|[GATT Panel Report] - EEC - Import Regime for Bananas|
GENERAL AGREEMENT DS38/R
11 February 1994
ON TARIFFS AND TRADE Limited Distribution
EEC - IMPORT REGIME FOR BANANAS
Report of the Panel
TABLE OF CONTENTS
I. INTRODUCTION 3
Terms of Reference 3
Participation of other contracting parties 4
II. FACTUAL ASPECTS 5
III. MAIN ARGUMENTS 7
Article II - Schedules of Concessions 7
Articles I, XXIV and Part IV - Preferential treatment 10
Article XX(h) - Commodity Agreements 17
Article XI - General Elimination of Quantitative Restrictions 17
Article XIII - Non-discriminatory Administration of
Quantitative Restrictions 20
Article III - National Treatment on Internal
Taxation and Regulation 24
Article VIII - Fees and Formalities Connected with Importation 27
Article XVI - Subsidies 28
Article XXIII - Nullification or Impairment 29
IV. PARTICIPATING AND OTHER THIRD CONTRACTING PARTIES 32
V. FINDINGS 37
Article II - Tariff Binding 38
Article XI - Tariff Quotas 40
Articles XIII - Measures on Importation Discriminating
Between Sources 41
Articles III and I - Internal Measures Discriminating
Between Sources 42
Article VIII - Payment of a Security and Other
Import Formalities 44
Article XVI - Subsidies to Domestic Producers 44
Article I - Preferential Tariff Treatment 45
Article XXIV - Free Trade Areas 45
Article XX(h) - Commodity Agreements 49
Article XXIII - Nullification or Impairment 50
Concluding Remarks by the Panel 51
VI. CONCLUSIONS 52
On 28 January 1993, Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela requested the European Economic Community ("EEC") to hold consultations pursuant to Article XXII:1 of the General Agreement concerning the decision of 17 December 1992 of the Council of Ministers of the EEC on the common organization of the market in bananas (DS38/1). The EEC was not able to accept the request on the grounds that the meeting of the Council of Ministers on 17 December 1992 did not result in a formal decision concerning the banana import r間ime, only a discussion of future policy in the banana sector. In the view of the EEC, this discussion could not be considered as a measure under Articles XXII:1 or XXIII:1 of the General Agreement allowing for formal consultations under one of these provisions (DS/38/4). On 19 February 1993 Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela requested the EEC to hold consultations pursuant to Article XXII:1 of the General Agreement concerning Council Regulation (EEC) No 404/93 on the common organization of the market in bananas, adopted by the EEC Council of Ministers at its session from 9 to 13 February 1993. Consultations were held between 22 March and 19 April 1993. As they did not result in a mutually satisfactory solution of the matter, Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela, in a communication dated 28 April 1993, requested that in accordance with the provisions of Article XXIII:1 of the General Agreement, and pursuant to paragraph 1 of that Article, in particular subparagraphs (a) and (b) thereof, a panel be established to examine the matter.
The Council, at its meeting on 16 June 1993, established a panel in accordance with paragraph F(a) of the Decision of the CONTRACTING PARTIES of 12 April 1989 concerning Improvements to the GATT Dispute Settlement Rules and Procedures (BISD 36/61) and authorized the Chairman of the Council to designate the Chairman and the members of the Panel. The Panel would have standard terms of reference unless the parties to the dispute agreed otherwise within twenty days of the establishment of the Panel. Brazil and the Philippines reserved their right to make a submission to the Panel. Other contracting parties requested participation in the Panel proceedings (see paragraph 7 below).
Terms of Reference
The following standard terms of reference applied to the work of the Panel:
"To examine, in the light of the relevant provisions of the General Agreement, the matter referred to the CONTRACTING PARTIES by Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela in document DS38/6 and to make such findings as will assist the CONTRACTING PARTIES in making the recommendations or in giving the rulings provided for in Article XXIII:2."
On 6 July 1993, the Director-General was requested by Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela to compose the Panel by virtue of Section F(c)5 of the Decision of the CONTRACTING PARTIES of 12 April 1989 concerning Improvements to the GATT Dispute Settlement Rules and Procedures (BISD 36S/61).
On 16 July 1993 the Director-General announced the composition of the Panel as follows:
Chairman: H.E. Mr. K. Kesavapany
Members: Mr. Thomas Cottier
Mr. Ulrich Petersmann
The Panel met with the Parties on 20 and 21 October, and on 11 and 12 November 1993. It submitted its report to the Parties to the dispute on 18 January 1994.
