OAS

18 April 1989

EUROPEAN ECONOMIC COMMUNITY - RESTRICTIONS ON IMPORTS OF DESSERT APPLES - COMPLAINT BY CHILE

Report of the Panel adopted on 22 June 1989
(L/6491 - 36S/93)

Table of Contents

INTRODUCTION

FACTUAL ASPECTS

EEC Market Organization
Licensing
Suspension of Licenses

MAIN ARGUMENTS

Article XI
Article XIII
Article I
Article X
Article XXIV:12
Part IV
Standstill Commitment
Article XXIII:2
Compensation

SUBMISSIONS BY OTHER CONTRACTING PARTIES

Argentina
Canada
South Africa

FINDINGS

CONCLUSIONS

_______________
Note: "Tons" refers to metric tons throughout this report.


1. INTRODUCTION

1.1 In communications circulated as L/6329 and L/6929/Add.1 of 22 April 1988 and 3 May 1988 respectively, Chile set out a complaint under Article XXIII:2 of the General Agreement concerning the licensing system applied by the European Economic Community to imports of apples from Chile, the suspension of import licences for apples originating in Chile, and the EEC's subsequent adoption of a system of quotas for apples imported into the Community. The Government of Chile further detailed the basis for its complaint in a communication addressed to the Director-General and circulated as L/6339 of 2 May 1988.

1.2 In a communication circulated as L/6337 of 22 April 1988, the Commission of the European Communities advised CONTRACTING PARTIES that it had taken action concerning dessert apples under Article XI:2 of the General Agreement, i.e., the establishment of import quotas applicable until 31 August 1988. It offered consultations with any substantially interested contracting party concerning the details of these measures.

1.3 At the meeting of the Council on 4 May 1988 the representative of Chile stated that two sets of Article XXIII:1 consultations had been held with no satisfactory result and requested the prompt establishment of a panel under Article XXIII:2 to examine the complaint. The Council agreed to establish a panel to examine the matter referred to the CONTRACTING PARTIES by Chile and authorized its Chairman to draw up the terms of reference and to designate the Chairman and members of the Panel in consultation with the parties concerned. As notified to CONTRACTING PARTIES in a Note from the Council Chairman of 5 August 1988 (C/158), the agreed terms of reference were:

"To examine, in the light of the relevant GATT provisions, the matter referred to the CONTRACTING PARTIES by Chile in document L/6329 and Add.1 and to make such findings as will assist the CONTRACTING PARTIES in making the recommendations or in giving the rulings provided for in Article XXIII:2."

The composition of the Panel was:

Chairman:Mr. George A. Maciel
Members:Ms. Margaret Liang
Dr. Thomas Cottier

1.4 The Panel met on 4-6 October and 9-11 November 1988, and on 13-15 February 1989. In the course of its work the Panel held consultations with the European Economic Community and Chile, as well as with interested third parties (Argentina and Canada). Another interested third party (South Africa) made a written submission. The United States, Uruguay, Australia, New Zealand, Romania and Poland also reserved their rights to make submissions to the Panel (C/M/220).

1.5 The Panel submitted its report to the parties to the dispute on 23 March 1989.

2. FACTUAL ASPECTS

2.1 The common organization of the EEC market for dessert apples (and for other fruit and vegetables) is based on Council Regulation 1035 of 1972 (Official Journal L 118 of 20.5.72), as subsequently amended. This regulation replaced similar measures in place since 1966. The basis of the external régime is set out also in Regulation 2707/72 (OJ L 291 of 1972). These regulations were described in an earlier panel report in 1980. 1 Despite a number of amending regulations since 1980 the essential features of the system established under Regulation 1035/72 have not changed. At the internal level, therefore, the main elements of the market continue to be:

Producer Groups, which are a basic structural element;

Quality Standards, which apply both to the marketing of Community products and to imports;

Prices and Intervention System. Before the start of each marketing year, the EEC Council of Ministers fixes a basic price and a buying-in price under Article 16 of Regulation 1035/72. The basic price is a guide price which determines the buying-in and withdrawal prices, explained below. It is fixed for quality class I of certain pilot varieties, and applies for the period August through May. For the 1987-88 marketing year, the basic prices were fixed as follows (ECU/100 kg.):

August 26.51 November 27.22
September 26.51 December 29.61
October 26.51 January to May 32.01

The buying-in price is fixed at between 40 and 55 per cent of the basic price. For the 1987/88 marketing year the buying-in prices were as follows (ECU/100 kg.):

August 13.51 November 14.06
September 13.51 December15.17
October 13.63 January to May 16.27

2.2 Market intervention takes the form of withdrawal from the dessert apple market of apples meeting certain quality standards. Community regulations prescribe two possible methods; "buying-in" by member state authorities and "withdrawal" by producer organizations.

