WTO Dispute Settlement - Mutually Acceptable Solution - EC - Regime for the Importation, Sale, and Dsitribution of Bananas

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EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
AB-1997-3

Report of the Appellate Body

C. General Agreement on Trade in Services

1. Application of the GATS

217. There are two issues to consider in this context. The first is whether the GATS applies to the EC import licensing procedures. The second is whether the GATS overlaps with the GATT 1994, or whether the two agreements are mutually exclusive. With respect to the first issue, the Panel found that:

... no measures are excluded a priori from the scope of the GATS as defined by its provisions. The scope of the GATS encompasses any measure of a Member to the extent it affects the supply of a service regardless of whether such measure directly governs the supply of a service or whether it regulates other matters but nevertheless affects trade in services. ¹²⁵

For these reasons, the Panel concluded:

We therefore find that there is no legal basis for an a priori exclusion of measures within the EC banana import licensing regime from the scope of the GATS. ¹²⁶

218. The European Communities argues that the GATS does not apply to the EC import licensing procedures because they are not measures "affecting trade in services" within the meaning of Article I:1 of the GATS. In the view of the European Communities, Regulation 404/93 and the other related regulations deal with the importation, sale and distribution of bananas. As such, the European Communities asserts, these measures are subject to the GATT 1994, and not to the GATS.

219. In contrast, the Complaining Parties argue that the scope of the GATS, by its terms, is sufficiently broad to encompass Regulation 404/93 and the other related regulations as measures affecting the competitive relations between domestic and foreign services and service suppliers. This conclusion, they argue, is not affected by the fact that the same measures are also subject to scrutiny under the GATT 1994, as the two agreements are not mutually exclusive.

220. In addressing this issue, we note that Article I:1 of the GATS provides that "[t]his Agreement applies to measures by Members affecting trade in services". In our view, the use of the term "affecting" reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word "affecting" implies a measure that has "an effect on", which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term "affecting" in the context of Article III of the GATT is wider in scope than such terms as "regulating" or "governing". ¹²⁷ We also note that Article I:3(b) of the GATS provides that "‘services’ includes any service in any sector except services supplied in the exercise of governmental authority" (emphasis added), and that Article XXVIII(b) of the GATS provides that the "‘supply of a service’ includes the production, distribution, marketing, sale and delivery of a service". There is nothing at all in these provisions to suggest a limited scope of application for the GATS. We also agree that Article XXVIII(c) of the GATS does not narrow "the meaning of the term ‘affecting’ to ‘in respect of’". ¹²⁸ For these reasons, we uphold the Panel's finding that there is no legal basis for an a priori exclusion of measures within the EC banana import licensing regime from the scope of the GATS.

221. The second issue is whether the GATS and the GATT 1994 are mutually exclusive agreements. The GATS was not intended to deal with the same subject matter as the GATT 1994. The GATS was intended to deal with a subject matter not covered by the GATT 1994, that is, with trade in services. Thus, the GATS applies to the supply of services. It provides, inter alia, for both MFN treatment and national treatment for services and service suppliers. Given the respective scope of application of the two agreements, they may or may not overlap, depending on the nature of the measures at issue. Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they affect trade in goods as goods. Certain measures could be found to fall exclusively within the scope of the GATS, when they affect the supply of services as services. There is yet a third category of measures that could be found to fall within the scope of both the GATT 1994 and the GATS. These are measures that involve a service relating to a particular good or a service supplied in conjunction with a particular good. In all such cases in this third category, the measure in question could be scrutinized under both the GATT 1994 and the GATS. However, while the same measure could be scrutinized under both agreements, the specific aspects of that measure examined under each agreement could be different. Under the GATT 1994, the focus is on how the measure affects the goods involved. Under the GATS, the focus is on how the measure affects the supply of the service or the service suppliers involved. Whether a certain measure affecting the supply of a service related to a particular good is scrutinized under the GATT 1994 or the GATS, or both, is a matter that can only be determined on a case-by-case basis. This was also our conclusion in the Appellate Body Report in Canada - Periodicals. ¹²⁹

222. For these reasons, we agree with the Panel that the EC banana import licensing procedures are subject to both the GATT 1994 and the GATS, and that the GATT 1994 and the GATS may overlap in application to a particular measure.

