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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)


    VI. Findings

  1. This case arises out of a challenge by Ecuador of the WTO-consistency of measures taken by the European Communities to implement the recommendations and rulings of the Dispute Settlement Body ("DSB") in European Communities � Regime for the Importation, Sale and Distribution of Bananas (DS/27/R/ECU & DS/27/AB/R). In particular, Ecuador claims that Regulations 1637/98 and 2362/98 are inconsistent with the EC's obligations under Articles I and XIII of GATT 1994 and Articles II and XVII of GATS. Ecuador also invokes Article 19 of the Dispute Settlement Understanding ("DSU") and requests the Panel to suggest how the European Communities could implement any recommendations that the Panel might make. We first consider certain procedural issues and our terms of reference and then examine Ecuador's claims.
  2. A. Working Procedures and Timetable

  3. On 15 January 1999, we met with the parties to establish our working procedures and a timetable for the panel proceeding. Given the short period of time available to complete a proceeding under Article 21.5 of the DSU, we did not include in the timetable an interim review period. Both parties requested that we reconsider the possibility of having an interim report. We ultimately concluded that the time necessary to draft the report would not allow us to issue an interim report and still meet the 90-day deadline of Article 21.5. Accordingly, we confirm our initial decision not to provide an interim report.
  4. B. Terms of Reference

  5. The European Communities argues that the terms of reference of this Panel are limited by Article 21.5 of the DSU to the "matters" on which the DSB adopted its recommendations or rulings based on the original panel and Appellate Body reports in this case. 172 In the EC's view, this Panel can only verify the consistency of measures taken to comply with those recommendations and not consider other claims raised by Ecuador. 173 In particular, the European Communities notes that it would be disadvantaged if new claims were allowed because the shorter period of time allowed for an Article 21.5 panel process (90 days compared to a normal panel timetable of at least six months) would affect its ability to defend its measures and because it would not be entitled to a new reasonable period of time to implement any new panel recommendations or rulings. It also argues that it would be inappropriate for the Panel to make recommendations on implementation of the sort requested by Ecuador.
  6. In Ecuador's view, the limitation proposed by the European Communities is not found in the text of Article 21.5, which refers to disagreements as to the consistency with covered agreements of measures taken to comply with DSB recommendations and rulings. As to the shorter period of time, Ecuador notes that the European Communities has spent 15 months considering the implementation of the original recommendations and rulings and thus does not need as much time as might be necessary in a first-time challenge to an import regime. It also notes that it has waited a long time for the European Communities to comply with its obligations under the WTO Agreement. As to its request that the Panel make specific recommendations and suggestions, Ecuador argues that it has the right to make such a request under Article 19 of the DSU.
  7. In considering the scope of our terms of reference, we recall that when this case was referred to the Panel by the DSB, it was provided that the Panel would have standard terms of reference. Such terms of reference are defined in Article 7.1 of the DSU and, as adapted to this case, are as follows:
  8. "To examine, in the light of the relevant provisions of the covered agreements cited by Ecuador in document WT/DS27/41, the matter referred to the DSB by Ecuador in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements".174

  9. As recently explained by the Appellate Body:
  10. "'[T]he matter referred to the DSB for purposes of Article 7 of the DSU � must be the 'matter' identified in the request for establishment of a panel under Article 6.2 of the DSU. That provision requires the complaining Member, in a panel request, to 'identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly'. The 'matter referred to the DSB', therefore, consists of two elements: the specific measures at issue and the legal basis of the complaint (or the claims)." 175

  11. Thus, pursuant to our terms of reference, we are to consider the matter referred to the DSB by Ecuador and that matter consists of the measures and claims specified by Ecuador in WT/DS27/41. The limitation suggested by the European Communities cannot be found in our terms of reference.
  12. That limitation also cannot be found in the ordinary meaning of the terms of Article 21.5 of the DSU. The text of Article 21.5 provides (emphasis added):
  13. "Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel."

    Article 21.5 refers to the "consistency with a covered agreement of measures taken to comply with the recommendations and rulings". Here it is clear that the two measures specified by Ecuador (Regulations 1637/98 and 2362/98) were "taken [by the European Communities] to comply" with the DSB's recommendations, as they modify aspects of the EC's banana import regime found by the original panel and Appellate Body reports to be inconsistent with the EC's WTO obligations. There is no suggestion in the text of Article 21.5 that only certain issues of consistency of measures may be considered. Nor is there a suggestion that the term "measures" has a special meaning in Article 21.5 that would imply that only certain aspects of a measure can be considered.

