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(d) Laws of general application
11.73 Argentina has also argued that Article X should not apply in
this case because it only relates to laws of general application and does
not apply to the handling of specific shipments of products. This question
arises because Article X:3(a) refers specifically to the method of
application of measures identified in Article X:1. Article X:1, in turn,
states that it applies to "laws, regulations, judicial decisions and
administrative rulings of general application . . ." According to
Argentina, Resolution 2235 only refers to the right of ADICMA
representatives to be present at the time of particular shipments and only
those shipments are thus affected. It is, according to Argentina, a very
shipment-specific regulation.
11.74 We cannot agree with Argentina in this regard. In our view,
Resolution 2235 provides for a right generally for ADICMA representatives
to be present. Whether they actually are present in any given instance is
not relevant to our consideration. We are examining the existence of that
right to be present along with corollary factors such as access to
information.
11.75 As noted in the previous Section, we have another difficulty with
Argentina's argument. It would seem that any rule of "general application"
would be deemed a substantive rule by Argentina based on its use of that
term elsewhere in its arguments. This would then leave a situation where
any rule of general application could not come under Article X because it
would involve substantive rules rather than administrative ones. On the
other hand an administrative rule, as that would appear to be defined,
could not be a rule of general application. This also would render Article
X effectively a nullity, which obviously cannot be the case.
3. Is Resolution 2235 uniform, impartial and reasonable?
(a) General
11.76 Having decided that Resolution 2235 is properly subject to the
provisions of Article X:3(a), we must next test it against the
requirements that the Customs laws of Argentina be applied in a manner
that is uniform, impartial and reasonable. In applying these tests, it is
important to recall that we are not to duplicate the substantive rules of
the GATT 1994. Thus, for example, the test generally will not be whether
there has been discriminatory treatment in favor of exports to one Member
relative to another. Indeed, the focus is on the treatment accorded by
government authorities to the traders in question. This is explicit in
Article X:1 which requires, inter alia, that all provisions "shall be
published promptly in such a manner as to enable governments and traders
to become acquainted with them." (emphasis added). While it is normal that
the GATT 1994 should require this sort of transparency between Members, it
is significant that Article X:1 goes further and specifically references
the importance of transparency to individual traders.
11.77 Thus, it can be seen that Article X:3(a) requires an examination of
the real effect that a measure might have on traders operating in the
commercial world. This, of course, does not require a showing of trade
damage, as that is generally not a requirement with respect to violations
of the GATT 1994. But it can involve an examination of whether there is a
possible impact on the competitive situation due to alleged partiality,
unreasonableness or lack of uniformity in the application of customs
rules, regulations, decisions, etc.
(b) Uniformity
11.78 The European Communities has argued that it was improper for
Argentina to introduce a system which constructs a separate way of
administering its export rules with respect to only one type of product.
To the extent that Argentina has tried to justify Resolution 2235 by
referring to its provision of export tax refunds for certain processed
products derived from hides (and the need to distinguish these from the
hides themselves), the European Communities notes that there are many
products for which such tax refunds exist. However, only in this sector do
representatives of the domestic downstream industry have the ability to
participate in the Customs processes.
11.79 Argentina has responded that the only reason that there are no
systems in place with respect to other products is that no other
industries have requested such a right. Therefore, the potential exists
elsewhere; it is merely that it has been exercised in this sector.
11.80 The first question in this regard is to define what the term
"uniform" means in Article X:3(a). The dictionary provides the following
definition:
Of one unchanging form, character, or kind; that is or stays the same in
different places or circumstances, or at different times.375
11.81 The term "uniform" appears in the GATT 1994 only with respect to
administration of Customs laws. Article VII:2(b) provides that when
assessing Customs valuation on the basis of "actual value" variations may
exist based on quantities provided that such prices are uniformly related
to quantities in other transactions.
11.82 In addition to the term appearing in paragraph 3(a) of Article X, it
also appears in paragraph 2 of that Article requiring uniform practices
for certain changes in applying Customs laws. Finally, Ad Article I,
paragraph 4, provides for uniform practices in re-application of tariff
classifications and imposition of certain new classifications at the time
of the provisional applications of the GATT 1947.
11.83 It is obvious from these uses of the terms that it is meant that
Customs laws should not vary, that every exporter and importer should be
able to expect treatment of the same kind, in the same manner both over
time and in different places and with respect to other persons. Uniform
administration requires that Members ensure that their laws are applied
consistently and predictably and is not limited, for instance, to ensuring
equal treatment with respect to WTO Members. That would be a substantive
violation properly addressed under Article I. This is a requirement of
uniform administration of Customs laws and procedures between individual
shippers and even with respect to the same person at different times and
different places.
11.84 We are of the view that this provision should not be read as a broad
anti-discrimination provision. We do not think this provision should be
interpreted to require all products be treated identically. That would be
reading far too much into this paragraph which focuses on the day to day
application of Customs laws, rules and regulations. There are many
variations in products which might require differential treatment and we
do not think this provision should be read as a general invitation for a
panel to make such distinctions.
