EC to implement banana ruling after consultations

The panel ruling against the EC's banana import regime was adopted by the WTO Dispute Settlement Body in a meeting at which some members also brought up the systemic issues that have arisen from the banana dispute. Among these issues were the terms of reference of Art. 21.5 panels and the proper sequencing of Art. 21.5 and Art. 22 actions.

by Chakravarthi Raghavan

GENEVA: The European Communities announced at the WTO on 6 May that it would start consultations with Ecuador on ways to implement the ruling of the reconvened banana panel in full conformity with the Dispute Settlement Understanding.

The EC statement came at the Dispute Settlement Body, which adopted the report and recommendations of the banana panel, which had been reconvened under Art. 21.5 of the DSU to rule on the conformity of the new banana regime with WTO rules. The panel ruled against the EU and made suggestions on how the EU regime could be brought into conformity.

The EC was to begin consultations in Brussels on 7 May with representatives of Colombia, Costa Rica, Ecuador and Panama, the four countries with "substantial interests in the banana trade," said the Ecuadorean representative to the WTO, Amb. Roberto Betancourt.

The EC was also to have talks, also in Brussels, with the 12 African, Caribbean and Pacific (ACP) banana exporters, as well as with countries from the "other" category, including small exporters and those, like the US, with commercial interests in the banana trade. The banana panel had been reconvened on 12 January, on a request from Ecuador made at the DSB on 18 December. The report (along with the arbitrator's assessment of the trade impairment for the US) was circulated on 12 April.


Apart from the comments of Ecuador and the EC, a number of other countries also expressed themselves essentially over the banana issue, while India, Japan and Hong Kong China made some comments on what they saw as the systemic issues and the need to address them in the ongoing DSU review.

The EC told the DSB that its acceptance of the adoption of the panel report did not mean it welcomed the outcome nor that it shared the panel's legal reasoning. On the contrary, the EC was rather disappointed that at the end of such a long procedure, the ruling did not create the legal certainty one was entitled to expect.

However, the EC had decided not to exercise its right to appeal the findings, simply because it was not appropriate to endlessly prolong the legal debates. The EC praised Ecuador for having resorted to Art. 21.5 - as the only avenue compatible with the understanding of a genuinely rules-based system.

Guatemala regretted that after so many rulings, it had still been found necessary to resort to the DSU on the banana issue, but said that it was glad to hear that the EC would implement the conclusions. Panama too expressed satisfaction with the outcome, and said it was ready to consult with the EC and the ACP countries.

Costa Rica was concerned over the limited rights that third parties had before the reconvened panel and felt that its arguments had been ignored by the reconvened panel. Also, it was not legally correct to accept a recourse to Art. 22 (trade retaliation, as the US has done) without recourse to Art. 21.

Australia welcomed Ecuador's procedural approach (in having invoked Art 21.5), while Brazil jokingly hoped that the basic WTO principles of MFN and national treatment would be applied to Brazilian bananas. (Brazil is an important producer but does not seem to be involved in exports.)

Colombia felt frustrated by the EC decision not to appeal, while Mexico said it was ready to initiate consultations with the EC to establish a regime beneficial to everyone.

Japan said it was pleased that Ecuador had used the 21.5 procedure, and believed that this was the only avenue when there was disagreement on measures used to comply.

Terms of reference

In other comments, India expressed its systemic concerns about the terms of reference of the panel and the latter's view that the "matter" before it was the one referred to the DSB by Ecuador as part of the request for establishment of the panel. In India's view, under Art. 21.5, a reconvened panel's jurisdiction was limited to the matters on which the DSB had adopted its recommendations or rulings based on the original panel report and the Appellate Body's.

India saw a great deal of merit in the EC's argument before the reconvened panel that the panel could only verify the consistency of measures taken to comply with the DSB's recommendations, and not consider other claims raised by Ecuador. If new claims were allowed in Art. 21.5 panel proceedings, the shortness of time for the panel process would disadvantage parties in defending their measures.

Allowing a party which won a dispute "an unbridled right" to make claims against the implementing party could have "unpredictable consequences and complicate the Art. 21.5 panel process." While the reconvened panel had noted that the issues raised before it by Ecuador were similar to those in the original Banana-III, this need not always be the case. The panel was also wrong in following the precedent of the terms of reference applicable to normal panels under Art. 6 of the DSU. It was important to recognize that Art. 21.5 was quite different and had a different mandate. The central purpose of an Art. 21.5 panel was to determine the WTO-consistency or otherwise of measures taken by an implementing member and "it would be strange" if the panel then were to have "an unlimited mandate" to look at all claims, whether or not they were the subject matter of rulings by the panel/Appellate Body.

India was also not convinced by the reconvened panel's argument that there was nothing in Art. 21.5 which placed a limitation on the terms of reference. Equally it could be argued that there was nothing in 21.5 sanctioning the panel's approach of considering all the claims made by Ecuador, whether or not the panel/Appellate Body had issued conclusions.

Trade observers said that it was only by going into all the claims made before it by Ecuador that the reconvened panel was able to address the US claims (which it was precluded from doing under Art. 22 arbitration), in effect enabling the US to have its cake and eat it - have issues dealt with via Ecuador, and damages assessed for itself.

Promptness was an important aspect of the DSU, India said, but equally important was to ensure due process of law. The panel may have erred in this respect by ignoring the valid arguments of the EC.

India also found fault with the panel for not dealing with the EC's own reference. In India's view, it was perfectly possible and legitimate for an implementing member to have recourse to Art. 21.5 and ask for a multilateral determination of compliance of the measures it had put in place. Such a move would in fact demonstrate the good faith and bona fides of the action taken by the implementing member.

India hoped that all these issues could be addressed in the DSU review process where work was underway on Art. 21.5 and 22. This case had made clear that Art 21.5 could work if there was a will on all sides. But it was important that before a member is granted any rights under Art. 22, there must be full and total compliance with Art. 21.5 in letter and spirit.


Hong Kong China, whose Stuart Harbinson had chaired the Banana-III panel and the reconvened one, said this case should not create any precedent for future cases and noted that the relationship between 21.5 and 22 was being examined in the DSU review.

Jamaica said that the report had references to the development objective and a spirit of flexibility in the WTO system, and hoped that these would be recognized.

The US hoped that the EC would finally bring its banana regime into compliance so that this longstanding dispute could come to an end. A solution mutually acceptable to all parties to the dispute and consistent with the WTO covered agreements was to be preferred. The US was ready to negotiate with the EC on a solution to the banana dispute, taking into account the interests of all countries concerned.

Turkey said that recourse to Art. 21.5 should come before Art. 22, while Costa Rica hoped that the use of Art. 22 in this case before Art. 21.5 had not set a precedent. If it had, it was a very bad precedent.

The US said the panel had shown that the DSU provided for a process both under Art. 22 and under Art. 21.5, and neither of these processes was exclusive of the other.

The DSU did not require any particular sequence to be employed in using them, the US insisted. (SUNS4432)

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

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