WT/DS207/RW 
Page C-52  
 
  ANNEX C-2
* 
 
REBUTTAL BY CHILE 
(24 MAY 2006) 
  
TABLE OF CONTENTS 
  
I.
 INTRODUCTION ..............................................................................................................C-54  
II. SCOPE OF THE PRESENT ARTICLE 21.5 PROCEEDINGS ....................................C-55  
1. Spirit of Article 4 of the Ag reement on Agriculture ........................................................C-58  
III. THE SYSTEM IN FORCE SINCE THE ENACTMENT OF LAW 19.897 AND 
ITS REGULATIONS DOES NOT DISCONNECT THE INTERNATIONAL MARKET ......................................................................................................................... ...C-58
 
1. The overcompensation alleged by Argentina does not exist............................................C-60  
2. The "modified system" does not moderate the fluctuations of world market 
prices ......................................................................................................................... ...........C-61  
3. The parameters of the Law are not insulating Chile's market .......................................C-62  
(a) Floor and ceiling .............................................................................................................. .....C-62  
(b) Reference prices............................................................................................................... .....C-63  
IV. OTHER CLAIMS UNDER ARTICLE 4.2 OF THE AGREEMENT ON 
AGRICULTURE ................................................................................................................C-65  
1. The "modified system" is transparent and predictable ..................................................C-65  
2. The "modified system" is not a measure si milar to a variable import levy ..................C-67  
3. The "modified system" does not sustain a price ..............................................................C-69  
4. The "modified system" is not a measure si milar to a minimum import price ..............C-72  
5. The "modified system" improves the conditions of access to the Chilean market .......C-77  
(a) Effects of the scheduled reduction in the floor and ceiling prices ........................................C-78  
V. THE CLAIMS RELATING TO THE FACTOR OF 1.56 AND ARTICLE II:1.B, 
SECOND SENTENCE, OF THE GATT 1994 DO NOT FALL WITHIN THE 
TERMS OF REFERENCE OF THE PRESENT PANEL ..............................................C-80  
1. The factor of 1.56 does not fall within the te rms of reference of the present Panel......C-80  
(a) Technical basis of the factor of 1.56.....................................................................................C-82  
2. Argentina's claim with respect to the second sentence of Article II:1(b) of the 
GATT 1994 likewise does not fall within the terms of reference of the present Panel.......................................................................................................................... ...........C-82
 
VI. CONCLUSI ON ...................................................................................................................C- 83 
 
                                                      
* Annex C-2 contains the rebuttal by Chile.  This te xt was originally submitted in Spanish by Chile.  WT/DS207/RW 
 Page C-53 
 
 
  TABLE OF REPORTS CITED 
 
Short title Full title and reference 
Chile – Price Band System Panel Report " Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products"  WT/DS207/R, adopted 
23 October 2002.   
Chile – Price Band System  Appellate Body Report " Chile – Price Band System and Safeguard 
Measures Relating to Cert ain Agricultural Products"  
WT/DS207/AB/R, adopted 23 October 2002.    
EC – Bed Linen (Article 21.5 – India) Appellate Body Report " European Communities – Anti-Dumping 
Duties on Imports of Cotton-Type Bed Linen from India – Recourse by 
India to Article 21.5 of the DSU", WT/DS141/AB/RW, adopted 
24 April 2003.  
EC – Poultry Cuts (Article 21.3) 
 Award of the Arbitrator, " European Communities – Customs 
Classification of Frozen  Boneless Chicken Cuts" .  Arbitration under 
Article 21.3(c) of the DSU, WT/DS269/13 and WT/DS286/15 
Canada – Aircraft  
(Article 21.5 – Brazil)  Appellate Body Report " Canada – Measures Affecting the Export of 
Civilian Aircraft".  Recourse by Brazil to Article 21.5 of the DSU, 
WT/DS70/AB/RW, adopted 21 July 2000. 
US – Softwood Lumber IV (Article 21.5 – Canada) Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from 
Canada.  Recourse by Canada to Article 21.5 of the DSU, 
WT/DS257/AB/RW, adopte d 20 December 2005. 
US – Countervailing Measures on 
Certain EC Products  
(Article 21.5 – EC) Panel Report " United States – Countervailing Measures on Certain EC 
Products – Recourse by the European Communities to Article 21.5 of 
the DSU", WT/DS212/RW, adopted 27 September 2005.  WT/DS207/RW 
Page C-54  
 
  I. INTRODUCTION 
1. In its written rebuttal Chile will show, as clearly and technically as possible, without resorting 
to euphemisms or pleas that add no value to th e discussion, that it did correctly understand the 
Appellate Body's conclusions, as well as Argentina' s arguments, even though it certainly does not 
agree with them.  Chile considers that those arguments are based on a misunderstanding of the 
Appellate Body's conclusions, especially with respec t to the characteristics that make a levy that 
varies a "variable levy" inconsistent with Article 4.2 of the Agreement on Agriculture and a minimum 
import price a border measure inconsistent with that same article. 
2. Since, in its rebuttal, Argentina
1 calls into question the defence offered by Chile, we consider 
it our duty to make it clear to the members of the Pa nel that what is important is to examine how Chile 
has implemented the recommendations and rulings of the DSB rather than to attempt to refute each 
and every one  of the claims raised by Argentina, especially those that do not fit in with the findings of 
the DSB.  Chile's objections to Argentina's claims  and arguments will become clear from reading our 
arguments, since Argentina's analysis is based on an approach different from that taken by the 
Appellate Body in reaching its decisions and displa ys an ignorance of the changes introduced by Law 
19.897 and Regulation No. 831/2003. 
3. If Chile were to confine itself to refuting each of Argentina's claims individually, it would 
lose the opportunity to focus on the issues of releva nce to a recourse to Article 21.5 of the DSU.  
Moreover, proceeding in that way would be of littl e use in helping the members of the Panel to 
understand how the changes which Chile has introdu ced have made it possible to implement the 
recommendations of the DSB in full. 
4. Since for Argentina2 the measure is still similar to a variable import levy and/or a minimum 
import price, the point of departure can only be th at indicated by the Panel and the Appellate Body 
with respect to the elements which make up such measures.  As no definition of these terms exists, 
Chile must seek one in the rulings and recommendations of the DSB. 
5. Chile has defined a "variable levy" as it was understood by the Appellate Body and as we 
believe it to be understood by the Members of the WTO, although apparently not by Argentina.  The 
Appellate Body has stated, and Chile agrees, that  a levy is not necessarily a "variable levy" just 
because it varies, not even if it incorporates a fo rmula that makes the variability automatic and 
continuous.3  This is not a sufficient condition.  It is also necessary to make sure that there is no 
transmission of international prices to domestic prices .  To prevent variations in international prices 
being reflected in the domestic market, a price must be "sustained", a questionable feature of "variable 
levy" systems.  In the opinion of the Appellate  Body, the PBS did precisely this because certain  
features – that is to say, only some of them – made it non-transparent and unpredictable. 
6. In amending its legislation, in accordance with  the recommendations and rulings of the DSB, 
Chile dealt with these "certain features" identified,  analysed and questioned by the Appellate Body.  
Without them it is impossible to sustain a price, as Chile comprehensively showed in its First Written 
Submission, and the system now in force is not in consistent with the aforementioned Article 4.2, 
although Argentina takes a different view. 
7. The original panel noted that whereas variable  levies are generally based on the difference 
between a governmentally determined threshold  and the lowest world market offer price, minimum 
import price schemes generally operate in relation to the actual transaction value of the imports. 
                                                      
1 Argentina's Second Written Submission, paragraph 14.  
2 Argentina's Second Written Submission, paragraph 12.  
3 Paragraph 234 of the Appellate Body Report  WT/DS207/RW 
 Page C-55 
 
 
  8. At present, in Chile, specific duties are applied by decree and do not vary throughout the 
period of validity of that decree, that is to say, the duty is the same irrespective of the transaction price 
or a governmentally determined price.  For the system to have been comparable with a minimum 
price, a specific price would have had to have been  established and, in all cases, a duty equivalent to 
the difference between that price and the transaction value of an import would have had to have been 
demanded, a situation which does not exist in Chil e either by design or through the effects of the 
duties applied.  Thus, from this standpoint, the syst em currently in force is likewise not inconsistent 
with the aforementioned Article 4.2. 
9. Argentina says that Chile should have abolished its PBS because the Appellate Body so 
established.4  Firstly, we do not share this view because  nowhere in its report does the Appellate Body 
require (or even recommend) Chile to abolish its PBS.  Secondly, it is settled WTO case-law that 
Members have a measure of discretion in selecting th e means of implementation.  And, thirdly, the 
Appellate Body does not say what Argentina claims it  does, because although it may be true that if a 
measure was inconsistent with Artic le 4.2 it would not be possible to continue levying duties resulting 
from the application of that measure, if the measure in  question was not inconsiste nt with that article – 
like the system in force since the enactment of Law 19.897 and its Regulations – then those duties 
could be levied.  
10. For the sake of an orderly discussion, this  written submission will follow the outlines of 
Argentina's rebuttal (hereinafter, the Rebuttal or  Second Written Submission), although this should 
not be taken to imply that we agree with that order or, for that matter, with the arguments used by our 
neighbour country.  On the contrary, while follo wing Argentina's structure, we will address those 
aspects that are worth refuting from the technical poi nt of view but at the same time centre the 
analysis on that which is relevant to the Panel's decision.   
11. Finally, as part of this effort to focus on the essentials of the dispute, it is worth commenting 
on paragraph 14 of the Rebuttal.  In its First Written Submission, Chile actually refrained from 
refuting several of Argentina's erroneous statemen ts because, through a biased interpretation of the 
Appellate Body's conclusions, they sought to l ead the discussion toward nonessential issues.  As 
follows from the aforementioned paragraph, Argentin a now seeks to lead the discussion towards what 
it considers to be the central issue by trying to organize Chile's arguments "according to how they 
presumably should correspond to the Argentine claims".5 
II. SCOPE OF THE PRESENT ARTICLE 21.5 PROCEEDINGS 
12. Chile shares the view expressed by Argentina in paragraph 18 of its Rebuttal, which also 
reflects the findings of the Appellate Body, that is, that the consistency of a measure taken to comply 
should be examined in the light of the covered agre ements.  However, the point raised by Chile in 
Section IV.1 of its First Written Submission is very different. 
13. Argentina does not base its claims or arguments  on new inconsistencies;  on the contrary, it 
focuses on Article 4.2 of the Agreement on Agriculture.   What Argentina does is to offer a (in Chile's 
view, mistaken) reading of what the Appellate Body  understood to be the lack of transparency and 
predictability of certain features of the PBS a nd the insulation that it produces with respect to 
domestic prices. 
14. In its First Written Submission, Chile showed wh at was the correct inte rpretation of the scope 
of the recommendations and rulings of the DSB.  In  its Rebuttal, Argentina confines itself to claiming 
                                                      
