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World Trade
Organization

WT/DS69/AB/R
13 July 1998
(98-0000)
Original: English

European Communities – Measures affecting the importation of certain poultry products

AB-1998-3

Report of the Appellate Body


I. Introduction
II. Arguments of the Participants and Third Participants

A. Brazil - Appellant 1. The Oilseeds Agreement
2. Article XXVIII of the GATT
3. Article XIII of the GATT 1994
4. Article X of the GATT 1994
5. Agreement on Import Licensing Procedures
6. Article 11 of the DSU
B. European Communities - Appellee 1. The Oilseeds Agreement
2. Article XXVIII of the GATT
3. Article XIII of the GATT 1994
4. Article X of the GATT 1994
5. Agreement on Import Licensing Procedures
6. Article 11 of the DSU
C. European Communities - Appellant 1. Relationship between Schedule LXXX and the Oilseeds Agreement
2. Agreement on Agriculture
D. Brazil - Appellee 1. Relationship between Schedule LXXX and the Oilseeds Agreement
2. Agreement on Agriculture
E. Arguments by the Third Participants 1. Thailand
2. United States
III. Issues Raised in this Appeal
IV. Relationship between Schedule LXXX and the Oilseeds Agreement
V. The Tariff-Rate Quota in Schedule LXXX A. The Exclusive or Non-exclusive Character of the Tariff-Rate Quota for Frozen Poultry Meat in Schedule LXXX
B. Article XIII of the GATT 1994
C. Treatment of Non-Members under Article XIII of the GATT 1994
VI. Article X of the GATT 1994
VII. Agreement on Import Licensing Procedures A. Scope of Application
B. Trade Distortion
C. Transparency
VIII. Article 11 of the DSU
IX. Agreement on Agriculture A. Article 5.1(b)
B. Article 5.5
X. Findings and Conclusions

World Trade Organization

Appellate Body

European Communities - Measures Affecting the Importation of Certain Poultry Products

Brazil, Appellant/Appellee

European Communities, Appellant/Appellee

Thailand and the United States,

Third Participants

AB-1998-3

Present:

Bacchus, Presiding Member

El-Naggar, Member

Feliciano, Member


I. Introduction

1. Brazil and the European Communities appeal from certain issues of law and legal interpretations in the Panel Report, European Communities - Measures Affecting the Importation of Certain Poultry Products. 1 The Panel was established to consider a complaint by Brazil regarding the EC regime for the importation of certain frozen poultry meat products falling within Common Nomenclature ("CN") categories 0207 14 10, 0207 14 50 and 0207 14 70 (formerly CN categories 0207 41 10, 0207 41 41 and 0207 41 71), and the implementation by the European Communities of the tariff-rate quota in these products agreed in negotiations between Brazil and the European Communities.

2. The relevant factual aspects of this dispute are set out in the Panel Report, in particular, at paragraphs 8-12. On 19 June 1992, the CONTRACTING PARTIES authorized the European Communities to enter into negotiations with inte rested contracting parties under Article XXVIII of the GATT 1947, following adoption of the panel report on European Economic Community - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-feed Proteins 2 ("EEC - Oilseeds"). The European Communities entered into negotiations with Brazil, as well as nine other contracting parties. The negotiations with Brazil terminated in July 1993, and the parties signed Agreed Minutes on 31 January 1994. The bilateral agreement set out in these Agreed Minutes (the "Oilseeds Agreement") provided, inter alia, for a duty-free global annual tariff-rate quota of 15,500 tonnes for frozen poultry meat under CN categories 0207 41 10, 0207 41 41 and 0207 41 71. The tariff-rate quota was opened as from 1 January 1994 by Council Regulation 774/94 3 ("Regulation 774/94") of 29 March 1994. Commission Regulation 1431/94 4 ("Regulation 1431/94") of 22 June 1994 sets out detailed rules for the application of Regulation 774/94, and stipulates, in Article 1, that all imports under the tariff-rate quota for the relevant poultry meat products are subject to the presentation of an import licence. There are no licensing requirements for out-of-quota imports of these products.

