Report of the Appellate Body

 B. Ecuador, Guatemala, Honduras, Mexico and the United States - Appellees

62. The Complaining Parties submit that the Panel correctly found the "two regimes" argument of the European Communities to be irrelevant for WTO purposes. The Complaining Parties argue that nothing in the text of Article XIII of the GATT 1994 suggests that the obligations concerning "restrictions" and "shares" of trade or imports can be avoided by creating legal formalities, such as "separate regimes", for administrative or other reasons. The Complaining Parties argue further that the insistence by the European Communities that it has "only one tariff quota concerning bananas" is neither legally relevant nor factually correct. Article XIII of the GATT 1994 clearly does not distinguish between quota allocations reflected in a Schedule and those that are not. In the view of the Complaining Parties, the panel report in Norway - Imports of Textile Products ²⁴confirms that creating separate regimes for certain developing countries does not permit a Member to avoid its Article XIII obligations. The Complaining Parties also argue that the Panel on Newsprint ²⁵does not support the "separate regimes" argument because the justification of the preferential treatment under Article XXIV of the GATT 1994 was crucial in the Panel on Newsprint case, and no such justification exists in this case. In response to the EC's concern about the modification of its obligations, the Complaining Parties argue that the Panel has not modified the EC's obligations under its Schedule but has insisted that these obligations be observed for the benefit of all concerned. Therefore, the Panel correctly concluded that all of the EC's country-specific allocations must be considered together in determining consistency with Article XIII of the GATT 1994.

63. The Complaining Parties submit that the Panel correctly concluded that EC allocations to non-substantial suppliers are inconsistent with Article XIII of the GATT 1994. They argue that the text of Article XIII:2(d) of the GATT 1994, in particular the word "all", amply supports the Panel's conclusion that the combined use of agreements and unilateral allocations for the allocation among Members having a substantial interest is inconsistent with Article XIII:2(d). In support of their argument, the Complaining Parties refer to the panel report in Norway - Imports of Textile Products ²⁶and to the drafting history of the GATT 1947. ²⁷ The Complaining Parties argue that if Article XIII of the GATT 1994 does not allow the combined use of agreements and unilateral allocations for the allocation among Members having a substantial interest, it also does not allow the combined use for the allocation among Members without a substantial interest. Concerning the EC's argument as to allocations to Members without a substantial interest, the Complaining Parties argue that Article XIII of the GATT 1994 is unambiguous in requiring that the administration of quantitative restrictions and country-specific allocations must be non-discriminatory and reflective of recent trade patterns. The European Communities persists, against both the text and the object and purpose of Article XIII, in defending the arbitrary assignments of shares based on agreements with suppliers regardless of their level of trade. Additionally, the Complaining Parties assert that Article XIII:2(d) recognizes that it may indeed not always be practicable to reach agreement with all suppliers, but it is precisely for such situations that Article XIII:2(d) provides for the possibility of assigning country-specific allocations based on historical shares. However, the EC's insistence that Members cannot be considered as "having been harmed" by their inclusion in the "others" category ignores basic economic realities and the underlying tenets of Article XIII. Country-specific allocations are recognized in Article XIII:2 as an advantage for which specific rules are required to carry out the general principle in Article XIII:1 of non-discrimination. The Complaining Parties assert further that a Member may reallocate unused amounts of a quota or tariff quota among other supplying Members, but Article XIII:2 of the GATT 1994 does not permit this to be done in a discriminatory manner.

64. The Complaining Parties submit that the Panel correctly found that Article 21.1 of the Agreement on Agriculture is not a defence to the inconsistencies with Article XIII of the GATT 1994 found with respect to the EC's country-specific allocations. The Panel properly dismissed the EC's contention that Article 4.1 of the Agreement on Agriculture effectively incorporates GATT-inconsistent provisions of the Schedules into the Agreement on Agriculture and thereby legitimizes them. The ordinary meaning of Article 4.1 of the Agreement on Agriculture does not permit it to be read as a substantive provision. The Complaining Parties argue that, had the drafters wished to incorporate the Schedules by reference into the Agreement on Agriculture, they could have done so explicitly. No provision of the Agreement on Agriculture clashes with Article XIII of the GATT 1994. Accordingly, Article 21.1 of the Agreement on Agriculture is not relevant, and Article XIII of the GATT 1994 applies to the EC tariff quota allocations. The Panel's findings are fully supported by the object and purpose of the Agreement on Agriculture, which is to make agricultural products subject to strengthened and more operationally-effective GATT rules. Finally, the Complaining Parties assert that the fact that the "current access" tariff quotas of many WTO Members include country-specific allocations does not support the EC's argument. The related allegation by the European Communities that other countries have disregarded Article XIII of the GATT 1994 is factually unsupported. However, even if true, it cannot serve to contradict the ordinary meaning of the relevant terms of the Agreement on Agriculture nor to endorse the EC violations.

