Report of the Panel

3.87 The United States argued that, even if Argentina's minimum specific import duties, as applied, did not exceed 35 per cent ad valorem, they still violated Article II because each of Argentina’s specific duties had the potential to exceed 35 per cent ad valorem with respect to some imports. In fact, in all instances, the specific duties had the potential to exceed Argentina’s tariff binding. This was especially true with respect to low cost products for which specific duties comprised a greater percentage of value than higher priced merchandise. Thus, by their very nature, the specific duties denied Argentina’s trading partners the predictability and security for which they had negotiated a 35 per cent ad valorem binding.

3.88 The United States argued that the report of the panel on EEC - Import Regime for Bananas had addressed an issue quite similar to the one involved in this dispute. The panel had described the relevant considerations as follows:

3.89 The United States added that, based on these facts, the report of the panel on EEC - Import Regime for Bananas had determined that complainants needed not prove that specific duties actually exceeded a binding. The mere possibility of a breach sufficed to demonstrate a violation of Article II’s requirement that imported products subject to a Schedule received treatment "no less favourable" than what was provided for in that Schedule:

The panel on EEC - Import Regime for Bananas thus had found that the mere possibility of exceeding a bound rate inherent in converting from ad valorem to specific duties was inconsistent with Article II. In reaching this conclusion, the panel followed prior GATT practice regarding conversions between ad valorem and specific duties. As that panel explained, such a change undermined the stability and predictability of Schedules, one of the cornerstones of the GATT. Based on these considerations, the Bananas panel concluded that the mere possibility of a breach sufficed to demonstrate less favourable treatment for purposes of Article II:1(a). The same reasoning was applicable in this dispute.

3.90 Argentina contended that the precedents cited by the United States were not applicable to the present case. In EEC - Import Regime for Bananas, the panel considered whether the "mere possibility" that a duty may exceed the bound rate made the said specific duty inconsistent with Article II of GATT 1994. After studying the cases concerning Turkey and newsprint from Canada, the panel concluded that "in determining whether treatment accorded by a tariff measure was no less favourable than that provided for in the Schedule, it had to take into account not only the actual consequences of that measure for present imports but also its effects on possible future imports".⁷⁸

3.91 Argentina argued that the conclusion in para. 135 of the report on EEC - Import Regime for Bananas seemed to diverge from the principle well anchored in GATT legal precedent and thinking, whereby GATT rules and GATT jurisprudence are constructed to protect expectations on the competitive relationship between imported and domestic products rather than expectations on export volumes. Where that potential to affect expectations of access was not accompanied by concrete measures that made it possible to verify its trade impact, it had been rejected under panel practice (even in cases where there were legal provisions that contemplated the possibility of adopting such concrete measures).

3.92 Hence, the report of the panel on United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, agreeing with the United States position on a point related to tobacco inspection fees, stated: "that panels had consistently ruled that legislation which mandated action inconsistent with the General Agreement could be challenged as such, whereas legislation which merely gave the discretion to the executive authority of a contracting party to act inconsistently with the General Agreement could not be challenged as such; only the actual application of such legislation inconsistent with the General Agreement could be subject to challenge".⁷⁹

3.93 Argentina submitted that to determine how these imports could be affected in the future, and whether that determination was relevant in terms of the GATT provisions, it had to be decided in the first place whether or not there was a restrictive measure affecting said imports. Only if such a measure existed and was inconsistent with the General Agreement would expectations of access be affected. It was those expectations of access and not a quantum of imports that the rules were designed to safeguard.

3.94 Argentina stated that in order to determine the differences between the case in the panel report on EEC - Import Regime for Bananas and the present case, it was first necessary to consider more closely the arguments of the complainants in the EEC - Import Regime for Bananas case. The complainants were of the view that Article II "set forth one of the central legal obligations of the General Agreement, namely the undertaking of contracting parties to respect the tariff concessions, thus prohibiting the application of tariffs for a specific product that were higher than those specified in each country's schedule of concessions". ⁸⁰The EC having adopted certain restrictive tariff and non-tariff measures, paragraph 1(a) of Article II had been violated insofar as this regime implied less favourable treatment than that established in the concession granted. The complainants further argued that "[...] the new monetary conversion rates yielded ad valorem values of the newly introduced specific rates well above the bound rate of 20 per cent for bananas both within and above the quota. The 100 ECUs per ton translated to well over 25 per cent ad valorem whereas 850 ECUs per ton were eight to nine times higher than the bound duty". ⁸¹

