WORLD TRADE  
ORGANIZATION  WT/L/625 
27 October 2005 
 (05-4998) 
  
  
 
 
     
EUROPEAN COMMUNITIES – THE ACP-EC PARTNERSHIP AGREEMENT –  
SECOND RECOURSE TO ARBITRATION PURSUANT TO THE  
DECISION OF 14 NOVEMBER 2001 
  
 
 
AWARD OF THE ARBITRATOR 
   
 
    
 
   WT/L/625 
Page 2  
 
Table of Contents 
  
I. INTRODUCTION ................................................................................................................... ...............3  
II. PROCEDURAL BA CKGROUND.........................................................................................................3  
III. REQUEST FOR A PRELIMINARY RULING BY COSTA RICA, ECUADOR, HONDURAS, 
NICARAGUA AND PANAMA ........................................................................................................... ................4  
IV. MANDATE OF THE ARBITRATOR...................................................................................................6  
A. THE MANDATE UNDER THE SECOND ARBITRATION (WHETHER THE EUROPEAN COMMUNITIES  HAS 
"RECTIFIED THE MATTER ")............................................................................................................................. .....6 
B. THE EUROPEAN COMMUNITIES ' PROPOSED RECTIFICATION OF THE MATTER ..............................................7  
1. Relationship between the proposed tariff quota and the "envisaged rebinding" of the European 
Communities' tar iff on b ananas ................................................................................................. ....................7  
2. Consistency of the proposed tariff quota with the European Communities' WTO obligations and 
commitments vis-à-vis MFN banana suppliers..................................................................................... .........8  
3. Treatment of Beneficiaries of the "Everything But Ar ms" Initia tive ...................................................10  
V. ASSESSMENT OF THE EUROPEAN COMMUN ITIES' RECTIFICATION OF THE MATTER 10  
A. THE EUROPEAN COMMUNITIES ' RECTIFICATION OF THE MATTER IN THE LIGHT OF THE ARBITRATOR 'S 
FIRST AWARD ............................................................................................................................... .....................10  
B. THE EUROPEAN COMMUNITIES ' PRICE GAP CALCULATION .......................................................................13  
1. Internal price................................................................................................................. ......................13  
(a) Use of Sopisco News data as a source of "act ual prices"........................................................................ ....14 
(b) The EC's calculation of the internal pr ice based on the S opisco pric e data.................................................17  
2. External price................................................................................................................. .....................19  
(a) Introduc tion ................................................................................................................... .............................19  
(b) Is Eurostat c.i.f. data "inappr opriate"? ....................................................................................... .................20  
(i) The European Commun ities' arguments ............................................................................................ .........20  
(ii) Arguments of the In terested Parties ............................................................................................ ................20  
(iii) Evaluation by the Arbitrator ................................................................................................... ....................21  
(c) Alternative source of the external price ....................................................................................... ...............24  
3. Reference Period............................................................................................................... ..................25  
C. CONCLUSION REGARDING THE EUROPEAN COMMUNITIES ' PRICE GAP CALCULATION ............................26  
D. THE EUROPEAN COMMUNITIES ' SIMULATION MODEL ..............................................................................26  
VI. DETERMINA TION .................................................................................................................. ............28  
 
 
   WT/L/625 
 Page 3 
 
 
I. INTRODUCTION 
1. This arbitration was initiated pursuant to the pr ocedures set out in the Annex to the Waiver 
Decision with respect to Article I of GATT 1994 contained in the document "European Communities 
– The ACP-EC Partnership Agreement, Decision of 14 November 2001" (the "Doha Waiver").1  This 
is the second recourse to arbitration initiated pursuant to that decision.  The procedural background of 
this proceeding is described in Section II below. 
II. PROCEDURAL BACKGROUND 
2. The Arbitrator issued its first award to the parties on 1 August 2005 and notified the award to 
the General Council later that same day.2  The mandate of the Arbitrator in the first arbitration was: 
... to determine, ... whether the envisaged rebinding of the EC tariff 
on bananas would result in at least maintaining total market access 
for MFN banana suppliers, taking in to account [all EC WTO market-
access commitments relating to bananas]. 
3. In its first award, the Arbitrator determin ed "that the European Communities' envisaged 
rebinding on bananas would not result in at least maintaining total market access for MFN banana 
suppliers, taking into account all EC WTO mark et-access commitments relating to bananas."3 
4. In a letter dated 4 August 2005, the Arbitrator obser ved that the fifth tiret of the Annex to the 
Doha Waiver contemplated that "in the absence of a mutually satisfactory solution, the same arbitrator 
will be asked to determine, within 30 days of the new arbitration request, whether the EC has rectified 
the matter".  In the light of the possibility of a sec ond arbitration, the Arbitrator outlined the procedure 
that it proposed to follow, were a second arbitrat ion to be requested.  This procedure included a 
tentative timetable for the parties' submissions, th e hearing and the award.  The letter also invited 
participation by the same African, Caribbean and P acific ("ACP") countries that participated in the 
first arbitration (the "relevant ACP Members") on the same terms as in the first arbitration, including 
the possibility of presenting a collective written submi ssion and a collective statement at the hearing. 
5. The Arbitrator received a letter, dated 18 August 2005, from the relevant ACP Members 
requesting more extensive rights of participation in  the second arbitration.  Brazil, Colombia, Costa 
Rica, Ecuador, Guatemala, Honduras, Nicaragua, and Panama4 (hereafter referred to as "the Interested 
Parties") objected to the ACP request in a letter dated 14 September 2005. 
6. In a letter from the parties, dated 24 August 2005, the Arbitrator was informed that the 
European Communities had entered into consultations with the Interested Parties within ten days of 
the notification of the arbitration award to the Ge neral Council.  It was also informed that the 
European Communities would "not be in a position be fore September to present the Interested Parties 
its proposal to "rectify the matter" or to propose a timetable for construc tive consultations upon 
presentation of that proposal.  Furthermore, the letter noted that the parties agr eed "that in the absence 
of a mutually satisfactory solution, the second arb itration may be requested at any time in such a 
manner as would enable the Arbitrator to issue its award within 30 days after the request for a second 
arbitration, and "before the entry into force of the EC tariff-only regime for bananas on 1 January 
2006". 
                                                      
1 WT/MIN(01)/15. 
2 European Communities – The ACP-EC Partnership Ag reement – Recourse to Arbitration Pursuant to 
the Decision of 14 November 2001, Award of the Arbitrator , WT/L/616, dated 1 August 2005 (hereinafter 
"Award of the Arbitrator").   
3 Award of the Arbitrator, para. 94.  
4 Together with Venezuela hereafter refe rred to as "the Interested Parties" WT/L/625 
Page 4  
 
7. On 13 September 2005, the European Communities no tified the Interested Parties that it had 
revised its proposal to provide as from 1 January 2006 for an MFN tariff for bananas at €187 per metric ton and a tariff quota for ACP countries of  775,000 metric tons per year at zero duty. 
8. On 16 September 2005, Costa Rica, Ecuador, H onduras, Nicaragua and Panama requested a 
preliminary ruling from the Arbitrator that the European Communities  "is not entitled under the terms 
of the Waiver Annex to request the second arbitration. "  They further requested, in the alternative, a 
revision of the procedures and deadlines set out in the Arbitrator's letter of 4 August 2005.  In a 
separate communication, Brazil, Colombia and Guatem ala also requested a revision of the procedures 
and deadlines.  The Arbitrator replied on 21 September 2005 that, in the light of the fact that no second arbitration had been requested at that da te, any organizational ma tters or requests for 
preliminary rulings arising in the context of  request  for a second arbitration could be considered at an 
organizational meeting convened s hortly after any such request. 
9. In a communication dated 26 September 200 5, the European Communities notified the 
Arbitrator that, after consultations with the Interest ed Parties, "there is currently no basis for even 
seeking a mutually satisfactory solution" within a timeframe that would allow for implementation of 
the new banana regime of the European Communities by 1 January 2006.  It therefore requested the 
matter be referred back to the same arbitrator in accordance with the Annex to the Doha Waiver.  In 
accordance with the procedur es outlined by the Arbitrator in its letter of 4 August 2005, the European 
Communities also filed a written submission on the same day. 
10. The Arbitrator held an organizational meeting with the parties on 28 September 2005.  At that 
meeting, Costa Rica, Ecuador, Honduras, Nicara gua and Panama reiterated their request for a 
preliminary ruling regarding the validity of a request  for arbitration by the European Communities.  
At the invitation of the Arbitrator, the European Communities filed a written response to the arguments made in the request for a preliminary ruling. 
11. In a communication dated 29 September 2005, the Arbitrator informed the parties and the 
relevant ACP Members of its decisions with resp ect to the timetable for these proceedings and the 
request for a preliminary ruling presented by certain In terested Parties.  In particular, it accorded some 
additional time to the Interested Parties and the relevant ACP Members for their submissions.  The 
Arbitrator also indicated that it would address the requ est for a preliminary ruling in its final award.   
12. The Interested Parties and the relevant ACP Members filed written submissions on 10 
October 2005.  The Arbitrator met with the pa rties and the relevant ACP Members on 19 October 
2005.  The parties and relevant ACP Members f iled final written communications on 21 October 
2005. 
III. REQUEST FOR A PRELIMINARY RULING BY COSTA RICA, ECUADOR, 
HONDURAS, NICARAGUA AND PANAMA 
13. The Arbitrator begins by addressing the request  by Costa Rica, Ecuador, Honduras, Nicaragua 
and Panama for a preliminary ruling "that the EC  is not legally entitled to initiate the second 
arbitration". 
14. Costa Rica, Ecuador, Honduras, Nicaragua and Pa nama argued that a request by the European 
Communities would be contrary to the procedures ag reed in the Annex to the Doha Waiver.  In 
particular, this group of Interested Parties argue d that the structure of the second arbitration is 
intended to mirror that of the first round of pr oceedings.  Under this process, the European 
Communities must make a proposal and consult with th e Interested Parties.  In the event that the 
Interested Parties are dissatisfied with the European Communities' proposal and no mutually 
satisfactory solution is found, the Interested Parties ma y then request arbitration.  On this basis, these 
Members argued that the purpose of the second arbitra tion is to afford rights to the MFN suppliers and  WT/L/625 
 Page 5 
 
