WORLD TRADE
ORGANIZATIONWT/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 BodyWT/DS207/AB/R
Page i
I. Introduc tion................................................................................................................. ................1
II. Background.................................................................................................................. ...............4
A. Legal Framework of the Price Band System ..................................................................4
B. Products Subject to Chile's Price Band System .............................................................6
C. Total Applicable Duties .................................................................................................6
1. The  ad valorem   Duty ......................................................................................6
2. The Specific Pr ice Band Duty ..........................................................................6
III. Arguments of the Participan ts and Third Pa rticipan ts ..............................................................12
A. Claims of Error by Chile – Appellant ..........................................................................12
1. Article 11 of the DSU .....................................................................................12
2. Order of Analysis............................................................................................133. Article 4.2 of the  Agreement on Agriculture .................................................14
4. Article II:1(b) of  the GATT 1994 ...................................................................16
B. Arguments of Argentina – Appellee .............................................................................18
1. Article 11 of the DSU .....................................................................................18
2. Order of Analysis............................................................................................213. Article 4.2 of the  Agreement on Agriculture .................................................22
4. Article II:1(b) of  the GATT 1994 ...................................................................24
C. Arguments of the Third Participants ............................................................................25
1. Australia..........................................................................................................25
2. Brazil...............................................................................................................263. Colombia.........................................................................................................27
4. Ecuador...........................................................................................................28
5. European Communities...................................................................................30
6. United States...................................................................................................33
7. Venezuela .......................................................................................................35
IV. Issues Raised in this Appeal ................................................................................................ .....37
V. Amendment of the Price Band System During the Course of the Panel Proceedings ..............37
VI. Article 11 of the DSU ....................................................................................................... ........45
VII. Order of Analysis.......................................................................................................... ............56
VIII. Article 4.2 of the  Agreement on Agriculture ............................................................................61
A. General Interpretative Analysis of Article 4.2 and Footnote 1 ....................................65
B. Assessment of Chile's Price Band Syst em in the Light of Article 4.2 and
Footnote 1.................................................................................................................... 70
C. The Interpretation of the Term "Ordinary Customs Duties" as used in Article
4.2 of the Agreemen t on Agri cultu re............................................................................ 86WT/DS207/AB/R
Page ii
IX. Article II:1(b) of the GATT 1994 ............................................................................................ .91
X. Findings and Conclusions..................................................................................................... ....92WT/DS207/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
Chile – Price Band System and Safeguard
Measures Relating to Certain Agricultural
Products
Chile, Appellant
Argentina, Appellee
Australia, Third Participant
Brazil, Third Participant
Colombia, Third Participant
Ecuador, Third Participant
European Communities, Third Participant
Paraguay, Third Participant
United States, Third Participant
Venezuela, Third ParticipantAB-2002-2
Present:Abi-Saab, Presiding Member
Bacchus, Member
Lockhart, Member
I. Introduction
1. Chile appeals certain issues of law and legal interpretations developed in the Panel Report,
Chile –Price Band System and Safeguard Measures Relating to Certain Agricultural Products  (the
"Panel Report").1
2. The Panel was established on 12 March 2001 to consider a complaint by Argentina with
respect to: (i) Chile's price band system for certain agricultural products; and (ii) Chile's provisionaland definitive safeguard measures imposed on the same products.
2  Before the Panel, Argentina
claimed that Chile's price band system is inconsistent with Article II:1(b) of theGeneral Agreement on Tariffs and Trade 1994  (the "GATT 1994") and Article 4.2 of the
Agreement on Agriculture .  Argentina also claimed that the safeguard measures imposed by Chile
constitute a violation of Article XIX:1(a) of the GATT 1994 and certain provisions of
the Agreement on Safeguards .
                                                     
1WT/DS207/R, 3 May 2002.
2WT/DS207/3, 23 May 2001.  We note that Chile's price band system also applies to sugar.  In its
request for establishment of a Panel, Argentina challenges Chile's price band system generally without referringto any specific product categories.  We note that the Panel's analysis of Chile's price band system covers thewheat, wheat flour and edible vegetable oil bands, but does not cover the sugar band.WT/DS207/AB/R
Page 2
3. In the Panel Report, circulated to Members of the World Trade Organization (the "WTO") on
3 May 2002, the Panel found that Chile's price band system is inconsistent with Article 4.2 of theAgreement on Agriculture  and Article II:1(b) of the GATT 1994.
3  The Panel also found that Chile's
safeguard measures on wheat, wheat flour and edible vegetable oils violated certain provisions of the
Agreement on Safeguards  and the GATT 1994.4
4. The Panel concluded that, to the extent Chile had acted inconsistently with the provisions of
the GATT 1994, the  Agreement on Agriculture  and the  Agreement on Safeguards , it had nullified or
impaired the benefits accruing to Argentina under those Agreements.5  The Panel recommended that
the Dispute Settlement Body (the "DSB") request Chile to bring its price band system into conformitywith the  Agreement on Agriculture  and the GATT 1994.  The Panel did not, however, make
recommendations with respect to the safeguard measures challenged by Argentina.
6
5. On 24 June 2002, Chile notified the DSB of its intention to appeal certain issues of law
covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant to
paragraph 4 of Article 16 of the   Understanding on Rules and Procedures Governing the Settlement of
Disputes  (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the
Working Procedures for  Appellate Review  (the " Working Procedures ").7  On 4 July 2002, Chile filed
its appellant's submission.8  On 19 July 2002, Argentina filed an appellee's submission.9  On the same
day, Australia, Brazil, Colombia, Ecuador, the European Communities, Paraguay, the United States,and Venezuela each filed a third participant's submission.
10
                                                     
3Panel Report, para 8.1(a).
4Ibid., para 8.1(b).
5Ibid., para. 8.2.
6Panel Report, para. 8.3.  The Panel noted in paragraph 7.121 of its Report that "… the Panel received a
communication from Chile stating that the safeguard measures on wheat and wheat flour had been terminated asof 27 July 2001" and that it was later "informed by Chile that the safeguard measure on vegetable oils would beterminated as of 26 November 2001."  We note that Chile did not appeal the Panel's findings that its safeguardmeasures were inconsistent with certain provisions of the GATT 1994 and the Agreement on Safeguards .
7WT/DS207/5, 26 June 2002.
8Pursuant to Rule 21(1) of the  Working Procedures .
9Pursuant to Rule 22 of the  Working Procedures .
10Pursuant to Rule 24 of the  Working Procedures .WT/DS207/AB/R
Page 3
6. On 19 July 2002, the Appellate Body received communications from Japan and Nicaragua
stating that they wished to attend the oral hearing in this appeal, although neither wished to file awritten submission in accordance with Rule 24 of the  Working Procedures .
11  On 22 July 2002, the
Appellate Body notified the participants and third participants that it was inclined to allow Japan and
Nicaragua to attend the oral hearing as passive observers, if none of the participants or other third
participants objected.  No participant or third participant objected to Japan and Nicaragua  attending  
the oral hearing.  However, the European Communities considered that Japan and Nicaragua shouldbe allowed to attend the oral hearing as third participants and not as passive observers.  On 30 July2002, the participants and third participants were informed that Japan and Nicaragua would beallowed to attend the oral hearing as passive observers.
7. The oral hearing was held on 6 and 7 August 2002.
12  The participants and third participants
presented oral arguments and responded to questions put to them by the Members of the AppellateBody Division hearing the appeal.
8. A description of Chile's price band system is contained in paragraphs 2.1 to 2.7 of the Panel
Report.  Nevertheless, we consider it useful, at this stage, to provide an overview of the operation ofthe price band system, in particular in the light of the amendment that Chile made to the price bandsystem during the Panel proceedings.
13
                                                     
11Japan and Nicaragua were third parties in the Panel proceedings.
12Pursuant to Rule 27 of the  Working Procedures .
13We are, of course, mindful of the scope of appellate review pursuant to Article 17.6 of the DSU.WT/DS207/AB/R
Page 4
II. Background
A. Legal Framework of Chile's Price Band System
9. The price band system was established under Chilean Law No. 18.525 on the Rules on
Importation of Goods.14  The methodology for the calculation of the upper and lower thresholds of the
price band system is set out in Article 12 of that law.15
                                                     
14Consolidated version of Law 18.525, Official Journal of the Republic of Chile, 30 June 1986 as
amended by Law No. 18.591, Official Journal, 3 January 1987 and by Law No. 18.573, Official Journal,2 December 1987.  Panel Report, footnote 5 to para. 2.2.  See Annex CHL-2 to Chile's First Written Submissionto the Panel.  Chile submits, and the Panel Report states, that a price band system has been in effect since 1983.See Panel Report, paras. 7.97 and 7.139.
15Article 12 of Law 18.525 states as follows:
For the sole purpose of ensuring a reasonable margin of fluctuation of
domestic wheat, oil-seeds, edible vegetable oils and sugar prices in relationto the international prices for such products, specific duties are herebyestablished in United States dollars per tariff unit, or ad valorem  duties, or
both, and rebates on the amounts payable as ad valorem  duties established
in the Customs Tariff, which could affect the importation of such goods.
The amount of these duties and rebates, established in accordance with the
procedure laid down in this Article, shall be determined annually by the
President of the Republic, in terms which, applied to the price levels
attained by the products in question on the international markets, make itpossible to maintain a minimum cost and a maximum import cost for thesaid products during the internal marketing season for the domesticproduction.
For the determination of the costs men tioned in the preceding paragraph, the
monthly average international prices r ecorded in the most relevant markets
during an immediately preceding peri od of five calendar years for wheat,
oil-seed and edible vegetable oils and ten calendar years for sugar shall be
taken into consideration.  These averag es shall be adjusted by the percentage
variation of the relevant average price index for Chile's foreign tradebetween the month to which they correspond and the last month of the yearprior to that of the determination of the amount of duties or rebates, ascertified by the Central Bank of Chile.  They shall then be arranged indescending order and up to 25 per cent of the highest values and up to 25
per cent of the lowest values for wheat, oil-seed and edible vegetable oils
and up to 35 per cent of the highest values and up to 35 per cent of thelowest values for sugar shall be removed.  To the resulting extreme valuesthere shall be added the normal tariffs and costs arising from the process ofimportation of the said products.  The duties and rebates determined for
wheat shall also apply to meslin and wheat flour.  In this last case, duties
and rebates established for wheat shall be multiplied by the factor 1.56.
The prices to which these duties and rebates are applied shall be those
applicable to the goods in question on the day of their shipment.  The
National Customs Administration shall notify these prices on a weekly
basis, and may obtain information from other public bodies for that purpose.WT/DS207/AB/R
Page 5
10. At the second substantive meeting with the partie s, Chile informed the Panel that Article 12 had
been amended by Law 19.772, and submitted a copy of that law to the Panel.16  The amendment is dated
19 November 2001.  It provides, in relevant part, th at the combination of the price band duty and the
ad valorem  duty may not exceed the rate of 31.5 per cent  ad valorem  bound in Chile's WTO Schedule
(referred to below as the "cap").17  Chile concedes that prior to the enactment of Law 19.772, the
combination of the price band duty and the  ad valorem  duty did, at times, exceed Chile's bound rate.18
At the oral hearing before us, Chile explained th at 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 beensubject to a tariff binding since the Tokyo Round.
11. The objective of Chile's price band system as st ated in Article 12 of Law 18.525 is to " ensur[e]
a reasonable margin of fluctuation of domestic wheat, oil-seed, edible vegetable oil and sugar pricesin relation to the international prices for such products … .
19  (footnotes omitted)
                                                     
16See Panel Report, para. 2.3.  The Panel was esta blished 12 March 2001, more than six months before
the amendment was enacted.
17Article 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  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.
18Chile's appellant's submission, para. 3 and footnote 2 in which Chile notes "[r]ecognizing that Chile
… ha[s] breached those WTO commitments, Chile passed new legislation … to avoid the possibility of
recurrence of such a breach of the binding."
19Article 12 of Law 18.525.  Panel Report, para. 7.40, referring to Chile's response to Question 9(f) of
the Panel.WT/DS207/AB/R
Page 6
B. Products Subject to Chile's Price Band System
12. Price bands are calculated for each of the follow ing product categories:  (i) edible vegetable
oils;  (ii) wheat and wheat flour;  and (iii) sugar.20
C. Total Applicable Duties
13. The total amount of duty that is applied to the products covered by the price band system
consists of two components:  (i) an  ad valorem  duty that reflects Chile's  applied  Most-Favoured
Nation ("MFN") tariff rate;  and (ii) a  specific price band duty  that is determined for each
importation by comparing a reference price with the upper or lower threshold of a price band.
1. The  ad valorem   Duty
14. The  ad valorem   duty is the  applied  MFN rate which, under Chile's flat-tariff regime, is the
same for all products.  The MFN tariff rate  bound   by Chile in its WTO tariff schedule is 31.5 per
cent.  Chile has been reducing its  applied  MFN rates on an annual basis.  The applied   ad valorem 
rate in 2002 is 7 per cent.21  It is applied to the transaction value of the imported product to achieve
the  ad valorem  duty for that product.
2. The Specific Price Band Duty
15. The specific duty (the price band duty) will be examined in the following subsections, where
we discuss the determination of:  (i) the  upper and lower thresholds  of the price bands;  (ii) the
weekly  reference prices ;  and (iii) the calculation of  specific price band duties  for particular
shipments.  
                                                     
20The following specific HTS subheadings are covered by the price band system:  In the wheat or
meslin product category, HTS subheading 1001.9000.  In the wheat or meslin flour product category, HTS
subheading 1101.0000.  In the sugar product category, HTS subheading 1701.1100 cane sugar, 1701.1200 beet
sugar, 1701.9100 sugar containing added flavouring or colouring matter, and 1701.9900 other.  In the ediblevegetable oils product category, HTS subheading 1507.1000 crude soya-bean oil, 1507.9000 other crude soya-bean oil, 1508.1000 crude ground-nut oil, 1508.9000 other crude ground-nut oil, 1509.1000 virgin oil,1509.9000 other, 1510.0000 other oils, 1511.1000 crude palm oil, 1511.9000 other crude palm oil, 1512.1110
crude sunflower-seed oil, 1512.1120 crude safflower oil, 1512.1910 other sunflower-seed oil, 1512.1920 other
safflower oil, 1512.2100 crude cotton-seed oil, 1512.2900 other crude cotton-seed oil, 1513.1100 crude coconut(copra) oil, 1513.1900 other crude coconut (copra) oil, 1513.2100 crude palm kernel or babassu oil, 1513.2900other crude palm kernel or babassu oil, 1514.1000 rapeseed, colza or mustard oil, 1514.9000 other, 1515.2100maize (corn) oil, 1515.2900 other maize (corn) oil, 1515.5000 sesame oil, and 1515.9000 other sesame oil.
21Chile intends to achieve an applied rate of zero in the year 2010.WT/DS207/AB/R
Page 7
(a) The "Price Bands"
16. The price bands provide upper and lower thresholds that are used to calculate the specific duty
applicable to each importation of products subject to the price band system.
17. These price bands are determined on an annual basis through Decrees issued by the Executive.22
The bands that apply to  wheat  and  wheat flour  are determined for the period 16 December –
15 December23 and the band for  edible vegetable oils  corresponds to the period 1 November –
31 October.24
18. The upper and lower thresholds (that is, the ceiling and the floor prices) for each price band are
determined in the following way:
(a) Average monthly international prices for each product category are compiled:25
(i) in the case of  edible vegetable oils , the price used is that of crude soya bean
oil26, free on board (f.o.b.) Illinois, quoted on the Chicago Exchange;27
(ii) the price used for  wheat  is that quoted for Hard Red Winter No. 2, f.o.b.
Gulf (Kansas Exchange).
The price bands for edible vegetable oils and wheat are calculated on the basis of the
average monthly prices for the previous 60 months (5 years).
                                                     
22Panel Report, para. 2.4.  See first written submission by Argentina to the Panel, footnotes 12 and 14
and Exhibits ARG-5 and ARG-7.  However, the most recen t decrees contained in the Panel record date from the
year 1999.
23The price band for wheat is used, however, to calculate the specific duty or rebate, which is then
multiplied by a factor of 1.56 to obtain the specific duty or rebate for wheat flour. See Article 12 of Law 18.525,
Argentina's first written submission to the Panel, para. 6 and footnote 7 thereto, and Chile's first written
submission to the Panel, para. 15 and footnote 13.
24This overview does not cover the price band for sugar.
25"The calculations for each price made are made once a year, once all of the necessary elements are
available, in other words, usually starting around February, as soon as the relevant inflation index calculated by
the Central Bank of Chile on the basis of national foreign trade data is available."  Chile's response to
question 10(a) of the Panel.
26We note, however, that edible vegetable oils cover 25 tariff lines.
27Panel Report, para. 2.6.  Chile's response to Question 9(e) of the Panel.  However, the Secretariat
Report in Chile's Trade Policy Review states that the international prices used for edible oils is the f.o.b. price ofraw soya in New York.  WT/TPR/S/28, Box III.1, p. 46.  Argentina states in its first written submission to thePanel that the price used is that of crude soya oil f.o.b. New York.WT/DS207/AB/R
Page 8
(b) These average prices are adjusted to account for international inflation using an
external price index calculated by Chile's Central Bank.28
(c) Once adjusted for inflation , the compiled monthly prices are listed in descending
order and the "extreme" values are eliminated.
In the case of  wheat   and  edible vegetable oils , the prices that represent the highest
25 per cent and the lowest 25 per cent of the prices compiled are eliminated.  Forexample, in the case of wheat and edible vegetable oils, the 15 highest and the 15 lowestprices of the 60 compiled prices are eliminated from the calculation
(d) After the "extreme" values have been eliminated,  the remaining highest and lowest
prices are selected for the calculation of the price band thresholds.
For example, in the case of wheat and edib le vegetable oils, of the 60 monthly prices
compiled, the 16th and 44th highest monthly pr ices are selected for the calculation of
the upper and the lower thresholds respectively.
(e) Import costs are then added to the "highest and lowest prices" that have been selected
in order to convert them to a cost, insurance and freight ("c.i.f.") basis.
These "import costs" include the  ad valorem   tariff and costs such as  freight, insurance,
opening of a letter of credit, interest on credit, taxes on credit, customs agents' fees,unloading, transport to the plant and wastage costs.
29
No published legislation or regulation sets out how these "import costs" arecalculated.
30
                                                     
28Law No. 18.525 states that the average prices shall be adjusted according to the percentage variation
in the average price index relevant for Chile's foreign trade between the corresponding month and the last monthin the year in which the specific duties are determined.  At the oral hearing, Chile further explained that thisprice index also reflects domestic inflation and foreign exchange rate fluctuations.
29Chile's first submission to the Panel, para. 15(4).
30Panel Report, para. 7.44.WT/DS207/AB/R
Page 9
(f) The adjusted prices constitute the upper and the lower thresholds of the price band for
the product in question.
Returning to the earlier example of wheat a nd edible vegetable oils, the 16th highest
monthly price (adjusted to reflect import cost s) will represent the upper threshold of the
price band, and the 44th highest price (with the same adjustments made) will represent
the lower threshold of the price band.
19. The total amount of duty applicable is calculated by a customs agent who necessarily must be
hired by the importer.  The calculation is subject to revision by the customs authority.31
20. It should be noted that Chile's price bands are based on international market prices.  Thus, over
the long term, the upper and lower thresholds of th e bands will fall when international prices fall and
they will rise when those prices rise.  The bands  will be wider if prices fluctuate strongly.
(b) The "Reference Price"
21. The reference prices for each product category are determined on a weekly basis (every Friday
for the following week) by the customs authorities, using the  lowest   relevant f.o.b. price observed, at
the time of  embarkation , in the foreign "markets of concern" to Chile.32  Thus, the weekly reference
price will be the lowest f.o.b. price in any foreign "market of concern" during the previous week.  The
same weekly reference price applies to imports of all goods falling within the same product category,irrespective of the origin of the goods and rega rdless of the transaction value of the shipment.
33
22. The determination of the reference price for a particular product category depends on the date of
the bill of lading (more specifically, the week dur ing which the goods are shipped).  Thus, goods may
arrive in Chile in  different   weeks, yet have the  same   import reference price applied to them if the
dates of shipment from the expor ting country fall within the  same  week.  Similarly, goods may arrive
in Chile in the  same  week and have  different   reference prices applied to them if the dates of shipment
fall within  different   weeks.
23. There is no Chilean legislation or regulation, which specifies the international "markets of
concern" to be used to calculate the applicable reference prices.34  It seems, however, that the markets
                                                     
31Panel Report, para. 6.15.  Chile's response to questioning at the oral hearing.
32The reference price is thus unrelated to the transaction price of the particular shipment.
33Chile's response to question 9(a) of the Panel.
34Panel Report, para. 7.44.  Chile's response to questioning at the oral hearing.WT/DS207/AB/R
Page 10
and qualities chosen are intended to be representative of products actually "liable" to be imported to
Chile.35
24. In the case of wheat, in calculating the reference price, Chile uses the lowest f.o.b. price for
that product in "any market of concern".  It is not clear whether Chile will use the lowest f.o.b. price
for  any  quality of wheat as a reference price for  all  qualities of wheat.36
25. With respect to  edible vegetable oils, Chile stated before the Panel that "the Reference Price
has [generally] coincided with the price of crude soya bean oil, but in some cases it has correspondedto that of crude sunflower-seed oil."
37  From the above, it is not clear whether the price for crude soya
bean oil or crude sunflower-seed oil will be used as a reference price for  all  other edible vegetable
oil products, including more expensive qualities of edible vegetable oils.
26. Contrary to the prices used fo r calculating the price bands, the lowest f.o.b. prices found in any
market of concern and selected as reference prices are  not  adjusted for "usual import costs", and thus
not converted to a c.i.f. basis.38  We also note that the reference price will be the  lowest  f.o.b. price in
any  market of concern, and thus will  not  be representative of an average of prices found in any given
foreign market of concern.
(c) Calculating the specific price band duty
27. The specific duty is levied on each shipment of a product subject to the price band system.  The
amount of the specific duty is determined once a week  by comparing the weekly reference price with the
upper and lower thresholds of the annually determined price band relating to the relevant product.
28. The specific duty, or rebate, is applied per tonne of the product as of the date of  exportation  
(not importation) to Chile, regardless of the product's origin and of its transaction value.
29. The methodology used to calculate the a pplicable specific duty is the following:
                                                     