3.95 According to Argentina, these two paragraphs constituted the central argument of the complainants in the EEC - Import Regime for Bananas case. The United States was using this case not to support its arguments with regard to the obligation not to grant less favourable treatment but to salvage the panel's collateral finding (not finally adopted by the contracting parties) to the effect that "the mere possibility that the specific tariff rate applied by the EEC might be higher than the corresponding ad valorem rate rendered it inconsistent with Article II". ⁸²

3.96 Argentina considered that it was in this latter point that the two cases differed since the EEC did not argue that its specific duties did not violate the binding, whereas Argentina maintained, since its first submission, that the DIEM were not in excess of the bound ad valorem equivalent of 35 per cent. The findings of the panel on EEC - Import Regime for Bananas related to "the specific tariff rate applied by the EEC", which put their scope into perspective. This applied to the case under consideration and to the specific tariffs discussed therein, apart from the fact that the scope ascribed to any precedent should be limited, since otherwise it could be taken out of context. The EEC specific tariff which the panel had analyzed had the following characteristics:

3.97 Argentina asserted that it was this specific tariff applied by the EEC, with these characteristics, in respect of which the panel examined whether "the mere possibility that the specific tariff rate applied by the EEC might be higher than the corresponding bound ad valorem rate rendered it inconsistent with Article II". The panel had not arrived at its finding in a vacuum or with respect to any specific tariff rate but with respect to one which had in fact already violated the bound ceiling (this finding was already part of the panel's conclusions) and with respect to which it also made this second collateral finding.

3.98 Argentina added that, in relation to this specific tariff, the panel had concluded "that, in determining whether treatment accorded by a tariff measure was no less favourable than that provided for in the schedule, it had to take into account not only the actual consequences of that measure for present imports but also its effects on possible future imports". It was from this second conclusion that the United States inferred that Argentina's specific duties had the potential to exceed the tariff binding.

3.99 In relation to this, Argentina contended firstly that the panel's conclusion seemed to indicate that it was a question of protecting export volumes rather than expectations of access and it was this which Argentina challenged. Secondly, the potential as such would be an infringement only if trade were affected (as in the case of bananas in which tariff binding was violated). Otherwise, if one were to accept the idea of "potentiality" advanced by the United States, any regulation or provision which allowed for the possibility of an infringement would be potentially in violation of the GATT/WTO commitments. This has been clearly rejected by panels adopted by the contracting parties such as the panel on United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco.

3.100 Finally, to bring out the difference between the two cases still more clearly, Argentina argued that even if the concept of "mere possibility" (put forward by a panel whose report was not adopted), which the United States defined as "potential", were accepted as a valid precedent, in the case of Argentina this situation did not arise since the "challenge procedure" guaranteed the tariff binding in Law No. 22.425. Nothing similar was either argued by the EEC or considered by the Panel in the EEC - Import Regime for Bananas case.

3.101 The United States noted that the parties disagreed regarding the mandatory nature of a measure. According to the report of the panel on EEC - Import Regime for Bananas, as long as there were or could be imports that entered a WTO Member subject to duties in excess of a bound rate, those duties violated Article II. This reasoning of the panel on EEC - Import Regime for Bananas echoed the analysis of other panels which had determined that WTO Members may not maintain mandatory legislation that was inconsistent with GATT obligations, regardless of whether the inconsistency arose at the present or in the future. As the panel on United States - Taxes on Petroleum and Certain Imported Substances had stated in another context, the GATT served "to protect expectations of the contracting parties as to the competitive relationship between their products and those of the other contracting parties". ⁸³This was

3.102 The United States recalled that, likewise, the panel on United States - Measures Affecting Alcoholic and Malt Beverages had noted that prior panels had consistently found GATT violations where contracting parties imposed mandatory legal measures that were inconsistent with provisions of the General Agreement solely as they related to future trade. ⁸⁵This important principle applied here. The measures instituting Argentina’s specific duties were mandatory, and they allowed for the imposition of excessive duties in relation to certain products that may be imported into Argentina in the future. The mandatory nature of the measures was made plain by Argentina when it stated that "[t]he national tariff must be applied by the National Customs Administration which, of course, is not competent to change it". Further, the United States demonstrated in its submissions that Argentina’s specific duties necessarily had the potential to exceed 35 per cent ad valorem. Even assuming that Argentina’s minimum specific import duties had been enacted with effect from 1 January 1998, the Panel could, and should, have found that measures requiring the imposition of duties in excess of bound levels violated Article II, even if such measures were not yet in effect. Indeed, the passage cited from the Superfund panel report related to a mandatory tax, which was enacted in 1986 but was not to go into effect until three years later. The panel in the Superfund case found that because the tax in question was a mandatory tax, it could be challenged, that is to say, it was a matter justiciable by a GATT panel even though it was not yet being imposed.

