SUNS 4353 Thursday 14 January 1999

Geneva, 13 Jan (Chakravarthi Raghavan) -- The Dispute Settlement Body (DSB) of the World Trade Organization, after some confused and confusing procedural wrangles, accepted Tuesday separate requests from Ecuador and the European Community for an expedited review, and ruling/recommendations, by the original panel of the EC's new banana regime and its compliance with the earlier WTO ruling.


Under Art. 21.5 of the DSU, invoked for the reconvening of the original panel for the expedited review, the three-member panel chaired by Mr. Stuart Harbinson (Hong Kong, China) has 90 days to give a ruling (though it could seek an extension). But the major systemic legal issues involved would in all probability mean that an appeal may be preferred by either side, and this could take another 60 days.


But with the US insisting on its WTO right to invoke later this month, at the scheduled DSB meeting, for the automatic authorization, under Art. 22.6 of the DSU, for withdrawal of trade concessions from the EC for failure to implement the ruling, it was not at all clear what would be implications of the reference and in parallel trade sanctions, and whether WTO reference will still set off a trade war or both sides will avert one at the last moment.


The EC has already complained, and has held consultations with the US over the US S.301 and its legality visavis the WTO rules. In due course, the EC is bound to bring up the issue for panel reference at the DSB, if the US goes ahead with the trade sanctions, perhaps amending its request (and seeking new consultations) on the basis of actual sanctions, rather than the threat as in December.


For the record, the US saw no contradiction between its recourse to trade sanctions on basis of its assessment of EC non-compliance and the expedited panel review, sought by Ecuador (one of the co-complainants) and the EC, under Art. 21.5 of the DSU on whether the new EC regime complies with the 1997 WTO ruling. The US also accused the EC of creating an endless loop of legal and procedural obstructions against non-compliance.


The US said that it still wanted a negotiated solution, rather than recourse to trade sanctions, but the EC would have to agree to sit down and negotiate the "substance" of the banana regime to find a solution.


The banana dispute, the US noted, went back to a 1993 ruling (which the EC had blocked), and had a long history of EC manoeuvres to maintain its discriminatory and illegal regime, and the US sanctions move was a consequence of this long frustration with the EC.


The EC for its part said it was quite ready, and had always been willing, to seek a negotiated solution, but that it could not and would not do so under the threat of trade sanctions, and the unilateralism of the US under S.301 of its trade law.


But if the US goes ahead with its trade sanctions route -- and it claims it is forced to exercise its own rights (for retaliation), given the wording of Art. 22.6 which forces it to seek such authorization within 30 days of 1 January 1999 deadline for the EC to bring its banana import regime measures in line with the rulings -- it may set off counter-actions by the EU that could make it more difficult for both sides.


While the trade involved is a relatively minor part of the US-EC trade and economic relations -- said to be $10 billion in terms of the banana imports, of which $2 billion is the figure mentioned as the value of the licences for imports that are being traded -- the neo-mercantalist policies of Washington and Brussels, and the political and other contributions of the powerful transnational traders involved on either side, makes a solution difficult, particularly with the kind of policy paralysis within Washington and EU member states.


And untangling, through the WTO processes, the tangled banana dispute makes the proverbial cutting of the Gordian knot seem an easy task.


This is because of the ambiguous and contradictory wording of the language of the DSU -- an ambiguity which the senior official negotiators in the final days of the Uruguay Round negotiations accepted deliberately in an effort to bridge the gaps and positions of major trading nations.


One trade negotiator who did not want to be named, but had been involved in the Uruguay Round negotiations, acknowledged that the confusion and problems were inherent in the way the final accords were struck in the closing stages - with the US, EC and other major and minor trading nations anxious to conclude the negotiations, and not giving themselves or others time even for legal experts to look at the language used and whether it carried out the intentions. Between December 1993, and Marrakesh in April 1994, when there was a legal scrutiny of sorts, anyone raising inconsistencies were pressured and persuaded not to raise them, on the ground that the delicate balancing in the accords would quickly unravel.


There were three procedural issues that were brought up at the DSB, which had before it an Ecuador request under Art. 21.5 for the original panel to be reconvened and asked to rule on the new EC regime's compliance with the earlier ruling, and for specific recommendations by the panel on how the EC should comply.


