Maharashtra National Law University, Aurangabad

International Trade Law Project

On

Article XIII of the GATT & the Banana Dispute Study

Submitted By:

SOUMIKI GHOSH

Roll No. 2018/BALLB/10

[B.A. LL.B (H). 4th Year, VIIIth Semester]

In

April, 2022

Under The Guidance Of

Mr. Vivek Wilson & Mr. Aniruddha Tapdiya

Faculty of International Trade Law

1
DECLARATION

I hereby declare that the project work in the B.A.LL.B (Hons.) Semester VIII International
Trade Law Project entitled ― “Article XIII of the GATT & the Banana Dispute Study”
submitted at Maharashtra National Law University, Aurangabad is an authentic record of my
work completed under the supervision of Mr. Vivek Wilson sir & Mr. Aniruddha Tapdiya sir.
This work has not been submitted for any other degree or diploma. I am solely responsible
for the information contained in my Project work. This work has not previously been
submitted to any other university, and it is not copied from any book or website.

SOUMIKI GHOSH

2018/BALLB/10

Maharashtra National Law University, Aurangabad

2
INDEX

TOPICS PAGE NO.

Introduction 4
Significance of the study 5
Objectives of the study 5
Methodology 5
Subject Matter 6-13
Conclusion 14

3
INTRODUCTION

The General Agreement on Tariffs and Trade (GATT), which was signed on October 30,
1947, by 23 countries, was a legal agreement that aimed to reduce trade barriers by
abolishing or reducing quotas, tariffs, and subsidies while retaining considerable restrictions.
1 The GATT was created to help the world economy recover after WWII by rebuilding and
liberalising global trade.1

Article XIII: Non-Discriminatory Administration of Quantitative Restrictions

No discrimination between Members in the application of quantitative restrictions and

the allocation of such restrictions should reflect their underlying trade shares. Details
of any restrictions should be transparent and negotiated with affected Members.

1
https://www.investopedia.com/terms/g/gatt.asp

4
SIGNIFICANCE OF THE STUDY

The study is helpful to understand the ins and outs of the scope and importance of GATT and
WTO. It also analyses the Banana dispute in the light of Article XIII of GATT.

OBJECTIVE OF THE STUDY

This research project attempts to explain the current laws and the relevant judicial decisions
regarding the Article XIII. The objective is to find out, understand and elaborate the
applicability of the Banana dispute in current judicial scenario.

METHODOLOGY

The research is descriptive and qualitative. The techniques comprised of utilizing different
textbooks, journals, research papers, database and websites. Various books on law of
international trade law helped to understand the topic. Secondary and Electronic resources
have been used to gather information and data. SCC online and Manupatra have been used to
look up on relevant cases.

5
ARTICLE XII OF GATT

In EC-Bananas III, the Panel interpreted the first condition of GATT Article XIII, which
states that similar products from every third nation must be similarly excluded or restricted.
"Article XIII:1 established the essential concept that no import restriction shall be imposed on
one Member's products unless importation of similar products from other Members is also
prohibited," it declared at the time. As a result, a Member cannot impose quotas on imports
from some members but not others. However, as Article XIII's provisions (and even its title,
'Non-discriminatory Administration of Quantitative Restrictions') show, the non-
discrimination commitment goes even further. The limited imports in question must
be'similarly' restricted.2

The AB had already explained how "the accordion of 'likeness' stretches and squeezes in
different places as different provisions of the WTO Agreement are applied," and how "the
accordion of 'likeness' stretches and squeezes in different places as different provisions of the
WTO Agreement are applied. However, a more in-depth examination of this topic is not
required for the objectives of this article.

"The essence of the non-discrimination duties is that similar items should be treated equally
regardless of origin." Because no one disputes that all bananas are similar items, the non-
discrimination principles apply to all banana imports, regardless of whether or how a Member
categorises or subdivides them for administrative or other purposes.

