Banana III : European Communities - Regime for the Importation, Sale and Distribution of Bananas 1 The market for bananas 2 The Lomé IV Convention 3 The EU regime of importation of bananas 4 The panels under GATT 1947 5 The disputes under EC law: ANNEX 1 The market for bananas By looking at the market for bananas, we can start to understand why this tropical product has become such a source of friction and dispute. Consumption of bananas has increased over this century due to their availability through trade. Bananas are produced in tropical regions and consumed in temperate industrialised countries. Today, bananas are the second most traded foodstuff after coffee50. This makes bananas a very profitable product to trade. Moreover, bananas do not always have potential substitutes among other fruits51. Production of bananas comes to a large extent from three areas: the Caribbean, Central America and the Philippines. These three regions together have 85 % of the word exports52. Other sources of production are the African continent and the Pacific Islands. Europe produces few bananas in the southern regions53 and in the French Overseas Departments. Trade in bananas is dominated by three large transnational companies: United Brands, Castle & Cooke and Del Monte. That explains the intervention of the United States in this case, although the Appellate Body Report does not mention the issue when dealing with the standing of this country. It merely refers to the existence of a small production of bananas and, therefore, of a market which could be affected by the EC regime indirectly. The European Union (hereafter, the EU) is the largest consumer of bananas. Since its own production capacity is small, large quantities have to be imported from third countries. Traditionally, the Benelux countries, Denmark and Ireland imported from Latin America, while France, Greece, Italy, Portugal, Spain and the United Kingdom protected their national production and imports to those EC Members were only from ACP countries54. The prices for ACP and Community bananas were appreciably higher than those coming from Central America. Germany enjoyed a special arrangement allowing it to import bananas regardless of their origin free of customs duty55. This situation56 was difficult to reconcile with the notion of the common market, which implies free circulation of goods throughout the territory of the European Community. Therefore, trade in bananas was apt to be regulated by means of Community legislation. 2 The Lomé IV Convention The EU offers to its former colonies development aid under the Lomé Conventions. These Conventions are based on the concept of sustainable development57. Therefore, they are agreed for periods of several years, the last one (Lomé IV) for ten years58. The Lomé Conventions provide, amongst others, technical and financial assistance and commercial co-operation. This, on the basis of non-reciprocal preferential access of the ACP products to the EU market. Moreover, the Lomé Conventions include four protocols on commodities, one of them including provisions on the banana market. ACP countries agree to improve the productions and marketing of bananas, while the Community undertakes to provide to ACP bananas a treatment not less favourable than in the past59. After the Uruguay Round was negotiated, there were already some concerns as to the compatibility of the IV Lomé Convention with the WTO. In October 1994, the EU formally sought a waiver for the Lomé convention under the rules of GATT 1947. A five year derogation of the obligations under Article I GATT was granted60. However, it was already stated at that time that some Members did not intend it to cover the EC banana regime61. The 1997 Green Paper of the European Commission62 on EU-ACP relations proposes several kinds of trade arrangements for the future63, since the Lomé IV Convention expires in the year 2000. Some of those arrangements would need a waiver and some others are expected to be compatible with WTO rules64. The outcome of the AB Report on the banana case will probably encourage the EU to reach a trade regime which, respecting the solidarity principle of the Lomé Conventions, will be compatible with international trade obligations. 3 The EU regime of importation of bananas On 13 February 1993 the European Communities passed a Regulation creating a Common Organisation of the banana market65. The main objectives indicated in the recitals were the creation of a common market for agricultural products, allowing free circulation of bananas within the territory of the EC and respect for the international obligations of the EC, in particular the Lomé Conventions. The Regulation created a tariff quota system. Three kinds of bananas receive thereby a different treatment: ACP bananas receive national treatment (0% tariff quota) up to a certain quota, while third country bananas are subject to import duties and to a system of import licenses. EU bananas: 854.000 tonnes, maximum annual quantity for which compensation may be paid for any loss of income to Community producers. Specific quotas are allocated to the individual EU regions, almost 50% corresponding to the Canary Islands. Traditional ACP bananas: 857.700 tonnes, which cover the quantities exported by ACP states who have traditionally exported bananas to the EC. These quantities are distributed among 12 ACP countries in an Annex. The tariff of 0% makes them equivalent to EC bananas. Third country bananas: 2 million tonnes, covering any other import of bananas, mainly dollar bananas but also those exceeding the quota for traditional ACP bananas (called non-traditional ACP bananas). Within this quota, the ACP bananas are also imported duty-free while third country bananas are charged a levy of 100 ECUs per tonne. Above the 2 million tonnes quota, non-traditional ACP bananas and other third country bananas are charged tariffs of 750 ECU/tonne and 850 ECU/tonne, respectively. This quota of 2 million tonnes is subject to a system of import licenses, dividing