I. PROCEDURAL BACKGROUND

1.1 On 23 December 1998 the European Communities requested consultations with Argentina pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereinafter the "DSU"), Article XXII of the General Agreement on Tariffs and Trade 1994 (hereinafter the "GATT 1994") regarding an alleged de facto export prohibition maintained by Argentina on raw and semi-tanned bovine hides; an "additional VAT" of nine percent raised by Argentina on the import of products into its territory; and an "advance turnover tax" based on the price of the imported goods imposed on operators when importing goods into Argentina.¹

1.2 Consultations were held in Geneva 5 February 1999, but did not lead to a mutually satisfactory resolution of the matter. On 31 May 1999, the European Communities requested the Dispute Settlement Body (hereinafter the "DSB") to establish a panel pursuant to Article XXIII of the GATT 1994, and Article 6 of the DSU. The European Communities claimed that the export prohibition maintained by Argentina violated Articles XI:1 and X:3 (a) of GATT 1994 and that the "additional VAT" and the "advance turnover tax" were not in conformity with Article III:2 of GATT 1994.

1.3 At its meeting on 26 July 1999, the DSB established a panel pursuant to the request of the European Communities, in accordance with Article 6 of the DSU. In document WT/DS155/3, the Secretariat reported that the parties had agreed that the panel would have the standard terms of reference. The terms of reference are the following:

"To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS155/2, the matter referred to the DSB by the European Communities in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.4 Document WT/DS155/3, "Argentina – Measures affecting the export of bovine hides and the import of finished leather," also reported that, on 31 January 2000, the Panel was constituted as follows:

Chairman: H.E. Ambassador Roger Farrell

Members: Mr. Victor Luíz do Prado
Mr. Sándor Simon

1.5 The United States reserved its rights to participate in the panel proceedings as a third party, and presented arguments to the Panel.

1.6 The Panel met with the parties 17 - 18 April 2000 as well as on 13 June 2000. It met wit the third party on 18 April 2000. The Panel issued its interim report to the parties on 13 October 2000. The panel issued its final report to the parties on 17 November 2000.
 

II. FACTUAL ASPECTS (MEASURES ON EXPORT OF BOVINE HIDES)
 

A. SCOPE OF THE CLAIM

2.1 The European Communities requested the establishment of a Panel (WT/DS155/2) claiming that Argentina maintained a "de facto export prohibition on raw and semi-tanned bovine hides which is implemented in particular through the authorization granted by the Argentinean authorities to the Argentinean tanning industry to participate in customs control procedures of hides before export." The European Communities requested "the panel to consider that this export prohibition constitutes a breach of Article XI:1 of the GATT 1994.

2.2 In the legal argument in its first submission, paragraph 71, "the European Communities considers that Resolution 2235/96 ² which provides the tanning industry with the possibility to control the exportation of hides and skins constitute an export restriction in the sense of Article XI as it allows the tanning industry to enforce an export ban imposed by that industry on the slaughterhouses ("frigoríficos").³ In paragraph 73 the European Communities continues: "The facts set out above clearly show that the authorization leads to a de facto export ban from Argentina on those bovine hides on which the Argentinean industry is interested in adding value, namely raw hides."

2.3 In paragraph 1 of its oral statement, the European Communities claims that the measure in question "effectively acts to restrict exports of raw bovine hides from Argentina." In its answer to question 1 by the Panel, the European Communities states that "this dispute is about Argentinean government restrictions on raw bovine hides."

B. THE PRODUCTS CONCERNED: PRODUCTION AND PROCESSING OF RAW AND SEMI-TANNED HIDES

2.4 Bovine hides are a by-product of meat production. Each slaughter of a bovine animal results in the "production" of one hide. The value of one hide is about 5-10 percent of the animal's value.⁴

2.5 Raw, untanned, hides are mostly treated with salt so as to prevent decay during storage or during transport from the slaughterhouse to the tannery. Raw hides can also be dried or chilled to obtain a similar preservation effect. These treatments are either undertaken by the slaughterhouses, or the tanneries in cases where the tanneries pick up the hides from the slaughtering floor for processing.

