9 June 1989

3.20 Having argued that the EEC withdrawal programme's characteristics were, in fact, closer to a price stabilization programme than to an output reduction programme, the United States further argued that price stabilization programmes did not meet the strictures of Article XI:2(c). In fact, the drafters were careful to note that the inclusion of an exception for price stabilization programmes would distort the nature of Article XI:2(c) and overly expand it. The United States referred to the drafting history in support of this point. ¹⁴

3.21 The EEC stated that its internal measures concerning the marketing of apples did indeed constitute "governmental measures" in terms of Article XI:2(c). Withdrawal operations were carried out within the framework of a Community regulation; the cost was defrayed entirely from public funds; and it was the Community which saw to the process of initiation of withdrawal operations and which saw to it that the withdrawals took place in the framework either of direct or indirect management. Nothing in Article XI or in the relevant interpretations of that Article required that the governmental measures in question should be mandatory or compulsory. The Article specifically referred to "governmental measures which operate to restrict the quantities of the like domestic product permitted to be marketed or produced". The report on the Havana Charter pointed out in this connection that, in interpreting the term "restrict" for the purposes of the provision quoted above, the essential point was that the measures of domestic restriction must effectively keep the quantities marketed below the level they would have attained in the absence of restrictions. ¹⁵ Thus, it was the character of effectiveness of the governmental measures which was the criterion adopted and emphasized. There was no reference in the preparatory work of the drafters to any requirement that the governmental measures in question must be "legally binding". This approach was supported by the reports of various panels which had had occasion to deal with this question. For example, the Panel on "Japan - Trade in Semi-Conductors" ¹⁶ noted that "Article XI:1, unlike other provisions of the General Agreement, did not refer to laws or regulations but more broadly to measures. This wording indicated clearly that any measure instituted or maintained by a contracting party ... was covered by this provision, irrespective of the legal status of the measure". While there were differences between paragraph 1 and paragraph 2 of Article XI, this conclusion was all the more valid for paragraph 2 in that the same Panel developed its finding on the basis of another Panel report, which it thus supported on this point, and from which it emerged that in certain cases even measures addressed to private farmers' organizations within the framework of mutual collaboration with the authorities could be regarded as coming under Article XI:2(c)(i). It followed that, if measures of this kind could be accepted under Article XI:2(c), then measures which were clearly of a governmental nature, as were the Community's withdrawal measures, must also be accepted regardless of whether or not they were binding or mandatory.

3.22 Furthermore, the question of whether price stabilization was one of the purposes for which marketing restrictions were enforced was not relevant. Article XI:2(c) said nothing about the policy aims behind such restrictions, which would obviously involve price stabilization in most cases. It was the existence of the domestic output restrictions and their effect which counted, and was on these, not on price stabilization grounds, that the Community's parallel and proportional import restrictions were justified.

3.23 Examination of the way in which the Community system operated made it clear not only that it did indeed constitute "governmental measures" but also that it effectively restricted marketing so as to fulfil the requirements of Article XI:2(c)(i). The Community did not base its case on restriction of production but on restriction of the marketing of apples already harvested. It should be noted that the conclusions of the 1980 Panel ¹⁷ on this point were quite clear:

The Community system of withdrawals was based on the level of apple prices observed on the various Community markets; if the prices observed on these markets fell below a certain level, established in advance, withdrawals were effected. The purpose of the withdrawals was precisely to limit the total quantities offered for sale, in order to avoid any imbalances on these markets. The intervention mechanism worked in the following way:

3.24 The EEC emphasized that both of the above methods of carrying out intervention - decentralized, through producer groups, and direct buying-in by member states - depended on government decisions. In practice the decentralized system was the one preferred and most used. But member states still had an obligation to intervene directly under certain conditions, as noted above. The possibility that a member state facing "serious difficulties" in intervening could be exempted from doing so (Reg. 1035/72, Article 19) had never been invoked in the case of dessert apples. Furthermore subsequent revision of the regulation had further restricted the grounds on which such an exemption could be claimed. In both direct and decentralized intervention, also, the apples withdrawn became the legal property of the member-state authorities and were stored at Community expense. (This was to be distinguished from private commercial stockage - see paragraph 3.36 below.)

