"internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products."

8.57 The Panel noted that the interpretation of this prohibition of discriminatory taxes was a strict one.

8.58 It was also strictly applied in GATT practices, for example, prohibiting even a very small tax differential amounting to US$ 0,0002 per litre of imported petroleum) and ruling out a de minimis standard based on an alleged minimum trade effect (see L/6175, paragraphs 5.1.2 to 5.1.9). The Panel then found that the words "direct or indirect" and "internal taxes … of any kind" meant that in order to decide whether there was tax discrimination, not only was it necessary to consider the applicable tax rates but also the methods of taxation (e.g. different classes of internal taxes, direct taxation of finished products or indirect taxation through taxes on the raw material used in the product at the different stages of its production) and the rules on tax collection (e.g. tax bases).

8.59 In addition, Argentina states that even if lost interest could be considered to be covered by Article III:2, it would have to be higher than that which domestic products themselves would have to bear, as required by the rule being invoked by the European Communities (Article III:2).

8.60 Finally, it may be concluded that thus far the European Communities has produced no precedent whatsoever that is applicable to this case and which supports the broad interpretation it wishes to give to the scope of the terms "taxes … or other internal charges … of any kind" of Article III:2, making it possible to consider the "lost interest" as falling under the national treatment rule.

8.61 The European Communities contests that the Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994 does purport to "clarify the scope" of the notion of "other duties or charges." The Understanding merely provides that "other duties or charges" must be recorded in each Member's schedule of concessions.
 
8.62 The European Communities also states that Argentina's view is refuted by the Understanding on the Balance of Payments provisions of the GATT 1994, which reads as follows in relevant part (at paragraph 2):

Members confirm their commitment to give preference to those measures which have the least disruptive effect on trade. Such measures (referred to in this Understanding as " price-based " measures) shall be understood to include import surcharges, import deposit requirements or other equivalent trade measures with an impact on the price of imported goods. It is understood that, notwithstanding the provisions of Article II, price-based measures taken for balance-of-payments purposes may be applied by a Member in excess of the duties inscribed in the Schedule of that Member. (…) [emphasis added]

8.63 If, as alleged by Argentina, the "lost interest" associated with making an import deposit was not a "duty or charge of any kind" in the sense of GATT Article II, it would have been unnecessary to include "import deposit requirements" among the "price-based measures" which Members are encouraged to apply in place of quantitative restrictions, "notwithstanding the provisions of Article II."

8.64 The additional IVA and the advance IG impose on importers of foreign products a heavier tax burden than that placed upon the buyers of like domestic goods by the additional IVA and the IG withheld on the internal sale of goods, respectively. As a result, imported products are taxed "in excess of" like domestic products, contrary to the prohibition set forth in GATT Article III:2, first sentence.

2. "Likeness" of imported products and domestically produced products

8.65 The European Communities asserts that the tax differentials at issue are based only and exclusively on the type of taxable transaction, and not on the characteristics of the taxed products. In other words, they are based on whether the taxed products are being imported or sold within Argentina, and not on the physical characteristics or end-uses of the products. Therefore, the European Communities states that it is not necessary to show that the products imported from the European Communities are "like" domestic products in light of criteria such as their physical characteristics or end uses, since imported products would be taxed differently from "like" domestic products even by the narrowest definition of "like product." ¹⁹⁸

8.66 The percepciones provided for in Resolutions No 3431 and No 3543 are collected exclusively upon the importation of products. Accordingly, by definition, they apply only to imported products. The mere fact that a product has Argentinean origin is not sufficient per se to confer upon that product properties which make it "unlike" any imported product. In other words, even if a foreign product were identical in all respects to a domestic product, the importation of that foreign product into Argentina would still be taxed differently from the internal sale of the domestic product. Thus, even by the narrowest definition of "like product," imported products would still be taxed differently from "like" domestic products.

8.67 The European Communities states that GATT Article III is concerned with the protection of competitive opportunities, and not with the protection of actual trade flows.¹⁹⁹ For that reason, whether or not the products currently being imported into Argentina are "like" the products of Argentinean origin is not dispositive. What matters is whether the products that might be imported from the European Communities are "like" the Argentinean products.
 