11.85 In our view, there is no evidence that Argentina has applied
Resolution 2235 in a non-uniform manner with respect to hides. All hides
exports are uniformly subject to the possibility of ADICMA representatives
being present. Indeed, the European Communities' complaints are about
Resolution 2235's application across the board. The difficulties of
Argentina's administration of its Customs laws pursuant to Resolution 2235
are adequately dealt with under the other provisions of Article X:3(a).
(c) Reasonableness
11.86 As a preliminary matter, we note that Article X:3(a) provides that
the administration of Customs laws, regulations and rules must be uniform,
impartial and reasonable. Normally, we would address these three
considerations in the order they appear in the treaty text. However, we
note that in this instance the three requirements are legally independent
in that Customs laws regulations and rules must satisfy each of the three
standards. This gives us some freedom in the manner of discussing them. In
the present instance, the requirement of reasonableness, we believe, turns
on the question of information flows and whether it is reasonable to allow
persons access to certain information which is irrelevant to the stated
purpose of the legislation in question. In our view, the requirement of
impartiality in this instance turns on the question of who has access to
such information by reason of their presence in the Customs process.
Although the requirements of reasonableness and impartiality are distinct
in nature, both relate to the question of information flows in this case.
We will deal first with the requirement of reasonableness as that is most
directly related to the question of access to information. Our analysis of
the requirement of impartiality flows logically from that.
11.87 The European Communities has argued that it is unreasonable for
Argentina to apply its Customs formalities in a manner such that
Argentinean hide buyers are able to see and sign a document containing
details of the export deals of their customers, including business
confidential information. The European Communities further argues that the
context of Article X:3 makes it clear that this is unreasonable. The
European Communities notes that the last sentence of Article X:1
stipulates that the obligations of that paragraph shall not require WTO
Members to "disclose confidential information which . . . would prejudice
the legitimate commercial interests of particular enterprises, public or
private." The European Communities asserts that no particular expertise is
required to distinguish between raw or salted hides on the one hand and
more processed products on the other. Furthermore, if specialized
expertise were necessary, Argentina should train its own officials
adequately rather than relying on the sporadic presence of ADICMA
representatives. If it were necessary to have ADICMA representatives
present to combat fraud, such presence should be mandatory rather than
permissive. Finally, the European Communities notes that irregularities in
the administration of the export tax regime or refund programs for
processed products were not cited in the original request by CICA (one of
the ADICMA member groups) for permission to be present.
11.88 Argentina has responded that the last sentence of Article X:1 cannot
be read as a prohibition as the European Communities reads it. Rather, it
is an exemption from the obligation to publish otherwise contained in
Article X:1. Furthermore, the information to which the European
Communities refers is not business confidential information. It is the
same information which is available in the public domain through on-line
services both from the Argentinean government and private services.
Argentina contests the document that the European Communities has produced
showing a signature, in that the document was that of a tanner, not a hide
supplier, and therefore is of no relevance to the European Communities'
claims. In response to a question from the Panel, Argentina has stated
that the name of an exporter of a particular shipment is no longer
provided either publicly or to the ADICMA representative. In contrast to
the European Communities' claims, Argentina asserts that having ADICMA
present is very much in the interest of fair and transparent Customs
processes. It helps combat tax fraud. To ensure proper enforcement, ADICMA
representatives must be present because their only recourse is to bring a
complaint against the government for any irregularities and presence is
required in such instances.
11.89 The European Communities countered by stating that a procedure which
allows the representatives of an industry that has actively sought and in
part obtained bans on exportation of its raw material, bovine hides, into
the heart of the export clearance process is inherently unreasonable
regardless of what information is provided on-line in Argentina.
11.90 In considering this requirement, we first turn to the stated
objective for Resolution 2235 offered by Argentina. Argentina stated that
it required assistance in the classification of bovine hides when exported
in order to ensure there were no mistakes or fraud regarding the proper
payment of export duties and awarding of export "refunds". While a
manifestly WTO-inconsistent measure cannot be justified by assertions of
good intentions, we consider it reasonable in this instance to accept for
purposes of analysis the proffered explanation in light of all the facts
of the dispute.
11.91 In our view, the analysis of this issue with respect to
reasonableness then will turn on the information that is supplied to ADICMA representatives and its direct relevance to the product
classification question. We agree with the European Communities that it is
unreasonable to allow ADICMA representatives into the Customs clearance
process in light of the access to information that it affords. The
explanation offered by Argentina for this presence raises serious
questions. We do not see why ADICMA must have access to such information,
which by its nature is confidential376 and which is made available to it as a
participant in the Customs clearance process for the purposes of proper
classification377, in order to combat fraud and mistakes with respect to
assessment of export duties and awarding of export "refunds".378
11.92 To provide some specific examples, ADICMA representatives should not
be able to see the pricing information of the suppliers to ADICMA's
members. This is information which ADICMA members could use to their
commercial advantage in negotiations with the frigoríficos. We should note
in this regard that Argentina bases its export duties on prices of hides
quoted in the United States. Thus, even if we were to consider it
reasonable for the tanners to be involved in the export clearance process,
there would be no reason whatever for them to see the prices as these
would be irrelevant to the assessment of export duties. We also see no
need for them to be made aware of the destination or quantities involved
as these data are irrelevant to the tasks ADICMA representatives are
involved in.