2. Whether Operators are Service Suppliers Engaged in Wholesale Trade Services

223. The European Communities raises two issues concerning the definition of wholesale trade services and the application of that definition. Both these issues relate to the Panel's finding that:

... operators in the meaning of Article 19 of Regulation 404/93 and operators performing the activities defined in Article 5 of Regulation 1442/93 are service suppliers in the meaning of Article I:2(c) of GATS provided that they are owned or controlled by natural persons or juridical persons of other Members and supply wholesale services. When operators provide wholesale services with respect to bananas which they have imported or acquired for marketing, cleared in customs or ripened, they are actual wholesale service suppliers. Where operators form part of vertically integrated companies, they have the capability and opportunity to enter the wholesale service market. They could at any time decide to re-sell bananas which they have imported or acquired from EC producers, or cleared in customs, or ripened instead of further transferring or processing bananas within an integrated company. Since Article XVII of GATS is concerned with conditions of competition, it is appropriate for us to consider these vertically integrated companies as service suppliers for the purposes of analysing the claims made in this case. ¹³⁰

224. First, the European Communities questions whether the operators within the meaning of the relevant EC regulations are, in fact, service suppliers in the sense of the GATS, in that what they actually do is buy and import bananas. The European Communities argues that "when buying or importing, a wholesale trade services supplier is a buyer or importer and not covered by the GATS at all, because he is not providing any reselling services". ¹³¹ The European Communities also challenges the Panel's conclusion that "integrated companies", which may provide some of their services in-house in the production or distribution chain, are service suppliers within the meaning of the GATS.

225. On the first of these two issues, we agree with the Panel that the operators as defined under the relevant regulations of the European Communities are, indeed, suppliers of "wholesale trade services" within the definition set out in the Headnote to Section 6 of the CPC.¹³² We note further that the European Communities has made a full commitment for wholesale trade services (CPC 622), with no conditions or qualifications, in its Schedule of Specific Commitments under the GATS. ¹³³ Although these operators, as defined in the relevant EC regulations, are engaged in some activities that are not strictly within the definition of "distributive trade services" in the Headnote to Section 6 of the CPC, there is no question that they are also engaged in other activities involving the wholesale distribution of bananas that are within that definition.

226. The Headnote to Section 6 of the CPC defines "distributive trade services" in relevant part as follows:

... the principal services rendered by wholesalers and retailers may be characterized as reselling merchandise, accompanied by a variety of related, subordinated services ... (emphasis added)

We note that the CPC Headnote characterizes the "principal services" rendered by wholesalers as "reselling merchandise". This means that "reselling merchandise" is not necessarily the only service provided by wholesalers. The CPC Headnote also refers to "a variety of related, subordinated services" that may accompany the "principal service" of "reselling merchandise". It is difficult to conceive how a wholesaler could engage in the "principal service" of "reselling" a product if it could not also purchase or, in some cases, import the product. Obviously, a wholesaler must obtain the goods by some means in order to resell them. ¹³⁴ In this case, for example, it would be difficult to resell bananas in the European Communities if one could not buy them or import them in the first place.

227. The second issue relates to "integrated companies". In our view, even if a company is vertically-integrated, and even if it performs other functions related to the production, importation, distribution and processing of a product, to the extent that it is also engaged in providing "wholesale trade services" and is therefore affected in that capacity by a particular measure of a Member in its supply of those "wholesale trade services", that company is a service supplier within the scope of the GATS.

228. For these reasons, we uphold the Panel's findings on both these issues. ¹³⁵

3. Article II of the GATS

229. The European Communities appeals the Panel's finding:

... that the obligation contained in Article II:1 of GATS to extend "treatment no less favourable" should be interpreted in casu to require providing no less favourable conditions of competition. ¹³⁶

The critical issue here is whether Article II:1 of the GATS applies only to de jure, or formal, discrimination or whether it applies also to de facto discrimination.

