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2. Rationale for the enactment of the Resolution 4.33 The European Communities states that the authorization of representatives of the tanning industry to be present during customs inspections of raw bovine hides designated for export leads to a de facto export ban. The Argentine government is not only fully aware that the adoption and maintenance of the Resolution leads to export restrictions, but it is clear that this restriction is the rationale for the enactment of the Resolution. 4.34 The European Communities recalls that since the early 1970s, that is to say during over 20 years before the adoption of the measure, Argentina had maintained measures prohibiting or restricting hide exports, consisting of an outright export prohibition between 1972 and 1979, an export tax based on minimum prices between 1979 and 1985, and again an outright prohibition between 1985 and 1992. 4.35 In 1992-1993, after replacement of the export ban by a tax, the tanners became aware that the export tax was insufficient to restrict exports and asked for authorization to be present at customs clearance of hides before exports.35 Therefore, the Argentinean tanning industry had requested to participate in the inspections in order to obtain knowledge of any attempt by slaughterhouses to export hides, instead of selling them to the domestic tanneries. The measure was continued as a result of further requests by the Argentinean tanning industry. The tanning industry is interested in adding value to the raw hides and wants to secure a cheap supply of raw hides. It is not a coincidence that the original measure, Resolution ANA 771/93, applied to exactly the same products as those that were subject to the export tax under Resolution MEOSP 537/92.36 This fact makes clear that the aim of the measure was simply to restrict exports. 4.36 The European Communities argues that Argentina has never concealed that the underlying intention of these measures was to support its tanning industry by restricting foreign purchasers' access to that industry's most precious raw material, i.e. bovine hides. 4.37 It is in this particular context that in 1993 CICA, the Chamber of the Argentinean tanning industry, made a request to participate in the customs control of bovine hides before exports.37 The letter focuses on the fact that hides are a scarce material whose commercialisation was (as CICA alleges) restricted in almost all other countries. Therefore, the letter argues that the most extensive export verification system should be applied to them ("En atención a que el cuero es una materia prima atípica y escasa siendo su comercialización restringida en casi todos los países (…)"). CICA has always openly admitted that it was seeking to restrict exports of bovine hides. In 1996 the Chairman of CICA openly declared in an interview with a specialised magazine that: "one cannot allow total liberalisation of the hides market so that companies from other countries can buy up our scarce raw material." 38 4.38 The European Communities contends that slaughterhouses have repeatedly complained about the fact that they are unable to export hides so as to benefit from the higher prices in the world market. Recently, in a press release issued together with associated industries they complained not only about the continued application of the export tax, but also about the privilege granted to the leather industry to assist when (in particular) hides are offered for export.39 4.39 The European Communities argues that the fact that the leather tanning industry is the only industry that has ever requested to participate in customs control before exports, only confirms that the aim of the measure is to restrict exports. The Argentinean leather tanning industry is the very industry for the benefit of which the export of its raw material has been squarely prohibited or severely restricted between 1972 and 1992, and which has always been opposed to the free export of it. Moreover, the industry's request was made not long after the last export prohibition was repealed. This is surely not a coincidence. 4.40 Argentina states that the presence of technical experts from the tanning industry during the inspection was authorized to give customs the benefit of professional advice for the correct classification of goods. This reason given by ADICMA were set out in its note to the National Customs Administrator: "This Association has asked to participate in the inspection of some leather products under Chapters 41, 42, 64 and 94 in order to co-operate with the customs in endeavouring to clarify and avoid the recurrence of certain irregularities affecting the industry through market distortions, and the State through taxes foregone or the payment of undue refunds." 40 4.41 ADICMA's arguments are convergent with the interests of the State as encapsulated in the preamble to Resolution ANA 125/97 modifying Resolution ANA 3023/93, which regulates export controls and the resulting payments of benefits and collection of the duties generated by that activity:"… It is deemed necessary to take steps to reinforce this National Administration's powers of control with respect to export transactions which are accorded incentives. In that regard, it has been considered useful to expand and adapt the guidelines laid down in the preamble to the aforementioned resolution and amendments thereto, which established controls on the submission of Export Applications for inputs, and that it is necessary to step up such controls to be effected on selective inspections and on formalities to ensure the correct assessment of duties and payment of benefits by including the guidelines set in current provisions …." 4.42 The interest for the ADICMA representatives to be present is hence to have the assurance that under no circumstance will raw or semi-tanned hides – essential inputs for the industry leave the domestic market without paying the corresponding export duty. 4.43 For the Government, the presence of the tanning industry at the time of inspection is merely one additional element whereby to ensure that its customs staff will make no mistakes in the classification of products. This ensures that that export refunds are paid only to those exports that qualify for them. Export refunds are granted in respect of tanned hides (i.e. hides to which value has been added),41 which means that the industry also has an interest in ensuring that unprocessed products do not benefit from a refund to which they are not entitled. As is known, the refund mechanism is used by States in pursuit of the general objective of adding value to raw material, which is consistent with GATT-WTO obligations. 