8.68 A comparison with the situation at issue shows that the contested tax measure in Japan – Liquor Taxes was of a different nature.²⁰⁰ That measure did not distinguish on its face between domestic and imported products, but instead between types of products. Specifically, Japan applied a lower tax rate to shochu (whether Japanese or imported) than to vodka (again whether Japanese or imported). It was therefore necessary to ascertain whether shochu was "like" vodka in light of criteria such as their physical characteristics, end-uses, etc.

8.69 In contrast, in the present case the tax differentials in dispute are based exclusively on the origin of the products, i.e. whether the goods are being imported into Argentine territory or sold within that territory. While the tax rates on internal sales apply to both imported and domestic products, the higher tax rates on imports apply, by definition, only to imported products.

8.70 Argentina contests the European Communities assertion that the products imported by Argentina are necessarily and automatically on the basis of the definition of the "type of taxable transaction," "like products" to the domestic products.

8.71 Additionally, as far as the European Communities' argumentation on "like products" encompasses the IG tax, Argentina argues that the IG tax is not a product tax, so that Article III:2 does not apply in the first place.

8.72 While Argentina agrees that the object of Article III of the GATT is to ensure equal competitive opportunities on the domestic market for the imported product, it argues that the European Communities overlooks the existence of one of the requirements considered necessary in Article III:2, first sentence, for verifying that the competitive conditions have been altered or could potentially be altered: that those competitive expectations exist between "like products."

8.73 Argentina states that the European Communities takes its definition of "like product" based on the type of taxable transaction from the report of the Panel on "Indonesia – Certain Measures Affecting the Automobile Industry." ²⁰¹ As concerns that report, Argentina comments that according to GATT/WTO doctrine, expressly confirmed by the Report of the Appellate Body and the Panel in the case "Japan – Alcoholic Beverages," a report adopted by a panel is only binding on the parties to the dispute and does not constitute a definitive interpretation of the provisions of the GATT and/or the WTO.²⁰²
 
8.74 Moreover, in that case Indonesia itself did not expressly question the likeness of the product as defined by the European Communities.²⁰³ In the present case, Argentina does question the definition given by the European Communities, i.e. "the tax differentials at issue are based on the type of taxable transaction, and not on the characteristics of the taxed products. More specifically, they are based on whether the goods are being imported into Argentine territory or sold within that territory."

8.75 Argentina states that the definition of "like product," one of the two requirements for establishing a violation of Article III:2, has been extensively dealt with in the GATT/WTO case law. Thus, a basic criterion found throughout the case law is a "case-by-case" analysis of the definition. A second element involves the existence of a set of criteria which contribute to that definition. A third aspect is the acknowledged tendency, as of the GATT 1994, to circumscribe and narrow the concept of likeness.

8.76 The requirement for a case-by-case analysis is in line with the need to interpret the various definitions in the light of each of the Agreements which provide for this requirement. Consequently, the scope of the concept of "like product" may be different under Article III:2 of the GATT 1994 compared to the scope of the definition in other agreements. This was corroborated in "Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages," where the Panel did not deem it appropriate to apply the "very narrow definition" of "like product" contained in Article 2 of the 1979 Anti-Dumping Agreement.²⁰⁴ Conversely, in "Japan – Alcoholic Beverages," which to some extent constitutes a more recent pronouncement and, furthermore, one more relevant to the GATT 1994, the Appellate Body stated:

"… We believe that, in Article III:2, first sentence of the GATT 1994, the accordion of "likeness" is meant to be narrowly squeezed."²⁰⁵

8.77 Argentina contends that the tendency to narrow the definition of "like product" in the GATT 1994 is consistent with the main body of obligations and disciplines agreed by the parties in the framework of the Uruguay Round negotiations, and is moreover necessary to prevent any unwanted restriction of the regulatory powers which the WTO Members have reserved to themselves in the taxation field, for purposes other than protection of the domestic industry.

8.78 The second element, i.e. the characteristics of the product, meaning "… the product's end uses in a given market; consumers' tastes and habits … the product's properties, nature," etc.,²⁰⁶ is and will continue to be an essential criterion for defining a "like product." Among these criteria, there is none which "per se" could exclude any other. Thus, the physical characteristics of the product may be combined with the fact that it is or is not destined for end use in a domestic market. In any event, it is by means of a case-by-case analysis that it is possible to confirm the definition of like product.

