EC BANANA REGIME DISPUTE FOR GATT PANEL

Feb 12, 1993

EC BANANA REGIME DISPUTE FOR GATT PANEL

Geneva 10 Feb (Chakravarthi Raghavan) -- After a protracted procedural debate, the Council of the General Agreement referred Wednesday the quantitative restrictions on banana imports, currently in force in various European Community states to a GATT panel for adjudication.

Under the special arrangements relating to developing countries and their use of good offices of the GATT Director-General, and the slight modifications to the time-limitations agreed to by the Council, the panel and its terms of reference will have to be settled within 20 days, and the panel itself make a report within 60 days thereafter or by 1 May.

But by 1 July the current banana import regime of various countries (which has been in place for quite some time and had not been challenged by the Latin American exporters till recently) is to be replaced by the new EC-wide single market banana regime, which has been approved by the EC Council of Ministers on 17 December last, but which is yet to be promulgated as a regulation (now expected on 1 March).

The Latin American banana producer/exporters had simultaneously sought consultations with the European Community in terms of XXII (2), an essential preliminary step for referring the dispute over the new regime too to a GATT panel. But the EC did not agree, arguing that this 'formal consultations' could take place only after the new regulations and the regime have come into force.

Colombia expressed disappointment at the EC stand and asked for the item to be on the agenda of the next GATT Council meeting (24-25 March).

Under the present regime, some of the EC states like Germany allow liberal imports of banana and import it from the so called dollar area, while others like Britain, France etc have quotas and preferences for imports from some of their former colonies now in an association agreement with the EC, the Lome Pact countries of Africa, Caribbean and the Pacific (ACP). France and Spain also use the restraint to safeguard banana production in their overseas territories. Until the EC single market (in force from 1 January), EC members maintaining import restrictions could take measures to prevent imports via a restraint-free EC country.

Under the EC single market, when internal frontiers to trade are completely to end, and after considerable internal disputes and debate -- between those who want the preferences to ACP members

--a new tariff quota regime has been set by the EC.

In December the Community decided to impose a quota and a 20 percent tariff on banana imports from Latin American countries. Bananas imported above that ceiling would be taxed 170 percent. The new measures are due to take effect in July.

The quota is about 600,000 tonnes below Latin America's banana exports to the EC in 1992.

Under this new regime, decided by the EC Council of Ministers on 17 December and to be made effective from 1 July, the individual country quotas will be replaced by an EC wide two-million tonne tariff-quota at a 20 percent tariff and any imports above the two million to be subject to 170 percent tariff. the 2-million tonne quota at 20 percent will be some 600,000 tonnes below the current Latin American exports, according to the Latin producers.

There have also been reports that the EC plans to allocate quotas preferentially to those wholesalers who would agree to market the domestic and the ACP bananas which are costlier. This would violate the national treatment requirements of the GATT.

While the Latin American producers have been protesting this as contrary to the GATT and the Uruguay Round agriculture text under the Draft Final Act, the ACP countries have been supporting the EC regime, arguing that many of them depend completely on their banana exports under the Lome preferences.

The EC has been arguing that the new regime, while still maintaining the quotas, would still be better for Latin American exporters than the current one and provide greater access, and is fully in line with the Agriculture text of the Uruguay Round in that the quantitative restrictions would now be subject to complete tariffication. It has also been presenting the issue as a dispute between two groups of developing countries, the ACP enjoying traditional preferential trade and the Latin Americans whose plantations and export trade are in the hands of US transnationals.

However, the new EC regime not only protects the preferences of ACP countries, but also provides protection to the domestic production from their overseas territories of EC states like France.

The Latin American exporters raised the issue last year and sought consultations with the EC after earlier bilateral efforts to persuade the EC to adopt a more liberal and 'non- discriminatory' regime had failed. While the EC and the Latin American countries concerned held direct bilateral talks, no GATT consultations on the new regime was accepted.

In September, the Latin American countries (Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela) questioned the GATT legality of the restrictions under the present regime and sought the 'good offices' of the GATT Director-General as per the special procedures set in 1966. These consultations were 'suspended' early in December, pending the efforts directly to resolve it, and resumed after the new regime was decided upon by the EC Council of Ministers. The good offices was due to expire at midnight of 10 February.

The five Latin American countries who had inscribed the item on the Council agenda asked for the reference of the legality of the current restrictions automatically to a GATT panel (as per the 1966 decision). They also asked the EC to enter into formal GATT consultations on the new regime.

The EC which at one stage wanted to block panel reference to the current regime on the technical ground of the midnight deadline for the expiry of the good office was however persuaded by GATT Director-General Arthur Dunkel and others not to stand on this formality, but allow the report on the good offices to be made at the current Council meeting itself, but without its being treated as a precedent.

The EC would not also agree to consultations on its new regime, arguing it was premature and could take place only after regulations had been made and come into force.

In the report on his good offices, Dunkel confirmed that the outcome of his good offices was that he had "no mutually satisfactory solution to propose", thus clearing the way for automatic reference of the dispute to a GATT panel. In accepting this, the Council also agreed to a preliminary 20 day period, during which the panellists and the terms of reference are to be agreed upon, and failing that the panellists would be named by the GATT D.G. and with standard terms of reference. The 60 day limit for the panel to complete its work would run from that date.

This would result in a 1 May deadline for the panel to complete its work and submit its report and recommendations, which could come up before the Council at its May meeting. Given the normal time-table for adoption and implementation of even non- controversial rulings, in practical terms there would be no real relief for the complainants. However, the ruling will establish a precedence and would have a bearing on the new regime, if and when that dispute is unresolved and goes to another panel.