C. Issues related to the GATS

(i) General

46. Ecuador argued that the new licensing system resulted in distribution of most of the import licences to those who had received them under the previous regime, including those who had obtained licences pursuant to criteria ruled inconsistent with the EC's obligations under the GATS. Further, the amended regime's newcomer category had been expanded and itself had criteria favouring EC operators over service suppliers of Ecuadorian and other non-EC origins. Ecuador concluded that the amended system, like its predecessor, created conditions of competition favouring service suppliers of EC and ACP origin, to the detriment of service suppliers of Ecuadorian and other third-country origin in contravention of Articles II and XVII of GATS.
47. The European Communities recalled that under Article 1 of the Licensing Agreement, an import licence was defined as "� an application or other document (other than that required for customs purposes) to the relevant administrative body as a prior condition for importation into a customs territory of the importing Member". Thus, the full utilization of a licence had to refer to the moment in which the use of the licence became indispensable, i.e. the clearance of bananas through customs. Before that moment, there was no import of bananas into the Community, but rather export operations from the country of production. After that moment, there was trading within the European Communities of already imported bananas, which were indistinguishable from any other banana in the EC market from any origin. The only objective and indisputable way of proving the "effective" importation was the payment of duties, either directly or through a customs agent on a fee or contract basis. This was the system chosen by the European Communities in Regulation 2362. Since operator categories had been abolished and any need for any third-country operator (indeed any operator in general) to purchase licences "in order to maintain [its] previous market share" ⁸⁴ had consequently become obsolete.
48. Ecuador noted that Article XVII of GATS provided for national treatment for services and service suppliers whereas Article II of GATS required Members to accord the services and service suppliers of any other Member most-favoured-nation treatment. The AB upheld the original panel's conclusion that "treatment no less favourable" in Article II:1 of GATS should be interpreted to include de facto, as well as de iure, discrimination. Ecuador recalled that under the old EC banana import system, import licences for in-quota imports of third-country and non-traditional ACP bananas were allocated by "operator categories" and "activity functions". Operator categories A and B were subdivided into three types of activities. Performing one of these activities during a three-year reference period entitled the operator concerned to a portion of the future import licences that were linked to the imported quantities (see Annex III for details). In addition, Ecuador noted, the European Communities allowed operators who included or represented European Communities and traditional ACP producers to import third-country bananas and non-traditional ACP bananas to compensate for damage suffered from tropical storms (under so-called hurricane licences).
49. Ecuador recalled that the original panel had made a number of findings concerning the old regime which in Ecuador's opinion provided the factual and legal context for assessing whether the revised EC regime for allocating in-quota import licences complied with the EC's WTO obligations. ⁸⁵ Referring to various paragraphs in the original panel's findings, Ecuador noted that ⁸⁶ the original panel had found, with regard to the old regime's operator categories, activity functions, and hurricane licences, that:

(a) the allocation to Category B operators of 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 XVII and II of GATS; ⁸⁷

(b) the allocation to ripeners 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; ⁸⁸ and that

(c) the allocation of hurricane licences exclusively to operators who included or directly represented European Communities or ACP producers created less favourable conditions of competition for like service suppliers of complainants' origin and was therefore inconsistent with the requirements of Articles XVII and II of GATS. ⁸⁹

