6. Defence under Article XX(d)
of the GATT 1994
(a) Overview of the parties' arguments and analytical approach followed
11.285 Article XX of the GATT 1994 reads in relevant part:
Subject to the requirement
that such measures are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination between countries where
the same conditions prevail, or a disguised restriction on international
trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
…
(d) necessary to secure compliance with laws or regulations which are not
inconsistent with the provisions of this Agreement, including those
relating to customs enforcement, the enforcement of monopolies operated
under paragraph 4 of Article II and Article XVII, the protection of
patents, trade marks and copyrights, and the prevention of deceptive
practices;
11.286 Argentina
asserts that, should we find that the contested mechanisms for the
collection of the IVA and IG are inconsistent with the provisions of
Article III:2, first sentence, those mechanisms would nevertheless be
justified under the provisions of Article XX of the GATT 1994. More
particularly, Argentina submits that those mechanisms fall within the
terms of Article XX(d).
11.287 The European
Communities considers that Argentina has failed to demonstrate that the
mechanisms at issue satisfy the requirements of Article XX(d). The
European Communities also argues that Article XX must be interpreted
narrowly.
11.288 We note that a measure found to be inconsistent with one or
several of the substantive obligations of the GATT 1994 must withstand a
two-tiered analysis in order for it to be justified under Article XX.
Specifically, that measure must:
(i) fall within the scope of
one of the recognised exceptions set out in paragraphs (a)
to (j) of Article XX in order to enjoy provisional justification and
(ii) meet the requirements of the introductory provisions of Article XX,
the so-called chapeau.556
11.289 In examining
Argentina's affirmative defence under Article XX(d), we first analyse
whether the contested measures fall within the terms of paragraph (d) of
Article XX. If such is the case, we proceed to an analysis of the same
measures under the chapeau of Article XX.
(b) Provisional justification under paragraph (d) of Article XX
11.290 It is apparent from the text of paragraph (d) of Article XX that it
is incumbent upon Argentina to demonstrate three elements. Those three
elements are:
(i) the measures for which justification is claimed secure compliance with
other laws or regulations;
(ii) those other laws or regulations are not inconsistent with the
provisions of the GATT 1994; and
(iii) the measures for which justification is claimed are necessary to
secure compliance with those other laws or regulations.
11.291 Accordingly, our analysis proceeds in three steps.
(i) Existence of measures which secure compliance with other laws or
regulations
11.292 Argentina contends that the contested mechanisms for the collection
at source of the IVA and IG, i.e. RG 3431 and RG 3543, were put in place
in order to avert actions which are illegal under the terms of the IVA Law
and IG Law, such as failure to declare or pay the IVA or IG. Argentina
argues, therefore, that those mechanisms were specifically designed to
secure compliance with the IVA Law and IG Law respectively.
11.293 The European Communities does not contest that RG 3431 and RG 3543
are measures which, inter alia, secure compliance with the IVA Law and IG
Law respectively.
11.294 We agree with the parties in this respect. As regards RG 3431, the
fact that pre payments made in accordance with it are creditable at the
time of settlement of the definitive IVA liability creates an incentive
for importers to declare the re-sale of the imported products to the tax
authorities, which re-sale is taxable under the IVA Law.557 RG 3543, on the
other hand, helps secure compliance with the IG Law inasmuch as the pre
payments for which it provides reduce evasion of the IG resulting from
failure to declare taxable income.
11.295 We therefore conclude that RG 3431 and RG 3543 serve to secure
compliance with the IVA Law and IG Law respectively.
(ii) Consistency with the GATT 1994 of those other laws or regulations
11.296 Argentina asserts that the IVA Law and IG Law are consistent with
its obligations under the GATT 1994.558
11.297 The European Communities does not question the consistency with the
GATT 1994 of either the IVA Law or the IG Law.
11.298 We continue, therefore, on the basis that the IVA Law and the IG
Law must be presumed to be consistent with the GATT 1994.
(iii) Necessity of the measures taken to secure compliance
11.299 Argentina contends that Members invoking Article XX(d) are entitled
to a certain degree of discretion in determining whether a measure is
"necessary". Argentina considers that the Member taking a measure is best
placed to assess whether that measure is necessary. Argentina also argues
that paragraph (d) of Article XX does not say that a Member must evaluate
a number of alternative measures which would ensure the observance of its
laws and then choose the least trade-restrictive among them.