2.6 Raw hides can be either "wholehides," or they can be split into "flesh split," i.e. the bottom split or reticular layer of the hide and "grain split," i.e. the upper portion of the hide (outside of the skin) which has been separated from the reticular or split layer.

2.7 Raw hides are usually purchased from slaughterhouses by specialised hides and skins traders, to be sold on to tanneries, or directly by the tanneries. There are cases where meatpacking plants and tanneries are integrated enterprises with the ability to process rawhides.

2.8 Leather tanning consists of several different operations and stages. Once they have entered a tannery, hides first undergo the so-called "liming process": they are cleaned while hair, flesh and other redundant fibres are removed from the hides' surface. During the subsequent process of tanning, raw hides and skins are transformed, through interaction with a tanning agent, into a durable material that serves as input for downstream sectors such as footwear,⁵ clothing, upholstery, handbags and other leather goods. During production, the hide undergoes several processes, each leading to a new stage of leather production. The tanning agent used for approximately 90 percent of world production, and also in Argentina, is chromium (for shoe, upholstery and garment leather production). Chrome tanning produces a type of semi-finished leather commonly referred to as "wet blue," due to its bluish coloration. The remaining 10 percent are vegetable tanned leather, used for shoe sole leather, belts and luggage.

2.9 Raw hides constitute the most important input in the leather production process. Generally, the raw hides used represent 50 to 60 percent of the production cost of finished leather products.

C. PRODUCTION, PRICE, AND TRADE FIGURES OF RAW HIDES, SEMI-FINISHED AND FINISHED LEATHER

1. Production figures for raw hides in Argentina

2.10 In the period from 1967-1971, Argentina had a cattle stock of about 49.8 million head.⁶ The number increased to a peak of 59 to 61 million head in 1977⁷ and declined steadily until it reached 50 to 52 million head in 1988. It remained stable at that rate until today, where Argentina's bovine livestock ranges between 49 and 51 million head, making Argentina one of the six largest cattle breeding countries.

2.11 The cattle slaughter rate and raw hide production in Argentina was about 11.1 million in 1966, rose to about 16 million in 1978 and decreased to 11.27 million in 1998. Between 1992 and 1996, the slaughter rate averaged 11.6 million head, with variations between 11.8 million and 11.4 million head for that period.

2. Export figures for raw hides and semi-tanned (wet blue) leather

2.12 For the last five years, the export figures (in kg.) for raw salted hides from Argentina, as provided by the parties, differ, except for the years 1998 and 1999.

2.13 The ratio between slaughtered animals and exported raw hides is expressed in the table below. The number of exported raw/salted hides is derived from the export figures expressed in kg., as provided by Argentina, divided by 30.11 kg., which is the average weight of a raw hide. Both parties acknowledge this weight. While the European Communities contests the Argentine figures from 1996-1998, it accepts them to show that on the basis of the figures provided by Argentina, since 1996 the export of raw bovine hides was lower than 1/1000 of annual production of hides.

 

 2.14 Argentina also provided the following export figures for wet blue hides (in kg.):

1995: 43521 kg.,
1996: 1087 kg.,
1997: 100297 kg.,
1998: 118689 kg.,
1999: 1034291 kg.

2.15 For 1999, exports of raw and wet blue hides corresponded to 0.78 percent of hide output.

2.16 Around 80-85 percent of the output of finished and semi-finished leather hides is exported.

3. Import figures for raw hides and semi-tanned (wet blue) leather

2.17 From 1995 onwards, Argentina has imported raw and wet blue hides. The import figures for raw hides (in kg.) provided by Argentina and the European Communities vary as follows:

2.18 Over the same period Argentina imported the following quantities of wet blue hides:

1995: 129514 kg;
1996: 667731 kg.;
1997: 950357 kg.;
1998: 3025609 kg.;
1999: 6401562 kg.

D. CONTEXT OF GOVERNMENT MEASURES REGARDING THE EXPORT OF RAW BOVINE HIDES IN ARGENTINA

2.19 Before 1972, Argentina exported an important volume of hides to the rest of the world, including the European Communities. Argentina was an important source of supply for tanners of the European Communities. The average level of exports of raw bovine hides amounted to an average of 177000 tons a year in the period 1961-1970. As from 1971 the number of exported hides started to decline (74000 tons).⁸

2.20 In May 1972, the government of Argentina imposed a prohibition of exports of raw (wet salted) bovine hides⁹ with the stated purpose of "protect[ing] the adequate supplies of bovine hides to the tanning industry."

