D. Article I of GATT 1994

51. Ecuador raises several claims under Article I. In respect of the preferential tariff of zero for the traditional imports from ACP States, Ecuador claims that the level of 857,700 tonnes exceeds what is required by the Lomé Convention and that the excess is therefore not covered by the Lomé waiver. Similarly, it claims that the collective allocation of 857,700 tonnes to the 12 traditional ACP States (as opposed to country-specific allocations) is not required by the Lomé Convention and therefore not covered by the Lomé waiver. Ecuador also challenges (i) the unlimited access to the "other" category of the MFN tariff quota at a zero-tariff level of non-traditional ACP imports and (ii) the tariff preference of 200 Euro per tonne for out-of-quota imports of ACP origin. In the previous EC regime, there was a 90,000 tonne limit on duty-free imports of non-traditional ACP bananas and the tariff preference for out-of-quota imports of ACP origin was 100 Euro per tonne.
52. The European Communities argues that these various provisions for ACP bananas are required by the Lomé Convention and are therefore covered by the Lomé waiver. It argues, in particular, that it was necessary to change the form of its preferential treatment of ACP imports to offset the limitations on such treatment imposed by the panel and Appellate Body reports in Bananas III.

1. The Lomé Waiver

53. In addressing Ecuador's claims under Article I:1, it is necessary to consider the scope of the Lomé waiver. In this regard, we recall that the operative paragraph of the Lomé waiver provides as follows:

"Subject to the terms and conditions set out thereunder, the provisions of paragraph 1 of Article I of the General Agreement shall be waived, until 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, �"¹⁹⁵

54. In considering the scope of the Lomé waiver in Bananas III, both the panel and the Appellate Body applied a two-stage analysis: first, consideration was given to the requirements of the Lomé Convention since only preferential treatment required by the Lomé Convention is covered by the waiver; second, the scope of the Lomé waiver was considered. This second question is of limited relevance in this case as the Appellate Body made clear in the previous case that the Lomé waiver permits inconsistencies only with Article I:1.

2. The Requirements of the Lomé Convention

55. In considering the requirements of the Lomé Convention, the relevant provisions of the Convention are Article 183 and Protocol 5 thereto, on the one hand, and Article 168, on the other.
56. Article 183 of the Lomé Convention deals specifically with bananas and provides:

"In order to permit the improvement of the conditions under which bananas originating in the ACP States are produced and marketed, the Contracting Parties hereby agree to the objectives set out in Protocol 5."

Protocol 5 in turn provides:

"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."

We recall that Article 183 and Protocol 5 were interpreted by the panel and the Appellate Body in the original dispute as applying only to traditional ACP banana imports.

57. Article 168 of the Lomé Convention deals more generally with preferences for ACP States. It provides as follows:

"(1) Products originating in the ACP States shall be imported into the Community free of customs duties and charges having equivalent effect.

(2)(a) Products originating in the ACP States:

- listed in Annex II to the Treaty where they come under a common organization of the market within the meaning of Article 40 of the Treaty, or

- subject, on import into the Community, to specific rules introduced as a result of the implementation of the common agricultural policy,

shall be imported into the Community, notwithstanding the general arrangements applied in respect of third countries, in accordance with the following provisions:

(i) those products shall be imported free of customs duties for which Community provisions in force at the time of import do not provide, apart from customs duties, for the application of any measure relating to their import;

(ii) for products other than those referred to under (i), the Community shall take the necessary measures to ensure more favourable treatment than that granted to third countries benefitting from the most-favoured-nation clause for the same products."

We note that the preferential treatment foreseen by Article 168(2)(a)(ii) is not limited to traditional ACP exports to the European Communities; it covers any imports from ACP sources of products which are subject to a common market organization in the European Communities, i.e. also non-traditional ACP exports to the European Communities.