Participation of other contracting parties
At the meeting of the Council on 16 June 1993, the representatives of Antigua and Barbuda, Barbados, Belize, Cameroon, C魌e d'Ivoire, Dominica, Dominican Republic, Ghana, Jamaica, Madagascar, Senegal, St Lucia, St Vincent and the Grenadines, Suriname, Tanzania, Trinidad and Tobago and Uganda expressed their respective governments' wish to participate in the work of the Panel. While the Council took note of these statements, there was no consensus on such participation.
Subsequently, the Panel considered, and the Parties agreed that, in the interest of transparency among the contracting parties having a substantial interest in the trade of bananas, it would be reasonable to invite such countries to meetings of the Panel. The Panel, therefore, invited the representatives of the governments of Belize, Brazil, Cameroon, C魌e d'Ivoire, Dominica, Dominican Republic, Jamaica, Madagascar, the Philippines, St Lucia, St Vincent and the Grenadines and Suriname to the Panel meetings at which the parties were present. Submissions by such contracting parties were to be made in writing, or if made orally, were to be made available in writing. The representatives of these contracting parties present at Panel meetings received all submissions of the parties. These same contracting parties were also invited by the Panel to make oral statements at the Panel meetings. The Panel, however, was of the view that this procedure should not be considered a precedent for future panels.
II. FACTUAL ASPECTS
The complaint examined by the Panel related to the EEC import r間ime for bananas introduced on 1 July 1993.
Since 1988, the EEC has been the world's largest importer of bananas, followed by the United States and Japan. Total supplies of fresh bananas in the EEC in 1991 amounted to some 3.63 million tons, two thirds of which originated in Latin American countries1. This was approximately 38 per cent of world trade in bananas, and compared to imports of 2,9 million tons for the United States and 0,8 million tons for Japan2. Major suppliers of Latin American bananas to the EEC in 1991 were Ecuador, Costa Rica, Colombia, Panama and Honduras. Domestic producers supplied approximately 19 per cent of the bananas consumed in the EEC, the main producing areas being the Canary Islands, Martinique and Guadeloupe. Sixteen per cent were supplied by African, Caribbean and Pacific countries ("ACP" countries). Major suppliers of ACP bananas to the EEC in 1991 were Cameroon, C魌e d'Ivoire, St. Lucia, Jamaica, St. Vincent and Dominica. It is estimated that total supplies of bananas in the EEC in 1992 amounted to some 3,76 million tons3, 689,710 tons of which originated in ACP countries and 2,409,255 tons in Latin America, of which the complaining parties provided 1,042,810 tons4 (for details see the Annex).
On 1 July 1993, the EEC introduced a common market organization for bananas (Council Regulation (EEC) 404/935 ("the Regulation"), replacing the various national banana import systems in place in the member states previously. The Regulation consisted of five separate titles, which established uniform rules on common quality and marketing standards; producers' organizations and concentration mechanisms; assistance; trade with third countries; and general provisions.
The first three titles regulated the internal aspects of the common organization of the market in bananas: (1) the common quality and marketing standards provided for subsequent regulation, laying down that these standards should be mandatory for fresh products. They could also be extended to processed products; (2) rules concerning producers' organizations and concentration mechanisms were intended to promote the creation of organizations to concentrate supply and regulate prices and improve EEC production structures; (3) this would be achieved by assistance to promote the establishment of such organizations and to facilitate their operation. Another incentive was the participation of these organizations in assistance schemes. Also, members of producer organizations could be granted compensation for any loss of income, the maximum quantity for such compensation being fixed at 854.000 tons for the EEC as a whole. Title V contained general provisions.
Title IV (Articles 15-20) set out arrangements for trade with third countries and applied to fresh bananas, excluding plantains (HS ex 08.03). It established four categories of suppliers: traditional imports from ACP countries; non-traditional imports from ACP countries; imports from non-ACP third countries; and EEC bananas. Imports of bananas from traditional ACP-suppliers entered duty-free up to maximum quantity fixed for each traditional supplying country; these maxima collectively amounted to 857.700 tons. Imports of non-traditional6 ACP bananas and bananas from third countries7 were subject to a tariff quota of 2 million tons (net weight).8 Bananas from ACP countries entered duty-free within this quota whereas third country bananas were subject to a tariff of 100 ECUs per ton. Imports above the tariff quota were subject to a tariff of 750 ECUs per ton for bananas from ACP countries and to 850 ECUs per ton from third countries. The quota could be adjusted on the basis of a supply balance for production and consumption prepared in advance of each year. All imports of bananas from third countries were contingent on an import license and subject to a security deposit.
