EC'S NEW BANANA REGIME FOUND GATT ILLEGAL

6:21 AM Jan 19, 1994

EC'S NEW BANANA REGIME FOUND GATT ILLEGAL
Geneva 18 Jan (Chakravarthi Raghavan) -- A GATT panel looking into the European Community's Single Market banana regime, which is in place since 1 July last, has reportedly upheld the complaint of Latin American banana exporting countries and found EC measures to be in violation of the GATT rules.

The GATT panel, chaired by Amb. Kesavapany of Singapore, Thursday evening sent its draft report to the two sides on a confidential basis, and is expected to issue the report to the GATT Contracting Parties on 12 February.

Though details of the panel's ruling, and its reasoning, was not available, according to some banana exporting country sources, the panel has held that the new single market regime with a tariff quota is not GATT illegal -- in terms of Art XI (general elimination of quota restrictions) and Art XIII (non-discriminatory administration of QRs).

However, the panel has reportedly found that the specific duties the EC was levying on banana imports were inconsistent with Art II (schedule of tariff concessions bound in GATT), the preferential tariffs to imports from ACP sources to as GATT-illegal. Equally illegal, according to the panel, was the EC import licensing regime in effect forcing importers to use a mix of bananas in the trade - originating from Latin America, ACP and EC domestic (including overseas territory).

The EC in 1963, and subsequently in 1973-74 and in the 80s, at the time of new adherents (Denmark, Ireland, UK, Greece, Spain and Portugal) had included in its tariff schedule a 20 percent bound duty on all banana imports.

Hence any higher tariff on imports above the 2 million ton tariff quota would be a violation of Art II.

The panel also reportedly held that the preferential tariff rates (zero tariff) on imports of bananas from the ACP countries could not be justified either in terms of Art XXIV (customs unions and free trade areas which are entitled to differentiate on tariffs among members and non-members) nor in terms of Art. XX (h) -- general exceptions in terms of obligations undertaken in terms of an intergovernmental commodity agreement submitted to the CPs and not disapproved by them.

In this view, the Kesavapany panel has reportedly held that this preferential tariffs -- zero tariff applicable to imports from ACP countries, and the 20 percent ad valorem on imports from other developing countries -- was a discrimination violating Art I (most-favoured-nation treatment) clause of the General Agreement.

It is not very clear, from the information provided by these sources, whether the panel ruling that the EC-ACP agreements are not agreements envisaged under Art XXIV, like that of the earlier one under I.G.Patel, also covers the ACP-Lome accords -- whether they are only unilateral preferences by a developed to developing countries (covered by the 1979 Enabling Clause) or a trade agreement leading to a customs union and free trade as the EC claims -- an issue that the EC had itself raised before the Patel panel and lost the case in its attempts to justify the differential tariffs.

In terms of the Lome's preferential tariffs, and the EC contentions, the I.G.Patel panel had held that while Part IV of GATT and the Enabling Clause allowed differential tariffs by an importing country as between developing and developed countries, there could be no discrimination among developing countries and even more no discriminatory preferences as between a developing country not a contracting of GATT and a developing cp of the GATT.

The panel also held that the allocation of imports licences under the new regime -- in effect making import licences for imports conditional on the trade importing and selling higher priced bananas from ACP and the overseas territories of EC members -- is a violation of Art. III of the GATT -- national treatment principle requiring no discrimination between imported goods and domestic goods.

The Kesavapany panel's decision to go ahead with the publication of its ruling -- first in draft form to the two sides and then to the GATT CPs -- came after it became clear that the compromise moves had failed.

While four of the complainants Colombia, Costa Rica, Nicaragua and Venezuela had been ready to accept the EC's compromise offer in the Uruguay Round and withdraw the complaint, Guatemala was not prepared. Three other Latin American banana exporting countries, who are in the regional banana group UPEB -- Ecuador, Honduras and Panama -- were also opposed to the compromise, but are not GATT cps.

An EC Commission spokesman in Brussels had earlier in the day announced that Colombia, Costa Rica, Nicaragua and Venezuela had withdrawn their complaint and Guatemala was isolated.

But later in the evening it became clear in Geneva that in order not to split the UPEB group, all the complaints advised the chairman of the panel that they would not withdraw their complaint and wanted the panel to issue its report.

However, it is expected that efforts to settle the issue through compromise would still continue. If before 12 February all the complainants advise the panel, the report will not proceed beyond the current stage of draft conclusions having been made available to the parties. Otherwise it will be published.

While its acceptance by the GATT council is problematic, its findings and legal arguments would prove an embarrassment to the EC.

A previous panel, headed by I.G.Patel, had held the old regime to be GATT illegal in so far as some of the EC members had import quota restrictions against bananas from the Latin American region. It had also held the tariff preferences under the regime in favour of ACP countries (zero tariff for imports from ACP countries and a 20 percent ad valorem on imports from other sources) to be inconsistent with Art I of the GATT requiring unconditional MFN treatment.