230. The Panel's approach to this question was to interpret the words "treatment no less favourable" in Article II:1 of the GATS by reference to paragraphs 2 and 3 of Article XVII of the GATS. The Panel said:

... we note that the standard of "no less favourable treatment" in paragraph 1 of Article XVII is meant to provide for no less favourable conditions of competition regardless of whether that is achieved through the application of formally identical or formally different measures. Paragraphs 2 and 3 of Article XVII serve the purpose of codifying this interpretation, and in our view, do not impose new obligations on Members additional to those contained in paragraph 1. In essence, the "treatment no less favourable" standard of Article XVII:1 is clarified and reinforced in the language of paragraphs 2 and 3. The absence of similar language in Article II is not, in our view, a justification for giving a different ordinary meaning in terms of Article 31(1) of the Vienna Convention to the words "treatment no less favourable", which are identical in both Articles II:1 and XVII:1. ¹³⁷

231. We find the Panel's reasoning on this issue to be less than fully satisfactory. The Panel interpreted Article II of the GATS in the light of panel reports interpreting the national treatment obligation of Article III of the GATT. The Panel also referred to Article XVII of the GATS, which is also a national treatment obligation. But Article II of the GATS relates to MFN treatment, not to national treatment. Therefore, provisions elsewhere in the GATS relating to national treatment obligations, and previous GATT practice relating to the interpretation of the national treatment obligation of Article III of the GATT 1994 are not necessarily relevant to the interpretation of Article II of the GATS. The Panel would have been on safer ground had it compared the MFN obligation in Article II of the GATS with the MFN and MFN-type obligations in the GATT 1994. ¹³⁸

232. Articles I and II of the GATT 1994 have been applied, in past practice, to measures involving de facto discrimination. ¹³⁹ We refer, in particular, to the panel report in European Economic Community - Imports of Beef from Canada ¹⁴⁰, which examined the consistency of EEC regulations implementing a levy-free tariff quota for high quality grain-fed beef with Article I of the GATT 1947. Those regulations made suspension of the import levy for such beef conditional on production of a certificate of authenticity. The only certifying agency authorized to produce a certificate of authenticity was a United States agency. The panel, therefore, found that the EEC regulations were inconsistent with the MFN principle in Article I of the GATT 1947 as they had the effect of denying access to the EEC market to exports of products of any origin other than that of the United States.

233. The GATS negotiators chose to use different language in Article II and Article XVII of the GATS in expressing the obligation to provide "treatment no less favourable". The question naturally arises: if the GATS negotiators intended that "treatment no less favourable" should have exactly the same meaning in Articles II and XVII of the GATS, why did they not repeat paragraphs 2 and 3 of Article XVII in Article II? But that is not the question here. The question here is the meaning of "treatment no less favourable" with respect to the MFN obligation in Article II of the GATS. There is more than one way of writing a de facto non-discrimination provision. Article XVII of the GATS is merely one of many provisions in the WTO Agreement that require the obligation of providing "treatment no less favourable". The possibility that the two Articles may not have exactly the same meaning does not imply that the intention of the drafters of the GATS was that a de jure, or formal, standard should apply in Article II of the GATS. If that were the intention, why does Article II not say as much? The obligation imposed by Article II is unqualified. The ordinary meaning of this provision does not exclude de facto discrimination. Moreover, if Article II was not applicable to de facto discrimination, it would not be difficult -- and, indeed, it would be a good deal easier in the case of trade in services, than in the case of trade in goods -- to devise discriminatory measures aimed at circumventing the basic purpose of that Article.

234. For these reasons, we conclude that "treatment no less favourable" in Article II:1 of the GATS should be interpreted to include de facto, as well as de jure, discrimination. We should make it clear that we do not limit our conclusion to this case. We have some difficulty in understanding why the Panel stated that its interpretation of Article II of the GATS applied "in casu" ¹⁴¹.

4. Effective Date of the GATS Obligations

235. The European Communities also raises the question whether the Panel erred in giving retroactive effect to Articles II and XVII of the GATS, contrary to the principle stated in Article 28 of the Vienna Convention. Article 28 states the general principle of international law that "[u]nless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to ... any situation which ceased to exist before the date of entry into force of the treaty ...". The Panel stated in its finding on this issue that:

... the scope of our legal examination includes only actions which the EC took or continued to take, or measures that remained in force or continued to be applied by the EC, and thus did not cease to exist after the entry into force of the GATS. Likewise, any finding of consistency or inconsistency with the requirements of Articles II and XVII of GATS would be made with respect to the period after the entry into force of the GATS. ¹⁴²