Licenses for third country and/or non-traditional ACP fruit were distributed to three broad categories of operators established in the EEC. Sixty-six point five per cent of the tariff quota was available to operators who had marketed third country and/or non-traditional ACP bananas (category (a)); 30 per cent to operators who had sold EEC and/or traditional ACP bananas (category (b)); and 3.5 per cent to operators established in the EEC who started marketing bananas other than EEC and/or traditional ACP bananas as from 1992 (category (c)). Operators in category (a) and (b) were to obtain import licenses on the basis of the average quantities of bananas that they had sold in the three most recent years for which figures were available.9 The (a) and (b) operator categories were further subdivided into three types of qualifying entities, i.e. those that produced (or purchased from the producer), consigned and sold bananas in the EEC; those that owned, supplied and released bananas for free circulation in the EEC; and those that owned and ripened bananas within the EEC. Each type was assigned a weighting coefficient (57, 15 and 28 per cent, respectively), which, multiplied by the average quantity of bananas sold by each operator in the three most recent years, determined the individual operator's reference quantity entitlement.
Between 1963 and 1 July 1993, the EEC maintained a consolidated tariff rate on bananas of 20 per cent ad valorem. Initial negotiating rights were held by Brazil. On 19 October 1993, the EEC notified the CONTRACTING PARTIES of its intention to renegotiate the 1963 concession on bananas in accordance with the provisions of Article XXVIII, paragraph 5.
By virtue of Article 168(1) of the fourth Lom?Convention, signed in 1989, which was identical to corresponding Articles in previous Conventions, imports of bananas from ACP countries entered the EEC duty free. Under Protocol 5 of the Lom?IV Convention, which was virtually the same as corresponding protocols in the earlier conventions, the EEC was committed to maintain the traditional advantage of ACP banana suppliers on those markets. The Protocol stated: "no ACP State shall be placed, as regards access to its traditional markets and its advantages on these markets, in a less favourable situation than in the past or at present". The successive Lom?Conventions, including the relevant Protocols concerning bananas, had been notified to the GATT and had been discussed in working parties.
III. MAIN ARGUMENTS
Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela requested the Panel to find that the import r間ime for bananas introduced in the EEC on 1 July 1993 was inconsistent with Articles II, XI and XIII of the General Agreement. Colombia, Costa Rica, Guatemala and Nicaragua also requested the Panel to find that the import r間ime was inconsistent with Article I. Colombia, Guatemala and Venezuela requested the Panel to find furthermore that the EEC import r間ime for bananas was not in conformity with the provisions of Articles III and VIII. In addition, Colombia considered that the EEC acted inconsistently with the provisions of Article XVI. In the view of the complainants, such infringements of the provisions of the General Agreement implied the nullification or impairment of benefits accruing to Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela. Accordingly, these contracting parties asked the Panel to recommend to the CONTRACTING PARTIES that they request that the EEC modify its banana import r間ime to bring it into conformity with the provisions of the General Agreement.
The EEC requested the Panel to find that the banana import r間ime was in conformity with the provisions of the General Agreement. The EEC submitted, in particular, that the preferential tariff treatment granted to imports of ACP bananas was justified under Article XXIV:5, read in the light of Part IV of the General Agreement. The EEC was also of the view that the Article XXVIII procedure being initiated by the EEC was not covered by the mandate of the Panel and that the examination by the Panel of the conformity of the banana import r間ime with the provisions of Article II of the General Agreement had become unnecessary in light of those proceedings.
The EEC did not question the jurisdiction of this Panel to examine specific measures. However, the EEC took the view that a GATT Panel established under Article XXIII had no jurisdiction to examine the overall consistency of a free trade area agreement with Article XXIV. More specifically, the EEC was of the view that a party complaining under Article XXIII:1(a) would not normally be in a position to show, in a legally admissible way, that a "preferential treatment" violated Article XXIV:8(b) when that "preferential treatment" related to the constituent elements of a free trade agreement and its compatibility with Article XXIV, paragraphs 5(b) and 8(b). The complainants did not agree with these arguments (see also paragraphs 45 - 50 ).