11.93 We think it is particularly important for the reasonable
administration of Argentina's export laws that the tanners not be provided
the name of exporters. Argentina claims that this is no longer possible.
However, as it was part of the European Communities' claims and was
unarguably possible as recently as May of 1999 that such written
information was supplied to ADICMA, we consider it necessary to
specifically find that it is unreasonable for such information to be
provided to ADICMA or its members. However, this question goes beyond just
supply of the name in writing. Argentina has stressed in its arguments
under all three conditions of Article X:3(a) that the process is balanced
because the exporters may be present during the Customs process. However,
it necessarily follows that exercising this right would reveal the
identity of the exporter. While it could be argued that the exporter could
send a representative or agent and may thereby conceal his identity,
imposing such a burden with respect to an exporter's own products would be
unreasonable.
11.94 Therefore, we must conclude that a process aimed at assuring the
proper classification of products, but which inherently contains the
possibility of revealing confidential business information, is an
unreasonable manner of administering the laws, regulations and rules
identified in Article X:1 and therefore is inconsistent with Article
X:3(a).
(d) Impartiality
11.95 The European Communities has argued that the presence of ADICMA
representatives makes the application of Argentinean laws in an impartial
manner impossible. That is, there is an inherent conflict of interest in
having such persons present that cannot be solved by merely having further
safeguards in place. The European Communities' contention is that there is
no legitimate purpose for private persons from the domestic downstream
industry to be involved in the customs clearance process, so their mere
presence must render the process partial to them over Argentinean
exporters of hides. Implicitly, the European Communities argues that, even
if there is not an actual conflict of interest in their presence, there is
at least a potential conflict of interest in that it puts ADICMA and its
members into a position where they could abuse their presence or any
information obtained thereby. Given this potential conflict of interest
inherent in the measure, it cannot be considered an impartial application
of the general Customs laws.
11.96 The European Communities notes that the tanning industry has
campaigned for many years for export restrictions on their raw materials,
i.e., hides. In fact, they have been successful in these endeavours. In
light of these positions, it must be considered a partial administration
of Customs laws to let them participate in the export clearance process.
11.97 Argentina responds that there is no partiality involved in this
situation because the hides exporters also have the right to have a
representative present. Thus, there is a balance of interests which is the
essence of impartiality. ADICMA representatives are not there to stop
shipments and have no authority to do so. This is a matter of transparency
and efficiency in customs administration, not partiality.
11.98 The only private parties that have a contractual legal interest in
the product and transaction are the exporter (and his agent) and the
foreign buyer. The government also has a relevant legal interest in the
transaction based on the sovereign right to regulate and tax exports. In
contrast with this, the ADICMA representatives have, outside of the
measure in question itself, no legal relationship with either the products
or the sales contract. ADICMA, in fact, represents an adverse commercial
interest in that the exports are not in its members' interests as such
exports potentially drive up the costs of hides. Furthermore, ADICMA
members are competitors of the foreign buyers of the hides.379
11.99 Much as we are concerned in general about the presence of private
parties with conflicting commercial interests in the Customs process, in
our view the requirement of impartial administration in this dispute is
not a matter of mere presence of ADICMA representatives in such processes.
It all depends on what that person is permitted to do.380 In our view, the
answer to this question is related directly to the question of access to
information as part of the product classification process as discussed in
the previous Section. Our concern here is focussed on the need for
safeguards to prevent the inappropriate flow of one private person's
confidential information to another as a result of the administration of
the Customs laws, in this case the implementing Resolution 2235.
11.100 Whenever a party with a contrary commercial interest,381 but no
relevant legal interest , is allowed to participate in an export
transaction such as this, there is an inherent danger that the Customs
laws, regulations and rules will be applied in a partial manner so as to
permit persons with adverse commercial interests to obtain confidential
information to which they have no right.
11.101 While this situation could be remedied by adequate safeguards, we
do not consider that such safeguards presently are in place. Therefore,
Resolution 2235 cannot be considered an impartial administration of the
Customs laws, regulations and rules described in Article X:1 and, thus, is
inconsistent with Article X:3(a) of the GATT 1994.
C. CLAIMS UNDER ARTICLE III:2, FIRST SENTENCE, OF THE GATT 1994
1. Factual aspects
11.102 The European Communities' complaint is in respect of certain
mechanisms maintained by Argentina for the collection of its value-added
tax (hereafter the "IVA") and income tax (hereafter the "IG"). The
European Communities considers that certain features of these mechanisms
are inconsistent with Argentina's obligations under the GATT 1994.
11.103 A brief description is provided below of the IVA and IG as well as
of some of the relevant mechanisms for their collection.382 Additional
factual aspects are introduced as necessary in Sections XI.C.2-6 of this
report.
(a) Value-added tax (IVA)
(ii) The IVA
11.104 The IVA (Impuesto al Valor Agregado) is a general value-added tax.
Its principal legal basis is the Law on the IVA383 .
