Report of the Panel

(b) Similarities of this case with previous cases

3.21 Argentina argued that its request that the Panel determine that there were no grounds for it to examine the issue in question did not represent a new practice in the GATT/WTO system. There were numerous precedents in GATT 1947 ³⁶ and in the WTO dispute settlement system ³⁷ in which a party had asked the panel to rule on whether or not an argument with respect to all or certain specific elements of a claim should be examined before considering the substance of the matter. In the case of United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil, the request submitted by Brazil had led to a ruling by the panel which had preceded its conclusions, resolving the preliminary objection that had been raised. ³⁸ In its report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, the Appellate Body had determined that:

Further on, the report stated that:

3.22 As regards the precedents mentioned by the United States in support of its position ⁴⁰, Argentina contended that they referred to situations that were completely different from the one under consideration. In the first case, United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India, the challenged measure was still in effect during the dispute. In fact, it had remained in force until the report was circulated. The present case was completely different in that the minimum specific import duties had already been revoked when the Panel had been established and its terms of reference adopted. As regards the case United States - Prohibition on Imports of Tuna and Tuna Products from Canada ⁴¹, while the United States revoked the prohibition, not only did there remain in force a law permitting the reintroduction of the measure, but the United States also had informed Canada that it might be obliged to do so. Finally, in EEC - Measures on Animal Feed Proteins ⁴², both parties to the dispute knew from the time the panel had been established that the measure was temporary, and indeed raised no objection to the establishment of the panel, knowing it would issue its conclusions when the measure was no longer in force.

3.23 Argentina noted that the report of the panel on United States - Standards for Reformulated and Conventional Gasoline had established that:

3.24 Argentina stressed that in the case under consideration, there was no evidence whatsoever that the minimum specific import duties on footwear would be reintroduced. On the contrary, it was clear from Resolution No. 225/97 that the measures had been revoked and not temporarily suspended. Even if, hypothetically, it was considered to weigh up the 'probability that the measure would be reintroduced', the application for initiation of the safeguard investigation in the framework of the relevant Agreement had put such a possibility to rest.

3.25 The United States reaffirmed that in several instances previous panels had examined measures that were no longer in effect, including the panel reports on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India, EEC - Measures on Animal Feed Proteins, and United States - Prohibition on Imports of Tuna and Tuna Products from Canada cited by Argentina. Argentina attempted to distinguish between these decisions by arguing, for example, that the footwear specific duties were outside the purview of this Panel because, unlike previous matters, the measures had been revoked prior to formation of the Panel. This point of differentiation ignored the fact that the footwear specific duties were in effect during the four rounds of consultations held between the parties in this dispute, and they were in effect at the time the United States made its first panel request. The measures were revoked only after Argentina delayed formation of this Panel for one month.

3.26 Argentina contended that, as the measures at issue had been revoked before the composition of the Panel, the fact that the minimum specific import duties on footwear had been discussed during the consultations was irrelevant when it came to deciding whether the Panel should examine a measure which did not exist.

3.27 The United States argued that the report of the panel on United States - Standards for Reformulated and Conventional Gasoline, on which Argentina principally relied, revealed the weakness of its argument. If that panel decided to refrain from examining a measure no longer in effect, it did so because the measure in question was not included in that panel’s terms of reference and there was no chance of its recurrence. However, the passage from the panel report quoted by Argentina ⁴⁴, noted that the earlier cases in which panels had examined measures no longer in effect were factually dissimilar. Indeed, that passage stated "in the 1978 Animal Feed Protein case, the Panel ruled on a discontinued measure, but one that had terminated after agreement on the Panel’s terms of reference. In the 1980 Chile Apples case, the Panel ruled on the measure terminated before agreement on the Panel’s terms of reference, however, the terms of reference in that case specifically included the terminated measure and, it being a seasonal measure, there remained the prospect of its reintroduction".

3.28 The United States consequently underlined that the facts of this matter were quite similar to those present in the cases on EEC - Measures on Animal Feed Proteins and on EEC - Restrictions on Imports of Apples from Chile ⁴⁵ and unlike those of United States - Standards for Reformulated and Conventional Gasoline. The footwear specific import duties were explicitly listed in the Panel’s terms of reference, and there was a considerable possibility that the measures would be resurrected.

3.29 The United States further argued that Argentina had sought to distinguish the case on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India by claiming that the United States had not withdrawn the measure until the report was circulated. This was incorrect. The United States withdrew the measure before the panel issued the final report to the parties and this fact was noted by the panel:

3.30 The United States stressed that, as in this dispute, the panel’s terms of reference in the report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India permitted the panel to "comply with [its] mandate" notwithstanding that the measures had been withdrawn before the panel’s decision. Similarly, the terms of reference of the panels in United States - Prohibition on Imports of Tuna and Tuna Products, and EEC - Measures on Animal Feed Proteins had provided panels with the mandate to rule on measures that had been withdrawn before each panel issued its determination.

3.31 The United States argued that the measures on footwear were part of the terms of reference, as outlined in document WT/DS56/6, dated 11 April 1997. This document referred to the panel request in document WT/DS56/5 which specifically stated that the United States was seeking review of the consistency of Argentina’s specific duties on footwear with its WTO obligations. The request of the United Stated also outlined a number of measures such as Resolutions No. 305/95 and No. 103/96 which applied only to footwear. The United States had indicated in the panel request that the consultations had failed to settle the dispute as it related to Argentina’s specific duties, including specific duties relating to footwear. Document WT/DS56/6 provided that the "parties [had] agreed to the standard terms of reference," which by definition incorporated the measures specified in the US panel request. Thus, while Argentina may maintain that the Panel should not review its specific duties on footwear, Argentina could not dispute that the terms of reference, as articulated in document WT/DS56/5, included the footwear specific duties.

