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World Trade
Organization

 WT/DS27/ARB
9 April 1999
(99-1434)
Original: English

EUROPEAN COMMUNITIES - REGIME FOR THE IMPORTATION, 
SALE AND DISTRIBUTION OF BANANAS - RECOURSE TO 
ARBITRATION BY THE  EUROPEAN COMMUNITIES
UNDER ARTICLE 22.6 OF THE DSU -

DECISION BY THE ARBITRATORS

(Continuation)   Click here to go back  to the Table of Contents


V. IS THERE NULLIFICATION OR IMPAIRMENT OF US BENEFITS UNDER THE REVISED EC BANANA IMPORT REGIME?

5.1 The United States argues that in terms of Article 22.2, the European Communities has failed to bring its banana import regime, which was found in the original proceeding in this case to be inconsistent with its obligations under several covered agreements13 , into compliance with those agreements. In its initial submission, the United States develops this contention as outlined below. At our request, the European Communities responded to the US arguments.

5.2 Because it is necessary to have a view on the WTO-consistency of the revised EC banana regime, we examine whether there is nullification or impairment of US benefits under that regime in the following paragraphs.

A. ARTICLE XIII OF GATT 1994

5.3 The United States argues that Regulations 1637/98 and 2362/98, in the way in which they (i) establish a tariff quota providing duty-free treatment for 857,700 tonnes of traditional banana imports from 12 ACP States and (ii) assign country-specific shares of the EC's MFN tariff quota for bananas, are inconsistent with the EC's obligations under Article XIII of GATT 1994.

5.4 In this regard, we note that Regulation 1637/98 confirms the tariff quota of 2,200,000 tonnes bound in the EC Schedule and an additional autonomous tariff quota of 353,000 tonnes14. These are at the same levels as in the prior regime. Given that an agreement on the allocation of country-specific allocations could not be achieved with the substantial suppliers, in Regulation 2362/98 the European Communities assigned the following country shares to each of the substantial suppliers pursuant to Article XIII:2(d) (i.e. Colombia, Costa Rica, Ecuador and Panama):

Table 1 � EC tariff quota allocations for third-country and non-traditional ACP banana suppliers

Country

Share (%)15

Volume ('000 tonnes)16
Colombia 23.03 588.0
Costa Rica 25.61 653.8
Ecuador 26.17 668.1
Panama 15.76 402.4
Others 9.43 240.7
Total of the above 100.00 2,553.0


5.5  The Annex to Regulation 1637/98 provides for an aggregate quantity of 857,700 tonnes for traditional imports from ACP States. Under the revised EC regime, there are no longer any country-specific allocations to the 12 traditional ACP States (i.e. Belize, Cameroon, Cape Verde, C�te d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia, St. Lucia, St. Vincent & the Grenadines, and Suriname).17 

5.6 In examining the revised EC banana regime and its consistency with Article XIII, we recall that in Bananas III the Appellate Body overruled the Panel's interpretation of the scope of the Lom� waiver and held that the Lom� waiver does not cover inconsistencies with Article XIII. Accordingly, in considering Article XIII issues, we do not consider what is or is not required by the Lom� Convention.

1. The 857,700 tonnes reserved for traditional imports from ACP States

5.7 The United States alleges that the division of the revised EC import regime for bananas into (i) an MFN tariff quota of 2,553,000 tonnes, in combination with (ii) an amount of 857,700 tonnes reserved for traditional imports from ACP States at a zero-duty level fails to conform to the non-discrimination requirements of Article XIII and amounts to a continued application of "separate regimes" of the sort found to be inconsistent with Article XIII by the original panel and the Appellate Body in Bananas III.

5.8 The European Communities responds that a single import regime exists under Regulations 1637/98 and 2362/98. It is the EC's position that for purposes of Article XIII the quantity of 857,700 tonnes for traditional ACP imports is outside the MFN tariff quota of 2,553,000 tonnes. In the EC's view, the amount of 857,700 tonnes constitutes an upper limit for the zero-tariff preference for traditional ACP imports. It notes that the tariff preference is required by the Lom� Convention and is covered by the Lom� waiver as to any inconsistency with Article I:1 of GATT. In addition, the European Communities relies on the panel report on EEC - Imports of Newsprint18 in arguing that imports under preferential arrangements should not be counted against an MFN tariff quota. The European Communities also argues that its collective allocation of an amount of 857,700 tonnes for traditional imports from ACP States is effectively required by the Appellate Body report in Bananas III.