11.105 The types of transactions subject to the IVA include, inter alia,
the sale of goods inside Argentina's territory and the definitive
importation of goods into its territory. With respect to imports, the IVA
is collected together with any applicable import duties. With respect to
internal sales, sellers must charge the IVA to the purchasers and then pay
the amounts so collected to the tax administration on a monthly basis,
after deducting therefrom any IVA paid on their own purchases and imports
during the same period.
11.106 The IVA is applied to both imports and internal sales at a general
rate of 21 percent ad valorem.384
11.107 Taxable persons whose annual sales do not exceed a certain amount
may choose not to register themselves with the tax authorities.385
Non-registered taxable persons are not directly liable to pay the IVA in
respect of their internal sales. Thus, no IVA is charged on sales by
non-registered taxable persons to other non-registered taxable persons.
However, where registered taxable persons make sales to non-registered
ones, the former are directly liable for the tax payable by the latter on
their subsequent re-sales. Accordingly, registered taxable persons must
collect not only the IVA due on their sales to non-registered taxable
persons, but also an additional amount which is assumed to represent the
IVA due on the subsequent re-sales by non-registered taxable persons. That
additional amount is calculated by applying the relevant IVA rate to 50
percent of the net sales price of the goods in question.386 Where the
applicable IVA rate is 21 percent, the additional amount is therefore
equivalent to 10.5 percent of the net sales price.
(iii) Pre payment of the IVA
11.108 The Directorate-General of Taxes (Dirección General Impositiva) has
issued, inter alia, General Resolutions (DGI) No. 3431/91387 and No. 3337/91388
, which provide, respectively, for the collection at source of the IVA on
the importation of goods and on certain internal sales of goods.
Pre payment of the IVA on imports
11.109 RG 3431 provides that when goods are definitively imported into
Argentinean territory, the Directorate-General of Customs (Dirección
General de Aduanas) must collect from importers not only the IVA due on
the import transaction itself, but also an additional amount. Where the
importer is a registered taxable person, that additional amount collected
represents a pre payment of part of the IVA liability which arises once
the imported goods are re-sold in Argentina. The pre payment made can be
credited at the time of settlement of the definitive IVA liability389. Where
the importer is a non-registered taxable person, the additional amount to
be paid is assumed to represent a pre payment of the full IVA which is
payable on the re-sale of the imported goods. That pre payment cannot be
credited because, as already mentioned, non-registered taxable persons are
not directly liable to pay the IVA in respect of their internal sales.
11.110 The pre payments on imports are collected at the following general
ad valorem rates390:
- imports by registered taxable persons: 10 percent
- imports by non-registered taxable persons: 12.7 percent
11.111 As a general rule, all import transactions are subject to pre
payment of the IVA in accordance with RG 3431. No pre payment is
collected, however, on certain import transactions, including the
following391:
- re-importation of goods exempt from import duties392 ;
- imports of goods intended for the private use or consumption of the
importer393 ;
- imports of so-called bienes de uso, i.e. goods intended for use in the
economic activity of the importer, except imports by non-registered
taxpayers; and
- imports of live bovines, under certain conditions.
Pre payment of the IVA on internal sales
11.112 RG 3337 provides that when certain categories of persons sell goods
in Argentina to a registered taxable person, they must collect from their
purchasers the IVA due on the particular sales transactions as well as an
additional amount.394 That additional amount collected on internal sales
represents a pre payment of part of the IVA liability which arises once
the goods are re-sold in Argentina.395 The pre payment made can be credited
at the time of settlement of the definitive IVA liability.
396
11.113 The persons required to collect the pre payment on internal sales,
the so-called collection agents (agentes de percepción), are appointed by
the tax administration on the basis of its fiscal interests. Those persons
include, e.g., large companies of the private sector.
11.114 The pre payments on internal sales are collected at the following
ad valorem rate:
- sales to registered taxable persons
397: 5 percent
11.115 By way of exception, no pre payments are collected on the following
internal sales by agentes de percepción:
- sales to other agentes de percepción 398 ;
- sales to financial entities subject to Law No. 21526 (such as commercial
banks, investment banks, mortgage banks and savings banks)399 ;
- sales to non-registered taxable persons; and
- sales which give rise to a pre payment of the IVA of less than Pesos
21.30 per transaction.
400
(b) Income tax (IG)
(i) The IG
11.116 The IG (Impuesto a las Ganancias) is a tax on income, which applies
to both natural and juridical persons. Its principal legal basis is the
Law on the IG
401.
11.117 The IG is levied on all sources of income402 , including the profits
derived from the sale of domestic and imported goods.403 The IG must be paid
to the tax administration on an annual basis.
11.118 The profits derived from the exercise of an economic activity by a
juridical person are taxed at a rate of 35 percent.404 With respect to
natural persons, the rate increases in proportion to the amount of taxable
income.405 In both cases, the rate applicable is the same irrespective of
whether the profits are obtained from the sale of domestic or imported
goods.