3. Schedule LXXX of the European Communities 5 ("Schedule LXXX") provides for a duty-free tariff-rate quota for up to 15,500 tonnes of frozen poultry meat in Part I - Most Favoured Nation Tariff, Section I - Agricultural Products, Section I - B - Tariff Quotas, with out-of-quota base duty rates of 1,600 ECU/tonne, 940 ECU/tonne and 1,575 ECU/tonne, respectively. The European Communities reserved the right in Schedule LXXX to introduce an additional duty on out-of-quota imports of the relevant poultry meat if the conditions for imposition of the "Special Safeguard" in Article 5 of the Agreement on Agriculture were satisfied. Council Regulation 2777/75 6 ("Regulation 2777/75") of 29 October 1975, as amended by Council Regulation 3290/94 7 ("Regulation 3290/94") of 22 December 1994, contains the general rule for the application of the additional safeguard duties in Article 5 of the Agreement on Agriculture. Article 5.3 of this regulation states:

The import prices to be taken into consideration for imposing an additional import duty shall be determined on the basis of the cif import prices of the consignment in question.

Commission Regulation 1484/95 8 ("Regulation 1484/95") of 28 June 1995 contains the detailed rules pertaining to such special safeguard, and provides that, unless the imports of frozen poultry meat are unlikely to disturb the EC internal market, an additional duty will be levied if the import price falls below a trigger price set out in Annex II of the Regulation. The import price is either the "representative price" or, upon the request of the importer, the c.i.f. price, if this price is higher than the applicable representative price. The "representative price" is to be determined by taking into account: (i) "prices on third country markets"; (ii) "free-at-Community-frontier offer prices"; and (iii) "prices at the various stages of marketing in the Community for imported products". 9 If the c.i.f. price of the shipment is used, the importer must provide to the competent authorities the documents enumerated in Article 3 of Regulation 1484/95, that is: the purchasing contract (or any other equivalent document), the insurance contract, the invoice, the certificate of origin (where applicable), the transport contract, and, in the case of sea transport, the bill of lading.

4. The Panel Report was circulated to the Members of the World Trade Organization (the "WTO") on 12 March 1998. The Panel reached the following conclusions:

294. In light of our findings in Section B and C above, we conclude that Brazil has not demonstrated that the EC has failed to implement and administer the poultry TRQ in line with its obligations under the WTO agreements.

295. In light of our findings in Section D above, we conclude that Brazil has not demonstrated that the EC has failed to implement the TRQ in accordance with Article XIII of GATT.

296. In light of our findings in Section E above, we conclude that Brazil has not demonstrated that the EC has failed to implement the TRQ in accordance with Articles 1 and 3 of the Licensing Agreement, except on the point that the EC has failed to notify the necessary information regarding the poultry TRQ to the WTO Committee on Import Licensing under Article 1.4(a) of the Licensing Agreement.

297. In light of our findings in Section F, G and H above, we conclude that Brazil has not demonstrated that the EC has failed to comply with the provisions of Articles X, II and III of GATT in respect of the implementation and administration of the poultry TRQ.

298. In light of our findings in Section I above, we conclude that the EC has failed to comply with the provisions of Article 5.1(b) of the Agreement on Agriculture regarding the imports of the poultry products outside the TRQ. 10

and made the following recommendation:

We recommend that the Dispute Settlement Body request the EC to bring the measures found in this report to be inconsistent with the Licensing Agreement and the Agreement on Agriculture into conformity with its obligations under those agreements. 11