58. Given the factual circumstances under the previous regime, the Appellate Body summarized the preferential treatment required by the relevant provisions of the Lomé Convention - in keeping with the limits of its terms of reference in the original dispute - as follows:

"Thus, of the relevant provisions of the measures at issue in this appeal, we conclude that the European Communities is "required" under the relevant provisions of the Lomé Convention to: provide duty-free access for all traditional ACP bananas; provide duty-free access for 90,000 tonnes of non-traditional ACP bananas; provide a margin of tariff preferences in the amount of 100 ECU/tonne for all other non-traditional ACP bananas; and allocate tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes. We conclude also that the European Communities is not "required" under the relevant provisions of the Lomé Convention to: allocate tariff quota shares to some traditional ACP States in excess of their pre-1991 best-ever export volumes; allocate tariff quota shares to ACP States exporting non-traditional ACP bananas; or maintain the import licensing procedures that are applied to third country and non-traditional ACP bananas. We therefore uphold the findings of the Panel in paragraphs 7.103, 7.204 and 7.136 of the Panel Reports." ¹⁹⁶

59. In light of these Appellate Body findings in the original dispute, we will discuss in turn which elements of the revised EC regime are "required" by the Lomé Convention in respect of (i) traditional ACP imports and (ii) non-traditional ACP imports.

3. Preferences for Traditional ACP Imports

60. Ecuador claims that (i) the preferential tariff of zero on 857,700 tonnes of traditional ACP imports exceeds the volume on which such a preference is required by the Lomé Convention and (ii) the collective allocation of that volume to 12 ACP States is not required by the Lomé Convention.

(a) The Level of 857,700 Tonnes and Pre-1991 Best-Ever Export Volumes

61. In considering Ecuador's challenge to the level of 857,700 tonnes, we recall the statement by the Appellate Body quoted above that the Lomé Convention requires the European Communities to "allocate tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes". In reaching this conclusion it referred to the requirement of Protocol 5 that "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". Thus, the question arises which quantities reflect the pre-1991 best-ever exports by traditional ACP suppliers, individually and collectively.
62. As defended by the European Communities before the original panel and the Appellate Body, the level of 857,700 tonnes included allocations to Belize, Cameroon, Cote d'Ivoire and Jamaica in excess of their pre-1991 best-ever exports to the European Communities. These allocations were defended by the European Communities on the grounds that they took account of investments made in those countries which would subsequently expand their export capacities. We recall that the Appellate Body concluded that, inter alia, the European Communities is not "required" under the relevant provisions of the Lomé Convention to allocate tariff quota shares to traditional ACP States in excess of their pre-1991 best-ever export volumes to reflect such investments. ¹⁹⁷
63. In its submissions to this Panel, the European Communities argues that the total pre-1991 best-ever ACP exports to the European Communities in fact amounted to 952,939 tonnes. It states that the conclusion of the panel and Appellate Body reports that the Lomé Convention requires the European Communities to give duty-free treatment to pre-1991 best-ever ACP exports caused it to re-examine its calculation of the pre-1991 ACP banana export data. It appears that the increase in the total of pre-1991 best-ever exports is due mainly to the addition of an amount of approximately 100,000 tonnes to the totals of Jamaica and Somalia, based on 1965 exports. We note that at least some of the data on which the European Communities now bases its calculations of pre-1991 best-ever exports was put forward by certain ACP States in the Bananas III dispute, but at that time not endorsed by the European Communities. While the European Communities has refrained from increasing the 857,700 tonne quantity reserved for traditional ACP imports, it argues that this amount can now be justified without reference to any amounts taking account of investments.
64. In the original panel report, we chose not to fix a starting date for consideration of pre-1991 best-ever exports by ACP States. We continue to take that position. In our view, there is no textual basis in the Lomé Convention for holding that only pre-1991 best-ever exports since a specific cut-off date should be taken into consideration for that calculation. While it is true that the first Lomé Convention entered into force in 1975, Protocol 5 does not set a limit on its reference to "the past".
65. Accordingly, we find that on the basis of the data now offered by the European Communities, it is not unreasonable for the European Communities to conclude that the level of 857,700 tonnes for duty-free traditional ACP exports can be considered to be required by the Lomé Convention because it appears to be based on pre-1991 best-ever exports and not on allowances for investments.

