Report of the Appellate Body

22. The European Communities disagrees with several aspects of the Panel's conclusions on Article XIII of the GATT 1994. The European Communities argues that while Article XIII:2(d) does not explicitly permit allocations on the basis of agreement with some Members not having a substantial interest, it does not forbid that possibility. The only unequivocal obligation flowing from Article XIII, with respect to Members not having a substantial interest, is to ensure that any Member is entitled to have access to at least a share of the tariff rate quota that approaches, as closely as possible, the share it would expect to receive in the absence of that tariff rate quota. The European Communities submits that an agreement on the allocation of the tariff quota shares with as many supplying countries as possible cannot be against the object and purpose of Article XIII. Furthermore, the terms of Article XIII:2(d) do not exclude the combined use of agreements and unilateral allocations for substantial suppliers. What is important, for the allocation to be in conformity with Article XIII, is that any Member not able to reach an agreement with the importing Member should not be penalized in its access to the tariff rate quota. The European Communities refers to the panel report in Norway - Restrictions on Imports of Certain Textile Products ¹⁰ ("Norway - Imports of Textile Products"), arguing that if the combined use of allocation methods is allowed for Members having a substantial interest, it is also allowed for Members not having a substantial interest. More specifically, with respect to Guatemala, the European Communities maintains that Guatemala cannot be considered as having been harmed in its trade interests in bananas in any way by the decision of the European Communities to include it in the "others" category, which amounts to 49 per cent of the tariff rate quota. In addition, the European Communities asserts that the tariff quota reallocation rules for the BFA are not inconsistent with Article XIII.

23. The European Communities argues that there are, in fact, two separate EC import regimes for bananas: one preferential regime for traditional ACP bananas and one erga omnes regime for all other imported bananas. The European Communities contends further that the non-discrimination obligations of Articles I:1, X:3(a) and XIII of the GATT 1994 and Article 1.3 of the Agreement on Import Licensing Procedures (the "Licensing Agreement"), only apply within each of these two regimes.

24. The European Communities takes the view that in the context of the tariff negotiations in the Uruguay Round, the issue of specified quantities of traditional ACP bananas under the preferential treatment provided for by the Lomé Convention was never raised nor discussed, let alone negotiated or included in the EC GATT Schedule LXXX. Legally, this implies that, under the preferential treatment of the Lomé Convention, the specified quantities of imports of traditional ACP bananas are not part of the bound commitments of the erga omnes regime and that the obligations of the European Communities vis-à-vis Members that are parties to the Lomé Convention have their source in the Convention itself and not in the GATT 1994. Furthermore, the allocation by the European Communities of the tariff quota in the EC Schedule is not only separate from, but also irrelevant to, the allocation of ACP preferential quantities, and a licence for the importation of bananas at the in-quota reduced rate could never be used to import bananas from any traditional ACP State. Therefore, the European Communities submits that the Panel's conclusion that there is a single licensing regime is simply refusing to see what happens in the real world.

25. In support of this "separate regimes" argument, the European Communities refers to the Panel on Newsprint.¹¹ The European Communities claims that the situations in that panel report and in this case are identical, in particular, the relationship between an erga omnes tariff rate quota and preferential treatment under a preferential agreement. The European Communities admits that there is a partial (and rather formalistic) difference between the present case and the Panel on Newsprint case in that the preferential regime in the latter case was justified under Article XXIV of the GATT 1947. The European Communities argues that this does not affect the relevance of the Panel on Newsprint case, because the preferential nature of the Lomé Convention has not been contested and the European Communities continues to believe that the Lomé Convention is justified under Article XXIV. The European Communities is concerned that the Panel's findings would oblige the European Communities to include traditional ACP bananas in the current tariff quota for non-traditional ACP and third-country bananas, i.e. to increase or modify the concessions made by the European Communities in the context of the Uruguay Round. This would affect the balance of rights and obligations resulting from the Uruguay Round negotiations on agriculture.