 
not the European Communities.  Allowing the Euro pean Communities to request a second arbitration 
would also prejudice the procedural rights of the In terested Parties by depriving them of adequate 
time to review and analyse the new proposal.  Th e European Communities di sagreed with the position 
adopted by Costa Rica, Ecuador, Honduras, Nicaragua and Panama.  It pointed to the absence of any 
specification in the fifth tiret of the Annex to the Doha Waiver as to which parties may, or may not, 
request a second arbitration.  Rather, requests for a second arbitration may be made by any party in 
the absence of a mutually satisfactory solution.  The European Communities also disagrees that the 
procedural rights of the Interested Parties woul d be prejudiced if the European Communities were 
entitled to request the second arbitration.  Indeed , preventing the European Communities from doing 
so would prejudice its procedural rights. 
15. Against that background, the Arbitrator notes th at the appointment of the Arbitrator for 
purposes of the second arbitration is governed by the following sentence in the fifth tiret of the Annex to the Doha Waiver:  
In the absence of a mutually satisfactory solution, the same arbitrator 
will be asked to determine, within 30 days of the new arbitration 
request, whether the EC has rectified the matter. 
16. The Arbitrator observes that, on a plain reading of this text, there is no express limitation as to 
which of the parties may request, or "ask[]", it to fulfil the mandate of the second arbitration.  This 
contrasts with the wording of the third tiret to th e Annex, which expressly lim its the right to request 
the initial arbitration to certain interested parties.   
17. Costa Rica, Ecuador, Honduras, Nicaragua and Pa nama argue, in essence, that the context of 
the Annex requires that the conditions for requesting th e first arbitration should also be applied to the 
request for the second arbitration.  The Arbitrator acknowledges that interpreting the provisions of the 
Annex to the Doha Waiver in the light of their cont ext is appropriate.  Howeve r, this context may not 
override the explicit provisions being interpreted.  As was emphasized in the first award, the explicit 
provisions of the Waiver Annex govern  the mandate of the Arbitrator,
5 and indeed the manner in 
which the Arbitrator is appointed.  The relevant  explicit provision here, namely, the fifth tiret 
governing initiation of the second arbitration, s uggests no limitation regarding which parties may 
request arbitration.  If the drafters of the Annex had desired to limit the right to request the second 
arbitration to the Interested Parties alone, they coul d easily have adopted language similar to that used 
in the third tiret.  The Arbitrator is not permitted to read into the text of the fifth tiret words that are 
not there.   
18. That any of the parties may request recourse to a second arbitration is confirmed by the 
manner in which the precondition for such a request is  phrased.  That precondition is "the absence of a 
mutually satisfactory solution".  The ordinary m eaning of the term "mutually satisfactory" denotes 
that such a solution is one that is satisfactory to all parties affected.  In its request for the second 
arbitration, the European Communities asserted that no mutually satisfactory solution was in existence 
at that time.6  A "mutually satisfactory solution" would, necessarily, be a solution that was satisfactory 
to the European Communities.  Thus the precondition for recourse to a second arbitration was clearly 
present.   
19. For these reasons, the Arbitrator finds no grounds  upon which to determine that the European 
Communities was not legally entitled to initiate the s econd arbitration.  Accordingly, the Arbitrator 
declines to grant the preliminary ruling request ed by Costa Rica, Ecuador, Honduras, Nicaragua and 
Panama. 
                                                      
5 Award of the Arbitrator, para.46. 
6 Supra , para. 9. WT/L/625 
Page 6  
 
IV. MANDATE OF THE ARBITRATOR  
A. T
HE MANDATE UNDER THE SECOND ARBITRATION (WHETHER THE EUROPEAN COMMUNITIES  
HAS "RECTIFIED THE MATTER ") 
20. Under the terms of the Annex to the Doha Waiver , the mandate of the Arbitrator in the first 
arbitration was to determine "whether the envisag ed rebinding of the EC tariff on bananas would 
result in at least maintaining total market access for MFN banana suppliers, taking into account [all 
EC WTO market-access commitments relating to bananas] ".  In the context of that initial proceeding, 
the Arbitrator determined that its mandate involved three elements:  first, the "envisaged rebinding of 
the EC tariff on bananas";  secondly, a benchmark ag ainst which that envisaged rebinding is to be 
assessed (namely, whether it "would result in at least  maintaining total market access for MFN banana 
suppliers");  and thirdly, a direction to the Arbitrat or to take into account all EC WTO market access 
commitments relating to bananas.7 
21. Having analyzed the terms of its mandate, the Arb itrator found, in its first award, that it was 
required to determine "whether the proposed new EC tariff for bananas would preserve, at a 
minimum, the effective opportunities to enter the EC banana market afforded to MFN suppliers by the 
existing conditions of entry".  The Arbitrator also found that the analysis must take into account not 
only bound commitments, but all other aspects of the import regime, as applied.8  
22. In respect of a second arbitration, the Annex to the Doha Waiver provides that the Arbitrator 
would be asked to determine "whe ther the EC has rectified the matter".  The European Communities 
has proposed to rectify the matter through a tariff on MFN imports of bananas of €187 per metric ton, 
for which it would modify its Schedule, and opening  an autonomous tariff quota of 775,000 mt for 
imports originating in ACP countries with an in -quota duty of zero.  The tariff quota would be 
administered on the basis of the historical system  of license allocation, as under the current regime.9 
23. The parties agree, and the Arbitrator finds, that  its mandate in this matter is to determine 
whether the European Communities has "rectified the matte r" in the light of the first award, such that 
the European Communities' new proposed rebinding woul d result in at least maintaining total market 
access for MFN suppliers, taking into account all of  the European Communities' WTO market access 
commitments relating to bananas.10  The Arbitrator determined in its first award that this mandate 
required "a determination as to whether the propo sed new EC tariff for bananas would preserve, at a 
minimum, the effective opportunities to enter the Eu ropean Communities' banana market afforded to 
MFN suppliers by the existing conditions of entry".  This is also the pertinent benchmark for the 
Arbitrator's assessment in this proceeding.  As in the initial proceedings, the analysis of the Arbitrator 
in the context of this second recourse to arbitrati on must factor in, not only bound commitments, but 
all other aspects of the European Communiti es' import regime for bananas, as applied.11   
24. Although the parties did not differ on the interpreta tion of the benchmark to be applied to the 
Arbitrator's assessment in this proceeding, some of the Interested Parties considered that part of the 
European Communities' proposed rectification of th e matter, namely the proposed application of a 
tariff quota on ACP imports, could not be taken into  account in the assessment.  The Arbitrator now 
                                                      
7 Award of the Arbitrator, para. 20. 
8 Ibid, para. 37. 
9 See European Communities' submission, paras. 8 and 9. 
10 See submission by Colombia, Costa Rica, Ecuador and Guatemala submission, para. 1;  submissions 
of Honduras, Nicaragua and Panama, para. 3; the issue wa s not specifically addressed in Brazil's submission, but 
it seems assumed that the revised European Communities ' proposal should be assessed against the benchmark 
developed in the First Award.  This view was also confirmed at the oral hearing in response to a question by the 
Arbitrator. 
11 Award of the Arbitrator, para. 37.  WT/L/625 
 Page 7 
 
 
turns to the European Communities' proposed "rectif ication of the matter" and the relevance of the 
proposed tariff quota to its assessment in this proceeding. 
B. THE EUROPEAN COMMUNITIES ' PROPOSED RECTIFICATION OF THE MATTER  
25.  As noted above, the European Communities' pr oposed rectification of the matter includes 
two elements: a tariff on MFN imports of bananas of  €187 per metric ton, for which it would modify 
its Schedule, and opening an annual tariff quota of 775,000 mt for imports originating in ACP 
countries, with an in-quota duty of zero.   
26.  It is not disputed that the first element constitutes an "envisaged rebinding" within the 
meaning of the Annex to the Doha Waiver.  However,  certain Interested Parties argued that the tariff 
quota component of the EC proposal could not be taken into account by the Arbitrator, because it was 
not an "envisaged rebinding" of the banana tari ff.  Honduras, Nicaragua and Panama, as well as 
Colombia, Costa Rica, Ecuador and Guatemala, also asked the Arbitrator to disregard the tariff quota 
from its analysis because it would be inconsistent with the European Communities' WTO obligations 
and with its commitment to apply a ta riff-only regime as of 1 January 2006.12  These arguments will 
be addressed in turn.  
1. Relationship between the proposed tariff quota and the "envisaged rebinding" of the 
European Communities' tariff on bananas 
27. Colombia, Costa Rica, Ecuador and Guatemala contended that, as was highlighted in the 
Arbitrator's analysis of its mandate in the firs t award, it was the European Communities' "envisaged 
rebinding" of its tariff on bananas that is to be th e starting point of the analysis.  In their view, the 
proposed tariff quota for ACP suppliers, which was not  an envisaged rebinding, fell outside the scope 
of the Arbitrator's mandate and thus coul d not be considered by the Arbitrator.13   
28. In its first award, the Arbitrator described  the "envisaged rebinding" of the European 
Communities' tariff on bananas as the first element of its mandate and as the "starting point" for the 
analysis to be performed under the mandate.14  For the purposes of this second arbitration, the Annex 
to the Doha Waiver does not specifically identify the different elements that should form the basis for 
the Arbitrator's analysis, beyond the indication th at the Arbitrator should determine whether the 
European Communities has "rectified the matter".  In particular, it does not specify in what form the 
European Communities might seek to rectify the matter.    
29. The Arbitrator determined above – and the partie s did not dispute – that its mandate for this 
arbitration should be unders tood with reference to the mandate in respect of the initial arbitration.  
The starting point of the Arbitrator's analysis sh ould therefore be, as in the initial proceedings, the 
European Communities' "envisaged rebinding" of its tariff on bananas.  Under the European 
Communities' proposed rectification of the matter,  this "envisaged rebinding" would be at €187 per 
metric ton.15   The European Communities did not suggest th at the tariff quota would, in itself, be part 
of this envisaged rebinding, or othe rwise be incorporated into its Schedule of commitments.  Rather, it 
                                                      
12 Submissions by Nicaragua and Panama, paras. 234 and 235; submission by Honduras, paras. 235 and 
236;  and submission by Colombia, Costa Rica, Ecuador and Guatemala, paras. 43-57 and 73-75. 
13 Submission by Colombia, Costa Rica, Ecuador and Panama, paras. 58-67. 
14 Award of the Arbitrator, paras. 20 and 24. 
15 It might be argued that the expression "rectif y the matter" could be read to imply that such 
rectification could incorporate more than an envisaged re binding, if this were intended to "rectify the matter" 
following a determination that the initial proposed rebinding did not meet the requirements of the Annex of the Doha Waiver.  However, we do not find it necessary to explore this issue further, in the light of our 
determination below that the tariff q uota need not necessarily constitute an  envisaged rebinding in order to be 
taken into account.  WT/L/625 
Page 8  
 
described the proposed tariff quota as an additional me asure, to be applied in conjunction with the 
envisaged rebinding.
16  Nonetheless, this does not necessarily imply that the proposed tariff quota may 
not be taken into account in the Arbitrator's analysis.  
30. As the Arbitrator found in its first award, the total market access for MFN suppliers is 
affected importantly by the market access for pref erential ACP suppliers.  The Arbitrator recognized a 
"direct correlation between the MFN rate and the le vel of the preferences actually granted ... [and 
that] the level of the MFN tariff and the margin of preference are, in a sense, two sides of the same 
coin".17  The Arbitrator found that "the potential imp act of the preferences granted to ACP banana 
suppliers on the effective opportunities afforded by  the existing conditions of entry to the MFN 
banana suppliers is a necessary consider ation in assessing the envisaged rebinding".18  The Arbitrator 
also found in its first award that "[t]he benchmark ag ainst which the [rebinding of the tariff rate] is to 
be assessed is not the specific concept of tariff bindings, but the more general concept of 'market 
access'  for MFN suppliers" .19   
31. It follows for this arbitration proceeding that it  is relevant to consid er not only the European 
Communities' proposed increase in the extent of  the ACP tariff preference from €75 to €187 per 
metric ton, but also the effect of the proposed  "cap" on that preference through the proposed tariff 
quota for ACP countries, in order to assess whether the European Communities' envisaged rebinding  
would result in at least maintaining total market ac cess for MFN banana suppliers so as to "rectify the 
matter".  The envisaged rebinding is to be implemente d not in isolation but in the broader context of a 
new EC import regime for bananas.  The Arbitrat or thus must consider the new proposed market 
access regime for bananas as a whole to determine whether the proposed rebinding would meet the 
standard of at least maintaining tota l market access for MFN banana suppliers. 
2. Consistency of the proposed tariff quota  with the European Communities' WTO 
obligations and commitments vis-à-vis  MFN banana suppliers 
32. As noted above, Honduras, Nicaragua and Panama , as well as Colombia, Costa Rica, Ecuador 
and Guatemala, also asked the Arbitrator to disreg ard the tariff quota from its analysis because, in the 
absence of a waiver, it would be inconsistent w ith the European Communities' WTO obligations 
under the General Agreement on Tariffs and Tr ade 1994 (hereafter "GATT 1994") and with the 
European Communities' commitment to apply a tariff-only regime as of 1 January 2006.20  Some of 
the Interested Parties argued that, aside from the proposed ACP tariff quota's inconsistency with the 
European Communities' WTO obligations, the gr anting of a GATT Article XIII waiver for the 
application of such a tariff quota was uncertain, and that the Arbitrator should therefore decline to 
consider the proposed tariff quota.  The same Inte rested Parties also ar gued that the European 
Communities' proposed tariff quota could not be take n into account because it would not be consistent 
with the European Communities' commitment to apply a tariff-only regime for bananas as of 
1 January 2006.   
33. In respect of the potential WTO-inconsistency of the proposed tariff quota, it should first be 
noted that the European Communities indicated, as part of its proposed rectification of the matter, that 
the application of the tariff quota on ACP imports w ould be covered by the existing Doha Waiver in 
                                                      