4.44 The State, in turn, also has an interest in paying only such refunds as are strictly appropriate to the characteristics of the product, and it is in the interests of the industry to ensure that those who push back the production frontier by incorporating added value and technology to the raw material, are the ones to benefit from the refunds rather than others. In the same way, the government is interested in collecting export duties for export of raw and wet blue hides. Needless to say, these unlawful acts may be committed both in exporting rawhides and wet blue, on which export duties are due, and in exporting finished leather or semi-finished leather, which in certain cases are eligible for refunds. In reply to a question by the Panel, Argentina states that since the effective date of Resolution 2235, no complaints have been lodged regarding irregularities in which Argentina views as evidence that the goal of avoiding fraud has been achieved. 4.45 Argentina asserts that the presence of ADICMA representatives would furthermore lend greater transparency to the goods inspection process and enables the different interests involved to be represented. 4.46 In reply to questions by the Panel, Argentina stated that no measures similar to Resolution 2235 existed in other industries is explained by the fact that no other industry has requested participation in the customs inspection of goods for export. 4.47 The European Communities argues that Argentina has failed to show any plausible justification why leather industry representatives should be present during the customs inspections concerned. The only justification, which Argentina puts forward in some detail, is that the measure is aimed at preventing fraud in the systems of tax refunds. It states that these refunds apply to exports of finished/tanned leather (cueros curtidos). Exports of raw bovine hides and wet blue have never been subject to tax refunds. However, Resolution ANA 771/93 of 15 April 1993, which for the first time allowed representatives of the Argentinean tanning industry to be present at customs control of hides before export, applied exclusively to raw hides and wet blue, not to crust and finished leather. 4.48 The European Communities states that Argentina's justification for the measure is absurd. It cannot reasonably be argued that an export control procedure on raw hides and wet blue only was introduced to prevent fraud in the system of tax refunds for finished leather. 4.49 The CICA letter of 17 February 1993,42 requesting the measure, does not invoke such a justification at all. This is confirmed by the fact that Resolution 771/93 does not mention the prevention of fraud in the systems of tax refunds as a justification for its adoption. 4.50 The fact that the presence of the tanning industry at customs control was also authorized later on with regard to exports of finished leather and furs (Resolution 1024/94) does not change in any way that their presence is completely unnecessary when raw hides or wet blue are offered for export. 4.51 The European Communities states that Argentina has provided no evidence regarding the exact products to which refunds apply. However, according to the evidence obtained, such tax refunds currently only apply to processed leather products (wallets, belts, clothes etc.) and to certain types of finished leather.43 There is no risk to confuse a raw hide or wet blue with those products.44 Argentinean customs officials therefore do not need ADICMA representatives in order to ensure that a raw hide would be wrongly classified as – e.g. - a wallet45 and that a refund would be paid. During the second meeting, the European Communities showed examples of inter alia raw hides and wet blue on the one hand, and finished leather on the other hand, arguing that the various products can very easily be distinguished. 4.52 Moreover, if there was really a risk that raw hides and wet blue would receive refunds unduly, the Argentinean government would ensure the presence of experts by its own initiative, in order to avoid undue payments, and not only act as a reaction to a request by industry. After all, the Government is the first to become aware of fraud and is the only victim of it. Similarly, the Argentinean government might have granted such a request only on condition that ADICMA experts would be present at all transactions.46 4.53 The European Communities argues that the Appellate Body has held that "[A]although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure."47 In the present case, the protective application in the sense of "export restricting nature" of the measure can be discerned in particular from the very special historic context of the measure, its exceptional nature and the absence of any reasonable objective for it. 4.54 Argentina states that the question of the need to hire independent experts never arose. Besides, that would result in an additional cost to the economy. The authorization was never questioned by any of the parties. 4.55 Argentina emphasizes that Resolution No. 2235/96 was enacted under the authority granted to the National Customs Administration by Article 23(i) of the Customs Code (Law 22415) and was therefore subject to the provisions of Articles 25 and 26 of the same Code which authorized members of the public to lodge appeals against the Resolution. Pursuant to Article 26 of the Customs Code, «citizens who claim an individual right or a legitimate interest may appeal to the State Secretariat for Finance against the general rules referred to in Article 2548 within a maximum of 10 days from the day following their publication in the Official Journal (Boletín Oficial). 4.56 Consequently, if the Argentine Meat Packer's Association (Asociación de Frigoríficos Argentinos) or any exporter of raw or semi-tanned hides had considered Resolution 2235 and the previous related texts to violate their rights, they could have lodged appropriate appeals to obtain the repeal or amendment of the Resolution; in other words they were not all without any means of defence. We do not see how the EC can contend that there is a de facto export ban when the parties interested in doing so have not used the mechanisms available to them under national legislation to request appeal of the regulations which, in theory and according to the EC's arguments, prevent them from exporting raw and semi-tanned hides. 