3.103 The United States noted that Argentina further criticized the report of the panel on EEC - Import Regime for Bananas as being inconsistent with the panel report on United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco which had found that the non-application of discretionary measures could not be found to be in violation of GATT 1994. Argentina appeared to confuse the notions of possible future commercial disadvantages of mandatory legislation with that of discretionary legislation addressed in the report on United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco. This report relied on by Argentina dealt with a US discretionary provision on tobacco inspection fees which allowed, but did not require, the US authorities to impose a fee.

3.104 The United States argued that, in contrast, the Argentine measures in this case required Argentine officials to impose minimum specific duties without regard to the value of imported products. Argentina had admitted that its customs officials had no discretion not to apply the specific duties. As the United States had demonstrated, this lack of discretion had led to the imposition of specific duties well in excess of Argentina’s bound 35 per cent ad valorem rate. Similarly, the report of the panel on EEC - Import Regime for Bananas dealt with required application of specific duties by the EC, and conducted its discussion of the potential to violate a bound rate in the future in that context. ⁸⁶

3.105 In the opinion of the United States, if Argentina’s argument that WTO Members may adopt regimes capable of violating a binding so long as they did not do so in application were to be accepted, the security afforded by Article II would be diminished. WTO Members would only be able to enforce their rights under Article II by demonstrating excessive duties on a fact-specific, case-by-case basis, rather than through examination of the implementing measures themselves. Panels in effect would be put in the position of being a kind of final appeals court in each customs dispute. This surely had not been intended by the drafters of Article II, or of the DSU.

3.106 Argentina replied that its argument was not based on the fact that the panel report on United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco was different from that of the panel on EEC - Import Regime for Bananas. Argentina was not seeking freedom to authorize measures contrary to the WTO obligations, allow them to lapse and then subsequently indicate that they did not apply. Argentina asserted that the mere existence of a measure that might possibly be contrary to WTO obligations was not enough to condemn a country. In other words, any alleged violation of an obligation had to be proved by citing concrete cases and not simply by theoretical statements. It was only in this way that a prima facie case of nullification or impairment could be determined.

3.107 Argentina argued that the concept of the binding nature of a rule had to be analyzed in respect of a particular case. In the case of Argentina, both the Resolution imposing the DIEM regime and Law 24.425 incorporating the WTO Agreement in Argentine legislation were binding. The difference in status between the two binding rules was to be found in their place in the hierarchy, because the Law took precedence over the Ministerial Resolution.

3.108 The United States argued that, because market prices for textiles, apparel and footwear changed rapidly, especially for certain categories, Argentina’s minimum duties based on "average import prices" could not be guaranteed to be equal to or less than the bound rate of 35 per cent ad valorem. A specific duty on a certain fabric or an article of clothing might be within the bound rate at one moment and above it the next. The potential to surpass the bound rate was ever present. Given such conditions, Argentina, like the EEC in the case on EEC - Import Regime for Bananas, had no way to assure other WTO Members and their traders that the specific duties would remain within the bound rate.

3.109 The United States noted that Argentina had argued that its specific duties were consistent with Article II because they were no more than 35 per cent of the adjusted "average import price" of each relevant HS category. However, inspection of the decrees imposing these duties showed that they simply specified a list of minimum specific duties, not a methodology for valuing imports. Argentina’s use of an adjusted "average import price" instead of actual transaction values in setting its specific duties was contrary to Articles II:3 GATT 1994, as well as Article VII GATT 1994 as clarified by Articles 1 to 8 of the Customs Valuation Agreement. ⁸⁷ These provisions made clear that a WTO Member may not "alter its method of determining dutiable value [...] so as to impair the value of any of [...] concessions", ⁸⁸ and that WTO Members should rely on actual transaction values rather than "arbitrary or fictitious values". ⁸⁹ That the specific duties may be no more than 35 per cent of an "average import price" was simply irrelevant for purposes of establishing duties to be imposed on particular imports.

