(iv) The scope of the Article II obligation

7.298 Article II:1 of GATS states:

We note that this provision refers to "any measures covered by this Agreement". This term could only be interpreted to mean all measures falling within the scope of the GATS. According to Article I:1 which defines the scope of the GATS, it applies to "measures by Members affecting trade in services". We also note that this provision constitutes a general obligation which is, in principle, applicable across the board by all Members to all services sectors, not only in sectors or sub-sectors where specific commitments have been undertaken. Any exception to this general obligation would have to be provided for explicitly in accordance with the terms of the GATS. Article II:2 provides for the possibility of exempting specific measures from this obligation where it states that

We note that the EC has not listed in that Annex any measures relating to "wholesale trade services" which are inconsistent with paragraph 1 of Article II. Therefore, the EC is fully bound by its obligations under Article II:1 in relation to "wholesale trade services". ⁸⁵⁷

7.299 The Complainants submit that the term "treatment no less favourable" contained in paragraph 1 of Article II of GATS should be interpreted in the light of the language contained in paragraphs 2 and 3 of Article XVII of GATS. ⁸⁵⁸ In their view although Article II does not contain the type of elaboration found in paragraphs 2 and 3 of Article XVII concerning formally identical and formally different treatment and modification of conditions of competition, the standard of treatment in Article II should be interpreted to be the same as that of paragraph 1 of Article XVII. They consider that paragraphs 2 and 3 of Article XVII do not set up any additional substantive rules but rather serve as guidance for the application of the national treatment rule articulated in the first paragraph. They also note that Article II of GATS deviated from the formulation used in Article I:1 of GATT ⁸⁵⁹ and refer to "treatment no less favourable" instead of "any advantage, favour, privilege or immunity". In their view that indicates a deliberate choice by the drafters to follow the same standard of treatment set in paragraph 1 of Article XVII.

7.300 The EC maintains that Article II:1 of GATS applies to "any measure covered by this Agreement" and Article I:1 defines the scope of the GATS by stating that it applies "to measures by Members affecting trade in services". The definition in Article XXVIII(c), in particular under sub-paragraph (i), indicates that the measures concerned had to affect trade in services as such and could not be measures taken in other areas with repercussions on services such as measures in respect of the purchase of goods. Moreover, the EC considers that the use of the terms "in respect of" in the chapeau of Article XXVIII(c) ⁸⁶⁰ demonstrates that the term "affecting" has to be interpreted in a narrow sense that did not include the reference to measures which modified the conditions of competition. Third, in the view of the EC, if the drafters had wished to make the "modification of competitive conditions" requirement an integral part of the "no less favourable treatment" test under the most-favoured-nation clause, they would have done so explicitly as it was done for the national treatment clause in Article XVII:3. Therefore, if it were to be established that certain EC measures violate the MFN obligation, it would have to be demonstrated that there was formally discriminatory treatment as between foreign services and service suppliers, which is not the case in this dispute.

7.301 With respect to the first two arguments of the EC, we recall our discussion in paragraph 7.280 et seq. In addressing the third argument, we note that the standard of "no less favourable treatment" in paragraph 1 of Article XVII is meant to provide for no less favourable conditions of competition regardless of whether that is achieved through the application of formally identical or formally different measures. Paragraphs 2 and 3 of Article XVII serve the purpose of codifying this interpretation, and in our view, do not impose new obligations on Members additional to those contained in paragraph 1. In essence, the "treatment no less favourable" standard of Article XVII:1 is clarified and reinforced in the language of paragraphs 2 and 3. The absence of similar language in Article II is not, in our view, a justification for giving a different ordinary meaning in terms of Article 31(1) of the Vienna Convention to the words "treatment no less favourable", which are identical in both Articles II:1 and XVII:1.

7.302 We also note that, while the object and purpose of paragraph 1 of Article XVII is to prohibit discrimination against foreign services and service suppliers to the advantage of like services and service suppliers of national origin, paragraph 1 of Article II has a similar objective of prohibiting discrimination against services and service suppliers of a Member in favour of like services or service suppliers of any other country. In addition, while the drafters of the GATS have been guided by GATT concepts, provisions and past practice, they have chosen to use identical operative language of "treatment no less favourable" in both Articles II and XVII, departing in the case of Article II from the formulation used in the GATT MFN clause in Article I which refers to "any advantage, favour, privilege or immunity ...". Thus, the formulation of both Articles II and XVII of GATS derives from the "treatment no less favourable" standard of the GATT national treatment provisions in Article III of GATT, which has been consistently interpreted by past panel reports to be concerned with conditions of competition between like domestic and imported products on internal markets. ⁸⁶¹

7.303 We also note that if the standard of "no less favourable treatment" in Article II were to be interpreted narrowly to require only formally identical treatment, that could lead in many situations to the frustration of the objective behind Article II which is to prohibit discrimination between like services and service suppliers of other Members. It would not be difficult for regulators to contemplate regulatory measures which are identical on their face while in effect provide less favourable competitive opportunities to a group of service suppliers to the advantage of others.

(v) The scope of the Article XVII commitment

7.305 Article XVII of the GATS is a specific commitment in the sense that it would be binding on a Member only in sectors or sub-sectors which that Member has inscribed in its schedule and to the extent specified therein. Article XVII:1 states:

We note that in its schedule of specific commitments ⁸⁶² the EC has inscribed in the first column under the heading "Sector or Sub-sector" the sector of "Wholesale Trade Services". The related CPC classification number (CPC 622) has also been inscribed. As previously mentioned, this constitutes the basis on which the scope of the EC's national treatment commitment is to be determined. We also note that, with respect to the first mode (cross-border supply) and the third mode (supply through commercial presence) the EC has entered "none" in the third column of the schedule relating to limitations on national treatment. The EC, therefore, has undertaken a full commitment on national treatment in the sector of "Wholesale Trade Services" with respect of cross-border supply and supply through commercial presence.

(vi) Effective date of GATS obligations

7.307 The EC argues that, given that the GATS entered into force on 1 January 1995, only the EC banana import regime as it existed in late 1994 and afterwards (rather than 1992 and before) should be examined in the light of Articles II and XVII of GATS.

