V.107 In the case of Venezuela, the EC had, consistently with the principles set out in Article XIII, taken into account special factors that affected that country's trade in bananas, according to Colombia, Costa Rica, Nicaragua and Venezuela. Although Venezuela had not previously exported bananas to the EC in significant amounts, large Venezuelan banana growers had made significant investments since early 1993 to cultivate additional acreage specifically for export to the EC and the United States. On the basis of feasibility studies and expectations of the trend and market access conditions in the EC, they had invested US$28.6 million over a period of three years to expand production for export. This fundamental commercial interest explained why Venezuela had participated as a complainant in the proceedings of the two GATT 1947 panels on the EC banana regime and in the context of the Uruguay Round in the bilateral market access negotiations that led to the BFA.

V.108 Furthermore, Colombia, Costa Rica, Nicaragua and Venezuela submitted, that the EC had allocated, in conformity with the practice of many Members under Article XIII of GATT, a quota share not only to major named supplying countries but also a residual quota to all other supplying countries. The residual quota amounted to 50.6 per cent less the 90,000 tonnes allocated to non-traditional bananas from the ACP countries. This percentage reflected the share of the other supplying countries during the reference period.

V.109 Colombia, Costa Rica, Nicaragua and Venezuela noted that country-specific quota allocations established, in general, not only the minimum but also the maximum quantity which may be exported. Any shortfall by one of the countries to which such an allocation had been made could not normally be made up by another such country. This put such countries at a disadvantage in relation to the "other" countries benefiting from a common residual quota because each of these countries could export the quantities not exported by another. In the case in point, however, they noted that the EC had decided to put the named countries and the "other" countries on the same footing in this respect by making the quota allocations transferable among the named countries. This transferability of the country-specific tariff quota shares raised the level of imports into the EC by ensuring that, over time, each country-specific quota was fully utilized in line with the spirit of Article XIII:2 of GATT. The transferability had led merely to small, transitory changes that did not affect the overall distribution of imports into the EC and that did not go beyond what was required to ensure a full utilization of the country-specific quotas. The EC had thus distributed the resulting trade shares "as closely as possible" in proportion to the shares that might be expected in the absence of the quota limitations, taking into account the legal requirement to permit a full utilization of each quota allotment.

V.110 In evaluating the EC's allotment of shares, Colombia, Costa Rica, Nicaragua and Venezuela submitted that the Panel should take into account the enormous difficulties the EC had faced in applying the principles of Article XIII of GATT 1947 to its transformation of the diverse import regimes of its member States into an EC-wide regime. Six of its member States had applied restrictions for a long period of time and the expectation of the transformation had given rise to speculative transactions. Moreover, changes in production patterns in Latin America, in particular in Venezuela, had taken place. Both the determination of a representative period and the appraisal of the special factors that affected trade in bananas were therefore extremely difficult to make. Against this background, any objective observer could not but conclude that the offer of tariff quota shares by the EC constituted an appropriate exercise of the discretion it was entitled to exercise in accordance with Article XIII:2 and 4 of GATT had it not successfully sought an agreement to settle the difficult issue with all Members in the context of the Uruguay Round in accordance with Article XIII:2(d).

V.111 According to Colombia, Costa Rica, Nicaragua and Venezuela, the Complaining parties' argument that the administration of the tariff quotas, in particular the export certificate system applicable to signatories of the BFA, was inconsistent with Article XIII of GATT was based on a misconception of the benefits accruing under this provision and the GATT generally. Article XIII, like the other non-discrimination provisions of the GATT, obliged Members to extend advantages accorded to any product to similar products originating from, or destined for, the territories of all Members; Article XIII did not oblige Members to extend to the producers of all Members the benefits extended to one of them. The terms of Article XIII referred only to the distribution of shares of trade, not shares in quota rents, and the same applied to the Licensing Agreement. Also Articles I, III, and XI of GATT applied solely to the treatment of products not to the treatment of producers or investors. It was correct to say that Article I of GATT applied to all rules and any advantage, but the Complaining parties had overlooked that Article I applied only to rules in connection with importation and only to advantages accorded to products. In their view, the Complaining parties had not explained how the export certificate system could be regarded as according an advantage to a product in connection with importation. They agreed that Article III applied only to measures that distinguished between like products of domestic and foreign origin, not measures distinguishing between producers, as the two tuna/dolphin panels had confirmed. In their view, the same applied to the Licensing Agreement whose principal purpose was "to ensure that import licensing procedures are not utilized in a manner contrary to the principles and obligations of the GATT". For these reasons, Members were free to allocate the in-quota licences to any enterprise from any Member as long as that allocation did not entail discrimination between products of different origins or destinations. Colombia, Costa Rica, Nicaragua and Venezuela claimed that the export certificate system served solely to distribute the financial benefits arising from the quota system which were matters not covered by the GATT and the Licensing Agreement. It did not affect in any way the level of imports of bananas into the EC nor the distribution of trade among exporting countries. The system thus dealt with the distribution of benefits that simply did not accrue under the GATT.