the operators established in the EC into three categories: Category A: 65 % of the quota is reserved to established operators for dollar and non-traditional ACP bananas (mainly US multinationals) . Category B: 30 % of the quota goes to established operators of EC and traditional ACP bananas (mainly European-based companies). Category C: 3.5 % for new EC operators who started marketing bananas other than EC and/or ACP bananas from 1992. This system creates cross-subsidies favouring the less efficient EU and ACP bananas66: since the price for bananas within the EC is higher than in the rest of the world, companies will try to market as much as possible in its territory. For this purpose, they need to obtain licenses. Companies traditionally importing dollar bananas find themselves with less than 65 % of the quota they used to have67. In order to be able to maintain the quantities imported, they have to buy the licenses from operators belonging to category B. Those operators, in stead of shifting from their traditional imports from ACP countries to imports from third countries, find it easier to sell their import quotas to those in category A who need them to be able to meet the demand for dollar bananas. As for the objective of respecting international obligations of the EC, the Lomé Convention was certainly respected since ACP bananas are given a preferential treatment unless newly imported, but this was at the expense of the obligations under the GATT 1947. Five Latin American countries requested the creation of a panel to challenge the EC common banana market. Additionally, Member States for which the traditional sources of supply were the dollar countries started proceedings in front of the European Court of Justice. Those disputes are dealt with in the following sections. 4 The panels under GATT 1947 A first GATT panel was initiated by Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela against the national regimes existing before the 404/93 Regulation. The panel concluded in May 1993, when the Regulation was already adopted and the national regimes had disappeared. A second GATT panel was therefore initiated by the same five Latin American states against the EC common banana market. The panel found Regulation 404/93 inconsistent with articles I, II and XIII of GATT68. The result of the panel was a further modification of the EC import regime of bananas. Four of the complaining parties reached an agreement with the EC, the Framework Agreement69, which Guatemala did not accept. The four Latin American countries agreed not to request the adoption of the panel, in return for certain concessions. The tariff quota for third country and non-traditional ACP bananas was expanded to 2.2 million tonnes. The four countries were allocated specific quotas and, more importantly, they were given the power to issue export certificates. As a result, some of the income of the EU importers was transferred to the Latin American exporters. A third panel was initiated by Guatemala, Honduras, Mexico and the US under the new dispute settlement rules of the WTO. The analysis of the Appellate Body Report on this case is the object of this article. 5 The disputes under EC law: Germany has been the most active Member State in bringing complaints against the EC regime of importation for bananas. Previous to Regulation 404/93, Germany imported dollar bananas duty-free. With the system of the common organisation of bananas, it had to charge a levy to its traditional imports and consequently, the price of this product was considerably raised. A series of claims were brought in front of the European Court of Justice, both by importers and by Member States70. Further litigation took place in front of national courts. On 5 October 1994, in the case Germany v. Council71 (the "bananas judgement") the ECJ refused to annul the Regulation. The positions of the EC Member States were divided in two groups, according to their economic interests. Germany was supported by Belgium and the Netherlands in its claims and the Council found the support of the Commission and of the countries whose patterns of trade benefited from the Regulation72. The arguments put forward by the German Government related to procedural flaws, general principles of law and infringement of the Lomé Convention and the GATT. All these pleas were rejected. For the purpose of this article, only the position as to the infringement of the GATT will be treated73. In previous cases74, the ECJ had already established that an individual within the Community may not invoke a breach of a GATT obligation in order to challenge the lawfulness of a Community act, unless the EC secondary measure contested refers to a GATT obligation or arguably intends to fulfil GATT obligations. This reasoning is also applied to EC Member States without considering that they are themselves members of GATT and therefore, bound by it under international law. The Court is not being consistent with its own jurisprudence, both as regards direct effect in general and the possibility to invoke of international treaties. When the ECJ is considering the direct effect of a provision, it generally looks at the concrete wording of the article concerned, not, like it does in the bananas case, to the features of the complete text of the agreement. On the other hand, when considering the compatibility of national law with international agreements signed by the EC, the ECJ takes a diametrically opposed approach, obliging national laws to comply with those agreements75 including GATT76. Germany went on to request from the ECJ an opinion77 on the compatibility with the EC Treaty of the Framework Agreement on bananas that resulted from the negotiations after the second GATT panel ruling78. The ECJ did not deliver an opinion because the procedure used would no fulfil its aim. The Framework Agreement had been incorporated in the Uruguay Round negotiations in Schedule LXXX. Therefore, its compatibility with the EC Treaty could not be assessed, since the Uruguay