Report of the Panel

6. BURDEN OF PROOF

(a) Principles applicable to the burden of proof

3.194 Argentina argued that one of the various precedents regarding burden of proof was the report on EEC - Measure on Animal Feed Proteins, in which the panel stated that:

3.195 Argentina added that in the case United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, the Appellate Body had specifically elaborated this concept and given its interpretation:

3.196 Argentina recalled that this interpretation had been explicitly supported by the United States in its statement to the DSB when the report was adopted. On that occasion, the United States' delegation had stated that it supported adoption of the report mentioning, in particular, several of the points contained therein, in respect of which it asked that its statement be placed on record. The United States stated the following regarding these points:

3.197 Argentina considered that the question raised by the United States before this Panel was a theoretical one. The United States had failed to demonstrate that Argentina levied tariffs exceeding the maximum bound rate of 35 per cent ad valorem. Nor had it been able to present argument sufficient to establish a presumption, the prerequisite for shifting the burden of proof to the other party in accordance with the report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India.

3.198 The United States replied that, in submitting its evidence, it had met its burden of proof as articulated by the Appellate Body in United States - Measures Affecting Imports of Woven Wool Shirts and Blouses from India. The Appellate Body had indicated that it was up to the party asserting a violation "to present evidence and argument sufficient to establish a presumption" that the violation has occurred. ¹⁰⁵ Once that presumption was established, "the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption". ¹⁰⁶ The Appellate Body further noted that "precisely how much and precisely what kind of evidence will be required to establish such a presumption will necessarily vary from measure to measure, provision to provision, and case to case". ¹⁰⁷

3.199 The United States contended that, by any standard, the evidence submitted by the United States was sufficient to establish a presumption of a violation of Article II. In fact, the Panel needed look no further than the face of the Argentine resolutions and decrees imposing the specific duties that were the subject of this dispute. For every line-item in which Argentina applied specific duties, there was a "break-even point" below which lower-priced merchandise entered Argentina in excess of 35 per cent ad valorem. Thus, the specific duties necessarily had the potential to exceed 35 per cent ad valorem. Previous GATT jurisprudence had made clear that this potential, in and of itself, was a sufficient basis for the Panel to find that Argentina had violated Article II.

3.200 The United States also argued that a panel could condemn Argentina’s mandatory minimum specific import duties even if they were not yet being applied. In that case the panel would examine the minimum specific import duties' structure and the manner in which it could be predicted to operate. In the present case the minimum specific import duties provisions were in fact being applied but they could equally be judged by this Panel on the same criteria. The fact that the tariff was being applied did not make it necessary for a complaining party to provide elaborate proofs concerning its application in practice. Examination of the tariff’s structure, the basis on which it was charged, and the manner in which it would predictably operate, were sufficient to meet the complaining party’s burden of proof. By these criteria, and with the application of simple arithmetic, the Panel could easily conclude that the Argentine tariff mandated the imposition of duties in excess of bound rates.

(b) Application in the present case

3.201 The United States stressed that there were two factual issues before the Panel: first, whether the United States had established a presumption that the application of Argentina’s specific duties violated Argentina’s bound ad valorem rate of 35 percent; and second, whether Argentina had produced sufficient evidence to rebut the presumption. The United States believed that it had presented sufficient evidence to establish a presumption of a violation of Article II and that Argentina had not produced sufficient evidence to rebut it.

3.202 Argentina argued that the United States had provided no or insufficient proofs of its affirmations.

3.203 The United States contended that it had demonstrated that Argentina imposed specific duties in numerous HS line-items for textiles, apparel and footwear in excess of its 35 per cent ad valorem bound rate. The US evidence consisted of: (1) invoices and customs forms for particular textile, apparel and footwear shipments during 1995 and 1996, (2) calculations performed by Argentina showing HS line-items where average duties paid by importers in 1995 and the first 9 months of 1996 exceeded 35 per cent ad valorem, and (3) computations based on Argentine import data reflecting 118 textile and apparel line-items which, on average, exceeded 35 per cent ad valorem. This information proved that Argentina’s specific duties were above its bound rate in violation of Article II.

3.204 For the United States, given the weight of the evidence presented to the Panel, the burden had shifted to Argentina to "adduce sufficient evidence to rebut the presumption" that Article II had been violated. Argentina had not provided any such evidence, let alone evidence sufficiently credible to rebut the proof submitted by the United States. Instead, Argentina had relied on unsubstantiated, categorical denials that Argentine customs authorities had applied, or even could have applied, specific duties in excess of 35 per cent ad valorem.

3.205 Argentina replied that the evidence supplied by the United States were generally theoretical or not based on proven facts. With respect to the assertion that the minimum specific import duties imposed were 100 to 300 per cent of the value, such an allegation was not acceptable without concrete proof. The allegations made by the United States did not permit an assessment of whether there had been any non-compliance, or its possible extent. The evidence submitted by the United States concerning textile and clothing imports consisting of invoices and customs documents did not suffice to establish a "presumption" with respect to the allegations against Argentina. Indeed, the comparison of average import price statistics with the minimum specific import duty in force to obtain an ad valorem equivalent did not signify that the tariffs in question were actually collected from importers in the course of transactions that were actually carried out. These documents did not correspond to the reality of what actually may have been paid to the Customs. Other evidence were out of proportion with Argentina's imports of textiles. In the recourse by Company Y to the challenge procedure, the three transactions at issue represented a value of US$42,698, when textile imports in Argentina totalled more than US$1,500 million for the period 1995/1996. Each transaction was important and was subject to WTO regulations, but the amount involved led Argentina to wonder whether the minimum requirements of Article 3.7 of the DSU, which stipulated that a member "shall exercise its judgement as to whether action under these procedures would be fruitful", had been met.

