3. The Rules for "Newcomer" Licences

143. Ecuador alleges that (i) the enlargement of the licence quantity reserved for "newcomers" from 3.5 per cent in the previous regime to 8 per cent in the revised regime (i.e. licences for up to 272,856 tonnes of imports) and (ii) the criteria for demonstrating competence in order to acquire "newcomer" status under the revised regime result in less favourable treatment for Ecuadorian wholesale service suppliers and thus are inconsistent with the EC's obligations under Article XVII of GATS.
144. The European Communities responds that the enlargement of the licence quantity reserved for "newcomers" is de iure and de facto non-discriminatory for foreign service suppliers. It indicates that EC licence allocation procedures for other EC products have set aside quantities as high as 20 per cent for "newcomers". As regards the criteria for demonstrating competence in order to acquire "newcomer" status, the European Communities argues that there is no distinction in Regulation 2362/98 between EC and non-EC service suppliers, on the one hand, and between non-EC service suppliers of different origins, on the other hand. It points out that importers of fruits and vegetables established in the European Communities are not necessarily EC-owned or EC-controlled service suppliers, nor does Regulation 2362/98 preclude companies newly established in the European Communities in, e.g. 1998, from applying as a "newcomer". The European Communities also submits that the figure of 400,000 Euro of declared customs value was chosen because it represented the size of a company which would have sufficient capacity to be viable in the sector. It adds that there are third country-owned companies which have qualified as "newcomers" under the revised regime.
145. We recall that Article 7 of Regulation 2362/98 provides:

"�'newcomers' shall mean economic agents established in the European Community who, at the time of registration:

(a) have been engaged independently and on their own account in the commercial activity of importing fresh fruit and vegetables falling within chapters 7 and 8, of the Tariff and Statistical Nomenclature and the Common Customs Tariff, or products under Chapter 9 thereof if they have also imported products falling within Chapters 7 and 8 in one of the three years immediately preceding the year in respect of which registration is sought; and

(b) by virtue of this activity, have undertaken imports to a declared customs value of ECU 400 000 or more during the period referred to in point (a)." (emphasis added).

146. We do not see how the enlargement of the licence quantity to 8 per cent of the tariff quotas and the traditional ACP quantities ²²⁹ in itself could create less favourable conditions of competition for service suppliers of third-country origin.
147. In respect of the criteria for acquiring "newcomer" status, we note that the parties agree that Article 7 of Regulation 2362/98 does not contain conditions which discriminate de iure against service suppliers on the basis of their foreign as opposed to EC origin. However, we note that potential "newcomers" must have a certain degree of ongoing relationship to the European Communities because they need to be established within the European Communities and they must have been engaged in the commercial activity of importing fruits or vegetables in one of the three years immediately preceding the year for which registration as "newcomer" is sought. More importantly, service suppliers of other Members may prove expertise with respect to the commercial activity of importing fresh fruit and vegetables only through imports carried out to the European Communities but not through the same type of commercial activity of trading in fruits or vegetables with other countries. If it is indeed the level of experience that this criterion is designed to ensure, in our view, experience with trade in fruit or vegetables in or to other countries should equally be deemed sufficient to ensure a requisite level of expertise. If it is the commercial viability of the enterprise in question that is at issue, we believe that it should also be possible to establish that viability on the basis of commercial activity outside the European Communities.
148. Thus, while any potential service supplier originating in third countries is not de iure precluded from acquiring "newcomer" status, in our view, the criteria for demonstrating the requisite expertise in order to qualify as an importer of bananas as "newcomer" create in their overall impact less favourable conditions of competition for service suppliers of Ecuador or other Members than for like service suppliers of EC origin. In this respect, we recall the Appellate Body's statement in Japan - Alcoholic Beverages ²³⁰ that a measure's "protective application can most often be discerned from the design, the architecture and the revealing structure of a measure".
149. In light of these considerations, we find that the criteria for acquiring "newcomer" status under the revised licensing procedures accord to Ecuador's service suppliers de facto less favourable conditions of competition in the meaning of Article XVII than to like EC service suppliers.