(a) Buying-in

During the period when the basic and buying-in prices are in force, member States notify the Commission daily of actual prices recorded on representative markets. If these remain below the buying-in price for three consecutive market days the Commission must, on member state request, record that the market in question is in a state of serious crisis. The member states are then required to buy apples of Community origin offered to them at a price equivalent to the buying-in price.

(b) Withdrawal by producer groups

When it appears to producer organizations that market prices are likely to fall substantially because of surplus supply, they may ask the member state authorities for permission to initiate withdrawal operations, at a withdrawal price not exceeding the public buying-in price plus 10 per cent of the basic price. (Article 15a of Regulation 1035/72 also enables member states to authorize "preventive withdrawals" by producer groups early in the marketing year in the light of the production outlook.) The member states, through their local representatives, verify that withdrawals have taken place and grant financial compensation, paid by the Community, to the producer groups for the withdrawal payments, less net receipts from the disposal of withdrawn apples.

Withdrawals by producer organizations, offering a somewhat higher price, account in practice for the major share of apples withdrawn. It is also Community policy to encourage the development of producer organizations and their role in market intervention.

2.3 Under Article 21 of Regulation 1035/72, member states shall ensure that products withdrawn are used for:

- free distribution;

- non-food purposes;

- animal feed;

- processing into alcohol;

- industrial processing.

2.4 The EEC has not enacted restrictions on the planting of apple trees. It did not operate a grubbing-up programme for apple orchards during the period in which the import restrictions in question were applied.

2.5 Imports are subject to a customs duty and the application of a reference price. The customs duty is bound and varies according to the period:

- from 1 August to 31 December: 14 per cent

- from 1 January to 31 March: 8 per cent

- from 1 April to 31 July: 6 per cent

2.6 Under Regulation 1035/72 (Article 22 et. seq.), the Commission fixes the reference price for each marketing year, or seasonal sub-divisions thereof, on the basis of an average of Community producer prices, plus marketing costs. An "entry price" is calculated daily for third country imports. If this falls below the reference price, a countervailing charge (in addition to the customs duties) may be levied to make up the difference.

2.7 The Community regulations also provide the possibility of recourse to protective measures against imports. In the case of actual or threatened disruption of the Community market by imports, or in the case of heavy EEC interventions or market withdrawals, Article 29 of Regulation 1035/72 (as amended by Council Regulation 2454/72)2 authorizes the application of "appropriate measures" to trade with third countries. These measures, and conditions for their application, are defined in Regulation 2707/72. Under Article 3 of that Regulation, they may take the form either of suspension of imports or the levying of a prescribed amount additional to the customs duties and any countervailing charges. The Regulation goes on to state that such measures may only be taken insofar, and for as long, as they are strictly necessary. They should "take account of the special position of goods in transit to the Community". They may be limited to products exported from certain countries.

2.8 At the Commission's request, southern hemisphere countries have in recent years supplied forecasts of their apple exports to it in confidence before each export season.

Licensing

2.9 On 3 February 1988, in Commission Regulation No. 346/88 (published in Official Journal L 34 of 6.2.1988), the EEC Commission introduced a system of surveillance through import licensing of (dessert) apple imports from outside the Community valid until 1 September 1988. Characteristics of this system were:

- import subject to issue of licence by the importing member state;

- surety deposit (1.5 ECU/100 kg. net) with refund conditional on import;

- import licences valid for one month from date of issue;

- licences issued on fifth working day after request lodged (this provision applied as from 22.2.1988).

2.10 The licensing system was modified by two subsequent Commission Regulations. Regulation 871/88 of 30 March 1988 (OJ L 87 of 31.3.88) extended, inter alia, the validity period of the licences to 40 days with the proviso that no licence would be valid after 31 August 1988. Regulation 1155 of 28 April (OJ L 108 of 29.4.1988) extended, on a trader's request, the 40-day validity period to licences requested before 31 March 1988 and issued from that date.