8.79 Argentina illustrates its argument by giving an example involving finished leather: an importer may bring finished leather into the Argentine market for marketing, in which case he/she will make a payment on account in accordance with Resolution 3431. If the same importer were to bring in the same finished leather, add value to it and then re-export it, he/she would not have to pay any advance on account.²⁰⁷ Argentina argues that this example shows that a definition of like product based on the national or imported origin of the same product with a nominal difference in the applicable tax rate for the payment on account, is empirically incorrect. Moreover, a definition of these characteristics also does not square with the system of payments on account which ultimately are no more than advances tailored to a tax which is applied at an equal rate to imported and domestic products and which also, as will be shown below, does not impose a heavier burden on imported products.

8.80 Finally, a broad definition of like product, as chosen by the European Communities, is at variance with the criterion considered by the Appellate Body to be implicit in this concept in the GATT 1994, would undermine the definition which has been worked out precisely to ensure conditions of competition between imported and domestic products in a specific case and not in general terms. It thus makes sense to examine whether a higher tax is applied to finished leather imported for marketing in the domestic market, or to oil imported for the same purposes vis-à-vis locally produced oil, if we follow the doctrine established in the Superfund case.²⁰⁸
 
8.81 In a situation where, as in the present case, there is an alleged infringement of Article III:2, first sentence, " … likeness must be construed narrowly and on a case-by-case basis"²⁰⁹ and not on the basis of hypothesis. The European Communities definition means a departure from one of the requirements clearly laid down in various precedents, e.g. "Canada – Periodicals," where it was established that to determine a violation of Article III:2, first sentence, it is necessary to follow what might be called a "two-track approach," that is, first to define "like product" and second, to prove that the imported product is taxed in excess.

8.82 Argentina is aware that there are precedents in which, in the absence of tangible imports, hypothetical bases have been used to define "like products." However, if the determination of "like product" can be done simply by comparing the situation of products on the market, there is no point in developing a hypothesis. Doing so could amount to a kind of non-application of the provisions of the GATT 1994 to the concrete case. In other words, the determination of whether imported and domestic products are like products calls for the application of legal rules, in this case Article III:2, to the specific circumstances of the case. In this instance, it is a matter of verifying whether the foreign goods present on the Argentine market are competing with their "likes," or with products that are "directly competitive" or "substitutable."

8.83 The precedents introduced by Argentina do not introduce into the text of Article III:2 a new category of "types of products." Those precedents merely confirmed the various factors that must be considered in order to define a "like product." Although some of those precedents addressed specific aspects of the elements used to define "like products," such as the criteria of physical characteristics used to evaluate similarity between shochu and vodka, as a whole they do underscore a series of key criteria that are applicable in defining "like products." These include: " … the product's end-uses in a given market; consumers' tastes and habits; and the product's properties, nature and quality." ²¹⁰

8.84 These same criteria, Argentina argues, which could include the imported or domestic origin of the product, are the ones that must be considered in defining a "like product." No single blanket criterion can be made to prevail (domestic or imported origin) when it is not valid for meeting the requirements of the specific case at hand. Argentina argues that the European Communities is applying such a "blanket criterion" in the hope that by considering this to be a proven instance of like products within the meaning of the first sentence of Article III:2, there will be dispensation from having to prove the existence of "protection to domestic production," thereby preventing the other party from benefiting under any possible de minimis criterion.

8.85 Furthermore, the European Communities is unable to specify even one example of an imported "like" product which, when sold on the market in its final stage, must bear a higher tax for being an import.

8.86 Finally, Argentina finds contradictions in the European Communities' arguments in that on the one hand it claims that imports are by definition subject to higher taxes and, on the other, it ignores, for instance, the unquestionable fact of imports for re-exportation. This fact alone confirms that the origin of the good is not enough to qualify it as a "like product," as in this case the origin of the merchandise is irrelevant for the purposes of the customs treatment it receives. It is the product's end-use that determines whether or not it is subject to a payment on account. In other words, it is only by applying the methodology developed by the various GATT/WTO precedents that we can determine whether this is a case of like product. Can rawhides imported for re-exportation, which are not subject to payments on account, be considered a "like product" to rawhides intended for the domestic market and liable to payments on account?