3.25 That these withdrawal operations were effective was obvious from the level of withdrawals effected. The EEC furnished statistics to support this point. It noted that during the 1987/88 marketing year, up to 31 May 1988, the Community had financed the withdrawal from the market of 591,000 tons of apples. Comparison of this figure with, for example, the figure for Community production (6,383,000 tons during the same marketing year), and especially with the figure for total imports (621,600 tons), left no doubt as to the effectiveness of the operations designed to reduce the quantities placed on the market. There was thus no doubt that the withdrawal measures, as implemented during the 1987/88 marketing year corresponded to measures such as those covered by Article XI:2(c)(ii).

3.26 The EEC added, in response to arguments of the United States, that the withdrawal price was deliberately set low so that it would not act as a production subsidy. It was therefore not logical to argue that it kept inefficient producers in business or that it was a subsidy to processing. Furthermore it was incorrect to allege that only low-quality or processing-grade apples were withdrawn. In fact only apples of quality categories I and II - i.e. dessert apples - were eligible for withdrawal. Although withdrawn apples went into processing (etc.), they had started out as table apples for the fresh market.

3.27 The United States further argued that the EEC's import restrictions were not necessary to the enforcement of the domestic supply restrictions (even had these been consistent with the other requirements of Article XI:2(c)). It argued in particular that the import restriction could not be necessary in terms of Article XI:2(c) because imports did not compete with domestic European Community apple supplies; because the domestic programme stopped before the import quotas ended; because there was no positive correlation between apples entering intervention and the volume of imports; and because the Community's apple market was healthy.

3.28 In support of its contention that imports did not compete with EEC domestic apples, the United States stated that because of the Community's reference price system, the only imports were high-quality, higher-priced apples, whereas the apples entering the EEC intervention system were low-priced and low-quality. Imported, and especially United States, apples were sufficiently distinct in variety, quality and price to constitute a special and unique market sector, in which demand was strong. There were effectively two markets for apples in the EEC: (a) high-quality, desirable varieties, including (but not limited to) imports; and (b) low-quality, less desirable varieties which sold for less than half the price of the first group. The United States identified the following market channels for apples in the EEC:

Whereas imported apples, as noted above, must be priced at the reference price 53.76 ECU/100 kg. in April 1988) the withdrawal price, and the price paid by processors - which were similar - were much lower. (The United States provided statistical illustration of these points.) As noted above, the Community's intervention system acted as a safety net for growers of apples for processing, providing a floor price for Category II processing apples. Imports obviously did not compete in this market. The United States recalled that the Interpretative Note to Article XI:2(c) stated that the exception only covered restrictions on those products "which compete directly with the fresh product and if freely imported would tend to make the restrictions on the fresh product ineffective". The EEC's withdrawal system, affecting only low-quality apples destined for juicing, could therefore not justify import restrictions on high-priced table apples.

3.29 The United States stated that it was accepted GATT practice that import restrictions were only legally necessary as long as the domestic restrictions remained in force. It cited the report of the Working Party on Quantitative Restrictions, ¹⁸ previous panel reports ¹⁹ and the drafters' intentions ²⁰ in support of this view. The EEC's withdrawal programme terminated on 31 May 1988; yet the import quotas were applied up until 31 August 1988. The Community could not use stocks to justify the maintenance of quotas in June and July, when intervention was not in operation, because only a small

proportion of EEC apple supplies was marketed during these months. Overall, imports accounted for only 6-9 per cent of EEC apple consumption, and imports were at their heaviest when domestic supplies were shortest.

3.30 The United States also claimed that import restrictions could not be necessary to protect a healthy domestic apple market. It stated that the European apple industry did very well overall in 1988. The average 1987/88 European Community apple price was better than in the previous year. Prices were substantially above the previous season's prices in the northern member states (where 90 per cent of apple imports were destined) and stocks were down substantially. Imports remained below 9 per cent of the market, and the import price was maintained substantially above the European Community internal price. As the withdrawal programme initiated under EEC Regulation 1035/72 was based on the representative price in local markets, and producers' organizations could only withdraw apples in those local markets with low prices (Regulation 1035/72, Article 19), imports had not significantly affected the level of withdrawals. Imports arriving in Northern Europe, where apple prices were strong, did not affect the bulk of European Community apple withdrawals, which were in southern member states. Moreover, the EEC's system of reference prices and countervailing charges on apple imports prevented them from affecting domestic prices.