5. On 29 April 1998, Brazil notified the Dispute Settlement Body ("DSB") of its decision to appeal certain issues of law covered in the Panel Report 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 12 with the Appellate Body pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures"). On 11 May 1998, Brazil filed an appellant's submission. 13 On 14 May 1998, the European Communities filed its own appellant's submission. 14 On 25 May 1998, both the European Communities 15 and Brazil filed appellee's submissions. 16 On the same day, Thailand and the United States filed separate third participants' submissions. 17

6. The oral hearing in the appeal was held on 9 June 1998. The participants and third participants presented oral arguments and responded to questions put to them by the Members of the Division hearing the appeal. The participants and third participants also gave oral concluding statements. At the request of the Members of the Division, the participants and third participants submitted, on 12 June 1998, written post-hearing memoranda on particular issues relating to the appeal. The participants submitted their respective written replies to these post-hearing memoranda on 15 June 1998.

II. Arguments of the Participants and Third Participants

A. Brazil - Appellant

1. The Oilseeds Agreement

7. Brazil asserts that the Panel failed to apply the customary rules of interpretation of public international law properly to the Oilseeds Agreement, as required by Article 3.2 of the DSU. Brazil maintains that in limiting its examination of the Oilseeds Agreement to the "relevant parts" of the Oilseeds Agreement, the Panel failed to examine all of the terms and provisions of the Oilseeds Agreement in accordance with Article 31 of the Vienna Convention on the Law of Treaties 18 (the "Vienna Convention"), including, in particular, how many parties there were to the agreement, the structure of the agreement, the content of the different sections and the declared intention of the parties upon seeking authorization from the CONTRACTING PARTIES to negotiate.

8. With respect to the ordinary meaning to be given to all the terms of the Oilseeds Agreement, Brazil states that nothing in the text of the Oilseeds Agreement limits or diminishes the exclusive nature of that Agreement. Brazil contends that the Panel failed to interpret the Oilseeds Agreement in good faith, and instead interpreted Article XXVIII of the GATT without taking the Oilseeds Agreement appropriately into account. Brazil argues that the Panel examined the object and purpose of Article XXVIII of the GATT but not the object and purpose of the Oilseeds Agreement itself. According to Brazil, the Panel should have examined what was, in fact, agreed between the parties in the Oilseeds Agreement and, in particular, the reasons the parties had entered into that Agreement and also its compensatory nature. Therefore, in the Brazilian view, the proper analysis of the Oilseeds Agreement between Brazil and the European Communities required an examination of all the parts of that Agreement as well as the different bilateral oilseeds agreements that the European Communities had reached with different negotiating Members.

9. In the alternative, Brazil argues that the Panel erred in law in not examining the ordinary meaning of the "relevant parts" of the Oilseeds Agreement in the light of their context. Brazil stresses that the European Communities had specifically chosen to negotiate with Brazil separately from the other parties to be compensated so that variable solutions on compensation, rather than a common most-favoured-nation ("MFN") solution, could be reached.

2. Article XXVIII of the GATT

10. Brazil asserts that the Panel failed to apply to Article XXVIII of the GATT properly the customary rules of interpretation of public international law, as required by Article 3.2 of the DSU. According to Brazil, under the terms of Article 31 of the Vienna Convention, the Panel should have examined: what was agreed between the parties; whether what was agreed between the parties is legally possible within the terms of Article XXVIII of the GATT; and finally, if it found that the specific agreement was not compatible with other GATT provisions (Articles I and XIII), what the consequences of such incompatibility would be. Rather than adopting this step-by-step approach, the Panel only examined the question as to whether Articles I and XIII of the GATT 1994 apply to Article XXVIII tariff-rate quotas or whether Article XXVIII of the GATT can give rise to country-specific provisions.