The Panel stated, further, in a footnote to this finding, that "the EC measures at issue may be considered as continuing measures, which in some cases were enacted before the entry into force of the GATS but which did not cease to exist after that date (the opposite of the situation envisaged in Article 28)". ¹⁴³

236. The European Communities argues that the continuing situation at issue here is not the continued existence of Regulation 404/93 and other related regulations, but is, instead, the alleged discrimination against and among foreign service suppliers. The European Communities maintains that de facto discrimination is a fact at a particular point in time, and does not necessarily continue for as long as a law remains in force. The European Communities argues that the Panel based its finding with respect to de facto discrimination on data related to 1992, that is, before the entry into force of the GATS on 1 January 1995. In the view of the European Communities, there is no basis for the assumption that this factual data relating to 1992, even if correct, continued to exist after the entry into force of the GATS. In the absence of evidence to the contrary, the European Communities argues, it should be concluded that the de facto discrimination in 1992 was a situation which ceased to exist before the entry into force of the GATS. Consequently, the European Communities contends that the non-retroactivity principle in Article 28 of the Vienna Convention applies in this case, and that this invalidates the Panel's conclusion of inconsistency of the EC import licensing regime with Articles II and XVII of the GATS.

237. It is, however, evident from the terms of its finding that the Panel concluded, as a matter of fact, that the de facto discrimination did continue to exist after the entry into force of the GATS. ¹⁴⁴ This factual finding is beyond review by the Appellate Body. Thus, we do not reverse or modify the Panel's conclusion in paragraph 7.308 of the Panel Reports.

5. Burden of Proof

238. The European Communities argues that the Panel has not followed the ruling by the Appellate Body in United States - Shirts and Blouses from India ¹⁴⁵, as it relates to the burden of proof, in deciding the following issues:

• which companies are a "juridical person of another Member" within the meaning of Article XXVIII(m) of the GATS and are "owned", "controlled" by or "affiliated" with such a juridical person of another Member within the meaning of Article XXVIII(n) of the GATS and are providing wholesale trade services through commercial presence within the European Communities;

• the market shares of the respective companies engaged in wholesale trade in bananas within the European Communities; and

• the category of "operators" that include or directly represent EC (or ACP) producers who have suffered damage from hurricanes.

239. In our view, the conclusions by the Panel on whether Del Monte is a Mexican company ¹⁴⁶, the ownership and control of companies established in the European Communities that provide wholesale trade services in bananas ¹⁴⁷, the market shares of suppliers of Complaining Parties' origin as compared with suppliers of EC (or ACP) origin, ¹⁴⁸ and the nationality of the majority of operators that "include or directly represent" EC (or ACP) producers ¹⁴⁹, are all factual conclusions. Therefore, we decline to rule on these arguments made by the European Communities.

6. Whether the EC Licensing Procedures are Discriminatory Under Articles II and XVII of the GATS

240. The European Communities argues that the EC licensing system for bananas is not discriminatory under Articles II and XVII of the GATS, because the various aspects of the system, including the operator category rules, the activity function rules and the special hurricane licence rules, "pursue entirely legitimate policies" and "are not inherently discriminatory in design or effect". ¹⁵⁰

241. We see no specific authority either in Article II or in Article XVII of the GATS for the proposition that the "aims and effects" of a measure are in any way relevant in determining whether that measure is inconsistent with those provisions. In the GATT context, the "aims and effects" theory had its origins in the principle of Article III:1 that internal taxes or charges or other regulations "should not be applied to imported or domestic products so as to afford protection to domestic production". There is no comparable provision in the GATS. Furthermore, in our Report in Japan - Alcoholic Beverages¹⁵¹, the Appellate Body rejected the "aims and effects" theory with respect to Article III:2 of the GATT 1994. The European Communities cites an unadopted panel report dealing with Article III of the GATT 1947, United States - Taxes on Automobiles ¹⁵², as authority for its proposition, despite our recent ruling.

(a) Operator Category Rules

242. The European Communities argues that the aim of the operator category system, in view of the objective of integrating the various national markets, and of the differing situations of banana traders in the various Member States, was not discriminatory but rather was to establish machinery for dividing the tariff quota among the different categories of traders concerned. In the view of the European Communities, the operator category system also serves the purpose of distributing quota rents among the various operators in the market. The European Communities emphasizes, furthermore, that the principle of transferability of licences is used in order to develop market structures without disrupting existing commercial links. The effect of the operator category rules, the European Communities argues, is to leave a commercial choice in the hands of the operators.

