8:10 AM Jun 17, 1993

COUNCIL PUTS OFF ACTION ON EC BANANA PANEL RULING

Geneva 17 June (TWN/Chakravarthi Raghavan) -- The GATT Council has put off atleast until the next meeting on 21 July any action on the report of the panel that held the present EC banana regime GATT-illegal.

The European Community said the issues raised were complex and it needed time to study them, while a number of ACP countries spoke against the report and its likely effect of jeopardising their Lome agreements with the European Community and in effect wanted it to be rejected or shelved.

Costa Rica and the Latin American banana exporting countries sought its quick adoption.

The United States, Japan and several other industrialized countries also spoke to stress the legal soundness of the panel's report and its importance for the multilateral system and the rights of contracting parties and hoped the report could be adopted next time.

Earlier, the Council agreed to the establishment of a panel to look into a fresh complaint of the Latin American banana exporting countries against the new EC-wide regime to come into force on 1 July.

Though the measures are yet to come into force, with the regulations having been published, in terms of GATT practice and precedents, the dispute settlement mechanisms can be invoked.

Costa Rica, Columbia, Guatemala, Nicaragua and Venezuela had sought the establishment of a panel at the May meeting of the Council but had been blocked by the EC then. On Wednesday, the EC said that in line with the new dispute settlement procedures in place a reference was automatic at the second meeting of the Council after it was raised and the EC would not hence stand in the way, though it did not believe this was the best way to resolve the problem.

However, the Latin Americans were unable to get a Council decision to have the issue decided as an "urgent" matter i.e. for the panel to conclude its work and submit its report within three months.

Both the EC and the large number of ACP countries led by Jamaica and other Caribbean and African banana exporters, as well as other ACP countries worried over the fate of their Lome Agreement and its tariff and trade preferences on the EC markets, opposed this. The ACP countries also sought a Council decision to enable their full participation in the work of the panel.

Costa Rica and other Latin American exporters opposed full participation before the panel sought by the ACP countries and said that their complaint was against the EC and not ACP countries.

The earlier panel, headed by I.G.Patel from India and Mrs. Naoko Saiki from Japan and Peter Hamilton from New Zealand, had agreed to invite Cameroon, Cote d'Ivoire, Jamaica, Madagascar and Senegal to participate at all panel meetings where the parties to the dispute were present, but made clear that this procedure should not be viewed as a precedent for future panels.

GATT sources noted that it would now be up to the panel, after it is constituted with the naming of a Chairman and members, to decide whether or not it could or would complete its work with urgency.

The Council had a lengthy, but rather procedural and political, debate on the ruling of the panel, dated 3 June but circulated on 4 June to the Council members, that held the current regime (quota restrictions in France, Italy, Portugal, Spain and the UK and EC-wide tariff preferences for banana imports from ACP countries, while subjecting other imports at a 20 percent duty) to be violative of the EC's GATT obligations.

Most of the interventions did not deal at any length on the substance of the findings and rulings, but more on its implications for the ACP countries and their preferential aid-trade agreements with the EC and the rights of other contracting parties under the General Agreement.

Costa Rica on behalf of the complainants (the others being Colombia, Guatemala, Nicaragua and Venezuela) praised the 'high quality' of the panel report and sought its immediate adoption.

The EC on the other hand said it was still studying the report and it would be more productive to discuss it at the next Council meeting.

A number of ACP countries led by Jamaica and Seneghal said the report of the panel put at risk the entire Lome Agreement and the preferences of ACP countries. In effect they wanted the report to be rejected, with one of the ACP delegates quoted by other participants as saying "it should be buried".

A number of other Latin American countries, not themselves banana exporters, including Argentina, Peru and Mexico spoke in support of the panel report and its adoption, with Mexico for example saying that "for the sake of the multilateral trading system they will prefer it to be adopted".

The United States strongly urged the adoption of the report. The US delegate said that he had carefully read the report and found its legal reasoning sound in all respects.

"This is not a dispute over Lome or whether the ACP countries should receive development assistance from the EC, but whether non-ACP banana exporters who have entered into a contractual relationship with the EC in the GATT are to be permitted to enjoy their legal rights of non-discrimination," the US delegate Andy Stohler said. "The aspirations of the ACP countries, no matter how numerous in the GATT cannot be an excuse to trample over the legal rights of other contracting parties. There will be nothing more damaging to the GATT system than to see its basic contractual underpinnings ignored in the way some have suggested." The panel report was legally sound and its unpopularity with some should not be allowed to tarnish its legal reasoning.