11. In the view of Brazil, Article XXVIII of the GATT is a lex specialis providing for bilateral solutions within a multilateral framework and maintaining a balance between bilateral and multilateral rights and obligations. There is nothing in Article XXVIII of the GATT that prevents two contracting parties from making an agreement on a country-specific package of compensatory measures, although, at the same time, nothing requires that compensation must be country-specific. Brazil argues that Article XXVIII allows certain defined contracting parties to negotiate and agree. And it provides that other contracting parties have the right to ensure that such an agreement does not prejudice their own rights. In relation to the tariff-rate quota for frozen poultry meat, Brazil points out that no Member objected to the specific agreement reached between the principal negotiating parties. Therefore, all Members must be deemed to have agreed to the solution reached between Brazil and the European Communities.

12. In Brazil's view, Article XXVIII of the GATT can be an exception to the MFN rule contained in Article I of the GATT 1994 if the parties negotiating the agreement so choose and if the other contracting parties do not object. The European Communities and Brazil had agreed on a country-specific tariff-rate quota and did not provide that the MFN principle should apply to that tariff-rate quota. Brazil argues that the Panel erred in law in finding that an element in compensation for the withdrawal of an MFN concession must be MFN. According to Brazil, the opening of a country-specific tariff-rate quota for frozen poultry meat by the European Communities does not impact negatively on the trade interests of other Members. That quota is not therefore something to which the MFN principle necessarily applies.

3. Article XIII of the GATT 1994

13. Brazil claims that the Panel erred in finding that there was no evidence of an agreement between the European Communities and Brazil on the allocation of the tariff-rate quota to Brazil. The Panel based its finding on supplementary evidence, that is, certain letters from Brazil to the EC Commission, and failed to analyze the main supporting evidence of an agreement -- the Oilseeds Agreement itself. Brazil argues that, by not interpreting the Oilseeds Agreement at all, the Panel failed to examine all of the evidence before it.

14. According to Brazil, the Panel also erred in law in its analysis of the participation of non-Members in tariff-rate quotas allocated within the terms of Article XIII of the GATT 1994. Brazil states that the relevant issue is whether or not a non-Member can be unilaterally allowed to participate in a compensatory tariff-rate quota, especially in a situation where there is considerable over-quota trade open to that non-Member. It is clear from the text of Article XIII of the GATT 1994, particularly Article XIII:2 and Article XIII:2(d), that the allocation of quota shares is always intended for Members. In footnote 140 of the Panel Report, the Panel reads paragraph 7.75 of the panel reports in European Communities - Regime for the Importation, Sale and Distribution of Bananas 19 ("EC - Bananas") only partially. According to Brazil, when the panel in EC - Bananas quoted the phrase "all suppliers other than Members with a substantial interest in supplying the product", it referred exclusively to all suppliers that are Members with no substantial interest in supplying the product. The Panel appeared to be mandating the inclusion of non-Members, thereby expanding the wording of Article XIII of the GATT 1994, which merely limits the non-discrimination rule as between Members.

15. Brazil submits that the Panel involved itself in a fundamental contradiction on Article XIII of the GATT 1994. On the one hand, the Panel pointed out that the exclusion of non-Members would not be contrary to Article XIII:2 and that Members are free to choose; but, on the other hand, the Panel found that, if non-Members are excluded, the purposes of Article XIII are not achieved. Brazil notes that if the presence of non-Members is necessary for purposes of approximating the shares in the absence of the restriction, then non-Members need to be included in the allocation of the tariff-rate quota. They should be treated like Members. This constitutes a violation of the WTO Agreement, which is an international treaty laying down contractual obligations and not erga omnes obligations. According to Brazil, the only valid resolution of this contradiction is to interpret Article XIII of the GATT 1994 so as to prevent Members from allocating shares within the tariff-rate quota to non-Members. In Brazil's view, the origin and nature of the tariff-rate quota need to be considered, and the Panel erred in concluding that the compensatory nature of the tariff-rate quota opened under the terms of Article XXVIII of the GATT was not to be considered and that Article XIII of the GATT 1994 was simply a general provision.