2.21 In this period, export of raw hides decreased from 144000 tons in 1970 to 7.000 tons in 1978.¹⁰

2.22 In August 1979, following a Section 301 petition filed by the US Tanners Council, the United States and Argentina reached an agreement, wherein Argentina committed itself to convert the export prohibition into a 20 percent export tax and then gradually reducing that tax to zero by 1 October 1981.

2.23 Argentina implemented the first stage of this Agreement in 1979 by introducing the agreed tax. At the same time, it imposed a minimum transaction price for the purpose of calculating the export tax.

2.24 In 1981 Argentina failed to implement the tax reduction as foreseen in the agreement. The US President terminated the agreement in 1982.

2.25 In the course of 1982 and 1984, when also export taxes were increased, export figures for raw bovine hides continued to decrease from 8000 tons in 1979 (with an upsurge to 31000 in 1981, and a downfall to 1000 tons in 1983) to 7000 tons in 1985.

2.26 In September 1985, a Resolution¹¹ by the Secretary of State for Industry of Argentina introduced a "suspension" on exports of raw hides and semi-finished leather in order "to maintain the volume of supply in raw materials adequate to the needs of the domestic market of the leather tanning and manufacturing sector facilitating a smooth flow of supplies while avoiding any undue increase in prices."

2.27 As from 1987 the Argentinean Government's statistics export of raw bovine hides, indicate "0," which means that exports were less than 1000 tons.

2.28 In October 1990, the United States imposed a 15 percent countervailing duty on imports of Argentinean leather.¹² Its authorities had found that a comparison of Argentinean and US hide prices during the period in which Argentina maintained the aforementioned "suspension" on the export of hides "clearly demonstrates that hide prices were consistently lower than US hide prices." ¹³

2.29 In April 1992, the Argentinean Government replaced the export ban by a 15 percent duty¹⁴ on the exports of raw bovine hides¹⁵ and bovine wet blue.¹⁶ The export tax is calculated upon the basis of a reference price (Chicago quotation of Butt Branded Steer Hides) on the exports of raw bovine hides and wet blue, and an "additional" tax of 15 percent on such exports. That additional tax was later abolished and between 1993 and 1999, no additional export charges were levied.

2.30 Upon request of the Argentinean tanning industry on 17 February 1993, the Argentinean Government authorized on 15 April 1993 through Resolution 771/93, the presence of representatives of the Argentinean Chamber for the Tanning Industry (CICA) during customs controls of bovine raw hides (tariff headings 4101.10/21/22/29/30) and wet blue hides (tariff headings 4104.10.100, 4104.21.00, 4104.22.00 and 4104.29.10) before export. The measure was originally foreseen to apply only for 90 days, but was extended several times.¹⁷ The authorization originally applied only to products falling under the same customs position as those which were subject to the export tax, i.e. raw hides and wet blue hides.

2.31 On 26 April 1994, upon its request, the system was extended to representatives of the Association of Industrial Producers of Leather, Leather Manufactures and Related Products ("ADICMA") and the customs position on which the system applies was extended to also cover finished leather and furs (all customs positions under 4104).¹⁸ Since then, also persons appointed by the member organisations of ADICMA, i.e. representatives from Argentinean leather producers and leather goods producers, are allowed to be present when the goods concerned are presented for export.

2.32 In December 1994 the export duty was adapted to the Common Nomenclature of Mercosur.¹⁹ A timetable for the progressive phasing out of the export duty was established. However, since then this timetable was modified on various occasions, slowing down the phase-out.²⁰

2.33 In fact, although the total abolition of the export duty by the end of 1999 had been announced already in December 1994,²¹ it was recently extended for (at least) another half year.²² On 1 January 1998, the export tax was reduced to 10 percent. On 1 January 1999, the export tax was reduced to 5 percent. That rate is currently still applied.