V.112 Furthermore, the Agreement on Safeguards made it perfectly clear that the allocation of trade shares had to be distinguished under the GATT from the allocation of the financial benefits associated with the administration of quota regimes. Article 2.2 of that Agreement stipulated that "[s]afeguard measures shall be applied to a product being imported irrespective of its source." However, footnote 3 to Article 11 of that Agreement provided that:

The drafters of this Agreement thus had considered that the treatment of products under an import quota system had to be distinguished from other aspects of the administration of quota system and that a quota allocation could be consistent with Article XIII of GATT even if the administration of the quota system varied between Members.

V.113 Moreover, Colombia, Costa Rica, Nicaragua and Venezuela, claimed that the Panel should consider the broad implications that an acceptance of the interpretations advanced by the Complaining parties would entail. Most Members that allocated tariff quotas among supplying countries did so by allocating a share to named countries constituting the main suppliers and a residual share to "other countries". The producers of the named countries could easily obtain the financial benefits associated with a quota regime by forming an export cartel or by asking their government to channel exports through a single agency in accordance with Articles XVII and XX(d) of GATT; the "other countries" needed to cooperate with one another to secure that financial benefit, which was inherently more difficult. In spite of this different impact on producers of different countries, this method of allocating trade shares among countries had never been challenged in the whole history of the GATT. If, as the Complainants had suggested, Article I or Article XIII of GATT were to be interpreted to oblige countries not only to afford equal trade opportunities but also equal opportunities to obtain the financial benefits arising from the administration of quotas, a quota allocation mechanism used by practically all Members that use quotas, including the United States, would be illegal.

V.114 According to Colombia, Costa Rica, Nicaragua and Venezuela, the claim that the administration of the tariff quota was inconsistent with the Licensing Agreement was equally based on a total misconception of the objective of the Agreement. The Agreement prescribed in Article 3.5(e) that "any person, firm or institution which fulfils the legal and administrative requirement of the importing Member shall be equally eligible to apply and to be considered for a licence". Neither this nor any other provision of the Licensing Agreement constrained the right of importing Members to determine who could obtain an import licence. As its name indicated, the Agreement merely obliged Members to administer whatever legal and administrative requirements they adopted in a transparent, predictable and least burdensome manner. Colombia, Costa Rica, Nicaragua and Venezuela claimed, however, that all the evidence the Complaining parties had submitted to the Panel to support their claim that the EC had violated the Licensing Agreement related to the legal and administrative requirements imposed by EC legislators and not to the application of the requirements by EC administrators. Moreover, some of the Complaining parties' allegations related to the requirements imposed not by the EC, but by banana exporting countries and therefore did not concern the matter before the Panel.

V.115 Colombia, Costa Rica, Nicaragua and Venezuela further submitted that the United States had brought the complaint against the EC banana regime not to defend its trade interests in bananas, which were minimal, but to defend the investment interests of United States enterprises in other countries, and it was now trying to make the Panel accept interpretations that would turn the provisions of GATT on the treatment of products into provisions on the treatment of investors. The Panel should, in the view of Colombia, Costa Rica, Nicaragua and Venezuela, take the interpretations that had been proposed by the Complaining parties for what they were, an attempt to turn a trade agreement into an investment agreement, and reject them accordingly.

Conclusions

V.116 Colombia, Costa Rica, Nicaragua and Venezuela requested the Panel to reject the Complaining parties' argument that those parts of the EC banana import regime that implemented the provisions of the BFA set out in the EC's market access commitment were inconsistent with the EC's obligations under the WTO agreements. They stated that, just as the Complainants, they would have preferred the access to the EC banana market to be free and unencumbered by a complex tariff quota allocation scheme. However, in contrast to the Complaining parties, Colombia, Costa Rica, Nicaragua and Venezuela recognized that this goal could only be attained by negotiation. The GATT clearly permitted the EC to impose high tariffs, establish tariff quotas and allocate of such quotas to specific countries which may secure the financial benefits generated by the quotas through export monopolies, and the CONTRACTING PARTIES to the GATT 1947 granted the EC the right to accord preferential treatment to ACP bananas. A fundamental change in that regime could therefore not be achieved through the WTO dispute settlement procedures. Colombia, Costa Rica, Nicaragua and Venezuela therefore sought an agreement with the EC committing it to a stable and predictable administration of the regime it was legally entitled to introduce.

