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 to the Table
of Contents
B. GATS ISSUES
5.34 The United States alleges that Regulations 1637/98 and 2362/98 perpetuate nullification and impairment caused by the previous EC regime which was found to be inconsistent with the EC's obligations under Articles II and XVII of GATS. More specifically, the United States alleges (1.) that the revised licensing procedures perpetuate the violations of Articles II and XVII of GATS (i.e. GATS' most-favoured nation and national treatment clauses) found by the original panel and the Appellate Body in
Bananas III and (2.) that the enlargement of the licence quantity reserved for "newcomers" to 8 per cent and the criteria for acquiring "newcomer" status under the revised licensing procedures are inconsistent with Article XVII of GATS.
1. Licence Allocation Procedures
5.35 The United States alleges that the revised EC licensing regime is inconsistent with Articles II and XVII of GATS and continues nullification and impairment because it perpetuates or carries on the discriminatory elements of the previous licensing system in that licenses are allocated to those who used licenses to import, and paid customs duties on, bananas during the 1994-1996 period. Moreover, it claims that the new, so-called "single pot" licensing allocation rules, under which,
inter alia, past importers of ACP bananas may apply for import licenses to import non-ACP third-country bananas on the basis of reference quantities derived from their ACP banana imports, exacerbates the discriminatory elements of the past
regime27.
5.36 The EC contends that it has abolished the previous licensing system including operator categories, activity functions, export certificates and hurricane licences. The new criterion for the allocation of licences to "traditional operators", i.e. proof of payment of customs duties, eliminates any "carry-on effects" from the previous to the revised license allocation system and to ensure that "true and real" importers in the past obtain licence entitlements for the future.
5.37 The consideration of alleged inconsistencies under the GATS' national treatment and MFN clauses usually presupposes a two-step examination. For purposes of Article XVII, it is necessary to examine (i) whether the domestic and foreign services or service suppliers at issue are "like" and (ii) whether services or service suppliers of the complainant's origin are treated less favourably than those of domestic origin. For purposes of Article II, it is necessary to examine (i) whether services or service suppliers originating in different foreign countries are "like" and (ii) whether services or service suppliers of the complainant's origin are subject to less favourable treatment than those of other Members' origin.
5.38 In this context, we recall that issues such as the origin of services and service suppliers and the "likeness" of services or service suppliers of the complainant's origin and of those of EC or other third-country origin, as the case may be, were resolved in the original case. We also note that the panel and the Appellate Body - albeit on different legal grounds - found that the national treatment obligation as well as the MFN treatment obligation under the GATS prohibit de iure
and de facto discrimination. For purposes of resolving the issues before us, we need, therefore, not discuss whether the notion of
de facto discrimination under Article II is similar to or narrower than the notion of
de facto discrimination under Article XVII, and in particular under paragraphs 2 and 3 of that Article. We only need to recall that the original panel, but also the Appellate Body found that Article II of GATS, too, covers
de facto discrimination: "� 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 iure, discrimination �"28. Therefore, we consider it appropriate to examine jointly the question whether or not the revised licence allocation procedures accord less favourable treatment in the meanings of Articles II and XVII of GATS to services or service suppliers of the United States.
(a) The Findings in Bananas III on Articles II and XVII of GATS
5.39 We recall our findings with respect to particular aspects of the licence allocation procedures which applied under the previous regime to third-country and non-traditional ACP imports within the tariff quota, to the extent they are relevant here, i.e.:
"� 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 created less favourable conditions of competition for like service suppliers of Complainants' origin and was therefore inconsistent with the requirements of Articles II and XVII of GATS." 29
"� that the allocation to ripeners of 28 per cent of Category A and B licences allowing the importation of third-country and non-traditional ACP bananas at in-quota tariff rates created less favourable conditions of competition for like service suppliers of Complainants' origin and was therefore inconsistent with the requirements of Article XVII of GATS."30
"� that the allocation of hurricane licences exclusively to operators who included or directly represented EC (or ACP) producers created less favourable conditions of competition for like service suppliers of Complainants' origin and was therefore inconsistent with the requirements of Article XVII (or II) of GATS."31
These findings were upheld by the Appellate Body.
(b) The Revised EC Licensing Regime
5.40 Under the revised EC licensing regime, licences are allocated to importers on the basis of their reference quantities. These reference quantities are allocated to "traditional operators" (defined below) to the extent that they are able to show that they actually imported bananas in the 1994-1996 period. More particularly, Article 3 of Regulation 2362/98 provides:
"'[T]raditional operators' shall mean economic agents established in the European Community during the period for determining their reference quantity � who have actually imported a minimum quantity of third-country and/or ACP-country bananas on their own account for subsequent marketing in the Community during a set reference period. The minimum quantity � shall be 100 tonnes imported in any one year of the reference period � [or] � 20 tonnes where the imports entirely consist of bananas with a length of 10 centimetres or less."
5.41 Article 5 of Regulation 2362/98 provides:
"3. Actual import shall be attested by both of the following:
- by presenting copies of the import licences used either by the holder or, in the case of a transfer � duly endorsed by the competent authorities, by the
transferee, in order to release the relevant quantities for free circulation; and
- by presenting proof of payment of the customs duties due on the day on which customs import formalities were completed. The payment shall be made either direct to the competent authorities or via a
customs agent or representative.
Operators furnishing proof of payment of customs duties, either direct to the competent authorities or via a customs agent or representative, for the release into free circulation of a given quantity of
bananas without being the holder or transferee holder of the relevant import licence � shall be deemed to have actually imported the said quantity provided that they have been registered in a Member State under Regulation No. 1442/93 and/or that they fulfil the requirements of this Regulation for registration as a traditional
operator. Customs agents or representatives may not call for the application of this subparagraph." (emphasis added).