Ecuador noted that the above findings were upheld by the AB. ⁹⁰

50. The European Communities submitted that already during the period 1994 to 1996, the factual situation of the banana imports into the European Communities could no longer support the findings of a de facto discrimination that the original panel made on the basis of earlier statistical data. Indeed, in that period already, third-country wholesale trade suppliers had gained a substantial share of the trade that was previously in the hands of mainly EC/ACP wholesale trade service suppliers. This was the case, for example, of the Category B operators that were no longer attributed, as the panel determined on the basis of 1992 data, almost exclusively to European Communities/ACP. The European Communities noted that two of the Category B operators referred to in the panel report ⁹¹ (Compagnie Fruitière and CDB/Durand) were both non-EC owned and Coplaca was no longer registered as an operator following the changes to the regime to base licence allocation on proof of imports. According to the European Communities, third-country operators already had some involvement in ACP imports prior to the regime and their reference quantities more than doubled from 1993 to 1996 (from 132,614 tonnes to 274,822 tonnes). In addition to the increase in their licence share through acquisition of, or partnerships with, formerly traditional EC/ACP operators, third-country operators also increased their licence allocations through transfer of licences from other companies and the purchase of licences. The European Communities considered that it would have been almost impossible for a panel which had these more accurate and more recent figures at its disposal to reach the conclusion of the original panel. ⁹² This was particularly true for the Ecuador-owned Noboa Group that continuously gained market access opportunities in the importation of third-country bananas into the European Communities.
51. As concerns the activity function rules, more accurate and more recent data pointed exactly in the same direction as those mentioned above. According to 1994 to 1996 statistics, three out of four of the biggest ripeners were non-EC owned and these three alone represented around 20 per cent of the total ripening capacity of the European Communities. The European Communities submitted that if the original panel had disposed of such data it could not have arrived at the conclusion that "� the allocation of such licences according to activity functions modifies conditions of competition in favour of service suppliers of EC origin given that the vast majority of ripeners who are actually supplying, or capable of supplying, wholesale services are of EC origin".⁹³
52. The European Communities noted that, irrespective of the share of the market that wholesale trade suppliers of third-country, EC or ACP origin could have had in the past, only operators that had effectively imported bananas during the period 1994 to 1996, could be considered traditional importers under the new regime. There were no longer transfers of quota rent between operators, unless the operators themselves judged that economic or trade considerations justified a transfer of licences. Nor was it possible any longer to claim licence ownership on the basis of a name on a licence: it was now necessary to show, through proof of duty payment that the holder of the licence was also the legal holder of the bananas. The moment of customs clearance was the point in time that determined whether an export of bananas became an import. Only imports were relevant for the import licences and were covered by the import licensing procedures as defined in the Licensing Agreement. Finally, the European Communities submitted, it was no longer possible to claim non-existent "grandfather" rights in the trade either of ACP or of Latin American bananas, since the new EC licensing regime made no distinction between the origin of bananas that the operators wished to import, except for the sake of administering the country-specific tariff quota shares reserved for the four WTO Members having a substantial interest in supplying bananas to the European Communities. According to more recent statistics based on the applications by traditional importers filed according to the new EC licensing regime, the distribution of licences between third-country, ACP and EC wholesale service suppliers was now the following: 68 per cent: third-country wholesale service suppliers; 24 per cent: EC/ACP wholesale service suppliers; 8 per cent: newcomers who could be either from third-country or EC/ACP wholesale service suppliers.