3.206 Argentina further recalled that, in response to the Panel's request to provide concrete cases of violation, the United States had submitted as evidence certain transactions whose shortcomings were sufficiently clear. Argentina noted that all of the textile transactions, with the exception of one, had been carried out by EC exporters. The EC was not a complaining party in this case. It was interesting to note in this connection that the evidence submitted by the United States showing import transactions involving goods of Italian origin corresponded to a tariff heading (HS 6115, tights) that was not included among the examples of violation of Argentina's 35 per cent tariff binding mentioned by the EC itself in its third party submission. All the transactions corresponded to goods of Italian origin and all had taken place in 1997, with one exception. The United States could not have known of these transactions when it requested the establishment of this Panel. Argentina's conclusion regarding the additional series of invoices submitted by the United States before the second meeting of the Panel was that the information on textile exports from and originating in the United States was both unclear and imprecise. This was the best proof that the United States was fighting a case in which it needed to resort to sources of information outside its own market to try to substantiate its claim that Argentina had violated its obligations. Argentina also questioned the acceptability for a party to present evidence pertaining to alleged transactions of another country after the deadline for rebuttals.

3.207 For Argentina, the above observations clearly demonstrated the lack of argument for establishing a presumption in respect of the allegations contained in the complaint by the United States. Without this presumption, Argentina could not be asked to submit evidence of facts which had not been shown to exist. If the United States was unable to substantiate a presumption that its complaint was legitimate, it could not be claimed that the burden of the proof had shifted to the point where evidence had to be submitted to refute the presumption. If the United States was unable to provide clear and precise examples of import transactions in the textiles and clothing area, it could only be assumed that the United States claim was purely theoretical, since Argentina had not been given reason to believe that its customs authorities collected minimum specific import duties in excess of the 35 per cent WTO binding.

3.208 The United States argued that the documents, data and calculations discussed with the Panel identified numerous line-items where Argentina’s specific duties on average were greater than 35 per cent ad valorem. These documents did not reflect isolated instances in which Argentina had exceeded its bound rate. Argentina did not contest the accuracy of the specific duty rates reflected on its own documents. Argentina did not contest the figures on value, ton, or price per kilogram contained in the documents originally prepared by Argentina and provided to the Panel by the United States. With respect to the specific examples of invoices and customs documents submitted by the United States, Argentina did not contest that the importers actually paid these charges or had to file bonds to cover the amounts in excess of 35 per cent ad valorem duties. Argentine documents and Argentine data conclusively demonstrated that Argentina’s position was incorrect.

3.209 The United States contended that, in light of the import data provided by Argentina to the United States, production of the relevant documents would have resulted in many other examples of duties in excess of 35 per cent ad valorem. The Panel was faced with Argentina’s refusal to produce directly relevant evidence in its possession as requested by the United States. Given that Argentina did not produce these documents, the Panel was free to draw an adverse inference that these documents would reflect additional examples of duties imposed and paid in excess of a 35 per cent ad valorem duty. Argentina’s recalcitrant behaviour should not be used against the United States in an effort to assert that the latter had somehow failed to adequately satisfy its burden of proof with the limited documents in its possession.¹⁰⁸ In fact, the United States has fully met its burden of proof. It had demonstrated that the Argentine duties predictably and mandatorily resulted in imposition of duties in excess of bound levels in a range of situations. In addition, it had provided examples of actual levying of such duties.

3.210 Argentina contended that the United States appeared to be trying to obtain from Argentina evidence substantiating the alleged infringement of the bound tariff which it had so far been unable to provide. It was surprising that the attempt to justify the allegations had been based solely on theoretical speculation which did not correspond to the realities of trade and that no concrete evidence had been provided of import operations in which duties in excess of 35 per cent had been assessed. The burden of proof should fall on the party bringing the complaint before the Panel. Argentina also argued that, with respect to evidence relating to imports of footwear, such data were not relevant to the present case since the DIEM on footwear no longer existed and did not exist at the time the Panel was established.

3.211 According to the United States, Argentina did not respond to United States arguments concerning the document regarding imports into Argentina from the EC and the rest of the world which the United States had produced before the Panel. The Panel was left with Argentina’s last-minute attempt to discredit its own documents that it had produced and relied on during consultations with the US and the EC. Indeed, Argentina's "rebuttal" consisted of an assertion that the document did not exist. This document formed an important element of consultations between the EC, Argentina and the United States. Argentina should not be free to rely upon information that it generated for purposes of consultations only to disavow it later in a panel proceeding.

3.212 The United States noted that Argentina also claimed that the specific examples of footwear products were irrelevant. The United States replied that the measures imposing footwear specific duties were part of the Panel’s terms of reference. The evidence submitted by the United States, in particular the invoices and customs documents related to specific import transactions submitted before the second substantive meeting of the Panel, established without any doubt that up until the time that Argentina revoked the footwear measures on 14 February 1997, Argentina applied specific duties in violation of its 35 per cent ad valorem bindings on those products. Moreover, exactly the same specific duty system existed for footwear products as for textiles and apparel throughout 1996 to this time. The examples relating to footwear were a very good illustration of how the Argentine system functioned in many instances to impose duties in excess of 35 per cent ad valorem rates.