4. Article X of the GATT 1994

16. Brazil alleges that the Panel erroneously assessed measures of general application under Article X of the GATT 1994. Brazil maintains that any measure of general application will always have to be applied to specific cases. Therefore, a panel cannot dismiss a claim of inconsistency with Article X of the GATT 1994 merely because the impact of the inconsistency is felt by individual traders in individual situations. The generally applicable regulations of the European Communities under review do not allow Brazilian traders to know whether the rules relating to in-quota or out-of-quota trade will be applicable to a particular shipment of frozen poultry meat. The object of Article X of the GATT 1994 is to ensure that traders can become familiar with the applicable trade rules. According to Brazil, mere publication of the rules is not sufficient to ensure familiarity and predictability. The rules must be drafted and administered in a reasonable way. According to Brazil, the Panel should have applied the principle of legal certainty to its examination of Article X of the GATT 1994 and its application to trade in frozen poultry meat.

17. Brazil submits that EC laws should allow traders to know which set of conditions is applicable (the in-quota or the out-of-quota system) in a particular case. There is a general need to draft clear general rules that will allow traders to distinguish between two systems that may be applicable in a given case. The Panel assumed that Brazil was arguing for transparency in each specific licence or shipment. The lack of clarity and transparency in the general rules and in their administration inevitably impact upon specific shipments and licences.

5. Agreement on Import Licensing Procedures

18. To Brazil, the Agreement on Import Licensing Procedures (the "Licensing Agreement") >applies to both in-quota and out-of-quota trade in frozen poultry meat from Brazil to the European Communities, and, in Brazil's view, the Panel erred in interpreting Article 3.2 of the Licensing Agreement as applicable only to in-quota trade. Brazil argues that the Panel failed to give an objective statement of reasons for this particular conclusion, and that there is nothing in the text of the Licensing Agreement to justify the Panel's findings. In the view of Brazil, nothing in the text or context of Articles 1.2 and 3.2 of the Licensing Agreement limits exclusively to in-quota trade the requirement that licensing systems for tariff-rate quotas be "implemented ... with a view to preventing trade distortions".

19. The Panel, in examining whether there had been trade distortions in out-of-quota trade, dismissed the evidence submitted by Brazil on its falling market share. This evidence relates to Brazil's claim that the licensing system distorts total trade. According to Brazil, in holding that an increase in exports demonstrated that the decline in the percentage share in total trade was, first, not relevant and, second, not due to a violation of the Licensing Agreement, the Panel failed to address the real issue, which is, whether the fall in the market share was caused by the introduction of the licensing system. Brazil believes that it established a prima facie case of distortion of trade and that the burden of proof had shifted to the European Communities to show why the licensing system was not distorting trade. The Panel did not address this matter.

20. According to Brazil, the administration by the European Communities of the tariff-rate quota for frozen poultry meat does not comply with the requirements of fairness, equity and proportionality expressed in Article 1.2, and in the preamble, to the Licensing Agreement. Brazil argues that the European Communities allows speculation in licences and the proliferation of traders. Allowing speculation is unfair and distorts trade. It is also "disproportionate". The Panel failed to examine whether speculation was affecting trade relations between Brazilian exporters and EC importers with the subsequent reduction in Brazil's market share. Brazil maintains that the Panel should also have examined the changes to the licensing rules, licence entitlement based on export performance, and the issuance of licences in non-economic quantities in the light of the requirement not to distort trade. Allowing the volume covered by individual licences to fall to below 5.5 tonnes is "disproportionate". The Panel places an unusual emphasis on the fact that the tariff-rate quota licences were fully utilized. According to Brazil, there has been full utilization of the licences because an economic benefit accrues to the holder of the licence when the privilege to import is exercised. The licences can be fully utilized even if the rules on administering the licences are "disproportionate" and unreasonable.

