EC - BANANA III: case analysis

Submitted by: Deboshree Banerji

IMPORTANCE OF EC – BANANA III

Enhanced Third Party Rights Necessary party not required Weakness of suspension of

concession or other obligation became apparent

Usage of carrousel retaliation

LEGAL FRAMEWORK

Agriculture (Art 19); GATS (Art II)(Art IV) (Art XIV) (Art

XVII); GATT 1994 (Art I) (Art II) (Art III) (Art

X) (Art XI) (Art XIII); Import Licensing (Art 1) and (Art 3); TRIMS (Art 2) and (Art 5).

SIGNIFICANCE FOR INDIA

ECONIMICALLY: India is largest banana producing country in the world. Access to EU opens a wider and a more lucrative market to India.

WTO PERSPECTIVE: India acted as a third party in the Banana III and therefore the effects of Third Party Rights were reinstated to India as well.

ECONOMICS: BANANA MARKET

WORLD SALE OF BANANAS

CHIQUITADOLE FOODSDEL MONTE PRODUCEOTHERS

ECONOMICS: BANANA MARKET (contd.)

EU BANANA TRADE REGIME Under Lomé Convention preferential trade

and quotas with former European Colonies : Traditional ACP countries such as Cameroon,

Somalia, Côte d'Ivoire etc. Special protection for DOM (département

d'outre-mer ) French Caribbean, Madeira, Canary Islands etc.

Price support payments under CAP since 1993. Imports from other countries (Dollar Area)

were subject to Tariffs and Licensing Restrictions.

EU BANANA TRADE REGIME (contd.)

This import trade regime was found to be illegal by the WTO in 1997.

The main criticism were setting aside of a quantity reserved solely for ACP imports and the system of allocation of licenses which did not completely eliminate discrimination vis-à-vis third country operators.

NATIONS INVOLVED

DOLLAR NATIONS UNITED STATES

ECUADOR

GUATEMALA

HONDURAS

MEXICO

EU

TIMELINE

1991: Costa Rica expressed concern in the GATT Council meeting that an impending EU banana import regime would discriminate against Central American countries; the concern was shared by Ecuador, Honduras, Mexico and Guatemala.

1992: Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela requested consultations with the European Union. The consultations had failed to bring any satisfactory results. These countries had requested the GATT Director-General to use his good offices to settle the dispute. These five countries accepted the DG’s suggestion that, in order to make progress, the formal good offices be suspended until January 1993 and to leave the door open for informal negotiations that would make it possible to find a solution within the Uruguay Round Commitments.

.

EU Council of Ministers Decision to establish a common banana regime that would enter into force in July 1993 the Good Offices effort failed. This new regime was introduced by Regulation 404/93 as a common market organization. It has been supplemented and amended by several further regulations, the most important being Regulation 1442/93 which mainly implements the scheme set out in Regulation 404/93.

According to the five Latin American countries, the new regime would violate the 20 per cent maximum tariff binding on bananas granted by the EU in the 1961 Dillon Round, as well as various other GATT provisions. At the request of the five countries, a panel was established.

DIVISION OF BANANA DISPUTE EC – Regime for Importation, Sale and Distribution of

Bananas AGREEMENTS CITED:

A) GATT: 1. ARTICLE I (GENERAL MOST FAVOURED NATION TREATMENT)2. ARTICLE III (NATIONAL TREATMENT ON INTERNAL

TAXATIONAND REGULATION)3. ARTICLE X (PUBLICATION AND ADMINISTRATION OF TRADE

REGULATION)4. ARTICLE XII (RESTRICTION TO SAFEGUARD BALANCE OF

PAYMENTS)

B) GATS1. ARTICLE I (MOST FAVOURED TREATMENT)2. ARTICLE III (NATIONAL TREATMENT)

C) LICENSING AGREEMENTS: ARTCLE 1.3 D) LOMÉ WAIVERS

MEASURE AT ISSUE: THE EC’S REGIME FOR THE IMPORTATION, DISTRIBUTION AND SALE OF BANANAS, INTRODUCED ON 1 JULY 1993 AND ESTABLISHED BY EEC COUNCIL REG 404/93.

