7.228 The Complainants support their argument by referring to a 1968 Note by the GATT Director-General, which stated that Article X:3(a)

The EC responds that the 1968 Note cannot be considered as an authoritative interpretation of GATT rules because it was never endorsed by a formal decision of the CONTRACTING PARTIES.

7.229 We note that a prior panel in discussing the interpretation of Article X:3(a) found that its terms would be met if regulations were applied "in a substantially uniform manner, although there were some minor administrative variations, e.g. concerning the form in which licence applications could be made and the requirement of pro-forma invoices". ⁸²⁷ In that case, the panel found that such differences were minimal and did not in themselves establish a breach of Article X:3(a).

7.230 In our view, the Director-General's Note correctly describes the reach of Article X:3(a) and is consistent with the quoted panel decision. While minor "administrative variations" in the application of regulations may not be inconsistent with the requirements of Article X:3(a), as suggested by the above-mentioned panel report, two different sets of rules would be inconsistent with the requirements of Article X:3(a). In this case, we are confronted with a common regime for the importation of bananas into the EC with two different origin-based sets of import licensing procedures. These sets of licensing procedures differ from one another, depending on whether imports of bananas are from traditional ACP sources or from third countries and non-traditional ACP sources, including with respect to the application of activity function rules. As noted earlier, (paragraph 7.190 et seq., e.g., Article 4:2(b) of Regulation 1442/93), in our view, the procedural and administrative requirements for imports of third-country and non-traditional ACP bananas arising from the activity function rules differ from, and go significantly beyond, those required in respect of traditional ACP bananas. More specifically, the activity function rules contained in the licensing procedures for third-country and non-traditional ACP bananas (but not in the procedures applicable to traditional ACP bananas) mean that substantially more data must be maintained and submitted to show entitlement to a licence for third-country and non-traditional ACP bananas. These differences are not merely minor administrative variations in the application of regulations but are two different sets of rules which are inconsistent with the requirement of "uniform" administration as required by Article X:3(a).

(iv) Other claims

7.232 In light of the foregoing findings on activity function rules under Articles I and X, we do not consider it necessary to address the other claims raised by the Complaining parties against these EC measures. ⁸²⁸ We further note that a finding that activity function rules are or are not inconsistent with the requirements of other provisions of GATT or the Licensing Agreement would not affect the findings we have made in respect of activity function rules.

(d) BFA export certificates

7.233 As part of the EC import licensing procedures, Category A and C operators are required, for imports from Colombia, Costa Rica or Nicaragua, to present export certificates issued by these countries. Category B operators are exempted from this requirement.

The relevant part of Article 6 of the BFA provides that:

The relevant part of Article 3.2 of EC Regulation 478/95 reads as follows:

In light of these provisions, we consider the claims raised the Complaining parties, who have alleged that the export certificate requirement is inconsistent with the requirements of Articles I, III and X of GATT and Articles 1.2, 1.3 and 3.2 of the Licensing Agreement. In the case of Ecuador, we consider the claim it raised under Article I.

7.234 Initially, the EC argues that a consideration of export certificates is outside the Panel's terms of reference because such certificates are not issued by the EC and therefore not part of the EC banana import regime. We agree that to the extent that the administration of export certificates is carried out by the authorities of Colombia, Costa Rica or Nicaragua, as appropriate, ⁸³⁰ it is not within the terms of reference of this Panel. However, we cannot agree with the EC's argument that export certificates are completely outside the EC's sphere of competence and their legal examination thus entirely excluded from the mandate of this Panel. On the contrary, Article 3 of Regulation 478/95 states clearly that an application for an EC import licence is not admissible unless it is accompanied by an export certificate. Thus the requirement to match EC import licences with BFA export certificates and the exemption of Category B operators therefrom are part of the EC legal system and, accordingly, are within our terms of reference, to the extent they fall within the EC's responsibility.

(i) Article I:1 of GATT

7.235 The Complainants claim that the fact that the EC recognizes only export certificates issued by BFA signatories as prerequisites for importation, amounts to the conferral of a "privilege" (i.e., a commercial benefit) not enjoyed by other Members. This is alleged to be inconsistent with the requirements of Article I:1.

7.236 The EC responds that the Complainants have failed to prove that the export certificate requirement constitutes an "advantage" in the meaning of Article I:1 accorded to BFA signatories which is not conferred on other third countries. The EC concedes that the administration of the export certificates by BFA signatories can generate quota rents, but only among operators who are interested in marketing BFA bananas. However, the EC takes the position that the WTO agreements do not contain rules on the sharing and allocation of quota rents, e.g., by means of a licensing scheme. Therefore, in its view, any government is entitled to pursue its own policies in the distribution of quota rents provided that there is no discrimination between products originating in different Members.

7.237 The issue presented is whether the export certificate requirement constitutes an advantage in respect of rules and formalities in connection with importation accorded to BFA bananas that is not accorded to third-country bananas as required by Article I:1.