The object and purpose of the non-discrimination provisions would be defeated if a Member
could avoid the application of the non-discrimination provisions to imports of like products
from different Members by choosing a different legal basis for imposing import restrictions
or by applying different tariff rates.3 "A Member cannot prohibit the importation of any
commodity from another Member unless the importation of the same product from all third
countries is'similarly' restricted," the AB stated at the time. The second criteria, as stated in
paragraph 2 of GATT Article XIII, requires the Member to strive for a trade distribution that
is similar to what would be expected if the restriction were not in place.4

2
PR, EC –Bananas III, paras. 7.68–7.69.
3
ABR, EC-Bananas III, para. 190.
4
https://repository.javeriana.edu.co/bitstream/handle/10554/34392/DuranBejaranoPablo2017.pdf?
sequence=4

6
BANANA DISPUTE

The EU's regulation scheme for imported bananas, which was implemented in 1993, is at
issue in this lawsuit. Each of the 12 EU member nations had its own banana import rules
prior to 1992. Germany was a free market economy with no import restrictions. The
remaining 11 members put a 20% duty on bananas produced in Central and South America,
and six countries (France, Italy, Portugal, Spain, Greece, and the United Kingdom) imposed
limits on bananas produced in those regions. These limits were put in place to defend the EU
market from bananas produced in former EU territories and ACP countries (developing
countries in Africa, the Caribbean, and the Pacific) that were granted duty-free access under
the Lom Convention. The EU formed, on July 1, 1993, as part of its 1992 integration agenda,
an EU wide banana trade sector.

Banana imports were subjected to one of two two-tier tariff rate quota systems dependent on
their country of origin under this complicated arrangement. Bananas from the ACP countries
were allowed duty-free entrance up to a limit of 857,7000 metric tons, which was assigned to
each banana-producing country based on their previous exports to the EU. ACP imports
worth more than this received 750 ECUs per metric ton. Imports of non-ACP bananas were
subject to a charge of ECU 100 per metric ton up to 2 million metric tons, and ECU 850
above that level. Thirty-three and a half percent of the 2 million tons of non-ACP bananas
subject to the lesser tariff of ECU 100 were set aside for European marketing companies, the
majority of which were from the United Kingdom.

Despite the fact that the United States promptly criticized the new banana rule, the first
judicial challenge was filed by five Latin American banana-producing countries (Colombia,
Costa Rica, Guatemala, Nicaragua, and Venezuela). In June 1993, they began GATT dispute
settlement proceedings. In January 1994, a GATT panel decided that the EU regime was
unconstitutional under the GATT. The panel report was not approved, as was customary
under the GATT system, which permitted parties to a dispute to reject findings against them.
Rather, with the exception of Guatemala, the EU negotiated a "Framework Agreement" with
all of the complainants that increased and guaranteed the value of their export quotas in
exchange for their agreement to withdraw the GATT complaint and refrain from further
GATT challenges until December 31, 2002.

7
The non-ACP quota was increased to 2.1 million tons in 1994 and 2.2 million tons in 1995,
while the in-quota tariff on Latin American bananas was reduced by 25% to ECU 75 per
metric ton. Each of the four Latin American signatories was given unique export quotas.
Chiquita Brands International and the Hawaii Banana Industry Association filed a petition
under section 302(a) of the 1974 Trade Act in September 1994, claiming that the EU regime
and the Framework Agreement were discriminatory and had reduced US companies' share of
the EU market by more than 50%.

The petition was the first section 301 petition submitted by the Clinton Administration, and it
was seen as a litmus test of the new administration's determination to vigorously enforce US
trade laws to safeguard US interests. Fifty House members, including members of the
leadership, wrote to the US Trade Representative (USTR) requesting the petition to be
accepted.

The chairman and CEO of Chiquita International Brands, Inc., as well as connected
corporations and executives, were among the greatest contributors to the Democratic and
Republican parties in the 1993-94 election cycle, according to a survey released at the time
by Common Cause. This revelation raised questions about the Administration's true
motivations in pursuing Chiquita's case, especially in light of the fact that the Chiquita
facilities allegedly harmed by the EU banana policy are located outside the US and employ a
largely non-US workforce, as critics have pointed out.
Despite rising opposition, the USTR launched an investigation into the EU under Section 302
of the Trade Act on October 7, 1994.
On January 9, 1995, the US Trade Representative released a preliminary conclusion that the
EU banana policy harmed US economic interests by hundreds of millions of dollars. The EU
and Caribbean producers both slammed the USTR decision right away.

The EU supported the system as a crucial foreign assistance policy tool, and the Caribbean
nations maintained it as the backbone of their economies, whose abolition would result in
political and economic turmoil.