(b) Collective Allocation to Traditional ACP States

66. Ecuador's argument that the allocation by the European Communities of a collective share of 857,700 tonnes, accessible by all, to 12 traditional ACP States is not required by the Lomé Convention and, as such, is not covered by the Lomé waiver. Consequently, Ecuador argues that the preferential tariff of zero assigned to that volume of imports is inconsistent with Article I:1. The European Communities defends this collective allocation by reference to the Appellate Body's decision, based on Protocol 5 to the Lomé Convention, that it is required to give zero-tariff treatment to pre-1991 best-ever ACP exports and that it cannot allocate country-specific shares.
67. In considering this claim, we note that the Appellate Body explicitly concluded that the European Communities is required under the Lomé Convention to "allocate tariff quota shares to the traditional ACP States that supplied bananas to the European Communities before 1991 in the amount of their pre-1991 best-ever export volumes". ¹⁹⁸ (emphasis added). In our view, the Appellate Body's choice of the plural in this sentence indicates that the requirements of the Lomé Convention refer to country-specific pre-1991 best-ever volumes. To put it differently, Protocol 5 to the Lomé Convention does not "require" the European Communities to allow certain traditional ACP suppliers to exceed their individual pre-1991 best-ever import quantity within the "collective" allocation of 857,700 tonnes reserved for all traditional ACP suppliers under the revised regime.
68. In our view, it is evident that the existence of a "collective" reservation of 857,700 tonnes entails the possibility that individual - more competitive - traditional ACP suppliers will exceed their individual pre-1991 best-ever import quantities at the expense of other - less competitive - traditional ACP suppliers. Such de facto reallocation to the benefit of more competitive traditional ACP suppliers within the collective allocation for traditional ACP suppliers would mean that those suppliers would obtain a preferential tariff of zero for volumes beyond those required by Protocol 5 of the Lomé Convention. Absent any other applicable requirement of the Lomé Convention, those excess volumes would not be covered by the Lomé waiver and the preferential tariff thereon would therefore be inconsistent with Article I:1. In this regard, we note the similarity between this conclusion and the Appellate Body's conclusion that the European Communities was not required to allocate country-specific shares in respect of non-traditional ACP bananas.
69. Accordingly, we find that it is not reasonable for the European Communities to conclude that Protocol 5 of the Lomé Convention requires a collective allocation for traditional ACP suppliers. Therefore, duty-free treatment of imports in excess of an individual ACP State's pre-1991 best-ever export volumes is not required by Protocol 5 of the Lomé Convention. Absent any other applicable requirement of the Lomé Convention, those excess volumes are not covered by the Lomé waiver and the preferential tariff thereon is therefore inconsistent with Article I:1.

4. Preferential Tariffs for Non-Traditional ACP Banana Imports

70. Ecuador claims that the unlimited preferential tariff of zero for non-traditional ACP banana imports within the "other" category of the MFN tariff quota and the tariff preference of 200 Euro per tonne for all other ACP banana imports are not required by Article 168(2)(a)(ii) of the Lomé Convention and therefore are preferential tariffs inconsistent with Article I:1 of GATT that are not covered by the Lomé waiver.
71. In this regard, we recall the Appellate Body's findings in Bananas III:

"[T]he obligation imposed on the European Communities by Article 168(2)(a)(ii) to 'take the necessary measures to ensure more favourable treatment' for all ACP bananas 'than that granted to third countries benefiting from the MFN clause for the same product' does apply. � Both the duty-free access afforded to the 90,000 tonnes of non-traditional ACP bananas, imported in-quota, and the margin of tariff preference in the amount of 100 ECU/tonne afforded to all other non-traditional ACP bananas by the European Communities are clearly 'more favourable treatment' than that afforded by the European Communities to bananas from third countries benefiting from MFN treatment. Therefore the remaining issue under Article 168(2)(a)(ii) is whether the particular measures chosen by the European Communities to fulfil the obligations in that Article to provide 'more favourable treatment' to non-traditional ACP bananas are also in fact 'necessary' measures, as specified in that Article. In our view, they are. Article 168(2)(a)(ii) does not say that only one kind of measure is 'necessary'. Likewise, that Article does not say what kind of measure is 'necessary'. Conceivably, the European Communities might have chosen some other 'more favourable treatment' in the form of a tariff preference for non-traditional ACP bananas. But it seems to us that this particular measure can, in the overall context of the transition from individual national markets to a single Community-wide market for bananas, be deemed to be 'necessary'. � ".¹⁹⁹