Suspension of licences

2.11 By Regulation 962/88 of 12 April 1988 (OJ L 95 of 13 April) the EEC Commission suspended the issue of import licences for (dessert) apples originating in Chile for the period 15 to 22 April 1988. Any applications pending on 18 April were to be rejected and the relevant securities released.

2.12 The basis in Community law referred to in the preamble to this Regulation was (inter alia) Reg. 2707/72, which lays down "the conditions for applying protective measures for fruit and vegetables". In this case the Commission stated that import licence applications from Chile exceeded the traditional quantity of imports. The preamble went on:

"Whereas since the existence of substantial stocks and withdrawals and of prices considerably lower than those in the previous marketing year on the markets of the main producer countries is a feature of the Community market for dessert apples, the continuation of such imports could lead to serious disturbance of the market such as to jeopardize the objectives of Article 39 of the EEC Treaty and in particular to cause serious injury to Community producers; whereas, on account of these critical circumstances, protective measures must be urgently taken in respect of imports of such products by suspending the issue of import licences for the period necessary for a review of the overall situation on the market for dessert apples."

2.13 On 14 April 1988 the Commission (Reg. 984/88, OJ L 98 of 15 April 1988) changed the period of suspension for import licences on Chilean apples from 15-22 April to 18-29 April. In the preamble to the Regulation the change was explained in terms of the need to carry out an in-depth review of the overall situation of the market in dessert apples.

2.14 Then, on 20 April, the Commission adopted Reg. 1040/88 (OJ L 102 of 21.4.88) which suspended until 31 August 1988 the issue of import licences for third-country imports in respect of tonnages which exceeded a prescribed quantity. In the case of Chile that "reference quantity", fixed at 142,131 tons, was deemed to have been already exceeded in terms of licences applied for, and therefore the suspension in place under Regulations 962/88 and 984/88 was continued through to 31 August.

2.15 The "reference quantities" fixed for suppliers other than Chile in Reg. 1040/88 were:

South Africa 166,000 tons
New Zealand 115,000 tons
Australia 11,000 tons
Argentina 70,000 tons
Other countries 17,600 tons

2.16 Regulation 1515/88 of 31 May 1988 (OJ L 135 of 1.6.88) amended the import licence application and issue forms and procedure in order to ensure that imports were consigned from the country of origin. The stated intent was to ensure that the "equitable distribution" of import quantities was properly applied.

2.17 The measures noted above expired on 31 August 1988 as specified.

TABLE I

EEC Apple Production, Withdrawals and Stocks
(Community of Ten)
('000 tons)

EEC Marketing Year 1983/84 1984/85 1985/86 1986/87 1987/88
Production
(season July-October)
6,188 7,357 6,334 7,368 6,383
Withdrawals 125 661 151 354 207 @ 15.1.88
(season August-May) 370 @ 29.2.88
591 @ 31.5.88
Stocks (Calendar Year) 1984 1985 1986 1987 1988
at: 1 January 2,175 2,350 2,032 2,275 2,404
1 February 1,831 1,866 1,683 1,951 2,001
1 April 1,038 1,046 912 1,061 1,140
Source: EEC Commission (Eurostat, member states)

TABLE II

EEC-10: Imports of Dessert Apples
(tons)

1984 1985 1986 1987 1988
(Quotas)
CHILE 97,820 86,963 151,088 158,755 142,131
(% of southern hemisphere total) (25.2%) (21.5%) (33.5%) (32.3%) (28.1%)
ARGENTINA 52,932 64,338 32,181 52,190 70,000
(13.6%) (15.9%) (7.1%) (10.6%) (13.8%)
SOUTH AFRICA 157,467 147,327 164,210 169,457 166,000
(40.6%) (36.4%) (36.4%) (34.5%) (32.9%)
AUSTRALIA 2,238 10,278 6,156 8,637 11,000
(0.6%) (2.5%) (1.4%) (1.7%) (2.1%)
NEW ZEALAND 77,275 95,614 97,331 102,481 115,000
(19.9%) (23.6%) (21.6%) (20.8%) (22.8%)
Southern Hemisphere total 387,732 404,520 450,966 491,520 504,000
All imports total 515,223 497,930 517,232 524,900 521,731

TABLE II (a)

