31. The European Communities insists that while there is a general obligation to treat on an MFN basis any Member
with respect to advantages granted even to a non-Member, there is no provision in the WTO Agreement forbidding
Members from providing market access to non-Members on an MFN basis. Moreover, Brazil's claim that the European
Communities should exclude any non-Member supplying country from the allocation of the tariff-rate quota would
inevitably entail an increase in its share of the tariff-rate quota. This is an "unjustified" request in the light
of the chapeau of Article XIII:2 of the GATT 1994. Market access to the residual part of a tariff-rate quota is a
matter that cannot harm in any manner the trade interests of Members having a substantial interest if their shares
have been correctly allocated in accordance with the relevant provisions of Article XIII. According to the European
Communities, this is the case for Brazil with respect to the allocation of the duty-free tariff-rate quota concerning
frozen poultry meat, and therefore Brazil's position that Article XIII of the GATT 1994 is for the benefit of Members
only is incorrect.
32. The European Communities maintains that the text of Article XIII:2(d) of the GATT 1994 is clear: a quota must
be allocated among "supplying countries". However, the rights and obligations attached to the allocation
between supplying countries having a substantial interest apply only to "contracting parties". Thus, only substantial
suppliers who are Members can claim participation in an agreed distribution or can expect a share in case the importing
Member proceeds to an allocation. According to the terms of Article XIII, the shares to be allocated to the substantial
suppliers/Members can be calculated as "proportions � of the total quantity or value
of imports of the products". The European Communities insists that it applied the provisions of Article XIII:2(d) to
the tariff-rate quota for frozen poultry meat: "the allocation has been effected only with respect to Members having
a substantial interest on the basis of proportions of imports into the EC during a previous representative period of
three years". Non-Member participation has been limited to the "others" category.
6. Article 11 of the DSU
36. The European Communities agrees with the Panel that Article XXVIII of the GATT does not waive Members'
obligations with respect to the MFN clauses contained in Articles I and XIII of the GATT 1994. In the context of
the tariff-rate quota for frozen poultry meat, the issue of the relations between Article XXIV and Article XXVIII
was a "side-issue". Although paragraphs 4 and 5 of Article XXIV provide a legal basis for an exception to Article I
of the GATT 1994, these relate to the actual creation of a customs union. The Oilseeds Agreement did not involve
the creation of a customs union or a free-trade area. The Panel was therefore fully justified in not addressing
that specific argument. According to the European Communities, Brazil confuses the legal nature of a particular
tariff treatment granted through an Article XXVIII procedure, that is based on the MFN, with the economic effects
of that particular tariff treatment. Article XXVIII is a procedural, rather than a substantive, provision and no
Article XXVIII negotiation in which the European Communities was involved was concluded with a non-MFN agreement.
37. With respect to the practice of Members in Article XXVIII negotiations, the European Communities asserts
that Brazil has not shown the existence of a "concordant, common and consistent" practice of non-MFN Article
XXVIII agreements. Brazil's argument that Articles I and XIII do not necessarily apply to tariff-rate quotas
opened as a result of compensation negotiations under Article XXVIII of the GATT, is not supported either by the
text of the WTO Agreement or past GATT practice. The WTO Agreement entered into force after the
conclusion of the Oilseeds Agreement. At the time of the negotiation of the Oilseeds Agreement, the practice of
the GATT contracting parties, including panels, was squarely within the MFN interpretation of concessions. Moreover,
as found by the Panel, the Oilseeds Agreement was incorporated into Schedule LXXX, whose poultry meat tariff
concession is also undisputedly a MFN tariff commitment. Finally, the Oilseeds Agreement was "undoubtedly
aimed at (partially) replacing MFN concessions in Oilseeds".
1. Relationship between Schedule LXXX and the Oilseeds Agreement
38. The European Communities is satisfied with the conclusion reached in the Panel Report on the relationship
between the Oilseeds Agreement and Schedule LXXX, but submits that the Panel should have followed a different line
of legal reasoning to reach that conclusion. According to the European Communities, the relationship between the
bilateral Oilseeds Agreement and the later Schedule LXXX should be examined on the basis of Article 59.1, or, in
the alternative, Article 30.3, of the Vienna Convention. The Panel did not draw the logical conclusions from
its finding in paragraph 206 of the Panel Report that Articles 59.1 and 30.3 of the Vienna Convention are
customary rules of interpretation of public international law. Rather than applying Article 3.2 of the DSU and the
Vienna Convention, the Panel referred to the panel report in EEC - Oilseeds, which pre-dates the entry
into force of the DSU and which is therefore "irrelevant" in this case because it was decided in the context of a
non-violation case.
39. The undisputed evidence before the Panel showed that the results of the bilateral Oilseeds Agreement were
incorporated into the final stages of the negotiations of Schedule LXXX and eventually agreed and ratified by all
parties, including Brazil. This was a "conscious act" of the two parties in order to clarify their mutual obligations.
In the meantime, the European Communities had autonomously put into force the tariff-rate quota as an MFN market
access opportunity. The fact that the EC Schedule applicable at the time did not provide for any tariff treatment
for frozen poultry meat other than variable levies should not be overlooked.
