US authorized to retaliate over EC banana regime

In the wake of the ruling of the reconvened banana panel that
the EU's banana import regime is WTO-inconsistent, the WTO
Dispute Settlement Body has authorized US retaliation to the
tune of $191.4 million. Ultimate compliance by the EU with
the panel's suggestions for implementation may, however,
prove to be a more complicated matter altogether.

by Chakravarthi Raghavan

GENEVA: The Dispute Settlement Body of the World Trade
Organization on 19 April authorized the United States to
undertake cross-retaliation against the EU for up to $191.4
million worth of trade, but without being provided any details
of the US retaliation or even deciding when it is to take
The DSB granted the authorization sought by the United
States on the basis of the ruling of the reconvened banana
panel acting as arbitrators under Art. 22.6 of the Dispute
Settlement Understanding, but without any multilateral scrutiny
of the retaliation details.
Even the arbitrators' report was not adopted as such.
The panel and arbitrators consisted of Mr. Stuart Harbinson
of Hong Kong (chairman) and Messrs. Kym Anderson (Australia)
and Christian Haberli (Switzerland).
After statements by the US, the EC, Japan, India, Egypt,
Brazil, Australia and Mauritius, the chairman of the DSB, Amb.
Akao of Japan, said the authorization was effective as of 19
April, and asked that the list of products subject to US
retaliation be distributed to the DSB. He also underlined the
importance of the ongoing review of the DSU, in particular the
relationships between Art. 21.5, 22.6 and 22.7.
The US had in effect imposed sanctions on a wider range of
products as of 3 March by withholding final customs
liquidation, though it apparently did not require from
importers either bank guarantees or any bonds.
At the DSB, though, the US did not indicate that it would
impose the sanctions prospectively. The US said that its
measures of retaliation were intended to ensure compliance with
the WTO ruling, and that prompt compliance was the WTO
requirement. The retaliation was only a temporary solution, and
the US invited the EC to hold consultations with the US and the
other complainants on a solution.

Not contesting

The EC for its part said that it was not contesting the value
of the trade damage assessed. It said it intended to comply,
and was considering the three suggestions for compliance put
forward by the reconvened panel in the ruling on Ecuador's
reference (which was not before the DSB on 19 April). The EC
was initiating contacts with the US and the other parties, but
it was a complicated matter and would take some time. But the
EC insisted that the retaliation could be effective only as of
the date of sanction, and the EC would pursue this question in
other fora.
The EC complaint against the US over S.301 of the US trade
law has already been referred to a panel. The EC has also
subsequently, after the US announcement of the sanctions, begun
consultations with the US, and the issue of the date of
sanctions is expected to be part of them.
But the US did not indicate that it would accept the DSB
chair's final statement, which was not announced as a ruling.
The US offered to provide to interested delegations
(bilaterally but not multilaterally via the WTO/DSB) the list
of products on which it was withdrawing MFN tariff or other
concessions from the EU members.
The DSB is still to consider and adopt the reconvened banana
panel's separate ruling, on a reference by Ecuador under Art
21.5 of the DSU, on the WTO-compliance of the new EC banana
regime and the panel's recommendation or suggestions on how the
EC could implement the ruling.
Separately, the EC had made its own reference on its banana
regime, but the panel has in effect declined to give a ruling
on it.
Though the three rulings are separate, in fact they are not
really separable.
If in making the reference this way, the WTO members had
hoped that this would end the banana dispute at one stroke and
bring some certainty, they could not have been more mistaken.
All the three rulings together have raised more questions
than given answers, and would increase doubts and concerns in
civil society over the WTO system and the panel processes.