21. Brazil maintains that the Panel incorrectly restricted Brazil's claims concerning transparency under the Licensing Agreement to an analysis of Article 3.5(a) of the Licensing Agreement. The administration of import licences in such a way that the exporter does not know what trade rules apply is, Brazil insists, a breach of the fundamental objective of the Licensing Agreement. Brazil made a comprehensive claim before the Panel relating to the violation of "the general principle of transparency" in the administration of the licensing procedures "as laid down in the Preamble and which underpin" the Licensing Agreement. The Panel did not address this claim.

6. Article 11 of the DSU

22. Brazil asserts also that the Panel did not fulfil the duties incumbent upon it under Article 11 of the DSU. Although Brazil acknowledges that Article 11 of the DSU should not be interpreted so as to limit the scope of any investigation a panel might wish to make or to limit what a panel considers will assist the DSB in making recommendations, Brazil maintains nonetheless that the wide discretion to examine issues of concern should not disguise a failure of a panel to fulfil the requirement to make an objective assessment of the matter before it. Nor, when a panel chooses to examine issues of principle, should it be allowed the discretion not to examine evidence of the practice of Members in relation to those principles.

23. Brazil also contends that the Panel did not address a series of arguments put forward by Brazil in relation to both GATT law and the practice of the Members: first, the similarities between Articles XXVIII and XXIV of the GATT that lead Brazil to question why the MFN principle in Article I of the GATT 1994 must always apply in relation to Article XXVIII, but not necessarily so in relation to Article XXIV; second, the flexible nature of Article XXVIII of the GATT, which permits bilateral agreements and the opening of bilateral concessions subject to the review of all Members; and, third, the text of Article XXVIII of the GATT, which allows the establishment of country-specific tariff-rate quotas when other Members do not object.

24. The Panel failed in its obligation to the DSB to examine the practice of the Members. The Panel erred in law in considering that the practice of the Members does not show the possibility of departing from the MFN principle in the case of tariff-rate quotas resulting from Article XXVIII of the GATT. According to Brazil, Article XXVIII of the GATT, in and of itself, cannot be used by the Panel as an evidence to show that the Oilseeds Agreement signed between the European Communities and Brazil could not give rise to country-specific tariff-rate quotas.

25. Brazil submits that panels, and the Appellate Body, do not have the competence, within the terms of the DSU, to limit or change the clear terms of agreements made between two Members to which the other Members do not object. The MFN principle is not absolute; there are exceptions. If the Members have determined that the tariff-rate quota for frozen poultry meat is an exception, then a panel must respect that determination of the Members. If, on the other hand, a panel does find that an agreement is void, it must examine the consequences of such a void agreement. The Panel did not examine this matter.

To continue with European Communities - Appellee


1 WT/DS69/R, 12 March 1998.

2 Adopted 25 January 1990, BISD 37S/86; and DS28/R, 31 March 1992.

3 Official Journal No. L 91, 8 April 1994, p. 1.

4 Official Journal No. L 156, 23 June 1994, p. 9.

5 Schedule LXXX of the European Communities, Final Act Embodying the Uruguay Round of Multilateral Trade Negotiations, done at Marrakesh, 15 April 1994.

6 Official Journal No. L 282, 1 November 1975, p. 77.

7 Official Journal No. L 349, 31 December 1994, p. 105.

8 Official Journal No. L 145, 29 June 1995, p. 47.

9 Regulation 1484/95, Article 2.

10 Panel Report, paras. 294-298.

11 Panel Report, para. 299.

12 WT/DS69/4, 29 April 1998.

13 Pursuant to Rule 21(1) of the Working Procedures.

14 Pursuant to Rule 23(1) of the Working Procedures.

15 Pursuant to Rule 22 of the Working Procedures.

16 Pursuant to Rule 23(3) of the Working Procedures.

17 Pursuant to Rule 24 of the Working Procedures.

18 Done at Vienna, 23 May 1969, 1155 U.N.T.S. 33; 8 International Legal Materials 679.

19 Adopted 25 September 1997, WT/DS27/R/ECU, WT/DS27/R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX, and WT/DS27/R/USA.