40. In the present case, the European Communities asserts that only one alternative is logically possible:
either the Oilseeds Agreement and Schedule LXXX are identical in their content, or they are not. If they are
identical, then the principle laid down in Article 59.1 of the Vienna Convention must be applicable
because, in the specific context of the WTO, Brazil and the European Communities intended that the matter should
be governed by the later treaty, which introduced the tariff-rate quota as a new element of tariff binding within
the framework of the EC Schedule. If they are not identical, the earlier Oilseeds Agreement was changed by the
later Schedule LXXX with the assent and the active participation of all parties, including Brazil. Thus, the rule
established by Article 30.3 of the Vienna Convention must be applicable, and the Oilseeds
Agreement can only be applied to the extent that its provisions are compatible with those of the later treaty,
namely, Schedule LXXX. And, in the view of the European Communities, there cannot be any doubt that a new
tariff-rate quota negotiated during the Uruguay Round was meant to be applied on an MFN basis.
2. Agreement on Agriculture
41. The European Communities contends that contrary to the legal interpretation applied by the majority
of the Panel, the phrase "on the basis of the c.i.f. import price" in Article 5.1(b) of the Agreement on
Agriculture refers to the cost of the product plus insurance and freight charges and does not include the
duties payable.
42. Article 5.1(b) refers to the price at which imports "may enter" the customs territory. This wording
confirms that the price in issue is that which is calculated at the moment a shipment arrives and before its
entry on to the EC market, at which point taxes and duties become payable. The Panel incorrectly assumed that
the words "the price at which imports of that product may enter the customs territory" and the words "market
entry price" are equivalent. The phrase "on the basis of" in Article 5.1(b) means "founded on". The authors of
the Agreement on Agriculture selected the c.i.f. price as the principal parameter for the application of
the special safeguard. The Panel's statement in paragraph 278 of the Panel Report that "the market entry price
is something that has to be constructed using the c.i.f. price as one of the parameters" incorrectly presupposes
that the c.i.f. price is always the basis for the calculation of the duties to be included in the notion of
"market entry price". Duties upon importation of frozen poultry meat into the European Communities are not
ad valorem but, rather, fixed duties that are calculated on the basis of the quantities imported and
not on the basis of the c.i.f. price. The European Communities maintains that the Panel's "restrictive"
reading of Article 5.1(b) does not take account of the proper context of that provision, in particular,
footnote 2 to Article 5.1(b) and Article 5.5, and disregards the fact that the system applying the special
safeguard clause is separate and parallel to the tariffication scheme applied under Article 4.2 of the
Agreement on Agriculture.
43. Moreover, the European Communities states, the Panel disregarded the broader context of the border
protection measures in the agricultural sector that existed before the Uruguay Round and their conversion
into ordinary customs duties. The special safeguard provision exists to ensure that unknown or unpredictable
factors that would cause c.i.f. prices of imports to drop below the level taken as a reference point during
the Uruguay Round negotiations, could not fundamentally alter the internal market prices and the domestic
price support system. This is in line with the results of tariffication as embodied in the schedules. It
is for this reason that Articles 5.1 and 5.5 of the Agreement on Agriculture provide for calculation
of the additional duty "on the basis of the c.i.f. price". If this basis is altered, then the entire result
of the Uruguay Round is modified. The result of the majority of the Panel's interpretation is, as the
dissenting member noted, that where a specific duty is payable and this is higher than the trigger price,
the trigger price can never be exceeded. With respect to "subsequent practice" in Article 31.3(b) of the
Vienna Convention, the European Communities understands that the practice of other Members is not
to include customs duties in the calculation under Article 5.1(b). A document used in the WTO technical
assistance training courses confirms this approach.
44. Should the Appellate Body reverse the Panel's findings relating to Article 5.1(b) of the
Agreement on Agriculture, the European Communities submits that the Appellate Body should dismiss
Brazil's requests that issues relating to Articles 5.5 and 4.2 of that Agreement be taken up. These issues
were not appealed in accordance with the rules on the scope of an appeal in Article 16.4 of the DSU and in
Rules 20.2(d) and 21.2(b)(i) of the Working Procedures. For reasons of due process, consistency and
fair treatment among all Members, the European Communities argues that the Appellate Body should not depart
from the "strict" interpretation of these provisions adopted in EC - Bananas. In respect of the
reason given by the Division in the course of the oral hearing, "i.e. that 'due process considerations'
justified an additional exchange of written memoranda" between the participants, the European Communities
wonders whether it would be compatible with the DSU to incorporate other due process considerations that
are not included in the DSU, any other covered agreement, or the Working Procedures. Any specific
procedures adopted pursuant to Rule 16.1 of the Working Procedures must be consistent with the DSU,
the other covered agreements and the Working Procedures themselves.