35Chile's response to questioning at the oral hearing.
36See Argentina's first written submission to the Panel, para. 16.  See also Panel Report, para. 7.44.
Chile's response to questioning at the oral hearing.
37These edible vegetable oils are iden tified by reference to 25 tariff lines.  There does not seem to be
any further adjustment of the prices for crude soya bean  oil or crude sunflower-seed  oil to the products covered
by the other tariff lines relating to other edible vegetable oil products.  Chile's response to question 43(b) of thePanel.  There is no "mark up" for edible vegetable oil products of "outstanding quality".  Chile's response toquestion 44 of the Panel.
38Chile's response to question 9(d) of the Panel.  Panel Report, para. 7.39.WT/DS207/AB/R
Page 11
(a) Upon arrival of the shipment, the appropriate weekly  reference price  is selected
according to the date of embarkation.
(b) The  reference price  is compared to the  upper and lower thresholds  of the relevant
price band:
(i) If the weekly reference price falls between  the upper and lower thresholds of
the price band, no specific duty is levied.
In such case, only the  ad valorem   duty is applied (Chile's applied  MFN rate
is currently 7 per cent  ad valorem ).39
(ii) If the weekly reference price is higher than the upper threshold of the price
band, no specific duty is assessed.  Instead, a  rebate  is granted, which is
equal to the difference between the reference price and the upper threshold ofthe relevant price band.
The rebate is deducted from the  ad valorem  applied MFN duty.  The total
amount of duties on a product subject to the price band system can be as low aszero.
(iii) If the weekly reference price falls below the lower threshold of the price
band, a specific duty equal to the difference between the reference price and
the lower threshold is levied.  In such case, the  ad valorem  duty will also be
applied.
To make the price band system easier to administer, the annual decrees that
establish the price bands contain a table that sets out a range of referenceprices and the rebate or specific duty that will be applied in the case of eachof those reference prices.
40  Once the reference price that applies for a
particular week has been published, the corresponding specific price bandduty or rebate for that reference price can be found in the table.
41
                                                     
39Chile's bound MFN tariff rate is at 31.5 per cent.
40Panel Report, para. 4.20.
41If the weekly reference price is within  the price band, only the ad valorem duty rate applies.WT/DS207/AB/R
Page 12
30. In order not to impose duties in excess of the tariff rate  bound  in Chile's WTO schedule, the
customs authorities would have to ensure that the combination of the  applied   ad valorem  duty and
the specific price band duty does not exceed 31.5 per cent of the transaction value of the shipment inquestion.
III. Arguments of the Participants and Third Participants
A. Claims of Error by Chile – Appellant
1. Article 11 of the DSU
31. Chile submits that the Panel exceeded its mandate and acted inconsistently with Article 11 of
the DSU in finding that the duties imposed under its price band system are "other duties or charges"that are prohibited under the second sentence of Article II:1(b) of the GATT 1994, because Argentinamade no claim or argument under the second sentence of Article II:1(b).
32. Chile maintains that the Panel's finding under the second sentence of Article II:1(b) goes
against Article 3.2 of the DSU, which in Chile's view is the "central element" of the dispute settlementsystem that ensures "security and predictability in the multilateral trading system."
42  Chile stresses
that the dispute settlement system can hardly be deemed predictable if panels find it within their
discretion to make claims and arguments for the parties, and to proceed to make findings based onlegal claims and arguments not presented without providing the parties with an opportunity forrebuttal.
33. Chile submits that the Panel's erroneous decision to make a finding under the second sentence
of Article II:1(b) of the GATT 1994 deprived it of a fair right of response.  Moreover, the Panel'sapproach resulted in inadequate argumentation of an issue of considerable importance to all WTOMembers.  Chile maintains that because the issue was never claimed or argued before the Panel, Chile
made only "highly summary comments" in response to comments made by the United States (a third
party) with respect to the second sentence of Article II:1(b).
34. Chile concedes that Argentina asked the Panel to rule on the consistency of the price band
system with Article II:1(b) of the GATT 1994, but ma intains that Argentina had made clear that its
claim was for a violation of the first sentence of Article II:1(b), and that Argentina had neverrequested a finding or made any such claim or argument with respect to the second sentence ofArticle II:1(b).  Chile asserts that all of Argentin a's claims and arguments were predicated on the view
                                                     
42Chile's appellant's submission, para. 24.WT/DS207/AB/R
Page 13
that the duties resulting from Chile's price band system are "ordinary customs duties" that had led or
could lead to a violation of the first sentence of Article II:1(b).43  Chile argues that, had Argentina
sought to maintain that the duties resulting from Chile's price band system were "other duties orcharges", it would simply have requested a finding under the second sentence of Article II:1(b),
because Chile obviously had not scheduled anything in the column for "other duties and charges" and
the price band duties would thus have been prohibited.
35. Chile asserts that the Panel made the same error as did the panel in  United States – Import
Measures on Certain Products from the European Communities  ("US – Certain EC Products ").  Chile
points out that in that case, the Appellate Body concluded that the panel had erred under Article 11 ofthe DSU when it determined that the United States violated a provision for which the EuropeanCommunities did not make a claim.
44  Chile recognizes that in that case, the Appellate Body also held
that a panel could develop its own legal reasoning related to a claim or defence that had been properlyput before the panel by one of the parties to the dispute.  However, according to Chile, that finding
applies only in cases where the complainant has made a claim, and has argued for a finding on an
issue, even though the argument used to justify the claim may not have corresponded precisely to theinterpretation ultimately adopted by the panel.  Chile submits that, here, Argentina did not make aclaim or submit legal arguments under the second se ntence of Article II:1(b) of the GATT 1994, and
thus the Panel was not entitled to  develop its own legal reasoning with respect to such claim or
argument.
2. Order of Analysis
36. Chile contends that 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, on the ground that Article 4.2 "deals
more specifically and in detail with measures affecting market access of agricultural products."45  The
Agreement on Agriculture  may, in some respects, be more specific and detailed than the GATT 1994,
but Article 4.2 is clearly  not  more specific or detailed than Ar ticle II:1(b) with regard to tariff
commitments.
37. Chile recalls, moreover, that the term "ordinary customs duties" was first used in
Article II:1(b), which clearly pre-dates the  Agreement on Agriculture .  The drafters of Article 4.2
borrowed the term "ordinary customs duties" from Ar ticle II:1(b).  To understand the meaning of that
term, it would thus have been appropriate for the Pane l to begin its analysis with Article II:1(b).  Had
                                                     
43Panel Report, paras. 4.5-4.7.
44Appellate Body Report, WT/DS165/AB/R, adopted 10 January 2001, paras. 110-114.
45Panel Report, para. 7.16.WT/DS207/AB/R
Page 14
the Panel done so, Chile suggests, it would most likely have avoided the error of inventing a new
definition of ordinary customs duties that has no apparent basis in the text of Article II:1(b).
3. Article 4.2 of the  Agreement on Agriculture
38. Chile submits that the Panel erred in concluding that the price band system is inconsistent
with Article 4.2 of the  Agreement on Agriculture .  The Panel should have analyzed the text of
Article 4.2 and the tariff schedules as concluded as  part of the Uruguay Round Agreements, instead of
basing its conclusions on pre-Uruguay Round documents .  According to Chile, by doing so, the Panel
would have found that the price band system is not a measure "of a kind which has been required tobe converted" into ordinary customs duties, but rather is merely a system for determining the level ofordinary customs duties that will be applied up to the bound rate.
39. Chile considers that it was an error for the Panel to  first  decide that the price band system
was a "similar measure" under footnote 1 of Article 4.2 before examining the main text of Article 4.2,in particular the phrase "measures of the kind which have been required to be converted into ordinarycustoms duties" contained therein.  By doing so, the Panel did not attach sufficient weight to evidence
of what was and what was not converted.  In this respect, Chile notes that no country with a priceband system in fact converted that system, no Member asked Chile to convert its price band system,and Argentina itself maintains a price band system for sugar.
40. Chile agrees with the Panel that the mere fact that a measure was not converted by a Member
into an ordinary customs duty does not prove that the measure was not "of a kind which had been
required to be converted".  According to Chile, "the absence of conversions is a highly relevant fact",
however
46, and the way in which the European Communities converted its variable import levy is
particularly relevant because it involved binding the tariff, but left in place a system similar to Chile'sprice band system.
47  Thus, the European Communities converted its levies in a way that made it
"crystal clear"48 that the tariffs would continue to vary, although subject to a high absolute cap.  Chile
maintains that the Panel should have taken this evidence into account.  It proves that the drafters ofthe  Agreement on Agriculture  accepted that a variable import levy could be converted into an
ordinary customs duty by imposing a "cap" on the am ount of duties that could be levied, even when
those duties would fluctuate below that "cap" in relation to a domestic target price.
                                                     
46Chile's appellant's submission, para. 81.
47Ibid., para. 95.
48Ibid., para. 92.WT/DS207/AB/R
Page 15
41. Although Chile agrees with the Panel that footno te 1 is significant in discerning the meaning
of Article 4.2 of the  Agreement on Agriculture , it does not agree that all the measures listed therein
"are characterized either by a lack of transparency and predictability, or impede transmission of worldprices to the domestic market, or both."
49  In this respect, Chile submits that transparency and
predictability are clearly not the defining characteristics for what is illegal and legal under footnote 1
of Article 4.2.
42. Chile suggests, moreover, that the Panel acted inconsistently with Articles 31 and 32 of the
Vienna Convention on the Law of Treaties  ("the Vienna Convention ")50, by considering that it could
"distill" the meaning of the terms "variable import levy" and "minimum import price" from selectedReports of GATT Committees and notifications of individual GATT Contracting Parties during aperiod before the launch of the Uruguay Round, although the Panel itself conceded that thosedocuments do not constitute "preparatory work" within the meaning of Article 32 of the  Vienna
Convention .  In making its "distillation", the Panel did not cite any evidence that the negotiators of the
Agreement on Agriculture  had even referred to the documents on which the Panel relied to "distill" its
opinion of what was intended by the negotiators of that Agreement.  The only justification providedby the Panel was that all GATT Contracting Parties "had access" to these documents.  Chile concludesthat the Panel appears to have "simply decided to invent its own definition of a variable import levyand minimum import price system, using pre-Uruguay Round documents developed for a differentpurpose."
51
43. In Chile's view, the Panel then proceeded to assess incorrectly Chile's price band system by
the standards it had "distilled" from those pre- Uruguay Round documents.  It did not take proper
account of the fact that the price band system tracks changes in world prices, moderating relatively
high or low prices on a temporary basis, but always subject to a tariff binding, which prevents Chile
from using the price band system to exclude goods below a target price.  Chile stresses in this respectthat it does not maintain target or support prices such that the lower threshold of the price band systemoperates as a "proxy" for internal prices.
52
44. Moreover, in Chile's view, the Panel introduced its own objectives of transparency and
predictability when interpreting Article 4.2 of the  Agreement on Agriculture  and Article II:1(b) of
the GATT 1994, rather than focusing on the  Agreement on Agriculture ,  which makes no mention of
such objectives.  Instead, its preamble clearly states that the long-term objective of the  Agreement on
                                                     
49Panel Report, para. 7.34.
50Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331;  8 International Legal Materials 679.
51Chile's appellant's submission, para. 104.
52Panel Report, para. 7.45.WT/DS207/AB/R
Page 16
Agriculture  is "to provide for substantial progressive reductions in agriculture support and protection
sustained over an agreed period of time, resulting in correcting and preventing restrictions anddistortions in world agricultural markets." 
53  According to Chile, the Panel's finding thereby produces
an absurd result:  contrary to the objective of obtaining lower tariffs in the Agreement on Agriculture 
and the GATT 1994, the Panel, in effect, finds the higher  bound  rate preferable to the lower  applied 
rate under Chile's price band system.
45. For these reasons, Chile concludes that its price band system is consistent with Article 4.2 of
the  Agreement on Agriculture .
4. Article II:1(b) of the GATT 1994
46. Chile argues that the Panel erred in finding that the duties imposed under Chile's price band
system are not "ordinary customs duties" within the meaning of the first sentence of Article II:1(b) of
the GATT 1994, but rather are "other duties or charges" prohibited by the second sentence of thatprovision, unless scheduled according to the Understanding on the Interpretation of Article II:1(b) ofthe GATT 1994 (the Understanding on Article II:1(b)).  Chile submits that, under the Panel's readingof Article II:1(b), it would be prohibited from applying a duty at rates that vary between zero and itsbound rate of 31.5 per cent, but at the same time, it would be free to be more protectionist by applyinga constant duty at its bound rate.  Chile argues that, under the Panel's reasoning, it would also be freeto change its applied rate from time to time for whatever reason it might decide, so long as the changein duty is not based on a formula.
47. Chile maintains that the Panel's approach to Article II:1(b) of the GATT 1994 appears to have
been based primarily on the fact that the Panel had already decided that duties applied under the priceband system were not "ordinary customs duties" within the meaning of Article 4.2 of the  Agreement
on Agriculture .  On that basis, the Panel found that the duties resulting from Chile's price band system
could not constitute "ordinary customs duties" under Article II:1(b) of the GATT, and thus had to be
"other duties or charges".
48. Chile notes in this respect that, assuming the duties applied under the price band system were
"other duties or charges", they would have been in violation of Article II:1(b) of the GATT 1994 from
their inception in 1983, because Chile introduced the price band system  after  binding its duties on all
the products concerned in 1980.
                                                     
53Agreement on Agriculture , Preamble, para. 3.WT/DS207/AB/R
Page 17
49. Chile submits that the Panel erred in finding a normative content to "ordinary" customs duties
on the grounds that Members' bindings of "ordin ary customs duties" are always stated in  ad valorem 
or specific terms.  According to Chile, the Panel also erred in finding that "ordinary customs duties"
must not take account of any other,  exogenous , factors, such as, for instance, fluctuating world
market prices.54
50. Chile sees no basis in logic or law for the Panel's conclusion that the existence of an
"exogenous" basis for setting the level of part of  the duty within the binding somehow renders the
resulting duty other than "ordinary".  In Chile's view, bindings set a ceiling on ordinary duties that canbe applied to a product, but, as the Appellate Body found in  Argentina – Measures Affecting Imports
of Footwear, Textiles, Apparel and Other Items  ("Argentina – Textiles and Apparel
 "), they do not
thereby prescribe what form the bound duties must take.55  Further, nothing in Article II:1(b) limits
how the level of ordinary customs duties can be determined and expressed up to the level of thebinding, so long as the binding is respected.
51. Chile further maintains that the purpose of Article II:1(b) and the Understanding on
Article II:1(b) was not to create some new class of charge that, although applied at a rate below thetariff binding, was nonetheless forbidden because it was not the right type or kind of duty.  Rather,Chile contends, the purpose of the second sentence of Article II:1(b) and the Understanding onArticle II:1(b) was to ensure that bindings on "ordinary customs duties" could not be circumvented bythe creation of new types of duties or charges on imports or by increasing existing  "other duties orcharges".
52. Chile further argues that the Panel erred in finding that "PBS duties are neither in the nature
of  ad valorem  duties, nor specific duties nor a combination thereof"
56 and points out that the decision
to apply a duty at less than the bound rate will  always  be based on exogenous factors.  Thus, there is
no basis for saying that "exogenous factors" make applied duties not "ordinary".
53. Chile criticizes the statement of the Panel that the disallowance of the lowest 25 per cent of
the monthly average prices makes the applied duty higher than it would be if all prices were includedin the calculation of the price band.  Chile argues that there is no legal basis in the WTO for assertingthat the amount of the duty applied under the price band system is relevant in determining whether ornot these duties are ordinary customs duties.
                                                     
54Panel Report, para. 7.52.
55Appellate Body Report, WT/DS56/AB/R and Corr.1, adopted 22 April 1998, DSR 1998:III, 1003,
para. 46.
56Panel Report , para. 7.62.WT/DS207/AB/R
Page 18
54. Finally, Chile objects to the Panel's observation whereby the fact that the duty resulting from
Chile's price band system is determined as of the date of exportation of the merchandise would violateArticle I of the GATT 1994.  Article I does not prohibit it from using the date of exportation todetermine the applicable duty because using this date does not result in discrimination based on the
origin of the products.  Chile further submits that a "duty does not become an 'other duty or charge'
because it may be applied in violation of the MFN rule".
57
B. Arguments of Argentina – Appellee
1. Article 11 of the DSU
55. Argentina disputes Chile's contention that the Panel's findings on the second sentence of
Article  II:1(b) are not within the Panel's mandate and are inconsistent with Article 11 of the DSU.Argentina takes the view that it properly set out a claim that the price band system violates Article II:1of the GATT 1994 in its reques t for establishment of a panel.  Argentina claims that its reference, in
its request for establishment of a panel, to Chile's breach of "its commitments on tariff bindings" wasrecognized by the Panel, both parties and all third parties to refer to the obligations of Article II:1(b)of the GATT 1994.
56. Argentina asserts that it fully satisfied the requirements of Article 6.2 of the DSU, which
requires that the request for the establishment of a panel identify the specific measures at issue and
provide a brief summary of the legal basis of the complaint.  Argentina contends that it clearly
identified the measures at issue, namely Law 18.525 as amended by Law 18.591 and Law 19.546, aswell as the regulations and complementary provisions and/or amendments, and that it identified theobligations of Article II as the legal basis for its claim.
57. Relying on the Appellate Body reports in  European Communities – Regime for the
Importation, Sale and Distribution of Bananas  ("EC – Bananas III ")
58 and  Korea – Definitive
Safeguard Measures on Imports of Certain Dairy Products ("Korea – Dairy ")59, Argentina argues that
Article 6.2 of the DSU does not require a complainant to spell out the full text of the Articles of the
GATT 1994 or other covered agreements supporting a particular claim60, and that "whether the mere
listing of the articles claimed to have been violated meets the standard of Article 6.2 must be
                                                     
57Chile's appellant's submission, para. 76.
58Appellate Body Report, WT/DS27/AB/R, adopted  25 September 1997, DSR 1997:II, 591, para. 141.
59Appellate Body Report, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3, paras. 124 and 127.
60Argentina's appellee's submission, para. 20.WT/DS207/AB/R
Page 19
examined on a case-by-case basis ... tak[ing] into account whether the ability of the respondent to
defend itself was prejudiced ... ".61
58. Argentina contends that Chile's allegation as to the lack of a claim, under the second sentence
of Article II:1(b), in Argentina's request for the establishment of a panel, is in fact a complaint relating
to the alleged lack of arguments relating to the two sentences of Article II:1(b).  Argentina recalls that
the Appellate Body has clarified that, as opposed to claims, which must be set out in the panel request,"arguments" supporting those claims may be set out and progressively clarified during the course ofthe panel proceedings.
62  Argentina contends that this is what occurred in the proceedings before the
Panel.  Argentina argues that this appeal presents a different situation from that in  US – Certain EC
Products , where the panel made a finding on an issue for which a claim had not been made.
59. Argentina argues that, even if the Appellate Body determines that Article II:1(b) of the
GATT 1994 sets forth more than one legal basis, it co rrectly identified the relevant specific legal
basis.  Argentina refers to  Thailand – Antidumping Duties on Angles, Shapes and Sections of Iron or
Non-Alloy Steel and H-Beams from Poland  ("Thailand – H Beams "), a case involving multiple
obligations stemming from the same article, where the Appellate Body concluded that whenever aparagraph informs the rest of an article, it suffices  for the complainant to refer to the language of that
paragraph in order for the claims under other sub-paragraphs of the article to be properly before thePanel.
63  The Appellate Body considered sufficient the simple listing of the article in question "[i]n
view of the inter-linked nature of the obligations ... " in that article.64  Argentina argues that the same
conclusion applies in this case because the obligations in the first and second sentences ofArticle II:1(b) are inter-linked, as is evident from  the use of the word "also" connecting the second
sentence to the first.   Argentina contends that Chile's assumption that the first and second sentences
of Article II:1(b) are independent obligations is incorrect, because both sentences relate to theobligation of Members not to exceed their tariff bindings. Therefore, according to Argentina, the
examination of Chile's price band duties' consistency with Article II:1(b) cannot exclude considerationof the second sentence of that Article.
60. Argentina maintains that, because the structur e of Article II:1(b) is similar to that of
Article III:2 of the GATT 1994, the statements of the Appellate Body in  Canada – Certain Measures
                                                     
61Appellate Body Report, Korea – Dairy , supra , footnote 59, para. 127.
62Appellate Body Report, EC – Bananas III,  supra, footnote 58, para. 141.
63Appellate Body Report, WT/DS122/AB/R, adopted 5 April 2001, paras. 90-93 and para. 106;
Argentina's appellee's submission, para. 27.
64Appellate Body Report, Thailand – H Beams , supra , footnote 63, para. 93.WT/DS207/AB/R
Page 20
Concerning Periodicals  ("Canada – Periodicals ")65 are relevant.  Argentina recalls that the Appellate
Body found in that case that it could move from an examination of the first sentence of Article III:2 ofthe GATT 1994 to an examination of the second sentence as "part of a logical continuum."
66
61. Argentina stresses that the fact that the second sentence of Article II:1(b) of the GATT 1994
is not specifically mentioned in the terms of reference did not impair the ability of Chile to defend
itself.  Although Argentina concedes that it directed most of its arguments to the first sentence ofArticle II:1(b), it maintains that Chile had ample no tice of  the claim because the issue of whether the
duties resulting from Chile's price band system are ordinary customs duties or not was discussedduring the Panel proceedings.  Argentina contests Chile's allegation that it did not raise the issue of aninfringement of the second sentence of Article II:1(b), and points to paragraphs 23 and 24 of itsrebuttal submission to the Panel, where, in the context of its claim under Article II:1(b) of theGATT 1994, it stated that the duties resulting from Chile's price band system are not "ordinarycustoms duties".  In addition, Argentina addressed the second sentence in its response to Question 3
posed by the Panel.
67
62. Argentina adds that two third parties—the European Communities and the United States—
provided arguments regarding the second sentence of Article II:1(b) in responding to Question 3 ofthe Panel.  According to Argentina, the arguments of the United States and the EuropeanCommunities, supplementing its own arguments, provided a more than sufficient basis for the Panelto decide Argentina's claim under Article II:1(b).  Moreover, Argentina argues that Chile's claim that
it was deprived of a fair right of response regarding the second sentence of Article II:1(b)
68 is belied
by the facts because Chile, like Argentina and the third parties, was itself asked to respond to
Question 3 of the Panel on "other duties or charges" referred to in the second sentence of
Article II:1(b).  Accordingly, Chile was fully awar e of the Panel's interest in the second sentence of
Article II:1(b).
63. Argentina argues that, in any event, even if none of the parties had advanced arguments
regarding the second sentence of Article II:1(b), the Panel would have had the right, indeed the duty,
to develop its own legal reasoning to support the proper resolution of Argentina's claim.  Argentina
recalls that in  European Communities – Measures Concerning Meat and Meat Hormones ("EC –
Hormones "), the Appellate Body explicitly ruled that no thing in the DSU limits the faculty of a panel
                                                     
