Report of the Appellate Body

164. On 9 December 1994, at the request of the European Communities and of the 49 ACP States that were also GATT contracting parties, the CONTRACTING PARTIES granted the European Communities a waiver from certain of its obligations under the GATT 1947 with respect to the Lomé Convention. ⁸⁴ The operative paragraph of this Decision of the CONTRACTING PARTIES reads as follows:

This is the Lomé Waiver. The WTO General Council, acting pursuant to paragraphs 3 and 4 of Article IX of the WTO Agreement and the provisions of the Understanding in Respect of Waivers of Obligations under the General Agreement on Tariffs and Trade 1994, decided on 14 October 1996 to extend this waiver until 29 February 2000.⁸⁵

165. The appeals by the European Communities and the Complaining Parties raise two distinct legal issues relating to the scope of the Lomé Waiver. The first issue is whether the European Communities is "required" under the relevant provisions of the Lomé Convention to do what it has done in the measures at issue in this appeal, that is, to provide duty-free access for all traditional ACP bananas; to provide duty-free access for 90,000 tonnes of non-traditional ACP bananas; to provide a margin of tariff preference in the amount of 100 ECU/tonne for all other non-traditional ACP bananas; to allocate tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes; to allocate tariff quota shares to some traditional ACP States in excess of their pre-1991 best-ever export volumes to the European Communities; to allocate tariff quota shares to ACP States exporting non-traditional ACP bananas; and to maintain the import licensing procedures that are applied by this measure to imports of third-country and non-traditional ACP bananas.

166. The second issue is whether the Lomé Waiver, which specifically covers violations of Article I:1 of the GATT 1994, also covers violations of Article XIII with respect to the EC's country-specific tariff quota allocations for traditional ACP States. We will address these two issues in turn.

167. The European Communities asserts that the Panel should not have conducted an objective examination of the requirements of the Lomé Convention, but instead should have deferred to the "common" EC and ACP views on the appropriate interpretation of the Lomé Convention. This assertion is without merit. The Panel was correct in stating:

We, too, have no alternative.

168. From the operative paragraph of the Lomé Waiver, it is clear that what is waived is compliance with only "the provisions of paragraph 1 of Article I of the General Agreement", and it is clear also that compliance with those provisions is only waived "to the extent necessary" to permit the European Communities to provide the "preferential treatment" that is "required" by the relevant provisions of the Lomé Convention. It is equally clear that the use of the term "required" is not accidental. Originally, the European Communities and the ACP States that were contracting parties to the GATT 1947 requested a waiver that would have allowed the European Communities to grant preferential treatment as "foreseen" under the relevant provisions of the Lomé Convention. ⁸⁷ However, the term "foreseen" was not accepted by the CONTRACTING PARTIES, and was replaced in the text of the waiver by the more stringent term "required". ⁸⁸ We do not agree with the European Communities that this is a distinction without a difference. ⁸⁹

169. To determine what is "required" by the Lomé Convention, we must look first at the text of that Convention and identify the provisions of it that are relevant to trade in bananas. Article 183 of Chapter 2, entitled "Special undertakings on rum and bananas", which is part of the general title on "Trade Cooperation", and Protocol 5 on Bananas are clearly provisions that specifically concern trade in bananas. Article 183 reads as follows:

Article 183 does not in itself clarify what is "required" with respect to trade in ACP bananas. Article 183 does, however, refer to Protocol 5, which is an integral part of the Lomé Convention. ⁹⁰ Article 1 of Protocol 5 stipulates:

The requirements in Protocol 5 clearly apply to "traditional markets" for traditional ACP bananas, and to nothing more.

170. In addition, the Lomé Convention contains Article 168(2)(a)(ii), which is also relevant to trade in ACP bananas. Article 168(2)(a)(ii), which is found in the chapter on the "General trade arrangements" of the Lomé Convention, reads in relevant part as follows:

These "products" include bananas. Article 168(2)(a)(ii) applies to all ACP agricultural products that come under a common organization of the market and that are subject to import restrictions. Nothing in Article 168(2)(a)(ii) indicates that bananas are to be excluded from the scope of this provision, either because the import arrangement for bananas is dealt with elsewhere, or because bananas are not included in the non-exhaustive list of preferential arrangements under Article 168(2)(a)(ii) that is contained in Annex XL of the Lomé Convention. Therefore, under Article 168(2)(a)(ii), the European Communities is required to "take the necessary measures to ensure more favourable treatment than that granted to third countries benefiting from the most-favoured-nation clause" for all ACP bananas. This requirement in Article 168(2)(a)(ii) in no way conflicts with Article 1 of Protocol 5, which requires additional preferential treatment for traditional ACP bananas over and above the preferential treatment for all ACP bananas that is required by Article 168(2)(a)(ii). ⁹¹

