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

OFFICE OF THE 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 United States suspension of tariff concessions.

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SUMMARY: The United States Trade Representative (USTR) has decided to

suspend the application of tariff concessions and to impose a 100% ad

valorem rate of duty on the articles described in the Annex to this

notice that are the products of certain member States of the European

Communities (EC) as a result of the EC's failure to implement the

recommendations and rulings of the World Trade Organization (WTO)

Dispute Settlement Body (DSB) concerning the EC's regime for the

importation, sale and distribution of bananas (banana regime). This

action constitutes the exercise of U.S. rights under Article 22.6 of

the WTO Understanding on Rules and Procedures Governing the Settlement

of Disputes (DSU) and is taken pursuant to the authority granted to the

USTR under section 301 of the Trade Act of 1974, as amended.

EFFECTIVE DATE: The USTR has determined that, effective April 19, 1999,

a 100% ad valorem rate of duty shall be applied to the articles

described in the Annex to this notice that are the products of Austria,

Belgium, Finland, France, the Federal Republic of Germany, Greece,

Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, or the United

Kingdom and that are entered, or withdrawn from warehouse, for

consumption on or after March 3, 1999. Any merchandise subject to this

determination that is admitted to U.S. foreign-trade zones on or after

April 19, 1999 must be admitted as ``privileged foreign status'' as

defined in 19 CFR 146.41.

ADDRESSES: 600 17th Street, NW, Washington, DC 20508.

FOR FURTHER INFORMATION CONTACT: Sybia Harrison, Staff Assistant to the

Section 301 Committee, (202) 395-3419, for questions concerning

documents and USTR procedures; William Busis, Associate General

Counsel, (202) 395-3150 or Ralph Ives, Deputy Assistant U.S. Trade

Representative, (202) 395-3320, for questions concerning WTO

developments regarding the banana regime; John Valentine, Acting

Director, International Agreements Staff, U.S. Customs Service, (202)

927-1219, for questions concerning classification; and Yvonne Tomenga,

Program Officer, Office of Trade Compliance, U.S. Customs Service,

(202) 927-0133, for questions concerning entries.

SUPPLEMENTARY INFORMATION: On September 27, 1995, the Office of the

U.S. Trade Representative initiated an investigation pursuant to

section 302(b)(1) of the Trade Act with respect to the EC banana regime

and, in accordance with section 303(a) of the Trade Act, promptly

requested consultations with the EC pursuant to the DSU and relevant

provisions of several WTO agreements. [60 FR 52026]. The EC regime was

designed, among other things, to take away a major part of the banana

distribution business of U.S. companies. Subsequently the United

States, Ecuador, Guatemala, Honduras, and Mexico jointly requested the

establishment of a WTO dispute settlement panel to examine the regime.

Both the panel and the WTO Appellate Body found the EC banana regime in

violation of the General Agreement on Tariffs and Trade 1994 (GATT) and

the General Agreement on Trade in Services (GATS). On September 25,

1997, the DSB adopted the report of the panel, as modified by the

Appellate Body. The resulting DSB recommendations and rulings include,

inter alia, the recommendation that the EC bring the measures found to

be inconsistent with the GATT and the GATS into conformity with its

obligations under those agreements. A WTO-appointed arbitrator

subsequently determined that the ``reasonable period of time'' for the

EC to implement the DSB recommendations and rulings would expire by

January 1, 1999.

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

USTR on February 10, 1998, determined pursuant to section 304 of the

Trade Act that the EC banana regime violates trade agreements. [63 FR

8248]. The USTR further determined that the EC's undertaking to

implement all of the recommendations and rulings of the WTO reports by

January 1, 1999 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 those trade agreements. 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 DSB

recommendations and rulings under section 306 of the Trade Act.

On January 1, 1999, modifications to the EC banana regime became

effective (EC Regulations 1637/98 and 2362/98), and the EC claimed that

these modifications brought its banana regime into conformity with its

WTO obligations. However, these regulations perpetuate discriminatory

aspects of the EC banana regime that were identified in the DSB's

recommendations and rulings as inconsistent with WTO agreements.

