EUROPEAN COMMUNITIES - REGIME FOR THE IMPORTATION, SALE AND DISTRIBUTION OF BANANAS AB-1997-3
Document: Appellate Body EUROPEAN COMMUNITIES - REGIME FOR THE IMPORTATION, SALE AND DISTRIBUTION OF BANANAS AB-1997-3 Report of the Appellate Body
Date: 9 September 1997
Document codes: WT/DS27/AB/R
Complainant: Ecuador, Guatemala, Honduras, Mexico, U.S.
Respondent: EU
Third parties: Belize, Cameroon, Canada, Colombia, Costa Rica, Dominica, Dominican, Ghana, Grenada, India, Jamaica, Japan, Mauritius, Nicaragua, Panama, Philippines, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Suriname, Venezuela, Côte d’Ivoire, Brazil, Madagascar
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. I, II, III, X, XI, XIII  GATT 1994Art. 1, 3  Import LicensingArt. II, XVI, XVII  Services (GATS)Art. 2  Trade-Related Investment Measures (TRIMs)Art. 19  Agriculture

ORGANIZATION Appellate Body
EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
AB-1997-3
Report of the Appellate Body

APPELLATE BODY
European Communities - Regime for
the Importation, Sale and Distribution
of Bananas
European Communities, Appellant/Appellee
Ecuador, Guatemala, Honduras, Mexico and
the United States, Appellants/Appellees
Belize, Cameroon, Colombia, Costa Rica,
Côte d'Ivoire, Dominica, Dominican
Republic, Ghana, Grenada, Jamaica, Japan,
Nicaragua, Saint Lucia, St. Vincent and the
Grenadines, Senegal, Suriname and
Venezuela, Third Participants
AB-1997-3
Present:
Bacchus, Presiding Member
Beeby, Member
El-Naggar, Member
I. Introduction
1. The European Communities and Ecuador, Guatemala, Honduras, Mexico and the United States
(the "Complaining Parties") appeal from certain issues of law and legal interpretations in the Panel
Reports, European Communities - Regime for the Importation, Sale and Distribution of Bananas1 (the
"Panel Reports"). The Panel was established on 8 May 1996 to consider a complaint by the Complaining
Parties against the European Communities concerning the regime for the importation, sale and distribution
of bananas established by Council Regulation (EEC) No. 404/93 of 13 February 1993 on the common
organization of the market in bananas ("Regulation 404/93")2, and subsequent EC legislation, regulations
and administrative measures, including those reflecting the provisions of the Framework Agreement
1Complaint by Ecuador, ; Complaint by Guatemala and Honduras, , ;
Complaint by Mexico, ; Complaint by the United States, , 22 May 1997.
2Official Journal, No. L 47, 25 February 1993, p. 1.

on Bananas (the "BFA"), which implement, supplement and amend that regime. The relevant factual
aspects of the EC common market organization for bananas are described fully at paragraphs 3.1 to
3.36 of the Panel Reports.3
2. The Panel issued four Panel Reports that were circulated to the Members of the World Trade
Organization (the "WTO") on 22 May 1997. The Panel Reports contain the following conclusions:
With respect to Ecuador, in paragraph 9.1 of the Report, WT/DS27/R/ECU, the Panel concluded:
... that for the reasons outlined in this Report aspects of the European
Communities' import regime for bananas are inconsistent with its
obligations under Articles I:1, III:4, X:3 and XIII:1 of GATT, Article
1.2 of the Licensing Agreement and Articles II and XVII of the GATS.
These conclusions are also described briefly in the summary of findings.
With respect to Guatemala and Honduras, in paragraph 9.1 of the Reports, WT/DS27/R/GTM
and WT/DS27/R/HND, the Panel concluded:
... that for the reasons outlined in this Report aspects of the European
Communities' import regime for bananas are inconsistent with its
obligations under Articles I:1, III:4, X:3 and XIII:1 of GATT and
Article 1.3 of the Licensing Agreement. These conclusions are also
described briefly in the summary of findings.
3The following terms are used throughout this Report:
• "ACP States" refers to the African, Caribbean and Pacific States which are parties to the Fourth ACP-EC
Convention of Lomé (the "Lomé Convention"), signed in Lomé, 15 December 1989, as revised by the
Agreement signed in Mauritius, 4 November 1995;
• "traditional ACP States" refers to the 12 ACP States, listed in the Annex to Regulation 404/93, which
have traditionally exported bananas to the European Communities; these are Côte d'Ivoire, Cameroon,
Suriname, Somalia, Jamaica, Saint Lucia, St. Vincent and the Grenadines, Dominica, Belize, Cape Verde,
Grenada and Madagascar;
• "traditional ACP bananas" refers to the quantities of bananas, exported by the traditional ACP States,
up to the quantities of bananas set out in the Annex to Regulation 404/93;
• "non-traditional ACP bananas" refers to the quantities of bananas exported by the traditional ACP States
in excess of the quantities of bananas set out in the Annex to Regulation 404/93, and to the quantities
of bananas exported by banana-producing ACP States other than traditional ACP States;
• "third-country bananas" refers to the quantities of bananas exported by non-ACP States to the European
Communities.

With respect to Mexico, in paragraph 9.1 of the Report, WT/DS27/R/MEX, the Panel concluded:
... that for the reasons outlined in this Report aspects of the European
Communities' import regime for bananas are inconsistent with its
obligations under Articles I:1, III:4, X:3 and XIII:1 of GATT, Articles
1.2 and 1.3 of the Licensing Agreement and Articles II and XVII of
the GATS. These conclusions are also described briefly in the
summary of findings.
With respect to the United States, in paragraph 9.1 of the Report, WT/DS27/R/USA, the Panel
concluded:
... that for the reasons outlined in this Report aspects of the European
Communities' import regime for bananas are inconsistent with its
obligations under Articles I:1, III:4, X:3 and XIII:1 of GATT, Article
1.3 of the Licensing Agreement and Articles II and XVII of the GATS.
These conclusions are also described briefly in the summary of findings.
In each of the Panel Reports, the Panel made the following recommendation:
... that the Dispute Settlement Body request the European Communities
to bring its import regime for bananas into conformity with its
obligations under GATT, the Licensing Agreement and the GATS.
3. On 11June 1997, theEuropean Communities notifiedthe Dispute Settlement Body4 (the "DSB")
of its decision to appeal certain issues of law covered in the Panel Reports and certain legal interpretations
developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal with the
Appellate Body pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working
Procedures"). On 23 June 1997, the European Communities filed an appellant's submission pursuant
to Rule 21 of the Working Procedures. On 26 June 1997, the Complaining Parties filed an appellant's
submission pursuant to Rule 23(1) of the Working Procedures. In accordance with Rule 16(2) of the
Working Procedures, and at the request of the Complaining Parties, the Appellate Body granted a two-day
extension for the filing of appellees' and third participants' submissions. On 9 July 1997, the
Complaining Parties filed an appellee's submission pursuant to Rule 22 of the Working Procedures,
and the European Communities filed an appellee's submission pursuant to Rule 23(3) of the Working
4WT/DS27/9, 13 June 1997.

Procedures. Ecuador also filed a separate appellee's submission on that date. A joint third participants'
submission was filed by Belize, Cameroon, Côte d'Ivoire, Dominica, Dominican Republic, Ghana,
Grenada, Jamaica, Saint Lucia, St. Vincent and the Grenadines, Senegal and Suriname (the "ACP third
participants") on 9 July 1997 pursuant to Rule 24 of the Working Procedures. That same day, Colombia,
Nicaragua and Japan filed third participants' submissions and a joint third participants' submission
was filed by Costa Rica and Venezuela.
A. Procedural Matters
4. On 10 July 1997, pursuant to Rule 16(2) of the Working Procedures, the Government of Jamaica
asked the Appellate Body to postpone the dates of the oral hearing, set out in the working schedule
for 21 and 22 July 1997, to 4 and 5 August 1997. This request was not granted as the Appellate Body
was not persuaded that there were exceptional circumstances resulting in manifest unfairness to any
participant or third participant that justified the postponement of the oral hearing in this appeal.
5. By letter of 9 July 1997, the Government of Saint Lucia submitted reasons justifying the
participation of two specialist legal advisers, who are not full-time government employees of Saint
Lucia, in the Appellate Body oral hearing. Saint Lucia argued that there are two separate issues
concerning rights of representation in WTO dispute settlement proceedings. The first issue is whether
a state may have its case presented before a panel or the Appellate Body by private lawyers. The second
issue deals with the sovereign right of a state to decide who constitutes its official government
representatives or delegation. On the second, and more fundamental issue, Saint Lucia submitted that
as a matter of customary international law, no international organization has the right to interfere with
a government's sovereign right to decide whom it may accredit as officials and members of its delegation.
Furthermore, Saint Lucia noted that neither the DSU nor the Working Procedures deal with the issue
of a sovereign state's entitlement to appoint its delegation or accredit persons as full and proper
representatives of its government. Saint Lucia maintained that to do so would go beyond the powers
of a panel, the Appellate Bodyor the WTO under customary international law. Saint Lucia also observed
that there is no provision in the DSU or in the Working Procedures requiring governments to nominate
only government employees as their counsel in WTO panel or Appellate Body proceedings.
6. The Governments of Canada and Jamaica supported the request by Saint Lucia. In a letter
of 14 July 1997, Canada stated its concurrence with the proposition advanced by Saint Lucia that the
composition of a WTO Member's delegation, in the absence of any rules to the contrary, is a matter
internal to the Member itself. Canada argued that it is the Member's right to authorize those individuals

it considers necessary or appropriate to represent its interests. Canada maintained that it is not
appropriate for a panel or the Appellate Body to verify the credentials of individuals that a Member
has authorized to participate in its delegation. By letter of 14 July 1997, Jamaica also submitted that
a government has the right to determine the composition of its own delegation within the context of
international law and practice.
7. On 14 July 1997, the Complaining Parties filed a written submission opposing the request of
Saint Lucia for permission to allow non-governmental employees to participate in the Appellate Body's
oral hearing in this appeal. The Complaining Parties pointed out that the Panel ruled, in its first
substantive meeting with the parties on 10 September 1996, that the private counsel seeking to represent
Saint Lucia were not entitled to attend the Panel's meetings in this case. The Complaining Parties
noted that "the Panel's ruling is not specifically appealed in this appeal".
8. With respect to Saint Lucia's request that its legal advisers be granted an opportunity to
participate in the Appellate Body's oral hearing, the Complaining Parties argued that there is no basis
for the WTO to change its established practice in this area, and that such a change would entail a
fundamental change in the premises underlying the WTO dispute settlement system. The Complaining
Parties maintained that the rules of international law governing diplomatic relations, particularly those
codified in the Vienna Convention on Diplomatic Relations5, do not support the proposition that a
government can name whomever it wants as a member of its delegation to represent it in a foreign
international body. The Complaining Parties also argued that the Vienna Convention on the
Representation of States in their Relations with International Organizations of a Universal Character6
has never come into force and has not been ratified by any of the major host states, including Switzerland
and the United States, and as such is not applicable to the WTO. The Complaining Parties argued
that the law of diplomatic representation does not give states carte blanche as to whom they may appoint
to their delegations. Furthermore, with respect to the practice of other international organizations and
international tribunals, the Complaining Parties argued that where participation of outside counsel is
permitted, it is done so in accordance with specific written rules which have been negotiated and agreed
to by parties to that organization or treaty.
9. The Complaining Parties submitted that from the earliest years of the General Agreement on
Tariffs and Trade (the "GATT"), presentations by governments in dispute settlement proceedings have
5Done at Vienna, 16 April 1961, 500 UNTS 95.
6Done at Vienna, 14 March 1975, AJIL 1975, p. 730.

been made exclusively by government lawyers or government trade experts. With respect to developing
countries, the Complaining Parties argued that, unlike the practice before other international tribunals,
under the provisions of Article 27.2 of the DSU, developing countries are entitled to legal assistance
from the WTO Secretariat. The Complaining Parties also cited certain policy reasons in support of
their position. WTO dispute settlement, they argued, is dispute settlement among governments, and
it is for this reason that the DSU safeguards the privacy of the parties during recourse to dispute
settlement procedures. Furthermore, the Complaining Parties asserted that if private lawyers were
allowed to participate in panel meetings and Appellate Body oral hearings, a number of questions
concerning lawyers' ethics, conflicts of interest, representation of multiple governments and
confidentiality would need to be resolved.
10. On 15 July 1997, the Appellate Body notified the participants and third participants in this
appeal of its ruling that the request by Saint Lucia would be allowed. The Appellate Body said the
following:
... we can find nothing in the Marrakesh Agreement Establishing the
World Trade Organization (the "WTO Agreement"), the DSU or the
Working Procedures, nor in customary international law or the
prevailing practice of international tribunals, which prevents a WTO
Member from determining the composition of its delegation in Appellate
Body proceedings. Having carefully considered the request made by
the government of Saint Lucia, and the responses dated 14 July 1997
received from Canada; Jamaica; Ecuador, Guatemala, Honduras,
Mexico and the United States, we rule that it is for a WTO Member
to decide who should represent it as members of its delegation in an
oral hearing of the Appellate Body.
11. In providing additional reasons for our ruling in this Report, it is important to note first to
what this ruling does and does not apply. A request was received from the Government of Saint Lucia
to allow the participation of two legal counsel, who are not government employees of Saint Lucia,
in the oral hearing of the Appellate Body in this appeal. This is not an appeal of the Panel's ruling
concerning the participation of the same counsel in the panel meetings with the parties in this case.
The Panel's ruling was not appealed by a party to the dispute7, and thus that ruling is not before us
in this appeal. Second, it is well-known that in WTO dispute settlement proceedings, many governments
seek and obtain extensive assistance from private counsel, who are not employees of the governments
7Pursuant to Articles 16.4 and 17.4 of the DSU, only parties to a dispute, and not third parties, may appeal a panel report.

concerned, in advising on legal issues; preparing written submissions to panels as well as to the
Appellate Body; preparing written responses to questions from panels and from other parties as well
as from the Appellate Body; and other preparatory work relating to panel and Appellate Body
proceedings. These practices are not at issue before us. The sole issue before us is whether Saint
Lucia is entitled to be represented by counsel of its own choice in the Appellate Body's oral hearing.
12. We note that there are no provisions in the Marrakesh Agreement Establishing the World Trade
Organization (the "WTO Agreement"), in the DSU or in the Working Procedures that specify who can
represent a government in making its representations in an oral hearing of the Appellate Body. With
respect to GATT practice, we can find no previous panel report which speaks specifically to this issue
in the context of panel meetings with the parties. We also note that representation by counsel of a
government's own choice may well be a matter of particular significance -- especially for developing-
country Members -- to enable them to participate fully in dispute settlement proceedings. Moreover,
given the Appellate Body's mandate to review only issues of law or legal interpretation in panel reports,
it is particularly important that governments be represented by qualified counsel in Appellate Body
proceedings.
B. Oral Hearing
13. The oral hearing was held on 21, 22 and 23 July 1997. In his opening statement, the Presiding
Member of the Division reminded the participants and third participants that the purpose of the oral
hearing was to clarify and distil the legal issues raised in this appeal. The participants and third
participants presented oral arguments, were questioned by the Members of the Division hearing this
appeal, and made concluding statements. The third participants participated fully in all aspects of the
oral hearing.
II. Arguments of the Participants
A. European Communities - Appellant
14. The European Communities appeals from certain of the Panel's legal findings and conclusions
as well as from certain legal interpretations developed by the Panel.

1. Preliminary Issues
(a) Right of the United States to Advance Claims under the GATT 1994
15. The European Communities argues that the Panel infringed Article 3.2 of the DSU by finding
that the United States has a right to advance claims under the GATT 1994. The European Communities
asserts that, as a general principle, in any system of law, including international law, a claimant must
normally have a legal right or interest in the claim it is pursuing. The European Communities refers
to judgments of the Permanent Court of International Justice (the "PCIJ") and the International Court
of Justice (the "ICJ") as support for its argument that the concept of actio popularis "is not known
to international law as it stands at present".8
16. According to the European Communities, treaty law is a "method of contracting out of general
international law". Therefore, the WTO Agreement must contain a rejection of the requirement of a
legal interest or an acceptance of the notion of actio popularis in order to conclude that the WTO dispute
settlement system sets aside the requirement of a legal interest. The absence of such an express rule
in the DSU or in the other covered agreements indicates that general international law must be applied.
The European Communities maintains that the reasoning advanced by the Panel that all parties to a
treaty have an interest in its observance is a general observation which is true for all treaties. The
European Communities submits that this has not been accepted by the ICJ as a valid proposition under
general international law granting all parties to a multilateral treaty locus standi in all cases.
17. The European Communities also argues that the provisions of Article 10.2 of the DSU, allowing
a WTO Member that has "a substantial interest in the matter before a panel" to participate as a third
party, suggest a fortiori that a party to a dispute must show a legal interest. The European Communities
asserts that the United States has no actual or potential trade interest justifying its claim, since its banana
production is minimal, it has never exported bananas, and this situation is unlikely to change due to
climatic and economic conditions in the United States. In the view of the European Communities,
the Panel fails to explain how the United States has a potential trade interest in bananas, and production
alone does not suffice for a potential trade interest. The European Communities also contends that
8The European Communities refers to the South West Africa Cases (Second Phase), ICJ Reports 1966, p. 47; the Case
Concerning the Barcelona Traction, Light, and Power Company, Limited (Second Phase), ICJ Reports 1970, p. 32; and
the Mavrommatis Palestine Concessions Case, PCIJ (1925), Series A, No. 2, p. 12.

the United States has no right protected by WTO law to shield its own internal market from the indirect
effects of the EC banana regime.
(b) Specificity of the Request for Establishment of the Panel
18. The European Communities argues that Article 6.2 of the DSU requires that a "specific measure"
be identified, which implies that the mere identification of the legislation or regulations at issue is not
sufficient, especially if they are broad and extensive and if only specific aspects of them are being
attacked. The European Communities asserts that "specific measures at issue" should be given a
substantive meaning and not a formalistic interpretation. The European Communities submits further
that the request for establishment of a panel must at the very least make a link between the specific
measure concerned and the article of the specific agreement allegedly infringed thereby in order to
give both the defending party and prospective third parties a clear idea of what the alleged infringements
are.
2. Interpretation of the Agreement on Agriculture
19. In the view of the European Communities, the Panel erred in interpreting Article 4.1 of the
Agreement on Agriculture. The European Communities submits that the Preamble of the Agreement
on Agriculture indicates that Members were aware of the uniqueness and the specificity of the negotiations
concerning agricultural products in the Uruguay Round as compared to tariff negotiations in other areas.
Two elements of this specificity are especially important in the context of these proceedings. First,
the transition from a highly restrictive system, largely based on non-tariff barriers, to more open market
access for agricultural products had to be progressive. Second, the process of reform initiated by the
Agreement on Agriculture was aimed at achieving binding commitments in three areas: market access,
domestic support and export competition. The fundamental achievement of this reform process was
the obligation to remove non-tariff barriers and to convert them into tariff equivalents, including tariff
quotas. The European Communities contends that the Panel's failure to take into account both the
context and the negotiating history of the Agreement on Agriculture, in particular as evidenced by the
Modalities document9, contributed to the Panel's erroneous interpretation of Article 4.1.
9ModalitiesfortheEstablishmentofSpecificBindingCommitmentsUndertheReformProgramme, MTN.GNG/MA/W/24,
20 December 1993.

20. The European Communities argues that Article 4.1 is a substantive provision. Read in
conjunction with Article 1(g), it defines the market access commitments regarding agricultural products
contained in the Schedules as "commitments undertaken pursuant to the Agreement on Agriculture".
In support of its argument, the European Communities also refers to the Panel's interpretation of Article
21.1 of the Agreement on Agriculture. In the view of the European Communities, Article 21.1 confirms
the "agricultural specificity" in its clearest form and demonstrates that the rules of the Agreement on
Agriculture, including the Schedules specifically referred to in Article 4.1, supersede the provisions
of the GATT 1994 and the other Annex 1A agreements, where appropriate. The European Communities
submits that pursuant to Article 21.1 of the Agreement on Agriculture, Article XIII:2(d) of the GATT
1994 is applicable to market access commitments, subject to the provision of Article 4.1 of the Agreement
on Agriculture allowing the inclusion in those commitments of "other market access commitments as
specified" in the Schedule. The European Communities does not contest that the Members' Schedules
are formally annexed to the GATT 1994. However, in applying the rule of priority in the implementation
of the WTO rules relating to agricultural products, as set out in Article 21.1 of the Agreement on
Agriculture, the provisions of the GATT 1994 shall be applied with regard to the parts of the Schedules
concerning the agricultural products "subject to the provisions" of the Agreement on Agriculture, and
in particular, Article 4.1. The market access commitments contained in the part of each Member's
Schedule relating to agricultural products shall therefore be those resulting from the "bindings and
reductions of tariffs, and other market access commitments as specified therein".
21. The European Communities submits further that the fact that a number of Members have used
tariff quotas, with country-specific allocations and an "others" category for making current access
commitments, is a clear indication that the practice of allocating tariff quotas in this manner was
considered acceptable under the Agreement on Agriculture. The European Communities asserts that
the Panel's conclusion that this practice is contrary to Article XIII of the GATT 1994, and is not
protected by Article 21.1 of the Agreement on Agriculture, will destroy a large part of the results of
the Uruguay Round negotiations on agriculture relating to tariffication.
3. Interpretation of Article XIII of the GATT 1994
22. The European Communities disagrees with several aspects of the Panel's conclusions on Article
XIII of the GATT 1994. The European Communities argues that while Article XIII:2(d) does not
explicitly permit allocations on the basis of agreement with some Members not having a substantial

interest, it does not forbid that possibility. The only unequivocal obligation flowing from Article XIII,
with respect to Members not having a substantial interest, is to ensure that any Member is entitled
to have access to at least a share of the tariff rate quota that approaches, as closely as possible, the
share it would expect to receive in the absence of that tariff rate quota. The European Communities
submits that an agreement on the allocation of the tariff quota shares with as many supplying countries
as possible cannot be against the object and purpose of Article XIII. Furthermore, the terms of Article
XIII:2(d) do not exclude the combined use of agreements and unilateral allocations for substantial
suppliers. What is important, for the allocation to be in conformity with Article XIII, is that any Member
not able to reach an agreement with the importing Member should not be penalized in its access to
the tariff rate quota. The European Communities refers to the panel report in Norway - Restrictions
on Imports of Certain Textile Products10 ("Norway - Imports of Textile Products"), arguing that if the
combined use of allocation methods is allowed for Members having a substantial interest, it is also
allowed for Members not having a substantial interest. More specifically, with respect to Guatemala,
the European Communities maintains that Guatemala cannot be considered as having been harmed in
its trade interests in bananas in any way by the decision of the European Communities to include it
in the "others" category, which amounts to 49 per cent of the tariff rate quota. In addition, the European
Communities asserts that the tariff quota reallocation rules for the BFA are not inconsistent with
Article XIII.
4. Separate Regimes
23. The European Communities argues that there are, in fact, two separate EC import regimes
for bananas: one preferential regime for traditional ACP bananas and one erga omnes regime for all
other imported bananas. The European Communities contends further that the non-discrimination
obligations of Articles I:1, X:3(a) and XIII of the GATT 1994 and Article 1.3 of the Agreement on
Import Licensing Procedures (the "Licensing Agreement"), only apply within each of these two regimes.
24. The European Communities takes the view that in the context of the tariff negotiations in the
Uruguay Round, the issue of specified quantities of traditional ACP bananas under the preferential
treatment provided for by the Lomé Convention was never raised nor discussed, let alone negotiated
or included in the EC GATT Schedule LXXX. Legally, this implies that, under the preferential treatment
of the Lomé Convention, the specified quantities of imports of traditional ACP bananas are not part
10Adopted 18 June 1980, BISD 27S/119, paras. 15-16.

of the bound commitments of the erga omnes regime and that the obligations of the European
Communities vis-à-vis Members that are parties to the Lomé Convention have their source in the
Convention itself and not in the GATT 1994. Furthermore, the allocation by the European Communities
of the tariff quota in the EC Schedule is not only separate from, but also irrelevant to, the allocation
of ACP preferential quantities, and a licence for the importation of bananas at the in-quota reduced
rate could never be used to import bananas from any traditional ACP State. Therefore, the European
Communities submits that thePanel's conclusionthat there isa single licensing regime is simply refusing
to see what happens in the real world.
25. In support of this "separate regimes" argument, the European Communities refers to the Panel
on Newsprint.11 The European Communities claims that the situations in that panel report and in this
case are identical, in particular, the relationship between an erga omnes tariff rate quota and preferential
treatment under a preferential agreement. The European Communities admits that there is a partial
(and rather formalistic) difference between the present case and the Panel on Newsprint case in that
the preferential regime in the latter case was justified under Article XXIV of the GATT 1947. The
European Communities argues that this does not affect the relevance of the Panel on Newsprint case,
because the preferential nature of the Lomé Convention has not been contested and the European
Communities continues to believe that the Lomé Convention is justified under Article XXIV. The
European Communities is concerned that the Panel's findings would oblige the European Communities
to include traditional ACP bananas in the current tariff quota for non-traditional ACP and third-country
bananas, i.e. to increase or modify the concessions made by the European Communities in the context
of the Uruguay Round. This would affect the balance of rights and obligations resulting from the
Uruguay Round negotiations on agriculture.
26. The European Communities submits that the Panel ignored the "objective legal situation" that
the common organization of the market in bananas has three separate elements: an internal one, a
general external one and a preferential one. The European Communities asserts that the plain language
of the GATT 1994 indicates that Article XIII applies to the non-discriminatory administration of
quantitative restrictions and tariff quotas. The European Communities contends that it has only one
tariff quota concerning bananas -- the tariff quota of 2.2 million tonnes set out in the EC Schedule --
and that the preferential quantities of traditional ACP bananas are not included in this tariff quota.
11Adopted 20 November 1984, BISD 31S/114, para. 55.