8.87 Argentina contends that imported or domestic origin is not enough to determine that one is dealing with like products. Other elements must be considered: in this case the "end-use" which is clearly among the criteria that pervade the concept of "like product." In other words, if the "end-use" requirement is not fulfilled for both products – the domestic and the imported one – it is not a case of "like products."²¹¹ Otherwise put, if the end-use is different, there cannot be "like products," as the concept of "like product" is particularly narrow in the sense of Article III:2, first sentence, on account of the exemption from the burden of proof involved. In contrast, the notion of directly competitive or substitutable products (both types of rawhide are substitutable for the purposes of their subsequent processing) is much more fitting, since in this case, although the products fall into the same category, if an infringement of Article III:2 were alleged, they would fall under the second sentence of that same Article and it would be necessary to prove the intention to protect domestic industry, in which case a "de minimis" standard would become operative.

8.88 Argentina considers that the broad definition of "like product" being used by the European Communities in this case is inconsistent with the narrow interpretation that has been made in the precedents cited, which Argentina regards as relevant. The second sentence of Article III:2 would seem to cover more adequately the type of competition that exists between domestic and imported products on the Argentine market.
 
8.89 If all these alternatives could not be proved empirically, the Panel's resort to a hypothesis would be understandable. As there are indeed imports, specifically of the product at the origin of these proceedings (the name of the Panel refers to "imports of finished leather," even though the European Communities is now discussing all imports), a "case-by-case" analysis should be used to define "like product."

8.90 Argentina argues that there is a wide range of situations envisaged under the different general resolutions issued by the Tax Administration and the consequent rate differential existing for payments on account. There are several regimes for payments on account depending on different factors: such as certain categories of buyers, the amounts involved. This refutes the generalization that the mere origin of the product generates a difference in the tax. It is indispensable for the European Communities to be specific in regard to excessive payments on account in order to be able to consider that the first requirement for determining a violation under Article III:2" first sentence has been met. In other words, the difference in the rate for the "payment on account" does not serve to define "like product" in general, as the imported or domestic origin does not automatically mean that they can be considered "like."

8.91 The European Communities contests Argentina's view and states that the fact that some import transactions (e.g. imports for re-exportation) are exempted from the IVA and some internal sales are subject to different tax rates,²¹² based on factors such as the type of product,²¹³ or the means of payment,²¹⁴ does not detract from the fact that the tax differentials in dispute in this case are based, only and exclusively, on whether the goods are being imported or sold internally, and not on the physical characteristics or end-uses of the taxed products, which renders an analysis of those factors totally irrelevant, because it remains true that only imported products, and not domestic products, are subject to Resolutions No 3431 and No 3543.

8.92 Whether or not imported products are taxed "in excess of" like domestic products that are subject to other tax measures is a different issue to be considered subsequently under the second step of Article III:2, first sentence. Argentina's arguments, however, systematically confuse those two issues.

8.93 The mere fact that, as argued by Argentina, some import transactions (e.g. imports for re-exportation) are exempted from the IVA does not undermine the EC's position, because it remains true that only imported products, and not domestic products, are subject to Resolutions No 3431 and No 3543
.
8.94 Furthermore, the end-uses that are relevant for a like product determination are not the end-uses actually given to the product in a particular case but, rather, their objective end-uses. Whether I use an egg for cooking an omelette or a fried egg, the egg is still the same and, therefore, «like». By the same token, the fact that a piece of imported raw skin is re-exported from Argentina does not make it "unlike" any piece of imported raw skin which is used within Argentina. The relevant issue for a "like product" determination is whether imported eggs, or raw skins, can be put to the same end-uses as the domestic products.

8.95 Argentina argues that the tax rates is the same in all cases, a blanket rate of 21 percent. What differs are the rates for collection of advance taxes. However, the regime of "collection" and withholdings" (payments on account) is irrelevant for the purpose of defining the taxable transaction subject to the IVA. Moreover, the law itself does not allow for discriminatory treatment based on the national or foreign origin of goods (Article 45, IVA Law). The withholdings or payments on account are simply advance payments of one and the same tax, and not "additional" taxes whether it is the IVA liability or the IG payable by the natural or physical person in the form of "payments on account" against that tax.

