Document: WT/DS207/RW Page F-1 ANNEX F REPLIES BY PARTIES TO QUESTIONS POSED BY THE PANEL AND OTHER PARTIES AFTER THE SUBSTANTIVE MEETING OF THE PANEL Contents Page Annex F-1 Replies by Argentina to Questions posed by the Panel  F-2 Annex F-2 Replies by Argentina to Ques tions posed by the European Communities F-71
Document codes: WT/DS207/RW
Complainant: Argentina
Respondent: Chile
Third parties: Australia, Brazil, Canada, China, Colombia, Costa Rica, EU, Ecuador, El Salvador, Guatemala, Honduras, Japan, Nicaragua, Paraguay, Peru, Thailand, Venezuela, U.S.
Dispute stage: Implementation & Compliance
Agreements cited: Art. XIX:1, II  GATT 1994Art. 4  AgricultureArt. 2, 3, 4, 5, 6, 12  Safeguards

ANNEX F

REPLIES BY PARTIES TO QUESTIONS POSED BY THE PANEL
AND OTHER PARTIES AFTER THE SUBSTANTIVE MEETING OF THE PANEL

Contents Page
Annex F-1 Replies by Argentina to Questions posed by the Panel F-2
Annex F-2 Replies by Argentina to Ques tions posed by the European
Communities
F-71
Annex F-3 Replies by Chile to Questions posed by the Panel F-77
Annex F-4 Replies by Chile to Questions posed by Argentina F-116

ANNEX F-1

REPLIES BY ARGENTINA TO QUESTIONS POSED BY THE PANEL

FOR BOTH PARTIES

1. Article 21.5 of the DSU provides that:

"Where there is disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings
such dispute..." (emphasis added)
Please identify which are the relevant "measure s taken to comply with the recommendations
and rulings" at issue in these proceedings. Do those measures refer to the PBS in its entirety,
the amendments introduced to the PBS, particul ar features of the PBS, or something else?
Please make reference to relevant sections of the Panel and Appellate Body reports in the
original proceedings to support your answer, if needed.

Answer to Question 1

The relevant measures taken to comply with th e recommendations and rulings at issue in these
proceedings are Law No. 19.897, whose Article 1 replaced Article 12 of Law No. 18.5251, and Decree
No. 831 of the Ministry of Finance (hereinafter Decree 831/2003) 2, regulating the application of
Article 12 of Law No. 18.525, as substituted by Article 1 of Law No. 19.897.

The fact that both Law 19.897 and Decree 831/2003 are measures adopted by Chile to implement the
recommendations and rulings of the DSB was acknow ledged by Chile in the status reports it
submitted to the DSB in fulfilment of its obligations under Art. 21.6 of the DSU.
3

Those measures refer to the PBS in its entirety.

2. Could the parties please comment on whet her their reply to the previous Question has
any bearing on the issue of whether Argentina's claim under Article II:1(b) of the GATT 1994
falls within this Panel's terms of reference.

Answer to Question 2

Argentina's answer to the previous question bear s on the issue of whethe r Argentina's claim under
Article II:1(b) of the GATT 1994 falls within this Panel's terms of reference as fas as the amended
PBS is a new measure recognized like that by Chile itself.
4

1 See Exhibit ARG-1. As notified by Chile, Law 19.897 established a "new" price band system which
entered into force on 16 December 2003 for the products at issue in this dispute, namely, wheat and wheat flour.
(WT/DSB/M/156, paragraph 16).
2 See Exhibit ARG-2.
3 See, for example, document WT/DS207/15/Add.3 and inter alia First Written Submission by
Argentina, paras. 18 to 20.
4 See Status Reports submitted by Chile WT/DS207/15/Add.1, of 28 October 2003, third paragraph:
"We repeat that the new price band system…" and WT/DS207/15/Add.3, of 14 January 2004, second paragraph:
"… the new price band system entered into force on 16 December 2003…" (underlining added).