7.308 We are not certain of the precise relevance of this argument. The EC does not argue that the introduction of the EC common market organization for bananas resulted in a single, non-recurring adjustment of the market which was completed by 31 December 1994. To the contrary, the EC banana regulations remained in force or were enacted or amended also after 1 January 1995 (e.g., Regulation 478/95 on the export certificate requirement) and, more importantly, they foresee a recurring and ongoing process of import licence allocations according to annually recalculated reference quantities on the basis of operator categories and activity functions. Consequently, the fact that the EC common market organization was introduced in 1993, prior to the entry into force of the GATS, is not relevant for our legal analysis. Thus, we examine the consistency of the EC banana regulations as they currently stand with the EC's obligations arising from the GATS. Therefore, the scope of our legal examination includes only actions which the EC took or continued to take, or measures that remained in force or continued to be applied by the EC, and thus did not cease to exist after the entry into force of the GATS. ⁸⁶³ Likewise, any finding of consistency or inconsistency with the requirements of Articles II and XVII of GATS would be made with respect to the period after the entry into force of the GATS. Moreover, in this connection we note that there is no grandfather clause in the WTO Agreement that would permit Members to maintain indefinitely national legislation that is inconsistent with WTO rules. Indeed, Article XVI:4 of the WTO Agreement provides that "[e]ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements".

(vii) Claims by Mexico

7.309-7.311 [Used in the Mexico report.]

(c) Operator categories

(i) Article XVII of GATS

7.312 The Complainants claim that the allocation of the third-country import licences on the basis of operator categories and the eligibility criteria for Category B operators discriminate against like third-country service suppliers. The EC is alleged to be in breach of Article XVII of GATS in respect of its commitments on wholesale service supply in that it accords more favourable treatment to wholesale service suppliers of EC origin because Category B operators are largely EC owned or controlled and Category A operators are largely in the Complainants' ownership or control.

7.313 The EC responds that the allocation of licences on the basis of operator categories does not automatically entail the transfer of market shares to Category B operators because licences are freely tradeable. Therefore, the allocation of licences to certain operators does not necessarily mean that these operators will actually carry out the physical importation. The EC emphasizes that the rules establishing operator categories do not classify companies as such but aim at distributing import licences according to past marketing of traditional ACP and EC or third-country and non-traditional ACP bananas. Consequently, the allocation of Category A and B licences is not mutually exclusive. Certain large operator companies are registered in both categories and hence receive both Category A and B licences. Therefore, the EC argues that the Complainants' insistence on equating Category A with firms of non-EC origin and Category B with firms of EC origin is misleading. Furthermore, the EC notes that the WTO agreements do not provide for rules governing the sharing of quota rents which are generated by a legitimate tariff quota and that, consequently, the EC retains its discretion to allocate quota rents among EC, ACP and third country producers and traders. In the EC's view, the Complainants fail to prove that quota rents and market shares have been reallocated at the expense of third-country firms, given that no evidence has been provided on how particular companies are linked through registration, ownership or control to the Complainants. In contrast, the EC notes that it submitted information on market shares of third-country firms, which in its view demonstrate that those firms have not lost market share in recent years.

7.314 In light of these arguments, we turn to an examination of the issues arising under this Article XVII claim. In order to establish a breach of the national treatment obligation of Article XVII, three elements need to be demonstrated: (i) the EC has undertaken a commitment in a relevant sector and mode of supply; (ii) the EC has adopted or applied a measure affecting the supply of services in that sector and/or mode of supply; and (iii) the measure accords to service suppliers of any other Member treatment less favourable than that it accords to the EC's own like service suppliers.

7.315 In respect of the first element, we recall that the EC has bound the wholesale trade service subsector as regards service supply across borders and through commercial presence without conditions and qualifications in the meaning of Article XVII:1 (paragraph 7.306).

7.316 As to the second element, i.e., whether the EC measures implementing the operator category rules constitute measures affecting the supply of services, we recall that we have found that the term "affecting" should be interpreted broadly (paragraphs 7.277 et seq.). In this connection, we also note that supply of services through cross-border delivery or commercial presence is defined to include the production, distribution, marketing, sale and delivery of such services. ⁸⁶⁴ As a consequence, in our view, the EC measures, and more specifically the rules on operator categories, are measures affecting Complainants' trade in services in the meaning of the GATS.

7.317 We now turn to the third element that must be demonstrated to establish a breach of Article XVII, i.e., less favourable treatment of service suppliers of another Member than the treatment given to its own like service suppliers. There are four preliminary matters that should be addressed: (i) the definition of commercial presence and service suppliers; (ii) whether operators in the meaning of the EC banana regulations are service suppliers under GATS, (iii) the definition of services covered by EC commitments; and (iv) to what extent services and service suppliers of different origin are like.

7.318 First, it is necessary to clarify what is meant by "commercial presence", as used in Article I:2, and "services and service suppliers of any other Member", as used in Article XVII:1. "Commercial presence" in general covers any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or representative office, within the EC territory for the purpose of supplying wholesale services. ⁸⁶⁵ Therefore, in the current dispute, we are concerned with the commercial presence of service suppliers that are "persons", or owned or controlled by such persons, of the Complainants. These include subsidiary companies owned ⁸⁶⁶ or controlled ⁸⁶⁷ by natural persons ⁸⁶⁸ of a Complainant and subsidiary companies owned or controlled by parent companies that are constituted or otherwise organized under the law of a Complainant ⁸⁶⁹ and are engaged in substantive business operations in the territory of any other Member. ⁸⁷⁰

7.319 In this respect, we emphasize that in the following discussion, we will refer to service suppliers that are owned or controlled by persons of the Complainants as "suppliers of Complainants' origin", and service suppliers that are owned or controlled by persons of the EC will be referred to as "suppliers of EC origin".

7.320 Second, in the context of this case, operators in the meaning of Article 19 of Regulation 404/93 and operators performing the activities defined in Article 5 of Regulation 1442/93 are service suppliers in the meaning of Article I:2(c) of GATS provided that they are owned or controlled by natural persons or juridical persons of other Members and supply wholesale services. When operators provide wholesale services with respect to bananas which they have imported or acquired for marketing, cleared in customs or ripened, they are actual wholesale service suppliers. Where operators form part of vertically integrated companies, they have the capability and opportunity to enter the wholesale service market. They could at any time decide to re-sell bananas which they have imported or acquired from EC producers, or cleared in customs, or ripened instead of further transferring or processing bananas within an integrated company. ⁸⁷¹ Since Article XVII of GATS is concerned with conditions of competition, it is appropriate for us to consider these vertically integrated companies as service suppliers for the purposes of analysing the claims made in this case.

7.321 Third, as discussed above (paragraphs 7.290 et seq.), the services at issue in this case are wholesale trade services and the related subordinated services specified in headnote 6 to the CPC classification.

7.322 Fourth, in our view, the nature and the characteristics of wholesale transactions as such, as well as of each of the different subordinated services mentioned in the headnote to section 6 of the CPC, are "like" when supplied in connection with wholesale services, irrespective of whether these services are supplied with respect to bananas of EC and traditional ACP origin, on the one hand, or with respect to bananas of third-country or non-traditional ACP origin, on the other. Indeed, it seems that each of the different service activities taken individually is virtually the same and can only be distinguished by referring to the origin of the bananas in respect of which the service activity is being performed. Similarly, in our view, to the extent that entities provide these like services, they are like service suppliers.