26. The European Communities submits that the Panel ignored the "objective legal situation" that the common organization of the market in bananas has three separate elements: an internal one, a general external one and a preferential one. The European Communities asserts that the plain language of the GATT 1994 indicates that Article XIII applies to the non-discriminatory administration of quantitative restrictions and tariff quotas. The European Communities contends that it has only one tariff quota concerning bananas -- the tariff quota of 2.2 million tonnes set out in the EC Schedule -- and that the preferential quantities of traditional ACP bananas are not included in this tariff quota.

27. The European Communities submits that the Panel endorsed a different interpretation of the Lomé Convention and of the Lomé Waiver ¹²from the one commonly accepted by the parties to that Convention.

28. The European Communities argues that the decision taken by the EC Council in its meeting of 14 to 17 December 1992 reflects a clear common understanding that "... the Lomé commitments will be met by allowing tariff-free imports from each ACP State up to a traditional level reflecting its highest sendings (best ever) in any one year up to and including 1990. In cases where it can be shown that investment had already been committed to a programme of expanding production, a higher figure may be set for that ACP State". The reasons for this decision were in Protocol 5 on Bananas to the Lomé Convention ("Protocol 5") and in the obvious need not to waste EC public money and trade opportunities that the EC's financial intervention was trying to establish. The best-ever shipments to the European Communities, by definition, are a statistical measure of past trade, but they in no way reflect an element of the present. The European Communities argues that the Panel's interpretation is tantamount to reducing the words "at present" in Article 1 of Protocol 5 to redundancy. Article 1 of Protocol 5 took into account a dynamic factual situation.

29. The European Communities disagrees with the Panel's conclusion that the current licensing system is not "an advantage" that the ACP countries enjoyed in the European Communities prior to the introduction of the banana regime. Before 1993, the licensing system operated by the United Kingdom and France applied only to imports from third countries, but not to traditional ACP imports. Such an advantage, by virtue of Protocol 5, needed to be carried over into the licensing arrangements for the "new" EC banana regime. The European Communities argues further that Article 167 of the Lomé Convention states that the object of the Convention is to promote trade between the ACP States and the European Communities, and that the Lomé Convention highlights the importance of improving conditions for market access for the ACP States. Article 167 clearly goes beyond a mere tariff preference insofar as it also provides for the securing of "effective additional advantages". The effectiveness of the advantages is a key element thereof. According to the European Communities, Protocol 5 requires the continuation of the advantages enjoyed by traditional ACP States. Tariff preferences alone have been shown to be insufficient to ensure this. Without the combined tariff preferences and the import licensing system, ACP bananas would not be competitive in the EC market, and the European Communities would therefore not be able to fulfil its obligations under the Lomé Convention.

30. In the view of the European Communities, the Panel erred in law in interpreting the Licensing Agreement, in particular, Articles 1.2 and 1.3, as applicable to tariff quotas. According to the European Communities, the Panel failed to distinguish appropriately "import quotas", which are quantitative restrictions, from "tariff quotas", which do not limit imports but rather regulate access to a reduced tariff rate. The European Communities asserts that Article 1.1 of the Licensing Agreement defines an import licence as "... an application or other documentation ... to the relevant administrative body as a prior condition for importation into the customs territory of the importing Member". The European Communities argues that the EC tariff quota licence is not a prior condition for importation. It is necessary to gain access at a reduced rate, but not to import bananas. The European Communities submits that Article 1.1 of the Licensing Agreement covers licences which are prior conditions "for importation", not "for importation at a lower duty rate".

31. With respect to the "neutrality" obligation in Article 1.3 of the Licensing Agreement, the European Communities submits that the letter, the context and the negotiating history, and even the Panel's own interpretation of the relationship between Article X of the GATT 1994 and Article 1.3 of the Licensing Agreement, plead against the use of Article 1.3 of the Licensing Agreement as a legal tool to compare the requirements of different licensing systems. The European Communities concludes that the use of Article 1.3 of the Licensing Agreement in this way would duplicate Article I:1 of the GATT 1994.