V.117 The GATT rules governing the quota allotments were extremely difficult to apply and left the importing Member substantial discretion in the choice of the previous representative period and in the appraisal of special factors. Moreover, if a WTO panel considered a Member's quota allotment to be inconsistent with Article XIII of GATT, it could not prescribe a specific new quota allotment because it would thereby take away the Member's right to exercise the discretion accorded by this provision. A negative finding of a panel on a specific quota allotment could therefore be followed by a new dispute on the allotment put in place to replace the original illegal allotment, and so on. Members facing tariff quotas therefore had a legitimate interest in settling by agreement all the complex issues to which the administration of the tariff quotas gave rise. The legitimacy of that interest was recognized in Article XIII:2 of GATT, which declared quota allotments by agreement to be the preferred method of allocation, and Article 4.1 of the Agreement on Agriculture which put tariff concessions and market access commitments related to the implementation of the tariff concessions on an equal legal footing. The Panel, too, should recognize the legitimacy of settling thorny quota allocation and administration issues as part of a negotiation on tariffs and tariff quotas.

V.118 Furthermore, Colombia, Costa Rica, Nicaragua and Venezuela claimed that the issue before the Panel was the legal status of all such settlements included in market access commitments exchanged under the Agreement on Agriculture, not merely those reflected in the BFA. At issue was the basic question of whether the Agreement on Agriculture was interpreted as an essentially self-standing agreement settling the extremely difficult and complex question arising in the allocation and administration of tariff quotas and providing legal certainty in agricultural trade, or as an agreement whose content could be endlessly challenged in the light of the provisions of other WTO agreements. If the Panel's reasoning were to permit such endless challenges, it could rule in favour of the Complaining parties only if it were to deny Members the right to settle quota allocation issues by agreement and if it were to rule that the benefits accruing under the GATT went beyond the treatment of products and those accruing under the Licensing Agreement went beyond procedural issues. It would be extremely serious for the Panel to fail to recognize the broad implications of the rulings it had been asked by the Complaining parties to make.

V.119 The WTO's dispute settlement system "serves to preserve the rights and obligations of Members". ⁷¹⁵ The main function of the interpretative process panels were engaged in must therefore be to ascertain and confirm the understandings that had been reached during the Uruguay Round, not to unravel these understandings. According to Colombia, Costa Rica, Nicaragua and Venezuela, an interpretation leading to a one-sided elimination of specifically negotiated and clearly expressed commitments on the grounds that they ran counter to more general commitments would be contrary to this principle and therefore would cast serious doubts on the credibility of the WTO's dispute settlement process and the political acceptability of the decisions that emerged from it.

INDIA

V.120 India noted that the EC market for imported bananas was the largest in the world, with imports in 1995 totalling approximately 30 per cent of all bananas traded globally. Although not a significant exporter of bananas, India was the world's largest producer of the product, with production totalling about 9.5 million tonnes in 1995 out of total world production of 54.5 million tonnes. India had, therefore, an understandable interest in the EC import regime for this product.

The Lomé Convention and the Lomé waiver

V.121 The preferential treatment given to the ACP developing countries by the EC in its import regime for bananas was based on the provisions of the Fourth Lomé Convention, signed on 15 December 1989, and notified to the GATT on 16 December 1992. The parties to the Lomé Convention initially claimed that the Lomé Convention was genuinely compatible with Article XXIV and Part IV of GATT 1947. India noted that during the GATT Council discussions on the Lomé Convention, it was generally agreed that the Lomé Convention was, by any standard, the most comprehensive ever signed between a group of industrial countries of the North and a group of developing countries of the South, and that there was general recognition among GATT contracting parties that its objectives were commendable. The Lomé Convention was not concerned solely with providing ACP States preferential access to the EC market. Article 4 of the Lomé Convention stated that support would be provided in ACP-EEC cooperation for the ACP States' efforts to "achieve comprehensive self-reliant and self-sustained development, based on their cultural and social values, their human capacities, their national resources and their economic potential in order to promote the ACP States' social, cultural and economic progress and the well-being of their populations, through satisfaction of their basic needs ...". With specific reference to bananas, India noted that Protocol 5 of the Lomé Convention stipulated: "In respect of its banana exports to the Community markets, no ACP State shall be placed as regards access to its traditional markets and its advantages on those markets, in a less favourable situation than in the past or at present" (Article 1). Under this provision, the ACP States appeared to have a legal right to obtain preferential treatment for their exports of bananas to the EC market.

V.122 India recalled that the parties to the Lomé Convention made a joint request to the GATT Council for a waiver from the obligations of the EC under Article I:1 on the basis of Article XXV:5 of GATT 1947, with respect to the "granting of preferential treatment for products originating in the ACP countries as foreseen under the relevant provisions of the Fourth Lomé Convention, for the duration of the Convention". The GATT Council granted a waiver for the period up to 29 February 2000, "to the extent necessary to permit the European Communities to provide preferential treatment for products originating in ACP States as required by the relevant provisions of the Fourth Lomé Convention, without being required to extend the same preferential treatment to like products of any other contracting party". India further recalled the reasoning given by the representative of the ACP contracting parties in seeking this waiver, i.e. for the "legal certainty" of the trade of vulnerable developing countries.