7.323 We now have to ascertain whether, by applying operator category rules, the EC accords services supplied across borders or through commercial presence less favourable treatment than it accords its own like services or service suppliers in the meaning of Article XVII.

7.324 We note that the categorization of A and B operators is based on whether they have during a previous three-year period marketed EC and traditional ACP bananas or third-country and non-traditional ACP bananas. The operator category rules apply to service suppliers regardless of their nationality, ownership or control. In so far as the supply of wholesale trade services in respect of third-country and non-traditional ACP bananas is concerned, service suppliers of EC origin are equally subject to operator category rules as service suppliers of Complainants' origin. Likewise, with respect to the supply of wholesale trade services in respect of EC or traditional ACP bananas, service suppliers of EC origin are treated in the same way under the operator category rules as service suppliers of Complainants' origin. Thus, the EC rules establishing operator categories do not formally discriminate against Complainants' wholesale service suppliers on the basis of their origin.

7.325 We note, however, that service suppliers of Complainants' origin that provide wholesale services in respect of only third-country or non-traditional ACP bananas are subject to operator category rules, while service suppliers of EC origin that provide the same services in respect of EC or traditional ACP bananas are not. However, service suppliers of Complainants' origin that have in the past provided wholesale trade services in respect of only third-country or non-traditional ACP bananas are not legally prevented from supplying wholesale trade services with respect to EC and traditional ACP bananas.

7.326 By supplying wholesale trade services to the traditional ACP and EC market segment, suppliers of any origin can avoid, or reduce the extent to which they are subject to, operator category rules. In addition they will be eligible for the allocation of 30 per cent of the in-quota licences required for third-country and non-traditional ACP imports which are earmarked for Category B operators. Nothing in the operator category rules requires operators who are, on the basis of their previous marketing of EC and traditional ACP bananas, beneficiaries of the allocation of 30 per cent of the licences required for the in-quota importation of third-country and non-traditional ACP bananas regardless of whether they have previously dealt in that market segment, to be service suppliers in EC ownership or control. In other words, service suppliers of foreign as well as EC origin are arguably subject to formally identical treatment in the meaning of Article XVII:2 of GATS. Likewise, under the EC operator category rules services of foreign origin which are supplied across-borders are arguably subject to treatment that is formally identical to the treatment of domestic services.

7.327 We now turn to the question whether the application of formally identical operator category rules, nevertheless, modifies conditions of competition ⁸⁷² in favour of service or service suppliers of EC origin, or at the expense of services or service suppliers of third-country origin, in the meaning of paragraphs 2 and 3 of Article XVII of GATS which provide as follows:

Thus, according to Article XVII, formally identical treatment may, nevertheless, be considered to be less favourable treatment if it adversely modifies conditions of competition for foreign services or service suppliers. Therefore, we also have to examine whether the operator category (and activity function) rules have an impact on the conditions of competition for foreign-owned or controlled service suppliers. In order to do so, we must consider in the first instance whether there are non EC-owned or controlled service suppliers for GATS purposes that provide wholesale trade services in bananas in and to the EC.

7.328 The EC states that the European Commission does not have records of the actual ownership of companies registered to receive licences of whatever category. The EC submits that in the case of transnational companies, the nationality of parent and subsidiary companies is usually not the same. Article XXVIII(m)(ii) of GATS defines the origin of a service supplier according to its ownership or control by a natural or juridical person of a Member. While the fact that subsidiaries in foreign ownership or control have a registered seat in their host country might matter in other legal contexts, this fact is not relevant for rights under Article XVII. If the parent company is registered in a Member and engages in substantive business operations there (or in another Member), the Member where the parent company is registered may invoke Article XVII in respect of any of the parent company's subsidiaries which are owned or controlled by the Member in the meaning of Article XXVIII(n).

7.329 In order for the Complainants to establish that there are non EC-owned or controlled service suppliers commercially present in the EC for GATS purposes that provide wholesale trade services in bananas in and to the EC, it would be sufficient for them to show that (i) entities of Complainants' origin (ii) control subsidiaries established in the EC that supply such services. In this case, we are of the opinion that the Complainants have submitted sufficient evidence to show that companies registered in the Complainants' countries provide wholesale trade services in respect of bananas to and in the EC through commercially present owned or controlled subsidiaries in the meaning of Article XXVIII(n).

7.330 As to the first point, the evidence presented and the statements by both parties indicate that there are entities of non EC-origin involved in the banana trade. In particular, both parties seem to accept that Chiquita and Dole are US companies, Del Monte is a Mexican company and Noboa is an Ecuadorian company, and no evidence suggesting the contrary has been presented by the EC. ⁸⁷⁵

7.331 As to the second point, i.e., whether these non-EC companies control subsidiaries that supply wholesale trade services in bananas and are commercially present in the EC, the Complainants submitted a list entitled "Principal banana wholesaling companies established in the EC that were owned or controlled by the Complainants' services suppliers, 1992". The EC notes that no formal records of shareholders and company registrations were submitted by the Complainants. However, we recall that, according to Article IIIbis of GATS, "nothing in GATS requires any Member to provide confidential information, the disclosure of which ... would prejudice legitimate commercial interests of particular enterprises". According to the Complainants, their information was limited in part based on confidentiality concerns. Nonetheless, we believe that the Complainants' evidence is sufficient to establish that there are non-EC companies that control subsidiaries that supply wholesale trade services in bananas and that are commercially present in the EC. In this regard, we note that while the EC argued that more evidence should have been submitted by the Complainants, it did not present information that would cast doubt on the evidence presented by the Complainants. As a consequence, we must assess whether that evidence is sufficiently credible to be accepted by us. In making our objective assessment (Article 11 of the DSU), we are persuaded that the Complainants have sufficiently established that entities of Complainants' origin control subsidiaries established in the EC that provide wholesale trade services in bananas in and to the EC.

7.332 Recalling that under Article XVII of GATS, formally identical treatment may be considered to be less favourable treatment if it adversely modifies conditions of competition for foreign services or service suppliers, we now examine whether the rules establishing operator categories (and activity functions) have an impact on the conditions of competition for foreign-owned or controlled service suppliers. The EC notes that under the operator category rules companies may qualify as both Category A and B operators, thus making it difficult to categorize companies of any nationality as either A or B operators.

