137. Article 5.1 of the Agreement on Agriculture provides, in relevant part, as follows:

and that,

139. On this basis, the majority of the Panel concluded that "the EC has not invoked the special safeguard provision with respect to the poultry products in question in accordance with Article 5.1(b)." ⁸⁵

140. In contrast, one member of the Panel was "of the view that Article 5 of the Agreement on Agriculture requires an importing Member to calculate the relevant import price within the meaning of Article 5.1(b) on the basis of the c.i.f. import price only." ⁸⁶

141. Brazil, as the exporting Member, endorses the Panel's finding that the relevant import price in Article 5.1(b) of the Agreement on Agriculture is the c.i.f. price plus ordinary customs duties. This is not surprising. This would limit the instances in which the European Communities could impose additional safeguard duties. In contrast, the European Communities, as the importing Member, is of the view that the relevant import price in Article 5.1(b) is the c.i.f. price without ordinary customs duties. This view increases the opportunities for an importing Member to impose additional safeguard duties.

142. The legal issue raised in this appeal concerns the proper interpretation of the phrase, "the price at which imports of that product may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price of the shipment concerned" (emphasis added) in Article 5.1(b) of the Agreement on Agriculture. Specifically, the issue is whether the special safeguard mechanism in Article 5.1(b) is triggered when the c.i.f. price, or when the c.i.f. price plus ordinary customs duties, falls below the reference or trigger price.

143. The practical significance of this issue can be illustrated with the following hypothetical example. This dispute has no practical significance if both the c.i.f. import price and the c.i.f. import price plus customs duties fall above or below the trigger price. If both prices are above the trigger price, then additional duties cannot be imposed. And, if both prices fall below the trigger price, then additional duties may be imposed regardless of which definition of the relevant import price is adopted. However, the practical significance of this dispute becomes apparent whenever the trigger price falls between the other two prices, that is, when the trigger price is greater than the c.i.f. import price but smaller than the c.i.f. import price plus customs duties. To illustrate:

In this example, if the relevant price is defined as the c.i.f. import price plus customs duties, additional duties may not be imposed since the relevant price is well above the trigger price. If, on the other hand, it is defined as the c.i.f. import price only (that is, without customs duties), additional duties may be imposed because the relevant price is below the trigger price. Thus, to adopt one definition, rather than another, will determine whether or not an importing Member may impose additional safeguard duties.

144. In examining this issue, we begin with the text of Article 5.1(b) which refers to: "the price at which imports of that product may enter the customs territory of the Member granting the concession � ". (emphasis added) In interpreting this provision, the majority of the Panel uses the concept of "market entry price". However, this phrase is not found in the text of Article 5.1(b). Yet, the Panel states as follows:

Again, in paragraph 281 of the Panel Report, the Panel states that "If the market entry price is equated with the c.i.f. import price � ." (emphasis added) In fact, this section of the Panel Report is entitled: "Market entry price and the c.i.f. price". (emphasis added)

145. The relevant import price in Article 5.1(b) is described as "the price at which imports of that product may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price of the shipment concerned". It is noteworthy that the drafters of the Agreement on Agriculture chose to use as the relevant import price the entry price into the customs territory, rather than the entry price into the domestic market. This suggests that they had in mind the point of time just before the entry of the product concerned into the customs territory, and certainly before entry into the domestic market, of the importing Member. The ordinary meaning of these terms in Article 5.1(b) supports the view that the "price at which that product may enter the customs territory" of the importing Member should be construed to mean just that -- the price at which the product may enter the customs territory, not the price at which the product may enter the domestic market of the importing Member. And that price is a price that does not include customs duties and internal charges. It is upon entry of a product into the customs territory, but before the product enters the domestic market, that the obligation to pay customs duties and internal charges accrues.