7.238 On its face, it would appear that there is discrimination against BFA bananas because they are subject to a requirement that is not imposed on other third-country bananas. However, closer analysis suggests that the export certificate requirement may in fact constitute a favour, advantage, privilege or immunity in the meaning of Article I. It is a commonplace, which no party to the dispute contests, that tariff quotas are likely to generate quota rents. The allocation of licences used in the administration of such tariff quotas can be viewed as a mechanism for the distribution of such rents. In fact, the parties do not contest that the export certificate requirement serves the purpose, or at least has the effect, of transferring part of the quota rent which would normally accrue to initial EC import licence holders to the suppliers who are initial holders of export certificates for bananas originating in the three BFA countries. The EC argues that the WTO agreements do not contain any rules governing the distribution of quota rents which are generated by trade measures, e.g., tariff quotas, whose imposition is legitimate under those agreements. We nevertheless have to ascertain whether the particular mechanisms implemented for the purposes of rent transfer directly or indirectly entail inconsistencies with the obligations Members have to respect under the WTO agreements.

7.239 The requirement to match EC import licences with BFA export certificates means that those BFA banana suppliers who are initial holders of export certificates enjoy a commercial advantage compared to banana suppliers from other third countries. ⁸³¹ We note that it is not possible to ascertain how many of the initial BFA export certificate holders are BFA banana producers or to what extent the tariff quota rent share that accrues to initial holders of BFA export certificates is passed on to the producers of BFA bananas in a way to create more favourable competitive opportunities for bananas of BFA origin. However, we also note that the possibility does exist to pass on tariff quota rent to BFA banana producers in such a way, whereas there is no such possibility in respect of non-BFA third-country banana producers. Thus, the EC's requirement affects the competitive relationship between bananas of non-BFA third-country origin and bananas of BFA origin. It is certainly true that Article I of GATT is concerned with the treatment of foreign products originating from different foreign sources rather than with the treatment of the suppliers of these products. In this respect, we note that the transfer of tariff quota rents which would normally accrue to initial holders of EC import licences to initial holders of BFA export certificates does occur when bananas originating in Colombia, Costa Rica and Nicaragua are, at some point, traded to the EC. Therefore, in our view, the requirement to match EC import licences with BFA export certificates and thus the commercial value of export certificates are linked to the product at issue as required under Article I. In practice, from the perspective of EC importers who are Category A or C operators, bananas of non-BFA third-country origin appear to be more profitable than bananas of BFA origin. This is confirmed by the fact that EC import licences for non-BFA third-country bananas and Category B licences for BFA bananas are typically oversubscribed in the first round of licence allocations, while Category A and C licences for BFA bananas are usually exhausted only in the second round of the quarterly licence allocation procedure. The EC argues that the fact that licences allowing the importation of non-BFA bananas at in-quota tariff rates are usually exhausted in the first round amounts to an advantage for bananas of Complainants' origin. While we do not endorse the EC's view, even if this were to constitute an advantage, we note "that Article I:1 does not permit balancing more favourable treatment under some procedure against a less favourable treatment under others". ⁸³²

7.240 Indeed, one could argue that if the export certificate requirement is beneficial to BFA countries, non-BFA third countries could autonomously introduce a similar requirement in order to reap quota rent benefits. In this case, however, since the allocation of the "others" category of the BFA is not country-specific under the current EC regime, operators could switch to alternative sources within this category which are not subject to an export certificate requirement. Therefore, we consider that the requirement to match BFA export certificates with EC import licences in connection with the country-specific allocation of tariff quota shares under the BFA is an advantage or privilege in the terms of Article I:1 in respect of rules and formalities in connection with importation. Since the EC accords this advantage to products originating in Colombia, Costa Rica and Nicaragua "while denying the same advantage to a like product originating in the territories of other [Members]," ⁸³³ i.e., the Complainants' countries, the requirement to match EC import licences with BFA export certificates as provided for in Article 3 of Regulation 478/95 is inconsistent with Article I:1.

(ii) Other claims

7.242 In light of our finding that the requirement to match EC import licences with BFA export certificates is inconsistent with the requirements of Article I:1, one of the fundamental provisions of GATT, we consider it unnecessary to make specific rulings on the other claims raised by the Complaining parties with respect to the same EC measures, including the claim that the exemption of Category B operators from the matching requirement violates Article I also. ⁸³⁴ A finding that these measures are or are not inconsistent with the requirements of Articles III and X of GATT and the Licensing Agreement would not affect our findings in respect of Article I. Moreover, steps taken by the EC to bring the measures into conformity with Article I should also eliminate the alleged non-conformity with these other obligations.