4.57 In that connection, Argentina wonders, why in the argument of the European Communities, would there be any point in ADICMA's presence during customs control for the sole purpose of obtaining data concerning the identity of the exporter when that data can be accessed by other means already mentioned, such as the Exporters' Guide or on-line systems. Argentina also challenges the European Communities to explain why ADICMA should be present at the verification of flesh split exports, for example, when the presence merely serves to prevent exports of raw hides, as alleged by the European Communities. 3. Alleged restrictive effect due to the presence of ADICMA representatives 4.58 The European Communities alleges that the mere fact that ADICMA representatives may be present during export verifications creates the risk that the ADICMA representatives will be informed of confidential information, including the name of the exporter. The European Communities states that it has shown that ADICMA representatives in fact do get access to such information. As the representatives from ADICMA have an interest in keeping the raw hides in the country for further processing; they may also attempt to put pressure on the customs officials present not to approve or to suspend approval of the export transaction. Any disagreement between customs officials and CICA/ADICMA representatives may lead to a delay of the shipment. If this delay takes too long (say several weeks or a month), this may affect the quality of the bovine hides which, although they are treated (salted) to slow down decay, nevertheless continue to deteriorate after a while. The mere risk that the CICA/ADICMA representatives may be tempted by (unnecessary) dilatory manoeuvres, which may lead to the deterioration of the exported products, will also be a strong deterrent to avoid export transactions. Foreign buyers and traders are also aware of such risks, and could therefore refrain from buying Argentinean raw hides. 4.59 Argentina stressed that the so called chilling effect was never proved by the EC, and that no example of its existence were provided. In light of the existence of exports of wet blue and raw hides, the existence of which the EC acknowledges, the EC argument about the chilling effect appears clearly contradictory. Argentina states that the presence of ADICMA representatives can under no circumstances lead to the holding-up of a shipment, as Resolution 2235 does neither delegate legal powers or State responsibility to ADICMA representatives. In reply to a question by the Panel, Argentina explains that 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. 4.60 ADICMA is informed of the transaction only after it has been concluded between the slaughterhouse and the foreign importer, which means that its role is of no consequence with regard to the conclusion of such an export transaction. At that stage the deal has been done and ADICMA cannot influence it in any way. Secondly, ADICMA has no legal authority to hold up a transaction. The representatives merely witness the verification process. Signing of documents is only to attest to this witnessing, yet does not signify approval of the verification or any legal obligation. The signing occurs because the customs personnel prefer to have evidence attesting to the presence of those representatives. In other words, it is completely irrelevant in terms of the completion of the customs clearance procedure. In fact, Argentina notes that the European Communities has not cited a single case where a consignment had been delayed or stopped in course of or following the proceedings. 4.61 In a later statement, Argentina maintains that possible disagreement of ADICMA with the customs decision is not evidenced in any specific official document connected with the shipment. ADICMA merely witnesses the verification process and, as it is allowed to be present, may voice possible disagreement in the form of a report to the Sub-Directorate General of Operations, which will forward it to the inspection division. Notwithstanding the foregoing administrative procedure, ADICMA may also file a criminal suit. 4.62 Argentina notes that also the exporter or his representative may be present when the customs controls for export are taking place. Only when present can the exporter challenge the decisions by the customs officers. 4.63 The European Communities contends that it is irrelevant that legally speaking the ADICMA-representatives can not formally impede that particular export shipment. What matters is rather the fact that they may be present and may receive information concerning the exporter and the export transaction, which they can then make available to all companies within ADICMA. This setting provides a "chilling" effect on any slaughterhouse, since any attempt at export could immediately be known by all the Argentinean tanneries – i.e. all his potential Argentinean buyers - who have a collective interest in restricting hide exports. 4.64 As concerns the suggestion by the European Communities of dilatory manoeuvres that could be attempted by the ADICMA representatives, Argentina replies that if this were ADICMA's intention and if the customs officers were so vulnerable, then logically there would be no need to exert this hypothetical pressure at the actual time of inspection when it could be applied through non-customs mechanisms not requiring the authorization of Resolution 2235. 4. Alleged disclosure of confidential information to ADICMA representatives 4.65 The European Communities argues that the decision to whom a company, including a slaughterhouse, sells its products should remain its business secret. The authorization granted to representatives of ADICMA through Resolution 2235 to be present at the export controls is at odds with that basic principle. Pursuant to the authorization, tanners and other hide-using industries, who are working together through various institutions such as chambers of commerce or ADICMA have access to confidential business information and could use this information in their business dealings with the slaughterhouse concerned. 4.66 The measure provides the Argentinean tanning industry with the means of having immediate and prior information about, and thus control over, any attempts to export raw bovine hides. The Argentine tanning industry has expressed its intent to prevent bovine hides from being exported as it has an interest in adding value to these raw materials through processing. In other words, those who are collectively interested in keeping raw hides in Argentina as a cheap raw material would be informed as soon as a slaughterhouse attempts to export. 