Conclusion

V.123 Against the background given above, India requested the Panel to look at the dispute in the light of the waiver jointly obtained by the EC and the ACP States so that the legal certainty derived out of the waiver decision in respect of the significant market access preferences extended to the ACP countries was not diluted or impaired.

JAPAN

V.124 Japan submitted that one of the main issues addressed in this dispute concerned the consistency of the EC's tariff quota system for the importation, sale and distribution of bananas with the Agreement on Import Licensing Procedures (the "Licensing Agreement").

Non-applicability of the Agreement on Import Licensing Procedures to tariff quota systems

V.125 Japan noted that paragraph 1 of Article 1 of the Licensing Agreement defined "import licensing" as "administrative procedures used for the operation of import licensing regimes requiring the submission of an application or other documentation (other than that required for customs purposes) to the relevant administrative body as a prior condition for importation into the customs territory of the importing Member".

V.126 According to Japan, however, a tariff quota was a system in which the in-quota tariff rate was applied for the imports within the quota and an over-quota tariff rate was applied for the imports beyond the quota. Under these systems, imports could be made beyond the quota quantity by paying the over-quota tariff. In this respect, a tariff quota system was clearly distinct from an import quota (quantitative restriction) system in which an import licence was a prior condition for importation. Thus, in the view of Japan, obtaining an allocation of a tariff quota was not a prior condition for importation within the meaning of paragraph 1 of Article 1 of the Licensing Agreement. Accordingly, Japan was of the view that tariff quota systems were not covered by the Licensing Agreement.

V.127 Furthermore, Japan submitted that the notification practice under the Tokyo Round Agreement on Import Licensing Procedures (the "Tokyo Round Agreement") supported this interpretation. Japan believed that in responding to the questionnaire on import licensing procedures under the Tokyo Round Agreement, at the beginning of its implementation, no contracting party notified its tariff quota systems as import licensing procedures. Therefore, Japan considered that contracting parties at that time did not hold any recognition or interpretation that the tariff quota system was covered by the Tokyo Round Agreement. The current Licensing Agreement was largely based on the text of the Tokyo Round Agreement. The definition of "import licensing" in paragraph 1 of Article 1 of the current Agreement was almost identical. The only difference between the two, in Japan's view, was very technical, i.e. "the importing country" at the end of the sentence of paragraph 1 of Article 1 of the Tokyo Round Agreement, had been replaced with "the importing Member". Japan submitted it did not see any reason to change the interpretation with the entry into force of the WTO Licensing Agreement, given such an identity of texts.

Conclusion

V.128 For these reasons, Japan believed that the Licensing Agreement was not applicable to tariff quota systems. Japan therefore requested that the Panel find that the tariff quota system at dispute was not covered by the Licensing Agreement and thereby did not cause any consistency problem with respect to the Licensing Agreement.

THE PHILIPPINES

V.129 As a major banana exporting country, the Philippines stated that it attached great importance to the developments in the global trade of the product, particularly with respect to the influence of EC policies on trade in bananas in other markets. The Philippines claimed that the EC measures had a negative influence on prices in other markets supplied by the Philippines. While the Philippines sympathized with the extension of developmental assistance and recognized the value of non-reciprocal advantages accorded by developed countries to developing countries, the Philippines emphasized that Members must fully conform with the rules and disciplines of the multilateral trading system.

Preliminary arguments

V.130 According to the Philippines, the EC had pointed out in its submissions, that by virtue of Article II:7 of GATT, its concession on bananas was an integral part of Articles I and II of the Agreement. As such, Article I of GATT could not be made to prevail on the terms and conditions of the concession as this would mean giving priority to a part of Article I over other parts of the same Article, as supplemented by the concession. The EC had concluded that no claim could therefore be made on its concession with regard to a violation of Article I. According to the Philippines, the EC further stated that the other provisions of the GATT were also to be applied taking into account at the same time two elements: the content of the concessions, and the MFN principle as supplemented by the concession. The EC had also excluded, according to the Philippines, the applicability of Article XIII of GATT to its concession on bananas as it claimed that all parties had agreed in the Uruguay Round negotiations to the concession.