45. According to the European Communities, in practice, there is no need for the Appellate Body to
address in this case the theoretical issue raised by Brazil of whether the application by a panel of the
principle of judicial economy would allow departure from the explicit provisions of Article 16.4 of the
DSU and Rule 20 of the Working Procedures. The Panel made a finding in paragraph 286 with respect
to Article 5 of the Agreement on Agriculture and Article X of the GATT 1994, that Brazil "had not
specified the manner in which the EC has violated these provisions". Brazil did not appeal from this
finding, and the European Communities cannot be required to suffer the consequences of an appellant's
failure to define properly the scope of its appeal.
46. According to the European Communities, Brazil's claim under Article 4.2 of the Agreement on
Agriculture was vague and was not supported by factual or legal arguments. The purpose of the appellate
process is not to allow Members to correct or re-plead arguments that were barely sketched out in the panel
procedure and which, with hindsight, may be expanded, refined or improved. Brazil should not be allowed to
abuse the appellate procedure by invoking non-existent reasons of "due process" when Brazil did not properly
make its case clear during the panel procedure. In any event, the Panel's findings on Articles 5.5 and 4.2 are
not logically or legally linked with the issues concerning the interpretation of Article 5.1(b) of the
Agreement on Agriculture, and the Panel erred in creating a link among these provisions that is
non-existent in fact and law.
47. In the view of the European Communities, a determination as to whether the representative price violates
Articles 5.5 and 4.2 of the Agreement on Agriculture requires a finding of fact centered on the
examination of EC legislation. Examination of EC legislation is not an interpretation of legislation as such:
it is a judgment as to whether or not the European Communities, in applying its law, is acting in conformity
with its WTO obligations. The Appellate Body cannot address issues of fact and is bound by the determinations
of fact made during the panel procedure. Brazil itself admits that the Appellate Body would have to address
issues of fact in order to decide these questions. The European Communities submits that certain assertions
by Brazil relating to the document submitted by the European Communities to the Panel on 21 November 1997
misrepresent the reality of the panel procedure. The European Communities also states that Brazil breached
the confidentiality requirements of the panel procedure.
48. According to the European Communities, Brazil acknowledges that the EC rules on the application of
the special safeguard provision are in line with the provisions of Article 5 of the Agreement on
Agriculture. Thus, Brazil has formally accepted that its complaint concerning Article 5.5 of the
Agreement on Agriculture is unfounded in law and should be dismissed.
49. The European Communities observes further that the Agreement on Agriculture does not impose
a pre-determined system of calculating the "c.i.f. price of the shipment expressed in terms of the domestic
currency." Thus, the fact that a representative price system is not explicitly provided in the Agreement
on Agriculture does not imply that the use of such a system automatically constitutes a violation of
Article 5. The representative price is based on two main regulations. First, Regulation 3290/94, which
implements the agreements concluded during the Uruguay Round in the agricultural sector, amends Regulation
2777/75. The revised version of Article 5.3 of Regulation 2777/75 lays down the general rule for the
application of the special safeguard additional duties as provided for in Article 5 of the Agreement
on Agriculture. Second, the detailed rules for the application of this provision are found in Regulation
1484/95. The European Communities states that Article 3 of that Regulation shows that "any importer is
completely free to follow an approach based on a shipment by shipment basis if he so wishes", as indicated
by Article 5 of the Agreement on Agriculture. The apparent limitation of this entitlement to situations
in which the c.i.f. import price is higher than the applicable representative price is not in violation of
the Agreement on Agriculture. It represents, in fact, a substantial benefit for the importer: if the
c.i.f. price is lower than the representative price, then the additional duty to be paid is higher.
50. The European Communities states that the representative price, which is an average c.i.f. price,
is determined at regular intervals in order to keep the system up-to-date. Availability of recourse to the
different sources set out in Article 2.1 of Regulation 1484/95 is designed to ensure that the average c.i.f.
price arrived at for a given country of origin "is truly representative". For the poultry products in question,
the representative price is, in general, calculated on the basis of free-at-frontier offer prices transmitted
by the EC member states, either from usual monthly import statistics or from ad hoc price recording of
such date by importers. Thus, the European Communities is, in fact, using the free-at-frontier price. The
representative price is a means of boosting trade by reducing bureaucracy and paperwork.
51. According to the European Communities, the representative price does not impose penalties on, or create
deterrents for, the importer. According to Article 3.2 of Regulation 1484/95, the importer is given four months
from the date of acceptance of the declaration of release for free circulation to provide the necessary proof
that the c.i.f. import price is higher than the representative price. If no such proof is provided, then the
security is withheld. This security amounts exactly to the additional duty calculated on the basis of the
representative price plus interest as from the date of release of the goods into free circulation. The
evidence requested of the operators in order to establish the c.i.f. price of a specific shipment consists
of normal and customary commercial documents for the shipment of the products. The representative price is
"more transparent" than the determination of the c.i.f. price on a shipment-by-shipment basis. It is a "more
stable and less variable system" than the shipment-by-shipment approach explicitly mentioned in Article 5.5
of the Agreement on Agriculture. It provides operators with published c.i.f. prices that are regularly
updated, but are applied only after they have been published. There is, according to the European Communities,
no relation between the representative price and a variable levy.
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