DS231 Case: Peru - Sardines (Export-Related Trade Measures)

The issue at issue is Chile's tariff band system ("PBS") governed by Law 18.525 on the Rules for Importation of Goods. As described by the Panel and the Appellate Body, Chile's applied duty rates on wheat, wheat flour, sugar and vegetable oils were 8% ad valorem in 2001 and 7% in 2002.

- much lower than the bound rate in Chile's WTO commitments of 31.5%. However, the tax rate applied to these products through the price band system could be pushed up.

The belt system operates as follows:

First, an upper and a lower threshold are determined for each product on the basis of certain international prices. These "price bands" are established annually through a Presidential Decree, based on a defined formula. Second, Chile sets a weekly "reference price" for each product on the basis of prices in a number of foreign markets. Next, when a product subject to the price band system is imported, the customs authority determines the total tax rate applicable to that item through several steps. The first step is to apply a standard ad valorem import tax to the product. Next, the customs authority determines the weekly "reference price" applicable to the shipment. The total tax rate applicable to the shipment depends on a comparison of the "reference price" with the "price band". If the reference price is below the lower threshold of the price band, the customs authority applies the standard import tax and an additional tax equal to the difference between the reference price and the lower threshold of the price band. Conversely, if the reference price is between the lower and upper thresholds of the price band, the customs authority will apply the standard duty. Finally, if the reference price is higher than the upper threshold of the price band, the customs authority will allow a reduction in the applicable standard duty equivalent to the difference between the upper threshold and the reference price.

In practice, in cases where the reference price is below the lower threshold of the price band, the combined tax and additional tax imposed by the price band system can sometimes exceed the maximum tax rate of 31.5%. However, during the course of the Panel proceedings, Chile changed the operation of the price band system through

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Article 2 of Law No. 19,772 (effective from 19/11/2001) provides as follows: "The duties arising from the application of Article 12 of Law No. 18,525 plus the ad valorem duties shall not exceed the basic duty bound for Chile within the framework of the WTO in relation to the products referred to in this Article..." Therefore, with this amendment, the total duty applied does not exceed the bound duty (Panel Report, paras. 2.2-7, Appellate Body Report, paras. 9-30).

Argentina objected to Chile's price-fixing system under Article 41.2 of the Agreement on Agriculture and Article II of the GATT, and also objected to the safeguard measures applied to the products concerned under Article XIX of the GATT and the Safeguards Agreement. After unsuccessful consultations, Argentina requested the establishment of a panel on 19 January 2001. The panel found that Chile's price-fixing system was inconsistent with both Article 4.2 and Article II:1(b), sentence 2, and that the safeguard measures were inconsistent with several provisions of the GATT - Article XIX:1(a) of the GATT and Articles 2, 4, and 5 of the Safeguards Agreement.

Contents of the Panel's judgment:

- By maintaining measures that are subject to conversion to “ordinary customs duties”, Chile has acted inconsistently with Article 4.2 of the Agreement on Agriculture. In this regard, on appeal, the Appellate Body upheld the Panel’s ruling, although it criticized certain aspects of the Panel’s legal interpretation.

- By imposing “other duties or charges” not included in its Schedule, Chile acted inconsistently with Article II:1(b) sentence 2 of the GATT. In this regard, the Appellate Body, on appeal, held that the Panel’s decision to issue its ruling pursuant to Article II:1(b) sentence 2 of the GATT was inconsistent with Article 11 of the DSU.

- The Committee on Chilean Distortions ("CDC") failed to demonstrate that the safeguard measures applied were the result of "unforeseen developments", in violation of Article XIX:1(a) of the GATT.

- CDC failed to provide sufficient evidence and reasonable conclusions that "directly competitive or like products" violated Article XIX:1(a) of the GATT, Articles 2, 4, 5 of the Safeguards Agreement. CDC failed to demonstrate "increased imports" of products subject to safeguard measures as provided for in Article XIX:1(a) of the GATT, Articles 2.1 and 4.2(a) of the Safeguards Agreement.

- CDC failed to demonstrate the existence of a threat of serious injury, in violation of Article XIX:1(a) of the GATT and Articles 4.1(a), 4.1(b) and 4.2(a) of the Safeguards Agreement.

- CDC failed to adequately demonstrate the existence of a causal link between increased imports and the threat of serious injury, in violation of Articles 2.1 and 4.2(b) of the Safeguards Agreement.

- The CDC "does not ensure that safeguard measures are applied to the extent necessary to prevent or remedy serious injury" as provided for in Article XIX;1(a) of the GATT and Article 5.1 of the Safeguards Agreement. The Panel affirmed that a Member can only do so if "there is at least a reasonable relationship between the measure applied and the objective of preventing or remedying serious injury and facilitating adjustment".