11.300 The European Communities argues that it is our task to examine
whether Argentina's measures are "necessary" to achieve Argentina's
desired level of enforcement of the IVA Law and IG Law. The European
Communities considers that the relevant test for assessing the necessity
of a measure can be found in the report of the GATT 1947 panel on United
States – Section 337. The European Communities notes that that panel held
that a Member cannot justify a measure as necessary in terms of Article
XX(d) "if an alternative measure which [that Member] could reasonably be
expected to employ and which is not inconsistent with other GATT
provisions is available to it".559
11.301 Argentina asserts that, even if the European Communities'
interpretation were correct, the contested mechanisms for the collection
of the IVA and IG upon importation of goods are the only measures
reasonably available to it for securing compliance with the IVA Law and IG
Law. Argentina notes that tax evasion is an entrenched social ill in
Argentina. According to Argentina, in such a situation, a government's
primary focus must be on the prevention of tax evasion rather than its
repression. Argentina contends that the aforementioned mechanisms are
preventative in nature. Argentina points out in this regard that the
creditable pre payments of the IVA and IG ensure the settlement of the
definitive tax liability at the appropriate time and that the mechanisms
concerned also make it possible to detect, and thus reduce, tax evasion by
rendering transparent the business dealings of taxable persons.
11.302 The European Communities considers that Argentina's submissions may
be relevant for purposes of demonstrating that the contested mechanisms
are necessary to fight tax fraud. The European Communities notes, however,
that those submissions fail to explain why it is necessary to impose a
heavier tax burden on imported products than on like domestic products.
11.303 It must be stated, as a preliminary matter, that the question which
we must examine here is whether the contested measures are "necessary" to
secure compliance with the IVA Law and the IG Law.560 At this point in our
analysis, we look at the relationship of Argentina's claimed policy
objective of securing compliance with the IVA Law and the IG Law and the
general design and structure of RG 3431 and RG 3543.
561
11.304 Having clarified this point, it should be recalled, next, that the
parties are in disagreement over the correct interpretation to be given to
the term "necessary" as it appears in Article XX(d). For the European
Communities, a measure can be said to be necessary only if no alternative
measure which is consistent with the GATT 1994 is reasonably available to
a Member. Argentina, on the other hand, rejects this approach as overly
restrictive of a Member's right to invoke the exception set forth in
Article XX(d). We see no need to resolve this interpretative issue.
11.305 We are satisfied that Argentina has adduced argument and evidence
sufficient to raise a presumption that the contested measures, in their
general design and structure, are "necessary" even on the European
Communities' reading of that term. Argentina stresses the fact that tax
evasion is common in its territory and that, against this background of
low levels of tax compliance, tax authorities cannot expect to improve tax
collection primarily through the pursuit of repressive enforcement
strategies (e.g. aggressive criminal prosecution of tax offenders). In
those circumstances, Argentina maintains, tax authorities must direct
their efforts towards preventing tax evasion from occurring in the first
place. According to Argentina, this is precisely what RG 3431 and RG 3543
are designed to accomplish.562
11.306 The European Communities does not dispute that, in the
circumstances of the present case, collection and withholding mechanisms
are necessary to combat tax evasion.563 Nor has the European Communities
submitted other arguments or evidence which would rebut the presumption
raised by Argentina in respect of the "necessity" of RG 3431 and RG 3543.564
11.307 In light of the foregoing, we conclude that, in view of their
general design and structure, RG 3431 and RG 3543 are "necessary" measures
within the meaning of Article XX(d).
11.308 Since it has thus been established that RG 3431 and RG 3543 satisfy
all of the requirements set forth in Article XX(d), we further conclude
that they enjoy provisional justification under the terms of Article XX(d).
(c) Consistency with the requirements of the chapeau of Article XX
(i) Interpretation and application of the chapeau
11.309 Argentina argues that the pre payment of the IVA and IG is intended
to combat tax evasion and not to restrict trade. Argentina submits that,
since increased trade means increased tax collection, the contested
collection mechanisms cannot possibly be regarded as constituting a
"disguised restriction on international trade".
