WTO mired in the banana quicksand

The following account of DSB proceedings prior to the calling of the 30-day "time-out" reveals the arguments and counter- arguments that issued forth between parties to the banana dispute, with other Members weighing in with their concerns over implications for the multilateral trading system.

by Chakravarthi Raghavan

GENEVA: Save for its co-complainants on the banana dispute, and the Philippines, the US received no support but strong criticism on 28 January at the WTO over the move for imposing trade sanctions worth $520 million against the EC, on the basis of the unilateral US determination of the EC's non-compliance with the WTO ruling.

After another day of waiting around for the convening of the DSB, and an evening of protracted and, according to trade diplomats, sometimes confusing discussion, on the substance as well as on applicable rules and procedures, the DSB was "suspended" till the morning of 29 January. Like other WTO bodies, the DSB does not meet in public, and partisans on both sides put a "spin" for the media on what went on inside.

The scheduled morning meeting, though, was again put off till the afternoon, as the WTO held informal consultations with key ambassadors to find a formula. But several at the meeting reportedly said they wanted to see on paper any "compromise" solution, to enable them to decide on it, rather than its being conveyed orally at the meeting.

Compromise attempts

Apart from the US request for authorization to impose trade sanctions, under Art. 22.6 of the DSU, the DSB has before it a communication from Japan, India, Indonesia and Korea (and six East and Central European nations) proposing a compromise for the suspension of the consideration of the US request, until after the reconvened panel and/or Appellate Body has ruled on the EC measures, in effect placing on hold the DSU process for the US to seek and get authorization.

Also before the DSB is a communication from Mauritius and 17 other African, Caribbean and Pacific (ACP) countries, that called for adoption of the agenda, but a debate on the competence of the DSB to entertain the US request, and any disagreement among Members on the competence issue to be referred for an authoritative interpretation by the General Council.

The WTO Director-General Renato Ruggiero (whose compromise ideas for both the reconvened panel process and arbitration over the value of the sanctions the US could impose have been faulted by several delegations in private) was due to meet with a key group of ambassadors on the morning of 29 January before the meeting.

The US Amb. Rita Hayes told the media on 28 January night (after the DSB meet was "suspended") that the US had received "overwhelming support", but trade officials and diplomats present inside dismissed this as no more than a "spin" and contrary to reality.

A trade diplomat from a country not involved in the banana problem and who was present at the meeting (speaking on a non- attributive basis) said that the vast majority of Members had opposed the US unilateralism and the DSB consideration of the US request at this stage, even when several of them were critical of the EC over what they thought was its failure to implement the "spirit, if not the letter", of the WTO agreements and panel rulings.

India, Switzerland, Japan and Brazil, the diplomat said, had clearly and unequivocally argued against the US move (and the DSB accepting it), while a number of others, with some nuances, supported this position.

The Indian representative, Amb. S. Narayanan, at one stage reportedly pointed out to the DSB that the US and the EC could be left to take care of their interests, but the systemic implications of the US move would hurt all the other WTO Members. He also cited both the DSB practice, and the Appellate Body rulings, to suggest that the DSB was not an automatic rubber-stamping body for any request before it or even for the acceptance of an agenda item proposed by a Member.

The US, the EC and the other WTO Members need to go beyond the narrow technicalities and take a broad political perspective on the effect of the dispute and their actions on the trading system.

Clear and unequivocal support for the US, the trade diplomat said, had come inside the DSB only from the Latin American banana-exporting co-complainants - Ecuador, Guatemala, Honduras - and the Philippines.

The Philippines, in this entire dispute over these many weeks, has been providing legalistic arguments to repeatedly support the US, while the other members of the ASEAN have been either silent or taking a low profile. But Indonesia, represented by a relatively junior diplomat, spoke up on 28 January making the same points as India.


Malaysia spoke at one stage merely to oppose any voting (on the ruling of the Chair on a point of order, raised by St. Lucia, on the maintainability of the US request), when the EC pointed out that under the rules when a point of order is raised, the Chair has to rule on it and place it before the WTO body for acceptance, with the rules contemplating a vote if no decision (by consensus) can be reached.

Another diplomat from Asia said that it was "surprising" how many delegates who opposed voting and argued that the WTO and GATT had never voted, seemed to have forgotten that a "vote" is taken and recorded for every waiver granted by the WTO.

Everyone who took the floor and addressed the substance of the issue opposed the US unilateralist trade retaliation move under the cover of a WTO sanction.

Among key countries that normally participate and intervene in such systemic issues, Mexico, which was in the "banana G-5", had not spoken, nor had Hong Kong, whose ambassador chairs the reconvened banana panel.

The diplomat also noted that despite the serious nature of the crisis of the trading system, many of the countries, including those which are important trading nations, were not even present at the level of ambassadors (with many of them away at the Davos symposium).

India, Brazil, Japan, Switzerland, Canada, Egypt and Indonesia were among those which, while taking no position on the substance of the banana problem, argued forcefully against the DSB consideration of the US request at this stage, and expressed concerns over the systemic implications of the US request or any ruling or interpretation by the DSB Chair or its consideration by the DSB.