In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body held :

"... in carrying out its review under Article 21.5 of the DSU, a panel is not confined to
examining the 'measures taken to comply ' from the perspective of the claims,
arguments and factual circumstances that related to the measure that was the subject
of the original proceedings. Although th ese may have some relevance in proceedings
under Article 21.5 of the DSU, Article 21.5 proceedings involve, in principle, not the
original measure, but rather a new and different measure
 which was not before the
original panel. In addition, the relevant facts bearing upon the 'measure taken to
comply' may be different from the relevant facts relating to the measure at issue in the
original proceedings. It is natural, therefore, that the claims, arguments and factual
circumstances which are pertinent to the 'measure taken to comply' will not,
necessarily, be the same as those which were pertinent in the original dispute.
Indeed, the utility of the review envisage d under Article 21.5 of the DSU would be
seriously undermined if a panel were restricted to examining the new measure from
the perspective of the claims, arguments and factual circumstances that related to the
original measure, because an Article 21.5 panel would then be unable to examine
fully the 'consistency with a covered agreem ent of the measures taken to comply', as
required by Article 21.5 of the DSU."
5 (Underlining added.)
Thus, Argentina's claim relating to the second sen tence of Article II:1(b) of the GATT 1994 falls
within the Panel's terms of reference since it is a new claim with respect to a new measure.

3. During the meeting with the Panel, regar ding the issue of whether Argentina's claim
under the second sentence of Articl e II:1(b) of the GATT 1994 falls within the mandate of this
Panel, Canada asserted that it "is not aware of any rule or precedent in the jurisprudence of the
WTO that would require a Member to make all of its arguments and bring all of its claims at
one time" (See paragraph 8 of the written versio n of Canada's oral statement). Assuming
Members are then free to choose which claims to bring against a specific measure in the original
proceedings and which other claims to bring la ter, during Article 21.5 proceedings, would there
be the risk, as Canada itself suggests, that Me mbers could then tactically decide to "split
claims" between the original proceedings and th e Article 21.5 proceedings (see paragraph 9 of
the written version of Canada's oral statement)?

Answer to Question 3

Like the Appellate Body held in Canada – Aircraft (Article 21.5 – Brazil) 6, Article 21.5 proceedings
involve, in principle, not the original measure but rather a new and different measure which was not
before the panel and it is natural, therefore, that, as the relevant facts bearing upon the "measure taken
to comply" are different from the relevant facts relating to the original measure, the claims, arguments
and factual circumstances pertinent to the "measu re taken to comply" would not necessarily be the
same as those which were pertinent in the original dispute.

Therefore, as the relevant facts bearing upon th e "measure taken to comply" are different from the
relevant facts relating to the original measure in the c ase at issue in this dispute, there is no risk that
Argentina could have "tactically" decided to "split claims" between the origin al proceedings and the
Article 21.5 proceedings.

5 WT/DS70/AB/RW, paragraph 41.
6 WT/DS70/AB/RW, paragraph 41.

4. Do the parties consider that the laying do wn of all parameters of the PBS applicable
until 2014 makes it easier to predict the specific dut ies applicable to imports? Could a degree of
uncertainty be associated with the dates of delivery?

Answer to Question 4

The laying down of some parameters of the amended PBS applicable until 2014 does not make it
easier to predict the specific duties applicable to imports.

First, not all parameters have been layed out until 2014. In particular, the reference prices will
mandatorily
 change every two months as they have ch anged every two months since the amended
PBS was established.7 This provides no predictability for exporters.

According to Chile, the exporter must ascertain the fu ture price of bread wheat in the relevant market
of concern in the 15-day future
 period and then calculate that 15-day period average price to obtain
the presumed future reference price.

Thus, one of the problems faced by the exporter in estimating the future amount of duties payable is
the fact that future prices are precisely that: future
, and therefore, they are estimates rather than solid
data. That is to say, there could be variations due to circumstances unknown at the time that could
cause these future prices to differ from the prices actually recorded in the future. Consequently, the
relationship between the specific duty and the transact ion value, in the presence of a variation in the
amount of the duties, will necessarily differ from that which would have existed if there had been no
such variation.

