andthushave570tonnes forhisactivity asaprimary importer,
plus150tonnes asasecondary importer and280tonnes forhisripening activities. Thus hewould
receive atotalreference quantity of1,000 tonnes. Theweighting system alsoimplied thatprimary,
secondary importers andripeners could pooltheirlicences inorder toobtain aquantity ofbananas
onwhich eachofthemcould perform itsfunctions. Oneimport licence inthesupply chain wassufficient
togivealllinks inthechain work inrespect ofthequantity ofbananas covered bythatlicence.
Claims under theGATT
Article IofGATT
4.463 AccordingtotheComplainingparties,theactivityfunctionrulewasnotconsistentwithArticleI
ofGATT, sincethesamecomplexities, constraints anduncertainties werenotplaced onACPbananas.
Even theECCommission hadacknowledged thatthiswasnotthenormal waytodistribute licences.
Thenormal waywasbased onthecriterion ofeffective importation. TheEC’spractices andprocedures
seemed designed toavoid applying thiscriterion asmuch aspossible, withtheeffect thatitsprocedures
were more burdensome thannecessary toadminister thetariff quotas.
4.464 According toEcuador ,Article IofGATT prohibited Members from making aregulatory
advantage available toimports from some countries while notmaking itavailable toothers.239The
activity function ruleviolated thisprinciple because itimposed anadministrative burden onproducts
based ontheorigin ofthebananas. Themarketing anddistribution oftraditional ACP bananas was
notconstrained bytheactivity function rule. Rather, import licences weredistributed among operators
wishing toimport traditional ACPbananas purely onthebasis ofefficiency andother market forces.
These operators werenotforced toaltertheirdistribution patterns toconform totherequirements of
anartificial marketing chain erected through ECregulations. Incontrast, astheCommission itself
hadconceded, theactivity function ruleprovided "astrong incentive foroperators tochange theirtrade
patterns inorder tomaximize theirlicence allocation, e.g.byripening bananas forthefirsttime."240
Becauseunintegratedoperatorswereunabletoimportalloftheirbananasusingtheirownimportlicences,
theimportation ofthird-country bananas wasgreatly hindered. Theactivity function ruleadversely
affected theimportation ofthird-country bananas andthuswasinconsistent withtherequirements of
Article IofGATT.
239See"UnitedStates-DenialofMost Favour edNationTreatmentastoNon-Rubber FootwearfromBrazil",BISD39S/128,
pp.150-152 (adopted on19June 1992).
240See"Working Document: Determination ofReference Quantities from 1995 Onward", European Commission,
6October 1993, VI.E.1.WT/DS27/R/USA
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4.465 According toGuatemala andHonduras ,alltariff quota volume entered anddistributed by
Category AandBfirms hadarbitrarily tobeparcelled 57percentto"primary importers," 15per
centto"secondary importers," and28percentto"ripeners." Prior toRegulation 404/93, twoofsuch
activity providers, secondary importers, andripeners, were merely subordinate agents intheEC
distribution chain. Today, under theforceoftheactivity function rule,43percentoftariffquota bananas
wasassigned tosuchsecondary importers andripeners, agreatmany ofwhich didnothavethemeans
tohandle thecommercial needs oftariffquota bananas. InthecaseofPortugal, aspecially authorized
derogation from theactivity function rules meant thatnoneofthevolume entering thatcountry had
beenallocated tofirms thathistorically engaged indirect purchases fromLatin American producers.241
These activity rules andallowances should beanalyzed injuxtaposition withtheunencumbered
arrangements afforded toECandtraditional ACPbananas, where nomiddleman wasrequired. The
unlimited flexibility given totraditional ACPsuppliers tocommercialize inwaystheybestsawfitgreatly
improved theirmarket competitiveness relative tothecomplainants 'fruitandshould bedisallowed
under Article I:1,themost basic ofallGATT non-discrimination rules.
4.466 TheECreplied that,asfarasArticle I:1wasconcerned, thesource ofviolation should be
found inthefactthattheACP traditional licensing system didnotprovide forasimilar distinction
among activity functions andtherefore suchanadvantage, i.e.non-application ofactivity function should
beextended onanMFN basis. IntheEC'sview, itwashardtounderstand howatechnical device
aimed atcreating greater equality oftreatment forthevarious types ofoperators intheECcould be
perceived asadisadvantage affecting thebananas imported fromanysource ascompared totheACP
traditional bananas whose better "status" should beextended onanMFN basis. Theactivity function
allocation wasanother wayofdealing withtheproblem ofquota rentresulting from thetariff quota
andthelicences toallocate thesequotas. Theaimoftheactivity function wastherefore nottoconcentrate
theeconomic value related toimport licences toomuch inafewhands, orinonepartofthesupply
chain. Otherwise, theprivileged recipients would havereceived awindfall doseofpower andinfluence
overtheirtrading partners inthesupply chain, forinstance thedependence ofindependent ripeners
onthebig,integrated banana trading companies would havegrown considerably, while itwasalready
great. Itwould havemeant afurther blowtotheirnegotiating ability vis-à-vis thesecompanies, which
dominated thebanana trade already toaverygreat extent inlarge partsoftheECmarket. Itwason
thispoint thatmost clearly considerations ofcompetition policy entered intothesystem.
4.467 Such considerations fellentirely outside theambit oftheWTO, however, aswasclear from
thepreparatory discussions fortheSingapore Ministerial Conference. Itshould berecalled thatthe
notions ofcompetitive opportunities thathaveplayed aroleforquitealongtimealready intheGATT-
system, didnothaveanything todowiththenotions ofdomestic orECcompetition policy, suchas
theyentered intoconsideration here, when deciding about thedesirability ofallocating thewindfall
ofeconomic bargaining power which would havegone automatically withtheallocation ofimport
licences. Inpractice, theactivity function allocation reflected thevalue added tothechain ofsupply
andhadnoimpact atallontheimportation ofbananas from anysource within theECbanana tariff
quota. Thesystem oflicence pooling wasbyallmeans thebestexample oftheneutrality oftheactivity
function allocation intheimportation process asawhole. According totheEC,thedifferent reality
inthetwoseparate regimes -theACPtraditional andtheECtariffquota -justified theimplementation
ofdifferent policies partly duetodifferent administrative andpractical needs. Theabsence ofanactivity
function allocation intheACP traditional allocation could notberegarded asan"advantage, favour,
privilege orimmunity granted to[the]product" andhence Article I:1ofGATT wasnotapplicable
(norviolated) byit.
241Regulation 1442/93, Article 3.1.WT/DS27/R/USA
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4.468 Asdiscussed above, theComplaining parties argued thatthediscrimination andextraordinary
burdens could notbejustified bytheEC'sassertion thatthese licensing ruleswere"notuncommon"
orthat"they respond tothespecific needs ofthetariff quota." Theonlyspecific needidentified by
theECwasahighly dubious explanation thattheCategory Blicence criteria andtheactivity functions
were driven bycompetition concerns -because theLatin American banana sector wasalleged tobe
uniquely characterized by"oligopoly orevenmonopoly." Assetoutearlier, competition concerns
werenotalegitimate justification fortworeasons: (i)competition concerns withrespect toindividual
companies weremore appropriately dealtwiththrough competition lawsandenforcement, which the
EChadnotbeenhesitant touseagainst multinationals inthepast-theEChadprovided noexplanation,
intheviewoftheComplaining parties, forwhyitscompetition lawswerenotadequate towhatever
taskitclaimed tohavebeentrying toaccomplish withthelicensing regime; and(ii)theclaim was
obviously aposthocrationalization thatprovided nobasis orfactual support forburdening imports
ofLatin American bananas. TheComplaining parties further argued thatiftheECdidhaveagenuine
interest inimproving competition forbananas andother products, itcould bestachieve thatbycreating
alarge andopenmarket inwhich competitive forces wereallowed toprevail. Instead, ithadnotonly
distorted themarket infavour ofcompanies thathadpreviously operated inanon-competitive market,
ithadencouraged market concentration. Asystem ofactivity functions didnotincrease competition
orreduce marketing margins, asalleged bytheEC.Aslongasthetariff quota'sover-quota ratewas
prohibitive, theoverall price levelintheECmarket wasdetermined byECdemand (i.e.supply was
fixedbythetariffquota, andonlythequantity demanded could vary.) Thispricewasabove competitive
market-clearing levels. Iftheinternal allocation ofthetariff quota reduced supply below thetariff
quota level(i.e.thetariff quota wasnotfullyutilized) theprice wasfurther increased andcompetition
wasreduced. Byallocating rights tothetariffquota through theactivity function system, theECwas
creating suchaninefficient system thatthelicence recipients werenotabletomarket theentire tariff
quota. Theactivity function wasinefficient because it:(i)allocated rights toECfarmers -who, even
theECrecognized, hadnointerest inimporting bananas; (ii)gaverights toECripeners, which included
hundreds ofsmall entities dispersed throughout theECandwhich hadalmost noprior record of
purchasing bananas atsource; and(iii)employed vague definitions thatinvited over-filing anddouble-
counting, towhich theECresponded byapplying draconian reduction coefficients, further exacerbating
importers 'uncertainty regarding theiractual licence entitlements.
4.469 According totheComplaining parties, theactivity function rulewasapolitical compromise
between theECmember States, some ofwhich wanted alllicences tobeissued toprimary importers,
others ofwhich wanted alllicences tobeprovided toripeners, andstillothers ofwhich proposed various
formulae inbetween (forexample, Belgium andtheNetherlands hadaninterest intheirdistribution
toprimary importers because alargeproportion oftheEC’sbanana imports entered through Antwerp
orRotterdam). Thefinaldistribution among theactivities mostresembled theFrench proposal. The
practical result oftheapplication oftheEC’sactivity function rulewastoencourage vertical integration.
Primary importers hadaddressed theproblem byinvesting inripening facilities, while bothripeners
andprimary importers hadrushed toperform thecustoms clearance function intheindividual member
States soastoobtain future licence entitlement rights withrespect tothe(b)activity function.
4.470 TheEC,inresponse toaquestion asked bythePanel, noted thatithadstated thatlegitimate
competition concerns played aroleinfashioning thelicensing system, butalsomade clearthatthese
concerns werelargely ofanegative nature, namely averting thatthequota rentwhich inevitably resulted
fromthecreation ofatariffquota withimport licences allocated todifferent exporting countries would
exclusively, ortoaverylarge extent, endupinthehands ofthose whoalready hadastrong position
ontheimport market, namely thebigoligopolistic multinationals. TheGerman market hadalready
seenanabuse ofdominant position byonefirmvis-à-vis independent ripeners, intheviewoftheEC.
Thiswasaconsequence ofthestructure oftheimport market forbananas -asmall number ofprimary
importers dealing withalargenumber ofsmaller ripeners. Economic theory demonstrated thatinsuch
asituation thepowerful fewtended toactasprice-makers dictating terms tothelargenumber ofsmallerWT/DS27/R/USA
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dispersed firms. Giving orleaving allthelicences forthetariff quota inthehands ofthese fewbig
companies would haveexacerbated thesituation, giving more market power tothebigcompanies and
worsening thesituation oftheindependent ripeners. Itwasalegitimate competition concern ofthe
ECCouncil toprevent suchincidental consequences ofcreating alicensing system. Article 42ofthe
ECTreaty gavetheCouncil thepower within theframework ofArticle 43ECTreaty toinclude such
competition concerns initsoverall set-up ofacommon organization ofthemarket foraspecific
agricultural product, inthiscasebananas.
4.471 Agood example oftheimplicit competition aspects ofRegulations based onArticle 43was
thefrequent stimulus given totheestablishment ofproducers 'organizations. Thiswasapparent also
inRegulation 404/93, inparticular thefifthpreambular paragraph. Other concerns ofacompetition
nature featured inthe10thpreambular paragraph ("maintaining traditional trade patterns asfaras
possible") andinthe14thpreambular paragraph (notdisrupting existing commercial links, while at
thesametimeallowingsomedevelopmentofmarketingstructures).Similarconcernsaboutnotdisrupting
therelations between thevarious actors inthemarketing chain weretobefound inthesecond preambular
paragraph ofRegulation 1442/93 imply thatcompetition issues andthedistribution ofquota rentwere
taken intoaccount
Article IIIofGATT
4.472 Guatemala andHonduras considered thatthestipulation thattariff quota suppliers selland
distribute solely through those entities thatsatisfied theprescribed activity descriptions andallotments,
suchasripeners -while authorizing ECsuppliers tosellthroughout thedistribution chain toanyentity
oftheirpreference, without going through, forexample, designated ripeners -similarly constituted
illegal discrimination under theedictofArticle III:4ofGATT thatthesaleanddistribution ofimports
beaccorded "treatment nolessfavourable" thanthataccorded todomestic goods.
4.473 With reference totheargument thattheactivity function allocation "tilt(s) competitive
opportunities infavour ofdomestic goods" because "foreign goods arerequired tobesoldthrough
middlemen, while domestic goods arenot"andtherefore thesystem allegedly violated Article III:4,
theECsubmitted thattheabsence ofanyevidence supporting suchallegations coupled withthetotal
misrepresentation ofthesystem should deprive theallegation ofanycredit. Itwould certainly be
interesting toknow, intheEC'sopinion, howtheComplaining parties intended tosell(andtowhom)
green bananas without submitting them toaripening process, andiftheycould expose totheother
parties andthePanel anyevidence showing thatECbananas were solddirectly without anyneedof
submitting them toaripening process. Itwould alsobeinteresting toknow howtheComplaining
parties arrived attheconclusion thatthe"middlemen" wereofadifferent nationality fromtheoneof
origin oftheimported bananas andhowitwould bepossible tosubmit ECbananas toimport procedures
while maintaining theircharacter ofECdomestic products. Itsufficed, intheEC'sopinion, thatno
serious allegation orevidence hadbeenpresented ofabreach ofArticle III:4.
Article X:3ofGATT
4.474 Ecuador recalled thatArticle X:3(a) ofGATT required thataMember to"administer ina
uniform impartial andreasonable manner allitslaws, regulations, decisions andrulings ...."and
argued thatthisrequirement hadbeeninterpreted tomean thatMembers could notpermit, "inthe
treatment accorded toimported goods, discrimination based oncountry ororigin, nor...theapplication
ofonesetofregulations andprocedures withrespect tosome contracting parties andadifferent setWT/DS27/R/USA
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withrespect toothers."242According toEcuador, theactivity function ruleviolated these principles
because itapplied onlytoimports ofthird-country andnon-traditional ACPbananas andnottoimports
oftraditional ACP bananas. Thediscrimination against third-country banana imports wasthusa
prima facieviolation ofArticle X.
4.475 Guatemala andHonduras submitted thatforcomparable reasons assetoutabove, thesource-
differentiation inimport distribution rules effectuated byactivity functions disrespected Article X's
instruction thatMembers administer regulations ina"uniform, impartial andreasonable manner."
TheDirector-General 'sNoteinterpreted Article Xtodisallow onesetofrestrictive regulations applied
tocertain sources when adifferent setapplied toothers. Thesource-differentiation rulesfellsquarely
within thisprohibition and,accordingly, should beterminated.
4.476 Mexico considered thattheactivity function provisions alsoviolated Article X:3(a) ofGATT,
because theyapplied exclusively toimports from non-ACP countries under thetariff quota, whereas
imports originating from traditional ACP countries were notsubject toasimilar limitation.
4.477 TheECsubmitted thatasfarasArticle Xwasconcerned, theComplaining parties claimed
aviolationofparagraph3(a),assertingthatactivityfunctionallocationdidnotcomplywiththeobligation
ofadministering theinternal regulations andlawsinan"uniform, impartial andreasonable manner":
thiswasallcaused, intheiropinion, bytheso-called disparity oftreatment between "sources". Nothing
more wasunderstandable from theclaims which, intheEC'sview, lacked inproof andclarity and
didnotgobeyondtheexpressionofanuncircumstantiatedstatement.TheECmaintainedthattheactivity
function allocation complied totally withArticle Xbecause within theECbanana tariff quota, the
uniform, impartial andreasonable application ofthese ruleswasensured bythecompetent authorities.
Article XIIIofGATT
4.478 Guatemala andHonduras further submitted thatthelegalstandard ofArticle XIII:1 ofGATT
thatimport licensing restrictions could beapplied onlyif"theimportation ofthelikeproduct ofall
thirdcountries ...issimilarly ...restricted" hadbeenviolated bytheapplication ofactivity function
licensing rulestoonlycertain foreign origins. Asnoted above, Guatemalan, Honduran andother tariff
quota suppliers hadtoentertheirbananas through minutely-prescribed firms thatwerearbitrarily defined
onthebasis, interalia,of"activities" performed. Many oftheseactivity providers werenotpreviously
engaged, orcompetitive, intheactual importation anddistribution oftariffquota bananas. Traditional
ACP suppliers hadbeengiven fullexemption from likeimport restrictions; theywere freetoenter
theirbananas through anyenterprise oftheirpreference, regardless oftheactivities thatenterprise might
havepreviously performed. Suchimport licensing discrimination against theComplaining parties could
notbesaidtofulfil theArticle XIII:1 principle expressed above.
4.479 TheECsubmitted thattheComplaining parties weremistaking theapplication oftheprinciple
ofnon-discrimination between twoseparate andindependent regimes under Article I:1ofGATT and
theprinciple ofnon-discrimination intheadministration ofagiven tariff quota under Articles XIII:1
andXIII:5. Theallegations pertained fullytothefirstprovision (thathadalready beenexamined)
andnotatalltothesecond. Asnoviolation ofArticle XIII:1 wasthusdemonstrated, theECrejected
theclaim. Inanyevent, theECargued thattheactivity function allocation oflicences didnotdistort
inanywayandunder anycircumstance theimportation ofbananas ofwhichever origin: noevidence
could beshown andhadbeenshown bytheComplaining parties thateachshare ofthetariff quota
242SeeNote byDirector-General, 29November 1968, L/3149; seealsoreference tothispassage inDessert Apples,
para. 6.5.WT/DS27/R/USA
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thathadbeenallocated tospecific countries orto"others" wasprevented from being fullyutilized
bytheexistence oftheactivity function allocation oftheimport licences: theactivity function allocation
hadnoimpact ontheimportation ofthebananas (the"product" referred toinArticle XIII). Noviolation
ofArticle XIIIcould beraised inthisrespect.
4.480 Asdiscussed above, theComplaining parties responded thatArticle XIII:1 prohibited the
application ofarestriction toproducts ofoneMember thatwasnotalsoapplied toproducts ofother
countries. Although theECinsisted thattheregime foradministering thetariff quota wasentirely
separate, Regulation 404/93 onlycreated oneregime, nottwo.Regardless ofhowmany regimes might
beatissue, however, Article XIIIofGATT stillrequired thatimports from allsources besimilarly
restricted.
4.481 TheECrecalled inresponse toaquestion bythePanel concerning another claim thatthetariff
quota onbananas wasnotarestrictive measure: there were norestrictions imposed onimports and
Members could import asmany bananas astheywished intotheECmarket.
Claims under theLicensing Agreement
Article 1.2oftheLicensing Agreement
4.482 Mexico argued thattheprovisions onactivity functions, byviolating Article XofGATT,
alsoviolated Article 1.2oftheLicensing Agreement.
4.483 Ecuador argued thatactivity functions werenotonlyinequitable, theyintensified thetrade
distortion already inherent inthesystem bydepriving operators ofaportion oftheirlegitimate licence
entitlement. Thescheme wastherefore indirect conflict withArticle 1.2(andArticle 1.3)ofthe
Licensing Agreement.
4.484 TheECrecalled theissueofprinciple concerning theapplicability oftheLicensing Agreement
totariffquotas. Inanyevent, theECsubmitted ithadshown noviolations ofGATT provisions existed;
thusArticle 1.2oftheLicensing Agreement wasnotviolated. Further, asdiscussed above, thelicensing
system must serve thesolepurpose ofrendering thecommitments under theschedules effective by
allowing anorganized access (incaseofquotas) oranorganized application ofduties (incaseoftariff
quotas). Those commitments didnotinclude either operators rights orimporters commercial positions
orinterests onacertain market. TheECnever committed under theGATT tothemaintenance (or
improvement) ofcommercial positions onitsmarket ofanyspecific company oroperator, whichever
itsplace ofestablishment ortypeofactivity.
Article 1.3oftheLicensing Agreement
4.485 Ecuador argued thattheactivity function allocation wasinconsistent withtheprinciples in
Article 1.3oftheLicensing Agreement. TheEChadstated that,informulating theactivity function
rule,itwas:
"guided bytheprinciple whereby thelicences mustbegranted tonatural orlegalpersons who
haveundertaken thecommercial riskofmarketing bananas andbythenecessity ofavoidingWT/DS27/R/USA
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disturbing normal trading relations between persons occupying different points inthemarketing
chain."243
However, theEChadnotprovided anydefinition oftheterm"commercial risk," norhaditexplained
howcommercialriskwascalculatedforpurposesofallocatinglicencesamongthethreeactivityfunctions.
Infact,itwasunclear howmuch ofthecommercial riskwaseverborne bysecondary importers, whose
taskinvolved thelargely administrative function ofclearing thebananas through customs, andripeners,
whomerely ripened thebananas forsaletoretailers. Moreover, theactual investment ofresources
needed toperform thesecondary importer orripener functions wasrelatively minor compared tothe
investment required toperform theprimary importer function. Inanycase,regardless ofthecommercial
riskborne bythevarious operators, itwasunclear whyoperators suchasripeners, which never before
hadimported third-country bananas, should havebeenallocated asubstantial portion ofthelicences
toimport suchbananas. Insummary, farfrom "avoiding disturbing normal trading relations," the
activity function allocation appeared tohavefundamentally restructured themarketing chain.
4.486 Guatemala andHonduras submitted that,similar tocategory allocations, thesource-specific
application ofactivity function rules rancounter tothecompanion provision ofArticle 1.3ofthe
Licensing Agreement thatlicensing procedures bepractised ina"neutral," "fairandequitable" manner.
Therequirements thattheComplaining parties wedge theirtradeflowthrough specific activity providers
thatwereotherwise unsuited inthepre-Regulation 404/93 market toenteranddistribute suchproduct,
andthattheComplaining parties didsoinarbitrarily dictated quantities -while liberating ECand
traditional ACPbananas fromallsuchrequirements -failed anypossible standard ofneutrality, fairness,
andequity.
4.487 Mexico argued thattheapplication oftheactivity function provisions oftheEC'slicensing
scheme obliged Category AandBoperators tobuyimport licences from ripeners (orotherwise to
establish theirownripening installation) inorder tomaintain theirpercentage share inthetariffquota.
These provisions werecontrary toArticle 1.3oftheLicensing Agreement, since theydidnotresult
inajustandfairadministration oftheprocedures. Imports from ACP countries entered freefrom
theactivity function requirements which wereapplied onlytoimports originating inthirdcountries,
including Latin American countries.
4.488 TheComplaining parties argued thattheactivity function rule,under which 43percentof
licences were distributed toparties other thanprimary importers, andthemanner inwhich itwas
administered, additionally burdened anddiscriminated against imports from Latin America. Byits
nature, itincreased transaction costs because itdistributed licences toparties thatdidnotpreviously
import andwhodidnothavethecapacity todoso.Theactual importers (those whowere engaged
inprocuring thebananas from overseas) hadtolinkupwithparticular ripeners orcustoms clearers
("licence pooling", astheECadmitted), oreveninvest inripening facilities, inorder nottolosea
portion oftheirentitlement toimport inthefollowing yearasdetailed elsewhere. Thisrulealsocreated
continued uncertainty astothequantities thatindividuals would bepermitted toimport from Latin
America. Thispractice wasnotequitable, asrequired bytheLicensing Agreement, norwasitneutral.
4.489 TheECreplied thattheactivity function allocation wasapplied inaneutral way, since no
distinction ofanysort,related totheorigin ofthebananas, wasapplied within theECtariff quota.
Theactivity function allocation wasalsoadministered inafairandequitable manner because the
coefficients ofallocation were applied inanobjective, statistical waywithnoreference, within the
tariff quota, totheorigin ofthebananas.
243"Report ontheECBanana Regime", European Commission, July1994, pp.10-11.WT/DS27/R/USA
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4.490 TheComplaining parties replied thatthepeculiar activity allocations ofRegulation 1442could
notbeexplained orjustified asneutral, equitable orobjective. Theyrepresented anartificial allocation
unconnected toimport shares thatwould prevail inafreemarket. Theobvious waytodistribute import
licences wasonthebasis ofhistorical imports, withsuchimports easily ascertained byrecords. A
Member thatchose instead criteria thatwerenotmeasurable orpublicly verifiable, ashadtheEChere,
should bearaheavier burden ofshowing thatsuchprocedures mettherequirements ofArticle 1.3of
theLicensing Agreement.
Article 3.2oftheLicensing Agreement
4.491 Ecuador ,referring totheprovisions ofArticle 3.2oftheLicensing Agreement, claimed that
theactivity function rulewasnot"absolutely necessary" toadminister thethird-country tariff quota.
Theactivity function rulewas,intheopinion ofEcuador, merely ameans forfurther hindering the
access ofthird-country bananas totheECmarket. Moreover, Ecuador argued, theEChadatitsdisposal
lesstradedistortive means forimplementing atariffquota. Forexample, inadministering theallocations
fortraditional ACP bananas, theECdidnotallocate import licences among categories ofoperators
according totheiractivity function. Infact,theimport licensing regime forthird-country bananas
wastheonlyECregime thatdistributed licences onthebasis of"activity functions." Theactivity
function allocation significantly distorted trade andcould notbejustified asnecessary toimplement
thetariff quota. Thescheme therefore directly conflicted withArticle 3.2.
4.492 GuatemalaandHondurassubmittedthatlikethecategoryallocationmeasures,activityfunction
allocations -whether evaluated onaself-standing orrelative basis -had"trade-restrictive [and] -
distortive" consequences wellbeyond those arising outofthetariffquota volume limitation, rendering
them illegal under Article 3.2oftheLicensing Agreement. Activity function allocations forced
Guatemala andHonduras touseimport anddistribution agents thathistory hadshown werenototherwise
capable ofcommanding suchservices. Thevolumes tobedirected through suchagents werearbitrarily
andinefficiently dictated, eliminating anypossibility foreconomies ofscale inthemarketing ofthe
Complainants 'fruit. Thisledtoadverse price consequences thatdampened ECdemand forthe
Complainants 'bananas. Nosuchilleffects hadbeenforced uponECandACPsuppliers, which could
sellanddistribute through anyentity, withwide open economies ofscale andnoprice distortion,
significantly enhancing themarketing desirability ofbananas fromECandACPsources. Article 3.2
could not,intheopinion ofGuatemala andHonduras, bereadtopermit licensing-specific trade
restrictions anddistortions ofthiskind.
4.493 TheUnited States argued thatunder theactivity function rule,historical importers hadtoincur
costs additional tothose flowing from therestriction simply tostayinbusiness: toavoid losing up
to43percentoftheirbusiness inthefuture, theyhadtopurchase licences, enter intoconstraining
marketing agreements withspecific ripeners orevenbuyripening facilities. Theadministration ofthe
activity function ruleresulted incontinuous uncertainty astothequantity animporter could hopeto
enter, since annual entitlements wereonlyprovisional andnotfinalized untilwellintotheimport year
(usually thethirdquarter, following audits andreduction coefficients applied asaresult ofcompeting
claims).Incombinationwithotherlicensingmeasures,theseunusuallicensingrequirementsdramatically
curtailed purchase, delivery andmarketing flexibility fordistributors ofthird-country bananas.
4.494 TheUnited States argued thattheEChadeffectively conceded thattheactivity function rule
hadmade itsimport procedures more administratively burdensome thannecessary. Acknowledging
thattherulehadcaused thebanana trade toengage in"extremely complex" practices merely tostay
inbusiness, theECCommission hadin1995offered aproposal tochange thescheme toonethatwas
"simpler andmore transparent" andallocated, "asistraditional inmatters oftrade, onthecriterion
ofeffective importation".WT/DS27/R/USA
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4.495 Further, theUnited States believed thatthese numerous layers ofadministrative complexity
could hardly be"absolutely necessary" toadminister aquantitative limitation. Inthefirstinstance,
theECrequirements fortheLatin American tariff quota imports went beyond what wasneeded to
administer imports ofbananas subject toquantitative limitations, sinceaparallel import licensing system
(fortraditional ACPbananas) wasamodel ofsimplicity without anyofthecomplex features applied
toimports under thethird-country tariff quota. ACPimport licences weregranted upon presentation
ofacertificate oforigin, withasingle reduction coefficient applied toallapplicants ifthere wasan
over-subscription. Asahistorical matter, Regulation 404/93 didnotitselfrequire thedistribution of
licences onthebasisofactivity functions. Thisfeature wasadded bytheECCommission afewmonths
later. Thedistribution of43percentofimport licences inCategory Atoentities, thevastmajority
ofwhich hadnopractical experience inpurchasing bananas abroad, could onlybeahindrance, not
ahelp, inadministering thetariff quota. Itcould hardly beafeature thatwas"absolutely necessary"
toadminister imports.
4.496 TheECnoted thatArticle 3.2oftheLicensing Agreement indicated, first, thatalicensing
regime should not"have trade -restrictive or-distortive effects onimports additional tothose caused
bytheimposition oftherestriction". Nocomplaining party hadproven thattheactivity function
allocation distorted orrestricted importation ofbananas intotheECfromanysource beyond theeffects
ofthelegitimate ECbanana tariffquota forthesimple reason that,intheopinion oftheEC,sucheffects
didnotexistandbananas, including Latin American bananas, entered theECunhindered.
4.497 TheECfurther argued thatArticle 3.2stated thatnon-automatic licensing procedures should
notbemore administratively burdensome thanabsolutely necessary toadminister themeasure.
Coherently withwhathadbeenalready indicated above when analysing thissame Article about other
aspects oftheECregime, theECreiterated thattheburdensome nature ofthenon-automatic licensing
procedure hadtobeappreciated withrespect totheoperator atthemoment oftheimportation ofthe
bananas under theECbanana tariffquota. Theasserted complexities oftheactivity function allocation
wereborne toaverylarge extent bythecompetent authorities ofthemember States oftheECwhich
calculated thecoefficients andapplied theECrules. What remained fortheoperators themselves was
littleindeed, andcorresponded totheminimum absolutely necessary forthesystem tofunction correctly.
4.498 Asdiscussed above, theECwasoftheopinion thatthelegislation oncompetition wassimply
notrelevant inthepresent casebecause theGATT wasconcerned withtrade ingoods (oreven, in
particular circumstances, competitive opportunities concerning those goods onaspecific market, after
thegoods hadcleared customs) butnotwiththeoperators ’rights trading those goods. Furthermore,
when thebanana regime entered intoforce, onlyoperators already active inthemarketing supply chain
were eligible toreceive licences (apart from the3.5percentofthetariff quota which wasreserved
fornewcomers). Thus, importers andripeners whohadexisting commercial and/or contractual
arrangements, bothreceived licences foraproportion ofthebananas theyhadhandled. Alicence was
onlyrequired onceinorder forthefruittobenefit from thebound dutyunder thetariff quota while
clearing customs, andthusitwasnotnecessary forboththeimporter andtheripener toholdalicence
foraparticular consignment. Since licences were distributed inproportion toexisting trade, ifthe
samecommercial relationships continued, thenthoseenterprises which already cooperated commercially
would beabletohandle thequantity ofbananas represented bythesumtotaloftheirlicences ("licence
pooling"). Thisrequired nochange inexisting commercial relationships orpractice. Intheviewof
theEC,theregime didnotoblige operators tomaintain existing relationships adinfinitum .Ifoperators
choose toengage innewcommercial relationships, itwasincumbent upon them toensure thatone
orother oftheparties would beentitled tothenecessary licence required toclearcustoms under the
existing terms oftheECtariff quota. Thiswasnotasituation specific tobanana trade, since itwas
anobligation which existed withregard toimporting anyproduct forwhich there wasatariff quota
andanimport licence regime.WT/DS27/R/USA
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4.499 TheComplaining parties responded thattheEClicensing regime amounted toanon-tariff
barrier beyond therestriction caused byvolume limitations. Operators seeking toimport under the
tariff quota needed continuously topurchase licences, enter intomarketing agreements withspecific
ripeners orinvest inripening facilities merely toavoid thelicence erosion created bytheadministration
oftheregime, i.e.merely tomaintain thesame business aspreviously. Incombination withother
licensing measures, these elements (i.e.reduced operator flexibility, uncertainty andsource-based
linkages)actedasanon-tariffbarrierthatrestrictedanddistortedtheimportationofthird-countrybananas
beyond whatmight beexpected from themere operation ofatariff quota, inviolation ofArticle 3.2
oftheLicensing Agreement.
4.500 TheComplaining parties continued thattheECsought tosatisfy itsburden ofexplaining its
discriminatory andburdensome regime byurging anunduly narrow reading oftheLicensing Agreement
tocover onlylicensing "procedures". With respect toactivity functions, theEChadacknowledged
thatprimary importers, secondary importers andripeners often hadto"pool theirlicences" toavoid
lossofimport entitlement. This"pooling" procedure wasanexcessive, perhaps evenunprecedented,
administrative burden toimpose upon licensees, placing itwellwithin thecoverage ofArticle 3.2.
Moreover, therecord-keeping requirements needed toestablish eligibility under thechanging
administration oftheactivity function ruleweresevere inthemselves. Theassociated procedures were
hardly minimally burdensome or"absolutely necessary" toadminister thetariff quota.
4.501 Asdiscussed above, theComplaining parties further argued thatthediscrimination and
extraordinary burdens could notbejustified bytheEC'sassertion thattheywere "notuncommon"
orthat"they respond tothespecific needs ofthetariff quota." Theonlyspecific needidentified by
theECwasahighly dubious explanation thattheactivity functions weredriven bycompetition concerns
-because theLatin American banana sector wasalleged tobeuniquely characterized by"oligopoly
orevenmonopoly". Thiswasnotalegitimate justification intheirview.
Issues concerning "over-filing" or"double-counting"
4.502 TheComplainingpartiesobservedthat,becauseofcompetingclaimsforthesamethird-country
banana imports, thetotalreference quantities accepted bytheCommission foreachofthemarketing
years sincetheintroduction oftheCommunity-wide regime hadsubstantially exceeded, byasignificant
andgrowing amount, actual banana imports during therelevant reference period. Thefollowing table244
showed themagnitude ofthe"over-filing" ofreference quantities:
Licence allocation
yearReference
periodWeighted percentof
over-filing
1993 1989-1991 13.9%
1994 1990-1992 14.7%
1995 1991-1993 18.3%
1996 1992-1994 28.6%
Thisover-filing wasattributable, theComplaining parties argued, toconfusion arising outofthe
"primary importer," "secondary importer" and"ripener" definitions, thelack ofapublicly
verifiable control point (such ascustoms clearance) andthelackofadequate controls bytheEC
Commission. TheECCommission hadused twomethods toaddress over-filing. First, the
244Sources: European Community Banana Traders Association andEurostat. Figures for1996 were provisional.WT/DS27/R/USA
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Commission instructed theparticular member State toverify thelegitimacy ofclaimed reference
quantities byparticular companies. Itappeared thatlarger importers hadreceived most ofthe
audit attention. Second, after those audits were completed, normally mid-year (intimeforthe
fourth quarter), itapplied across-the-board reduction coefficients (reflected intheabove table) to
allindividual operator reference quantities. TheCommission applied these large reduction
coefficients regardless ofwhether anoperator 'squantities hadbeen certified asaccurate in,or
reduced asaresult of,anaudit. Thesystem provided anincentive tooperators toover-file bya
percentage inexcess oftheprojected annual reduction coefficient, thusenabling them togain
import rights towhich theyhadnolegitimate entitlement.
4.503 TheComplaining parties considered thattheEC’swayofaddressing over-filing -by
applying auniform reduction coefficient -wasinequitable withrespect tooperators thathadalready
beenaudited.245Ontopoftheseconstraints, theECCommission wasunwilling toaddress theendemic
over-filing forlicences bymany ofthecompanies, aphenomenon duelargely toitsownconfusing
definitions. Instead theEChadcontinued todiminish eligibility forlicences byapplying anequal
reduction coefficient thatreflected these over-bids -evenforoperators whose quantities hadalready
beenreduced ordeemed correct afteraudits. Over time, anoperator importing from Latin America
andmaking accurate declarations would loselicence rights. Thisrulealsocreated continued uncertainty
astothequantities thatindividuals would bepermitted toimport fromLatin America. Thispractice
wasnotequitable, intheopinion oftheComplaining parties, asrequired bytheLicensing Agreement,
norwasitneutral.
4.504 TheUnited States submitted agraph toshow thatanoperator making accurate declarations
inthecontext ofcontinued ECCommission reliance oninaccurate reference quantities would over
timeloselicence rights. These elements wereinconsistent withthefundamental obligation inArticle 1.3
oftheLicensing Agreement that"rules forimport licensing procedures ...be...administered ina
fairandequitable manner." Forthesame reason, theoperation oftheactivity function wasalso
inconsistent withtherequirement under Article 1.3thatsuchrules be"neutral".
4.505 Ecuador argued thattheEC'spractice ofauditing selected companies, andthepenalization
ofoperators through theapplication ofauniform reduction coefficient violated theprinciples setout
inArticles 1.2and1.3oftheLicensing Agreement. Thetradedistortive effects oftheactivity function
ruleswereintensified bytheproblem of"double counting" which arose through thepractical application
oftherule. Ecuador considered thatthedefinitions ofthevarious activity functions setoutinthe
regulation werevague andhadbecome evenmore confused bythepromulgation ofinternal working
documents fromtheCommission which provided additional guidelines forapplying theactivity function
rule. Thepractical effect oftheambiguity inthedefinitions wasthatdifferent operators claimed credit
formarketing thesame bananas. Because theoperators 'historical import levels werethusartificially
inflated,theoperatorsappliedformoreimportlicencesthantheywerelegitimatelyentitledto.Additional
over-filing could alsooccur asaresult offraud.
4.506 Ecuador further saidthattheEChadattempted toreduce thisproblem by:(i)auditing the
applications forlicences inorder toverify theclaims made; and(ii)applying areduction coefficient.
Each ofthese measures, however, hadbeenapplied inadiscriminatory manner tothedetriment of
operators involved intheimportation andmarketing ofthird-country bananas. According toArticle 8
ofRegulation 1442/93, "[t]he competent authorities shallconduct allnecessary checks toverify the
245TheComplaining parties noted thatthisreduction coefficient differed from therarereduction coefficients applied to
some ACP imports incases thatcountry-specific allocations were exceeded since import eligibility wasnotbased onrecords
ofhistorical shipments andinvolved noauditing. Theeffective rateofreduction foroperators thathavealready beenaudited
wasmuch greater thanthereduction fornon-audited, inaccurate entitlement claims.WT/DS27/R/USA
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validity ofapplications andsupporting documents submitted byoperators ...".Theauthorities 'auditing
efforts were generally focused onthelarger operators. These larger firms tended tobeprimary
importers, many ofwhich werenon-EC owned firms suchasNoboa. Thesmaller firms, consisting
mainly ofripeners andsecondary importers, wereusually EC-owned andwere, according toEcuador,
generally notaudited. Theadverse discriminatory impact onnon-EC entities wasintensified bythe
factthataftertheEChadconducted theaudits todetermine theaverage amount ofover-filing, the
ECfixed auniform reduction coefficient foreach category ofoperator. According to
Regulation 1442/63, Article 6:
"Depending ontheannual tariffquota andthetotalreference quantities ofimporters asreferred
toinArticle 5,theCommission shallfix,where appropriate, asingle reduction coefficient
foreachcategory ofoperators tobeapplied tooperator 'sreference quantities todetermine
thequantity tobeallocated toeach."
Becausethereductioncoefficientswereuniformlyapplied,theECcouldauditafirmandfindnoevidence
ofover-filing, butstillcould impose areduction coefficient onthatfirm'sentitlement. Thereduction
coefficient system thuspunished largefirms which filedproper licence applications. However, italso
rewarded smaller firms which tended toover-file ontheexpectation thattheywould notbeaudited.
4.507 Ecuador considered thatthissystem wasmanifestly unfair onitsface. Moreover, itcreated
anenormous incentive forsmall firms toover-file inorder tostayahead oftheuniform reduction
coefficient andtoobtain licences inexcess oftheirlegitimate entitlement. Theeffect ofthese uniform
reductions wascompounded overtimesincethereduced amounts wereentered intotheoperators 'three
yearrolling average forcalculating licence entitlements. Consequently, application oftheuniform
reduction coefficients unfairly reduced theoperator 'sentitlement inboththecurrent yearandinthe
future. According toEcuador, thisscheme wasnotonlyinequitable, butitintensified thetradedistortion
already inherent inthesystem bydepriving operators ofaportion oftheirlegitimate licence entitlement.
Thescheme initsentirety wastherefore indirect conflict withArticles 1.2and1.3oftheLicensing
Agreement.
4.508 Guatemala andHonduras submitted thatoneprominent irregularity thateven theEC
acknowledged tobeinneedofattention wasthewidespread practice ofover-filing byapercentage
inexcess oftheprojected annual reduction coefficient, thusenabling over-filers togainundeserved
import entitlement. Thatpractice hadledtosubstantial, annually increasing reduction coefficients
thatwereapplied uniformly, eventovolumes thathadbeenthoroughly audited. Because ofthelingering,
non-transparent nature ofthispractice, andthecontinuous, significant transfer oflicensing entitlement
effectuatedbyit,GuatemalaandHonduraswereleftyear-by-year,andevenquarter-by-quarter,uncertain
astothevolumes ofbananas thathadtobequickly reassigned tonewECfirms. Guatemala and
Honduras considered thatthispractice violated Articles 1.3and3.2oftheLicensing Agreement and
Article XofGATT.
4.509 Mexico considered thattheprovisions concerning theapplication ofauditing andreduction
coefficients intheallocation oflicences alsoviolated Article 1.3oftheLicensing Agreement, andthat
theirapplication tonon-ACP countries within thetariff quota inparticular alsoconstituted aviolation
ofArticle 3.2because ithaddistorting effects onimports.
4.510 TheECrecalled itsexplanation oftheactivity function system. Itnoted thatanoperator 's
reference quantity thuscalculated wasmultiplied byareduction coefficient todetermine theamount
ofthetariff quota tobeallocated tothatoperator. Ineffect, thereference quantity wasanindication
oftheoperator 'sshare oftotalECtrade inbananas ofaparticular category, e.g.traditional ACPand
ECbananas, tariff quota bananas ornon-traditional ACP bananas. Anoperator would receive anWT/DS27/R/USA
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equivalent share, inpercentage terms, ofthetariffquota. Thusanoperator whocarried out5percent
onaverage ofthetrade inbananas intheECinthereference period would receive 5percentofthe
available partofthetariff quota. Thesame mechanism wasusedfordetermining thequota allocation
ofbothCategory AandCategory Blicences. Category Alicence allocation wasbased onpasttrade
inthird-country andnon-traditional ACP bananas. Category Blicence allocation wasbased onpast
trade inECandtraditional ACPfruit. Category Clicences (fornewcomers) didnothaveareference
quantity based onpasttrade; theirallocation wasdependent onthevolume ofapplications fortheportion
fornewcomers ofthetariff quota. Inaddition, theECexplained thattheexistence ofareduction
coefficient wasaninherent partofthesystem, andnotaresult ofdouble counting orover-filing. A
reduction coefficient wasastandard procedure thatwasuniversally usedinimport licensing systems
theworld overincases where legitimate requests forlicences exceeded thequantity available for
distribution. Iftheaggregate totalofreference quantities exceeded thevolume available forimport
under thetariffquota, areduction coefficient wasapplied without discrimination tothereference quantity
ofeachoperator todetermine theoperator 'sannual righttoimport.
4.511 TheECsubmitted thatthelicensing system under forthetariffquota imposed itsheaviest burden
ontheadministrations concerned, bothofthemember States andoftheCommission, andthiswas
trueinparticular forthetaskofverifying whether thefigures transmitted bythemember States were
correct andcould beexplained onthebasis oftheunderlying factsanddeclarations byoperators in
order toestablish thereduction coefficient. IntheECview, itwasimportant torealize thatthe
Commissiondidnot"audit"theoperatorsconcerned.TheCommissionwasnormallyalertedtoproblems
bydiscrepancies inthefigures itreceived from themember States. TheCommission hadanumber
ofmeans atitsdisposal todiscuss these problems withthemember States andtomake them reverify
thefactual dataunderlying thefigures theyhadtransmitted totheCommission. Thefirstpossibility
wastodiscuss theseproblems intheManagement Committee forbananas. During oneparticular period
(July-December 1993) thisCommittee met10times, theECcontinued, inorder todiscuss information
which theCommission wasrequesting: theactual amount ofreference quantities, theproblem ofdouble
counting, theproblem ofcertain operators registering intwodifferent member States forthesame
function, theinterpretation ofArticle 3(1)b ofRegulation 1442/93 andtheneedforthemember States
toverify theirfigures submitted. Attheoccasion ofsuchCommittee meetings, bilateral ortrilateral
meetings withmember States onsome ofthese problems were organized. During thesame period,
Commission officials visited Germany, theNetherlands, Belgium andItaly. Onthebasisofallthese
activities theCommission wasabletorevise theaggregate reference quantities. Suchrevisions were
madeonthebasisofinformationmadeavailabletotheCommissionbythememberStatesandcorrections
were notmade apriori andwithout fresh information tojustify thecorrection made. Thus the
Commission hadnotbeencollating andchecking statistics relating toparticular operators toachieve
anaggregate national figure. Thereverse process wasfollowed: theCommission required thatthe
national authorities reexamined theiraggregate statistics and,ifthere were anomalies, worked back
through thefigures andproofs ofparticular undertakings. Only when thatwasdoneanderrors and
double-counting were identified were revisions inthenumbers ofthemember States made.
4.512 Thismethod of"working backward" withthehelpofnational authorities ensured that"auditing"
wasnotbeing usedto"getat"or"toclear" aspecific category offirms apriori .Cases inwhich
anomalies inthefigures showed thatthere might bedouble-counting orfalseclaims mayhaveledthe
national authorities backtocertain firms.246TheECthusconsidered thattheactivity function allocation
wasadministered inafairandequitable manner because thecoefficients ofallocation wereapplied
inanobjective, statistical waywithnoreference, within thetariff quota, totheorigin ofthebananas.
246Thisshowed, theECsubmitted, thattheEcuadorian allegations about selective auditing were groundless.WT/DS27/R/USA
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4.513 TheECfurther explained thatdouble-counting wasafraudulent practise bywhich an
operator/importer attempted toincrease itsentitlement toimport licences attheexpense oftheother
operators/importers,byputtingupreferencequantities.Whenevidenceofoverfilinganddouble-counting
weregathered bythecompetent authorities, theycould decide togoahead withanauditing procedure.
Asthename indicated, itwasanenforcement action bywhich thecompetent authorities (ofthemember
States oftheEC)verified thecorrectness oftheoperator 'sbehaviour, vis-à-vis, thecustoms and
administrative authorities ofthatECmember Statebyexamining theirinternal business documentation.
Nospecific paperwork wasrequested bytheECfrom operators withrespect toauditing procedures.
Theproof thatsuchaprocedure wasneeded, theECsubmitted, wasdemonstrated bythecaseofthe
majorEcuadorianfirm,whereinvestigationofthesedocumentsshowedthatincorrectclaimsforreference
quantities hadbeensubmitted. Theclaims hadinfactbeeninflated byalmost 20percent. Another
case, which highlighted thenecessity ofestablishing procedures permitting anin-depth analysis of
particular declarations, wasthatofoneoftheUnited States multi-nationals thatconsistently claimed
tohavesupplied tooneECmember Statealmost 50percentmore bananas thanthatcountry 'sentire
consumption. Itshould bestressed, theECsaid,thatacomplete audit ofanyfirm'soperations had
never beenundertaken. Auditing wasrestricted tospecific statistics concerning individually identified
claims, contracts ortransactions where double-counting orother incorrect declarations weresuspected.
Areduction coefficient wasatotally different issuetodouble-counting. Theapplication ofareduction
coefficient wasstandard procedure thatwasuniversally usedinimport licensing systems theworld
overincaseswhere requests forlicences exceeded thequantity available fordistribution. Thereduction
coefficient wasapplied, without discrimination, tothereference quantity ofeachoperator todetermine
theannual righttoimport. Thereference quantity ofaspecific operator wasadjusted onlywhen over-
filing hadbeenidentified.
4.514 TheComplaining parties tookissuewiththeEC’scontention thattheapplication ofreduction
coefficients wasnecessary solely because totalhistorical imports were greater thanthetariff quota.
TheEChadconfused theissueofreduction coefficients. While itwastruethatareduction coefficient
wasapplied incustoms practice where there were competing applications notbased onhistoric
entitlement, andthatinthisparticular regime, thehistoric entitlements ofalloperators hadbeenreduced
equally inproportion totheinitial reduction inaccess resulting fromtheapplication ofthetariffquota,
itwasevident thatwithrespect toalicence-holder making accurate declarations, thereduction coefficient
wasmuch greater thanthatwhich would apply simply because overall access totheECmarket had
beenreduced. Infact,thereduction coefficients werenecessary primarily toaccommodate theextensive
over-filing bytheindustry. Asasimple example, thetariff quota in1994was14percentlower than
actual imports in1992 (oneofthereference years forthe1994 entitlement calculation). Inaddition
tothisdifference between thetariff quota andimports during thereference year, thetotaloffiled
Category Areference volumes in1992 was24percenthigher thantheCategory Aallocation ofthe
reduced tariff quota. ThetotallosstotheCategory Aoperators from these twofactors alone was
therefore 38percent. TheComplaining parties further argued thatitwastheEC’sconfusing and
imprecise definitions of"activities" thatencouraged over-filing. Companies wereeither uncertain due
totheambiguities, ortheyrecognized theECwould apply areduction coefficient, sothey"bid-ahead"
andover-filed. Over-filing hadbeengetting worse every yearsince 1993. Theonlydisincentive
provided bytheECsystem (except incases offraud) waswithrespect tohonest operators whowere
audited andwerestillsubject toanever-increasing reduction coefficient. TheECcreated thisproblem -
andeventheCommission recognized itisaproblem sinceithadproposed changing it-when itcreated
thishighly complicated system thatallocated licences tovarious entities along thedistribution chain,
whowerebound tocompete against eachother, instead ofallocating licences inthelogical andtraditional
way, which wastoimporters.
4.515 Ecuador considered thatwithrespect todouble-counting, every Ecuadorian company complied
withtherulesestablished byECRegulation 1442/93, afactthathadbeenaccepted bythecompetent
authoritiesoftheECmemberStateswhohadoversightoftheactualshipments.TheproblemofincorrectWT/DS27/R/USA
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claims cited bytheECarose when theECCommission, instead ofissuing licences toEcuadorian
companies, wrongly provided toEuropean companies licences toimport Ecuadorian bananas onthe
basis ofanunpublished internal interpretive note(Ecuador added thatthefailure topublish thisnote
alsocontravened Article XofGATT).
(iv)Export certificates
4.516 TheComplaining parties noted thattheEChadtaken theexceptional stepofauthorizing a
select group ofsupplying countries tocouple export licences withimport licences inorder toconfer,
intheEC’sownwords, "economic benefits" tothose countries. Inaddition topresenting violations
flowing fromthefactthatCategory Boperators wereexempt fromtheexport certificate requirement
(seediscussion above), theComplaining parties considered therequirement wasastraight-forward
violation ofGATT andtheLicensing Agreement.
4.517 TheECresponded thatArticle 6oftheBFAconcerning thepossibility ofBFAcountries to
deliver export certificates wasintroduced intotheEClegislation through Article 3(2)ofCommission
Regulation 478/95. TheECimplemented thisfurther procedural stepinthelicensing system, that
concerned onlybananas originating inColombia, Costa RicaandNicaragua andwhich constituted an
extra procedural burden fortheexportation ofthebananas from those countries, onspecific demand
bythose countries. They hadjustified theirrequest onthebasisofinternal needs concerning abetter
control oftheexport process oftheirdomestic banana production. TheEChadnothadanyreason
torefuse sucharequest, arequest thatcould beaccorded toanyother country which would manifest
anyspecific needinthisrespect.
Claims under theGATT
Article I:1ofGATT
4.518 TheComplaining parties argued thattheexport licensing requirements ofRegulation 478/95
violated theArticle I:1obligation that,"with respect toallrules andformalities inconnection with
importation ...anyadvantage ...granted byanycontracting party" toproducts originating inonecountry
hadtobeimmediately andunconditionally accorded allothers. Thediscriminatory advantages conferred
bythese export licensing ruleswere, intheopinion oftheComplaining parties, obvious. AstheEC
bestdescribed it,therules helped BFAcountries, andnoothers, "share intheeconomic benefits of
thetariff quota."247They didthisbyaccording export licence-holders inBFAcountries bargaining
leverage toextract ashare ofthequota rentfortheirfruitexported totheEC.
4.519 GuatemalaandHondurassubmittedthatsince1995,selectivetariffquotasupplyingcountries-
Costa Rica, Colombia andNicaragua -hadbeenpermitted under Regulation 478/95 toissue export
licences, which licences hadtobeobtained byCategory AandCoperators andcoupled withimport
licences inorder forbananas toenter theECfrom those sources. Because preferential tariff quota
volume shares hadbeenlaiddown forthose sources, Category AandCoperators hadnochoice but
tosecure suchexport licences orriskrendering unusable significant portions oftheirimport licensing
entitlement. Therequirement had,thus,given risetotheactive purchase ofexport licences fromthese
sources byCategory AandCoperators, thegoing price forwhich wasnowapproximately $2.50 a
box. AstheECitselfhadexplained, theexport licence authority thereby conferred onselect sources
coveredbyitacommercialadvantagebyhelpingsuchsupplyingcountries"shareintheeconomicbenefits
247See"Report ontheECBanana Regime, European Commission" (July 1994), p.12.WT/DS27/R/USA
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ofthetariffquota."248Those economic benefits, likethebenefits derived frompreferential tariffquota
allocations, were onlygranted bytheEConthecondition thatBFA recipients acquiesced tothe
provisions ofRegulation 404/93 etseq.Suchdiscriminatory application ofexport licensing authority
wasinconsistentwiththemost-favoured-nationprovisionsofArticleI:1ofGATT.CostaRica,Colombia
andNicaragua werebeing accorded aregulatory advantage thatenabled themtoshare intheeconomic
benefits ofthetariff quota, while theComplaining parties were not.
4.520 Itwasnoanswer thatGuatemala andHonduras, too,would havebeenaccorded thatadvantage
hadtheyshown aninterest inthisdiscriminatory authority. TheEChadmade clearthattheprice-tag
forsuchinterest wasfullcapitulation totheinconsistencies oftheregime. TheComplainants had
repeatedly refused tobuyintothose inconsistencies, insisting, instead, onlegitimate reforms thatwere
consonant withWTO law.Suchreforms could hardly beconsidered achieved bycompounded managed-
trade requirements ofthesortrepresented byexport licences, which practice inevitably served only
toforce regional investments intothebusiness oftrading licences, notbananas. TheLomé waiver,
likewise, wasnoanswer tothisdiscrimination. Selective export licensing requirements wereforthe
exclusive benefit ofCosta Rica, Colombia andNicaragua, countries thatwere entirely irrelevant to
theLomé Convention. WithArticle I:1thereby violated, theexport licences selectively mandated by
Regulation 478/95 hadtoberuled nullandvoid, anddeleted from theregime.
4.521 Mexico argued thattheadvantages granted toBFAcountries, which related totherentwhich
resulted fromtheexpedition ofexport certificates, werenotgranted tonon-BFA countries andtherefore
were aviolation ofArticle I:1ofGATT.
4.522 TheUnited States noted thatpursuant totheBFAandasimplemented byRegulation 478/95,
theECrecognized onlythoseexport certificates issued byBFAsignatories asprerequisites forimporting
bananas intotheEC. Because theBFAsignatories ’flexibility toissue suchlicences amounted toa
"privilege" notenjoyed byother Members, itwasinconsistent withArticle I:1ofGATT.
4.523 According totheEC,theclaim thattheprovisions ofArticle 3(2) ofCommission
Regulation 478/95 andtheexport certificate requirement fortheBFAcountries violated Article I:1
oftheGATT, insofarastheexistence ofanexport certificate enabled onlytheBFAcountries toshare
intheeconomic benefits ofthetariff quota while theother countries wereexcluded wasunjustified.
Inorder tojustify theclaim ofaviolation ofArticle I:1,ithadtobeproven, intheopinion ofthe
EC,thatthebananas fromtheBFAcountries werereceiving fromtheECanadvantage thatwasnot
accorded totheother Members oftheWTO. TheECdidnotseethisexport certificate asanadvantage.
According totheEC,theextra procedural stepcreated asituation bywhich bananas from theBFA
countries were receiving licences after countries outside theBFA, i.e.mostly originating inthe
Complaining parties 'countries. Theresult wasthat,forinstance, Ecuador 's,Honduras 'andMexico 's
partsoftheECtariff quota wereveryquickly overbooked. Thisshowed clearly, intheopinion ofthe
EC,thatnoComplaining party'sproduction (oranyother Member 'sproduction) wasdiscriminated
against bytheexport certificate provisions. Moreover, thebanana production oftheBFA countries
wasburdened byanextra procedural stepthatitwasimpossible todefine asanadvantage under
Article I:1ofGATT.
4.524 TheECwasaware thattheadministration bytheBFAcountries oftheexport certificates could
create thepossibility ofquota rentbutonlyamong operators interested intrading inBFA bananas.
According totheEC,itwasafactoflifethatanysystem ofquotas created quota rents. Given that
theagricultural sector wasbeing liberalized largely byhaving recourse toasystem ofconsolidated
248Op.cit.WT/DS27/R/USA
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tariff quotas, there wasnodoubt thatquota rents would playacertain roleintheWTO system for
some timetocome. TheGATT contained norulesonthesharing outofquota rents. Anygovernment
wasentitled topursue itsownpolicy todistribute those quota rents provided thatnodiscrimination
between theproducts originating inthedifferent Members 'territories wascreated. Itwasinevitable
thatinallocating quota rentthrough alicensing system, inthiscaseexport licences, governments would
alsoallocate alimited amount offinancial power asbetween operators. However, ontheoneside,
thisphenomenon wasnotinbreach ofanyWTO ruleand,ontheother side,didnotaffect inanysense
either thevolume ofimportation ofthebananas intotheECmarket orthebanana production andtrade
oftheother countries. TheECwastherefore oftheopinion thatnoviolation ofArticle I:1ofGATT
wasdetectableinArticle3(2)ofECCommissionRegulation478/95.Therelatedclaimsshouldtherefore
berejected.
4.525 TheECrejected theallegation thatbananas originating inEcuador, Guatemala, Honduras and
Mexico (theUnited States didnotexport bananas) might beaffected intheirtrade withtheECbythe
imposition toColombian andCosta Rican bananas ofanexport certificate necessary toobtain animport
licence. Failing suchevidence, noviolation ofanyGATT rulecould beadvanced bytheComplaining
parties andthisissue should bedeclared irrelevant. TheECwasnotresponsible fortheprocedures
setupbytheBFAcountries toadminister theirexport certificates. Thisprocedure hadnothing todo
withthatandanyeventual (andintheopinion oftheEC,non-existent) violation oftheGATT bythose
Members should beaddressed byapplying therelevant WTO provisions. Thefactthatnotallimport
licences toimport Colombian andCosta Rican bananas under thetariffquota weresubject tothisextra
procedural step(Category Blicences were excluded) could not,intheopinion oftheEC,constitute
aviolation ofanyWTO rule,letalone Article I:1ofGATT. Ifthatwasthecase, thenon-existence
ofanexport certificate forimports from theComplaining parties would alsoamount toaviolation
ofthatprinciple, meaning thattheComplaining parties werebenefiting fromanadvantage notextended
onanMFN basis totheBFAcountries. Thiswould beanabsurd consequence andshould berejected
bythePanel.
4.526 TheComplaining parties further submitted thattheEChadalsoasserted thatbecause theexport
licensing provisions caused bananas from BFA origins tobeimported following thesecond round,
theyconstituted aburden, notanadvantage. However, thefactthatexport licences provided an
advantageous opportunity would notbeoffset byanyalleged burden. Asfound byprevious panels,
"anelement ofmore favourable treatment would onlyberelevant ifitwould always accompany and
offsetanelementofdifferentialtreatmentcausinglessfavourabletreatment."249Moreover,thetwo-round
system hadcreated agreater burden fornon-BFA countries because itpermitted wide-spread licences
"swapping" asdescribed byEcuador.
4.527 TheComplaining parties considered thattheEChadmisunderstood thecoverage oftheGATT.
Intheiropinion, anyimport rule,ifitledtoanadvantage being conferred toproducts fromonecountry
andnotothers, wasaperseinfraction ofArticle I:1.Thefactthatmoney transfers might beinvolved
didnotdiminish theeffect ofthismeasure onconditions ofcompetition. TheEC’sclaim thatexport
licences, including theexemption forCategory Boperators, hadhadnotrade impact wasequally
irrelevant. Actual trade effects were notrelevant todetermining conformity withArticle I:1.250
4.528 TheECreiterated thatitdidnotunderstand inwhich waybananas originating fromEcuador,
Guatemala, Honduras andMexico (theUSdonotexport bananas) might beaffected intheirtradewith
249Second Banana panel, para. 148, citing "United States -Section 337oftheTariff Actof1930", adopted
7November 1989, BISD 36S/345, para. 5.16.
250Idem, para. 147.WT/DS27/R/USA
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theECbytheimposition, toColombian andCosta Rican bananas, ofanexport certificate tobepresented
inorder toobtain animport licence. Failing evidence, noviolation ofanyGATT rulecould beadvanced
bytheComplaining parties andtheissue should bedeclared irrelevant tothepresent dispute.
Article X:3ofGATT
4.529 TheComplaining parties submitted thatsincetherulesconcerning export certificates differed
onthebasis oftheproduct ’scountry oforigin, theywere inconsistent withthe"uniform, impartial
andreasonable" standard ofArticle XofGATT.
4.530 Guatemala andHonduras argued thatthesource-differentiation intheEC’sexport licence
ruleswasoutlawed, too,byArticle X,which called onMembers toadminister regulations ina"uniform,
impartial andreasonable manner." Twosetsofrulesapplied inthisarea,oneforBFAsources, another
forallother tariff quota sources, apractice the1968 Director-General ’sNotefound tocontravene in
adirect waytheadministrative standard laiddown inArticle X.251
4.531 Mexico argued thattherequirement ofhaving tohaveanexport certificate fromBFAcountries
inorder toimport products from those countries constituted aviolation ofArticle X:3(a) ofGATT,
sinceastandard wasapplied forimports ofproducts originating fromBFAcountries which wasdifferent
from thestandard forimports originating inother countries.
4.532 Asdiscussed above, theECreplied thattheposition oftheComplaining parties wasbased
onnumerous flawed legalarguments andshould therefore berejected. Among them: Article Xprovided
onlyfortheprocedural rulestobefollowed intheapplication ofinternal rulespertaining tocustom ’s
activities, including requirements, restrictions orprohibitions ofimports. Furthermore, while rejecting
completely anyclaim suggesting apossible breach ofArticle X,letalone onthebasisoftheauthority
ofanotenever endorsed bytheCONTRACTING PARTIES andtaken outside itscontext, theEC
pointed outthatArticle Xapplied tolawsandrules pertaining tocustom activities ofacountry on
exports fromthatcountry. Inthecaseathand, theexport certificates wereissued byBFAcountries
while imports fromComplaining parties werenotsubject tothepresentation ofanyexport certificate.
Thisaffirmed thatArticle XofGATT wassimply notapplicable tothesubject matter andtherefore
notviolated.
4.533 TheEC'sargument thatArticle Xrelated solely to"internal rules" andhence wasincompatible
withaclaim based onArticle XIIIwas,according totheComplaining parties, notsupported bythe
plainlanguage ofArticle Xorpanel interpretations ofitsmeaning. Aspreviously discussed, thescope
ofArticle Xwasobvious fromitsfirstparagraph anditstitle:theArticle X:3obligation wasapplicable
toall"trade regulations". TheDessert Apples report alsoclarified thatArticle XIIIandArticle Xcould
apply tothesame measure.252
4.534 TheComplaining parties considered theEC'sresponse -thatexport certificates wereissued
byBFA countries andwere notrequired fornon-BFA signatories -wasafactual assertion thathad
nobearing onthelegalobligation atissue. What wasatissuewererulesandprocedures thatconferred
adiscriminatory commercial advantage, augmented theincentives topurchase ACPandECbananas,
251Note bytheDirector-General, L/3149 (29Nov. 1968). SeealsoDessert Apples, BISD 36S/93, para. 6.5(adopted
22June 1989).
252Dessert Apples, para. 12.29.WT/DS27/R/USA
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andotherwise disrupted regular marketing cycles. Thus, forthesame reasons thatArticle 1.3ofthe
Licensing Agreement wasbreached, sotoowasArticle XofGATT.
Article XIII:1 ofGATT
4.535 TheComplaining parties submitted thatArticle XIII:1 ofGATT required thatimports from
allsources besimilarly restricted. Asimilar restriction wasnotinplace asbetween BFAandnon-BFA
countries, because onlyBFAcountries could useexport certificates. Thedifference wasmaterial, since
export certificates permitted adifferent allocation ofquota rents thanmight occur without theiruse.
Similarly, ACPcountries werenotsubject toimport licences based onanycriteria otherthanpossession
ofacertificate oforigin. Thisrequirement permitted producers inthose countries toobtain agreater
share ofquota rents thantheywould ifECimporters oftheirbananas received licences onthebasis
ofhistorical shipments. These differences wereanalogous tothesituation intheDessert Apples case,
inwhich thepanel found thattheEChadviolated Article XIII:1 because ithadapplied animport
licensing scheme toChile, while entering intovoluntary restraint agreements withother countries.
Inbothinstances, thedifference informamounted toadifference insubstance. Avoluntary restraint
agreement permitted more quota rentstobeobtained bytheexporting countries, while import licences
generally would provide quota rentstoimporters.253Thus, here, asinDessert Apples ,imports were
being restricted inadifferent manner depending onorigin, inconsistent withArticle XIII:1.
4.536 Asdiscussed earlier, theECargued thattheGATT contained norules onthesharing outof
quotarents.Anygovernmentwasentitledtopursueitsownpolicytodistributethosequotarentsprovided
thatnodiscrimination between the"products" originating inthedifferent Members 'territories was
created. Itwasinevitable thatinallocating quota rentthrough alicensing system, inthiscaseexport
licences, governments would alsoallocate alimited amount offinancial power asbetween operators.
However, ontheoneside, thisphenomenon wasnotinbreach ofanyWTO ruleand,ontheother
side,didnotaffect inanysense either thevolume ofimportation ofthebananas intotheECmarket
orthebanana production andtrade oftheother countries.
4.537 According totheComplaining parties ,Article XIIIofGATT stillrequired thatimports from
allsources besimilarly restricted. Asimilar restriction wasnotinplace asbetween BFAandnon-BFA
signatories, since BFAsignatories could useexport licences andnon-BFA signatories could not.
Claims under theLicensing Agreement
Article 1.3oftheLicensing Agreement
4.538 TheComplainingpartiesexplainedthatitwasimportanttoclarifythattheywerenotchallenging
inthisdispute theexport licence asissued bytheBFA signatories; atissue wastheexport licence
requirement asanother condition oftheEC’sissuance ofanimport licence, asreflected inArticle 3
ofRegulation 478/95. TheEC’slimitation ofthisrequirement toonlyfourcountries could notbe
considered "neutral inapplication" orotherwise fairorequitable, asrequired byArticle 1.3ofthe
Licensing Agreement.
253TheComplaining parties were notarguing thattheGATT provided anabsolute right toquota rents. However, ifa
country permitted onetrading partner toobtain more quota rentsthananother, bydifferentiated administration ofrestrictions,
itwasinconsistent withthenon-discrimination requirement.WT/DS27/R/USA
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4.539 Guatemala andHonduras submitted thatsource-specific export licensing ruleswereequally
proscribed bytheprovisions ofArticle 1.3oftheLicensing Agreement. Ifruleswereestablished that
provided acommercial advantage tocertain sources andnottoothers, aswasthecasewithexport
certificates, theydefinitionally hadtobeseentofailtheLicensing Agreement 'sneutrality, fairness,
andequity instruction.
4.540 Mexico argued thattherequirement thatimporters musthaveanexport certificate toimport
BFAbananas totheECwascontrary tothe"neutrality, fairness, andequity" standard ofArticle 1.3
oftheLicensing Agreement.
4.541 According totheEC,theComplaining parties hadclaimed thattheprovisions ofArticle 3(2)
ofCommission Regulation 478/95 andtheexport certificate requirement fortheBFAcountries violated
Article1.3oftheLicensingAgreementbecauseitallegedlyconstitutedanunfair,unequalandnon-neutral
import licensing procedure should berejected. Theassertion wastotally unfounded -theComplaining
parties hadnolegalstanding andnoeconomic interest inrequesting thatanextraprocedural step,that
didnotaffect atalltheirproduction (which wasonthecontrary marginally advantaged bytheexistence
ofthatextraburden ontheircompetitors), should bedeclared inbreach ofArticle 1.3oftheLicensing
Agreement when thatspecific procedural stephadbeenrequested bytheinterested parties. Furthermore,
theexemption forCategory Boperators when importing bananas fromBFAcountries putthatcategory
oflicences inexactly thesamecondition asallthecategories when importing fromotherLatin American
countries. There wasnotrade distortion.
4.542 TheEC’sclaim thattherulesconstituted anadvantage, notadisadvantage, tothecomplaining
parties reflected, intheComplaining parties 'opinion, some legal confusion. IftheEC'sexport
licensing rules created trade advantages forproducts originating incertain countries andnotothers,
theycould notsatisfy anypossible testofneutrality. Infact,theexport certificate requirement provided
anextra bargaining chiptotheexporter indealings withtheimporter. Themarket price ofexport
certificates ranged from $2.50 perboxto$3.00 perbox. (Theprice ofanimport licence wasabout
$5.00 perbox.) Theexclusion ofCategory Boperators from export licensing requirements, which
added incentive topurchase bananas from ACP andECorigins, wasalsoabreach oftheneutrality
standard. Inaddition, themanner inwhich theexport licence requirement influenced thetwo-round
system, byartificially segmenting imports ofdifferent origin bytime, impaired normal supplying
efficiencies fortheComplaining parties 'bananas. These procedures could notbeconsidered "neutral
inapplication".
Article 3.2oftheLicensing Agreement
4.543 TheComplainingpartiesclaimedthattheyhadshownthattheEC'sexportlicensingrequirement
wastrade-disruptive andunduly burdensome under Article 3.2oftheLicensing Agreement. With
respect tothetradedistortion provision, theexport licensing rulesandprocedures disrupted tradefrom
itsnatural course byconferring adiscriminatory commercial advantage tocertain suppliers, by
strengthening theincentive topurchase from ACP andECcountries andbydisrupting customary
marketing cycles.
4.544 Ecuador argued that thespecial export certificate requirement provided forin
Regulation 3224/94 violated Article 3.2oftheLicensing Agreement. According toEcuador, thespecial
export certificates added anewlayer tothealready extraordinarily complicated licensing regime
applicable toimports ofLatin American bananas. TheEChadfailed toexplain whytheexport
certificates werenecessary toadminister onlytheBFAvolumes allocated toCategory AandCoperators.
Infact,thethird-country tariff quota operated fortwoyears without special export certificates, even
though many countries hadbeengiven country-specific allocations. Thespecial export certificateWT/DS27/R/USA
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procedures therefore, were, intheopinion ofEcuador, inconsistent withArticle 3.2oftheLicensing
Agreement.
4.545 Guatemala andHonduras submitted thatdiscriminatory export licence rules infringed both
thenon-distortion andnon-burdensome disciplines contained inArticle 3.2.Astothefirstofthese,
non-distortion, theexport licence ruleshadledto"trade-distortive effects" additional tothose caused
bythetariff quota volume limitation byforcing source-selective cashtransfers toproducers inBFA
countries inorder tosatisfy licensing match requirements. Those cashtransfers flowing backtoBFA
producers amounted toaproduction aid,which wasnotmade available toproducers inother tariff
quota source countries. Worse, thecashtransfers were ofsuchasubstantial nature thattheydried
upproductive regional investments inthebanana sector, resulting inLatin American banana trade
suffering.
4.546 Guatemala andHonduras argued thatastothesecond discipline, thatnon-automatic licensing
"benomore administratively burdensome thanabsolutely necessary toadminister themeasure", export
licences intandem withimport licences could not,according toGuatemala andHonduras, under any
specific orgeneral analysis beconsidered "absolutely necessary" totheadministration ofthetariffquota.
Forthefirstyearandahalfoftheregime, export licences played nopartinthetariff quota import
licensing scheme, anobvious indication thattheywere not,even byEC'sstandards, considered
"absolutely necessary". Asfurther indication ofnon-necessity, theimport licence/export licence
combination hadnever beenimposed onbananas fromtraditional ACPcountries. Infact,Guatemala
andHonduras were unaware ofanyother EClicensing regime forwhich theEChaddeemed it
"necessary" tocouple export licences withimport licences toadminister aborder measure. Ifthis
extraordinary combination ofexport andimport licensing requirements wasdeemed bythePanel to
be"absolutely necessary" toadminister atariffquota, Guatemala andHonduras considered thatitwould
become virtually impossible toforesee thecircumstances under which the"shall benomore
administratively burdensome thanabsolutely necessary" limitation would bebreached. Insum, the
export licence feature ofthisregime hadtobeconsidered discriminatory, unnecessary, anddistortive,
compelling aPanel instruction thatitbeeliminated.
4.547 Mexico argued thatinaddition tootherclaims, therequirement ofneeding anexport certificate
toimport BFAbananas intotheECwascontrary toArticle 3.2oftheLicensing Agreement, because
thisrequirement wasnotabsolutely necessary toadminister theECtariff quota.
4.548 TheECreplied thatinorder todemonstrate analleged violation toArticle 3.2oftheLicensing
Agreement, theComplaining parties needed toprove, first,thatthenon-automatic licensing had"trade-
restrictiveor-distortiveeffectsonimportsadditionaltothosecausedbytheimpositionoftherestriction".
TheComplaining parties should havedemonstrated thatbananas imported intotheECmarket were
restricted bytheadministration ofthetariff quota beyond theeffects ontrade oftheveryexistence
ofthetariffquota, which wasareality compatible withtheGATT andpartoftheconcessions accepted
byallcontracting parties, besides thefactthatthatwascommon practice inGATT agricultural
negotiations. Intheopinion oftheEC,notasingle evidence hadbeengiven ofthese supposed and
totally unproved additional trade restrictive ordistortive effects. Notasingle evidence wasshown,
demonstrating anyhindering intheaccess oftheComplaining parties bananas totheECmarket whose
parts ofthetariff quota were immediately andcompletely used.
4.549 TheComplaining parties responded thatundue administrative burden wasapparent. The
Complaining parties knew ofnolicensing system anywhere thatrequired import licences fordesignated
sources tobematched withexport licences fromdesignated sources. When thematching burden was
coupled withtheassociated two-round application procedures, thecollective process wascertainly more
administratively burdensome thanabsolutely necessary toadminister thetariff quota. AsdiscussedWT/DS27/R/USA
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above, theComplaining parties noted thattheexport certificate requirement alsoprovided anextra
bargaining chiptotheexporter indealings withtheimporter withthemarket priceofexport certificates
ranged from $2.50 perboxto$3.00 perbox.
(v)Publication ofregulations andtiming oflicences
4.550 TheComplaining parties noted thattodate,Regulation 404/93 hadbeenthesubject ofover
ahundred implementing andamending regulations, thesumofwhich averaged outtoonenewregulation
every tendayssince July1993. Thisextraordinary volume ofregulations wasmade worse bythe
uncommon complexity oftherules being published. Thereduction coefficient regulations typified
thatcomplexity. Numerous varieties ofreduction coefficients werepublished, including: (i)anannual
regulation fixing theprovisional reduction coefficient foroperator entitlements relating tothird-country
andnon-traditional ACP bananas (setprior totheactual yearofimport); (ii)anannual regulation
fixing thefinalreduction coefficient forsuchoperator entitlements (usually notsetuntilthemiddle
oftheactual yearofimport); and(iii)three types ofreduction coefficient regulations published every
quarter: aregulation fixing thequarterly indicative quantities, aregulation fixing thefirst-round
reduction coefficients, andaregulation fixing thesecond-round reduction coefficients (with thefirst
twopublished prior tothecommencement ofeachquarter, andthelatter published twoweeks into
eachquarter.) Notonlydidthiswebofregulations violate theprohibitions ofArticle X:3ofGATT
andoftheLicensing Agreement against trade regulations thatdiscriminated bycountry oforigin;
according totheComplaining parties, italsoinseveral respects violated theArticle X:1requirement
thatregulations bepublished "promptly" toenable "traders tobecome acquainted withthem". One
aspect ofthese administrative procedures, thetwo-round system, wasalsoinconsistent with
Article XIII:2(d) ofGATT.
4.551 Asdiscussed above, theECconsidered thatArticles XIIIandArticle XofGATT didnotand
could notoverlap, since theformer wasrelated totheadministration ofborder measures involving
aquota oratariff quota while thelatter concerned onlytheprocedural rules tobefollowed inthe
application ofinternal rules pertaining tocustoms 'activities, including requirements, restrictions or
prohibitionsofimports.Itwasnotpossible,therefore,tocomplainagainstallegedviolationsofArticleX
withrespect tothesame requirements, laws, regulations, etc.,forthesame reason asaviolation of
Article XIIIwascontested.
4.552 TheEC’sargument thatArticle Xrelated solely to"internal rules" andhence wasincompatible
withaclaim based onArticle XIIIwas,according totheComplaining parties, notsupported bythe
plainlanguage ofArticle Xorpanel interpretations ofitsmeaning. Aspreviously discussed, thescope
ofArticle Xwasobvious fromitsfirstparagraph anditstitle: theArticle X:3obligation wasapplicable
toall"trade regulations". TheDessert Apples report alsoclarified thatArticle XIIIandArticle Xof
GATT could apply tothesame measure.254
Claims under theGATT
Article XofGATT
4.553 TheComplaining parties submitted that,asageneral matter, because oftheextraordinary
volume andcomplexity oftheregulations being published, sufficient acquaintance withtheseregulations
wassimply notpossible formostofthetrade. Even those traders thatcommitted substantial timeand
254Dessert Apples, para. 12.29.WT/DS27/R/USA
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resources tofamiliarizing themselves withtherelevant regulations didnothaveenough timetofully
understand theworkings oftherulesunder which theywerebeing required tooperate. Thiswide-spread
levelofuncertainty wasmade worse bytheuntimely publication ofseveral keyregulations, particularly
those relating toreduction coefficients. Oneexample wastheregulation setting thefinalreduction
coefficients foroperator entitlements, which wasnotpublished untilthemiddle oftheactual yearof
import because ofdelays associated withunchecked "over-filing". Thisdelay meant thatoperators
wereuncertain forthefirsthalfofevery yearwhattheirpermissible entitlement volume would befor
thatyear, precluding anypossibility ofmarket planning.
4.554 Ecuador considered thatthelicensing procedures werenotsetout"inamanner astoenable
governments andtraders tobecome acquainted withthem." Regulation 404/93 hadbeenamended,
clarified andderogated frominamassofsupplementary legislation sinceitsenactment in1993. Merely
reading these myriad measures would bedaunting enough. However, understanding these measures
totheextent necessary tofollow theapplication procedures andtodetermine thevolume ofbananas
which aparticular operator wasentitled toimport required asubstantial commitment oftimeand
resources.
4.555 Ecuador alsoargued thatArticle X:3(a) ofGATT didnotpermit:
"inthetreatment accorded toimported goods, discrimination based oncountry oforigin, nor
...theapplication ofonesetofregulations andprocedures withrespect tosome contracting
parties andadifferent setwithrespect toothers."255
Article Xthusprohibited precisely thetypeofmeasures setoutinRegulation 404/93 which imposed
discriminatory andburdensome licence application procedures onoperators wishing toimport
third-country bananas.
4.556 GuatemalaandHondurassubmittedthatthestipulationofArticleXofGATTthatallregulatory
requirements beimposed ina"uniform, impartial andreasonable manner," wasmanifestly violated
bytheadministrative measures described above. Nosimilar burdens orinequities wereencountered
byECortraditional ACPsuppliers. Theadministrative procedures atissue werenot,intheopinion
ofGuatemala andHonduras, border-line violations. They were egregious intheir unfairness,
discrimination, andtrade disruption.
4.557 GuatemalaandHondurasconsideredthatthepredictablemarketingofGuatemalanandHonduran
bananas wasalsoeroded bylicensing regulations thatwere inanalmost constant stateoffluxand
uncertainty. Notonlywererulechanges routine, significant changes, suchasimplementation oftariff
quota allocations andexport licences, hadbeenputintoforce withonlyafewdaysnotice. Moreover,
thequarterly two-round procedure wasconducted overanuncommonly protracted six-week period
andworked todenytariffquota access for,ataminimum, thefirstthreeweeks ofevery quarter. That
shut-out period hadbeenextended evenfurther ininstances where theCommission hadbelieved it
necessary toencourage operators toengage more actively inthepurchase ofpreferential hurricane
licences. Such burdens andinequities, viewed onbothanindividual andacumulated basis, created
forGuatemalan andHonduran exporters aperpetual atmosphere ofcommercial unreadiness, confusion
anddeepcynicism withrespect totheprocedural scheme under which theywerebeing forced tooperate.
255SeeNote ofDirector-General, 29November 1968, L/3149; seealsoreference tothispassage inDessert Apples,
BISD 36S/93, p.117, para. 6.5.WT/DS27/R/USA
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4.558 TheComplainingpartiesnoted thatthequarterly reduction coefficient regulations alsodeprived
traders oftimely notice. Usually, atleastthree weeks ofleadtimewasnecessary tofillanorder of
bananas fromLatin America. Oneweek elapsed between thetimewhen aproducer received anorder
andthetimewhen theboats wereloaded forshipment. Actual shipment from Latin America tothe
European market usually tookanother twotothree weeks. Traders wereaccordingly innoposition
tocommit tocustomer orders unless allquarterly coefficient regulations werepublished three tofour
weeks inadvance ofthequarter. First-round licences, however, were notgenerally published until
about tendaysbefore thebeginning ofeachquarter,256depriving traders ofthenotice necessary to
satisfy theircommercial needs. TheComplaining parties considered thatthesecond-round coefficients
wereevenmore untimely, since these werenotpublished untilatleasttwoweeks intoevery quarter,
amountinginpracticaleffecttoGATT-inconsistentbackdating.Thefirstquarterof1996wasillustrative;
theregulation publishing thesecond-round reduction coefficients forthatquarter wasnotpublished
until13January 1996, withaperiod ofvalidity retroactive to1January. Thepanel inDessert Apples
explicitly found thatthepractice ofbackdating constituted abreach oftheprompt publication and
notification obligation ofArticle X:1ofGATT.257
4.559 TheECrecalled itsstrong doubts onwhether Article Xwasapplicable atalltomanagement
ofalicensing system which waslogically prior toandnotimmediately linked tocustoms related
measures. However, irrespective oftheoutcome ofthatlegal analysis, theECconsidered thatthe
management ofthelicensing system wastransparent andadministratively organized insuchawaythat
noactivity oftheauthorities intheallocation process waspossible without apreviously public and
published ECdecision. Forexample, forthequarterly management oftheregime, aregulation was
published giving details ofthepercentages ofannual entitlements which could beapplied for,andthe
percentages ofeachorigin which wereavailable ("indicative quantities"). Theindicative quantities were
always published andinforcebefore theperiod when operators could apply forlicences, andthatperiod
wasfixed, i.e.operators knew theymust apply between the1stand7thofthemonth preceding the
startofthequarter.
4.560 Thenextstep, theECcontinued, wasthataregulation waspublished stating what licences
weretobeissued. Operators thusreceived theirfirstround licences (which always covered allbananas
tobeimported fromthefourrelevant Complaining parties) atleastaweekbefore thestartofthequarter,
andtwoweeks before theexpiry oftheprevious quarter 'slicences, socontinuity ofsupply wasensured.
Thisstepdidnotimply anyspecific operators 'activity. Operators alsothenknew whatquantities were
available forthesecond round because these were published intheOfficial Journal oftheEuropean
Communities inthesameregulation which gavereduction coefficients forthefirstround. Theoperators
thenhad10working daystosubmit theirsecond round applications tothecompetent authorities. The
issuance ofthesecond round licences bythecompetent authorities tookplace onthe17thdayofthe
quarter, i.e.10daysaftertheexpiry oftheprevious quarter 'slicences, aperiod which represented
approximately 11percentofaquarter.258Nobody could credibly, intheopinion oftheEC,claim
256According totheComplaining parties, theregulation issuing firstround licences waspublished on19December 1995
forthefirstquarter of1996, on20March 1996 forthesecond quarter andon21June 1996 forthethird quarter.
257Dessert Apples, para. 12.29.
258TheECprovided alistofthepublications ofregulations during 1996:
(a) Indicative quantities:
1stquarter (1stJanuary): Reg. 2710/95 of23.11.95, entered intoforce on24.11.95;
2ndquarter (1stApril): Reg. 357/96 of28.2.96, entered intoforce 29.2.96;
3rdquarter (1July): 939/96 of28.5.96 entered intoforce 29.5.96;
4thquarter (1October): 1563/96 of30.7.96 entered intoforce 3.8.96.
(b) Regulations concerning issue offirstround licences andavailability forsecond round:
(continued...)WT/DS27/R/USA
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thatonlyhaving firstround licences available (andthatwasalways thecase) forsuchashort period
could actually restrict commercial opportunities. Annual allocations could onlygoupunless double-
counting(whichwasfraudcommittedbyoperatorswhilerequestingalicence)isidentifiedwhichreduced
anoperator 'sreference quantity. Allmovements inthereduction coefficient throughout theyearwere
tomake itlessconstraining, notmore so.What wasindicated above showed, according totheEC,
thattheEClicensing system wasmanaged in"uniform, impartial andreasonable manner" andthat
"allregulations andadministrative rulings" concerning themanagement ofthesystem were"published
promptly insuchamanner astoenable governments andtraders tobecome acquainted withthem".
4.561 Furthermore, theComplaining parties triedtoapply Article X:3ofGATT atthesame time
totheACPtraditional allocation procedures andtotheECtariffquota. AstheEChadalready submitted
tothePanel, thetworegimes hadtobetreated separately. There wasalsonoquestion ofaviolation
ofArticle X:1caused byaprocess ofquota back-dating asinthecaseofDessert Apples :asindicated,
anECRegulation, directly applicable inallECmember States, waspublished giving details ofthe
percentages ofannual entitlements which could beapplied for,andthepercentages ofeachorigin which
wereavailable before theperiod when operators could apply forlicences. Theexistence ofasecond
round ofdistribution oftheimport licences served thepurpose ofgiving afurther opportunity to
importers tofullyutilize thequantities ofbananas ofthose origins forwhich some volumes werestill
available: thisoperation waslogically andpracticably possible onlywhen therateofnon-use was
known, thatwasafterthedistribution of"first round" licences hadoccurred. Theuseofsecond round
licences could notbedescribed asabackdating, butwasapracticable means ofensuring thetotal
useofanalready timely distributed tariff quota.
Article XIII:2(d) ofGATT
4.562 Guatemala andHonduras submitted thatthetwo-round tariff quota licensing procedure
constituted "conditions orformalities" proscribed byArticle XIII:2(d) ofGATT. Thatprocedure was
never concluded untilthreeweeks intoevery quarter, causing theestablished termofvalidity forsuch
licences tobecutshort arbitrarily byatleasttwelve weeks outofevery year. Although thefourth
quarter intariffquota licences remained validforthefirstseven daysofthefollowing year, these few
daysfellfarshort ofrestoring ayear-round tariff quota licensing validity period forfruitfromtariff
quotaorigins.TheprocedurehadthereforetobesaidtopreventGuatemalaandHonduras"fromutilizing
fullytheshare ofanysuchquantity ...which hasbeenallotted toit."
4.563 TheECreplied thatArticle XIII:2(d), lastphrase, provided that"[n]o conditions orformalities
shallbeimposed which would prevent anycontracting party fromutilising fullytheshare ofanysuch
totalquantity orvalue which hasbeenallotted tohim". AstheEChadexplained previously, second
round licences were afacilitating mechanism designed toassist exporting countries andoperators to
utilize alltheirindicative quantity orlicence entitlement, respectively. There wasnever aperiod when
validlicences foranyorigin werenotavailable norwasthereeveranybackdating ofthesecond round
licences. Thefactthattheyweredistributed afterthequarter hadstarted responded exactly totheneed
toassess thenon-requested entitlements forthatquarter, which could notbeknown before thefirst
258(...continued)
1stquarter: 2913/95 of18.12.95, entered intoforce 19.12.95;
2ndquarter: 485/96 of19.3.96, entered intoforce 20.3.96;
3rdquarter: 1111/96 of20.6.96, entered intoforce 21.6.96;
4thquarter: 1834/96 of23.9.96 entered intoforce 24.9.96.
(c) Regulations concerning issue ofsecond round licences:
1stquarter: 45/96 of12.1.96, entered intoforce 13.1.96;
2ndquarter: 670/96 of12.4.96, entered intoforce 13.4.96;
3rdquarter: 1371/96 of16.7.96 entered intoforce 17.7.96.WT/DS27/R/USA
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round distribution hadbeencompleted. Noviolation could, therefore, beproved and,theECsubmitted,
theclaim should berejected.
4.564 Moreover, inorder toassist thePanel initsdeliberations, theEChadcompiled themostaccurate
statistics possible concerning theutilization ofthedifferent allocations ofthetariff quota in1995.
Theutilization figures wererelated nottotheEC'sbound tariff quota of2,200,000 tonnes, buttoits
autonomously increased volume of2,553,000 tonnes, andobviously theutilization figures would be
higher ifthebound volume hadbeenused. TheECalsobenoted thatthese figures represented an
amalgamation ofstatistics fromtwodistinct sources, member States customs 'authorities forthefirst
quarter, andcompetent authorities 'declarations oflicences usedforthesubsequent quarters, andthus
asmall margin ofunderstatement wasinevitable, although thefigures provided auseful indication of
thesituation. Thefigures alsoexcluded imports made using hurricane licences, which werealsotariff
quota imports, because these certificates didnotinclude details oftheorigin ofthebananas. This
statistical operation gavethefollowing utilization rates:
Percentage utilized
Framework Agreement signatories:
Colombia 94
Costa Rica fullyutilized
Nicaragua N/A
Venezuela 81
Others 98
Non-traditional ACP quantities:
Dominican Republic 96
Belize 53
Cameroon fullyutilized
Côted'Ivoire 99
Other ACP 60
For1994, theECcontinued, theEC'sbound tariff quota was2,100,000 tonnes, andavolume of
2,038,364tonnesofbananas,equivalentto97percent,waspermittedentryundertariffquotaconditions.
Itwascleartherefore, intheEC'sopinion, thattherewerenomaterial obstacles orconstraints imposed
bythesystem which prevented exporting countries oroperators from making fulluseoftheirrights
orallocations toimport.
4.565 TheComplaining parties claimed that,allthewayintothefirstfewweeks ofeachquarter,
theECCommission hadnotadvised themoftheresults ofthesecond round allocation, sotheycould
notascertain inadvance thevolume andsources oftheirsupplies. Since operators didnotknow their
finalentitlement untilthethirdquarter oftheactual yearofentitlement, theywereconstrained from
engaging inmarket planning andnormal risk-taking. These delays (inissuing licences) substantially
encroached onthetermofvalidity fortariffquota licences and,hence, onthefullusage oftariff quota
allocations. Thefactthatmany licences wereissued before thequarter commenced wasnotadefence;
asubstantial portion werenot.TheComplaining parties further noted thattheEC’sassertion thatthe
two-round procedure applied toallimports waserroneous, since traditional ACP sources were not
subject tosuchprocedures. Itwould notbeadefence inanyevent: theArticle XIII:2(d) requirement
applied regardless. Moreover, itwasofnoconsequence tosaythatimport licences fortheComplainingWT/DS27/R/USA
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parties 'bananas wereissued inthefirstround; thismayinmostinstances havebeenthecasetodate,
butmaynotalways beso.
4.566 Inresponse, theECsubmitted thatthereality, asexplained earlier, was:theannual entitlement
toimport fromthetariffquota thatentered intoforce 1January 1995, percountry orgroup ofcountries
wereknown since 1995 (Regulation 478/95); theannual entitlement toimport under thetariff quota
peroperator wasknown morethan1month priortothebeginning oftheyearbyapublished Regulation;
quarterly entitlements toimport, percountry andperoperator, wereknown more than1month prior
tothebeginning ofeachquarter bypublished Regulations; thefirstround licence requests tookplace
inthefirstweek ofthemonth prior tothebeginning ofthequarter; andifcountries orgroups of
countries wereoversubscribed inthefirstround, theninorder tofacilitate fullutilization ofthetariff
quota, asecond round tookplacetoallow theremaining validlicence requests tochoose another country
orgroup ofcountries toimport from. Toconclude, complete andtimely information wasprovided
tooperators onquantities available percountry andontheirentitlements toimport, bothonanannual
andonaquarterly basis. Moreover, for1995, theEC'sbound tariff quota was2,200,000 tonnes.
Asaresult oftheEC'sautonomous increases inthetariff quota, avolume ofbananas equivalent to
123percentofthiswaspermitted entry under tariff quota conditions. Thetotalquantity was
2,708,765 tonnes andrepresented arateofutilization oftheglobal tariff quota of98percent.
Claims under theLicensing Agreement
Article 1.3oftheLicensing Agreement
4.567 Guatemala andHonduras argued thatthelicensing administrative procedures werefarfrom
"neutral","fairandequitable"intheiroperation.Neithertheconfusionanddenialofaccesstheycreated,
northecomparativeburdentheypresentedrelativetotheproceduresforECandtraditionalACPbananas,
could beviewed asfulfilling theLicensing Agreement Article 1.3command.
4.568 Mexico alsoconsidered thattheprovisions concerning thetwo-round procedure thatneeded
tobefollowedtogetlicencesforimportingbananasalsoviolatedArticle1.3oftheLicensingAgreement.
4.569 Withrespect toArticle 1.3oftheLicensing Agreement, theECmaintained, asdescribed above,
thatthelicensing system toadminister theECtariff quota wasstable, certain, flexible, predictable
andcreated nodistortion onprices intheECmarket which could bedetrimental tobananas produced
bytheComplaining partes. Neutrality, fairness andequality were in-built qualities ofthelicensing
system which wasbased ontheapplication oftheobjective criteria ofeligibility toobtain tariff quota
licences onthebasisofpasttradeinbananas: tradevolumes andnotcompanies werethecommanding
principle ofthesystem.
Articles 3.2and3.5oftheLicensing Agreement
4.570 TheComplaining parties noted thatArticle 3.2oftheLicensing Agreement provided that
"[n]on-automatic licensing shallnothavetrade-restrictive ordistortive effects onimports additional
tothose caused bytheimposition oftherestrictions." Throughout theyear, operators wereuncertain
astotheirimport volumes because ofcontinuous auditing andtheapplication ofthereduction coefficient
toaddress systematic over-filing. Moreover, allthewayintothefirstfewweeks ofeachquarter, the
ECCommission would nothaveadvised them oftheresults ofthesecond round allocation, sothat
theycould notascertain inadvance thevolume andsources oftheirsupplies. Since operators didnot
know theirfinalentitlement untilthethirdquarter oftheactual yearofentitlement, theywereconstrained
from engaging inmarket planning andnormal risk-taking.WT/DS27/R/USA
Page198
4.571 Mexicoconsideredthatthemechanismoftworoundsforthegrantingoflicencesalsoconstituted
aviolation ofArticle 3.2oftheLicensing Agreement because ithaddistorting effects onimports.
4.572 Guatemala andHonduras alsoargued thatillegal trade restriction anddistortion were best
demonstrated bythetwo-round procedure, which halted tariffquota access andreserved theECmarket
forECandACPbananas foratleasttwelve weeks outoftheyear. Withrespect tothe"administrative
burden" provision ofArticle 3.2,Guatemala andHonduras considered thatthetwo-round procedure
constituted needless administrative burden, asproven bytheveryexclusion ofECandtraditional ACP
bananas from those same procedures.