32. In addition, the European Communities submits that Article X of the GATT 1994 is designed to ensure the transparency and the impartiality of public authorities charged with the administration of the relevant national legislation regarding trade. The raison d'être of Article X is to ensure that administrative actions are as neutral as possible. According to the European Communities, the Panel distorted the interpretation of this provision in such a way that Article X is now equivalent to a repetition of the most-favoured-nation ("MFN") provision in Article I:1 of the GATT 1994. The European Communities maintains that the Panel erred in finding that the requirements of uniformity, impartiality and reasonableness in Article X:3(a) do not refer to the administration of the laws, regulations, decisions and rulings, but to the laws, regulations, decisions and rulings themselves. With respect to the interpretation of Article 1.3 of the Licensing Agreement, the European Communities agrees with the Panel that a perfect parallel can be made between Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement. However, Article 1.3 of the Licensing Agreement is lex specialis for the administration of import licensing procedures, while Article X:3(a) of the GATT 1994 is lex generalis for the administration of all "laws, regulations, decisions and rulings ...". As a result of the Panel Reports, the European Communities queries whether it is possible to find a breach of Article X:3(a) of the GATT 1994 without also finding an infringement of Article 1.3 of the Licensing Agreement.

33. The European Communities asserts that the Panel erred in finding that the licensing regime is an internal measure subject to Article III:4 of the GATT 1994, and not a border measure, and that the Panel misunderstood the notion of internal measures in the GATT 1994. The European Communities refers to the panel report in Italian Discrimination Against Imported Agricultural Machinery ¹³("Italian Agricultural Machinery") and argues that the word "all" in that report, when referring to measures that modify conditions of competition between domestic and imported products in domestic markets, is concerned with internal measures. The European Communities asserts that the panel report in Italian Agricultural Machinery stands for the proposition that Article III applies only to measures applied to imported products "once they have cleared through customs".¹⁴

34. The European Communities argues that a licence is a document which is a prior condition for applying the reduced duty-rate bound under the EC tariff quota to imported bananas. This all happens before the bananas have cleared customs. According to the European Communities, the existence of the licence is justified by operations whose very nature is that of a border operation concerning the duty-rate applicable to that product. The European Communities asserts that the Panel confuses the notion of border measures and the notion of adjustment at the border of an internal measure, the latter being the subject of Ad Article III of the GATT 1994.

35. In the case of the EC licensing system, it is obvious that domestic bananas are not subject to an import licence since they do not cross the border, do not clear customs, do not pay duty and are not included in any tariff quota. Therefore, the very application to an import licence of the notion of border adjustment in Ad Article III is legally wrong. The European Communities refers to the panel report in United States - Section 337 of the Tariff Act of 1930 ¹⁵ ("United States - Section 337") in support of its interpretation. The European Communities submits further that most of the licensing procedures are applied to persons rather than products. The European Communities refers to the panel report in United States - Restrictions on Imports of Tuna ¹⁶("United States - Imports of Tuna (1991)") in support of its argument that Article III cannot be used to compare treatment between persons but only between products.

36. As to the effect of hurricane licences, the European Communities asserts that a simple side-effect resulting from the implementation of a measure pursuing a general internal policy, which has or might have an effect on the conditions of competition, should not be considered to infringe Article III:4 of the GATT 1994 unless clear evidence is provided that this general policy measure was designed to afford protection to domestic products. The European Communities asserts that hurricane licences are distributed only in the event of a proven catastrophe and are limited to the quantities lost due to the devastation caused by a hurricane. Therefore, these licences are clearly a means of intervention to support the income of those domestic producers that are harmed by the hurricane. The European Communities points out that operators can benefit from hurricane licences in two ways: they can use them to import bananas from third countries, or they can sell the licences. Hurricane licences by themselves do not affect the internal sale or offering for sale of domestic bananas to the detriment of imported bananas. The only effect they have is an occasional increase in the EC tariff quota. Finally, the European Communities asks whether WTO Members are not allowed to remedy the consequences of natural disasters within their own territories in order to prevent their producers from being eliminated.

37. The European Communities contends that the Panel erred in law in interpreting Article I:1 of the GATT 1994. With respect to the activity function rules, the European Communities argues that discrimination occurs in treating identical situations differently, or in treating different situations in the same way. The Panel's findings would amount to compelling the European Communities to treat different situations concerning operators, in the same way, and by doing so, create additional burdens for some that would not be appropriate for the situation in which they are operating. In the view of the European Communities, nothing in Article I:1 of the GATT 1994 forbids a Member to treat different situations on their merits.