3.110 The United States noted that a table produced by Argentina relating to imports under HS Chapters 51 to 63 showed that some of the minimum specific import duties were, on average, more than 35 per cent ad valorem. Argentina had explained that it derived the specific duties by multiplying a "representative international price" for a particular line-item - often an average of US prices - by the bound rate of 35 per cent. The table had four columns. The first represented the line-item; the second listed the "representative international price"; the third showed 35 per cent of the representative price; and the fourth identified the then proposed specific duty (which in almost every instance became the actual duty). The United States had found 32 line-items where the table concerned stated that the specific duty was greater than 35 per cent of the "representative international price". Argentina offered no explanation as to why so many of its specific duties were set at an amount greater than 35 per cent of the "representative international prices" or how it could justify imposing duties at these levels. Argentina similarly was unable to explain why it believed that no goods had entered Argentina with values less than the "international representative price" in categories where the specific duties were greater than or equal to the representative price. Essentially, Argentina was asking the Panel to believe that these average or representative prices were also minimum prices for entire categories of merchandise. In other words, Argentina assumed that international merchants and exporters could not possibly set their prices lower than the set "representative" price. However, as demonstrated, exporters and merchants of textile, apparel and footwear products could and did ship and sell the products for less than Argentina’s "set price". The result was that Argentina’s specific duties exceeded 35 per cent ad valorem for an extensive number of products.

3.111 Argentina replied that its Customs applied only the provisions of the Customs Valuation Agreement. Consequently, it could not apply a criterion based on the "world import price" which did not exist in the Argentine legislation. The national tariff had to be applied by the National Customs Administration which was not competent to change it. However, in the unlikely situation of a hypothetical case in which customs were to require the payment of a minimum specific import duty which exceeded 35 per cent ad valorem, the importer would have the right to challenge the assessment made by the National Customs Administration. The customs authority would have to initiate a challenge procedure and the importer would automatically be allowed to request the release of the goods into the market after paying only the sum he considered appropriate for those goods and depositing a guarantee.

3.112 Argentina added that, since the establishment of the Panel, the minimum specific import duties had been reduced, through Resolution No. 597/97, to an ad valorem equivalent of approximately 25 per cent for textiles and 30 per cent for clothing. The new resolution fixing minimum specific import duties at 5 per cent and 10 per cent below the bound ceiling made it even less likely that there could be import transactions exceeding the 35 per cent ceiling.

3.113 The United States, in order to show the problems inherent in the minimum specific import duties applied by Argentina, provided the Panel with an example: for a given category of athletic shoes -for instance, soccer shoes - the ad valorem rate might be 20 per cent and the specific duty US$3.50 per pair. If one pair of soccer shoes were to enter Argentina with an actual transaction value of US$5.00, the specific duty would be assessed. This was so because the ad valorem rate would result in a duty of US$1.00, far less than the specific duty of US$3.50. In fact, a pair of athletic shoes in this category would have to be worth more than US$17.50 for the ad valorem rate to apply. This example revealed why Argentina’s duties were excessively high. The US$3.50 specific duty would amount to 70 per cent of the US$5.00 transaction value of the shoes. This was double Argentina’s maximum bound rate of 35 per cent. Each pair of soccer shoes in the category entering Argentina with a transaction value below US$10.00 would be subject to a duty in excess of 35 per cent ad valorem. Thus, by their very nature, Argentina’s specific duties had the potential to exceed 35 per cent ad valorem in all relevant categories. For each specific duty imposed by Argentina, there were, or at the very least there could be, products with sufficiently low prices such that they would enter Argentina subject to specific duties above the bound rate. This would occur with regard to all shoes worth less than US$10.00.

3.114 The United States concluded that, given that Argentina’s specific duties had the potential to exceed 35 per cent ad valorem, the Panel should find that the specific duties were inconsistent with Article II. Further, Argentina’s imposition of minimum specific duties violated Article II because they impaired the value of the concessions Argentina had made during the Uruguay Round. Even if these duties were not excessive for any products that had already entered Argentina, the duties necessarily had the potential to violate its bound rate of 35 per cent ad valorem for some covered items in the future. This was a breach of the guarantee Argentina had given to fellow WTO Members in negotiating its Schedule and, thus, it was a violation of Article II.

3.115 With respect to what happened when the transaction value for the good concerned was lower than US$10, Argentina argued that, according to the Argentine law, the specific duty was not payable because US$3.50 was greater than 35 per cent of the transaction value. On the other hand, the ad valorem duty of 35 per cent applied here as a result of the remedies available in Argentine law, essentially the challenge procedure (recurso de impugnación).