171. These are the requirements that the Lomé Convention imposes on the European Communities for trade in ACP bananas. The admittedly difficult legislative task facing the European Communities was to translate these requirements into appropriate regulations while also transforming the previously varied, national banana markets of its Member States into a single Community-wide market for bananas. It is not our task to do this for the European Communities. Our task is to determine whether the particular regulatory means that the European Communities has chosen to employ, and that are at issue in this appeal, are in fact means that are "required" by the Lomé Convention. In our view, to be "required", each of the relevant provisions of the measures at issue in this appeal must be reasonably necessary to give effect to the relevant obligations imposed on the European Communities by the Lomé Convention. We shall examine them in turn.

172. The European Communities grants duty-free access to all traditional ACP bananas. It will be recalled that Protocol 5 specifies that "no ACP State shall be placed, as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or present" (emphasis added). With respect to traditional ACP bananas, this mandate of Protocol 5 is reinforced by the additional obligations imposed on the European Communities by Article 168(2)(a)(ii), which, as we have said, applies to all ACP bananas. Before the creation of a single Community-wide market for bananas through the enactment of Regulation 404/93, duty-free "access" for their banana exports was indisputably one of the "advantages" enjoyed by the ACP States. Therefore, in our view, the duty-free access afforded by the European Communities to all traditional ACP bananas is "required".

173. In addition, the European Communities grants duty-free access to 90,000 tonnes of non-traditional ACP bananas and a margin of tariff preference in the amount of 100 ECU/tonne to all other non-traditional ACP bananas. The out-of-quota tariff rate for non-traditional ACP bananas is 693 ECU/tonne; the out-of-quota tariff rate for third-country bananas is 793 ECU/tonne. Protocol 5 does not apply here; Protocol 5 does not apply to non-traditional ACP bananas. However, the obligation imposed on the European Communities by Article 168(2)(a)(ii) to "take the necessary measures to ensure more favourable treatment" for all ACP bananas "than that granted to third countries benefiting from the most-favoured-nation clause for the same product" does apply. The tariff rates applied to imports of bananas from third countries benefitting from MFN treatment are an in-quota tariff rate of 75 ECU/tonne and, as already noted above, an out-of-quota tariff rate of 793 ECU/tonne. ⁹² Both the duty-free access afforded to the 90,000 tonnes of non-traditional ACP bananas, imported in-quota, and the margin of tariff preference in the amount of 100 ECU/tonne afforded to all other non-traditional ACP bananas by the European Communities are clearly "more favourable treatment" than that afforded by the European Communities to bananas from third countries benefitting from MFN treatment. Therefore, the remaining issue under Article 168(2)(a)(ii) is whether the particular measures chosen by the European Communities to fulfil the obligations in that Article to provide "more favourable treatment" to non-traditional ACP bananas are also in fact "necessary" measures, as specified in that Article. In our view, they are. Article 168(2)(a)(ii) does not say that only one kind of measure is "necessary". Likewise, that Article does not say what kind of measure is "necessary". Conceivably, the European Communities might have chosen some other "more favourable treatment" in the form of a tariff preference for non-traditional ACP bananas. But it seems to us that this particular measure can, in the overall context of the transition from individual national markets to a single Community-wide market for bananas, be deemed to be "necessary". Therefore, in our view, both the duty-free access granted by the European Communities to the 90,000 tonnes of non-traditional ACP bananas and the margin of tariff preference in the amount of 100 ECU/tonne granted to all other non-traditional ACP bananas are "required" by the Lomé Convention.

174. The European Communities also allocates tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes. With respect to these allocations, it will be recalled that Article 1 of Protocol 5 obliges the European Communities to ensure that "[i]n respect of its banana exports to the Community markets, no ACP State shall be placed as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or at present". We note here that the European Court of Justice has ruled in its Judgment of 5 October 1994 in Germany v. Council that pursuant to Article 1 of Protocol 5:

Thus, the pivotal date is 1991. To be sure, the European Communities might have used another basis for determining the tariff quota shares allotted to the traditional ACP States that supplied bananas to the European Communities before 1991. For example, the European Communities might have chosen to use a fixed reference period of 10, or perhaps 20, years. The European Communities might also have chosen an average export volume rather than the best-ever export volumes that was in fact chosen. However, some standard was clearly needed. The standard chosen by the European Communities does have a legitimate basis in the history of the banana trade of the European Communities with the traditional ACP States. Therefore, we are persuaded that the allocation of tariff quota shares for traditional ACP bananas chosen by the European Communities is "required".

