|European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to Article 21.5 by Ecuador - Report of the Panel|
12 April 1999
EUROPEAN COMMUNITIES - REGIME FOR THE
IMPORTATION, SALE AND DISTRIBUTION OF BANANAS
- RECOURSE TO ARTICLE 21.5 BY ECUADOR -
REPORT OF THE PANEL
The report of the Panel on European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to Article 21.5 by Ecuador - is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 12 April 1999 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.
TABLE OF CONTENTS
I. INTRODUCTION 1
(i) Terms of reference 1
(ii) Panel composition 1
II. FACTUAL ASPECTS 2
A. ACCESS QUANTITIES AND COUNTRY ALLOCATIONS 2
(i) Traditional ACP imports 2
(ii) Third-country and non-traditional ACP imports 2
B. TARIFF TREATMENT 3
C. ADMINISTRATIVE ASPECTS OF THE BANANA IMPORT REGIME 4
(i) Eligible operators 4
(ii) Determination of traditional operators' reference quantities and newcomer allocations 5
(iii) Import licensing procedures 6
D. LOM?WAIVER 7
III. PROCEDURAL ISSUES 8
IV. MAIN ARGUMENTS 10
A. GENERAL 10
B. ISSUES RELATED TO THE GATT 10
1. Article I Issues 11
(i) Traditional ACP bananas 11
(ii) Non-traditional ACP bananas 13
2. Article XIII issues 15
C. ISSUES RELATED TO THE GATS 23
(i) General 23
(ii) Central Product Classification 25
(iii) Issues of "Actual Importer" and of de facto discrimination 28
(iv) Issues concerning customs clearance 30
(v) Newcomers 36
(vi) Remedial action 37
D. CONCLUSION 38
V. ARGUMENTS BY THIRD PARTIES 40
A. BRAZIL 40
B. CAMEROON AND COTE D'IVOIRE 40
1. Issues related to the GATT 40
(i) Traditional ACP bananas 40
(ii) Non-traditional ACP bananas 42
2. Issues related to the GATS 44
C. THE CARIBBEAN STATES 45
1. Issues related to the GATT 46
(i) Traditional ACP bananas 46
(ii) Non-traditional ACP bananas 47
(iii) Article XIII issues 48
2. Issues related to the GATS 50
D. COLOMBIA 53
1. Article XIII Issues 54
E. COSTA RICA 56
1. Issues related to the GATT 58
F. ECUADOR'S RESPONSE TO THIRD PARTIES 61
VI. FINDINGS 62
A. WORKING PROCEDURES AND TIMETABLE 62
B. TERMS OF REFERENCE 62
C. ARTICLE XIII OF GATT 1994 64
1. The 857,700 tonnes reserved for traditional imports from ACP States 66
(a) The Applicability of Article XIII 67
(b) The Requirements of Article XIII and the 857,700 Tonne Tariff Quota for Traditional ACP Imports 67
(i) Article XIII:1 68
(ii) Article XIII:2 68
(c) The Requirements of the Appellate Body report in Bananas III 69
2. Ecuador's Share of the MFN Tariff Quota 69
(a) The Requirements of Article XIII 70
(b) The Representative Period 72
(c) Special Factors 73
(d) Ecuador's Country-Specific Tariff-Quota Share 73
D. ARTICLE I OF GATT 1994 74
1. The Lom?Waiver 74
2. The Requirements of the Lom?Convention 74
3. Preferences for Traditional ACP Imports 76
(a) The Level of 857,700 Tonnes and Pre-1991 Best-Ever Export Volumes 76
(b) Collective Allocation to Traditional ACP States 77
4. Preferential Tariffs for Non-Traditional ACP Banana Imports 78
(a) The Preferential Tariff of Zero for Non-Traditional ACP Bananas 78
(b) The Tariff Preference of 200 Euro per tonne for Non-Traditional ACP Bananas 79
E. GATS ISSUES 80
1. The Scope of the EC's Commitments on "Wholesale Trade Services" 80
2. Licence Allocation Procedures 81
(a) Articles II and XVII of GATS 82
(b) The Findings in Bananas III on Articles II and XVII of GATS 83
(c) The Revised EC Licensing Regime 83
(d) The Requirements of Articles XVII and II of GATS 84
(e) The Parties' Arguments 86
(i) Ecuador 86
(ii) European Communities 86
(f) The Panel's Analysis of the Claim 88
(i) General EC arguments 88
(ii) Licence allocations under the revised regime 89
(iii) The structure of the revised regime 90
(iv) Overall evaluation 92
(g) The "Single Pot" Licence Allocation 92
3. The Rules for "Newcomer" Licences 94
4. General observations 95
F. SUGGESTIONS ON IMPLEMENTATION 96
G. SUMMARY 97
H. CONCLUDING REMARK 98
VII. CONCLUSIONS 99
ANNEX 1 100
ANNEX II 101
ANNEX III 102
1.1On 18 August 1998, Ecuador, Guatemala, Honduras, Mexico and the United States acting jointly and severally, requested consultations (WT/DS27/18) with the European Communities in relation to the implementation of the recommendations of the Dispute Settlement Body (DSB) in the matter of the EC's regime for the importation, sale and distribution of bananas established by Council Regulation (EEC) No. 404/93 as amended by Council Regulation (EC) No 1637/98. Consultations were held on 17 September 1998. These consultations did not result in a mutually satisfactory solution of the matter.
1.2On 13 November 1998, Ecuador requested the reactivation of the 17 September 1998 consultations (WT/DS27/30 and Add.1). Consultations were held between the European Communities and Ecuador on 23 November 1998. As these consultations did not result in a mutually satisfactory solution of the matter, Ecuador requested, on 18 December 1998, the DSB to reconvene the original panel in accordance with Article 21.5 of the DSU to examine the implementation of the DSB recommendations in the light of the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Import Licensing Procedures (WT/DS27/41).
1.3The DSB, at its meeting on 12 January 1999, established a panel with the original panel members in accordance with Article 21.5 of the DSU. Brazil, Belize, Cameroon, Colombia, Costa Rica, C魌e d'Ivoire, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Mauritius, Nicaragua, Saint Lucia, and Saint Vincent and the Grenadines reserved their third party rights to make a submission and to be heard by the Panel in accordance with Article 10 of the DSU.
(i)Terms of reference
1.4The following standard terms of reference applied to the work of the Panel:
"To examine, in the light of the relevant provisions of the covered agreements cited by Ecuador in document WT/DS27/41 the matter referred to the DSB by Ecuador, in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."
1.5The Panel was composed as follows:
Chairman: Mr. Stuart Harbinson
Members: Mr. Kym Anderson
Mr. Christian H鋌erli
1.6The Panel submitted its report to the parties to the dispute on 6 April 1999.
2.1The complaint examined by the Panel relates to the EC implementation of the DSB's recommendations in the matter European Communities - Regime for the Importation, Sale and Distribution of Bananas concerning the EC's import measures for bananas. The EC implementation measures at issue are contained in the following regulations: (i) Regulation (EC) No. 1637/98 ("Regulation 1637") amending Regulation (EEC) No. 404/93 ("Regulation 404") on the common organization of the market in bananas, and (ii) Regulation (EC) No. 2362/98 ("Regulation 2362") laying down detailed rules for the implementation of Regulation 404. Regulations 1637 and 2362 have been applied as from 1 January 1999.
A.ACCESS QUANTITIES AND COUNTRY ALLOCATIONS
2.2Regulation 1637 provides for access to the EC market for three categories of banana imports: traditional ACP imports, non-traditional ACP imports, and imports from third (non-ACP) countries.