Imports as Percentage of EEC Production

Year 1984 1985 1986 1987 1988
(Quotas)
Southern Hemisphere 6.2 5.5 7.1 6.7 7.9

3. MAIN ARGUMENTS

Article XI

3.1 Chile stated that the EEC's restrictions on imports of dessert apples were clearly contrary to Article XI:1. It noted that it was incumbent on the contracting party invoking an exception under the General Agreement to demonstrate that it was fulfilling all of the requirements laid down by that exception. This had been confirmed as regarded Article XI:2 by a recent panel decision. 3

3.2 The European Economic Community maintained, as it had done in its notification to contracting parties (L/6337), that its measures concerning Chilean apples were taken in conformity with Article XI. It did not argue that the measures were consistent with Article XI:1, but that they involved a justified use of the exemption from the terms of that provision allowed, on certain precise conditions, under Article XI:2. The EEC argued that it had satisfied the conditions as previously interpreted, in particular by a Panel on a similar case.

3.3 The findings of the Panel on "EEC Restrictions on Imports of Apples from Chile" (L/5047), adopted by the Council on 10 November 1980, without reservation by the two parties, were the starting point for the EEC. The parties in that case had been the same, and the matter examined - the application by the Community of import restrictions on apples - had also been substantially the same. The Community's firm view was that questions settled in the 1980 case could not, and should not, be re-opened in this case. It emphasized that, to ensure respect for the obligations and rights of contracting parties under the General Agreement, the decisions of the CONTRACTING PARTIES and the operation of the dispute settlement system, it was essential to assess the GATT legality of the Community measures taking into account the considerations and conclusions already put forward by the 1980 Panel insofar as the issues in dispute had already been resolved. In applying the import restrictions under challenge in this case, the Community had taken pains to comply with the criteria concerning Article XI laid down by that Panel, and could show that its application of measures in 1988 was consistent with those criteria.

3.4 The Community's policy had not fundamentally changed with regard to the intervention and support mechanisms on the apple market since 1980, apart from statistical changes, which were further evidence of conformity with the 1980 Panel's criteria. The EEC had no fundamentally new arguments further to those submitted to the 1980 Panel (summarized by the latter in paragraphs 3.13 to 3.18 of its report), subject to statistical amendment.

3.5 The EEC noted that the 1980 Panel found that the EEC measures at that time "met some but not all of the criteria contained in Article XI:2(c)(i) and (ii) in order to qualify as an exception to Article XI:1". In particular the Panel had specified that "the measures could not qualify as an exception to Article XI:1 under Article XI:2(c)(i) in that they had not fulfilled the conditions of the last paragraph of Article XI:2". This meant that the Panel had found the other conditions of Article XI:2(c)(i) to be fulfilled, and the EEC therefore only needed to provide evidence that it had fulfilled in 1988 the conditions of the last paragraph of Article XI:2.

3.6 Chile expressed the view that the EEC was not waived from providing evidence that it met all of the requirements of Article XI:2 by the findings of the 1980 Panel. That Panel did not adopt a clear position on many of the points involved in the justification of measures under Article XI:2(c)(i). Furthermore, there were other relevant GATT panels. The Panel concerning Japan's restrictions on certain agricultural imports had established a comprehensive approach for examining such restrictions in light of the provisions of Article XI:2. Another was the 1978 Panel report on the EEC's minimum import prices for processed fruits and vegetables (L/4687).

3.7 Chile maintained that the Community's measures were a prohibition, not a restriction, of imports. When the EEC suspended licences for Chile under Commission Regulation 962/88, it did so not by virtue of any quota, but simply prohibited Chilean apples from continuing to be imported into the EEC. And even Regulation 1040/88, which established the quotas, was a prohibition inasmuch as it entered into force when the exporting process was already well under way and extended the earlier prohibition, permitting no further Chilean imports for the remainder of the importing season to 31 August.

3.8 The EEC stated that the suspension of import licences for Chilean apples under Regulation 962/88 was a question of the administration of quantitative restrictions, and hence should be examined under Article XIII. (Its arguments relating to this provision are set out below.) The Community had imposed restrictions in conformity with Article XI:2(c), not prohibitions. It was clear from Regulation 1040/88 that quotas had been established and that Chile had been permitted to import 142,131 tons.