4.67 The European Communities alleges that a dissuasive effect results from the de facto availability of confidential business information to ADICMA representatives due to the Argentinean government's measure, as a company will refrain from engaging in export transactions if it knows that thereby its domestic buyers will receive business confidential information of that company. A slaughterhouse that does not want its confidential business information disclosed (including all details such as what it exports and at what price) to the representatives of the tanneries will not even attempt to export. It is the resolution which – to use the words of Article XI – "makes effective" this export restriction, since it creates the possibility that the ADICMA-representatives obtain this information. 4.68 The European Communities assert that ADICMA representatives get to see the documents related to the export transactions and may receive a copy of them. They may also be invited by the customs officials to sign the documents for approval. The European Communities claims that the copy of a document provided49 shows that all relevant information – product, quantity, destination, price and in particular the name of the exporter – are present on the document which is seen by the ADICMA representative when he signs it. In other words ADICMA is de facto provided insight in essential trade information, which even under Argentinean law itself it should not have access to. 4.69 The European Communities states that the slaughterhouses have stressed that the violation of their business secrets due to the measure is a problem for them, which hinders them in their exports.50 The European Communities refers to a press release of 13 May 1999 by various chambers of the Argentinean meat-producing industries, in which they request the Argentinean Minister for the Economy to repeal existing tariff barriers as well as Resolution 2235 which the press release qualifies as a "non-tariff barrier," "since the tanning industry participates in the scrutiny of customs operations affecting trade in these products [raw or semi-tanned hides], thereby violating standards of statistical and commercial secrecy." The press release continues: "This situation has enabled the tanning industry to become one of the few sectors (or the only one) receiving an indirect subsidy through having a captive market for its raw material." 4.70 The European Communities stresses that, as put forward by the meat producers in the press release above, even according to Argentinean law itself, the data which CICA/ADICMA obtain, should be considered confidential.51 Article 10 of that Law clearly provides that statistical information must be kept secret, and cannot be published in a way that violates commercial or business secrets, nor individualising the persons or entities to which it refers. 4.71 Argentina rejects the European Communities' assertion that the customs personnel provide the ADICMA representatives with confidential information, i.e. a copy of the customs clearance document. The document provided by the European Communities concerned a transaction of wet-blue split exports by an ADICMA associated tannery where the disclosure of confidential information was not an issue. Furthermore, the second page of the document does not contain sensitive information, and there is no evidence that the person signing the second page has seen also the first page. In Argentina's view, the EC cannot prove the alleged access to confidential information or the effects on trade which this hypothetical access might have. Argentina noted that the Law cited in Exhibit EC I 55 does not correspond to this case, since it is intended to establish the National Institute of Statistics and Censuses and lay down its rules. Firstly, it is not a law that regulates the publication of data by customs. Secondly, Article 10 expressly excludes the following from statistical confidentiality: "name or company name, address and branch of activity". 4.72 Argentina questions the evidentiary value of the press statement by the slaughterhouses. As an explanation why the slaughterhouses have issued the release, Argentina suggests that it is in their interest to have the 5 percent export duty eliminated and because, for reasons which have nothing to do with an alleged and never proven chilling effect, they prefer that there should not be any witnesses present when the goods are inspected. 4.73 In reply to a question by the Panel, Argentina asserts that in the course of its participation in customs procedures, ADICMA representatives have access to the sale/export prices (f.o.b. value), the country of destination, and the means of transportation; ADICMA representatives do not have access to the identity of the exporter or the importer's name. Argentina further states that it is possible that the dispatcher himself – the exporter's agent – could supply the ADICMA personnel with information not provided by the customs. In reply to a question by the Panel, Argentina explains that the exact information to which the ADICMA representatives have access during the inspection is information on destinations recorded after having been stamped by the first intervening DGA agent ("submitted"). This information does not include data pertaining to the customs clearance agent, the transporter and the flag of the means of transport. In reply to a question by the Panel, Argentina denies that ADICMA representatives would have access to the identity of the exporter and the name of the importer (consignee) in course of their participation in the customs procedures. 4.74 The information to which the ADICMA representatives have access is information in the public domain to which anyone may have access through an on-line systems operated by the DGA and other private bodies. In reply to a question by the Panel, Argentina states that since May 1999, the DGA no longer makes available on-line the name of the exporters and importers, and information on prices. Neither is such information any longer furnished to private operators of on-line systems. The information furnished by other private on-line systems to their clients is supplied by the business chambers and associations of the various sectors of industry (e.g., the case of America Edita).52 It is possible to find the exporter's particulars in these other cases. All the systems mentioned are used by subscribers, who become members by paying a subscription fee. The cost of access to such systems is US$ 85 + VAT per month in the case of NOSIS and US$ 1900 for 12 months in the case of America Edita. 