7:52 AM Feb 14, 1994


Geneva Feb 14 (Chakravarthi Raghavan) -- The European Union and the ACP countries have been advised either to get a waiver from the GATT CPs for the EC-ACP Lome accords or seek specific approval of the CPs for the Lome accords as one leading to a customs union or free trade area, despite some of the deficiencies of the Lome accords.

This advice is in the concluding remarks of the GATT panel that looked into the EC's single market banana regime, in effect since 1 July 1993, and ruled against the regime for its discriminatory nature against the Latin American banana exporting countries.

In Brussels, both the European Union and the ACP countries linked to it in the Lome accord have made clear that they would block the adoption of the report in the GATT Council. Adoption of reports is by consensus.

The EU had also announced Friday that with the publication of the panel's ruling, it was withdrawing its 'conditional', improved offer on bananas in the Uruguay Round market access negotiations, and reinstate the tariff quota regime in force since 1 July 1993 as its "offer".

GATT sources Friday evening however said that in fact the EC had not actually notified the withdrawal. Some sources said that the EC would probably wait till 15 February (the last date for filing its market access schedules) to see whether Costa Rica, one of the major Latin exporters to the EC market would accept the EC conditional offer and withdraw the dispute (as had been done by Colombia, Nicaragua and Venezuela).

The EC withdrawal of its Uruguay Round conditional offer on bananas of 14 December last, does not mean though that its attempt to use it as a bargaining chip to get rid of the banana complaint. It can still use the 'verification' process beginning 16 February to 'rectify' its schedules to ensure conformity with the Uruguay Round agreements, provided the Latin American complainants (who alone can now ask the GATT Council to proceed with the consideration of the panel ruling) announce they would not press with it.

One Latin sources said that the EC would not be too concerned with Guatemala maintaining the complaint, but that it would insist on Costa Rica doing so. While at one stage Costa Rica, which would get a higher national quota than its market share under the 'conditional' offer, had reportedly been willing to do so, the recent elections (that blocked decisions during the election process) and the conflict between the banana growers and the transnationals in charge of the exports has reportedly held up Costa Rica falling in line with Colombia and two others. Some of these sources said that they still expect some favourable action from Costa Rica by Tuesday.

If the EC does withdraw its offers, while it might succeed in blocking the adoption of the report, would keep the issue alive in one sense, to be raised at a future point by some other contracting parties or the same contracting parties, when the World Trade Organization and its dispute settlement processes come into place.

Some of the banana exporters, in the meanwhile, are expected to "reserve" their GATT rights, and not accept the EC's banana offer, on the ground of its non-compliance with the Uruguay Round disciplines, and thus ensure that the dispute is not foreclosed on the basis of the 'peace clause' in the agreement on agriculture.

In its rulings against the EC banana regime, circulated to the GATT CPs on Friday, the panel headed by Amb. K.Kesavapany of Singapore, said that while it was aware of the economic and social effects of the EC measures on ACP banana exporting countries, as well as on Latin American exporting countries, it had to examine the EC measures in terms of their legal consistency with the General Agreement and ensure the settlement of the dispute in terms of the rights and obligations of parties under the GATT.

The dispute settlement procedures were not to modify the rights and obligations in light of social and economic considerations, the panel stressed, adding that the CPs had at their disposal procedures under Art XXIV:10 and XXV:5 to take account of social and economic considerations.

Art XXIV:10, enables CPs by two thirds majority to approve proposals for a customs union or free trade agreement, even if such an agreement does not fully conform to the stipulations about such an agreement in paragraphs 5 to 9 of that article, provided the proposals lead to the formation of a customs union or a free trade area. Art XXV:5 enables CPs, again by a two-thirds majority, to grant waivers from obligations of the General Agreement.

"The adoption of this report," the Kesavapani panel said, "would not prevent the CPs from taking action under any of these Articles...nothing in its report would prevent the parties to the Lome Convention from achieving their treaty objectives, including the objective of promoting the production and commercialization of bananas from ACP countries through use of policy instruments consistent with the General Agreement."

The EC's single market regime, replacing the earlier national quotas and tariff preferences (which the panel headed by I.G.Patel had held illegal, but whose adoption has been blocked by the EC and the ACP countries), covered both internal banana market and imports.

On the internal market, the regime provided for quality and marketing standards, establishment of producer organizations, compensation to producers for income-loss and payments for land set-aside (under CAP). For imports, the EC regulations establish a tariff quota and an import licensing scheme -- with both differentiating between bananas from different origins.

Bananas produced within the EC (in continental Europe and the overseas territories) face no border measures; 'traditional ACP' bananas, those imported from ACP countries within individual country quotas, had no duty while 'non-traditional ACP' (from traditional ACP above individual country quotas or non-traditional ACP sources) were also duty free within the tariff quota limits and faced 750 ECUs per tonne outside the quota. Third country origin bananas faced a 100 ECU per ton tariff within the (2 million ton tariff quota) and 850 ECUs on imports above 2-million tons.

Imports within tariff quotas had to be by 'operators', with each operator allocated a quota on basis of his activities over the previous three-year period, including country-source of supply, quantity marketed and type of marketing activity, and with special provisions for new operators.

Within the tariff quota, 66.5 percent is allocated to operators who have marketed in the past third country or non-traditional ACP bananas, 30 percent to operators who have marketed EC or traditional ACP bananas, and 3.5 percent to those operators who since 1992 have been marketing third-country or non-traditional bananas.