175. The European Communities also allocates tariff quota shares to some traditional ACP States in excess of their pre-1991 best-ever export volumes so as to reflect potential increases in trade in the future as a result of investments made in banana production in those ACP States. ⁹⁴ In our view, tariff quota shares in excess of the pre-1991 best-ever export volumes, which are designed to reflect potential increases in trade in the future, are not reasonably necessary to guarantee that these traditional ACP States are not placed, as regards market access and market advantages, in a less favourable situation than at any time before 1991. These traditional ACP States could not have enjoyed any pre-1991 market access or advantages with respect to future quantities of bananas. This would be different only if, before 1991, these ACP States had a guarantee in any of their traditional markets that they would be able to export quantities of bananas that might in the future result from investments they made. There was, however, no such guarantee. Finally, it is clear that any future increases in trade as a result of investments are highly speculative. For these reasons, we conclude that the allocation of tariff quota shares in excess of pre-1991 best-ever export volumes to reflect investments is not "required" by the Lomé Convention.

176. The European Communities also allocates country-specific tariff quota shares to ACP States exporting non-traditional ACP bananas. It will be recalled that the more expansive requirement of Article 1 of Protocol 5 does not apply to non-traditional ACP bananas. Only the more limited requirement of Article 168(2)(a)(ii), to take "necessary measures to ensure more favourable treatment" to certain ACP agricultural products, including bananas, applies to non-traditional ACP bananas. However, in our view, this obligation to afford "more favourable treatment" to non-traditional ACP bananas could be met without allocating tariff quota shares. Therefore, the allocation of tariff quota shares to ACP States exporting non-traditional ACP bananas is not "required".

177. The final relevant provisions of the measures at issue that must be addressed are the import licensing procedures that are applied to third-country and non-traditional ACP bananas. We have concluded that certain tariff preferences for ACP bananas are "required" by the Lomé Convention. We have also concluded that the tariff quota allocations to traditional ACP States in the amount of their pre-1991 best-ever export volumes is "required". It may be that, in order to do all that is "required" by the Lomé Convention, the European Communities should do something more. Conceivably, this could be some form of import licensing arrangement. However, the issue before us is not whether some hypothetical licensing arrangement that might be enacted by the European Communities is "required" by the Lomé Convention. The issue before us is whether the specific provisions of these import licensing procedures that have in fact been enacted by the European Communities, and are at issue in this appeal, are "required". The import licensing procedures at issue here create advantages for favoured EC operators that market traditional ACP bananas, by providing those operators with quota rents that, even the European Communities acknowledges, amount to "cross-subsidization". We see nothing in any of the relevant provisions of the Lomé Convention that can in any way be construed to "require" such "cross-subsidization". ⁹⁵ Therefore, in our view, these import licensing procedures are not "required".

178. Thus, of the relevant provisions of the measures at issue in this appeal, we conclude that the European Communities is "required" under the relevant provisions of the Lomé Convention to: provide duty-free access for all traditional ACP bananas; provide duty-free access for 90,000 tonnes of non-traditional ACP bananas; provide a margin of tariff preference in the amount of 100 ECU/tonne for all other non-traditional ACP bananas; and allocate tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes. We conclude also that the European Communities is not "required" under the relevant provisions of the Lomé Convention to: allocate tariff quota shares to some traditional ACP States in excess of their pre-1991 best-ever export volumes; allocate tariff quota shares to ACP States exporting non-traditional ACP bananas; or maintain the import licensing procedures that are applied to third country and non-traditional ACP bananas. We therefore uphold the findings of the Panel in paragraphs 7.103, 7.204 and 7.136 of the Panel Reports.

179. Having determined what is "required" by the Lomé Convention, we must next determine what is covered by the Lomé Waiver.

180. Specifically, we must determine whether the Lomé Waiver applies not only to breaches of Article I:1 of the GATT 1994, but also to breaches of Article XIII of the GATT 1994, with respect to the EC's country-specific tariff quota allocations for traditional ACP States.

181. The operative paragraph of the Lomé Waiver reads in relevant part:

182. The Panel, nevertheless, concluded that the Lomé Waiver should be interpreted so as to waive not only compliance with the obligations of Article I:1, but also compliance with the obligations of Article XIII of the GATT 1994. The Panel based its conclusion on the need to give "real effect" ⁹⁷to the Lomé Waiver and on the "close relationship" ⁹⁸between Articles I and XIII:1.