7.333 In this regard, the Complainants submit that before the introduction of the EC banana regime companies controlled or owned by natural or juridical persons of their nationalities held a market share of over 95 per cent of the imports of Latin American bananas to the EC. Accordingly, the Complainants argue, companies in EC and ACP ownership or control had a market share of less than 5 per cent of imports from Latin America. The EC questions the accuracy of these figures, but it does not submit comparable evidence of its own. ⁸⁷⁶ In our view, even if we accept the EC argument that the Complainants' 95 per cent figure may be somewhat too high, we believe that the Complainants have adequately demonstrated that companies of the Complainants' origin had by far the vast majority of the market for imports of Latin American bananas.

7.334 In respect of the EC market for EC and ACP bananas, the Complainants submit that prior to the introduction of the EC common market organization, the share of the three large banana companies (i.e., Chiquita, Dole and Del Monte) in the EC/ACP market segment was only 6 per cent and that the share for all non-ACP foreign-owned companies was less than 10 per cent. While the EC states that in 1994, 28 per cent of the EC/ACP production was controlled by three large banana companies, for our purposes what is important is the relative share of service suppliers of the Complainants' origin of the EC market for EC/ACP bananas. ⁸⁷⁷ On either view, we conclude that most of the suppliers of Complainants' origin are classified in Category A for the vast majority of their past marketing of bananas, ⁸⁷⁸ and that most of the suppliers of EC (or ACP) origin are classified in Category B for the vast majority of their past marketing of bananas. ⁸⁷⁹

7.335 In light of the foregoing, we now consider whether the rules establishing operator categories (and activity functions) have an impact on the conditions of competition for foreign-owned or controlled service suppliers. Under the EC rules, based on their marketing during a preceding three-year period of EC and traditional ACP bananas, Category B operators are eligible for 30 per cent of the licences required for the importation of third-country (i.e., Latin American) and non-traditional ACP bananas at lower in-quota duty rates, regardless of whether they have previously traded in the latter market segment. Therefore, most beneficiaries of this allocation to Category B operators are service suppliers of EC origin. At the same time, most Category A operators, who historically traded third-country and non-traditional ACP bananas but who are eligible to receive only 66.5 per cent of the licences allowing in-quota imports of bananas from these sources, are service suppliers of third-country origin. Furthermore, we also note that there is no allocation of an EC/ACP market share for Category A operators equivalent to the allocation of 30 per cent of the third-country and non-traditional ACP import licences to Category B operators. Thus, at first sight it appears that the operator category rules would seem to modify conditions of competition in the EC wholesale services market for bananas in favour of service suppliers of EC origin.

7.336 Given that import licences are tradeable and transferable, the allocation of fixed percentages of licences according to operator categories does not automatically determine the new distribution of market shares between Category A and B operators. However, while Category B operators, on the basis of previous marketing of EC and traditional ACP bananas, obtain access to 30 per cent of the licences required for third-country imports regardless of whether they have previously marketed bananas in that market segment, at the same time, Category A operators, on the basis of their previous imports of third-country and non-traditional ACP bananas, obtain access to only 66.5 per cent of the licences required for the importation of third-country and non-traditional ACP bananas at in-quota tariff rates. Accordingly, when licences authorizing in-quota imports of third-country and non-traditional ACP bananas are traded, sellers of licences will usually be Category B operators and purchasers of licences will usually be Category A operators. ⁸⁸⁰ Indeed, both sides agree that large numbers of import licences are being traded on the market place. Thus, in general, Category A operators are able to purchase the licences they need in addition to their annual licence entitlement if they wish to maintain their previous market share. ⁸⁸¹ However, initial licence holders who carry out the physical importation of bananas or sell the licences in any case reap tariff quota rents, whereas licence transferees have to purchase these licences for a price up to the amount of the tariff quota rent from initial licence holders. ⁸⁸² Thus a licence transferee does not have the opportunity to benefit from tariff quota rents equivalent to that which accrues to an initial licence holder. Given that licence transferees are usually Category A operators who are most often service suppliers of foreign origin and since licence sellers are usually Category B operators who are most often service suppliers of EC (or ACP) origin, we conclude that service suppliers of Complainants' origin are subject to less favourable conditions of competition in their ability to compete in the wholesale services market for bananas than service suppliers of EC (or ACP) origin.

7.337 The EC notes that it presented evidence that in fact the EC market shares of the three major international banana traders do not reflect any adverse effect coming from the EC import licensing procedures. According to the EC, between 1991 and 1994 there was an increase in the EC market shares of Dole (11 per cent to 15 per cent) and Del Monte (7.5 per cent to 8 per cent), while that of Chiquita fell (25 per cent to 18.5 per cent) due to faulty business strategy. Thus, there was only a slight overall decline in the market share of the three companies from 43.5 per cent to 41.5 per cent. Moreover, the EC suggests that more recent data also indicates the lack of an effect on market shares. It notes that as of 1997 four of the biggest banana import companies have together claimed primary importer status for 64 per cent, 58 per cent and 63 per cent of the total primary importer reference quantity of bananas for the EC-15 for 1993, 1994 and 1995 respectively. In our view, this evidence does not counter the analysis outlined above. Because of the possibility (or even incentive) of purchasing licences or taking other action (such as entering into licence "pooling", investment or contractual arrangements with operators entitled to initial licence allocations) to preserve market share, a lack of significant change in market share does not demonstrate that there has not been a significant change in the conditions of competition.

7.338 For all these reasons, although operator category rules arguably apply on a formally identical basis regardless of the origin of the service or the service supplier concerned, service suppliers of Complainants' origin are subject to less favourable conditions of competition in the meaning of Article XVII:2-3 than service suppliers of EC origin, as a result of the allocation to Category B operators of 30 per cent of the licences required for in-quota imports of third-country and non-traditional ACP bananas.