3.9 Chile did not accept that the EEC satisfied the requirement for governmental measures which operated to restrict the quantities of a product permitted to be marketed or produced. The EEC did not control domestic apple production. But there were also no governmental measures which operated to restrict the quantities of apples permitted to be marketed, as Chile maintained that a system of compensation for withdrawals by producers' organizations did not constitute such measures in the terms of Article XI:2(c)(i). While noting that the 1980 Panel had considered that the EEC did restrict the quantities of apples permitted to be marketed, it also cited the report of the Panel on "EEC - Minimum Import Prices for Certain Processed Fruits and Vegetables" (1978, L/4687) which had examined the Community's intervention system for fresh tomatoes and concluded (para. 4.13) on a number of grounds that it did not meet the requirements of that GATT provision. The basic Community Regulation (1035/72) and the essentials of the system were the same, Chile stated, for tomatoes and apples then and now. Thus the 1978 Panel's findings also remained relevant in the present case insofar as the EEC did not provide evidence of changes in its system which would bring it into conformity with Article XI:2(c)(i).

3.10 Chile stated that while the EEC had described its system as two-fold, with member state and private (producer group) intervention, direct member state intervention was in practice not operational. The establishment and membership of producers' organizations in the EEC fresh fruit sector was voluntary, and their recognition by member states discretionary to an extent. A high proportion of Community apple producers were not in fact members of such organizations. Chile gave the average participation level in the Community of 10 as less than 50 per cent, and as low as 10 per cent in one member state. Producers were under no governmental compulsion to limit their marketings to a specific quantity. There were no guidelines laid down in Community regulations concerning the quantity of fresh apples which should be permitted to be marketed in a given year or which would enable such quantity to be determined. This determination was left to producers' organizations. Quantities withdrawn had sometimes been as low as 3 per cent of Community production. Furthermore Chile noted that withdrawal prices were low - a quarter or less of the price of imported apples - and thus constituted a safety net far below market prices rather than a target or intervention price as existed in some other sectors.

3.11 The EEC argued that its system of market withdrawals for apples did constitute "government measures which operate to restrict the quantities of the like product permitted to be marketed or produced". It did not claim that the Community restricted production, but that it effectively restricted the quantities of apples marketed. The drafters had clearly intended effectiveness to be the key consideration; the measures should maintain the quantity placed on the market below the level it would have reached in their absence. This approach had, the EEC recalled, been confirmed in recent panel reports. The Community's withdrawal programme was clearly a "governmental" measure in the sense of Article XI. It was established by Community regulation and connected to the basic and buying-in prices fixed each year by EEC Ministers. It was financed by the Community through the member states, and triggered under Community control through direct or indirect management by the member state authorities. "Governmental measure" did not mean the government itself had physically to intervene - there were different ways to organize such systems, and the EEC's measures did effectively limit the quantities able to be marketed. Furthermore, Article XI did not require that governmental measures aim at controlling the quantities produced or marketed but that they have this effect. Fixing target quantities before a production season was neither necessary nor, for a product as influenced by climatic variations as apples, possible. The aim of the withdrawal system was to restore a better balance between supply and demand at a given time so as to prevent prices from collapsing. The Commission encouraged the involvement of producer groups, as it found the decentralized system to be more responsive to market movements and more efficient in achieving the objective of supply control. The well-publicized existence of surplus apple stocks was evidence of the effectiveness of the system. In the 1987-88 marketing year withdrawals, at 591,000 tons, had exceeded imports, and had accounted for some 9 per cent of Community production. These apples had all been taken out of the market under clear Community law and under financement from the Community budget.

3.12 The EEC also noted that the 1980 Panel (para. 4.6 of its Report) had found that the Community did restrict the quantities permitted to be marketed. As the system (outlined in paras. 2.1-2.8 above) remained the same, there were no grounds on which to reverse this finding. The precedent value of the 1978 Panel finding concerning the Community's régime for tomatoes was obviously less than that of the previous Panel which had looked directly at the marketing restrictions on apples. More generally, the EEC distinguished between relevant and irrelevant precedents. They saw the 1980 Panel report as a clear and relevant precedent in the present case. Other cases were irrelevant because they concerned a totally different situation, or they lacked any precedential value because the legal reasoning involved had not been agreed upon by the CONTRACTING PARTIES. The latter point was particularly true of the 1987 Panel on the Japanese import restrictions. The EEC recalled the reservations expressed concerning its adoption by several contracting parties, including the Community. Indeed, the EEC had agreed to its adoption only on the basis that it did not in fact constitute a precedent.

3.13 Chile countered that there was nothing in the GATT Council minutes on the adoption of the report of the Panel on Japanese agricultural restrictions which would justify taking the above view. The report had been adopted in toto by the Council (C/M/217). The difficulties which had been expressed concerning its findings related to issues which did not appear relevant to the issues before the current Panel. Therefore Chile considered that the findings of the 1987 Panel on points relevant to the issues in the present case could serve as precedents for this Panel to draw on.

