III.13 Furthermore, "If a banana exporting country with a country quota informs the Community that it will be unable to deliver the quantity allocated to it, the short-fall shall be reallocated by the Community in accordance with the same percentage shares indicated under paragraph 3.11 above (including 'others'). However, countries with country quotas may jointly request and the Commission shall agree to a different allocation amongst those countries." ⁴¹⁹

III.14 The EC also undertook to allocate any increase in the EC tariff quota in proportion to the shares set out in paragraph 3.11, including to "others". However, according to the BFA, "... countries with country quotas may jointly request and the Commission shall agree to a different allocation amongst those countries." ⁴²⁰

III.15 From November 1994 to May 1996, the EC issued 281,605 tonnes of supplemental "hurricane licences". Hurricane import volumes enter in addition to the 2.553 million tonne tariff quota and are subject to the third-country (non-ACP) in-quota tariff (ECU 75 per tonne). Hurricane licences may be used to import bananas from any source. ⁴²¹

(iii) Licensing requirements

III.16 Imports of both traditional ACP and non-traditionalACP/third-country bananas are subject to licensing procedures.

III.17 According to Commission Regulation (EEC) 1442/93 ("Regulation 1442/93"), banana imports into the EC are managed on a quarterly basis. For each of the first three quarters in any year, "indicative quantities" are established based on past trade patterns, seasonal trends, and the supply and demand balance prevailing in the EC market. These indicative quantities determine the volumes of traditional ACP bananas and non-traditional ACP/third-country bananas, respectively, that are available for a given quarter for the purpose of issuing import licences. ⁴²² The import volumes thus available are divided proportionally among origins in accordance with the allocations indicated in the tables in paragraphs 3.8 and 3.11 above. ⁴²³ The licences available in the fourth quarter of any calendar year are determined by subtracting those issued in the first three quarters from the total quantity available for each origin. Import licence applications are to be lodged with the competent authority of a EC member State within a specified period of time for the purpose of obtaining a licence for the subsequent quarter. ⁴²⁴ In the case of "unused" quantities covered by licences, there is a procedure for reallocation to the same operators in any subsequent quarter. ⁴²⁵

III.18 Licence applications for imports of traditional ACP bananas must state the quantity and origin from which operators intend to source their bananas. Applications are also required to be accompanied by an ACP certificate of origin testifying to the status as traditional ACP bananas. ⁴²⁶ When licence applications exceed the indicative quantities of traditional bananas fixed for a particular country of origin, a single reduction coefficient is applied to all applications (a reduction coefficient serves to reduce importers' licence applications proportionally to the available volume). ⁴²⁷

III.19 Licences are issued by the competent member State authority no later than the 23rd day of the last month of the preceding quarter (where that day is not a working day, the licences are issued on the first subsequent working day). The validity of import licences expires on the seventh day following the end of the quarter in question.

III.20 Import licences for third-country bananas and non-traditional ACP bananas are allocated on the basis of several cumulatively applicable procedures, including: (i) allocation of licences based on three operator categories; (ii) allocation of licences according to three activity functions; (iii) export certificate requirements for imports from Costa Rica, Colombia and Nicaragua; and (iv) a two-round quarterly procedure to administer licence applications.

III.21 Operator categories: Under the EC's operator category rules, import licences are distributed among three categories of operators based on quantities of bananas marketed during the latest three year period for which data are available (see table below). ⁴²⁸ As operators in Category C ("newcomers") do not have reference quantities based on past trade, their allocation is dependent on the volume of licence applications the newcomer portion of the tariff quota. ⁴²⁹ Category A and B licences are transferable (tradeable) among operators, including to operators in Category C. Category C licences are, however, not transferable to Categories A and B. Transferred licences are taken into account in establishing reference quantities. ⁴³⁰

III.22 Activity functions: The operator Categories A and B are further subdivided into three types of qualifying entities ("activity functions"), as set forth in the table below. In order to qualify as Category A and/or B operators, economic agents must have performed at least one of these activities in "marketing" ⁴³² bananas during the rolling three-year reference period (i.e. the period determining their reference quantities; for 1993, the years 1989-91). In addition, operators must be established in the EC and have traded a minimum of 250 tonnes of bananas in any one year of the reference period. ⁴³³