7.339 While the foregoing analysis is sufficient for us to find that the operator category rules are inconsistent with the requirements of Article XVII of GATS, we consider that it is useful to note that our conclusions are confirmed by factual information submitted by the parties, such as considerations advanced by the EC in the context of the introduction of the licensing system for third-country and non-traditional ACP imports. According to EC sources, ⁸⁸³ the allocation of 30 per cent of the licences required for the importation of third-country and non-traditional ACP bananas at in-quota tariff rates to those operators who have previously marketed EC and traditional ACP bananas is intended to "cross-subsidize" the latter category of operators with tariff quota rents in order to offset the higher costs of production, to strengthen their competitive position and to encourage them to continue marketing bananas of EC and traditional ACP origin. In this regard, the EC Council noted that "... the [licensing] allocation formula is intended ... to strengthen the competitive position of operators who have previously marketed Community or ACP bananas, vis-à-vis their competitors who have previously marketed Latin American bananas ...". ⁸⁸⁴

7.340 As noted above, the EC states that in 1994, 28 per cent of the EC/ACP production was controlled by three large integrated banana trading companies (i.e., Chiquita, Dole and Del Monte) which are ultimately in the Complainants' ownership or control. The Complainants submit that prior to the introduction of the EC common market organization, the share of the three large banana companies in the EC/ACP market segment was only 6 per cent and that it was less than 10 per cent for all non-ACP foreign-owned companies. If we assume, absent evidence to the contrary, that these figures are accurate, we believe that the significant increase in the market share of foreign-owned suppliers in the EC/ACP market segment may well be a result of the "cross-subsidization" between operator categories which creates an incentive for service suppliers to become Category B operators. ⁸⁸⁵

(ii) Article II of GATS

7.342 The Complainants claim that the allocation of the third-country import licences on the basis of operator categories and the eligibility criteria for Category B operators discriminate against like service suppliers. As a result, the EC is alleged to be in violation of Article II of GATS because more favourable treatment is accorded to like service suppliers of ACP origin.

7.343 The EC responds with the same arguments that it raised in respect of the Complainants' claims concerning operator categories under Article XVII (see paragraph 7.313). In addition, the EC reiterates that, in the absence of a cross-reference to Article XVII, Article II cannot be interpreted using the "modification of competitive conditions" standard found in Article XVII:3.

7.344 In addressing the claim under Article II, we note that two elements need to be demonstrated in order to establish a violation of the GATS MFN clause: (i) the EC has adopted or applied a measure covered by GATS; (ii) the EC's measure accords to services or service suppliers of Complainants' origin treatment less favourable than that it accords to the like services or services suppliers of any other country.

7.345 As to the first element, we have already determined that the EC measures implementing the operator category rules constitute measures affecting trade in services (paragraphs 7.277 et seq.). We also recall our discussion on the absence of MFN exemptions in the EC list of Article II exemptions which would be relevant to the claims before us (paragraph 7.298).

7.346 Turning to the second element, we must consider whether the EC, by applying operator category rules, accords services or service suppliers of any Member treatment less favourable than that it accords to like services or service suppliers of any other country, such as an ACP country. ⁸⁸⁶ In this connection, we recall that we have found that Category A, B and C operators who are engaged in the marketing of bananas are actual service suppliers and that operators that form part of vertically integrated companies have the capability and opportunity to become at any time service suppliers by entering the wholesale service supply market (paragraph 7.320). Finally, we recall our findings that wholesale transactions as well as each of the different subordinated services mentioned in the headnote to section 6 of the CPC are "like" when supplied in connection with wholesale services, irrespective of whether these services are supplied in respect of bananas of EC and traditional ACP origin, on the one hand, or with respect to bananas of third-country or non-traditional ACP origin, on the other, and that, in our view, at least to the extent that entities provide these like services, they are like service suppliers (paragraph 7.322).

7.347 In examining the Article II issues presented, we note that the categorization of operators and the allocation of licences to them is based on whether they have, during a previous three-year period, marketed EC and traditional ACP bananas or third-country and non-traditional ACP bananas. We recall our finding that operator category rules arguably apply on a formally identical basis to all services regardless of their origin and to all service suppliers regardless of their nationality, ownership or control (paragraph 7.324). Thus, the EC rules establishing operator categories do not formally accord treatment less favourable to Complainants' services and service suppliers than to services and services suppliers of ACP countries on the basis of their origin.

7.348 As in the case of the Article XVII claim, we also note that it is true that service suppliers of Complainants' origin who provide wholesale trade services only with respect to third-country or non-traditional ACP bananas are subject to operator category rules, while service suppliers of ACP origin that market traditional ACP (or EC) bananas are not. However, operators who have supplied wholesale trade services only with respect to third-country and non-traditional ACP bananas are not legally prevented from supplying such services with respect to EC and traditional ACP bananas. By supplying such services to the traditional ACP and EC market segment, suppliers can avoid, or reduce the extent to which they are affected by, operator category rules.

7.349 We then turn to the question whether the application of arguably formally identical operator category rules might nonetheless result in services or service suppliers of Complainants' origin being accorded less favourable treatment than like services or service suppliers of ACP origin in a manner inconsistent with Article II of GATS. In this context, we recall our finding that the obligations contained in Article II:1 of GATS to extend "treatment no less favourable" should be interpreted to require providing no less favourable conditions of competition (paragraph 7.304). Thus, the same analysis used to evaluate the Article XVII claim in respect of operator category rules is applicable here as well.

7.350 Therefore, we recall our reasoning in the context of the parallel claim under Article XVII. Category B operators are eligible for the allocation of 30 per cent of the licences required for third-country or non-traditional ACP imports at in-quota tariff rates regardless of whether they have previously traded at all in third-country bananas. Based on their past import performance in third-country and non-traditional ACP bananas, Category A operators are eligible for only 66.5 per cent of the licences allowing third-country or non-traditional ACP imports at in-quota tariff rates. Accordingly, we found that, when third-country licences are traded, Category B operators will usually sell, and Category A operators will usually purchase, licences. Furthermore, we concluded that operators who are initial licence holders have a greater opportunity to benefit from tariff quota rents than operators who are licence transferees and that most licence transferees are Category A operators. We further found that most service suppliers of Complainants' origin are classified for most of their past marketing of bananas as Category A operators, while most service suppliers of ACP (and EC) origin are registered for most of their past marketing of bananas as Category B operators. ⁸⁸⁷

7.351 For these reasons, although operator category rules apply regardless of the origin of the service or the service supplier concerned, service suppliers of Complainants' origin are subject to less favourable treatment than service suppliers of ACP origin as a result of the allocation to Category B operators of 30 per cent of the licences required for in-quota imports of third-country and non-traditional ACP bananas.

7.352 While the foregoing analysis is sufficient for us to find that the operator category rules are inconsistent with the requirements of Article II of GATS, we consider it useful to note that our conclusions are supported by the considerations advanced by the EC in the context of the introduction of the licensing system applicable to third-country and non-traditional ACP imports. According to EC sources, ⁸⁸⁸ the allocation of 30 per cent of the licences required for the importation of third-country and non-traditional ACP bananas at in-quota tariff rates to those operators who have previously marketed traditional ACP and EC bananas is intended to "cross-subsidize" the latter category of operators with tariff quota rents in order to offset the higher costs of production, to strengthen their competitive position and to encourage them to continue marketing bananas of traditional ACP (and EC) origin.