3.14 Chile further argued that even had the EEC restricted domestic marketing or production as Article XI:2(c)(i) required, which it did not admit, the domestic restrictions and the import restrictions would not have been applied to like products in terms of Article XI:2(c)(i). Noting that the 1980 Panel had ruled in effect that an apple is an apple, Chile nonetheless maintained that the differences in variety, quality, freshness and price between Chilean and Community apples during the import season were such that they could not be regarded as substitutable, and doubted whether stored EEC apples on sale in the European spring or summer could even be called dessert apples.

3.15 The EEC held that as the 1980 Panel had found Chilean and Community apples, though of different varieties, to be like products for the purposes of Article XI:2(c), this point did not remain open to question. The relevant facts had not changed since 1980, and if the 1980 Panel's findings were to have any importance at all it must be noted that they had said an apple was an apple. Furthermore, though they could be stored for some months, all apples were certainly perishable.

3.16 Chile also argued that the EEC's import restrictions were not "necessary to the enforcement" of the claimed governmental supply control measures. It stated that the level of imports had no influence on the quantities of EEC apples withdrawn from the market. The Chilean apples sent to the EEC were generally of the Granny Smith (about 56 per cent of the volume of exports to the EEC during 1987) and Richard Delicious (about 34 per cent of export volume during 1987/88) varieties, green and red respectively. Community withdrawals of these two varieties together were less than 4 per cent of total EEC withdrawals in 1985/86. The variety most commonly withdrawn in the Community was the Golden Delicious (46 per cent in 1985/86). Southern hemisphere apples appeared on the EEC market during the period March-August, in other words, outside the EEC production season which was in the previous (European) autumn. Consequently, at the time when southern hemisphere apples arrived, European apples in stock were already several months old (most withdrawals occurred before January) and, from a commercial standpoint, were no longer directly substitutable for southern hemisphere apples. This was brought out all the more clearly by the fact that the most common destination for withdrawn Community apples was animal consumption, followed by conversion into alcohol and spoilage. Only a very small proportion of withdrawn apples was distributed free for human consumption: a mere 3 per cent according to Community statistics for 1985/86. Even were they saleable on the commercial market, this was not allowed by Regulation 1035/72. Therefore the level of imports of southern hemisphere apples, destined exclusively for the table market, had no influence on the disposal of withdrawn apples.

3.17 Moreover, the import price for Chilean apples was higher than the Community internal price and higher than the reference price established by the EEC to "obviate disturbances caused by offers from third countries at abnormal prices" (Regulation 1035/72, Article 23). The reference price was more than triple the withdrawal price, so that the system itself ensured that the withdrawal price would not be affected by import prices.

3.18 Chile contended, therefore, that the restrictive action the Community took in 1988 was arbitrary rather than necessary. In previous years (e.g., 1985) a higher rate of withdrawals than in 1988 had not led the EEC to enact import restrictions; this did not mean that Chile suggested it ought to have done so, merely that it questioned why the EEC had done so in 1988 when the price and withdrawal data showed it was not in a critical internal condition. Chile provided price, withdrawal and other information to support this argument, and stated that the Commission had in fact refused a member state request to extend apple intervention past May. It also rejected Community arguments based on the high levels of imports forecast for 1988, as in the words of the drafters the exception under Article XI "was not intended to provide a means of protecting domestic producers against foreign competition ..." EEC producers were already protected by seasonal tariffs and minimum import prices. Even less, Chile argued, was Article XI:2(c) intended to allow a contracting party to suspend imports from only one other contracting party in order to conduct "a review of the overall situation on the market" (EEC Regulations 962/88 and 984/88). Yet Chile saw in the preambles to Regulations 962/88, 984/88 and 1040/88 a statement by the Community that their measures were specifically intended to protect domestic producers from the "serious injury" which imports threatened to cause them. This was clearly not a justification for import restrictions under Article XI:2(c)(i).

3.19 Chile also recalled the report of the Ninth Session Working Party on Quantitative Restrictions (BISD 3S/190) which stated that "... if restrictions of the type referred to in paragraph 2(c) of Article XI were applied to imports during that part of the year in which domestic supplies of the product were not available, such restrictions would be regarded as consistent with the provisions of the Article only to the extent that they were necessary to enforce or to achieve the objectives of the governmental measures relating to control of the like domestic product".

