SUNS  4359  Monday  25 January 1999

Geneva, 22 Jan (Chakravarthi Raghavan) -- The United States and the European Community raised Friday the stakes in the dispute at the WTO over the EC banana regime - with the US all set to ask Monday the WTO's Dispute Settlement Body for authorization to retaliate against the EC,
and the EC convening an emergency meeting of the WTO General Council for an authoritative interpretation of relevant WTO/DSU rules.

The US ambassador to the WTO, Mrs. Rita Hayes, on Friday (at a hurriedly summoned press conference) denounced the EC move for a General Council meeting as "appalling" and described the move as a "cynical proposal that has as its objective the frustration of the multilateral dispute settlement system", and seeks to amend the WTO agreement, which could be done only by consensus (which the US will block).

The EC move was announced Thursday at Brussels by the EC vice-president and trade commissioner, Sir Leon Brittan.

If the two sides stay on course, it may result in a bruising fight, and perhaps affect the WTO and its agendas -- naming a new D.G., the preparations for and launch of new negotiations at the 3rd Ministerial meeting in the US (end November) -- and paralyse the system.

On basis of rationality, the two major beneficiaries of the WTO system, could be expected not to wreck the system. But their game of high stakes poker could precipitate one side calling the other's bluff.

In an effort to put off a clash, Japan is said to be planning to move (on Monday when the DSB meets, with the US request for authorization of retaliation on its draft agenda) that the DSB suspend consideration of the agenda item and the US request, until after the reconvened banana panel provides a ruling, as sought by Ecuador and the EC.

Such a suspension of the consideration of the agenda item and US request, would have the effect of preserving the US right to seek authorization for retaliation (which has to be exercised within 30 days of the EC new regime's entry into force, i.e. before 30 January). The relevant 30-day period would kick in from the time of the new ruling by the banana panel and its adoption by the DSB.

In seeking an authoritative interpretation, the EC posed two questions and asked the WTO General Council to provide an authoritative interpretation, in terms of Art. IX.2 of the WTO agreement of the DSU rules (22.6 and 21.5).

The EC's questions were posed in terms of Articles 3.7, 21.5, 22.2, 22.6, 22.7 and the 23 of the DSU providing a coherent set of rules for implementation of DSB recommendations, and disagreement between two WTO members (A and B) on measures taken by 'B' to comply with measures and rulings of the DSB addressed to it in a dispute raised by 'A'.

The questions posed by EC were:

* whether in such a situation, the DSB is empowered to grant authorization to A for suspension of concessions on the basis of a unilateral determination by A - i.e. in the absence of a panel or
appellate body report adopted  by the DSB - that the measures taken by B to comply with the DSB rulings and recommendations.

* In such a situation, is the DSB prevented from taking the 30-day period mentioned in Art. 22.6 of the DSU, as beginning from the adoption by the DSB of the panel or Appellate body report under 21.5 that B has failed to comply with the recommendations.

Amb. Hayes said the US will go ahead Monday with its request to the DSB for authorization to withdraw concessions to the EC.

The EC's Representative to the WTO, Amb. Roderick Abbot, in a comment relayed in response to media queries, rejected the Hayes charge, and said the EC move, seeking an authoritative interpretation of the rules, was a right of every WTO member, and the EC was exercising that right.

"When the EU exercises its rights, it is 'appalling' and 'bad faith', but when the US does, it is legitimate," Abbot said.
Meanwhile, the US and four of its co-complainants in the original dispute (Guatemala, Honduras, and Mexico) as well as Panama sought consultations with the EC to find a "mutually acceptable solution" on its amended banana regime.

In a letter, dated 20 Jan, the five asked for consultations -- invoking  Art.4 of the DSU, Articles XXII of the GATT and the GATS, and Art. 8 of the Import Licensing Agreement.

It would appear that the move for consultations and negotiations has been made, and intended to come into play, after the WTO authorization (automatic) for the US sanctions.

Ecuador, which was a co-complainant with the US, before the original banana panel, and was to have been party to the new consultations sought, has not now joined the request of the US and others - having taken the Art. 21.5 route.

When the idea of such consultations had been broached by the US at the DSB (on 12 Jan), the EC had made clear that while it would be willing to discuss the substance in such talks, it would not do so under the threat of sanctions under Art. 22.6.

According to trade diplomats, Japan is trying to avert the confrontation, and the US sanctions, until the reconvened banana panel gives a ruling over the EC measures compliance with its ruling.

