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World Trade
Organization

WT/DS27/RW/ECU
12 April 1999
(99-1443)
Original: English

European Communities - Regime for the Importation, Sale and Distribution of Bananas

- Recourse to Article 21.5 by Ecuador -

Report of the Panel

(Continued)


    (v) Newcomers

  1. Ecuador noted that the European Communities had awarded eight per cent of all banana import licences to "newcomers" in its amended system 136 and established criteria which companies must fulfil to qualify. 137 Ecuador submitted that certain of the newcomer criteria constituted both de iure and de facto discrimination against Ecuadorian and other third-country service suppliers in general, and against foreign service suppliers engaged in banana importing and wholesaling in particular. The newcomer criteria required a potential newcomer to have imported into the EC fresh fruits and vegetables (or a combination of fresh produce and coffee and tea), with a declared value of 400,000 Euro, in the one to three years preceding registration. This implied that a qualified newcomer was established in the Community, had been able to create the necessary physical and commercial infrastructure, and had been able to secure licences for any designated products requiring import licences. These requirements favoured EC services suppliers, Ecuador argued, since they measured commercial activity only with respect to the EC market. It was not apparent to Ecuador why a non-EC origin services supplier with a newly established commercial presence in the Community should not qualify as a "newcomer" if it documented an equivalent value of imports of fresh produce into Ecuador, or into any one or several other non-EC countries. Ecuador submitted that the failure of Regulation 2362 to permit a foreign origin services supplier established in the European Communities to demonstrate equivalent import experience elsewhere in the world was de iure discrimination in contravention of Article XVII of GATS.
  2. The discrimination arose because of the interaction of the newcomer criteria with the EC's separate discrimination in the allocation of banana import licences, under both the previous and the amended licensing systems, in favour of EC origin service suppliers. Potential newcomers of Ecuadorian or other third-country origin faced extremely high barriers to entering the banana wholesale market in Europe. Such potential newcomers could only gain access by buying, for at least a year, the use of import licences allocated to holders of Category B ripener and hurricane licences in the previous system. Moreover, Ecuador argued, no entitlement to future newcomer status could be gained in 1999 unless the use of licence access was bought, under the amended licensing system, from the same former holders of Category B, ripener, or hurricane licences. The cost of having to buy access to banana import licences was a serious de facto barrier to entering the EC banana market, which exacerbated the de iure discrimination.
  3. The European Communities responded that, in its opinion, the condition for newcomers was non-discriminatory de iure, since there was no distinction in Regulation 2362 between EC and non-EC service suppliers, on the one hand, and between non-EC service suppliers, on the other hand. Further, the condition was non-discriminatory de facto, since the basic assumption made by Ecuador to that effect was wrong. An importer of fruits and vegetables established in the European Communities was not necessarily an EC operator (service supplier) within the definition of Article XXVIII of GATS. Nor could it simply be assumed that there was an imbalance of EC origin operators in the fruits and vegetables sectors compared to non-EC operators to the detriment of the latter. The European Communities recalled that the biggest wholesale trader in fruits and vegetables in the world was Dole, a non-EC service supplier. The European Communities also recalled the rules on the burden of proof as expressed by the AB in the "Blouses and Shirts" report.
  4. (vi) Remedial action

  5. Ecuador argued that a system in conformity with the obligations of Articles I and XIII would include:
    1. a unified tariff-rate quota of 3.41 million tonnes within which all countries would compete, subject to different tariffs but without individual country allocations;
    2. each traditional ACP country would be entitled to duty-free treatment up to a quantity of bananas equal to its pre-1991 best-ever quantity;
    3. non-traditional ACP suppliers would be accorded duty-free treatment up to the first 90,000 tonnes they collectively exported to the European Communities;
    4. other exporters would pay a duty of 75 Euro per tonne, which rate would also apply to imports from ACP countries above their duty-free levels;
    5. for over-quota imports (i.e. above 3.41 million tonnes), ACP bananas would have a 100 Euro per tonne tariff preference over other bananas;
    6. the duty-free levels would not represent entitlements, in that non-ACP bananas could compete for the full 3.41 million tonnes but they would not get the duty-free benefits given to certain levels of ACP imports;
    7. for distribution of licences, newcomer criteria favouring EC service providers should be amended to remove such bias. For other licences, the definition of "actual importer" should be modified to remove the prejudice in favour of European Communities and ACP service providers, assuring that those who took the true commercial risk obtained equal rights to import licences.