If in the amended PBS there is any chance of predicting future reference prices, quod non, that chance
is not different from the possibility that existed with the original PB S. Future prices for wheat existed
then, as they exist now, and the same problems that Argentina now highlights existed at the time of
the original proceeding as well. In fact, that w as enough for the Appellate Body to find that the
original PBS was inconsistent because an exporter was less likely to ship to a market if that exporter
could not predict what the amount of duties would be.
8

Second, it is not clear that the amended PBS, included its parameters, will not continue to exist after
2014. The amended PBS has no end date. As indicated in the legislation amending the original PBS,
"… In 2014 the President of the Republic shall eval uate the modalities and conditions of application
of the price band system …". 9 So, Chile has not even provided the certainty that the amended PBS
will be dismantled by middle of next decade.

With respect to the degree of uncertainty related to the delivery dates, Argentina demonstrated how,
taking into account the specific delivery dates, as a result of the amended PBS an exporter may not
know and may not reasonably predict what the amount of duties will be. Argentina respectfully refers
the Panel to paras. 271 to 274 of its First Written Submission.

5. Argentina has noted in paragraph 58 of it s first submission, that the way in which the
calculation of the specific duties has been ch anged under the amended PBS "leaves the exporter
worse off, inasmuch as the specific duties now gen erate a cost higher than that generated by the
previous method of calculation".

7 First Written Submission by Argentina, para. 256 to 270 and Exhibit ARG-6.
8 Chile – Price Band System, Report of the Appellate Body, para. 234.
9 Law 19.897/2003, Art. 1. See Exhibit ARG-1.

 (a) Could Argentina clarify whether, in its view, this particular fact per se would
make the amended measure inconsistent with the WTO covered agreements. If
so, could Argentina identify the legal basis for that argument.

Answer to Question 5(a)

The fact that the way in which the calculation of the specific duties has been changed under the
amended PBS "leaves the exporter worse off, inasmu ch as the specific duties now generate a cost
higher than that generated by the previous method of calculation" is a cumulative insulation factor if
compared to the original PBS.

This fact is a "specific feature" that contributes to the particular configuration and interaction of all the
amended PBS specific features described by Argentin a along its submissions and oral statements that
have the effect of disconnecting Chile's market from international price developments.

Argentina finds legal basis for this interpretation in footnote 1 to Article 4.2 of the Agreement on
Agriculture. Footnote 1 reads in its relevant part:

"These measures include quantitative import restrictions, variable import levies,
minimum import prices, discretionary import licensing, non-tariff measures
maintained through state-trading enterpri ses, voluntary export restraints, and similar
border measures other than ordinary customs duties…"
This cumulative insulation factor (i.e. the fact th at the way in which the calculation of the specific
duties has been changed under the amended PBS leav es the exporter worse off) contributes to the
amended PBS effect of impeding the transmission of interna tional price developments to the domestic
market in a way similar to that of other categories of prohibited measures listed in footnote 1.

In that sense, the Appellate Body found:

"In our view … Chile's price band system ca n still have the effect of impeding the
transmission of international price developm ents to the domestic market in a way
similar to that of other categories of prohibited measures listed in footnote 1".
10
This effect was one of the features the Appellate Body referred to when finding the original PBS
inconsistent with Article 4.2. The Appellate Body stated:

"We emphasize that we reach our conclusion on the basis of the particular
configuration and interaction of all these specific features
 of Chile's price band
system …" 11 (underline added)
 (b) In this respect, can Argentina comment on Chile's statement that it has taken
the necessary steps to ensure that duties never exceed its tariff rate level bound
in the WTO (see, for example, paragraph 37 of Chile's first submission). In the
opinion of the Parties, what is at issue in these proceedings, the level of the duties
or their alleged variability, or both?

10 Chile – Price Band System, Report of the Appellate Body, para. 246.
11 Chile – Price Band System, Report of the Appellate Body, para. 261 (underline added).