4.573 TheECrecalled itsarguments thatinorder todemonstrate analleged violation toArticle 3.2
oftheLicensing Agreement, theComplaining parties needed toprove, first, thatthenon-automatic
licensing had"trade-restrictive or-distortive effects onimports additional tothose caused bythe
imposition oftherestriction". TheComplaining parties should havedemonstrated thatbananas imported
intotheECmarket wererestricted bytheadministration ofthetariffquota beyond theeffects ontrade
oftheveryexistence ofthetariff quota, which wasareality compatible withtheGATT andpartof
theconcessions accepted byallcontracting parties, besides thefactthatthatwascommon practice in
GATT agricultural negotiations. Intheopinion oftheEC,notasingle evidence hadbeengiven of
these supposed andtotally unproved additional trade restrictive ordistortive effects. Notasingle
evidence wasshown, demonstrating anyhindering intheaccess oftheComplaining parties bananas
totheECmarket whose parts ofthetariff quota were immediately andcompletely used. Thevery
existence ofthetariff quota, however, was,intheopinion oftheEC,aclearimprovement interms
ofmarket liberalization ascompared tothesituation prior totheconclusion oftheUruguay Round
andcreated conditions forhigher prices intheECmarket ascompared toworld market prices and
thiswasabenefit totheComplaining parties banana production. TheECalsosubmitted that,the
Complaining parties needed todemonstrate thatthelicensing system didnot"correspond inscope and
duration tothemeasure theyareusedtoimplement". Noserious argument, intheopinion oftheEC,
hadbeenbrought contesting theEC'scompliance withthese obligations.
4.574 TheComplaining parties claimed thattheuseoftheterm"distortive effects" inArticle 3.2
required under itsordinary meaning ademonstration thatconditions ofcompetition havebeendistorted
ordisrupted compared towhatwould otherwise havebeenthecaseabsent those licences. Tariff quota
bananas could notbedistributed through designated entities onanormal marketing cycle, butwere
forced every quarter through anuncommon two-round application procedure thatrequired amatching
ofimport licences toexport licences andartificially segmented trade flows bycountry oforigin and
time. Asubstantial percentage oftariff quota quarterly licences wasnotdistributed untiltwotothree
weeks intothequarter forwhich theyapplied. Thisunnatural, heavily constrained distribution scheme
forLatin American bananas hadreconfigured historical distribution patterns, created anirregular
marketing cycle, curtailed delivery flexibility andgenerated widespread uncertainty andconfusion in
themarketing oftariff quota bananas. Bycontrast, traditional ACPbananas could beentered simply
andpromptly through anyfirm. Unlike licences forLatin American bananas, thesimple licensing
approachthatwasappliedtotraditionalACPbananaspermittedcommercialflexibilityandpredictability.
4.575 TheComplaining parties argued thatArticle 3.2oftheLicensing Agreement further required
thatlicensing rulesandprocedures correspond in"scope andduration" tothemeasures (i.e.thetariff
quota allocations) theywereusedtoimplement. Onereasonable benchmark forthatstandard wasfound
inArticle 3.5(h) oftheLicensing Agreement (which applied to"quotas", including tariff quotas) and
Article XIII:2(d) ofGATT. Both ofthose provisions prohibited rules orprocedures thatwould
discourage orprevent anymember fromfullyutilizing itsshare ofthetariff quota. TheComplaining
parties hadshown, intheiropinion, thatthetwo-round procedure -which wasnotconcluded until,
atleast, twoweeks intoevery quarter -contracted theperiod ofvalidity oftariffquota import licencesWT/DS27/R/USA
Page199
byatleasteight weeks every yearandotherwise amounted tobackdating, making itaformality that
didnotcorrespond in"scope andduration" tothetariff quota.
(vi)Licences provided toECbanana producers
4.576 TheComplaining parties argued thattheEC'slicensing scheme haddeliberately allocated
third-country licences tofirms withnohistory ofimporting fromthirdcountries, including many EC
farmers withadirect conflict ofinterest toward theimportation ofmore competitive Latin American
bananas. Suchanallocation wasinconsistent withanynotion of"neutrality" under Article 1.3ofthe
Licensing Agreement. Itwasoneofthemostprotectionist ways licences could bedistributed andwas
made evenlessneutral bythediscriminatory exclusion ofACP imports from thisrule.
4.577 According totheComplaining parties, theonlyjustification provided bytheECwithrespect
tothelicences allocated toitsownfarmers wasobviously protectionist andtherefore lacking inneutrality
andequity:
"Individual producers andproducers 'organizations which arenotthemselves necessarily
"importers" ofbananas havebeenallocated Category Blicences. Since ingeneral theyhave
nointerest inimporting dollar bananas, theselicences aresold,providing asupplement totheir
income inaddition tothesupport provided bytheprovisions onaidtocompensate fortheloss
ofincome."259
4.578 Guatemala andHonduras submitted thattheprivileged licensing benefit toECproducers made
possiblebytheCategoryBallocationoflicences,includinghurricanelicences,alsoignoredthe"neutral,"
"fairandequitable" stipulation ofArticle 1.3oftheLicensing Agreement. Neutrality, fairness, and
equity were notserved bylicensing rules structured toprovide aprice compensation supplement
exclusively toECproducers.
4.579 Mexico argued thatthegranting ofCategory Blicences toECproducers andagriculture
cooperatives, aswellasthedistribution oflicences toECterritories, withtheexplicit objective of
increasing theincome ofthese entities through thesaleoflicences, compounded theviolation of
Article3.5(h)oftheLicensingAgreement,becausetheECproducerswerethemostinterestedinreducing
imports, particularly ofhighquality products, suchastheLatin American products.
4.580 TheUnited States noted thatoverhalfofCategory Bimport licences based onmarketing of
ECbananas weredistributed tobanana farmers orfarmcooperatives (under the(a)activity function).
TheEChadrecognized thattherecipients ofthese licences hadnointerest (aswellasnoexperience)
inimporting Latin American bananas anditsprincipal objective inthedistribution ofthese licences
wastosupplement theirincome, rather thantofindawaytoadminister thetariffquota. Thisbuilt-in,
deliberate inefficiency wasinitselfevidence oflackofneutrality. However, thedistribution ofimport
rights toentities thathadalong-term interest inreducing market access andskewing conditions of
competition forimports wasalsoinherently biased. Farm cooperatives were notonlyinterested in
exacting quota rents(initself abuilt-in inefficiency) butalsosought toreduce competition withtheir
ownfruit. Thissituation presented aclearconflict ofinterest thateroded normal incentives topurchase
highquality imports, tomarket imports when theywereingood condition, andtomarket themwhen
prices werehigh. Accordingly, thisdistribution wasinconsistent withArticles 1.3and3.5(h) ofthe
Licensing Agreement andArticle X:3ofGATT.
259"Report ontheECBanana Regime", European Commission, July1994, pp.10-11.WT/DS27/R/USA
Page200
4.581 TheECmaintainedthatthelicensingsystemtoadministertheECtariffquotawasstable,certain,
flexible, predictable andcreated nodistortion onprices intheECmarket which could bedetrimental
tobananas produced inthecomplaining countries. Thestructure oftheECtariffquota licensing system
didnotcorrespond under anypossible circumstance toadistribution oflicences toECcompanies as
opposed toforeign companies: arguments ofthiskind, advanced bytheComplaining parties, were
non-motivated andgrossly misleading. TheECreiterated thatneutrality, fairness andequality were
in-built qualities oftheECtariff quota licensing system which wasbased ontheapplication ofthe
objective criteria ofeligibility toobtain tariff quota licences onthebasis ofpasttrade inbananas;
trade volumes, andnotcompanies, werethecommanding principle ofthesystem. Furthermore, the
ECwasoftheviewthatnoevidence hadbeenprovided bytheComplaining parties thatthelicensing
scheme wasadministered inanunfair andinequitable manner. Moreover, there wasnophysical link
between alicence (oraCategory Blicence) andtheimportation ofbananas from Latin America.
Licences were, notonlyinthisfieldandnotonlyincaseofimportation intotheEC,transferable and
tradable. Theoperators whotraded ECbananas might choose tosellaCategory Blicence toanother
operator whomight havewished touseittoimport Latin American bananas. Inthisexample, the
trader inECbananas might havegained partofaquota rentandthetrader inLatin American bananas
might havebenefited fromlessthanthefullquota rent. Butnotasingle ECbanana more would have
beensoldontheECmarket because ofthiscommercial relation. Notasingle Latin American banana
lesswould havebeenimported intotheECmarket because ofthese commercial relationships. The
existence ofCategory Blicences didnotaffect thevolume ofLatin American bananas soldontheEC
market (thevolume wasgoverned bythesizeofthetariff quota), northecountry oforigin ofthose
bananas. Neither theamount ofimport dutydue,northeprices ofbananas toECconsumers would
change because oftheexistence ofthreetypes oflicence forimports under thetariffquota (Category A,
Category Bandnewcomers) instead ofone. Inthecontext ofanother claim (seeparagraphs 4.611
to4.613), theECalsosubmitted thattheinitial holders ofCategory Alicences were notabsolutely
separate fromtheinitial holders ofCategory Blicences. Itwasnotcompanies which arecategorized
bythelegislation, buttradevolumes. Category AandCategory Baretherefore notmutually exclusive
asdemonstrated bythefactthatallthelarger operators wereregistered inbothcategories andhence
receive bothCategory AandCategory Bimport licences.
(vii) Hurricane licences
4.582 TheComplaining parties considered thatanother element ofthisconvoluted licensing scheme
washurricane licences. Those compensatory licences weredispensed solely toECandACPsuppliers
andoperators forthepurpose ofconferring acommercial advantage. Theprovision ofthese reflected
obvious discrimination andinequitable licensing. Asdescribed above inthecontext ofoperator
categories, theprovision ofthese licences exclusively toCategory Boperators wasinconsistent with
various provisions oftheWTO agreements.
4.583 Guatemala andHonduras noted thattheproducer benefit derived from hurricane licences
isidentical tothatderived from themore general Category Bdistribution tothose producers:
Individual producers andproducers 'organizations which arenotthemselves necessarily
"importers" ofbananas havebeenallocated Category Blicences. Since ingeneral theyhave
nointerest inimporting dollar bananas, theselicences aresold,providing asupplement totheir
income inaddition tothesupport provided bytheprovisions onaidtocompensate forthelose
ofincome.260
260"Report ontheECBanana Regime", European Commission, July1994, pp.10-11.WT/DS27/R/USA
Page201
4.584 TheECnoted thatinorder tocompensate ACP producers which suffered from devastating
natural phenomena likehurricanes, which hitonaregular basis aparticular geographic areawhere
asignificant ACP banana production waslocated, theECaccorded totheACP countries animport
"over-quota" destined toreplace exactly thelossinproduction caused bythehurricane. Themeasure
aimed atmaintaining aviable andfunctioning banana trade atthesame levelastheonecorresponding
tothenormal production ofthatcountry, allowing therefore thebanana trade tobereinstated assoon
astheregular production conditions arebacktonormal. Those licences could alsobeing sold, then
replacing thelostincome byanother temporary source ofincome. Inthisrespect, nothing wasmore
normal thenattributing theselicences tothespecific operators whocould dulyshow alosttradebecause
ofthehurricane thatwasamong those whotrade inACPtraditional bananas. These operators needed
equally toshow they"include ordirectly represent aspecific banana producer affected bythetropical
storm concerned" (ECCommission Regulation 2791/94, Article 2.1). Thisdidnotmean thatany
discrimination wasoccurring: thecompensated lossinproduction wasrelated onlywiththeACP
traditional quota andanyoperator whotraded inthatquota. Therefore, those whohadlosttradebecause
ofahurricane were compensated within thelimits ofthelostpartoftheACP traditional quota.
Claims under theGATT
Article I:1ofGATT
4.585 GuatemalaandHondurasarguedthatwithinthetariffquotalicensingscheme,hurricanelicences
wereyetanother advantage conferred exclusively onCategory Bproducers andoperators. Suchlicences
wereintended tocompensate forthevolume oftraditional ACP (and/or EC)bananas notmarketed
asaresult ofhurricanes ortropical storms.261Producer recipients ofhurricane licences included those
inselect ACP supplying countries, mostnotably theWindward Islands (andinECcountries). The
producer benefit derived from these licences wasidentical tothatderived from themore general
Category Bdistribution tothose producers. Hence, ACP(andEC)producers thatsuffered theeffects
ofinclement weather were given aboost intheform oflicensing quota renttohelprestore their
competitiveness. Guatemalan andHonduran producers, whoalsocommonly suffered cropdamage
asaresult ofweather conditions, were notgiven thatadvantage.
4.586 TheECsubmitted thattheLomé waiver wasdestined topermit theECtoprovide preferential
treatment forproducts originating inACP States asrequired bytherelevant provisions oftheLomé
Convention. Protocol 5,Article 1,imposed ontheECnottoplace anyACPStateasregards "...its
advantages onthose markets, inalessfavourable situation thaninthepastoratpresent". Hurricane
licences werelicences toimport additional quantities ofbananas (from anywhere) forthose whowere
partofthepreferential system infavour oftheLomé countries andwhohadsuffered demonstrable
damage fromhurricanes, which made itimpossible forthemtofilltheirnormal, guaranteed quantities
under theLomé preference. Such compensatory licences were granted bytheFrench andBritish
authorities before thecreation oftheECbanana regime andhence hadtobemaintained pursuant to
theguarantees given intheBanana Protocol totheLomé Convention andthepertinent declaration
contained inAnnex LXXIV tothatConvention. TheECshould nottherefore berequired toextend
thesame treatment toanyother contracting party.
4.587 Referring totheECclaim thatbecause hurricane licences weregranted bytheFrench andBritish
authorities before thecreation oftheCommunity banana régime, theyrepresented advantages onthose
markets thathadtobe"maintained pursuant totheguarantees given intheBanana Protocol ...and
...Annex LXXIV", theComplaining parties submitted thatthebanana protocol andAnnex LXXIV
261Seee.g.Commission Regulation (EC) No.2791/94, recital four.WT/DS27/R/USA
Page202
contained nosuchguarantee. Moreover, licences comparable toRegulation 404/93 hurricane licences
hadnotbeendispensed under theFrench andBritish regimes, astheECclaimed. National importers
hadoccasionallybeengrantedlicensingauthoritytoimportadditionalvolumesofLatinAmericanbananas
when there hadbeenashortfall ofsupplies. However, suchlicences hadnever beenissued toACP
producers. They hadbeencalculated onthebasis ofmarket demand, notoverstated estimates of
hurricane damage, andhadnotgenerated future licensing entitlement.262
4.588 TheECreplied thatcontrary totheComplaining parties 'claims boththeUnited Kingdom and
France hadprovided "hurricane licences" totheirpreferred suppliers intheevent ofnatural disasters.
IntheUnited Kingdom, compensatory licences hadbeenissued onthebasisofestimates oftheamount
ofthelossineachaffected month. "Disaster licences" hadthenbeenissued tocover thelostvolume
totheaffected operators, inproportion tothequantity ofbananas thattheywould havesupplied from
traditional sources butforthedisaster. These licences hadbeenusedtoimport fruitfromLatin American
sources. Themostrecent example oftheuseofthese powers wastheissueofdisaster licences in1989
followingthedestructionoftheJamaicanbananacropcausedbyHurricaneGilbert.Similararrangements
hadbeeninforce inFrance from theentry intoforce oftheFrench national régime in1962 untilthe
creation oftheECsingle market forbananas on1July1993. Thisauthorized imports fromothersources
intheevent ofspecific climatic disasters bythose operators whohadbeenaffected bythedisaster.
Article III:4ofGATT
4.589 Asdiscussed above, Guatemala andHonduras argued thatwithin thetariff quota licensing
scheme, hurricane licences wereyetanother advantage conferred exclusively onCategory Bproducers
andoperators. Producer recipients ofhurricane licences included those inECsources (andinselect
ACP supplying countries, mostnotably theWindward Islands). Theproducer benefit derived from
these licences wasidentical tothatderived from themore general Category Bdistribution tothose
producers. Hence, EC(andACP) producers thatsuffered theeffects ofinclement weather weregiven
aboost intheform oflicensing quota renttohelprestore theircompetitiveness.
4.590 Mexico further claimed thatthere were violations ofArticle IIIthatwere notexamined by
thesecond Banana panel because theydidnotexistthen. These violations referred totheadvantages
accorded toECbanana producers through theECregime tothedetriment ofimports. Thisincluded
increasing thetariffquota when therewasanatural disaster inanECbanana production zone(hurricane
licences). Thiscreated anincentive infavour ofthepurchase andmarketing ofECbananas which
wasnotenjoyed byimported bananas.
4.591 TheECstressed thatthelicensing system fortheadministration oftheECbanana tariffquota
wasapplied attheborder atthemoment ofimportation andnotafterthebananas hadcleared customs.
Therefore, theECargued, allthearguments based onArticle III:4ofGATT should berejected (together
withthearguments based onArticle X)-theallegations about which weretotally unfounded. Moreover,
theECsubmitted thatArticle III:4wasnotrelevant tothesubject matter since anyaidgiven toEC
domestic production wasattributed totheproducers andnotaccording topreferential treatment ofthe
product ascompared tolikeimported products.
4.592 TheComplaining parties rejected theEC’sclaim thatlicensing criteria could notbesubject
toArticle III:4, noting thatArticle IIIcovered anyregulation orrequirement thataffects internal
262First Banana panel, paras. 19-22, 37-38.WT/DS27/R/USA
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conditions ofcompetition infavour ofECbananas.263Thiswasconfirmed, theyargued, bytheItalian
Discrimination Against Imported Agricultural Machinery report.264
Article X:3ofGATT
4.593 Withrespect tohurricane licences, too,Guatemala andHonduras claimed thatthe"uniform,
impartial andreasonable" standard laiddown inArticle XofGATT could notbeconsidered fulfilled
byalicensing procedure thatconferred aproducer benefit onselect sources only.
4.594 TheECstressed thatthelicensing system fortheadministration oftheECbanana tariff quota
wasapplied attheborder atthemoment ofimportation andnotafterthebananas hadcleared customs.
Therefore, theECargued, allthearguments based onArticle XofGATT should berejected (together
withthearguments based onArticle III:4) -theallegations about which were totally unfounded.
Moreover, theclaims wereunsubstantiated -therewasnobreach ofArticle Xtherefore theclaim should
berejected.
4.595 Asdiscussed above, theComplaining parties considered thatArticle X:3ofGATT required
Members toadminister trade rules ina"uniform, impartial andreasonable manner". Thelawsand
practices covered byArticle Xcomprised all"trade regulations," which included, among many others,
licensing regulations.
Claims under theLicensing Agreement
Article 1.3oftheLicensing Agreement
4.596 Guatemala andHonduras submitted thattheprivileged licensing benefit toECproducers made
possible bythehurricane licences (andCategory Ballocations generally) ignored the"neutral", "fair
andequitable" stipulation ofArticle 1.3oftheLicensing Agreement. Neutrality, fairness, andequity
werenotserved bylicensing rulesstructured toprovide aprice compensation supplement exclusively
toECproducers.
4.597 IntheviewofMexico ,itwasclearthattheprovisions regarding theallocation of"hurricane
licences" violated thestandard ofneutrality, fairness andequity intheapplication ofthelicensing system
established inofArticle 1.3oftheLicensing Agreement.
4.598 Assetoutearlier, theECwasoftheviewthatitslicensing scheme generally didnotviolate
Article 1.3oftheLicensing Agreement, where theemphasis oftheComplaining parties wasputon
thealleged violation oftheobligation ofneutrality under thatprovision, while acorrect andcomplete
quote oftheArticle would disclose that: "The rulesforimport licensing procedures shallbeneutral
inapplication andadministered inafairandequitable way." Within thetariffquota licensing scheme,
neutrality wasabsolutely respected andnoevidence hadbeenshown tothecontrary. Anyoperator
could beeligible foranycategory oflicence iftheoperator fulfilled theobjective conditions therein.
Furthermore, theECwasoftheviewthatnoevidence hadbeenprovided bytheComplaining parties
thatthelicensing scheme wasadministered inanunfair andinequitable manner. Intheopinion of
263Second Banana panel, DS38/R, para. 148.
264Idem. Seealso"United States -Section 337oftheTariff Actof1930", para. 5.10; Report ofthepanel on"United
States -Measures Affecting Alcoholic andMalt Beverages", adopted 19June 1992, BISD 39S/206, para. 5.31.WT/DS27/R/USA
Page204
theEC,theComplaining parties should havedemonstrated thatthewaythelicensing scheme was
administered wasunfair andinequitable. TheComplaining parties were onthecontrary trying to
demonstrate, through Article 1.3oftheLicensing Agreement, thatthelicensing scheme itselfwasunfair
(which wasinanycaseunfounded). Intheopinion oftheEC,thishadnothing todowiththeway
theLicensing Agreement hadbeenagreed uponandthecommon willoftheCONTRACTING PARTIES
thatwasexpressed inthatwording.
4.599 TheComplaining parties reiterated thattheECcould notbeconsidered tohavesatisfied its
burden ofshowing thatthelicensing procedures wereneutral inapplication andapplied inafairmanner
bymerely asserting thatthelicensing system applicable toLatin American bananas "isstable, certain,
flexible, predictable andcreates nodistortion onprices intheECmarket which could bedetrimental
tobananas produced inthecomplaining countries."265Thisassertion didnotevenaddress theneutrality
andequity requirements ofArticle 1.3.Theonlyjustification provided bytheECwithrespect tothe
licences allocated toitsownfarmers wasobviously protectionist andtherefore lacking inneutrality
andequity.
265According totheComplaining parties, theEC'sclaim thattherules applicable toLatin American bananas contain
"objective" criteria ofeligibility, even iftrue, would provide nodefence forthelackofneutrality. Ameasure could be
based onmeasurable criteria forexample, andstilllackneutrality inapplication. Even ifthelicensing criteria wereobjective,
thetwolicensing arrangements would stillnotbeconsidered neutral, fairorequitable unless banana imports from allsources
were subject tocomparable rules, notjustastoeligibility, butastoevery aspect ofthelicensing system. Thepreferential
licensing regime accorded toACP imports definitively violated Article 1.3oftheLicensing Agreement.WT/DS27/R/USA
Page205
C. GENERAL AGREEMENT ONTRADE INSERVICES (GATS)
Introduction
4.600 TheComplaining parties claimed thattheEC'sbanana regime wentbeyond WTO-inconsistent
treatment ofimported Latin American bananas. Theregime 'simport licensing provisions directly
targeted North andSouth American firms thatdistributed bananas. These licensing provisions provided
definite competitive advantages toEC-andACP-owned firms thatwholesaled bananas vis-à-vis their
competitors based inLatin America andtheUnited States. Distribution companies ofLatin America
andtheUnitedStates,suchasChiquitaBrands(UnitedStates),DelMonte(Mexico),DoleFoods(United
States) andNoboa (Ecuador) hadplayed aleading roleindeveloping theECmarket forbananas dating
fromtheearlypartofthiscentury. They hadinvested hundreds ofmillions ofdollars ininfrastructure
andservices needed tobring bananas intoandthrough theECmarket efficiently, through entities they
hadestablished intheECitself andinthirdcountries. Even though theimport licensing rulesbeing
challenged under theGATS werealsocontested under oneormore Multilateral Agreements onTrade
inGoods, WTO trade benefits accruing toComplaining parties 'service suppliers under theGATS
were distinct from thetrade benefits relating togoods. TheComplaining parties argued thatthese
benefits were ofgreat commercial importance tothem and,asthiswasthefirstproceeding brought
under theGATS, thattheGATS issues should beaddressed carefully bythePanel.
4.601 TheComplaining parties claimed further thattheLatin American andUSfirms thatimported
andsoldbananas intheECmarket wereinthewholesaling business. Wholesale andretailtradeservices
made upthelarger category ofdistributive trade services. Distribution ofgoods wasahugeservice
sector, onwhich millions ofservice jobsdepended worldwide. IntheGATS, theEChadundertaken
specific commitments thatcovered bothcross-border wholesaling activities andwholesaling activities
based onacommercial presence within theEC. Thecombination ofcross-border andcommercial
presence activities encompassed theentire process ofwholesaling products fromabroad intoandthrough
theEC.Allofthemain Latin American andUScompanies supplied wholesale trade services tothe
EConacross-border andcommercial presence basis. Eachsuchcompany provided wholesale services
byacting asamiddleman, purchasing bananas from other companies andreselling them toother
wholesalers orretailers. Thiswasinaddition totheactivities thesecompanies performed inmarketing
theirownbananas toandintheEC.
4.602 TheUnited States argued thattheECbanana regime employed discrete butcompounding
measures toreconfigure theLatin American banana service market infavour ofECandACPsuppliers,
including through theuseof:(i)operator category allocations, which granted theright toimport
30percentoftheLatin American banana tariffquota predominantly toECandACPfirms; (ii)export
certificates, which weremade arequirement toimport bananas fromcertain Latin American countries,
unless themarketer belonged tothegroup offirms thatwere predominantly ECandACP firms;
(iii)hurricane licences (allowing additional imports incases inwhich ECorACP production was
damaged duetostorms), which weregranted selectively toECandACPfirms andwhich effectively
increased thesefirms'entitlement totheLatin American banana tariffquota above the30percentalready
setasideforthem; and(iv)activity function allocations, which tooktheLatin American banana import
rights thatremained aftertheremoval of30percentunder (i),andgranted over40percentofthose
remaining rights topredominantly ECfirms thathadripened (buthadnotnecessarily everimported)
bananas, orthathadaroleinimporting bananas thatwaslimited onlytotheadministrative, frequently
"paper-only" taskofcustoms clearance. Notwithstanding theUSandother non-EC/ACP suppliers '
efforts toadjust totheEC'snewdiscriminatory marketing regulations, accomplished atgreat cost,
theEC'smanipulation oftheconditions ofcompetition infavour ofECandACP service suppliers
continued todisadvantage USandother banana distribution firms.WT/DS27/R/USA
Page206
4.603 TheComplaining parties submitted thatthefourkeycomponents oftheECbanana regime
(listed inparagraph 4.602 above) wereinconsistent withtheGATS. Thefirstwastheregime 'soperator
category distinctions. Prior toRegulation 404/93, three large ECmember States -France, Spain and
theUnited Kingdom -hadkepttheir markets almost entirely shuttobananas produced inLatin
America.266Their markets werealsolargely shuttoNorth andSouth American distribution companies.
Thecompanies thatsourced anddistributed bananas intotheFrench, Spanish, andUKmarkets were
almost exclusively owned byECorACPinterests. When theECdecided tomove toacommon banana
regime, itmeant thatthese companies would forthefirsttimebesubject tocompetition fromUSand
Latin American companies providing Latin American bananas. Over 95percentofLatin American
bananas weresourced anddistributed bycompanies thatwereowned orcontrolled byLatin American
andUS-based companies. These companies hadmade thenecessary substantial commercial investments
andhaddevelopedcloserelationshipswithLatinAmericansuppliers.Thecompaniesdistributedbananas
intotheother ECmember States inrelatively free-market conditions andtheirbananas weregenerally
regarded asmore cost-competitive thanmost ECandACP bananas.
4.604 TheComplaining parties noted thatprior totheinception ofRegulation 404/93, theFrench
government required importers toobtain alicence from oneoftwogovernment entities inorder to
import Latin American bananas intoFrance. These entities granted licences toimport Latin American
bananas inextremely limited quantities toasmall number ofFrench companies whose primary business
wasimporting ECandACPbananas. Theeffect oftheFrench licensing regime wastokeepUSand
Latin American banana wholesalers largely outoftheFrench banana market. TheUnited Kingdom
maintained adifferent, butnolessrestrictive, import regime. IntheUnited Kingdom, theBanana
Trade Advising Committee (BTAC), comprising representatives fromthreebanana distributors (Geest,
United Kingdom; Fyffes, Ireland; andJamaica Producers, Jamaica) accounting foratleast90percent
oftheUK'sACP imports, aswellasACP producer organizations andtheMinistry ofAgriculture,
assessed monthly supply anddemand conditions andrecommended theappropriate level ofLatin
American banana imports, whose recommendations theUKGovernment generally implemented. Not
surprisingly, theUKGovernment issued banana import licences forLatin American bananas almost
exclusively toitsthree largest banana distributors, inlimited amounts, based ontheirprevious share
ofECandACPbanana trade. TheUKlicensing scheme keptother competitors outofthelocalbanana
wholesaling market. Spain prohibited allLatin American banana imports. TheSpanish import regime
effectively keptforeign-owned banana wholesaling firms outofitsmarket.
4.605 TheComplaining parties asserted that,when theECdecided tocreate acommon market for
bananas in1992, itwasclearthatthosefirms intheUK,French, andSpanish markets thathadpreviously
enjoyed government protection against competition from USandLatin American wholesalers would
berequired tocompete withthem. Toprotect those EC-owned (andACP-owned) firms, theEC
effectively recreated onanEC-wide basis -andthereby expanded many times over-theprotection
thatthelocalFrench, UKandSpanish systems hadformerly afforded byawarding those firms 30per
centofallLatin American bananas imported intotheEC. TheECdidnothavetolookfarforthe
precise mechanism toemploy, asawarding rights toimport Latin American bananas tofirms whowere
inthebusiness ofimporting ECorACP bananas wasamain feature oftheFrench andUKregimes.
However, theECinflated thisexisting concept fromlessthan5percentoftheEC'sLatin American
banana imports to30percent.
4.606 TheComplaining parties argued further that,tomake surethatECcompanies could compete
withcompanies distributing Latin American bananas when thecommon regime wentintoeffect, the
ECgaveitsdistribution companies acompetitive advantage byhanding them ashare oftheLatin
266TheComplaining parties submitted Eurostat datashowing thatbananas imported from Latin America intothese three
member States combined ineachoftheyears 1990-92 were 4percentorlessoftotalEC-12 imports from Latin America.WT/DS27/R/USA
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American bananas andthusashare ofthebanana distribution business thattheyhadnever had. The
ECimposed import licensing rulesthatguaranteed 30percentoftherights toimport Latin American
bananas tothose companies thathistorically imported ECorACPbananas. TheECwasfullyaware
thatitsallocationschemerearrangedlongstandingtradepatternsforLatinAmericanbananasandmodified
competitive conditions. Indeed, ithadacknowledged inaformal judicial proceeding thatthepurpose
ofthe30percentset-asidewasto"strengthenthecompetitiveposition"ofmarketersofEC/ACPbananas
incomparison withtheircompetitors whotraditionally traded inLatin American bananas. Spain had
beencandid enough tostateinasimilar proceeding thatapurpose oftheregime wastoreduce the
alleged dominant roleofnon-European firms inbanana distribution. Thishadbeenapolite wayof
saying thattheregime wasusedtotransfer business opportunities fromLatin American andUSfirms
toECandACPfirms. TheComplaining parties asserted thatthistypeofreordering ofthecompetitive
environment infavour ofdomestic andACP service suppliers wasdirectly contrary totheprinciple
ofequality ofcompetitive opportunities embodied inGATS Articles IIandXVII. Themanipulation
oftheimport licensing rulesthrough the30percentsetaside wereapplied onacompany-by-company
basis. Therules prescribed which companies gottobring Latin American bananas intotheEC,and
inwhatquantities. Short ofanoutright prohibition ofwholesaling, itwasdifficult toimagine ameasure
having amore direct effect onthebusiness ofaninternational wholesaler thanameasure thatspecified
howmuch oftheproduct thecompany would beentitled toimport.
4.607 TheComplaining parties claimed thatasecond keycomponent through which theECfurther
transferred wholesale distribution business opportunities toitsdomestic service suppliers werethethree
activity functions. Under these, theECawarded nearly halfoftheimport rights ofLatin American
bananas tolargely EC-controlled entities thathadnever beenimporters inanytruesense. Itawarded
over40percentoftheimport rights towhat theECcalled "secondary importers" which involved
essentially onlycustoms clearance, andtocompanies thatripened bananas, which wasanactivity that
hadnoroleinimportation. Customs clearance andripening were largely performed byEC-owned
entities atthetimeRegulation 404/93 wentintoeffect. Theonlyentities thathad"imported" Latin
American bananas inanyrealsense weretheUSandLatin American banana distribution companies.
TheECactivity function system classified thesefirms as"primary importers". These primary importers
obtained theLatin American bananas from theirsource inthetropics, arranged orevenperformed
theirtransport totheEC,andsoldthem intheEC. Inmany instances, these companies alsomade
salesarrangements withfinalretailers likesupermarkets andcarried outsalespromotions andmany
other related activities. Nevertheless, ripeners were given 28percentoftheimport licences, and
secondary importers 15percent, atotalof43percent. Thus, 43percentofthealready-diminished
rights toimport Latin American bananas, andtherefore, themeans toprovide wholesaling services
withrespect toLatin American bananas, wereawarded nottotheLatin American andUSfirms that
haddonethemosttobring thesebananas totheEC,butmostly todiscrete classes offavoured EC-owned
firms.
4.608 According totheComplaining parties, theECthusmanipulated thesetwofeatures ofthebanana
regime (theoperator categories andactivity functions) tostripopportunities forLatin American banana
distribution business away from thefirms thathadtraditionally supplied nearly allLatin American
bananas intotheECmarket andaward these opportunities totheircompetitors, which were ECor
ACP-owned companies. Bydrastically altering competitive conditions inthismanner, these aspects
oftheregime violated theprinciples ofMFN andnational treatment ofArticles IIandXVII ofGATS.
Twoother aspects oftheregime, selective export licence requirements (so-called "export certificates")
anddiscriminatory grantofhurricane licences, further augmented thecommercial advantages accorded
toECandACP-ownedoperators.TheComplainingpartiesassertedthateachrepresentedanindependent
violation oftheGATS MFN andnational treatment requirements.
4.609 TheECnoted thatthemeasures contested under theGATS remained thesameasthosecontested
under theGATT, i.e.thelicensing system and,inparticular, theallocation. Intheopinion oftheEC,WT/DS27/R/USA
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theseweremeasures directed atgoods andexcept forsome broad allegations oncompetitive conditions,
theComplainants concerned didnotsubstantiate thatthese measures related totradeinservices. There
wasnoclarity about theservice suppliers which wereallegedly discriminated against andwhether they
were indeed service suppliers oftheComplainants involved. Itwasequally unclear iftheservice
supplierswhichwereallegedlybeingadvantagedbythecontestedmeasureswereindeedservicesuppliers
oftheEC.Noproof wasoffered. Unsubstantiated allegations about "taking away ofmarket shares"
abounded, without taking account ofthefactthatalicensing system wasconcerned withentitlement
toimport licences andnotmarket shares. Assertions about "taking awayquota rents" wererife,without
taking account ofthefactsthatsuchquota rentswerecreated bytheestablishment ofthe(fully legitimate)
tariffquota andthatneither theGATT northeGATS contained anyobligation inrespect oftheallocation
ofquota rents.
4.610 TheECclaimed thatthefactsofthelicensing system demonstrated thatthere hadbeenno
transfer, asalleged byEcuador andtheUnited States, ofalargeportion of"theLatin American banana
distribution market" from"Latin-American banana service suppliers" oftheComplainants concerned
topresumably EC"Latin American banana service suppliers", bothbecause suchwasnotthelogical
consequence ofinstituting asystem oftransferable licences andbecause there was, defacto, no
appreciable change inmarket share fornon-EC owned orcontrolled companies. Since therewasarise
inmarket share foronesuchcompany andadecline foranother, thisalone wassufficient todemonstrate,
according totheEC,thatthesystem assuchcould notbethecause ofthedecline inmarket share of
thelatter. Thedifference hadtobeattributed todifferent strategic decisions andnottothemeasures
related togoods described above.267
4.611 TheECargued further thattheassertion byEcuador andtheUnited States thatthrough the
creation ofthesystem ofCategory A,B,andClicences, market share was"taken away" from those
whohadtraditionally traded inbananas from Central- andSouth America and"given" tothose who
hadpreviously traded primarily indomestically andACP-produced bananas, rested ontheideathat
thepossession ofimport licences could beequated withactual physical importation orwithmarket
share. Themostobvious characteristic ofimport licences was,however, thattheyweretradeable and
therefore could, anddid,endupinthehands ofothers thanthose towhom theyhadbeenissued.
Moreover, itwassufficient tohaveoneimport licence inthechain ofsupply inorder tobeableto
import thegoods covered bythatlicence. Furthermore, apart from thepossibility totrade licences,
eventheinitial holders ofCategory Alicences were notabsolutely separate from theinitial holders
ofCategory Blicences. Thereference quantities which conferred eligibility toobtain tariffquota import
licences weregranted onthebasisofpasttrade inbananas: Latin American bananas forCategory A
import licences andtraditional ACPorECbananas forCategory Bimport licences. Thus itwasnot
companies which were categorised bythelegislation, buttrade volumes. Categories AandBwere
therefore notmutually exclusive, asdemonstrated bythefactthatallthelarger operators wereregistered
inbothcategories, andhence received bothCategory AandBimport licences.
4.612 TheEuropean Commission (aswellasthecompetent authorities ofitsmember States), the
ECcontinued, neither requested norreceived information ontheownership ofoperators registered
toreceive banana import licences. Thus, theydidnotknow theactual nationality ofownership of
theoperators, when issuing licences. Asregards thefirms referred toinparagraph 4.600 above, these
received asubstantial proportion ofbothCategory AandBlicences, andtheirsubsidiaries included
anumber ofcompanies trading exclusively inACPorECbananas. According totheabove-mentioned
A.D.Little study, atotalof380,000 tonnes or28percentofEC/ACP production in1994wascontrolled
267TheECsubmitted that,according toareport byA.D. Little,Dole'smarket share intheECbanana product market
rosefrom 11percent(1991) to15percent(1994), while Chiquita 'sdeclined from25percent(1991) to18.5percent(1994).
DelMonte 'smarket share rosefrom 7.5percentto8percentinthesame period (A.D. Little,"Etude del'evaluation des
effets delamise enplace del'OCM bananes surlafilière dans l'Union européenne", 13September 1995).WT/DS27/R/USA
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bythebigthree integrated trading companies, Chiquita, DoleandDelMonte, thefirsttwoofwhich
were US-owned orcontrolled.268
4.613 TheECargued further thattheMexican submission wasinadequate andlacking inprecision
inrespect oftrade inservices. Itwasrestricted toanumber ofassertions about alleged infringements
ofArticles IIandXVII ofGATS, which were claimed tobebasically identical totheinfringements
ofArticle III:4ofGATT. IntheEC'sview, Mexico could notinvoke thisidentity ofclaims without
demonstrating inwhich waythecontested measures were "measures affecting trade inservices" or
"measures affecting thesupply ofservices". There wasafundamental distinction between suchmeasures
andmeasures relating togoods. TheGATS onlygoverned thesupply ofservices assuch, afterthe
goods inrespect ofwhich theservices weresupplied hadentered thecountry. TheECclaimed that
Mexico hadfailed toexplain whether there wereanyMexican service suppliers active onthemarkets
fortheservices which Mexico believed were themarkets concerned. Itwasincumbent onMexico
topresent aprima facie caseandtodemonstrate thattheEChadnullified Mexico 'sbenefits under
theGATS. Mexico 'ssubmission onservices fellfarshort ofsuchaprima faciecase.
Issues ofscope
(a) Therelationship between theGATS andthemultilateral agreements ontrade in
goods
4.614 According totheEC,there wasnointention tocreate anoverlap between theGATT andthe
GATS andcertainly notwithrespect tothecoreprovisions ofbothtreaties: most-favoured-nation
treatment andnational treatment. Theraison d'êtreoftheGATS wasthattrade inservices could not
becovered bytheGATT. Hence itwastheintention ofthenegotiators intheUruguay Round tocreate
aninstrument thatwould bedistinct ratione materiae from, andcomplementary to,theGATT. The
GATT wasconcerned withthetreatment ofimported products andnotwiththetreatment ofnatural
andlegalpersons. TheGATS wasconcerned withthetreatment ofservices andservice providers.
TheGATS wasabout trade inservices, i.e.there hadtobeaservice transaction between aservice
seller andabuyer. There hadtobeaservice which actually appeared onthemarket. Insofaras
theGATS covered thetreatment ofnatural andlegalpersons, itdidsoonlytotheextent thattheyacted
intheircapacity asservice providers trading inamarketable service. Iftheyacted aspersons who
handled goods, therulesapplicable toproducts, i.e.theGATT, itsschedules andtheother Multilateral
Agreements onTrade inGoods, applied. Which services theycould render withrespect tothesegoods,
inwhich quantity andunder which conditions, wasdetermined bytheGATS.
4.615 TheECsubmittedthattherewerereasonstoassumethatwithrespecttotransportanddistribution
therelationship between theGATT andtheGATS wasrather special andacleardistinction between
goods andservices, andthusbetween theGATT andtheGATS, should bemaintained. Oneshould
nottooeasily decide thatmatters related tothedistribution andtransportation ofgoods werecovered
bytheGATS, asmostgoods, bythetimetheywereputonthemarket, included orembodied transport
ordistribution services. Trade benefits related togoods arose under therules oftheGATT andthe
other Multilateral Agreements onTrade inGoods, including theconcessions andcommitments laid
down intheGATT schedules. Theextent oftrade benefits ortrade opportunities related togoods
depended ontheextent andimportance oflegitimate tradebarriers, suchasconsolidated tariffs, including
tariffquotas andtheirrelevant licensing rules, anyanti-dumping measures thatmight havebeentaken,
andanycountervailing duties orsafeguard measures thatmight havebeenimposed.
268Op.cit.WT/DS27/R/USA
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4.616 TheECwasoftheviewthatbenefits toservices orservice suppliers ofother countries arose
under theGATS andthecommitments taken thereunder. They depended ontheextent andimportance
oflegitimate barriers totrade inservices remaining under those commitments andproperly inscribed
under Article XVIofGATS, suchaslicences forservice activities based onaneconomic needs test,
orthelimitation offoreign banks orinsurance companies toamaximum turnover oramaximum
percentage oftotalassets inthesector. Forexample, pursuant tolimitations orconditions under
Article XVIofGATS, computer services inacertain country might onlybepermitted tobeprovided
byforeign companies inajointventure withanational company ofwhich there wasonlyone,which
indirectly ledtoverylowimports ofcomputers inthatcountry, eventhough thetariff oncomputers
wasnegligible. Insuchacase, theECargued, onewould nottaketheview thatthere wasan
infringement oftheGATT. Similarly, itcould notbeclaimed thatthere wasaninfringement ofthe
GATSwhenUScomputercompanieswereabletoprovidehardlyanyinstallationormaintenanceservices
through commercial presence inspiteofa"nobarriers" commitment intheGATS Schedule because
computers fromtheUnited States hadbeenstruck byaprohibitive anti-dumping duty. Furthermore,
there could bealegitimate domestic regulation under Article VIofGATS, suchasauthorizations,
qualification requirements, licensing, etc.Itappeared therefore thatthecause ofbenefits ortrade
opportunities inthedomain ofgoods andthedomain ofservices wasentirely different. Hence, the
cause oftherestriction orbreach ofthese trade opportunities inthetwodifferent sectors hadalsoto
bedifferent.
4.617 IntheviewoftheEC,theGATS wasconcerned withtrade inservices asservices, e.g.with
theofferofroadtransport services ontheECmarket byroadtransport companies fromnon-EC States,
notwiththefactthatinorder tosellgoods ontheECmarket someone hadtotransport them. Measures
relating tothetrade inbananas could certainly haverepercussions onthetransport ofbananas, but
suchindirect andincidental repercussions ofmeasures related totrade ingoods were ofnoconcern
totheGATS. TheGATS wasconcerned withmeasures which directly influenced theability toperform
aservice, onceagoodinvolved intheservice hadbeenimported. IftheGATS apprehended allkinds
ofindirect andincidental consequences ofmeasures related togoods, there would benosecurity of
scheduling whether under theGATS orunder theGATT. Members were agreed thattheservices
repercussions oftheirGATT measures needed notbeincluded intheirGATS Schedules.269Theposition
oftheComplaining parties amounted tosaying thatallMembers should nevertheless haveincluded
these inorder tobeprotected from "double jeopardy".
4.618 TheECargued thatthesame measures could notbecondemned bothunder theGATT and
theGATS since theircoverage wasintended tobemutually exclusive. TheGATS didnotcover the
indirect quantitative consequences ontheamount ofservices performed resulting fromrestrictions on
theimportations ofgoods butonlysuchmeasures asrelated directly toservices assuchandtoservice
suppliers intheircapacity asservice suppliers. Ifthemeasures relating togoods were covered by
aGATT exception orbyaGATT waiver, suchexception orwaiver could notberendered ineffectual
bybringing themeasures relating togoods under theGATS andasserting thattheywereillegal inthat
framework. Thereliability ofexceptions andwaivers would bereduced tonaught. TheComplainants
could notnowclaim thattheECshould alsohaveobtained aGATS waiver foritsgoods measures
relating totheLomé Convention anditsBanana Protocol, suchasthepreferential treatment andthe
licensing system inrespect ofbananas.
4.619 TheComplaining parties responded thatEC'sassertion thatameasure could not,asamatter
oflaw,becovered byboththeGATT andtheGATS found nosupport inthetextofeither theGATT
ortheGATS. Hadthenegotiators intended toadopt aprinciple asfundamental astheonetheEC
putforward, theycertainly would haveprovided foritinthetextoftheGATS ortheWTO Agreement.
269Seedocument MTN.GNS/W/164/Add.1, p.2.WT/DS27/R/USA
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Itwastruethatthenature ofthetradeinterests inthetwoagreements weredifferent: GATT concerned
tradeingoods andtheGATS tradeinservices. However, there wasnoreason whythesame measure
could notconstitute discrimination withrespect tobothgoods andservices. Itwould notbeuncommon
forthesame measure toviolate more thanonemultilateral trade agreement forgoods -sowhynot
theGATT andtheGATS? TheWTO Agreement didnotestablish asubsilentio hierarchy oftheGATT
overneweragreements,suchastheAgreementonTrade-RelatedAspectsofIntellectualPropertyRights,
theTRIMs Agreement, theLicensing Agreement andtheAgreement ontheApplication ofSanitary
andPhytosanitary Measures. Intheabsence ofaspecific indication tothecontrary, oranirreconcilable
conflict, neither ofwhich theECcould point tohere, those agreements hadtobeapplied according
totheirterms. InthecaseoftheGATS, Article XVII wasplain: itapplied if(i)themeasure affected
tradeinservices; (ii)theMember hadentered acommitment intherelevant sector; and(iii)themeasure
provided lessfavourable treatment toforeign services orsuppliers incomparison tolikedomestic ones.
Ifthistestwasmet,aviolation oftheGATS existed, whether ornotthemeasure was"goods-related".
Article IIofGATS hadacomparable test.
4.620 TheComplaining parties argued further thataccepting theEC'sargument thatmeasures related
togoods wereexcluded fromtheGATS disciplines would produce anomalous results. First, itwould
effectively erase from theGATS schedules allservice commitments made inthegoods distribution
sector forbothwholesaling andretailing. Theentire sector wasdevoted tothedistribution ofgoods.
Measures affecting those sectors wereextremely likely toinvolve some connection togoods. TheEC
specifically, andvoluntarily, committed nottodiscriminate intheareaofwholesale trade services.
Itshould notbepermitted torenege onthose commitments through anovel andunsupported theory
thatmeasures having arelationship togoods could notimplicate theGATS. TheEC'sinterpretation
would allow discrimination against foreign service suppliers inallsectors, notonlythedistribution
sector.
4.621 TheComplaining parties submitted thattheEC'sdiscriminatory measures regulated the
availability ofgoods toforeign service suppliers andhadarealanddirect effect oncompetitive
conditions. Indeed, inthepresent case, themanipulation ofmarketplace competition wasparticularly
direct, since theECregime regulated theavailability oftheverymerchandise (bananas) necessary for
banana wholesalers tosupply theirservice. TheGATT hadlongrecognized thatmeasures governing
services could beusedtoaltertheterms ofcompetition between domestic andimported goods. GATT
Article III:4prohibited lessfavourable treatment toimported goods "inrespect ofalllaws, regulations
andrequirements affecting theirinternal sale,offering forsale,purchase, transportation, distribution,
oruse". Thedrafters oftheGATT understood thattheyneeded tocasttheirnetbroadly toensure
thattheGATT didnotpermit countries toavoid theirnon-discrimination obligations based simply on
theform ofameasure. Thesame wasalsotrueoftheGATS withrespect tomeasures having a
connection togoods, especially since theGATS covered entire services sectors andsub-sectors
(e.g.distribution, freight transportation) devoted tothehandling ofgoods.
4.622 TheEC'sclaim that,ifitsbanana measures werefound toviolate theGATS, alltariff quotas
thatrestricted thevolume ofimports could bechallenged under theGATS, vastly overstated theposition
oftheComplaining parties. Intheircomments tothePanel, theComplaining parties clarified that
theircomplaint wasnotbased onthefactthattheECbanana regime reduced theoverall levels ofLatin
American imports butwasinstead based onservice-related discrimination intheallocation ofthe
remaining bananas available forimportation under theECregime, specifically, theEC'stransferring
ofopportunities from Latin American andUSservice suppliers toACP andECfirms. Thistypeof
discrimination wasbynomeans inherent intariffquotas generally. Indeed, tariffquotas, likethevast
majority ofothergoods-related trademeasures, would notgenerally raiseGATS issues. Tariffs, quotas
andtariff quotas ongoods frequently didnotdistinguish between service suppliers atall,andwhen
theydid,theydidnottypically provide clearcompetitive advantages toservice suppliers ofparticular
countries attheexpense oflikesuppliers ofother countries. Thatwasprecisely whattheEC'slicensingWT/DS27/R/USA
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regimedid,however,awardingrightstoLatinAmericanbananasonaservice-supplier-by-service-supplier
basis, inamanner deliberately designed tofavour itsownandACP companies.
4.623 TheComplaining parties contested theEC'sclaim thatthebanana licensing rules hadonly
indirect andincidental repercussions onservice suppliers. Thebanana measures applied directly to
service suppliers andregulated thequantity ofimports theycould directly obtain, andtherefore, the
cross-border wholesaling services theycould provide. TheEC'smeasures categorized firms according
tohowmuch wholesale services eachhadperformed (thatis,each"activity function" wasdefined in
terms ofbuying andselling bananas intotheECmarket) andhadthedirect effect ofskewing competitive
conditions infavour ofdomestic andACP service suppliers. Inthewholesale distribution sector,
anobvious wayforgovernments tomanipulate competitive conditions infavour oflocal firms was
tomanipulate supplies ofgoods infavour oflocalfirms. IftheEC'sviewoftheGATS coverage that
theGATS onlygoverned measures directly regulating themanner inwhich aservice wasperformed
were adopted, itwould allow governments simply todeclare thatforeign firms could nolonger be
supplied withgoods, putting themcompletely outofbusiness. Suchaninterpretation would effectively
negate GATS commitments intheentire goods distribution sector. TheComplaining parties submitted
further thattheimport licensing measures were notGATT-compatible andwere notcovered bythe
Lomé Convention. Thus, thegoalthattheEChadputforward washardly alegitimate oneevenunder
theGATT. Moreover, aGATT waiver would notpermit theECtodiscriminate against foreign service
suppliers. TheGATS haditsownwaiver provision which theEChadnotinvoked.
4.624 TheECresponded thatitsposition ontherelationship between theGATT andtheGATS had
beenmischaracterized bythecomplainants. ItwasnottheEC'sposition thattheGATT hadtobe
exalted overtheGATS. These were twoagreements onthesame level andprecisely because there
werenorulesoncollision between them, overlap should notbereadily accepted. Acareful distinction
should bemaintained between measures relating togoods andmeasures inrespect ofservices trade.
Ifthisdistinction wasnotmaintained anditbecame clearthatcommitting oneself inthedistribution
sector ledtounforeseen consequences inthegoods trade, alackoffurther commitments inthatsector
might betheconsequence.
4.625 TheECclaimed thattheComplainants 'argument withrespect toArticle III:4ofGATT
rebounded against themselves. There wasnomirror image ofGATT Article III:4 intheGATS.
Article XVII ofGATS didnotcontain aprovision which gaveequal weight totherepercussions of
measures related togoods, letalone measures related toimported goods onservice suppliers, as
Article III:4ofGATT gavetothemeasures affecting internal sale,offering forsale,etc.,ofgoods.
Allindications were thatsuchanapproach wasnotadopted.
4.626 TheECnoted thattheComplaining parties hadrecognized thatmeasures which werelawful
under theGATT, suchastariffquotas, should notbeputinjeopardy under theGATS. They accepted
thatservices related toimported goods wereavailable pursuant toGATT rules. While theyaccepted
thisfortariff quotas, theyattempted tomake adistinction inrespect ofthelicensing rules usedto
distribute thedifferent portions ofthetariff quotas. IntheviewoftheEC,onecould notmake such
adistinction without contradicting oneself. Onecould notargue thataparticular measure relating to
goods should notbecovered bytheGATS andanother measure relating togoods, namely licensing
rules, should becovered bytheGATS. Complainants triedtocircumvent thisdifficulty byarguing
thatimport licences were given tocompanies which were service suppliers. Thiswas,however,
demonstrably incorrect. These licences were licences toimport goods andwere given todifferent
categories ofpersons orcompanies onthebasis oftheirpasthandling ofbananas. Itwasafactof
lifethatimport licences weregranted tonatural orjuridical persons. Thiswastrueforallimport licences
anddidnotchange goods-related measures intomeasures inrespect ofservices. Moreover, theimport
licences forbananas were based onhistorical performance, notasservice supplier, butasowner ofWT/DS27/R/USA
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bananas. Inthisrespect theywerenotdifferent fromotherimport licences which werebased onvarious
economic criteria (seeparagraphs 4.700 and4.701).
(b) Standard ofdiscrimination under theMFN andnational treatment obligations
(i)Measures affecting trade inservices -Articles I:1andXXVIII(c)
4.627 Ecuador recalled thataccording toArticle I:1ofGATS, theAgreement covered any"measures
byMembers affecting trade inservices". Article I:2ofGATS defined thescope oftheAgreement to
include measures affecting cross-border services intotheECandservices performed through a
commercial presence intheEC.Quoting Article I:2ofGATS, Ecuador considered thattheGATS
covered, among other things, those ECmeasures which affected suchservices aspre-shipment quality
control services, wholesale distribution services, andrental andleasing services forshipping bananas
totheEC.Moreover, referring tothetextofArticle I:3,Ecuador considered thatthisArticle covered
allregulatory measures affecting services, regardless ofwhether suchmeasures weretaken bynational
orsub-national bodies. Thus, according toEcuador, theGATS extended toallmeasures taken by
theECoritsmember States which affected theprovision ofservices. Ecuador noted thattheEChad
undertaken specific commitments tocomply withtheGATS inalarge number ofservice sectors and
sub-sectors, including thedistribution, transportation, andbusiness service sectors. Therefore, any
measures taken bytheECoritsmember States which affected these services hadtocomply withthe
GATS.
4.628 TheComplaining parties submitted thatthescope provisions oftheGATS were drafted in
thebroadest possible terms, using expressions suchas"measures affecting trade inservices" and
"measures affecting thesupply ofservices" thatswept inanymeasure thataffected thebusiness of
providing services through oneofthefour"modes" covered byGATS. Thedescription ofeachof
these keyterms setoutinArticle XXVIII, while already verybroad, wascastinillustrative, not
exclusive, terms. Paragraphs (b)("supply ofaservice") and(c)("measures byMembers affecting
tradeinservices") usedtheterm"include". Paragraph (a)("measure") listed certain types ofmeasures
andthenreferred tomeasures in"anyother form". Thiswasincontrast totheother definitions in
Article XXVIII which usedtheterms "means", "is",or"comprises", which denoted exclusiveness.
These terms weredrafted asnon-exclusive illustrations purposefully, withthecombined effect ofmaking
thescope oftheGATS assweeping aspossible. Thus, thecoverage oftheGATS wasverybroad
inthesense thatitcould potentially reach anymeasure thataffected services orservice providers,
although itwasprecise initsarticulation ofthedisciplines applicable tothose measures.
4.629 TheComplaining parties noted thatArticle XXVIII(b) provided that"'supply ofaservice '
includes theproduction, distribution, marketing, saleanddelivery ofaservice" andsubmitted that
thisillustrative listwasfar-reaching andincluded allaspects oftheprovision ofaservice. Thedefinitions
found inArticle XXVIII(b) and(c)supplemented eachother. Onecovered measures thataffected the
supply ofaservice, theothercovered measures thataffected theconsumption ofservices, orcommercial
presence, since restrictions thataffected anyofthese could haveadirect impact onthebusiness of
service suppliers. Together, theyreflected aneffort bythenegotiators toleave notypeofmeasure
outside thescope ofscrutiny oftheGATS, based simply ontheform themeasure might take. They
didnotseektodelimit, apriori ,theuniverse ofthetypes ofmeasures subject todiscipline. Inthe
current case,theEChadallocated, onadiscriminatory basis, theaccess toaproduct thatwasessential
totheprovision ofaservice. Indeed, therestrictions theEChadplaced ontheability ofUSandLatin
Americanbananawholesalersaffectedthefullrangeoftheirservicesactivities,includingthe"production,
distribution, marketing, saleanddelivery" oftheservice, asthose terms wereusedintheillustrative
listunder "supply ofaservice". TheGATS negotiators hadchosen toinclude theterm"affecting"
inthephrase "measures affecting tradeinservices" toreflect theviews setoutintheItalian AgriculturalWT/DS27/R/USA
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Machinery case, which hadinterpreted thesame terminGATT Article III:4toinclude "notonlythe
lawsandregulations which directly governed theconditions ofsaleorpurchase butalsoanylawsor
regulations which might adversely modify theconditions ofcompetition between thedomestic and
imported products ontheinternal market".270
4.630 TheECargued thattheillustrative definition of"measures affecting trade inservices" in
Article XXVIII(c) mentioned measures inrespect of,interalia,"thepurchase, payment oruseofa
service" and"thepresence ...ofpersons ofaMember forthesupply ofaservice" andnotthesupply
ofagood. Thewords "forthesupply ofaservice" indicated thatthemeasures hadtobeaddressed
tothenatural orlegalperson initscapacity ofservice supplier orinitsactivity ofsupplying services.
There could beadirect limitation onthequantity ofservices thatitcould provide, there could bea
specific restriction (e.g.linked tonationality) onitslicence asaservice supplier orthere could bea
restriction ofitscorporate formasaservice supplier. Arestriction ontheimportation oftheamount,
andtheallocation ofthisrestricted amount, ofproducts inrespect ofwhich certain services were to
beprovided could notbeaccommodated bythisdefinition of"measures byMembers affecting trade
inservices". These weremeasures related toproducts andhence fellunder theGATT. Moreover,
according totheEC,thebroad meaning oftheword "affecting" could notbetransplanted outofits
national treatment context intheGATT intoadefinition determining thescope ofthewhole ofthe
GATS. TheECnoted thatinArticle XXVIII(c) "affecting" wasreduced to"inrespect of",which
wasclearly amuch narrower concept andindicated thatthemeasures hadtohavethepurpose andaim
toregulate, orattheveryleast, directly influence services asservices. Thatwasnotthecasewith
theECtariffquota andlicensing rulesforbananas. Theymerely hadindirect consequences onservices,
insofarasthenumber ofgoods inrespect ofwhich services were rendered were regulated.
4.631 TheComplaining parties responded that,byreferring onlytothetypes ofmarket access
restrictions listed inGATS Article XVI(e.g.limitations onthenumber ofservice suppliers, limitations
onthetotalvalue ofservice transactions) asexamples ofmeasures thatwere covered bytheGATS,
theECapparently implied thatmeasures notfalling within theseparticular categories werenotcovered
byGATS disciplines. Thisargument wasirrelevant because theComplaining parties ’claims were
notbased onArticle XVI, butonArticles IIandXVII, which hadentirely different standards.
Article XVImade nomention ofmeasures affecting tradein,orthesupply of,services ortothenotion
oflessfavourable treatment. Rather, Article XVIwasalistofcertain specific types ofmeasures that
thedrafters ofGATS hadconsidered sobasic toobtaining access toother Members ’service markets
that(ifscheduled) evennon-discriminatory application ofthese measures would beprohibited. Thus,
Article XVIprovided noguidance tointerpreting thecoverage ofArticles IIorXVII, oroftheoverall
scope oftheGATS.
(ii)Measures affecting trade inservices -Article XVII:1
4.632 TheUnited States submitted thataMember acted inconsistently withArticle XVII ifthree
elements existed: (i)theMember hadundertaken acommitment intherelevant sector; (ii)theMember
hadadopted orapplied ameasure affecting thesupply ofservices inthatsector; and(iii)themeasure
accorded toservices orservice suppliers ofanyother Member treatment lessfavourable thanthatit
accorded totheMember ’sownlikeservices orservice suppliers. According totheUnited States, each
oftheabove elements waspresent inthiscase.
270Report ofthepanel on"Italian Discrimination Against Imported Agricultural Machinery", adopted on23October 1958,
BISD 7S/60, para. 12.WT/DS27/R/USA
Page215
4.633 TheUnited States argued thattheEC'sbanana marketing regime comprised aseries ofmeasures
"affecting thesupply ofservices" (Article XVII:1 ofGATS). Theterm"affecting" wasnotdefined
intheGATS. However, thesame termwasusedinArticle IIIofGATT. Citing thefirstsentence
ofArticle III:4ofGATT, theUnited States noted thatpastdispute settlement panels established to
review theidentically-worded Article III:4ofGATT 1947hadinterpreted theterm"affecting" assetting
outabroad standard ofmeasures thatwould becovered bynational treatment obligations. TheUnited
States referred, inparticular, totheItalian Agricultural Machinery case271which hadfound that: "The
selection oftheword 'affecting 'would imply, intheopinion ofthePanel, thatthedrafters oftheArticle
intended tocover inparagraph 4notonlythelawsandregulations which directly governed theconditions
ofsaleorpurchase butalsoanylawsorregulations which might adversely modify theconditions of
competition between thedomestic andimported products ontheinternal market."
4.634 Thus, theuseoftheterm"affecting" evinced, intheopinion oftheUnited States, anintent
onthepartofthedrafters oftheGATS tosweep inabroad range ofmeasures thatcould alterthe
competitive relationship between services suppliers. Inthepresent case,eachofthechallenged aspects
oftheEC'sbanana import licensing ruleswasapplied directly tofirms thattraded andmarketed bananas.
Thus, themeasures directly governed theability offirms toparticipate inthemarket fordistribution
services, aswellasmodifying theconditions ofcompetition withrespect tothisservices market. Each
challenged aspect oftheimport licensing rules either redistributed market share from complainants '
firms toECorACP firms; accorded abenefit predominantly toECorACP firms; orimposed a
commercial burden predominantly onUSandother non-EC/ACP firms.
4.635 Inresponse, theECreferred toArticle XXVIII ondefinitions, where "supply ofaservice"
wasdefined asincluding theproduction, distribution, marketing, saleanddelivery ofaservice. This
definition confirmed theviewoftheECthattheGATS wasconcerned withregulating tradeinservices
assuchandnotwithservices which formed partofanintegrated supply chain, asinthecaseoftrade
inbananas. Themeasures towhich national treatment hadtobeaccorded were, therefore, measures
which related tothesupply ofservices assuch, andnottoindirect andincidental consequences on
services ingeneral. Astothemeaning of"affecting", theECdidnotagree withtheinterpretation
presented bytheUnited States. Thisinterpretation was,intheopinion oftheEC,notconsistent with
whattheGATS drafters hadwritten intothefinaltextoftheArticle. Obviously theyhadknown the
Italian Agricultural Machinery caseandwanted totakeaccount ofit.According totheEC,theyhad
donesoinparagraph 3ofArticle XVII, which provided afurther clarification of"nolessfavourable
treatment". Ifthedrafters hadwanted toreadthemodification ofcompetition intotheword "affecting",
theywould certainly haveclarified thisinthetextoftheGATS, astheyhaddone forthe"noless
favourable treatment" standard.
4.636 Intheopinion oftheEC,there wastherefore, noparticular reason inthetextoftheGATS
togiveabroad interpretation totheword "affecting" within themeaning ofArticle XVII ofGATS.
Thisphrase meant whatitsaid,namely measures which hadadirect influence onthesale,distribution,
marketing ordelivery ofaservice assuch. National treatment inrespect ofthesupply ofservices
wasnotatstake, ifthere were indirect effects onservices bymeasures which hadastheirobject to
regulate trade ingoods. Disputes about suchmatters hadtofindtheirsolution intheframework of
theGATT. TheECconsidered thatthecontested measures inthiscaseweremeasures regulating trade
ingoods anddidnotdirectly influence thesupply ofservices. TheECargued thatthere hadtobe
adirect linkbetween thecontested measures andthetrade inservices assuch. Though thenotion of
271Op.cit.,para. 12.Seealsoreport ofthepanel on"United States -Section 337ofTariff Actof1930", p.385 (citing
the"Italian Agricultural Machinery" report, thepanel found thatmeasures usedtoenforce USpatent lawattheborder were
nevertheless covered byArticle III:4, stating "Iftheprocedural provisions ofinternal lawwere notcovered byArticle III:4,
contractingpartiescouldescape thenationaltreatmentstandardbyenforcingsubstantivelaw,itselfmeetingthenationaltreatment
standard, through procedures lessfavourable toimported products thantolikeproducts ofnational origin.").WT/DS27/R/USA
Page216
supply ofservices ortrade inservices hadtobebroadly interpreted, themeasures hadtohavesome
direct effect onthedelivery ofservices. Measures affecting trade ingoods werenot(also) measures
affecting trade inservices, merely because theymight havesome indirect andincidental effect on
services.
4.637 TheComplaining parties submitted thatArticles IIandXVII ofGATS weremodeled after
Article IIIofGATT which hadlongbeeninterpreted toproscribe awidevariety ofinternal measures
thataccorded competitive advantages todomestic products. Theconcepts of"lessfavourable treatment"
and"likeness" ofArticle II:1andArticle XVII:1 ofGATS weretheverysameconcepts asinArticle III:4
ofGATT.Thesubstanceofparagraphs2and3ofArticleXVIIconcerningformallyidenticalordifferent
treatmentandmodificationoftheconditionsofcompetitionwasfoundinGATTpanelreportsinterpreting
Article III.Inparticular, inaddition totheterm"affecting", thephrase "modify theconditions of
competition" came verbatim from theItalian Agricultural Machinery case. TheSection 337panel272
setoutastandard comparable tothestandard oftheItalian Agricultural Machinery case. Initsreport,
theSection 337panel found that"thewords 'treatment nolessfavourable 'inparagraph 4ofArticle III
ofGATT called foreffective equality ofopportunities forimported products" andthatthatphrase "has
tobeinterpretedasprotectingexpectationsonthecompetitiverelationshipbetweenimportedanddomestic
products".273
4.638 TheComplaining parties contended thatmuch likeItaly intheItalian Agricultural
Machinery case, theECwasarguing forarestrictive interpretation ofthescope oftheGATS non-
discrimination provisions tocover onlymeasures thatdirectly regulated themanner inwhich aservice
wasprovided. Asinthatcase, adoption oftheEC'sinterpretation would permit WTO Members to
evade theirGATS non-discrimination obligations, bydrafting newmeasures thatprovided acompetitive
advantage todomestic service suppliers, butthatdidnotdirectly regulate theprovision oftheservice
assuch. Indeed, theEC'sinterpretation would permit governments toadopt theservices analogue
oftheverytypeofmeasure atissueintheItalian Agricultural Machinery case, i.e.provision ofcredit
facilities forthepurchase ofdomestic services. TheEC'sinterpretation would permit governments
toadopt andmaintain ahostofother discriminatory actions, suchasselectively taxing therealestate
leased byforeign service suppliers whosought toestablish themselves inaMember ’sterritory, or
shutting offtheirwater supply orelectricity. Measures suchasthesedidnotdirectly regulate themanner
ofproviding theservices buttheycould greatly restrict orevenprevent aforeign firmfromsupplying
aservice. Inthiscase, whether ornottheEC'sdiscriminatory allocation scheme dictated theprecise
manner ofproviding wholesale distribution services, itprovided ECandACP firms withtangible
competitive advantages intheprovision ofservices, attheexpense oflikeLatin American andUS
firms. Itthusfellwithin thescope ofArticles IIandXVII ofGATS. TheComplaining parties also
contested theEC'sclaim thattheterm"measures affecting trade inservices" must beinterpreted to
apply onlytomeasures whose purpose anddirect effect wastoregulate services trade assuch. The
Complaining parties submitted thattheEC'sinterpretation didnotcomport withtheordinary meaning
ofthephrase "measures affecting tradeinservices", inaccordance withthe"ordinary meaning" principle
ofinterpretation ofArticle 31oftheVienna Convention.
4.639 TheECrejected theComplainants 'references totheItalian Agricultural Machinery caseand
itsbroad interpretation oftheword "affecting" asmeaning more than"governing". According tothe
EC,itwasassuming toomuch thatthedrafters intended totransplant thebroad meaning oftheword
"affecting" outofitsnational treatment context intoadefinition determining thescope ofthewhole
GATS. TheECargued thattheComplaining parties sought toscarethePanel withfar-fetched examples,
272Report ofthepanel on"United States -Section 337oftheTariff Actof1930", adopted 7November 1989, BISD 36S/345
("Section 337").
273Idem, paras. 5.11 and5.13.WT/DS27/R/USA
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suchasshutting offtheelectricity orwater supply which would frustrate anyeconomic activity, not
merely offoreign service suppliers butofanyforeign-owned establishment inacountry. These examples
hadbeenaddressed byArticle XXVIII(c)(ii) ofGATS andhadnorelevance fordrawing theboundary
linebetween theGATT andtheGATS.
4.640 TheComplaining parties responded that,while several oftheComplaining parties 'examples
ofthenegative implications oftheEC'srestrictive interpretation ofGATS, e.g.shutting offelectricity
orwater,mightbeextreme,theywouldbepermittedundertheECinterpretation.Lessextremeexamples
would equally bepermitted under theEC'sinterpretation, andwerealsodiscriminatory. Forexample,
aMember could impose ataxonrealestate leases offoreign service suppliers, orataxoncarsthat
wererepaired atforeign-owned carrepair shops. These types ofmeasures discriminated against foreign
service suppliers eveniftheywere "goods related" ordidnotregulate theprovision ofservices as
such. Under theEC'sinterpretation, aMember would befreetoimplement these types ofmeasures.
(iii)Standard ofdiscrimination: Article II
4.641 TheUnited States noted thatArticle II:1ofGATS setoutMembers 'obligations withrespect
toMFN treatment forservices.274According totheUnited States, aMember acted inconsistently with
Article IIifthree elements existed: (i)theMember hadadopted orapplied ameasure covered bythe
GATS; (ii)theMember could claim noMFN exemption astothatmeasure; and(iii)themeasure
accorded toservices orservice suppliers ofanyother Member treatment lessfavourable thanthatit
accorded tothelikeservices orservice suppliers ofanyother country. Each oftheabove elements
was,according totheUnited States, present inthiscase.
4.642 TheUnited States argued thatunlike thenational treatment standard ofArticle XVII which
applied onlytotheextent thataMember hadmade specific commitments inaparticular sector or
sub-sector, theMFN obligations applied "with respect toanymeasure covered by"theGATS, unless
anexemption wasspecifically provided forinaMember 'sMFN exemption list.Article I:1ofGATS
provided that:"[t]his Agreement applies tomeasures byMembers affecting tradeinservices." Thus,
"anymeasure covered by"theGATS was,according totheUnited States, anymeasure byaMember
affecting trade inservices. Theanalysis above withrespect tothemeaning oftheterm"affecting"
inthecontext oftheGATS national treatment was,according totheUnited States, equally applicable
inthecontext oftheGATS MFN obligation.
4.643 TheUnited States argued thatthestandard ofArticle II:1ofGATS wascomparable tothe
formulation usedinArticle XVII ofGATS withrespect tonational treatment. Article II:1employed
thesame operative phrases "treatment nolessfavourable" and"like services andservice suppliers"
found inArticle XVII:1. ThetextofArticle XVII contained twoadditional paragraphs thatamplified
thebasic national treatment standard, mostnotably through reference toa"conditions ofcompetition"
test.Comparable amplification wasnotprovided inArticle II.Theamplification setoutinArticle XVII
didnotreflect, intheviewoftheUnited States, anydeliberate differentiation between thetwostandards.
Bothstandards wereintended toprohibit discriminatory treatment oflikeservices andservice suppliers,
inparticular byprohibiting treatment thatskewed theconditions ofcompetition infavour ofcertain
groups ofcompetitors based ontheirnationality orownership.
274Thefirsttwoparagraphs ofArticle IIprovide asfollows:
"1. Withrespect toanymeasure covered bythisAgreement, eachMember shallaccord immediately andunconditionally
toservices andservice suppliers ofanyother Member treatment nolessfavourable thanitaccords tolikeservices
andservice suppliers ofanyother country.
2. AMember maymaintain ameasure inconsistent withparagraph 1provided thatsuchameasure islisted in,and
meets theconditions of,theAnnex onArticle IIExemptions."WT/DS27/R/USA
Page218
4.644 Ecuador recalled thatArticle IIofGATS required thatMembers accord MFN treatment to
services andservice suppliers fromotherMembers. Ecuador considered thattheEC'sMFN exemptions
didnotinclude theservices provided byEcuadorian andother third-country service suppliers forthe
marketing, distribution andsaleofbananas intheEC.Therefore, allmeasures taken bytheECwhich
affected theseservices hadtocomply withtheMFN principle. TheGATS wasanewagreement adopted
aspartoftheUruguay Round andconsequently theMFN provisions ofArticle IIhadnever been
interpreted orapplied byaprevious GATT/WTO panel. However, the"treatment nolessfavourable"
standard setoutinArticle II:1alsoappeared inArticle IIIofGATT andtheinterpretation ofthisstandard
inthiscontext should beconsidered when construing thestandard setoutinArticle II:1.275Inthe
Article IIIcontext, the"treatment nolessfavourable" standard hadbeen interpreted toguarantee
"effective equality ofopportunities forimported products ...".276Moreover, "theprevious practice
oftheContracting Parties [totheGATT 1947] inapplying Article III...hasbeentobasetheirdecisions
onthedistinctions made bythelaws, regulations orrequirements themselves andontheirpotential
impact,ratherthanontheactualconsequencesforspecificimportedgoods."277ThelanguageofArticleII
ofGATS parallelled thatinArticle XVII, which defined "lessfavourable" treatment astreatment which
"modifies theconditions ofcompetition infavour ofservices andservice suppliers oftheMember
compared tolikeservices andservice suppliers ofanyother Member." Thus, inorder toviolate
Article IIofGATS, itneeded nottobeshown thattheEC'simport licensing regime created anactual
distortion oftradebutonlythatitmodified theconditions ofcompetition orcreated ariskofdiminished
opportunities forimported products.
4.645 TheComplaining parties submitted that,liketheGATT panels thathadreviewed Article III:4,
thisPanel should interpret Article IIofGATS inlightofthelanguage contained inArticles XVII:2
and3ofGATS. Using suchastandard, theconclusion would bethattheEC'sbanana regime violated
theEC'sMFN obligations through itsaward ofdiscriminatory competitive benefits tofirms ofACP
countries attheexpense ofthose ofLatin America andtheUnited States.
4.646 TheComplaining parties submitted further thatArticle IIofGATS embodied thebasic test-
"nolessfavourable treatment" -ofArticle III:4ofGATT butdidnotcontain theformulation used
inArticle I:1ofGATT concerning "...anyadvantage, favour, privilege orimmunity granted byany
contracting party toanyproduct originating inordestined foranyother country ...".Although Article
IIofGATS didnotcontain thetypeofelaboration found inparagraphs 2and3ofArticle XVII of
GATS,concerningformallyidenticalordifferenttreatmentandmodificationofconditionsofcompetition,
neither didthetextofArticle III:4ofGATT. GATT panels hadinterpreted Article III:4ofGATT
toinclude theselatterconcepts asawaytooperationalize theverygeneral "treatment nolessfavourable"
standard ofArticle III:4. According totheComplaining parties, paragraphs 2and3ofArticle XVII
ofGATS didnotsetupnewsubstantive rulesbutrather served asguidance fortheapplication ofthe
national treatment rulearticulated inthefirstparagraph. Thefirstparagraph ofArticle XVII wasin
allrelevant respects thesame astheMFN rulesetoutinparagraph 1ofArticle IIofGATS.
4.647 TheECreplied thatArticle IIofGATS prescribed most-favoured nation treatment "with respect
toanymeasure covered bythisAgreement". Article I:1stated thattheGATS applied "tomeasures
byMembers affecting trade inservices". Thedefinition inArticle XXVIII(c), inparticular under
subparagraph (i)thereof, indicated thatthemeasures concerned hadtoaffect trade inservices assuch
275Article III:4ofGATT provides that"[t]he products oftheterritory ofanycontracting party imported intotheterritory
ofanyother contracting party shallbeaccorded treatment nolessfavourable thanthataccorded tolikeproducts ofnational
origin ...".
276Report ofthepanel on"United States -Section 337oftheTariff Actof1930", BISD 36S/345, atp.386, para. 5.11.
277Idem, para. 5.13.WT/DS27/R/USA
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andcould notbemeasures withrepercussions onservices, suchasmeasures onthepurchase ofgoods.
Moreover, theuseofthewords "inrespect of"inthechapeau ofArticle XXVIII(c) demonstrated that,
asinArticle XVII, theword "affecting" hadtobeinterpreted inanarrow sense anddidnotreferto
measures which modified theconditions ofcompetition. These elements ofinterpretation weredirectly
based onthetextandthecontext ofArticle IIandwere, thus, inconformity withtheguidelines of
Article 31oftheVienna Convention.
4.648 TheECconsidered that,withrespect tothe"nolessfavourable treatment" standard, the
interpretation should takeaccount ofthetextual differences between Article II:1andArticle XVII:3
ofGATS. Whereas thelatter clause explicitly included themodification ofcompetitive conditions
asanelement of"nolessfavourable treatment", Article II:1didnot.Thedrafters, through theinclusion
ofsuchelements asthe"purchase, payment oruseofaservice" viathedefinition contained in
Article XXVIII(c), hadindeed included aspects ofthenational treatment clause asitfigured in
ArticleIII:4ofGATT,intothemost-favoured-nationclauseoftheGATS,buttheyhaddonesoexplicitly.
Iftheyhadalsowished tomake the"modification ofcompetitive conditions" requirement intoanintegral
partofthe"nolessfavourable treatment" testunder themost-favoured-nation clause, theywould have
done soexplicitly, asitwasdone forthenational treatment clause inArticle XVII:3 ofGATS.
Article XVII contained extensive explanations inparagraphs 2and3thereof onwhatwasmeant by
nolessfavourable treatment inthecontext ofnational treatment. Article IIofGATS onthemost-
favoured-nation principle contained nosuchexplanation. Theconclusion could onlybethatthis
explanation didnotapply toArticle II.There wasnoreason tointerpret thesame words inthesame
wayindifferent Articles. What wastruefor"likeproduct" intheGATT could alsobetruefor"no
lessfavourable treatment" intheGATS. Therefore, theECargued, under Article IIofGATS there
waslessfavourable treatment asbetween services andservice suppliers ofother Members oftheWTO,
ifthere wasadifference intreatment (notincluding amodification ofcompetitive conditions) with
respect toanymeasure relating directly tothedelivery ofservices assuch.
4.649 Forthese reasons, theECcontinued, itwasatbestpossible totrytodemonstrate thatcertain
ECmeasures discriminated, defacto, against foreign services and/or services suppliers compared to
ECservices orservice suppliers (national treatment), butwhere itconcerned MFN-treatment ithad
tobeshown thattherewasformally discriminatory treatment asbetween foreign services andbetween
foreign service suppliers. The"nolessfavourable treatment" criterion extended, intheopinion ofthe
EC,tothemodification ofcompetitive conditions inthenational treatment provision butnotinthe
most-favoured-nation clause. Since theentire analysis oftheComplaining parties wasinterms of
competitive conditions, which theECbelieved wasnotrelevant, thecomplaint withrespect toArticle II
should bedismissed.
4.650 TheComplaining parties responded thatGATS Article IIwasbased onGATT Article III,
andconsidered thatthere wasnoreason tosuppose thattheGATS negotiators hadintended thereach
ofGATS Article IItobemore narrow thanthatofGATT Article III.GATT Article IIIdidnotcontain
specific language ondefacto discrimination. GATT panels hadinterpreted ittoinclude this. They
haddonesobecause evenfacially neutral measures could infactdiscriminate against foreign goods.
Nottocover thiswould haveallowed significant discrimination tocontinue aslongasitwasinthe
guise ofafacially neutral measure. Thesame wastruewithrespect totheGATS.
(c) Wholesale trade services
4.651 Ecuador claimed thattheEChad,inaccordance withArticle XVII:1 ofGATS, inscribed in
itsSchedulesectorswhichincludedtheservicesprovidedbyEcuadorianandotherthird-countrysuppliers
inthetransportation, marketing anddistribution ofbananas forsaleintheEC.Thenational treatmentWT/DS27/R/USA
Page220
commitments which theEChadscheduled included unqualified commitments inwholesale tradeservices
withrespect tocross-border supply andsupply through acommercial presence.
4.652 TheUnitedStatesclaimedthattheentryof"None"underthecolumnof"LimitationsonNational
Treatment" intheGATS Schedule oftheECindicated thatithadmade anunqualified national treatment
commitment fortheprovision ofwholesale tradeservices byforeign service suppliers bothonacross-
border basisandthrough acommercial presence within theEC."Cross-border" commitments covered
thesupply ofaservice bynon-resident service suppliers intoanother Member 'sterritory.278
Commitments withrespect tocommercial presence covered "theopportunities forservice suppliers
toestablish, operate orexpand acommercial presence in[another] Member 'sterritory".279A
"commercial presence" was"anytypeofbusiness orprofessional establishment."280"Cross-border"
wholesaling included, according totheUnited States, allactivities associated withdelivering bananas
totheECfromabroad andreselling them there. Wholesale distribution ona"commercial presence"
basisencompassed allactivities associated withthemarketing ofbananas within theECbycommercial
entities established there. Together, wholesaling onacross-border andcommercial presence basis
included eachofthesteps ofthebanana distribution, butexcluded banana production andretail sale.
TheEC'sbroad-ranging commitment intheareaofwholesale trade services onbothacross-border
andcommercial presence basismeant, according totheUnited States, thattheEC'snational treatment
commitments didapply totheaspects ofthebanana regime thataffected anyoftheentire range of
wholesale distribution services supplied bytheComplaining parties ’banana firms intoandwithin the
EC.
4.653 TheUnited States noted thatWTO Members hadgenerally usedtheGATS Services Sector
Classification List(SSCL) astheframework forthescheduling ofnational treatment (andmarket access)
commitments.281TheSSCL, inturn,referred to,andmade useof,theUnited Nations Central Product
Classification (CPC) codes, which described various services activities.282
4.654 TheComplaining parties argued thatinmaking itsGATS national treatment commitments,
theEChadusedtheCPCdefinition ofwholesale trade services, i.e.CPC622. Thus, theCPCwas
legally controlling astothescope oftheEC'scommitments inwholesale trade services. Within CPC
622,there wasaspecific sub-category (CPC 62221) for"specialized wholesaling services offresh,
dried,frozen,orcannedfruitsorvegetables".Thissub-categorydescribedbananawholesaling,although
itshould benoted, according totheComplaining parties, thattheEC'scommitment inwholesale trade
services wasgeneral andthuscovered wholesaling ofallproducts. Theheadnote totheCPCsection
inwhich CPC622(andCPC62221) wasfound provided acleardefinition ofwholesale tradeservices
thatincluded allactivities associated withthere-sale ofmerchandise toentities other thanthegeneral
public:
"...selling merchandise toretailers, industrial, commercial, institutional orotherprofessional
business users, ortoother wholesalers, oracting asagent orbroker ...Theprincipal services
278GATS, Guide toReading theSchedules ofSpecific Commitments andtheListsofArticle II(MFN) Exemptions ("GATS
Guide"), p.1; GATS Article 1:2(a).
279Idem.
280GATS Article XXVIII(d).
281MTN.GNS/W/120 (10July1991).
282"Provisional Central Product Classification", Statistical Papers Series MNo.77,Department ofInternational Economic
andSocial Affairs, Statistical Office oftheUnited Nations (1991).WT/DS27/R/USA
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rendered bywholesalers ...maybecharacterized asreselling merchandise, accompanied by
avarietyofrelated,subordinatedservices,suchas:maintaininginventoriesofgoods;physically
assembling, sorting andgrading goods inlargelots;breaking bulkandredistribution insmaller
lots; delivery services; refrigeration services; salespromotion services ...".283
Thisbroad definition included, intheopinion oftheComplaining parties, alldistribution andre-sale
activities between theproduction andtheretail stage. Thedefinition wasnotlimited toactivities
occurring justprior totheretail level. Thedefinition explicitly included re-sale toother wholesalers,
thusrecognizing thattherecould bemultiple wholesalers andmultiple wholesale stepsinthedistribution
chain foraparticular product.
4.655 TheComplaining parties submitted thatthemainLatin American andUSbanana distribution
companies performed eachoftheactivities listed intheabove CPCdefinition, bothwhen theydistributed
bananas from overseas intotheEC,andwithin theECitself, i.e.:
(a) Resellingmerchandise.Allofthemainbananacompaniespurchasedasignificantportion
ofthefruittheyhandled from local growers. Thisfruitwasthenresold inthemarket toother
wholesalers, toripeners ordirectly toretailers. Inmany instances, theprofit realized inthereselling
oftheproducers 'fruitwasshared withtheproducer. Theprofit-sharing arrangement between the
grower andthere-seller wasdefined inthefruitpurchase contract. Inother instances, themainbanana
companiespurchasedgreenfruitinthemarketforresellingtoripenersortoripenthemselvesforeventual
resale (yellow) toretailers.
(b) Maintaining inventories. Banana companies maintained inventories inrefrigerated
containers afterharvesting andbefore loading ontoships. During thetimethattheshipwasonthe
water, thebananas wereeffectively inrefrigerated inventory. Byaccelerating ordelaying theship's
schedule, thisinventory could bemanaged torespond tomarket conditions.
(c) Physically assembling, sorting, grading inlarge lots,breaking bulkandredistribution
insmaller lots.After harvest, bananas were sorted toculloutbadfruitandseparate saleable fruit
bysizeandquality. Thefruitwasthenweighed andpacked intheappropriate boxes, based onlabel
andsize. Theboxed fruitwasthenassembled intolotstofillindividual containers orrailcarswith
thesame typeoffruit. These individual lotswould typically contain about 1,000 boxes (18.2 tonnes).
Attheloadport, the1,000-box lotswere thenassembled intofullshiploads. Theloading ofthese
individual lotsintheship'sholdwasdone according toaprecise stowage planwhich recorded the
exact location andclassofeachlot.Most ships trading totheEChadtoloadinmore thanoneload
portandtypically carried from 200,000 toupto350,000 boxes ofbananas eachweek. Theactivity
ofassembling afullshiploadofbananas therefore required careful coordination bothwithin agiven
source country andbetween multiple source countries. When theshipwasdischarged, theprocess
carried outatloading wasessentially reversed, withcustomer-specified loads being assembled from
thelarge inventory ontheship. Thecustomer loads wereassembled bysorting through thevarious
blocks oflike-class fruitintheship'sholds, breaking thebulkstowage using thestowage planasa
guide, andloading customers 'lotsfordistribution towarehouses andripening rooms. Anyfruitthat
showed quality problems wassorted outfordisposal. Fruit thatwasdischarged directly intoa
refrigerated warehouse wasalsosorted intolotsoflike-class fruittofacilitate theassembling and
redistribution ofcustomer orders from thewarehouse. Bananas were alsosorted andgraded inthe
ripening process where theadditional parameter of"colour" wasadded. Assembling theretailer 's
283Op.cit.,p.189.WT/DS27/R/USA
Page222
loadrequired sorting through theripening rooms toobtain thequantity, classes/types, anddegrees
ofripeness thatthecustomer hadordered.
(d) Delivery services .Delivery services were alsoperformed atmultiple stages ofthe
distribution process, including: delivery from thepacking station totheloadportbyrailorroad,
delivery from theloadporttothemarket/discharge portbyship, delivery fromthedischarge portto
other green wholesalers orripeners byroadorrailanddelivery from theripener totheretailer by
road.
(e) Refrigeration services. Bananas hadtobeputunder refrigeration within 36hours of
being cutandhadtobeheldunder continuous refrigeration untiltheywereplaced ontheretail shelf.
Refrigeration services were therefore acrucial partofthebanana business andwere carried outin
refrigerated containers inthetropics, ontheshipwhile sitting intheloadports, ontheshipatsea,
ontheshipwhile sitting inthedischarge ports, inrefrigerated railcars,containers andtrucks inthe
markets, inrefrigerated warehouses inthemarkets, andinrefrigerated ripening rooms inthemarket.
(f) Sales promotion services. Themainbanana companies participated insalespromotions
directed atother wholesalers andripeners aswellasatretail consumers. Intheirtrade promotions,
thebanana companies usedtechnical support, printadvertising intrade publications, participation in
trade conferences andexhibitions, sponsorship oftrade events andcontinuous customer contacts to
promote sales. Thecompanies usedtelevision, printandradio advertising, andspecial events such
assupporting social andsporting events topromote retail sales.
4.656 TheECreplied thatbananas could bemarketed atdifferent stages inthesupply chain, for
instance either before orafterripening. Itwasgenerally accepted, according totheEC,thatinthe
banana trade thestage aftertheripening process wasthewholesale stage. Theripening stage wasthe
stageduringwhichforthelasttimeconsiderablevaluewasaddedtotheproduct,whenitwastransformed
fromalargelystarch-containing,indigestiblegreenproductintoalargelysugar-containing,edibleyellow
product. Ripening could beseenasthelaststage oftheproduction process ofbananas. Itwasonly
thenthattheproduct wasready fordistribution tothefinalconsumer through wholesalers andretailers.
Wholesale services tradewasdescribed inCPC622andtheonlyfurther indication ofwhatwholesaling
might mean wasgiven intheheading ofSection 6oftheCPC: "selling merchandise toretailers, to
industrial, commercial, institutional orother professional business users, ortoother wholesalers ...
(wholesaling services)". Thisheading alsomentioned thatawholesaler intheprocess ofreselling
merchandise might render avariety ofservices, suchasassembling thegoods, breaking bulkand
redistribution insmaller lots,delivery, refrigeration, storage, salespromotion, etc.After having bought
thebananas from theripener, thewholesaler acted indeed inconformity withthedescription given
above: hebroke bulk, shipped thecartons ofbananas insmaller quantities tobigger andsmaller retailers
andinstitutional consumers, suchashospitals, andmaintained storage, refrigeration andadistribution
network tothatend.
4.657 Theheadnote totheCPCsection ontrade services wasnotveryprecise initsdescription of
wholesale trade services but,intheview oftheEC,itdidplace resale toretailers andindustrial,
commercial, institutional orother professional business users intheforeground. Thisclearly indicated
thatatthisstage thegoodconcerned (inthiscase, bananas) mustbeready tobeconsumed: otherwise
theretailer could notsellitorthehospital, forexample, could notuseitinthehospital meal. The
ECwastherefore oftheviewthatwholesaling offruitandvegetables, including bananas, consisted
ofthelasttrade layer before theretailer orinstitutional user. There might behorizontal salesatthe
sameleveloftradetootherwholesalers butsuchsaleswereincidental tothetrueactivity ofawholesaler
whodistributed goods inaconsumption-ready statetoretailers andinstitutional users.WT/DS27/R/USA
Page223
4.658 IntheviewoftheEC,thephrase inthedescription ofwholesaling which stated thattheresale
ofmerchandise was"accompanied byavariety ofrelated, subordinated services" could therefore no
longer cause confusion andbestretched tothebanana treeontheother sideoftheocean. Itwasclear
thatkeeping inventories, assembling, sorting, grading, (re)packaging, refrigerating, redistribution in
smaller lotsmustconcern goods which wereready forconsumption andabout tobedelivered tothe
retailer. Intheend,thiswasaservice supplied totheretailer, ortoinstitutional users.
4.659 TheECargued thatitwasimportant toadhere toaclearandwell-circumscribed concept of
wholesale services thatwasofgeneral validity. Otherwise Members would notknow whattheywere
committed tounder theirSchedules: under oneheading theircommitment could berestricted totheir
ownterritory, andinothers itcould stretch half-way around theglobe andinclude services thatMembers
never dreamt could be"subordinate" towholesaling.
4.660 TheECsubmitted further thatcross-border wholesaling inthebanana trade, although unusual
inpractice, could occur inEurope between theECandneighbouring countries, suchastheCzech
Republic, Norway, Poland orSwitzerland. Thisimplied thatthebananas which hadbeenripened in
aripening installation within theECwere subsequently distributed byawholesaler toretailers or
institutional consumers inthese countries orviceversa. Bringing green fruittotheECforripening
could notbedescribed ascross-border wholesaling, which would stretch thenotion ofwholesaling
wellbeyond thelimits ofitsdescription asgiven intheheading toSection 6oftheCPC, asitshould
beapplied tothebanana trade. Assuming thatwholesaling services through commercial presence were
being supplied withrespect tobananas within theEC,theComplaining parties hadfailed todemonstrate
whichcompanies,thatwereactiveinthisarea,wereownedorcontrolledbyinterestsoftheComplainants
involved andhowthese service suppliers werebeing discriminated byameasure relating totheway
inwhich theyprovided theirservice within theEC.Thiswould bedifficult todemonstrate, according
totheEC,since thewholesale andretail sectors were specifically excluded from thescope ofthe
contested measures. Wholesalers andretailers were not"operators" within themeaning of
Regulation 1442/93 (Article 3:2).
4.661 TheECargued that,ifitwasassumed thatservices which wereincorporated intothebanana
soldontheECmarket, could nevertheless beconsidered tobesupplied atthesame timeasthebanana
wassold(quod non,according totheEC),thequestion arose which services wererendered prior to,
ornextto,thesaleofthebanana ontheECmarket. TheECasserted that,intheview ofthe
Complainants, suchincorporated services were(nearly) allwholesaling services. Thischoice, however,
seemed primarily tohavebeendetermined bythefactthatwholesaling services werelargely freewithout
restrictions under thefirstthree modes, according totheECSchedule. Thefollowing services would
seem tobeinvolved:
(a) Picking bananas andtransporting themtothepacking station .These wereservices
incidental toagriculture (CPC 88110).284
(b) Packaging atthepacking station .Thiswasapackaging service initsownright(CPC
87600) orpacking services incidental totransport (CPC 74).Itwasaservice supplied tothebanana
plantation ortothetransporter intheproducing country, nottotheretailer ortheinstitutional user
oreventoanother wholesaler intheEC.
(c) Overland transport toloading wharf. Thiswasaservice ofitsownrightasfreight
transportation byrailway (CPC 7112) orbytruck (CPC 7123) which wasrendered totheplantation
284Op.cit.,p.259.WT/DS27/R/USA
Page224
ortotheexporter, butnottheretailer intheEC. Similarly, anystorage orrefrigeration thatwas
necessary atthisstage wasdonewithaviewtopreparing goods fortransport bysea.Such services
weresupplied totheplantation owner ortothetransport company orexporters. Itwould beincorrect
toregard these activities asservices subordinate towholesaling byarguing thattheywerereferred to
inthedescription ofdistribution services. These activities werenotservices rendered totheretailer
intheframework ofwholesaling.
(d) Loading ontoshipandadministration connected thereto -other cargo handling services
under supporting andauxiliary transport services (CPC 74190). Allspecialized loading andunloading
services, stowage techniques, etc.,wereprovided intheportofexportation andtheportofimportation.
These wereservices rendered totheshipper ofthegoods ortotheocean transport company. Toregard
these activities asservices supplied totheretailer andinstitutional users aspartofwholesaling onthe
basis thatthisamounts toassembling, sorting, breaking bulk, etc.,wasunwarranted. These were
activities which wereinherent inevery ocean transport andwereperformed fordifferent kinds ofcargo.
There wasnoreason todistinguish them andtoregard them aspartofwholesaling. Indeed, itwas
stated explicitly intheCPCthattheseactivities werecargo handling, storage andwarehousing services
notsubordinated toselling andclassified indivision 74thereof.
(e) Ocean transport -transportation offrozen andrefrigerated goods (CPC 72121). To
qualify ocean transport asstorage, refrigeration services ordelivery service totheretailer orinstitutional
userwould imply thatMembers could dispense withalargepartofnegotiations onshipping services,
oncetheyhadliberalized refrigerated storage. TheCPCwasasystem ofmutually exclusive categories
andaspecific commitment wasvalid foraspecific category. Even ifservices maybelinked, asin
thecaseofadvertising andmarket research, forexample, onecould notuseliberalization inonesector
inorder toopenupasector which was(partially) closed. Ifthiswastrueforservice sectors which
corresponded toCPCnumbers, itmustbetrue,afortiori, foratermlike"delivery" which wasnot
defined anddidnotoccupy aCPC heading. TheECargued thataservices sector, suchasocean
shipping, could notbeopened upbymaking itinto"delivery" under wholesale trade services. Itwas
alsounacceptable todetermine whatconstituted wholesale trade services onthebasis thatacompany
regarded certain services asapackage ofwholesale services, including "delivery" bysea.Thescope
ofcertain services categories under theCPC, including wholesale services, could notvarywiththe
fortuitous industrial structure inaparticular sector, i.e.ifthere were large, integrated companies,
wholesale comprised everything between thebanana treeandthesupermarket, andifthiswasnotthe
case, wholesale covered onlythelaststage before retail. Such interpretation would leadtogreat
uncertainty inscheduling because commitments would beentirely dependent onthefortuitous structure
oftheservices company concerned.