  6. Ecuador requested furthermore that the Panel recommend that the above system be implemented immediately. All elements of the system that would be inconsistent with the WTO but for the Lomé waiver (e.g. the tariff preferences) had to be terminated as of 29 February 2000, unless and until the waiver was extended.
  7. Referring to Ecuador's suggestions concerning certain remedial actions to be taken by the European Communities under Article 19.1 (last sentence) of the DSU, the European Communities noted that there had been continuous contacts between the original complainants and the European Communities in order to resolve the divergences about the way in which this dispute could be resolved. The suggestions for remedial action that Ecuador was putting before the Panel had all been discussed during these contacts and had been discarded by the European Communities because they would not allow it to maintain a sufficient margin of preference for traditional and non-traditional imports of bananas from ACP countries. The panel, as the AB in the India patent case, reminded, was not a negotiating body and could only pronounce itself on the consistency or otherwise of the present EC banana import regime with its WTO obligations (de lege lata). The Panel had no authority to design, in lieu and place of the European Communities, its banana import regime (de lege ferenda) nor could it assess the legal and political obligations that the European Communities assumed vis-à-vis the banana-exporting ACP States.
  8. The European Communities submitted that panels and the AB were not well equipped to determine legislative action to be taken by individual WTO Members. The European Communities believed that it had fulfilled its duty under the WTO. In the unlikely event that the Panel disagreed with this position, it might be helpful to receive some indication on what steps could be considered an appropriate remedy for any remaining inconsistency, provided such indications were no more than a clarification of existing WTO obligations rather than a substitute for future tariff negotiations. The European Communities considered the suggestions made by Ecuador to be totally outside the scope of the present dispute, particularly where Ecuador requested the European Communities to establish a single tariff quota of 3.41 million tonnes, while the EC's present tariff binding for bananas was no more than for a tariff quota of 2.2 million tonnes. Any extra tonnage over and above this bound tariff quota could only be agreed upon as the result of future tariff negotiations and not by a panel as the result of a dispute settlement procedure. Recommendations and rulings of the DSB could not add to or diminish the rights and obligations provided in the covered agreements.
  9. D. Conclusion

  10. For the reasons set forth above, Ecuador considered that the European Communities had failed to conform its measures with the rulings of the original panel and the obligations of the GATT 1994 and the GATS. The failure of the European Communities to take appropriate and expeditious action to fulfil its obligations meant that Ecuador, a developing country, continued to be deprived of the competitive opportunities to which Ecuador was entitled as a WTO Member. Finally, Ecuador urged the Panel to be as specific as possible in its recommendation for a remedy, so that this dispute could finally be resolved.
  11. The European Communities requested that the Panel reject all the allegations made by Ecuador both under the GATT and the GATS and find that the European Communities has complied with the original recommendations and rulings of the DSB adopted on 25 September 1997.
  12. V. Arguments by Third Parties