4. General observations

150. We wish to emphasize that our findings do not deprive any WTO Member of its right to choose WTO-consistent licence allocation methods based on, e.g. first-come, first-served, auctioning, or past trade performance. In principle, the WTO agreements leave Members a significant degree of discretion to choose the beneficiaries of licence allocations. We note that while, e.g. the Agreement on Import Licensing Procedures aims to ensure that licensing procedures do not constitute an additional restriction on trade in goods, the objectives of the GATS non-discrimination clauses are different. Articles XVII and II of GATS aim at ensuring that service suppliers of other Members are accorded conditions of competition no less favourable than those accorded to like service suppliers of national origin or of any other Member. However, the fact that the agreements under Annex 1A to the WTO Agreement and the GATS provide for different requirements, address different issues and pursue different objectives, does not imply that they are incompatible.
151. If a Member chooses an import regime which necessarily generates quota rents, such as a tariff quota, the requirement to ensure for service suppliers of other Members no less favourable treatment than for like service suppliers of national origin or of any other Member may have consequences on the choice of allocation criteria and the selection of licence beneficiaries under a licensing system that is based on past trade performance. However, we also recall that the obligation to accord no less favourable treatment under the GATS non-discrimination clauses requires a WTO Member to provide service suppliers of other Members with at least equal opportunities to compete with suppliers of national origin or of any other Member, regardless of the results which such opportunities might produce in terms of particular trade volumes or market shares.
152. The EC stresses that there cannot be a presumption of non-compliance with the requirements of Articles II and XVII of GATS if, statistically, the number of domestic importers or beneficiaries of licence allocations happened to be higher than the number of service suppliers of other Members who obtain licence allocations. In principle, we agree with that statement. If one of the WTO-consistent licence allocation methods is introduced in a market situation where service suppliers of national origin and those of other Members enjoy equal opportunities to benefit from licence allocations (and thus equal opportunities to reap quota rents generated by a WTO-consistent tariff quota), service suppliers of other Members presumably enjoy no less favourable treatment. However, where in a pre-existing market situation, a licence allocation system is introduced (or maintained) which involves allocation criteria that accord more favourable opportunities for service suppliers of national origin or of certain other Members to benefit from licence allocations, competitive conditions are modified to the detriment of like service suppliers of other Members.
153. In the present case, the supply of wholesale services is affected by conditions of access to available import licences. ²³¹ If less favourable opportunities to obtain access to licence allocations adversely affect the conditions of competition for service suppliers of another Member, ensuring no less favourable treatment requires equal opportunities to obtain access to licence allocations. As discussed in detail above, under the revised regime service suppliers of Ecuadorian origin continue to be subject to less favourable conditions of competition for a number of reasons. In light of these considerations, we found that the revised licence allocation procedures accord less favourable treatment for Ecuador's service suppliers than for like service suppliers of EC/ACP origin. Thus we consider that EC licence allocation procedures should allow service suppliers of other Members equal competitive opportunities to expand their wholesale business as like EC/ACP suppliers of those services.

F. Suggestions on Implementation

154. Ecuador requests this Panel to make specific suggestions to the European Communities on how it might implement our findings in this proceeding under Article 21.5 of the DSU. In this regard, we recall Article 19.1 of the DSU, which provides:

"Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations." (Emphasis added, footnotes omitted.)

Panels have not often made suggestions pursuant to Article 19.1. While Members remain free to choose how they implement DSB recommendations and rulings, it seems appropriate, after one implementation attempt has proven to be at least partly unsuccessful, that an Article 21.5 panel make suggestions with a view toward promptly bringing the dispute to an end.

155. In light of our findings and conclusions with respect to Articles I and XIII of GATT, the requirements of the Lomé Convention and the coverage of the Lomé waiver, above, in our view, the European Communities has at least the following options for bringing its banana import regime into conformity with WTO rules.
156. First, the European Communities could choose to implement a tariff-only system for bananas, without a tariff quota. This could include a tariff preference (at zero or another preferential rate) for ACP bananas. If so, a waiver for the tariff preference may be necessary unless the need for a waiver is obviated, for example, by the creation of a free-trade area consistent with Article XXIV of GATT. This option would avoid the need to seek agreement on tariff quota shares.
157. Second, the European Communities could choose to implement a tariff-only system for bananas, with a tariff quota for ACP bananas covered by a suitable waiver.
158. Third, the European Communities could maintain its current bound and autonomous MFN tariff quotas, either without allocating any country-specific shares or allocating such shares by agreement with all substantial suppliers consistently with the requirements of the chapeau to Article XIII:2. The MFN tariff quota could be combined with the extension of duty-free treatment (or preferential duties) to ACP imports. In respect of such duty-free treatment, the European Communities could consider with the ACP States whether the Lomé Convention can be read to "require" such treatment within the meaning of the Lomé waiver. We recall that some important preferences found by the original panel and Appellate Body reports to be required by the Lomé Convention cannot be implemented consistently with WTO rules (the most important being the quantitative protections foreseen in Protocol 5). If such a view of the Lomé Convention is challenged, a waiver covering such duty-free treatment could be sought. The MFN tariff quota could also be combined with a tariff quota for ACP imports, whether traditional or not, provided an appropriate waiver of Article XIII is obtained. We note that waivers for duty-free treatment for developing country exports have been granted on several occasions by Members. ²³² In this context, some action may be required soon in respect of the Lomé waiver since it expires on 29 February 2000.
159. We make no specific suggestions in respect of licence allocation, but note that licences would not be needed at all in a tariff-only regime.

