What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

espa�ol - fran�ais - portugu�s
Search

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

(Continued)


B. European Communities - Appellee

1. The Oilseeds Agreement

26. In the view of the European Communities, the Panel reasonably and correctly performed its task of interpreting the Oilseeds Agreement in the proper manner, by applying the principles established in Article 31 of the Vienna Convention. First, the Panel identified the relevant part of the agreement in dispute. Second, when addressing the "ordinary meaning" of the relevant terms of the Oilseeds Agreement, the Panel analyzed the arguments of both parties to conclude that "[various arguments made by Brazil] do not constitute conclusive evidence to the effect that the particular terms used in the Oilseeds Agreement must be read in the way claimed by Brazil". Third, the Panel also concluded that the context of the terms "global annual tariff quota" does not give any additional guidance for the purpose of determining a particular interpretation of the terms involved. Fourth, the Panel analyzed the object and purpose of the Oilseeds Agreement, which could not be assessed without determining the object and purpose of the procedure set out in Article XXVIII of the GATT. According to the European Communities, such an analysis is necessary in particular to consider the inter-relationship between this provision and Article I of the GATT 1994. The conclusion of the Panel that there is no provision in the WTO Agreements which allows departure from the MFN principle in the case of tariff-rate quotas resulting from Article XXVIII negotiations removed any reasonable need to address the subordinate issue of the object and purpose of the specific procedure under Article XXVIII that was concluded with the Oilseeds Agreement.

2. Article XXVIII of the GATT

27. The European Communities maintains that the Panel findings on the interpretation of Article XXVIII of the GATT are correct, and that the arguments put forward by the Panel to demonstrate 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 are extensively reasoned.

28. In the view of the European Communities, Article XXVIII is lex generalis insofar as it provides the normal procedural framework to be used by any Member in order legally to modify, change or withdraw, totally or partially, one of its concessions. Brazil is "wrong" to suggest that there is nothing in Article XXVIII of the GATT that prevents two contracting parties from agreeing on a country-specific package of compensatory measures. The European Communities argues that the terms of Article XXVIII:2, read in their context and in the light of its object and purpose, do not support Brazil's claims with respect to the Oilseeds Agreement. The agreement resulting from the Article XXVIII oilseeds negotiations and the poultry meat tariff concessions resulting from the Marrakesh Agreement Establishing the World Trade Organization 20 (the"WTO Agreement") had the same objective. The fact that the oilseeds negotiations and the Uruguay Round negotiations were initiated for partially different reasons cannot affect these conclusions. The negotiating history of Article XXVIII of the GATT confirms that Articles I and XIII of the GATT 1994 must be respected when achieving an agreement in the framework of compensatory adjustment negotiations. The fact that the Article XXVIII negotiating process occurs on a bilateral basis cannot change this.

3. Article XIII of the GATT 1994

29. The European Communities argues that Brazil's claim concerning the existence of an agreement between the European Communities and Brazil on the allocation of the tariff-rate quota for frozen poultry meat should be rejected. The Panel's conclusions, drawn from the examination of the letters sent by Brazil to the European Communities, are logical and fully reasoned and relate to questions of fact. Thus, Brazil's complaints in this respect appear totally unjustified and cannot properly be the subject of this appeal. According to the European Communities, the fact that the European Communities did not answer these letters officially is further evidence of the lack of explicit (or even implicit) agreement with Brazil on this issue.

30. The European Communities states furthermore that the Panel correctly interpreted Article XIII:2(d) of the GATT 1994 and that Brazil's appeal of the Panel's finding that Article XIII does not oblige Members to include or exclude non-Members therefore should be rejected. The EC position that Article XIII of the GATT 1994 operates only as a positive obligation to provide MFN treatment to Members when allocating tariff-rate quota shares is based on both the terms of Article XIII:2 and on its objective. An allocation of a share of a tariff-rate quota has been considered to be an advantage by the Appellate Body in EC - Bananas 21 to such an extent that the basic principle of non-discrimination applies strictly when allocating shares of a tariff-rate quota, including for Members not having a substantial interest. Thus, by assigning a share of the tariff-rate quota to all substantially interested Members, including Brazil, the European Communities has provided Brazil with the best possible (and legally sound) situation in the trade of frozen poultry meat within the tariff-rate quota.

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.

4. Article X of the GATT 1994

33. The European Communities submits that the Panel's approach in interpreting "measures of general application" in Article X of the GATT 1994 was correct. Article X requires that the general terms and conditions of trade regulation be transparent so that operators are aware of the conditions applying to commerce. Application of Article X in the manner suggested by Brazil would be impossible to implement in practice and would require that Members manage completely the terms and conditions of trade. With respect to out-of-quota trade, the European Communities demonstrated, to the satisfaction of the Panel, as a matter of fact, that it has fully complied with the requirements of Article X. By arguing that the Panel mischaracterized its claim under Article X, Brazil is seeking to refine and re-organise its arguments. Brazil also raises an additional argument that the Panel erred in law by failing to apply the principle of legal certainty. According to the European Communities, the approach followed by Brazil is contrary to the provisions of Article 17.6 of the DSU, and therefore those of Brazil's submissions that amount to either a re-characterization of its arguments or to new arguments not submitted to the Panel should be dismissed as inadmissible.

5. Agreement on Import Licensing Procedures

34. The European Communities contends that the Panel correctly restricted the application of the Licensing Agreement to in-quota trade. This ruling is not only consistent with the text of the Agreement, but also it is the logical consequence of the Panel's ruling on Article X of the GATT 1994. Articles 1.2 and 3.2 of the Licensing Agreement make it clear that the trade restriction is clearly linked to the effects flowing from the restriction imposed.

35. The European Communities submits that Brazil has been unable to demonstrate any trade distorting effects of the administration of the tariff-rate quota for frozen poultry meat, on either in-quota or out-of-quota trade. Brazil's submissions concerning falling market share and burden of proof amount to a request to the Appellate Body not to correct an error of law by the Panel but rather to re-investigate and re-assess the factual questions before the Panel. These submissions do not fall within the proper scope of the appellate process. Brazil seeks to advance before the Appellate Body "re-worked arguments" on transparency, equity and proportionality, thereby re-introducing its arguments on speculation and economic quantities that were considered and dismissed by the Panel. This constitutes an "abuse" by Brazil of the appellate process.

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".

C. European Communities - Appellant

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.

To continue with Brazil - Appellee


20 Done at Marrakesh, 15 April 1994.

21 Brazil refers to Appellate Body Report, EC - Bananas, adopted 25 September 1997, WT/DS27/AB/R, paras. 161 and 162.