(i)Traditional ACP imports
2.3Traditional ACP imports are defined as banana imports from twelve ACP countries1 up to an annual aggregate limit of 857,700 tonnes.2 As part of its implementation measures of the above-mentioned DSB recommendations, the EC has eliminated the country-specific allocations that previously existed for each of the twelve ACP countries. The aggregate import volume is not bound in the EC Schedule and there is no provision in the EC regulations for an increase in the level of the traditional ACP quantity.
(ii)Third-country and non-traditional ACP imports
2.4The EC has a tariff quota commitment for banana imports of 2.2 million tonnes (net weight) bound in its Schedule. Regulation 1637 provides for additional tariff quota access of 353,000 tonnes per year.3 This latter quantity is not bound in the EC Schedule (autonomous tariff quota).
2.5The aggregate tariff quota quantity of 2.553 million tonnes has been allocated to Colombia, Costa Rica, Ecuador, and Panama and an "others" category in the proportions set out in Table 1. According to Regulation 2362, the country-specific allocations are based on imports into the EC during the years 1994 to 1996.4 There are no specific provisions for reallocating unfilled portions of the country-specific allocations or the "others" category.5 The "others" category of the tariff quota is reserved for imports of third-country bananas as well as non-traditional ACP bananas.
Table 1 - EC Tariff Quota Allocations
Volume ('000 tonnes)
Total of the above
Note: Calculation of shares done by Secretariat based on 2.553.0 million tonne tariff quota and the percentage shares according to Annex I to Regulation 2362.
2.6Non-traditional imports from ACP countries cover any quantities supplied in excess of traditional quantities supplied by ACP countries (i.e. in excess of 857,700 tonnes) or any quantities supplied by ACP countries which are not traditional suppliers to the EC, such as the Dominican Republic. Non-traditional bananas may be imported duty-free under the "others" category of the tariff quota and are limited to 240,748 tonnes (9.43 per cent of the 2.553 million tonne tariff quota). The country-specific allocations for non-traditional ACP imports provided for in EC Regulation 478/95 as the result of the Banana Framework Agreement (BFA) (totalling 90,000 tonnes) have been eliminated.6
2.7Table 2 shows the EC tariffs applicable to traditional ACP, non-traditional ACP as well as third-country banana imports. It also summarizes the key modifications of the banana import regime with respect to tariffs, country-specific allocations and volumes which the European Communities has undertaken as part of its implementation measures.
Table 2 - The EC Import Regime for Bananas since 1 January 1999
Category of banana imports
Modifications of the EC tariff quota regime under Regulations 1637 and 2362
Traditional ACP bananas
Imports without country-specific quantitative limits from 12 traditional ACP countries.*
- elimination of country-specific allocations.
Non-traditional ACP bananas
Imports of traditional ACP quantities above the 857,700 tonnes or any quantities supplied by ACP countries which are non-traditional suppliers.
Duty-free up to 240,748 tonnes. For additional imports the bound out-of-quota duty (currently 737 Euro per tonne minus 200 Euro per tonne) applies.
- elimination of country-specific allocations and "other" category totalling 90,000 tonnes.
- increase in duty-free access opportunities from 90,000 tonnes to 240,748 tonnes under the "others" category of the 2.553 million tonnes tariff quota.
- increase of the margin of preference for out-of-quota imports from 100 to 200 Euro per tonne.
Imports from any non-ACP source.
75 Euro per tonne up to 2.553 million tonnes. There are 4 country-specific allocations plus an "others" category. For additional imports the bound out-of-quota tariff applies (currently 737 Euro per tonne).
- modified country-specific allocations allocated to four Members and an "others" category
- transferability of unfilled portions of country-specific allocations eliminated
- increase in access opportunities by 90,000 tonnes to 2.553 million tonnes as the result of the elimination of country-specific allocations to non-traditional ACP suppliers.
*Belize, Cameroon, Cape Verde, C魌e d'Ivoire, Dominica, Grenada, Jamaica, Madagascar, Somalia, St. Lucia, St. Vincent and the Grenadines, and Suriname.
C.ADMINISTRATIVE ASPECTS OF THE BANANA IMPORT REGIME
2.8The tariff quota of 2.553 million tonnes and traditional ACP quantities (857,700 tonnes) are made available to two categories of operators - traditional operators and newcomers. Under the EC's amended banana import regime, the operator categories (A, B and C) and the activity functions (primary importer, secondary importer/customs clearer and ripener) have been abolished.
2.9Under the amended regime, operators have access to the above quantities in the following proportions:7
traditional operators 92 per cent
newcomers 8 per cent.
This distribution between the two operator categories may be amended to "make better use of the tariff quotas and the traditional ACP quantities".8 The quantities available in one operator category after requests have been fulfilled may be allocated to the other category.
2.10To be eligible as a traditional operator, operators must be established in the European Communities during the period determining their reference quantity (explained below) and must have imported a minimum quantity of third-country and/or ACP-country bananas on their own account for subsequent marketing in the European Communities during the reference period.9
2.11To qualify as a newcomer, an operator must be established in the European Communities at the time of registration and must have been engaged "independently and on his own account in the commercial activity of importing fresh fruit and vegetables falling within Chapters 7 and 8 of the Tariff and Statistical Nomenclature and the Common Customs Tariff, or products under Chapter 9 [coffee, tea, mat?and spices] thereof if he has also imported products falling within Chapters 7 and 8 in one of the three years immediately preceding the year in respect of which registration is sought & ". The declared customs value of such imports during that three-year period must be at least Euro 400,000.10
2.12For the purposes of registration, newcomer operators are to provide, inter alia, to the competent authority in one of the EC member States certified evidence of having imported the products referred to above (import licences used or customs documents, as appropriate) and of having complied with the above minimum import value requirement.11 Applications for registration must be made by 1 July of each year in not more than one of the member States. Renewal of a newcomer's registration is subject to submission of proof that at least 50 per cent of the quantity allocated was imported on the newcomer's own account.12
(ii)Determination of traditional operators' reference quantities and newcomer allocations
2.13For each traditional operator, import entitlements are established (i.e. the annual "reference quantity") on the basis of quantities of bananas "actually imported" during the reference period.13 The reference period for 1999 covers the years 1994-1996.14 Written applications for reference quantities have to be submitted in one of the member States by 1 July of each year.15 In their applications, operators have to provide data of the total volume of imports from origins covered by the tariff quota and of traditional ACP bananas during each year of the applicable reference period. Import volumes ("actual imports") are to be documented through both (i) copies of the import licences used either by the holder, or in the case of a transfer of the licence, by the transferee, and (ii) proof of payment of the customs duties. A traditional operator who furnishes proof of payment of customs duties, for the release into free circulation of a given quantity of bananas, without being the holder or the transferee holder of the relevant import licence, is considered to have actually imported the declared quantity provided that he has actually registered in a member State under Regulation (EEC) 1442/93 and/or fulfils the conditions of Regulation 2362 for registration as a traditional operator.16
2.14There are no reference quantities for newcomers. Applications for an annual quota must not exceed 10 per cent of the total annual quantity reserved for newcomers.17 A new operator may become a traditional operator after three years of commercial activity.18
(iii)Import licensing procedures
2.15Imports of traditional ACP, non-traditional ACP and third-country bananas are subject to licensing procedures.