(f) Discharge fromshipandrelated administrative services. Thepoints made under (d)
above refer.
(g) Land transport tothewarehouser/ripener .Thepoints made under (c)above refer.
(h) Ripening -Manufacture offoodonafeeorcontract basis (CPC 88411) .285Ripening
wasakindof(re-)manufacturing process, comparable toturning rawlumber intodimension lumber,
forwhich CPC 88411 wasrelevant.
(i) Repacking forretail. Thepoints made under (b)above refer.
285Op.cit.,p.259.WT/DS27/R/USA
Page225
(j) Advertising andPromotions -Planning, creating andplacement services ofadvertising
(CPC 87120).
(k) Transport toretail site. Thepoints made under (c)above refer.
(l) Retail. Retail salesoffruitandvegetables (CPC 63101).
4.662 TheECnoted thatitmight bepossible toregroup theservices mentioned separately above
under items (i),(j)and(k)andanyincidental storage thatmight occur atthose stages, intoaservice
called "wholesale trade services offruitandvegetables" (CPC 62221). Thiswaspossible toaccept,
onthebasis oftheintroductory notetoSection 6oftheCPC thatthese services might berelated or
subordinated totheactivity ofreselling bananas totheretailers assuchservices asdelivery services,
sales promotion, storage andsorting, grading andbreaking bulk(i.e.repackaging) were explicitly
mentioned.
4.663 Intheview oftheEC,ifitsinterpretation ofwholesaling under theCPC wascorrect and
wholesaling wasthe(re-)sale ofagood ready forconsumption toretailers andinstitutional users
(including some horizontal transactions withother wholesalers), thefollowing conclusions could be
drawn: (i)asregards Chiquita Brands, DelMonte, DoleFoods andNoboa, most, ifnotallofthese
companies probably didnotengage inwholesaling astheECdefined it;(ii)theEC'sgranting ofimport
licences didnotextend tothewholesale stage astheECdefined it;and(iii)noneoftheother services
referred toabove (paragraph 4.661) were affected bytheEClicensing rules.
4.664 TheComplaining parties responded thattheEC'sargument thatwholesaling waslimited to
activities thattookplace immediately priortotheretail stage wasnotsupported bytheCPCdefinition
ofwholesaling. TheEC'sclaim wasalsobased, according totheComplaining parties, onthefaulty
argument thatripening wasactually partoftheprocess ofproducing bananas. Thepoint oftheEC's
argumentwasnotclearsincetheEC'sscheduledcommitmentsappliedtowholesalingofallmerchandise,
notonlyfresh fruit. Thus, ifimporters were notdistributing bananas, theywere distributing some
othercommoditythatwasalsocoveredbytheEC'scommitmentsinwholesaletradeservices.Moreover,
theComplaining parties contended, theargument thatripeners were"producers" contradicted theEC's
ownregulations andstatements andwould havebizarre implications: (i)Regulation 1442/93 included
"production" ofbananas inactivity function (a)(primary importer) whereas ripening wasinaseparate
activity function, activity function (c);(ii)theEC's1994Report ontheECBanana Regime described
ripeners as"traders", not"producers" and,whereas ripening tookplace throughout theEC,thatreport
noted that"ECproduction wasconcentrated intheperipheral areas oftheEC..."286;(iii)ifripeners
were producers, theUnited States would betheworld 'sfirstorsecond largest producer ofbananas
because nearly allbananas consumed intheUnited States were ripened there. Yetthiswould be
inconsistent withtheEC'sposition thattheUSinterest asaproducer ofbananas wassosmall asto
justify excluding theUnited States altogether from thegoods portion ofthisproceeding; and(iv)if
ripeners were producers, theyshould beentitled toreceive compensation forlossofincome under
TitleIIIofRegulation 404/93; however, TitleIIIlimited compensation toentities located inthetropical
andsub-tropical ECregions inwhich bananas weregrown which wasafurther recognition thatripeners
were notproducers.
4.665 TheComplaining parties claimed further thatinarguing thatwholesaling didnotinclude trade
ingreen bananas, theECforgot thattheentire "banana regime" asitaffected imports, wasapplied
togreen, notyellow, bananas. Thetariff quota wasapplied togreen bananas; import licences were
286"Report ontheECBanana Regime", European Commission, July1994, pp.2, 4.WT/DS27/R/USA
Page226
licences toimport green bananas; thespecial export certificates issued bytheBFA countries were
certificates toexport green bananas; andsoforth. TheECalsoforgot that,inaworking document
leading uptotheadoption ofRegulation 1442/93 (which concerned activity functions), itdescribed
firms trading inbananas prior toripening as"wholesalers ofgreen bananas."287Itwasinconsistent,
fortheECthentohaveargued thatonlyyellow bananas were true"bananas," andonlytheycould
be"wholesaled".
4.666 Inthecontext ofitsconclusions contained inparagraph 4.663 above, theECrecognized that
itsimport licences covered green bananas andnotyellow ones.
4.667 TheComplaining parties continued thattheEChadcitedtheCPCdefinition inmaking its
national treatment commitments, andthatthisdefinition, which included allwholesaling, waslegally
controlled under theGATS. Ifthiswerenotthecase,significant distribution-related service activities
would notbecovered bytheGATS disciplines, depending onthewaysome chose touseterms with
respect toaparticular industry atanyparticular time. YettheGATS was,according totheComplaining
parties, intended tocover allmeasures affecting trade inservices.
4.668 TheComplaining parties noted theEC'sclaim thatitsspecific commitments forwholesale trade
services didnotinclude anybanana distribution services provided fromLatin America toEurope since
suchservices necessarily involved ocean delivery andnoGATS commitments inmaritime transport
services werecurrently applicable (paragraph 4.661(e) above refers). Thisargument ignored thefact
thattheECdefinition ofwholesale tradeservices included delivery. Inacross-border context, delivery
necessarily involved themovement ofmerchandise fromabroad intotheterritory ofaWTO Member,
which could occur byair,landorsea.Ofcourse, notallshippers were wholesalers. Ifashipping
company entered intoacontract todeliver somebody else'scargo safely across theseas,thatcompany
wassupplying maritime transport services, notwholesale trade services. If,ontheother hand, a
company bought thecargo, delivered it,resold ittoabuyer on-shore intheterritory ofanother Member,
andengaged inthetypes ofrelated activities listed intheCPCdefinition ofwholesale trade services,
these activities would clearly fallwithin thecomprehensive coverage ofcross-border wholesale trade
services. TheComplaining parties 'GATS caseagainst theECwasnotfounded onthetheory that
theEChaddiscriminated against United States orLatin American maritime transport operators, or
United States orLatin American maritime transport services, infavour ofECshipping companies or
ECocean transport services. TheECwould becorrect tooppose suchacaseontheground thatit
hadnocommitments inthatsector. Rather, theComplaining parties 'GATS casechallenged what
theECbanana regime haddonetothebusiness ofinternational wholesaling ofbananas intoandwithin
theEC. Thatbusiness included anocean delivery element. Many ofthelarge banana distribution
companies included overseas delivery asanintegral element oftheirpackage ofwholesaling services.
Likeanyother aspect ofwholesaling, theresale price ofthemerchandise reflected thevalue ofthis
element ofthewholesaling process. Delivery byseashould notbeexcluded simply because thatactivity
could beoffered asanindependent commercial service. TheCPC repeatedly defined services ina
waythatincluded subsidiary activities thatsome companies might perform asindependent activities
under other CPCcategories. Thecommercial services described intheCPCdidnotoverlap, although
many ofthephysical activities carried outbyfirms indifferent categories werethesame. Wholesalers
bought andsoldproducts. Thetransportation ordelivery theyengaged inorarranged forwasincidental
to,butinseparable from, theirbusiness astraders. Because suchtransportation wasnotoffered as
adiscrete "service" toothers, itcould notitself bedescribed asa"transportation service" anymore
thantheuseofatelephone could bedeemed "telephone services." Bycontrast, "transportation services"
entailed thediscrete service ofcarrying others 'goods from point topoint. Applied tothiscase, the
Complaining parties submitted thattheEC'sapproach wasinconsistent withthefactthatwholesale
287BANAN/TR/N/0015, 15May 1993, p.2.WT/DS27/R/USA
Page227
trade services consisted ofapackage ofactivities, alldirected toward bringing goods tothemarket.
Indeed, theCPCdescribed itinsuchterms, setting outacoreactivity (re-selling goods) andaninventory
ofrelatedactivities,explicitlyincludingdelivery,thatalladvancedtheenterpriseofwholesalingproducts.
4.669 TheComplaining parties claimed thattheECitself notonlyaccepted, butactually proposed,
thatwholesale trade services bedefined toinclude some transport services, suchasroadandrail
transport, thatmight beclassified elsewhere intheCPC ifperformed asaseparate service activity.
TheECargued, according totheComplainants, thatthePanel mustdrawthelineatthewater'sedge,
butprovided nological orprincipled reason whythisshould beso.TheCPCcontained nopreference
forrailandroaddelivery overocean delivery inthecontext ofwholesale tradeservices. Theactivities
associated withthedistribution ofbananas from abroad intotheEC,including ocean delivery, fitted
thetypeofactivities listed intheCPCdefinition ofwholesale trade services. Inaddition, theECwas
incorrect toargue thatunder theComplaining parties 'interpretation ofcross-border wholesale trade
services, thescope oftheservice would varyfromcommodity-to-commodity, depending onwhether
distribution wasdonebyvertically integrated firms ornot.Inavertically integrated chain, onefirm
would doallthewholesaling fortheproduct. Inanon-integrated chain, multiple firms would perform
thewholesaling. Buttheactivities would bethesame andtheywould allbewholesaling activities.
With respect totheEC'sclaim thattheComplaining parties hadnotdemonstrated which companies
wereactive inwholesale tradeservices (paragraph 4.660 above refers), theComplaining parties referred
totheirdiscussioninthesectionbelow(paragraphs4.676etseq.)enumeratingtheevidencedemonstrating
theLatin American andUnited States firms engaged inthissector.
4.670 Inresponse totheECargument thatComplaining parties 'definition ofwholesale tradeservices
included services that"stretch half-way around theworld", theComplaining parties observed thatit
wasthenature ofcross-border wholesale services thattheservice originated outside theparticular
Member atissue. Cross-border supply ofwholesale trade services included services associated with
buying bananas fromabroad andbringing them intotheEC.Thus, there wasaconnection totheEC
market inanyevent.
4.671 TheECresponded thatitneeded tobedetermined, ifthere existed ameasure inrespect of
services, whotheMember supplying theservice was(inthecaseofdirect trans-border services).
Article I:2(a) ofGATS wasconcerned withservices supplied from theterritory ofanother Member.
Thissubparagraph contrasted withsubparagraphs I:2(c) and(d)where theservice supplier wasrelevant.
Thiswasconfirmed byArticle XXVIII(f)(i) ofGATS. Thecomparison incross-border trade was
between likeservices from different Members, notbetween different service suppliers.
4.672 Inthecaseofthesupply ofservices through commercial presence, thequestion arose, according
totheEC,whotheservice supplier interms oftheGATS was. Inthisregard, there were certain
consequences resulting fromthedifferent structure oftheGATS, ascompared tothatoftheGATT.
TheGATS wasabout invisible trade. TheECargued thatonecould notrestcontent withassertions
from oneside, which stood asaprima facie case, iftheother sidedidnotcontradict these. The
complainants werenotinaposition tocontradict because theycould notgetatthefacts. Onemust
havemore clarity onwhether theservice providers ofacountry hadactually provided theservices
thatwereclaimed tobeatissue(e.g.demonstration ofstatutory goalofthecompany; invoices orother
proof showing thatthecompany concerned engaged intherelevant services trade). Intheview of
theEC,itwasunacceptable thatthePanel giveakindofadvisory opinion, suchas:"If,asseems
likely, service providers ofXwere performing service Y,themeasures ofMember Zarecontrary
totheGATS".
4.673 Another question was,according totheEC,where theservice transaction was. Itwasan
important prerequisite thattheservice besupplied "onthemarket andincompetition withothers".WT/DS27/R/USA
Page228
Onthispoint, thedocumentation provided byComplainants wasinadequate intheEC'sopinion.
Complainants asserted thatthegroups ofcompanies concerned bought bananas fromothers. According
totheEC,thisdidnotdemonstrate thatthesegroups provided theservices thatfollowed (i.e.thewhole
string ofservices thatComplainants listed) onthemarket. Thecompanies concerned probably "labelled"
thebananas andsoldthemastheirown,providing services essentially within thecompanies. According
totheEC,thesituation wasstillunclear. Complainants wanted toplayontwocourts atthesame time
byarguing, ontheonehand, thattheircompanies provided arange ofservices from thebanana tree
tothesupermarket andthatitwasallwholesale. TheECwasoftheviewthatithaddemonstrated
thatthiswasnotreasonably possible. First, thiswasnotaproper interpretation ofwholesale trade
services onthebasis oftheheading toSection 6oftheCPC. Services provided within thecountry
ofexportation werenotsupplied totheretailer orinstitutional userinEurope. Second, shipping was
abarrier, notonly forlackofcommitments butalsobecause ofthedefinition ofshipping in
Article XXVIII(f) ofGATS. Ashipping service wasnotanormal cross-border service: theflagof
thevessel wasdecisive orthenationality oftheperson supplying theservice through theoperation
ofavessel. Alternatively, theComplainants tooktheviewthattheircompanies werenotintegrated
butthatthisdidnotmatter since allrelevant services weresupplied insuccession byservice suppliers
and"were caused tobesupplied". TheECquestioned whoprovided these discrete services, when
andhow. Ifitweretruethattheintegrated companies caused theservices tobesupplied, theywere
nolonger inthebusiness ofwholesaling which wasconcerned withphysical distribution ofgoods and
notwithpaper transactions. TheECargued thattheComplainants wanted "tohavetheirservice and
eatit":therealservices were delivered byservice suppliers (ofunknown nationality, according to
theEC)but,inaddition, there wastheundefined term "delivery" which allegedly entitled the
Complainants 'companies tothebenefits ofthecommitments inthefieldofwholesale services.
4.674 Ecuador, Mexico andtheUnited States claimed that,inaddition towholesale tradeservices,
theEChadmade relevant national treatment commitments withrespect tofreight transportation
(CPC 71231) andrental ofvessels withcrew (CPC 72130). United States andother non-EC firms
provided thesetypes ofservices withrespect tobananas soldintheEConacommercial presence basis
(forfreight transportation) andacross-border basis(forrental ofvessels withcrew). Thediscriminatory
features oftheECbanana regime hadnegatively altered thecompetitive conditions under which non-EC
firms provided these related types ofservices aswell.
4.675 TheECresponded thatitwasmystified astohowtheComplainants concerned could make
anyclaims under theGATS inrespect offreight transportation andrental ofvessels withcrew. These
sectors werelargely unbound, i.e.there werenocommitments inthese services sectors made bythe
ECanditsmember States. Thismeant thatGATS Article XVII wasnotapplicable. Thefactthat
these sectors werementioned intheSchedule didnotmean thattheywere"inscribed" inthetechnical
sense ofacommitment having beenmade. Moreover, theComplainants involved hadnotaprima
facie casethattheirservice supplier hadattempted tobeactive inthesector where there were no
limitations onthethirdmode, namely rental ofvessels withcrew. TheECrequested thatunder these
circumstances theclaims inrespect ofthese twosectors must berejected bythePanel.
Operator category licence allocation
(a) Article XVII
4.676 TheUnited States recalled thatinitsview, aMember acted inconsistently withArticle XVII
ifthreeelements existed: (i)theMember hadundertaken acommitment intherelevant sector; (ii)the
Member hadadopted orapplied ameasure affecting thesupply ofservices inthatsector; and(iii)the
measure accorded toservices orservice suppliers ofanyother Member treatment lessfavourable thanWT/DS27/R/USA
Page229
thatitaccorded totheMember 'sownlikeservices orservice suppliers. According totheUnited States,
eachoftheabove elements waspresent inthiscase.
4.677 TheUnited States claimed thatwithregard tooperator category allocations, firms thatsupplied
distribution services forEC/ACP bananas were"like" those firms thatsupplied thesame services for
Latin American bananas. Their respective activities, equipment, types ofpersonnel employed and
marketing stages wereeither identical orvirtually soandtheextent towhich theyhadcompeted directly
witheachother intheECmarket hadbeenlimited onlybytherestrictive regulatory regimes established
bycertain member States (e.g.United Kingdom, France) andbytraditional marketing relationships
builtupovertime. Indeed, theECitselfhadrecognized thiscompetitive relationship andhadsought
torearrange itinfavour ofECsuppliers through itsoperator category allocations: "the[licensing]
allocation formula isintended ...tostrengthen thecompetitive position ofoperators whohavepreviously
marketedECorACPbananas,vis-à-vistheircompetitorswhohavepreviouslymarketedLatinAmerican
bananas ...".288
4.678 TheUnited States argued further thatparagraph 3ofArticle XVII indicated thatthe"treatment
nolessfavourable" element ofthenational treatment standard could beviolated evenwhere aMember
hadprovided toforeign service suppliers "formally identical" treatment tothataccorded toitsown
likeservice suppliers. Thatparagraph alsoindicated thataMember acted inconsistently withits
obligations ifameasure modified theconditions ofcompetition infavour ofservices orservice suppliers
oftheMember compared tolikeservices orservice suppliers ofanyother Member. Moreover, the
EC'soperatorcategoryallocationstreatedfirmsthathadmarketedLatinAmericanbananas(CategoryA)
lessfavourably thanfirms thathadmarketed ECorACP bananas (Category B).Regulation 404/93
awarded amajor portion (30percent)ofthethird-country tariffquota toservice suppliers inCategory B,
eventhough Category Boperators generally hadlittlehistory ofmarketing Latin American bananas.
There wasnoquantity setasidegiving Category Aoperators newmarketing rights forEC/ACP bananas.
According totheUnited States, thetablebelow made clearthatCategory Bservice suppliers hadbeen
predominantly ofECnationality.
288Written observations oftheCouncil oftheEuropean Communities before theCourt ofJustice oftheEuropean
Communities concerning theApplication forInterim Relief pursuant toArticles 185and186oftheEECTreaty, 14June 1993,
No.435564, p.15.WT/DS27/R/USA
Page230
Company Nationality/Ownership Principal Operator Category
Chiquita Brands
Dole Foods
Noboa
DelMonte
____________________
Uniban
BanacolUnited States
United States
Ecuador
Mexico289
________________
Colombia
ColombiaA
A
A
A
____________________________
A
A
Geest
Fyffes
Pomona
Compagnie Fruitière
CDB/Durand
Gipam
Coplaca
Bargoso SA
Others
_____________________
Jamaica Producers
Winban/WibdecoUnited Kingdom
Ireland
France
France
France
France
Spain
Spain
EC
_________________
Jamaica
Windward IslandsB
B
B
B
B
B
B
B
B
_________________________
B
B
4.679 Although theoperator category distinctions appeared neutral astonationality orownership
ofservice suppliers, theUnited States claimed thattheywere drawn insuchawayastoaccomplish
precisely thesame result asameasure based explicitly onnationality orownership. Thefigures in
thetablebelow made clear, according totheUnited States, thatoperator category allocations effected
atransfer ofmarket share forthemarketing ofLatin American bananas fromUS,Ecuadorian andother
non-EC/ACP firms toECandACP firms.
289TheUnited States submitted thatthere hadbeenrecent reports thatDelMonte might besubject toachange ofownership.WT/DS27/R/USA
Page231
Latin American Banana Imports
Principal Operator
Category2901990-92 Share 1994 Import Entitlement under
ECRegulation 404/93291
Category A Over 95% 66.5%
Category B Lessthan5% 30%
4.680 TheUnited States noted thatECJAdvocate General Gulmann hadfound that"[i]tis...a
factthattheRegulation 404/93 usesmeans -thetariff quota andparticularly thespecial rules for
allocating it-which significantly interfere withexisting patterns oftrade; market shares foroperators
incertain member States [i.e.member States inwhich third-country marketing firms wereprimarily
based] werereduced andconsiderable profit potential istransferred tooperators inothermember States.
Itwasinmyviewtobeforeseen thattheregulation would leadtoperceptible disturbances oftrade
inthemarkets which hadhitherto beenopen, suchasrising prices, falling turnover withtheconsequent
riskofredundancies, under-utilization ofinstallations bothforthefirms dealing directly withbananas
andthose transporting (shipping companies, ports andrailways) andripening bananas."292
4.681 According totheUnited States, theECdescribed itsapproach ofissuing licences toimport
Latin American bananas tothose whopreviously hadtraded onlyinECorACP bananas as"cross-
subsidization." TheECCommission hadbeenspecific astohowitachieved cross-subsidization for
itsfavoured domestic andforeign distribution firms bygiving them ashare ofthemarket theyhad
notearned: "The creation ofaquantity-restricted market through acombination oftariffs andquotas
results ininternal price levels above theworld price ....[T]his results inavalue being attached to
licences toimport (quota rent)....Reserving aproportion oftariff quota licences forthose operators
whohavemarketed ACP and/or ECbananas isameans oftransferring some ofthisquota rentto
them ...".293TheEChadthusacknowledged notonlythattheallocation formula wasintended to
strengthen thecompetitive position ofEC/ACP marketing firms vis-à-vis theircompetitors butalso
that"theallocation formula mayleadtoacertain redistribution ofrespective market shares".294
290TheUnited States noted thatthistable focused ontheactivity function of"primary importer". ECfirms'share of
rights toimport third-country bananas under thebanana regime grew evengreater ifonefactored inthelarge share ofrights
within Category Aawarded tofirms thatengaged intheother twoactivity functions specified inRegulation 1442/93.
291TheUnited States noted thatthefigures inthiscolumn were thetariff quota share percentages setdown inArticle 19
ofRegulation 404/93. Toreflect theexact respective import entitlement ofthetwosetsoffirms atissue, thefigures would
need tobeadjusted totakeaccount ofthesmall amount ofcross-over thatexisted between thetwodistribution segments.
Forexample, the1994 share ofimport entitlement forfirms ofprincipal operator Category Bwas30percent, plus1990-92
average volume ofthird-country bananas marketed bysuchfirms x0.665, minus 1990-92 average volume ofEC/ACP bananas
marketed byfirms oftheLatin American-banana distribution segment x0.30. Because thecross-over wassosmall, and
because thetwoadjustments tended tocancel eachother out,theadjustments would, intheview oftheUnited States, not
significantly alterthefigures listed inthiscolumn.
292OpinionofAdvocat eGener alGulmann, 8June1994, "FederalRepubl icofGermany v.Counci loftheEuropean Union",
26("Opinion oftheAdvocate General Gulmann").
293"Note forInformation -Impact ofCross-Subsidization within theBanana Regime", European Commission, pp.1-2.
294Written observations oftheCouncil oftheEuropean Communities before theCourt ofJustice oftheEuropean
Communities concerning theApplication forInterim Relief pursuant toArticles 185and186oftheEECTreaty, 14June 1993,
No.435564, p.15.WT/DS27/R/USA
Page232
4.682 TheUnited States noted thattheviews oftheECanditsmember States werefurther elaborated
byECAdvocate General Gulmann, aspartofhisopinion quoted above: "The [EC] Council does
notdeny thatthe30percentshare ofthequota involves atransfer ofresources totraders in
Community/ACP bananas ....TheSpanish Government mentions inthatconnection thatthetransfer
ofapartofthequota tooperators other thantraditional dealers inthird-country [i.e.Latin American]
bananas helps alsotoreduce thedominant rolewhich certain non-European companies haveplayed
inconnection withmarketing."295Thus, bytheEC'sownadmissions andthose ofitsmember States,
the30percentset-aside forECfirms andselected, foreign-based firms provided lessfavourable
treatment tonon-EC firms thattraditionally marketed Latin American bananas intotheECby:(i)
transferring quota rentfrom Category Aoperators toCategory Boperators; (ii)strengthening the
competitive position ofCategory Boperators vis-à-vis Category Aoperators; (iii)redistributing market
share from Category Aoperators toBoperators; and(iv)helping toreduce the"dominant role"
ofnon-European marketing firms. Insum,theallocation oflicences toCategory Boperators affected
thesupply ofaservice (wholesale trade services) forwhich theEChadmade anunrestricted national
treatment commitment, andaccorded lessfavourable treatment tonon-EC service suppliers thanthe
treatment accorded tolikeECsuppliers. Thisaspect oftheECbanana regime violated theEC's
obligations under Article XVII ofGATS.
4.683 Mexico claimed thatArticle XVII wasapplicable inthiscasesince theservices inquestion
(wholesale tradeservices, transport andrental ofvessels withcrew) wereincluded intheEC'sSchedule
withcertainconditionsandexceptions,andtheECregimeaffectedthesupplyoflikeservicesorsuppliers
oflikeservices (distribution, transportation, andmarketing ofbananas fromthecountry oforigin to
theEuropean consumer), according themtreatment thatwasformally different onthebasisoftheorigin
oftheproducts.
4.684 Mexico argued that,atthelevelofservice suppliers, thelessfavourable treatment accorded
bytheECregime toservices andservice suppliers ofother Members thanthetreatment itaccorded
toitsownservices andservice suppliers wasaresult ofthesame factors cited todemonstrate the
violation, atthelevelofgoods, ofArticle III:4ofGATT. Inother words, thelessfavourable treatment
resulted from thefactthattheEChadreserved 30percentofallimport licences forCategory B
operators (service suppliers whohadmarketed ECorACPbananas), withtheresult thatCategory B
operators wereservice supplier enterprises owned byEuropeans and,intwocases, byACPcountries.
Theincentive (orless-favourable treatment fornon-European service suppliers) given toEuropean
service suppliers through theCategory Boperators waseven more evident bearing inmind that
Category Aoperators (non-European service suppliers) would havetoreduce theirshare ofEuropean
imports from95percentin1992tothemaximum of66.5percentallowed tothemunder theECregime.
Thisredistribution ofthemarket wasnotarandom result oftheECregime butsomething thathad
evenbeenrecognized asapolicy objective bytheECitself.
4.685 Ecuador argued thatCategory Aoperators generally included service providers from third
countries while Category Boperators were generally composed ofACP andECservice providers.
Thefollowing table, submitted byEcuador, listed theprimary third-country andECservice suppliers
andshowed inwhich operator category these service suppliers fell:
295Opinion oftheAdvocate General Gulmann, pp.22-23.WT/DS27/R/USA
Page233
Company Nationality Principal Operator Category
Chiquita Brands United States A
Dole Foods United States A
NOBOA Ecuador A
DelMonte Mexico A
Geest (purchased byFyffes and
Wibdeco)United Kingdom B
Fyffes Ireland B
Pomona France B
Companie Fruitière France B
CDB/Durand France B
Gipam France B
4.686 Theservices provided bythethird-country operators ontheonehand andtheACP/EC
operators ontheother handwere, according toEcuador, virtually identical. However, theECregime
didnottreatthesetwogroups ofoperators inthesameway. Rather, theECregime effectively hindered
third-country operators while facilitating theaccess ofACP/EC bananas totheECmarket. TheEC
had,infact,admitted that:"the[licensing] allocation formula isintended ...tostrengthen thecompetitive
position ofoperators whohave previously marketed Community orACP bananas, vis-à-vis their
competitors whohavepreviously marketed Latin American bananas ...".296Ecuador considered that
Regulation 404/93 distorted competition intheservices sector byshifting 30percentofthethird-country
banana market toservice suppliers which previously hadnoinvolvement intheimportation, marketing,
anddistribution ofthird-country bananas. Thetableinparagraph 4.679 above illustrated, according
toEcuador, theextent ofthemarket disruption which Regulation 404/93 hadwrought.
4.687 Onthebasis ofthecitations contained inparagraph 4.681 above, Ecuador claimed thatthe
clearandacknowledged effect oftheoperator category allocation wastotransfer large portions ofthe
market fromthird-country suppliers toECandACPsuppliers. Thisdiscriminatory treatment ofthird-
country operators directly violated thenational treatment requirements ofArticle XVII ofGATS.
4.688 TheComplaining parties submitted thattheEC'simport allocations provided discriminatory
advantages toECandACP banana distributors even though theyappeared neutral ontheir face.
Transferring business opportunities fromimporters ofLatin American bananas toimporters ofEC/ACP
bananas andtocustoms clearers andripeners wastheequivalent ofanexplicit transfer toECandACP
firms. AtthetimeofRegulation 404/93, thevastmajority ofEC/ACP banana importers andcustoms
clearers andripeners were EC-orACP-owned firms. Articles IIandXVII ofGATS hadadopted
established GATT doctrine thatameasure neednotdiscriminate onitsfaceagainst imported products
inorder todiscriminate. TheSection 337panel report observed that: "Ontheonehand, contracting
parties mayapply toimported products different formal requirements ifdoing sowould accord to
imported products more favourable treatment. Ontheother hand, italsohastoberecognized that
there maybecases where application offormally identical legalprovisions would inpractice accord
296Written observations oftheCouncil oftheEuropean Communities before theCourt ofJustice oftheEuropean
Communities concerning theApplication forInterim Relief pursuant toArticles 185and186oftheEECTreaty, 14June 1993,
No.435564, p.15.WT/DS27/R/USA
Page234
lessfavourable treatment toimported products andacontracting partymight thushavetoapply different
legalprovisions toimported products toensure thatthetreatment accorded them wasinfactnoless
favourable."297
4.689 Itwasnocoincidence thattheterm"formally identical" which appeared intheSection 337
panel report reappeared inArticle XVII:2. Indeed, drawing onGATT precedent, paragraph 2of
Article XVII made explicit thatfacially neutral measures could provide lessfavourable treatment to
foreign service providers justassurely asexplicit discrimination based onthecountry oforigin of
theproviders. Insum, byadopting theGATT approach todiscrimination, theGATS negotiators
recognized that,overtheyears, theGATT haddeveloped acoherent andworkable testofwhatitmeant
todiscriminate. ThisPanel should employ thattestinapplying Article XVII ofGATS totheEC's
import licensing rules inthiscase.
4.690 TheComplaining parties claimed thatthecompanies thatcontrolled theUKmarket hadlobbied
hardforthemarket-share-transferring aspects oftheregime, fullyaware ofthewindfall these aspects
represented fortheirbusiness. Market investors andother observers universally hadrecognized the
economic advantages thattheECbanana regime represented forECfirms, suchasGeest andFyffes.
Those advantages weresosubstantial andsoobvious thatitwaspossible tochartthefirms’share prices
simply byobserving thestatus oftheadoption andimplementation ofthebanana regime. According
totheComplaining parties, inDecember 1992, when thedealtoestablish therégime wasstruck, share
prices ofGeest andFyffes rosesubstantially.298
4.691 TheECsubmitted thatArticle XVII ofGATS enjoined theECinthesectors inscribed inits
Schedule (according toComplainants, inthiscasethewholesale trading sector) nottogrant anyless
favourable treatment toservices orservice suppliers oftheComplaining parties thanitgranted toits
ownservices orservice suppliers. Such lessfavourable treatment could consist oftreatment which
modified theconditions ofcompetition infavour ofservices orservice suppliers oftheECcompared
toservice andservice suppliers oftheComplaining parties. Theonlydirect cross-frontier service that
might beinvolved wasocean-shipping ofbananas andtherewerenoMFN commitments inthissector.
Similarly, withrespect tothethirdmode ofservices supply, through commercial presence, iftheservice
sector concerned waswholesale trading, thissector wasnotcovered bytheECmeasures, which in
anycasewere measures relating togoods. Ifnevertheless itwere considered possible fortheEC
licensing system forbananas totouch thirdmode services activities related tobananas, theComplaining
parties would havetomake aprima faciecasethatcompanies owned orcontrolled bythemwere active
ontherelevant ECservices market andthatsuchcompanies didnotorcould notdeiureordefacto
fallunder thecategory ofoperators whomarketed ECbananas orunder anyofthecategories ofripeners
orsecondary importers. Suchaprima faciecasehad,intheopinion oftheEC,notbeenmade. The
remarks ontransferability oflicences thatweremade inparagraph 4.611 above werealsoapplicable
inthiscase.
4.692 Asconcerns "nationality" ofcompanies forGATS purposes, theECargued, incorporation
intheECdidnotnecessarily imply ECownership orcontrol within themeaning oftherelevant GATS
297"Section 337" panel report, para. 5.11.
298Financial Times, Bananas ,1September 1992; TheTimes, "European Import Deal ZipsUpGreat Banana Split",
19December 1992; Irish Times, 11February 1993; Lloyds List, "EC Banana Deal Sends Geest Shares Soaring",
16February1993. Similarreportsarefound at:Supermarketing,UK:"Banana Benefi tforGeest -ECQuotas",2April1993;
Supermarketing ,UK:"Super Marketing Share Watch: Sainsbury ’sandArgyll Bounce Back", 11December 1992; Lloyds
List, Eire: "Fisher Rumoured tohave Interest inFyffes Stake", 20April 1993; TheGuardian, "ECCourt PutstheSkids
under Germany inLatest Banana War", 30June 1993; Reuters Financial Service, "Banana Ruling SeenPositive forFyffes",
29June 1993.WT/DS27/R/USA
Page235
provisions. TheECwassuffering from thesame handicaps ofconfidentiality astheComplainants
andhence didnotmake general affirmations about company ownership. Itwould notbeacceptable
totheECifthisledtothePanel accepting without anyfurther proof theassertions oftheComplainants.
Moreover, theEChassubmitted evidence (supported bytheA.D. Little study) that,in1994, 28per
centofEC/ACP imports werecontrolled byChiquita, DoleandDelMonte. TheECreiterated that
Regulations 404/93 and1442/93 specifically excluded fromtheirscope bananas atthewholesale and
retailstage. Intheopinion oftheEC,theComplaining parties concerned hadnotmade aserious attempt
tosetoutwhich companies oftheComplainants involved wereengaging inwholesale trade services
offruitintheEC. Thetables inparagraphs 4.678 and4.685 above were notdemonstrably linked
towholesale tradeservices. Itsindications ofnationality andownership werenotcorroborated byany
evidence. Itsutilization ofthe"principal operator category" wasmisleading because itignored the
factthatmany ofthefirms concerned, andcertainly thethreelarge, integrated banana traders, received
considerable allocations ofbothAandBlicences. TheECclaimed thattheComplaining parties made
allegations which, atleastfortheUKmarket, wereincorrect orcontradictory. In1991, 137,739 tonnes
or28percentoftotalbanana imports intotheUnited Kingdom wereofLatin American origin which
represented 6percentoftotalLatin American banana imports intotheEC.TheECconsidered that,
inlightofthese figures, either thecompanies thatbrought bananas totheUKmarket werenotalmost
allowned orcontrolled byECinterests oritwasincorrect toclaim that95percentofLatin American
bananas were sourced anddistributed bycompanies owned orcontrolled byUnited States orLatin
American persons.
4.693 TheECargued thattheavailable evidence indicated that,withrespect totheassertions relating
tothealleged redistribution ofmarket share andquota rentsaswellasthecompetition policy reasons
underlying theallocation ofquota rents, companies which wereUnited States-owned orcontrolled had
notlostmarket share. Moreover, theyhadtheconsiderable advantage ofbeing abletoselltheirbananas
forprices which were higher intheECmarket thanontheworld market andinthiswayhadthe
possibilityofmakingahandsomeprofitontheirbananasfromCentralandSouthAmericawhichnormally
hadlower production costs thanACP orECbananas.
4.694 TheECsubmitted thatthere weregrowing indications thatDelMonte, originally claimed to
beaservice provider ofMexico, wasnot,ornolonger, aservice supplier ofthatcountry. There were
strong indications thatDelMonte hadbeensoldtoaPalestinian/Jordanian business group. Intheview
oftheEC,thiscould imply thatDelMonte wasnolonger aservice supplier ofMexico within the
meaning ofArticle XXVIII ofGATS, inparticular paragraphs (m)(ii) and(n)thereof. TheECargued
thatthisshould result intheincapacity ofMexico toadvance aclaim under thethirdmode ofservice
supply.
4.695 Mexico responded that,initsopinion -andthisopinion wassupported byseveral previous
panels -there wasnoneedforaMember todemonstrate adverse commercial effects inorder toclaim
thefulfillment ofobligations under theWTO byother Members. Tofollow suchcriteria would imply
thatMembers withmore trade would havemore rights thantherestoftheMembers. Andwhatwas
evenworse, thatthose Members thatdidnothavetrade, would never haverights, onlyobligations.
Ifoneconceded without accepting thatthere wasaneedtodemonstrate commercial effects inorder
toclaim Mexico 'srights under theWTO, itwould havebeennecessary toanalyze whether DelMonte
wasaMexican company when theECregime wasestablished, andnotwhether DelMonte wasstill
aMexican company. Otherwise, thepossibility thattheECregime could havebeensoharmful for
non-European companies thatsome ofthese companies hadpreferred togooutofbusiness would have
beenleftaside, oranargument could havebeenmade thataMember hadnorighttoclaim because
inthefuture itmight nothaveacompany trading itsproduct inagiven market. However, given the
interest oftheECinthismatter, Mexico noted thatDelMonte wasandcontinued tobe100percent
Mexican-owned.WT/DS27/R/USA
Page236
4.696 TheComplaining parties disagreed withtheEC'sassertion thattheyhadnotprovided prima
facieevidence ofaGATS violation. TheComplaining parties referred, interalia,to(i)Exhibit E
oftheirJointrebuttal submission, which listed thecompanies ofComplainants established intheEC
thatsupplied wholesale tradeservices forbananas, and(ii)theinformation setoutabove, which indicated
withspecificity thetypes ofwholesale tradeservices thatComplainants 'service suppliers engaged in,
and(iii)documentstheyhadsubmittedwhichdemonstratedthatComplainingparties’bananawholesalers
distributed bananas theydidnotproduce themselves. Withregard toanindication ofwhich activities
wereperformed bywhich companies intheEC,theEChadnotexplained whythistypeofdetail was
necessary toestablish aprima faciecaseunder theGATS. TheComplaining parties noted thatthis
typeofinformation wasverylikely toimplicate confidential business information. GATS Article III
bisprovided thataMember wasnotrequired tosubmit suchinformation. Moreover, theECdidnot
seriously question thefactthat,before Regulation 404/93 wentintoeffect, Latin American andUnited
StatesfirmsdistributednearlyallLatinAmericanbananasintotheEC,andECandACPfirmsdistributed
thevastmajority ofECandACP bananas intotheEC. TheComplaining parties observed thatthe
ECalleged thatthreemajor Latin American orUnited States wholesaling firms "controlled" 28percent
ofEC/ACP banana production in1994 citing theA.D. Little report (paragraph 4.610 refers). The
ECpurported tobasethisallegation onareport commissioned byanEuropean banana producer
association, buthadnotprovided thestudy ortheunderlying datacontained inittothePanel. More
importantly, the28percentfigure pertained totheperiod aftertheregime wentintoeffect andwas
thusirrelevant towhether theregime hadmodified competitive conditions. TheComplaining parties
noted further thattheA.D.Little report itselfindicated thattheshare ofECandACPbanana production
controlled bythethree main North American banana distribution companies prior totheECbanana
regime wasonly6percent. Ifoneassumed, arguendo ,thatthe6percentfigure wasaccurate, it
supported Complaining parties ’contention thatLatin American bananas andEC/ACP bananas were
distributed byseparate groups offirms prior toRegulation 404/93.
4.697 TheComplaining parties further questioned whether theEC'sarguments regarding sufficiency
ofevidence could betaken seriously when theEChadnotsubmitted anyofitsowninformation to
contest Complaining parties ’data,eventhough asadministrator ofthebanana regime itwasthekeeper
ofalldataonlicense allocations given tocompanies established intheEC,anddespite Complaining
parties ’requests during consultations forsuchinformation. TheComplaining parties alsoquestioned
howtheECcould plausibly saythatallofitsactions weremotivated bythedesire tocurtail the"Latin
American banana oligopoly", andthenclaim thatitdidnotknow whether these firms areengaged
intheECbanana market atall.Although maintaining thattheyhadprovided adequate information,
theComplaining parties offered toprovide additional information ifthePanel feltitrequired further
clarification toassist itsdeliberations.
4.698 TheECargued thatitsimport licensing system wasnotameasure related tothesupply of
services. Itwasameasure aimed atregulating theentry ofgoods intotheECmarket andtheallocation
oftherightofimportation ofthese goods among different operators. Even thecriteria ofallocation
were based onthequantities ofbananas marketed andnotonservices supplied. Inorder toobtain
licences under theCategory Blicence system, onehadtohavemarketed bananas onone'sownaccount
(Article 19ofRegulation 404/93) oras"owner" (Article 3.1ofRegulation 1442/93). Itdidnotsuffice
tohaverendered services inrespect tobananas. Forthisreason alone, theECargued, theattempt
toapply theGATS tothesystem ofCategory Blicences failed.
4.699 TheComplaining parties recalled theirargument inparagraph 4.623 above thattheregime
categorized firms bytheamount ofwholesale trade services eachsupplied, inthateachoftheactivity
functions were defined interms ofbuying andselling bananas intotheECmarket.WT/DS27/R/USA
Page237
4.700 TheECcontinued thattheComplaining parties triedtoincorporate thelicensing system into
theGATS withtheassertion thatitmodified competitive opportunities. TheECconsidered, however,
thatsuchassertion alone didnotdetermine whether ameasure wascovered bytheGATS instead of
theGATT. Firstithadtobedemonstrated thatthemeasure inquestion wasonethatconcerned not
goods butservices. IntheviewoftheEC,onecould notargue thatimport licensing ruleswhich clearly
concerned theimportation ofproducts became measures affecting trade inservices because licences
weredistributed tocompanies. Itwasobvious thatimport licensing ruleswerecovered bytheGATT
and,sincetheTokyo Round, bytheImport Licensing Agreement which werebothagreements ontrade
ingoods. There wasnoreason toassume thataftertheUruguay Round rulesonimport licensing had
suddenly become measures affecting trade inservices. TheECconsidered thatthekindoflicences
covered bytheGATS wasofafundamentally different nature thanimport licensing rules. Article VI:4
ofGATS referred to"licensing requirements" which should notconstitute "unnecessary barriers to
trade inservices" andwhich were"notinthemselves arestriction onthesupply ofaservice". Inthe
same way, Article XVIofGATS indicated thatthekindofrestrictions which could bemaintained,
interalia,through licences wereallinthenature ofrestrictions ontheprovision ofservices asservices.
Theimport licences atissue were notofthisnature.
4.701 TheECconsidered thatiftheimport licences concerned weretobeconsidered licences within
theambit oftheGATS, theyshould fallunder Article VI:4and5.Thelicensing requirements mentioned
inthatArticlewereofafundamentallydifferentnature,however,becausetheyrelatedto"thecompetence
andtheability tosupply theservice"; theyaimed toensure "thequality oftheservice" (Article VI:4
ofGATS). Import licensing requirements were notofthisnature; theywere measures relating to
goods.IntheEC'sview,ArticleVIofGATS,andthewayinwhichitapproachedlicences,demonstrated
thattheGATS wasnotintended tocover import licences atall.IfthePanel werenevertheless totake
another view, thatistosaythatimport licences were measures affecting trade inservices, thenthe
ECconsidered thattheimport licensing rules forbananas were covered byArticle VIofGATS. In
thatcasetheECwould beinthenon-violation situation ofArticle VI:5. Inthatcase,theComplaining
parties should, first,show thatlicensing requirements hadbeenusedsoastonullify orimpair specific
commitments oftheECinoneoftheways indicated inparagraph 4ofArticle VIand,second, that
thiscould nothavereasonably beenexpected oftheECwhen itmade itscommitments inthedistribution
services sector. TheECnoted thatwhen theECcommitments inthissector entered intoforce, the
ECbanana regulations anditslicensing system hadbeeninforce for1½years andthathence no
reasonable expectations onthepartoftheComplaining parties could exist.
4.702 TheComplaining parties contested theEC'sclaim thatthephrase "measures affecting trade
inservices" mustbeinterpreted narrowly toexclude import licences, andtoinclude onlythose licences
thatpertain toArticle XVIandthose described inArticle VIofGATS. According totheComplaining
parties, thetestforwhether ameasure wascovered bythenon-discrimination provisions ofGATS
Article XVII, andArticle II,waswhether themeasure affected trade inservices. Incontrast, tothe
extent thatGATS Article VIapplied togovernmental licences, itwasmeant primarily toaddress certain
non-discriminatory, butpotentially trade-restrictive, procedures pertaining totheissuance ofpermits
andlicences toengage inprofessional services. These obligations wereinaddition to,andseparate
from, thenon-discrimination rules applicable toallmeasures affecting trade inservices inscheduled
sectors. Thus, Article VIcould notbereadtorestrict themeaning ofthephrase "measures affecting
trade inservices." With respect toArticle XVI, theComplaining parties referred totheirarguments
above concerning thatarticle inthecontext ofthemeaning of"measures affecting trade inservices"
ofGATS Articles I:1andXXVIII(c) (seeparagraph 4.631).
4.703 TheECreiterated thattheobjective oftheoperator category system wastoensure thatthe
advantages thatACP countries hadenjoyed onthemarket oftheECweresafeguarded. Thebanana
producing countries, pursuant toProtocol 5oftheLomé Convention, wereinneedofsome mechanism
thatwould permit theirbananas tohaveafairchance tobesoldontheECmarket inviewoftheirWT/DS27/R/USA
Page238
higher production cost. Thiswasonlypossible bygiving importers ofACPbananas arighttoimport
apartofthetariff quota forbananas. Theimport licences weretransferable anddidnotnecessarily
allocate market share. TheonlywayfortheECtofulfil itslegal duties totheACP countries was
byworking through importers andinthiswayhavethedesired guarantees forACPproducers. What
wasgiven tothese importers wererights toimport bananas andthese wereclearly measures relating
togoods andnottotrade inservices. Insofarasthese rights affected wholesale services, sucheffects
were aconsequence oftheavailability ofgoods andhadtobeaccepted, insofarasthatlimited
availability wasaconsequence ofmeasures inconformity withthegoods agreements oftheWTO.
Suchsituations werecovered, intheopinion oftheEC,byfootnote 9toArticle XVI(2)(c) ofGATS,
which, according tothisfootnote, didnotcover measures ofMembers which limited inputs forthe
supply ofservices. The(re)distribution ofcompetitive opportunities inthesector ofwholesale services
wastherefore notatissue.
4.704 TheECrecalled thattwoquestions wererelevant forthequestion ofpossible discrimination
under Article XVII, namely whattherelevant market andwhattherelevant period were. According
totheEC,therelevant market wascertainly notthemarket forwholesaling Latin-American bananas:
itwaseither wholesaling fruitandvegetables orwholesaling bananas. Therelevant period started on
1January 1995withtheentry intoforceoftheGATS. Thesituations tobecompared werethose before
andafterthatdate.
4.705 TheComplaining parties responded thattwokeyfactual issues wererelevant tothequestion
ofwhethertheEC'simportlicensingrulesviolatedtheGATSnationaltreatmentandMFNrequirements:
(i)whatconditions ofcompetition hadprevailed inthecross-border anddomestic ECmarket forbanana
wholesaling services priortotheECbanana regime; and(ii)whether theECruleshadmodified those
conditions infavour ofdomestic andACPbanana wholesalers. TheECattempted todeflect attention
away fromthese fundamental inquiries bypointing tovarious ways inwhich theLatin American and
United States firms could endeavour torecoup some ofthebusiness theylostduetotheregime. The
ECasserted, according totheComplaining parties, thatNorth andSouth American banana importers
could buytherighttoimport backfrom theECfirms towhich theirformer share ofthemarket had
beenawarded, orinvest inplantations inECorACP areas andthereby starttogenerate theirown
Category Brights afterseveral years. Infact,iftheLatin American andUnited States firms hadto
buytheirbusinesses backitwasonlybecause theywere thevictims ofacontinuing discriminatory
market reallocation infavour ofECandACPfirms. Instarkcontrast, ECandACPfirms werepermitted
tocontinue theirtraditional contractual relations withECandACPproducers, andweregiven substantial
additional business intheLatin American banana sector. TheComplaining parties didnotagree that
traditional suppliers ofLatin American bananas didnotlosebusiness asaresult ofthebanana régime.
TheECitself hadpredicted suchaneffect inECCourt ofJustice proceedings. However, likethe
GATT, theGATS wasultimately notconcerned withactual market effects, since thiscould bethe
result ofmany factors other thanagiven measure. Instead, drawing fromGATT practice, theGATS
focused onwhether theregulatory framework established byameasure changed thecompetitive
environment inamanner thatserved toprotect domestic service providers. TheGATS thereby avoided
ananalytically dubious inquiry intoinvestment flows ormarket performance. Applying thetestthat
theGATS negotiators intended tobeapplied under Articles IIandXVII, bothofwhich were based
onGATT Article III,itwasclearthattheEC'sbanana framework hadradically altered pre-existing
conditions ofcompetition inthebanana wholesale services market infavour ofECandACP firms.
Themanner inwhich theregime altered thesituation thatexisted justpriortoitshowed thattheregime
wasdiscriminatory. There wasno"grandfathering" provision intheGATS thatwould permit Members
tomaintain discriminatory regimes uponentry intoforce oftheGATS inJanuary 1995. Thefactthat
theregime continued tothisdaybrought itwithin thedisciplines oftheGATS.
4.706 TheECargued thatanysystem ofquotas created quota rents. Given thattheagricultural sector
wasbeing liberalized largely byhaving recourse toasystem ofconsolidated tariff quotas, there wasWT/DS27/R/USA
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nodoubt thatquota rents would playacertain roleintheWTO system forsome timetocome. The
GATT contained norulesonthesharing outofquota rents. Obviously, theGATS hadevenlessreason
toinclude suchrules, astariff quotas ongoods didnotfallunder itsambit. Therefore itwaspushing
theGATS toofartoargue thatitwasintended toregulate government behaviour withrespect tothe
allocation ofquota rents. Anygovernment which instituted tariff quotas created awindfall ofquota
rents. Nobody hadarighttoaquota rentthatwasnewly created. There might berulesofdomestic
lawwhich governed thisproblem butthere were noapplicable rules inthelawoftheWTO. Itwas
inevitable thatinallocating quota rentthrough alicensing system, governments would alsoallocate
alimited amount offinancial power asbetween operators, butthiswastheunavoidable result ofhaving
atariffquota. Inthepresent case,byfarthelargest share ofthequota rent(66.5 percent)washanded
toestablished traders inbananas fromCentral andLatin America, including thetwolarge, integrated
United States owned banana trading companies. Ifasmaller amount ofthisquota rentwasgiven to
traders inbananas fromACPandECcountries, itwaspartly forreasons related totheEC'sobligations
under theLomé Convention 'sBanana Protocol, toensure thatthequantities forwhich access wasgiven
would alsobemarketed; partly forreasons related totheintegration oftheinternal market, toensure
thatmarketing ofACPbananas andLatin American bananas would notcontinue intwoclosed circuits;
andpartly forreasons ofcompetition policy, toensure thatnotallofthewindfall quota rentwould
endupwiththecompanies which already hadaverystrong oligopolistic position ontheECmarket.
Allthese reasons would, intheopinion oftheEC,seem tobeentirely consonant withWTO rulesor,
asinthecaseofcompetition, fallentirely outside thescope oftheWTO.
4.707 TheECsubmitted further thattheissue ofquota renttransfer wasonerelated tothegeneral
protection ofinvestment ortreatment ofcompanies andnottothesector ofwholesale services or
wholesale service suppliers. Therefore, quota rentswhich werelinked tothetransferable import rights
distributed through thelicensing system were notcovered bytheGATS. TheECclaimed thatthe
Complaining parties wereseeking ageneral protection ofcompetitive opportunities toinvestors and
notonewhich waslimited tocompetitive opportunities toprovide services. Competitive opportunities
inthefieldofwholesale tradeservices arose because ofcommitments (subject toArticle VIregulation)
andtherulesoftheGATS andneither thecommitments northerulescontained anything withrespect
quota rents. IntheviewoftheEC,itwasentirely legitimate toconsider afair(re)distribution ofquota
renttocounteract theconcentration ofsuch"windfall" inafew(already powerful) hands. Otherwise,
the"windfall" would begiven totheparty which happened tobeinthestrongest position onthemarket
atthemoment. According totheEC,itwasnotpossible toapply MFN ornational treatment principles
toquota rentanditwasnotnecessarily fairtousethecriterion oftheexisting trade patterns.
4.708 TheComplaining parties replied thattheEC'slicence allocation redistributed opportunities
toengage inwholesale trade. The30percentsetasideaswellastheallocations toripeners andcustoms
clearers gaveECandACPfirms themeans toenter thebusiness ofcross-border wholesaling ofLatin
American bananas. TheECeffected thistransfer ofcompetitive opportunities atthedirect expense
oftheLatin American andUnited States firms whose business ithadpreviously been. TheComplaining
Parties submitted thatthere wasnodifference between ameasure designed (intheEC'swords) to
‘strengthen thecompetitive position ’ofdomestic service suppliers (seeparagraph 4.677), andone
designed to‘modify theconditions ofcompetition infavor of’domestic service suppliers, asprovided
inGATS Article XVII. Because thetariffquota restricted theavailability ofbananas intheECmarket
itcreated quota rentsandthose rentswereawarded, alsoonadiscriminatory basis, along withbanana
import rights. Thefactthatsome quota rentswere(orwerenot)transferred along withimport rights
didnotchange thefactthatthetransfer ofbusiness opportunities from Latin American andUnited
States banana wholesalers toECandACP wholesalers modified theterms ofcompetition infavour
ofthelatter inviolation ofArticles IIandXVII ofGATS. TheComplaining parties disagreed with
theEC'sassertion thattheComplaining parties were attempting toprotect their Latin American
"investment" interests andnotservices interests within thescope oftheGATS. TheLatin American
andUnited States banana wholesalers provided wholesale trade services onacross-border basisfromWT/DS27/R/USA
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Latin American Members totheEC,andwithin theEC,inamanner directly covered byGATS
Article I:2(a) and(c),which concerned services provided onacross-border andcommercial presence
basis.
4.709 TheComplaining parties contested theEC'sclaim thatitsbanana régime wasimplemented
inpursuit oflegitimate, country-neutral goals, andwasnotaneffort todiscriminate onthebasis of
service suppliers. TheECclaim thatitwasmotivated bytheneedtoensure anintegrated market was
irrelevant asaGATS matter (andunsupported bythefacts). GATS Article Vgoverned market
integration. Article Vdidnotrelieve theECfrom itsnational treatment obligations, oritsMFN
obligations vis-à-vis ACPservice suppliers. TheEC'scompetition policy claim supported Complaining
parties ’contention thattherégime wasinfactintended toaltercompetitive conditions.
(b) Article II
4.710 Ecuador submitted thatprior totheimposition oftheECbanana regime, theoverwhelming
percentage ofallthird-country bananas imported intotheECwereimported, distributed andmarketed
bythird-country service suppliers, though theripening ofthese bananas waslargely performed byEC
operators. However, theECbanana regime fundamentally altered thispattern oftrade. Theoperator
category allocations setoutinRegulation 404/93 violated, according toEcuador, theMFN principle
byallocatingasubstantialportionofthemarketinthird-countrybananastooperatorsfromACPcountries
which hadnever before beeninvolved inthetransportation, marketing, andsaleofsuchbananas.
Theoperator categories setoutinRegulation 404/93 generally corresponded tothetwoclasses ofservice
providers described inparagraph 4.685 above. Category Aoperators included mainly service providers
from third countries, while Category Boperators were largely composed ofACP andECservice
providers. Although Category Aoperators imported virtually allofthethird-country bananas marketed
intheECprior totheimposition ofthebanana regime, Regulation 404/93 deprived these operators
of30percentoftheirmarket. This30percentshare wasreallocated toCategory Bservice providers
which hadnever before imported suchbananas. Notonlydidthisarbitrary reallocation unjustifiably
provide awindfall fortraditional ACPservice providers, butRegulation 404/93 provided nothing in
return tocompensate thethird-country service providers fortheirloss. Regulation 404/93 thusleft
thesheltered market forACPoperators intact while cutting themarket forthird-country service suppliers
almost inhalf. Intheopinion ofEcuador, amore direct violation oftheMFN principles setoutin
Article IIofGATS would bedifficult toimagine.
4.711 Mexico argued that,atthelevelofservice suppliers, theviolation ofArticle IIofGATS resulted
from thesame reasons asthose mentioned todemonstrate other violations, atthelevelofgoods, of
several Articles ofGATT. Inthiscase, theviolation ofArticle IIofGATS wastheresult ofthe
advantages granted toACPenterprises thathistorically marketed traditional ACPbananas andtherefore
wereregistered asCategory Boperators withalltheconsequent benefits thatthisimplied, i.e.exemption
fromtherequirement ofexport certificates when importing bananas fromBFAcountries andtheimport
licences granted tothem inaddition tothetariff quota intheevent ofnatural disasters (hurricane
licences).
4.712 TheUnited States argued thatthe30percentsetaside forCategory Boperators hadaltered
theconditionsofcompetitioninfavourofACPmarketingfirmsincomparisonwithothernon-ECbanana
distribution firms. Certain ACPbanana marketing firms (e.g.Jamaica Producers andWinban/Wibdeco)
hadbeenclearanddeliberate beneficiaries oftheoperator category regime. Because these firms had,
along withECfirms, traditionally marketed ACP-produced bananas forsaleintheEC,theywerehanded
partofthe30percentallocation reserved forCategory Boperators. United States, Ecuadorian and
other non-EC/ACP firms thathadhistorically marketed thevastmajority ofLatin American bananas
buthadmarketed fewACP(orEC)bananas soldintheECwerestripped ofaportion oftheirmarketWT/DS27/R/USA
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share, andthatportion wasawarded, inpart,tomarketers ofselected other countries. According to
theUnited States, theEChadconceded, andother neutral authorities hadrecognized, thattheoperator
category allocations were instituted toprovide, andhadthepredictable consequence ofproviding,
commercial advantage tothose non-EC marketing firms thathistorically handled EC/ACP bananas
ascompared tothose whohistorically handled Latin American bananas. Theallocation oflicences
toCategory Boperators thusprovided lessfavourable treatment toUnited States andotherthird-country
banana distribution firms thanwasprovided tolikeACPfirms andwastherefore contrary totheEC's
MFN obligations under GATS Article II.
4.713 TheUnited States noted thattheEChadmade noentries onitslistofMFN exemptions that
covered anyofthemeasures atissuewithrespect totheComplaining parties 'GATS claims. Although
theEChadobtained alimited waiver fromArticle IofGATT forimplementation ofcertain preferences
required under theLomé Convention withrespect togoods, thiswaiver didnotapply toanyofthe
EC'sobligations under theGATS.
4.714 TheECresponded thatArticle IIofGATS obliged theECtogrant nolessfavourable treatment
ofservices ofthird countries (first mode) andofservice suppliers ofthird countries (third mode).
Inthepresent case, asfarasthefirstmode wasconcerned, direct trans-frontier services withrespect
tobananas could notbetreated differently asservices whether theywereservices oftheComplaining
parties orservices ofanyoftheACPStates. Since theonlydirect trans-frontier service involved was
ocean shipping where there were sofarnoMFN obligations orcommitments, thiswasapurely
theoretical question. Where itconcerned thethirdmode, Article IIofGATS obliged theECnotto
treatservice suppliers oftheComplaining parties anydifferent thanservice suppliers fromanyofthe
ACP States. TheECrecalled thattheEClicence distribution system wasameasure affecting trade
ingoods andnotameasure affecting trade inservices (paragraph 4.703 above refers). Even under
theassumption thatthelicence distribution system wasameasure affecting trade inservices, the
Complaining parties hadtomake aprima faciecasethatthere were companies owned orcontrolled
bythem operating inthethirdmode ontheECmarket andthatsuchcompanies didnotorcould not
deiurefallunder thecategory ofoperators whomarketed traditional ACP bananas orunder anyof
thecategories ofripeners orsecondary importers. ThistheComplaining parties hadnotdone. But
evenifthiswere tobethecase, theECwasoftheview thattheComplaining parties hadnotbeen
abletocounter theargument thatthelicences inquestion weretradeable andtherefore could bebought
ifnecessary. AstheEChadargued above, suchbuying andselling oftradeable import licences was
aquestion ofshifting around thequota rent, which wasnotamatter covered bytheGATS (see
paragraph 4.707 above).
4.715 TheECconsidered thattheargument resorted tobytheUnited States inrelation toanalleged
lackofMFN treatment under theGATS wasanargument thattheEChadaltered theconditions of
competition asbetween marketing firms (probably wholesale trade services firms) ofACP bananas
and"other non-EC banana distribution firms". According totheEC,therealcomplaint oftheUnited
States wasabout theorigin ofthebananas, notabout theorigin oftheservices; inother words, the
dispute wasabout goods andnotabout services. Aswasdemonstrated inthesection on"Standard
ofDiscrimination: Article II"above, thealteration ofcompetitive conditions wasnot,intheview
oftheEC,partofthe"nolessfavourable treatment standard" under Article II:1ofGATS. Hence,
there wasnobasis fortheUnited States complaint onthispoint, quite apart from theother reasons
already mentioned above, forrejecting theideathatthequota allocation system hadadirect linkwith
thesupply ofservices assuch. Moreover, thecontested measures didnotcover thewholesale trade
services sector (seealsoparagraph 4.610 above).WT/DS27/R/USA
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Activity function licence allocation -Articles IIandXVII
4.716 TheComplaining parties recalled their claim, assetoutinparagraph 4.607, thatakey
componentthroughwhichtheECtransferredwholesaledistributionbusinessopportunitiestoitsdomestic
service suppliers were thethree "activity functions".
4.717 TheComplaining parties claimed thatthespecific shares chosen bytheECforthethreeactivity
functions gavethefalseimpression ofprecision orrationality. Infact,theEChadnever explained
howitarrived atthese particular numbers. Moreover, whereas theEC'sdirectives mentioned such
considerations aslevelofcommercial riskandscale ofbusiness activity, ithadnever explained how
these considerations justified awarding nearly halftheimport rights onthebasisofcustoms clearance
andripening. TheECthusmanipulated thetwofeatures ofthebanana regime described -theoperator
categories andactivity functions -tostripopportunities forLatin American banana distribution business
awayfromthefirms thathadtraditionally supplied nearly allLatin American bananas intotheECmarket
andawarded these opportunities totheircompetitors, which wereECorACP-owned companies. By
drastically altering competitive conditions inthismanner, these aspects oftheregime violated the
principles ofMFN treatment andnational treatment ofArticles IIandXVII ofGATS.
4.718 TheComplaining parties submitted thatinorder toassess whether theEChadimpermissibly
modifiedcompetitiveconditions,ArticleXVIIofGATSrequiredanexaminationof,first,thecompetitive
environment thatexisted atthetimeRegulations 404/93 and1442/93 (which established activity function
allocations) wentintoeffect, andsecond, whether theEChadaltered thatenvironment infavour of
itsownfirms. AtthetimeRegulations 404/93 and1442/93 tookeffect thesituation wasasfollows:
(i) Latin American andUnited States firms werevirtually alone inproviding cross-border
wholesaling services forLatin American bananas soldintotheECmarket. These firms purchased
thebananas fromLatin American suppliers, tookphysical delivery, assumed commercial risk,arranged
for,orperformed, ocean transportation andfound wholesale buyers forLatin American bananas sold
intotheEC.TheECdesignated thesefirms asprimary importers under activity function (a)andawarded
them only57percentofthose Latin American banana import rights notalready transferred toEC
orACP banana firms.
(ii) ThevastmajorityofbananaripenerswereEC-ownedfirms,frequentlysmall,andlocated
close toretail points ofsale. According toinformation submitted bytheComplaining parties, atthe
timetheECregime tookeffect, over80percentoftheEC'sbanana imports wereripened byEC-owned
firms. Ripening played noroleinactual importation. TheECdesignated ripening firms asperforming
activity function (c)andawarded them 28percentoftheimport rights forLatin American bananas.
(iii) Customs clearance forLatin American bananas wasperformed bydifferent types of
entities, suchas:(a)agents (generally ECnationals orfirms) onbehalf ofUnited States andLatin
American importers, insome cases technically taking titletothebananas forpurposes ofcustoms
clearance procedures; (b)larger ripeners, orentities related toripeners; and(c)theimporters
themselves. Customs clearance waslargely apaperwork exercise thatwasindependent oftheactual
physical andcommercial process ofimportation. Nevertheless, firms thathadperformed customs
clearance forLatin American bananas received 15percentofremaining EClicences forthose bananas.
4.719 TheUnited States claimed thatfirms whose activities wereclassified within thethreeactivity
functions were "likeservice suppliers". Each activity waspartoftheoverall wholesale distribution
chain forLatin American bananas soldintheEC.Therightgranted tofirms under thethree activity
functions wasthesame, i.e.therighttoimport Latin American bananas. TheEC'sgrant ofsuchrightsWT/DS27/R/USA
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placed firms engaging inthenamed activities indirect competition withtheothers fortheprovision
ofwholesale distribution services. Forexample, the28percentimport share gaveripeners themeans
toengage intheimport sideofthewholesale distribution business incompetition withthefirms from
which theirmarket share wasextracted.
4.720 According totheUnited States, theEChadexplained thatinestablishing theactivity function
allocations theCommission hadbeenguided by"theprinciple whereby thelicences hadtobegranted
tonatural orlegalpersons whohadundertaken thecommercial riskofmarketing bananas andbythe
necessity ofavoiding disturbing normal trading relations between persons occupying different points
inthemarketing chain".299TheEChadalsoexplained thattheweighting percentages (57/15/28 per
cent)forthethreeactivity functions weredesigned "totakeaccount ofthescaleofbusiness concerned
andofthecommercial risksincurred".300TheUnited States wasoftheviewthatnoneoftheserationales
provided asustainable basis fortheEC'sallocation ofbanana importation inamanner favouring its
domestic service providers. TheEChadnever stated whyitselected thecriterion ofcommercial risk
nor,sofarastheUnited States knew, hadtheECevermade clear howitdefined commercial risk
inthiscontext orwhatmethodology itusedtoassess suchrisk. TheEChadlikewise never disclosed
itsbasisfordeciding thatallimporters, customs clearers, andripeners assumed amarketing riskand
precisely howitallocated thepercentage ofriskbetween those three groups.301Similarly, theEChad
notexplained howthescale ofbusiness concerned wasanappropriate criterion forallocating import
licences andhowthiscriterion justified allocating over40percentoftheimport rights toactivity
functions (b)and(c).Activity function (c)required onlyamodest commercial investment andactivity
function (b)required none. Theoverwhelming majority ofcommercial investments required arose
inconnection withtheso-called primary importer activities. TheUnited States further observed that,
while theEChadalsoclaimed thatitsallocation ofimport rights forLatin American bananas wasmeant
toavoid disturbing normal trading relations, infacttheEC'soverall andspecific allocation schemes
werecalculated toradically rearrange thetrading relationships thatpertained prior totheimposition
ofthetariff quota.
4.721 TheComplaining parties argued thatthere werefewifanyindependent firms whose primary
business wasclearing Latin American bananas through customs. Thus, thisactivity didnotmeetthe
EC'sowntestforallocating according toactivity function, i.e.thattherules"ensure thatthevarious
types ofoperators whose specialized business activity isdirectly dependent onaccess tothequota enjoy
suchaccesswithoutanyconsequentdisruptiontonormaltradebetweenthevariousactorsinthemarketing
chain."302Itwasnotclearwhose "specialized business activity" theECwasreferring tointhecase
ofcustoms clearance. Rather, intheviewofComplaining parties, thesecondary importer category
wasanentirely artificial construction created bytheECtoshiftmore licence entitlement away from
theprimary importers. Although ripeners could beidentified asdiscrete commercial entities, their
market riskandscaleofactivity wereminor compared toprimary importers. Intheory, banana ripeners
thatobtained titletotheirfruitassumed theriskofprice drops thatmight occur inthefive-to-seven
dayperiod inwhich theyheldbananas. However, thisriskwasmore theoretical thanreal,since it
wascommonpracticeforripenerstorecoupfromtheprimaryimportersanylossesresultingfromsudden
price drops thatoccur overthose several days. Indeed, because oftheirminimal commercial risk,
299Regulation 404/93, recital 15.
300Regulation 1442/93, recital 3.
301TheUnited States remarked thatinthebanana distribution business, likethedistribution business forother fruit, it
wascommonly known thatcommercial risk"flowed backward". Firms further down thedistribution chain (such asripeners,
customs clearers) incurred vastly fewer commercial risksthanthose firms thatundertook toprocure andshipbananas from
overseas locations totheEC.
302Regulation 1442/93, recital 2.WT/DS27/R/USA
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ripeners generally didnotexperience thekindoflosses suffered byprimary importers during theperiod
oflowprices in1992-93. Bycontrast, thelong-term contracts andotherarrangements thatUnited States
andLatin American banana wholesalers concluded withLatin American growers made themvulnerable
tofluctuations inmarket conditions. Moreover, thescale ofcommercial activity involved inthe
marketing ofbananas from tropical growing areas toEurope wasvastly greater thanthatofbanana
ripening. TheECdescribed howripeners ripened bananas and"often carry outadditional controls
ofquality andre-packing before selling either towholesalers ortodistributors, suchassupermarkets."
Bycontrast, foragiven shipment ofbananas theprimary importers generally performed eachofthe
activities listed intheCPCdefinition ofwholesale tradeservices notjustonce, butmultiple times and
inmultiple locations, astheydistributed thebananas from thetropics toandthrough theEC. The
factthattheEChadnotexplained theactual percentage allocations between thethreeactivity functions
(orthediscrimination inherent instripping import rights onlyfrom USandLatin American firms)
confirmed thattheallocations werepolitically motivated, made indirect response toapolling ofthe
Member States, eachofwhich generally putforward allocations designed tofavor localinterests.
4.722 TheECresponded thattheactivity function allocation wasanother wayofdealing withthe
problem ofquota rentcreated bythetariff quota andthelicences. Theaimoftheactivity function
wasnottoconcentrate theeconomic value related toimport licences inafewhands orinonepart
ofthesupply chain. Otherwise, theprivileged recipients would receive a"windfall doseofpower"
andinfluence overtheir trading partners inthesupply chain. Forinstance, thedependence of
independent ripeners onthelarge, integrated banana trading companies, which wasalready great, would
havegrown considerably. Itwould havemeant afurther blow totheirnegotiating ability vis-à-vis
thesecompanies, which dominated thebanana tradetoaverygreatextent inlargepartsoftheEuropean
market. Itwasonthispoint thatconsiderations ofcompetition policy mostclearly entered intothe
ECbanana regime. Such considerations fell,intheopinion oftheEC,entirely outside theambit of
theWTO aswasclear from thepreparatory discussions fortheSingapore Ministerial Conference.
Thenotion ofcompetitive opportunities thathadplayed aroleforquitealongtimealready intheGATT
system hadnothing todowiththenotions ofdomestic orECcompetition policy, suchastheyentered
intoconsideration here, when deciding about thedesirability ofallocating thewindfall ofeconomic
bargaining power which automatically wentalong withtheallocation ofimport licences.
4.723 TheECrecalled that,initsview, theallocation ofimport quotas wasagoods-related measure
andthusnotcovered bytheGATS. Inrelation tothelicence allocation totheripening sector, itwas
theviewoftheECthatthemeasures atissuedidnottouch thesupply ofwholesale tradeservices since
thewholesaletradeservicessector,whichwasthesectorconcerned,wasthesectorfollowingtheripening
stage inthesupply chain. Insofarasthecaseunder Article IIwasbased ontheassertion thatthe
ECmeasures onactivity function allocation hadmodified theconditions ofcompetition, theECrecalled
thatArticle IIdidnotinclude thisnotion. Forthese reasons, theactivity function allocations were
notcovered bytheGATS or,otherwise, were inanycaseinconformity withArticles IIandXVII
ofGATS.
4.724 TheECsubmitted further thattheactivity function system which required onlyoneimport
licence asbetween thedifferent operators made itentirely possible tocontinue withtheexisting
relationships between so-called primary andsecondary importers andripeners. Iftheexisting business
relationships weremaintained, therequisite bananas could beimported byalicence somewhere inthe
chain (whether byaripener oraprimary importer). Theonlydifference would bethatthewindfall
quota rentwould notallgototheimporters andthattheindependent ripeners would have some
bargaining power vis-à-vis importers intending torelyontheripener 'simport licence. Intheopinion
oftheEC,noshiftincompetitive opportunities between importers andripeners occurred. Otherwise,
theposition ofprimary importers would havebecome evenstronger thanitalready was,because of
thewindfall ofquota rent. Thesame wastruemutatis mutandis forthesecondary importers. The
ECconsidereditentirelylegitimatetoaddresstheselikelycompetitiveconsequencesofitsownregulationWT/DS27/R/USA
Page245
intheregulation itself. There wasnoneedtoawait individual abuses oftheincreased bargaining power
ofprimary importers inorder toact.
4.725 TheComplaining parties replied thattheEC'sjustification wassimply aposthocexplanation
forprotectionism. TheComplaining parties argued: (i)theECcould haveaddressed suchconcerns
through itscompetition laws, which werethenormal route foraddressing competition issues andwhich
hadpreviously beenusedbytheECwithout hesitation inthebanana trade; (ii)theECdidnotmention
competition concerns oroligopolies inanyoftherelevant directives, the1995report ontheoperation
ofthebanana regime, orduring thesecond banana GATT panel proceedings; (iii)theLatin American
banana distribution sector wasinfactmore competitive thanthedistribution sector forother fruitfor
which theEChadnotconstructed comparable discriminatory regimes; (iv)theECdidnotimpose
thesame import restrictions ondistributors ofACP bananas eventhough themarkets inwhich the
ACP bananas were primarily sold, France andtheUnited Kingdom inparticular, were notoriously
non-competitive; (v)theactivity function allocations didnotpromote competition inanyevent; and
(vi)theECtransferred import opportunities away from allUSandLatin American wholesalers,
regardless oftheircompetitive position intheECbanana wholesale market.
4.726 TheECwasoftheviewthatithadshown thatitsconcerns regarding competition wereexplicitly
mentioned inthepreambular paragraphs oftherelevant acts.TheEClegislator considered thatitwould
leave ripeners andspecialist customs clearers inadifficult position ifcooperation withthem wasnot
necessary inorder toimport thetariff quota bananas intotheEC.They weregiven some bargaining
power toremedy thissituation andsince theripening sector hadalways beenpenetrated byforeign
suppliers ofripening services orofripeners fortheaccount ofintegrated firms (around 20percent,
according totheEC), itwasverydifficult toseewhatdefacto discrimination might haveoccurred.
Competition concerns werenotraised inthesecond banana panel because theactivity function system
wasnotatissue inthatcase.
4.727 TheComplaining parties submitted thattheEC'sclaim thattheactivity function allocations
werenecessary toprotect downstream entities wasbased oneconomically unsound reasoning. There
wasnoeconomic difference, insofarasripeners wereconcerned, between theprimary importers in
factimporting thebananas andprimary importers being allocated thelegalrighttodoso.Bycontrast,
allocating asignificant share oflicences toripeners didalterexisting economic conditions byaffording
theripeners themeans toenter thecross-border banana wholesaling business. Ifaccess tobanana
imports wascritical fordownstream firms under thetariffquota, whydidtheECchoose nottoprovide
allocations tocustoms clearers andripeners withrespect totheirimports ofACP bananas? Thefact
thattheECdidnotallocate licences toimport ACP bananas suggested thatthose firms were not
disadvantaged bythetariff quota inthefirstplace.
Hurricane licences -Articles IIandXVII
4.728 Ecuador recalled that,sincetheinception ofthebanana regime, theECCommission hadmade
available atotalof281,605 tonnes ofsupplemental "hurricane" licensing entitlements exclusively to
CategoryBoperatorsandproducers.Volumesimportedusinghurricanelicenceswereusedincalculating
afirm'sfuture entitlement tolicences asaCategory Boperator. Nocomparable licence replacement
benefit hadbeenconferred onCategory Aoperators. Hurricane licences which weregenerally either
soldorusedtoimport Latin American bananas essentially increased theentitlement ofCategory B
operators above the30percentgiven tothem under Regulation 404/93. Theadditional volume
represented byhurricane licences gave Category Boperators adistinct commercial advantage in
comparison toCategory Aoperators. Ecuador considered thatthemeasure hadskewed theconditions
ofcompetition infavour ofECandACPservices andservice suppliers incomparison tolikeservices
andservice suppliers oftheUnited States, Mexico andEcuador. Assuch, themeasure wasinconsistentWT/DS27/R/USA
Page246
withtheEC'snational treatment obligations under Article XVIIofGATS andtheEC'sMFN obligations
under Article IIofGATS.
4.729 TheUnited States noted thattheECCommission hadgranted hurricane licences toCategory B
distributors andproducers entitling themtoimport bananas fromanysource. These bananas entered
overtheestablished third-country tariff quota. Operators usedthese licences primarily toimport
additional Latin American bananas, inlightoftheotherwise restrictive tariffquota applicable tothese
bananas. Bananas imported using hurricane licences were counted incalculating afirm’sfuture
entitlement toCategory Blicences under theEC'srolling three-year reference period. Nocomparable
benefit hadbeenconferred onCategory Aoperators. TheUnited States wasoftheopinion that,by
accordinglessfavourabletreatmenttonon-ECservicesuppliersascomparedtolikeECservicesuppliers,
hurricane licences wereinconsistent withtheEC'snational treatment obligations under Article XVII
ofGATS. Byaccording lessfavourable treatment tonon-EC/ACP banana distribution firms vis-à-vis
likeACPdistribution firms, these licences werelikewise inconsistent withtheEC'sMFN obligations
under Article IIofGATS.
4.730 TheComplaining parties submitted thattheEC'sgrant ofhurricane licences onlytofirms
thathistorically traded inECandACP bananas (Category Boperators) represented afurther
discriminatory allocation toECandACPcompanies oftherighttoimport Latin American bananas.
While firms thattraditionally traded inACPbananas were eligible forhurricane licences, United States
andLatin American banana wholesalers werenot.TheEC'shurricane licence allocation scheme thus
represented, according totheComplaining parties, afurther discriminatory alteration oftheterms of
competition inthewholesale bananas services market. TheEChadacknowledged thatanyBoperator,
notonlybanana farmers, could receive hurricane licences: "...nothing ismore natural thanattributing
these licences tothespecific operators whocandulyshow alosttrade because ofthehurricane that
isamong those whotradeinACPtraditional bananas. These operators mustequally show they'include
ordirectly represent303aspecific banana producer affected bythetropical storm concerned '."
4.731 TheECreplied thathurricane licences werelicences toimport additional quantities ofbananas
(from anywhere) forthose whowerepartofthepreferential system infavour oftheLomé countries
andwhohadsuffered demonstrable damage from hurricanes which made itimpossible forthem to
filltheirnormal, guaranteed quantities under theLomé preference. Suchcompensatory licences had
beengranted bytheFrench andBritish authorities before thecreation oftheECbanana regime and
hence hadtobemaintained pursuant totheguarantees given intheBanana Protocol totheLomé
Convention andthepertinent declaration contained inAnnex LXXIV oftheLomé Convention. Since
theyserved toimport goods, namely bananas, hurricane licences didnotrelate tothesupply ofservices
orthetrade inservices. Itwasequally unclear howhurricane licences related totrade inwholesale
services. Hence, theywerenotcovered bytheGATS andinanycasecould notbecontrary toArticles II
andXVII thereof.
4.732 Asdescribed above, theComplaining parties argued thattheEC'sLomé waiver waslimited
togoods andwasinapplicable toGATS obligations.
Export certificates -Articles IIandXVII
4.733 Ecuador argued thatthespecial export certificate procedures violated Articles IIandXVII
ofGATS. Theprinciples ofArticle IIandXVII weredirectly violated bytherequirement setoutin
theBFAandRegulation 478/95 thatCategory AandCoperators, butnotCategory Boperators, apply
303Regulation 2791/94, Article 2.1.WT/DS27/R/USA
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foraspecial export certificates toimport bananas fromtheBFAsignatory countries. Obtaining special
export certificates imposed asignificant administrative burden onCategory AandCoperators and
forced these operators toincur largeadditional transaction costswhich Category Boperators werenot
required tobear. These costsarose inpartfromthefactthatCategory AandCoperators fromnon-BFA
signatory countries frequently hadtopurchase thespecial export certificates fromthose producers and
service suppliers inthesignatory countries which wereawarded special export certificates fromtheir
national governments. Thisprocess essentially forced theCategory AandCoperators, butnotthe
Category Boperators, tosubsidize theBFAentities which soldtheexport certificates. TheEChad
recognized thatthespecial export certificates "help [BFA] supplying countries toshare intheeconomic
benefits ofthetariffquota."304Additional administrative costswereincurred bytheCategory AandC
operators toensure thattheoperators could match theimport andexport certificates inorder toimport
BFAbananas intotheEC.
4.734 Ecuador noted thatfirms thatwereprincipally Category Bservice suppliers werecomposed
virtually entirely ofECandACPfirms, while Category Aservice suppliers consisted ofthird-country
firms.Thus,theadditionalcostsimposedonCategoryAandCservicesupplierswere,defacto,imposed
inadiscriminatory manner onthebasisofthenationality oftheservice orservice suppliers. Thespecial
export certificate requirement consequently imposed costs onthird-country service suppliers butdid
notimpose similar costs onECandACP firms. Thespecial export certificate system thusdirectly
violated, according toEcuador, theMFN andnational treatment requirements oftheGATS.
4.735 Mexico argued thattheECregime violated Article IIofGATS because itprovided thebenefit
ofthequota rentfrom export certificates onlytothesuppliers ofservices ofBFAcountries andnot
toallservice suppliers oftheother Members, because enterprises marketing non-ACP bananas faced
anadministrative licensing system which wasextremely complex andcostly andwhich wasnotapplied
toenterprises marketing ACP bananas.
4.736 TheUnited States noted thatECRegulation 478/95 implemented provisions oftheBFAby
requiringthatCategoryAandClicence-holderstopresentexportcertificatesasaconditionforimporting
bananas fromthree ofthefourBFAcountries (Colombia, Costa RicaandNicaragua).305Category B
licence-holders (i.e.predominantly ECandACP firms) were exempted from thisrequirement. The
requirement toobtain andpresent anexport certificate forbananas sourced incertain countries added
expense andadministrative burden forfirms thatimported Latin American bananas totheEC.
Category Aapplicants hadtoobtain certificates fromtheauthorities oftheexporting country andhad
tomatch these certificates withanimport licence entitlement obtained fromtheECbefore theycould
import bananas fromthesecountries. Bothstepsentailed substantial administrative andfinancial costs.
Forexample, Category Aoperators frequently hadtopurchase export certificates fromproducers or
marketing firms intheproducing countries. Category Boperators, inapplying forlicences toimport
Latin American bananas from thesame source countries, were freeofsuchburdens.
4.737 According totheUnited States, theEChadrecognized thecommercial effect oftheexport
certificate requirement. TheECCommission hadexplained thatRegulation 478/95 'sdelegation of
authority toissue export certificates totherelevant exporting countries wasmade inorder to"help
[BFA] supplying countries toshare intheeconomic benefits ofthetariff quota."306Theeconomic
benefits towhich theECCommission referred were ashare ofthequota rentassociated withthe
304"Report ontheECBanana Regime", European Commission, July1994, p.12.
305Regulation 478/95, Article 3.2.
306"Report ontheECBanana Regime", European Commission, July1994, p.12.WT/DS27/R/USA
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marketing ofLatin American bananas. Entities intheBFAcountries realized these quota rents by,
forexample, selling theexport certificates toCategory Aoperators. Byexcluding Category Blicence-
holders from theexport certificate requirement, theECensured thatBFAcountries ’share ofquota
rentwould come onlyfromCategory A(andC)operators. Thus, theEChadnotonlygiven Category B
firms 30percentoftheLatin American tariff quota, buthadalsomade itmuch easier andmore
financially profitable forCategory Bfirms tomarket thisshare ascompared toCategory Afirms.
TheEC'sselective application ofanexport certificate requirement accorded, intheopinion oftheUnited
States, lessfavourable treatment tonon-EC banana distribution firms ascompared tolikeECfirms,
andwastherefore inconsistent withtheEC'snational treatment obligations under Article XVIIofGATS.
Thisfeature oftheECbanana regime alsoaccorded lessfavourable treatment toUnited States and
other non-EC/ACP banana distribution firms vis-à-vis likeACPfirms andwastherefore inconsistent
withtheEC'sMFN obligations under Article IIofGATS aswell.
4.738 TheComplaining parties submitted thattheEC'srequirement thatcertain types ofoperators
hadtoobtain export certificates, inaddition toimport licences, inorder toimport bananas fromthree
oftheBFAcountries, amounted tofurther lessfavourable treatment forLatin American andUnited
States banana wholesale service suppliers beyond thatcreated bythe30percentsetaside. TheEC
required export certificates fromfirms thattraditionally traded inLatin American bananas (Category A)
butnotfrom firms thattraditionally traded inECorACP bananas (Category B).ACategory A
licence-holder 'sneedtoobtain export certificates fromauthorities intheBFAcountries andtomatch
thecertificates withEC-issued import certificates entailed substantial administrative andfinancial costs.
ACategory Blicence-holder could import thesame bananas from thesame BFA countries without
having toincur these costs. Thus, theEC'sexport certificate requirement accorded acompetitive
advantage toEC/ACP firms (Category B)inrelation toLatin American andUnited States firms
(Category A).TheECdidnotexplain whyitrequired export certificates onlyfrom Category A
operators, thatis,predominantly United States andLatin American firms, butnotCategory Boperators.
IntheviewoftheComplaining parties, theexport certificate requirement, likethe30percentset-aside
forECandACPwholesalers, directly altered theterms ofmarket competition infavour ofthose same
companies byimposing import costs solely onLatin American andUnited States firms. Theexport
certificate requirement thusequally violated Articles IIandXVII ofGATS.
4.739 TheECreplied thattheComplaining parties 'approach totheso-called discrimination relating
toexport certificate requirements rested onanumber ofassumptions which wereunwarranted orwere
insufficiently established. First, theComplainants assumed thatthemeasures concerning export
certificates were measures relating tothesupply ofservices ortotrade inservices. Intheopinion
oftheEC,there could benodoubt thatregulations concerning theexport certificates related totrade
ingoods. Anexport certificate wasadocument showing thatacertain good hadbeenexported from
acertain country. Itwasnotcertifying thataparticular service hadbeenexported fromthatcountry.
Hence, rulesinrespect ofexport certificates didnotcome under theGATS. Second, theECreiterated
thatneither theGATT northeGATS contained anyruleswithrespect totheallocation ofquota rents.
Theexport certificate requirement wasthebestexample thattheComplaining parties, oratleasttheir
service suppliers, were interested primarily inquota rents. They protested against aburden which
hadbeenimposed onother countries thantheirown, which, atleastwithrespect tothespeed with
which onecould dispose ofone'sbananas, wasanadvantage tosome oftheComplaining parties.
Itappeared totheECthatitwasthequota rentthatwastheproblem, notthepossibility toprovide
services. Third, theComplainants seemed toassume thatCategory Alicence-holders wereallnon-EC
andnon-ACPownedandthatCategoryBlicence-holderswerealleitherECorACPownedorcontrolled.
Intheview oftheEC,Category AandBlicences were spread overbothcategories ofownership.
Therequirements withrespect toexport certificates were, intheopinion oftheEC,notcontrary to
Articles IIandXVII ofGATS.WT/DS27/R/USA
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V. ARGUMENTS PRESENTED BYTHIRD PARTIES
ACP THIRD PARTIES
Introduction
5.1 Belize,Cameroon,Côted'Ivoire,Dominica,theDominicanRepublic,Ghana,Grenada,Jamaica,
Saint Lucia, Saint Vincent andtheGrenadines, Senegal, andSuriname (the"ACP third parties")
submitted thatnotallofthe70ACP States which weresignatories totheLomé IVConvention (the
"Lomé Convention") wereinvolved intheproduction ofbananas andtheirexport totheEC.However,
theissues atstakeinthisdispute wentbeyond bananas. They concerned theinterests ofallACPStates,
whether banana producing ornot,which were Members oftheWTO andbenefited from theLomé
Convention andtheLomé waiver. Moreover, forthose Caribbean andAfrican ACPStates which were
involved intheproduction andmarketing ofbananas, itwasanessential aspect oftheirlivelihoods.
Thebanana industry provided highlevels ofemployment andfundamental transport andcommunication
infrastructure inthesecountries. Inaddition, forallbanana producing ACPStates, butespecially those
which were islands, theweekly shipping service which thebanana industry provided wasalifeline
without which many oftheirother industries would collapse.
5.2 Thenational regimes which operated before theintroduction oftheECbanana regime afforded
significantly greater protection totheACPbanana growers thanthecurrent regime. Latin American
bananas wereadmitted tosupplement ACPsupplies involumes thatwould notdeprive ACPbananas
ofaremunerative return from themarket. Under itsbanana regime, theEChad,forthefirsttime,
imposed quantitative limits onduty-free imports fromtheACPStates which werenotnecessitated by
theLomé Convention. Thehighest volume ofexports from traditional ACP countries amounted to
919,606 tonnes (FAO) or,providing forcorrections inthecases ofCameroon andCôte d'Ivoire,
940,000 tonnes. Thiscompared totraditional duty-free imports fixedatamaximum of857,700 tonnes
inRegulation 404/93. These figures didnotsuggest a"design toshift" banana supplies from Latin
American bananas toACP andECsources.
5.3 TheACPthirdpartiesarguedthattheestablishmentofacommonmarketorganizationforbananas
intheECwascomplicated byseveral factors. First, thecosts ofproduction intheECandtheACP
States weregreatly inexcess ofthecostsofproduction ofLatin American bananas. InEcuador, costs
ofproduction were approximately US$2.95 perboxcompared toapproximately US$12.38 perbox
inMartinique. ACP costs ofproduction reached uptoUS$10-11 perbox. Secondly, ACP andEC
producers facedotherinherent disadvantages which necessitated asystem, suchastheCategory Blicence
arrangement, inorder toensure continued production, distribution andmarketing intheEC.These
disadvantages included thefollowing:
(i) Severely limited export capacity: Oneofthekeyfinancial considerations inbanana
importation wasshipping cost. NoACPStateproduced aquantity ofbananas which allowed
foroptimal shipping efficiency. Thelimited production capacity oftheACPStates meant that
anyshipwasinvolved inuptofourportloadings pervoyage. Apart fromtheresulting extra
costandtimedelay, thisalsoledtouneconomic useofholdspace.
(ii) Limited production resulting inadditional overhead costs: Thelimited production
capacity intheACPStates increased significantly theoverhead costsofcompanies producing
orpurchasing bananas from these sources.WT/DS27/R/USA
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(iii) Increased riskofclimatic disasters anddisastrous consequences ofproduction shortfalls:
AllACPbanana producing regions werevulnerable toclimatic hazards suchaschill, floods,
blow-downs, disease andmostparticularly, hurricanes. Thebanana producing islands ofthe
Caribbean weremostvulnerable tosevere disruptions duetoclimatic conditions. Similarly,
production inCôted'Ivoire wasfrequently adversely affected byheavy rains andtornadoes.
(iv) Inability tobenefit fullyfromproductivity gains: Thelimited volumes ofproduction
(whether duetothesizeoftheallocation orphysical constraints) imposed dis-economies of
scale. Thelimitation onaccess fromACPsources restricted theability toimprove productivity
perhectare andthereby reduce unitcosts ofproduction.
(v) Inability tomarket ACP bananas throughout theEC:With theexception perhaps of
Spain, theconsumers inthe15member States oftheECwere familiar withthesize,shape
andtrademarks associated withLatin American bananas. Ontheother hand, wholesalers in
some markets wereunfamiliar withACPbananas andhad,todate,shown acomplete reluctance
tohandle suchfruit.
5.4 Thirdly, theACP thirdparties claimed thatthebanana market washighly concentrated and
oligopolistic. Priortotheintroduction ofRegulation 404/93, tworelatively distinct markets forbananas
existed intheEC:ECandACPbananas weresoldprimarily inthemarkets ofItaly, Portugal, Greece,
theUnited Kingdom, Spain andFrance; Latin American bananas accounted forapproximately 2million
tonnes andpredominated intheNorthern European countries ofGermany, theNetherlands, Belgium,
Luxembourg andIreland.
5.5 TheACPthirdpartiesclaimedthattheLatinAmericanmarketsweredominated,fromproduction
toripening, bythree multinational companies which hadaunique levelofvertical integration from
source toretail level. European legislators 'concern about thepotential formarket abuses orexisting
marketdistortionsasaresultofthestrengthofsuchintegratedcompaniesintheproductionandmarketing
ofLatin American bananas washeightened bythefactthatthelargest ofthesecompanies hadalengthy
history ofabuses ofitsmarket power. Incontrast tothevertical integration oflarge multinationals
intheECmarket forLatin American bananas, theECmarket forECandACPbananas was,despite
thesignificant presence ofbothDole andDelMonte, fragmented andnotable foritslackofvertical
integration. Moreover, theECandACPbananas weredependent ontheindividual markets intowhich
theyhadtraditionally supplied theirbananas.
5.6 These differences inmarket structure meant, intheviewoftheACP States, thatimporters
werelikely toabandon ACPsuppliers unless thenewregime provided sufficient incentives fortrade
tocontinue. Because ofthevulnerability oftheECmarket toanti-competitive practices, anopensystem
would haveenabled anypowerful vertically integrated multinational company toeliminate those of
itscompetitors withlessflexibility andresources. Theability oflarge multinationals todistort the
market wasdemonstrated priortotheintroduction ofthenewregime. 1992sawthepeakofspeculative
orbelow costtrading inbananas bymajor multinationals. Volumes reached unsustainably highlevels
withcorrespondingly lowprices atallstages inthemarketing chain. In1992, Chiquita lostatleast
US$52.5 million onitsbanana sales inEurope anditstotaldeclared losses were US$284 million.
Inthesame year, Colombia announced thatitsproducers hadsuffered losses totalling US$70 million.
TheECwasfaced withasituation inwhich therewereconcerted efforts "toweed out"weaker players
intheleaduptothenewmarket regime. Thedepressed market in1991/92 andthefirsthalfof1993
could nottherefore betaken intoaccount forthepurposes ofestablishing theECthird-country tariff
quota.WT/DS27/R/USA
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5.7 FortheECtofulfilitscommitments toACPproducers (andindeed toconsumers whowould
ultimately bearthecost), ithadtoensure thattheoligopolistic structure ofthemarket would not
undermine theoperation ofthenewregime. Theconcept ofCategory Blicences wasultimately found
tobetheonlywaytoachieve this.
5.8 TheACP thirdparties argued thatasdemonstrated inparagraph 5.3above, trading inACP
bananaswasmoredifficult,moreriskyandmuchlessprofitablethantradinginLatinAmericanbananas.
ItwastheCategory Blicence system which provided anincentive foroperators tocontinue importing
fromACPcountries. IntheviewoftheACPthirdparties, itwasonlybythismeans thattheECcould
fulfil itsLomé Convention commitment thattraditional ACP suppliers should benoworse offthan
under thepreceding national arrangements.
5.9 Licences toimport ACPbananas intotheECwereawarded onthebasisofaspecial certificate
oforigin obtained fromthecompetent authority intherespective ACPcountry. These special certificates
oforigin hadthepotential tooperate inthesame wayastheexport certificates issued bytheLatin
American countries pursuant totheBFA. Itwasincorrect tostatethattheexemption ofCategory B
licence-holders from theexport certificate requirement forimports from Costa RicaandColombia
favoured ECandACPtraders, since byfarthemajority ofthecompanies purchasing Colombian and
Costa Rican bananas andusing Category Blicences weretheso-called non-EC andnon-ACP companies,
namely Dole, DelMonte, andChiquita. Thegreat majority ofCategory Blicences werepurchased
bythese companies andtheytherefore benefited from theexemption from theexport certificate
requirement. Moreover, similar certificates were required forimporting ACP bananas.
5.10 Withregard tohurricane licences, theACPthirdparties refuted theclaim bytheComplaining
parties thatthese licences weregiven exclusively toCategory Boperators. Nowhere intherelevant
regulations wasthereanyreference toCategory Boperators. Hurricane licences wereawarded tobanana
producer organizations regardless ofwhether theywereCategory Boperators. Failure toprotect the
producers withhurricane licences would have resulted infinancial disaster andthelossoftheir
relationship withthetraditional wholesalers/shippers andthepossible lossofthevitalshipping
arrangements.