16 Submission by the European Communities, paras. 8 to 10. 
17 Award of the Arbitrator, para. 65. 
18 Ibid.,  para. 68. 
19 Ibid., para. 31. 
20 Submissions by Nicaragua and Panama, paras. 234 and 235; submission by Honduras, paras. 235 and 
236;  and submission by Colombia, Costa Rica, Ecuador and Guatemala,  paras. 43-57 and 73-75.  WT/L/625 
 Page 9 
 
 
respect of Article I of GATT 1994, and that the Eu ropean Communities also intends to seek a waiver 
of its obligations under Article XIII of GATT 1994 to implement its proposed tariff quota.21     
34. In the Arbitrator's view, the fact that th e European Communities' proposal includes the 
proposition that an Article XIII waiver would be sought, and obtained, for the application of the 
proposed tariff quota is significant in addressing this issue.  Even assuming that the establishment of 
the proposed tariff quota would otherwise be inco nsistent with the European Communities' WTO 
obligations, the European Communities proposed to  apply it under circumstances that would no 
longer involve an unauthorized WTO-inconsiste ncy.  The European Communities' proposal 
incorporates an assumption that the tariff quota would be applied after a collective authorization has been obtained from the WTO Membership, in conform ity with the applicable procedures for waiver 
decisions under the Marrakech Agreement Establishi ng the World Trade Organization  (the WTO 
Agreement ).
22  In these circumstances, the Arbitrator is not  convinced that the alleged inconsistency of 
the proposed tariff quota with the European Communities'  WTO obligations should, in itself, lead it to 
disregard in its analysis the proposed application of  a tariff quota for ACP banana imports.  This does 
not imply any determination, on the part of the Ar bitrator, as to the WTO-consistency or otherwise of 
such a tariff quota, in the absence of a waiver. 
35. At the time of this award, the European Comm unities has requested an Article XIII waiver for 
the proposed tariff quota, pursuant to Article IX of the WTO Agreement .  It is not possible, at this 
point in time, to predict whether or not such a wa iver will, in due course, be granted by the WTO 
Membership.  It is, as an abstract matter, possible th at such a waiver might be granted, just as it is 
conceivable that it might not be granted. This is  a matter that depends on collective action by the 
WTO Membership.  However, this uncertainty is not an obstacle to the Arbitrator's consideration of 
the proposed rectification. There is no need to make  any assumptions as to the likelihood of an Article 
XIII waiver being granted to the European Comm unities for its proposed tariff quota in order to 
consider whether, if it were to be applied as described, the European Communities' proposed 
rectification would result in at least maintaini ng total market access for MFN banana suppliers as 
required by the Annex to the Doha Waiver.  The Ar bitrator's determination in these proceedings is 
premised on the actual application by the European  Communities of its proposed rectification of the 
matter.  At the time of the Arbitrator's determina tion, even the application of the proposed revised 
tariff, independently of the tariff quota element, remains dependent on a rebinding of the European 
Communities' tariff on bananas in accordance with  the procedures foreseen in Article XXVIII of 
GATT 1994. 
36. Finally, as regards the Europ ean Communities' commitment to apply a tariff-only regime for 
bananas as of 1 January 2006, the Arbitrator notes that  the parties disagree as to the interpretation of 
the notion of "tariff-only" regime, as contained in  the Understandings concluded by the European 
Communities with the United States and Ecuador, and as referred to in the Doha Waiver.  However, 
the Arbitrator does not find it necessary, for the purposes of its assessment of the proposed 
rectification, to determine this issue.  As noted  above, the European Communities' proposal to rectify 
the matter envisages that the tariff quota on ACP imports  would be applied with a waiver, so that it 
would be specifically authorized by collective e ndorsement, through the appropriate procedures, of 
the WTO Membership.  
                                                      
21 The European Communities informed  the Arbitrator, in the course of  these proceedings, that it had 
formally presented such a request to the WTO.  That request was circulated on 11 October 2005 in document 
G/C/W/529. 
22 Indeed, while some of the Interested Parties have disputed the WTO-consistency of the proposed 
tariff quota in the absence of a waiver , they do not appear to have questioned that the granting of an appropriate 
waiver by the WTO Membership, if obtained, would be such as to allow the imposition of a measure that may 
otherwise be incompatible with a Member's WTO obligations. WT/L/625 
Page 10  
 
37. For these reasons, the Arbitrator is not persua ded that it is prevented from considering the 
proposed rebinding in the light of the proposed ta riff quota on ACP banana imports.  This threshold 
determination is entirely without prejudice to the qu estion of whether this proposal would result in at 
least maintaining total market access for MFN supp liers as foreseen under the Doha Waiver.  This 
will be addressed below. 
3. Treatment of Beneficiaries of the "Everything But Arms" Initiative  
38. In its first award, the Arbitrator noted that  duty-free access for least developed countries 
("LDCs") to the European Co mmunities market under the Everyt hing But Arms ("EBA") Initiative 
might affect the competitive situation of MFN banana suppliers.
23  In this proceeding, the European 
Communities indicated that ACP suppliers who are al so EBA beneficiaries would not be subjected to 
the proposed tariff quota.  The European Comm unities considered that the EBA Initiative is 
independent of the trade regime being regulated through the currently applicable Doha Waiver 
regarding the EC-ACP Partnership Agreement and thus not relevant to this arbitration.   
39. The Arbitrator agrees that the legal basis on which the EBA Initiative (i.e. preferential duty-
free treatment for all LDC products except arms) is authorized with in the WTO legal framework is 
distinct from the Doha Waiver.  Moreover, no partic ipant in this arbitrati on has suggested that the 
EBA is WTO-inconsistent.  Nonetheless, as was described in the first award, EBA preferences could have an impact on the total market access for MFN suppliers.  As the mandate of the Arbitrator is framed by reference to the market access of MFN supp liers, this issue is returned to later in this 
award.
24  
V. ASSESSMENT OF THE EUROPEAN COMMUNITIES' RECTIFICATION OF THE 
MATTER 
A. THE EUROPEAN COMMUNITIES ' RECTIFICATION OF THE MATTER IN THE LIGHT OF THE 
ARBITRATOR 'S FIRST AWARD  
40. Before assessing whether Eur opean Communities' proposed rectification of the matter "would 
result in at least maintaining tota l market access for MFN banana suppliers" within the meaning of the 
Doha waiver, this section describes how the Europe an Communities, in revising its proposal, sought 
to take into account the findings of the Arbitrator in its first award.  
41. In its initial proposal for a rebinding of its tariff on bananas, the European Communities had 
used the price gap methodology reflected in the attachment to Annex 5 of the Agreement on 
Agriculture because it "was devised precisely to me asure the level of protection provided by different 
types of instruments affecting market access and to convert it into a tariff equivalent."25  According to 
the European Communities, the "exe rcise envisaged in the Waiver Annex, namely the rebinding of the 
EC tariff on bananas, while at least maintaining total market access for MFN banana suppliers, is 
analogous to the type of exercise for which the price-gap met hodology has been used."26  In its first 
award, the Arbitrator noted that, using correct pr ices, this methodology would produce an estimate of 
the tariff equivalent that, all other things being e qual, would confer the same level of protection to 
domestic producers as the border measures being replaced by the tariff equivalent.27  Correctly 
                                                      
23 Award of the Arbitrator, para. 74. 
24 See infra, para. 115. 
25 Award of the Arbitrator, para. 51. 
26 Ibid., para. 51. 
27 Award of the Arbitrator, para. 69.  WT/L/625 
 Page 11 
 
 
applied, the price gap methodology would be broadl y neutral in its effects on domestic producers and 
on total imports.28   
42. The Arbitrator also found in its first award, how ever, that the standard price gap formula as 
applied by the European Communities in its initial calculation did not account for the potential impact of the increase in the margin of preferences enjoyed by ACP suppliers  on actual market access 
opportunities for MFN suppliers.
29  It stated that: 
 examin[ing] the conditions of entr y for MFN banana suppliers under 
the envisaged rebinding—and the opportunity that would be afforded by such conditions—without consideration of the impact of the rebinding on the preferential supplie rs would amount to ignoring a 
key component of the market on which MFN (and preferential) 
suppliers compete.
30   
The Arbitrator also noted that the manner in whic h the European Communities may decide to preserve 
market access for ACP suppliers was, as such, beyond the scope of its mandate.31   
43. As mentioned earlier, in its proposed rectifi cation of the matter, the European Communities 
proposed, in addition to a rebinding of its tariff on bananas at €187 per metric ton, a tariff quota of 
775,000 metric tons for ACP imports.  In suggestin g this combination of measures, the European 
Communities purports to respond to the Arbitrator's  concern about the impact of the ACP supply 
response on the market access opportunities of MFN suppliers.32   
44. The Arbitrator makes no determination as to whether the establishment of a tariff quota on 
preferential imports is the appropriate manner to address the impact of an increased MFN tariff rate 
on the conditions of competition between MFN and ACP preferential suppliers.  The Arbitrator 
understands that the establishment of an ACP dut y-free tariff quota is intended to allow existing 
conditions of competition between MFN and preferential ACP suppliers to be preserved.  At this stage 
of its analysis, the Arbitrator takes no position as to whether the proposed MFN tariff accurately 
reflects the restrictiveness of the existing regime, or  as to whether the tariff quota for ACP countries is 
set at a level such that the conditions of comp etition between MFN and pref erential suppliers would 
be at least maintained.   
45. The European Communities' price gap calculation in its initial proposal for a rebinding was 
based on the difference between internal a nd external prices of bananas during the reference period 
2000-2002.  The Interested Parties criticized  this reference period as inappropriate.33  The Arbitrator 
expressed a preference for using the most recen t representative reference period because this 
"minimizes the need for ad hoc  adjustments to be made to the data and corresponds as closely as 
possible to the trade regime as applied."34  The European Communities responded to the Arbitrator's 
recommendation by calculating its proposed rectificati on on the basis of an updated reference period, 
namely, January 2002 to April 2004.     
46. To calculate the internal price in its initial proposal, the European Communities had used 
price data collected by the Food and Agriculture Organization of the United Nations (the "FAO") and 
                                                      