III.23 The weighting coefficient assigned to each type of activity function multiplied by the average quantity of bananas marketed by each operator of Categories A and B in the three most recent years, determines the individual operator's reference quantity. ⁴³⁵ According to Regulation 1442/93, the weighting coefficients are designed to reflect the level of commercial risk borne by operators for each of the activities in the marketing chain for bananas. ⁴³⁶

III.24 Operators are expected to identify the activity function or functions upon which they are making their claim of licence entitlement (operators may have performed more than one activity and thus obtain a weighting coefficient of up to one hundred per cent). The reference quantities are, after the application of a single provisional reduction coefficient for operator Categories A and B, respectively, used in calculating an individual operator�s provisional annual entitlement to banana import licences. ⁴³⁷ These entitlements are normally determined a few months before the beginning of the applicable year, although they may be, and generally are, subject to changes throughout the year (including the application of a final reduction coefficient). ⁴³⁸ In practice, the total reference quantities established by the EC for each of the marketing years since the introduction of the common market organization for bananas have exceeded the volume of the tariff quota available for distribution amongst operators so that reduction coefficients were applied.

III.25 Export certificates: Pursuant to the BFA, supplying countries that have country allocations may deliver special export certificates for up to 70 per cent of their allocations. Colombia, Costa Rica and Nicaragua have chosen to issue such certificates. According to EC regulation, presentation of such certificates ("export licences") by Category A and Category C operators constitutes a prerequisite for the issuance, by the EC, of licences for the importation of bananas from these countries. ⁴³⁹

III.26 Two-round quarterly licence applications: Regulation 478/95 (as amended) establishes two rounds of import licence applications within each quarter. In the first round, A and B operators can request licences up to their quarterly entitlements. Category C operators may apply for their full annual entitlement in any given quarter. In their applications, companies must designate the source from which they plan to import and the desired volumes. Category A and C operators importing from BFA countries other than Venezuela must attach special export certificates. All licence applications are transmitted by the competent authorities of the EC member States to the EC Commission which, if the applications for any country of origin exceed the indicative quantity available for that origin (in any given quarter), applies a country-specific reduction coefficient which reduces such applications proportionally. "First round" licences are to be issued by the competent authorities by the 23rd day of the month preceding the relevant quarter (where that day is not a working day, the licences are issued on the first subsequent working day).

III.27 After the first round, the EC publishes the sources and quantities that were not exhausted (so far, mainly quantities from BFA countries and certain non-traditional ACP countries ⁴⁴⁰) for purposes of a second round allocation. Those operators whose initial licence applications are scaled back by a reduction coefficient have the option to participate in a second round of applications in respect of the difference between their original application and their allocation for one of the origins where the allocations are not exhausted. ⁴⁴¹ After the EC publishes the first round reduction coefficients, by the 23rd day of the month prior to the beginning of the quarter, the operators have ten days to re-apply for the second round. On the basis of applications received, the EC Commission determines, if necessary, reduction coefficients and then publishes the quantities for which licences may be issued in the second round. In practice, publication of these quantities often occurred two weeks into the quarter for which the licences were issued. ⁴⁴² Both "first" and "second" round licences are valid until the seventh day of the month following the end of the quarter.

III.28 Hurricane licences are granted, on an ad hoc basic, to operators who "include or directly represent" a producer adversely affected by a tropical storm and are thus unable to supply the EC market. ⁴⁴³ As noted above, hurricane licences may be used to import bananas from any source. Bananas imported with hurricane licences may be counted as reference quantities for future eligibility for Category B licences.

(c) Trade policy developments concerning bananas

(i) Disputes relating to bananas under the GATT

III.29 Elements of the present EC market organization for bananas were the subject of a complaint by Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela in 1993. The panel which was established by the GATT CONTRACTING PARTIES to examine the matter submitted its report on 11 February 1994 (second Banana panel). ⁴⁴⁴ Prior to the establishment of the common market organization for bananas on 1 July 1993, the banana regimes of individual EC member States were the subject of a complaint by the same countries mentioned above. The resulting GATT panel (first Banana panel) issued its report on 3 June 1993. ⁴⁴⁵ Neither panel report was adopted by the GATT CONTRACTING PARTIES.

