E. GATS Issues

81. Ecuador claims that Regulations 1637/98 and 2362/98 are inconsistent with the EC's obligations under Articles II and XVII of GATS. More specifically, Ecuador alleges that (i) the criteria for qualifying as "traditional operator" based on the payment of customs duties, (ii) the choice of the period from 1994 to 1996 for the calculation of reference quantities for the allocation of licences, and (iii) the so-called "single pot" approach for issuing licences under 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. Furthermore, Ecuador alleges that the (i) enlargement of the licence quantity reserved for "newcomers" to 8 per cent and (ii) the criteria for acquiring "newcomer" status under the revised licensing procedures violate Article XVII of GATS.

1. The Scope of the EC's Commitments on "Wholesale Trade Services"

82. The European Communities raises one preliminary issue in respect of Ecuador's GATS claims. It contends that the revision of the UN Central Product Classification system affects the interpretation of the scope of its market access and national treatment commitments on "wholesale trade services" which the European Communities has bound in its GATS Schedule.
83. The European Communities submits that the Provisional CPC has been replaced in the meantime by the Central Product Classification (CPC) - Version 1.0 ("Revised CPC"), and that the Revised CPC seeks to create a system of service categories that are both exhaustive and mutually exclusive. Therefore, in the EC's view, any services related to wholesale trade transactions which at the same time fall into another CPC category should be assessed on the basis of this new reality, i.e. should not be considered to be covered by the EC's commitments on "wholesale trade services". ²⁰¹ The EC adds that the specific commitments bound in its GATS Schedule are still valid.
84. Ecuador contends that the scope of the EC's specific commitments under the GATS, which were bound in the EC GATS Schedule, cannot be affected by the subsequent modification of the Central Product Classification by the UN. Consequently, it is still the Provisional CPC that matters for purposes of interpreting the scope of the EC's commitments on "wholesale trade services".
85. We note that the specific commitments bound by the European Communities in its GATS Schedule with respect to the service sectors ²⁰² or sub-sectors at issue in the original case were categorized according to the Services Sectoral Classification List which refers to the more detailed Provisional CPC.
86. We also recall that in Bananas III, the parties disagreed as to whether the panel's terms of reference comprised the narrower sub-sector of "wholesale trade services", or encompassed the broader sector of "distributive trade services" as described in a headnote to section 6 of the provisional CPC. The panel and Appellate Body findings in Bananas III were limited to service supply in the sub-sector of "wholesale trade services". The relevant definition of the Provisional CPC for "wholesale trade services" reads:

"Specialized wholesale services of fresh, dried, frozen or canned fruits and vegetables (Goods classified in CPC 012, 013, 213, 215)"

The description for "distributive trade services", in turn, provides:

"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 �"

87. We recall that with respect to both wholesale and distributive trade services, the European Communities had bound specific commitments on liberalization of market access and national treatment without specific conditions or limitations, and without scheduling any MFN exemptions. The original panel limited its findings to the narrower sub-sector of "wholesale trade services".
88. It is not entirely clear to us in which way, in the EC's view, the new categorization of service sectors according to the Revised CPC should affect the classification of service sectors on the basis of which the European Communities bound its specific commitments on market access and national treatment in its GATS Schedule. Therefore, it is not clear how the principle of the mutually exclusive categorization of service sectors could affect the reach of the EC's "wholesale trade services" commitments to those service transactions that do not fall into any other category of the Revised CPC. In any event, we do not see how the revision of the CPC could retroactively change the specific commitments listed and bound in the EC GATS Schedule on the basis of the Provisional CPC. Indeed, at the hearing, the EC stated that such a change in the EC's specific commitments bound in its GATS Schedule could only be made consistently with the requirements of Article XXI of GATS on the "Modification of Schedules".
89. In our view, what matters for purposes of interpreting the scope of the EC's commitments on "wholesale trade services" is that, according to the Provisional CPC descriptions quoted above, the principal services rendered by wholesalers relate to 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 to smaller lots; delivery services; refrigeration services; sales promotion services.
90. In light of these considerations, we find that it is this range of principal and subordinated "wholesale trade services" with respect to which the European Communities has committed itself to accord no less favourable treatment in the meaning of Articles II and XVII of GATS to services and service suppliers of other Members.

2. Licence Allocation Procedures

91. Ecuador claims that the revised EC licensing regime is inconsistent with Articles II and XVII of GATS because it perpetuates or carries on the discriminatory elements of the previous licensing system in that licences are allocated to those who used licences 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 licences to import Ecuadorian and other non-ACP bananas on the basis of reference quantities derived from their ACP banana imports, exacerbates the discriminatory elements of the past regime. ²⁰³
92. 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 licence allocation system and ensures that "true and real" importers in the past obtain licence entitlements for the future.