4.75 In reply to a question by the Panel, Argentina specified that the following information was accessible on-line: (i) the recorded destinations (documentation concerning permits of shipment, import clearance, goods in transit); (ii) notices of embarkation (these are notices by which the customs clearance agent informs the customs department that he is about to clear the merchandise); and (iii) refund payments. In response to another question, Argentina stated that information on (i) the sale price, (ii) the country of destination, (iii) the means of transportation, and (iv) tariff classification of the product is available on-line. 4.76 Argentina asserts that disclosure of confidential information, which the European Communities alleges, constitutes offences covered by Argentine criminal law, Chapter 3 "Violation of Secrecy" and Chapter 9 bis "Illicit enrichment of civil servants or employees."53 If confidential information was divulged, administrative and judicial proceedings would have been instituted in Argentina to prove that such offences had been committed, and the Argentine industries – concerning which the European Communities can only produce press cuttings or notes which lack binding force54 - should be the ones most interested in instituting court proceedings if they had prima facie evidence to back up such assertions. 4.77 Argentina maintains that the information requirements to customs for all exporters and importers of rawhides for the purposes of foreign trade transactions are the same. In reply to a question by the Panel, whether the meat-packing plants have to provide the same information as for an export transaction when selling to domestic tanners, Argentina asserts that domestic transactions by the meat-packing plants are by nature different from export transactions. Consequently, the requisite information is also different, such as that needed for tax purposes for instance. Neither do foreign buyers have access to that information, as there is no official register in the domestic market equivalent to customs, given the differing nature of the transactions. Nevertheless, that information may be accessed via the respective chambers. Anyone wishing to know export prices or other export-related data may obtain that information through the services that are publicly available. 4.78 The European Communities responds that Argentina makes an inconsistent argument. In its first written submission, Argentina argued that the information in the customs file (i.e. quantity and price of the goods, and in particular the name of the exporter) was confidential information, and that contrary to what the European Communities had stated, the ADICMA-representatives had no access to it. It stressed that the Argentinean customs officials would be prosecuted if they divulged such sensitive information. At the 1st meeting, the European Communities provided a document55 which shows that the ADICMA do have access to this information. Argentina appears to wish to attempt to keep its old line, by arguing that the document provided by the European Communities would for some unclear reason not be representative, and that the information is in fact not provided to the ADICMA representatives. On the other hand, Argentina argues that the ADICMA-representatives receive the same information that is also available on line, which includes the name of the exporter, price, etc. 4.79 In view of the evidence which is supplied and the second statement of Argentina, it is clear that the ADICMA representatives do obtain the information – which was qualified as business confidential earlier on by Argentina itself – as a result of the measure. 4.80 Argentina explained that the Exhibit EC I-35 was not representative because it constituted a copy of a customs declaration coming from an ADICMA Member and, moreover, the signature is on the back, where none of the particulars listed by the EC appear. 4.81 The European Communities stresses that for purposes of analysing the contested measure under the GATT, it is not relevant that the Argentinean government is also taking other measures through which the same information is provided "on-line." The violation of Article XI GATT resulting from Resolution 2235 does not cease to be a violation of that Article because there is also another measure which partly has the same effect. Moreover, the fact that Argentina now also makes the information available on-line only proves that Argentina's assertion that the contested measure is necessary for transparency reasons is wholly unfounded. 4.82 At the second meeting, the European Communities provided documents which according to them showed that since around May 1999, the Argentinean government was no longer providing the name of the exporter. The European Communities underlined that Resolution 2235 provides only to a certain group of industry information on any attempts which their suppliers would make to export. 4.83 In reply to a question by the Panel, Argentina stated that since May 1999, its "Dirección General de Aduanas" no longer supplied the names of ex-/importers to "on-line" information systems. 5. Market power of tanneries vs. slaughterhouses and the alleged existence of a cartel 4.84 The European Communities contends that the disclosure of confidential information to ADICMA representative regarding export transactions attempted by slaughterhouses allows the tanneries to exert pressure on the slaughterhouses not to export. ADICMA representatives can provide this information to all tanneries who in turn may (ab)use it in their business relations with the slaughterhouse concerned, including by not buying from those slaughterhouses. The European Communities states that each slaughterhouse is highly dependent on domestic tanners for the sale of its hides and skins. Domestic tanners are in a position to exert market dominance on a slaughterhouse by using their (collective) purchasing power. For this reason, the slaughterhouses do not even attempt to sell abroad (even though they would obtain higher prices abroad). The European Communities states that a slaughterhouse would indeed risk facing retaliatory measures from tanners, including termination by tanners of contracts which would endanger the entire domestic sales of the slaughterhouses. Bearing in mind that most of its sales are domestic, a slaughterhouse will not risk undermining its domestic sales situation for the sake of exporting limited hide quantities even if in so doing, for that limited quantity, it could obtain a higher price. 