65Appellate Body Report, WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p. 449.
66Ibid., at 469.
67Argentina's appellee's submission, para. 35.
68Chile's appellant's submission, para. 23.WT/DS207/AB/R
Page 21
freely to use arguments submitted by any of the parties—or to develop its own legal reasoning—to
support its own findings and conclusions on the matter under its consideration.69
64. Argentina asserts that the Panel did no more than discharge its duty to make an objective
assessment of the matter before it, by developing its legal reasoning on the basis of arguments
advanced by the parties and third parties.  Thus it did not breach its duty under Article 11 of the  DSU.
The standard for breaches of that provision is ve ry high, as articulated by the Appellate Body in
Australia – Measures Aff ecting Importation of Salmon ("Australia – Salmon ").70  In Argentina's view,
Chile has not demonstrated that the Panel in this case committed any error or abused its discretion in amanner that comes even close to the level of gravity required to sustain a claim under Article 11 of theDSU.
2. Order of Analysis
65. Argentina asks the Appellate Body, as a preliminary matter , to reject Chile's "claim" that 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.  That claim is not properly before the Appellate Body becauseChile failed to include it in its Notice of Appeal.  Argentina notes that it was first made aware of "thisaspect of Chile's challenge" when it received Chile's appellant's submission.  According to Argentina,"the rules regarding notice of claims are designed to protect against precisely this type of situation."
71
66. Argentina submits that—even if the Appellate Body were to find that Chile's "claim" was
properly before it as a  procedural matter —it should nevertheless reject the claim on  substantive
grounds .  Argentina recalls the finding of the Appellate Body in  EC – Bananas III   that a panel
should start its examination of a claim under the agreement which "deals specifically, and in detail"with the measure being challenged.
72  Argentina agrees with the Panel that Article 4.2 of the
Agreement on Agriculture   "deals more specifically and in detail with measures affecting market
                                                     
69Appellate Body Report, WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, 135 , para. 156.
70Appellate Body Report, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327, para. 266.
71Argentina refers more specifically to Rule 20(2)(d) of the Working Procedures for Appellate Review ,
which provides in pertinent part that:
A Notice of Appeal shall include the following information:
…
(d) a brief statement of the nature of appeal, including the allegations of
errors in the issues of law covered in the panel report and legal interpretations
developed by the Panel."
72Appellate Body Report, supra , footnote 58, para. 204.WT/DS207/AB/R
Page 22
access of agricultural products" 73 because Chile's price band system applies only to agricultural
products, whereas Article II:1(b) applies generally to trade in goods.
67. According to Argentina, Chile's argument that Article 4.2 of the  Agreement on Agriculture  is
not a specific or more detailed way of addressing the prohibition against exceeding tariff bindings
under Article II:1(b) of the GATT 1994 is "flawed" because the obligation contained in Article 4.2
would be rendered meaningless if it were reduced, as Chile proposes, to a simple tariff measure.74
Article 4.2 has nothing to do with the obligation to respect tariff bindings.  Argentina submits that thishas been recognized by all participants in these proceedings, even by Chile, which concedes that theprohibitions in Article 4.2 of the  Agreement on Agriculture  apply without regard to whether the
measures breach a tariff binding.
3. Article 4.2 of the  Agreement on Agriculture
68. Argentina endorses the Panel's finding that Chile's price band system is inconsistent with
Article 4.2 of the  Agreement on Agriculture .  According to Argentina, the Panel also came to the
correct conclusion when it found that the duties resulting from Chile's price band system are not"ordinary customs duties" within the meaning of Article 4.2 and footnote 1 thereto.
69. Argentina submits that the Panel correctly applied the rules of interpretation under the
Vienna Convention  in its analysis of Article 4.2 and footnote 1 of the  Agreement on Agriculture . 
Contrary to Chile's contention, the Panel did not proceed to analyze footnote 1 until after it hadcompleted the analysis of the main text of Article 4.2 (on a textual and a contextual basis) and
accounted for its object and purpose.
70. Argentina adds that the Panel acted consistently with Articles 31 and 32 of the  Vienna
Convention by resorting to the notifications of the GATT Contracting Parties and the Reports of the
GATT Committees as supplementary means of interpretation.  In doing so, the Panel examineddocuments which predated the entry into force of the Marrakesh Agreement Establishing the WorldTrade Organization (the " WTO Agreement ").  In Argentina's view this was the correct way to proceed
                                                     
73Panel Report, para. 7.16.
74Argentina's appellee's submission, para. 63.WT/DS207/AB/R
Page 23
because those documents form part of the GATT  acquis75 and also fall into the category of all
material which the parties had before them when drafting the final text.76
71. Argentina points out that Chile fails to address the core issue of the Panel's findings that the
price band system as such—the measure challenged by Argentina in these proceedings—is not simply
a duty.  Rather, it is a mechanism that imposes burdens on trade—such as lack of predictability and
transparency—that are distinct from and, indeed, different in kind from ordinary customs duties.Argentina argues that Chile attempts to bridge the gap between ordinary customs duties and dutiesresulting from its price band system by arguing that a duty that varies by a formula is morepredictable than one that varies by political decision.  Argentina points out that the formula is itselfbased on a political decision and, moreover, the key is the variability of the duties imposed under theprice band system.  With the price band system one cannot know the actual duty.  All that is known isa formula which will provide a number which changes over transactions.  Thus Argentina concludesthat, while Chile does have the power to set ordinary customs duties at or below its bound rate, this
does not confer upon Chile the power to create an opaque mechanism by which it constantly varies its
duties.
72. Argentina points out that, even without exceeding the bound level, the lower the applied  ad
valorem  tariff (currently 7 per cent), the higher the additional specific duties resulting from the price
band system.  Consequently, when international prices are low, uncertainty increases, and the priceband system's defective transmission of world prices insulates the domestic market from world marketprices, up to the break-even prices.  This inhibiti on of the transfer of world prices could be possible
only through the application of something that is different from ordinary customs duties.  According
to Argentina, this is exactly the case of variable duties under the price band system, which are an
exclusive function of exogenous factors, irrespective of either the transaction value, a characteristic ofthe product (that is, weight), or a combination thereof.
73. Argentina notes that, after making a finding as to what are the main characteristics of variable
import levies and minimum import prices, the Panel concluded that a measure is similar "if, based ona weighing of the evidence before us, it shares sufficiently the fundamental characteristics outlinedabove."
77  Consequently, the Panel compared the price band system with the characteristics of those
                                                     
75Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular
Welded Carbon Quality Line Pipe from Korea , WT/DS202/AB/R, adopted 8 March 2002, para. 174:
"Following the Vienna Convention  approach, we have also looked to the GATT acquis  and to the relevant
negotiating history of the pertinent treaty provisions."
76Argentina refers to footnote 596 of the Panel Report, where the Panel quotes the Chairman of the ILC
(Yb. ILC, 1966, Vol. I, Part II, 204 at para. 25).
77Panel Report, para. 7.37.WT/DS207/AB/R
Page 24
two listed measures in footnote 1 of Article 4.2 and found the price band system to be a "hybrid
instrument."78  According to Argentina, this clearly refutes Chile's assertion that the Panel decided to
"invent its own definition"79 of "variable import levy" and "minimum import price".
74. Finally, Argentina rejects Chile's assertion that the price band system and measures listed in
footnote 1 to Article 4.2 are not similar.  Argentina disagrees with Chile's contention that the Panel
incorrectly assessed the price band system when it found that the lower threshold of the price bandsystem can operate in practice as a "proxy" to a minimum import price.  This is a factual findingarising from the factual evidence put forward by Chile and Argentina during the Panel proceedingand, as such, is not subject to appellate review.  Ar gentina believes that Chile fails to show that the
measures are not "similar."
4. Article II:1(b) of the GATT 1994
75. Argentina endorses the Panel's finding that Chile's price band system is "similar" to both a
"variable import levy" and a "minimum import price," and that, therefore, the price band duties arenot  "ordinary customs duties", but, rather, are "other duties or charges of any kind".  Argentina,
moreover, agrees with the Panel that Chile's price band system is in violation of the second sentenceof Article II:1(b) because Chile failed to record the duties resulting from its price band system in the"other duties and charges" column of its Schedule, as it should have done in the light of theUnderstanding on Article II:1(b).
76. Argentina submits that, for purposes of Article II:1(b), the Panel did not need to address the
specific legal nature of the duties resulting from Chile's price band system because the legal nature of
such duties would have become relevant only if the price band system were found to be consistentwith Article 4.2 of the  Agreement on Agriculture .  Moreover, Argentina argues that the Panel could
not have, in any event, analyzed the WTO-consistency of the price band duties in isolation from theprice band system without infringing its obligations under Article 11 of the DSU.
77. Argentina also notes that, in the Panel proceedings, it did not only challenge the "duties"
resulting from Chile's price band system.  Rather, it challenged the price band system  as such  by
arguing that the price band system "does not ensure certainty in respect of market access foragricultural products"
80 and "caused Chile to breach its commitments on tariff bindings in relation to
                                                     
78Panel Report, para. 7.46.
79Chile's appellant's submission, para. 104.
80Argentina's appellee's submission, para. 149.  See also WT/DS207/2.WT/DS207/AB/R
Page 25
the concessions set forth in its national schedule".81  In addition to the fact that the price band system
infringes Article 4.2, Argentina argues that a separate violation under Article II:1(b) can and shouldbe found since Chile—by its own admission—has imposed duties in excess of its tariff binding.
78. Argentina thus asks the Appellate Body to uphold the Panel's finding that duties resulting
from Chile's price band system constitute "other duties or charges" within the meaning of the second
sentence of Article II:1(b).
79. However, if the Appellate Body were to  reverse  the Panel's findings under Article 4.2 that
the price band system constitutes a similar border measure which had to be converted into an"ordinary customs duty", and to find that the price band system does not impose an "other duty orcharge" within the meaning of the second sentence of Article II:1(b), Argentina requests the AppellateBody to complete the Panel's analysis by making a finding that Chile's price band system, and thevariable duties resulting from it, are inconsistent with the first sentence of Article II:1(b).
82  According
to Argentina, the Appellate Body would be able to complete the legal analysis in the case at hand
because the factual findings of the Panel and the undisputed facts in the Panel record provide a
sufficient basis for it to do so.  In particular, Argentina notes that Chile has itself conceded that it hasapplied price band duties in excess of its tariff bindings.
83  Thus, Argentina concludes that the
Appellate Body could find a violation of the first sent ence of Article II:1(b) even if it were to find that
the price band duties are "ordinary customs duties".84
C. Arguments of the Third Participants
1. Australia
80. Australia considers that Chile's appeal raises important systemic issues concerning several of
the covered agreements, in particular, the  Agreement on Agriculture , and maintains that Article 4.2
of that Agreement prohibits WTO Members from introducing a price band system.  In Australia'sview, the term "variable import levy" in footnote 1 appears to refer to any  system  that allows for
variation, but not to  ad hoc  changes that a government may make to the level of an applied tariff.
The term "variable", therefore, seems to refer to va riability that is inherent in a system, and not to
"any variability".  The existence of a binding in a Member's tariff schedule is not relevant for
                                                     
81Argentina's appellee's submission, para. 149.  See also WT/DS207/2.
82In support of its argument, Argentina refers to the Appellate Body reports in European Communities –
Measures Affecting the Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 1998,
DSR 1998:V, 2031, para. 156,  Australia – Salmon , supra , footnote 70, para. 117 and   European Communities –
Measures Affecting Asbestos and Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001.
83Argentina's appellee's submission, para. 157.
84Ibid.WT/DS207/AB/R
Page 26
purposes of determining whether a measure is a prohibited "variable import levy" under Article 4.2.
Rather, the question of whether a Member applies duties in excess of its tariff binding is an issue thatshould be examined under Article II of the GATT 1994 and not under Article 4.2 of theAgreement on Agriculture .  With respect to the meaning of "similar border measures" in Article 4.2,
Australia agrees with the United States that, to be "similar", it is sufficient for a border measure to be
"similar" to any  one  of the measures listed in footnote 1—without having to be similar to  all  of
those measures.  Australia further agrees with the United States that, to be "similar" to a "variableimport levy", a border measure does not need to share  all  the "fundamental characteristics" of such a
levy.
85
2. Brazil
(a) Article 11 of the DSU
81. Brazil submits that the Panel's finding that Chile's price band system constitutes a violation of
the second sentence of Article II:1(b) of the GATT 1994, is just a logical and necessary consequenceof the Panel's finding that the price band system violates Article 4.2 of the  Agreement on Agriculture .
According to Brazil, GATT/WTO practice clearly sets out that panels are not compelled to accept theinterpretations or legal reasoning developed by the parties to a dispute, even if all the parties to a
dispute have similar or identical views.
(b) Order of Analysis
82. Brazil considers that the Panel was correct in choosing to examine Article 4.2 of the
Agreement on Agriculture  before examining Article II:1(b) of the GATT.
83. Brazil notes that the price band system applies exclusively to agricultural products and thus is
subject to the  Agreement on Agriculture .  Article 21.1 of the  Agreement on Agriculture  sets out that
"the provisions of GATT 1994 … shall apply subject to the provisions of [the Agreement on
Agriculture ]".86 (underlining in original)  Therefore, Article 4.2 of the  Agreement on Agriculture 
takes precedence over any conflicting GATT 1994 provision, which applies to goods in general.Thus, in the present case, according to Brazil, the  Agreement on Agriculture  is  lex specialis ,
regardless of how detailed Article II:1(b) of GATT 1994 may be with respect to other goods notcovered by the  Agreement on Agriculture .
                                                     
85Australia's response to questioning at the oral hearing.
86Brazil's statement at the oral hearing.WT/DS207/AB/R
Page 27
(c) Article 4.2 of the Agreement on Agriculture
84. Brazil agrees with the Panel's conclusion that substantial elements of Article 4.2 of the
Agreement on Agriculture   would be rendered void of meaning if that provision were to be read as
only prohibiting those specific measures which other Members actually and specifically required to beconverted and which in practice were converted at the end of the Uruguay Round.
87  Brazil submits, in
this respect, that Chile does not seem to attach  the necessary importance to the verb "maintain" in
Article 4.2, which, according to Brazil, was clearly drafted to encompass the possibility that, at theend of the Uruguay Round, a Member had in place measures "of the kind which have been required tobe converted", but decided not to convert those measures.
85. Brazil submits that Chile put undue emphasis on the fact that other WTO Members have not
challenged its price band system before, although it notes that Chile concedes that the mere fact that a
measure has not been challenged does not mean  ipso facto   that the measure is consistent with the
WTO Agreement .
3. Colombia
(a) Article 11 of the DSU
86. Colombia submits that the Panel acted inconsistently with Article 11 of the DSU by making a
finding under the second sentence of Article II:1(b) of the GATT 1994 and, in doing so, deprived theparties and third parties to the dispute of a fair right of response.
(b) Article 4.2 of the  Agreement on Agriculture
87. Colombia questions the role given by the Panel to the Punta del Este Declaration and the
preamble to the  Agreement on Agriculture   when interpreting the meaning of the term "ordinary
customs duties".  According to Colombia, the Panel's interpretation of that term presupposes a level ofcommitments and a scope of obligations that are not reflected in the substantive provisions of theAgreement on Agriculture .
88. Colombia argues that the Panel erred in concluding that Chile's price band system is
inconsistent with Article 4.2 of the  Agreement on Agriculture .  This error was a result of the
erroneous interpretation that the Panel gave to the term "variable import levies".  In Colombia's view,variable import levies were prohibited in Article 4.2 in order to prohibit a system which led touncertainty resulting from the absence of any limitation on tariff variability.  Article 4.2 cannot be                                                     
87Brazil refers to paragraph. 7.18 of the Panel Report.WT/DS207/AB/R
Page 28
interpreted in isolation from other Multilateral Trade Agreements, which provide for the elimination
of certain measures through commitments that are not derived from Article 4.2.
89. Colombia concludes that Article 4.2 must be assessed in the light of Articles I and II of the
GATT and in the light of the fact that the European Communities and a major group of countries
made commitments under Article II of the GATT.  According to Colombia, seen in its proper context,
Article 4.2 does not impose on WTO Members an obligation to limit their agricultural tariff policiesto the point of ruling out any variation in tariffs over time.  Rather, the only obligation is not toimpose tariffs in excess of a tariff binding.
4. Ecuador
(a) Article 11 of the DSU
90. Ecuador argues that the Panel exceeded its terms of reference when it ruled on the
inconsistency of price band systems with the second sentence of Article II:1(b) of the GATT 1994,and in so doing, acted inconsistently with Article 11 of the DSU.
88
(b) Order of Analysis
91. Ecuador submits that 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.  The Panel should first have
determined whether the price band duties constitute "ordinary customs duties", and only thendetermined their conformity with Article II:1(b) and Article 4.2.
(c) Article 4.2 of the  Agreement on Agriculture
92. Ecuador argues that the Panel erred in concluding that  all  price band systems are prohibited
by Article 4.2 of the  Agreement on Agriculture .  According to Ecuador, price band systems are
"similar" to variable import levies or minimum prices only to the extent that their design, structure ormode of operation are similar to those variable import levies and minimum import prices.  All priceband systems are not  intrinsically  unstable, unpredictable and intransparent.  The degree to which
these features are present in a price band system will depend on the way it is designed and operated.
93. In this respect, Ecuador argues that if, fo r instance, the reference price is not the  lowest  price
on world markets but rather a price that is more representative of world market prices, there is no
                                                     
88Ecuador's third participant's submission, paras. 110 and 116.WT/DS207/AB/R
Page 29
reason to consider that the domestic market would be insulated from world price trends.  Ecuador
adds that if a price band system operates on the basis of  ad valorem  tariffs applicable to the
transaction value of the imported goods, the applicable  duty will fall in proportion to the price of the
goods.
94. Ecuador further submits that the Panel failed to take into account, in the interpretation of
Article 4.2, Article XXXVIII:2(a) of the GATT 1994 , which requires Members to devise measures
designed to stabilize and improve conditions of world markets for primary (usually agricultural)products, including measures designed to attain stable, equitable and remunerative prices for theirexports.
(d) Article II:1(b) of the GATT 1994
95. Ecuador maintains that the first sentence of Article II:1(b) merely lays down the obligation
not to exceed tariff bindings.  Article II does not prohibit the imposition of any type of duty or the useof a formula for calculating such a duty, nor does it preclude modifying the type of duty applied,provided that the tariff binding is not exceeded.
96. Ecuador argues that the Panel's interpreta tion, however, appears to place two additional
obligations on WTO Members:  (i) not to record customs duties other than those that are  ad valorem ,
specific, or a combination thereof;  and (ii) not to apply any kind of formula in setting such duties.Ecuador stresses that neither of these obligations is based on the ordinary meaning of Article II:1(b),read in its context, and in the light of its object and purpose.
97. Ecuador adds that in  Argentina – Textiles and Apparel , the Appellate Body affirmed the
freedom of Members to determine the types and characteristics of the duties that they apply, byspecifying that the sole obligation imposed by Article II:1(b), and its first sentence in particular, wasnot to exceed bound ceilings.
89
98. Ecuador notes that all tariffs are linked to a variety of exogenous factors (e.g. tax revenue
requirements, seasonal influence, development needs, and other political reasons) and concludes thatthere is no requirement, under the first sentence of Article II:1(b), to ban duties that are based onexogenous factors.
99. Ecuador concludes that the Panel went beyond its terms of reference when, having found that
certain elements of  one  price band system were inconsistent with Article 4.2 of the
Agreement on Agriculture , it extended its reasoning to  include  any type of duty resulting from  any 
                                                     
89Appellate Body Report, supra , footnote 55, para. 46.WT/DS207/AB/R
Page 30
price band system insofar as the calculation of such duty is based on exogenous factors.  Ecuador
submits that, by doing so, the Panel substituted itself for the will of the Members and legislated intheir place by making a distinction where the rules do not, thus creating additional obligations forWTO Members and diminishing their rights under the WTO.
5. European Communities
(a) Article 11 of the DSU
100. The European Communities alleges that the Panel exceeded its terms of reference.  According
to the European Communities, the first and second sentences of Article II:1(b) contain distinct legal
obligations.  Therefore, where a Member makes reference to one of these obligations and not theother, the terms of reference of the panel will not include the latter.
101. The European Communities advances no specific arguments under Article 11 of the DSU.  It
claims that, as a third party, it is not in a posit ion to comment on whether Chile's rights of defence
were prejudiced by the lack of clarity in the terms of reference, but notes that the second sentence ofArticle II:1(b) "was not the subject of any detailed  discussion in the proceedings before the Panel in
which the European Communities was involved".
90  A panel is entitled to make a finding only if the
complaining Member has actually made a claim with respect to a specific obligation.  However, the
European Communities contends that the question whether Argentina  actually  made a claim is an
issue of fact that is tied to the determination of whether Chile's rights of defence were prejudiced, asubject on which it is not in a position to comment because, as a third party, it was not present duringthe entire Panel proceedings.
(b) Article 4.2 of the  Agreement on Agriculture
102. The European Communities asserts that the Panel erred in its interpretation of Article 4.2 of
the  Agreement on Agriculture .  The European Communities submits that the Uruguay Round
tariffication process involved the transformation of non-tariff barriers into tariff equivalents and thebinding of those tariffs.  For products which were already subject to a bound customs duty, certainreductions were required.  Unbound customs duties, on the other hand, were required to be bound, andthen made subject to reduction commitments.  According to the European Communities, Article 4.2 isdesigned to prevent a Member from using measures which were required to be tariffied.  TheEuropean Communities concludes that "ordinary custom s duties" could not be subject to tariffication
                                                     
90European Communities' third participant's submission, para. 13.WT/DS207/AB/R
Page 31
and are thus not prohibited by Article 4.2.  As a consequence, if Chile's price band system is found to
be an ordinary customs duty, it need only be assessed for conformity with Article II:1(b) of theGATT.  Should the Appellate Body consider that the Chile's price band system is not an ordinary
customs duty, and that it must therefore be examined under Article 4.2, the European Communities
submits that the Panel's interpretation of Article 4.2 is erroneous.
103. With respect to Article 4.2, the European Communities notes that the Panel's definition of
"variable import levies" fails to capture the essential characteristics of such levies.  The first essentialcharacteristic of a variable import levy is that they are not bound and can vary without any limit.  Thesecond is that, as a result of not being bound, variable import levies have the effect of completelyinsulating the domestic market from any possible price competition from imports.
104. The European Communities argues that this latter essential characteristic is common to all the
other measures listed in footnote 1 to Article 4.2, that is, all those measures operate to prevent pricecompetition on all or a part of all imports.  This characteristic is not shared by tariffs, however, where
price competition with domestic products is (at least theoretically) possible.  As Article 4.2 prohibits
border measures "similar" to those listed, it must prohibit measures which prevent price competitionon part of or all imports.  The European Communities submits that where a tariff binding exists, pricecompetition is at least theoretically possible for all imports.  It concludes that, if a measure allows thepossibility of price competition (at least theoretically), then that measure cannot be a "similar bordermeasure" within the meaning of Article 4.2 (because it does not share the "essential characteristics" ofthe measures listed in footnote 1).  The European Communities adds that, in its view, a measure thatshares a fundamental characteristic with one, or some, of the measures listed in footnote 1, but not
all  of them, is not prohibited by Article 4.2.
91
(c) Article II:1(b) of the GATT 1994
105. The European Communities submits that the Pane l erred in its interpretation of "ordinary
customs duties" in the first sentence of Article II:1(b) of the GATT 1994.  First, the Panel failed toexamine the relevance of the word "customs", wh ich serves to distinguish the "ordinary customs
duties" referred to in the first sentence of Article II.1(b) from "other duties and charges" in the secondsentence of that provision.  The principal objective behind "ordinary customs duties" is the collection
of revenue and the protection of domestic production.  By contrast, "other duties and charges" are
typically maintained in separate legislation that does not form part of the tariff legislation.  Suchduties often have additional objectives beyond simple protection and revenue collection. The
                                                     