Bogged down

While the DSB on 28 January got beyond the first stage of "adoption" of the draft agenda, including the US request for authorization to take retaliatory trade sanctions against the EC, it soon got bogged down over the procedures and substance of the systemic issues, including whether in fact the US request was maintainable (when the reconvened banana panel under Art. 21.5 of the DSU was looking into this very question, and there was no WTO determination of non-compliance).

According to trade diplomats who were present, at one stage in the discussions, the US Amb. Hayes, in justifying the US sanctions move, in tandem with a panel process (initiated by Ecuador and the EC) to determine EC compliance, is reported to have said that without sanctions, the EC would not negotiate a "mutually agreed solution" to the banana problem.

This confirmed the view of several other countries about the US "unilateralist" approach to trade problems.

India, Brazil, Switzerland and Japan, supported with some nuance by Canada and Norway, were among those which unequivocally came out against the DSB "considering" the US request at this point.

The DSB meeting was "suspended" till the morning of 29 January after a protracted debate over substance and procedure, where several key countries took the floor to criticize the EC over its new banana measures, but questioned the DSB consideration at this stage of the US request and opposed the US unilateralism in trade retaliation.

When the DSB met on 28 January, Chair Kamal Morjane said Ruggiero and he had been holding consultations, but he was in no position to announce any solution. He said it was the sovereign right of any country to include any item on the agenda and he had therefore "decided" that the agenda (with the item) had been adopted.

The EC's Amb. Roderick Abbot said that while he did not want to challenge the decision, approval of the agenda of the DSB needed a consensus and, like any other, was governed by the WTO rules of procedure, whereas the Chair seemed to imply that a negative consensus was needed, namely that the agenda was approved unless disapproved by consensus.

The representative of St. Lucia, which had objected to the agenda on 25 January, said in a spirit of compromise, she would allow the DSB to go ahead, but when the US item was taken up, the jurisdiction of the DSB to entertain at this point would need to be debated.

The Chair declared the agenda as adopted, and then immediately jumped the agenda (which had five earlier items) to take up the US proposal.

St. Lucia then again raised a point of order about the DSB having no jurisdiction to take up the US request under Art. 22.6, since the reconvened panel was seized of the issue (of EC compliance) under Art. 21.5, and only the WTO General Council could address the issue and provide an authoritative interpretation.

When Morjane, however, said he would like to hear the US first, Hayes said the dispute with the EC over the banana regime went back to 1993, and the US was seeking authority to impose retaliatory trade sanctions for the $520 million trade damage it was suffering. The authorization was automatic unless there was a consensus to reject it. Hayes complained that the EC had negated many efforts to reach a mutually agreed settlement and in the US view, there would be no mutually agreed solution unless "there is harm done to the EC."

Abbot said the more important issue was that the US considered the EC had failed to comply with the panel ruling, and, on the basis of this "unilateral determination of non- compliance", was seeking authority to impose sanctions.

St Lucia again raised its point of order about the lack of jurisdiction of the DSB at this stage to entertain a request under DSU Art. 22.6 when panel proceedings under Art. 21.5 were pending and the panel's ruling was yet to come before the DSB for adoption.

Abbot, supporting this, noted that since September 1998, the EC had been attempting to get the US to agree on an accelerated DSU Art. 21.5 process to rule on the EC measures, and, having failed in that, had taken the unprecedented step of seeking the panel ruling itself. By awaiting the Art. 21.5 ruling, the US would lose none of its rights under Art. 22.6.

Mauritius referred to the communication it had sent in with some others, and asked that in the event of disagreement on the competence issue, the matter should be referred to the WTO General Council under Art. IX.2 for an authoritative interpretation.


Hayes agreed that there was a lacuna in the DSU (in terms of the Art. 21.5 and 22.6 provisions), but said this should be tackled in the ongoing DSU review process, and, until revised, the US had a right to use Art. 22.6.

[Some trade diplomats later said that the US indicated that it would withhold consensus on any change in the DSU, during the review.]

Japan then introduced the proposal of 25 January it had put forward (with India, Indonesia, Korea, Bulgaria, the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia), and said that they considered that in any disagreement on whether the measures taken comply with the panel ruling, the parties may not resort to Art. 22.6 for compensation or suspension of concessions before the disagreement is settled under Art. 21.5. The determination whether there has been compliance with the ruling rests with the DSB, and not the party that had won the dispute.

Given the disagreement on a common interpretation, the two parties should reach a compromise:

  • inscribe the US item on the agenda, but the DSB would "suspend the meeting on this agenda item and not deliberate or take a decision, until the 21.5 process is completed";

  • at the same time, the DSB would put on hold the process (30-day period) during which the US might request authorization for retaliation; and

  • if the panel and/or Appellate Body finds the EC has failed to bring its measures into compliance, the DSB would first adopt the panel (and Appellate Body) reports, then reconvene the suspended meeting and grant the authorization the US has sought.