11.310 Regarding the chapeau's additional requirement that those
mechanisms not be a means of "arbitrary or unjustifiable discrimination
between countries where the same conditions prevail", Argentina notes that
the use of the terms "arbitrary" and "unjustifiable" indicates that there
could be discrimination which is "not arbitrary" or "justifiable".
Argentina further is of the view that the aforementioned requirement is
concerned with discrimination between exporting countries, but not with
discrimination between the importing country and exporting countries.
Argentina argues that the fact that the Appellate Body in United States –
Gasoline found otherwise does not detract from its view. According to
Argentina, the Appellate Body did so only because, in that specific case,
the parties had a common interpretation of the requirement in question.
11.311 The European Communities considers that the chapeau is concerned
with discrimination between the importing country and exporting countries.
The European Communities recalls that the Appellate Body accepted this
interpretation in United States – Gasoline and that the Appellate Body
later confirmed it in United States – Shrimp. The European Communities
submits that the fact that a violation of Article III presupposes
discrimination between an importing country and an exporting country does
not make Article XX redundant since the discrimination at issue in the
chapeau is of a different kind than that at issue in Article III.
11.312 It is well to recall at the outset that the fundamental purpose of
the chapeau of Article XX is to avoid abuse or misuse of the particular
exceptions set forth in Article XX, in the present case of the exception
set forth in Article XX(d).565 Accordingly, whereas our focus was on the
general design and structure of RG 3431 and RG 3543 when we examined
whether these measures fall within the terms of Article XX(d), our focus
here is on whether their application constitutes a misuse of that
exception.566
11.313 The chapeau sets forth three standards which a particular measure
must meet.567 Those standards are cumulative in nature. As a result, if the
measure for which justification is claimed fails to meet one of them, the
measure ipso facto fails to satisfy the requirements of the chapeau. The
order in which the standards are examined is therefore immaterial. In the
present case, we consider it appropriate to analyse first whether the
application of RG 3431 and RG 3543 constitutes a means of "unjustifiable
discrimination between countries where the same conditions prevail".
11.314 According to the Appellate Body, the phrase "unjustifiable
discrimination between countries where the same conditions prevail" is
sufficiently broad to encompass not only discrimination between exporting
Members, but also discrimination between exporting Members and the
importing Member in question.568 To this we would add that, in our view, the
phrase "discrimination between countries where the same conditions
prevail" is also broad enough to encompass discrimination between products
of the territories of those countries.569
11.315 Since we have already found that RG 3431 and RG 3543 give rise to
discrimination between imported products and like domestic products, the
only remaining issue is whether the discrimination resulting from the
application of RG 3431 and RG 3543 is "unjustifiable".570 It is important to
bear in mind that the standard of "unjustifiable" discrimination is
different in nature and quality from the standard of discrimination
contained in Article III:2, first sentence.571 As Argentina correctly points
out, the prohibition on unjustifiable discrimination in the application of
a measure by necessary implication leaves room for justifiable
discrimination. On the other hand, this does not imply that some
discrimination is always justifiable. Whether or not any discrimination is
justifiable, in a given instance, and if so, to what extent, must be
ascertained by way of analysis of the specific circumstances of each case.
(ii) Justifiability of discrimination
11.316 Argentina submits that the rates applicable to import transactions
pursuant to RG 3431 and RG 3543 are warranted because Customs represents a
point where there is a high concentration of formal transactions.
Argentina notes that in cases where there is a comparable concentration of
formal transactions in the internal market, Argentina applies rates equal
to or higher than those applied at Customs. Argentina refers to the
examples of RG 18, pursuant to which the IVA is to be withheld at a rate
of 10.5 percent, and of General Resolution No. 3316/91, which envisages a
14 percent withholding on payments of certain professional fees.
11.317 Specifically with respect to the pre payment of the IVA, Argentina
submits that any lowering of the 10 percent rate applicable to import
transactions would undermine the goal of combating tax evasion and would
lead to a loss of net tax revenue. Argentina argues that this is so
because a reduction of the current rate would lessen the incentive for
importers to declare their subsequent internal re-sale transactions, which
transactions could therefore not be subjected to taxation. Argentina
asserts that a one percentage point reduction of the 10 percent collection
rate for imports would translate into a monthly tax revenue loss of US$10
million. Argentina points out in this regard that the revenue raised from
the various mechanisms for the pre payment of the IVA and IG is used to
comply with certain quarterly deficit commitments Argentina has made
vis-à-vis the International Monetary Fund (IMF). Argentina maintains that
a reduction of the rate currently applicable to imports would jeopardise
Argentina's meeting those deficit targets.