91European Communities' responses to questioning at the oral hearing.WT/DS207/AB/R
Page 32
European Communities mentions stamp taxes, deposit schemes, revenue duties and primage duties as
examples of such "other duties and charges".
106. The European Communities argues that the Panel erred in suggesting that Members
"invariably" express customs duties in specific or  ad valorem  terms, or in a combination thereof, and
thus no exogenous factors play a role in the application of customs duties.  According to the European
Communities, such a broad reading of the term "exogenous" is problematic because certain duties areexpressed in foreign currencies (for example, commodities are typically traded in US dollars) and thusthe duty applied will depend on exchange rate fluctuations.  In addition, seasonal duties are levied bysome Members on certain products (often fruit and vegetables).
107. The European Communities maintains that the Pane l failed to consider the ordinary meaning
of the term "ordinary customs duties" in its context and in the light of the object and purpose of the
GATT 1994.  An examination of the context of Article II:1(b) would lead to the conclusion that being
 ad valorem  or specific (or, conversely, not based on exogenous factors) is not the distinguishing
feature of an "ordinary customs duty".  The European Communities notes that the special safeguard
duties which a Member may impose under Article 5 of the  Agreement on Agriculture  typically take
the form of  ad valorem  or specific duties, although they are clearly not considered to be "ordinary
customs duties" in the sense of Article II:1(b).  According to the European Communities, the Panel
never explains how it can distinguish between an  ad valorem  "ordinary customs duty" and an  ad
valorem  "other duty or charge".
108. The conclusion that an "ordinary customs duty" cannot be distinguished from "other duties or
charges" simply on the basis that it is  ad valorem  or specific  (that is, not based on exogenous
factors), is supported by the purpose of Article II :1(b).  According to the European Communities, the
whole thrust of Article II:1(b) is to protect the level of concessions negotiated in the successive tariffreduction negotiations which took place under the GATT, rather than to require a Member to apply aparticular type of customs duty.
109. The European Communities further argues that, had the Panel examined the negotiating
history of Article II:1(b) of the GATT 1947, it would not have found confirmation for its view that thedrafters intended to limit "ordinary customs duties" to those not based on exogenous factors.  Ratherthan confirming the Panel's interpretation of "ordinary customs duties", the negotiating historydirectly contradicts the Panel's conclusion, because it involved no discussion of the type of duties
concerned.WT/DS207/AB/R
Page 33
110. The European Communities maintains that the negotiators in the Uruguay Round had
recognized the difficulty of defining "ordinary customs duties" in the context of discussing a proposalby New Zealand, which was later to lead to the Understanding on Article II:1(b).  Given the lack ofexplicit instruction as to the type of duty required by the phrase "ordinary customs duty", it was not
for the Panel to assume a definition prohibiting customs duties based on exogenous factors.  In so
doing, it lightly assumed that WTO Members had taken on a more onerous obligation than thatapparent from the text, contrary to the  in dubio mitius  principle referred to by the Appellate Body in
EC – Hormones .
92
111. The European Communities seeks support for its reasoning in the findings of the Appellate
Body in  Argentina – Textiles and Apparel .  According to the European Communities, the Appellate
Body concluded in that case that Article II:1(b) does not provide for requirements as to the type ofduty that a Member may apply;  the essential obligation of Article II:1(b) is that customs duties shouldnot be applied in excess of bound rates.
93
6. United States
(a) Article 11 of the DSU
112. The United States offers no opinion in its submission as to whether Argentina presented
arguments or evidence with respect to claims arising under the second sentence of Article II:1(b).
However, the United States suggests that the issue is one of burden of proof rather than one of anobjective assessment of the matter under Article 11 of the DSU.
(b) Order of Analysis
113. The United States submits that the Panel follow ed the proper order of analysis in choosing to
first examine Argentina's claim under Article 4.2 of the  Agreement on Agriculture   before examining
its claim under Article II:1(b) of the GATT 1994.  The Panel correctly reasoned that Chile's price
band system applies exclusively to agricultural products and that Article 4.2 of the  Agreement on
Agriculture  deals "more specifically and in detail" with measures affecting market access of
agricultural products.  In any event, according to the United States, the Panel's decision to proceedfirst with an assessment of Argentina's claim under Article 4.2 would not be a reversible error.  Evenif the Panel had commenced its work by interpreting Article II:1(b), the United States believes thePanel would have reached the same conclusions.
                                                     
92Appellate Body Report, supra , footnote 69, footnote 154 to para. 165.
93Appellate Body Report, Argentina – Textiles and Apparel , supra , footnote 55, para. 46.WT/DS207/AB/R
Page 34
(c) Article 4.2 of the  Agreement on Agriculture
114. The United States considers that the Panel properly found that Chile's price band system is
prohibited by Article 4.2 of the  Agreement on Agriculture .
115. The United States submits that Chile's interpretation of Article 4.2 is not grounded in the text
of Article 4.2 or important context.  Instead, Chile presents a selective reading of the context providedby the schedule of the European Communities and "a lengthy exposition of the 'original intent' of theUruguay Round negotiators it finds in the history surrounding the price band system and thetariffication of the European Communities' variable import levies."
94  This alleged "evidence"
regarding the European Communities' variable import levies can form at most one part of a properanalysis of Article 4.2 under the customary rules of interpretation of public international law.
95  The
United States notes, however, that an examination of the European Communities' schedule reveals
that  all  of the products on which variable import levies existed are now subject to tariff bindings, yet
these bindings contain only specific rates or  ad valorem  plus specific rates of duty in the ordinary
customs duty column.  The United States further notes Chile's argument that the EuropeanCommunities' conversion of its variable import levies made clear that they would vary, but adds thatChile neglects to mention that the "duty-paid im port price" commitments to which it refers are  not
expressed in the ordinary customs duty column; rather, they are recorded as two headnotes toSection I (on Agricultural Products) of the European Communities' Schedule.  Furthermore, theUnited States asserts that "Chile implies incorrectly that these duties  must  vary according to a
formula … but these headnotes merely provide for a cap on the duty that the EC will apply on certain
goods." 
96
116. The United States also endorses the Panel's finding that, contrary to the suggestion of the
European Communities and Chile, a variable levy cannot be distinguished from an ordinary customsduty simply because the latter is subject to a tariff binding.  There is nothing in the texts of Article 4.2or Article II:1(b) that suggests a variable import levy can exist  only  if it is not subject to a binding.
If the Uruguay Round commitment concerning variable import levies was solely to prevent unboundlevies, there would have been no need to include the variable import levy mechanism within
                                                     
94United States' third participant's submission, para. 3.
95Ibid. , para. 11.
96Ibid.WT/DS207/AB/R
Page 35
Article 4.2.97  Rather, it would have been sufficient to require that all agricultural tariffs be bound 98
because, as a result, variable import levies would have automatically ceased to exist.  The United
States also submits that a review of GATT documents reveals that there were numerous statementsindicating that variable import levies could be su bject to bindings without any suggestion that they
would cease to be variable levies.
99
117. For the United States, it is difficult to understand how merely  capping  the amount that can
be collected  via  a variable import levy is tantamount to  converting  it into an ordinary customs duty,
especially if the same measure applies both before and after.  Thus, the United States concludes that"Chile's interpretation of the terms 'variable import levies' and 'ordinary customs duties' does not makesense of either the text or context of Article 4.2."
100
118. With respect to the meaning of "similar border measures " in Article 4.2, the United States
notes that, in its view, to be "similar" to a border measure listed in footnote 1, it is sufficient for a
border measure to be "similar " to any  one  of the measures listed in that footnote 1—without having
to be similar to  all  of those measures.  A fundamental characteristic of variable import levies is not
that they would  not  be subject to a binding.  Even if it were, the United States maintains that to be
"similar" to a "variable import levy", a border measure does not need to share  all  the "fundamental
characteristics" of such a levy.101
(d) Article II:1(b) of the GATT 1994
119. The United States endorses the Panel's finding that Chile's price band system is an "other duty
or charge" within the meaning of the second sentence of Article II:1(b) of the GATT 1994.
7. Venezuela
(a) Article 11 of the DSU
120. Venezuela argues that the Panel acted inconsistently with Article 11 of the  DSU and
exceeded its terms of reference by making a finding under the second sentence of Article II:1(b) of theGATT 1994.
                                                     
97United States' third participant's submission, para. 13.
98Ibid.
99United States' statement at the oral hearing.
100United States' third participant's submission, para. 14.
101United States' response to questioning at the oral hearing.WT/DS207/AB/R
Page 36
(b) Order of Analysis
121. Venezuela submits that 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.  According to Venezuela, the
Panel should first have determined whether Chile's price band system constitutes an "ordinarycustoms duty", and only then determined whether it constituted a "measure of the kind which hadbeen required to be converted" under Article 4.2 of the  Agreement on Agriculture .
(c) Article 4.2 of the  Agreement on Agriculture
122. Venezuela contends that the Panel erred in its interpretation of Article 4.2.  Moreover,
Venezuela contends that the Panel erred in extending its findings to cover all the products that aresubject to the price band system, even though one product in particular had been excluded by thecomplainant.
(d) Article II:1(b) of the GATT 1994
123. Venezuela submits that in  Argentina – Textiles and Apparel , the Appellate Body affirmed
that WTO Members are free to decide the types and characteristics of the duties that they bind, and
that the only obligation imposed by Article II:1(b) of the GATT 1994 is not to exceed bound rates.
102
124. Venezuela concludes that the Panel went beyond its terms of reference when, having found
that certain elements of  one  price band system were inconsistent with Article 4.2 of the
Agreement on Agriculture , it extended its reasoning to  include  any type of duty resulting from  any
price band system insofar as the calculation of such duty is based on exogenous factors.  Venezuelasubmits that by doing so, the Panel substituted itself for the will of the Members and legislated in theirplace by making a distinction where the rules do not, thus creating additional obligations for WTOMembers and diminishing their rights under the WTO.
                                                     
102Appellate Body Report, supra , footnote 55, para. 46.WT/DS207/AB/R
Page 37
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 offootnote 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 ofArticle 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 ofthe Panel proceedings.  Earlier, we described Chile's price band system based on the factual findingsin 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
                                                     
103See Section II of this Report.
104See supra , footnote 14.WT/DS207/AB/R
Page 38
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  duty shall not exceed the rate of 31.5 per cent  ad 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 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 issubject to the 31.5% tariff binding as a matter of domestic law.
107
(emphasis added)
                                                     
105See supra , footnote 17, para. 10.
106Article 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  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 forcalculation.  To that end, the National Customs Service shall adopt thenecessary measures to ensure that the said limit is maintained.
107Chile'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 formulacould not be done without breaching the 31.5% binding.  To avoid disastrous
effects on Chilean farmers from the plummeting world prices, Chileanauthorities chose to apply duties u nder 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 awaiver under Article XI of the Marrakesh Agreement.  After several monthsof consultations, it became evident that Chile’s main trading partners hadstrong 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.WT/DS207/AB/R
Page 39
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 syst em 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, inconjunction 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 adequateinformation 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 dealt with the issue of measures amended during
dispute settlement proceedings, and quoted the following passage from the Panel Report in
Indonesia – Certain Measures Affec ting 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
                                                     
108Panel 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 […].  Evenif Argentina were correct in every respect in its allegations under thoseWTO provisions -- which Chile denies -- it is difficult to understand how, interms 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.
109Panel Report, para. 7.5.
110Argentina's response to question 45 of the Panel.
111Panel 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.WT/DS207/AB/R
Page 40
The Panel saw "no reason to deviate from [thi s] 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 withoutfurther 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 beacting 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
                                                     
112Panel 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 withdrawnshortly 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 panelrefused to take into account such amendment.  We note that this was also theline taken by the Appellate Body in   Argentina - Textiles and Apparel ,
WT/DS56/AB/R, adopted on 22 April 1998, para. 64.
113Panel Report, para. 7.7.
114Ibid. , para. 7.8.WT/DS207/AB/R
Page 41
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 theproduct concerned
115 and as amended by Law No. 19.772.  In res ponse 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 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 "reinfor ced" Chile's existing inte rnational 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 systemas it stood before that Amendment.  Nevertheless, Argentina addresses in detail
119 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
                                                     
115Chile'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  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 theproduct concerned  (currently 31.5% as a result of a reduction agreed in the
Uruguay Round).  (emphasis added)
116Chile's response to questioning at the oral hearing.  Chile's tariff binding was at 35 per cent  ad
valorem  after the Tokyo Round;  it was reduced to 31.5 per cent  ad valorem   as of the conclusion of the
Uruguay Round.
117Chile's response to questioning at the oral hearing.
118Ibid.   According to Chile, Law 19.772 merely corrected a domestic administrative procedure of Chile's
customs authorities.
119Argentina's appellee's submission, paras. 115-123.
120Ibid. , para. 122.
121Ibid. , para. 19.WT/DS207/AB/R
Page 42
both the original and the "amended" price band system.122  According to Argentina, it was appropriate
for the Panel to do so in the light of arguments put forward by Chile in the Panel proceedingsregarding the "amended" price band system.  Argentina argues that it was also appropriate forArgentina 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 theAmendment.
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
scope of the Panel request suggests that Argentina intended the request to cover the measure even asamended.  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 theregulatory 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 theestablishment 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)
                                                     
122Chile's response to questioning at the oral hearing.
123Argentina's  response to questioning at the oral hearing.
124Ibid.
125Appellate Body Report, WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161, para. 132.WT/DS207/AB/R
Page 43
137. In this case, the facts are somewhat different, because the Amendment was enacted  after  the
Panel had 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 themeasure.  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 additionalparagraph, making explicit that there is a cap on the amount of the total tariff that can be appliedunder the system at the tariff rate of 31.5 per cent  ad 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
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 particul ar 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.  Themeasure is not, in its essence, any different because of that Amendment.  Therefore, we conclude thatthe measure before us in this appeal includes Law 19.772, because that law amends Chile's price bandsystem 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)
                                                     
126Panel 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.WT/DS207/AB/R
Page 44
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 ourconclusion in this appeal.  We consider it appropriate for us to rule on the price band system ascurrently in force in Chile, that is, as amended by Law 19.772, to "secure a positive solution to thedispute" and to make "sufficiently precise recommendations and rulings so as to allow for promptcompliance".  Further, as we have observed, the participants to this dispute do not object to our doingso.
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, generallyspeaking, the demands of due process are such that a complaining party should not have to adjust itspleadings 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 enough to include amendments to ameasure—as they are in this case—and if it is necessary to consider an amendment in order to securea 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.
                                                     
127Appellate Body Report, supra , footnote 70 , para. 223.WT/DS207/AB/R
Page 45
VI. Article 11 of the DSU
145. We next ask whether the Panel acted inconsistently with Article 11 of the DSU.  Chile argues
that the Panel did so because the Panel made a finding under the  second  sentence of Article II:1 (b)
of the GATT 1994, even though Argentina made no claim or argument under that sentence.
146. The first sentence of Article II:1(b) of the GATT 1994 reads as follows:
The products described in Part I of the Schedule relating to any
Member, which are the products of territories of other Members,
shall, on their importation into the territory to which the Schedule
relates, and subject to the terms, conditions or qualifications  set forth
in that Schedule , be exempt from ordinary customs duties in excess 
of those set forth and provided therein. (emphasis added)
The second sentence of that provision states:
Such products shall also be exempt from all  other duties or charges 
of any kind imposed on or in connection with the importation  in
excess  of those imposed on the date of this Agreement or those
directly and mandatorily required to be imposed thereafter by
legislation in force in the importing territory on that date.  (emphasis
added)
147. The Panel's reasoning and findings under Article II:1(b) of the GATT 1994 may be
summarized as follows.  The Panel began by finding that the  first  sentence of Article II:1(b) is not
applicable to the Chilean price band duties, because the Panel had already found that they are not
"ordinary customs duties":
We have found above that the Chilean PBS is a border measure
"other than an ordinary customs duty", which is prohibited under
Article 4.2 of the Agreement on Agriculture.  We have also found
that "ordinary customs duties" must have the same meaning in
Article 4.2 of the Agreement on Agriculture and Article II:1(b) of
GATT 1994.  Consequently, the Chilean PBS  duties not constituting
ordinary customs duties, their consistency with Article II:1(b) cannot
be assessed under the first sentence of that provision,   which only
applies to ordinary customs duties.128  (emphasis added)
                                                     
128Panel Report, para. 7.104.WT/DS207/AB/R
Page 46
148. Having determined that the duties resulting from Chile's price band system could not be
assessed under the  first  sentence of Article II:1(b), the Panel then proceeded to examine those duties
under the  second  sentence of Article II:1(b).  The Panel stated:
The next question is whether the Chilean PBS duties could be
considered as "other duties or charges of any kind" imposed on or in
connection with importation, under the  second  sentence of
Article II:1(b).  We have already indicated that all "other duties orcharges of any kind" should in our view be assessed under the second
sentence of Article II:1(b).  Pursuant to the Uruguay Round
Understanding on the Interpretation of Article II:1(b), such other
duties or charges had to be recorded in a newly created column
"other duties and charges" in the Members' Schedules.
129
The Panel observed that Chile did not record its price band system in its Schedule under the column
for "other duties and charges" as governed by the  second  sentence:
If other duties or charges were not recorded but are nevertheless
levied, they are inconsistent with the  second  sentence of
Article II:1(b), in light of the Understanding on the Interpretation of
Article II:1(b).  We note that Chile did not record its PBS in the
"other duties and charges" column of its Schedule.130  (emphasis
added)
The Panel concluded that:
… the Chilean PBS duties are inconsistent with Article II:1(b) of the
GATT 1994.131
149. Chile appeals this finding, and argues that the Panel ruled on a claim that was neither made
nor argued.  Chile maintains that the Panel exceeded its mandate and deprived Chile of a "fair right ofresponse".
132  In addressing this issue, we will examine, first, whether Argentina made a claim under
the second sentence of Article II:1(b) of the GATT 1994, and, next, whether the Panel actedinconsistently with Article 11 of the DSU in ma king a finding under that sentence.  To determine
whether Argentina made a claim under the second sentence of Article II:1(b), we look first
                                                     
129Panel Report, para. 7.105.
130Ibid. , para. 7.107.
131Ibid. , para. 7.108.
132Chile's appellant's submission, para. 23.WT/DS207/AB/R
Page 47
to Argentina's request for the establishment of a panel, which determines the Panel's terms of
reference.  Argentina's request reads in relevant part:
Under Law 18.525, as amended by Law 18.591 and subsequently by
Law 19.546, as well as the regulations and complementary provisionsand/or amendments, Chile applies a PBS which is inconsistent with
 various provisions  of the GATT 1994  and with the Agreement on
Agriculture.
The price band system does not ensure certainty in respect of market
access for agricultural products and has caused Chile to breach its
commitments on tariff bindings in relation to the concessions set
forth in its national schedule.  Argentina submits that the saidlegislation is inconsistent with  Article II of the GATT 1994  and with
Article 4 of the Agreement on Agriculture.
133  (emphasis added)
150. The Panel request refers to Article II of the GATT 1994 in general terms.  No specific
reference is made to any of the seven paragraphs or eight subparagraphs of Article II of theGATT 1994.  Argentina's request clearly does not limit the scope of Argentina's claims to the  first 
sentence of Article II:1(b).  Therefore, we find that Article II in its entirety—including the secondsentence of Article II:1(b)—is within the Panel's terms of reference.
151. This, however, is not the end of our inquiry on this issue.  Chile does not dispute that
Argentina included Article II:1(b) in the request for the establishment of a panel.
134  However, Chile
submits that making a general reference to Article II in the Panel request is not dispositive of whetherArgentina  has actually made a claim  under the  second  sentence of Article II:1(b), and, thus, of
whether the Panel was entitled to make a finding under that provision.
152. Chile argues that Argentina did not make a cl aim under Article II:1(b) because Argentina did
not articulate such a claim in any of its submissions before the Panel.  In making this argument, Chilerelies on our Report in  US – Certain EC Products ,  where we said, with respect to a claim relating to
another provision of the covered agreements:
                                                     
133WT/DS207/2, 19 January 2001.
134We note that Chile has not challenged the sufficiency of the request for establishment of a panel
under Article 6.2 of the DSU.  This was confirmed by Chile at the oral hearing.  Therefore, we need not and donot decide whether the request for establishment of a panel would or would not be sufficient under Article 6.2 ofthe DSU.WT/DS207/AB/R
Page 48
… the fact that a claim of inconsistency with Article 23.2(a) of the
DSU can be considered to be within the Panel's terms of reference
does not mean that the European Communities actually made such a
claim.135
153. The question before us in this appeal is whether the claim that Argentina  actually made
before the Panel was limited to the  first  sentence of Article II:1(b), or whether that claim alsoincluded the second sentence of that provision.
154. According to the Panel, Argentina contended, in its first written submission that:
The PBS  as such  violates Article II:1(b) since its application has led
Chile in specific cases to collect duties  in excess  of the rates bound
in its National Schedule No. VII and
The PBS also violates Article II:1(b) because, by its structure, design
and mode of application, it potentially  leads to the application of
specific duties in violation of the bound tariff of 31.5 per cent.
136
(emphasis added)
155. Argentina's contentions, in its first submission to the Panel, referred to Article II:1(b) in
general;  no explicit reference is made either to the first or the second sentence.  However, despite thisgeneral language, a close examination of Argentina's first submission reveals that Argentinaaddressed  only  the obligation set out in the first sentence of Article II:1(b), and  not  that in the
second sentence.
156. In its first submission, Argentina focused on the argument that Chile exceeded its bound rate
of 31.5 per cent in imposing price band duties.  Argentina must necessarily have been referring in thissubmission only to Chile's obligations under the first sentence of Article II:1(b), because 31.5 per centis the rate that Chile has bound in the column of its Schedule for  ordinary customs duties .  Ordinary
                                                     