(e) Hurricane licences

7.243 Hurricane licences ⁸³⁵ authorize operators who include or represent EC and ACP producers, or producer organizations "to import in compensation third-country bananas and non-traditional ACP bananas for the benefit of the operators who directly suffered damage as a result of the impossibility of the supplying the Community market with bananas originating in affected producer regions" because of the impact of tropical storms. ⁸³⁶ In the aftermath of the hurricanes Debbie, Iris, Luis and Marilyn, 281,605 tonnes ⁸³⁷ of third-country or non-traditional ACP imports were authorized between November 1994 and May 1996. The Complaining parties have raised claims under Article I, III and X of GATT and Articles 1.2, 1.3 and 3.5(h) of the Licensing Agreement. In the case of Ecuador, it did not raise any of these claims.

(i) Article III:4 of GATT

7.244-7.250 [Used in the Guatemala-Honduras and Mexico reports.]

(ii) Article I:1 of GATT

7.251-7.256 [Used in the Guatemala-Honduras report.]

(iii) Application of the Lomé waiver

7.257-7.259 [Used in the Guatemala-Honduras report.]

(iv) Article 1.3 of the Licensing Agreement

7.260-7.263 [Used in the Guatemala-Honduras, Mexico and United States reports.]

(v) Other claims

7.264 [Used in the Guatemala-Honduras, Mexico and United States reports.]

(f) Other claims

(i) General

7.265 In light of the findings we have made on operator categories, activity functions, export certificates and hurricane licences under Articles I, III and X of GATT, we do not consider it necessary to address the other claims raised by the Complaining parties against the EC licensing procedures. ⁸³⁸ These claims are largely dependent on the existence of the operator category and activity function rules. For example, the alleged overfiling and unnecessary burdens and the alleged restrictive and distortive effects claimed to be inconsistent with the requirements of Article 3.2 of the Licensing Agreement and the alleged discouragement of tariff quota use claimed to be inconsistent with the requirements of Article 3.5(h) of the Licensing Agreement arise from the application of those rules. We further note that a finding that these EC measures are or are not inconsistent with the requirements of other provisions of GATT or the Licensing Agreement would not affect the findings we have made in respect of the EC licensing procedures.

7.266 We examine only the claim based on Article 1.2 of the Licensing Agreement, which we are required to do by Article 12.11 of the DSU since the claim relates to developing country Members.

(ii) Article 1.2 of the Licensing Agreement

7.267 The Complainants allege that the EC import licensing regime in general and the distribution of licences on the basis of operator categories as well as the application of activity function rules to operators importing third-country and non-traditional ACP bananas in particular, are inconsistent with the requirements of Article 1.2 of the Licensing Agreement. Moreover, in their view, economic development purposes and financial and trade needs of developing country Members are not sufficiently taken into account by the EC licensing procedures. In response, the EC recalls its position that the Licensing Agreement does not apply to tariff quota regimes, and furthermore submits Article 1.2 is merely a generic reminder that import licensing procedures should be in conformity with GATT rules. In the EC's view, Article 1.2 does not in itself create obligations additional to those arising from GATT.

7.268 Article 1.2 reads:

This provision derives from the 1979 Tokyo Round Agreement on Import Licensing Procedures which was negotiated as a self-standing agreement without a formal legal link to GATT 1947. Accordingly, membership was open not only to GATT contracting parties and the European Communities, but also to any other government. ⁸⁴⁰ Therefore, provisions of GATT 1947 applied between the signatories of the 1979 Licensing Agreement, by virtue of that agreement, only to the extent that they had been explicitly referred to and incorporated into the 1979 Licensing Agreement. In this context, Articles 1.10 and 4.2 of the 1979 Licensing Agreement mention, inter alia, Articles XXI, XXII and XXIII of GATT 1947. Accordingly, the general rule that administrative procedures used to implement import licensing regimes had to conform with the relevant GATT provisions in fact added only to the obligations which any non-GATT contracting parties among the signatories of the 1979 Licensing Agreement would have been subject to. ⁸⁴¹

7.269 The wording of Article 1.2 remained unchanged in the Uruguay Round. Given that the Agreement Establishing the WTO and all the agreements listed in Annexes 1 through 3 thereto constitute a single undertaking, however, Article 1.2 of the WTO Licensing Agreement has become largely duplicative of the obligations already provided for in GATT, except for the reference to developing country Members. Given this context, Article 1.2 of the WTO Licensing Agreement has lost most of its legal significance.

7.270 However, the Appellate Body has endorsed the principle of effective treaty interpretation by stating that "an interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility". ⁸⁴² In light of this, we have to give effect and meaning to Article 1.2 of the Licensing Agreement.

7.272 With respect to Article 1.2's requirement that account should be taken of "economic development purposes and financial and trade needs of developing country Members", the Licensing Agreement does not give guidance as to how that obligation should be applied in specific cases. We believe that this provision could be interpreted as a recognition of the difficulties that might arise for developing country Members, in imposing licensing procedures, to comply fully with the provisions of GATT and the Licensing Agreement. In the alternative, Article 1.2 could also be read to authorize, but not to require, developed country Members to apply preferential licensing procedures to imports from developing country Members. In any event, even if we accept the latter interpretation, we have not been presented with evidence suggesting that, in its licensing procedures, there were factors that the EC should have but did not take into account under Article 1.2.