11.318 Argentina further argues that an increase in the 5 percent rate for
the pre payment of the IVA on internal sales by agentes de percepción to
small local buyers would not further reduce tax evasion. According to
Argentina, a rate increase would not make transactions at subsequent
marketing stages more transparent, since the aforementioned transactions
tend to take place almost at the end of the marketing chain. Argentina
contends that, for that reason and also because of the greater number of
pre payment mechanisms applying to internal sales transactions, there
would be a risk that higher rates for the pre payment of the IVA would
give rise to a situation of overpayment of the IVA. Argentina argues that
an increase in the rate would therefore ultimately lead to a higher number
of exemptions granted under RG 17, with the consequence that there would
be more informal transactions and, as a result, a net decrease in tax
revenue collected. Argentina points out that, even at the current rate,
there has in recent years been a steady increase in the number of
exemptions granted.
11.319 The European Communities argues that from the fact that the
collection of pre payments is easier for imports it does not follow that
it is necessary to collect those pre payments at rates which are higher
than those applicable to internal sales. The European Communities further
submits that it is not clear why the collection of pre payments of the IVA
on imports at a rate of less than 10 percent would constitute a
"disincentive" to declare subsequent transactions. The European
Communities notes in this regard that it is difficult to understand why
importers could be interested in not charging the IVA on their re-sales,
since that would seem to be the easiest way for them to credit the IVA
paid on their import transactions. The European Communities also wonders
why the collection of pre payments of the IVA on internal sales by agentes
de percepción to local buyers at a rate of only 5 percent does not create
a "disincentive" to declare subsequent transactions. On this point, the
European Communities maintains that Argentina has not provided evidence
demonstrating that the payment of the IVA is more frequently evaded when
imported goods are re-sold by importers than when domestic goods are
re-sold by "domestic" sellers.
11.320 The European Communities also disputes that an increase in the 5
percent rate for the pre payment of the IVA on internal sales by agentes
de percepción to small local buyers would produce the revenue loss
predicted by Argentina. The European Communities submits that, while an
increase in the collection rate may result in an increase in the number of
exemptions, this would not necessarily reduce the revenue collected
through the mechanism for the pre payment of the IVA. The European
Communities recalls in this regard that exemptions are granted only in
cases where the pre payments made exceed the definitive liability under
the IVA law. The European Communities points out, in addition, that the
increase in the number of exemptions granted in recent years may be the
result of factors which are unrelated to the rate at which the pre
payments are collected, such as greater familiarity of taxable persons
with the exemption mechanism. The European Communities also notes that
Argentina has not provided evidence which would show that exemptions are
more frequently requested, in relative terms, by "domestic" sellers than
by importers.
11.321 In response to a question of the Panel regarding why Argentina
cannot refund the additional loss of interest suffered by importers,
Argentina submits that it would be virtually impossible to quantify the
interest lost, since this would require an analysis of a range of factors,
such as the time-lapse between each payment on account and its
corroboration in the tax statement. Argentina notes, furthermore, that the
resulting cost to the government of verifying the appropriateness of a
refund and of the quantification of the interest lost would be exorbitant,
so much so that it would cause the failure of the various mechanisms for
the pre payment of the IVA and IG.572
11.322 We commence our examination by recalling that it is not the rate
differentials573 per se which render RG 3431 and RG 3543 inconsistent with
Article III:2, first sentence, but rather the fact that importers must
forego or pay more interest than their "domestic" counterparts in the
interval between the pre payment of the IVA and IG and its crediting
against the definitive tax liability arising from the IVA Law and IG Law.
Therefore, it is not the rate differentials themselves which require
justification for purposes of our analysis under the chapeau of Article XX
but the extra tax burden imposed on importers as a result of those rate
differentials.
11.323 For purposes of assessing the justifiability of that extra tax
burden, it is important to recall our earlier finding that RG 3431 and RG
3543 fall within the terms of Article XX(d) because they are necessary to
secure compliance with the IVA Law and the IG Law respectively. The
justifying protection of Article XX(d) does not and cannot extend beyond
that limited purpose. Argentina has not argued that the extra tax burden
imposed on importers in the form of interest lost or paid specifically
serves to secure compliance with the IVA Law or IG Law. It is apparent, in
our view, that it does not serve that specific purpose.