3.116 For the United States, one of the fundamental objectives of the GATT 1994 was "the substantial reduction of tariffs". ⁹⁰ To ensure that tariff concessions, once made, had the full force and effect intended, Article II made plain that the duty rates set forth in bindings were maximum limits that may not be exceeded. ⁹¹The United States argued that Argentina’s specific duties were inconsistent with these rules because they exceeded Argentina’s bound maximum rate of 35 per cent ad valorem. The amount by which Argentina’s specific duties surpassed the bound rate in many instances was considerable, often equal to the entire value of imported products or even double or triple the value.

(a) US examples based on the Argentine methodology for the application of DIEM

3.117 In order to demonstrate that the application of specific minimum import duties exceeded Argentina's bound rate, the United States submitted to the Panel an hypothetical example illustrating how, in its opinion, the methodology used for the application of the minimum specific import duties operated. Assuming that the applicable ad valorem rate for a category of goods was 20 per cent and the specific duty was US$3.50 per unit, Argentina would assess the specific duty of US$3.50 on all goods in the category with an actual transaction value of less than US$17.50 per unit. This would be so because, in those cases, the specific duty would be greater than the ad valorem duty (e.g., 20 per cent of US$10 is US$2.00, less than the specific duty of US$3.50). In contrast, goods with an actual transaction value of more than US$17.50 would be subject to the ad valorem duty, which resulted in a duty above US$3.50 (e.g., 20 per cent of US$20 was US$4.00, which was more than the specific duty of US$3.50). While higher priced goods in the category would be subject to proper ad valorem duties, items worth less than US$17.50 would enter Argentina under a specific duty in excess of Argentina’s bound rate of 35 per cent.

3.118 The United States, on the basis of data supplied by Argentina, had identified more than 100 HS categories in which Argentina’s specific duties, on average, were higher than 35 per cent ad valorem. This meant that the specific duties constituted more than 35 per cent of the average of actual transaction prices of merchandise imported in each category. For example, the average of actual import prices for HS category 6303.19 was US$1.00 per kilogram, while the specific duty was US$4.80 per kilogram. The specific duty thus equalled 480 per cent of the average value of merchandise in the category, and all merchandise in the category entering Argentina with a value of less than US$13.71 per kilogram were subject to duties greater than 35 per cent ad valorem. This was so because 35 per cent of US$13.71 was US$4.80. The Argentine peso was pegged to the US dollar. Thus, dollar figures equalled the same amount in pesos.

3.119 The specific duties often were greater than Argentina’s bound rate, because Argentina established them for the very purpose of imposing a duty higher than the ad valorem duty otherwise to be applied. The intention to raise duties above the bound ad valorem rate was clear from Resolution No. 1696/93, which stated that the specific duties served to combat "the harm to the [domestic] athletic footwear industry resulting from these commercial practices [that] cannot be offset through an increase in the ad valorem tariff rates currently in effect", and "the specific import duties [...] will operate as a minimum of the corresponding ad valorem import duty".

3.120 Argentina first stated that the specific duties were not calculated arbitrarily. In determining their amount, the Argentine authorities utilized the following methodology:

3.121 In order to explain in practical terms what was implied by the application of specific duties, Argentina analyzed the example cited by the United States above. This example made the mistake of comparing a level of specific duty with an ad valorem duty of 20 per cent. This may correspond to the tariff effectively applied to the tariff heading cited, but it did not represent Argentina's WTO obligation, which was not to exceed the bound level of 35 per cent ad valorem equivalent. In the example cited, if the specific duty was US$3.50 for a product with a value of US$17.50, the ad valorem equivalent would be 20 per cent. In this particular case, the 35 per cent level would only be breached if the price of the goods were less than US$10 and not, as mentioned by the United States, if it were less than US$17.50.

3.122 Argentina further argued that, on that basis, it might be imagined that the principal issue raised by the United States was the confusion between the tariff applied and the tariff bound by Argentina in the WTO. The ad valorem import tariff applicable to the textiles sector ranged from 12 per cent to 20 per cent depending on the product's level of processing, whereas the bound ad valorem import tariff remained at a uniform level of 35 per cent for the whole of this sector of goods and for many other sectors in the Argentine customs tariff. When it had been decided to apply minimum specific import duties according to the price of the goods, there had been no intention to utilize the methodology referred to above but to establish a level that did not exceed the 35 per cent bound by Argentina in the WTO.