That report was not adopted by the Council -- having been blocked by the EC and the ACP countries.

Meanwhile the EC introduced a new regime for the single market, providing for a two million tariff quota at a 20 percent ad valorem tariff on imports from non-ACP sources, and a 170 percent tariff (about 850 ECUs or $1020 per tonne) on imports above the two million quota, thus virtually banning such imports.

Imports from the ACP were however to continue to enjoy zero tariff.

The licences to importers were also based on their agreeing to use a mix of sources, including bananas grown in the EC and the overseas territories of its members.

The details of the findings of the Kesavapany panel were not available immediately, but is reported to go into both the questions of the EC regime's conformity with its GATT obligations (Art XXIII.1.a) as well as nullification and impairment of benefits of the Latin American exporting countries irrespective of the GATT legality (Art XXIII.1.b).

According to some of the Latin American sources, the panel like the earlier one has also found the duty free treatment for imports from ACP sources while levying a duty on imports from other developing country sources to be violative of Art I -- and not saved either by Part IV of the General Agreement or by the 1979 Enabling Clause decision of the GATT CPs for GSP schemes.

More than the actual banana imports and restrictions, it is the implication of such a finding on the EC-ACP Lome accords, as well as other EC trade agreements that has been worrying the EC.

Unlike the US, which in regard to the Caribbean Basin Initiative -- where discriminatory preferences among developing countries were involved -- but sought and got a waiver, the EC has sought to treat all its agreements as covered by Art XXIV and that 'disapproval' implied 'approval'.

Successive Lome agreements, as also other EC agreements (with EFTA, Mediterranean countries, east Europe etc) have all been notified to the GATT, working parties set up and have reported (without being able to reach conclusions) or without the GATT Council formally accepting them as agreements covered by Art XXIV (customs unions, free trade areas and interim accords leading to them).

Ironically the challenge to the Lome preferences came as a result of the EC attempt to justify the earlier banana regime in terms of Art XXIV read with Part IV of GATT, thus forcing the earlier panel to examine whether the Lome accords were preferences by a developed country in favour of developing countries or a trade agreement for a free trade area.

In the final stages of the Uruguay Round, the EC had made a proposal for changing the Understanding on Art XXIV so that various agreements notified to GATT and been accepted over a long period of time without challenge should not be allowed to be challenged under the dispute settlement procedures of the new World Trade Organization (where the panel's findings would be automatically adopted, unless set aside by consensus) -- unlike now in the GATT where it could be blocked.

The EC has said it would raise the issue at next week's annual session of the GATT CPs but that it would not proceed further with it -- because of opposition from the Latin American countries as well as others who are opposed to such a blank cheque on systemic grounds.

One Latin American source said that though Costa Rica, Colombia and Nicaragua as well as Venezuela had been ready to accept the EC's Uruguay Round conditional offer (for a 2.2 million global quota, to be subdivided and allocated as country quotas), with Guatemala refusing to withdraw and Panama and Ecuador opposed, the four did not want to break the unity of their group.

Technically, none of the complainants have withdrawn their complaint. However, some of them are still hoping that even after the issuance of the report, compromises could be found.

At any stage, until the actual adoption, parties could reach a settlement and advise the GATT CPs not to proceed ahead with the panel's rulings.

IPS reports from San Jose and Bogota add:

Fearing an unfavourable ruling, the EC put forward a conditional offer on Dec. 14, raising the quota to from two to 2.2 million tonnes, which was however lower than the 2.5 million tonnes imported in 1992. It also gave country allocations, rather than forcing price competition.

The GATT decision was based on whether or not Guatemala, one of the major Latin American banana producers, would join Costa Rica, Colombia, Venezuela, and Nicaragua in agreeing to accept the EC's second plan.

The latter four countries met last week in San Jose, but the other banana producing nations did not attend.

Guatemala was joined by Honduras, Panama, and Ecuador, in refusing to accept the EC's revised offer. The division resulted in the virtual destruction of the cartel of Latin American banana exporting countries.

Colombian Foreign Trade Minister Juan Manuel Santos said pressure by transnational fruit companies broke the cartel.

"There's a lot of money in the business. I'm terrified by the pressure placed by some transnationals on other countries," he said, calling the pressure tactics "diabolical and perverse."

"We are inclined to negotiate with any country, we don't close the door on anyone. We need to defend the jobs of 500,000 workers and the industry itself. The impossibility of withdrawing the complaint doesn't change our desire to accept the EC offer," Santos said.

In spite of his own country's decision to accept the EC compromise offer, Costa Rican Minister of Foreign Trade Roberto Rojas said he was pleased with the GATT decision against the EC, and considered it a major success for Latin America.

"We worked hard to get this finding. The struggle against developed countries is always difficult for a small country like Costa Rica, " Rojas said in a communique.