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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

(Continued)


IV. Relationship between Schedule LXXX and the Oilseeds Agreement

77. With respect to the relationship between the Oilseeds Agreement and Schedule LXXX in this case, the Panel found, inter alia:

... in the present case, the Oilseeds Agreement was negotiated within the framework of Article XXVIII of GATT. Insofar as the content of the Oilseeds Agreement is incorporated into Schedule LXXX - a point not disputed by the parties - there is a close connection between the two. 22

The Panel also stated:

the Oilseeds Agreement was concluded within the context of Article XXVIII negotiations. Under ordinary circumstances, the resulting modification of the EC tariff schedule would have been certified by the Director-General pursuant to the 1980 procedure for modification and rectification of schedules. However, as the conclusion of the Oilseeds Agreement coincided with the substantive conclusion of tariff negotiations in the Uruguay Round, this procedure was not strictly followed. The EC directly incorporated the substance of the Oilseeds Agreement into its then-current tariff schedule, effective 1 January 1994, and also into Schedule LXXX at the conclusion of the Uruguay Round negotiations. This procedural anomaly, in our view, does not affect the legal characterization of the Oilseeds Agreement as a bilateral agreement concluded within the context of Article XXVIII negotiations, as is evidenced by the fact that the negotiations leading to its conclusion were authorized by the CONTRACTING PARTIES. 23

The Panel asserted that it would:

proceed to the examination of the Oilseeds Agreement to the extent relevant to the determination of the EC's obligations under the WTO agreements vis-à-vis Brazil. 24

78. Although the European Communities is satisfied with the practical result of the Panel Report on this point, the European Communities argues that the Panel erred in its interpretation of the relationship between Schedule LXXX and the Oilseeds Agreement.25

The Panel did not accept the argument of the European Communities that Schedule LXXX superseded and terminated the Oilseeds Agreement because the WTO Agreement was a later treaty relating to the same subject-matter in accordance with Article 59.1 of the Vienna Convention, or that the Oilseeds Agreement only applies to the extent compatible with Schedule LXXX in accordance with Article 30.3 of the Vienna Convention. The Panel stated:

... we cannot summarily dismiss the significance of the Oilseeds Agreement in the interpretation of Schedule LXXX by recourse to the public international law principles embodied in the Vienna Convention. 26

79. In our view, it is not necessary to have recourse to either Article 59.1 or Article 30.3 of the Vienna Convention, because the text of the WTO Agreement and the legal arrangements governing the transition from the GATT 1947 to the WTO resolve the issue of the relationship between Schedule LXXX and the Oilseeds Agreement in this case. Schedule LXXX is annexed to the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994 (the "Marrakesh Protocol"), and is an integral part of the GATT 1994. 27 As such, it forms part of the multilateral obligations under the WTO Agreement. The Oilseeds Agreement, in contrast, is a bilateral agreement negotiated by the European Communities and Brazil under Article XXVIII of the GATT 1947, as part of the resolution of the dispute in EEC - Oilseeds. 28 As such, the Oilseeds Agreement is not a "covered agreement" within the meaning of Articles 1 and 2 of the DSU. Nor is the Oilseeds Agreement part of the multilateral obligations accepted by Brazil and the European Communities pursuant to the WTO Agreement, which came into effect on 1 January 1995. The Oilseeds Agreement is not cited in any Annex to the WTO Agreement. Although the provisions of certain legal instruments that entered into force under the GATT 1947 were made part of the GATT 1994 pursuant to the language in Annex 1A incorporating the GATT 1994 into the WTO Agreement29, the Oilseeds Agreement is not one of those legal instruments.

80. Furthermore, the Oilseeds Agreement does not constitute part of the "decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947" by which the WTO "shall be guided" under Article XVI:1 of the WTO Agreement. These "decisions, procedures and customary practices" include only those taken or followed by the CONTRACTING PARTIES to the GATT 1947 acting jointly.

81. It is Schedule LXXX, rather than the Oilseeds Agreement, which contains the relevant obligations of the European Communities under the WTO Agreement. Therefore, it is Schedule LXXX, rather than the Oilseeds Agreement, which forms the legal basis for this dispute and which must be interpreted in accordance with "customary rules of interpretation of public international law" under Article 3.2 of the DSU.