(d) Activity functions

7.354 Activity function rules apply to Category A operators as well as to Category B operators. Article 3 of Regulation 1442/93 defines three categories of economic activity, i.e., (1) "primary" importers, (2) "secondary" importers (i.e., customs clearers) and (3) ripeners. Fixed percentages of the licences required for the importation originating in third countries or non-traditional ACP countries at in-quota tariff rates are allocated on the basis of these "activity functions": Article 5 of Regulation 1442/93 provides for a weighting coefficient of 57 per cent for primary importers, 15 per cent for secondary importers and 28 per cent for ripeners. In introducing activity functions the EC states that "the Commission is guided by the principle whereby the licences must be granted to natural or legal persons who have undertaken the commercial risk of marketing bananas and by the necessity of avoiding disturbing normal trading relations between persons occupying different points in the marketing chain". ⁸⁸⁹

(i) Article XVII of GATS

7.355 In the view of the Complainants, the allocation of third-country tariff quota licences based on activity functions-in particular the reservation of 15 per cent for secondary importers and of 28 per cent for ripeners, most of which they claim, are EC firms - serves the purpose of re-allocating market shares previously held by third-country firms and modifies the conditions of competition in favour of like services suppliers of EC origin. Therefore, the Complainants claim that the activity function rules violate Article XVII of GATS vis-à-vis like EC service suppliers of services covered by the EC commitments on national treatment.

7.356 The EC argues that the creation of activity functions aims at avoiding the concentration of economic bargaining power - which results from the allocation of import licences - in the hands of a few privileged recipients at a specific stage of the supply chain.

7.357 In light of these arguments we turn to an examination of the issues arising under this Article XVII claim. In order to establish a breach of the national treatment obligation of Article XVII, three elements need to be demonstrated: (i) the EC has undertaken a commitment in a relevant sector and mode of supply; (ii) the EC has adopted or applied a measure affecting the supply of services in that sector and/or mode of supply; and (iii) the EC's measure accords to service suppliers of any other Member treatment less favourable than that it accords to the EC's own like service suppliers.

7.358 As to the first two elements, we have already determined that the EC has made a commitment in respect of wholesale trade services with respect to service supply across borders and through commercial presence without conditions or qualifications in the meaning of Article XVII (paragraph 7.306). We find that the EC measures implementing the activity function rules constitute measures affecting trade in services for the same reasons that we found that the operator category rules constitute measures affecting trade in services (paragraphs 7.277 et seq.).

7.359 Turning to the third element, we must consider whether the EC, by applying the activity function rules, accords service suppliers of any Complainant treatment less favourable than that it accords to like service suppliers of the EC. In this connection, we recall that we have found that Category A, B and C operators who are engaged in the marketing of bananas are actual service suppliers and that operators that form part of vertically integrated companies have the capability and opportunity to become at any time service suppliers by entering the wholesale service supply market (paragraph 7.320). Finally, we recall our findings (paragraph 7.322) that wholesale transactions as well as each of the different subordinated services mentioned in the headnote to section 6 of the CPC are "like" when supplied in connection with wholesale services, irrespective of whether these services are supplied in respect of bananas of EC and traditional ACP origin, on the one hand, or with respect to bananas of third-country or non-traditional ACP origin, on the other, and that, in our view, at least to the extent that entities provide these like services, they are like service suppliers.

7.360 In examining the issues presented by the Complainants, we recall that under the EC activity function rules, claims for reference quantities of EC and traditional ACP bananas marketed during a preceding three-year period by Category B operators as well as claims as to quantities of third-country and non-traditional ACP bananas imported during that period by Category A operators are weighted according to the activity functions performed by these operators. The weighting coefficient of 57 per cent for primary importers, 15 per cent for secondary importers and 28 per cent for ripeners relates to the importation, customs clearance and ripening activities performed by Category A and B operators during the previous three-year period. Activity function rules apply to all service suppliers regardless of their nationality, ownership or control. Suppliers of EC origin who supply wholesale services with respect to third-country and non-traditional ACP bananas are equally subject to activity function rules as suppliers of Complainants' origin who provide wholesale services with respect to third-country and non-traditional ACP bananas. Likewise, suppliers of EC origin are treated in the same way by activity function rules when they sell or market EC or traditional ACP bananas as suppliers of Complainants' origin that deal in EC or traditional ACP bananas. Accordingly, we conclude that the EC rules establishing activity functions do not discriminate against Complainants' like service suppliers on the basis of their origin and thus are arguably formally identical in the meaning of Article XVII:2 for service suppliers of domestic as well as foreign origin.

7.361 We then turn to the question whether the application of arguably formally identical activity function rules to service suppliers of Complainants' origin modifies, in the meaning of Article XVII, conditions of competition in favour of like service suppliers of EC origin. In this context, we note that service suppliers of Complainants' origin who sell third-country or non-traditional ACP bananas are subject to activity function rules, while like service suppliers of EC origin who sell EC bananas are not. However, operators who have supplied wholesale services exclusively or mainly with respect to third-country and non-traditional ACP bananas are not legally prevented from choosing to begin supplying or to supply more such services with respect to EC (and traditional ACP) bananas. By supplying wholesale services to the EC (and traditional ACP) banana market segment, suppliers can avoid, or reduce the extent to which they are, subject to activity function rules. ⁸⁹⁰

7.362 However, we also have to examine the impact of the introduction of activity function rules on market conditions. As noted above, the EC states that the European Commission does not have a record of the actual ownership or control of companies registered to receive licences under whatever activity function. We note that a company may claim reference quantities for the calculation of their annual licence entitlement at the same time for primary importation, customs clearance as well as ripening activities. But we also have to consider the information submitted by the Complainants according to which in 1992 overall about 83 per cent of bananas imported or marketed in the EC - and between 57 and 100 per cent in individual EC Member States ⁸⁹¹ - were ripened by EC owned or controlled ripeners before the introduction of the common market organization. The EC challenges these statistics as exaggerated. But even the EC statistics ⁸⁹² suggest that 74 to 80 per cent of ripeners are EC controlled. Thus, we conclude that the vast majority of the ripening capacity in the EC is owned or controlled by natural or juridical persons of the EC and that most of the bananas produced in or imported to the EC are ripened in EC owned or controlled ripening facilities. Indeed, as noted above by the EC itself, the activity function rules were put in place to prevent a concentration of economic bargaining power in the hands of the large multinational companies, which the EC elsewhere in its submission describes as Chiquita, Dole and Del Monte. Therefore, most of the claims as to ripening activities performed will be filed by ripeners of EC origin who are actual or potential wholesale service suppliers. Likewise, we are convinced that most of the service suppliers of Complainants' origin will usually be able to claim reference quantities only for primary importation and possibly for customs clearance, but not for the performance of ripening activities. We further note that we have not been presented with sufficient information to ascertain whether companies carrying out customs clearance activities are predominantly in EC or third-country ownership or control. Nor are we in a position to determine whether self-employed natural persons performing customs clearance activities are mainly EC or third-country nationals. Therefore, service suppliers of EC as well as third-country origin do have comparable opportunities to file claims as to primary and secondary importation activities performed with the EC authorities, whereas service suppliers of Complainants' origin do not enjoy equal competitive opportunities to make claims for the performance of ripening activities as service suppliers of EC origin.