8.96 As the "tax" at issue is simply an advance payments of one and the same tax, no product is subject to a tax because of its origin. As the Argentine IVA is a single tax with a rate of 21 percent that is identical for domestic and imported products, we fail to see the discrimination based on the origin of the good.

8.97 If in the light of the various regimes for payments on account in place there is no definition of "like products" in the narrow sense prescribed under Article III:2, first sentence, it is necessary to consider whether the situation of competition between imported and domestic products on the Argentine markets (in terms of the impact of "payments on account") would not be one involving products (for example finished hides of European origin) that could be competitive or substitutes on the market within the meaning of the second sentence of Article III:2.

8.98 The European Communities takes issue with Argentina's suggestion that imported and domestic products are not "like" but simply "directly competitive or substitutable." The arguments made by Argentina in order to deny that imported and domestic products are "like" would logically have the consequence that they could not be considered as "directly competitive or substitutable" either.
 
8.99 Argentina submits that the strict requirements of the first sentence of Article III:2 for the determination of "like products" have not been met and that there is consequently no infringement whatsoever of the obligation of national treatment.

3. Claim that imported products are taxed "in excess of" like domestic products

8.100 The European Communities asserts that the advances collected on imports according to the rules relating to the IVA and IG laws impose an additional tax burden on imports. Although also domestically produced products are subject to IVA and IG advances, due to the different applicable tax rates and the different coverage of those additional IVA laws, imports are being disadvantaged contrary to Article III:2, first sentence.

8.101 The European Communities does not allege that the overall rates of the IVA or the IG are discriminatory. The European Communities does neither question Argentina's right to levy percepciones and retenciones on account of those taxes. The European Communities' complaint is concerned with the fact that the percepciones levied on imports are higher than those levied on the internal sale of goods, with the consequence that importers bear a heavier fiscal burden than the buyers of domestic goods.

8.102 The European Communities notes that, even if the additional IVA and the IG on imports could be credited by the importers against their definitive tax liability under the IVA and the IG, the discrimination would persist since importers would be required to "advance" larger amounts of money to the Argentinean Treasury than purchasers of like domestic products.

8.103 Argentina argues that both the IVA law and the IG law treat imported and like domestic products the same. The separate tax rules challenged by the European Communities merely constitute advances which are deductible at the time of settlement of the definitive tax liability. Moreover, the percepciones and retenciones are tax collection mechanisms which fall outside the scope of Article III:2

(a) Claim that the advance IVA on imports results in a heavier tax burden than the advance IVA domestic sales

8.104 The European Communities maintains that the following differences between the additional IVA on imports and the additional IVA on internal sales have the consequence that imported products are taxed "in excess of" like domestic products.

- the generally applicable rate on imports by registered taxable persons is 10 percent while the rate applicable on internal sales of goods to registered taxable persons is 5 percent.

- the additional IVA on internal transactions does not apply to sales by non-registered taxable persons, whereas the additional IVA on imports is levied also on imports by non-registered taxpayers;

- the additional IVA on internal sales is collected only upon the sales made by agentes de percepción. In contrast, the additional IVA on imports applies to all importers.

- the additional IVA on internal sales is not collected on sales to certain categories of purchasers (including in particular the agentes de percepción and the main types of financial entities), whereas, to repeat, the additional IVA applies to all importers; and

- the additional IVA on domestic sales does not apply to sales below a certain amount, while the additional IVA on imports is levied on all imports, irrespective of their value.

8.105 Argentina's IVA law, through Resolution 3431, imposes an additional IVA tax on imports. Even though there are also additional IVA taxes levied on domestic sales ²¹⁵, the different applicable tax rates and coverage of those additional IVA laws disadvantage imports compared to domestic products, contrary to Article III:2, first sentence.

8.106 Even where the additional IVA on imports can be credited by the importers against their definitive tax liability under the IVA, the discrimination persists since importers are be required to "advance" larger amounts of money to the Treasury than purchasers of like domestic products.

8.107 Argentina states that the IVA Law does not discriminate between imported products and domestic products when establishing the rates for the taxes concerned. Both for imported and domestic products, the rates are up to 21 percent.