7. DIRECT EFFECT OF THE WTO AGREEMENT IN THE ARGENTINE LEGAL ORDER AND ROLE OF THE CHALLENGE PROCEDURE

3.213 The United States noted that Argentina had attempted to defend its specific duties by arguing that they were not above 35 per cent ad valorem and under no circumstances could they be above the bound rate because they were essentially capped at 35 per cent ad valorem for two reasons. Firstly, Argentina maintained that the WTO Agreement, including Argentina’s binding, had direct application in Argentine law and was supreme to domestic laws. Secondly, Argentina had procedures under Law No. 22.415 whereby importers had the right to challenge any duties assessed beyond the bound rate which was purportedly a part of Argentine law.

  (a) Direct effect of the WTO Agreement in the Argentine legal order

3.214 Argentina stated that the stability and predictability of concessions in its Schedule were supported by Article 75.22 of the Argentine Constitution of 1994. These commitments were at the top of the legal hierarchy and, therefore, took precedence over domestic legislation. Any judge in Argentina had the power to declare, at the request of an interested party, the unconstitutionality of any measure adopted in breach of rules contained in an international treaty, such as the WTO Agreement. This feature of the Argentine legal system was absolutely essential to its functioning, which differed fundamentally from that of countries where international treaties were interpreted by domestic legislation. Another fundamental characteristic of the Argentine legal system was that subsequent domestic law could not annul an international treaty, as such law was lower in rank. This constitutional provision provided a high degree of legal certainty. If the procedures envisaged in Articles 1053 to 1079 of Argentina's Customs Code (essentially the challenge procedure referred to in sub-section B.7.(b) below) were not satisfactorily resolved by the authority concerned, the summary proceeding was always available before domestic courts by which importers could obtain a judicial decision obliging the Argentine Government to comply with international obligations deriving from WTO Agreements, over and above any domestic regulations, such as laws, decrees, ministerial resolutions, or others.

3.215 Argentina noted that US traders had reported that the Argentine customs service regularly asked for payment of the full specific duty and did not inform them of a right to pay only those duties that "they consider correct", as it seemed to be possible. Asked by the United States whether it considered it the responsibility of importers to know that they were being asked to pay amounts in excess of 35 per cent ad valorem duties, Argentina replied that the legislation in force in the Argentine Republic was assumed to be known to all inhabitants and was public knowledge once published in the Official Journal (Boletín Oficial) of the Argentine Republic (Title I of the Civil Code of the Argentine Republic). This was the case with Law No. 24.425, published on 5 January 1995, which approved the WTO Agreement, including as annexes the respective texts of each agreement, and Argentina's Schedule LXIV, which contained the commitment to maintain a tariff ceiling of 35 per cent and details of the corresponding tariff headings. Similarly, it was not considered necessary for the customs authorities expressly to inform importers of the provisions of Law No. 24.425 or of the possibility of resorting to the options provided for in the Customs Code (Law No. 22.415). Importers themselves were responsible for knowing their rights in the event of their being required to pay a minimum specific import duty in excess of 35 per cent of the declared value of the goods. The same would apply if they were required to pay an ad valorem duty in excess of that laid down in the Argentine tariff. This was because the importers knew the value of the goods they declared and could make a comparison either immediately or in advance, before presenting their sworn declaration and requesting clearance of the goods.

3.216 With respect to whether it had any regulations or published procedures instructing its customs service to refrain from assessing specific duties that were greater than the equivalent of 35 per cent ad valorem, Argentina stated that Law No. 24.425, which approved the WTO Agreement and all its annexes, including Argentina's Schedule LXIV, was mandatory and binding on all national authorities, including the customs authorities, which had to accept and observe the commitments contained therein in their entirety. Argentina also contended, regarding potential regulations or published procedures instructing Argentina's customs service to apprise importers of the applicability of the maximum rate of 35 per cent ad valorem on imported products subject to specific duties, that importers and the customs service itself could rely on longstanding publications such as the Practical Guide for Importers and Exporters, the Customs Tariff Directory and the publications of the Centro de Despachantes de Aduana. These publications kept importers continuously up to date and informed of the tariff levels in force. Similarly, importers could always count on the expert advice of the customs agents. Under the law, the latter were considered to be auxiliary customs officers for import operations and were personally responsible for informing importers of the provisions of the legislation in force, including the remedies which Argentine law provided.

3.217 Argentina considered it the responsibility of importers to know that the supremacy accorded to WTO commitments under Argentine law mandated that specific duties on textiles, apparel and footwear had to be no greater than the equivalent of 35 per cent ad valorem, even if no Argentine legal measure specifically so provided. The question of the supremacy of the provisions of an international treaty approved by a law of the Argentine Congress over domestic law was specifically dealt with in Article 75.22 of the Constitution, as amended in 1994. The Constitution, like laws and other administrative enactments, was considered to be public knowledge, from the day following its publication in the Official Journal.

3.218 For the United States, this argument appeared to rest on a legal fiction. While Argentina’s tariff binding may be the "supreme" law in the Argentine constitutional framework, Argentina maintained a series of mandatory legal measures imposing duties inconsistent with its binding. In operation, Argentina systematically undermined the significance of its WTO commitments by requiring its customs officials to collect the full specific duties, even in circumstances where an overcharge was obvious or grossly excessive. If the Panel were to accept the direct application of treaty law and supremacy of the WTO Agreement as a defense, then Members with such legal systems in effect would be immune from dispute settlement proceedings. Argentina in effect was asking this Panel to bestow immunity from WTO review on any Member which treated WTO Agreements as self-executing under their law. These Members always would be able to argue that the provisions of the WTO Agreements were part of their law and thus, by definition, non-conforming domestic laws had been rendered consistent with any relevant WTO provisions. Such an outcome would undermine the vitality of the dispute settlement understanding. The United States further considered that Argentina’s argument regarding direct effect of treaties had no inherent limitation to tariff obligations. Argentina was in effect arguing that it could take any action it wished in violation of any WTO obligation, and that Argentina could then escape any finding of responsibility under the DSU, because affected private parties could ask the Argentine courts to nullify the Argentine Government’s actions as inconsistent with the WTO Agreement. For the United States, the argument of Argentina concerning the mandatory nature of its constitutional law was an argument which Argentina continued to assert based on a legal hierarchy which ignored the actual operation of mandatory laws. It may well be that there was a constitutional ranking of the Argentine laws. However, the fact remained that Argentina had admitted that its customs officials had no discretion not to apply the decrees mandating the use of the minimum specific import duties. In fact, Argentine customs officials were required to violate the Argentine constitutional law.

