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EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS

AB-1997-3

Report of the Appellate Body

4. Scope of the Appeal

99. In an additional submission 53, Ecuador submits that the findings of the Panel in paragraph 7.93 of the Panel Reports concerning Ecuador's right to invoke Article XIII:2 or XIII:4 of the GATT 1994 are not addressed in the Notice of Appeal and that there was no argumentation on this issue in the EC's appellant's submission, except for in its "conclusions" section. Ecuador contends that the European Communities did not comply with the requirements in Rule 20(2)(d) of the Working Procedures and, as a result, did not conform with its "due process objectives" as set out by the Appellate Body in its Report in Brazil - Measures Affecting Desiccated Coconut 54. Therefore, Ecuador asks the Appellate Body to exclude this issue from the appeal.

 D. European Communities - Appellee

1. Lomé Waiver -- Traditional ACP Bananas

100. The European Communities agrees with the Panel that Article I of the GATT 1994 is a "general principle requiring non-discriminatory treatment". The European Communities maintains, however, that Article XIII cannot be assumed to be a "subset" of Article I:1 of the GATT 1994, and submits that the Complaining Parties do not contest this. 55 There are separate GATT 1994 and other WTO provisions, such as Article X and XIII of the GATT 1994 and 1.3 of the Licensing Agreement which, even though they are MFN or non-discrimination obligations, have their own raison d'être and scope and cannot be regarded as mere duplications of each other. The European Communities contends that the circumstances surrounding the negotiation of the Lomé Waiver clearly show that those involved in the negotiations must have been aware and must have recognized that there were, in fact, two different import regimes for bananas. The European Communities never explicitly requested a waiver for Article XIII of the GATT 1994 for the simple reason that there was no reason, logical or legal, for doing so. The European Communities was convinced that the provisions of Article XIII refer primarily to the allocation of a particular quantitative restriction or tariff rate quota and not to a generic non-discrimination principle. In such a situation, the question of whether the Lomé Waiver needed to contain an exemption not only from Article I, but also from Article XIII of the GATT 1994, never entered into consideration. Therefore, the Panel's finding that both regimes constitute one regime to which Article XIII should be applied across the board is fundamentally at odds with the circumstances under which the Lomé Waiver was negotiated.

101. Finally, the European Communities observes that the Panel was correct in seeing a link between Articles I:1 and XIII:1 of the GATT 1994. Otherwise, the specific language of the Lomé Waiver referring to "preferential treatment", and not merely to "preferential tariff treatment", would be deprived of any meaning. The European Communities submits that the principle of strict interpretation of exceptions to the GATT 1994 should be applied to the text of the Lomé Waiver, but not to the text or the content of the Lomé Convention, as the latter is not per se an exception to the GATT 1994 or the other WTO agreements. The Lomé Convention is an autonomous international agreement which does not stand in a hierarchical relationship with the GATT 1994, and in respect to which a panel or the Appellate Body is not authorized to give a restrictive interpretation. In the view of the European Communities, insofar as WTO "quasi-judicial organs" need to understand the Lomé Convention in order to understand the Lomé Waiver, such organs should exercise judicial restraint and, in principle, defer to the interpretations of the parties to the Lomé Convention.

2. Lomé Waiver -- Preferential Treatment of Non-Traditional Bananas

102. The European Communities submits that the discretion existing under Article 168(2)of the Lomé Convention, limiting its tariff obligations to provide a preferential margin on the MFN duty applied to third-country importation, is unlimited vis-à-vis its ACP partners. The European Communities argues that it must take into account the objectives of Article 168 and apply that Article in good faith by securing an effective additional advantage to the ACP-originated bananas when compared to the erga omnes tariff treatment.