(ii) Framework Agreement on Bananas (BFA)

III.30 In 1994, the EC negotiated the BFA with Colombia, Costa Rica, Venezuela and Nicaragua. As described above, the BFA contains provisions concerning the size of the basic tariff quota, the in-quota tariff (ECU 75 per tonne), country-specific allocations and transferability of those allocations, the 90,000 tonne allocation for non-traditional ACP bananas, and export certificates. The four Latin American parties to the BFA agreed not to pursue the adoption of the report of the second Banana panel. Guatemala, the fifth complaining contracting party to the second Banana panel, is not a party to the BFA. The BFA was incorporated into the EC's Uruguay Round Schedule in March 1994. ⁴⁴⁶ The BFA came into force on 1 January 1995 ⁴⁴⁷ and its functioning is scheduled to be reviewed "before the end of the third year" with full consultations with Member Latin American suppliers. The BFA is applicable until 31 December 2002. ⁴⁴⁸

(iii) Tariff changes

III.31 From 1963, the EC had a consolidated tariff of 20 per cent ad valorem on bananas. Initial negotiating rights were held by Brazil. With the introduction of the common market organization for bananas on 1 July 1993, a tariff quota was established with an in-quota tariff of ECU 100 per tonne for third-country bananas and ECU 850 per tonne for out-of-quota imports. Out-of-quota imports of ACP bananas were subject to a tariff of ECU 750 per tonne. On 26 October 1993, the EC notified the CONTRACTING PARTIES of its intention to renegotiate the 1963 concession on bananas in accordance with the provisions of Article XXVIII:5 of GATT 1947. On 1 July 1995, the EC's Uruguay Round Schedule, including its tariff concession on bananas, became effective (see also paragraph 3.7 above). ⁴⁴⁹

III.32 In accordance with the EC reduction commitments as a result of the Uruguay Round, the level of the bound tariff was reduced on 1 July 1995 to ECU 822 per tonne and on 1 July 1996 to ECU 793 per tonne. The final bound MFN rate at the end of the six-year implementation period of the Uruguay Round results will be ECU 680 per tonne. In accordance with the BFA entered into by the EC with Colombia, Costa Rica, Nicaragua and Venezuela, the MFN in-quota tariff rate was reduced and bound at ECU 75 per tonne from 1 July 1995 (though it was applied from 1 January 1995).

(iv) Lomé waiver

III.33 The Fourth Lomé Convention, signed on 15 December 1989 between the EC and 70 African, Caribbean and Pacific developing countries, many of which are Members of the WTO, contains a protocol concerning bananas, along with provisions applying to products more generally. Like its predecessors, the Fourth Lomé Convention was notified to the GATT and considered by a working party.

III.34 On 10 October 1994, the EC requested, together with the ACP contracting parties, a waiver from the EC's obligations under Article I:1 of GATT 1947. ⁴⁵⁰ The waiver was granted by the CONTRACTING PARTIES on 9 December 1994 and provides, in paragraph 1 of the waiver decision, as follows:

III.35 On 14 October 1996, the Lomé waiver as granted by decision of the GATT CONTRACTING PARTIES at its December 1994 session was extended until 29 February 2000 (in accordance with the procedures mentioned in paragraph 1 of the Understanding in respect of Waivers and those of Article IX of the WTO Agreement). ⁴⁵²

(v) Accession of Austria, Finland and Sweden to the EC

III.36 Following the accession of Austria, Finland and Sweden to the EC on 1 January 1995, the EC autonomously increased access under in-quota tariff conditions (ECU 75 per tonne) by 353,000 tonnes. ⁴⁵³ The administration of these additional quantities is subject to the same procedures as the bound tariff quota, although they have not been bound in the EC Schedule.