3.219 Argentina considered that the comments of the United States concerning a "non-conforming law consistent with the agreement" did not stand up, since the supremacy of the treaties over the other laws and regulations under the Argentine constitutional system was demonstrated by the copy of the judicial order in case 8.447/97 FILA (Argentina) S.A. et al. submitted by the United States, ¹⁰⁹ which constituted factual evidence of the full and total incorporation of the WTO Agreement into the Argentine legal system.

(b) The challenge procedure (recurso de impugnación)

3.220 Argentina mentioned that Argentina's legal system constituted a single and inseparable whole which included the procedure for challenging assessments: the challenge procedure (recurso de impugnación). In a hypothetical import transaction where the specific duty would exceed 35 per cent ad valorem, the importer would have a remedy available which guaranteed that by means of a simple submission the amount to be paid would be limited to the amount resulting from the WTO obligation. The procedure was automatic, free of charge, required neither middlemen nor legal advice of any kind and had predetermined time-limits. The challenge procedure was laid down in Argentina's Customs Code - Law No. 22.415 (Articles 1053 to 1067). Its purpose was to protect the importer in case of discussions about classification, valuation or the level of import duties applicable in a particular instance. The Argentine Customs Code provided that importers may express disagreement if they considered that the valuation of the goods or the import duties levied had been inappropriate. It allowed importers to request the release of the goods into the market after paying only the sum that they considered appropriate under the relevant laws. The National Customs Administration may require the importer to deposit a security to cover the difference between the amount actually paid and the amount claimed. When importers had recourse to this procedure, they had 10 days in which to submit the necessary arguments and information. In the meantime, the importation process continued. As far as specific duties were concerned, it had to be demonstrated that the amount set in a particular case following their application exceeded 35 per cent of the customs value of the goods.

3.221 According to the United States, the availability of "challenge procedures" did little to make Argentina’s specific duties "predictable". In fact, these procedures only added to the confusion. By assessing the full amount of the applicable specific duties at the border, regardless of their ad valorem equivalent, and by requiring importers to employ ancillary procedures involving either an initial overpayment or the posting of a bond, Argentina leaved traders and WTO Members with great uncertainty as to what the actual duties charged would be and when that amount ultimately would be determined.

3.222 Argentina stressed that the challenge procedure was not viewed by Argentine law as purely theoretical. On the contrary, and to illustrate how it worked in practice, Argentina referred to two cases concerning textiles and footwear. In the first case, the company representing Company X in Argentina, made a submission to the National Customs Administration, ¹¹⁰challenging the payment of specific duties on several shipments on the grounds that they exceeded the 35 per cent ad valorem equivalent. On the basis of that one submission, several shipments of goods were released into the market with the deposit of a surety to cover the unpaid duties. A second example concerned textile products involving Company Y, relating to the challenge by a textile articles importing firm of the inclusion of packaging in the calculation of specific duties. The example included the document certifying payment of a security covering the difference between the tariff paid and the tariff set by customs and the customs clearance certificate. Both cases clearly showed that the procedure guaranteed in a simple and direct manner the release of numerous shipments of imported goods into the market without payment of duties exceeding the 35 per cent bound rate.

3.223 The United States argued that the first time Argentina raised Law No. 22.415 to explain why its specific duties were within its bound rate was in its submissions before the Panel. Argentina had previously taken the position that its specific duties were consistent with its WTO obligations because the duties were no more than 35 per cent of an adjusted average import price for each category. Likewise, the availability of domestic procedures to challenge an assessed duty did not justify the establishment of duties in excess of the bound rate. Argentina seemed to be taking the position that its Schedule may list any duty rate, no matter how high, and it may assess that rate at the border as long as a final appeal adjusted the duty to no more than 35 per cent ad valorem. Argentina’s argument ignored the extreme uncertainty such practices would create. Importers would be required either to pay the full amount of the specific duties and await a refund from Argentina or pay a partial amount and provide a bond for the rest. Under both scenarios, importers on a regular basis were subject to charges in excess of the bound rate. In reality, they would only know what the duty was after the customs service or the courts had made a final decision. Surely this was not the predictability and security in tariff rates that the GATT and WTO were designed to achieve.

3.224 Argentina was not of the opinion that Article II GATT 1994 permitted a WTO Member to assess any duty at its border, no matter how high, so long as that Member provided appeal or challenge procedures to subsequently conform the duty to the bound rate. If there were bound tariffs in the Schedule of a WTO Member, the latter may only require the payment of the maximum tariffs bound. However, below that level it could apply the tariff level it considers most appropriate and assess it on an ad valorem or specific basis. Asked by the United States whether it was of the opinion that no impairment of Argentina's tariff concessions existed where importers were assessed duties in excess of the bound rate but were permitted to pay a portion of the duties assessed, post a bond and then wait for appeal or challenge procedures to conclude before receiving a return of their bond, Argentina replied that the United States question was based on a purely hypothetical premise, since Argentina was not infringing the tariffs bound in its Schedule for any product category. Argentina considered that impairment of the concessions granted by a country existed if the latter assessed a tariff in excess of the bound level, thereby adversely affecting imports which should have received the treatment provided in its WTO Schedule. In exceptional situations which might hypothetically arise and in which the tariff applied exceeded the bound tariff level, Argentine legislation provided for the challenge procedure that enabled importers to question the administrative act requiring the payment of a tariff higher than that which had been bound.