3.32 Argentina acknowledged that the Panel's terms of reference contained in document WT/DS56/6 explicitly included "specific duties on footwear". The problem was whether the minimum specific import duties on footwear having been included in the terms of reference (as they formed part of the United States request) there was still merit in the Panel's considering them, inasmuch as these specific duties had already definitively ceased to exist at the time the Panel's terms of reference were adopted. There was no point in ruling on a question which, being non-existent, could in no way impair or affect the rights of WTO Members. Argentina did not dispute the content of the Panel's terms of reference, but the nature of the examination which the Panel would be obliged to carry out if it acceded to the United States' request. Indeed, the minimum specific import duties applied to footwear imports, mentioned in the Panel's terms of reference, were those which had been revoked by Resolution No. 225/97.

3.33 Argentina added that in the case on United States - Standards for Reformulated and Conventional Gasoline, the measure questioned had been revoked before the adoption of the terms of reference and there was nothing to indicate that it was to be reintroduced. The same was true of the present case. In EEC - Measures on Animal Feed Proteins, it was a question of a measure abolished after the adoption of the terms of reference. In the case on EEC - Restrictions on Imports of Apples from Chile, the measure was a seasonal one which might obviously be reintroduced. The present Panel was completely different from the two previous ones mentioned above, since the United States was objecting to a measure which simply did not exist at the time the Panel had been established and its terms of reference defined.

3.34 Argentina noted that the United States had dismissed Argentina's comments on the background to the EEC - Measures on Animal Feed Proteins, United States - Prohibition on Imports of Tuna and Tuna Products and EEC - Restrictions on Imports of Apples from Chile cases claiming that they were technical points with little meaning. The Panel could not regard as a technical point with little meaning a note such as that which the United States had sent Canada in the second case mentioned above threatening to reintroduce the measure if the Canadian Navy were to seize a vessel. ⁴⁷ Nor could one attribute "little meaning" to the fact that the United States informed the panel in the same case of its readiness to continue collaborating with the panel and, secondly, requested the latter to make a ruling justifying the United States measure on the basis of Article XX(g) of GATT ⁴⁸. In this case, Argentina was not trying to justify a particular measure, since there simply was no measure.

  (c) Effect of precedent of the request of the United States

3.35 Argentina argued that the US request was not only contrary to the provisions of the WTO, but it also suggested that panels should rule on hypothetical cases, a dangerous evolution for the WTO system. It would encourage panels and the Appellate Body to legislate whereas Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization ("WTO Agreement"), attributed this task exclusively to the Members of the WTO through the Ministerial Conference and the General Council. This would also be contrary to GATT practice under Article XXV ⁴⁹.

3.36 Argentina argued that, pursuant to Article 3.7 DSU, parties should endeavour to reach mutual agreement, failing which the issue could be submitted to a panel which could recommend the withdrawal of the illegal measure. In the case under consideration, there could be no mutual agreement between the parties on the minimum specific import duties applied to footwear since they were no longer in effect, nor could there be any recommendation to withdraw a measure that did not exist. In other words, proceedings could not be initiated without a specific subject of dispute to which they could apply. The WTO Agreement in general, and the dispute settlement system in particular, rested on the principle of considering measures actually in force. Thus, the idea of panels ruling in abstracto or merely on the basis of allegations as to what might be expected was entirely inappropriate. That a panel could rule in respect of a hypothetical case when the minimum requirement for a recommendation was that it should pertain to a measure that was in force would leave Article 19.1 DSU meaningless. ⁵⁰

3.37 Argentina also noted that the United States had recently expressed its opposition to in abstracto rulings by panels or the Appellate Body. On the occasion of the adoption by the DSB of the Report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India, the United States had declared that the Appellate Body had stated that "we do not consider that Article 3.2 of the DSU is meant to encourage either the panel or the Appellate Body to "make law" by clarifying existing provisions of the WTO Agreements outside the context of resolving a particular dispute. A panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute". ⁵¹

3.38 Argentina was concerned by the effect on the multilateral trading system of a decision by a panel to receive complaints such as the one lodged by the United States, as Members, if this became an accepted practice, could contemplate the possibility of resorting to the dispute settlement system in order to make sure that laws abolished for a long time would not be reintroduced. A failure to rule adequately on the Argentine request for a preliminary ruling also would open up the possibility of disputes being initiated under the dispute settlement system as a means of obtaining "an anticipatory precautionary measure", that is to say, using the DSU to prevent the implementation of a measure which a Member thought might injure it in the future.

3.39 The United States replied that contrary to Argentina’s argument, it was not asking the Panel to "legislate" or to address an "abstract" question, but rather to review particular measures that Argentina had maintained until just days before the formation of the Panel, that were specifically included in the Panel’s terms of reference and that may well be resurrected in the event Argentina’s safeguard measures on footwear were terminated.

3.40 The United States argued that, like Argentina, it believed that panels had to approach the issue of withdrawn measures with caution. The test articulated by the panel in the case on United States -Standards for Reformulated and Conventional Gasoline (i.e. whether the measure was part of the terms of reference of the panel, and whether there was the possibility of its reintroduction) provided the necessary safeguard.