Answer to Question 5 (b)

Chile's comment is familiar to Argentina because it is not the first time that Chile raises this
argument.12

The fact that Chile has taken the necessary steps to ensure that duties never exceed its tariff rate level
bound in the WTO is meaningless with relation to whether the amended PBS is consistent with Chile's
obligations under the WTO. The Appellate Body h as extensively dealt with this argument and has
clearly rejected it.13 It is useful to recall that the Appellate Body stated:

… the existence of the tariff binding will not eliminate the distortion in the
transmission of world market prices to Chile's market in all other cases, where the
combination of the duties resulting from Chile's price band system, when added to the
applied ad valorem duty, remains below Chile's bound rate of 31.5 per cent
ad valorem.
Moreover, contrary to what Chile argues, Chile's price band system is not necessarily
less trade-distorting Nor does it insulate Chile 's domestic market less, than it would,
if Chile simply imposed duties at the bound tariff level of 31.5 per cent …
14
With respect to the second part of this question ("what is at issue in these proceedings, the level of the
duties or their alleged variability, or both?"), there is much more at issue in these proceedings than
just the variability of the duties.

While the level of the duties per se is not inconsistent with Chile's WTO obligations, what is at stake
in these proceedings is the fact that the amended PB S continues to elevate the entry price of imports
to Chile above the price band floor; continues to "overcompensate" for the effect of decreases in
international prices on the domestic market when re ference prices are set below the price band floor;
continues to make the entry price of Chilean impor ts higher than if Chile applied a minimum import
price at the level of the price band floor, and continue s to fail to ensure that the entry price of imports
to Chile falls in tandem with falling world market prices. In addition to th is, the amended PBS is a
border measure similar to a variab le import levy a minimum import price, is instransparent and
unpredictable and, on top of that, is not an ordinary customs duty.

At this point Argentina would like to recall that it has not only claimed that the amended PBS is a
border measure similar to a variable import levy. Argentina has made its strongest effort also to
demonstrate that the amended PBS is a border measure similar to a minimum import price.
15 The
formula developed in Argentina's First Written Submission, Section C.I.2.1 deciphered how the
amended PBS works from a mathematical point of view.
16 In fact, due to that formula, the PBS does
not permit any transmission if that means that the entry price has to fall below the floor price. The
formula together with the band floor work as a brake for the decline in the entry price and for any
transmission of international prices below the level of the floor.17

Additionally, Argentina has provided another formula for calculating the import price resulting from
the Appellate Body Report, showing what the entry price would be if Chile applied a minimum import

12 See for example Chile – Price Band System, Report of the Appellate Body, para. 253.
13 Chile – Price Band System, Report of the Appellate Body, paras. 254 to 259.
14 Chile – Price Band System, Report of the Appellate Body, paras. 257 and 258 (footnotes omitted)
15 Argentina's First Written Submission, para. 99-124, 159-173; Rebuttal by Argentina, paras. 160-205,
Oral Statement by Argentina, para. 32-41, 85-90; and Closing Statement by Argentina, para. 21.
16 First Written Submission by Argentina, paras. 102 to 105
17 Oral Statement by Argentina paras. 36 to 41

price.18 Chile recognized that that formula was correct. 19 Then, Argentina demonstrated that the entry
price of Chilean imports under the amended PBS is hi gher than it would be if Chile were to apply a
minimum import price at price band floor level.20

So, again, the variability of the duties is not the onl y issue at stake. Argentina is confident that the
panel will thoroughly address all of Argentina's arguments.

6. During the substantive meeting with the Panel, Argentina stated that "contrary to what
Chile has asserted in its submissions (footnote omitted), the PBS Law and Regulation give no
discretion to Chile to decide whether or not to impose the duties" (see paragraph 80 of the
written version of Argentina's oral statement, original emphasis).