3.31 Lastly, the United States detailed its argument that there was no positive correlation between apples entering intervention and the volume of imports. In fact, during years when intervention had been low, imports had also been low. EEC prices had also remained high when imports had been high. In 1987/88, both imports and intervention levels increased. In that year, intervention increased because of the relatively poor quality of the crop. As many low-quality, Category III apples were not eligible for intervention and were thus marketed, processors were not willing to pay relatively high prices for Category II apples. In addition, processors bought fewer low-quality apples because the season began with abnormally large stocks of concentrated apple juice and because of depressed prices in the United States, the world's largest importer of concentrated apple juice. The producer organizations withdrew large quantities of Category II apples because the withdrawal price was higher than the price processors were willing to pay in the depressed market for apple juice concentrate. Thus, even in 1987/88, the quantity of imports had no effect on the amount of domestic apples withdrawn.

3.32 The EEC held that its import restrictions were indeed necessary to the enforcement of its internal restrictions, in terms of Article XI:2(c). The purpose of Article XI:2(c) was to allow prevention of the quantitative effect of imports whenever such effect seemed prejudicial to the proper implementation of measures to restrict the quantities produced or marketed domestically. In the case under review, it was obvious that an increase in the quantity of imports had an impact on, or even nullified, the restrictive effect of withdrawal operations on the quantities marketed. The quantities established as regards both withdrawals and imports were of comparable magnitude and the products concerned were like products, regardless of difference of variety or of price. In the light of the findings of the 1980 panel, the Community could not take measures which distinguished among qualities. The United States had given the impression that only the lowest quality category of apples were withdrawn. In fact, only the highest two categories (I and II) were eligible for withdrawal; i.e., although withdrawn apples went to processing (etc.), they had all started out as table apples for the fresh market.

3.33 The EEC rejected the United States argument that the Community market could be divided into two parts, either geographically or by quality, with one market for Community apples of low quality and one for imported apples of high quality. A comparison of average unit values showed that, on the whole, apples traded within the Community and those imported from third countries were of comparable value and that the two series moved in parallel. Moreover, as well as being like products, apples remained competitive products. Thus, imports of apples into the Community were high because apple prices in the Community were high, unlike those in other markets; and if apple prices were, in general, high in the Community, it was because the quantities available on the market were subject to restrictive measures. The United States had also asserted that the demand for United States apples was strong when the supply of Community apples was weak, and vice versa. The Community provided data to show that in recent years United States imports occurred throughout the year, though at a lower rate between 1 April and 1 August - the same period during which import restrictions had been applied in 1988. Lastly, excessive sub-segmentation of the apple market on the basis of difference of variety or of price - despite the fact that the products remained like, and therefore competitive, products - would eventually render Article XI inoperative, for only strictly identical products could be covered by Article XI:2 and all other products would consequently be excluded. Such an interpretation would excessively limit the scope of the Article and could not be supported by legal argument.

3.34 As to whether it was necessary to restrict apple imports at periods other than the production period of Community apples, the EEC noted that Article XI posed no requirement in this regard. Examination of the preparatory work showed that this omission was quite intentional, for the exclusion of restrictions outside the production period was considered but ultimately abandoned. ²¹ The Working Party on Quantitative Restrictions expressed the view that import restrictions during the part of the year in which domestic supplies of the product were not available could be imposed only to the extent that "they were necessary ... to achieve the objectives of the governmental measures relating to control of the domestic product". ²² It followed that Article XI made no distinction according to periods of production as such but rather according to periods of supply, and that, in the absence of earlier available supply, it could nevertheless be necessary to restrict imports, depending on the magnitude of the particular case.