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

⁸⁵⁷ In the EC's understanding there are no MFN exemptions which would limit its obligation to provide MFN treatment in respect of the subsector of wholesale trade services, whereas in the Complainants' view there are no relevant MFN exemptions for the whole range of distribution services. By the terms of the GATS, the MFN treatment clause covers, subject to each Member's MFN exemption list, all services on a general basis. Accordingly, the range of the service transactions which are directly or indirectly related to trade in bananas is potentially wider than the sector of distribution services or the subsector of wholesale trade services. Likewise, a broader range of the exemptions which have been inscribed in the EC's MFN exemption list could be relevant to service transactions related to trade in bananas. However, in the light of the legal arguments advanced by the Complainants we proceed on the assumption that the scope of their claims under the GATS MFN clause is limited to the supply of wholesale trade services by commercial presence and that none of the MFN exemptions scheduled by the EC carves out components of the relevant CPC description.

⁸⁵⁸ Article XVII of GATS (National Treatment) provides:

"1. In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.¹⁰

2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

⁸⁵⁹ Article I:1 of GATT provides: "... any advantage, favour, privilege or immunity granted by any Member to any product originating in or destined for any other country shall be accorded immediately and unconditionally...".

⁸⁶⁰ Article XXVIII(c) is quoted in para. 7.279 supra.

⁸⁶¹ Panel Report on "Italian Discrimination of Imported Agricultural Machinery", adopted on 23 October 1958, BISD 7S/60, 63, para. 12. See also para. 7.327.

⁸⁶² European Communities and Their Member States - Schedule of Specific Commitments - April 1994.

⁸⁶³ Article 28 of the Vienna Convention embodies the general international law principle that "[u]nless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to ... any situation which ceased to exist before the date of entry into force of the treaty ...". Under this rule, the EC measures at issue may be considered as continuing measures, which in some cases were enacted before the entry into force of GATS but which did not cease to exist after that date (the opposite of the situation envisaged in Article 28).

⁸⁶⁴Article XXVIII:(b) of GATS provides: "'Supply of a service' includes the production, distribution, marketing, sale and delivery of a service."

⁸⁶⁵ Article XXVIII(d) of GATS provides:

"'Commercial presence' means any type of business or professional establishment, including through

within the territory of a Member for the purpose of supplying a service;

⁸⁶⁶ Article XXVIII(n) provides: "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".

⁸⁶⁷ Article XXVIII(n) provides: " A juridical person is (ii) 'controlled' by persons of a Member if such persons have the power to name a majority of its directors or otherwise to legally direct its actions".

⁸⁶⁸ Article XXVIII(k) provides: "'Natural person of another Member' means a natural person who resides in the territory of that other Member or any other Member, and who under the law of that other Member:

⁸⁶⁹ Article XXVIII(l) provides: "'[J]uridical person' means any legal entity duly constituted or otherwise organized under applicable laws, whether for profit or otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, joint venture, sole proprietorship or association. For the definition of "juridical person of another Member", see para. 7.295 supra.

⁸⁷⁰ As a result, suppliers which are commercially present within the EC territory and owned or controlled by, for example, Del Monte Mexico would be entitled to benefit from GATS rights because it would not matter under Article XXVIII(m) of GATS whether Del Monte Mexico was owned or controlled by natural or juridical persons of Jordan, i.e. a WTO non-Member, as long as Del Monte Mexico was incorporated in Mexico and engaged in substantive business operations in the territory of Mexico or any other Member.

⁸⁷¹ Operators who always sell or resell bananas directly to consumers supply retail services which are not covered by the EC commitments on wholesale services under Article XVII.

⁸⁷² "The Panel, however, believes that an evaluation of the trade effects was not directly relevant to its findings because a breach of a GATT rules is presumed to have an adverse impact on other contracting parties ..." (emphasis added). Panel Report on "Canada - Administration of the Foreign Investment Review Act", adopted on 7 February 1984, BISD 30S/140, 167, para. 6.6.

"[Article III:2 of GATT] protects expectations on the competitive relationship between imported and domestic products. A change in the competitive relationship contrary to that provision must consequently be regarded ipso facto as a nullification or impairment of benefits accruing under the General Agreement". (emphasis added). Panel Report on "US - Taxes on Petroleum and Certain Imported Substances", adopted on 17 June 1987, BISD 34S/136, 158-159, para. 5.1.9.

"[T]he panel noted that previous panels had rejected arguments of de minimis trade consequences and had found that the size of the trade impact of a measure was not relevant to its consistency with Article III [GATT]". Panel Report on "US - Measures Affecting the Importation, Internal Sale and Use of Tobacco", adopted on 4 October 1994, DS 44/R, p.32, para. 99.

⁸⁷³ The wording of paragraph 2 of Article XVII of GATS draws on the interpretation developed by a GATT panel with respect to Article III of GATT: "[T]he 'no less favourable' treatment requirement set out in Article III:4, is unqualified. These words are to be found throughout the General Agreement ... as an expression of the underlying principle of equality of treatment of imported products as compared to the treatment given either to other foreign products, under the most favoured nation treatment standard, or to domestic products, under the national treatment standard of Article III. The words 'treatment no less favourable' in paragraph 4 [of GATT Article III] call for effective equality of opportunities for imported products in respect of the application of laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution or use of products. This clearly sets a minimum permissible standard as a basis. On the one hand, contracting parties may apply to imported products different formal legal requirements if doing so would accord imported products more favourable treatment. On the other hand, it also has to be recognized that there may be cases where application of formally identical legal provisions would in practice accord less favourable treatment to imported products and a contracting party might thus have to apply different legal provisions to imported products to ensure that the treatment accorded to them is in fact no less favourable" (emphasis added). Panel Report on "US - Section 337 of the Tariff Act of 1930", adopted on 7 November 1989, BISD 36S/345, 386, para. 5.11.

⁸⁷⁴ The wording of paragraph 3 of Article XVII of GATS draws on the interpretation developed by a GATT panel with respect to Article III of GATT: "[T]he text of paragraph 4 [of GATT Article III] referred both in English and in French to laws and regulations and requirements affecting internal sale, purchase, etc., and to laws, regulations and requirements governing the conditions of sale or purchase. The selection of the word "affecting" would imply, in the opinion of the Panel, that the drafters of the Article intended to cover in paragraph 4 not only the laws and regulations which directly governed 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 markets" (emphasis added). Panel Report on "Italian Discrimination of Imported Agricultural Machinery", adopted on 23 October 1958, BISD 7S/60, 63, para. 12.