82. In European Communities - Customs Classification of Certain Computer Equipment, we made the following general statement on the interpretation of concessions in a Member's Schedule:

A Schedule is made an integral part of the GATT 1994 by Article II:7 of the GATT 1994. Therefore, the concessions provided for in that Schedule are part of the terms of the treaty. As such, the only rules which may be applied in interpreting the meaning of a concession are the general rules of treaty interpretation set out in the Vienna Convention.30

83. We recognize that the Oilseeds Agreement was negotiated within the framework of Article XXVIII of the GATT 1947 with the authorization of the CONTRACTING PARTIES and that both parties agree that the substance of the Oilseeds Agreement was the basis for the 15,500 tonne tariff-rate quota for frozen poultry meat that became a concession of the European Communities in the Uruguay Round set forth in Schedule LXXX. Therefore, in our view, the Oilseeds Agreement may serve as a supplementary means of interpretation of Schedule LXXX pursuant to Article 32 of the Vienna Convention, as it is part of the historical background of the concessions of the European Communities for frozen poultry meat.

84. The Panel accepts that the Oilseeds Agreement can be useful in interpreting the EC concession on frozen poultry meat in Schedule LXXX.31 In paragraph 202, the Panel states "we proceed to the examination of the Oilseeds Agreement to the extent relevant to the determination of the EC's obligations under the WTO agreements vis-à-vis Brazil". (emphasis added) In paragraph 207, the Panel states, "we cannot summarily dismiss the significance of the Oilseeds Agreement in the interpretation of Schedule LXXX by recourse to the public international law principles embodied in the Vienna Convention". (emphasis added)

85. We find no reversible error in the Panel's treatment of the relationship between Schedule LXXX and the Oilseeds Agreement.

V. The Tariff-Rate Quota in Schedule LXXX

86. Three legal issues are raised with respect to the tariff-rate quota for frozen poultry meat in Schedule LXXX:

(a) Whether the tariff-rate quota of 15,500 tonnes for frozen poultry meat specified in Schedule LXXX is allocated exclusively for the benefit of Brazil, and whether an agreement existed between Brazil and the European Communities on the allocation of the tariff-rate quota within the meaning of Article XIII:2(d) of the GATT 1994;

(b) Whether a tariff-rate quota resulting from negotiations under Article XXVIII of the GATT 1947 must be administered in a non-discriminatory manner consistent with Article XIII of the GATT 1994; and

(c) Whether the trade of non-Members should be taken into account in calculating tariff-rate quota shares under Article XIII of the GATT 1994.

A. The Exclusive or Non-exclusive Character of the Tariff-Rate Quota for Frozen Poultry Meat in Schedule LXXX

87. With respect to the tariff-rate quota for frozen poultry meat of 15,500 tonnes specified in Schedule LXXX, the Panel found, inter alia:

To sum up our findings in this section, we find no proof (either in the text or in the object and purpose of the Oilseeds Agreement) in support of the Brazilian claim that the poultry TRQ opened as the result of the Oilseeds Agreement was intended to be a country-specific tariff quota with Brazil being the sole beneficiary. In other words, we find that the European Communities is bound, on an MFN basis, by its tariff commitments for frozen poultry meat.32

88. Brazil argues that the Panel erred in finding that the tariff-rate quota for frozen poultry meat was not allocated exclusively to Brazil, and in finding that there was no explicit agreement between Brazil and the European Communities to this effect within the meaning of Article XIII:2(d) of the GATT 1994. 33 Brazil contends further that the Panel erred in limiting its examination of the Oilseeds Agreement to the "relevant parts" of that Agreement, and in failing to examine all the provisions of the Oilseeds Agreement in accordance with Article 31 of the Vienna Convention.34

89. As we stated previously, it is Schedule LXXX, rather than the Oilseeds Agreement, that is the relevant WTO obligation in this dispute and that must therefore be interpreted in accordance with "customary rules of interpretation of public international law" under Article 3.2 of the DSU.

90. Part I (Most-Favoured-Nation-Tariff), Section I (Agricultural Products), Section I-B (Tariff Quotas) of Schedule LXXX provides a duty-free quota of 15,500 tonnes of frozen poultry meat falling within CN subheadings 0207 41 10, 0207 41 41 and 0207 41 71. There are no "other terms and conditions" specified relating to this tariff-rate quota in Schedule LXXX, and, in particular, there is no reference to the Oilseeds Agreement and no mention that the tariff-rate quota is exclusively reserved for exports from Brazil. The fact that the tariff-rate quota for frozen poultry meat appears in Part I under the heading "Most-Favoured-Nation Tariff" and that there are no other terms or conditions specified in Schedule LXXX concerning that concession would suggest, on the basis of the ordinary meaning of the terms, that the tariff-rate quota for frozen poultry meat was intended to be allocated on an MFN basis.