(a) Can Argentina elaborate on the relevance of whether the amended PBS allows
any discretion to Chilean authorities to levy the specific duties or grant the
rebates, as appropriate.
Answer to Question 6

The Appellate Body held that the fact that the measure itself – as a mechanism –imposes the
variability of the duties is one feature of "variable import levies":

"… at least one feature of "variable import levies" is the fact that the measure itself –
as a mechanism – must impose the variability of the duties. Variability is inherent
in a measure if the measure incorporates a scheme or formula that causes and ensures
that levies change automatically and continuously . Ordinary customs duties, by
contrast, are subject to discrete chang es in applied tariff rates that occur
independently, and unrelated to such an underlying scheme or formula. …" 21
(Underlining added, emphasis in the original)
Both Law 19.897 and Decree 831/2003 incorporate "a scheme or formula that causes and ensures that
levies change automatically and continuously", making it mandatory for specific duties to be
established when the reference price is below the band floor.

The relevant part of Law 19.897 states that "specific duties must be established when the reference
price is below the floor price of 128 dollars for wheat. In the case of wheat flour, the duties and
rebates determined for wheat multiplied by a factor of 1.56 shall be applied" (emphasis added).

Article 13 of Decree 831/2003 reads: "In each Supr eme Decree issued in accordance with this
regulation specific duties shall be established ... if the reference price is below the floor price ..."
(emphasis added).

Clearly, expressions of the type " must be established " and " shall be applied " mean that when the
reference price is below the floor price the app lication of specific duties will be mandatory and
automatic. Therefore, the PBS is applied automatically, directly and unfailingly.

Thus, the fact that the amended PBS itself –as a mechanism- imposes the va riability of the duties,
together with the fact that it does not allow any di scretion to Chilean author ities to levy the specific

18 First Written Submission by Argentina, Section C.I.2.3.
19 Rebuttal by Chile, para. 162.
20 First Written Submission by Argentina, Section C.I.2.3.
21 Chile – Price Band System, Report of the Appellate Body, paragraph 233.

duties or grant the rebates is one of the character istics that makes the amended PBS be similar to a
variable import levy.

7. Do the Parties consider that the price bands, as defined under the amended PBS, are
used as part of a scheme or formula for the calc ulation of additional duties or rebates (as the
case may be) at the customs border, prior to the entry of wheat and wheat flour into the Chilean
customs territory?

Answer to Question 7

Yes, the price bands (or the floor and ceiling values ) as defined under the amended PBS, are used as
part of a scheme or formula for the calculation of additional duties or rebates (as the case may be) at
the customs border, prior to the entry of wheat and wheat flour into the Chilean customs territory.

In the case of wheat Article 14 of Decree 831/2003 pr ovides that "the specific duties applied to wheat
imports … will correspond to the difference between th e floor price and the reference price …
multiplied by the factor one (1) plus that Customs Tariff's general ad valorem tariff.

 Specific duty = ( Floor value in force – Reference price) * ( 1 + ad valorem tariff )"
22

In the case of wheat flour Article 16 of Decree 831/2003 provides that "In the case of wheat flour the
duties and rebates determined for wheat, multiplied by the factor of 1,56 will be applied.

Specific duty or rebate to
the tariff for wheat flour = Specific duty or rebate to the tariff for wheat * 1,56
23

In this case, it is clear that as the formula for th e calculation of specific duties to be levied on wheat
flour imports includes the specific duty for wheat, it th erefore incorporates the floor value used in the
formula to calculate that duty.

These formulas are contained in the Law 19.897 and Decree 831/2003 and that is an incontestable
fact.

8. Chile asserts that, under the present PBS, the reference price is not a border price, does
not correspond to the price of a shipment, nor is it expressed in CIF terms (see, for example,
paragraph 118 of its rebuttal submission).

 (a) Notwithstanding the fact that FOB pri ces do not reflect all the costs associated
with traded wheat and wheat flour, do th e Parties consider that the price of the
goods (normally reflected in the related commercial documents, such as invoices)
can serve as the starting point to determine the full transaction value?

Answer to Question 8(a)

Argentina agrees that the price of the goods (normall y reflected in the related commercial documents,
such as invoices) can serve as the starting point to determine the full transaction value. However the
transaction value of the shipments (reflected in the commercial invoice or otherwise) has no relevance

22 See ARG-2 (emphasis added, unofficial translation)
23 See ARG-2 (emphasis added, unofficial translation)

or meaning within the amended PBS. Argentina has extensively referred to this aspect of the amended
PBS.24

 (b) Notwithstanding the fact that the reference price is not expressed in CIF terms ,
can the FOB valuation of the "markets of concern" be used as a starting point to
obtain an approximation of the CIF value for reference prices?