Therefore, on January 14, 1999, in accordance with U.S. rights under

Article 22 of the DSU, the United States requested authorization from

the DSB to suspend the application to the EC, and member States

thereof, of tariff concessions and related obligations under the GATT

covering trade in an amount of US $520 million. [www.ustr.org, Press

Release 99-01]. On January 29, the EC objected to the level of

suspension proposed by the United States and the matter was referred to

arbitration pursuant to Article 22.6 of the DSU. Under DSU procedures,

the arbitration should have been completed by March 2, 1999. However,

on March 2 the arbitrators issued only an initial decision and

requested further information from the parties. On March 3, USTR

announced that the U.S. Customs Service would begin withholding

liquidation and reviewing the sufficiency of bonds on imports of

selected European products. The purpose of this announcement was to

ensure that, upon issuance of the arbitrators' final decision, the

United States would be in the same position to take action as it would

have been had the arbitrators issued their decision by the March 2

deadline.

On April 6, the arbitrators issued their final decision determining

that the level of nullification or impairment suffered by the United

States as a result of the EC's WTO-inconsistent banana regime is $191.4

million per year and that the United States is entitled to suspend the

application to the European Communities and its member States of tariff

concessions and related obligations under the GATT covering trade up to

that amount. A meeting of the DSB was then scheduled for April 19,

1999, at which the DSB, pursuant to Article 22.7 of the DSU, shall

grant

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authorization for such suspension of concessions.

Prior Notice and Comment

On October 22, 1998, the USTR announced preparations for exercising

its right to request authorization to suspend tariff concessions on

European products if the EC failed to implement the DSB's

recommendations and rulings concerning the banana regime by January 1,

1999. [63 FR 56687]. On November 10, the USTR sought public comment on

a preliminary list of European products on which the United States was

considering suspending tariff concessions. [63 FR 63099]. On December

9, USTR conducted a public hearing to receive testimony on the

preliminary list. On December 21, the USTR announced a revised list of

European products for which the United States intended to request

authorization from the DSB to suspend tariff concessions.

[www.ustr.org, Press Release 98-113]. On December 29, the USTR sought

public comment on the possible addition of two products to the list.

[63 FR 71665; www.ustr.org, Press Release 99-01].

Both the November 10 and December 21 Federal Register notices

explained that the proposed imposition of a 100% ad valorem rate of

duty would take effect on February 1, 1999, unless the EC requested

arbitration on the proposed suspension of tariff concessions, in which

case the proposed rate of duty would take effect on March 3. [63 FR at

63099; 63 FR at 7166].

Determination and Action

As a result of the EC's failure to implement the recommendations

and rulings of the DSB concerning the EC's banana regime and following

the WTO arbitrators' decisions of March 2 and April 6, the USTR has

decided to suspend tariff concessions and related obligations under the

General Agreement on Tariffs and Trade 1994 and to impose a 100% ad

valorem rate of duty on the articles described in the Annex to this

notice that are the products of certain EC member States. This action

exercises the rights of the United States under Article 22 of the DSU

and is taken pursuant to the authority granted to the USTR under

section 301 of the Trade Act. The articles affected by this

determination were selected in light of the comments submitted to the

Section 301 Committee in response to the October 22, November 10, and

December 23 notices, and the testimony presented at the public hearing

held on December 9, 1998.

Accordingly, effective April 19, 1999, with respect to articles

that are the products of Austria, Belgium, Finland, France, the Federal

Republic of Germany, Greece, Ireland, Italy, Luxembourg, Portugal,

Spain, Sweden, or the United Kingdom and that are entered, or withdrawn

from warehouse, for consumption on or after March 3, 1999, the

Harmonized Tariff Schedule of the United States (HTS) is hereby

modified by inserting the provisions listed in the Annex to this notice

in numerical sequence in subchapter III of chapter 99, with the content

of the new subheadings and superior text set forth in the HTS columns

designated ``Heading/Subheading,'' ``Article Description,'' and ``Rate

of Duty General,'' respectively. Any merchandise subject to this

determination that is admitted to U.S. foreign-trade zones on or after

April 19, 1999 must be admitted as ``privileged foreign status'' as

defined in 19 CFR 146.41. The amount of trade affected by this action,

as measured by 1998 import values, is equivalent to the level of

nullification or impairment determined by the WTO arbitrators in their

decision of April 6, 1999.

Joanna K. McIntosh,

Chairman, Section 301 Committee.

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[FR Doc. 99-9703 Filed 4-16-99; 8:45 am]

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