Prior to the regime, the EC had a 20 percent ad valorem bound tariff in the GATT, and the new regime transferred into specific tariffs on basis of banana weights.

The panel found that the 850 ECU specific tariff (on imports above the tariff quota) exceeded the 20 per cent ad valorem bound tariff, and accepted the contention of complainants that even the 100 ECU duty on imports within the tariff quota could exceed the 20 percent.

Thus, the EC tariffs violated the bound duty.

The panel found that a tariff quota regime by itself and a non-automatic licensing procedure did not make them into a prohibited quantitative restriction and thus the EC regime had not violated Art. XI:1 nor did it discriminate between sources.

However the regulations favouring for licensing operators who marketed EC or traditional ACP bananas was contrary to the Art III, national treatment provisions, Art I (MFN provisions) of the GATT. The incentives (of more favourable treatment) provided for 66.5 percent of the tariff quota reserved to those marketing third country or non-traditional ACP bananas could not offset the inconsistency of the licensing system with Art III and Art I.

The panel did not accept the complaint that the requirement about security deposits (to ensure subsequent compliance with conditions) for obtaining a license violated the GATT.

It also did not accept the complaint that the EC, in providing for significant subsidy payments to domestic producers, had violated the Art XVI:1 requirements for entering into consultations with affected cps whose export interests might suffer 'serious prejudice'. None of the complainants, it noted, had sought such prior consultation.

Like the I.G.Patel panel, the Kesavapni panel held that the differing tariffs on imported bananas, those from third countries and those from ACP sources, was a discrimination in terms of Art I (MFN provision).

The panel then examined the claim that nevertheless such discrimination was sanctioned in that the EC-ACP Lome agreements are agreements for establishing a Free Trade Area, sanctioned by Art XXIV of GATT.

The EC had contended that the Lome accords were free trade agreements and that the 'specific measures' in them and their compliance with Art XXIV requirements could be examined only under procedures for examination of such agreements under this article, and not through dispute settlement.

The Lome accords themselves have not received the specific approval of the GATT CPs as free trade agreements. The successive reports of working parties looking into the EC-ACP Lome agreements had never reached any conclusions or recommendations, and the GATT Council had merely taken note of the reports.

The panel said that in the absence of specific actions of the CPs in approving them, merely because an agreement with preferential tariff arrangements had been notified to the GATT as one under Art XXIV, could not escape examination by a dispute settlement panel of the inconsistency of its preferential arrangements with the GATT.

In terms of Art XXIV:8(b), the panel said, a free trade area meant a group of two or more customs territories in which duties and other restrictive trade regulations are eliminated "on substantially all the trade between constituent territories in products originating in such territories".

The Lome Convention trade arrangements, while based on the principle of free access to EC markets for products originating in the ACP states, did not provide for any liberalization of trade in products originating in the EC territory. Hence the Lome accords were substantially different from those of a free trade area under Art XXIV:8 (b).

The provisions in Art XXXVI:8, by which the developed cps agreed not to expect reciprocity for commitments by them to reduce or remove tariffs in trades with developing countries, only applied in actions under Sec A of Art XVIII, Art XXVIII, Art XXVIIIbis and Art XXXIII or other procedures of the General Agreement. Taken together the procedures in which the non-reciprocity applied only related to negotiation of tariff concessions for access to GATT, in multilateral tariff negotiations and in renegotiation of tariff concessions.

If the Part IV were to apply to negotiations outside the procedural framework of the General Agreement, there would have been no necessity for the grant of a waiver in 1971 for application of GSP schemes, and subsequently for adoption of the 1979 'Enabling Clause', the panel said.

The EC itself, the panel noted, had taken the position on the 1966 report of the working party on Yaounde Convention that Part IV of the GATT did not aim to modify Art XXIV and that the only test to be applied by CPs on whether a free trade area agreement complied with GATT was whether it satisfied the requirements of Art XXIV.

Also, the Lome accords provided for a free trade area as between not only the EC and the contracting parties of the ACP but non-cps too. Art XXIV:5 made clear that, in the absence of a waiver, a free trade agreement with a non-cp could not justify infringements of rights of third cps for MFN, the panel said.

The panel also rejected the contention that the banana regime was a commodity agreement covered by the general exceptions in Art XX (h).

An intergovernmental commodity agreement to attract this exception, the panel said, had either to conform to criteria for such commodity agreements submitted to the CPs and not disapproved by them, or the agreement itself should be submitted to and not disapproved by the CPs, or be a commodity agreement conforming to the principles approved by ECOSOC by resolution 30 (IV) of 28 March 1947.

Neither the Lome Convention nor its predecessor agreements had been notified to the GATT as commodity agreements covered by Art XX (h), the panel noted. Neither was it a non-discriminatory commodity agreement covered by the ECOSOC resolution.

In the light of all these, the panel held that the tariff quota regime itself was not inconsistent with Art XI and XIII; that the security requirements and other formalities connected with import of bananas was not inconsistent with Art VIII; and that the EC had not acted inconsistent with its GATT obligations under Art XVI:1 to discuss, upon request, the possibility of limiting the subsidization of bananas.

However, the panel said:

* the specific duties levied by the EC on imports of bananas were inconsistent with Art II (schedule of bound duties and concessions):

* the preferential tariff rates on bananas accorded to ACP countries were inconsistent with Art I (MFN provision) and could neither be justified by Art XXIV nor by Art XX (h); and

* the allocation of import licences granting access to imports under the tariff quota was inconsistent with Art III (equality of treatment between domestic and imported products) and Art I and not justified by Art XXIV nor by Art XX (h).