12 April 1999
European Communities - Regime for the Importation, Sale and Distribution of Bananas
- Recourse to Article 21.5 by the European Communities -
Report of the Panel
The report of the Panel on European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to Article 21.5 by the European Communities - is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 12 April 1999 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.
Table of Contents
(i) Terms of reference
(ii) Panel composition
II. Main Arguments
A. Procedural aspects
(i) Preliminary issue concerning the establishment of this Panel
(ii) WTO obligations of Members during the "reasonable period of time"
(iii) Legal analysis of Article 23 of the DSU
III. Arguments by Third Parties
A. Terms of Reference
B. The Parties to this Dispute
C. The Relief Sought by the European Communities
D. The Relationship of Articles 21, 22 and 23 of the DSU
E. Concluding Remarks
- On 25 September 1997, the Dispute Settlement Body (DSB) adopted the Appellate Body report on European Communities – Regime for the Importation, Sale and Distribution of Bananas (WT/DS27/AB/R) and the panel reports,
1 as modified by the Appellate Body (AB) report, recommending that the European Communities bring the measures found to be inconsistent with the GATT 1994 and the GATS into conformity with the obligations of the European Communities under those agreements. On 7 January 1998, the Arbitrator, appointed in accordance with Article 21.3(c) of the DSU concluded that the reasonable period of time to implement the recommendations and rulings of the DSB in this case would expire on 1 January 1999.
- On 20 July 1998, the Council of the European Union adopted Regulation (EC) No. 1637/98 amending Regulation (EEC) No. 404/93 on the common organization of the market in bananas. On 18 August 1998, Ecuador, Guatemala, Honduras, Mexico and the United States acting jointly and severally, requested consultations (WT/DS27/18) with the European Communities ("EC") in relation to the implementation of the DSB recommendations in this matter. Consultations were held on 17 September 1998. These consultations did not result in a mutually satisfactory solution of the matter.
- On 28 October 1998, the Commission of the European Communities adopted Regulation (EC) No. 2362/98 laying down detailed rules for the implementation of Council Regulation (EEC) No. 404/93 regarding imports of bananas into the Community. Regulation 1637/98 as well as Regulation 2362/98 were implemented as from 1 January 1999. On 13 November 1998, Ecuador requested further consultations in this matter which took place on 23 November 1998 (WT/DS27/30 and Add.1). Mexico also requested consultations and was joined as a co-complainant.
- On 14 December 1998, the European Communities requested the establishment of a panel under Article 21.5 of the DSU with the mandate to find that the implementing measures of the European Communities must be presumed to conform to WTO rules unless their conformity had been duly challenged under the appropriate DSU procedures (WT/DS27/40). The DSB, at its meeting on 12 January 1999, decided, in accordance with Article 21.5 of the DSU, to refer to the original panel the matter raised by the European Communities. Belize, Brazil, Cameroon, Colombia, Costa Rica, Côte d'Ivoire, Dominica, the Dominican Republic, Grenada, Haiti, India, Jamaica, Japan, Mauritius, Nicaragua, Saint Lucia, and Saint Vincent and the Grenadines reserved their third-party rights in accordance with Article 10 of the DSU.
(i) Terms of reference
- The following standard terms of reference applied to the work of the Panel:
"To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS27/40 the matter referred to the DSB by the EC, 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."
(ii) Panel composition
- The Panel was composed as follows:
|Chairman:||Mr. Stuart Harbinson|
|Members:||Mr. Kym Anderson|
|Mr. Christian Häberli|
- The Panel submitted its report to the European Communities on 6 April 1999.
II. Main Arguments2
A. Procedural aspects
- The European Communities noted that, in accordance with Article 21.6 of the DSU, it had provided the DSB with a status report on its implementation of the recommendations and rulings of the DSB at every regular meeting of the DSB since the 23 July 1998 DSB meeting. From the beginning of the reasonable period of time, the original complainants had not ceased to affirm in the press and in the DSB their conviction that the measures first envisaged, then proposed, then adopted by the Council, then finally adopted by the Commission, did not comply with the recommendations and rulings of the DSB in this case.