28 Award of the Arbitrator, para. 69.  While the Ar bitrator recognized that simulation models might 
offer an alternative way for calculating tariff equivalents, it also highlighted their complexities regarding the 
choice of parameters and data.  Award of the Arbitrator, paras. 78-79. 
29 Award of the Arbitrator, paras. 65-69. 
30 Award of the Arbitrator, para. 66. 
31 Award of the Arbitrator, para. 68.  
32 See Submission by the Eur opean Communities, para. 84. 
33 Award of the Arbitrator, paras. 80-81. 
34 Award of the Arbitrator, para. 83.   WT/L/625 
Page 12  
 
made available through a publicly accessible database.
35  The Interested Parties had challenged the 
use of those prices because they we re not "actual" prices but were "official" prices derived from price 
quotations obtained from traders.36  In the first arbitration, the part ies did not appear to differ on the 
need to use data reflecting actual  prices in a price gap calculation.37  The Arbitrator found that the 
internal price calculated by the European Communi ties in order to arrive at its initial rebinding 
proposal did "not reflect as accurately as possible th e actual prices at which bananas are sold on the 
EC market". In its proposed rectification of th e matter, the European Communities addressed this 
finding of the Arbitrator by discarding FAO data as a basis for calculating internal prices.  The European Communities turned instead to price data from Sopisco News, a weekly publication used in 
the shipping and reefer industry.  It then calculate d the internal price of the EC-25 for purposes of 
rectifying its price gap calculation.
 38    It did so as described below.  
47. First, the internal price was derived from week ly price data from Sopisco News for the period 
January 2002 to April 2004.  Secondly, since Sopisco  News provides a range of the "actual prices" of 
bananas, the European Communities took the mid-point  of that range.  Thirdly, since Sopisco News 
published actual prices by bananas brands, the Eu ropean Communities took the simple (weekly) 
average of the five major brands (Chiquita, Del Mont e, Dole, Bonita and Fyffes) and the minor brands 
taken together.  Fourthly, since Sopisco News do es not contain "actual prices" for the years 2002 and 
2003 for Chiquita bananas, the European Communiti es reconstructed "actual" prices for Chiquita 
bananas in 2003 by applying the ratio between th e "actual" and "official" prices in 2004 to the 
"official" prices of Chiquita in 2003.  For 2002, prices for Chiquita bananas were not taken into account and the average annual price was calculated on the basis of the prices for the other four major 
brands and the minor bra nds taken together.    
48. On this basis, the European  Communities calculated annual average prices of the Sopisco 
price data referred to as "EU" and "Non EU" (refe rred to as "E15" and "E10" as from the enlargement 
of the European Communities).  These separate pric e series were taken by the European Communities 
to represent the EC-15, on the one hand, and th e ten countries that acceded to the European 
Communities on 1 May 2004  (the "AC-10"), on the ot her hand.  The annual price data were weighted 
using the respective annual import volumes into the EC-15 and AC-10, as reported by Eurostat, to arrive at the EC-25 internal prices for 2002 (€745 per metric ton), 2003 (€669 per metric ton) and 
January to April 2004 (€727 per metric ton).   
49. For purposes of its initial price gap calculation,  the European Communities had obtained the 
external price by using Eurostat data with respect to th e volume and c.i.f. value of banana imports 
into the EC-25 from MFN suppliers.
39  With the exception of the question of the appropriate reference 
period, the calculation of the external prices based on Eurostat c.i.f. data was not in dispute;40  nor did 
the Arbitrator find fault with the European Communiti es' reliance on Eurostat c.i.f. data in its initial 
price gap calculation.  Nevertheless, in its revi sed price gap calculation, the European Communities 
decided that Eurostat c.i.f. data were inappropr iate.  The European Comm unities thus turned to 
alternative data for the external pr ice.  For the external price in its  revised calculation, the European 
Communities took the average of the "Non EU" prices reported in Sopisco News for 2002 (€567 per metric ton), 2003 (€461 per metric ton), and January to April 2004 (€488 per metric ton). 
50. The price gap was calculated by taking the annual difference between EC-25 prices (the 
internal price) and the corresponding "Non EU" pri ces (the external price).  The price gap for the 
period January to April 2004 was adjusted by a factor  of 1.35 in order take into account that prices 
                                                     
 
35 Award of the Arbitrator, para. 54. 
36 Award of the Arbitrator, para. 86. 
37 Award of the Arbitrator, para. 88. 
38 Submission by the European Communities, paras. 38ff. 
39 Exhibit EC-4. 
40 Award of the Arbitrator, paras. 53 and 84.  WT/L/625 
 Page 13 
 
 
during that period tend to be higher than the annual  average due to a lack of supplies of competing 
fruit.41  The annual price gaps for 2002, 2003 and Janua ry to April 2004 (seasonally adjusted) were 
then averaged to result in the proposed  tariff of €187 per metric ton.   
51. In addition to the internal price used in the pr ice gap calculation that resulted in the proposed 
tariff of €187 per metric ton, the European Comm unities provided a number of alternative estimates 
of the EC-25 internal price giving a range of inte rnal prices between €658  per metric ton and €685 
per metric ton.  For the reference period 2002-200442, the average internal price was estimated at €658 
per metric ton, and when the major banana brands  were weighted by the market shares assumed by 
European Communities, the resulting internal price was €685 per metric ton for the reference period 
2002-April 2004.43  For these alternative price estimat es, the European Communities deducted 
discharge and handling costs of €44 per metric t on.  These alternative estimates, however, were 
ultimately not retained by the Eur opean Communities as the basis for its  proposed rectification of the 
matter. 
B. THE EUROPEAN COMMUNITIES ' PRICE GAP CALCULATION  
52. As noted above,44 the European Communities' proposal combining an increased MFN tariff 
and a duty-free tariff quota for ACP suppliers is intende d to ensure that any in crease in the margin of 
preference resulting from the increased MFN tariff will not affect the conditions of competition 
between MFN and ACP suppliers in a manner such that total market access for MFN suppliers would 
not be at least maintained.   Under such an impor t regime, the standard price gap methodology can, in 
principle, be employed to calculate the tariff equivalent.  
53. The Interested Parties challenged the adequacy of the European Communities' proposed  tariff 
rate of €187 per metric ton tariff on the grounds that  its price gap calculation was flawed in respect of 
both the internal price and the external price.  In particular, the Interested Parties claimed that the 
European Communities overestimated the internal price of the EC-25 during the relevant reference 
period.  They also submitted that EC underestimated the external price during that same period.  At 
the same time, the European Comm unities considered that it made conservative estimates in respect of 
each of these variables.  Accordingly, the Arbitrator  considers that it is appropriate to consider both 
sides of the calculation performed by the Europ ean Communities to determine whether, overall, the 
resulting tariff equivalent would meet the requirement of "at least maintain[ing] total market access for MFN banana suppliers".
45  
 
1. Internal price 
54. As a preliminary matter, the Arbitrator notes that, according to the price gap guidelines set out 
in the Attachment to Annex 5 of the Agreement on Agriculture : 
                                                      
41 Submission by the European Communities, para. 58. 
42 The reference period covers the full year of 2004 rather than ending in April 2004, namely the 
reference period used by the EC in the calculation of the proposed tariff of €187 per metric ton. 
43 Submission by the European Communities, para. 48.  According to the European Communities, its 
estimate of the internal price of €685 per metric ton would be lower, if the European Communities had applied a 
seasonal adjustment factor to  account for the seasonally higher prices du ring the first four months of the year. 
44 See paragraphs 43 and 44 supra. 
45 This analysis is premised, arguendo , on the tariff quota for ACP suppliers being set at a level such 
that the conditions of competition between MFN and ACP banana suppliers would not be affected in a manner such that total market access for MFN suppliers would not be at least maintained.  This is without prejudice to 
the question of whether the tariff quota actually proposed by the European Communities would in fact fulfil that 
condition.  WT/L/625 
Page 14  
 
The internal price shall generally be a representative wholesale price ruling in the domestic market or an estimate of that price where adequate data is not available. 
Although the price gap guidelines in the Agreement on Agriculture  are not binding under the Doha 
Waiver, they nonetheless provide useful guidance fo r analyzing the price gap calculation underlying 
the European Communities' proposed rectification of the matter.
46 These guidelines suggest a certain 
degree of flexibility in the determination of the internal  price, based on the adequacy of available data.    
55.  In this regard, the Arbitrator stated in its first award: 
While the Arbitrator does not disc ount the difficulties associated with 
the availability and reliability of actual market prices and does not 
exclude that an estimation or appr oximation may be required, it is 
satisfied that the internal pri ce calculated by the European 
Communities in order to arrive at its envisaged rebinding does not reflect as accurately as possible the actual prices at which bananas are sold on the EC market.
47 
56. The Interested Parties raised a number of objec tions to the EC calculations of the internal 
price.  These related to the use of Sopisco News data  in general, and also to the appropriateness of the 
Sopisco News data for the specific purpose to whic h it is put by the European Communities, namely, 
calculating the price gap for the EC-25.   The obj ections raised by the Interested Parties will be 
considered in turn, to determine whether these concerns, individually or collectively, suggest that the 
European Communities overestim ated the internal price. 
(a) Use of Sopisco News data as a source of "actual prices" 
57. The European Communities based its estimate of  the internal price for bananas on data 
published by Sopisco News.  Honduras, Nicaragua and Panama characterized Sopisco News as:  
predominately dedicated to shipping information  to complement 
Sopisco's principal business, shipping brokerage.  Its readership has 
been developed almost entirely because of the shipping volume and 
related information it contains.  Only a small fraction of the newsletter's weekly content is dedicated to banana price estimates in various markets around the world.
48 
Further, these Interested Parties poi nted to Sopisco's disclaimer that "the collected price estimates are 
"obtained from [unnamed] sources believed to be re liable, but the publisher is not responsible for 
errors or omissions contained herein."49  The European Communities argued that Sopisco News was a 
subscription-based newsletter and the viability of a subscription- based service in the trade and 
shipping business is based on its reliability.50  The European Communiti es emphasized that Sopisco 
News was relied upon by the governments of a numbe r of the Interested Parties, international 
organizations such as the World Bank and Internati onal Monetary Fund, and by the insurance industry 
when assessing costs for maritime losses.51  At the oral hearing, the relevant ACP Members argued 
                                                      
46 The Arbitrator notes that parties have referred ex tensively to these guidelin es in their arguments. 
47 Award of the Arbitrator, para. 92. 
48 Submissions by Nicaragua and Panama, paras. 77-78; submission by Honduras, paras. 78-79. 
49 Submission by Honduras, Nicaragua and Panama, para. 79. 
50 Submission by the European Communities, para. 29. 
51 Submission by the European Communities, paras. 31-33.  WT/L/625 
 Page 15 
 
 
that "Sopisco is the most reputable source of informa tion for prices in the banana trade" and that this 
source should be used to calculate the price gap.52    
58. In considering the concerns of Honduras, Nicaragua  and Panama in this regard, the Arbitrator 
notes that there is considerable evidence on the r ecord that Sopisco News is a widely accepted source 
of price information in the banana trade.  Ind eed, Sopisco News prices were relied upon by Brazil, 
Colombia, Costa Rica, Ecuador and Guatemala, and also by the relevant ACP Members, during the 
course of the first arbitration.  Accordingly, the Arbitrator has no reason to doubt the reliability of 
Sopisco News as a source of price information for the banana market.   
59. Beyond their general criticism of Sopisco News price data for bananas, certain Interested 
Parties also questioned Sopisco News data mo re specifically as a source of information of actual  
prices on the banana market. 
60. In this respect, the parties disagreed over th e meaning of the expression "actual prices" in 
Sopisco News.  Colombia, Costa Rica, Ecuador and Guatemala argued that these prices could not possibly represent actual selling prices, which were  confidential between buyers and sellers, and 
might also not reflect terms and c onditions, such as rebates, unknown to  Sopisco News.  In their view, 
Sopisco "actual" prices were in fact price quotes th at did not reflect as accurately as possible the 
actual selling prices of bananas.
53  The European Communities argued that there was no alternative to 
Sopisco News price data for green ba nanas that is publicly available.54  It emphasized that it had never 
claimed that these prices were necessarily actual ma rket prices; nevertheless they were an accurate 
estimation of those prices.55    
61. Sopisco News itself states: "The "Actual" prices are claims of the green market price range in 
the northern and southern European market for th e week following negotiation of the cargoes.  The 
information received from our sources includes what they claim is the selling price for their fruit if 
they are traders and what they believe is th e level of what other traders are selling for."56  T h e  
Arbitrator understands the Sopisco News data relied upon by the European Communities to be 
essentially predictions or estimates of  "actual", as opposed to "official" prices, on the market the 
following week.  In this regard, the Arbitrator cons iders it significant that these same Sopisco prices 
were relied upon by Brazil and Colombia, Costa Ri ca, Ecuador and Guatemala in their submissions 
during the course of the first arbitration to substan tiate their claim that there is a difference between 
"official" and "actual" prices.   
62. The Interested Parties proposed certain alternativ e sources of data, that would, in their view, 
more accurately reflect actual internal prices.  Specifically, Colombia, Costa Rica, Ecuador, 
Guatemala and Panama argued that the European  Communities should have relied on audited actual 
price data from the German Fruit Trade Associati on instead of Sopisco News.  These Interested 
Parties provided the Arbitrator with an internal pri ce of €703 per metric ton that appears to be based 
on audited data by the German Fruit Trade Associati on.  This price was described as the verified and 
certified average price (f.o.t) for green MFN banana s in the northern European ports for sale in the 
EC-15 in 2002-2004.57 
63. The European Communities, however, expressed strong reservations against the use of 
audited data on the grounds that it did not have access to the data to verify th e results.  The European 
                                                      