38. The European Communities submits that tariff quota licences have a considerable monetary value and confer significant advantages to the holders. The same factual reality does not exist with regard to traditional ACP bananas. It is "simply nonsensical" to find that a violation of Article I:1 of the GATT 1994 was committed solely on the grounds that the activity function rules are not used in the traditional ACP licensing system. The European Communities maintains that the activity function rules were established for reasons relating to EC domestic competition policy, and that competition policy considerations fall entirely outside the ambit of the WTO Agreement as it is currently drafted.

39. With respect to export certificates, the European Communities asserts that the possibility of passing quota rents to banana producers "does exist" in any situation where a licensing system exists together with limited access to a quantitative restriction or a tariff quota. In the view of the European Communities, it would be wrong to affirm that a distinction could be drawn between quota rents resulting from an export certificate, and quota rents arising from the existence of an import licence. The European Communities argues that there is no advantage for Colombian, Costa Rican and Nicaraguan bananas deriving from the requirement of export certificates. The distribution of quota rents, provided that licences are tradeable, confers no particular advantage, nor has any effect on, the importation of Ecuadorian, Guatemalan, Honduran and Mexican bananas into the European Communities as compared with the access of BFA bananas to the EC market.

40. The European Communities submits that the Panel erred in law by finding that there is no legal basis for an a priori exclusion of measures within the EC banana import licensing regime from the scope of the General Agreement on Trade in Services (the "GATS"). The European Communities argues that as a result of the Panel's interpretation of the scope of the GATS, there is a "total overlap" between the GATT 1994 and the other Annex 1A agreements of the WTO Agreement, on the one hand, and the GATS on the other hand. Any measure can fall under both the Annex 1A agreements and the GATS simultaneously. The European Communities maintains that there is no indication that the Panel examines, under the GATS, a different aspect or part of the EC licence allocation rules from that examined under the GATT 1994 or the Licensing Agreement. Therefore, exactly the same measures are scrutinized under the GATT 1994 and under the GATS. In the view of the European Communities, this is contrary to Articles I and XXVIII of the GATS. Furthermore, this interpretation is contrary to Article 3.2 of the DSU.

41. The European Communities asserts that the Panel's broad interpretation of the term "affecting" is not supported by the text of Article XXVIII(c) of the GATS. If the category of "measures in respect of ... the purchase, payment or use of a service" in Article XXVIII(c) is part of the category of "measures affecting trade in services", then the term "in respect of" describes the same relationship as the term "affecting", namely that between measures and trade in services. The European Communities maintains that for an important category of these measures, "in respect of" means the same as "affecting". The European Communities argues that the words "for the supply of a service" in Article XXVIII(c)(iii) indicate that the measures must relate to a natural or legal person in its quality of a service supplier, or in its activity of supplying a service. In the view of the European Communities, the Panel's interpretation neglects the combined implication of Articles I and XXVIII(c)(iii) of the GATS, i.e. that the measures complained of must bear on the supply of a service. As a consequence, the measures at issue are measures in respect of importation of goods and measures relating to the supply of services with respect to these goods.

42. The European Communities also asserts that the Panel's interpretation is not supported by the preparatory work for the GATS. The European Communities argues that there is no indication that the broad interpretation given to the term "affecting" in a Note by the Secretariat ¹⁷, which is referred to by the Panel in support of its interpretation, was shared by the negotiators of the GATS. In addition, introducing into a general article on the scope of the GATS a very specific meaning of the word "affecting", derived from previous panel reports interpreting Article III of the GATT 1947, would be taking things out of context. The European Communities also argues that the Panel's view that the drafters of the GATS wanted to widen the scope of the GATS by using the term "supply of a service" instead of the narrower term "delivery of a service" is in no way conclusive, because it would still need to be shown that the measures concerned were taken in respect of the "production, distribution, marketing, sale and delivery of a service" within the definition of "supply of a service" in Article XXVIII(b) of the GATS. In the view of the European Communities, the Panel's interpretation is not supported by the context of the relevant GATS provisions. The European Communities argues that the preamble of the GATS as well as other important provisions, such as Articles VI:4 and XVI of the GATS, give no indication that the GATS is concerned with the indirect effects on trade in services of measures relating to trade in goods.