135Appellate Body Report,  supra , footnote 44, para. 112.  We also stated in that case: "An analysis of
the Panel record shows that, with the exception of tw o instances during the Panel proceedings, the European
Communities did not refer specifically  to Article 23.2(a) of the DSU … Our reading of the Panel record shows
us that, throughout the Panel proceedings in this case, the European Communities made arguments  relating only
to its claims that the United States acted inconsistently with Article 23.1 and Article 23.2(c) of the DSU."
(footnotes omitted, emphasis in original).  Appellate Body Report, para. 112.  We noted as well that: "The Panel
record does show that the European Communities made several references to what it termed the 'unilateraldetermination' of the United States.  However, … [a]t no point did the European Communities link the notion ofa 'unilateral determination' on the part of the United States with a violation of Article 23.2(a)."  Appellate BodyReport, para. 113.
136Panel Report, paras. 4.5.-4.7;  Argentina's first written submission to the Panel, pp. 8 and 16.WT/DS207/AB/R
Page 49
customs duties are governed by the  first  sentence of Article II:1(b);  they are not relevant to the
second  sentence.  Argentina could not have been referring in this submission to Chile's obligations
under the second sentence of Article II:1(b), because Chile has not scheduled any other duties orcharges governed by that sentence.  Argentina refered also in this submission to the "structure, design
and mode of application"
 137 of Chile's price band system as being  potentially  violative of the
31.5 per cent bound rate, but this rate applies only to duties falling under the first sentence ofArticle II:1(b).
157. We conclude, therefore, that Argentina did not articulate a claim under the second sentence of
Article II:1(b) in its first submission.
158. However, as Argentina points out, we ruled in  EC – Bananas III   that:
There is  no requirement  in the DSU or in GATT practice for
arguments  on all claims   relating to the matter referred to the DSB
 to be set out in a complaining party's first written submission  to the
panel.
…
We do  not  agree with the Panel's statement that a " failure to make a
claim in the first written submission cannot be remedied by latersubmissions  or by incorporating the claims and arguments of other
complainants".
138  (emphasis added)
For this reason, it is necessary to determine whether Argentina articulated a claim under the second
sentence of Article II:1(b) in subsequent submissions to the Panel.
159. Argentina concedes that it directed most of its arguments during the Panel proceedings to the
first sentence of Article II:1(b).139  However, Argentina states that it addressed the second sentence of
                                                     
137Argentina's second oral statement to the Panel, para. 4.  Panel Report, para. 4.7.
138Appellate Body Report,  supra,  footnote 58, paras. 145, 147.
139Argentina's appellee's submission, para. 35.WT/DS207/AB/R
Page 50
that provision in its response to Question 3 posed by the Panel, which reads in relevant part as
follows:140
[Response to Question 3(b):] Under Article II:1(b) of the GATT
1994, other duties or charges are merely those that do not constitute"ordinary customs duties", such as the other duties or charges which
appear in columns 6 and 8 of the national schedules, as appropriate.
[Response to Question 3(c):] "Other duties or charges of any kind"
within the meaning of Article II:1(b) of the GATT 1994 cannot be
considered as "similar border measures other than ordinary customs
duties".
[Response to Question 3(d):] The bound duty level for what is
considered to be "other duties and charges of any kind" is the rate
registered in that column.  Consequently, that level is the one to be
considered in determining inconsis tency with Article II:1(b) of the
GATT 1994, without prejudice to the consistency of other duties or
charges with other obligations under the GATT 1994.
160. Argentina contends that, in this response to Question 3 of the Panel, there are arguments
relating to a claim under the  second  sentence of Article II:1(b).  Yet this response sets out only a
general description of Argentina's interpretation of the second sentence of Article II:1(b), and one thatwas offered by Argentina only because the Panel asked for it.  There is, in this response, no discussion
whatsoever of Chile's price band syst em, or of how it relates to the obligation in that sentence.  Nor is
there any suggestion in this response that Chile's price band system is in violation of the second
                                                     
140The following parts of Question 3 relate to the second sentence of Article II:1(b):
Question 3(b):  Please discuss the difference between  ordinary  customs duties and  other 
duties and charges of any kind.
Question 3(c):  If "similar border measures other than ordinary customs duties" within the
meaning of Footnote 1 to Article 4.2 of the  Agreement on Agriculture  cannot be considered
"ordinary customs duties" within the meaning of Article II:1(b), first sentence, of GATT 1994,
please state whether in your view some of those measures could be considered "other duties or
charges of any kind" within the meaning of Article II:1(b), second sentence, of GATT 1994.
Question 3(d):  The Understanding on the Interpretation of Article II:1(b) of GATT 1994 ("the
Understanding") provides, in paragraph 1, that "the nature and level of any 'duties or charges'levied on bound tariff items […] shall be record ed in the Schedules of concessions annexed to
GATT 1994 against the tariff items to which they apply.  Paragraph 2 of the Understandingprovides that "[t]he date as of which 'other duties or charges' are  bound , for the purposes of
Article II, shall be 15 April 1994. (emphasis added)  Thus, at the end of the Uruguay Round,
pursuant to the Understanding, 'other duties or charges' were for the first time bound in theSchedules, in a separate column.  In the light of the Understanding, are "other duties orcharges of any kind" in your view inconsistent with Article II:1(b) of GATT 1994 becausethey exceed the bound tariff rate recorded in the bound rate column of the Schedule, or, rather,
because they exceed the bound rate in the "oth er duties and charges" column of the Schedule?
[On p. 4 of Chile's Schedule (Arg-10), for instance, these columns would correspond to
columns Nos 4 (" Tipo Consolidado del Derecho ") and 8 (" Demas Derechos y Cargas "),
respectively.]WT/DS207/AB/R
Page 51
sentence of Article II:1(b).  Furthermore, Argentina expresses no view in this response as to how the
concept of "other duties or charges", within the meaning of the second sentence of Article II:1(b),could or would relate to the claims it raised.  We note as well that Argentina did not refer at all tothese responses in subsequent proceedings before the Panel.
161. Argentina also asserts that it articulated a claim under the second sentence of Article II:1(b) in
its rebuttal submission
141, where Argentina argues:
23. Argentina repeats once again that it does not question and
never has questioned Chile's right to apply specific duties, as long as
those duties are consistent with multilateral rules and regulations.However, the Chilean PBS is not a specific duty.  Indeed, by its
structure, design and mode of application, the PBS violatesArticle II:1(b) of the GATT 1994, since it has the potential to cause
Chile to exceed its tariff binding. (underlining in original)
24. This is so because, as just stated, we are not dealing with a
specific duty which constitutes an "ordinary customs duty" – a duty
which, since it does not result in the levying of duties in excess of the
bound rate, would not be the subject of a complaint by Argentina
with respect to Article II:1(b) of the GATT 1994.  Here, we are
dealing with a surcharge whose structure, design and mode ofapplication potentially leads to a violation of Chile's binding.
162. Neither of these paragraphs cited by Argentina from its rebuttal submission even mentions the
second sentence of Article II:1(b).  Moreover, these paragraphs appear at the beginning of a section in
the rebuttal submission, entitled "Potential violation", in which Argentina seeks to explain itsargument that Chile's price band system potentially  violates the bound 31.5 per cent tariff rate.  As we
have already noted, that argument cannot be related to the  second  sentence of Article II:1(b), because
that sentence has nothing to do with the bound 31.5 per cent tariff rate.  Moreover, Chile concedesthat it did not schedule its price band system under the column for "other duties or charges" governedby the second sentence of Article II:1(b).  Therefore, if a violation of the second sentence were inissue, it would not be "potential," but certain.
163. Argentina contends also that two third parties—the United States and the European
Communities—"provided argumentation regarding the second sentence of Article II:1(b)."
142  I n
support of this contention, Argentina cites those third parties' responses to Question 3 posed by thePanel.  However, even if these responses could be interpreted in the way Argentina would have usdo—an issue which we need not decide in this appeal—these responses could not, in any event, assistArgentina in making a claim under the second sentence of Article II:1(b).  These are the statements of                                                     
141Argentina's rebuttal submission to the Panel, paras. 23 and 24.
142Argentina's appellee's submission, para. 39.WT/DS207/AB/R
Page 52
third parties to this dispute.  Third parties to a dispute cannot make claims.  It was for Argentina, as
the claimant, to make its claim;  Argentina cannot rely on third parties to do so on its behalf.Moreover, we note that Argentina did not adopt these arguments of the third parties in subsequentproceedings.
164. In addition, Argentina contends that it made a claim under the second sentence of
Article II:1(b) in the context of its arguments to the Panel under Article 4.2 of the Agreement on
Agriculture , where it argued that duties resulting from Chile's price band system were not ordinary
customs duties for the purposes of Article 4.2.
143  With this argument, Argentina appears to suggest
that a claim may be made implicitly, and need not be made explicitly.  We do not agree.  Therequirements of due process and orderly procedure dictate that claims must be made explicitly inWTO dispute settlement.  Only in this way will the panel, other parties, and third parties understandthat a specific claim has been made, be aware of its dimensions, and have an adequate opportunity toaddress and respond to it.  WTO Members must not be left to wonder what specific claims have been
made against them in dispute settlement.  As we said in  India – Patent Protection for Pharmaceutical
and Agricultural Chemical Products (India – Patents) :
All parties engaged in dispute settlement under the DSU must be
fully forthcoming from the very beginning both as to the claims
involved in a dispute and as to the facts relating to those claims.Claims must be stated clearly.
144
165. For all these reasons, we conclude that, although Argentina's request for the establishment of
a panel was phrased broadly enough to include a claim under both sentences of Article II:1(b) of the
GATT 1994, a close examination of Argentina's submissions reveals that the only claim made byArgentina was under the  first  sentence of Article II:1(b).
                                                     
143Argentina's response to questioning at the oral hearing.
144Appellate Body Report, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9, para. 94.  We
recall that we are not, here, dealing with an issue under Article 6.2 of the DSU, which provides:
The request for the establishment of a panel shall be made in writing.  It
shall indicate whether consultations were held, identify the specificmeasures at issue and provide a brief summary of the legal basis of thecomplaint sufficient to present the pr oblem clearly.  In case the applicant
requests the establishment of a panel with other than standard terms of
reference, the written request shall include the proposed text of special
terms of reference.WT/DS207/AB/R
Page 53
166. We are mindful that Argentina argues that, "[e]ven if none of the parties had advanced
arguments regarding the second sentence of Article II:1(b) of the GATT 1994, the Panel would havehad the  right , indeed the  duty, to develop its own legal reasoning to support the proper resolution of
Argentina's claim."
145 (emphasis added)  Argentina purports to find support for this position in our
ruling in  EC – Hormones , where we said that:
… nothing in the DSU limits the faculty of a panel freely to use
arguments submitted by any of the parties – or to develop its own
legal reasoning – to support its own findings and conclusions on the
matter under its consideration.146
167. However, Argentina's reliance on our ruling in  EC – Hormones  is misplaced.  In  EC –
Hormones147, and in  US – Certain EC Products148, we affirmed the capacity of panels to develop
their own legal reasoning in a context in which it was clear that the complaining party had made a
claim on the matter before the panel.  It was also clear, in both those cases, that the complainant hadadvanced arguments in support of the finding made by the panel—even though the arguments insupport of the claim were not the same as the interpretation eventually adopted by the Panel.  Thesituation in this appeal is altogether different.  No claim was properly made by Argentina under the
second  sentence of Article II:1(b).  No legal arguments were advanced by Argentina under the
second  sentence of Article II:1(b).  Therefore, those rulings have no relevance to the situation here.
168. Contrary to what Argentina argues, given our  finding that Argentina has not made a  claim 
under the  second  sentence of Article II:1(b), the Panel in this case had neither a "right" nor a "duty" to
develop its own legal reasoning to support a claim under the second sentence.  The Panel was not
                                                     
145Argentina's appellee's submission, para. 48.
146Appellate Body Report, supra , footnote 69, para. 156.  (Argentina's appellee's submission, para. 49)
Argentina also relies on our Report in US – Certain EC Products , supra , footnote 44, at para. 123, where we
held that "… the Panel was  not  obliged to  limit  its legal reasoning in reaching a finding to arguments
presented by the European Communities. We, therefore, do not consider that the Panel committed a reversible
error by developing its own legal reasoning."  (Argentina's appellee's submission, para. 49)
147Appellate Body Report, supra , footnote 69, para. 156.
148Appellate Body Report, supra , footnote 44, para. 123.  We note that the discussion above referring to
our finding in  US – Certain EC Products that a claim had not been made refers to the alleged claim under
Article 23.2 of the DSU.  The finding regarding a panel's ability to develop its own legal reasoning referred to aclaim under Article 21.5 of the DSU, which had been made.WT/DS207/AB/R
Page 54
entitled to make a claim for Argentina149, or to develop its own legal reasoning on a provision that
was not at issue.150
169. With all this in mind, we turn next to exam ine whether the Panel acted inconsistently with
Article 11 of the DSU, as claimed by Chile.  Article 11 of the DSU provides:
Article 11
Function of Panels
The function of panels is to assist the DSB in discharging its
responsibilities under this Understanding and the covered
agreements.  Accordingly, a panel should make an objective
assessment of the matter before it , including an objective assessment
of the facts of the case and the applicability of and conformity with
the relevant covered agreements, and make such other findings as
will assist the DSB in making the recommendations or in giving the
rulings provided for in the covered agreements.  Panels should
consult regularly with the parties to the dispute and give themadequate opportunity to develop a mutually satisfactory solution.
(emphasis added)
170. Chile argues that the Panel made a finding on a provision under which no claim or argument
was made, and that this "deprived Chile of a fair right of response".
151  Therefore, according to Chile,
the Panel exceeded its mandate and, thus, acted inconsistently with Article 11.
171. In contrast, Argentina argues that the Panel acted consistently with Article 11.  Argentina
submits that the standard for breaches of Article 11 is "very high"152, and asserts that the Panel did not
"deliberately disregard" or "refuse to consider" or "wilfully distort" or "misrepresent" the evidence
before it.153  Argentina also claims that Chile did not "demonstrate in any way that the Panel
committed an 'egregious error that calls into question the good faith' of the Panel."154  In Argentina's
                                                     
149Appellate Body Report, Japan – Measures Affecting Agricultural Products , WT/DS76/AB/R, adopted
19 March 1999, DSR 1999:I, 277, paras. 129-130.
150Argentina also seeks to rely on our reasoning in  Canada – Periodicals , supra , footnote 65, where
we said that the relationship between the first and second sentences of Article III:2 of the GATT 1994 was such
that we could move from an examination of the first se ntence of that Article to an examination of the second
sentence as "part of a logical continuum." Argentina's appellee's submission, para. 154.  We  do not agree withArgentina that our reasoning in Canada – Periodicals  is relevant in this regard.  In our view, the first and second
sentences of Article II:1(b) prescribe distinct obligations, and do not form part of a logical continuum.
151Chile's appellant's submission, para. 23.
152Argentina's statement at the oral hearing.
153Argentina's appellee's submission, para. 46.
154Ibid.WT/DS207/AB/R
Page 55
view, Chile has not demonstrated that the Panel in this case abused its discretion in a manner that
comes even close to the level of gravity required to sustain a claim under Article 11 of the DSU.
172. We agree with Argentina that the Panel did not refuse to consider, did not distort, and did not
misrepresent any evidence relating to Chile's alleged violation of the second sentence of
Article II:1(b).  Indeed, there was no such evidence be fore the Panel.  Nor, in our view, did the Panel
commit an error that in any way calls into question the Panel's good faith.  But the obligations underArticle 11 of the DSU go beyond a panel's appreciation of the evidence before it.  Article 11 obligespanels not only to make "an objective assessment of the facts of the case", but also "an objectiveassessment of the matter before it."
173. In this case, the Panel made a finding on a claim that was  not  made by Argentina.  Having
determined that the duties resulting from Chile's price band system could not be assessed under thefirst sentence
155 of Article II:1(b) of the GATT 1994, the Panel then proceeded to examine the
measure under the second sentence of that provision.  In so doing, the Panel assessed a provision that
was not a part "of the matter before it".  As we have explained, the terms of reference were broad
enough to have included a claim under the second sentence of Article II:1(b).  However, Argentinadid not articulate a claim under that sentence; nor did Argentina submit any arguments on theconsistency of Chile's price band system with the second sentence.  Therefore, as with our finding inUS – Certain EC Products , the second sentence of Article II:1(b) was not the subject of a claim before
the Panel.  Because it made a finding on a provision that was not before it, the Panel, therefore, didnot make an objective assessment   of the matter before it , as required by Article 11.  Rather, the Panel
made a finding on a matter that was  not  before it.  In doing so, the Panel acted  ultra petita  and
inconsistently with Article 11 of the DSU.
174. There is, furthermore, the requirement of due process.  As Argentina made no claim under the
second sentence of Article II:1(b) of the GATT 1994, Chile was entitled to assume that the secondsentence was not in issue in the dispute, and that there was no need to offer a defence against a claimunder that sentence.  We agree with Chile that, by making a finding on the second sentence—a claimthat was neither made nor argued—the Panel deprived Chile of a "fair right of response".
156
                                                     
155Panel Report, para. 7.104.
156Chile's appellant's submission, para. 23.WT/DS207/AB/R
Page 56
175. As we said in  India – Patents , "… the demands of due process … are implicit in the
DSU".157  And, as we said in  Australia – Salmon  on the right of response, "[a] fundamental tenet of
due process is that a party be provided with an opportunity to respond to claims made against it".158
Chile contends that this fundamental tenet of due process was not observed on this issue.
176. As we said earlier, Article 11 imposes duties on panels that extend beyond the requirement to
assess evidence objectively and in good faith, as suggested by Argentina.  This requirement is, ofcourse, an indispensable aspect of a panel's task.  However, in making "an objective assessment of thematter before it", a panel is also duty bound to ensure that due process is respected.  Due process is anobligation inherent in the WTO dispute settlement system.  A panel will fail in the duty to respect dueprocess if it makes a finding on a matter that is not before it, because it will thereby fail to accord to aparty a fair right of response.  In this case, because the Panel did not give Chile a fair right of responseon this issue, we find that the Panel failed to accord to Chile the due process rights to which it isentitled under the DSU.
177. For these reasons, we find that, by making a finding in paragraph 7.108 of the Panel Report
that the duties resulting from Chile's price band system are inconsistent with Article II:1(b) of theGATT 1994 on the basis of the  second  sentence of that provision, which was not part of the matter
before the Panel, and also by thereby denying Chile the due process of a fair right of response, thePanel acted inconsistently with Article 11 of the DSU.  Therefore, we reverse that finding.
VII. Order of Analysis
178. Chile argues that the Panel erred in choosing to examine Argentina's claim under Article 4.2
of the  Agreement on Agriculture  before examining its claim under Article II:1(b) of the GATT 1994.
Argentina, on the other hand, endorses the order of analysis followed by the Panel.
179. Before addressing the substance of Chile's argument, we note that Argentina raises a
procedural objection, alleging that Chile introduced this point for the first time in its appellant'ssubmission, when, as Argentina sees it, Chile should have included this "allegation of error" in its
                                                     
157Appellate Body Report, supra , footnote 144, para. 94.
158Appellate Body Report, supra , footnote 70, para. 278.WT/DS207/AB/R
Page 57
Notice of Appeal pursuant to Rule 20(2)(d) of the  Working Procedures for Appellate Review .159
180. We addressed a similar issue in  United States – Import Prohi bition of Certain Shrimp and
Shrimp Products .  There, we stated that:
The  Working Procedures for Appellate Review  enjoin the appellant
to be  brief  in its notice of appeal in setting out "the nature of the
appeal, including the allegations of errors".  We believe that, in
principle, the "nature of the appeal" and "the allegations of errors"are sufficiently set out where the notice of appeal adequately
identifies the findings or legal interpretations of the Panel which are
being appealed as erroneous.  The notice of appeal is not expected to
contain the reasons why the appellant regards those findings or
interpretations as erroneous.  The notice of appeal is not designed to
be a summary or outline of the arguments to be made by the
appellant.  The legal arguments in support of the allegations of error
are, of course, to be set out and developed in the appellant's
submission.160 (underlining added, emphasis in original)
181. Further, in  EC – Bananas III , we stated, in the context of Article 6.2 of the DSU, that:
In our view, there is a significant difference between the claims
identified in the request for the establishment of a panel, which
establish the panel's terms of reference under Article 7 of the DSU,and the arguments supporting those claims, which are set out and
progressively clarified in the first written submissions, the rebuttal
submissions and the first and second panel meetings with the parties.
…
Article 6.2 of the DSU requires that the  claims  but not the
arguments , must all be specified sufficiently in the request for the
establishment of a panel … .
161 (emphasis in original)
182. In our view, this distinction between claims and legal arguments under Article 6.2 of the
DSU is also relevant to the distinction between "allegations of error" and legal arguments ascontemplated by Rule 20 of the  Working Procedures.  Bearing this distinction in mind, we do  not 
                                                     
159Rule 20(2)(d) of the Working Procedures for Appellate Review  provides in pertinent part that:
A Notice of Appeal shall include the following information:
...
(d) a brief statement of the nature of appeal, including the allegations of
errors  in the issues of law covered in the panel report and legal
interpretations developed by the Panel. (emphasis added)
160Appellate Body Report, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755, para. 95.
161Appellate Body Report, EC – Bananas III , supra , footnote 58, paras. 141, 143.WT/DS207/AB/R
Page 58
agree with Argentina that Chile's arguments regarding the order of analysis chosen by the Panel
amount to a separate "allegation of error" that Chile  should  have —or  could  have —included in its
Notice of Appeal.  In fact, we do not see, nor has Argentina explained, what  separate  "allegation of
error" could have been made, or what legal basis for such "allegation of error" there could have been.
Rather than making a separate "allegation of error", Chile has, in our view, simply set out a  legal
argument  in support of the issues it raised on appeal relating to Article 4.2 of the  Agreement on
Agriculture  and Article II:1(b) of the GATT 1994.162
183. Therefore, we reject Argentina's procedural objection, and we turn next to the substantive
question before us, which is whether the Panel erred in deciding to address Argentina's claims underArticle 4.2 of the  Agreement on Agriculture  before addressing Argentina's claims under
Article II:1(b) of the GATT 1994.
184. On this substantive question, we observe first that, in approaching the analysis the way it did,
the Panel relied on our ruling in  EC – Bananas III .  In that appeal, we stated that:
Although Article X:3(a) of the GATT 1994 and Article 1.3 of the
Licensing Agreement  both apply, the Panel, in our view, should have
applied the  Licensing Agreement  first, since this agreement deals
specifically, and in detail, with the administration of import licensing
procedures.  If the Panel had done so, then there would have been no
need for it to address the alleged inconsistency with Article X:3(a) ofthe GATT 1994.
163 (underlining added)
Applying this reasoning, the Panel concluded that  it should begin by examining Argentina's claims
under Article 4.2 of the  Agreement on Agriculture , because that Agreement "deals more specifically
and in detail with measures affecting market access of agricultural products".164
185. On appeal, Chile questions this decision by the Panel, and maintains that Article 4.2 of the
Agreement on Agriculture   "clearly is not specific or more deta iled than Article II:1(b) with regard to
tariff commitments".  In Chile's view, Article II:1(b) deals with tariff  bindings, whereas Article 4.2deals with non-tariff measures.
165  Thus, as Chile sees it, the two provisions deal with  different 
                                                     
