Implementation of WTO Recommendations Concerning the European Communities' Regime for the Importation, Sale and Distribution of Bananas

OFFICE OF UNITED STATES TRADE REPRESENTATIVE

[Docket No. 301-100a]

Implementation of WTO Recommendations Concerning the European

Communities' Regime for the Importation, Sale and Distribution of

Bananas

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of proposed determination, request for comment.

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SUMMARY: January 1, 1999 is the deadline for the European Communities'

(EC) implementation of the recommendations of the World Trade

Organization (WTO) Dispute Settlement Body (DSB) concerning the EC

regime for the importation, sale, and distribution of bananas (banana

regime). The United States Trade Representative (USTR) is seeking

written comments on: (1) the measures that the EC has undertaken to

apply as of January 1, 1999 to implement the WTO recommendations

concerning the EC banana regime; and (2) the USTR's proposed

affirmative determination under section 306(b) of the Trade Act of

1974, as amended, (Trade Act) (19 U.S.C. Sec. 2416), that the measures

fail to implement the WTO recommendations. The USTR must make the

determination

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under section 306(b) no later than January 31, 1999.

DATES: Written comments from interested persons are due on or before

November 9, 1998.

ADDRESSES: 600 17th Street, NW, Washington, D.C. 20508.

FOR FURTHER INFORMATION CONTACT:

Rachel Shub, Associate General Counsel (202) 395-7305; or Ralph Ives,

Deputy Assistant U.S. Trade Representative, (202) 395-3320.

SUPPLEMENTARY INFORMATION: On September 27, 1995, the USTR initiated an

investigation under section 302(b) of the Trade Act regarding the EC's

regime for the importation, sale and distribution of bananas and

requested public comment on the issues raised in the investigation and

the determinations to be made under section 304 of the Trade Act. [60

FR 52026 of October 4, 1995]. This investigation specifically concerned

EC Council Regulation No. 404/93 and related measures distorting

international banana trade and discriminating against U.S. marketing

companies importing bananas from Latin America, including a restrictive

and discriminatory licensing scheme designed to transfer market share

in the wholesale distribution sector from U.S. banana marketing firms

of EC or African, Caribbean and Pacific (``ACP'') nationality.

As required under section 303 (a) of the Trade Act, the United

States held consultations with the EC under the procedures of the WTO

Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU). After holding a first set of consultations with the EC

on October 26, 1995, the United States and the governments of

Guatemala, Honduras and Mexico decided to delay the request for a

dispute settlement panel until Ecuador, the world's largest banana

exporter, had completed its accession and could join the dispute

settlement proceeding. Pursuant to a new request filed jointly by the

governments of Ecuador, Guatemala, Honduras, Mexico and the United

States (``complaining parties''), a second set of WTO consultations

with the EC was held on March 14, 1996. A dispute settlement panel was

established on May 8, 1996.

The WTO panel is this case circulated its report on May 22, 1997.

It included numerous findings that the EC banana regime is inconsistent

with the EC's WTO obligations. The EC appealed all of the panel's

adverse findings, and the complaining parties cross-appealed three. On

September 9, 1997, the Appellate Body issued its report confirming all

the major panel findings against the EC regime, and reversing the panel

report on two issues that had been decided in the EC's favor (agreeing

with the complaining parties).

The WTO reports include findings that the following EC measures

violate the EC's obligations under various provisions of the General

Agreement on Tariffs and Trade 1994 (GATT 1994) and/or the General

Agreement on Trade in Services (GATS): (1) the EC's discriminatory

allocation of shares of its market to certain ACP countries and to

certain countries signatory to the Banana Framework Agreement; (2) the

EC's discriminatory rules for reallocating annual country shares in the

event of a country's shortfall; (3) the EC's discriminatory

distribution to EC and ACP banana distribution companies of ``Category

B'' licenses to import bananas from non-EC, non-ACP countries (mainly

Latin America); (4) the EC's requirements for obtaining licenses to

import from Latin America, which impose burdens not imposed on imports

from ACP countries; (5) the EC's distribution of licenses to ripeners

in the EC, which discriminates against U.S. and Latin American firms in

favor of EC firms; (6) the EC's discriminatory export certificate

requirements; and (7) the EC's distribution of EC and ACP banana

distribution companies of additional licenses, so-called ``hurricane

licenses,'' to import from Latin America. (The complaining parties did

not challenge the EC's preferential tariffs for ``traditional'' ACP

bananas.)

The Appellate Body report includes the recommendation that the DSB

request the EC to being its banana measures found in the Appellate Body

report and in the panel report (as modified by the Appellate Body

report) to be inconsistent with the GATT 1994 and the GATS into

conformity with the EC's obligations under those agreements. On

September 25, 1997, the DSB adopted the Appellate Body and panel

reports (as modified by the Appellate Body report), including this

recommendation.