V.131 The Philippines considered that, with regard to Article I, the inconsistency of the concession per se with the MFN principle was not the relevant issue in this case. Rather, the issue, as far as the MFN principle related to the EC concession, rested essentially on the manner of administration of such a concession. The Philippines believed that the consequences of Article II:7 did not render the other provisions of the GATT inapplicable to the terms and conditions of the concession. The Report of the Review Working Party on Other Barriers to Trade (BISD 3S/225), which was adopted by the CONTRACTING PARTIES in 1955, concluded that:

V.132 Furthermore, the Sugar Headnote ⁷¹⁶ panel took note of the above statement by the Review Working Party and concluded that, whether as a policy recommendation or as a confirmation of a legal requirement, the proviso in the Review Working Party's decision supported the conclusion that contracting parties did not envisage that qualifications in schedules justified measures inconsistent with the other Articles of the Agreement. In the Philippines' opinion, both the conclusions by the Review Working Party and the Sugar Headnote panel confirmed that other provisions of the GATT were applicable to the terms, conditions and qualifications attached to the concessions as specified in the schedules.

V.133 The Philippines also submitted that the EC had contended that all parties had agreed to the EC concession on bananas in the Uruguay Round. In the view of the Philippines, this was not a factual reflection of the situation. It was well known that some contracting parties had registered their concerns. In fact, Guatemala and Honduras had submitted written reservations to the Director-General of the GATT. When acceding to the WTO Agreement, these countries had maintained their disagreement with the EC concession on bananas and had reserved their rights to bring the matter to the appropriate WTO body.

V.134 According to the Philippines, the EC had argued that the scope of the Lomé Convention, which was covered by the Lomé waiver, was not limited to extending preferential treatment only to traditional ACP banana exports, but covered exports from all ACP countries. Moreover, the EC had claimed that the Lomé Convention allowed for the adoption of all possible measures that would enable the EC to provide preferential treatment to ACP countries. The Philippines submitted that, by its own terms, the Lomé waiver was limited in application only to EC measures inconsistent with Article I:1 of GATT and which were required by the Lomé Convention. The Lomé waiver thus did not cover measures inconsistent with other provisions of the GATT.

Specific legal arguments

V.135 In the view of the Philippines, the EC tariff quota distribution did not conform with GATT Article XIII which required that the distribution of quotas should approach as close as possible the shares which Members might be expected to obtain in the absence of the restriction. The Philippines found the EC allocation lacked in historical or commercial basis and that the EC had failed to present any other objective rational for its allocation. The Philippines considered inappropriate the use of the latest three years prior to implementation (1989-1991) as the representative period, considering that these were precisely years when the inconsistent measures were in place in the EC. The 1980 report of the Apple Panel ⁷¹⁷ stated:

V.136 Moreover, the Philippines believed that having allocated import quotas to some Members but failing to do so for others which had equal if not more substantial supplying interest on trade in the product constituted a violation of GATT Article XIII by the EC. In the case of major supplying countries, in particular Ecuador, Honduras and Guatemala, the Philippines believed that the EC had failed to honour its obligations relevant to the specific requirement prescribed in subparagraph (d) of Article XIII:2. Having merely sought agreement with these countries was not sufficient for the EC to claim it had fulfilled entirely the requirements of Article XIII. In the view of the Philippines, the EC was clearly not able to comply with the alternative method prescribed in Article XIII:2(d) with respect to substantially interested parties, and thereby had failed to fulfil its obligations with respect to that provision.

V.137 Further, in the view of the Philippines, maintaining a fairly advantageous import licensing rule for ACP countries while imposing a less favourable procedure for other countries clearly ran counter to Article 1.3 of the Licensing Agreement which prescribed that import licensing rules shall be applied in a neutral, fair, and equitable manner. The Philippines believed that the EC had no reason not to apply the less complicated licensing system on the tariff quotas of third-country banana exporters. Alternative procedures, which were the usually accepted procedures, included: (i) a first-come, first-served basis; (ii) the method based on traditional trade flows; and (iii) the allocation of quotas in proportion to the quantities requested. The Philippines summarized that the EC system was more complicated and unnecessarily burdensome for non-ACP countries.

V.138 The Philippines also maintained that the second Banana panel findings concerning the EC's banana import regime remained valid in the present dispute. That panel had concluded that the EC's category allocation of import licences violated Articles I and III of GATT. By maintaining the scheme for Category B licences (i.e. making the marketing of EC and ACP bananas the criteria for eligibility to obtain a licence for third-country bananas), the EC continued to violate, in the view of the Philippines: (i) Article I of GATT by awarding incentives to operators for the marketing of bananas from ACP countries and not from other exporting countries; and (ii) the national treatment requirement of Article III of GATT by protecting domestic production through the award of incentives for the marketing of EC bananas. Indeed, the 1978 Panel Report on EEC - Measures on Animal Feed Proteins, ⁷¹⁸ in reference to the EEC scheme requiring domestic producers or importers of vegetable proteins to purchase a certain quantity of surplus skimmed milk powder held by intervention agencies, had concluded that the measures provided for by the EC with a view to ensuring the sale of a given quantity of skimmed milk powder protected the product in a manner contrary to Article III:1 and III:5 of GATT. In the view of the Philippines, the EC allocation of licences linked to operator categories greatly restricted competition for third-country bananas in the EC market while conferring on, and maintaining advantages for, preferred suppliers. The scheme, which had trade distortive and trade restrictive effects, was also prohibited under Articles 1.2 and 3.2 of the Licensing Agreement.