Article II - Schedules of Concessions
Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela were of the view that this Article set forth one of the central legal obligations of the General Agreement, namely the undertaking of contracting parties to respect the tariff concessions, thus prohibiting the application of tariffs for a specific product that were higher than those specified in each country's schedule of concessions. The fundamental principles embodied in the provisions of this Article were essentially the security and predictability of the tariff concessions granted by one contracting party to the remaining contracting parties. With the implementation of the tariff and non-tariff measures of the restrictive nature adopted by the EEC, there was a violation of Article II:1(a) in so far as this r間ime implied less-favourable treatment than that established in the concession granted by the EEC for bananas, thus affecting the value of that concession. The obligation of preserving the security of tariff concessions was so important that past precedents had always held that any change in the concession, in the tariff structure or in the method of customs valuation could affect the value of the concession and consequently infringe Article II10 even if the new valuation method did not increase the protection provided by the tariff.11
According to the complainants, the critical nature of adherence to GATT bindings was well illustrated by the report of the panel established in 1984 to review the EEC's quota on imports of Newsprint.12 In this case, Canada had challenged the reduction by the EEC of its duty-free tariff quota on newsprint from the bound minimum of 1.5 million tons to a new quota of 500,000 tons. The EEC claimed that it was merely changing its method of administering the overall quota, by allocating it among different groups of countries, while entirely accommodating Canada's previous level of imports and without in any way diminishing Canada's rights with respect to the concession. The panel disagreed, concluding that "the EC, in unilaterally establishing for 1984 a duty-free quota of 500,000 tonnes, had not acted in conformity with their obligations under Article II of the GATT. The panel shared the view expressed before it relating to the fundamental importance of the security and predictability of GATT tariff bindings, a principle which constitutes a central obligation in the system of the General Agreement." "In light of the foregoing . . . the Panel found that the EC action constituted a prima facie case of nullification or impairment under the General Agreement."13 The complainants considered that the panel's finding was particularly significant because it acknowledged that the change in the EEC's tariff schedule did not increase the protective effect of the tariff quota with respect to Canada.14
Venezuela added that, like the Canadian exporters of newsprint, Venezuelan banana producers had assessed their competitive position on the basis of the bound tariff level. They had made strategic decisions and investments on that basis; they had cultivated substantially more land specifically for this export trade; and they had pursued marketing ties with European importers. The new tariff quota undermined the legitimate expectations upon which these actions were based and severely disrupted the trade conditions upon which the Venezuelan producers had relied, regardless of the actual protective effect of the new r間ime.
The EEC submitted that it was unquestionable that the security and predictability of tariff concessions was greatly increased - not reduced - if one party moved from a situation of ad valorem into specific rate tariff-bindings. It was a mere formality, which found no support in the way trade was conducted today, to argue that the EEC had impaired the security of the complainants' rights under Article II. None of the previous panel reports cited by the complainants had examined a similar issue. These panel reports all dealt with a situation where a party had changed or amended its tariff binding expressed in a specific amount of duty into a binding expressed in ad valorem terms. In the EEC's view, ad valorem tariff bindings did not afford the same degree of security and predictability as specific duties, because the former were more volatile to currency fluctuations and varied considerably by reference to the cost structure and sale price of the product concerned.
Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela submitted that the new monetary conversion15 rates yielded ad-valorem values of the newly introduced specific rates well above the bound rate of 20 per cent for bananas both within and above the quota. The 100 ECUs per ton translated to well over 25 per cent ad valorem whereas 850 ECUs per ton were eight to nine times higher than the bound duty. Conversion rates that served to augment the level of protection had been disavowed by other dispute panels.16 The establishment of a tariff of 850 ECUs per ton for any imports over and above the established quota exceeded the bound rate and prevented trade in the product in question in the EEC market over the quota.