"The Panel also noted that if the Italian contention were correct, and if the scope of Article III were limited in the way the Italian delegation suggested to a specific type of law and regulations, the value of the bindings under Article II of the Agreement and of the general rules of non-discrimination as between imported and domestic products could be easily evaded". Id., p.64, para. 15.

⁸⁷⁵ For example, the first submission of the EC, in referring to statistics in an Arthur D. Little study, refers to Chiquita and Dole as "US owned or controlled". A.D. Little, "Etude de l'evolution des effets de la remise en place de l'OCM bananes sur la filière dans l'Union européenne", 13 septembre 1995.

⁸⁷⁶ Pursuant to Regulations 404/93 and 1442/93, the EC Commission and competent member State authorities have to keep information concerning the reference quantities of past volumes of bananas marketed for which companies are registered in particularlized form. We note that, according to the EC, these records do not include information on the ownership or control of the companies categorized or registered for reference quantities.

⁸⁷⁷ As noted below, the difference in statistics may be a result of the EC rules. See para. 7.340.

⁸⁷⁸ Operators classified in Category A for most of their past trade volume: Chiquita Brands (US), Dole Foods (US), Noboa (Ecuador), Del Monte (Mexico), Uniban (Colombia), Banacol (Colombia). (Information submitted by the Complainants).

⁸⁷⁹ Operators classified in Category B for most of their past trade volume: e.g., Geest (UK), Fyffes (Ireland), Pomona (France), Compagnie Fruitière (France), CDB/Durand (France), Gipam (France), Coplaca (Spain), Bargoso SA (Spain). (Information submitted by the Complainants).

⁸⁸⁰ "The Council [of the European Communities] is ... correct in contending that the traditional dealers [in Latin American bananas] have the opportunity to buy 'market shares' back from those who have received a share of the 30 per cent quota. But again it must not be overlooked that that only confirms that the regulation, by means of the allocation of the quota, transfers the profit potential from the traditional dealers in third-country bananas to the traditional dealers in Community/ACP bananas ...". Opinion of Advocate General Gulman of the European Court of Justice, in Federal Republic of Germany v. Council, p.24.

"The principal source of licences which are actually sold has been Community producer interests. Individual producers and producers' organizations which are not themselves necessarily 'importers' of bananas have been allocated Category B licences. Since in general they have no interest in importing dollar bananas, these licences are sold, providing a supplement to their income in addition to the support provided by the provisions on aid to compensate their loss of income. The main purchasers of licences appear to be the multinational companies themselves and certain German operators including newcomers." European Commission, Report on the EC Banana Regime, VI/5671/94, p.10f.

⁸⁸¹ "Transferability of licences is an essential feature of the regime so that operators who have not traditionally traded in EC or ACP fruit can have access to the Category B licence under partnership arrangements right from the start, before they have had the opportunity to develop their own trade in EC and ACP fruit." European Commission, Report on the EC Banana Regime, VI/5671/94, p.10.

⁸⁸² In the alternative, primary importers in the meaning of the activity function rules also have the option of "pooling" licences by entering into partnership arrangements with, or by investing in companies engaged in customs clearing or in ripening activities.

⁸⁸³ "1 ... From the range of alternative methods which could be used to achieve this goal, the approach of cross-subsidization, through issuing licences to import 'dollar' bananas to those who traded in Community or ACP bananas was chosen because it not only provides some financial compensation for the higher production costs of these bananas, but also acts as an incentive for the market to become more integrated, and to encourage operators to trade in both 'dollar' and EU/ACP fruit. ...

2 ... Reserving a proportion of tariff quota licences for those operators who have marketed ACP and/or EU bananas is a means of transferring some of the quota rent to them, in order to offset the higher costs of production and therefore to make marketing fruit from these sources a viable commercial proposition. ...

3 ... From the producers' viewpoint, some of the larger dollar suppliers are building up interests in EU and ACP countries, either through establishing plantations, ... or through contractual arrangements with producer groups ... . These links demonstrate the success of the cross-subsidization principle of encouraging integration of the different sources supplying the market". European Commission, Impact of cross-subsidization within the banana regime, Note for information, p.1.

⁸⁸⁴ Written observation of the Council of the European Communities before the Court of Justice of the European Communities concerning the application for interim relief pursuant to Articles 185 and 186 of the EEC Treaty, 14 June 1993, in Case No. C-276/93R, Chiquita Banana Company B.V. and Others v. Council, p.15.

⁸⁸⁵ "At the same time, bananas from EU and ACP sources are starting to penetrate markets outside those Member States which granted them preferential treatment, although these bananas are still primarily sold in their traditional markets. This latter observation might in part reflect the strategies of the multinational companies to become increasingly involved in the marketing of EU and ACP bananas. Since 1993, these companies have established joint ventures with or taken important stakes in organizations both producing and marketing from the Canary Islands, the French Antilles, Jamaica and Somalia. These new interests are in addition to those established in Cameroon and the Ivory Coast before 1993." European Commission, Report on the Operation of the Banana Regime, SEC(95) 1565 final, Brussels, 11 October 1995, p.7f.

⁸⁸⁶ Operators in ACP ownership or control: e.g. Jamaica Producers, Winban/Wibdeco. (Information submitted by the Complainants). According to the EC, at least one of the subsidiaries of Jamaica Producers is not in ACP ownership or control.

⁸⁸⁷ Operators classified for most of their past trade volume as Category B operators: e.g. Jamaica Producers (Jamaica), Winban/Wibdeco (Windward Islands). (Information submitted by the Complainants).

⁸⁸⁸ The impact of cross-subsidization within the banana regime (cited in note 506 supra).

⁸⁸⁹ Recital 15 of Regulation No. 404/93.

⁸⁹⁰ Furthermore, these suppliers will become eligible for the allocation of 30 per cent of the in-quota licences required for third-country and non-traditional ACP imports which are allocated to Category B operators.

⁸⁹¹

We note that Austria, Finland and Sweden did not become EC member States until 1995.

⁸⁹² In its second oral statement, the EC stated that "the ripening sector has always been ... penetrated by foreign suppliers of ripening services or of ripeners for the account of integrated firms (around 20%)". At the interim hearing, the EC stated that "[a]t present, our best indications are that the some 50 ripening companies owned or controlled by Chiquita and Dole and the 5 Del Monte companies count for 26 per cent of ripening declarations in the EC-15".