3.123 For Argentina, the example cited by the United States revealed a conceptual error. A closer study showed that there had not simply been a calculation error, as might be imagined when first reading it (3.50 pesos was not 35 per cent of 17.50 pesos), but that the calculation showed that the methodology used to arrive at the conclusion that Argentina was violating its WTO commitments was flawed. The calculation showed that the United States based its case on the presumption that Argentina had to meet the ad valorem equivalent of the tariff actually applied and not, as was the case, the tariff bound in Schedule LXIV.

3.124 In order to illustrate the procedure, Argentina suggested to assume that the ad valorem import duty for a category of goods was 20 per cent and the specific duty was US$3.50 per unit. Argentina would apply the specific duty of US$3.50 to imports in this category with a transaction value of less than US$17.50 because in such cases the specific duty would be greater than the ad valorem duty of 20 per cent (i.e. 20 per cent of US$10 was US$2, less than the specific duty of US$3.50). On the other hand, goods whose transaction value exceeded US$17.50 would be subject to the ad valorem duty, because it would be higher than the specific duty (i.e. 20 per cent of US$20 was US$4, which was more than the specific duty of US$3.50). The example given by the United States did not make clear what happened when the transaction value for a good in this category was lower than US$10. In such cases, according to the Argentine law, the specific duty was not payable because US$3.50 was greater than 35 per cent of the transaction value. On the other hand, the ad valorem duty of 35 per cent applied here as a result of the remedies available in Argentine law, essentially the challenge procedure (recurso de impugnación) described in sub-section B.7.b) below (i.e. 35 per cent of US$5 was US$1.75, less than the specific duty of US$3.50).

3.125 To summarize, Argentina stated that, for a category of goods to which an ad valorem duty of 20 per cent effectively applied and which were subject to the payment of a specific duty of US$3.50, the following three possibilities occurred:

Transaction value	Import duty
Over US$17.50	20 per cent ad valorem
Between US$17.50 and US$10	US$3.50
Less than US$10	35 per cent ad valorem

3.126 For Argentina, the confusion regarding its WTO obligation to respect the 35 per cent figure, and not the tariff in force, was all the more obvious when considering some of the submissions made by United States exporters in the course of the internal proceedings under Section 301 of the United States Trade Act. ⁹³

3.127 The United States responded by stating that it was not arguing that there was relevance in comparing whether Argentina's specific duty was higher than the otherwise applicable ad valorem rate. The United States focused on whether the specific duty went above the bound rate of 35 per cent, in actuality, or at least potentially.

  (b) Obligation for the Argentine customs to assess the full amount of duties

3.128 The United States argued that Argentina had acknowledged that its customs service could only impose the duties as provided for in the relevant resolutions or decrees. It also declared that US traders had reported that the Argentine customs service assessed the full specific duty listed in the governing resolution or decree, even where that duty was in excess of 35 per cent ad valorem.

3.129 Argentina argued that the ad valorem equivalents of the minimum specific import duties assessed by Argentina were lower than the tariff levels in Argentina's Schedule LXIV. Argentina had difficulties in accepting or in considering the United States' argument since, on the one hand, there was no infringement of the commitments made in Argentina's Schedule and, on the other hand, Argentina's legal system constituted a single and inseparable whole which included the procedure for challenging assessments. In these circumstances, the Argentine authorities applied the minimum specific import duties laid down. This was done at the time of assessment of the import duties and other duties and charges which importers had to pay in order to release imported goods for consumption.

3.130 For Argentina, no duties in excess of 35 per cent ad valorem had been applied. Argentina had no knowledge of instances of the imposition of specific duties on textile or clothing imports which had resulted in an infringement of the bound tariff of 35 per cent ad valorem. Moreover, there had been no cases of imports of textile products and clothing in which importers had raised the question of the application of specific duties in excess of the 35 per cent ad valorem bound in the WTO.

3.131 Argentina specified also that in each import operation the Argentine customs administration assessed taxes on the basis of the customs value of the goods. There was no documentation of any kind that indicated the imposition of DIEM in any tariff category in excess of the bound tariff of 35 per cent ad valorem. The United States did not offer evidence of the alleged imposition of minimum specific import duties in excess of the tariff bound in the WTO for textiles and clothing imports. In these circumstances, it could only be assumed that such cases did not exist.

