A dispute panel ruled against the US on its bonding and other measures put in place before authorization for trade retaliation in its long-running dispute with the EC over bananas.

by Chakravarthi Raghavan

Geneva, 18 July 2000 -- A dispute panel of the World Trade Organization has handed down a ruling in the long-running US-EC dispute over bananas that seems to uphold the US right for trade retaliation authorization under Art. 22 of the DSU, without going through first a compliance panel ruling, but ruled against the US on bonding and other measures put in place before such authorization.

The ruling may complicate even more the deadlock in efforts to revise the Dispute Settlement Understanding on some procedures. The DSU revisions are held up by differences between the US and EU over the US ‘carousal’ approach to trade retaliation. But the informal discussions for changes do not in any way address the growing disquiet over the way panels and Appellate Bodies are usurping the rule-making powers of the WTO Ministerial Conference and General Council, or determinations by WTO bodies.

Either side can take the ruling to the Appellate Body for appeal on grounds of law.

The three-member panel has held to be WTO incompatible the bonding requirements (with 100% duty on notified products of a total annual value of over $500 million) that the US enforced on imports from EC, from 3 March 1999, ahead of the arbitration report under Art. 22 of the DSU, on the extent of trade damage the US could seek to counter through withdrawal of equivalent concessions.

A summary of the findings and recommendations of the panel became available Monday evening unofficially. The full report, notified to the media as available on the WTO website effective Monday evening, was not in fact available late Monday night (Geneva time), but only on Tuesday morning Geneva time.

An arbitrator had awarded the EC time till 1 January 1999 to comply with the panel ruling. The EC had made known its intentions in the goods and services sectors separately by late 1998.

Requests from Ecuador, and another from the EC, to go into the compliance issues were referred to a reconvened panel (in terms of Art. 21.5 of the DSU) on 12 January, 1998. The US however chose to go to retaliation, “withdrawal of equivalent sanctions”, and moved the Dispute Settlement Body on 14 January for such authorization for $520 million of “nullification and impairment”. The EC sought arbitration on the level of trade damage claimed.

Both the compliance issue and the arbitration to settle the level of trade damage authorization to be granted to the US were referred to the same original WTO banana panel.

Separately, the US on 18 February moved the DSB for authorization to withdraw equivalent concessions from the EU, noting that the arbitrator had to give the ruling by 2 March.

While the arbitrators on 2 March sought further information, and thus put off their ruling, the US issued notifications asking its customs authorities to require bonds from importers before customs clearance.

The arbitrator’s award on the US request for suspension, fixing the damage caused at a lower level ($191.4 million), and the ruling on the EC compliance (sought by Ecuador) were both issued on 6 April to the parties and, on 12 April, to the members of the WTO. The US sought on 7 April authorization for trade sanctions (ahead of the circulation of the ruling to the DSB). On 19 April, the DSB granted (automatically as required by the DSU) authorization to the US for suspension.

The EC had a panel set up to go into the 3 March notification of the US (requiring bonds from importers) and its compatibility with the WTO agreements.

The panel not only went into this, but also the 19 April DSB authorization to the US to retaliate, which was not in its terms of reference.

In its conclusions, the panel has ruled that the 3 March US order requiring bonds from importers of products from the EC, and the instructions to customs authorities to withhold final clearance was a WTO violation in terms of Art.23.1 of the DSU (unilateral determination of compliance).

The 3 March measure by the US, a unilateral determination that the EC was not in compliance, violated the WTO - DSU articles 23.2(a) and 21.5, and thus violated both Article 23.1, 23.2(a) and 21.5 of the DSU.

The increased bonding requirements (up to 100% of value as tariff) of 3 March violated Art.II (a) and II (b) of the GATT. The increased interest charges, costs and fees resulting from the measure also violated Art.II (b) of GATT, and Art.I (MFN provision) of GATT.

In perhaps the first instance of its kind, there was a minority view of one panellist holding that the increased bonding requirements violated Art XI of the GATT (general elimination of QRs).

But the panel has rejected the EC argument of the 19 April US request for retaliation authority, ahead of the award of a valid WTO determination of incompatibility of the US measure.

Though the 19 April DSB authorization was not part of the panel’s terms of reference, nevertheless it took that on board and ruled in favour of the US, and found the Art 22 arbitration process was WTO compatible.

The US had contended before the panel that it had been obliged to take recourse to the trade sanctions route because of the way the EC was violating its obligations and unduly delayed the arbitration processes.

The panel observed, as a comment, that no WTO violation by one member could justify unilateral retaliation by another; and this was the object of the prohibitions in Art.23.1 of the DSU. If members disagreed whether there was a WTO violation, the only recourse was to a dispute process and WTO determination of violation.

The time limits set on the various panel processes were only minimum, without any ceiling or maximum. Delays in dispute procedures could always happen, and the arbitrators providing a ruling within the time-limit was only a procedural and not substantive violation.

The requirement to abide by DSU Art.23 remained, and the US defence had therefore to be rejected.-SUNS4711

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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