Report of the Appellate Body

(Continued)

VIII. Article 4.2 of the Agreement on Agriculture

192. Argentina argued before the Panel that Chile's price band system is a measure "of the kind which has been required to be converted into ordinary customs duties" and which, by the terms of Article 4.2 of the Agreement on Agriculture, Members are required not to "maintain". Argentina claimed that, in maintaining the price band system, Chile is acting inconsistently with Article 4.2.

193. In reply, Chile contended before the Panel that Chile's price band system is not a measure "of the kind which has been required to be converted into ordinary customs duties" by virtue of Article 4.2 of the Agreement on Agriculture. According to Chile, the duties resulting from Chile's price band system are "ordinary customs duties", and Chile's price band system-which is merely a system for determining the level of those duties-is, therefore, consistent with Article 4.2.

194. The Panel found Chile's price band system to be inconsistent with Chile's obligations under Article 4.2 of the Agreement on Agriculture . The Panel concluded that:

� the Chilean PBS is "a similar border measure other than ordinary customs duties" which is not maintained "under balance-of-payment provisions or under other general, non-agriculture specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement", within the meaning of footnote 1 to the Agreement on Agriculture . We therefore conclude that the Chilean PBS is a measure "of the kind which ha[s] been required to be converted into ordinary customs duties", within the meaning of Article 4.2 of the Agreement on Agriculture . By maintaining a measure which should have been converted, Chile has acted inconsistently with Article 4.2 of the Agreement on Agriculture.¹⁷⁰

195. Chile appeals the Panel's findings under Article 4.2 of the Agreement on Agriculture, arguing that the Panel erred in finding that:

- Chile's price band system constitutes a border measure "similar to" a "variable import levy" and a "minimum import price" within the meaning of footnote 1 and Article 4.2;

- the duties imposed under Chile's price band system are not "ordinary customs duties", within the meaning of Article 4.2 and footnote 1; and, ultimately, that

- Chile's price band system is inconsistent with Article 4.2.

196. Before addressing these specific issues appealed by Chile, we recall that the preamble to the Agreement on Agriculture states that an objective of that Agreement is "to establish a fair and market-oriented agricultural trading system", and to initiate a reform process "through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines".¹⁷¹ The preamble further states that, to achieve this objective, it is necessary to provide for reductions in protection, "resulting in correcting and preventing restrictions and distortions in world agricultural markets,"¹⁷² through achieving "specific binding commitments," inter alia , in the area of market access.¹⁷³

197. We are certainly aware of the importance of agricultural and primary products to many developing country Members of the WTO. We are mindful also that the significance of trade in such products is reflected in a number of places in the covered agreements, including the Agreement on Agriculture . In the preamble to the Agreement on Agriculture , it is said that developed country Members agreed that, in implementing their commitments on market access, they "would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members".¹⁷⁴ In addition, the Agreement on Agriculture allows for certain special and differential treatment for developing country Members relating to the treatment of agricultural products. Article 15 is the general provision of the Agreement on Agriculture dealing with special and differential treatment for developing country Members. It stipulates that such treatment "shall be provided as set out in the relevant provisions of this Agreement and embodied in the Schedules of concessions and commitments."¹⁷⁵ Thus, special and differential treatment for developing country Members applies, under the Agreement on Agriculture , only where and to the extent that it is specifically provided for in that Agreement.

198. The Agreement on Agriculture does not exempt developing country Members from the requirement not to maintain measures prohibited by Article 4.2 of that Agreement. Although Annex 5 on "Special Treatment with Respect to Paragraph 2 of Article 4" permits certain derogations by developing countries from some of the requirements of Article 4.2, these are not relevant here.

199. In these circumstances, although the participants in this dispute are developing country Members, we are not required to apply any of these specialized provisions in coming to our decision in this appeal. Moreover, both Chile and Argentina confirmed, in response to questioning at the oral hearing, that the fact that they both are developing countries has no relevance in this dispute.