IV . MAIN ARGUMENTS ⁴⁵⁴

A. GENERAL

IV.1 In their request for the establishment of the Panel, Ecuador, Guatemala, Honduras, Mexico and the United States, acting jointly and severally, submitted that the EC maintained a regime for the importation, sale and distribution of bananas as established by Regulation 404/93 (O.J. L 47 of 25 February 1993, page 1), and subsequent EC legislation, regulations and administrative measures, including those reflecting the provisions of the Framework Agreement on Bananas. The Complaining parties considered that the regime and related measures were inconsistent with the following Agreements and provisions among others:

In addition, they claimed that the measures also produced distortions which nullified or impaired benefits accruing to Ecuador, Guatemala, Honduras, Mexico and the United States, directly or indirectly, under the cited Agreements; and the measures impeded the objectives of the GATT and the other cited Agreements (WT/DS27/6).

IV.2 Following the joint request for the establishment of the Panel, its composition and the establishment of terms of reference, Ecuador, Guatemala, Honduras, Mexico and the United States made submissions to the Panel. The first submissions were made by each Complaining party separately, with the exception of Guatemala and Honduras which made a joint submission. Aspects of the EC's measures applying to bananas were cited as being inconsistent with the following provisions and Agreements in those submissions:

Ecuador:

Guatemala and Honduras:

Mexico:

United States:

IV.3 Following the first submissions, the Complaining parties generally made joint statements and submissions to the Panel, including a joint rebuttal submission and joint responses to questions posed by the Panel. In their joint statements and submissions, they cited the following aspects of the EC�s measures applying to bananas as being inconsistent with the following provisions and Agreements:

IV.4 The EC requested the Panel to find that the EC banana regime was not incompatible with the General Agreement on Tariffs and Trade and other instruments of Annex 1A of the WTO Agreement. In so far as the Panel might arrive at the opposite conclusion, the EC submitted that the Panel should find that the EC banana regime was covered by the Lomé waiver. The EC further submitted that the EC banana regime was not incompatible with the General Agreement on Trade in Services.

B. TRADE IN GOODS

IV.5 This part begins with a general overview of the claims presented by the Complaining parties and the responses of the European Communities. It is not intended to be a detailed or exhaustive presentation, but to provide a clear picture of the structure of the arguments at a broad level. In this regard it highlights the three major areas focused on by the Complaining parties and includes a number of horizontal issues raised by the EC. In order to provide a format for the many detailed claims, a measure-by-measure approach has then been taken addressing the detailed arguments concerning trade in goods under three major headings: tariff issues, allocation issues and licensing issues. Within these general headings, arguments by the Complaining parties and the EC are broken down into more specific sub-headings with the appropriate references made to horizontal issues at each stage.

1. GENERAL OVERVIEW OF THE CASE

(a) Overview of the claims presented by the Complaining parties

IV.6 The Complaining parties presented their claims within three broad headings: (i) tariff issues; (ii) allocation issues; and (iii) import licensing issues. Additional specific claims were presented in all areas as set out in the section which follows the overview. The responses of the Complaining parties with respect to the more horizontal arguments submitted by the EC in reply to the Complaining parties initial claims are also given in the section dealing with the detailed arguments.

(i) Tariff issues

IV.7 With respect to issues concerning the tariffs applied to the importation of bananas by the EC, the Complaining parties submitted that the tariff quota's tariff structure was challengeable because it imposed differential rates as between third-country bananas on the one hand, and non-traditional ACP bananas on the other. The application of such differential customs duties on the basis of foreign source contradicted in a direct way the GATT's most fundamental guarantee of "non-discriminatory tariff treatment" set forth in Article I:1.

IV.8 In addition, Guatemala and Honduras claimed that the rates applicable to third-country bananas breached the long-standing EC's GATT-bound tariff of 20 per cent ad valorem for the product, to which Guatemala continued to hold a claim.