5.42 Article 31 of Regulation 2362/98 repeals Regulations 1442/93 and 478/95, which were the basis of the previous licensing regime. We note, however, that according to Article 5(3) of Regulation 2362/98, operators that have been registered under Regulation 1442/93 may acquire the status of a "traditional operator" under the revised licensing procedures.
(c) The Requirements of Articles XVII and II of GATS
5.43 We recall our decision in Bananas III on the elements necessary to establish an inconsistency under Articles XVII and II of GATS and on certain preliminary
issues32. These are not controverted in this proceeding, so we turn to the main issues.
5.44 For purposes of Article XVII, we have to ascertain whether, by applying its revised licensing regime, the European Communities accords less favourable treatment to services and service suppliers of the United States than it accords to it own like service and service suppliers. For purposes of Article II, we also have to ascertain whether, under the revised regime, less favourable treatment is being accorded to services and service suppliers of the United States than to services and service suppliers of other Members. In this context, we recall our consideration above that we deem it appropriate to examine jointly whether the EC's revised regime accords less favourable treatment in the meanings of both Article II and XVII to services or service suppliers of the United States. The crucial issue in respect of these claims against the EC's revised licensing procedures is whether the allocation of licences based on the criterion of
"actual payment" of customs duties by "traditional
operators" under the revised regime prolongs the allocation of licences on the basis of those aspects of the previous licensing system which were found to be inconsistent with the GATS in
Bananas III.
5.45 In framing this issue for consideration, we do not imply that the EC is under an obligation to remedy past discrimination. Article 3.7 of the DSU provides that "� the first objective of the dispute settlement is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements." This principle requires compliance
ex nunc as of the expiry of the reasonable period of time for compliance with the recommendations and rulings adopted by the DSB. If we were to rule that the licence allocation to service suppliers of third-country origin were to be "corrected" for the years 1994 to 1996, we would create a retroactive effect of remedies
ex tunc. However, in our view, what the EC is required to ensure is to terminate discriminatory patterns of licence allocation with
prospective effect as of the beginning of the year 1999.
5.46 At the outset of our analysis, we note that the United States does not allege that the new EC regime is
de iure discriminatory. The issue, as in Bananas III, is whether it is
de facto discriminatory in a way that is inconsistent with Articles XVII and II of GATS. In this regard, we recall that, pursuant to Article XVII:2, a Member may ensure no less favourable treatment for foreign services or service suppliers by according formally identical treatment or formally different treatment to that it accords to its own like service suppliers. Moreover, according to Article XVII:3, formally identical treatment may, nevertheless be considered to be less favourable treatment if it adversely modifies conditions of competition for services or service suppliers of other Members. We also recall the panel and Appellate Body findings in the original dispute that the MFN clause of GATS includes prohibitions of both de
iure and de facto discrimination.
(d) The parties' arguments
(i) European Communities
5.47 The European Communities argues at the outset that the facts on which the original panel had based its conclusions had so changed by 1994-1996 that the panel would not have made the same findings had it disposed of the 1994-1996 facts.
5.48 With respect to the major third-country operators (e.g. Chiquita, Dole, Del Monte and Noboa), the European Communities contends that the allocations of licences for the importation of third-country and non-traditional ACP bananas to these operators increased by an average of 35 per cent between 1994 under the previous regime and 1999 under the revised regime.33 Specifically, the European Communities reports increases in licence allocations to Chiquita and Dole of 34 and 44 per cent, respectively, between 1994 and 1999. Moreover, licence allocations for Chiquita and Dole were higher in 1999 than in 1998. According to the European Communities, this occurred because of two reasons: investments and licence transfers.
5.49 First, there were investments by third-country operators in EC/ACP operators. The European Communities mentions investments in Compagnie Fruiti�re and CDB/Durand by Dole and Chiquita, respectively, and concludes that reference quantities for major third-country operators doubled between 1993 and 1996
34, when the overall reference quantities of third-country operators amounted to 272,822 tonnes. The European Communities further points out that the original panel found that there was no
de iure discrimination, based on an operator's origin, with respect to the access to the activity of ripening which entitled operators to licence allocations and thus to reap quota rents under the previous regime. However, the panel found that
de facto less favourable conditions of competition existed for third-country suppliers of wholesale services because ripeners in the European Communities were predominantly EC owned or controlled35 and thus licence allocations and quota rents accrued largely to service suppliers of EC origin. Before this Panel, the European Communities emphasizes that, based on 1994 to 1996 statistics, three out of the four biggest ripeners are now non-EC owned and that these alone represent around 20 per cent of the total ripening capacity of the European Communities.36
5.50 The second reason why licence allocations to third-country operators has apparently increased is that there have been licence transfers under conditions that allow these operators to claim reference quantities under the revised regime. In the EC's view, this could explain why there has been a decline in the number of operators receiving licences. According to the European Communities, under the previous regime 1568 Category A and B operators were registered, whereas under the revised regime the number of traditional operators has decreased to 629 operators. For the European Communities this shows that the mainly EC-owned operators that received licences in the past without being engaged in actual importation were
ipso facto excluded from the allocation of licences by the introduction of the revised regime, i.e. mainly ripeners and EC producer organizations.
5.51 The European Communities submits that it is reasonable to assume that under the previous regime non-EC operators received an amount of 50.35 per cent of all available reference quantities that entitle operators to licence allocations in the future.37 The European Communities then increases the base figure by 35 per cent (see paragraph 5.48) to conclude that non-EC operators are now getting some 68 per cent of licence allocations. Since 8 per cent of allocations go to newcomers, only 24 per cent go to EC/ACP service suppliers. The European Communities suggests that the licences have been legitimately allocated to EC/ACP service suppliers under the revised regime since these operators actually imported Latin American bananas.