(a) The Applicability of Article XIII

5.9 Article XIII:5 provides that the provisions of Article XIII apply to "tariff quotas". The European Communities essentially argues that the amount of 857,700 tonnes for traditional imports from ACP States constitutes an upper limit on a tariff preference and is not a tariff quota subject to Article XIII. However, by definition, a tariff quota is a quantitative limit on the availability of a specific tariff rate. Thus, Article XIII applies to the 857,700 tonne limit.

5.10 In our view, the Newsprint case does not affect the applicability of Article XIII to the tariff quota for traditional imports from ACP States. In that case, the European Communities had unilaterally reduced a 1.5 million tonne tariff quota for newsprint to 500,000 tonnes on the grounds that certain past supplying countries under the tariff quota had entered into free-trade agreements with the European Communities and that the tariff quota should be reduced to reflect that fact. The panel held that the European Communities could not unilaterally make such a change. In passing, the Newsprint panel stated: "Imports which are already duty-free, due to a preferential agreement, cannot by their very nature participate in an MFN duty-free quota."19 The Newsprint panel did not deal with the applicability of Article XIII to a case such as this one. Moreover, our conclusions do not imply that the European Communities must count ACP imports against its MFN tariff quota.

5.11 Thus, in our view, the 857,700 tonne limit on traditional ACP imports is a tariff quota and therefore Article XIII applies to it.

(b) The Requirements of Article XIII and the 857,700 Tonne Tariff Quota for Traditional ACP Imports

5.12 The United States challenges the 857,700 tonne tariff quota under both paragraphs 1 and 2 of Article XIII. We address its arguments in that order. In assessing the 857,700 tonne tariff quota for traditional ACP imports in light of the requirements of Article XIII, we recall the Appellate Body's findings in Bananas III concerning "separate regimes":

"The issue here is not whether the EC is correct in stating that two separate 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 categorises 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." 20
5.13 We also recall the Appellate Body finding that the Lom� waiver does not justify inconsistencies with Article XIII. As stated by the Appellate Body:
"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 Lom� Waiver, they would have said so explicitly." 21
We, therefore, in our examination of the WTO-consistency of the EC's revised regime, have to apply fully the non-discrimination and other requirements of Article XIII to all "like" imported bananas irrespective of their origin, i.e. regardless of whether imports occur under the MFN tariff quota of 2,553,000 tonnes or under the tariff quota of 857,700 tonnes reserved for traditional ACP imports.

(i) Article XIII:1
5.14 In this regard, we note that under the revised regime, on the one hand, bananas may be imported under the MFN tariff quota on the basis of past trade performance during a previous representative period (i.e. the three-year period from 1994 to 1996). On the other hand, bananas from traditional ACP supplier countries may be imported up to a collective amount of 857,700 tonnes, which was originally set to reflect the overall amount of the pre-1991 best-ever imports by individual traditional ACP suppliers, with allowance made for certain investments.22 We further note that imports under the tariff quota by some non-substantial suppliers (i.e. third-country and non-traditional ACP suppliers) are restricted, in aggregate, to 240,748 tonnes (i.e. the "other" category of the MFN tariff quota), whereas imports of other non-substantial sources of supply (i.e. traditional ACP suppliers) are restricted, in aggregate, to 857,700 tonnes. Moreover, some non-substantial suppliers, namely the ACP suppliers, could benefit from access to the "other" category of the MFN tariff quota once the 857,700 tonne tariff quota was exhausted. On the other hand, non-substantial suppliers from third countries have no access to the 857,700 tonne tariff quota once the "other" category of the MFN tariff quota is exhausted. Individual Members in these two groups � traditional ACP suppliers and the other non-substantial suppliers � are accordingly not similarly restricted. This disparate treatment is inconsistent with the provisions of Article XIII:1, which require that "[n]o � restriction shall be applied by any Member on the importation of any product of the territory of any other Member � unless the importation of the like product of all third countries � is similarly prohibited or restricted".