(ii) Allocation issues

IV.9 The Complaining parties submitted that the EC had allocated shares to its market among supplying countries in a manner inconsistent with GATT Article XIII:2. It provided country-specific allocations to some countries (ACP and BFA signatories), while not providing them to others with similar or greater historical levels of trade. Furthermore, in their view most of the allocations provided to those favoured countries greatly exceeded the shares of trade they would be expected to obtain in the absence of restrictions as set out in the chapeau to Article XIII:2. The Complaining parties considered that the EC also disregarded the principles of Article XIII when it provided the BFA signatories the exclusive right to increase their access when other BFA countries experienced a shortfall in the quantity they could supply to the EC.

IV.10 In addition, Guatemala and Honduras submitted that the banana regime's differential volume restrictions by source fell within the prohibition of Article XIII:1 of GATT and, in so far as the system conferred market advantages to some foreign sources over others, it was a violation of Article I:1. Mexico and Ecuador submitted that the differential treatment did not "similarly prohibit or restrict" imports of third-country bananas and therefore was not consistent with Article XIII:1.

(iii) Import licensing issues

IV.11 The Complaining parties argued that the EC regulations imposed on imports from Latin America, a licensing scheme that was highly complex. The system, both in its totality and in its individual elements, created highly unfavourable conditions of competition compared to the simple arrangements for traditional ACP bananas. Unnecessarily burdensome, discriminatory, trade-restrictive and trade-distortive, the licensing regime implicated both the basic provisions of the GATT and the newer Uruguay Round disciplines pertaining specifically to licensing procedures and trade-related investment measures, in the view of the Complaining parties. The implementation of the scheme, including the number of implementing regulations issued, administrative procedures such as the two-round procedure used to allocate licences, and the delays in the issuance of import licences, was not, in their view, consistent with the provisions of the GATT and certain aspects of the Licensing Agreement.

IV.12 Within the import licensing system, the Complaining parties argued that the core of the import licensing system, i.e. the Category B operator criteria, was discriminatory under, inter alia, Articles I and III of GATT and also in conflict with the Agreement on Trade-Related Investment Measures. Thirty per cent of the in-quota quantity for the tariff quota was allocated to companies, known as Category B operators, on the basis of three previous years' marketings of EC bananas and imports of ACP bananas. The exemption from export certificate requirements and the exclusive receipt of hurricane licences provided additional advantages to Category B operators. Export certificates also constituted violations of non-discrimination and neutrality requirements in their own right.

IV.13 Furthermore, the Complaining parties submitted that the activity function rule, under which 43 per cent of the licences were distributed to parties other than primary importers, and the manner in which the rule was administered, additionally burdened and discriminated against imports from Latin America. By its nature, it increased transaction costs because it distributed licences to parties that did not previously import and who did not have the capacity to do so. The actual importers (those who were engaged in procuring the bananas from overseas) had to link up with particular ripeners or customs clearers or even invest in ripening facilities, in order not to lose a portion of their entitlement to import in the following year.

IV.14 In addition, Ecuador argued that the EC import licensing regime was inconsistent with Article 4.2 of the Agreement on Agriculture because various features of it involved discretionary import licensing which was not permitted by that Article.

(b) Overview of the responses presented by the European Communities

IV.15 In addition to responding to specific claims (often on a subsidiary basis), the EC responded with several broad arguments of principle, or horizontal arguments. These arguments covered, in most cases, a number of specific claims set out by the Complaining parties. The relevant arguments included: (i) the presence of two separate banana access regimes; (ii) GATT schedules and Articles I and XIII in the context of the Agreement on Agriculture; (iii) the non-applicability of the Agreement on Import Licensing Procedures to tariff quotas; and (iv) the non-applicability of Articles III:4 and X of GATT to border measures. In addition, in so far as the Panel found that any aspects of the EC banana regime were incompatible with GATT and other agreements specified by the Complaining parties, the EC argued the Panel should find that the banana regime was covered by the Lomé waiver. The details of these horizontal arguments, along with related arguments by the Complaining parties, are provided in the section containing detailed arguments which follows the overview.

(i) Separate regimes

IV.16 The EC argued that the external aspects of the EC common organization of the markets for bananas consisted of two distinct regimes:

With respect to (b), non-traditional ACP bananas benefited from preferential treatment which, in the EC's view, was covered, as the traditional ACP regime, by the Lomé waiver.