103. With respect to the arguments of the Complaining Parties about what is "required" under the Lomé Waiver, the European Communities asserts that before 1 July 1993, Article 168(1) of the Lomé Convention applied to ACP bananas and that ACP bananas could therefore be imported duty-free. Since 1 July 1993, Article 168(2)(a)(ii) has applied to ACP bananas and ACP bananas thus enjoy "a preference" compared to the MFN-duty rate for third-country bananas. The European Communities argues that Annex XL of the Lomé Convention spells out the "intention" of the European Communities with respect to "certain" agricultural products covered by Article 168(2)(a)(ii). Therefore, Annex XL merely serves the purpose of clarifying the future tariff treatment for the listed products. That list is by no means exhaustive. The European Communities submits further that Protocol 5 provides for preferential treatment over and above the basic tariff preferential treatment. In the view of the European Communities, Article 168(2)(a)(ii) is not applicable to traditional bananas as these are subject to Protocol 5 which provides for more preferential treatment. However, Article 168(2)(a)(ii) remains applicable to non-traditional ACP bananas. In response to the reference by the Complaining Parties to the ECJ's judgments in Germany v. Council and in Chiquita Italia, the European Communities contends that those judgments do not support the proposition that Protocol 5 is lex specialis, not only in respect of the trade in traditional ACP bananas, but also in relation to all bananas.

104. Finally, the European communities maintains that, in the light of the circumstances surrounding the discussions leading up to the granting of the Lomé Waiver, the partners of the European Communities in these discussions must have been perfectly aware that the treatment of the non-traditional ACP bananas was considered to be part and parcel of the preferential treatment granted by the Lomé Convention.

3. GATS Claims of Guatemala, Honduras and Mexico

105. The European Communities submits that the Panel acted lawfully when it excluded the GATS claims raised by the United States on behalf of Guatemala, Honduras and Mexico. The European Communities asserts that if claims are dropped at the stage of the first submission, the complaining party has voluntarily narrowed the scope or the number of claims originally contained in the request for the establishment of a panel. Once the defendant has relied on the dropping of a claim in the first submission, the complaining party is estopped from bringing it up again. Referring to the Appellate Body's ruling in United States - Shirts and Blouses from India 56that for reasons of judicial economy a panel need not decide every claim contained in the terms of reference if it can decide the case without doing so, the European Communities submits further that a fortiori a panel must have the power to omit claims from consideration because they have voluntarily been dropped from the first submission. A panel is the master of its own procedure; its procedural rulings can only be quashed if they are contrary to the fundamental principle of proper procedure or to the provisions of the WTO Agreement. Lastly, the European Communities argues that a panel ruling on claims not properly advanced in the first written submission would have been contrary to Article 9.2 of the DSU requiring a panel to "organize its examination ... in such a way that the rights which the parties to the dispute would have enjoyed had separate panels examined the complaints are in no way impaired".

  III. Arguments of the Third Participants

 A. Belize, Cameroon, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada, Jamaica, Saint Lucia, St. Vincent and the Grenadines, Senegal and Suriname

106. Belize, Cameroon, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada, Jamaica, Saint Lucia, St. Vincent and the Grenadines, Senegal and Suriname disagree with certain of the legal findings and conclusions of the Panel and request the Appellate Body to take into consideration some issues of principal concern to the ACP third participants. However, the ACP third participants also endorse all the positions advanced by the European Communities in this appeal.

107. The ACP third participants assert that the Panel erred in law in finding that the Complaining Parties' request for the establishment of a panel was sufficient to meet the requirements of Article 6.2 of the DSU. The ACP third participants maintain that the panel request by the Complaining Parties contains only "bare allegations of inconsistencies" and does not provide, as required by Article 6.2 of the DSU, the summary of a legal basis for the allegations. They submit that this breach severely prejudiced the ACP third participants. They argue further that the ordinary meaning of Article 6.2, the context and its object and purpose did not justify the Panel's decision. In particular, the ACP third participants assert that it is not the Panel's function to cure errors in the submissions of the Complaining Parties to the disadvantage and prejudice of third parties or respondents. With respect to the function of Article 6.2 of the DSU, the ACP third participants contend that the Panel misunderstood the purpose that a third party has in "participating" in the panel proceedings, which is to make submissions to the Panel to protect vital national interests. Article 6.2 plays a fundamental role in enabling third parties to prepare their submissions to the panel adequately. In addition, the ACP third participants argue that the Panel erred in law by not recognizing that a legal interest test is a principle of international law, and that it is implicit in Article XXIII:1 of the GATT 1994 as well as in Articles 3.7, 4.11 and 10.2 of the DSU. It would be clearly against the intention of the drafters of the WTO Agreement to permit a Member to be a complaining party if that Member has a lesser interest than that required to join consultations or participate as a third party. Finally, the ACP third participants contend that a legal interest test is a practical necessity in order to avoid a proliferation of cases initiated by Members with no immediate trade interest in the results of the disputes.