- On 18 August 1998, Ecuador, Guatemala, Honduras, Mexico and the United States formally requested consultations within the legal framework of Article 21.5 of the DSU (WT/DS27/18). Consultations were held on 17 September 1998. However, the European Communities formally agreed to those consultations only insofar as they related to measures that had already been formally adopted and published, i.e. Regulation 1637 of 20 July 1998. The European Communities refused to engage in discussions concerning import licensing rules which not only had not yet been adopted at that time but had not even been submitted to the management committee as a preliminary step for their definitive approval by the Commission. On 13 November 1998, Ecuador requested consultations within the legal framework of Article 21.5 of the DSU (WT/DS27/30). It was joined by Mexico. These consultations concerned almost exclusively Regulation 2362.
- Outside these procedures, one of the original complainants, the United States, published three notices in the US Federal Register
3 of proposed determination of action by imposing prohibitive (100 per cent ad valorem) duties on selected products from the European Communities. This proposed action was based on the unilateral determination by the United States that "the measures the EC has undertaken to apply as of January 1, 1999 fail to implement the WTO recommendations concerning the EC banana regime". The actions proposed were intended to be in place "beginning as early as February 1, 1999". However, the United States, supported by three other original complainants, expressed repeatedly and publicly its unwillingness to submit its own subjective views on this issue to the objective scrutiny of a panel within the multilateral framework of the WTO, in particular under Article 21.5 of the DSU.
- On 12 January 1999, the DSB established a panel under Article 21.5 of the DSU at the request of Ecuador, on the one hand, and the present Panel at the request of the EC, on the other hand. The other four original complaining parties (i.e. Guatemala, Honduras, Mexico and the United States) refrained from requesting a panel or from joining the procedure initiated by Ecuador. On 19 January 1999 three of the original complainants, Guatemala, Honduras and the United States, expressed their views in a letter sent to the WTO Secretariat "concerning the nature and the terms of reference" of these proceedings. However, they did not deem appropriate, on the one hand, to state their position in a formal submission to the Panel in the framework of the on-going dispute settlement procedure nor, on the other hand, to guarantee their participation in the further proceedings. The European Communities submitted further that in a letter dated 2 February 1999, the Panel considered, in reply to a request by the EC, that there was no need to provide in the Panel's timetable for a submission from the original complainants and that the Panel could not compel the original complaining parties to participate in these proceedings.
(i) Preliminary issue concerning the establishment of this Panel
- In document WT/DS27/45, the WTO Secretariat officially announced that on 12 January 1999, the Dispute Settlement Body decided "in accordance with Article 21.5 of the DSU, to refer to the original panel the matter raised by the European Communities in document WT/DS27/40". This communication contained also the terms of reference of the Panel, which were expressly referred to as "standard terms of reference", as follows:
"To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS27/40, the matter referred to the DSB by the European Communities 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".
- In their letter of 19 January 1999 to this Panel, three of the original complainants - Guatemala, Honduras and the United States - took the following position :
"the panel finding sought by the EC (…) does not constitute recourse to Article 21.5 but rather constitutes an entirely different matter for which the appropriate procedural requirements under DSU Articles 4 and 6 have not been satisfied";
"there is no provision in the DSU for a Member to compel other countries to come forward to serve as complaining parties against its measures at a time determined by that member";
"any conclusion regarding the conformity of the EC measures cannot bind a non-party to the process, despite the EC's attempts to achieve this purpose".
- In a letter to this Panel dated 18 January 1999, another of the original complainants, Ecuador, took the following position:
"in the current circumstances, the invitation of a Member to participate in a meeting to organize a panel that has only one party does not create or give validity to any legal provisions that are not included in the dispute settlement procedures";
"the initiative, taken by the European Communities, without any legal justification, to find a party with which to dispute this issue should not, in Ecuador's view, be allowed to succeed in that it could seriously undermine the dispute settlement system".