243. We do not agree with the European Communities that the aims and effects of the operator category system are relevant in determining whether or not that system modifies the conditions of competition between service suppliers of EC origin and service suppliers of third-country origin. Based on the evidence before it ¹⁵³, the Panel concluded "that most of the suppliers of Complainants' origin are classified in Category A for the vast majority of their past marketing of bananas, and that most of the suppliers of EC (or ACP) origin are classified in Category B for the vast majority of their past marketing of bananas" ¹⁵⁴. We see no reason to go behind these factual conclusions of the Panel.

244. We concur, therefore, with the Panel's conclusion that "the allocation to Category B operators of 30 per cent of the licences allowing for the importation of third-country and non-traditional ACP bananas at in-quota tariff rates creates less favourable conditions of competition for like service suppliers of Complainants' origin and is therefore inconsistent with the requirement of Article XVII of GATS" ¹⁵⁵. We also concur with the Panel's conclusion that the allocation to Category B operators of 30 per cent of the licences for importing third-country and non-traditional ACP bananas at in-quota tariff rates is inconsistent with the requirements of Article II of the GATS. ¹⁵⁶

(b) Activity Function Rules

245. The European Communities maintains that the aim of the activity function rules is to protect the banana ripeners against the concentration of economic bargaining power in the hands of the primary importers as a result of the tariff quota. The European Communities contends that the policy objective is to correct the position of all ripeners vis-à-vis all suppliers of bananas, without distinction as to nationality. Furthermore, the European Communities asserts, the effect of the activity function rules depends on the commercial choices made by operators. Operators that previously supplied wholesale trade services to bananas brought under the tariff quota can avoid or reduce the extent to which they are subject to the activity function rules by extending their services to the EC market segment. These operators may also resort to licence pooling within independent ripeners, or they may retain ownership of the bananas they import and have them ripened under contract. Thus, in the view of the European Communities, there are many options open to primary importers, and the activity function rules do not have the effect of providing less favourable conditions of competition.

246. As indicated earlier, we do not accept the argument by the European Communities that the aims or effects of the activity function rules are relevant in determining whether they provide less favourable conditions of competition to services and service suppliers of foreign origin. In this respect, we note the Panel's factual conclusions that:

... even the EC statistics suggest that 74 to 80 per cent of ripeners are EC controlled. Thus, we conclude that the vast majority of the ripening capacity in the EC is owned or controlled by natural or juridical persons of the EC and that most of the bananas produced in or imported to the EC are ripened in EC owned or controlled ripening facilities. ¹⁵⁷

We also note the Panel's factual finding that "most of the service suppliers of Complainants' origin will usually be able to claim reference quantities only for primary importation, and possibly for customs clearance, but not for the performance of ripening activities" ¹⁵⁸. Given these factual findings, we see no reason to reverse the Panel's legal conclusion that the allocation to ripeners of a certain proportion of the Category A and B licences allowing the importation of third-country and non-traditional ACP bananas at in-quota tariff rates creates less favourable conditions of competition for like service suppliers of Complainants' origin, and is therefore inconsistent with the requirements of Article XVII of GATS. ¹⁵⁹

247. The European Communities asserts that the purpose of the hurricane licences is to compensate those that suffer damage caused by tropical storms. With respect to Article XVII of the GATS, the European Communities maintains that the hurricane licence provisions do not modify competitive conditions between EC operators and operators of Complaining Parties' origin. With respect to Article II of the GATS, the European Communities argues that there is no de facto discrimination since there is no indication in the hurricane licence rules that operators that are not ACP-owned or -controlled cannot own or represent ACP producers on the same basis as ACP or EC-owned or -controlled operators.

248. Once again, we do not accept the argument by the European Communities that the aims and effects of a measure are relevant in determining its consistency with Articles II or XVII of the GATS. We note that under the EC hurricane licence rules, only operators who include or directly represent EC or ACP producers or producer organizations affected by a tropical storm are eligible for allocation of hurricane licences. ¹⁶⁰ The Panel made a conclusion of fact that "the vast majority of operators who ‘include or directly represent’ EC or ACP producers are service suppliers of EC (or ACP) origin" ¹⁶¹. Given this factual finding, we do not reverse the Panel's conclusions in paragraphs 7.393 and 7.397 of the Panel Reports.