4.85 Even though the value of the skins accounts only for about 10 percent of the value of the animal, the European Communities asserts that the threat of losing 10 percent of the proceeds of each animal slaughtered can make the difference between running a profitable or a loss-making company. Finding, immediately, foreign buyers for all hides which a slaughterhouse produces will in all likelihood be impossible; it will cost time and effort, especially because once hides are "produced" (i.e. removed from the animal when slaughtering) they have to be sold as soon as possible (even if they can be preserved for some weeks, hides finally deteriorate). This does not prevent hides from being exported (European Communities and US hides, for instance, are exported world wide including to Argentina), but it is always safer for a slaughterhouse to have as wide opportunities as possible to sell its hides (be it domestically or in export markets). The slaughterhouses are restricted in their exports since they cannot freely choose to export part of their raw hides and sell the other part domestically; as soon as a slaughterhouse exports one shipment of hides, however small, all Argentinean tanners will know. 4.86 The European Communities also underlines that a hide represents 55 to 60 percent of the production costs of leather. Therefore, the Argentinean tanners have a great interest in the information which the ADICMA representatives obtain due to their presence, and in using it in their business dealings with the slaughterhouse concerned in order to keep its hides to themselves, at a low price. 4.87 The European Communities states that the Argentinean tanning industry is dominated by a relatively small number of tanning groups. In 1996, the 10 largest companies (of around 150 tanneries) accounted for more than 70 percent of the country's leather exports.56 4.88 The European Communities asserts that the effectiveness of the pressure by the tanneries can be seen in the absence of any noticeable exports of raw hides. Like in the Japan-Semiconductor case, the measure has as an effect to allow tanneries to put pressure on slaughterhouses not to export. This possibility to exercise pressure and to foster uncertainty – in this case with regard to the possibility to continue domestic sales, which is created by government – in this case the Argentinean one – was condemned by that Panel as contrary to Article XI.57 4.89 The European Communities states that the tanneries are generally believed to engage in market-restrictive practices. For instance, according to the Chairman of the association of slaughterhouses "the reality is that the tanners rarely deviate from the prices established in a list which is published on a weekly basis by a private operator, which clearly indicates that there is a previous price-fixing agreement."58 4.90 Moreover, in an explanation of a draft law introduced in 1992 relating to the exportation of raw hides, including raw bovine hides, Argentinean (then) MP, Mr. Antonio T. Berhongaray, (now Secretary of State for Agriculture), referred to the existence of a pricing cartel.59 In his explanation of his proposal, Mr. Berhongaray emphasises that there is a high degree of concentration in the tannery market. More importantly, he notes that somewhat less than 10 companies gather each week to fix the prices which they will pay the following week, and that these prices for raw hides are even published in a bulletin which will be applied that following week. In short, a member of the current Argentinean government has, in the past, confirmed in an official parliamentary document related to introducing new legislation that such a cartel exists. 4.91 The European Communities also quotes an editorial in the Argentinean newspaper "La Nación" which, according to the European Communities, describes the Argentinean export restrictions, including the introduction of the export tax, and adds (translation by the European Communities): "Soon afterwards the screw was tightened even more: an ad hoc body of representatives of the leather industry was created in order to - in conjunction with customs officers - check all the shipments abroad of hides, so that any possible filtering through of non-processed goods is blocked." (Poco después … procesar.")60 4.92 Argentina argues that questions regarding the Argentinean hide market are not covered by the claim based on Article XI of the GATT, which refers exclusively to prohibitions or quantitative restrictions attributable to the conduct of a government, rather than that of the market. 4.93 Moreover, the European Communities does not provide any evidence to back its allegation of a cartel. A mere note from the President of the Meat Packers' Association cannot be interpreted by the Panel in such a way as to refute the established principle that the party asserting a fact must prove it. With regard to the question of what may be called the "burden of proof," the Appellate Body has confirmed that it is for the complaining party to establish the violation it alleges, and that it is for the party asserting a fact to prove it.61 In the present case, the European Communities has not fulfilled that requirement, since a mere assertion by an interested party does not constitute sufficient evidence of price fixing. Moreover, in that note submitted by the European Communities, the President of the Argentine Meat Packers' Association (Asociación de Frigorificos de la Argentina) acknowledges: "We have no concrete evidence of the existence of market agreements among tanners."62 Furthermore, no complaints on the subject have been received by the National Commission for the Protection of Competition from any of the parties most interested in the sale of raw hides. Argentina considers that the allegations of "irregularities" in the national market for hides leather must be rejected because they are unfounded and not supported by any evidence. 4.94 Argentina further questions whether the "journalistic" evidence produced by the European Communities can be regarded as proof of the alleged incompatibility of the Argentine measure in question with the WTO Agreements.63 The European Communities cites only a single sentence from the editorial, which clearly identifies itself with the interests of a particular sector, while avoiding any reference to its main theme, namely opposition to the possible renewal of the legitimate duty being applied to rawhide exports, which expired only six days later, on 30 June 2000. This sentence is strikingly similar to those used by the European Communities in its submissions to the Panel with reference to Resolution 2235 and offers no explanation of how that measure continues to operate "so that any possible filtering through of non-processed goods is blocked." Once again in this case, through public declarations with scandalous embellishments having no basis in fact and without making any administrative or judicial complaint, a particular sector is claiming to alert people to some plot affecting both its own and the general interest. Argentina recalls that it is surprising if a powerful sector of the Argentine economy such as the meat packing industry would fail to use the administrative and judicial remedies within the reach of any ordinary citizen to demand the removal of an allegedly unlawful restraint on the pursuit of its activities and merely engage in a few skirmishes in the media, in parallel with the complaint which the European Communities has brought before the WTO. 4.95 Argentina states that the Argentine tanning industry does not form a cartel. It is made up of more than 150 enterprises. Moreover, Argentina emphasizes that the meat packing companies are for the most part not small-scale producers and that they therefore have the same or greater negotiating powers than the tanneries. The points made by the European Communities concerning the alleged long-term unwritten agreements between the economic operators involved are irrelevant for the purposes of this dispute. 