11.324 The question then becomes whether the extra tax burden imposed on
importers in the form of interest lost or paid is nevertheless justifiable
because it is unavoidable for the operation of RG 3431 and RG 3543, which,
in our view, fall within the scope of protection of Article XX(d).
11.325 We note in this regard that one alternative course of action
available to Argentina would be to reimburse importers for the additional
interest foregone or paid. Similarly, Argentina could provide for the
additional interest lost or paid to be creditable against the tax
liability arising from the IVA Law and IG Law. Whichever way compensation
of importers is achieved, it would not, in our view, call into question
the usefulness of RG 3431 or RG 3543 as measures for securing compliance
with the IVA Law or IG Law. We do not therefore consider that the extra
tax burden imposed on importers in the form of interest lost or paid is
unavoidable.
11.326 Argentina argues that compensating importers would not be an option
because it would be virtually impossible to quantify an importer's
additional loss or payment of interest. We do not find this argument
convincing. It is true that relevant market rates for determining the
interest lost or paid are subject to change over time and that the level
of those rates tends to vary depending on the length of the term for which
capital is invested or borrowed. It does not follow, however, that
compensation is therefore impossible. Even if it were administratively too
difficult to use actual market rates as a basis for calculating the
additional loss or payment of interest (which has not been demonstrated to
the Panel), it would still be possible, in our view, to use other
appropriate rates 574, such as average market rates
575.576 We also agree that for
purposes of quantification of the additional interest lost or paid it is
necessary to determine the time-period between the pre payments of the IVA
and IG and their subsequent crediting, which period may vary from
transaction to transaction.577 In this regard, it seems to us that it should
be possible, for example, for Argentina's customs authorities and/or the
importers themselves to keep records regarding the date of the pre
payments of the IVA and IG.
11.327 Argentina submits, in addition, that compensation of importers for
the extra tax burden in the form of interest lost or paid would result in
an excessive administrative cost for the government, which would cause the
failure of RG 3431 and RG 3543. It must be acknowledged that compensation
would entail some administrative cost for the government. However, so do
the exemption mechanisms provided for in RG 17 (with respect to the pre
payment of the IVA) and RG 2784 (with respect to the pre payment of the IG)
as well as the refund mechanism set forth in RG 2224 (with respect to the
pre payment of the IG). Argentina has not shown why compensating importers
for the additional loss or payment of interest would be significantly more
administratively burdensome than the operation of such mechanisms. In any
event, Argentina could, in our view, alleviate the administrative burden,
for instance by requiring importers to supply supporting documentation for
purposes of claiming compensation.578 Moreover, we consider that the increase
in net tax revenue which Argentina claims RG 3431 and RG 3543 make
possible by far exceeds the administrative cost which would result from
the compensation of importers.579 We are therefore not persuaded by
Argentina's argument that compensating importers for the additional
interest lost or paid would result in an excessive administrative cost and
would cause the failure of RG 3431 and RG 3543.
11.328 Lastly, we turn to Argentina's assertion that no changes to the
current pre payment mechanisms are possible, as this could preclude
Argentina from meeting its deficit commitments to the IMF. In support of
its assertion, Argentina has referred us to an Economic Policy Memorandum
and a Technical Memorandum, which Argentina says are part of an agreement
with the IMF.580 However, in neither Memorandum is there a statement to the
effect that Argentina is under an obligation to impose a discriminatory
tax burden on importers. Nor do we see a requirement in those Memoranda
which would bar Argentina from compensating importers for the
discrimination suffered. Furthermore, Argentina has in any event not
presented argument and evidence sufficient for us to find that it would be
impossible for Argentina to meet its deficit targets if it were to
compensate importers for the additional interest lost or paid. It should
also be recalled in this context that Argentina has not invoked Article XX(d) on the basis that RG 3431 and RG 3543 are necessary to secure
compliance with IMF commitments, but on the basis that they are necessary
to secure compliance with the IVA Law and IG Law.581 For these reasons, we do
not consider that, in the present case, Argentina's commitments to the IMF
provide a justification for not compensating importers.
