[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56687-56690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28271]


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OFFICE OF UNITED STATES TRADE REPRESENTATIVE

[Docket No. 301-100a]


Implementation of WTO Recommendations Concerning the European 
Communities' Regime for the Importation, Sale and Distribution of 
Bananas

AGENCY: Office of the United States Trade Representative.

ACTION: Notice of proposed determination, request for comment.

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SUMMARY: January 1, 1999 is the deadline for the European Communities' 
(EC) implementation of the recommendations of the World Trade 
Organization (WTO) Dispute Settlement Body (DSB) concerning the EC 
regime for the importation, sale, and distribution of bananas (banana 
regime). The United States Trade Representative (USTR) is seeking 
written comments on: (1) the measures that the EC has undertaken to 
apply as of January 1, 1999 to implement the WTO recommendations 
concerning the EC banana regime; and (2) the USTR's proposed 
affirmative determination under section 306(b) of the Trade Act of 
1974, as amended, (Trade Act) (19 U.S.C. Sec. 2416), that the measures 
fail to implement the WTO recommendations. The USTR must make the 
determination

[[Page 56688]]

under section 306(b) no later than January 31, 1999.

DATES: Written comments from interested persons are due on or before 
November 9, 1998.

ADDRESSES: 600 17th Street, NW, Washington, D.C. 20508.

FOR FURTHER INFORMATION CONTACT:
Rachel Shub, Associate General Counsel (202) 395-7305; or Ralph Ives, 
Deputy Assistant U.S. Trade Representative, (202) 395-3320.