5. Interpretation of the Lomé Convention and Scope and Coverage of the Lomé
Waiver
27. The European Communities submits that the Panel endorsed a different interpretation of the
Lomé Convention and of the Lomé Waiver12 from the one commonly accepted by the parties to that
Convention.
28. The European Communities argues that the decision taken by the EC Council in its meeting
of 14 to 17 December 1992 reflects a clear common understanding that "... the Lomé commitments
will be met by allowing tariff-free imports from each ACP State up to a traditional level reflecting
its highest sendings (best ever) in any one year up to and including 1990. In cases where it can be
shown that investment had already been committed to a programme of expanding production, a higher
figure may be set for that ACP State". The reasons for this decision were in Protocol 5 on Bananas
to the Lomé Convention ("Protocol 5") and in the obvious need not to waste EC public money and
trade opportunities that the EC's financial intervention was trying to establish. The best-ever shipments
to the European Communities, by definition, are a statistical measure of past trade, but they in no way
reflect an element of the present. The European Communities argues that the Panel's interpretation
is tantamount to reducing the words "at present" in Article 1 of Protocol 5 to redundancy. Article
1 of Protocol 5 took into account a dynamic factual situation.
29. The European Communities disagrees with the Panel's conclusion that the current licensing
system is not "an advantage" that the ACP countries enjoyed in the European Communities prior to
the introduction of the banana regime. Before 1993, the licensing system operated by the United
Kingdom and France applied only to imports from third countries, but not to traditional ACP imports.
Such an advantage, by virtue of Protocol 5, needed to be carried over into the licensing arrangements
for the "new" EC banana regime. The European Communities argues further that Article 167 of the
Lomé Convention states that the object of the Convention is to promote trade between the ACP States
and the European Communities, and that the Lomé Convention highlights the importance of improving
conditions for market access for the ACP States. Article 167 clearly goes beyond a mere tariff preference
insofar as it also provides for the securing of "effective additional advantages". The effectiveness of
the advantages is a key element thereof. According to the European Communities, Protocol 5 requires
the continuation of the advantages enjoyed by traditional ACP States. Tariff preferences alone have
12The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604,
19 December 1994 (the "Lomé Waiver"); and EC - The Fourth ACP-EC Convention of Lomé, Extension of Waiver, Decision
of the WTO General Council of 14 October 1996, WT/L/186, 18 October 1996.

been shown to be insufficient to ensure this. Without the combined tariff preferences and the import
licensing system, ACP bananas would not be competitive in the EC market, and the European
Communities would therefore not be able to fulfil its obligations under the Lomé Convention.
6. Licensing Agreement
30. In the view of the European Communities, the Panel erred in law in interpreting the Licensing
Agreement, in particular, Articles 1.2 and 1.3, as applicable to tariff quotas. According to the European
Communities, the Panel failed to distinguish appropriately "import quotas", which are quantitative
restrictions, from "tariff quotas", which do not limit imports but rather regulate access to a reduced
tariff rate. The European Communities asserts that Article 1.1 of the Licensing Agreement defines
an import licence as "... an application or other documentation ... to the relevant administrative body
as a prior condition for importation into the customs territory of the importing Member". The European
Communities argues that the EC tariff quota licence is not a prior condition for importation. It is
necessary to gain access at a reduced rate, but not to import bananas. The European Communities
submits that Article 1.1 of the Licensing Agreement covers licences which are prior conditions "for
importation", not "for importation at a lower duty rate".
7. Articles I:1 and X:3(a) of the GATT 1994 and Article 1.3 of the Licensing
Agreement
31. With respect to the "neutrality" obligation in Article 1.3 of the Licensing Agreement, the
European Communities submits that the letter, the context and the negotiating history, and even the
Panel's own interpretation of the relationship between Article X of the GATT 1994 and Article 1.3
of the Licensing Agreement, plead against the use of Article 1.3 of the Licensing Agreement as a legal
tool to compare the requirements of different licensing systems. The European Communities concludes
that the use of Article 1.3 of the Licensing Agreement in this way would duplicate Article I:1 of the
GATT 1994.
32. In addition, the European Communities submits that Article X of the GATT 1994 is designed
to ensure the transparency and the impartiality of public authorities charged with the administration
of the relevant national legislation regarding trade. The raison d'être of Article X is to ensure that
administrative actions are as neutral as possible. According to the European Communities, the Panel
distorted the interpretation of this provision in such a way that Article X is now equivalent to a repetition
of the most-favoured-nation ("MFN") provision in Article I:1 of the GATT 1994. The European

Communities maintains that the Panel erred in finding that the requirements of uniformity, impartiality
and reasonableness in Article X:3(a) do not refer to the administration of the laws, regulations, decisions
and rulings, but to the laws, regulations, decisions and rulings themselves. With respect to the
interpretation of Article 1.3 of the Licensing Agreement, the European Communities agrees with the
Panel that a perfect parallel can be made between Article X:3(a) of the GATT 1994 and Article 1.3
of the Licensing Agreement. However, Article 1.3 of the Licensing Agreement is lex specialis for the
administration of import licensing procedures, while Article X:3(a) of the GATT 1994 is lex generalis
for the administration of all "laws, regulations, decisions and rulings ...". As a result of the Panel
Reports, the European Communities queries whether it is possible to find a breach of Article X:3(a)
of the GATT 1994 without also finding an infringement of Article 1.3 of the Licensing Agreement.
8. Interpretation of Article III:4 of the GATT 1994
33. The European Communities asserts that the Panel erred in finding that the licensing regime
is an internal measure subject to Article III:4 of the GATT 1994, and not a border measure, and that
the Panel misunderstood the notion of internal measures in the GATT 1994. The European Communities
refers to the panel report in Italian Discrimination Against Imported Agricultural Machinery13 ("Italian
Agricultural Machinery") and argues that the word "all" in that report, when referring to measures
that modify conditions of competition between domestic and imported products in domestic markets,
is concerned with internal measures. The European Communities asserts that the panel report in Italian
Agricultural Machinery stands for the proposition that Article III applies only to measures applied to
imported products "once they have cleared through customs".14
34. The European Communities argues that a licence is a document which is a prior condition for
applying the reduced duty-rate bound under the EC tariff quota to imported bananas. This all happens
before the bananas have cleared customs. According to the European Communities, the existence of
the licence is justified by operations whose very nature is that of a border operation concerning the
duty-rate applicable to that product. The European Communities asserts that the Panel confuses the
notion of border measures and the notion of adjustment at the border of an internal measure, the latter
being the subject of Ad Article III of the GATT 1994.
13Adopted 23 October 1958, BISD 7S/60.
14Ibid., para. 11.

35. In the case of the EC licensing system, it is obvious that domestic bananas are not subject to
an import licence since they do not cross the border, do not clear customs, do not pay duty and are
not included in any tariff quota. Therefore, the very application to an import licence of the notion
of border adjustment in Ad Article III is legally wrong. The European Communities refers to the panel
report in United States - Section 337 of the Tariff Act of 193015 ("United States - Section 337") in support
of its interpretation. The European Communities submits further that most of the licensing procedures
are applied to persons rather than products. The European Communities refers to the panel report
in United States - Restrictions on Imports of Tuna16 ("United States - Imports of Tuna (1991)") in support
of its argument that Article III cannot be used to compare treatment between persons but only between
products.
36. As to the effect of hurricane licences, the European Communities asserts that a simpleside-effect
resulting from the implementation of a measure pursuing a general internal policy, which has or might
have an effect on the conditions of competition, should not be considered to infringe Article III:4 of
the GATT 1994 unless clear evidence is provided that this general policy measure was designed to
afford protection to domestic products. The European Communities asserts that hurricane licences
are distributed only in the event of a proven catastrophe and are limited to the quantities lost due to
the devastation caused by a hurricane. Therefore, these licences are clearly a means of intervention
to support the income of those domestic producers that are harmed by the hurricane. The European
Communities points out that operators can benefit from hurricane licences in two ways: they can use
them to import bananas from third countries, or they can sell the licences. Hurricane licences by
themselves do not affect the internal sale or offering for sale of domestic bananas to the detriment of
imported bananas. The only effect they have is an occasional increase in the EC tariff quota. Finally,
the European Communities asks whether WTO Members are not allowed to remedy the consequences
of natural disasters withintheir own territories in order to prevent their producers from being eliminated.
9. Interpretation of Article I:1 of the GATT 1994
37. The European Communities contends that the Panel erred in law in interpreting Article I:1
of the GATT 1994. With respect to the activity function rules, the European Communities argues
that discrimination occurs in treating identical situations differently, or in treating different situations
in the same way. The Panel's findings would amount to compelling the European Communities to
15Adopted 7 November 1989, BISD 36S/345.
16Unadopted, BISD 39S/155, p. 195.

treat different situations concerning operators, in the same way, and by doing so, create additional
burdens for some that would not be appropriate for the situation in which they are operating. In the
view of the European Communities, nothing in Article I:1 of the GATT 1994 forbids a Member to
treat different situations on their merits.
38. The European Communities submits that tariff quota licences have a considerable monetary
value and confer significant advantages to the holders. The same factual reality does not exist with
regard to traditional ACP bananas. It is "simply nonsensical" to find that a violation of Article I:1
of the GATT 1994 was committed solely on the grounds that the activity function rules are not used
in the traditional ACP licensing system. The European Communities maintains that the activity function
rules were established for reasons relating to EC domestic competition policy, and that competition
policy considerations fall entirely outside the ambit of the WTO Agreement as it is currently drafted.
39. With respect to export certificates, the European Communities asserts that the possibility of
passing quota rents to banana producers "does exist" in any situation where a licensing system exists
together with limited access to a quantitative restriction or a tariff quota. In the view of the European
Communities, it would be wrong to affirm that a distinction could be drawn between quota rents resulting
from an export certificate, and quota rents arising from the existence of an import licence. The European
Communities argues that there is no advantage for Colombian, Costa Rican and Nicaraguan bananas
deriving from the requirement of export certificates. The distribution of quota rents, provided that
licences are tradeable, confers no particular advantage, nor has any effect on, the importation of
Ecuadorian, Guatemalan, Honduran and Mexican bananas into the European Communities as compared
with the access of BFA bananas to the EC market.
10. Measures Affecting Trade in Services
40. The European Communities submits that the Panel erred in law by finding that there is no legal
basis for an a priori exclusion of measures within the EC banana import licensing regime from the
scope of the General Agreement on Trade in Services (the "GATS"). The European Communities
argues that as a result of the Panel's interpretation of the scope of the GATS, there is a "total overlap"
between the GATT 1994 and the other Annex 1A agreements of the WTO Agreement, on the one hand,
and the GATS on the other hand. Any measure can fall under both the Annex 1A agreements and
the GATS simultaneously. The European Communities maintains that there is no indication that the
Panel examines, under the GATS, a different aspect or part of the EC licence allocation rules from
that examined under the GATT 1994 or the Licensing Agreement. Therefore, exactly the same measures

are scrutinized under the GATT 1994 and under the GATS. In the view of the European Communities,
this is contrary to Articles I and XXVIII of the GATS. Furthermore, this interpretation is contrary
to Article 3.2 of the DSU.
41. The European Communities asserts that the Panel's broad interpretation of the term "affecting"
is not supported by the text of Article XXVIII(c) of the GATS. If the category of "measures in respect
of ... the purchase, payment or use of a service" in Article XXVIII(c) is part of the category of
"measures affecting trade in services", then the term "in respect of" describes the same relationship
as the term "affecting", namely that between measures and trade in services. The European Communities
maintains that for an important category of these measures, "in respect of" means the same as "affecting".
The European Communities argues that the words "for the supply of a service" in Article XXVIII(c)(iii)
indicate that the measures must relate to a natural or legal person in its quality of a service supplier,
or in its activity of supplying a service. In the view of the European Communities, the Panel's
interpretation neglects the combined implication of Articles I and XXVIII(c)(iii) of the GATS, i.e.
that the measures complained of must bear on the supply of a service. As a consequence, the measures
at issue are measures in respect of importation of goods and measures relating to the supply of services
with respect to these goods.
42. The European Communities also asserts that the Panel's interpretation is not supported by the
preparatory work for the GATS. The European Communities argues that there is no indication that
the broad interpretation given to the term "affecting" in a Note by the Secretariat17, which is referred
to by the Panel in support of its interpretation, was shared by the negotiators of the GATS. In addition,
introducing into a general article on the scope of the GATS a very specific meaning of the word
"affecting", derived from previous panel reports interpreting Article III of the GATT 1947, would
be taking things out of context. The European Communities also argues that the Panel's view that
the drafters of the GATS wanted to widen the scope of the GATS by using the term "supply of a service"
instead of the narrower term "delivery of a service" is in no way conclusive, because it would still
need to be shown that the measures concerned were taken in respect of the "production, distribution,
marketing, sale and delivery of a service" within the definition of "supply of a service" in Article
XXVIII(b) of the GATS. In the view of the European Communities, the Panel's interpretation is not
supported by the context of the relevant GATS provisions. The European Communities argues that
the preamble of the GATS as well as other important provisions, such as Articles VI:4 and XVI of
17Definitionsin theDraftGeneral Agreement onTradein Services, Note by the Secretariat, MTN.GNS/W/139, 15 October
1991.

the GATS, give no indication that the GATS is concerned with the indirect effects on trade in services
of measures relating to trade in goods.
43. Furthermore, the European Communities argues that the negotiators of the GATS wanted to
create an instrument of limited coverage that would be distinct ratione materiae from the GATT 1994,
and that the simultaneous application of the GATT 1994 and the GATS leads to a clear conflict between
the rights of one Member under one agreement and the rights of another Member under the other
agreement. In the view of the European Communities, measures targeted at trade in a certain good,
such as the imposition of an anti-dumping duty, a selective safeguard measure or a prohibitive tariff,
could have repercussions on service suppliers, in particular, distribution services, and could be
condemned under the GATS. This would, in turn, impede the Member's right to take measures under
the GATT 1994. As a further example of probable conflicts between the GATT 1994 and the GATS,
the European Communities mentions discriminatory measures in favour of goods taken in a customs
union pursuant to Article XXIV of the GATT 1994. These may have negative repercussions on services
supplied from non-Member countries. It is quite likely that those repercussions would not be covered
by the restrictions inscribed in the Services Schedules of the Members of the customs union. The
European Communities asserts that a similar problem might arise with waivers granted under Article
XXV of the GATT 1994 that allow discrimination in respect of trade in goods in relation to which
certain services could be provided. This would run counter to Article II of the GATS, and the Lomé
Waiver would become useless unless the respective services come within an Article II exemption.
44. The European Communities argues further that conflicts may occur where Members have,
in accordance with Article XVI of the GATS, introduced restrictions into their Schedules that limit
their commitments under Article XVII. When scheduling initial commitments under Article XVII,
Members were told that there was no need to make provision in their Schedules for measures which
were not direct limitations on services trade as such, but rather were restrictions on trade in goods.
The European Communities argues that this interpretation would have scheduled limitations on trade
in goods had there been a generally-shared awareness that such measures were deemed to be covered
not just by the GATT 1994, but also by the GATS. The European Communities contends that this
interpretation would amount to upsetting the results of the negotiations on scheduling under the GATS,
if precisely those Members that had been the most liberal in their services scheduling, in particular
in the sector of distribution services, would suffer negative consequences on their rights in trade in
goods. The European Communities also maintains that the absence of rules of conflict and of a
hierarchical relationship between the GATT 1994 and the GATS indicates that an overlap was not seen

by the negotiators to exist between the GATS and the GATT 1994, because these agreements were
believed by the negotiators to cover different domains and to apply to different kinds of measures.
45. Moreover, the European Communities argues that the Panel's view that, in the absence of an
overlap between the GATS and the GATT 1994, the value of Members' obligations would be undermined
by the possibility of circumvention, is not supported by the object and purpose of the two agreements.
The European Communities asserts that the only example of the so-called frustration of the object and
purpose that the Panel can suggest is in the transport area, which clearly falls under Article III:4 of
the GATT 1994. The European Communities asserts that apart from Article V, Article III:4 is probably
the only article of the GATT 1994 that explicitly submits certain services measures to GATT disciplines.
Article III:4 applies only to a limited number of services and applies only to the extent that measures
relating to those services directly affect the competitive relationship between imported and domestic
goods.
46. The European Communities argues that as a practical result of the Panel's conclusion that no
measures are excluded a priori from the scope of the GATS, the Panel does not demonstrate that the
impugned measures actually affect the supply of services, within the meaning of Article XXVIII(b),
in one of the four modes of service supply. Under the EC's view of the term "affecting", the Panel
does not explain how rules dividing up entitlements to parts of the tariff quota for bananas among
importers constitute measures in respect of the production, distribution, marketing or sale and delivery
of wholesale trade services by service suppliers present in the EC's territory. The European Communities
asserts that the Panel's findings on activity functions, export certificates and hurricane licences are
also characterized by the same lack of reasoning.
11. Scope of Article II of the GATS
47. The European Communities submits that the Panel's finding in paragraph 7.304 of the Panel
Reports "that the obligation contained in Article II:1 of the GATS to extend ‘ treatment no less favourable’
should be interpreted in casu to require providing no less favourable conditions of competition" is in
contradiction with the customary rules of interpretation of public international law. The European
Communities asserts that paragraphs 2 and 3 of Article XVII of the GATS reflect the interpretation
of the terms "treatment no less favourable" given to Article III:4 of the GATT 1994 in the panel report,

United States - Section 337.18 This interpretation, which is contentious, cannot be equated with the
ordinary meaning of the term "treatment no less favourable" in a wholly different article of the GATS.
48. In the view of the European Communities, the GATS negotiators found it necessary in the
case of Article XVII to include concepts from previous GATT panel reports to clarify that the standard
of "no less favourable treatment" was one of substantive discrimination based on modification of
competitive conditions. The European Communities submits that such clarification was expressly omitted
from the MFN clause in Article II:1 of the GATS, despite the fact that it was drafted on the same
"treatment no less favourable" basis as Article XVII of the GATS. Therefore, Article II:1 of the GATS
does not encompass the idea of substantive discrimination or the even further-reaching notion of
modification of competitive conditions. The European Communities also asserts that the concept of
"no less favourable treatment" is not limited to Article III of the GATT 1994. There are a number
of MFN-type clauses in the GATT 1994 which use the same wording, for example, Article V, paragraphs
5 and 6 and Article IX:1. There is, therefore, no reason to conclude that since the wording of Article
III:4 was used, this automatically carries a standard of substantive discrimination, including "modification
of competitive conditions".
49. The European Communities maintains that it is only logical that the obligations under Article
XVII of the GATS should be more onerous than those under Article II, because Members have made
commitments and specifically opened up certain sectors, which is not the case with Article II of the
GATS. According to the European Communities, it is unlikely that Members, many of whom originally
viewed the GATS MFN clause as a conditional MFN provision during the Uruguay Round, could have,
in the end, agreed to an MFN clause that also includes the principle of equality of competitive conditions
without explicitly saying so.
50. Moreover, the European Communities submits that legislators may have a good knowledge
of the competitive conditions prevailing between service suppliers of that Member and those not of
that Member, but there is usually a lack of knowledge relating to the competitive conditions prevailing
among services and service suppliers of various third countries. Therefore, the European Communities
contends that it may be feasible for the legislators of Members to ensure formally equal treatment between
third-country services and service suppliers, but it is virtually impossible to be sure that they are also
ensuring equal competitive conditions.
18Adopted 7 November 1989, BISD 36S/345.

51. Finally, the European Communities argues that the formulation of the Panel's finding in paragraph
7.304 of the Panel Report, in particular, the use of the term in casu might be interpreted to mean that
the standard of equality of competitive conditions in Article II of the GATS applies only when, as in
this case, full commitments have been made in a sector, while the formal MFN standard would apply
for sectors without commitments. This would turn Article II into a half-conditional MFN clause and
would contradict the result of the negotiations which was to have no conditions attached to the MFN
clause.
12. Effective Date of GATS Obligations
52. The European Communities submits that the Panel erred in its interpretation of what constitutes
"a situation" within the meaning of general international law as codified in Article 28 of the Vienna
Convention on the Law of Treaties (the "Vienna Convention").19 The European Communities maintains
that the "situation" is the alleged de facto discrimination against and between foreign suppliers which
must be proven to exist at the moment the obligations of the treaty -- in this case the GATS -- apply
to the Members allegedly having caused the discrimination, and that such discrimination cannot lawfully
be established on the basis of the factual situation existing before the entry into force of the treaty.
The European Communities argues that the Panel failed to demonstrate that there was de facto
discrimination after the entry into force of the GATS on 1 January 1995, as the Panel relied entirely
on the Complaining Parties' data on the ownership and control of companies relating to 1992 and on
the Complaining Parties' estimates on market shares of companies which were based on the situation
existing before June 1993.
13. Burden of Proof
53. According to the European Communities, the Panel misapplied the standard of burden of proof
affirmed by the Appellate Body in United States - Measure Affecting Imports of Woven Wool Shirts
and Blouses from India20 ("United States - Shirts and Blouses from India"). According to that standard,
a complaining party must adduce "evidence sufficient to raise a presumption that what is claimed is
true" in order to prove its claim.21 In the view of the European Communities, this burden of proof
should be satisfied, at the latest, at the first meeting of a panel.
19Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials, p. 679.
20WT/DS33/AB/R, adopted 23 May 1997.
21Ibid., p. 14.

54. The European Communities maintains, first, that the Panel misapplied this standard of burden
of proof in deciding which companies are a "juridical person of another Member" and are "owned",
"controlled" by or "affiliated" with a juridical person of another Member within the meaning of Articles
XXVIII(m) and (n) of the GATS. The absolute minimum for any claim under the third mode of service
supply is showing that these conditions are fulfilled. The European Communities argues that the Panel,
in fact, relied exclusively on the list of alleged "banana wholesaling companies established in the
European Communities that were owned or controlled by the Complainants' service suppliers, 1992"
and that this list as such gave no clear indications about ownership or control. In this respect, the
European Communities contends that, in particular, there are doubts that Del Monte was owned by
Mexican persons at the time the complaint was brought and that, for this reason, it is impossible to
argue that the Complaining Parties had satisfied the requirement of proving their claim in respect of
companies from Mexico.
55. Second, the European Communities asserts that the burden of proof has not been discharged
with respect to the distribution of the market for wholesale services for bananas between Category
A and Category B Operators. The European Communities contends that the Panel's conclusion is based
on alleged market shares for imports and production, and that it is not clear how the distribution of
market shares in the services market can be based completely on shares in the import and production
markets, unless one assumes that service providers supply services only in respect of their own bananas
and that there is no independent market for services in bananas in general. Finally, the European
Communities maintains that, with respect to hurricane licences, the Panel posited an unproved identity
of the class of Category B operators and of the class of "operators who include or represent EC
producers" as well as the group of "operators who include or represent ACP producers".
14. Definition of Wholesale Trade Services
56. The European Communities submits that the Panel erred in applying the concept of wholesale
trade services in the Provisional Central Product Classification (the "CPC Classification").22 The
European Communities argues that importation is not mentioned as one of the subordinate services
of wholesale trade services, and that, although the list of subordinate services is only illustrative, reselling
of merchandise is the core activity of wholesalers, whereas importation involves only buying and not
selling. The licensing regime is an import licensing system and, therefore, does not touch the service
providers of the Complaining Parties in their wholesale service activities, but only in their import
22Provisional Central Product Classification, United Nations' Statistical Papers, Series M, No. 77, 1991.

activities, that is, in their activities in the goods sector. The European Communities maintains that,
with respect to the allegedly discriminatory effect of operator categories, the Panel failed to demonstrate
that there are unequal conditions of competition between service suppliers, and not between importers,
who, although they may be also service suppliers, are not, in the latter capacity, affected by the licensing
system. The European Communities submits further that the Panel erred in law by determining that
integrated companies are service suppliers under the GATS, because normally only their products,
and not their services, appear on the market, and thus the GATS does not apply.
15. Alleged Discrimination Under Articles II and XVII of the GATS
(a) Operator Category Rules
57. The European Communities argues, in the alternative, that the EC licensing system for bananas
is not discriminatory under Articles II and XVII of the GATS. Therefore, the Panel erred in law by
condemning the operator category rules under Articles II and XVII of the GATS. The European
Communities contends that, in the final analysis, the operator category rules are condemned principally
because of statistical evidence on market shares. The European Communities refers to the panel report
in United States - Taxes on Automobiles23 where the panel looked at the statistical evidence, and beyond
the dominant presence of imported goods in the sector of the market affected by the measure, in order
to determine whether the measure had the "aim and effect" of affording protection to domestic
production. The European Communities contends thatthe various aspectsof the licensing system pursue
legitimate policies and are not inherently discriminatory in effect or design. The European Communities
asserts, therefore, that the Panel should have looked beyond the fact that, because of reasons related
to the historical development of the banana distribution sector, service suppliers of the Complaining
Parties are concentrated in one segment of the market, and EC and ACP suppliers in another segment.
58. The European Communities contends that the legitimate aim of the operator category rules,
as recognized by the European Court of Justice (the "ECJ"), is to establish a machinery for dividing
the tariff quota among the different categories of traders concerned, to encourage operators dealing
in EC and traditional ACP bananas to obtain supplies of third-country bananas and to encourage importers
of third-country bananas to distribute EC and ACP bananas. This corresponds with the EC's objectives
of integrating the various national markets and of harmonizing the differing situations of banana traders
in the various Member States. The European Communities maintains that to achieve "mutual
23DS31/R, 11 October 1994, unadopted.

interpenetration" of the markets of the various Member States, a system of transferability of licences
was used. The operator category rules served the purpose of distributing the quota rents among operators
in themarket. The fact that service suppliers of the Complaining Parties may have been over-represented
in one category in particular (Category A), and may have significant but not overwhelming representation
in another category (Category B) is, in itself, no basis for arguing that the operator category rules afford
protection to EC (or ACP) service suppliers. Furthermore, in terms of conditions of competition,
operator category rules do not have the effect of affording protection to service suppliers of domestic-
or ACP-origin as they leave a commercial choice to the operators.
(b) Activity Function Rules
59. The European Communities maintains that EC activity function rules aim to correct the position
of all ripeners vis-à-vis all suppliers of bananas and seek to maintain the ripeners' bargaining power
in relation to their commercial partners as it was before the creation of the tariff quota. The effect
of activity function rules is highly dependent on the commercial choices of operators. Operators who
supplied wholesale services primarily for bananas that were brought under the tariff quota can avoid,
or reduce, the extent to which they are subject to activity function rules by extending their services
to include EC and ACP bananas. The European Communities further submits that primary importers
can resort to "licence pooling" or having bananas ripened under contract.
(c) Hurricane Licences
60. The European Communities asserts that hurricane licences are intended to compensate those
who suffer directly from damage caused by tropical storms. The European Communities argues that
the fact that compensation benefits those persons who have the nationality of the country where the
disaster took place, does not necessarily signify that such measures are discriminatory and modify the
conditions of competition under Article XVII of the GATS. There is no infringement of Article II
of the GATS, as there is no formal, or hidden de facto, distinction as to operators. There is no indication
in the hurricane licence rules that operators that are not ACP-owned or -controlled cannot own or
represent ACP producers on the same basis as ACP or EC-owned or -controlled operators.
16. Nullification or Impairment
61. The European Communities argues that the Panel erred in paragraph 7.398 of the Panel Report
in its application of the standard of rebuttal under Article 3.8 of the DSU in concluding that the European

Communities had not succeeded in rebutting the presumption that there was nullification or impairment
with respect to all of the Complaining Parties. The EC's argument related only to the United States,
and was that the United States lacked a legal right or interest with respect to the GATT 1994. This
is one of the exceptional cases where the presumption of nullification or impairment in Article 3.8
of the DSU could be rebutted, because of the absence of any trade damage to the United States, due
to its lack of exports of bananas. The European Communities submits that the United States has never
exported bananas to the European Communities or anywhere else in the world. Demonstrating a lack
of any trade damage is a recognized way in the GATT of rebutting the presumption of nullification
or impairment. As the Panel failed to rule on the issue of United States' export statistics, it is not
capable of deciding that the European Communities has not succeeded in rebutting the presumption
of nullification and impairment. The European Communities contends that this is a clear failure by
the Panel to objectively assess the matter before it, as required under Article 11 of the DSU. Moreover,
the Panel erred in law in its application of the standard of rebuttal under Article 3.8 of the DSU by
assuming that the EC's rebuttal was based on mere quantitative elements when it was based on the
United States' proven incapacity to grasp competitive opportunities in the banana export market. Thus,
the Panel rendered meaningless the possibility of rebutting the presumption under Article 3.8 of the
DSU. The European Communities also submits that the Panel infringed Article 9 of the DSU by not
ruling separately on the position of the United States. The rights which the European Communities
would have enjoyed if separate panels had been established have been impaired under Article 9 of the
DSU.
B. Ecuador, Guatemala, Honduras, Mexico and the United States - Appellees
1. Trade in Goods
(a) Country Allocations
62. The Complaining Parties submit that the Panel correctly found the "two regimes" argument
of the European Communities to be irrelevant for WTO purposes. The Complaining Parties argue
that nothing in the text of Article XIII of the GATT 1994 suggests that the obligations concerning
"restrictions" and "shares" of trade or imports can be avoided by creating legal formalities, such as
"separate regimes", for administrative or other reasons. The Complaining Parties argue further that
the insistence by the European Communities that it has "only one tariff quota concerning bananas"
is neither legally relevant nor factually correct. Article XIII of the GATT 1994 clearly does not
distinguish between quota allocations reflected in a Schedule and those that are not. In the view of

the Complaining Parties, the panel report in Norway - Imports of Textile Products24 confirms that creating
separate regimes for certain developing countries does not permit a Member to avoid its Article XIII
obligations. The Complaining Parties also argue that the Panel on Newsprint25 does not support the
"separate regimes" argument because the justification of the preferential treatment under Article XXIV
of the GATT 1994 was crucial in the Panel on Newsprint case, and no such justification exists in this
case. In response to the EC's concern about the modification of its obligations, the Complaining Parties
argue that the Panel has not modified the EC's obligations under its Schedule but has insisted that these
obligations be observed for the benefit of all concerned. Therefore, the Panel correctly concluded
that all of the EC's country-specific allocations must be considered together in determining consistency
with Article XIII of the GATT 1994.
63. The Complaining Parties submit that the Panel correctly concluded that EC allocations to non-
substantial suppliers are inconsistent with Article XIII of the GATT 1994. They argue that the text
of Article XIII:2(d) of the GATT 1994, in particular the word "all", amply supports the Panel's
conclusion that the combined use of agreements and unilateral allocations for the allocation among
Members having a substantial interest is inconsistent with Article XIII:2(d). In support of their argument,
the Complaining Parties refer to the panel report in Norway - Imports of Textile Products26 and to the
drafting history of the GATT 1947.27 The Complaining Parties argue that if Article XIII of the GATT
1994 does not allow the combined use of agreements and unilateral allocations for the allocation among
Members having a substantial interest, it also does not allow the combined use for the allocation among
Members without a substantial interest. Concerning the EC's argument as to allocations to Members
without a substantial interest, the Complaining Parties argue that Article XIII of the GATT 1994 is
unambiguous in requiring that the administration of quantitative restrictions and country-specific
allocations must be non-discriminatory and reflective of recent trade patterns. The European
Communities persists, against both the text and the object and purpose of Article XIII, in defending
the arbitrary assignments of shares based on agreements with suppliers regardless of their level of trade.
Additionally, the Complaining Parties assert that Article XIII:2(d) recognizes that it may indeed not
always be practicable to reach agreement with all suppliers, but it is precisely for such situations that
Article XIII:2(d) provides for the possibility of assigning country-specific allocations based on historical
24Adopted 18 June 1980, BISD 27S/119, paras. 15, 16 and 18.
25Adopted 20 November 1984, BISD 31S/114.
26Adopted 18 June 1980, BISD 27S/119, paras. 15-16.
27Report of the First Session of the London Preparatory Committee of the United Nations Conference on Trade and
Employment, UN Document EPCT/33, October 1946, p. 14, referred to in the Complaining Parties' appellee's submission,
para. 36.