5.11 Furthermore, hurricane licences were necessary tofulfil obligations under Protocol 5ofthe
Lomé Convention since theymaintained benefits accorded toACPproducers prior totheECbanana
regime. BoththeUnited Kingdom andFrance hadarrangements pre-existing Regulation 404/93 which
"safeguarded theinterests ofoperators whoarevictims ofsuchexceptional events" (fifth recital to
Regulation 2791/94). These arrangements weretherefore oneoftheadvantages thatACPproducers
enjoyed ontheirtraditional markets andwere, assuch, covered bytheLomé waiver. Contrary to
suggestions bytheComplaining parties thatthehurricane licences favoured Category Blicence-holders,
acomparison between thepre-1993 arrangements andthenewbanana regime revealed aclear shift
from granting licences toimporters to"operators whorepresent banana producers".
Preliminary matters
5.12 TheACPthirdparties recalled thatatthebeginning ofthepanel process, theyrequested that
theyshould begranted enhanced thirdparty status intheproceedings ofthePanel with:
(i) Therighttoaskquestions andrespond toquestions raised bytheparties atthefirst
andsecond substantive meetings;
(ii) therighttomake written rebuttals; andWT/DS27/R/USA
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(iii) therighttoattend thesecond substantive meeting oftheparties; topresent submissions
atthatmeeting; andtobeheard, askquestions andrespond toquestions raised bytheparties
atthatmeeting.
5.13 TheACP third parties argued that,assignatories totheLomé Convention, theACP States
would bedirectly andseverely affected byanydecision inthisdispute which wasfavourable tothe
Complaining parties. Theenormity ofthethreat posed bytheUnited States andLatin American
complaint tothelivelihoods ofthese countries andtotheirsurvival intheworld economy could not
beoverstated. Infighting toensure thecontinued application ofthecommitment undertaken bythe
ECintheLomé Convention, theACPStates were, without exaggeration, fighting fortheireconomic
survival. Considerations ofthiskindhadonseveral occasions been taken intoaccount bythe
International Court ofJustice insimilar circumstances. Panels historically hadrecognized thespecial
status ofcountries insituations analogous totheonefaced bytheACP States.307
5.14 TheACP third parties submitted thatBelize, Dominica, theDominican Republic, Ghana,
Grenada, Saint Lucia, Saint Vincent andtheGrenadines, Senegal, andSuriname were notafforded
theopportunity toattend theorganizational meeting on13June1996andmake theirownpresentations
concerning theirrights ofrepresentation. Theproper procedure forthePanel tohavefollowed would
havebeentoholdanorganizational meeting toconsider thequestion ofwhich parties hadsufficient
"substantial interest" tobeaccorded thirdparty status. Parties should havebeenaccorded theproper
opportunity tobeheard onsuchmatters. Having decided who"theparties" toapanel request were,
thePanel should haveheldorganizational meetings withall"theparties" or"consulted" withthem,
todecide upon theproper working procedures, taking intoaccount allthecircumstances, including
thecomplexity andseriousness ofthecomplaint, andthepotential impact fortheparties.
5.15 Thedenial ofthese rights wasabreach ofArticle 10.1oftheDSU which required that"the
interests oftheparties toadispute andthose ofother Members under acovered agreement atissue
inthedispute shallbefullytaken intoaccount during thePanel process". ThePanel'smisinterpretation
ofthesystem established byArticle 12.1oftheDSU hadledtotheACP thirdparties 'interests not
being "fully taken intoaccount during thepanel process".
5.16 TheACPthirdparties argued, furthermore, thatitwasincorrect forthePanel toassume that
theconsent oftheparties wasrequired forittogrant theenhanced status sought bytheACP States.
Article 12.1oftheDSU merely empowered thePanel to"consult" theparties inmaking itsdecision
onthematter; "toconsult" didnotmean tosecure theirconsent. ThePanel, inthisregard, transferred
powers totheparties which theDSU hadexpressly reserved forthePanel itself. Intheviewofthe
ACPthirdparties, thePanel'sdecision ontheleveloftheirparticipation wasprejudicial totheirinterests.
ThePanel should therefore review itsdecision of25June1996 andfinditnullandvoid. Theright
tobeheard inamanner consistent withone'sinterests wasafundamental principle ofnatural justice
andthisrightoftheACPStates asthirdparties, setforthinArticles 10and12.1, hadbeenbreached.
5.17 TheACPthirdparties submitted thattheyweregiven inadequate timetoprepare andpresent
theirarguments andsubmissions. Thiswasinbreach ofArticles 12.2and12.4oftheDSU which
required thatpanel procedures provide sufficient flexibility soastoensure highquality reports and
thatthepanel shallprovide sufficient timefortheparties toprepare theirsubmissions. Moreover,
itwasinbreach ofArticle 12.10 which specifically provided that,when examining acomplaint against
307See"European Communi ty-TariffTreatmentonImpor tsofCitrusProductsfromCertainCount riesintheMediterranean
Region" (L/5776, 7February 1985); "United Kingdom -Dollar Area Quotas", adopted on30July1973 (BISD 20S/230).WT/DS27/R/USA
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adeveloping country, apanel mustaccord sufficient timeforthedeveloping country Member toprepare
andpresent itsargumentation.
5.18 TheACP third parties requested thePanel todismiss thecomplaint andtoterminate the
proceedings since, intheirview, theComplaining parties 'request forestablishment ofapanel failed
tomeettherequirements ofArticle 6.2oftheDSU.
5.19 TheACPthirdparties argued thattherequest fortheestablishment ofthepanel provided neither
"abriefsummaryofthelegalbasisofthecomplaintsufficienttopresenttheproblemclearly",asrequired
byArticle 6.2oftheDSU, nor"thegreatest degree ofprecision", asrequired inthereport ofthepanel
United States -Imposition ofAnti-Dumping Duties onImports ofFresh andChilled Atlantic Salmon .
Instead ofidentifying the"specific measures atissue", theComplaining parties merely citedthe"regime
fortheimportation, saleanddistribution ofbananas". Theyalsofailed toexplain howspecific measures
allegedly were inconsistent withspecific WTO obligations.
5.20 TheACP third parties requested further that,ifthepanel were nottodismiss theentire
proceedings, Mexico andtheUnited States should bedismissed ascomplainants because theyhadno
trade interest.
5.21 TheACP third parties argued thatMexico 'sprincipal alleged justification forappearing as
acomplainantinthisdispute,namelyMexicanownershipofDelMonte,haddisappearedon11June1996
when DelMonte wassoldtotheIATGroup, aJordanian holding company thatalsocontrolled United
Trading Company ofSantiago, Chile. Moreover, Mexico didnotexport bananas totheECandwas
notactively seeking todoso.Mexico hadtherefore notrade interest ingoods andservices inthis
proceeding. Mexico 'sonlyavailable claim wasthatitmight export bananas totheECinthefuture.
Suchhypothetical tradeinterest fellshort ofthestandards established inArticle XXIII:1 ofGATT and
theDSU. Theuseoftheterm"benefit" inArticle XXIII:1 ofGATT andArticle 3.3oftheDSUrequired
thattherebeactual trade oranactive attempt totrade. Further support forrequiring allcomplainants
tohaveatangible andpresent trade interest inadispute wasfound inthedomestic legalregimes of
most, ifnotall,Members, referred tousually astherequirement of"locus standi" .
5.22 Similarly, intheACP thirdparties 'view, theUnited States 'interest inthedispute wasnot
atradeinterest ingoods orservices; anypossible interest wasaninvestment interest. Chiquita Brands
exported nobananas fromtheUnited States totheEC.Neither Chiquita norDolesupplied anyservice
in,orfrom, theUnited States relating totrade inbananas. Theonlyconnection thattheUnited States
hadtothisdispute wasthatChiquita andDole, which produced bananas in,andshipped them from,
various Central andLatin American countries, happened tobeowned byUnited States interests. The
GATT didnotaddress investment interests.308
5.23 TheACPthirdparties argued thattheUnited States sought tosalvage itsstatus asaComplaining
party byalleging aninterest under theGATS regarding themarketing ofbananas. However, repeated
references tofirms thatwereinthebusiness ofmarketing bananas could notobscure thereality that
theUnited States interest didnotfallwithin thescope ofArticle IofGATS. Article Iprovided that,
asinthecasefortradeingoods under theGATT, GATS covered tradeinservices between oneMember
andanother. Thesupply ofaservice could occur inoneoffourdifferent ways, butineachinstance
thetradeintheservice wasbetween theterritory ofthecomplainant andtheterritory oftherespondent.
Thescope ofArticle IofGATS didnotextend toaservice provided between athirdcountry andthe
308"Report ofthepanel onCanada -Administration oftheForeign Investment Review Act", adopted 7February 1984
(BISD 30S/140, para. 5.1).WT/DS27/R/USA
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respondent based onthefactthattheservice provider happened tobeowned byanational ofthe
complainant. Thiswasaninvestment interest which wasnotwithin thescope oftheGATS.
5.24 TheACP thirdparties alsorequested thatthePanel dismiss Ecuador 'sclaim withregard to
analleged breach bytheECoftheAgreement onAgriculture. Intheirview, Ecuador hadfailed to
comply withtherequirements ofArticle 6.2oftheDSUtoprovide asufficient explanation ofthelegal
basisinitsrequest fortheestablishment ofapanel. When Ecuador identified itsallegation initsfirst
submission, itclaimed thattheEClicensing regime wasinconsistent withfootnote 1toArticle 4.2
oftheAgreement onAgriculture. Article 4.2waspartoftheoverall commitment inthatAgreement
to"tariffy" existing quantitative restrictions. Footnote 1provided anillustration ofthetypesofmeasures
associated withexisting quantitative restrictions. TheECbanana regime was"tariffied". Itwasbased
ontariff quotas which were expressly permitted under theAgreement onAgriculture. Article XIII
ofGATT aswellastheLicensing Agreement recognized thatimport licensing regimes werenecessary
toimplement tariffquota schemes. Toreadfootnote 1toArticle 4.2oftheAgreement onAgriculture
asvitiating thisapproved method oftariffication wasabsurd.
5.25 Intheview oftheACP third parties, theAgreement onAgriculture gavespecificity tothe
rights andobligations ofMembers inrespect ofagriculture. Intheevent ofaconflict between the
Agreement onAgriculture andGATT, theprovisions oftheformer prevailed. Thiswascentral to
anunderstanding ofthemarket access bindings, quotas, andother commitments under theAgreement
onAgriculture. However, these market access commitments were consolidated concessions within
GATT andinthiscase,therewasnoconflict. Even ifthePanel weretofindthatEcuador hadproperly
identified thelegalbasisofitsallegation, theclaim thattheEClicensing regime wasinconsistent with
footnote 1toArticle 4.2oftheAgreement onAgriculture should therefore bedismissed bythePanel
forlackofsubstance.
TheLomé Convention andtheLomé waiver
5.26 TheACP thirdparties submitted thattheFourth Lomé Convention, signed bytheEuropean
Community, itsmember States andtheACP States in1989 andratified in1990, hadaduration of
approximately 10years, expiring on29February 2000. There were 70ACP signatories tothe
Convention which represented almost halfoftheWTO Members.
5.27 Thevarious Lomé Conventions weredesigned tostimulate thedevelopment oftheACPStates
through, interalia,thepromotion oftradeoftheACPcountries. Theyprovided amargin ofpreferences
butwerenotintended tocreate undue difficulties forthetradeofanyother Member. TheACPgroup
ofcountries contained some ofthesmallest andleastdeveloped countries intheworld. Article 167
oftheConvention provided asfollows:
"Inthefieldoftrade co-operation, theobject ofthisConvention istopromote trade between
theACP States andtheCommunity ....Inpursuit ofthisobjective, particular regard shall
behadtosecuring effective additional advantages forACPStates 'tradewiththeCommunity,
andtoimproving theconditions ofaccess fortheirproducts tothemarket inorder toaccelerate
thegrowth oftheirtrade and,inparticular, oftheflowofexports totheCommunity ...."
5.28 TheACPthirdparties claimed thattheobligations oftheECtobanana producers inACPStates
under theLomé Convention werenotlimited toArticle 1ofProtocol 5.Theyweremuch moreextensive
andincluded thefollowing:WT/DS27/R/USA
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(i) Article 167obliging theECtoimprove market access andotherwise contribute tothe
growth ofACP trade, including trade inbananas from anyACP source;
(ii) Articles 168and169,conferring freemovement ofgoods intotheEC;
(iii) thespecial undertaking onbananas contained inArticle 183andProtocol 5onbananas;
(iv) Article 186,providing thattheStabex provisions applied tofresh bananas;
(v) provisions establishing obligations withrespect totrade cooperation, inparticular in
relation totheisland ACP States.
5.29 Article 168prohibited theimposition ofcustoms duties, orcharges having equivalent effect,
ongoods being imported fromACPStates intotheEC.Article 169prohibited quantitative restrictions.
Article 168(2)(a)(ii) specified thattheECwasobliged, inrelation toproducts originating intheACP
States, to"take thenecessary measures toensure more favourable treatment thanthatgranted tothird
countries benefiting from themost-favoured-nation clause forthesame products". These provisions
applied without distinction totraditional andnon-traditional ACP products. Thesuggestion thatthe
Lomé Convention didnotrequire anypreferential treatment fornon-traditional ACP bananas was
therefore incorrect intheviewoftheACP thirdparties.
5.30 Theimposition ofcustoms duties orquantitative restrictions was,however, made subject to
Article 168(2), which provided thatiftheECsubjected theproducts toacommon organization ofthe
market, asitdidforbananas bywayofRegulation 404/93, itreserved therighttoadapt theimport
treatment forproducts originating intheACP States. However, Article 168(2)(a)(ii) applied toany
adaptation oftheimport arrangements andobliged theECto"ensure more favourable treatment than
thatgranted tothirdcountries benefiting fromthemost-favoured-nation clause forthesameproducts".
Thiscovered thepreferential tarifftreatment andthequantitative allocations accorded tobothtraditional
andnon-traditional ACP bananas.
5.31 Article 183provided that"inorder topermit theimprovement oftheconditions under which
bananas originating intheACPStates areproduced andmarketed, thecontracting parties agree tothe
objectives setoutinProtocol 5".Article 183didnotdraw adistinction between traditional and
non-traditionalbananas,althoughadistinctionrelatingto"traditionalsuppliers"and"traditionalmarkets"
wasintroduced incertain aspects ofProtocol 5,towhich theArticle referred. Thepreamble to
Protocol 5provided thattheECagreed tothefollowing objectives:
"...continuingtheadvantagesenjoyedbytraditionalsuppliersinaccordancewiththeundertakings
ofArticle 1ofthisProtocol."
Article 1stated that:
"Inrespect ofitsbanana exports totheCommunity markets, noACP State shallbeplaced,
asregards access toitstraditional markets anditsadvantages onthose markets, inaless
favourable situation thaninthepastoratpresent."
5.32 TheECwasthusunder theobligation topreserve thetraditional markets andadvantages enjoyed
"inthepastoratpresent". Thesame terms hadbeenusedinthebanana protocols oftheLoméWT/DS27/R/USA
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Conventions sinceLomé Iin1975. Given thatnolimitation onthetimeperiod tobetaken intoaccount
wasspecified inthebanana protocols, theterm"inthepastoratpresent" could onlybeconstrued
asmeaning thatthetraditional markets andadvantages enjoyed atanytimebefore 1991mustbematched.
TheACPthirdparties understood that,rather thantaking intoaccount allyears prior to1991, theEC
used thereference period 1976 to1991 inestablishing thetraditional quantities setoutin
Regulation 404/93. Thereason forthisrestriction onthereference period wasnotapparent fromthe
wording oftheLomé Convention andwasinconsistent withtheEC'sobligations under Protocol 5.
Therestriction hadtheeffect ofdisadvantaging certain ACPcountries, suchasJamaica, whose exports
toECmember States priorto1976werehigher thanthequantity allocated totheminRegulation 404/93.
5.33 ACP bananas were notonlyallowed unlimited dutyfreeaccess totheEC,butincertain of
them, namely the"traditional" markets, theywere ineffect "guaranteed" amarket. Intheview of
theACPthirdparties, theprotection afforded toACPproducers interms of"access to,andadvantages
in"traditional markets prior toRegulation 404/93 included thefollowing:
(i) Imports ofcheaper Latin American bananas were prohibited iftheirimports would
reduce themarket price below alevelconsidered adequately remunerative forACP
producers.
(ii) ACPproducers werefreetoincrease production andtocompete inthemore liberalized
markets ofNorthern Europe, withtheonlyadvantage being thepreferential tariff.
(iii) There were norestrictions onthequantities theycould produce andmarket. In
particular, thismeant thatanygrowth inconsumer demand wasfortheirbenefit.
(iv) ACP producers hadtheassurance ofsignificant financial aidintheevent ofnatural
disasters.
5.34 TheACP third parties considered thattheECwasunder alegal obligation topreserve the
advantages which ACP banana suppliers enjoyed inthepastasregards "markets" and"access". A
lossofsuchaccess andadvantages, evenifmade upbysubsidies, would constitute ofbreach ofthe
requirements ofProtocol 5sincepriortoRegulation 404/93 ACPbanana producers derived theirincome
from themarket. Moreover, apolicy ofaidinstead oftrade would bewholly inconsistent withthe
spirit oftheLomé Convention, given thatoneofthestated objectives wastopromote economic
development andincrease exports from itsACP signatories totheEC. Theprovisions of
Regulation 404/93 concerning Category Blicences weretherefore vitaltothecontinued existence of
theACP banana industries. Thereasons forthenecessity oftheCategory Blicences included the
production, shipping andmarketing disadvantages which could notsimply beremedied byatariff
advantage orsubsidy. Moreover, theCategory Blicence system wasnecessary duetotheconcerns
relating tothepotential formarket manipulation anddistortion. Ifthese latter concerns were not
addressed, thebanana industries oftheACP States would notsurvive.
5.35 TheACPcountriessubmittedfurtherthattheEChadobligationsinrelationtotradeco-operation,
inparticular inrelation toisland ACPStates. TitleIofPartThree oftheLomé Convention contained
numerous obligations regarding trade cooperation andgeneral trade arrangements. Forexample,
paragraph 1ofArticle 167stated theEC'sobligation to"promote trade between theACP States and
theCommunity". Paragraph 2stated, more specifically, thattheECshallpay:
"particular regard tosecuring effective additional advantages forACP States 'trade withthe
Community andtoimproving theconditions ofaccess fortheirproducts tothemarket inorderWT/DS27/R/USA
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toaccelerate thegrowth oftheirtrade and,inparticular, oftheflowoftheirexports tothe
Community andtoensure abetter balance inthetrade ofthecontracting parties."
These provisions established ageneral obligation onthepartoftheECtoimprove market access and
otherwise contribute tothegrowth ofACP trade, including trade inbananas from anyACP source.
5.36 Finally, theLomé Convention established specific obligations withrespect toisland ACPStates.
According toArticle 335:
"Specific provisions andmeasures shallbeestablished tosupport island ACP States intheir
efforts toovercome thenatural andgeographical difficulties andother obstacles hampering
theirdevelopment, soastoenable them tostepuptheirrespective ratesofdevelopment."
TheACPStates mostheavily dependent onbanana exports weresmall island developing States which
were extremely vulnerable tonatural hazards andconstrained bygeographic characteristics.
5.37 Withregard totheLomé waiver, theACPthirdparties submitted thatthesecond Banana panel
hadpointed toawaiver under Article XXV:5 ofGATT toremedy anypossible conflict between the
obligations oftheECunder theLomé Convention andthose under theGATT:
"The Panel wishes topoint out,however, thatthecontracting parties haveattheirdisposal
other procedures under theGeneral Agreement, including Articles XXIV:10 andXXV:5, that
aredesigned toallow contracting parties totakeintoaccount, inviewofthePanel, economic
andsocial considerations. Theadoption ofthisreport would notprevent thecontracting parties
from taking action under anyofthese Articles."
5.38 On9December 1994, Complaining parties andother GATT contracting parties, attherequest
oftheEC,granted theLomé waiver toallow theECtomeet itscommitments totheACP States
embodied intheLomé Convention (GATT document L/7604, refers). Itwasabundantly cleartoall
WTO Members, inparticular theUnited States which supported thewaiver, thatoneofitspurposes
wasspecifically toremedy thepossible inconsistencies between theGATT andRegulation 404/93.
TheComplaining parties and,inparticular, theUnited States hadample opportunity toraise, atthe
timethewaiver wasbeing debated, questions astowhether itfullycovered Regulation 404/93. They
didnotdoso.Itwasastandard principle oflegislative interpretation thataninstrument should be
interpreted inlightofthecircumstances giving risetoitsadoption. TheACPthirdparties considered
thatthePanel mustbecautious ininterpreting thewaiver inamanner which could undermine itsobvious
purpose ofprotecting Regulation 404/93 asitstood prior totheadoption ofthewaiver.
5.39 Intherecitalstothewaiverdecision,thecontractingpartiesrecognizedthattheLoméConvention
wasaimed atimproving thestandard ofliving andeconomic development oftheACPStates andthat
thegranting ofpreferential treatment forACP products under theLomé Convention wasconsistent
withtheprovisions oftheGATT.
5.40 Thescope oftheEC'sobligations under theLomé Convention wasextensive. Thescope of
theLomé waiver wascoterminous andthuswasverybroad, too.Paragraph 1provided:
"Subject totheterms andconditions setouthereunder, theprovisions ofparagraph 1ofArticle 1
oftheGeneral Agreement shallbewaived, until29February 2000, totheextent necessary
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inACPStates asrequired bytherelevant provisions oftheFourth Lomé Convention, without
being required toextend thesamepreferential treatment tolikeproducts ofanyothercontracting
party."
5.41 TheACP thirdparties considered thatComplaining parties attempted tocurtail thescope of
thewaiver byasserting thatitapplied onlyto"preferential treatment ...required by"theLomé
Convention. TheComplaining parties would limitthewaiver onlytothose preferences "absolutely"
required bytheLomé Convention. Thisreading oftheLomé waiver wasincorrect andmisleading.
Thetextofthewaiver readinrelevant part"preferential treatment ...asrequired by"theLomé
Convention. Theword"required" andthephrase "asrequired by"werenotusedasterms ofrestriction,
butasterms ofdefinition. They informed thedefinition of"preferential treatment" bytying ittothe
provisions oftheLomé Convention. TheLomé waiver empowered theECtoestablish preferences
inorder tomeetitsobligations toACP countries under theterms oftheLomé Convention. Absent
thewaiver, theECmight becaught between itsobligations under theWTO andtheLomé Convention.
Thephrase "asrequired by"communicated tothereader thatthewaiver wasgranted expressly toresolve
thisdilemma, providing theECtheauthority tomeetitsLomé Convention obligations, without atthe
same timeviolating GATT Article I:1.Thesame wastrueofthephrase "totheextent necessary"
inthewaiver.
5.42 Thephrases "totheextent necessary" and"asrequired", evenifinterpreted aslimitations rather
thandefinitions didnotlimittheECtoonemethodology orregime ofpreferences. Thewaiver saved
frominconsistency withArticle I:1anymeans necessary toimplement thepreferential treatment required
bytheLomé Convention. However, thephrases "totheextent necessary" and"asrequired" didnot
limitthemechanism(s) usedtoeffect thepreferences toonlyone(i.e.tothe"required" or"necessary"
one). Rather, thewaiver permitted theECtodevelop andselect anyregime tocreate thepreferences,
asrequired ornecessary toimplement theEC'scommitments under theLomé Convention. Therefore,
thepossibility ofother regimes orways toachieve thepreferential treatment didnotrender
Regulation 404/93 "unnecessary". TheEChadcreated, inRegulation 404/93, aregime withprovisions
that"provide preferential treatment toproducts originating inACP States asrequired by"theLomé
Convention. Even iftheLomé Convention waiver permitted theEConlytoprovide the"minimal"
preferential treatment asrequired bytheLomé Convention, thepreferences contained in
Regulation 404/93 would fallwithin this"minimal" requirement. Therefore, Regulation 404/93, in
itsentirety, andeachofitsprovisions were covered bytheterms oftheLomé waiver.
5.43 Thephrase "without being required toextend thesame preferential treatment tolikeproducts
ofanyother contracting party" was,intheviewoftheACPthirdparties, significant. Even accepting
theComplainingparties'argumentthatthewaiverextendedonlyto"required"and"necessary"measures,
thefactthatthemechanism chosen toeffect thepreferential treatment under theLomé Convention
resultedindiscriminatorytreatmentforothercontractingpartieswasirrelevanttothequestionofwhether
themechanism was"required" toimplement thattreatment. Thiswassobecause thewaiver itself
operated tosavethediscriminatory treatment from inconsistency withArticle I:1bybuilding in
discrimination andmaking itinherent intheimplementing mechanism forthepreferential treatment.
Therefore, acasecould notbemade against themechanism ormeasure onthegrounds thatitwas
restrictive orcould belessrestrictive intheextent towhich itdiscriminated against other contracting
parties, orcould belessdiscriminatory against other contracting parties. TheLomé waiver anticipated
thatdiscrimination would occur andexpressly saved itfrominconsistency withArticle I:1ofGATT.
5.44 TheACPthirdparties argued thatitwould beinappropriate forthePanel initsconsideration
oftheLomé Convention toactasthefinalarbiter ontheinterpretation ofitsprovisions. Serious juridical
andlegalconfusion would ariseifthePanel weretocarry outthatrole,quiteapart fromthepractical
difficulties itwould haveinundertaking therequisite detailed legalanalysis. TheroleofthePanelWT/DS27/R/USA
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should beakintothatofacourt judicially reviewing theactsofanadministration, i.e.thatitshould
notsubstitute itselffortheadministration, butshould rather evaluate thereasonableness ofthechallenged
acts.
Article IofGATT
5.45 TheACPthirdparties noted thatRegulation 404/93 established different tariff ratesforACP
andthird-country bananas. Different tariff rateswere alsoestablished forin-quota andover-quota
imports ofbananas from eachsource. Thetariff ratesestablished preferences, first, fortraditional
ACP bananas, second, fornon-traditional ACP bananas, and,third, forthird-country bananas.
5.46 Thetariff rateswere "customs duties andcharges ofanykindimposed onorinconnection
withtheimportation" ofbananas andalsorepresented a"method oflevying suchduties andcharges".
Therefore, theyfellunder theambit ofArticle I:1ofGATT. Asthepreferential tariff rates were
necessary toachieve theLomé Convention 's"nolessfavourable situation" commitment, theywere
therefore within thescope oftheLomé waiver. Totheextent thatthecurrent in-quota tariff of
ECU 75pertonne waslessthantheprevious 20percent, theEChadafforded advantages tothe
Complaining parties withrespect tomaintaining historical advantages.
5.47 TheACPthirdparties submitted thatthequota allocations toACPStates werenotsubject to
Article XIIIofGATT butfellunder GATT Article I:1andweretherefore within thescope oftheLomé
waiver.
5.48 Country-specific allocations wereinherent inthepreferential treatment required byProtocol 5
oftheLomé Convention. Article 1ofProtocol 5obliged theECtoensure that"noACP State" was
placed inalessfavourable situation. TheEC'scommitment toprovide "nolessfavourable treatment"
wasthus, bydefinition, toeachACPStateindividually and,tomeetthese individual obligations, the
EChadtosetcountry-specific allocations. TheEC,taking account ofthetradeinterest ofthenon-ACP
banana exporting countries, hadestablished atariff quota forthese countries based ontheirhistorical
performance overarepresentative period. Thus, theEChadrestricted itselfinestablishing theallocation
inamanner which tookaccount oftheconcerns ofnon-ACP banana exporters.
5.49 TheComplaining parties 'allegation thatthecountry-specific allocations forcertain traditional
ACPsuppliers exceeded whatwasrequired under theLomé Convention wasincorrect. Thecommitment
contained intheLomé Convention toguarantee thebenefits "past orpresent" required consideration
ofthehighest export fromthose countries andwasnotlimited toexports after1976. Inaddition, the
EChadtogive, asaminimum, fullconsideration toinvestments made "atpresent".
5.50 Thehitherto unrestricted rights toincrease production forthetraditional markets hadbeen
removed andexports hadbeencapped insome cases, suchasJamaica, atlevels wellbelow thehistorical
best. In1966, Jamaica exported bananas totheUnited Kingdom inexcess of200,000 tonnes, which
compared toanallocation of105,000 tonnes inRegulation 404/93. In1961, Cameroon 'sbanana exports
totalled approximately 140,000 tonnes. Intheyearspreceding theintroduction oftheECbanana regime,
substantial investments, exceeding US$20 million, tookplaceinthebanana industry. These investments
were capable ofresulting inbanana exports considerably inexcess of155,000 tonnes allocated to
Cameroon. Itwastherefore incorrect tosuggest thattheallocation exceeded theminimum obligations
oftheECtoCameroon. Thetraditional quantity ofCôted'Ivoire contained inRegulation 404/93 was
based onthehighest quantities ofexports totheECbefore 1991aswellasspecific investments made
inbanana production intheperiod preceding Regulation 404/93. Thehighest previous exports of
Côted'Ivoire tookplace in1978(143,000 tonnes). Accordingly, thequota of155,000 tonnes allocatedWT/DS27/R/USA
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toCôted'Ivoire waswholly consistent withtheEC'sobligations under theLomé Convention. Inthe
caseofBelize, thetraditional quantity contained inRegulation 404/93 was40,000 tonnes which was
lessthanproduction in1994(59,000 tonnes). Theallocation wasestablished onthebasisofthe"best
ever" exports andinvestments ofUS$100 million. These investments ledtoimprovements inboth
quantities andquality ofbananas.
5.51 Withtheadoption oftheECRegulation implementing theBFA, anditsincorporation intoits
Schedule ofGATT concessions, non-traditional ACPimports totheECwerecapped at90,000 tonnes.
Atthattime, theexports ofnon-traditional quantities fromCameroon, Côted'Ivoire andtheDominican
Republicwereconsiderablyinexcessof90,000tonnes.Thelimitationofnon-traditionalexportsensured
thatanyfurther increases inthethird-country tariff quota benefited exclusively theLatin American
suppliers tothedetriment ofACPsuppliers, which wasnotrequired bytheLomé Convention orGATT
rules andwasafurther concession granted toLatin American suppliers.
5.52 TheACP third parties submitted thattheEClicensing regime asawhole, andeachofits
constituent parts, fellwithin thescope ofGATT Article I:1astheregime established "rules and
formalities inconnection withimportation". Thefactthatthelicensing regime wasa"formality in
connection withimportation" within thescope ofArticle I:1wasmade clearbyreference toArticle VIII
ofGATT which wasentitled "Fees andFormalities Connected withImportation andExportation".
Paragraph 4(c)ofArticle VIIIexplicitly listed licensing asaformality imposed inconnection with
importation.
5.53 TheACP third parties considered that,since thelicensing regime fellwithin thescope of
Article I:1ofGATT andwasnecessary fortheECtomeetitsLomé Convention obligations, itwas
covered bytheLomé waiver. Thelicensing regime asawhole, andtheCategory Blicences inparticular,
weretheminimum necessary topreserve thehistorically favourable treatment oftheACPStates 'banana
exports. Without the30percentsetaside forCategory Boperators, there would beinsufficient
incentives foroperators toship, import, ripen andmarket ACP bananas.
5.54 Thehurricane licence provisions werealsocrucial toensure theACPStates 'continued access
totheECbanana market andfortheECtomeetitsobligations andcommitments which existed prior
totheECbanana regime. Without theprotection oflegislation covering future hurricanes, theoperating
companies could notmaintain theirtrading linkswiththeACPStates thatwerevulnerable tohurricanes.
Todosoinsuchcircumstances would beimprudent andirresponsible tothecompanies 'shareholders.
Forbothreasons, thehurricane licence provisions were required fortheECtomeet its"noless
favourable situation" obligation and,thus, fellwithin thescope oftheLomé waiver.
5.55 TheACPthirdpartiesnotedthatArticleI:1ofGATTsubsumedthenationaltreatmentobligation
ofArticle III:4ofGATT byproviding that:
"...withrespect toallmatters referred toinparagraphs 2and4ofArticle III,anyadvantage,
favour, privilege orimmunity granted byanycontracting party toanyproduct originating in
ordestined foranyother country shallbeaccorded immediately andunconditionally tothe
likeproduct originating inordestined fortheterritories ofallother contracting parties."
Assuming, arguendo ,thatthelicensing regime didnotestablish "rules andformalities inconnection
withimportation" ofbananas under GATT Article I:1,itwasalaw,regulation orrequirement affecting
theinternal sale,offering forsale,purchase, transportation, distribution, oruseofagood(i.e.aninternal
requirement within thescope ofArticle III:4ofGATT). Viewed asaninternal requirement, allaspects
ofthelicensing regime which weredeemed toprovide preferences toACPimports were"advantages"WT/DS27/R/USA
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thatwere notaccorded toallMembers. Thus, theywere within thescope ofArticle I:1andhence
werewithin thescope oftheLomé waiver. Inother words, thelicensing regime waswithin thescope
ofArticle IofGATT evenif,asthesecond Banana panel ruled, themeasures wereinternal measures
rather thanrules inconnection withtheirimportation.
Article XIIIofGATT
5.56 TheACPthirdparties submitted thatcountry-specific allocations fortraditional ACPbanana
exports didnotfallwithin thescope ofArticle XIIIofGATT. These allocations wereanintegral part
ofthepreferential treatment thattheECwasrequired toprovide bytheLomé Convention, which was
saved bytheLomé waiver from inconsistency withArticle I:1ofGATT. Article IofProtocol 5to
theLomé Convention obligated theECtoensure that:
"Inrespect ofitsbanana exports totheCommunity markets, noACP State shallbeplaced,
asregards access toitstraditional markets anditsadvantages onthose markets, inaless
favourable situation thaninthepastoratpresent."
TheEChadchosen areasonable mechanism toimplement thisobligation. Itcoupled preferential tariff
treatment fortraditional ACP exports withcountry-specific allocations atlevels reflecting historical
ACP export volumes. Where theallocated quantity exceeded theprevious exports, thisreflected
investments made. Thiswasconfirmed bythehigher quantities exported totheECwithin ashort
timeoftheestablishment oftheallocations.
5.57 Notonlywere thecountry-specific allocations anintegral partofthepreferential treatment,
theyalsoserved tolimittheextent ofthepreferential treatment. Byvirtue oftheLomé waiver, the
ECcould haveestablished apreferential regime forACP bananas withvirtually nolimit. TheEC
didnotdoso.Instead, theEClimited theadvantages accorded totraditional ACPbananas bycapping
preferences atcertain quantities foreachACP State. Bylimiting thedegree ofGATT Article I:1
discrimination, theECsought tofulfil theterms oftheLomé waiver. IntheviewoftheACP third
parties, themeasures introduced bytheECweretheveryminimum which itcould havetaken inorder
tomeetitslegalobligations.
5.58 Likewise, according totheACPthirdparties, quantitative allocations fornon-traditional ACP
banana exports didnotfallwithin thescope ofArticle XIIIofGATT. They wereanintegral partof
thepreferential treatment required tofulfil theEC'sobligations under theLomé Convention, which
wassaved frompossible inconsistency withArticle I:1ofGATT bytheLomé waiver. Theobligations
oftheECunder theLomé Convention extended beyond merely preserving historical access. Article 168
combined withArticle 169obliged theECtomaintain preferences forACPbanana exports. Thisapplied
toallACP bananas, whether traditional ornon-traditional. Italsoapplied topreferences inrespect
ofquantitative restrictions. Article 167oftheLomé Convention established ageneral obligation on
thepartoftheECto"secure effective additional advantages forACPStates 'tradewiththeCommunity",
byimproving market access forACPproducts andotherwise contributing tothegrowth ofACPtrade.
Article 335required specific additional provisions andmeasures toenhance theeconomic development
oftheisland ACP States.
5.59 Without thecombination ofpreferential tariffs andaspecific allocation fornon-traditional ACP
banana exports, these bananas would never reach theECmarket because theyweremuch more costly
toproduce anddistribute thanLatin American bananas. TheonlywaytheECcould fulfilitsobligations
under theLomé Convention tosecure effective additional advantages forthebanana trade inACP
countries wastocouple preferential tariff treatment with aspecific quantitative allocation forWT/DS27/R/USA
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non-traditional ACPexports. Aswithregard totraditional ACPexports, theLomé waiver saved the
preferential treatment provided tonon-traditional ACPexports andrequired tofulfiltheEC'sobligations
under theLomé Convention, from inconsistency withArticle I:1ofGATT.
5.60 According toArticle 3.5(j) oftheLicensing Agreement:
"...Consideration shallalsobegiven toensuring areasonable distribution oflicences tonew
importers, taking intoaccount thedesirability ofissuing licences forproducts ineconomic
quantities. Inthisregard, special consideration should begiven tothose importers importing
products originating indeveloping country Members and,inparticular, intheleast-developed
country Members ...;"
TheEC'sallocation fornon-traditional ACP banana exports fulfilled theresponsibilities established
bythisexhortation toprovide special consideration todeveloping andleast-developed countries which
otherwise would beexcluded from markets, suchastheECbanana market.
5.61 TheACPthirdparties considered thattheECallocation oflicences based onoperator categories
andactivity functions wasnotinconsistent withArticle XIIIofGATT. Although theallocation of
tariff quota licences wasmade onthebasis ofpastmarketing ofbananas bytheoperator concerned,
eachlicence could beusedtopurchase bananas from anysource. Therefore, Regulation 404/93 did
notdiscriminate among supplying countries.
Article XofGATT andtheLicensing Agreement
5.62 TheACPthirdparties submitted thattheComplaining parties 'claims under Article XofGATT
andtheLicensingAgreementwereimproperlycharacterizedasargumentsdirectedatRegulation404/93.
They were oftheview thattheComplaining parties chose thisapproach since theyrecognized that
anypossible challenge would beunder Article I:1ofGATT. Anyinconsistency withArticle I:1of
GATT would becovered bytheLomé waiver andtheytherefore sought toescape thisrestriction by
recasting theirallegations independently ofArticle I:1.
5.63 TheACPthirdpartiesarguedthatsomedifferentiationwithregardtotheproceduralrequirements
faced byimporters ofLatin American versus ACP bananas wastobeexpected given the"dictates"
oftheLomé Convention. TheLomé Convention required theECtodistinguish between ACP and
non-ACP imports inorder toensure ACPStates 'continued access totheECmarket. Italsorequired
theECtocarefully monitor imports ofLatin American bananas inorder toensure suchcontinued access.
Without monitoring, theproducers andimporters ofthemore competitive Latin American bananas
would "upset" theECmarket forACP bananas.
5.64 TheACPthirdparties claimed thattheComplaining parties hadasserted under Article X:3(a)
ofGATT thattheprocedural requirements forimporting bananas fromtheircountries exceeded those
faced byimporters ofACP bananas. Thecorrect measure toassess thisclaim wastheextent ofthe
additionalburdenfacedbyimportersofbananasfromtheComplainingparties,whichwasnotsignificant.
Thisapproach wasfollowed bythepanel ofEuropean Economic Community Restrictions onImports
ofDessert Apples -Complaint byChile (BISD 36S/93). Thepanel found thatthevariations inthe
ECregulation raised bythecomplainant "...wereminimal anddidnotinthemselves establish abreach
ofArticle X:3".WT/DS27/R/USA
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TheGATS
5.65 ACPthirdparties submitted arguments thatMexico andtheUnited States mustbedismissed
asComplaining parties because theyhadnotrade interest (either astogoods orservices) inthis
proceeding.
5.66 TheACPthirdparties claimed further thattheUnited States 'complaint hadfailed toproduce
anyevidence thattheprovision ofservices, quaservices byUnited States companies, wasrestricted,
prejudiced, ordiscriminated against, byvirtue ofthemeasures adopted bytheEC.TheUnited States
hadconfused theprovision oroffering ofservices withtrade ingoods. TheUnited States could not
point toanyrestrictions ordiscrimination inrespect oftheprovision ofshipping services, wholesaling
services, distribution services, orripening services. ECpreferences forgoods ofacertain origin did
notdirectly orindirectly affect theprovision ofservices relating tothose goods. IfthePanel were
touphold theUnited States 'complaint onthese grounds, every waiver andevery tariff quota, which
hadanimpact onthemovement ofgoods, would alsoconstitute arestriction ontheprovision ofservices
inrelation tothose goods.
5.67 TheACPthirdparties refuted theclaim thattheECwas,defacto, discriminating against US
companies byvirtue ofpreferences given toACPbananas andthereby ACPservice companies. The
ACP third parties submitted thatso-called UScompanies were substantially involved inthesupply
ofACP bananas totheECandtheirdistribution within theEC. UScompanies andDelMonte had
adominating position insupplying ACPAfrican bananas totheECmarket. BothDoleandDelMonte
had,atpresent, substantial interests inbanana production inCameroon. InCôted'Ivoire, approximately
30,000 to35,000 tonnes ofbananas were marketed bycompanies associated withDole, DelMonte
andChiquita. InJamaica, Dolecontrolled, atpresent, 35percentoftheJamaican producers 'banana
market company which heldapproximately 18percentoftheUKmarket. In1993, Chiquita exported
some 25,000 tonnes ofbananas from theDominican Republic totheEC. Onthewhole, atpresent,
almost 355,000 tonnes ofECandACP bananas were supplied totheECmarket byChiquita, Dole
andDelMonte. Besides Chiquita 'sownership ofFyffes (atpresent, thelargest supplier ofACPbananas
totheEC)prior totheintroduction oftheECbanana regime, UScompanies hadconsiderable control
overthemajor import anddistribution companies inFrance: Chiquita hada50percentshareholding
inCompagnie deBanane (which ithadsince increased toa100percentshareholding) andDolehad
a33percentshareholding inCompagnie Fruitière. These twoFrench companies accounted forthe
major proportion ofACP bananas imported intoFrance from Africa.
5.68 TheACPthirdpartiesclaimedthattheverybasisoftheallegationthatso-called"LatinAmerican
banana segment firms" handled lessthan10percentofthedistribution andrelated marketing ofACP/EC
bananas intotheECprior totheinstitution oftheECbanana regime wastherefore factually incorrect
andmisleading.
5.69 However, even assuming thatthetrade wastrade inservices (which itwasnot): (i)the
Complaining parties hadfailed todiscuss, much lessestablish, therequired elements; and(ii)areview
ofthefactsdemonstrated thatRegulation 404/93 didnotviolate GATS Article II.Toestablish non-
conformity withArticle IIofGATS, theComplaining parties hadto,first,identify anaffected service
orservice supplier. Second, theComplaining parties hadtoidentify thetreatment provided bythe
ECtothatdiscrete service orservice provider when itwassupplied from, orintheterritory of,an
ACP country, through commercial presence ofanACP service supplier intheEC,orthrough the
temporary presence ofanACPservice supplier intheEC.Third, theComplaining parties hadtoprove
thattheECaccorded lessfavourable treatment toalikeservice orasupplier ofalikeservice when
thatdiscrete service wassupplied from, orintheterritory of,anon-ACP country, through the
commercial presence ofanon-ACP service supplier, orthrough thetemporary presence ofanon-ACPWT/DS27/R/USA
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service supplier intheEC.TheComplaining parties hadavoided acareful analysis oftherequirements
oftheGATS. Theyhadonlyusedtheargument thattheword "affecting" inArticle I:1ofGATS should
bebroadly interpreted as,theyclaimed, twoprevious panels haddonewithregard toArticle III:4of
GATT.309TheComplaining parties 'attempt tobasetheirentire argument ononeword failed because
anumber ofelements were needed toestablish non-conformity withArticle IIofGATS andthe
Complaining parties hadfailed toprove anyofthem.
5.70 TheACPthirdparties argued thattheysubscribed towhattheyconsidered tobethecommon
concept ofwholesaling, which wasthelaststagebefore retailsale,i.e.thestageatwhich bulkshipments
were stored ininventory andthenbroken-up intosmaller lotsforresale toretailers.
5.71 TheACPthirdparties argued thattheUnited States hadacknowledged thattheECregulations
wereneutral ontheirfaceanddidnotdiscriminate, deiure,onthebasis ofnationality oftheservice
provider. TheUnited States hadclaimed defacto discrimination, butoffered nofactsinsupport of
thisallegation.NoneoftheComplainingpartiesidentifiedthenatureofthewholesalingservicesinvolved
ortheentity thatprovided them. Theyhadsuggested thatthird-country bananas imported byCategory B
operators could andwould onlybewholesaled byACPproviders ofwholesale services. Theexperience
oftheregime hadshown thatthiswasincorrect. MostLatin American bananas, irrespective ofwhether
imported withCategory Blicences, were"wholesaled" inthenorth European countries bythesame
wholesalerswhichmarketedimportedbananaswithCategoryAlicences.Themerefactthat,historically,
acertain group ofwholesalers might havehandled thelastpre-retail stage ofACPbanana distribution
intheECwasirrelevant. Theissue waswhether themanner inwhich theECdistributed licences to
import third-country bananas served topreclude non-ACP wholesalers from entering orexpanding
theprovision ofwholesale services. There were, however, norestrictions onwholesalers which
traditionally imported Latin American bananas from offering these services inrelation toACP/EC
bananas.
5.72 Withregard toCategory Alicence allocations, theACPthirdparties submitted thattheUnited
States hadfailed topoint outthat,while 66.5percentoftheselicences weregranted toso-called Latin
American banana companies, thebalance of30percentwasgiven toanycompany which imported
ECorACP bananas. There wasnorestriction whatsoever onso-called Latin American companies
importing ECandACPbananas. DoleandDelMonte significantly benefited fromthisarrangement.
Ontheother hand, access to66.5percentofthelicences wasrestricted tothose withanhistoric
involvement inmarketing third-country bananas.
5.73 Withregard toexport certificates, thereappeared tobeanattempt bytheUnited States tosuggest
thatnationality orcategorisation ofacompany would confer onitbenefits ofexemptions from the
export certificate requirement. Thiswasincorrect. Anycompany, whether ofEC,United States or
ACPnationality, which hadaCategory Alicence wassubject intherelevant Latin American countries
tothepossible requirement ofexport certificates. Equally, anycompany, regardless ofnationality
orcategorisation, which wished toutilize Category Blicences intherelevant Latin American countries
wasexemptfromtheexportcertificaterequirement.Chiquita,Dole,andDelMontepossessedsubstantial
quantities ofCategory Blicences and,ineachofcase,thesecompanies wereexempted fromtheexport
certificate requirement when importing intotheECusing Category Blicences.
5.74 Withregard tohurricane licences, these licences wereeffectively replacement licences forthe
shortfall fromACPorECorigin when production wasdestroyed byhurricanes. Licences wereissued
309"Italian Discrimination against Imported Agricultural Machinery", BISD 7S/60, and"United States -Section 337of
theTariff Actof1930", BISD 36S/345.WT/DS27/R/USA
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essentially totheproducer organizations andnottooperators andcertainly nottooperators onthebasis
oftheirnationality.
5.75 IntheviewoftheACPthirdparties, Ecuador 'sargument withregard totherental ofseagoing
vessels withcrewwasfundamentally flawed. Neither theECnoranyother Member hadanyMFN,
national treatment ormarket access obligations astoanymaritime transport service since thelegal
conditions setoutintheGATS "Annex onnegotiations onMaritime Transport Services" hadnotyet
beenfulfilled. Accordingly, thePanel should dismiss thisclaim.
Conclusion
5.76 Insummary, theACP thirdparties requested thePanel tofindthat:
- TheLomé waiver provided thelegal basis forthepreferential treatment granted to
ACPbanana exports totheECandcomprehensively metitspurpose, namely toensure
"legal certainty". Thus, thePanel should findthattheECbanana regime didnotviolate
Article IofGATT because theregime fellwithin thescope oftheLomé waiver.
- Thequota allocations totheACPStates andthelicensing measures didnotviolate the
relevant provisions ofGATT northose ofother instruments ofAnnex 1AoftheWTO
Agreement.
- TheECbanana regime wasfullyconsistent withtheGATS andinanycasedidnot
discriminate between theACP andnon-ACP service suppliers.WT/DS27/R/USA
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CANADA
5.77 Canada submitted thatithadasubstantial interest inseveral legal issues relating tothe
interpretation oftheGATT andtheGATS which hadbeenraised bytheparties tothedispute. The
firstwastherelationship between theGeneral Agreement onTariffs andTrade 1994 andother
Multilateral Agreements onTrade inGoods, andtheGeneral Agreement onTrade inServices. The
second wastheeffect tobegiven toawaiver under Article XXV ofGATT andtheUnderstanding
inRespect ofWaivers ofObligations under theGeneral Agreement onTariffs andTrade 1994.
Therelationship between trade ingoods andtrade inservices
5.78 Canada stated thatitsinterest inthecasestemmed fromthefactthatitwasthefirstopportunity
foraWTO dispute settlement panel todealwiththeinterrelationship between treatment ofimported
products under GATT andthetreatment ofservice suppliers under GATS. ThePanel'sconsideration
oftherelationship between rights andobligations arising outofWTO agreements relating totrade in
goods andrights andobligations arising outoftheGATS withrespect tomeasures affecting trade in
services wasthusofsignificance forCanada asaparty totheWTO agreements. Previous GATT 1947
panels hadclearly indicated thatGATT applied notonlytotheimportation ofgoods butalsotointernal
terms andconditions attached tothedistribution andsaleofproducts which might haveadversely
modified theconditions ofcompetition between imported goods anddomestic goods within theinternal,
domestic market. Oneoftheprimary reasons forreaching thisconclusion wastheexplicit language
ofGATT Article III:4, thefirstsentence ofwhich stated that:
"...products oftheterritory ofanycontracting party imported intotheterritory ofanyother
contracting party shallbeaccorded treatment nolessfavourable thanthataccorded tolike
products ofnational origin inrespect ofalllaws, regulations andrequirements affecting their
internal sale,offering forsale,purchase, transportation, distribution oruse."
5.79 There wasawell-developed lineofcases which considered theapplication ofGATT disciplines
andtheconsistency withGATT disciplines ofinternal lawsorpractices interms ofwhether such
measures accorded national treatment toimported products.310Canada considered thatitwasnoteworthy
thatanumber ofthese cases specifically considered theissue inthecontext ofdistribution measures.
Intheir submissions inthiscase, Ecuador, theUnited States andMexico hadspecifically raised
distribution issues asbeing acontravention ofGATS inaddition tobeing acontravention ofGATT.
5.80 InCanada 'sview, anyconsideration oftheGATS implications ofsuchmeasures hadtobe
assessed inthelightofwhateffect, ifany,theresult would havefortheinterpretation ofGATT, the
relationship between thetwoagreements andtheinterpretation oftheWTO agreements asawhole.
310Seeforexample: "Italian Discrimination against Imported Agricultural Machinery", adopted 23October 1958,
BISD 7S/60; "Canada -Administration ofForeign Investment Review Act", adopted 7February 1984, BISD 30S/140;
"Canada -Import, Distribution andSaleofCertain Alcoholic Drinks byCanadian Provincial Marketing Agencies", adopted
22March 1988, BISD 35S/37; "United States -Section 337oftheTariff Actof1930", adopted 7November 1989,
BISD 36S/345; "Thailand -Restrictions onImportation ofandInternal Taxes onCigarettes", adopted 7November 1990,
BISD 37S/200; "Canada -Import, Distribution andSaleofCertain Alcoholic Drinks byProvincial Marketing Agencies",
adopted18February1992, BISD39S/27;"UnitedStates-Measur esAffect ingAlcoholicDrinksandMaltBever ages",adopted
19June 1992, BISD 39S/206.WT/DS27/R/USA
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TheLomé waiver
5.81 Canada alsoexpressed itsinterest inthedispute asit,inCanada 'sview, raised aunique
opportunity toconsider whether measures inconsistent withawaiver granted under GATT were
"justiciable" inaWTO dispute settlement andwhether measures arising fromsuchawaiver thatcaused
nullification orimpairment were"justiciable". Canada noted thatthedetermination ofthesequestions
maywellhaveimplications beyond thefactsoftheparticular dispute.
5.82 TheLomé waiver explicitly noted thatitwasnotto"...preclude therightofaffected contracting
parties tohaverecourse toArticles XXII andXXIII oftheGeneral Agreement". PastGATT panels
hadconsidered whether ameasure wasorwasnotconsistent with awaiver granted bythe
CONTRACTING PARTIES.311Inaddition, Canada noted thatparagraph 3ofthe"Understanding
inRespect ofWaivers ofObligations under theGATT 1994" provided thataMember considering that
abenefit accruing toitunder theGATT wasbeing nullified orimpaired asaresult of(a)thefailure
oftheMember towhom thewaiver wasgranted toobserve theterms andconditions ofthewaiver;
or(b)theapplication ofameasure consistent withthewaiver, mayinvoke thedispute settlement
provisions ofArticle XXIII ofGATT. Thus, theissue ofwhether ornotameasure wasconsistent
withawaiver wasamatter thatcould beproperly submitted toapanel under bothGATT practice and
nowunder WTO rules.
5.83 InCanada 'sview, there maybesome question astowhether ornotthe"Understanding in
Respect ofWaivers ofObligations under theGATT 1994" wasintended tocodify theexisting practice
ortomodify itwithrespect totheability toassert claims withrespect toviolations oftheGATT.
IntheUnited States Sugar Panel thepanel concluded thatwhile awaiver didnotnecessarily indicate
adecision bythecontracting parties thatameasure consistent withthewaiver wasinconsistent with
theGeneral Agreement, boththesubstantive obligation andtherelief provided under Article XXV:5
intheform ofawaiver werepartoftheGATT andthusameasure consistent withthewaiver could
notconstitute afailure byaMember tocarry outitsobligations under theGATT within themeaning
ofArticle XXIII:1(a).312Inthatcase, theclaim thatthemeasure inquestion wasaviolation ofthe
Agreement wasrejected.
5.84 Inthecasereferred tointheprevious paragraph, thepanel hadthenconsidered whether a
measure consistent withawaiver could constitute nullification andimpairment ofbenefits accruing
toaMember within themeaning ofArticle XXIII:1(b) ofGATT (i.e."non-violation" nullification
andimpairment). Thepanel concluded thatthefactthatthemeasures found tobeinconsistent with
theGATT were consistent withthewaiver didnotpreclude aclaim being brought pursuant to
Article XXIII:1(b), butthatinsuchacasethecomplainant boretheburden ofdemonstrating such
nullification orimpairment resulting from theapplication ofthemeasure.313
5.85 Thetextofthe"Understanding inRespect ofWaivers ofObligations under theGATT 1994"
didnotdistinguish between violation andnon-violation claims pursuant toArticle XXIII. Canada
questioned, therefore, whether itshould beinterpreted asonlyincluding non-violation claims orwhether
thedrafters hadintended tomodify existing practice. Thedrafters would havebeenfamiliar withthe
existing caselawandthusitwould notbeunreasonable toconclude thatthelackoflanguage explicitly
311Forexample: "United States -Restrictions ontheImport ofSugar andSugar-Containing Products Applied Under
the1955WaiverandUnder theHeadnot etotheSchedul eofTariffConcessi ons",adoptedon7November 1990, BISD37S/228.
312Idem, para. 5.18, p.260.
313Idem, para. 5.20, p.261.WT/DS27/R/USA
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distinguishing between violation andnon-violation casesindicated anintention tomodify thelaw.Before
soconcluding, however, Canada submitted thatthePanel should consider whether suchasignificant
result could bejustified through interpretative inference. Canada further asked forreflection onwhether
incases where thedrafters were aware ofthelawandpractice andintended tomodify thatlawand
practice, itwasreasonable toexpect thatsuchintention beclearly indicated byexplicit language in
order toavoid aninterpretation thatthetextwasnotintended tobedeclaratory oftheprevious law.
Further, where theprevious lawwasembodied inthetextofanagreement, relatively minor wording
differences maycarry significant interpretative weight, butshould thisalsobethecasewhere thelaw
wasembodied insuchthings asdecisions oftheparties andpanel findings? InCanada 'sview, inthe
latter casethere should, perhaps, beapresumption thatifthematter could notberesolved based upon
theexplicit language ofthetext,thetextshould beregarded ascodifying theexisting lawandpractice.
Conclusion
5.86 Canada urged thePanel togiveserious consideration tothevarious systemic issues raised by
thecaseand,inparticular, theissues relating totheinterpretation oftheinterrelationship ofthevarious
WTO agreements, andtheappropriate interpretation tobegiven tothescope ofthe"Understanding
inRespect ofWaivers ofObligations under theGATT 1994".WT/DS27/R/USA
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COLOMBIA, COSTA RICA, NICARAGUA AND VENEZUELA
Introduction
5.87 Colombia, Costa Rica, Nicaragua andVenezuela recalled thatduring theUruguay Round, the
ECestablished atariff quota foraquantity ofbananas andallocated itamong supplying countries.
Theallocation followed longnegotiations between theECandtheprincipal banana supplying countries.
During thenegotiations, theEChadoffered atariff quota allocation toallcountries interested inthe
ECbanana market inaccordance withtheprinciples setoutinArticle XIIIofGATT. Thenegotiations
resulted inamarket access commitment intheschedule ofconcessions oftheEC,including anallocation
ofatariff quota toallMembers. Thisconcession wasbased ontheBanana Framework Agreement
("BFA") negotiated between theECandcountries thatfigured among themost important suppliers
ofbananas totheEC,namely Colombia, Costa Rica, Nicaragua andVenezuela. Inthecomplaint on
theEC'sregime fortheimportation, saleanddistribution ofbananas, Ecuador, Guatemala, Honduras,
Mexico andtheUnited States challenged, interalia,thelegality ofthose partsoftheEC'sbanana regime
thatimplemented theBFA. Intheview ofColombia, Costa Rica, Nicaragua andVenezuela, their
maincomplaint wasnotthattheECbanana regime wasinconsistent withthemarket access commitment
theEChadaccepted inrespect ofbananas, butthattheregime wasinconsistent withother, moregeneral
obligations thatallMembers hadaccepted inrespect ofallproducts. Thecomplaint therefore raised
thefundamental question ofwhether aspecific market access commitment foragricultural products
ofthetypeincluded intheschedules ofmany Members waslexspecialis inrelation tothemore general
obligations assumed under theWTO agreements, orwhether suchacommitment could bechallenged
inthelightofsuchgeneral rules.
5.88 Colombia, Costa Rica, Nicaragua andVenezuela noted theirinterest inthedispute asboth
signatories oftheBFA andexporters ofagricultural products interested inthestability andbalance
ofthelegal framework governing trade inagriculture. Theprincipal legal argument ofColombia,
Costa Rica, Nicaragua andVenezuela wasthatitwaslegally incorrect toexamine those parts ofthe
ECbanana import regime thatreflected theECmarket access commitment onbananas inthelight
oftheGATTbecause,undertheprovisionsoftheAgreementonAgriculture,marketaccesscommitments
hadtobecarried outasspecified intheschedule oftheMember andthese provisions overrode those
oftheGATT. Subsidiarily, theyalsoargued thatthetariffquota allocation anditsadministration was
consistent withtheGATT because theprovisions oftheBFAontheallocation ofthebanana tariffquota
intheECScheduleconstitutedanagreementbetweentheECandallbananasupplyingcountriesMembers
oftheWTO within themeaning ofArticle XIII:2(d) andbecause theprovisions oftheBFA onthe
allocationofexportlicencesdidnotaffecttradelevelsorsharesbutconcernedthedistributionoffinancial
benefits thatdidnotaccrue under theGATT.
Principal legal arguments
5.89 Colombia, Costa Rica, Nicaragua andVenezuela recalled thattheUruguay Round produced
afundamental systemic change inthefieldofagriculture -fromasituation ofmany non-tariff measures
toatariff-only regime. Twoprinciples hadgoverned thenegotiations: first,allnon-tariff measures
hadtobetransformed intotariffs and,second, themarket access opportunities thatwerealready available
prior totheconclusion oftheRound hadtobemaintained andcertain minimum market access
opportunities hadtobeprovided. Many Members made commitments onmarket access opportunities
intheform oftariff quotas allocated tospecific countries, andmany hadincluded intheirschedules
commitments ontheadministration ofthetariffquotas. IntheviewofColombia, Costa Rica, Nicaragua
andVenezuela, theAgreement onAgriculture acknowledged thatamarket access concession mayrelate
notonlytoatariffconcession butalsotocommitments governing theimplementation andadministration
oftariff quotas. Thisfollowed fromArticle 1(g)oftheAgreement onAgriculture, which defined theWT/DS27/R/USA
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term"market access concessions" asincluding "...allmarket access commitments undertaken pursuant
tothisAgreement"andArticle4.1,whichstatedthat"[m]arketaccessconcessionscontainedinSchedules
relate tobindings andreductions oftariffs, andtoothermarket access commitments asspecified therein".
5.90 Colombia, Costa Rica, Nicaragua andVenezuela argued thatthenegotiators oftheAgreement
onAgriculture hadagreed thatanytariff quota, including theapplicable tariff rateandanyother
conditions related tothetariff quota, should bespecified inSection I-BofPartIoftheschedule of
eachoftheMembers concerned. TheEChadincluded inSection I-BofPartIofitsSchedule LXXX
thefollowing market access commitment: "Initial andfinalquota quantity andin-quota tariff rate:
2,200,000 tonnes -ECU 75pertonne subject totheterms andconditions asindicated intheAnnex".
ThisAnnex setouttheBFA. TheEC'smarket access commitments thuscomprised theprovisions
ontariffquota allocation andadministration setoutintheBFAandwerepartoftheEC'smarket access
commitments under theAgreement onAgriculture.
5.91 Colombia, Costa Rica, Nicaragua andVenezuela argued thatinaccordance withthegeneral
interpretative notetoAnnex 1AoftheWTO Agreement314andArticle 21oftheAgreement on
Agriculture, theAgreement onAgriculture overrode theGATT. Intheirview, these provisions made
itclear, thattheprovisions oftheGATT applied onlytotheextent thattheAgreement onAgriculture
didnotprovide otherwise. Thus, thedrafters oftheAgreement onAgriculture hadclearly expressed
theirintention thatacommitment onsubsidies ormarket access contained inaMember 'sschedule
waslexspecialis inrelation tothemore general obligations under WTO agreements other thanthe
Agreement onAgriculture.
5.92 Colombia, Costa Rica, Nicaragua andVenezuela noted thatfromastrictly legalperspective,
themarket access commitments aswellastheexport subsidy commitments established ineachMember 's
schedule, wereanintegral partoftheGATT asmodified bytheAgreement onAgriculture. Articles 1,
3,4,6,7,8and9thereof permitted thequalification ofgeneral obligations through scheduled
commitments. Intheirview, these provisions modified Article II:1(b) ofGATT. They argued that
itwould thusbelegally incorrect andcontrary tothepurpose andobjective oftheAgreement on
Agriculture toexamine those partsoftheECbanana import regime thatreflected theECmarket access
commitment onbananas inthelightofGATT.
5.93 They argued, furthermore, thatunlike theGATT andtheGATS thatestablished theobligation
toaccord treatment nolessfavourable thanthatprovided intheschedule, Article 4.1oftheAgreement
onAgriculturespecificallyrequiredMemberstocarryouttheirmarketaccesscommitments"asspecified
intheirschedules", notasprovided forunder theGATT. Consequently, Colombia, Costa Rica,
Nicaragua andVenezuela argued thatthequestion thePanel needed toexamine waswhether theEC
banana regime wasconsistent withitsmarket access commitment onbananas, notwhether itwas
consistent withtheGATT.
5.94 Colombia,CostaRica,NicaraguaandVenezuelasubmittedthatunliketheGATT,theAgreement
onAgriculture permitted thequalification ofgeneral obligations through scheduled commitments.
Thetariffconcessions made under theGATT 1947resulted inmostinstances fromprotocols accepted
onlybythecontracting parties thatmade theconcessions. Since atreaty could notcreate either
obligations orrights fornon-signatory States without theirconsent,315theseGATT 1947tariffprotocols
could onlybeusedtoassume obligations inaddition tothose setoutunder theGATT 1947 -notto
314"Intheevent ofaconflict between theprovisions ofthe[GATT 1994] andtheprovisions ofanother agreement in
Annex 1Atothe[WTO Agreement], theprovisions oftheother agreement shall prevail totheextent oftheconflict."
315SeeArticle 34oftheVienna Convention ontheLawofTreaties.WT/DS27/R/USA
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diminish therights ofthirdcontracting parties under thatAgreement. Moreover, Article II:1(b) merely
permitted aMember tomake atariff concession initsschedule "subject totheterms, conditions or
qualifications setforthinthatschedule", which made clearthatitwasonlythetariff concession and
nottheobligations under theGATT 1994 thatcould bequalified through schedule provisions. For
these reasons, Colombia, Costa Rica, Nicaragua andVenezuela argued thatthe1989 panel report on
United States -Restrictions onImports ofSugar316correctly rejected thecontention oftheUnited States
thatanoteinitsSchedule inwhich ithadreserved therighttoimpose quota limitations onimports
ofsugar justified import restrictions onsugar inconsistent withArticle XIofGATT 1947. The
Complaining parties 'reference tothispanel wasnotpertinent.
5.95 Incontrast, theyargued, themarket access commitments under theAgreement onAgriculture
werepartoftheWTO agreements which allMembers, including theComplaining parties, hadaccepted -
there were nonon-signatory, third Members inrespect ofsuch market access commitments.
Furthermore, theAgreement onAgriculture wasbased onalegalconcept fundamentally different from
thatoftheGATT, i.e.theAgreement onAgriculture regulated therelationship between itandthe
schedule commitments inadifferent manner. According toColombia, Costa Rica, Nicaragua and
Venezuela, thiswasreflected bythefactthattheGATT wasessentially aframework agreement for
theincorporation oftheresults oftariffnegotiations intoschedules while theAgreement onAgriculture
andthescheduled commitments negotiated under itconstituted together theresult ofanegotiation on
thefirststage ofagricultural reform.
5.96 Colombia, Costa Rica, Nicaragua andVenezuela submitted thattheparticipants intheUruguay
Round weretherefore permitted tousetheprocess ofscheduling commitments onparticular products
tobothaddtoandqualify obligations thattheywould havehadunder theAgreement onAgriculture
intheabsence ofscheduled commitments forthese specific products. Thus, according toArticle 8
oftheAgreement onAgriculture, thegeneral prohibition ofexport subsidies didnotapply toaMember
thataccorded asubsidy inaccordance "with commitments asspecified inthatMember 'sSchedule" -
aqualification ofgeneral obligations regarding export subsidies. Thesame applied, intheirview,
tothemarket access commitments assumed inaddition toatariff concession. These commitments,
too,were, according toArticle 4.1oftheAgreement onAgriculture, "asspecified" ineachMember 's
schedule irrespective ofwhether theycorresponded toobligations setoutinWTO agreements other
thantheAgreement onAgriculture. Thewords "asspecified" implied thatthe"other market access
commitments" -meant andunderstood torelate tocountry-specific tariff quota allocations -hadto
becarried outexactly assetoutintheschedules.
5.97 Colombia, Costa Rica, Nicaragua andVenezuela considered thatwhile onemayregret that
thedrafters oftheAgreement onAgriculture decided topermit Members toinclude intheirschedules
specific provisions thatoverrode orqualified provisions inWTO agreements establishing general
obligations, theroleofthePanel wasnottoassess themanner bywhich thedrafters oftheAgreement
onAgriculture expressed theirintention. What wasimportant forthePanel wasthatthedrafters of
theAgreement onAgriculture hadclearly expressed theirintention thatacommitment onsubsidies
ormarket access contained inaMember 'sschedule waslexspecialis inrelation tomore general
obligations under WTO agreements other thantheAgreement onAgriculture.
5.98 Colombia, Costa Rica, Nicaragua andVenezuela submitted thatthemarket access commitments
made under theAgreement onAgriculture constituted inlarge partsettlements ofdisputes on:the
interpretation andapplication oftheprovisions ofGATT 1947 thathadarisen prior totheUruguay
Round; disagreements inthecourse oftheUruguay Round about theadherence totheguidelines for
negotiations; andpotential future disputes about theprecise implementation ofthemarket access
316BISD 36S/342-343.WT/DS27/R/USA
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commitments. Theprovisions relating totheBFAintheEC'smarket access commitments hadprecisely
these functions: theywerenotdesigned tocircumvent GATT provisions. IfthePanel weretodecide
toreview theBFA provisions inthelightoftheprovisions oftheGATT, itwould, intheirview,
effectively decide thatallmarket access commitments could besubject tosuchareview andwould
therefore reopen the"Pandora 'sBox" ofendless disputes thatthenegotiators oftheAgreement on
Agriculture hadsucceeded closing afterlongandarduous negotiations. Eachofthecommitments that
governed theallocation andadministration ofthetariff quotas resulted from anegotiation inwhich
notonlytheMember thatassumed thecommitment, butalsothose Members thatbenefited fromthem,
hadmade compromises. Inmany cases, thebeneficiary Members hadagreed toaproposed tariffquota
levelonthecondition thatissues regarding theallocation andadministration ofthequota wereclearly
settled. Theprovisions ofArticle 4.1oftheAgreement onAgriculture made clearthatinsuchcases
boththetariffconcession (thatisthetariffquota levelandin-quota tarifflevel) andtherelated market
access commitments (thatistheallocation ofthequota among countries) hadthesame legalstatus.
5.99 Furthermore, under theWTO agreements, thelegalstatus ofamarket access commitment did
notdepend onitsconformity withthecriteria andprocedures usedtonegotiate it.Theproposal to
include intheAgreement onAgriculture aprovision withthateffect wasspecifically rejected. The
legalstatus ofmarket access commitments inserted inaschedule wasgoverned bythesame rulesthat
governed thelegally binding nature ofallother provisions oftheWTO Agreement: i.e.theywere
accepted andratified asasingle undertaking317andwithnoreservations, except asotherwise provided
intheMultilateral Trade Agreements318.Thelawdidnotdistinguish between treaty provisions that
were inserted atanearly stage ofthenegotiations andthose which were inserted inthefinalstage.
Itfollowed fromtheabove thatanyshortcomings thatmayhavearisen during thenegotiating process
could have been corrected onlyduring thenegotiating process. Neither WTO lawnorgeneral
international lawpermitted aState toaccept theWTO Agreement andsubsequently invoke afailure
tofollow theprocedures foritsnegotiation asgrounds foritsinvalidity.
5.100 Inreference toGuatemala 'sclaims, Colombia, Costa Rica, Nicaragua andVenezuela submitted
thatwhatever rights Guatemala hadduring theUruguay Round negotiations suchastherighttoraise
theissue ofalleged shortcomings intheverification process intheTrade Negotiations Committee or
therighttodecide nottojointheWTO, werelostasaresult ofitsacceptance oftheWTO Agreement
because thatacceptance could notbemade subject toareservation concerning theEC'sSchedule.319
Given thefactthatGuatemala could notatthesame timebeaMember andmake avalid reservation
withrespect totheECmarket access commitment, itsletter totheDirector-General could haveonly
oneofthefollowing legalconsequences: either Guatemala 'sacceptance oftheWTO Agreement was
nullandvoidandGuatemala wasnotaMember oftheWTO orGuatemala 'sreservation wasnulland
voidbecause ofArticle XVI:5 oftheWTO Agreement.
5.101 Colombia, Costa Rica, Nicaragua andVenezuela argued thatifthePanel were todecide to
review themarket access commitments inthelightoftheprovisions oftheGATT, itwould review
thelegalstatus ofonlythatpartofthenegotiated compromise which wasbeneficial totheexporting
Members, notthepartthatwasbeneficial totheimporting Member. ThePanel would thenpotentially
create alegalsituation under which Members would bedeprived ofthesecurity ofthemarket access
benefits theyhadnegotiated under theAgreement onAgriculture without having anypossibility to
change thelevel oftariff concessions theyhadaccepted toobtain thatsecurity. Thiswould, inthe
viewofColombia, Costa Rica, Nicaragua andVenezuela, produce anenormous imbalance intherights
317WTO Agreement, Article II.
318Idem, Article XVI:5.
319Idem.WT/DS27/R/USA
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andobligations under theAgreement onAgriculture. Notonlywould itbeinconsistent withthewording
oftheprovisions ofAgreement onAgriculture butalsocontrary totheirpurpose andobjective.
Subsidiary legal arguments
5.102 Colombia, Costa Rica, Nicaragua andVenezuela argued that,although theprinciples on
non-discrimination setoutinArticle XIIIofGATT weredifficult toapply inthecaseofanallocation
oftariff quota shares among supplying countries, theallocation ofthebanana tariff quota intheEC
SchedulewasconsistentwithArticleXIIIsinceitreflectedanallocationagreedbyallMembers,including
allbanana supplying country Members, andmettherequirements foraunilateral allocation. Although
ideally theallocation ofatariffquota among supplying countries should result inadistribution oftrade
equivalent tothedistribution thatwould prevail intheabsence ofthequota, thatdistribution wasnever
known andtheintroductory sentence ofArticle XIII:2 therefore merely obliged Members toaim"as
closelyaspossible"atthatdistribution.AccordingtoArticleXIII:2(d),Membersmaybasetheallocation
ontheshares during "aprevious representative period ...dueaccount being taken ofanyspecial factors
which may...beaffecting thetrade intheproduct ...". Since itwasdifficult todetermine which
previous period was"representative" andwhich "special factors" called foramodification oftheallotted
share, thismethod wasdifficult, ifnotimpossible toapply. Theexample wasgiven ofaMember
which transformed animport prohibition intoatariff quota allocated among supplying countries. In
thatcaseanallocation based onaprevious representative period wasnotpossible.
5.103 According toColombia, Costa Rica, Nicaragua andVenezuela, these inherent difficulties in
allocating quotas among supplying countries ledthedrafters oftheGATT todecide thatthepreferred
method ofallocating import quota shares would beanagreement withthesupplying countries.
Article XIII:2(d) therefore provided that:
"Incasesinwhichaquotaisallocatedamongsupplyingcountriesthecontractingpartiesapplying
therestrictions mayseekagreement withrespect totheallocation ofshares inthequota with
allother [Members] having asubstantial interest insupplying theproduct concerned."
Anallotment inaccordance with aprevious representative period should beused according to
Article XIII:2(d), second sentence, only when anallocation byagreement was"notreasonably
practicable".
5.104 Colombia, Costa Rica, Nicaragua andVenezuela argued thatinthecaseathand, theprovisions
ontheallocation andadministration ofquotas oftheBFAhadnotonlybeenagreed among thesignatories
oftheBFAbuthadbeenformally accepted byallMembers. They therefore constituted anagreement
ontheallocation oftariffquota shares within themeaning ofArticle XIII:2(d). Colombia, Costa Rica,
Nicaragua andVenezuela noted thattheallocation ofthetariff quota shares, while formally accepted
byallMembers, didnotsatisfy allofthem. Eachbanana supplying country buttressed withstatistics
hadclaimed tobeentitled toagreater share ofthetariff quota. Thus, neither thesignatories ofthe
BFAnoranyoftheother countries hadcome outofthenegotiations fullysatisfied buttheadvantage
ofmaking thetariffquota allocation partofanagreement accepted byallMembers wasthatlegalsecurity
andpredictability ofconditions oftrade could becreated forallofthem. Thelawdidnotdistinguish
between treaty provisions thatwere accepted willingly andthose thatwere accepted reluctantly.
5.105 Colombia, Costa Rica, Nicaragua andVenezuela considered that,eveniftheallocation ofshares
setoutintheECSchedule werenotregarded asanagreed allocation within themeaning ofArticle XIII
ofGATT 1994, itwould nevertheless fallwithin therange ofdiscretion which thisprovision accorded
toimporting Members thatallotted quota tariff shares onthebasis ofaunilateral decision.WT/DS27/R/USA
Page274
Article XIII:2(d) stated that,ifanallocation byagreement wasnotreasonably practicable, theMember
shallallottotheMembers:
"having asubstantial interest insupplying theproduct shares based ontheproportions, supplied
bysuch[WTO Members] during aprevious representative period, ofthetotalquantity orvalue
ofimports oftheproduct, dueaccount being taken ofanyspecial factors which mayhave
affected ormaybeaffecting thetrade intheproduct."
Article XIII:4 stated that:
"theselection oftherepresentative period foranyproduct andtheappraisal ofanyspecial factors
affectingthetradeintheproductshallbemadeinitiallybythe[Member]applyingtherestriction;
Provided thatsuch[Member] shall, upontherequest ofanyother[Member] having asubstantial
interest insupplying thatproduct ...,consult promptly ...regarding theneedforanadjustment
oftheproportions determined orofthebaseperiod selected, orforareappraisal ofthespecial
factors involved ...."
Under thesetwoprovisions, itwasthusuptotheECtoinitially select aprevious representative period,
appraiseanyspecialfactorsaffectingtradeinbananas,allotsharestothesubstantiallyinterestedMembers
accordingly andtothenstand ready toconsult onitsdecisions withthose Members. According to
Colombia, Costa Rica, Nicaragua andVenezuela, theECselected, consistent withrecognized GATT
1947practice,320anappropriate previous representative period, i.e.thethreeprevious years withnormal
trade flows. Intheirview, theEChadchosen fromamong several legitimate andreasonable options
theperiod of1989-1991 because itwasthemostrecent period withreliable dataonexports andimports,
andbecause during thatperiod thespeculative distortions intrade patterns duetotheexpectation of
aunified ECbanana market hadnotyettaken place. Moreover, thatperiod corresponded totheperiod
theEChadchosen fortheestablishment ofthetotaltariffquota. Itwastruethattheperiod of1989-1991
wasnotaperiod freeofrestrictions andtherefore didnotgiveaprecise indication oftheshares that
could reasonably beexpected intheabsence ofrestrictions,321butacomparison ofthedistribution of
imports intothewhole oftheECduring 1989-1991 withthedistribution ofimports intothesixEC
member States thatdidnotmaintain restrictions during thatperiod (seethefollowing table) showed
thedifferences wereonlyverysmall. Thiswasafurther indication thatthereference period chosen
wasareasonable one.
320Seethepanel reports inBISD 27S/116 and36S/130-131.
321Colombia, Costa Rica, Nicaragua andVenezuela noted thatsixofthetwelve member States hadrestrictive regimes
inplace during thatperiod, potentially affecting thedistribution ofimports among supplying countries.WT/DS27/R/USA
Page275
Origin1EC-12 (%) EC-6 (%)
Colombia 20.3 19.7
Costa Rica 25.4 25.3
Ecuador 19.6 17.8
Guatemala 1.5 1.0
Honduras 6.9 6.0
Nicaragua 2.2 2.4
Panama 23.3 25.0
Others10.8 2.9
1Non-preferential imports only.
Source: Calculations based onCOMEXT.
5.106 Furthermore, Colombia, Costa Rica, Nicaragua andVenezuela claimed thattheEChadoffered
tariff quota allocations toallcountries having asubstantial supplying interest. GATT didnotdefine
theterm"substantial interest"; itmerely stated inthecontext ofthewithdrawal ormodification of
aconcession thatthese terms weremeant tocover onlythose Members which had"asignificant share
inthemarket".322Thishadbeeninterpreted inpractice under GATT 1947asreferring tocontracting
parties thatcould "absorb atleast10percentofthemarket".323TheonlyGATT contracting parties
thatqualified atthetimeoftheallotment ofthetariff quota shares ascontracting parties withatrade
share ofmore than10percentwereColombia andCosta Rica. Thus, intheviewofColombia, Costa
Rica, Nicaragua andVenezuela, theECwould havefulfilled itsobligations under Article XIIIifit
haddetermined itstariffquota allotments onlyinconsultation withthesetwocountries. Nevertheless,
theEChadoffered tariff quota allocations notonlytoColombia andCosta Ricabuttoallcountries
thathadexpressed aninterest insupplying theECbanana market, including allcomplainants inthe
GATT 1947panel proceedings ontheECbanana regimes, andseveral non-contracting parties toGATT
1947. Thetable below showed thatthecountry quotas offered totheother interested suppliers
corresponded, withtheexception ofVenezuela, approximately totheshare theyhadintheECmarket
during thereference period chosen.
322Seepara. 7oftheNote AdArticle XXVIII.
323SeetheGATT Secretariat description ofthispractice indocument MTN.GNG/NG7/W/9.WT/DS27/R/USA
Page276
Country-quotas offered toother interested suppliers
Country GATT 1947
status1989-91
NPIEC-12 (%)1Quota offered
December 1993 (%)2BFA
(%)
Ecuador Notcontracting party 19.6 20.2
Panama Notcontracting party 23.3 19.7
Honduras Notcontracting party 6.9 6.8
Guatemala Complaining party 1.5 1.5
Nicaragua Complaining party 2.2 1.9 3.0
Venezuela Complaining party 0 "others" 2.0
NPI: Non-Preferential Imports.
Source:1Calculations based onCOMEXT.
2ECoffer onagriculture, 14December 1993.
5.107 InthecaseofVenezuela, theEChad,consistently withtheprinciples setoutinArticle XIII,
taken intoaccount special factors thataffected thatcountry 'stradeinbananas, according toColombia,
Costa Rica, Nicaragua andVenezuela. Although Venezuela hadnotpreviously exported bananas to
theECinsignificant amounts, large Venezuelan banana growers hadmade significant investments
since early1993tocultivate additional acreage specifically forexport totheECandtheUnited States.
Onthebasis offeasibility studies andexpectations ofthetrend andmarket access conditions inthe
EC,theyhadinvested US$28.6 million overaperiod ofthree years toexpand production forexport.
Thisfundamental commercial interest explained whyVenezuela hadparticipated asacomplainant in
theproceedings ofthetwoGATT 1947 panels ontheECbanana regime andinthecontext ofthe
Uruguay Round inthebilateral market access negotiations thatledtotheBFA.
5.108 Furthermore, Colombia, Costa Rica, Nicaragua andVenezuela submitted, thattheEChad
allocated, inconformity withthepractice ofmany Members under Article XIIIofGATT, aquota share
notonlytomajor named supplying countries butalsoaresidual quota toallother supplying countries.
Theresidual quota amounted to50.6percentlessthe90,000 tonnes allocated tonon-traditional bananas
from theACP countries. Thispercentage reflected theshare oftheother supplying countries during
thereference period.
5.109 Colombia, Costa Rica, Nicaragua andVenezuela noted thatcountry-specific quota allocations
established, ingeneral, notonlytheminimum butalsothemaximum quantity which maybeexported.
Anyshortfall byoneofthecountries towhich suchanallocation hadbeenmade could notnormally
bemade upbyanother suchcountry. Thisputsuchcountries atadisadvantage inrelation tothe"other"
countries benefiting from acommon residual quota because eachofthese countries could export the
quantities notexported byanother. Inthecaseinpoint, however, theynoted thattheEChaddecided
toputthenamed countries andthe"other" countries onthesame footing inthisrespect bymaking
thequota allocations transferable among thenamed countries. Thistransferability ofthecountry-specific
tariff quota shares raised thelevel ofimports intotheECbyensuring that, over time, each
country-specific quota wasfully utilized inlinewiththespirit ofArticle XIII:2 ofGATT. The
transferability hadledmerely tosmall, transitory changes thatdidnotaffect theoverall distribution
ofimports intotheECandthatdidnotgobeyond whatwasrequired toensure afullutilization of
thecountry-specific quotas. TheEChadthusdistributed theresulting trade shares "asclosely asWT/DS27/R/USA
Page277
possible" inproportion totheshares thatmight beexpected intheabsence ofthequota limitations,
taking intoaccount thelegalrequirement topermit afullutilization ofeachquota allotment.
5.110 Inevaluating theEC'sallotment ofshares, Colombia, Costa Rica, Nicaragua andVenezuela
submitted thatthePanel should takeintoaccount theenormous difficulties theEChadfaced inapplying
theprinciples ofArticle XIIIofGATT 1947 toitstransformation ofthediverse import regimes of
itsmember States intoanEC-wide regime. Sixofitsmember States hadapplied restrictions fora
longperiod oftimeandtheexpectation ofthetransformation hadgiven risetospeculative transactions.
Moreover, changes inproduction patterns inLatin America, inparticular inVenezuela, hadtaken place.
Boththedetermination ofarepresentative period andtheappraisal ofthespecial factors thataffected
trade inbananas weretherefore extremely difficult tomake. Against thisbackground, anyobjective
observer could notbutconclude thattheofferoftariffquota shares bytheECconstituted anappropriate
exercise ofthediscretion itwasentitled toexercise inaccordance withArticle XIII:2 and4ofGATT
haditnotsuccessfully sought anagreement tosettle thedifficult issuewithallMembers inthecontext
oftheUruguay Round inaccordance withArticle XIII:2(d).
5.111 AccordingtoColombia,CostaRica,NicaraguaandVenezuela,theComplainingparties'argument
thattheadministration ofthetariff quotas, inparticular theexport certificate system applicable to
signatories oftheBFA, wasinconsistent withArticle XIIIofGATT wasbased onamisconception
ofthebenefits accruing under thisprovision andtheGATT generally. Article XIII, liketheother
non-discrimination provisions oftheGATT, obliged Members toextend advantages accorded toany
product tosimilar products originating from, ordestined for,theterritories ofallMembers; Article XIII
didnotoblige Members toextend totheproducers ofallMembers thebenefits extended tooneof
them. Theterms ofArticle XIIIreferred onlytothedistribution ofshares oftrade, notshares inquota
rents, andthesame applied totheLicensing Agreement. AlsoArticles I,III,andXIofGATT applied
solely tothetreatment ofproducts nottothetreatment ofproducers orinvestors. Itwascorrect to
saythatArticle IofGATT applied toallrules andanyadvantage, buttheComplaining parties had
overlooked thatArticle Iapplied onlytorulesinconnection withimportation andonlytoadvantages
accorded toproducts. Intheirview, theComplaining parties hadnotexplained howtheexport certificate
system could beregarded asaccording anadvantage toaproduct inconnection withimportation. They
agreed thatArticle IIIapplied onlytomeasures thatdistinguished between likeproducts ofdomestic
andforeign origin, notmeasures distinguishing between producers, asthetwotuna/dolphin panels
hadconfirmed. Intheirview, thesame applied totheLicensing Agreement whose principal purpose
was"toensure thatimport licensing procedures arenotutilized inamanner contrary totheprinciples
andobligations oftheGATT". Forthesereasons, Members werefreetoallocate thein-quota licences
toanyenterprise from anyMember aslongasthatallocation didnotentail discrimination between
products ofdifferent origins ordestinations. Colombia, Costa Rica, Nicaragua andVenezuela claimed
thattheexport certificate system served solely todistribute thefinancial benefits arising fromthequota
system which werematters notcovered bytheGATT andtheLicensing Agreement. Itdidnotaffect
inanywaythelevelofimports ofbananas intotheECnorthedistribution oftrade among exporting
countries. Thesystem thusdealtwiththedistribution ofbenefits thatsimply didnotaccrue under
theGATT.
5.112 Furthermore, theAgreement onSafeguards made itperfectly clearthattheallocation oftrade
shares hadtobedistinguished under theGATT fromtheallocation ofthefinancial benefits associated
withtheadministration ofquota regimes. Article 2.2ofthatAgreement stipulated that"[s]afeguard
measures shallbeapplied toaproduct being imported irrespective ofitssource." However, footnote 3
toArticle 11ofthatAgreement provided that:WT/DS27/R/USA
Page278
"Animport quota applied asasafeguard measure inconformity withtherelevant provisions
oftheGATT 1994 andthisAgreement may, bymutual agreement, beadministered bythe
exporting Member."
Thedrafters ofthisAgreement thushadconsidered thatthetreatment ofproducts under animport
quota system hadtobedistinguished fromother aspects oftheadministration ofquota system andthat
aquota allocation could beconsistent withArticle XIIIofGATT eveniftheadministration ofthequota
system varied between Members.
5.113 Moreover, Colombia, Costa Rica, Nicaragua andVenezuela, claimed thatthePanel should
consider thebroad implications thatanacceptance oftheinterpretations advanced bytheComplaining
parties would entail. Most Members thatallocated tariff quotas among supplying countries didsoby
allocating ashare tonamed countries constituting themain suppliers andaresidual share to"other
countries". Theproducers ofthenamed countries could easily obtain thefinancial benefits associated
withaquota regime byforming anexport cartel orbyasking theirgovernment tochannel exports
through asingle agency inaccordance withArticles XVII andXX(d) ofGATT; the"other countries"
neededtocooperatewithoneanothertosecurethatfinancialbenefit,whichwasinherentlymoredifficult.
Inspiteofthisdifferent impact onproducers ofdifferent countries, thismethod ofallocating trade
shares among countries hadnever been challenged inthewhole history oftheGATT. If,asthe
Complainants hadsuggested, Article IorArticle XIIIofGATT weretobeinterpreted tooblige countries
notonlytoafford equal tradeopportunities butalsoequal opportunities toobtain thefinancial benefits
arising fromtheadministration ofquotas, aquota allocation mechanism usedbypractically allMembers
thatusequotas, including theUnited States, would beillegal.
5.114 According toColombia, Costa Rica, Nicaragua andVenezuela, theclaim thattheadministration
ofthetariff quota wasinconsistent withtheLicensing Agreement wasequally based onatotal
misconception oftheobjective oftheAgreement. TheAgreement prescribed inArticle 3.5(e) that
"anyperson, firmorinstitution which fulfils thelegalandadministrative requirement oftheimporting
Member shallbeequally eligible toapply andtobeconsidered foralicence". Neither thisnorany
other provision oftheLicensing Agreement constrained therightofimporting Members todetermine
whocould obtain animport licence. Asitsname indicated, theAgreement merely obliged Members
toadminister whatever legalandadministrative requirements theyadopted inatransparent, predictable
andleastburdensome manner. Colombia, Costa Rica, Nicaragua andVenezuela claimed, however,
thatalltheevidence theComplaining parties hadsubmitted tothePanel tosupport theirclaim that
theEChadviolatedtheLicensingAgreementrelatedtothelegalandadministrativerequirementsimposed
byEClegislators andnottotheapplication oftherequirements byECadministrators. Moreover, some
oftheComplaining parties 'allegations related totherequirements imposed notbytheEC,butbybanana
exporting countries andtherefore didnotconcern thematter before thePanel.
5.115 Colombia, Costa Rica, Nicaragua andVenezuela further submitted thattheUnited States had
brought thecomplaint against theECbanana regime nottodefend itstradeinterests inbananas, which
wereminimal, buttodefend theinvestment interests ofUnited States enterprises inother countries,
anditwasnowtrying tomake thePanel accept interpretations thatwould turntheprovisions ofGATT
onthetreatment ofproducts intoprovisions onthetreatment ofinvestors. ThePanel should, inthe
viewofColombia, Costa Rica, Nicaragua andVenezuela, taketheinterpretations thathadbeenproposed
bytheComplaining parties forwhattheywere, anattempt toturnatradeagreement intoaninvestment
agreement, andreject them accordingly.WT/DS27/R/USA
Page279
Conclusions
5.116 Colombia, Costa Rica, Nicaragua andVenezuela requested thePanel toreject theComplaining
parties 'argument thatthose parts oftheECbanana import regime thatimplemented theprovisions
oftheBFAsetoutintheEC'smarket access commitment wereinconsistent withtheEC'sobligations
under theWTO agreements. They stated that,justastheComplainants, theywould havepreferred
theaccess totheECbanana market tobefreeandunencumbered byacomplex tariff quota allocation
scheme. However, incontrast totheComplaining parties, Colombia, Costa Rica, Nicaragua and
Venezuela recognized thatthisgoalcould onlybeattained bynegotiation. TheGATT clearly permitted
theECtoimpose hightariffs, establish tariff quotas andallocate ofsuchquotas tospecific countries
which maysecure thefinancial benefits generated bythequotas through export monopolies, andthe
CONTRACTING PARTIES totheGATT 1947granted theECtherighttoaccord preferential treatment
toACP bananas. Afundamental change inthatregime could therefore notbeachieved through the
WTO dispute settlement procedures. Colombia, Costa Rica, Nicaragua andVenezuela therefore sought
anagreement withtheECcommitting ittoastable andpredictable administration oftheregime itwas
legally entitled tointroduce.
5.117 TheGATT rulesgoverning thequota allotments wereextremely difficult toapply andleftthe
importing Member substantial discretion inthechoice oftheprevious representative period andinthe
appraisal ofspecial factors. Moreover, ifaWTO panel considered aMember 'squota allotment to
beinconsistent withArticle XIIIofGATT, itcould notprescribe aspecific newquota allotment because
itwould thereby takeaway theMember 'srighttoexercise thediscretion accorded bythisprovision.
Anegative finding ofapanel onaspecific quota allotment could therefore befollowed byanewdispute
ontheallotment putinplace toreplace theoriginal illegal allotment, andsoon.Members facing tariff
quotas therefore hadalegitimate interest insettling byagreement allthecomplex issues towhich the
administration ofthetariff quotas gave rise. Thelegitimacy ofthatinterest wasrecognized in
Article XIII:2 ofGATT, which declared quota allotments byagreement tobethepreferred method
ofallocation, andArticle 4.1oftheAgreement onAgriculture which puttariffconcessions andmarket
access commitments related totheimplementation ofthetariff concessions onanequal legalfooting.
ThePanel, too,should recognize thelegitimacy ofsettling thorny quota allocation andadministration
issues aspartofanegotiation ontariffs andtariff quotas.
5.118 Furthermore, Colombia, Costa Rica, Nicaragua andVenezuela claimed thattheissue before
thePanel wasthelegalstatus ofallsuchsettlements included inmarket access commitments exchanged
under theAgreement onAgriculture, notmerely those reflected intheBFA. Atissue wasthebasic
question ofwhether theAgreement onAgriculture wasinterpreted asanessentially self-standing
agreementsettlingtheextremelydifficultandcomplexquestionarisingintheallocationandadministration
oftariff quotas andproviding legalcertainty inagricultural trade, orasanagreement whose content
could beendlessly challenged inthelightoftheprovisions ofother WTO agreements. IfthePanel's
reasoning weretopermit suchendless challenges, itcould ruleinfavour oftheComplaining parties
onlyifitweretodenyMembers therighttosettle quota allocation issues byagreement andifitwere
torulethatthebenefits accruing under theGATT wentbeyond thetreatment ofproducts andthose
accruing under theLicensing Agreement wentbeyond procedural issues. Itwould beextremely serious
forthePanel tofailtorecognize thebroad implications oftherulings ithadbeen asked bythe
Complaining parties tomake.WT/DS27/R/USA
Page280
5.119 TheWTO 'sdispute settlement system "serves topreserve therights andobligations of
Members"324.Themain function oftheinterpretative process panels wereengaged inmusttherefore
betoascertain andconfirm theunderstandings thathadbeenreached during theUruguay Round, not
tounravel these understandings. According toColombia, Costa Rica, Nicaragua andVenezuela, an
interpretation leading toaone-sided elimination ofspecifically negotiated andclearly expressed
commitments onthegrounds thattheyrancounter tomore general commitments would becontrary
tothisprinciple andtherefore would castserious doubts onthecredibility oftheWTO 'sdispute
settlement process andthepolitical acceptability ofthedecisions thatemerged from it.
324Article 3oftheDSU.WT/DS27/R/USA
Page281
INDIA
5.120 Indianoted thattheECmarket forimported bananas wasthelargest intheworld, withimports
in1995totalling approximately 30percentofallbananas traded globally. Although notasignificant
exporter ofbananas, India wastheworld 'slargest producer oftheproduct, withproduction totalling
about 9.5million tonnes in1995 outoftotalworld production of54.5million tonnes. India had,
therefore, anunderstandable interest intheECimport regime forthisproduct.
TheLomé Convention andtheLomé waiver
5.121 Thepreferential treatment given totheACPdeveloping countries bytheECinitsimport regime
forbananas wasbased ontheprovisions oftheFourth Lomé Convention, signed on15December 1989,
andnotified totheGATT on16December 1992. Theparties totheLomé Convention initially claimed
thattheLomé Convention wasgenuinely compatible withArticle XXIV andPartIVofGATT 1947.
Indianoted thatduring theGATT Council discussions ontheLomé Convention, itwasgenerally agreed
thattheLomé Convention was,byanystandard, themostcomprehensive eversigned between agroup
ofindustrial countries oftheNorth andagroup ofdeveloping countries oftheSouth, andthatthere
wasgeneral recognition among GATT contracting parties thatitsobjectives werecommendable. The
Lomé Convention wasnotconcerned solely withproviding ACPStates preferential access totheEC
market. Article 4oftheLomé Convention stated thatsupport would beprovided inACP-EEC
cooperation fortheACP States 'efforts to"achieve comprehensive self-reliant andself-sustained
development, based ontheircultural andsocial values, theirhuman capacities, theirnational resources
andtheireconomic potential inorder topromote theACPStates 'social, cultural andeconomic progress
andthewell-being oftheirpopulations, through satisfaction oftheirbasic needs ...". With specific
reference tobananas, India noted thatProtocol 5oftheLomé Convention stipulated: "Inrespect of
itsbanana exports totheCommunity markets, noACP State shallbeplaced asregards access toits
traditional markets anditsadvantages onthose markets, inalessfavourable situation thaninthepast
oratpresent" (Article 1).Under thisprovision, theACPStates appeared tohavealegalrighttoobtain
preferential treatment fortheirexports ofbananas totheECmarket.