    A. Brazil

  13. Brazil submitted that, as the world's second largest producer of bananas, it had an interest in starting exports of the "cavendish" variety to the European Communities and had drawn the Government's attention to the need for provisions in the EC's new banana regime that would permit access for new entrants.
  14. Brazil argued with respect to the creation of the "others" category within the EC's tariff quota that there was no longer any 90,000 tonne ceiling for duty-free imports of non-traditional ACP bananas. This implied, contrary to paragraph 255(g) of the AB report, that up to 241,000 tonnes of non-traditional ACP bananas could be imported duty-free. There was no guarantee that imports under the "others" category would be made from origins benefitting from duty-free treatment. However, for new entrants restricted to an "others" category in a market dominated by traditional suppliers, a negative tariff differential applicable to the full amount of the quota to which they had access would constitute a very serious obstacle to participation in the market. In practice, it would transform the "others" category into a market reserved for non-traditional ACP bananas.
  15. Brazil did not contest the creation of the "others" category, nor did it wish to address the EC's calculation of the volume of the quota allocated to that category. Brazil questioned the manner in which that category would actually operate, as a result of unlimited duty-free access for non-traditional ACP bananas. If the current EC regime for the allocation of the tariff quota were to be maintained in terms of the "others" category, coupled with an unlimited duty-free access for non-traditional ACP bananas, a Member like Brazil, which had an unquestionable possibility of developing its export potential, would be shut off from the EC's market on a permanent basis. Brazil argued that, while substantial suppliers were shielded by their specific shares of the quota and traditional ACP bananas could be exported duty-free under a separate quota, non-substantial suppliers were the only exporters which had to compete on an unequal footing without any guarantee of access to the EC banana market.
  16. In view of the reading that the AB had given to the term "required", and with reference to the findings and recommendations of the AB on this matter, Brazil submitted that the European Communities should not have provided duty-free access to non-traditional ACP bananas for the full amount of the "others" category of the tariff quota. This preferential treatment went beyond what was deemed to be "required" by the AB, and beyond a narrow interpretation of the Lomé waiver. It defeated one of the main functions of the "others" category, as laid out in paragraph 7.76 of the panel report, which consisted in avoiding the continuation of a distortion that was inherent to the operation of tariff quotas.
  17. B. Cameroon and Cote d'Ivoire

    1. Issues related to the GATT

  18. Cameroon and Côte d'Ivoire submitted that each of the EC's new provisions on preferential treatment afforded to the APC States was in conformity with Article I of GATT and consistent with the recommendations of the panel and the AB.
  19. (i) Traditional ACP bananas

  20. Referring to Ecuador's claim that the European Communities went beyond the requirements of the Lomé Convention by setting a global figure for duty-free imports of traditional ACP bananas at the level of pre-1991 best-ever import volumes, Cameroon and Côte d'Ivoire argued that this was irrelevant for several reasons:
  21. (a) the tariff preference established by the Lomé Convention for all ACP bananas did not have any quantitative limit;

    (b) the only quantitative limit applied to traditional ACP bananas since they enjoyed guaranteed access ("additional preferential treatment" 138); and

    (c) guaranteed duty-free access for traditional ACP bananas did not exceed the pre-1991 best-ever level.

  22. Cameroon and Côte d'Ivoire referred to the AB statement that "Article 168(2)(a)(ii) � applies to all ACP bananas" whether traditional or non-traditional, 139 and to the requirement in Article 168(2)(a)(ii) that, for all ACP bananas, the European Communities 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". In the view of Cameroon and Côte d'Ivoire, for all tariff measures taken pursuant to Article 168(2)(a)(ii), the European Communities, by virtue of the Lomé waiver, was not bound by the provisions of Article I of GATT. According to Article 168(2)(a)(ii), the European Communities could therefore legitimately grant duty-free access for imports of ACP bananas. Consequently, the tariff preference granted to traditional ACP bananas could not be contested under Article I of GATT.
  23. Cameroon and Côte d'Ivoire argued that the AB had stated that Protocol 5 of the Lomé Convention allowed the granting of "additional preferential treatment" as well as "more favourable treatment" in Article 168(2)(a)(ii). In the view of Cameroon and Côte d'Ivoire, "additional preferential treatment" included guaranteed access for the ACP countries. According to Protocol 5, this guaranteed access was confined to the situation that had prevailed previously on their traditional markets. Under the EC's former banana regulations, the European Communities had decided, in order to provide guaranteed access within this quantitative limit, to allocate shares among ACP countries in the amount of their pre-1991 best-ever export volumes. The method, in principle, was not contested by the AB 140 although it was criticized on the grounds that this allocation did not give third countries specific shares. 141 The European Communities was therefore obliged to find another formula to guarantee access to ACP States. The new method adopted was to set an aggregate volume of imports reserved for traditional ACP countries, on the basis of the same uncontested reference quantity.
  24. Cameroon and Côte d'Ivoire submitted further that there was nothing in the WTO rules that made it obligatory to allocate import volumes among suppliers. The AB itself had described the allocation among ACP countries as simply one option for the European Communities. 142 Moreover, the provisions of the Lomé Convention allowed the European Communities to make such a choice. Article 168(2)(a)(ii) provided for more favourable treatment for "products originating in the ACP States". More favourable treatment was therefore not on an individual basis. The same applied to Protocol 5 which stated that "no ACP State" shall be placed in a less favourable situation, and this applied to each ACP State or all ACP States together. In the absence of any GATT obligations and in view of the freedom of choice afforded by the Lomé Convention, and reaffirmed by the AB, the European Communities could legitimately decide to set a global volume for the traditional ACP bananas.
  25. Cameroon and Côte d'Ivoire argued that the pre-1991 best-ever exports of the 12 ACP countries exceeded 900,000 tonnes and this fact had already been submitted to the panel and the AB in the course of their previous proceedings. The relevant official statistics collected by the European Communities showed a figure of 952,939 tonnes. By fixing a level of 857,700 tonnes, the European Communities had not exceeded the limits of the requirements under Protocol 5 to the Lomé Convention and traditional ACP bananas did not therefore benefit from any preference that they should not receive.
  26. Cameroon and Côte d'Ivoire claimed that Ecuador's argument that a global figure would encourage full utilization of the traditional ACP volume was irrelevant since full utilization of import quotas, where established in conformity with WTO rules, was a general requirement in the WTO rules and could be found, inter alia, in Article XIII:2(d) of GATT or Article 3.5(h) of the Agreement on Import Licensing Procedures (ILA).
  27. (ii) Non-traditional ACP bananas