SUPPLEMENTARY INFORMATION: On September 27, 1995, the USTR initiated an 
investigation under section 302(b) of the Trade Act regarding the EC's 
regime for the importation, sale and distribution of bananas and 
requested public comment on the issues raised in the investigation and 
the determinations to be made under section 304 of the Trade Act. [60 
FR 52026 of October 4, 1995]. This investigation specifically concerned 
EC Council Regulation No. 404/93 and related measures distorting 
international banana trade and discriminating against U.S. marketing 
companies importing bananas from Latin America, including a restrictive 
and discriminatory licensing scheme designed to transfer market share 
in the wholesale distribution sector from U.S. banana marketing firms 
of EC or African, Caribbean and Pacific (``ACP'') nationality.
    As required under section 303 (a) of the Trade Act, the United 
States held consultations with the EC under the procedures of the WTO 
Understanding on Rules and Procedures Governing the Settlement of 
Disputes (DSU). After holding a first set of consultations with the EC 
on October 26, 1995, the United States and the governments of 
Guatemala, Honduras and Mexico decided to delay the request for a 
dispute settlement panel until Ecuador, the world's largest banana 
exporter, had completed its accession and could join the dispute 
settlement proceeding. Pursuant to a new request filed jointly by the 
governments of Ecuador, Guatemala, Honduras, Mexico and the United 
States (``complaining parties''), a second set of WTO consultations 
with the EC was held on March 14, 1996. A dispute settlement panel was 
established on May 8, 1996.
    The WTO panel is this case circulated its report on May 22, 1997. 
It included numerous findings that the EC banana regime is inconsistent 
with the EC's WTO obligations. The EC appealed all of the panel's 
adverse findings, and the complaining parties cross-appealed three. On 
September 9, 1997, the Appellate Body issued its report confirming all 
the major panel findings against the EC regime, and reversing the panel 
report on two issues that had been decided in the EC's favor (agreeing 
with the complaining parties).
    The WTO reports include findings that the following EC measures 
violate the EC's obligations under various provisions of the General 
Agreement on Tariffs and Trade 1994 (GATT 1994) and/or the General 
Agreement on Trade in Services (GATS): (1) the EC's discriminatory 
allocation of shares of its market to certain ACP countries and to 
certain countries signatory to the Banana Framework Agreement; (2) the 
EC's discriminatory rules for reallocating annual country shares in the 
event of a country's shortfall; (3) the EC's discriminatory 
distribution to EC and ACP banana distribution companies of ``Category 
B'' licenses to import bananas from non-EC, non-ACP countries (mainly 
Latin America); (4) the EC's requirements for obtaining licenses to 
import from Latin America, which impose burdens not imposed on imports 
from ACP countries; (5) the EC's distribution of licenses to ripeners 
in the EC, which discriminates against U.S. and Latin American firms in 
favor of EC firms; (6) the EC's discriminatory export certificate 
requirements; and (7) the EC's distribution of EC and ACP banana 
distribution companies of additional licenses, so-called ``hurricane 
licenses,'' to import from Latin America. (The complaining parties did 
not challenge the EC's preferential tariffs for ``traditional'' ACP 
bananas.)
    The Appellate Body report includes the recommendation that the DSB 
request the EC to being its banana measures found in the Appellate Body 
report and in the panel report (as modified by the Appellate Body 
report) to be inconsistent with the GATT 1994 and the GATS into 
conformity with the EC's obligations under those agreements. On 
September 25, 1997, the DSB adopted the Appellate Body and panel 
reports (as modified by the Appellate Body report), including this 
recommendation.
    At a meeting of the DSB on October 16, 1997, the EC stated that it 
would ``fully respect its international obligations with regard to this 
matter'' and would require a ``reasonable period of time to do.'' On 
December 17, 1997, at a WTO arbitration hearing requested by the 
complaining parties to determine the ``reasonable period of time'' 
pursuant to Article 21.3 of the DSU, the EC made it clear that the 
reasonable period of time it requested, i.e., until January 1, 1999, 
was for the purpose of implementing all the recommendations and rulings 
of the DSB adopted on September 25. On January 7, 1998, the WTO-
appointed arbitrator circulated his determination that the period until 
January 1, 1999, would be the ``reasonable period of time'' for the EC 
to implement the DSB rulings and recommendations.
    Based on the results of the WTO dispute settlement proceedings, the 
public comments received and appropriate consultations, the USTR on 
February 10, 1998 determined that certain acts, policies and practices 
of the EC violate, or otherwise deny benefits to which the United 
States is entitled under, GATT 1994 and the GATS. [63 FR 8248 of 
February 18, 1998]. The USTR further determined that the EC's 
undertaking to implement all of the rulings and recommendations of the 
WTO reports within the reasonable period of time established pursuant 
to Article 21.3 of the DSU constituted for the purposes of section 
301(a)(2)(B)(i) the taking of satisfactory measures to grant the rights 
of the United States under the GATT 1994 and GATS. Therefore, pursuant 
to section 301(a)(2), the USTR terminated the investigation without 
taking action under section 301 of the Trade Act. The USTR stated in 
the termination notice that it would monitor the EC's implementation of 
the WTO recommendations under section 306 of the Trade Act and would 
take action under section 301(a) if the EC did not comply with its WTO 
obligations and commitments.
    Section 306(a) of the Trade Act requires the USTR to monitor 
measures undertaken by a foreign government to provide a satisfactory 
resolution of a matter subject to dispute settlement proceedings to 
enforce the rights of the United States under a trade agreement. 
Section 306(b) requires the USTR to determine what further action it 
shall take under section 301(a) of the Trade Act if the USTR considers 
that a foreign country has failed to implement a recommendation made 
pursuant to dispute settlement proceedings under the WTO. The USTR 
shall make this determination no later than thirty days after the 
expiration of the reasonable period of time provided for such 
implementation under Article 21.3 of DSU. Section 305(a)(1) requires 
the USTR to implement such action by no later than 30 days after the 
date on which that determination is made.
    Given that the reasonable period of time for the EC's 
implementation of the WTO recommendations concerning the EC banana 
regime expires on January 1, 1999, the USTR must make the determination 
required by section 306(b) no later than January 31, 1999, and, in the 
event of an affirmative determination, must implement further

[[Page 56689]]

action no later than 30 days thereafter. These time frames permit the 
USTR to seek recourse to the procedures for compensation and suspension 
of concessions provided in Article 22 of the DSU.

