17 October 1984

42. The case before the Panel had potentially important implications both for traders in the product concerned and in respect of the security of expectations by parties that prompt and effective action would be anticipated when parties had reason to believe that their trade interests were at stake.

43. The representative of Finland, on behalf of the delegations of Finland, Norway and Sweden, stated that they were of the view that the EC had the right to adjust a bound tariff quota so as to take into account the establishment of the free-trade agreements between the EFTA countries and the EC. He pointed out that a precedent had been set in 1977 (see L/4537, paragraph 5) when duty-free treatment under the EFTA-EC free-trade agreements had been introduced for certain other tariff items which had been covered by EC bound tariff quotas. In that case, as free trade had been achieved for most products on 1 July 1977 between the EEC and the EFTA countries, the EC bound tariff quotas for some headings (54.03, 70.19 and 73.03) had been reduced by the share formerly taken up by the EFTA countries. The decision of the EC had entered into force without objections from any contracting party.

44. He further said that the principles of the administration of quotas were laid down in Article XIII. The basic principle was that if agreement with the supplying countries could not be reached, the allocation of the quota should be based on past performance. An arrangement based on Article XXIV with one or more supplying countries should be taken into account in a way which would maintain the balance of rights and obligations between the contracting parties in question.

45. The tariff quota of 1.5 million tonnes for newsprint had been established in 1974 for all suppliers to the EC. Free trade between the EEC and the EFTA countries for newsprint had started on 1 January 1984. In this particular case, the EC could have continued after this date to apply the original duty-free quota, allocating shares thereof according to Article XIII to all exporters, including the EFTA countries. In practice, the effect of such a calculation method would have been equal to the solution the EC had actually chosen. In both alternatives, Canada would continue receiving the benefits agreed upon under the binding. The method followed by the EC had, however, the merit of offering maximum transparency vis-à-vis all exporters.

46. In conclusion, the spokesman for the delegations of Finland, Norway and Sweden said that they were of the opinion that, in line with established practice, the EC was entitled to reduce its bound tariff quota from currently 1.5 million tonnes by the share of newsprint imports from the EFTA countries as the latter were subject to the EC import régime under the EFTA-EEC Free Trade Agreements. He finally added that the Governments of Finland, Norway and Sweden had not given up their GATT rights with respect to the EC tariff binding in question after the full implementation of their free-trade agreements with the Community.

47. The Panel considered the matter referred to it by the CONTRACTING PARTIES regarding the complaint by Canada, in accordance with its terms of reference, set out in paragraph 2 above, which are limited to the duty-free quota of 1.5 million tonnes within the EC tariff concession on newsprint (see paragraph 9 above). It considered the arguments put forward by the parties to the dispute, as well as the points made by the delegations of the Nordic countries (Finland, Norway, Sweden) and New Zealand which appeared before the Panel.

48. The Panel noted that in its Regulation No.3684/83 of 22 December 1983, the European Communities have, for the year 1984, opened a duty-free tariff quota of 500,000 tonnes for newsprint, whereas the commitment of the EC in its GATT Schedule LXXII provides for an annual duty-free quota of 1.5 million tonnes. The Panel also noted that in an introductory paragraph to the Regulation as well as in the EC communication to the contracting parties (document L/5599), reference is made to the volume of 500,000 tonnes to be fixed "at a provisional level"; Article 1:1 of the Regulation itself, however, makes no reference to the provisional nature of this quota.

49. The Panel also noted the EC statement that Schedule LXXII had not been modified, that the action taken by the EC was merely a change in the administration or management of the tariff quota which was permissible under Article XIII of the GATT, and that therefore renegotiations under Article XXVIII were not called for.

50. The Panel could not share the argument advanced by the EC that their action did not constitute a change in their GATT tariff commitment. It noted that under long-standing GATT practice, even purely formal changes in the tariff schedule of a contracting party, which may not affect the GATT rights of other countries, such as the conversion of a specific to an ad valorem duty without an increase in the protective effect of the tariff rate in question, have been considered to require renegotiations. By the same token, the EC action would, in the Panel's view, have required the EC to conduct such negotiations. The Panel also noted that in granting the concession in 1973, the EC had not made it subject to any qualification or reservation in the sense of Article II:1(b) although at the time the concession was made, it was known that agreement had already been reached that the EFTA countries would obtain full duty-free access to the Community market for newsprint from 1 January 1984 onward. The Panel therefore found that although in the formal sense the EC had not modified its GATT concession, it had in fact changed its GATT commitment unilaterally, by limiting its duty-free tariff quota for m.f.n. suppliers for 1984 to 500,000 tonnes.