4 Paragraph 317 of the Rebuttal 
5 Paragraph 14 of Argentina's Rebuttal WT/DS207/RW 
Page C-56  
 
  that Chile misinterpreted the findings and c onclusions of the Panel and the Appellate Body
6, without 
explaining why Chile failed to interpret them corr ectly, or giving its own interpretation (presumably 
the correct one) of the scope of these findings and co nclusions.  Argentina merely transcribes the final 
paragraphs of the reports of the original panel and the Appellate Body, which only recommended that 
the DSB request Chile to brings its PBS into conformity. 
15. As we stated in paragraph 67 ff. of our Firs t Written Submission, the determination of the 
scope of "measures taken to comply" should incl ude the examination of the recommendations and 
rulings in the original report or reports adopted by the DSB, as the Appellate Body stated in US – 
Softwood Lumber IV (Article 21.5 – Canada), recommendations and rulings which, being a "final 
resolution" of the dispute, cannot have a broad interpretation without thereby impairing the due 
process rights of the parties to the dispute. 
16. Therefore, in analysing the "measures taken to comply", an Article 21.5 panel and the 
Appellate Body must necessarily study the scope of the recommendations and rulings of the DSB.  Argentina, moreover, appears to be aware of this standard when in paragraph 102 of its Rebuttal it 
states:  "Thus, there can be no doubt that Argentina is applying the findings of the Appellate Body 
with respect to the transparency and predictability of the floor and ceiling of the original PBS to the 
way in which those parameters are established in the amended PBS".  
17. However, even though Argentina's starting poin t appears to be correct, the end result is wrong 
because in its claims and arguments it applies an  erroneous interpretation of the findings of the 
Appellate Body, as Chile showed in its First Written Submission. 
18. In other words, although an Article 21.5 review may not be confined to the claims, arguments 
and factual circumstances relating to the measure th at formed the subject of the original proceedings
7 
and although, on the contrary, the analysis may be  conducted from a standpoint different from that 
taken by the original panel, this must necessarily  be based on the findings and conclusions of the 
original proceedings.  It is these findings and c onclusions, expressed in a recommendation, that must 
be "implemented" and not something which a nother Member would prefer to believe.   
19. Paragraph 261 of the Appellate B ody's report cited by Argentina8 says precisely what Chile 
maintains, namely, that the Appellate Body did no t question all the features of the PBS but only 
certain  features.  This paragraph expressly refers to " … all these specific features of Chile's price band 
system. "  That is to say, it is not a question of any feature, as Argentina alleges, but of (1) specific 
(and thus limited) features and (2) features analysed  by the Appellate Body.  If it had wanted to refer 
to any feature of the PBS, the Appellate Body woul d have used other terms such as, for example, the 
features  of the PBS.  However, it did not. 
20. Support for this interpretation comes from the phrase in the above-mentioned paragraph 261 
of the Appellate Body's report which reads: "… particular  configuration and interaction ..." 
(underlining added).  The word "particular" sugg ests that the PBS was, in the Appellate Body's 
opinion, inconsistent with Article  4.2 not only because it possessed certain features but also because 
of the special or unique way in which these featur es were configured and interacted.  Thus, the 
Appellate Body itself said that it was not going to  take any view on "the consistency with WTO 
obligations of price band systems in general, or th e consistency with WTO obligations of any specific 
price band system that may be applied by any other Member".9 
                                                      
6 Paragraph 20 of the Rebuttal 
7 Canada – Aircraft (Article 21.5 – Brazil) , Appellate Body Report, WT/DS70/AB/RW, paragraph 41.  
8 Paragraph 26 of the Rebuttal 
9 Paragraph 203 of the Appellate Body Report.  WT/DS207/RW 
 Page C-57 
 
 
  21. However, when one reads Argentina's submissions  it is clear that all this analysis by the 
Appellate Body has been ignored and that Arge ntina argues by citing isolated passages from the 
reports or sentences from Chile's arguments that are incomplete or taken out of context, thereby developing a reasoning that somehow distorts th e meaning and scope of the recommendations and 
rulings of the DSB. 
22. Moreover, even though it runs counter to its main  tactic of questioning the system in general, 
starting with paragraph 111, Argentina attempts to identify these special features, despite the fact that 
the Appellate Body has already done so in its report.   Argentina, however, seeks them primarily in the 
Panel Report, particularly in its paragraphs 7.44 and 7.61. 
23. However, the first of these paragraphs does not mention any different circumstance
10, in the 
determination of the reference prices, not subse quently picked up by the Appellate Body and taken 
into account by Chile in enacting Law 19.897 and it s Regulations.  That is to say, the difficulties 
encountered by exporters in knowing how the refere nce price was arrived at are, as the Panel said, 
factors unknown.  
24. Furthermore, Argentina itself appears to acknowle dge this, since in paragraph 115 it mentions 
the "crucial stages" identified by the Panel which ar e nothing other than those always referred to by 
Chile (because the Appellate Body so concluded): th e determination of the reference price; the 
determination of the floor and ceiling; and the conversion to c.i.f. prices.   
25. In the next paragraph Argentina identifies th e paragraphs of the A ppellate Body's report 
which incorporate the findings of the original pane l and which, again, side with Chile.  Even though 
Argentina neglects to mention the paragraphs of th at report in which the Appellate Body explains how 
the specific characteristics of the PBS are actually ma nifested, for example, paragraphs 249 and 251, 
the first two references coincide with what Chile has said.  However, an inspection of the third reveals 
another error in Argentina's conclusions, possibly at tributable to its partial reading of the Appellate 
Body's report.  The paragraph in question states:11  
"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 fluctuat ion of the duties resulting from Chile's price 
band system.  Thus, the fact that Chile's price band system is subject 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 bo rder 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." 
26. The text is the conclusion of the analysis  made by the Appellate Body concerning the 
incorporation of a bound tariff "cap" in the PBS.  However, it is not necessary to analyse the whole of 
the reasoning and its context, since a mere reading of  the paragraph is sufficient to reveal Argentina's 
misinterpretation.  The analysis of the incorpor ation of the bound tariff cap made by the Appellate 
Body naturally incorporates the other elements of its  analysis concerning the PBS where, as has been 
pointed out, the application of the system led to two simultaneous transactions being assessed with 
                                                     
 
10 Nor does paragraph 7.63 of the original panel's report, since they were also picked up by the 
Appellate Body. 
11 Appellate Body Report, paragraph 259. WT/DS207/RW 
Page C-58  
 
  different specific duties, all of which led the Appellate Body to conclude that the system was 
inconsistent with Article 4.2 of the Agreement on Agriculture. 
27. Having performed this analysis, the Appellate B ody also considered whether the existence of 
the cap had any relevance.  Its reply can be found in  the paragraph cited where it concludes that it did 
not, since the existence of the cap did not affect its  conclusion that the PBS was a measure similar to 
variable import levies and minimum import prices.  In this context, Argentina's reference to the 
fluctuation of duties (which is unrelated to the va riability) concerns the possible interference from the 
application of the cap which, as the A ppellate Body pointed out, "does not eliminate  the lack of 
transparency or the lack of predictability". 
28. Furthermore, in paragraph 118 of its Rebuttal, Argentina acknowledges that the reports of the 
original panel and the Appellate Body did not address all the "specific features of the PBS".  If these 
other features were not addressed, there cannot have been a finding and, therefore, Argentina cannot 
conclude that these other features also form part of  the Appellate Body's conclusion in the sense that 
they suffer from a lack of transparency or predic tability.  Quite simply, the Appellate Body did not 
address them (and did not rule on them) because they were not "such fundamental and central aspects" 
of the PBS.  In other words, they were not what made the PBS a measure similar to a variable import 
levy or minimum import price. 
1. Spirit of Article 4 of the Agreement on Agriculture 
29. Article 4.2 of the Agreement on Agriculture does not contain the words transparency and 
predictability.  The Appellate Body noted that the measures mentioned in the footnote to that article 
"have in common also that they disconnect domes tic prices from international price developments, 
and thus impede the transmission of worl d market prices to the domestic market."
12 Later, in 
examining variable levies, the Appellate Body pointed  out that they have additional features (over and 
above the variability of the duties), including a lack of transparency and predictability.  Features 
which also contribute to distorting the prices of im ports by impeding the transmission of international 
prices to the domestic market.13 
30. Consequently, in the light of these references, it is difficult to argue that the requirements of 
transparency and predictability are part of the "spirit"14 or "requirements derived"15 from Article 4 of 
the Agreement on Agriculture.  Ar gentina appears to extend the Appellate Body's analysis of certain 
additional features of variable levies – an analysis  that was applied to the PBS - to any measure 
envisaged in Article 4.2.  That is to say, to create obligations where the negotiators did not. 
31. In other words, Argentina appears to claim that  any measure applied in the agricultural sector 
that is not transparent and/or predictable is in consistent with Article 4.2 of the Agreement on 
Agriculture. 
III. THE SYSTEM IN FORCE SINCE THE ENACTMENT OF LAW 19.897 AND ITS 
REGULATIONS DOES NOT DISCONNE CT THE INTERNATIONAL MARKET  
32. At the beginning of Section B.5 of its Rebuttal,  Argentina transcribes parts of paragraphs 180 
and 181 of Chile's First Written Submission wit hout explaining why it did so.  However, the 
underlining would appear to suggest that what con cerns our neighbour is the fact that the specific 
duties (or rebates) assessed unde r the law currently in force ar e unrelated to the commercial 
                                                      
12 Paragraph 227 of the Appellate Body Report. 
13 Paragraph 234 of the Appellate Body Report. 
14 Paragraph 120 of the Rebuttal 
15 Paragraph 121 of the Rebuttal  WT/DS207/RW 
 Page C-59 
 
 
  transactions.  Or as stated in other paragraphs of its Rebuttal16, the resulting duties are unaffected by 
changes in international prices. 
33. This shows that Argentina, despite the explanati ons offered by Chile (as, for example, in the  
part of paragraph 181 of its First Written Submissi on that Argentina does not transcribe), still fails to 
understand how the system established by Law 19.897 ope rates.  The fact that the duties (or rebates) 
applicable are unrelated to the value of intern ational transactions and international prices, as 
Argentina repeatedly asserts, is an inherent feature of any specific duty .  It is in the nature of these 
duties to be applied independently of the transacti on value, thereby allowing goods to enter at any 
price subject to the application of a given speci fic duty, which in this case does not vary for two 
months with the price of the goods or with world pri ce trends.  That is to say, international prices may 
fall (or rise) during the application of a specific dut y but the latter will remain the same, and therefore 
the entry price will necessarily reflect any fluctuations. 
34. More particularly, Chile cannot let pass the assertion in paragraph 143 of Argentina's 
Rebuttal.  Chile's alleged "confession" should necessar ily end with the words "transaction value" since 
Chile never said that the duties applied "are … in sulating Chile's market from international price 
developments".  Firstly, because it is logically inco rrect and, secondly, because it would confirm what 
Argentina claims, which we certainly do not accept.  Without prejudging Argentina's motivation, we 
regret all assertions of this kind as they merely confuse the issue.  
35. In order to defend its position that the distortion of price transmission "is a feature 
challengeable as such"17 Argentina refers to paragraphs 250 a nd 251 of the Appellate Body's report. 
However, a reading of these paragraphs leads to quite the opposite conclusion. 
36. The relevant part of paragraph 250 reads as follows: 
"Therefore, the way in which Chile's we ekly reference prices are determined 
contributes to giving Chile's price band system the effect  of impeding the 
transmission of international price devel opments to Chile's market" (underlining 
added). 
37. While the relevant part of 251 states: 
"… 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" (underlining added). 
38. In the first citation, the Appellate Body notes that the lack of transmission is the effect18 of the 
way in which the reference prices are determined, i.e., the cause.  In the second, the Appellate Body 
makes this point again, with respect to the refe rence prices being determined on a weekly basis. 
39. In support of its argument Argentina also ma kes reference to the much-mentioned paragraph 
261.19  But once again, this paragraph states precisely the opposite.  Namely, that no particular feature 
of the PBS has the effect  of disconnecting Chile's market fro m international price developments. 
                                                      
16 For example, paragraphs 53 and 143. 
17 Paragraph 31 of the Rebuttal. 
18 According to the Dictionary of the Spanish Academy: 
Effect  (from Lat . effectus ) 1.  That which follows by virtue of a cause. 
19 Paragraph 33 of the Rebuttal. WT/DS207/RW 
Page C-60  
 