8.108 It is true that, in the case of imported products, the rates of the levies (percepcíones) – payments on account – are 5 percent and 5.8 percent in respect of live bovine animals, etc., depending on whether or not the taxpayer is a registered taxable person, while the equivalent rates for levies or withholding operations (percepciones o retenciones) - payments on account - in respect of other goods are 10 percent and 12.7 percent, depending on whether or not the taxpayer is a registered taxable person.

8.109 However, these rates are only advances or payments on account to the Treasury, arising from a single type of taxable transaction. It is therefore conceptually erroneous to add such levies to the general rate of 21 percent (identical for imported and domestic products) and to conclude that imported goods are actually subject to an IVA of 31 percent or 15.5 percent, in the case of live bovine animals, etc.

8.110 What the European Communities calls an "additional" IVA is in fact a method of payment of advances payable prior to final settlement of that tax. The European Communities thus gives a distorted picture of the tax burden on importers, which is identical for both imported and domestic products, i.e. up to 21 percent .

8.111 In short, Argentina maintains that it cannot be asserted that a static view of one part of the tax assessment process, i.e. the point at which a payment on account is effected when the goods undergo inward customs clearance, implies that at the time of final settlement of the tax liability, imported products are subject to a heavier tax burden than domestic products.

8.112 Argentina argues that the advance collection of the IVA was in fact established to provide equal treatment of imported and domestic products. Previously, imports were not subject to any system of payment on account. Marketing transactions in the domestic market were as a rule previously subject to the following payments on account, without prejudice to others applied in particular cases:

• The retención (withholding) regime under Resolution 3125, superseded by Resolution 18: (10.5 percent);

• the percepción (collection) regime under Resolution 3337: (5 percent).

8.113 Imports were not subject to any system of payment on account. In order to provide for equivalent treatment for import transactions, therefore, Resolution 3431 was enacted, establishing a single regime for imported products, for which the tax rate is currently 10 percent.
 
8.114 In view of the fact that import transactions can only be covered through a collection regime, since foreign sellers are not liable to the levy and cannot therefore be made subject to withholding operations, a tax rate of 10 percent was established for the collection and withholding regimes applied in the domestic market.
 
8.115 Argentina emphasizes that collection (percepción) in customs does not impose a heavier tax burden compared with domestically produced goods, bearing in mind that it does not establish a new tax on imports but merely applies a system of payment in respect of the final import of movables thereby according the same treatment as for domestic marketing operations, concerning which various collection and withholding regimes had been duly established (Resolutions 3337, 4059, 4131, 18, and 129).
 
(i) Comparison of tax burden between imported and domestic products

8.116 Argentina maintains that the tax affects foreign and domestic products equally and there is no additional cost to the former. Argentina illustrates this by way of making the following comparison between imported leather and domestically produced leather:

 

8.117 Argentina states that the domestic product "finished leather" bears a greater tax burden - in terms of payments on account and withholding taxes - than the like imported product, if account is taken of tax payments made at stages prior to the sale of the finished product (i.e. upon the sales of the raw hides and semi-finished leather. Argentina elaborates that the example above shows the various collection and withholding regimes applicable to the chain of production and marketing of finished leather, for the imported product, as well as the same product manufactured on the domestic market. On the domestic market, the finished product must bear payments on account totalling $ 11,80 ($ 0,5 + $ 6,30 + $ 5). In turn, it can be seen that imported finished leather pays an identical amount of $ 11,80 in the form of payments on account. In Argentina's view, the foregoing confirms the fact that the importer does not bear a heavier tax burden.

8.118 Finally, if the alleged financial cost did exist, Article 45 of the IVA Law itself clearly states that " … no discriminatory treatment based on the national or foreign origin of goods shall be admissible in respect of rates or exemptions."²¹⁶ Although this is no more than the written expression of a guideline that inspires the entire Argentine tax system, its express inclusion in a law is tantamount to the unquestionable granting of a precise and clearly defined right. By virtue of that right, which coincides with the obligation laid down under Article III of GATT 1994 (which also forms part of the Argentine domestic legal system), any person may proceed against the State if that person considers that the Public Administration is causing him injury in any way. Nevertheless, it is highly significant that the importers who made IVA and IG payments on account amounting to $ 11585015195.97 between 1992 and 1999 have not launched massive legal actions against the State to claim redress for these differences.
 
8.119 Argentina also recalls that the method of payments on account was applied to imported products subsequent to domestic products because its implementation had created an imbalance in favour of imported goods.

