The report of the Panel on Chile - Price Band System and Safeguard Measures Relating to Certain Agricultural Products is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 3 May 2002 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

Note by the Secretariat: This Panel report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel report is available from the WTO Secretariat

TABLE OF CONTENTS

I. INTRODUCTION
 
II. FACTUAL ASPECTS

1. CHILE'S PRICE BAND SYSTEM 

1. Regulatory framework 
    
2. Workings of the PBS 

2. CHILE'S SAFEGUARD MEASURES 

1. Regulatory Framework
    
2. Provisional and definitive safeguard measures
    
3. Extension of the safeguard measures 

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

IV. ARGUMENTS OF THE PARTIES 

1. ARGUMENTS RELATING TO CHILE'S PRICE BAND SYSTEM

1. Procedural arguments

(a) Burden of proof 

2. Substantive arguments 

(a) Infringement of Article II:1(b) of the GATT 1994 

(i) Whether the application of the PBS has led to customs duties higher than bound tariffs 

(ii) Can the PBS as such lead to customs duties higher than bound tariffs 

(iii) Article XIX as an exception to Article II of the GATT 1994 

(b) Violation of Article 4.2 of the Agreement on Agriculture 

(i) Whether the PBS is a measure prohibited under Article 4.2 and should have been tariffied

(ii) Whether the PBS is a variable levy or a similar border measure 

(iii) Distinction between variable levy or similar border measure and ordinary customs duty

(c) Relation between Article II:1(b) of the GATT 1994 and Article 4.2 of the Agreement on Agriculture 

(i) Other issues of interpretation relating to Article 4.2 of the Agreement on Agriculture

Relevance of the Chile-Mercosur Economic Complementarity Agreement No. 35

Prior knowledge, negotiating history and subsequent practice

Secretariat's advice 

2. ARGUMENTS RELATING TO CHILE'S SAFEGUARD MEASURES 

1. Procedural arguments 

(a) Terms of reference 

(i) Measures which are no longer in force 

(ii) The decision on extension was not the subject of consultations between the parties 

(iii) Withdrawal of some of the extension measures 

(b) Burden of proof 

2. Substantive arguments

(a) Compliance with the notification and prior consultation requirements 

(b) Unforeseen developments

(c) Appropriate investigation 

(d) Whether Chile failed to publish a report setting forth reasoned conclusions and findings 

(e) Like product 

(f) Increase of imports 

(i) Edible vegetable oils

Initiation of the investigation 

Provisional safeguards

Definitive safeguards 

Extension of the measures 

(ii) Wheat flour 

Initiation of the investigation

Provisional safeguards

Definitive safeguards 

Extension of the measures 

(iii) Wheat 

Initiation of the investigation

Provisional safeguards 

Definitive safeguards 

Extension of the measures 

(g) Evaluation of all relevant factors 

Edible vegetable oils 

Wheat flour 

Wheat 

(h) Threat of injury 

(i) Causal link

(j) Whether Chile's safeguard measure was not limited to the extent necessary to remedy injury and to facilitate adjustment 

(k) Provisional measures 

V. ARGUMENTS OF THE THIRD PARTIES

1. BRAZIL
    
2. COLOMBIA
    
3. ECUADOR
    
4. EUROPEAN COMMUNITIES 
    
5. GUATEMALA
    
6. JAPAN
    
7. PARAGUAY
    
8. UNITED STATES
    
9. VENEZUELA 

VI. INTERIM REVIEW

VII. FINDINGS

1. THE CHILEAN PRICE BAND SYSTEM

1. Requested findings 
    
2. Amendment to Article 12 of Law 18.525 in the course of the panel proceedings 
    
3. Order of the Panel's analysis 
    
4. The Chilean PBS and Article 4.2 of the Agreement on Agriculture 

(a) Is the Chilean PBS a measure of the kind which has been required to be converted into ordinary customs duties? 

(i) Is the Chilean PBS a border measure similar to those listed in footnote 1? 

"Border measure" 

"Similar to" a "variable import levy" or a "minimum import price" 

Determination of the meaning of "similar to a variable import levy or a minimum import price" 

Application of the Panel's interpretation of "similar to a variable import levy or a minimum import price" to the Chilean PBS

"Other than ordinary customs duties" 

Determination of the meaning of "ordinary customs duties"

Application of the Panel's interpretation of "other than ordinary customs duties" to the Chilean PBS 

Conclusion 

(ii) Is the Chilean PBS "maintained under balance-of-payment provisions or under other general, non-agriculture specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement"? 

(b) Other tools of interpretation

(i) "state practice"

(ii) Article 24 of Economic Complementarity Agreement No. 35 ("ECA 35") between Chile and MERCOSUR 

(iii) Negotiating history of Article 4.2 

(c) Conclusion regarding Article 4.2 of the Agreement on Agriculture 

5. The Chilean PBS and Article II:1(b) of GATT 1994 

2. THE CHILEAN SAFEGUARD MEASURES ON WHEAT, WHEAT FLOUR AND EDIBLE VEGETABLE OILS 

1. The measures at issue 
    
2. Preliminary issues 

(a) The provisional safeguard measures

(b) The definitive safeguard measures and the extension of their period of application

(c) Withdrawal of safeguard measures while the panel proceedings were ongoing 

3. Published report (Article 3.1 of the Agreement on Safeguards)
    
4. Documents examined by the Panel to assess Chile's compliance with its obligations under Article XIX of GATT 1994 and the Agreement on Safeguards
    
5. Unforeseen developments (Article XIX:1(a) of GATT 1994 and Article 3.1 of the Agreement on Safeguards) 
    
6. Definition of like or directly competitive product (Articles XIX:1(a) of GATT 1994 and Articles 2.1, 4.1(a) and 4.2(c) of the Agreement on Safeguards) 
    
7. Increase in imports (Articles XIX:1(a) of GATT 1994 and Articles 2.1 and 4.2(a) of the Agreement on Safeguards)
    
8. Threat of serious injury and evaluation of all relevant factors (Article XIX:1(a) of GATT 1994 and Articles 4.1(a), 4.1(b) and 4.2(a) of the Agreement on Safeguards)
    
9. Causal link (Articles 2.1 and 4.2(b) of the Agreement on Safeguards)
    
10. Measures necessary to remedy injury and facilitate adjustment (Article XIX:1(a) of GATT 1994 and Articles 3.1 and 5.1 of the Agreement on Safeguards)
     
11. Appropriate investigation (Articles 3.1 and 3.2 of the Agreement on Safeguards)
     
12. Findings and reasoned conclusions (Article 3.1 of the Agreement on Safeguards)
     
13. Provisional measures (Article XIX:2 of GATT 1994 and Article 6 of the Agreement on Safeguards)
     
14. Notification and consultation (Article XIX:2 of GATT 1994 and Article 12 of the Agreement on Safeguards)
     
15. Extension of the definitive safeguard measures (Article 7 of the Agreement on Safeguards) 

VIII. CONCLUSIONS AND RECOMMENDATIONS

I. INTRODUCTION

1.1 On 5 October 2000, Argentina requested consultations with Chile pursuant to Article XXIII:1 of the General Agreement on Trade and Tariffs 1994 (the "GATT 1994") and Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") - insofar as it is an elaboration of Article XXIII:1 of the GATT 1994 - as well as Article 14 of the Agreement on Safeguards and Article 19 of the Agreement on Agriculture. This request was related to the Chilean Price Band System (hereafter "the Chilean PBS") and the imposition by the Chilean authorities of provisional and definitive safeguard measures on imports of wheat, wheat flour and edible vegetable oils.¹

1.2 The consultations took place on 21 November 2000, but the parties failed to reach a mutually satisfactory solution. On 19 January 2001, Argentina requested the Dispute Settlement Body (the "DSB") to establish a panel, pursuant to Article XXIII of the GATT 1994, Articles 4 and 6 of the DSU, Article 19 of the Agreement on Agriculture and Article 14 of the Agreement on Safeguards, in order to examine the Chilean PBS, its provisional and definitive safeguard measures on imports of wheat, wheat flour and edible vegetable oils, and the extension of those measures.²

1.3 At its meeting on 12 March 2001, the DSB established a panel in accordance with Article 6 of the DSU . At that meeting, the parties agreed that the Panel should have standard terms of reference. The terms of reference of the panel were, therefore, the following:

"To examine, in the light of the relevant provisions of the covered agreements cited by Argentina in document WT/DS207/2, the matter referred to the DSB by Argentina in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."³

1.4 On 7 May 2001, Argentina requested the Director-General to determine the composition of the panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph provides:

"If there is no agreement on the panelists within 20 days after the date of the establishment of a panel, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall determine the composition of the panel by appointing the panelists whom the Director-General considers most appropriate in accordance with any relevant special or additional rules or procedures of the covered agreement or covered agreements which are at issue in the dispute, after consulting with the parties to the dispute. The Chairman of the DSB shall inform the Members of the composition of the panel thus formed no later than 10 days after the date the Chairman receives such a request."

1.5 On 17 May 2001, the Director-General accordingly composed the Panel as follows:

Chairman:	Mr. Hardeep Puri
Members:	Mr. Ho-Young Ahn Mr. Michael Gifford

1.6 Australia, Brazil, Colombia, Costa Rica, the European Communities, Ecuador, El Salvador, Guatemala, Honduras, Japan, Nicaragua, Paraguay, the United States and Venezuela reserved their rights to participate in the panel proceedings as third parties.

1.7 The Panel met with the parties on 12-13 September and 21-22 November 2001. It met the third parties on 13 September 2001.

1.8 The Panel submitted its interim report to the parties on 21 February 2002. On 28 February 2002, Chile submitted comments and requested the revision and clarification of certain aspects of the interim report. Chile also requested the Panel to hold a further meeting with the parties, pursuant to Article 15 of the DSU and paragraph 16 of the Panel's Working Procedures. On 28 February 2002, Argentina submitted general comments to the interim report. An Interim Review meeting was held with the parties on 14 March 2002. The Panel gave the parties the opportunity to submit further comments the following day. The Panel submitted its final report to the parties on 4 April 2002.