  40. Finally, Argentina has been unable to point to any paragraph of the Appellate Body's report in 
which it is indicated that the lack of transmission is  not the effect of the lack of transparency and 
predictability of certain features of the PBS but a fe ature proper, separate and challengeable in itself.  
Unfortunately for Argentina, this paragraph does not  exist, because the disconnection of the domestic 
market or lack of transmission of international prices is the consequence (and often the deliberate 
objective) of the lack of transparency and predicta bility of certain features of the measures listed in 
the footnote to Article 4.2 of the Agreement on Agri culture, of which, in the opinion of the Appellate 
Body, the PBS was one. 
41. Nevertheless, to clarify the issue for the Panel, Chile will review the various points raised by 
Argentina in its efforts to prove the disconnection of Chile's market from international markets and 
show that, in addition to having no basis in the recommendations and rulings of the DSB, they are 
incorrect.  
1. The overcompensation alleged by Argentina does not exist 
42. In its Rebuttal, Argentina
20 challenges paragraphs 165 ff. of  Chile's First Written Submission 
and concludes, firstly, that "contrary to what Ch ile says, paragraph 260 of the Appellate Body Report 
is an integral part of its conclusions."  Secondly, it adds that Chile appears not to have read paragraph 
261, from which, in its opinion, it is clear that  the words "conclusion" and "these specific features" 
can only refer to paragraph 260. 
43. Chile has already referred to this point and h as given clear expression to the reasoning of the 
Appellate Body, which, indeed, calls for nothing mo re than an attentive reading of the relevant 
paragraphs taken in conjunction .  
44. Likewise, although this dispute may have been unique in several respects, it is not because 
Chile has alleged that the Appellate Body  erred in its analysis, as Argentina says.21  T h e  
misconstruction arises from a lack of clarity in Chile's  explanation of how the PBS operated.  The fact 
that Chile failed to explain its operation properly cannot justify its now being argued that the PBS 
functioned differently from the way it did during the original dispute.  
45. Chile's intention was simply to show that there was no overcompensation either in the past or 
now following the changes.  Chile is not evading its responsibility for the misconstruction, but that 
does not invalidate what it said in its First Written Submission.   
46. Moreover, with respect to the existence of overcompensation, Chile showed that such 
overcompensation does not exist.22 
47. Argentina refers to its mathematical demonstra tion of overcompensation in paragraphs 127 to 
132 of its First Written Submission, where it conclud es that as  international prices – for both wheat 
and flour – fall, Chilean entry prices increase.   
48. Argentina's error is rooted in the fact that it di sregards the existence of a definite schedule for 
the application of specific duties or rebates,  or neither.  This schedule is as follows:23 
From 16 December to 15 February; 
From 16 February to 15 April; 
                                                      
20 Rebuttal, paragraph 37 ff. 
21 Paragraph 40 of the Rebuttal. 
22  Section V.5 of Chile's First Written Submission. 
23 Article 5 of the Regulations.  WT/DS207/RW 
 Page C-61 
 
 
  From 16 April to 15 June; 
From 16 June to 15 August; From 16 August to 15 October; 
From 16 October to 15 December. 
49. What Argentina calls "additional evidence"
24 corresponds to two specific dates (from 15 to 16 
December 2004 and from 15 to 16 February 2005) when  the border tariffs changed as a result of the 
above-mentioned schedule.  These moments in time at which what Argentina calls 
"overcompensation" can occur are a reflection of the change in specific duties.  Naturally, if the duty 
changes – as a consequence of price developments on the markets of concern – there will be a change 
in specific duties (or rebates or  nothing will happen) .  This adjustment may be greater on the dates on 
which one market of concern is ch anged for another, but that will onl y reflect the difference of prices 
between the United States and Argentina at the changes of season.  
50. Nevertheless, this change does not mean that domestic prices are disconnected from 
international ones but rather that once the change has occurred domestic prices go back to following 
the international trend, albeit with a greater (or lesser) difference between the two, which will depend 
on the price variation on the markets of concern before and after the change.   
51. The situation is exactly the same if we consider what happens when an ad valorem duty 
changes, and is even clearer in countries with seasonal tariffs, where the protection changes (rises or 
falls) on the day that the tariff changes.  In other words, the day on which an increase (or reduction) in 
the duties applied by a Member takes effect th e "overcompensation" a lleged by Argentina (or 
under-compensation) will always follow, but imme diately afterwards international prices will 
continue being reflected in the domestic market prices. 
52. Finally, it should be noted that Argentina's dem onstration with respect to wheat flour suffers 
from the same defects as in the case just mentioned. 
2. The "modified system" does not moderate th e fluctuations of world market prices 
53. In Section 2.2 of its Rebuttal, Argentina persis ts in referring to the dates on which the tariffs 
change in accordance with the pre-established sch edule, arguing that this seasonality constitutes a 
defect.  However, the border duties levied by Chile on wheat and wheat flour behave in the same way as an ordinary customs duty .  
54. Although Argentina says otherwise, Exhibits ARG-11 and ARG-12, together with the graph 
mentioned in paragraph 154 of Ch ile's First Written Submission, show that there is a correlation 
between international prices, entry prices and the domestic price.
25  Nevertheless, this correlation 
clearly cannot be perfect, as Argentina seems to believe.26  Firstly, as has been repeatedly pointed out, 
the fact is that the tariffs on wheat change in accordance with a pre-establi shed schedule.  This 
explains the specific changes to which Argentin a refers in paragraph 71 of its submission.  
                                                      
24 Paragraph 133 of Argentina's First Written Submission. 
25 According to paragraph 64 of Argentina's Rebuttal, Exhibits ARG-11 and ARG-12 cannot be an 
"illustration" of the same as the graph in paragraph 154 of Chile's submission because the former are based on 
daily data and the latter on monthly data.  Without getting into a semantic discussion of the meaning of the word 
"illustration", Chile would like to make it clear that irres pective of the period of measurement of the 
information, the objective is to observe the behaviou r of the variables in time, and in this respect the 
information provided by Chile "shows" the same thing .  The sources of the information, both daily and 
monthly, are clearly indicated in  all cases (SAGPyA and ODEPA). 
26 Paragraphs 68 and 69 of the Rebuttal. WT/DS207/RW 
Page C-62  
 
  55. Secondly, the Chilean graph cited by Argentin a in paragraphs 68 and 69 compares the trend 
in the f.o.b. price for Argentine bread wheat with the price of wheat on the wholesale market 
("wholesale wheat price"), and not with the entry price
, as Argentina suggests.  The price of wheat – 
and its fluctuations – on the wholesale market is heavily influenced by the domestic wheat supply 
naturally available during the harvest months (Decemb er to March).  Thus, it is impossible to claim a 
complete connection, as Argentina seeks to do.  
56. In paragraph 59 of the Rebuttal, Argentina again misunderstands the changes introduced by 
Law 19.897.  It notes that the specific duties do not vary and from that it deduces non-compliance with the recommendations and rulings of the DS B insofar as the transaction price is of no 
consequence, in circumstances in which, as has rep eatedly been pointed out, Chile applies a specific 
duty.  Moreover, citing
27 the Appellate Body on the disconnection of the reference price under the 
PBS, Argentina asserts that this disconnecti on is maintained.  This assertion is false. 
57. Finally, Chile would like to comment on paragra ph 66 of Argentina's Rebuttal.  This reads: 
"Therefore, the Chilean graph does not represent only the periods in which the bands 
were activated, or the periods relevant for the analysis, but the trend in FOB prices for 
Argentine bread wheat and the Chilean en try price from December 2003 to February 
2006.  In fact, as follows from Exhibit ARG- 6, specific duties were applied between 
December 2004 and April 2005, due to the pr ices recorded by wheat on the markets 
of concern from the entry into force of the amended PBS.28  This is the relevant 
period for observing the behaviour of the ame nded PBS.  As distinct from the Chilean 
graph, Exhibit ARG-12 plots only the period of application of specific duties."  
58. Argentina is apparently seeking to introduce a new assessment parameter for the rulings and 
recommendations of the DSB, the "relevant period".  In addition to it being odd that measures should 
have to be judged on the basis of the effects they produce in certain periods, with any Member being 
able to define which periods are most relevant, th e argument is at least as strange when contrasted 
with what Argentina has been insi nuating throughout the present dispute. 
3. The parameters of the Law are no t insulating Chile's market 
59. In Sections 2.3 and 2.4 of the Rebuttal, Argen tina argues that the chang es introduced by Chile 
have not contributed to improving the insulation of domestic prices from international price variations 
because the floor, ceiling and reference price para meters are not now directly linked with the 
international prices in effect.  
(a) Floor and ceiling 
60. Contrary to what Argentina says29, there are no explanations, evidence or arguments in 
Sections 2.5 and 2.6 of its First Written Submission to confirm that the current parameters mentioned 
above are insulating Chile's domestic market from in ternational price fluctuations.  The sections in 
question only conclude that these parameters are perfectly well known and that therefore transparency 
exists in this respect. 
61. Argentina appears to interpret the Appellate Body report as requiring specific changes in the 
PBS, in the sense that the floors and ceilings, like the reference prices used for determining the 
specific duties (or rebates or neither), should be est ablished strictly as a function of the international 
                                                      
27 Paragraph 60 of the Rebuttal. 
28 Rebates were also applied from December 2003 to August 2004. 
29 Paragraphs 80 and 88 of the Rebuttal.  WT/DS207/RW 
 Page C-63 
 
 
  prices in effect.  If so, it would be helpful if Argentina were to indicate the precise part of the 
Appellate Body's report on whic h its interpretation is based.  
62. It can be inferred from Argentina's reasoning th at to prevent disconnection and allow price 
transmission it is essential that prices be based on in ternational prices.  Nevertheless, Argentina fails 
to offer any argument or demonstration that could be  regarded as positive proof of this.  Chile, on the 
other hand, does demonstrate the existence of pri ce transmission following the changes introduced by 
Law 19.897.30  
63. In fact, Chile clearly explains that the floor  and ceiling parameters (and reference prices) 
have, as a product of the new law, the sole purpo se of making it possible to determine the border 
protection that will be applied to wheat and wheat fl our in accordance with a pre-established schedule.  
From a reading of Argentina's submissions it follows that it is perfectly familiar with the parameters 
in question, that is to say th at the changes have achieved the objective of ensuring transparency. 
64. In spite of this, Section 2.3 of Argentin a's Second Written Submission goes further and 
questions the origin of the floor and ceiling pa rameters.  Thus, Argentina appears to take 
"transparency" to mean the impl ementation by Chile of a paramete r selection mechanism that would 
have been acceptable to Argentina. 
65.  The origin of the parameters is not relevant  for determining whether or not Law 19.897 is in 
conformity with Chile's WTO commitments.  They  make it possible to estab lish, transparently and 
predictably, the border protection which Chile, like any other Member of the WTO, has independently 
found to be reasonable and appropriate for wheat a nd wheat flour.  Argentina appears to take the 
requirements of transparency to the extreme.  Ho wever, there is no WTO provision that obliges a 
Member to provide explanations of why it has estab lished a particular level of tariff protection, why 
the levels are differentiated or why they are lower th an the bound tariff level.  All it is obliged to do is 
to honour its commitments, that is to say, not to exceed the bound tariff level. 
66. Obviously, any change in the parameters  will affect the level of protection  granted to these 
products.  For example, if the floor parameter were  established at 110 dollars, the resulting level of 
protection would be lower.  On the other hand, if  it were established at 140 dollars, the resulting 
protection would be higher.  
67. Finally, the reduction of the floor parameter from 128 to 114 dollars a nd the ceiling parameter 
from 148 to 134 dollars has nothing to do with the objectives of preventing the disconnection of the domestic market and improving price transmission.  Its purpose is gra dually, over a period of years, to 
improve access to the Chilean market.  Chile clearl y explains and demonstrat es that improvement in 
market access in Section V.6. of its First Written S ubmission.  In this connection, it is important to 
note that at no point did the Appellate Body lay down such an improvement in access conditions as a 
requirement; nevertheless Chile independently judg ed it desirable to implement the aforementioned 
reduction.  
(b) Reference prices 
68. According to paragraph 91 of the Rebuttal, Ch ile has been unable to show that Argentina 
interprets the conclusions of th e Appellate Body in a broad a nd comprehensive manner.  A good 
example of this is paragraph 82 of the Rebuttal.  In that paragraph, Argentina appears to be saying that 
the way in which the specific du ties are assessed on the basis of Law 19.897 and its Regulations is 
insulating the Chilean market from international price developments. 
                                                     