In the Ecuador ruling, the panel said that the new EC regime's
857,000-tonne limit on traditional African, Caribbean and
Pacific (ACP) imports was a tariff quota and thus the
provisions of Art. XIII of GATT apply to it. The reservation of
this quantity of 857,000 tonnes for traditional ACP imports
under the revised regime was inconsistent with paragraphs 1 and
2 of Art. XIII. Also, the country-specific allocations to
Ecuador as well as to other substantial suppliers were not
consistent with the requirements of Art. XIII:2.
As for Article I (MFN clause) of GATT, the panel found that
the level of 857,000 tonnes for duty-free traditional imports
could be considered to be required by the Lom‚ Convention
(between the EU and the ACP countries) because it appeared to
be based on the pre-1991 best-ever exports and not on
allowances for investments.
However, the panel said, it was not reasonable for the EC to
conclude that Protocol 5 of the Lom‚ Convention requires a
collective allocation for traditional ACP suppliers.
Hence, duty-free treatment of imports in excess of an
individual ACP state's pre-1991 best-ever export volumes was
not required by Protocol 5 of the Lom‚ Convention. And absent
any other applicable requirement of the Lom‚ Convention, those
excess volumes were not covered by the Lom‚ waiver and the
preferential tariff access was therefore inconsistent with Art.
I:1 of GATT.
Also in respect of Art. I, the panel found that with regard
to preferences for non-traditional ACP imports, it was not
unreasonable for the EC to conclude that (i) non-traditional
ACP imports at zero tariff within the "other" category of the
tariff quotas and (ii) the tariff preference of 200 euro per
tonne for out-of-quota imports, are required by Art. 168 of the
Lom‚ Convention.
Therefore, said the panel, the violations of Art.I:1, as
alleged by Ecuador in respect of preferences for non-
traditional ACP imports, are covered by the Lom‚ waiver.
In respect of GATS, the panel defined the range of wholesale
trade services (on which the EC has made commitments) and found
that (i) under the revised regime Ecuador's suppliers of
wholesale services were accorded de facto less favourable
treatment in respect of licence allocation than EC/ACP
suppliers of those services, in violation of Art. II and XVII
of GATS and (ii) the criteria for acquiring "newcomer" status
under the revised licensing procedures accord to Ecuador's
service suppliers de facto less favourable conditions of
competition than those to the like EC service suppliers in
violation of Art. XVII of GATS.

Suggestions for implementation

As sought by Ecuador, the panel has made three suggestions for
implementation. But all of them would either require a waiver
from the WTO members (which may prove difficult) or involve
effectively eliminating any preference enjoyed by the ACP
exporters. The suggestions were:
*First, the EC could implement a tariff-only system for
bananas, without a tariff quota. This could include a tariff
preference (at zero or another preferential rate) for ACP
bananas. If so, a waiver for the tariff preference may be
necessary unless the need for a waiver is obviated, for
example, by the creation of a free-trade area consistent with
Art. XXIV of GATT.
"This option would avoid the need to seek agreement on
tariff quota shares."
* Second, the EC could choose to implement a tariff-only
system for bananas with a tariff quota for ACP bananas covered
by a suitable waiver.
* Third, the EC could maintain its current bound and
autonomous MFN tariff quotas, either without allocating any
country-specific shares or allocating such shares by agreement
with all substantial suppliers consistent with the requirements
of the chapeau to Art. XIII:2.
The MFN tariff quota could be combined with the extension of
duty-free treatment (or preferential duties) to ACP imports. In
respect of such duty-free treatment, the EC could consider with
the ACP states whether the Lom‚ Convention can be ready to
"require" such treatment within the meaning of the Lom‚ waiver.
The panel recalled that some important preferences found by
the original panel and Appellate Body reports to be required by
the Lom‚ Convention could not be implemented consistently with
WTO rules (the most important being the quantitative
protections foreseen in Protocol 5).
If such a view of the Lom‚ Convention was challenged, a
waiver covering such duty-free treatment could be sought, said
the panel. The MFN tariff quota could also be combined with a
tariff quota for ACP imports, whether traditional or not,
provided an appropriate waiver from Art XIII was obtained, the
panel said.
The panel noted in this connection that waivers for duty-
free treatment for developing-country exports have been granted
on several occasions by members. In this context, the panel
added, some action may be required soon in respect of the Lom‚
waiver since it would expire on 29 February 2000. (SUNS4418)

The above article was originally published in the
South-North Development  Monitor (SUNS) of which Chakravarthi Raghavan
is the Chief-Editor.