3.225 The United States contended that the existence of administrative "challenge procedures" did not justify violations of Article II. Argentina had acknowledged that its customs service charged specific duties as set by relevant resolutions and decrees even if such duties amounted to more than 35 per cent ad valorem. Argentina defended this practice by stating that, to the extent the specific duties exceeded the bound rate, importers were free to use "challenge procedures" to recover any overpayment. Argentina explained that such challenges were bound to succeed because, under the Argentine constitution, WTO obligations were self-executing and supreme to domestic law. However, Argentina’s argument lacked merit for several reasons. Argentina’s invocation of its challenge procedure raised form over substance. The reality of importing textiles, apparel and footwear into Argentina was that the Argentine customs service charged excessive specific duties and expected payment of the full amount. Although Argentina admitted that it could "only require the payment of the maximum bound rate", it had explained that the specific duties were to be applied by the Argentine customs officials who had no competence to modify the duties.

3.226 For the United States, the rate Argentina charged at its border had to be the relevant duty for purposes of Article II, not some amount adjusted later on appeal. Argentina has conceded as much when it had recognized that GATT Article II did not "permit a WTO Member to assess any duty at its border, no matter how high, so long as that Member provides appeal or challenge procedures to subsequently conform the duty to the bound rate". This had to be the case, otherwise Argentina or any other WTO Member could charge hundreds and even thousands of dollars for each kilogram of textiles and still meet its WTO obligations since, at some undetermined point in the future, the duty would be reduced to within the bound rate. The fact that Argentina had a mechanism for appealing an initial duty assessment, as did almost all WTO Members in accordance with Article X:2(b) GATT 1994, is simply immaterial.

3.227 The United States also argued that Argentina ignored the extreme uncertainty that resort to the challenge procedures created. Importers were required either to pay the full amount of the specific duties and await a refund from Argentina or pay a partial amount and provide a bond for the rest. Under both scenarios, importers on a regular basis were subject to charges in excess of the bound rate. Importers only learned what the actual duty would be after the customs service or the courts had made a final decision. If the mere availability of challenge procedures was a defense to the imposition of excessive duties at the border, as Argentina seemed to suggest, then one of the fundamental principles underlying Article II, that Members shall be exempt from duties in excess of a bound rate, would lose much of its meaning.

3.228 The United States further contended that, by charging excessive specific duties and requiring importers to take action to recover any balance owed, Argentina had collected far more in duties than what was permissible under Article II. During the January - September 1996 period alone, Argentina had apparently overcharged importers handling relevant types of textiles and apparel from the United States by approximately US$1,634,000. Based on other evidence of similar overcharging, Argentina had reaped large sums in overcharges in connection with imports from other sources, including Asia and the EC.¹¹¹

3.229 To this, Argentina replied that the repeated claim that a sum amounting to US$1,634,000 had been paid was simply a theoretical calculation using statistical data that were inappropriate for the purpose, since they were not intended for elaborating average prices. ¹¹²

3.230 In the view of the United States, administrative and even legal challenges to the initially assessed duties were not simple. Such appeals often were lengthy, complicated and expensive. This system also inherently contained a less favourable treatment aspect as foreign traders received the benefit of a bound rate only after employing ancillary procedures. Contrary to Argentina’s suggestion, Company X had not found the procedures simple or painless. In fact, Company X had attempted to use two ways of challenging the assessment of specific duties. In one instance, Company X paid the full specific duties charged and later claimed a refund. To date, Company X had not recovered any of the approximately US$2.5 million it expected to be returned. Company X also had tried paying a portion of the duties assessed and posting a bond for a rest. With regard to these entries, Company X had been waiting more than 18 months for a decision by the Argentine customs service for a determination as to whether Company X would be held liable for the difference.

3.231 Argentina insisted that it had mentioned the example of a submission by the firm representing Company X in Argentina as constituting one of the first of such cases it had identified. In this case, the Argentine customs administration, while recognizing that the challenge was in order, decided to declare it improper because an appeal by the same company on the same issue had been lodged with the Ministry of the Economy which preceded the challenge procedure. However, the point to be stressed was that the challenge procedure was based, among other elements relating to domestic legislation, on the assumption that the resolution imposing the duties was contrary to the law ratifying the WTO Agreement and on the fact that the Constitution stipulated that treaties and concordats are to supersede laws, and therefore the provision in question should not establish a duty which exceeds the said rate (35 per cent) or that constitutes a breach of the provisions of the International Treaty. These arguments were largely in line with those presented by Argentina to show that in the hypothetical case that a minimum specific import duty were applied to a given transaction or shipment in excess of the ad valorem equivalent of 35 per cent, the challenge procedure would be applied as a direct means of ensuring that the importer did not have to pay more than the 35 per cent ceiling.

3.232 The United States considered that the challenge procedures had offered no genuine relief to importers. Argentina had not refunded any amount of duties to importers of textiles, apparel and footwear under these procedures. Argentina had explained that this was so "because there have not been any restitution proceedings brought before Argentine customs officials" and "no cases exist in the area of imports of textile and apparel products where importers have raised the issue of the imposition of specific duties that exceed the 35 per cent ad valorem". However, the total absence of a challenge by any textile or apparel importer - a remarkable fact in light of the grievances filed by European, Hungarian and US traders with their respective governments - strongly suggested the inadequacy of Argentina’s regime.