Japan is said to be planning to move, at the DSB Monday, that the DSB  suspend consideration  of the US inscribed agenda item (for authorization to retaliate), until the reconvened banana panel gives its ruling and is adopted by the DSB.

The US request for DSB authorization, under Art. 22.6 of the DSU (which on request requires the DSB to grant authorization) has been put on the draft agenda of the DSB meeting scheduled for 25 January.

Before the DSB takes up the item, procedural moves can be expected to be made to head off the sanctions (pending the panel ruling).

There has been talk that the adoption of the draft agenda as a whole could be blocked (by withholding consensus). While the DSB procedures and rules provide for some automaticity and requirements of 'negative consensus', the rules are vague about the adoption of the agenda.

However, it is not very clear whether the agenda as a whole need to be blocked, or the particular item could be. In any event, this could be interpreted as prejudicing the US rights.

The Japanese move for suspension of the consideration of the agenda item, which the Japanese delegation has been discussing with key delegations since 12 January DSB, would preserve the US rights without prejudice, while at the same put off the automatic authorization for retaliation that the DSB is required to give, once its permission is sought and comes up.

In the saga of the battle over bananas (a battle which in reality is between the US TNCs, chiquita and dole, and the EC TNCs), both sides have upped the stakes -- out of all proportion to the actual trade.

The DSB, on 12 January, has referred (on the basis of separate requests by Ecuador and the EC itself) to the reconvened original banana panel for accelerated hearing and ruling, the issue whether the EC measures to give effect to the WTO banana ruling are in compliance with its ruling.
Ecuador, Guatemala, Honduras, Mexico and the United States had originally challenged the EC regime, and had received a ruling favouring them, with the EC required to amend and put in place new measures by 1 January 1999, to comply with the ruling.

All the five have been repeatedly challenging the EC regime, even as the EC in accord with its internal requirements made public its draft proposals, before adoption by the EU Council of Ministers.

The US used its S.301 trade law to make a unilateral determination (even before the EC measures went into effect) that the proposed EC measures had not complied with the ruling, and published a tentative list of products for withdrawal of concessions. This preliminary list was subsequently revised, on basis of comments received by the US Trade Representative's office, and a final list of products has been published on which the US would impose sanctions on the EC in the form
of 100 percent tariffs.

The EC in turn has challenged the US trade law and its provisions in S.301 for unilateral US determinations, and has held consultations as a first step to raise the dispute in the DSB and have a panel reference.

The EC has said that if the US went ahead with the sanctions, without waiting for the determination of the reconvened banana panel on the compliance of its regime with the ruling, it would push for a panel on S.301.

At the 12 January meeting of the DSB -- in very confused procedural wrangle and discussions (when the DSB agreed to the Ecuador and EC requests for reconvened panel consideration of the new EC regime, under Art. 21.5) was accepted -- the US had made clear it would go ahead with
its own request for DSB authorization for the sanctions, unless the EC would negotiate the substance of its new measures and regime.

The EC had made clear that it was ready to discuss and negotiate, but not under threat of sanctions.

At the 12 January meeting, the US and its supporters (the other complainants, but also the Philippines) tried to block the reference of the EC request that the compliance of its regime be judged by the panel under Art. 21.5.

EC sources had made clear that while Ecuador's seeking a similar panel reference had met the EC objective, it wanted to make sure that the reconvened panel and its proceedings were not frustrated by Ecuador (under pressure from the US) withdrawing its request at any stage.

In the protracted discussions, with the US and others questioning how the EC could have a panel reference without an opposite party, India took the position that Art. 21.5 was a special provision for the original panel to rule on the compliance of the measures when there was a dispute. In terms of systemic issues, India saw no reason why a party that lost the original dispute, and put in place measures of compliance, should not be allowed to seek an authoritative ruling.

Otherwise, it said, when a party complies with a ruling, and adopts new measures or amends its existing measures to comply, the opposite party, which could be a powerful trading partner, could unilaterally decide that the ruling has not been complied with, and go ahead with trade retaliation on the basis of automatic DSB authorization.

Several trade diplomats, who did not take a position and kept silent, and many of whom privately agree over complaints over the EC's devious ways, nevertheless fear that the US course would legitimize a unilateralist approach and make a mockery of the WTO.

In terms of the DSU scheme, all the issues and points raised will have to be considered by the reconvened panel and adjudicated -- whether or not the EC itself could seek a panel ruling on its own regime, whether the provisions under Art. 22.6 (invoked by the US) could kick in only after the ruling by a reconvened panel, and whether the reconvened panel's ruling will bind only Ecuador as party etc.