 
30 Section V.3. of Chile's First Written Submission. WT/DS207/RW 
Page C-64  
 
  69. The Appellate Body noted that this insulati on occurred, as far as the determination of 
reference prices is concerned, for two reasons only.  The first was because the prices were set in a way 
that was neither transparent nor predictable, the second because they were set on a weekly basis.
31 
70. Nevertheless, in adapting its legislation, Chile  corrected these aspects also, as explained in 
paragraphs 111 ff. of its First Wr itten Submission.  Now, however, Ar gentina alleges that Chile was 
required not only to publish the reference markets but also to explain why it chose those markets32, 
adding that the reference price cannot be mainta ined unchanged and ought to be linked with the 
transaction value. 
71. Under the PBS the reference price was never linked with the transaction value, but in 
addition, as there was no relevant provision in the laws and regulations, it was possible for the 
"markets of concern" to be chosen arbitrarily by  the authorities for price maintenance purposes.  In 
other words, it was possible to seek a reference pric e that enabled the amount of the specific duties to 
be "inflated", a term used by the Appellate Body in referring to the conversion to c.i.f. prices33 but 
equally valid here, precisely because the end purpose was to maintain a price. 
72. The reference prices now correspond to f.o.b. prices on the two markets of most concern for 
Chile.  According to recent world statistics34, the United States is the world's leading producer and 
exporter of wheat, with Argentina being the second largest producer and exporter in the southern 
hemisphere (after Australia).  In the last six y ears (2000-2006) 40 per cent of Chilean wheat imports 
came from the United States and 31 per cent from Argentina.  
73. Consequently, in order to determine the refere nce prices, valid sources of information for both 
these origins were sought.  In the case of the Unite d States, that source is the Chicago Exchange 
(http://www.cbot.com/), the world's largest agricultural commodity  futures market.  This is the source 
for the Gulf f.o.b. price of  Soft Red Winter No. 2 wheat .  In the case of Argentina, the source of 
information is the Department of Agri culture, Livestock, Fisheries and Food 
(http://www.sagpya.mecon.gov.ar/) of the Ministry of the Economy, which regularly publishes figures for bread wheat, Argentine port  (so-called Official Fob Price ) in the form of an average for various 
ports.  
74. These two wheat varieties are similar and the prices are taken on the basis of the 
corresponding times for harvesting and marketing. 
75. It is curious that Argentina should questi on the importance of its market for wheat
35, which is 
one of the markets of concern for determining th e reference price, or the seasonality of wheat 
production in the two hemispheres and that in one ha lf of the year the United States market should be 
of greater concern and in the other half that of Argentina.  But it is even stranger that Argentina 
should claim to be unaware of the source of the information for the f.o.b. price of bread wheat, 
Argentine port , even though in its two submissions it cites the official source, i.e., SAGPyA, in almost 
all its examples.  
76. The reason why Chile has recourse to an offici al source (SAGPyA) is precisely that indicated 
by Argentina.36  
                                                      
31 Paragraph 247 of the Appellate Body Report. 
32 Paragraph 108 of the Rebuttal. 
33 Paragraph 250 of the Appellate Body Report. 
34  FAO statistics (http://faostat.fao.org/). 
35  For example, paragraph 108 of the Rebuttal. 
36  Paragraph 132 of Argentina's Second Written Submission.  WT/DS207/RW 
 Page C-65 
 
 
  "As Argentina shows in Exhibit ARG-4, there are at least 4 (four) different prices 
quoted for Argentine bread wheat (Port of Bu enos Aires, Port of Bahía Blanca, Port 
of Quequén, and Port of Rosario)." 
77. Chile simply did not find any justification for pi cking out any one of the ports in particular, 
particularly as there were official figures published by the Government of Argentina.  
78. Finally, Argentina appears to question the pr ice calculation formula, that is to say, the 
averaging which reflects the variations of the pri ce of the product on this market better than taking a 
price on a particular date (which could be very  high or very low depending on the circumstances). 
79. On the other hand, Argentina appears to get things mixed up when in paragraph 84 of its 
Rebuttal it makes a partial quotatio n from Chile's First Written Submission where it is said that during 
the two months in which the specific duties remain unchanged, they are completely disconnected from 
what may occur in the reference ma rkets.  According to Argentina, this confirms its claim that 
because they remain in effect for two months th e reference prices disconnect price transmission.  
Without wishing to be too insistent, it is clear that  if the specific duties (or rebates) remain unchanged 
for a long period of time, world price developments  will be transmitted to the domestic market since 
there is no way of "managing" the reference pri ces to increase the resulting sp ecific duties and thereby 
sustain a price to prevent world price devel opments from being reflected internally.   
80. Argentina claims that Chile has argued that the system in force would be inconsistent only six 
times a year.37 Chile has shown that the system is always consistent .  There are no time-related 
inconsistencies as seems to be alleged by Arge ntina, which by focusing its arguments on these 
bimonthly "overcompensations" (e ven though it could only offer two examples: 15 and 16 December 
2004 and 15 and 16 February 2005) would appear to be saying that only on these days is Chile in 
violation of its WTO obligations.  
IV. OTHER CLAIMS UNDER ARTICLE 4.2 OF THE AGREEMENT ON 
AGRICULTURE 
81. Chile has developed the line of reasoning pursued  by the Appellate Body and shown how it 
has complied with the recommendations and rulings of  the DSB.  At the same time, it has provided 
evidence to show how in presenting its arguments Ar gentina has distorted the findings of the Panel 
and the Appellate Body. 
82. Nevertheless, below, for the benefit of the present Panel and to facilitate Argentina's 
understanding, Chile will deal with the relevant ar guments raised by Argentina in Section B.2-6. 
1. The "modified system" is transparent and predictable 
83. Although Chile has dealt with Argentina's arguments relating to the scope of the present 
proceedings, it is also necessary to respond to Arge ntina's observations in paragraphs 91 ff.  Apart 
from declaring that Chile misreads its position a nd trying to discredit the "only example" given, 
Argentina is unable to show that the Appellate B ody has set a standard concerning transparency and 
predictability in the way in which the bands were established. 
84. Paragraph 247 of the Appellate B ody's report which refers to "how Chile's price bands are 
established" is not preceded by any paragraph i ndicating how the bands are established other than 
paragraph 246.  And the latter refe rs only to "the intransparent and unpredictable way in which the 
'highest and lowest f.o.b. prices'… are converted to  a c.i.f. basis".  Thus, the Appellate Body did not 
                                                      
37 Paragraph 84 of the Rebuttal. WT/DS207/RW 
Page C-66  
 
  say that all the elements of the way in whic h the floors and ceilings were established were 
non-transparent and unpredictable. 
85. Why not?  Because all the elements were transp arent and predictable, even though they were 
questionable for other reasons, for example, because th ey could have had the effect of impeding price 
transmission, but not because they we re non-transparent or unpredictable
. 
86. Finally, Argentina is mistaken in claiming th at the factor of 0.985 was established in a 
non-transparent manner.38  This factor is establis hed in the Law and is known by all and the fact that it 
is being applied up until 2014 is a guarantee of its predictability for market operators.   
87. Chile has explained the real meaning and sc ope of the references to transparency and 
predictability made by the Appellate Body.  However, it must also deal with certain claims raised by 
Argentina in its Rebuttal since they are particul arly serious – not because of their substance but 
because of the errors they contain. 
88. Argentina states:39  
"With regard to the Argentine allegation th at the amended PBS is neither transparent 
nor predictable, in paragraph 114 of its submission Chile acknowledges  that, due to 
the change in price, the importer (and hence the exporter) does not  know in advance 
the amount of the specific duties payable: 
'With the entry into force of Law No. 19.897,  the reference price ceased to constitute 
one of the elements needed by importers to ascertain the amount of duty payable  
upon import'." (Underlining added). 
89. Although Chile believes that this statement by  Argentina reflects its misunderstanding of the 
changes introduced by Law 19.897, this does not de tract from the seriousness of the matter since in 
taking sentences out of context and drawing errone ous conclusions it could mislead the members of 
the Panel.  The text cited is the conclusion of previous reasoning relating to the questioning by the 
Appellate Body of the way in which the reference price was established and set under the PBS, when 
that price had to be known by the importers in order for them to be able to calculate the specific duty 
payable.  After the changes introduced by Law 19.897, the specific duty is now determined by a 
decree of the Ministry of Finance and therefore neither the exporter nor the importer needs to know 
the reference price (as was the case under the PB S) in order to know the amount of specific duty 
payable. 
90. In paragraphs 128 to 137 of Section B.3. of  its Rebuttal, Argen tina disparages Chile's 
arguments concerning predictability in th e determination of duties and rebates.40 Curiously, Argentina 
bases its case on the "inability" of its exporters, fi rstly, to find out about the conditions of access to the 
Chilean wheat market and, secondly, reasonably to fo resee the international prices in effect at the time 
their transactions take place. 
                                                      
38 Certainly, the second half of pa ragraph 247 does not serve Argentina's purpose because it relates to 
the lack of transparency  and predictability of th e way in which the reference prices are determined. 
39 Argentina's Second Written Submission, paragraphs 105 and 106. 
40 Section V.4. of Chile's First Written Submission.  WT/DS207/RW 
 Page C-67 
 
 
  91. With regard to its exporters, Argentina states that:41 
"If an exporter decides to export wheat to Chile in March 2007, the first thing he has 
to do, in addition to dealing with his own business , is to find out ..." 
92. Argentina then lists the additional factors  that the A rgentine exporter want ing to export to 
Chile  has to find out.  This implies that it is not part  of his own business as such – but an additional 
task – to find out about the conditions of access to his chosen export market, all of which are clearly 
set out in the Chilean Law and its Regulations  and, moreover, published on the Internet. Nor 
apparently is it part of an Argentine exporter' s own business to have a reasonable knowledge of the 
international prices prevailing at the time his transa ctions take place.  In these circumstances, one 
might well ask what is part of the "o wn business" of an Argentine exporter. 
93. Even though Chile does not know precisely how these exporters operate, it does not seem 
reasonable to assume such ignorance .  Chile's arguments are not based  solely on theory but also on 
how  the international trade in agricu ltural commodities operates in practice. 
94. An example is provided by the case of Chilean , and doubtless Argentinean, exporters of fresh 
apples to the European market.  They are thoroughl y familiar with the mark et access system with 
which they have to deal.  They know that at cer tain times of the year the border duties assessed will 
vary with the entry price prevailing at the time of  arrival of the shipment.  Although they do not know 
in advance what that entry price will be and hen ce the exact amount of the duty payable, they can 
reasonably predict it.  This is clearly an i ndispensable requirement for staying in business. 
95. Argentina appears to be arguing, indirectly, that the Argentine exporter does not know today 
the precise customs duty that will be payable on wheat  in March 2007 and that this is a violation of 
WTO rules.  But, clearly, there is no WTO requireme nt that the precise level of customs duties must 
be known a certain period of time in advance of thei r entering into force and there can be no guarantee 
that, for example, the ad valorem  duties applied by WTO Members will be the same in March 2007 as 
they are today.   
96. In fact, to take the same example of the Argen tine exporter, it might be asked whether, in the 
light of what has happened in recent years, that e xporter could predict whether or not in 2007 he will 
be paying taxes on his exports in Argentina and how much they might be.  Certainly Chile cannot be 
blamed for this lack of predictability. 
2. The "modified system" is not a measure similar to a variable import levy 
97. As Chile pointed out in its First Written Submission42, even though the decisive feature of the 
variable levies prohibited under footno te 1 to Article 4 is their variabilit y, this alone is not conclusive, 
since an ordinary customs duty can also be desc ribed in this way.  Thus, the Appellate Body 
observed:43 
".... A Member may , fully in accordance with Article II of the GATT 1994, exact a 
duty upon importation and periodically change the rate at which it applies that 
duty  (provided the changed rates remain below  the tariff rates bound in the 
Member's Schedule).* 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 
                                                      
