International Business Law and Its Environment 9th Edition by Richard Schaffer,Filiberto Agusti,Lucien Dhooge

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BACKGROUND AND FACTS Since 1963 the European Economic Community (EEC), had negotiated tariff rates with the developing countries that export bananas, and these concessions were bound in the tariff schedules at 20 percent ad valorem. In 1993 the EEC took over banana import regulation from the individual countries. The EEC set up uniform rules on quality, marketing standards, and tariffs. Under the EEC regime, the tariff rates on bananas from the Latin American countries were increased between 20 and 180 percent. A complex licensing scheme was also set up to limit the access of foreign banana traders (e.g., Chiquita, Dole, and Del Monte) to sell in the EEC. The Latin American countries claimed that the regulations impaired their Article II tariff concessions and violated Article I, MFN principles, and other GATT provisions. Notice that prior to the WTO's founding in 1995, countries that were party to the GATT agreement were called "contracting parties."
REPORT OF THE PANEL
Article II-Schedules of Concessions: [Central and South American] banana producers had assessed their competitive position on the basis of the bound tariff level. They had made strategic decisions and investments on that basis; they had cultivated substantially more land specifically for this export trade; and they had pursued marketing ties with European importers. The new tariff quota undermined the legitimate expectations upon which these actions were based and severely disrupted the trade conditions upon which these producers had relied, regardless of the actual protective effect of the new regime. The Panel noted that Article II required that each contracting party "accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the … Schedule of Concessions." The Panel then considered whether the introduction of a specific tariff for bananas in place of the ad valorem tariff provided for in its Schedule constituted "treatment no less favourable" in terms of Article II … The Panel consequently found that the new specific tariffs led to the levying of a duty on imports of bananas whose ad valorem equivalent was, either actually or potentially, higher than 20 percent ad valorem …
The Contracting Parties had consistently found that a change from a bound specific to an ad valorem rate was a modification of the concession. A working party examining a proposal by Turkey to modify its tariff structure from specific to ad valorem had stated: "The obligations of contracting parties are established by the rates of duty appearing in the schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into ad valorem rates of duty can be made only under some procedure for the modification of concessions."
Decision. The panel held that the EEC had deprived the complaining Latin American countries of the benefits to which they were entitled under the schedule ofconcessions. The
Why is it important that countries maintain theirtariff commitments?