146. Article 5.1(b) also states that the relevant import price is to be "as determined on the basis of the c.i.f. import price of the shipment concerned". (emphasis added) The Panel interprets this phrase to mean "that the market entry price is something that has to be constructed using the c.i.f. price as one of the parameters." ⁸⁸ We disagree. In the light of our construction of the preceding phrase "the price at which imports of the product may enter the customs territory of the Member granting the concession", we conclude that the phrase "as determined on the basis of the c.i.f. import price of the shipment concerned" in Article 5.1(b) refers simply to the c.i.f. price without customs duties and taxes. There is no definition of the term "c.i.f. import price" in the Agreement on Agriculture or in any of the other covered agreements. However, in customary usage in international trade, the c.i.f. import price does not include any taxes, customs duties, or other charges that may be imposed on a product by a Member upon entry into its customs territory. ⁸⁹ We think it significant also that ordinary customs duties are not mentioned as a component of the relevant import price in the text of Article 5.1(b). Article 5.1(b) does not state that the relevant import price is "the c.i.f. price plus ordinary customs duties". Accordingly, to read the inclusion of customs duties into the definition of the c.i.f. import price in Article 5.1(b) would require us to read words into the text of that provision that simply are not there.

147. This reading of the text of Article 5.1(b) is supported by our reading of the context of that provision in accordance with Article 31 of the Vienna Convention, which specifies that the ordinary meaning of the terms of a treaty should be interpreted in their context.

148. We look first to the rest of Article 5.1. In considering when additional special safeguard duties under Article 5.1(b) may be imposed, the relevant import price must be compared with a trigger price. According to Article 5.1(b), this trigger price is "equal to the average 1986 to 1988 reference price for the product concerned". Footnote 2 to Article 5.1(b) states:

149. Thus, the reference price with which the relevant price is compared under Article 5.1 does not include ordinary customs duties. It is simply the average c.i.f. import price of the product concerned during the reference period, 1986-1988. Given this definition of the reference price, it could not have been the intention of the drafters to compare a c.i.f. price exclusive of customs duties for the reference period with a c.i.f. price inclusive of such duties today.

150. Paragraph 5 of Article 5 is also part of the context of Article 5.1(b). This provision establishes a link between the amount of the additional duty to be imposed and the difference between the c.i.f. import price of the shipment and the trigger price. According to the schedule contained in paragraph 5, when the difference between the c.i.f. import price of the shipment and the trigger price is not greater than 10 per cent, no additional duty shall be imposed. When the difference is greater than 10 per cent, additional duties may be imposed. The amount of the additional safeguard duties increases as the difference in the two prices increases. We see no reference in paragraph 5 to "c.i.f. import price plus ordinary customs duties". The price used to determine when the special safeguard may be triggered and the price used to calculate the amount of the additional duties must be one and the same.

151. Certain anomalies would arise from the interpretation adopted by the majority of the Panel. One of these anomalies was cited in the opinion of the dissenting member of the Panel. ⁹⁰ If tariffication of non-tariff barriers on a certain product took the form of specific duties that were greater than the trigger price, then an importing Member may never be able to invoke Article 5.1(b). The truth of this observation is evident from the fact that the c.i.f. import price plus customs duties may never fall below the trigger price. This consequence is not limited to the case of specific duties that exceed the trigger price. It could also occur in cases where tariffication takes the form of ad valorem duties. We know that tariffication has resulted in tariffs which are, in a large number of cases, very high. The probability is strong, therefore, that the ad valorem duties could exceed the percentage decrease in the c.i.f. import price by a substantial margin. In such cases, the decrease in the c.i.f. price would have to be very deep before the relevant import price would fall below the trigger price. Thus, the provisions of Article 5.1(b) would not be operational in many cases. It is doubtful that this was intended by the drafters of the "Special Safeguard Provisions".

152. Another anomaly that would arise from defining the relevant import price as the c.i.f. import price plus ordinary customs duties would be that the right of Members to invoke the provisions of Article 5.1(b) would depend on the level of tariffs resulting from tariffication. Faced with a certain decline in the c.i.f. price -- say, 20 per cent -- some Members would find themselves in a situation where they could not invoke the price safeguard; others would have the right to do so. The first category would comprise those Members with a relatively high level of tariffied duties; the second would be those with a relatively moderate level. Thus, the rights of Members would ultimately depend on the level of their tariffied duties. It is doubtful, too, that this was intended by the drafters of the "Special Safeguard Provisions".

153. For the foregoing reasons, we interpret the "price at which the product concerned may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price" in Article 5.1(b) as the c.i.f. import price not including ordinary customs duties. Accordingly, we reverse the finding of the Panel in paragraph 282 of the Panel Report.