41 Paragraph 130 of Argentina's Second Written Submission. 
42 Chile's First Written Submission, paragraphs 90 ff. 
43 Appellate Body Report, paragraph 232. WT/DS207/RW 
Page C-68  
 
  have a meaning different 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" (our highlighting). 
98. In its First Written Submission, Argentina – in Section C3.1 – stated that "[T]he amended 
PBS contains a formula that causes import duties to  vary automatically and continuously" and divided 
its analysis into three parts, i.e., variation  that is automatic  and continuous .  
99. In order to prove the alleged variability, Argen tina shows that the specific duties have varied 
since the PBS came into existence.  However, Ch ile has never suggested otherwise, and neither did 
the Appellate Body in the paragraph just cited. 
100. As far as automaticity is concerned, although Argentina focused its analysis on dictionary 
definitions, the heart of the matter does not lie there but  in the findings of the Appellate Body in this 
respect.  The Appellate Body found as follows:
44 
"[T]he level at which ordinary cu stoms duties are applied can be  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 that no such 
action is required." 
101. In its First Written Submission, Chile pointed out that under the changes introduced by Law 
19.897 the specific duties applied require a specific administrative act to establish them and in the 
absence of this act the duty does not vary in am ount.  The situation was different under the PBS, 
where, because of its structure, the duties applie d to two simultaneous import transactions varied 
without the intervention of any administrative act, which led to the assessment of different import 
duties, even when the value (transaction price) a nd volume (metric units) of the goods were identical.  
Today, two simultaneous import transactions, with the same transaction value and volume, will 
always pay the same import duty .  Thus, Chile has implemented the rulings and recommendations of 
the DSB.  
102. With respect to continuous variation, in its First Written Submission Argentina states 
"[D]espite the fact that the variation of the specific duties is no longer weekly but bimonthly, that variation is continuous."
45  The proof offered consists of the table and chart in Exhibits ARG-23 and 
ARG-24, which are supposed to illustrate "the ope ration of the amended PBS between 16 December 
2004 and 15 April 2006"46, and moreover the table and chart in Exhibits ARG-21 and ARG-22, which 
illustrate the variability of the specific duties.47  On this basis, Argentina concludes that it "has shown 
that the amended PBS includes a formula that ma kes the variability of the duties automatic and 
continuous".48  
103. It will again be appreciated how that analysis differs from the findings of the DSB and the 
changes introduced by Chile.  Argen tina's reasoning contains an obvious non sequitur .  It again seeks 
to show that the duties vary, but only to conclude that this variation is c ontinuous, without providing 
any evidence of this, which is what counts.  
                                                      
44 Appellate Body Report, paragraph 233. 
45 Argentina's First Written S ubmission, paragraph 266. 
46 Argentina's First Written S ubmission, paragraph 268. 
47 Argentina's First Written S ubmission, paragraph 269. 
48 Argentina's First Written S ubmission, paragraph 270.  WT/DS207/RW 
 Page C-69 
 
 
  104. Argentina's only argument is that the variation is bimonthly.  However, continuous variation 
has nothing to do with the fact that once the specific duty has been  fixed it is changed every two 
months.  Moreover, the argument contradicts the fi ndings of the Appellate Body which observed that 
the duties can be periodically changed without the variation being continuous  on that account.  Putting 
Argentina's argument into practice would mean maintaining that any seasonal duty or scheduled 
reduction in ad valorem  tariffs would be tantamount to the est ablishment of a variable import levy. 
105. In this connection, Argentina raises an interes ting question concerning the reduction in Chile's 
ad valorem  tariff, to the effect that there was no schem e or formula that caused and ensured that the 
tariff would change (be reduced) automatically and continuously.49  The text of Law 19.589, appended 
as Exhibit CHL – 8, demonstrates the exact opposite.  When it was enacted, a plan for the progressive 
and automatic reduction of Chile's general tariff from 11 per cent to 6 per cent between January 1999 
and January 2003 was established.  No one could main tain that, despite this continuous, automatic and 
planned variation, Chile's general ad valorem  tariff is not an ordinary customs duty.  
106. Finally, the Appellate Body observed that va riable import levies have additional features 
which undermine the object and purpose of Article  4 of the Agreement on Agriculture.  These 
additional features include a lack of transparency and a lack of predictability in the level of the duties 
that would result from the application of these measures, elements no longer present following the 
changes that Chile has made to its legislation. 
107. Thus, there being no variability – a necessary cond ition for any variable import levy – there is 
no inconsistency with Article 4.2 of the Agreement on Agriculture.  Moreover, even if there were still 
variability, it would not be sufficient since the addi tional features identified by the Appellate Body 
would have to exist and these were addr essed by Law 19.897 and its Regulations.  
3. The "modified system" does not sustain a price 
108. In paragraph 139 of its Rebuttal, Argentina stated  that Chile contradicts the terms of its Law 
and Regulations by asserting that the specific duties ar e not a variable levy inasmuch as they are not 
intended to sustain a price50, quoting the text of the legislation which reads: 
"The amount of such duties and rebates sha ll be established … in terms which, when 
applied to the price levels attained by th e products in question on the international 
markets, allow domestic market stability "51 (emphasis added). 
109. Leaving aside the arguments mentioned above, th ere is no such contradiction.  Chile has 
established a mechanism for stabilizing the domestic market, which is a completely different thing 
from sustaining prices.  Stabilizing means preventing sudden and extreme changes that affect 
activity, whereas sustaining means defending or  supporting an activity through improved prices.52  
110. First of all , the current system envisages the appli cation of specific duties, rebates on the 
amounts payable as ad valorem  duties under the customs tariff, a nd the application of the general 
tariff alone.  Where tax rebates or the general tari ff alone are applied, the imported product enters the 
                                                      
49 Paragraph 154 of the Rebuttal. 
50 Chile's First Written Submission, paragraph 133. 
51 See Law 19.897, Article 1, second paragraph, and Decree No. 831/2003, Article 1, second paragraph, 
in Exhibits CHL-1 and CHL-2, respectively. 
52 The same stability as established by Decree 797/92  (still in force) of the Argentine Republic which 
defines the measure Additional Sugar Import Duties and stipulates, inter alia: "… it is desirable to put into effect 
Article 673 of the Argentine Customs Code in order to stabilize the internal price in periods of severe distortion 
on the world market." WT/DS207/RW 
Page C-70  
 
  country with advantages over other traded products or  on the same terms as ot her products, as the case 
may be.  In neither case is any price sustained. 
111. Secondly , as Chile argued and explained in Section V.1 and 2 of its First Written Submission, 
all the parameters currently in use, i.e., the fl oor and ceiling prices and the reference price, are 
expressed in terms of f.o.b. prices.  The f.o.b. price for any individual commercial transaction is 
always lower than the c.i.f. price, the entry price a nd the domestic price.  A simple review of the basic 
legislation is enough to show that  it is impossible to sustain any price, as Chile demonstrated in 
Section V.1 and 2. 
112. According to Argentina, in paragraph 143 of its Rebuttal: 
"Leaving aside Chile's virtual ' confession'  that the duties resulting from the PBS are 
unrelated to the transaction value and are therefore insulating Chile's market from 
international price developmen ts…" (highlighting added). 
113. As already explained, Chile makes no confession but  rather an assertion, by pointing out that:  
"Under Law 19.897, however, a specific duty (o r rebate, or neither) is fixed by legal 
directive in the form of a decree issued by the Ministry of Finance and remains 
unchanged for two months, during which the duty applies on all import transactions, 
without the slightest variation and regardless of the amount of the transaction, until it is changed or cancelled by a more recent administrative act."
53 
114. It is perfectly true that specific duties and tax rebates do not depend on the transaction value, 
which makes it possible to assert that since the ch anges introduced in 2003 Chile has not applied 
variable levies or similar measures and, therefore, is not insulating the domestic market but rather the 
exact opposite, that is, allowing the transmission of international prices.  
115. Later, Argentina states that the Appellate Body did not establish that "a variable duty may be 
the kind of duty which is used to sustain a domestic or a minimum entry price"54, as Chile explained 
in its First Written Submission.55  Argentina adds: 
"In this dispute, the Appellate Body has cl early defined the necessary, sufficient and 
additional features that characterize variable import levies.  These features do not 
include  the sustaining of entry prices, c.i.f. prices or domestic market prices or price 
'adjustment', as Chile maintains"56 (original emphasis). 
116. The Appellate Body did not have to define th ese features inasmuch as they had already been 
defined within the context of the WTO and can be found in the Panel's report.57  These fundamental 
characteristics of variable import levies and minimum import prices  are: 
"(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 .  The 
                                                      
53  Chile's First Written Submission, paragraph 93. 
54 Argentina's Rebuttal, paragraph 149. 
55 Chile's First Written Submission, paragraphs 139 to 144. 
56 Argentina's Rebuttal, paragraph 150. 
57 Paragraph 7.36 of the Panel Report, WT/DS207/R   WT/DS207/RW 
 Page C-71 
 
 
  import border or price reference may correspond to individual shipment 
prices but is more often an administratively determined lowest world market 
offer price .  (Emphasis and underlining added.) 
(b) A variable levy  generally represents the difference between the threshold 
or minimum import entry price and th e 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 .  (Emphasis and underlining added.) 
(c) Variable levies  generally operate so as to prevent the entry of imports 
priced below the threshold or minimum entry price .  In this respect, i.e. 
when prevailing world market prices are low relative to the threshold price, 
the protective effect of a variable levy rises, in terms of the fiscal charge imposed on imports, whereas this ch arge declines in the case of  ad valorem  
tariffs or remains constant in the case of  specific duties.  (Emphasis and underlining added.) 
(d) In addition to their protective effects, the stabilization effects of variable 
levies generally play a key role in in sulating the domestic market from 
external price variations.  (Emphasis added.) 
(e) Notifications on minimum import pr ices 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 betw een the governmentally determined 
threshold and the lowest world market offer price for the product concerned , 
minimum import price schemes genera lly operate in relation to the 
actual transaction value of the imports .  If the price of an individual 
consignment is below a specified mini mum import price, an additional 
charge is imposed corresponding to the difference ."  (Emphasis and 
underlining added.) 
117. From these fundamental character istics it is clear that a variable levy or minimum import 
price is intended to sustain a price and that that price is measured as an entry price, as an internal 
price, as a value linked to the internal price, or as an administratively determined price which is above 
the domestic price. 
118. Under the present system, the floor price is not an entry price, is not fixed on the basis of the 
internal price, is not linked with it, and is not fixed at a price above it.  For its part, the reference price 
is not a border price or expressed in c.i.f. terms.  Neither does it correspond to the price of a shipment, 
nor is it a lowest world market offer price or dete rmined administratively.  Therefore, the current 
parameters do not have the fundamental charac teristics of a variable levy as described in 
paragraph (a). 
119. The specific duty is not "the difference betw een … the import entry price and the lowest 
world market offer price for the product concerned".  Nor does the specific duty "change systematically in response to movements in either or both of these price parameters";  on the contrary, it remains fixed for an extended period, regardless of  what happens to these parameters.  Therefore, 
the specific duties do not have the fundamental char acteristics of a variable levy as described in 
paragraph (b). WT/DS207/RW 
Page C-72  
 
  120. The specific duty does not prevent the entry of imports priced below a threshold or entry 
price, inasmuch as the floor price is not a thres hold price or an internal market price or linked 
therewith, and is not an entry price.  The tariff ch arge determining the specific duty remains constant 
until changed or cancelled by a more recent administ rative act.  Therefore, the specific duties do not 
have the fundamental characteristics of a va riable levy as described in paragraph (c). 
121. The mechanism currently in force allows international price varia tions to be transmitted to the 
domestic market, inasmuch as the specific duties and rebates are not adjusted on the basis of what 
happens to external prices or adjusted for the prices  of shipments, as Chile showed in Section V of its 
First Written Submission.  Therefore, the specific duties do not have the fundamental characteristics 
of a variable levy as described in paragraph (d). 
122. The specific duties are not determined as a f unction of the actual transaction value of the 
imports, nor do they correspond to the difference betw een the entry price or threshold and the actual 
transaction value, as would be the case with a mini mum import price.  Therefore, the specific duties 
do not have the fundamental characteristics of a variable levy or minimum import price as described in paragraph (e). 
123. Consequently, the current parameters do not possess any of the fundamental characteristics 
which the WTO itself has defined and discussed for variable import levies and minimum import prices.  Therefore, the Chilean system estab lished by Law 19.897 and its Regulations is not 
inconsistent with the Article 4.2 in question. 
124. Argentina also claims that Chile appears not  to understand the Argentine argument which 
uses dispersion (standard deviation) analysis solely
 to show that Chile is applying a formula that 
causes import duties to vary continuous ly.  It adds that this demonstr ation does not constitute the basis 
for all of its reasoning concerning variable levies.58  
125. Then, in paragraph 157, Argentina states that: 
"As Chile points out, the existence of a dut y that varies or has varied, even though a 
necessary condition, is not sufficient for it to be  described as a variable levy.  It is one 
feature that must be present as a necessary condition, but it is not sufficient."  
126. Chile shares the view expressed by Argentina in the preceding paragraph, but cannot agree 
that the dispersion exercise in Section C.I.3 of its First Written Submission shows that the measure applied in Chile is similar to a variable levy.  The only conclusion that can be drawn from this 
demonstration is, as has already been pointed out, th at the specific duties vary, something which Chile 
has never denied. 
4. The "modified system" is not a measure similar to a minimum import price 
127. In Section V.1 of its First Written Submission, Chile addressed the arguments put forward by 
Argentina in Section C.2.1 headed "Specific du ties resulting from the amended PBS tend to elevate 
the entry price of imports to Chile above the price band floor".
59  
128. Chile showed that the system in force, based  on Law 19.897 and its Regulations, is neither a 
minimum import price nor similar to such a price, bearing in mind the fundamental characteristics of 
measures of that kind identified by the WTO. 
                                                      