2.34 The one-before-last of the Resolutions perpetuating the authorization was Resolution 2235, which refers to a fresh request²³ by ADICMA to continue the system.²⁴

E. RESOLUTION 2235

2.35 Upon request by ADICMA, the National Customs Administration of Argentina issued on 27 June 1996 Resolution 2235. Annex II of the Resolution sets out the "operative rules" and resolves as follows:

1. The entities listed in Annex III hereto may appoint members of their staff to participate jointly with the agents involved in the inspection of goods classified under the tariff headings listed in Annex IV.

1.1 For this purpose, they shall inform this national administration of the appointment of representative experts and draw up lists of those appointed, containing particulars of each one's address, telephone and fax or telex numbers and the different customs jurisdictions in which they will be involved in joint inspection activities. They shall also keep those lists up to date.

1.2 The authorization hereby conferred shall be applicable in all customs jurisdictions.

1.3 In the Buenos Aires and Ezeiza customs jurisdictions, if and when the final export destinations for consumption or temporary export so require, staff may be kept on a permanent basis to carry out these support tasks.

1.4 The same facilities may be authorized in the customs departments in the interior of the country.

1.5 Final export destinations for consumption shall be checked in the case of those for which the red channel (goods to declare) was selected as well as all temporary export destinations.

1.6 Goods shall be inspected by the technical inspection and valuation unit, with the possible support of the expert appointed by the respective entity, but this will be done without holding up shipment operation if the expert is not present.

2.36 Annex III lists, among other leather-manufacturing industry organizations, also CICA and ADICMA, as being involved in the inspection of goods classified under the tariff headings set out in Annex IV.²⁵ The products covered by Annex IV include bovine hides and calf skins, semi-finished leather and finished leather

2.37 Pursuant to a further request for prolongation by ADICMA, Resolution 716/97 of 28 February 1997 determined that the authorization would continue to apply indefinitely. No authorization similar to that contained in the Resolution exists for the export of any other product from Argentina. Argentina explained that no other similar request from other entities or industries had been made.

F. THE PRACTICAL APPLICATION OF RESOLUTION 2235/96

2.38 The export procedure for hides and the inspection of the goods (leather) by the Technical Unit for Verification and Valuation (UTVV) as well as the participation of the chambers in that process are not governed by any specific DGA resolution, but by the Customs Code (Law 22415), by Resolution ANA 1284/95 (regulating export transactions declared through the MARIA Computer System – SIM) and by Resolution ANA 125/97 and its modifying resolutions establishing the general procedures for all exportation.

2.39 ADICMA staff are allowed to witness the actions of the customs officer inspecting goods covered by Resolution 2235. Once Customs receives a notice of embarkation by the exporter or his customs broker, it notifies ADICMA that a clearance operation will take place, indicating the place, day and approximate time. ADICMA may be informed of this by a telephone call from the customs inspector, but there are instances in which they are notified of the date and approximate time of the clearance, the place, name of the exporter, identity of the means of transport, destination and description of the goods by the exporter's own customs clearance agent.²⁶

2.40 Once at the place of inspection, the ADICMA representative accompanies the inspector in ascertaining that the exporter's declaration coincides with the goods to be cleared for export.

2.41 The inspection, classification and valuation of the goods declared are carried out by the UTVV. It verifies that what is declared in the permit of shipment is real, that the tariff heading indicated corresponds with the description of the goods and that the duties and charges proposed are appropriate, and then cross-checks supplementary data, number of packages and their identity.

2.42 All of this is done by the inspecting officer, in the presence of the customs officer, exporter²⁷ or his customs clearance agent and the staff detailed by ADICMA to attend.

2.43 If the DGA determines that the merchandise has been correctly classified, the shipment goes ahead. If the inspecting officer detects irregularities, shipment is not allowed. If there are discrepancies in the amount, quality and/or value of the goods, the appropriate complaint will be lodged with the Disputes Section or with the competent local customs office, pursuant to the rules.

2.44 If ADICMA representatives disagree with the decision of the customs officers, they may submit a complaint subsequently or, if appropriate, file with a court charge on alleged criminal offences. According to Resolution 2235, there must not be any delays as a result of ADICMA participation in the inspection. Resolution 2235 does not provide that shipments can be stopped on account of any possible objection from the ADICMA representatives who are present during the inspection.
 