Conclusion

V.139 In light of the above, the Philippines requested the Panel to find the EC regime in violation of Articles I, III and XIII of GATT, and Articles 1 and 3 of the Licensing Agreement.

VI. INTERIM REVIEW

6. 1 On 2 April 1997, the European Communities, Ecuador, Guatemala, Honduras, Mexico and United States requested the Panel to review in accordance with Article 15.2 of the DSU precise aspects of the interim reports that had been issued to the parties on 18 March 1997. The European Communities also requested the Panel to hold a further meeting with the parties on the issues identified in its written comments. The Panel met with the parties on 14 April 1997 in order to hear their arguments concerning the interim reports. We carefully reviewed the arguments presented by the EC and by the Complaining parties, jointly or individually, and the responses offered by the other side.

6.2 With respect to procedural matters, the Complaining parties commented on the Panel's interpretation of the requisite degree of specificity of a panel request in light of the requirements of Article 6.2 of the DSU. They also raised concerns as to the Panel's refusal to consider claims made or endorsed by one or more of them after the filing of the first written submissions. As regards those claims which the Panel had found unnecessary to address, the Complaining parties further argued that several of them, e.g., allegations regarding overfiling under the activity function rules and the distribution of licences to producers, were not issues of secondary importance and should be addressed by the Panel in addition to those aspects of the licensing procedures which had been found to be inconsistent with WTO rules. Furthermore, they suggested several drafting changes. We carefully considered these arguments and where we agreed, we modified the Findings in response in paragraphs 7.40, 7.42 and 7.49.

6.3 The EC and the Complaining parties asked for a number of specific modifications or additions to those paragraphs in the Findings which summarize their legal arguments. Since these proposed changes concerned the representation of the parties' own legal arguments, we generally accepted them. In particular, in reaction to suggestions by the EC, we modified or expanded paragraphs 7.65, 7.78, 7.104, 7.169, 7.200, 7.205, 7.224, 7.287, 7.301 and 7.313. In our view, these adjustments in general did not entail repercussions for the legal analysis in the Findings. However, in the context of the applicability of the Lomé waiver to licensing procedures and of the interpretation of Article II of GATS, we added more detail to the legal reasoning in paragraphs 7.198 and 7.301-7.302.

6.4 In respect of the discussion of Article XIII in the Findings, the Complaining parties asked the Panel to expand its findings on "Members with a substantial interest" and "New members". The EC commented on the Panel's treatment of issues such as "previous representative period", "special factors" or the EC enlargement. To the extent we accepted these suggestions, we adjusted the Findings, e.g., in paragraphs 7.91-7.94.

6.5 The Complaining parties also commented on the application of the Lomé waiver to Article XIII, on the one hand, and to the tariff treatment of non-traditional imports of ACP bananas, on the other. To the extent that we agreed with those comments, we made adjustments to paragraphs 7.104-7.110 and paragraphs 7.135 and 7.139. The EC also raised arguments concerning the interpretation of the coverage of the waiver. In response to the EC's comments, we revised paragraphs 7.197-7.199.

6.6 Both sides requested the Panel to expand the factual discussion of the differences between the licensing procedures applied to traditional ACP imports as opposed to those applied to third-country and non-traditional ACP imports. We broadly followed these suggestions by adding more factual information from, or cross-referring to, specific parts of the descriptive section of the panel report on which our findings are based. We inserted additions in paragraphs 7.190-7.192. Other modifications along the same lines are reflected in paragraphs 7.211, 7.221 and 7.230.

6.7 With respect to the part of the Findings dealing with GATS issues, the Complaining parties proposed several specific drafting changes. We accepted these suggestions where we considered them appropriate and modified language in the discussion of "measures affecting trade in services", (paragraphs 7.281, 7.282 and 7.285), of "wholesale trade services" (paragraphs 7.287 and 7.291) and of certain other issues (see, e.g., paragraphs 7.316, 7.324, 7.347, 7.377 and 7.391). Further to that, the Complaining parties also commented on the application of the concept of "conditions of competition" to services. We revised the report accordingly in paragraphs 7.335-7.236 where we found merit in the suggestions. Finally, they clarified their claims as being based on allegations of less favourable treatment accorded to their service suppliers, not their services. In light of this, we modified the Findings accordingly, particularly in paragraphs 7.294, 7.297, 7.298, 7.306, 7.314, 7.317, 7.324, 7.329, 7.341 and 7.353.

6.8 The EC commented extensively on the part of the Findings dealing with GATS issues. Paragraphs 7.301-7.302 and 7.308 reflect our responses to the EC's concerns about the interpretation of Article II of GATS and the effective date of GATS obligations.