51. The Panel considered the arguments advanced by the EC relating to Article XIII, but concluded that the conditions for its application had not been fulfilled. In examining the EEC Regulation 3684/83, the Panel found that it did not in fact constitute a change in the administration or management of the tariff quota from a global quota system to a system of country shares, as had been asserted by the EC. The Regulation in its Article 1.1 simply opens a quota of 500,000 tonnes and stipulates in Article 1.3 that imports shall not be charged against this quota if they are already free of customs duties under other preferential tariff treatment. It does not provide an allocation of country shares to individual m.f.n. suppliers, nor has a separate quota (global or otherwise) for the EFTA countries been established, as Article XIII requires. The Panel also noted that the EC Regulation contains no basis for the contention that it was simply meant to bring about a change in the management of the quota. Rather, in one of its introductory provisions, the Regulation, in referring to the tariff quota of 1.5 million tonnes, states that this volume must be reduced to allow for imports from EFTA countries which by virtue of the free-trade agreements can be effected duty-free as from 1 January 1984. In this connection the Panel found relevant the wording of the text of the EC communication (contained in document L/5599) in which the EC stated: "An appropriate reduction in the level of the bound quota was decided in certain similar cases in the past (L/4537, paragraph 5), and the European Community considers that this could also be the right approach in the case of newsprint".

52. Taking all factors mentioned above into account, the Panel concluded that the EC, in unilaterally establishing for 1984 a duty-free quota of 500,000 tonnes, had not acted in conformity with their obligations under Article II of the GATT. The Panel shared the view expressed before it relating to the fundamental importance of the security and predictability of GATT tariff bindings, a principle which constitutes a central obligation in the system of the General Agreement.

53. In light of the foregoing and in accordance with established GATT practice (paragraph 5 of the Framework Understanding, BISD 26S/216), the Panel found that the EC action constituted a prima facie case of nullification or impairment of benefits which Canada was entitled to expect under the General Agreement.

54. While holding that the right of Canada to compete within a duty-free tariff quota of 1.5 million tonnes has been impaired by the EC action, the Panel recognized, however, that as a result of newsprint imports from EFTA countries entering the EC marked duty-free since 1 January 1984 under the terms of the free-trade agreements, the value of the EC concession had greatly increased for non-EFTA suppliers and especially for Canada as the most important m.f.n. supplier. The Panel concluded that this increased value of the concession justifies the EC engaging in renegotiations under Article XXVIII, in accordance with the customary procedures and practices for such negotiations, with the objective of achieving some reduction in the size of the tariff quota. In the view of the Panel, such a reduction would, in a case like the one before the Panel where the increased value of the concession derives from an action by the EC to grant duty-free access to newsprint imports from the EFTA countries, be without payment of compensation. In this connection, the Panel found that although the statistical data before it did not differentiate between imports entering duty-free under the GATT quota and those under the autonomous régime, the fact that the GATT quota was filled while total Canadian exports never exceeded half that quota is evidence that the EFTA countries did participate in the GATT quota up until the end of 1983.

55. The Panel carefully noted and examined the statement by the EC that, should the Panel consider the action taken by the EC as not being in conformity with the GATT, they might proceed to option (b) under which the tariff quota would be maintained at 1.5 million tonnes but that imports from all sources, including the EFTA countries, would be recorded against that quota; once the latter had been filled, the Community's formal contractual obligations would have been met. While the Panel could find no specific GATT provision forbidding such action and no precedents to guide it, it considered that this would not be an appropriate solution to the problem and would create an unfortunate precedent. It is in the nature of a duty-free tariff quota to allow specified quantities of imports into a country duty-free which would otherwise be dutiable, which is not the case for EFTA imports by virtue of the free-trade agreements. Imports which are already duty-free, due to a preferential agreement, cannot by their very nature participate in an m.f.n. duty-free quota. The situation in this respect could only change if the free-trade agreements with the EFTA countries were to be discontinued; in this case these countries would be entitled to fall back on their GATT rights vis-à-vis the EC, which rights continue to exist.