II. FACTUAL ASPECTS

2.1 The dispute concerns two distinctive matters: (A) Chile's Price Band System ("PBS") and (B) Chile's provisional and definitive safeguards measures on imports of wheat, wheat flour and edible vegetable oils, as well as the extension of those measures.

1. CHILE'S PRICE BAND SYSTEM

2.2 Chile's regulations on its PBS are contained in Law 18.525 on the Rules on the Importation of Goods⁴, as amended. In particular, Article 12 of Law 18.525 provides for the methodology for the calculation of the price bands. This Article reads as follows:⁵

2.3 Chile submitted a copy of Law No. 19.772⁶, amending Article 12 of Law 18.525 at the second substantive meeting. Article 2 of Law No. 19.772, which entered into force on 19 November 2001, adds the following paragraph to Article 12 of Law 18.525:

"The specific duties resulting from the application of this Article, added to the ad valorem duty, shall not exceed the base tariff rate bound by Chile under the World Trade Organization for the goods referred to in this Article, each import transaction being considered individually and using the c.i.f. value of the goods concerned in the transaction in question as a basis for calculation. To that end, the National Customs Service shall adopt the necessary measures to ensure that the said limit is maintained."

2. Workings of the PBS

2.4 As a matter of practice, Chile's applied tariff rates are significantly below its bound rate. In the case of wheat, wheat flour, and edible vegetable oils, the applied rate can be increased by means of duty increases provided through the operation of the PBS.⁷ In each case, the PBS involves an upper and a lower threshold determined on the basis of certain international prices. The bands for each product are determined once every year through a Presidential decree when a table is published containing reference prices and related specific duties. Chile also sets weekly "reference prices" based on prices in certain foreign markets. A duty increase is triggered when the "reference price", lies below the lower threshold of the band. The duty increase is equivalent to the absolute difference between the lower threshold of the band and the "reference price". Conversely, a tariff rebate is triggered when the "reference price" lies above the price that determines the upper threshold of the band. The rebate (which cannot be greater than the applied ad valorem rate) is equivalent to the absolute difference between the "reference price" and the upper threshold of the band.

2.5 Article 12 of Law No. 18.525 foresees the application of specific duties expressed in US dollars per tariff unit or ad valorem duties, or both, as well as rebates on the amount payable as specific or ad valorem duties or both. For this purpose, Article 12 empowers the President of the Republic of Chile to issue decrees determining the price bands annually. These bands are calculated on the basis of average monthly prices observed for the last 60 months on specific exchanges. In the case of wheat, the calculation is based on Hard Red Winter No. 2, f.o.b. Gulf (Kansas Exchange), while for oils, it is based on the price of crude soya bean oil, f.o.b. Illinois, on the Chicago Exchange.⁸ As regards wheat flour, the price band for wheat is used to calculate the duty or rebate, which is then multiplied by a factor of 1.56 to obtain the specific duty or rebate for wheat flour.⁹ These average prices are adjusted by the percentage variation in the external price index (IPE) drawn by the Central Bank of Chile. After the prices have been readjusted, they are listed in descending order, with up to 25 per cent of the highest and lowest values being eliminated for wheat and edible vegetable oils. Tariff and importation costs (such as freight, insurance, opening of a letter of credit, interest on credit, taxes on credit, customs agents' fees, unloading, transport to the plant and wastage costs) are added to those prices thus determined in order to fix the lower and upper thresholds on a c.i.f. basis.

2.6 When a shipment of a product subject to the PBS arrives at the border for importation into Chile, the customs authorities determine the total amount of applicable duties as follows. The first step is to apply the ad valorem duty. Afterwards, the so-called "reference price" applicable to that given shipment has to be identified. This reference price is not the transaction price but a price which is determined weekly (every Friday) by the Chilean authorities by using the lowest f.o.b. price for the product in question on foreign "markets of concern to Chile".¹⁰ In the case of edible oils, the weekly reference price corresponds to the lowest f.o.b. price in force on the markets of concern to Chile for any of the types of covered edible vegetable oils. Unlike the prices used for the composition of the PBS, the reference prices are not subject to adjustment for "usual import costs".¹¹ The applicable reference price for a particular shipment is determined in reference to the date of the bill of lading. The reference price can be consulted by the public at the offices of the Chilean customs authorities.

2.7 Once the customs authorities have identified the reference price applicable to that given shipment, they proceed to levy the duties. These will differ according to the position of the reference price as regards the upper and lower thresholds of the price band. If the reference price falls below the lower threshold, the customs authorities will levy an 8 per cent ad valorem duty (MFN duty), plus an additional specific duty. This additional specific duty will equal the difference between the reference price and the lower threshold. If the reference price is between the lower and upper thresholds, the customs authorities will only apply the 8 per cent ad valorem duty. If the reference price is higher than the upper threshold, the customs authorities will grant a rebate on the 8 per cent ad valorem duty equal to the difference between the upper threshold and the reference price.

2. CHILE'S SAFEGUARD MAEASURES

2.8 The Chilean regulatory framework for the conduction of safeguards investigations and the eventual imposition of safeguards measures is contained in Law No. 19.612 of 28 May 1999¹² and its implementing Decree No. 909 of the Ministry of Finance of 17 June 1999.¹³ Chile notified both legal instruments to the WTO on 23 June 1999.¹⁴

2. Provisional and definitive safeguard measures

2.9 On 23 August 1999, the Ministry of Agriculture of Chile filed a request before the National Commission in charge of investigating distortions in the prices of imported goods (hereinafter "the Commission") to initiate ex officio a safeguards investigation on products subject to the PBS, that is, wheat, wheat flour, sugar and edible vegetable oils. The Chilean Ministry of Agriculture also requested the Commission to recommend the imposition of provisional safeguard measures. At its Session No. 181 held on 9 September 1999, the Commission decided to initiate a safeguards investigation against imports of wheat, wheat flour, sugar and edible vegetable oils.¹⁵ Imports of sugar, however, are not part of the present dispute. The decision to initiate is contained in Minutes of Session No. 181 of the Commission. The notice of initiation of the investigation was published in the Official Journal of the Republic of Chile on 29 September 1999 and notified to the WTO on 25 October 1999.¹⁶ Accordingly, the investigation was initiated on 30 September 1999.

2.10 At its Session No. 185 held on 22 October 1999, the Commission decided to recommend to the President of the Republic the imposition of provisional safeguard measures. The Commission's recommendations are contained in its Minutes of Session No. 185. Upon the recommendation of the Commission, the President through the Ministry of Finance imposed provisional safeguard measures on imports of wheat, wheat flour and edible vegetable oils by Exempt Decree No. 339 of 26 November 1999.¹⁷ Chile made an advance notification of these measures on 2 November 1999.¹⁸ The provisional safeguard measure consisted of an ad valorem tariff surcharge, corresponding to the difference between the general tariff added to the ad valorem equivalent of the specific duty determined by the PBS and the bound tariff in the WTO for these products.

2.11 At its Session No. 189 on 25 November 1999, the Commission held a public hearing in order to receive the views of the interested parties in the safeguards investigation. The arguments of the parties are annexed to its Minutes of Session No. 189. At its Session No. 193 held on 7 January 2000, the Commission recommended the imposition of definitive safeguard measures. The recommendations of the Commission are contained in Minutes of Session No. 193. On 18 January 2000, Chile notified the WTO of the finding by the Commission of threat of injury to its domestic industry for products subject to the Chilean price band system, and of that Commission's recommendation to the President of Chile to impose definitive safeguard measures.¹⁹

2.12 On 22 January 2000, Exempt Decree No. 9 of the Ministry of Finance of Chile was published in the Official Journal, imposing definitive safeguard measures for one year on imports of wheat, wheat flour and edible vegetable oils. As in the case of the provisional measures, the definitive measures consisted, for each import transaction, of an "ad valorem tariff surcharge, corresponding to the difference between the general tariff added to the ad valorem equivalent of the specific duty determined by the mechanism set out in Article 12 of Law 18.525 [i.e., the PBS] - and its relevant annual implementing decrees - and the level bound in the WTO for these products".²⁰

2.13 By Order No. 792 of 10 October 2000, the Chilean Ministry of Agriculture requested the Commission to consider an extension of the definitive safeguard measures imposed by Exempt Decree No. 9 of the Ministry of Finance of Chile on imports of wheat, wheat flour and edible vegetable oils. At its Session No. 222 held on 3 November 2000, the Commission decided to initiate a procedure for the purpose of deciding whether to extend the definitive safeguard measures. The notice of initiation was published on 4 November 2000. At its Session No. 223 on 13 November 2000, the Commission held a public hearing. The details of the hearing are contained in its Minutes of Session No. 223.