  14. This interpretation of Article 21.5 of the DSU is supported by its context and the object and purpose of the DSU. For example, Article 21.1 of the DSU states that "[p]rompt compliance with the recommendations and rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all Members". Article 3, which sets out the general provisions of the DSU, provides in its paragraph 3:
  15. "The prompt settlement of situation in which a Member considers that any benefits accruing to it directly or indirectly under the covered agreements are being impaired by measures taken by another Member is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members."

    Acceptance of the EC argument would mean in many cases that two procedures would be necessary. One expedited panel procedure to ascertain if the offending measures have been removed, and a second normal panel procedure to consider the overall consistency with WTO obligations of the new measure. Such a process would not promote and would not be consistent with the prompt settlement of disputes. 176

  16. As to the EC's argument that it is unfair to expect it to defend itself in respect of new issues in an expedited panel process, we note that the issues raised by Ecuador in this proceeding are quite similar to those raised in Bananas III. As to the EC's argument that it will be deprived of a reasonable period of time in which to implement any new recommendations and rulings of the DSB, that would not justify limiting the scope of an Article 21.5 proceeding. In any event, in our view, these arguments to restrict the scope of Article 21.5 on the grounds of alleged unfairness are not based on the text of Article 21.5 and do not offset the arguments outlined above concerning the need to resolve promptly implementation issues in one panel proceeding.
  17. As to the question of whether we have the authority to make suggestions in respect of implementation, it is clear from Article 19.1 of the DSU that panels do have such authority. There is nothing in Article 19.1 that suggests that it does not apply to panels established pursuant to Article 21.5. Indeed, the need for prompt resolution of disputes would support more frequent use of that authority in Article 21.5 cases than in others. However, whether we should make suggestions in this case is an issue for later consideration.
  18. Accordingly, we find that our terms of reference cover all of the claims raised by Ecuador in this proceeding and that we are authorized by Article 19.1 of the DSU to make suggestions on implementation should we consider it appropriate to do so.
  19. C. Article XIII of GATT 1994

  20. We first address Ecuador's claims under Article XIII of GATT 1994 since that Article regulates tariff quotas, the operation of which is the focus of this case. Ecuador claims that Regulations 1637/98 and 2362/98, in the way in which they (i) establish a tariff quota providing duty-free treatment for 857,700 tonnes of traditional banana imports from 12 ACP States and (ii) assign to Ecuador a country-specific share of the EC's MFN tariff quota for bananas, are inconsistent with the EC's obligations under Article XIII of GATT 1994.
  21. In this regard, we note that Regulation 1637/98 confirms the tariff quota of 2,200,000 tonnes bound in the EC Schedule and an additional autonomous tariff quota of 353,000 tonnes. 177 These are at the same levels as in the prior regime. Given that an agreement on the allocation of country-specific allocations could not be achieved with the substantial suppliers, in Regulation 2362/98 the European Communities assigned the following country shares to each of the substantial suppliers pursuant to Article XIII:2(d) (i.e. Colombia, Costa Rica, Ecuador and Panama):
  22. Table 1 � EC tariff quota allocations for third-country and

    non-traditional ACP banana suppliers

    Country

    Share (%) 178

    Volume ('000 tonnes) 179

    Colombia

    23.03 588.0

    Costa Rica

    25.61 653.8

    Ecuador

    26.17 668.1

    Panama

    15.76 402.4

    Other

    9.43 240.7

    Total of the above

    100.00 2,553.0

  23. The Annex to Regulation 1637/98 provides for an aggregate quantity of 857,700 tonnes for traditional imports from ACP States. Under the revised EC regime, there are no longer any country-specific allocations to the 12 traditional ACP States (i.e. Belize, Cameroon, Cape Verde, Côte d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia, St. Lucia, St. Vincent & the Grenadines, and Suriname). 180
  24. The relevant provisions of Article XIII are the following:
  25. "Non-discriminatory Administration of Quantitative Restrictions

    1. No prohibition or restriction shall be applied by any Member on the importation of any product of the territory of any other Member or on the exportation of any product destined for the territory of any other Member, unless the importation of the like product of all third countries or the exportation of the like product to all third countries is similarly prohibited or restricted.