3.41 For the United States, the Panel had to bear in mind the negative effects on the functioning of the WTO dispute settlement if Members were permitted to evade panel review of WTO-illegal measures by simply withdrawing one type of measure and introducing another. If the test advocated by Argentina, i.e. no examination of any withdrawn measure by any panel, was used then Members may be inclined to introduce slightly revised measures to avoid panel review. If the Panel were to agree with Argentina, Members trying to escape WTO review would be able to delay the establishment of a panel indefinitely by withdrawing one measure and imposing another in its place. Pursuant to Argentina’s theory, the new measure would mandate additional consultations under Article 4 DSU and the resetting of at least a 90-day period of time before a panel could be established. Argentina’s position, therefore, was not only inconsistent with prior practice, it also would subvert the ability of the DSB to solve trade problems. The Panel should advance the objectives of the DSB and take care to refrain from unduly restricting the scope of its review.

3.42 Argentina argued that all WTO Members came under pressure from their domestic industries to resort to the dispute settlement system as soon as those industries considered themselves to have a problem. Although it was essential that every Member should be fully entitled to resort to the dispute settlement procedure, it was no less important to emphasize that the system had an obligation to close the door against possible abuse. Doing otherwise would give domestic industries an enormous incentive to demand from their authorities the establishment of panels with a view simply to confirming that another Member country or other Member countries would continue to fulfil their obligations as in the past. In other words, a panel could not be required to rule that Argentina should not re-establish specific duties which were not part of its legislation. To take the opposite view would be to question a fundamental principle of international law pursuant to which pacta sunt servanda. This would also raise uncertainty and speculation which, taken to the limit, might result in the collapse of the dispute settlement system.

3.43 Argentina noted that such elements were present in this case and Argentina's legitimate decision to initiate a safeguard investigation for footwear and its application of a provisional measure had led ultimately to the United States initiating a panel concerning the application of specific duties in another sector, that of textiles and clothing. As a way of responding to the complaint of the footwear manufacturers and given the legal impossibility of challenging directly a safeguard in process of investigation, the United States was trying to reach it indirectly. As a result, the Panel was faced with a theoretical case in which it has been clearly shown that there were no actual transactions involved. The question raised by the United States before the Panel masked the real issue: the Argentine decision to revoke the minimum specific import duties on footwear and subsequently to initiate an investigation at the request of the industry in that sector.

3.44 Argentina further contended that the EC's third-party submission and its oral submission were centred almost entirely on the specific footwear duties and even included a request for the Panel to rule on the safeguard measure, which not even the United States had suggested.

3.45 According to Argentina, all this demonstrated the need for the Panel to accede to Argentina's request that it made a special preliminary ruling to the effect that there was no grounds for it to express an opinion on the specific footwear duties since those duties had been definitively revoked before the Panel was established.

3.46 Argentina stated that the assertion that recourse to a safeguard measure today could mean recourse to Article XX or another article tomorrow, was also unacceptable. Not only was this not Argentina's intention, but it could not even be considered as a possibility. This would be tantamount to say that WTO Members could not make use of their rights under the different provisions of GATT 1994 and the WTO Agreement.

3.47 Argentina argued that the Panel was faced with a task that extended far beyond the particular case at issue, since its conclusions could clearly affect the proper functioning of the WTO dispute settlement system. In order to avoid using the DSU abusively, it was essential that the Panel should redirect this case, taking a decision on the special preliminary ruling requested by Argentina at the appropriate time.

3.48 On 21 July 1997, the United States submitted to the Panel two exhibits that it intended to present at its second substantive meeting on 23 July 1997. The first exhibit was presented as a summary of a number of industry-supplied examples of export shipments to Argentina which had been assessed duties in excess of 35 per cent ad valorem. The second exhibit contained copies of 95 pages of Argentine customs documents which reflected the application of the specific duties summarized in the exhibit previously mentioned. The United States mentioned that these documents had been submitted at that time in order to provide both the Panel and Argentina with the opportunity to review them prior to the second meeting of the Panel.

3.49 Argentina requested the Panel to disregard the evidence submitted by the United States as untimely. The United States had resorted to an extemporaneous submission inconsistent with the sequence of time-limits laid down in the DSU and ultimately intended to maintain, at each stage of the Panel procedure, the required balance between the parties.

3.50 The United States specified that it had produced new documents to contradict the claims of Argentina. For example, the evidence at issue contradicted Argentina’s claims that the United States allegedly had no proof of duties being assessed over 35 per cent ad valorem. For the United States, the Panel should encourage the use of formal evidence such as those submitted by the United States as opposed to simply accepting oral denials and mere allegations of facts. The submission of new documents was a natural process in a dispute. Were a panel to prevent the submission of new documents during its second substantive meeting with the parties, this would inhibit the truth-testing process and prohibit a party from contradicting statements made at the last minute by the other party.

1. INTRODUCTION

3.51 The United States argued that, during the Uruguay Round, Argentina had agreed to a maximum bound rate of 35 per cent ad valorem on imports of textiles, apparel and footwear. However, Argentina imposed minimum specific import duties on hundreds of categories of these products. The specific duties often amounted to more than 35 per cent of the actual value of affected goods. On the eve of formation of a panel in this dispute, Argentina had eliminated its specific duties on footwear, replacing them with specific duties presented as "provisional safeguard" measures. However, Argentina’s specific duties on textiles and apparel remained in effect.

3.52 The United States contended that in imposing minimum specific import duties on textiles, apparel and footwear, Argentina had violated Article II of GATT 1994. Even if the specific duties, as applied, did not exceed 35 per cent ad valorem, they still violated Article II. Each of Argentina’s specific duties had the potential to exceed 35 per cent ad valorem with respect to some imports. Argentina also violated Article II by exceeding its bound tariff rate and failing to apply only ad valorem duties in accordance with its Schedule.

