## Facts

- The European Communities (EC) adopted a European Union–wide banana import regime under Council Regulation (EEC) No. 404/93 and implementing measures, including measures linked to the Framework Agreement on Bananas.
- The regime granted preferential market access to bananas from certain African, Caribbean, and Pacific (ACP) countries, including duty-free access for specified quantities, reflecting arrangements under the Lomé Convention.
- The EC had a WTO waiver permitting preferences for ACP states from the most-favored-nation (MFN) obligation in GATT 1994 Article I:1 (the “Lomé waiver”).
- The regime also used tariff-rate quotas (TRQs): in-quota imports faced lower duties, and out-of-quota imports faced higher duties.
- The EC allocated TRQ shares in a manner that favored ACP sources relative to non-ACP sources, including Latin American suppliers.
- The regime relied on a detailed import licensing system that divided operators into categories and allocated licences based on historical activity and related criteria, affecting who could import bananas and on what terms.
- Ecuador, Guatemala, Honduras, Mexico, and the United States challenged the regime under GATT 1994 and other WTO agreements, arguing that the TRQ allocations and licensing rules discriminated against their bananas and (for certain claims) against their service suppliers involved in distribution/wholesale trade.
- A WTO panel found multiple inconsistencies with WTO obligations. The EC appealed issues of law and legal interpretations to the WTO Appellate Body.
- The Appellate Body report was circulated on September 9, 1997 and adopted by the Dispute Settlement Body on September 25, 1997.

## Issues

1. Whether a complaining Member must show a specific “legal interest” or quantified trade harm to bring claims under the DSU and GATT 1994.
2. Whether the panel requests met DSU Article 6.2 by identifying the challenged measures and providing a brief summary of the legal basis.
3. Whether, and to what extent, the Lomé waiver excused MFN-inconsistent aspects of the EC regime, and in particular whether it extended beyond GATT Article I:1 to cover GATT Article XIII (quota administration).
4. Whether the EC’s TRQ allocations and administration were inconsistent with GATT 1994 non-discrimination and quota-administration rules (including Articles I and XIII).
5. Whether the EC’s import licensing and operator-category rules were “measures affecting trade in services” and, if so, whether they were inconsistent with GATS obligations (including MFN and national treatment) where the EC had made relevant commitments.
6. Whether the panel correctly found certain licensing-related inconsistencies under GATT Article X and the Agreement on Import Licensing Procedures.

## Decision

- The Appellate Body upheld that WTO dispute settlement does not impose a general requirement that a complaining Member prove a quantified trade effect or a special “legal interest” before bringing claims.
- The Appellate Body upheld the panel’s conclusion that the panel requests satisfied DSU Article 6.2 because they sufficiently identified the EC banana regime measures and summarized the legal bases of the complaints.
- The Appellate Body held that the Lomé waiver must be read according to its terms and did not provide a broad exemption from all relevant GATT obligations; it reversed the panel to the extent the panel treated the Lomé waiver as excusing inconsistencies with GATT Article XIII.
- The Appellate Body largely upheld findings that core elements of the EC banana regime—especially the discriminatory allocation and administration of TRQ opportunities—were inconsistent with GATT non-discrimination disciplines, subject only to the limited coverage of the Lomé waiver for Article I:1 preferences.
- On services, the Appellate Body upheld key parts of the panel’s analysis that the licensing and marketing rules could be “measures affecting trade in services” and that, in light of the EC’s relevant commitments, the regime resulted in discriminatory treatment inconsistent with GATS MFN and/or national treatment obligations.
- The Appellate Body reversed the panel’s findings that certain aspects of the licensing regime violated GATT Article X and the Agreement on Import Licensing Procedures (while leaving other WTO inconsistencies in place).
- As adopted, the Dispute Settlement Body recommended that the EC bring its measures into conformity with its WTO obligations.

## Legal Principles

- A complaining WTO Member generally need not prove quantified trade harm, nor meet a freestanding “legal interest” threshold, to invoke dispute settlement on alleged WTO inconsistencies.
- DSU Article 6.2 requires identification of the specific measures at issue and a brief summary of the legal basis of the complaint; it does not require full legal argumentation in the panel request.
- WTO waivers are interpreted narrowly and apply only to the obligations and conditions stated in the waiver; they do not automatically excuse other GATT obligations not named or clearly covered.
- Under GATT Article XIII, tariff quotas must be administered in a non-discriminatory manner; preferences permitted under a limited MFN waiver do not necessarily permit discriminatory quota allocation or administration.
- Measures governing import licensing and related marketing rules can qualify as “measures affecting trade in services” under the GATS when they shape the competitive conditions for service suppliers (such as wholesale distribution service suppliers).
- In WTO litigation, the complaining party bears the initial burden to establish a prima facie case; the responding party then bears the burden to rebut that case.
- Appellate Body review is confined to issues of law and legal interpretations developed by the panel, not a new fact-finding process.

## Conclusion

In EC—Bananas III, the Appellate Body largely confirmed that the EC’s banana TRQ and licensing regime discriminated in ways inconsistent with GATT 1994 and the GATS, while narrowing the panel’s reasoning by reading the Lomé waiver strictly (rejecting its use as a shield for Article XIII violations) and reversing certain findings under GATT Article X and the Import Licensing Agreement; the adopted reports called on the EC to bring its regime into WTO conformity.


European Communities—Regime for the Importation, Sale, and Distribution of Bananas, WT/DS27/AB/R (September 25, 1997)