58 Paragraph 156 of the Rebuttal. 
59 Argentina's First Written S ubmission, Section C.2.1, paragraphs 99 to 124.  WT/DS207/RW 
 Page C-73 
 
 
  129. Among other things, Chile establishes the indisputab le fact that in any ordinary individual 
trade transaction the f.o.b. price is always lower th an the c.i.f. price and does not "tend" to it, as 
Argentina maintains. 
130. In this respect, in Section 5 of its Rebutta l, Argentina states that Chile, with these 
arguments60, "seeks to distort what Argentina said in its First Written Submission" and that Argentina 
would prefer "to think of it as an error of interpretation".  
131. Chile neither intended nor intends to distort arguments or figures of any kind or source. 
Neither is it an error of interpretation.  In fact , in paragraph 163 of the Rebuttal, Argentina states 
"Clearly, Argentina tried to demonstrate the exact opposite of what Chile alleges, 
namely, that the CIF price is naturally  higher than the FOB price" (original 
emphasis). 
132. Whereas in paragraph 99 of its First Written Submission it says that: 
"Below, Argentina will show mathematically  – using the PBS formula contained in 
Law 19.897 and Decree 831/2003 – how specific duties resulting from the amended PBS tend to elevate the entry price of imports to Chile above the price band floor …" 
(emphasis added). 
133. Chile's interpretation of all the arguments a nd methods incorporated in Section C.2.1 of 
Argentina's First Written Submission is correct.  In  that Section Argentina seeks to show that the 
specific duties tend to elevate the entry price of imports to Chile "above the price band floor". 
134. Chile cannot accept that the entire section in ques tion was used by Argentina solely to show 
that "the CIF price is naturally  higher than the FOB price". 
135. Even though Chile has already shown that this is self-evident, it is worth noting that all the 
values used as parameters (floor, ceiling and refere nce prices) are expressed in f.o.b. terms.  
Therefore, in any ordinary individual trade transacti on, the c.i.f. price and the entry price of that 
transaction will always  be higher than the f.o.b. price, although not necessarily higher than the floor 
price. 
136. This is because the floor price is not a threshold, an entry price or a  minimum import price. It 
is not, nor is it intended to be, a price that impedes trade or prevents the transmission of international 
prices.  The floor price is simply a parameter that  impacts solely on the assessment of the specific 
duties, and those duties do not have as either th eir object or the result of their application the 
maintenance of border or entry prices or  their adjustment to the floor price 
137. In their turn, the specific duti es assessed naturally increase th e entry price, by the same 
amount for any transaction, a universal and natural characteristic of ordinary customs duties.  
Although that is certainly true, it does not form the subs tance of this dispute, which is that the result of 
their application does not constitute a measure simila r to a variable levy or a minimum import price. 
138. Therefore, any mathematical demonstration provided by Argentina, even though unnecessary, 
will show that the specific duties increase the entry pr ice, like any ordinary customs duty.  That is not 
a sufficient condition for asserting that , solely because they increase the entry price, they constitute a 
measure similar to a minimum import price. 
                                                     
 
60 Paragraph 161 of the Rebuttal. WT/DS207/RW 
Page C-74  
 
  139. As the Panel report states in describing the fu ndamental characteristics of measures of this 
kind, "minimum import price scheme s generally operate in relation to  the actual transaction value of 
the imports.  If the price of an individual consignm ent is below a specified minimum import price, an 
additional charge is imposed corresponding to the difference".
61 
140. Chile does not determine specific duties in relati on to the actual transaction value nor is their 
amount equal to the difference between that actual transaction value and a minimum import price.  In 
fact, neither is the floor price a c.i.f. price or an entry price.  Consequently, the floor price is not similar to or the same as a minimum entry price, and the application of specific import duties is not 
inconsistent with Article 4.2 of the Agreement on Agriculture. 
141. Continuing its argument, in paragraphs 170 to 177 , Argentina maintains that Chile is mistaken 
in its analysis when it compares the floor price with the series of f.o.b. prices plus specific duties 
during the only four months in which the latter were applied and states that "[ t]he relevant comparison 
as far as this dispute is concerned is with the behaviour of the entry price  of wheat imports to Chile".
62  
142. Chile agrees that what is important (in the presen t dispute) is what happens to entry prices. 
Chile has already shown, using Argentina's own info rmation, that entry prices for wheat imports to 
Chile follow a pattern similar to that displayed by th e international price.  However, it has also shown 
that the domestic price of wheat has likewise followe d a pattern similar to that of the international 
price, thereby confirming that the Chilean market is  connected with the international one and that the 
modified system allows variations in external  prices to be transmitted to the local market. 
143. Moreover, in paragraphs 130 to  132 of its First Written Submi ssion, Chile explains how, in 
the event of the floor price being interpreted as a minimum entry price, the actual evidence of its 
application shows that that price is not maintain ed inasmuch as it is not a minimum price and the 
specific duty is not the difference between the floor price and the actual transaction value. 
144. As already explained at some length, the floor pri ce is expressed in f.o.b. terms, so that it is 
not pertinent (or consistent) to compare it with a c.i.f.  value or an entry price.  Therefore, in order to 
verify that the specific duty applied is not the same  as the difference between the floor price and the 
actual transaction value, and to confirm that the ap plication of the specific duty does not lead to a 
price equal to the floor price, a comparison was made using prices expressed in the same market 
terms, namely, f.o.b. 
145. If the floor price were a minimum import price, the result of applying the specific duties 
would be that minimum price.  In its First Written Submission, Chile shows that out of 81 days on which specific duties were applied, on 46 per cent of those days the sum of the f.o.b. price and the 
specific duty in force was less than the floor price. 
146. In paragraphs 179 to 184 of its Rebuttal, Arge ntina explains the contents of Exhibit ARG-11, 
which formed part of its First Written Submission, gi ven that Chile used that information and had to 
make changes on finding that the data in that Exhi bit differed from the series of daily f.o.b. prices for 
Argentine bread wheat published by the Department of Agriculture, Livestock, Fisheries and Food of 
the Republic of Argentina. 
147. From the explanation that Argentina gave in  its Rebuttal, Chile understands that for the 
purpose of its demonstrations Argentina made a time adjustment to the daily data, advancing them by 
15 days relative to the actual date on which those pr ices were in effect, so that by taking into account 
                                                     
 
61 Chile – Price Band System , Panel Report, paragraph 7.36.e. 
62 Paragraph 172 of the Rebuttal.  WT/DS207/RW 
 Page C-75 
 
 
  the time required to transport the goods it could simu late the price at which exports would arrive in 
Chile after shipment.  Chile we lcomes Argentina's explanation. 
148. However, Chile must point out that, while acknowledging the time adjustment made by 
Argentina to the daily price figures for Argentine bread wheat, for the purposes of Chile's arguments 
those prices should have been those in effect on the day they represent, inasmuch as the time 
adjustment made by Argentina was used to simula te the effect of an actual trade transaction and 
compare that f.o.b. price with the floor price and the entry price that would result from applying to 
that f.o.b. price the sp ecific duties in force. 
149. This calls for two comments.  Firstly, the Chil ean system provides for the application of the 
same specific duties to all imports made during the period in which they are in force, without 
distinction as to origin, date of shipment or the actual transaction value, like ordinary customs duties 
(specific duties).  Therefore, it is not necessary to  make any sort of time adjustment for transport 
since, like the general ad valorem  tariff, the specific duty is applied to all transactions on an equal 
basis.  
150. Secondly, the relevance of this time adjust ment presupposes that the application of the 
specific duties is linked with the actual transaction value, which is why a comparison is made with 
what would happen to the entry price for this simu lated value of the actual price.  However, the 
specific duties do not depend on the actual transaction va lue; on the contrary, they are independent of 
it, and as long as they apply do not vary with chang es in international prices, which does not prevent 
such changes being reflected in the entry price and the domestic price. 
151. Thus, entry prices follow a pattern different from that of the reference prices which are used 
as parameters, and moreover are not linked with or adjusted to the floor price level.  This is because 
entry prices are not linked with the parameters or with the specific duties, but with international 
prices.  Chile has already shown that entry pr ices and domestic prices are connected with the 
international market. 
152. Elsewhere63, Argentina questions Chile's description of the use of only f.o.b. prices, claiming 
that the specific duty does not include f.o.b. prices and that it "includes" nothing.  The Law and its 
Regulations stipulate that all the parameters used s hould be expressed in f.o.b. terms, and that both the 
specific duties and the tax rebates should be assessed us ing those parameters, i.e., f.o.b. prices, as the 
sole reference. 
153. Argentina's comments relate to paragraphs 175 to 179 of Chile's  First Written Submission, in 
which it was demonstrated that the specific duti es assessed are always less than those that were 
assessed under the PBS for the same re ference price,  with a view to showing that wheat now enjoys 
more favourable conditions of access. 
154. This demonstration is based on the possibility of expressing the import cost in the following 
form: 
(1) IC i = a + b * FOB i, 
where, 
ICi = product import cost i;  
a = sum of fixed costs; b = aggregate of variable costs;  and FOB
i = f.o.b. price of the product i. 
                                                      
63 Argentina's Rebuttal, paragraphs 189 to 196. WT/DS207/RW 
Page C-76  
 
  155. The PBS used this expression to determ ine the specific duties (SD) as follows: 
(2) SD = IC
floor - IC rp, where "rp" represents the reference price. 
156. Substituting, we obtain: 
(3) SD = a + b * FOB floor– (a + b * FOB rp) 
(4) SD = a + b * FOB floor  – a – b* FOB rp 
(5) SD = b * (FOB floor  – FOB rp) 
157. The last of these expressions, (5), is that u sed by the PBS to calculate the specific duties 
applied weekly to wheat imports.64  As explained in the First Written Submission, the factor "b" is the 
aggregate of the variable costs incurred in a normal import process, including the general ad valorem  
tariff. 
158. From expression (5) it follows that the specifi c duty is less for any reference price as its 
determination includes only the general ad valorem  tariff (1+0.06) and excludes all the variable costs 
incurred in a normal import process, this be ing because the latter are nontransparent and 
unpredictable, whereas the general ad valorem  duty is known.  All this is reflected in the following 
expression contained in the Regulations implementing the Law: 
  (6) SD = (1+ 0.06) * (FOB floor– FOB rp) 
 159. Argentina continues its argument, in paragraphs  197 to 204 of its Rebuttal, by seeking to 
show that "Chile gets the definition of the duty established on the basis of a minimum import price 
completely wrong".  In this connection, Chile we lcomes the clarifications offered by Argentina 
insofar they contribute to a better understanding of the Chilean arguments, especially those contained 
in paragraph 198: 
"In this same dispute, the Panel held th at a minimum price scheme operates in 
relation to the actual transaction value  of the imports.  The Appellate Body 
incorporated this aspect of minimum import prices in its report.  In its reasoning, Chile calculates the duty resulting from a minimum price on the basis of the 
difference between the band floor and the reference price .  The reference price – 
which has nothing to do with the transaction value – is simply an average price 
on a market of concern. " (Emphasis added.  Original italics.  Footnotes omitted.)  
160. In fact, what Chile demonstrated with its ar guments is what Argentina asserts in this 
paragraph, namely, that the reference price "has not hing to do with the transaction value", because the 
Chilean system is actually neither a minimum import price nor similar to one, just as it is neither a 
variable import levy nor similar to one.  
161. Finally, Argentina ends the arguments in  Section 5 of its Rebuttal by asserting that: 
"If Chile had used the formula which fo llows from the Appellate Body report, it 
would have arrived at the same conclusi on as that reached by the Appellate Body 
with respect to the original PBS and by Ar gentina with respect to the amended PBS, 
namely, that the entry price of imports to Chile, under the amended PBS, is higher 
                                                     
