1. Article I Issues

(i) Traditional ACP bananas

4. Ecuador submitted that the revised system did not comply with Article I of GATT 1994 and the rulings of the panel and the AB, as concerns traditional ACP bananas, in three respects. First, the total allotment of 857,700 tonnes was equal to the sum of the previous individual traditional ACP country allocations prior to 1 January 1999, and the panel and the AB had already found that those allocations exceeded what was required under the Lomé waiver. ³⁹ The European Communities could not rectify the problem of excessive individual allocations by cumulating them into one basket allotment in excess of that required for the sum of the shares of the countries participating in the basket. Ecuador argued that the revised system, by assigning a cumulative share to all traditional ACP suppliers, aggravated the violation of Article I since there were no individual limits, which meant that each country was in principle allowed to exceed its pre-1991 duty-free best-ever level.
5. Nor could the European Communities circumvent this obligation by devising new pretexts to justify the same quantities whose original rationale was rejected by the panel and the AB ⁴⁰ before both of which the European Communities had stated that the figure of 857,700 tonnes included expected increases in banana exports after 1990. They were therefore outside the scope of the Lomé waiver, and were accordingly inconsistent to that degree with the EC's obligations under Article I of GATT 1994. ⁴¹ The discriminatory effect of this violation would also be exacerbated in practice because the revised import licensing system penalized the failure to use fully all licence quantities, for all countries. Together with the elimination of country limits for each traditional ACP country, the effect was to encourage maximum usage of the 857,700 tonne duty-free quota, and within that quota, to encourage a shift to the relatively more efficient suppliers and away from the less competitive among the ACP countries.
6. Second, Ecuador argued, the revised system's removal of individual country ceilings on duty-free access exacerbated the degree to which the EC's preferences exceeded what was "required" by the Lomé Convention and accordingly increased the degree of non-conformity with Article I of GATT 1994. As a consequence, every traditional ACP supplier could in principle ship 857,700 tonnes duty-free, whereas the panel and the AB held that any quantity for any country in excess of its pre-1991 "best-ever" was not required under the Lomé Convention and therefore not covered by the Lomé waiver. In Ecuador's view, this was more than a technical legal contravention, since the result was adverse commercial consequences. The traditional ACP suppliers would be more likely to ship the full available total of traditional ACP bananas, since the more productive and efficient among them would be able to plan, compete and invest accordingly.
7. The non-conformity with Article I could not, Ecuador argued, be off-set by a decrease in imports from less efficient traditional ACP suppliers since the panel's and AB's findings were very clear on that account, i.e. that the Lomé waiver applied for each traditional ACP supplier only up to that supplier's best-ever year before 1991. ⁴² Presumably, some or even many traditional ACP suppliers would effectively lose duty-free access to the European Communities because importers would naturally tend to buy from the most efficient and cheapest sources within a basket of countries.
8. Referring to Article 168(2)(a)(ii) of the Lomé Convention, ⁴³ in particular, the European Communities responded that it had to honour its obligations under the Lomé Convention. Moreover, it noted that Protocol 5 of the Lomé Convention ⁴⁴ had been interpreted to mean that "the European Communities is 'required' under the relevant provisions of the Lomé convention to provide duty-free access for all traditional ACP bananas". ⁴⁵ The European Communities was thus providing duty-free treatment to traditional banana imports from ACP countries for a maximum volume of 857,700 tonnes which was an "additional preferential treatment for traditional ACP bananas over and above the preferential treatment for all ACP bananas that is required by Article 168(2)(a)(ii)". ⁴⁶ This corresponded therefore to the limitation of the volume of bananas, i.e. traditional imports, which could benefit from this preferential treatment, as envisaged by the terms of the Lomé waiver resulting from the interpretation by the AB.