183. We disagree with the Panel's conclusion. The wording of the Lomé Waiver is clear and unambiguous. By its precise terms, it waives only "the provisions of paragraph 1 of Article I of the General Agreement ... to the extent necessary" to do what is "required" by the relevant provisions of the Lomé Convention. The Lomé Waiver does not refer to, or mention in any way, any other provision of the GATT 1994 or of any other covered agreement. Neither the circumstances surrounding the negotiation of the Lomé Waiver, nor the need to interpret it so as to permit it to achieve its objectives, allow us to disregard the clear and plain wording of the Lomé Waiver by extending its scope to include a waiver from the obligations under Article XIII. Moreover, although Articles I and XIII of the GATT 1994 are both non-discrimination provisions, their relationship is not such that a waiver from the obligations under Article I implies a waiver from the obligations under Article XIII.

184. The Panel's interpretation of the Lomé Waiver as including a waiver from the GATT 1994 obligations relating to the allocation of tariff quotas is difficult to reconcile with the limited GATT practice in the interpretation of waivers, the strict disciplines to which waivers are subjected under the WTO Agreement, the history of the negotiations of this particular waiver and the limited GATT practice relating to granting waivers from the obligations of Article XIII.

185. There is little previous GATT practice on the interpretation of waivers. In the panel report in United States - Sugar Waiver, the panel stated:

Although the WTO Agreement does not provide any specific rules on the interpretation of waivers, Article IX of the WTO Agreement and the Understanding in Respect of Waivers of Obligations under the General Agreement on Tariffs and Trade 1994, which provide requirements for granting and renewing waivers, stress the exceptional nature of waivers and subject waivers to strict disciplines. Thus, waivers should be interpreted with great care.

186. With regard to the history of the negotiations of the Lomé Waiver, we have already noted that the CONTRACTING PARTIES limited the scope of the waiver by replacing "preferential treatment foreseen by the Lomé Convention" with "preferential treatment required by the Lomé Convention" (emphasis added). This change clearly suggests that the CONTRACTING PARTIES wanted to restrict the scope of the Lomé Waiver.

187. Finally, we note that between 1948 and 1994, the CONTRACTING PARTIES granted only one waiver of Article XIII of the GATT 1947. ¹⁰⁰ In view of the truly exceptional nature of waivers from the non-discrimination obligations under Article XIII, it is all the more difficult to accept the proposition that a waiver that does not explicitly refer to Article XIII would nevertheless waive the obligations of that Article. If the CONTRACTING PARTIES had intended to waive the obligations of the European Communities under Article XIII in the Lomé Waiver, they would have said so explicitly.

188. Thus, we conclude that the Panel erred in finding that "the Lomé waiver waives [the] inconsistency with Article XIII:1 to the extent necessary to permit the EC to allocate shares of its banana tariff quota to specific traditional ACP banana supplying countries in an amount not exceeding their pre-1991 best-ever exports to the EC". ¹⁰¹

189. It has been argued by the European Communities that there are two separate EC import regimes for bananas, the preferential regime for traditional ACP bananas and the erga omnes regime for all other imports of bananas. Submissions made by the European Communities raise the question whether this is of any relevance for the application of the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements. The European Communities argues, in particular, that the non-discrimination obligations of Articles I:1, X:3(a) and XIII of the GATT 1994 and Article 1.3 of the Licensing Agreement, apply only within each of these separate regimes. The Panel found that the European Communities has only one import regime for purposes of applying the non-discrimination provisions of the GATT 1994 and Article 1.3 of the Licensing Agreement.

190. The issue here is not whether the European Communities is correct in stating that two separate import regimes exist for bananas, but whether the existence of two, or more, separate EC import regimes is of any relevance for the application of the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements. The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin. As no participant disputes that all bananas are like products, the non-discrimination provisions apply to all imports of bananas, irrespective of whether and how a Member categorizes or subdivides these imports for administrative or other reasons. If, by choosing a different legal basis for imposing import restrictions, or by applying different tariff rates, a Member could avoid the application of the non-discrimination provisions to the imports of like products from different Members, the object and purpose of the non-discrimination provisions would be defeated. It would be very easy for a Member to circumvent the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements, if these provisions apply only within regulatory regimes established by that Member.

191. Non-discrimination obligations apply to all imports of like products, except when these obligations are specifically waived or are otherwise not applicable as a result of the operation of specific provisions of the GATT 1994, such as Article XXIV. ¹⁰² In the present case, the non-discrimination obligations of the GATT 1994, specifically Articles I:1 and XIII ¹⁰³, apply fully to all imported bananas irrespective of their origin, except to the extent that these obligations are waived by the Lomé Waiver. We, therefore, uphold the findings of the Panel ¹⁰⁴ that the non-discrimination provisions of the GATT 1994, specifically, Articles I:1 and XIII, apply to the relevant EC regulations, irrespective if there is one or more "separate regimes" for the importation of bananas.