2.16For the purpose of issuing import licences, the Commission of the European Communities may fix an "indicative quantity" of the annual tariff quota for the first three quarters of the year in accordance with the proportions set out in Table 1 above. It may be decided that during that period, applications for licences may not exceed a certain percentage of the reference quantity of each traditional operator or of the quantity allocated to each newcomer.19
2.17Applications for import licences have to be submitted in the European Communities member State where the operator is registered. Import licences are then issued, on a quarterly basis, following a two-round licensing procedure. In the first round, operators must specify, inter alia, the quantities requested from the origins specified in Table 1 above or from traditional ACP sources.20
2.18A reduction coefficient is applied if licence requests, in any quarter and for any source, exceed significantly the indicative quantities or exceed the annual quantities available.21 The reduction coefficients for each origin, if any, proportionally reduce the quantities indicated on the operators' licence requests.22
2.19After the first round, the EC Commission publishes the origins and quantities for which new import licence applications can be made. For licence requests for origins that are subject to a reduction coefficient, operators may either renounce their licence requests or make new licence requests for the unfulfilled portion of their original licence request.23 Import licences cannot be used to import from origins other than the origin indicated on the licence.24
2.20Unused import licences are, if requested, re-allocated to the same operator, whether a licence holder or transferee, for use in a subsequent quarter in the same year as the original licence. Such applications are not subject to the reduction coefficient that may apply in that quarter.25
2.21Import licences are transferable once:
(a)between traditional operators;
(b)from traditional operators to eligible newcomers;
(c)between eligible newcomers.
2.22In the event of an import licence transfer among traditional operators, the reference quantity of the transferor and the transferee are, respectively, decreased and increased accordingly. In turn, traditional operators' reference quantities are reduced when transferred to a newcomer. Quantities transferred to a newcomer are credited when the new operator applies for traditional operator status.26 Newcomers are not permitted to transfer import licences to traditional operators.27
2.23The Fourth Lom?Convention, signed on 15 December 1989 between the European Communities and 68 African, Caribbean and Pacific (ACP) developing countries contains a protocol concerning bananas, along with provisions applying to products more generally. Like its predecessors, the Fourth Lom?Convention was notified to GATT and considered by a working party.
2.24In December 1994, the European Communities was granted a waiver by the CONTRACTING PARTIES from the EC's obligations under Article I:1 of GATT 1947 as concerns the Lom?Convention.28 The waiver provides, in paragraph 1 of the decision, as follows:
"[T]he 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 Lom?Convention, without being required to extend the same preferential treatment to like products of any other contracting party." 29
2.25In October 1996, the Lom?waiver was extended until 29 February 2000 (in accordance with the procedures mentioned in paragraph 1 of the Understanding in respect of Waivers and those of Article IX of the WTO Agreement).30
3.1The European Communities contested the original complainants' position that consultations were not required under Article 21.5 of the DSU, since that provision referred explicitly to "these dispute settlement procedures", i.e. the entirety of the DSU. Consultations were in fact held on 17 September 1998 with all the original complainants on the amendments to Regulation 404 as set out in Regulation 1637. Also, in a communication of 13 November 199831, Ecuador requested the "reactivation" of the consultations, which had started on 17 September 1998. In this communication, Ecuador explicitly referred to Regulation 2362. The consultations were held on 23 November 1998 in the presence of Ecuador and Mexico as original complainants.
3.2The European Communities submitted that the alleged WTO-inconsistency of the revised EC import regime for bananas raised during consultations related exclusively to Articles I and XIII of GATT and Articles II and XVII of GATS. The European Communities was of the opinion that some claims raised by Ecuador in its first written submission went beyond the scope of this Panel procedure, which was limited to the settlement of a dispute "where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the [original] recommendations and rulings" (Article 21.5 of the DSU). The matter which was within the terms of reference of this Panel was therefore to be limited to the matters on which the DSB had adopted its recommendations and rulings based on the original panel and AB reports.
3.3The European Communities was of the view that Ecuador's reference to Article 19 of the DSU, amounted to an attempt to transform this Panel procedure into a sort of arbitration "ex aequo et bono" which, in the opinion of the European Communities, had no legal basis under Article 21.5, and whose suggested recommendations would have the effect of imposing a modification of the existing bindings in the EC Schedules as they were negotiated in the Uruguay Round. However, a panel established in accordance with Article 21.5 had to apply "these dispute settlement procedures", i.e. the DSU.
3.4According to the European Communities, this Panel could therefore only verify the consistency of measures taken to comply with the original recommendations and rulings of the DSB by "clarify[ing] the existing provisions" and "preserv[ing] the rights and obligations of members under the covered agreements". Panels should, in accordance with Article 19.1, "recommend that the Member concerned bring that measure into conformity with that agreement". However, they were not empowered to "recommend specific, immediate actions" as Ecuador had suggested.32 Article 19.1, last part, allowed panels to "suggest ways" (i.e. technical means) in which a Member could implement the recommendation. This should be read in its context, i.e. paragraph 2 of the same Article, which explicitly forbade panels to "add to or diminish the rights and obligations provided in the covered agreements". The European Communities did not agree and will not allow that any of its negotiated rights and obligations bound in its Schedule be modified or affected outside a trade negotiation.
3.5Ecuador submitted that the terms of Article 21.5 left no doubt that the issue in an Article 21.5 panel was not merely whether the new measures were consistent with specific rulings and recommendations of the DSB but also whether the measures that were taken allegedly for that purpose were consistent with the rules of the WTO Agreement. The plain language of Article 21.5 caused no injustice to the defending party, and EC claims to the contrary in this dispute would be frivolous. While the panel process was accelerated under Article 21.5, the defending party had the benefit of panel and perhaps AB rulings, as it designed remedial measures over a "normal" 15-month period with frequent DSB meetings. Further extraneous matters would be avoided, since only measures taken and not taken to comply with the rulings and recommendations would be at issue, even though the question was conformity with any WTO covered agreement. Finally, any rights of the defending party needed to be balanced against the rights and interests of the complainant party or parties. By the time of an Article 21.5 proceeding against a recalcitrant defendant, the complaining parties would have been suffering nullification or impairment for two and a half years or more with no compensation.
3.6In this proceeding, Ecuador submitted, it was evident that every Ecuadorian complaint concerned an EC measure that had either been maintained contrary to panel rulings or that had been modified or extended without conforming to the WTO rules. If the European Communities was seeking to invoke a procedural defence under Article 21.5, Ecuador submitted that more than a footnote was required to meet the burden of such a defence. As concerns Ecuador's request for specific recommendations and suggestions under Article 19 of the DSU, Ecuador submitted that nothing in its request was inconsistent with the language of the DSU or with the WTO agreements. The suggestion of "ways" to comply was not limited on its face to "technical means", as claimed by the European Communities. Further, the past history of this dispute, was ample grounds for the Panel to use the authorities granted by the DSU. Ecuador further submitted that while repealing non-conforming measures was an important part of compliance, it was not a remedy insofar as some illegal measures were not fully remedied and other measures inconsistent with the WTO were substituted.
4.1Ecuador challenged the conformity of the EC's revised system for the importation, sale and distribution of bananas with:
(a)Articles I and XIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994);
(b)Articles II and XVII of the General Agreement on Trade in Services (GATS); and the rulings and recommendations of the original panel in its report on European Communities - Regime for the Importation, Sale and Distribution of Bananas34 (hereinafter "Panel report"), as modified by the AB in its report on European Communities - Regime for the Importation, Sale and Distribution of Bananas35 (hereinafter "AB report");
(c)Ecuador requested the Panel not only to reaffirm its prior rulings and interpretations, as confirmed and modified by the AB, but also to provide the European Communities with a more explicit recommendation and guidance how to comply.