III. CLAIMS BY THE PARTIES

3.1 The European Communities requests the Panel to find that:

- the authorization granted to representatives of Argentina's tanning industry to participate in customs control procedures of raw bovine hides before export, which is currently contained in Resolution 2235 of the National Customs Administration (the "ANA") is inconsistent with Article XI:1 of the GATT.

- the said authorization is inconsistent with Article X of the GATT.

3.2 Argentina requests the Panel to:

- find that the authorization granted to representatives of the tanning industry under Resolution 2235 neither has the characteristics nor gives rise to the consequences alleged by the European Communities in its written submission and therefore cannot be deemed to infringe the provisions of Article XI:1 of the GATT 1994;

- reject the allegations of the European Communities that Resolution 2235 is being administered in a manner that is partial, not uniform and unreasonable in light of the obligations arising from Article X:3(a) of the GATT 1994.

IV. MAIN ARGUMENTS

A. VIOLATION OF ARTICLE XI:1 OF THE GATT 1994

4.1 The European Communities claims that Resolution 2235 provides the Argentine tanning industry with the possibility to control the exportation of bovine hides and skins, thus allowing the tanning industry to enforce an export ban imposed by that industry on the slaughterhouses. Resolution 2235 therefore constitutes an export restriction in the sense of Article XI:1 of the GATT 1994. The European Communities argues that the measure cannot be justified on technical grounds and pursues, in reality, a clear protectionist purpose as it discourages, in practice any slaughterhouse from exporting.

4.2 The European Communities argues that the presence of the tannery representatives during the inspection will allow them to obtain confidential business information. Exporters of raw hides will be dissuaded from engaging in export transactions they know that thereby their domestic buyers will receive business confidential information of that company. What is more, the tanneries can use this information – as they hold a dominating market position over the slaughterhouses - to dissuade the slaughterhouses from exporting.

4.3 Argentina contests the European Communities' assertion that it is de facto imposing a prohibition on exports of bovine hides. ADICMA representatives have no legal authority to restrict exports pursuant to Resolution 2235. Argentina also contests that the presence of ADICMA representatives imposes a prohibition by creating a chilling effect on exports of raw hides and semi tanned hides. Argentina further states that the European Communities was not able to explain, even upon request by the Panel in the second oral hearing, how the so called chilling effect took place at the customs. In addition, Argentina explained that ADICMA representatives do not have access to confidential information and all the information they do have access to is freely available and in the public domain. Argentina also points out that the government officials are barred by criminal law from divulging any confidential information to the ADICMA representatives. The EC has not been able to provide a single example about any attempted export that was rejected, complicated or aborted by the Argentinean customs authorities as a result of Resolution 2235. Argentina argues, moreover, that the European Communities has failed to adduce evidence to support its claim that there was price-collusion on the part of the tanning industry, noting that it was not aware of any complaint in this regard to its competition authority. Argentina further states that the meat-producing industry has a four-times higher turnover than the tanning industry, and the value of the raw hide represents only 5-8 percent of the value of the animal at the time of slaughter. Against this backdrop, it can hardly be claimed that the tanneries could exert pressure on the meat packing plants.

4.4 As for the lack of exports of bovine hides, Argentina recalls that the meat-producing industry has been in a state of economic decline over the past few years. Argentina also argues that, while its own bovine hides are comparable to US hides in terms of quality, the prices quoted by the European Communities relate to products at different stages of processing. According to Argentina, in the US, the tanning industry receives and pays for a product that has already undergone some initial processing, whereas in Argentina this is not the case. If Resolution 2235 did bring about the effects alleged by the European Communities, those suffering from its effects would have challenged it under relevant Argentinean law. According to Argentina, they did not do so.