108. In the view of the ACP third participants, the Panel precluded them from properly representing their interests and thereby tainted the entire proceeding. The ACP third participants assert that the right to observe at the first and second substantive meetings of the Panel with the parties did not permit full and adequate representation of their interests. Previous GATT practice recognizes that parties with interests such as those of the ACP third participants should be given full participatory rights; this practice is also supported by Articles 2, 3.2, 10.1, 11, 12.2, and 13.1 of the DSU. They add that the Panel's decision of 10 September 1996, prohibiting the participation of private counsel serving on the delegation of Saint Lucia in panel meetings, violated the general principle of international law that sovereign states are free to choose the representation of their choice. 57

109. The ACP third participants submit that the Panel erred in law in its interpretation of the scope and coverage of the Lomé Waiver and the entitlements of ACP States in respect of both traditional and non-traditional quantities of bananas under the Lomé Convention. With respect to the interpretation of the EC's obligations under Article I of the GATT 1994, the ACP third participants take the view that the purpose of the Lomé Waiver was not properly considered by the Panel. In particular, the Panel did not acknowledge the fact that the sole purpose of obtaining the Waiver was to deal with the findings of the panel report in EEC - Import Regime for Bananas. 58 The ACP third participants argue that the Panel added the word "clearly" to the text of the Waiver which was not contained there and that it improperly interpreted the phrase "as required". In addition, the Panel erred in interpreting recitals to the Lomé Waiver as conditions and in its finding that a waiver must be interpreted narrowly. The ACP third participants contend that the drafters of the GATT envisaged that the conditions under which waivers are granted might be interpreted narrowly, but that once a waiver is granted, and in view of the fact that this is only done in cases of an exceptional nature involving hardship, there is no ground to interpret narrowly actions permissible under international agreements protected by a waiver. The ACP third participants submit that the Panel misinterpreted the panel report in United States - Restrictions on the Importation of Sugar and Sugar-Containing Products Applied Under the 1955 Waiver and Under the Headnote to the Schedule of Tariff Concessions ("United States - Sugar Waiver"). 59

110. The ACP third participants also argue that the Panel erred in limiting the preference required to be granted to traditional ACP States under Protocol 5 and Article 168 of the Lomé Convention. In this respect, the ACP third participants submit: first, Protocol 5 should not be read in isolation; and second, before 1990, there were no quantitative limitations on ACP exports to traditional markets. Moreover, in the view of the ACP third participants, the Panel erred in its interpretation of the EC's obligations under Article 168 of the Lomé Convention and Protocol 5 in relation to non-traditional ACP bananas. The Panel even failed to consider the application of Article 168(2)(d) to such quantities. In addition, prior to the introduction of Regulation 404/93, non-traditional ACP bananas benefited from more than the simple customs duties exemption. The benefits afforded to those suppliers in respect of quantities prior to 1995 must be protected within the new banana regime. The ACP third participants argue that Article 168(2)(a)(ii) of the Lomé Convention includes an obligation on the European Communities to adopt measures in relation to the importation of ACP agricultural products that give them a benefit over third-country agricultural products and ensure more favourable treatment, for which the level of preference is not specified. They assert that the Panel incorrectly assumed that Article 168 of the Lomé Convention only obliges the European Communities to provide tariff-free treatment. When read in conjunction with Articles 10 and 167 of the Lomé Convention, it is apparent that these provisions impose on the European Communities a form of "standstill" provision, stipulating that after the introduction of the banana regime, those benefits which had accrued previously to traditional ACP bananas must be maintained, not necessarily in form but in substance. The ACP third participants conclude that the provisions of Article 168 of the Lomé Convention confer on ACP agricultural products protection similar to that specifically provided for or reiterated in Protocol 5 for bananas. The interpretation by the European Communities of its obligations under the Lomé Convention cannot be considered very generous, but for the Complaining Parties to argue that there are no obligations in respect of non-traditional ACP bananas is to completely ignore the text of the Lomé Convention.