3.35 While the production of apples in the Community, as elsewhere, was concentrated in a few months, their marketing extended over a longer period, although less than twelve months. With the help of appropriate storage techniques, apples could now keep their organoleptic qualities longer than in the past. This was demonstrated by the fact that the marketing of (Community or imported) northern hemisphere apples continued until the summer and that the marketing of southern hemisphere apples continued beyond the summer months. Even though most marketing took place during the production period, marketing was still substantial throughout the year and the seasonal division was tending to fade because of the interpenetration of marketing periods. It followed that the domestic supply of the market was assured throughout the marketing year in combination with the outside supply coming from either the northern or the southern hemisphere. In these circumstances, it was clear that achievement of the objectives of governmental measures relating to the control of the domestic product made necessary the implementation of restrictive measures outside the period of Community production, and that the marketing year was a more realistic basis. Moreover, although apples, whether produced in the northern or the southern hemisphere, could be marketed over a period of several months, they did not thereby lose their perishable character since their limited preservability was due to special techniques of storage of the product in its natural state and not to transformation of the product.

3.36 Contrary to the United States' assertion, the Community apple market was not "healthy", the EEC stated. Apple stocks during the marketing year 1987-88 reached very high levels, even higher than in the immediately preceding years, largely owing to low consumption of apples in the Community. Stock levels appeared all the higher, in relative terms, as production for the 1987/88 marketing year - 6,315,000 tons - was nowhere near the levels of previous years. (Data on stock levels were supplied by the EEC.) Other factors had also to be taken into consideration in assessing the Community apple market situation during the 1987/88 period. Owing to increased imports, together with improved storage methods, a residue of imports remaining from the 1986/87 period could be marketed well after the beginning of the Community market year, with the result that the market was technically "heavy". In addition, prices were particularly low on several representative markets (the French and Italian markets in particular). The poor state of the Community market explained why high import forecasts could only hamper the disposal of apple stocks on the Community market.

3.37 It was important not to confuse withdrawals and stocks. "Withdrawals" were that quantity of apples which could not be put back on to the table apple market. "Stocks" were commercial stocks, destined for deferred commercialization on the table market. These were private stocks, not aided by the EEC. Withdrawal enabled private stocks to stay within reasonable limits and eventually be disposed of on the market without upsetting price levels. The interplay of the withdrawal scheme and the parallel and proportional supervision and control of imports was essential to the functioning of the stockage mechanism. The whole system had to be seen and evaluated in its entirety.

3.38 Whether there was a fixed and pre-established link between imported quantities and quantities affected by restrictive measures was not relevant to the question of assessing the need for an import restriction. ²³ It was not required under Article XI:2(c) to have such a fixed and pre-established link. When, in 1982, the Community engaged in large withdrawals, it evaluated the trend of imports and, after finding that they were stable - or even declining - at the time, it did not have recourse to import restrictions. In the course of the 1987/88 marketing year, the Community found that, despite lower production, withdrawals were rising strongly. This reflected a trend towards lower consumption at a time when imports were tending to increase. The Community therefore deemed it necessary to restrict imports in order to preserve the effect of its policy of restricting marketed quantities, and it did so in the light of two considerations:

3.39 At the same time, the Community acted in strict compliance with Article XI:2 by case-by-case analysis of the situation on each marketing year as concerned the balance of supply and demand. In that respect, different patterns might emerge:

There was thus clearly a link between the trends of domestic supply and of imported supply in assessing whether or not it was necessary to act on the totality of supply in order that the balance and level of the market should keep reflecting the level of consumption. The fact that the Community did not use levels pre-established before the beginning of the marketing year was due to the unforeseeability of supply and demand, and made possible adjustment of the supply restriction as closely as possible to the trend of real demand - thus avoiding automatic restrictions that might turn out, in reality, to have been either excessive or inadequate. The Community considered the objective of controlling the marketed supply to be perfectly legitimate and consistent with the objectives of Article XI, and in particular paragraph 2.

3.40 Regarding the above arguments of the EEC, the United States rejected the claim that the level of Community production in 1987/88 was nowhere near that of previous years; it maintained that EEC data showed this to be a normal level. It also held that the price data from which the Community had argued was selective and unrepresentative, covering only the small, high-quality, percentage of EEC apples which were traded among member states.