- The European Communities submitted that, as a matter of logic, it was compelled to address as a first point the question of the competence of a panel to determine the scope of its own terms of reference. In this respect, the European Communities referred to a recent AB report which indicated that "… as a panel request is normally not subjected to detailed scrutiny by the DSB, it is incumbent upon a panel to examine the request for the establishment of the panel very carefully to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU".
4 However, the AB also noted that the aim of dispute settlement was not "to encourage either panels or Appellate Body to 'make law' by clarifying existing provisions of the WTO Agreement outside the context of resolving a particular dispute. A panel need only to address those claims which must be addressed in order to resolve the matter in issue in the dispute". 5 In the present panel proceedings, all four above-mentioned original complainants have claimed that they were not parties to this dispute. If this were true, their unilateral views expressed in their letters could not be considered as "claims which must be addressed in order to resolve the matter in issue" because a non-party could not address any issue or claim in a panel procedure in which it was not a party.
- Thus, as a preliminary point, the Panel had to decide whether the questions raised by the above-mentioned original complainants were to be considered as claims and to do so, it must consider whether they were presented by a party to the dispute. In case of a negative outcome of this preliminary test, the European Communities continued, the Panel would not be empowered to enter into any issue raised by the four original complainants. Panels were not empowered to determine on their own initiative the scope of the mandate received by the DSB unless and until such an issue was raised as a claim by one of the parties to the dispute. There was no scope for a proprio motu examination, because that would grant panels the role of a kind of "public prosecutor" which did not however exist in the WTO dispute settlement system.
- By contrast, in case of a positive outcome of the preliminary test, the European Communities submitted, two out of the three preliminary issues raised by the four original complaining parties could no longer stand, because their argument was based on their (unilateral) view, expressed in their letters to the Panel, that the present dispute was a procedure to which only one WTO Member was a party. As soon as the Panel started considering the objections of the original complainants, this argument would, in the opinion of the European Communities, become moot. Therefore, in case the Panel wished to examine the preliminary objections raised by the original complainants in their letters to the WTO Secretariat, the only remaining objection that really needed to be addressed was the view expressed by these original complainants that "the panel finding sought by the EC does not constitute recourse to Article 21.5 but rather constitutes an entirely different matter for which the appropriate procedural requirements under the DSU Articles 4 and 6 have not been satisfied".
- The European Communities submitted that this position was incorrect in fact and in law. As a matter of fact, the European Communities indicated in its request for the establishment of this Panel that the issues raised in the present panel proceedings were already duly considered in consultations under Article 4 of the DSU. The "matter" concerned in particular "the disagreement as to the … consistency with a covered agreement of measures taken [by the EC] to comply with the recommendations and rulings [adopted by the DSB on the basis of the original panel and Appellate Body reports]". 6 As a consequence of the consultations held with the original complainants, acknowledging the persistence of the disagreement, the European Communities requested the establishment of this Panel whose terms of reference covered the "matter" raised in the consultations, i.e. either a challenge was made by the original complainants, and the claims with respect to the consistency of the measures taken by the European Communities to comply with the recommendations and rulings of the DSB were upheld, or the original complainants had to be deemed to be satisfied and they had to be deemed not to maintain their disagreement.
- The European Communities was of the opinion that, as a matter of law, a procedure under Article 21.5 of the DSU was part of the dispute settlement procedure which had started with an earlier panel procedure, and such a procedure therefore had to be confined to the original parties to the dispute. This was already evident from the title ("Surveillance of Implementation of Recommendations and Rulings") and the context in which Article 21 was placed. Moreover, Article 21.3(b) explicitly referred to the "parties to the dispute". Article 21.5 provided for resorting to "the original panel". The term "original panel" referred, the European Communities submitted, to the same panel that was originally charged by the DSB with the responsibility to look into a specific dispute within specific terms of reference concerning only some and not each and every WTO Member. However, Article 21.5 did not specify in any way which of the parties to the original dispute was entitled to have recourse to the dispute settlement proceedings. Article 21.5 did, however, identify expressly the prerequisite under which such recourse was allowed, i.e. the existence of a disagreement as to the consistency with a covered agreement of measures taken to comply with the recommendations and rulings of the DSB. Consequently, the European Communities was entitled to have recourse to the procedures under Article 21.5 in presence of a disagreement among the parties to the original dispute; consultations held in accordance with Article 4 of the DSU; and the request for the establishment of a panel submitted in writing in accordance with Articles 6.2 and 7 of the DSU.