162Indeed, Chile suggests in paragraph 34 of its appellant's submission that, had the Panel begun with
Article II:1(b), it would "most likely have avoided the error of inventing a new definition of 'ordinary customs
duties' which has no apparent basis in the text of Article II:1(b)."  Thus Chile is in fact making a legal argument
in support of a substantive claim under Article II:1(b).
163Appellate Body Report, supra , footnote 58, para. 204.
164Panel Report, para. 7.16.
165Chile's response to questioning at the oral hearing.WT/DS207/AB/R
Page 59
subjects.  Accordingly, Chile appears to argue that the approach we articulated in  EC – Bananas III
does not apply to a relationship between two prov isions that do not concern the same subject.
186. It is clear, as a preliminary matter, that Article 4.2 of the  Agreement on Agriculture   applies
specifically  to agricultural products, whereas Article II:1(b) of the GATT applies  generally  to trade
in  all  goods.  Moreover, Article 21.1 of the  Agreement on Agriculture  provides, in relevant part,
that the provisions of the GATT 1994 appl y "subject to the provisions" of the  Agreement on
Agriculture .   In our Report in  EC – Bananas III ,  we interpreted Article 21.1 to mean that:
… the provisions of the GATT 1994 … apply to market access
commitments concerning agricultural products, except to the extent
that the  Agreement on  Agriculture  contains specific provisions
dealing specifically with the same matter.166
187. With these considerations in mind, we turn now to Chile's contention that Article 4.2 of the
Agreement on Agriculture  "is not a specific or more detailed way of addressing the prohibition
against exceeding tariff bindings under Article II:1(b)".167  Our consideration of this argument
requires a comparison of these two provisions in these two covered agreements.  Article 4.1 of theAgreement on Agriculture   explains that market access concessions for agricultural products relate to
tariff bindings and to reductions of tariffs, as well as to other market access commitments that can befound in Members' Schedules.  Article 4.2 requires Members not to maintain "any measures of thekind which have been required to be converted into ordinary customs duties", and provides anillustrative list of measures "other than ordinary customs duties".  Article 4.2 prevents  WTO
Members from  circumventing   their commitments on "ordinary customs duties" by prohibiting them
from "maintaining, reverting to, or resorting to" measures other than "ordinary customs duties".  Thefirst sentence of Article II:1(b) of the GATT 1994 
 also  deals with "ordinary customs duties", by
requiring Members  not  to impose "ordinary customs duties" in excess of those recorded in their
Schedules.  Thus, the obligations in Article 4.2 of the  Agreement on Agriculture  and those in the first
sentence of Article II:1(b) of the GATT both deal with "ordinary customs duties" and  market accessfor imported products.  As we see it, the difference between the two provisions is that Article 4.2 of
the  Agreement on Agriculture  deals  more specifically  with preventing the circumvention of tariff
commitments on agricultural products  than does the first sentence of Article II:1(b) of the
GATT 1994.  Thus, in our view, this argument by Chile is flawed.
188. Chile argues, as well, that the drafters of Article 4.2 of the  Agreement on Agriculture 
borrowed  the term "ordinary customs duties" from Article II:1(b) of the GATT 1947, and that,
                                                     
166Appellate Body Report, supra , footnote 58, para. 155.
167Chile's appellant's submission, para. 29.WT/DS207/AB/R
Page 60
therefore, Article II:1(b) of the GATT 1994 should be  addressed before addressing Article 4.2 of the
Agreement on Agriculture.   Certainly it is true that Article 4.2 of the  Agreement on Agriculture  and
Article II:1(b) of the GATT 1994 both refer to "ordinary customs duties".  And we agree with thePanel that the term "ordinary customs duties" should  be interpreted in the same way in both of these
provisions.  However, Article 4.2 of the  Agreement on Agriculture  and Article II:1(b) of the
GATT 1994 must be examined  separately  to give meaning and effect to the distinct legal obligations
arising under these two different legal provisions.  The obligations arising from either of theseprovisions must not be read into the other.  Theref ore, the mere fact that the term "ordinary customs
duties" in Article 4.2 derives from Article II:1(b) of the GATT 1947 does not suggest thatArticle II:1(b) should be examined before Article 4.2.  Thus, we find no merit in this additionalargument by Chile.
189. As these two provisions, in these two covered agreements, establish distinct legal obligations,
it is our view that the outcome of this case would be the same, whether we begin our analysis with an
examination of the issues raised under Article 4.2 of the  Agreement on Agriculture ,  or with those
raised under Article II:1(b) of the GATT 1994.  Indeed, Chile itself concedes that the Panel couldhave come to a correct interpretation of both Article 4.2 and Article II:1(b) even by following theorder of analysis that the Panel chose to adopt.
168  Chile, moreover, concedes that the Panel's decision
to proceed first with an assessment of Argentina's claim under Article 4.2 would "not, by itself, be areversible error".
169  We understand Chile to mean by this that the order of analysis would not, taken
alone, alter the outcome of the case.
190. Finally, as a practical matter, even if we were to begin our analysis with Article II:1(b) of the
GATT 1994—as Chile suggests—and were to find no violation of that provision because duties were
not imposed in excess of a tariff binding—we would, nonetheless, be required to examine thereafter
the consistency of Chile's price band system with Article 4.2 of the  Agreement on Agriculture .  Even
if the duties resulting from the application of Chile's price band system did not exceed Chile's tariffbinding, that system could nonetheless constitute a measure prohibited by Article 4.2.  Indeed, and aswe have already pointed out, Article 21.1 of the  Agreement on Agriculture  mandates that the
provisions of the GATT 1994 apply  subject to  the provisions of the  Agreement on Agriculture .
Hence, any finding under Article II:1(b) of the GATT 1994 would be subject to further inquiry underthe  Agreement on Agriculture .  In contrast, if we were to find first that Chile's price band system is
inconsistent with Article 4.2 of the  Agreement on Agriculture , we would not need to make a separate
finding on whether the price band system also resu lts in a violation of Article II:1(b) of the
                                                     
168Chile's appellant's submission, para. 35.
169Chile's response to questioning at the oral hearing.WT/DS207/AB/R
Page 61
GATT 1994 in order to resolve this dispute.  This is because a finding that Chile's price band system
as such is a measure prohibited by Article 4.2 would mean that the duties resulting from theapplication of that price band system  could no longer be levied —no matter what the level of those
duties may be.  Without a price band system, there could be no price band duties.
191. We therefore conclude that the Panel did not err in choosing to examine Argentina's claim
under Article 4.2 of the  Agreement on Agriculture   before examining Argentina's claim under
Article II:1(b) of the GATT 1994.  Our own analysis will follow the same order.
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 ofArticle 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 asystem 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 theChilean 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
                                                     
170Panel Report, para. 7.102.WT/DS207/AB/R
Page 62
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 moreoperationally 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 suchproducts 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 commitm ents 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 particularinterest 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
                                                     
171Preamble to the  Agreement on Agriculture ,  recital 2.
172Ibid. , recital 3.
173Ibid. , recital 4.
174Ibid. , recital 5.WT/DS207/AB/R
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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 beprovided as set out in the relevant provisions of this Agreement and embodied in the Schedules ofconcessions 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 derogationsby 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 decisionin 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 theyrestrict the volume or distort the price of imports of agricultural products.  The negotiators decidedthat these border measures should be converted into ordinary customs duties, with a view to ensuringenhanced 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 infuture multilateral trade negotiations.  The Uruguay Round negotiators agreed that market accesswould 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.
                                                     
175Article 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 thenegotiation, special and differential treatment in respect of commitmentsshall be provided as set out in the relevant provisions of this Agreement andembodied in the Schedules of concessions and commitments.
176Part III contains only one other provision, namely, Article 5, which provides for a special safeguard
mechanism that may be used to derogate from the requ irements of Article 4 when certain conditions are met.
We will discuss Article 5 later in this section.WT/DS207/AB/R
Page 64
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 affectingimports 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 duties
1, 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 aremaintained 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 befo re 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 measuresother than ordinary customs duties".WT/DS207/AB/R
Page 65
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 notbeen asked to examine any other measure of any other WTO Member.  Therefore, we need not, anddo 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 ofthe 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
                                                     
177Article 31 of the  Vienna Convention .
178Preamble of the  Agreement on Agriculture,  recital 5.
179Chile criticizes the Panel's order of analysis within Article 4.  In Chile's view, the Panel moved too
quickly from interpreting the terms "any measures of the kind" in paragraph 2 to the specific categories of
measures listed in footnote 1.  Chile alleges that, in doing so, the Panel failed to attribute sufficient significanceto the entire phrase " which have been required to be converted into ordinary customs duties"  (emphasis added)
in the main text of paragraph 2, except to note that this wording did not necessarily mean that only the measuresthat were actually  converted were banned.  Chile refers in par ticular to paragraphs 7.18-7.19 of the Panel
Report.  Chile's appellant's submission, para. 87.  We note, however, that the text of paragraph 2 itself directs
the interpreter to footnote 1.  Given that, in interpreting Article 4.2, we address the terms of the provision in adifferent sequence than did the Panel, and because the result of our interpretation is essentially the same as thatreached by the Panel, we do not find it necessary to address Chile's contention in more detail.
180Chile's response to questioning at the oral hearing.WT/DS207/AB/R
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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.  Ingeneral, requirements expressed in the present perfect tense impose obligations that came into beingin 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 Articl e 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 theAgreement 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 theUruguay Round—but were not converted—could not be maintained, by virtue of that Article, fromthe date of the entry into force of the  WTO Agreement  on 1 January 1995.
                                                     
181Chile's appellant's submission, para. 81.
182G. Leech and J. Svartvik, A Communicative Grammar of English , (Longman, 1979), paras 112-119.
R. Quirk and S. Greenbaum, A University Grammar of English , (Longman, 1979), paras. 328-330.
183Bound tariffs could, however, be renegotiated pursuant to Article XXVIII of the GATT 1994.
184At the oral hearing, the participants and third participants agreed that such replacement rights
expired as of the entry into force of the  WTO Agreement .WT/DS207/AB/R
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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 "anymeasures of the kind which have been required to be converted into ordinary customs duties" must belimited 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 wordssuggests that the drafters intended to cover a broad category of measures.  We do not see how propermeaning and effect could be accorded to the word "any" and the phrase "of the kind" in Article 4.2 ifthat provision were read to include only those specific measures that were singled out to be convertedinto 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 Me mbers 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
agree
185, 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 thekind 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 ourinterpretation that the measures covered by Article 4.2 are not limited only to those that wereactually  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.  Theexistence of this residual category confirms our interpretation that Article 4.2 covers more thanmerely the  measures that had been specifically identified or challenged by other negotiating partnersin 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
                                                     
185Participants' responses to questioning at the oral hearing.WT/DS207/AB/R
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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 beenconverted" 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 befo re 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 byArticle 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 customsduties
188 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 interpretati on", 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:
                                                     
186In this context, we note that a special safeguard can be imposed only on those agricultural products
for which a Member has reserved its right to do so in its Schedule.
187The obligation in Article 4.2 "not [to] resort to" can be understood as meaning that Members must
not introduce  new measures "of the kind" that it has not had in place in the past; the obligation "not [to] revert
to" can be read in the sense that Members may not, at so me later stage after the entry into force of the WTO, re-
enact measures prohibited by Article 4.2.  At the oral hearing, the participants agreed that the obligations not to"resort to, or revert to" prohibited measures are less relevant to this dispute than the obligation to "not maintain"such measures.
188Chile's appellant's submission, para. 95.WT/DS207/AB/R
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… 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 im plying an agreement among WTO Members on the
interpretation of Article 4.2.  Thus, in our view, this alleged practice of some Members does notamount 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 boundrate.  Chile's argument raises the question of what was meant—before the conclusion of the UruguayRound—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  T h e  w o r d
"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 usedin footnote 1, can result in the levying of a specific duty equal to the difference between a referenceprice and a target price, or minimum price.  These resulting levies or specific duties take the sameform  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 importlevies" 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 ma intain, resort to, or revert to those measures.
                                                     
189Appellate Body Report, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted
1 November 1996, DSR 1996:I, 97, at 107.
190The New Shorter Oxford Dictionary , L. Brown (ed.) (Clarendon Press), 1993, Vol. I, p. 502.
191Ibid.WT/DS207/AB/R
Page 70
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 accessexemption in the form of a special safeguard provision under Article 5 implies that Article 4.2 shouldnot  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 Membersto maintain measures that operate in a way sim ilar to a special safeguard within the meaning of
Article 5—but without respecting the conditions set out in that provision for invoking suchmeasures—it would be difficult to see how proper meaning and effect could be given to thoseconditions set forth in Article 5.
192
B. Assessment of Chile's Price Band System in  the Light of Article 4.2 and Footnote 1
218. We turn now to the Panel's finding that Chile's price band system is a border measure similar
to a variable import levy and a minimum import price within the meaning of footnote 1 to Article 4.2of the  Agreement on Agriculture.
193
219. Footnote 1 lists six categories of border measures and a residual category of such measures
that are  included   in "measures of the kind which have been required to be converted into ordinary
customs duties" within the meaning of Article 4.2.194  The list is illustrative, and includes "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".  These kinds of measures were identified
by the negotiators of the  Agreement on Agriculture  as measures that had to be converted into
ordinary customs duties in order to ensure enhanced market access for imports of agriculturalproducts.
220. Before the Panel, Argentina alleged that Chile's price band system is a "minimum import
price" or a "variable import levy" system or, in any event, a "similar border measure other than
                                                     
192We note that Chile has not reserved, in it Schedule, the right to apply special safeguards.  In response
to questioning at the oral hearing, no participant suggested that the interpretation of Article 4.2 should bedifferent depending on whether or not a Member reserved such a right.
193Panel Report, paras. 7.47, 7.65 and 7.102.
194Footnote 1 exempts "measures maintained under balance-of-payments provisions or under other
general, non-agriculture-specific provisions of the GATT 1994 or the other Multilateral Trade Agreements in
Annex 1A to the  WTO Agreement ."  In their responses to questioning at the oral hearing, the participants agreed
that these "measures" are not relevant in this appeal.WT/DS207/AB/R
Page 71
ordinary customs duties", and that, because of the prohibition of such measures in Article 4.2, Chile's
price band system must not be maintained.195
221. A plain reading of Article 4.2 and footnote 1 makes clear that, if Chile's price band system
falls within any  one  of the categories of measures listed in footnote 1, it is among the "measures of
the kind which have been required to be converted into ordinary customs duties", and thus must not be
maintained, resorted to, or reverted to, as of the date of entry into force of the  WTO  Agreement .196
Therefore, we will examine whether Chile's price band system falls within one or more of the
categories of measures that are prohibited by Article 4.2 and footnote 1.
222. It must be emphasized that the Panel did not find that Chile's price band system constitutes a
"variable import levy" or "minimum import price" system  per se .  Rather, the Panel found that Chile's
price band system:
… is a hybrid instrument, which has most, but not all, of its
characteristics in common with either or both a variable import levyand a minimum import price.  After careful assessment of the
evidence before us, however, we consider as a factual matter that the
Chilean PBS shares sufficient fundamental characteristics with those
schemes for it to be considered similar to them, and that the observed
differences between the Chilean PBS and either of those schemes are
not of such a nature as to detract from this similarity.197  (original
emphasis, underlining added)
223. Chile argues, on appeal, that the Panel erred in finding that Chile's price band system is a
border measure similar to a variable import levy or a minimum import price within the meaning offootnote 1 to Article 4.2.
224. At the outset, we stress that, as Argentina argues
198, the Panel's characterization of its finding
"as a factual matter" does not mean that the issue whether Chile's price band system is a border
measure similar to a variable import levy or a minimum import price is shielded from appellatereview.  This is a question of law, and not of fact, and thus is clearly within our jurisdiction underArticle 17.6 of the DSU.
199  A s  w e  s a i d  i n  o u r  R e p o r t  i n   EC – Hormones,  the assessment of the
consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty                                                     
195Panel Report, para. 7.20.
196Provided such measure is not exempted under the latter part of footnote 1.
197Panel Report, para. 7.46.  The Panel also concluded that Chile's price band system applies
exclusively to imported goods and is enforced at the border by Chile's customs authorities and that it is,therefore, clearly a  border  measure.  We agree.  Panel Report, para. 7.25.
198Argentina's appellee's submission, para. 141.
199Article 17.6 of the DSU provides:  "An appeal shall be limited to issues of law covered in the panel
report and legal interpretations developed by the panel."WT/DS207/AB/R
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provision is an issue of legal characterization.200  The mere assertion by a panel that its conclusion is a
"factual matter" does not make it so.  Here, the Panel's interpretation of the terms "variable importlevies", "minimum import prices", and "similar border measures other than ordinary customs duties",as these terms are used in footnote 1, constitutes, not a  factual   determination, but rather a  legal 
interpretation of the words of Article 4.2.  Hence, these interpretations are within the purview of
appellate review under Article 17.6 of the DSU.  Moreover, the Panel's appraisal of Chile's price bandsystem in the light of its legal interpretation is an application of the law to the facts of the case.  All
the same, in reviewing the Panel's assessment of Chile's price band system, we are mindful of theneed to give due deference to the discretion of the Panel, as the "trier of fact", to weigh the evidence
before it.
225. The Panel described its approach to assessing whether Chile's price band system is  similar  to
"variable import levies" and/or "minimum import prices" within the meaning of footnote 1 asfollows:
First, as regards the term "similar",  dictionaries define this term as
"having a resemblance or likeness", "of the same nature or kind", and
"having characteristics in common".  Two measures are in our view
"similar" if they share some, but not all, of their fundamental
characteristics.  If two measures share all of their fundamental
characteristics, they are identical rather than similar.  A bordermeasure should therefore have some  fundamental characteristics in
common with one or more of the measures explicitly listed in
footnote 1.  It is then a matter of weighing the evidence to determine
whether the characteristics are sufficiently close to be considered
"similar".
201  (emphasis added, footnotes omitted)
226. We agree with the first part of the Panel's definition of the term "similar" as "having a
resemblance or likeness", "of the same nature or kind", and "having characteristics in common".202
                                                     
200In our Report in  EC – Hormones,  we held that:
Under Article 17.6 of the DSU, appellate review is limited to appeals on
questions of law covered in a panel report and legal interpretationsdeveloped by the panel.  Findings of fact, as distinguished from legalinterpretations or legal conclusions, by a panel are, in principle, not subjectto review by the Appellate Body.  …  Determination of the credibility and
weight properly to be ascribed to (t hat is, the appreciation of) a given piece
of evidence is part and parcel of the fact finding process and is, in principle,left to the discretion of a panel as the trier of facts.  The consistency or
inconsistency of a given fact or set of facts with the requirements of a giventreaty provision is, however, a legal ch aracterization issue.  It is a legal
question.   (emphasis added)
Appellate Body Report,  supra , footnote 69, para. 132.
201Panel Report, para. 7.26.
202The New Shorter Oxford English Dictionary , supra , footnote 190, p. 2865.WT/DS207/AB/R
Page 73
However, in our view, the Panel went unnecessar ily far in focusing on the degree to which two
measures share characteristics of a "fundamental" nature.  We see no basis for determining similarityby relying on characteristics of a "fundamental" nature.  The Panel seems to substitute for the task ofdefining the term "similar" that of defining the term "fundamental".  This merely complicates matters,
because it raises the question of how to distinguish "fundamental" characteristics from those of a   less
than  "fundamental" nature.  The better and appropriate approach is to determine similarity by asking
the question whether two or more things have likene ss or resemblance sufficient to be similar to each
other.  In our view, the task of determining whet her something is similar to something else must be
approached on an empirical basis.
227. As suggested by Argentina, the Panel decided to assess Chile's price band system by
comparing it to several individual categories of measur es listed in footnote 1.  Before looking at these
categories of measures, we note that  all  of the border measures listed in footnote 1 have in common
the object and effect of restricting the volumes, and distorting the prices, of imports of agricultural
products in ways different from the ways that ordinary customs duties do.  Moreover,  all  of these
measures have in common also that they disconnect domestic prices from international pricedevelopments, and thus impede the transmission of world market prices to the domestic market.However, even if Chile's price band system were to share these common characteristics with all ofthese border measures, it would not be sufficient to make that system a "similar border measure"within the meaning of footnote 1.  There must be something more.  To be "similar", Chile's price bandsystem—in its specific factual configuration—must have, to recall the dictionary definitions wementioned, sufficient "resemblance or likeness to", or be "of the same nature or kind" as,  at least one 
of the specific categories of measures listed in footnote 1.
228. Before addressing the issue of  how much  or  what kind   of "similarity" Chile's price band
system must display to be a measure prohibited by Article 4.2, it is necessary for us to identify  with
what  that system is required to be similar.  Any examination of "similarity" presupposes a
comparative  analysis.  Thus, to determine whether Chile's price band system is "similar" within the
meaning of footnote 1, it is necessary to identify  with which categories  that system must be
compared.  The Panel compared Chile's price band system with the same categories as those identifiedby Argentina.  While Chile disagreed with the conclusions the Panel reached in relying on that
comparison, Chile does not dispute the choice of those categories.
229. In assessing whether Chile's price band system is a "similar border measure", the Panel
compared Chile's system to "variable import levies " and "minimum import prices" within the meaning
of footnote 1.  WTO Members have not chosen to define any of these "terms of art" in the  Agreement
on Agriculture  or anywhere else in the  WTO Agreement.   The Panel concluded that it could notWT/DS207/AB/R
Page 74
develop an interpretation of the term "variable import levies" solely on the basis of the methods of
interpretation codified in Article 31 of the  Vienna Convention.203  The Panel decided, therefore, to
have recourse to "supplementary means of interpretation" within the meaning of Article 32 of thatConvention.  This led to the Panel's identification of what the Panel described as "fundamental
characteristics" of "variable import levies" and "minimum import prices".
204
230. In response to our questioning at the oral hearing, the participants said that they agree with
these characteristics, although Chile believes that the Panel's list is incomplete.205  However, we do
                                                     