In September 1995, the USTR changed its strategy after failing to secure a negotiated
solution with the EU. It dropped its Section 301 litigation against the EU and, along with

8
Guatemala, Honduras, and Mexico, filed a WTO dispute settlement complaint. Ecuador
became a party to the case in February 1996.
The petitioners claimed that the EU system violated GATT 1994 Articles I, II, II, X, XI, and
XIII, as well as the Agreement on Import Licensing Procedures, the Agreement on
Agriculture, GATS, and the Agreement on Trade-Related Investment Measures.
Consultations were held, but no resolution was reached since EU member states refused to
provide the EU Commission a mandate to make significant reforms to the framework. As a
result, on April 24, 1996, the United States, Ecuador, Guatemala, Honduras, and Mexico
requested the formation of a WTO dispute-resolution panel. It was founded on the 8th of
May, 1996.

The EU case before the panel was mainly reliant on its assertion that the banana policy was a
legal aspect of the Lom Convention, for which the EU had a WTO waiver. The US response
was that the Lom Convention did not apply to the banana regime.

The WTO panel assessment, released on May 22, 1997, found that the EU banana import
regime was discriminatory and hence in violation of the GATT 1994, the WTO Import
Licensing Agreement, and the GATS. The EU announced its intention to challenge some
legal issues raised in the panel report a month later. The Appellate Body not only supported
the panel's conclusions, but also discovered more GATT infractions.5
It found that certain components of the EU licencing scheme breached GATT Article X
(publishing and administration of trade regulations) as well as the WTO agreement on Import
Licensing Procedures, and reversed the panel's judgement that the Lom waiver covered
discriminatory quotas. On September 25, 1997, the Appellate Body report and the panel
report, as modified by the Appellate Body, were approved. The EU was given 15 months to
comply by the WTO, until January 1, 1999.

The European Commission announced a modified banana regime in mid-January 1998,

claiming that it was WTO-compliant. The following were the primary features of the new
regime: 1. Maintaining the present Latin American banana tariff-rate quota (2.2 million
metric tonnes at ECU75/ton duty; duty above quota at ECU765/ton);

5
https://www.asil.org/insights/volume/6/issue/4/us-eu-banana-dispute

9
2. Creation of a new, autonomous Latin American tariff-rate quota of 353,000 tonnes at an
ECU 75/tonne tax rate to allow for EU enlargement (Austria, Finland, and Sweden joined the
EU in 1995). 3. A percentage of the tariff rate quota is allocated to exporting countries having
a "substantial interest" in the banana market. 4. Maintaining a zero-duty maximum quantity
allowance of 857,700 metric tonnes for typical ACP imports; 4. Eliminating the old licencing
system in favour of a mechanism that distributes licences to actual importers based on the
volume of imports handled in 1994-96. 6
The United States complained, claiming that the new method violated the WTO by
continuing to apply two independent criteria to allocate percentages of its banana market to
Latin American and ACP countries. According to the US, in order to be WTO-compliant, the
EU must adopt a single tariff-rate quota that covers all suppliers and allocate quota shares
among supplying countries based on the same set of criteria.7

Despite US protests, the European Commission's Agriculture Council approved the new
arrangement, which was implemented in October 1998.

The US and Ecuador repeatedly tried to reconvene the original WTO dispute-settlement panel
that had ruled against the EU in an attempt to resolve their disagreement over the modified
banana regime's WTO compliance.
The EU rejected, instead requesting the appointment of a new panel under Article 21.5 of the
Dispute Settlement Understanding (DSU) in mid-December to decide if its new regime is
WTO-compliant.
In November 1998, the US issued a preliminary list of EU items that would suffer exorbitant
tariff rates of 100 percent ad valorem if the EU failed to impose a WTO-consistent banana
regime by January 1, 1999, after failing to secure a decision by the original panel on the new
regime. In December, the final list was released.

In mid-January, the US requested authorisation to impose retaliation in the amount of $520

million, based on the projected yearly economic loss of US exports and profits for US
suppliers as a result of the EU's failure to comply with the panel findings. The United States
used Article 22.2 of the World Trade Organization's Dispute Settlement Understanding,

6
Ibid.
7
Ibid.

10
which allows a complaint to obtain authorisation to retaliate 20 days after the panel's deadline
for implementation, which in this case was January 1, 1999.

The proposal was on the agenda for the Dispute Settlement Body's (DSB) meeting on January
28, 1999.

St. Lucia and Dominica attempted to obstruct acceptance of the DSB agenda, arguing that
reforms to the EU banana policy required by the US would ruin their economy. This was the
first time a DSB agenda had been blocked in the WTO's four-year history, and it was thought
that allowing it to remain would set a hazardous precedent. The block was removed at the
request of the WTO Secretariat.