(ii) Pre payment of the IG
11.119 The Directorate-General of Taxes (Dirección General Impositiva) has
issued, inter alia, General Resolutions (DGI) No. 3543/92406 and No. 2784/88407
, which provide, respectively, for the collection at source of the IG on
the importation of goods and the withholding at source of the IG on
certain internal sales of goods.
Pre payment of the IG on imports
11.120 RG 3543 provides that when goods are definitively imported into
Argentinean territory the National Customs Administration (Administración
Nacional de Aduanas) must collect from importers a certain amount on
account of the IG. The amount collected represents a pre payment of part
of importers' definitive IG liability for the same tax period. The pre
payments made can be credited at the time of settlement of the definitive
IG liability.408
11.121 The pre payments on imports are collected at the following
ad valorem rates:
- imports in general409 : 3 percent
- imports for the importers' own use or consumption410 : 11 percent
11.122 As a general rule, all import transactions are subject to pre
payment of the IG in accordance with RG 3543. No pre payment is collected,
however, on certain import transactions, including the following:
- re-importation of goods exempt from import duties411 ; and
- importation of bienes de uso
412.
Pre payment of the IG on internal sales
11.123 RG 2784 provides that certain persons must withhold and pay to the
tax administration a certain amount on account of the IG when making
payments for certain categories of goods sold to them by taxable persons.
The amount withheld represents a pre payment of part of the sellers'
definitive IG liability for the same tax period. The pre payments made can
be credited at the time of settlement of the definitive IG liability.
11.124 The persons required to withhold the IG on internal sales, the
so-called withholding agents (agentes de retención), are appointed by the
tax administration on the basis of its fiscal interests. Those persons
include, e.g., most forms of juridical persons.413 Natural persons are
required to withhold the IG only where they make payments to taxable
persons as a result of the exercise of an economic activity.414
11.125 The transactions subject to withholding include the internal
sale of the following categories of goods415
:
- merchandise for resale, raw materials and other materials416 ;
- processed goods417 ;
- goods undergoing processing
418;
- livestock
419;
- grains, oilseeds, fruit and other products of the earth, excluding
forestry products
420;
- depreciable movable property 421
; and
- other goods falling within Article 65 of the IG Law;.
11.126 The pre payments on internal sales are withheld at the following
ad valorem rates
422:
- sales by registered taxable persons: 2 percent
- sales by non-registered taxable persons: 4 percent
11.127 By way of exception, no pre payments are withheld on the following
internal sales:
- sales which give rise to monthly payments of Pesos 11,242.7 or less
423;
- sales which give rise to a pre payment of the IG of less than Pesos 3.75
424.
2. Overview of the parties' arguments and analytical approach followed
425
11.128 Article III:2, first sentence, of the GATT 1994 provides as
follows:
2. The products of the territory of any contracting party imported into
the territory of any other contracting party shall not be subject,
directly or indirectly, to internal taxes or other internal charges of any
kind in excess of those applied, directly or indirectly, to like domestic
products.
11.129 The European Communities claims that RG 3431 and RG 3543, which
provide for the pre payment of part of the IVA and IG upon importation of
goods, are inconsistent with Article III:2, first sentence. According to
the European Communities, the pre payments on imports required by RG 3431
and RG 3543 exceed the pre payments to be made on internal sales of goods,
with the consequence that importers bear a heavier financial cost than
buyers of like domestic goods. The European Communities notes that its
complaint is concerned with that additional financial cost imposed on
importers and is not meant to question Argentina's right to require the
pre payment of taxes.
11.130 Argentina rejects the European Communities' claims. Argentina
recalls that the IVA Law and IG Law treat imported and domestic products
alike. The measures challenged by the European Communities do not,
according to Argentina, create additional taxes, but rather provide for
the pre payment of the IVA and IG. Argentina submits that RG 3431 and RG
3543 are tax administration and collection measures and that, as such,
they fall outside the scope of Article III:2. Argentina notes, moreover,
that the pre payments made pursuant to RG 3431 and RG 3543 can be credited
at the time of settlement of the definitive tax liability arising from the
IVA Law and IG Law. Argentina considers that imported products are thus in
any event not subject to internal taxes in excess of those applied to like
domestic products.
11.131 We consider that, for a measure to infringe Article III:2, first
sentence, an affirmative conclusion must be reached in respect of each of
the following three requirements:
(i) the measure must qualify as an internal tax or other charge of any
kind applied, directly or indirectly, to imported and domestic products;
(ii) the taxed imported and domestic products must be like; and
(iii) imported products must be subject, directly or indirectly, to
internal taxes or charges in excess of those applied, directly or
indirectly, to like domestic products.
11.132 Our examination of the European Communities' claims under Article
III:2, first sentence, addresses these requirements in turn. Prior to
beginning that task, however, we need to consider Argentina's contention
that, for a complaining party to establish a case under Article III:2,
first sentence, it must demonstrate, as a necessary requirement, the
presence of a protective application of the contested measure.