This paragraph of the Panel Report can only be interpreted to mean that the Panel did not make a finding on the consistency of the EC measure with Article 5.5. The Panel acted within its discretion in choosing to exercise judicial economy in this manner. ⁹²

155. Brazil did not include a claim relating to Article 5.5 of the Agreement on Agriculture in its notice of appeal. Nor did Brazil claim in its appellant's submission that the Panel erred in failing to make a finding relating to Article 5.5. The European Communities later filed an appellant's submission of its own appealing the Panel's finding on Article 5.1(b) of the Agreement on Agriculture. Brazil then argued in reply in its appellee's submission that if we reversed the Panel's finding on Article 5.1(b), it would then be necessary for us to address the issues arising under Articles 5.5 and 4.2 of the Agreement on Agriculture. Having decided to reverse the Panel's finding relating to Article 5.1(b), we turn now to these additional issues.

156. We are aware of the provisions of Article 17 of the DSU that state our jurisdiction and our mandate. Article 17.6 of the DSU provides: "An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel". Article 17.13 of the DSU states: "The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel." In certain appeals, however, the reversal of a panel's finding on a legal issue may require us to make a finding on a legal issue which was not addressed by the panel. This occurred, for example, in the appeals in United States - Standards for Reformulated and Conventional Gasoline ⁹³ and in Canada - Certain Measures Concerning Periodicals.⁹⁴ And, in this appeal, as we have reversed the Panel's finding on Article 5.1(b), we believe we should complete our analysis of the c.i.f. import price by making a finding with respect to the consistency of the EC regulation with Article 5.5, which was not addressed by the Panel for reasons of judicial economy.

157. Looking at Article 5 of the Agreement on Agriculture as a whole, it is clear that the provisions of Article 5.1(b) and Article 5.5 are closely linked. Together, these provisions establish the precise conditions for imposing additional duties under the price-triggered special safeguards mechanism that is established by Article 5. Article 5.1(b) determines when the price-triggered special safeguard mechanism may be activated so that additional duties may be imposed. Article 5.5 determines the method by which such additional duties will be calculated.

158. Article 5.5 of the Agreement on Agriculture reads:

159. The legal issue raised with respect to Article 5.5 is whether it is permissible for the importing Member to offer the importer a choice between the use of the c.i.f. price of the shipment as provided in Article 5.5, and another method of calculation which departs from this principle. In this case, the alternative method consists of the "representative price" provided in Regulation 1484/95.

160. Regulation 2777/75, the Council regulation, contains the general rule for the application of the additional "special safeguard" duties provided for in Article 5 of the Agreement on Agriculture. Article 5.3 of Regulation 2777/75 states:

161. However, what is really at issue here is Regulation 1484/95, the Commission regulation, which sets forth in detail the EC system for calculating the additional duties on shipments of frozen poultry meat to be imposed as a "special safeguard" over and above the ordinary customs duties. Regulation 1484/95 provides for two methods of calculating these additional duties.

162. The first method is explained in Article 3.1 of Regulation 1484/95, which provides: "At the request of the importer the additional duty may be established on the basis of the cif import price of the consignment in question, if this price is higher than the applicable representative price � ." According to Article 3.1, "the application of the cif price of the consignment in question for establishing the additional duty is subject to the presentation by the interested party to the competent authorities of the importing Member State of at least the following proofs: the purchasing contract, or any other equivalent document, the insurance contract, the invoice, the certificate of origin (where applicable), the transport contract, and, in the case of sea transport, the bill of lading".⁹⁵ An importer requesting that this method be followed must lodge a security "equal to the amount of the additional duty which he would have paid if the calculation of the additional duty had been made on the basis of the representative price applicable to the product in question"⁹⁶, for the goods to be released immediately for free circulation within the European Communities.

163. The second method is explained in Article 3.3 of Regulation 1484/95, which provides that in the absence of a request by the importer to calculate the additional duties on the basis of the c.i.f. import price of the consignment in question, "the import price of the consignment in question to be taken into consideration for imposing an additional duty shall be the representative price referred to in Article 2(1)" of the regulation. According to Article 2.1 of Regulation 1484/95, the EC Commission determines at regular intervals the "representative prices" of frozen poultry meat, "taking into account in particular: the prices on third country markets, free-at-Community frontier offer prices, and prices at the various stages of marketing in the Community for imported products."