3.53 Argentina argued that the application of minimum specific import duties did not and could not violate Article II. The relevant laws in Argentina precluded any effective or potential violation of the 35 per cent ad valorem bound rate by the minimum specific import duties. This was so because the payment of a duty could not be taken in isolation from the other rights and obligations accorded under national law to all the parties involved in an import transaction. No-one was obliged to pay more than the 35 per cent bound ad valorem rate, since there was a legal remedy available to challenge any amount that the authority may attempt to levy in excess of the legal commitments of Argentina.

3.54 This sub-section firstly addresses the arguments of the parties on the general notion of "predictability" of tariffs. It then includes successively the arguments of the parties regarding the alleged violation of Article II through: the application of minimum specific import duties when Argentina's Schedule allegedly refers only to ad valorem duties; the potential effects of the application of minimum specific duties and the situations where the 35 per cent ad valorem bound rate is allegedly exceeded. It also addresses the general issue of the burden of proof. The discussion of the arguments of Argentina related to the constitutional ranking of the WTO Agreements in the Argentine legal order and the existence of a recurso de impugnación (challenge procedure) is developed in the second part of this sub-section, even though arguments related to these aspects may appear briefly in the first part.

2. GENERAL REMARKS ON THE NOTION OF "PREDICTABILITY" OF TARIFFS

3.55 The United States submitted that Article II offered "predictability" to WTO Members and their traders by establishing upper limits on the imposition of tariffs. It did so in two ways. Firstly, Article II:1(b) made clear that bound tariff rates were maximum rates: products described in a Member’s Schedule "shall [...] be exempt from ordinary custom duties in excess of those set forth and provided therein". This provision guaranteed that tariffs levied by WTO Members would be no more than the maximum rate stipulated in the relevant Schedule. Secondly, Article II reinforced this guarantee by stating that "[e]ach contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule". Pursuant to this language, Members were forbidden to manipulate the administration of their duties so as to collect excessive duties through indirect means. Article II’s proscription against levying duties in excess of a bound rate was unqualified. It was a guarantee that was not altered by the whims of the market, regardless of fluctuations in trade flows or prices. Through their Schedules, WTO Members in effect provided one another with an assurance that whatever duties were assessed at their borders would not and could not be more than the applicable bound rate. That was the central purpose underlying Article II and that was the "predictability" the article provided.

3.56 In relation to this, the United States referred to previous panel reports. The report of the panel on European Communities - Import Regime on Bananas had concluded that:

3.57 It also referred to the report of the Panel on Newsprint, which stated that:

3.58 For the United States, Argentina’s specific duties did not offer such "predictability". By their nature, Argentina’s specific duties necessarily had the potential to exceed 35 per cent ad valorem for some products, especially low-price items. The United States supported this by making a description of how each of Argentina’s more than 600 categories of specific duties had a "Break-Even Price" - i.e., a value below which all items were subject to duties greater than 35 per cent ad valorem. Whether an item imported into Argentina was below the "Break-Even Price" turned on market factors - i.e., whether goods of certain values would be imported - which were beyond Argentina’s control. Given this situation, Argentina’s trading partners had no way of knowing if Argentina would meet the obligations it assumed under its binding. The "unpredictable" nature of this regime was compounded by the fact that the fixed-rate specific duties remained constant while imports and their prices changed. A specific duty for a given article might be within the bound rate at one moment, but exceed it later. Argentina, therefore, was unable to provide fellow WTO Members with the essential assurance that Article II demanded: that its duties would not exceed the relevant bound rate for all covered imports.

3.59 According to the United States, Argentina had conceded that its specific duties - as applied at the border - could exceed 35 per cent in relation to some items. In the view of the United States, Argentina also did not appear to dispute the notion that it had to maintain duties that could not exceed the applicable bound rate. However, the United States recalled that Argentina had explained that it believed its regime was consistent with Article II because it maintained "challenge procedures" to reduce any overcharges. For the United States, this surely could not be the security and "predictability" in tariff rates that other WTO Members thought they had received from Argentina in the Uruguay Round. Argentina’s trading partners had the right to expect that Argentina would impose only those duties which in form and amount were not capable of exceeding 35 per cent ad valorem.

3.60 Argentina replied that in the case under consideration, the definition of predictability in the context of Article II stemmed from the effective implementation of the tariff concessions negotiated whose value was expressed in the respective national Schedules. It pointed out that what this Panel was examining was not the "unpredictable" nature of the specific duties, which could vary in accordance with the value of the goods, but whether or not the bound ad valorem level had been violated.

3.61 Argentina believed that its regime ensured predictability firstly because its Schedule bound the entire tariff. This commitment entered into by the Argentine Government during the Uruguay Round had been ratified by the Argentine Congress and had constitutional status in accordance with Article 75.22 of the Argentine Constitution. This feature of Argentina's constitutional system endowed Schedule LXIV with an absolute level of predictability. Any infringement would open the way, through a summary proceeding, to obtain a judicial decision obliging the Argentine Government to comply with international obligations deriving from WTO agreements, over and above any domestic norms, such as laws, decrees, ministerial resolutions, or others. On the other hand, the tariff applicable was well known and transparent. Furthermore, with very few exceptions, it could not be changed unilaterally by Argentina, any changes having to be agreed with the other members of MERCOSUR. This restricted the freedom of action of each of the parties to that treaty, thereby adding a further safety factor.