65. The Complaining Parties submit that the Panel correctly found that the Licensing Agreement applies to licensing procedures for tariff quotas. In their view, the European Communities cannot factually dispute that import licences are required as a prior condition for importing in-quota bananas. Moreover, this in-quota quantity comprises the sum total of third-country and non-traditional ACP bananas entering the EC market. According to the Complaining Parties, the context of Article 1.1 of the Licensing Agreement, as well as Articles 3.2, 3.3 and the Preamble of the Licensing Agreement, and prior GATT practice on the notion of "restriction", confirm that the Licensing Agreement also applies to licensing procedures for tariff quotas. The Complaining Parties also argue that a major achievement of the Uruguay Round agriculture negotiations was the large-scale conversion of non-tariff barriers to tariff quotas. They maintain that making tariff quotas an exception to the disciplines of the Licensing Agreement would directly contradict the trend towards transparency and predictability.

66. Finally, the Complaining Parties contend that the Panel properly concluded that the issuance of hurricane licences exclusively to ACP and EC producers and producer organizations, or operators including or directly representing them, but not to third-country producers and producer organizations or operators including or directly representing them, was inconsistent with the requirement of "neutrality in application" contained in Article 1.3 of the Licensing Agreement.

67. The Complaining Parties submit that the Panel correctly found that the distribution of Category B licences conditioned on purchases of EC bananas is inconsistent with Article III:4 of the GATT 1994. According to the Complaining Parties, the text of Article III:4 indicates coverage beyond legislation directly regulating or governing the sale of domestic and like imported products. In support of this argument, the Complaining Parties refer to the panel report in Italian Agricultural Machinery ²⁸ and to the Interpretative Note Ad Article III of the GATT 1994. Referring to the panel report in United States - Section 337, the Complaining Parties argue that the dispositive issue under Article III:4 is whether a discriminatory advantage is affecting the sale or purchase of the domestic product. ²⁹ In response to the EC's argument relating to the panel reports in United States - Imports of Tuna (1991) and United States - Section 337, the Complaining Parties assert that these panel reports show that Article III does apply to all measures affecting trade in goods. The Complaining Parties insist that the object of Article III ³¹is to ensure that Members accord foreign products no less favourable treatment than like domestic products in the application of any measure affecting the internal sale of products, regardless of whether it applies internally or at the border. The Complaining Parties further assert that the European Communities cannot claim that imported products are treated under the Category B rules in the same way as domestic products, once they have cleared customs. In support of this argument, they refer to the statement of the panel in Italian Agricultural Machinery that any measure that "modif[ies] the conditions of competition between the domestic and imported products on the internal market", including one that encourages domestic purchases of national goods, violates Article III:1 of the GATT 1994. ³⁰ Referring to the Appellate Body's previous ruling that Article III:1 is a general principle that informs the rest of Article III, the Complaining Parties argue that given Category B's explicit incentive to purchase EC bananas, the "design and architecture" of the measure to afford protection to EC producers is clear.

68. The Complaining Parties submit that the Panel correctly found the activity function rules to be inconsistent with Article I:1 of the GATT 1994. In contrast to the activity function rules, the simpler procedures applicable to ACP bananas constitute a clear regulatory "advantage" in violation of Article I:1 of the GATT 1994. In support of their argument, the Complaining Parties refer to the panel report in United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil ³² ("United States - Non-Rubber Footwear"). None of the rationales invoked by the European Communities in justification for the activity function rules -- such as that ACP imports are "inherently less profitable" and that different "situations concerning operators" require a different allocation of quota rents -- legitimizes regulations which discriminate explicitly among like products on the basis of their origin. ³³ The Complaining Parties add that Article I:1 of the GATT 1994 applies to any "rules or formalities", and that the EC's argument that measures intended to implement competition policies are somehow "outside of the WTO" is "confused and groundless".

69. According to the Complaining Parties, the European Communities themselves recognized the commercial value of the export certificates in the European Commission Report on the EC Banana Regime, in which the European Commission indicated that export certificates helped the BFA countries "share in the economic benefits of the tariff quota". ³⁴ The Complaining Parties argue that export certificates accord holders in BFA countries preferential bargaining leverage to extract a share of the quota rent for their fruit exported to the European Communities, and hence give BFA countries a competitive advantage over other Latin American suppliers. This "possibility" (i.e. privilege) was requested by the BFA countries.