At a meeting of the DSB on October 16, 1997, the EC stated that it

would ``fully respect its international obligations with regard to this

matter'' and would require a ``reasonable period of time to do.'' On

December 17, 1997, at a WTO arbitration hearing requested by the

complaining parties to determine the ``reasonable period of time''

pursuant to Article 21.3 of the DSU, the EC made it clear that the

reasonable period of time it requested, i.e., until January 1, 1999,

was for the purpose of implementing all the recommendations and rulings

of the DSB adopted on September 25. On January 7, 1998, the WTO-

appointed arbitrator circulated his determination that the period until

January 1, 1999, would be the ``reasonable period of time'' for the EC

to implement the DSB rulings and recommendations.

Based on the results of the WTO dispute settlement proceedings, the

public comments received and appropriate consultations, the USTR on

February 10, 1998 determined that certain acts, policies and practices

of the EC violate, or otherwise deny benefits to which the United

States is entitled under, GATT 1994 and the GATS. [63 FR 8248 of

February 18, 1998]. The USTR further determined that the EC's

undertaking to implement all of the rulings and recommendations of the

WTO reports within the reasonable period of time established pursuant

to Article 21.3 of the DSU constituted for the purposes of section

301(a)(2)(B)(i) the taking of satisfactory measures to grant the rights

of the United States under the GATT 1994 and GATS. Therefore, pursuant

to section 301(a)(2), the USTR terminated the investigation without

taking action under section 301 of the Trade Act. The USTR stated in

the termination notice that it would monitor the EC's implementation of

the WTO recommendations under section 306 of the Trade Act and would

take action under section 301(a) if the EC did not comply with its WTO

obligations and commitments.

Section 306(a) of the Trade Act requires the USTR to monitor

measures undertaken by a foreign government to provide a satisfactory

resolution of a matter subject to dispute settlement proceedings to

enforce the rights of the United States under a trade agreement.

Section 306(b) requires the USTR to determine what further action it

shall take under section 301(a) of the Trade Act if the USTR considers

that a foreign country has failed to implement a recommendation made

pursuant to dispute settlement proceedings under the WTO. The USTR

shall make this determination no later than thirty days after the

expiration of the reasonable period of time provided for such

implementation under Article 21.3 of DSU. Section 305(a)(1) requires

the USTR to implement such action by no later than 30 days after the

date on which that determination is made.

Given that the reasonable period of time for the EC's

implementation of the WTO recommendations concerning the EC banana

regime expires on January 1, 1999, the USTR must make the determination

required by section 306(b) no later than January 31, 1999, and, in the

event of an affirmative determination, must implement further

[[Page 56689]]

action no later than 30 days thereafter. These time frames permit the

USTR to seek recourse to the procedures for compensation and suspension

of concessions provided in Article 22 of the DSU.

Monitoring EC Implementation

Following the termination of the investigation, USTR has monitored

EC compliance under section 306 of the Trade Act. EC actions undertaken

since January 1999, and in particular since June 26, 1998, indicate

that EC compliance with its WTO obligations by January 1, 1999 is

unlikely.

The EC Commission proposed amendments to its banana regime on

January 14, 1998, which were then forwarded to the EC Council for its

consideration. The United States and other complaining parties raised

concerns about the consistency with the EC's WTO obligations of these

proposals with EC Commission officials and before the DSB.

The USTR and U.S. Secretary of Agriculture subsequently asked their

counterparts in the European member States to oppose the Commission

proposal when it was presented to the European Agriculture Council. On

June 26, 1998, however, the European Council of Agriculture Ministers

agreed, with few modifications, on proposed amendments to the EC banana

regime that had been approved by the European Commission on January 14,

and the Agriculture Council also specified how the regulation's

provisions on licensing were interpreted. The draft regulations were

approved by the EC Council of Agriculture Ministers on July 20. The

General Affairs Council formally approved the regulations on July 22.

On July 28, 1998, amendments to Regulation 404 were published in the EC

Official Journal (EC 1637/98; ``Regulation 1637'').

The EC Council regulation provides for the allocation of the EC

market among exporting countries and for the distribution of licenses

to import bananas as of January 1, 1999. A comparison of the various

features of the current EC regime and the amended regime is set forth

as Figure 1. On September 14, the complaining parties consulted with

the advised the EC of their joint concerns about the inconsistency of

the EC's adopted measures with WTO obligations. In summary, the

following aspects of the adopted EC measures present particular

problems:

Allocation of the EC market among supplying countries. The

allocation in Regulation 1637 of the EC market among supplying

countries discriminates against bananas from Latin American countries

both in terms of quantities allocated and conditions of access. The

quantities to be allocated bear no resemblance to the shares that would

prevail in the absence of restrictions, as required by Article XIII of

the GATT 1994, and unlike quantities for ACP bananas, permit no growth.

Latin American banana supplying countries in which U.S. distribution

companies are invested would continue to be treated less favorably than

ACP banana exporting countries in that they would be required to

compete with non-traditional ACP bananas for a small share of an

already reduced share of the EC market. Meanwhile, traditional ACP

bananas have their own quota, to which Latin American bananas do not

have access. Like the current regime, the planned allocation will

perpetuate the harmful effects on U.S. companies that distribute Latin

American bananas in the EC of the current allocation, which has been

found to violate Article XIII of the GATT 1994.