3.233 For the United States, the fact that the challenge procedure was seldom if ever used by textile and apparel importers could be attributable to the fact that Argentina did not publicize this remedy, nor did it inform importers when the specific duties, as applied in particular cases, were above 35 per cent ad valorem. Indeed, the existence of procedures purportedly guaranteeing that Argentina would not assess duties above its bound rate was not only unknown to traders, but also to the United States. The United States and Argentina had held four rounds of consultations in this matter and at no time had Argentina attempted to justify its regime based on the availability of challenge procedures.

3.234 Argentina acknowledged that this remedy had not been discussed until the Panel proceedings began. However, the existence of the challenge procedure was public knowledge and had been part of domestic legislation since 1981. The fact that it was not mentioned in consultations with the United States was irrelevant, both as regards its status as an integral part of Argentina's legal order and as a tool used by importers. The procedure had been applied frequently since its introduction in disputes or issues relating to tariff classification, valuation and other preparatory measures for the assessment of customs duties. Argentina recalled that the total number of current challenge proceedings on all grounds - classification or estimated value - was calculated to be about 12,000. This indicated that importers were perfectly accustomed to using this procedure. Among the 12,000 cases recorded it had not been possible to find a single challenge relating to textile products based on the application of a minimum specific import duty in excess of 35 per cent ad valorem. It was understandable that Argentina's trade partners wondered why this challenge procedure had not been used in the past for alleged violations of the 35 per cent bound rate by the minimum specific import duties. The first explanation was that the specific duties applied did not in fact exceed the 35 per cent binding, even on exceptional occasions. However, this may not be the only explanation. First of all, even though the procedure was well known, importers might not have become aware of the fact that it was also available for alleged violations of the bound rate, as Argentina's obligation to apply a tariff ceiling for textile products only dated back to 1995, with the entry into force of the WTO Agreement. Moreover, only since 1994, with the amendment of the Constitution, had Article 75 thereof stipulated that international treaties maintained a higher position in the constitutional hierarchy than Argentine law. This may have caused a certain delay before the importing firms reached the conclusion that the same challenge procedure that they were probably using to challenge assessments in connection with other types of problems could also be used to challenge the imposition of specific duties exceeding 35 per cent.

3.235 Secondly, according to Argentina, another element could help to explain the lack of recourse to the challenge procedure: the problem of underinvoicing and, in general, the problem of customs control. Under-invoicing was a chronic problem in Argentina. The magnitude of the customs problem, which was not limited to under-invoicing but involved all kinds of illegal operations, had been described during consultations. A series of modifications in the customs system had been made in 1996 to address it, including changes in the way it operated and the establishment of a system of preshipment inspection. The volume of under-invoiced transactions was enormous (it was said that, in the last years, some 27,000 containers had been smuggled across the border causing losses to the Argentine treasury estimated at US$3,000 million and inestimable damage to the domestic industry). The judicial investigations carried out thus far had shown that large quantities of textile products and clothing were also involved. In this context dominated by the inefficiency of the customs system and the widespread practice of underinvoicing, it was highly unlikely that many importers would resort to the challenge procedure. By doing so, they would have run the risk of drawing the attention of the authorities to the question of the legality of their operations. As from 1996, the investigations conducted by the Argentine Government, the courts and the Congress with respect to import transactions began to make underinvoicing difficult and the decision by the Government to bring the customs body and the Directorate-General of Taxation together under a single authority made it possible, among other things, to carry out electronic cross-checking of information supplied in the import price declarations against domestic tax payments, thereby completely altering the economic equation for those intending to under-invoice: if the domestic tax-collection body was much more efficient and difficult to evade, the risk considerably outweighed profits that might be derived from underinvoicing. This also explained why, in 1996, import prices for textile products and clothing increased in Argentina, a trend which was not reflected in the international market.

3.236 Argentina declared that the challenge procedure, which may have appeared to have been nothing more than "window dressing", now provided a clear and transparent guarantee of compliance with international commitments. Indeed, under the challenge procedure, if an import duty assessment was challenged because it exceeded the 35 per cent limit set by Law No. 24.425, the goods were nonetheless released. In other words, to secure the entry of the imports, the importer may pay the tariff in force and challenge any minimum specific import duties applied in excess of the duty bound within the WTO. The importer, the holder of the clearance documents, was the one legally authorized to file a challenge application. There was no process for the automatic initiation of a challenge procedure by the Argentine customs officials. The process could only be initiated at the request of an individual who showed that his rights had been infringed. As Argentina did not apply specific duties or tariffs in excess of 35 per cent ad valorem, it was not deemed necessary to set up notification machinery for purely hypothetical cases. The procedure had to be entered into by the importer within 10 days of the notification of the customs duty assessment. ¹¹³ The challenge had the effect of suspending payment of the difference in the duty rates. ¹¹⁴ By paying a security to the customs authorities reflecting the difference between the tariff in force and the minimum specific import duty claimed by customs, the importer may automatically (within three or four days at the most) release the goods into the market. The customs authorities then had 40 days to produce evidence against the importer's claim. ¹¹⁵ If such evidence was produced, the importer had six days to refute the evidence. ¹¹⁶ Once that time-limit had elapsed, the customs authorities had 60 days to confirm or revoke the challenged administrative measure. ¹¹⁷ Thus, in accordance with these time-limits, the process may last 116 days. If the measure was confirmed (the assessed import duties being below 35 per cent), the importer had to pay the difference between the two amounts. If the measure was revoked, the duties exceeding the 35 per cent ad valorem limit, the importer was freed of all obligations. The only form which importers had to complete to obtain the release of their security was form 1190-A which was used for both lodging and releasing the security.