70. The Complaining Parties submit that the Panel correctly found that the licensing procedures applicable to Latin American bananas differ from, and go significantly beyond, those required in respect of traditional ACP bananas in violation of Article X:3(a) of the GATT 1994. Because everything from border measures to internal measures falls within the language of Article X:1 of the GATT 1994, and because the import licensing procedures of the European Communities constitute internal laws regulating border measures, the Complaining Parties conclude that the procedures at issue fall well within the scope of Article X:1 of the GATT 1994. The language of Article X:3(a) prohibits the application of two significantly different, origin-based sets of licensing procedures. The Complaining Parties argue that the Panel rested its findings on a review of the different EC procedures, not on the operator category and activity function rules themselves. The Panel's analysis specifically reviewed the licensing procedures at issue and not the enabling laws as such. Furthermore, there is no support in the WTO for the proposition that Article I and Article X of the GATT 1994 cannot overlap. The fact that the EC discriminatory import procedures are inconsistent with the uniformity requirement of Article X:3(a) does not mean that the licensing rules themselves cannot represent "rules and formalities" that have not been accorded immediately and unconditionally to like products of all origins in violation of Article I of the GATT 1994. The Panel correctly found that the EC practices violated both Articles I and X of the GATT 1994. In response to the EC's argument that Article 1.3 of the Licensing Agreement is lex specialis, and that the Panel must therefore make concurrent findings under both Article X:3(a) of the GATT 1994 as lex generalis and Article 1.3 of the Licensing Agreement, the Complaining Parties submit that it is only in the event of conflict between the GATT 1994 and a provision of another Annex 1A agreement (such as the Licensing Agreement), that the provision of the latter agreement prevails.

71. Furthermore, the Complaining Parties assert that the Panel correctly found that hurricane licences created an incentive to purchase EC bananas in violation of Article III:4 of the GATT 1994. Operators that purchase EC bananas can expect in the event of a hurricane to be compensated for both their lost volume in the form of extra "hurricane licences" and with respect to their reference quantities for purposes of future licensing entitlement. Therefore, operators are being encouraged, by way of hurricane licences, to purchase EC bananas instead of "Latin American bananas" in violation of Article III:4 of the GATT 1994. According to the Complaining Parties, irrespective of the impact hurricane licences may have had on the tariff quota, the incentive such licences create to purchase EC bananas is a clear, discriminatory modification of conditions of competition in violation of Article III:4 of the GATT 1994. Finally, the Complaining Parties assert that WTO Members are entitled to afford "occasional protection against the effects of natural disasters", but they may not do so through discriminatory measures that encourage the purchase of EC bananas.

72. The Complaining Parties assert that the Panel properly concluded that there is nothing in Protocol 5 that suggests that the European Communities is required to apply other factors to increase the shares of ACP countries above their best-ever export levels before 1991. They argue further that the plain language of Article 1 of Protocol 5 makes clear that it means past and present ACP "access to its traditional markets and its advantages on those markets," and not pending or contemplated ACP investments in production that may or may not materialize at some future time in the form of trade in the EC market. The Complaining Parties contend that operator category rules were not formerly enjoyed by ACP countries, and are not required to provide access to traditional markets, and that there are other methods consistent with WTO rules by which the European Communities could assist the ACP countries in competing in the EC market. During the Panel proceedings, the European Communities declined to put forward any facts relating to the "past" "situation" concerning import licence systems. The Complaining Parties argue that even if this "factual" issue is reviewable, the EC's belated assertion that licences for third-country banana imports "were a permanent market management system" is inconsistent with statements made during the Panel proceedings.

73. With respect to all issues concerning the GATS raised in this appeal, the Complaining Parties argue that the Panel was correct. The Complaining Parties ask the Appellate Body to affirm the Panel's findings on the GATS.

74. The Complaining Parties submit that the ordinary meaning of the GATS, in its context, establishes that it has a broad scope and that the Panel correctly concluded that the GATS applies to all measures affecting the marketplace for services, including services measures that also relate to goods. The ordinary meaning of the term "affecting" is "having an effect on" or "having an impact on". The Complaining Parties contend that the negotiators of the GATS clarified the inclusive nature of the terms "trade in services" and "supply of a service" by adding the illustration found in Article XXVIII(c) of the GATS and, that this, together with the ordinary meaning of the term "affecting", makes plain that the scope of the GATS is "as sweeping as possible". The Complaining Parties argue that the European Communities is incorrect in claiming that "affecting" and "in respect of" are used in parallel in Article XXVIII(c) of the GATS. What follows the phrase "affecting" is "trade in services" and, by contrast, what follows the phrase "in respect of" is not "trade in services". The Panel was, therefore, correct in rejecting the EC's argument.

75. The Complaining Parties also maintain that this broad ordinary meaning is confirmed by the broad interpretation of Article III of the GATT by previous panels. The Complaining Parties maintain that the drafters of the GATS were generally familiar with such basic GATT concepts ³⁵, and that this includes the Note by the GATT Secretariat issued to the GATS negotiators. ³⁶ A Secretariat Note of this sort, issued generally to all delegations participating in the negotiations, is a legitimate part of the preparatory work of the GATS for the purpose of confirming the ordinary meaning of the text -- in this case, its broad scope.