D. Nullification or Impairment

249. The Panel concluded that:

... the infringement of obligations by the EC under a number of WTO agreements, are a prima facie case of nullification or impairment of benefits in the meaning of Article 3.8 of the DSU, which provides that "there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement". To the extent that this presumption can be rebutted, in our view the EC has not succeeded in rebutting the presumption that its breaches of GATT, GATS and Licensing Agreement rules have nullified or impaired benefits of the Complainants. ¹⁶²

The European Communities has appealed this conclusion.

250. We observe, first of all, that the European Communities attempts to rebut the presumption of nullification or impairment with respect to the Panel's findings of violations of the GATT 1994 on the basis that the United States has never exported a single banana to the European Community, and therefore, could not possibly suffer any trade damage. The attempted rebuttal by the European Communities applies only to one complainant, the United States, and to only one agreement, the GATT 1994. In our view, the Panel erred in extending the scope of the presumption in Article 3.8 of the DSU to claims made under the GATS as well as to claims made by the Complaining Parties other than the United States.

251. We note that Article 12.7 of the DSU provides in part that:

... the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes. (emphasis added)

In paragraph 7.398 of the Reports, the Panel has provided no more by way of a "basic rationale" than a reference in a footnote to a previous panel report. ¹⁶³ That said, we note that the two issues of nullification or impairment and of the standing of the United States are closely related. Indeed, the European Communities argues these two issues in the alternative. In the part of the Panel Reports dealing with standing ¹⁶⁴, two points are made that the Panel may well have had in mind in reaching its conclusions on nullification or impairment. One is that the United States is a producer of bananas and that a potential export interest by the United States cannot be excluded; the other is that the internal market of the United States for bananas could be affected by the EC bananas regime and by its effects on world supplies and world prices of bananas. These are matters that we have already decided are relevant to the question of the standing of the United States under the GATT 1994. They are equally relevant to the question whether the European Communities has rebutted the presumption of nullification or impairment.

252. So, too, is the panel report in United States - Superfund, to which the Panel referred ¹⁶⁵. In that case, the panel examined whether measures with "only an insignificant effect on the volume of exports do nullify or impair benefits under Article III:2 ...". The panel concluded (and in so doing, confirmed the views of previous panels) that:

Article III:2, first sentence, cannot be interpreted to protect expectations on export volumes; it protects expectations on the competitive relationship between imported and domestic products. A change in the competitive relationship contrary to that provision must consequently be regarded ipso facto as a nullification or impairment of benefits accruing under the General Agreement. A demonstration that a measure inconsistent with Article III:2, first sentence, has no or insignificant effects would therefore in the view of the Panel not be a sufficient demonstration that the benefits accruing under that provision had not been nullified or impaired even if such a rebuttal were in principle permitted. ¹⁶⁶

253. The panel in United States - Superfund subsequently decided "not to examine the submissions of the parties on the trade effects of the tax differential" ¹⁶⁷ on the basis of the legal grounds it had enunciated. The reasoning in United States - Superfund applies equally in this case.

254. For these reasons, we can find no legal basis on which to reverse the conclusions of the Panel in paragraph 7.398 of the Panel Reports.

V. Findings and Conclusions

255. For the reasons set out in this Report, the Appellate Body:

(a) upholds the Panel's conclusion that the United States had standing to bring claims under the GATT 1994 in this case;

(b) upholds the Panel's conclusion that the request for the establishment of the panel in this case was consistent with Article 6.2 of the DSU., with the modification that a faulty request cannot be "cured" by the first written submission of a complaining party;

(c) reverses the Panel's conclusions that certain of the claims under Article XVII of the GATS made by Mexico and all the claims made under the GATS by Guatemala and Honduras are not to be included within the scope of this case;

(d) upholds the Panel's conclusion that the Agreement on Agriculture does not permit the European Communities to act inconsistently with the requirements of Article XIII of the GATT 1994;

(e) upholds the Panel's finding that the allocation of tariff quota shares, whether by agreement or by assignment, to some, but not to other, Members not having a substantial interest in supplying bananas to the European Communities is inconsistent with Article XIII:1 of the GATT 1994;