203Panel Report, para. 7.35.
204The characteristics identified by the Panel in paragraph 7.36 of its Report, are the following:
(a) Variable levies generally operate on the basis of two prices:  a
threshold, or minimum import entry price and a border or c.i.f. price for
imports.  The threshold price may be derived from and linked to the internal
market price as such, or it may correspond to a governmentally determined(guide or threshold) price which is above the domestic market price.  Theimport border or price reference may correspond to individual shipmentprices but is more often an administratively determined lowest world marketoffer price.
(b) A variable levy generally represents the difference between the
threshold or minimum import entry price and the lowest world market offer
price for the product concerned.  In other words, the variable levy changes
systematically in response to movements in either or both of these price
parameters.
(c) Variable levies generally operate so as to prevent the entry of
imports priced below the threshold or minimum entry price.  In this respect,that is, when prevailing world market prices are low relative to the thresholdprice, the protective effect of a variable levy rises, in terms of the fiscalcharge imposed on imports, whereas this charge declines in the case of  ad
valorem  tariffs or remains constant in the case of  specific duties.
(d) In addition to their protective effects, the stabilization effects of
variable levies generally play a key role in insulating the domestic marketfrom external price variations.
(e) Notifications on minimum import prices indicate that these
measures are generally not dissimilar from variable levies in many respects,including in terms of their protective and stabilization effects, but that their
mode of operation is generally less complicated.  Whereas variable import
levies are generally based on the difference between the governmentallydetermined threshold and the lowest world market offer price for theproduct concerned, minimum import price schemes generally operate inrelation to the actual transaction value of the imports.  If the price of an
individual consignment is below a specified minimum import price, an
additional charge is imposed corresponding to the difference.
In paragraph 7.34 of the Panel Report, the Panel also states:
As regards the context of those terms in footnote 1, we note that all the
measures listed there are instruments wh ich are characterized either by a lack
of transparency and predictability, or impede transmission of world prices tothe domestic market, or both.
205Participants' responses to questioning at the oral hearing.  In Chile's view, the list of characteristics
of "variable import levies" should include the absence of a "cap" at the level of the tariff binding.WT/DS207/AB/R
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not believe that the Panel properly applied Article 32 of the  Vienna Convention  in its analysis;206 nor
do we find it useful to endorse the characteristics identified by the Panel through this process as beingof a "fundamental" nature.
231. Instead, we proceed to interpret the terms "variable import levies" and "minimum import
prices, using the customary rules of interpretation as codified in the  Vienna Convention.  As always,
in employing these rules, we discuss the ordinary m eaning of these terms in their context, and in the
light of their object and purpose.
232. We begin with the interpretation of "variable import levies".  In examining the ordinary
meaning of the term " variable import levies " as it appears in footnote 1, we note that a "levy" is a
duty, tax, charge, or other exaction usually imposed or raised by legal execution or process.
207  An
"import" levy is, of course, a duty assessed upon importation.  A levy is "variable" when it is "liable
to vary".208  This feature alone, however, is not conclusive as to what constitutes a "variable import
levy" within the meaning of footnote 1.  An "ordinar y customs duty" could also fit this description.  A
Member may, fully in accordance with Article II of the GATT 1994, exact a duty upon importationand periodically change the rate at which it app lies that duty (provided the changed rates remain
below  the tariff rates bound in the Member's Schedule).
209  This change in the  applied   rate of duty
could be made, for example, through an act of a Member's legislature or executive at any time.
Moreover, it is clear that the term "variable import levies" as used in footnote 1 must have a meaningdifferent from "ordinary customs duties", because "variable import levies" must be  converted into 
"ordinary customs duties".  Thus, the mere fact that an import duty can be varied cannot, alone, bring
that duty within the category of "variable import levies" for purposes of footnote 1.
233. To determine  what kind  of variability makes an import levy a "variable import levy", we turn
to the immediate context of the other words in footnote 1.  The term "variable import levies" appearsafter the introductory phrase "[t]hese  measures  include".  Article 4.2—to which the footnote is
                                                     
206Panel Report, para. 7.35.  The Panel attempted to  "distill" fundamental characteristics of "variable
import levies" and "minimum import prices" from GATT 1947 committee reports and other documents from theperiod between 1958-1986.  (See Panel Report, para. 7.35).  Although the Panel conceded that these documentswere not "preparatory works" within the meaning of Article 32, it considered them to form part of the"circumstances of the conclusion" of the  WTO Agreement, because Uruguay Round negotiators "had access" to
these documents during the negotiations.  (See Panel Report, footnote 596).  However, in response to
questioning at the oral hearing, the participants did not contest that the Panel acted, in accordance with
Article 13 of the DSU within its authority "to seek information from any relevant source" (although Chilemaintained that the documents referred to by the Panel would not qualify as "supplementary means ofinterpretation" within the meaning of Article 32 of the  Vienna Convention ).
207The New Shorter Oxford English Dictionary , supra , footnote 190, p. 1574.
208Ibid. , p. 3547.
209Appellate Body Report, Argentina – Textiles and Apparel , supra , footnote 55, para. 46.WT/DS207/AB/R
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attached—also speaks of " measures ".  This suggests that at least one feature of "variable import
levies" is the fact that the  measure  itself—as a mechanism—must impose the  variability  of the
duties.  Variability is inherent in a measure if the measure incorporates a scheme or formula thatcauses and ensures that levies change automatically and continuously.  Ordinary customs duties, by
contrast, are subject to discrete changes in applied tariff rates that occur independently, and unrelated
to such an underlying scheme or formula.  The level at which ordinary customs duties are applied canbe  varied  by a legislature, but such duties will not be automatically and continuously  variable.   To
vary the applied rate of duty in the case of ordinary customs duties will always require  separate 
legislative or administrative action, whereas the ordinary meaning of the term "variable" implies thatno  such action is required.
234. However, in our view, the presence of a formula causing automatic and continuous variability
of duties is a  necessary,  but by no means a  sufficient,  condition for a particular measure to be a
"variable import levy" within the meaning of footnote 1.
210  "Variable import levies" have additional
features that undermine the object and purpose of Article 4, which is to achieve improved market
access conditions for imports of agricultural products by permitting only the application of ordinarycustoms duties.  These additional features include a l ack of transparency and a lack of predictability in
the level of duties that will result from such measures.  This lack of transparency and this lack ofpredictability are liable to restrict the volume of imports.  As Argentina points out, an exporter is lesslikely to ship to a market if that exporter does not know and cannot reasonably predict what theamount of duties will be.
211  This lack of transparency and predictability will also contribute to
distorting the prices of imports by impeding the transmission of international prices to the domestic
market.
235. We turn now to the interpretation of the term " minimum import prices ".  Argentina alleges,
and the Panel found, that Chile's price band system is similar also to a "minimum import price"212,
which is another prohibited measure listed in footnote 1 of Article 4.2.
236. The term "minimum import price" refers generally to the lowest price at which imports of a
certain product may enter a Member's domestic market.  Here, too, no definition has been provided bythe drafters of the  Agreement on Agriculture .  However, the Panel described "minimum import
prices" as follows:
                                                     
210The participants agreed with this in their responses to questioning at the oral hearing.
211Argentina's responses to questioning at the oral hearing.
212Panel Report, para. 7.46;  Argentina's appellee's submission, para. 71.WT/DS207/AB/R
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[these] schemes generally operate in relation to the actual transaction
value of the imports.  If the price of an individual consignment is
below a specified minimum import price, an additional charge is
imposed corresponding to the difference.213
237. The Panel also said that minimum import prices "are generally not dissimilar from variable
import levies in many respects, including in terms of their protective and stabilization effects, but thattheir mode of operation is generally less complicated."
214  The main difference between minimum
import prices and variable import levies is, accordin g to the Panel, that "variable import levies are
generally based on the difference between the  governmentally determined threshold  and the lowest
world market offer price for the product concerned, while minimum import price schemes generallyoperate in relation to the  actual transaction value  of the imports."
215 (emphasis added)
238. In response to questioning at the oral hearing, the participants said they do not object to the
Panel's definition of a "minimum import price".  Their disagreement relates instead to whether Chile'sprice band system is  similar  to a minimum import price system prohibited by Article 4.2.
239. We turn next to the Panel's determination that Chile's price band system is a border measure
similar  to "variable import levies" and "minimum import prices".  We must determine whether
Chile's price band system—in its particular features—shares sufficient features with these twocategories of prohibited measures to resemble, or "be of the same nature or kind" and, thus, also to beprohibited by Article 4.2.
240. The Panel described Chile's price band system as having an "intrinsically unstable,
intransparent and unpredictable nature …".
216  Indeed, the Panel saw "a considerable lack of
transparency and unpredictability" in the measure.217  On appeal, Argentina emphasizes that the
combination of a lack of transparency and a lack of predictability are the features of Chile's price bandsystem that, most of all, make it "similar" to  "variable import levies" within the meaning of
footnote 1.
218
241. We note that it is undisputed between the participants that a formula inherent in Chile's price
band system causes and ensures automatic and continuous variability of the duties resulting from thatsystem.  However, one of Chile's arguments on appeal relates to the particular formula used in
                                                     
213Panel Report, para. 7.36(e).
214Ibid.
215Ibid.
216Panel Report, para. 7.61.
217Ibid. , para. 7.44.
218Argentina's appellee's submission, paras. 80, 122 and 147.WT/DS207/AB/R
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establishing the  price bands in Chile's system.  Chile alleges that the Panel did not take sufficient
account of the fact that the lower and upper thresholds of Chile's price bands vary in relation to "worldprices", and not in relation to domestic prices, or to some Chilean target price.
219  Chile argues that its
price band system compares "current world prices" with "historic world prices" over a five-year
period, rather than comparing them with prices on Chile's domestic market.  Chile maintains that the
lower thresholds of Chile's price bands are different in this respect from the floor or minimum pricethat the Panel thought was one of the characteristics of both variable import levies and minimum
import price systems.
220
242. The Panel stated that:
the lower threshold of the Chilean PBS is not explicitly derived from,
or linked to, an internal market-related price, as is often the case in
variable import levy schemes.221
The Panel thus recognized that Chile's price bands va ry in relation to "world prices", and that, in this
respect, Chile's price band system is not  identical  to a variable import levy or a minimum import
price scheme.  The fact that Chile's price bands vary in relation to—albeit historic—world prices,rather than in relation to domestic market or ta rget prices, does not suggest—at first glance—that
Chile's price band system effectively disconnects the domestic market from international pricedevelopments.  We will, however, return to this issue later.
243. The Panel also stated that Chile's price band system  need not be identical  to variable import
levies or minimum import prices to be considered  similar  to these prohibited categories of measures
listed in footnote 1, provided that Chile's price band system bears sufficient resemblance to such
measures.  The Panel went on to examine whether the determination of the lower thresholds of Chile's
price bands operates in such a way as to render it similar to a domestic target price or domestic marketprice.  The Panel noted that:
                                                     
219Here, Chile refers to the Panel's characterization of  "variable import levies" as "generally operat[ing]
on the basis of … a threshold price [that] may be derived from and linked to the internal market price as such, or
it may correspond to a governmentally determined (guide or threshold) price which is above the domesticmarket price".  Panel Report, para. 7.36(a).
220Chile's appellant's submission, para. 110.
221Panel Report, para. 7.45.WT/DS207/AB/R
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on the basis of the evidence before us, it cannot be excluded that the
lower threshold of the PBS, given the way in which it is designed,
particularly with the many adjustments made by the administering
agencies to the basic world market price quotations employed,
including for inflation, operates in practice as a "proxy" for such
internal prices.222
244. In Chile's view, the Panel erred in law in finding "similarity" based on what "cannot be
excluded".  We believe that Chile reads too much into the Panel's formulation.  The Panel  did not
equate  Chile's price band system with variable import levies or minimum import price systems that
are related to domestic target prices.  Rather, taking into account the evidence submitted, the Panel
stated only that the lower thresholds of Chile's price bands may often, but not in all cases, be equal toor higher than the domestic price.  This may be due—in part—to the way in which the price bandthresholds, which are first calculated on the basis of monthly f.o.b. world prices over the last five
years, are converted to a c.i.f. basis.  As Chile points out, this may also be due—in part—to the way in
which domestic prices to a certain extent reflect changes in world market prices.
223  As we see it, the
Panel found "similarity" based on actual evidence, and not, as Chile implies, on conjecture.
245. We also find merit in the Panel's finding that:
the PBS thresholds are determined, inter alia, after discarding 25 per
cent of "atypical observations" at the bottom and at the top, hence
substantially increasing the likelihood that the lower threshold of the
PBS will equal or exceed the higher internal price.224
Based on this, the Panel concluded that the lower thresholds of Chile's price bands operate like
substitutes  for domestic target prices.  Hence, the Panel was satisfied that this feature of Chile's price
band system was also similar to the features of variable import levies and minimum import prices.
246. We agree with the Panel's view—to a point.  But we believe that the Panel placed too much
emphasis on whether or not Chile's price bands are related to domestic target prices or domesticmarket prices.  In our view—even though Chile's price bands are set in relation to world prices from apast five-year period—Chile's price band system can still have the  effect  of impeding the
transmission of international price developments to the domestic market in a way similar to that ofother categories of prohibited measures listed in footnote 1.  There are factors other than world marketprices that are relevant to the assessment of Chile's price bands.  The prices that represent the highest                                                     
222Panel Report, para. 7.45.
223In Chile's view, the fact that the products at issue are commodities makes domestic prices more
prone to align with prices for commodities in any foreign market, because of the high degree of substitutability.Chile's response to questioning at the oral hearing.
224Panel Report, para. 7.45.WT/DS207/AB/R
Page 80
25 per cent as well as the lowest 25 per cent of the world prices from the past five years are discarded
in selecting the "highest and lowest f.o.b. prices" for the determination of Chile's annual price bands.Furthermore, we place considerable importance on the intransparent and unpredictable way in whichthe "highest and lowest f.o.b. prices" that have been selected are converted to a c.i.f. basis by adding
"import costs".  As Chile concedes, no published legislation or regulation sets out how these "import
costs" are calculated.
225
247. In addition to the lack of transparency and the lack of predictability that are inherent in how
Chile's price bands are established, we see similar shortcomings in the way the other essential elementof Chile's price band system—the reference price—is determined.  As we have explained, the dutiesresulting from Chile's price band system are equal to  the difference between the price band thresholds
and the reference price.  Chile sets the reference price on a weekly basis, and it does so in a way thatis neither transparent nor predictable.
248. The Panel described the particular reference price used in Chile's price band system in the
following terms:
The Reference Price used in the context of the Chilean PBS is clearly
disconnected from the actual transaction value, unlike minimum
import price schemes.  It does use a lowest "market of concern"
price, however, similar to the lowest market offer price generally
used in variable import levy schemes.
226
249. Under Chile's price band system, the price used to set the weekly reference price is the lowest
f.o.b. price observed, at the time of embarkation, in any foreign "market of concern" to Chile for"qualities of products actually liable to be imported to Chile".
227  No Chilean legislation or regulation
specifies how the international "markets of concern" and the "qualities of concern" are selected.228
Thus, it is not by any means certain that the weekly reference price is representative of the currentworld market price.  Moreover, the weekly reference price used under Chile's price band system iscertainly  not  representative of an average of current lowest prices found in  all  markets of concern.
As a result, the process of selecting the reference price is not transparent, and it is not predictable for
traders.
                                                     
225Chile's responses to questioning at the oral hearing.
226Panel Report, para. 7.45.
227Chile's response to questioning at the oral hearing.  Chile informed the Panel that, "the weekly
reference price corresponds to the lowest f.o.b. price for wheat during that week for the markets and qualities of
concern to Chile, i.e. for the wheat act ually liable to be imported".  Chile's response to question 9(c) of the
Panel.
228Chile's response to questioning at the oral hearing.WT/DS207/AB/R
Page 81
250. Furthermore, under Chile's system, the same weekly reference price applies to imports of  all 
goods falling within the same product category, rega rdless of the origin of the goods, and regardless
of the transaction value of the shipment.  Moreover, unlike with the five-year average monthly pricesused in the calculation of Chile's annual price bands, the lowest "market of concern" price used to
determine the weekly reference price is not adjusted for "import costs", and thus is not converted from
an f.o.b. basis to a c.i.f. basis.  This is likely to inflate the amount of specific duties applied underChile's price band system, because these duties are imposed in an amount equal to the differencebetween Chile's  annual  price band thresholds, which are based on  higher   c.i.f. prices, and Chile's
weekly  reference prices, which are based on  lower   f.o.b. prices.  Therefore, the way in which Chile's
weekly reference prices are determined contributes to giving Chile's price band system the effect ofimpeding the transmission of international price developments to Chile's market.
251. Consequently, even if were to assume, for the moment, that one feature of Chile's price band
system is  not  similar to the features of "variable import levies" and "minimum import prices"
because the thresholds of Chile's price bands vary in relation to—albeit historic—world market prices
rather than domestic target prices, this would not change our overall assessment of Chile's price bandsystem.  This is because specific duties resulting from Chile's price band system are equal to thedifference  between two parameters––the annual price ba nd thresholds and the weekly reference
prices applicable to the shipment in question.  Th erefore, continuing with our hypothesis, even if we
were to assume that one of the two parameters––Chile's annual price band thresholds––does  not 
distort the transmission of world market prices to Ch ile's market, it would nevertheless remain that the
other parameter––Chile's weekly reference prices––is liable to distort—if not disconnect—that
transmission by virtue of the way it is determined on a weekly basis.  Consequently, even in such a
hypothetical case, the duties resulting from Chile's price band system, which are equal to thedifference between these two parameters, would  not  transmit world market price developments to
Chile's market in the same way as "ordinary customs duties".
252. Thus, although there are some dissimilarities between Chile's price band system and the
features of "minimum import prices" and "variable import levies" we have identified earlier, the wayChile's system is designed, and the way it operates in its overall nature, are sufficiently "similar" tothe features of both of those two categories of prohibited measures to make Chile's price bandsystem—in its particular features—a "similar border measure" within the meaning of footnote 1 to
Article 4.2.
253. However, Chile argues that, in making its finding, the Panel failed to take proper account of
the fact that the total amount of duties that may be levied as a result of Chile's price band system is"capped" at the level of the tariff rate of 31.5 per cent  ad valorem  bound in Chile's Schedule.WT/DS207/AB/R
Page 82
According to Chile, the existence of this cap differentiates Chile's price band system from a "variable
import levy".  Chile argues that Chile's price band system enables imports to enter Chile's marketbelow the lower thresholds of Chile's price band s when world market prices drop below a certain
level, while allowing imports to enter at duty rates that can be as low as zero when the weekly
reference prices rise above the upper thresholds of Chile's price bands.  Chile submits that the cap
makes Chile's price band system less distortive and less insulating than if Chile simply levied duties atits bound tariff level.
229
254. This argument by Chile compels us to consider whether Chile's price band system ceases to
be similar to a "variable import levy" because it is subject to a cap.  In doing so, we find nothing inArticle 4.2 to suggest that a measure prohibited by that provision would be rendered consistent with itif applied with a cap.  Before the conclusion of the Uruguay Round, a measure could be recognized asa "variable import levy" even if the products to which the measure applied were subject to tariffbindings.
230  And, there is nothing in the text of Article 4.2 to indicate that a measure, which was
recognized as a "variable import levy" before the Uruguay Round, is exempt from the requirements of
Article 4.2 simply because tariffs on some, or all, of the products to which that measure  now  applies
were bound as a result of the Uruguay Round.
255. The context of Article 4.2 lends support to this interpretation.  That context includes the
Guidelines for the Calculation of Tariff Equivalents for the Specific Purpose Specified in Paragraph 6and 10 of this Annex ("Guidelines"), which are an Attachment to  Annex 5 on Special Treatment with
respect to Paragraph 2 of Article 4.   Both the Attachment and the Annex form part of the  Agreement
                                                     
229Chile's appellant's submission, paras. 106-109.  Moreover, Chile submits that the way in which the
European Communities converted its pre-Uruguay Round variable import levies is "highly relevant" because it
reveals what negotiators meant by the "unclear provisions of Article 4.2".  Chile points out that the European
Communities' conversion of its pre-Uruguay Round variable import levies involved binding the tariff in a waythat made clear that those levies would continue to  vary below a cap, but would not exceed that cap.  Chile
concedes, however, that the European Communities' pre-Uruguay Round variable import levies and its post-Uruguay Round converted systems are not at issue in this appeal.  Chile's appellant's submission, paras. 91-92.
230In this respect, we note that, as illustrated by documents from GATT 1947, Contracting Parties to
GATT 1947 regarded import levies which were applied to products subject to a tariff binding as variable import
levies in spite of the existence of that binding:
The General Agreement contains no provision on the use of 'variable import
levies'.  It is obvious that  if any such duty or levy is imposed on a 'bound'
item,  the rate must not be raised in excess of what is permitted  by Article II
… .  (emphasis added)
See Note by the Executive Secretary on "Questions relating to Bilateral Agreements, discrimination
and Variable Taxes", dated 21 November 1961, GATT document L/1636, paras. 7-8.WT/DS207/AB/R
Page 83
on Agriculture.  Paragraph 6 of the Guidelines231 envisages that tariff equivalents resulting from
conversion of measures within the meaning of Article 4.2 may  exceed previous bound rates .  This
implies that, even if the product to which that measure applied was in fact subject to a tariff bindingbefore the Uruguay Round, conversion of that measure may nevertheless have been required.
Therefore, a measure cannot be excluded  per se  from the scope of Article 4.2 simply because the
products to which that measure applies are subject to a tariff binding.
256. Relevant context can also be found in Articles  II and XI of the GATT 1994.  If Members were
free to apply a measure with a "cap"—which, in the absence of that "cap", would be a prohibited"variable import levy"—Article 4.2 would, in our view , add little to the longstanding requirements of
Articles II:1(b) and XI:1 of the GATT 1947.  In fact, Chile concedes that the scope of measuresprohibited by Article 4.2 extends beyond the tariffs in excess of bound rates that are prohibited byArticle II and the "restrictions other than taxes, duties and charges" that are prohibited byArticle XI:1.
232  In any event, it is difficult to see why Uruguay Round negotiators would
"compensate" Members for converting prohibited measures by permitting them to raise tariffs on
certain products, while permitting those Members to retain those measures and, at the same time,impose those higher tariffs on those same products.  It is not clear why, if this were so, a Memberwould ever have converted a measure.  All that  a Member would have had to do to comply with
Article 4.2 would have been to adopt a tariff binding—even at a higher level—on the productscovered by the original measure.  Had this been the intention of the Uruguay Round negotiators, there
would have been no need to list price-based measures in footnote 1 among the categories of measuresprohibited by Article 4.2.  The drafters of the  Agreement on Agriculture  simply could have adopted a
requirement that all tariffs on agricultural products be bound.
257. Contrary to Chile's view, we are not persuaded that the presence or the absence of a cap is
essential in determining whether or not Chile's price band system is similar to a measure prohibited byArticle 4.2.  Chile's tariff binding will impose a limit on the total amount of duties that may beapplied, and thus permit fluctuations in world market prices to be reflected in Chile's market, in caseswhen the duties resulting from Chile's price band system, when added to the applied  ad valorem 
duty, exceed that tariff binding.  However, the existence of the tariff binding will not eliminate thedistortion in the transmission of world market prices to Chile's market in all other cases, where the
                                                     