5.122 Indiarecalled thattheparties totheLomé Convention made ajointrequest totheGATT Council
forawaiver from theobligations oftheECunder Article I:1onthebasis ofArticle XXV:5 of
GATT 1947, withrespect tothe"granting ofpreferential treatment forproducts originating intheACP
countries asforeseen under therelevant provisions oftheFourth Lomé Convention, fortheduration
oftheConvention". TheGATT Council granted awaiver fortheperiod upto29February 2000,
"totheextent necessary topermit theEuropean Communities toprovide preferential treatment for
productsoriginatinginACPStatesasrequiredbytherelevantprovisionsoftheFourthLoméConvention,
without being required toextend thesamepreferential treatment tolikeproducts ofanyothercontracting
party". India further recalled thereasoning given bytherepresentative oftheACPcontracting parties
inseeking thiswaiver, i.e.forthe"legal certainty" ofthetrade ofvulnerable developing countries.
Conclusion
5.123 Against thebackground given above, India requested thePanel tolookatthedispute inthe
lightofthewaiver jointly obtained bytheECandtheACP States sothatthelegalcertainty derived
outofthewaiver decision inrespect ofthesignificant market access preferences extended totheACP
countries wasnotdiluted orimpaired.WT/DS27/R/USA
Page282
JAPAN
5.124 Japan submitted thatoneofthemainissues addressed inthisdispute concerned theconsistency
oftheEC'stariffquota system fortheimportation, saleanddistribution ofbananas withtheAgreement
onImport Licensing Procedures (the"Licensing Agreement").
Non-applicability oftheAgreement onImport Licensing Procedures totariff quota systems
5.125 Japan noted thatparagraph 1ofArticle 1oftheLicensing Agreement defined "import licensing"
as"administrativeproceduresusedfortheoperationofimportlicensingregimesrequiringthesubmission
ofanapplication orother documentation (other thanthatrequired forcustoms purposes) totherelevant
administrative body asaprior condition forimportation intothecustoms territory oftheimporting
Member".
5.126 According toJapan, however, atariff quota wasasystem inwhich thein-quota tariffratewas
applied fortheimports within thequota andanover-quota tariffratewasapplied fortheimports beyond
thequota. Under these systems, imports could bemade beyond thequota quantity bypaying theover-
quota tariff. Inthisrespect, atariffquota system wasclearly distinct fromanimport quota (quantitative
restriction) system inwhich animport licence wasapriorcondition forimportation. Thus, intheview
ofJapan, obtaining anallocation ofatariff quota wasnotaprior condition forimportation within the
meaning ofparagraph 1ofArticle 1oftheLicensing Agreement. Accordingly, Japan wasoftheview
thattariff quota systems were notcovered bytheLicensing Agreement.
5.127 Furthermore, Japan submitted thatthenotification practice under theTokyo Round Agreement
onImport Licensing Procedures (the"Tokyo Round Agreement") supported thisinterpretation. Japan
believed thatinresponding tothequestionnaire onimport licensing procedures under theTokyo Round
Agreement, atthebeginning ofitsimplementation, nocontracting partynotified itstariffquota systems
asimport licensing procedures. Therefore, Japan considered thatcontracting parties atthattimedid
notholdanyrecognition orinterpretation thatthetariffquota system wascovered bytheTokyo Round
Agreement. Thecurrent Licensing Agreement waslargely based onthetextoftheTokyo Round
Agreement. Thedefinition of"import licensing" inparagraph 1ofArticle 1ofthecurrent Agreement
wasalmost identical. Theonlydifference between thetwo,inJapan'sview, wasverytechnical, i.e."the
importingcountry"attheendofthesentenceofparagraph1ofArticle1oftheTokyoRoundAgreement,
hadbeenreplaced with"theimporting Member". Japan submitted itdidnotseeanyreason tochange
theinterpretation withtheentry intoforce oftheWTO Licensing Agreement, given suchanidentity
oftexts.
Conclusion
5.128 Forthese reasons, Japan believed thattheLicensing Agreement wasnotapplicable totariff
quota systems. Japan therefore requested thatthePanel findthatthetariff quota system atdispute
wasnotcovered bytheLicensing Agreement andthereby didnotcause anyconsistency problem with
respect totheLicensing Agreement.WT/DS27/R/USA
Page283
THE PHILIPPINES
5.129 Asamajor banana exporting country, thePhilippines stated thatitattached great importance
tothedevelopments intheglobal trade oftheproduct, particularly withrespect totheinfluence of
ECpolicies ontrade inbananas inother markets. ThePhilippines claimed thattheECmeasures had
anegative influence onprices inother markets supplied bythePhilippines. While thePhilippines
sympathized withtheextension ofdevelopmental assistance andrecognized thevalue ofnon-reciprocal
advantages accorded bydeveloped countries todeveloping countries, thePhilippines emphasized that
Members must fullyconform withtherules anddisciplines ofthemultilateral trading system.
Preliminary arguments
5.130 According tothePhilippines, theEChadpointed outinitssubmissions, thatbyvirtue of
Article II:7ofGATT, itsconcession onbananas wasanintegral partofArticles IandIIofthe
Agreement. Assuch, Article IofGATT could notbemade toprevail ontheterms andconditions
oftheconcession asthiswould mean giving priority toapartofArticle Ioverother partsofthesame
Article, assupplemented bytheconcession. TheEChadconcluded thatnoclaim could therefore be
made onitsconcession withregard toaviolation ofArticle I.According tothePhilippines, theEC
further stated thattheother provisions oftheGATT were alsotobeapplied taking intoaccount at
thesame timetwoelements: thecontent oftheconcessions, andtheMFN principle assupplemented
bytheconcession. TheEChadalsoexcluded, according tothePhilippines, theapplicability of
Article XIIIofGATT toitsconcession onbananas asitclaimed thatallparties hadagreed intheUruguay
Round negotiations totheconcession.
5.131 ThePhilippines considered that,withregard toArticle I,theinconsistency oftheconcession
persewiththeMFN principle wasnottherelevant issue inthiscase. Rather, theissue, asfarasthe
MFN principle related totheECconcession, rested essentially onthemanner ofadministration ofsuch
aconcession. ThePhilippines believed thattheconsequences ofArticle II:7didnotrender theother
provisions oftheGATT inapplicable totheterms andconditions oftheconcession. TheReport of
theReview Working Party onOther Barriers toTrade (BISD 3S/225), which wasadopted bythe
CONTRACTING PARTIES in1955, concluded that:
"...there wasnothing toprevent theContracting Parties, when theynegotiate forthebinding
orreduction oftariffs, fromnegotiating onmatters, suchassubsidies, which might affect the
practicaleffectsoftariffconcessions,andfromincorporatingintheappropriatescheduleannexed
totheAgreement theresults ofsuchnegotiations; provided thattheresults ofsuchnegotiations
should notconflict withother Articles oftheGeneral Agreement".
5.132 Furthermore, theSugar Headnote325panel tooknoteoftheabove statement bytheReview
Working Party andconcluded that,whether asapolicy recommendation orasaconfirmation ofalegal
requirement, theproviso intheReview Working Party'sdecision supported theconclusion that
contracting parties didnotenvisage thatqualifications inschedules justified measures inconsistent with
theother Articles oftheAgreement. InthePhilippines 'opinion, boththeconclusions bytheReview
Working Party andtheSugar Headnote panel confirmed thatother provisions oftheGATT were
applicable totheterms, conditions andqualifications attached totheconcessions asspecified inthe
schedules.
325BISD 37S/228.WT/DS27/R/USA
Page284
5.133 ThePhilippines alsosubmitted thattheEChadcontended thatallparties hadagreed tothe
ECconcession onbananas intheUruguay Round. IntheviewofthePhilippines, thiswasnotafactual
reflection ofthesituation. Itwaswellknown thatsome contracting parties hadregistered theirconcerns.
Infact,Guatemala andHonduras hadsubmitted written reservations totheDirector-General ofthe
GATT. When acceding totheWTO Agreement, these countries hadmaintained theirdisagreement
withtheECconcession onbananas andhadreserved theirrights tobring thematter totheappropriate
WTO body.
5.134 According tothePhilippines, theEChadargued thatthescope oftheLomé Convention, which
wascovered bytheLomé waiver, wasnotlimited toextending preferential treatment onlytotraditional
ACP banana exports, butcovered exports from allACP countries. Moreover, theEChadclaimed
thattheLomé Convention allowed fortheadoption ofallpossible measures thatwould enable theEC
toprovide preferential treatment toACPcountries. ThePhilippines submitted that,byitsownterms,
theLomé waiver waslimited inapplication onlytoECmeasures inconsistent withArticle I:1ofGATT
andwhich were required bytheLomé Convention. TheLomé waiver thusdidnotcover measures
inconsistent withother provisions oftheGATT.
Specific legal arguments
5.135 IntheviewofthePhilippines, theECtariff quota distribution didnotconform withGATT
Article XIIIwhich required thatthedistribution ofquotas should approach asclose aspossible the
shares which Members might beexpected toobtain intheabsence oftherestriction. ThePhilippines
found theECallocation lacked inhistorical orcommercial basisandthattheEChadfailed topresent
anyother objective rational foritsallocation. ThePhilippines considered inappropriate theuseofthe
latest three years prior toimplementation (1989-1991) astherepresentative period, considering that
these wereprecisely years when theinconsistent measures wereinplace intheEC.The1980 report
oftheApple Panel326stated:
"Due totheexistence ofrestrictions in1976, thePanel heldthatthatyearcould notbe
considered asrepresentative, andthattheyearimmediately preceding 1976 should beused
instead."
5.136 Moreover, thePhilippines believed thathaving allocated import quotas tosome Members but
failing todosoforothers which hadequal ifnotmore substantial supplying interest ontrade inthe
product constituted aviolation ofGATT Article XIIIbytheEC. Inthecaseofmajor supplying
countries, inparticular Ecuador, Honduras andGuatemala, thePhilippines believed thattheEChad
failed tohonour itsobligations relevant tothespecific requirement prescribed insubparagraph (d)of
Article XIII:2. Having merely sought agreement withthese countries wasnotsufficient fortheEC
toclaim ithadfulfilled entirely therequirements ofArticle XIII. IntheviewofthePhilippines, the
ECwasclearly notabletocomply withthealternative method prescribed inArticle XIII:2(d) with
respect tosubstantially interested parties, andthereby hadfailed tofulfil itsobligations withrespect
tothatprovision.
5.137 Further, intheview ofthePhilippines, maintaining afairly advantageous import licensing
ruleforACPcountries while imposing alessfavourable procedure forothercountries clearly rancounter
toArticle 1.3oftheLicensing Agreement which prescribed thatimport licensing rulesshallbeapplied
inaneutral, fair,andequitable manner. ThePhilippines believed thattheEChadnoreason notto
apply thelesscomplicated licensing system onthetariff quotas ofthird-country banana exporters.
326"EEC -Restrictions onImports ofApples from Chile" ("Apple Panel"), BISD 27S/98.WT/DS27/R/USA
Page285
Alternative procedures, which weretheusually accepted procedures, included: (i)afirst-come, first-
served basis; (ii)themethod based ontraditional trade flows; and(iii)theallocation ofquotas in
proportion tothequantities requested. ThePhilippines summarized thattheECsystem wasmore
complicated andunnecessarily burdensome fornon-ACP countries.
5.138 ThePhilippines alsomaintained thatthesecond Banana panel findings concerning theEC's
banana import regime remained validinthepresent dispute. Thatpanel hadconcluded thattheEC's
category allocation ofimport licences violated Articles IandIIIofGATT. Bymaintaining thescheme
forCategory Blicences (i.e.making themarketing ofECandACPbananas thecriteria foreligibility
toobtain alicence forthird-country bananas), theECcontinued toviolate, intheviewofthePhilippines:
(i)Article IofGATT byawarding incentives tooperators forthemarketing ofbananas from ACP
countriesandnotfromotherexportingcountries;and(ii)thenationaltreatmentrequirementofArticleIII
ofGATT byprotecting domestic production through theaward ofincentives forthemarketing ofEC
bananas. Indeed, the1978Panel Report onEEC-Measures onAnimal FeedProteins327,inreference
totheEECscheme requiring domestic producers orimporters ofvegetable proteins topurchase acertain
quantity ofsurplus skimmed milkpowder heldbyintervention agencies, hadconcluded thatthemeasures
provided forbytheECwithaviewtoensuring thesaleofagiven quantity ofskimmed milkpowder
protected theproduct inamanner contrary toArticle III:1andIII:5ofGATT. Intheview ofthe
Philippines, theECallocation oflicences linked tooperator categories greatly restricted competition
forthird-country bananas intheECmarket while conferring on,andmaintaining advantages for,
preferred suppliers. Thescheme, which hadtrade distortive andtrade restrictive effects, wasalso
prohibited under Articles 1.2and3.2oftheLicensing Agreement.
Conclusion
5.139 Inlightoftheabove, thePhilippines requested thePanel tofindtheECregime inviolation
ofArticles I,IIIandXIIIofGATT, andArticles 1and3oftheLicensing Agreement.
327BISD 25S/49.WT/DS27/R/USA
Page286
VI. INTERIM REVIEW
6.1 On2April 1997, theEuropean Communities, Ecuador, Guatemala, Honduras, Mexico and
United States requested thePanel toreview inaccordance withArticle 15.2oftheDSUprecise aspects
oftheinterim reports thathadbeenissued totheparties on18March 1997. TheEuropean Communities
alsorequested thePanel toholdafurther meeting withtheparties ontheissues identified initswritten
comments. ThePanel metwiththeparties on14April 1997inorder toheartheirarguments concerning
theinterim reports. Wecarefully reviewed thearguments presented bytheECandbytheComplaining
parties, jointly orindividually, andtheresponses offered bytheother side.
6.2 With respect toprocedural matters, theComplaining parties commented onthePanel's
interpretation oftherequisite degree ofspecificity ofapanel request inlightoftherequirements of
Article 6.2oftheDSU. They alsoraised concerns astothePanel'srefusal toconsider claims made
orendorsed byoneormore ofthemafterthefiling ofthefirstwritten submissions. Asregards those
claims which thePanel hadfound unnecessary toaddress, theComplaining parties further argued that
severalofthem,e.g.,allegationsregardingoverfilingundertheactivityfunctionrulesandthedistribution
oflicences toproducers, werenotissues ofsecondary importance andshould beaddressed bythePanel
inaddition tothose aspects ofthelicensing procedures which hadbeenfound tobeinconsistent with
WTO rules. Furthermore, theysuggested several drafting changes. Wecarefully considered these
arguments andwhere weagreed, wemodified theFindings inresponse inparagraphs 7.40, 7.42and
7.49.
6.3 TheECandtheComplaining parties asked foranumber ofspecific modifications oradditions
tothose paragraphs intheFindings which summarize theirlegal arguments. Since these proposed
changes concerned therepresentation oftheparties 'ownlegalarguments, wegenerally accepted them.
Inparticular, inreaction tosuggestions bytheEC,wemodified orexpanded paragraphs 7.65, 7.78,
7.104, 7.169, 7.200, 7.205, 7.224, 7.287, 7.301 and7.313. Inourview, theseadjustments ingeneral
didnotentail repercussions forthelegal analysis intheFindings. However, inthecontext ofthe
applicability oftheLomé waiver tolicensing procedures andoftheinterpretation ofArticle IIofGATS,
weadded more detail tothelegalreasoning inparagraphs 7.198 and7.301-7.302.
6.4 Inrespect ofthediscussion ofArticle XIIIintheFindings, theComplaining parties asked the
Panel toexpand itsfindings on"Members withasubstantial interest" and"New members". TheEC
commented onthePanel'streatment ofissues suchas"previous representative period", "special factors"
ortheECenlargement. Totheextent weaccepted these suggestions, weadjusted theFindings, e.g.,
inparagraphs 7.91-7.94.
6.5 TheComplaining parties alsocommented ontheapplication oftheLomé waiver toArticle XIII,
ontheonehand, andtothetariff treatment ofnon-traditional imports ofACPbananas, ontheother.
Totheextent thatweagreed withthose comments, wemade adjustments toparagraphs 7.104-7.110
andparagraphs 7.135 and7.139. TheECalsoraised arguments concerning theinterpretation ofthe
coverage ofthewaiver. Inresponse totheEC'scomments, werevised paragraphs 7.197-7.199.
6.6 Bothsidesrequested thePanel toexpand thefactual discussion ofthedifferences between the
licensing procedures applied totraditional ACP imports asopposed tothose applied tothird-country
andnon-traditional ACP imports. Webroadly followed these suggestions byadding more factual
information from, orcross-referring to,specific parts ofthedescriptive section ofthepanel report
onwhich ourfindings arebased. Weinserted additions inparagraphs 7.190-7.192. Other modifications
along thesame linesarereflected inparagraphs 7.211, 7.221 and7.230.WT/DS27/R/USA
Page287
6.7 With respect tothepartoftheFindings dealing withGATS issues, theComplaining parties
proposed several specific drafting changes. Weaccepted these suggestions where weconsidered them
appropriate andmodified language inthediscussion of"measures affecting trade inservices",
(paragraphs 7.281, 7.282 and7.285), of"wholesale tradeservices" (paragraphs 7.287 and7.291) and
ofcertain other issues (see,e.g.,paragraphs 7.316, 7.324, 7.347, 7.377 and7.391). Further tothat,
theComplaining parties alsocommented ontheapplication oftheconcept of"conditions ofcompetition"
toservices. Werevised thereport accordingly inparagraphs 7.335-7.236 where wefound merit in
thesuggestions. Finally, theyclarified theirclaims asbeing based onallegations oflessfavourable
treatmentaccordedtotheirservicesuppliers,nottheirservices.Inlightofthis,wemodifiedtheFindings
accordingly, particularly inparagraphs 7.294, 7.297, 7.298, 7.306, 7.314, 7.317, 7.324, 7.329, 7.341
and7.353.
6.8 TheECcommented extensively onthepartoftheFindings dealing withGATS issues.
Paragraphs 7.301-7.302 and7.308 reflect ourresponses totheEC'sconcerns about theinterpretation
ofArticle IIofGATS andtheeffective dateofGATS obligations.
6.9 With respect tothesections addressing specific claims under Articles IIandXVII ofGATS
against certain aspects ofitslicensing procedures, theECsuggested thatthefactual information ithad
submitted wasnotsufficiently reflected anddiscussed intheFindings oftheinterim report. Inparticular,
theECreferred toinformation concerning nationality, ownership orcontrol oftrading companies and
ripeners. Moreover, theECasked thePanel totakemore account oftheinformation ithadprovided
concerning theevolution inrecent years ofmarket shares ofsuppliers ofEC/ACP origin asopposed
tosuppliers ofComplaining parties 'origin intheEC/ACP andthethird-country market segments.
Inresponse tothese comments, wesignificantly revised paragraphs 7.329-7.339 andalsochanged
paragraphs 7.362-7.363. Therevised paragraphs address inmore detail theinformation submitted
bytheECandindicate specifically howweevaluated it.Wealsoexpanded ourdiscussion ofexactly
whythePanel draws conclusions from theinformation submitted bytheparties which aredifferent
from theconclusions advocated bytheEC.
6.10 Inrespect oftheinterim reports 'descriptive section, theECandtheComplaining parties
suggested further changes which wetookintoaccount inre-examining thatpartofthereports. As
totheEC'srequest forasection describing theEC'sviewofthefacts, wewereoftheviewthatthe
EC'sinterpretation ofthefactsisalready reflected inacomprehensive manner inthesection ofthe
panel report which contains thelegalarguments. However, where wesawtheneedtofollow specific
suggestions forchanges byeither side,werevised thedescriptive section oftheinterim reports.
6.11 TheUnited States alsoraised "systemic concerns" inrather general terms withregard tothe
interpretation ofArticle XIIIintheFindings. Wereviewed these concerned andconcluded thatno
changes totheFindings were necessary. TheUnited States alsosuggested several drafting changes
intheFindings, which weincorporated inpart(see,e.g.,paragraph 7.26).WT/DS27/R/USA
Page288
VII. FINDINGS
7.1 Thiscaseisanexceedingly complex one. There aresixparties (onerepresenting 15member
States) and20thirdparties, meaning thatalmost one-third ofMembers areinvolved inthecase. In
addition toclaims under theGeneral Agreement onTariffs andTrade 1994, claims aremade forthe
firsttimeindispute settlement under fourother WTO agreements: TheAgreement onAgriculture,
theAgreement onImport Licensing Procedures, theAgreement onTrade-Related Investment Measures
andtheGeneral Agreement onTrade inServices. Thesubmissions bytheComplainants328andthe
ECtotalled several thousand pages. Moreover, theunprecedented number andcomplexity oftheclaims
andarguments hasmeant thattheorganization andpresentation ofourwork hasnotbeeneasy.
7.2 Thefindings aredivided intothreemainparts. Firstweaddress various organizational issues
thatarose inthecourse ofthePanel'swork. Second, weconsider preliminary issues raised bythe
ECconcerning thevalidity oftheestablishment ofthisPanel andthelackofalegalinterest insome
issues onthepartoftheUnited States. Finally, weaddress thesubstantive issues presented bythis
case.
A. ORGANIZATIONAL ISSUES
7.3 Inthecourse ofthese proceedings, weconsidered twoissues related totheorganization of
ourwork. These concerned theextent oftheparticipatory rights tobeafforded thirdparties andthe
presence inPanel meetings ofprivate lawyers representing thirdparties.
1. PARTICIPATION OFTHIRD PARTIES
7.4 Atthemeeting oftheDispute Settlement Body on8May1996, Belize, Cameroon, Colombia,
Costa Rica, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada, Jamaica, Nicaragua,
SaintVincentandtheGrenadines,SaintLucia,Senegal,SurinameandVenezuelarequestedtobeallowed
toparticipate more fullyinthework ofthePanel, i.e.,these Members requested tobepresent atall
meetings between thePanel andtheparties tothedispute; tobeabletopresent theirpoint ofview
ateachofthese meetings; toreceive copies ofallsubmissions andother written material; andtobe
allowed topresent written submissions bothtothefirstandtothesecond meetings ofthePanel. While
theDSBtooknoteofthese statements, there wasnoconsensus onsuchparticipation.329Several of
these countries laterconfirmed theirrequests inletters addressed totheChairman oftheDSB.
7.5 Subsequently, weconsidered theabove requests. Therights ofthird parties aredealt with
inArticle 10andAppendix 3oftheDispute Settlement Understanding. Article 10provides thatthird
parties "shall haveanopportunity tobeheard bythepanel andtomake written submissions tothe
panel". Italsoprovides thatthirdparties areentitled toreceive thesubmissions oftheparties made
tothefirstsubstantive panel meeting. Paragraph 6ofAppendix 3specifies thatthirdparties shallbe
invited "topresent theirviews during asession ofthefirstsubstantive meeting ofthepanel setaside
forthatpurpose. Allsuchthirdparties maybepresent during theentirety ofthissession". Under
priorGATT practice, more expansive rights weregranted tothirdparties inseveral disputes, including
328OuruseofthetermComplainants inthese Findings isexplained inpara. 7.59 infra. Inrespect oforganizational
andpreliminary issues, itisused torefer toallfiveComplaining parties.
329WT/DSB/M/16, item1,pp.1-5.WT/DS27/R/USA
Page289
thetwoprior disputes involving bananas andintheSemiconductors case.330Inthose cases, however,
theextension ofsuchrights hadbeenthesubject ofagreement between theparties atthattime. No
suchagreement existed between theparties inthepresent dispute.
7.6 Having considered representations bytheComplainants, theECandthirdparties, wedecided
priortoourfirstsubstantive meeting withtheparties that,inaddition totherights specifically provided
forintheDSU, thirdparties inthisdispute would beinvited toobserve thewhole oftheproceedings
atthatmeeting andnotjusttheonesession thereof setaside forhearing third-party arguments.
7.7 Atthefirstsubstantive meeting ofthePanel, theECrequested thatthirdparties beallowed
toparticipate infuture panel meetings assetoutinparagraph 7.4above. TheComplainants expressed
theviewthatthirdparty rights were sufficiently safeguarded bythenormal procedures assetoutin
Article 10oftheDSU. Weconsulted theparties onthisissue, buttheymaintained theiropposing
viewpoints.
7.8 Wethereafter ruled asfollows:
"(a) ThePanel hasdecided, afterconsultations withtheparties inconformity withDSU
Article 12.1, thatmembers ofgovernments ofthirdparties willbepermitted toobserve the
second substantive meeting ofthePanel withtheparties. ThePanel envisages thattheobservers
willhavetheopportunity alsotomake abriefstatement atasuitable moment during thesecond
meeting. ThePanel doesnotexpect themtosubmit additional written material beyond responses
tothequestions already posed during thefirstmeeting.
(b) ThePanel based itsdecision, interalia,onthefollowing considerations:
(i) theeconomic effect ofthedisputed ECbanana regime oncertain thirdparties
appeared tobeverylarge;
(ii) theeconomic benefits tocertain thirdparties fromtheECbanana regime were
claimed toderive from aninternational treaty between them andtheEC;
(iii) pastpractice inpanel proceedings involving thebanana regimes oftheECand
itsmember States; and
(iv) theparties tothedispute could notagree ontheissue".
Asaconsequence ofourruling, thethirdparties inthese proceedings enjoyed broader participatory
rights thanaregranted tothirdparties under theDSU.
330Panel Report on"EEC -Import Regime forBananas", issued on11February 1994(notadopted), DS38/R, p.4,para. 8;
Panel Report on"EEC -Member States 'Import Regimes forBananas", issued on3June1993 (notadopted), DS32/R, p.2,
para. 9;Panel Report on"Japan -Trade inSemiconductors", adopted on4May1988, BISD 35S/116, 116-117, para. 5.
SeealsoPanel Report on"EEC -Tariff Treatment onImports ofCitrus Products fromCertain Countries intheMediterranean
Region", issued on7February 1985 (notadopted), L/5776, p.2,para. 1.5;Interim Panel Report on"United Kingdom -
Dollar Area Quotas", adopted on30July1973, BISD 20S/230, 231, para. 3.WT/DS27/R/USA
Page290
7.9 Following thesecond substantive meeting ofthePanel withtheparties, several ofthethird
parties asked forfurther participatory rights, including participation intheinterim review process.
Weconsulted theparties andfound that,asbefore, theyhaddiverging views ontheappropriateness
ofgranting thisrequest. Wedecided thatnofurther participatory rights should beextended tothird
parties, except, inaccord withnormal practice, topermit them toreview thedraftofthesummary
oftheirarguments intheDescriptive Part. Inthisregard, wenoted thatArticle 15oftheDSU, which
deals withtheinterim review process, refers onlytoparties asparticipants inthatprocess. Inour
view, togivethirdparties alloftherights ofparties would inappropriately blurthedistinction drawn
intheDSU between parties andthirdparties.
2. PRESENCE OFPRIVATE LAWYERS
7.10 Atthebeginning ofthePanel'sfirstsubstantive meeting on10September 1996, oneofthe
Complainants objected tothealleged presence ofprivate lawyers inthePanel meeting. Inaccordance
withArticle 12.1oftheDSUandtheWorking Procedures ofAppendix 3,weheldconsultations with
theComplainantsandtheEConthisissueandtheComplainantsexpressedoppositiontoallowingprivate
lawyers tobepresent.
7.11 Wethereafter asked parties andthirdparties toobserve theguidelines contained inourworking
procedures andthatonlymembers ofgovernments (including theEuropean Commission andan
international civilservant oftheACP Secretariat) attend thePanel meeting. Webased ourrequest
onthefollowing considerations:
(a) Ithasbeenpastpractice inGATT andWTO dispute settlement proceedings nottoadmit
private lawyers topanel meetings ifanyparty objected totheirpresence andinthiscasethe
Complainants didsoobject.
(b) IntheworkingproceduresofthePanel,whichwereadoptedatthePanel'sorganizational
meeting, wehadexpressed ourexpectation thatonlymembers ofgovernments would bepresent
atPanel meetings.
(c) Thepresence ofprivate lawyers indelegations ofsome thirdparties would beunfair
tothose parties andother third parties whohadutilized theservices ofprivate lawyers in
preparing theirsubmissions, butwhowere notaccompanied bythose lawyers because they
assumed thatallparticipants atthemeeting would comply withourexpectations asexpressed
intheworking procedures adopted bythePanel atitsorganizational meeting.
(d) Given thatprivate lawyers maynotbesubject todisciplinary rulessuchasthose that
applied tomembers ofgovernments, theirpresence inPanel meetings could giverisetoconcerns
about breaches ofconfidentiality.
(e) There wasaquestion inourminds whether theadmission ofprivate lawyers toPanel
meetings, ifitbecame acommon practice, would beintheinterest ofsmaller Members as
itcould entail disproportionately large financial burdens forthem.
(f) Moreover,wehadconcernsaboutwhetherthepresenceofprivatelawyerswouldchange
theintergovernmental character ofWTO dispute settlement proceedings.WT/DS27/R/USA
Page291
7.12 Wenoted thatourrequest would notinanyrespect adversely affect therightofparties orthird
parties tomeetandconsult withtheirprivate lawyers inthecourse ofpanel proceedings, nortoreceive
legalorother advice inthepreparation ofwritten submissions from non-governmental experts.
B. PRELIMINARY ISSUES
7.13 First, theECclaims thattheconsultations heldinthismatter between theComplainants and
theECdidnotfulfil theirminimum function ofaffording apossibility forarriving atamutually
satisfactory solution andaclearsetting outofthedifferent claims ofwhich adispute consists. Second,
itclaims thattherequest fortheestablishment ofthisPanel wasunacceptably vague andfailed tocomply
withtherequirements ofArticle 6.2oftheDSU. Third, itclaims thattheUnited States hasnolegal
rightorinterest inaresolution ofcertain ofitsclaims andtherefore should notbepermitted toraise
them. Fourth, theECclaims thatitisentitled toseparate panel reports under Article 9oftheDSU.
7.14 AstheAppellate Body hasmade clearinitsfirsttwodecisions, under Article 3.2oftheDSU
thestarting point fortheinterpretation oftreaty provisions istheVienna Convention ontheLawof
Treaties (the"Vienna Convention").331Article 31oftheVienna Convention provides inrelevant part
asfollows:
"1.Atreaty shallbeinterpreted ingoodfaithinaccordance withtheordinary meaning
tobegiven totheterms ofthetreaty intheircontext andinlightofitsobject and
purpose.
...
3.There shallbetaken intoaccount, together withthecontext: ...(b)anysubsequent
practice intheapplication ofthetreaty which establishes theagreement oftheparties
regarding itsinterpretation; ...".
Article 32oftheVienna Convention permits recourse to
"supplementary means ofinterpretation ...inorder toconfirm themeaning resulting
fromtheapplication ofarticle 31,ortodetermine themeaning when theinterpretation
according toarticle 31(a)leaves themeaning ambiguous orobscure; or(b)leads to
aresult which ismanifestly absurd orunreasonable".
7.15 Inaddition,ArticleXVIoftheMarrakeshAgreementEstablishingtheWorldTradeOrganization
provides asfollows:
"Except asotherwise provided under thisAgreement ortheMultilateral Trade
Agreements, theWTO shallbeguided bythedecisions, procedures andcustomary
practices followed bytheCONTRACTING PARTIES toGATT 1947andthebodies
established intheframework ofGATT 1947".
331Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", adopted on1November 1996, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, AB-1996-2, pp.10-12; Appel lateBody Repor ton"UnitedStates-StandardsforRefor mulated
andConventional Gasoline", adopted on20May 1996, WT/DS2/AB/R, AB-1996-1, pp.16-17.WT/DS27/R/USA
Page292
7.16 Inlightofthisframework forinterpretation, weturntothearguments oftheEC.
1. ADEQUACY OFTHE CONSULTATIONS
7.17 Consultations under Article 4oftheDSU arenormally required asthefirststepintheWTO
dispute settlement process.332Article 4.2oftheDSU requires aMember "toaccord sympathetic
consideration toandafford adequate opportunity forconsultation regarding anyrepresentations made
byanother Member ...". Article 4.5oftheDSU specifies that"[i]nthecourse oftheconsultations
...before resorting tofurther action under thisUnderstanding, Members should attempt toobtain
satisfactory adjustment ofthematter". However, ifconsultations failtosettle adispute within 60days
oftherequest forconsultations, Article 4.7oftheDSU authorizes thecomplaining party torequest
theDSBtoestablish apanel.333
7.18 TheECargues thattheconsultations thatwereheldinthismatter between theComplainants
andtheECdidnotfulfil theirminimum function ofaffording apossibility forarriving atamutually
satisfactory solution andaclear setting outofthedifferent claims ofwhich adispute consists. The
Complainants argue thatArticle 4.5oftheDSU onlyrequires thatan"attempt" bemade toresolve
thematter. Since consultations were heldon14-15 March 1996, theComplainants argue thatthey
complied withtheDSU andwere authorized torequest theDSB toestablish apanel when those
consultations failed toproduce amutually agreed solution tothedispute. WenotethattheECdid
notraisethisissue intheDSB.334
7.19 ConsultationsplayacriticalroleintheWTOdisputesettlementprocessastheydidunderGATT.
Experience under theDSU todatehasshown thatconsultations frequently enable disputes between
Memberstoberesolvedwithoutresorttothedisputesettlementpanelprocess.335SincetheDSUprovides
inArticle 3.7that"[a]solution mutually acceptable totheparties toadispute andconsistent withthe
covered agreements isclearly tobepreferred", disputing parties should consult ingoodfaithandattempt
toreach suchasolution. Consultations are,however, amatter reserved fortheparties. TheDSB
isnotinvolved; nopanel isinvolved; andtheconsultations areheldintheabsence oftheSecretariat.
Inthesecircumstances, wearenotinaposition toevaluate theconsultation process inorder todetermine
ifitfunctioned inaparticular way. While amutually agreed solution istobepreferred, insome cases
itisnotpossible forparties toagree upon one. Inthose cases, itisourviewthatthefunction ofa
panel isonlytoascertain thatconsultations, ifrequired, were infactheldor,atleast, requested.336
7.20 AstotheECargument thatconsultations must leadtoanadequate explanation ofthe
Complainants 'case,wecannot agree. Consultations arethefirststepinthedispute settlement process.
While onefunction oftheconsultations maybetoclarify whatthecaseisabout, there isnothing in
theDSUthatprovides thatacomplainant cannot request apanel unless itscaseisadequately explained
intheconsultations. Thefulfilment ofsucharequirement would bedifficult, ifnotimpossible, for
acomplainant todemonstrate ifarespondent chose toclaim alackofunderstanding ofthecase, a
332Under Article 8.10 oftheAgreement onTextiles andClothing, amatter maybetaken totheDSB without prior
consultations under theDSU.
333Ifthere isafailure toconsult, Article 4.3oftheDSU provides thatapanel mayberequested after 30days.
334Minutes ofDSBMeeting of24April 1996, WT/DSB/M/15, item1,pp.1-2; Minutes ofDSBMeeting of8May1996,
WT/DSB/M/16, item1,pp.1-5.
335WT/DBS/8, p.17 (1996 Annual Report oftheDSB).
336DSU, Article 4.3.WT/DS27/R/USA
Page293
result which would undermine theautomatic nature ofpanel establishment under theDSU. Theonly
prerequisiteforrequestingapanelisthattheconsultationshave"fail[ed]tosettleadisputewithin60days
ofreceipt oftherequest forconsultations ...".337Ultimately, thefunction ofproviding notice toa
respondent ofacomplainant 'sclaims andarguments isserved bytherequest forestablishment ofa
panel andbythecomplainant 'ssubmissions tothatpanel.
7.21 Wereject theEC'sclaim thattheComplainants 'caseshould bedismissed because the
consultations heldconcerning thisdispute didnotperform their minimum function ofaffording
apossibility forarriving atamutually satisfactory solution andaclear setting outofthedifferent
claims ofwhich adispute consists.
2. SPECIFICITY OFTHE REQUEST FOR PANEL ESTABLISHMENT
(a) Article 6.2andtherequest forestablishment ofthePanel
7.22 Article 6.2oftheDSU provides inrelevant partasfollows:
"Therequest fortheestablishment ofapanel shallbemade inwriting. Itshallindicate
whether consultations wereheld, identify thespecific measures atissue andprovide
abrieflegalbasis ofthecomplaint sufficient topresent theproblem clearly. ...".
TheECclaims thattherequest fortheestablishment ofthePanel inthiscasefailsto"identify thespecific
measures atissue" anddoesnot"provide abrieflegalbasis ofthecomplaint sufficient topresent the
problem clearly".
7.23 Therelevant parts oftheComplainants 'request fortheestablishment ofthisPanel readas
follows:
"The European Communities maintains aregime fortheimportation, saleand
distribution ofbananas established byRegulation 404/93 (O.J. L47of
25February 1993, p.1),andsubsequent EClegislation, regulations andadministrative
measures, including those reflecting theprovisions oftheFramework Agreement on
bananas, which implement, supplement andamend thatregime. Theregime andrelated
measures appear tobeinconsistent withtheobligations oftheECunder, interalia,
theGeneral Agreement onTariffs andTrade 1994 ("GATT 1994"), theAgreement
onImport Licensing Procedures, theAgreement onAgriculture, theGeneral Agreement
onTrade inServices ("GATS") andtheAgreement onTrade-Related Investment
Measures ("TRIMs Agreement").
[Description ofconsultations omitted]
TheGovernments ofEcuador, Guatemala, Honduras, Mexico andtheUnited States,
acting jointly andseverally, eachintheexercise oftherights accruing toitasamember
oftheWTO, therefore, respectfully request theestablishment ofapanel toexamine
thismatter inlightoftheGATT 1994, theAgreement onImport Licensing Procedures,
theAgreement onAgriculture, theGATS, andtheTRIMs Agreement, andfindthat
337DSU, Article 4.7.WT/DS27/R/USA
Page294
theEC'smeasuresareinconsistentwiththefollowingAgreementsandprovisionsamong
others:
(1) Articles I,II,III,X,XIandXIIIoftheGATT 1994,
(2) Articles 1and3oftheAgreement onImport Licensing Procedures,
(3) theAgreement onAgriculture,
(4) Articles II,XVIandXVII oftheGATS, and
(5) Article 2oftheTRIMs Agreement.
These measures alsoproduce distortions which nullify orimpair benefits accruing to
Ecuador, Guatemala, Honduras, Mexico andtheUnited States, directly orindirectly,
under thecitedAgreements; andthese measures impede theobjectives oftheGATT
1994 andtheother citedAgreements".338
(b) Thearguments oftheparties
7.24 TheECclaims thattheComplainants 'request fortheestablishment ofthisPanel failstocomply
withtherequirements ofArticle 6.2oftheDSU. TheECnotes thattherequest refers specifically
toonlyoneECregulation anddescribes thatregulation andrelated, butunspecified, measures asa
"regime". TheECfurther notesthatwhile therequest refers tosomespecific agreements andprovisions,
itsuggests thatthere might beother unspecified provisions andagreements thatarerelevant, andthat
itfailstoexplain which partoftheECregime isinconsistent withtherequirements ofwhich provision
ofwhich agreement. TheECargues thatforthese reasons thepanel request isinadequate toserve
asthebasis fortheterms ofreference ofthePanel andinadequate togiveappropriate notice tothe
ECandpotential thirdparties ofwhich claims maybeputforward bytheComplainants. Insupport
ofitsarguments, theECcitestwopanel reports issued under theTokyo Round Agreement onthe
Interpretation ofArticle VI(the"Tokyo Round Anti-Dumping Code"), oneofwhich wasadopted by
theCommittee onAnti-Dumping Practices andoneofwhich wasnot.339
7.25 Inresponse, theComplainants argue thattheirrequest refers tothebasic ECregulation that
establishes theECrulesonbanana imports andthatthisreference issufficient toidentify themeasures
atissue. They argue, inaddition, thatArticle 6.2doesnotrequire apanel request totieeachpart
ofacontested measure toaspecific provision ofaWTO agreement thatitisinconsistent with, but
rather thatsubmissions topanels serve thatpurpose. TheComplainants further argue thattheTokyo
Round Anti-Dumping Code cases areirrelevant. Moreover, theynotethattheECdidnotraisethis
issue ateither DSBmeeting atwhich thepanel request waspresented andcannot nowclaim thatit
wasprejudiced bynotknowing theclaims oftheComplainants. Finally, theComplainants argue that
thisPanel maynotruleonthisclaim because itisoutside thePanel'sterms ofreference.
(c) Analysis oftheArticle 6.2claim
7.26 Weexamine firsttheargument bytheComplainants thatwehavenoauthority toconsider the
ECclaim. Asnoted above, panels under GATT 1947 andtheTokyo Round agreements considered
338WT/DS27/6.
339Panel Report on"United States -Anti-Dumping Duties onImports ofFresh andChilled Atlantic Salmon fromNorway",
adopted on26April 1994, ADP/87, p.99, paras. 333-335; Panel Report on"EC -Anti-Dumping Duties onAudiotapes
inCassettes Originating inJapan", issued on28April 1995, ADP/136, p.53, para. 295.WT/DS27/R/USA
Page295
similar claims.340Weseenoreason todeviate fromthatpractice. Because oftheapplication of"reverse"
consensus decision-making applicable inthecaseofpanel establishment intheDSB, theDSBisnot
likely tobeaneffective body forresolving disputes overwhether arequest fortheestablishment of
apanel meets therequirements ofArticle 6.2oftheDSU. Therefore, asapractical matter onlythe
panel established onthebasis oftherequest (andthereafter theAppellate Body) canperform that
function. Moreover, theissue weareasked toresolve canbeviewed inessence asadecision onthe
scope ofourterms ofreference, which isclearly aproper subject forconsideration byapanel.341We
turntherefore toananalysis oftheECclaim inlightoftheinterpretative ruleoftheVienna Convention
andofArticle XVIoftheWTO Agreement. Inthisconnection, weexamine (i)theordinary meaning
oftheterms ofArticle 6.2,(ii)thecontext oftheterms ofArticle 6.2,(iii)theobject andpurpose
ofArticle 6.2and(iv)pastpractice under Article 6.2anditspredecessor.
(i)Ordinary meaning oftreaty terms
7.27 Article 6.2oftheDSU requires thatthe"specific measures atissue" be"identif[ied]" andthat
therebe"abriefsummary ofthelegalbasisofthecomplaint sufficient topresent theproblem clearly".
TheECchallenges thepanel request onbothgrounds. Astothefirstrequirement, thepanel request
doesidentify thebasicECregulation atissuebyplaceanddateofpublication. Inourview, thiscomplies
withtherequirements ofArticle 6.2.While therequest doesnotidentify thesubsequent EClegislation,
regulationsandadministrativemeasuresthatfurtherrefineandimplementthebasicregulation,webelieve
thatthe"banana regime" thattheComplainants arecontesting isadequately identified.
7.28 Astothesecond requirement ofArticle 6.2,acomplete elaboration ofthecomplainant 'slegal
argument isnotrequired. Article 6.2specifies onlythattherequest must include a"summary" of
thelegal basis ofthecomplaint andthatthesummary needonlybe"brief". However, Article 6.2
doesrequire thatsummary to"present theproblem clearly". Inundertaking ananalysis ofwhether
thepanel request inthiscasecomplies withtheterms ofArticle 6.2oftheDSU, wefindituseful to
divide therequest intothree categories ofspecificity. First, inmost cases, therequest alleges that
theECbanana regime isinconsistent withtherequirements ofaspecific provision ofaspecific
agreement. Second, inthecaseoftheAgreement onAgriculture, therequest simply alleges thatthe
regime isinconsistent withthatagreement. Third, thepanel request indicates thatthelistofprovisions
specified intherequest isnotexclusive. Weexamine thecompliance oftherequest withArticle 6.2
ineachofthese three situations.
7.29 Where thepanel request alleges thatthebanana regime isinconsistent withtherequirements
ofaspecific article ofaspecific agreement, webelieve thattherequest issufficiently specific tocomply
withtheminimum standards established bytheterms ofArticle 6.2oftheDSU. Forexample, the
request claims thattheregime isinconsistent withtherequirements ofsixGATT provisions: Articles I,
II,III,X,XIandXIII, aswellasinconsistent withtherequirements ofspecific provisions ofthe
340Panel Report on"United States -Denial ofMost-Favoured Nation Treatment astoNon-Rubber Footwear fromBrazil",
adopted on19June 1992, BISD 39S/128, pp.147-148, paras. 6.1-6.2. Panels under Tokyo Round agreements include:
Panel Report on"European Communities -Imposition ofAnti-Dumping Duties onImports ofCotton Yarn from Brazil",
adopted on4July1995, ADP/137, pp.105-109, paras. 438-466; Panel Report on"United States -Countervailing Duties
onImports ofFresh andChilled Atlantic Salmon from Norway", adopted on27April 1994, SCM/153, pp.68-69,
paras. 208-214; Panel Report on"United States -Anti-Dumping Duties onImports ofFresh andChilled Atlantic Salmon
from Norway", adopted on26April 1994, ADP/87, p.99, paras. 333-335; Panel Report on"United States -Anti-Dumping
Duties onImports ofGray Portland Cement andCement Clinker from Mexico", issued on7September 1992, ADP/82,
pp.49-50, para. 5.12.
341TheAppellate Body hasconsidered terms ofreference issues. Appellate Body Report on"Brazil -Measures Affecting
Desiccated Coconut", issued on21February 1997, WT/DS22/AB/R, AB-1996-4, p.22.WT/DS27/R/USA
Page296
Agreement onImport Licensing Procedures, theAgreement onTrade-Related Investment Measures
andtheGeneral Agreement onTrade inServices. Generally, eachofthese provisions isconcerned
withadistinct obligation. Forexample, Article IofGATT bansdiscrimination onthebasisoforigin
inrespect ofcertain specified matters. Afairreading ofthepanel request 'sreference toArticle Iwould
bethatthereisanallegation thattheECbanana regime isinconsistent withtherequirements ofArticle
Ibecause itcontains elements thatdiscriminate infavour ofsomecountries tothedetriment ofMembers.
Such anallegation canbedescribed asa"brief summary ofthelegalbasis ofthecomplaint", which
arguably presents the"problem" clearly, i.e.thereisdiscrimination onthebasisofproduct origin which
isinconsistent withtherequirements ofArticle I.However, apanel request thatdoesnomore than
identify ameasure andspecify theprovision withwhich itisalleged tobeinconsistent is,inourview,
attheouter limits ofwhatisacceptable under Article 6.2. Nonetheless, particularly inlightofour
analysis below oftheobject andpurpose andofthecontext ofArticle 6.2andofpastGATT andWTO
practice, webelieve thatthisconclusion istheappropriate interpretation oftheterms ofArticle 6.2.
Inthisregard, wenotethatthere isnoexplicit requirement inArticle 6.2toexplain howthemeasure
atissueisinconsistent withtherequirements ofaspecific WTO provision andtheECconcedes inits
response toourquestions thatasimple listing oftheprovision andagreement alleged tohavebeen
violated maysuffice forthepurposes ofArticle 6.2.342
7.30 Thepanel request alleges aninconsistency with therequirements oftheAgreement on
Agriculture, without specifying anyprovision thereof. Italsostates that"theEC'smeasures are
inconsistent withthefollowing Agreements andprovisions among others ",suggesting thatthere may
beinconsistencies withunspecified agreements andinconsistencies withunspecified provisions ofthe
specified agreements. Inthese twosituations, itisnotpossible atthepanel request stage, eveninthe
broadest generic terms, todescribe whatlegal"problem" isasserted. While areference toaspecific
provision ofaspecific agreement maynotbeessential iftheproblem orlegalclaim isotherwise clearly
described, intheabsence ofsome description oftheproblem, amere reference toanentire agreement
orsimply to"other" unspecified agreements orprovisions isinadequate under theterms ofArticle 6.2.
Accordingly, wefindthatreferences toaWTO agreement without mentioning anyprovisions orto
unidentified "other" provisions aretoovague tomeetthestandards ofArticle 6.2oftheDSU.
7.31 Thus, wepreliminarily findthat,given theordinary meaning oftheterms ofArticle 6.2of
theDSU, thepanel request made byComplainants wasgenerally sufficient tomeetitsrequirements.
Wenote, however, thatsince theinvocation oftheAgreement onAgriculture inthepanel request did
notindicate aspecific provision thereof, wewillnotconsider theclaim raised byEcuador initsfirst
written submission under thatAgreement. Wewillalsonotconsider theclaims raised byEcuador,
Guatemala andHonduras, andtheUnited States intheirfirstwritten submissions under Article 5of
theTRIMs Agreement since thepanel request referred onlytoArticle 2oftheTRIMs Agreement.343
Wenowconsider whether thispreliminary finding issupported bythecontext andtheobject andpurpose
ofArticle 6.2. Wealsoconsider pastpractice under Article 6.2anditspredecessor.
342Initsresponse, theECseems toaccept thatthefollowing panel requests under theDSU meet therequirements of
Article 6.2eventhough theyonlylisttheWTO provisions thatthechallenged measures arealleged tobeinconsistent with,
without explaining why: Canada -Certain Measures Concerning Periodicals, Request fortheEstablishment ofaPanel,
24May 1996, WT/DS31/2; EC-Measures Concerning Meat andMeat Products (Hormones), Request fortheEstablishment
ofaPanel, WT/DS26/6; EC-Trade Description ofScallops, Request fortheEstablishment ofaPanel byChile, WT/DS14/5;
EC-Trade Description ofScallops, Request fortheEstablishment ofaPanel byPeru, WT/DS12/7; EC-Trade Description
ofScallops, Request fortheEstablishment ofaPanel byCanada, WT/DS7/7. Wewould notethatatleastoneoftheEC's
three panel requests under theDSU hasmentioned onlytheagreement andprovisions alleged tohave been violated, i.e.,
United States -Tariff Increases onProducts from theEC,Request fortheEstablishment ofaPanel bytheEC,WT/DS39/2.
343Given thattherequest forconsultations didlistArticle 5oftheTRIMs Agreement, theomission ofthatarticle inthe
panel request could beunderstood asadecision bytheComplainants nottopursue thisclaim inthelightofamore thorough
legal assessment and/or theconsultations.WT/DS27/R/USA
Page297
(ii)Context
7.32 Theterms ofArticle 6.2oftheDSU mustbeinterpreted inlightoftheircontext intheWTO
dispute settlement system. Firstandforemost, thatsystem isdesigned tosettle disputes.344Article 3.2
oftheDSUspecifies that"[t]he dispute settlement system oftheWTO isacentral element inproviding
security andpredictability tothemultilateral trading system. ...". Article 3.3continues inthesame
vein(emphasis added):
"The prompt settlement ofsituations inwhich aMember considers thatanybenefits
accruing toitdirectly orindirectly under thecovered agreements arebeing impaired
bymeasures taken byanother Member isessential totheeffective functioning ofthe
WTO andthemaintenance ofaproper balance between therights andobligations of
Members".
Inourview, theDSU mustbeinterpreted soastopromote theprompt settlement ofdisputes, without
adopting areading ofDSU provisions thatwould prolong disputes unnecessarily ormake theDSU
overly difficult forMembers, including developing country Members, touse.Acleartestofspecificity,
suchasweapply inthiscase, isrequired.
7.33 Theproblems presented byother interpretations ofArticle 6.2arereadily apparent inthiscase.
While noonewould contest thatthere isarealdispute between theComplainants andtheECover
theEC'simport regime forbananas, ifwewere torulethatthepanel request didnotmeet the
requirementsofArticle6.2oftheDSUandthattheComplainants'panelrequestwasaccordinglyinvalid,
theresolution ofthisdispute would bedelayed byatleast6or7months. Yet,whatpurpose would
thatserve? Once theComplainants filedtheirfirstsubmission, there could benodoubt exactly what
theirclaims were. Totheextent thatarespondent could legitimately claim surprise inwhat was
contained inacomplainant 'ssubmission, theefficient solution would betogrant therespondent several
more weeks tofileitsinitial submission, nottostarttheentire consultation/panel request process over.
Thisisparticularly truegiven thatareading ofArticle 6.2oftheDSU suchastheECproposes could
result insome partsofthecasebeing accepted, while others wererelegated toadifferent proceeding,
something completely contrary totheDSU'sphilosophy ofresolving allrelated issues together, as
expressed inArticle 9oftheDSU.345Moreover, suchareading could make itmore difficult for
Members, andparticularly developing-country Members, tousethedispute settlement system, except
byincurring theexpense ofprivate legalexperts attheearliest stage oftheproceedings.
7.34 Thus, aconsideration ofthecontext oftheterms ofArticle 6.2supports thepreliminary finding
reached inparagraph 7.31above.
344Appellate Body Report on"United States -Measure Affecting Imports ofWoven Wool Shirts andBlouses fromIndia",
issued on25April 1997, WT/DS33/AB/R, AB-1997-1, p.19.
345Article 9oftheDSU provides that"1.Where more thanoneMember requests theestablishment ofapanel related
tothesame matter, asingle panel maybeestablished toexamine these complaints taking intoaccount therights ofallMembers
concerned. Asingle panel should beestablished toexamine suchcomplaints whenever feasible. ...3.Ifmore thanonepanel
isestablished toexamine thecomplaints related tothesame matter, tothegreatest extent possible thesame persons shall
serve aspanelists oneachoftheseparate panels andthetimetable forthepanel process insuchdisputes shallbeharmonized".WT/DS27/R/USA
Page298
(iii)Object andpurpose
7.35 Weseethree purposes forArticle 6.2oftheDSU. First, therequest fortheestablishment
ofapanel under Article 6.2willusually serve tosettheterms ofreference ofthepanel under Article 7
oftheDSU. Second, therequest informs theresponding Member ofthescope ofthecaseagainst
it.Third, therequest informs potential thirdparties ofthescope ofthecase, sothattheycanbetter
decide whether theywishtoassert third-party rights.
7.36 Inthiscase, webelieve thattherequest forestablishment ofapanel adequately serves these
three purposes. First, wehavealready found thatArticle 6.2oftheDSU requires acomplainant to
specify theprovision oftheWTO agreements thatitisrelying uponbyagreement andarticle. Thus,
apanel willalways beabletounderstand which claims itisrequired toexamine under itsterms of
reference. Given thisinterpretation ofArticle 6.2,weunderstand ourterms ofreference without
difficulty inthiscase.
7.37 Second, itappears thatthepanel request adequately informed theECofthecaseagainst it.
Wereach thisconclusion inlightofthefactsthattheECdidnotcomplain about therequest 'sspecificity
untilitfileditsfirstsubmission, itdidnotaskfortimebeyond thenormal periods indicated inthe
DSUtofileitssubmission anditdidnotclaim initswritten submissions thatitsdefence wasprejudiced
inanyparticular waybyalackofspecificity inthepanel request. TheECstated atthePanel'shearings,
however, thatithadbeenprejudiced inthatthelackofminimal clarity handicapped theECinthe
preparation ofitsdefence. However, aspointed outbytheComplainants, theEC'soralpresentation
atthefirstmeeting ofthePanel, itsresponses toourquestions anditsrebuttal submission essentially
followed thelineofargument made initsinitial submissions, suggesting thatithadsufficient time
todevelop itslineofdefence. Inthese circumstances, webelieve thattheobject andpurpose of
Article 6.2oftheDSU wasserved bytheComplainants 'panel request, suggesting thatsuchrequest
wasadequately specific under Article 6.2.
7.38 Third, itappears thatthepanel request adequately informed thirdparties ofthecaseagainst
theEC,as20thirdparties participated inthispanel process.346
7.39 Thus, aconsideration oftheobject andpurpose ofArticle 6.2supports thepreliminary finding
reached inparagraph 7.31above.
(iv)Pastpractice
7.40 Article XVI:1 oftheWTO Agreement provides, asnoted above, thatthe"WTO shallbeguided
bythedecisions, procedures andcustomary practices" ofGATT. Inthecaseofadopted panel reports,
theAppellate Body hasindicated that
"Adopted panel reports areanimportant partoftheGATT acquis .They areoften
taken intoaccount bysubsequent panels. They create legitimate expectations among
WTO Members, and,therefore should betaken intoaccount where theyarerelevant
346Belize, Cameroon, Canada, Colombia, Costa Rica, Côted'Ivoire, Dominica, Dominican Republic, Ghana, Grenada,
India,Jamai ca,Japan, Nicaragua, Philippines,SaintVincent andtheGrenadines,SaintLucia,Senegal ,Suriname andVenezuel a.
Thailand indicated athird-party interest intheproceedings, butlaterwithdrew.WT/DS27/R/USA
Page299
toanydispute. However, theyarenotbinding, except withrespect toresolving the
particular dispute between theparties tothatdispute".347
There aretwoGATT/WTO cases thatconsider issues related totheonewefacehere. In1992apanel
declined toconsider claims based onGATT Articles XandXXIII(b)-(c) because theywerenotwithin
itsterms ofreference, which itnoted weredefined bytherequest fortheestablishment ofthepanel.348
More recently, aWTO panel reached asimilar result inrespect ofaclaim thatconsultations hadnot
beenproperly heldunder Article XXIII, rejecting theclaim because afairreading ofthedocuments
thatwere usedtoestablish itsterms ofreference showed thattheissue hadnotbeenraised inthose
documents.349Although treated asa"terms ofreference" issueinbothcases, theresults wereineffect
determined onthebasis ofthepanel request. Theterms ofreference were found nottoencompass
theclaim because theprovision orissue hadnotbeenreferred tointhepanel request (andrelated
documents inonecase), which inbothcases hadserved toestablish thepanels 'terms ofreference.
Ourreading oftheterms ofArticle 6.2oftheDSU isnotinconsistent withthese pastGATT/WTO
panel decisions, norwitharecent Appellate Body decision affirming theabove-mentioned WTO panel
decision.350Inthisconnection, wenotethatthepower ofapanel tointerpret itsterms ofreference
isnotnegated bytherequirement inArticle 7.2oftheDSUthatapanel address the"relevant" provisions
ofcovered agreements citedbytheparties.
7.41 With respect topractice ofGATT contracting parties andMembers inrequesting panels,
numerous examples maybefound intheperiod from1989351todateofpanel requests containing only
anallegation thatameasure isinconsistent withtherequirements ofaspecific provision ofaspecific
agreement, without amore detailed description oftheproblem.352Indeed, asnoted above, theEC
concedes asmuch initsresponse toourquestions where itexamines panel requests ineightWTO cases
andfinds thatinmost cases there isnospecific explanation given astohowthecontested measure
347Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", adopted on1November 1996, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, AB-1996-2, p.14.
348Panel Report on"United States -Denial ofMost-favoured-nation Treatment astoNon-rubber Footwear from Brazil",
adopted on19June 1992, BISD 39S/128, 147-148, paras. 6.1-6.2.
349Panel Repor ton"Brazil-Measur esAffect ingDesiccatedCoconut ",issued on17October1996, WT/DS22/R, pp.77-78,
paras. 286-290.
350Appellate Body Report on"Brazil -Measures Affecting Desiccated Coconut", issued on21February 1997,
WT/DS22/AB/R, AB-1996-4, p.22.
351In1989, theGATT CONTRACTING PARTIES adopted Improvements totheGATT Dispute Settlement Rules and
Procedures (BISD 36S/61), including thefollowing language, which isquite similar tothatcontained inArticle 6.2ofthe
DSU:
"F.(a) Therequest forapanel oraworking party shall bemade inwriting. Itshall indicate whether
consultations were held, andprovide abrief summary ofthefactual andlegal basis ofthecomplaint
sufficient topresent theproblem clearly".
There were nospecific rules ontheform ofrequests fortheestablishment ofpanels prior to1989.
352Seeexamples cited innote342supra. SeealsoEC-Measures Affecting Livestock andMeat (Hormones), Request
fortheEstablishment ofaPanel,WT/DS48/5; Brazil-Measur esAffect ingDesiccatedCoconut ,Request fortheEstablishment
ofaPanel, WT/DS22/2; European Communities -Duties onImports ofGrains, Request fortheEstablishment ofaPanel,
WT/DS13/2; Japan -Taxes onAlcoholic Beverages, Request fortheEstablishment ofaPanel bytheUnited States,
WT/DS11/2; European Communities -Duties onImports ofCereals, Request fortheEstablishment ofaPanel, WT/DS9/2;
United States -Standards forReformulated andConventional Gasoline, Request fortheEstablishment ofaPanel, WT/DS4/2;
United States -Measures Affecting theImportation andInternal SaleandUseofTobacco, Recourse toArticle XXIII:2 by
Argentina, DS44/8; EEC -Restrictions onImports ofApples, Communication from Chile, DS39/2 &DS41/2.WT/DS27/R/USA
Page300
isinconsistent withtherequirements ofthespecified provisions ofthespecified agreements. Todate,
noGATT orWTO panel hasfound suchrequests tobeinadequate, except inrespect oftheantidumping
andcountervailing dutyclaims discussed inthefollowing paragraph. Thus, ourreading oftheterms
ofArticle 6.2oftheDSU isconsistent withthepractice followed byGATT contracting parties and
WTO Members inrequesting panels under Article 6.2andthesimilar language ofitspredecessor
provision, which wasadopted bytheGATT CONTRACTING PARTIES in1989.
7.42 Itcanbeargued, however, thatourreading oftheterms ofArticle 6.2maynotbeconsistent
with several panel decisions (adopted andunadopted) under theTokyo Round Agreement on
Implementation ofArticle VI(the"Tokyo Round Anti-Dumping Code").353Wefindthese cases to
beoflimited relevance intheinterpretation oftheterms ofArticle 6.2oftheDSU. Inthefirstplace,
theTokyo Round Anti-Dumping Code haddifferent rules fortheinitiation ofpanel procedures than
wereapplicable inthecaseofGATT 1947panels. More fundamentally, Article 15oftheTokyo Round
Anti-Dumping Code required aso-called conciliation procedure, involving thedisputing parties and
theCommittee charged withsupervising theoperations oftheCode, between theendoftheconsultation
period andthefiling ofarequest toestablish apanel. Thepractice under thisconciliation procedure
involved thepreparation ofadetailed statement ofissues bythecomplaining party, which wascirculated
tothemembers oftheCommittee sothattheymight attempt tosolve thedispute through conciliation.
Article 15.5oftheTokyo Round Anti-Dumping Code referred totheconciliation process asinvolving
a"detailed examination bytheCommittee". Inorder tomake theconciliation process meaningful,
itmayhavebeenappropriate toinsist thatallclaims brought before apanel havebeenconsidered in
theconciliation process. Such aconciliation requirement doesnotexistunder theDSU anddidnot
existunder GATT 1947rules. There hasnever beenapractice ofpreparing suchastatement ofclaims.
Moreover, thenature ofantidumping cases isdifferent from thiscase.
7.43 Inanyevent, werecognize thatpastpractice under theTokyo Round Anti-Dumping Code may
havebeeninconsistent withtheresult wereach. Werecall thatArticle 3.3oftheDSU states thatthe
prompt settlement ofdisputes isessential totheeffective functioning oftheWTO andwebelieve that
ourinterpretation ofArticle 6.2oftheDSU bestachieves thatobjective.
(v)Cure
7.44 Finally, wenotethatatthesecond substantive Panel meeting, weexpressed thepreliminary
viewthatevenifthere wassome uncertainty whether thepanel request hadmettherequirements of
Article 6.2,thefirstwritten submissions oftheComplainants "cured" thatuncertainty because their
submissions weresufficiently detailed topresent allthefactual andlegalissues clearly. Weconsidered
thatatthetimethattheECfileditsfirstwritten submission tothePanel, ithadcomplete knowledge
353Panel Report on"United States -Anti-Dumping Duties onImports ofFresh andChilled Atlantic Salmon fromNorway",
adopted 26April 1994, ADP/87, paras. 333-335; Panel Report on"European Communities -Imposition ofAnti-Dumping
Duties onImports ofCotton Yarn from Brazil", ADP/137, adopted on4July1995, paras. 438-466; Panel Report on"United
States -Anti-Dumping Duties onImports ofGray Portland Cement andCement Clinker from Mexico", issued on
7September 1992 (notadopted),ADP/82, para.5.12; Panel Repor ton"EC-Anti-Dumpi ngDutiesonAudiotapesinCasset tes
Originating inJapan", issued on28April 1995 (notadopted), ADP/136, para. 295. Inaddition, there wasonecaseinvolving
thisissue under theTokyo Round Agreement onInterpretation andApplication ofArticles VI,XVIandXXIII. Panel Report
on"United States -Countervailing Duties onImports ofFresh andChilled Atlantic Salmon from Norway", adopted
27April 1994, SCM/153, paras. 208-214 (following theapproach oftheSalmon antidumping casecited above). Aclaim
ofnon-compliance withArticle 6.2wasmade inthePanel Report on"Measures Affecting Desiccated Coconut", dated
17October 1996, WT/DS22/R, para. 290,butthepanel didnotreach theArticle 6.2issue, except asnoted above, byfinding
thatthefailure toallege thatameasure wasinconsistent withtherequirements ofaspecific provision ofGATT meant that
aclaim based onthatprovision wasnotwithin thepanel'sterms ofreference, aresult which wefollow.WT/DS27/R/USA
Page301
oftheComplainants 'casethrough theirsubmissions. Inlightofouranalysis ofthepanel request and
Article 6.2asoutlined above, weconfirm ourpreliminary view.354
7.45 Wetherefore findthatthepanel request made bytheComplainants wassufficient tomeet
therequirements ofArticle 6.2oftheDSU totheextent thatitalleged inconsistencies withthe
requirements ofspecific provisions ofspecific WTO agreements.
7.46 Inlight oftheforegoing finding, since theinvocation oftheAgreement onAgriculture
inthepanel request didnotindicate aspecific provision thereof, wewillnotconsider theclaim
raised byEcuador initsfirstwritten submission under thatAgreement. Wewillalsonotconsider
theclaims raised byEcuador, Guatemala andHonduras, andtheUnited States intheirfirstwritten
submissions under Article 5oftheTRIMs Agreement since thepanel request referred onlyto
Article 2oftheTRIMs Agreement.355
3. REQUIREMENT OFLEGAL INTEREST
7.47 TheECargues thattheUSclaims concerning trade ingoods should berejected because US
banana production isminimal, itsbanana exports arenilandthatforclimatic reasons thissituation
isnotlikely tochange. Asaresult, theECsuggests thattheUnited States hasnotsuffered any
nullification orimpairment ofWTO benefits inrespect oftrade inbananas asrequired byArticle 3.3
and3.7oftheDSU.356Moreover, theECargues thattheUnited States would havenoeffective WTO
remedy under Article 22oftheDSU. Withnoeffective remedy andabsent anynotion ofadeclaratory
judgment oradvisory opinion intheWTO dispute settlement system, theECclaims thattheUnited
States cannot raise"goods" issues because ithas"nolegalrightorinterest" therein. TheECargues
thatthere mustbearequirement intheWTO dispute settlement system thatacomplaining party have
sucha"legal interest" because theabsence ofsucharequirement would undermine theDSUbyleading
tolitigation "byallagainst all". TheECalsosuggests thattheinterests ofMembers inanygiven case
canbeadequately protected through assertion ofathirdparty interest inthecase.
7.48 Inresponse, theComplainants argue thatthere isnobasis intheDSU fortheEC'sclaim and
thattheirclaims arecovered bythePanel'sterms ofreference. They argue thatArticle 3.8ofthe
DSUpresupposes afinding ofinfringement priortoaconsideration ofthenullification-or-impairment
issue, suggesting thatevenifnocompensation were due,aninfringement finding could bemade.
Moreover, theyargue thatitisinappropriate totrytodefine potential trade. They alsomention that
inapastcasetheECadvanced abroad notion ofnullification orimpairment, which ifgenerally accepted
would permit theComplainants toclaim nullification orimpairment inthiscase.
7.49 Inexamining thisissue, wenotethatneither Article 3.3nor3.7oftheDSU noranyother
provision oftheDSU contain anyexplicit requirement thataMember musthavea"legal interest" as
aprerequisite forrequesting apanel. Thereference inArticle XXIII ofGATT tonullification or
impairment (ortheimpeding oftheattainment ofanyGATT objective) doesnotestablish aprocedural
354Weexclude from thisconfirmation anysuggestion thatthepanel request wassufficient toallow claims based onthe
Agreement onAgriculture andArticle 5oftheTRIMs Agreement since astothose provisions, thepanel request didnot
comply atallwiththerequirements ofArticle 6.2and,accordingly, there wasnouncertainty thatcould becured.
355Thepanel request listed Article XIofGATT, butnoclaims under Article XIwere pursued bytheComplainants.
356Article3.3oftheDSUprovidesthattheprompt settlement ofdisputesisessent ial"insituationswhereaMember considers
thatbenefits accruing toitdirectly orindirectly under thecovered agreements arebeing impaired". Article 3.7oftheDSU
requires Members toexercise judgment astowhether invocation oftheDSU would be"fruitful".WT/DS27/R/USA
Page302
requirement. Moreover, Article 3.8oftheDSU provides thatnullification orimpairment isnormally
presumed ifthere isaninfringement oftheobligations ofaWTO agreement.357
7.50 Wefailtoseethatthere is,orshould be,alegalinterest testunder theDSU. Thisviewis
corroborated bypastGATT practice, which suggests thatifacomplainant claims thatameasure is
inconsistent withtherequirements ofGATT rules, thereisnotarequirement toshowactual tradeeffects.
GATT rules havebeenconsistently interpreted toprotect "competitive opportunities" asopposed to
actual trade flows. Forexample, inthe1949 Working Party Report onBrazilian Internal Taxes, a
number ofthemembers oftheworking party tooktheviewthat
"theabsence ofimports from contracting parties ...would notnecessarily bean
indication thattheyhadnointerest intheexports oftheproduct affected bythetax,
since theirpotentialities asexporters, given national treatment, should betaken into
account".358
Thisviewwasconfirmed inthe1958 Italian Agricultural Machinery case, where thepanel noted that
Article IIIofGATT applied to"anylawsorregulations which might adversely modify theconditions
ofcompetition between thedomestic andimported products".359TheSection 337casenotes that
Article IIIisconcerned with"effective equality ofopportunities forimported products".360These cases
confirm thatWTO rulesarenotconcerned withactual trade, butrather withcompetitive opportunities.
Generally, itwould bedifficult toconclude thataMember hadnopossibility ofcompeting inrespect
ofaproduct orservice. TheUnited States doesproduce bananas inPuerto RicoandHawaii. Moreover,
eveniftheUnited States didnothaveevenapotential export interest, itsinternal market forbananas
could beaffected bytheECregime andthatregime 'seffect onworld supplies andprices. Indeed,
withtheincreased interdependence oftheglobal economy, which means thatactions taken inonecountry
arelikely tohavesignificant effects ontrade andforeign direct investment flows inothers, Members
haveagreater stake inenforcing WTO rules thaninthepastsince anydeviation from thenegotiated
balance ofrights andobligations ismore likely thanevertoaffect them, directly orindirectly. Since
theUnited States islikely tobeaffected bytheECregime, itwould haveaninterest inadetermination
ofwhether theECregime isinconsistent withtherequirements ofWTO rules. Thus, inourview
aMember 'spotential interest intrade ingoods orservices anditsinterest inadetermination ofrights
andobligations under theWTO Agreement areeachsufficient toestablish arighttopursue aWTO
dispute settlement proceeding. Moreover, wenotethatthisresult isconsistent withdecisions of
international tribunals.361
357SeePanel Report on"United States -Taxes onPetroleum andCertain Imported Substances", adopted on17June1987,
BISD 34S/136, 158, para. 5.1.9.
358GATT/CP.3/42, adopted 30June 1949, II/181, 185, para. 16.
359Panel Report on"Italian Discrimination Against Imported Agricultural Machinery", adopted 23October 1958, 7S/60,
64,para. 12.
360Panel Report on"United States -Section 337oftheTariff Actof1930", adopted on7November 1989, BISD 36S/345,
386-387, para. 5.11.
361TheInternational Court ofJustice hasnotdefined theconcept oflegal interest inspecific terms. However, anumber
ofitscases would support finding alegal interest inthiscase. Forexample, intheWimbledon case, thePermanent Court
ofInternational Justice found thatastatecould raiseaclaim withrespect totheKielCanal eventhough itsfleetdidnotwant
touseit,suggesting thatapotential interest wassufficient foralegalinterest. PCIJ (1923), Ser.A,no.1,20.InNorthern
Cameroons (Preliminary Objections) ,theICJstated:
(continued...)WT/DS27/R/USA
Page303
7.51 AstotheEC'ssuggestions thattheabsence ofalegalinterest test(defined toexclude theUS
"goods" claims inthiscase)would undermine theDSUbecause itwould leadtolitigation "byallagainst
all"andthattheinterests ofMembers inanygiven casecanbeadequately protected through assertion
ofathirdparty rights inthecase, wenotethatallMembers haveaninterest inensuring thatother
Members comply withtheirobligations. Thatinterest isnotcompletely served bythepossible assertion
ofthirdparty rights sincetheremaybenooccasion toassert suchrights unless another Member initiates
aDSUproceeding andsincethirdpartyrights aremore limited thantherights ofparties. Thelikelihood
oflitigation byallagainst allseems unlikely, asMembers areadmonished byArticle 3.7oftheDSU
toexercise restraint inbringing cases andthecostofbringing cases issuch, especially inacaselike
thisone,thatthisadmonition islikely tobefollowed. Inourview, itisalsounlikely thatsignificant
numbers ofcases willbeinitiated byMembers thathavenoimmediate trade interest intheirresults.
7.52 Thus, wefindthatunder theDSU theUnited States hasaright toadvance theclaims
thatithasraised inthiscase.
4. NUMBER OFPANEL REPORTS
7.53 TheECrequested thePanel, pursuant toArticle 9oftheDSU, toprepare fourpanel reports
inthiscase-one eachfortheclaims ofEcuador, Guatemala andHonduras (who filedajointfirst
submission), Mexico andtheUnited States. TheComplainants suggested that,eveniftheEChad
aright toinsist onseparate reports under Article 9,itshould notdosobecause oftheincreased
administrative burden thatwould beplaced upon thePanel. Moreover, theyrequested thatthePanel
should make thesame findings andconclusions withrespect tothesame claims.
7.54 Article 9oftheDSU provides inrelevant partasfollows:
"1.Where more thanoneMember requests theestablishment ofapanel related to
thesame matter, asingle panel maybeestablished toexamine these complaints taking
intoaccount therights ofallMembers concerned. ...
2.Thesingle panel shallorganize itsexamination andpresent itsfindings totheDSB
insuchamanner thattherights theparties tothedispute would haveenjoyed had
separate panels examined thecomplaints areinnowayimpaired. Ifoneoftheparties
tothedispute sorequests, thepanel shall submit separate reports onthedispute
concerned. ...".
7.55 Weinterpret theterms ofArticle 9torequire ustogrant theECrequest. However, inlight
ofthefactthattheComplainants presented jointoralsubmissions tothePanel, jointresponses to
questions andajointrebuttal submission, aswellasthefactthattheyhavecollectively endorsed the
361(...continued)
"The function oftheCourt istostatethelaw,butitmaypronounce judgment onlyinconnection with
concrete cases where there exists atthetimeofadjudication anactual controversy involving aconflict
oflegal interest between theparties. TheCourt 'sjudgment must have some practical consequence in
thesense thatitcanaffect existing legal rights orobligations oftheparties, thusremoving uncertainty
from their legal relations" (ICJReports (1963), 33-34).
Here, ourdecision willhave suchaneffect totheextent thattheECisobligated torevise thechallenged measures. See
alsoPartIIoftheDraft Articles onState Responsibility, art.40.2(e)-(f), provisionally adopted bytheDrafting Committee
oftheInternational LawCommission. A/CN.4/L.524, 21June 1996.WT/DS27/R/USA
Page304
argumentsmadeineachother'sfirstsubmissions,wemustalsotakeaccountofthecloseinterrelationship
oftheComplainants 'arguments.
7.56 Inourview, oneoftheobjectives ofArticle 9istoensure thatarespondent isnotlaterfaced
withademand forcompensation orthreatened byretaliation under Article 22oftheDSU inrespect
ofuncured inconsistencies withWTO rules thatwere notcomplained ofbyoneofthecomplaining
parties participating inapanel proceeding. Ourreports must bearthisobjective inmind.
7.57 Forpurposes ofdetermining whether aComplainant inthismatter hasmade aclaim, wehave
examined itsfirstwritten submission, asweconsider thatdocument determines theclaims made by
acomplaining party. Toallow theassertion ofadditional claims afterthatpoint would beunfair to
therespondent, asitwould havelittleornotimetoprepare aresponse tosuchclaims. Inthisregard,
wenotethatparagraph 12(c) oftheAppendix 3totheDSU on"Working Procedures" foresees the
simultaneous submission ofthewritten rebuttals bycomplaining andrespondent parties, aprocedure
thatwasfollowed inthiscase.Toallow claims tobepresented intherebuttal submissions would mean
thattherespondent would haveanopportunity torebut theclaims onlyinitsoralpresentation during
thesecond meeting. Inourview, thefailure tomake aclaim inthefirstwritten submission cannot
beremedied bylatersubmissions orbyincorporating theclaims andarguments ofother complainants.
7.58 Accordingly, wehavedecided thatthedescription ofthePanel 'sproceedings, thefactual
aspects andtheparties 'arguments should beidentical inthefourreports. Inthe"Findings"
section, however, thereports differ totheextent thattheComplainants 'initial written submissions
tothePanel differ inrespect ofalleging inconsistencies withtherequirements ofspecific provisions
ofspecific agreements. Thus, totakeanexample, thereport forGuatemala andHonduras does
notdiscuss GATS issues because their initial written submission didnotallege inconsistencies
withtherequirements ofGATS provisions.
7.59 Inlightoftheforegoing, inthe"Findings" weusetheterm"theComplainants" torefer to
alloftheComplaining parties whohavemade aparticular claim. Indiscussing theclaim, when we
refer totheComplainants 'arguments, wemean allarguments made insupport oftheclaim bythe
various Complaining parties, whohaveincorporated eachother'sarguments intotheirown. Thus,
theterm"theComplainants" inthisreport means theUnited States andoneormore oftheother
Complaining parties.
7.60 Asexplained above, when oneoftheComplaining parties hasnotclaimed thataspecific
provision ofaspecific agreement hasbeenviolated initsinitial written submission tothePanel, we
donotdiscuss ourfindings withrespect tothatclaim inthereport forthatparty. However, forthe
convenience ofreaders ofthefourreports, wehaveusedthesame paragraph numbers andfootnote
numbers forthesubstantive discussions ofthesame issues inthefourreports. Where anissue has
notbeenraised bytheUnited States, weindicate inthisreport which reports andwhich paragraph
numbers inthose reports discuss thatissue.
C. SUBSTANTIVE ISSUES
7.61 Wenowturntoanexamination ofthesubstantive issues raised bytheComplainants inrespect
oftheEC'sregime fortheimportation, saleanddistribution ofbananas. Wefirstaddress claims related
totheEC'squantitative allocations forbananas, including theshares assigned totheACP countries
andtosignatories oftheFramework Agreement onBananas ("BFA"). Second, weconsider tariffissues,
including preferences afforded toimports ofcertain ACPbananas. Wethenconsider theclaims madeWT/DS27/R/USA
Page305
inrespect oftheEClicensing procedures forbananas. Finally, weexamine theclaims raised inrespect
oftheGeneral Agreement onTrade inServices.
7.62 Before doing so,weconsider whether bananas from theEC,ACP countries, BFAcountries
andother thirdcountries are"like" products forpurposes oftheclaims made inrespect ofArticles I,
III,XandXIIIofGATT. Thefactors commonly usedinGATT practice todetermine likeness, such
as,forexample, customs classification, end-use, andtheproperties, nature andquality oftheproduct,
allsupport afinding thatbananas from these various sources should betreated aslikeproducts.362
Moreover, allparties andthirdparties tothedispute haveproceeded intheirlegalreasoning onthe
assumption thatallbananas are"like" products inspiteofanydifferences inquality, sizeortastethat
mayexist.
7.63 Wefindthatbananas are"like" products, forpurposes ofArticle I,III,X,andXIIIof
GATT, irrespective ofwhether theyoriginate intheEC,inACP countries, inBFA countries or
inother third countries.
1. THE ECMARKET FOR BANANAS: ARTICLE XIIIOFGATT
7.64 Asof1995, bananas could bemarketed intheECasfollows:
a.First, upto857,700 tonnes ofbananas werepermitted toenter duty-free from traditional
ACP suppliers.
b.Second, pursuant toitsGATT Article IISchedule, theECpermitted theentry ofatotal
ofupto2.2million tonnes ofbananas atatariff of75ECU pertonne. Thisquota wasallocated as
follows: (i)49.4percenttothecountries whoareparties totheBFA; (ii)90,000 tonnes toACPcountries
inrespect ofamounts thattheydidnottraditionally supply toECmember States (admitted duty-free);
and(iii)therest(46.5 percent) toother banana exporters. In1995 and1996, theECincreased the
2.2million tonne tariffquota by353,000 tonnes totakeaccount oftheenlargement oftheECtoinclude
Austria, Finland andSweden, although nochange hasbeenmade intheEC'sSchedule. Additional
quantities were permitted atthein-quota tariff viahurricane licences.
c.Third, imports ofbananas inexcess oftheabove-mentioned amounts weresubject in1995
toatariff of822ECU pertonne (722ECU forACP bananas). The822ECU pertonne tariff will
fallinequal instalments to680ECU pertonne onfullimplementation oftheEC'sUruguay Round
commitments.
d.Finally, bananas from ECterritories could besoldontheECmarket without restriction.
In1995, 658,200 tonnes ofsuchbananas were marketed intheEC.
7.65 TheComplainants claim thattheEChasfailed toallocate country-specific tariff quota shares
tothose Complainants thatexport bananas totheECandthattheEC'sallocation oftariffquota shares
totheACPandBFAcountries isinconsistent withtherequirements ofthetariffquota allocation rules
ofArticle XIIIofGATT. TheECresponds thatithascomplied withtheterms ofArticle XIII. In
362Forageneral discussion ofrelevant factors fordetermining thelikeness ofproducts, seePanel Report on"Japan -
Taxes onAlcoholic Beverages", adopted on1November 1996, WT/DS8/R, WT/DS10/R &WT/DS11/R, pp.111-114,
paras. 6.20-6.23, asmodified by,Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", adopted on
1November 1996, WT/DS8/AB/R, WT/DS10/AB/R &WT/DS11/AB/R, pp.19-21.WT/DS27/R/USA
Page306
particular, theECargues thatthepreferences itprovides totraditional ACP bananas arepermitted
under theLomé waiver anditstreatment ofBFAandother bananas isprovided pursuant totheEC's
Schedule intowhich theBFAisincorporated.
7.66 Wefirstconsider howArticle XIIIofGATT should beinterpreted andwhether theEC'sbanana
tariff quota shares conform toitsrequirements. Wethenconsider whether anyinconsistencies with
Article XIIIarewaived bytheLomé waiver orpermitted asaresult ofthenegotiation oftheBFA
anditsinclusion intheEC'sSchedule.
(a) Article XIII
7.67 Article XIIIofGATT generally regulates theadministration ofquotas andtariff quotas. In
relevant parts, itprovides asfollows:
Article XIII
Non-discriminatory Administration ofQuantitative Restrictions
1. Noprohibition orrestriction shallbeapplied byanyMember onthe
importation ofanyproduct oftheterritory ofanyother Member orontheexportation
ofanyproduct destined fortheterritory ofanyother Member, unless theimportation
ofthelikeproduct ofallthirdcountries ortheexportation ofthelikeproduct toall
thirdcountries issimilarly prohibited orrestricted.
2. Inapplying import restrictions toanyproduct, Members shallaimat
adistribution oftrade insuchproduct approaching asclosely aspossible theshares
which thevarious Members might beexpected toobtain intheabsence ofsuch
restrictions andtothisendshallobserve thefollowing provisions:
...
(d) Incases inwhich aquota isallocated among supplying countries the
Member applying therestrictions mayseekagreement withrespect
totheallocation ofshares inthequota withallother Members having
asubstantial interest insupplying theproduct concerned. Incases in
whichthismethodisnotreasonablypracticable,theMemberconcerned
shallallottoMembers having asubstantial interest insupplying the
product shares based upontheproportions, supplied bysuchMembers
during aprevious representative period, ofthetotalquantity orvalue
ofimports oftheproduct, dueaccount being taken ofanyspecial
factors which mayhaveaffected ormaybeaffecting thetrade inthe
product. Noconditions orformalities shallbeimposed which would
prevent anyMember from utilizing fullytheshare ofanysuchtotal
quantity orvalue which hasbeenallotted toit,subject toimportationWT/DS27/R/USA
Page307
being made within anyprescribed period towhich thequota may
relate.*363
...
4. Withregard torestrictions applied inaccordance withparagraph 2(d)
ofthisArticle orunder paragraph 2(c)ofArticle XI,theselection ofarepresentative
period foranyproduct andtheappraisal ofanyspecial factors*364affecting thetrade
intheproduct shallbemade initially bytheMember applying therestriction; Provided
thatsuchMember shall, upon therequest ofanyother Member having asubstantial
interestinsupplyingthatproductorupontherequestofthe[CONTRACTINGPARTIES],consult
promptly withtheotherMember orthe[CONTRACTING PARTIES ]regarding theneedfor
anadjustment oftheproportion determined orofthebaseperiod selected, orforthe
reappraisal ofthespecial factors involved, orfortheelimination ofconditions,
formalities oranyother provisions established unilaterally relating totheallocation
ofanadequate quota oritsunrestricted utilization.
5. Theprovisions ofthisArticle shallapply toanytariffquota instituted
ormaintained byanyMember, and,insofarasapplicable, theprinciples ofthisArticle
shallalsoextend toexport restrictions.
7.68 Thewording ofArticle XIIIisclear. Ifquantitative restrictions areused(asanexception to
thegeneral banontheiruseinArticle XI),theyaretobeusedintheleasttrade-distorting manner
possible. Intheterms ofthegeneral rule365ofthechapeau ofArticle XIII:2:
"Inapplying import restrictions toanyproduct, Members shallaimatadistribution
oftradeinsuchproduct approaching asclosely aspossible theshares which thevarious
Members might beexpected toobtain intheabsence ofsuchrestrictions ...".
Inthiscase, weareconcerned withtariff quotas, which arepermitted under GATT rules, andnot
quantitative restrictions perse.However, Article XIII:5 makes itclear, andtheparties agree, that
Article XIIIapplies totheadministration oftariff quotas. Inlightoftheterms ofArticle XIII, itcan
besaidthattheobject andpurpose ofArticle XIII:2 istominimize theimpact ofaquota ortariffquota
regime ontrade flows byattempting toapproximate under suchmeasures thetrade shares thatwould
haveoccurred intheabsence oftheregime. Ininterpreting theterms ofArticle XIII, itisimportant
tokeeptheircontext inmind. Article XIIIisbasically aprovision relating totheadministration of
restrictions authorized asexceptions tooneofthemost basic GATT provisions-the general banon
quotas andother non-tariff restrictions contained inArticle XI.
363Note AdArticle XIII, Paragraph 2(d), reads: "Nomention wasmade of'commercial considerations 'asarulefor
theallocation ofquotas because itwasconsidered thatitsapplication bygovernmental authorities might notalways be
practicable. Moreover, incases where itispracticable, aMember could apply these considerations intheprocess ofseeking
agreement, consistently withthegeneral rulelaiddown intheopening sentence ofparagraph 2".
364Note AdArticle XIII, Paragraph 4,provides: "See noterelating to'special factors 'inconnection withthelast
subparagraph ofparagraph 2ofArticle XI". Thatnotereads asfollows: "The term'special factors 'includes changes in
relative productive efficiency between domestic andforeign producers, orasbetween different foreign producers, butnot
changes artificially brought about bymeans notpermitted under theAgreement".
365Atthe1955 Review Session, aworking party considering amendments toArticle XIIIstated: "The Working Party
...agreed torecognize thatthegeneral rulecontained intheintroduction toparagraph 2governed thevarious sub-paragraphs
ofthatparagraph including those ofsub-paragraph (d)". Working Party Report on"Quantitative Restrictions", adopted on
2,4and5March 1955, BISD 3S/170, 176, para. 24.WT/DS27/R/USA
Page308
7.69 While previous panels havedealt withspecific aspects ofArticle XIII, thisisthefirstcase
inwhich abroad challenge toaquota ortariff quota system hasbeenmade. Therefore, wemustin
thefirstinstance consider ingeneral terms howthevarious subdivisions ofArticle XIIIwork together.
Article XIII:1 establishes thebasicprinciple thatnoimport restriction shallbeapplied tooneMember 's
products unless theimportation oflikeproducts from other Members issimilarly restricted. Thus,
aMember maynotlimitthequantity ofimports from some Members butnotfrom others. Butas
indicated bytheterms ofArticle XIII(andeven itstitle, "Non-discriminatory Administration of
Quantitative Restrictions"), thenon-discrimination obligation extends further. Theimported products
atissuemustbe"similarly" restricted. AMember maynotrestrict imports fromsome Members using
onemeans andrestrict them from another Member using another means. Theonlydirectly relevant
panel report dealtwiththisissuebriefly, butconfirms thisinterpretation ofArticle XIII:1. Thereport
found aninconsistency withtherequirements ofArticle XIII:1 where aGATT contracting party
negotiated export restrictions onimports ofproducts fromsome countries butimposed unilateral import
restrictionsonthelikeproductsfromanothercountry.Thereportalsonoteddifferencesinadministration
(import restrictions versus export restraint) andintransparency between thetwomeasures.366
7.70 Article XIII'sgeneral requirement ofnon-discrimination ismodified inonerespect by
Article XIII:2(d), which provides forthepossibility toallocate tariffquota shares tosupplying countries.
Anysuchcountry specific allocation must, however, "aim atadistribution oftrade ...approaching
asclosely aspossible theshares which Members might beexpected toobtain intheabsence ofsuch
restrictions" (chapeau ofArticle XIII:2(d)).
7.71 Article XIII:2(d) further specifies thetreatment that,incaseofcountry-specific allocation of
tariff quota shares, must begiven toMembers with"asubstantial interest insupplying theproduct
concerned". Forthose Members, theMember proposing toimpose restrictions mayseekagreement
withthem asprovided inArticle XIII:2(d), firstsentence. Ifthatisnotreasonably practicable, then
itmust allotshares inthequota (ortariff quota) tothem onthebasis ofthecriteria specified in
Article XIII:2(d), second sentence.
7.72 Theterms ofArticle XIII:2(d) make clearthatthecombined useofagreements andunilateral
allocations toMembers withsubstantial interests isnotpermitted. ThetextofArticle XIII:2(d) provides
thatwhere thefirst"method", i.e.,agreement, isnotreasonably practicable, thenanallocation must
bemade. Thus, intheabsence ofagreements withallMembers having asubstantial interest insupplying
theproduct, theMember applying therestriction must allocate shares inaccordance withtherules
ofArticle XIII:2(d), second sentence. Intheabsence ofthisrule,theMember allocating shares could
reach agreements withsome Members having asubstantial interest insupplying theproduct that
discriminated against other Members having asubstantial interest supplying theproduct, evenifthose
other Members objected totheshares theywere tobeallocated.
7.73 Thequestion theniswhether country-specific shares canalsobeallocated toMembers that
donothaveasubstantial interest insupplying theproduct and,ifso,whatthemethod ofallocation
would havetobe.Astothefirstpoint, wenotethatthefirstsentence ofArticle XIII:2(d) refers to
allocation ofaquota "among supplying countries". Thiscould bereadtoimply thatanallocation may
alsobemade toMembers thatdonothaveasubstantial interest insupplying theproduct. Ifthis
interpretation isaccepted, anysuchallocation must, however, meettherequirements ofArticle XIII:1
andthegeneral ruleinthechapeau toArticle XIII:2(d). Therefore, ifaMember wishes toallocate
shares ofatariffquota tosomesuppliers without asubstantial interest, thensuchshares mustbeallocated
366Panel Report on"EEC -Restrictions onImports ofApples fromChile", adopted on10November 1980, BISD 27S/98,
114,116,paras 4.11, 4.21. SeealsoPanel Report on"EEC -Quantitative Restrictions Against Imports ofCertain Products
from Hong Kong", adopted 12July1983, BISD 30S/129, 139-140, para. 33.WT/DS27/R/USA
Page309
toallsuchsuppliers. Otherwise, imports fromMembers would notbesimilarly restricted asrequired
byArticle XIII:1.367Astothesecond point, insuchacaseitwould berequired tousethesamemethod
aswasusedtoallocate thecountry-specific shares totheMembers having asubstantial interest in
supplying theproduct, because otherwise therequirements ofArticle XIII:1 would alsonotbemet.
7.74 Theallocation ofcountry-specific tariff quota shares toallsupplying countries onthebasis
ofthefirstmethod (agreement) mayinpractice bedifficult since there willlikely bedemand formore
than100percentofthetariffquota and,furthermore, therewould benopossibility tomake provision
fornewsuppliers. Thiswould leave thesecond method astheonlypractical alternative-a result that,
however, runscounter totheprovision ofArticle XIII:2(d) tofirstseekagreement withallMembers
having asubstantial interest insupplying theproduct concerned.
7.75 Theconsequence oftheforegoing analysis isthatMembers maybeeffectively required touse
ageneral "others" category forallsuppliers other thanMembers withasubstantial interest insupplying
theproduct. Thefactthatinthissituation tariff quota shares areallocated tosome Members, notably
thosehaving asubstantial interest insupplying theproduct, butnottoothers thatdonothaveasubstantial
interest insupplying theproduct, would notnecessarily beinconflict withArticle XIII:1. While the
requirement ofArticle XIII:2(d) isnotexpressed asanexception totherequirements ofArticle XIII:1,
itmayberegarded, totheextent thatitspractical application isinconsistent withit,aslexspecialis
inrespect ofMembers withasubstantial interest insupplying theproduct concerned.
7.76 Insofarasthisinpractice results intheuseofan"others" category forallMembers nothaving
asubstantial interest insupplying theproduct, itcomports wellwiththeobject andpurpose of
Article XIII,asexpressed inthegeneral ruletothechapeau toArticle XIII:2. When asignificant share
ofatariff quota isassigned to"others", theimport market willevolve withtheminimum amount of
distortion. Members nothaving asubstantial supplying interest willbeable,ifsufficiently competitive,
togainmarket share inthe"others" category andpossibly achieve "substantial supplying interest" status
which, inturn,would provide themtheopportunity toreceive acountry-specific allocation byinvoking
theprovisions ofArticle XIII:4. Newentrants willbeabletocompete inthemarket, andlikewise
haveanopportunity togain"substantial supplying interest" status. Fortheshare ofthemarket allocated
toMembers withasubstantial interest insupplying theproduct, thesituation mayalsoevolve inlight
ofadjustments following consultations under Article XIII:4. Incomparison toasituation where country-
specific shares areallocated toallsupplying countries, including Members withminor market shares,
thisresult islesslikely toleadtoalong-term freezing ofmarket shares. Thisis,inourview, consistent
withtheterms, object andpurpose, andcontext ofArticle XIII.
7.77 Inthiscase,weareconfronted withthefollowing situation: withrespect toitscommon market
organization forbananas, theECreached anagreement onshares initsbound tariffquota forbananas
withtheBFAcountries, allocated shares ofthattariffquota inrespect ofnon-traditional ACPbananas
andcreated an"others" category inthattariffquota forotherMembers (andnon-Members). Inaddition,
italsoallocated tariffquota quantities totraditional ACPsuppliers ofbananas. Toevaluate thissituation
inlightoftheforegoing discussion ofArticle XIII,itisnecessary toconsider (i)whether theECmarket
organizationforimportedbananasshouldbeanalyzedasoneortworegimesforpurposesofArticleXIII,
(ii)which Members could beconsidered tohavehadasubstantial interest insupplying bananas tothe
ECatthetimetheECregulation wasputinplace andhowtheywere treated bytheEC,(iii)how
Members without suchasubstantial interest were treated and(iv)theposition ofnewMembers.
367SeePanel Repor ton"EECRestrictionsonImpor tsofApplesfromChile",adoptedon10November 1980, BISD27S/98,
114, 116, paras. 4.11, 4.21.WT/DS27/R/USA
Page310
(i)Separate regimes
7.78 TheEChasonecommon market organisation forbananas established byRegulation 404/93.
Ithasargued, however, thatithastwoseparate regimes forimported bananas -oneforbananas
traditionally supplied bycertain ACPcountries, andoneforbananas fromnon-traditional ACP, BFA
andother third-country sources. Initsview, thePanel should separately examine theconsistency of
eachofthese regimes withtherequirements ofArticle XIII. TheECclaims thattheregime for
traditional supplies ofACPbananas hasadifferent legalbasisthanthebound tariff quota forbananas
because itisapreferential regime inthatdifferent tariff ratesapply toACP bananas ascompared to
other bananas. TheComplainants argue thatnothing inthelanguage ofArticle XIIIsupports such
adistinction, thatrecognizing itwould undermine thepurpose ofthatArticle andthatArticle implies
thattherecannot beseparate regimes because iftherewere, imports under theseparate regimes would
notbesimilarly restricted asrequired byArticle XIII:1.