(ii) Article XIII:2

5.15 The general rule laid down in Article XIII:2 of GATT requires Members to "aim at a distribution of trade � approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of such restrictions". To this end, where the option of allocating a tariff quota among supplying countries is chosen, Article XIII:2(d) provides that allocations of shares (i.e. country-specific allocations for substantial suppliers; and a global allotment in an "other" category for non-substantial suppliers unless country-specific allocations are allotted to each and every non-substantial supplier) should be based upon the proportions supplied during a previous representative period. The European Communities explains that it chose the three-year period from 1994 to 1996 as the most recent three-year period for which reliable import data were available.

5.16 According to the information available to us, for traditional ACP supplier countries the average imports during the three-year period from 1994 to 1996 were collectively at a level of approximately 685,000 tonnes, which is only about 80 per cent of the 857,700 tonnes reserved for traditional ACP imports under the previous as well as under the revised regime. In contrast, the MFN tariff quota of 2.2 million tonnes (autonomously increased by 353,000 tonnes) has been virtually filled since its creation (over 95 per cent). Thus, the allocation of an 857,700 tonne tariff quota for traditional banana imports from ACP States is inconsistent with the requirements of Article XIII:2(d) because the EC regime clearly does not aim at a distribution of trade approaching as closely as possible the shares which various Members might be expected to obtain in the absence of restrictions.

5.17 In light of the foregoing, and in light of the Appellate Body findings that the Lom� waiver does not cover inconsistencies with Article XIII, we are of the view that imports from different non-substantial supplier countries are not similarly restricted in the meaning of Article XIII:1 of GATT. Moreover, the allocation of a collective tariff quota for traditional ACP States does not approach as closely as possible the share which these countries might be expected to obtain in the absence of the restrictions as required by the chapeau to Article XIII:2 of GATT. Therefore, the reservation of the quantity of 857,700 tonnes for traditional ACP imports under the revised regime is inconsistent with paragraphs 1 and 2 of Article XIII of GATT. 

(c) The Requirements of the Appellate Body Report in Bananas III

5.18 The European Communities recalls that the panel and the Appellate Body held in Bananas III  that it is required by the Lom� Convention to provide duty-free access to traditional exports from ACP suppliers in an amount of their pre-1991 best-ever exports (i.e. 857,700 tonnes) and that the Appellate Body held that it could not assign country-specific allocations to those suppliers inconsistently with Article XIII. It argues that in consequence the Appellate Body report in Bananas III requires it to provide a collective allocation of 857,700 tonnes to those suppliers. 

5.19 We note, however, that the panel and Appellate Body reports made it clear that what was required by the Lom� Convention was not necessarily covered by the Lom� waiver. And, as the Appellate Body found in Bananas III, the European Communities is not authorized by the Lom� waiver to act inconsistently with its obligations under Article XIII. The Appellate Body also upheld the panel finding that the European Communities could not allocate country-specific shares to some non-substantial suppliers (e.g. traditional and non-traditional ACP countries and BFA signatories) unless country-specific allocations were also given to all non-substantial suppliers.

2. The MFN Tariff Quota Shares

5.20 Article XIII:2(d) provides that if a Member decides to allocate a tariff quota it may seek agreement on the allocation of shares in the quota with those Members having a substantial interest in supplying the product concerned. In the absence of such an agreement, the Member
"shall allot to Members having a substantial interest in supplying the product shares based upon the proportions, supplied by such Members during a previous representative period, of the total quantity or value of imports of the product, due account being taken of any special factors which may have affected or may be affecting the trade in the product" (emphasis added).
5.21 The United States argues that the EC's allocation of the MFN tariff quota to shares to substantial suppliers does not approximate the shares that they might expect to obtain in the absence of restrictions. It also argues that since the 1994-1996 period was "restricted", it is unrepresentative for purposes of Article XIII.

5.22 The European Communities notes that it based its calculation of country allocations under the MFN tariff quota of the revised regime on the three-year period from 1994 to 1996. In the EC's view, this was the most recent three-year period for which reliable data were available at the time.