3. IMPOSITION OF SPECIFIC DUTIES INSTEAD OF AD VALOREM DUTIES

3.62 The United States considered that Article II of GATT 1994 prohibited WTO Members from exceeding their bound tariff rates and according treatment less favourable than the terms stipulated in Schedules. This conclusion was supported by a consistent line of prior GATT decisions which had found that the imposition of specific duties was impermissible when ad valorem duties had been promised. These decisions indicated that such a regime violated Article II:1(a) GATT 1994, which provided that WTO Members had to accord to other Members "treatment no less favourable than that provided for [...] in the appropriate Schedule", and Article II:1(b), which provided that imported goods from WTO Members had to be "exempt from ordinary customs duties in excess of" the applicable bound rate. In this light, prior GATT bodies had found that the imposition of specific duties was impermissible when the pertinent schedule provided for ad valorem tariffs.

3.63 For the United States, this was so, at least in part, because use of one form of duty instead of the other carried with it the potential to break a binding. As the panel on EEC - Import Regime on Bananas explained:

3.64 The United States added that, for these reasons, it had long been recognized in the GATT that converting bound duties from ad valorem to specific, or vice versa, violated Article II and that such a change was permissible only through renegotiation under Article XXVIII. ⁵⁵ As early as 1955, a GATT working party had addressed a regime of minimum specific duties akin to those imposed by Argentina. ⁵⁶ In that case, Austria’s Schedule allowed it to "change the specific into ad valorem rates". The Austrian Government, however, "felt that it would not be impairing the value of the concessions if it retained beside the ad valorem duty the old specific rate as a minimum rate". The working party disagreed, finding "that such changes would constitute modification of Austria’s obligations and that it could not recommend their acceptance as rectifications. Such modifications could only be inserted in a protocol of rectifications and modifications after negotiations authorized by the CONTRACTING PARTIES in accordance with the proper procedures". Austria accepted the decision of the working party. ⁵⁷

3.65 In the opinion of the United States, subsequent decisions had found this reasoning compelling. In fact, all GATT bodies that had addressed the question - regardless of whether it was the imposition of specific or ad valorem duties that was objected to - had likewise determined that the application of an alternative mode of tariff was impermissible when the other form of duty was bound. Reviewing this history, the Panel on Newsprint explained that "under long-standing GATT practice, even purely formal changes in the Schedule of a contracting party, which may not affect the GATT rights of other countries, such as the conversion of a specific duty to an ad valorem duty without an increase in the protective effect of the tariff rate in question, had been considered to require negotiations". ⁵⁸ The Panel on Newsprint found that the EC was not permitted to reduce the metric tonnage eligible for duty free treatment under a bound tariff rate quota ("TRQ") to take into account the merger into the EC of three nations that formerly had been the principal beneficiaries of the TRQ. In reaching this conclusion, the panel stated that it "shared the view expressed before it relating to the fundamental importance to the security and predictability of GATT tariff bindings, a principle which constitutes a central obligation in the system of the General Agreement". ⁵⁹

3.66 Argentina noted that the United States had expressed "concern" over the imposition of specific duties, but its main line of argument attacked the right question, namely ensuring that the bound level could not be violated. In this respect, the United States itself recognized that the problem did not lie with the conversion of specific into ad valorem duties or vice versa. Argentina noted that the United States had acknowledged that an ad valorem tariff could also violate a binding. The question was whether there were any guarantees that, whatever form the tariff took, the bound level would not be exceeded.

3.67 In Argentina's view, it was quite inaccurate to state that ad valorem duties were converted into specific duties. No such conversion was possible, since the specific duties were already in effect. Argentina had bound a maximum ad valorem "ceiling" of 35 per cent for all tariff headings, including the sector under consideration. Argentina had applied minimum specific duties to textiles and clothing since the adoption of Resolution No. 811/93 of the Ministry of Economy and Public Works and Services, dated 29 July 1993, in other words since before the conclusion of the Uruguay Round. Argentina's Schedule LXIV was approved as part of Law 24.425, which gave effect to all the WTO Agreement in Argentina as from 1 January 1995. Schedule LXIV bound tariffs at a maximum ceiling of 35 per cent ad valorem, with the exception of certain tariff headings bound below this level as a result of the Kennedy, Tokyo and Uruguay Rounds. The fact that Argentina continued to apply minimum specific import duties to textiles and clothing was not inconsistent with its commitments under the Uruguay Round in so far as the bound ad valorem level was not exceeded. As to how a WTO Member could be aware of Argentina's intention to keep its practice of using specific duties within the maximum ad valorem ceiling, Argentina said that it had submitted its tariff to the Committee on Market Access. In addition, it had formally notified the tariff within the context of MERCOSUR, a notification which, in itself, ensured the total transparency of the tariff levels applicable. Moreover, it was well known that during the Uruguay Round negotiations Argentina was applying minimum specific import duties on textiles. In this connection, at the close of the Uruguay Round the United States and the EC bilaterally threatened not to accept the Argentine Schedule if the minimum specific import duties were not removed. In these circumstances, Argentina had replied that the minimum specific import duty regime would not be changed.

3.68 Argentina rejected the argument based on the alleged conversion of ad valorem import duties into specific duties because the precedents cited by the United States were not applicable to this case. Firstly, none of the mentioned precedents pointed to a conversion of ad valorem duties into specific duties. In the case of the Working Party on Austria, Austria wanted to retain the specific duty as a minimum without being able to give an assurance that the specific duty would not exceed the bound ad valorem rate. The present case was radically different inasmuch as the Argentine minimum specific import duties operated as a minimum only to the extent that it did not exceed the bound 35 per cent ad valorem rate. In the instance addressed by the Working Party on Austria, it was a question of binding tariff rates for certain specified tariff headings. By contrast, in the present case it was a question of binding a maximum tariff ceiling of 35 per cent ad valorem for the entire universe of goods, with the exception of certain headings bound at lower levels, and the maintenance of pre-existing specific duties for particular sectors calculated so as not to exceed the bound level.