The EEC disagreed with the complainants' calculations. There was no doubt that the 100 ECUs per ton applied to the tariff quota of 2 million tons corresponded to the 20 per cent ad valorem duty expressed as a specific duty. In the EEC's view, the correct representative period in this case consisted of the years 1989 to 1991. The year 1992 was not representative because when the Regulation was adopted trade figures did not exist for 1992 and, until very recently, they were artificially inflated. On the basis of the 1989 to 1991 figures, the 20 per cent ad valorem duty was on average 105 ECUs per ton, whereas the Regulation provided for a tariff of only 100 ECUs per ton17 since 1 July 1993. As regards the average volume of exports of bananas from the complaining parties during the period 1989-1991 and in 1992, this represented less than one million tons. The complainants could not, therefore, show that their trade opportunities had been nullified or impaired. The EEC submitted, therefore, that in the absence of such economic effects, the question of the alleged violation of Article II of the General Agreement became a mere formality. As regards the 850 ECUs per ton for imports outside the tariff-quota, it had no actual or potential effects on the trade opportunities of the complainants either, because their average volume of exports during the period of 1989-1991 was less than half of the tariff-quota while in 1992 imports from these countries amounted to only 1.042.810 tons. Moreover, it did not undermine the security and predictability of the complainants' right to trade in bananas but, rather conversely, increased them. The disparate systems of quantitative restrictions applied by some EEC member states before 1 July 1993, although in the opinion of the EEC in conformity with the General Agreement, had tended to obscure transparency. Those quantitative restrictions and the inherent uncertainty of the 20 per cent ad valorem duty applied before had since been eliminated.
The EEC informed the Panel that since no satisfactory solutions had been found during consultations, the EEC had decided to have recourse to the procedures of Article XXVIII. Notification was made on 19 October 1993 to the Director-General of the GATT to that effect. As a result of that notification, the EEC considered that the issue of the violation of Article II had become moot. Therefore, the maximum the Panel could do in its review was to examine the legal situation that existed from the time the Panel were established until 19 October 1993. Moreover, in the EEC's opinion, Article XXVIII negotiations were the appropriate place for addressing highly technical and complex issues such as when an ad valorem duty was converted into a specific duty. Such technical and complex duty calculations were issues that should be analyzed by trade experts from all the parties concerned.
Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela replied that the problems that were to be considered by GATT panels were in general quite complex and difficult and involved technical analysis of economic, trade and statistical issues. This was precisely why the panel members were carefully selected among international trade specialists. Therefore, the calculation of the ad valorem equivalency of a specific tariff was hardly beyond the scope of this Panel's competence. With regard to Article XXVIII, the complainants considered that any attempt by the EEC to give advance legal effects to the action taken under Article XXVIII must be rejected as lacking any legal basis. Otherwise, a dangerous precedent would be established whereby contracting parties could change their bound concessions by simply resorting to Article XXVIII. It conflicted not only with the objectives of security and predictability of concessions which were the purpose of Article II, but also with the content of Article XXVIII itself. Moreover, the language and drafting history of Article XXVIII indicated that negotiations and consultations had to precede any withdrawal of a concession pursuant to that provision. If a contracting party considered it necessary to modify its schedule of concessions before completing the unbinding process provided for in Article XXVIII, GATT practice, in compliance with the rules of the General Agreement, required the contracting party concerned to request to be exempted from this obligation through a waiver under Article XXV. Until some actual change in the binding occurred, this Panel was charged with addressing the issues before it with reference to the 20 per cent bound rate.
Colombia and Guatemala added that recourse to Article XXVIII would not legitimize the violations of Article II as Article XXVIII could only be pursued to negotiate withdrawal of concessions on a non-discriminatory basis, with due regard to the m.f.n. principle.18 Fundamental to Article XXVIII was the obligation to maintain "a level of reciprocal and mutually advantageous concessions not less favourable to trade than that provided for in this Agreement."19 The obligation made clear that Article XXVIII compensation had to be derived from GATT-legal levels of trade. In this case, where the EEC's breach of the binding was interconnected with other violations of the General Agreement, the trade levels guaranteed by Article XXVIII could not be calculated until the Panel issued a comprehensive ruling as to all violations at issue.
Articles I, XXIV and Part IV - Preferential treatment
Colombia, Costa Rica, Guatemala and Nicaragua considered that the EEC Regulations20 introducing and implementing a common organization of the banana market in the EEC violated the principle of the most-favoured-nation treatment in Article I. It provided that traditional ACP imports could enter the EEC market free of any barrier and that non-traditional ACP imports received preferential tariff treatment, through the establishment of a zero tariff within the tariff quota, while the like product from third countries were subject to the application of a tariff quota, which had the effect of a "straightforward quota," and the payment of different, higher and hence discriminatory tariffs. Above the quota which was subject to a tariff of 100 ECUs per ton21 for bananas from other than ACP countries, imports of third-country bananas were subject to a tariff of 850 ECUs per ton, while imports of non-traditional ACP bananas paid a tariff of 750 ECUs per ton22. The complainants felt that the preamble in the Regulation demonstrated that the EEC had established the new tariff levels expressly to restrict the imports of bananas from Latin American suppliers for the benefit of other suppliers, namely those who exported bananas from the ACP countries.