111. The ACP third participants assert that the scope of the Lomé Waiver must be interpreted as extending to EC licensing procedures, because those procedures are an integral part of the importation regime and are therefore saved by the Lomé Waiver from inconsistency with Article I:1 of the GATT 1994 as "rules and formalities in connection with importation". The ACP third participants argue that the EC licensing regime was necessary to give effect to the EC's obligations under the Lomé Convention. This holds true, in particular, under a correct interpretation of the obligations of the European Communities (other than in Article 168 of the Lomé Convention and Protocol 5) under Articles 10, 135 and 167 of the Lomé Convention. The ACP third participants contend that the Panel incorrectly determined that these commitments are of no legal effect. Additionally, the Panel erred in law and fact in finding that the EC licensing regime did not follow in form the previous national regimes, since, in the view of the ACP third participants, the licensing regime, as regards operator categories and activity function rules, is substantially similar to the previous historic arrangements. Also, the Panel was incorrect in its finding regarding the substance of the previous national regimes and their relations to the EC regime. The ACP third participants argue that in particular under the United Kingdom system, ACP producers were given substantial protection and, in effect, had a guaranteed outlet for their supplies in both the United Kingdom and the French markets. The ACP third participants conclude that it is clear that a system which granted preferences in a superficial manner, but which, under the new factual circumstances of a single market, would make the demise of the ACP banana industry inevitable, would not meet the EC's obligations under Protocol 5.

112. The ACP third participants argue that the licensing regime is necessary because, in its absence, marketers of ACP bananas would have to compete with those of third-country bananas. ACP bananas will be unable to compete with third-country bananas because of the higher production and shipping costs of ACP bananas, and because of the risks caused by the "oligopolistic" structure of the market. The ACP third participants insist that when the Lomé Waiver is construed in the light of its object, purpose and context, it becomes clear that it saves from inconsistency any measure that is reasonably necessary to implement the EC's obligations to the ACP States under the Lomé Convention. The ACP third participants argue that the Panel erred in finding that the licensing procedures applied by the European Communities to traditional ACP imports, when compared to the procedures applied to imports of third-country and non-traditional bananas, can be considered an "advantage". According to the ACP third participants, the Panel was wrong to suggest that the "superficial differences" between ACP import rules and third-country import rules are of the same order as the very substantive disadvantage at issue in the United States - Non-Rubber Footwear case. 60 Additionally, in the view of the ACP third participants, the Panel erred both in its proper role in interpreting the Lomé Convention, and in its interpretation of the Lomé Convention.

113. Finally, the ACP third participants submit that the Panel misinterpreted the scope and application of the GATS. The ACP third participants contend that the Panel's interpretation of the term "affecting" in Article I:1 of the GATS ignored the fact that the GATS covers only the "production" of a service, i.e. trade in services as such. The ACP third participants add that the GATS was negotiated after the GATT 1994 in order to provide protection supplementary to that provided by the GATT 1994 and to address trade in the area of services not covered by the GATT 1994. Concerning the term, "wholesale trade services", the ACP third participants argue that this relates to reselling and involves a purchase and a subsequent sale. Vertically-integrated companies do not "resell". The ACP third participants assert that the scope of Article II:1 of the GATS does not extend to the modification of conditions of competition. In the view of the ACP third participants, the measures relating to operator categories, BFA export certificate requirements and hurricane licences were necessary to carry out the EC's obligations under the Lomé Convention.

 B. Colombia

114. Colombia's submission concerns three issues of law and legal interpretations addressed in the appeal of the European Communities. First, Colombia submits that the Panel erred in law in finding that the Complaining Parties' request for the establishment of a panel identified the specific measure at issue and presented the problem clearly within the meaning of Article 6.2 of the DSU. The almost complete listing of all the basic obligations under an agreement as submitted by the Complaining Parties does not provide any information on the legal basis of a complaint; it merely informs the reader that an inconsistency with the agreement is being claimed. Furthermore, in Colombia's view, the failure to observe the requirements of Article 6.2 of the DSU cannot be "cured" by clarifying the measure at issue and the legal basis of the complaint in the first submission to the panel. One of the most important functions of the requirements in Article 6.2 of the DSU is to enable other Members to decide whether to participate as third parties in the proceedings. This right cannot be exercised without sufficient information. In the event that such participation is not sought because the legal issues raised by the complaining party are insufficiently clear, a WTO Member who is a potential third party cannot subsequently exercise its right in the light of information contained in the first submission, since these are not made available to non-participants. In Colombia's view, for Members that decide not to participate in the proceedings because the request for the establishment of a panel was insufficiently clear, the subsequent clarification in the first submission can therefore not be described as a "cure" or an "efficient solution".