(f) upholds the Panel's finding that the tariff quota reallocation rules of the BFA are inconsistent with Article XIII:1 of the GATT 1994, and modifies the Panel's finding by concluding that the BFA tariff quota reallocation rules are also inconsistent with the chapeau of Article XIII:2 of the GATT 1994;

(g) concludes that the European Communities is "required" under the relevant provisions of the Lomé Convention to: provide duty-free access for 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 in the amount of their pre-1991 best-ever export volumes;

(h) concludes that the European Communities is not "required" under the relevant provisions of the Lomé Convention to: allocate tariff quota shares to 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 EC import licensing procedures that are applied to third-country and non-traditional ACP bananas;

(i) and therefore, based on the conclusions in (g) and (h), upholds the findings of the Panel that the European Communities is "required" under the relevant provisions of the Lomé Convention to provide preferential tariff treatment for non-traditional ACP bananas, is not "required" to allocate tariff quota shares to traditional ACP States in excess of their pre-1991 best-ever export volumes, and is not "required" to maintain the EC import licensing procedures that are applied to third-country and non-traditional ACP bananas;

(j) reverses the finding of the Panel that the Lomé Waiver waives any inconsistency with Article XIII:1 of the GATT 1994 to the extent necessary to permit the European Communities to allocate tariff quota shares to traditional ACP States;

(k) upholds the Panel's findings that the non-discrimination provisions of the GATT 1994, specifically, Articles I:1 and XIII, apply to the relevant EC regulations, irrespective of whether there are one or more "separate regimes" for the importation of bananas;

(l) upholds the Panel's finding that licensing procedures for tariff quotas are within the scope of the Licensing Agreement, and reverses the Panel's 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;

(m) reverses the Panel's finding that Article X:3(a) of the GATT 1994 precludes the imposition of different import licensing systems on like products when imported from different Members; and upholds the Panel's finding that both Article 1.3 of the Licensing Agreement and Article X:3(a) of the GATT 1994 apply to the EC import licensing procedures, with the modification that the Panel should have applied the provisions of the Licensing Agreement first, as it is the more specific and detailed agreement;

(n) upholds the Panel's conclusions that the EC activity function rules and the BFA export certificate requirement are inconsistent with Article I:1 of the GATT 1994;

(o) upholds the Panel's findings that Article III:4 of the GATT 1994 applies to the EC import licensing procedures, and that the EC practice with respect to hurricane licences is inconsistent with Article III:4 of the GATT 1994;

(p) upholds the Panel's conclusions that there is no legal basis for an a priori exclusion of measures within the EC import licensing regime from the scope of the GATS and that the GATT 1994 and the GATS may overlap in application to a measure;

(q) upholds the Panel's findings that "operators" as defined in the relevant EC regulations are service suppliers within the meaning of Article I:2(c) of the GATS that are engaged in providing "wholesale trade services" and that, where such operators form part of vertically-integrated companies, such companies are service suppliers for the purposes of this case;

(r) upholds the Panel's conclusion that Article II:1 of the GATS should be interpreted to include de facto, as well as de jure, discrimination;

(s) upholds the Panel's conclusion that the scope of its legal examination of the application of Articles II and XVII of the GATS includes only actions that the European Communities took, or continued to take, or measures that remained in force or continued to be applied by the European Communities, and thus did not cease to exist after the entry into force of the GATS;

(t) upholds the Panel's findings relating to: which companies are owned or controlled by, or are affiliated with, persons of Complaining Parties' origin, and are providing wholesale trade services in bananas through commercial presence within the European Communities; the respective market shares of service suppliers of Complaining Parties' origin as compared with service suppliers of EC (or ACP) origin; and the nationality of the majority of operators that "include or directly represent" EC (or ACP) producers that have suffered damage from hurricanes;

(u) upholds the Panel's conclusions that the allocation to Category B operators of 30 per cent of the licences allowing the importation of third-country and non-traditional ACP bananas at in-quota tariff rates is inconsistent with Articles II and XVII of the GATS;

(v) upholds the Panel's conclusions that the allocation to ripeners of a certain portion of the Category A and B licences allowing the importation of third-country and non-traditional ACP bananas at in-quota tariff rates is inconsistent with Article XVII of the GATS;

(w) upholds the Panel's conclusions that the EC practice with respect to hurricane licences is inconsistent with Articles II and XVII of the GATS; and

(x) upholds the Panel's finding that the European Communities has not succeeded in rebutting the presumption that its breaches of the GATT 1994 have nullified or impaired the benefits of the United States, with the modification that this finding should be limited to the United States and to the EC's obligations under the GATT 1994.