shares. However, the EC's insistence that Members cannot be considered as "having been harmed"
by their inclusion in the "others" category ignores basic economic realities and the underlying tenets
of Article XIII. Country-specific allocations are recognized in Article XIII:2 as an advantage for which
specific rules are required to carry out the general principle in Article XIII:1 of non-discrimination.
The Complaining Parties assert further that a Member may reallocate unused amounts of a quota or
tariff quota among other supplying Members, but Article XIII:2 of the GATT 1994 does not permit
this to be done in a discriminatory manner.
64. The Complaining Parties submit that the Panel correctly found that Article 21.1 of the Agreement
on Agriculture is not a defence to the inconsistencies with Article XIII of the GATT 1994 found with
respect to the EC's country-specific allocations. The Panel properly dismissed the EC's contention
that Article 4.1 of the Agreement on Agriculture effectively incorporates GATT-inconsistent provisions
of the Schedules into the Agreement on Agriculture and thereby legitimizes them. The ordinary meaning
of Article 4.1 of the Agreement on Agriculture does not permit it to be read as a substantive provision.
The Complaining Parties argue that, had the drafters wished to incorporate the Schedules by reference
into the Agreement on Agriculture, they could have done so explicitly. No provision of the Agreement
on Agriculture clashes with Article XIII of the GATT 1994. Accordingly, Article 21.1 of the Agreement
on Agriculture is not relevant, and Article XIII of the GATT 1994 applies to the EC tariff quota
allocations. The Panel's findings are fully supported by the object and purpose of the Agreement on
Agriculture, which is to make agricultural products subject to strengthened and more operationally-
effective GATT rules. Finally, the Complaining Parties assert that the fact that the "current access"
tariff quotas of many WTO Members include country-specific allocations does not support the EC's
argument. The related allegation by the European Communities that other countries have disregarded
Article XIII of the GATT 1994 is factually unsupported. However, even if true, it cannot serve to
contradict the ordinary meaning of the relevant terms of the Agreement on Agriculture nor to endorse
the EC violations.
(b) Licensing Agreement
65. The Complaining Parties submit that the Panel correctly found that the Licensing Agreement
applies to licensing procedures for tariff quotas. In their view, the European Communities cannot
factually dispute that import licences are required as a prior condition for importing in-quota bananas.
Moreover, this in-quota quantity comprises the sum total of third-country and non-traditional ACP
bananas entering the EC market. According to the Complaining Parties, the context of Article 1.1
of the Licensing Agreement, as well as Articles 3.2, 3.3 and the Preamble of the Licensing Agreement,

and prior GATT practice on the notion of "restriction", confirm that the Licensing Agreement also
applies to licensing procedures for tariff quotas. The Complaining Parties also argue that a major
achievement of the Uruguay Round agriculture negotiations was the large-scale conversion of non-tariff
barriers to tariff quotas. They maintain that making tariff quotas an exception to the disciplines of
the Licensing Agreement would directly contradict the trend towards transparency and predictability.
66. Finally, the Complaining Parties contend that the Panel properly concluded that the issuance
of hurricane licences exclusively to ACP and EC producers and producer organizations, or operators
including or directly representing them, but not to third-country producers and producer organizations
or operators includingor directly representing them, was inconsistentwiththerequirement of "neutrality
in application" contained in Article 1.3 of the Licensing Agreement.
(c) Article III of the GATT 1994
67. The Complaining Parties submit that the Panel correctly found that the distribution of Category
B licences conditioned on purchases of EC bananas is inconsistent with Article III:4 of the GATT 1994.
According to the Complaining Parties, the text of Article III:4 indicates coverage beyond legislation
directly regulating or governing the sale of domestic and like imported products. In support of this
argument, the Complaining Parties refer to the panel report in Italian Agricultural Machinery28 and
to the Interpretative Note Ad Article III of the GATT 1994. Referring to the panel report in United
States - Section 337, the Complaining Parties argue that the dispositive issue under Article III:4 is
whether a discriminatory advantage is affecting the sale or purchase of the domestic product.29 In
response to the EC's argument relating to the panel reports in United States - Imports of Tuna (1991)
and United States - Section 337, the Complaining Parties assert that these panel reports show that Article
III does apply to all measures affecting trade in goods. The Complaining Parties insist that the object
of Article III is to ensure that Members accord foreign products no less favourable treatment than like
domestic products in the application of any measure affecting the internal sale of products, regardless
of whether it applies internally or at the border. The Complaining Parties further assert that the European
Communities cannot claim that imported products are treated under the Category B rules in the same
way as domestic products, once they have cleared customs. In support of this argument, they refer
to the statement of the panel in Italian Agricultural Machinery that any measure that "modif[ies] the
conditions of competitionbetween thedomesticandimported products ontheinternal market", including
28Adopted 23 October 1958, BISD 7S/60, para. 11.
29Adopted 7 November 1989, BISD 36S/345, para. 5.10.

one that encourages domestic purchases of national goods, violates Article III:1 of the GATT 1994.30
Referring to the Appellate Body's previous ruling that Article III:1 is a general principle that informs
the rest of Article III31, the Complaining Parties argue that given Category B's explicit incentive to
purchase EC bananas, the "design and architecture" of the measure to afford protection to EC producers
is clear.
(d) Article I:1 of the GATT 1994
68. The Complaining Parties submit that the Panel correctly found the activity function rules to
be inconsistent with Article I:1 of the GATT 1994. In contrast to the activity function rules, the simpler
procedures applicable to ACP bananas constitute a clear regulatory "advantage" in violation of Article I:1
of the GATT 1994. In support of their argument, the Complaining Parties refer to the panel report
in United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil32
("United States - Non-Rubber Footwear"). None of the rationales invoked by the European Communities
in justification for the activity function rules -- such as that ACP imports are "inherently less profitable"
and that different "situations concerning operators" require a different allocation of quota rents --
legitimizes regulations which discriminate explicitly among like products on the basis of their origin.33
The Complaining Parties add that Article I:1 of the GATT 1994 applies to any "rules or formalities",
and that the EC's argument that measures intended to implement competition policies are somehow
"outside of the WTO" is "confused and groundless".
69. According to the Complaining Parties, the European Communities themselves recognized the
commercial value of the export certificates in the European Commission Report on the EC Banana
Regime, in which the European Commission indicated that export certificates helped the BFA countries
"share in the economic benefits of the tariff quota".34 The Complaining Parties argue that export
certificates accord holders in BFA countries preferential bargaining leverage to extract a share of the
quota rent for their fruit exported to the European Communities, and hence give BFA countries a
30Adopted 23 October 1958, BISD 7S/60, para. 12.
31Appellate Body Report, Japan - Taxes on Alcoholic Beverages ("Japan - Alcoholic Beverages"), WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 18.
32Adopted 19 June 1992, BISD 39S/128, paras. 6.8-6.17.
33Ibid., para. 6.11.
34Commission of the European Communities, Report on the EC Banana Regime, VI/5671/94, July 1994, p. 12, contained
in the Complaining Parties' first submission to the Panel.

competitive advantage over other Latin American suppliers. This "possibility" (i.e. privilege) was
requested by the BFA countries.
(e) Article X of the GATT 1994
70. The Complaining Parties submit that the Panel correctly found that the licensing procedures
applicable to Latin American bananas differ from, and go significantly beyond, those required in respect
of traditional ACP bananas in violation of Article X:3(a) of the GATT 1994. Because everything from
border measures to internal measures falls within the language of Article X:1 of the GATT 1994, and
because theimport licensingprocedures of theEuropean Communities constituteinternal lawsregulating
border measures, the Complaining Parties conclude that the procedures at issue fall well within the
scope of Article X:1 of the GATT 1994. The language of Article X:3(a) prohibits the application of
two significantly different, origin-based sets of licensing procedures. The Complaining Parties argue
that the Panel rested its findings on a review of the different EC procedures, not on the operator category
and activity function rules themselves. The Panel's analysis specifically reviewed the licensing procedures
at issue and not the enabling laws as such. Furthermore, there is no support in the WTO for the
proposition that Article I and Article X of the GATT 1994 cannot overlap. The fact that the EC
discriminatory import procedures are inconsistent with the uniformity requirement of Article X:3(a)
does not mean that the licensing rules themselves cannot represent "rules and formalities" that have
not been accorded immediately and unconditionally to like products of all origins in violation of Article
I of the GATT 1994. The Panel correctly found that the EC practices violated both Articles I and
X of the GATT 1994. In response to the EC's argument that Article 1.3 of the Licensing Agreement
is lex specialis, and that the Panel must therefore make concurrent findings under both Article X:3(a)
of the GATT 1994 as lex generalis and Article 1.3 of the Licensing Agreement, the Complaining Parties
submit that it is only in the event of conflict between the GATT 1994 and a provision of another Annex
1A agreement (such as the Licensing Agreement), that the provision of the latter agreement prevails.
(f) Hurricane Licences
71. Furthermore, the Complaining Parties assert that the Panel correctly found that hurricane licences
created an incentive to purchase EC bananas in violation of Article III:4 of the GATT 1994. Operators
that purchase EC bananas can expect in the event of a hurricane to be compensated for both their lost
volume in the form of extra "hurricane licences" and with respect to their reference quantities for
purposes of future licensing entitlement. Therefore, operators are being encouraged, by way of hurricane
licences, to purchase EC bananas instead of "Latin American bananas" in violation of Article III:4

of the GATT 1994. According to the Complaining Parties, irrespective of the impact hurricane licences
may have had on the tariff quota, the incentive such licences create to purchase EC bananas is a clear,
discriminatory modification of conditions of competition in violation of Article III:4 of the GATT 1994.
Finally, the Complaining Parties assert that WTO Members are entitled to afford "occasional protection
against the effects of natural disasters", but they may not do so through discriminatory measures that
encourage the purchase of EC bananas.
72. The Complaining Parties assert that the Panel properly concluded that there is nothing in Protocol
5 that suggests that the European Communities is required to apply other factors to increase the shares
of ACP countries above their best-ever export levels before 1991. They argue further that the plain
language of Article 1 of Protocol 5 makes clear that it means past and present ACP "access to its
traditional markets and its advantages on those markets," and not pending or contemplated ACP
investments in production that may or may not materialize at some future time in the form of trade
in the EC market. The Complaining Parties contend that operator category rules were not formerly
enjoyed by ACP countries, and are not required to provide access to traditional markets, and that there
are other methods consistent with WTO rules by which the European Communities could assist the
ACP countries in competing in the EC market. During the Panel proceedings, the European Communities
declined to put forward any facts relating to the "past" "situation" concerning import licence systems.
The Complaining Parties argue that even if this "factual" issue is reviewable, the EC's belated assertion
that licences for third-country banana imports "were a permanent market management system" is
inconsistent with statements made during the Panel proceedings.
2. General Agreement on Trade in Services
(a) Threshold Legal Issues
73. With respect to all issues concerning the GATS raised in this appeal, the Complaining Parties
argue that the Panel was correct. The Complaining Parties ask the Appellate Body to affirm the Panel's
findings on the GATS.
74. The Complaining Parties submit that the ordinary meaning of the GATS, in its context, establishes
that it has a broad scope and that the Panel correctly concluded that the GATS applies to all measures
affecting the marketplace for services, including services measures that also relate to goods. The ordinary
meaning of the term "affecting" is "having an effect on" or "having an impact on". The Complaining
Parties contend that the negotiators of the GATS clarified the inclusive nature of the terms "trade in

services" and "supply of a service" by adding the illustration found in Article XXVIII(c) of the GATS
and, that this, together with the ordinary meaning of the term "affecting", makes plain that the scope
of the GATS is "as sweeping as possible". The Complaining Parties argue that the European
Communities is incorrect in claiming that "affecting" and "in respect of" are used in parallel in Article
XXVIII(c) of the GATS. What follows the phrase "affecting" is "trade in services" and, by contrast,
what follows the phrase "in respect of" is not "trade in services". The Panel was, therefore, correct
in rejecting the EC's argument.
75. The Complaining Parties also maintain that this broad ordinary meaning is confirmed by the
broad interpretation of Article III of the GATT by previous panels. The Complaining Parties maintain
that the drafters of the GATS were generally familiar with such basic GATT concepts35, and that this
includes the Note by the GATT Secretariat issued to the GATS negotiators.36 A Secretariat Note of
this sort, issued generally to all delegations participating in the negotiations, is a legitimate part of
the preparatory work of the GATS for the purpose of confirming the ordinary meaning of the text --
in this case, its broad scope.
76. The Complaining Parties submit that the Panel properly found that the mutual exclusivity of
the GATT 1994 and the GATS would be fundamentally at odds with the object and purpose of both
agreements. In support of this argument, the Complaining Parties set out a number of "goods measures"
that do not directly regulate a service per se, but place foreign-owned firms at a distinct competitive
disadvantage.37 The acceptance of the argument of the European Communities that measures regulating
goods are excluded from the GATS disciplines would seriously erode service commitments made in
the goods distribution sector -- both wholesaling and retailing. The Complaining Parties maintain that
the entire sector is devoted to the distribution of goods and that measures affecting this sector will,
by definition, have a direct or indirect connection with goods. In support of their argument as to the
possibility of "overlaps" between the GATT 1994 and the GATS, the Complaining Parties refer also
to the Appellate Body Report in Canada - Certain Measures Concerning Periodicals ("Canada -
Periodicals").38
35The Complaining Parties refer in particular to the panel report, Italian Agricultural Machinery, adopted 23 October
1958, BISD 7S/60.
36DefinitionsintheDraft GeneralAgreement onTrade inServices, Note by the Secretariat, MTN.GNS/W/139, 15 October
1991, para. 12.
38WT/DS31/AB/R, adopted 30 July 1997.

77. In response to the arguments of the European Communities concerning anti-dumping duties
and preferential treatment of goods under free trade agreements, the Complaining Parties submit that
the relevance of these arguments is not clear as the GATS violations in this case were not based on
the fact that the European Communities provided greater market access to EC and ACP bananas than
to "Latin American bananas". In reply to the argument by the European Communities on the GATT
exceptions and waivers, the Complaining Parties submit that the Panel properly described this issue
not as a fundamental issue of overlap between the GATT 1994 and the GATS, but rather as an issue
of the "appropriate drafting of waivers". With respect to the EC's argument concerning scheduling,
the Complaining Parties maintain that, had the negotiators understood that all goods-related measures
were automatically exempted from the GATS, they would not have extended the GATS to include entire
sectors -- such as distribution and freight transportation -- devoted entirely to the sale and movement
of such goods. Finally, in response to the argument by the European Communities on the absence
of any provision in the WTO agreements to resolve conflicts between the GATT 1994 and the GATS,
the Complaining Parties submit that the framers of the GATS did not adopt a rule of exclusivity, and
thus some sort of "unspoken hierarchy", because they did not perceive any "overlap" to have any
significant consequences.
78. The Complaining Parties submit that the Panel correctly concluded that Article II of the GATS
applies to instancesof de facto discrimination. The Complaining Parties argue that the phrase "treatment
no less favourable" in Article II of the GATS is unqualified and therefore not limited to measures
embodying de jure discrimination, but rather by its terms applies to all less favourable treatment, whether
or not the fact that it is less favourable is apparent from the face of the measure. The Complaining
Parties agree also with the Panel that Article III of the GATT 1994 is an important context for the
interpretation of Article II of the GATS, and that the prior interpretation of the phrase "treatment no
less favourable" in Article III:4 by GATT panels confirms the broad plain meaning of the same phrase
as used in Article II of the GATS. Article II:2 of the GATS and the Annex on Article II Exemptions,
which set out elaborate listing and review procedures for MFN exemptions, provide additional relevant
context. The Complaining Parties observe that it is difficult to imagine why the negotiators would
provide such procedures if Members were at liberty to adopt discriminatory measures in any event,
escaping coverage of Article II unless the discrimination is "formal" in design. The Complaining Parties
also support the Panel's reasoning in that the additional paragraphs 2 and 3 in Article XVII of the GATS
neither add to, nor subtract from, the "treatment no less favourable" standard. The Complaining Parties
agree with the Panel in that the narrow "formal" interpretation of the MFN standard in Article II:1

of the GATS would be incompatible with its non-discrimination objective and purpose. The negotiating
history of the MFN clause in the GATS confirms that the "treatment no less favourable" standard was
intended to require effective equality of opportunities and that the GATS negotiators were made fully
aware that it had been interpreted in that way by the panel report in United States - Section 337.39
In support of this argument, the Complaining Parties refer to a Note by the GATT Secretariat reviewing
various non-discrimination concepts in the context of offering possible MFN options for the Group
of Negotiations on Services.40
(b) Application of GATS to the EC Licensing System
79. The Complaining Parties submit that the Panel correctly concluded that the EC licensing rules
affected trade in wholesale trade services. In response to the EC's argument relating to the coverage
of the definition of wholesale trade services, the Complaining Parties argue that, in fact, buying directly
affects selling, and that if a wholesaler cannot buy bananas, he cannot sell them. The Complaining
Parties submit that the EC's argument on integrated companies is irrelevant since the Complaining
Parties demonstrated that their main distribution companies distributed bananas they had purchased
from independent Latin American growers, in addition to bananas they grew themselves. In so far
as trade in wholesale services for bananas was affected through import licences, the banana regime
effectively regulated the access of banana wholesalers to the most important item they needed to provide
wholesale trade services -- namely, bananas.
80. The Complaining Parties contendthat the Panel properly concludedthat operator category rules,
activity function rules and hurricane licences modify competitive conditions in favour of EC and ACP
wholesale distribution firms in comparison to like third-country firms and are, therefore, inconsistent
with both Articles II and XVII of the GATS. The Complaining Parties do not agree with the EC's
"aims and effects" argument. The Complaining Parties note that the European Communities did not
take this position before the Panel, that the European Communities does not indicate what in the text
of the GATS calls for such an inquiry, and that the Appellate Body has found previously that the proper
inquiry in applying the national treatment principle of Article III:1 of the GATT 1994 is not a measure's
"aim and effect" but rather an examination of "... the underlying criteria used in a particular ... measure,
39Adopted 7 November 1989, BISD 36S/345, para. 5.11.
40Most-Favoured-Nation Treatment and Non-Discrimination Under The General Agreement on Tariffs and Trade, Note
by the Secretariat, MTN.GNS/W/103, 12 June 1990.

its structure, and its overall application to ascertain whether it is applied in a way that affords protection
to domestic products".41
81. In response to the argument by the European Communities that the aim of operator categories
is to encourage "interpenetration" of markets, the Complaining Parties contend that this statement ignores
the one-way transfer to EC and ACP firms of an entitlement to a portion of the business that had
historically been in the hands of the Complaining Parties' distributors. The Complaining Parties further
submit that the market integration claim by the European Communities is legally irrelevant under Articles
II and XVII of the GATS and that Article V of the GATS governing market integration does not relieve
the European Communities from either its national treatment or its MFN obligation vis-à-vis ACP and
third-country service suppliers. The Complaining Parties refer to the EC's argument that operator
categories were motivated largely by the legitimate need to promote competition by distributing quota
rents "in a way which was not skewed by the existing market situation".42 According to the Complaining
Parties, this is just another way of saying that the European Communities wished to re-arrange the
"existing market situation" by moving business and resources from one group of service suppliers to
another. The Complaining Parties also argue that the European Communities did not justify operator
categories on the basis of competition policy concerns in any of the relevant directives establishing
the measure. In response to the EC's argument that operator categories do not have an inherently
discriminatory effect, the Complaining Parties argue that this is an inappropriate effort by the European
Communities to place factual issues before the Appellate Body. In their view, operator categories are
"inherently" discriminatory despite the EC's argument that all suppliers are on an equal footing to
compete for access to supplies of the EC and ACP bananas. Unlike the wholesalers of the Complaining
Parties, those of the European Communities and the ACP States are not required to initiate new business
relationships in new regions in order to win back their traditional business.
82. With respect to the real design and operation of activity function allocations, the Complaining
Parties submit that, since the Panel's assessment was in large part a factual inquiry, the Appellate Body
should not interfere lightly with it. In response to the EC argument on the prevention of concentration
of economic bargaining power in the hands of the large multinational companies, the Complaining
Parties argue that this confirms the Panel's analysis that the allocation to ripeners was in fact designed
41Appellate Body Report, Japan - Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted
1 November 1996, p. 29.

to tilt the competitive environment against the Complaining Parties' firms. Furthermore, the Complaining
Parties reject the argument by the European Communities that there were various opportunities available
to avoid actual loss of market share, as such options involve substantial cost merely to regain former
business. As a result, Complaining Parties' firms have a competitive disadvantage over EC firms which
have not been required to make purchases or investments in order to retain their traditional banana
business.
83. With respect to the allocation of hurricane licences, the Complaining Parties do not question
the legitimacy of providing relief in the case of natural disasters, but rather the mechanism the European
Communities has chosen to provide disaster relief. The Panel correctly found that this mechanism,
in fact, increases the already large and discriminatory 30 per cent share of the tariff quota given
predominantly to firms from the European Communities and the ACP States. However, the mechanism
for hurricane licences places firms of the Complaining Parties' origin at a competitive disadvantage
vis-à-vis EC and ACP operators from whom they package the licences.
84. In response to the EC's argument with respect to Article 28 of the Vienna Convention, the
Complaining Parties argue that the Panel correctly characterized the measure at issue as continuing
measures which were, in some cases, enacted before the entry into force of the GATS, but which did
not cease to exist after that date. In its commentary on the final draft of the Vienna Convention, the
International Law Commission recognized that such measures fall outside the scope of Article 28 of
the Vienna Convention.43 Concerning market shares, the Complaining Parties argue that the Panel
necessarily had to base its analysis on trade data pertaining to a period several years earlier than the
entry into force of the GATS, as the EC regime awards import rights based on historical trade.
85. With respect to the issue of the burden of proof, the Complaining Parties argue that, to the
extent the Appellate Body can consider the claims raised by the European Communities to constitute
an issue of law within its mandate under Article 17.6 of the DSU, the European Communities does
not show how the Panel's rendering of its factual findings constitutes a legal error that the Appellate
Body should reverse. The Complaining Parties observe that the Appellate Body in United States -
Shirts and Blouses from India44 declined to define a uniform set of facts needed to create the presumption
of a violation, let alone the quantum of support needed to establish any particular fact given in the
43The Complaining Parties refer to the Yearbook of the International Law Commission, Vol. II (1966), p. 212.
44WT/DS33/AB/R, adopted 23 May 1997.

case. The Complaining Parties argue as well that the Panel based its evidentiary finding on a methodical,
issue-by-issue examination of theevidence presented on therecord, accurately described the information
in the record and explained how, on the key facts, the European Communities had not rebutted the
information submitted by the Complaining Parties. The Panel correctly concluded that Del Monte
was Mexican-owned and that the relevance to the Panel's conclusion of a suggested alteration of Del
Monte's status during the Panel's proceeding was not clear. The Complaining Parties further submit
that there is no specific test required by the GATS concerning the ownership of ongoing companies.
86. The Complaining Parties argue that, with respect to ownership and control of service suppliers
established in the European Communities, the Complaining Parties submitted to the Panel an array
of corroborative information45 which the Panel properly determined to be credible and sufficient. The
Complaining Parties argue that the European Communities had not even asserted any point that
contradicted the Complaining Parties' facts. The Complaining Parties maintain that the Panel correctly
based its finding concerning market shares on the import and production markets, as it is this activity
that generates entitlements to import licences as "primary importers". With respect to hurricane licences,
the Complaining Parties assert that the European Communities should not be allowed to re-open this
issue on appeal, as it never sought to dispute the identification of Category B operators (both of EC
and ACP origin) as recipients of hurricane licences by the Complaining Parties during the Panel
proceeding.
3. Procedural Issues
(a) Request for Establishment of a Panel
87. The Complaining Parties submit that the Panel correctly found that the request for the
establishment of a panel satisfied the requirements of Article 6.2 of the DSU. In response to the EC's
arguments on specificity and the necessity of showing an explicit link between each measure and the
article allegedly infringed, the Complaining Parties point out that there is no agreed WTO definition
of the terms "specific measures at issue" and that, under the practice of the GATT 1947 CONTRACTING
PARTIES, most requests for the establishment of a panel contained no explanation of how certain
measures are inconsistent with the requirements of the specific agreements. The Complaining Parties
also submit that the Panel correctly determined that the request was sufficiently precise to fulfil the
45The Complaining Parties refer to Exhibit E of their joint rebuttal submission.

three identified purposes of a panel request46 by enabling the Panel to understand without difficulty
which claims it was required to examine, by adequately informing the European Communities of the
case against it, and by adequately informing third parties of the case against the European Communities.
(b) Right of the United States to Advance Claims under the GATT 1994
88. The Complaining Parties argue that the Panel correctly found that the United States has a right
to advance "goods claims" in this dispute. The Complaining Parties submit that the European
Communities appears to use the term "legal interest" as a "short-hand reference" for its arguments
regarding United States' export interests in bananas and seems to stipulate an additional requirement
that a complaining party must plead and prove nullification or impairment as a precondition for raising
a claim. The Complaining Parties contend that neither Article XXIII of the GATT 1994 nor Articles
3.3 or 3.7 of the DSU contain any explicit requirement that a Member must have a "legal interest"
in order to request a panel and that other provisions in the DSU, such as Article 3.8, confirm the absence
of such a prerequisite. In addition, the "substantial interest" standard in Article 10.2 of the DSU on
third-party participation is irrelevant because the rights of third-party participation and its purpose are
fundamentally different from those of the parties to the dispute.
89. Moreover, the Complaining Parties contend that the European Communities was fundamentally
mistaken in suggesting that "general" international law, requiring a legal interest to bring a claim, is
operative in this case. The Complaining Parties observe that Article 3.2 of the DSU encompasses only
customary rules of interpretation of public international law. Therefore, consistentlywith Article XVI:1
of the WTO Agreement, the Panel found that, in the absence of an explicit legal interest requirement
in the WTO Agreement, GATT practice was relevant. As the Complaining Parties see it, in GATT
practice, a wide variety of interests is permitted to support a claim.47 The Panel noted that the United
States does produce bananas in Hawaii and Puerto Rico, and that, even if the United States did not
have a potential export interest, its internal market for bananas could be affected by the EC regime
because of the potential effect on world prices. In the view of the Complaining Parties, the EC's
arguments on the issue of the United States' trade interests contradict the EC's own past position in
46The Complaining Parties refer to the Appellate Body Report, Brazil - Measures Affecting Desiccated Coconut ("Brazil -
Desiccated Coconut"), WT/DS22/AB/R, adopted 20 March 1997, p. 22, and argue that the discussion in that Report is equally
relevant to requests for panels with standard terms of reference under Article 7.1 of the DSU.
47The Complaining Parties refer to the Report by the Working Party on Brazilian Internal Taxes, adopted 30 June 1949,
BISD II/181, para. 16.