43. Furthermore, the European Communities argues that the negotiators of the GATS wanted to create an instrument of limited coverage that would be distinct ratione materiae from the GATT 1994, and that the simultaneous application of the GATT 1994 and the GATS leads to a clear conflict between the rights of one Member under one agreement and the rights of another Member under the other agreement. In the view of the European Communities, measures targeted at trade in a certain good, such as the imposition of an anti-dumping duty, a selective safeguard measure or a prohibitive tariff, could have repercussions on service suppliers, in particular, distribution services, and could be condemned under the GATS. This would, in turn, impede the Member's right to take measures under the GATT 1994. As a further example of probable conflicts between the GATT 1994 and the GATS, the European Communities mentions discriminatory measures in favour of goods taken in a customs union pursuant to Article XXIV of the GATT 1994. These may have negative repercussions on services supplied from non-Member countries. It is quite likely that those repercussions would not be covered by the restrictions inscribed in the Services Schedules of the Members of the customs union. The European Communities asserts that a similar problem might arise with waivers granted under Article XXV of the GATT 1994 that allow discrimination in respect of trade in goods in relation to which certain services could be provided. This would run counter to Article II of the GATS, and the Lomé Waiver would become useless unless the respective services come within an Article II exemption.

44. The European Communities argues further that conflicts may occur where Members have, in accordance with Article XVI of the GATS, introduced restrictions into their Schedules that limit their commitments under Article XVII. When scheduling initial commitments under Article XVII, Members were told that there was no need to make provision in their Schedules for measures which were not direct limitations on services trade as such, but rather were restrictions on trade in goods. The European Communities argues that this interpretation would have scheduled limitations on trade in goods had there been a generally-shared awareness that such measures were deemed to be covered not just by the GATT 1994, but also by the GATS. The European Communities contends that this interpretation would amount to upsetting the results of the negotiations on scheduling under the GATS, if precisely those Members that had been the most liberal in their services scheduling, in particular in the sector of distribution services, would suffer negative consequences on their rights in trade in goods. The European Communities also maintains that the absence of rules of conflict and of a hierarchical relationship between the GATT 1994 and the GATS indicates that an overlap was not seen by the negotiators to exist between the GATS and the GATT 1994, because these agreements were believed by the negotiators to cover different domains and to apply to different kinds of measures.

45. Moreover, the European Communities argues that the Panel's view that, in the absence of an overlap between the GATS and the GATT 1994, the value of Members' obligations would be undermined by the possibility of circumvention, is not supported by the object and purpose of the two agreements. The European Communities asserts that the only example of the so-called frustration of the object and purpose that the Panel can suggest is in the transport area, which clearly falls under Article III:4 of the GATT 1994. The European Communities asserts that apart from Article V, Article III:4 is probably the only article of the GATT 1994 that explicitly submits certain services measures to GATT disciplines. Article III:4 applies only to a limited number of services and applies only to the extent that measures relating to those services directly affect the competitive relationship between imported and domestic goods.

46. The European Communities argues that as a practical result of the Panel's conclusion that no measures are excluded a priori from the scope of the GATS, the Panel does not demonstrate that the impugned measures actually affect the supply of services, within the meaning of Article XXVIII(b), in one of the four modes of service supply. Under the EC's view of the term "affecting", the Panel does not explain how rules dividing up entitlements to parts of the tariff quota for bananas among importers constitute measures in respect of the production, distribution, marketing or sale and delivery of wholesale trade services by service suppliers present in the EC's territory. The European Communities asserts that the Panel's findings on activity functions, export certificates and hurricane licences are also characterized by the same lack of reasoning.

47. The European Communities submits that the Panel's finding in paragraph 7.304 of the Panel Reports "that the obligation contained in Article II:1 of the GATS to extend ‘treatment no less favourable’ should be interpreted in casu to require providing no less favourable conditions of competition" is in contradiction with the customary rules of interpretation of public international law. The European Communities asserts that paragraphs 2 and 3 of Article XVII of the GATS reflect the interpretation of the terms "treatment no less favourable" given to Article III:4 of the GATT 1994 in the panel report, United States - Section 337 ¹⁸. This interpretation, which is contentious, cannot be equated with the ordinary meaning of the term "treatment no less favourable" in a wholly different article of the GATS.