52 Oral Statement by the relevant ACP Members, page 3. 
53 Comments by Colombia, Costa Rica, Ecuador and Guat emala to the European Communities' replies     
to question 2 of the Arbitrator, para 14. 
54 Oral Statement by the European Communities, para. 13. 
55 Oral Statement by the European Co mmunities' oral statement, para. 10. 
56 Exhibit II-15 of Colombia, Costa Rica, Ecuador and Guatemala. 
57 Submission by Nicaragua and Panama, para 115; submission by Honduras, para. 116. WT/L/625 
Page 16  
 
Communities also questioned the reliability of the a udited internal price because it considered the 
implied weight per box of bananas to be incorrect  (18.5 kg rather than 18.14 kg).  Adjusting the 
audited price to account for this issue of box sizing,  the European Communities recalculated the price 
as slightly over €717 per metric ton.
58  Several of the Interested Parties countered that under the tax 
laws of the European Communities, importers were prohibited from declaring bananas at a weight of 
18.14 kg per box.59 
64. The European Communities argued in particular th at it had sought to use a data source that 
was publicly available with a high degree of reliab ility, distribution and recognition in the banana 
trade and which required a minimum amount of adjustment.60  The European Communities explained 
to the Arbitrator why it considered Sopisco  News to fulfil all of these criteria.   
65. In considering this issue, the Arbitrator is mindful of the challenges inherent in having access 
to exact and complete price information in respect of actual market prices.  In particular, complete information in respect of actual prices is in th e hands of the parties to individual transactions 
themselves.  In these circumstances, as not ed by the Arbitrator in its first award,
61  a certain degree of 
estimation or approximation may be required when calculating the internal price for purposes of a 
price gap calculation.  
66. The Arbitrator notes the reservations of the Eur opean Communities with r espect to the use of 
the "audited prices" presented by the Interested Parti es.  In particular, while this type of document 
may provide useful indications as to actual prices on the market, the Arbitrator acknowledges the European Communities' concern that it has no means of verifying the information.  The Arbitrator 
also notes that the European Communities does not a ppear to have taken advantage of the suggestion 
made in the course of the proceedings by some of th e Interested Parties to consult the books of certain 
companies.
62  
67. In respect of its calculations based on S opisco News data, the European Communities 
submitted detailed calculations of the price gap lead ing to the proposed tariff equivalent of €187 per 
metric ton.  The information provided by the Eu ropean Communities includes the relevant original 
price data from Sopisco News, the European Commun ities' worksheets and step-by-step explanations 
of its calculations.  None of the Interested Parties has challenged the European Communities' 
calculations on the grounds that they were non-transparen t or could not be verified.  It appears that the 
Interested Parties, on the basis of the informati on provided by the European Communities, were in a 
position to verify the price gap calculation leading to a tariff of €187 per metric ton, albeit with certain 
reservations by Honduras, Nicaragua and Panama.63  
68. The Arbitrator also notes that, in the light of th e evidence presented, the internal price derived 
by the European Communities fro m Sopisco News is not rendered implausible by the "audited 
internal price" presented by the Interested Parties.  
69. The material thus far considered is not, in th e view of the Arbitrator, a sufficient basis for 
dismissing Sopisco News data as a source of estimates of actual market prices for bananas.    
                                                      
58 Oral Statement by the European Communities, para. 14. 
59 Comments by Honduras, Nicaragua and Panama to the European Communities' replies to     
question 12 of the Arbitrator. 
60 Submission by the European Communities, para. 26.  
61Award of the Arbitrator, para. 92.  
62 Statement by Colombia, Costa Rica, Ecuador and Gu atemala at the hearing w ith the Arbitrator, 19 
October 2005. 
63 Submissions by Honduras, Nicaragua and Panama, Table 5.   WT/L/625 
 Page 17 
 
 
70. Having accepted that it was not, in principle, in appropriate to use Sopisco News data as a 
source of estimates of actual market prices of bananas, the Arbitrator now turns to an examination of the EC's calculation based on that data. 
(b) The EC's calculation of the internal price based on the Sopisco price data 
71. The European Communities made certain assump tions and adjustments in respect of the 
Sopisco News data in order to calculate the in ternal price for bananas on the EC market.  The 
Interested Parties have questioned some of these assumptions and proposed alternative adjustments 
that should, in their view, have been made to Sopisco  data to reflect actual internal prices accurately.  
72. The first issue relates to whether the "EU" and "Non EU" prices from Sopisco News, which 
are described as prices "in Hamburg", can be equa ted with EC-15 and AC-10 prices, or whether an 
adjustment to that data is required to make them  more representative of EC-15 and AC-10 prices.  
Honduras, Nicaragua and Panama drew attention to th e fact that in the latter part of 2004, Sopisco 
News' pricing annotations refer to prices "mostly for the Hamburg market or other relevant EU 
country".
64  In their view, estimates "mostly for the Ham burg market" cannot reliably be equated with 
EC-15 and AC-10 prices. These Interested Parties noted  that during the first arbitration, the European 
Communities adjusted downwards the FAO prices (whi ch were also Hamburg prices) to take into 
account the lower prices in the rest of the Europ ean Communities. But this time, no adjustment was 
made by the European Communities, suggesting that the internal price was overestimated. 
73. The European Communities contended that the Sopisco price data should be considered as 
representative wholesale prices in the EC market a nd that an adjustment is not necessary since 
bananas are a homogeneous product traded on a single market.  According to the European 
Communities, the phrase "or other relevant EU count ry" meant that the reported prices cover markets 
other than Hamburg.  This indicated that Sopisco 's prices were representative of  the EC market.65  
Sopisco News itself stated that its EU prices reflected the market price range "in the northern and southern European market".
66   
74. In the absence of clear indications by Sopisco News regarding the geographical 
representativeness of the reported prices, the Arbitrator  is concerned that the Sopisco News price data 
for the years 2002-2004 may not be sufficiently repr esentative of the actual market prices in the EC-
15 and the AC-10.  However, on the basis of the lim ited evidence provided, the Arbitrator is not in a 
position to determine whether or not an adjustment to Sopisco price data would have been warranted. 
75. The second issue for the Arbitrator to consider is  the objection raised by the Interested Parties 
with respect to the inclusion of Chiquita (one of the major brands) prices in the calculation of the 
internal price.  Colombia, Costa Rica, Ecuador a nd Guatemala provided evidence that Chiquita brands 
were not discharged at the port of Hamburg in th e period under consideration, that Chiquita did not 
disclose its actual prices, except to its customers, and that, in any event, Chiquita provided prices for 
yellow but not green bananas.67  These Interested Parties also provided alternative calculations of the 
internal price, excluding prices for Chiquita banan as from the calculations, to show that the internal 
price could be lower than the price calculated by the European Communities by €26 and €21 per 
metric ton in 2003 and the first quarter of 2004, respectively.68    
                                                      
64 Submission by Honduras, para. 103; submissions by Nicaragua and Panama, para. 102. 
65 Written answer by the European Communi ties to question 3 by the Arbitrator. 
66 Exhibit by Colombia, Costa Rica,  Ecuador and Guatemala II-15. 
67 A letter from Chiquita addressed to the Arbitration Counsel of Colombia, Costa Rica, Ecuador and 
Guatemala (Exhibit II-10 by Colombia, Costa Rica, Ecuador and Guatemala). 
68 Submissions by Honduras, Nicaragua and Panama, para. 163. WT/L/625 
Page 18  
 
76. In response, the European Communities noted th at Sopisco News reported "official" prices 
for Chiquita bananas throughout the reference pe riod and "actual" prices in 2004.  The European 
Communities argued that, although Ch iquita bananas may have been unloaded in ports other than 
Hamburg, prices were published by Sopisco News to  provide a full picture of the market.  Without 
accounting for prices for Chiquita bananas – which held a market share of approximately 30 per cent 
for MFN bananas, according to the European Communities – the European Communities would not 
have been able to estimate a representative internal price for th e European Communities.
69 
77. The Arbitrator notes that the European Comm unities included "actual" Chiquita prices for 
2004 in its estimate of the internal EC-25 price, where such data were available from Sopisco News.70  
The Arbitrator considers it reasonable for the Eu ropean Communities to have included original 
Sopisco price data of the Chiquita brand to ensure that its 2004 estimate was representative.  As far as 
its EC-25 price estimate for 2003 is concerned, the European Communities employed reconstructed 
data rather than original data for Chiquita.71  It appears that, on the one hand, this reconstructed price 
has resulted in an increase of the internal price (and hence an increase in the price gap) because 
Chiquita is a high-priced brand.  On the other ha nd, inclusion of Chiquita arguably made the EC-25 
price estimate for 2003 more representative.  On bala nce, the Arbitrator cons iders that the European 
Communities' approach in the treatment of the pri ce data for Chiquita bananas was not unreasonable. 
78. Another issue raised by the Interested Partie s was the European Communities' treatment of 
Sopisco price data for the other major banana br ands (Dole, Del Monte, Bonita and Fyffes).  
Honduras, Nicaragua, and Panama argued that the European Communities used "statistically unsound 
methods" in deriving its banana brand estimates in the face of significant data gaps for these major 
brands in Sopisco News.  In their view, by ig noring the data gaps and the seasonal behaviour of 
banana prices, the European Communities' calcula tion of simple averages of prices of the major 
banana brands was significantly distorted.72 To demonstrate the impact of the data gaps on the 
European Communities' price gap calculation, Brazil made several adjustments to the original data 
from Sopisco News.73  Although the Arbitrator finds Brazil's me thod of filling data ga ps plausible, the 
results of Brazil's calculation (€169 per metric ton) ar e not directly comparable with the results of the 
European Communities' calculation (€187 per metric ton).  The difference in the resulting price gap 
may, in part, be due to the fact that Brazil excl uded data for Chiquita from its calculation and to the 
use of a different reference period.     
79. The Arbitrator notes that the data gaps are inhe rent in the Sopisco News data itself and finds 
that the approach of the European Communities to th e treatment of the data in respect of Dole, Del 
Monte, Bonita and Fyffes was not inappropriate in circumstances. 
80. Overall, the Arbitrator does not consider th at the European Communities' use of Sopisco 
News data to estimate the internal price of bananas on the EC market was inappropriate. 
                                                      