3.41 The United States further argued that the EEC did not give adequate public notice of its import quotas. It claimed that this was contrary to the requirements, not only of Article XI:2(c) (last paragraph) but also of Articles X:1 and XIII:3(b). Any contracting party that undertook import restrictions must give public notice of the total value or quantity of the restrictions and publish them promptly so as to enable governments and traders to become acquainted with them. In this case, the European Community published and notified the CONTRACTING PARTIES on 21 April of the imposition of quotas for the period of 15 February to 31 August 1988. Thus, the quotas applied retroactively to all apples imported in the two months prior to announcement of the quota. Such retroactive notice did not satisfy the requirement of prompt publication, nor could it be considered to be adequate public notice. In addition, one day after the quota's announcement, the "other country" allocation was filled, and all United States apples en route to the European Community had to be diverted. Thus, the Community's public notice allowed only one day of apple imports. Such public notice was tantamount to an import prohibition, which was contrary to the provisions of Article XI:2(c) (United States Tuna, BISD 29S/107, para. 4.7).

3.42 Furthermore, exporters from various contracting parties who normally shipped apples after 20 April witnessed the market effectively undercut by those who had shipped between 15 February and 20 April. The drafters of Article XI:2(c) explicitly intended that import restrictions should not "operate in a manner unduly favourable to those countries best able for any reason to take prompt advantage of the global quota at the opening of the quotas period" (Havana Reports, p. 91, para. 28). Here, as the United States was included in the quota for "other countries" and the quota applied retroactively, the lack of adequate public notice adversely affected United States trading interests. ²⁴

3.43 The EEC denied that it had violated any notification or publication requirements, applied a quota retroactively or applied an import prohibition. All Community measures were published promptly and in advance of their entry into force, in accordance with the requirements of Articles X, XI:2 last paragraph and XIII:3(b). There was nothing in any of these provisions which required a particular interval between publication and entry into force. In Regulation 1040/88 of 20 April 1988 (published in the Official Journal of 21 April 1988), the Commission fixed the quantities of imports of dessert apples originating in third countries for the period up to 31 August 1988. The Community notified the CONTRACTING PARTIES of these quotas, under Article XI, in document L/6334 of 27 April 1988. They included a quota for the "other countries" that is, countries other than the main southern hemisphere suppliers. Therefore, on 21 April 1988, the United States could know the total volume of apple imports that would be authorized for the period up to 31 August 1988.

3.44 The United States also argued that the European Community had reduced the proportion of imports relative to total domestic production. The last paragraph of Article XI:2 required that any restrictions applied under Article XI:2(c)(i) might not be such as would reduce the total of imports relative to the total of domestic production, as compared with the proportion which might reasonably be present in the absence of either domestic or import restrictions. In determining this proportion, the contracting party must pay due regard to the proportion prevailing in a previous representative period, and to any special factors influencing trade in the product concerned. The notes to the General Agreement explained that "the term "special factors" included changes in relative productive efficiency as between domestic and foreign producers, or as between different foreign producers, but not changes artificially brought about by means not permitted under the Agreement". The European Community could not meet these requirements. Under any reasonable measure the proportion of imports relative to domestic production had not been maintained, and no legitimate special factors could be cited to explain the drop.

3.45 The EEC stated that by restricting imports of apples through the establishment of import quotas, the Community did not reduce the proportion of total imports relative to total domestic production as compared with the proportion that might reasonably exist in the absence of restrictions. In a recent submission to another panel, the Community had provided the evidence to demonstrate that it had been at great pains to respect this particular criterion, the only criterion it had not met in 1980. ²⁵ It should be recalled that the 1980 panel considered that to fulfil the conditions of the second sentence of Article XI:2, last paragraph, it was necessary to look at the ratio of total imports into the EEC to EEC production during a previous representative period. The Community took the three years (in the form of marketing years) preceding the measure as the previous representative period; that is, 1986/87, 1985/86 and 1985/84. The EEC supplied statistical data which showed that during that period, the average proportion of imports to gross domestic production was 7.7 per cent. In marketing year 1987/88, the proportion was 8.7 per cent, in other words, it increased by almost 11 per cent. In the case of a marketing, as proposed to a production, restriction, it stood to reason that the quantities withdrawn from sale should be taken into account; and a similar increase was visible in the net domestic production figures. In other words, the Community chose to exceed the average of the last three years by substantially increasing the share of imports.