115. Second, Colombia contends that the Panel erred in law in finding that neither the inclusion of the tariff quota shares in the EC Schedule, nor the Agreement on Agriculture, permit the European Communities to act inconsistently with the requirements of Article XIII of the GATT 1994. Colombia submits that the review of the tariff quotas scheduled by the European Communities and the United States, which entail commitments negotiated with more than fifty other participants in the Uruguay Round, shows that few, if any, of these quota allocation commitments presently conform to the requirements set out in Article XIII of the GATT 1994. Therefore, in Colombia's view, it can be safely assumed that all quota allocation commitments made pursuant to the Agreement on Agriculture are actually or potentially inconsistent with Article XIII of the GATT 1994. Colombia submits that not only were quota allocations made irrespective of Article XIII, but also that Members have incorporated into their GATT 1994 Schedules tariff rates on agricultural products inconsistent with Article II:1(b) of the GATT 1994. In this respect, Colombia asserts that the Panel correctly found that "the tariff rates specified in the EC Uruguay Round Schedule are valid EC tariff bindings with respect to bananas", but that the Panel erred in its conclusion that the results of the Uruguay Round override the results of previous tariff negotiations. Colombia contends that the Panel's interpretation does not take into consideration the requirements of the procedures under Article XXVIII of the GATT 1994 and makes redundant paragraph 7 of the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994 (the "Marrakesh Protocol"). Colombia concludes that in the event of conflict between the GATT 1994 provisions and the Agreement on Agriculture, the applicable provision that guides market access concessions undertaken pursuant to the Agreement on Agriculture is Article 4.1 and not the GATT 1994. Colombia asserts that the Panel failed to recognize that, in Articles 1(g), 4.1 and 21 of the Agreement on Agriculture, the drafters of the WTO Agreement had given a clear expression of their intention that the results of the tariffication exercise should override the results of earlier negotiations. By basing itself on general principles of law, the Panel concluded that the legal consequences which the drafters intended to achieve only in the field of agriculture applied to all previous concessions, including those for industrial products.

116. Colombia further contends that, by interpreting Article 4.1 of the Agreement on Agriculture as "a statement of where market access commitments can be found", the Panel deprives not only this provision but also all the country allocation commitments made by or in favour of a majority of WTO Members of any legal relevance. In this event, Article 4.1 would have the mere function of a "signpost" indicating the "way to the schedules". Colombia asserts that the Agreement on Agriculture regulates the relationship between it and the scheduled commitments differently from the GATT 1994. While the GATT 1994 is a framework agreement for the incorporation of tariff bindings, the Agreement on Agriculture and the scheduled commitments negotiated under it constitute together the result of a negotiation on the first stage of agricultural reform. Colombia adds that the market access commitments made under the Agreement on Agriculture constitute, in large part, settlements of disputes on the interpretation and application of the provisions of the GATT 1947 that had arisen prior to the Uruguay Round and during the Uruguay Round negotiations. The provisions related to the BFA in the EC market access commitments are not designed to circumvent GATT 1994 provisions, but to settle past disputes on the EC banana regime and to forestall new ones. Finally, Colombia asserts that, by sanctioning the increase in tariff bindings, but not the quota allocations negotiated in conjunction with the tariff bindings, the Panel creates an imbalance in the outcome of the Uruguay Round negotiations on agriculture.

117. Third, Colombia questions whether in the present case the transfer of a quota rent from an importer to an exporter is an "advantage granted to a product" within the meaning of Article I of the GATT 1994. Colombia contends that the Panel correctly recognized that Article I of the GATT 1994 is concerned with the treatment of foreign products originating from different foreign sources rather than with the treatment of the suppliers of these products, but that it fails to observe this distinction it has established. Colombia asserts that under the Panel's line of reasoning, financial advantages that might be passed on to producers are equated with competitive advantages accorded to the product, and the important legal distinction between advantages accorded to producers and those accorded to products is lost. Within the framework of a trade agreement such as the GATT 1994, different treatment of producers cannot be equated with different treatment of the products they produce. Therefore, in Colombia's view, the Panel incorrectly concluded that the quota rents generated from trade in bananas means that the EC licensing procedures constitute an "advantage granted to a product" within the meaning of Article I of the GATT 1994, as this can only be an advantage that changes the conditions faced by the product in the market of the importing Member. The mere transfer of quota rents from importers to exporters of other countries does not alter the conditions that the product sold by the exporters faces in the restricted market. Additionally, Colombia contends that it is not clear why the Panel referred to the panel report in United States - Non-Rubber Footwear 61; the European Communities did not argue that there were two trade effects, one compensating the other, but only one possible trade effect relevant under Article I of the GATT 1994 that favoured the Complaining Parties. Colombia contends that the Panel dismissed an important point in an unreasoned manner and thereby failed to demonstrate how the competitive conditions for a product are improved when quota rents are transferred from importers to exporters under a regime which does not encourage an increase in exports of that product.