91. This view is confirmed by an examination of the relevant provisions of the Oilseeds Agreement as a supplementary means of interpretation of the concessions made by the European Communities in Schedule LXXX. A footnote in the Oilseeds Agreement states:

Duty exemption shall be applicable for cuts falling within subheadings 0207.41.10, 0207.41.41 and 0207.41.71 within the limits of a global annual tariff quota of 15.500 tonnes to be granted by the competent Community authorities. (emphasis added)

92. The Oilseeds Agreement uses the term "global annual tariff quota" in describing the 15,500 tonnes. Although we agree with the Panel that this term is "non-legal", nevertheless, this is a term well-understood in GATT/WTO practice to mean a tariff-rate quota that is to be administered on a non-discriminatory basis pursuant to Article XIII of the GATT 1994. As early as the Havana Conference in 1947, it was pointed out during discussions on the provision that later became Article XIII of the GATT that "global quotas not allocated among supplying countries might sometimes operate in a manner unduly favourable to those countries best able for any reason to take prompt advantage of the global quotas at the opening of the quota period". 35 (emphasis added) We also refer to the statement in Panel on Newsprint:

In examining the EEC Regulation 3684/83, the Panel found that it did not in fact constitute a change in the administration or management of the tariff quota from a global quota system to a system of country shares, as had been asserted by the EC. 36 (emphasis added)

In both cases, the term "global quota" was used in contrast with quotas allocated on a country-specific basis. In the light of this, and in the absence of any persuasive evidence to the contrary, we cannot construe the term "global annual tariff quota" as used in the Oilseeds Agreement to mean a country-specific quota allocated exclusively to Brazil. 37

93. We proceed next to an examination of Brazil's claim that the Panel erred in finding that there was no evidence of an agreement between Brazil and the European Communities on the allocation of the tariff-rate quota for frozen poultry meat within the meaning of Article XIII:2(d) of the GATT 1994. To conform to Article XIII:2(d), all other Members having a "substantial interest" in supplying the product concerned would have to agree. That is not the case here. As the European Communities did not seek an agreement with Thailand, the other contracting party having a substantial interest in the supply of frozen poultry meat to the European Communities at that time, the Oilseeds Agreement cannot be considered an agreement within the meaning of Article XIII:2(d) of the GATT 1994.

94. We understand Brazil to argue that the bilateral character of the Oilseeds Agreement implies, in itself, that the tariff-rate quota for frozen poultry meat is for Brazil's exclusive benefit and should not be extended to others who are not parties to that Agreement. The bilateral character of the Oilseeds Agreement does not, by itself, constitute evidence of a common intent that the tariff-rate quota was for the exclusive benefit of Brazil. We agree with the Panel that:

most tariff concessions are negotiated bilaterally, but the results of the negotiations are extended on a multilateral basis. The fact that the tariff-rate quota for frozen poultry meat was opened as a result of bilateral negotiations between the EC and Brazil does not mean that the EC was obligated to accord the benefit exclusively to Brazil.38

95. Therefore, we uphold the Panel's finding in paragraph 218 of the Panel Report that there is no adequate proof to support Brazil's claim that the tariff-rate quota for frozen poultry meat set forth in Schedule LXXX was intended to be a country-specific tariff-rate quota with Brazil as the sole beneficiary. We also agree with the Panel that there is no evidence that an agreement, explicit or otherwise, existed between Brazil and the European Communities concerning the allocation of the tariff-rate quota for frozen poultry meat within the meaning of Article XIII:2(d) of the GATT 1994. 39

B. Article XIII of the GATT 1994

96. The Panel found that:

there is no provision in the WTO agreements that allows departure from the MFN principle in the case of TRQs resulting from Article XXVIII negotiations. Nor is there any decision of the CONTRACTING PARTIES or of the Ministerial Conference/General Council, or any adopted panel or Appellate Body report that permits such departure. 40

97. Brazil argues that the MFN principle in Articles I and XIII of the GATT 1994 does not necessarily apply to tariff-rate quotas resulting from compensation negotiations under Article XXVIII of the GATT. 41 According to Brazil, because the purpose of the Oilseeds Agreement was to compensate Brazil for the modification of EC concessions on oilseeds, Brazil is entitled to benefit exclusively from the modified concession. In Brazil's view, the European Communities failed to respect the balance between the withdrawal of a concession and the offering of compensation in another product.42