The EU disputed the US interpretation of the WTO dispute settlement rules, claiming that its
amended banana system should be assumed WTO-compliant, and that the US would only be
able to utilise Article 22 to seek authorization to react if a fresh Article 21 panel decided
against it.
A formal grant of authorization to retaliate was only granted once under the GATT, the
WTO's precursor body. Article 22.2 of the new WTO dispute settlement processes gives
winning parties the right to seek authorisation to respond if the losing party fails to
implement the panel's decision within a certain time frame. The guidelines, on the other hand,
do not clarify how such "failure to implement" is to be established. The question is whether a
country's authorization to retaliate must wait for a formal Article 21.5 compliance panel
finding that the targeted country has failed to comply with a previous panel ruling, or whether
the Article 22 panel could determine the compliance question when deciding on the
retaliation.
The impasse was eventually broken by WTO Director General Ruggiero's proposal to use the
WTO's Article 22 arbitration process to decide the extent of appropriate retaliation.

Until the arbitrators reach a ruling, the US agreed not to collect retaliatory duties. The
arbitrators were required under the arbitration proceedings to establish the magnitude of the
economic loss caused to the United States by the amended banana import regulation by
March 2, 1999. The US request for $520 million in retaliation authority, on the other hand,
was predicated on the impact of the original banana regime. The arbitrators said they would

11
be unable to issue a decision within the specified timeframe due to insufficient information
received from the parties.
The following day, the US declared that it will impose a contingent responsibility of 100
percent taxes on selected EU goods worth at $520 million. As a result of this action, the EU
requested consultations under Article 4 of the DSU.

The arbitrators' report was released on April 9, 1999.

(11) It effectively ruled that the United States did not need to wait for a new Article 21
compliance panel finding before seeking retaliatory authority. A dispute settlement panel
confirmed this judgement in July 2000, finding that a panel created under Article 22 to
analyse the extent of reprisal can do a compliance assessment.8

The arbitrators also found that the EU's amended banana regime was WTO-incompatible, and
that the US suffered a loss of $191.4 million, far less than the $520 million estimated by the
US. As a result, both parties decided to comply, with the EU revising its banana policy once
more and the US decreasing its request for retaliatory authorization to $191.4 million. On
April 19, 1999, the US request was granted, and duties were applied retrospectively to March
3, 1999. (13)
The European Commission adopted a proposal in November 1999 to change its banana
policy once more in order to bring it into agreement with the WTO.

The proposal advocated for a transitional tariff rate quota (TRQ) system that would be
replaced with a tariff-only regime by January 1, 2006. ACP suppliers would be given
precedence under both tariff regimes. (14) This preference was justified by the EU as part of
the Lom Convention, for which it had acquired a WTO waiver.

The United States, like the two previous banana regimes, rejected this plan as WTO-
incompatible. Frustrated with the EU's inability to comply with a succession of WTO
judgements against its banana policy, the US began to examine a unique and controversial
reprisal strategy in early 2000.

8
https://www.asil.org/insights/volume/6/issue/4/us-eu-banana-dispute

12
Under the so-called "carousel method," the US would change the products on which it placed
retaliatory tariffs on a regular basis. It was stated that rotating the products on the retaliation
list would increase the number of EU producers affected by the retaliation, putting more
pressure on the EU to bring its system into compliance.
The US has rejected a December 2000 EU proposal for the structure of its banana regime,
which included tariff-rate quotas given on a first-come, first-served basis, as WTO
incompatible. The US also demands that any new banana system include licences for
Chiquita and Dole to export 1.066 million tonnes of Latin American bananas to the EU.

In mid-January 2001, a WTO appeal body overruled a previous panel's decision that a panel
created under Article 22 to rule on retaliation may make a compliance assessment. The panel
had overstepped its own terms of reference, according to the appeal authority, hence the
verdict had no legal impact. As a result of this decision, the crucial question of sequencing
remains unanswered.

13
CONCLUSION

The case has now been remanded to the European Court of Justice by the newest
development. On January 25, 2001, Chiquita filed a lawsuit in the European Court of First
Instance, alleging that EU banana import policies caused $525 million in losses to its
operations and violated a legal mandate from member state ministers to bring the regime into
compliance with the World Trade Organization. The issue has raised major questions about
how the US picks which trade disputes to pursue at the WTO: notably, whether the system
gives the Administration too much power and so favours politically connected parties.
The current procedures for determining retaliation's effectiveness are also being questioned.
Fears of mirror laws in other countries offset calls for more effective, i.e. more onerous,
measures like the carrousel strategy.

 
 

14