5.52 The European Communities also makes two more general arguments. In the first instance, the European Communities insists that the GATS does not guarantee any particular market shares over time, i.e. there are no provisions for grandfather rights. Second, the European Communities argues that it has a right to choose "actual imports" as a basis for licence allocation. In particular, the European Communities refers to Article 3.5(j) of the Agreement on Import Licensing Procedures38, pursuant to which consideration should be given to "full utilisation of licenses" as a criterion for future allocations. In the EC's view, the only objective and indisputable way of proving the "effective" importation is the payment of duties, either directly or through a customs agent on a fee or contract basis, i.e. the system chosen by Regulation 2362/98.
(ii) United States
5.53 The United States argues that the de facto discrimination in the EC's previous licensing regime persists because of the EC's choice of criteria for allocating licences. By basing licence allocation on the "actual importer" criteria, the EC ensures that the predominantly EC/ACP service suppliers to whom Category B, ripener and hurricane licences were issued in the previous regime will retain rights to most of those licences in the new regime.
5.54 The United States contests as inaccurate the EC information that, inter alia, because of investments in Compagnie Fruiti�re and CBD/Durand by Dole and Chiquita, respectively, licence allocations to major third-country operators doubled between 1993 and 1996. Even if this data were accurate, in the US view, given that total EC imports from traditional ACP countries amounted to 734,000 tonnes in 1996, the 272,822 tonne figure would still indicate that, while non-EC firms have in fact been forced under the previous regime to increase ACP purchases, the clear majority of that Category B/ACP volume continues to be in the hands of EC-owned operators.
5.55 The United States argues that the EC figures about an increase in the foreign ownership of ripeners are inaccurate because the data includes volumes ripened under customer contracts such that the economic benefits of the licence flow to EC-owned ripeners, not to third-country operators. Moreover, even if the figures were accurate they would only confirm that approximately 80 per cent of the EC's total ripening capacity is still EC-owned, thereby reinforcing the "drag-on effect" from the previous regime.
5.56 The United States emphasizes that Chiquita's licence allocation for 1999 under the revised regime was less than in 1998 when the previous regime was in force.39 In the US view, Dole coped better with the EC banana regime than Chiquita as the result of licence purchases and investment in operators that had access to licences, in particular Category B licences. The United States also refers to Odeadom data40 (i.e. Office de D�veloppement de l'�conomie agricole des D�partements d'Outre-Mer, the French authority responsible for accepting licence applications and registering licence transfers) according to which significant Category B licence sales for those years occurred in only two countries, i.e. in France and in Spain, whereas these data show no sales in the United Kingdom.41 In addition, the United States also mentions industry information indicating that during the 1994-1996 period, the EC/ACP firms Fyffes, Geest and Jamaican Producers imported on average over 300,000 tonnes of Latin American bananas per year.42 The United States concludes that this factual information supports its position that under the revised regime US suppliers of wholesale services continue to be subject to less favourable conditions of competition than suppliers of such services of EC/ACP origin.
5.57 Overall, the United States argues that under the revised regime, non-EC/ACP operators can be expected to receive only 43.7 per cent of the licences they should receive because, in its view, the EC estimate according to which third-country operators receive 68 per cent of licence allocations is flawed. First, it stresses that there is no basis for assuming that under the previous regime two-thirds of customs clearers were third-country owned and only one third was EC/ACP owned. Accordingly, the EC estimate of 50.35 per cent of licence allocations for third-country operators under the previous regime would be reduced by 6.65 per cent to 43.7 per cent, which means that less than half of the licences used to administer the third-country tariff quota were in the hands of non-EC/ACP operators. Second, it points out that it refers only to the tariff quota of overall 2,553,000 tonnes but not to the entire import quantity (including traditional ACP imports) of 3.4 million tonnes. Third, the United States argues that the average growth increase of 35 per cent in licence allocations to third-country operators between 1994 and 1996 is distorted given that the 1994 figures relate to the EC-12 (excluding Austria, Finland and Sweden), while the 1996 figures include also the new EC member States.
5.58 Therefore, the United States alleges that the revised system perpetuates the underallocation of licences to its service suppliers, who cannot obtain licences to import their bananas on terms as favourable as those EC/ACP suppliers who continue to benefit under the revised regime from the carry-on of GATS-inconsistent licence allocation criteria under the previous regime. The United States points out that under the previous regime those initial licence holders who usually did not import third-country bananas themselves learned not to sell their licences outright. On the contrary, initial holders of Category B and ripener licences devised contractual arrangements under which service suppliers of US origin were obliged to pay for the ability to get bananas into the European Communities without actually obtaining the licence (e.g. licence leases, buy-back arrangements, licence 'pooling', sales of bananas landed in the European Communities but not yet cleared in customs). The United States submits that its service suppliers were forced to enter into unfavourable contractual arrangements also today with initial licence holders under the previous regime. Under many of those arrangements, according to the United States, original licence holders, whether or not they physically imported, may prove payment of customs duties which makes them "actual importers" for purposes of licence allocations under the revised regime.
(e) The Arbitrators' Analysis of the Allegations
5.59 In analyzing whether the new EC regime is de facto discriminatory, we will first consider the two general EC arguments set out in paragraph 5.52. Thereafter we evaluate the evidence presented by the parties on actual licence allocations and consider its relevance to the allegations by the United States. We will then consider the regime's structure and the extent to which it is based on or related to the previous regime found to be inconsistent with Articles XVII and II in Bananas III.