3.69 Argentina also contended that the GATT 1947 practice cited by the United States was not relevant as precedent to the present case for the following reasons. The case on Transposition of Schedule XXXVII (Turkey) ⁶⁰showed diverging conclusions reached by a working party concerning the transformation of a specific into an ad valorem duty. That case was qualitatively different because the working party stated that "a change from a specific to an ad valorem duty could in some circumstances [...] affect the value of the concessions [...] Consequently, any conversion [...] can be made only under some procedure for the modification of concessions". ⁶¹The working party's statement mentioned "some circumstances" applicable to the specific case (that of Turkey). No conclusion should therefore be drawn from it and applied erga omnes to all cases that may entail the conversion of specific duties to ad valorem duties. The working party report did not contain unanimous viewpoints. Quite to the contrary, various members expressed disagreement with the above-cited conclusion. The representative of Brazil said "the conversion of specific duties to ad valorem duties does not affect the value of negotiated concessions and in most cases nothing more is involved than a simple arithmetic calculation. Except in cases where such calculation cannot be made, in its opinion such conversions are merely a matter of form and should not require special authority". ⁶² On the same occasion Austria stated that "the recommendation which is based on exceptional circumstances could not be considered as a precedent for other proposals relating to the conversion of specific duties into ad valorem duties". ⁶³

3.70 For Argentina, some other precedents mentioned by the United States were no more than incidental to the topic of changing one type of duty into another, considering that the matter in dispute did not concern the possible conversion of ad valorem duties into their equivalent specific duty as in the present case. Strictly speaking, they merely addressed the possibility of less-favourable treatment. Hence, in the Panel on Newsprint, the complaint by Canada questioned the "unilateral EEC decision to implement a duty-free tariff quota of 500,000 tonnes for 1984, which impaired its GATT binding to open a tariff quota of 1.5 million tonnes". ⁶⁴ This "tariff quota less than the amount bound in its Schedule invalidated the principle of the security and predictability of access". ⁶⁵ In this case, the panel had found that "although in the formal sense the EC had not modified its GATT concession, it had in fact changed its GATT commitment unilaterally". ⁶⁶This seemingly contradictory line of reasoning refocused the discussion on what was the crux of the matter: the value of the concession and not its form. The panel recognized that while the EC did not fail to comply with a particular formal obligation, its action changed the value of the negotiated concession. This therefore justified the EC "engaging in renegotiations under Article XXVIII". ⁶⁷ In this case the panel did not object to the formal procedure, but to the change in the value of the concession. It was this de facto situation that triggered the negotiating procedure and which the panel believed should be handled through the negotiation process provided for in Article XXVIII. The statement that "even purely formal changes [...] without an increase in the protective effect [...] have been considered to require negotiations" did not in itself represent a finding. This observation had no practical impact on the panel's conclusion, which was based on a substantive consideration as to the value of what had been negotiated. Consequently, the findings of the panel referred to a modification of the value of the concession and not to the legal implications of formal changes in the Schedules. In Argentina's opinion, the statement quoted by the United States "Under long standing [...] require negotiations" was not a finding of the Panel but an obiter dictum, an opinion expressed incidently in delivering a judgement which did not constitute one of its essential elements.

3.71 For Argentina, the only case that bore a certain resemblance with the present situation was that on EEC - Import Regime for Bananas, but the corresponding report had not been adopted. Moreover, even in the hypothetical case of a transfer (and this did not apply to the case at issue), this would not be enough to constitute a violation of the commitments assumed with respect to bound import duties, since Argentina had a legal mechanism to ensure that the bound level of 35 per cent was not exceeded. This was the challenge procedure laid down in the Argentine Customs Code, the existence of which put at rest the United States assertions with respect to the security and predictability of tariff bindings as well as to potential effect on, or expectations of, market access by trade partners.

3.72 Argentina contended that the case in question was quite similar but certainly not identical, for the following reasons. The United States quoted paragraph 134 of the report of the panel on EEC  -Import Regime for Bananas, and underlined the general obligation arising from Article II to accord ... "treatment no less favourable than that provided for in the [...] Schedule". The quotation then described the panel's analysis of the EC mechanism whereby the effective ad valorem duty depended on the value of the bananas, while the specific duties depended on their weight. On that basis and in regard to the two categories of specific duties under consideration, the panel considered that in one case, that of the specific duty of 850 ECUs per ton, they clearly violated the 20 per cent Community binding and in the other (the case of the specific duty of 100 ECUs per ton), the EC had neither argued nor submitted any evidence that this duty could never exceed 20 per cent ad valorem. In consequence, the panel found that the specific duties had in fact violated the binding.

3.73 For Argentina, the conclusions revealed significant qualitative differences between the case of the EEC import regime for bananas and the present case. To begin with, the Argentine minimum specific import duties had been calculated so as not to exceed the tariff ceiling of 35 per cent. This was explained in detail by Argentina in its analysis of the theoretical and practical examples of alleged violations of the tariff bindings submitted by the United States to the Panel. ⁶⁸

3.74 Argentina pointed out that contrary to the United States assertion, the panel on EEC - Import Regime for Bananas did not base its conclusions on the modification of the way in which the tariff was calculated, but on the fact that the EC could not guarantee that this specific duty would never exceed the bound level. This situation was entirely different from the one under consideration. Under Law No. 22.415, by means of the "challenge procedure", Argentine legislation fully guaranteed that the level of the tariff binding could never be exceeded.