3.20 The EEC recalled the findings of the 1980 Panel on the question of whether the import restrictions were "necessary to the enforcement" of the Community's marketing restrictions:

"The Panel considered that although the EEC measures occurred outside the EEC domestic production season, imports could have affected the possibilities for the disposal or release of EEC apples out of intervention onto the EEC market at that time."

Thus, the EEC argued, it was clear the Panel considered that its import restrictions had been necessary to the enforcement of the internal marketing restrictions.

3.21 The EEC maintained that its 1988 measures were, likewise, "necessary" in terms of Article XI:2(c) and that the previous Panel's findings applied here also, as the essential situation was similar. Under Community law, the protective measures enabling the Commission to suspend imports from third countries totally or in part were intended to deal with serious disturbances which the Community market experienced or was threatened with by reason of such imports; they could also be applied if withdrawal operations by producer groups or official buying-in groups involved significant quantities. Account was taken in particular of:

- the actual or probable volume of imports;

- the availability of products on the Community market;

- the prices of domestic products recorded on the Community market or the probable trend of those prices;

- the prices on the Community market of products imported from third countries, and in particular any tendency to an excessive fall in such prices;

- quantities which were, or might be, withdrawn.

The objective of the Community's policy was to adjust supply to demand; the need to control imports followed from the need to control supply as a whole, in accordance with Article XI. The Commission's analysis each year used domestic withdrawals (i.e., its internal marketing restrictions) as an inverse indicator of demand. Only when withdrawals were high and imports were also rising was it necessary to restrict the latter as well.

3.22 The Community rules did not impose criteria which automatically determined when it was necessary to restrict imports. It was for the Commission to take the necessary steps, on the basis of a complex economic situation in which the use of predetermined criteria was risky. Furthermore, it was the Community's policy to prefer concerted action with its partners in order to avoid as far as possible any recourse to unilateral restrictions even when they might appear necessary or justified.

3.23 Thus, in 1985, even though the Community had considered that the conditions for restricting imports were met, it had finally been able to avoid doing so. Under the market conditions prevailing in 1987-88, the restrictions on imports had been necessary in order to maintain the effect of the withdrawal programme and keep stocks within a level which could be disposed of. In pursuit of the same objectives it had been necessary to apply import restrictions outside the production period for Community apples, as marketing of both EEC and imported apples also took place outside that period. This was in line with the views of the Working Party on Quantitative Restrictions (BISD 3S/214).

3.24 The EEC stated that the production of apples in the Community in recent years had been relatively stable, but that prices in 1987-88 had been lower than in the previous season; that stocks of dessert apples had been larger in 1987/88 than in any of the four previous years, with the exception of 1984/85; and that forecasts for exports of dessert apples to the Community during marketing year 1988 indicated an expected increase of more than 26 per cent over the quantities fixed for 1987 and more than 37 per cent in relation to the average of imports over the previous three years, strongly depressing marketing prospects. The export forecasts of the southern hemisphere countries and the expected rate of these imports had an influence in particular on the marketing prospects and prices for Community apples in stock at the end of the marketing year. The forecasts thus influenced the level of withdrawals and weighed on market prices, even before imports began. When they did so the effect was magnified, especially when they exceeded the forecasts. Information on the average price of apples in intra- and extra-Community trade in 1986-87 and 1987-88 showed a remarkable parallelism between import and domestic prices. This showed there was indeed a single market for all apples, in which imported and domestic products were generally competing despite differences in varieties or prices.

3.25 The EEC added that preventive withdrawals had not been used in the 1987/88 marketing year, since a principal factor triggering them was the level of production, and the gravity of the market situation had not shown up here so much as in the withdrawal rates from January onwards.

3.26 The EEC also argued that the word "necessary" should not be defined too rigidly in cause-and-effect terms. Otherwise, it would be extremely difficult to establish what in fact constituted a necessary measure. The EEC submitted that in a situation where an increasing amount of EEC apples was withdrawn from the market, and where at the same time there was an abrupt rise in imports beyond past levels and what had been foreseen, then there was a necessity to have proportional measures on both sides. It was not required to pre-establish a fixed correspondence between the two quantities (the "proportionality" rule was relevant elsewhere in Article XI) but the fundamental principle was that of parallel action internally and externally, which the 1980 Panel had recognized.