IV.17 Given the two separate external regimes for bananas, in the view of the EC no discrimination (and consequent violation) could be alleged against the country allocation within the tariff quota contained in the EC Schedule as compared to the traditional ACP allocation. Article XIII of GATT was relevant and applicable only in so far as one specific quota or tariff quota was considered, and specifically its administration. No argument could be made under Article XIII, in particular Article XIII:1, alleging discrimination in the administration of two different regimes, which were independent one from the other and each legally justified on a different basis. Likewise, any comparison between the licensing system for traditional ACP bananas and the tariff quota licensing system for all other bananas had no legal value and was not relevant. The EC argued that it was evident that the fact that the two separate and independent regimes had marginal differences in their respective licensing systems was not a violation of any GATT provision.

IV.18 In the view of the EC, the conclusion that Article XIII could not be applied simultaneously to the two different and separate parts of the EC banana regime, was confirmed by the interpretation of the scope of Articles I and XIII of GATT 1994. While both Articles contained a general principle of non-discrimination with regards to the importation or the exportation of like products originating in all third countries, the evidence did not imply that the two provisions overlapped. Article XIII was concerned only with the administration of each of the parts of the regime, and, in particular, all the border measures related to the importation or exportation of the products subject to a specific quota. In the view of the EC, this implied that, in GATT terms, comparing, under the authority of Article XIII, the internal licensing requirements within the ACP traditional allocation to the requirements of the tariff quota bound in the EC Schedule was legally wrong.

(ii) GATT schedules and Articles I and XIII in the context of the Agreement on Agriculture

IV.19 The EC submitted that as bananas were an agricultural product, the tariff and tariff quota on bananas were consolidations under the Agreement on Agriculture. Even though the old consolidated tariff of the EC for bananas was deconsolidated and negotiations begun under Article XXVIII of GATT 1947 with the countries which were (then) countries with initial negotiating rights or with a principal supplying interest, in the end the tariff and tariff quota were consolidated in the framework of the Uruguay Round. The EC argued that the consolidation and scheduling of concessions and commitments in the agricultural sector followed its own dynamic and its own rules during the Uruguay Round and this led, for instance, to the widespread recourse to tariff quotas in tariff scheduling; many of these tariff quotas being country-specific, i.e. they listed a limited number of countries to which they applied and for which certain quantities were reserved, while what was left was allocated to an "others" category.

IV.20 In the EC view, the specificity of the agricultural market access concessions was implicitly recognized in Article 4 of the Agreement on Agriculture, where the existence of market access concessions in this economic sector was specifically recorded and a special reference was made in its paragraph 1 to schedules. This gave these schedules a particular status which was all the more important if one also drew Article 21 of the Agreement on Agriculture into the analysis which confirmed the "agricultural specificity" in its clearest form and demonstrated that the rules of the Agreement on Agriculture, including the Schedules specifically referred to in Article 4.1, superseded, if necessary, the provisions of GATT 1994 and any agreement in Annex IA of the WTO Agreement.

IV.21 Moreover, the EC considered that, as Article II:7 of GATT 1994 clearly indicated, the EC banana concession was an integral part of Part I of the GATT and was, therefore, to be considered an integral part of Article I and Article II as appropriate. This was the acknowledgement of the fact that concessions were the result of multilateral negotiations after a sometimes long and difficult give-and-take process. The parties solemnly accepted, by explicit and binding agreement duly reflected by internal ratification or approval procedures, the content of the schedules mutually exchanged but only if and when they considered that, as a whole, the give-and-take process was satisfactory or, at least, acceptable for them. This entailed the consequence that any application of the MFN principle set out in Article I could not prevail per se on the terms and conditions of a concession since this would mean giving priority to one part of Article I on top of other parts of the same Article as supplemented by the concessions.