4. THE EC BANANA IMPORT LICENSING PROCEDURES AND THE GATS

(a) Introduction

7.274 The Complainants ⁸⁴³ claim that the EC regime for the importation, sale and distribution of bananas is inconsistent with the EC's obligations under Articles II (Most-Favoured-Nation Treatment) and XVII (National Treatment) of GATS in that it discriminates against distributors of Latin American and non-traditional ACP bananas in favour of distributors of EC and traditional ACP bananas. The Complainants consider such distributors to be suppliers of "wholesale trade services", a service sector in which the EC has undertaken a full commitment on national treatment in its Schedule. They also consider both groups of distributors to be "like" service suppliers within the meaning of Articles II and XVII. The Complainants have made claims with respect to four specific measures of the EC regime that we have analyzed in the preceding section on import licensing procedures: operator category allocations, activity function rules, BFA export certificates and hurricane licences.

7.275 The EC rejects the claims with respect to the GATS arguing, inter alia, that the measures in respect of which the Complainants have made claims were measures directed at trade in goods and not trade in services. Therefore, they could not be considered "measures affecting trade in services" within the meaning of the GATS. Moreover, the EC argues that "wholesale trade services" covers only the distribution of ripened (yellow) bananas, while the measures at issue relate to the import of unripened (green) bananas. In addition, the EC contests that the Complainants' services and service suppliers have been given less favourable treatment in the meaning of the GATS. In its view, the Complainants are contesting the allocation of tariff quota rents, a matter not dealt with by the GATS.

7.276 In our consideration of the claims raised under the GATS, we first examine seven general issues: (i) whether the four measures cited by the Complainants constitute "measures affecting trade in services" within the meaning of the GATS; (ii) the definition of "wholesale trade services"; (iii) the supply of services through different modes; (iv) the scope of Article II obligations; (v) the scope of Article XVII obligations; (vi) the effective date of GATS obligations; and (vii) the admissibility of Mexico's claims. Second, we examine the consistency of four specific measures - operator category allocations, activity function rules, BFA export certificates and "hurricane licences - with the EC's obligations under Article II and its commitments under Article XVII.

(b) General issues

(i) Measures affecting trade in services

7.277 The EC claims that the four measures complained against by the Complainants are not "measures affecting trade in services" since they regulate the importation of goods and not the provision of services. The EC argues that the objective of the GATS is to regulate trade in services as such and that it covers the supply of services as products in their own right. Furthermore, it argues the GATS is not concerned with the indirect effects of measures relating to trade in goods on the supply of services.

7.278 The EC also argues that a measure could not be covered by both GATT and the GATS since the coverage of the two agreements was intended, in the EC's view, to be mutually exclusive. In this connection, the EC notes that if a measure relating to trade in goods was covered by a GATT exception or a waiver, such exception or waiver could be rendered ineffectual by a finding against the measure relating to goods under the GATS and asserting its illegality in that context. The EC also considers that the illustrative definition of "measures affecting trade in services" in Article XXVIII(c) of GATS mentions measures as they relate to the supply of services and not the supply of goods. In the EC's view, in Article XXVIII(c), the term "affecting", which is used in Article I to define the scope of the GATS, should be interpreted narrowly so as to mean "in respect of", which is a much narrower concept indicating that the measure in question has to have the purpose and aim of regulating, or at least directly influencing, services as services.

7.279 In examining these issues we note the following: Article I (Scope and Definition), which defines the scope of the GATS, states in paragraph 1:

Article XXVIII(c) of GATS further defines the term by stating:

7.280 In accordance with Article 31 of the Vienna Convention on the Law of Treaties, ⁸⁴⁴ we note that the ordinary meaning of the term "affecting", in Article I:1 of GATS, does not convey any notion of limiting the scope of the GATS to certain types of measures or to a certain regulatory domain. On the contrary, Article I:1 refers to measures in terms of their effect, which means they could be of any type or relate to any domain of regulation. Like GATT, the GATS is an umbrella agreement which applies to all sectors of trade in services and all types of regulations. We also note that the definition of "measures by Members affecting trade in services" in Article XXVIII(c) has been drafted in an illustrative manner by the use of the term "include". Sub-paragraphs (i)-(iii) do not contain a definition of "measures by Members affecting trade in services" as such, but rather are an illustrative list of matters in respect of which such measures could be taken. In other words, the term "in respect of" does not describe any measures affecting trade in services, but rather describes what such measures might regulate. For example, sub-paragraph (i) refers to "the purchase, payment or use of a service", which are matters that could be regulated by different types of measures affecting trade in services, such as licensing requirements, numerical limitations, foreign exchange regulations or others. We, therefore, do not agree with the view of the EC that Article XXVIII(c) narrows the meaning of the term "affecting" to "in respect of".