Distribution of Import Licenses. The new EC Council regulation

requires the distribution of import licenses on the basis of the

``traditionals/newcomers'' method. On June 26, 1998, the EC Agriculture

Council announced that this term was to be interpreted to mean that

import licenses would be distributed to ``actual importers on the basis

of the presentation of a utilized import license and/or, in particular

in the case of new member States, equivalent proofs, where necessary,''

using ``the years 1994-96 as the initial reference period for

determining operators' rights.'' The selection of a reference period

during the time that a regime which is contrary to the WTO rules was in

effect will perpetuate discrimination against U.S. and Latin American

suppliers of wholesale trade services created by the current regime

(which went into effect in 1993) that has been found to be in violation

of GATS Article II and XVII.

Non-Traditional ACP Bananas. The new EC Council Regulation expands

upon the tariff preferences provided to ``non-traditional'' ACP

bananas; these provisions go beyond the tariff treatment considered by

the WTO Appellate Body to fall within the EC's waiver for certain trade

preferences required by the Lome Convention.

Further information on the new EC banana regime is available in the

USTR Reading Room in Docket WTO/DS-4.

Proposed Determination

The USTR proposes to determine, pursuant to section 306(b) of the

Trade Act, that the measures the EC has undertaken to apply as of

January 1, 1999 with respect to this banana regime fail to implement

the WTO recommendations. Such a determination will require the USTR

also to determine what further action to take under section 301(a) in

the event that the EC has failed to implement the WTO recommendations

by January 1, 1999. Permissible actions include: action to suspend,

withdraw or prevent the application of benefits of trade agreement

concessions to the EU; imposition of duties or other import

restrictions on goods of the EU or fees or restrictions on services of

the EU; and restriction or denial of service sector access

authorizations with respect to services of the EU. The USTR intends to

determine by December 15, 1998 what action to take.

Written Comments--Requirements for Submissions

Section 306(c) of the Trade Act provides that the USTR shall allow

an opportunity for the presentation of views by interested parties

prior to the issuance of a determination pursuant to section 306(b).

Interested persons are invited to submit written comments on: (1) the

measures that the EC has undertaken to apply as of January 1, 1999 to

implement the WTO recommendations concerning the EC banana regime; and

(2) the USTR's proposed affirmative determination under section 306(b)

of the Trade Act that the measures fail to implement the WTO

recommendations. Comments must be filed in accordance with the

requirements set forth in 15 CFR Sec. 2006.8(b) [55 FR 20,593] and must

be filed on or before noon on Monday, November 9, 1998. Comments must

be in English and provided in twenty copies to: Sybia Harrison, Staff

Assistant to the Section 301 Committee, Room 416, Office of the U.S.

Trade Representative, 600 17th Street NW., Washington, DC 20508.

Comments will be placed in a file (Docket 301-100a) open to public

inspection pursuant to 15 CFR 2006.13, except confidential business

information exempt from public inspection in accordance with 15 CFR

2006.15. Confidential business information submitted in accordance with

15 CFR 2006.15 must be clearly marked ``BUSINESS CONFIDENTIAL'' in a

contrasting color ink at the top of each page on each of 20 copies, and

must be accompanied by a nonconfidential summary of the confidential

information. The nonconfidential summary shall be placed in the file

that is open to public inspection. An appointment to review Docket No.

301-100a may be made by

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calling Brenda Webb at (202) 395-6186. The USTR Reading Room is open to

the public from 9:30 a.m. to 12 noon and 1:00 p.m. to 4:00 p.m., Monday

through Friday, and is located in Room 101.

Joanna K. McIntosh,

Chairman, Section 301 Committee.

Figure 1.--EC Banana Regime: Current v. EC Council Approach

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Provision Current regime EC council approach

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Latin American TRQ of 2.53 75 ECU/ton tariff; 75 ECU/ton tariff;

million tons. access at zero no limit on ACP

tariff for ``non- access at zero

traditional'' ACP tariff.

bananas limited to

90,000 tons.

Latin American bananas 765 ECU/ton tariff.. 765 ECU/ton tariff.

entering over the TRQ.

ACP traditional bananas' Zero tariff, with Same; zero tariff,

quota of 857,700 tons. twelve country with no allocations

allocations. yet announce.

Tariff on ``non- Zero tariff for Zero tariff for

traditional'' ACP bananas. 90,000 tons within unlimited tons

Latin American TRQ. within Latin

American TRQs'

``others''

category.

ACP over-quota tariff....... 665 ECU/ton......... 565 ECU/ton.

Latin American Import About 50% to License-users to

Licenses. historical receive same

importers (Latin amounts as they

American and U.S.) used in 1994-96

and rest to EC/ACP under illegal

companies system.

(importers/

ripeners).

EC Producer Price Subsidy... 622.5 ECU/ton....... 640.3 ECU/ton.

EC funds from tariff on 185 million ECU..... 185 million ECU.

Latin American bananas.

Review date................. 2002................ 2005.

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[FR Doc. 98-28271 Filed 10-21-98; 8:45 am]

BILLING CODE 3190-01-M