76. The Complaining Parties submit that the Panel properly found that the mutual exclusivity of the GATT 1994 and the GATS would be fundamentally at odds with the object and purpose of both agreements. In support of this argument, the Complaining Parties set out a number of "goods measures" that do not directly regulate a service per se, but place foreign-owned firms at a distinct competitive disadvantage. ³⁷The acceptance of the argument of the European Communities that measures regulating goods are excluded from the GATS disciplines would seriously erode service commitments made in the goods distribution sector -- both wholesaling and retailing. The Complaining Parties maintain that the entire sector is devoted to the distribution of goods and that measures affecting this sector will, by definition, have a direct or indirect connection with goods. In support of their argument as to the possibility of "overlaps" between the GATT 1994 and the GATS, the Complaining Parties refer also to the Appellate Body Report in Canada - Certain Measures Concerning Periodicals ("Canada - Periodicals"). ³⁸

77. In response to the arguments of the European Communities concerning anti-dumping duties and preferential treatment of goods under free trade agreements, the Complaining Parties submit that the relevance of these arguments is not clear as the GATS violations in this case were not based on the fact that the European Communities provided greater market access to EC and ACP bananas than to "Latin American bananas". In reply to the argument by the European Communities on the GATT exceptions and waivers, the Complaining Parties submit that the Panel properly described this issue not as a fundamental issue of overlap between the GATT 1994 and the GATS, but rather as an issue of the "appropriate drafting of waivers". With respect to the EC's argument concerning scheduling, the Complaining Parties maintain that, had the negotiators understood that all goods-related measures were automatically exempted from the GATS, they would not have extended the GATS to include entire sectors -- such as distribution and freight transportation -- devoted entirely to the sale and movement of such goods. Finally, in response to the argument by the European Communities on the absence of any provision in the WTO agreements to resolve conflicts between the GATT 1994 and the GATS, the Complaining Parties submit that the framers of the GATS did not adopt a rule of exclusivity, and thus some sort of "unspoken hierarchy", because they did not perceive any "overlap" to have any significant consequences.

78. The Complaining Parties submit that the Panel correctly concluded that Article II of the GATS applies to instances of de facto discrimination. The Complaining Parties argue that the phrase "treatment no less favourable" in Article II of the GATS is unqualified and therefore not limited to measures embodying de jure discrimination, but rather by its terms applies to all less favourable treatment, whether or not the fact that it is less favourable is apparent from the face of the measure. The Complaining Parties agree also with the Panel that Article III of the GATT 1994 is an important context for the interpretation of Article II of the GATS, and that the prior interpretation of the phrase "treatment no less favourable" in Article III:4 by GATT panels confirms the broad plain meaning of the same phrase as used in Article II of the GATS. Article II:2 of the GATS and the Annex on Article II Exemptions, which set out elaborate listing and review procedures for MFN exemptions, provide additional relevant context. The Complaining Parties observe that it is difficult to imagine why the negotiators would provide such procedures if Members were at liberty to adopt discriminatory measures in any event, escaping coverage of Article II unless the discrimination is "formal" in design. The Complaining Parties also support the Panel's reasoning in that the additional paragraphs 2 and 3 in Article XVII of the GATS neither add to, nor subtract from, the "treatment no less favourable" standard. The Complaining Parties agree with the Panel in that the narrow "formal" interpretation of the MFN standard in Article II:1 of the GATS would be incompatible with its non-discrimination objective and purpose. The negotiating history of the MFN clause in the GATS confirms that the "treatment no less favourable" standard was intended to require effective equality of opportunities and that the GATS negotiators were made fully aware that it had been interpreted in that way by the panel report in United States - Section 337. ³⁹ In support of this argument, the Complaining Parties refer to a Note by the GATT Secretariat reviewing various non-discrimination concepts in the context of offering possible MFN options for the Group of Negotiations on Services. ⁴⁰

79. The Complaining Parties submit that the Panel correctly concluded that the EC licensing rules affected trade in wholesale trade services. In response to the EC's argument relating to the coverage of the definition of wholesale trade services, the Complaining Parties argue that, in fact, buying directly affects selling, and that if a wholesaler cannot buy bananas, he cannot sell them. The Complaining Parties submit that the EC's argument on integrated companies is irrelevant since the Complaining Parties demonstrated that their main distribution companies distributed bananas they had purchased from independent Latin American growers, in addition to bananas they grew themselves. In so far as trade in wholesale services for bananas was affected through import licences, the banana regime effectively regulated the access of banana wholesalers to the most important item they needed to provide wholesale trade services -- namely, bananas.