United States - Restrictions on Imports of Tuna.48 The European Communities claimed in that case
that any time a country produces a product, even if the application of another country's measure is
only hypothetical, the potential effect on price in its market gives rise to a "legal interest".
90. The Complaining Parties submit further that the jurisdictional clause of Article XXIII of the
GATT 1994 specifically applies to all WTO Members, and that Article 3.2 of the DSU specifically
states that the WTO dispute settlement system "serves to preserve the rights and obligations of Members
under the covered agreements".
(c) Nullification or Impairment
91. The Complaining Parties submit that the Panel correctly found that the numerous violations
by the European Communities of the GATT 1994, the Licensing Agreement and the GATS have nullified
or impaired benefits the United States is entitled to derive from those agreements. The Panel properly
identified several areas in which benefits to the United States would be nullified or impaired by noting
that the United States produces bananas in Puerto Rico and Hawaii and by finding that the violation
by the European Communities of the WTO agreements could adversely affect the United States' internal
market. The Complaining Parties also argue that the Panel justifiably cited the reasoning in United
States - Taxes on Petroleum and Certain Imported Substances49 ("United States - Superfund") in support
of its finding that the European Communities had failed to rebut the presumption of nullification or
impairment.
92. The Complaining Parties submit that the Panel noted a WTO Member's "interest in a
determination of rights and obligations under the WTO Agreement". The Complaining Parties maintain
that Article 3.7 of the DSU makes clear that it is for the complaining Member to decide whether to
pursue dispute settlement and, if necessary thereafter, whether to pursue rights to suspend concessions.
More precision of the level of nullification or impairment becomes necessary only in the case where
concessions are suspended under Article 22.4 of the DSU, because that provision requires that the
level of suspension of concessions shall be equivalent to the level of nullification or impairment.
According to the Complaining Parties, in the absence of a mutually-agreed solution, the first objective
of dispute settlement is to secure the withdrawal of the inconsistent measure. This objective is not
48DS29/R, 16 June 1994, unadopted.
49Adopted 17 June 1987, BISD 34S/136, para. 5.1.9.

linked to the level of nullification or impairment, but to whether the measure at issue is inconsistent
with WTO obligations.
C. Ecuador, Guatemala, Honduras, Mexico and the United States - Appellants
93. The Complaining Parties generally agree with the Panel's findings but consider that there are
three conclusions that stand out in the Panel Reports as being unsupported by the relevant legal texts
and customary principles of treaty interpretation, and are thus manifestly erroneous findings of law.
1. Scope of the Lomé Waiver
94. The Complaining Parties argue that the "ordinary meaning" of the Lomé Waiver, read in its
context and in the light of its purpose, is clear, not ambiguous or obscure. The Lomé Waiver clearly
and specifically waives Article I:1 of the GATT 1994 and no other provision of the WTO Agreement.
According to the Complaining Parties, the Panel's overall approach in interpreting the Lomé Waiver
was fundamentally flawed in two ways: first, it ignored the ordinary meaning of the text, and this
is only allowed when the ordinary meaning would lead to a result that is "manifestly absurd or
unreasonable"; and second, the Panel focused its analysis on speculation about the objective of the
Lomé Waiver and the intentions of the parties seeking the Lomé Waiver, rather than on the text. The
Complaining Parties contend that under the Vienna Convention, a treaty's object and purpose are to
be considered in determining the meaning of the terms of the treaty but not as an independent basis
for interpretation.
95. Furthermore, the Complaining Parties argue that in deciding that the Lomé Waiver applies
to violations of Article XIII of the GATT 1994, the Panel disregarded the EC's express denial that
the Lomé Waiver covers violations of Article XIII of the GATT 1994 in favour of what it infers to
have been the EC's intentions in seeking the Waiver. However, the "object" of a treaty is that of all
the parties, not the presumed intentions that might be attributed to only some of those parties. The
Complaining Parties also assert that the rules governing the administration of quantitative restrictions
in Article XIII are not analogous or "close" to the MFN provision of Article I of the GATT 1994.
Instead, the specific rules in Article XIII are in fact an outgrowth of Article XI of the GATT 1994.
The Complaining Parties argue that therefore, the Panel's reliance on "a general principle requiring
non-discriminatory treatment" shared by Articles I and XIII of the GATT 1994 is "misguided". The
Lomé Waiver does not state that the "principles" of Article I:1 are waived; it states that the "provisions"

of that article are waived. A waiver analysis based on loose analogies among various non-
discrimination/MFN-like obligations would extend a waiver from Article I well beyond Article XIII
of the GATT 1994. MFN-like disciplines could also include Article V:5 on transit of goods, Article
IX:1 on marks of origin and Article XVII:1 on state trading. The Complaining Parties maintain that
GATT practice shows two things: that the non-discriminatory disciplines in Article XIII are distinct50;
and that in 50 years the CONTRACTING PARTIES granted only one waiver in respect of Article
XIII of the GATT 1994.51 Consequently, the Complaining Parties conclude that the negotiating history
and circumstances of the Lomé Waiver's adoption provide no support for disregarding the plain meaning
of the text of the Waiver.
2. Measures "required" by the Lomé Convention
96. The Complaining Parties contend that the trade in bananas is exclusively regulated by Article
183 of the Lomé Convention and by Protocol 5. The Complaining Parties argue that Article 168(2)(a)(ii)
of the Lomé Convention only applies to products listed in Annex XL, and this list does not include
bananas. The Complaining Parties maintain furthermore that Annex XXXIX confirms the limited scope
of Article 168(2)(a)(ii) of the Lomé Convention. They also argued that the "more favourable" treatment
provided for by Article 168(2)(a)(ii) has been separately and specifically negotiated between the parties
on a product-by-product basis. This did not happen for bananas. If Annex XL does not provide a
specific arrangement for a particular product, then there is no trade requirement for that product other
than for the European Communities to consult with the ACP States on providing additional preferential
access. The Complaining Parties assert that Article 183 and Protocol 5 deal with both traditional and
non-traditional ACP bananas. They argue that the text of these provisions shows in several ways that
they contain the entirety of the EC's undertakings concerning all bananas from all ACP countries.
In the view of the Complaining Parties, the ECJ Judgments in Federal Republic of Germany v. Council
of the European Union ("Germany v. Council"), and in Administrazione delle Finanze delle Stato v.
Chiquita ("Chiquita Italia")52 support the proposition that Protocol 5 is lex specialis, not only in respect
of trade in traditional ACP bananas, but also in relation to all bananas. Therefore, the ordinary meaning
50In support of their argument the Complaining Parties refer to the Working Party on Import Restrictions Imposed by
the United States Under Section 22 of the United States Agricultural Adjustment Act ("United States - Section 22"), adopted
5 March 1955, BISD 3S/141, p. 144; and to the Waiver on the Caribbean Basin Economic Recovery Act, Decision of 15
February 1985, BISD 31S/20, p. 22.
51Waiver Granted in Connection with the European Coal and Steel Community, Decision of 10 November 1952, BISD
1S/17, para. 3.
52Case C-280/93, Germany v. Council, Judgment of the Court of 5 October 1994, ECR 1994, p. I-4973; and Case C-
469/93, Chiquita Italia, Judgment of the Court of 12 December 1995, ECR 1995, p. I-4533.

in the context of the relevant provisions of the Lomé Convention, confirmed by the application of the
lex specialis principles of interpretation, shows that the Lomé Convention's only "trade instruments"
on bananas are those set forth in Protocol 5, and that Protocol 5 contains no requirements with respect
to non-traditional bananas.
97. The Complaining Parties also maintain that, if Article 168(2) of the Lomé Convention is read
to require preferences for ACP bananas in addition to those set out in Protocol 5, it renders useless
the strict limitationson preferential treatment of Protocol 5 for traditional ACP States. The Complaining
Parties agree that during the first 18 years of the Lomé Convention (1975-1992), the trade provisions
of Article 168(1) and 169(1) were not considered by the parties to be applicable to bananas. Therefore,
it was incorrect of the Panel to conclude that Article 168(2) has become applicable since that time.
In support of these arguments, the Complaining Parties refer to EC and ACP official statements reflecting
a recognition that Protocol 5 alone governs the treatment of banana imports and that the Lomé Convention
does not require preferential treatment for non-traditional ACP bananas.
3. GATS Claims of Guatemala, Honduras and Mexico
98. The Complaining Parties submit that the claims excluded were fully within the Panel's terms
of reference under Article 7.1 of the DSU, as set out in the joint request for the establishment of a
Panel in document WT/DS27/6. There is no provision analogous to Article 7 of the DSU for first
written submissions and therefore, the Panel has impermissibly imposed an additional obligation on
the Complaining Parties, contrary to the DSU, by requiring that all claims are spelled out in a
complaining party's first written submission. The Complaining Parties note further that since the claims
were within the Panel's terms of reference, there was no issue of unfair surprise to the detriment of
the European Communities in the light of the simultaneous filing of rebuttal submissions pursuant to
Article 12(c) of the Working Procedures in Appendix 3 to the DSU.
4. Scope of the Appeal
99. In an additional submission53, Ecuador submits that the findings of the Panel in paragraph 7.93
of the Panel Reports concerning Ecuador's right to invoke Article XIII:2 or XIII:4 of the GATT 1994
are not addressed in the Notice of Appeal and that there was no argumentation on this issue in the
EC's appellant's submission, except for in its "conclusions" section. Ecuador contends that the European
53Under Article 22(1) of the Working Procedures.

Communities did not comply with the requirements in Rule 20(2)(d) of the Working Procedures and,
as a result, did not conform with its "due process objectives" as set out by the Appellate Body in its
Report in Brazil - Measures Affecting Desiccated Coconut.54 Therefore, Ecuador asks the Appellate
Body to exclude this issue from the appeal.
D. European Communities - Appellee
1. Lomé Waiver -- Traditional ACP Bananas
100. The European Communities agrees with the Panel that Article I of the GATT 1994 is a "general
principle requiring non-discriminatory treatment". The European Communities maintains, however,
that Article XIII cannot be assumed to be a "subset" of Article I:1 of the GATT 1994, and submits
that the Complaining Parties do not contest this.55 There are separate GATT 1994 and other WTO
provisions, such as Article X and XIII of the GATT 1994 and 1.3 of the Licensing Agreement which,
even though they are MFN or non-discrimination obligations, have their own raison d'être and scope
and cannot be regarded as mere duplications of each other. The European Communities contends that
the circumstances surrounding the negotiation of the Lomé Waiver clearly show that those involved
in the negotiations must have been aware and must have recognized that there were, in fact, two different
import regimes for bananas. The European Communities never explicitly requested a waiver for Article
XIII of the GATT 1994 for the simple reason that there was no reason, logical or legal, for doing so.
The European Communities was convinced that the provisions of Article XIII refer primarily to the
allocation of a particular quantitative restriction or tariff rate quota and not to a generic non-discrimination
principle. In such a situation, the question of whether the Lomé Waiver needed to contain an exemption
not only from Article I, but also from Article XIII of the GATT 1994, never entered into consideration.
Therefore, the Panel's finding that both regimes constitute one regime to which Article XIII should
be applied across the board is fundamentally at odds with the circumstances under which the Lomé
Waiver was negotiated.
101. Finally, the European Communities observes that the Panel was correct in seeing a link between
Articles I:1 and XIII:1 of the GATT 1994. Otherwise, the specific language of the Lomé Waiver
referring to "preferential treatment", andnot merely to "preferential tariff treatment", wouldbe deprived
54WT/DS22/AB/R, adopted 20 March 1997.
55The European Communities, in its oral presentation to the Appellate Body at the oral hearing, refers to the Complaining

of any meaning. The European Communities submits that the principle of strict interpretation of
exceptions to the GATT 1994 should be applied to the text of the Lomé Waiver, but not to the text
or the content of the Lomé Convention, as the latter is not per se an exception to the GATT 1994 or
the other WTO agreements. The Lomé Convention is an autonomous international agreement which
does not stand in a hierarchical relationship with the GATT 1994, and in respect to which a panel or
the Appellate Body is not authorized to give a restrictive interpretation. In the view of the European
Communities, insofar as WTO "quasi-judicial organs" need to understand the Lomé Convention in
order to understand the Lomé Waiver, such organs should exercise judicial restraint and, in principle,
defer to the interpretations of the parties to the Lomé Convention.
2. Lomé Waiver -- Preferential Treatment of Non-Traditional Bananas
102. The European Communities submits that the discretion existing under Article 168(2)of the Lomé
Convention, limiting its tariff obligations to provide a preferential margin on the MFN duty applied
to third-country importation, isunlimitedvis-à-vis itsACP partners. The European Communities argues
that it must take into account the objectives of Article 168 and apply that Article in good faith by securing
an effective additional advantage to the ACP-originated bananas when compared to the erga omnes
tariff treatment.
103. With respect to the arguments of the Complaining Parties about what is "required" under the
Lomé Waiver, the European Communities asserts that before 1 July 1993, Article 168(1) of the Lomé
Convention applied to ACP bananas and that ACP bananas could therefore be imported duty-free.
Since 1 July 1993, Article 168(2)(a)(ii) has applied to ACP bananas and ACP bananas thus enjoy "a
preference" compared to the MFN-duty rate for third-country bananas. The European Communities
argues that Annex XL of the Lomé Convention spells out the "intention" of the European Communities
with respect to "certain" agricultural products covered by Article 168(2)(a)(ii). Therefore, Annex XL
merely serves the purpose of clarifying the future tariff treatment for the listed products. That list
is by no means exhaustive. The European Communities submits further that Protocol 5 provides for
preferential treatment over and above the basic tariff preferential treatment. In the view of the European
Communities, Article 168(2)(a)(ii) is notapplicable to traditional bananas as theseare subject toProtocol
5 which provides for more preferential treatment. However, Article 168(2)(a)(ii) remains applicable
to non-traditional ACP bananas. In response to the reference by the Complaining Parties to the ECJ's
judgments in Germany v. Council and in Chiquita Italia, the European Communities contends that
those judgments do not support the proposition that Protocol 5 is lex specialis, not only in respect of
the trade in traditional ACP bananas, but also in relation to all bananas.

104. Finally, theEuropean Communities maintains that, in thelight of the circumstances surrounding
the discussions leading up to the granting of the Lomé Waiver, the partners of the European Communities
in these discussions must have been perfectly aware that the treatment of the non-traditional ACP bananas
was considered to be part and parcel of the preferential treatment granted by the Lomé Convention.
3. GATS Claims of Guatemala, Honduras and Mexico
105. The European Communities submits that the Panel acted lawfully when it excluded the GATS
claims raised by the United States on behalf of Guatemala, Honduras and Mexico. The European
Communities asserts that if claims are dropped at the stage of the first submission, the complaining
party has voluntarily narrowed the scope or the number of claims originally contained in the request
for the establishment of a panel. Once the defendant has relied on the dropping of a claim in the first
submission, the complaining party is estopped from bringing it up again. Referring to the Appellate
Body's ruling in United States - Shirts and Blouses from India56 that for reasons of judicial economy
a panel need not decide every claim contained in the terms of reference if it can decide the case without
doing so, the European Communities submits further that a fortiori a panel must have the power to
omit claims from consideration because they have voluntarily been dropped from the first submission.
A panel is the master of its own procedure; its procedural rulings can only be quashed if they are
contrary to the fundamental principle of proper procedure or to the provisions of the WTO Agreement.
Lastly, the European Communities argues that a panel ruling on claims not properly advanced in the
first written submission would have been contrary to Article 9.2 of the DSU requiring a panel to
"organize its examination ... in such a way that the rights which the parties to the dispute would have
enjoyed had separate panels examined the complaints are in no way impaired".
III. Arguments of the Third Participants
A. Belize, Cameroon, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada,
Jamaica, Saint Lucia, St. Vincent and the Grenadines, Senegal and Suriname
106. Belize, Cameroon, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada, Jamaica,
Saint Lucia, St. Vincent and the Grenadines, Senegal and Suriname disagree with certain of the legal
56WT/DS33/AB/R, adopted 23 May 1997, p. 18.

findings and conclusions of the Panel and request the Appellate Body to take into consideration some
issues of principal concern to the ACP third participants. However, the ACP third participants also
endorse all the positions advanced by the European Communities in this appeal.
107. The ACP third participants assert that the Panel erred in law in finding that the Complaining
Parties' request for the establishment of a panel was sufficient to meet the requirements of Article 6.2
of the DSU. The ACP third participants maintain that the panel request by the Complaining Parties
contains only "bare allegations of inconsistencies" and does not provide, as required by Article 6.2
of the DSU, the summary of a legal basis for the allegations. They submit that this breach severely
prejudiced the ACP third participants. They argue further that the ordinary meaning of Article 6.2,
the context and its object and purpose did not justify the Panel's decision. In particular, the ACP third
participants assert that it is not the Panel's function to cure errors in the submissions of the Complaining
Parties to the disadvantage and prejudice of third parties or respondents. With respect to the function
of Article 6.2 of the DSU, the ACP third participants contend that the Panel misunderstood the purpose
that a third party has in "participating" in the panel proceedings, which is to make submissions to the
Panel to protect vital national interests. Article 6.2 plays a fundamental role in enabling third parties
to prepare their submissions to the panel adequately. In addition, the ACP third participants argue
that the Panel erred in law by not recognizing that a legal interest test is a principle of international
law, and that it is implicit in Article XXIII:1 of the GATT 1994 as well as in Articles 3.7, 4.11 and
10.2 of the DSU. It would be clearly against the intention of the drafters of the WTO Agreement to
permit a Member to be a complaining party if that Member has a lesser interest than that required
to join consultations or participate as a third party. Finally, the ACP third participants contend that
a legal interest test is a practical necessity in order to avoid a proliferation of cases initiated by Members
with no immediate trade interest in the results of the disputes.
108. In the view of the ACP third participants, the Panel precluded them from properly representing
their interests and thereby tainted the entire proceeding. The ACP third participants assert that the
right to observe at the first and second substantive meetings of the Panel with the parties did not permit
full and adequate representation of their interests. Previous GATT practice recognizes that parties
with interests such as those of the ACP third participants should be given full participatory rights;
this practice is also supported by Articles 2, 3.2, 10.1, 11, 12.2, and 13.1 of the DSU. They add
that the Panel's decision of 10 September 1996, prohibiting the participation of private counsel serving

on the delegation of Saint Lucia in panel meetings, violated the general principle of international law
that sovereign states are free to choose the representation of their choice.57
109. The ACP third participants submit that the Panel erred in law in its interpretation of the scope
and coverage of the Lomé Waiver and the entitlements of ACP States in respect of both traditional
and non-traditional quantities of bananas under the Lomé Convention. With respect to the interpretation
of the EC's obligations under Article I of the GATT 1994, the ACP third participants take the view
that the purpose of the Lomé Waiver was not properly considered by the Panel. In particular, the
Panel did not acknowledge the fact that the sole purpose of obtaining the Waiver was to deal with the
findings of the panel report in EEC - Import Regime for Bananas.58 The ACP third participants argue
that the Panel added the word "clearly" to the text of the Waiver which was not contained there and
that it improperly interpreted the phrase "as required". In addition, the Panel erred in interpreting
recitals to the Lomé Waiver as conditions and in its finding that a waiver must be interpreted narrowly.
The ACP third participants contend that the drafters of the GATT envisaged that the conditions under
which waivers are granted might be interpreted narrowly, but that once a waiver is granted, and in
view of the fact that this is only done in cases of an exceptional nature involving hardship, there is
no ground to interpret narrowly actions permissible under international agreements protected by a waiver.
The ACP third participants submit that the Panel misinterpreted the panel report in United States -
Restrictionson theImportation ofSugar andSugar-Containing ProductsApplied Under the1955 Waiver
and Under the Headnote to the Schedule of Tariff Concessions ("United States - Sugar Waiver").59
110. The ACP third participants also argue that the Panel erred in limiting the preference required
to be granted to traditional ACP States under Protocol 5 and Article 168 of the Lomé Convention.
In this respect, the ACP third participants submit: first, Protocol 5 should not be read in isolation;
and second, before 1990, there were no quantitative limitations on ACP exports to traditional markets.
Moreover, in the view of the ACP third participants, the Panel erred in its interpretation of the EC's
obligations under Article 168 of the Lomé Convention and Protocol 5 in relation to non-traditional
ACP bananas. The Panel even failed to consider the application of Article 168(2)(d) to such quantities.
57In support of their argument, the ACP third participants refer to the Vienna Convention on the Representation of States
in their Relations with International Organizations of a Universal Character, done at Vienna, 14 March 1975, AJIL 1975,
p. 730, as well as to the practice before other international adjudicatory bodies: See pp. 20 and 22 of the ACP third participants'
submission and the Annex thereof.
58DS38/R, unadopted.
59Adopted 7 November 1990, BISD 37S/228.

In addition, prior to the introduction of Regulation 404/93, non-traditional ACP bananas benefited
from more than the simple customs duties exemption. The benefits afforded to those suppliers in respect
of quantities prior to 1995 must be protected within the new banana regime. The ACP third participants
argue that Article 168(2)(a)(ii) of the Lomé Convention includes an obligation on the European
Communities to adopt measures in relation to the importation of ACP agricultural products that give
them a benefit over third-country agricultural products and ensure more favourable treatment, for which
the level of preference is not specified. They assert that the Panel incorrectly assumed that Article
168 of the Lomé Convention only obliges the European Communities to provide tariff-free treatment.
When read in conjunction with Articles 10 and 167 of the Lomé Convention, it is apparent that these
provisions impose on the European Communities a form of "standstill" provision, stipulating that after
the introduction of the banana regime, those benefits which had accrued previously to traditional ACP
bananas must be maintained, not necessarily in form but in substance. The ACP third participants
conclude that the provisions of Article 168 of the Lomé Convention confer on ACP agricultural products
protection similar to that specifically provided for or reiterated in Protocol 5 for bananas. The
interpretation by the European Communities of its obligations under the Lomé Convention cannot be
considered very generous, but for the Complaining Parties to argue that there are no obligations in
respect of non-traditional ACP bananas is to completely ignore the text of the Lomé Convention.
111. The ACP third participants assert that the scope of the Lomé Waiver must be interpreted as
extending to EC licensing procedures, because those procedures are an integral part of the importation
regime and are therefore saved by the Lomé Waiver from inconsistency with Article I:1 of the GATT
1994 as "rules and formalities in connection with importation". The ACP third participants argue that
the EC licensing regime was necessary to give effect to the EC's obligations under the Lomé Convention.
This holds true, in particular, under a correct interpretation of the obligations of the European
Communities (other than in Article 168 of the Lomé Convention and Protocol 5) under Articles 10,
135 and 167 of the Lomé Convention. The ACP third participants contend that the Panel incorrectly
determined that these commitments are of no legal effect. Additionally, the Panel erred in law and
fact in finding that the EC licensing regime did not follow in form the previous national regimes, since,
in the view of the ACP third participants, the licensing regime, as regards operator categories and
activity function rules, is substantially similar to the previous historic arrangements. Also, the Panel
was incorrect in its finding regarding the substance of the previous national regimes and their relations
to the EC regime. The ACP third participants argue that in particular under the United Kingdom system,
ACP producers were given substantial protection and, in effect, had a guaranteed outlet for their supplies
in both the United Kingdom and the French markets. The ACP third participants conclude that it is

clear that a system which granted preferences in a superficial manner, but which, under the new factual
circumstances of a single market, would make the demise of the ACP banana industry inevitable, would
not meet the EC's obligations under Protocol 5.
112. The ACP third participants argue that the licensing regime is necessary because, in its absence,
marketers of ACP bananas would have to compete with those of third-country bananas. ACP bananas
will be unable to compete with third-country bananas because of the higher production and shipping
costs of ACP bananas, and because of the risks caused by the "oligopolistic" structure of the market.
The ACP third participants insist that when the Lomé Waiver is construed in the light of its object,
purpose and context, it becomes clear that it saves from inconsistency any measure that is reasonably
necessary to implement the EC's obligations to the ACP States under the Lomé Convention. The ACP
third participants argue that the Panel erred in finding that the licensing procedures applied by the
European Communities totraditional ACP imports, whencompared to theprocedures appliedto imports
of third-country and non-traditional bananas, can be considered an "advantage". According to the
ACP third participants, the Panel was wrong to suggest that the "superficial differences" between ACP
import rules and third-country import rules are of the same order as the very substantive disadvantage
at issue in the United States - Non-Rubber Footwear case.60 Additionally, in the view of the ACP third
participants, the Panel erred both in its proper role in interpreting the Lomé Convention, and in its
interpretation of the Lomé Convention.
113. Finally, the ACP third participants submit that the Panel misinterpreted the scope and application
of the GATS. The ACP third participants contend that the Panel's interpretation of the term "affecting"
in Article I:1 of the GATS ignored the fact that the GATS covers only the "production" of a service,
i.e. trade in services as such. The ACP third participants add that the GATS was negotiated after the
GATT 1994 in order to provide protection supplementary to that provided by the GATT 1994 and
to address trade in the area of services not covered by the GATT 1994. Concerning the term, "wholesale
trade services", the ACP third participants argue that this relates to reselling and involves a purchase
and a subsequent sale. Vertically-integrated companies do not "resell". The ACP third participants
assert that the scope of Article II:1 of the GATS does not extend to the modification of conditions of
competition. In the view of the ACP third participants, the measures relating to operator categories,
BFA export certificate requirements and hurricane licences were necessary to carry out the EC's
obligations under the Lomé Convention.
60Adopted 19 June 1992, BISD 39S/128.

B. Colombia
114. Colombia's submission concerns three issues of law and legal interpretations addressed in the
appeal of the European Communities. First, Colombia submits that the Panel erred in law in finding
that the Complaining Parties' request for the establishment of a panel identified the specific measure
at issue and presented the problem clearly within the meaning of Article 6.2 of the DSU. The almost
complete listing of all the basic obligations under an agreement as submitted by the Complaining Parties
does not provide any information on the legal basis of a complaint; it merely informs the reader that
an inconsistency with the agreement is being claimed. Furthermore, in Colombia's view, the failure
to observe the requirements of Article 6.2 of the DSU cannot be "cured" by clarifying the measure
at issue and the legal basis of the complaint in the first submission to the panel. One of the most
important functions of the requirements in Article 6.2 of the DSU is to enable other Members to decide
whether to participate as third parties in the proceedings. This right cannot be exercised without
sufficient information. In the event that such participation is not sought because the legal issues raised
by the complaining party are insufficiently clear, a WTO Member who is a potential third party cannot
subsequently exercise its right in the light of information contained in the first submission, since these
are not made available to non-participants. In Colombia's view, for Members that decide not to
participate in the proceedings because the request for the establishment of a panel was insufficiently
clear, the subsequent clarification in the first submission can therefore not be described as a "cure"
or an "efficient solution".
115. Second, Colombia contends that the Panel erred in law in finding that neither the inclusion
of the tariff quota shares in the EC Schedule, nor the Agreement on Agriculture, permit the European
Communities to act inconsistently with the requirements of Article XIII of the GATT 1994. Colombia
submits that the review of the tariff quotas scheduled by the European Communities and the United
States, which entail commitments negotiated with more than fifty other participants in the Uruguay
Round, shows that few, if any, of these quota allocation commitments presently conform to the
requirements set out in Article XIII of the GATT 1994. Therefore, in Colombia's view, it can be
safely assumed that all quota allocation commitments made pursuant to the Agreement on Agriculture
are actually or potentially inconsistent with Article XIII of the GATT 1994. Colombia submits that
not only were quota allocations made irrespective of Article XIII, but also that Members have
incorporated into their GATT 1994 Schedules tariff rates on agricultural products inconsistent with
Article II:1(b) of the GATT 1994. In this respect, Colombia asserts that the Panel correctly found
that "the tariff rates specified in the EC Uruguay Round Schedule are valid EC tariff bindings with
respect to bananas", but that the Panel erred in its conclusion that the results of the Uruguay Round

override the results of previous tariff negotiations. Colombia contends that the Panel's interpretation
does not take into consideration the requirements of the procedures under Article XXVIII of the GATT
1994 and makes redundant paragraph 7 of the Marrakesh Protocol to the General Agreement on Tariffs
and Trade 1994 (the "Marrakesh Protocol"). Colombia concludes that in the event of conflict between
the GATT 1994 provisions and the Agreement on Agriculture, the applicable provision that guides market
access concessions undertaken pursuant to the Agreement on Agriculture is Article 4.1 and not the GATT
1994. Colombia asserts that the Panel failed to recognize that, in Articles 1(g), 4.1 and 21 of the
Agreement on Agriculture, the drafters of the WTO Agreement had given a clear expression of their
intention that the results of the tariffication exercise should override the results of earlier negotiations.
By basing itself on general principles of law, the Panel concluded that the legal consequences which
the drafters intended to achieve only in the field of agriculture applied to all previous concessions,
including those for industrial products.
116. Colombia further contends that, by interpreting Article 4.1 of the Agreement on Agriculture
as "a statement of where market access commitments can be found", the Panel deprives not only this
provision but also all the country allocation commitments made by or in favour of a majority of WTO
Members of any legal relevance. In this event, Article 4.1 would have the mere function of a "signpost"
indicating the "way to the schedules". Colombia asserts that the Agreement on Agriculture regulates
the relationship between it and the scheduled commitments differently from the GATT 1994. While
the GATT 1994 is a framework agreement for the incorporation of tariff bindings, the Agreement on
Agriculture and the scheduled commitments negotiated under it constitute together the result of a
negotiation on the first stage of agricultural reform. Colombia adds that the market access commitments
made under the Agreement on Agriculture constitute, in large part, settlements of disputes on the
interpretation and application of the provisions of the GATT 1947 that had arisen prior to the Uruguay
Round and during the Uruguay Round negotiations. The provisions related to the BFA in the EC market
access commitments are not designed to circumvent GATT 1994 provisions, but to settle past disputes
on the EC banana regime and to forestall new ones. Finally, Colombia asserts that, by sanctioning
the increase in tariff bindings, but not the quota allocations negotiated in conjunction with the tariff
bindings, the Panel creates an imbalance in the outcome of the Uruguay Round negotiations on
agriculture.
117. Third, Colombia questions whether in the present case the transfer of a quota rent from an
importer to an exporter is an "advantage granted to a product" within the meaning of Article I of the
GATT 1994. Colombia contends that the Panel correctly recognized that Article I of the GATT 1994
is concerned with the treatment of foreign products originating from different foreign sources rather

than with the treatment of the suppliers of these products, but that it fails to observe this distinction
it has established. Colombia asserts that under the Panel's line of reasoning, financial advantages that
might be passed on to producers are equated with competitive advantages accorded to the product,
and the important legal distinction between advantages accorded to producers and those accorded to
products is lost. Within the framework of a trade agreement such as the GATT 1994, different treatment
of producers cannot be equated with different treatment of the products they produce. Therefore, in
Colombia's view, the Panel incorrectly concluded that the quota rents generated from trade in bananas
means that the EC licensing procedures constitute an "advantage granted to a product" within the meaning
of Article I of the GATT 1994, as this can only be an advantage that changes the conditions faced
by the product in the market of the importing Member. The mere transfer of quota rents from importers
to exporters of other countries does not alter the conditions that the product sold by the exporters faces
in the restricted market. Additionally, Colombia contends that it is not clear why the Panel referred
to the panel report in United States - Non-Rubber Footwear61; the European Communities did not argue
that there were two trade effects, one compensating the other, but only one possible trade effect relevant
under Article I of the GATT 1994 that favoured the Complaining Parties. Colombia contends that
the Panel dismissed an important point in an unreasoned manner and thereby failed to demonstrate
how the competitive conditions for a product are improved when quota rents are transferred from
importers to exporters under a regime which does not encourage an increase in exports of that product.
C. Costa Rica and Venezuela
118. Costa Rica and Venezuela submit joint legal arguments with respect to the relationship between
Articles 4.1 and 21.1 of the Agreement on Agriculture and Article XIII of the GATT 1994. They argue
that the tariff bindings and tariff quota allocations resulting from the Uruguay Round negotiations on
agriculture are in large part inconsistent with Articles II and XIII of the GATT 1994. These
inconsistencies are justified only if there is a provision in the WTO Agreement according to which tariff
bindings and other market access concessions made pursuant to the Agreement on Agriculture override
the obligations under Articles II and XIII of the GATT 1994. In Costa Rica's and Venezuela's view,
Articles 4.1 and 21.1 of the Agreement on Agriculture are the legal expression of the intent of the drafters
to give legal effect to all market access concessions incorporated in the Schedules of Concessions.
Costa Rica and Venezuela contend that the Panel erred in law when it found that the rise in bound
tariffs resulting from the tariffication exercise could be justified on the basis of general principles
61Adopted 19 June 1992, BISD 39S/128.