4.2The European Communities requested that the Panel reject all the allegations made by Ecuador both under the GATT and the GATS and find that the European Communities had complied with the original recommendations and rulings of the DSB adopted on 25 September 1997.
B.ISSUES RELATED TO THE GATT
4.3Ecuador claimed that the revised EC system retained the same three categories of imports as the previous system and the same tariff treatment of those categories36 except as follows:
(a)there were no individual country quotas in the ACP quantity for traditional ACP bananas;37
(b)for non-traditional ACP bananas38, there was no longer any 90,000 tonne limit on the amount that could enter the European Communities duty-free under the "other" category of the third-country quotas. For quantities above the third-country quotas, the tariff preference for non-traditional ACP bananas had been increased from 100 Euro per tonne to 200 Euro per tonne;
(c)there were no country allocations to non-substantial suppliers.
1.Article I Issues
(i)Traditional ACP bananas
4.4Ecuador submitted that the revised system did not comply with Article I of GATT 1994 and the rulings of the panel and the AB, as concerns traditional ACP bananas, in three respects. First, the total allotment of 857,700 tonnes was equal to the sum of the previous individual traditional ACP country allocations prior to 1 January 1999, and the panel and the AB had already found that those allocations exceeded what was required under the Lom?waiver.39 The European Communities could not rectify the problem of excessive individual allocations by cumulating them into one basket allotment in excess of that required for the sum of the shares of the countries participating in the basket. Ecuador argued that the revised system, by assigning a cumulative share to all traditional ACP suppliers, aggravated the violation of Article I since there were no individual limits, which meant that each country was in principle allowed to exceed its pre-1991 duty-free best-ever level.
4.5Nor could the European Communities circumvent this obligation by devising new pretexts to justify the same quantities whose original rationale was rejected by the panel and the AB40 before both of which the European Communities had stated that the figure of 857,700 tonnes included expected increases in banana exports after 1990. They were therefore outside the scope of the Lom?waiver, and were accordingly inconsistent to that degree with the EC's obligations under Article I of GATT 1994.41 The discriminatory effect of this violation would also be exacerbated in practice because the revised import licensing system penalized the failure to use fully all licence quantities, for all countries. Together with the elimination of country limits for each traditional ACP country, the effect was to encourage maximum usage of the 857,700 tonne duty-free quota, and within that quota, to encourage a shift to the relatively more efficient suppliers and away from the less competitive among the ACP countries.
4.6Second, Ecuador argued, the revised system's removal of individual country ceilings on duty-free access exacerbated the degree to which the EC's preferences exceeded what was "required" by the Lom?Convention and accordingly increased the degree of non-conformity with Article I of GATT 1994. As a consequence, every traditional ACP supplier could in principle ship 857,700 tonnes duty-free, whereas the panel and the AB held that any quantity for any country in excess of its pre-1991 "best-ever" was not required under the Lom?Convention and therefore not covered by the Lom?waiver. In Ecuador's view, this was more than a technical legal contravention, since the result was adverse commercial consequences. The traditional ACP suppliers would be more likely to ship the full available total of traditional ACP bananas, since the more productive and efficient among them would be able to plan, compete and invest accordingly.
4.7The non-conformity with Article I could not, Ecuador argued, be off-set by a decrease in imports from less efficient traditional ACP suppliers since the panel's and AB's findings were very clear on that account, i.e. that the Lom?waiver applied for each traditional ACP supplier only up to that supplier's best-ever year before 1991.42 Presumably, some or even many traditional ACP suppliers would effectively lose duty-free access to the European Communities because importers would naturally tend to buy from the most efficient and cheapest sources within a basket of countries.
4.8Referring to Article 168(2)(a)(ii) of the Lom?Convention43, in particular, the European Communities responded that it had to honour its obligations under the Lom?Convention. Moreover, it noted that Protocol 5 of the Lom?Convention44 had been interpreted to mean that "the European Communities is 'required' under the relevant provisions of the Lom?convention to provide duty-free access for all traditional ACP bananas".45 The European Communities was thus providing duty-free treatment to traditional banana imports from ACP countries for a maximum volume of 857,700 tonnes which was an "additional preferential treatment for traditional ACP bananas over and above the preferential treatment for all ACP bananas that is required by Article 168(2)(a)(ii)".46 This corresponded therefore to the limitation of the volume of bananas, i.e. traditional imports, which could benefit from this preferential treatment, as envisaged by the terms of the Lom?waiver resulting from the interpretation by the AB.
4.9Maintaining the maximum of 857,700 tonnes of traditional ACP bananas per year was fully justified after having applied the new interpretative criterion set out by the AB in its report (paragraphs 175 and 178). Traditional ACP bananas were not imported under the third-country tariff quotas, but competed with all the bananas that could be imported outside the bound tariff rate quota (and the autonomous quota), albeit with a preferential (duty-free) treatment as required by the Lom?Convention and permitted under the Lom?waiver. The margin of preference to the benefit of traditional ACP bananas outside the (bound and autonomous) tariff quotas was at present 737 Euro per tonne.47 The European Communities recalled that the panel and the AB had considered that only pre-1991 best-ever import volumes from the traditional ACP banana suppliers could serve as justification to allow imports of traditional ACP bananas outside the tariff quotas. On the basis of the historical figures that were now available for pre-1991 best-ever import volumes of traditional ACP bananas (i.e. 952,933 tonnes), a maximum of 857,700 tonnes, duty-free, from all the traditional ACP banana suppliers was therefore entirely legitimate.48
4.10The European Communities submitted that the original panel and the AB had agreed that the zero duty preference was "required" for traditional ACP bananas up to the level, for each supplier, of its pre-1991 best-ever exports to the European Communities, but that allowances for any country above that level were not within the waiver and were therefore inconsistent with Article I of GATT 1994. The sum of the individual country allocations for traditional ACP bananas under the prior system was 857,700 tonnes, which included for each traditional ACP country its best-ever exports to the European Communities, and for some countries an extra duty-free allotment based on expected increased production as a result of recent investments. The revised EC system created a single duty-free quota of 857,700 tonnes for all traditional ACP countries, with no limit on any individual ACP country's duty-free access within that overall quota.
4.11Ecuador submitted in response, that a comparison of Annex 1 of the EC's first submission with the country limits of the prior system indicated that every country allocation was the same or less under Annex 1, except for Jamaica and Somalia, both of which were stated to have had a larger best-ever year in 1965 and 1966. Since the European Communities was putting forward this data as a defence after many years of not considering such data as valid for Lom?Convention, GATT or WTO purposes, the European Communities needed to do far more to explain why today such data should be accepted as valid, required by the Lom?Convention, and within the scope of the Lom?waiver. The years in question all pre-dated the EC's agreements with traditional Lom?countries, or even the accession of the United Kingdom to the European Communities. Further, having found this data, there was no explanation why the European Communities did not consider itself "required" to grant the additional quantities to Somalia and Jamaica. Ecuador considered that even if the Panel were to accept as valid this data, and thus increase the "requirement" of the Lom?Convention and expanding the scope of the Lom?waiver, the revised EC system would still be inconsistent with Article I of GATT 1994 with respect to traditional ACP bananas, since it allowed any traditional ACP supplier duty-free access beyond its "best-ever" level.49
4.12The European Communities noted that the AB had overruled the panel in the original dispute with regard to the coverage of the Lom?waiver which in the view of the AB50 did not extend to Article XIII of GATT. The European Communities therefore considered itself to be compelled to abandon the country-allocation for the imports of traditional ACP bananas, since in spite of the preference, none of the banana-exporting ACP States was a substantial supplier of bananas to the EC's market. Under such circumstances, the European Communities did not see how it would be possible to allocate shares of the overall volume to individual ("specific") ACP States as long as the European Communities did not distribute its MFN tariff quotas among non-substantial suppliers. In this regard, the European Communities did no more than respect its WTO obligations the way it understood them, but the European Communities had an open mind if it was clarified in unambiguous terms that other options were available to it. Moreover, the inconsistency alleged by Ecuador did not relate to Article I of GATT, but, in the opinion of the European Communities, rather to an alleged inconsistency of the EC's banana import regime with the requirements of Article 1 of Protocol 5 on bananas because of the absence of country allocations for the preferential import volume for traditional ACP bananas.