98. In United States - Restrictions on Imports of Sugar43 ,the panel stated that Article II of the GATT permits contracting parties to incorporate into their Schedules acts yielding rights under the GATT, but not acts diminishing obligations under that Agreement. In our view, this is particularly so with respect to the principle of non-discrimination in Articles I and XIII of the GATT 1994. In EC - Bananas, we confirmed the principle that a Member may yield rights but not diminish its obligations and concluded that it is equally valid for the market access concessions and commitments for agricultural products contained in the Schedules annexed to the GATT 1994.44 The ordinary meaning of the term "concessions" suggests that a Member may yield or waive some of its own rights and grant benefits to other Members, but that it cannot unilaterally diminish its own obligations. 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)

99. Therefore, the concessions contained in Schedule LXXX pertaining to the tariff-rate quota for frozen poultry meat must be consistent with Articles I and XIII of the GATT 1994.

100. Brazil argues that the Oilseeds Agreement was negotiated under Article XXVIII to compensate Brazil for the impairment of benefits from the oilseeds concession. According to Brazil, there is an element of specificity about compensation, which explains and justifies possible departure from the principle of non-discrimination. 45 In support of this interpretation, Brazil refers to compensation under Article XXIV:6 of the GATT. In Brazil's view, no distinction should be made, either in procedure or in intention, between compensation negotiated under Articles XXIV:6 and XXVIII of the GATT. In practice, Brazil maintains, there are examples of both country-specific and non-discriminatory tariff-rate quotas offered and implemented by the European Communities as compensation under Article XXIV:6 of the GATT. There is no reason, Brazil argues, why the same principle should not apply to compensation under Article XXVIII of the GATT. 46 We do not accept this argument. We see nothing in Article XXVIII to suggest that compensation negotiated within its framework may be exempt from compliance with the non-discrimination principle inscribed in Articles I and XIII of the GATT 1994. As the Panel observed, this interpretation is, furthermore, supported by the negotiating history of Article XXVIII. Regarding the provision which eventually became Article XXVIII:3, the Chairman of the Tariff Agreements Committee at Geneva in 1947, concluded:

It was agreed that there was no intention to interfere in any way with the operation of the most-favoured-nation clause. This Article is headed "Modification of Schedules". It refers throughout to concessions negotiated under paragraph 1 of Article II, the Schedules, and there is no reference to Article I, which is the Most-Favoured-Nation Clause. Therefore, I think the intent is clear: that in no way should this Article interfere with the operation of the Most-Favoured-Nation Clause. 47

Although this statement refers specifically to the MFN clause in Article I of the GATT, logic requires that it applies equally to the non-discriminatory administration of quotas and tariff-rate quotas under Article XIII of the GATT 1994.

101. We agree with the Panel that:

If a preferential treatment of a particular trading partner not elsewhere justified is permitted under the pretext of "compensatory adjustment" under Article XXVIII:2, it would create a serious loophole in the multilateral trading system. Such a result would fundamentally alter the overall balance of concessions Article XXVIII is designed to achieve.48

102. For these reasons, we uphold the Panel's finding in paragraph 213 of the Panel Report that a tariff-rate quota which resulted from negotiations under Article XXVIII of the GATT 1947, and which was incorporated into a Member's Uruguay Round Schedule, must be administered in a non-discriminatory manner consistent with Article XIII of the GATT 1994.

C. Treatment of Non-Members under Article XIII of the GATT 1994

103. According to the Panel, there is nothing in Article XIII of the GATT 1994 that obligates Members to calculate tariff-rate quota shares on the basis of imports from Members only. 49 In the Panel's view, if the purpose of using past trade performance is to approximate the shares of Members in the absence of the restrictions, as required under the chapeau of Article XIII:2, exclusion of a non-Member, particularly if it is an efficient supplier, would not serve that purpose. 50 Accordingly, the Panel found:

the EC has not acted inconsistently with Article XIII of GATT by calculating Brazil's tariff quota share based on the total quantity of imports, including those from non-Members. 51

104. Brazil submits that under Article XIII:2(d) of the GATT 1994 non-Members have no right to participate in a tariff-rate quota, and that a Member opening a tariff-rate quota has no right unilaterally to allow such participation. 52 In Brazil's view, the Panel has expanded the wording of Article XIII of the GATT 1994 by allowing the inclusion of non-Members in a tariff-rate quota. 53

105. We note that the finding of the Panel on this point is limited to one issue, namely, whether trade of non-Members may be taken into account in the calculation of shares in a tariff-rate quota. This finding is narrower than the scope of Brazil's argument before the Panel, which was concerned with other issues related to the rights and obligations of Members in relation to non-Members under Article XIII, and particularly the participation of a non-Member in the "others" category of a tariff-rate quota. The Panel's finding is also narrower than the scope of Brazil's appeal, which is concerned with the rights and obligations of Members in relation to non-Members in the administration of tariff-rate quotas under Article XIII.