192. The appeal by the European Communities raises two legal issues relating to the interpretation and application of the Licensing Agreement. The first is whether the Licensing Agreement applies to import licensing procedures for tariff quotas. The second is whether the requirement of "neutrality in application" in Article 1.3 of the Licensing Agreement precludes the imposition of different import licensing systems on like products when imported from different Members.

193. With respect to the first issue, "import licensing" is defined in Article 1.1 of the Licensing Agreement as follows:

Although the precise terms of Article 1.1 do not say explicitly that licensing procedures for tariff quotas are within the scope of the Licensing Agreement, a careful reading of that provision leads inescapably to that conclusion. The EC import licensing procedures require "the submission of an application" for import licences as "a prior condition for importation" of a product at the lower, in-quota tariff rate. ¹⁰⁵ The fact that the importation of that product is possible at a high out-of-quota tariff rate without a licence does not alter the fact that a licence is required for importation at the lower in-quota tariff rate. ¹⁰⁶

194. We note that Article 3.2 of the Licensing Agreement provides that:

We note also that Article 3.3 of the Licensing Agreement reads:

We see no reason to exclude import licensing procedures for the administration of tariff quotas from the scope of the Licensing Agreement on the basis of the use of the term "restriction" in Article 3.2. We agree with the Panel that, in the light of the language of Article 3.3 of the Licensing Agreement and the introductory words of Article XI of the GATT 1994 ¹⁰⁷, the term "restriction" as used in Article 3.2 should not be interpreted to encompass only quantitative restrictions, but should be read also to include tariff quotas. ¹⁰⁸

195. For these reasons, we agree with the Panel that import licensing procedures for tariff quotas are within the scope of the Licensing Agreement.

196. With respect to the second issue, the Panel found that Article 1.3 of the Licensing Agreement "preclude[s] the imposition of one system of import licensing procedures in respect of a product originating in certain Members and a different system of import licensing procedures on the same product originating in other Members". ¹⁰⁹

197. Article 1.3 of the Licensing Agreement reads as follows:

By its very terms, Article 1.3 of the Licensing Agreement clearly applies to the application and administration of import licensing procedures, and requires that this application and administration be "neutral ... fair and equitable". Article 1.3 of the Licensing Agreement does not require the import licensing rules, as such, to be neutral, fair and equitable. Furthermore, the context of Article 1.3 -- including the preamble, Article 1.1 and, in particular, Article 1.2 of the Licensing Agreement -- supports the conclusion that Article 1.3 does not apply to import licensing rules. Article 1.2 provides, in relevant part, as follows:

As a matter of fact, none of the provisions of the Licensing Agreement concerns import licensing rules, per se. As is made clear by the title of the Licensing Agreement, it concerns import licensing procedures. The preamble of the Licensing Agreement indicates clearly that this agreement relates to import licensing procedures and their administration, not to import licensing rules. Article 1.1 of the Licensing Agreement defines its scope as the administrative procedures used for the operation of import licensing regimes.

198. We conclude, therefore, that the Panel erred in finding that Article 1.3 of the Licensing Agreement precludes the imposition of different import licensing systems on like products when imported from different Members.

199. The European Communities raises two legal issues relating to the application and interpretation of Article X:3(a) of the GATT 1994. The first issue is whether the requirements of uniformity, impartiality and reasonableness set out in Article X:3(a) preclude the imposition of different import licensing systems on like products imported from different Members. The second issue is whether both Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement apply to the EC import licensing procedures.

200. On the first issue, the Panel found that the application of operator category rules and activity function rules "in respect of the importation of third-country and non-traditional ACP bananas at in-quota tariff rates, in the absence of the application of such rules to traditional ACP imports, is inconsistent with the requirements of Article X:3(a) of GATT".¹¹⁰ In coming to this conclusion, the Panel relied on a 1968 Note by the GATT Director-General, which asserted that Article X:3(a) precludes the application of one set of regulations and procedures to some contracting parties and a different set to others. ¹¹¹ However, the European Communities correctly pointed out during the Panel proceedings that the 1968 Note cannot be considered as an authoritative interpretation of GATT rules because it was never endorsed by a formal decision of the CONTRACTING PARTIES.

Article X:3(a) of the GATT 1994 provides:

The text of Article X:3(a) clearly indicates that the requirements of "uniformity, impartiality and reasonableness" do not apply to the laws, regulations, decisions and rulings themselves, but rather to the administration of those laws, regulations, decisions and rulings. The context of Article X:3(a) within Article X, which is entitled "Publication and Administration of Trade Regulations", and a reading of the other paragraphs of Article X, make it clear that Article X applies to the administration of laws, regulations, decisions and rulings. To the extent that the laws, regulations, decisions and rulings themselves are discriminatory, they can be examined for their consistency with the relevant provisions of the GATT 1994.