11.133 Argentina acknowledges that the Appellate Body, in its report on
Japan – Alcoholic Beverages II, found that, for purposes of a claim under
Article III:2, first sentence, a complaining party does not need to
establish, as a separate requirement, that the challenged measure is
applied so as to afford protection to domestic production. However,
according to Argentina's reading of that report, the Appellate Body did
not imply that there is no need to show the presence of a protective
application. Rather, what the Appellate Body report says, in Argentina's
view, is that the existence of a protective application must be determined
together with the other specific requirements contained in Article III:2,
first sentence, rather than separately. Argentina considers that this must
be so considering that the Appellate Body stated that the first paragraph
of Article III informs the second paragraph.
11.134 The European Communities disagrees with Argentina's interpretation
of the Appellate Body report on Japan – Alcoholic Beverages II. In its
view, it is clear from the report that there is no need for a complaining
party to prove, as a separate requirement, the presence of a protective
application of the challenged measure. Nor is there a need, according to
the European Communities, to show the presence of a protective application
for purposes of a "like products" determination or a determination of
whether imported products are taxed in excess of like domestic products.
11.135 In its report on Japan – Alcoholic Beverages II, the Appellate Body
addressed the omission of a specific reference in Article III:2, first
sentence, to Article III:1426 in the following terms:
This omission must have some meaning. We believe the meaning is simply
that the presence of a protective application need not be established
separately from the specific requirements that are included in the first
sentence in order to show that a tax measure is inconsistent with the
general principle set out in the first sentence. However, this does not
mean that the general principle of Article III:1 does not apply to this
sentence. To the contrary, we believe the first sentence of Article III:2
is, in effect, an application of this general principle.427
11.136 Argentina attaches great importance to the highlighted portion in
the above statement. It appears to us that Argentina essentially argues
that since, according to the Appellate Body, the general principle of
Article III:1 applies to Article III:2, first sentence, and since the
presence of a protective application need not be established separately
from the specific requirements included in Article III:2, first sentence,
this must mean that the presence of a protective application must be
established together with the specific requirements of Article III:2,
first sentence.
11.137 We are unable to agree with Argentina's interpretation of the
Appellate Body's statement. As we understand it, the presence of a
protective application need be established neither separately nor together
with the specific requirements contained in Article III:2, first sentence.
The quoted passage from the Appellate Body report in Japan – Alcoholic
Beverages II makes clear that Article III:2, first sentence, is, in
effect, an application of the general principle stated in Article III:1.
Accordingly, whenever imported products from one Member's territory are
subject to taxes in excess of those applied to like domestic products in
the territory of another Member, this is deemed to "afford protection to
domestic production" within the meaning of Article III:1. It follows that,
in applying Article III:2, first sentence, recourse to the general
principle of Article III:1 is neither necessary nor appropriate.428 The only
requirements that need to be demonstrated by the complaining party are
those contained in Article III:2, first sentence, itself.429
11.138 In light of the foregoing, we conclude that there is no requirement
to establish, separately or otherwise, the presence of a protective
application in order to show an infringement of Article III:2, first
sentence.
3. Applicability of Article III:2
11.139 As indicated, we commence our analysis of the European Communities'
claims with an inquiry into whether the contested measures, i.e. RG 3431
and RG 3543, fall within the ambit of Article III:2. For Article III:2 to
apply to those measures, they must, in our view, (i) constitute taxes or
other charges of any kind, (ii) constitute internal measures and (iii)
apply, directly or indirectly, to imported and domestic products. We
examine each of these requirements below.
(a) Tax measures
11.140 Neither party disputes that the IVA and the IG are taxes. It is
also common ground that RG 3431 and RG 3543 are mechanisms for the
collection of those taxes. The parties disagree, however, on whether the
mechanisms used by Argentina for collecting those taxes are subject to the
disciplines of Article III:2.
11.141 The European Communities considers that the mechanisms for the pre
payment of the IVA and IG fall within the scope of Article III:2. It
consistently refers to these mechanisms as "taxes" or "tax measures". The
European Communities notes that the wording of Article III:2, in
particular the terms "directly or indirectly" and "internal taxes or
charges of any kind", clearly indicates that it was the drafters'
intention to capture all possible forms of tax discrimination. According
to the European Communities, it is not appropriate, therefore, to draw a
distinction between "substantive" tax measures, such as the IVA and IG,
and "measures of tax administration", such as the measures at issue in the
present case. Otherwise it would be extremely easy for Members to
circumvent the prohibition contained in Article III:2, thereby defeating
its object and purpose.
11.142 Argentina considers that the contested collection mechanisms are
not covered by Article III:2. According to Argentina, those mechanisms can
hardly be considered to be akin to the concept of "internal taxes" or
"other charges of any kind". Argentina argues that RG 3431 and RG 3543 are
not taxes in themselves. They constitute tax administration and collection
measures which do not alter the definitive tax liability arising from the
relevant tax law, i.e. the IVA Law or IG Law. Argentina contends that tax
collection methods are not covered by WTO disciplines. Argentina therefore
is of the view that Members enjoy a margin of discretion with respect to
measures designed to achieve efficient tax administration.
