SUNS  4365 Tuesday 2 February 1999

Geneva, 1 Feb (Chakravarthi Raghavan) -- There was a 30-day 'time-out' call (US football style), over the US-EC banana fight at the World Trade Organization's Dispute Settlement Body (DSB) Friday night, allowing the two sides to seek a negotiated solution.

The EC is asking for "arbitration" by the original banana panel on the $520 million trade damage claimed by the US in its trade retaliation move, and this ruling has to be given by 1 March, when the US will come back for authorization to retaliate (which the US envisages could be as early as 12 March).

The "arbitration", under Art. 22.6 of the DSU, by the reconvened banana panel on the extent of the US retaliation will be in parallel with its consideration of the reference under Art. 21.5 about the compliance of the new EC measures with the ruling.

While the panel, in an 21.5 proceeding, can ask for extension (beyond the 90-day period under the rules), the US made clear there could be no extension of the arbitration deadline of midnight of 1 March.

There is a DSB meeting set for 2 March, and under the rules there is a 10-day notice period required for bringing items on the agenda.

But at a press briefing Monday, the US made clear that while the arbitrator's award on the extent of damage would only be circulated on 1 March midnight, the US would asking (in advance of the arbitrator's award being made known or available to anybody), for the item to be put on the agenda of the DSB meeting of 2 March.

The US has made clear that as far as it is concerned, the only determination that the banana panel can make under Art. 22.6 is to "arbitrate" on the extent of the authorization to be permitted, and not
the other legal issues raised, including whether 22.6 can be invoked when 21.5 processes are still under way.

Despite the various interpretations of the outcome by the protagonists and other key delegations, the US has won some points in the fight, and could retaliate against the "damage" suffered by the chiquita banana TNC, by imposing punitive damages over a range of EC products.

But unless the EC yields in the negotiations and consultations that the US has asked for (with other banana complainants), whatever the trade damage to the EC exports, neither chiquita bananas nor the Latin American banana exporters will gain or benefit. Retaliation may punish the other side, but may not undo the damage.

The "compromise" purportedly separates the banana dispute from the systemic issues raised by the US seeking WTO authorization under Art. 22.6 of the DSU (the automatic authorization provision), without going through the Art. 21.5 (for the panel to rule on whether the EC measures to comply with the ruling, in fact do so).

But while the systemic issues are thus left open, and will come up at the WTO General Council (where the EC has sought an authoritative interpretation), the US has made clear that it would agree to consider this problem only in the DSU review process, where any change in rules needs a consensus, and the US is determined to block it.

The US has left other trade diplomats in no doubt that as far as it is concerned, in terms of the WTO and its dispute settlement processes, wherever the US wins a dispute, the other side will get 15 months for changing its measures and comply with the ruling, and if the US determines that the actions taken by the other side does not comply, it will go ahead and retaliate, and then ask the other party to negotiate to make changes (it wants).

While EC banana regime is the first on the line, the US has its sights set next on the EC beef hormone imports, the Canadian periodicals issue, and the Indian TRIPs 'mail box' regime (where a Presidential ordinance has been issued, pending Parliamentary enactment of law) for receiving new patent applications and grant of 'exclusive marketing rights'.

The EC has been given as a 'reasonable period of time to comply', 15 months from 13 Feb 1998 (when the panel ruling was adopted). The EC is conducting a new risk assessment of hormone treated beef to human health, in the light of which it plans to decide by the deadline its new measures.

And in the Indian TRIPs case, the US has already said that it still had concerns over the Indian amendments to its patent law, and had sought consultations with India. [And if the US stand in the banana case is any guide, it could well take the position that any EC measures on hormone treated beef, in line with scientific assessments, or the Indian patent law, is not in compliance as the US might determine, and hence the US could retaliate.]

In the EC and Canadian cases, they are in the process of implementing measures to give effect to the ruling, but the US has already said the proposals would not comply with the ruling, and unless these are to US satisfaction, it would have similar recourse to Art 22.6 route.

In the Indian case, the President has issued an ordinance to give effect legally to the ruling, but under the Indian constitution, this will lapse unless enacted into law by Parliament within six weeks of its meeting.

It is clear that unless all other trading nations join together to stand up to the US, at the WTO General Council meeting, block other US 'demands' as a price for securing an "authoritative interpretation" of the systemic issues -- the inter-relationship and sequencing or otherwise of DSU provisions in Art. 21.5 and 22.6 -- US unilateralism and S.301 of its trade law would become embedded into the WTO.

In the banana dispute, after repeated procedural wrangles and suspension of the DSB meetings, consultations among a small key group of countries, late Friday evening, the DSB heard a Chairman's statement, which was accepted - but with the US and EC in effect giving their own interpretations.

In his statement, Tunisia's Kamel Morjane, said that after the discussions Thursday, and on reflection at length overnight and taking into consideration long-established GATT/WTO practice, he had "decided" that it would not be appropriate to allow a vote on this matter affecting fundamental operation of the DSU.