 
64 In the case of tax rebates (TR) the expression was: 
 TR = = b * (FOBrp -  FOBceiling)  WT/DS207/RW 
 Page C-77 
 
 
  than it would be if Chile were to apply a minimum import price at price band floor 
level."65  
162. In fact, if Chile had used the formula which follows from the Appellate Body report it would 
have arrived at the same conclusion, and that is precisely why Chile did not use the same formula , 
so that there was no inconsistency with Ar ticle 4.2 of the Agreement on Agriculture. 
5. The "modified system" improves the condi tions of access to the Chilean market 
163. Even though the conditions of access for wheat lie outside the scope of the present dispute, 
they naturally form part of the anticipated results .  Therefore, Chile addressed this point by showing 
that with the changes introduced by Law 19.897 the conditions of access are more favourable than 
they would have been if the PBS66 were in force. 
164. However, Argentina interprets Ch ile's arguments in a way that is not consistent with what 
Chile actually said.  In point of fact, when Chile stat es that "In conclusion, the period of application of 
duties under the new regime was shorter by 10 weeks,  while that of rebates was longer by eight 
weeks, which represents an effec tive increase in favourable conditions for grain imports compared to 
what might have occurred under the mechanism prior to modification"67, it is basing itself on a 
simulation of what would have happened if the PBS had continued in force. 
165. Thus, the figures presented in Exhibit CHL-7 co rrespond to the daily series of international 
prices for bread wheat, f.o.b. Argentine port , and Soft Red Winter No. 2  wheat, f.o.b. Gulf of Mexico , 
used to simulate the application of the PBS.  A ll the information in that exhibit comes from ODEPA, 
i.e., from Chile's Ministry of Agriculture, and is based on statistics published by Argentina's 
Department of Agriculture, Livestock, Fisheries and Food (the same source as used by the other party) 
and Chicago Exchange statistics published by Reuters.68 
166. As explained in paragraph 183 of Chile's First Written Submission, the exercise consisted in 
simulating the operation of the PBS "with the refere nce price per week calculated on the basis of the 
prices in effect.  This was done by taking the week ly average from Friday to Thursday of each of the 
prices considered, selecting the lowest and comparing it with the floor and ceiling prices so as to 
determine whether duties or rebates had applied in  the week following the calculation.  This method 
was applied to the period from 16 December 2003 to 13 January 2006".  The procedure is the same as 
that used in the PBS. 
167. An important difference between the system in force and the PBS is that in the latter the 
specific duties and rebates were calculated weekly, so  that they were linked with the international 
prices in effect.  Now, instead of being linked with the international prices in effect the specific duties 
and rebates, once made official by the authorities, remain fixed for two months. 
168. Argentina questions the results of the exercise although it also uses them to draw conclusions 
which cannot be derived from these results.  Chile 's simulation shows that the present mechanism 
gives fewer weeks of application of specific duties a nd more weeks of application of tax rebates than 
would have been the case under the PBS. 
                                                      
65 Argentina's Rebuttal, paragraph 204. 
66 Chile's First Written Submission, Section 6 "Cha nge in conditions of access as a result of Law 
No. 19.897". 
67 Chile's First Written Submission, paragraph 185. 
68 Chile is sorry that the unintentional omission of the source of the information should have led to 
confusion, since it had assumed it to be obvious that both parties to the dispute were using the same source, 
namely, ODEPA, which is characterized by its transp arency and reliability and the availability of the 
information to the general public. WT/DS207/RW 
Page C-78  
 
  169. It is true that in this simulation we used only two prices for determining the market low and 
selecting it as the reference price.  However, the c onclusions would not have been any different if we 
had use more prices to find the market low.  In fact , if there had been prices lower than those used in 
the exercise, then, where the application of specific duties is concerned, what would have happened is 
that the duties assessed would have been higher an d duties would probably have been applied during 
more weeks.  In other words, it would merely ha ve confirmed what Chile is saying, namely, that 
better conditions of access now exist.  In the case of tax rebates, the situation is similar: if lower prices 
had existed they would have resulted in a sma ller rebate or the application of the general ad valorem  
tariff only.  If there had been prices higher than t hose used, the amount of the rebates would have been 
greater and there would have been more weeks with re bates being applied.  In other words, this would 
again merely have confirmed what Chile has said, namely, that the conditions of access have 
improved. 
170. At the same time, Chile also considers irreleva nt Argentina's arguments to the effect that: 
"… this is the same as saying that exporters of wheat and wheat flour to Chile should 
not be concerned about the distorting effects of the amended PBS, since under the 
amended PBS the distorting effects resultin g from the application of specific duties 
occurred 'only' 17 times, whereas under the original PBS they would have occurred 
27 times.  Chile alleges that this means an improvement in conditions of access ".
69 
171. The basis of this dispute is not the trade-distor ting effect of customs duties or how often they 
are applied.  The mere existence of customs duties, of whatever kind, is enough to distort trade, in 
other words it is an inherent feature of those du ties and not something peculiar to the Chilean system. 
172. Finally, Argentina develops a line of reasoni ng based on the number of times the current 
system and the PBS were applied or would have b een applied, as the case may be, in relation to the 
occasions on which specific duties and tax rebates were  assessed.  Firstly, it should be noted that in 
connection with most of its arguments, with this one  exception, Argentina always considers the period 
of application to be that in which specific duti es were assessed, leaving out completely the other 
periods, certainly much longer, in which rebates, or nothing at all, were applied.  Secondly, it seems 
obvious, to Chile at least, that applying specific du ties is not the same as applying tax rebates, and it 
does not seem reasonable to combine the two concepts  and periods of application in order to assert 
that the two policies are similar.  If, as Argentin a says, the specific duty has a distorting effect, by 
increasing the entry price, the tax rebate also has a distorting  effect by reducing the entry price to the 
point of leaving the trade transactions without a tariff charge .  
173. In 35 (32.1 per cent) of the 109 weeks in which the current system  has been in force 
(16 December 2003 to 13 January 2006) tax rebates ha ve been applied, in 17 (15.6 per cent) specific 
duties have been applied, and in 57 (52.3 per cent) only the general ad valorem tariff has been 
applied.  
174. From 13 January to 15 June 2006 wheat imports  were entering Chile subject only to the 
general ad valorem  tariff, extending even further the period of improved access conditions. 
(a) Effects of the scheduled reduction in the floor and ceiling prices 
175. In its First Written Submission, Chile showed  how a gradual process of reduction of the 
border protection for wheat and wheat flour had been  built in.  In particular, as a result of the 
scheduled reduction in the floor and ceiling prices, the amount of the specific duties will always be 
less than that currently being assess ed, just as the probability of duties being assessed will also always 
                                                      
69 Argentina's Rebuttal, paragraph 208.  WT/DS207/RW 
 Page C-79 
 
 
  be less.  Argentina disregards the evidence produ ced by Chile and offers its own hypothetical 
examples, seeking to show the contrary, that is to say, that in 2014 the specific duties will be equal to 
or greater than those in force at the beginning of 2005.70  That, however, is mere supposition. 
176. Chile could "invent" dozens of reference prices to  show that from a certain date there will 
only be rebates.  That is not the point.  What Ch ile showed is that using the same reference price  – 
which is something certain and not hypothetical – the parameters based on the scheduled reduction in 
floor and ceiling prices will always  result in a lower specific duty.  In other words, its impact will be 
less.  Chile did not say that the reference price used  in its example would be in effect in 2014, since it 
is impossible to know that so far in advance.   
177. When Chile says that the scheduled reduction in the floor and ceiling prices will translate into 
less border protection, it states a true fact.  In its  First Written Submission it showed mathematically 
what will actually happen in the future, namely, that to the extent that the floor price is reduced, the 
specific duties assessed will always be less than they  are at present.  The following example illustrates 
this situation.  Using the scheduled floor prices and a reference price of 100 dollars per tonne, we 
obtain: 
 SD 2003-2007  = 1.06 * (128 - 100) = 29.68 
 SD 2007-2008  = 1.06 * (126 - 100) = 27.56 
 SD 2008-2009  = 1.06 * (124 - 100) = 25.44 
 SD 2009-2010  = 1.06 * (122 - 100) = 23.32 
 SD 2010-2011  = 1.06 * (120 - 100) = 21.20 
 SD 2011-2012  = 1.06 * (118 - 100) = 19.08 
 SD 2012-2013  = 1.06 * (116 - 100) = 16.96 
 SD 2013-2004  = 1.06 * (114 - 100) = 14.84 
 178. That is to say that for the same reference pr ice the specific duties assessed  will always be less 
than those that would have been assessed before  the floor price was reduced.  This holds for any 
reference price level . 
179. Clearly, if in this exercise the reference pr ice were less than 100 dollars, the specific duties 
would be higher than those calculated, but neve rtheless those duties would decrease with time.  For 
example, using the value of 94.92 dollars per tonne proposed by Argentina in paragraph 226 of its 
Rebuttal, we obtain: 
SD 2003-2007  = 1.06 * (128 - 94.92) = 35.06 
SD 2007-2008  = 1.06 * (126 - 94.92) = 32.95 
SD 2008-2009  = 1.06 * (124 - 94.92) = 29.08 
SD 2009-2010  = 1.06 * (122 - 94.92) = 28.70 
SD 2010-2011  = 1.06 * (120 - 94.92) = 26.58 
SD 2011-2012  = 1.06 * (118 - 94.92) = 24.46 
SD 2012-2013  = 1.06 * (116 - 94.92) = 22.34 
SD 2013-2004  = 1.06 * (114 - 94.92) = 20.22 
180. In other words, if this reference price were  to apply this year, the resulting specific duty 
would be 35.06 dollars per tonne, whereas in 2014 the resulting specific duty would be 20.22 dollars 
per tonne, or 42.3 per cent less than that which would be assessed currently. 
181. Chile did not use different values for the refere nce price to show that the nominal protection 
for wheat will be lower.  This would not be consis tent with an evaluation methodology.  It is a fact 
                                                      
70 Paragraphs 221 and 222 of the Rebuttal. WT/DS207/RW 
Page C-80  
 
  that the conditions of access to the Chilean market have changed since the scheduled reduction in the 
general ad valorem  tariff, from 35 per cent in 1984 to 6 per cent as from 2003.
71  The same will 
happen on the wheat market following the entry into force of Law 19.897 for that product. 
V. THE CLAIMS RELATING TO THE FACTOR OF 1.56 AND ARTICLE II:1.B, 
SECOND SENTENCE, OF THE GATT 1994 DO NOT FALL WITHIN THE TERMS 
OF REFERENCE OF THE PRESENT PANEL 
1. The factor of 1.56 does not fall within the terms of reference of the present Panel 
182. In seeking to show that the factor of 1.56 falls  within the terms of reference of the present 
Panel, Argentina bases its reasoning on two premises.  The first, that its questioning is not a claim but 
an argument.72  The second, that this is a new argument re lating to an aspect of the measure taken to 
comply that has changed. 
183. Argentina's questioning is an independent claim and not an argument to illustrate a claim.  In 
fact, the word questioning used by Argentina shows it to be asserting that Chile has infringed a 
specific provision of a specific agreement.  Accord ing to the Spanish Academy, to question means: 1. 
tr. To dispute about a doubtful point, by puttin g forward reasons, evide nce and grounds for and 
against .  In other words, questioning is something di fferent from arguments or reasons, evidence and 
grounds. 
184. By applying the reference to Korea – Dairy Products in the Rebuttal to Argentina's First 
Written Submission, it is possible to distinguish the claim  – "The factor of 1.56 ... insulates the entry 
price of wheat flour from international price developments" – from the arguments  – the specific 
duties on wheat flour are calculated on the basis of those applied to another product73 and the way in 
which that factor was established is not transparent.74   
185. Therefore, it is clearly a question of an indepe ndent claim that Argentina is making at this 
stage of the proceedings and one which it did not ma ke in the original dispute although it could have 
done so, since Argentina itself acknowledges that that f actor had already been in effect for more than 
ten years. 
186. In seeking support for its arguments, Argentina repe atedly asserts that the factor of 1.56 is an 
aspect that has changed relative to the PBS or an aspect of the measure taken to comply that has 
changed relative to the original measure.75  However, it is a factor that has been in existence since 
1993 and which in its present form has been in e ffect since 1996, as Argentina itself observes in its 
First Written Submission.76 
187. It should be pointed out that in all the texts cited in this dispute, the factor is always similarly 
expressed.  Thus, for determining the duties and rebates for wheat flour, "the duties and rebates 
determined for wheat shall be multiplied by a factor of 1.41"77 or "there shall be applied the duties and 
                                                      