EC- Regime for Importation, Sale and Distribution of Bananas- Recourse to Article 21.5 of the DSU by Ecuador. AGREEMENT:

GATT1. ARTICLE I (GENERAL MOST FAVOURED NATION TREATMENT)2. ARTICLE XIII (NON-DISCRIMINATORY ADMINISTRATION OF

QUANTITATIVE RESTRICTIONS)

GATS1. ARTICLE II (MOST FAVOURED NATION TREATMENT)2. ARTICLE XVI (MARKET ACCESS)

MEASURE AT ISSUE: EC REG. 1637/ 98 which was adopted to amend REGULATION no 404/93- the measure at issue in the original dispute- together with EC REGULATION no 2362/98, which laid down implementing rules for the amended regulation. the regulation pertained to imports of banana into the EC and access to the EC markets for three categories of bananas.

EC- Regime for Importation, Sale and Distribution of Bananas- Recourse to Article 21.5 of the DSU by Ecuador; and EC- Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the US

AGREEMENTS CITED: GATT :▪ Article I (General Most Favoured Nation Treatment), ▪ Article II (Schedules of Concession)▪ Article XIII (Non – Discriminatory Administration of

Quantitative Restrictions). DSU: Article 21.5

MEASURE AT ISSUE: The European Communities' bananas import regime, contained in EC Regulation No. 1964/2005 of 24 November 2005. The regime consisted of a duty-free quota of 775,000 mt for bananas from ACP countries

and a tariff rate of €176/mt for all other imported bananas.

CLAIMS

BY COMPLAINANTS tariff issues; allocation issues; and import licensing issues.

BY RESPONDENTS the presence of two separate banana access regimes; GATT schedules and Articles I and XIII in the context of the

Agreement on Agriculture; the non-applicability of the Agreement on Import Licensing

Procedures to tariff quotas; the non-applicability of Articles III:4 and X of GATT to border

measures; and the EC argued the Panel should find that the banana regime

was covered by the Lomé waiver.

TARIFF

COMPLAINANT The Complaining parties submitted

that the tariff quota tariff structures arising out of Regulation 404/93 were challengeable in that those structures imposed differential rates as between third-country bananas, on the one hand, and non-traditional ACP bananas, on the other.

. This section contains the major arguments of the EC and the Complaining parties surrounding the Lomé waiver. Further arguments concerning the Lomé waiver also appear in the following sections: allocation issues; and mport licensing issues.

RESPONDENT Non-traditional ACP bananas

benefited from a preferential treatment which was covered, just as the ACP traditional allocation, by the Lomé waiver, consisting in duty-free importation for the quantities indicated in the tariff quota.

The non-traditional ACP bananas benefited from a preferential treatment of ECU 100 per tonne reduction from the bound rate for imports outside the tariff quota. This preferential treatment was equally covered by the Lomé waiver.

LOMÉ WAIVER

RESPONDENT The EC argued that

the Lomé waiver was of great importance in permitting the Community to give preferential treatment pursuant to the provisions of the Convention, and the Banana Protocol in particular.

COMPLAINANT Lomé waiver was not a defence for

the measures that were the subject of this dispute that were inconsistent with Article I of GATT.

Lomé Convention left the EC with broad discretion permitting it to comply with its WTO obligations as it sought to develop common rules for bananas.

The EC had misidentified the provisions of the Lomé Convention that were covered by the waiver and ignored the long-standing GATT interpretive framework requiring the strict construction of waivers.

TARIFF AND APPEALLATE BODY REPORT

EC's preferential tariff treatment of non-traditional ACP bananas is inconsistent with its obligations under Article I:1, those obligations have been waived by the Lomé waiver.

GENERAL ALLOCATION ISSUES

COMPLAINANTS EC had allocated shares to its market among

supplying countries (in respect of both ACP and BFA) in a manner inconsistent with GATT Article XIII:2.

The banana regime's differential volume restrictions by source fell within the prohibition of Article XIII:1

The system conferred market advantages to some foreign sources over others, it was a violation of Article I:1

GENERAL ALLOCATION ISSUES

RESPONDENT separate regimes; and that the application of Article XIII

was not appropriate given the nature of the tariff bindings for agricultural products such as bananas and the specificity of the Agreement on Agriculture with respect to those bindings.

ALLOCATION AND Lomé WAIVER

RESPONDENTS Lomé waiver covered any measure

taken by the EC in order to fulfil its legal obligations as indicated under the Convention with regards to any product originating in ACP countries

ALLOCATION AND Lomé WAIVER (contd.)

COMPLAINANT Great reluctance to waive Article XIII

obligations Issue of country-specific allocations

to be conclusively addressed under Article XIII

The Article I:1’s strict interpretive framework of waiver interpretation, the Lomé waiver could not be said to require discriminatory volume arrangements.