4.13Referring to the EC's argument in paragraph 4.12 above, Ecuador submitted that the AB, in ruling that the Lom?waiver did not apply to the EC's infringement of Article XIII, did not find that the European Communities was thereby excused from compliance with Article I of GATT 1994, including the AB's express affirmation that duty-free quantities in excess of a traditional ACP country's pre-1991 "best-ever" level were not within the scope of the Lom?waiver51 and therefore infringed Article I. That infringement of Article I existed whether or not the Panel accepted the "new" old data on Jamaica and Somalia.
(ii)Non-traditional ACP bananas
4.14Ecuador argued that, under the terms of the Lom?Convention, the more favourable tariff treatment in the revised system of non-traditional ACP bananas was not required by, and hence was not within the scope of, the Lom?waiver.52 Ecuador considered that it was not justifiable to expand, in the amended system, the preferences allowed in the old system. Neither the limited finding regarding the previous system, nor the language of the Lom?waiver could justify such an increase. The panel and the AB affirmed, according to Ecuador, that the Lom?waiver covered duty-free treatment for 90,000 tonnes of non-traditional ACP bananas and a 100 Euro per tonne preference for such bananas above the overall tariff-rate quota (TRQ). Under the revised EC system, however, the 90,000 tonne cap on duty-free importation had been removed, and the preference for above-quota imports had been increased to 200 Euro per tonne. Ecuador argued that this Panel should find that the expansion of the preference was more than what was required by the Lom?Convention, and hence not justified under the Lom?waiver, and therefore not consistent with Article I of GATT 1994.
4.15The European Communities noted that non-traditional imports of ACP bananas were currently benefiting from duty-free treatment within the tariff quotas (which amounted in practical terms to a preference of 75 Euro per tonne) and a duty preference of 200 Euro per tonne outside the tariff quotas. According to the European Communities, the fact that the AB had mentioned a volume of 90,000 tonnes for duty-free banana imports within the (bound) tariff quota and a figure of 100 Euro for any further preference was not an indication of an upper limit of the preference for non-traditional ACP bananas. The AB had limited itself to examining "whether the particular measures chosen by the European Communities to fulfil the obligations in [Article 168(2)(a)(ii)] to provide 'more favourable treatment' to non-traditional ACP bananas are also in fact 'necessary' measures & ".53 According to the European Communities, the AB had stated very clearly that "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 a 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." 54
4.16The European Communities further noted that the above figures were the ones on which the previous EC banana import regime was based. The Lom?waiver covered preferential treatment of ACP bananas over and above these figures to the extent that the waiver from Article I was only qualified by the condition that the preferential treatment had to be "required" by the Lom?Convention. Article 168(2)(a)(ii) of the Lom?Convention required preferential treatment of all ACP banana imports55 unlike the requirements contained in Article 1 of Protocol 5 which were limited to traditional ACP banana suppliers. In the opinion of the European Communities, there was no basis for a volume limitation of such preferential treatment in Article 168(2)(a)(ii) of the Lom?Convention, nor for a limitation of the margin of preference to 100 Euro per tonne of non-traditional ACP bananas imported outside the tariff quotas.
4.17Ecuador submitted that the revised EC system increased the preferences for non-traditional ACP bananas, both by eliminating the 90,000 tonne cap on duty-free entry and by increasing the preference for over-quota bananas to 200 Euro per tonne. These increases went beyond what the panel had found required under the Lom?Convention, and thus did not fall within the Lom?waiver, and were inconsistent with Article I of GATT 1994. In Ecuador's opinion, the AB's observation that other forms of tariff preference might have been chosen was used by the European Communities as a pretext to justify greater preferences of the same type. In granting the Lom?waiver, WTO Members did not give carte blanche to the European Communities and ACP States. The EC's actions and rationale for its substantial increase of those preferences were abusive, and unjustifiable in terms of the Lom?waiver or past rulings.
4.18The European Communities argued that contrary to Ecuador's allegations in paragraphs 4.14 and 4.17 above, the elimination of the tariff quota share for non-traditional ACP bananas reduced the value of the preference granted under the previous EC banana import regime, since these bananas were now imported in competition with bananas from other sources under the general "others" category of the tariff quota that was not allocated to bananas of a particular origin. The European Communities thus considered that the abolition of the tariff quota share allocated to imports of non-traditional ACP bananas did not "expand" the preference for non-traditional ACP bananas beyond the requirements of Article 168(2)(a)(ii) of the Lom?Convention. In order to partly compensate for the loss of the allocation of the 90,000 tonne tariff quota share for non-traditional ACP suppliers, the European Communities continued, it had agreed with these suppliers to increase the margin of preference for out-of-quota imports from 100 Euro per tonne to 200 Euro per tonne. In conclusion, the European Communities saw no valid basis for Ecuador's complaint regarding the preferential treatment of non-traditional imports of ACP bananas under the present regime.
2.Article XIII issues
4.19Ecuador argued that the revisions of the EC's system were not sufficient to conform with the obligations of Article XIII, and in some respects aggravated the contraventions of Article XIII in the previous system. Indeed, even the size of the respective TRQ baskets was unchanged: 857,700 tonnes of duty-free access for traditional ACP bananas, and 2,553,000 tonnes of preferential tariff access for other bananas. The revised system retained the use of two TRQ regimes, and maintained the same overall quota level for each group as in the previous system, resulting in more favourable treatment of bananas from traditional ACP countries than from Ecuador or other countries. The panel and the AB had held that the EC's establishment of two banana import regimes, or use of different terminology, did not justify a separate evaluation of those regimes in terms of Article XIII. Ecuador considered that there was no exemption from the obligations of Article XIII for measures that favoured products of a group of countries where the same favouritism was not permitted for a single country, as was evident, for example, in the evaluation of the BFA by the panel and the AB.
4.20Ecuador submitted that the questions with respect to the allocation of the TRQs were, firstly, whether the European Communities had complied with Article XIII, and the findings and recommendations in that regard, by according to traditional ACP countries, as a group, a share of the TRQ that was equal to the sum of the individual country shares for ACP bananas; and secondly whether the allocation assigned to Ecuador, relative to the share allotted to the ACP and to the import regime of the EC generally, conformed with Article XIII. Ecuador contended that in both respects the European Communities had failed to conform with Article XIII and the pertinent findings and recommendations of the panel.