80. The Complaining Parties contend that the Panel properly concluded that operator category rules, activity function rules and hurricane licences modify competitive conditions in favour of EC and ACP wholesale distribution firms in comparison to like third-country firms and are, therefore, inconsistent with both Articles II and XVII of the GATS. The Complaining Parties do not agree with the EC's "aims and effects" argument. The Complaining Parties note that the European Communities did not take this position before the Panel, that the European Communities does not indicate what in the text of the GATS calls for such an inquiry, and that the Appellate Body has found previously that the proper inquiry in applying the national treatment principle of Article III:1 of the GATT 1994 is not a measure's "aim and effect" but rather an examination of "... the underlying criteria used in a particular ... measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products". ⁴¹

81. In response to the argument by the European Communities that the aim of operator categories is to encourage "interpenetration" of markets, the Complaining Parties contend that this statement ignores the one-way transfer to EC and ACP firms of an entitlement to a portion of the business that had historically been in the hands of the Complaining Parties' distributors. The Complaining Parties further submit that the market integration claim by the European Communities is legally irrelevant under Articles II and XVII of the GATS and that Article V of the GATS governing market integration does not relieve the European Communities from either its national treatment or its MFN obligation vis-à-vis ACP and third-country service suppliers. The Complaining Parties refer to the EC's argument that operator categories were motivated largely by the legitimate need to promote competition by distributing quota rents "in a way which was not skewed by the existing market situation". ⁴² According to the Complaining Parties, this is just another way of saying that the European Communities wished to re-arrange the "existing market situation" by moving business and resources from one group of service suppliers to another. The Complaining Parties also argue that the European Communities did not justify operator categories on the basis of competition policy concerns in any of the relevant directives establishing the measure. In response to the EC's argument that operator categories do not have an inherently discriminatory effect, the Complaining Parties argue that this is an inappropriate effort by the European Communities to place factual issues before the Appellate Body. In their view, operator categories are "inherently" discriminatory despite the EC's argument that all suppliers are on an equal footing to compete for access to supplies of the EC and ACP bananas. Unlike the wholesalers of the Complaining Parties, those of the European Communities and the ACP States are not required to initiate new business relationships in new regions in order to win back their traditional business.

82. With respect to the real design and operation of activity function allocations, the Complaining Parties submit that, since the Panel's assessment was in large part a factual inquiry, the Appellate Body should not interfere lightly with it. In response to the EC argument on the prevention of concentration of economic bargaining power in the hands of the large multinational companies, the Complaining Parties argue that this confirms the Panel's analysis that the allocation to ripeners was in fact designed to tilt the competitive environment against the Complaining Parties' firms. Furthermore, the Complaining Parties reject the argument by the European Communities that there were various opportunities available to avoid actual loss of market share, as such options involve substantial cost merely to regain former business. As a result, Complaining Parties' firms have a competitive disadvantage over EC firms which have not been required to make purchases or investments in order to retain their traditional banana business.

83. With respect to the allocation of hurricane licences, the Complaining Parties do not question the legitimacy of providing relief in the case of natural disasters, but rather the mechanism the European Communities has chosen to provide disaster relief. The Panel correctly found that this mechanism, in fact, increases the already large and discriminatory 30 per cent share of the tariff quota given predominantly to firms from the European Communities and the ACP States. However, the mechanism for hurricane licences places firms of the Complaining Parties' origin at a competitive disadvantage vis-à-vis EC and ACP operators from whom they package the licences.

84. In response to the EC's argument with respect to Article 28 of the Vienna Convention, the Complaining Parties argue that he Panel correctly characterized the measure at issue as continuing measures which were, in some cases, enacted before the entry into force of the GATS, but which did not cease to exist after that date. In its commentary on the final draft of the Vienna Convention, the International Law Commission recognized that such measures fall outside the scope of Article 28 of the Vienna Convention. ⁴³ Concerning market shares, the Complaining Parties argue that the Panel necessarily had to base its analysis on trade data pertaining to a period several years earlier than the entry into force of the GATS, as the EC regime awards import rights based on historical trade.

85. With respect to the issue of the burden of proof, the Complaining Parties argue that, to the extent the Appellate Body can consider the claims raised by the European Communities to constitute an issue of law within its mandate under Article 17.6 of the DSU, the European Communities does not show how the Panel's rendering of its factual findings constitutes a legal error that the Appellate Body should reverse. The Complaining Parties observe that the Appellate Body in United States - Shirts and Blouses from India ⁴⁴ declined to define a uniform set of facts needed to create the presumption of a violation, let alone the quantum of support needed to establish any particular fact given in the case. The Complaining Parties argue as well that the Panel based its evidentiary finding on a methodical, issue-by-issue examination of the evidence presented on the record, accurately described the information in the record and explained how, on the key facts, the European Communities had not rebutted the information submitted by the Complaining Parties. The Panel correctly concluded that Del Monte was Mexican-owned and that the relevance to the Panel's conclusion of a suggested alteration of Del Monte's status during the Panel's proceeding was not clear. The Complaining Parties further submit that there is no specific test required by the GATS concerning the ownership of ongoing companies.