2.14 At its Session No. 224 held on 17 November 2000, the Commission decided to recommend the extension of the definitive safeguard measures established by Exempt Decree No. 9 of the Ministry of Finance. The decision of the Commission is contained in Minutes of Session No. 224. Further to this decision, the extension of the safeguard measures was imposed by Exempt Decree No. 349 of the Ministry of Finance of 25 November 2000.²¹ This Decree provides for an extension of the safeguard measures, as described in paragraph 2.12 above, for one year from the date of their expiry. In practice, they were extended until 26 November 2001. Chile notified the WTO of the extension of the measure on 11 December 2000.^{22 23}

2.15 The extension measures for wheat and wheat flour were withdrawn by Exempt Decree No. 244 of the Ministry of Finance published on 27 July 2001.²⁴ The termination of these measures was notified to the WTO on 9 August 2001.²⁵

III. PARTIES'REQUESTS FOR FINDINGS AND RECOMENDATIONS

3.1 For the reasons put forward, Argentina requests that the Panel:

3.2 In light of facts and law put forward, Chile requests that the Panel:

IV. ARGUMENTS OF THE PARTIES

1. ARGUMENTS RELATING TO CHILE'S PRICE BAND SYSTEM

1. Procedural arguments

(a) Burden of proof

4.1 Argentina refers to Article 3.8 of the DSU which reads:

4.2 As regards the alleged violation of Article II:1(b) of the GATT 1994, Argentina claims that it has established a prima facie case before the Panel by providing evidence and legal arguments that suffice to demonstrate that the Chilean measure at issue (the PBS) is inconsistent with Chile's obligations under Article II:1(b) of the GATT 1994. Consequently, Argentina contends that Chile has acknowledged that it imposed duties in excess of its tariff binding. Nor has it refuted the argument that the PBS potentially violates Chile's commitments in its national schedule. As regards the alleged violation of Article 4.2 of the Agreement on Agriculture, Argentina claims that, by presenting legal arguments sufficient to demonstrate that the Chilean measure under review (the PBS) is inconsistent with Chile's obligations under Article 4.2 of the Agreement on Agriculture, since it is among the "measures of the kind which have been required to be converted", it has once again established a prima facie case before the Panel. Argentina contends that, as in the case of Article II:1(b), Chile has not only failed to provide any evidence or arguments to refute Argentina's claims, but on the contrary, it has acknowledged that the PBS imposes a "levy" on "imports" which "varies" according to the day of shipment.²⁶

4.3 Argentina also claims that, given that Chile is maintaining mandatory legislation contrary to the provisions of the Agreement, there is a presumption of nullification or impairment of the rights accruing to Argentina and it is therefore up to Chile to rebut the charge.²⁷ Argentina further alleges that the Chilean PBS does not qualify for any of the exceptions provided for either in Article 5 (special safeguard provisions) or in Annex 5 of the Agreement on Agriculture. As regards the special safeguard provisions in Article 5 of the Agreement on Agriculture, Argentina considers that the Chilean PBS does not qualify for the Article 4.2 exception for two reasons: (i) the possibility of invoking this special provision expired on 31 December 2000; (ii) even if the provision were still valid, it would not apply, because Chile's Schedule does not designate wheat, wheat flour and edible vegetable oils with the symbol "SSG" (special safeguard) as required in Article 5.1.

4.4 Chile submits that Argentina has totally failed to comply with its obligation to prove that the Chilean PBS constitutes a variable levy or is otherwise inconsistent with Article 4.2 of the Agreement on Agriculture.²⁸

2. Substantive arguments

(a) Infringement of Article II:1(b) of the GATT 1994

4.5 Argentina makes two claims with respect to Article II:1(b) of the GATT 1994:

4.6 The PBS as such violates Article II:1(b) of the GATT 1994 since its application has led Chile in specific cases to collect duties in excess of the rates bound in its National Schedule No. VII

4.7 The PBS also violates Article II:1(b) of the GATT 1994 because, by its structure, design and mode of application, it potentially leads to the application of specific duties in violation of the bound tariff of 31.5 per cent.²⁹

(i) Whether the application of the PBS has led to customs duties higher than bound tariffs

4.8 Argentina submits that the violation by Chile of its obligations under Article II:1(b) of the GATT 1994 has been recognized by Chile and proven in practice. In Argentina's view, whilst the possibility to exceed the bound tariff is sufficient, in itself, to establish violation of Article II:1(b), Chile has in fact imposed tariffs exceeding the bound rate since 1998 and has acknowledged doing so on several instances.³⁰ In this regard, Argentina refers to the meeting of the Committee on Agriculture of 24-25 June 1999 where the representative of Chile stated that "in some cases, the applied tariff was greater than the bound commitment."^{31 32} According to Argentina, this statement constitutes an acknowledgement that Chile has violated its obligations under Article II:1(b) of the GATT 1994.³³ Argentina also refers to statements by Chile³⁴ in the Dispute Settlement Body, to various documents relating to its safeguards investigation³⁵ as well as Chile's First Written Submission³⁶ Additionally, Argentina states that Chile has been systematically violating its WTO commitments since 1998.³⁷ Argentina claims that this repeated, successive and consistent acknowledgement by Chile of its own violation, in particular during the proceedings before this Panel, is more than sufficient for this Panel to find that the PBS is inconsistent with Article II.1(b) of the GATT 1994.³⁸ In particular, Argentina contends that, contrary to what Chile claims³⁹, Chile imposed on Argentina effective ad valorem customs duties of up to 64.41 per cent for oils and 60.25 per cent for wheat flour, in violation of Article II.1(b), as confirmed by the actual documentation processed by Chilean customs.⁴⁰ Argentina considers that this confirms that violation is not merely a theoretical possibility, but is something that actually occurred and that will necessarily continue to occur if the system in force is maintained.⁴¹ If Chile were to apply a specific duty whose ad valorem equivalent did not violate its tariff binding, its acknowledgement, that "[t]he Government of Chile therefore deliberately decided to allow the price band to operate at full regime, failing to comply with its commitment"⁴² would, according to Argentina, be absurd.⁴³

4.9 Chile acknowledges that the total tariff applied to imports of milling wheat has, on occasion, exceeded Chile's tariff binding under the GATT 1947. Chile observes that with respect to the 1990-1995 period, this happened during 1990 and 1991. Chile submits that the reasons why it exceeded its tariff binding under the GATT 1947 can be found in the existence of unforeseen circumstances which, at the time, caused a spectacular fall in the price of imports of certain products included in the price band. Chile claims that these circumstances were of so extraordinary a nature that Chile, at the time, could not reasonably foresee that a situation in which it was forced to exceed its tariff binding under the GATT 1947 - subsequently under the GATT 1994 - would recur. Chile stresses that these circumstances were not only extraordinary for Chile, but for the other GATT contracting parties as well, including Argentina and the third parties to this Panel. Indeed, Chile submits these countries never filed a complaint to the effect that their rights under the Treaty were being affected by the PBS nor did they challenge the system and its operation during the Uruguay Round negotiations, in spite of their knowledge that Chile had exceeded its bound tariff owing to force majeure.⁴⁴

4.10 Argentina contends that Chile has not refuted Argentina's allegations that it has actually exceeded its bound tariff, and that, as its previous recognition in this respect in various WTO fora indicate, Chile has not even tried to refute them. Argentina further submits that, added to all this is the evidence that Chile itself has contributed to these proceedings in its note dated 5 October 2001, in which its Permanent Representative to the WTO provides a series of statistical tables as a supplement to its reply to question 12(b) of the Panel. In Argentina's view, these tables specifically show that in all of the monthly series for "other wheat and meslin" (tariff heading 1001.90.00) from January 1998 to January 2001, the Chilean Ministry of Finance itself confirms that Chilean Customs systematically and continuously levied amounts ranging from 36.1 per cent to 67.1 per cent on average for the month of December 1999 on the totality of imports from any WTO Member, exceeding its bound duty. Examining the same submission by Chile with respect to edible vegetable oils, Argentina finds that the figures indicate that the binding was systematically exceeded as from June 1999. Argentina submits that these figures reach as much as 70.8 per cent in some instances, i.e. more than double Chile's binding under the WTO.⁴⁵

(ii) Can the PBS as such lead to customs duties higher than bound tariffs

4.11 Argentina claims that the PBS potentially violates Article II:1(b) of the GATT 1994. Argentina argues that the obligation contained in Article II:1(b) of the GATT has been clearly specified by GATT/WTO precedent. In this regard, Argentina claims that it has been pointed out that, when a bound tariff has been recorded in a Member's schedule, that bound tariff constitutes a maximum limit of the duties that can legally be applied to products subject to the binding or, in the circumstances of this case, the limit for the combination of the normal customs duty and the specific duty applied in accordance with the PBS.⁴⁶ Furthermore, Argentina contends that the WTO obligation contained in Article II:1(b) of the GATT is violated not only when, in a specific instance, a higher rate than the bound tariff is in fact applied, but also when the challenged measure is structured and designed in such a way as to make it possible for situations to arise in which the bound tariff is exceeded.⁴⁷ In Argentina's view, the PBS, by its design, structure and mode of application, has the capacity to cause Chile inevitably to violate its tariff binding.^{48 49} Argentina states that, in cases in which the customs reference price for the day of shipment is lower than a given level, the tariffs effectively applied by Chile exceed the bound rate of 31.5 per cent.⁵⁰ Argentina presents a mathematical formulation of the working of the Chilean PBS which presumes that there are only two relevant prices to be considered for the purposes of such an analysis, i.e. the "transaction price" and the "reference price" and that these prices are, in general, not equal. Argentina argues that its analysis⁵¹ shows that, when the c.i.f. import price and the f.o.b. reference price for a given shipment are below the price band floor beyond a point X (the "break even point"), the result of applying the variable specific duty is to exceed the WTO bound ceiling. In other words, Argentina explains, in order to demonstrate that the bound rate has been exceeded, the specific duty must be converted into an ad valorem tariff, for which purpose the c.i.f. import price appearing in the invoices is used. Argentina argues that, at least in circumstances in which the reference price and the c.i.f. invoice price are below the break even point, the bound tariff (31.5 per cent) will be exceeded by the sum of the general tariff (8 per cent) and the specific price band tariff converted into an ad valorem rate.⁵² Argentina further submits that the bound level would also be violated in either of the two following situations: if the transaction price were equal to the mentioned break even price and the reference price were lower than both, or if the reference price were equal to the break even price and the transaction price were lower than both.⁵³ Consequently, Argentina argues, the lack of a so-called "cap system", added to the discretion allowed in fixing the reference price, means that in a low international price scenario, the effective level of ad valorem equivalents levied can exceed the bound level in Chile's National Schedule for the products subject to the band.⁵⁴

4.12 In reference to the above⁵⁵, Chile states that Argentina acknowledges that the duty may be, and generally has been lower, than Chile's bound tariff and that, in fact, when international prices are high, the PBS may lower the import duty even as far as zero.⁵⁶