The complainants further argued that the licensing system by which this r間ime was administered constituted charges of an administrative or other nature, and therefore fell within the meaning of "charges of any kind" referred to in Article I. Moreover, none of the exceptions to the most-favoured-nation principle in the General Agreement was applicable to the discriminatory treatment established by the regulations adopted by the EEC. Neither Article I:2, nor Part IV, nor the Enabling Clause, nor Article XXIV, empowered the EEC to discriminate against banana imports from Latin America.
Venezuela added that its decision not to formulate a legal complaint based on Article I of the General Agreement could not be linked to any alleged interpretation on Venezuela's part that the arguments advanced by the Latin American countries were weak. Venezuela considered on the contrary, that those arguments, like those submitted by the EEC and the ACP countries, had to be carefully examined by the Panel.
The EEC contended that the tariff preferences accorded to bananas from ACP countries, even if inconsistent with Article I:1 of the General Agreement, were justified under Article XXIV, read in the light of Part IV of the General Agreement. The EEC further explained that nearly all of the countries which were currently parties to the Lom?IV Convention were earlier dependent territories of EEC member states. It was for this reason that France and the United Kingdom, who were original members of the General Agreement in 1947, obtained the recognition of the existing preferences in Article I:2 and Annexes A and B to the General Agreement. Moreover, Article XXIV:9 of the General Agreement specifically provided that these preferences could be maintained also in a situation where the contracting party having granted the preference became a party to a customs union or a free trade agreement in accordance with Article XXIV:9.
Colombia, Costa Rica, Guatemala and Nicaragua submitted that the parameters laid down by Article XXIV were precisely what prevented the trade treatment granted by the EEC to the beneficiaries of the Lom?IV Convention from falling within the scope of that Article. The trade r間ime established under the Lom?IV Convention was neither a customs union nor a free-trade area between the ACP countries and the EEC but a unilateral and non-reciprocal relationship not provided for in Article XXIV. The report of the panel on EEC - Member States' Import R間imes for Bananas.23 ("first banana panel") clearly delimited the specific scope of the provisions of Part IV of the General Agreement, rejecting the possibility that they would authorize the suppression of rights accruing to contracting parties under the provisions of the General Agreement, including Article I.24 Neither the letter of the provisions of Part IV, nor the spirit in which they were adopted could lead to an interpretation thereof enabling it to be used to replace the obligation of the most-favoured-nation clause or the reciprocity requirement laid down in Article XXIV. With the promulgation of Part IV, it was never intended to create new exceptions to Article I, nor was the purpose of Part IV to encourage or permit discrimination among developing countries; it was intended to be applied on an m.f.n. basis to all developing countries.25
Colombia, Costa Rica and Nicaragua argued that the legal arguments advanced by the EEC with regard to the scope of the provisions of Part IV of the General Agreement were inconsistent. At the same time as the EEC tried to give Part IV a scope and legally binding nature that would permit arbitrary and unilateral derogation from the most-favoured-nation principle, it also argued, during the examination carried out by another panel, that the provisions of the same Part IV had a political objective that could not be understood as establishing a legal obligation. This inconsistency also appeared in the proceedings of the working party which studied the Yaound?Agreement, in which the EEC argued that "Part IV ... did not aim to modify the provisions of Article XXIV"26, thereby establishing that it did not constitute a legal basis for justifying infringement of Article I in that particular case. It was unacceptable that the same contracting party should today seek to give part IV a scope and legally binding character such that it even allowed unilateral derogation from the most-favoured-nation principle.
The EEC noted that imports of bananas originating in ACP countries entered the EEC free of customs duties under Article 168 of the Lom?IV Convention and Protocol 5 on bananas attached thereto. The preferential treatment of those countries was part of the EEC's heritage and at all times since the creation of the EEC such preferences had been granted to ACP countries. This was well known to GATT contracting parties, particularly because the granting of these preferences occupied a prominent place in the examination of the Treaty of Rome by a GATT working party27. The preferential treatment of ACP countries was essential for the EEC for political, economic and legal reasons. The EEC market was for all practical purposes the only viable outlet for ACP-bananas, while Latin American bananas were exported to many other destinations. ACP-bananas would be completely eliminated from the EEC market by the highly competitive Latin American bananas, if the EEC did not grant preferential treatment to ACP-bananas. This could also lead to a total collapse of the economy of certain ACP countries.