7.79 WenotethatArticle XIII:1 provides thatnorestriction shallbeapplied byanyMember on
theimportation ofanyproduct ofanother Member "unless theimportation ofthelikeproduct ofall
thirdcountries ...issimilarly ...restricted". Article XIII:2 requires Members when allocating tariff
quota shares to"aimatadistribution oftrade ...approaching asclosely aspossible theshares which
thevarious Members might beexpected toobtain intheabsence ofsuchrestrictions". Bytheirterms,
these twoprovisions ofArticle XIIIdonotprovide abasis foranalysing quota allocation regimes
separately because theyhave different legal bases orbecause different tariff rates areapplicable.
Article XIIIapplies toallocations ofshares inanimport market foraparticular product which is
restricted byaquota ortariff quota. Inourview, itsnon-discrimination requirements apply tothat
market forthatproduct, irrespective ofwhether orhowaMember subdivides itforadministrative
orother reasons. Indeed, toaccept thataMember could establish quota regimes bydifferent legal
instruments andargue thattheyarenotasaconsequence subject toArticle XIIIwould be,asargued
bytheComplainants, toeviscerate thenon-discrimination provisions ofArticle XIII.
7.80 Similarly, inourview, theexistence ofdifferent tariffratesdoesnotimply thattheECimport
measures applied tobananas mustorshould betreated astwoseparate regimes. Theobject andpurpose
ofArticle XIII:2 istoattempt toapproximate under atariff quota regime thetrade shares thatwould
haveoccurred intheabsence ofthetariffquota. Totheextent thatapreferential tariffbenefits imports
from certain countries, theirtrade shares should already reflect thatpreference. Thus, thefactthat
different tariff ratesmayapply toimports from different Members doesnotjustify separate analysis
oftheallocation oftariff quota shares onthebasisofthetariff applicable totheMember inquestion,
without reference totheallocations toMembers subject toadifferent tariff rate.While itistruethat
non-beneficiaries ofthetariff preference bydefinition cannot benefit from thatpreference, theymay
beaffected bythewayinwhich tariffquota shares benefitting fromthetariffpreference areallocated.
Forexample, anallocation ofshares could bemade inawaythatwould allow beneficiaries ofthe
tariff preference tocompete more effectively thanwould thetariff preference alone. Nottoapply
Article XIIIinsuchasituation would mean thatpreferential treatment inaddition tothetariffpreference
wasbeing afforded tothose Members.
7.81 PastGATT andWTO practice suggests thatMembers havetypically distinguished between
tariffpreferences andnon-tariff preferences. Forexample, intheso-called Enabling Clause, preferential
tarifftreatment onaunilateral basisisauthorized fordeveloping countries ingeneral terms inaccordance
withtheGeneralized System ofPreferences, while non-tariff preferences arepermitted onlytothe
extent governed byinstruments multilaterally negotiated under GATT/WTO auspices.368Asnoted
368Decision oftheCONTRACTING PARTIES of28November 1979 on"Differential andMore Favourable Treatment,
Reciprocity andFuller Participation ofDeveloping Countries", BISD 26S/203.WT/DS27/R/USA
Page311
below (paragraph 7.106), mostcurrent waivers allowing preferential treatment havebeenlimited to
preferential tariff treatment. The"separate regimes" argument oftheECblurs these distinctions and
would result inatariff preference providing preferential treatment inaddition toatariff advantage.
7.82 WefindthattheEChasonlyoneregime forbanana imports forpurposes ofanalysing
whether itsallocation oftariff quota shares isconsistent withtherequirements ofArticle XIII.WT/DS27/R/USA
Page312
(ii)Members withasubstantial interest
7.83 Thefollowing statistics supplied bytheECindicate theshares ofsuppliers totheECbanana
market during the1989-1991 period. Weuse1989-1991 statistics because theECclaims thatatthe
timeitnegotiated theBFA, 1992 statistics were notavailable. Although theComplainants contest
thisassertion, theyhavenotconvinced usthatsuchstatistics were infactavailable.
GATT
Contracting
Party
19931989-1991
Average
Volume
(tonnes)1989-1991
Average of
Shares
%
Costa Rica 508,957 19.7
Colombia 409,153 15.7
St.Lucia 114,445 4.5
Côted'Ivoire 98,908 3.8
Cameroon 82,938 3.1
St.Vincent &
theGrenadines70,464 2.7
Jamaica 57,505 2.2
Dominica 52,628 2.0
Nicaragua 44,840 1.7
Suriname 28,465 1.1
Guatemala 28,128 1.2
Belize 23,412 0.9
Grenada 8,215 0.3
Dominican
Republic4,789 0.2
Venezuela 90 0.0
Madagascar 23 0.0
other ACP
countries1,215 0.1
Total 1,534,062 59.2WT/DS27/R/USA
Page313
Non-GATT
Contracting
Party
19931989-1991
Average
Volume
(tonnes)1989-1991
Average of
Shares
%
Panama 465,701 18
Ecuador 401,419 15.2
Honduras 136,858 5.4
Somalia 41,751 1.7
Cape Verde 2,820 0.1
Total 1,048,549 40.4
TheECargues thatonlyColombia andCosta Ricahada"substantial interest insupplying theproduct"
inthesense ofArticle XIII:2(d), inthattheyweretheonlyGATT contracting parties atthetimewith
market shares ofmorethan10percentandthat,analogously topractice under Article XXVIII ofGATT,
amarket share of10percentcould beconsidered asthethreshold foracountry toestablish asubstantial
interest.369TheothermajorsupplierstotheECmarket-EcuadorandPanama-werenotGATTcontracting
parties atthetime. Theremaining suppliers hadrelatively minor shares. TheComplainants argue
thattheECcannot claim compliance withArticle XIII:2(d), firstsentence, because there wereGATT
contracting parties withwhich theECdidnotreach agreement andthattheyinsome cases hadmore
significant market shares ofECbanana imports thansome ofthecountries withwhich theECdidreach
agreement intheBFA.
7.84 Wedonotfinditnecessary tosetaprecise import share fordetermination ofwhether aMember
hasasubstantial interest insupplying aproduct. Adetermination ofsubstantial interest might well
varysomewhat based onthestructure ofthemarket.370
7.85 Given theparticular circumstances ofthiscase, wefindthatitwasnotunreasonable for
theECtoconclude thatatthetimetheBFA wasnegotiated Colombia andCosta Ricawere the
onlycontracting parties thathadasubstantial interest insupplying theECbanana market in
terms ofArticle XIII:2(d). Wealsofindthatitisnotreasonable toconclude thatatthetime
theBFAwasnegotiated Nicaragua andVenezuela hadasubstantial interest insupplying theEC
banana market intheterms ofArticle XIII:2(d).
7.86 Before turning totheconsequences oftheabove finding, wemustconsider whether itwould
bepossible forotherMembers tochallenge anagreement reached under Article XIII:2(d), firstsentence.
369Paragraph 7totheNote AdArticle XXVIII:1 states that"[t]he expression 'substantial interest 'isnotcapable ofa
precise definition ...Itis,however, intended tobeconstrued tocover onlythose Members which have...asignificant share
inthemarket ...". Itwasindicated in1985, however, thata10percentrulehasbeenapplied generally. Analytical Index:
Guide toGATT LawandPractice, 6threv.ed.1995, p.941, citing TAR/M/16, p.10.
370WenotethatinthecaseofArticle XXVIII, theUruguay Round Understanding ontheInterpretation ofArticle XXVIII
oftheGeneral Agreement onTariffs andTrade 1994 provides thattheMember which hasthehighest ratioofexports affected
bytheconcession toitstotalexports shallbedeemed tohaveprincipal supplying interest intheproduct atissue forpurposes
ofnegotiations under Article XXVIII. There issofarnosimilar understanding applicable toArticle XIII.WT/DS27/R/USA
Page314
TheECargues thatsinceitnegotiated anagreement withColombia andCosta Ricaincompliance with
ArticleXIII:2(d),firstsentence,theprovisionsofthatagreementmaynotbechallengedasnotcomplying
withother provisions ofArticle XIII. However, eventhough theECdidnegotiate anagreement as
foreseen inArticle XIII:2(d), firstsentence, itisnecessary tokeepinmind thatthegoalofanysuch
agreement isprovided inthegeneral ruleinthechapeau toArticle XIII:2. Wewould notruleout
thepossibility thatanagreement thatdoesnotgenerally achieve thisgoalmaybeopentochallenge
byMembers whoarenotparties totheagreement, evenifthere isnorequirement toinclude such
Members inthenegotiations because theydonothaveasubstantial interest insupplying theproduct
concerned. Forexample, inourview, itwould bepossible forotherMembers tochallenge anagreement
between theEC,Colombia andCosta Ricaifitdivided thebound tariff quota between onlyColombia
andCosta Rica. Support forallowing forthepossibility ofsuchachallenge isfound inpastGATT
practice.371
7.87 Inthiscase, however, wefinditunnecessary tospecify indetail under what circumstances
anagreement reached pursuant toArticle XIII:2(d) maybechallenged. Ifourfindings ontheuseof
separate regimes (paragraph 7.82), ontheshares assigned toMembers without asubstantial interest
(paragraph 7.90) andtherights ofnewMembers under Article XIII(paragraph 7.92), aswellasthose
relating totheEC'slicensing procedures, areadopted bytheDSB, itwillbenecessary fortheEC
toreconsider itstreatment ofbanana imports, including theallocation oftariff quota shares.
7.88 Accordingly, wemake nofinding onwhether theallocation ofshares toColombia and
Costa Rica isconsistent with therequirements ofthegeneral ruleinthechapeau toArticle
XIII:2(d).
(iii)Members without asubstantial interest
7.89 Asnoted above (paragraph 7.73), Article XIII:1 would permit theECtoallocate atariffquota
share toallsupplying Members without asubstantial interest intheformofan"others" category, without
specific shares. Inthiscase,theECallocated tariffquota shares byagreement andassignment tosome
Members (e.g., ACPcountries (inrespect oftraditional andnon-traditional exports), Nicaragua and
Venezuela) without allocating suchshares toother Members (e.g., Guatemala). Moreover, under the
BFA, theBFAcountries weregiven special rights inrespect ofreallocation oftariff quota shares372
371Forexample, inacaseinvolving Norwegian quotas ontextiles products, thepanel found thatNorway hadreached
agreement onthelimitation oftextiles imports from sixcountries, butnotHong Kong. Thepanel found thatthequantitative
restrictions limiting Hong Kong exports were subject toArticle XIII:2 andruled that
"Norway 'sreservation ofmarket shares forthese sixcountries therefore represented apartial allocation
ofquotas under anexisting regime ofimport restrictions oftheproduct inquestion andthatNorway must
therefore beconsidered tohaveacted under Article XIII:2(d). ...ThePanel wasoftheview thattothe
extent thatNorway hadacted witheffect toallocate import quotas forthese products tosixcountries
buthadfailed toallocate ashare toHong Kong, its...action wasinconsistent withArticle XIII".
Thisreport 'sconclusion wasbased inpartonthefactthatHong Kong hadasubstantial interest insupplying most ofthe
products atissue. Nonetheless, thereport supports theargument thatArticle XIII:2(d) agreements maybechallenged by
Members nothaving asubstantial interest, asthepanel report drew nodistinction between products where Hong Kong had
asubstantial interest andthose where itdidnot. Panel Report on"Norway -Restrictions onImports ofCertain Textiles
Products", adopted on18June 1980, BISD 27S/119, 125-126, paras. 15-16.
372Under theBFA, there isageneral provision thatprovides thatifacountry withacountry-specific share ofthetariff
quota indicates totheECthatitwillbeunable todeliver theallocated quantity, theamount oftheshort-fall istobeallocated
inaccordance withtheBFA allocations (including tothe"others" category). TheBFA alsoprovides thatcountries with
country-specific shares ofthetariff quota mayjointly request theECtoallocate theshort-fall differently, inwhich casethe
(continued...)WT/DS27/R/USA
Page315
thatwerenotgiven toother Members (e.g., Guatemala). Forthereasons noted above (paragraphs 7.69
and7.73),suchdifferentialtreatmentoflikeproductsfromMembersisinconsistentwiththerequirements
ofArticle XIII:1.
7.90 Accordingly, wefindthat(i)theEC'sallocation oftariff quota shares byagreement and
byassignment tosome Members nothaving asubstantial interest insupplying bananas tothe
EC(including Nicaragua andVenezuela andcertain ACP countries inrespect oftraditional and
non-traditional exports) butnottoother Members (such asGuatemala) and(ii)thetariff quota
reallocation rules oftheBFA, areinconsistent withtherequirements ofArticle XIII:1.
(iv)Newmembers
7.91 Wenowconsider theposition ofaMember whoacceded totheWTO orGATT afterthe
implementation oftheECcommon market organization forbananas (a"new" Member). Asnoted
above, thegeneral ruleinthechapeau toArticle XIII:2 indicates thattheaimofArticle XIII:2 isto
givetoMembers theshare oftrade thattheymight beexpected toobtain intheabsence ofatariff
quota. There isnorequirement thataMember allocating shares ofatariff quota negotiate withnon-
Members, butwhen suchcountries accede totheWTO, theyacquire rights, justasanyother Member
hasunderArticleXIIIwhetherornottheyhaveasubstantialinterestinsupplyingtheproductinquestion.
7.92 Thus, although theECreached anagreement withallMembers whohadasubstantial interest
insupplying theproduct atonepoint intime, under theconsultation provisions ofArticle XIII:4, the
ECwould havetoconsider theinterests ofanewMember whohadasubstantial interest insupplying
theproduct ifthatnewMember requested ittodoso.373Theprovisions onconsultations andadjustments
inArticle XIII:4 mean inanyevent thattheBFAcould notbeinvoked tojustify apermanent allocation
oftariff quota shares. Moreover, while newMembers cannot challenge theEC'sagreements with
Colombia andCosta RicaintheBFAonthegrounds thattheECfailed tonegotiate andreach agreement
withthem, theyotherwise havethesame rights asthose Complainants whowereGATT contracting
parties atthetimetheBFAwasnegotiated tochallenge itsconsistency withArticle XIII. Generally
speaking, allMembers benefit from allWTO rights.
7.93 Inthisconnection, wefindthatthefailure ofEcuador 'sProtocol ofAccession toaddress
banana-related issues doesnotmean thatEcuador must accept thevalidity oftheBFAascontained
intheEC'sSchedule orthatitisprecluded from invoking Article XIII:2 orXIII:4.
(v)Other arguments
7.94 Inlightofourfindings inrespect ofArticle XIII:1, wefinditunnecessary toaddress theclaims
andarguments inrespect oftheinterpretation ofArticle XIII:2(d), second sentence (e.g., theuseof
a"previous representative period" and"special factors") orinrespect oftheEC'senlargement toinclude
372(...continued)
ECisrequired todoso.Asaresult, according totheComplainants, in1995 and1996, allofthetariff quota share allocated
toNicaragua, and70and30percent, respectively, oftheshare allocated toVenezuela, havebeenreallocated toColombia.
373While theprovisions ofArticle XIII:4 onconsultations andadjustments seem tobeprimarily aimed atadjustments
toquota shares allocated pursuant toArticle XIII:2(d), second sentence, theyalsoapply inthecasewhere agreements were
reached pursuant toArticle XIII:2(d), firstsentence, withMembers having asubstantial interest insupplying theproduct
concerned. Inaddition, insofarasanewMember hasasubstantial interest insupplying thatproduct, itsshare ofthe"others"
category canbeviewed, forpurposes ofArticle XIII:4, asaprovision established unilaterally relating totheallocation of
anadequate quota.WT/DS27/R/USA
Page316
Austria, Finland andSweden.374Wewould note, however, thatinorder tobring itsbanana import
regulations intolinewithArticle XIII,theECwould havetotakeaccount ofArticle XIII:1 andXIII:2(d).
Inorder toallocate country-specific tariffquota shares consistently withtherequirements ofArticle XIII,
theECwould havetobasesuchshares onanappropriate previous representative period375andany
special factors would havetobeapplied onanon-discriminatory basis (seeparagraph 7.69).
(b) Theallocation oftariff quota shares toACP countries: TheLomé waiver
7.95 Inlightofthefinding thattheEC'sallocation ofcountry-specific tariffquota shares forbananas
totheACP countries forbothtraditional andnon-traditional bananas isnotconsistent withthe
requirements ofArticle XIII(paragraph 7.90), wenowconsider whether thatinconsistency iscovered
bytheLomé waiver. Inthisconnection, werecall thefindings ofthesecond Banana panel report.376
Itfound that(i)thespecific duties levied bytheEConimports ofbananas were inconsistent with
Article II,(ii)thepreferential tariff ratesforbanana imports from ACP countries were inconsistent
withtherequirements ofArticle Iand(iii)certain procedures regarding theallocation oflicences were
inconsistent withtherequirements ofArticles IandIII.Italsofound thatthetheneffective ECrules
didnotdiscriminate between sources ofsupply inthesense ofArticle XIIIbecause thelicences issued
toimport bananas could beusedtoimport bananas from anysource. After theissuance ofthepanel
report,whichwasnotadoptedbytheGATTCONTRACTINGPARTIES,theECandtheACPcountries
thatwereGATT contracting parties requested awaiver (although theywereandstillareoftheopinion
thatsuchawaiver isnotneeded) oftheEC'sArticle I:1obligations inorder topermit theECtoprovide
preferential treatment totheACP countries asrequired bytheLomé Convention.377
374TheAppellate Body hasstated that"[a]panel need onlyaddress those claims which must beaddressed inorder to
resolve thematter inissue inthedispute". Appellate Body Report on"United States -Measure Affecting Imports ofWoven
Wool Shirts andBlouses from India", issued on25April 1997, WT/DS33/AB/R, AB-1997-1, p.19.
375Inthisregard, wenotewithapproval thestatement bythe1980 Chilean Apples panel:
"[I]n keeping withnormal GATT practice, thePanel considered itappropriate touseasa'representative
period 'athree-year period previous to1979, theyearinwhich theECmeasures were ineffect. Due
totheexistence ofrestrictions in1976, thePanel heldthatthatyear could notbeconsidered as
representative, andthattheyearimmediately preceding 1976 should beusedinstead. ThePanel thus
chose theyears 1975, 1977, 1978 asa'representative period '".
Panel Report on"EEC Restrictions onImports ofDessert Apples -Complaint byChile", adopted on10November 1980,
BISD 27S/98, 113,para. 4.8. Inthereport ofthe"Panel onPoultry", issued on21November 1963, GATT Doc. L/2088,
para. 10,thepanel stated: "[T]he shares inthereference period ofthevarious exporting countries intheSwiss market, which
wasfreeandcompetitive, afforded afairguide astotheproportion oftheincreased German poultry consumption likely
tobetaken upbyUnited States exports". SeealsoPanel Report on"Japan -Restrictions onImports ofCertain Agricultural
Products", adopted on22March 1988, BISD 35S/163, 226-227, para. 5.1.3.7.
376Panel Report on"EEC -Import Regime forBananas", issued 11February 1994 (notadopted), DS38/R, p.52,
paras. 169-170.
377TheEC'sUruguay Round Schedule substituted aspecific tariffinplace ofitsprioradvalorem tariff binding forbananas.
Theconsistency ofthatsubstitution withGATT rules isexamined inpara. 7.137 etseq.oftheGuatemala-Honduras report.
Inrespect ofthepanel'sfinding thattheECregime wasinconsistent withtherequirements ofArticle III,theECdidnot
change theregime andweexamine thatissue inpara. 7.171.WT/DS27/R/USA
Page317
7.96 Subsequently, theLomé waiver wasadopted bytheGATT CONTRACTING PARTIES in
December 1994andwasextended bytheWTO General Council inOctober 1996.378Under theoperative
paragraph oftheLomé waiver,
"theprovisions ofparagraph 1ofArticle IoftheGeneral Agreement shallbewaived,
until29February 2000, totheextent necessary topermit theEuropean Communities
toprovide preferential treatment forproducts originating inACP States asrequired
bytherelevant provisions oftheFourth Lomé Convention, without being required
toextendthesamepreferentialtreatmenttolikeproductsofanyothercontractingparty".
Inorder todetermine whether theECmayallocate tariffquota shares totheACPcountries inconsistently
withtherequirements ofArticle XIII, wemust determine whether those allocations arecovered by
theLomé waiver. Thisdetermination involves resolving twointerpretative issues. First, what
preferential treatment inrespect ofbananas is"required" bytheLomé Convention? Second, doesthe
Lomé waiver, which refers onlytoArticle I:1ofGATT, encompass awaiver ofArticle XIIIobligations
aswell?
(i)Preferential treatment required bytheLomé Convention
7.97 Asapreliminary matter, theECandtheACPcountries argue thatthePanel isnotauthorized
tointerpret theLomé Convention. Weaccept thatwearenotdirected inourterms ofreference to
interpret theLomé Convention. Werecall thatwehavefound thattheEC'sallocation oftariff quota
sharestoACPcountriesisinconsistentwiththerequirementsofArticleXIII(paragraph7.90).However,
inorder todetermine whether ornottheEC'sArticle XIIIobligations arewaived, wemustdetermine
whether ornottheLomé waiver applies. Thatrequires aninterpretation oftheLomé waiver, which
isadecision oftheGATT CONTRACTING PARTIES, laterextended byaWTO General Council
decision. Since thewaiver applies toaction "necessary ...toprovide preferential treatment ...as
required bytherelevant provisions oftheFourth Lomé Convention "(emphasis added), wemustalso
determine whatpreferential treatment isrequired bytheLomé Convention.
7.98 TheECargues thatthePanel must accept theECandtheACP countries 'interpretation of
theLomé Convention asvalid since theyaretheparties totheLomé Convention. Wenotethatsince
theGATT CONTRACTING PARTIES incorporated areference totheLomé Convention intotheLomé
waiver, themeaning oftheLomé Convention became aGATT/WTO issue, atleasttothatextent.
Thus, wehavenoalternative buttoexamine theprovisions oftheLomé Convention ourselves inso
farasitisnecessary tointerpret theLomé waiver. Moreover, wenotethatintheirsubmissions to
us,itappears thattheECandtheACPcountries arenotinaccord onsome aspects ofwhatisrequired
bytheLomé Convention.
7.99 WenotethattheLomé Convention permits theECtolimitduty-free ACP country exports
totheECofproducts subject tocommon market organizations intheEC,i.e.,many agricultural
products. Inrespect ofthose products, Article 168(2)(a)(ii) oftheLomé Convention requires theEC
to:
378EC-TheFourth ACP-EEC Convention ofLomé, Waiver Decision of9December 1994, L/7604, 19December 1994;
Extension oftheWaiver, Decision of14October 1996, WT/L/186. Although theLomé waiver wasinitially approved by
theGATT CONTRACTING PARTIES until29February 2000, itwasnecessary fortheWTO General Council toconsider
whether toextend itbecause under theUruguay Round Understanding inRespect ofWaivers ofObligations under theGeneral
Agreement onTariffs andTrade 1994, allwaivers ineffect ontheentry intoforce oftheWTO Agreement expired twoyears
thereafter (i.e., on1January 1997) unless extended.WT/DS27/R/USA
Page318
"take necessary measures toensure morefavourable treatment thanthatgranted tothird
countries benefitting from themost-favoured-nation clause forthesame products".
Moreover, inthecaseofbananas, Protocol 5totheLomé Convention places some restraints onthe
EC'srighttolimitimports ofACP bananas. Itspecifies inArticle 1:
"Inrespect ofbanana exports totheCommunity markets, noACPStateshallbeplaced,
asregards access toitstraditional markets anditsadvantages onthose markets, ina
lessfavourable situation thaninthepastoratpresent".
Since theLomé Convention wassigned in1989andwasexpected toenterintoforcein1990, webelieve
thatthewords "atpresent" should beinterpreted toreferto1990. AJointDeclaration toProtocol 5
provides that"Article 1ofProtocol 5doesnotprevent theCommunity fromestablishing common rules
forbananas aslongasnoACPState, traditional supplier totheCommunity, isplaced asregards access
to,andadvantages in,theCommunity inalessfavourable situation thaninthepastoratpresent".
ThefactthattheEChasdonesoobviously makes themeaning ofProtocol 5more difficult toascertain
sincewhatwasasystem ofindividual ECmember Statemarkets hasbeentransformed intooneEC-wide
market.
7.100 Inallocating country-specific shares ofthebanana tariff quota totraditional ACP banana
supplying countries, theECsettheshares atthelevelofeachACP country 's"best-ever" exports to
theEC,adjusted forcertain other factors. Theissue iswhether itwasrequired todosobytheLomé
Convention. TheComplainants correctly point outthatProtocol 5doesnotguarantee thatacertain
levelofbanana exports willbeachieved, andinresponse toquestions ofthePanel, theECdidnot
disagree. Werecall thatgenerally speaking, ACPcountries formerly competed forthemostparton
either theFrench orUKmarkets andthatonthesemarkets theywereprotected byandlargefromimport
competition fromother banana exporters. Given thisdegree ofmarket access andadvantage, theissue
ishowtheECcould fulfil itsobligations under Protocol 5onanEC-wide market.
7.101 Itappears thatpriortoRegulation 404/93 there werenosetmaximum levels forACPexports
toECmember State markets. While theACPcountries didnothavespecific quotas, theygenerally
didenjoy protected access tooneECmember State market (e.g., France, inthecaseofCameroon
andCôte d'Ivoire; Italy, inthecaseofSomalia; theUK,inthecaseofseveral Caribbean ACP
countries).379Access tothese markets wasessentially controlled byadhocdecisions.380Wethink
thatitcanbereasonably contended thatanEC-wide equivalent ofthemarket access andadvantages
enjoyed byACP countries inthepastwould beacountry-specific tariff quota share, which maybe
assimilated tothepastadvantage ofaprotected ECmember Statemarket, setattheirpre-1991 best-ever
export levels. Wenotethatsince thepre-1991 best-ever export levels oftheACPcountries occurred
indifferent years fordifferent countries (andinsome cases, many years ago), there wasnowayfor
theECtoprovide tariff quota shares covering suchamounts consistently withtherequirements of
ArticleXIII:2,whichrequiressharestobebasedonapreviousrepresentativeperiod,whichhasgenerally
beeninterpreted tomean themostrecent threeyears.381IftheEChad(i)provided onlyanon-country-
specific share forACPcountries or(ii)setshares forACPcountries atalevellower thantheirpre-1991
379Panel Report on"EEC -Member States 'Import Regime forBananas", issued on3June1993 (notadopted), DS32/R,
p.3,para. 12.
380Idem, pp.4-5, 7,paras. 19-22, 37-38.
381SeePanel Report on"EEC -Restrictions onImports ofApples from Chile", adopted on10November 1980,
BISD 27S/98, 113, para. 4.8.WT/DS27/R/USA
Page319
best-ever levels, anACPcountry withtheability toexport atitspre-1991 best-ever levelmight have
beeneffectively prevented fromdoing soeither bylackoftheprotected market provided byaspecific-
country share allocation orbythevolume limitofitsshare allocation. Thus, inorder nottoplace
anACP country inalessfavourable situation asregards access toandadvantages onitstraditional
markets, which istheEC'sobligation under theLomé Convention, itwasnotunreasonable forthe
ECtoconclude thattheLomé Convention requires theallocation ofcountry-specific tariffquota shares
totheACPcountries inanamount oftheirpre-1991 best-ever exports ofbananas totheEC.Weaccept
thatinterpretation forpurposes ofouranalysis ofthisissue.
7.102 There is,however, nothing inProtocol 5thatsuggests thattheECisrequired toapply other
factors toincrease theshares ofACPcountries above theirbest-ever export levels priorto1991. While
theLomé Convention contains various provisions concerning trade promotion andassistance toACP
countries, therearenospecific provisions established intheLomé Convention thatcanbesaidtorequire
country-specific tariffquota shares inexcess ofpastexports. Thus, inourview, theECisnotrequired
bytheLomé Convention toassign tariff quota shares toACP countries inexcess oftheirpre-1991
best-ever exports totheEC.
7.103 Accordingly, wefindthatitwasnotunreasonable fortheECtoconclude thattheLomé
Convention requires theECtoallocate country-specific tariff quota shares totraditional ACP
banana supplying countries inanamount oftheirpre-1991 best-ever exports totheEC.However,
wedofindthattheallocation oftariff quota shares toACP countries inexcess oftheir pre-1991
best-ever exports totheECisnotrequired bytheLomé Convention.
(ii)Application oftheLomé waiver totheEC'sArticle XIIIobligations
7.104 TheLomé waiver, asquoted above, permits theECtoprovide preferential treatment toACP
countries asrequired bytheLomé Convention. However, byitsterms, theLomé waiver onlywaives
compliance withtheprovisions ofArticle I:1.Thus, theissue arises whether theEC'sobligations
under Article XIIIarealsowaived inconnection withpreferential treatment required bytheLomé
Convention. TheComplainants argue thattheyarenotandthatsuchaninterpretation would be
unprecedented. Indeed, theEChasnotargued thattheLomé waiver should beinterpreted towaive
itsobligations under Article XIII. Initsresponse toaquestion from thePanel, theECstated thatit
didnotclaim and"hasnoneedtosuggest" thattheLomé waiver covers aviolation ofArticle XIII.
Rather theECargued that(i)ithasnotacted inconsistently withtherequirements ofArticle XIIIand
(ii)theLomé waiver permits thepreferential treatment required bytheLomé Convention. Since we
haverejected theEC'sargument thatithascomplied withArticle XIIIandhavefound thattheEC's
allocation ofcountry-specific shares toACP countries isinconsistent withArticle XIII, webelieve
thatitisappropriate toconsider alsowhether thisinconsistency iscovered bytheLomé waiver. In
thisregard, wenotethattheEChasalsoargued thatwhere aspects ofameasure havebeenfound to
becovered bythewaiver forpurposes ofArticle I,theyshould notbefound toviolate another GATT
provision imposing MFN-like obligations similar tothose thathavebeenwaived (seeparagraph 7.205).
7.105 Ininterpreting thescope oftheLomé waiver, wearemindful thattheonlyGATT panel to
interpret awaiver recalled thatwaivers aretobegranted onlyinexceptional circumstances382and
concluded that"their terms andconditions consequently havetobeinterpreted narrowly".383Thewaiver
382GATT, Article XXV:5; WTO, Article IX:3-4.
383Panel Report on"US-Restrictions ontheImportation ofSugar andSugar-Containing Products Applied Under the
1955 Waiver andUnder theHeadnote totheSchedule ofTariff Concessions", adopted on7November 1990, BISD 37S/228,
256-257, para. 5.9.WT/DS27/R/USA
Page320
atissue inthatcasehadnoexpiration dateandpermitted imposition ofrestrictions onanumber of
important agricultural products. AGATT working party onthewaiver noted:
"Since theDecision [approving thewaiver] refers totheprovisions ofArticles IIand
XIoftheAgreement, itdoesnotaffect theobligations oftheUnited States under any
other provisions oftheAgreement. Inparticular, asitsobligations under Article XIII
arenotaffected, theUnited States would acquire norightbyvirtue ofthiswaiver to
deviate from theruleofnon-discrimination provided forinthatArticle".384
Inlightofthispractice, wenowconsider thescope oftheLomé waiver, and,inparticular, whether
itwaives theobligations oftheECunder Article XIIIinrespect oftheallocation oftariffquota shares
based onthebest-ever exports ofbananas bytheACP countries totheEC.
7.106 Werecall thatArticle 168(2)(a)(ii) oftheLomé Convention requires somepreferential treatment
forproducts fromACPsources. Aswehavefound above, Protocol 5totheLomé Convention expands
thisgeneral obligation inrespect oftraditional ACP banana exports inthatitisnotunreasonable for
theECtointerpret ittorequire theECtoprovide access opportunities totheECmarket fortheACP
countries inavolume nogreater thantheirpre-1991 best-ever exports totheEC.Asexplained above,
thiscanbeaccomplished onlybycountry-specific tariff quota shares andbytariff quota shares that
arelarger thanwould beallowed under Article XIII(assuming thatthebest-ever exports didnotoccur
within arepresentative period). IftheLomé waiver isinterpreted towaive onlycompliance withthe
obligations ofArticle I:1,thewaiver would effectively limitpreferential treatment totariffpreferences.
Inourview, inlightofthe75ECU pertonne rateapplicable totheEC'sbound tariff quota, tariff
preferencesalonewouldnotallowtheECtoprovidemarketaccessopportunitiesandadvantagesrequired
ofitbytheLomé Convention. Inother words, inorder togiverealeffect totheLomé waiver, itneeds
tocover Article XIIItotheextent necessary toallow theECtoallocate country-specific tariff quota
shares totheACP countries intheamount oftheirpre-1991 best-ever banana exports totheEC.
Otherwise, theECcould notpractically fulfilitsbasicobligation under theLomé Convention inrespect
ofbananas, aswehavefound thatitwasnotunreasonable fortheECtoconclude thattheLomé
Convention maybeinterpreted torequire country-specific tariff quota shares atlevels notcompatible
withArticle XIII. Since itwastheobjective oftheLomé waiver topermit theECtofulfil thatbasic
obligation, logically wehavenochoice therefore buttointerpret thewaiver sothatitaccomplishes
thatobjective. Infact,suchaninterpretation would beconsistent withtheterms ofthisparticular waiver
asitappliestopreferentialtreatmentgenerallyandnot,asismostlythecasewithothercurrentlyeffective
waivers, onlytopreferential tariff treatment.385
7.107 Suchaninterpretation isalsosupported bythecloserelationship between Articles IandXIII:1,
bothofwhich prohibit discriminatory treatment. Article Irequires MFN treatment inrespect of"rules
andformalities inconnection withimportation", aphrase thathasbeeninterpreted broadly inpastGATT
practice,386suchthatitcanappropriately beheldtocover rulesrelated totariffquota allocations. Such
384Working Party Report on"Import Restrictions Imposed bytheUnited States Under Section 22oftheUnited States
Agricultural Adjustment Act", adopted on5March 1955, BISD 3S/141, 144, para. 10.
385There arethree other waivers nowinforce forpreferential treatment togroups ofdeveloping countries. These waivers
cover Canadian preferences toCaribbean countries andUSpreferences toCaribbean countries andtoAndean countries.
Ineachofthese three cases, thewaiver islimited byitsterms topreferential tariff treatment. CARIBCAN, WT/L/185;
Caribbean Basin Economic Recovery Act,WT/L/104; Andean Trade Preference Act,WT/L/184. Thewaiver inrespect
ofUnited States -Former Trust Territory ofthePacific Islands, WT/L/183, applies alsotonon-tariff preferential treatment.
386Panel Report on"United States -Denial ofMost-favoured-nation Treatment astoNon-rubber Footwear from Brazil",
adopted on19June1992, BISD 39S/128, 150,para. 6.8(Article I:1applies torules forrevocation ofcountervailing duties).WT/DS27/R/USA
Page321
rules areclearly rules applied inconnection withimportation. Indeed, theyarecritical tothe
determination oftheamount ofdutytobeimposed. Todescribe therelationship somewhat differently,
Article Iestablishes ageneral principle requiring non-discriminatory treatment inrespect of,interalia,
rulesandformalities inconnection withimportation. Article XIII:1 isanapplication ofthatprinciple
inaspecific situation, i.e.,theadministration ofquantitative restrictions andtariffquotas. Inthatsense,
thescope ofArticle XIII:1 isidentical withthatofArticle I.
7.108 Theforegoing considerations suggest thattheLomé waiver should beinterpreted soastowaive
compliance withtheobligations ofArticle XIII, totheextent indicated above. Wemust consider,
however, whether suchaconclusion isconsistent withpastGATT practice thatwaivers aretobe
interpreted narrowly. Ourinterpretation oftheLomé waiver isnarrow inthesense thattheLomé
waiver itselfhasbeenqualified bythefactthatitisapplicable onlytopreferential treatment "required"
bytheLomé Convention anddoesnotextend toallpreferential treatment thattheECmight wishto
givetotheACP countries. Thus, there isnodanger ofanoverly broad interpretation ofitsscope.
Inourview, weonlyacknowledge whatisimplied inthedecision togrant thewaiver inthefirstplace.
7.109 Inreaching thisconclusion, however, wenoteourview thatthescope oftheLomé waiver
lacks precision. Future waiver negotiations willhavetodealmore precisely withtheissues raised
inthiscaseinorder toreduce differences ininterpretation.
7.110 Inlight ofthese factors, totheextent thatwehave found thattheEChasacted
inconsistently withtherequirements ofArticle XIII:1 (paragraph 7.90), wefindthattheLomé
waiver waives thatinconsistency withArticle XIII:1 totheextent necessary topermit theECto
allocate shares ofitsbanana tariff quota tospecific traditional ACP banana supplying countries
inanamount notexceeding their pre-1991 best-ever exports totheEC.
(c) Theallocation oftariff quota shares toBFA countries
7.111 Inourgeneral discussion above ofArticle XIII(paragraph 7.90), wefound thattheEC's
allocation ofshares initstariffquota totheBFAcountries nothaving asubstantial interest insupplying
bananas andinrespect ofnon-traditional ACP bananas isinconsistent withtherequirements of
Article XIII. Inthissection, weconsider whether anysuchinconsistency maybepermitted because
of(i)theinclusion ofthebanana tariffquota allocation toBFAcountries andinrespect ofnon-traditional
ACP bananas intheEC'sSchedule attached totheMarrakesh Protocol or(ii)thepriority provision
oftheAgreement onAgriculture.
(i)Inclusion oftheBFA tariff quota shares intheECSchedule
7.112 TheECargues thatevenifthetariffquota share allocations totheBFAcountries andinrespect
ofnon-traditional ACP bananas donotsatisfy therequirements ofArticle XIII, theyareconsistent
withGATT rules because oftheirinclusion intheEC'sSchedule asaresult oftheUruguay Round
negotiations. TheComplainants argue thataprior adopted GATT panel report (theso-called Sugar
Headnote case)387supports theconclusion thattariffbindings inschedules cannot justify inconsistencies
withtherequirements ofgenerally applicable GATT rules. TheECresponds thattheUruguay Round
Schedules areofadifferent nature thanpastGATT tariff protocols, thereby undermining thelegal
reasoning underpinning theSugar Headnote case, andthat,inanyevent, theinclusion oftheBFA
387Panel Report on"US-Restrictions onImports ofSugar", adopted on22June 1989, BISD 36S/331, 341-343,
paras. 5.2-5.7.WT/DS27/R/USA
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tariff quota shares initsSchedule overrides Article XIIIbecause ofthepriority provision ofthe
Agreement onAgriculture.
7.113 Thepanel intheSugar Headnote casefound thatqualifications ontariffbindings donotoverride
other GATT provisions afterananalysis ofthewording ofArticle II,itsobject, purpose andcontext,
andthedrafting history oftheprovision. Although itmade nomention oftheVienna Convention,
itseems tohavefollowed closely Articles 31and32thereof.388Itsanalysis wasasfollows:
5.1...TheUnited States argues thattheproviso "subject totheterms, conditions or
qualifications setforthinthatSchedule" inArticle II:1(b) permits contracting parties
toinclude qualifications relating toquantitative restrictions intheirSchedule. The
United States hadmade useofthispossibility byreserving initsSchedule of
Concessions theright toimpose quota limitations onimports ofsugar incertain
circumstances. Since therestrictions ontheimportation ofsugar conformed tothe
qualifications setoutintheSchedule oftheUnited States, andtheSchedules of
Concessions were, according toArticle II:7,anintegral partoftheGeneral Agreement,
therestrictionswereconsistentwiththeUnitedStatesobligationsunderthatAgreement.
Australia argues thatqualifications toconcessions made inaccordance with
Article II:1(b) cannot justify measures contrary toother provisions oftheGeneral
Agreement, inparticular notquantitative restrictions inconsistent withArticle XI:1.
...
5.2 ThePanel firstexamined theissue inthelightofthewording ofArticle II.
Itnoted thatinArticle II:1(b), thewords "subject tothe...qualifications setforthin
thatSchedule"areusedinconjunctionwiththewords"shall...beexemptfromordinary
customs duties inexcess ofthose setforth in[theSchedule]". Thissuggests that
Article II:1(b) permits contracting parties toqualify theobligation toexempt products
fromcustoms duties inexcess ofthelevels specified intheSchedule, nothowever to
qualify theirobligations under other Articles oftheGeneral Agreement. ThePanel
further noted thatthetitleofArticle IIis"Schedules ofConcessions" andthatthe
ordinary meaning oftheword "toconcede" is"togrant oryield". Thisalsosuggests
intheviewofthePanel thatArticle IIpermits contracting parties toincorporate into
theirSchedulesactsyieldingrightsundertheGeneralAgreementbutnotactsdiminishing
obligations under thatAgreement.
5.3 ThePanel thenexamined theissue inthelightofthepurpose oftheGeneral
Agreement. Itnoted thatoneofthebasic functions oftheGeneral Agreement is,
according toitsPreamble, toprovide alegalframework enabling contracting parties
toenter into"reciprocal andmutually advantageous arrangements directed tothe
substantial reduction oftariffs andother barriers totrade". Where theGeneral
Agreement mentions specific types ofnegotiations, itrefers tonegotiations aimed at
thereduction ofbarriers totrade (Articles IV(d), XVII:3 andXXVIII bis). This
supports intheviewofthePanel theassumption thatArticle IIgives contracting parties
thepossibility toincorporate intothelegal framework oftheGeneral Agreement
commitments additional tothose already contained intheGeneral Agreement andto
qualify suchadditional commitments, nothowever toreduce theircommitments under
other provisions ofthatAgreement.
388These provisions oftheVienna Convention arequoted inpara. 7.14 supra.WT/DS27/R/USA
Page323
5.4 ThePanelthenexaminedtheissueinthecontextoftheprovisionsoftheGeneral
Agreement related toArticle II.Itnoted thatnegotiations onobstacles totradecreated
bytheoperation ofstate-trading enterprises maybeconducted under Article XVII:3
andthatanotetothatprovision provides thatsuchnegotiations
"may bedirected towards thereduction ofduties andother charges onimports
andexports ortowards theconclusion ofanyother mutually satisfactory
arrangement consistent withtheprovisions ofthisAgreement (Seeparagraph 4
ofArticle IIandthenotetothatparagraph)." (emphasis added).
Thenegotiations foreseen inArticle XVII:3 arethusnottoresult inarrangements
inconsistent withtheGeneral Agreement, inparticular notquantitative restrictions made
effective through state-trading thatarenotjustified byanexception toArticle XI:1.
ThePanel sawnoreason whyadifferent principle should apply toquantitative
restrictions made effective byother means.
5.5 ThePanel then examined theissue inthelight ofthepractice ofthe
CONTRACTING PARTIES. ThePanel noted thattheCONTRACTING PARTIES
adopted in1955thereport oftheReview Working Party onOther Barriers toTrade,
which hadconcluded that:
"there wasnothing toprevent contracting parties, when theynegotiate forthe
binding orreduction oftariffs, fromnegotiating onmatters, suchassubsidies,
which might affect thepractical effects oftariff concessions, andfrom
incorporating intheappropriate schedule annexed totheAgreement theresults
ofsuchnegotiations; provided thattheresults ofsuchnegotiations should not
conflict with other provisions oftheAgreement." (emphasis added)
(BISD 3S/225).
Whether theproviso inthisdecision isregarded asapolicy recommendation, asthe
United States argues, orastheconfirmation ofalegalrequirement, asAustralia claims,
itdoessupport, intheview ofthePanel, theconclusion thattheCONTRACTING
PARTIES didnotenvisage thatqualifications inSchedules established inaccordance
withArticle II:1(b) could justify measures inconsistent withtheother Articles ofthe
General Agreement.
5.6 ThePanel finally examined theissue inthelightofthedrafting history. It
noted thatthereference to"terms andqualifications" wasincluded inadraftofthe
present Article II:1(b) during theSecond Session ofthePreparatory Committee ofthe
United Nations Conference onTrade andEmployment. Theoriginal drafthadreferred
onlyto"conditions". Thisamendment wasproposed andadopted "inorder toprovide
more generally forthesortofqualifications actually provided intheformofnotes in
thespecimen Schedule. Anumber ofthesenotes are,ineffect, additional concessions
rather thanconditions governing thetariffbindings towhich theyrelate" (E/PC/T/153
andE/PC/T/W/295). Schedule provisions qualifying obligations under theGeneral
Agreement werenotincluded inthespecimen Schedule norwasthepossibility ofsuch
Schedule provisions mentioned bythedrafters. ThePanel therefore found thatthe
drafting history didnotsupport theinterpretation advanced bytheUnited States.WT/DS27/R/USA
Page324
5.7 Forthereasons stated inthepreceding paragraphs, thePanel found that
Article II:1(b) doesnotpermit contracting parties toqualify theirobligations under
other provisions oftheGeneral Agreement andthattheprovisions intheUnited States
GATT Schedule ofConcessions canconsequently notjustify themaintenance of
quantitative restrictions ontheimportation ofcertain sugars inconsistent withthe
application ofArticle XI:1".
7.114 Weagree withtheanalysis oftheSugar Headnote panel report andnotethatArticle IIwas
notchanged inanyrelevant wayasaresult oftheUruguay Round. Thus, based ontheSugar Headnote
case,weconcludethattheEC'sinclusionofallocationsinconsistentwiththerequirementsofArticleXIII
initsSchedule doesnotprevent themfrombeing challenged byother Members. Wenoteinthisregard
thattheUruguay Round tariff schedules were prepared withfullknowledge oftheSugar Headnote
panel report, which wasadopted bytheGATT CONTRACTING PARTIES inthemiddle oftheRound
(June 1989). Thisisparticularly significant inlightoftheAppellate Body'sstatement that"[a]dopted
panel reports areanimportant partoftheGATT acquis .Theyareoftentaken intoaccount bysubsequent
panels.TheycreatelegitimateexpectationsamongMembers,and,thereforeshouldbetakenintoaccount
where theyarerelevant toanydispute".389
7.115 TheECfurther argues thattheprinciple ofpacta suntservanda supports itsposition thatthe
BFAshould override GATT rules. However, inourview, thatprinciple applies aswelltoArticle II,
asinterpreted bytheSugar Headnote case. Wecannot accept thataconflict between Article IIand
theBFAshould necessarily beresolved intheBFA'sfavour. Itwastoensure consistency withthe
basic GATT rulesthattheSugar Headnote panel reached theconclusions itdid.Asthatpanel stated
(paragaph 5.2): "Article IIpermits contracting parties toincorporate intotheirSchedules actsyielding
rights under theGeneral Agreement butnotactsdiminishing obligations under thatAgreement". That
ruleisabasic agreement oftheMembers thatmust beenforced.
7.116 TheECalsonotes thatArticle II:7ofGATT incorporates schedules intoPartIofGATT, which
contains Articles IandII,andargues thatoneprovision ofPartIsuchasArticle IImaynotbegiven
priority overanother (i.e., theschedules). However, weareoftheopinion thatifthere isaconflict
between aschedule andGATT rules, itisnecessary toresolve it,andthatiswhattheSugar Headnote
panel did.390
7.117 Finally, theECargues thattheresult intheSugar Headnote casewasnecessary under GATT
practice because tariff protocols, which added tariff commitments toschedules, werenotaccepted by
allGATT contracting parties. Itfurther argues thatsucharesult isnotnecessary inthecontext of
theWTO because allMembers accepted alltheresults oftheUruguay Round. TheSugar Headnote
panel'sanalysis was,inourview, astraightforward exercise intreaty interpretation under Vienna
Convention principles. Itmade nomention thattheresult itreached was"necessary" under GATT
practice. Moreover, theUSmeasure atissueintheSugar Headnote casefirstappeared intheAnnecy
andTorquay Protocols, bothofwhich were signed byallGATT contracting parties atthetime.391
Thus, these Protocols wereinthisrespect similar totheschedules attached totheWTO Agreement.
389Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", adopted on1November 1996, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, AB-1996-2, p.15.
390Theincorporation ofschedules intoPartIwasdone onlybecause "itwasintended thatPartII[ofGATT] would be
immediately superseded bythe[Havana] Charter provisions when theCharter entered intoforce". Analytical Index: Guide
toGATT LawandPractice, 6threv.ed.1995, p.99.
391Contracting Parties totheGeneral Agreement onTariffs andTrade, Status ofLegal Instruments, pp.xxi,3--2.1-2.4,
3--3.1-3.4.WT/DS27/R/USA
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7.118 Thus, wefindthattheinclusion oftheBFAtariff quota shares intheEC'sSchedule does
notpermit theECtoactinconsistently withtherequirements ofArticle XIIIofGATT.
7.119 [Used intheGuatemala-Honduras report.]
(ii)Agreement onAgriculture
7.120 TheECargues thattheprovisions oftheAgreement onAgriculture prevail overGATT rules
suchasArticle XIIIandthattheinclusion bytheECoftheBFAtariffquota shares initstariffschedules
means thattheyprevail overArticle XIII,eveniftheSugar Headnote caseremains avalidinterpretation
ofGATT rules.
7.121 Inexamining thisargument, wenotethattheAgreement onAgriculture wasintended tomake
agricultural products subject tostrengthened andmore operationally effective GATT rules. Inthe
Preamble totheAgreement, Members recall:
"their long-term objective asagreed attheMid-Term Review oftheUruguay Round
'istoestablish afairandmarket-oriented agricultural trading system andthatareform
process should beinitiated through thenegotiation ofcommitments onsupport and
protectionandthroughtheestablishmentofstrengthenedandmoreoperationallyeffective
GATT rules anddisciplines '".
7.122 Insome cases, theresults oftheagricultural negotiations were notconsistent withtherules
found inother WTO agreements. Forexample, Article 4.2oftheAgreement onAgriculture prohibits
theuseofcertain measures thatmight otherwise beauthorized byArticle XI:2ofGATT; Article 5
oftheAgreement onAgriculture permits theuseofcertain measures thatmight otherwise bequestioned
under Articles IIandXIXofGATT andtheAgreement onSafeguards. Inorder toestablish priority
forrules oftheAgreement onAgriculture, Article 21.1ofthatAgreement specifies:
"TheprovisionsofGATT1994andofotherMultilateralTradeAgreementsinAnnex1A
totheWTO Agreement shallapply subject totheprovisions ofthisAgreement [i.e.,
theAgreement onAgriculture]".
Itisclearfrom Article 21.1thattheprovisions oftheAgreement onAgriculture prevail overGATT
andtheother Annex 1Aagreements. Butthere mustbeaprovision oftheAgreement onAgriculture
thatisrelevant inorder forthispriority provision toapply. ItisnotthecasethatArticle 21.1ofthe
Agreement onAgriculture means thatnoGATT/WTO rules apply totrade inagricultural products
unless theyareexplicitly incorporated intotheAgreement onAgriculture. Wenotethatoneofthe
purposes oftheAgreement onAgriculture istobring agriculture under regular GATT/WTO disciplines.
Itisagainst thisbackground thatweconsider theEC'sargument.
7.123 There isnoprovision oftheAgreement onAgriculture thatincorporates tariffbindings related
toagricultural products intotheAgreement onAgriculture. While theAnnexes totheAgreement are
incorporated intotheAgreement byArticle 21.2thereof, tariff bindings arenot. Indeed, under
paragraph 1oftheMarrakesh Protocol, theUruguay Round schedules attached tothatprotocol, which
include theagricultural tariff bindings, areexplicitly made schedules toGATT.
7.124 Anexamination oftheAgreement onAgriculture reveals thatmostofitsprovisions andannexes
areconcerned withdomestic support andexport subsidies anddonotrelate tomarket access concessionsWT/DS27/R/USA
Page326
generally except forArticles 4(market access) and5(special safeguard provisions) andAnnex 5(special
treatment withrespect toparagraph 2ofArticle 4).Since wearenotconcerned herewithspecial
treatment orspecial safeguard measures, onlyArticle 4itself might berelevant. Itreads asfollows:
"1.Market access concessions contained inSchedules relate tobindings andreductions
oftariffs, andtoother market access commitments specified therein.
2.Members shallnotmaintain, resort to,orrevert toanymeasures ofthekindwhich
havebeenrequired tobeconverted intoordinary customs duties [footnote omitted],
except asotherwise provided forinArticle 5andAnnex 5".
Inourview, Article 4.1isnotasubstantive provision, butisastatement ofwhere market access
commitmentscanbefound.Thedefinitionof"marketaccessconcessions"(Article1(g)oftheAgreement
onAgriculture) makes itclearthattheSchedules annexed toArticle IIofGATT alsocontain theimport
quota commitments undertaken pursuant toAnnex 5oftheAgreement onAgriculture (aswellasan
identification ofthetariff lineswhich areeligible forthespecial safeguard provisions ofArticle 5of
theAgreementonAgriculture).IftheAgreementonAgriculturewouldhaveallowedforcountry-specific
allocations oftariff quotas there would havebeenaspecific provision tothiseffect indeviation from
Article XIII:2(d) aswiththespecial treatment provisions ofAnnex 5.Incontrast, Article 4.2isa
substantive provision inthatitprohibits theuseofcertain non-tariff barriers, subject tocertain
qualifications. Asasubstantive provision, itprevails oversuchGATT provisions asArticle XI:2(c).
7.125 Moreover, neither Article 4.1nor4.2oftheAgreement onAgriculture provides thatagricultural
tariffbindings haveaspecial standing visàvisother tariffbindings orthatamarket access commitment
included therein isabsolved fromcomplying withother GATT rules. Indeed, wenotethatthere are
anumber ofprovisions intheAgreement onAgriculture which simply refertoother agreements or
decisions thatarenotincorporated intotheAgreement onAgriculture. Thereference inArticle 14
totheAgreement onSanitary andPhytosanitary Measures isoneexample; thereference totheDecision
onMeasures Covering thePossible Negative Effects oftheReform Programme onLeast-Developed
andNetFood-ImportingDevelopingCountriesinArticle16isanotherexample.These"cross-reference"
provisions maybeexplained bytheattempt oftheframers oftheAgreement onAgriculture toprovide
acomplete overview oftheUruguay Round results inagriculture, since these matters arereferred to
generally inthepreamble totheAgreement.
7.126 Finally, wenotethat,pursuant toArticle 21oftheAgreement onAgriculture, GATT rules
apply "subject to"theprovisions oftheAgreement onAgriculture, awording thatclearly suggests
priority forthelatter. Butgiving priority toArticle 4.1oftheAgreement onAgriculture, which simply
"relates"marketaccessconcessionstoMembers'goodsschedulesasattachedtoGATTbytheMarrakesh
Protocol, doesnotnecessitate, orevensuggest, alimitation ontheapplication ofArticle XIII. The
provisions arecomplementary, anddonotclash. Thus, Article 21oftheAgreement onAgriculture
isnotrelevant inthiscase.
7.127 Accordingly, wefindthatneither thenegotiation oftheBFAanditsinclusion intheEC's
Schedule northeAgreement onAgriculture permit theECtoactinconsistently with the
requirements ofArticle XIIIofGATT.
(d) Tariff quota share allocations andArticle I:1
7.128-7.130 [Used intheGuatemala-Honduras report.]WT/DS27/R/USA
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2. TARIFF ISSUES
7.131 TheComplainants havenotchallenged thetariffpreferences accorded bytheECtotraditional
ACPbananas, i.e.,bananas intraditional amounts fromACPcountries thattraditionally supplied the
ECmarket. Theyhave, however, claimed thatthetariffpreferences granted bytheECtonon-traditional
ACP bananas, i.e.,bananas from ACP countries thathavenottraditionally supplied theECmarket
andbananas fromhistorical suppliers inexcess oftheirtraditional supplies, areinconsistent withthe
requirements ofArticle I:1ofGATT. Thetariffpreference inthecaseofnon-traditional ACPbananas
imported under therelevant ECtariff quota share (90,000 tonnes) is75ECU pertonne (0versus 75
ECU), while forover-quota bananas itis100ECU pertonne (in1995: 822ECU versus 722ECU).
TheECresponds thattotheextent thatthese tariff preferences areinconsistent withArticle I:1,the
inconsistency ispermitted bytheLomé waiver.
7.132 Article I:1provides inrelevant partasfollows:
"With respect tocustoms duties andcharges ofanykindimposed onorinconnection
withimportation ...,anyadvantage, favour, privilege orimmunity granted byany
Member toanyproduct originating in...anyother country shall beaccorded
immediately andunconditionally tothelikeproduct originating in...theterritories
ofallother Members".
7.133 Itisclear thattheabove-described tariff preferences forACP bananas areinconsistent with
Article I:1sinceACPandother bananas arelikeproducts andthelower tariffs onACP-origin bananas
arenotprovided unconditionally tobananas from other Members. Theissue iswhether theLomé
waiver covers theinconsistency. Asnoted above, theLomé waiver provides:
"theprovisions ofparagraph 1ofArticle IoftheGeneral Agreement shallbewaived,
until29February 2000, totheextent necessary topermit theEuropean Communities
toprovide preferential treatment forproducts originating inACP States asrequired
bytherelevant provisions oftheFourth Lomé Convention, without being required
toextend thesame preferential treatment tolikeproducts ofanyother contracting
party".393
7.134 Inthisregard, wenotethatArticle 168(2)(a)(ii) oftheLomé Convention provides thattheEC:
"shall takethenecessary measures toensure morefavourable treatment thanthatgranted
tothird countries benefitting from themost-favoured-nation clause forthesame
products".
WhileMembersingrantingtheLoméwaivercouldhavelimitedtheextenttowhichtheECcouldprovide
preferential tariff treatment under Article I:1,theydidnotdoso.Thus, eventhough waivers must
beinterpreted strictly,394itseems tousthatthepreferential tariff fornon-traditional ACP bananas is
clearly atariff preference ofthesortthattheLomé waiver wasdesigned tocover. Inourview, in
393EC-TheFourth ACP-EEC Convention ofLomé, Waiver Decision of9December 1994, L/7604, 19December 1994;
Extension oftheWaiver, Decision of14October 1996, WT/L/186.
394Panel Report on"US-Restrictions ontheImportation ofSugar andSugar-Containing Products Applied Under the
1955 Waiver andUnder theHeadnote totheSchedule ofTariff Concessions", adopted on7November 1990, BISD 37S/228,
256-257, para. 5.9.WT/DS27/R/USA
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lightoftherequirement ofArticle 168(2)(a)(ii) oftheLomé Convention, theLomé waiver permits
theECtogrant tariff preferences toACP countries onnon-traditional bananas.
7.135 TheComplainants argue, however, thattheECCourt ofJustice hasruled thatProtocol 5of
theLomé Convention supersedes Article 168(2)(a)(ii) withtheresult thattheECisnotrequired to
givenon-traditional ACP bananas more favourable treatment pursuant tothatprovision. Wedonot
agree withthischaracterization oftheCourt ofJustice decision.395Inthepartofthedecision cited
bytheComplainants, theCourt ofJustice rejected theargument thattheECCouncil could notrely
onArticle 168(2)(a) inadopting theECbanana regime. Indeed, theCourt states "theimport ofbananas
fromACPStates fallsunder Article 168(2)(a)(ii) oftheLomé Convention". Theissueinthecasewas
whether theLomé Convention required thatallACP bananas hadtobeadmitted duty-free, andthe
Court ruledthatProtocol 5didnotrequire that.ItdidnotrulethatArticle 168(2)(a)(ii), which generally
requires some preferential treatment ofACP products, didnotapply tobananas notcovered by
Protocol 5.
7.136 Accordingly, wefindthattotheextent thattheEC'spreferential tariff treatment ofnon-
traditional ACP bananas isinconsistent withitsobligations under Article I:1,those obligations
have been waived bytheLomé waiver.
7.137-7.141 [Used intheGuatemala-Honduras report.]
3. THE ECBANANA IMPORT LICENSING PROCEDURES
7.142 Weturnnowtoanexamination oftheEC'sbanana import licensing procedures.397Wegive
anoverview oftheclaims oftheComplainants andexplain howwewillorganize ourdiscussion of
thenumerous issues raised bythose claims.
7.143 Altogether, theComplainants, jointly orseverally, haveraised more than40different claims
against theEClicensing regime ingeneral, oragainst specific elements thereof, under provisions of
GATT, theLicensing Agreement andtheTRIMs Agreement.398
7.144 Webegin byconsidering three general issues: (i)whether theLicensing Agreement covers
licences relating totariff quotas; (ii)therelationship between claims under GATT 1994 andthe
Annex 1AAgreements inlightoftheGeneral Interpretative NotetoAnnex 1A;and(iii)whether the
EClicensing procedures should beanalysed asoneortworegimes.
395Germany v.Council, Case C-280/93, para. 101(Judgment of5October 1994).
397TheECcommon organisation ofthebanana market, including thelicensing regime anditsadministrative application,
encompass more than100different regulations. Themost important onesare: Council Regulation (EC) No.404/93 of
13February 1993 onthecommon organization ofthemarket inbananas (O.J. L47/1of25February 1993); Commission
Regul ation(EEC) No.1442/93 of10June1993 layingdown detailedrulesfortheapplicationofthearrangement sforimporting
bananas intotheCommunity (O.J. L142/6 of12June1993); Council Regulation (EC) No.3290/94 of22December 1994
ontheadjustments andtransitional arrangements required intheagricultural sector inorder toimplement theagreements
concludedduringtheUruguay Round ofmultilateraltradenegotiations(O.J. L349/105 of31December 1994); andCommi ssion
Regulation (EC) No.478/95 onadditional rules fortheapplication ofCouncil Regulation (EEC) No.404/93 asregards the
tariff quota arrangements forimports ofbananas intotheCommunity andamending Regulation (EEC) No.1442/93 (O.J.
L49/13 of4March 1995).
398Werecall thatwedecided nottoconsider claims under Article 5oftheTRIMs Agreement andunder Article 4.2of
theAgreement onAgriculture because theywerenotornotadequately raised intherequest fortheestablishment ofthePanel.
Seepara. 7.46 supra.WT/DS27/R/USA
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(a) General issues
(i)Scope oftheLicensing Agreement
7.145 Thefirstgeneral interpretative issueiswhether theLicensing Agreement applies totariffquotas.
TheComplainants argue thattheadministration oftariff quotas issubject tothedisciplines embodied
intheLicensing Agreement andhave raised claims under Articles 1.2,1.3,3.2and3.5ofthat
Agreement. TheECtakestheopposite view. Itargues thattheLicensing Agreement applies to"import
restrictions". Since initsviewtariff quotas donotconstitute import restrictions, tariff quotas arenot
subject totheprovisions oftheLicensing Agreement. Italsoargues thatimport licences aretradeable
andarenota"prior condition forimportation" within themeaning ofArticle 1.1oftheLicensing
Agreement since import licences arerequired onlyforthepurpose ofbenefitting from thein-quota
dutyrate.
7.146 Wetherefore turntoanexamination oftheterms oftheLicensing Agreement, interpreted in
lightoftheircontext andoftheobject andpurpose oftheAgreement. Article 1.1oftheLicensing
Agreement provides (footnote omitted):
"For thepurpose ofthisAgreement, import licensing isdefined asadministrative
procedures usedfortheoperation ofimport licensing regimes requiring thesubmission
ofanapplication orotherdocumentation (other thanthatrequired forcustoms purposes)
totherelevant administrative bodyasapriorcondition forimportation intothecustoms
territory oftheimporting Member".
7.147 Theterms ofArticle 1.1donotexplicitly include, orexclude, theadministration oftariffquotas
fromthecoverage oftheLicensing Agreement. Itsterms define "import licensing" as"administrative
procedures usedfortheoperation ofimport licensing regimes". However, footnote 1toArticle 1.1
further defines "administrative procedures" toinclude "those procedures referred toas'licensing 'as
wellasother similar administrative procedures". Accordingly, irrespective ofwhether theterm
"licensing" isused, inouropinion, administrative procedures arecovered bytheLicensing Agreement
provided thattheyhaveapurpose similar tolicensing. Inother words, Article 1oftheLicensing
Agreement, asfurther elaborated byfootnote 1thereto, clearly follows afunctional approach. It
embodies acomprehensive coverage oftheLicensing Agreement, except asspecifically limited.
7.148 Twolimitations onthescope oftheLicensing Agreement maybederived from theterms of
Article 1.1.First, thenotion of"import licensing" islimited toprocedures "requiring thesubmission
ofanapplication orother documentation (other thanthatrequired forcustoms purposes) totherelevant
administrative body". Thelicensing procedures usedbytheECfortheadministration ofthein-quota
importsofbananasmeetthetermsofthislimitationbecausetheyrequirethesubmissionofanapplication,
aswellasother documentation.
7.149 Second, Article 1.1limits "import licensing" toregimes requiring the"submission ofan
application orother documentation" asa"prior condition forimportation intothecustoms territory
oftheimporting Member". Inourview, therequirement topresent animport licence uponimportation
constitutes a"prior condition forimportation", irrespective ofwhether thatrequirement applies tothe
administration ofaquantitative restriction oratariffquota. Themerepossibility toimport aparticular
product atahigher tariffrateoutside atariffquota without being subjected tothesameoranylicensing
requirement doesnotalterthefactthattheimportation ofaparticular product within atariff quotaWT/DS27/R/USA
Page330
atalower dutyrateismade dependent uponthepresentation ofanimport licence asaprior condition
forimportation atthatlower rate.399
7.150 Thus, while Article 1.1doesnotspecifically include licences fortariffquotas within itsscope,
itdoesnotexclude them. Indeed, thegeneral definition ofthescope ofapplication inArticle 1.1of
theLicensing Agreement isformulated inacomprehensive manner: import licensing procedures are
mentioned without anyreference totheunderlying measure forwhose administration theyareemployed.
Moreover, procedures which arenotinexplicit terms labelled as"licensing" butpursue asimilar purpose
areincluded inthescope oftheLicensing Agreement byvirtue offootnote 1toArticle 1.1.400
7.151 Article 3.1oftheLicensing Agreement alsodefines thecoverage oftheAgreement byproviding
thatnon-automatic licensing iscovered bytheAgreement asfollows:
"Thefollowing provisions, inaddition tothose inparagraphs 1through 11ofArticle 1,
shall apply tonon-automatic import licensing procedures. Non-automatic import
licensing procedures aredefined asimport licensing notfalling within thedefinition
contained inparagraph 1ofArticle 2".
Article 2:1oftheLicensing Agreement, inturn, reads:
"Automatic import licensing isdefined asimport licensing where approval ofthe
application isgranted inallcases, andwhich isinaccordance withtherequirements
ofparagraph 2(a)".
Given thattheapproval ofanapplication foranimport licence isnot,inthesense ofArticle 2.1of
theLicensing Agreement, granted bytherelevant administrative bodies inallcases, theEClicensing
procedures fallwithin thecategory ofnon-automatic import licensing.
7.152 Further indication ofthescope ofArticle 3oftheLicensing Agreement canbederived from
thewording ofthefirstsentence ofArticle 3.2:
"Non-automaticlicensingshallnothavetrade-restrictiveor-distortiveeffectsonimports
additional tothose caused bytheimposition oftherestriction "(emphasis added).
Thisraises thequestion whether theterm"restriction" should beinterpreted narrowly soastoencompass
onlyquantitative restrictions, orwhether itshould bereadtoinclude alsoother measures suchastariff
quotas.
399According toArticle 18ofRegulation 1442/93, imports outside oftheECbound tariff quota aresubject toautomatic
licensing.
400While itistruethattheECimport licences forbananas aretransferable andtradeable, itisalsoclear thatatrader,
regardless ofwhatever hisclassification might bewithrespect tooperator categories and/or activity functions, atsome point
intimehastofileanapplication foranimport licence. That trader canusethelicence hehasobtained orsellitonthe
marketplace. Thus thetrader whoapplies foraparticular import licence isnotnecessarily theonewhoactually effectuates
theimportation ofbananas. However, there isnorequirement under Article 1.1oftheLicensing Agreement thatthenatural
orlegal person whofilestheapplication foralicence must alsocarry outthetransaction ofactually importing bananas.
Moreover, inrespect oftransferability andtradeability oflicences, there isnodifference between theadministration of
quantitative restrictions andoftariff quotas.WT/DS27/R/USA
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7.153 Inthiscontext, Article 3.3oftheLicensing Agreement offers implicit guidance:
"Inthecaseoflicensing requirements forpurposes other thantheimplementation of
quantitativerestrictions,MembersshallpublishsufficientinformationforotherMembers
andtraders toknow thebasis forgranting and/or allocating licences".
Thephrase "other thantheimplementation ofquantitative restrictions" makes clearthatthecoverage
ofArticle 3oftheLicensing Agreement isnotlimited toprocedures usedintheimplementation of
quantitative restrictions. Onthecontrary, thewording ofArticle 3.3implies thatthedisciplines
concerning non-automatic licensing alsocover procedures usedfortheadministration ofothermeasures.
7.154 Moreover, theuseoftheterm"restriction" inArticle 3.2isnotareason togiveanarrow reading
tothescope oftheLicensing Agreement. PastGATT panel reports support giving theterm"restriction"
anexpansive interpretation.401Theintroductory words ofArticle XIofGATT provide asfollows:
"Noprohibitions orrestrictions otherthanduties, taxesorothercharges, whether made
effective through quotas, import orexport licences orother measures ...".
Thus, tariffs andtariffquotas arerestrictions asthattermisusedinArticle XI,although "duties, taxes
orother charges" areexcepted from Article XI'srequirements. Asimilar reading isappropriate in
thecaseoftheLicensing Agreement. Article 3.2oftheLicensing Agreement refers to"restrictions"
andArticle 3.3oftheLicensing Agreement applies to"licensing requirements forpurposes other than
theimplementation ofquantitative restrictions". Accordingly, wefindthatlicensing procedures used
fortheimplementation ofmeasures other thanquantitative restrictions, including tariff quotas, are
subject tothedisciplines oftheLicensing Agreement.402Wealsonotethatourargument thattariff
quotas are"restrictions" doesnotimply thattheyarenot,inprinciple, legitimate trademeasures under
theagreements covered bytheWTO inthesame sense thattariffs are.
7.155 Thisfinding isinaccord withaconsideration oftheobject andpurpose andthecontext ofthe
Licensing Agreement. Thepreamble totheLicensing Agreement makes itclear thattheLicensing
Agreement istofurther theobjectives ofGATT. Itisequally explicitly noted thattheprovisions of
GATT apply toimport licensing andthenstated thatMembers desire thatimport licensing procedures
notbeusedcontrary totheprinciples andobjectives ofGATT. Since oneoftheprincipal GATT
provisions dealing withimport licensing isArticle XIII, which bytheexplicit terms ofArticle XIII:5
applies totariff quotas, itfollows from thepreamble totheLicensing Agreement thattheLicensing
Agreement should alsoapply totariffquotas. There would notseem tobeanyreason totreatlicensing
procedures forquantitative restrictions differently from those fortariff quotas. Theconcerns raised
inthepreamble about thepossible negative consequences oftheinappropriate useofimport licensing
regimes would apply equally toboth.
7.156 Accordingly, wefindthattheLicensing Agreement applies tolicensing procedures for
tariff quotas.
401Panel Report on"Japan -Trade inSemiconductors", adopted on4May1988, BISD 35S/116, 153,paras. 104-105;
Panel Report on"EEC -Programme ofMinimum Import Prices, Licences andSurety Deposits forCertain Processed Fruits
andVegetables", adopted on18October 1978, BISD 25S/68, 98-100, para. 4.9.
402WenotethatpastGATT/WTO practice inrespect ofthisissue isnothelpful inclarifying themeaning oftheLicensing
Agreement.WT/DS27/R/USA
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(ii)GATT 1994 andtheAnnex 1AAgreements
7.157 TheComplainants haveraised claims inrespect oftheEC'simport licensing regime under
GATT 1994, theLicensing Agreement andtheTRIMs Agreement. Having found thattheLicensing
Agreement applies totariff quotas, afurther threshold question iswhether bothGATT 1994, aswell
astheLicensing Agreement andtheTRIMs Agreement, apply totheEC'simport licensing procedures.
Thisrequires ustoconsider theinterrelationship ofGATT 1994, ontheonehand, andtheLicensing
Agreement andtheTRIMs Agreement, ontheother.
7.158 TheGeneral Interpretative NotetoAnnex 1AoftheAgreement Establishing theWTO ("General
Interpretative Note") reads:
"Intheevent ofconflict between aprovision oftheGeneral Agreement onTariffs and
Trade 1994 andaprovision ofanother agreement inAnnex 1AtotheAgreement
Establishing theWTO ...,theprovision oftheother agreement shallprevail tothe
extent oftheconflict".
Both theLicensing Agreement andtheTRIMs Agreement are"agreement[s] inAnnex 1Atothe
Agreement Establishing theWTO".
7.159 Asapreliminary issue, itisnecessary todefine thenotion of"conflict" laiddown intheGeneral
Interpretative Note. Inlightofthewording, thecontext, theobject andthepurpose ofthisNote, we
consider thatitisdesigned todealwith(i)clashes between obligations contained inGATT 1994 and
obligations contained inagreements listed inAnnex 1A,where those obligations aremutually exclusive
inthesense thataMember cannot comply withbothobligations atthesame time, and(ii)thesituation
where aruleinoneagreement prohibits whataruleinanother agreement explicitly permits.403
7.160 However, weareoftheview thattheconcept of"conflict" asembodied intheGeneral
Interpretative Notedoesnotrelate tosituations where rulescontained inoneoftheAgreements listed
inAnnex 1Aprovide fordifferent orcomplementary obligations inaddition tothose contained in
GATT 1994. Insuchacase, theobligations arising from theformer andGATT 1994 canbothbe
complied withatthesame timewithout theneedtorenounce explicit rights orauthorizations. Inthis
latter case, there isnoreason toassume thataMember isnotcapable of,ornotrequired to,meetthe
obligations ofbothGATT 1994 andtherelevant Annex 1AAgreement.
7.161 Proceedingonthisbasis,wehavetoascertainwhethertheprovisionsoftheLicensingAgreement
andtheTRIMs Agreement, totheextent theyarewithin thecoverage oftheterms ofreference ofthis
Panel, contain anyconflicting obligations which arecontrary tothose stipulated byArticles I,III,X,
403Forinstance, Article XI:1 ofGATT 1994 prohibits theimposition ofquantitative restrictions, while Article XI:2 of
GATT 1994 contains arather limited catalogue ofexceptions. Article 2oftheAgreement onTextiles andClothing ("ATC")
authorizes theimposition ofquantitative restrictions inthetextiles andclothing sector, subject toconditions specified in
Article 2:1-21 oftheATC. Inother words, Article XI:1 ofGATT 1994 prohibits what Article 2oftheATC permits in
equally explicit terms. ItistruethatMembers could theoretically comply withArticle XI:1ofGATT, aswellaswithArticle 2
oftheATC, simply byrefraining from invoking theright toimpose quantitative restrictions inthetextiles sector because
Article2oftheATC authorizesratherthanmandat estheimposi tionofquantitativerestrictions.However ,suchaninterpretation
would render whole Articles orsections ofAgreements covered bytheWTO meaningless andruncounter totheobject and
purpose ofmany agreements listed inAnnex 1Awhich were negotiated withtheintent tocreate rights andobligations which
inparts differ substantially from those oftheGATT 1994. Therefore, inthecasedescribed above, weconsider thatthe
General Interpretative Notestipulates thatanobligation orauthorization embodied intheATC oranyother oftheagreements
listed inAnnex 1Aprevails overtheconflicting obligation provided forbyGATT 1994.WT/DS27/R/USA
Page333
orXIIIofGATT 1994, inthesense thatMembers could notcomply withtheobligations resulting
frombothAgreements atthesame timeorthatWTO Members areauthorized toactinamanner that
would beinconsistent withtherequirements ofGATT rules. Wherever theanswer tothisquestion
isaffirmative, theobligation orauthorization contained intheLicensing orTRIMs Agreement would,
inaccordance withtheGeneral Interpretative Note, prevail overtheprovisions oftherelevant article
ofGATT 1994. Where theanswer isnegative, bothprovisions would apply equally.
7.162 Based onourdetailed examination oftheprovisions oftheLicensing Agreement, Article 2
oftheTRIMs Agreement aswellasGATT 1994, wefindthatnoconflicting, i.e.mutually exclusive,
obligations arisefrom theprovisions ofthethree Agreements thattheparties tothedispute haveput
before us.Indeed, wenotethatthefirstsubstantive provision oftheLicensing Agreement, Article 1.2,
requires Members toconform toGATT rules applicable toimport licensing.
7.163 Inthelightoftheforegoing discussion, wefindthattheprovisions ofGATT 1994, the
Licensing Agreement andArticle 2oftheTRIMS Agreement allapply totheEC'simport licensing
procedures forbananas.
(iii)Separate regimes
7.164 TheECargues thatforpurposes ofArticle I:1ofGATT andothernon-discrimination provisions
thetraditional ACP licensing procedures should notbecompared withthethird-country andnon-
traditional ACP licensing procedures because theyareseparate regimes. Wenotethatlicensing
procedures applicable toallbanana imports areembodied inthesameRegulation 1442/93. Furthermore,
administrative decisions applying theECbanana import procedures arenotalways contained inseparate
regulations depending onwhether theyrelate totraditional ACP licensing orthird-country andnon-
traditional ACP licensing procedures. Thiswould alsosuggest thatallEClicensing procedures for
banana imports constitute asingle regime.
7.165 Moreover, wehaverefuted thesame argument inparagaph 7.78etseq.above inthecontext
ofArticle XIII'sapplication toallocation oftariff quota shares. Theobject andpurpose ofArticle I,
Article X,Article XIIIandsimilar non-discrimination provisions aretopreclude thecreation ofdifferent
systemsforimportsfromdifferentMembers,asexplainedina1968NotebytheGATTDirector-General
onArticle X:3(a).404Wediscuss thisNote inmore detail inparagraph 7.209 etseq.,infra,butin
ourview, itisclearthattheobject andpurpose ofthenon-discrimination provisions would bedefeated
ifMembers were permitted tocreate separate regimes forimports oflikeproducts based onorigin.
7.166 ThisisnottosaythatMembers maynotcreate import licensing regimes thatvaryintechnical
aspects. Forexample, theinformation required toestablish origin forpurposes ofdemonstrating an
entitlement toapreferential tariff ratemaydiffer fromtheinformation collected generally toestablish
origin. However, themeasures forimplementing apreferential tariffpermitted under WTO rulesshould
notinthemselves create non-tariff preferences inaddition tothetariff preference.
7.167 Accordingly, wefindthattheEClicensing procedures fortraditional ACP bananas and
third-country andnon-traditional ACP bananas should beexamined asonelicensing regime.
404Note bytheDirector-General of29November 1968, L/3149.WT/DS27/R/USA
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(iv)Examination ofthelicensing claims
7.168 Inlightoftheforegoing, weorganize ourexamination oftheEC'simport licensing procedures
forbananas asfollows.405Inrespect ofeachofthefourprincipal components oftheprocedures to
which theComplainants haveobjected -operator categories, activity functions, export certificates and
hurricane licences, wefirstconsider whether theEC'sprocedures areinconsistent withthegeneral
non-discrimination rules ofArticles IandIIIofGATT. Wethenexamine theirconsistency, where
necessary, withArticles X:3andXIIIofGATT andthemore specific provisions oftheLicensing
Agreement.WetreattheclaimsunderArticle2oftheTRIMsAgreementtogetherwithourconsideration
oftheclaims under Article IIIofGATT. Wediscuss theclaims relating tooperator categories in
section (b),those relating toactivity functions insection (c),those relating toexport certificates in
section (d)andthose relating tohurricane licences insection (e).Theremaining claims inrespect
oftheEClicensing procedures areaddressed insection (f).
(b) Operator categories
7.169 Forpurposes ofthedistribution oflicences theECestablished three types of"operators":
operators whohaveduring apreceding three-year period marketed third-country bananas andnon-
traditional ACP bananas areclassified inCategory A.Those whohavemarketed bananas from EC
andtraditional ACPsources during apreceding three-year period fallwithin Category B.Operators
whohavemarketed third-country andnon-traditional ACPbananas aswellastraditional ACPandEC
bananas qualify forbothcategories. Newmarket entrants whostartmarketing third-country ornon-
traditional ACP bananas mayqualify asCategory Coperators. Article 19ofECRegulation 404/93
earmarks66.5percentofthelicencesallowingimportsofthird-countryandnon-traditionalACPbananas
atthelower tariffrateswithin thetariffquota forCategory Aoperators. Another 30percentisallocated
toCategory Boperators, while 3.5percentisreserved forthenewmarket entrants ofCategory C.
Subjecttolimitations,importlicencesforthird-countryandnon-traditionalACPbananasaretransferable
andtradeable within andbetween operator categories.
7.170 TheComplaining parties raiseclaims against theoperator category rulesunder Articles I,III,
XandXIIIofGATT andArticle 2oftheTRIMs Agreement, aswellasclaims under theLicensing
Agreement. InthecaseoftheUnited States, weconsider theclaims ithasraised under Article III
ofGATT, Article 2oftheTRIMs Agreement andArticles IandXofGATT.
(i)Article III:4 ofGATT
7.171 TheComplainants claim thattherulesintroducing operator categories, theeligibility criteria
forCategory Boperators andtheallocation toCategory Boperators of30percentofthelicences
required fortheimportation ofthird-country andnon-traditional ACPbananas atthelower dutyrate
within thebound tariffquota areinconsistent withArticle III:4ofGATT because thislicence allocation
amounts toarequirement orincentive topurchase ECbananas inorder tobeeligible toimport the
bananas ofComplainants 'origin.
7.172 TheECresponds thatthelicensing regime applied tothird-country imports within thetariff
quota doesnotforceanytrader topurchase anyquantity ofECbananas, butprovides atoolformanaging
correctly theimportation ofthird-country bananas according tothedemand ontheECmarket. Likewise,
theoperator category rulesandtheallocation of30percentofthelicences required forimports from
405Inconsidering howtoorganize ourfindings, wenotethatArticle 1.2oftheLicensing Agreement requires Members
toconform toGATT rules applicable toimport licensing procedures.WT/DS27/R/USA
Page335
third-country sources form partoftheEC'soverall economic strategy anddonotaffect thevolume
ofimports fromthird-country sources. Moreover, theECreiterates thatthelicensing regime isapplied
attheborder atthemoment ofimportation, andnotafterthebananas havecleared customs andthat,
accordingly, allallegations concerning operator category rules under Article IIIareunfounded.
7.173 Therelevant partofArticle III:4ofGATT provides:
"The products oftheterritory ofanyMember imported intotheterritory ofanyother
Member shall beaccorded treatment nolessfavourable thanthataccorded tolike
products ofnational origin inrespect ofalllaws, regulations andrequirements affecting
theirinternal sale,offering forsale,purchase, transportation, distribution oruse".
7.174 Inaddressing theseclaims concerning licensing procedures, wefirstexamine theissuewhether
import licensing procedures aresubject totherequirements ofArticle III.Inthisregard, wenotethat
aGATT panel considered "...thattheintention ofthedrafters oftheAgreement wasclearly totreat
theimported products inthesamewayasthelikedomestic products oncetheyhadbeencleared through
customs. Otherwise indirect protection could begiven."406Inviewofthisinterpretation ofArticle III:4,
thefactthatimported products maybesubject tothecollection oftariffs ortheimposition ofalicensing
requirement taken assuch, whereas themarketing ofdomestic products isobviously not,cannot per
seviolate Article III:4ofGATT.
7.175 Thenextquestion thatarises iswhether theECprocedures andrequirements fortheallocation
ofimport licences forforeign products toeligible operators aremeasures thatareincluded inthenotion
of"alllaws, regulations andrequirements affecting theirinternal sale,offering forsale,purchase ..."
inthemeaning ofArticle III:4. Inourview, theword "affecting" suggests acoverage ofArticle III:4,
beyond legislation directly regulating orgoverning thesaleofdomestic andlikeimported products.
Wefurther havetotakeintoaccount thecontext ofArticle III,i.e.,theInterpretative NoteAdArticle III
which makes clear thatthemere factthataninternal charge iscollected oraregulation isenforced
inthecaseofanimported product atthetimeorpoint ofimportation doesnotprevent itfrom being
subject totheprovisions ofArticle III.407AGATT panel interpreted theNote asfollows:
"The factthatSection 337isusedasameans fortheenforcement ofUnited States
patent lawattheborder does notprovide anescape from theapplicability of
Article III:4; theinterpretative notetoArticle IIIstates thatanylaw,regulation or
requirement affecting theinternal saleofproducts thatisenforced inthecaseofthe
imported product atthetimeorpoint ofimportation isnevertheless subject tothe
provisions ofArticle III.Norcould theapplicability ofArticle III:4bedenied onthe
ground thatmostoftheprocedures inthecasebefore thePanel areapplied topersons
rather thanproducts ,sincethefactor determining whether persons might besusceptible
toSection 337proceedings orfederal district court procedures isthesource ofthe
406Panel Report on"Italian Discrimination against Imported Agricultural Machinery", adopted on23October 1958,
BISD 7S/60, 63-64, para. 11.
407"...anylaw,regulation orrequirement ofthekindreferred toinparagraph 1which applies toanimported product
andtothelikedomestic product andis...enforced inthecaseoftheimported product atthetimeorpoint ofimportation,
isnevertheless toberegarded as...law,regulation orrequirement ofthekindreferred toinparagraph 1,andisaccordingly
subject totheprovisions ofArticle III."WT/DS27/R/USA
Page336
challenged products, thatiswhether theyareofUnited States origin orimported."408
(emphasis added)
Thisinterpretation isinlinewiththeinterpretation oftheterm"affecting" inother pastGATT panel
reports.409
7.176 Wefurther notethatourinterpretation isconfirmed bythefactthatthecoverage ofArticles I
andIIIwithrespect togovernmental measures isnotnecessarily mutually exclusive, asdemonstrated
byArticle I:1'sincorporation intotheGATT mostfavoured nation clause of"allmatters referred to
inparagraphs 2and4ofArticle III".Toputitdifferently, under GATT internal matters maybewithin
thepurview oftheMFN obligations andborder measures maybewithin thepurview ofthenational
treatment clause.
7.177 Inthelightoftheforegoing, wehavetodistinguish themere requirement topresent alicence
upon importation ofaproduct assuchfrom theprocedures applied bytheECinthecontext ofthe
licence allocation which areinternal laws, regulations andrequirements affecting theinternal saleof
imported products. Inthealternative, ifthemere factthattheECregulations ontheintroduction of
thecommon market organization forbananas include orarerelated toaborder measure suchasa
licensing requirement would mean thattheArticle IIIcannot apply, itwould notbedifficult toevade
theGATT national treatment obligation. Such aresult would runcounter totheobject andpurpose
ofArticle III,i.e.,theobligation ofMembers toaccord foreign products nolessfavourable treatment
thanlikedomestic products intheapplication ofanymeasure affecting theinternal saleofproducts,
regardless ofwhether itapplies internally orattheborder.
7.178 Inturning tothespecific measures atissue, wenotethatoperators address claims forreference
quantities ofbananas marketed during apreceding three-year period andapplications fortheallocation
ofquarterly licences tocompetent member Stateauthorities. Theadministration ofthelicence allocation
procedures iscarried outincooperation between theseauthorities andtheEuropean Commission within
theECterritory. Consequently, although licences areacondition fortheimportation ofbananas into
theECatin-quota tariff rates, wefindthattheadministration oflicence distribution procedures and
theeligibility criteria fortheallocation oflicences tooperators formpartoftheEC'sinternal legislation
andare"laws, regulations andrequirements affecting theinternal sale,...purchase, ...distribution"
ofimported bananas inthemeaning ofArticle III:4. Therefore, theargument thatlicensing procedures
arebeyond thepurview oftheGATT national treatment clause cannot, inourview, besustained in
lightofthewording, context, object orpurpose ofArticle IIIorwiththefindings ofpastGATT panel
reports.
7.179 Turning nowtothebasic Article IIIclaim ofComplainants inrespect ofoperator categories,
wefirstrecall thefindings ofthepanel onEEC-Import Regime forBananas410("second Banana panel"),
which heldwithregard tooperator categories:
408Panel Report on"US-Section 337oftheTariff Actof1930", adopted on7November 1989, BISD 36S/345, 385,
para. 5.10.
409Panel Report on"Italian Discrimination against Imported Agricultural Machinery", adopted on23October 1958,
BISD 7S/60, 63-64, para. 11;Panel Report on"EEC -onImports ofParts andComponents", adopted on16May1990,
BISD 37S/132, 197, paras. 5.20-5.21.
410Panel Report on"EEC -Import Regime forBananas", issued on11February 1994 (notadopted), DS38/R.WT/DS27/R/USA
Page337
"144. ThePanel firstexamined theoperation oftheEEC import licensing system
andnoted thefollowing. Thequantity ofbananas thatanoperator mayimport, pursuant
tolicences granted under thetariff quota, depends ontheorigin ofthebananas that
theoperator hasmarketed during thepreceding three-year period.411Inparticular,
30percentofthetariffquota isapportioned among operators who,during thepreceding
period, havepurchased bananas fromdomestic ortraditional ACPsources. Asaresult,
operators wishing toincrease theirfuture share ofbananas benefiting from thetariff
quota would berequired toincrease theircurrent purchases ofEECortraditional ACP
bananas.
145. ThePanel noted thattheGeneral Agreement does notcontain provisions
specifically regulating theallocation oftariffquota licences among importers andthat
contracting parties are,therefore, inprinciple freetochoose thebeneficiaries ofthe
tariffquota. They could, forinstance, allocate thelicences toenterprises onthebasis
oftheirprevious tradeshares. However, theabsence ofanyprovisions intheGeneral
Agreement specifically regulating theallocation oftariffquota licences alsomeant that
contracting parties, inallocating suchlicences, hadtofully observe thegenerally
applicable provisions oftheGeneral Agreement, inparticular those ofArticle III:4,
which prescribes treatment ofimported products nolessfavourable thanthataccorded
todomestic products, andArticle I:1,which requires most-favoured-nation treatment
withrespect tointernal regulations.
146. ThePanel thenproceeded toexamine theEEClicensing scheme inthelight
oftheincentive provided under theregulations tobuybananas fromdomestic sources.
ThePanel noted thatArticle III:4hadbeeninterpreted consistently byprevious panels
asestablishing theobligation toaccord imported products competitive opportunities
nolessfavourable thanthose accorded todomestic products. Aprevious panel has
stated:
'Thewords 'treatment nolessfavourable 'inparagraph 4callfor
effective equality ofopportunities forimported products inrespect of
theapplication oflaws, regulations andrequirements affecting the
internal sale,offering forsale,purchase, transportation, distribution
oruseofproducts. '412
ThePanel further noted thatprevious panels hadfound consistently thatthisobligation
applies toanyrequirement imposed byacontracting party, including requirements
'which anenterprise voluntarily accepts toobtain anadvantage fromthegovernment '.413
Intheview ofthePanel, arequirement topurchase adomestic product inorder to
obtain theright toimport aproduct atalower rateofdutyunder atariff quota is
therefore arequirement affecting thepurchase ofaproduct within themeaning of
Article III:4. ThePanel further noted that,injudging whether effective equality of
opportunities forimported products under Article III:4wasaccorded, thetradeimpact
ofthemeasure wasnotrelevant. TheCONTRACTING PARTIES determined in1949that
411Council Regulation (EEC) No404/93, Article 19(original footnote).
412Report ofthepanel onUnited States -Section 337oftheTariff Actof1930, BISD 36S/345, 386,paragraph 5.11,
adopted on17June 1987 (original footnote).
413Report ofthepanel onEEC -Regulation onImports ofParts andComponents, BISD 37S/132, 197,paragraph 5.21,
adopted on16May 1990 (original footnote).WT/DS27/R/USA
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theobligations ofArticle III:4'were equally applicable whether imports from other
contracting parties weresubstantial, small ornon-existent ',414andtheyhaveconfirmed
thisviewinsubsequent cases.415Thusitwasnotrelevant that,atpresent, theincentive
under theEECregulations tobuydomestic ortraditional ACPbananas mayonlyresult
inraising theirprice, andnotinreducing theexports ofthethird-country bananas,
since these exports, because ofthehighover-quota tariff, werelimited defactotothe
amount allocated under thetariffquota. Thediscrimination ofimported bananas under
thelicensing scheme could therefore notbejustified bymeasures ontheimportation
thatcurrently prevented, defacto, bananas from entering intotheinternal market.
ThePanel therefore found thatthepreferred allocation ofpartofthetariff quota to
importers whopurchase EEC bananas wasinconsistent withArticle III:4.
147. ThePanel thenexamined theEEClicensing scheme inthelightoftheincentive
provided under theregulations tobuybananas ofACP origin inpreference toother
foreignorigins.ThePanelnotedthatArticleI:1obligescontractingparties,withrespect
toallmatters referred toinArticle III:4, toaccord anyadvantage, granted toany
product originating inanycountry, tothelikeproduct originating intheterritories
ofallother contracting parties. Asunder Article III,thePanel considered thatactual
trade flows were notrelevant todetermine conformity withArticle I:1.ThePanel
therefore found thatthepreferred allocation oflicences tooperators whopurchase
bananas from ACP countries wasinconsistent withtheEEC'sobligations under
Article I:1.
148. ThePanel noted thattheEEC'slicensing system, byreserving 66.5percent
ofthetariffquota tooperators whohadmarketed third-country ornon-traditional ACP
bananas during apreceding period, included alsoincentives tocontinue importation
ofthird-country bananas, eventhough these incentives maynothavetrade-distorting
effectsatpresentinviewoftheundisputedgreatercompetitivenessofthesethird-country
bananas. ThePanel wasoftheview that, regardless ofthetrade effects, the
apportioning of66.5percentofthetariff quota tooperators whohadmarketed third-
country ornon-traditional ACP bananas could notoffset orlegally justify the
inconsistencies ofthelicensing system withArticles III:4andI:1.ThePanel agreed
inthisrespect withaprevious panel thathadfound that'anelement ofmore favourable
treatment would onlyberelevant ifitwould always accompany andoffset anelement
ofdifferential treatment causing lessfavourable treatment '."416
7.180 While thesecond Banana panel report wasnotadopted bytheGATT CONTRACTING
PARTIES, theAppellate Body hasstated inanother context:
"[W]e agree withthepanel'sconclusion ...thatunadopted panel reports 'havenolegal
status intheGATT orWTO system sincetheyhavenotbeenendorsed through decisions
414Report oftheworking party onBrazilian Internal Taxes, BISD II/181, 185,paragraph 16,adopted on30June1949
(original footnote).
415Report ofthepanel onUnited States -Taxes onpetroleum andcertain imported substances, BISD 34S/136, 158,
para. 5.1.9, adopted on17June1987; Report ofthepanel onUnited States -Measures affecting alcoholic andmaltbeverages,
DS23/R, para. 5.65, adopted on19June 1992 (original footnote).
416Report ofthepanel onUnited States Section 337oftheTariff Actof1930, BISD 36S/345, 388,para. 5.16, adopted
on7November 1989 (original footnote).WT/DS27/R/USA
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bytheCONTRACTING PARTIES toGATT orWTO Members '.417Likewise, we
agree that'apanel could nevertheless finduseful guidance inthereasoning ofan
unadopted panel report thatitconsidered toberelevant '.418."419
Neither theECnortheComplainants haveclaimed thattherulesconcerning operator categories have
significantly changed420since thesecond Banana panel report wasissued on11February 1994 ina
waythatwould affect thesoundness ofthatpanel'sfindings andconclusions withrespect toArticle III:4.
Nordoestheadoption oftheLomé waiver bytheGATT CONTRACTING PARTIES anditsextension
bytheWTOGeneralCouncil,inourview,affectourexaminationoftheallocationoflicencestodifferent
operator categories inthelightofArticle III:4. Accordingly, weadopt thefindings ofthesecond Banana
panel onArticle III:4ofGATT inrespect ofoperator categories asourownfindings.
7.181 However, before finding whether theallocation toCategory Boperators of30percentofthe
licences allowing theimportation ofthird-country andnon-traditional ACPbananas atin-quota tariff
ratesisinconsistent withArticle III:4, weneedtoconsider thatArticle III:1isa"general principle
thatinforms therestofArticle III",astheAppellate Body hasrecently stated.421Since Article III:1
constitutes partofthecontext ofArticle III:4, itmust betaken intoaccount inourinterpretation of
thelatter. Article III:1articulates ageneral principle thatinternal measures should notbeapplied so
astoafford protection todomestic production.422Asnoted bytheAppellate Body, theprotective
application ofameasure canmostoftenbediscerned fromthedesign, thearchitecture, andtherevealing
structure ofthemeasure.423Weconsider thatthedesign, architecture andstructure oftheECmeasure
thatprovides forallocation toCategory Boperators of30percentofthelicences allowing the
importation ofthird-country andnon-traditional ACPbananas atin-quota tariff ratesallindicate that
themeasure isalsoapplied soastoafford protection toECproducers.
7.182 Thus, wefindtheallocation toCategory Boperators of30percentofthelicences allowing
theimportation ofthird-country andnon-traditional ACP bananas atin-quota tariff rates is
inconsistent withtherequirements ofArticle III:4 ofGATT.
417Panel Report on"Japan -Taxes onAlcoholic Beverages", adopted on1November 1996, WT/DS8/R, WT/DS10/R,
WT/DS11/R, pp.106-107, para. 6.10 (original footnote).
418Ibid.
419Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", adopted on8November 1996, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, AB-1996-2, pp.14-15.
420WhileprovisionssuchasArticle19ofRegul ation404/93 of13February1993andArticles3and4ofRegul ation1442/93
of12June 1993 have been implemented andmodified through subsequent EClegislation, these rules arestillinessence
inforce intheEClegal order without having been affected bysubsequent legislation.
421Appellate Body Report on"Japan -Taxes onAlcoholic Beverages", op.cit.,p.18. TheReport states: "The purpose
ofArticleIII:1istoestablishthisgeneralprincipleasaguidetounder standingandinterpretingthespecificobligationscontained
inArticle III:2 andintheother paragraphs ofArticle III,while respecting, andnotdiminishing inanyway, themeaning
ofwords actually used inthetexts ofthose other paragraphs".
422Ibid., p.18.
423Ibid., p.29.WT/DS27/R/USA
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(ii)Article 2oftheTRIMs Agreement
7.183 Proceeding ontheassumption thattheoperator category rules areinconsistent withthe
requirements ofArticle III:4, theComplainants allege thattheconditions foroperator Beligibility and
the30percenttariff quota allocation forCategory Boperators areinconsistent withArticle 2.1of
theTRIMs Agreement. Thefactthattheallocation of30percentofthelicences required forthe
importation ofthird-country bananas iscontingent upon themarketing ofEC(andtraditional ACP)
bananas amounts, intheview oftheComplainants, toapurchasing requirement which fallswithin
thefirstcategory oftheIllustrative ListintheAnnex totheTRIMs Agreement ofthose trade-related
investment measures which areinconsistent withArticle III:4ofGATT.
7.184 IntheEC'sview, nobreach ofArticle 2oftheTRIMs Agreement canbefound because no
breach ofArticle III:4hasoccurred. Inthealternative, theECargues thatrulesestablishing operator
categories donotfallwithin theambit oftheTRIMs Agreement because there isnorequirement to
make aninvestment within aparticular country; noristhere arequirement forpurchase oruseby
anenterprise ofproducts ofdomestic origin orfrom anydomestic source inorder tobeallowed to
make theinvestment.
7.185 Inconsidering these arguments, wefirstexamine therelationship oftheTRIMs Agreement
totheprovisions ofGATT. Wenotethatwiththeexception ofitstransition provisions424theTRIMs
Agreement essentially interprets andclarifies theprovisions ofArticle III(andalsoArticle XI)where
trade-relatedinvestmentmeasuresareconcerned.ThustheTRIMsAgreementdoesnotaddtoorsubtract
fromthoseGATTobligations,althoughitclarifiesthatArticleIII:4maycoverinvestment-relatedmatters.
7.186 Weemphasize thatinviewoftheimportance oftheTRIMs Agreement intheframework of
theagreements covered bytheWTO, wehaveexamined theclaims andlegalarguments advanced by
theparties under theTRIMs Agreement carefully. However, forthereasons stated intheprevious
paragraph, wedonotconsider itnecessary tomake aspecific ruling under theTRIMs Agreement with
respect totheeligibility criteria forthedifferent categories ofoperators andtheallocation ofcertain
percentages ofimport licences based onoperator categories. Ontheonehand, afinding thatthemeasure
inquestion would notbeconsidered atrade-related investment measure forthepurposes oftheTRIMs
Agreement would notaffect ourfindings inrespect ofArticle III:4since thescope ofthatprovision
isnotlimited toTRIMs and,ontheother hand, steps taken tobring EClicensing procedures into
conformity withArticle III:4would alsoeliminate thealleged non-conformity withobligations under
theTRIMs Agreement.
7.187 Therefore, wedonotconsider itnecessary tomake aspecific ruling under theTRIMs
Agreement withrespect totheallocation toCategory Boperators of30percentofthelicences
allowing theimportation ofthird-country andnon-traditional ACP bananas atin-quota tariff
rates.
(iii)Article IofGATT
7.188 TheComplainants claim that(i)theconditions foroperator Beligibility based onmarketing
ofACPbananas, (ii)theexemption oftraditional ACPimports fromoperator category rulesand(iii)
theallocation of30percentofthelicences allowing imports ofthird-country bananas atin-quota tariff
424Wehavealready dismissed theComplainants 'claim under thetransition provisions ofArticle 5oftheTRIMs Agreement
because Article 5wasnotlisted intherequest fortheestablishment ofthePanel asrequired byArticle 6.2oftheDSU,
seepara. 7.46.WT/DS27/R/USA
Page341
ratestoCategory Boperators, areinconsistent withtherequirements ofArticle I:1ofGATT. They
argue: (a)thatthecomparatively lesscomplex licensing procedures thatapply toimports ofbananas
fromtraditional ACPsources arean"advantage" thattheECfailstoaccord toimports ofthird-country
bananas, and(b)thatthese aspects oftheEClicensing system provide anincentive orrequirement
topurchase bananas fromtraditional ACPsources overthose originating inthirdcountries. TheEC
responds thattheexistence ofCategory Blicences persedoesnotcreate anincentive topurchase any
particular product, butisdesigned tomitigate theeffects ofoligopolistic market structures andto
stimulate competition between operators. Since licences allocated toparticular operators aretradeable,
theECconcludes thatsuchlicences donotconstitute animpediment toimports fromanyspecific source.
Inthealternative, theECmaintains thattheLomé waiver covers anyinconsistency withtherequirements
ofArticle I:1because Category Blicences arerequired under theLomé Convention inorder tomaintain
existing advantages fortraditional ACP bananas ontheECmarket.
7.189 Article I:1provides asfollows:
"With respect tocustoms duties andcharges ofanykindimposed onorinconnection
withimportation orexportation orimposed intheinternational transfer ofpayments
forimportsorexportsandwithrespecttothemethodoflevyingsuchdutiesandcharges,
andwithrespect toallrules andformalities inconnection withimportation and
exportation, andwithrespect toallmatters referred toinparagraphs 2and4of
Article III,anyadvantage, favour, privilege orimmunity granted byanyMember to
anyproduct originating inordestined foranyother country shall beaccorded
immediately andunconditionally tothelikeproduct originating inordestined forthe
territories ofallother Members".
Inourview,importlicensingprocedures,includingtheoperatorcategoryrules,are"rulesandformalities
inconnection withimportation" inthemeaning ofArticle I:1. Apanel found, forexample, that
comparativelymorefavourablerulesforrevokingcountervailingdutieswerean"advantage"forpurposes
ofArticle I:1andthat"making aregulatory advantage available toimports fromsome countries while
notmaking itavailable toothers" isinconsistent withArticle I:1.425
7.190 Inourview, theoperator category andactivity function rulescontained inthelicensing procedures
forthird-country andnon-traditional ACPbananas require substantially more datatobesubmitted to
show entitlement toalicence forthird-country andnon-traditional ACP bananas thanisrequired by
theprocedures applicable totraditional ACPbananas. Thisisclearly demonstrated bycomparing the
datathatneeds tobemaintained andsubmitted under thetwosystems.
7.191 Inrespect oftraditional ACP bananas, wenotethat,according totheEC,426operators need
onlytoobtain special certificates oforigin from theissuing authority intherelevant ACP State for
traditional ACP imports. Inthisregard, Article 14(4) ofRegulation 1442/93 on"Detailed Rules
Applicable toImports ofTraditional ACP Bananas" (asamended byRegulation 875/96) provides:
"4. Import licence applications shallonlybeadmissible where:
425Panel Report on"US-Denial ofMFN Treatment astoNon-Rubber Footwear from Brazil", adopted on19June1992,
BISD 39S/128, 150-151, paras. 6.8-6.11.
426Seethefirstitemonthechart submitted bytheECwhich isreproduced atpara. 4.274.WT/DS27/R/USA
Page342
(a) theyareaccompanied bytheoriginal ofacertificate drawn upbythe
competent authorities oftheACPcountry concerned testifying tothe
origin ofthebananas ...
(b) theycontain
- thewords 'traditional ACP bananas -Regulation (EEC) No
404/93 '...
- anindication ofthecountry oforigin ..."
7.192 Incontrast, inrespect ofthird-country andnon-traditional ACP imports, operators needto
apply forareference quantity bysending details ofbanana volumes marketed during apreceding three-
yearperiod totherelevant competent authority. Article 19(2) ofRegulation 404/93 on"Detailed Rules
fortheApplication oftheTariff Quota Arrangements" provides inrespect ofimports ofthird-country
andnon-traditional ACP bananas that:
"Onthebasis ofseparate calculations foreachofthecategories ofoperators ...each
operator shallobtain import licences onthebasisoftheaverage quantities ofbananas
thathehassoldinthethree most recent years forwhich figures areavailable. For
thecategory of[A]operators ...,thequantities tobetaken intoconsideration shall
bethesales ofthird-country and/or non-traditional ACP bananas. Inthecaseof
category [B]operators ...,salesoftraditional ACPand/or Community bananas shall
betaken intoconsideration. ...".
Article 4ofRegulation 1442/93 provides:
"1. Thecompetent authorities oftheMember States shalldraw upseparate lists
ofoperators inCategory AandBandthequantities which eachoperators hasmarketed
ineachofthethree years prior tothatpreceding theyearforwhich thetariff quota
isopened, broken down according toeconomic activity asdescribed inArticle 3(1).
Operators shallregister themselves andshallestablish quantities theyhavemarketed
bysubmitting individual written applications ontheirowninitiative inasingle Member
State oftheirchoice.
...
2. Theoperators concerned shallnotify thecompetent authorities atthelatest by
...eachyearthereafter oftheoverall quantities ofbananas marketed ineachofthe
years referred toinparagraph 1,breaking them down clearly:
(a) according toorigin, pursuant tothedefinition laiddown in
Article 15ofRegulation (EEC) No404/93,427asfollows:
- ofimports from non-ACP third countries andnon-
traditional imports from ACP States,
- traditional imports from ACP States within the
quantities setoutintheAnnex toRegulation (EEC)
No.404/93, specifying thequantities byState,
- Community bananas, specifying theregion of
production;
427Article 15ofRegulation 404/93 provides fordefinitions of,interalia,"traditional imports from ACP States" ',"non-
traditional imports from ACP States", "imports from nonACP-third countries", "Community bananas".WT/DS27/R/USA
Page343
(b) according totheeconomic activity asdescribed inArticle 3(1).
3. Theoperators concerned shallmake thesupporting documents specified in
Article 7available totheauthorities."
Article 7ofRegulation 1442/93 provides:
"Attherequest ofthecompetent authorities oftheMember States, thefollowing
documents maybesubmitted toestablish thequantities marketed byeachoperator in
Category AandBregistered withthem:
- thecopydeliveredtotheimporteroftheSingleAdministrativeDocument(SAD)
or,where applicable, hiscopyofthedocument forsimplified declarations,
- acopy oftheT2declaration issued pursuant to...fortransactions effected
during thereference period,
- original salesinvoices orcertified copies thereof,
- anyrelevant supporting documents suchasnational import documents issued
andusedbefore theentry intoforce ofthese arrangements,
- import licences issued pursuant tothisRegulation anddocuments testifying
tothemarketing ofbananas produced intheCommunity."
Theinformationrequiredtosupportclaimsinrespectofactivityfunctions(e.g.,ripening)isnotspecified
inthisprovision, butsuchinformation alsomustbemaintained andsubmitted. Wefurther notethat
thefiling ofdataconcerning thepastvolumes oftraditional ACP and/or ECbananas marketed for
purposes ofthecalculation ofreference quantities forCategory Boperators relates totheeligibility
ofsuchoperators fortheallocation oflicences allowing theimportation ofthird-country andnon-
traditional ACPbananas atin-quota tariff rates. However, thisfiling ofdataonpastbanana volumes
marketed isnotaprerequisite fortheimportation oftraditional ACP bananas, fortheissuance of
traditional ACP import licences, orforthemarketing ofECbananas.
7.193 From theforegoing, inourview, itisclearthattheprocedural andadministrative requirements
forimports ofthird-country andnon-traditional ACPbananas arising fromtheapplication oftheoperator
category rulesdiffer from, andgosignificantly beyond, those required inrespect oftraditional ACP
bananas. Thus, webelieve thatthelicensing procedures applied bytheECtotraditional ACPbanana
imports, when compared tothelicensing procedures imposed onthird-country andnon-traditional ACP
imports withitsoperator category rules, canbeconsidered asan"advantage" which theECdoesnot
accord tothird-country andnon-traditional ACP imports. TheECthereby actsinconsistently with
therequirements ofArticle I:1.
7.194 Inaddition, Article I:1obliges aMember toaccord anyadvantage granted toanyproduct
originating inanycountry tothelikeproduct originating intheterritories ofallother Members, in
respect ofmatters referred toinArticle III:4. Thematters referred toinArticle III:4are"laws,
regulations andrequirements affecting [the]internal sale,offering forsale,purchase, transportation,
distribution anduse[ofaproduct]". Inourview, theallocation toCategory Boperators of30per
centofthelicences allowing fortheimportation within thetariffquota ofthird-country bananas means
ceteris paribus thatoperators whointhefuture wishtomaintain orincrease theirshare oflicences
fortheimportation ofthird-country andnon-traditional ACP bananas atin-quota tariff rateswould
berequired tomaintain orincrease theircurrent purchases andsalesoftraditional ACP(orEC)bananas
inorder toclaim thattheymarket traditional ACP(orEC)bananas forpurposes oftheoperator category
rules. Sucharequirement topurchase andsellaproduct fromonecountry (i.e.,asource oftraditionalWT/DS27/R/USA
Page344
ACP imports) inorder toobtain theright toimport aproduct from anyother country (i.e., athird
country orasource ofnon-traditional ACP imports) atalower rateofdutyunder atariff quota isa
requirement affecting thepurchase ofaproduct within themeaning ofArticles III:4andI:1.The
allocation oflicences allowing imports ofthird-country andnon-traditional ACPbananas atin-quota
tariff ratestooperators whopurchase andselltraditional ACP bananas isinconsistent withtheEC's
obligations under Article I:1because itconstitutes anadvantage ofthetypecovered byArticle Ithat
isaccorded totraditional ACP bananas butwhich isnotaccorded tolikeproducts fromallMembers
(i.e., non-traditional ACP andthird-country bananas). Wenotethatthisresult wasalsoreached in
thesecond Banana panel report asquoted above.428
7.195 Thus, wefindthattheapplication ingeneral ofoperator category rules inrespect ofthe
importation ofthird-country andnon-traditional ACP bananas atin-quota tariff rates, inthe
absence oftheapplication ofsuchrulestotraditional ACPimports, andinparticular theallocation
toCategory Boperators of30percentofthelicences allowing theimportation ofthird-country
andnon-traditional ACP bananas atin-quota tariff rates, areinconsistent withtherequirements
ofArticle I:1ofGATT.
(iv)Application oftheLomé waiver totheEC'sArticle Iobligations
7.196 Inlightoftheforegoing finding thattheoperator category rulescontained intheEC'slicensing
procedures forbananas areinconsistent withtherequirements ofArticle I:1,wemustconsider whether
theEC'sobligations inthisrespect havebeenwaived bytheLomé waiver. Wehavealready found
thattheLomé waiver covers (i)tariffpreferences thattheECcurrently affords totraditional andnon-
traditional ACPbananas, which would otherwise beinconsistent withitsobligations under Article I:1
(paragraph 7.136) and(ii)toalimited extent, thebanana tariff quota share allocations made bythe
ECtocertain ACP countries, which would otherwise beinconsistent withitsobligations under
Article XIII(paragraph 7.110). Aswenoted inourdiscussion ofthisissueinthecontext ofArticle XIII,
wemust firstdetermine whether theEClicensing procedures thatwehavefound tobeinconsistent
withtherequirements ofArticle I:1arerequired bytheLomé Convention. Ifitisnot,thentheLomé
waiver isnotapplicable.
7.197 Werecall thattheoperative paragraph oftheLomé waiver provides asfollows:
"theprovisions ofparagraph 1ofArticle IoftheGeneral Agreement shallbewaived,
until29February 2000, totheextent necessary topermit theEuropean Communities
toprovide preferential treatment forproducts originating inACP States asrequired
bytherelevant provisions oftheFourth Lomé Convention, without being required
toextendthesamepreferentialtreatmenttolikeproductsofanyothercontractingparty".
Forpurposes ofexamining theissue ofwhatisrequired bytheLomé Convention, wemustexamine
theprovisions ofArticle 168andProtocol 5oftheLomé Convention. Inaddition, wealsoconsider
whether theLomé waiver should beinterpreted tocover other provisions oftheLomé Convention
thatmight bereadtorequire suchlicensing procedures forACP countries.
7.198 Article 168oftheLomé Convention requires ingeneral thatACPproducts beadmitted duty-free
totheEC. However, inthecaseofproducts, suchasbananas, thataresubject tospecific rules as
aresult ofthecommon agricultural policy, under Article 168(2)(a) theyaretobe(i)accorded duty-free
428Panel Report on"EEC -Import Regime forBananas", issued on11February 1994 (notadopted), DS38/R, p.42ff,
paras. 143-148, especially para.147.WT/DS27/R/USA
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treatment ifthere arenonon-tariff measures applicable totheirimport or(ii)if(i)isnotapplicable
(asisthecaseforbananas), given "more favourable treatment thanthatgranted tothird countries
benefitting fromthemost-favoured-nation clause forthesameproducts". Theimportation oftraditional
ACPbananas andnon-traditional ACPbananas within theECtariffquota isduty-free. Thus, forthose
imports, thebasic requirement ofArticle 168,asexpressed initsfirstparagraph, hasbeenmet,and
weseenorequirement inArticle 168thattheECmustprovide favourable treatment beyond suchduty-
freetreatment. TheLomé waiver should notbeinterpreted topermit breaches ofWTO rules that
arenotclearly required tosatisfy theprovisions oftheLomé Convention. Thisreading isconfirmed
bytheterms ofthewaiver itself, which states initsfourth preambular paragraph: "Considering that
thepreferential treatment ...required bytheConvention isdesigned ...nottoraiseundue barriers
ortocreate undue difficulties forthetradeofother contracting parties". Inourview, theEClicensing
procedures atissue docreate undue difficulties forthetrade ofother Members. Accordingly, since
Article 168oftheLomé Convention doesnotspecifically require these licensing procedures, itcannot
beinvoked asajustification forapplying theLomé waiver tosuchprocedures.
7.199 Protocol 5oftheLomé Convention provides:
"Inrespect ofbanana exports totheCommunity markets, noACPStateshallbeplaced,
asregards access toitstraditional markets anditsadvantages onthose markets, ina
lessfavourable situation thaninthepastoratpresent".
Protocol 5suggests thateachACP country must beprotected asregards itstraditional markets and
advantages thereon, nothing intheLomé Convention specifically requires alicensing system forthird-
country andnon-traditional ACPbanana imports, suchasisprovided bytheapplication oftheoperator
category-activity function system tothird-country andnon-traditional ACP imports. Itis,however,
necessary toconsider whether these licensing procedures wereoneoftheadvantages, asthattermis
usedinProtocol5,formerlyenjoyedbytheACPcountriesundermemberStates'bananaimportregimes.
7.200 ThefirstBanana panel report provided detailed information onthelicensing systems thatwere
applied intheECmember States prior totheimplementation ofitscommon market organization for
bananas. Prior totheimplementation ofRegulation 404/93, ACP bananas wereprimarily imported
byFrance andtheUnited Kingdom.429Thepanel report described theFrench regime asfollows:
"19. Abanana import régime wasfirstestablished inFrance byaDecree of
9December 1931. Thisprovided fortheimposition oftemporary quotas onimports
ofbananas from thirdcountries. Itwascomplemented byalawof7January 1932,
onsafeguard ofproduction ofbananas incolonies, protectorates orterritories under
French mandate. ByDecree No.60-460 of16May1960, aspecial import régime
wasestablished forcountries ofthe"zone franc" (i.e.former colonies). Byan
arbitration ofthePresident oftheRepublic of1962, thegeneral supply oftheFrench
market wasdivided asfollows: twothirds fornational production (Guadeloupe,
Martinique) andonethirdforimports fromAfrican suppliers (Cameroon, Côted'Ivoire
andMadagascar). Bananas from theLatin American countries were imported only
tomake upforanyshortfall from theregions orcountries mentioned above. When
imported, theLatin American bananas were subject tothebound 20percenttariff
andtolicences.
429Panel Report on"EEC -Member States 'Import Regimes forBananas", issued on3June1993 (notadopted), DS32/R,
p.3,para. 12.WT/DS27/R/USA
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20. Inorder tomanage thebanana market, anInterprofessional Committee for
Bananas (Comité Interprofessionnel Bananier "CIB") was established on
5December 1932. Itwasrecognized asanagricultural interprofessional organization
on1April 1989. TheCIBbrought together producers andimporters, ripeners and
distributors, including representatives oftheAfrican producers, aswellasassociated
members(i.e.,transporters).Since1970,theGIEB(Groupementd'IntérêtEconomique
Bananier -Banana Economic Interest Group) hasadministered theexisting quotas and
import licences.
21. TheCIBwasresponsible forassessing thedemand forbananas ontheFrench
market onayearly basis. Arestricted Committee (Conseil d'Administration) ofthe
CIBmetevery month toexamine thequantities tobuythefollowing month andtomake
aforecast fortwomonths. Incaseofshortage ofsupply from oneofthedomestic
orAfrican sources, theCIBrequested theGIEB toimport fromother thirdcountries.
Inaddition, theMinistry ofEconomics andFinance published notices toimporters
concerning theopening ofquotas administered through licences. These licences were
validforaperiod ofsixmonths andwereprimarily designed tocover indirect imports
made through other member States, asdirect imports were made bytheGIEB.
22. Import licences weregranted totheGIEB bythegovernment. TheGIEB was
exclusively responsible forpurchasing andimporting bananas directly from third
countries. Imported quantities were thensoldbytheGIEB atthedomestic market
price. The"mark-up" wastransferred totheTreasury. Inaddition tothenational
market organization, France wasauthorized, under theprovisions ofArticle 115of
theTreaty ofRome, nottogrant EECtreatment tobananas originating incertain third
countries andputintofreecirculation inanother EEC member State".430
Itdescribed theregime oftheUnited Kingdom asfollows:
"37. Thebanana import régime dated back totheearly 1930'swhen the
United Kingdom introduced preferential duties onimports ofBritish Empire bananas.
Traditionally, andbefore itjoined theEEC, theUnited Kingdom imported most of
itsbananasfromtheWindwardIslandsandJamaica,formerlypartoftheBritishEmpire.
These countries were nowregarded asACP countries under theLomé Convention.
Imports ofbananas from ACP countries entered inunrestricted quantities andduty
free. Between 1940and1958, therewasatotalbanonimports ofbananas fromLatin
American countries. Thereafter, imports fromthirdcountries, usually Latin American
bananas, hadbeensubject toaquota, since 1985 anannual quota, andalicensing
system, aswellasthecommon external tariff of20percent. Licences weregranted
under Section 2of"The Import ofGoods (Control) Order" of1954. There wasa
guaranteed minimum quantity forthird country banana imports which, in1992,
amounted to38,868 tons. Additional imports fromthirdcountries occurred when there
wasashort-fall ofsupplies. Upon itsaccession totheEEC, theUnited Kingdom was
authorized, bytheCommission oftheEC,under Article 115oftheTreaty ofRome,
toapply restrictions toimports, through other member States, ofbananas fromthird
countries, putintofreecirculation intheEEC.
430Ibid., pp.4-5, paras. 19-22.WT/DS27/R/USA
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38. Atthebeginning ofevery calendar year, thegovernment authorities fixed the
levelofbananas thatcould beimported fromallsuppliers, according tothedomestic
needs determined bytheMinistry ofAgriculture, Fisheries andFood. Onthebasis
ofthese parameters, monthly supply anddemand conditions wereestablished bythe
Banana Trade Advisory Committee (BTAC), setupin1973asaconsultative committee
fortrade inbananas. Under theexisting rules, theDepartment ofTrade andIndustry
(DTI) wasresponsible foradministering theimport licensing system which controlled
thequantity ofbanana imports from thirdcountry suppliers. TheDTIissued public
notices toimporters. Since 1985, thistooktheformofanannual Notice toImporters,
inviting applications forlicences fortheimportation ofbananas ofnon-preferential
origin. Importers whofulfilled certain well-established criteria wereeligible toobtain
these licences. Once licences were allocated, fortheannual basic import quota,
management offurther imports from third countries wasdone onamonthly basis.
TheBTAC mettoconsider updated forecasts ofsupply anddemand. TheDTIwas
thenadvised ontheissueoffurther licences tocover shortfalls insupply andincreases
indemand".431
Based ontheforegoing description oftheUKandFrench procedures, itappears thatwhen licences
forbanana imports wereused, theywereissued onadiscretionary basisfromtimetotimetoestablished
importers. Thus, priortoorasof1990(thereference period intheLomé Convention forpastorpresent
advantages), neither theFrench northeUKprocedures appears tocontain anything atallsimilar to
theoperator category-activity function system. Thus, inourview, licensing procedures ofthekind
presentlyappliedwerenotan"advantage"thatACPcountriesformerlyenjoyedintheECorinindividual
member State markets.
7.201 Inthisconnection, theECargues thatitslicensing system isnecessary toprovide thatthe
quantities forwhich access opportunities were given could actually besoldthereby guaranteeing
traditional ACP bananas theirexisting advantages. Wenotethatitappears thattheACP countries
haveenjoyed greater collective success ontheECmarket under Regulation 404/93 thanintheyears
prior to1993.432Inanyevent, webelieve thatthere areother methods consistent withWTO rules
bywhich theECcould assist theACP countries tocompete ontheECmarket. Asnoted above, in
ourview, theLomé waiver should notbeinterpreted topermit breaches ofWTO rules thatarenot
clearly required tosatisfy theprovisions oftheLomé Convention. Thisreading is,inourview,
confirmedbythetermsofthewaiveritself,whichstatesinitsfourthpreambularparagraph:"Considering
thatthepreferential treatment ...required bytheConvention isdesigned ...nottoraiseundue barriers
ortocreate undue difficulties forthetrade ofother contracting parties". Inourview, these licensing
procedures docreate undue difficulties forthetrade ofother Members. Since licensing procedures
arenotanadvantage formerly enjoyed byACPcountries andtheyarenotrequired toprovide access
totraditional markets, suchprocedures arenotcovered bytheLomé waiver.
7.202 There areother provisions oftheLomé Convention, suchasArticles 15(a) and167,thatcall
forthepromotion oftradebetween theECandACPcountries. However, theyaretoogeneral toimpose
specific requirements ontheEC.Thus, wedonotagree thatthose provisions canbereadtorequire
aparticular licensing system suchastheoperator category-activity function system.
431Ibid., p.7,paras. 37-38.
432According tostatistics submitted bytheEC,theACPcountries 'average share oftheEC-12 market forimported bananas
averaged 611,000 tonnes intheyears 1989-1992, or22.8percent. For1993-1994, itaveraged 737,000 tonnes, or25.4 per
cent. TheComplainants suggest thattheACP share isunderstated intheECstatistics.WT/DS27/R/USA
Page348
7.203 Finally, wenotethatafinding thattheLomé waiver doesnotapply totheEC'slicensing
proceduresforbananaimportsisinaccordancewithpastpanelpracticethatwaiversshouldbeinterpreted
narrowly.433
7.204 Thus, wefindthattheLomé waiver doesnotwaive theEC'sobligations under Article I:1
ofGATT inrespect oflicensing procedures applied tothird-country andnon-traditional ACP
imports, including those related tooperator category rules.
(v)Article X:3(a) ofGATT
7.205 TheComplainants claim thattheEClicensing procedures areinconsistent withtherequirements
ofArticles X:3ofGATT because theyarenotadministered inauniform, impartial andreasonable
manner. TheECresponds thatArticle X:3onlyapplies tointernal measures andtherefore isnot
applicable inthiscase. Alternatively, itargues thatasystem permitted under Article IbytheLomé
waiver cannot befound tobreach another GATT provision imposing MFN-like obligations similar
tothose waived. Wenotethatwefound inthepreceding section thattheEClicensing procedures
were notpermitted under Article IbytheLomé waiver.
7.206 Article X:3(a) provides:
"Each Member shalladminister inauniform, impartial andreasonable manner allitslaws,
regulations, decisions andrulings ofthekinddescribed inparagraph 1ofthisArticle".
Article X:1defines thecoverage ofArticle X:3(a) asfollows:
"Laws, regulations, judicial decisions andadministrative rulings ofgeneral application,
made effective byanyMember, pertaining totheclassification orthevaluation of
products forcustoms purposes, ortorates ofduty, taxes orother charges, orto
requirements, restrictions orprohibitions onimports orexports oronthetransfer of
payments therefor, oraffecting their sale, distribution, transportation, insurance,
warehousing, inspection, exhibition, processing, mixing orother use...".
Given thatthisprovision enumerates national legislation regarding border measures aswellasinternal
measures, andcustoms tariffs aswellasquantitative measures, thecoverage ofArticle Xcould hardly
bemore comprehensive. Accordingly, internal laws regulating border measures constitute "...
requirements ...onimports ..."inthemeaning ofArticle X:1andcannot beexcluded fromitsscope.
7.207 Consequently, wefindthattheECimport licensing procedures aresubject tothe
requirements ofArticle XofGATT.
7.208 More specifically, theComplainants claim thattherules establishing operator categories on
thebasisofthesource ofbananas marketed during apreceding three-year period areinconsistent with
therequirements ofArticle X:3(a) because theECapplies them toimports ofthird-country andnon-
traditional ACP bananas butnottotraditional ACP imports. According totheComplainants, these
433Panel Report on"US-Restrictions ontheImportation ofSugar andSugar-Containing Products Applied Under the
1955 Waiver andUnder theHeadnote totheSchedule ofTariff Concessions", adopted on7November 1990, BISD 37S/228,
256-257, para. 5.9.WT/DS27/R/USA
Page349
rulesareinconsistentwiththestandardsof"uniform,impartialandreasonableadministration"ofdomestic
laws, regulations, decisions andrulings andthusareinconsistent withtherequirements ofArticle X:3(a).
TheECmaintains thattherulesapplying operator categories areadministered inauniform, impartial
andreasonable manner among thethirdcountries which aresubject tothatseparate licensing regime
andthattheComplainants havefailed toprovide evidence tothecontrary.
7.209 TheComplainants support theirargument byreferring toa1968NotebytheGATT Director-
General, which stated thatArticle X:3(a)
"would notpermit, inthetreatment accorded toimported goods, discrimination based
oncountry oforigin, norwould theypermit theapplication ofonesetofregulations
andprocedures withrespect tosome contracting parties andadifferent setwithrespect
totheothers".434
TheECresponds thatthe1968Notecannot beconsidered asanauthoritative interpretation ofGATT
rules because itwasnever endorsed byaformal decision oftheCONTRACTING PARTIES.
7.210 Wenotethatapriorpanel indiscussing theinterpretation ofArticle X:3(a) found thatitsterms
would bemetifregulations wereapplied "inasubstantially uniform manner, although thereweresome
minor administrative variations, e.g.concerning theforminwhich licence applications could bemade
andtherequirement ofpro-forma invoices".435Inthatcase,thepanel found thatsuchdifferences were
minimal anddidnotinthemselves establish abreach ofArticle X:3(a).
7.211 Inourview, theDirector-General 'sNotecorrectly describes thereach ofArticle X:3(a) and
isconsistent withthequoted panel decision. While minor "administrative variations" intheapplication
ofregulations maynotbeinconsistent withtherequirements ofArticle X:3(a), assuggested bythe
above-mentioned panel report, twodifferent setsofruleswould beinconsistent withtherequirements
ofArticle X:3(a). Inthiscase, weareconfronted withasystem fortheimportation ofbananas into
theECwithtwodifferent origin-based setsofimport licensing procedures. These setsoflicensing
procedures differ significantly fromoneanother, depending onwhether imports ofbananas arefrom
traditional ACP sources orfrom third countries andnon-traditional ACP sources, particularly with
respect totheapplication oftherules onoperator categories. Theoperator category (andactivity
function) rulescontained inthelicensing procedures forthird-country andnon-traditional ACPbananas
(butnotintheprocedures applicable totraditional ACP bananas) mean thatsubstantially more data
mustbemaintained andsubmitted toshow entitlement toalicence forthird-country andnon-traditional
ACPbananas (seeparagraph 7.190 etseq.).These differences arenotconsistent withArticle X:3(a) 's
requirement of"uniform" administration.
7.212 Asaresult, wefindthattheapplication ofoperator category rules inrespect ofthe
importation ofthird-country andnon-traditional ACP bananas atin-quota tariff rates, inthe
434Note bytheGATT Director-General of29November 1968, L/3149.
435Panel Report on"EEC -Restrictions onImports ofDessert Apples", Complaint byChile, adopted on22June1989,
BISD 36S/93, 133,para. 12.30. Inthedescriptive partoftheChilean Apples case, "concerning Article X:3,Chile argued
thatthere were differences among thetenmember states oftheEEC astotherequirements theyimposed onapplications
forlicences forimports ofdessert apples. Itcited examples, suchasaFrench requirement forlicence applications tobe
accompanied byaproforma invoice, which effectively meant thatlicences could notbeapplied foruntilafter ships had
beenloaded. Other examples citedbyChile included acceptance oftelexed licence applications bysome member states and
notothers;differingprocedur esforbankguarantees;andtherefusal byonemember statetoaccept alicence issued byanother".
Idem atpage 116, para. 6.3.WT/DS27/R/USA
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absence oftheapplication ofsuch rules totraditional ACP imports, isinconsistent with the
requirements ofArticle X:3(a) ofGATT.
(vi)Other claims
7.213 Inlightoftheforegoing findings onoperator category rules andtheallocation ofcertain
percentages ofimport licences onthebasisthereof, wedonotconsider itnecessary toaddress theother
claims raised bytheComplaining parties against these ECmeasures.436Wefurther notethatafinding
thatoperator category rules areorarenotinconsistent withtherequirements ofother provisions of
GATT ortheLicensing Agreement would notaffect thefindings wehavemade inrespect ofoperator
category rules.
(c) Activity functions
7.214 Activity function rules apply toCategory Aoperators aswellastoCategory Boperators.
Article 3ofRegulation 1442/93 defines three categories ofeconomic activities, i.e.(1)"primary"
importers, (2)"secondary" importers and(3)ripeners. Fixed percentages ofthelicences required for
theimportation ofbananas from third countries ornon-traditional ACP sources atlower dutyrates
within thetariff quota areallocated onthebasis ofthese "activity functions": Article 5of
Regulation 1442/93 provides foraweighting coefficient of57percentfor"primary" importers, 15per
centfor"secondary" importers, and28percentforripeners ofbananas. TheECnotes that"the
Commission isguided bytheprinciple whereby thelicences mustbegranted tonatural orlegalpersons
whohave undertaken thecommercial riskofmarketing bananas andbythenecessity ofavoiding
disturbingnormaltradingrelationsbetweenpersonsoccupyingdifferentpointsinthemarketingchain".437
7.215 TheComplaining parties raiseclaims against theactivity function rules under Articles I,III,
XandXIIIofGATT aswellasclaims under theLicensing Agreement. InthecaseoftheUnited States,
weconsider theclaims ithasraised under Article IofGATT.
(i)Article III:4 ofGATT
7.216-7.219 [Used intheGuatemala-Honduras report.]
(ii)Article I:1ofGATT
7.220 TheComplainants claim thatactivity function rulesareinconsistent withtherequirements of
Article I:1because import licences forbananas from thirdcountries areissued toCategory AandB
operators according totheeconomic activities performed bythem, while thelicensing system applied
toimports oftraditional ACPbananas doesnotutilize activity functions asacriteria forissuing licences.
TheECargues thatitisnecessary toissue licences onthebasis ofactivity functions sothatcertain
operators inthesupply chain donotobtain extraordinary bargaining power duetothecommercial and
financial power associated withimport licences andthattheuseofactivity functions asacriteria for
issuing licences hasnodirect impact ontheimports ofbananas from anysource. IntheEC'sview,
theabsence ofalicence allocation based onactivity functions under thetraditional ACP licensing
procedures cannot beregarded asan"advantage" inthemeaning ofArticle Iandthusthere isno
436Seenote374supra.
437Recital 15ofCouncil Regulation 404/93.WT/DS27/R/USA
Page351
inconsistency withtherequirements ofArticle I.Inthealternative, theECtakestheposition thatactivity
function rules arecovered bytheLomé waiver.
7.221 Inourview, import licensing procedures, including theactivity function rules, are"rules and
formalities inconnection withimportation" inthemeaning ofArticle I:1.Forexample, apanel found
thatcomparatively lessfavourable rules forrevoking countervailing duties were an"advantage" for
purposes ofArticle I:1andthat"making aregulatory advantage available toimports fromsomecountries
while notmaking itavailable toothers" isinconsistent with Article I:1.439Asnoted earlier
(paragraph 7.190 etseq.),inourview, theprocedural andadministrative requirements forimports
ofthird-country andnon-traditional ACPbananas arising fromtheapplication oftheactivity function
rules differ from, andgosignificantly beyond, those required inrespect oftraditional ACPbananas.
More specifically, theactivity function rules contained inthelicensing procedures forthird-country
andnon-traditional ACP bananas (butnotintheprocedures applicable totraditional ACP bananas)
mean thatsubstantially more datamustbemaintained andsubmitted toshow entitlement toalicence
forthird-country andnon-traditional ACP bananas. Inparticular, inrespect ofpastbanana imports,
Article 4(2)ofRegulation 1442/93 requires abreakdown byorigin, bycategory andactivity function.
Thus, webelieve thatthelicensing procedures applied bytheECtotraditional ACPbanana imports,
when compared tothelicensing procedures imposed onthird-country andnon-traditional ACPimports
withitsactivity function rules, canbeconsidered asan"advantage" which theECdoesnotaccord
tothird-country andnon-traditional ACP imports..
7.222 Weconsider thatimports ofthird-country andnon-traditional ACP bananas aretreated less
favourablythantraditionalACPimportssincethelatterarenotsubjecttoactivityfunctionrules.Finally,
forthereasons given above, wereiterate ourfinding thattheLomé waiver doesnotwaive theEC's
obligations under Article I:1inrespect oflicensing procedures (paragraph 7.204).
7.223 Accordingly, wefindthattheapplication ofactivity function rules inrespect ofthe
importation ofthird-country andnon-traditional ACP bananas atin-quota tariff rates, inthe
absence oftheapplication ofsuch rules totraditional ACP imports, isinconsistent with the
requirements ofArticle I:1ofGATT.
(iii)Article X:3(a) ofGATT
7.224-7.231 [Used intheEcuador, Guatemala-Honduras andMexico reports.]
(iv)Other claims
7.232 Inlightoftheforegoing findings onactivity function rulesunder Articles IandX,wedonot
consider itnecessary toaddress theother claims raised bytheComplaining parties against these EC
measures.442Wefurther notethatafinding thatactivity function rulesareorarenotinconsistent with
therequirements ofotherprovisions ofGATT ortheLicensing Agreement would notaffect thefindings
wehavemade inrespect ofactivity function rules.
439Panel Report on"US-Denial ofMFN Treatment astoNon-Rubber Footwear from Brazil", adopted on19June1992,
BISD 39S/128, 150-151, paras. 6.8-6.14.
442Seenote374supra.WT/DS27/R/USA
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(d) BFA export certificates
7.233 AspartoftheECimport licensing procedures, Category AandCoperators arerequired, for
importsfromColombia,CostaRicaorNicaragua,topresentexportcertificatesissuedbythesecountries.
Category Boperators areexempted from thisrequirement.
Therelevant partofArticle 6oftheBFAprovides that:
"...supplying countries withcountry quotas maydeliver special export certificates
forupto70%oftheirquota, which, inturn,constitute aprerequisite fortheissuance,
bytheCommunity, ofcertificates fortheimportation ofbananas fromsaidcountries
by"Category A"and"Category C"operators. ...".
Therelevant partofArticle 3.2ofECRegulation 478/95 reads asfollows:
"Forgoods originating inColombia, Costa RicaorNicaragua, theapplication foran
import licence ofcategory AorC...shall alsonotbeadmissible unless itis
accompanied byanexport licence currently valid foraquantity atleastequal tothat
ofthegoods, issued bythecompetent authorities listed inAnnex II."443
Inlightofthese provisions, weconsider theclaims raised theComplaining parties, whohavealleged
thattheexport certificate requirement isinconsistent withtherequirements ofArticles I:1,III:4and
X:3ofGATT andArticles 1.2,1.3and3.2oftheLicensing Agreement. InthecaseoftheUnited
States, weconsider theclaim itraised under Article I:1.
7.234 Initially, theECargues thataconsideration ofexport certificates isoutside thePanel'sterms
ofreference because suchcertificates arenotissued bytheECandtherefore notpartoftheECbanana
import regime. Weagree thattotheextent thattheadministration ofexport certificates iscarried out
bytheauthorities ofColombia, Costa RicaorNicaragua, asappropriate,444itisnotwithin theterms
ofreference ofthisPanel. However, wecannot agree withtheEC'sargument thatexport certificates
arecompletely outside theEC'ssphere ofcompetence andtheirlegalexamination thusentirely excluded
from themandate ofthisPanel. Onthecontrary, Article 3ofRegulation 478/95 states clearly that
anapplicationforanECimportlicenceisnotadmissibleunlessitisaccompaniedbyanexportcertificate.
Thus therequirement tomatch ECimport licences withBFA export certificates andtheexemption
ofCategory Boperators therefrom arepartoftheEClegalsystem and,accordingly, arewithin our
terms ofreference, totheextent theyfallwithin theEC'sresponsibility.
(i)Article I:1ofGATT
7.235 TheComplainants claim thatthefactthattheECrecognizes onlyexport certificates issued
byBFAsignatories asprerequisites forimportation, amounts totheconferral ofa"privilege" (i.e.,
443Regulation 478/95 of1March 1995 onadditional rules fortheapplication ofCouncil Regulation (EEC) No.404/93
asregards thetariff quota arrangements forimports ofbananas intotheCommunity andamending Regulations (EEC)
No.1442/93, O.J.L49/13 of4March 1995.
444According toAnnex IIofRegulation 478/95, thebodies authorized toissuespecial export certificates are:forColombia:
Instituto Colombiano deComercio Exterior; forCosta Rica: Corporación Bananera S.A.; andforNicaragua: Ministerio
deEconomia yDesarrollo, Dirección deComercio Exterior.WT/DS27/R/USA
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acommercial benefit) notenjoyed byother Members. Thisisalleged tobeinconsistent withthe
requirements ofArticle I:1.
7.236 TheECrespondsthattheComplainantshavefailedtoprovethattheexportcertificaterequirement
constitutes an"advantage" inthemeaning ofArticle I:1accorded toBFA signatories which isnot
conferred onother thirdcountries. TheECconcedes thattheadministration oftheexport certificates
byBFAsignatories cangenerate quota rents, butonlyamong operators whoareinterested inmarketing
BFA bananas. However, theECtakes theposition thattheWTO agreements donotcontain rules
onthesharing andallocation ofquota rents, e.g.,bymeans ofalicensing scheme. Therefore, inits
view, anygovernment isentitled topursue itsownpolicies inthedistribution ofquota rentsprovided
thatthere isnodiscrimination between products originating indifferent Members.
7.237 Theissue presented iswhether theexport certificate requirement constitutes anadvantage in
respect ofrules andformalities inconnection withimportation accorded toBFAbananas thatisnot
accorded tothird-country bananas asrequired byArticle I:1.
7.238 Onitsface, itwould appear thatthere isdiscrimination against BFA bananas because they
aresubjecttoarequirementthatisnotimposedonotherthird-countrybananas.However,closeranalysis
suggests thattheexport certificate requirement mayinfactconstitute afavour, advantage, privilege
orimmunity inthemeaning ofArticle I.Itisacommonplace, which noparty tothedispute contests,
thattariffquotas arelikely togenerate quota rents. Theallocation oflicences usedintheadministration
ofsuchtariffquotas canbeviewed asamechanism forthedistribution ofsuchrents. Infact,theparties
donotcontest thattheexport certificate requirement serves thepurpose, oratleasthastheeffect, of
transferring partofthequota rentwhich would normally accrue toinitial ECimport licence holders
tothesuppliers whoareinitial holders ofexport certificates forbananas originating inthethree BFA
countries. TheECargues thattheWTO agreements donotcontain anyrulesgoverning thedistribution
ofquota rentswhich aregenerated bytrademeasures, e.g.,tariffquotas, whose imposition islegitimate
under those agreements. Wenevertheless have toascertain whether theparticular mechanisms
implemented forthepurposes ofrenttransfer directly orindirectly entail inconsistencies withthe
obligations Members havetorespect under theWTO agreements.
7.239 Therequirement tomatch ECimport licences withBFAexport certificates means thatthose
BFA banana suppliers whoareinitial holders ofexport certificates enjoy acommercial advantage
compared tobanana suppliers fromother thirdcountries.445Wenotethatitisnotpossible toascertain
howmany oftheinitial BFAexport certificate holders areBFAbanana producers ortowhatextent
thetariff quota rentshare thataccrues toinitial holders ofBFAexport certificates ispassed ontothe
producers ofBFAbananas inawaytocreate more favourable competitive opportunities forbananas
ofBFAorigin. However, wealsonotethatthepossibility doesexisttopassontariff quota rentto
BFAbanana producers insuchaway,whereas thereisnosuchpossibility inrespect ofnon-BFA third-
country banana producers. Thus, theEC'srequirement affects thecompetitive relationship between
bananas ofnon-BFA third-country origin andbananas ofBFAorigin. Itiscertainly truethatArticle I
ofGATT isconcerned withthetreatment offoreign products originating fromdifferent foreign sources
rather thanwiththetreatment ofthesuppliers oftheseproducts. Inthisrespect, wenotethatthetransfer
oftariff quota rents which would normally accrue toinitial holders ofECimport licences toinitial
holders ofBFAexport certificates doesoccur when bananas originating inColombia, Costa Ricaand
Nicaragua are,atsome point, traded totheEC.Therefore, inourview, therequirement tomatch EC
445"Whereas theframework agreement provides thatthesignatory countries areauthorized toissue export licences for
seventy percent oftheir allocations, which licences aretobepresented inorder toobtain import licences ofCategory A
andCforimport intotheCommunity, inconditions which mayimprove theregularity andstability ofcommercial transactions
andguaranteetheabsence ofanydiscriminatorytreatmentamong operators"(emphasi sadded). Recital8ofRegul ation478/95.WT/DS27/R/USA
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import licences withBFAexport certificates andthusthecommercial value ofexport certificates are
linked totheproduct atissue asrequired under Article I.Inpractice, from theperspective ofEC
importers whoareCategory AorCoperators, bananas ofnon-BFA third-country origin appear to
bemore profitable thanbananas ofBFAorigin. Thisisconfirmed bythefactthatECimport licences
fornon-BFAthird-countrybananasandCategoryBlicencesforBFAbananasaretypicallyoversubscribed
inthefirstround oflicence allocations, while Category AandClicences forBFAbananas areusually
exhausted onlyinthesecond round ofthequarterly licence allocation procedure. TheECargues that
thefactthatlicences allowing theimportation ofnon-BFA bananas atin-quota tariff ratesareusually
exhausted inthefirstround amounts toanadvantage forbananas ofComplainants 'origin. While we
donotendorse theEC'sview, evenifthisweretoconstitute anadvantage, wenote"thatArticle I:1
doesnotpermit balancing more favourable treatment under some procedure against alessfavourable
treatment under others".446
7.240 Indeed, onecould argue thatiftheexport certificate requirement isbeneficial toBFAcountries,
non-BFA thirdcountries could autonomously introduce asimilar requirement inorder toreapquota
rentbenefits. Inthiscase, however, since theallocation ofthe"others" category oftheBFAisnot
country-specific under thecurrent ECregime, operators could switch toalternative sources within this
category which arenotsubject toanexport certificate requirement. Therefore, weconsider thatthe
requirement tomatch BFAexport certificates withECimport licences inconnection withthecountry-
specific allocation oftariff quota shares under theBFAisanadvantage orprivilege intheterms of
Article I:1inrespect ofrules andformalities inconnection withimportation. Since theECaccords
thisadvantage toproducts originating inColombia, Costa RicaandNicaragua "while denying thesame
advantage toalikeproduct originating intheterritories ofother[Members],"447i.e.,theComplainants '
countries, therequirement tomatch ECimport licences withBFAexport certificates asprovided for
inArticle 3ofRegulation 478/95 isinconsistent withArticle I:1.
7.241 Forthese reasons, wefindthattherequirement tomatch ECimport licences withBFA
export certificates isinconsistent withtherequirements ofArticle I:1ofGATT.
(ii)Other claims
7.242 Inlightofourfinding thattherequirement tomatch ECimport licences withBFA export
certificates isinconsistent withtherequirements ofArticle I:1,oneofthefundamental provisions of
GATT,weconsideritunnecessarytomakespecificrulingsontheotherclaimsraisedbytheComplaining
parties withrespect tothesame ECmeasures, including theclaim thattheexemption ofCategory B
operators fromthematching requirement violates Article Ialso.448Afinding thatthese measures are
orarenotinconsistent withtherequirements ofArticles IIIandXofGATT andtheLicensing Agreement
446"The Panel ...considered thatArticle I:1doesnotpermit balancing more favourable treatment under some procedure
against alessfavourable treatment under others. Ifsuchabalancing were accepted, itwould entitle acontracting party to
derogate from themost-favoured nation obligation inonecase, inrespect ofonecontracting party, ontheground thatit
accords more favourable treatment insome other caseinrespect ofanother contracting party. Intheview ofthePanel,
suchaninterpretation ofthemost-favoured-nation obligation ofArticle I:1would defeat theverypurpose underlying the
unconditionality ofthatobligation". Panel Report on"United States -Denial ofMost-favoured-nation Treatment astoNon-
rubber FootwearfromBrazil",adoptedon19June1992, BISD39S/128, 151,para.6.10. Likewise,inthecontextofArticleIII
apanel found that"anelement ofmore favourable treatment would onlyberelevant ifitwould always accompany andoffset
anelement ofdifferential treatment causing lessfavourable treatment." Panel Report on"United States -Section 377of
theTariff Actof1930", adopted on7November 1989, BISD 36S/345, 388, para. 5.16.
447Panel Report on"United States -Denial ofMost-favoured-nation Treatment astoNon-rubber Footwear from Brazil",
adopted on19June 1992, BISD 39S/128, 151, para. 6.11.
448Seenote374supra.WT/DS27/R/USA
Page355
would notaffect ourfindings inrespect ofArticle I.Moreover, steps taken bytheECtobring the
measures intoconformity withArticle Ishould alsoeliminate thealleged non-conformity withthese
other obligations.
(e) Hurricane licences
7.243 Hurricane licences449authorize operators whoinclude orrepresent ECandACP producers,
orproducer organizations "toimport incompensation third-country bananas andnon-traditional ACP
bananas forthebenefit oftheoperators whodirectly suffered damage asaresult oftheimpossibility
ofthesupplying theCommunity market withbananas originating inaffected producer regions" because
oftheimpact oftropical storms.450Intheaftermath ofthehurricanes Debbie, Iris,LuisandMarilyn,
281,605 tonnes451ofthird-country ornon-traditional ACPimports wereauthorized between November
1994andMay1996. TheComplaining parties haveraised claims under Article I,IIIandXofGATT
andArticles 1.2,1.3and3.5(h) oftheLicensing Agreement. InthecaseoftheUnited States, we
consider theclaim itraised under Article 1.3oftheLicensing Agreement.
(i)Article III:4 ofGATT
7.244-7.250 [Used intheGuatemala-Honduras andMexico reports.]
(ii)Article I:1ofGATT
7.251-7.256 [Used intheGuatemala-Honduras report.]
449See,e.g., Commission Regulation (EC) No.2791/94 of16November 1994 ontheexceptional allocation ofaquantity
additional tothetariff quota forimports ofbananas in1994 asaresult oftropical storm Debbie. Commission Regulation
(EC) No.510/95 of7March 1995 ontheexceptional allocation ofaquantity additional tothetariff quota forimports of
bananas during thefirstquarter of1995 asaresult oftropical storm Debbie. Commission Regulation (EC) No.1163/95
of23May1995 ontheexceptional allocation ofaquantity additional tothetariff quota forimports ofbananas during the
second quarter of1995 asaresult oftropical storm Debbie. Commission Regulation (EC) No.2358/95 of6October 1995
ontheexceptional allocation ofaquantity additional tothetariff quota forimports ofbananas during thefourth quarter of
1995 asaresult oftropical storms Iris,LuisandMarilyn. Commission Regulation (EC) No.127/96 of25January 1996
ontheexceptional allocation ofaquantity additional tothetariff quota forimports ofbananas during thefirstquarter of
1996 asaresult oftropical storms Iris,LuisandMarilyn. Commission Regulation (EC) No.822/96 of3May1996 onthe
exceptional allocation ofaquantity additional tothetariff quota forimports ofbananas during thesecond quarter of1996
asaresult oftropical storms Iris,LuisandMarilyn.
450"Whereas ...these measures should betothebenefit oftheoperators whohavedirectly suffered actual damage, without
thepossibility ofcompensation, andasafunction oftheextent ofthedamage." Recital 9ofCommission Regulation (EC)
No.510/95 of7March 1995 ontheexceptional allocation ofaquantity additional tothetariff quota forimports ofbananas
during thefirstquarter of1995 asaresult oftropical storm Debbie.
451Total quantities ofauthorized third-country andnon-traditional ACP imports:
Regulation No.2791/94 of18November 1994: 53,400 tonnes
Regulation No.510/95 of7March 1995: 45,500 tonnes
Regulation No.1163/95 of23May 1995: 19,465 tonnes
Regulation No.2358/95 of6October 1995: 90,800 tonnes
Regulation No.127/96 of25January 1996: 51,350 tonnes
Regulation No.822/96 of3May 1996: 21,090 tonnes
Total: 281,605 tonnesWT/DS27/R/USA
Page356
(iii)Application oftheLomé waiver
7.257-7.259 [Used intheGuatemala-Honduras report.]
(iv)Article 1.3oftheLicensing Agreement
7.260 TheComplainants claim thattheissuance ofhurricane licences bytheECexclusively toEC
andACPproducers andproducer organizations aswellasoperators whoinclude ordirectly represent
them isinconsistent withtherequirements ofArticle 1.3which requires theneutral application and
thefairandequitable administration ofimport licensing procedures. TheECargues thatno
discrimination occurs inconnection withtheissuance ofhurricane licences because theeligibility for
hurricane licences isbased onobjective criteria.
7.261 Article 1.3oftheLicensing Agreement provides:
"The rules forimport licensing procedures shall beneutral inapplication and
administered inafairandequitable manner".
Toapply Article 1.3,wemustinterpret theterms "neutrality" inapplication, aswellas"fairness" and
"equity" inadministration. Inthisregard, werecall ourinterpretation ofArticle X:3(a) ofGATT
(paragraph 7.211). Using thereasoning developed there, weinterpret thephrase "neutrality in
application" topreclude theimposition ofonesystem ofimport licensing procedures inrespect ofa
product originating incertain Members andadifferent system ofimport licensing procedures onthe
sameproduct originating inother Members.459Inparticular, weconsider thattheissuance ofhurricane
licences exclusively toACP andECproducers andorganizations oroperators including ordirectly
representing them inrespect ofbananas losttohurricanes, butnottothird-country producers and
producer organizations oroperators including ordirectly representing them, isinconsistent withthe
requirement ofneutral application ascontained inArticle 1.3.Inthelightoftheforegoing, wefind
itunnecessary toconsider whether theEChurricane licensing system meets Article 1.3'srequirement
of"fairness" and"equity".
7.262 Thequestion thenbecomes whether theLomé waiver applies soastowaive theEC'sobligations
under Article 1.3inthisregard. WenotethattheLomé waiver wasinitially approved bythe
CONTRACTING PARTIES ofGATT 1947, whohadnopower overtheTokyo Round Agreement
onImport Licensing Procedures, which, atthetime, wasadministered byacommittee ofsignatories
andcontained nowaiver provision. Inthelightoftheseconsiderations, theLomé waiver fromArticle I
ofGATT cannot bereadtowaive theEC'sobligations under Article 1.3oftheLicensing Agreement.
Wealsonotethattheextension ofthewaiver bytheGeneral Council oftheWTO hasnotaltered that
fact.
7.263 Asaresult, wefindthattheissuance ofhurricane licences exclusively toACP andEC
producers andproducer organizations oroperators including ordirectly representing them is
inconsistent withtherequirements ofArticle 1.3oftheLicensing Agreement.
459Werecall thatweconsidered thatminor "administrative variations" intheapplication ofregulations maynotbe
inconsi stentwithArticleX:3(a) ofGATT (para.7.211). Inourview,thesame considerationappliesinthecontextofArticle1.3
oftheLicensing Agreement.WT/DS27/R/USA
Page357
(v)Other claims
7.264 Inlightofourfindings thattheissuance ofhurricane licences exclusively toECandACP
producers andproducer organizations oroperators including ordirectly representing themisinconsistent
withtherequirements ofArticle 1.3oftheLicensing Agreement, weconsider itunnecessary tomake
specific rulings ontheother claims raised bytheComplaining parties withrespect tothesame EC
measures.460Wefurther notethatafinding thatthese measures areorarenotinconsistent withthe
requirements ofArticle X:3(a) ofGATT orArticle 3:5(h) oftheLicensing Agreement would notaffect
thefindings wehavemade inrespect ofhurricane licences. Moreover, stepstaken bytheECtobring
themeasures intoconformity withtherequirements ofthese articles should alsoeliminate thealleged
non-conformity withArticle X:3(a) ofGATT andArticle 3:5(h) oftheLicensing Agreement.
(f) Other claims
(i)General
7.265 Inlightofthefindingswehavemadeonoperatorcategories,activityfunctions,exportcertificates
andhurricane licences under Articles I,IIIandXofGATT andArticle 1.3oftheLicensing Agreement,
wedonotconsider itnecessary toaddress theother claims raised bytheComplaining parties against
theEClicensing procedures.461These claims arelargely dependent ontheexistence oftheoperator
category andactivity function rules. Forexample, thealleged overfiling andunnecessary burdens
andthealleged restrictive anddistortive effects claimed tobeinconsistent withtherequirements of
Article 3.2oftheLicensing Agreement andthealleged discouragement oftariff quota useclaimed
tobeinconsistent withtherequirements ofArticle 3.5(h) oftheLicensing Agreement arisefromthe
application ofthose rules. Wefurther notethatafinding thatthese ECmeasures areorarenot
inconsistent withtherequirements ofother provisions ofGATT ortheLicensing Agreement would
notaffect thefindings wehavemade inrespect oftheEClicensing procedures.
7.266 Weexamine onlytheclaim based onArticle 1.2oftheLicensing Agreement, which weare
required todobyArticle 12.11 oftheDSU since theclaim relates todeveloping country Members.
(ii)Article 1.2oftheLicensing Agreement
7.267-7.273 [Used intheEcuador andMexico reports.]
460Seenote374supra.
461Seenote374supra.WT/DS27/R/USA
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4. THE ECBANANA IMPORT LICENSING PROCEDURES AND THE GATS
(a) Introduction
7.274 TheComplainants466claimthattheECregimefortheimportation,saleanddistributionofbananas
isinconsistent withtheEC'sobligations under Articles II(Most-Favoured-Nation Treatment) andXVII
(National Treatment) ofGATS inthatitdiscriminates against distributors ofLatin American andnon-
traditional ACPbananas infavour ofdistributors ofECandtraditional ACPbananas. TheComplainants
consider suchdistributors tobesuppliers of"wholesale trade services", aservice sector inwhich the
EChasundertaken afullcommitment onnational treatment initsSchedule. They alsoconsider both
groups ofdistributors tobe"like" service suppliers within themeaning ofArticles IIandXVII. The
Complainants havemade claims withrespect tofourspecific measures oftheECregime thatwehave
analyzed inthepreceding section onimport licensing procedures: operator category allocations, activity
function rules, BFAexport certificates andhurricane licences.
7.275 TheECrejects theclaims withrespect totheGATS arguing, interalia,thatthemeasures in
respect ofwhich theComplainants havemade claims were measures directed attrade ingoods and
nottrade inservices. Therefore, theycould notbeconsidered "measures affecting trade inservices"
within themeaning oftheGATS. Moreover, theECargues that"wholesale trade services" covers
onlythedistribution ofripened (yellow) bananas, while themeasures atissue relate totheimport of
unripened (green) bananas. Inaddition, theECcontests thattheComplainants 'services andservice
suppliers havebeengiven lessfavourable treatment inthemeaning oftheGATS. Initsview, the
Complainants arecontesting theallocation oftariff quota rents, amatter notdealtwithbytheGATS.
7.276 Inourconsideration oftheclaims raised under theGATS, wefirstexamine seven general issues:
(i)whether thefourmeasures citedbytheComplainants constitute "measures affecting tradeinservices"
within themeaning oftheGATS; (ii)thedefinition of"wholesale trade services"; (iii)thesupply of
services through different modes; (iv)thescope ofArticle IIobligations; (v)thescope ofArticle XVII
obligations; (vi)theeffective dateofGATS obligations; and(vii)theadmissibility ofMexico 'sclaims.
Second, weexamine theconsistency offourspecific measures -operator category allocations, activity
function rules, BFA export certificates and"hurricane licences -withtheEC'sobligations under
Article IIanditscommitments under Article XVII.
(b) General issues
(i)Measures affecting trade inservices
7.277 TheECclaimsthatthefourmeasurescomplainedagainstbytheComplainantsarenot"measures
affecting tradeinservices" sincetheyregulate theimportation ofgoods andnottheprovision ofservices.
TheECargues thattheobjective oftheGATS istoregulate tradeinservices assuchandthatitcovers
thesupply ofservices asproducts intheirownright. Furthermore, itargues theGATS isnotconcerned
withtheindirect effects ofmeasures relating totrade ingoods onthesupply ofservices.
7.278 TheECalsoargues thatameasure could notbecovered bybothGATT andtheGATS since
thecoverage ofthetwoagreements wasintended, intheEC'sview, tobemutually exclusive. Inthis
connection, theECnotes thatifameasure relating totradeingoods wascovered byaGATT exception
466Inthissection onservices, theterm"Complainants" refers toEcuador andtheUnited States, andtoMexico except
inrespect ofclaims under Article XVII ofGATS concerning activity function rules, export certificates andhurricane licences.WT/DS27/R/USA
Page359
orawaiver, suchexception orwaiver could berendered ineffectual byafinding against themeasure
relating togoods under theGATS andasserting itsillegality inthatcontext. TheECalsoconsiders
thattheillustrative definition of"measures affecting trade inservices" inArticle XXVIII(c) ofGATS
mentions measures astheyrelate tothesupply ofservices andnotthesupply ofgoods. IntheEC's
view, inArticle XXVIII(c), theterm"affecting", which isusedinArticle Itodefine thescope ofthe
GATS, should beinterpreted narrowly soastomean "inrespect of",which isamuch narrower concept
indicating thatthemeasure inquestion hastohavethepurpose andaimofregulating, oratleastdirectly
influencing, services asservices.
7.279 Inexamining theseissues wenotethefollowing: Article I(Scope andDefinition), which defines
thescope oftheGATS, states inparagraph 1:
"This Agreement applies tomeasures byMembers affecting trade inservices".
Article XXVIII(c) ofGATS further defines thetermbystating:
"'measures byMembers affecting trade inservices 'include measures inrespect of:
(i) thepurchase, payment oruseofaservice;
(ii) theaccess toanduseof,inconnection withthesupply ofaservice, services
which arerequired bythose Members tobeoffered tothepublic generally;
(iii) thepresence, including commercial presence, ofpersons ofaMember forthe
supply ofaservice intheterritory ofanother Member;" (emphasis added).
7.280 Inaccordance withArticle 31oftheVienna Convention ontheLawofTreaties,467wenote
thattheordinary meaning oftheterm"affecting", inArticle I:1ofGATS, doesnotconvey anynotion
oflimiting thescope oftheGATS tocertain types ofmeasures ortoacertain regulatory domain. On
thecontrary, Article I:1refers tomeasures interms oftheireffect, which means theycould beofany
typeorrelate toanydomain ofregulation. LikeGATT, theGATS isanumbrella agreement which
applies toallsectors oftrade inservices andalltypes ofregulations. Wealsonotethatthedefinition
of"measures byMembers affecting trade inservices" inArticle XXVIII(c) hasbeendrafted inan
illustrative manner bytheuseoftheterm"include". Sub-paragraphs (i)-(iii) donotcontain adefinition
of"measures byMembers affecting tradeinservices" assuch, butrather areanillustrative listofmatters
inrespect ofwhich suchmeasures could betaken. Inother words, theterm"inrespect of"doesnot
describeanymeasuresaffectingtradeinservices,butratherdescribeswhatsuchmeasuresmightregulate.
Forexample, sub-paragraph (i)refers to"thepurchase, payment oruseofaservice", which arematters
thatcould beregulated bydifferent types ofmeasures affecting trade inservices, suchaslicensing
requirements, numerical limitations, foreign exchange regulations orothers. We,therefore, donot
agree withtheview oftheECthatArticle XXVIII(c) narrows themeaning oftheterm"affecting"
to"inrespect of".
7.281 Inaccordance withArticle 32oftheVienna Convention,468wenotethatthepreparatory work
oftheGATS confirms theforegoing interpretation. IntheUruguay Round, thedrafters oftheGATS
wereaware thatthetermaffecting hadbeeninterpreted inprior GATT panel reports tocover notonly
lawsandregulations which directly govern theconditions ofsaleorpurchase butalsoanylawsor
regulations which might adversely modify conditions ofcompetition between likedomestic andimported
467Seepara. 7.14 supra.
468Seepara. 7.14 supra.WT/DS27/R/USA
Page360
products ontheinternal market.469Another indication ofthewishofthedrafters towiden thescope
oftheGATS interms oftheregulatory measures itcovers istheuseoftheconcept of"supply" of
services rather than"delivery". ThetextofArticle XXVIII(b)470aswellasthepreparatory work471
indicate thatthechoice oftheterm"supply ofaservice" involved thecoverage ofawider range of
activities thanthecasewould havebeenhadthedrafters chosen tousetheterm"delivery". Thathas
made awider range ofregulations subject totheapplication oftheGATS. Insum, webelieve that,
consistently withtheirgeneral approach, thedrafters consciously adopted theterms "affecting" and
"supply ofaservice" toensure thatthedisciplines oftheGATS would cover anymeasure bearing
uponconditions ofcompetition insupply ofaservice, regardless ofwhether themeasure directly governs
orindirectly affects thesupply oftheservice.
7.282 With respect totheclaim bytheECthatGATT andtheGATS cannot overlap, wenotethat
suchaview isnotreflected inanyoftheprovisions ofthetwoagreements. Onthecontrary, the
provisions oftheGATS referred toabove explicitly taketheapproach ofbeing inclusive ofanymeasure
thataffects tradeinservices whether directly orindirectly. These provisions donotmake anydistinction
between measures which directly govern orregulate services andmeasures thatotherwise affect trade
inservices.
7.283 Furthermore, itisourviewthatifweweretofindthescope oftheGATS andthatofGATT
tobemutually exclusive, inother words, ifweweretofindthatameasure considered tofallwithin
thescope ofoneagreement could notatthesame timefallwithin thescope oftheother, thevalue
ofMembers 'obligations andcommitments would beundermined andtheobject andpurpose ofboth
agreements would befrustrated. Obligations could becircumvented bytheadoption ofmeasures under
oneagreement withindirect effects ontrade covered bytheother without thepossibility ofanylegal
recourse. Forexample, ameasure inthetransport sector regulating thetransportation ofmerchandise
intheterritory ofaMember could subject imported products tolessfavourable transportation conditions
compared tothose applicable tolikedomestic products. Such ameasure would adversely affect the
competitivepositionofimportedproductsinamannerwhichwouldnotbeconsistentwiththatMember's
obligation toprovide national treatment tosuchproducts. Ifthescope ofGATT andtheGATS were
interpreted tobemutually exclusive, thatMember could escape itsnational treatment obligation and
theMembers whose products havebeendiscriminated against would havenopossibility oflegalrecourse
onaccount thatthemeasure regulates "services" andnotgoods. Itisalsoourviewthatifthedrafters
oftheGATS hadintended toimpose suchaserious limitation onitsscope, particularly inthelight
ofhowtheterm"affecting" hadbeeninterpreted inpastGATT panel reports andtheirdeliberate choice
oftheconcept of"supply" asexplained above, theywould haveprovided forthelimitation explicitly
inthetextoftheGATS itself orintheprovisions oftheAgreement Establishing theWorld Trade
469MTN.GNS/W/139 (Definitions intheDraft General Agreement onTrade inServices -Note bytheSecretariat), p.4,
para. xii,states: "The term'affecting 'hasbeeninterpreted inArticle IIIoftheGATT tomean aneffect onthecompetitive
relationship between likeproducts, notonthesubsequent trade volumes inthose products (BISD 36S/345 atpara. 5.11;
BISD 34S/136 atparagraph 5.19)". Forexample, intheItalian Agriculture Machinery case, thepanel report stated: "[T]he
drafters of[Article III]intended tocover inparagraph 4notonlythelawsandregulations which directly govern theconditions
ofsaleorpurchase butalsoanylawsorregulations which might adversely modify theconditions ofcompetition between
thedomestic andimported products ontheinternal market". Panel Report on"Italian Discrimination Against Imported
Agricultural Machinery", adopted on23October 1958, BISD 7S/60, 64,para. 12.Thisinterpretation hasalsobeenconfirmed
insubsequent GATT panel reports.
470Article XXVIII(b) provides: "'supply ofaservice 'includes theproduction, distribution, marketing, saleanddelivery
ofaservice".
471MTN.GNS/W/139 (Definitions intheDraft General Agreement onTrade inServices), p.3,para. xi,states: "The
notion of'supply 'isintended toencompass thewhole range ofactivities necessary toproduce anddeliver aservice. The
definition isillustrative, notcomprehensive. Theuseoftheterm'supply ',inplace of'delivery 'inprior versions ofthe
text,suggests awider range ofactivities thantheword delivery".WT/DS27/R/USA
Page361
Organization. Intheabsence ofsuchaprovision, itisourviewthattheclaim bytheECthatthescope
oftheGATS andGATT cannot overlap hasnolegalbasis.472
7.284 Withrespect totheEC'sviewthatbringing ameasure relating togoods under theGATS might
undermine theeffectiveness ofanexception orawaiver under GATT, wenotethatthere areno
applicable exceptions orwaivers atissueunder theGATS claims inthiscase.473Inthecaseofwaivers,
theproblem raised bytheECcould beavoided byappropriate drafting ofwaivers. Inthecaseof
exceptions, wenotethatArticles XII,XXandXXIofGATT andArticles XII,XIVandXIVbis of
GATS aresimilar, thusreducing thelikelihood ofaconflict between GATT andGATS provisions.
Inanyevent, weneednotdecide inthiscasehowtoresolve aconflict thatmaynever arise.
7.285 Inthelightoftheabove, wefindthat,inprinciple, nomeasures areexcluded apriori from
thescope oftheGATS asdefined byitsprovisions. Thescope oftheGATS encompasses anymeasure
ofaMember totheextent itaffects thesupply ofaservice regardless ofwhether suchmeasure directly
governs thesupply ofaservice orwhether itregulates other matters butnevertheless affects trade in
services.
7.286 Wetherefore findthatthere isnolegalbasis foranapriori exclusion ofmeasures within
theECbanana import licensing regime from thescope oftheGATS.
(ii)Wholesale trade services
7.287 TheECtakestheviewthat,inthebanana trade, wholesale trading starts onlyaftertheripening
process iscompleted andthatanyactivity prior toripening should notbedefined aswholesaling of
bananas, butrather aspartoftheirproduction or"remanufacturing" process. TheECfurther argues
thatthenormal meaning ofwholesale isdistributing goods withaviewtosaletotheconsumer and,
therefore, inaform which isready fortheconsumer. IntheEC'sview, thewholesale trade stage
forbananas wasexcluded fromthescope ofthecontested measures since theimportation ofbananas
normally takes place before theyareripened. TheECfurther argues thatwholesalers, whoaccording
tothisdefinition would onlybetrading inyellow bananas, arenotoperators within themeaning of
theECregime since import licences cover onlygreen bananas andnotyellow ones.
7.288 Inaddressing thisissue weneedtoexamine thedefinition of"wholesale trade services" for
thepurposes ofthiscase. Inthisrespect wenotethefollowing: Thesectoral coverage oftheGATS
is,inprinciple, universal. Article Iestablishes thisinparagraph 3(b)where itstates:
"'Services 'include anyservice inanysector except services supplied intheexercise
ofgovernmental authority" (emphasis added).
Exceptions tothisprinciple areexplicitly provided forinthetextoftheGATS, suchasinthecase
of"services supplied intheexercise ofgovernmental authority" (Article I:3(b)) and"services directly
related totheexercise oftraffic rights" (Annex onAirTransport Services, paragraph 2(b)). Nosuch
exceptions existfor"wholesale tradeservices". Therefore, "wholesale tradeservices" areinprinciple
fullycovered bytheGATS.
472Forsupport ofthisview, seePanel Report on"Canada -Certain Measures Concerning Periodicals", issued on
14March 1997 (notadopted, subject toappeal), WT/DS31/R, pp.69-71, paras. 5.13-5.19.
473Wehave found thattheLomé waiver doesnotcover theEClicensing measures which areatissue under theGATS
(para. 7.204).WT/DS27/R/USA
Page362
7.289 IntheUruguay Round negotiations participants agreed tofollow asetofguidelines forthe
scheduling ofspecific commitments under theGATS.474Withrespect totheclassification ofservices
sectors forthepurpose ofscheduling commitments, theguidelines encouraged participants tousethe
Services Sectoral Classification Listdeveloped during theUruguay Round,475which islargely based
ontheUnited Nations Central Product Classification system (CPC). Although theuseoftheServices
Sectoral Classification Listisnotmandatory, most Members, including theEC,haveadopted itas
thebasisforscheduling theircommitments. Furthermore, inscheduling commitments on"wholesale
trade services", theECinscribed theCPCitemnumber (622) initsservices schedule. Therefore, any
breakdown ofthesector should bebased ontheCPC. Consequently, anylegaldefinition ofthescope
oftheEC'scommitment inwholesale services should bebased ontheCPCdescription ofthesector
andtheactivities itcovers.
7.290 TheCPCclassification describes "wholesale tradeservices" asasub-set ofthebroader sector
of"distributive trade services" which isdescribed inaheadnote tosection 6as:
"Distributive tradeservices consisting inselling merchandise toretailers, toindustrial,
commercial, institutional orother professional business users, ortoother wholesalers,
oracting asagent orbroker (wholesaling services) orselling merchandise forpersonal
orhouseholdconsumptionincludingservicesincidentaltothesaleofthegoods(retailing
services). Theprincipal services rendered bywholesalers andretailers maybe
characterizedasresellingmerchandise,accompaniedbyavarietyofrelated,subordinated
services, suchas:maintaining inventories ofgoods; physically assembling, sorting
andgrading goods inlarge lots; breaking bulkandredistribution insmaller lots;
delivery services; refrigeration services; sales promotion services rendered by
wholesalers ..."(emphasis added; underlining original).
Under thissection, theCPCcontains asub-sector entitled "wholesale tradeservices offood, beverages
andtobacco" (6222). Afurther breakdown ofthissub-sector includes aseparate itemrelating to
"wholesale trade service offruitandvegetables" (CPC 62221) which isdescribed as:
"Specialized wholesale services offresh, dried, frozen orcanned fruits andvegetables
(Goods classified inCPC 012,013,213,215)".
Item(013) oftheCPCclassification ofgoods relates to"fruit andnuts" andunder itssub-classification
(01310) itrefers to:
474MTN.GNS/W/164 &Add.1 (Scheduling ofInitial Commitments inTrade inServices: Explanatory Note).
475MTN.GNS/W/164 (Scheduling ofInitial Commitments inTrade inServices: Explanatory Note), para. 16,states: "The
legal nature ofaschedule aswellastheneed toevaluate commitments, require thegreatest possible degree ofclarity in
thedescription ofeachsector orsub-sector scheduled. Ingeneral theclassification ofsectors andsub-sectors should bebased
ontheSecretariat 'srevised Services Sectoral Classification List3.Each sector contained intheSecretariat listisidentified
bythecorresponding Central Product Classification (CPC) number. Where itisnecessary torefine further asectoral
classification, thisshould bedone onthebasis oftheCPC orother internationally recognised classification (e.g., Financial
Services Annex). Themost recent breakdown oftheCPC, including explanatory notes foreachsub-sector, iscontained
intheUNProvisional Central Product Classification4.
---------------------------
3Document MTN.GNS/W/120, dated 10July1991.
4StatisticalPaper sSeriesMNo.77,ProvisionalCentralProduct Classification,Depar tmentofInternationalEconomi c
andSocial Affairs, Statistical Office oftheUnited Nations, New York, 1991".WT/DS27/R/USA
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"dates, figs, bananas ,coconuts, brazil nuts, cashew nuts, pineapples, avocados,
mangoes, guavas, mangosteens, fresh ordried" (emphasis added).
7.291 TheCPCdescriptionof"wholesaletradeservices"isbasedontheidentificationofacoreactivity,
thatis"reselling merchandise", which could beaccompanied byavariety ofother related subordinate
activities theobjective ofwhich would betofacilitate thedelivery ofthedescribed services (i.e.,reselling
merchandise). Inmany instances, inorder toresell merchandise itmaybenecessary tomaintain
inventories ofgoods, tosortandgrade goods, tobreak bulk, refrigerate, anddeliver goods tothe
purchaser. Thus, thesubordinate activities listed intheheadnote toCPCsection 6(such asmaintaining
inventories, breaking bulk, etc.), when theyaccompany thereselling ofmerchandise andarenot
performed asaseparate service intheirownright, arewithin thescope ofwholesale trade service
commitments. However, adistinction ismade between performing anyofthese subordinate activities
asacomponent ofsupplying a"wholesale trade service" andperforming anyofthem asaservice in
itsownright. Inthecaseofthelatter, thatactivity isclassified inaseparate CPC category witha
different number andwould betreated under theGATS assuch.
7.292 Finally, wenotethattheCPC descriptions donotmake anydistinction between green and
ripened bananas. Asmentioned above, item62221 oftheCPCrelating to"wholesale trade services
offruitandvegetables" cross refers togoods classified inCPC 013which inturnrefers initssub-
classification CPC 01310 to"bananas" without making anydistinction between green andripened
bananas.
7.293 Wefindthatthedistribution ofbananas, regardless ofwhether theyaregreen orripened,
fallswithin thescope ofcategory CPC 622"wholesale trade services" asinscribed intheEC's
GATS Schedule ofCommitments solongasitinvolves thesaleofbananas toretailers, toindustrial,
commercial, institutional orother professional business users, orother wholesalers.
(iii)Modes ofsupply
7.294 Article I:2ofGATS defines itscoverage asincluding fourmodes ofsupply ofservices: cross-
border supply, consumption abroad, commercial presence andpresence ofnatural persons.476The
Complainants submit thatthemeasures oftheECbanana regime thattheyhavechallenged havean
impact onthewholesale trade services theycansupply through commercial presence. Such impact
isclaimed tobeinconsistent withtheunqualified national treatment commitment intheEC'sSchedule
covering thesupply of"wholesale trade services" inrelation tothatmode. Itisalsoclaimed tobe
inconsistent withtheEC'sobligations under Article IIofGATS. IntheviewoftheComplainants,
thesupply ofwholesale trade services through commercial presence includes allactivities associated
withdelivering bananas totheECfrom abroad andreselling them there. Thatwould cover allthe
activities associated withreselling bananas asdescribed intheheadnote toSection 6oftheCPC(e.g.,
maintaininginventories,physicallyassembling,sorting,gradinginlargelots,breakingbulk,redistribution
insmaller lots,refrigeration anddelivery services).
476Article I:2ofGATS provides:
"For thepurposes ofthisAgreement, trade inservices isdefined asthesupply ofaservice:
(a) from theterritory ofoneMember intotheterritory ofanyother Member;
(b) intheterritory ofoneMember totheservice consumer ofanyother Member;
(c) byaservice supplier ofoneMember, through commercial presence intheterritory ofanyother Member;
(d) byaservice supplier ofoneMember, through presence ofnatural persons ofaMember intheterritory
ofanyother Member".WT/DS27/R/USA
Page364
7.295 With respect tosupply through commercial presence, wenotethatArticle I:2(c) ofGATS477
defines supply through commercial presence asthesupply ofaservice byaservice supplier ofone
Member, through commercial presence, intheterritory ofanother Member. Article XXVIII(f)(ii)478
defines a"service ofanother Member" inthecaseofasupply ofaservice through commercial presence
asaservice which issupplied byaservice supplier ofthatotherMember. Inaddition totheseprovisions,
explanation ofthemodes ofsupply hasbeenprovided intheexplanatory noteonthescheduling of
commitments referred toabove.479These definitions aswellastheexplanation ofthesupply ofaservice
through commercial presence intheexplanatory noterelyontheterritorial presence oftheservice
supplier asabasisfordrawing distinctions between modes. Inotherwords, inthecaseofsupply through
commercial presence, theservice supplier would havetobephysically present intheterritory where
theservice isbeing supplied. Insuchcases, theorigin oftheservice istobedetermined onthebasis
oftheorigin ofthesupplier. Andtheorigin oftheservice supplier istobedetermined onthebasis
ofthedefinitions laiddown inArticle XXVIII(g), (j),(m)and(n)which provide:
"(g) 'service supplier 'means anyperson thatsupplies aservice;11
(j) 'person 'means either anatural person orajuridical person;
(m) 'juridical person ofanother Member 'means ajuridical person which iseither:
(i) constituted orotherwise organized under thelawofthatotherMember,
andisengaged insubstantive business operations intheterritory of
thatMember oranyother Member; or
(ii) inthecaseofthesupply ofaservice through commercial presence,
owned orcontrolled by:
1. natural persons ofthatMember; or
2. juridical persons ofthatother Member identified under
subparagraph (i).
(n) ajuridical person is:
(i) 'owned 'bypersons ofaMember ifmore than50percentoftheequity
interest initisbeneficially owned bypersons ofthatMember;
(ii) 'controlled 'bypersons ofaMember ifsuchpersons havethepower
toname amajority ofitsdirectors orotherwise legally todirect its
actions;
(iii) 'affiliated 'withanother person when itcontrols, oriscontrolled by,
thatother person; orwhen itandtheother person arebothcontrolled
bythesame person.
477Seenote476supra.
478Article XXVIII(f) provides: "'service ofanother Member 'means aservice which issupplied,
(i) from orintheterritory ofthatother Member, orinthecaseofmaritime transport, byavessel registered under
thelawsofthatother Member, orbyaperson ofthatother Member which supplies theservice through theoperation
ofavessel and/or useinwhole orinpart; or
(ii) inthecaseofthesupply ofaservice through commercial presence orthrough thepresence ofnatural persons,
byaservice supplier ofthatother Member".
479MTN.GNS /W/164(Schedul ingofInitialCommi tmentsinTradeinServices:ExplanatoryNote),para.18,states(emphasi s
original): "The fourmodes ofsupply listed intheschedules correspond tothescope oftheGATS assetoutinArticle I.2.
Themodes areessentially defined onthebasis oftheorigin oftheservice supplier andconsumer, andthedegree andtype
ofterritorial presence which theyhave atthemoment theservice isdelivered".WT/DS27/R/USA
Page365
--------------------------
11Where theservice isnotsupplied directly byajuridical person butthrough
otherforms ofcommercial presence suchasabranch orarepresentative office,
theservice supplier (i.e.thejuridical person) shall, nonetheless, through such
presence beaccorded thetreatment provided forservice suppliers under the
Agreement. Suchtreatment shallbeextended tothepresence through which
theservice issupplied andneednotbeextended toanyother parts ofthe
supplier located outside theterritory where theservice issupplied."
7.296 Therefore, withrespect tosituations ofsupply through commercial presence, Members '
obligations under theGATS cover thetreatment ofservices andservice suppliers. WenotethatArticle II
requires aMember toextend toservices andservice suppliers ofanyother Member treatment noless
favourable thanthatitaccords tolikeservices andservice suppliers ofanyother country. And
Article XVII requires aMember, subject toanylimitations inscribed initsschedule, toaccord services
andservice suppliers ofanyother Member treatment nolessfavourable thanitaccords toitsownlike
services andservice suppliers.
7.297 Consequently,wefindthattheEC'sobligationsunderArticleIIofGATSandcommitments
under Article XVII ofGATS cover thetreatment ofsuppliers ofwholesale trade services within
thejurisdiction oftheEC.
(iv)Thescope oftheArticle IIobligation
7.298 Article II:1ofGATS states:
"With respect toanymeasure covered bythisAgreement, eachMember shallaccord
immediately andunconditionally toservices andservice suppliers ofanyotherMember
treatment nolessfavourable thanthatitaccords tolikeservices andservice suppliers
ofanyother country".
Wenotethatthisprovision refers to"anymeasures covered bythisAgreement". Thistermcould
onlybeinterpreted tomean allmeasures falling within thescope oftheGATS. According toArticle I:1
which defines thescope oftheGATS, itapplies to"measures byMembers affecting tradeinservices".
Wealsonotethatthisprovision constitutes ageneral obligation which is,inprinciple, applicable across
theboard byallMembers toallservices sectors, notonlyinsectors orsub-sectors where specific
commitments havebeenundertaken. Anyexception tothisgeneral obligation would havetobeprovided
forexplicitly inaccordance withtheterms oftheGATS. Article II:2provides forthepossibility of
exempting specific measures from thisobligation where itstates that
"AMember maymaintain ameasure inconsistent withparagraph 1provided thatsuch
ameasure islisted in,andmeets theconditions of,theAnnex onArticle IIExemptions".
WenotethattheEChasnotlisted inthatAnnex anymeasures relating to"wholesale trade services"
which areinconsistent withparagraph 1ofArticle II.Therefore, theECisfullybound byitsobligations
under Article II:1inrelation to"wholesale trade services".480
480IntheEC'sunderstanding there arenoMFN exemptions which would limititsobligation toprovide MFN treatment
inrespect ofthesubsect orofwholesaletradeservices,whereasintheCompl ainants'viewtherearenorelevant MFNexempt ions
(continued...)WT/DS27/R/USA
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7.299 TheComplainants submit thattheterm"treatment nolessfavourable" contained inparagraph 1
ofArticle IIofGATS should beinterpreted inthelightofthelanguage contained inparagraphs 2and
3ofArticle XVII ofGATS.481Intheirviewalthough Article IIdoesnotcontain thetypeofelaboration
found inparagraphs 2and3ofArticle XVII concerning formally identical andformally different
treatment andmodification ofconditions ofcompetition, thestandard oftreatment inArticle IIshould
beinterpreted tobethesame asthatofparagraph 1ofArticle XVII. They consider thatparagraphs 2
and3ofArticle XVII donotsetupanyadditional substantive rules butrather serve asguidance for
theapplication ofthenational treatment rulearticulated inthefirstparagraph. They alsonotethat
Article IIofGATS deviated fromtheformulation usedinArticle I:1ofGATT482andreferto"treatment
nolessfavourable" instead of"anyadvantage, favour, privilege orimmunity". Intheirview that
indicates adeliberate choice bythedrafters tofollow thesamestandard oftreatment setinparagraph 1
ofArticle XVII.
7.300 TheECmaintainsthatArticleII:1ofGATSappliesto"anymeasurecoveredbythisAgreement"
andArticle I:1defines thescope oftheGATS bystating thatitapplies "tomeasures byMembers
affecting tradeinservices". Thedefinition inArticle XXVIII(c),483inparticular under sub-paragraph (i),
indicates thatthemeasures concerned hadtoaffect tradeinservices assuchandcould notbemeasures
taken inotherareaswithrepercussions onservices suchasmeasures inrespect ofthepurchase ofgoods.
Moreover, theECconsiders thattheuseoftheterms "inrespect of"inthechapeau ofArticle XXVIII(c)
demonstrates thattheterm"affecting" hastobeinterpreted inanarrow sense thatdidnotinclude the
reference tomeasures which modified theconditions ofcompetition. Third, intheviewoftheEC,
ifthedrafters hadwished tomake the"modification ofcompetitive conditions" requirement anintegral
partofthe"nolessfavourable treatment" testunder themost-favoured-nation clause, theywould have
donesoexplicitly asitwasdoneforthenational treatment clause inArticle XVII:3. Therefore, if
itwere tobeestablished thatcertain ECmeasures violate theMFN obligation, itwould havetobe
480(...continued)
forthewhole range ofdistribution services. Bytheterms oftheGATS, theMFN treatment clause covers, subject toeach
Member 'sMFN exemption list,allservices onageneral basis. Accordingly, therange oftheservice transactions which
aredirectly orindirectly related totrade inbananas ispotentially wider thanthesector ofdistribution services orthesubsector
ofwholesale trade services. Likewise, abroader range oftheexemptions which have been inscribed intheEC'sMFN
exemption listcould berelevant toservice transactions related totrade inbananas. However, inthelightofthelegalarguments
advanced bytheComplainants weproceed ontheassumption thatthescope oftheirclaims under theGATS MFN clause
islimited tothesupply ofwholesale trade services bycommercial presence andthatnone oftheMFN exemptions scheduled
bytheECcarves outcomponents oftherelevant CPC description.
481Article XVII ofGATS (National Treatment) provides:
"1. Inthesectors inscribed initsSchedule, andsubject toanyconditions andqualifications setouttherein, eachMember
shallaccord toservices andservice suppliers ofanyother Member, inrespect ofallmeasures affecting thesupply ofservices,
treatment nolessfavourable thanthatitaccords toitsownlikeservices andservice suppliers.10
2. AMember maymeet therequirement ofparagraph 1byaccording toservices andservice suppliers ofanyother
Member, either formally identical treatment orformally different treatment tothatitaccords toitsownlikeservices and
service suppliers.
3. Formallyidenticalorformallydifferenttreatmentshallbeconsideredtobelessfavour ableifitmodifiestheconditions
ofcompetition infavour ofservices orservice suppliers oftheMember compared tolikeservices orservice suppliers of
anyother Member.
--------------------------------
10Specific commitments assumed under thisArticle shallnotbeconstrued torequire anyMember tocompensate
foranyinherent competitive disadvantages which result fromtheforeign character oftherelevant services orservice
suppliers".
482Article I:1ofGATT provides: "...anyadvantage, favour, privilege orimmunity granted byanyMember toanyproduct
originating inordestined foranyother country shall beaccorded immediately andunconditionally...".
483Article XXVIII(c) isquoted inpara7.279 supra.WT/DS27/R/USA
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demonstrated thattherewasformally discriminatory treatment asbetween foreign services andservice
suppliers, which isnotthecaseinthisdispute.
7.301 Withrespect tothefirsttwoarguments oftheEC,werecall ourdiscussion inparagraph 7.280
etseq.Inaddressing thethirdargument, wenotethatthestandard of"nolessfavourable treatment"
inparagraph 1ofArticle XVII ismeant toprovide fornolessfavourable conditions ofcompetition
regardless ofwhether thatisachieved through theapplication offormally identical orformally different
measures. Paragraphs 2and3ofArticle XVII serve thepurpose ofcodifying thisinterpretation, and
inourview, donotimpose newobligations onMembers additional tothose contained inparagraph 1.
Inessence, the"treatment nolessfavourable" standard ofArticle XVII:1 isclarified andreinforced
inthelanguage ofparagraphs 2and3.Theabsence ofsimilar language inArticle IIisnot,inour
view, ajustification forgiving adifferent ordinary meaning interms ofArticle 31(1) oftheVienna
Convention tothewords "treatment nolessfavourable", which areidentical inbothArticles II:1and
XVII:1.
7.302 Wealsonotethat,while theobject andpurpose ofparagraph 1ofArticle XVII istoprohibit
discrimination against foreign services andservice suppliers totheadvantage oflikeservices andservice
suppliers ofnational origin, paragraph 1ofArticle IIhasasimilar objective ofprohibiting discrimination
against services andservice suppliers ofaMember infavour oflikeservices orservice suppliers of
anyother country. Inaddition, while thedrafters oftheGATS havebeenguided byGATT concepts,
provisions andpastpractice, theyhavechosen touseidentical operative language of"treatment no
lessfavourable" inbothArticles IIandXVII, departing inthecaseofArticle IIfromtheformulation
usedintheGATT MFN clause inArticle Iwhich refers to"anyadvantage, favour, privilege orimmunity
...".Thus, theformulation ofbothArticles IIandXVII ofGATS derives fromthe"treatment noless
favourable" standard oftheGATT national treatment provisions inArticle IIIofGATT, which has
beenconsistentlyinterpretedbypastpanelreportstobeconcernedwithconditionsofcompetitionbetween
likedomestic andimported products oninternal markets.484
7.303 Wealsonotethatifthestandard of"nolessfavourable treatment" inArticle IIwere tobe
interpreted narrowly torequire onlyformally identical treatment, thatcould leadinmany situations
tothefrustration oftheobjective behind Article IIwhich istoprohibit discrimination between like
services andservice suppliers ofother Members. Itwould notbedifficult forregulators tocontemplate
regulatory measures which areidentical ontheirfacewhile ineffect provide lessfavourable competitive
opportunities toagroup ofservice suppliers totheadvantage ofothers.
7.304 Therefore, wefindthattheobligation contained inArticle II:1ofGATS toextend
"treatment nolessfavourable" should beinterpreted incasutorequire providing nolessfavourable
conditions ofcompetition.
(v)Thescope oftheArticle XVII commitment
7.305 Article XVII oftheGATS isaspecific commitment inthesense thatitwould bebinding on
aMember onlyinsectors orsub-sectors which thatMember hasinscribed initsschedule andtothe
extent specified therein. Article XVII:1 states:
"1.Inthesectors inscribed initsschedule, andsubject toanyconditions and
qualificationssetouttherein,eachMembershallaccordtoservicesandservicesuppliers
484Panel Repor ton"ItalianDiscriminationofImpor tedAgriculturalMachi nery",adoptedon23October1958, BISD7S/60,
63,para. 12.Seealsopara. 7.327.WT/DS27/R/USA
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ofanyother Member, inrespect ofallmeasures affecting thesupply ofservices,
treatment nolessfavourable thanthatitaccords toitsownlikeservices andservice
suppliers".
Wenotethatinitsschedule ofspecific commitments485theEChasinscribed inthefirstcolumn under
theheading "Sector orSub-sector" thesector of"Wholesale Trade Services". Therelated CPC
classification number (CPC 622)hasalsobeeninscribed. Aspreviously mentioned, thisconstitutes
thebasisonwhich thescope oftheEC'snational treatment commitment istobedetermined. Wealso
notethat,withrespect tothefirstmode (cross-border supply) andthethird mode (supply through
commercial presence) theEChasentered "none" inthethird column oftheschedule relating to
limitations onnational treatment. TheEC,therefore, hasundertaken afullcommitment onnational
treatment inthesector of"Wholesale Trade Services" withrespect ofcross-border supply andsupply
through commercial presence.
7.306 Thus, wefindthattheEChasundertaken afullcommitment onnational treatment in
thesector of"Wholesale Trade Services" withrespect tosupply through commercial presence.
(vi)Effective dateofGATS obligations
7.307 TheECargues that,given thattheGATS entered intoforce on1January 1995, onlytheEC
banana import regime asitexisted inlate1994 andafterwards (rather than1992 andbefore) should
beexamined inthelightofArticles IIandXVII ofGATS.
7.308 Wearenotcertain oftheprecise relevance ofthisargument. TheECdoesnotargue thatthe
introduction oftheECcommon market organization forbananas resulted inasingle, non-recurring
adjustment ofthemarket which wascompleted by31December 1994. Tothecontrary, theECbanana
regulations remained inforce orwere enacted oramended alsoafter 1January 1995 (e.g.,
Regulation 478/95 ontheexport certificate requirement) and,moreimportantly, theyforesee arecurring
andongoing process ofimport licence allocations according toannually recalculated reference quantities
onthebasisofoperator categories andactivity functions. Consequently, thefactthattheECcommon
market organization wasintroduced in1993, priortotheentry intoforce oftheGATS, isnotrelevant
forourlegalanalysis. Thus, weexamine theconsistency oftheECbanana regulations astheycurrently
stand withtheEC'sobligations arising fromtheGATS. Therefore, thescope ofourlegalexamination
includes onlyactions which theECtookorcontinued totake, ormeasures thatremained inforce or
continued tobeapplied bytheEC,andthusdidnotcease toexistaftertheentry intoforce ofthe
GATS.486Likewise, anyfinding ofconsistency orinconsistency withtherequirements ofArticles II
andXVII ofGATS would bemade withrespect totheperiod aftertheentry intoforce oftheGATS.
Moreover, inthisconnection wenotethatthere isnograndfather clause intheWTO Agreement that
would permit Members tomaintain indefinitely national legislation thatisinconsistent withWTO rules.