56. On the basis of the findings and conclusions reached above, the Panel suggests that the CONTRACTING PARTIES recommend that the European Communities engage promptly in renegotiations under the procedures of Article XXVIII of the GATT with regard to the tariff quota on newsprint in Schedule LXXII. Further, the Panel suggests that the CONTRACTING PARTIES recommend to the European Communities that, pending the termination of such renegotiations, the duty-free tariff quota of 1.5 million tonnes for m.f.n. suppliers be maintained.

57. In light of the suggested recommendations contained in paragraph 56 above, the Panel saw no need to express itself on the request by Canada that it be authorized to suspend the application of appropriate concessions or other obligations under the GATT.

THE COUNCIL OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Economic Community, and in particular Articles 28 and 113 thereof,

Having regard to the proposal from the Commission,

Whereas the Community has undertaken to open an annual duty-free Community tariff quota of 1,500,000 tonnes of newsprint falling within subheading 48.01 A of the Common Customs Tariff; whereas this volume must, however, be reduced to allow for imports from the countries of the European Free Trade Association (EFTA) since these imports can be effected duty free as from 1 January 1984 by virtue of the agreements concluded with these countries; whereas, in accordance with Protocol 13 annexed to the 1972 Act of Accession, each year an autonomous Community tariff quota is to be opened at zero duty when it has been established that all possibilities of supply on the internal market of the Community have been exhausted during the period for which the quota is opened; whereas, pending evaluation of volume of requirements to be covered by the quota in question on the basis of trade flows, this volume should be fixed at a provisional level made up of a contractual part and an autonomous part, which might be as much as 500,000 tonnes in view of past imports; whereas fixing at this level does not rule out a readjustment during the quota period; whereas a duty free Community tariff quota of 500,000 tonnes should therefore be opened for 1984 for the product in question;

Whereas provision should be made for extending the tariff quota in question to include certain types of paper fulfilling all the conditions set out in the Additional Note to Chapter 48 except those relating to watermarks;

Whereas equal and continuous access to the quota should be ensured for all Community importers and the rate of duty for the tariff quota should be applied without interruption to all imports of the product in question until the quota is exhausted; whereas in the light of these principles, arrangements for the utilization of the Community tariff quota based on an allocation among Member States would seem to be consistent with the Community nature of the quota; whereas, in order that it may correspond as closely as possible to the actual trend of the market in the product in question, allocation of the quota should be in proportion to the requirements of the Member States as calculated by reference to statistics on imports from third countries which do not benefit from a similar preference, during a representative reference period, and to the economic outlook for the year covered by the quota in question;

Whereas, for the past three years for which complete statistics are available, the imports of each of the Member States sharing in the above allocation amounted to the following percentages of total imports of the products in question:

Whereas, in view of the above and of the foreseeable trend on the market in newsprint, in general, and of Community production in particular during 1984, the initial quota may be allocated approximately in the following percentages:

Whereas to take account of import trends for the product concerned, the quota should be divided into two tranches, the first being allocated among the Member States and the second held as a reserve to cover subsequently the requirements of Member States which have exhausted their initial shares; whereas, to give importers some degree of certainty and yet enable Community production to be disposed of on satisfactory terms, the first tranche of the quota should be fixed at 90 per cent of the full amount;

Whereas Member States may exhaust their initial shares at different rates; whereas, to provide for this eventuality and avoid disruption of supplies, any Member State which has almost used up its initial share should draw an additional share from the reserve; whereas each time its additional share is almost exhausted a Member State should draw a further share, and so on as many times as the reserve allows; whereas the initial and additional shares should be valid until the end of the quota period; whereas this form of administration requires close collaboration between the Member States and the Commission, and the latter must be in a position to keep account of the extent to which the quota has been used up and to inform the Member States accordingly;

Whereas if at given date in the quota period a considerable quantity of a Member State's initial share remains unused it is essential, to prevent a part of the Community tariff quota from remaining unused in one Member State while it could be used in others, that such State should return a significant proportion thereof to the reserve;

Whereas, since the Kingdom of Belgium, the Kingdom of the Netherlands and the Grand Duchy of Luxembourg are united within and jointly represented by the Benelux Economic Union, any transaction in respect of the administration of the shares allocated to that economic union may be carried out by any one of its members,

HAS ADOPTED THIS REGULATION:

Article 1

1. During the period 1 January to 31 December 1984, a Community tariff quota of 500,000 tonnes shall be opened in respect of newsprint falling within subheading 48.01 A of the Common Customs Tariff.