9. Maintaining the maximum of 857,700 tonnes of traditional ACP bananas per year was fully justified after having applied the new interpretative criterion set out by the AB in its report (paragraphs 175 and 178). Traditional ACP bananas were not imported under the third-country tariff quotas, but competed with all the bananas that could be imported outside the bound tariff rate quota (and the autonomous quota), albeit with a preferential (duty-free) treatment as required by the Lomé Convention and permitted under the Lomé waiver. The margin of preference to the benefit of traditional ACP bananas outside the (bound and autonomous) tariff quotas was at present 737 Euro per tonne. ⁴⁷ The European Communities recalled that the panel and the AB had considered that only pre-1991 best-ever import volumes from the traditional ACP banana suppliers could serve as justification to allow imports of traditional ACP bananas outside the tariff quotas. On the basis of the historical figures that were now available for pre-1991 best-ever import volumes of traditional ACP bananas (i.e. 952,933 tonnes), a maximum of 857,700 tonnes, duty-free, from all the traditional ACP banana suppliers was therefore entirely legitimate. ⁴⁸
10. The European Communities submitted that the original panel and the AB had agreed that the zero duty preference was "required" for traditional ACP bananas up to the level, for each supplier, of its pre-1991 best-ever exports to the European Communities, but that allowances for any country above that level were not within the waiver and were therefore inconsistent with Article I of GATT 1994. The sum of the individual country allocations for traditional ACP bananas under the prior system was 857,700 tonnes, which included for each traditional ACP country its best-ever exports to the European Communities, and for some countries an extra duty-free allotment based on expected increased production as a result of recent investments. The revised EC system created a single duty-free quota of 857,700 tonnes for all traditional ACP countries, with no limit on any individual ACP country's duty-free access within that overall quota.
11. Ecuador submitted in response, that a comparison of Annex 1 of the EC's first submission with the country limits of the prior system indicated that every country allocation was the same or less under Annex 1, except for Jamaica and Somalia, both of which were stated to have had a larger best-ever year in 1965 and 1966. Since the European Communities was putting forward this data as a defence after many years of not considering such data as valid for Lomé Convention, GATT or WTO purposes, the European Communities needed to do far more to explain why today such data should be accepted as valid, required by the Lomé Convention, and within the scope of the Lomé waiver. The years in question all pre-dated the EC's agreements with traditional Lomé countries, or even the accession of the United Kingdom to the European Communities. Further, having found this data, there was no explanation why the European Communities did not consider itself "required" to grant the additional quantities to Somalia and Jamaica. Ecuador considered that even if the Panel were to accept as valid this data, and thus increase the "requirement" of the Lomé Convention and expanding the scope of the Lomé waiver, the revised EC system would still be inconsistent with Article I of GATT 1994 with respect to traditional ACP bananas, since it allowed any traditional ACP supplier duty-free access beyond its "best-ever" level. ⁴⁹
12. The European Communities noted that the AB had overruled the panel in the original dispute with regard to the coverage of the Lomé waiver which in the view of the AB ⁵⁰ did not extend to Article XIII of GATT. The European Communities therefore considered itself to be compelled to abandon the country-allocation for the imports of traditional ACP bananas, since in spite of the preference, none of the banana-exporting ACP States was a substantial supplier of bananas to the EC's market. Under such circumstances, the European Communities did not see how it would be possible to allocate shares of the overall volume to individual ("specific") ACP States as long as the European Communities did not distribute its MFN tariff quotas among non-substantial suppliers. In this regard, the European Communities did no more than respect its WTO obligations the way it understood them, but the European Communities had an open mind if it was clarified in unambiguous terms that other options were available to it. Moreover, the inconsistency alleged by Ecuador did not relate to Article I of GATT, but, in the opinion of the European Communities, rather to an alleged inconsistency of the EC's banana import regime with the requirements of Article 1 of Protocol 5 on bananas because of the absence of country allocations for the preferential import volume for traditional ACP bananas.
13. Referring to the EC's argument in paragraph 4.12 above, Ecuador submitted that the AB, in ruling that the Lomé waiver did not apply to the EC's infringement of Article XIII, did not find that the European Communities was thereby excused from compliance with Article I of GATT 1994, including the AB's express affirmation that duty-free quantities in excess of a traditional ACP country's pre-1991 "best-ever" level were not within the scope of the Lomé waiver ⁵¹ and therefore infringed Article I. That infringement of Article I existed whether or not the Panel accepted the "new" old data on Jamaica and Somalia.