  (c) Data regarding the income for Argentina from levying duties above the bound rate

3.132 The United States supplied a chart to the Panel showing the approximate amount that Argentina had allegedly collected as a result of the imposition of the specific import duty in excess of what would have been collected had valuations been conducted based on a 35 per cent ad valorem basis in specific HS categories between January and September 1996. This chart showed a break-down of duty collection for sweaters (US$161,000), fabrics (US$544,000), carpets (US$348,000), apparel (US$450,000), other textiles (US$291,000) and total (US$1,634,000). In addition, the United States claimed that the chart was prepared based upon customs data supplied by Argentina.

3.133 With reference to those data, Argentina replied that the United States wrongly assumed that Argentina was applying specific duties in excess of 35 per cent equivalent ad valorem. There had been no refunds to importers for duties imposed in excess of the bound tariffs inasmuch as no proceedings on these grounds had been brought before the Argentine customs.

3.134 Argentina stated that Resolution No. 597/97, which reduced the minimum specific import duties applicable on a number of textile and apparel products had been adopted as part of the trade policy measures of the Argentine economic authorities. This trade policy was in keeping with the trend to reduce import tariffs and, with this in mind, it had been decided that in the textile product and clothing sector tariffs should not exceed maximum levels of approximately 25 per cent for the former and 30 per cent for the latter. This meant that a large number of tariff headings corresponded to specific duties whose ad valorem equivalent was lower than these levels. The reason why it was desirable to take this action at this time was related to the fact that it was precisely in the month of April every year that the foreign trade statistics corresponding to the totals for the previous year became available. The events of 1996 in the textile and clothing sector, as confirmed by the statistics available in April of the current year, formed the basis for the analysis leading to the adoption of this measure. The calculation method employed was based on the import prices of goods entering Argentina. This decision was taken because, from 1996, with total imports of textiles and clothing valued at US$871 million, the quantities considered were sufficiently representative to be taken into account. In 1993, when the minimum specific import duties were established for the purpose of providing a certain level of tariff protection for the domestic industry, the volumes were not sufficiently representative of Argentine imports in order to take them into account to set an average import price. In 1990, imports amounted to US$100 million. Accordingly, in 1993 it was decided to work on the basis of the prices for these goods in representative markets of other countries.

3.135 Argentina contended that the above-mentioned chart submitted by the United States was intended to persuade the Panel that, in actual fact, US$1,634,000 had been paid over and above the amount which should have been collected on the basis of a 35 per cent tariff, but this was only theoretical, since the mentioned amount was based on a theoretical calculation and not on evidence of a payment actually made.

  (d) Arguments regarding the use by the United States of tables prepared by Argentina

3.136 The United States recalled that, during consultations with the United States, Argentina had produced customs data reflecting c.i.f. values and quantities (in tonnes) of textile and apparel for line-items within HS chapters 51-64 for the period January-September 1996. This document consisted of two tables: a table of total imports for 1995 and 1996 ⁹⁴and a table on the principal countries of origin of Argentine imports for 1995 and the period January-September 1996. ⁹⁵ Based upon this Argentine data, the United States calculated average ad valorem equivalents for each line-item.

3.137 The United States had requested the data in question for the purpose of performing the calculations of ad valorem equivalents. This information should be viewed as highly credible and showing Argentina’s specific duties to be above its bound rate. The United States elected to rely upon this data, rather than using other information, because it wanted to minimize factual conflicts for the Panel.

3.138 Argentina stated that the first list in the above-mentioned document had been prepared for the purpose of analysing price problems concerning certain tariff headings. In the consultation meetings there had been extensive discussion of the considerable differences which had emerged between Argentine import prices and United States export prices for exports to Argentina. These differences suggested the existence of significant underinvoicing in many transactions. This resulted in the information being supplied to the United States as a basis for assessing the magnitude of the problem. The second list in the above-mentioned Argentine document had been provided so that the United States could note its minor importance as a textiles supplier to Argentina, as compared with other exporters such as China. Thus, the information on the origin of imports had been provided to show the United States that the commercial interests alleged to be affected were actually confined to a very few tariff headings. At no time had it been envisaged that the data in question might be used for deducing prices according to the origin of the goods.