200. That said, we turn now to Article 4, which is the main provision of Part III of the Agreement on Agriculture . As its title indicates, Article 4 deals with "Market Access".¹⁷⁶ During the course of the Uruguay Round, negotiators identified certain border measures which have in common that they restrict the volume or distort the price of imports of agricultural products. The negotiators decided that these border measures should be converted into ordinary customs duties, with a view to ensuring enhanced market access for such imports. Thus, they envisioned that ordinary customs duties would, in principle, become the only form of border protection. As ordinary customs duties are more transparent and more easily quantifiable than non-tariff barriers, they are also more easily compared between trading partners, and thus the maximum amount of such duties can be more easily reduced in future multilateral trade negotiations. The Uruguay Round negotiators agreed that market access would be improved-both in the short term and in the long term-through bindings and reductions of tariffs and minimum access requirements, which were to be recorded in Members' Schedules.

201. Thus, Article 4 of the Agreement on Agriculture is appropriately viewed as the legal vehicle for requiring the conversion into ordinary customs duties of certain market access barriers affecting imports of agricultural products. Article 4 provides, in its entirety:

Market Access

1. Market access concessions contained in Schedules relate to bindings and reductions of tariffs, and to other market-access commitments as specified therein.

2. Members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties¹, except as otherwise provided for in Article 5 and Annex 5.
______________

¹These measures include quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state-trading enterprises, voluntary export restraints, and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement.

202. In our examination of the issues appealed relating to Article 4.2 and to footnote 1, we will address the Panel's general interpretation of both before discussing, in detail, the specific issues raised by Chile regarding these provisions. Then we will review the Panel's assessment of Chile's price band system in the light of our general interpretation of Article 4.2, and also of our interpretations of the specific categories of measures listed in footnote 1 to which the parties and the Panel referred. These categories include "variable import levies", "minimum import prices" and "similar border measures other than ordinary customs duties".

203. We emphasize that we have been asked, in this appeal, to examine the measure before us-Chile's price band system-for its consistency with certain of Chile's WTO obligations. We have not been asked to examine any other measure of any other WTO Member. Therefore, we need not, and do not, offer any view on the consistency with WTO obligations of price band systems in general, or the consistency with WTO obligations of any specific price band system that may be applied by any other Member.

A. General Interpretative Analysis of Article 4.2 and Footnote 1

204. We turn first to the ordinary meaning of Article 4.2, in its context and in the light of its object and purpose.¹⁷⁷ This provision requires Members not to maintain, resort to, or revert to certain kinds of measures with a view to "implementing their commitments on market access"¹⁷⁸ for imports of agricultural products. These requirements of Article 4.2, which came into effect with the entry into force of the WTO Agreement on 1 January 1995, apply to "any measures of the kind which have been required to be converted into ordinary customs duties". The meaning and scope of this underlined phrase is a central issue in this case.

205. We begin with a consideration of the use of the present perfect tense in the phrase "any measures of the kind which have been required to be converted into ordinary customs duties". Chile sees a special significance in the use of this tense; Argentina does not. Chile asserts that the use of the present perfect tense (that is, "have been required to be converted") in Article 4.2 should be borne in mind when interpreting this provision.¹⁷⁹ In Chile's view, it is "highly relevant"¹⁸⁰, for the interpretation of Article 4.2, that no country actually converted a price band system into tariffs during the Uruguay Round negotiations, and also that no Member requested Chile to convert Chile's price band system into tariffs during those negotiations. Chile concedes, however, that a measure is not necessarily consistent with Article 4.2 simply because the measure was neither actually converted nor requested to be converted by the end of the Uruguay Round.¹⁸¹

206. We agree with Chile that Article 4.2 of the Agreement on Agriculture should be interpreted in a way that gives meaning to the use of the present perfect tense in that provision-particularly in the light of the fact that most of the other obligations in the Agreement on Agriculture and in the other covered agreements are expressed in the present, and not in the present perfect, tense. In general, requirements expressed in the present perfect tense impose obligations that came into being in the past, but may continue to apply at present.¹⁸² As used in Article 4.2, this temporal connotation relates to the date by which Members had to convert measures covered by Article 4.2 into ordinary customs duties, as well as to the date from which Members had to refrain from maintaining, reverting to, or resorting to, measures prohibited by Article 4.2. The conversion into ordinary customs duties of measures within the meaning of Article 4.2 began during the Uruguay Round multilateral trade negotiations, because ordinary customs duties that were to "compensate" for and replace converted border measures were to be recorded in Members' draft WTO Schedules by the conclusion of those negotiations. These draft Schedules, in turn, had to be verified before the signing of the WTO Agreement on 15 April 1994. Thereafter, there was no longer an option to replace measures covered by Article 4.2 with ordinary customs duties in excess of the levels of previously bound tariff rates. Moreover, as of the date of entry into force of the WTO Agreement on 1 January 1995, Members are required not to "maintain, revert to, or resort to" measures covered by Article 4.2 of the Agreement on Agriculture .