(a) Articles II and XVII of GATS

93. Before addressing Ecuador's claims, we recall the relevant GATS provisions. The most-favoured-nation clause of GATS is Article II:1, which provides:

"With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country." ²⁰⁴

Article XVII of GATS, its national treatment clause, provides:

"1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.

2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member" (emphasis added, footnote omitted).

94. The adjudication of claims under the 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.
95. 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 and need not be addressed by this reconvened Panel. 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 claims 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 �". ²⁰⁵ 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 Ecuador.

(b) The Findings in Bananas III on Articles II and XVII of GATS

96. 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 to the claims before this Panel, 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." ²⁰⁶

"� 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." ²⁰⁷

"� 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." ²⁰⁸

These findings were upheld by the Appellate Body.

(c) The Revised EC Licensing Regime

97. 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."

98. Article 5 of Regulation 2362/98 provides:

"3. Actual import shall be attested by both of the following:

(a) 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

(b) 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).

99. 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.

(d) The Requirements of Articles XVII and II of GATS

100. In analyzing the EC's revised licensing regime under Article XVII of GATS, we recall that we noted in our decision in Bananas III that:

"In order to establish a reach of the national treatment obligation of Article XVII, three elements need to be demonstrated: (i) the EC has undertaken a commitment in a relevant sector and mode of supply; (ii) the EC has adopted or applied a measure affecting the supply of services in that sector and/or mode of supply; and (iii) the measure accords to service suppliers of any other Member treatment less favourable than that it accords to the EC's own like service suppliers." ²⁰⁹

As to the first two issues, we found that they had been demonstrated in Bananas III and they are not at issue here.

101. In respect of the third issue, we noted that there were four preliminary issues to be considered. Those were "(i) the definition of commercial presence and service suppliers; (ii) whether operators in the meaning of the EC banana regulations are service suppliers under GATS, (iii) the definition of services covered by EC commitments; and (iv) to what extent services and service suppliers of different origin are like". ²¹⁰ These are not at issue in the present case, except for point (iii), which we have dealt with above.
102. For an analysis of the EC revised licensing regime under Article II of GATS we also recall our decision in Bananas III, where we stated:

"In addressing the claim under Article II, we note that two elements need to be demonstrated in order to establish a violation of the GATS MFN clause: (i) the EC has adopted or applied a measure covered by GATS; (ii) the EC's measure accords to service or service suppliers of Complainants' origin treatment less favourable than that it accords to the like services or service suppliers of any other country." ²¹¹

103. As to the first element, we have already determined in the original dispute that the EC import licensing procedures for bananas are measures affecting trade in services. ²¹² We also recall our discussion on the absence of MFN exemptions in the EC list of Article II exemptions which would be relevant to the claims before us. ²¹³
104. We now have to ascertain, for purposes of Article XVII, whether, by applying its revised licensing regime, the European Communities accords less favourable treatment to Ecuadorian services and service suppliers than it accords to its 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 Ecuadorian services and service suppliers than to services and service suppliers of other Members. In this context, we recall our consideration above (see paragraph 6.95) 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 Ecuador. 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.
105. In framing this issue for consideration, we do not imply that the European Communities 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.
106. At the outset of our analysis, we note that Ecuador does not claim 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.

To continue with The Parties' Arguments

²⁰¹ The European Communities notes that, according to the "Correspondence Tables between the CPC Version 1.0 and Provisional CPC", item 62221 "Wholesale trade services of fruit and vegetables" corresponds in the CPC Version 1.0 to 61121 "Wholesale trade services, except on a fee and contract basis, fruit and vegetables."

²⁰² Article XXVIII (e) of GATS: "'sector' of a service means,

²⁰³ Ecuador 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.

²⁰⁴ We note that MFN exemptions as foreseen in Article II:2 of GATS and the Annex on Article II Exemptions were not relevant in the original dispute.

²⁰⁵ Appellate Body report on Bananas III, paragraph 234.

²⁰⁶ Panel reports on Bananas III, paragraphs 7.341 and 7.353.

²⁰⁷ Panel reports on Bananas III, paragraph 7.368.

²⁰⁸ Panel reports on Bananas III, paragraph 7.393 (and paragraph 7.397).

²⁰⁹ Panel reports on Bananas III, paragraph 7.314.

²¹⁰ Panel reports on Bananas III, paragraph 7.317.

²¹¹ Panel reports on Bananas III, paragraph 7.344.

²¹² Panel reports on Bananas III, paragraph 7.277 et seq.

²¹³ Panel reports on Bananas III, paragraph 7.298.