    2. In applying import restrictions to any product, Members shall aim at a distribution of trade in such product approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of such restrictions and to this end shall observe the following provisions:

    (d) In cases in which a quota is allocated among supplying countries the Member applying the restrictions may seek agreement with respect to the allocation of shares in the quota with all other Members having a substantial interest in supplying the product concerned. In cases in which this method is not reasonably practicable, the Member concerned shall allot to Members having a substantial interest in supplying the product shares based upon the proportions, supplied by such Members during a previous representative period, of the total quantity or value of imports of the product, due account being taken of any special factors which may have affected or may be affecting the trade in the product. No conditions or formalities shall be imposed which would prevent any Member from utilizing fully the share of any such total quantity or value which has been allotted to it, subject to importation being made within any prescribed period to which the quota may relate.

    4. With regard to restrictions applied in accordance with paragraph 2 (d) of this Article or under paragraph 2 (c) of Article XI, the selection of a representative period for any product and the appraisal of any special factors affecting the trade in the product shall be made initially by the Member applying the restriction; Provided that such Member shall, upon the request of any other Member having a substantial interest in supplying that product or upon the request of the Contracting Parties, consult promptly with the other Member or the Contracting Parties regarding the need for an adjustment of the proportion determined or of the base period selected, or for the reappraisal of the special factors involved, or for the elimination of conditions, formalities or any other provisions established unilaterally relating to the allocation of an adequate quota or its unrestricted utilization.

    5. The provisions of this Article shall apply to any tariff quota instituted or maintained by any Member, and, in so far as applicable, the principles of this Article shall also extend to export restrictions."

  26. In examining the revised EC banana regime and its consistency with Article XIII, we recall that in Bananas III the Appellate Body overruled the panel's interpretation of the scope of the Lomé waiver and held that the Lomé waiver does not cover inconsistencies with Article XIII. Accordingly, in considering Article XIII issues, we do not consider what is or is not required by the Lomé Convention. We address that issue in connection with Ecuador's claims under Article I of GATT.
  27. 1. The 857,700 tonnes reserved for traditional imports from ACP States

  28. Ecuador alleges that the division of the revised EC import regime for bananas into (i) an MFN tariff quota of 2,553,000 tonnes, in combination with (ii) an amount of 857,700 tonnes reserved for traditional imports from ACP States at a zero-duty level fails to conform to the non-discrimination requirements of Article XIII and amounts to a continued application of "separate regimes" of the sort found to be inconsistent with Article XIII by the original panel and the Appellate Body in Bananas III.
  29. The European Communities responds that a single import regime exists under Regulations 1637/98 and 2362/98. It is the EC's position that for purposes of Article XIII the quantity of 857,700 tonnes for traditional ACP imports is outside the MFN tariff quota of 2,553,000 tonnes and Ecuador should therefore have no interest in it. In the EC's view, the amount of 857,700 tonnes constitutes an upper limit for the zero-tariff preference for traditional ACP imports. It notes that the tariff preference is required by the Lomé Convention and is covered by the Lomé waiver as to any inconsistency with Article I:1 of GATT. In addition, the European Communities relies on the panel report on EEC - Imports of Newsprint 181 in arguing that imports under preferential arrangements should not be counted against an MFN tariff quota. The European Communities also argues that its collective allocation of an amount of 857,700 tonnes for traditional imports from ACP States is effectively required by the Appellate Body report in Bananas III.
  30. (a) The Applicability of Article XIII