Disagreeing with the Panel's findings, on 24 June 2002, Chile notified its decision to appeal to the Appellate Body certain of the Panel's findings and interpretations of law. Chile argued that the Panel's findings under Article 4.2 of the Agreement on Agriculture and Article II:1(b), second sentence of the GATT were erroneous. In addition, Chile alleged that the Panel's findings regarding Article II:1(b) of the GATT, the second sentence of which is inconsistent with Article 11 of the DSU. The Panel also erred in choosing to consider Article 4.2 before considering Article II:1(b).

On 23 September 2002, the Appellate Body circulated its report to the parties and to the DSB. After considering and concluding on other issues, the Appellate Body made no ruling on the conformity of the price-ring system with Article II:1(b) of the GATT. The main contents of the Appellate Body's report are as follows:

- Upheld the Panel's finding that Chile's price band system is "a border measure similar to a 'variable import duty' and a 'minimum import price' within the meaning of Article 4.2 and the footnotes of the Agreement on Agriculture. It concluded that "the fact that the import duty arising from the application of Chile's price band system would have the same form as a 'normal customs duty' does not imply that the measure is consistent with Article 4.2".

- Uphold the Panel's finding that the price-tag system is contrary to Article 4.2 of the Agreement on Agriculture.

- Rejected the Panel's finding that "ordinary customs duty must be understood as referring to a customs duty that is not imposed on the basis of factors of an extrapolative nature".

- Reversed the Panel's finding of violation of Article II:1(b) sentence 2 of the GATT because it found that Argentina had not made a claim under Article II:1(b) sentence 2 above. The Panel therefore considered a provision that "was not part of the matter before it". The Appellate Body concluded that "the Panel acted excessively and inconsistently with Article 11 of the DSU". In addition, the Appellate Body concluded that, in rendering its findings, the Panel failed to accord Chile "an equitable right to a response to the decision", thereby denying Chile the due process it was entitled to under the DSU.

The Appellate Body report recommended that Chile bring its policies and regulations, as concluded in its report and the Panel report, into conformity with the Agreement on Agriculture. At its meeting on 23 October 2002, the DSB adopted the Panel report and the Appellate Body report.

With regard to the implementation of the ruling, at the DSB meeting of 11 November 2002, Chile stated that it would comply with the recommendations and rulings of the DSB. At the end of the meeting, Chile made efforts to consult with Argentina with a view to reaching a mutually satisfactory solution to the dispute. Chile further stated that it needed a reasonable period of time to bring its measures into conformity with the DSB's recommendations and rulings.

on 6 December 2002, Chile informed the DSB that, to date, Chile and Argentina have not been able to agree on a reasonable period of time and that Chile therefore proposes that the determination of a reasonable period of time be made by arbitration. Pursuant to Article 21.3(c) of the DSU, on 16 December 2002, Argentina and Chile informed the DSB that they had agreed to postpone the final deadline, with the arbitration award to be completed within 90 days from the date of appointment of the arbitrator (instead of 90 days from the date of adoption by the DSB of the panel and Appellate Body recommendations and rulings). On 16 December 2002, Argentina and Chile requested Mr. John Lockhart, a member of the Appellate Body, to serve as arbitrator pursuant to Article 21.3(c) of the DSU. On 17 December 2002, Mr. John Lockhart accepted to serve as arbitrator.

On 17 March 2003, the arbitral tribunal rendered its award. The arbitral tribunal concluded that the “reasonable period” for Chile to implement the DSB ruling in this dispute was 14 months (until 23 December 2003).

At the meeting on 2 October 2003, Chile announced that on 25 December 2003, Law No. 19.897 on the establishment of a new tariff was adopted, replacing Law No. 18.525. The new law will enter into force on 16 December 2003, before the end of the reasonable period for Chile. Argentina has submitted questions regarding the details of the new law. Chile has requested Argentina to submit its questions in writing.

At the DSB meeting on 7 November 2003, Chile stated that Law 19.897 was scheduled to enter into force on 16 December 2003, before the end of the reasonable period of time for Chile. With this new law, Chile had complied with the recommendations and rulings of the DSB (the new law retains most of the essential elements of the old law). Chile expressed its desire to receive comments on the new tariff schedule. Argentina further stated that, given the close relations between Argentina and Chile, it remained ready to explore the possibilities of reaching a mutually satisfactory solution to the dispute.

At the DSB meeting on 1 December 2003, Chile announced that it had adopted a number of measures to comply with the DSB's recommendations as stated.

referred to above. Argentina reiterates its view that the measures taken by Chile to comply with these recommendations have not been implemented in this case because the tariff has been maintained. Brazil considers that the measures taken by Chile remain inconsistent with the provisions of the Agreement on Agriculture.