(i) General Arguments by the European Communities
5.60 As to the EC argument that there are no grandfather rights in the GATS or guarantees of market shares, we agree, but note that does not rule out the possibility that
de facto less favourable conditions of competition may be found and prolonged in violation of GATS rules.
5.61 As to the EC's claimed right to choose "actual imports" as a basis for licence allocation, here again, we agree that the European Communities is not precluded from basing licence allocation on past usage. However, we note that the Import Licensing Agreement's provision that "consideration should be given" to full utilization of licenses does not rule out the possibility that the choice of how to assure that may be limited where
de facto discrimination has been found in the past, and where reliance on licence usage may result in a prolongation of the results of a violation of GATS rules. The availability of the past performance allocation method, which is an option and not required by the Import Licensing Agreement, would not justify such a violation. In other words, even if Members are normally free to base licence allocation on past usage, that does not mean they are free to do so without regard to their GATS obligations. Moreover, we note that proof of payment of customs duties, directly or through a representative or customs agent, does not necessarily prove licence usage by a particular operator.
(ii) Licence Allocations Under the Revised Regime
5.62 In examining the evidence on licence allocations under the revised regime, we note that we based our original findings on the facts available at the time. Our findings explicitly foresaw that one of the effects of the previous regime would be to encourage service suppliers of non EC/ACP origin to invest in EC/ACP banana production and marketing and to acquire licenses from EC/ACP service suppliers. Although these effects were anticipated, our findings were based on the fact that the previous EC regime modified the conditions of competition in violation of Article XVII and II.
5.63 As regards licence allocations to major third-country suppliers of wholesale services under the revised regime, we note that the European Communities has submitted only limited information. This information would not permit us to recalculate whether licence allocations to third-country service suppliers increased between 1994 and 1999 by an average of 35 per cent overall, by 34 per cent for Chiquita, and by 44 per cent for Dole in particular.
5.64 As to the evidence presented by the European Communities concerning the increase in licence allocations to non-EC suppliers as a result of their investments in ACP operators, we note that the European Communities did not submit evidence on the precise extent of non-ACP third-country shareholdings in Compagnie Fruiti�re and CBD/Durand. Therefore, it is unclear whether these investments are large enough to cause a change in the attributability of these service suppliers at issue from EC/ACP origin to the origin of other WTO Members. In this regard, we recall that, according to Article XXVIII(n) of GATS, a service supplier in the form of a legal person has the origin of a WTO Member if it is owned by more than 50 per cent by natural or juridical persons of that Member, or if is controlled by those persons in the sense that they have the power to name the majority of directors. Moreover, in respect to investments in ripeners and licence transfers, we note that the EC's evidence was not comprehensive, which means that we not in a position to ascertain the extent to which these factors have led to a change in licence allocations compared to the previous regime.
5.65 As to the EC argument that there were 1,568 Category A and B operators registered under the previous regime, but that there are only 629 traditional operators under the revised regime, we note that the European Communities did not include information on ownership or control of these remaining traditional operators. Therefore, we are not in a position to ascertain whether the decline in the number of registered operators had an impact on the competitive conditions of non-ACP third-country service suppliers.
5.66 Even if the precise extent is uncertain, however, it is clear to us that an increase in licence allocations to non-EC/ACP operators has occurred. Indeed, such an increase would be in line with our considerations in the original dispute, that increase in licence allocations to non-ACP third-country suppliers during the period when the previous regime was in force could be the result of the "cross-subsidization" effect that induced such service suppliers who were previously engaged in the non-ACP third-country market segment into entering the EC/ACP market segment, or to engage in ripening and customs clearance activities in order to qualify for licence allocations in the future.
5.67 As regards the Odeadom data submitted by the United States and the EC contention43 to that evidence, we agree with the European Communities as far as data on licence transfers with respect to other member States than France are concerned. However, with respect to France we consider the Odeadom data reliable because, according to Article 5.2(a) of Regulation 2362/98, a licence transferee is not recognized as "actual importers" unless such a licence transfer is duly endorsed by the competent authorities of member States, and given that Odeadom is, according to Annex II of Regulation 2362/98, the competent authority for France. We thus note that the data concerning Category B licence allocations in France in the chart submitted by the United States and the data mentioned in the Odeadom letter submitted by the European Communities correspond.44
5.68 As regards the industry information submitted by the US concerning imports of Latin American bananas by EC/ACP operators, on the one hand, we are not in a position to assess to what extent this information is representative and reliable as an adequate description of the pattern of participation by EC/ACP operators in non-ACP third-country imports as developed under the previous regime. On the other hand, we note that the trend of an increasing involvement of EC/ACP operators in the non-ACP third-country market segment points in the direction which the cross-subsidization approach of the previous regime would suggest.
5.69 In our view, it is not particularly relevant for the purposes of this case to what extent precisely licence allocations to US suppliers (i.e. Chiquita, Dole or their subsidiaries) or to other third-country suppliers of wholesale services increased under the revised system in comparison to the previous, low level. An increase only indicates that the carry-on effect of the revised regime is less than 100 per cent. What is relevant for purposes of GATS, however, is that the information submitted shows that US companies in their attempts to supply wholesale trade services in the European Communities, with respect of part of their business, must purchase or lease licences from or otherwise enter into contractual arrangements with those who have access to licences.. Given the structure of the previous regime, those licence holders would be in the group of service suppliers in favour of which the previous EC regime altered competitive conditions. Thus, United States and other third-country service suppliers are faced with a competitive disadvantage that is not equally inflicted on service suppliers of EC/ACP origin. While we cannot ascertain the precise extent of this carry-on effect, it appears to be not unsubstantial, particularly in respect of US service suppliers. Therefore, an increase, even if it is within the order of the EC estimates, may not be considered as evidence that conditions of competition for non-ACP third-country suppliers are not less favourable than for EC/ACP suppliers under the revised regime.