 C. Costa Rica and Venezuela

118. Costa Rica and Venezuela submit joint legal arguments with respect to the relationship between Articles 4.1 and 21.1 of the Agreement on Agriculture and Article XIII of the GATT 1994. They argue that the tariff bindings and tariff quota allocations resulting from the Uruguay Round negotiations on agriculture are in large part inconsistent with Articles II and XIII of the GATT 1994. These inconsistencies are justified only if there is a provision in the WTO Agreement according to which tariff bindings and other market access concessions made pursuant to the Agreement on Agriculture override the obligations under Articles II and XIII of the GATT 1994. In Costa Rica's and Venezuela's view, Articles 4.1 and 21.1 of the Agreement on Agriculture are the legal expression of the intent of the drafters to give legal effect to all market access concessions incorporated in the Schedules of Concessions. Costa Rica and Venezuela contend that the Panel erred in law when it found that the rise in bound tariffs resulting from the tariffication exercise could be justified on the basis of general principles governing the application of successive treaties. Such an interpretation would ignore the legal meaning of Article XXVIII of the GATT 1994 and of paragraph 7 of the Marrakesh Protocol. In the view of Costa Rica and Venezuela, the Panel therefore erred in finding that GATT-inconsistent quota allocation commitments made pursuant to the Agreement on Agriculture could not be justified under the Agreement on Agriculture.

119. Furthermore, with respect to the question of whether Article 4.1 of the Agreement on Agriculture is a substantive provision, Costa Rica and Venezuela argue that there is no other example in the whole of the WTO Agreement of a provision whose sole function is to inform the reader of the location of another provision. Costa Rica and Venezuela contend that the Agreement on Agriculture regulates the relationship between it and the scheduled commitments differently from the GATT 1994. While the GATT 1994 is a framework agreement for the incorporation of tariff bindings, the Agreement on Agriculture, and the scheduled commitments negotiated under it, constitute together the result of a negotiation on the first stage of agricultural reform. Additionally, Costa Rica and Venezuela submit that the market access commitments made under the Agreement on Agriculture constitute, in large part, settlements of disputes on the interpretation and application of the provisions of the GATT 1947 that had arisen prior to the Uruguay Round and during the Uruguay Round negotiations. It would not be justified to dismiss the quota allocation commitments as "illegitimate deals" between individual participants in the Uruguay Round negotiations designed to discriminate against other participants. These allocations were legitimate reactions of the negotiators to the legal uncertainty to which an application of the criteria set out in Article XIII of the GATT 1994 gives rise in a situation in which a highly restrictive import regime is transformed into a tariff-based regime.

120. In addition, Costa Rica and Venezuela are concerned that, by sanctioning the rise in the tariff bindings, but not the quota allocations negotiated in conjunction with the tariff bindings, the Panel creates an imbalance in the outcome of the negotiations on agriculture. Costa Rica and Venezuela add that they fully support the EC's view on the issue whether Article XIII:2(d) of the GATT 1994 prohibits an allocation of quotas by an agreement that includes countries which do not have a substantial supplying interest.

