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WT/DS207/AB/R
23 September 2002

(02-5066)

  Original: English

CHILE - PRICE BAND SYSTEM AND SAFEGUARD MEASURES
RELATING TO CERTAIN AGRICULTURAL PRODUCTS
 

AB-2002-2

Report of the Appellate Body

(Continued)


IV. Issues Raised in this Appeal

125. The following issues are raised in this appeal:

(a) whether the Panel acted inconsistently with Article 11 of the DSU;

(b) whether the Panel erred in choosing to examine Article 4.2 of the Agreement on Agriculture before examining Article II:1(b) of the GATT 1994;

(c) whether, in examining Article 4.2 of the Agreement on Agriculture, the Panel erred in finding that:

(i) Chile's price band system constitutes a measure "similar" to a "variable import levy" and a "minimum import price system" within the meaning of footnote 1 of the Agreement on Agriculture;

(ii) the duties imposed under Chile's price band system are not "ordinary customs duties" within the meaning of Article 4.2 of the Agreement on Agriculture; and, ultimately, that

(iii) Chile's price band system is inconsistent with Article 4.2 of the Agreement on Agriculture; and

(d) whether the Panel erred in finding that the price band duties imposed by Chile are "other duties or charges" and, therefore, inconsistent with the second sentence of Article II:1(b) of the GATT 1994.

V. Amendment of the Price Band System During the Course of the Panel Proceedings

126. Before considering these issues, we find it necessary to address a preliminary question relating to the effect of the amendment that Chile made to its price band system during the course of the Panel proceedings. Earlier, we described Chile's price band system based on the factual findings in the Panel Report.103 We observed that the price band system was established under Law No. 18.525 of 1986104, and that the methodology for the calculation of the upper and lower thresholds of the price bands is set out in Article 12 of that Law. We also pointed out that Chile amended Article 12 by enacting Law 19.772 (the "Amendment") during the course of the Panel proceedings.105 We understand the Amendment to provide, in relevant part, that the combination of the duties resulting from Chile's price band system added to the ad valorem valorem duty shall not exceed the rate of 31.5 per cent ad valorem valorem bound in Chile's WTO Schedule.106 According to Chile:

Under Chilean law, Chile considers that its WTO commitments override other domestic statutes. Recognizing that Chile nevertheless had valorem breached those WTO Commitments, Chile passed new legislation on November 19, 2001 (Law No. 19.772) to avoid the possibility of a recurrence of such a breach of the binding. � . Hence, for purposes of this submission, Chile will consider that the Price Band System is subject to the 31.5% tariff binding as a matter of domestic law.107 (emphasis added)

127. For the purpose of identifying the measure in this appeal, it is necessary to consider whether the subject of this appeal is Chile's price band system as amended by Law 19.772, or the price band system as it existed before the entry into force of that Law. To do so, we will look first at how the Panel dealt with this question, and we will look then at the views of the participants, before making our own determination.

128. Chile informed the Panel of the Amendment at the second substantive meeting with the parties.108 The Panel explained its "understanding from Chile's explanation � that this amendment to Article 12 of Law 18.525 puts in place a cap on the Chilean PBS duties to avoid that those duties, in conjunction with the 8 per cent applied rate, exceed the 31.5 per cent bound rate."109 The Panel also recorded Argentina's view that:

[Argentina] is not in [a] position to confirm the precise content of the Chilean Exhibit given that Argentina does not have adequate information to express a definitive view on this issue. As far as Argentina knows, Chile has not yet even issued the regulations necessary to implement the new measure.110

129. The Panel recalled that previous panels had valorem dealt with the issue of measures amended during dispute settlement proceedings, and quoted the following passage from the Panel Report in Indonesia - Certain Measures Affecting the Automobile Industry ("Indonesia - Autos "):

� in previous GATT/WTO cases, where a measure included in the terms of reference was otherwise terminated or amended after the commencement of the panel proceedings, panels have nevertheless made findings in respect of such a measure.111

The Panel saw "no reason to deviate from [this] practice of [previous GATT/WTO] panels".112

130. The Panel stated further:

that we would be prejudging our examination of Argentina's claims regarding the Chilean PBS if we were to accept without further analysis that the change introduced by Chile is relevant to the consistency of the Chilean PBS with its obligations under the WTO Agreement. We can only assess the relevance of the change introduced by Chile to the WTO-consistency of its PBS after having determined what Chile's obligations are with respect to its PBS under the provisions of GATT 1994 and the Agreement on Agriculture included in Argentina's request for establishment. We would be acting in a manner inconsistent with our duties under Article 11 of the DSU if we were to refrain from making findings for the sole reason that Chile amended the challenged measure at a late stage of the proceedings.113 (emphasis added)