1. Export prohibitions or restrictions maintained by a Contracting Party, made effective through "other measures"

4.5 Article XI:1 GATT 1994 stipulates that export restrictions can be made effective not only through quotas or licenses but also though "other measures." The European Communities claims that it is irrelevant that the authorization contained in Resolution 2235 is not a formal prohibition or quantitative restriction. As confirmed by numerous Panel decisions, Article XI:1 is comprehensive and covers all measures restrictive of trade other than measures taking the form of customs duties and charges. Moreover, in Guatemala-Cement the Appellate Body stressed that "[i]n the practice established under the GATT 1947, a "measure" may be any act of a Member (…)." ²⁸

4.6 The European Communities states that the resolution – to use the words of Article XI – "makes effective" this export restriction, since it creates the possibility that the ADICMA representatives obtain confidential business information.

4.7 Argentina argues that the participation of private sector representatives in the inspection of raw bovine hide exports cannot contravene Article XI, which specifically refers to quantitative restrictions attributable to government action. Nor is there any contravention in the form of a de facto restriction.
4.8 Argentina maintains that "other measures" in the sense of Article XI:1 GATT 1994 cannot be just any kind of measures. GATT/WTO practice lays down the requirements to be met by "other measures" in order for a de facto prohibition to be proven. The authorization at issue is not "mandatory" or "binding" in nature.
 
4.9 In the Japan – Semiconductors²⁹ case which the European Communities mentions, the Panel considered that two criteria had to be fulfilled to find a violation of Article XI:1:

(a) that sufficient incentives or disincentives existed for non-mandatory measures to take effect; and

(b) that the operation of the measures was essentially dependent on government action.

4.10 Only if both criteria were satisfied, the measures in question became "measures [which] would be operating in a manner equivalent to mandatory requirements." ³⁰

4.11 Argentina states that when applying these criteria, mutatis mutandis³¹ to the case at hand, the presence of representatives of ADICMA for the conduct of customs control procedures does not imply a legal authority³² to impede customs clearance (Article 1.6 of Annex II to Resolution 2235 and concordant legislation in the Customs Code).

4.12 The legal conditions of their presence (lack of legal authority to prohibit export) show that the alleged de facto prohibition can in no way be carried out by this fact alone. Consequently, the first requirement for proving a de facto prohibition in respect of "other measures" under Article XI:1, as set out in the precedent relied upon by the European Communities, is not fulfilled.

4.13 An analysis of the second requirement of the Japan - Semiconductors case, namely whether the operation of a measure designed to restrict exports is essentially dependent on government action. In this respect, Argentina states that the achievement of the objective of the sole measure contested by the European Communities, Resolution 2235, does not depend, in terms of enforcement of the resolution, on any government action.

4.14 In other words, the resolution authorizes the voluntary participation of technical experts in the goods inspection process, for the sole purpose of assisting the customs expert. But just as representatives of the industry chambers are not legally entitled to prevent the customs clearance of the goods, neither is the government legally entitled to compel them to participate in the inspection process, so that the voluntary participation of the industry chambers in the inspection process can in no way be considered to constitute the equivalent of what in the Semiconductors case was described as a "coherent" system restricting sales.³³
 
4.15 In short, Resolution 2235 authorizes the presence of technical experts of the industry, but that authorization does not guarantee a specific effect with regard to private actors,³⁴ or with regard to the exported products. Resolution 2235 applies no incentive or disincentive of any kind to prevent the export of raw and semi-tanned hides: its text provides for none, either in its legal grounds or in the operative part. As was mentioned above, the outcome of its implementation is also not dependent on government intervention. It is merely an authorization to obtain technical support for inspection of the export of all types of hides.

4.16 The European Communities disagrees with Argentina's analysis of the Semiconductors Panel Report. Unlike in that case, the measure in question here is an obligatory government measure.

4.17 The European Communities states that the measure is of course a government measure, as it was issued by the Argentinean government. Based on the Resolution, the Argentinean customs authorities inform the ADICMA representatives whenever hides and skins are submitted to them for inspection before export and invite them to be present.

4.18 Argentina states that the qualification of Resolution 2235 as a government measure is irrelevant to these proceedings. Argentina never denied that the Resolution was an administrative act of the Argentine Government and that it had the legal status of a governmental act. This has nothing to do with meeting the requirements of Article XI:1. If we were not speaking of a governmental act, the Panel would never have been established. The WTO dispute settlement mechanism does not deal with the acts of private individuals.