4.13 In Argentina's view, the mandatory nature of the Law and the decrees establishing the specific duties leave no alternative to Chile's customs officials but to levy the duty which, depending on the price of the goods, could potentially - at a certain price level - lead to a breach in Chile's WTO obligations. Argentina affirms that neither Chilean law nor its implementing regulations impose any limit that could prevent this from happening. Argentina further asserts that the Law as such, being mandatory, necessarily leads - in accordance with the fluctuation of international prices - to the violation of tariff commitments.⁵⁷ Argentina considers that Article XVI:4 of the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement") and GATT/WTO precedents confirm that legislative provisions as such, however they may be applied in specific cases, can violate the provisions of the GATT and the WTO.⁵⁸ Argentina asserts that, regarding what Chile stated in the DSB, it is important to point out that unilateral statements by Members in the context of a dispute settlement proceeding have legal effects. In support of this statement, Argentina cites the case United States - Sections 301-310 of the Trade Act of 1974.⁵⁹ According to Argentina, the acknowledgement by Chile that the bound rate has been exceeded proves that even if Article 12 of Law 18.525 were to be interpreted as not being mandatory, but as granting discretionary powers to the Executive, it would nevertheless have to be considered inconsistent with Article II:1(b) of the GATT 1994.⁶⁰

4.14 Chile argues that paragraph (a) of Article II:1 of the GATT lays down a general prohibition on granting to imports treatment less favourable than that provided in the Member's Schedule. Paragraph (b), Chile says, "prohibits a specific kind of practice that will always be inconsistent with paragraph (a): that is, the application of ordinary customs duties in excess of those provided for in the Schedule".⁶¹ In Chile's view, Article II simply acts as a ceiling for customs duties so that Members are obliged to refrain from imposing import duties or other import charges that exceed the tariff commitments a Member has fixed in its own Schedule. Chile contends that specific tariff systems are not inconsistent with the obligations laid down in Article II:1(b) of the GATT. In reference to the Appellate Body's ruling in Argentina - Footwear (EC), Chile concludes that the sole fact that a PBS imposes a specific import duty as well as an 8 per cent ad valorem duty (and in some instances a reduced ad valorem duty), does not mean that the Law is inconsistent with the obligation under Article II:1(b). As long as the Chilean PBS involves the application of a tariff duty which, when translated into ad valorem terms does not exceed Chile's commitment to 31.5 per cent, the PBS, in Chile's view, is not inconsistent with the obligations under Article II:1(b).⁶² Thus, Chile contends, so long as the rate of duty applied is at, or below, the bound rate, Article II does not prohibit the application of any rate of duty, whether expressed in specific or ad valorem terms, or some combination of specific and ad valorem terms. Chile further claims that Article II does not prevent a party from changing the rate of duty that is applied, provided that the bound ceiling rate is respected.⁶³

4.15 Argentina claims that, contrary to the above⁶⁴, it in no way it questions Chile's right to apply specific duties on its imports. Argentina explains that what it is saying is that the PBS inevitably leads to the possibility of levying duties in excess of Chile's tariff binding, and this is in fact what happened.⁶⁵ Argentina further clarifies that the Chilean PBS is not a specific duty. In Argentina's view, we are not dealing with a specific duty which constitutes an "ordinary customs duty" - a duty which, since it does not result in the levying of duties in excess of the bound rate, would not be the subject of a complaint by Argentina with respect to Article II:1(b) of the GATT 1994. Argentina considers that the PBS is a surcharge whose structure, design and mode of application potentially leads to a violation of Chile's binding.⁶⁶

4.16 Argentina considers that it is neither the intentions or the declarations of Chile with respect to its readiness to obtain a waiver nor the issue of whether or not it deliberately permitted the full-scale application of the price band that the Panel should be evaluating. Rather, in Argentina's view, what counts in determining consistency or inconsistency is whether by its structure and design, the system could cause Chile to impose customs duties in excess of its tariff bindings in its National Schedule. Argentina submits that the example given starting with paragraph 29 of Argentina's First Written Submission, presented in graphic form in Annex ARG-12, shows how the application of a reference price - set by the implementing authority at its own discretion - in certain conditions (drop in international prices) necessarily leads, in relation to the transaction price, to the bound tariff being exceeded. Argentina claims that exceeding the bound tariff is not merely a theoretical possibility, but a practical fact. Argentina reminds that this is illustrated in Annexes ARG-14 and 15, and was recognized by Chile itself. It further affirms that it could not be otherwise, since the system does not have any safety mechanism against such violation (Article II.1(b)).⁶⁷

4.17 Chile clarifies that the price bands operate in accordance with the law. Chile contends that the WTO Agreements, including Schedule VII, were approved by the Chilean Congress as a Law and with the hierarchy of an international treaty. Therefore, Chile explains, the WTO Agreements override existing law to the extent there is a conflict, and cannot be amended by future law. Chile argues that, from a legal point of view, the system cannot automatically exceed the bound rate.⁶⁸ In response to a question of the Panel, Chile explains that, as both the legislation governing the price band and the Marrakesh Agreement Establishing the WTO with its annexed Agreements, are part of the Chilean legal order, the customs authorities are subject to that order. Chile claims that there was no reason to presume that the duties resulting from the application of the PBS would exceed the WTO tariff binding.⁶⁹ To prevent this from happening again, it further explains, Chile has adopted a new law that assures that the duties created under the PBS will not exceed Chile's bound rates.⁷⁰

4.18 Chile argues that its Government deliberately decided to allow the price band to operate at full regime, failing to comply with its commitment, in order to protect thousands of small-scale agricultural producers with low incomes from an economic and social catastrophe. Chile adds that its Government first informed its trade partners of the situation and started informal consultations with the view to obtaining a waiver from Chile's commitments under the WTO Agreements pursuant to Article IX of the WTO Agreement. Chile claims that it adopted this course of action in order to give temporary relief to producers who faced a financial crisis. According to Chile, its major trade partners were opposed to the granting of such a waiver and instead suggested that Chile should apply a safeguard or renegotiate the tariff bound under Article XXVIII of the GATT 1994.⁷¹ Chile argues that this was when Chile imposed a safeguard measure under Article XIX of the GATT and the Agreement on Safeguards, which has been contested by Argentina. Chile then claims that the above shows that Chile's failure to comply with its commitments was not the result of the automatic functioning of the PBS but was the result of a deliberate decision by its Government, which then did everything possible to obtain the required legal backing in accordance with the WTO's relevant provisions.⁷² Chile further argues that the situation at the root of the problem was not of its but rather was due to the massive subsidization from some other prominent countries.⁷³

4.19 Argentina submits that Chile's argument to the effect that Chile's failure to comply with its commitments was not the result of the automatic functioning of the PBS but was the result of a deliberate decision by its Government⁷⁴, is incomprehensible because it is the system itself, by its very structure and design, that automatically leads to the violation since it lacks any safety mechanism against exceeding the bound rate. Argentina argues that a customs official has no choice but to impose the duties established by the system, regardless of whether the Chilean Government deliberately permits it or not. And indeed, Argentina affirms, far from supporting Chile's attempt at justification, the suggestion that this was the result of a deliberate decision implies a further recognition that the Chilean Government maintains legislation that is inconsistent with its WTO obligations.⁷⁵ Argentina submits that the continuation of the violation constitutes a flagrant breach by Chile of the principle of pacta sunt servanda and of its international commitments and that Chile is not meeting its WTO obligations in good faith.⁷⁶ Whatever the case, Argentina submits, the argument is irrelevant, since Chile has no way of preventing the system, by its design and structure, from "automatically" violating Article II.1(b) of the GATT 1994, regardless of whether it was deliberate or not.⁷⁷ In Argentina's view, the working of the PBS affects the predictability of the tariff concessions negotiated by Chile during the Uruguay Round and has been recognized as inconsistent with Article II:1(b) in various GATT/WTO precedents.⁷⁸

4.20 According to Chile, while the PBS formula may appear complex, it is fully transparent and predictable. Chile submits that, contrary to Argentina's claim⁷⁹, there are no discretionary elements in the calculation to enable manipulation of the duty or rebate by officials. Chile argues that, contrary to assertions in some submissions, its PBS in no way depends on or uses domestic prices, or transaction prices, or target prices of any kind, to compute the duty or rebate. The objective of the system is to moderate the effect on Chile's market of short-term violent fluctuations in the international prices of these commodities. For this purpose, Chile claims, the band follows over time the trend in international prices, and uses duties or rebates.⁸⁰ In its view, this series of monthly price averages (5 years means 60 monthly prices) is ranked, and the highest 25 per cent of the monthly prices is disregarded, as well as the lowest 25 per cent of monthly prices. According to Chile, this means that, in the descending list of average prices, the 16th lowest monthly price and the 44^th lowest monthly price constitute the f.o.b. price for the ceiling and the floor, respectively. Chile explains that these two f.o.b. prices are adjusted to present the band in terms of import cost. Such an adjustment considers fixed and variable costs normally paid in import transactions, such as transportation, unloading, customs duties, cost of opening a letter of credit, interests, and ad valorem rate. For simplicity, Chile explains, the annual decree that reports the band for each good contains a table for a range of f.o.b. prices and their corresponding rebate or duty when they fall outside the band. According to Chile, for the actual calculation of the specific duty or rebate, the National Customs Authority reports on a weekly basis the lowest price for the product quoted in a major commodity market relevant for Chile. Chile explains that this price is the f.o.b. price to be used in the table to determine the specific duty or rebate for all transactions which shipment occurred in the same week. Chile maintains that when the exporter decides to ship, he knows the duty or rebate. It is Chile's opinion that the trends in international prices are necessarily transmitted to the band, though smoothed over time. In this regard, Chile emphasizes that the band is determined without regard to domestic or target prices, and without regard to the actual transaction price, except in calculating the ad valorem (8 per cent) duty.⁸¹