201. We conclude, therefore, that the Panel erred in finding that Article X:3(a) of the GATT 1994 precludes the imposition of one system of import licensing procedures on a product originating in certain Members and a different system on the same product originating in other Members.

202. With respect to the second issue, the Panel found that the relevant provisions of the GATT 1994 and the Licensing Agreement apply to the EC import licensing procedures for bananas, ¹¹²and then proceeded to examine the consistency of the import licensing procedures with Article X:3(a) of the GATT 1994. Having found that the operator category rules and the activity function rules were inconsistent with Article X:3(a) of the GATT 1994, the Panel, referring to the ruling of the Appellate Body in United States - Shirts and Blouses from India ¹¹³, concluded that it was not necessary to address whether the EC import licensing procedures were also inconsistent with the Licensing Agreement. ¹¹⁴

203. Article X:3(a) of the GATT 1994 applies to all "laws, regulations, decisions and rulings of the kind described in paragraph 1" of Article X, which includes those, inter alia, "pertaining to ... requirements, restrictions or prohibitions on imports ...". The EC import licensing procedures are clearly regulations pertaining to requirements on imports and, therefore, are within the scope of Article X:3(a) of the GATT 1994. As we have concluded, the Licensing Agreement also applies to the EC import licensing procedures. We agree, therefore, with the Panel that both the Licensing Agreement and the relevant provisions of the GATT 1994, in particular, Article X:3(a), apply to the EC import licensing procedures. In comparing the language of Article 1.3 of the Licensing Agreement and of Article X:3(a) of the GATT 1994, we note that there are distinctions between these two articles. The former provides that "the rules for import licensing procedures shall be neutral in application and administered in a fair and equitable manner". The latter provides that each Member shall "administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions or rulings of the kind described in paragraph 1 of [Article X]".

We attach no significance to the difference in the phrases "neutral in application and administered in a fair and equitable manner" in Article 1.3 of the Licensing Agreement and "administer in a uniform, impartial and reasonable manner" in Article X:3(a) of the GATT 1994. In our view, the two phrases are, for all practical purposes, interchangeable. We agree, therefore, with the Panel's interpretation that the provisions of Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement have identical coverage. ¹¹⁵

204. Although Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement both apply, the Panel, in our view, should have applied the Licensing Agreement first, since this agreement deals specifically, and in detail, with the administration of import licensing procedures. If the Panel had done so, then there would have been no need for it to address the alleged inconsistency with Article X:3(a) of the GATT 1994.

205. The appeal by the European Communities raises two legal issues relating to the interpretation of Article I:1 of the GATT 1994. The first issue is whether the activity function rules of the EC import licensing procedures are consistent with Article I:1 of the GATT 1994, in the absence of the application of such rules to imports of traditional ACP bananas. The second issue is whether the EC requirement to match import licences with export certificates for bananas exported from BFA countries is consistent with the requirements of Article I:1 of the GATT 1994.

206. On the first issue, the Panel found that the procedural and administrative requirements of the activity function rules for importing third-country and non-traditional ACP bananas differ from, and go significantly beyond, those required for importing traditional ACP bananas. This is a factual finding. Also, a broad definition has been given to the term "advantage" in Article I:1 of the GATT 1994 by the panel in United States - Non-Rubber Footwear. ¹¹⁶ It may well be that there are considerations of EC competition policy at the basis of the activity function rules. This, however, does not legitimize the activity function rules to the extent that these rules discriminate among like products originating from different Members. For these reasons, we agree with the Panel that the activity function rules are an "advantage" granted to bananas imported from traditional ACP States, and not to bananas imported from other Members, within the meaning of Article I:1. Therefore, we uphold the Panel's finding that the activity function rules are inconsistent with Article I:1 of the GATT 1994.

207. On the second issue, the Panel found that the EC export certificate requirement is inconsistent with the requirements of Article I:1 of the GATT 1994. The EC export certificate requirement accords BFA banana suppliers, which are initial holders of export certificates, preferential bargaining leverage to extract a share of the quota rents for their fruit exported to the European Communities, and gives them a competitive advantage over other Latin American suppliers. ¹¹⁷ The EC export certificate requirement thus provides an advantage to some Members (i.e. the BFA countries) that is not given to other Members. Therefore, we agree with the Panel that the export certificate requirement is inconsistent with Article I:1 of the GATT 1994.