4.19 The European Communities asserts that the measure is of an obligatory nature. Due to the contested Resolution, anybody who wishes to export hides from Argentina, is obliged to accept that ADICMA-representatives may be present when hides are inspected by the customs authorities. That ADICMA is perhaps not obliged to be represented is irrelevant: the measure is mandatory, since the potential exporter is forced to undergo the ADICMA-presence if ADICMA chooses to be present. The reasoning, which Argentina builds upon the Japan-Trade in Semiconductors Panel Report, is therefore flawed, as the measure is obligatory by nature.

4.20 In reply to a question by the Panel, the European Communities further underlines that the Resolution, which is a government measure, directly causes the restrictive effect on exports by allowing the CICA/ADICMA presence; it is a conditio sine qua non for creating that effect. In a similar manner to the Japan-Trade in Semiconductors Panel Report, Argentina violates Art. XI by encouraging – through allowing the CICA/ADICMA presence –pressure by the tanneries on a slaughterhouse. Also, Argentina violates Art. XI by providing the tanneries with confidential information regarding that export transaction, which in itself – as the slaughterhouses confirm – restricts them in exporting freely. The EC finally notes that if Art. XI:1 could be circumvented by WTO Members simply by giving private operators sensitive information and "letting them do the work", that provision could be rendered completely ineffective. The fact that exports of raw hides from Argentina are marginal, especially in comparison with years with comparable slaughter rates before Argentina started its long series of measures prohibiting exports of hides, proves that Res. 2235/96 severely restricts exports.

4.21 Argentina responds that Resolution 2235 is in no way mandatory in terms of giving ADICMA the authority to detain any shipment. If ADICMA does not have any authority to detain a shipment, the fact that the potential exporters must accept the possible presence of ADICMA (" … the potential exporter is forced to undergo CICA presence if CICA chooses to be present") is irrelevant with respect to the obligatory nature of the measure.

4.22 For this obligatory nature to prove the existence of a "de facto ban" which fits the broad definition of "other measures," there must be a direct relationship between the content of the rule and the effect it is meant to achieve. In other words, the substantive content of the obligatory rule must be relevant to the intended effect. If there is no such relationship, and if by its obligatory nature alone it does not produce any effect on the market, the alleged obligatory nature of the measure is irrelevant in establishing a violation of Article XI:1.

4.23 Even if one was to assume that the definition of "depending on government action," in the meaning indicated by the European Communities, had any value in proving the restriction, and the European Communities has not been able to demonstrate that it does, the fact is that even if the measure were considered "obligatory," the requirement that it should have an effect, as set out in Semiconductors, would remain. Argentina showed that there are exports, thereby disproving per se the existence of the alleged ban. Therefore, the other requirement established by Semiconductors -the effectiveness of the measure- is not fulfilled either in this case."

4.24 What is more, ADICMA's participation does not have any impact on exports, as proved by the fact that when exports did increase, it was as a result of the "phase out" of export duties. If the presence of the ADICMA per se had any influence on exports, the exports would not react to the level of duty. Consequently, the questioned measure has no effect in achieving any kind of ban.

4.25 Two graphs were presented by Argentina, showing both intrazone and extrazone export trends for salted hides and wet blue, as follows. This division was made based on the destination of exports, considering that the duties were different for both zones until 1999.

4.26 Both zones show a high correlation between the levels of duties and the amounts of exports for 1996, 1997 and 1999. That correlation is distinctly greater for 1999.

4.27 In intrazone trade it is observed that the reduction from 15 to 8 percent in duties translated into a sizeable increase in exports, from $2.250 to $25.603.

4.28 Extrazone trade for 1996 and 1997 showed no significant changes in export quantities, duties having been maintained at the same levels.

4.29 No correlation was seen between the variables studied for 1998 in both zones. It is worth recalling that 1998 was an atypical year for the hide trade, having been severely affected and influenced by the crisis in the Asian countries, which led to a contraction of trade and to price volatility.

4.30 It is concluded that duties are a sufficiently suitable instrument for encouraging the processing of raw materials on the domestic market, but we must also point out that they are not hampering salted hide and wet blue exports, as such exports have indeed been taking place.