3.27 In respect of the foregoing, Chile queried how the confidential forecasts which it supplied each January to the Commission could be available to, and thus influence, the EEC producers' organizations who carried out withdrawals - most of which would in any case already have taken place by January. It went on to maintain that in addition to failing to meet the criteria to qualify for the exemption under Article XI:2(c)(i), the EEC could not meet the requirements of Article XI:2(c)(ii) either. Chile noted that the 1980 Panel "could not conclude that the EEC did not meet" these requirements, since it found the 1979 surplus could be considered to be a temporary surplus above the recurring surplus of Community apples. This did not imply that the EEC could be said to have had a temporary surplus above the recurring surplus every year since 1979. It would be a distortion of GATT principle to see such a situation - which was really one of chronic surplus - as sanctioned by the 1980 Panel. Furthermore Community production in 1987/88 was substantially below that in previous years.

3.28 The EEC noted the 1980 Panel's finding that there could be a temporary surplus above the recurring surplus. The EEC stated that its surplus situation in 1987/88 was once again considerably worse than in previous years, for example in 1985/86, when production had been much the same. This, the EEC argued, was another instance of a temporary surplus above the recurring surplus, and thus the 1980 Panel's findings were directly applicable.

3.29 Chile recalled those points, concerning Article XI:2 (last paragraph), where the 1980 Panel had found clearly against the EEC and argued that the 1988 measures were again in breach of the GATT obligations. The Community did not "give public notice of the total quantity or value of the product permitted to be imported during a specified future period" as regarded Chile. The EEC published a quota only on 21 April, one week after suspending the issue of import licences in respect of apples from Chile. Before this date, and since the introduction of licensing in February, Chile had in effect been under a "secret quota". This was shown by the mention in Reg. 1040/88 of a "reference quantity" which Chilean licence applications had exceeded - a quantity which had not previously been published and of which Chile had been unaware. When the EEC did publish a quota (in Regulation 1040/88) it was a retroactive measure, which merely extended the suspension by reference to quantities already imported.

3.30 The EEC indicated that there could be no question but that by publishing Regulation 1040/88 the EEC had given public notice of the quantity of the product permitted to be imported during a specified future period. The EEC also rejected the claim that there had been a "secret quota". There had been a suspension of Chilean import licences pending the calculation of the quota. The 8-day difference between these two actions had been necessary to protect the rights of other suppliers under Article XIII.

3.31 Chile contended, furthermore, that the EEC failed to fulfil the requirements of the last two sentences of the last paragraph of Article XI:2 which stipulated that a contracting party applying import restrictions must maintain a minimum proportion between total imports and total domestic production. It considered that to satisfy the proportionality or minimum access requirement the Community should have taken into account the ratio between the import reduction and the restriction on production or marketing of product on the internal market so that both reductions were equivalent. The percentage reduction applied to southern hemisphere imports (from the forecasts) was 18.4 per cent. The same percentage reduction should have been applied to the marketing of Community products.

3.32 With regard to the "proportionality" requirement,the EEC recalled that the 1980 Panel considered that to meet the requirements of the second sentence of the final paragraph of Article XI:2, it was necessary to look at total imports into the EEC from southern hemisphere suppliers, including Chile, and establish the proportion between such imports and Community production during a previous representative period (see Tables II and II(a), above). In 1988, the Community had taken as the previous representative period the three years (in the form of marketing years) preceding the action, in others words 1986/87, 1985/86 and 1984/85. During this period, the proportion between gross domestic production and southern hemisphere imports came to an average of 6.4 per cent. During the marketing year 1987/88, the proportion between gross domestic production and imports from the southern hemisphere came to 7.9 per cent, or a rise of 23 per cent. Looking at the figures for net domestic production, in other words after deduction of withdrawals from marketing, the proportion came to 6.8 per cent over the past three years and 8.7 per cent in 1987/88. The Community therefore chose to go beyond the average for the last three years by substantially improving the share of imports.

TO CONTINUE WITH RESTRICTIONS ON IMPORTS OF DESSERT APPLES - COMPLAINT BY CHILE


1 Report of the Panel on "EEC Restrictions on Imports of Apples from Chile", BISD 27S, pp. 98-117, paragraph 2.2.

2 OJ L 266, 25.11.72, p. 1.

3 Report of the Panel on "Japan Restrictions on Imports of Certain Agricultural Products" (L/6253).