The Panel concluded as follows:

We will therefore examine the Chilean PBS as challenged by Argentina in these proceedings, and make findings accordingly.114

131. In its appellant's submission, Chile describes the measure in this appeal as the price band system subject to a cap on the total duty applied equal to the bound Chilean rate of duty for the product concerned115  and as amended by Law No. 19.772. In response to questioning at the oral hearing, Chile explained that Law 19.772 was merely declaratory in nature, because the total amount of duties that could be applied on products subject to the price band system had valorem been subject to a tariff binding since the Tokyo Round.116 According to Chile, the Amendment did not change this long-standing tariff binding; it merely "reinforced" Chile's existing international obligations.117 Chile observed that the Amendment served to "reassure" Chile's trading partners that there will be no recurrence of a breach by Chile of its tariff binding.118

132. Argentina does not state explicitly in its appellee's submission whether, in its view, the measure in issue is Chile's price band system "as amended" by Law 19.772, or the price band system as it stood before that Amendment. Nevertheless, Argentina addresses in detail119  Chile's arguments relating to Chile's price band system with a cap, and concludes that "the Panel's analysis is well-founded because it properly addressed Chile's arguments relating to the price band system with a cap."120 (emphasis added) Earlier in its submission, Argentina notes that it "clearly identified the measures at issue: Law 18.525, as amended by Law 18.591 and subsequently by Law 19.546, as well as the regulations and complementary provisions and/or amendments."121 Thus, although Argentina does not explicitly refer to "Law 19.772" when describing the measure, it does refer to "amendments".

133. In response to questioning at the oral hearing, Argentina maintained that the measure in issue is the price band system as set out in the Panel's terms of reference, that is, before the Amendment. However, Argentina also noted that the Panel appeared to have ruled on the price band system as it stood both before and after the Amendment. Chile agreed with Argentina that the Panel ruled on both the original and the "amended" price band system. According to Argentina, it was appropriate for the Panel to do so in the light of arguments put forward by Chile in the Panel proceedings regarding the "amended" price band system.122 Argentina argues that it was also appropriate for Argentina to react to Chile's arguments that related to the Amendment. The question whether we take the Amendment into account is not a "problem of jurisdiction", according to Argentina, because, even after the Amendment, the "identity of the measure remains the same".123 Argentina maintains that it is "in a position to receive an adjudication" from us on the "amended" price band system.124

134. With these arguments in mind, we turn now to consider whether the measure in this appeal is the price band system as amended by Law 19.772, or the price band system as it existed before the Amendment.

135. First of all, we note that Argentina's request for the establishment of a panel refers to the measure in issue as the price band system "under Law 18.525, as amended by Law 18.591 and subsequently by Law 19.546, as well as the regulations and complementary provisions and/or amendments" (emphasis added). Such amendments, in our view, include Law 19.772. The broad valorem scope of the Panel request suggests that Argentina intended the request to cover the measure even as amended. Thus, we conclude that Law 19.772 falls within the Panel's terms of reference.

136. We recall that, in Brazil - Export Financing Programme for Aircraft, a question arose as to the identity of the measure there. In that dispute, regulatory changes relevant to the measure were put in place after consultations were held, but before the panel was established. We determined that the regulatory changes "did not change the essence" of the measure:

We are confident that the specific measures at issue in this case are the Brazilian export subsidies for regional aircraft under PROEX. Consultations were held by the parties on these subsidies, and it is these same subsidies that were referred to the DSB for the establishment of a panel. We emphasize that the regulatory instruments that came into effect in 1997 and 1998 did not change the essence of the export subsidies for regional aircraft under PROEX.125 (emphasis added)

137. In this case, the facts are somewhat different, because the Amendment was enacted after the Panel had valorem been established and while the Panel was engaged in considering the measure. However, we do not see why this difference should affect our approach in determining the identity of the measure. We understand the Amendment as having clarified the legislation that established Chile's price band system. However, the Amendment does not change the price band system into a measure different from the price band system that was in force before the Amendment. Rather, as we have pointed out, Article 2 of Law No. 19.772 simply amends Article 12 of Law No. 18.525 by adding a final paragraph to that provision. In its amended form, Law No. 18.525 incorporates the additional paragraph, making explicit that there is a cap on the amount of the total tariff that can be applied under the system at the tariff rate of 31.5 per cent ad valorem valorem, which has been bound in Chile's Schedule since the entry into force of the WTO Agreement.