7.281 In accordance with Article 32 of the Vienna Convention, ⁸⁴⁵ we note that the preparatory work of the GATS confirms the foregoing interpretation. In the Uruguay Round, the drafters of the GATS were aware that the term affecting had been interpreted in prior GATT panel reports to cover not only laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify conditions of competition between like domestic and imported products on the internal market. ⁸⁴⁶ Another indication of the wish of the drafters to widen the scope of the GATS in terms of the regulatory measures it covers is the use of the concept of "supply" of services rather than "delivery". The text of Article XXVIII(b) ⁸⁴⁷ as well as the preparatory work ⁸⁴⁸ indicate that the choice of the term "supply of a service" involved the coverage of a wider range of activities than the case would have been had the drafters chosen to use the term "delivery". That has made a wider range of regulations subject to the application of the GATS. In sum, we believe that, consistently with their general approach, the drafters consciously adopted the terms "affecting" and "supply of a service" to ensure that the disciplines of the GATS would cover any measure bearing upon conditions of competition in supply of a service, regardless of whether the measure directly governs or indirectly affects the supply of the service.

7.282 With respect to the claim by the EC that GATT and the GATS cannot overlap, we note that such a view is not reflected in any of the provisions of the two agreements. On the contrary, the provisions of the GATS referred to above explicitly take the approach of being inclusive of any measure that affects trade in services whether directly or indirectly. These provisions do not make any distinction between measures which directly govern or regulate services and measures that otherwise affect trade in services.

7.283 Furthermore, it is our view that if we were to find the scope of the GATS and that of GATT to be mutually exclusive, in other words, if we were to find that a measure considered to fall within the scope of one agreement could not at the same time fall within the scope of the other, the value of Members' obligations and commitments would be undermined and the object and purpose of both agreements would be frustrated. Obligations could be circumvented by the adoption of measures under one agreement with indirect effects on trade covered by the other without the possibility of any legal recourse. For example, a measure in the transport sector regulating the transportation of merchandise in the territory of a Member could subject imported products to less favourable transportation conditions compared to those applicable to like domestic products. Such a measure would adversely affect the competitive position of imported products in a manner which would not be consistent with that Member's obligation to provide national treatment to such products. If the scope of GATT and the GATS were interpreted to be mutually exclusive, that Member could escape its national treatment obligation and the Members whose products have been discriminated against would have no possibility of legal recourse on account that the measure regulates "services" and not goods. It is also our view that if the drafters of the GATS had intended to impose such a serious limitation on its scope, particularly in the light of how the term "affecting" had been interpreted in past GATT panel reports and their deliberate choice of the concept of "supply" as explained above, they would have provided for the limitation explicitly in the text of the GATS itself or in the provisions of the Agreement Establishing the World Trade Organization. In the absence of such a provision, it is our view that the claim by the EC that the scope of the GATS and GATT cannot overlap has no legal basis. ⁸⁴⁹

7.284 With respect to the EC's view that bringing a measure relating to goods under the GATS might undermine the effectiveness of an exception or a waiver under GATT, we note that there are no applicable exceptions or waivers at issue under the GATS claims in this case. ⁸⁵⁰ In the case of waivers, the problem raised by the EC could be avoided by appropriate drafting of waivers. In the case of exceptions, we note that Articles XII, XX and XXI of GATT and Articles XII, XIV and XIVbis of GATS are similar, thus reducing the likelihood of a conflict between GATT and GATS provisions. In any event, we need not decide in this case how to resolve a conflict that may never arise.

7.285 In the light of the above, we find that, in principle, no measures are excluded a priori from the scope of the GATS as defined by its provisions. The scope of the GATS encompasses any measure of a Member to the extent it affects the supply of a service regardless of whether such measure directly governs the supply of a service or whether it regulates other matters but nevertheless affects trade in services.

(ii) Wholesale trade services

7.287 The EC takes the view that, in the banana trade, wholesale trading starts only after the ripening process is completed and that any activity prior to ripening should not be defined as wholesaling of bananas, but rather as part of their production or"remanufacturing" process. The EC further argues that the normal meaning of wholesale is distributing goods with a view to sale to the consumer and, therefore, in a form which is ready for the consumer. In the EC's view, the wholesale trade stage for bananas was excluded from the scope of the contested measures since the importation of bananas normally takes place before they are ripened. The EC further argues that wholesalers, who according to this definition would only be trading in yellow bananas, are not operators within the meaning of the EC regime since import licences cover only green bananas and not yellow ones.

7.288 In addressing this issue we need to examine the definition of "wholesale trade services" for the purposes of this case. In this respect we note the following: The sectoral coverage of the GATS is, in principle, universal. Article I establishes this in paragraph 3(b) where it states:

Exceptions to this principle are explicitly provided for in the text of the GATS, such as in the case of "services supplied in the exercise of governmental authority" (Article I:3(b)) and "services directly related to the exercise of traffic rights" (Annex on Air Transport Services, para. 2(b)). No such exceptions exist for "wholesale trade services". Therefore, "wholesale trade services" are in principle fully covered by the GATS.