round Agreements had already entered into force from 1 January 1995, before the ECJ could give its opinion. Two recent judgements of the ECJ have found certain aspects of the FAB incompatible with the non-discrimination obligation79. Some rules implementing Regulation 404/93 are also found to be invalid80. The position concerning the direct effect of the WTO agreements remains the same. Companies disadvantaged did also challenge the validity of Regulation 404/93 before the ECJ, but their claim was not admissible in an annulment proceeding, where private parties have to prove a direct and individual concern81. However, the ECJ transferred the claims concerning damages to the Court of First Instance82. The amount of litigation that the EC banana regime has provoked illustrates the importance of the case. Indeed, the system established by Regulation 404/93 had important effects on consumers, importers and exporters of this product. 50 World trade in bananas was worth $ 1 bn in 1991. See READ, note 43, at 219. 51 In the case 27/76 United Brands v. Commission [1978]ECR 207, the ECJ considered bananas a separate product market since prices of other fruit markets only affect banana prices to a limited extent. This is due to the fact that bananas have a constant level of production, while other fruits are only available in some periods of the year. 52 GRINBERG, R. "Negotiating a Fait Accompli: The WTO Incompatibility of the Lomé Convention Trade Provisions and the ACP-EU Negotiations. (ECDPM Working paper No.38), Maastricht: ECDPM. 53 Portugal, Spain and Greece, in particular the Canary Islands and the Azores. 54 Africa, Caribbean and Pacific countries, Members of the Fourth ACP-EEC Convention, signed in Lomé on 15 December 1989. 55 Protocol annexed to the Implementing Convention on the Association of the Overseas Countries and Territories with the Community. In practice, Germany imported mainly from Latin American countries the so-called "dollar bananas". See NYBERG, J. "Will the Fight Against the European Community Common Banana Market Lead to Conflicts of a Constitutional Character? The jurisdiction of the Court of Justice of the EC in relation to the GATT Panel and the German Federal Constitutional Court, ELSA SPEL (1997)2 at 212. 56 As described in the ECJ judgement of 5.10.1994, case C-280/93, Germany v. Council, [1994]ECR I-4973. 57 LEMESLE, R.-M., La Convention de Lomé: principaux objectifs et exemples d'actions 1975-1995, CHEAM, Paris, 1995. 58 The latest Lomé Convention was signed on 15 December 1989 by 69 ACP states and the EC and entered into force in March 1990. 59 Article 1 of the Protocol 5 on bananas of the IV Lomé Convention. 60 Decision of the WTO General Council of 14 October 1996, WT/L/186, 18 October 1996. 61 The Delegates of Guatemala and the US expressed that they would not oppose the consensus for a waiver concerning the tariff preferences, but they reserved their rights to challenge the EU banana regime. 62 See supra, note 42. 63 Namely, keeping the status quo, (the current non-reciprocal, uniform scheme based on market access), integration on the GSP, uniform reciprocity, differentiated reciprocity, differentiation under a single framework and differentiation leading to a variety of arrangements. 64 For a complete analysis of the compatibility with GATT rules of the Lomé Conventions, see THOMAS, R.H., "The WTO and Trade Cooperation Between ACP and the EU: Assessing the Options." ECDPM Working Paper No.16, Maastricht, 1997. 65 Council Regulation (EEC) No.404/93 of 13 February 1993, on the Common organisation of the market in bananas, OJ L47/1. 66 The reasons for their relatively poor competitiveness have been identified by READ (small average holding size, lower yields, capital constraints, low labour productivity, greater risks and poor quality control). See supra note 45, at 233. 67 Imports of third country bananas to the EC were already 2.3 million tonnes in 1992, see EVERLING, U., "Will Europe slip on Bananas? The Bananas Judgement of the Court of Justice and National Courts", CMLR, 1996, p.401-437, at 405. 68 MATTHEUWS, A. and THAGESEN, R., "The EU's Common Banana Regime: An Initial Evaluation", Journal of Common Market Studies, 35 (1997) 615-627, at 619. 69 Regulation 3290/94 of 22 December 1994, OJ L349/105. 70 For a complete overview of the cases, see EVERLING, supra, note 60, at 428 and REICH, N. "Judge-made `Europe à la carte': some remarks on Recent Conflicts between European and German Constitutional Law Provoked by the Banana Litigation, EJIL (1996) 103-111. 71 See supra, note 50. 72 Those producing bananas or having former colonies among the ACP States: France, Greece, Italy, Portugal , Spain and the United Kingdom. 73 For a complete analysis of the judgement, see EVERLING, supra, note 60. 74 The ECJ refers to the jurisprudence denying direct effect to GATT, starting with the case 24/72 International Fruit [1972] ECR 1219, paragraph 108 of the bananas judgement. 75 See, amongst others 270/80 Polydor e.a. v. Harlequin e.a. [1982] ECR 329, where the ECJ imposes the application of a rule contained in an Association Agreement in conflict with national law. 76 C-61/94 Commission v. Germany [1996]ERC I-3989. 77 Opinion 3/94 of 13 December 1995, [1995]ERC I-4577. 78 Under Article 228 (6) EC Treaty, the European Commission or a Member State may request this opinion. If the answer is a negative one, the international treaty at issue may not be adopted unless the EC treaty is modified. 79 C-122/95 Germany v. Council of 10 March 1998, not yet reported. 80 Joined cases C-364/95 and 365/95, T. Port Gmbtt & Co. v. Hauptozallmt Hamburg-Jonas. The ECJ ruled that one of the implementing regulations of Regulation 404/93 is invalid to the extent that it creates discrimination among different categories of operators. 81 See, inter alia C-257/93, Leon Van Parijs e.a. v. Council and Commission, [1993]ECR I-3335 and C-276/93 Chiquita Banana [1993]ECR I-3345. 82 Those cases are pending.
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