8.120 Argentina further points out that in its report adopted on 26 February 1955,²¹⁷ the Review Working Party II on Schedules and Customs Administration, at the proposal of Germany, examined the meaning of the words "internal taxes and other internal charges" in relation to taxes which are levied at various stages of production. What was studied in particular in that case was whether the rule of national treatment would allow a government to tax imported products at a rate calculated to be the equivalent of the taxes levied at various stages of production of the like domestic product or only at the rate of the tax levied at the last stage. Several representatives supported the former interpretation as they believed that the opposite case would establish a discrimination against countries which chose to levy taxes at various stages and in favour of those which levy a single turnover tax on finished products. The United States, for its part, believed that the reference to internal taxes covered only a tax levied on the final product competitive with the imported article. In view of that discrepancy, the above-mentioned Working Group decided not to recommend the insertion of an interpretative note, indicating that it was understood that the principle of equality of treatment would be upheld in the event of a tax on imported products being challenged under the consultation or complaints procedure of the Agreement.

8.121 Argentina argues that this decision indicates that it is the principle of equality that should prevail when it comes to judging cases in which there are "cascading" internal taxes on domestic products as opposed to a tax levied once on the imported product. If we extrapolate this to the case of payments on account of internal taxes, it could be said with even greater justification that the same principle must prevail in the analysis of consistency with Article III:2.

8.122 What was at issue in the study carried out by the members of: the Review Working Party II on Schedules and Customs Administration was the optical illusion that could result from showing a photograph taken only at one of the various marketing stages of a product and which therefore does not reflect the tax liabilities affecting each of those stages which must be considered when analysing the national treatment that should be given to the imported article.

8.123 The suggested use of the principle of equality to analyse the tax rate also applies to the study of measures which by definition are of lesser impact, such as the rates of payment on account of internal taxes, these being identical. If members recommended the use of the equality criterion in studying the GATT/WTO–consistency of a tax levied on successive stages, in accordance with the general principle of law whereby the principal issue rules the subsidiary one, the same rule of equality must be used in examining the impact of the payments on account on competitive conditions on the market.

8.124 This same principle was endorsed in a different context in recent WTO cases. In one instance, the following is stated:

"though the statutory language as such may be prima facie inconsistent, such inconsistency may be lawfully removed upon examination of other administrative or institutional elements of the same law." ²¹⁸

8.125 The European Communities, in response to the Panel's question 32, raises the possibility that the taxpayers might try to pass on the additional financial cost imposed on them as a result of the lost interest. Whether or not the cost resulting from lost interest can be passed on, depends on the market situation. The same is true of the 21percent IVA as well.

8.126 The European Communities agrees that, in accordance with the GATT rules on border tax adjustments,²¹⁹ Argentina may be entitled to compensate for the costs imposed on domestic products at prior processing stages. But the burden of proving that the rate differentials do not lead to overcompensation lies with Argentina. The rate differentials identified by the European Communities constitute prima facie evidence that imported products are taxed in excess of like domestic products. Since Argentina contends that those differentials purport to compensate for the taxes previously borne by the domestic products at previous manufacturing stages, it is for Argentina to prove that assertion.²²⁰ Moreover, the kind of evidence required to furnish that proof is available only to the Argentinean tax authorities. In this regard, the European Communities recalls once again the conclusion of the Working Party on Border Tax Adjustments that

"It was generally agreed that countries adjusting taxes should, at all times, be prepared, if requested, to account for the reasons for adjustment, for the methods used, for the amount of compensation and to furnish proof thereof." ²²¹

8.127 In the view of the European Communities, Argentina has failed to meet that burden of proof. Indeed, Argentina has not produced any evidence showing that the rate differentials between imports and internal sales correspond to the actual difference in costs borne by the products, or at the very least to a reasonable estimate thereof. ²²²

8.128 The European Communities states that Argentina's contentions are refuted by the fact that rates on imports are always the same, irrespective of the degree of processing of the imported products. Yet, upon Argentina's construction, the rates should logically be higher on imports of processed products, since domestic processed products are likely to have been subjected to percepciones or retenciones on more occasions than domestic primary products.

8.129 The purely hypothetical examples presented by Argentina do not prove Argentina's assertions. It is sufficient to change some of the factual variables posited by Argentina in order to arrive at a totally different result.
 