7.289 In the Uruguay Round negotiations participants agreed to follow a set of guidelines for the scheduling of specific commitments under the GATS. ⁸⁵¹ With respect to the classification of services sectors for the purpose of scheduling commitments, the guidelines encouraged participants to use the Services Sectoral Classification List developed during the Uruguay Round, ⁸⁵² which is largely based on the United Nations Central Product Classification system (CPC). Although the use of the Services Sectoral Classification List is not mandatory, most Members, including the EC, have adopted it as the basis for scheduling their commitments. Furthermore, in scheduling commitments on "wholesale trade services", the EC inscribed the CPC item number (622) in its services schedule. Therefore, any breakdown of the sector should be based on the CPC. Consequently, any legal definition of the scope of the EC's commitment in wholesale services should be based on the CPC description of the sector and the activities it covers.

7.290 The CPC classification describes "wholesale trade services" as a sub-set of the broader sector of "distributive trade services" which is described in a headnote to section 6 as:

Under this section, the CPC contains a sub-sector entitled "wholesale trade services of food, beverages and tobacco" (6222). A further breakdown of this sub-sector includes a separate item relating to "wholesale trade service of fruit and vegetables" (CPC 62221) which is described as:

Item (013) of the CPC classification of goods relates to "fruit and nuts" and under its sub-classification (01310) it refers to:

7.291 The CPC description of "wholesale trade services" is based on the identification of a core activity, that is "reselling merchandise", which could be accompanied by a variety of other related subordinate activities the objective of which would be to facilitate the delivery of the described services (i.e., reselling merchandise). In many instances, in order to resell merchandise it may be necessary to maintain inventories of goods, to sort and grade goods, to break bulk, refrigerate, and deliver goods to the purchaser. Thus, the subordinate activities listed in the headnote to CPC section 6 (such as maintaining inventories, breaking bulk, etc.), when they accompany the reselling of merchandise and are not performed as a separate service in their own right, are within the scope of wholesale trade service commitments. However, a distinction is made between performing any of these subordinate activities as a component of supplying a "wholesale trade service" and performing any of them as a service in its own right. In the case of the latter, that activity is classified in a separate CPC category with a different number and would be treated under the GATS as such.

7.292 Finally, we note that the CPC descriptions do not make any distinction between green and ripened bananas. As mentioned above, item 62221 of the CPC relating to "wholesale trade services of fruit and vegetables" cross refers to goods classified in CPC 013 which in turn refers in its sub-classification CPC 01310 to "bananas" without making any distinction between green and ripened bananas.

(iii) Modes of supply

7.294 Article I:2 of GATS defines its coverage as including four modes of supply of services: cross-border supply, consumption abroad, commercial presence and presence of natural persons. ⁸⁵³ The Complainants submit that the measures of the EC banana regime that they have challenged have an impact on the wholesale trade services they can supply through commercial presence. Such impact is claimed to be inconsistent with the unqualified national treatment commitment in the EC's Schedule covering the supply of "wholesale trade services" in relation to that mode. It is also claimed to be inconsistent with the EC's obligations under Article II of GATS. In the view of the Complainants, the supply of wholesale trade services through commercial presence includes all activities associated with delivering bananas to the EC from abroad and reselling them there. That would cover all the activities associated with reselling bananas as described in the headnote to Section 6 of the CPC (e.g., maintaining inventories, physically assembling, sorting, grading in large lots, breaking bulk, redistribution in smaller lots, refrigeration and delivery services).

7.295 With respect to supply through commercial presence, we note that Article I:2(c) of GATS ⁸⁵⁴ defines supply through commercial presence as the supply of a service by a service supplier of one Member, through commercial presence, in the territory of another Member. Article XXVIII(f)(ii) ⁸⁵⁵ defines a "service of another Member" in the case of a supply of a service through commercial presence as a service which is supplied by a service supplier of that other Member. In addition to these provisions, explanation of the modes of supply has been provided in the explanatory note on the scheduling of commitments referred to above. ⁸⁵⁶ These definitions as well as the explanation of the supply of a service through commercial presence in the explanatory note rely on the territorial presence of the service supplier as a basis for drawing distinctions between modes. In other words, in the case of supply through commercial presence, the service supplier would have to be physically present in the territory where the service is being supplied. In such cases, the origin of the service is to be determined on the basis of the origin of the supplier. And the origin of the service supplier is to be determined on the basis of the definitions laid down in Article XXVIII(g), (j), (m) and (n) which provide:

"(g) 'service supplier' means any person that supplies a service;¹¹

(j) 'person' means either a natural person or a juridical person;

(m) 'juridical person of another Member' means a juridical person which is either:

(i) constituted or otherwise organized under the law of that other Member, and is engaged in substantive business operations in the territory of that Member or any other Member; or

(ii) in the case of the supply of a service through commercial presence, owned or controlled by:

1. natural persons of that Member; or

2. juridical persons of that other Member identified under subparagraph (i).