86. The Complaining Parties argue that, with respect to ownership and control of service suppliers established in the European Communities, the Complaining Parties submitted to the Panel an array of corroborative information ⁴⁵ which the Panel properly determined to be credible and sufficient. The Complaining Parties argue that the European Communities had not even asserted any point that contradicted the Complaining Parties' facts. The Complaining Parties maintain that the Panel correctly based its finding concerning market shares on the import and production markets, as it is this activity that generates entitlements to import licences as "primary importers". With respect to hurricane licences, the Complaining Parties assert that the European Communities should not be allowed to re-open this issue on appeal, as it never sought to dispute the identification of Category B operators (both of EC and ACP origin) as recipients of hurricane licences by the Complaining Parties during the Panel proceeding.

87. The Complaining Parties submit that the Panel correctly found that the request for the establishment of a panel satisfied the requirements of Article 6.2 of the DSU. In response to the EC's arguments on specificity and the necessity of showing an explicit link between each measure and the article allegedly infringed, the Complaining Parties point out that there is no agreed WTO definition of the terms "specific measures at issue" and that, under the practice of the GATT 1947 CONTRACTING PARTIES, most requests for the establishment of a panel contained no explanation of how certain measures are inconsistent with the requirements of the specific agreements. The Complaining Parties also submit that the Panel correctly determined that the request was sufficiently precise to fulfil the three identified purposes of a panel request ⁴⁶by enabling the Panel to understand without difficulty which claims it was required to examine, by adequately informing the European Communities of the case against it, and by adequately informing third parties of the case against the European Communities.

88. The Complaining Parties argue that the Panel correctly found that the United States has a right to advance "goods claims" in this dispute. The Complaining Parties submit that the European Communities appears to use the term "legal interest" as a "short-hand reference" for its arguments regarding United States' export interests in bananas and seems to stipulate an additional requirement that a complaining party must plead and prove nullification or impairment as a precondition for raising a claim. The Complaining Parties contend that neither Article XXIII of the GATT 1994 nor Articles 3.3 or 3.7 of the DSU contain any explicit requirement that a Member must have a "legal interest" in order to request a panel and that other provisions in the DSU, such as Article 3.8, confirm the absence of such a prerequisite. In addition, the "substantial interest" standard in Article 10.2 of the DSU on third-party participation is irrelevant because the rights of third-party participation and its purpose are fundamentally different from those of the parties to the dispute.

89. Moreover, the Complaining Parties contend that the European Communities was fundamentally mistaken in suggesting that "general" international law, requiring a legal interest to bring a claim, is operative in this case. The Complaining Parties observe that Article 3.2 of the DSU encompasses only customary rules of interpretation of public international law. Therefore, consistently with Article XVI:1 of the WTO Agreement, the Panel found that, in the absence of an explicit legal interest requirement in the WTO Agreement, GATT practice was relevant. As the Complaining Parties see it, in GATT practice, a wide variety of interests is permitted to support a claim. ⁴⁷ The Panel noted that the United States does produce bananas in Hawaii and Puerto Rico, and that, even if the United States did not have a potential export interest, its internal market for bananas could be affected by the EC regime because of the potential effect on world prices. In the view of the Complaining Parties, the EC's arguments on the issue of the United States' trade interests contradict the EC's own past position in United States - Restrictions on Imports of Tuna.⁴⁸ The European Communities claimed in that case that any time a country produces a product, even if the application of another country's measure is only hypothetical, the potential effect on price in its market gives rise to a "legal interest".

90. The Complaining Parties submit further that the jurisdictional clause of Article XXIII of the GATT 1994 specifically applies to all WTO Members, and that Article 3.2 of the DSU specifically states that the WTO dispute settlement system "serves to preserve the rights and obligations of Members under the covered agreements".

91. The Complaining Parties submit that the Panel correctly found that the numerous violations by the European Communities of the GATT 1994, the Licensing Agreement and the GATS have nullified or impaired benefits the United States is entitled to derive from those agreements. The Panel properly identified several areas in which benefits to the United States would be nullified or impaired by noting that the United States produces bananas in Puerto Rico and Hawaii and by finding that the violation by the European Communities of the WTO agreements could adversely affect the United States' internal market. The Complaining Parties also argue that the Panel justifiably cited the reasoning in United States - Taxes on Petroleum and Certain Imported Substances ⁴⁹ ("United States - Superfund") in support of its finding that the European Communities had failed to rebut the presumption of nullification or impairment.

92. The Complaining Parties submit that the Panel noted a WTO Member's "interest in a determination of rights and obligations under the WTO Agreement". The Complaining Parties maintain that Article 3.7 of the DSU makes clear that it is for the complaining Member to decide whether to pursue dispute settlement and, if necessary thereafter, whether to pursue rights to suspend concessions. More precision of the level of nullification or impairment becomes necessary only in the case where concessions are suspended under Article 22.4 of the DSU, because that provision requires that the level of suspension of concessions shall be equivalent to the level of nullification or impairment. According to the Complaining Parties, in the absence of a mutually-agreed solution, the first objective of dispute settlement is to secure the withdrawal of the inconsistent measure. This objective is not linked to the level of nullification or impairment, but to whether the measure at issue is inconsistent with WTO obligations.