5.70 Therefore we conclude that the EC/ACP operators who continue to get licences on the basis of the revised regime, remain in a competitively advantaged position compared to non-EC operators and that advantage comes from the "carry on" effects of the GATS-inconsistent aspects of the previous regime. Even if such EC/ACP operators do deal in Latin American bananas and do not simply sell or lease their licences, they are able to compete on more favourable conditions in the market for distribution of bananas than their non-EC competitors because of the licences allocations that are derived from the previous discriminatory regime. In this way, the revised regimes carries forward the de facto discrimination of the previous regime.
(iii) The Structure of the Revised Regime
5.71 We also examine structure of the revised regime because the Appellate Body has noted in the past, in
Japan - Alcoholic Beverages45 , that a measure's "protective application can most often be discerned from the design, the architecture and the revealing structure of a measure". Although the dispute on
Japan - Alcoholic Beverages concerned claims under the GATT, we believe that the Appellate Body's description of
de facto discrimination under the GATT may also give some guidance in analyzing whether there is
de facto discrimination under the GATS.
5.72 In our examination of the structure of Regulation 2362/98, we start from the proposition that if, in its new licensing regime, the European Communities had simply provided that licenses would be issued to those to whom licenses had been issued in the 1994-1996 period when those aspects of the previous licence allocation procedures which were found to be WTO-inconsistent in the original dispute by the Panel and the Appellate Body, were in force, we would find that such a revised regime did not remove the GATS inconsistencies of the old regime, even if technically different rules for licence allocation had been implemented. This would be so because the less favourable conditions of competition for service suppliers of the United States (or other WTO Members) would continue to exist. The revised regime is not, however, based on licence issuance during the 1994-1996 period, but rather on licence usage and payment of customs duties during that period. According to Article 4 of Regulation 2362/98, the reference quantities for 1999 of "traditional operators" under the revised regime are calculated on the basis of the average quantity of bananas actually imported during the 1994-1996 period.46
5.73 The choice of the years from 1994 to 1996 as the reference period is explained in Recital 3 of Regulation 2362/98 as follows:
"[W]hereas, for the purpose of implementing the new arrangements in 1999, it is advisable, in the light of available knowledge on the
de facto patterns of importation, to determine the rights of traditional operators in accordance with their actual imports during the three-year period 1994 � 1996". (emphasis added).
5.74 We note that officials in certain EC member States raised concerns about the Commission's choice of the 1994-1996 reference period.47 A legal analysis of the Commission Proposal done in an EC member State also raised doubts about this approach.48
5.75 In this context, we also note that the Commission Working Document "Determination of Reference Quantities from 1995 Onwards"49 acknowledges that licence allocation on the basis of the 'licence usage method' would "maintain the same pattern of licence allocation between different types of operators as is seen at present" and "fossilize licence allocation in its current form. Traders could not obtain more quota by expanding their business; the only way to do so would be by buying licences from another operator, or by taking over another company".50
5.76 We acknowledge, however, that where US service suppliers entered into contractual arrangements with initial licence holders under conditions where they are able to present proof of actual payment of customs duties and of licence usage there is no carry-on effect. In contrast, in cases where the contractual arrangements between initial licence holders and US service suppliers do not allow them to prove actual payment of customs duties and licence usage during the 1994-1996 reference period (licence buy-back arrangements or licence "pooling"), they cannot claim reference quantities as "traditional operator" for licence allocations from 1999 onwards.
5.77 In the latter case, the revised licensing regime facilitates the continuance of past patterns of licence allocation based on WTO-inconsistent elements of the previous allocation. In particular, e.g. where former Category B operators and/or ripeners are able to prove licence usage and payment of customs duties for imports made with such licences during the 1994-1996 period, such operators are able to claim reference quantities for 1999 under the revised regime, regardless of whether they imported in fact.
5.78 In conclusion, in our examination of the structure of the revised regime, we note that licence allocations under the revised regime are based on license usage (and payment of customs duties), which according to the cited Commission Document is likely to freeze or at least to continue in part past licence allocations. We further note that the base period (1994-1996) is one in which the rules for licence allocation had been in certain aspects found to be WTO-inconsistent in
Bananas III. On its face, the choice of the 1994-1996 reference period in combination with the licence usage/actual tariff payment criteria would seem to continue at least in part the less favourable conditions of competition for foreign service suppliers found under the previous licensing regime.
(iv) Overall evaluation
5.79 In light of all these considerations, we are of the view that the United States has shown that the revised licence allocation system prolongs - at least in part - less favourable treatment in the meanings of Articles II and XVII for wholesale service suppliers of US origin. The United States has also shown that its service suppliers do not have opportunities to obtain access to import licences on terms equal to those and enjoyed by service suppliers of EC/ACP origin under the revised regime and carried on from the previous regime.
5.80 Therefore, we are of the view that the revised licence allocation system reflecting past performance and licence usage during the 1994-1996 period displays
de facto discriminatory structure. It is also our view that under the revised regime wholesale service suppliers of the United States are accorded less favourable treatment than EC/ACP suppliers of those services in violation of Articles II and XVII of GATS.
(f) The "Single Pot" Licence Allocation
5.81 Regulation 1637/98 introduced a so-called "single pot" licence allocation system under which reference quantities claimed under the tariff quota of 2,553,000 tonnes are pooled with those claimed under the quantity of 857,700 tonnes reserved for traditional ACP imports. Thus, under the revised regime, a traditional operator may use its reference quantities based on past imports of traditional ACP bananas to apply for licences to import third-country bananas and
vice versa.