REALLOCATION OF SHORTFALLS

COMPLAINANT

regarding shortfalls in BFA signatories' allocations were also inconsistent with the obligations in Article XIII

preferential treatment of BFA-signatory countries

over-allocation of tariff quotas was also applicable to BFA countries

RESPONDENT

The EC rejected the allegations

provided in the tariff quota, of transferring quotas or parts of a quota to each country party to the BFA to another BFA country

APPELLATE BODY REPORT

Bananas are "like" products, for purposes of Article I, III, X and XIII of GATT.

The tariff quota reallocation rules of the BFA, are inconsistent with the requirements of Article XIII:1.

The Lomé waiver waives that inconsistency with Article XIII:1 to the extent necessary to permit the EC to allocate shares of its banana tariff quota

IMPORT LICENSING ISSUE

COMPLAINANT

EC regulations imposed on imports from Latin America, was highly complex

Unnecessary burden, discrimination, trade – restriction and trade – distortion, and implicated provisions of the GATT and licensing procedures and TRIMs.

RESPONDENT

The non-applicability of the Agreement on Import Licensing Procedures to tariff quotas; and

The non-applicability of Articles III:4 and X of GATT 1994 to border measures

.

Category B operator criteria, was discriminatory under, inter alia, Articles I and III of GATT and also provisions of TRIMS

Separate regime applicability of the

Lomé waiver to specific aspects of the Complaining parties' allegations.

APPELLATE BODY REPORT The Licensing Agreement applies to licensing

procedures for tariff quotas The allocation to Category B operators

inconsistent with the requirements of Article III:4 of GATT.

The Lomé waiver does not waive the EC's obligations under Article I:1 of GATT

EC import licensing procedures are subject to the requirements of Article X of GATT

requirement to match EC import licences with BFA export certificates is inconsistent with the requirements of Article I:1 of GATT

GATS ISSUE: relationship between the GATS and the multilateral agreements on trade in goods

RESPONDENTS

There was no intention to create an overlap between the GATT and the GATS

The GATS was concerned with trade in services not with the fact that in order to sell goods on the EC market someone had to transport them.

COMPLAINANTS

The Complaining parties submitted that the EC's discriminatory measures regulated the availability of goods to foreign service suppliers and had a real and direct effect on competitive conditions.

GATS ISSUE: Standard of discrimination under the MFN and national treatment obligations

COMPLAINANT

Article I:2 of GATS: swept in any measure that affected the business of providing services through one of the four "modes" covered by GATS.

Article XXVIII(b) includes the production, distribution, marketing, sale and delivery of a service"

Illustrative list was far-reaching and included all aspects of the provision of a service.

RESPONDENT

measures had to be addressed to the natural or legal person in its capacity of service supplier or in its activity of supplying services.

GATS ISSUES: WHOLESALE TRADE SERVICES

COMPLAINANT

Article XVII:1 of GATS, Schedule

unqualified national treatment commitment for the provision of wholesale trade services

RESPONDENT

bananas could be marketed at different stages in the supply chain

it was important to adhere to a clear and well-circumscribed concept of wholesale services that was of general validity.

GATS ISSUE: HURRICANE LICENSES

COMPLAINANT

EC Commission had made available a total of 281,605 tonnes of supplemental "hurricane" licensing entitlements exclusively to Category B operators and producers

bananas entered over the established third-country tariff quota

hurricane licences granted only to firms that historically traded in EC and ACP

RESPONDENT

hurricane licences were licences to import additional quantities of bananas (from anywhere) for those who were part of the preferential system in favour of the Lomé countries and who had suffered demonstrable damage from hurricanes which made it impossible for them to fill their normal, guaranteed quantities under the Lomé preference.

GATS ISSUE: EXPORT CERTIFICATE

COMPLAINANT

special export certificate procedures violated Articles II and XVII of GATS

the benefit of the quota rent from export certificates only to the suppliers of services of BFA countries and not to all service suppliers of the other Members

RESPONDENT

assumptions of complainant were unwarranted or were insufficiently established

export certificates related to trade in goods, therefore, rules in respect of export certificates did not come under the GATS

APPELLATE BODY REPORT No legal basis for an a priori exclusion of

measures within the EC banana import licensing regime from the scope of the GATS

EC's obligations under Article II of GATS and commitments under Article XVII of GATS cover the treatment of suppliers of wholesale trade services within the jurisdiction of the EC.

allocation of hurricane licences exclusively to operators who include or directly represent EC producers creates less favourable conditions of competition

MUTUALLY AGREED SOLUTION

On 8 November 2012, the parties notified the DSB of a mutually agreed solution pursuant to Article 3.6 of the DSU.