121. Costa Rica and Venezuela question whether in the present case the transfer of a quota rent from an importer to an exporter is an "advantage granted to a product" within the meaning of Article I of the GATT 1994. Costa Rica and Venezuela contend that the Panel correctly recognized that Article I of the GATT 1994 is concerned with the treatment of foreign products originating from different foreign sources rather than with the treatment of the suppliers of these products, but that it fails to observe this distinction it has itself established. Costa Rica and Venezuela submit that, under the Panel's line of reasoning, financial advantages that might be passed on to producers are equated with competitive advantages accorded to the products, and the important legal distinction between advantages accorded to producers and those accorded to products is lost. Within the framework of a trade agreement such as the GATT 1994, different treatment of producers cannot be equated with different treatment of the products they produce. Therefore, Costa Rica and Venezuela take the position that the Panel incorrectly concluded that the quota rents generated by trade in bananas mean that they constitute an "advantage granted to a product" within the meaning of Article I of the GATT 1994, as this can only be an advantage that changes the conditions in the market. The mere transfer of a quota rent from importers to exporters of other countries does not alter the conditions that the product sold by the exporters faces in the quota-restricted market. Additionally, Costa Rica and Venezuela assert that it is not clear why the Panel referred to the panel report in United States - Non-Rubber Footwear 62, since the European Communities did not argue that there were two trade effects, one compensating the other, but only one possible trade effect relevant under Article I of the GATT 1994 that favoured the Complaining Parties. Costa Rica and Venezuela argue that the Panel dismissed an important point in an unreasoned manner and thereby failed to demonstrate how the competitive conditions for a product are improved when quota rents are transferred from importers to exporters under a regime which does not encourage an increase in exports of that product.

122. Costa Rica and Venezuela invite the Appellate Body to consider the broad implications that an acceptance of the Panel's interpretation of Article I of the GATT 1994 would entail. Most WTO Members that allocate tariff quotas among supplying countries do so by allocating a share to named countries constituting the main suppliers and a residual share to "other countries". The producers of the named countries can easily obtain the financial benefits associated with a quota regime by forming an export cartel or asking their government to channel exports through a single agency in accordance with Articles XVII and XX(d) of the GATT 1994; the "other countries" would need to cooperate with one another to secure that financial benefit, which is inherently more difficult. In spite of the different impact on producers from different countries, this method of allocating trade shares among countries has never been challenged in the history of the GATT. If Article I of the GATT 1994 were interpreted to oblige Members to afford not only equal trade opportunities for products but also equal opportunities to obtain the rents arising from the administration of quotas, a quota allocation mechanism used by practically all WTO Members, including the Complaining Parties, would be subject to challenge under the GATT 1994.

D. Nicaragua

123. Nicaragua fully supports the views expressed by Colombia, Costa Rica and Venezuela in their submissions to the Appellate Body. The views set out in these submissions should therefore be treated by the Appellate Body as representing the position of Nicaragua. Nicaragua in particular shares their view that the Agreement on Agriculture, and consequently the market accession commitments made pursuant to that Agreement, take precedence over the provisions of Article XIII of the GATT 1994.

124. With respect to the Panel's reasoning on Article XIII:1 that "the imports from all other countries must be similarly restricted", Nicaragua contends that the Panel draws from this principle the incorrect conclusion that any difference in the method of allocation, whether it can affect the distribution of trade or not, is inconsistent with Article XIII of the GATT 1994. Nicaragua submits that the text of Article XIII:1 clearly regulates the importation of products, not the granting of advantages to exporters or producers, whereas the sole objective of paragraph 2 of Article XIII is to prevent distortions in the distribution of trade arising from the administration of quotas. In this context, the terms "similarly restricted" can only be interpreted to refer to measures imposed in connection with importation that are capable of altering the distribution of trade. Therefore, the terms cannot be interpreted to mean "restricted with similar means", but rather should be interpreted to mean "with similar restrictive effect". Nicaragua also contends that the quota allocation in the case at issue does not accord a trade advantage, since the only consequence of the allocation is that the quota rent is no longer enjoyed by the importer but by the exporter of the exporting country. The resulting financial advantage cannot be used to increase the level of exports because that level is fixed by the quota. It therefore does not alter the competitive condition in favour of that product. In the view of Nicaragua, the mere allocation of a quota share to a particular Member does not distribute trade shares in favour of that Member and can therefore not by itself constitute discriminatory treatment of products inconsistent with Article XIII of the GATT 1994. Nicaragua admits that differences in the means of imposing restrictions can lead to discrimination even when they do not change the distribution of trade shares. However, this is a matter specifically covered by Article I of the GATT 1994 and the Licensing Agreement. The Panel's interpretation of the terms of Article XIII of the GATT 1994 as entailing a total prohibition of any distinction in the means of restriction, including distinctions that do not affect the distribution of trade shares, goes beyond the terms and objectives of Article XIII and the GATT 1994 in general.