5.82 The United States alleges that this "single pot" solution for calculating reference quantities aggravates the carry-on
de facto discrimination from the previous regime and further erodes the licence allocations to US service suppliers. Specifically, the United States submits that licence applications by US service suppliers are significantly cut in the quarterly licence allocation procedures due to oversubscription and the application of reduction coefficients with respect to the country allocations for substantial suppliers and the allocation for "other" non-substantial suppliers from which US service suppliers traditionally source their banana imports to the EC. In the US view, these results are due to the "single pot" licence allocation under the revised regime.
5.83 The European Communities contends that, in compliance with the DSB rulings, it has abolished the different licensing procedures of the previous regime for traditional ACP imports, on the one hand, and for third-country and non-traditional ACP imports, on the other. It has introduced a single licensing regime for banana imports from all sources of supply and has created a "single pot" or "pool" for purposes of calculating reference quantities under the revised regime. The European Communities emphasizes that there cannot be a protection of "grandfather" rights as to licence entitlements, especially not in the transition from the previous to the revised regime.
5.84 We note the results of the quarterly two-round licence allocation procedures for the first and the second quarter of 1999. Due to the oversubscription of available licence quantities during the first round of the licence allocation procedures for the first quarter of 1999,51 reduction coefficients of 0.5793, 0.6740 and 0.7080 were applied to applications for licences for imports from Colombia, Costa Rica and Ecuador, respectively. While licence quantities of 77,536.711 tonnes and 41,473.846 tonnes for imports from Panama and "other" (i.e. non-substantial third-country and non-traditional ACP supplier countries) were transferred to the second round, these quantities were exhausted in the second round, when reduction coefficients of 0.9701 and 0.7198 were applied to applications for licences allowing imports from Panama and "other", respectively.52 Licence quantities for 148,128.046 tonnes of traditional ACP imports were not applied for in the first round, and apparently also not exhausted in the second round. In the first round of the allocation procedure for the second quarter of 1999
53 , reduction coefficients of 0.5403, 0.6743 and 0.5934 were applied to applications for licences allowing imports from Colombia, Costa Rica and Ecuador, respectively. However, licence quantities for 120,626.234 tonnes and 7,934.461 tonnes of imports from Panama and from other third-country and non-traditional ACP sources, respectively, were transferred to the second round of the allocation procedure for the second quarter of 1999.
5.85 The parties agree that a so-called "single pot" solution is not de iure discriminatory. We agree also. The pooling of reference quantities claimed under the tariff quota of 2,553,000 with those under the quantity of 857,700 tonnes reserved for traditional ACP imports in a single licensing regime can be expected to intensify competition between the operators who apply for licences in the quarterly allocation procedures. Given that it is more profitable to market Latin American bananas than ACP bananas, it is evident that profit-maximizing operators have an incentive to apply in the two-round quarterly licence allocation procedures first for low-cost Latin American sources of supply. This obvious effect is confirmed by the fact that in the first two quarterly licence allocation procedures under the revised regime, available licences for most Latin American sources were oversubscribed in the first round (i.e. country-allocations for the substantial suppliers Ecuador, Colombia and Costa Rica), and the remaining licences for imports from Latin America (i.e. Panama and "other" non-substantial suppliers) were exhausted in the second round. However, licence applications for imports within the quantity of 857,700 tonnes reserved for traditional ACP suppliers were generally made in the second round and this quantity was not exhausted.
5.86 We next examine whether the alleged de facto discriminatory effects of pooling third-country and traditional ACP licences in a "single pot" derive from the fact that under the revised regime reference quantities are calculated based on the 1994-1996 period when those allocation criteria that were found to be GATS-inconsistent were in force. We recall that the previous regime provided for two separate sets of licensing procedures for traditional ACP imports, on the one hand, and for third-country and non-traditional ACP imports, on the other. Under the latter licensing system, Category B operators, based on reference quantities for marketing traditional ACP or EC bananas, were allocated 30 per cent of the licences required for the importation of third-country and non-traditional ACP bananas reserved for those B operators
in addition to the right to continue importing traditional ACP bananas. Likewise, ripeners were allocated 28 per cent of the third-country import licences. Under the revised, single licensing regime, there is no comparable reservation of licence quantities for former Category B operators or for ripeners.
5.87 However, to the extent that former Category B operators and ripeners may prove licence usage and payment of customs duties with respect to imports carried out during the 1994-1996 reference period with licences obtained from the GATS-inconsistent quantities reserved for those operators under the previous regime, these operators are able to claim reference quantities under the revised regime for licence allocations from 1999 onwards. Therefore, former Category A service suppliers of US origin who have not benefitted from licence allocations based on GATS-inconsistent criteria under the previous regime enjoy
de facto less favourable opportunities to obtain access to import licences under the revised regime than those EC/ACP service suppliers who, as former Category B operators or ripeners, may prove payment of customs duties and licence usage for licences obtained on the basis of GATS-inconsistent allocation rules.
5.88 We note that the so-called single pot solution does not in itself raise problems of WTO inconsistency. On the contrary, it would seem at least in theory to provide for equal conditions of competition between wholesale service suppliers, against a background of varying degrees of economic incentive to import bananas from varying sources. However, it may well be that, when a single pot solution relies on a skewed reference period (i.e. 1994-1996), combined with certain criteria for licence allocation (such as actual importer/payment of customs duties), the
de facto less favourable conditions of competition for US service suppliers are aggravated through the carry-on effects of the previous regime.