11.143 We consider that RG 3431 and RG 3543 are properly viewed not as
taxes in their own right, but as mechanisms for the collection of the IVA
and IG. What is special, however, about RG 3431 and RG 3543 as mechanisms
for the collection of the IVA and IG is that they provide for the
imposition of charges. We recall that Article III:2 covers "charges of
any
kind" (emphasis added). The term "charge" denotes, inter alia, a
"pecuniary burden" and a "liability to pay money laid on a person…"430.
There can be no doubt, in our view, that both RG 3431 and RG 3543 impose a
pecuniary burden and create a liability to pay money431. Moreover, the
charges provided for in RG 3431 and RG 3543 represent advance payments of
the IVA and IG. RG 3431 and RG 3543 in effect impose on importers part of
their definitive IVA and IG liability.432 It is clear to us, therefore, that
the charges in question qualify as tax measures. As such, they fall to be
assessed under Article III:2.
11.144 With regard to Argentina's argument that RG 3431 and RG 3543
are measures designed to achieve efficient tax administration and
collection and as such do not fall under Article III:2, it should be noted
that Argentina has provided no support for this argument, except to say
that it is up to Members to decide how best to achieve efficient tax
administration. We agree that Members are free, within the outer bounds
defined by such provisions as Article III:2, to administer and collect
internal taxes as they see fit.433
However, if, as here, such "tax administration" measures take the form of
an internal charge and are applied to products, those measures must, in
our view, be in conformity with Article III:2.434
There is nothing in the provisions of Article III:2 to suggest a different
conclusion. If it were accepted that "tax administration" measures are
categorically excluded from the ambit of Article III:2, this would create
a potential for abuse and circumvention of the obligations contained in
Article III:2. It must be stated, moreover, that the applicability of
Article III:2 is not conditional upon the policy purpose of a tax measure.435
On that basis, we cannot agree with Argentina that charges intended to
promote efficient tax administration or collection a priori fall outside
the scope of Article III:2.
Notes
375 The New Shorter Oxford English Dictionary, Vol. II, Oxford (1993),
at p. 3488.
376 In this regard, we refer to Article 6.5 of the Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994 (the Antidumping
Agreement), which provides that information could be considered by its nature
confidential:
… for example, because its disclosure would be of significant competitive
advantage to a competitor or because its disclosure would have a significantly
adverse effect upon a person supplying the information or upon a person from
whom that person acquired the information.
377 We note that we are dealing here with the question of administration of Customs
laws rather than effecting an export restriction pursuant to a measure. We
recall that under Article XI, we stated that if certain information were in the
public domain, even arguably improperly, it could not be as a result of the
measure in question that such an alleged export restriction was being
implemented by reason of such information. Here the issue is different because
we are directly addressing what information is actually made available pursuant
to this measure. The fact that such information might be made available
elsewhere by the government is not relevant to the question of information
potentially released by this measure.
378 We note that we make no explicit ruling on whether Argentina is correct in
saying that it needs expert advice in classification. In this regard, we do not
think that the mere presence of ADICMA, or any other private persons, is in and
of itself unreasonable. (See the discussion in the next Section regarding
"impartiality"). We further note, however, that it remains unclear to us why the
tanners are the only industry that has the right to send representatives to
participate in the Customs clearance of their suppliers' exports and for which
the Argentinean government requires such expertise.
379 In this regard, we take note of Article 2:14 of the Agreement on Preshipment
Inspection. This agreement deals specifically with the role of private persons
in certain Customs transactions and specifically recognizes the problem of
conflicts of interest.
380 In this regard, we recall that we are not dealing under this Article with export
restraints. We already decided in the previous Section that the allegations of
such restraints within the meaning of Article XI imposed through RG 2235 remain
unproved. Thus, any chilling effect with respect to the exports themselves has
not been established.
381 Again, we note that there is, arguably, a "legal interest" created by RG 2235
itself. However, that is the measure in question and should not be seen to
self-generate a legal relationship that would not otherwise exist.
382 See also paras. 6.1
et seq. of this report.
383 Law No. 23349/97 (Exhibit EC II.1), as last amended by Law No. 25239/99 (Exhibit
EC II.3) (hereafter the "IVA Law").
384 Lower rates apply to transactions involving certain specified products,
including live bovine animals, offal of bovines as well as fresh fruit and
vegetables.
385 See Article 29 of the IVA Law.
386 See Articles 4, 30 and 38 of the IVA Law.
387 Exhibit EC II.5 (hereafter "RG 3431").
388 Exhibit EC II.6 (hereafter "RG 3337").
389 See Article 4 of RG 3431.
390 See Article 3 of RG 3431. Lower rates apply to import transactions involving
certain specified products, including live bovine animals, offal of bovines as
well as fresh fruit and vegetables. The European Communities does not challenge
those rates.
391 See Article 2 of RG 3431.
392 See also Article 26 of the IVA Law.
393 See also Article 8 a) of the IVA Law.
394 See Article 1 of RG 3337.
395 See Article 9 of RG 3337.
396
Ibid.