2. Member States may charge against this tariff quota the other types of paper complying with the definition of newsprint contained in the Additional Note to Chapter 48, except as regards the criteria governing watermarks.

3. Imports of newsprint shall not be charged against this tariff quota if they are already free of customs duties under other preferential tariff treatment.

4. The Common Customs Tariff duty shall be totally suspended within the limit of the above quota.

Within the limits of the above quota, Greece shall apply duties calculated in accordance with the relevant provisions laid down in the 1979 Act of Accession.

Article 2

1. The Community tariff quota referred to in Article 1 shall be divided into two tranches.

2. A first tranche of 450,000 tonnes shall be allocated among the Member States. Member States' shares, which subject to Article 5 shall be valid from 1 January until 31 December 1984 shall be as follows:

3. The second tranche of 50,000 tonnes shall constitute the reserve.

Article 3

1. If 90 per cent or more of a Member State's initial share as fixed in Article 2 (2), or of that share minus the portion returned to the reserve where Article 5 has been applied, has been used up, it shall forthwith, by notifying the Commission, draw a second share, to the extent that the reserve so permits, equal to 10 per cent of its initial share, rounded up as necessary to the next whole number.

2. If, after its initial share has been exhausted, 90 per cent or more of the second share drawn by a Member State has been used up, that Member State shall, in the manner and to the extent provided in paragraph 1, draw a third share equal to 5 per cent of its initial share.

3. If, after its second share has been exhausted, 90 per cent or more of the third share drawn by a Member State has been used up, that Member State shall, in the manner and to the extent provided in paragraph 1, draw a fourth share equal to the third.

This procedure shall apply until the reserve is exhausted.

4. Notwithstanding paragraphs 1, 2 and 3, Member States may draw lesser shares than those specified in those paragraphs if there are grounds for believing that those specified may not be used in full. They shall inform the Commission of their reasons for applying this provision.

Article 4

Additional shares drawn pursuant to Article 3 shall be valid until 31 December 1984.

Article 5

The Member States shall return to the reserve, not later than 1 October 1984, the unused portion, of their initial share which, on 15 September 1984, is in excess of 20 per cent of the initial amount. They may return a greater portion if there are grounds for believing that such portion may not be used in full.

Member States shall, not later than 1 October 1984, notify the Commission of the total quantities of the products in question imported up to and including 15 September 1984 and charged against the Community tariff quota and of any portion of their initial shares returned to the reserve.

Article 6

The Commission shall keep an account of the shares opened by the Member States pursuant to Articles 2 and 3 and shall, as soon as it has been notified, inform each Member State of the extent to which the reserve has been used up.

It shall inform the Member States, not later than 5 October 1984 of the amount still in reserve after amounts have been returned thereto pursuant to Article 5.

It shall ensure that when a quantity exhausting the reserve is drawn, the amount so drawn does not exceed the balance available, and to this end shall notify the amount of that balance to the Member State making the last drawing.

Article 7

1. Member States shall take all appropriate measures to ensure that additional shares drawn pursuant to Article 3 are opened in such a way that imports may be charged without interruption against their accumulated share of the quota.

2. Member States shall take all measures necessary to ensure that the types of paper referred to in Article 1 included in this tariff quota are in fact intended for the printing of newspapers, weekly papers or other periodicals of heading No. 49.02, published at least 10 times per year.

In such a case, the control of the use of the goods for the prescribed end-use shall be carried out by applying the relevant Community provisions.

3. Member States shall ensure that importers of the products in question have free access to the shares allocated to it.

4. The extent to which a Member State has used up its shares shall be determined on the basis of imports of the products in question entered with the customs authorities for free circulation.

Article 8

At the Commission's request, the Member States shall inform it of imports actually charged against their shares.

Article 9

Member States and the Commission shall co-operate closely to ensure that this Regulation is complied with.

Article 10

This Regulation shall enter into force on 1 January 1984.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 22 December 1983.

For the Council

The President

C. VAITSOS

Agreements  |  Disciplines | Trade Policy Developments | Countries | Disclaimer Home | What's New | SiteMap | Resources | Search