(ii) Central Product Classification

53. The European Communities submitted that the DSB had recommended that it bring its regime for bananas into conformity with its obligations under the GATS on a number of points referred to in the original panel report ⁹⁴ and upheld by the AB. The DSB recommendations and rulings in this case were limited to the compatibility with the EC obligations under the EC Market Access Specific Commitments set out in the EC-12 GATS Schedule "Distribution services, B. Wholesale Trade Services (CPC 622)". The original panel had indicated in particular ⁹⁵ that the specific item 62221 CPC relating to "wholesale trade services of fruit and vegetables" was the appropriate CPC line describing the services in the EC's Schedule concerned with the case under dispute. The EC-15 Schedule (not bound yet for formal reasons) did not change the legal situation with respect to that specific commitment. In accordance with Article 21.5 of the DSU and its related terms of reference, this panel had thus the task of verifying the compliance with the above-mentioned recommendations and rulings of measures taken by the European Communities.
54. Referring to the findings in the panel and AB reports concerning in particular the CPC, integrated companies and the conformity of the previous banana import regime , ⁹⁶ the European Communities submitted that after the adoption by the DSB of the original recommendations and rulings, the Provisional Central Product Classification elaborated by the Statistical Office of the United Nations had been replaced by the Central Product Classification (CPC) - Version 1.0. ⁹⁷ According to the "Correspondence Tables between the CPC Version 1.0 and Provisional CPC , ⁹⁸ item 62221 "Wholesale trade services of fruit and vegetables" matched the CPC Version 1.0 to 61121 "Wholesale trade services, except on a fee or contract basis, of fruit of vegetables" (emphasis added). The new Head note to the CPC Version 1.0 stated that "This group includes - the services of wholesalers that purchase goods usually in large quantities and sell them to other businesses, sometimes after breaking bulk and re-packing the product into smaller packages". The conformity of the new EC banana import regime with the WTO agreements, including the original recommendations and rulings of the DSB, the European Communities argued, should therefore be assessed on the basis of this new reality. The European Communities added, however, that its Uruguay Round commitments were still valid.
55. According to Part One, Chapter II, Section B, of the CPC, ⁹⁹ "CPC, covering all goods and services (�), is a system of categories that are both exhaustive and mutually exclusive." Moreover, "the classification of products other than transportable goods, mainly services, shall be determined according to the terms and categories as described in the divisions, groups, classes or subclasses in sections 5 to 9 of the CPC. ¹⁰⁰ In practical terms, the European Communities continued, with respect to the activities related to the importation, sale and distribution of bananas into the Community, a number of categories of services were involved (a) to h)). However, it was apparent from the description in the CPC and from the original panel and AB reports that the issue at stake in this Article 21.5 procedure concerned only item f), i.e. 61121 wholesale trade services of fruits and vegetables. The AB made clear that the definition of operator in Regulation 404 concerned only the provision of services under the "wholesale trade services, CPC 622" category and nothing else. Referring to paragraphs 7.294 and 7.296 of the original panel's report, the European Communities further argued that the new EC banana import regime should be considered only with respect to the EC's obligations under Articles II and XVII of GATS concerning the supply of services under mode (3).
56. Referring to several findings by the panel ¹⁰¹ and AB which had deemed various EC measures inconsistent with Articles II and XVII of GATS, the European Communities submitted that in order to live up to its WTO obligations as contained in its Schedules of GATS commitments, it had adopted an entirely new banana import regime as set out in Regulations 1637 and 2362. With respect to its GATS obligations, Articles 16 to 20 of Title IV of Regulation 404 had been withdrawn and replaced by Article 1 of Regulation 1637. ¹⁰² Moreover, the hurricane licences had been abolished and replaced by a system under Article 18.8 of Regulation 404 which explicitly was based on the principle of non-discrimination "between supply origins".
57. Further, the European Communities explained, Regulation 2362 made the tariff quotas and the traditional ACP bananas quantities available to two categories of operators, i.e. traditional importers and newcomers and based licence allocations on "actual imports". (For definitions and other details of Regulation 2362 see "Factual Aspects" above). The European Communities considered that by repealing the old banana import system and introducing new rules, it had complied with all of the seven points found inconsistent with the GATS by the original panel and AB. The new EC rules under Regulations 1637 and 2362 provided market access opportunities with no restraint to operators involved in wholesale trade services which were established in the European Communities (mode 3) within the CPC version 1.0 definition under item 61121. Any wholesaler commercially present in the European Communities, directly or through its subsidiary or other form of commercial presence, could be registered as traditional importer or newcomer, depending on the compliance with the definitions in the EC's regulations (Article 12 of Regulation 2362). The European Communities further explained that, in case the service was not supplied directly by a juridical person but through other forms of commercial presence, this did not imply that the benefit of these market access opportunities was extended to any other parts of the supplier which were located outside the territory where the service was supplied (Article XXVIII (g), footnote 12 of GATS).
58. Responding to the EC's arguments concerning the CPC above, Ecuador submitted that even if it were agreed that Members who identified their GATS commitments by reference to the Provisional CPC would now be defined by reference to the CPC Version 1.0, an identification of commitments according to item numbers in the CPC Version 1.0 would have to be done by using the concordance between the provisional and revised CPC ¹⁰³ so that, although the item numbers used to define a commitment might change from those of the Provisional CPC, the scope of the commitment would not. In Ecuador's opinion, the "revised" classification scheme pertaining to the wholesale services at issue was a distinction without a difference. In no way did it warrant the conclusion put forward by the European Communities in paragraph 4.57 encima that "[t]he new EC rules � provide market access opportunities with no restraint to operators involved in wholesale trade services which are established in the European Communities (mode 3) within the CPC Version. 1.0 definition under item 61121" (emphasis added).
59. Ecuador submitted that the provisional CPC and the CPC Version 1.0, items 62221 and 61121, respectively, were identical but for the phrase in CPC Version 1.0 "except on a fee or contract basis, of fruit and vegetables" which, in the opinion of Ecuador, only clarified the existing scope of the category since commission agent activities were in a separate item (621) in the Provisional CPC as well. In both classifications, the items fell within section 6, covering distributive trade services, the Head note to the section in the Provisional CPC of which was quoted by the panel. ¹⁰⁴ Within section 6 of the Provisional CPC was group 622, "Wholesale trade services". Version 1.0 had no Head note to the section, but rather an explanatory note to group 611, which the European Communities quoted in its submission. ¹⁰⁵ If the EC's point was to suggest that the scope of group 611 in the CPC Version 1.0 was narrower than the scope of item 622 of the Provisional CPC, Ecuador submitted it was incorrect. To the extent the Head note to CPC section 6 said anything different about wholesaling than was said in the explanatory note to group 611 of Version 1.0, it was that wholesalers might perform related, subordinated services in addition to their principal activity of reselling merchandise. That, however, was also true under the CPC Version 1.0. As the AB had observed, "[i]t is difficult to conceive how a wholesaler could engage in the 'principal service' of 'reselling' a product if it could not also purchase or, in some cases, import the product." ¹⁰⁶
60. As concerns the "both exhaustive and mutually exclusive" phrase in CPC Version 1.0, Ecuador was of the view that the categories of the Provisional CPC were equally exhaustive and mutually exclusive, ¹⁰⁷ and services related to the importation, sale and distribution of bananas into the Community was virtually identical to its arguments before the original panel that the complainant countries' services providers were engaged in every service but the ones covered by EC's GATS commitments. ¹⁰⁸ In its report, the original panel addressed at length the nature and scope of the EC's GATS commitments and whether Ecuadorian and other third-country service suppliers engaged in importing and distribution of bananas in the European Communities were covered by those commitments. ¹⁰⁹ In this proceeding, the European Communities appeared to argue that wholesaling began after customs clearance and ended before ripening. ¹¹⁰ Ecuador was of the view that the European Communities was trying to separate its licensing system from services covered by its GATS commitments, in order to exclude from its GATS commitments the wholesale distribution services provided by Ecuadorian and other third-country banana marketers who, through a commercial presence in the Community, imported bananas and sold them on the EC market. The original panel and the AB had already decided that the European Communities had GATS obligations to those services suppliers, and there was nothing in the appearance of CPC Version 1.0 that could justify a different result.