69 Answer by the European Communities to question 5 from the Arbitrator.  
70 The European Communities also included "actual" prices for Chiquita, where available, in the 
average "non EU" price in 2002-2004.    
71 See paragraph  47 supra. 
72 Submission by Honduras, para. 110; submissions of Nicaragua and Panama, para. 109.   
73 Submission by Brazil, para. 42.  In the case of data gaps for the major brands (Dole, Del Monte, 
Bonita and Fyffes), Brazil filled the in formation gaps with the average of the other major brands in the relevant 
weeks.  Amongst other adjustments to the data, Brazil excluded the data for Chiquita on the grounds that 
Chiquita did not discharge in Hamburg in the reference period.  It also adjusted the weighting between the major and minor brands, and extended the reference period to December 2004 arguing that the European Communities 
was wrong in having excluded the months of May to December 2004 from its price gap calculation.  The result 
of the European Communities' price gap calculation, as modified by Brazil, was €169 per metric ton.    WT/L/625 
 Page 19 
 
 
2. External price 
(a) Introduction 
81. In the first arbitration, the European Communiti es chose Eurostat c.i.f. prices as the basis for 
calculating the external price, a choice to which the Interested Parties did not object.  The Arbitrator 
had noted that "the calculation of the external prices based on Eurostat data is not in dispute"74 and did 
not direct the European Communities to re vise its approach to this issue.   
82. In the revised proposal that led to the proposed MFN tariff of €187 per metric ton, the 
European Communities used a different source of pr ice information for the external price.  The 
European Communities found that Eurostat data was "i nappropriate in the sense of paragraph 2 of the 
Attachment to Annex 5 of the Agreement on Ag riculture."  The European Communities employed 
instead "Non EU" green banana prices from Sopisco  News as the basis for calculating the external 
price.   
83. The Interested Parties disagreed with the Eur opean Communities' characterization of Eurostat 
c.i.f. data as inappropriate and with the Eur opean Communities' use of Sopisco News "Non EU" 
prices as the new basis for calcu lating the external price. 
84. The change in the source of the price data h as a significant impact on the calculation of the 
external price.  If one takes th e reference period adopted by the European Communities, namely 2002 
to April 2004, it means a reduction in the external pr ice from €597 per metric ton (using Eurostat c.i.f. 
data) to €461 per metric ton (using Sopisco News "Non EU"). 
85. In view of the fact that the European Communities applied the price gap methodology for 
calculating a tariff equivalent for its current ba nana regime, and because the European Communities 
itself relied upon the price gap guidelines contained in  the Agreement on Agricu lture, the Arbitrator 
again considers that the price gap guidelin es in the Attachment to Annex 5 of the Agreement on 
Agriculture provide guidance as to how such a price gap calculation should be performed.  The 
Arbitrator observes that according to paragraph 2 of the Attachment, the ex ternal prices used in a 
price gap calculation shall in general be (1) " actual average c.i.f. unit values for the importing 
country", where average c.i.f. unit values "are not av ailable or appropriate", the external prices shall 
be (2) "appropriate average c.i.f. unit values of a ne ar country", or (3) "estimated from average f.o.b. 
unit values of (an) appropriate major exporter(s)" with certain adjustments.75   
86. The Arbitrator will first examine the parties' argu ments on whether or not Eurostat c.i.f. prices 
were inappropriate "actual average c.i.f. unit values for th e importing country" during the reference 
period.  The Arbitrator will then discuss the parti es' arguments on whether the alternative external 
price used by the European Communities qualify as "a ppropriate average c.i.f. unit values of a near 
country". 
                                                      
74 Award of the Arbitrator, para. 53. 
75Paragraph 2 of Attachment 5 to the Agreement on Agriculture  provides: 
External prices shall be, in general, actual average c.i.f. unit values for the 
importing country.  Where average c.i. f. unit values are not available or 
appropriate, external prices shall be either:   
(a) appropriate average c.i.f. unit va lues of a near country;  or  
(b) estimated from average f.o.b. unit values of (an) appropriate major 
exporter(s) adjusted by adding an estimate of insurance, freight and 
other relevant costs to the importing country. WT/L/625 
Page 20  
 
(b) Is Eurostat c.i.f. data "inappropriate"? 
(i) The European Communities' arguments 
87. The European Communities said that it did not que stion the accuracy of the Eurostat c.i.f. 
data as such, but rather their appropriateness for a price gap analysis.  It identified two problems with 
the Eurostat c.i.f. data.   
88. One problem related to the results that were  obtained using the Eurostat c.i.f. data.
76  T h e  
European Communities began its price gap analysis by  using data from Sopisco News to calculate the 
internal price and Eurostat data to calculate the external price.  The resulting price gaps that the 
European Communities obtained with these data fell within a range of €53 per metric ton and €88 per 
metric ton.  The European Communities stated th at figures below €75 per metric ton were "clearly 
inappropriate".  For the €88 per metric ton result, it stated that "the protective effect of the quota 
cannot be €13 per metric ton – a figure which cannot  be considered realistic ...".  The European 
Communities argued that price gaps that were close to or below the in-quota tariff of €75 per metric 
ton fell foul of the Arbitrator's finding in its award that a price gap of less than €75 per metric ton was "less than the current-in quota tariff rate, and does not appear to reflect any value for the existence of 
the tariff quota itself."
77  
89. The second problem the European Communities found was that "the EC-15 CIF price is not 
consistent with any of the available data for comp arable steps in the tradi ng chain.  Normally, CIF 
prices of neighbouring countries will be more or less comparable".78  Yet it found that the Eurostat 
c.i.f. price of €638 per metric ton was higher than th e €441 per metric ton c.i.f. price given by Eurostat 
for the AC-10.  It also attempted to reconstruct c. i.f. prices from f.o.b. prices provided by the central 
banks of some of the Interested Parties.  Adding  Sopisco's estimates of freight and insurance costs 
from these countries to the Europ ean Communities, its reconstructe d c.i.f. estimate was €399 per 
metric ton, which was €239 per metric ton lower than  the EC-15 c.i.f. price of €638 per metric ton.  
Finally, the European Communities ex amined c.i.f. prices of the United States.  Even after adding the 
estimated freight and insurance cost differential of shipping from Latin America to the European 
Communities instead of the United States, the amount was only €394 per metric ton, representing a 
differential of €244 per metric ton.  According to the European Communities, all of these calculations 
led to the same conclusion that the Eurostat c.i.f. price for the EC-15 was in the order of €200 per metric ton higher than one would expect.
79  A similar point about the high c.i.f. prices reported by 
Eurostat had been made by the relevant ACP count ries in their submissions in the first and second 
arbitrations. 
90. The European Communities suggested that the cau se for these problems "appears to be ...that 
some of the quota rent/protective effect of the qu otas is included in the Eurostat c.i.f. prices."80   
(ii) Arguments of the Interested Parties 
91. Panama, Honduras and Nicaragua pointed out that the European Communities had relied 
heavily on these Eurostat data throughout its comm on market organizations.  It specifically used 
Eurostat banana data to create the MFN quota in 1993, to calcula te the out-of-quota "tariff equivalent" 
                                                      
76 Oral Statement by the European Communities, para. 18. 
77 Award of the Arbitrator, para. 90. 
78 Oral Statement by the European Communities, para. 17. 
79 Response by the European Communities at the oral hearing. 
80 Answers to Questions from the Arbitrat or by the European Communities, para. 20.  WT/L/625 
 Page 21 
 
 
in the Uruguay Round, to determine enlargement vol umes, and, even in this proceeding, to trade-
weigh its "EU" and "Non EU" Sopisco News estimates.81   
92. Colombia, Costa Rica, Ecuador and Guatem ala questioned the European Communities' 
justification for rejecting Eurostat data - that the pr ice gap cannot be less than €75 per metric ton.   In 
the European Communities' calculations, the price gap fell in a range between €53 per metric ton and 
€88 per metric ton.  Honduras, Nicaragua and Panama  pointed out that, because the applied level of 
protection for bananas in the AC-10 during the peri od of January 2002 to April 2004 was lower than 
in the EC-15, the trade-weighted tariff for bananas in the EC-25 was €66 per metric ton.82  Hence, in 
their view the European Communities' reason for re jecting the results of these price gap calculations 
did not hold. 
93. The Interested Parties questioned some of th e comparisons that the European Communities 
undertook to support its determination that Eurost at c.i.f. data was "inappropriate".  Honduras, 
Nicaragua and Panama argued against the use of Un ited States c.i.f. prices as a basis for comparison, 
since the United States was not a near country.  Further, the Interested Parties provided other 
explanations why Eurostat c.i.f. data may be high, reasons that had nothing to do with the presence of 
quota rents.  According to Colombia, Costa Rica, Ecuador and Guatemala, the European Communities 
had imposed product standards for bananas that prohi bited the sale of lower quality, and hence lower-
priced, bananas.83  Exporters may also have an incentive to  change the mix of their products towards 
higher quality ones when exporting to a market with quota restrictions.84   
(iii) Evaluation by the Arbitrator 
94. First, the Arbitrator notes that paragraph 2 of the Attachment to Annex 5 of the  Agreement on 
Agriculture provides that "[e]xternal prices shall be, in gene ral, actual average c.i.f. unit values for the 
importing country" and that the use of the alternativ es in subparagraphs (a) and (b) is foreseen only 
where "average unit values are not available or a ppropriate."  These terms indicate a preference or 
general rule that average c.i.f. unit values be used.  Accordingly, departure from that general rule and 
recourse to alternative proxies for the external price requires evidence and reasoned explanation 
showing why c.i.f. unit values are unava ilable or shown to be inappropriate. 
95. The parties did not disagree that Eurostat c.i.f. data provide a source for "actual average c.i.f. 
unit values" data for the European Communities w ithin the meaning of the introductory clause of 
paragraph 2 of the Attachment to Annex 5.  Th is means that the Eur opean Communities has to 
substantiate why Eurostat c.i.f. data  is not "appropriate" as "external prices".  This is particularly so in 
the present circumstances because, during the first arbitration, th e European Communities itself had 
used Eurostat c.i.f. data as the basi s for calculating the external price.  In its first Award, the Arbitrator 
noted that "the calculation of the external pr ices based on Eurostat data is not in dispute"85 and did not 
direct the European Communities to revise its appro ach in this respect.  The Arbitrator finds the 
European Communities' position in the second arbitra tion proceeding that Eurostat c.i.f. data is 
"inappropriate" for the purpose of a price gap analysis , difficult to reconcile with use by the European 
Communities of that same data precisely for such a purpose during the first arbitration and with the 
fact that the Interested Parties and the Arb itrator did not object to that data source. 
96. There were two main problems with Eurostat  c.i.f data identified by the European 
Communities to substantiate its claim that it is not  "appropriate" in the sense of paragraph 2 of the 
Attachment to Annex 5.  The first relates to the results of price gap calculations which were obtained 
                                                      