(a) The Requirements of Article XIII

5.23 In considering the US arguments regarding tariff quota shares under Article XIII, we recall our findings in Bananas III:
"The wording of Article XIII is clear. If quantitative restrictions are used (as an exception to the general ban on this use in Article XI), they are to be used in the least trade-distorting manner possible. In the terms of the general rule of the chapeau of Article XIII:2:

'In applying import restrictions to any product, Members shall aim at a distribution of trade in such product approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of such restrictions �'

In this case we are concerned with tariff quotas, which are permitted under GATT rules, and not quantitative restrictions per se. However, Article XIII:5 makes it clear, and the parties agree, that Article XIII applies to the administration of tariff quotas. In light of the terms of Article XIII, it can be said that the object and purpose of Article XIII is to minimize the impact of a quota or tariff quota regime on trade flows by attempting to approximate under such measures the trade shares that would have occurred in the absence of the regime."23 
5.24 We also noted the following:

"[I]n order to bring its banana import regulations into line with Article XIII, the EC would have to take account of Article XIII:1 and XIII:2(d). In order to allocate country-specific tariff quota shares consistently with the requirements of Article XIII, the EC would have to base such shares on an appropriate previous representative period375 and any special factors would have to be applied on a non-discriminatory basis."
_______________
375"In this regard, we note with approval the statement by the 1980 Chilean Apples panel:
'[I]n keeping with normal GATT practice the Panel considered it appropriate to use as a 'representative period' a three-year period previous to 1979, the year in which the EC measures were in effect. Due to the existence of restrictions in 1976, the Panel held that that year could not be considered as representative, and that the year immediately preceding 1976 should be used instead. The Panel thus chose the years 1965, 1977, 1978 as a 'representative period'.'

[Citation omitted.] In the report of the 'Panel on Poultry' issued on 21 November 1963, GATT Doc. L/2088, para. 10, the panel stated: '[T]he shares in the reference period of the various exporting countries in the Swiss market, which was free and competitive, afforded a fair guide as to the proportion of the increased German poultry consumption likely to be taken up by United States exports'. See also Panel report in 'Japan � Restrictions on Imports of Certain Agricultural Products, para. 5.1.3.7 [citation omitted]'."
5.25  It is to accomplish the chapeau's requirement that a "Member shall aim at a distribution of trade � approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of restrictions", that Article XIII:2(d) requires, as one alternative, the allocation of shares on the basis of a previous representative period (adjusted for special factors if and to the extent appropriate).

5.26 If data from a period are out-of-date or imports distorted because the relevant market is restricted, then using that period as a representative period cannot achieve the aim of the chapeau. Thus, under GATT practice it is necessary that the "previous representative period" for purposes of Article XIII:2(d) be the most recent period not distorted by restrictions. As noted above, the panel on EEC - Restrictions on Imports of Apples from Chile24 , dealt with the question whether import restrictions reflected the proportion of imports to the European Communities "prevailing during a previous representative period" in the context of Article XI:2(c). That panel excluded the year 1976 from the most recent three-year period previous to 1979, the year when the EC restriction in dispute was in effect, and chose 1978, 1977 and 1975 instead. It held that 1976 could not be considered representative due to the existence of restrictions during that year.

5.27 The panel on Japan - Restrictions of Imports of Certain Agricultural Products25 addressed the question of the absence of a "previous representative period" in the context of Article XI:2(c). It noted that:
"in the case before it the import restrictions maintained by Japan had been in place for decades and there was, therefore, no previous period free of restrictions in which the shares of imports and domestic supplies could reasonably be assumed to resemble those which would prevail today. � The Panel realized that a strict application of this burden of proof rule had the consequence that Article XI:2(c) could in practice not be invoked in cases in which restrictions had been maintained for such a long time that the proportion between imports and domestic supplies that would prevail in the absence of restrictions could no longer be determined on the basis of a previous representative period. � The Panel considered for these reasons that the burden of providing evidence that all requirements of Article XI:2(c)(i), including the proportionality requirement, had been met must remain fully with the contracting party invoking that provision."
5.28 We note that Article XI:2(c), which stipulates that quotas must be such as not to reduce the total of imports relative to domestic production which might reasonably be expected to rule between the two in the absence of restrictions, is an exception from the prohibition of quantitative restriction in Article XI:1. Article XIII regulates the non-discriminatory administration of quantitative restrictions, including, where applied, the allocation of shares among Members. The determination of a previous representative period under Article XIII raises similar problems as under Article XI:2. Thus we deem the above considerations pertinent to the case before us. The effect of a lack of a representative period under Article XIII is much less far-reaching than the lack of such a period under Article XI:2(c). In the Japan � Restrictions case, the lack of a suitable previous representative period precluded the use of the Article XI:2(c) exception. Under Article XIII, the lack of a suitable previous representative period would only preclude allocation of a tariff quota unilaterally. It would not preclude the use of a global tariff quota nor of country-specific allocations by agreement.