4.21Ecuador asserted, moreover, that the original panel had found that Article XIII did not permit the European Communities to allocate country shares to some non-substantial suppliers, while not doing so to others.56 Ecuador noted that the particular country shares allotted to each traditional ACP supplier were based on the "best-ever" performance of each country prior to 1991, with a supplement even beyond that for some of the traditional ACP suppliers. However, actual imports from the traditional ACP countries as a group had been in the range of 200,000 tonnes less than the 857,700 tonnes in total allotments. In line with past rulings57, the panel had found that the chapeau in Article XIII:2 constituted a "general rule" to which the provisions of Article XIII:2(d) were subordinate.58 The panel had also found that the European Communities could leave in place the TRQs for traditional ACP bananas because it was of the view that the Lom?waiver applied to Article XIII violations as well as to violations of Article I.59 This panel finding had been overruled by the AB.60
4.22Ecuador argued that a discriminatory quota in favour of one country could not be cured by combining that quota share with another excessive country quota share. Indeed, were it otherwise, Article XIII would become meaningless. WTO members could then freely discriminate simply by allocating quotas by blocks of two or more country quotas, instead of individual quotas. There was nothing in the findings of the panel or AB, or in the plain language of Article XIII, to suggest that such discrimination by blocks of countries was admissible. By eliminating the sub-allotments, Ecuador submitted, it was more likely that more of the quota would be filled, since more efficient traditional ACP suppliers would face little limit and would have an incentive for investment. The TRQ for traditional ACP bananas was isolated from competition from other sources such as Ecuador, both under the previous system and in the amended system, another advantage for traditional ACP bananas which was not accorded to other bananas.
4.23The European Communities submitted that according to the findings of the panel and the AB with regard to Article XIII of GATT61, tariff quota shares could not be allocated only to some non-substantial suppliers of a product. In examining the old EC banana regime, the AB had considered that (partial) allocation was an advantage which had not been extended to all non-substantial suppliers. Thus, the European Communities was not permitted under Article XIII:2(d) of GATT 1994 to allocate a specific tariff quota share only to non-traditional ACP banana suppliers. Therefore, the European Communities would have to allocate tariff quota shares to all non-substantial suppliers which the European Communities considered was difficult in practice. It would introduce undesirable rigidity in the administration of the tariff quota, as some tariff quota shares for non-substantial suppliers would have to be very small indeed. On the basis of these considerations, the European Communities had decided to introduce a general (undistributed) "others" category without allocation of country-specific tariff quota shares.
4.24In order to respect the ruling of the AB, the European Communities continued, according to which breaches of Article XIII of GATT were not covered by the Lom?waiver, and in particular its finding in paragraph 188, the European Communities had refrained from allocating shares to any specific traditional ACP banana supplying country. The European Communities did not understand how the absence of a distribution of the quantity between traditional ACP suppliers could negatively affect Ecuador's export interests, since imports of traditional ACP bananas were in any case not counted against the (bound and autonomous) tariff quotas, on the one hand, while full competition outside the tariff quotas was already established by the Uruguay Round, on the other hand. The only differential treatment between Ecuadorian bananas and ACP traditional bananas was the tariff applied (duty-free vs. bound rate) but this was consistent with the Lom?waiver.
4.25The European Communities submitted that a number of fundamental principles of GATT/WTO had to be observed when addressing this matter. They included the following: the Lom?waiver was a decision of the CONTRACTING PARTIES which was foreseen by the Marrakesh Agreement, Article IX.3, and was obligatory upon all the WTO Members. According to a general principle of public international law applied in the WTO by the AB, " & an interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility & ".62 Therefore, this Panel was not free to interpret Article XIII of GATT in such a way as to render the Lom?waiver " a redundancy or an inutility". To put it otherwise, it must be possible to apply the Lom?waiver in the context of the existing WTO rights and obligations.
4.26According to the same principle, no interpretation of Article XIII of GATT could enlarge its scope to such an extent that Article I of GATT would be reduced, in casu, to "redundancy or inutility". Both these provisions were concerned with the MFN principle. However, they had their separate scope and purpose that could not be superposed or confused. The AB affirmed in the LAN case63 that "the security and predictability of 'the reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade' is an object and purpose of the WTO Agreement, generally, as well as of GATT 1994". The Newsprint panel report 64 was a practical application of this important principle which in the EC opinion was relevant for the solution of the present case. As the AB in the "India patent" case had indicated, "& both panels and the AB (& ) must not add to or diminish rights and obligations provided in the WTO Agreement. This conclusion is dictated by two separate and very specific provisions of the DSU. (& ) These provisions speak for themselves. Unquestionably, both panels and the AB are bound by them".65 Any claim or suggestion by the complainant, the European Communities submitted, had to be dealt with by the Panel with this fundamental principle in mind.
4.27The European Communities submitted that it could not possibly be in Ecuador's best interest that imports of duty-free traditional ACP bananas be counted against imports at in-quota rates from other sources, including from Ecuador, since this would necessarily reduce the share of imported non-ACP bananas. The European Communities stressed that imports of traditional ACP bananas were not counted against any MFN tariff quota. They were imported duty-free outside the existing (bound and autonomous) MFN tariff quotas. If it were not for the conditions attached to the Lom?waiver, as interpreted by the panel and the AB in the original dispute, the European Communities would not have indicated any specific volume for such imports. It therefore considered that Article XIII of GATT did not apply to duty-free imports of traditional ACP bananas which were not counted against a tariff quota but to which a cap to the tariff preference was applied.
4.28The European Communities considered that Article XIII:5 of GATT 1994 would not be applicable in the absence of the AB interpretation of the Lom?waiver limiting duty-free imports of traditional ACP bananas in the European Communities to a volume of 857,700 tonnes. This volume found therefore its basis exclusively in the conditions attached to the Lom?waiver, not in the EC's tariff bindings, nor in Article XIII which was meant, in the final analysis, to protect those bindings. Thus, the volume limitation for duty-free imports of traditional ACP bananas was inseparably attached to the Lom?waiver and was both required and permitted by the waiver. Referring to its obligations under Article 1 of Protocol 5, as confirmed by the AB66, the European Communities submitted that it had an obligation to allow imports of traditional ACP bananas into the European Communities under an import arrangement that was separate from the import arrangement applying to bananas from other sources, because any other solution would negatively affect the bound tariff quota and thus reduce the share of non-ACP banana imports, breaching the principle set out in the AB report on LAN.67 While it was true that, in accordance with the findings of the AB in the earlier dispute, the waiver only waived obligations of the European Communities under Article I:1 and not under Article XIII of GATT 1994, this waiver had to be given its full scope and meaning (see paragraph 4.25 above). The European Communities submitted that it would not be entitled to count preferential imports that were not included in a tariff binding against imports under the bound tariff quota. This question was extensively dealt with in the 1984 panel on Newsprint68 which was relevant to the claim submitted by Ecuador in this case. 69 The European Communities quoted the Newsprint panel as saying "[...] It is in the nature of a duty-free tariff quota to allow specified quantities of imports into a country duty-free which would otherwise be dutiable, which is not the case for EFTA imports by virtue of the free-trade agreements. Imports which are already duty-free, due to a preferential agreement, cannot by their very nature participate in an M.F.N. duty-free quota" (emphasis added).
4.29While the MFN tariff quotas for bananas were not duty-free, the European Communities continued, but allowed imports at reduced rates of duty, the logic of the above findings was even more compelling in that situation. If preferential duty-free imports were counted against an MFN tariff quota at reduced rates, this would completely undermine the value of the MFN tariff quota and thus the balance of rights and obligations negotiated in tariff negotiations between WTO Members. "[T]he security and predictability of the reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade", as the AB had indicated, would be put at serious risk.