81 Submission by Honduras, Nicaragua and Panama, para. 155. 
82 Submission by Honduras, Nicaragua and Panama, par. 149.  
83 Responses by Colombia, Costa Rica, Ecua dor and Guatemala at the oral hearing. 
84 Responses by Colombia, Costa Rica, Ecua dor and Guatemala at the oral hearing. 
85 Award of the Arbitrator, para. 53. WT/L/625 
Page 22  
 
using Eurostat c.i.f. data and Sopisco News prices .  The second is a series of comparisons of Eurostat 
c.i.f. prices with near country c.i.f. prices and f. o.b. prices of major banana exporters.  The European 
Communities suggested that Eurostat data appears to incorporate some element of the quota rent, 
resulting in an artificially high c.i.f. price. 
97. The first problem identified by the European Communities concerns the results  of price gap 
calculations made using the Eurostat data and Sopisc o News prices.  Although the Arbitrator agrees 
that comparisons of the results of various calculations may provide a u seful "reality check", it is not of 
the view that the results of any particular comparis on should be the starting point for the analysis of 
whether c.i.f. unit values for the importing countr y are "appropriate" or not.  Rather, such an 
assessment should begin with the data per se .  Thus, Paragraph 2 of the Attachment to Annex 5 
envisages a test based on whether actual average c.i.f. unit values themselves  are "appropriate" as 
"external prices", not of whether the results derived from price gap calculations based on c.i.f. unit 
values are "appropriate".  Indeed, to do otherwise in  the context of a price gap calculation would risk 
attributing to defects in the external price, problems that in fact occur within the internal price. If one 
arrives at an "unrealistic" or "inappropriate" price ga p result, but one has not considered the quality of 
each of the data, one cannot discount the possibility that  the problem lies with the internal price rather 
than the external price.  The Arbitrator leaves the se considerations to one side for a moment and turns 
instead to a consideration of the data per se .  
98. Colombia, Costa Rica, Ecuador and Guatemal a provided an extensive description of the 
manner in  which statistics on the European Comm unities' trade with third countries are collected.
86  
According to them, Eurostat data are collected sy stematically, subject to extensive controls, and 
objectively compiled by the statistics division of th e European Commission, which obtains them from 
the national authorities of the EC Member States.  These Interested Parties referred to the EC's User 
Guide on the Statistics on the Trading of Goods, which describes the kind of controls applied to trade 
statistics.  These controls could be basic (e.g. en suring documents have been fully completed); other 
checks are more sophisticated and assess the plausibility of the data;  and still others involve mirror 
comparison of trade flows. 
99. The European Communities argued that "the EC- 15 CIF price is not consistent with any of 
the available data for comparable steps in the trading chain in neighbouring countries".  It pointed out 
that, normally, "CIF prices of neighbouring countries w ill be more or less comparable", chose to look 
at the AC-10 countries, but found out that the Eurostat EC-15 c.i.f. price of €638 per metric ton was much higher than the Eurostat AC-10 c.i.f. price during the 2002-2004 period.  The Arbitrator accepts 
the European Communities' conclusions regarding the c.i.f. prices in the AC-10, but notes that there 
are also other neighbouring countries, such as Norway  and Switzerland, whose c.i.f. prices could have 
been used for the comparison instead of, or in combination with, the prices of AC-10 countries.  
Unlike the market of the Europ ean Communities, the markets for bananas in these countries are not 
fettered by tariff quotas and thus, by definition, contain no element of quota rent.  Moreover, the 
consumers in these countries are, in terms of per capita income, more similar to the consumers of 
EC-15 countries than the populations of AC-10 countries.  The c.i.f. prices for these markets during the period 2002-2004 are comparable, if not higher, than those calculated from Eurostat data for the 
EC-15.
87  Evidence from these neighbouring countries therefore does not support the conclusion 
reached by the European Communities that Eurostat c.i.f. prices are abnormally high and are therefore not "appropriate" for use in a price gap comparison. 
                                                     
 
86 Submission by Colombia, Costa Rica, Ecuador and Guatemala, paras. 137-149. 
87 Table 10 of the submissions of Honduras, Nicaragua and Panama show that, during the three-year 
period 2002-2004, the c.i.f. price of bananas in Norway averaged € 790 per metric ton compared to the EC-15 
average of € 638 per metric ton.  In para. 29 of their rebuttal of certain arguments raised by the European 
Communities in its oral statement, Colombia, Costa Rica, Ecuador and Guatemala submit weighted average 
prices of €781 per metric ton for Norway and of €951 per metric ton for Switzerland.  WT/L/625 
 Page 23 
 
 
100. Moreover, there are other explanations for the prices of EC-15 countries and AC-10 prices not 
being similar although one would expect, as does the European Communities, price levels in 
neighbouring countries to be comparable.  Colombia , Costa Rica, Ecuador and Guatemala noted that 
"quotas may cause exporters to change the mix of pr oducts they export.  The result is that products 
with higher unit values are exported under quota regimes."88  For this reason, "one cannot simply 
assume that unit values correspond to the same product when comparing quota and non-quota 
regimes.  The product mix will include higher priced versions of the commodity in question in the quota regime" and, therefore, "one would exp ect higher unit values to the EC-15 countries."
89  
According to Colombia, Costa Rica, Ecuador and Guatemala, the European Communities had 
imposed product standards for bananas that prohi bited the sale of lower quality, and hence lower-
priced, bananas.     
101. Returning to the European Communities' arguments based on the results  of the use of 
Eurostat c.i.f. data in a price gap calculation, the Arbitrator notes that the European Communities 
relies upon the Arbitrator's observation that a price gap of less than €75 per metric ton  "is less than 
the current in-quota tariff rate, and does not appear to  reflect any value for the existence of the tariff 
quota itself".  In the European Communities' initial pr ice gap calculations using Eurostat c.i.f. data, 
the price gap fell in a range between €53 per metric  ton and €88 per metric ton.  The European 
Communities considered these figures "unrealistic".  In response, Honduras, Nicaragua and Panama 
have pointed out that, because the applied level of  protection for bananas in the AC-10 during the 
period of January 2002 to April 2004 was lower than  in the EC-15, the trade-weighted tariff for 
bananas in the EC-25, taken as a whole, was € 66 per metric ton.90   
102. The Arbitrator also notes that, in the calculati ons that led it to discard Eurostat data, the 
European Communities deducted discharge and handli ng costs of €44 per metric ton from the internal 
price.  The European Communities has expressed the vi ew that it "does not believe that it is required 
to deduct ... discharge and handling costs" from the internal price side of its calculation.91  T h e  
Interested Parties have argued that a proper price gap calculation requires deduction of discharge and 
handling costs.  In this respect, the Arbitrator not es that paragraph 4 of the Attachment to Annex 5 
defines "internal prices" as "representative wholesale prices in the domestic market " and that prices in 
the domestic market for traded goods, especially at the wholesale level, would be expected to include 
discharge and handling costs.  
103. In the light of the foregoing, the Arbitrator c onsiders that reasonable alternative explanations 
exist for the problems that the Eu ropean Communities had found with Eurostat data.  The Arbitrator 
does not discount the possibility that some of the quota rents from the European Communities' banana 
regime may flow to the exporters.  But as the Eur opean Communities itself made clear during the first 
arbitration procedure:  
"[it] is not aware of any reliable information on quota rent divided 
between importers and exporters. B esides, the world banana market 
is over-supplied and an important quantity of bananas has difficulty 
in finding a market. In this situation, there are no reasons for the importer to transfer a part of the quota rent to the exporter."
92   
104. The Arbitrator finds it difficult to reconcile th is stated position of the European Communities 
with its argument that the quota rents that flow to the exporters are so large that they make Eurostat 
                                                      
88 Rebuttal by Colombia, Costa Rica, Ecuador and Guat emala of certain argument s raised in the oral 
statement of the European Communities, para. 32. 
89 Ibid. 
90 Submission by Honduras, Nicaragua and Panama, par. 149. 
91 Reply of the European Communities to Written Question 20 from the Arbitrator. 
92 Replies of the European Communities to the Questions from the Arbitrators, para. 33. WT/L/625 
Page 24  
 
c.i.f. data inappropriate for this price gap analysis .  Thus, the Arbitrator is not convinced that the 
problems identified by the European Communities ar e significant enough to consider Eurostat c.i.f. 
"inappropriate" in the sense of paragraph 2 of th e Attachment to Annex 5 of the Agreement on 
Agriculture.  
105.  It follows that the Arbitrator is not persua ded that the problems identified by the European 
Communities in respect of the Eurostat c.i.f. price were sufficient justification for departing from the 
"actual average c.i.f. unit values for the importing country" envisaged in paragraph 2 of the Attachment to Annex 5 as the basis for the external price. In addition, even assuming that there might 
have been valid reasons to discard the Eurostat data, for the reasons that follow, the Arbitrator is not 
convinced that the Sopisco "Non-EU" prices used by the European Communities as an alternative 
external price for purposes of its price gap calcu lation were appropriate in the circumstances. 
(c) Alternative source of the external price   
106. As noted above, the Attach ment to Annex 5 of the Agreement on Agriculture provides for two 
possibilities for determining the external price, wher e c.i.f. data for the importing country itself is 
unavailable or inappropriate.  These are: (a) appropriate average c.i.f. unit values of a near country; or  
(b) an estimate from average f.o.b. unit values of (an) appropriate major exporter(s) with certain 
adjustments.  The European Communities explained that, with this framework in mind, after finding 
that Eurostat c.i.f. data was "inappropriate", it ex amined both of these alternative options.  First, it 
took the c.i.f. prices of the AC-10 countries using Euro stat data.  For the period, 2002-April 2004, this 
yielded an estimate of the external price of €439 per metric ton.
93  As an alternative to Eurostat c.i.f. 
data for the AC-10 countries, it took Sopisco News  "Non EU" prices.  For the period, 2002-April 
2004, this yielded an estimate of the external price of €461 per metric ton.94  The second alternative it 
considered was the f.o.b. prices for bananas reported by the Central Banks of Ecuador and Costa Rica.  
Adding estimates of spot freight rates from Sopisco News, it arrived at an estimate of the external 
price of €399 per metric ton.   The European Co mmunities chose the alterna tive that resulted in the 
lowest price gap result, namely, the highest estimate of  the external price.  On  this ground, it chose to 
base its estimate of the external price on "Non-EU" banana prices published by Sopisco News.   
107. The Interested Parties put forward a number of reasons why, in their view, Sopisco "Non EU" 
price was an inappropriate proxy of the external pr ice of the European Communities.   In particular, 
the Interested Parties emphasize that the accedi ng countries were markets that were unrepresentative 
and not comparable to the EC-15.  There were di fferences in per capita incomes.  The markets were 
emerging economies, with lower purchasing power compar ed to the EC-15.  Banana exporters treated 
the markets in EC-15 and AC-10 countries different ly.  They were the last-resort markets for MFN 
bananas, where sales were often at marginal cost, and the prices earned were less than full market 
prices.  In 2002-2004, bananas were in over-produc tion, for which the AC-10 markets were chosen to 
dispose of that surplus.  The impending acce ssion of the AC-10 countries to the European 
Communities created artificial incentives to expand bana na exports to the AC-10 markets at less than 
full market price.  This could be justified because licenses for importing bananas would be distributed 
on the basis of "historical trade flows."95   
108. The Arbitrator further notes that there remains some uncertainty regarding whether or not the 
Sopisco News "Non-EU" prices may be equated dir ectly with AC-10 prices.  Honduras,  Nicaragua 
and Panama argued that, although the European Co mmunities claims that the countries covered by 
"Non EU" were the AC-10, "neither [it] nor S opisco News has anywhere  substantiated that 
assumption".96  In its response to the question by the Arbitrator on this issue, the European 
                                                      
93 Submission by the European Communities, para.  62. 
94 Submission by the European Communities, para 62. 
95 Submission by Honduras, Nicaragua and Panama, paras. 164-167. 
96 Submission by Honduras, Nicaragua and Panama, para. 163.  WT/L/625 
 Page 25 
 