6.9 With respect to the sections addressing specific claims under Articles II and XVII of GATS against certain aspects of its licensing procedures, the EC suggested that the factual information it had submitted was not sufficiently reflected and discussed in the Findings of the interim report. In particular, the EC referred to information concerning nationality, ownership or control of trading companies and ripeners. Moreover, the EC asked the Panel to take more account of the information it had provided concerning the evolution in recent years of market shares of suppliers of EC/ACP origin as opposed to suppliers of Complaining parties' origin in the EC/ACP and the third-country market segments. In response to these comments, we significantly revised paragraphs 7.329-7.339 and also changed paragraphs 7.362-7.363. The revised paragraphs address in more detail the information submitted by the EC and indicate specifically how we evaluated it. We also expanded our discussion of exactly why the Panel draws conclusions from the information submitted by the parties which are different from the conclusions advocated by the EC.

6.10 In respect of the interim reports' descriptive section, the EC and the Complaining parties suggested further changes which we took into account in re-examining that part of the reports. As to the EC's request for a section describing the EC's view of the facts, we were of the view that the EC's interpretation of the facts is already reflected in a comprehensive manner in the section of the panel report which contains the legal arguments. However, where we saw the need to follow specific suggestions for changes by either side, we revised the descriptive section of the interim reports.

6.11 Guatemala also suggested changes to the Findings in respect of our discussion of its claims relating to the EC's substitution in the Uruguay Round of specific tariff rates on bananas for its pre-Uruguay Round ad valorem tariff rates. We modified paragraph 7.139 to indicate that our finding is limited to the specific circumstances surrounding the Uruguay Round of Multilateral Trade Negotiations.

VII. FINDINGS

7.1 This case is an exceedingly complex one. There are six parties (one representing 15 member States) and 20 third parties, meaning that almost one-third of Members are involved in the case. In addition to claims under the General Agreement on Tariffs and Trade 1994, claims are made for the first time in dispute settlement under four other WTO agreements: The Agreement on Agriculture, the Agreement on Import Licensing Procedures, the Agreement on Trade-Related Investment Measures and the General Agreement on Trade in Services. The submissions by the Complainants ⁷¹⁹ and the EC totalled several thousand pages. Moreover, the unprecedented number and complexity of the claims and arguments has meant that the organization and presentation of our work has not been easy.

7.2 The findings are divided into three main parts. First we address various organizational issues that arose in the course of the Panel's work. Second, we consider preliminary issues raised by the EC concerning the validity of the establishment of this Panel and the lack of a legal interest in some issues on the part of the United States. Finally, we address the substantive issues presented by this case.

A. ORGANIZATIONAL ISSUES

7.3 In the course of these proceedings, we considered two issues related to the organization of our work. These concerned the extent of the participatory rights to be afforded third parties and the presence in Panel meetings of private lawyers representing third parties.

1. PARTICIPATION OF THIRD PARTIES

7.4 At the meeting of the Dispute Settlement Body on 8 May 1996, Belize, Cameroon, Colombia, Costa Rica, Côte d'Ivoire, Dominica, Dominican Republic, Ghana, Grenada, Jamaica, Nicaragua, Saint Vincent and the Grenadines, Saint Lucia, Senegal, Suriname and Venezuela requested to be allowed to participate more fully in the work of the Panel, i.e., these Members requested to be present at all meetings between the Panel and the parties to the dispute; to be able to present their point of view at each of these meetings; to receive copies of all submissions and other written material; and to be allowed to present written submissions both to the first and to the second meetings of the Panel. While the DSB took note of these statements, there was no consensus on such participation. ⁷²⁰ Several of these countries later confirmed their requests in letters addressed to the Chairman of the DSB.

7.5 Subsequently, we considered the above requests. The rights of third parties are dealt with in Article 10 and Appendix 3 of the Dispute Settlement Understanding. Article 10 provides that third parties "shall have an opportunity to be heard by the panel and to make written submissions to the panel". It also provides that third parties are entitled to receive the submissions of the parties made to the first substantive panel meeting. Paragraph 6 of Appendix 3 specifies that third parties shall be invited "to present their views during a session of the first substantive meeting of the panel set aside for that purpose. All such third parties may be present during the entirety of this session". Under prior GATT practice, more expansive rights were granted to third parties in several disputes, including the two prior disputes involving bananas and in the Semiconductors case. ⁷²¹ In those cases, however, the extension of such rights had been the subject of agreement between the parties at that time. No such agreement existed between the parties in the present dispute.

7.6 Having considered representations by the Complainants, the EC and third parties, we decided prior to our first substantive meeting with the parties that, in addition to the rights specifically provided for in the DSU, third parties in this dispute would be invited to observe the whole of the proceedings at that meeting and not just the one session thereof set aside for hearing third-party arguments.