IV.22 In the specific case of the EC banana concession, the EC argued that the CONTRACTING PARTIES had agreed for the first time at the end of the Uruguay Round to the EC new banana regime based on the establishment of the EC tariff quota after the deconsolidation of the old and obsolete 20 per cent ad valorem bound rate and the creation of the EC-wide internal banana market. All the parties had agreed explicitly, knowingly and deliberately to this new concession: nothing could subsequently justify any Member reopening the negotiations by contesting the internal balance of the negotiation that had recently ended. In the EC view, this would be violating the fundamental principle "pacta servanda sunt" as expressed in the Vienna Convention on the law of the Treaties and the customary international law.

IV.23 The provision of Article I of GATT thus could not be considered applicable as such to the actual content of the EC banana tariff quota without taking into account the results of the Uruguay Round negotiations. Members had negotiated their commitments on bananas during the Uruguay Round in the framework of the agreed "agricultural specificity" and, therefore, no violation of Article XIII of GATT could be claimed with respect to the consolidated EC banana regime.

(iii) The non-applicability of the Agreement on Import Licensing Procedures to tariff quotas

IV.24 The EC submitted the opinion that, as far the Agreement on Import Licensing Procedures (Licensing Agreement) was concerned, the text specified that its scope was to regulate all the procedures, others than customs operations, prior to the importation. The provisions of that agreement appeared then as further specifications of some of the rules contained in Article XIII of GATT in which, inter alia, explicit reference was made "to import licences issued in connection with import restrictions". However, nothing in the Licensing Agreement specified (like Article XIII:5 of GATT) that it applied also to cases, such as the banana tariff quota, where no import restriction was applied at the border. In the view of the EC, the Licensing Agreement could not, therefore, be deemed applicable to cases where no import restriction was applied at the border and, specifically, the banana tariff quota.

IV.25 Furthermore, the EC argued that the existence of the licence could not be confused with the physical importation of bananas: the licences were only needed to benefit from a particular duty rate within the tariff quota, but not to physically import bananas, from any origin, into the EC customs territory. Licences were tradable, and traded, and were not a "prior condition" to any importation as referred to in Article 1.1 of the Licensing Agreement; they were needed only for the application of a specific duty rate. The fact that no limitation in quantities existed under the GATT-bound commitments was of paramount importance and, in the view of the EC should be sufficient to dismiss the applicability of the Licensing Agreement to tariff quotas.

(iv) The non-applicability of Articles III:4 and X of GATT to border measures

IV.26 The EC submitted that the banana tariff quota was a set of border measures ensuring the correct management of the regime, and not a set of rules applicable to bananas after they had cleared customs. In the view of the EC, practically all measures concerning the functioning and the administration of the tariff quota which concerned operators while importing bananas into the EC market were border measures and not internal rules applicable to all bananas after they had been introduced in the EC market. This simple and undisputable reality had an important legal implication when applying GATT: the internal sale and distribution system pertained to the internal rules applicable to that market and was relevant to the imported goods only if and when those goods had cleared customs.

IV.27 On the contrary, provisions like Articles XI and XIII of GATT and the Licensing Agreement clearly applied only to border measures at the moment of the importation or the exportation of a product and did not concern any alleged discrimination in the application of internal measures after the product had been cleared through customs. Consequently, the EC argued, it was impossible to allege that a specific measure violated at the same time Articles III:4 and X of GATT and Article XIII of GATT and/or the Licensing Agreement.

(v) The Lomé waiver

IV.28 On the basis of the responses outlined above and specific arguments made by the EC, the EC requested the Panel to find that the EC banana regime was not incompatible with GATT and other instruments of Annex 1A of the WTO Agreement. In so far as the Panel might arrive at the opposite conclusion, the EC argued that the Panel should find that the EC banana regime was covered by the Lomé waiver. The EC submitted that the Lomé Convention was one of the most important instruments of the EC's policy of development cooperation and as such was intended to "promote and expedite the economic, cultural and social development of the ACP States". The Convention covered various fields of cooperation, one of the most important being trade. Various provisions of the Convention dealt directly with trade and, all these provisions, aims and objectives applied equally to trade in bananas. Moreover, the Convention also included a Protocol which covered bananas specifically and stated, inter alia, that "no ACP State shall be placed, as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or at present". On 19 December 1994, the GATT Council, at the request of the EC, decided that "Subject to the terms and conditions set out ..., the provisions of paragraph 1 of Article I of the General Agreement shall be waived, until 29 February 2000, to the extent necessary to permit the European Communities to provide preferential treatment for products originating in ACP States as required by the relevant provisions of the Fourth Lomé Convention, without being required to extend the same preferential treatment to like products of any other contracting party".