3.46 The United States contended that the above arguments of the EEC had not proved that the proportionality requirement had been met. Whereas Article XI:2(c) was concerned with the proportionality between imports and the total of domestic production in the absence of restrictions, the EEC had furnished statistics to show the ratio of imports, after imposition of restrictions, to domestic production, after institution of the withdrawal scheme. The United States submitted that in the absence of the EEC domestic programme, which artificially supported the production of low-quality apples, imports would have attained a larger proportion of the EEC market both historically and currently. Thus, the proper ratio should be much higher.

3.47 The EEC reiterated that the statistics provided had shown that there was no reduction in the total of imports, relative either to gross production or to net production (i.e. less withdrawals).

3.48 The United States argued that the EEC's import quotas did not remove a temporary surplus of a like domestic product in terms of Article XI:2(c)(ii). They could not remove a temporary surplus because there was no "temporary" surplus. The Common Agricultural Policy had conceived surpluses in nearly every year that the programme had been in existence for apples. The European Community's voluntary supply management programme caused the development of a permanent surplus by guaranteeing a minimum price for apples which, in the absence of the programme, would not be sold at all - with or without imports. The programme did not limit production; in reality it kept trees in production which should be removed. In its 1980 examination of the Article XI:2(c)(ii) exception for European Community apples, the Chile Apple Panel "thought that the EEC surplus of apples could not be considered "temporary" as it appeared year after year". ²⁶ If the "temporary" surplus existed year after year through 1980 and continued through today, surely it could no longer be considered temporary. Notwithstanding its finding that the European Community "temporary" surplus in apples recurred year after year, the Chile Apples Panel "could not conclude that the EEC did not meet the conditions of Article II:2(c)(ii)". ²⁷ The panel based its "non-conclusion" on the fact that "the surplus in 1979 was significantly higher than normal and could be considered to be a temporary surplus above the recurring surplus". The United States found this reasoning highly suspect, and urged the Panel to reconsider it. However, even if the reasoning were accepted, no such "temporary surplus above a recurring surplus" existed today. In fact, total domestic production of apples had fallen from 7,131,000 tons in 1986/87 (when no import quotas were imposed) to 6,500,000 tons in 1987/88. Thus, under either view, the European Community could not legitimately invoke Article XI:2(c)(ii).

3.49 Furthermore, the European Community had not removed the surplus by making it available to domestic consumers. Article XI:2(c)(ii) additionally required that the temporary surplus be removed "by making the surplus available to certain groups of domestic consumers free of charge or at prices below the current market level". Available statistics, however, showed that of the apples withdrawn from the market in 1986/87 (the last season for which data were available) 46.7 per cent went into animal feed, 20.6 per cent into alcohol, and 29.66 per cent were destroyed. Only 3.04 per cent were distributed free of charge. Secondly, Community withdrawn apples were sold for animal feed to any farmer, not just to poor, disadvantaged farmers. Thirdly, the Community tendered the apples for animal feed so as to sell them at market price. (See, EEC Regulation 1035/72, Article 21(3) - "The disposal of products to the feedingstuffs industry ... shall be carried out by tendering procedure by the agency designated by the member state concerned.") And, fourth, over half of the withdrawn apples went toward neither of these Article XI:2(c)(ii) uses: 20.6 per cent were converted into alcohol, and 29.66 per cent were destroyed. Thus, the Community had not complied with its burden of proof as to the removal of a temporary surplus.