164. To determine whether the two methods specified in the EC measure are consistent with the obligations of the European Communities under Article 5.5 of the Agreement on Agriculture, we must turn first to an examination of the text of Article 5.5. The chapeau of Article 5.5 states: "The additional duty imposed under subparagraph 1(b) shall be set according to the following schedule � ". (emphasis added) According to the schedule in Article 5.5, the additional safeguard duty is calculated as a certain percentage of the difference between the c.i.f. import price and the trigger price. This percentage increases with the increases in that difference.

165. In our view, the ordinary meaning of the text of Article 5.5 is clear. The chapeau of Article 5.5 clearly states that the schedule in the body of that provision is mandatory. The word used in the chapeau is "shall", not "may". There is no qualifying language, and there is no language that permits any method other than that set out in the schedule in Article 5.5 as a basis for the calculation of additional duties. Likewise, Article 5.5 clearly identifies the c.i.f. import price of the shipment as the sole element to be compared with the trigger price in the calculation of the additional duties. Article 5.5 stipulates that the amount of additional duties "shall be set" on the basis of the comparison of the c.i.f. import price of the shipment concerned with the trigger price. Thus, the ordinary meaning of the c.i.f. import price of the shipment is precisely that: the c.i.f. import price of the shipment. Unlike the trigger price with which it is compared, the c.i.f. import price is not described in the text of Article 5 of the Agreement on Agriculture as an average price during a certain period of time. It is simply the c.i.f. import price of the shipment, that is, the actual price of an actual shipment. There is no authority in the text of Article 5.5 for a Member to use any alternative to the c.i.f. import price, shipment-by-shipment, in the calculation of the additional duties imposed under this special safeguard mechanism.

166. The context of Article 5.5 supports this conclusion. The context of Article 5.5 includes both Article 5.1(b) and Article 4.2 of the Agreement on Agriculture. As noted previously, Articles 5.1(b) and 5.5 are inextricably linked. We have already concluded that the relevant import price in Article 5.1(b) is the c.i.f. import price of the shipment. Under Article 5.1(b), this price must be compared to the trigger price to determine whether the special safeguard mechanism is activated. Both the import price and the trigger price mentioned in Article 5.1(b) are also the very same import price and trigger price, respectively, that are mentioned in Article 5.5. If the relevant import price that is compared to the trigger price to determine whether the safeguard mechanism in Article 5.1(b) is activated is the c.i.f. import price of the shipment, then logic dictates that the c.i.f. import price of the shipment that is used to set the amount of those additional duties under Article 5.5 cannot be anything else.

167. We note that the safeguard mechanism in Article 5 of the Agreement on Agriculture is described as "special". The reason for this description is that it is a unique mechanism compared with safeguard provisions in Article XIX of the GATT 1994, the Agreement on Safeguards, and in Article 6 of the Agreement on Textiles and Clothing. It is not conditional upon a test of injury as it is the case with other safeguard provisions; it can be automatically activated when there is a certain surge in the volume of imports (Article 5.1(a)) or a certain drop in the price of the product (Article 5.1(b)). For this reason, it should not be invoked except in accordance with, and within the confines of, the strict requirements of Article 5. One of these requirements is that the relevant import price to be compared with the trigger price for the purpose of establishing the amount of the additional duties under Article 5.5 must be the c.i.f. import price of the shipment. To read the text of Article 5.5 as permitting the use of any price other than the c.i.f. import price, shipment-by-shipment, would not be consistent with the special character of this provision.

168. Therefore, neither the text nor the context of Article 5.5 of the Agreement on Agriculture permits us to conclude that the additional duties imposed under the special safeguard mechanism in Article 5 of the Agreement on Agriculture may be established by any method other than a comparison of the c.i.f. price of the shipment with the trigger price.