106. We agree with the Panel that the calculation of shares must be based on the total imports of the product in question -- whether those imports originate from Members or non-Members. Otherwise, it would not be possible to comply with the requirement in the chapeau of Article XIII:2 that:

In applying import restrictions to any product, 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 .

107. This leaves unanswered two issues that were raised by Brazil before the Panel and also in both Brazil's notice of appeal and Brazil's appellant's submission, namely, the allocation of tariff-rate quota shares to a non-Member, and the participation of non-Members in the "others" category of a tariff-rate quota. With respect to these two issues, we are mindful of our mandate under Article 17.6 of the DSU to limit appeals "to issues of law covered in the panel report and legal interpretations developed by the panel". Also, we are mindful of Article 17.13 of the DSU, which states, "The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel." With these constraints in mind, we note that there is no finding by the Panel or legal interpretation developed by the Panel on either of these two issues. It is true that in footnote 140 of the Panel Report, the Panel states that paragraph 7.75 of the EC - Bananas panel reports and "particularly the use of the phrase 'all suppliers other than Members with a substantial interest in supplying the product' indicates that the Banana III panel did not take the view that allocation of quota shares to non-Members under Article XIII:2(d) was not permitted". We do not consider this comment made in a footnote by the Panel to be either a "legal interpretation developed by the panel" within the meaning of Article 17.6 of the DSU or a "legal finding" or "conclusion" that the Appellate Body may "uphold, modify or reverse" under Article 17.13 of the DSU. It is undisputed in this case that there is no allocation of a country-specific share in the tariff-rate quota to a non-Member. There is, therefore, no finding nor any "legal interpretation developed by the panel" that may be the subject of an appeal of which the Appellate Body may take cognizance.

108. Therefore, we uphold the finding of the Panel in paragraph 233 of the Panel Report that the European Communities has not acted inconsistently with Article XIII of the GATT 1994 by calculating Brazil's tariff-rate quota share based on the total quantity of imports, including those from non-Members.

To continue with Article X of the GATT 1994


22 Panel Report, para. 201.

23 Panel Report, para. 204.

24 Panel Report, para. 202.

25 EC appellant's submission, para. 33.

26 Panel Report, para. 207.

27 Article II:7 of the GATT 1994.

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

29 Those legal instruments are described in paragraph 1(b) of that incorporating language as including certain protocols and certifications relating to tariff concessions, certain protocols of accession, certain decisions on waivers granted under Article XXV of the GATT 1947, and "other decisions of the CONTRACTING PARTIES to GATT 1947".

30 Adopted 22 June 1998, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, para. 84.

31 Panel Report, paras. 202 and 207.

32 Panel Report, para. 218.

33 Brazil's appellant's submission, paras. 80-84.

34 Brazil's appellant's submission, paras. 17 and 21.

35 Reports of Committees and Principal Sub-Committees: ICITO I/8, Geneva, September 1948, p. 91, para. 28, cited in GATT, Analytical Index: Guide to GATT Law and Practice (1995), Vol. I, p. 400.

36 Adopted 20 November 1984, BISD 31S/114, para. 51.

37 See Jackson, J., World Trade and the Law of GATT (Bobbs-Merrill, 1969), p. 232. See also, for example, the Dictionary of Trade Policy Terms (Centre for International Economic Studies, 1998), and the Dictionary of International Trade (World Trade Press, 1998).

38 Panel Report, para. 216.

39 Panel Report, para. 227.

40 Panel Report, para. 213.

41 Brazil's appellant's submission, para. 46.

42 Brazil's appellant's submission, paras. 47-55.

43 Adopted 22 June 1989, BISD 36S/331, para. 5.2.

44 Adopted 25 September 1997, WT/DS27/AB/R, para. 154.

45 Brazil's appellant's submission, paras. 46 and 51.

46 Brazil's appellant's submission, para. 59.

47 EPCT/TAC/PV/18, p. 46; see Panel Report, para. 217.

48 Panel Report, para. 215.

49 Panel Report, para. 230.

50 Panel Report, para. 230.

51 Panel Report, para. 233.

52 Brazil's appellant's submission, para. 89.

53 Brazil's appellant's submission, para. 95.