4.30On the other hand, duty-free imports of non-traditional ACP bananas were counted against the MFN quota. However, the EC's tariff binding for bananas specifically referred to imports of such non-traditional ACP bananas, for which a quota share of 90,000 tonnes had been allocated under the binding (see also paragraph 4.17 above). The situation of non-traditional ACP bananas which were specifically referred to in the EC's tariff binding, the European Communities submitted, was thus entirely different from that of traditional ACP bananas which were never the subject of any tariff negotiations under GATT or the WTO. The AB had recognised70 that the European Communities was required, in accordance with Article 1 of Protocol 5, to grant traditional ACP bananas a tariff treatment that was preferential even in comparison to the import regime for non-traditional ACP bananas.71 A "tariff quota share" in this context could only mean a defined import volume at a preferential tariff level. The value of a tariff preference resided in the preferential margin, much more than in the volume. The preferential margin of traditional ACP bananas was presently at 737 Euro per tonne, since these bananas were imported in competition with bananas imported out of quota, while the preferential margin for non-traditional ACP bananas was 200 Euro if imported out of quota and only 75 Euro if imported under the MFN tariff quota. Including traditional ACP bananas in the MFN tariff quota would thus mean (independently of the volume limitation) that the margin of preference would be reduced by 662 Euro per tonne (737 Euro - 75 Euro = 662 Euro).
4.31In the opinion of the European Communities, there was no basis in the original panel or AB reports for such a drastic reduction of the margin of preference for traditional ACP bananas. The volume limit was thus a cap to this very substantial preference, but not an advantage to be shared under Article XIII of GATT with other (MFN) suppliers. Article XIII was a special MFN clause with regard to the distribution of (tariff) quotas, not a provision that governed volume limitations imposed on preferential suppliers. It was the preference that constituted the economic advantage for traditional ACP banana imports, whereas the volume limitation was a disadvantage. The volume limitation was thus inseparably linked to the tariff preference, but did not by itself constitute the preference.
4.32If Ecuador's approach were correct, the European Communities continued, the European Communities would have to distribute the 857,700 tonnes in part to substantial suppliers, including Ecuador. However, Ecuador would not have access to the preferential zero duty rate. Thus, since this volume was beyond the bound tariff quota of 2.2 million tonnes, the base rate of presently Euro 737 would apply to any quantities imported from Ecuador under such an additional "tariff quota". Of the 857,700 tonnes of the so-called "tariff quota", Ecuador would receive a share of 26.17 per cent (224,460 tonnes). This would be absurd since Ecuador was entitled to import into the EC's unlimited quantities of bananas at 737 Euro per tonne. The traditional ACP supplying countries would have access to 9.43 per cent of the same volume which was less than a tenth of the volume of imports from those countries that the European Communities was required by the Lom?Convention to allow at a duty-free level. In the view of the European Communities, it was self-evident that Ecuador would have no interest whatsoever to import under this "tariff quota", because it could much more easily import outside the quota at the same base rate, while importing under this "tariff quota" would imply additional customs procedures in order to count the import against the quota.
4.33Ecuador recalled that the establishment of two banana import regimes or use of different terminology did not justify separate evaluation of those regimes in terms of Article XIII. Referring to the EC's invocation of the Newsprint case attempting to persuade the Panel that the entire 857,700 tonne quota should be viewed as merely a cap on the preferences for ACP suppliers, Ecuador submitted that the 857,700 tonne quota was not simply a capped tariff preference, as the European Communities had sheltered this traditional ACP quota from all competition, given that the over-quota tariff was prohibitive. Ecuador and other suppliers thus could not compete for this allocation. In this respect, the traditional ACP quota was very different from the quantitative "competitive need" limits set by the generalized system of preferences. Though such limits were a tariff rate quota, they were not an allocation in the sense of Article XIII, because other suppliers could compete with the beneficiaries, subject only to the difference in duty. The European Communities could do the same thing in this case, since then the European Communities would only be granting a tariff preference, not an allocation contrary to Article XIII.
4.34Ecuador agreed with the European Communities that "Article XIII is a special MFN clause with regard to the distribution of (tariff) quotas, not a provision that governs volume limitations imposed on preferential tariffs" (see above, paragraph 4.31). Volume caps on preferential tariffs were, in the opinion of Ecuador, an Article I matter, covered by the Lom?waiver, as long as they were limited to a tariff preference. As the original panel had stated in paragraph 7.80 of its report, constructing tariff preferences in such a way that the "tariff quota construction" became an additional advantage was an Article XIII matter, which was not covered by the Lom?waiver. To the extent that the European Communities argued that its ACP "tariff quota construction" had nothing to do with Article XIII, Ecuador referred to the new Article 18(9) of Regulation 404 which was inserted by Regulation 1637.72
4.35The EC response was also not convincing, Ecuador submitted, in regard to Ecuador's complaint with respect to the continuing infringement of the fundamental non-discrimination obligations of Article XIII, i.e. the prohibition in paragraph 1 against restricting products from one Member unless like products of other members were "similarly restricted," and the general rule of paragraph 2 that any allocation system must approximate as closely as possible the allocations that would be expected to prevail in the absence of restrictions. Ecuador noted that the European Communities, Colombia and Costa Rica had all objected to Ecuador's request that the Panel recommend that the European Communities drop the use of country allocations, on the basis that this request would deprive the European Communities of its "right" to allocate under Article XIII:2(d) and would deprive Colombia (and Costa Rica) of an alleged right to a country quota negotiated in the Uruguay Round. Ecuador stressed that it did not seek to deny any WTO Member its rights under the WTO in this dispute. The European Communities was indeed free to allocate by country, as long as it followed the requirements of Article XIII:1, the chapeau of Article XIII:2, and the provisions of Article XIII:2(d). However, as the original panel had ruled, neither the Uruguay Round schedules nor the allocation provisions of Article XIII:2(d) permitted violation of the requirements of Articles XIII:1 and XIII:2.
4.36The provisions of Article XIII did not require the European Communities to allocate quotas, and Ecuador believed that the absence of country allocation would produce the most equitable result, given the manifold restrictions that had distorted the EC market for many years. But if the European Communities instead chose to allocate, then it must use a combination of recent representative period and special factors that resulted in a distribution approximating as closely as possible the shares that might be expected to prevail in the absence of restrictions, and that entailed similar restrictions on bananas from all sources. Ecuador did not believe that those requirements of Article XIII were met by the two systems chosen by the European Communities and by the use of a 1994-1996 period without adjustments for special factors.
4.37The European Communities submitted that in accordance with the panel and AB reports, the European Communities applied the same method of allocation of import licences for all categories of bananas, irrespective of the source of supply to the extent that import licences were necessary in order to count the imports against a tariff quota or to administer the volume limitation for traditional ACP bananas. In this respect, the distribution rules were identical in all cases, since only substantial suppliers had been attributed country-specific shares under the MFN tariff quotas. Since no ACP country was a substantive supplier on the EC's market, no country-specific shares were allocated to any ACP country in respect of the volume limitation for traditional ACP banana imports. The European Communities noted, as concerns BFA allocations, that Nicaragua's shares were reallocated to Colombia in full in 1995 and in part in 1996, and Venezuela's share was partially transferred to Colombia in 1995. The European Communities confirmed Costa Rica's statement that it did not benefit from any transfers of shares under the BFA.