 
Communities referred to the fact that in week 20 of the year 2004, Sopisco News changed its 
designation of "Non EU" to "E10" and of "EU" to "E15".97   
109. The Arbitrator finds that all these factors affect the appropriateness of using AC-10 prices as a 
proxy for the external price in the European Communities' price gap calculation.        
110. The Arbitrator also notes that the Sopisco News "Non EU" is an internal  price, as is evident 
from the data supporting the Eur opean Communities' calculations.98  The price gap would therefore be 
established as the difference between two sets of internal  prices.   Effectively, what is being compared 
by the European Communities, is the level of prot ection from banana imports in the EC-25, on the one 
hand, with the level of protection in the AC-10, on the other hand.  The Arbitrator recognizes that the 
use of internal price data from the "Non-EU" count ries results in a lower price gap. However, the 
Arbitrator does not see how the Sopisco "Non EU" prices could serve as an "appropriate" proxy for 
the external price of the EC-25. 
111. The Arbitrator considers that the use of Eurost at data for the purposes of the calculation of the 
external price may not have been free of problems in the context of European Communities' price gap 
calculation of its current banana im port regime.  However, the Arbitrator is not convinced, and has not 
been provided with sufficient evidence, that, effectiv ely, a downward adjustment in the EC's external 
price that is in the magnitude of €136 per metric ton, was warranted.99  The Arbitrator concludes that 
the European Communities underestim ated the external price.   
3. Reference Period 
112. In its first award, the Arbitrator expressed the vi ew "that it is important to reflect in the price 
gap calculation the existing banana regime of the European Communiti es.  The use of the most recent 
representative reference period minimizes the need for ad  hoc adjustments to be made to the data and 
corresponds as closely as possible to  the trade regime as applied.100  
113. In its revised proposal, the European Commun ities moved the referenc e period for its price 
gap calculation from 2000-2002 to the period 2002 to end-April 2004.  It explained the reason for 
ending in April 2004, instead of taking the whole year 2004, as avoiding "a commingling of the trade 
regime of the EC-15 and the EC-25."101  The Arbitrator is not persuaded that this is a sufficient 
explanation for not taking into account the whole y ear 2004.  The calculations made by the European 
Communities of either the internal or external prices effectively commingle the regimes because an 
average is taken of the prices of the EC-15 and the AC 10 countries.  In fact, commingling or blending will always be the consequence of taking an averag e (whether it be weighted or unweighted) of the 
EC-25.  In this connection, Honduras, Nicara gua and Panama submitted that the European 
Communities chose to end its reference period in April 2004 because, if it had used Sopisco News 
prices for the full year of 2004, it would have  found no external price from May 2004 onwards 
because the AC-10 countries had then beco me part of the European Communities.
102  
114. The Arbitrator notes that by using Eurostat c.i.f.  data, one would be ab le to take the whole 
year of 2004 into account instead of just the first four months.  And it appears that using the whole 
year would lead to a lower estimate of the external  price.  If one were to do so, the estimate of the 
external price would be €605 per metric ton inst ead of €597 per metric ton.  These are additional 
                                                      
97 Answers to Questions by the European Communities, para. 13. 
98 Calculation 1 in Exhibit EC-39. 
99 See paragraph 82.  Using the reference period, 2002 to April 2004, the external price using Eurostat 
c.i.f data is €597 per metric ton while the same calculation using Sopisco Non EU gives an external price of 
€461 per metric ton.  This represents a difference of €136 per metric ton.   
100 Award of the Arbitrator, para. 83. 
101 Submission by the European Communities, para. 36. 
102 Submission by Honduras, Nicaragua and Panama, para. 92. WT/L/625 
Page 26  
 
reasons for concluding that Sopisco "Non EU" prices are not "appropriate average c.i.f. unit values of 
a near country" within the meaning of paragra ph 2(a) of the Attachment to Annex 5.   
C. C
ONCLUSION REGARDING THE EUROPEAN COMMUNITIES ' PRICE GAP CALCULATION  
115. In the preceding sections, the Arbitrator consid ered all pertinent aspects of the European 
Communities' price gap calculation.  In respect of th e internal price, the Ar bitrator  examined the 
Interested Parties' general criticisms of the Sopisco News data103, including the availability of 
alternative price data.104  The Arbitrator also addressed several  specific issues in respect of this 
internal price data, including: whether Sopisco News prices reflect actual prices105; whether an 
adjustment should be made to the extent S opisco prices are drawn from the Hamburg market106; the 
inclusion of Chiquita prices107; and banana brand estimates.108  In respect of the external price, the 
Arbitrator addressed whether Eurostat c.i.f. data  for the European Communities was not "appropriate" 
for the European Communities' price gap calculation109; and also considered the European 
Communities' alternative external price data.110  The Arbitrator also addressed the reference period 
used by European Communities for its price gap calculation.111   
116. Based on its consideration of all these factors, and bearing in mind the absence of perfect 
price data for bananas, the Arbitrator concludes that the European Communities' calculations did not 
reflect as accurately as possible the actual difference between internal and external prices, such that 
the results of the price gap calculation overestimated  the level of the price gap.  On this basis, the 
Arbitrator finds that the proposed tariff rebinding of  €187 per metric ton would not result in at least 
maintaining total market access for MFN banana s uppliers, regardless of whether or not a tariff quota 
of 775,000 mt is applied to bana na imports of ACP origin and re gardless of what supply response 
could be expected from EBA beneficiaries to th e margin of preference resulting from the proposed 
tariff.   
117. Because the Arbitrator's conclusion holds true re gardless of the effect of the proposed tariff 
quota or EBA supply response, it is unnecessary for the Arbitrator to continue in its analysis to 
determine the manner in which these two additional factors would affect , or would not affect, the total 
market access of MFN suppliers.  Accordingly, the Arbitrator makes no substantive findings in 
respect of either of these factors.   
118. In reaching these conclusions, the Arbitrator em phasizes that it has consid ered the issues, and 
in particular the various price data, on the basi s of the European Communities' proposal and the 
evidence that has been pu t before it.  Although the Arbitrator is not satisfied that the European 
Communities has rectified the matter in accordance w ith the Annex to the Doha Waiver, it takes no 
view, and this award should not be taken to imply a vi ew, as to the tariff level, or other elements, that 
would result in at least maintaining tota l market for MFN banana suppliers.    
D. THE EUROPEAN COMMUNITIES ' SIMULATION MODEL  
119. The European Communities proposed a simulation model, which was inte nded to demonstrate 
that the proposed MFN tariff of €187 per metric ton and the tariff quota on ACP imports would 
maintain total market access for MFN banana supp liers.  The simulation was not used to determine 
                                                      
103 Supra , paras. 57-70  
104 Supra , paras. 62-63  
105 Supra , paras. 59-68 
106 Supra , paras. 72-74 
107 Supra , paras. 75-77 
108 Supra , paras. 78-79 
109 Supra , paras. 87-105 
110 Supra , paras. 106-110 
111Supra , paras. 112-114    WT/L/625 
 Page 27 
 
 
the MFN tariff nor the size of the tariff quota; rather  it was used to confirm that the revised European 
Communities' proposal was consistent with at least  maintaining total market access for MFN banana 
suppliers.  
120. Like the model that was proposed by Honduras, Ni caragua and Panama in the first arbitration, 
the European Communities' model is a dynamic and partial equilibrium model of the global banana 
market.  Where it differs in structure from that m odel is that it is also a "spatial" model.  The 
European Communities claims this makes it "capable of representing policies which apply different 
treatment to products of different origin. Since one of the key issues in this Arbitration is the effect of 
the ACP preference on the market access opportuniti es for MFN suppliers, only a spatial model is 
capable of accurately reflecting bilateral trade fl ows and thus providing a satisfactory simulation of 
the European Communities' proposed regime."112 
121. The European Communities simulated the effect of an MFN tariff of €187 per metric ton and 
a tariff quota on ACP imports of 775,000 mt over the period from 2007 to 2013.  The results of the model showed that the European Communities' pr oposal results in MFN exports increasing in 2007 by 
360,100 tonnes over the level in  2002.  If the projection to 2013 is  taken into account, an increase of 
771,200 tonnes over the level in 2002 is predicted.
113 
122. In the first arbitration, the Arbitrator noted that "economic modelling affords the analyst the 
possibility of taking into ac count a range of factors",114 but cautioned that  
the choice and assignment of specific values to the various parameters in an economic 
modelling simulation can in itself be a source of complexities.  Simulation models require more data than the price gap met hodology, and the choice of parameters as 
well as the assignment of values to them make the results of such modelling as 
vulnerable (or as solid) as the assumptions upon which they are based.
115   
Thus, "the benefits from their use must be caref ully balanced against the technical hurdles and 
uncertainties posed by the choi ce of parameters and data."116    
123. The European Communities stated that, so far as possible, assumptions have been avoided by 
making use of information provided by sources such as FAO and the World Bank. When this was not 
possible, the assumptions made were conservative, and were systematically biased against the European Communities. In other words, wher e the modeller had to make assumptions, those 
assumptions were made against the inter ests of the European Communities.   
124. But the Interested Parties identified a number of assumptions or features of the model that 
they found erroneous.  Honduras, Nicaragua and Panama objected to the European Communities' 
assumptions about the values of European Comm unities' demand and ACP supply elasticities.  
Colombia, Costa Rica, Ecuador and Guatemala poi nted to what they considered erroneous 
assumptions about transport costs in the European Communities' model that were inconsistent with 
official data.
117  This "anomaly" seems to have come from  the bilateral transaction costs table which 
estimates the cost of moving bananas from exporting to importing country.  The European 
Communities did not provide any reference or official source of the data represented in the table. In 
                                                      
112 Submission by the European Communities, para. 109. 
113 Submission by the European Communities, para. 117. 
114 Award of the Arbitrator, para. 78. 
115 Award of the Arbitrator, para 79. 
116 Ibid. 
117 Submission by Colombia, Costa Rica, Ecuador and Guatemala, paras. 214-215. WT/L/625 
Page 28  
 
fact, it admitted that "[i]nformation on transportation and other costs incurred in international trading 
[of] bananas for all possible trade flows is non existent."
118   
125. The Arbitrator asked a question regarding the simulation results of the European 
Communities' model, which predicted that some la rge MFN suppliers will export zero volumes to the 
European Communities in some or in all years of th e simulation.  The Arbitrator noted the European 
Communities' confirmation of these results and its explanation that this was the most well known 
limitation of this class of models.  It could be argued that, since the attraction of the European 
Communities' model is precisely its presumed ability  to analyze bilateral trade flows, doubts are 
raised about a model that produces simulation results that are at variance with a reasonable expectation of how future banana expor ts to the EC-25 are likely to evolve. 
126. The Arbitrator notes that there has been less debate over the European Communities' 
simulation model than over the price gap calcula tions.  It recognizes that this reflects both the 
technical nature of the model and the complementary ro le it plays in the analysis.  Because of the role 
that the simulation model plays in the European  Communities' arguments, the Arbitrator does not 
believe that it can be treated as a methodology which is independent of the European Communities' 
price gap calculation.  Having determined that the European Communities' price gap calculation 
would not result in at least maintaining total mark et access for MFN banana suppliers, the Arbitrator 
needs not deal with the simulation model as a separa te method to confirm that the proposed tariff of 
€187 per metric ton and the tariff quota of 775,000 mt on ACP imports will maintain total market 
access for MFN suppliers. 
VI. DETERMINATION 
127. For the reasons stated in this award, th e Arbitrator determines that the European 
Communities' proposed rectification, consisting of a new MFN tariff rate on bananas of €187 per 
metric ton and a 775,000 mt tariff quota on imports of  bananas of ACP origin, would not result "in at 
least maintaining total market access for MFN bana na suppliers", taking into account "all EC WTO 
market-access commitments relating to bananas".  Consequently, the Arbitrator finds that the 
European Communities has failed to rectify the matter,  in accordance with the fifth tiret of the Annex 
to the Doha Waiver.   
__________ 
 
 
                                                     
 
118 Answers to questions by the European Communities, para. 41.