Colombia, Costa Rica, Guatemala and Nicaragua replied that past panels had consistently held that when called upon, as here, to examine the GATT-legality of a contracting party's rules or regulations "in light of relevant GATT provisions", it could not take into account any "special historical, cultural and socioeconomic circumstances" offered by that contracting party.28
The EEC was of the view that the Lom?IV Convention and its predecessors had created free trade areas between the EEC and the ACP countries, in accordance with the criteria and conditions laid down in Article XXIV:5(b) and :8(b), read in the light of Part IV of the General Agreement. Pursuant to Article 174 of the Lom?IV Convention, the EEC did not expect immediately full reciprocity for the preferential treatment it granted to ACP products. The obligation that duties and other restrictive regulations of commerce should be eliminated "on substantially all trade" had in fact been fulfilled in the case of the Lom?IV Convention because, for example, in 1990 more than 97 per cent of EEC imports from the ACP countries were admitted duty free. In 1991, it was estimated that more than 99 per cent of ACP exports entered the EEC at a zero tariff rate. It was also estimated that of the total two-way trade between the EEC and the ACP states, a very high percentage was admitted duty free. But no precise information was available on the actual percentage of trade conducted by the sixty-nine ACP countries because of their limited technical and organizational capabilities. Although under the Lom?IV Convention ACP states were, according to the EEC, not required to extend immediately full reciprocity "in view of their present development needs"29, trade statistics showed that substantially all the trade was covered within the meaning of Article XXIV:8(b). That Article, read in the light of Article XXXVI:8 and the footnote thereto, fully justified the lack of formal reciprocity in the Lom?IV Convention. But it was Article XXIV:8(b) alone, not Part IV or Article XXXVI:8 which in derogation from Article I permitted preferences granted in accordance with the Lom?IV Convention. In this connection, the EEC referred to the Australian-Papua New Guinea free trade agreement30 as another example of an Article XXIV agreement which had been accepted by the GATT and which did not involve immediate full reciprocity.
Colombia, Costa Rica, Guatemala and Nicaragua contested that Part IV of the General Agreement could be invoked as an exception in this case, as its application was envisaged solely to establish differences in trade treatment as between developed contracting parties and developing contracting parties, and not as between two groups of developing contracting parties. Furthermore, Part IV provided for specific measures that could be adopted by developed countries with respect to products of export interest to less-developed countries; it did not envisage the granting of tariff preferences, as this was precisely the reason for the existence of the "Enabling Clause".31 However, the preferential tariff treatment by developed countries, authorized by the Enabling Clause, was limited to concessions granted under the Generalized System of Preferences, which was obviously not applicable.
The EEC submitted that it was clear from the annotation ad Article XXXVI:8 that this provision had to be read together with "any other procedure under this Agreement". The exception from Article I found its basis in Article XXIV:5 alone, and the EEC did not suggest that it could be found in Part IV. But Article XXIV, paragraphs 5 and 8 construed in the light of Article XXXVI:8, permitted the establishment of free-trade areas between developed and developing countries without immediate full reciprocity. Without this interpretation it would be extremely difficult to create a free-trade area between developed and developing countries under the General Agreement. The EEC was, moreover, of the opinion that neither the text, object or purpose, nor the drafting history of Article XXIV supported the view that the General Agreement was intended to exclude free trade agreements in which non-GATT members participated.32 The reference in paragraph 5 of Article XXIV to "as between the territories of contracting parties" did not appear in either paragraph 4 or paragraph 8 of Article XXIV, which referred only to "as between the constituent territories". Therefore, "constituent territories" could very well include territories of non-GATT members. But in any case, established practice of the CONTRACTING PARTIES confirmed the view defended by the EEC on this issue33.
The footnote to Article XXXVI:8 had to be interpreted by using the generally accepted principles of treaty interpretation as laid down in the 1969 Vienna Convention on the Law of Treaties. Applying these principles, the EEC had reached the conclusion that the language, context, object, purpose and drafting history of the footnote confirmed the view that the principle of non-reciprocity was meant to be applicable to "any other procedure" under the General Agreement, thus including Article XXIV:8(b). The fact that Article XXIV was not expressly mentioned in the text was not legally relevant in view of its clear language. Also, the text of both paragraph 8 of Article XXXVI and its footnote explicitly stated that the principle of non-reciprocity should be applicable in the course of any type of "trade negotiations" to reduce or remove tariffs and other barriers to trade, and irrespective of whether it would benefit only one, several or all developing contracting parties. The EEC therefore concluded that Article XXXVI:8 also applied to negotiations on the establishment of a free trade area in terms of Article XXIV.