- The European Communities submitted that a dispute was solved either by a determination of non-compliance, whether in part or in toto, which opened the door to a recourse by some or all of the original complainants to the provisions of Article 22 of the DSU; or by a determination of compliance; or by the acknowledgement that all parties were fully satisfied; or, finally, by a combination of these. All these routes were open and admissible within the realm of Article 21.5. The European Communities was of the view that it had complied fully with all the above-mentioned requirements and there was therefore no reason to cast any doubt on the consistency of its panel request with the letter and the spirit of Article 21.5 of the DSU.
(ii) WTO obligations of Members during the "reasonable period of time"
- Referring to Article 3.7 of the DSU, the European Communities submitted that the primary obligation of the Member whose measures had been found inconsistent with its WTO obligations as the result of a dispute settlement procedure was therefore to withdraw such inconsistent measures. Moreover, referring also to the reasonable period of time and arbitration in Article 21.3 of the DSU and the status report that had to be provided to the DSB in accordance with Article 21.6, the European Communities considered that it had scrupulously respected the above-mentioned obligations by repealing the provisions in Regulation 404/93 which were found inconsistent with some WTO covered agreements, and by entirely repealing Regulations 1442/93 and 478/95.
- In particular, the following issues had been addressed: the so-called B licences had been abolished and replaced by a single licensing system for all origins; allocation of licences according to (a), (b), (c) marketing functions had been abolished and replaced by new rights to licences based on proof of actual imports; tariff rate quota allocations to some WTO Members but not to others, including allocations to individual traditional ACP countries, had been abolished and replaced by an allocation only to all substantial suppliers, while the ACP tariff preference had been capped at the level of the pre-1991 best-ever shipments in accordance with the recommendations and rulings of the DSB; the transferability of country-allocated quotas had been abolished; the allocation of hurricane licences only to EC/ACP operators had been abolished; and the special export certificates available to some exporting countries and not to others had been abolished.
- The European Communities had complied with its obligation to implement the recommendations and rulings of the DSB by withdrawing the measures found inconsistent with certain covered agreements within the reasonable period of time which expired on 1 January 1999. As a result of this process, a new regime for the importation, sale and distribution of bananas was applicable in the European Communities as from 1 January 1999. Referring to the text of Article 21.5, the European Communities noted that Ecuador had expressed its disagreement and had brought this dispute to the DSB under Article 21.5 of the DSU. To different degrees and at different occasions, Guatemala, Honduras, Mexico and the United States had publicly criticized the new EC banana regime and requested consultations on Regulation No. 1637 but these consultations were not followed-up by an Article 21.5 panel request.
- Thus, while a number of political positions had been stated, a panel established under Article 21.5 of the DSU could only acknowledge and consider the present legal situation, i.e. that Guatemala, Honduras, Mexico and the United States had refrained from making any further use of their procedural rights under Article 21.5 of the DSU. Since these original complainants had refrained from challenging the EC's implementing measures, they had to be deemed and recognized to be satisfied by the explanations received during consultations and otherwise with regard to the present EC banana regime.
- Beyond the requirements resulting from the multilateral nature of the WTO dispute settlement system, there was another fundamental WTO principle involved in the present case. This principle was related to the "security and predictability" of the multilateral trading system which had already been recognized in the second AB report as an essential element of the WTO Agreement.