48. In the view of the European Communities, the GATS negotiators found it necessary in the case of Article XVII to include concepts from previous GATT panel reports to clarify that the standard of "no less favourable treatment" was one of substantive discrimination based on modification of competitive conditions. The European Communities submits that such clarification was expressly omitted from the MFN clause in Article II:1 of the GATS, despite the fact that it was drafted on the same "treatment no less favourable" basis as Article XVII of the GATS. Therefore, Article II:1 of the GATS does not encompass the idea of substantive discrimination or the even further-reaching notion of modification of competitive conditions. The European Communities also asserts that the concept of "no less favourable treatment" is not limited to Article III of the GATT 1994. There are a number of MFN-type clauses in the GATT 1994 which use the same wording, for example, Article V, paragraphs 5 and 6 and Article IX:1. There is, therefore, no reason to conclude that since the wording of Article III:4 was used, this automatically carries a standard of substantive discrimination, including "modification of competitive conditions".

49. The European Communities maintains that it is only logical that the obligations under Article XVII of the GATS should be more onerous than those under Article II, because Members have made commitments and specifically opened up certain sectors, which is not the case with Article II of the GATS. According to the European Communities, it is unlikely that Members, many of whom originally viewed the GATS MFN clause as a conditional MFN provision during the Uruguay Round, could have, in the end, agreed to an MFN clause that also includes the principle of equality of competitive conditions without explicitly saying so.

50. Moreover, the European Communities submits that legislators may have a good knowledge of the competitive conditions prevailing between service suppliers of that Member and those not of that Member, but there is usually a lack of knowledge relating to the competitive conditions prevailing among services and service suppliers of various third countries. Therefore, the European Communities contends that it may be feasible for the legislators of Members to ensure formally equal treatment between third-country services and service suppliers, but it is virtually impossible to be sure that they are also ensuring equal competitive conditions.

51. Finally, the European Communities argues that the formulation of the Panel's finding in paragraph 7.304 of the Panel Report, in particular, the use of the term in casu might be interpreted to mean that the standard of equality of competitive conditions in Article II of the GATS applies only when, as in this case, full commitments have been made in a sector, while the formal MFN standard would apply for sectors without commitments. This would turn Article II into a half-conditional MFN clause and would contradict the result of the negotiations which was to have no conditions attached to the MFN clause.

52. The European Communities submits that the Panel erred in its interpretation of what constitutes "a situation" within the meaning of general international law as codified in Article 28 of the Vienna Convention on the Law of Treaties (the "Vienna Convention")¹⁹. The European Communities maintains that the "situation" is the alleged de facto discrimination against and between foreign suppliers which must be proven to exist at the moment the obligations of the treaty -- in this case the GATS -- apply to the Members allegedly having caused the discrimination, and that such discrimination cannot lawfully be established on the basis of the factual situation existing before the entry into force of the treaty. The European Communities argues that the Panel failed to demonstrate that there was de facto discrimination after the entry into force of the GATS on 1 January 1995, as the Panel relied entirely on the Complaining Parties' data on the ownership and control of companies relating to 1992 and on the Complaining Parties' estimates on market shares of companies which were based on the situation existing before June 1993.

53. According to the European Communities, the Panel misapplied the standard of burden of proof affirmed by the Appellate Body in United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India ²⁰ ("United States - Shirts and Blouses from India"). According to that standard, a complaining party must adduce "evidence sufficient to raise a presumption that what is claimed is true" in order to prove its claim. ²¹ In the view of the European Communities, this burden of proof should be satisfied, at the latest, at the first meeting of a panel.