(n) a juridical person is:

(i) 'owned' by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that Member;

(ii) 'controlled' by persons of a Member if such persons have the power to name a majority of its directors or otherwise legally to direct its actions;

(iii) 'affiliated' with another person when it controls, or is controlled by, that other person; or when it and the other person are both controlled by the same person.

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¹¹ Where the service is not supplied directly by a juridical person but through other forms of commercial presence such as a branch or a representative office, the service supplier (i.e. the juridical person) shall, nonetheless, through such presence be accorded the treatment provided for service suppliers under the Agreement. Such treatment shall be extended to the presence through which the service is supplied and need not be extended to any other parts of the supplier located outside the territory where the service is supplied."

7.296 Therefore, with respect to situations of supply through commercial presence, Members' obligations under the GATS cover the treatment of services and service suppliers. We note that Article II requires a Member to extend to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country. And Article XVII requires a Member, subject to any limitations inscribed in its schedule, to accord services and service suppliers of any other Member treatment no less favourable than it accords to its own like services and service suppliers.

TO CONTINUE WITH EC - REGIME FOR IMPORTATION OF BANANAS - COMPLAINT BY ECUADOR

⁸²⁶ Note by the GATT Director-General of 29 November 1968, L/3149.

⁸²⁷ Panel Report on "EEC - Restrictions on Imports of Dessert Apples", Complaint by Chile, adopted on 22 June 1989, BISD 36S/93, 133, para. 12.30. In the descriptive part of the Chilean Apples case, "concerning Article X:3, Chile argued that there were differences among the ten member states of the EEC as to the requirements they imposed on applications for licences for imports of dessert apples. It cited examples, such as a French requirement for licence applications to be accompanied by a pro forma invoice, which effectively meant that licences could not be applied for until after ships had been loaded. Other examples cited by Chile included acceptance of telexed licence applications by some member states and not others; differing procedures for bank guarantees; and the refusal by one member state to accept a licence issued by another". Idem at page 116, para. 6.3.

⁸²⁸ See note 374 supra.

⁸²⁹ Regulation No. 478/95 of 1 March 1995 on additional rules for the application of Council Regulation (EEC) No. 404/93 as regards the tariff quota arrangements for imports of bananas into the Community and amending Regulations (EEC) No. 1442/93, O.J. L 49/13 of 4 March 1995.

⁸³⁰ According to Annex II of Regulation 478/95, the bodies authorized to issue special export certificates are: for Colombia: Instituto Colombiano de Comercio Exterior; for Costa Rica: Corporación Bananera S.A.; and for Nicaragua: Ministerio de Economia y Desarrollo, Dirección de Comercio Exterior.

⁸³¹ "Whereas the framework agreement provides that the signatory countries are authorized to issue export licences for seventy per cent of their allocations, which licences are to be presented in order to obtain import licences of Category A and C for import into the Community, in conditions which may improve the regularity and stability of commercial transactions and guarantee the absence of any discriminatory treatment among operators" (emphasis added). Recital 8 of Regulation No. 478/95.

⁸³² "The Panel ... considered that Article I:1 does not permit balancing more favourable treatment under some procedure against a less favourable treatment under others. If such a balancing were accepted, it would entitle a contracting party to derogate from the most-favoured nation obligation in one case, in respect of one contracting party, on the ground that it accords more favourable treatment in some other case in respect of another contracting party. In the view of the Panel, such an interpretation of the most-favoured-nation obligation of Article I:1 would defeat the very purpose underlying the unconditionality of that obligation". Panel Report on "United States - Denial of Most-favoured-nation Treatment as to Non-rubber Footwear from Brazil", adopted on 19 June 1992, BISD 39S/128, 151, para. 6.10. Likewise, in the context of Article III a panel found that "an element of more favourable treatment would only be relevant if it would always accompany and offset an element of differential treatment causing less favourable treatment." Panel Report on "United States - Section 377 of the Tariff Act of 1930", adopted on 7 November 1989, BISD 36S/345, 388, para. 5.16.

⁸³³ Panel Report on "United States - Denial of Most-favoured-nation Treatment as to Non-rubber Footwear from Brazil", adopted on 19 June 1992, BISD 39S/128, 151, para. 6.11.

⁸³⁴ See note 374 supra.

⁸³⁵ See, e.g., Commission Regulation (EC) No. 2791/94 of 16 November 1994 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas in 1994 as a result of tropical storm Debbie. Commission Regulation (EC) No. 510/95 of 7 March 1995 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the first quarter of 1995 as a result of tropical storm Debbie. Commission Regulation (EC) No. 1163/95 of 23 May 1995 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the second quarter of 1995 as a result of tropical storm Debbie. Commission Regulation (EC) No. 2358/95 of 6 October 1995 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the fourth quarter of 1995 as a result of tropical storms Iris, Luis and Marilyn. Commission Regulation (EC) No. 127/96 of 25 January 1996 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the first quarter of 1996 as a result of tropical storms Iris, Luis and Marilyn. Commission Regulation (EC) No. 822/96 of 3 May 1996 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the second quarter of 1996 as a result of tropical storms Iris, Luis and Marilyn.