His ruling Thursday, enabling the US item (for authorization to retaliate) to be inscribed on the agenda and taken up, had been disputed, and among others the EC said that such procedural issues were governed by the WTO rules of procedure (which the DSU and other bodies have to follow) and thus put to a vote.

But in reviewing the statements at the DSB, and after consulting with a number of members, said Morjane, he believed a compromise solution must be sought to the problem they now faced.

In that spirit, and keeping in mind proposals on the table including those of Japan and a number of developing countries (which asked for suspension by the DSB of the consideration of the US request until the banana panel ruling under Art. 21.5), and that of the EC and the WTO Director-General, he would suggest:

* the concerns raised by a number of delegations, highlighting the lack of clarity on how Art. 21.5 and 22.6 should be interpreted and sequence in which they should be applied, were legitimate, but that the problem before the DSB was one of solving the banana dispute before it, without undermining the spirit and letter of the DSU, and in particular its provisions on consensus, automaticity and time-limits.

The best approach, hence is to separate the banana case from the more general systemic issues, and seek a solution to the banana matter totally without prejudice to future cases and the question of how to resolve the systemic issue of the relationship between Art. 21.5 and 22 of the DSU, Morjane said.

* the two parties would agree to proceed immediately to consultations under Art. 4 of the DSU to find a mutually agreed solution to their problem and he was convinced "negotiations in good faith could resolve all problems."

* As for bananas, the original panel is now engaged in two Art. 21.5 proceedings. In the light of the US request under Art. 22.6, the same individuals could be given the task of arbitrating the level of
suspension.

The request for arbitration under Art. 22.6 and 22.7 would mean that the DSB would not authorize suspension of concessions at its current meeting. After the arbitrator's award is circulated, a new request for suspension of concessions should be made to the DSB, and the DSB would be required to grant authorization, consistent with the decision of the arbitrator, unless there is a consensus against it.

While there still remained the problem of how the panel and the arbitrators would coordinate their work, since they would be the same individuals, "the reality is that they will find a logical way forward in consultation with the parties."

In this way, the dispute settlement mechanisms of the DSU could be employed to resolve all of the remaining issues in this dispute, while recognizing the rights of both parties and respecting the integrity of the DSU. To assist the arbitrators, Morjane added, the minutes of the meeting would be made available to them to take into account, as they deemed appropriate.

As for the systemic issues concerning the relationship of Articles 21.5 and 22, they must be resolved expeditiously, Morjane said, and noted that a number of Members have proposed that this issue be referred to the General Council. He would propose to the Chairman of the General Council that this matter be taken by the Council and that the Council inform the DSB of the results of its discussions. This issue should also become a priority issue for discussion in the DSU, Morjane added.

While the Chairman's statement was accepted, the two parties provided their own interpretations and comments.

The EC, in its statement, noted that the vast majority (and not merely a number of delegations as the Chairman had said) had raised the issue of sequencing of Art. 21.5 and 22.6. The EC request that the General Council interpret the provisions was still valid. In the EC view, the problem did not require the review of the DSU, but could be resolved through an authoritative interpretation of the General Council. In the EC view, the panel and the arbitrators would look at the conformity of
the EC regime with the panel ruling and, if changes are required, would fix the amount of retaliation that the US could make.
In its statement, the US said it could not accept everything in the Chairman's text, but that it would move forward expeditiously on the DSU Art. IV consultations it has already sought on the banana dispute issue with the EC.

The US also said it did not agree with the EC views of what the arbitrators would do. There could be no extension of the time-limit, midnight of 1 March, within which the arbitrators have to rule on the
extent of the retaliation to be allowed.

Some trade diplomats were expressing satisfaction that by separating the banana problem from the systemic issues, a way had been opened to safeguard the multilateral system.

This was on the view that members, like the Cairns group members, were inhibited in appearing to side with the EC on an issue related to the EC's implementation of the agriculture accord, but that they could be more forthright to safeguard multilateral interests when General Council takes up the systemic issue and in the DSU.

But unless these nations are ready at that stage to speak up more clearly, and the US gets the message that its current course of action would jeopardise the US moves for other negotiations, it is difficult to see any progress.

And trade observers were less sanguine than the trade diplomats and officials, and felt once more there has been a failure. This, they suggest, is partly because capitals do not pay too much attention to details and leave things to their diplomats here, many of whom seem to think on their feet.

But whatever the cause or reasoning, some key trading nations with a stake in the system kept silent.

The ASEAN as such did not seem to have any position. Singapore and Thailand kept quiet, while Malaysia said there should be no vote, but made no comment on the US unilateralism involved.

Indonesia made a statement against US unilateral determination and seeking authorization under Art. 22.6, without going through Art. 21.5 process.

But the Philippines representative, Mr. Leo Palma, a legal attache at their mission, repeatedly intervened to support the US legal view that it need not go through the Art. 21.5 process.