4.21 Argentina submits that Chile not only has not refuted the formal demonstration submitted by Argentina of the potential violation of the binding by the PBS or the arguments supporting that demonstration but, that, on the contrary, it acknowledged this inconsistency of the PBS with Article II:1(b) of the GATT 1994. Argentina refers to Chile's replies to the Panel where, allegedly, Chile recognizes, in response to specific questions, that the mode of calculation of the amount of the surcharge applied by customs on top of the regular tariff of 8 per cent potentially leads to the collection of an ad valorem equivalent in excess of the 31.5 per cent binding.⁸² According to Argentina, it is therefore difficult to understand how Chile can argue that when the WTO obligations entered into force it was unaware that the PBS would cause it to exceed its tariff binding, given the system's structure, design and mode of application.⁸³

4.22 At the second substantive meeting, Chile indicates that Chile's domestic measures have now been strengthened by Law 19.722 which makes explicit that there is such an automatic cap system that will prevent recurrence of a breach of the binding in circumstances not justified under WTO rules.⁸⁴

4.23 Regarding the new legislation presented by Chile, Argentina declares that it is not in position to confirm the precise content of the Chilean exhibit given that Argentina does not have adequate information to express a definitive view on this issue. On the other hand, Argentina argues, the PBS has already caused nullification or impairment to Argentina and in this regard Argentina wants to reserve its rights. Argentina submits that in case of no ruling by the Panel, Chile could easily change its law. Additionally, in case the Panel follows Argentina's suggestion and rules on the issues as reflected in Argentina's request for the establishment of the Panel, the Panel's report will have a normative value which Chile will have to take into account. Argentina concludes that the new Chilean law, from Argentina's point of view, shows that Chile acknowledges that its PBS violates Article II of GATT 1994.⁸⁵

(iii) Article XIX as an exception to Article II of the GATT 1994

4.24 Chile argues that Article XIX constitutes an exception to the other WTO rules, including those in Article II of the GATT 1994.⁸⁶ In particular, Chile contends that Article XIX explicitly provides that a Member country "shall be free" to suspend an obligation or withdraw or modify a concession where necessary to prevent or remedy serious injury.⁸⁷ It submits that Article XIX and the Agreement on Safeguards allow a temporary waiver of concessions and the suspension of certain commitments. Chile claims that a Member country that has adopted a safeguard measure under Article XIX and the Agreement on Safeguards has not violated its commitments on tariff concessions as long as the safeguard measure remains in force, which is currently the case for Chile.⁸⁸

4.25 Argentina submits that Chile's argument on Article XIX of the GATT 1994 whereby this would provide Chile with a legal umbrella enabling it to exceed the bound tariff, is erroneous from a legal point of view and should be rejected by the Panel. Argentina does not deny that it is theoretically possible, in applying a safeguard, to exceed the bound level, since safeguards are applied as a temporary measure in emergency situations to provide relief for the affected industry, subject to the requirements laid down in the Agreement on Safeguards. However, Argentina goes on to explain that, following the sequence of that Agreement, the bound rate may only legitimately be exceeded once the requirements of the Agreement on Safeguards have been met, and not in a case such as this one, where the bound level was exceeded before the requirements for applying safeguards had been verified. Argentina contends that the central issue in its claim in this respect is not the failure to comply with Article XIX and the Agreement on Safeguards, but the violation of Article II.1(b). It claims that the Panel will evaluate the consistency of the Chilean safeguard measure with Article XIX and the Agreement on Safeguards at the appropriate time. At this point, Argentina argues, the Panel is called upon to rule on the inconsistency of the PBS with Article II.1(b). Argentina submits that this is an independent claim, with a different and separate legal basis from the safeguards claim, and happens to coincide for a limited period of time with the period of application of the safeguards for certain products. As an example, Argentina refers to the lifting by Chile of its safeguards on wheat and wheat flour while maintaining its PBS which, by its design and structure, potentially violates Chile's bound tariff. Argentina argues that, if one was to follow Chile's argument, the safeguards would have to be maintained as long as the PBS was in force, regardless of the requirements laid down in the Agreement on Safeguards. Argentina further submits that, in case there should still be any doubts, Chile acknowledged before the Committee on Safeguards itself that the price bands as such were not safeguards.^{89 90}

4.26 Argentina submits that safeguard measures are emergency measures, which are applied only after each and every one of the requirements laid down in Article XIX of the GATT 1994 and in the Agreement on Safeguards has been met. Argentina contends that they are not measures that can be applied to cover up or justify the violation of obligations arising from the national schedules. In Argentina's view, it would be unthinkable for the Panel even to consider such a possibility. Argentina submits that Chile is trying to distort the content of the obligations imposed by Article XIX of the GATT 1994 and the Agreement on Safeguards.⁹¹

(b) Violation of Article 4.2 of the Agreement on Agriculture

4.27 Argentina considers that the PBS, in addition to violating the obligations contained in Article II:1(b) of the GATT 1994, is inconsistent with Article 4.2 of the Agreement on Agriculture because by its structure and design it lacks, as an instrument limiting access to markets, the kind of transparency and predictability that only ordinary customs duties can provide. Argentina submits that, in spite of the express prohibition contained in Article 4.2 of the Agreement on Agriculture, Chile maintains a measure which should have been tariffied and included in its Schedule.⁹²

(i) Whether the PBS is a measure prohibited under Article 4.2 and should have been tariffied

4.28 Argentina argues that, prior to the negotiation of the WTO Agreement on Agriculture, a number of countries used a wide variety of non-tariff measures to limit imports of agricultural products. One of the most important results of the negotiations was the agreement to "tariffy" these measures - i.e. to prohibit the use of all non-tariff measures with respect to agricultural products, and to require their replacement with bound tariffs. This was achieved in Article 4.2 of the WTO Agreement on Agriculture.⁹³ Argentina claims that the scope of Article 4.2 of the Agreement on Agriculture is all-inclusive and, therefore, no non-tariff measures of any kind can be maintained. It explains that, although an illustrative list of non-tariff measures is provided, in which variable levies are specifically included, Article 4.2 of the Agreement on Agriculture also expressly covers "similar border measures other than ordinary customs duties".⁹⁴

4.29 Argentina claims that Chile could have tariffied its non-tariff measures at the time of the Uruguay Round adopting a level of protection higher than the current bound rate of 31.5 per cent. Since it did not do so, it is in violation of Article 4.2 of the Agreement on Agriculture because any variable duty applied on an agricultural product - regardless of its "quantum" with respect to its binding - is inconsistent with Article 4.2, which was designed precisely to avoid such a situation.⁹⁵ Argentina submits that the Chilean PBS fits perfectly into the category of measures that Article 4.2, footnote 1, identifies as being as inconsistent with the obligations negotiated under the Agreement on Agriculture.⁹⁶ Argentina is therefore of the view that the maintenance by Chile after the Uruguay Round of its mandatory legislation imposing variable specific duties is inconsistent with its obligations under Article 4.2 of the Agreement on Agriculture.⁹⁷

4.30 Argentina submits that even if the PBS were not considered a variable levy, it is a similar measure which should have been tariffied by Chile. Article 4.2 of the Agreement on Agriculture expressly prohibits the maintenance of "measures of the kind which have been required to be converted into ordinary customs duties." Argentina argues that it is precisely by reading the words "shall not maintain" and "of the kind" together with the non-exhaustive list in the footnote that one arrives at the concept of similar border measures that are not ordinary customs duties. Argentina explains that this is what qualifies the PBS as something which should have been tariffied in the Uruguay Round, which was not tariffied, which Chile continues to maintain, and which it justifies by an interpretation of Article 4.2 and its footnote that reduces the terms of the text to inutility (contrary to the principle of effectiveness in treaty interpretation). Ultimately, Argentina argues, both the text of the Article and the wording of the footnote aim to cover a whole universe of measures which may not be identified and which do not constitute ordinary customs duties.⁹⁸

4.31 Chile considers that Argentina's argument that the Chilean PBS was and is indisputably a variable levy, which not only might have been tariffied but in fact had to be tariffied,⁹⁹ is absurd and does not correspond to the normal practice of negotiations among Members of the WTO. In this regard, Chile argues that if there had been an intention to prohibit the Chilean PBS, neither Argentina nor any other Member of the WTO put forward this argument during the negotiations of the Agreement on Agriculture.¹⁰⁰ Chile further claims that Argentina's interpretation of Chile's obligations under the Agreement on Agriculture differs totally from the interpretation which Argentina itself has used in its actions and the interpretation of other Members of the WTO when negotiating tariff schedules under the Agreement on Agriculture and applying it. It considers that, for Argentina's argument to be valid, Argentina would have to show not only that the Chilean price band is a "variable levy" or "similar border measure", within the meaning of footnote 1, but also that Article 4.2 prohibits such measures. Chile alleges that Argentina's argument falls short on both points.¹⁰¹ In Chile's view, reading Article 4.2, including its footnotes, in its context and in light of its object and purpose, it is clear that Article 4.2 does not prohibit the Chilean PBS. Indeed, Chile explains, Argentina and its supporters under Article 4.2 rely in their interpretation not on the text that was negotiated and implemented, but rather on the agreement that those countries appear now to wish they had negotiated.¹⁰²

4.32 Chile submits that Article 4.2 is oddly phrased, and the footnote uses terms such as "variable import levy" or "non-tariff measures maintained by state enterprises" that are not defined and whose contours are not immediately obvious. The text refers to "measures which have been required to be converted into ordinary customs duties". In Chile's view, that text would suggest that elsewhere in the WTO Agreements there is or was some provision that requires the conversion and explains what has to be converted, but there is no such provision elsewhere. However, Chile contends, the agreed Uruguay Round tariff schedules, which were negotiated during and after the drafting of the text of Article 4.2 and which entered into force at the same time as the Agreement on Agriculture manifest the results of the "conversion" process. Chile explains that these negotiations and the results of those negotiations are relevant context in seeking to understand whether a particular measure is one of the "kind which ha[s] been required to be converted into ordinary customs duties." Chile notes that price band systems were not among the measures that in the negotiations were required to be converted into ordinary customs duties. Chile indicates that, while the European Communities did convert its variable import levies into ordinary customs duties in the Uruguay Round negotiations, the EC's conversion - and the acceptance of that conversion by other Members - put in place a system that clearly still has a duty that varies by a formula. Although the European Communities system is not at issue, Chile contends, that system and its conversion was a central issue in the Uruguay Round negotiations, and it is relevant in assessing the meaning of the less-than-crystal-clear words of Article 4.2 that Members did not object to that system.¹⁰³