71 If in 1984 any goods had entered at a c.i.f. price of 100 dollars per tonne, they would have had to pay 
35 dollars per tonne in duty (35 per cent ad valorem).  Other goods entered in 2004 at a c.i.f. price of 583.40 dollars per tonne would have had to pay 35 dollars per tonne in duty (6 per cent ad valorem).  In no way can it 
be concluded from this equality of the duty on both cons ignments that the conditions of access were the same in 
1984 and 2004. 
72 Paragraph 247 of the Rebuttal. 
73 Paragraph 228 of the Rebuttal. 
74 Paragraph 229 of the Rebuttal. 
75 For example, paragraphs 271, 278, 281, 282 of the Rebuttal. 
76 Paragraph 232 of Argentina's First Written Submission. 
77 Law 19.193.  WT/DS207/RW 
 Page C-81 
 
 
  rebates determined for wheat multiplied by a factor of 1.56".78  In other words, as a mathematical 
calculation. 
188. Despite the above, Argentina adds a new elemen t by maintaining that the "basis" on which the 
factor of 1.56 is applied is different under the scheme introduced by Law 19.897 and its Regulations 
and is therefore a new aspect of the modified measure. 
189. However, in its First Written Submission Argentin a bases its claim mainly on the fact that the 
factor in question translates into the application to a product (wheat flour) of specific duties which, 
rather than being linked to that product, are derived from the duties applied to another product 
(wheat), adding that the price relationship between  the two could be based on a technical production 
ratio between flour and wheat.  Moreover, in Argen tina's opinion, "this relationship is valid at 
international level".79  Argentina concludes by stating that, in  its own case, this technical ratio would 
be approximately 1.3, "that is, the price of wheat fl our is approximately 30 pe r cent higher than that of 
wheat". 
190. In its Rebuttal, Argentina adds a new element never previously mentioned.  According to 
Argentina, the difference between now and the PBS is that the factor is applied on a completely 
different basis.  Consequently, the result of applying  it is also different.  Therefore, it is a changed 
aspect that can be included within the te rms of reference of the present Panel. 
191. As an initial response, it should be pointed out that what Argentina originally questioned was 
the factor of 1.56, whereas now it is questioning the b asis on which the factor is applied.  In Chile's 
opinion, these are two very different things and certa inly in most of its submissions Argentina has 
sought to question the basis on which the specifi c duties are assessed under Law 19.897 (from which 
the duties applicable to wheat flour are determined).    
192. Then again, a more detailed analysis of US – Countervailing Measures on Certain EC 
Products (Article 21.5 – EC) would show that this precedent cannot  be used in this case since it 
concerns a dispute about subsidies in which the ch ange in the basis of a re-determination is an 
essential element for determining the likelihood of subsid ization.  Finally, any change in the basis will 
necessarily affect the result.  In  this case, the consequences are the same now as under the PBS: an 
increase in the specific duties applie d to flour by a factor of 1.56 relative to the duties applied to 
wheat, and in its First Written Submission Argentin a questioned this increase for being higher than 
the technical ratio which it calculated would be corr ect, i.e., 1.3, and because "in its legislation Chile 
has neither explained nor justified in any way the basis on which it was established".80 
193. In other words, it would appear that only on 19 April 2006 did Argentina notice that the factor 
of 1.56 in effect since 1996 is not transparent and in creases the insulation of the domestic market from 
international price developments. 
194. Chile does not question the right of any Member to raise a new claim relating to an aspect of 
the measure taken to comply that constitutes a ne w or changed element of the original measure nor 
dispute the validity of the precedents cited in this  respect in the Rebuttal, but Argentina bases its 
argument on an erroneous premise.  As we have shown, the factor of   1.56 is not a new or changed 
element of the original measure and therefore Arge ntina should have introduced it into the original 
dispute, being precluded from doing so at this late stage.   
                                                      
78 Article 1 of Law 19.897. 
79 Paragraph 231 of the Rebuttal. 
80 Paragraph 229 of Argentina's First Written Submission. WT/DS207/RW 
Page C-82  
 
  195. Allowing Argentina to have this "second chance" (as it was called by the Appellate Body in 
EC – Bed Linen (Article 21.5 – India)  and by the Panel in US – Countervailing Measures on Certain 
EC Products (Article 21.5 – EC) ) to take issue with the factor of 1.56 before this Panel would be to 
call into question Chile's due process right s to a proper defence of its duties. 
(a) Technical basis of the factor of 1.56 
196. Without prejudice to the foregoing, Chile will explain the technical reasons for using a factor 
of 1.56 to assess the duties or reba tes applicable to wheat flour. 
197. As Argentina acknowledges when it refers to  the ("internationally valid") technical 
production ratio, the specific duty or rebate, as appropr iate, for wheat flour is determined simply by 
multiplying the duty or rebate in effect for wheat imports by a factor of 1.56.  The reason for 
increasing the duty (or rebate) by a certain proportion is  simply to maintain a similar nominal level of 
protection for both products.  As is  well known, one of the characteri stics of specific duties is that 
their impact is inversely proportional to the price of the product.  In other words, the greater the value 
of the product the less protection the tariff provi des.  Wheat flour is a processed product whose 
essential raw material is wheat.  Therefore, the price of  wheat flour will be directly related to the price 
of wheat, but will always be higher. 
198. If the same specific duty were levied on both products, the protection provided for wheat 
flour would be reduced as compared with that for wheat, which would indirectly favour flour imports.  
In fact, this is precisely what Argentina does w ith its differential export tax mechanism, which 
provides for exports with a higher value added to pa y significantly lower taxes than exports of basic 
products, the object being to give industr ial exports an artificial advantage.  
199. Differential tariffs for products with higher va lue added are a reality throughout the world, 
including in Argentina itself.  Moreover, there are no rules establishing the precise amount by which 
the tariffs on products higher up the processing chain have to be increased.  It would be extremely 
difficult to arrive at any consensus on this. 
200. The factor used by Chile has undergone occasiona l adjustments to take account of the relation 
between the prices of the two products and since 19 96 has been fixed at 1.56.  In formulating Law 
19.446
81 which set that value consideration was given to the information available at that time. 
201. This indicated that between January 1986 a nd December 1995 (the period of application of 
the band at that time), the average ratio of th e price of flour to the price of wheat was 1.566.82  
Therefore, this was the factor that was built into the Chilean legislation and it has remained 
unchanged ever since. 
2. Argentina's claim with respect to the second sentence of Article II:1(b) of the 
GATT 1994 likewise does not fall within th e terms of reference of the present Panel 
202. As Chile has pointed out, Argentina acknowledg es that during the original proceedings it 
never raised a claim relating to the second sen tence of Article II:1(b) of the GATT 1994.83  Therefore, 
the discussion should focus on whether it is a question of a claim relating to the new measure or one 
relating to the PBS. 
                                                      
81 Exhibit CHL–6. 
82 Exhibits CHL–9, 10 and 11. 
83 Paragraph 295 of the Rebuttal.  WT/DS207/RW 
 Page C-83 
 
 
  203. As Chile understands it, Argentina is claiming that a violation of  Article 4.2 of the Agreement 
on Agriculture would automatically translate into a vi olation of Article II:1(b), second sentence, of the 
GATT 1994, insofar as the Member had not incorporat ed the measure in its Schedule.  And that 
would apply both to the PBS and to any other measure that violates Article 4.2.  
204. Accordingly, this is a claim which Argentina should have raised and substantiated in the 
original proceedings, because, in accordance with its reasoning in the Rebuttal, the PBS would also 
have been found to be in violation of Article  II:1(b) once it had been concluded that it was 
inconsistent with the aforementioned Article 4.2.  However, Argentina did not do so and cannot raise 
the claim before this Panel. 
205. Contrary to what Argentina maintains, Chile's due process rights are being seriously impaired 
by this decision to introduce at this stage a substa ntive claim such as that relating to Article II:1(b), 
second sentence.  Argentina, on the other hand, appear s to rely on the reference cited in paragraph 310 
of its Rebuttal.  But this relates to arguments  which could not be rebutted in good time and not to 
claims , as in the present case. 
206. Consequently, Argentina's claims relating to  the factor of 1.56 and to the alleged 
inconsistency with the second sentence of Article II: 1(b) of the GATT 1994 fall outside the terms of 
reference of the present Panel, insofar as they con cern aspects relating to the original measure (PBS) 
which Argentina could have raised in the original dispute but did not. 
VI. CONCLUSION 
207. Argentina has been unable to show that  the current scheme based on Law 19.897 is 
preventing the transmission of international prices to the Chilean market or restricting the volume of 
imports.  On the contrary, it insists that there is a la ck of transparency and predictability in irrelevant 
aspects of the scheme in force.  Chile has shown that  the lack of transparency and predictability of 
certain aspects of the PBS were called into ques tion precisely because they led to the insulation of 
domestic prices.  These defects having been corr ected and other changes introduced, the current 
scheme does not produce the effects which Appellate  Body identified as being the common object and 
purpose of the measures listed in Article 4.2 of th e Agreement on Agriculture.  Argentina has been 
unable to prove that Law 19.897 and its  Regulations generate those effects . 
208. As a last resort, Argentina claims that Ch ile should have abolished its PBS because the 
Appellate Body so established.84  Even though we may agree with the Appellate Body that duties 
resulting from the application of a measure inconsis tent with Article 4.2. of the Agreement on 
Agriculture cannot go on being levied, the fact that  the current system based on Law 19.897 and its 
Regulations is not inconsistent w ith that provision allows Chile to continue levying any specific duties 
that may be applicable. 
209. Furthermore, it should be recalled that, as stated in the Article 21.3 arbitration in EC – Poultry 
Cuts, "the implementing Member has a measure of discretion in selecting the means of 
implementation that it deems most appropriate".85  Therefore, Argentina cannot oblige Chile to 
comply in a particular way with the recommendations and rulings of the DSB. 
210. Members of the Panel, Law 19.897 and its sub sequent Regulations established a mechanism 
which on the basis of transparent and predictable parameters makes it possible to establish specific 
duties or rebates, or neither of the two, on wh eat and wheat flour in accordance with world market 
                                                      
84 Paragraph 317 of the Rebuttal. 
85 EC – Poultry Cuts (Article 21.3) , Award of the Arbitrator (WT/DS269/13 and WT/DS286/15), 
paragraph 49. WT/DS207/RW 
Page C-84  
 
  developments, including references to one of the mark ets of most concern, namely, that of Argentina.  
These duties or rebates remain unchanged for two mont hs, which allows varia tions in international 
prices to be reflected in domestic prices.  Thus, if the international price falls, the internal price falls 
by a similar amount and if the intern ational price rises, the internal pr ice rises in the sa me way.  This 
is not what variable import levies or minimum import prices do. 
211. Therefore, the system in force in Chile up to 2014 is not inconsistent with Article 4.2 of the 
Agreement on Agriculture and hence does not violat e paragraph 4 of Article XVI of the Marrakesh 
Agreement Establishing the World Trade Organizati on.  Chile requests the present Panel to find 
accordingly, while rejecting Argentina's claims in relation to the alle ged inconsistency with 
Article II:1(b), second sentence, of the GATT 1994 and in relation to the factor of 1.56 for wheat 
flour, inasmuch as neither was properly brought before it.