TO CONTINUE WITH EC - REGIME FOR IMPORTATION OF BANANAS - COMPLAINT BY GUATEMALA AND HONDURAS

⁴¹⁹ Idem, para. 4.

⁴²⁰ Idem, para. 5.

⁴²¹ See e.g. Commission Regulation (EC) 2791/94.

⁴²² Article 16 of Council Regulation (EEC) 404/93 (as amended); Articles 9 and 14 Commission Regulation (EEC) 1442/93 (as amended).

⁴²³ Article 14 Commission Regulation (EEC) 1442/93 (as amended); Article 1 of Commission Regulation (EC) 478/95 (as amended).

⁴²⁴ Commission Regulation (EEC) 1442/93 (as amended), Articles 9 and 14.

⁴²⁵ Idem, Articles 10 and 17.

⁴²⁶ Idem, Articles 14.4 and 15.

⁴²⁷ Idem, Article 16.2.

⁴²⁸ Article 19 of Council Regulation (EEC) 404/93 (as amended).

⁴²⁹ Commission Regulation (EEC) 1442/93 (as amended), Article 4.4 .

⁴³⁰ Idem, Article 13.

⁴³¹ Article 19 of Council Regulation (EEC) 404/93 (as amended) and Article 2 of Commission Regulation (EEC) 1442/93 (as amended).

⁴³² According to Article 15.5 of Council Regulation (EEC) 404/93 (as amended), "'market' and 'marketing' mean placing on the market, not including making the product available to the final consumer". Furthermore, Article 3.2 of Commission Regulation (EEC) 1442/93 (as amended) provides that "wholesalers and retailers shall not be considered operators solely by virtue of such activities" (i.e. the activities as set out in the table below) but does not define these terms.

⁴³³ Commission Regulation (EEC) 1442/93 (as amended), Article 3.

⁴³⁴ Idem, Article 3.

⁴³⁵ Idem, Article 5.

⁴³⁶ Idem, Recitals.

⁴³⁷ Idem, Article 6.

⁴³⁸ E.g. Commission Regulation (EC) 2947/94.

⁴³⁹ Article 3.2 of Commission Regulation (EC) 478/95 (as amended).

⁴⁴⁰ See e.g. Commission Regulations (EC) 704/95, 1387/95, 2234/95 (as amended) and 2913/95.

⁴⁴¹ Article 4 of Commission Regulation (EC) 478/95 (as amended).

⁴⁴² See Commission Regulations (EC) 2500/95, 45/96, 670/96, 1371/96, respectively.

⁴⁴³ E.g. Article 2 of Commission Regulation (EC) 2791/94.

⁴⁴⁴ Panel on "EEC - Import Regime for Bananas", DS38/R (not adopted).

⁴⁴⁵ Panel on "EEC - Member States' Import Regimes for Bananas", DS32/R (not adopted).

⁴⁴⁶ Schedule LXXX - European Communities.

⁴⁴⁷ Commission Regulation (EC) 3223/94 (as amended).

⁴⁴⁸ Para. 9 of the Annex "Framework Agreement on Bananas" in Schedule LXXX - European Communities.

⁴⁴⁹ In signing the Final Act, Guatemala submitted a letter stating that it was reserving "all GATT and WTO rights" relative to the EC's Schedule as regards bananas.

⁴⁵⁰ GATT document L/7539 of 10 October 1994 and L/7539/Corr.1.

⁴⁵¹ Para. 1 of GATT document L/7604 of 19 December 1994.

⁴⁵² WT/L/186 of 18 October 1996.

⁴⁵³ According to data submitted by the EC, this volume corresponds to the average yearly consumption of bananas in these three countries in the period 1991-93.

⁴⁵⁴ Note: Unless otherwise indicated, footnotes in the "Main Arguments" section are those of the parties.