Indeed, Article XVI:4 oftheWTO Agreement provides that"[e]ach Member shallensure theconformity
ofitslaws, regulations andadministrative procedures withitsobligations asprovided intheannexed
Agreements".
485European Communities andTheir Member States -Schedule ofSpecific Commitments -April 1994.
486Article 28oftheVienna Convention embodies thegeneral international lawprinciple that"[u]nless adifferent intention
appears from thetreaty orisotherwise established, itsprovisions donotbindaparty inrelation to...anysituation which
ceased toexistbefore thedateofentry intoforce ofthetreaty ...".Under thisrule,theECmeasures atissuemaybeconsidered
ascontinuing measures, which insome cases were enacted before theentry intoforce ofGATS butwhich didnotcease
toexist after thatdate(theopposite ofthesituation envisaged inArticle 28).WT/DS27/R/USA
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(vii) Claims byMexico
7.309-7.311 [Used intheMexico report.]
(c) Operator categories
(i)Article XVII ofGATS
7.312 TheComplainants claim thattheallocation ofthethird-country import licences onthebasis
ofoperator categories andtheeligibility criteria forCategory Boperators discriminate against like
third-country service suppliers. TheECisalleged tobeinbreach ofArticle XVII ofGATS inrespect
ofitscommitments onwholesale service supply inthatitaccords morefavourable treatment towholesale
service suppliers ofECorigin because Category Boperators arelargely ECowned orcontrolled and
Category Aoperators arelargely intheComplainants 'ownership orcontrol.
7.313 TheECresponds thattheallocation oflicences onthebasis ofoperator categories doesnot
automatically entail thetransfer ofmarket shares toCategory Boperators because licences arefreely
tradeable. Therefore, theallocation oflicences tocertain operators doesnotnecessarily mean that
these operators willactually carry outthephysical importation. TheECemphasizes thattherules
establishing operator categories donotclassify companies assuchbutaimatdistributing import licences
accordingtopastmarketingoftraditionalACPandECorthird-countryandnon-traditionalACPbananas.
Consequently, theallocation ofCategory AandBlicences isnotmutually exclusive. Certain large
operator companies areregistered inbothcategories andhence receive bothCategory AandBlicences.
Therefore,theECarguesthattheComplainants'insistenceonequatingCategoryAwithfirmsofnon-EC
origin andCategory Bwithfirms ofECorigin ismisleading. Furthermore, theECnotes thattheWTO
agreements donotprovide forrules governing thesharing ofquota rents which aregenerated bya
legitimate tariffquota andthat,consequently, theECretains itsdiscretion toallocate quota rentsamong
EC,ACPandthirdcountry producers andtraders. IntheEC'sview, theComplainants failtoprove
thatquota rentsandmarket shares havebeenreallocated attheexpense ofthird-country firms, given
thatnoevidence hasbeen provided onhowparticular companies arelinked through registration,
ownership orcontrol totheComplainants. Incontrast, theECnotes thatitsubmitted information on
market shares ofthird-country firms, which initsviewdemonstrate thatthose firms havenotlostmarket
share inrecent years.
7.314 Inlight ofthese arguments, weturntoanexamination oftheissues arising under this
Article XVII claim. Inorder toestablish abreach ofthenational treatment obligation ofArticle XVII,
three elements needtobedemonstrated: (i)theEChasundertaken acommitment inarelevant sector
andmode ofsupply; (ii)theEChasadopted orapplied ameasure affecting thesupply ofservices
inthatsector and/or mode ofsupply; and(iii)themeasure accords toservice suppliers ofanyother
Member treatment lessfavourable thanthatitaccords totheEC'sownlikeservice suppliers.
7.315 Inrespect ofthefirstelement, werecall thattheEChasbound thewholesale trade service
subsector asregards service supply across borders andthrough commercial presence without conditions
andqualifications inthemeaning ofArticle XVII:1 (paragraph 7.306).
7.316 Astothesecond element, i.e.,whether theECmeasures implementing theoperator category
rules constitute measures affecting thesupply ofservices, werecall thatwehavefound thattheterm
"affecting" should beinterpreted broadly (paragraphs 7.277 etseq.).Inthisconnection, wealsonote
thatsupply ofservices through cross-border delivery orcommercial presence isdefined toincludeWT/DS27/R/USA
Page370
theproduction, distribution, marketing, saleanddelivery ofsuchservices.487Asaconsequence, in
ourview,theECmeasures,andmorespecificallytherulesonoperatorcategories,aremeasuresaffecting
Complainants 'trade inservices inthemeaning oftheGATS.
7.317 WenowturntothethirdelementthatmustbedemonstratedtoestablishabreachofArticleXVII,
i.e.,lessfavourable treatment ofservice suppliers ofanother Member thanthetreatment given toits
ownlikeservice suppliers. There arefourpreliminary matters thatshould beaddressed: (i)the
definition ofcommercial presence andservice suppliers; (ii)whether operators inthemeaning ofthe
ECbanana regulations areservice suppliers under GATS, (iii)thedefinition ofservices covered by
ECcommitments; and(iv)towhatextent services andservice suppliers ofdifferent origin arelike.
7.318 First, itisnecessary toclarify whatismeant by"commercial presence", asusedinArticle I:2,
and"services andservice suppliers ofanyother Member", asusedinArticle XVII:1. "Commercial
presence" ingeneral covers anytypeofbusiness orprofessional establishment, including through (i)the
constitution, acquisition ormaintenance ofajuridical person, or(ii)thecreation ormaintenance of
abranch orrepresentative office, within theECterritory forthepurpose ofsupplying wholesale
services.488Therefore, inthecurrent dispute, weareconcerned withthecommercial presence ofservice
suppliers thatare"persons", orowned orcontrolled bysuchpersons, oftheComplainants. These
include subsidiary companies owned489orcontrolled490bynatural persons491ofaComplainant and
subsidiarycompaniesownedorcontrolledbyparentcompaniesthatareconstitutedorotherwiseorganized
487Article XXVIII:(b) ofGATS provides: "'Supply ofaservice 'includes theproduction, distribution, marketing, sale
anddelivery ofaservice."
488Article XXVIII(d) ofGATS provides:
"'Commercial presence 'means anytypeofbusiness orprofessional establishment, including through
(i) theconstitution, acquisition ormaintenance ofajuridical person, or
(ii) thecreation ormaintenance ofabranch orarepresentative office,
within theterritory ofaMember forthepurpose ofsupplying aservice;
489Article XXVIII(n) provides: "Ajuridical person is(i)'owned 'bypersons ofaMember ifmore than50percentof
theequity interest initisbeneficially owned bypersons ofthatMember".
490Article XXVIII(n) provides: "Ajuridical person is(ii)'controlled 'bypersons ofaMember ifsuchpersons havethe
power toname amajority ofitsdirectors orotherwise tolegally direct itsactions".
491Article XXVIII(k) provides: "'Natural person ofanother Member 'means anatural person whoresides intheterritory
ofthatother Member oranyother Member, andwhounder thelawofthatother Member:
(i) isanational ofthatother Member; or
(ii) hastheright ofpermanent residence inthatother Member, inthecaseofaMember which:
1. does nothave nationals; or
2. accords substantially thesame treatment toitspermanent residents asitdoestoitsnationals inrespect
ofmeasures affecting trade inservices, asnotified initsacceptance oforaccession totheWTO Agreement, provided
thatnoMember isobligated toaccord tosuchpermanent residents treatment more favourable thanwould beaccorded
bythatother Member tosuchpermanent residents. Such notification shall include theassurance toassume, in
accordance withitslaws andregulations, thesame responsibilities thatother Member bears withrespect toits
nationals".WT/DS27/R/USA
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under thelawofaComplainant492andareengaged insubstantive business operations intheterritory
ofanyother Member.493
7.319 Inthisrespect, weemphasize thatinthefollowing discussion, wewillrefertoservice suppliers
thatareowned orcontrolled bypersons oftheComplainants as"suppliers ofComplainants 'origin",
andservice suppliers thatareowned orcontrolled bypersons oftheECwillbereferred toas"suppliers
ofECorigin".
7.320 Second, inthecontext ofthiscase,operators inthemeaning ofArticle 19ofRegulation 404/93
andoperators performing theactivities defined inArticle 5ofRegulation 1442/93 areservice suppliers
inthemeaning ofArticle I:2(c) ofGATS provided thattheyareowned orcontrolled bynatural persons
orjuridical persons ofotherMembers andsupply wholesale services. When operators provide wholesale
services withrespect tobananas which theyhaveimported oracquired formarketing, cleared incustoms
orripened,theyareactualwholesaleservicesuppliers.Whereoperatorsformpartofverticallyintegrated
companies, theyhavethecapability andopportunity toenterthewholesale service market. Theycould
atanytimedecide tore-sell bananas which theyhaveimported oracquired from ECproducers, or
cleared incustoms, orripened instead offurther transferring orprocessing bananas within anintegrated
company.494Since Article XVII ofGATS isconcerned withconditions ofcompetition, itisappropriate
forustoconsider thesevertically integrated companies asservice suppliers forthepurposes ofanalysing
theclaims made inthiscase.
7.321 Third, asdiscussed above (paragraphs 7.290 etseq.),theservices atissue inthiscaseare
wholesale trade services andtherelated subordinated services specified inheadnote 6totheCPC
classification.
7.322 Fourth, inourview, thenature andthecharacteristics ofwholesale transactions assuch, as
wellasofeachofthedifferent subordinated services mentioned intheheadnote tosection 6ofthe
CPC, are"like" when supplied inconnection withwholesale services, irrespective ofwhether these
services aresupplied withrespect tobananas ofECandtraditional ACP origin, ontheonehand, or
withrespect tobananas ofthird-country ornon-traditional ACPorigin, ontheother. Indeed, itseems
thateachofthedifferent service activities taken individually isvirtually thesame andcanonlybe
distinguished byreferring totheorigin ofthebananas inrespect ofwhich theservice activity isbeing
performed. Similarly, inourview, totheextent thatentities provide these likeservices, theyarelike
service suppliers.
7.323 Wenowhavetoascertain whether, byapplying operator category rules, theECaccords services
supplied across borders orthrough commercial presence lessfavourable treatment thanitaccords its
ownlikeservices orservice suppliers inthemeaning ofArticle XVII.
492Article XXVIII(l) provides: "'[J]uridical person 'means anylegalentity dulyconstituted orotherwise organized under
applicable laws, whether forprofit orotherwise, andwhether privately-owned orgovernmentally-owned, including any
corporation, trust, partnership, jointventure, soleproprietorship orassociation. Forthedefinition of"juridical person of
another Member", seepara. 7.295 supra.
493Asaresult, suppliers which arecommercially present within theECterritory andowned orcontrolled by,forexample,
DelMonte Mexico would beentitled tobenefit from GATS rights because itwould notmatter under Article XXVIII(m)
ofGATS whether DelMonte Mexico wasowned orcontrolled bynatural orjuridical persons ofJordan, i.e.aWTO non-
Member, aslongasDelMonte Mexico wasincorporated inMexico andengaged insubstantive business operations inthe
territory ofMexico oranyother Member.
494Operators whoalways sellorresell bananas directly toconsumers supply retail services which arenotcovered by
theECcommitments onwholesale services under Article XVII.WT/DS27/R/USA
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7.324 Wenotethatthecategorization ofAandBoperators isbased onwhether theyhaveduring
aprevious three-year period marketed ECandtraditional ACP bananas orthird-country andnon-
traditional ACP bananas. Theoperator category rules apply toservice suppliers regardless oftheir
nationality, ownership orcontrol. Insofarasthesupply ofwholesale trade services inrespect of
third-country andnon-traditional ACPbananas isconcerned, service suppliers ofECorigin areequally
subject tooperator category rulesasservice suppliers ofComplainants 'origin. Likewise, withrespect
tothesupply ofwholesale tradeservices inrespect ofECortraditional ACPbananas, service suppliers
ofECorigin aretreated inthesame wayunder theoperator category rules asservice suppliers of
Complainants 'origin. Thus, theECrulesestablishing operator categories donotformally discriminate
against Complainants 'wholesale service suppliers onthebasis oftheirorigin.
7.325 Wenote,however, thatservice suppliers ofComplainants 'origin thatprovide wholesale services
inrespect ofonlythird-country ornon-traditional ACPbananas aresubject tooperator category rules,
while service suppliers ofECorigin thatprovide thesameservices inrespect ofECortraditional ACP
bananas arenot.However, service suppliers ofComplainants 'origin thathaveinthepastprovided
wholesale tradeservices inrespect ofonlythird-country ornon-traditional ACPbananas arenotlegally
prevented from supplying wholesale trade services withrespect toECandtraditional ACPbananas.
7.326 Bysupplying wholesale tradeservices tothetraditional ACPandECmarket segment, suppliers
ofanyorigin canavoid, orreduce theextent towhich theyaresubject to,operator category rules.
Inaddition theywillbeeligible fortheallocation of30percentofthein-quota licences required for
third-country andnon-traditional ACPimports which areearmarked forCategory Boperators. Nothing
intheoperator category rules requires operators whoare,onthebasis oftheirprevious marketing
ofECandtraditional ACPbananas, beneficiaries oftheallocation of30percentofthelicences required
forthein-quota importation ofthird-country andnon-traditional ACPbananas regardless ofwhether
theyhavepreviously dealtinthatmarket segment, tobeservice suppliers inECownership orcontrol.
Inotherwords,servicesuppliersofforeignaswellasECoriginarearguablysubjecttoformallyidentical
treatment inthemeaning ofArticle XVII:2 ofGATS. Likewise, under theECoperator category rules
services offoreign origin which aresupplied across-borders arearguably subject totreatment thatis
formally identical tothetreatment ofdomestic services.
7.327 Wenowturntothequestion whether theapplication offormally identical operator category
rules, nevertheless, modifies conditions ofcompetition495infavour ofservice orservice suppliers of
ECorigin, orattheexpense ofservices orservice suppliers ofthird-country origin, inthemeaning
ofparagraphs 2and3ofArticle XVII ofGATS which provide asfollows:
"2. AMember maymeettherequirement ofparagraph 1byaccording toservices
andservice suppliers ofanyother Member, either formally identical treatment or
495"The Panel, however, believes thatanevaluation ofthetrade effects wasnotdirectly relevant toitsfindings because
abreach ofaGATT rules ispresumed tohaveanadverse impact onother contracting parties ..."(emphasis added). Panel
Report on"Canada -Administration oftheForeign Investment Review Act", adopted on7February 1984, BISD 30S/140,
167, para. 6.6.
"[ArticleIII:2ofGATT] protectsexpectationsonthecompetitiverelationshipbetween importedanddomest icproducts.
Achange inthecompetitive relationship contrary tothatprovision mustconsequently beregarded ipsofactoasanullification
orimpairment ofbenefits accruing under theGeneral Agreement". (emphasis added). Panel Report on"US-Taxes on
Petroleum andCertain Imported Substances", adopted on17June 1987, BISD 34S/136, 158-159, para. 5.1.9.
"[T]he panel noted thatprevious panels hadrejected arguments ofdeminimis trade consequences andhadfound
thatthesizeofthetrade impact ofameasure wasnotrelevant toitsconsistency withArticle III[GATT]". Panel Report
on"US-Measures Affecting theImportation, Internal SaleandUseofTobacco", adopted on4October 1994, DS44/R,
p.32, para. 99.WT/DS27/R/USA
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formally different treatment tothatitaccords toitsownlikeservices andservice
suppliers.496
3. Formally identical orformally different treatment shallbeconsidered tobe
lessfavourableifitmodifiestheconditionsofcompetitioninfavourofservicesorservice
suppliers oftheMember compared tolikeservices orservice suppliers ofanyother
Member" (emphasis andfootnotes added).497
Thus, according toArticle XVII, formally identical treatment may, nevertheless, beconsidered tobe
lessfavourable treatment ifitadversely modifies conditions ofcompetition forforeign services orservice
suppliers. Therefore, wealsohavetoexamine whether theoperator category (andactivity function)
ruleshaveanimpact ontheconditions ofcompetition forforeign-owned orcontrolled service suppliers.
Inorder todoso,wemustconsider inthefirstinstance whether therearenonEC-owned orcontrolled
service suppliers forGATS purposes thatprovide wholesale trade services inbananas inandtothe
EC.
7.328 TheECstates thattheEuropean Commission doesnothaverecords oftheactual ownership
ofcompanies registered toreceive licences ofwhatever category. TheECsubmits thatinthecase
oftransnational companies, thenationality ofparent andsubsidiary companies isusually notthesame.
Article XXVIII(m)(ii) ofGATS defines theorigin ofaservice supplier according toitsownership or
control byanatural orjuridical person ofaMember. While thefactthatsubsidiaries inforeign
ownership orcontrol havearegistered seatintheirhostcountry might matter inother legalcontexts,
thisfactisnotrelevant forrights under Article XVII. Iftheparent company isregistered inaMember
andengages insubstantive business operations there (orinanother Member), theMember where the
parent company isregistered mayinvoke Article XVII inrespect ofanyoftheparent company 's
subsidiaries which areowned orcontrolled bytheMember inthemeaning ofArticle XXVIII(n).
496Thewording ofparagraph 2ofArticle XVII ofGATS draws ontheinterpretation developed byaGATT panel with
respect toArticle IIIofGATT: "[T]he 'nolessfavourable 'treatment requirement setoutinArticle III:4, isunqualified.
These words aretobefound throughout theGeneral Agreement ...asanexpression oftheunderlying principle ofequality
oftreatment ofimported products ascompared tothetreatment given either toother foreign products, under themostfavoured
nation treatment standard, ortodomestic products, under thenational treatment standard ofArticle III.Thewords 'treatment
nolessfavourable 'inparagraph 4[ofGATT Article III]callforeffective equality ofopportunities forimported products
inrespect oftheapplication oflaws, regulations andrequirements affecting internal sale, offering forsale, purchase,
transportation, distribution oruseofproducts. Thisclearly setsaminimum permissible standard asabasis. Ontheone
hand, contracting parties mayapply toimported products different formal legalrequirements ifdoing sowould accord imported
products more favourable treatment. Ontheother hand, italsohastoberecognized thatthere maybecases where application
offormally identical legalprovisions would inpractice accord lessfavourable treatment toimported products andacontracting
party might thushavetoapply different legalprovisions toimported products toensure thatthetreatment accorded tothem
isinfactnolessfavourable" (emphasis added). Panel Report on"US-Section 337oftheTariff Actof1930", adopted
on7November 1989, BISD 36S/345, 386, para. 5.11.
497Thewording ofparagraph 3ofArticle XVII ofGATS draws ontheinterpretation developed byaGATT panel with
respect toArticle IIIofGATT: "[T]he textofparagraph 4[ofGATT Article III]referred bothinEnglish andinFrench
tolawsandregulations andrequirements affecting internal sale, purchase, etc.,andtolaws, regulations andrequirements
governing theconditions ofsaleorpurchase. Theselection oftheword "affecting "would imply, intheopinion ofthePanel,
thatthedrafters oftheArticle intended tocover inparagraph 4notonlythelawsandregulations which directly governed
theconditions ofsaleorpurchase butalsoanylawsorregulations which might adversely modify theconditions ofcompetition
between thedomest icandimportedproductsontheinternalmarkets"(emphasi sadded). Panel Repor ton"ItalianDiscrimination
ofImported Agricultural Machinery", adopted on23October 1958, BISD 7S/60, 63,para.12.
"The Panel alsonoted thatiftheItalian contention were correct, andifthescope ofArticle IIIwere limited in
thewaytheItalian delegation suggested toaspecific typeoflawandregulations, thevalue ofthebindings under Article II
oftheAgreement andofthegeneral rules ofnon-discrimination asbetween imported anddomestic products could beeasily
evaded". Idem, p.64, para. 15.WT/DS27/R/USA
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7.329 Inorder fortheComplainants toestablish thatthere arenonEC-owned orcontrolled service
suppliers commercially present intheECforGATS purposes thatprovide wholesale trade services
inbananas inandtotheEC,itwould besufficient forthem toshow that(i)entities ofComplainants '
origin (ii)control subsidiaries established intheECthatsupply suchservices. Inthiscase, weare
oftheopinionthattheComplainantshavesubmittedsufficientevidencetoshowthatcompaniesregistered
intheComplainants 'countries provide wholesale trade services inrespect ofbananas toandinthe
ECthrough commercially present owned orcontrolled subsidiaries inthemeaning ofArticle XXVIII(n).
7.330 Astothefirstpoint, theevidence presented andthestatements bybothparties indicate that
there areentities ofnonEC-origin involved inthebanana trade. Inparticular, bothparties seem to
accept thatChiquita andDoleareUScompanies, DelMonte isaMexican company andNoboa isan
Ecuadorian company, andnoevidence suggesting thecontrary hasbeenpresented bytheEC.498
7.331 Astothesecond point, i.e.,whether these non-EC companies control subsidiaries thatsupply
wholesale tradeservices inbananas andarecommercially present intheEC,theComplainants submitted
alistentitled "Principal banana wholesaling companies established intheECthatwere owned or
controlled bytheComplainants 'services suppliers, 1992". TheECnotes thatnoformal records of
shareholders andcompany registrations were submitted bytheComplainants. However, werecall
that,accordingtoArticleIIIbisofGATS,"nothinginGATSrequiresanyMembertoprovideconfidential
information, thedisclosure ofwhich ...would prejudice legitimate commercial interests ofparticular
enterprises". According totheComplainants, their information waslimited inpartbased on
confidentiality concerns. Nonetheless, webelieve thattheComplainants 'evidence issufficient to
establish thattherearenon-EC companies thatcontrol subsidiaries thatsupply wholesale tradeservices
inbananas andthatarecommercially present intheEC. Inthisregard, wenotethatwhile theEC
argued thatmore evidence should have been submitted bytheComplainants, itdidnotpresent
information thatwould castdoubt ontheevidence presented bytheComplainants. Asaconsequence,
wemust assess whether thatevidence issufficiently credible tobeaccepted byus.Inmaking our
objective assessment (Article 11oftheDSU), wearepersuaded thattheComplainants havesufficiently
established thatentities ofComplainants 'origin control subsidiaries established intheECthatprovide
wholesale trade services inbananas inandtotheEC.
7.332 Recalling thatunder Article XVII ofGATS, formally identical treatment maybeconsidered
tobelessfavourable treatment ifitadversely modifies conditions ofcompetition forforeign services
orservice suppliers, wenowexamine whether therulesestablishing operator categories (andactivity
functions) haveanimpact ontheconditions ofcompetition forforeign-owned orcontrolled service
suppliers. TheECnotes thatunder theoperator category rulescompanies mayqualify asbothCategory
AandBoperators, thusmaking itdifficult tocategorize companies ofanynationality aseither Aor
Boperators.
7.333 Inthisregard, theComplainants submit thatbefore theintroduction oftheECbanana regime
companies controlled orowned bynatural orjuridical persons oftheirnationalities heldamarket share
ofover95percentoftheimports ofLatin American bananas totheEC.Accordingly, theComplainants
argue, companies inECandACP ownership orcontrol hadamarket share oflessthan5percent
ofimports fromLatin America. TheECquestions theaccuracy ofthesefigures, butitdoesnotsubmit
498Forexample, thefirstsubmission oftheEC,inreferring tostatistics inanArthur D.Little study, refers toChiquita
andDoleas"USowned orcontrolled". A.D. Little, "Etude del'evolution deseffets delaremise enplace del'OCM bananes
surlafilière dans l'Union européenne", 13septembre 1995.WT/DS27/R/USA
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comparable evidence ofitsown.499Inourview, even ifweaccept theECargument thatthe
Complainants '95percentfigure maybesomewhat toohigh, webelieve thattheComplainants have
adequately demonstrated thatcompanies oftheComplainants 'origin hadbyfarthevastmajority of
themarket forimports ofLatin American bananas.
7.334 Inrespect oftheECmarket forECandACPbananas, theComplainants submit thatprior to
theintroduction oftheECcommon market organization, theshare ofthethreelargebanana companies
(i.e., Chiquita, Dole andDelMonte) intheEC/ACP market segment wasonly6percentandthat
theshare forallnon-ACP foreign-owned companies waslessthan10percent. While theECstates
thatin1994, 28percentoftheEC/ACP production wascontrolled bythree large banana companies,
forourpurposes whatisimportant istherelative share ofservice suppliers oftheComplainants 'origin
oftheECmarket forEC/ACP bananas.500Oneither view, weconclude thatmost ofthesuppliers
ofComplainants 'origin areclassified inCategory Aforthevastmajority oftheirpastmarketing of
bananas,501andthatmostofthesuppliers ofEC(orACP) origin areclassified inCategory Bforthe
vastmajority oftheirpastmarketing ofbananas.502
7.335 Inlightoftheforegoing, wenowconsider whether therulesestablishing operator categories
(andactivity functions) haveanimpact ontheconditions ofcompetition forforeign-owned orcontrolled
service suppliers. Under theECrules, based ontheirmarketing during apreceding three-year period
ofECandtraditional ACPbananas, Category Boperators areeligible for30percentofthelicences
required fortheimportation ofthird-country (i.e., Latin American) andnon-traditional ACPbananas
atlower in-quota dutyrates, regardless ofwhether theyhavepreviously traded inthelatter market
segment. Therefore, mostbeneficiaries ofthisallocation toCategory Boperators areservice suppliers
ofECorigin. Atthesame time, most Category Aoperators, whohistorically traded third-country
andnon-traditional ACP bananas butwhoareeligible toreceive only66.5percentofthelicences
allowing in-quota imports ofbananas fromthesesources, areservice suppliers ofthird-country origin.
Furthermore, wealsonotethatthere isnoallocation ofanEC/ACP market share forCategory A
operators equivalent totheallocation of30percentofthethird-country andnon-traditional ACPimport
licences toCategory Boperators. Thus, atfirstsightitappears thattheoperator category ruleswould
seem tomodify conditions ofcompetition intheECwholesale services market forbananas infavour
ofservice suppliers ofECorigin.
7.336 Given thatimport licences aretradeable andtransferable, theallocation offixed percentages
oflicences according tooperator categories doesnotautomatically determine thenewdistribution of
market shares between Category AandBoperators. However, while Category Boperators, onthe
basis ofprevious marketing ofECandtraditional ACP bananas, obtain access to30percentofthe
licences required forthird-country imports regardless ofwhether theyhavepreviously marketed bananas
inthatmarket segment, atthesame time, Category Aoperators, onthebasisoftheirprevious imports
ofthird-country andnon-traditional ACPbananas, obtain access toonly66.5percentofthelicences
499Pursuant toRegulations 404/93 and1442/93, theECCommission andcompetent member State authorities have to
keepinformation concerning thereference quantities ofpastvolumes ofbananas marketed forwhich companies areregistered
inparticularlized form. Wenotethat,according totheEC,these records donotinclude information ontheownership or
control ofthecompanies categorized orregistered forreference quantities.
500Asnoted below, thedifference instatistics maybearesult oftheECrules. Seepara. 7.340.
501Operators classified inCategory Aformostoftheirpasttrade volume: Chiquita Brands (US), DoleFoods (US), Noboa
(Ecuador), DelMonte (Mexico), Uniban (Colombia), Banacol (Colombia). (Information submitted bytheComplainants).
502Operators classified inCategory Bformost oftheirpasttrade volume: e.g., Geest (UK), Fyffes (Ireland), Pomona
(France), Compagnie Fruitière (France), CDB/Durand (France), Gipam (France), Coplaca (Spain), Bargoso SA(Spain).
(Information submitted bytheComplainants).WT/DS27/R/USA
Page376
required fortheimportation ofthird-country andnon-traditional ACPbananas atin-quota tariffrates.
Accordingly, when licences authorizing in-quota imports ofthird-country andnon-traditional ACP
bananas aretraded, sellers oflicences willusually beCategory Boperators andpurchasers oflicences
willusually beCategory Aoperators.503Indeed, bothsidesagree thatlargenumbers ofimport licences
arebeing traded onthemarket place. Thus, ingeneral, Category Aoperators areabletopurchase
thelicences theyneedinaddition totheirannual licence entitlement iftheywishtomaintain their
previous market share.504However, initial licence holders whocarry outthephysical importation of
bananas orsellthelicences inanycasereaptariff quota rents, whereas licence transferees haveto
purchase theselicences forapriceuptotheamount ofthetariffquota rentfrominitial licence holders.505
Thus alicence transferee doesnothavetheopportunity tobenefit from tariff quota rents equivalent
tothatwhich accrues toaninitial licence holder. Given thatlicence transferees areusually Category
Aoperators whoaremostoften service suppliers offoreign origin andsince licence sellers areusually
Category Boperators whoaremostoften service suppliers ofEC(orACP) origin, weconclude that
service suppliers ofComplainants 'origin aresubject tolessfavourable conditions ofcompetition in
theirability tocompete inthewholesale services market forbananas thanservice suppliers ofEC(or
ACP) origin.
7.337 TheECnotes thatitpresented evidence thatinfacttheECmarket shares ofthethree major
international banana traders donotreflect anyadverse effect coming from theECimport licensing
procedures. According totheEC,between 1991 and1994 there wasanincrease intheECmarket
shares ofDole(11percentto15percent) andDelMonte (7.5percentto8percent), while thatof
Chiquita fell(25percentto18.5percent) duetofaulty business strategy. Thus, there wasonlya
slight overall decline inthemarket share ofthethree companies from43.5percentto41.5percent.
Moreover, theECsuggests thatmore recent dataalsoindicates thelackofaneffect onmarket shares.
Itnotes thatasof1997 fourofthebiggest banana import companies havetogether claimed primary
importer status for64percent, 58percentand63percentofthetotalprimary importer reference
quantity ofbananas fortheEC-15 for1993, 1994 and1995 respectively. Inourview, thisevidence
doesnotcounter theanalysis outlined above. Because ofthepossibility (orevenincentive) ofpurchasing
licences ortaking other action (such asentering intolicence "pooling", investment orcontractual
arrangements withoperators entitled toinitial licence allocations) topreserve market share, alackof
significant change inmarket share doesnotdemonstrate thatthere hasnotbeenasignificant change
intheconditions ofcompetition.
503"The Council [oftheEuropean Communities] is...correct incontending thatthetraditional dealers [inLatin American
bananas] have theopportunity tobuy'market shares 'backfrom those whohavereceived ashare ofthe30percentquota.
Butagain itmustnotbeoverlooked thatthatonlyconfirms thattheregulation, bymeans oftheallocation ofthequota, transfers
theprofit potential fromthetraditional dealers inthird-country bananas tothetraditional dealers inCommunity/ACP bananas
...". Opinion ofAdvocate General Gulman oftheEuropean Court ofJustice, inFederal Republic ofGermany v.Council,
p.24.
"Theprincipalsourceoflicences whichareactuallysoldhasbeenCommuni typroducer interests.Individualproducer s
andproducers 'organizations which arenotthemselves necessarily 'importers 'ofbananas havebeenallocated Category B
licences. Since ingeneral theyhavenointerest inimporting dollar bananas, these licences aresold, providing asupplement
totheirincome inaddition tothesupport provided bytheprovisions onaidtocompensate theirlossofincome. Themain
purchaser soflicences appear tobethemultinationalcompani esthemsel vesandcertainGermanoperatorsincludingnewcomer s."
European Commission, Report ontheECBanana Regime, VI/5671/94, p.10f.
504"Transferability oflicences isanessential feature oftheregime sothatoperators whohave nottraditionally traded
inECorACP fruitcanhave access totheCategory Blicence under partnership arrangements right from thestart, before
theyhavehadtheopportunity todevelop theirowntrade inECandACP fruit." European Commission, Report ontheEC
Banana Regime, VI/5671/94, p.10.
505Inthealternative, primary importers inthemeaning oftheactivity function rules alsohave theoption of"pooling"
licences byentering intopartnership arrangements with, orbyinvesting incompanies engaged incustoms clearing orin
ripening activities.WT/DS27/R/USA
Page377
7.338 Forallthese reasons, although operator category rulesarguably apply onaformally identical
basis regardless oftheorigin oftheservice ortheservice supplier concerned, service suppliers of
Complainants 'origin aresubject tolessfavourable conditions ofcompetition inthemeaning of
Article XVII:2-3 thanservice suppliers ofECorigin, asaresult oftheallocation toCategory Boperators
of30percentofthelicences required forin-quota imports ofthird-country andnon-traditional ACP
bananas.
7.339 While theforegoing analysis issufficient forustofindthattheoperator category rules are
inconsistent withtherequirements ofArticle XVII ofGATS, weconsider thatitisuseful tonotethat
ourconclusions areconfirmed byfactual information submitted bytheparties, suchasconsiderations
advanced bytheECinthecontext oftheintroduction ofthelicensing system forthird-country and
non-traditional ACPimports. According toECsources,506theallocation of30percentofthelicences
required fortheimportation ofthird-country andnon-traditional ACPbananas atin-quota tariff rates
tothose operators whohavepreviously marketed ECandtraditional ACPbananas isintended to"cross-
subsidize" thelatter category ofoperators withtariff quota rents inorder tooffset thehigher costs
ofproduction, tostrengthen theircompetitive position andtoencourage them tocontinue marketing
bananas ofECandtraditional ACPorigin. Inthisregard, theECCouncil noted that"...the[licensing]
allocation formula isintended ...tostrengthen thecompetitive position ofoperators whohavepreviously
marketed Community orACPbananas, vis-à-vis theircompetitors whohavepreviously marketed Latin
American bananas ...".507
7.340 Asnotedabove,theECstatesthatin1994,28percentoftheEC/ACPproductionwascontrolled
bythree large integrated banana trading companies (i.e., Chiquita, Dole andDelMonte) which are
ultimately intheComplainants 'ownership orcontrol. TheComplainants submit thatprior tothe
introduction oftheECcommon market organization, theshare ofthethree large banana companies
intheEC/ACP market segment wasonly6percentandthatitwaslessthan10percentforallnon-ACP
foreign-owned companies. Ifweassume, absent evidence tothecontrary, thatthesefigures areaccurate,
webelieve thatthesignificant increase inthemarket share offoreign-owned suppliers intheEC/ACP
market segment maywellbearesult ofthe"cross-subsidization" between operator categories which
creates anincentive forservice suppliers tobecome Category Boperators.508
506"1...Fromtherangeofalternativemethodswhichcouldbeusedtoachievethisgoal,theapproachofcross-subsi dization,
through issuing licences toimport 'dollar 'bananas tothose whotraded inCommunity orACP bananas waschosen because
itnotonlyprovides some financial compensation forthehigher production costs ofthese bananas, butalsoactsasanincentive
forthemarket tobecome more integrated, andtoencourage operators totrade inboth'dollar 'andEU/ACP fruit. ...
2...Reserving aproportion oftariff quota licences forthose operators whohavemarketed ACPand/or EUbananas
isameans oftransferring some ofthequota renttothem, inorder tooffset thehigher costs ofproduction andtherefore
tomake marketing fruitfrom these sources aviable commercial proposition. ...
3...From theproducers 'viewpoint, some ofthelarger dollar suppliers arebuilding upinterests inEUandACP
countries, either through establishing plantations, ...orthrough contractual arrangements withproducer groups ....These
linksdemonstrate thesuccess ofthecross-subsidization principle ofencouraging integration ofthedifferent sources supplying
themarket". European Commission, Impact ofcross-subsidization within thebanana regime, Note forinformation, p.1.
507WrittenobservationoftheCounci loftheEuropean Communi tiesbeforetheCourtofJusticeoftheEuropean Communi ties
concerning theapplication forinterim relief pursuant toArticles 185and186oftheEEC Treaty, 14June1993, inCase
No.C-276/93R, Chiquita Banana Company B.V. andOthers v.Council, p.15.
508"Atthesame time, bananas from EUandACP sources arestarting topenetrate markets outside those Member States
which granted them preferential treatment, although these bananas arestillprimarily soldintheirtraditional markets. This
latter observation might inpartreflect thestrategies ofthemultinational companies tobecome increasingly involved inthe
marketing ofEUandACP bananas. Since 1993, these companies have established jointventures withortaken important
stakes inorganizations bothproducing andmarketing from theCanary Islands, theFrench Antilles, Jamaica andSomalia.
These newinterestsareinadditiontothoseestablishedinCamer oonandtheIvoryCoast before1993." European Commi ssion,
Report ontheOperation oftheBanana Regime, SEC(95) 1565 final, Brussels, 11October 1995, p.7f.WT/DS27/R/USA
Page378
7.341 Consequently, wefindthattheallocation toCategory Boperators of30percentofthe
licences allowing theimportation ofthird-country andnon-traditional ACP bananas atin-quota
tariff rates creates lessfavourable conditions ofcompetition forlikeservice suppliers of
Complainants 'origin andistherefore inconsistent withtherequirements ofArticle XVII ofGATS.
(ii)Article IIofGATS
7.342 TheComplainants claim thattheallocation ofthethird-country import licences onthebasis
ofoperator categories andtheeligibility criteria forCategory Boperators discriminate against like
service suppliers. Asaresult, theECisalleged tobeinviolation ofArticle IIofGATS because more
favourable treatment isaccorded tolikeservice suppliers ofACP origin.
7.343 TheECresponds withthesamearguments thatitraised inrespect oftheComplainants 'claims
concerning operator categories under Article XVII (seeparagraph 7.313). Inaddition, theECreiterates
that,intheabsence ofacross-reference toArticle XVII, Article IIcannot beinterpreted using the
"modification ofcompetitive conditions" standard found inArticle XVII:3.
7.344 Inaddressing theclaim under Article II,wenotethattwoelements needtobedemonstrated
inorder toestablish aviolation oftheGATS MFN clause: (i)theEChasadopted orapplied ameasure
covered byGATS; (ii)theEC'smeasure accords toservices orservice suppliers ofComplainants '
origin treatment lessfavourable thanthatitaccords tothelikeservices orservices suppliers ofany
other country.
7.345 Astothefirstelement, wehavealready determined thattheECmeasures implementing the
operator category rulesconstitute measures affecting tradeinservices (paragraphs 7.277 etseq.).We
alsorecall ourdiscussion ontheabsence ofMFN exemptions intheEClistofArticle IIexemptions
which would berelevant totheclaims before us(paragraph 7.298).
7.346 Turning tothesecond element, wemustconsider whether theEC,byapplying operator category
rules, accords services orservice suppliers ofanyMember treatment lessfavourable thanthatitaccords
tolikeservices orservice suppliers ofanyothercountry, suchasanACPcountry.509Inthisconnection,
werecall thatwehavefound thatCategory A,BandCoperators whoareengaged inthemarketing
ofbananasareactualservicesuppliersandthatoperatorsthatformpartofverticallyintegratedcompanies
havethecapability andopportunity tobecome atanytimeservice suppliers byentering thewholesale
service supply market (paragraph 7.320). Finally, werecall ourfindings thatwholesale transactions
aswellaseachofthedifferent subordinated services mentioned intheheadnote tosection 6ofthe
CPC are"like" when supplied inconnection withwholesale services, irrespective ofwhether these
services aresupplied inrespect ofbananas ofECandtraditional ACPorigin, ontheonehand, orwith
respect tobananas ofthird-country ornon-traditional ACPorigin, ontheother, andthat,inourview,
atleast totheextent thatentities provide these likeservices, they arelikeservice suppliers
(paragraph 7.322).
7.347 Inexamining theArticle IIissues presented, wenotethatthecategorization ofoperators and
theallocation oflicences tothem isbased onwhether theyhave, during aprevious three-year period,
marketed ECandtraditional ACP bananas orthird-country andnon-traditional ACP bananas. We
recall ourfinding thatoperator category rulesarguably apply onaformally identical basistoallservices
regardless oftheirorigin andtoallservice suppliers regardless oftheirnationality, ownership orcontrol
509Operators inACP ownership orcontrol: e.g.Jamaica Producers, Winban/Wibdeco. (Information submitted bythe
Complainants). According totheEC,atleastoneofthesubsidiaries ofJamaica Producers isnotinACPownership orcontrol.WT/DS27/R/USA
Page379
(paragraph 7.324). Thus, theECrulesestablishing operator categories donotformally accord treatment
lessfavourable toComplainants 'services andservice suppliers thantoservices andservices suppliers
ofACP countries onthebasis oftheirorigin.
7.348 AsinthecaseoftheArticle XVII claim, wealsonotethatitistruethatservice suppliers of
Complainants 'origin whoprovide wholesale trade services onlywithrespect tothird-country ornon-
traditional ACPbananas aresubject tooperator category rules, while service suppliers ofACPorigin
thatmarket traditional ACP(orEC)bananas arenot.However, operators whohavesupplied wholesale
trade services onlywithrespect tothird-country andnon-traditional ACP bananas arenotlegally
prevented fromsupplying suchservices withrespect toECandtraditional ACPbananas. Bysupplying
suchservices tothetraditional ACPandECmarket segment, suppliers canavoid, orreduce theextent
towhich theyareaffected by,operator category rules.
7.349 Wethenturntothequestion whether theapplication ofarguably formally identical operator
category rulesmight nonetheless result inservices orservice suppliers ofComplainants 'origin being
accorded lessfavourable treatment thanlikeservices orservice suppliers ofACP origin inamanner
inconsistent withArticle IIofGATS. Inthiscontext, werecall ourfinding thattheobligations contained
inArticle II:1ofGATS toextend "treatment nolessfavourable" should beinterpreted torequire
providing nolessfavourable conditions ofcompetition (paragraph 7.304). Thus, thesame analysis
usedtoevaluate theArticle XVII claim inrespect ofoperator category rulesisapplicable hereaswell.
7.350 Therefore, werecall ourreasoning inthecontext oftheparallel claim under Article XVII.
Category Boperators areeligible fortheallocation of30percentofthelicences required forthird-
countryornon-traditionalACPimportsatin-quotatariffratesregardlessofwhethertheyhavepreviously
traded atallinthird-country bananas. Based ontheirpastimport performance inthird-country and
non-traditional ACPbananas, Category Aoperators areeligible foronly66.5percentofthelicences
allowing third-country ornon-traditional ACPimports atin-quota tariffrates. Accordingly, wefound
that,when third-country licences aretraded, Category Boperators willusually sell,andCategory A
operators willusually purchase, licences. Furthermore, weconcluded thatoperators whoareinitial
licence holders haveagreater opportunity tobenefit from tariff quota rents thanoperators whoare
licence transferees andthatmostlicence transferees areCategory Aoperators. Wefurther found that
mostservice suppliers ofComplainants 'origin areclassified formostoftheirpastmarketing ofbananas
asCategory Aoperators, while mostservice suppliers ofACP(andEC)origin areregistered formost
oftheirpastmarketing ofbananas asCategory Boperators.510
7.351 Forthesereasons, although operator category rulesapply regardless oftheorigin oftheservice
ortheservice supplier concerned, service suppliers ofComplainants 'origin aresubject tolessfavourable
treatment thanservice suppliers ofACP origin asaresult oftheallocation toCategory Boperators
of30percentofthelicences required forin-quota imports ofthird-country andnon-traditional ACP
bananas.
7.352 While theforegoing analysis issufficient forustofindthattheoperator category rules are
inconsistent withtherequirements ofArticle IIofGATS, weconsider ituseful tonotethatour
conclusions aresupported bytheconsiderations advanced bytheECinthecontext oftheintroduction
ofthelicensing system applicable tothird-country andnon-traditional ACP imports. According to
ECsources,511theallocation of30percentofthelicences required fortheimportation ofthird-country
510Operators classified formost oftheirpasttrade volume asCategory Boperators: e.g.Jamaica Producers (Jamaica),
Winban/Wibdeco (Windward Islands). (Information submitted bytheComplainants).
511Theimpact ofcross-subsidization within thebanana regime (cited innote506supra).WT/DS27/R/USA
Page380
andnon-traditional ACPbananas atin-quota tariffratestothoseoperators whohavepreviously marketed
traditional ACPandECbananas isintended to"cross-subsidize" thelatter category ofoperators with
tariffquota rentsinorder tooffset thehigher costsofproduction, tostrengthen theircompetitive position
andtoencourage them tocontinue marketing bananas oftraditional ACP (andEC)origin.
7.353 Consequently, wefindthattheallocation toCategory Boperators of30percentofthe
licences allowing theimportation ofthird-country andnon-traditional ACP bananas atin-quota
tariff rates creates lessfavourable conditions ofcompetition forlikeservice suppliers of
Complainants 'origin andistherefore inconsistent withtherequirements ofArticle IIofGATS.
(d) Activity functions
7.354 Activity function rules apply toCategory Aoperators aswellastoCategory Boperators.
Article 3ofRegulation 1442/93 defines three categories ofeconomic activity, i.e.,(1)"primary"
importers, (2)"secondary" importers (i.e., customs clearers) and(3)ripeners. Fixed percentages of
thelicences required fortheimportation originating inthirdcountries ornon-traditional ACPcountries
atin-quota tariff ratesareallocated onthebasis ofthese "activity functions": Article 5ofRegulation
1442/93 provides foraweighting coefficient of57percentforprimary importers, 15percentfor
secondary importers and28percentforripeners. Inintroducing activity functions theECstates that
"theCommission isguided bytheprinciple whereby thelicences mustbegranted tonatural orlegal
persons whohaveundertaken thecommercial riskofmarketing bananas andbythenecessity ofavoiding
disturbingnormaltradingrelationsbetweenpersonsoccupyingdifferentpointsinthemarketingchain".512
(i)Article XVII ofGATS
7.355 IntheviewoftheComplainants, theallocation ofthird-country tariff quota licences based on
activity functions-in particular thereservation of15percentforsecondary importers andof28per
centforripeners, mostofwhich theyclaim, areECfirms -serves thepurpose ofre-allocating market
shares previously heldbythird-country firms andmodifies theconditions ofcompetition infavour
oflikeservices suppliers ofECorigin. Therefore, theComplainants claim thattheactivity function
rulesviolate Article XVII ofGATS vis-à-vis likeECservice suppliers ofservices covered bytheEC
commitments onnational treatment.
7.356 TheECargues thatthecreation ofactivity functions aimsatavoiding theconcentration of
economic bargaining power -which results from theallocation ofimport licences -inthehands of
afewprivileged recipients ataspecific stage ofthesupply chain.
7.357 InlightoftheseargumentsweturntoanexaminationoftheissuesarisingunderthisArticleXVII
claim. Inorder toestablish abreach ofthenational treatment obligation ofArticle XVII, threeelements
needtobedemonstrated: (i)theEChasundertaken acommitment inarelevant sector andmode of
supply; (ii)theEChasadopted orapplied ameasure affecting thesupply ofservices inthatsector
and/or mode ofsupply; and(iii)theEC'smeasure accords toservice suppliers ofanyother Member
treatment lessfavourable thanthatitaccords totheEC'sownlikeservice suppliers.
7.358 Astothefirsttwoelements, wehavealready determined thattheEChasmade acommitment
inrespect ofwholesale trade services withrespect toservice supply across borders andthrough
commercial presence without conditions orqualifications inthemeaning ofArticle XVII
512Recital 15ofRegulation 404/93.WT/DS27/R/USA
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(paragraph 7.306). WefindthattheECmeasures implementing theactivity function rulesconstitute
measures affecting tradeinservices forthesame reasons thatwefound thattheoperator category rules
constitute measures affecting trade inservices (paragraphs 7.277 etseq.).
7.359 Turning tothethirdelement, wemustconsider whether theEC,byapplying theactivity function
rules, accords service suppliers ofanyComplainant treatment lessfavourable thanthatitaccords to
likeservice suppliers oftheEC. Inthisconnection, werecall thatwehavefound thatCategory A,
BandCoperators whoareengaged inthemarketing ofbananas areactual service suppliers andthat
operators thatformpartofvertically integrated companies havethecapability andopportunity tobecome
atanytimeservicesuppliersbyenteringthewholesaleservicesupplymarket(paragraph7.320).Finally,
werecall ourfindings (paragraph 7.322) thatwholesale transactions aswellaseachofthedifferent
subordinated services mentioned intheheadnote tosection 6oftheCPCare"like" when supplied in
connection withwholesale services, irrespective ofwhether these services aresupplied inrespect of
bananas ofECandtraditional ACPorigin, ontheonehand, orwithrespect tobananas ofthird-country
ornon-traditional ACP origin, ontheother, andthat,inourview, atleasttotheextent thatentities
provide these likeservices, theyarelikeservice suppliers.
7.360 Inexamining theissues presented bytheComplainants, werecall thatunder theECactivity
function rules, claims forreference quantities ofECandtraditional ACP bananas marketed during
apreceding three-year period byCategory Boperators aswellasclaims astoquantities ofthird-country
andnon-traditional ACP bananas imported during thatperiod byCategory Aoperators areweighted
according totheactivity functions performed bythese operators. Theweighting coefficient of57per
centforprimary importers, 15percentforsecondary importers and28percentforripeners relates
totheimportation, customs clearance andripening activities performed byCategory AandBoperators
during theprevious three-year period. Activity function rulesapply toallservice suppliers regardless
oftheirnationality, ownership orcontrol. Suppliers ofECorigin whosupply wholesale services with
respect tothird-country andnon-traditional ACPbananas areequally subject toactivity function rules
assuppliers ofComplainants 'origin whoprovide wholesale services withrespect tothird-country and
non-traditional ACPbananas. Likewise, suppliers ofECorigin aretreated inthesamewaybyactivity
function ruleswhen theysellormarket ECortraditional ACPbananas assuppliers ofComplainants '
origin thatdealinECortraditional ACP bananas. Accordingly, weconclude thattheECrules
establishing activity functions donotdiscriminate against Complainants 'likeservice suppliers onthe
basisoftheirorigin andthusarearguably formally identical inthemeaning ofArticle XVII:2 forservice
suppliers ofdomestic aswellasforeign origin.
7.361 Wethenturntothequestion whether theapplication ofarguably formally identical activity
function rulestoservice suppliers ofComplainants 'origin modifies, inthemeaning ofArticle XVII,
conditions ofcompetition infavour oflikeservice suppliers ofECorigin. Inthiscontext, wenote
thatservice suppliers ofComplainants 'origin whosellthird-country ornon-traditional ACPbananas
aresubject toactivity function rules, while likeservice suppliers ofECorigin whosellECbananas
arenot.However, operators whohavesupplied wholesale services exclusively ormainly withrespect
tothird-country andnon-traditional ACP bananas arenotlegally prevented from choosing tobegin
supplying ortosupply more suchservices withrespect toEC(andtraditional ACP) bananas. By
supplying wholesale services totheEC(andtraditional ACP) banana market segment, suppliers can
avoid, orreduce theextent towhich theyare,subject toactivity function rules.513
7.362 However, wealsohavetoexamine theimpact oftheintroduction ofactivity function rules
onmarket conditions. Asnoted above, theECstates thattheEuropean Commission doesnothave
513Furthermore, these suppliers willbecome eligible fortheallocation of30percentofthein-quota licences required
forthird-country andnon-traditional ACP imports which areallocated toCategory Boperators.WT/DS27/R/USA
Page382
arecord oftheactual ownership orcontrol ofcompanies registered toreceive licences under whatever
activity function. Wenotethatacompany mayclaim reference quantities forthecalculation oftheir
annuallicenceentitlementatthesametimeforprimaryimportation,customsclearanceaswellasripening
activities. Butwealsohavetoconsider theinformation submitted bytheComplainants according to
which in1992 overall about 83percentofbananas imported ormarketed intheEC-andbetween
57and100percentinindividual ECMember States514-were ripened byECowned orcontrolled
ripeners before theintroduction ofthecommon market organization. TheECchallenges thesestatistics
asexaggerated. ButeventheECstatistics515suggest that74to80percentofripeners areECcontrolled.
Thus, weconclude thatthevastmajority oftheripening capacity intheECisowned orcontrolled
bynatural orjuridical persons oftheECandthatmostofthebananas produced inorimported tothe
ECareripened inECowned orcontrolled ripening facilities. Indeed, asnoted above bytheECitself,
theactivity function ruleswereputinplace toprevent aconcentration ofeconomic bargaining power
inthehands ofthelargemultinational companies, which theECelsewhere initssubmission describes
asChiquita, DoleandDelMonte. Therefore, mostoftheclaims astoripening activities performed
willbefiledbyripeners ofECorigin whoareactual orpotential wholesale service suppliers. Likewise,
weareconvinced thatmost oftheservice suppliers ofComplainants 'origin willusually beableto
claim reference quantities onlyforprimary importation andpossibly forcustoms clearance, butnot
fortheperformance ofripening activities. Wefurther notethatwehavenotbeenpresented with
sufficient information toascertain whether companies carrying outcustoms clearance activities are
predominantly inECorthird-country ownership orcontrol. Norareweinaposition todetermine
whether self-employed natural persons performing customs clearance activities aremainly ECorthird-
country nationals. Therefore, service suppliers ofECaswellasthird-country origin dohavecomparable
opportunities tofileclaims astoprimary andsecondary importation activities performed withtheEC
authorities, whereas service suppliers ofComplainants 'origin donotenjoy equal competitive
opportunities tomake claims fortheperformance ofripening activities asservice suppliers ofECorigin.
7.363 Under theactivity function rules, primary importers mayobtain access toanamount ofAand
Blicences equivalent to57percentoftheirpastimport volumes unless theyalsoperform customs
clearance orripening activities. Atthesame time, customs clearers areallocated 15percent, and
ripeners areeligible for28percentoftheAandBlicences required fortheimportation ofthird-country
ornon-traditional ACPbananas atin-quota tariffrates, regardless ofwhether theyhaveimported bananas
514Average estimated volume ripened byECowned ripeners in1992 (Information submitted bytheComplainants):
[Austria: 100.0%]
Belgium/Luxembourg: 73.1%
Denmark: 100.0%
[Finland: 100.0%]
France: 87.5%
Germany: 57.0%
Greece: 100.0%
Ireland: 94.5%
Italy: 100.0%
Netherlands: 87.0%
Portugal: 100.0%
Spain: 94.9%
[Sweden: 100.0%]
United Kingdom: 100.0%
ECtotal: 83.7%
WenotethatAustria, Finland andSweden didnotbecome ECmember States until1995.
515Initssecond oralstatement, theECstated that"theripening sector hasalways been...penetrated byforeign suppliers
ofripening services orofripeners fortheaccount ofintegrated firms (around 20%)". Attheinterim hearing, theECstated
that"[a]tpresent, ourbestindications arethatthesome 50ripening companies owned orcontrolled byChiquita andDole
andthe5DelMonte companies count for26percentofripening declarations intheEC-15".WT/DS27/R/USA
Page383
inthepast. However, wealsohave totakeintoaccount thatimport licences aretradeable and
transferable. Thus, theallocation offixedpercentages oflicences through theapplication ofweighting
coefficients (toclaims forreference quantities) totheperformers ofparticular activity functions does
notautomaticallydeterminethedistributionofimportsharesbetweenoperatorsperformingthesedifferent
types ofeconomic activity inthesupply chain. Infact,bothparties agree thatlargenumbers ofimport
licences arebeing traded onthemarket place. Consequently, primary importers are,ingeneral, able
topurchase theamount ofthelicences theyneedinaddition totheirannual licence entitlement ifthey
wish tomaintain theirprevious market share, e.g.from ripeners whohavenotimported bananas
themselves. Thus webelieve that,when licences arebeing traded, sellers oflicences willusually be
ripeners andpurchasers oflicences willusually beprimary importers. Accordingly, mostofthelicence
transferees willbeprimary importers, while most ofthose initial licence holders whodonotcarry
outthephysical importation themselves butsellthelicences issued tothemwillberipeners. However,
while aninitial licence holder whocarries outthephysical importation ofbananas orsellsthelicence
willinanycasereaptariffquota rents, alicence transferee willhavepurchased thelicence foranamount
uptothetariff quota rentfromtheinitial licence holder. Thus alicence transferee doesnothavethe
opportunity tobenefit from tariff quota rents equivalent tothose ofaninitial licence holder. Given
thatlicence transferees areusually primary importers andthatlicence sellers areusually ripeners which,
asnoted above, areoverwhelmingly ECowned orcontrolled, suppliers ofECorigin, albeit being subject
toformally identical treatment, enjoy more favourable conditions ofcompetition inthemeaning of
Article XVII:3 ofGATS thanlikewholesale service suppliers ofComplainants 'origin.
7.364 Primary importers whowishtomaintain theirprevious market share alsohavetheoptions
ofentering intocontractual arrangements with, orinvesting in,companies performing customs clearing
orripening activities. However, whatever option primary importers choose inorder toobtain licences
inaddition totheirinitial entitlement, e.g.,adhocpurchases oflicences from, orlong-term investment
orpartnership arrangements with, secondary importers orripeners, thefactthatlicence transferees
aresubject tolessfavourable conditions ofcompetition thaninitial licence holders remains thesame.
Thus, theavailability ofalternative options toobtain access toadditional licences doesnotdetract from
ourconclusion inthepreceding paragraph thatthevastmajority ofripeners areECowned orcontrolled
andenjoy more favourable conditions ofcompetition thanlikewholesale service suppliers offoreign
origin.
7.365 Under operator category rules, onthebasis oftheirthird-country andnon-traditional ACP
imports during apreceding three-year period, primary importers classified inoperator Category A
areeligible forlicences for66.5percentofthelicences allowing imports ofthird-country andnon-
traditional ACP bananas atin-quota tariff rates. Under activity function rules, theentitlements of
operators whoareprimary importers arereduced to57percentofthebananas marketed during a
preceding three-year period unless suchoperators alsoengage incustoms clearance orripening activities.
While primary importers whoareCategory Boperators aresubject tothesame weighting coefficients
asCategory Aoperators, these Category Boperators have, onthebasisoftheirmarketing ofECand
traditional ACP bananas during apreceding three-year period, access to30percentofthelicences
allowing imports ofthird-country andnon-traditional ACPbananas atin-quota tariff ratesregardless
ofwhether theyhavepreviously traded inthelatter market segment. Therefore, thepurchasers of
licences willbemore often primary importers whoareCategory Aoperators thanprimary importers
whoareCategory Boperators. Thus, theallocation oflicences according toactivity functions iscapable
ofaggravating theadverse impact ofthelicence allocation todifferent operator categories forthose
service suppliers whoareofComplainants 'origin.
7.366 Therefore, weconclude thattheallocation offixedpercentages oflicences according toactivity
functions performed byoperators arguably applies onaformally identical basistoallwholesale service
suppliers regardless oftheirorigin, nationality, ownership orcontrol. However, theallocation ofsuch
licences according toactivity functions modifies conditions ofcompetition infavour ofservice suppliersWT/DS27/R/USA
Page384
ofECorigin given thatthevastmajority ofripeners whoareactually supplying, orcapable ofsupplying,
wholesale services areofECorigin.
7.367 Theforegoing analysis issufficient forustofindthattheactivity function rulesareinconsistent
withtherequirements ofArticle XVII ofGATS. Nevertheless, weconsider ituseful tonotethatour
conclusions aresupported bythefactthataccording toECsources, theallocation of28percentof
theAandBlicences allowing third-country andnon-traditional ACP imports atin-quota tariff rates
toripeners regardless ofwhether theyhavepreviously imported bananas isintended tostrengthen their
bargaining position inthesupply chain towards primary importers.516
7.368 Consequently, wefindthattheallocation toripeners of28percentoftheCategory A
andBlicences allowing theimportation ofthird-country andnon-traditional ACP bananas at
in-quota tariff rates creates lessfavourable conditions ofcompetition forlikeservice suppliers
ofComplainants 'origin andistherefore inconsistent withtherequirements ofArticle XVII of
GATS.
(ii)Article IIofGATS
7.369-7.372 [Used intheMexico report.]
(e) Export certificates
7.373 TheComplainants claim thattheexemption ofCategory Boperators from therequirement
imposed onother operators byRegulation 478/95 tomatch ECimport licences withBFA export
certificates withrespect toimports fromColombia, Costa RicaandNicaragua accords lessfavourable
treatment toservice suppliers ofthirdcountry origin. Asaresult, theECisalleged tobeinviolation
ofArticle IIofGATS withrespect tolikeservice suppliers ofACPorigin, andArticle XVII ofGATS
withrespect tolikeservice suppliers ofECorigin.
7.374 TheECresponds along thesamelinesthatithasinrespect oftheother GATS claims. Itpoints
outthatneither allCategory Alicence holders areinthird-country ownership, norareallCategory B
licences holders -thatbenefit fromaBFAexport certificate exemption -inEC/ACP control. Italso
argues thattheGATS doesnotcontain anyrulesgoverning theallocation ordistribution ofquota rents
which aregenerated bytrade instruments suchastariff quotas whose imposition islegitimate under
WTO agreements.
(i)Article XVII ofGATS
7.375 Inorder toestablish abreach ofthenational treatment obligation ofArticle XVII, threeelements
needtobedemonstrated: (i)theEChasundertaken acommitment inarelevant sector andmode of
supply; (ii)theEChasadopted orapplied ameasure affecting thesupply ofservices inthatsector
and/or mode ofsupply; and(iii)theEC'smeasure accords toservice suppliers ofanyother Member
treatment lessfavourable thanthatitaccords totheEC'sownlikeservice suppliers.
516"Attheripener level, holders ofCategory Blicences willusetheirlicences toaidintheirnegotiations withtheirsuppliers
ofbananas, betheydollar, ACP orEC". European Commission, Report ontheECBanana Regime, VI/5671/94, p.10f.WT/DS27/R/USA
Page385
7.376 Inrespect ofthefirstelement, werecall thattheEChasbound thewholesale trade service
subsector asregards service supply across borders andthrough commercial presence without conditions
orqualifications limiting thescope ofthecommitments.
7.377 Astothesecond element, i.e.,whether theECmeasures implementing theexport certificate
requirement aremeasures affecting thesupply ofservices, werecall thatwehavefound thattheterm
"affecting" should beinterpreted broadly (paragraphs 7.277 etseq.).Inthisconnection, wealsonote
thatsupply ofservices through cross-border supply orcommercial presence isdefined broadly toinclude
theproduction, distribution, marketing, saleanddelivery ofsuchservices.517Asaconsequence, in
ourview, theECmeasures establishing export certificate requirements are"measures affecting trade
inservices" inthemeaning oftheGATS andaremeasures affecting Complainants 'trade inservices
forthesame reasons asareoperator category andactivity function rules.
7.378 Weturnnowtothethirdelement ofwhether theexport certificate requirement accords toservice
suppliers oftheComplainants treatment lessfavourable thanthatitaccords totheEC'sownlikeservice
suppliers. Wenotethattheparties donotdisagree thattherequirement tomatch ECimport licences
withBFAexport certificates serves thepurpose, oratleasthastheeffect, oftransferring partofthe
tariffquota rentwhich would normally accrue toinitial ECimport licence holders tothesuppliers from
Colombia, Costa RicaandNicaragua whoareinitial holders ofBFAexport certificates. According
toArticle 3ofRegulation 478/95, Category AandCoperators aresubject totheEC'srequirement
tomatch import licences withBFAexport certificates, whereas Category Boperators arenotsubject
toasimilar requirement. Therefore, Category Boperators whoareinitial holders ofECimport licences
donothavetoshare partofthetariffquota rentwithinitial holders ofBFAexport certificates. However,
Category AandCoperators mustobtain export certificates from holders ofBFAexport certificates
issued bythecompetent authorities ofColombia, Costa RicaorNicaragua. When Category Aand
Coperators areinitial holders ofECimport licences theyshare partofthetariffquota rentwithinitial
holders ofBFAexport certificates. Consequently, theexemption ofCategory Boperators from the
BFA export certificate requirement ensures thattariff quota rentshares thatwould normally accrue
toinitial ECimport licence holders aretransferred exclusively fromsuchholders whoareCategory A
andCoperators toinitial holders ofBFAexport certificates.
7.379 Inthiscontext, werecall thatoperator category rulesapply onanarguably formally identical
basis toallservice suppliers regardless oftheirnationality, ownership orcontrol (paragraph 7.324).
Bythesame token, weconclude thattheexemption ofCategory Boperators from therequirement
tomatch ECimport licences withBFAexport certificates alsoarguably applies onaformally identical
basis irrespective oftheorigin oftheservice suppliers concerned. However, wealsorecall thatmost
servicesuppliersofComplainants'originareclassifiedasCategoryAoperatorsformostoftheirprevious
trade volume andthatmostofthe"like" service suppliers ofECorigin areclassified asCategory B
operatorsformostofthebananastheyhavemarketedduringaprecedingthree-yearperiod.Accordingly,
weconclude thattheexemption ofCategory Boperators from therequirement tomatch ECimport
licences withBFAexport certificates constitutes lessfavourable treatment forsuppliers ofComplainants '
origin because itmodifies conditions ofcompetition inthemeaning ofArticle XVII:3 ofGATS infavour
of"like" service suppliers orECorigin.
7.380 Forthese reasons, wefindthattheexemption ofCategory Boperators ofECorigin from
therequirement tomatch ECimport licences withBFAexport certificates creates lessfavourable
conditions ofcompetition forlikeservice suppliers ofComplainants 'origin andistherefore
inconsistent withtherequirements ofArticle XVII ofGATS.
517GATS, Article XXVIII:(b).WT/DS27/R/USA
Page386
(ii)Article IIofGATS
7.381 Inaddressing theclaim inrespect ofexport certificates under Article II,werecall thattwo
elements needtobedemonstrated inorder toestablish aviolation oftheGATS MFN clause: (i)the
EChasadopted orapplied ameasure covered byGATS; (ii)theEC'smeasure accords toservice
suppliers oftheComplainants 'origin treatment lessfavourable thanthatitaccords tothelikeservices
suppliers ofanyother country.
7.382 Astothefirstelement, i.e.,whether theECmeasures implementing theexport certificate
requirement aremeasures covered byGATS, werecall thatwehavefound thatthephrase "affecting
trade inservices" should beinterpreted broadly (paragraphs 7.277 etseq.).Inthisconnection, we
alsonotethatsupply ofservices through cross-border supply orcommercial presence isdefined broadly
toinclude theproduction, distribution, marketing, saleanddelivery ofsuch services.518Asa
consequence, inourview, theECmeasures are"measures affecting tradeinservices" inthemeaning
oftheGATS.Morespecifically,therulesestablishingexportcertificaterequirementsconstitutemeasures
affecting theComplainants 'tradeinservices forthesame reasons asdooperator category andactivity
function rules andaretherefore covered byGATS.
7.383 Weturnnowtothesecond element ofwhether theexport certificate requirement accords to
service suppliers oftheComplainants treatment lessfavourable thanthatitaccords tolikeservice
suppliers ofACP origin. Wenotethattheparties donotdisagree thattherequirement tomatch EC
import licences withBFAexport certificates serves thepurpose, oratleasthastheeffect, oftransferring
partofthetariff quota rentwhich would normally accrue toinitial ECimport licence holders tothe
suppliers fromColombia, Costa RicaandNicaragua whoareinitial holders ofBFAexport certificates.
According toArticle 3ofRegulation 478/95, Category AandCoperators aresubject totheEC's
requirement tomatch import licences withBFAexport certificates, whereas Category Boperators are
notsubject toasimilar requirement. Therefore, Category Boperators whoareinitial holders ofEC
import licences donothavetoshare partofthetariff quota rentwithinitial holders ofBFA export
certificates. However, Category AandCoperators must obtain export certificates from holders of
BFAexport certificates issued bythecompetent authorities ofColombia, Costa RicaorNicaragua.
When Category AandCoperators areinitial holders ofECimport licences theyshare partofthetariff
quota rentwithinitial holders ofBFAexport certificates. Consequently, theexemption ofCategory B
operators fromtheBFAexport certificate requirement ensures thattariffquota rentshares thatwould
normally accrue toinitial ECimport licence holders aretransferred exclusively fromsuchholders who
areCategory AandCoperators toinitial holders ofBFAexport certificates.
7.384 Inthiscontext, werecall thatoperator category rulesapply onanarguably formally identical
basis toallservice suppliers regardless oftheirnationality, ownership orcontrol (paragraph 7.324).
Bythesame token, weconclude thattheexemption ofCategory Boperators from therequirement
tomatch ECimport licences withBFAexport certificates alsoarguably applies onaformally identical
basis irrespective oftheorigin oftheservice suppliers concerned. However, wealsorecall thatmost
servicesuppliersofComplainants'originareclassifiedasCategoryAoperatorsformostoftheirprevious
trade volume andthatmostofthe"like" service suppliers ofACPorigin areclassified asCategory B
operatorsformostofthebananastheyhavemarketedduringaprecedingthree-yearperiod.Accordingly,
weconclude thattheexemption ofCategory Boperators from therequirement tomatch ECimport
licences withBFAexport certificates constitutes lessfavourable treatment forsuppliers ofComplainants '
origin because itmodifies conditions ofcompetition infavour of"like" service suppliers orACPorigin.
518GATS, Article XXVIII:(b).WT/DS27/R/USA
Page387
7.385 Accordingly, wefindthattheexemption ofCategory Boperators ofACP origin from
therequirement tomatch ECimport licences withBFAexport certificates creates lessfavourable
conditions ofcompetition forlikeservice suppliers ofComplainants 'origin andistherefore
inconsistent withtherequirements ofArticle IIofGATS.
(f) Hurricane licences
7.386 Hurricane licences519authorize operators whoinclude orrepresent ECandACP producers,
orproducer organizations "toimport incompensation third-country bananas andnon-traditional ACP
bananas forthebenefit oftheoperators whodirectly suffered damage asaresult oftheimpossibility
ofsupplying theCommunity market withbananas originating inaffected producer regions" because
oftheimpact oftropical storms. Intheaftermath ofthehurricanes Debbie, Iris,LuisandMarilyn,
281,605 tonnes ofthird-country ornon-traditional ACPimports wereauthorized between 16November
1994 andMay1996.520
7.387 TheComplainants claim thattheaward oflarge amounts ofhurricane licences bytheEC
exclusively toCategory Boperators andECproducers accords lessfavourable treatment tothirdcountry
service suppliers. Therefore, theECisalleged tobeinviolation ofArticle IIofGATS because of
itstreatment ofACPsuppliers, andinviolation ofArticle XVII ofGATS because ofitstreatment of
ECsuppliers.
7.388 TheECresponds thattheissuance ofhurricane licences isrequired bytheLomé Convention.
Further, theECargues thattheallocation ofhurricane licences isdirectly linked totrade ingoods.
Therefore, inconsistencies withArticle IIorXVII ofGATS cannot occur because thehurricane licences
arenotcovered bytheGATS intheEC'sview.
(i)Article XVII ofGATS
7.389 Inorder toestablish abreach ofthenational treatment obligation ofArticle XVII, threeelements
needtobedemonstrated: (i)theEChasundertaken acommitment inarelevant sector andmode of
supply; (ii)theEChasadopted orapplied ameasure affecting thesupply ofservices inthatsector
and/or mode ofsupply; and(iii)theEC'smeasure accords toservice suppliers ofanyother Member
treatment lessfavourable thanthatitaccords totheEC'sownlikeservice suppliers.
7.390 Inrespect ofthefirstelement, werecall thattheEChasbound thewholesale trade service
subsector asregards service supply across borders andthrough commercial presence without conditions
orqualifications limiting thescope ofthecommitments.
7.391 Astothesecond element, i.e.,whether theECmeasures implementing hurricane licences are
measures affecting thesupply ofservices, werecall thatwehavefound thattheterm"affecting" should
beinterpreted broadly (paragraphs 7.277 etseq.).Inthisconnection, wealsonotethatsupply ofservices
through cross-border supply orcommercial presence isdefined broadly toinclude theproduction,
distribution, marketing, saleanddelivery ofsuchservices. Asaconsequence, inourview, theEC
banana regulations are"measures affecting trade inservices" inthemeaning oftheGATS. More
519SeeECregulations cited innote449supra.
520Seenote451supra.WT/DS27/R/USA
Page388
specifically, therulesestablishing hurricane licences constitute measures affecting Complainants 'trade
inservices.
7.392 Wenowturntothethirdelement ofwhether theissuance ofhurricane licences accords toservice
suppliers oftheComplainants treatment lessfavourable thanthatitaccords totheEC'sownlikeservice
suppliers. Inaddressing thisissue, wenotethatwhile onlyoperators whoinclude ordirectly represent
ECorACPproducersorproducerorganizationsaffectedbyatropicalstormareeligiblefortheallocation
ofhurricane licences,521theECregulations authorizing theissuance ofcertain quantities ofhurricane
licences apply onanarguably formally identical basis toservices andservice suppliers regardless of
theirorigin, nationality, ownership orcontrol. However, likeCategory Boperators ingeneral, we
findthatthevastmajority ofoperators who"include ordirectly represent" ECorACPproducers are
service suppliers ofEC(orACP) origin. Wefurther notethathurricane licences allow forthe
importationofthird-countryandnon-traditionalACPbananasatin-quotatariffratesoutsideandadditional
tothetariff quota. Thus service suppliers ofEC(orACP) origin obtain access toanadditional
entitlement oflicences allowing theimportation ofthird-country andnon-traditional ACPbananas at
in-quota tariffratesbeyond theexisting allocation toCategory Boperators of30percentofthelicences
allowing imports ofsuchbananas within thetariffquota. Toputitdifferently, theallocation ofhurricane
licences gives service suppliers ofEC(andACP) origin theopportunity tobenefit from tariff quota
rentsinaddition tothetariffquota rentsgenerated bytheallocation of30percentofthein-quota import
licences tothem. Thus thefactthatonlyoperators whoinclude ordirectly represent EC(orACP)
producersareeligibleforsuchlicencesmodifiesconditionsofcompetitioninfavourofwholesaleservices
suppliers ofEC(andACP) origin, since likeservice suppliers ofComplainants 'origin, ifandwhen
affected byahurricane, donotenjoy asimilar rent-making opportunity. Wefurther notethatour
findings arelimited tothepresent factual situation where hurricane licences areissued tooperators
whoexclusively include orrepresent EC(orACP) producers. Ourlegalanalysis would notnecessarily
apply toasituation where hurricane licences were issued directly andexclusively toEC(orACP)
producers.
7.393 Consequently, wefindthattheallocation ofhurricane licences exclusively tooperators
whoinclude ordirectly represent ECproducers creates lessfavourable conditions ofcompetition
forlikeservicesuppliersofComplainants'originandisthereforeinconsistentwiththerequirements
ofArticle XVII ofGATS.
(ii)Article IIofGATS
7.394 Inaddressing theclaim inrespect ofhurricane licences under Article II,werecall thattwo
elements needtobedemonstrated inorder toestablish aviolation oftheGATS MFN clause: (i)the
EChasadopted orapplied ameasure covered byGATS; (ii)theEC'smeasure accords toservice
521"1.The quantities referred toinArticle 1(2)shall beallocated totheoperators who:
- include ordirectly represent banana producers affected bytropical storm Debbie.
- andwho, during thelastquarter of1994, areunable tosupply, ontheirownaccount, theCommunity market with
bananas originating intheregions orcountries referred to1(2)onaccount ofthedamage caused bytropical storm
Debbie.
2. Thecompetent authorities intheMember States concerned shall determine thebeneficiary operators whomeet
therequirements ofparagraph 1andshall make anallocation toeachofthem pursuant tothisRegulation onthebasis of:
- thequantities allocated totheproducer regions orcountries referred toinArticle 1(2)andof
- thedamage sustained asaresult oftropical storm Debbie.
3. Thecompetent authorities shallassess thedamage sustained onthebasisofallsupporting documents andinformation
collected from theoperators concerned." Article 2ofCommission Regulation (EC) No.2791/94 of16November 1994 on
theexceptional allocation ofaquantity additional tothetariff quota forimports ofbananas in1994 asaresult oftropical
storm Debbie." Idem, Article 4.WT/DS27/R/USA
Page389
suppliers oftheComplainants 'origin treatment lessfavourable thanthatitaccords tothelikeservices
suppliers ofanyother country.
7.395 Astothefirstelement, i.e.,whether theEChasadopted orapplied ameasures covered by
GATS, werecall thatwehavefound thatthephrase "affecting tradeinservices" should beinterpreted
broadly (paragraphs 7.277 etseq.).Inthisconnection, wealsonotethatsupply ofservices through
cross-border supply orcommercial presence isdefined broadly toinclude theproduction, distribution,
marketing, saleanddelivery ofsuchservices. Asaconsequence, inourview, theECbanana regulations
are"measures affecting trade inservices" inthemeaning oftheGATS. More specifically, therules
establishing hurricane licences constitute measures affecting theComplainants 'trade inservices and
aretherefore covered byGATS.
7.396 Wenowturntothesecond element ofwhether theissuance ofhurricane licences accords to
service suppliers oftheComplainants treatment lessfavourable thanthatitaccords tolikeservice
suppliers ofACP origin. Inaddressing thisissue, wenotethatwhile onlyoperators whoinclude or
directly represent ECorACP producers orproducer organizations affected byatropical storm are
eligible fortheallocation ofhurricane licences,522theECregulations authorizing theissuance ofcertain
quantities ofhurricane licences apply onanarguably formally identical basis toservices andservice
suppliers regardless oftheirorigin, nationality, ownership orcontrol. However, likeCategory B
operators ingeneral, wefindthatthevastmajority ofoperators who"include ordirectly represent"
ECorACP producers areservice suppliers ofACP (orEC)origin. Wefurther notethathurricane
licences allow fortheimportation ofthird-country andnon-traditional ACPbananas atin-quota tariff
ratesoutside andadditional tothetariff quota. Thus service suppliers ofACP(orEC)origin obtain
accesstoanadditionalentitlementoflicencesallowingtheimportationofthird-countryandnon-traditional
ACPbananas atin-quota tariff ratesbeyond theexisting allocation toCategory Boperators of30per
centofthelicences allowing imports ofsuchbananas within thetariff quota. Toputitdifferently,
theallocation ofhurricane licences gives service suppliers ofACP (andEC)origin theopportunity
tobenefit fromtariffquota rentsinaddition tothetariffquota rentsgenerated bytheallocation of30per
centofthein-quota import licences tothem. Thus thefactthatonlyoperators whoinclude ordirectly
represent ACP (orEC)producers areeligible forsuchlicences modifies conditions ofcompetition
infavour ofwholesale services suppliers ofEC(andACP) origin, since likeservice suppliers of
Complainants 'origin, ifandwhen affected byahurricane, donotenjoy asimilar rent-making
opportunity. Wefurther notethatourfindings arelimited tothepresent factual situation where hurricane
licences areissued tooperators whoexclusively include orrepresent ACP (orEC)producers.
7.397 Consequently, wefindthattheallocation ofhurricane licences exclusively tooperators
whoinclude ordirectly represent ACPproducers creates lessfavourable conditions ofcompetition
forlikeservicesuppliersofComplainants'originandisthereforeinconsistentwiththerequirements
ofArticle IIofGATS.
5. NULLIFICATION ORIMPAIRMENT
7.398 Themeasures taken bytheECaffecting theimportation ofbananas from theComplainants,
because oftheinfringement ofobligations bytheECunder anumber ofWTO agreements, areaprima
faciecaseofnullification orimpairment ofbenefits inthemeaning ofArticle 3.8oftheDSU, which
provides that"there isnormally apresumption thatabreach oftherules hasanadverse impact on
522Idem.WT/DS27/R/USA
Page390
otherMemberspartiestothatcoveredagreement".Totheextentthatthispresumptioncanberebutted,523
inourviewtheEChasnotsucceeded inrebutting thepresumption thatitsbreaches ofGATT, GATS
andLicensing Agreement rules havenullified orimpaired benefits oftheComplainants.
D. SUMMARY OFFINDINGS
7.399 Thecomplexityofthiscase,andtheunprecedentednumberofclaims,argumentsandAgreements
involved, hasresulted inalongreport withanunprecedented number offindings. Toassist thereader,
thefindings onthevarious procedural andsubstantive issues arerepeated here. Insummary wefind
that
1. PRELIMINARY ISSUES
-theEC'sclaim thattheComplainants 'caseshould bedismissed because theconsultations held
concerning thisdispute didnotperform theirminimum function ofaffording apossibility forarriving
atamutually satisfactory solution andaclear setting outofthedifferent claims ofwhich adispute
consists shallberejected (paragraph 7.21).
-thepanel request made bytheComplainants wassufficient tomeettherequirements ofArticle 6.2
oftheDSU totheextent thatitalleged inconsistencies withtherequirements ofspecific provisions
ofspecific WTO agreements (paragraph 7.45).
-under theDSU theUnited States hasaright toadvance theclaims thatithasraised inthiscase
(paragraph 7.52).
-thedescription ofthePanel'sproceedings, thefactual aspects andtheparties 'arguments should be
identical inthefourreports. Inthe"Findings" section, however, thereports differ totheextent that
theComplainants 'initial written submissions tothePanel differ inrespect ofalleging inconsistencies
withtherequirements ofspecific provisions ofspecific agreements (paragraph 7.58).
2. THE ECMARKET FOR BANANAS: ARTICLE XIIIOFGATT
-bananas are"like" products, forpurposes ofArticle I,III,XandXIIIofGATT, irrespective ofwhether
theyoriginateintheEC,inACPcountries,inBFAcountriesorinotherthirdcountries(paragraph7.63).
-theEChasonlyoneregime forbanana imports forpurposes ofanalysing whether itsallocation of
tariff quota shares isconsistent withtherequirements ofArticle XIII(paragraph 7.82).
-itwasnotunreasonable fortheECtoconclude thatatthetimetheBFAwasnegotiated Colombia
andCosta Ricawere theonlycontracting parties thathadasubstantial interest insupplying theEC
banana market interms ofArticle XIII:2(d) (paragraph 7.85).
523SeePanel Report on"United States -Taxes onPetroleum andCertain Imported Substances", adopted on17June1987,
BISD 34S/136, 158, para. 5.1.9.WT/DS27/R/USA
Page391
-itisnotreasonable toconclude thatatthetimetheBFAwasnegotiated Nicaragua andVenezuela
hadasubstantial interest insupplying theECbanana market intheterms ofArticle XIII:2(d)
(paragraph 7.85).
-theEC'sallocation oftariffquota shares byagreement andbyassignment tosome Members nothaving
asubstantial interest insupplying bananas totheEC(including Nicaragua, Venezuela andcertain ACP
countries inrespect oftraditional andnon-traditional exports) butnottoother Members (such as
Guatemala) andthetariff quota reallocation rulesoftheBFA, areinconsistent withtherequirements
ofArticle XIII:1 (paragraph 7.90).
-thefailure ofEcuador 'sProtocol ofAccession toaddress banana-related issues doesnotmean that
Ecuador mustaccept thevalidity oftheBFAascontained intheEC'sSchedule orthatitisprecluded
from invoking Article XIII:2 orXIII:4 (paragraph 7.93).
-itwasnotunreasonable fortheECtoconclude thattheLomé Convention requires theECtoallocate
country-specific tariffquota shares totraditional ACPbanana supplying countries inanamount oftheir
pre-1991 best-ever exports totheEC(paragraph 7.103).
-theallocation oftariff quota shares toACP countries inexcess oftheirpre-1991 best-ever exports
totheECisnotrequired bytheLomé Convention (paragraph 7.103).
-totheextent thatwehavefound thattheEChasacted inconsistently withtherequirements of
Article XIII:1 (paragraph 7.90), wefindthattheLomé waiver waives thatinconsistency with
Article XIII:1 totheextent necessary topermit theECtoallocate shares ofitsbanana tariff quota to
specific traditional ACPbanana supplying countries inanamount notexceeding theirpre-1991 best-ever
exports totheEC(paragraph 7.110).
-theinclusion oftheBFA tariff quota shares intheEC'sSchedule doesnotpermit theECtoact
inconsistently withtherequirements ofArticle XIIIofGATT (paragraph 7.118).
-neither thenegotiation oftheBFA anditsinclusion intheEC'sSchedule northeAgreement on
Agriculture permit theECtoactinconsistently withtherequirements ofArticle XIIIofGATT
(paragraph 7.127).
3. TARIFF ISSUES
-totheextent thattheEC'spreferential tarifftreatment ofnon-traditional ACPbananas isinconsistent
withitsobligations under Article I:1,those obligations have been waived bytheLomé waiver
(paragraph 7.136).
4. THE ECBANANA IMPORT LICENSING PROCEDURES
-theLicensing Agreement applies tolicensing procedures fortariff quotas (paragraph 7.156).
-theprovisions ofGATT 1994, theLicensing Agreement andArticle 2oftheTRIMS Agreement all
apply totheEC'simport licensing procedures forbananas (paragraph 7.163).WT/DS27/R/USA
Page392
-theEClicensing procedures fortraditional ACPbananas andthird-country andnon-traditional ACP
bananas should beexamined asonelicensing regime (paragraph 7.167).
-theallocation toCategory Boperators of30percentofthelicences allowing theimportation ofthird-
country andnon-traditional ACPbananas atin-quota tariff ratesisinconsistent withtherequirements
ofArticle III:4ofGATT (paragraph 7.182).
-theapplication ingeneral ofoperator category rules inrespect oftheimportation ofthird-country
andnon-traditional ACPbananas atin-quota tariffrates, intheabsence oftheapplication ofsuchrules
totraditional ACP imports, andinparticular theallocation toCategory Boperators of30percent
ofthelicences allowing theimportation ofthird-country andnon-traditional ACPbananas atin-quota
tariff rates, areinconsistent withtherequirements ofArticle I:1ofGATT (paragraph 7.195).
-theLomé waiver doesnotwaive theEC'sobligations under Article I:1ofGATT inrespect oflicensing
procedures applied tothird-country andnon-traditional ACPimports, including thoserelated tooperator
category rules (paragraph 7.204).
-theECimport licensing procedures aresubject totherequirements ofArticle XofGATT
(paragraph 7.207).
-theapplication ofoperator category rules inrespect oftheimportation ofthird-country andnon-
traditional ACP bananas atin-quota tariff rates, intheabsence oftheapplication ofsuchrules to
traditional ACP imports, isinconsistent with therequirements ofArticle X:3(a) ofGATT
(paragraph 7.212).
-theapplicationofactivityfunctionrulesinrespectoftheimportationofthird-countryandnon-traditional
ACPbananas atin-quota tariff rates, intheabsence oftheapplication ofsuchrulestotraditional ACP
imports, isinconsistent withtherequirements ofArticle I:1ofGATT (paragraph 7.223).
-therequirement tomatch ECimport licences withBFAexport certificates isinconsistent withthe
requirements ofArticle I:1ofGATT (paragraph 7.241).
-theissuance ofhurricane licences exclusively toACPandECproducers andproducer organizations
oroperators including ordirectly representing themisinconsistent withtherequirements ofArticle 1.3
oftheLicensing Agreement (paragraph 7.263).
5. THE ECBANANA IMPORT LICENSING PROCEDURES AND THE GATS
-there isnolegalbasis foranapriori exclusion ofmeasures within theECbanana import licensing
regime from thescope oftheGATS (paragraph 7.286).
-thedistribution ofbananas, regardless ofwhether theyaregreen orripened, fallswithin thescope
ofcategory CPC 622"wholesale trade services" asinscribed intheEC'sGATS Schedule of
Commitmentssolongasitinvolvesthesaleofbananastoretailers,toindustrial,commercial,institutional
orother professional business users, orother wholesalers (paragraph 7.293).
-theEC'sobligations under Article IIofGATS andcommitments under Article XVII ofGATS cover
thetreatment ofsuppliers ofwholesale tradeservices within thejurisdiction oftheEC(paragraph 7.297).WT/DS27/R/USA
Page393
-theobligation contained inArticle II:1ofGATS toextend "treatment nolessfavourable" should be
interpreted incasutorequire providing nolessfavourable conditions ofcompetition (paragraph 7.304).
-theEChasundertaken afullcommitment onnational treatment inthesector of"Wholesale Trade
Services" withrespect tosupply through commercial presence (paragraph 7.306).
-theallocation toCategory Boperators of30percentofthelicences allowing theimportation ofthird-
country andnon-traditional ACPbananas atin-quota tariff ratescreates lessfavourable conditions of
competition forlikeservice suppliers ofComplainants 'origin andistherefore inconsistent withthe
requirements ofArticle XVII ofGATS (paragraph 7.341).
-theallocation toCategory Boperators of30percentofthelicences allowing theimportation ofthird-
country andnon-traditional ACPbananas atin-quota tariff ratescreates lessfavourable conditions of
competition forlikeservice suppliers ofComplainants 'origin andistherefore inconsistent withthe
requirements ofArticle IIofGATS (paragraph 7.353).
-theallocation toripeners of28percentoftheCategory AandBlicences allowing theimportation
ofthird-countryandnon-traditionalACPbananasatin-quotatariffratescreateslessfavourableconditions
ofcompetition forlikeservice suppliers ofComplainants 'origin andistherefore inconsistent withthe
requirements ofArticle XVII ofGATS (paragraph 7.368).
-theexemption ofCategory Boperators ofECorigin fromtherequirement tomatch ECimport licences
withBFAexport certificates creates lessfavourable conditions ofcompetition forlikeservice suppliers
ofComplainants 'origin andistherefore inconsistent withtherequirements ofArticle XVII ofGATS
(paragraph 7.380).
-theexemption ofCategory Boperators ofACP origin from therequirement tomatch ECimport
licences withBFAexport certificates creates lessfavourable conditions ofcompetition forlikeservice
suppliers ofComplainants 'origin andistherefore inconsistent withtherequirements ofArticle IIof
GATS (paragraph 7.385).
-theallocation ofhurricane licences exclusively tooperators whoinclude ordirectly represent EC
producers creates lessfavourable conditions ofcompetition forlikeservice suppliers ofComplainants '
origin andistherefore inconsistent withtherequirements ofArticle XVII ofGATS (paragraph 7.393).
-theallocation ofhurricane licences exclusively tooperators whoinclude ordirectly represent ACP
producers creates lessfavourable conditions ofcompetition forlikeservice suppliers ofComplainants '
origin andistherefore inconsistent withtherequirements ofArticle IIofGATS (paragraph 7.397).WT/DS27/R/USA
Page394
VIII. FINAL REMARKS
8.1 Theprocedures under theDSUserve toensure thesettlement ofdisputes among WTO Members
inaccordance withWTO obligations, nottoaddtoordiminish these obligations. Accordingly, our
terms ofreference aretoassist theDSBinreaching conclusions withregard tothelegalconsistency
withWTO rules oftheEC'scommon market organization forbananas.
8.2 Throughout ourproceedings wewere aware oftheeconomic andsocial effects oftheEC
measures atissue inthiscase, particularly fortheACP andtheLatin American banana exporting
countries. Inrecognizing this,wedecided togrant thirdparties participatory rights inourproceedings
which were substantially broader thanthose normally afforded tothem under theDSU.
8.3 From asubstantive perspective, thefundamental principles oftheWTO andWTO rules are
designed tofoster thedevelopment ofcountries, notimpede it.Having heard thearguments ofalarge
number ofMembers interested inthiscaseandhaving worked through acomplex setofclaims under
several WTO agreements, weconclude thatthesystem isflexible enough toallow, through WTO-
consistenttradeandnon-trademeasures,appropriatepolicyresponsesinthewidevarietyofcircumstances
across countries, including countries thatarecurrently heavily dependent ontheproduction and
commercialization ofbananas.
IX. CONCLUSIONS
9.1 ThePanel concludes thatforthereasons outlined inthisReport aspects oftheEuropean
Communities 'import regime forbananas areinconsistent withitsobligations under Articles I:1,III:4,
X:3andXIII:1 ofGATT, Article 1.3oftheLicensing Agreement andArticles IIandXVIIoftheGATS.
These conclusions arealsodescribed briefly inthesummary offindings.
9.2 ThePanel recommends thattheDispute Settlement Body request theEuropean Communities
tobring itsimport regime forbananas intoconformity withitsobligations under GATT, theLicensing
Agreement andtheGATS.WT/DS27/R/USA
Page395
ATTACHMENT
SOURCES OFEC-12 AND EFTA-31BANANA IMPORTS
AND THEIR SHARES INWORLD EXPORTS, 1994
(percent, based onvolume oftrade reported byFAO, excluding intra-EC-12 trade)
Source Share ofEC-12
imports (%)
(a)Share ofEFTA-3
imports (%)
(b)Share ofworld
exports (%)
(c)Ratio
(a)÷(c) (b)÷(c)
ACP countries 22.7 0.0 6.5 3.5 0.0
BFA countries 37.9 45.4 36.9 1.0 1.2
Other Latin American
countries34.9 54.2 42.1 0.8 1.3
Other 4.5 0.4 14.5 0.3 0.0
TOTAL 100.0 100.0 100.0 1.0 1.0
1Austria, Finland andSweden (prior totheir accession totheECin1995).
Source: FAO.
BANANA EXPORTS TOTHE ECASPERCENTAGE OF
TOTAL BANANA EXPORTS
Source 1986 1988 1990
ACP countries
Cameroon
Côte d'Ivoire
Jamaica
Suriname
Windward Islands
Somalia94
99
97
100
100
99
6394
97
97
100
100
95
7994
94
97
100
100
100
64
Source: Submitted bytheEC(based onFAO).WT/DS27/R/USA
Page 396IMPORTS OFBANANAS TOTHE EC
(Tonnes)
Source1989 1990 1991 1992 1993 1994 1995
(provisional)
EC-12 EC-15 EC-12 EC-15 EC-12 EC-15 EC-12 EC-15 EC-12 EC-15 EC-12 EC-15 EC-15
ACP 544,441 544,491 621,875 621,912 596,416 596,437 680,191 680,211 748,118 748,133 726,921 726,990 678,3111
Belize 26,580 26,580 24,040 24,040 19,617 19,617 28,494 28,494 38,517 38,517 46,980 46,980 40,000
Cameroon 56,071 56,071 77,628 77,628 115,115 115,115 110,357 110,357 146,902 146,902 158,167 158,167 154,980
Cape Verde 2,734 2,734 2,715 2,715 3,011 3,011 1,876 1,876 684 684 73 73 0
Dominica 51,315 51,315 52,415 52,415 54,155 54,155 51,605 51,605 52,699 52,699 42,868 42,868 32,843
Dominican Rep. 855 855 3,829 3,836 9,682 9,703 38,493 38,513 61,664 61,679 86,007 86,076
Grenada 8,268 8,268 8,189 8,189 8,187 8,187 6,016 6,016 6,720 6,720 5,325 5,325 4,489
Côted'Ivoire 85,160 85,188 95,158 95,188 116,406 116,406 144,307 144,307 161,257 161,257 149,085 149,085 155,000
Jamaica 39,219 39,219 63,181 63,181 70,116 70,116 74,827 74,827 77,390 77,390 76,294 76,294 79,750
Madagascar 68 68 0 0 0 0 10 10 19 19 0 0 0
Somalia 59,388 59,388 57,785 57,785 8,080 8,080 181 181 501 501 4,634 4,634 21,430
St.Lucia 116,286 116,286 127,225 127,225 99,823 99,823 122,066 122,066 113,304 113,304 91,541 91,541 104,290
St.Vincent &the
Grenadines67,595 67,595 81,535 81,535 62,263 62,263 71,320 71,320 57,609 57,609 32,054 32,054 50,620
Suriname 29,945 29,945 27,705 27,705 27,744 27,744 29,950 29,950 27,984 27,984 32,721 32,721 34,909
Other ACP 957 979 470 470 2,217 2,217 689 689 2,868 2,868 1,172 1,172
OTHERS 1,715,945 2,041,289 2,024,168 2,362,735 2,285,149 2,639,812 2,365,874 2,729,945 2,219,632 2,560,387 2,102,287 2,450,006 2,653,4412
Colombia 330,390 353,172 401,902 420,918 495,166 518,161 499,834 533,200 417,905 451,778 461,247 511,316
Costa Rica 450,052 537,021 548,518 643,064 528,302 607,795 451,847 520,331 480,325 564,984 621,999 726,805
Ecuador 273,898 304,421 352,148 381,015 578,212 646,210 674,528 745,058 605,243 650,628 549,387 612,040
Honduras 148,813 210,064 123,489 174,298 138,271 181,391 194,609 239,184 193,529 204,048 26,902 27,535
Guatemala 61,827 81,413 9,370 15,994 13,186 17,667 33,429 39,701 26,947 32,539 19,907 20,041
Nicaragua 29,072 34,273 47,600 49,532 57,849 59,519 25,638 28,816 9,621 10,554 8 8
Panama 400,447 495,739 527,464 648,939 469,193 591,393 470,655 601,096 413,132 568,701 299,045 426,933
Venezuela 179 179 50 50 41 41 45 45 147 147 1,083 1,854
Mexico 19 19 41 41 39 39 11,046 11,046 112 112 58 58
Philippines 20,079 20,079 5,024 5,024 165 165 0 0 1,858 1,858 0 0
Others 1,059 1,059 8,562 8,562 4,725 4,725 3,338 3,338 5,399 5,399 3,913 3,913
Unspecified 110 3,850 0 15,298 0 12,706 905 8,130 65,414 69,639 118,738 119,503
TOTAL 2,260,386 2,585,780 2,646,043 2,984,647 2,881,565 3,236,249 3,046,065 3,410,156 2,967,750 3,308,520 2,829,208 3,176,996 3,331,752
Notes:1Traditional ACP imports. Source: Eurostat datasupplied bytheECinresponse toaPanel question.
2Tariff quota imports based onlicences used.