3.50 The EEC argued that in the light of the features which marked the 1987/88 marketing year, the Community could be considered to have been facing a temporary surplus during that year. The surplus that year exceeded by far the levels of previous marketing years. The level of withdrawals effected during a marketing year should be referred to in order to establish whether or not a surplus was temporary, as withdrawals in fact measured the difference between the quantities produced and consumed. During the 1987/88 marketing year, withdrawals amounted to 600,000 tons, which was well above the levels of the previous marketing years, except for 1984/85. While it was true that withdrawals were effected each year, it was the scale of such withdrawals which determined that the surplus was temporary and not chronic. Given the amount of the surpluses traditionally seen on the market (averaging 9 per cent of production over the last six marketing years), the level of the surplus found to exist in 1987/88 made it a temporary surplus by definition, contrary to the United States' assertions. The temporary nature of the 1987/88 surplus was further obvious from the fact that the Community had had recourse to the provisions of Article XI only exceptionally - for the marketing years of 1987/88 and, earlier, of 1978/79 - i.e. only in periods when the Community surplus was very high. It was precisely because this surplus was temporary that the Community had had to take measures to restrict imports in 1988 whereas it had not done so in previous years. Finally, the Community surplus was made available to certain groups of consumers in the Community free of charge or at prices below the current market level, in accordance with the provisions of Article XI:2(c)(ii). The disposal of apples withdrawn from the market was covered by Community rules which provided that apples withdrawn from the market should, inter alia, be distributed to charitable organizations and used for animal feed. The Community rules stipulated that the use of withdrawals should not, in any circumstances, disrupt the disposal of products marketed normally, which was why these withdrawals were disposed of either free of charge (distribution on a humanitarian basis), or at prices lower than market prices (for animal feed). It was on this account that the 1980 panel was able to conclude that the withdrawals effected by the Community complied with the provisions of Article XI:2(c)(ii).

3.51 The United States replied that withdrawals only measured price differences for the lowest quality apples in the Community member states and (as argued above) were more influenced by the market for concentrated apple juice than the market for high-quality, fresh apples which the United States exported. Imported apples, especially United States apples, met a special market niche that Community apples could not fill and did not affect the price of domestic apples in 1987/88. Thus, by artificially raising the price of imported apples through the threat of the variable levy and producing too many low-quality apples for processing through the Common Agricultural Policy, the Community alleged that a "temporary" surplus arose. If such a "surplus" could be described as "temporary", then the temporary import quotas could become as temporary as the chronic Community surpluses.

3.52 The EEC maintained that the statistical data before the Panel clearly established that in 1987/88 the Community did in fact produce a surplus above demand which was considerably higher than the average of surplus production in previous years. Such a surplus, as confirmed by the 1980 panel, was the temporary element of otherwise existing recurring surpluses. It would be nonsensical to accept the GATT concept of a temporary surplus only in areas where recurring, chronic or structural surpluses did not exist at all. Nothing in the General Agreement could be interpreted to mean that the existence of a structural surplus took away GATT rights with respect to the reduction of temporary surpluses. Both types of surpluses were recognized to exist by the General Agreement itself: otherwise why would Article XI:2(c)(ii) make the distinction? If they were both recognized to exist, they were also recognized to exist at the same time.

3.53 The United States argued that, since the EEC import restrictions were in contravention of Articles X, XI and XIII, there was a prima facie case of nullification or impairment of the rights of the United States under the General Agreement. Citing, inter alia, the relevant provisions of the 1979 Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance, ²⁸ the United States stated that nullification or impairment was presumed to exist - especially in the case of quotas - whether or not actual trade damage had been caused. In fact the United States had suffered such harm; it lost $238,000-worth of sales of apples in transit to the EEC, $3.67 million in cancelled orders and $5 million of expected sales, as well as suffering disruption in the United States and third-country markets.

3.54 The EEC maintained that it did not violate any of the provisions of the General Agreement. There was thus no prima facie case of nullification or impairment of rights accruing to the United States under the General Agreement. Furthermore the United States had not suffered trade damage; in fact its share of the "other countries" sector of Community apple imports had increased from its 1985-87 level of 26.3 per cent to 67.8 per cent during the period of the restrictions. Likewise the evidence - including United States official statistics - did not support the United States contention that the EEC measures had disrupted the United States and third-country apple markets.

TO CONTINUE WITH RESTRICTIONS ON IMPORTS OF APPLES - COMPLAINT BY THE UNITED STATES

¹⁴ EPCT/A/PV/19, 27.6.47, pp. 29-40

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