The EC request also contained a call for a finding, worded somewhat convolutedly, that its regime should be deemed valid unless challenged under Art. 21.5. Though the EC in December clarified orally, that it was only seeking a review of the entirety of its banana regime, the oral clarification was never put in writing.


The earlier meeting of the DSB on 25 November had been suspended, and reconvened on 16 and 21 December. The three sittings, considered to be one meeting, had been presented with the Ecuador request for a 21.5 panel, and an EC request on the same lines, but with an additional stipulation that the panel be asked to make a finding that the EC measures "must be presumed to conform to the WTO unless their conformity has been challenged under the appropriate DSU procedures."


While the Ecuador request did not meet with any objections, and was accepted, the EC request was challenged on the ground it was the first time (and thus open to objection against reference).


But the DSB chair ruled that both requests had come before the DSB for the second time, and thus covered by the negative consensus rule for automatic reference.


The US, supported by three Latin banana exporters (Honduras and Guatemala, the two co-complainants, and Panama) also questioned the EC request and its maintainability on the ground that any dispute for panel reference should have two parties, and the EC request had none.


The US also twitted the EC, noting its earlier stand that even for a 21.5 reference, other DSU procedures like 'consultations' had to be gone through, and whether since the EC had not cited any opposite party, the EC consultations were with the EU members.


While US and the other Latin American banana exporting complainants, as well as the Philippines, argued this position, India intervened to argue that while it was taking no sides in the dispute, while the DSU generally envisaged two parties to a dispute, the provisions of Art. 21.5 seemed to be an exceptional one - relating to the original panel being empowered to look into and provide an expeditious ruling on whether a measure put in place by a member to comply with a ruling was or was not in compliance. As such in the Indian tentative view, the panel under Art. 21.5 was not a normal panel that looks into complaint by one member over failures or allegations of failure against another to comply with WTO obligations. It would be for the reconvened panel to decide its own procedures and processes.


The EC argued that while its original request for a panel, including the request for a mandated finding about the compliance of its regime unless challenged had been aimed at forcing such a challenge, which had now been made. Nevertheless it was within the EC's right to seek the review of its regime by the original panel.


EC sources later explained that while the substance of the EC's contentions would now have to be addressed by the Harbinson panel over the Ecuador request, the EC was still maintaining its request in order to ensure that the panel review process is not obviated by pressures on Ecuador to withdraw its request.


A third procedural issue raised related to who would be the parties in the 21.5 procedures who would be bound by the ruling - Ecuador and EC alone, or the other co-complainants too (US, Mexico, Guatemala, Honduras, and separately Panama).


The Tunisian chairman said that only Ecuador and EC would be bound, but later made clear that it was his own view, and not a regular ruling or finding (which only a panel or a joint interpretation of the WTO members can resolve).


The DSB also decided that there would be one merged panel, the reconvened panel under Art. 21.5, and it would be seized of the two references, one by Ecuador and another by the EC, and that "standard terms of reference" would apply.


Mexico, a co-complainant in the banana dispute against the EC reserved its own right to seek a panel.


In the reference of the Ecuador request, Colombia, Jamaica, Costa Rica, Cote d'Ivoire, Mauritius, Nicaragua, St. Lucia, St. Vincent and Grenadines, Dominica and the Dominican Republic reserved their third party rights.


India reserved its third party rights in the panel reference sought by the EC, making clear that it was concerned over the systemic issues.


The standard terms of reference means that the panel will have before it the Ecuador document and the EC document, and is asked to examine the issues raised in the light of the relevant provisions of the covered agreement and to make such findings as will assist the DSB in making recommendations or rulings.


But the panel would be able to decide what exactly it is being asked to and would hear and rule upon. But it is also clear that the panel would be forced to go into the issues and points made in the Ecuador and EC documents, as also the procedural issues that figured in the DSB.


And given the major systemic and legal issues raised, the issue would also go to the appellate body, which unfortunately, in some of its recent rulings, has not been able to establish its independence and level of legal erudition that would command unquestioned acceptance by the membership, and even more important by the public at large.