256. The foregoing legal findings and conclusions uphold, modify or reverse the findings and conclusions of the Panel in Parts VII and IX of the Panel Reports, but leave intact the findings and conclusions of the Panel that were not the subject of this appeal.

257. The Appellate Body recommends that the Dispute Settlement Body request the European Communities to bring the measures found in this Report and in the Panel Reports, as modified by this Report, to be inconsistent with the GATT 1994 and the GATS into conformity with the obligations of the European Communities under those agreements.

Signed in the original at Geneva this 22nd day of August 1997 by:

James Bacchus
Presiding Member

Christopher Beeby
Member

Said El-Naggar
Member

Notes:

125. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.285.

126. Ibid., para. 7.286.

127. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.281. See, for example, the panel report in Italian Agricultural Machinery, adopted 23 October 1958, BISD 7S/60, para. 12.

128. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.280.

129. Appellate Body Report, WT/DS31/AB/R, adopted 30 July 1997, p. 19.

130. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.320 (footnotes deleted).

131. EC's appellant's submission, para. 293.

132. Provisional Central Product Classification, United Nations Statistical Papers, Series M, No. 77, 1991, p. 189.

133. European Communities and their Member States' Schedule of Specific Commitments, GATS/SC/31, 15 April 1994, p. 52.

134. After all, as the European Communities has pointed out, "goods cannot walk" or be resold by themselves (EC's appellant's submission, para. 236).

135. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.320.

136. Ibid., para. 7.304.

137. Ibid., para. 7.301.

138. In addition to Article I (the fundamental MFN provision of the GATT), Articles III:7, IV(b), V:2 and V:5, IX:1 and XIII:1 are also MFN-type obligations in the GATT 1994.

139. See European Economic Community - Imports of Beef from Canada, adopted 10 March 1981, BISD 28S/92; Spain - Tariff Treatment of Unroasted Coffee, adopted 11 June 1981, BISD 28S/102; and Japan - Tariff on Imports of Spruce-Pine-Fir (SPF) Dimension Lumber, adopted 19 July 1989, BISD 36S/167.

140. Adopted 10 March 1981, BISD 28S/92, paras. 4.2-4.3.

141. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.304.

142. Ibid., para. 7.308 (footnotes deleted).

143. Ibid., footnote 486.

144. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX and WT/DS27/R/USA, para. 7.308.

145. Appellate Body Report, WT/DS33/AB/R, adopted 23 May 1997.

146. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.330.

147. Ibid., para. 7.331.

148. Ibid., paras. 7.333-7.334.

149. Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.392.

150. EC's appellant's submission, para. 301.

151. Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996.

152. DS31/R, 11 October 1994, unadopted.

153. We note that the European Communities contests the Panel's findings in paras. 7.331, 7.333 and 7.334 of the Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, concerning the relative market shares of suppliers of EC (or ACP) origin as compared with suppliers of Complaining Parties' origin. We also note that the Panel indicated that it relied on evidence supplied by the Complaining Parties, and that the European Communities failed to present information that would cast doubt on the evidence presented by the Complaining Parties (see Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, paras. 7.331 and 7.333).

154. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.334 (footnotes deleted).

155. Panel Reports, WT/DS27/R/ECU, WT/DS27/R/MEX, WT/DS27/R/USA, para. 7.341.

156. Ibid., para. 7.353.

157. Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.362 (footnotes deleted).

158. Panel Reports, WT/DS27/R/ECU and WT/DS27/R/USA, para. 7.362 (footnotes deleted).

159. Ibid., para. 7.368.

160. Ibid., para. 7.392.

161. Ibid.

162. Panel Reports, para. 7.398.

163. Ibid., footnote 523.

164. Panel Reports, paras. 7.47-7.52.

165. Ibid., footnote 523.

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

167. Ibid., para. 5.1.10.