4.33 Chile submits that, even if the contested law was considered a variable levy or similar border measure, quod non, it is not inconsistent with Article 4.2 of the Agreement on Agriculture. In Chile's view, Article 4.2 prohibits "any measures of the kind which have been required to converted into ordinary customs duties." Chile's price band mechanism is not a measure of this type, and Chile is not barred from maintaining this measure.¹⁰⁴ Chile argues that Article 4.2 does not prohibit measures that do not have to be tariffied.¹⁰⁵ In reference to the above tariffication argument by Argentina¹⁰⁶, Chile submits that the obligations in Article 4.2 relate only to non-tariff barriers and that this is clearly stated in footnote 1, which specifically excludes ordinary customs duties. According to Chile, the PBS only covers the payment of customs duties. Moreover, Chile argues, it was not required to eliminate its PBS nor to replace it by a bound duty system during the Uruguay Round. Chile claims that it has maintained its PBS in an open and transparent fashion before, during and after the Uruguay Round negotiations. Chile argues that, unlike the variable levies in the EC, which were not bound and had to be replaced by bound duties, the Chilean duties were bound at 35 per cent for the products affected by the PBS, even before the Uruguay Round, and were quite openly bound at lower levels as part of the Round after finalization of the Agreement on Agriculture. Hence, in Chile's view, it was quite clear for the other Members at that time that Chile was neither "tariffying" its PBS, nor eliminating or replacing it. On these grounds, Chile considers that it is inexplicable why Argentina, more than six years after the entry into force of the Uruguay Round Agreements, decided that the Chilean PBS had suddenly become a variable levy that Chile should have eliminated when the WTO Agreements entered into force.^{107 108}

4.34 Chile considers that Article 4.2 is oddly phrased, in that it appears to be cross-referencing some obligation or other agreement in which measures had "been required" to be converted from measures of one type to "ordinary duties". The odd syntax of Article 4.2, Chile claims, must be given meaning. Chile notes that it would have been very easy, if negotiators had so agreed, to write a prohibition of all non-tariff barriers. According to Chile, however, that is manifestly not what was done, notwithstanding the current arguments of Argentina and some third country participants. Indeed, to Chile's regret in many respects, there is no such obligation or simple prohibition elsewhere in the Agreement on Agriculture. Chile contends that the only place in the Agreement in which tariffication is mentioned is in the agreed tariff schedules of Members and in the Annex 5 reference to countries allowed to engage in delayed tariffication.¹⁰⁹

4.35 Chile claims that Argentina interprets Article 4.2 as containing a total prohibition against non-tariff barriers, including those listed in footnote 1 and that such an interpretation is based on unsustainable arguments, is excessively broad and is not justified in the light of the principles of interpretation of treaties in the Vienna Convention on the Law of Treaties (hereafter "the Vienna Convention"). In this regard, Chile refers to Article 31 of the Vienna Convention and the principle of effectiveness, as having been used by the Appellate Body. In this regard, Chile submits that Argentina disregards the usual meaning of the terms of Article 4.2 in its context and effectively ignores the qualifier that the measures that must not be maintained or reverted to are "measures of the kind which have been required to be converted into ordinary customs duties". Consequently, in Chile's view, not only do all non-tariff measures of the kind described in footnote 1 not have to be abolished, but only those of the kind that have been specified must be converted into ordinary customs duties. Chile argues that the drafters did not have the intention to include a total prohibition of non-tariff measures but, instead, they introduce qualifying and limitative terms with the intention of giving the Article the meaning that only measures of the kind which have been required to be converted are prohibited.^{110 111}

4.36 Chile explains that there is also no definition of the "inclusive" terms of footnote 1, which is an odd mix of measures. Not all of those measures are prohibited under any other rule of the WTO, though arguably many were prohibited and many or most have been subject to abuses of various sorts over the years. In these circumstances, Chile argues, it is particularly important in trying to discern the meaning of Article 4.2 to examine the contemporaneous practice in the tariff agreements of the Members and negotiators in determining which measures were considered to be of the "type" which had to have been converted, and which were not. Chile affirms that the intent cannot be determined simply by looking at the bare words of individual "measures" listed in footnote 1 to Article 4.2. For example, Chile explains that footnote 1 refers to "non-tariff measures maintained through state-trading enterprises". Chile considers that such a term, taken literally, could mean any action of a state agency or state-owned enterprise. In Chile's view, however, it is obvious that Members did not have to convert all their state enterprise activities into tariffs, nor did they have to abolish those enterprises or activities or convert them into ordinary customs duties. Chile claims that such a broad reading was not intended derives knowledge from the contemporaneous conduct of the negotiators. Similarly, Chile argues, it is evident that neither Chile, nor, insofar as Chile is aware, any other Member was required or even urged to "convert" a PBS. Chile contends that these measures were at all times openly and transparently maintained, but, because they were not non-tariff barriers, they were not required to be converted into some new form of ordinary duties.¹¹²  

4.37 Chile notes that Article 4.2 is different from other obligations not only in its peculiar syntax, which it claims must be given meaning, but because the conversion process involved a privilege as well as an obligation. Chile argues that measures that were properly subject to Article 4.2 were not simply required to be eliminated or modified, as in ordinary WTO rules, but that, instead, the requirement was to change the form of the trade restriction from a non-tariff barrier to a tariff barrier. Chile claims that, together with the "requirement" to remove certain measures, came the right to increase duties without compensation to other trading partners, even if the duties had been bound at a lower level. Chile argues that the tariff rate quotas that were allowed, at tariffs often enormously higher than previous bound rates, have frequently proven to be scarcely less effective protection than the non-tariff barriers they replaced. Chile claims that this element of privilege was even greater, considering that many of the measures that were required to be converted were at risk of being found inconsistent with GATT rules or losing privileged waivers. Chile concludes that there was little or no incentive to refuse to "convert" a measure, if that had been believed to be legally "required", since conversion carried the privilege of substantially raising duties on the "converted" product, without the need to compensate trading partners, as is normally required under Article II and Article XXVIII. Chile states that, having waited, Argentina is now saying that Chile must eliminate the PBS because it is banned by Article 4.2, but it is also saying that it is too late for Chile to get the offsetting benefit of increasing its tariffs. Chile contends that such an argument cannot be sustained. Chile claims that the reason why Chile did not convert its price band mechanism was and is that Article 4.2 did not require such a conversion and certainly does not now require simple elimination of the price band without tariffication. While Argentina and others may have wanted to negotiate a ban that would have included price band systems, that was not what was agreed.¹¹³

4.38 Chile submits that the unusual use of the present perfect tense - "have been required" - can be easily understood in the context of the agricultural negotiations during the Uruguay Round. Chile argues that Article 4.2 logically refers to measures of the kind which, at the time the WTO entered into force, "have been required" to be converted. This was not the case for the price bands of Chile and other countries. In this regard, Chile claims that it was not required and would not be required to convert its PBS because it already operated as a tariff and not as a non-tariff measure, and was therefore already subject to binding in accordance with Article II.¹¹⁴ Chile refers to Article 31.3(b) of the Vienna Convention which provides that "Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation shall be taken into account, together with the context" when interpreting its terms. In this regard, Chile refers to the interpretation by the Appellate Body of the "essence" of such subsequent practice whereby this lies in a "'concordant, common and consistent' sequence of acts or pronouncements which is sufficient to establish a discernable pattern implying the agreement of the parties regarding its interpretation".¹¹⁵ Chile considers that the subsequent practice supports Chile's position as regards Article 4.2. In Chile's view, this subsequent practice convincingly shows that, despite the Members' intention to reduce the number of non-tariff barriers and other measures covered, their intention was not to prohibit all such measures. Chile goes further to argue that the first evidence of State practice is precisely the Chilean PBS which was implemented in the 1980s and is still in place today. Chile notes that Argentina's first written submission does not refer to any record of the negotiations of the Agreement on Agriculture that proves that Chile was asked to convert its price bands into tariff measures. Chile therefore concludes that the system was not a measure of the kind "which have been required to be converted" in order to allow Chile to sign the WTO Agreements. Chile submits that, in addition to the Chilean PBS, there are other systems with duties that vary according to external factors and some that common sense leads one to equate with variable levies, and which are not required to be converted into a fixed tariff regime. In this regard, Chile refers to Argentina's customs duty on sugar imports¹¹⁶ and to the EU current duty system on imports of wheat and other cereals.¹¹⁷ In Chile's view, this evidence of practices by States is not confined simply to countries that import agricultural products but also includes major agricultural exporters. In Chile's opinion, it is possible that many agricultural exporting countries might initially have wished to prohibit all levies that fluctuated or varied for any reason and some Members certainly envisaged the possibility of exerting pressure to impose this interpretation of Article 4.2 during the tariff negotiations that accompanied negotiations on the text of the Agreement on Agriculture. Nevertheless, Chile argues, irrespective of the original negotiating goals of some of the Members, the prohibition now claimed by Argentina was not agreed. Chile further notes that the agricultural exporters did not wish to eliminate the Chilean PBS as a whole because it is transparent and predictable and can result in the application of duties lower than the bound tariff. Chile concludes by saying that this evidence of State practice (and consequently of the general context of Article 4.2) is "concordant, common and consistent" not only with the ordinary meaning of the terms contained in Article 4.2, but also with the objective and purpose of this Article.¹¹⁸