 C. Ecuador, Guatemala, Honduras, Mexico and the United States - Appellants

93. The Complaining Parties generally agree with the Panel's findings but consider that there are three conclusions that stand out in the Panel Reports as being unsupported by the relevant legal texts and customary principles of treaty interpretation, and are thus manifestly erroneous findings of law.

94. The Complaining Parties argue that the "ordinary meaning" of the Lomé Waiver, read in its context and in the light of its purpose, is clear, not ambiguous or obscure. The Lomé Waiver clearly and specifically waives Article I:1 of the GATT 1994 and no other provision of the WTO Agreement. According to the Complaining Parties, the Panel's overall approach in interpreting the Lomé Waiver was fundamentally flawed in two ways: first, it ignored the ordinary meaning of the text, and this is only allowed when the ordinary meaning would lead to a result that is "manifestly absurd or unreasonable"; and second, the Panel focused its analysis on speculation about the objective of the Lomé Waiver and the intentions of the parties seeking the Lomé Waiver, rather than on the text. The Complaining Parties contend that under the Vienna Convention, a treaty's object and purpose are to be considered in determining the meaning of the terms of the treaty but not as an independent basis for interpretation.

95. Furthermore, the Complaining Parties argue that in deciding that the Lomé Waiver applies to violations of Article XIII of the GATT 1994, the Panel disregarded the EC's express denial that the Lomé Waiver covers violations of Article XIII of the GATT 1994 in favour of what it infers to have been the EC's intentions in seeking the Waiver. However, the "object" of a treaty is that of all the parties, not the presumed intentions that might be attributed to only some of those parties. The Complaining Parties also assert that the rules governing the administration of quantitative restrictions in Article XIII are not analogous or "close" to the MFN provision of Article I of the GATT 1994. Instead, the specific rules in Article XIII are in fact an outgrowth of Article XI of the GATT 1994. The Complaining Parties argue that therefore, the Panel's reliance on "a general principle requiring non-discriminatory treatment" shared by Articles I and XIII of the GATT 1994 is "misguided". The Lomé Waiver does not state that the "principles" of Article I:1 are waived; it states that the "provisions" of that article are waived. A waiver analysis based on loose analogies among various non-discrimination/MFN-like obligations would extend a waiver from Article I well beyond Article XIII of the GATT 1994. MFN-like disciplines could also include Article V:5 on transit of goods, Article IX:1 on marks of origin and Article XVII:1 on state trading. The Complaining Parties maintain that GATT practice shows two things: that the non-discriminatory disciplines in Article XIII are distinct ⁵⁰; and that in 50 years the CONTRACTING PARTIES granted only one waiver in respect of Article XIII of the GATT 1994. ⁵¹ Consequently, the Complaining Parties conclude that the negotiating history and circumstances of the Lomé Waiver's adoption provide no support for disregarding the plain meaning of the text of the Waiver.

96. The Complaining Parties contend that the trade in bananas is exclusively regulated by Article 183 of the Lomé Convention and by Protocol 5. The Complaining Parties argue that Article 168(2)(a)(ii) of the Lomé Convention only applies to products listed in Annex XL, and this list does not include bananas. The Complaining Parties maintain furthermore that Annex XXXIX confirms the limited scope of Article 168(2)(a)(ii) of the Lomé Convention. They also argued that the "more favourable" treatment provided for by Article 168(2)(a)(ii) has been separately and specifically negotiated between the parties on a product-by-product basis. This did not happen for bananas. If Annex XL does not provide a specific arrangement for a particular product, then there is no trade requirement for that product other than for the European Communities to consult with the ACP States on providing additional preferential access. The Complaining Parties assert that Article 183 and Protocol 5 deal with both traditional and non-traditional ACP bananas. They argue that the text of these provisions shows in several ways that they contain the entirety of the EC's undertakings concerning all bananas from all ACP countries. In the view of the Complaining Parties, the ECJ Judgments in Federal Republic of Germany v. Council of the European Union ("Germany v. Council"), and in Administrazione delle Finanze delle Stato v. Chiquita ("Chiquita Italia") ⁵²support the proposition that Protocol 5 is lex specialis, not only in respect of trade in traditional ACP bananas, but also in relation to all bananas. Therefore, the ordinary meaning in the context of the relevant provisions of the Lomé Convention, confirmed by the application of the lex specialis principles of interpretation, shows that the Lomé Convention's only "trade instruments" on bananas are those set forth in Protocol 5, and that Protocol 5 contains no requirements with respect to non-traditional bananas.