207. If Article 4.2 were to read "any measures of the kind which are required to be converted", this would imply that if a Member-for whatever reason-had failed, by the end of the Uruguay Round negotiations, to convert a measure within the meaning of Article 4.2, it could, even today, replace that measure with ordinary customs duties in excess of bound tariff rates.¹⁸³ But, as Chile and Argentina have agreed, this is clearly not so.¹⁸⁴ It seems to us that Article 4.2 was drafted in the present perfect tense to ensure that measures that were required to be converted as a result of the Uruguay Round-but were not converted-could not be maintained, by virtue of that Article, from the date of the entry into force of the WTO Agreement on 1 January 1995.

208. Thus, contrary to what Chile argues, giving meaning and effect to the use of the present perfect tense in the phase "have been required" does not suggest that the scope of the phrase "any measures of the kind which have been required to be converted into ordinary customs duties" must be limited only to those measures which were actually converted, or were requested to be converted, into ordinary customs duties by the end of the Uruguay Round. Indeed, in our view, such an interpretation would fail to give meaning and effect to the word "any" and the phrase "of the kind", which are descriptive of the word "measures" in that provision. A plain reading of these words suggests that the drafters intended to cover a broad category of measures. We do not see how proper meaning and effect could be accorded to the word "any" and the phrase "of the kind" in Article 4.2 if that provision were read to include only those specific measures that were singled out to be converted into ordinary customs duties by negotiating partners in the course of the Uruguay Round.

209. The wording of footnote 1 to the Agreement on Agriculture confirms our interpretation. The footnote imparts meaning to Article 4.2 by enumerating examples of "measures of the kind which have been required to be converted", and which Members must not maintain, revert to, or resort to, from the date of the entry into force of the WTO Agreement. Specifically, and as both participants agree¹⁸⁵, the use of the word "include" in the footnote indicates that the list of measures is illustrative, not exhaustive. And, clearly, the existence of footnote 1 suggests that there will be "measures of the kind which have been required to be converted" that were not specifically identified during the Uruguay Round negotiations. Thus, in our view, the illustrative nature of this list lends support to our interpretation that the measures covered by Article 4.2 are not limited only to those that were actually converted, or were requested to be converted, into ordinary customs duties during the Uruguay Round.

210. Footnote 1 also refers to a residual category of "similar border measures other than ordinary customs duties", which indicates that the drafters of the Agreement did not seek to identify all "measures which have been required to be converted" during the Uruguay Round negotiations. The existence of this residual category confirms our interpretation that Article 4.2 covers more than merely the measures that had been specifically identified or challenged by other negotiating partners in the course of the Uruguay Round.

211. Further, the context of Article 4.2 confirms our interpretation. Article 5.1 of the Agreement on Agriculture , the only provision in addition to Article 4 that is included in Part III of that Agreement, specifies that a Member may, under certain conditions, impose a special safeguard on imports of an agricultural product "in respect of which measures referred to in [Article 4.2] have been converted into an ordinary customs duty". (emphasis added) In our view, the phrase "have been required to be converted" in Article 4.2 has a broader connotation than the phrase "have been converted" in Article 5.1.¹⁸⁶ Therefore, it is perfectly apt that Article 5.1 speaks of such special safeguards only with respect to those agricultural products for which measures covered by Article 4.2 "have been converted"-that is, have in fact already been converted-into ordinary customs duties. Article 5.1 illustrates that, where the drafters of the Agreement on Agriculture wanted to limit the application of a rule to measures that have actually been converted, they used specific language expressing that limitation.