4.96 The fact that the price of a raw hide represents no more than 10 percent of the value of the animal at the time of slaughter is regarded by Argentina as an unrepresentative figure on which to base the argument that it jeopardizes the meat packing business. Moreover, annual turnover in the meat packing industry has exceeded 4,000 million pesos since 1997. The value of the tanning industry's output does not exceed 1000 million pesos per year. In terms of turnover, therefore, the meat industry is four times bigger than the tanning industry, and this gives an idea of the relative potential capacity and importance of each. It should also be noted that the value of the meat packing plants' output grew substantially (by 20 percent) in 1998, the first year of the contraction in the tanning industry caused by falling international demand for hides, as reflected in the 17 percent drop in total exports by the industry. Given such a disparity in turnover trends, it can hardly be claimed that the tanneries could exert pressure on the prices of raw hides. 4.97 The falling livestock level of cattle in Argentina has strengthened the bargaining power of the slaughterhouses vis-à-vis the tanneries. 4.98 Against this backdrop, Argentina questions why should it be necessary to believe in the existence of a cartel of buyers of a product if the latter is in short supply. In circumstances in which a powerful sector of the Argentine economy, the controller of a scarce resource, is faced with a sector of less relative importance but with a fundamental need to secure the supply of its principal raw material, it is hard to believe that the tanners would provoke a conflict with the meat packers, thereby jeopardizing their relationship with their source of supply. 4.99 Argentina also challenges the effectiveness of an export restricting cartel, asserting that if the tanners were to stop purchases of raw hides, all hides affected could simply be sold on the international market since there is a relative scarcity of raw hides internationally as well. 4.100 With regard to the European Communities' comments about the existence of irregularities in the setting of domestic prices, Argentina points out that in the market for hides/leather, it is not a price-setter but, on the contrary, a price-taker. 4.101 Argentina states that in the case at issue, the burden of proof lies with the EC. The point has not been reached where it should be shifted to Argentina. Argentina has refuted mere assertions by the EC with facts: the EC said that "there are no exports" and Argentina provided figures to refute that assertion; the EC said that the measure was obligatory, and Argentina explained the scope of Resolution 2235; the EC claimed that there was no scarcity of raw material, and Argentina once again provided import figures; and so it is that Argentina continually has to respond to arguments which the EC puts forward and then modifies. When Argentina showed that there were exports, the EC said that they only amounted to 1/1000 because the exports relevant to the case at issue were raw hides exports. When Argentina presented the figures for the EC, the EC claimed that they were inaccurate; when Argentina stated that the rules were applied in an impartial and reasonable manner, the EC said that they violated business secrets without specifying which ones, and so forth. 6. Claim that export and price figures reflect the restrictive effect of the measure on exports of raw bovine hides 4.102 The European Communities argues that the restrictive nature of the measure in question is reflected in the negligible quantities of raw bovine hides exported from Argentina, even though the competitive price and quality of Argentinean hides would suggest higher exports. The European Communities points out that it does not claim that, in itself, the negligible amount of exports is sufficient evidence to show that a restriction exists. However, in the particular context of the challenged Argentinean measure the quasi-absence of exports of Argentinean raw bovine hides constitutes further evidence that Resolution 2235 acts as an export restriction. 4.103 Argentina asserts that a scarcity of raw material in the domestic market exists. Raw-hide producers could sell their products on the domestic market, and did not need to engage in the establishment of a costly infrastructure for raw hide export. Also, Argentina contests the European Communities claim that there are no exports of raw and wet-blue hides and maintains that the ratio of raw hide production to exportation does not differ in Argentina significantly from figures obtained by European Communities members States. (a) Interpretation of figures of hide production in Argentina 4.104 The European Communities states that Argentina's production of raw bovine hides has remained relatively stable since the 1970s. In the five-year period 1966-1970, the average slaughter rate was about 12.6 million head.64 The slaughter rate in a country corresponds to the production of hides, as one slaughtered animal produces one hide. According to official statistics from the Argentinean authorities, during 1992-1996 on average about 11,6 million head were slaughtered.65 In the last five years for which complete data are available (1994-1998), the average number of cattle slaughtered in Argentina was about 12.7 million heads. Other data from the Argentinean Ministry of Agriculture give even higher slaughter rates for that period and more recent years.66 In 1995, it was about 4 percent of the world's total production and made Argentina the world's 7th largest bovine hides producer in that year.67 The European Communities concludes that production of raw bovine hides does hence not differ significantly from the period of 1966-1972, the year in which the first export ban was introduced. 