G. Summary

160. In respect of Article XIII of GATT, we find that the 857,700 tonne limit on traditional ACP imports is a tariff quota and therefore Article XIII applies to it. We further find that the reservation of the quantity of 857,700 tonnes for traditional ACP imports under the revised regime is inconsistent with paragraphs 1 and 2 of Article XIII of GATT. We also find that the country-specific allocations to Ecuador as well as to the other substantial suppliers are not consistent with the requirements of Article XIII:2.
161. In respect of Article I of GATT, we find that the level of 857,700 tonnes for duty-free traditional ACP imports can be considered to be required by the Lomé Convention because it appears to be based on pre-1991 best-ever exports and not on allowances for investments. However, we also find that it is not reasonable for the European Communities to conclude that Protocol 5 of the Lomé Convention requires a collective allocation for traditional ACP suppliers. Therefore, duty-free treatment of imports in excess of an individual ACP State's pre-1991 best-ever export volumes is not required by Protocol 5 of the Lomé Convention. Accordingly, absent any other applicable requirement of the Lomé Convention, those excess volumes are not covered by the Lomé waiver and the preferential tariff thereon is therefore inconsistent with Article I:1.
162. Also in respect of Article I of GATT, we find that in respect of preferences for non-traditional ACP imports, it is not unreasonable for the European Communities to conclude that (i) non-traditional ACP imports at zero tariff within the "other" category of the tariff quota and (ii) the tariff preference of 200 Euro per tonne for out-of-quota imports, are required by Article 168 of the Lomé Convention. Therefore, we find that the violations of Article I:1, as alleged by Ecuador in respect of preferences for non-traditional ACP imports, are covered by the Lomé waiver.
163. In respect of GATS, we define the range of wholesale trade services and find that (i) under the revised regime Ecuador's suppliers of wholesale services are accorded de facto less favourable treatment in respect of licence allocation than EC/ACP suppliers of those services in violation of Articles II and XVII of GATS and (ii) the criteria for acquiring "newcomer" status under the revised licensing procedures accord to Ecuador's service suppliers de facto less favourable conditions of competition than to like EC service suppliers in violation of Article XVII of GATS.

H. Concluding Remark

164. We recall that the fundamental principles of the WTO and WTO rules are designed to foster development, not impede it. As illustrated by our suggestions on implementation above, the WTO system is flexible enough to allow, through WTO-consistent trade and non-trade measures, appropriate policy responses in a wide variety of circumstances across countries, including countries that are heavily dependent on the production and commercialization of bananas.

VII. Conclusions

1. The Panel concludes that for the reasons outlined in this Report aspects of the EC's import regime for bananas are inconsistent with the EC's obligations under Articles I:1 and XIII:1 and 2 of GATT 1994 and Articles II and XVII of GATS. We therefore conclude that there is nullification or impairment of the benefits accruing to Ecuador under the GATT 1994 and the GATS within the meaning of Article 3.8 of the DSU.
2. The Panel recommends that the Dispute Settlement Body request the European Communities to brings its import regime for bananas into conformity with its obligations under the GATT 1994 and the GATS.

Source:	1962-75 UN Comtrade.
	1976-1990 Eurostat (Comext) and member States (Annex 1 Commission report on the functioning of the regime in the banana sector SEC(95) 1595 final).

Note: Table provided by the European Communities.

Year	Per cent	Year	Per cent
1989	11.77	1994	16.12
1990	12.77	1995	19.95
1991	19.96	1996	21.09
1992	21.84	1997	23.63
1993	19.67

Source: European Commission. (Chart submitted by Ecuador.)

Source: FAO Statistical Database (visited 29 January 1999) (http://www.fao.org). (Chart submitted by Ecuador.)

Source: FAO and EUROSTAT and Statistical Offices: Austria, Sweden, Finland. (Chart submitted by Ecuador.)

Prior EC System: Operator Categories under the Tariff Quota for Third-Country/Non-Traditional ACP Imports
Operator category definition	Allocation of import licences allowing the importation of bananas at in- quota rates (%)	Basis of determining operator entitlement
Category A: operators that have marketed third-country and/or non-traditional ACP bananas.	66.5	Average quantities of third-country and/or non-traditional ACP bananas marketed in a three-year reference period.
Category B: operators that have marketed EC and/or traditional ACP bananas.	30	Average quantities of traditional ACP and/or EC bananas marketed in a three-year reference period.
Category C: operators who started marketing bananas other than EC and/or traditional ACP bananas in 1992 or thereafter ("newcomers").	3.5	Divided pro rata among applicants.

Source: Article 19, Council Regulation (EEC) 404/93. (Submitted by Ecuador.)

Source: Article 3, Commission Regulation (EEC) 1442/93 of 10 June 1993. (Submitted by Ecuador.)

²²⁹ Article 2.1(b) of Regulation 2362/98.

²³⁰ Appellate Body report on Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted on 1 November 1996, page 29.

²³¹ The Appellate Body notes that "obviously, a wholesaler must obtain the goods by some means in order to resell them. In this case, for example, it would be difficult to resell bananas in the European Communities if one could not buy them or import them in the first place." Appellate Body report on Bananas III, paragraph 226.

²³² See WT/L/104 (United States � Caribbean Basin Economic Recovery Act); WT/L/183 (United States � Former Trust Territory of the Pacific Islands); WT/L/184 (United States - Andean Trade Preferences Act); WT/L/185 (Canada � CARICAN).