(a) The Preferential Tariff of Zero for Non-Traditional ACP Bananas

72. We recall that under the previous regime the preferential tariff of zero for non-traditional ACP bananas was limited to 90,000 tonnes of non-traditional ACP imports, with specific-country allocations to Belize, Cameroon, Cote d'Ivoire and the Dominican Republic. We note that under the revised regime the limitation of 90,000 tonnes was abolished in light of the Appellate Body finding that the European Communities is not required under the Lomé Convention to allocate tariff quota shares to ACP States exporting non-traditional ACP bananas.
73. The European Communities (and the ACP States) submit that the abolition of the allocations of overall 90,000 tonnes removes the protection that non-traditional ACP bananas enjoyed from competition by third-country, e.g. Latin American bananas. In that sense the preferential tariff of zero per se is insufficient to prevent non-traditional ACP imports from being displaced from the EC market by imports from Latin America.
74. Ecuador, however, argues that the abolition of the 90,000 tonnes limitation enables non-traditional ACP imports to compete with imports from Latin America based on a preferential tariff of zero within the entire "other" category of 240,748 tonnes under the MFN tariff quota. In this sense, the preferential tariff of zero for non-traditional ACP bananas has been extended potentially up to 240,748 tonnes.
75. We recall that the obligation, contained in Article 168 of the Lomé Convention, to ensure duty-free or at least more favourable than most-favoured-nation treatment for products of ACP origin is in theory unlimited. As the Appellate Body put it, "Article 168(2)(a)(ii) does not say that only one kind of measure is 'necessary'. Likewise, that Article does not say what kind of measure is 'necessary'. Conceivably, the European Communities might have chosen some other 'more favourable treatment' in the form of a preferential tariff for non-traditional ACP bananas." ²⁰⁰
76. Moreover, given the competitive conditions between ACP bananas and third-country bananas on the world market, we believe that the country-specific allocations in aggregate of 90,000 tonnes for non-traditional ACP imports free of in-quota tariffs was in overall terms an advantage in the sense of a protection from third-country competition rather than a limitation on exports to the European Communities which would otherwise have expanded.
77. While the reference by the Appellate Body to the possibility for the European Communities to have chosen "other" forms of preference does not necessarily imply that the European Communities is free at any time to expand significantly the scope of ACP preferences covered by the Lomé waiver, the statement by the Appellate Body suggests to us that the European Communities has some discretion as to what kind of preference it affords to the ACP States so as to offset the elimination of a preference that it cannot provide under WTO rules.
78. In light of these considerations, we find that it is not unreasonable for the European Communities to conclude that non-traditional ACP imports at zero tariff within the "other" category of the MFN tariff quota is required by Article 168 of the Lomé Convention. Therefore, we find that the violation of Article I:1, as alleged by Ecuador, is waived by the Lomé waiver.

(b) The Tariff Preference of 200 Euro per tonne for Non-Traditional ACP Bananas

79. We next address the issue whether the increase of the tariff preference for all other non-traditional ACP imports from 100 to 200 Euro per tonne is required by the Lomé Convention. Again, we recall that the scope of the obligations of Article 168 to provide duty-free or more favourable treatment to ACP is not limited to preferences enjoyed in the past before a given point in time. We also believe that the increase of the out-of-quota preferential tariff under the revised regime could constitute some other "more favourable treatment" in the form of a preferential tariff for non-traditional ACP bananas that the Appellate Body could conceive of in the original dispute and that the European Communities might have chosen to accord to non-traditional ACP suppliers with a view to offsetting the effect of the abolition of the allocation for these non-traditional ACP suppliers of 90,000 tonnes within the MFN tariff quota.
80. Therefore, we find that it is not unreasonable for the European Communities to conclude that including the tariff preference of 200 Euro per tonne for out-of-quota imports of non-traditional ACP bananas is within the scope of what the European Communities is required to accord to non-traditional ACP supplies by virtue of the Lomé Convention. Therefore, we find that the violation of Article I:1, as alleged by Ecuador, is covered by the Lomé waiver.

To continue with GATS Issues

¹⁹⁵ WT/L/186.

¹⁹⁶ Appellate Body report on Bananas III, paragraph 178.

¹⁹⁷ Appellate Body report on Bananas III, paragraph 175.

¹⁹⁸ Appellate Body report on Bananas III, paragraph 178.

¹⁹⁹ Appellate Body report on Bananas III, paragraph 173.

²⁰⁰ Appellate Body report on Bananas III, paragraph 173.