397 See Article 2 of RG 3337.
398 See Article 3 b) of RG 3337.
399 See Article 3 c) of RG 3337.
400 See Article 5 of RG 3337.
401 As codified by Decree No. 649/97 (Exhibit EC II.2) and last amended by Law
No. 25239/99 (Exhibit EC II.3) (hereafter the "IG Law").
402 See Articles 1 and 2 of the IG Law.
403 See Articles 2; 49; 52 a) b) c) d) and e); 58; and 65 of the IG Law.
404 See Article 69 of the IG Law.
405 See Article 90 of the IG Law.
406 Exhibit EC II.8 (hereafter "RG 3543").
407 Exhibit EC II.10 (hereafter "RG 2784").
408 See Article 8 of RG 3543; Argentina's reply to Panel Question 55.
409 See Article 4 of RG 3543.
410 See
ibid.
411 See Article 2 of RG 3543.
412 See
ibid.
413 See Article 3 of RG 2784.
414 See Article 3 f) of RG 2784.
415 See Article 1 of RG 2784.
416 See Article 52 a) of the IG Law.
417 See Article 52 b) of the IG Law.
418 See Article 52 c) of the IG Law.
419 See Article 52 d) of the IG Law.
420 See Article 52 e) of the IG Law.
421 See Article 58 of the IG Law.
422 See Article 14.3 of RG 2784.
423 See Article 15.3 of RG 2784.
424 See Article 16 of RG 2784.
425 It should be noted that notwithstanding the fact that the present case is
entitled Argentina – Measures Affecting the Export of Bovine Hides and the
Import of Finished Leather, the European Communities' claims under Article
III:2, first sentence, are not limited to finished leather, but rather extend to
imported products in general. See the European Communities' request for the
establishment of a panel (WT/DS155/2).
426 Article III:1 provides as follows:
1. The contracting parties recognize that internal taxes and other internal
charges, and laws, regulations and requirements affecting the internal sale,
offering for sale, purchase, transportation, distribution or use of products,
and internal quantitative regulations requiring the mixture, processing or use
of products in specified amounts or proportions, should not be applied to
imported or domestic products so as to afford protection to domestic production.
(note omitted)
427 Appellate Body Report, supra, at pp. 18 and 19 (emphasis added).
428 We find further support for our view in the following statement made by the
Appellate Body in its report on European Communities – Bananas, supra, at para.
216:
Article III:4 does not specifically refer to Article III:1. Therefore, a
determination of whether there has been a violation of Article III:4 does not
require a separate consideration of whether a measure "afford[s] protection to
domestic production".
While this statement relates to Article III:4 of the GATT, which is not at issue
in the present case, it nevertheless provides useful clarification for purposes
of analysing Argentina's argument in respect of Article III:2, first sentence.
It clearly emerges from this statement that not only is there no requirement
separately to establish the presence of a protective application, but that there
is not even a requirement separately to consider whether there is a protective
application.
429 We note Argentina's contention that the GATT 1947 panel reports on
Japan –
Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic
Beverages (hereafter "Japan – Alcoholic Beverages I"), adopted on 10 November
1987, BISD 34S/83; United States – Section 337 of the Tariff Act of 1930 (hereafter "United States – Section 337"), adopted on 7 November 1989, BISD
36S/345, and United States – Measures Affecting Alcoholic and Malt Beverages
(hereafter "United States – Malt Beverages"), adopted on 19 June 1992, BISD
39S/206, lend support to its view that the presence of a protective application
must be established for purposes of a claim under Article III:2, first sentence.
See paras. 8.228 et seq. of this report. Since all of the aforementioned reports
pre-date the Appellate Body reports on Japan – Alcoholic Beverages II and
European Communities – Bananas and since those Appellate Body reports directly
address the issue before us, we see no need to further consider the GATT 1947
reports in this regard.
430 The New Shorter Oxford English Dictionary, Vol. I, Oxford (1993), p. 374.
431 See e.g. Articles 1, 3 in fine, and 5 of RG 3431 and Articles 1 and 5 of RG
3543. While it is true that payments made pursuant to RG 3431 and RG 3543 may be
credited against the definitive liability arising from the IVA Law and IG Law,
this does not detract from the fact that those collection mechanisms create a
financial liability. Argentina has acknowledged this in stating that RG 3543 "…
establishes … the obligation to effect an IG payment on account". See
Argentina's Second Oral Statement, p. 7.
432 We recognize that Argentina has stated that this is a presumed liability in that
at the time pre payments of the IVA and IG are made in accordance with RG 3431
and RG 3543, the definitive liability under the IVA Law and IG Law has not yet
been determined. This fact does not alter our analysis.
433
We recall, however, that other provisions of the GATT 1994, such as Article
X:3(a), may constrain Members' freedom of action in this regard.
434
Members of course retain the right to invoke exceptions, such as those set forth
in Article XX of the GATT 1994.
435
See the Panel Reports on United States – Taxes on Petroleum and Certain
Imported Substances, adopted on 17 June 1987, BISD 34S/160, at para. 5.2.4,
EEC – Regulation on Imports of Parts and Components, adopted on 16 May
1990, BISD 37S/132, at para. 5.6.
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