4.105 The European Communities contends further that according to the information received from the Argentinean authorities, the average size of livestock in Argentina after 1992 (i.e. after the end of the export "suspension") was not substantially different from that during 1966-1972 (before the official export ban).68 4.106 Argentina asserts that the leather market cannot be analysed separately from the other variables affecting the leather production cycle. In as much as raw bovine hides are raw materials of inelastic supply, being a by-product of meat production, their availability depends on livestock inventories and slaughter rates. The slaughter rate in Argentina fell from 16 million heads per year in 1978 to 11.27 million in 1998.69 This dramatic decline in slaughter is due to the loss of traditional markets for Argentine meat products, as a result of subsidization policies and import restrictions imposed by some buyers, certainly including the European Union. 4.107 These restrictions on access to the international market for meat made it necessary, on the one hand, to adjust livestock slaughter rates to meet demand and, on the other, to develop a policy of livestock resource protection combined with greater industrialization of the livestock sector, which explains the measure introduced in 1972. Barriers to market entry and an over-supply of meat triggered a drop in prices which led to a reduction in livestock inventories owing to the unprofitability of livestock-related activities. The "stock" was depleted to such an extent that it even became necessary to impose a temporary closed season on meat consumption with a view to replenishing the resource and ensuring its survival. 4.108 Due to the crisis, the Argentine meat industry had to close meat packing plants and the installed capacity by those that survived was under-utilized. This crisis, combined with subsequent developments, has adversely affected the sector up to the present time. The use of installed capacity was a mere 40 percent in July 1999.70 4.109 Once the extreme circumstances that gave rise to the initial measures had been overcome, the ban was removed and replaced by export duties within the framework of a resource management policy combined with growing industrialization of the raw material, the clear objective being to regulate management of the resource which, by its very nature, is exhaustible.71 Thus, the preamble to Resolution 537/92, under which the export duties were introduced, provides as follows: "[whereas] there is a world-wide shortage of raw hides due to the fact that population growth and the rising living standards of the world population far outstrip the natural increase in livestock. This scarcity of raw material is especially acute in the Argentine Republic as a result of the dramatic decline in livestock slaughter rates … [whereas] it is necessary to maintain a level of supply appropriate to the requirements of the domestic market for raw and semi-finished hides …."72 This combination of measures adopted by Argentina served to create the right conditions for guaranteeing, within a virtuous cycle of livestock herd replenishment, a supply of hides which, while safeguarding the primary resource (bovine animals), enabled the leather industry to incorporate added value in its production and to ensure long-term sustainability. 4.110 Furthermore, from the historical perspective, what the European Communities shows in its Exhibit EC I-20, while claiming to prove that the cattle stock and the slaughter rate were maintained, is in fact that, at the point in time when Argentina introduced the restriction on raw hide exports in 1972, a persistent decline of approximately 7.17 percent had been observed in that stock between 1967 and 1970.73 The above-mentioned export restraint was combined with internal measures designed to restrict meat consumption,74 in response to a crisis situation in the industry which the European Communities itself confirms. 4.111 It is important to emphasize and reiterate that the Argentine tanning industry has for several years been confronted with a shortfall in the supply of raw materials for processing. The industry's tanning capacity has reached peaks of 16 million hides per year, a figure rising to 18 million if the introduction of technology is taken into account, which contributes to greater efficiency in the production process. Nevertheless, the domestic availability of raw material does not exceed 11.27 million hides, owing to low livestock slaughter rates. 4.112 The problem of the scarcity of raw material in the Argentine market has also been noted by the international publication Market News Service, which in its issue 3/200075 states that, in the case of Argentina, owing to the 8.4 percent decrease in cattle stocks over the last five years and given a relatively high level of per capita meat consumption by international standards, the current shortage of raw hides for the industry is expected to continue. Specifically, this publication maintains that the industry experienced a shortfall of one million raw hides per year over the last five years, in terms of the quantity required to satisfy its production capacity. (b) Interpretation of export figures from Argentina 4.113 The European Communities states that prior to 1972, Argentina exported an important volume of hides to the rest of the world, including the European Communities. The level of exports of raw bovine hides amounted to an average of 177.000 tons a year during the period of 1961-1970. This shows that prior to the imposition of export restrictions, foreign purchasers were highly interested in Argentinean products. The European Communities argues that as from 1971 the number of exported hides started to decline.76 The export ban introduced in 1972 led to a boom of the Argentinean tanning industry and its export capacity. Nowadays, state-of-the-art Argentinean tanneries export wet blue flesh splits, crust and finished leather to the whole world.77 4.114 The European Communities quotes official Argentinean figures78 for the period 1996-1998, which show negligible raw hides exports for the period from1996-1999, namely
4.115 Even considering of the higher export figures provided by Argentina in its first submission,80 less than one per thousand of Argentina's annual hide production of raw bovine hides were exported since 1996. The table shows, in the middle column, how many bovine animals were slaughtered in Argentina over the last four years.81 This figure which corresponds to the number of hides produced in Argentina, varied between 11.3 and almost 13 million. In the right column, the table shows how many raw (i.e. only salted) hides were exported.
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