governing the application of successive treaties. Such an interpretation would ignore the legal meaning
of Article XXVIII of the GATT 1994 and of paragraph 7 of the Marrakesh Protocol. In the view of
Costa Rica and Venezuela, the Panel therefore erred in finding that GATT-inconsistent quota allocation
commitments made pursuant to the Agreement on Agriculture could not be justified under the Agreement
on Agriculture.
119. Furthermore, with respect to the question of whether Article 4.1 of the Agreement on Agriculture
is a substantive provision, Costa Rica and Venezuela argue that there is no other example in the whole
of the WTO Agreement of a provision whose sole function is to inform the reader of the location of
another provision. Costa Rica and Venezuela contend that the Agreement on Agriculture regulates
the relationship between it and the scheduled commitments differently from the GATT 1994. While
the GATT 1994 is a framework agreement for the incorporation of tariff bindings, the Agreement on
Agriculture, and the scheduled commitments negotiated under it, constitute together the result of a
negotiation on the first stage of agricultural reform. Additionally, Costa Rica and Venezuela submit
that the market access commitments made under the Agreement on Agriculture constitute, in large part,
settlements of disputes on the interpretation and application of the provisions of the GATT 1947 that
had arisen prior to the Uruguay Round and during the Uruguay Round negotiations. It would not be
justified to dismiss the quota allocation commitments as "illegitimate deals" between individual
participants in the Uruguay Round negotiations designed to discriminate against other participants.
These allocations were legitimate reactions of the negotiators to the legal uncertainty to which an
application of the criteria set out in Article XIII of the GATT 1994 gives rise in a situation in which
a highly restrictive import regime is transformed into a tariff-based regime.
120. In addition, Costa Rica and Venezuela are concerned that, by sanctioning the rise in the tariff
bindings, but not the quota allocations negotiated in conjunction with the tariff bindings, the Panel
creates an imbalance in the outcome of the negotiations on agriculture. Costa Rica and Venezuela
add that they fully support the EC's view on the issue whether Article XIII:2(d) of the GATT 1994
prohibits an allocation of quotas by an agreement that includes countries which do not have a substantial
supplying interest.
121. Costa Rica and Venezuela question whether in the present case the transfer of a quota rent
from an importer to an exporter is an "advantage granted to a product" within the meaning of Article
I of the GATT 1994. Costa Rica and Venezuela contend that the Panel correctly recognized that Article
I of the GATT 1994 is concerned with the treatment of foreign products originating from different

foreign sources rather than with the treatment of the suppliers of these products, but that it fails to
observe this distinction it has itself established. Costa Rica and Venezuela submit that, under the Panel's
line of reasoning, financial advantages that might be passed on to producers are equated with competitive
advantages accorded to the products, and the important legal distinction between advantages accorded
to producers and those accorded to products is lost. Within the framework of a trade agreement such
as the GATT 1994, different treatment of producers cannot be equated with different treatment of the
products they produce. Therefore, Costa Rica and Venezuela take the position that the Panel incorrectly
concluded that the quota rents generated by trade in bananas mean that they constitute an "advantage
granted to a product" within the meaning of Article I of the GATT 1994, as this can only be an advantage
that changes the conditions in the market. The mere transfer of a quota rent from importers to exporters
of other countries does not alter the conditions that the product sold by the exporters faces in the quota-
restricted market. Additionally, Costa Rica and Venezuela assert that it is not clear why the Panel
referred to the panel report in United States - Non-Rubber Footwear62, since the European Communities
did not argue that there were two trade effects, one compensating the other, but only one possible trade
effect relevant under Article I of the GATT 1994 that favoured the Complaining Parties. Costa Rica
and Venezuela argue that the Panel dismissed an important point in an unreasoned manner and thereby
failed to demonstrate how the competitive conditions for a product are improved when quota rents
are transferred from importers to exporters under a regime which does not encourage an increase in
exports of that product.
122. Costa Rica and Venezuela invite the Appellate Body to consider the broad implications that
an acceptance of the Panel's interpretation of Article I of the GATT 1994 would entail. Most WTO
Members that allocate tariff quotas among supplying countries do so by allocating a share to named
countries constituting the main suppliers and a residual share to "other countries". The producers of
the named countries can easily obtain the financial benefits associated with a quota regime by forming
an export cartel or asking their government to channel exports through a single agency in accordance
with Articles XVII and XX(d) of the GATT 1994; the "other countries" would need to cooperate with
one another to secure that financial benefit, which is inherently more difficult. In spite of the different
impact on producers from different countries, this method of allocating trade shares among countries
has never been challenged in the history of the GATT. If Article I of the GATT 1994 were interpreted
to oblige Members to afford not only equal trade opportunities for products but also equal opportunities
to obtain the rents arising from the administration of quotas, a quota allocation mechanism used by
62Adopted 19 June 1992, BISD 39S/128.

practically all WTO Members, including the Complaining Parties, would be subject to challenge under
the GATT 1994.
D. Nicaragua
123. Nicaragua fully supports the views expressed by Colombia, Costa Rica and Venezuela in their
submissions to the Appellate Body. The views set out in these submissions should therefore be treated
by the Appellate Body as representing the position of Nicaragua. Nicaragua in particular shares their
view that the Agreement on Agriculture, and consequently the market accession commitments made
pursuant to that Agreement, take precedence over the provisions of Article XIII of the GATT 1994.
124. With respect to the Panel's reasoning on Article XIII:1 that "the imports from all other countries
must be similarly restricted", Nicaragua contends that the Panel draws from this principle the incorrect
conclusion that any difference in the method of allocation, whether it can affect the distribution of trade
or not, is inconsistent with Article XIII of the GATT 1994. Nicaragua submits that the text of Article
XIII:1 clearly regulates the importation of products, not the granting of advantages to exporters or
producers, whereas the sole objective of paragraph 2 of Article XIII is to prevent distortions in the
distribution of trade arising from the administration of quotas. In this context, the terms "similarly
restricted" can only be interpreted to refer to measures imposed in connection with importation that
are capable of altering the distribution of trade. Therefore, the terms cannot be interpreted to mean
"restricted withsimilar means", but rather shouldbe interpreted tomean "with similar restrictive effect".
Nicaragua also contends that the quota allocation in the case at issue does not accord a trade advantage,
since the only consequence of the allocation is that the quota rent is no longer enjoyed by the importer
but by the exporter of the exporting country. The resulting financial advantage cannot be used to increase
the level of exports because that level is fixed by the quota. It therefore does not alter the competitive
condition in favour of that product. In the view of Nicaragua, the mere allocation of a quota share
to a particular Member does not distribute trade shares in favour of that Member and can therefore
not by itself constitute discriminatory treatment of products inconsistent with Article XIII of the GATT
1994. Nicaragua admits that differences in the means of imposing restrictions can lead to discrimination
even when they do not change the distribution of trade shares. However, this is a matter specifically
covered by Article I of the GATT 1994 and the Licensing Agreement. The Panel's interpretation of
the terms of Article XIII of the GATT 1994 as entailing a total prohibition of any distinction in the
means of restriction, including distinctions that do not affect the distribution of trade shares, goes beyond
the terms and objectives of Article XIII and the GATT 1994 in general.

125. In addition, Nicaragua contends that the Panel did not correctly determine the issue whether
a Member's supplying interest is substantial within the meaning of Article XIII of the GATT 1994.
Nicaragua asserts that a Member's interest in supplying a product may be substantial because its exports
of the product represent a substantial proportion of total imports of the quota-allocating Member or
because its exports of the product represent a substantial proportion of its own total exports. In fact,
the words "interest insupplying" suggest that the determination should be made by examining the pattern
of trade from the perspective of the interest of the supplying country, which in turn suggests that the
proportion of exports of the product in its total exports is the relevant proportion. With respect to
the Panel's argumentation on Article XXVIII of the GATT 1994, Nicaragua asserts first that there
is no rule that "substantial supplying interest" can only be determined on the basis of the import share
from which an exception can only be created by agreement, and, second that the function of the terms
as used in Articles XIII and XXVIII is not identical. Nicaragua submits that, given the different
objectives of the two provisions, the definition adopted by Members under Article XIII of the GATT
1994 can justifiably differ from that adopted under Article XXVIII of the GATT 1994.
E. Japan
126. In its submission, Japan presents arguments concerning the issue of specificity of the request
for the establishment of a panel under Article 6.2 of the DSU. In Japan's view, the "Panel's
interpretations on this issue are highly erroneous" and, if accepted by the Appellate Body, will have
serious implications for the future operation of the dispute settlement mechanism.
127. Japan submits that the request for the establishment of a panel does not fulfil the two requirements
of Article 6.2 of the DSU: the identification of the "specific measure at issue" and the provision of
a "brief summary of the legal basis of the complaint". Japan considers that the mere identification
of the basic regulation and a simple listing of the provisions which are allegedly violated are not enough.
At least the linkage "between the specific measure ... concerned and the Article allegedly infringed
thereby" must be provided to meet the requirements under Article 6.2 of the DSU. In the view of
Japan, undue emphasis on the promptness of the settlement, without taking account of the respondent's
burden, may invite abuse of the dispute settlement system and could cause serious damage to its proper
operation. The DSU must be interpreted so as to serve the fair settlement of disputes. Japan argues
that the Panel's argument that the Complaining Parties "cured" uncertainty with their first submission
should not be accepted. Japan asserts: first, the lack of specificity in the request for the establishment
of a panel requires extensive additional work on the respondent's side for the preparation of its defence,

which could be avoided if the request for the establishment of a panel is sufficiently specific; second,
the Panel's proposed remedy puts too much emphasis on the interests of the Complaining Parties;
and third, the first submission does not replace the request for the establishment of a panel with respect
to the notice function which is required under Article 6.2 of the DSU. Finally, Japan argues that the
Panel's reasoning has no legal basis in the text of the DSU.
128. Japan agrees with the Complaining Parties that the first written submission does not determine
the claims made by a complaining party, and that such a finding has no basis in the text of the DSU.
However, in the view of Japan, if the Complaining Parties failed to include in their first submission
certain claims which are identified in their request for the establishment of a panel, those Complaining
Parties should be deemed to have withdrawn such claims. In addition, Japan does not disagree with
the Complaining Parties on the progressive nature of a panel proceeding, and it considers that the parties
to the dispute should be permitted to make any legal and factual arguments responding to the panel's
questions or other parties' arguments throughout the proceeding. However, the complaining party's
legal claims must be within the terms of reference of the panel. Finally, Japan considers that, in this
case, the Panel incorrectly found that the panel request adequately informed the European Communities
of the case against it. Japan contends that the Panel's analysis does not take due account of the burden
upon the respondent to respond to the case against it.
IV. Issues Raised in this Appeal
129. The appellant, the European Communities, raises the following issues in this appeal:
(a) Whether the United States had a right to bring claims under the GATT 1994;
(b) Whether the request for the establishment of the panel made by the Complaining Parties
in WT/DS27/6 meets the requirements of Article 6.2 of the DSU;
(c) Whether the market access concessions made by the European Communities under
the Agreement on Agriculture prevail, as a result of Articles 4.1 and 21.1 of the
Agreement on Agriculture, over the obligations of the European Communities under
Article XIII of the GATT 1994;

(d) Whether the EC's allocation of tariff quota shares, whether by agreement or by
assignment, to some, but not to other, Members not having a substantial interest in
supplying bananas to the European Communities, is consistent with Article XIII:1 of
the GATT 1994; and whether the tariff quota reallocation rules of the BFA are
consistent with the requirements of Article XIII:1 of the GATT 1994;
(e) Whether the European Communities is "required" under the relevant provisions of
the Lomé Convention to allocate tariff quota shares to traditional ACP States in excess
of their pre-1991 best-ever export volumes, and to maintain the EC import licensing
procedures that are applied to imports of third-country and non-traditional ACP bananas;
(f) Whether the existence of two separate EC regimes for the importation of bananas is
legally relevant to the application of the non-discrimination provisions of the GATT
1994 and the other Annex 1A agreements of the WTO Agreement;
(g) Whether the provisions of the Licensing Agreement apply to licensing procedures for
tariff quotas; and whether Article 1.3 of the Licensing Agreement precludes the
imposition of different import licensing systems on like products when imported from
different Members;
(h) Whether Article X:3(a) of the GATT 1994 precludes the imposition of different import
licensing systems on like products when imported from different Members; and whether
both Article 1.3 of the Licensing Agreement and Article X:3(a) of the GATT 1994
apply to import licensing procedures;
(i) Whether the application of the EC activity function rules to imports of third-country
and non-traditional ACP bananas, in the absence of the application of such rules to
imports of traditional ACP bananas, is consistent with Article I:1 of the GATT 1994;
and whether the EC export certificate requirement for the importation of BFA bananas
is consistent with the requirements of Article I:1 of the GATT 1994;
(j) Whether the EC import licensing procedures are within the scope of Article III:4 of
the GATT 1994; and, if so, whether the EC practice with respect to hurricane licences
is consistent with the requirements of Article III:4 of the GATT 1994;

(k) Whether the GATS applies to the EC import licensing procedures, or whether the GATT
1994 and the GATS are mutually exclusive agreements;
(l) Whether "operators" under the relevant EC regulations are service suppliers within
the meaning of Article I:2(c) of the GATS that are engaged in the supply of "wholesale
trade services"; and whether vertically-integrated companies, which include such
operators, are service suppliers;
(m) Whether the requirement of Article II:1 of the GATS to extend "treatment no less
favourable" should be interpreted as including de facto, as well as de jure,
discrimination;
(n) Whether the Panel erred by giving retroactive effect to Articles II and XVII of the
GATS, contrary to the principle stated in Article 28 of the Vienna Convention;
(o) Whether the Panel misapplied the standard of burden of proof, set out in the Appellate
Body Report in United States - Shirts and Blouses from India63: in deciding which
companies are a "juridical person of another Member" and are "owned" by, "controlled"
by or "affiliated" with persons of another Member within the meaning of paragraphs
(m) and (n) of Article XXVIII of the GATS; in deciding the market shares of the
companies engaged in wholesale trade in bananas within the European Communities;
and in its conclusions concerning the category of "operators who include or directly
represent EC or ACP producers" that have suffered damage from hurricanes;
(p) Whether the Panel erred in finding that the allocation to Category B operators of 30
per cent of the licences allowing the importation of third-country and non-traditional
ACP bananas at in-quota tariff rates is inconsistent with the requirements of Articles
II and XVII of the GATS;
(q) Whether the Panel erred in finding that the allocation to ripeners of 28 per cent of the
Category A and Blicences allowing the importation of third-country and non-traditional
63WT/DS33/AB/R, adopted 23 May 1997.

ACP bananas at in-quota tariff rates is inconsistent with the requirements of Article
XVII of the GATS;
(r) Whether the Panel erred in finding that the allocation of hurricane licences exclusively
to operators who include or directly represent EC or ACP producers of bananas is
inconsistent with the requirements of Articles II and XVII of the GATS;
(s) Whether the Panel erred in concluding that the European Communities has not succeeded
in rebutting the presumption that its breaches of the GATT 1994, the GATS and the
Licensing Agreement have nullified or impaired benefits of the Complaining Parties.
130. The Complaining Parties, as appellants, raise the following issues in this appeal:
(a) Whether the Lomé Waiver granted to the European Communities for "the provisions
of paragraph 1 of Article I of the General Agreement" applies also to breaches of Article
XIII of the GATT 1994 with respect to the EC's country-specific allocations for
traditional ACP States;
(b) Whether the European Communities is "required" under the relevant provisions of
the Lomé Convention to provide duty-free access for 90,000 tonnes of non-traditional
ACP bananas and a margin of tariff preference in the amount of 100 ECU/tonne for
all other non-traditional ACP bananas;
(c) Whether the Panel erred in excluding from the scope of this case certain claims relating
to Article XVII of the GATS made by Mexico and all the GATS claims made by
Guatemala and Honduras because those complaining parties did not address such claims
in their first written submissions to the Panel;
(d) Ecuador raises the question whether the Panel's finding at paragraph 7.93 of the Panel
Reports concerning Ecuador's right to invoke Articles XIII:2 or XIII:4 of the GATT
1994 is properly within the scope of this appeal.
131. We will address these issues in turn, and we will deal simultaneously with the issues that have
been raised by both the European Communities and the Complaining Parties.

A. Preliminary Issues
1. Right of the United States to Bring Claims under the GATT 1994
132. We agree with the Panel that "neither Article 3.3 nor 3.7 of the DSU nor any other provision
of the DSU contain any explicit requirement that a Member must have a ‘ legal interest’ as a prerequisite
for requesting a panel".64 We do not accept that the need for a "legal interest" is implied in the DSU
or in any other provision of the WTO Agreement. It is true that under Article 4.11 of the DSU, a
Member wishing to join in multiple consultations must have "a substantial trade interest", and that
under Article 10.2 of the DSU, a third party must have "a substantial interest" in the matter before
a panel. But neither of these provisions in the DSU, nor anything else in the WTO Agreement, provides
a basis for asserting that parties to the dispute have to meet any similar standard. Yet, we do not believe
that this is dispositive of whether, in this case, the United States has "standing"65 to bring claims under
the GATT 1994.
133. The participants in this appeal have referred to certain judgments of the International Court
of Justice and the Permanent Court of International Justice relating to whether there is a requirement,
in international law, of a legal interest to bring a case.66 We do not read any of these judgments as
establishing a general rule that in all international litigation, a complaining party must have a "legal
interest" in order to bring a case. Nor do these judgments deny the need to consider the question of
standing under the dispute settlement provisions of any multilateral treaty, by referring to the terms
of that treaty.
134. This leads us to examine Article XXIII of the GATT 1994, which is the dispute settlement
provision for disputes brought pursuant to the GATT 1994, most other Annex 1A agreements and the
64Panel Reports, para. 7.49.
65Standing, or locus standi, is generally understood to mean the right to bring an action in a dispute. See B. Garner,
A Dictionary of Modern Legal Usage (Oxford University Press, 1987), p. 347; L.B. Curzon, A Dictionary of Law, 4th ed.
(Pitman Publishing, 1993), p. 232. Article 1.1 of the DSU states that: "The rules and procedures of this Understanding
shall apply to disputes brought pursuant to the consultation and dispute settlement provisions of the agreements listed in Appendix
1 to this Understanding ...". (emphasis added)
66The EC's appellant's submission in paras. 9-10 refers to the ICJ and PCIJ Judgments in: the South West Africa Cases,
(Second Phase), ICJ Reports 1966, p. 4; the Case Concerning the Barcelona Traction, Light and Power Company, Limited
(Second Phase), ICJ Reports 1970, p. 4; the Mavrommatis Palestine Concessions Case, PCIJ (1925) Series A, No. 2, p.
1; the S.S. "Wimbledon" case, PCIJ (1923) Series A, No. 1, p.1; and the Case Concerning the Northern Cameroons, ICJ
Reports 1963, p. 4. The Complaining Parties' appellee's submission, in para. 364, also refers to the ICJ Judgment in the
South West Africa Cases.

Agreement on Trade Related Aspects of Intellectual Property Rights ("TRIPs").67 The chapeau of Article
XXIII:1 of the GATT 1994 provides:
If any Member should consider that any benefit accruing to it directly
or indirectly under this Agreement is being nullified or impaired or
that the attainment of any objective of the Agreement is being impeded

Of special importance for determining the issue of standing, in our view, are the words "[i]f any Member
should consider ...".68 This provision in Article XXIII is consistent with Article 3.7 of the DSU, which
states:
Before bringing a case, a Member shall exercise its judgement as to
whether action under these procedures would be fruitful.

135. Accordingly, we believe that a Member has broad discretion in deciding whether to bring a
case against another Member under the DSU. The language of Article XXIII:1 of the GATT 1994
and of Article 3.7 of the DSU suggests, furthermore, that a Member is expected to be largely self-
regulating in deciding whether any such action would be "fruitful".
136. We are satisfied that the United States was justified in bringing its claims under the GATT
1994 in this case. The United States is a producer of bananas, and a potential export interest by the
United States cannot be excluded. The internal market of the United States for bananas could be affected
by the EC banana regime, in particular, by the effects of that regime on world supplies and world prices
of bananas. We also agree with the Panel's statement that:
... with the increased interdependence of the global economy, ...
Members have a greater stake in enforcing WTO rules than in the past
since any deviation from the negotiated balance of rights and obligations
is more likely than ever to affect them, directly or indirectly.69
67Article XXIII of the GATT 1994 is referred to as the dispute settlement provision in most other Annex 1A agreements
(Agreement on Agriculture, Agreement on the Application of Sanitary and Phytosanitary Measures, Agreement on Textiles
and Clothing, Agreement on Technical Barriers to Trade, Agreement on Trade-Related Investment Measures, Agreement
on Preshipment Inspection, Agreement on Rules of Origin, Licensing Agreement, Agreement on Subsidies and Countervailing
Measures, Agreement on Safeguards) and in TRIPs.
68We note that Articles XXIII:1 and XXIII:3 of the GATS use similar opening phrases: "If any Member should consider ..."
and "If any Member considers ...".
69Panel Reports, para. 7.50.

137. We note, too, that there is no challenge here to the standing of the United States under the
GATS, and that the claims under the GATS and the GATT 1994 relating to the EC import licensing
regime are inextricably interwoven in this case.
138. Taken together, these reasons are sufficient justification for the United States to have brought
its claims against the EC banana import regime under the GATT 1994. This does not mean, though,
that one or more of the factors we have noted in this case would necessarily be dispositive in another
case. We therefore uphold the Panel's conclusion that the United States had standing to bring claims
under the GATT 1994.
2. Request for Establishment of the Panel
139. Article 6.2 of the DSU requires that a request for the establishment of a panel:
... identify the specific measures at issue and provide a brief summary
of the legal basis of the complaint sufficient to present the problem
clearly.
140. We agree with the Panel that the request in this case, WT/DS27/6, dated 12 April 1996, which
refers to "a regime for the importation, sale and distribution of bananas established by Regulation 404/93
(O.J. L 47 of 25 February 1993, p. 1), and subsequent EC legislation, regulations and administrative
measures, including those reflecting the provisions of the Framework Agreement on bananas, which
implement, supplement and amend that regime", contains sufficient identification of the specific measures
at issue to fulfil the requirements of Article 6.2 of the DSU.
141. With respect to whether the panel request provides, as required, a "brief summary of the legal
basis of the complaint sufficient to present the problem clearly"70, we agree with the Panel's conclusion
that "the request is sufficiently specific to comply with the minimum standards established by the terms
of Article 6.2 of the DSU"71 (emphasis added). We accept the Panel's view that it was sufficient for
the Complaining Parties to list the provisions of the specific agreements alleged to have been violated
without setting out detailed arguments as to which specific aspects of the measures at issue relate to
which specific provisions of those agreements. In our view, there is a significant difference between
the claims identified in the request for the establishment of a panel, which establish the panel's terms
70DSU, Article 6.2.
71Panel Reports, para. 7.29.

of reference under Article 7 of the DSU, and the arguments supporting those claims, which are set
out and progressively clarified in the first written submissions, the rebuttal submissions and the first
and second panel meetings with the parties.
142. We recognize that a panel request will usually be approved automatically at the DSB meeting
following the meeting at which the request first appears on the DSB's agenda.72 As a panel request
is normally not subjected to detailed scrutiny by the DSB, it is incumbent upon a panel to examine
the request for the establishment of the panel very carefully to ensure its compliance with both the
letter and the spirit of Article 6.2 of the DSU. It is important that a panel request be sufficiently precise
for two reasons: first, it often forms the basis for the terms of reference of the panel pursuant to Article
7 of the DSU; and, second, it informs the defending party and the third parties of the legal basis of
the complaint.
143. We do not agree with the Panel that "even if there was some uncertainty whether the panel
request had met the requirements of Article 6.2, the first written submissions of the Complainants ‘ cured’
that uncertainty because their submissions were sufficiently detailed to present all the factual and legal
issues clearly".73 Article 6.2 of the DSU requires that the claims, but not the arguments, must all be
specified sufficiently in the request for the establishment of a panel in order to allow the defending
party and any third parties to know the legal basis of the complaint. If a claim is not specified in the
request for the establishment of a panel, then a faulty request cannot be subsequently "cured" by a
complaining party's argumentation in its first written submission to the panel or in any other submission
or statement made later in the panel proceeding.
144. We note, in passing, that this kind of issue could be decided early in panel proceedings, without
causing prejudice or unfairness to any party or third party, if panels had detailed, standard working
procedures that allowed, inter alia, for preliminary rulings.
3. GATS Claims by Guatemala, Honduras and Mexico
145. We do not agree with the Panel's decisions to exclude certain claims under Article XVII of
the GATS made by Mexico74 and all of the GATS claims made by Guatemala and Honduras75 from
72DSU, Article 6.1.
73Panel Reports, para. 7.44.
74Panel Report, WT/DS27/R/MEX, paras. 7.309-7.311.

the scope of this case. There is no requirement in the DSU or in GATT practice for arguments on
all claims relating to the matter referred to the DSB to be set out in a complaining party's first written
submission to the panel. It is the panel's terms of reference, governed by Article 7 of the DSU, which
set out the claims of the complaining parties relating to the matter referred to the DSB.
146. In this dispute, the Complaining Parties filed a joint request for the establishment of the Panel
in WT/DS27/6, dated 12 April 1996, and the parties to the dispute agreed that the Panel would have
standard terms of reference pursuant to Article 7.1 of the DSU. The Panel's terms of reference in
this dispute, therefore, must be determined by an examination of the joint request for the establishment
of a panel in WT/DS27/6, which includes claims that the EC measures are inconsistent with, inter
alia, Articles II, XVI and XVII of the GATS. The Complaining Parties filed their request for the
establishment for a panel jointly, but they filed their first written submissions to the Panel separately.76
Any omissions in the arguments contained in the first written submissions of Mexico or of Guatemala
and Honduras were rectified in their joint representations with the other Complaining Parties made
at the first meeting of the parties with the Panel, as well as in their joint written rebuttal submission
and in their joint representations made at the second meeting of the parties with the Panel. Specific
arguments on all relevant GATS claims were made by the five Complaining Parties jointly in their
oral statements at the first and second meetings with the Panel and in their written rebuttal submission.
147. For these reasons, we reverse the conclusions of the Panel that certain claims under Article
XVII of the GATS made by Mexico77 and all of the GATS claims made by Guatemala and Honduras78
are not to be included within the scope of this case. We do not agree with the Panel's statement that
a "failure to make a claim in the first written submission cannot be remedied by later submissions or
by incorporating the claims and arguments of other complainants".79 Pursuant to Articles 6.2 and 7.1
of the DSU, the terms of reference of the Panel in this case were established in the request for the
establishment of the panel, WT/DS27/6, in which the claims specified under the GATS were made
by all five Complaining Parties jointly.
75Panel Reports, paras. 7.57-7.58.
76Guatemala and Honduras submitted a first written submission jointly.
77Panel Report, WT/DS27/R/MEX, paras. 7.309-7.311.
78Panel Reports, para. 7.58.
79Ibid., para. 7.57.