Colombia, Costa Rica, Guatemala and Nicaragua submitted that the non-reciprocity provided for in Article XXXVI of the General Agreement referred to trade negotiations carried out in a multilateral framework and not to negotiations of any other kind. This was clear from the reference, made in the note to Article XXXVI:8, to Article XVIII, section A (negotiations to modify or withdraw tariff concessions included in the schedule to the General Agreement), Article XXVIII bis (periodic multilateral negotiations) and Article XXXIII (accession to the General Agreement). Hence, no express obligation was being negated by the application of Article XXXVI:8, as would be the case if Article XXXVI:8 were applied to Article XXIV. Moreover, GATT had previously found that reciprocity requirements could not be rescinded by Part IV. When the note to paragraph 8 of Article XXXVI referred to "any other procedure under this Agreement" it had logically to be understood to be referring to other procedures of a similar nature to those of the Articles cited above,34 in other words, negotiating procedures carried out within the multilateral framework of the General Agreement. That was precisely why the note did not mention Article XXIV which referred not to negotiating procedures within a multilateral context, but rather to bilateral or regional negotiations which had to comply with specified requirements, including that of reciprocity, in order to be able to qualify as an exception to the most-favoured-nation principle. Free trade areas and customs unions established under Article XXIV were designed to eliminate barriers on "substantially all trade" and to achieve a "closer integration between the economies" of its constituent parties. Given these objectives, it was impossible to see how the "non-reciprocity" commitment of Article XXXVI:8 could facilitate the achievement of free trade areas and customs unions. The very concept of non-reciprocity was fundamentally irreconcilable with the notion of a free trade area or customs union. It should be recalled that exceptions to the rules had to be interpreted restrictively. Article XXIV constituted an exception to the fundamental principle of the GATT system, namely the most-favoured-nation principle. Consequently, the provisions set forth in article XXIV were intended to restrict the scope of application of the exception as such, for which purpose they established a series of requirements which had to be strictly observed. The possibility of a derogation from the most-favoured-nation principle in a case which did not fall within the express requirements laid down in this Article did not follow from either the letter or the spirit of the Article.
Guatemala added that Article XXIV agreements between developed and developing countries had already been executed on the basis of reciprocity, and many more were expected on that same basis over the next five years.35 Furthermore, the first banana panel provided four valid reasons why there could be no derogation from the reciprocity requirement in Article XXIV, namely (1) Part IV could not be used to subtract from other parts of the General Agreement; (2) the enabling clause did not extend to Article XXIV; (3) the Lom?IV Convention did not derive from "procedures" under the General Agreement as required under ad Article XXXVI:8; and (4) Part IV could not be read to extend treatment more favourable to non-contracting parties than that accorded to contracting parties. Finally, Guatemala argued that the preparatory working documents cited by the EEC did not relate to Article XXIV. They dealt with exceptions described in Annexes A-H of the General Agreement. As to those exceptions, the negotiators took pains to point out that preferences under the General Agreement had to be reciprocal unless expressly indicated otherwise.36
Colombia noted that the first adopted working party report on the Lom?Convention "understood" that the convention "would in no way be considered as affecting the legal rights of contracting parties under the General Agreement." As such, Article XXIV, viewed alone or together with Part IV, could not justify, excuse or otherwise mitigate the EEC Regulations' violations of the Article I rights of the complainants.
The EEC argued that its interpretation of Article XXIV, read in the light of Article XXXVI:8 and the footnote thereto, would not imply any addition or diminution of rights and obligations under the General Agreement. The EEC did not believe, nor had it ever claimed, that Article XXIV or Part IV or both together would justify the implementation of the Generalized System of Preferences or that they had anything to do with the application of the Enabling Clause. Moreover, the EEC did not agree with the interpretation given by the complainants of the footnote to Article XXXVI:8 and its legal effects, nor with the interpretation of the word "procedure" advanced by them. Economic integration negotiations and procedures directly or indirectly affected the tariff concessions of the parties and thus fell within the scope of "action" and "procedures" mentioned in the footnote to Article XXXVI:8 and that was why, in the opinion of the EEC, Article XXIV:6 mentioned Article XXVIII. Moreover economic integration agreements n
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