To continue with Issues of "Actual Importer" and of de facto discrimination

⁸⁴ Paragraph 7.339 of panel report.

⁸⁵ See in particular the panel report at paragraphs 7.286, 7.293, 7.297, 7.330 and 7.331.

⁸⁶ Panel report at paragraphs 7.334,7.335, 7.362, 7.350, 7.363 and 7.392.

⁸⁷ Panel report at paragraphs 7.314 and 7.353.

⁸⁸ Panel report at paragraph 7.368.

⁸⁹ Panel report at paragraphs 7.393 and 7.397.

⁹⁰ AB report at paragraphs 220, 225, 239, 244, 246, 248.

⁹¹ Footnote 502 (Secretariat remark).

⁹² Paragraph 7.336 in fine.

⁹³ Idem.

⁹⁴ Panel report at paragraphs 7.293, 7.297, 7.304, 7.306, 7.341, 7.353, 7.368, 7380, 7385, 7.393, 7.397.

⁹⁵ Paragraph 7.292.

⁹⁶ Panel report paragraphs 7.292 and 7.293; AB: paragraphs 225-227.

⁹⁷ United Nations document, Statistical Papers, Series M, No. 77, Ver. 1.0, 1998 (see UN Website www.un.org).

⁹⁸ Idem, page 351.

⁹⁹ Paragraph 15, page 7.

¹⁰⁰ Part One, Chapter V, Section A, paragraph 56, page 19.

¹⁰¹ Panel report at paragraphs 7.314, 7.320, 7.324, 7.326, 7.334-7.337, 7.339, 7.347, 7.349, 7.360- 7.362, 7.364-7.367, 7.392 and 7.396. AB report at 231 and 234.

¹⁰² In this document, the reference to provisions of Regulation 404 without any other precision should be understood as referring to the text as amended by Regulation 1637.

¹⁰³ CPC Version 1.0 at pages 339-608.

¹⁰⁴ Panel report at paragraph 7.290. "Distributive trade services consisting in selling merchandise to retailers, to industrial, commercial, institutional or other professional business users, or to other wholesalers, or acting as agent or broker (wholesaling services) or selling merchandise for personal or household consumption including services incidental to the sale of the goods (retailing services). The principal services rendered by wholesalers and retailers may be characterized as reselling merchandise, accompanied by a variety of related, subordinated services, such as: maintaining inventories of goods, physically assembling, sorting and grading goods in large lots; breaking bulk and redistribution in smaller lots; delivery services; refrigeration services; sales promotion services rendered by wholesalers" (emphasis added; underlining original).

¹⁰⁵ CPC Version 1.0 at page 187.

¹⁰⁶ AB report at paragraph 226.

¹⁰⁷ Compare Provisional CPC at paragraph 21 at page 7 with CPC Version 1.0 at page 7, paragraph 15.

¹⁰⁸ See panel report at paragraphs 4.661, 4.662, 4.663, 7.291; AB report at paragraph 225, 226.

¹⁰⁹ See generally panel report at paragraphs 4.651-4.675, 7.287-7.296.

¹¹⁰ See First EC Submission at paragraph 47 (list of services activities).