Monitoring EC Implementation

    Following the termination of the investigation, USTR has monitored 
EC compliance under section 306 of the Trade Act. EC actions undertaken 
since January 1999, and in particular since June 26, 1998, indicate 
that EC compliance with its WTO obligations by January 1, 1999 is 
unlikely.
    The EC Commission proposed amendments to its banana regime on 
January 14, 1998, which were then forwarded to the EC Council for its 
consideration. The United States and other complaining parties raised 
concerns about the consistency with the EC's WTO obligations of these 
proposals with EC Commission officials and before the DSB.
    The USTR and U.S. Secretary of Agriculture subsequently asked their 
counterparts in the European member States to oppose the Commission 
proposal when it was presented to the European Agriculture Council. On 
June 26, 1998, however, the European Council of Agriculture Ministers 
agreed, with few modifications, on proposed amendments to the EC banana 
regime that had been approved by the European Commission on January 14, 
and the Agriculture Council also specified how the regulation's 
provisions on licensing were interpreted. The draft regulations were 
approved by the EC Council of Agriculture Ministers on July 20. The 
General Affairs Council formally approved the regulations on July 22. 
On July 28, 1998, amendments to Regulation 404 were published in the EC 
Official Journal (EC 1637/98; ``Regulation 1637'').
    The EC Council regulation provides for the allocation of the EC 
market among exporting countries and for the distribution of licenses 
to import bananas as of January 1, 1999. A comparison of the various 
features of the current EC regime and the amended regime is set forth 
as Figure 1. On September 14, the complaining parties consulted with 
the advised the EC of their joint concerns about the inconsistency of 
the EC's adopted measures with WTO obligations. In summary, the 
following aspects of the adopted EC measures present particular 
problems:
    Allocation of the EC market among supplying countries. The 
allocation in Regulation 1637 of the EC market among supplying 
countries discriminates against bananas from Latin American countries 
both in terms of quantities allocated and conditions of access. The 
quantities to be allocated bear no resemblance to the shares that would 
prevail in the absence of restrictions, as required by Article XIII of 
the GATT 1994, and unlike quantities for ACP bananas, permit no growth. 
Latin American banana supplying countries in which U.S. distribution 
companies are invested would continue to be treated less favorably than 
ACP banana exporting countries in that they would be required to 
compete with non-traditional ACP bananas for a small share of an 
already reduced share of the EC market. Meanwhile, traditional ACP 
bananas have their own quota, to which Latin American bananas do not 
have access. Like the current regime, the planned allocation will 
perpetuate the harmful effects on U.S. companies that distribute Latin 
American bananas in the EC of the current allocation, which has been 
found to violate Article XIII of the GATT 1994.
    Distribution of Import Licenses. The new EC Council regulation 
requires the distribution of import licenses on the basis of the 
``traditionals/newcomers'' method. On June 26, 1998, the EC Agriculture 
Council announced that this term was to be interpreted to mean that 
import licenses would be distributed to ``actual importers on the basis 
of the presentation of a utilized import license and/or, in particular 
in the case of new member States, equivalent proofs, where necessary,'' 
using ``the years 1994-96 as the initial reference period for 
determining operators' rights.'' The selection of a reference period 
during the time that a regime which is contrary to the WTO rules was in 
effect will perpetuate discrimination against U.S. and Latin American 
suppliers of wholesale trade services created by the current regime 
(which went into effect in 1993) that has been found to be in violation 
of GATS Article II and XVII.
    Non-Traditional ACP Bananas. The new EC Council Regulation expands 
upon the tariff preferences provided to ``non-traditional'' ACP 
bananas; these provisions go beyond the tariff treatment considered by 
the WTO Appellate Body to fall within the EC's waiver for certain trade 
preferences required by the Lome Convention.
    Further information on the new EC banana regime is available in the 
USTR Reading Room in Docket WTO/DS-4.