2. The Rules for "Newcomer" Licences
5.89 The United States alleges that (i) the enlargement of the licence quantity reserved for "newcomers" from 3.5 per cent in the previous regime to 8 per cent in the revised regime (i.e. licences for up to 272,856 tonnes of imports) and (ii) the criteria for demonstrating competence in order to acquire "newcomer" status under the revised regime result in
de facto less favourable treatment for US wholesale service suppliers and thus are inconsistent with the EC's obligations under Article XVII of GATS. According to the United States, for 1999 there were 997 applicants for "newcomer" status, but only 13 of them were non-EC-owned companies.54
5.90 The European Communities responds that the enlargement of the licence quantity reserved for "newcomers" is
de iure and de facto non-discriminatory for foreign service suppliers. It indicates that EC licence allocation procedures for other EC products have set aside quantities as high as 20 per cent for "newcomers". As regards the criteria for demonstrating competence in order to acquire "newcomer" status, the European Communities argues that there is no distinction in Regulation 2362/98 between EC and non-EC service suppliers, on the one hand, and between non-EC service suppliers of different origins, on the other hand. It points out that importers of fruits and vegetables established in the European Communities are not necessarily EC-owned or EC-controlled service suppliers, nor does Regulation 2362/98 preclude companies newly established in the European Communities in, e.g. 1998, from applying as a "newcomer". The European Communities also submits that the figure of 400,000 Euro of declared customs value was chosen because it represented the size of a company which would have sufficient capacity to be viable in the sector. It adds that there are third country-owned companies which have qualified as "newcomers" under the revised regime.
5.91 We recall that Article 7 of Regulation 2362/98 provides:
"�'newcomers' shall mean economic agents established in the European Community who, at the time of registration:
(a) have been engaged independently and on their own account in the commercial activity of importing fresh fruit and vegetables falling within chapters 7 and 8, of the Tariff and Statistical Nomenclature and the Common Customs Tariff, or products under Chapter 9 thereof if they have also imported products falling within Chapters 7 and 8
in one of the three years immediately preceding the year in respect of which registration is sought; and
(b) by virtue of this activity, have undertaken imports to a declared customs value of ECU 400 000 or more during the period referred to in point (a)."
5.92 We do not see how the enlargement of the licence quantity to 8 per cent of the tariff quotas and the traditional ACP quantities55 in itself could create less favourable conditions of competition for service suppliers of third-country origin.
5.93 In respect of the criteria for acquiring "newcomer" status, we note that the parties agree that Article 7 of Regulation 2362/98 does not contain conditions which discriminate de iure against service suppliers on the basis of their foreign as opposed to EC origin. However, we note that potential "newcomers" must have a certain degree of ongoing relationship to the European Communities because they need to be established within the European Communities and they must have been engaged in the commercial activity of importing fruits or vegetables in one of the three years immediately preceding the year for which registration as "newcomer" is sought. More importantly, service suppliers of other Members may prove expertise with respect to the commercial activity of importing fresh fruit and vegetables only through imports carried out to the European Communities but not through the same type of commercial activity of trading in fruits or vegetables with other countries. If it is indeed the level of experience that this criterion is designed to ensure, in our view, experience with trade in fruits or vegetables in or to other countries should equally be deemed sufficient to ensure a requisite level of expertise. If it is the commercial viability of the enterprise in question that is at issue, we believe that it should also be possible to establish that viability on the basis of commercial activity outside the European Communities.
5.94 Thus, while any potential service supplier originating in third countries is not
de iure precluded from acquiring "newcomer" status, in our view, the criteria for demonstrating the requisite expertise in order to qualify as an importer of bananas as "newcomer" create in their overall impact less favourable conditions of competition for service suppliers of the United States or other Members than for like service suppliers of EC origin. In this respect, we recall the Appellate Body's statement in
Japan - Alcoholic Beverages56 that a measure's "protective application can most often be discerned from the design, the architecture and the revealing structure of a measure".
5.95 In light of these considerations, we are of the view that the criteria for acquiring "newcomer" status under the revised licensing procedures accord to service suppliers of the United States
de facto less favourable conditions of competition in the meaning of Article XVII than to like EC service suppliers.
3. Summary
5.96 In respect of Article XIII of GATT, in our view the 857,700 tonne limit on traditional ACP imports is a tariff quota and therefore Article XIII applies to it. Further, 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.
5.97 In respect of GATS, we are of the view that (i) under the revised regime US suppliers of wholesale services are accorded
de facto less favourable treatment in respect of licence allocation than EC/ACP suppliers of those services in violation of Articles II and XVII of GATS and (ii) the criteria for acquiring "newcomer" status under the revised licensing procedures accord to service suppliers of the United States
de facto less favourable conditions of competition than to like EC service suppliers in violation of Article XVII of GATS.
5.98 Thus, it is our view that there is a continuation of nullification or impairment of US benefits under the revised EC regime.
Continue here with Part VI. Parameters for the calculation of the Level of Nullification or Impairment
27
The United States refers in this regard to the reservation of 30 per cent of the licences required for
in-quota imports of third-country and non-traditional ACP bananas to Category B operators, the reservation of 28 per cent of such import licences to ripeners under the activity function rules, and the allocation of hurricane licences exclusively to certain Category B operators.
28 Appellate Body report on Bananas III, paragraph 234.
29 Panel reports on Bananas III, paragraphs 7.341 and 7.353.
30 Panel reports on Bananas III, paragraph 7.368.
31 Panel reports on Bananas III, paragraph 7.393 (and paragraph 7.397).
32 Panel reports on Bananas III, paragraphs 7.314, 7.317, 7.344, 7.277 et seq., 7.298.
33 The European Communities also submits that licence allocations to these major third-country operators were as follows: 1994: 598,857 tonnes; 1995: 651,266 tonnes; 1996: 726,782 tonnes; changes: 1994-1995: 8.8 per cent; 1995-1996: 11.6 per cent; 1994-1996: 201.4 per cent.