4. Ecuador's Right to Invoke Article XIII of the GATT 1994
148. Ecuador argues, in its submission of 9 July 1997, that the European Communities did not
properly set out any allegation of error concerning paragraph 7.93 of the Panel Reports in the Notice
of Appeal, nor did the European Communities include in its appellant's submission any statement of
the grounds for such an appeal, any specific allegations of errors in the issues of law covered in the
Panel Reports, or any legal arguments in support of an appeal of that finding. In the appellant's
submission of the European Communities, there was merely a summary reference to paragraph 7.93
of the Panel Reports in Part IV, paragraph 352, of the Conclusions. Ecuador argues that this omission,
on the part of the European Communities, does not meet the requirements of Rule 20(2)(d) or Rule
21(2) of the Working Procedures.
149. The Panel's finding on this issue reads as follows:
... we find that the failure of Ecuador's Protocol of Accession to
address banana-related issues does not mean that Ecuador must accept
the validity of the BFA as contained in the EC's Schedule or that it
is precluded from invoking Article XIII:2 or XIII:4.80
150. Paragraphs (c) and (d) of the Notice of Appeal read as follows:
(c) The Panel erred in law in its interpretation of the Agreement
on Agriculture and, in particular, of Articles 4.1 and 21.1 of
that Agreement and their relation to the GATT, in particular
its Article XIII.
(d) In the alternative: the Panel erred in its interpretation of
Article XIII of GATT, in particular paragraph 2(d) (both in
relation to the allocation of country shares in the Tariff Rate
Quota (TRQ)) for bananas and to the tariff quota reallocation
rules of the Banana Framework Agreement (BFA).
151. Rule 20(2)(d) of the Working Procedures provides that a notice of appeal shall include:
... a brief statement of the nature of the appeal, including the
allegations of errors ... (emphasis added)
80Panel Reports, para. 7.93.

Rule 21(2)(b)(i) of the Working Procedures requires that an appellant's submission shall set out:
... a precise statement of the grounds for the appeal, including the
specific allegations of errors in the issues of law covered in the panel
report ... and the legal arguments in support thereof ... (emphasis
added)
152. In our view, the claims of error by the European Communities set out in paragraphs (c) and
(d) of the Notice of Appeal do not cover the Panel's finding in paragraph 7.93 of the Panel Reports.
The finding in that paragraph explicitly deals with Ecuador's right to invoke Article XIII:2 or XIII:4
of the GATT 1994, given that Ecuador acceded to the WTO after the WTO Agreement entered into
force and after the tariff quota for the BFA countries had been negotiated and inscribed in the EC
Schedule to the GATT 1994. There is no specific mention of this Panel finding in either the Notice
of Appeal or in the main arguments of the appellant's submission by the European Communities.
Therefore, Ecuador had no notice that the European Communities was appealing this finding. For
these reasons, we conclude that the Panel's finding in paragraph 7.93 of the Panel Reports should be
excluded from the scope of this appeal.
B. Multilateral Agreements on Trade in Goods
1. Agreement on Agriculture
153. The European Communities raises the question whether the market access concessions for
agricultural products made by the European Communities pursuant to the Agreement on Agriculture
prevail over Article XIII of the GATT 1994. The European Communities maintains that this result
necessarily follows from the meaning and intent of Articles 4.1 and 21.1 of the Agreement on Agriculture.
Accordingly, the European Communities contends that it is permitted with respect to such market access
concessions to act inconsistently with the requirements of Article XIII of the GATT 1994. The Panel
concluded that the Agreement on Agriculture does not permit the European Communities to act
inconsistently with the requirements of Article XIII of the GATT 1994.
154. The market access concessions for agricultural products that were made in the Uruguay Round
of multilateral trade negotiations are set out in Members' Schedules annexed to the Marrakesh Protocol,
and are an integral part of the GATT 1994. By the terms of the Marrakesh Protocol, the Schedules

are "Schedules to the GATT 1994", and Article II:7 of the GATT 1994 provides that "Schedules annexed
to this Agreement are hereby made an integral part of Part I of this Agreement". With respect to
concessions contained in the Schedules annexed to the GATT 1947, the panel in United States -
Restrictions on Importation of Sugar ("United States - Sugar Headnote") found that:
... Article II permits contracting parties to incorporate into their
Schedules acts yielding rights under the General Agreement but not
acts diminishing obligations under that Agreement.81
This principle is equally valid for the market access concessions and commitments for agricultural
products contained in the Schedules annexed to the GATT 1994. The ordinary meaning of the term
"concessions" suggests that a Member may yield rights and grant benefits, but it cannot diminish its
obligations.82 This interpretation is confirmed by paragraph 3 of the Marrakesh Protocol, which
provides:
The implementation of the concessions and commitments contained
in the schedules annexed to this Protocol shall, upon request, be subject
to multilateral examination by the Members. This would be without
prejudice to the rights and obligations of Members under Agreements
in Annex 1A of the WTO Agreement. (emphasis added)
155. The question remains whether the provisions of the Agreement on Agriculture allow market
access concessions on agricultural products to deviate from Article XIII of the GATT 1994. The
preamble of the Agreement on Agriculture states that it establishes "a basis for initiating a process of
reform of trade in agriculture" and that this reform process "should be initiated through the negotiation
of commitments on support and protection and through the establishment of strengthened and more
operationally effective GATT rules and disciplines". The relationship between the provisions of the
GATT 1994 and of the Agreement on Agriculture is set out in Article 21.1 of the Agreement on
Agriculture:
The provisions of GATT 1994 and of other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement shall apply subject
to the provisions of this Agreement.
81Adopted 22 June 1989, BISD 36S/331, para. 5.2.
82Ibid.

Therefore, the provisions of the GATT 1994, including Article XIII, apply to market access commitments
concerning agricultural products, except to theextent that theAgreement on Agriculturecontains specific
provisions dealing specifically with the same matter.
156. Article 4.1 of the Agreement on Agriculture provides as follows:
Market access concessions contained in Schedules relate to bindings
and reductions of tariffs, and to other market access commitments as
specified therein.
In our view, Article 4.1 does more than merely indicate where market access concessions and
commitments for agricultural products are to be found. Article 4.1 acknowledges that significant, new
market access concessions, in the form of new bindings and reductions of tariffs as well as other market
access commitments (i.e. those made as a result of the tariffication process), were made as a result
of the Uruguay Round negotiations on agriculture and included in Members' GATT 1994 Schedules.
These concessions are fundamental to the agricultural reform process that is a fundamental objective
of the Agreement on Agriculture.
157. That said, we do not see anything in Article 4.1 to suggest that market access concessions and
commitments made as a result of the Uruguay Round negotiations on agriculture can be inconsistent
with the provisions of Article XIII of the GATT 1994. There is nothing in Articles 4.1 or 4.2, or
in any other article of the Agreement on Agriculture, that deals specifically with the allocation of tariff
quotas on agricultural products. If the negotiators had intended to permit Members to act inconsistently
with Article XIII of the GATT 1994, they would have said so explicitly. The Agreement on Agriculture
contains several specific provisions dealing with the relationship between articles of the Agreement
on Agriculture and the GATT 1994. For example, Article 5 of the Agreement on Agriculture allows
Members to impose special safeguards measures that would otherwise be inconsistent with Article XIX
of the GATT 1994 and with the Agreement on Safeguards. In addition, Article 13 of the Agreement
on Agriculture provides that, during the implementation period for that agreement, Members may not
bring dispute settlement actions under either Article XVI of the GATT 1994 or Part III of the Agreement
on Subsidies and Countervailing Measures for domestic support measures or export subsidy measures
that conform fully with the provisions of the Agreement on Agriculture. With these examples in mind,
we believe it is significant that Article 13 of the Agreement on Agriculture does not, by its terms, prevent

dispute settlement actions relating to the consistency of market access concessions for agricultural
products with Article XIII of the GATT 1994. As we have noted, the negotiators of the Agreement
on Agriculture did not hesitate to specify such limitations elsewhere in that agreement; had they intended
to do so with respect to Article XIII of the GATT 1994, they could, and presumably would, have done
so. We note further that the Agreement on Agriculture makes no reference to the Modalities document83
or to any "common understanding" among the negotiators of the Agreement on Agriculture that the
market access commitments for agricultural products would not be subject to Article XIII of the GATT
1994.
158. For these reasons, we agree with the Panel's conclusion that the Agreement on Agriculture
does not permit the European Communities to act inconsistently with the requirements of Article XIII
of the GATT 1994.
2. Article XIII of the GATT 1994
159. The European Communities raises two legal issues relating to the interpretation of Article XIII
of the GATT 1994. The first is whether the allocation by the European Communities of tariff quota
shares, by agreement and by assignment, to some Members not having a substantial interest in supplying
bananas to the European Communities (including Nicaragua, Venezuela, and certain ACP countries
in respect of traditional and non-traditional exports), but not to other such Members (including
Guatemala), is consistent with Article XIII:1. The second is whether the tariff quota reallocation rules
of the BFA are consistent with the requirements of Article XIII:1 of the GATT 1994.
160. Article XIII of the GATT 1994 requires the non-discriminatory administration of quantitative
restrictions. As provided in paragraph 5, Article XIII also applies to tariff quotas. Article XIII:1 sets
out a basic principle of non-discrimination in the administration of both quantitative restrictions and
tariff quotas. Article XIII:1 stipulates that the importation or exportation of a product of a Member
can only be prohibited or restricted if:
... the importation of the like product of all third countries or the
exportation of the like product to all third countries is similarly
prohibited or restricted.
83Modalities for the Establishment of Specific Binding Commitments Under the Reform Programme, MTN.GNG/MA/W/24,
20 December 1993.

161. In administering quantitative import restrictions or tariff quotas, Members must also observe
the rules in Article XIII:2. The chapeau of Article XIII:2 provides that Members shall:
... aim at a distribution of trade in such product approaching as closely
as possible the shares which the various Members might be expected
to obtain in the absence of such restrictions ...
Article XIII:2(d) provides specific rules for the allocation of tariff quotas among supplying countries,
but these rules pertain only to the allocation of tariff quota shares to Members "having a substantial
interest in supplying the product concerned". Article XIII:2(d) does not provide any specific rules
for the allocation of tariff quota shares to Members not having a substantial interest. Nevertheless,
allocation to Members not having a substantial interest must be subject to the basic principle of
non-discrimination. When this principle of non-discrimination is applied to the allocation of tariff quota
shares to Members not having a substantial interest, it is clear that a Member cannot, whether by
agreement or by assignment, allocate tariff quota shares to some Members not having a substantial
interest while not allocating shares to other Members who likewise do not have a substantial interest.
To do so is clearly inconsistent with the requirement in Article XIII:1 that a Member cannot restrict
the importation of any product from another Member unless the importation of the like product from
all third countries is "similarly" restricted.
162. Therefore, on the first issue raised by the European Communities, we conclude that the Panel
found correctly that the allocation of tariff quota shares, whether by agreement or by assignment, to
some, but not to other, Members not having a substantial interest in supplying bananas to the European
Communities is inconsistent with the requirements of Article XIII:1 of the GATT 1994.
163. The second issue relates to the consistency of the tariff quota reallocation rules of the BFA
with Article XIII:1 of the GATT 1994. Pursuant to these reallocation rules, a portion of a tariff quota
share not used by the BFA country to which that share is allocated may, at the joint request of the
BFA countries, be reallocated to the other BFA countries. These reallocation rules allow the exclusion
of banana-supplying countries, other than BFA countries, from sharing in the unused portions of a
tariff quota share. Thus, imports from BFA countries and imports from other Members are not
"similarly" restricted. We conclude, therefore, that the Panel found correctly that the tariff quota
reallocation rules of the BFA are inconsistent with the requirements of Article XIII:1 of the GATT
1994. Moreover, the reallocation of unused portions of a tariff quota share exclusively to other BFA

countries, and not to other non-BFA banana-supplying Members, does not result in an allocation of
tariff quota shares which approaches "as closely as possible the shares which the various Members
might be expected to obtain in the absence of the restrictions". Therefore, the tariff quota reallocation
rules of the BFA are also inconsistent with the chapeau of Article XIII:2 of the GATT 1994.
3. The Scope of the Lomé Waiver
164. On 9 December 1994, at the request of the European Communities and of the 49 ACP States
that were also GATT contracting parties, the CONTRACTING PARTIES granted the European
Communities a waiver from certain of its obligations under the GATT 1947 with respect to the Lomé
Convention.84 The operative paragraph of this Decision of the CONTRACTING PARTIES reads as
follows:
Subject to the terms and conditions set out hereunder, the provisions
of paragraph 1 of Article I of the General Agreement shall be waived,
until 29 February 2000, to the extent necessary to permit the European
Communities toprovide preferential treatment for products originating
in ACP States as required by the relevant provisions of the Fourth
Lomé Convention, without being required to extend the same
preferential treatment to like products of any other contracting party.
This is the Lomé Waiver. The WTO General Council, acting pursuant to paragraphs 3 and 4 of
Article IX of the WTO Agreement and the provisions of the Understanding in Respect of Waivers of
Obligations under the General Agreement on Tariffs and Trade 1994, decided on 14 October 1996
to extend this waiver until 29 February 2000.85
165. The appeals by the European Communities and the Complaining Parties raise two distinct legal
issues relating to the scope of the Lomé Waiver. The first issue is whether the European Communities
is "required" under the relevant provisions of the Lomé Convention to do what it has done in the
measures at issue in this appeal, that is, to provide duty-free access for all traditional ACP bananas;
to provide duty-free access for 90,000 tonnes of non-traditional ACP bananas; to provide a margin
of tariff preference in the amount of 100 ECU/tonne for all other non-traditional ACP bananas; to
84The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604,
19 December 1994.
85EC - The Fourth ACP-EC Convention of Lomé, Extension of Waiver, Decision of the WTO General Council of 14
October 1996, WT/L/186, 18 October 1996.

allocate tariff quota shares to the traditional ACP States that supplied bananas to the European
Communities before 1991 in the amount of their pre-1991 best-ever export volumes; to allocate tariff
quota shares to some traditional ACP States in excess of their pre-1991 best-ever export volumes to
the European Communities; to allocate tariff quota shares to ACP States exporting non-traditional
ACP bananas; and to maintain the import licensing procedures that are applied by this measure to
imports of third-country and non-traditional ACP bananas.
166. The second issue is whether the Lomé Waiver, which specifically covers violations of Article
I:1 of the GATT 1994, also covers violations of Article XIII with respect to the EC's country-specific
tariff quota allocations for traditional ACP States. We will address these two issues in turn.
(a) What is "required" by the Lomé Convention?
167. The European Communities asserts that the Panel should not have conducted an objective
examination of the requirements of the Lomé Convention, but instead should have deferred to the
"common" EC and ACP views on the appropriate interpretation of the Lomé Convention. This assertion
is without merit. The Panel was correct in stating:
We note that since the GATT CONTRACTING PARTIES incorporated
a reference to the Lomé Convention into the Lomé waiver, the meaning
of the Lomé Convention became a GATT/WTO issue, at least to that
extent. Thus, we have no alternative but to examine the provisions
of the Lomé Convention ourselves in so far as it is necessary to
interpret the Lomé waiver.86
We, too, have no alternative.
168. From the operative paragraph of the Lomé Waiver, it is clear that what is waived is compliance
with only "the provisions of paragraph 1 of Article I of the General Agreement", and it is clear also
that compliance with those provisions is only waived "to the extent necessary" to permit the European
Communities to provide the "preferential treatment" that is "required" by the relevant provisions of
the Lomé Convention. It is equally clear that the use of the term "required" is not accidental.
Originally, the European Communities and the ACP States that were contracting parties to the GATT
1947 requested a waiver that would have allowed the European Communities to grant preferential
86Panel Reports, para. 7.98.

treatment as "foreseen" under the relevant provisions of the Lomé Convention.87 However, the term
"foreseen" was not accepted by the CONTRACTING PARTIES, and was replaced in the text of the
waiver by the more stringent term "required".88 We do not agree with the European Communities
that this is a distinction without a difference.89
169. To determine what is "required" by the Lomé Convention, we must look first at the text of
that Convention and identify the provisions of it that are relevant to trade in bananas. Article 183
of Chapter 2, entitled "Special undertakings on rum and bananas", which is part of the general title
on "Trade Cooperation", and Protocol 5 on Bananas are clearly provisions that specifically concern
trade in bananas. Article 183 reads as follows:
In order to permit the improvement of the conditions under which
bananas originating in the ACP States are produced and marketed, the
Contracting Parties hereby agree to the objectives set out in Protocol 5.
Article 183 does not in itself clarify what is "required" with respect to trade in ACP bananas. Article
183 does, however, refer to Protocol 5, which is an integral part of the Lomé Convention.90 Article
1 of Protocol 5 stipulates:
In respect of its banana exports to the Community markets, no ACP
State shall be placed as regards access to its traditional markets and
its advantages on those markets, in a less favourable situation than in
the past or at present.
The requirements in Protocol 5 clearly apply to "traditional markets" for traditional ACP bananas,
and to nothing more.
87ACP Countries - European Communities, Fourth Lomé Convention, Request for a Waiver, L/7539, 10 October 1994.
88CONTRACTING PARTIES, Fiftieth Session, Summary Record of the First Meeting, 8 December 1994, SR. 50/1,
8 February 1995, p. 13.
89Preferential treatment that is authorized or called for in the Lomé Convention, or reflected in its objectives, may well
be preferential treatment "foreseen" under the Lomé Convention, but it is not necessarily preferential treatment "required"
or made mandatory by the Lomé Convention. Provisions of the Lomé Convention, such as Article 15(a); Article 24, second
indent; Article 135; and Article 167 authorize or call for preferential treatment of ACP products. These provisions elaborate
one of the central objectives of the Lomé Convention -- to promote the expansion of trade and the economic development
of the ACP States. These provisions may "foresee", but do not "require", any preferential treatment.
90Pursuant to Article 368 of the Lomé Convention, protocols annexed to the Convention form an integral part thereof.

170. In addition, the Lomé Convention contains Article 168(2)(a)(ii), which is also relevant to trade
in ACP bananas. Article 168(2)(a)(ii), which is found in the chapter on the "General trade arrangements"
of the Lomé Convention, reads in relevant part as follows:
... the Community shall take the necessary measures to ensure more favourable
treatment than that granted to third countries benefiting from the
most-favoured-nation clause for the same products. (emphasis added)
These "products" include bananas. Article 168(2)(a)(ii) applies to all ACP agricultural products that
come under a common organization of the market and that are subject to import restrictions. Nothing
in Article 168(2)(a)(ii) indicates that bananas are to be excluded from the scope of this provision, either
because the import arrangement for bananas is dealt with elsewhere, or because bananas are not included
in the non-exhaustive list of preferential arrangements under Article 168(2)(a)(ii) that is contained in
Annex XL of the Lomé Convention. Therefore, under Article 168(2)(a)(ii), the European Communities
is required to "take the necessary measures to ensure more favourable treatment than that granted to
third countries benefiting from themost-favoured-nation clause" for all ACP bananas. This requirement
in Article 168(2)(a)(ii) in no way conflicts with Article 1 of Protocol 5, which requires additional
preferential treatment for traditional ACP bananas over and above the preferential treatment for all
ACP bananas that is required by Article 168(2)(a)(ii).91
171. These are the requirements that the Lomé Convention imposes on the European Communities
for trade in ACP bananas. The admittedly difficult legislative task facing the European Communities
was to translate these requirements into appropriate regulations while also transforming the previously
varied, national banana markets of its Member States into a single Community-wide market for bananas.
It is not our task to do this for the European Communities. Our task is to determine whether the
particular regulatory means that the European Communities has chosen to employ, and that are at issue
in this appeal, are in fact means that are "required" by the Lomé Convention. In our view, to be
"required", each of the relevant provisions of the measures at issue in this appeal must be reasonably
necessary to give effect to the relevant obligations imposed on the European Communities by the Lomé
Convention. We shall examine them in turn.
91This interpretation of the relationship between Article 168 and Protocol 5 is confirmed by the ECJ in paragraph 101
of its Judgment of 5 October 1994, Germany v. Council, Case C-280/93, ECR 1994, p. I-4973. The Court stated that "...
the import of bananas from ACP States falls under Article 168(2)(a)(ii) of the Lomé Convention ...", and that Article 1 of
Protocol 5 also applies to traditional ACP bananas.

172. The European Communities grants duty-free access to all traditional ACP bananas. It will
be recalled that Protocol 5 specifies that "no ACP State shall be placed, as regards access to its traditional
markets and its advantages on those markets, in a less favourable situation than in the past or present"
(emphasis added). With respect to traditional ACP bananas, this mandate of Protocol 5 is reinforced
by the additional obligations imposed on the European Communities by Article 168(2)(a)(ii), which,
as we have said, applies to all ACP bananas. Before the creation of a single Community-wide market
for bananas through the enactment of Regulation 404/93, duty-free "access" for their banana exports
was indisputably one of the "advantages" enjoyed by the ACP States. Therefore, in our view, the
duty-free access afforded by the European Communities to all traditional ACP bananas is "required".
173. In addition, the European Communities grants duty-free access to 90,000 tonnes of non-traditional
ACP bananas and a margin of tariff preference in the amount of 100 ECU/tonne to all other non-
traditional ACP bananas. The out-of-quota tariff rate for non-traditional ACP bananas is 693 ECU/tonne;
the out-of-quota tariff rate for third-country bananas is 793 ECU/tonne.92 Protocol 5 does not apply
here; Protocol 5 does not apply to non-traditional ACP bananas. However, the obligation imposed
on the European Communities by Article 168(2)(a)(ii) to "take the necessary measures to ensure more
favourable treatment" for all ACP bananas "than that granted to third countries benefiting from the
most-favoured-nation clause for the same product" does apply. The tariff rates applied to imports of
bananas from third countries benefitting from MFN treatment are an in-quota tariff rate of 75 ECU/tonne
and, as already noted above, an out-of-quota tariff rate of 793 ECU/tonne. Both the duty-free access
afforded to the 90,000 tonnes of non-traditional ACP bananas, imported in-quota, and the margin of
tariff preference in the amount of 100 ECU/tonne afforded to all other non-traditional ACP bananas
by the European Communities are clearly "more favourable treatment" than that afforded by the European
Communities to bananas from third countries benefitting from MFN treatment. Therefore, the remaining
issue under Article 168(2)(a)(ii) iswhether theparticular measures chosen bytheEuropean Communities
to fulfil the obligations in that Article to provide "more favourable treatment" to non-traditional ACP
bananas are also in fact "necessary" measures, as specified in that Article. In our view, they are.
Article 168(2)(a)(ii) does not say that only one kind of measure is "necessary". Likewise, that Article
does not say what kind of measure is "necessary". Conceivably, the European Communities might
have chosen some other "more favourable treatment" in the form of a tariff preference for non-traditional
ACP bananas. But it seems to us that this particular measure can, in the overall context of the transition
from individual national markets to a single Community-wide market for bananas, be deemed to be
"necessary". Therefore, in our view, both the duty-free access granted by the European Communities
92Out-of-quota tariff rates for shipments in 1996-97. See Panel Reports, para. 3.7.

to the 90,000 tonnes of non-traditional ACP bananas and the margin of tariff preference in the amount
of 100 ECU/tonne granted to all other non-traditional ACP bananas are "required" by the Lomé
Convention.
174. The European Communities also allocates tariff quota shares to the traditional ACP States that
supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever
export volumes. With respect to these allocations, it will be recalled that Article 1 of Protocol 5 obliges
the European Communities to ensure that "[i]n respect of its banana exports to the Community markets,
no ACP State shall be placed as regards access to its traditional markets and its advantages on those
markets, in a less favourable situation than in the past or at present". We note here that the European
Court of Justice has ruled in its Judgment of 5 October 1994 in Germany v. Council that pursuant to
Article 1 of Protocol 5:
... the Community is obliged to permit the access, free of customs duty,
only of the quantities of bananas actually imported ‘ at zero duty’ in
the best year before 1991 from each ACP State which is a traditional
supplier.93 (emphasis added)
Thus, the pivotal date is 1991. To be sure, the European Communities might have used another basis
for determining the tariff quota shares allotted to the traditional ACP States that supplied bananas to
the European Communities before 1991. For example, the European Communities might have chosen
to use a fixed reference period of 10, or perhaps 20, years. The European Communities might also
have chosen an average export volume rather than the best-ever export volumes that was in fact chosen.
However, some standard was clearly needed. The standard chosen by the European Communities does
have a legitimate basis in the history of the banana trade of the European Communities with the
traditional ACP States. Therefore, we are persuaded that the allocation of tariff quota shares for
traditional ACP bananas chosen by the European Communities is "required".
175. The European Communities also allocates tariff quota shares to some traditional ACP States
in excess of their pre-1991 best-ever export volumes so as to reflect potential increases in trade in the
future as a result of investments made in banana production in those ACP States.94 In our view, tariff
94Neither the Lomé Convention's provisions on trade development (Articles 135-138), nor its provisions on development
finance cooperation (Articles 220-327), can be interpreted as requiring that elements other than the best-ever levels (e.g.
investment decisions) are to be taken into account in the determination of the extent of the preferential treatment.

quota shares in excess of the pre-1991 best-ever export volumes, which are designed to reflect potential
increases in trade in the future, are not reasonably necessary to guarantee that these traditional ACP
States are not placed, as regards market access and market advantages, in a less favourable situation
than at any time before 1991. These traditional ACP States could not have enjoyed any pre-1991 market
access or advantages with respect to future quantities of bananas. This would be different only if,
before 1991, these ACP States had a guarantee in any of their traditional markets that they would be
able to export quantities of bananas that might in the future result from investments they made. There
was, however, no such guarantee. Finally, it is clear that any future increases in trade as a result of
investments are highly speculative. For these reasons, we conclude that the allocation of tariff quota
shares in excess of pre-1991 best-ever export volumes to reflect investments is not "required" by the
Lomé Convention.
176. The European Communities also allocates country-specific tariff quota shares to ACP States
exporting non-traditional ACP bananas. It will be recalled that the more expansive requirement of
Article 1 of Protocol 5 does not apply to non-traditional ACP bananas. Only the more limited
requirement of Article 168(2)(a)(ii), to take "necessary measures to ensure more favourable treatment"
to certain ACP agricultural products, including bananas, applies to non-traditional ACP bananas.
However, in our view, this obligation to afford "more favourable treatment" to non-traditional ACP
bananas could be met without allocating tariff quota shares. Therefore, the allocation of tariff quota
shares to ACP States exporting non-traditional ACP bananas is not "required".
177. The final relevant provisions of the measures at issue that must be addressed are the import
licensing procedures that are applied to third-country and non-traditional ACP bananas. We have
concluded that certain tariff preferences for ACP bananas are "required" by the Lomé Convention.
We have also concluded that the tariff quota allocations to traditional ACP States in the amount of
their pre-1991 best-ever export volumes is "required". It may be that, in order to do all that is "required"
by the Lomé Convention, the European Communities should do something more. Conceivably, this
could be some form of import licensing arrangement. However, the issue before us is not whether
some hypothetical licensing arrangement that might be enacted by the European Communities is
"required" by the Lomé Convention. The issue before us is whether the specific provisions of these
import licensing procedures that have in fact been enacted by the European Communities, and are at
issue in this appeal, are "required". The import licensing procedures at issue here create advantages
for favoured EC operators that market traditional ACP bananas, by providing those operators with

quota rents that, even the European Communities acknowledges, amount to "cross-subsidization".95
We see nothing in any of the relevant provisions of the Lomé Convention that can in any way be
construed to "require" such "cross-subsidization". Therefore, in our view, these import licensing
procedures are not "required".
178. Thus, of the relevant provisions of the measures at issue in this appeal, we conclude that the
European Communities is "required" under the relevant provisions of the Lomé Convention to: provide
duty-free access for all traditional ACP bananas; provide duty-free access for 90,000 tonnes of non-
traditional ACP bananas; provide a margin of tariff preference in the amount of 100 ECU/tonne for
all other non-traditional ACP bananas; and allocate tariff quota shares to the traditional ACP States
that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever
export volumes. We conclude also that the European Communities is not "required" under the relevant
provisions of the Lomé Convention to: allocate tariff quota shares to some traditional ACP States in
excess of their pre-1991 best-ever export volumes; allocate tariff quota shares to ACP States exporting
non-traditional ACP bananas; or maintain the import licensing procedures that are applied to third country
and non-traditional ACP bananas. We therefore uphold the findings of the Panel in paragraphs 7.103,
7.204 and 7.136 of the Panel Reports.
(b) What is covered by the Lomé Waiver?
179. Having determined what is "required" by the Lomé Convention, we must next determine what
is covered by the Lomé Waiver.
180. Specifically, we must determine whether the Lomé Waiver applies not only to breaches of
Article I:1 of the GATT 1994, but also to breaches of Article XIII of the GATT 1994, with respect
to the EC's country-specific tariff quota allocations for traditional ACP States.
181. The operative paragraph of the Lomé Waiver reads in relevant part:
Subject to the terms and conditions set out hereunder, the provisions
of paragraph 1 of Article I of the General Agreement shall be waived,
until 29 February 2000, to the extent necessary to permit the European
Communities toprovide preferential treatment for products originating
95Commission of the European Communities, Report on the Operation of the Banana Regime, 11 October 1995, SEC
(95) 1565 final, p. 18. See also Commission of the European Communities, Impact of Cross-subsidization within the Banana
Regime, Note for Information, Ecuador's first submission to the Panel, Exhibit 11.