3.237 Argentina specified that if the customs authorities decided against the importer, the importer had two alternatives: either to appeal the decision before the Tax Court or to appeal to the Federal Administrative Tribunal. Title III (Remedies) of the Customs Code (Articles 1132 to 1183) described the procedure for appealing a final decision signed by the head of the local customs department. If the local manager took a final decision unfavourable to the importer, the law allowed the latter 15 working days following the notification of the decision to appeal to the Tax Court. The appeal was presented to the Tax Court together with the evidence, and the records were submitted to the Court by the Proceedings Division of the customs service. If the challenger lost his case, he could appeal the decision of the Tax Court to the National Chamber in the Federal Administrative Litigation Division.

3.238 Regarding the nature of proof (facts, documentation, testimony statements) requested under the challenge procedure, Argentina stated that an importer could initiate a challenge proceeding without having to provide any proof. For the remedy to be available it was sufficient for the importer to indicate to the customs administration his intention to challenge the duty assessment. In the particular case of challenges entered against duties in excess of 35 per cent, the procedure was even simpler since it was only necessary to provide the commercial invoice or an identical copy. The proceeding was substantiated by the documentation in the possession of the customs, the certificate of payment of the duties which, in the opinion of the importer, should be paid and the corresponding bond for the difference in duty.

3.239 The United States questioned the meaning of Argentina's statement that the process was "automatic" and "without cost", in particular it asked whether it was its contention that importers challenging such assessments in excess of the 35 per cent ad valorem rate had "no costs" imposed on them in terms of time, opportunity costs, costs of security, experts and attorney's fees, and delay and uncertainty in the shipment of goods.

3.240 Argentina replied that saying that the process was automatic signified that the importer could enter the goods for consumption by paying only the duties which he considered applicable. Saying that the process was without cost meant that it was not a procedure for which there were charges.

3.241 Regarding legal representation, Argentina mentioned that experts were not needed to calculate 35 per cent of the customs value of the goods. For the purposes of initiating a challenge proceeding, Article 1034 of the Customs Code required legal representation. The relevant documentation was provided by the customs administration itself. Asked whether there were established procedures if any, for refunding attorney's and expert's fees, the costs of obtaining a bond or other security, and the costs of employee time expended in a successful challenge procedure, Argentina replied that the attorney's fees were paid by the importers concerned. The same would apply to the fees of experts who participated in the proceedings at the request of the importer, since customs did not automatically require their participation which, moreover, was non-existent in these cases. The cost of bond insurance was very small, generally consisting in the payment of an annual premium which varies between only 1.8 per cent and 2 per cent depending on the type of activity and the amount of security which, it should not be forgotten, represents only the difference in duty. Finally, if despite the fact that the costs of the challenge proceeding were low (bearing in mind that there were no charges) the importer wanted to be reimbursed, he always had the option of suing for reimbursement in the competent court.

3.242 With respect to interests on the money held by Argentina if the full amount of duty exceeding 35 per cent ad valorem had been paid, Argentina mentioned that the action for restitution which could be brought against the customs, if won by the importer, would provide for the refunding of the amounts improperly collected plus interest due from the point at which the return of wrongly collected duties had been requested (form 1724-B), that is to say, after payment of the assessment resulting from clearance. Within 10 days of the Valuation Technique Division notifying the importer of the application of specific duties, the latter may opt for the challenge procedure (payment of the duty applicable, without payment of the DIEM, lodging of a deposit or property bond for the difference) or to pay everything the customs required and bring an action for the restitution of the amounts he considers to have been overpaid.

3.243 The United States submitted that challenge procedures were not an essentially painless process by which importers may rectify any overcharges. The procedures were not necessarily quick or simple, as was evidenced by the lone instance in which a US manufacturer had attempted to rely on the challenge procedures. Company X had attempted to use two ways of challenging the assessment of specific duties. In one instance, Company X had paid the full specific duties charged and later claimed a refund. To date, Company X had not recovered any of the approximately US$2.5 million it was expecting to be returned. Company X also had initiated a challenge procedure in April 1996. It had paid a portion of the duties assessed and posted a bond for the remainder. It had used legal counsel who filed a substantial brief and supporting documentation. Despite Company X’s experience, Argentina claimed that the maximum length of time for such a proceeding was 116 days. In the case of Company X, it had not been respected. Company X also noted that under Argentine law, if it wanted to appeal any eventual ruling of the Argentine customs service, it would have to pay the full amount of the specific duties. As Company X learned, importers were put at a competitive disadvantage by the delay and uncertainty of having to use these procedures instead of being charged a proper duty at the border. Importers also were forced to bear needless costs in terms of interest on the value of any bond posted.

3.244 According to the United States, this could have easily been avoided if Argentina had imposed only ad valorem rates of no more than 35 per cent. There was no reason why Argentina could not do so. Argentina had admitted it collected value and quantity information from which an ad valorem duty could be applied in the case of each shipment of imports. It further had admitted that it had spent US$328 million collecting statistical information in 1996, and it could not deny that it had levied its statistical tax on an ad valorem basis. At minimum, Argentina could have instructed its customs officials to refrain from charging specific duties in excess of 35 per cent ad valorem.