208. The appeal of the European Communities raises two legal issues with respect to the application and interpretation of Article III of the GATT 1994. The first issue is whether the EC procedures and requirements for the distribution of licences for importing bananas among eligible "operators" within the European Communities are measures within the scope of Article III:4 of the GATT 1994. The second issue is whether the issuance of hurricane licences exclusively to EC producers and producer organizations, or to operators including or directly representing them, is inconsistent with Article III:4 of the GATT 1994.

209. On the first issue, the Panel found that, although licences are a condition for the importation of bananas into the European Communities at in-quota tariff rates:

210. Article III:4 of the GATT 1994 provides in relevant part:

211. At issue in this appeal is not whether any import licensing requirement, as such, is within the scope of Article III:4, but whether the EC procedures and requirements for the distribution of import licences for imported bananas among eligible operators within the European Communities are within the scope of this provision. The EC licensing procedures and requirements include the operator category rules, under which 30 per cent of the import licences for third-country and non-traditional ACP bananas are allocated to operators that market EC or traditional ACP bananas, and the activity function rules, under which Category A and B licences are distributed among operators on the basis of their economic activities as importers, customs clearers or ripeners. These rules go far beyond the mere import licence requirements needed to administer the tariff quota for third-country and non-traditional ACP bananas or Lomé Convention requirements for the importation of bananas. These rules are intended, among other things, to cross-subsidize distributors of EC (and ACP) bananas and to ensure that EC banana ripeners obtain a share of the quota rents. ¹¹⁹ As such, these rules affect "the internal sale, offering for sale, purchase, ..." within the meaning of Article III:4, and therefore fall within the scope of this provision. Therefore, we agree with the conclusion of the Panel on this point.

212. On the second issue, the Panel found that the EC practice with respect to hurricane licences may create an incentive for operators to purchase bananas of EC origin for marketing in the European Communities, and that this practice is an advantage accorded to bananas of EC-origin that is not accorded to bananas of third-country origin. The Panel concluded, therefore, that the issuance of hurricane licences exclusively to EC producers and producer organizations, or operators including or directly representing them, is inconsistent with the requirements of Article III:4 of the GATT 1994.

213. Hurricane licences allow for additional imports of third-country (and non-traditional ACP) bananas at the lower in-quota tariff rate. Although their issuance results in increased exports from those countries, we note that hurricane licences are issued exclusively to EC producers and producer organizations, or to operators including or directly representing them. We also note that, as a result of the EC practice relating to hurricane licences, these producers, producer organizations or operators can expect, in the event of a hurricane, to be compensated for their losses in the form of "quota rents" generated by hurricane licences. Thus, the practice of issuing hurricane licences constitutes an incentive for operators to market EC bananas to the exclusion of third-country and non-traditional ACP bananas. This practice therefore affects the competitive conditions in the market in favour of EC bananas. We do not dispute the right of WTO Members to mitigate or remedy the consequences of natural disasters. However, Members should do so in a manner consistent with their obligations under the GATT 1994 and the other covered agreements.

214. For these reasons, we agree with the Panel that the EC practice of issuing hurricane licences is inconsistent with Article III:4 of the GATT 1994.

215. We note that, in coming to this conclusion, the Panel found:

216. The Panel has misinterpreted what we said in the Appellate Body Report in Japan - Alcoholic Beverages. ¹²¹ We were dealing in that case with allegations of inconsistencies with Article III:2, first and second sentences, of the GATT 1994. It is true that at page 18 of that Report, we stated that "Article III:1 articulates a general principle" which "informs the rest of Article III". However, we also said in that Report that Article III:1 ¹²² "informs the first sentence and the second sentence of Article III:2 in different ways". With respect to Article III:2, first sentence, we noted that it does not refer specifically to Article III:1. We stated:

With respect to Article III:2, second sentence, we found:

The same reasoning must be applied to the interpretation of Article III:4. Article III:4 does not specifically refer to Article III:1. Therefore, a determination of whether there has been a violation of Article III:4 does not require a separate consideration of whether a measure "afford[s] protection to domestic production".

Notes:

84. The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604, 19 December 1994.

85. EC - The Fourth ACP-EC Convention of Lomé, Extension of Waiver, Decision of the WTO General Council of 14 October 1996, WT/L/186, 18 October 1996.

86. Panel Reports, para. 7.98.

87. ACP Countries - European Communities, Fourth Lomé Convention, Request for a Waiver, L/7539, 10 October 1994.

88. CONTRACTING PARTIES, Fiftieth Session, Summary Record of the First Meeting, 8 December 1994, SR. 50/1, 8 February 1995, p. 13.