in ACP States as required by the relevant provisions of the Fourth
Lomé Convention, ...96 (emphasis added)
182. The Panel, nevertheless, concluded that the Lomé Waiver should be interpreted so as to waive
not only compliance with the obligations of Article I:1, but also compliance with the obligations of
Article XIII of the GATT 1994. The Panel based its conclusion on the need to give "real effect"97
to the Lomé Waiver and on the "close relationship"98 between Articles I and XIII:1.
183. We disagree with the Panel's conclusion. The wording of the Lomé Waiver is clear and
unambiguous. By its precise terms, it waives only "the provisions of paragraph 1 of Article I of the
General Agreement ... to the extent necessary" to do what is "required" by the relevant provisions
of the Lomé Convention. The Lomé Waiver does not refer to, or mention in any way, any other
provision of the GATT 1994 or of any other covered agreement. Neither the circumstances surrounding
the negotiation of the Lomé Waiver, nor the need to interpret it so as to permit it to achieve its
objectives, allow us to disregard the clear and plain wording of the Lomé Waiver by extending its scope
to include a waiver from the obligations under Article XIII. Moreover, although Articles I and XIII
of the GATT 1994 are both non-discrimination provisions, their relationship is not such that a waiver
from the obligations under Article I implies a waiver from the obligations under Article XIII.
184. The Panel's interpretation of the Lomé Waiver as including a waiver from the GATT 1994
obligations relating to the allocation of tariff quotas is difficult to reconcile with the limited GATT
practice in the interpretation of waivers, the strict disciplines to which waivers are subjected under
the WTO Agreement, the history of the negotiations of this particular waiver and the limited GATT
practice relating to granting waivers from the obligations of Article XIII.
185. There is little previous GATT practice on the interpretation of waivers. In the panel report
in United States - Sugar Waiver, the panel stated:
The Panel took into account in its examination that waivers are granted
according to Article XXV:5 only in "exceptional circumstances", that
they waive obligations under the basic rules of the General Agreement
96The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604,
19 December 1994.
97Panel Reports, para. 7.106.
98Ibid., para. 7.107.

and that their terms and conditions consequently have to be interpreted
narrowly.99
Although the WTO Agreement does not provide any specific rules on the interpretation of waivers,
Article IX of the WTO Agreement and the Understanding in Respect of Waivers of Obligations under
the General Agreement on Tariffs and Trade 1994, which provide requirements for granting and renewing
waivers, stress the exceptional nature of waivers and subject waivers to strict disciplines. Thus, waivers
should be interpreted with great care.
186. With regard to the history of the negotiations of the Lomé Waiver, we have already noted that
the CONTRACTING PARTIES limited the scope of the waiver by replacing "preferential treatment
foreseen by the Lomé Convention" with "preferential treatment required by the Lomé Convention"
(emphasis added). This change clearly suggests that the CONTRACTING PARTIES wanted to restrict
the scope of the Lomé Waiver.
187. Finally, we note that between 1948 and 1994, the CONTRACTING PARTIES granted only
one waiver of Article XIII of the GATT 1947.100 In view of the truly exceptional nature of waivers
from the non-discrimination obligations under Article XIII, it is all the more difficult to accept the
proposition that a waiver that does not explicitly refer to Article XIII would nevertheless waive the
obligations of that Article. If the CONTRACTING PARTIES had intended to waive the obligations
of the European Communities under Article XIII in the Lomé Waiver, they would have said so explicitly.
188. Thus, we conclude that the Panel erred in finding that "the Lomé waiver waives [the]
inconsistency with Article XIII:1 to the extent necessary to permit the EC to allocate shares of its banana
tariff quota to specific traditional ACP banana supplying countries in an amount not exceeding their
pre-1991 best-ever exports to the EC".101
4. The "Separate Regimes" Argument
189. It has been argued by the European Communities that there are two separate EC import regimes
for bananas, the preferential regime for traditional ACP bananas and the erga omnes regime for all
99Adopted 7 November 1990, BISD 37S/228, para. 5.9.
100Waiver Granted in Connection with the European Coal and Steel Community, Decision of 10 November 1952, BISD
1S/17, para. 3.
101Panel Reports, para. 7.110.

other imports of bananas. Submissions made by the European Communities raise the question whether
this is of any relevance for the application of the non-discrimination provisions of the GATT 1994
and the other Annex 1A agreements. The European Communities argues, in particular, that the non-
discrimination obligations of Articles I:1, X:3(a) and XIII of the GATT 1994 and Article 1.3 of the
Licensing Agreement, apply only within each of these separate regimes. The Panel found that the
European Communities has only one import regime for purposes of applying the non-discrimination
provisions of the GATT 1994 and Article 1.3 of the Licensing Agreement.
190. The issue here is not whether the European Communities is correct in stating that two separate
import regimes exist for bananas, but whether the existence of two, or more, separate EC import regimes
is of any relevance for the application of the non-discrimination provisions of the GATT 1994 and
the other Annex 1A agreements. The essence of the non-discrimination obligations is that like products
should be treated equally, irrespective of their origin. As no participant disputes that all bananas are
like products, the non-discrimination provisions apply to all imports of bananas, irrespective of whether
and how a Member categorizes or subdivides these imports for administrative or other reasons. If,
by choosing a different legal basis for imposing import restrictions, or by applying different tariff rates,
a Member could avoid the application of the non-discrimination provisions to the imports of like products
from different Members, the object and purpose of the non-discrimination provisions would be defeated.
It would be very easy for a Member to circumvent the non-discrimination provisions of the GATT
1994 and the other Annex 1A agreements, if these provisions apply only within regulatory regimes
established by that Member.
191. Non-discrimination obligations apply to all imports of like products, except when these obligations
are specifically waived or are otherwise not applicable as a result of the operation of specific provisions
of the GATT 1994, such as Article XXIV.102 In the present case, the non-discrimination obligations
of the GATT 1994, specifically Articles I:1 and XIII103, apply fully to all imported bananas irrespective
of their origin, except to the extent that these obligations are waived by the Lomé Waiver. We,
therefore, uphold the findings of the Panel104 that the non-discrimination provisions of the GATT 1994,
specifically, Articles I:1 and XIII, apply to the relevant EC regulations, irrespective if there is one
or more "separate regimes" for the importation of bananas.
102Panel on Newsprint, adopted 20 November 1984, BISD 31S/114.
103We do not agree with the Panel's findings that Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing
Agreement preclude the imposition of different import licensing systems on like products when imported from different Members.
See our Findings and Conclusions, paras. (l) and (m).
104Panel Reports, paras. 7.82 and 7.167.

5. Licensing Agreement
192. The appeal by the European Communities raises two legal issues relating to the interpretation
and application of the Licensing Agreement. The first is whether the Licensing Agreement applies to
import licensing procedures for tariff quotas. The second is whether the requirement of "neutrality
in application" in Article 1.3 of the Licensing Agreement precludes the imposition of different import
licensing systems on like products when imported from different Members.
193. With respect to the first issue, "import licensing" is defined in Article 1.1 of the Licensing
Agreement as follows:
For the purpose of thisAgreement, import licensing isdefined as administrative
procedures used for the operation of import licensing régimes requiring the
submission of an application or other documentation (other than that required
for customs purposes) to the relevant administrative body as a prior condition
for importation into the customs territory of the importing Member. (emphasis
added)
Although the precise terms of Article 1.1 do not say explicitly that licensing procedures for tariff quotas
are within the scope of the Licensing Agreement, a careful reading of that provision leads inescapably
to that conclusion. The EC import licensing procedures require "the submission of an application"
for import licences as "a prior condition for importation" of a product at the lower, in-quota tariff
rate.105 The fact that the importation of that product is possible at a high out-of-quota tariff rate without
a licence does not alter the fact that a licence is required for importation at the lower in-quota tariff
rate.106
194. We note that Article 3.2 of the Licensing Agreement provides that:
Non-automatic licensing shall not have trade-restrictive or -distortive
effects on imports additional to those caused by the imposition of the
restriction. (emphasis added)
105See Commission Regulation (EEC) No. 1442/93 of 10 June 1993 laying down detailed rules for the application of
the arrangements for importing bananas into the Community, which explicitly requires operators to submit licence applications.
Official Journal No. L 142, 12 June 1993, p. 6.
106In this case, the out-of-quota tariff rate on bananas is prohibitively high and, therefore, importation of bananas without
a licence is in fact only a theoretical possibility. See B. Borrell, EU Bananarama III, The World Bank, Policy Research
Working Paper 1386, December 1994, p. 16.

We note also that Article 3.3 of the Licensing Agreement reads:
In the case of licensing requirements for purposes other than the
implementation of quantitative restrictions, Members shall publish
sufficient information for other Members and traders to know the basis
for granting and/or allocating licences. (emphasis added)
We see no reason to exclude import licensing procedures for the administration of tariff quotas from
the scope of the Licensing Agreement on the basis of the use of the term "restriction" in Article 3.2.
We agree with the Panel that, in the light of the language of Article 3.3 of the Licensing Agreement
and the introductory words of Article XI of the GATT 1994107, the term "restriction" as used in Article
3.2 should not be interpreted to encompass only quantitative restrictions, but should be read also to
include tariff quotas.108
195. For these reasons, we agree with the Panel that import licensing procedures for tariff quotas
are within the scope of the Licensing Agreement.
196. With respect to the second issue, the Panel found that Article 1.3 of the Licensing Agreement
"preclude[s] the imposition of one system of import licensing procedures in respect of a product
originating in certain Members and a different system of import licensing procedures on the same product
originating in other Members".109
197. Article 1.3 of the Licensing Agreement reads as follows:
The rules for import licensing procedures shall be neutral in application
and administered in a fair and equitable manner. (emphasis added)
By its very terms, Article 1.3 of the Licensing Agreement clearly applies to the application and
administration of import licensing procedures, and requires that this application and administration
be "neutral ... fair and equitable". Article 1.3 of the Licensing Agreement does not require the import
licensing rules, as such, to be neutral, fair and equitable. Furthermore, the context of Article 1.3 --
including the preamble, Article 1.1 and, in particular, Article 1.2 of the Licensing Agreement -- supports
107The introductory words of Article XI of the GATT 1994 read as follows: "No prohibitions or restrictions other than
duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures ...".
108Panel Reports, para. 7.154.
109Panel Reports, WT/DS27/R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.261.

the conclusion that Article 1.3 does not apply to import licensing rules. Article 1.2 provides, in relevant
part, as follows:
Members shall ensure that the administrative procedures used to
implement import licensingrégimes are in conformity withthe relevant
provisions of GATT 1994 ... as interpreted by this Agreement, ...
As a matter of fact, none of the provisions of the Licensing Agreement concerns import licensing rules,
per se. As is made clear by the title of the Licensing Agreement, it concerns import licensing procedures.
The preamble of the Licensing Agreement indicates clearly that this agreement relates to import licensing
procedures and their administration, not to import licensing rules. Article 1.1 of the Licensing Agreement
defines its scope as the administrative procedures used for the operation of import licensing regimes.
198. We conclude, therefore, that the Panel erred in finding that Article 1.3 of the Licensing
Agreement precludes the imposition of different import licensing systems on like products when imported
from different Members.
6. Article X:3(a) of the GATT 1994
199. The European Communities raises two legal issues relating to the application and interpretation
of Article X:3(a) of the GATT 1994. The first issue is whether the requirements of uniformity,
impartiality and reasonableness set out in Article X:3(a) preclude the imposition of different import
licensing systems on like products imported from different Members. The second issue is whether
both Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement apply to the EC
import licensing procedures.
200. On the first issue, the Panel found that the application of operator category rules and activity
functionrules "in respect of theimportation of third-country andnon-traditional ACP bananas atin-quota
tariff rates, in the absence of the application of such rules to traditional ACP imports, is inconsistent
with the requirements of Article X:3(a) of GATT".110 In coming to this conclusion, the Panel relied
on a 1968 Note by the GATT Director-General, which asserted that Article X:3(a) precludes the
application of one set of regulations and procedures to some contracting parties and a different set to
110Panel Reports, para. 7.212, with regard to operator category rules; and WT/DS27/R/ECU, WT/DS27/R/GTM,
WT/DS27/R/HND and WT/DS27/R/MEX, para. 7.231, with regard to activity function rules.

others.111 However, the European Communities correctly pointed out during the Panel proceedings
that the 1968 Note cannot be considered as an authoritative interpretation of GATT rules because it
was never endorsed by a formal decision of the CONTRACTING PARTIES.
Article X:3(a) of the GATT 1994 provides:
Each Member shall administer in a uniform, impartial and reasonable
manner all its laws, regulations, decisions and rulings of the kind
described in paragraph 1 of this Article.
The text of Article X:3(a) clearly indicates that the requirements of "uniformity, impartiality and
reasonableness" do not apply to the laws, regulations, decisions and rulings themselves, but rather to
the administration of those laws, regulations, decisions and rulings. The context of Article X:3(a)
within Article X, which is entitled "Publication and Administration of Trade Regulations", and a reading
of the other paragraphs of Article X, make it clear that Article X applies to the administration of laws,
regulations, decisions and rulings. To the extent that the laws, regulations, decisions and rulings
themselves are discriminatory, they can be examined for their consistency with the relevant provisions
of the GATT 1994.
201. We conclude, therefore, that the Panel erred in finding that Article X:3(a) of the GATT 1994
precludes the imposition of one system of import licensing procedures on a product originating in certain
Members and a different system on the same product originating in other Members.
202. With respect to the second issue, the Panel found that the relevant provisions of the GATT
1994 and the Licensing Agreement apply to the EC import licensing procedures for bananas112, and
then proceeded to examine the consistency of the import licensing procedures with Article X:3(a) of
the GATT 1994. Having found that the operator category rules and the activity function rules were
inconsistent with Article X:3(a) of the GATT 1994, the Panel, referring to the ruling of the Appellate
Body in United States - Shirts and Blouses from India113, concluded that it was not necessary to address
whether the EC import licensing procedures were also inconsistent with the Licensing Agreement.114
111See Agreement on Implementation of Article VI, Note by the GATT Director-General of 29 November 1968, L/3149.
112Panel Reports, para. 7.163.
113WT/DS33/AB/R, adopted 23 May 1997, p. 19. The Appellate Body stated that "[a] panel need only address those
claims which must be addressed in order to resolve the matter in issue in the dispute".
114Panel Reports, paras. 7.213 and 7.232.

203. Article X:3(a) of the GATT 1994 applies to all "laws, regulations, decisions and rulings of
the kind described in paragraph 1" of Article X, which includes those, inter alia, "pertaining to ...
requirements, restrictions or prohibitions on imports ...". The EC import licensing procedures are
clearly regulations pertaining to requirements on imports and, therefore, are within the scope of Article
X:3(a) of the GATT 1994. As we have concluded, the Licensing Agreement also applies to the EC
import licensing procedures. We agree, therefore, with the Panel that both the Licensing Agreement
and the relevant provisions of the GATT 1994, in particular, Article X:3(a), apply to the EC import
licensing procedures. In comparing the language of Article 1.3 of the Licensing Agreement and of
Article X:3(a) of the GATT 1994, we note that there are distinctions between these two articles. The
former provides that "the rules for import licensing procedures shall be neutral in application and
administered in a fair and equitable manner". The latter provides that each Member shall "administer
in a uniform, impartial and reasonable manner all its laws, regulations, decisions or rulings of the kind
described in paragraph 1 of [Article X]".
We attach no significance to the difference in the phrases "neutral in application and administered in
a fair and equitable manner" in Article 1.3 of the Licensing Agreement and "administer in a uniform,
impartial and reasonable manner" in Article X:3(a) of the GATT 1994. In our view, the two phrases
are, for all practical purposes, interchangeable. We agree, therefore, with the Panel's interpretation
that the provisions of Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement
have identical coverage.115
204. Although Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement both
apply, the Panel, in our view, should have applied the Licensing Agreement first, since this agreement
deals specifically, and in detail, with the administration of import licensing procedures. If the Panel
had done so, then there would have been no need for it to address the alleged inconsistency with Article
X:3(a) of the GATT 1994.
7. Article I:1 of the GATT 1994
205. The appeal by the European Communities raises two legal issues relating to the interpretation
of Article I:1 of the GATT 1994. The first issue is whether the activity function rules of the EC import
licensing procedures are consistent with Article I:1 of the GATT 1994, in the absence of the application
of such rules to imports of traditional ACP bananas. The second issue is whether the EC requirement
115Panel Reports, WT/DS27/R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.261.

to match import licences with export certificates for bananas exported from BFA countries is consistent
with the requirements of Article I:1 of the GATT 1994.
206. On the first issue, the Panel found that the procedural and administrative requirements of the
activity function rules for importing third-country and non-traditional ACP bananas differ from, and
go significantly beyond, those required for importing traditional ACP bananas. This is a factual finding.
Also, a broad definition has been given to the term "advantage" in Article I:1 of the GATT 1994 by
the panel in United States - Non-Rubber Footwear.116 It may well be that there are considerations of
EC competition policy at the basis of the activity function rules. This, however, does not legitimize
the activity function rules to the extent that these rules discriminate among like products originating
from different Members. For these reasons, we agree with the Panel that the activity function rules
are an "advantage" granted to bananas imported from traditional ACP States, and not to bananas imported
from other Members, within the meaning of Article I:1. Therefore, we uphold the Panel's finding
that the activity function rules are inconsistent with Article I:1 of the GATT 1994.
207. On the second issue, the Panel found that the EC export certificate requirement is inconsistent
with the requirements of Article I:1 of the GATT 1994. The EC export certificate requirement accords
BFA banana suppliers, which are initial holders of export certificates, preferential bargaining leverage
to extract a share of the quota rents for their fruit exported to the European Communities, and gives
them a competitive advantage over other Latin American suppliers.117 The EC export certificate
requirement thus provides an advantage to some Members (i.e. the BFA countries) that is not given
to other Members. Therefore, we agree with the Panel that the export certificate requirement is
inconsistent with Article I:1 of the GATT 1994.
8. Article III of the GATT 1994
208. The appeal of the European Communities raises two legal issues with respect to the application
and interpretation of Article III of the GATT 1994. The first issue is whether the EC procedures and
requirements for the distribution of licences for importing bananas among eligible "operators" within
the European Communities are measures within the scope of Article III:4 of the GATT 1994. The
second issue is whether the issuance of hurricane licences exclusively to EC producers and producer
116Adopted 19 June 1992, BISD 39S/128, para. 6.9.
117The European Communities recognized the commercial value of the export certificates in the Commission's Report
on the ECBanana Regime, VI/5671/94, July 1994, p. 12, in which it indicated that export certificates helped the BFA countries
"share in the economic benefits of the tariff quota".

organizations, or to operators including or directly representing them, is inconsistent with Article III:4
of the GATT 1994.
209. On the first issue, the Panel found that, although licences are a condition for the importation
of bananas into the European Communities at in-quota tariff rates:
... the administration of licence distribution procedures and the
eligibility criteria for the allocation of licences to operators form part
of the EC's internal legislation and are "laws, regulations and
requirements affecting the internal sale, ..." of imported bananas in
the meaning of Article III:4.118
210. Article III:4 of the GATT 1994 provides in relevant part:
The products of the territory of any Member imported into the territory
of any other Member shall be accorded treatment no less favourable
than that accorded to like products of national origin in respect of all
laws, regulations and requirements affecting their internal sale, offering
for sale, purchase, transportation, distribution or use ...
211. At issue in this appeal is not whether any import licensing requirement, as such, is within the
scope of Article III:4, but whether the EC procedures and requirements for the distribution of import
licences for imported bananas among eligible operators within the European Communities are within
the scope of this provision. The EC licensing procedures and requirements include the operator category
rules, under which 30 per cent of the import licences for third-country and non-traditional ACP bananas
are allocated to operators that market EC or traditional ACP bananas, and the activity function rules,
under which Category A and B licences are distributed among operators on the basis of their economic
activities as importers, customs clearers or ripeners. These rules go far beyond the mere import licence
requirements needed to administer the tariff quota for third-country and non-traditional ACP bananas
or Lomé Convention requirements for the importation of bananas. These rules are intended, among
other things, to cross-subsidize distributors of EC (and ACP) bananas and to ensure that EC banana
ripeners obtain a share of the quota rents.119 As such, these rules affect "the internal sale, offering
118Panel Reports, para. 7.178.
119EC's appellant's submission, para. 325 and the EC's oral statement, para. 70. See also Commission of the European
Communities, Report on the Operation of the Banana Regime, 11 October 1995, SEC (95) 1565 final, p. 18; and Commission
of the European Communities, Impact of Cross-subsidization within the Banana Regime, Note for Information, Ecuador's
first submission to the Panel, Exhibit 11.

for sale, purchase, ..." within the meaning of Article III:4, and therefore fall within the scope of this
provision. Therefore, we agree with the conclusion of the Panel on this point.
212. On the second issue, the Panel found that the EC practice with respect to hurricane licences
may create an incentive for operators to purchase bananas of EC origin for marketing in the European
Communities, and that thispractice is an advantage accorded to bananas of EC-origin that isnot accorded
to bananas of third-country origin. The Panel concluded, therefore, that the issuance of hurricane licences
exclusively to EC producers and producer organizations, or operators including or directly representing
them, is inconsistent with the requirements of Article III:4 of the GATT 1994.
213. Hurricane licences allow for additional imports of third-country (and non-traditional ACP)
bananas at the lower in-quota tariff rate. Although their issuance results in increased exports from
those countries, we note that hurricane licences are issued exclusively to EC producers and producer
organizations, or to operators including or directly representing them. We also note that, as a result
of the EC practice relating to hurricane licences, these producers, producer organizations or operators
can expect, in the event of a hurricane, to be compensated for their losses in the form of "quota rents"
generated by hurricane licences. Thus, the practice of issuing hurricane licences constitutes an incentive
for operators to market EC bananas to the exclusion of third-country and non-traditional ACP bananas.
This practice therefore affects the competitive conditions in the market in favour of EC bananas. We
do not dispute the right of WTO Members to mitigate or remedy the consequences of natural disasters.
However, Members should do so in a manner consistent with their obligations under the GATT 1994
and the other covered agreements.
214. For these reasons, we agree with the Panel that the EC practice of issuing hurricane licences
is inconsistent with Article III:4 of the GATT 1994.
215. We note that, in coming to this conclusion, the Panel found:
However, before deciding whether the practice of issuing hurricane
licences is inconsistent with Article III:4, we need to consider that
Article III:1 is a general principle that informs the rest of Article III,
as the Appellate Body has recently stated. Since Article III:1 constitutes
part of the context of Article III:4, it must be taken into account in
our interpretation of the latter. Article III:1 articulates a general
principle that internal measures should not be applied so as to afford
protection to domestic production. According to the Appellate Body,
the protective application of a measure can most often be discerned
from the design, the architecture, and the revealing structure of the

measure. We consider that the design, architecture and structure of
the EC practice of issuing hurricane licences all indicate that the
measure is applied so as to afford protection to EC (and ACP)
producers.120
216. The Panel has misinterpreted what we said in the Appellate Body Report in Japan - Alcoholic
Beverages.121 We were dealing in that case with allegations of inconsistencies with Article III:2, first
and second sentences, of the GATT 1994. It is true that at page 18 of that Report, we stated that "Article
III:1 articulates a general principle" which "informs the rest of Article III". However, we also said
in that Report that Article III:1 "informs the first sentence and the second sentence of Article III:2
in different ways".122 With respect to Article III:2, first sentence, we noted that it does not refer
specifically to Article III:1. We stated:
This omission must have some meaning. We believe the meaning is
simply that the presence of a protective application need not be
established separately from the specific requirements that are included
in the first sentence in order to show that a tax measure is inconsistent
with the general principle set out in the first sentence.123
With respect to Article III:2, second sentence, we found:
Unlike that of Article III:2, first sentence, the language of Article III:2,
second sentence, specifically invokes Article III:1. The significance
of this distinction lies in the fact that whereas Article III:1 acts
implicitly in addressing the two issues that must be considered in
applying the first sentence, it acts explicitly as an entirely separate issue
that must be addressed along with two other issues that are raised in
applying the second sentence.124
The same reasoning must be applied to the interpretation of Article III:4. Article III:4 does not
specifically refer to Article III:1. Therefore, a determination of whether there has been a violation
of Article III:4 does not require a separate consideration of whether a measure "afford[s] protection
to domestic production".
120See paragraph 7.249 of the Panel Reports (footnotes deleted). See also a similar finding in paragraph 7.181 relating
to the operator category rules.
121WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996.
122Ibid., p. 18.
123Ibid.
124Ibid., p. 24.

C. General Agreement on Trade in Services
1. Application of the GATS
217. There are two issues to consider in this context. The first is whether the GATS applies to
the EC import licensing procedures. The second is whether the GATS overlaps with the GATT 1994,
or whether the two agreements are mutually exclusive. With respect to the first issue, the Panel found
that:
... no measures are excluded a priori from the scope of the GATS as
defined by its provisions. The scope of the GATS encompasses any
measure of a Member to the extent it affects the supply of a service
regardless of whether such measure directly governs the supply of a
service or whether it regulates other matters but nevertheless affects
trade in services.125
For these reasons, the Panel concluded:
We therefore find that there is no legal basis for an a priori exclusion
of measures within the EC banana import licensing regime from the
scope of the GATS.126
218. The European Communities argues that the GATS does not apply to the EC import licensing
procedures because they are not measures "affecting trade in services" within the meaning of Article I:1
of the GATS. In the view of the European Communities, Regulation 404/93 and the other related
regulations deal with the importation, sale and distribution of bananas. As such, the European
Communities asserts, these measures are subject to the GATT 1994, and not to the GATS.
219. In contrast, the Complaining Parties argue that the scope of the GATS, by its terms, is sufficiently
broad to encompass Regulation 404/93 and the other related regulations as measures affecting the
competitive relations between domestic and foreign services and service suppliers. This conclusion,
they argue, is not affected by the fact that the same measures are also subject to scrutiny under the
GATT 1994, as the two agreements are not mutually exclusive.
125Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.285.
126Ibid., para. 7.286.