(b) The Representative Period

5.29 With regard to the selection of a "previous representative period" for applying the tariff-quota regime for imports of bananas to the European Communities, we recall that prior to 1993, EC member States applied different national import regimes. Some member States applied import restrictions or prohibitions, while imports to other member States were subject to a tariff-only regime or could enter duty-free26. Thus, that period could not serve as a previous representative period (see paragraph 5.24).

5.30 With the introduction of the common market organization for bananas in mid-1993, we note traditional ACP supplier countries were guaranteed country-specific allocations at pre-1991 best-ever import levels, which were far beyond their actual trade performance in the recent past. As of 1995, the Banana Framework Agreement (BFA) allocated shares of the 2,200,000 tonne tariff quota established by Regulation 404/93 to the substantial suppliers Colombia and Costa Rica. Given the distortions in the EC market prior to the BFA, the shares assigned to Colombia and Costa Rica could not have been based on a previous representative period. Moreover, the BFA contained WTO-inconsistent rules concerning the export certificate requirements and re-allocations of unused portions of country-specific allocations exclusively among BFA signatories, which further aggravated such distortions. The shares of non-traditional ACP supplier countries were also distorted because of the country-specific allocations within the quantity of 90,000 tonnes that were reserved for non-traditional ACP suppliers. 

5.31 It could be argued that within the "other" category of the 2,200,000 tonne tariff quota (autonomously enlarged by 353,000 tonnes as of 1995 for the EC-15), Ecuador and Panama and the non-substantial third-country suppliers without allocated shares were competing on a relatively undistorted basis during the period when the previous regime was in force (although less so after the BFA entered into force). However, given that, for purposes of applying the requirements of Article XIII, it does not matter whether imports from some suppliers countries were relatively less distorted than others since distortions with respect to one (group of) supplier countries will have repercussions on the import performance of other substantial or non-substantial supplier countries within a single product market.

5.32 Accordingly, in our view, the 1994-1996 period could not serve as a previous representative period because of the presence in the market of the foregoing distortions.

5.33 Thus, while Members have a degree of discretion in choosing a previous representative period, it is clear in this case that the period 1994-1996 is not a "representative period". Accordingly, it is our view that the country-specific allocations assigned by the European Communities to the substantial suppliers are not consistent with the requirements of Article XIII:2.


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13 Panel reports on Bananas III, as modified by the Appellate Body report.

14 Article 18, paragraphs 1 and 2 of Regulation 1637/98.

15 Annex I to Regulation 2362/98.

16 Calculation of absolute shares based on the 2,553,000 tonne tariff quota and the shares of substantial suppliers according to Annex I to Regulation 2362/98.

17 Annex to Regulation 1637/98 and Annex I to Regulation 2362/98.

18 Panel report on EEC - Imports of Newsprint, adopted on 20 November 1984, BISD 31S/114, 130-133.

19 Ibid., paragraph 55.

20 Appellate Body report on Bananas III, paragraph 190.

21 Appellate Body report on Bananas III, paragraph 187.

22 The country-specific allocations for, e.g. Belize, Cameroon, C�te d'Ivoire and Jamaica seem to include allowances for investment made.

23 Panel reports on Bananas III, paragraph 7.68.

24 Panel report on EEC - Restrictions on Imports of Apples from Chile, adopted on 10 November 1980, BISD 27S/98, paragraph 4.8.

25 Panel report on Japan - Restrictions on Imports of Certain Agricultural Products, adopted on 22 March 1988, BISD 35S/163, paragraph 5.1.3.7.

26 For a description of the market, see panel report on EEC � Member States' Import Regime for Bananas, issued on 3 June 1993 (not adopted), GATT Doc. DS32/R, pages 3-7.


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