231Paragraph 6 provides:
Where a tariff equivalent resulting from these guidelines is negative or
lower than the  current bound rate ,  the initial tariff equivalent may be
established at the  current bound rate  or on the basis of national offers for
that product.  (emphasis added)
232Chile's appellant's submission, para. 81.WT/DS207/AB/R
Page 84
combination of the duties resulting from Chile's price band system, when added to the applied  ad
valorem  duty, remains below Chile's bound rate of 31.5 per cent  ad valorem .233
258. Moreover, contrary to what Chile argues, Chile's price band system is not necessarily less
trade-distorting  Nor does it insulate Chile's domestic market less, than it would, if Chile simply
imposed duties at the  bound   tariff level of 31.5 per cent.234  As Argentina stresses, the amount of a
duty is not the only concern of Chile's trading partners.  As Argentina argues, significant for traders,also, are the lack of transparency of certain features of Chile's price band system;  the unpredictabilityof the level of duties;  and the automaticity, the frequency, and the extent to which the dutiesfluctuate.  These specific characteristics of Chile's price band system prevent enhanced market accessfor imports of agricultural products, contrary to the object and purpose of Article 4.
259. The fact that duties resulting from Chile's price band system are "capped" at 31.5 per cent  ad
valorem  merely reduces the extent of the trade distortions in that system by reducing the extent  to
which those duties fluctuate.  It does not, however, eliminate those distortions.  Moreover, the cap
does not  eliminate  the lack of transparency, or the lack of predictability, in the fluctuation of the
duties resulting from Chile's price band system.  Thus, the fact that Chile's price band system issubject to a "cap" may be said to make this system  less  inconsistent with Article 4.2.  But this is not
enough.  Article 4.2 not only prohibits "similar border measures" from being applied to  some 
products, or to  some  shipments of  some   products with low transaction values, or the imposition of
duties on  some  products in an amount  beyond  the level of a bound tariff rate.  Article 4.2 prohibits
the application of such "similar border measures" to  all  products in  all  cases.
260. Therefore, contrary to what Chile contends, Chile's price band system does not simply ensure
a reasonable margin of fluctuation of domestic prices.
235  In our view, "such reasonable margin of
fluctuation" would mean that duties resulting fr om Chile's price band system would ensure that
declines in world prices would not be  fully  reflected in domestic prices.  However, when
international prices  fall, and when the weekly reference prices are below the lower thresholds of
Chile's price bands, the total duties applied to particular shipments will, in many cases, result in an
                                                     
233Panel Report, footnote 608.
234Chile's appellant's submission, para. 108.
235See Article 12 of Law 18.525.  Chile's appellant's submission, para. 12.WT/DS207/AB/R
Page 85
overall entry price of that shipment that  rises  rather than  falls.236  Therefore, Chile's price band
system does not merely moderate the effect of fluc tuations in world market prices on Chile's market
because it does not ensure that the entry price of imports to Chile falls in tandem with falling worldmarket prices—albeit to a lesser extent than the decrease in those prices.  Nor does it tend only to
"compensate" for these price declines.  Instead, specific duties resulting from Chile's price band
system tend to "overcompensate" for them, and to elevate the entry price of imports to Chile above thelower threshold of the relevant price band.  In thes e circumstances, the entry price of such imports to
Chile under Chile's price band system is even higher than if Chile simply applied a minimum importprice at the level of the lower threshold of a Chilean price band.  Therefore, we disagree with Chilethat its price band system simply "moderates the effect of fluctuations in international prices onChile's market".
237  Chile's price band system tends to "overcompensate" for the effect of decreases in
international prices on the domestic market when weekly reference prices are set below the lowerthreshold of the relevant price band—up to the level at which Chile's tariff binding imposes a limit on
the amount of duties that can be levied.
261. We emphasize that we reach our conclusion on the basis of the particular configuration and
interaction of all these specific features of Chile's price band system.  In assessing this measure, noone  feature is determinative of whether a specific measure creates intransparent and unpredictable
market access conditions.  Nor does any particular feature of Chile's price band system, on its own,have the effect of disconnecting Chile's market from international price developments in a way thatinsulates Chile's market from the transmission of international prices, and prevents enhanced marketaccess for imports of certain agricultural products.
262. We, therefore, uphold the Panel's finding, in paragraph 7.47 of the Panel Report, that Chile's
price band system is a "border measure similar to 'variable import levies' and 'minimum importprices'" within the meaning of footnote 1 and Article 4.2 of the  Agreement on Agriculture.
263. We turn now to examine the Panel's findings regarding the meaning of the term "ordinary
customs duties" under Article 4.2 of the  Agreement on Agriculture .  We look first to the Panel's
consideration of that term, and then review the Panel's interpretation in the light of Chile's objectionson appeal.
                                                     
236This is so because, when the weekly reference price is below the lower threshold of a Chilean price
band, the specific duties resulting from Chile's price band system are equal to the difference between the lower
price band threshold and the f.o.b. reference price, whil e the total duties applied to a particular shipment are
added to that shipment's c.i.f. transaction value.
237Panel Report, para. 4.49.WT/DS207/AB/R
Page 86
C. The Interpretation of the Term "Ordinary Customs Duties" as used in Article 4.2 of
the Agreement on Agriculture
264. The Panel observed, first, that a measure of the kind which has been required to be  converted
into  ordinary customs duties pursuant to Article 4.2 of the  Agreement on Agriculture  "is necessarily
not, at the same time, an   ordinary customs duty."238  Accordingly, the Panel found that "a measure
which is 'similar to' any of the measures listed in footnote 1 will also be 'other than  ordinary customsduties'."
239  The Panel concluded, therefore, that a finding that Chile's price band system is "other than
an ordinary customs duty" could "be expected to reinforce" its finding that Chile's price band system
is similar to a variable import levy and a minimum import price.240  For this reason, the Panel went on
to examine whether Chile's price band system is "other than an ordinary customs duty" within themeaning of Article 4.2 of the  Agreement on Agriculture .  The Panel found that Article II:1(b) of
GATT 1994 provides relevant context for the interpre tation of the term "ordinary customs duties" in
Article 4.2 of the  Agreement on Agriculture .
 241
265. The Panel observed that neither Article 4.2 of the Agreement on Agriculture  nor
Article II:1(b) of the GATT 1994 defines explicitly what should be understood by "ordinary customsduties".
242  From an examination of the ordinary meaning of the term in the three official languages of
the WTO243, the Panel concluded that the term should be considered from two perspectives—one
"empirical" and one "normative".  The Panel explained:
                                                     
238Panel Report, para. 7.24.  The Panel notes that this is, of course, subject to the proviso that such
measure is not maintained under balance-of-payments provisions or other general, non-agriculture-specificprovisions of the GATT 1994 or the other Multilateral Trade Agreements in Annex 1A to the  WTO Agreement .
239Panel Report, para. 7.24.
240Ibid.
241Ibid. , para. 7.49.
242The Panel noted that these provisions do "give some indication as to what is  not  an 'ordinary' customs
duty.  On the one hand, Article II:1(b) of the GATT 1994 distinguishes 'ordinary' customs duties in its firstsentence from 'all other duties or charges of any kind imposed on, or in connection with, the importation' in itssecond sentence.  The latter category of  ' other  duties or charges of any kind ' appears to be a residual category,
encompassing duties or charges imposed on or in connection with importation that cannot be considered
'ordinary' customs duties.  On the other hand, Article 4.2 prohibits Members from maintaining, resorting to, or
reverting to any measures of the kind which have been required to be converted into ordinary customs duties.As indicated earlier, all the measures listed in footnote 1 to Article 4.2 are, by definition, not 'ordinary' customsduties".  Panel Report, para. 7.50.
243The Panel reasoned:  "We note that 'ordinary custom s duties' appear in the co-authentic French and
Spanish versions as ' droits de douane  proprement dits ' and ' derechos de aduana  propiamente dichos '.  The
dictionary meaning of 'ordinary" is 'occurring in regular custom or practice', 'of common or everydayoccurrence, frequent, abundant', 'of the usual kind, not singular or exceptional, commonplace, mundane'.
'Propiamente dicho '  has been translated as 'true (something)' or '(something)' in the strict sense'".  ' Proprement
dit' has been explained as ' au sens exact et restreint, au sens propre ' and ' stricto sensu '".  Panel Report,
para. 7.51.WT/DS207/AB/R
Page 87
It appears from these dictionary meanings that the English text, on
the one hand, and the French and Spanish texts, on the other, differ in
terms of the perspective from which they define "ordinary":  the use
of "ordinary" in the English text appears to define a particular kind of
"customs duties" in reference to the frequency  with which such
customs duties can be found, whereas the French and Spanish texts
suggest that the  narrow sense  of the term "customs duties" is being
referred to.  Thus, the English version describes a particular kind of
customs duty from an  empirical  perspective, whereas the French
and Spanish versions describe it from a  normative  perspective.  We
will therefore proceed to examine what should be considered
"ordinary" both on an empirical and a normative basis." 244  (original
emphasis, footnotes omitted)
266. With respect to these two perspectives, the Panel then provided its findings:
As an  empirical   matter, we observe that Members, in regular
practice, invariably express commitments in the ordinary customs
duty column of their Schedules as  ad valorem  or specific duties, or
combinations thereof.  All "ordinary" customs duties may thereforebe said to take the form of  ad valorem or specific duties (or
combinations thereof).  As a  normative   matter, we observe that
those scheduled duties always relate to either the value of the
imported goods, in the case of  ad valorem   duties, or the volume of
imported goods, in the case of specific duties. 
245 (emphasis in the
original, footnotes omitted)
267. The Panel conceded, however, that its own proposition is not valid in the reverse:
We do not believe, however, that, conversely, the fact that a duty
ultimately is labelled as an ad valorem  or specific duty necessarily
qualifies that duty as an ordinary customs duty.  As a matter of fact,
quite some "other duties or charges", registered as such in the "other
duties and charges" column of Members' Schedules, appear to be
expressed in specific or ad valorem  terms.  Put another way, a duty
or charge can be expressed either in ad valorem  or specific terms, but
nevertheless not constitute an "ordinary" customs duty.246
268. Reasoning that the consideration of "exogenous" factors was also significant, the Panel
concluded:
                                                     
244Panel Report, para. 7.51.
245Ibid. , para. 7.52.
246Panel Report, footnote 624 to para. 7.52.WT/DS207/AB/R
Page 88
Such ordinary customs duties, however, do not appear to involve the
consideration of any other, exogenous, factors, such as, for instance,
fluctuating world market prices .  We therefore consider that, for the
purpose of Article II:1(b), first sentence, of GATT 1994 and
Article 4.2 of the Agreement on Agriculture, an "ordinary" customsduty, that is, a customs duty senso strictu , is to be understood as
referring to a customs duty which is not applied on the basis of
factors of an exogenous nature .
247 (emphasis added)
269. In examining whether the duties resulting from Chile's price band system are "ordinary
customs duties" in the light of the interpretation that it had developed for that purpose (that is, whether
they are based on exogenous factors), the Panel found that such duties are "neither in the nature of  ad
valorem  duties, nor specific duties, nor a combination thereof, in the sense that they are not just
assessed on the transaction value of individual shipments, nor just on the volume of the goods"248, but
rather are assessed on the basis of "exogenous price factors i.e. the [difference between the] lowerthreshold of the PBS and the Reference Price."
249  For this reason, the Panel found that the  duties 
resulting from Chile's price band system are not "ordinary customs duties".
270. On appeal, Chile challenges the Panel's interpretation that the term "ordinary customs duties"
has a  normative  connotation.  Chile also contests the Panel's interpretation that "ordinary customs
duties" must not be applied on the basis of  exogenous  factors such as, inter alia , fluctuating world
market prices, and argues that a decision to apply a duty at less than the bound rate will  always  be
based on exogenous factors.  We share Chile's misgivings about the Panel's definition of "ordinarycustoms duties".
271. We do not agree with the Panel's reasoning that, necessarily, "[a]s a  normative  matter, …
those scheduled duties always relate to either the value of the imported goods, in the case of
ad valorem  duties, or the volume of the imported goods, in the case of specific duties."250 (emphasis in
original, underlining added)  Indeed, the Panel came to this conclusion by interpreting the French andSpanish versions of the term "ordinary customs duty" to mean something  different  from the ordinary
meaning of the English version of that term.  It is difficult to see how, in doing so, the Panel took into
                                                     
247Panel Report, para. 7.52.
248Ibid. , para. 7.62.
249Ibid.
250Ibid. , para. 7.52.WT/DS207/AB/R
Page 89
account the rule of interpretation codified in Article 33(4) of the  Vienna Convention   whereby "when
a comparison of the authentic texts discloses a difference of meaning …, the meaning which bestreconciles   the texts … shall be adopted." (emphasis added).
272. We also find it difficult to understand how the Panel could find "normative" support for its
reasoning by examining the Schedules of WTO Members.  We have observed in a previous case that
"[t]he ordinary meaning of the term 'concessions' suggests that a Member may yield rights and grantbenefits, but it cannot diminish its obligations".
251  A Member's Schedule imposes obligations on the
Member who has made the concessions.  The Schedule of one Member, and even the schedulingpractice of a number of Members, is not relevant in interpreting the meaning of a treaty provision,unless that practice amounts to "subsequent practice in the application of the treaty" within themeaning of Article 31(3)(b) of the  Vienna Convention .
252  In this case the Panel Report contains no
support for the conclusion that the scheduling activity of WTO Members amounts to "subsequentpractice".
273. Surely Members will ordinarily take into account the interests of domestic consumers and
domestic producers in setting their  applied  tariff rates at a certain level.  In doing so, they will
doubtless take into account factors such as world market prices and domestic price developments.These are  exogenous  factors,  as the Panel used that term.  According to the Panel, duties that are
calculated on the basis of such  exogenous  factors are  not  ordinary customs duties.  This would
imply that such duties be  prohibited   under Article II:1(b) of the GATT unless recorded in the "other
duties or charges" column of a Member's Schedule.  We see no legal basis for such a conclusion.
253
274. Moreover, not each and every duty that is calculated on the basis of the  value  and/or volume 
of imports is necessarily an "ordinary customs duty".  For example, in the case at hand, the  ad
                                                     
251Appellate Body Report, EC – Bananas III, supra , footnote 58, para. 154.  Panel Report in   United
States Restrictions on Imports of Sugar , adopted 22 June 1989, BISD 36S/331, para. 5.2.
252Appellate Body Report, European Communities – Customs Classification of Certain Computer
Equipment , WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851,
paras. 84, 90 and 93.  See also our paras. 213-214 of this Report.
253We stated in   Argentina – Textiles and Apparel , supra , footnote 55, para. 46, that "a tariff binding in
a Member's Schedule provides an upper limit on the amount of duty that may be imposed, and a Member is
permitted to apply a rate of duty that is less than that provided for in its Schedule."  Thus, the fact that the "cap"(recorded in the ordinary customs duty" co lumn of a schedule) is a specific or an ad valorem  duty does not mean
that a Member will not apply a tariff at a lower rate, or that the rate it applies will not be based on what thePanel calls " exogenous " factors.  Indeed, as we noted above, it is difficult to conceive that a Member would ever
make changes to its applied tariff rate except based on  exogenous factors such as the interests of domestic
consumers or producers.WT/DS207/AB/R
Page 90
valorem  duty is calculated on the  value  of the imports.  The calculation of the  specific  duty
resulting from Chile's price band system is, on the other hand, based, not only on the differencebetween the lower threshold of the price band and the applicable reference price, but also on thevolume  per unit of the imports.
275. We further note, in examining Article 4.2 of the  Agreement on Agriculture , that the  second 
sentence of Article II:1(b) of the GATT 1994, does  not  specify what form "other duties or charges"
must take to qualify as such within the meaning of that sentence.  The Panel's own approach ofreviewing Members' Schedules reveals that many, if not most, "other duties or charges" are expressedin  ad valorem  and/or specific terms, which does not, of course, make them "ordinary customs duties"
under the first sentence of Article II:1(b).
276. As context for this phrase in Article 4.2 of the  Agreement on Agriculture , we observe that
Article II:2 of the GATT 1994 sets out examples of measures that do  not  qualify as either "ordinary
customs duties" or "other duties or charges".  These measures include charges equivalent to internal
taxes, anti-dumping and countervailing duties, and f ees or other charges commensurate with the cost of
services rendered.  They too may be based on the value and/or volume of imports, and yet Article II:2distinguishes them from "ordinary customs duties" by providing that "[n]othing in [Article II] shall
prevent any Member from imposing" them "at any time on the importation of any product".
277. Contextual support for interpreting the term  "ordinary customs duties" also appears in
Annex 5 to the Agreement on Agriculture .  Annex 5, read together with the Attachment to Annex 5
("Guidelines for the Calculation of Tariff Equivalents for the Specific Purpose Specified in
Paragraphs 6 and 10 of this Annex "), contemplates the calculation of "tariff equivalents" in a way that
would result in ordinary customs duties "expressed as  ad valorem  or specific rates".  We do not find
an obligation in either of those provisions that would require Members to refrain from basing theirduties on what the Panel calls "exogenous factors".  Rather, all that is required is that "ordinarycustoms duties" be expressed in the  form  of "ad valorem  or specific rates".
278. In the light of the foregoing, we disagree with the Panel's definition of "ordinary customs
duties" and, therefore, we  reverse  the Panel's finding, in paragraph 7.52 of the Panel Report, that the
term "ordinary customs duty", as used in Article 4.2 of the Agreement on Agriculture , is to be
understood as "referring to a customs duty which is not applied to factors of an exogenous nature".
254
                                                     
254In doing so, we wish to underline that we are not saying that Chile's price band duties  are  "ordinary
customs duties" within the meaning of Article 4.2 of the Agreement on Agriculture .  We are merely saying that
Chile's price band duties take the  form   of "ordinary customs duties", rather than seeking to qualify them as
"ordinary customs duties" or as "any other duties or charges".WT/DS207/AB/R
Page 91
279. This does not change our conclusion that Chile's price band system is a  measure "similar" to
"variable import levies" or "minimum import prices" within the meaning of Article 4.2 and footnote 1of the  Agreement on Agriculture .  In other words, the fact that the  duties  that result from the
application of Chile's price band system take the same form as "ordinary customs duties" does not
imply that the underlying measure is consistent with Article 4.2 of the  Agreement on Agriculture .
280. We find, therefore, that Chile's price band system is inconsistent with Article 4.2 of the
Agreement on Agriculture.
IX. Article II:1(b) of the GATT 1994
281. In addressing Argentina's claim under Article II:1(b) of the GATT 1994, the Panel recalled
that it had found Chile's price band system to be a border measure "other than an ordinary customs
duty", which is prohibited under Article 4.2 of the  Agreement on Agriculture .  Having also found that
"ordinary customs duties" must have the same meaning in Article 4.2 of the  Agreement on
Agriculture  and Article II:1(b) of the GATT 1994, the Panel then concluded that duties resulting from
Chile's price band system do not constitute "ordinary customs duties" and that, therefore, "theirconsistency with Article II:1(b) cannot be assessed under the first sentence of that provision."
 255
282. The Panel further observed that Chile did not record its price band system in the column of its
Schedule for "other duties and charges" and stated, in this respect, that:
If other duties or charges were not recorded but are nevertheless
levied, they are inconsistent with the  second  sentence of
Article II:1(b), in light of the Understanding on the Interpretation of
Article II:1(b).  We note that Chile did not record its price band
system in the "other duties and charges" column of its Schedule.256
(emphasis added)
283. Based on this reasoning, the Panel then concluded that:
… the Chilean PBS duties are inconsistent with Article II:1(b) of the
GATT 1994.257
284. On appeal, Chile argues that the Panel erred in finding that the duties resulting from Chile's
price band system are "other duties or charges" prohibited by the second sentence of Article II:1(b).
                                                     
255Panel Report, para. 7.104.
256Ibid. , para. 7.107.
257Ibid. , para. 7.108.WT/DS207/AB/R
Page 92
285. We have reversed the Panel's finding that the duties resulting from Chile's price band system
constitute a violation of the  second  sentence of Article II:1(b) on the grounds that the Panel acted
inconsistently with Article 11 of the DSU.  We also note that the Panel made no finding on the  first 
sentence of Article II:1(b), because, in the Panel's view, the consistency of the duties resulting from
Chile's price band system could not be assessed under that provision.
286. Argentina asks us to rule that Chile's price band system is inconsistent with the  first  sentence
of Article II:1(b).  Argentina's request is, however, conditioned on our reversal of the Panel's findingthat Chile's price band system is inconsistent with Article 4.2 of the  Agreement on Agriculture .  As
this condition has not been fulfilled, and as Chile has not requested a finding with respect to the  first 
sentence of Article II:1(b), we do not see it as necessary for us to rule on whether Chile's price bandsystem is inconsistent with the first sentence of Article II:1(b) of the GATT 1994.
287. In this respect, we also recall our earlier conclusion on the issue of the order of analysis
between Article 4.2 of the  Agreement on Agriculture   and Article II:1(b) of the GATT 1994.  We said
that, if we were to find that Chile's price band system is inconsistent with Article 4.2 of the
Agreement of Agriculture , we would not need to make a separate finding on whether Chile's price
band system also results in a violation of Article II:1(b) of the GATT 1994 to resolve this dispute.
258
Thus, we make no ruling on Article II:1(b) of the GATT 1994.
X. Findings and Conclusions
288. For the reasons set out in this Report, the Appellate Body:
(a) finds that the Panel acted inconsistently with Article 11 of the DSU by making its
finding, in paragraph 7.108 of the Panel Report, that the duties resulting from Chile'sprice band  system are inconsistent with Article II:1(b) of the GATT 1994, on thebasis of the  second  sentence of that provision, which was not before the Panel, and,
therefore, reverses this finding;
(b) decides that the Panel did not err in choosing to examine Argentina's claim under
Article 4.2 of the  Agreement on Agriculture   before examining Argentina's claim
under Article II:1(b) of the GATT 1994;
(c) with respect to Article 4.2 of the  Agreement on Agriculture :
                                                     
258See para. 190 of this Report.WT/DS207/AB/R
Page 93
(i) upholds the Panel's finding, in paragraphs 7.47 and 7.65 of the Panel Report,
that Chile's price band system is a border measure that is similar to variableimport levies and minimum import prices;
(ii) reverses the Panel's finding, in paragraphs 7.52 and 7.60 of the Panel Report,
that an "ordinary customs duty" is to be understood as "referring to a customs
duty which is not applied on the basis of factors of an exogenous nature";
(iii) upholds the Panel's finding, in paragraphs 7.102 and 8.1(a) of the Panel
Report, that Chile's price band system is inconsistent with Article 4.2 of theAgreement on Agriculture ;
(d) decides, in the light of these findings, that it is not necessary to rule on whether
Chile's price band system is consistent with the  first  sentence of Article II:1(b) of the
GATT 1994.
289. The Appellate Body recommends that the DSB re quest Chile to bring its price band system,
as found, in this Report and in the Panel Report as modified by this Report, to be inconsistent with the
Agreement on Agriculture ,  into conformity with its obligations under that Agreement.WT/DS207/AB/R
Page 94
Signed in the original at Geneva this 9th day of September 2002 by:
_________________________
Georges Michel Abi-Saab
Presiding Member
_________________________ _________________________
James Bacchus John Lockhart
Member Member