  28. Cameroon and Côte d'Ivoire submitted that with regard to the measures that might be taken by the European Communities to apply Article 168(2)(a)(ii) of the Lomé Convention, the AB had stated as a principle that this provision of the Lomé Convention made it obligatory to grant "more favourable treatment" for all ACP bananas and consequently for all non-traditional ACP bananas. 143 This provision did not indicate what kind of measure was necessary. The European Communities was therefore free to choose what necessary measures on "more favourable treatment" should be established.
  29. Cameroon and Côte d'Ivoire argued that under the previous EC banana regime, non-traditional ACP bananas were guaranteed, first, access within the tariff quota of 2.2 million tonnes up to a limit of 90,000 tonnes, with a tariff preference of 75 Euro per tonne, and second, a tariff preference of 100 Euro per tonne for imports outside the tariff quota. The first measure was deemed necessary and required by the Lomé Convention and could not therefore be contested under Article I of GATT. The change in the new EC regulations, i.e. the elimination of reserved access for 90,000 tonnes of non-traditional ACP bananas was to the detriment of the ACP countries. Consequently, the new measure taken by the European Communities could only be found to be legitimate since it was less favourable than the previous one.
  30. In the view of Cameroon and Côte d'Ivoire, the EC measure to increase the tariff preference to 200 Euro per tonne for imports outside the tariff quota should be endorsed because the panel and the AB had already found that the European Communities was free to fix the kind and level of preference to be afforded. It was "required" and "necessary" even more today since, first, the ACP countries had lost the guaranteed access for 90,000 tonnes of non-traditional bananas and had lost the marketing guarantee afforded by the former licensing system. Second, third countries had been given a separate tariff quota of 353,000 tonnes, and, third, under Article 168 of the Lomé Convention it was necessary to ensure that the conditions of competition for non-traditional ACP bananas were satisfactory.
  31. (a) Article XIII issues