11.329 Another course of action available to Argentina would be to
eliminate the rate differentials themselves. Argentina rejects this course
of action as not viable. Argentina argues, in essence, that any narrowing
of the current rate differentials would have as an inevitable consequence
that tax evasion could not be combated as effectively because there would
be less transparency on taxable transactions. Argentina has not fully
convinced us that the extra tax burden imposed on importers is justifiable
on this basis. In particular, we have not been provided with persuasive
evidence in support of Argentina's assertion that the elimination of the
rate differentials would lead to more tax evasion. In any event, we note
this option only as an alternative, since we have already found that
Argentina could act consistently with Article III:2, first sentence, even
while maintaining the existing rate differentials, by compensating
importers for the additional interest lost or paid.582
11.330 It follows from the foregoing considerations that the application
of RG 3431 and RG 3543 results in "unjustifiable discrimination" within
the meaning of the chapeau of Article XX, inasmuch as these measures
impose on importers an extra tax burden in the form of interest lost or
paid. Having reached this conclusion, it is unnecessary for us to proceed
to an examination of the other standards contained in the chapeau.
11.331 We therefore conclude that RG 3431 and RG 3543 do not meet the
requirements of the chapeau of Article XX. For that reason, and even
though RG 3431 and RG 3543 fall within the terms of Article XX(d), we do
not accept Argentina's claim of justification under Article XX as a whole.
XII. CONCLUSIONS
12.1 In light of our findings in Section XI.A, we conclude that it has not
been proved that Resolution (ANA) No. 2235/96 is inconsistent with
Argentina's obligations under Article XI:1 of the GATT 1994.
12.2 In light of our findings in Section XI.B, we conclude that Resolution
(ANA) No. 2235/96 is inconsistent with Argentina's obligations under
Article X:3(a) of the GATT 1994.
12.3 In light of our findings in Section XI.C, we conclude that General
Resolution (DGI) No. 3431/91 is inconsistent with Article III:2, first
sentence, of the GATT 1994.
12.4 In light of our findings in Section XI.C, we conclude that General
Resolution (DGI) No. 3543/92 is inconsistent with Article III:2, first
sentence, of the GATT 1994.
12.5 In light of our findings in Section XI.C, we conclude that General
Resolutions (DGI) No. 3431/91 and 3543/92, although they fall within the
terms of paragraph (d) of Article XX of the GATT 1994, fail to meet the
requirements of the chapeau of Article XX and are therefore not justified
under Article XX as a whole. 583
12.6 In light of the above and in accordance with Article 3.8 of the DSU,
we further conclude that there is nullification or impairment of the
benefits accruing to the European Communities under the GATT 1994.
12.7 We recommend that the Dispute Settlement Body request Argentina to
bring Resolution (ANA) No. 2235/96 as well as General Resolutions (DGI)
No. 3431/91 and 3543/92 into conformity with its obligations under the
GATT 1994.
Notes
556 See
the Appellate Body Report on United States – Gasoline, supra, at p. 22.
557 It will be recalled that the pre payments are collected upon importation in
anticipation and on account of the re-sale of the imported products. Failing
declaration of the re-sale transaction, importers lose the pre payments made
upon importation.
558 See para. 8.41 of this report.
559 Panel Report on
United States – Section 337, supra, at para. 5.26.
560 The Appellate Body stated in
United States – Gasoline that "[t]he chapeau of
Article XX makes it clear that it is the "measures" which are to be examined
under Article XX(g), and not the legal finding of [violation]". See the
Appellate Body Report on United States – Gasoline, supra, at p. 16. While this
statement refers to Article XX(g), the Appellate Body's reasoning relies on the
chapeau, which applies equally to Article XX(g) and Article XX(d). The Appellate
Body's reasoning must therefore also extend to Article XX(d). Accordingly, we do
not consider it appropriate to examine under Article XX(d) whether the less
favourable tax treatment accorded to imported products as a result of the
application of RG 3431 and RG 3543 is "necessary". It should be noted that the
GATT 1947 panel in United States – Section 337 considered that "what [had] to be
justified as "necessary" under Article XX(d) [was] each of the inconsistencies
with another GATT Article found to exist". See the Panel Report on United States
– Section 337, supra, at para. 5.27. While the approach adopted by the panel in
United States – Section 337 could be seen to be based on the view that the
"necessity" test set forth in Article XX(d) gives rise to a somewhat different
Article XX analysis than, for instance, the "relating to" test contained in
Article XX(g), we see no need to dwell upon this point, since the Appellate Body
has outlined, in the more recent United States – Gasoline case, what, in its
view, is the correct and general approach to interpreting and applying Article
XX.