3.139 Argentina further specified that, in the second list, the figures related to imports per country of origin were expressed in thousands. Given the low volume of transactions in many tariff headings this yielded an unacceptable margin of error, as shown by the following example. If 160 kg of a particular good were imported for US$1,495, the price per kilogram would be US$9.34. However, if the same information was rounded off to the nearest thousand, the import value would be US$1,000 for 0.2 thousand kg. The average price calculated on the basis of the latter data would be US$1/0.2 = US$5. There was a considerable difference between US$9.34 and US$5, but both figures were derived from the same information. This was the cause of the error made by the United States in its table identifying 118 cases of imposition of duties above the 35 per cent ad valorem bound rate. (see para. 3.141).

3.140 The United States replied that Argentina’s contention that the rounding of certain numbers affected the conclusions to be drawn from the document it had submitted lacked merit. Firstly, Argentina ignored the fact that the January to September 1996 import data in the first list were not rounded to thousands, but rather to tens of dollars. This was reflected by the use of the two-place decimal points in the fifth and seventh columns of the first list. Moreover, even the second list contained a decimal point so the rounding in dollars was only to hundreds. Moreover, to the extent rounding had any impact on the calculations that the United States performed on the basis of these tables, the effect was minimal. Fifty-nine of the 118 categories identified by the United States in the table referred to in para. 3.141 involved imports worth over ten thousand dollars, of which 17 reflected imports amounting to hundreds of thousands and even millions of dollars. The rounding in these categories would be insignificant.

Notes:

76. DS38/R, Op. Cit., para. 134.

77. Ibid., para. 135 (emphasis in original).

78. Ibid.

79. Adopted on 4 October 1994, DS44/R, para. 118, in fine.

80. DS38/R, Op. Cit., para. 20.

81. Ibid., para. 24.

82. Ibid., para. 135 (emphasis in original).

83. Adopted on 17 June 1987, BISD 34S/136, para. 5.2.2., hereafter the "Superfund" case.

84. Ibid.

85. Adopted on 19 June 1992, BISD 39S/206, para. 5.39.

86. DS38/R, Op. Cit., para. 135. The United States also referred to the Panel Report on United States - Measures Affecting Alcoholic and Malt Beverages, Op. Cit., para. 5.39 in fine which mentioned that "because Illinois legislation in issue allows a holder of a manufacturer's license to sell beer to retailers, without allowing imported beer to be sold directly to retailers, the legislation mandates governmental action inconsistent with Article III:4".

87. In connection with this, the United States mentioned that Argentina was a signatory to the Customs Valuation Agreement and that, although Argentina had reserved limited rights with respect to the application of certain procedures under the agreement, Argentina had not timely invoked the five-year delay in coverage available to developing nations and could no longer do so. The United States referred to document G/VAL/6, of 10 January 1996.

88. Article II:3 GATT 1994.

89. The United States referred to Article 7 of the Customs Valuation Agreement.

90. GATT 1994, Preamble, para. 3. The United States stated that panels should address issues in light of the underlying purposes of the GATT 1994 and referred to the Panel Report on United States - Restrictions on Imports of Sugar, adopted on 22 June 1989, BISD 36S/331, paras. 5.2-5.3.

91. The United States referred to the Panel on Newsprint, Op. Cit., pp. 131-132, which mentioned at para. 52 that "[t]he Panel shared the view expressed before it relating to the fundamental importance of the security and predictability of GATT tariff bindings, a principle which constitutes a central obligation in the system of the General Agreement".

92. Argentina submitted to the Panel a table on the methodology for calculation of minimum specific import duties for HS Chapters 51 through 63.

93. Argentina referred to the submission from the Association of the Non-Woven Fabrics Industry to the Office of the United States Trade Representative of 5 November 1996 (Docket No. 301-108: Section 302 Investigation of Argentine Specific Duties and Non-Tariff Barriers Affecting Apparel, Textiles and Footwear), where this Association questioned the fact that the corresponding specific duty had an ad valorem equivalent that exceeded the applicable tariff of 18 per cent. In the subsequent paragraph, the ad valorem equivalent was calculated at 28.56 per cent. Argentina argued that, even though this submission recognized that the said equivalent was lower than 35 per cent, in order to prove the alleged violation it argued that the statistical tax and domestic taxes had to be added, although these elements bore no relation to import duties.

94. Importaciones de Productos de los Capitulos 51 a 64 de la Nomenclatura Arancelaria Armonizada (1995 y 1996, en Valor, Cantidades y Precios por Kilogramo)

95. Importaciones de Productos de los Capitulos 51 a 64 de la Nomenclatura Arancelaria Armonizada (1995 y 9 Meses de 1996, en Valor y Cantidades, por Pais de Origen).

Continue on to Part 4 of Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items