89. Preferential treatment that is authorized or called for in the Lomé Convention, or reflected in its objectives, may well be preferential treatment "foreseen" under the Lomé Convention, but it is not necessarily preferential treatment "required" or made mandatory by the Lomé Convention. Provisions of the Lomé Convention, such as Article 15(a); Article 24, second indent; Article 135; and Article 167 authorize or call for preferential treatment of ACP products. These provisions elaborate one of the central objectives of the Lomé Convention -- to promote the expansion of trade and the economic development of the ACP States. These provisions may "foresee", but do not "require", any preferential treatment.

90. Pursuant to Article 368 of the Lomé Convention, protocols annexed to the Convention form an integral part thereof.

91. This interpretation of the relationship between Article 168 and Protocol 5 is confirmed by the ECJ in paragraph 101 of its Judgment of 5 October 1994, Germany v. Council, Case C-280/93, ECR 1994, p. I-4973. The Court stated that "... the import of bananas from ACP States falls under Article 168(2)(a)(ii) of the Lomé Convention ...", and that Article 1 of Protocol 5 also applies to traditional ACP bananas.

92. Out-of-quota tariff rates for shipments in 1996-97. See Panel Reports, para. 3.7.

93. Case C-280/93, ECR 1994, p. I-4973, para. 101.

94. Neither the Lomé Convention's provisions on trade development (Articles 135-138), nor its provisions on development finance cooperation (Articles 220-327), can be interpreted as requiring that elements other than the best-ever levels (e.g. investment decisions) are to be taken into account in the determination of the extent of the preferential treatment.

95. Commission of the European Communities, Report on the Operation of the Banana Regime, 11 October 1995, SEC (95) 1565 final, p. 18. See also Commission of the European Communities, Impact of Cross-subsidization within the Banana Regime, Note for Information, Ecuador's first submission to the Panel, Exhibit 11.

96. The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604, 19 December 1994.

97. Panel Reports, para. 7.106.

98. Ibid., para. 7.107.

99. Adopted 7 November 1990, BISD 37S/228, para. 5.9.

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

101. Panel Reports, para. 7.110.

102. Panel on Newsprint, adopted 20 November 1984, BISD 31S/114.

103. We do not agree with the Panel's findings that Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement preclude the imposition of different import licensing systems on like products when imported from different Members. See our Findings and Conclusions, paras. (l) and (m).

104. Panel Reports, paras. 7.82 and 7.167.

105. See Commission Regulation (EEC) No. 1442/93 of 10 June 1993 laying down detailed rules for the application of the arrangements for importing bananas into the Community, which explicitly requires operators to submit licence applications. Official Journal No. L 142, 12 June 1993, p. 6.

106. In this case, the out-of-quota tariff rate on bananas is prohibitively high and, therefore, importation of bananas without a licence is in fact only a theoretical possibility. See B. Borrell, EU Bananarama III, The World Bank, Policy Research Working Paper 1386, December 1994, p. 16.

107. The introductory words of Article XI of the GATT 1994 read as follows: "No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures ...".

108. Panel Reports, para. 7.154.

109. Panel Reports, WT/DS27/R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.261.

110. Panel Reports, para. 7.212, with regard to operator category rules; and WT/DS27/R/ECU, WT/DS27/R/GTM, WT/DS27/R/HND and WT/DS27/R/MEX, para. 7.231, with regard to activity function rules.

111. See Agreement on Implementation of Article VI, Note by the GATT Director-General of 29 November 1968, L/3149.

112. Panel Reports, para. 7.163.

113. WT/DS33/AB/R, adopted 23 May 1997, p. 19. The Appellate Body stated that "[a] panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute".

114. Panel Reports, paras. 7.213 and 7.232.

115. Panel Reports, WT/DS27/R/GTM, WT/DS27/R/HND, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.261.

116. Adopted 19 June 1992, BISD 39S/128, para. 6.9.

117. The European Communities recognized the commercial value of the export certificates in the Commission's Report on the EC Banana Regime, VI/5671/94, July 1994, p. 12, in which it indicated that export certificates helped the BFA countries "share in the economic benefits of the tariff quota".

118. Panel Reports, para. 7.178. 119. EC's appellant's submission, para. 325 and the EC's oral statement, para. 70. See also Commission of the European Communities, Report on the Operation of the Banana Regime, 11 October 1995, SEC (95) 1565 final, p. 18; and Commission of the European Communities, Impact of Cross-subsidization within the Banana Regime, Note for Information, Ecuador's first submission to the Panel, Exhibit 11.

120. See paragraph 7.249 of the Panel Reports (footnotes deleted). See also a similar finding in paragraph 7.181 relating to the operator category rules.

121.WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996.

122. Ibid., p. 18.

123. Ibid.

124. Ibid., p. 24.

Continue on to Part 7 of EC - Regime for the Importation, Sale and Distribution of Bananas.

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