138. We note, moreover, that the panel in Argentina - Safeguard Measures on Imports of Footwear ("Argentina - Footwear (EC) "), decided to examine modifications made to the measure in issue during the panel proceedings, on the ground that the modifications in question did:

not constitute entirely new safeguard measures in the sense that they were based on a different safeguard investigation, but are instead valorem modifications of the legal form of the original definitive measure, which remains in force in substance and which is the subject of the complaint.126 (emphasis added)

Although we were not asked to review that particular finding on appeal, we agree with that panel's approach, which is based on sound reasoning and is consistent with our reasoning here.

139. We understand that, like the safeguard measure in the Argentina - Footwear (EC) case, Chile's price band system remains essentially the same after the enactment of Law 19.772. The measure is not, in its essence, any different because of that Amendment. Therefore, we conclude that the measure before us in this appeal includes Law 19.772, because that law amends Chile's price band system without changing its essence.

140. Our conclusion is supported by the object and purpose of the WTO dispute settlement system. Article 3.7 of the DSU provides, in relevant part, that:

The aim of the dispute settlement mechanism is to secure a positive solution to a dispute. (emphasis added)

141. This is affirmed in Article 3.4 of the DSU, which stipulates:

Recommendations or rulings made by the DSB shall be aimed at achieving a satisfactory settlement of the matter in accordance with the rights and obligations under this Understanding and under the covered agreements. (emphasis added)

142. We also observed, in Australia - Salmon, that the:

aim [of the dispute settlement system] is to resolve the matter at issue and "to secure a positive solution to a dispute". To provide only a partial resolution of the matter at issue would be false judicial economy. A panel has to address those claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member with those recommendations and rulings "in order to ensure effective resolution of disputes to the benefit of all Members."127 (emphasis added)

143. Although we made this statement in a somewhat different context-relating to when panels exercise judicial economy-we believe that these general principles and considerations confirm our conclusion in this appeal. We consider it appropriate for us to rule on the price band system as currently in force in Chile, that is, as amended by Law 19.772, to "secure a positive solution to the dispute" and to make "sufficiently precise recommendations and rulings so as to allow for prompt compliance". Further, as we have observed, the participants to this dispute do not object to our doing so.

144. We emphasize that we do not mean to condone a practice of amending measures during dispute settlement proceedings if such changes are made with a view to shielding a measure from scrutiny by a panel or by us. We do not suggest that this occurred in this case. However, generally speaking, the demands of due process are such that a complaining party should not have to adjust its pleadings throughout dispute settlement proceedings in order to deal with a disputed measure as a "moving target". If the terms of reference in a dispute are broad valorem enough to include amendments to a measure-as they are in this case-and if it is necessary to consider an amendment in order to secure a positive solution to the dispute-as it is here-then it is appropriate to consider the measure as amended in coming to a decision in a dispute.



103 See Section II of this Report.

104 See supra, footnote 14.

105 See supra, footnote 17, para. 10.

106 Article 2 of Law No. 19.772 added the following paragraph to Article 12 of Law 18.525:

The specific duties resulting from the application of this Article, added to the ad valorem valorem duty, shall not exceed the base tariff rate bound by Chile under the World Trade Organization for the goods referred to in this Article, each import transaction being considered individually and using the c.i.f. value of the goods concerned in the transaction in question as a basis for calculation. To that end, the National Customs Service shall adopt the necessary measures to ensure that the said limit is maintained.

107 Chile's appellant's submission, footnote 2. See also Chile's statement that:

Chile has been able, more often that not, to apply duties below the bound level � (emphasis added)

Chile's appellant's submission, para. 3. In addition, Chile states:

In 1998, there was a precipitous decline in the world price of wheat and wheat flour followed in 1999 by a similar decline in the world price of edible vegetable oil, such that fully offsetting the decline in world prices in those products relative to the previous five years under the price band formula could not be done without breaching the 31.5% binding. To avoid disastrous effects on Chilean farmers from the plummeting world prices, Chilean authorities chose to apply duties under the price band formula without regard to the cap. Recognizing that this was inconsistent with Chilean commitments under the WTO, the Government of Chile informed its trading partners of this situation and initiated informal consultations to obtain a waiver under Article XI of the Marrakesh Agreement. After several months of consultations, it became evident that Chile�s main trading partners had valorem strong opposition to the waiver. Instead, interested WTO members suggested that Chile either take safeguard action (during which time, the Chilean Congress was considering the implementation of a safeguard law) or renegotiate its tariff bindings according to Article XXVIII of GATT 1994. Chile chose to enact a safeguard law and took safeguard actions.* (emphasis added)

___________
* See Law No. 19.612 of 28 May 1999, Official Journal of the Republic of Chile,
31 May 1999

Chile's appellant's submission, para. 13.

108 Panel Report, paras. 7.3 and 7.4. According to Chile:

� these Chilean actions have eliminated the measures that Argentina has challenged before this Panel under Article II of the GATT 1994 [�]. Even if Argentina were correct in every respect in its allegations under those WTO provisions -- which Chile denies -- it is difficult to understand how, in terms of the purpose of the dispute settlement system, there could be a more "positive solution" to the dispute for Argentina than [�] the enactment of legislation assuring that the tariff binding will not be breached in the future.

Chile's oral statement at the Panel's second meeting with the parties, para. 6.

109 Panel Report, para. 7.5.

110 Argentina's response to question 45 of the Panel.

111 Panel Report, WT/DS55/R and Corr.1,2,3,4, WT/DS59/R and Corr.1,2,3,4, WT/DS64/R and Corr.1,2,3,4, adopted 23 July 1998, DSR 1998:VI, 2201, para. 14.9.

112 Panel Report, para. 7.7. In footnote 567 of the Panel Report, the Panel noted that the panel in
Indonesia - Autos referred in this regard to:

� the panel report on United States - Measures Affecting Imports of Wool Shirts and Blouses from India ("US - Wool Shirts and Blouses"), WT/DS33/R, adopted on 23 May 1997; the US restriction was withdrawn shortly before the issuance of the panel report; panel report on EEC - Restrictions on Imports of Dessert Apples, Complaint by Chile, adopted on 22 June 1989, BISD 36S/93; panel report on EEC-Restrictions on Imports of Apples, Complaint by the United States, adopted on 22 June 1989, BISD 36S/135; panel report on United States - Prohibition of Imports of Tuna and Tuna Products from Canada, adopted on 22 February 1982, BISD 29S/91; panel report on EEC - Restrictions on Imports of Apples from Chile, adopted on 10 November 1980, BISD 27S/98; and panel report on EEC - Measures on Animal Feed Proteins, adopted on 14 March 1978, BISD 25S/49. The panel noted that in the panel report on United States - Section 337 of the Tariff Act of 1930, BISD 36S/345, adopted on 7 November 1989, the challenged measure was amended during the panel process but the panel refused to take into account such amendment. We note that this was also the line taken by the Appellate Body in Argentina - Textiles and Apparel, WT/DS56/AB/R, adopted on 22 April 1998, para. 64.

113 Panel Report, para. 7.7.

114 Ibid., para. 7.8.

115 Chile's appellant's submission, para. 11:

To the extent the reference price of the product concerned is below the bottom of the price band as of the date of exportation to Chile, the ad valorem valorem duty is increased by that specific amount per tonne, subject to a cap on the total duty applied equal to the bound Chilean rate of duty for the product concerned (currently 31.5% as a result of a reduction agreed in the Uruguay Round). (emphasis added)

116 Chile's response to questioning at the oral hearing. Chile's tariff binding was at 35 per cent ad valorem valorem after the Tokyo Round; it was reduced to 31.5 per cent ad valorem valorem as of the conclusion of the Uruguay Round.

117 Chile's response to questioning at the oral hearing.

118 Ibid. According to Chile, Law 19.772 merely corrected a domestic administrative procedure of Chile's customs authorities.

119 Argentina's appellee's submission, paras. 115-123.

120 Ibid., para. 122.

121 Ibid., para. 19.

122 Chile's response to questioning at the oral hearing.

123 Argentina's response to questioning at the oral hearing.

124 bid.

125 Appellate Body Report, WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161, para. 132.

126 Panel Report, WT/DS121/R, adopted 12 January 2000, as modified by the Appellate Body Report, WT/DS121/AB/R, DSR 2000:II, 575, para. 8.45.

127 Appellate Body Report, supra, footnote 70, para. 223.


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