3.75 Finally, Argentina formulated two observations regarding the legal value of that case. Firstly, that report was an unadopted panel report. The value of such reports as legal precedents within the GATT/WTO framework was minimal. Indeed, as stated by the panel on Japan - Taxes on Alcoholic Beverages, cited by the Appellate Body in the same case, they "have no legal status in the GATT or WTO system since they have not been endorsed through decisions by the CONTRACTING PARTIES to GATT or WTO Members". ⁶⁹Secondly, the possibility that it may provide "useful guidance" was contingent upon whether the precedent was "relevant" to the matter under examination. ⁷⁰

3.76 Furthermore, Argentina recalled that the limited scope of panel reports was accepted and unquestioned practice under GATT and had been reaffirmed by the WTO. The doctrine was clear in this regard: "The adoption by the Contracting Parties [...] of a dispute settlement report is regarded in GATT practice as a "ruling" and authoritative determination of existing GATT rights and obligations of the disputants in the instant case". ⁷¹The provisions of the General Agreement, in particular of Article XXIII, may not be used to change the obligations deriving from the Agreement. "Article XXIII [...] should not be used in such a manner as to effectively impose positive obligations on GATT members that are not contained in the Agreement".⁷² This was particularly applicable when the conclusions of a panel had been questioned by some of its members and other contracting parties had expressed disagreement at their adoption.

3.77 For the United States, the decisions of prior GATT bodies had determined that the imposition of specific duties was impermissible where ad valorem tariffs had been promised. ⁷³Argentina had not and could not find a meaningful basis to distinguish the reasoning underlying these earlier decisions from the present dispute. Argentina essentially had asked the Panel to overlook a firmly established principle of GATT jurisprudence, a tenet that had guided GATT Contracting Parties and WTO Members since the earliest days of the General Agreement.

3.78 The United States argued that Argentina attacked these decisions on alternate grounds. In particular, Argentina pointed out that the report of the panel on EEC - Import Regime for Bananas had not been adopted. This was true, but the United States noted that the Appellate Body had indicated that "a panel could nevertheless find useful guidance in the reasoning of an unadopted panel report that it considered to be relevant". ⁷⁴

3.79 Argentina contended that Article II:1(b) GATT 1994 did not impose the application of a particular type of tariff but laid down the obligation that "ordinary customs duties" could not exceed "those set forth and provided" in the Schedule. If the text of Article II:1(b) had sought to define the scope of the concept of "customs duties" (limiting the options in terms of the type of tariff to be applied), the contracting parties would have specified this in due course or when negotiating the text of the Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994.

3.80 Therefore, according to Argentina, one had to determine whether or not there was an obligation deriving from GATT 1994 which prohibited a Member from applying a specific duty rather than an ad valorem duty providing it did not exceed the bound rate. The key concept in Article II was treatment no less favourable. It made no reference whatsoever to the obligation to introduce a particular type of duty (in this case ad valorem), nor did it stipulate that such duty may not subsequently be transformed into a specific duty provided that the final duty effectively paid by the importer to release the goods into the market was not higher than the bound tariff.

3.81 The United States replied that it had no objection to specific duties per se. In fact, the United States recognized that WTO Members may bind their tariffs using either ad valorem tariffs or specific tariffs, or both. The concern of the United States was that Argentina chose to bind itself to an ad valorem tariff but nonetheless imposed specific duties. By imposing minimum specific duties despite its purely ad valorem binding, Argentina’s regime allowed for certain goods to be subject to import duties higher than 35 per cent ad valorem. This deprived WTO Members and their traders of the "predictability" that should accompany a maximum bound rate. Article II offered WTO Members a guarantee that their products would not be subject to duties greater than the amount established in the relevant Schedules. They also guaranteed that WTO Members would not manipulate the administration of duties so as to collect excessive tariffs. This was true regardless of the vicissitudes of the marketplace. Trade flows or prices rise or fall should not disturb the sanctity of the commitment made in a tariff concession.

3.82 According to the United States, ad valorem and specific duties were quite distinct and had different aims and effects. Ad valorem duties garnered greater sums from high-value goods than low-value goods, and the amount assessed varied constantly as prices fluctuated. Such duties offered a hedge against inflation for countries imposing them, since any increase in the price of goods yielded a commensurate increase in the tariff charged. In contrast, specific duties bore no direct relation to the value of imported merchandise but instead were dependent upon quantity. One rate was levied per unit. As a practical matter, though, the flat rate of a specific duty affected low-price merchandise disproportionately in comparison with high-price items. A US$5 specific duty might be a bargain to the manufacturer of a US$100 product yet an almost insurmountable obstacle to the producer of a US$1 article.

3.83 The United States further argued that the fact that the two forms of duties differed was not to say that one was superior to the other or more or less legitimate. Rather, it was to say that the two were unique and thus were not interchangeable. Reliance on ad valorem rates rather than specific, or the other way around, necessarily involved the imposition or the threatened imposition of tariffs in contravention of a bound rate. For example, no matter how low or reasonable a specific duty might seem on its face, such a duty had the potential to violate a bound ad valorem rate for a sufficiently low-price item. ⁷⁵

3.84 For the United States, the problem was one of determining and ensuring equivalency. For instance, a US$5 specific duty amounted to 500 per cent for a US$1 item, but only 5 per cent of a US$100 item. Where tariffs had been bound in ad valorem terms, as was the case with Argentina, the imposition of specific duties necessitated the determination of the ad valorem equivalent for each item in each category. Even if no goods had entered Argentina subject to duties greater than 35 per cent, the use of minimum specific duties created the possibility that the bound rate would be exceeded. This could not occur if Argentina imposed only ad valorem tariffs.