97. The Complaining Parties also maintain that, if Article 168(2) of the Lomé Convention is read to require preferences for ACP bananas in addition to those set out in Protocol 5, it renders useless the strict limitations on preferential treatment of Protocol 5 for traditional ACP States. The Complaining Parties agree that during the first 18 years of the Lomé Convention (1975-1992), the trade provisions of Article 168(1) and 169(1) were not considered by the parties to be applicable to bananas. Therefore, it was incorrect of the Panel to conclude that Article 168(2) has become applicable since that time. In support of these arguments, the Complaining Parties refer to EC and ACP official statements reflecting a recognition that Protocol 5 alone governs the treatment of banana imports and that the Lomé Convention does not require preferential treatment for non-traditional ACP bananas.

98. The Complaining Parties submit that the claims excluded were fully within the Panel's terms of reference under Article 7.1 of the DSU, as set out in the joint request for the establishment of a Panel in document WT/DS27/6. There is no provision analogous to Article 7 of the DSU for first written submissions and therefore, the Panel has impermissibly imposed an additional obligation on the Complaining Parties, contrary to the DSU, by requiring that all claims are spelled out in a complaining party's first written submission. The Complaining Parties note further that since the claims were within the Panel's terms of reference, there was no issue of unfair surprise to the detriment of the European Communities in the light of the simultaneous filing of rebuttal submissions pursuant to Article 12(c) of the Working Procedures in Appendix 3 to the DSU.

Notes:

24. Adopted 18 June 1980, BISD 27S/119, paras. 15, 16 and 18.

25. Adopted 20 November 1984, BISD 31S/114.

26. Adopted 18 June 1980, BISD 27S/119, paras. 15-16.

27. Report of the First Session of the London Preparatory Committee of the United Nations Conference on Trade and Employment, UN Document EPCT/33, October 1946, p. 14, referred to in the Complaining Parties' appellee's submission, para. 36.

28. Adopted 23 October 1958, BISD 7S/60, para. 11.

29. Adopted 7 November 1989, BISD 36S/345, para. 5.10.

30. Adopted 23 October 1958, BISD 7S/60, para. 12.

31. Appellate Body Report, Japan - Taxes on Alcoholic Beverages ("Japan - Alcoholic Beverages"), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 18.

32. Adopted 19 June 1992, BISD 39S/128, paras. 6.8-6.17.

33. Ibid., para. 6.11.

34. Commission of the European Communities, Report on the EC Banana Regime, VI/5671/94, July 1994, p. 12, contained in the Complaining Parties' first submission to the Panel.

35. The Complaining Parties refer in particular to the panel report, Italian Agricultural Machinery, adopted 23 October 1958, BISD 7S/60.

36. Definitions in the Draft General Agreement on Trade in Services, Note by the Secretariat, MTN.GNS/W/139, 15 October 1991, para. 12.

37. Complaining Parties' appellee's submission, para. 193.

38. WT/DS31/AB/R, adopted 30 July 1997.

39. Adopted 7 November 1989, BISD 36S/345, para. 5.11.

40. Most-Favoured-Nation Treatment and Non-Discrimination Under The General Agreement on Tariffs and Trade, Note by the Secretariat, MTN.GNS/W/103, 12 June 1990.

41. Appellate Body Report, Japan - Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 29.

42. EC's appellant's submission, para. 311.

43. The Complaining Parties refer to the Yearbook of the International Law Commission, Vol. II (1966), p. 212.

44. WT/DS33/AB/R, adopted 23 May 1997.

45. The Complaining Parties refer to Exhibit E of their joint rebuttal submission.

46. The Complaining Parties refer to the Appellate Body Report, Brazil - Measures Affecting Desiccated Coconut ("Brazil - Desiccated Coconut"), WT/DS22/AB/R, adopted 20 March 1997, p. 22, and argue that the discussion in that Report is equally relevant to requests for panels with standard terms of reference under Article 7.1 of the DSU.

47. The Complaining Parties refer to the Report by the Working Party on Brazilian Internal Taxes, adopted 30 June 1949, BISD II/181, para. 16.

48. DS29/R, 16 June 1994, unadopted.

49. Adopted 17 June 1987, BISD 34S/136, para. 5.1.9.

50. In support of their argument the Complaining Parties refer to the Working Party on Import Restrictions Imposed by the United States Under Section 22 of the United States Agricultural Adjustment Act ("United States - Section 22"), adopted 5 March 1955, BISD 3S/141, p. 144; and to the Waiver on the Caribbean Basin Economic Recovery Act, Decision of 15 February 1985, BISD 31S/20, p. 22.

51. Waiver Granted in Connection with the European Coal and Steel Community, Decision of 10 November 1952, BISD 1S/17, para. 3.

52. Case C-280/93, Germany v. Council, Judgment of the Court of 5 October 1994, ECR 1994, p. I-4973; and Case C-469/93, Chiquita Italia, Judgment of the Court of 12 December 1995, ECR 1995, p. I-4533.

Continue on to Part 4 of EC - Regime for the Importation, Sale and Distribution of Bananas.

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