220. In addressing this issue, we note that Article I:1 of the GATS provides that "[t]his Agreement
applies to measures by Members affecting trade in services". In our view, the use of the term "affecting"
reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the
word "affecting" implies a measure that has "an effect on", which indicates a broad scope of application.
This interpretation is further reinforced by the conclusions of previous panels that the term "affecting"
in the context of Article III of the GATT is wider in scope than such terms as "regulating" or
"governing".127 We also note that Article I:3(b) of the GATS provides that "‘ services’ includes any
service in any sector except services supplied in the exercise of governmental authority" (emphasis
added), and that Article XXVIII(b) of the GATS provides that the "‘ supply of a service’ includes the
production, distribution, marketing, sale and delivery of a service". There is nothing at all in these
provisions to suggest a limited scope of application for the GATS. We also agree that Article XXVIII(c)
of the GATS does not narrow "the meaning of the term ‘ affecting’ to ‘ in respect of’ ".128 For these
reasons, we uphold the Panel's finding that there is no legal basis for an a priori exclusion of measures
within the EC banana import licensing regime from the scope of the GATS.
221. The second issue is whether the GATS and the GATT 1994 are mutually exclusive agreements.
The GATS was not intended to deal with the same subject matter as the GATT 1994. The GATS was
intended to deal with a subject matter not covered by the GATT 1994, that is, with trade in services.
Thus, the GATS applies to the supply of services. It provides, inter alia, for both MFN treatment
and national treatment for services and service suppliers. Given the respective scope of application
of the two agreements, they may or may not overlap, depending on the nature of the measures at issue.
Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they
affect trade in goods as goods. Certain measures could be found to fall exclusively within the scope
of the GATS, when they affect the supply of services as services. There is yet a third category of
measures that could be found to fall within the scope of both the GATT 1994 and the GATS. These
are measures that involve a service relating to a particular good or a service supplied in conjunction
with a particular good. In all such cases in this third category, the measure in question could be
scrutinized under both the GATT 1994 and the GATS. However, while the same measure could be
scrutinized under both agreements, the specific aspects of that measure examined under each agreement
could be different. Under the GATT 1994, the focus is on how the measure affects the goods involved.
Under the GATS, the focus is on how the measure affects the supply of the service or the service
127Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.281. See, for example, the
panel report in Italian Agricultural Machinery, adopted 23 October 1958, BISD 7S/60, para. 12.
128Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.280.

suppliers involved. Whether a certain measure affecting the supply of a service related to a particular
good is scrutinized under the GATT 1994 or the GATS, or both, is a matter that can only be determined
on a case-by-case basis. This was also our conclusion in the Appellate Body Report in Canada -
Periodicals.129
222. For these reasons, we agree with the Panel that the EC banana import licensing procedures
are subject to both the GATT 1994 and the GATS, and that the GATT 1994 and the GATS may overlap
in application to a particular measure.
2. Whether Operators are Service Suppliers Engaged in Wholesale Trade Services
223. The European Communities raises two issues concerning the definition of wholesale trade services
and the application of that definition. Both these issues relate to the Panel's finding that:
... operators in the meaning of Article 19 of Regulation 404/93 and
operators performing the activities defined in Article 5 of Regulation
1442/93 are service suppliers in the meaning of Article I:2(c) of GATS
provided that they are owned or controlled by natural persons or
juridical persons of other Members and supply wholesale services.
When operators provide wholesale services with respect to bananas
which they have imported or acquired for marketing, cleared in customs
or ripened, they are actual wholesale service suppliers. Where
operators form part of vertically integrated companies, they have the
capability and opportunity to enter the wholesale service market. They
could at any time decide to re-sell bananas which they have imported
or acquired from EC producers, or cleared in customs, or ripened
instead of further transferring or processing bananas within an
integrated company. Since Article XVII of GATS is concerned with
conditions of competition, it is appropriate for us to consider these
vertically integrated companies as service suppliers for the purposes
of analysing the claims made in this case.130
224. First, the European Communities questions whether the operators within the meaning of the
relevant EC regulations are, in fact, service suppliers in the sense of the GATS, in that what they actually
do is buy and import bananas. The European Communities argues that "when buying or importing,
a wholesale trade services supplier is a buyer or importer and not covered by the GATS at all, because
129Appellate Body Report, WT/DS31/AB/R, adopted 30 July 1997, p. 19.
130Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.320 (footnotes deleted).

he is not providing any reselling services".131 The European Communities also challenges the Panel's
conclusion that "integrated companies", which may provide some of their services in-house in the
production or distribution chain, are service suppliers within the meaning of the GATS.
225. On the first of these two issues, we agree with the Panel that the operators as defined under
the relevant regulations of the European Communities are, indeed, suppliers of "wholesale trade services"
within the definition set out in the Headnote to Section 6 of the CPC.132 We note further that the
European Communities has made a full commitment for wholesale trade services (CPC 622), with
no conditions or qualifications, in its Schedule of Specific Commitments under the GATS.133 Although
these operators, as defined in the relevant EC regulations, are engaged in some activities that are not
strictly within the definition of "distributive trade services" in the Headnote to Section 6 of the CPC,
there is no question that they are also engaged in other activities involving the wholesale distribution
of bananas that are within that definition.
226. The Headnote to Section 6 of the CPC defines "distributive trade services" in relevant part
as follows:
... the principal services rendered by wholesalers and retailers may
be characterized as reselling merchandise, accompanied by a variety
of related, subordinated services ... (emphasis added)
We note that the CPC Headnote characterizes the "principal services" rendered by wholesalers
as "reselling merchandise". This means that "reselling merchandise" is not necessarily the only service
provided by wholesalers. The CPC Headnote also refers to "a variety of related, subordinated services"
that may accompany the "principal service" of "reselling merchandise". It is difficult to conceive how
a wholesaler could engage in the "principal service" of "reselling" a product if it could not also purchase
or, in some cases, import the product. Obviously, a wholesaler must obtain the goods by some means
in order to resell them.134 In this case, for example, it would be difficult to resell bananas in the
European Communities if one could not buy them or import them in the first place.
132Provisional Central Product Classification, United Nations Statistical Papers, Series M, No. 77, 1991, p. 189.
133European Communities and their Member States' Schedule of Specific Commitments, GATS/SC/31, 15 April 1994,
p. 52.
134After all, as the European Communities has pointed out, "goods cannot walk" or be resold by themselves (EC's appellant's
submission, para. 236).

227. The second issue relates to "integrated companies". In our view, even if a company is vertically-
integrated, and even if it performs other functions related to the production, importation, distribution
and processing of a product, to the extent that it is also engaged in providing "wholesale trade services"
and is therefore affected in that capacity by a particular measure of a Member in its supply of those
"wholesale trade services", that company is a service supplier within the scope of the GATS.
228. For these reasons, we uphold the Panel's findings on both these issues.135
3. Article II of the GATS
229. The European Communities appeals the Panel's finding:
... that the obligation contained in Article II:1 of GATS to extend
"treatment no less favourable" should be interpreted in casu to require
providing no less favourable conditions of competition.136
The critical issue here is whether Article II:1 of the GATS applies only to de jure, or formal,
discrimination or whether it applies also to de facto discrimination.
230. The Panel's approach to this question was to interpret the words "treatment no less favourable"
in Article II:1 of the GATS by reference to paragraphs 2 and 3 of Article XVII of the GATS. The
Panel said:
... we note that the standard of "no less favourable treatment" in
paragraph 1 of Article XVII is meant to provide for no less favourable
conditions of competition regardless of whether that is achieved through
the application of formally identical or formally different measures.
Paragraphs 2 and 3 of Article XVII serve the purpose of codifying
this interpretation, and in our view, do not impose new obligations
on Members additional to those contained in paragraph 1. In essence,
the "treatment no less favourable" standard of Article XVII:1 is
clarified and reinforced in the language of paragraphs 2 and 3. The
absence of similar language in Article II is not, in our view, a
justification for giving a different ordinary meaning in terms of Article
31(1) of the Vienna Convention to the words "treatment no less
favourable", which are identical in both Articles II:1 and XVII:1.137
135Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.320.
136Ibid., para. 7.304.
137Ibid., para. 7.301.

231. We find the Panel's reasoning on this issue to be less than fully satisfactory. The Panel
interpreted Article II of the GATS in the light of panel reports interpreting the national treatment
obligation of Article III of the GATT. The Panel also referred to Article XVII of the GATS, which
is also a national treatment obligation. But Article II of the GATS relates to MFN treatment, not to
national treatment. Therefore, provisions elsewhere in the GATS relating to national treatment
obligations, and previous GATT practice relating to the interpretation of the national treatment obligation
of Article III of the GATT 1994 are not necessarily relevant to the interpretation of Article II of the
GATS. The Panel would have been on safer ground had it compared the MFN obligation in Article
II of the GATS with the MFN and MFN-type obligations in the GATT 1994.138
232. Articles I and II of the GATT 1994 have been applied, in past practice, to measures involving
de facto discrimination.139 We refer, in particular, to the panel report in European Economic Community
- Imports of Beef from Canada140, which examined the consistency of EEC regulations implementing
a levy-free tariff quota for high quality grain-fed beef with Article I of the GATT 1947. Those
regulations made suspension of the import levy for such beef conditional on production of a certificate
of authenticity. The only certifying agency authorized to produce a certificate of authenticity was a
United States agency. The panel, therefore, found that the EEC regulations were inconsistent with
the MFN principle in Article I of the GATT 1947 as they had the effect of denying access to the EEC
market to exports of products of any origin other than that of the United States.
233. The GATS negotiators chose to use different language in Article II and Article XVII of the
GATS in expressing the obligation to provide "treatment no less favourable". The question naturally
arises: if the GATS negotiators intended that "treatment no less favourable" should have exactly the
same meaning in Articles II and XVII of the GATS, why did they not repeat paragraphs 2 and 3 of
Article XVII in Article II? But that is not the question here. The question here is the meaning of
"treatment no less favourable" with respect to the MFN obligation in Article II of the GATS. There
is more than one way of writing a de facto non-discrimination provision. Article XVII of the GATS
is merely one of many provisions in the WTO Agreement that require the obligation of providing
"treatment no less favourable". The possibility that the two Articles may not have exactly the same
138In addition to Article I (the fundamental MFN provision of the GATT), Articles III:7, IV(b), V:2 and V:5, IX:1 and
XIII:1 are also MFN-type obligations in the GATT 1994.
139See European Economic Community - Imports of Beef from Canada, adopted 10 March 1981, BISD 28S/92; Spain -
Tariff Treatment of Unroasted Coffee, adopted 11 June 1981, BISD 28S/102; and Japan - Tariff on Imports of Spruce-Pine-Fir
(SPF) Dimension Lumber, adopted 19 July 1989, BISD 36S/167.
140Adopted 10 March 1981, BISD 28S/92, paras. 4.2-4.3.

meaning does not imply that the intention of the drafters of the GATS was that a de jure, or formal,
standard should apply in Article II of the GATS. If that were the intention, why does Article II not
say as much? The obligation imposed by Article II is unqualified. The ordinary meaning of this
provision does not exclude de facto discrimination. Moreover, if Article II was not applicable to de
facto discrimination, it would not be difficult -- and, indeed, it would be a good deal easier in the case
of trade in services, than in the case of trade in goods -- to devise discriminatory measures aimed at
circumventing the basic purpose of that Article.
234. For these reasons, we conclude that "treatment no less favourable" in Article II:1 of the GATS
should be interpreted to include de facto, as well as de jure, discrimination. We should make it clear
that we do not limit our conclusion to this case. We have some difficulty in understanding why the
Panel stated that its interpretation of Article II of the GATS applied "in casu".141
4. Effective Date of the GATS Obligations
235. The European Communities also raises the question whether the Panel erred in giving retroactive
effect to Articles II and XVII of the GATS, contrary to the principle stated in Article 28 of the Vienna
Convention. Article 28 states the general principle of international law that"[u]nless a different intention
appears from the treaty or is otherwise established, its provisions do not bind a party in relation to
... any situation which ceased to exist before the date of entry into force of the treaty ...". The Panel
stated in its finding on this issue that:
... the scope of our legal examination includes only actions which the
EC took or continued to take, or measures that remained in force or
continued to be applied by the EC, and thus did not cease to exist after
the entry into force of the GATS. Likewise, any finding of consistency
or inconsistency with the requirements of Articles II and XVII of GATS
would be made with respect to the period after the entry into force
of the GATS.142
The Panel stated, further, in a footnote to this finding, that "the EC measures at issue may be considered
as continuing measures, which in some cases were enacted before the entry into force of the GATS
but which did not cease to exist after that date (the opposite of the situation envisaged in Article 28)".143
141Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.304.
142Ibid., para. 7.308 (footnotes deleted).
143Ibid., footnote 486.

236. The European Communities argues that thecontinuing situation at issue here is not the continued
existence of Regulation 404/93 and other related regulations, but is, instead, the alleged discrimination
against and among foreign service suppliers. The European Communities maintains that de facto
discrimination is a fact at a particular point in time, and does not necessarily continue for as long as
a law remains in force. The European Communities argues that the Panel based its finding with respect
to de facto discrimination on data related to 1992, that is, before the entry into force of the GATS
on 1 January 1995. In the view of the European Communities, there is no basis for the assumption
that this factual data relating to 1992, even if correct, continued to exist after the entry into force of
the GATS. In the absence of evidence to the contrary, the European Communities argues, it should
be concluded that the de facto discrimination in 1992 was a situation which ceased to exist before the
entry into force of the GATS. Consequently, the European Communities contends that the non-
retroactivity principle in Article 28 of the Vienna Convention applies in this case, and that this invalidates
the Panel's conclusion of inconsistency of the EC import licensing regime with Articles II and XVII
of the GATS.
237. It is, however, evident from the terms of its finding that the Panel concluded, as a matter of
fact, that the de facto discrimination did continue to exist after the entry into force of the GATS.144
This factual finding is beyond review by the Appellate Body. Thus, we do not reverse or modify the
Panel's conclusion in paragraph 7.308 of the Panel Reports.
5. Burden of Proof
238. The European Communities argues that the Panel has not followed the ruling by the Appellate
Body in United States - Shirts and Blouses from India145, as it relates to the burden of proof, in deciding
the following issues:
• which companies are a "juridical person of another Member" within the meaning of
Article XXVIII(m) of the GATS and are "owned", "controlled" by or "affiliated" with
such a juridical person of another Member within the meaning of Article XXVIII(n)
of the GATS and are providing wholesale trade services through commercial presence
within the European Communities;
144Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.308.
145Appellate Body Report, WT/DS33/AB/R, adopted 23 May 1997.

• the market shares of the respective companies engaged in wholesale trade in bananas
within the European Communities; and
• the category of "operators" that include or directly represent EC (or ACP) producers
who have suffered damage from hurricanes.
239. In our view, the conclusions by the Panel on whether Del Monte is a Mexican company146,
theownership and control of companies establishedin theEuropean Communities that provide wholesale
trade services in bananas147, the market shares of suppliers of Complaining Parties' origin as compared
with suppliers of EC (or ACP) origin148, and the nationality of the majority of operators that "include
or directly represent" EC (or ACP) producers149, are all factual conclusions. Therefore, we decline
to rule on these arguments made by the European Communities.
6. Whether the EC Licensing Procedures are Discriminatory Under Articles II
and XVII of the GATS
240. The European Communities argues that the EC licensing system for bananas is not discriminatory
under Articles II and XVII of the GATS, because the various aspects of the system, including the operator
category rules, the activity function rules and the special hurricane licence rules, "pursue entirely
legitimate policies" and "are not inherently discriminatory in design or effect".150
241. We see no specific authority either in Article II or in Article XVII of the GATS for the
proposition that the "aims and effects" of a measure are in any way relevant in determining whether
that measure is inconsistent with those provisions. In the GATT context, the "aims and effects" theory
had its origins in the principle of Article III:1 that internal taxes or charges or other regulations "should
not be applied to imported or domestic products so as to afford protection to domestic production".
There is no comparable provision in the GATS. Furthermore, in our Report in Japan - Alcoholic
146Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.330.
147Ibid., para. 7.331.
148Ibid., paras. 7.333-7.334.
149Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.392.

Beverages151, the Appellate Body rejected the "aims and effects" theory with respect to Article III:2
of the GATT 1994. The European Communities cites an unadopted panel report dealing with Article
III of the GATT 1947, United States - Taxes on Automobiles152, as authority for its proposition, despite
our recent ruling.
(a) Operator Category Rules
242. The European Communities argues that the aim of the operator category system, in view of
the objective of integrating the various national markets, and of the differing situations of banana traders
in the various Member States, was not discriminatory but rather was to establish machinery for dividing
the tariff quota among the different categories of traders concerned. In the view of the European
Communities, the operator category system also serves the purpose of distributing quota rents among
the various operators in the market. The European Communities emphasizes, furthermore, that the
principle of transferability of licences is used in order to develop market structures without disrupting
existing commercial links. The effect of the operator category rules, the European Communities argues,
is to leave a commercial choice in the hands of the operators.
243. We do not agree with the European Communities that the aims and effects of the operator
category system are relevant in determining whether or not that system modifies the conditions of
competition between service suppliers of EC origin and service suppliers of third-country origin. Based
on the evidence before it153, the Panel concluded "that most of the suppliers of Complainants' origin
are classified in Category A for the vast majority of their past marketing of bananas, and that most
of the suppliers of EC (or ACP) origin are classified in Category B for the vast majority of their past
marketing of bananas".154 We see no reason to go behind these factual conclusions of the Panel.
244. We concur, therefore, with the Panel's conclusion that "the allocation to Category B operators
of 30 per cent of the licences allowing for the importation of third-country and non-traditional ACP
151Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996.
152DS31/R, 11 October 1994, unadopted.
153We note that the European Communities contests the Panel's findings in paras. 7.331, 7.333 and 7.334 of the Panel
Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, concerning the relative market shares of suppliers of
EC (or ACP) origin as compared with suppliers of Complaining Parties' origin. We also note that the Panel indicated that
it relied on evidence supplied by the Complaining Parties, and that the European Communities failed to present information
that would cast doubt on the evidence presented by the Complaining Parties (see Panel Reports, WT/DS27/R/ECU,
WT/DS27/R/MEX, WT/DS27/R/USA, paras. 7.331 and 7.333).
154Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.334 (footnotes deleted).

bananas at in-quota tariff rates creates less favourable conditions of competition for like service suppliers
of Complainants' origin and is therefore inconsistent with the requirement of Article XVII of GATS".155
We also concur with the Panel's conclusion that the allocation to Category B operators of 30 per cent
of the licences for importing third-country and non-traditional ACP bananas at in-quota tariff rates
is inconsistent with the requirements of Article II of the GATS.156
(b) Activity Function Rules
245. The European Communities maintains that the aim of the activity function rules is to protect
the banana ripeners against the concentration of economic bargaining power in the hands of the primary
importers as a result of the tariff quota. The European Communities contends that the policy objective
is to correct the position of all ripeners vis-à-vis all suppliers of bananas, without distinction as to
nationality. Furthermore, the European Communities asserts, the effect of the activity function rules
depends on the commercial choices made by operators. Operators that previously supplied wholesale
trade services to bananas brought under the tariff quota can avoid or reduce the extent to which they
are subject to the activity function rules by extending their services to the EC market segment. These
operators may also resort to licence pooling within independent ripeners, or they may retain ownership
of the bananas they import and have them ripened under contract. Thus, in the view of the European
Communities, there are many options open to primary importers, and the activity function rules do
not have the effect of providing less favourable conditions of competition.
246. As indicated earlier, we do not accept the argument by the European Communities that the
aims or effects of the activity function rules are relevant in determining whether they provide less
favourable conditions of competition to services and service suppliers of foreign origin. In this respect,
we note the Panel's factual conclusions that:
... even the EC statistics suggest that 74 to 80 per cent of ripeners are
EC controlled. Thus, we conclude that the vast majority of the ripening
capacity in the EC is owned or controlled by natural or juridical persons
of the EC and that most of the bananas produced in or imported to
the EC are ripened in EC owned or controlled ripening facilities.157
155Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.341.
156Ibid., para. 7.353.
157Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.362 (footnotes deleted).

We also note the Panel's factual finding that "most of the service suppliers of Complainants'
origin will usually be able to claim reference quantities only for primary importation, and possibly
for customs clearance, but not for the performance of ripening activities".158 Given these factual findings,
we see no reason to reverse the Panel's legal conclusion that the allocation to ripeners of a certain
proportion of the Category A and B licences allowing the importation of third-country and non-traditional
ACP bananas at in-quota tariff rates creates less favourable conditions of competition for like service
suppliers of Complainants' origin, and is therefore inconsistent with the requirements of Article XVII
of GATS.159
(c) Hurricane Licences
247. The European Communities asserts that the purpose of the hurricane licences is to compensate
those that suffer damage caused by tropical storms. With respect to Article XVII of the GATS, the
European Communities maintains that the hurricane licence provisions do not modify competitive
conditions between EC operators and operators of Complaining Parties' origin. With respect to Article
II of the GATS, the European Communities argues that there is no de facto discrimination since there
is no indication in the hurricane licence rules that operators that are not ACP-owned or -controlled
cannot own or represent ACP producers on the same basis as ACP or EC-owned or -controlled operators.
248. Once again, we do not accept the argument by the European Communities that the aims and
effects of a measure are relevant in determining its consistency with Articles II or XVII of the GATS.
We note that under the EC hurricane licence rules, only operators who include or directly represent
EC or ACP producers or producer organizations affected by a tropical storm are eligible for allocation
of hurricane licences.160 The Panel made a conclusion of fact that "the vast majority of operators who
‘ include or directly represent’ EC or ACP producers are service suppliers of EC (or ACP) origin".161
Given this factual finding, we do not reverse the Panel's conclusions in paragraphs 7.393 and 7.397
of the Panel Reports.
158Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.362 (footnotes deleted).
159Ibid., para. 7.368.
160Ibid., para. 7.392.
161Ibid.

D. Nullification or Impairment
249. The Panel concluded that:
... the infringement of obligations by the EC under a number of WTO
agreements, are a prima facie case of nullification or impairment of
benefits in the meaning of Article 3.8 of the DSU, which provides that
"there is normally a presumption that a breach of the rules has an
adverse impact on other Members parties to that covered agreement".
To the extent that this presumption can be rebutted, in our view the
EC has not succeeded in rebutting the presumption that its breaches
of GATT, GATS and Licensing Agreement rules have nullified or
impaired benefits of the Complainants.162
The European Communities has appealed this conclusion.
250. We observe, first of all, that the European Communities attempts to rebut the presumption
of nullification or impairment with respect to the Panel's findings of violations of the GATT 1994 on
the basis that the United States has never exported a single banana to the European Community, and
therefore, could not possibly suffer any trade damage. The attempted rebuttal by the European
Communities applies only to one complainant, the United States, and to only one agreement, the GATT
1994. In our view, the Panel erred in extending the scope of the presumption in Article 3.8 of the
DSU to claims made under the GATS as well as to claims made by the Complaining Parties other than
the United States.
251. We note that Article 12.7 of the DSU provides in part that:
... the report of a panel shall set out the findings of fact, the
applicability of relevant provisions and the basic rationale behind any
findings and recommendations that it makes. (emphasis added)
In paragraph 7.398 of the Reports, the Panel has provided no more by way of a "basic rationale" than
a reference in a footnote to a previous panel report.163 That said, we note that the two issues of
nullification or impairment and of the standing of the United States are closely related. Indeed, the
162Panel Reports, para. 7.398.
163Ibid., footnote 523.

European Communities argues these two issues in the alternative. In the part of the Panel Reports
dealing with standing164, two points are made that the Panel may well have had in mind in reaching
its conclusions on nullification or impairment. One is that the United States is a producer of bananas
and that a potential export interest by the United States cannot be excluded; the other is that the internal
market of the United States for bananas could be affected by the EC bananas regime and by its effects
on world supplies and world prices of bananas. These are matters that we have already decided are
relevant to the question of the standing of the United States under the GATT 1994. They are equally
relevant to the questionwhether theEuropean Communities has rebutted thepresumption of nullification
or impairment.
252. So, too, is the panel report in United States - Superfund, to which the Panel referred.165 In
that case, the panel examined whether measures with "only an insignificant effect on the volume of
exports do nullify or impair benefits under Article III:2 ...". The panel concluded (and in so doing,
confirmed the views of previous panels) that:
Article III:2, first sentence, cannot be interpreted to protect expectations
on export volumes; it protects expectations on the competitive
relationship between imported and domestic products. A change in
the competitive relationship contrary to that provision must consequently
be regarded ipso facto as a nullification or impairment of benefits
accruing under the General Agreement. A demonstration that a
measure inconsistent with Article III:2, first sentence, has no or
insignificant effects would therefore in the view of the Panel not be
a sufficient demonstration that the benefits accruing under that provision
had not been nullified or impaired even if such a rebuttal were in
principle permitted.166
253. The panel in United States - Superfund subsequently decided "not to examine the submissions
of the parties on the trade effects of the tax differential"167 on the basis of the legal grounds it had
enunciated. The reasoning in United States - Superfund applies equally in this case.
254. For these reasons, we can find no legal basis on which to reverse the conclusions of the Panel
in paragraph 7.398 of the Panel Reports.
164Panel Reports, paras. 7.47-7.52.
165Ibid., footnote 523.
166Adopted on 17 June 1987, BISD 34S/136, para. 5.1.9.
167Ibid., para. 5.1.10.

V. Findings and Conclusions
255. For the reasons set out in this Report, the Appellate Body:
(a) upholds the Panel's conclusion that the United States had standing to bring claims under
the GATT 1994 in this case;
(b) upholds the Panel's conclusion that the request for the establishment of the panel in
this case was consistent with Article 6.2 of the DSU., with the modification that a faulty
request cannot be "cured" by the first written submission of a complaining party;
(c) reverses the Panel's conclusions that certain of the claims under Article XVII of the
GATS made by Mexico and all the claims made under the GATS by Guatemala and
Honduras are not to be included within the scope of this case;
(d) upholds the Panel's conclusion that the Agreement on Agriculture does not permit the
European Communities to act inconsistently with the requirements of Article XIII of
the GATT 1994;
(e) upholds the Panel's finding that the allocation of tariff quota shares, whether by
agreement or by assignment, to some, but not to other, Members not having a substantial
interest in supplying bananas to the European Communities is inconsistent with Article
XIII:1 of the GATT 1994;
(f) upholds the Panel's finding that the tariff quota reallocation rules of the BFA are
inconsistent with Article XIII:1 of the GATT 1994, and modifies the Panel's finding
by concluding that the BFA tariff quota reallocation rules are also inconsistent with
the chapeau of Article XIII:2 of the GATT 1994;
(g) concludes that the European Communities is "required" under the relevant provisions
of the Lomé Convention to: provide duty-free access for traditional ACP bananas,
provide duty-free access for 90,000 tonnes of non-traditional ACP bananas, provide
a margin of tariff preference in the amount of 100 ECU/tonne for all other non-
traditional ACP bananas, and allocate tariff quota shares to the traditional ACP States
in the amount of their pre-1991 best-ever export volumes;

(h) concludes that the European Communities is not "required" under the relevant provisions
of the Lomé Convention to: allocate tariff quota shares to traditional ACP States in
excess of their pre-1991 best-ever export volumes, allocate tariff quota shares to ACP
States exporting non-traditional ACP bananas, or maintain the EC import licensing
procedures that are applied to third-country and non-traditional ACP bananas;
(i) and therefore, based on the conclusions in (g) and (h), upholds the findings of the Panel
that the European Communities is "required" under the relevant provisions of the Lomé
Convention to provide preferential tariff treatment for non-traditional ACP bananas,
is not "required" to allocate tariff quota shares to traditional ACP States in excess of
their pre-1991 best-ever export volumes, and is not "required" to maintain the EC import
licensing procedures that are applied to third-country and non-traditional ACP bananas;
(j) reverses the finding of the Panel that the Lomé Waiver waives any inconsistency with
Article XIII:1 of the GATT 1994 to the extent necessary to permit the European
Communities to allocate tariff quota shares to traditional ACP States;
(k) upholds the Panel's findings that the non-discrimination provisions of the GATT 1994,
specifically, Articles I:1 and XIII, apply to the relevant EC regulations, irrespective
of whether there are one or more "separate regimes" for the importation of bananas;
(l) upholds the Panel's finding that licensing procedures for tariff quotas are within the
scope of the Licensing Agreement, and reverses the Panel's finding that Article 1.3
of the Licensing Agreement precludes the imposition of different import licensing systems
on like products when imported from different Members;
(m) reverses the Panel's finding that Article X:3(a) of the GATT 1994 precludes the
imposition of different import licensing systems on like products when imported from
different Members; and upholds the Panel's finding that both Article 1.3 of the
Licensing Agreement and Article X:3(a) of the GATT 1994 apply to the EC import
licensing procedures, with the modification that the Panel should have applied the
provisions of the Licensing Agreement first, as it is the more specific and detailed
agreement;

(n) upholds the Panel's conclusions that the EC activity function rules and the BFA export
certificate requirement are inconsistent with Article I:1 of the GATT 1994;
(o) upholds the Panel's findings that Article III:4 of the GATT 1994 applies to the EC
import licensing procedures, and that the EC practice with respect to hurricane licences
is inconsistent with Article III:4 of the GATT 1994;
(p) upholds the Panel's conclusions that there is no legal basis for an a priori exclusion
of measures within the EC import licensing regime from the scope of the GATS and
that the GATT 1994 and the GATS may overlap in application to a measure;
(q) upholds the Panel's findings that "operators" as defined in the relevant EC regulations
are service suppliers within the meaning of Article I:2(c) of the GATS that are engaged
in providing "wholesale trade services" and that, where such operators form part of
vertically-integrated companies, such companies are service suppliers for the purposes
of this case;
(r) upholds the Panel's conclusion that Article II:1 of the GATS should be interpreted
to include de facto, as well as de jure, discrimination;
(s) upholds the Panel's conclusion that the scope of its legal examination of the application
of Articles II and XVII of the GATS includes only actions that the European
Communities took, or continued to take, or measures that remained in force or continued
to be applied by the European Communities, and thus did not cease to exist after the
entry into force of the GATS;
(t) upholds the Panel's findings relating to: which companies are owned or controlled
by, or are affiliated with, persons of Complaining Parties' origin, and are providing
wholesale trade services in bananas through commercial presence within the European
Communities; the respective market shares of service suppliers of Complaining Parties'
origin as compared with service suppliers of EC (or ACP) origin; and the nationality
of the majority of operators that "include or directly represent" EC (or ACP) producers
that have suffered damage from hurricanes;

(u) upholds the Panel's conclusions that the allocation to Category B operators of 30 per
cent of the licences allowing the importation of third-country and non-traditional ACP
bananas at in-quota tariff rates is inconsistent with Articles II and XVII of the GATS;
(v) upholds the Panel's conclusions that the allocation to ripeners of a certain portion of
the Category A and B licences allowing the importation of third-country and non-
traditional ACP bananas at in-quota tariff rates is inconsistent with Article XVII of
the GATS;
(w) upholds the Panel's conclusions that the EC practice with respect to hurricane licences
is inconsistent with Articles II and XVII of the GATS; and
(x) upholds the Panel's finding that the European Communities has not succeeded in
rebutting the presumption that its breaches of the GATT 1994 have nullified or impaired
the benefits of the United States, with the modification that thisfinding should be limited
to the United States and to the EC's obligations under the GATT 1994.
256. The foregoing legal findings and conclusions uphold, modify or reverse the findings and
conclusions of the Panel in Parts VII and IX of the Panel Reports, but leave intact the findings and
conclusions of the Panel that were not the subject of this appeal.
257. The Appellate Body recommends that the Dispute Settlement Body request the European
Communities to bring the measures found in this Report and in the Panel Reports, as modified by this
Report, to be inconsistent with the GATT 1994 and the GATS into conformity with the obligations
of the European Communities under those agreements.

Signed in the original at Geneva this 22nd day of August 1997 by:
James Bacchus
Presiding Member
_______________________________ _______________________________
Member Member