34 EC figures: 1989: 21,305 (reference quantities in tonnes); 1990: 30,514; 1991: 45,532; 1992: 72,592; 1993: 132,614; 1994: 267,511; 1995: 276,804; 1996: 272,822.
35 In the original dispute, the panel drew this conclusion on the basis that the average estimated volume ripened by EC owned ripeners was, according to the complainants to 83.7 per cent of the overall ripening volume in the European Communities. The European Communities stated that between 20 and 26 per cent of the ripening capacity in the European Communities were foreign-owned, i.e. mainly by Chiquita, Dole and Del Monte. Panel reports on
Bananas III, footnote 514.
36 The EC submits the following data on volumes ripened by major third-country operators:
Chiquita: 1994: 214,037; 1995: 232,544; 1996: 241,386;
Atlanta: 1994: 425,147; 1995: 449,969;
1996: 360,179;
Dole Group: 1994: 146,530; 1995: 139,257; 1996: 121,617.
37 In estimating reference quantities which non-ACP third-country service suppliers could obtain in their entirety under the previous regime, the European Communities considers it appropriate to assume that Category A primary importers obtained 37.905 per cent of the reference quantities (i.e. 57 per cent of 66.5 per cent). With respect to customs clearers, the European Communities does not object to the assumption that two-thirds of the customs clearers were of non-ACP third-country origin, whereas one-third was of EC/ACP origin. Accordingly, 6.65 per cent of customs clearance reference quantities (i.e. 10 per cent of 66.5 per cent) may be presumed to accrue to third-country operators. For purposes of breaking down ripening activities by third-country and EC/ACP origin, the ripening activities of both Category A and B operators were subdivided by using a ratio of 78.5 per cent for EC/ACP operators and 21.5 per cent for non-ACP third-country operators. This results for Category A operators in 4 per cent for third-country operators and in 14.6 per cent for EC/ACP operators of the 18.6 per cent which represent the licence allocation for Category A ripening activities (i.e. 28 per cent of 66.5 per cent). For Category B operators this results in 1.8 per cent for third-country operators and in 6.6 per cent for EC/ACP operators of the 8.4 per cent which represent the licence allocation for Category B ripening activities (i.e. 28 per cent of 30 per cent). As a result, in estimating the total share of reference quantities for non-ACP third-country suppliers, the European Communities adds up 37.905 per cent (for Category A primary importers), 6.65 per cent (for customs clearers of non-ACP third-country origin), 4 per cent and 1.8 per cent (for ripening activities effectuated by Category A and B operators of non-ACP third-country origin). This results in an estimate for the overall share of licence entitlements of 50.35 per cent of all reference quantities for non-ACP third-country service suppliers.
38 Article 3.5(j) of the Agreement on Import Licensing Procedures provides that: "� consideration should be given as to whether licences issued to applicants in the past have been fully utilised during a recent representative period."
39 US responses to EC questions concerning licensing of 22 February 1999.
40 The European Communities contests that information and presents a letter in which Odeadom emphasizes that it never published the chart about licence transfers which had been submitted by the United States.
41 US Exhibit 6 to the US First Submission.
42 US Exhibit 7 to the US First Submission.
43 The European Communities submitted a letter in which Odeadom stresses that it never published data on licence sales, and in particular not with respect to other EC member States than France.
44 The letter by Odeadom to the EC Commission, DG on Agriculture, states that the following amounts of Category B licences were issued in France: 1994: 230,531 tonnes; 1995: 252,740 tonnes; 1996: 294,410 tonnes.
The Odeadom chart submitted by the United States as Exhibit 6 showed the volumes of Category B licences that were issued (essentially only in France, Spain and the United Kingdom and to a much lesser extent in Italy and Portugal). For France, the US chart recorded practically identical figures about the issuance of Category B licences: 1994: 230,476 tonnes; 1995: 252,531 tonnes; 1996: 295,359 tonnes. The Odeadom chart submitted by the US further records that most of the B licences issued in Spain were sold, approximately half of those issued in France, and that none of those issued in the United Kingdom were sold.
45 Appellate Body report on Japan - Taxes on Alcoholic
Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted on 1 November 1996, page 29.
46 Paragraphs 1 and 2 of Article 4 of Regulation 2363/98.
47 US Exhibit 9 to the First US Submission.
48 "Using import performance results in a recent period, i.e. the years 1993-1998, would in effect perpetuate the
(de facto) discriminatory treatment by rewarding the recipients of the WTO denounced category B and ripeners licences, contrary to GATS Articles XVII and II." in: Amending the EC banana Regulation 404/93 and making it WTO compatible: A legal analysis of Commission Proposal COM(1998) 4 final (98/0013(CNS)), paragraph 22; US Exhibit 8 to US First Submission.
49 Exhibit 5 to the First Submission by the United States.
50 Commission Working Document "Determination of Reference Quantities from 1995 Onwards" of 6 October 1993". The document further notes"�
Obviously the licence usage method can only be used for the years when the common market organization was in
place. Thus if it is decided to adopt this method there would be three years (1995-97) when both methods [i.e. licence usage and operator categories/activity functions] would have to be applied. ..." (emphasis added).
51 Regulation (EC) No. 2806/98 of 23 December 1998, O.J. L 349/32 of 24 December 1998.
52 Regulation (EC) No. 102/1999 of 15 January 1999, O.J. L 11/16 of 16 January 1999.
53 Regulation (EC) No. 608/1999 of 19 March 1999, O.J. L 75/18 of 20 March 1999.
54 Exhibit 16 to the US First Submission.
55 Article 2.1(b) of Regulation 2362/98.
56 Appellate Body report on Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted on 1 November 1996, page 29.
Continue here with Part VI. Parameters for the calculation of the Level of Nullification or Impairment
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