7 This principle was also reflected in the procedural guarantees of the DSU which excluded in its Article 23 any unilateral determination by individual WTO Members that any other WTO Member was acting inconsistently with its WTO obligations. In the opinion of the European Communities, a presumption of inconsistency would gravely affect the security and predictability of the international trading system because of the ensuing uncertainty. For similar reasons, the criminal law of all civilized countries was firmly based on a presumption of innocence, not on a presumption of guilt.
- If it could be unilaterally determined by any Member, outside a procedure under Article 21.5, that another WTO Member had incorrectly implemented the recommendations and rulings of the DSB in an earlier dispute, and if this determination were considered to be legally relevant within the WTO system, the European Communities submitted that this would be paramount to a presumption of inconsistency. Such a presumption would mean in practical terms that an implementing measure that did not satisfy the original complainant could lead to the threat of immediate retaliation through the withdrawal of concessions or other obligations. A trading system based on a presumption of inconsistency would not be based on security and predictability of international trade relations and would thus be the opposite of the multilateral trading system envisaged by the Marrakesh Agreement on the Establishment of the World Trade Organization.
(iii) Legal analysis of Article 23 of the DSU
- According to the European Communities, Article 23 of the DSU was at the core of the dispute settlement mechanism created in Marrakesh in 1994. Its provisions were an expression of the new multilateral legal commitments that the WTO Members had decided to undertake and was based on the fundamental principle of the rejection of any determination or action taken by any Member outside the rules and procedures of the DSU. Referring to the first paragraph of Article 23 as well as to (a) of the second paragraph of Article 23 of the DSU,
8 the European Communities submitted that in the present case, the EC measures which were found inconsistent with certain WTO covered agreements under the recommendations and rulings of the DSB, had, as was stated above, been withdrawn in accordance with the primary objective set out in Article 3.7 of the DSU. Consequently, new measures had been adopted and the European Communities had put in place, at the end of the reasonable period of time, a new regime for the importation, sale and distribution of bananas.
- As a consequence of the above, Guatemala, Honduras, Mexico and the United States could not seek redress of an alleged violation by the EC's new measures of its WTO obligations outside the rules and procedures of the DSU, including Article 21.5. Nor could they make any determination to the effect that a violation had occurred, including the alleged failure to bring any measures that were found to be inconsistent with a covered agreement into compliance with the recommendations and rulings of the DSB, or that benefits had been nullified or impaired, without having recourse to dispute settlement procedures in accordance with the rules and procedures of the DSU as foreseen in Article 23.2(a). Finally, irrespective of what was the correct interpretation of the deadlines in Article 22 of the DSU (a matter which was outside the terms of reference of this Panel), that provision did not in any way authorize any departure from the fundamental principle which found its expression in Article 23 of the DSU.
- The European Communities requested the Panel to find that, since Guatemala, Honduras, Mexico and the United States had failed to pursue any recourse to dispute settlement procedures under the rules and procedures of the DSU, the new EC regime for the importation, sale and distribution of bananas adopted in order to comply with the recommendations and rulings of the DSB in the three dispute settlement procedures ("EC - Regime for Importation, Sale and Distribution of Bananas"
9) had to be deemed to satisfy these parties to the original dispute and, in so far as those parties were concerned, to be in conformity with the WTO covered agreements as long as those original parties had not successfully challenged the new EC regime under the relevant dispute settlement procedures of the WTO.
To continue with Arguments by Third Parties
1 WT/DS27/R/ECU, WT/DS27/R/GTM-WT/DS27/R/HND, WT/DS27/R/MEX, WT/DS27/R/USA.
2 If not otherwise stated, footnotes are those of the European Communities.
3 Vol. 63, page 56687, page 63099 and page 71665.
4 Banana III AB report, paragraph 142.
5 Blouses and Shirts AB report, page 19; confirmed by Argentina Footwear panel, paragraphs 6.12 to 6.15.
6 Article 21.5 of the DSU.
7 Quotation is near to footnote 67 in that report.
8 "When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding. … "In such cases Members shall, (a) not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding".
9 WT/DS27/GTM-WT/DS27/HND, WT/DS27/MEX and WT/DS27/USA.