561 See the Appellate Body Report on
United States – Import Prohibition of Certain
Shrimp and Shrimp Products (hereafter "United States – Shrimp"), adopted on 6
November 1998, WT/DS58/AB/R, at para. 149.
562 In our view, the presumption raised by Argentina of the existence of a
relationship of necessity between Argentina's declared objective of securing
compliance with the IVA Law and IG Law and the general design of RG 3431 and RG
3543 is not affected by the inconsistency of these measures with Article III:2,
first sentence.
563 See para. 8.258 of this report.
564 It is true that the European Communities disputes that the higher rates applied
to imported products pursuant to RG 3431 and RG 3543 are "necessary" in order to
secure compliance with the IVA Law and IG Law. See e.g. EC First Oral Statement,
at paras. 79, 82 and 84. We consider that this contention goes to the question
of whether Argentina makes improper use of the exception set out in Article XX(d)
and not to the question of whether RG 3431 and RG 3543, in light of their
general design and structure, fall within the terms of Article XX(d). We
therefore address the justifiability of applying higher rates to imported
products when we appraise RG 3431 and RG 3543 under the chapeau of Article XX.
This approach is in accordance with that followed by the Appellate Body in
United States – Gasoline. See the Appellate Body Report on United States –
Gasoline, supra, at pp. 19 and 25-29.
565 See the Appellate Body Report on
United States – Gasoline, supra, at pp. 22 and
25.
566 By its terms, the chapeau refers to the manner in which a contested measure is
"applied". The chapeau thus clearly covers individual acts of application of a
contested measure. We consider, moreover, that, where a measure itself requires
certain action inconsistent with the standards contained in the chapeau, that
measure will, of necessity, be applied in a manner inconsistent with the
standards contained in the chapeau. It may be noted in this connection that, in
our understanding, in United States – Gasoline, the Appellate Body did not so
much focus on the manner in which the baseline requirements were applied in
specific instances. Rather, the Appellate Body's concern appears to have been
with the question of whether the United States could "impose" and apply, as a
matter of law (i.e. in its Gasoline Rule), a statutory baseline requirement on
foreign refiners and an individual baseline requirement on domestic refiners.
The Appellate Body addressed the justifiability of this regulatory
differentiation under the chapeau. See the Appellate Body Report on United
States – Gasoline, supra, at pp. 25-29.
567 The chapeau provides that the measure in question must not be applied in such a
manner as to constitute (i) a means of "arbitrary … discrimination between
countries where the same conditions prevail", (ii) a means of "unjustifiable
discrimination between countries where the same conditions prevail" or (iii) a
"disguised restriction on international trade".
568 See the Appellate Body Reports on
United States – Shrimp, supra, at para. 150;
United States – Gasoline, supra, at pp. 23-24. We do not share Argentina's view
that the Appellate Body adopted this interpretation of the phrase
"discrimination between countries where the same conditions prevail" on the sole
basis that, in that specific case, the parties had a common understanding of it.
The Appellate Body also observed in United States – Gasoline that the term
"countries" in the chapeau was textually unqualified. See United States –
Gasoline, supra, footnote 46. And in United States – Shrimp, the Appellate Body
stated that, in United States – Gasoline, it had "accepted" the assumption of
the parties that discrimination within the meaning of the chapeau could also
occur between the importing country and exporting countries. See United States –
Shrimp, supra, at para. 150.
569 It may be pointed out, in addition, that there is nothing in the chapeau to
suggest that it does not cover "discrimination" in respect of internal taxation.
570 Argentina has not been able to convince us that, in the present case and for
purposes of applying the chapeau, "the same conditions [do not] prevail" between
Argentina and the European Communities. In particular, the fact that Argentina
is a developing country Member which has to contend with low levels of
compliance with its tax laws, does not, in our view, provide a justification for
discriminating against imported products under the facts of the present case. It
should be recalled, moreover, that the Appellate Body in United States –
Gasoline - a case which also involved discrimination between imported and like
domestic products - did not specifically examine and make a finding on whether
the "same conditions prevail[ed]" between Brazil and Venezuela, on the one hand,
and the United States, on the other hand. See the Appellate Body Report on
United States – Gasoline, supra, at pp. 25-29. We therefore do not see a need to
further examine this element.