7.7 At the first substantive meeting of the Panel, the EC requested that third parties be allowed to participate in future panel meetings as set out in paragraph 7.4 above. The Complainants expressed the view that third party rights were sufficiently safeguarded by the normal procedures as set out in Article 10 of the DSU. We consulted the parties on this issue, but they maintained their opposing viewpoints.

7.8 We thereafter ruled as follows:

As a consequence of our ruling, the third parties in these proceedings enjoyed broader participatory rights than are granted to third parties under the DSU.

7.9 Following the second substantive meeting of the Panel with the parties, several of the third parties asked for further participatory rights, including participation in the interim review process. We consulted the parties and found that, as before, they had diverging views on the appropriateness of granting this request. We decided that no further participatory rights should be extended to third parties, except, in accord with normal practice, to permit them to review the draft of the summary of their arguments in the Descriptive Part. In this regard, we noted that Article 15 of the DSU, which deals with the interim review process, refers only to parties as participants in that process. In our view, to give third parties all of the rights of parties would inappropriately blur the distinction drawn in the DSU between parties and third parties.

2. PRESENCE OF PRIVATE LAWYERS

7.10 At the beginning of the Panel's first substantive meeting on 10 September 1996, one of the Complainants objected to the alleged presence of private lawyers in the Panel meeting. In accordance with Article 12.1 of the DSU and the Working Procedures of Appendix 3, we held consultations with the Complainants and the EC on this issue and the Complainants expressed opposition to allowing private lawyers to be present.

7.11 We thereafter asked parties and third parties to observe the guidelines contained in our working procedures and that only members of governments (including the European Commission and an international civil servant of the ACP Secretariat) attend the Panel meeting. We based our request on the following considerations:

7.12 We noted that our request would not in any respect adversely affect the right of parties or third parties to meet and consult with their private lawyers in the course of panel proceedings, nor to receive legal or other advice in the preparation of written submissions from non-governmental experts.

B. PRELIMINARY ISSUES

7.13 First, the EC claims that the consultations held in this matter between the Complainants and the EC did not fulfil their minimum function of affording a possibility for arriving at a mutually satisfactory solution and a clear setting out of the different claims of which a dispute consists. Second, it claims that the request for the establishment of this Panel was unacceptably vague and failed to comply with the requirements of Article 6.2 of the DSU. Third, it claims that the United States has no legal right or interest in a resolution of certain of its claims and therefore should not be permitted to raise them. Fourth, the EC claims that it is entitled to separate panel reports under Article 9 of the DSU.

7.14 As the Appellate Body has made clear in its first two decisions, under Article 3.2 of the DSU the starting point for the interpretation of treaty provisions is the Vienna Convention on the Law of Treaties (the "Vienna Convention"). ⁷²² Article 31 of the Vienna Convention provides in relevant part as follows:

...

Article 32 of the Vienna Convention permits recourse to

7.15 In addition, Article XVI of the Marrakesh Agreement Establishing the World Trade Organization provides as follows:

7.16 In light of this framework for interpretation, we turn to the arguments of the EC.

TO CONTINUE WITH EC - REGIME FOR IMPORTATION OF BANANAS - COMPLAINT BY GUATEMALA AND HONDURAS

⁷¹⁵ Article 3 of the DSU.

⁷¹⁶ BISD 37S/228.

⁷¹⁷ "EEC - Restrictions on Imports of Apples from Chile" ("Apple Panel"), BISD 27S/98.

⁷¹⁸ BISD 25S/49.

⁷¹⁹ Our use of the term Complainants in these Findings is explained in para. 7.0 infra. In respect of organizational and preliminary issues, it is used to refer to all five Complaining parties.

⁷²⁰ WT/DSB/M/16, item 1, pp.1-5.

⁷²¹ Panel Report on "EEC - Import Regime for Bananas", issued on 11 February 1994 (not adopted), DS38/R, p.4, para. 8; Panel Report on "EEC - Member States' Import Regimes for Bananas", issued on 3 June 1993 (not adopted), DS32/R, p.2, para. 9; Panel Report on "Japan - Trade in Semiconductors", adopted on 4 May 1988, BISD 35S/116, 116-117, para. 5. See also Panel Report on "EEC - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region", issued on 7 February 1985 (not adopted), L/5776, p.2, para. 1.5; Interim Panel Report on "United Kingdom - Dollar Area Quotas", adopted on 30 July 1973, BISD 20S/230, 231, para. 3.

⁷²² Appellate Body Report on "Japan - Taxes on Alcoholic Beverages", adopted on 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, AB-1996-2, pp.10-12; Appellate Body Report on "United States - Standards for Reformulated and Conventional Gasoline", adopted on 20 May 1996, WT/DS2/AB/R, AB-1996-1, pp.16-17.