3.85 The United States acknowledged that Argentina was free to bind its duties in a variety of ways, including a combination of specific and ad valorem. However, having selected a purely ad valorem binding, Argentina could not maintain a regime in which some items would be subject to duties in excess of its bound rate.

3.86 For Argentina, the application of minimum specific import duties that did not exceed the 35 per cent bound rate was not a violation of the commitment undertaken, nor did it impair the concession granted in the Uruguay Round. Argentina did not criticize the report of the panel on EEC - Import Regime for Bananas Panel because the report was not adopted, but stated that the EC had been found in breach of its obligations because no evidence had been presented that the specific duty to be paid could not exceed the ad valorem tariff undertaking. Argentina, on the other hand, submitted concrete proof in this respect.

Notes:

36. Argentina referred to the Panel Reports on United States - Measures Affecting Alcoholic and Malt Beverages, adopted on 19 June 1992, BISD 39S/206 and United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil, adopted on 19 June 1992, BISD 39S/128.

37. Argentina referred to the Panel Reports on Japan - Taxes on Alcoholic Beverages, adopted on 1 November 1996, WT/DS8/R, WT/DS/10/R, WT/DS/11/R, and Brazil - Measures Affecting Desiccated Coconut, adopted on 20 March 1997 WT/DS22/R.

38. BISD 39/S128, para. 3.1 and para. 6.2.

39. Appellate Body Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, Op. Cit., pp. 18-19.

40. See inter alia, footnotes 26 and 27, para. 3.7 above.

41. Adopted on 22 February 1982, BISD 29S/91.

42.Adopted on 14 March 1978, BISD 25S/49.

43. Panel Report on United States - Standards for Reformulated and Conventional Gasoline, adopted on 20 May 1996, WT/DS2/R, para. 6.19.

44. Ibid., para. 6.19.

45. Adopted on 10 November 1980, BISD 27S/98.

46. Panel Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses, para. 6.2.

47. BISD 29S/91, para. 2.12.

48. Ibid., para. 3.25.

49. Argentina referred to Ernst-Ulrich Petersmann, The GATT/WTO Dispute Settlement System, Kluwer Law International, (1997), at pp. 75-76: "[u]nlike generally binding authoritative interpretations of GATT rules adopted by the Contracting Parties pursuant to Article XXV, the legally binding effect of dispute settlement rulings [...] is [...] limited".

50. Argentina noted that Article 19.1 DSU stipulated that "where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement" (emphasis supplied by Argentina).

51. Argentina quoted from the statement by the United States to the Dispute Settlement Body on 23 May 1997 on the occasion of the adoption of the reports in case WT/DS33. See WT/DSB/M/33, p. 11.

52. DS38/R, 11 February 1994, unadopted, para. 135.

53. Adopted on 20 November 1984, BISD 31S/114, para. 52.

54. DS38/R, Op. Cit., para. 135 (emphasis added by the United States).

55. The United States referred to the Report of the Ninth Session Working Party on Schedules on Transposition of Schedule XXXVII (Turkey), L/294, adopted on 20 December 1954, BISD 3S/127, which mentioned, at paras. 3-4, that "no provision in the General Agreement [...] authorizes a contracting party to alter the structure of bound rates of duty from a specific to an ad valorem basis. [...] The obligations of contracting parties are established by the rates of duty appearing in the schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into ad valorem rates of duty can be made only under some procedure for the modification of concessions".

56. The United States referred to the Working Party Report on Fourth Protocol of Rectifications and Modifications, adopted on 3 March 1955, BISD 3S/130. (hereafter also the Working Party on Austria)

57. The United States referred also to the Working Party Report on Rectifications and Modifications of Schedules, adopted on 24 October 1953, BISD 2S/63, para. 8, where the working party reviewed a proposal by Greece to"introduce a minimum ad valorem rate for certain specific rates and came to the conclusion that such changes could not be considered rectifications [...] It decided therefore to refer the question to the CONTRACTING PARTIES so that such changes could form the object of consultations and negotiations [...]". In addition, the United States referred to John H. Jackson, World Trade and the Law of GATT, Bobbs-Merrill Co. (1969), which mentioned at p. 215 that "the introduction of a minimum specific rate where the Schedule rate is only ad valorem is not permitted under GATT without going through these special renegotiation procedures".

58.Op. Cit., para. 50.

59. Ibid., para. 52 (emphasis added by the United States).

60. This case was referred to by the United States in footnote 55 above.

61. BISD 3S/127, para. 4.

62. BISD 3S/127, para. 6.

63. Ibid.

64. BISD 31S/114, para. 14.

65. Ibid., para. 17.

66. Ibid., para. 50.

67. Ibid., para. 54.

68. See discussion in sub-sections B.4 and 5.

69. WT/DS8/AB/R, DS10/AB/R, DS11/AD/R, pp. 14-15.

70. Ibid.

71. Ernst-Ulrich Petersmann, The GATT/WTO Dispute Settlement System, Kluwer Law International Limited (1997) p.75.

72. Par Hallstrom, The GATT Panels and the Formation of International Trade Law, Juristförlaget (1994), p. 156 (citing John H. Jackson).

73. The United States referred in particular to the Panel Reports on EEC - Import Regime for Bananas and Panel on Newsprint, Op. Cit.

74. The United States referred to the Appellate Body Report on Japan - Taxes on Alcoholic Beverages, Op.Cit., p. 15.

75. The United States added that, likewise, the converse was true. An ad valorem tariff could exceed a bound specific duty if sufficiently high-price merchandise were imported.

Continue on to Part 3 of Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items