  31. Article XIII:5 provides that the provisions of Article XIII apply to "tariff quotas". The European Communities essentially argues that the amount of 857,700 tonnes for traditional imports from ACP States constitutes an upper limit on a tariff preference and is not a tariff quota subject to Article XIII. However, by definition, a tariff quota is a quantitative limit on the availability of a specific tariff rate. Thus, Article XIII applies to the 857,700 tonne limit.
  32. In our view, the Newsprint case does not affect the applicability of Article XIII to the tariff quota for traditional imports from ACP States. In that case, the European Communities had unilaterally reduced a 1.5 million tonnes tariff quota for newsprint to 500,000 tonnes on the grounds that certain past supplying countries under the tariff quota had entered into free-trade agreements with the European Communities and that the tariff quota should be reduced to reflect that fact. The panel held that the European Communities could not unilaterally make such a change. In passing, the Newsprint panel stated: "Imports which are already duty-free, due to a preferential agreement, cannot by their very nature participate in an MFN duty-free quota." 182 The Newsprint panel did not deal with the applicability of Article XIII to a case such as this one. Moreover, our findings do not imply that the European Communities must count from ACP States imports against its MFN tariff quota.
  33. As to the EC's suggestion that Ecuador has no interest in the collective allocation to traditional ACP suppliers, we note that the price and even the volume of Ecuador's exports could be affected by the price and volume of traditional ACP exports. In any event, under Bananas III, it is clear that Ecuador may bring this claim. 183
  34. Accordingly, we find that the 857,700 tonne limit on traditional ACP imports is a tariff quota and therefore Article XIII applies to it.
  35. (b) The Requirements of Article XIII and the 857,700 Tonne Tariff Quota for Traditional ACP Imports

  36. Ecuador raises claims in respect of the 857,700 tonne tariff quota under both paragraphs 1 and 2 of Article XIII. We address these claims in that order. In assessing the 857,700 tonne tariff quota for traditional ACP exports in light of the requirements of Article XIII, we recall the Appellate Body's findings in Bananas III concerning "separate regimes":
  37. "The issue here is not whether the European Communities is correct in stating that two separate regimes exist for bananas, but whether the existence of two, or more, separate EC import regimes is of any relevance for the application of the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements. The essence of the non-discrimination obligations is that like products should be treated equally, irrespective of their origin. As no participant disputes that all bananas are like products, the non-discrimination provisions apply to all imports of bananas, irrespective of whether and how a Member categorises or subdivides these imports for administrative or other reasons. If, by choosing a different legal basis for imposing import restrictions, or by applying different tariff rates, a Member could avoid the application of the non-discrimination provisions to the imports of like products from different Members, the object and purpose of the non-discrimination provisions would be defeated. It would be very easy for a Member to circumvent the non-discrimination provisions of the GATT 1994 and the other Annex 1A agreements, if these provisions apply only within regulatory regimes established by that Member." 184

  38. We also recall the Appellate Body finding that the Lomé waiver does not justify inconsistencies with Article XIII. As stated by the Appellate Body:
  39. "In view of the truly exceptional nature of waivers from the non-discrimination obligations under Article XIII, it is all the more difficult to accept the proposition that a waiver that does not explicitly refer to Article XIII would nevertheless waive the obligations of that Article. If the CONTRACTING PARTIES had intended to waive the obligations of the European Communities under Article XIII in the Lomé Waiver, they would have said so explicitly." 185

    We, therefore, in our examination of the WTO-consistency of the EC's revised regime, have to apply fully the non-discrimination and other requirements of Article XIII to all "like" imported bananas irrespective of their origin, i.e. regardless of whether imports occur under the MFN tariff quota of 2,553,000 tonnes or under the tariff quota of 857,700 tonnes reserved for traditional ACP imports.

To continue with Article XIII:1


172 Colombia and Costa Rica make a similar argument as third parties.

173 According to the European Communities, such claims include Ecuador's arguments concerning its share of the tariff quota (e.g. concerning the "representative period", "special factors" and the effect of the so-called BFA reallocation), its request that the Panel suggest that the European Communities implement a global tariff quota for bananas, and its GATS arguments in respect of "actual" importers and newcomers.

174 WT/DS27/44.

175 Appellate Body report on Guatemala � Anti-dumping Investigation Regarding Portland Cement from Mexico, adopted on 25 November 1998, WT/DS60/AB/R, paragraph 72.

176 Further support for our interpretation of Article 21.5 can be found in Article 9 of the DSU, paragraph 3 of which provides: "If more than one panel is established to examine the complaints related to the same matter, to the greatest extent possible the same persons shall serve on each of the separate panels and the timetable for the panel process in such disputes shall be harmonized." Such harmonization would be impossible if the limitation on the scope of Article 21.5 proposed by the European Communities were to be accepted.

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

178 Annex I to Regulation 2362/98.

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

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

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

182 Ibid., paragraph 55.

183 Panel reports on Bananas III, paragraphs 7.47-7.52; Appellate Body report on Bananas III, paragraphs 132-138.

184 Appellate Body report on Bananas III, paragraph 190.

185 Appellate Body report on Bananas III, paragraph 187.