On 24 December 2003, Argentina and Chile informed the DSB that they had agreed to the procedures under Articles 21 and 22 of the DSU.

At the DSB meeting of 23 January 2004, Chile and Argentina agreed on the procedures under Articles 21.5 and 22 of the DSU.

It can be said that this is a lawsuit that has been going on for a relatively long time and has many complicated factors. All parties have tried to implement the recommendations of the DSB, but this implementation process is also relatively complicated and time-consuming.

2.4.3 Case DS231: Peru - Sardines (Export-Related Trade Measures)

This dispute concerns the marketing of preserved sardines from Peru within the European Community (EC). The issue at issue is the trade description of two varieties of sardines that Peruvian exporters export to the EC market in relation to Article 2.4 of the TBT Agreement (Agreement on Technical Barriers to Trade).

Dispute content and resolution process

On 20 March 2001, Peru requested consultations with the European Community (EC) on Regulation EC 2136/89, considering that this Regulation was preventing Peruvian exporters from continuing to use the commercial description of sardines for their products.

Peru contends that the standards of STAN 94-181 set out in the EC's list of sardine species permitted for trade constitute an unjustifiable trade barrier and are in violation of Articles 2 and 12 of the TBT Agreement and Article XI.1 of the GATT 1994. Furthermore, Peru argues that the Regulation is

inconsistent with the principle of non-discrimination and therefore violates Articles I and III of GATT 1994.

At the request of Peru, the DSB established a panel at its meeting on 24 July 2001. Canada, Chile, Colombia, Ecuador, Venezuela and the United States reserved their third-party rights. On 11 March 2002, the Panel informed the DSB that it would not be able to adopt its report in June due to the complexity of the matter and scheduling constraints. The Panel expected to complete its work by the end of April 2002. On 3 May 2002, the parties to the dispute requested that the Panel suspend its proceedings under Article 12.12 of the DSU until 21 May 2002.

The Panel report was circulated to Members on 29 May 2002. The Panel concluded that the EC's regulation was inconsistent with Article 2.4 of the TBT Agreement.

On 28 June 2002, the EC notified its decision to appeal to the Appellate Body the conclusions of the Panel Report and the Panel's interpretation of the law.

On 26 September 2002, the Appellate Body submitted its final report with the following contents:

content:

 The EC's appeal dated 28/06/2002 is admissible;

 Upholds the Panel's conclusion in paragraph 7.35 of the Report, that the EC Regulation is a “Technical Regulation” within the meaning of the TBT Agreement;

 Upholds the Panel's conclusion in paragraph 7.70 of the Report, that Codex Stan 94 is an “international standard” consistent with Article 2.4 of the TBT Agreement;

 Upholds the Panel's conclusion in paragraph 7.112 of the Report, that Codex Stan 94 cannot be used as a “basis” for the EC Regulation within the meaning of Article 2.4 of the TBT Agreement;

 Rejected the EC's claim that the Panel had failed to “conduct an objective assessment of the facts of the dispute” as required by Article 11 of the DSU;

 Rejects the EC's claim that the Panel has reached its decision in paragraph 1.127 of the Report, that the EC Regulation is a trade-restrictive Regulation, and that the disputed and legally binding declaration has been made through two steps in paragraph 6.11 and in footnote 35 of the Panel Report and through the trade-restrictive nature of the EC Regulation;

 Finds that it is not necessary to complete the analysis under Article 2.2 of the TBT Agreement, Article 2.1 of the TBT Agreement, or Article III.4 of GATT 1994;

 Upholds the Panel's conclusion in paragraph 8.1 of the Report, that the EC Regulation is inconsistent with Article 2.4 of the TBT Agreement. At the same time, the Appellate Body recommends that the DSB request the EC to amend the EC Regulation as reported by the Appellate Body and the Panel;

On 23 October 2002, the DSB adopted the Appellate Body report and the Panel report as modified by the Appellate Body report;

At the DSB meeting of 11 November 2002, the EC stated that it would endeavour to implement the recommendations and rulings of the DSB in a manner consistent with the provisions of the DSB and the WTO, in particular Article 2.4 of the TBT Agreement. However, the EC considered that to achieve this, it would need a reasonable period of time to bring its Trade Regulations into conformity with the provisions of the TBT Agreement. The deadline for completing this adjustment was 23 April 2003. On 14 April 2003, the parties informed the DSB that an agreement had been reached to extend the reasonable period of time until 1 July 2003.

On 25 July 2003, the EC and Peru informed the DSB that they had reached a mutual agreement on a solution consistent with Article 3.6 of the DSU.

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