3.245 For Argentina, although the example of Company X was not pertinent since it concerned a question relating to footwear, the United States' criticism of the challenge procedure and its duration, which mentioned the cases of Company X, was not correct. If in a specific case, Company X chose to appeal against the imposition of minimum specific import duties to the Ministry of Economy, the Argentine authorities could not be responsible for the proper choice, in a specific case, of the remedies which the law placed at the importer's disposal. The challenge procedure was not a justification for applying minimum specific duties. The characteristics of the challenge procedure could not be evaluated solely on the basis of the experience of Company X. If this company had decided to utilize other bodies when dealing with the administration, this was beyond the Argentine Government's control. It was a matter for decision at a legal level. This experience did not prove that the challenge procedure was not an appropriate mechanism for the purposes explained in Argentina's submission. It was also important to clarify that Company X was not awaiting a refund as a result of using the challenge procedure. According to this procedure, nothing more than the ad valorem rate in effect was paid and a bond was deposited. There could be no refunds because what was paid was the sum considered to be payable. Company X had utilized another appeals procedure known as repetición (reimbursement procedure). The company paid and then requested the refund of the amount that allegedly exceeded the 35 per cent level. The challenge procedure mechanism provided guarantees to reassure operators that they would not be requested to pay an import duty exceeding 35 per cent ad valorem.

3.246 According to the United States, by citing its challenge procedures, Argentina was essentially asking the Panel to adopt a new rule requiring WTO Members and their traders to exhaust local remedies before bringing a matter to a panel. However, GATT law did not include the "local remedies rule" as it was recognized in public international law. ¹¹⁸ Disputes under the GATT addressed rights and obligations between WTO Members, not individuals, and the doctrine did not apply to disputes solely between nations. ¹¹⁹ Neither the GATT nor the WTO had ever adopted a practice of requiring exhaustion of local remedies before bringing a matter to a dispute settlement panel. To the United States' knowledge, no prior panel or working party had made exhaustion of local remedies a prerequisite to commencing dispute settlement proceedings. Thus, there was nothing within the tradition or practice of the WTO dispute settlement system which supported Argentina’s argument and, accordingly, it had to be rejected.

3.247 Argentina replied that it was not requesting the Panel to establish a new rule requiring the Members of the WTO and their entities to "exhaust local remedies". Argentina was stating that it was not possible for a country to come before the WTO and utilize the dispute settlement mechanism without sufficient evidence of the facts it wished to prove.

3.248 Argentina recalled that there was a challenge procedure that formed an integral part of the Argentine legal system and to which it was customary to resort. It was difficult to explain how this alleged "legal fiction", which included recourse to the ordinary courts and had generated about 12,000 cases, had not been used by the importers of United States goods.

3.249 For the United States, the direct application of the WTO Agreement in Argentine domestic law and the existence of a customs appeals mechanism offered no meaningful relief to aggrieved importers and did not justify the breaking of bindings. Argentina had confirmed that no specific duties on textiles or apparel had been refunded. The United States had described the efforts Company X had been forced to make in attempting to recover overpaid duties, and had furnished the Panel with a statement from Company X that it had had recourse to the "challenge procedures", a fact that Argentina contested. Argentina had to explain why Company X was still waiting for a decision 18 months after it had invoked the recurso de impugnación proceedings. Nor did Argentina contest that Company X was forced to pay specific duties far in excess of 35 per cent equivalent ad valorem, regardless of the procedures it invoked.

3.250 Argentina replied that the constitutional status of the Uruguay Round Agreements did not pretend to be a justification for authorizing measures that violated the commitments undertaken. Consequently, it was not true that the measures adopted by Argentina imposing the minimum specific import duties systematically violated its WTO obligations. Argentina did not seek nor ask for any "immunity" in order to apply measures of any sort that were contrary to its WTO obligations. The legislation in force and the challenge procedure were intended to guarantee to all importers that there would be no uncertainties. The absence of challenges, far from showing that the procedure was not valid, showed that importers had not utilized it specifically to query the minimum specific import duties on textiles. Either importers did not find it necessary to utilize the procedure or they did not do so for reasons known only to them.

Notes:

102. Panel Report on EEC - Measures on Animal Feed Proteins, Op. Cit., para. 4.21, as cited in the Appellate Body Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, Op. Cit., p. 15.

103. Ibid., p. 14.

104. Statement by the United States at the DSB meeting of 23 May 1997, Op. Cit.

105. Appellate Body Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India, Op. Cit., pp. 12-17.

106. Ibid., p. 14.

107. Ibid.

108. The United States referred to the judgement of the International Court of Justice of 9 April 1949, in The Corfu Channel case, ICJ Reports 1949, p. 4, at p. 32, in which, taking formal note of the refusal by a party to produce documents, the Court stated that it "cannot, however, draw from this refusal to produce the [naval] orders [requested by the Court] any conclusions differing from those to which the actual events gave rise".

109. See footnote 31 above.

110. Argentine Customs Administration, File No. 404.349.

111. See sub-section B.5(c) above

112. Ibid.

113. Argentine Customs Code, Article 1054.

114. Ibid., Article 1058.

115. Ibid., Article 1062.

116. Ibid., Article 1063.

117. Ibid., Article 1065.

118. The United States referred to Ernst-Ulrich Petersmann, "Settlement of International and National Trade Disputes Through the GATT: The Case of Antidumping Law" in Adjudication of International Trade Disputes in International and National Economic Law, Ernst-Ulrich Petersmann & Gunther Jaenicke, eds, Fribourg University Press, (1992), pp. 126 127.

119. The United States referred to the judgement of the International Court of Justice of 20 July 1989 in case Elettronica Sicula (ELSI), ICJ Reports, p. 15, and mentioned that, even though governments often brought an issue before the WTO on behalf of private citizens, disputes were fundamentally between States. Consequently, requiring exhaustion of local remedies of States would be futile.

Continue on to Part 6 of Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items