4.39 Chile contends that the object and purpose of the Agreement on Agriculture is consistent with Chile's interpretation of Article 4.2. This object and purpose, Chile claims, can easily be seen in its provisions, including the Preamble, and in the structure and outcome of the negotiations on agriculture during the Uruguay Round. The Preamble to the Agreement on Agriculture starts by indicating that Members have decided "to establish a basis for initiating a process of reform of trade in agriculture in line with the objectives of the negotiations as set out in the Punta del Este Declaration". It continues by "Recalling" that the "long-term" objectives of the process include "a fair and market-oriented agricultural trading system" and "substantial progressive reductions in agricultural support and protection sustained over an agreed period of time". One apparently more short-term commitment is "to achieving specific binding commitments" in several areas, including "market access". Chile also refers to the Punta del Este Ministerial Declaration as it fixes the goals for the forthcoming negotiations on agriculture.¹¹⁹ In Chile's view, it is obvious that the object and purpose of the Uruguay Round negotiations was to reduce barriers to trade in agricultural products, while at the same time acknowledging that it would be a long-term process. It further notes that Article 20 of the Agreement on Agriculture underlines this by calling for negotiations to continue the reform process and stating that further commitments will be necessary to achieve the long-term objectives envisaged in the Preamble. Argentina's interpretation of Article 4.2, Chile claims, is not in harmony with this object and purpose. In this regard, Chile argues that Argentina suggests that, Chile could have raised its tariff protection for the products in question through tariffication, which is contrary to Chile's decision to lower the tariff.¹²⁰ Furthermore, it claims that Argentina appears to believe that Chile should have applied a single invariable duty on all imports. Chile contends that the result would undoubtedly be less liberalization of trade than that currently existing under the PBS, in which the tariff usually applied is much lower than the bound tariff that Chile has the right to apply.¹²¹

4.40 Argentina submits that, contrary to what Chile argues, Article 4.2 and its footnote No. 1 are not open to different interpretations, as this would be contrary to the interpretation of treaties in accordance with the Vienna Convention. In Argentina's view, an interpretation of the text as well as the context, object and purpose of the Agreement indicates that mechanisms such as the price band are clearly covered by the said Article . In other words, even if the PBS were not considered to be a variable levy, it is clearly a similar border measure regulated by Article 4.2 of the Agreement on Agriculture which constitutes a "lex specialis" vis-à-vis the GATT 1994. Argentina considers that the determining criterion for the inclusion of these mechanisms among the measures which have been required to be converted into ordinary customs duties does not, and cannot be an exhaustive list of the different schemes. Argentina contends that this is due to the obvious impossibility of listing all of the measures which, by their nature, are infinite, since they depend exclusively on human ingenuity in designing any non-tariff barrier.¹²²

4.41 Argentina argues that an intelligent interpretation of Article 4.2 of the Agreement on Agriculture must also take account of the principle of effectiveness (ut res magis valeat quam pereat), a fundamental principle in the interpretation of treaties which forms part of the general rule of interpretation laid down in Article 31 of the Vienna Convention. Argentina submits that, in the framework of the WTO, this principle has been upheld in the case US - Gasoline and has been recognized and applied systematically in successive rulings of the Appellate Body.¹²³ Argentina contends that Article 4.2 of the Agreement on Agriculture would be without effectiveness if one accepts Chile's interpretation that the PBS did not need to be tariffied because Argentina did not challenge "the system and its operation during the Uruguay Round negotiations".¹²⁴ According to Argentina, applying the rule of effectiveness to the interpretation of Article 4.2 of the Agreement on Agriculture¹²⁵ means ensuring that non-tariff measures - such as the Chilean price band system - cannot be maintained or reverted to after the entry into force of the Agreement. Consequently, Argentina argues, the only possible approach - assuming an analysis based on the text, context, object and purpose of the Agreement on Agriculture - is to analyse each case individually in terms of the nature and the economic effects of the system as compared to the scenario of ordinary customs duties, in order to determine which measures are covered by footnote 1 to Article 4.2 of the Agreement on Agriculture. Argentina submits that if the analysis of the nature and effects were not the right approach, obligations such as "[M]embers shall not maintain, resort to or revert to …" and the phrase in the footnote "… and similar border measures other than ordinary customs duties …" would be pointless.¹²⁶

4.42 As regards Chile's argument whereby the PBS is not a variable levy, Argentina submits that anything that does not constitute an ad valorem tariff, a specific duty or a combination of the two, cannot under any circumstances qualify as an ordinary customs duty. Consequently, in Argentina's view, in accordance with the Agreement on Agriculture, if a measure does not come under one of that Agreement's exceptions, it is inconsistent. Argentina explains that the wording of Article 4.2 reflects the scope and complexity of the entire range of distortionary measures that Members must dismantle, refrain from reverting to in the future or refrain from maintaining where they are inconsistent with the new obligations negotiated under the Uruguay Round. The diversity of non-tariff measures to be dismantled and the possibility of some of them not being dismantled following the conclusion of the Uruguay Round is expressed in the word "shall not maintain". Argentina argues that, had there not been the possibility that some of the measures "which have been required to be converted into ordinary customs duties" would remain in force after the Uruguay Round, the text would merely have stated "… shall not resort to, or revert to". In Argentina's view, the words "shall not maintain" only make sense where there is a possibility that a measure could remain in force. Argentina further argues that, at the same time, the fact that Chile has bound tariffs for certain products such as wheat, wheat flour and pure vegetable oils in no way means that the PBS does not have to be tariffied, i.e. converted into an ordinary customs duty, since the Chilean bound tariff was 35 per cent¹²⁷ before the Uruguay Round, and was brought down to 31.5 per cent for those products. Neither Chile's schedule of bindings prior to the Uruguay Round - National Schedule No. VII - nor its schedule resulting from the Uruguay Round, records the variable levy that Chile has applied and continues to apply. This is contrary to the clear requirement in Article 4.2, which prohibits the maintenance of "measures of the kind" which have been required to be converted into ordinary customs duties.¹²⁸

4.43 Chile claims that there are logical economic policy reasons why the price band system or other systems with "duties that vary" were not prohibited under Article 4.2. Chile submits that the only trade restrictive effect of the price band system is caused by the imposition of a duty. Since under the rules of the GATT, Chile's obligation is to respect its tariff binding, Chile could honour this obligation by applying its duty at the bound level of 31.5 per cent at all times. Instead, Chile applies a price band system in which the applied duty is usually below the bound rate, and can even be zero. Chile refers to Argentina's argument that the Chilean PBS has additional restrictive effects other than the duties because of the system's alleged complexity and lack of transparency and predictability. Chile notes that its system for varying the duties applied within the bound cap is still less restrictive of trade than if Chile applied its duties at the bound rate. Chile contends that there is no requirement that a duty system be simple and there is no prohibition on variation, so long as the bound level is respected.¹²⁹

4.44 Chile submits that it is not arguing that the only measures prohibited by Article 4.2 are those that were in fact converted into ordinary customs duties. Chile contends that the fact that PBS duties were not converted and were not requested to be converted is another supporting indication that the Chilean PBS is not a measure of the kind that had been required to be. Chile submits that, where the scope of a term is in doubt, as is the case with the term "variable import levies", it is particularly important to examine context and negotiating history. Chile also notes that it had no incentive to maintain a measure that could be converted, because the conversion process included the right to raise bound duties to account for the price effects of those non-tariff barriers that had to be converted.¹³⁰

4.45 Chile submits that, in the event that the Panel had any doubts over the correct interpretation of Article 4.2, the legal principle in dubio mitius, which the Appellate Body has endorsed, would suggest that vagueness and ambiguity should not be resolved against Chile, but rather against the complaining party that seeks to invalidate Chile's long standing system. Chile submits that the principle of in dubio mitius holds that "[i]f the meaning of a term is ambiguous, that meaning is to be preferred which is less onerous to the party assuming an obligation, or which interferes less with the territorial and personal supremacy of a party, or involves less general restrictions upon the parties."¹³¹ Chile considers that its PBS is consistent with Article 4.2 by any reasonable interpretation, applying the rules of interpretation of the Vienna Convention, but this interpretive principle lends further force to that conclusion.¹³²

4.46 Argentina contends that Chile erroneously invokes the principle of in dubio mitius to deprive the obligation contained in Article 4.2 of the Agreement on Agriculture of its content, when that principle - as defined by the Appellate Body¹³³ - is only relevant as a supplementary means of interpretation, to which there is no need to resort in this case.¹³⁴ Argentina explains that Chile does this by shifting the responsibility for requiring it to convert its system into a tariff to the complainant. It adds that the obligation not to maintain a measure that is incompatible with its WTO obligations rests with Chile (Article XVI.4 of the WTO Agreement). Argentina having provided sufficient evidence to prove that the Chilean PBS is a "variable levy" or a "similar measure", in the absence of any rebuttal by Chile, there is no reason to resort to a supplementary means of interpretation (in dubio mitius) when Article 31 of the Vienna Convention suffices to clarify the meaning of the provision (Article 4.2 of the Agreement on Agriculture: prohibition to maintain), and to apply it to the facts of the case. In other words, the PBS is included among the "measures of the kind" which have been required to be converted into ordinary customs duties precisely because it is a "variable levy" or "similar measure".¹³⁵

(ii) Whether the PBS is a variable levy or a similar border measure

4.47 Argentina argues that the term "variable levies" means "complex systems of import surcharges intended to ensure that the price of a product on the domestic market remains unchanged regardless of price fluctuations in exporting countries".¹³⁶ With this definition in mind, Argentina considers that the Chilean PBS unquestionably applies variable levies on imports of wheat, wheat flour and edible vegetable oils. Argentina explains that, when the Chilean customs reference price is lower than the floor of the price band, the shipment is subject to a variable specific duty (in addition to the customs duty normally applied) amounting to the difference between the price band floor and the f.o.b. reference price provided by customs for the day on which the bill of lading of the imported goods in question was issued. The percentage of such duties applied to each shipment would vary according to the c.i.f. price.¹³⁷ The nature of the PBS as a variable tariff, in Argentina's view, is recognized by the WTO Secretariat's 1997 Report on Trade Policy Review of Chile, where it is said that "[t]he price stabilization mechanism works as a variable levy since the duty imposed on these goods varies according to their import price."^{138 139} Argentina further submits that Chile itself has admitted that its system imposes a "levy" on "imports" which "varies" according to the day of shipment.¹⁴⁰ Consequently, Argentina claims, it is a variable import levy.¹⁴¹