125. In addition, Nicaragua contends that the Panel did not correctly determine the issue whether a Member's supplying interest is substantial within the meaning of Article XIII of the GATT 1994. Nicaragua asserts that a Member's interest in supplying a product may be substantial because its exports of the product represent a substantial proportion of total imports of the quota-allocating Member or because its exports of the product represent a substantial proportion of its own total exports. In fact, the words "interest in supplying" suggest that the determination should be made by examining the pattern of trade from the perspective of the interest of the supplying country, which in turn suggests that the proportion of exports of the product in its total exports is the relevant proportion. With respect to the Panel's argumentation on Article XXVIII of the GATT 1994, Nicaragua asserts first that there is no rule that "substantial supplying interest" can only be determined on the basis of the import share from which an exception can only be created by agreement, and, second that the function of the terms as used in Articles XIII and XXVIII is not identical. Nicaragua submits that, given the different objectives of the two provisions, the definition adopted by Members under Article XIII of the GATT 1994 can justifiably differ from that adopted under Article XXVIII of the GATT 1994.

E. Japan

126. In its submission, Japan presents arguments concerning the issue of specificity of the request for the establishment of a panel under Article 6.2 of the DSU. In Japan's view, the "Panel's interpretations on this issue are highly erroneous" and, if accepted by the Appellate Body, will have serious implications for the future operation of the dispute settlement mechanism.

127. Japan submits that the request for the establishment of a panel does not fulfil the two requirements of Article 6.2 of the DSU: the identification of the "specific measure at issue" and the provision of a "brief summary of the legal basis of the complaint". Japan considers that the mere identification of the basic regulation and a simple listing of the provisions which are allegedly violated are not enough. At least the linkage "between the specific measure ... concerned and the Article allegedly infringed thereby" must be provided to meet the requirements under Article 6.2 of the DSU. In the view of Japan, undue emphasis on the promptness of the settlement, without taking account of the respondent's burden, may invite abuse of the dispute settlement system and could cause serious damage to its proper operation. The DSU must be interpreted so as to serve the fair settlement of disputes. Japan argues that the Panel's argument that the Complaining Parties "cured" uncertainty with their first submission should not be accepted. Japan asserts: first, the lack of specificity in the request for the establishment of a panel requires extensive additional work on the respondent's side for the preparation of its defence, which could be avoided if the request for the establishment of a panel is sufficiently specific; second, the Panel's proposed remedy puts too much emphasis on the interests of the Complaining Parties; and third, the first submission does not replace the request for the establishment of a panel with respect to the notice function which is required under Article 6.2 of the DSU. Finally, Japan argues that the Panel's reasoning has no legal basis in the text of the DSU.

128. Japan agrees with the Complaining Parties that the first written submission does not determine the claims made by a complaining party, and that such a finding has no basis in the text of the DSU. However, in the view of Japan, if the Complaining Parties failed to include in their first submission certain claims which are identified in their request for the establishment of a panel, those Complaining Parties should be deemed to have withdrawn such claims. In addition, Japan does not disagree with the Complaining Parties on the progressive nature of a panel proceeding, and it considers that the parties to the dispute should be permitted to make any legal and factual arguments responding to the panel's questions or other parties' arguments throughout the proceeding. However, the complaining party's legal claims must be within the terms of reference of the panel. Finally, Japan considers that, in this case, the Panel incorrectly found that the panel request adequately informed the European Communities of the case against it. Japan contends that the Panel's analysis does not take due account of the burden upon the respondent to respond to the case against it.


Notes:

53. Under Article 22(1) of the Working Procedures.

54. WT/DS22/AB/R, adopted 20 March 1997.

55. The European Communities, in its oral presentation to the Appellate Body at the oral hearing, refers to the Complaining Parties' appellant's submission, para. 40.

56. WT/DS33/AB/R, adopted 23 May 1997, p. 18.

57. In support of their argument, the ACP third participants refer to the Vienna Convention on the Representation of States in their Relations with International Organizations of a Universal Character, done at Vienna, 14 March 1975, AJIL 1975, p. 730, as well as to the practice before other international adjudicatory bodies: See pp. 20 and 22 of the ACP third participants' submission and the Annex thereof.

58. DS38/R, unadopted.

59. Adopted 7 November 1990, BISD 37S/228.

60. Adopted 19 June 1992, BISD 39S/128.

61. Adopted 19 June 1992, BISD 39S/128.

62. Adopted 19 June 1992, BISD 39S/128.

Continue on to Part 5 of EC - Regime for the Importation, Sale and Distribution of Bananas.