571 See the Appellate Body Report on
United States – Shrimp, supra, at para. 150;
United States – Gasoline, supra, at p. 23.
572 Argentina's reply to Panel Question 81.
573 For the sake of ease of reference, we hereafter treat internal sales
transactions as being subject to pre payment of the IVA and IG at a "zero rate"
when those transactions are not subject, in certain circumstances, to any pre
payment of the IVA and IG.
574 It is worth noting that the same "appropriate interest" standard is also used,
in similar context, in footnote 59 to item (e) of Annex I to the Agreement on
Subsidies and Countervailing Measures. According to that footnote, "… Members
recognize that deferral [specifically related to exports of direct taxes paid or
payable by industrial or commercial enterprises] need not amount to an export
subsidy where, for example, appropriate interest charges are collected".
575 Such average rates could be calculated for various terms of investment or
borrowing. It should be pointed out in this connection that the Working Party on
Border Tax Adjustment found that, for purposes of border tax adjustment and in
cases where the calculation of the exact amount of adjustment was difficult, it
could in principle be administratively sensible and sufficiently accurate to
calculate the average taxation of categories of products rather than the actual
tax levied on a particular product. See the Working Party Report on Border Tax
Adjustment, supra, at para. 16. We believe that the same reasoning applies to
the calculation of the appropriate interest rate in the present case.
576 We consider that Resolution 1253 confirms that compensation along these lines is
possible. Resolution 1253 lays down a particular rate - 0.5 percent per month -
for the interest payable by the Argentinean government, as of the filing date of
a refund request, in cases where the pre payments of the IG made result in
overpayment of the IG. See Argentina's reply to Panel Question 45(e). In
referring to the example of Resolution 1253, we do not, however, pronounce on
the appropriateness of the interest rate laid down in Resolution 1253.
577 It may be noted here that, in our understanding, the relevant compensation
period must be determined as well for purposes of interest payments pursuant to
Resolution 1253. It appears from Argentina's reply to Panel Question 45(e) that
interest accrues from the date of filing of a refund request until the date of
the actual refund. Thus, the relevant compensation period will be different
depending, inter alia, on the date of filing of a refund request.
578 In particular, as already mentioned, importers claiming compensation could be
required to provide evidence regarding the date of the various pre payments made
pursuant to RG 3431 and RG 3543.
579 Argentina has repeatedly stated, for instance, that thanks to the various
regimes for the pre payment of the IVA, Argentina has been able to significantly
increase its tax revenue, which it attributes, inter alia, to the fact that the
pre payment regimes have made it possible also to tax informal sectors of its
economy. See Exhibit ARG-XXI; Argentina's First Oral Statement, at paras. 56, 57
and 67; and para. 8.275 of this report. It should also be pointed out in this
context that, according to information supplied by Argentina for 1999, some 30
percent of the overall collection of the IVA was possible thanks to the various
regimes for the pre payment of the IVA. The percentage of pre payments of the
IVA collected on import transactions is 18 percent (amounting to
$1,189,586,000). As concerns the IG, of the overall IG revenue collected in
1999, 48 percent were the result of the regimes for the pre payment of the IG.
The percentage of pre payments of the IG collected on import transactions is 10
percent (amounting to $416,078,000). See Exhibit ARG-XXXIX.
580 Argentina's reply to Panel Question 57; Exhibit ARG-XL.
581 See para. 8.240 of this report.
582 We note that the European Communities does not argue that Argentina cannot,
consistently with Article III:2, first sentence, maintain the current rate
differentials. See paras. 8.25 and 8.47 of this report. The European Communities
argues, rather, that Argentina cannot maintain the extra tax burden imposed on
importers in the form of interest lost or paid.
583 With respect to our conclusions in Section XI.C, we wish to note that they do
not preclude Argentina from continuing to require the pre payment of the IVA and
IG with respect to the importation and the internal sale of goods. However,
Argentina must ensure that the requirement to pre-pay the IVA and IG does not
discriminate against imports.
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