  32. Cameroon and Côte d'Ivoire submitted that the volume fixed for traditional ACP bananas should not be considered a quantitative restriction as such since its purpose was mainly to administer the tariff preference granted for traditional ACP bananas. As this was more of a tariff measure, it should not be examined in the light of Article XIII because this Article only dealt with the application of quantitative restrictions. If the Panel were to consider that the measure in question should be examined in the light of Article XIII of GATT, Cameroon and Côte d'Ivoire submitted that the European Communities had complied with the provisions of that Article as well as the conclusions and recommendations of the AB with regard to Article XIII.
  33. Cameroon and Côte d'Ivoire submitted that the only reproach made by the AB with regard to Article XIII was that "[a Member may not allocate] tariff quota shares, whether by agreement or assignment, to some, but not to others, Members not having a substantial interest �". 144 In the view of Cameroon and Côte d'Ivoire, the new EC regime complied with these requirements since it did not allocate individual shares to each of the 12 traditional ACP States.
  34. Referring to the AB statement that "� the non-discrimination provision applies to all imports of bananas, irrespective of whether and how a Member categorizes or sub-divides these imports for administrative or other reasons", 145 Cameroon and Côte d'Ivoire submitted that this conclusion demonstrated that the European Communities was free to fix one quantitative restriction for certain volumes of imports (the tariff quotas for third-country bananas) and another for other import volumes (the traditional ACP volume). In the view of Cameroon and Côte d'Ivoire, the only condition imposed by Article XIII on the imposition of several quantitative restrictions for a like product according to its origin was that the restrictions imposed should be similar.
  35. Cameroon and Côte d'Ivoire submitted that the volume of 857,700 tonnes of traditional ACP bananas corresponded to the distribution of trade which these countries could expect in terms of the requirements of the chapeau to Article XIII:2. This could only be defined in relation to the favourable treatment they received under the Lomé Convention. For traditional ACP bananas, Protocol 5 to the Lomé Convention obliged the European Communities to grant "additional preferential treatment" (according to the expression used by the AB), which consisted of guaranteed access. As defined in relation to the pre-1991 best-ever export figure. Consequently, the share of trade which the ACP States could expect corresponded to this guaranteed access. Moreover, the share of trade attributed to the ACP States by the European Communities for their traditional exports was far from exceeding the volume they had a right to expect, given pre-1991 best-ever exports of 952,939 tonnes. The global figure of 857,700 tonnes for the traditional ACP volume was therefore consistent with the requirements of Article XIII:2 of GATT.
  36. Cameroon and Côte d'Ivoire argued further that since the European Communities had the option and indeed was obliged to set a global import volume for traditional ACP suppliers, and since traditional ACP volumes corresponded to the level of trade, these countries had a right to expect, and since the European Communities could maintain this volume separately from tariff quotas in order to fulfil its commitments under the Lomé Convention, nothing in the GATT could prohibit the ACP countries from fully utilizing the volume that had been allocated to them.
  37. Referring to Ecuador's claim that its specific share was lower than what it could expect in view of its world market share, Cameroon and Côte d'Ivoire submitted that these figures were of no relevance in determining the share of trade which Ecuador might expect in the European Communities since Article XIII limited the elements to be taken into account to the volume of imports of countries which applied quantitative restrictions. The tariff quota share allocated to Ecuador was fixed in Regulation 2362. To adjust this share, Ecuador would have to follow the normal procedures in Article XIII:4, i.e. it would have to request consultations with the European Communities or consult with Members before any readjustment could be initiated.
  38. As concerns the representative period selected by the European Communities this was the most appropriate having regard to the GATT rules and Ecuador's interests. In the view of Cameroon and Côte d'Ivoire, the EC's bound tariff quota of 2.2 million tonnes for third-countries had to be taken into account when applying the rule of the previous representative period because it constituted a "special factor" within the meaning of Article XIII.2(d). Neither the panel nor the AB had questioned the quota of 2.2 million tonnes. As restrictions on imports of bananas into the European Communities had existed for a long time, it was not unreasonable for the European Communities to conclude that the most appropriate base period for allocating shares to countries having a substantial interest would be the most recent period.

To continue with Issues related to the GATS


136 Article 21 of Regulation 2362.

137 Idem, Article 7. (Secretariat remark: for details see Factual Aspects above.)

138 Paragraph 170 of the AB report.

139 Paragraphs 172 and 173 of the AB report.

140 Paragraph 174 of AB report.

141 Paragraph 162 of the AB report.

142 Paragraph 174 of the AB report.

143 Paragraph 173 of the AB report.

144 Paragraph 162 of the AB report.

145 Paragraph 190 of the AB report.