212. Thus, the obligation in Article 4.2 not to "maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties" applies from the date of the entry into force of the WTO Agreement�regardless of whether or not a Member converted any such measures into ordinary customs duties before the conclusion of the Uruguay Round. The mere fact that no trading partner of a Member singled out a specific "measure of the kind" by the end of the Uruguay Round by requesting that it be converted into ordinary customs duties, does not mean that such a measure enjoys immunity from challenge in WTO dispute settlement. The obligation "not [to] maintain" such measures underscores that Members must not continue to apply measures covered by Article 4.2 from the date of entry into force of the WTO Agreement.¹⁸⁷

213. Chile's argument that it is "highly relevant" that no country that had a price band system in place before the conclusion of the Uruguay Round actually converted it into ordinary customs duties¹⁸⁸ gives rise to another question, namely: is this practice relevant in interpreting Article 4.2 because it constitutes "subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation", within the meaning of the customary rule of interpretation codified in Article 31(3)(b) of the Vienna Convention? In our Report in Japan - Taxes on Alcoholic Beverages, we defined such "subsequent practice" as:

� a 'concordant, common and consistent' sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties [to a treaty] regarding its interpretation.¹⁸⁹

214. Neither the Panel record nor the participants' submissions on appeal suggests that there is a discernible pattern of acts or pronouncements implying an agreement among WTO Members on the interpretation of Article 4.2. Thus, in our view, this alleged practice of some Members does not amount to "subsequent practice" within the meaning of Article 31(3)(b) of the Vienna Convention.

215. The requirements not to "maintain, resort to, or revert to" in Article 4.2 apply to "measures of the kind which have been required to be converted into ordinary customs duties". Obviously, what already is an ordinary customs duty need not and cannot be converted into an ordinary customs duty. Both before the Panel, and also on appeal, Chile has argued that the duties resulting from Chile's price band system are "ordinary customs duties". Chile maintains also that its price band system is not a measure of the kind which has been required to be converted, but is rather a system for determining the level of ordinary customs duties that will be applied between zero and the bound rate. Chile's argument raises the question of what was meant-before the conclusion of the Uruguay Round�by the requirement to convert "measures of the kind" into "ordinary customs duties".

216. Article 4.2 speaks of "measures of the kind which have been required to be converted into ordinary customs duties". The word "convert" means "undergo transformation".¹⁹⁰ The word "converted" connotes "changed in their nature", "turned into something different".¹⁹¹ Thus, "measures which have been required to be converted into ordinary customs duties" had to be transformed into something they were not-namely, ordinary customs duties. The following example illustrates this point. The application of a "variable import levy", or a "minimum import price", as the terms are used in footnote 1, can result in the levying of a specific duty equal to the difference between a reference price and a target price, or minimum price. These resulting levies or specific duties take the same form as ordinary customs duties. However, the mere fact that a duty imposed on an import at the border is in the same form as an ordinary customs duty, does not mean that it is not a "variable import levy" or a "minimum import price". Clearly, as measures listed in footnote 1, "variable import levies" and "minimum import prices" had to be converted into ordinary customs duties by the end of the Uruguay Round. The mere fact that such measures result in the payment of duties does not exonerate a Member from the requirement not to maintain, resort to, or revert to those measures.

217. Article 5, also found in Part III of the Agreement on Agriculture on "Market Access", lends contextual support to our interpretation of Article 4.2. In our view, the existence of a market access exemption in the form of a special safeguard provision under Article 5 implies that Article 4.2 should not be interpreted in a way that permits Members to maintain measures that a Member would not be permitted to maintain but for Article 5, and, much less, measures that are even more trade-distorting than special safeguards. In particular, if Article 4.2 were interpreted in a way that allowed Members to maintain measures that operate in a way similar to a special safeguard within the meaning of Article 5-but without respecting the conditions set out in that provision for invoking such measures-it would be difficult to see how proper meaning and effect could be given to those conditions set forth in Article 5.¹⁹²

170 Panel Report, para. 7.102.

171 Preamble to the Agreement on Agriculture , recital 2.

172 Ibid., recital 3.

173 Ibid., recital 4.

174 Ibid., recital 5.

175 Article 15 on "Special Treatment" provides in relevant part:

In keeping with the recognition that differential and more favourable treatment for developing country Members is an integral part of the negotiation, special and differential treatment in respect of commitments shall be provided as set out in the relevant provisions of this Agreement and embodied in the Schedules of concessions and commitments.