Notes

¹⁹⁸ See Indonesia - Certain Measures affecting the Automotive Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, adopted 23 July 1998. The Panel noted, at paragraph 14.113, that "… [an] origin-based distinction in respect of internal taxes suffices in itself to violate Article III:2, without the need to demonstrate the existence of actually traded like products." See also the Panel report in Canada – Certain Measures affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, circulated to the Members on 8 February 2000, at paragraph 10.74.
¹⁹⁹ See Japan – Taxes on Alcoholic Beverages, Report of the Appellate Body, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, at p. 16 and the cases cited therein.
²⁰⁰  Ibid.
²⁰¹  See WT/DS54/R, WT/DS55/R, WT/DS56/R, WT/DS59/R and WT/DS64/R.
²⁰²  Report of the Appellate Body on Japan – Taxes on Alcoholic Beverages, Op. Cit., page 13." … the conclusions and recommendations in an adopted panel report bound the parties to the dispute in that particular case, but subsequent panels did not feel legally bound by the details and reasoning of a previous panel report… We do not believe that the CONTRACTING PARTIES, in deciding to adopt a panel report, intended that their decision would constitute a definitive interpretation of the relevant provisions of GATT 1947. Nor do we believe that this is contemplated under GATT 1994."
²⁰³  Indonesia – Certain Measures Affecting the Automobile Industry, Op. Cit.,, paragraphs 14.106 and 14.110: "Indonesia does not specifically argue that the complainants have not demonstrated the elements necessary to establish a violation of Article III:2 (… like products)." In addition, the Panel emphasized that "… Indonesia has submitted no evidence or argument to rebut the presumption of likeness …."
²⁰⁴ Japan – Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, BISD 34S/83, paragraph 5.6.
²⁰⁵ Japan – Taxes on Alcoholic Beverages, Op. Cit., page 21.
²⁰⁶  Indonesia – Certain Measures Affecting the Automobile Industry, Op. Cit., paragraph 14.109.
²⁰⁷ Decree 1439/96, Temporary Imports, see Exhibit ARG-XVI.
²⁰⁸ See United States – Taxes on Petroleum Products and Certain Imported Substances, L 6175; BISD 34/136.
²⁰⁹ See Canada - Certain Measures Concerning Periodicals, Report of the Appellate Body, WT/DS31/AB/R, page 23.
²¹⁰ See Canada – Certain Measures Concerning Periodicals, Op. Cit., page 22.
²¹¹ Japan – Alcoholic Beverages, Op. Cit., paragraph 6.22, page 147, "In the view of the Panel the term 'like product' suggests that for two products to fall under this category they must share, apart from commonality of end-uses, essentially the same physical characteristics."
²¹² The European Communities argues that Exhibit ARG – XXVI overstates the variety of systems of "pagos a cuenta" of the IVA. Some of the Resolutions cited by Argentina (e.g. Nos 549, 3130, 3316, and 3469) concern the provision of services and, therefore, are totally irrelevant for the purposes of this dispute. Resolutions Nos 129, 212, 140, 4059 and 4131 concern the internal sale of goods, but have a very limited scope of application and are not at issue in this dispute.
²¹³ See for example, Resolutions 4131 and 4059.
²¹⁴ See for example, Resolution 140.
²¹⁵ See Resolution 3337.
²¹⁶See Exhibit EC II-1, page 86.
²¹⁷ See Guide to GATT Law and Practice, Vol. I, pages 144-147, updated 6^th Edition, 1995. Interpretation and application of Article III:2, paragraph 4.2(d).
²¹⁸ See United States, Sections 301 – 310 of the Trade Act of 1974; Report of the Panel, WT/DS152/R, 22 December 1999, page 313, paragraph 7.27.
²¹⁹ Cf. Article II.2(a) of GATT and Working Party on Border Tax Adjustments, at paragraph 14.
²²⁰See the Report of the Appellate Body in United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB, at p.14.
²²¹ Working Party on Border Tax Adjustments, paragraph 17.
²²² In the case of cascade taxes or taxes on ingredients, it is a generally accepted practice to compensate on the basis of average rates calculated for each category of product. See Working Report on Border Tax Adjustments, at paragraph 16.