(ii) Non-traditional ACP bananas

14. Ecuador argued that, under the terms of the Lomé Convention, the more favourable tariff treatment in the revised system of non-traditional ACP bananas was not required by, and hence was not within the scope of, the Lomé waiver. ⁵² Ecuador considered that it was not justifiable to expand, in the amended system, the preferences allowed in the old system. Neither the limited finding regarding the previous system, nor the language of the Lomé waiver could justify such an increase. The panel and the AB affirmed, according to Ecuador, that the Lomé waiver covered duty-free treatment for 90,000 tonnes of non-traditional ACP bananas and a 100 Euro per tonne preference for such bananas above the overall tariff-rate quota (TRQ). Under the revised EC system, however, the 90,000 tonne cap on duty-free importation had been removed, and the preference for above-quota imports had been increased to 200 Euro per tonne. Ecuador argued that this Panel should find that the expansion of the preference was more than what was required by the Lomé Convention, and hence not justified under the Lomé waiver, and therefore not consistent with Article I of GATT 1994.
15. The European Communities noted that non-traditional imports of ACP bananas were currently benefiting from duty-free treatment within the tariff quotas (which amounted in practical terms to a preference of 75 Euro per tonne) and a duty preference of 200 Euro per tonne outside the tariff quotas. According to the European Communities, the fact that the AB had mentioned a volume of 90,000 tonnes for duty-free banana imports within the (bound) tariff quota and a figure of 100 Euro for any further preference was not an indication of an upper limit of the preference for non-traditional ACP bananas. The AB had limited itself to examining "whether the particular measures chosen by the European Communities to fulfil the obligations in [Article 168(2)(a)(ii)] to provide 'more favourable treatment' to non-traditional ACP bananas are also in fact 'necessary' measures �". ⁵³ According to the European Communities, the AB had stated very clearly that "Article 168(2)(a)(ii) does not say that only one kind of measure is 'necessary'. Likewise, that Article does not say what kind of a measure is 'necessary'. Conceivably, the European Communities might have chosen some other 'more favourable treatment' in the form of a tariff preference for non-traditional ACP bananas." ⁵⁴
16. The European Communities further noted that the above figures were the ones on which the previous EC banana import regime was based. The Lomé waiver covered preferential treatment of ACP bananas over and above these figures to the extent that the waiver from Article I was only qualified by the condition that the preferential treatment had to be "required" by the Lomé Convention. Article 168(2)(a)(ii) of the Lomé Convention required preferential treatment of all ACP banana imports ⁵⁵ unlike the requirements contained in Article 1 of Protocol 5 which were limited to traditional ACP banana suppliers. In the opinion of the European Communities, there was no basis for a volume limitation of such preferential treatment in Article 168(2)(a)(ii) of the Lomé Convention, nor for a limitation of the margin of preference to 100 Euro per tonne of non-traditional ACP bananas imported outside the tariff quotas.
17. Ecuador submitted that the revised EC system increased the preferences for non-traditional ACP bananas, both by eliminating the 90,000 tonne cap on duty-free entry and by increasing the preference for over-quota bananas to 200 Euro per tonne. These increases went beyond what the panel had found required under the Lomé Convention, and thus did not fall within the Lomé waiver, and were inconsistent with Article I of GATT 1994. In Ecuador's opinion, the AB's observation that other forms of tariff preference might have been chosen was used by the European Communities as a pretext to justify greater preferences of the same type. In granting the Lomé waiver, WTO Members did not give carte blanche to the European Communities and ACP States. The EC's actions and rationale for its substantial increase of those preferences were abusive, and unjustifiable in terms of the Lomé waiver or past rulings.
18. The European Communities argued that contrary to Ecuador's allegations in paragraphs 4.14 and 4.17 above, the elimination of the tariff quota share for non-traditional ACP bananas reduced the value of the preference granted under the previous EC banana import regime, since these bananas were now imported in competition with bananas from other sources under the general "others" category of the tariff quota that was not allocated to bananas of a particular origin. The European Communities thus considered that the abolition of the tariff quota share allocated to imports of non-traditional ACP bananas did not "expand" the preference for non-traditional ACP bananas beyond the requirements of Article 168(2)(a)(ii) of the Lomé Convention. In order to partly compensate for the loss of the allocation of the 90,000 tonne tariff quota share for non-traditional ACP suppliers, the European Communities continued, it had agreed with these suppliers to increase the margin of preference for out-of-quota imports from 100 Euro per tonne to 200 Euro per tonne. In conclusion, the European Communities saw no valid basis for Ecuador's complaint regarding the preferential treatment of non-traditional imports of ACP bananas under the present regime.

To continue with Article XIII issues

³⁹ Panel report at paragraph 7.102; AB report at paragraph 175.

⁴⁰ Panel report at paragraph 4.131 and following; AB Report at paragraph 28.

⁴¹ Panel report at paragraph 7.103; AB report at paragraph 175.

⁴² As was noted by the AB in interpreting Article III, less favourable treatment for some cannot be balanced with more favourable treatment for others. See United States - Standards for Reformulated and Conventional Gasoline, adopted on 20 May 1996, WT/DS2/AB/R and WT/DS2/R.

⁴³ I.e. " � take the necessary measures to ensure more favourable treatment than that granted to third-countries benefiting from the most-favoured-nation clause for the same products".

⁴⁴ I.e. " � [i]n respect of its banana exports to the Community markets, no ACP State shall be placed, as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or at present".

⁴⁵ AB report at paragraph 178. See also paragraph 172.

⁴⁶ AB report at paragraph 170.

⁴⁷ It was scheduled to decrease to 708 Euro as from 1 July 1999.

⁴⁸ The relevant historical figures justifying the quantitative limitation of the importation of traditional ACP bananas at 857,700 tonnes are contained in Annex 1.

⁴⁹ First Ecuador Submission at paragraphs 56-63.

⁵⁰ Paragraph 188 of the AB report in the original dispute, doc. WT/DS27/AB/R of 9 September 1997.

⁵¹ AB report at paragraph 174, footnote 94.

⁵² The relevant provision of the Lomé Convention in this regard was Article 168(2)(a)(ii), which provided that: " � the Community shall take the necessary measures to ensure more favourable treatment than that granted to third-countries benefiting from the most-favoured-nation clause for the same products" (emphasis added).

⁵³ Paragraph 173 of the AB report.

⁵⁴ Idem.

⁵⁵ Paragraph 170 of the AB report.