Proposed Determination

    The USTR proposes to determine, pursuant to section 306(b) of the 
Trade Act, that the measures the EC has undertaken to apply as of 
January 1, 1999 with respect to this banana regime fail to implement 
the WTO recommendations. Such a determination will require the USTR 
also to determine what further action to take under section 301(a) in 
the event that the EC has failed to implement the WTO recommendations 
by January 1, 1999. Permissible actions include: action to suspend, 
withdraw or prevent the application of benefits of trade agreement 
concessions to the EU; imposition of duties or other import 
restrictions on goods of the EU or fees or restrictions on services of 
the EU; and restriction or denial of service sector access 
authorizations with respect to services of the EU. The USTR intends to 
determine by December 15, 1998 what action to take.

Written Comments--Requirements for Submissions

    Section 306(c) of the Trade Act provides that the USTR shall allow 
an opportunity for the presentation of views by interested parties 
prior to the issuance of a determination pursuant to section 306(b). 
Interested persons are invited to submit written comments on: (1) the 
measures that the EC has undertaken to apply as of January 1, 1999 to 
implement the WTO recommendations concerning the EC banana regime; and 
(2) the USTR's proposed affirmative determination under section 306(b) 
of the Trade Act that the measures fail to implement the WTO 
recommendations. Comments must be filed in accordance with the 
requirements set forth in 15 CFR Sec. 2006.8(b) [55 FR 20,593] and must 
be filed on or before noon on Monday, November 9, 1998. Comments must 
be in English and provided in twenty copies to: Sybia Harrison, Staff 
Assistant to the Section 301 Committee, Room 416, Office of the U.S. 
Trade Representative, 600 17th Street NW., Washington, DC 20508.
    Comments will be placed in a file (Docket 301-100a) open to public 
inspection pursuant to 15 CFR 2006.13, except confidential business 
information exempt from public inspection in accordance with 15 CFR 
2006.15. Confidential business information submitted in accordance with 
15 CFR 2006.15 must be clearly marked ``BUSINESS CONFIDENTIAL'' in a 
contrasting color ink at the top of each page on each of 20 copies, and 
must be accompanied by a nonconfidential summary of the confidential 
information. The nonconfidential summary shall be placed in the file 
that is open to public inspection. An appointment to review Docket No. 
301-100a may be made by

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calling Brenda Webb at (202) 395-6186. The USTR Reading Room is open to 
the public from 9:30 a.m. to 12 noon and 1:00 p.m. to 4:00 p.m., Monday 
through Friday, and is located in Room 101.
Joanna K. McIntosh,
Chairman, Section 301 Committee.

       Figure 1.--EC Banana Regime: Current v. EC Council Approach
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          Provision              Current regime      EC council approach
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Latin American TRQ of 2.53    75 ECU/ton tariff;    75 ECU/ton tariff;
 million tons.                 access at zero        no limit on ACP
                               tariff for ``non-     access at zero
                               traditional'' ACP     tariff.
                               bananas limited to
                               90,000 tons.
Latin American bananas        765 ECU/ton tariff..  765 ECU/ton tariff.
 entering over the TRQ.
ACP traditional bananas'      Zero tariff, with     Same; zero tariff,
 quota of 857,700 tons.        twelve country        with no allocations
                               allocations.          yet announce.
Tariff on ``non-              Zero tariff for       Zero tariff for
 traditional'' ACP bananas.    90,000 tons within    unlimited tons
                               Latin American TRQ.   within Latin
                                                     American TRQs'
                                                     ``others''
                                                     category.
ACP over-quota tariff.......  665 ECU/ton.........  565 ECU/ton.
Latin American Import         About 50% to          License-users to
 Licenses.                     historical            receive same
                               importers (Latin      amounts as they
                               American and U.S.)    used in 1994-96
                               and rest to EC/ACP    under illegal
                               companies             system.
                               (importers/
                               ripeners).
EC Producer Price Subsidy...  622.5 ECU/ton.......  640.3 ECU/ton.
EC funds from tariff on       185 million ECU.....  185 million ECU.
 Latin American bananas.
Review date.................  2002................  2005.
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[FR Doc. 98-28271 Filed 10-21-98; 8:45 am]
BILLING CODE 3190-01-M