Bananas: EU vs US.

By

Izabella Zakaryan

Andrea Zizack

History

In February 1996, Ecuador, Guatemala, Honduras, Mexico and the United States filed a legal complaint against the European Union’s banana regime

In September 1997, the WTO ruled that the EU’s banana import regime was inconsistent with WTO rules

In January of 1999 the EU introduced a new

banana import regime

History Cont’d

January 1999 US requested authorization to impose retaliation in the amount of $520 million

March 3, 1999 US declared that it would withhold liquidation on imports from EC together valued $520 million on an annual basis and would impose 100% on each individual importation, the return of

which is uncertain.

History Cont’d

March 4, 1999, the EC requested consultations with the US The US declared to-“Withhold liquidation on imports from the EC together valued over $500 million and to impose a contingent liability for 100% duties for each individual importation” May 11, 1999 the EC requested the establishment of a panelJune 1999 a Panel was establishedOctober 1999 the Panel was composed July 2000 a decision was cerculated

WTO Issues

Articles 3, 21, 22 and 23 of the DSU;

Articles I, II, VIII and XI of GATT 1994

Article I GATT 994

General Most-Favored Nation Treatment

Article II GATT 1994

1 a) “Each contracting party shall accord to the commerce of the other contracting parties treatment or less favorable than that provided for in the appropriate Schedule annexed to this Agreement”

Article 21 of DSU

21.5 “Where there is a disagreement as to the existence or consistency with a covered agreement of measures taken to comply with he recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever

possible resort to the original panel”

Article 23 of DSU

“When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreement or an impediment to the attainment of any objective if the covered agreement, they shall have recourse to, and abide by, the rules and procedures of the Understanding”

EU Position

The EC requested consultations with the US in respect of the US decision to withhold liquidation on imports from the EC of a series of products together valued at over $500 million on an annual basis, and to impose a contingent liability for 100% duties on each individual importation of affected products.The EC alleged violations of Articles 3, 21, 22 and 23 of the DSU, and Articles I, II, VIII and XI of GATT 1994.

EU Position

The EC contested the US interpretation of the WTO dispute settlement rules, arguing that its modified banana regime should be presumed WTO-consistent, and that only if a new Article 21 panel ruled against the new regime would the US be entitled to invoke Article 22 to seek authority to retaliate.

US Position

In mid January, the EU having failed to implement what the US regarded as a WTO-consistent banana regime, the US requested authorization to impose retaliation in the amount of $520 million—the estimated annual economic loss of US exports and profits for US suppliers as a result of the EU failure to comply with the panel rulings. The US cited Article 22.2 that allows a complainant to request authorization to retaliate 20 days after the deadline for implementation imposed by the panel.

US Position

The US agreed to refrain from collecting retaliatory duties pending a decision by the arbitrators. Pursuant to the arbitration procedures, the arbitrators were to determine the extent of the economic harm caused to the US under the revised banana import regime. In contrast, the US request for authority to retaliate in the amount of $520 million was based on the impact of the initial banana regime. Claiming insufficient information had been received from the parties, the arbitrators announced they were unable to issue a determination within the allotted timeframe. The very next day, the US announced that it would impose a contingent liability of 100% duties on imports valued at $520 million of selected products from the EU.

Panel Decision

The US measure of 3 March 1999 was seeking to redress a WTO violation and was thus covered by Article 23.1 of the DSU.By putting into place that measure prior to the time authorized by the DSB, the US made a unilateral determination that the revised EC bananas regime in respect of its bananas import, sales and distribution regime violated WTO rules, contrary to Articles 23.2(a) and 21.5, first sentence, of the DSU. In doing so, the United States did not abide by the DSU and thus also violated Article 23.1 together with Article 23.2(a) and 21.5 of the DSU.The increased bonding requirements of the measure as such led to violations of Articles II:1(a) and II:1(b), first sentence.

Panel Decision

The increased interest charges, costs and fees resulting from the 3 March Measure violated Article II:1(b), last sentence.The measure in question also violated Article I of the GATT 1994.In light of these conclusions, the measure of constituted a suspension of concessions or other obligations within the meaning of Articles 3.7, 22.6 and 23.2(c) of the DSU imposed without DSB authorization and during the ongoing Article 22.6 arbitration process.In suspending concessions in those circumstances, the US did not abide by the DSU and thus violated Article 23.1 together with Articles 3.7, 22.6 and 23.2(c) of the DSU.On 12 September 2000, the EC notified its intention to appeal certain issues of law and legal interpretations developed by the panel.

Appellate Body Decision

Concluded that the Panel erred by stating that the WTO-consistency of a measure taken by a Member to comply with recommendations and rulings of the DSB can be determined by arbitrators appointed under Article 22.6 of the DSU, and, thus, concluded that the Panel’s statements on this issue have no legal effect.Concluded that the Panel erred by stating that “Once a Member imposes DSB authorized suspensions of concessions or obligations, that Member’s measure is WTO compatible (it was explicitly authorized by the DSB)”, and, thus, concluded that this statement has no legal effect.

Appellate Body Decision

Reversed the Panel’s findings that the increased bonding requirements are inconsistent with Articles II:1(a) and II:2(b), first sentence, of the GATT 1994.Reversed the Panel’s finding that, by adopting the 3 March Measure, the US acted inconsistently with Article 23.2(a) of the DSU. As it upheld the Panel’s finding that the 3 March Measure, the measure at issue in this dispute, is no longer in existence, the Appellate Body did not make any recommendation to the DSB pursuant to Article 19.1 of the DSU.

Implementation

On April 11, 2001, US and EU officials announced an understanding in the dispute. EU was to adopt a new system of banana licenses based on historic reference periods. By January 1, 2002, the EU would shift an additional 100,000 tons of bananas into a tariff quota to which bananas of Latin American origin have access (and with respect to which U.S. distributors have a substantial historic share). By January 1, 2006, the EU would introduce a tariff-only regime for banana imports.United States has removed increased duties on EU products if the EU completed the first phase of implementation (adoption of historic reference periods). The understanding also provided that the United States could re-impose increased duties if the EU did not complete the second phase of implementation (modifying its tariff quotas) by January 1, 2002.

Implementation

The USTR has been monitoring the EU's compliance with the understanding. The EU has adopted a new system of banana licenses based on historic reference periods and has issued licenses in accordance with that system. As a result, U.S. banana distributors have obtained additional access to the EU market. On November 29, 2005, the EU member states agreed to impose an import tariff of 176 euros per metric ton on bananas for MFN suppliers, and also a duty-free annual import quota of 775,000 tons for bananas from the African Caribbean Pacific (ACP) group of countries. The measures entered into force January 1, 2006.US and other countries “remain very disappointed with EU”.

Conclusion

Legitimacy of the WTO rulings

Effectiveness of the WTO We will act multilaterally when we can and unilaterally when we must”

Works Cited

http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds165_e.htm http://www.asil.org/insights/insigh63.htm http://www.useu.be/issues/bananadossier.html http://useu.usmission.gov/Article.asp?ID=E5714874-10B6-4C02-86C4-B9976E37B057 http://www.ustr.gov/assets/World_Regions/Europe_Middle_East/Europe/2001_US-EU_Understing_on_Bananas/asset_upload_file251_7135.pdf http://www.wto.org/english/theWTO_e/minist_e/min05_e/brief_e/brief22_e.htm http://www.americasnet.net/Commentators/John_Curry/curry_01.pdf http://www.globalissues.org/TradeRelated/Bananas.asp http://www.nationalaglawcenter.org/assets/crs/RS20130.pdf