54. The European Communities maintains, first, that the Panel misapplied this standard of burden of proof in deciding which companies are a "juridical person of another Member" and are "owned", "controlled" by or "affiliated" with a juridical person of another Member within the meaning of Articles XXVIII(m) and (n) of the GATS. The absolute minimum for any claim under the third mode of service supply is showing that these conditions are fulfilled. The European Communities argues that the Panel, in fact, relied exclusively on the list of alleged "banana wholesaling companies established in the European Communities that were owned or controlled by the Complainants' service suppliers, 1992" and that this list as such gave no clear indications about ownership or control. In this respect, the European Communities contends that, in particular, there are doubts that Del Monte was owned by Mexican persons at the time the complaint was brought and that, for this reason, it is impossible to argue that the Complaining Parties had satisfied the requirement of proving their claim in respect of companies from Mexico.

55. Second, the European Communities asserts that the burden of proof has not been discharged with respect to the distribution of the market for wholesale services for bananas between Category A and Category B Operators. The European Communities contends that the Panel's conclusion is based on alleged market shares for imports and production, and that it is not clear how the distribution of market shares in the services market can be based completely on shares in the import and production markets, unless one assumes that service providers supply services only in respect of their own bananas and that there is no independent market for services in bananas in general. Finally, the European Communities maintains that, with respect to hurricane licences, the Panel posited an unproved identity of the class of Category B operators and of the class of "operators who include or represent EC producers" as well as the group of "operators who include or represent ACP producers".

56. The European Communities submits that the Panel erred in applying the concept of wholesale trade services in the Provisional Central Product Classification (the "CPC Classification"). ²² The European Communities argues that importation is not mentioned as one of the subordinate services of wholesale trade services, and that, although the list of subordinate services is only illustrative, reselling of merchandise is the core activity of wholesalers, whereas importation involves only buying and not selling. The licensing regime is an import licensing system and, therefore, does not touch the service providers of the Complaining Parties in their wholesale service activities, but only in their import activities, that is, in their activities in the goods sector. The European Communities maintains that, with respect to the allegedly discriminatory effect of operator categories, the Panel failed to demonstrate that there are unequal conditions of competition between service suppliers, and not between importers, who, although they may be also service suppliers, are not, in the latter capacity, affected by the licensing system. The European Communities submits further that the Panel erred in law by determining that integrated companies are service suppliers under the GATS, because normally only their products, and not their services, appear on the market, and thus the GATS does not apply.

(a) Operator Category Rules

57. The European Communities argues, in the alternative, that the EC licensing system for bananas is not discriminatory under Articles II and XVII of the GATS. Therefore, the Panel erred in law by condemning the operator category rules under Articles II and XVII of the GATS. The European Communities contends that, in the final analysis, the operator category rules are condemned principally because of statistical evidence on market shares. The European Communities refers to the panel report in United States - Taxes on Automobiles ²³where the panel looked at the statistical evidence, and beyond the dominant presence of imported goods in the sector of the market affected by the measure, in order to determine whether the measure had the "aim and effect" of affording protection to domestic production. The European Communities contends that the various aspects of the licensing system pursue legitimate policies and are not inherently discriminatory in effect or design. The European Communities asserts, therefore, that the Panel should have looked beyond the fact that, because of reasons related to the historical development of the banana distribution sector, service suppliers of the Complaining Parties are concentrated in one segment of the market, and EC and ACP suppliers in another segment.

58. The European Communities contends that the legitimate aim of the operator category rules, as recognized by the European Court of Justice (the "ECJ"), is to establish a machinery for dividing the tariff quota among the different categories of traders concerned, to encourage operators dealing in EC and traditional ACP bananas to obtain supplies of third-country bananas and to encourage importers of third-country bananas to distribute EC and ACP bananas. This corresponds with the EC's objectives of integrating the various national markets and of harmonizing the differing situations of banana traders in the various Member States. The European Communities maintains that to achieve "mutual interpenetration" of the markets of the various Member States, a system of transferability of licences was used. The operator category rules served the purpose of distributing the quota rents among operators in the market. The fact that service suppliers of the Complaining Parties may have been over-represented in one category in particular (Category A), and may have significant but not overwhelming representation in another category (Category B) is, in itself, no basis for arguing that the operator category rules afford protection to EC (or ACP) service suppliers. Furthermore, in terms of conditions of competition, operator category rules do not have the effect of affording protection to service suppliers of domestic- or ACP-origin as they leave a commercial choice to the operators.