169. With this conclusion in mind, we turn again to the two methods employed in the EC measure. With respect to the first method, it will be recalled that Article 3.1 of Regulation 1484/95 permits the additional duties to be calculated, at the request of the importer, on the basis of "the c.i.f. price of the consignment" in question. To the extent that this method uses the c.i.f. price of the shipment to calculate the amount of the additional duties, it is consistent with Article 5.5 of the Agreement on Agriculture. We note, however, that this method is only available at the request of the importer and also is only available if the price established by this method is higher than the applicable representative price. Otherwise, the alternative method, which does not use the c.i.f. price of the shipment, is used. This means that the actual c.i.f. price of the consignment is not used in all cases. To this extent, this method is not consistent with Article 5.5 of the Agreement on Agriculture.

170. With respect to the second method, it will be recalled that Article 3.3 of Regulation 1484/95 provides for the calculation of additional duties by reference to the "representative price". As point ed out previously, the basic characteristic of the "representative price" is that it is an average of three elements over a certain period of time. The "representative price" may be more advantageous for exporters of frozen poultry meat to the European Communities, "a useful and transparent tool for importers to reduce bureaucracy",⁹⁷conducive to the avoidance of fraud or other irregularities in the pricing of imports of frozen poultry meat, ⁹⁸ "a means of boosting trade by dramatically reducing bureaucracy and paperwork",⁹⁹ and a method that the importer is "completely free" to choose.¹⁰⁰ We offer no views on any of these possible justifications for, or consequences of, the EC "representative price". We need not do so. For, whatever the "representative price" may or may not be, it is clear on the face of the regulation that the "representative price" is not calculated on a shipment-by-shipment basis and, therefore, it is not the c.i.f. price of the shipment concerned. Article 3.1 of Regulation 1484/95 states that: "At the request of the importer the additional duty may be established on the basis of the cif import price of the consignment in question, if this price is higher than the applicable representative price � ." (emphasis added) If the representative price can be lower or higher than the c.i.f. price of the shipment concerned, then it obviously will not always be the same as the c.i.f. price of the shipment. For this reason, and because we hold that calculation of the additional "special safeguard" duties on the basis of the c.i.f. price of the shipment is mandatory, we conclude that the use of the "representative price" is inconsistent with Article 5.5 of the Agreement on Agriculture.

171. To the extent that Regulation 1484/95 allows for the calculation of the additional duties under Article 5 of the Agreement on Agriculture on a basis other than the c.i.f. price of the shipment concerned, it is inconsistent with the obligations of the European Communities under Article 5.5 of the Agreement on Agriculture. Therefore, the "representative price" method in Regulation 1484/95 is not consistent with Article 5.5 of the Agreement on Agriculture. Having made this determination, it is not necessary for us to proceed to examine whether the EC measure is consistent with Article 4.2 of the Agreement on Agriculture.

⁸³ Panel Report, para. 278.

⁸⁴ Panel Report, para. 281.

⁸⁵ Panel Report, para. 282.

⁸⁶ Panel Report, para. 292.

⁸⁷ Panel Report, para. 278.

⁸⁸ Panel Report, para. 278.

⁸⁹ We note that the Incoterms 1990 of the International Chamber of Commerce explains what the acronym "c.i.f." means "cost, insurance and freight", but does not give a definition of "c.i.f. import price". However, according to customary usage in international trade, c.i.f. import price, or simply c.i.f. price, is equal to the price of the product in the exporting country plus additional costs, insurance and freight to the importing country. This definition may also be inferred from paragraph 2 of the Attachment to Annex 5 of the Agreement on Agriculture.

⁹⁰ Panel Report, para. 291.

⁹¹ Panel Report, para. 286.

⁹² We refer to our decision in United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, p. 19.

⁹³ Adopted 20 May 1996, WT/DS2/AB/R, pp. 13-29.

⁹⁴ Adopted 30 July 1997, WT/DS31/AB/R, pp. 23-24.

⁹⁵ Regulation 1484/95, Article 3.1.

⁹⁶ Regulation 1484/95, Article 3.2.

⁹⁷ EC post-hearing reply memorandum, para. 16.

⁹⁸ EC post-hearing reply memorandum, para. 15.

⁹⁹ EC post-hearing reply memorandum, para. 11.

¹⁰⁰ EC post-hearing reply memorandum, para. 11.