Australia while recognising the ruling as divisive and disturbing (to the ACP countries) viewed the ruling as an issue of whether the Latin American producers of bananas were entitled to enjoy their GATT rights. The EC clearly had to bring its regime into conformity with the GATT obligations and ensure that the interests of all its suppliers were safeguarded. There was nothing in the panel report which jeopardised the EC's relations with ACP countries and Australia hoped that at the next meeting, where the discussions should be confined to technical questions raised, the report could be adopted.

Japan stressed the importance of the report for the multilateral trading system and viewed its reasoning and the ruling as legally sound and a positive contribution to the GATT.

India said it was the world's largest banana producer, but consumed all if it and it had no trade interest, but had a systemic interest on the issue. While it had done a preliminary study, it would need time to study it more carefully.

Costa Rica in noting the report would not be adopted noted the anomaly of the 1966 procedures (in a dispute between a developed and developing contracting party) calling for a ruling within 60 days, but whose adoption would now take atleast another month or more.

The panel had recommended that the CPs ask the EC to bring its national quota arrangements for bananas (in any event expiring on 30 June) into line with GATT obligations and bring the tariff preferences to banana imports from the ACP countries into line with the GATT obligations or seek a waiver.

EC sources said that it might be possible for the EC to seek and get a twothirds majority vote in favour of granting a waiver for the EC's Lome preferences -- there are 12 EC States and over 40 ACP countries and the EC could depend on this issue on the votes of other Europeans and the Mediterranean countries all of whom have preferential benefits not enjoyed by other developing countries). But this was an issue with many implications that had to be looked at and decided in Brussels. For one thing, in terms of the post-Uruguay Round institutional arrangements and the package of accords, waivers are envisaged to be time-bound and no longer to be given in perpetuity.

The ruling had implications beyond the banana issue and related to the various levels of preferential arrangements and web of agreements that the Community has in Europe, with mediterranean countries, the ACP and others.

It was the EC stand that its banana tariff preferences were justified in terms of the claim of Lome being a free trade agreement and preferences being covered by Part IV of the GATT and the Enabling Clause had forced the panel to tackle an issue that has long been ducked in the GATT, and rule that Lome was not a free trade agreement between the EC and ACP as defined in Art XXIV, and that while the enabling clause allowed preferential tariffs favouring the developing countries, it had to be non-discriminatory among the developing contracting parties and no GATT contracting party can be given lesser benefits than a non-contracting party.

Whether or not the panel report is adopted or blocked, the panel's reasoning and the clear enunciation by it of what it sees as the GATT law is likely to lead to other challenges.

Apart from the other EC agreements outside the narrow 12 governed by the Rome treaty, the arrangements and agreements in Europe and preferences being granted -- for example by EFTA countries to the Baltic States or Russia and the other republics of the former Soviet Union or the east Europeans would all now be called into question through demands for panels.

And even countries inclined to sympathise with the problems of the ACP banana producers, for whom banana is the only commodity and export earner, would be looking at the wider implications and their own rights and obligations in future.

Other observers noted that while in the short-term the ACP countries are being hit, the fact also remained that the Lome accords have only increased the dependency of the ACP countries who have been losing their market shares even inside the EC.

Assured of their preferences and quotas, they have not had the compulsion to diversify and improve, whereas in other markets where they have been forced to compete with others, some of the ACP countries have even done better.

Another complaint that figured was Chile's complaint over the EC's licensing, monitoring and surveillance system over imports of applies and the levy of a countervailing duty under the EC's common agricultural policy, resulting in a countervailing duty of 17 ECUs per 100 kgms.

The EC later said that the current duty was six ECUs and that it applied only on Chilean apples which were undersold on the EC markets, but that it had not affected the level of imports from Chile.

Chile however contended the EC action to be contrary to Articles I (MFN clause), II (tariff schedules) and XXIII and that consultations were continuing with the EC to find a solution.

In other actions, the Council acted on the report of the working party on Paraguay's accession. Paraguay had made the application in 1974 but did not pursue it. The application was revived in 1990 and the report of the working party along with the protocol of accession and Paraguay's tariff schedules was accepted by the Council and is being put to a vote among the contracting parties. Thirty days after a 2/3 majority affirmative vote of the 111 cps, Paraguay will be able to sign the protocol and become a contracting party subject to its own domestic legislative procedures.