(b) Activity Function Rules

59. The European Communities maintains that EC activity function rules aim to correct the position of all ripeners vis-à-vis all suppliers of bananas and seek to maintain the ripeners' bargaining power in relation to their commercial partners as it was before the creation of the tariff quota. The effect of activity function rules is highly dependent on the commercial choices of operators. Operators who supplied wholesale services primarily for bananas that were brought under the tariff quota can avoid, or reduce, the extent to which they are subject to activity function rules by extending their services to include EC and ACP bananas. The European Communities further submits that primary importers can resort to "licence pooling" or having bananas ripened under contract.

(c) Hurricane Licences

60. The European Communities asserts that hurricane licences are intended to compensate those who suffer directly from damage caused by tropical storms. The European Communities argues that the fact that compensation benefits those persons who have the nationality of the country where the disaster took place, does not necessarily signify that such measures are discriminatory and modify the conditions of competition under Article XVII of the GATS. There is no infringement of Article II of the GATS, as there is no formal, or hidden de facto, distinction as to operators. There is no indication in the hurricane licence rules that operators that are not ACP-owned or -controlled cannot own or represent ACP producers on the same basis as ACP or EC-owned or -controlled operators.

61. The European Communities argues that the Panel erred in paragraph 7.398 of the Panel Report in its application of the standard of rebuttal under Article 3.8 of the DSU in concluding that the European Communities had not succeeded in rebutting the presumption that there was nullification or impairment with respect to all of the Complaining Parties. The EC's argument related only to the United States, and was that the United States lacked a legal right or interest with respect to the GATT 1994. This is one of the exceptional cases where the presumption of nullification or impairment in Article 3.8 of the DSU could be rebutted, because of the absence of any trade damage to the United States, due to its lack of exports of bananas. The European Communities submits that the United States has never exported bananas to the European Communities or anywhere else in the world. Demonstrating a lack of any trade damage is a recognized way in the GATT of rebutting the presumption of nullification or impairment. As the Panel failed to rule on the issue of United States' export statistics, it is not capable of deciding that the European Communities has not succeeded in rebutting the presumption of nullification and impairment. The European Communities contends that this is a clear failure by the Panel to objectively assess the matter before it, as required under Article 11 of the DSU. Moreover, the Panel erred in law in its application of the standard of rebuttal under Article 3.8 of the DSU by assuming that the EC's rebuttal was based on mere quantitative elements when it was based on the United States' proven incapacity to grasp competitive opportunities in the banana export market. Thus, the Panel rendered meaningless the possibility of rebutting the presumption under Article 3.8 of the DSU. The European Communities also submits that the Panel infringed Article 9 of the DSU by not ruling separately on the position of the United States. The rights which the European Communities would have enjoyed if separate panels had been established have been impaired under Article 9 of the DSU.

Notes:

10. Adopted 18 June 1980, BISD 27S/119, paras. 15-16.

11. Adopted 20 November 1984, BISD 31S/114, para. 55.

12. The Fourth ACP-EEC Convention of Lomé, Decision of the CONTRACTING PARTIES of 9 December 1994, L/7604, 19 December 1994 (the "Lomé Waiver"); and EC - The Fourth ACP-EC Convention of Lomé, Extension of Waiver, Decision of the WTO General Council of 14 October 1996, WT/L/186, 18 October 1996.

13. Adopted 23 October 1958, BISD 7S/60.

14. Ibid., para. 11.

15. Adopted 7 November 1989, BISD 36S/345.

16. Unadopted, BISD 39S/155, p. 195.

17. Definitions in the Draft General Agreement on Trade in Services, Note by the Secretariat, MTN.GNS/W/139, 15 October 1991.

18. Adopted 7 November 1989, BISD 36S/345.

19. Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials, p. 679.

20. WT/DS33/AB/R, adopted 23 May 1997.

21. Ibid., p. 14.

22. Provisional Central Product Classification, United Nations' Statistical Papers, Series M, No. 77, 1991.

23. DS31/R, 11 October 1994, unadopted.

Continue on to Part 3 of EC - Regime for the Importation, Sale and Distribution of Bananas.

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