4.48 Argentina initially argues that, since, in the PBS, a specific duty is a variable which depends on the relationship between domestic prices and export prices, the system defines the specific duty (variable in accordance with the f.o.b. reference price of the day) to be applied for each shipment. According to Argentina,this results in a different tariff for each shipment that was sought to be eliminated via the tariffication process of the Uruguay Round for agricultural products. It is Argentina's view that, under the PBS, Chile imposes more than "ordinary customs duties". Argentina alleges that, on shipments whose price is below the floor of the price band, Chile imposes a border adjustment measure which is a form of variable tariff. Argentina argues that, regardless of what a Member might choose to call its border adjustment measure, that measure is prohibited if it is anything other than "ordinary customs duties".¹⁴²

4.49 Chile argues that the Agreement on Agriculture does not contain any definition of what is meant by variable levy nor is there any definition elsewhere in the WTO. Chile considers that it is apparent that it is not sufficient simply to say that any levy that varies is a "variable levy", because all levies in one sense or another vary. In Chile's view, a uniform specific duty varies when measured in ad valorem terms, and an ad valorem duty by definition produces a different specific rate of duty, dependent on the value of a product.¹⁴³ Chile further claims that the definition used by Argentina¹⁴⁴ is based on a commentator's views and does not actually support Argentina's position either. Chile argues that its price band mechanism does not keep the domestic market price unchanged, nor is it intended or designed to do so. Rather, it continues, Chile's system is designed to moderate the effect of fluctuations in international prices on the Chilean market.¹⁴⁵ Chile submits that, in its PBS, the critical variable is the difference between world prices at the time of shipment and world prices over the last five years. Chile's domestic price plays no role in this formula, nor does the actual transaction price of the product make any difference. Chile concludes that price competition is possible, not only between products of different countries imported into Chile, but also between imports and Chilean products.¹⁴⁶

4.50 In response to the above argument by Argentina¹⁴⁷, Chile argues that the tariff does vary according to the date of export, but does not vary according to the shipment (for example, even if the transaction prices are different, two shipments exported on the same date will have to pay the same import duty in Chile). Chile further argues that nowhere is it stated that a tariff measure becomes a "variable levy" simply because the tariff level varies frequently.¹⁴⁸ Chile also indicates that Argentina omitted to mention certain critical aspects of the texts in question and their application.¹⁴⁹ As regards Argentina's argument that the WTO itself has recognized that the PBS is a variable levy,¹⁵⁰ Chile claims that the referred to report by the Secretariat for the Trade Policy Review Mechanism (TPRM) only contains the opinions and statements of the Secretariat, not those of the WTO, and reminds Argentina that the opinions in the TPRM may not be used in dispute settlement procedures. In addition, Chile indicates that, in the statement quoted by Argentina, the Secretariat does not assert that the Chilean PBS is a variable levy but that it "works as" a variable levy, because the levy varies according to the import price.¹⁵¹

4.51 In response to Chile's argument that domestic prices are not used, Argentina argues that nonetheless it is not within the WTO's competence per se to provide for mechanisms which regulate or moderate fluctuations in international prices.¹⁵² On the contrary, Argentina considers that the primary objective of the WTO is confined - as regards access mechanisms - to the promotion of transparent, non-distortionary, predictable systems that contribute to the liberalization of trade. And indeed, the PBS is the very type of mechanism which, since it lacks transparency and is distortionary and unpredictable, conflicts with the Uruguay Round commitment not to maintain "measures of the kind". In Argentina's view, all systems of variable levies have similar characteristics and a similar objective, i.e. to preserve the domestic market, to a greater or lesser extent, from the evolution of the international market. As instruments, these mechanisms provide a minimum threshold of protection which in some instances, as in the case of the bands, is virtually impassable in situations where prices drop. Argentina argues that, here, it is of little importance whether the threshold parameters are fixed on the basis of a domestic target price or on the basis of representative averages from international markets over the past years. According to Argentina, what is important is to ensure that these mechanisms have the same transparency, predictability and consequent effective access level as "ordinary customs duties" would have provided".¹⁵³

4.52 Chile submits that imports can in fact enter the Chilean market at prices below the price band floor. According to Chile, there are two situations in which this can happen: (i) Since the specific duties are calculated in the middle of the year and are applied during the following year, there are import cost components that can change during that period. For example, Chile explains, international freight costs for the products may decrease, sometimes rather sharply. Chile further alleges that, in some cases, specific tariff headings are shipped at special prices, using ships that are heading for Chile in any case, with or without cargo. Chile explains that, similarly, there are trade operations carried out in better conditions than those foreseen when establishing the weekly reference price, which means that the import cost is also below the estimated price band floor. (ii) The effective import price may possibly be lower than the reference price determined for the date of a particular import and, consequently, the product may be charged a lower specific duty upon entry, remaining below the price band floor.¹⁵⁴

4.53 Chile considers that, going beyond the incontrovertible fact that Chile applies a price band, it is essential to understand that the PBS imposes a duty that varies only according to the date on which the export took place, in accordance with the prevailing price on international markets, and in relation to the levels of the same price over the previous five years. Chile claims that the duty does not vary according to the amount of the transaction or the corresponding invoice and does not change either according to the domestic market price. Consequently, it is Chile's view that the PBS does not in any way resemble a variable levy such as those imposed by the old European Communities system for several years prior to the entry into force of the Agreement on Agriculture; it is not similar either to minimum import price schemes, which occasionally utilize duties in order to force a rise in low import prices until they are comparable to the minimum domestic landed price fixed. Chile contends that the differences between the PBS and the old European Communities system are more than semantic. According to Chile, the PBS does not act as a non-tariff barrier to prevent the import of goods whose price is lower than the price under the band nor to force an increase in this price until it reaches a certain domestic level.¹⁵⁵

4.54 Argentina claims that Chile's submission makes a partial and erroneous interpretation of the definition of a variable levy¹⁵⁶ provided in Argentina's submission.¹⁵⁷ Argentina asserts that the definition in fact covers various elements that could be examined separately and that must be interpreted as a single whole. The definition begins by recognizing that a variable levy implies "complex systems of import surcharges". Argentina argues that, in the specific case of the Chilean PBS, two elements of the definition apply: complexity, and the imposition of variable levies in addition to the general tariff. Moreover, any PBS presupposes the application of a levy in addition to the general tariff (i.e. a surcharge) which varies, not with respect to the transaction value but in accordance with some type of mathematical relationship between the reference price fixed arbitrarily and some threshold price or parameter. These elements alone are evidence enough of the complexity of the system. Argentina explains that the third element of the definition, namely ensuring "that the price of a product on the domestic market remains unchanged", needs to be interpreted intelligently and in accordance with the text of the definition (and the ultimate purpose of the provisions of the Agreement on Agriculture). Specifically, in a low international prices scenario, the distortionary effect of the Chilean PBS is reflected, in particular, in the artificial change in the competition situation on the domestic market owing to the fact that once the reference price of the system has been activated, the domestic market becomes, to a large extent, impervious to price signals from the international market.¹⁵⁸

4.55 Chile submits that, if the term "variable levy" had been intended to have the broad meaning urged by Argentina and certain third parties, it is impossible to explain why Argentina would maintain a sugar import system that is not distinguishable in any relevant way from the Chilean system that Argentina is challenging. Further, Chile argues, it is impossible to reconcile this attempt to stretch the meaning of "variable levy" with the position adopted by WTO Members, including Argentina, Brazil and the United States, in the Uruguay Round negotiations after the text on the Agreement on Agriculture had been agreed. Recalling that Chile's system has been openly and transparently in effect since 1983, Chile adds, it is inexplicable why WTO Members raised no objection to the Chilean PBS and similar PBSs of other countries without demanding tariffication or change. Chile explains that Members accepted the system of the European Communities which clearly continues to levy duties that vary with the difference between European Communities and world prices. Chile contends that it is not arguing that a failure to challenge an illegal measure at the first opportunity means that a WTO Member forfeits the right ever to challenge that measure. However, Chile does contend that - in interpreting a term of art like "variable levy" that is not defined in the Agreement, -it is highly relevant to examine the conduct of the negotiators at the time of the negotiations and in the implementation of those negotiations. Chile submits that this context uniformly supports the view that the Chilean PBS is not a variable levy within the meaning of footnote 1.¹⁵⁹

4.56 Chile contests Argentina's suggestion that an element of the test to determine whether a given import duty is a forbidden variable levy might be the frequency or degree of changes in the tariff and the complexity of the system.¹⁶⁰ Chile contends that, aside from being vague and even illogical, none of Argentina's suggested rules, definitions and tests is set out in the Agreement on Agriculture or any other WTO agreement, and none of these suggestions has any legal status. Chile submits that nothing in the WTO prescribes how frequently an applied tariff can be changed or on what basis, so long as the binding is respected. Chile considers that its system in fact is transparent, and changes in the duty from week to week are normally modest, based on a formula utilizzing objective criteria. However, Chile adds, neither Article 4.2 nor its footnote requires that Chile's system meet these tests.¹⁶¹

4.57 Chile considers that an analysis of the relevant provisions of the WTO according to the principles laid down in the Vienna Convention shows that the Chilean PBS does not constitute a variable levy nor any other form of non-tariff barrier within the meaning of Article 4.2.¹⁶² Chile alleges that its PBS does not come within the scope of footnote 1 to Article 4.2 of the Agreement on Agriculture. In Chile's view, this is obvious because footnote 1