⁸³⁶ "Whereas ... these measures should be to the benefit of the operators who have directly suffered actual damage, without the possibility of compensation, and as a function of the extent of the damage." Recital 9 of Commission Regulation (EC) No. 510/95 of 7 March 1995 on the exceptional allocation of a quantity additional to the tariff quota for imports of bananas during the first quarter of 1995 as a result of tropical storm Debbie.

⁸³⁷ Total quantities of authorized third-country and non-traditional ACP imports:

⁸³⁸ See note 374 supra.

⁸³⁹ The footnote to Article 1.2 of the Licensing Agreement provides: "Nothing in this Agreement shall be taken as implying that the basis, scope and duration of a measure being implemented by a licensing procedure is subject to question under this Agreement."

⁸⁴⁰ 1979 Licensing Agreement, Article 5.

⁸⁴¹ In fact, there were no such signatories.

⁸⁴² Appellate Body Report on "US - Standards for Reformulated and Conventional Gasoline", adopted 20 May 1996, AB-1996-1, WT/DS2/AB/R, p.23.

⁸⁴³ In this section on services, the term "Complainants" refers to Ecuador and the United States, and to Mexico except in respect of claims under Article XVII of GATS concerning activity function rules, export certificates and hurricane licences.

⁸⁴⁴ See para. 7.14 supra.

⁸⁴⁵ See para. 7.14 supra.

⁸⁴⁶ MTN.GNS/W/139 (Definitions in the Draft General Agreement on Trade in Services - Note by the Secretariat), p.4, para. xii, states: "The term 'affecting' has been interpreted in Article III of the GATT to mean an effect on the competitive relationship between like products, not on the subsequent trade volumes in those products (BISD 36S/345 at paragraph 5.11; BISD 34S/136 at paragraph 5.19)". For example, in the Italian Agriculture Machinery case, the panel report stated: "[T]he drafters of [Article III] intended to cover in paragraph 4 not only the laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between the domestic and imported products on the internal market". Panel Report on "Italian Discrimination Against Imported Agricultural Machinery", adopted on 23 October 1958, BISD 7S/60, 64, para. 12. This interpretation has also been confirmed in subsequent GATT panel reports.

⁸⁴⁷ Article XXVIII(b) provides: " 'supply of a service' includes the production, distribution, marketing, sale and delivery of a service".

⁸⁴⁸ MTN.GNS/W/139 (Definitions in the Draft General Agreement on Trade in Services), p.3, para. xi, states: "The notion of 'supply' is intended to encompass the whole range of activities necessary to produce and deliver a service. The definition is illustrative, not comprehensive. The use of the term 'supply', in place of 'delivery' in prior versions of the text, suggests a wider range of activities than the word delivery".

⁸⁴⁹ For support of this view, see Panel Report on "Canada - Certain Measures Concerning Periodicals", issued on 14 March 1997 (not adopted, subject to appeal), WT/DS31/R, pp.69-71, paras. 5.13-5.19.

⁸⁵⁰ We have found that the Lomé waiver does not cover the EC licensing measures which are at issue under the GATS (para. 7.204).

⁸⁵¹ MTN.GNS/W/164 & Add. 1 (Scheduling of Initial Commitments in Trade in Services: Explanatory Note).

⁸⁵² MTN.GNS/W/164 (Scheduling of Initial Commitments in Trade in Services: Explanatory Note), para. 16, states: "The legal nature of a schedule as well as the need to evaluate commitments, require the greatest possible degree of clarity in the description of each sector or sub-sector scheduled. In general the classification of sectors and sub-sectors should be based on the Secretariat's revised Services Sectoral Classification List³. Each sector contained in the Secretariat list is identified by the corresponding Central Product Classification (CPC) number. Where it is necessary to refine further a sectoral classification, this should be done on the basis of the CPC or other internationally recognised classification (e.g., Financial Services Annex). The most recent breakdown of the CPC, including explanatory notes for each sub-sector, is contained in the UN Provisional Central Product Classification⁴.

⁸⁵³ Article I:2 of GATS provides:

"For the purposes of this Agreement, trade in services is defined as the supply of a service:

⁸⁵⁴ See note 476 supra.

⁸⁵⁵ Article XXVIII(f) provides: "'service of another Member' means a service which is supplied,

⁸⁵⁶ MTN.GNS/W/164 (Scheduling of Initial Commitments in Trade in Services: Explanatory Note), para. 18, states (emphasis original): "The four modes of supply listed in the schedules correspond to the scope of the GATS as set out in Article I.2. The modes are essentially defined on the basis of the origin of the service supplier and consumer, and the degree and type of territorial presence which they have at the moment the service is delivered".