4.38Ecuador submitted that the amended system did not correct, and even intensified, the non-conformity with Article XIII in the preferential treatment of BFA countries. The shares of Columbia and Costa Rica had been permanently increased by the amount of the reallocation of the shortfall that they were granted inconsistently with Article XIII under the previous system. Ecuador was further of the view that the revised system was inconsistent with the obligations of Article XIII to ensure that a TRQ allocation system approximated as closely as possible the distribution of shares that could be expected in the absence of restrictions. In addition to providing individual country allocations for the 12 ACP suppliers of traditional ACP bananas within the 857,700 tonne quota, the old EC system granted country allocations to four individual ACP countries and an "Other ACP" category for a total of 90,000 tonnes of bananas within the TRQ. The share assigned by the European Communities to Ecuador in the new system was less than warranted by any objective standard, including the trend of Ecuador's exports and, even more markedly, Ecuador's much larger share of the world market outside the EC's market. Ecuadorian bananas were subject to restrictions that were not similarly imposed on like bananas from other sources, contrary to the requirements of Article XIII:1. The European Communities had allotted individual country shares pursuant to the BFA to two substantial suppliers (Colombia and Costa Rica) and two non-substantial suppliers (Nicaragua and Venezuela), who also had shared in a system of preferential reallocation of shortfalls among themselves. Other countries, such as Ecuador, did not have a specific country allocation in the old system, and fell within an "others" category of the 2,553,000 tonne quota.
4.39Ecuador submitted that Article XIII established two general rules, i.e. Article XIII:1 required that imports from one Member not be restricted unless imports of the like products from other sources were "similarly restricted."73 Further, the original panel noted that if Members applied quotas to a product, then, in the terms of the chapeau to Article XIII:2, "Members shall aim at a distribution of trade in such product approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of such restrictions."74 This interpretation was confirmed by the AB.75 While Article XIII:2(d) allowed the use of country allocations, the panel noted that that authorization was subject to observance of the general rule of the chapeau.76 That finding was likewise confirmed by the AB.77
4.40According to Ecuador, the amended system still had to conform to these requirements. The EC regulations listed the shares of Ecuador and other substantial supplying countries as a proportion of the 2.553 million tonne tariff rate quota.78 As a proportion of the entire quota of 3.41 million tonnes, however, the allocations would be different.79 Ecuador claimed that its share had been limited relative to that of other countries as a result of this system and compared to the share that Ecuador could have expected to achieve in the absence of restraints. In other words, a country allocation or, in the case of the traditional ACP countries, a block allocation, benefited countries whose competitiveness was decreasing relative to others, by isolating part of the market from competition from other suppliers. Country allocations further restricted large and efficient suppliers' opportunities, such as Ecuador, to compete, both with producers in the restricted market and with other exporting countries that might be less efficient
4.41Ecuador asserted that the non-conformity of the amended system with Article XIII as regards Ecuador could be shown objectively in terms of the evolution of Ecuador's share of the EC's market and, even more markedly, in Ecuador's share of world markets (see Chart 1 in Annex II). According to Ecuador, Chart 1 demonstrated that Ecuador's share of the EC's market had grown and far exceeded the share assigned to Ecuador in the present system. However, the object of Article XIII was not to freeze shares of the past, especially if those past periods had been distorted by restrictions. Charts 2 and 3 in Annex II, Ecuador submitted, were even more instructive in considering what share Ecuador might be expected to have in the absence of restrictions. Chart 2 indicated that Ecuador had a substantially larger share of the world market than of the EC's market. Chart 3 measured Ecuador's market share of the world outside of the EC's market. In a product such as bananas, Ecuador believed it was appropriate to consider relatively unrestricted markets elsewhere as much more indicative of what Ecuador might anticipate in the EC's market, if the restrictions were removed. Ecuador concluded that the share assigned to Ecuador was less than what Ecuador could expect in the absence of restrictions, in view of the provisions of Article XIII:1.
4.42Ecuador further argued that the revised EC system contravened not only the general rule of Article XIII:2, but also specific provisions of Article XIII:2(d) which required that the allocation among substantial suppliers had to be based upon the proportions supplied "during a previous representative period, due account being taken of any special factors which may have affected or may be affecting the trade in the product." Referring to EC's claim that the allocations accorded to suppliers (other than traditional ACP suppliers) under the revised EC system were determined in accordance with average shares of the EC's market in the 1994 to 1996 period80, Ecuador noted that the original panel had found that this period was distorted by the non-consistent aspects of the BFA, as well as other distortions related to the EC's licensing system.
4.43In the opinion of Ecuador, it was not clear whether any country-share allocation system could be devised based on a representative period and special factors that would meet the requirements of Article XIII:2. The original panel confirmed what had been held by prior panels, that periods distorted by trade restrictions could not be considered representative.81 Ecuador submitted that neither the period during which the previous banana import regime was in force (1 July 1993-31 December 1998), nor the period prior to that could be seen as "representative" since none of those periods were free of distortions. Ecuador further argued that since relative productive efficiency and capacity varied over time, the older the period chosen, the less likely it was to be representative, bearing in mind that the objective of Article XIII - and the requirement of the chapeau in Article XIII:2 - was to achieve an allocation that came as close as possible to that which would prevail in the absence of restrictions. The intent of Article XIII was not, in the opinion of Ecuador, to create everlasting entitlements based on past trading patterns.
4.44Ecuador submitted that the result of the EC's system was that ACP countries, as a group, were assigned to a quota to which they had exclusive access. Other countries did not get an allocation by group. The ACP allocation was also far higher, being based on a cumulated pre-1991 best-ever formula, than could be justified by any formula or rule of Article XIII. If the 1994-1996 base period applied to Ecuador and other third countries were applied to the traditional ACP suppliers, the latter would receive a much lower share, while those of Ecuador and other third countries would rise.
4.45The European Communities submitted that the "historical performance" scheme had to be based on some period in the recent past. While it was the least trade-disruptive option, it admittedly had the disadvantage of "freezing" the situation to a certain extent. However, on balance, the European Communities Ministers for Agriculture decided that a higher degree of certainty and predictability to importers than the "first-come, first-served" scheme was to be preferred at this stage and, contrary to the "auctioning" scheme, it was appropriate to leave the quota rent with the operators, thus avoiding an important financial impact on operators at a moment when already a major change in the rules was imposed upon them. The allocation of shares of the quota to those countries with a substantial interest in supplying the EC market was based on the reference period 1994-96 as were the quantities effectively imported by each importer on average during the recent three-year period. Data for 1997 was available but it was provisional at the time of preparing Regulation 2362. This period was the most favourable period for Ecuador since on the basis of the available data at the time, it represented Ecuador's best years. The allocations were calculated on the basis of the average of the actual import years and with a proportional distribution of unidentified sources. Therefore, Ecuador received a higher quota than it would have received based on actual 1994-96 figures only (26.17 per cent as compared to 25.38 per cent) (see also paragraph 4.52). The European Communities believed that the "historical performance" (or traditional/newcomers) scheme could only be legitimate if it was devised taking into account the conditions listed in Article 3.5(j) of the Licensing Agreement 82, namely licences had to be issued to applicants in the past and their distribution must be based on their full utilization during a recent representative period.83 In the opinion of the European Communities, the new EC licensing system created by Regulation 2362 was entirely in line with Article 3.5 of the Licensing Agreement.
C.ISSUES RELATED TO THE GATS
4.46Ecuador argued that the new licensing system resulted in distribution of most of the import licences to those who had received them under the previous regime, including those who had obtained licences pursuant to criteria ruled inconsistent with the EC's obligations under the GATS. Further, the amended regime's newcomer category had been expanded and itself had criteria favouring EC operators over service suppliers of Ecuadorian and other non-EC origins. Ecuador concluded that the amended system, like its predecessor, created conditions of competition favouring service suppliers of EC and ACP origin, to the detriment of service suppliers of Ecuadorian and other third-country origin in contravention of Articles II and XVII of GATS.
4.47The European Communities recalled that under Article 1 of the Licensing Agreemen
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