The Japanese proposal is similar to that put forward by Ruggiero. However, the Ruggiero proposal envisages both the 21.5 process and the 22.6 process going forward in tandem, with the panel or an arbitrator determining in the meanwhile the quantum of authorization that the US should get.


The Chair again insisted that he had already rejected the point of order about jurisdiction, and in his view it was important to maintain the "automaticity" envisaged for all these in the DSU. St. Lucia again challenged this, and said that whatever ruling he gave would result in the DSB "interpreting" the DSU rules, whereas this was a function (in respect of all the WTO rules) that has been reserved for the Ministerial Conference and the General Council which already has been summoned on this.

Narayanan intervened at this stage to note that the WTO was in a difficult situation and the Members need to think calmly and coolly. "We are speaking for the system and have no interest in the banana issue," he said.

The US request is based on the assertion that the EC has not complied, and this is the premise on which the US has approached the DSB and, on the basis of the assertion of non- compliance by one party to a dispute, the DSB is asked to agree to the request.

"We have to interpret 'harmoniously' 21.5 and 22.6 of the DSU," which has made a provision for the DSB to decide these things through a reference to the panel under 21.5.

The Appellate Body, in its ruling on the shrimp dispute, Narayanan noted, had underlined the need for harmonious interpretation, and had referred to the WTO preamble about "sustainable development". The DSB must similarly use the preamble's references to the multilateral trading system, and decide whether what it is being asked to do is in conformity with and furthers the objectives of the system.

The Indian ambassador appealed to the EC and the US "to go beyond legalities and take a broader political view."

Referring to the contention (of the Chair and authors about inclusion of agenda items and the automaticity, or negative consensus, envisaged in the DSU), Narayanan noted that in the dispute over scallops, Canada had agreed to withdraw its panel request inscribed on the draft agenda, in view of the US argument that the 60-day period (envisaged by the DSU) between holding consultations and seeking a panel had not ended. Addressing the other WTO Members, Narayanan said: "The US and EC will take care of themselves and their interests. We are worried about India's rights and the precedent that would be created for everyone..."

The Philippines again spoke about the long-term implications, and noted that panels could only rule against a measure but could not say how it would be implemented. It feared that, if carried to the logical absurdity, parties can go on taking measures purportedly to comply, and force the others to go through the same panel process.

Switzerland, like India, made clear it had no banana interests to serve, and made no judgement on the subject. However, insisted Switzerland, the issue was really whether a Member could make a unilateral determination of non-compliance or whether a multilateral determination was needed. There had been no DSB determination of EC non-compliance, and there was nothing in the DSU to suggest that moves under Art. 21.5 and Art. 22.6 could proceed in tandem and not in sequence.

Malaysia took no stand on the substance, but was against any voting to decide the point of order.

Indonesia, on the other hand, came out strongly against any unilateral determination.

Canada said that the issue was no longer a dispute between parties, but raised serious institutional issues for all WTO Members. Canada did not want to be drawn into the merits of this specific dispute, but was gravely concerned that the DSB had been asked to approve the suspension of concessions in the absence of a multilateral determination of non-compliance. Art. 23 of the DSU made it very clear that Members shall not make a determination that a violation has occurred except through recourse to the dispute settlement process.

All WTO Members were aware of the unfortunate ambiguities in the texts of Art. 21.5 and 22.6, and the DSB was faced with a problem not envisaged when these provisions were negotiated. The relationship between Art. 21.5 and Art. 22, and the necessary preconditions for invoking Art. 22 would need to be addressed by the WTO in the coming weeks and months.

But until these provisions are clarified, "we would urge the disputing parties not to try to take advantage of any drafting ambiguities in the DSU to seek to assert their rights in a manner prejudicial to the rights of other Members and inimical to the continued stability of the WTO," Canada added.

Imperfect system

Brazil's acting Permanent Representative, Amb. Bahadian, underscored the importance of the multilateral trading system to Brazil, and noted that the WTO was "sold" to the Brazilian Congress on the basis that the MTS was being strengthened. "Today we have realized that the system and rules we have agreed to are imperfect. There would be negative implications to the system if the US request were granted. Art. 22.6 can come into play only when no measure to comply has been taken. But when a measure has been taken and there is a dispute about its compliance, there should be recourse to 21.5."

In other interventions, Argentina, while critical of the EC over the banana regime, seemed to take the position that a ruling under Art. 21.5 was a prior condition for moving for retaliation under Art. 22.6.

Egypt took a similar position to that of Brazil and India.

St. Lucia again insisted on its point of order, while the EC told the Chair that under the WTO rules of procedure, when a point of order was raised, the Chair must give his ruling and place it before the DSB and, if necessary, the ruling must be voted upon.

At this stage (about 22.30 local time), the US and the EC wanted to move ahead and decide the issue, when the Indian ambassador intervened and, amidst laughter, said he was hungry, and wanted the DSB to be suspended to meet after 12 hours for everyone to reflect on the issues involved.

The meeting was suspended on this note. (Third World Economics No. 203, 16-28 February 1999)

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