Answer to Question 8(b):

If the FOB valuation recorded in a certain market of concern, for a certain quality of concern and for a
specific point in time were adjusted adding up insurance and freight, the result would a CIF value for
that market, that quality of concern and for that specific point in time. In that case the FOB valuation
of the "markets of concern" could be used as a starting point to obtain an approximation of the CIF
value.

That is the approach followed by Argentina, fo r example, in Exhibits ARG-11, ARG-12, ARG-13,
ARG-14, ARG-23, ARG-24, ARG-25, and Tables I, II, III and IV of Argentina's First Written
Submission.

 (c) If the Panel were to assume that the PBS does not sustain internal prices, as
argued by Chile (see paragraphs 109-126 a nd 154 of its first submission), would
the Parties consider that the FOB, CIF or wholesale prices could be considered
as "proxies" for certain analytical purposes, for example, in order to study price
behaviour, while taking fully into account the complexities involved?

Answer to Question 8(c)

Argentina agrees that FOB and CIF prices can be considered as "proxies" for certain analytical
purposes.

However, "wholesale prices" should not be used for any analytical purpose in this dispute. This
variable is not relevant in this case. Neither th e Panel nor the Appellate Body addressed the notion of
"wholesale prices" in this dispute. The relevant parameter of comparison is between the FOB price
and the entry price, as the Appellate Body established in paragraph 260 of its Report. The wholesale
price is a new variable incorporated by Chile, ne ver addressed by the Appellate Body nor by
Argentina.

Second, in its First Written Submission, paras. 154 and 155, Chile presented a graph stating that it
revealed that during the period of application, the wheat entry price had the same behaviour as its
FOB price and that both prices' variation had "large similarities" that showed the connection between
Chile's internal price and the international market. In its Rebuttal, para. 55, after Argentina showed
that Chile's arguments were baseless, Chile contra dicts itself stating that, in reality, the graph was
comparing wheat FOB price with wheat wholesale price. Moreover, Chile curiously maintains that the
connection required by Argentina cannot be complete : "…it is impossible to claim a complete
connection…"
25 According to Chile, the reason for this is that internal market wheat price is
influenced by wheat internal supply : "The price of wheat – and its fluctuations – on the wholesale
market is heavily influenced by the domestic wheat supply…" 26 In sum, the evidence submitted by

24 First Written Submission by Argentina, paras. 47-49, 137, 141, 153, 157, 182, 196, 220-223, and 228
and, Oral Statement by Argentina, paras. 67 and 68.
25 Rebuttal by Chile, para 55.
26 Rebuttal by Chile, para 55.

Chile to convince the Panel that the amended PB S does not cause insulation from the international
market, is full of self-contradictions.

Moreover, while the relevant variable to analyse is the entry price as the Appellate Body established,
inter alia, in paragraph 260 of its Report, the fact recognized by Chile that internal market wheat price
is " heavily" influenced by wheat internal supply, dist orts the very variable Chile purports to
incorporate to this dispute, in which the influence of wheat internal supply has never been addressed.

Even if, in spite of the various reasons that Ar gentina provided for not using "wholesale prices" for
any analytical purpose in this dispute, the Panel found that wholesale prices could be considered for
analytical purposes, it is difficult for Argentina to describe the evolution of Chilean wholesale prices
of wheat and wheat flour over the period addressed by the Panel because all the evidence that Chile
has provided for the period January 2004 to February 2006 is an unsupported graph.

First, the graph in para. 154 of Ch ile's first written submission only addresses wheat wholesale prices.
Wheat flour wholesale prices are not addressed in that graph. In fact, wheat flour wholesale price have
not been addressed before in this dispute at all.

Second, Chile never provided any chart or any furthe r information to clarify the numerical data that
could be the basis for the wheat "wholesale prices" line plotted in that graph, as Argentina did with all
of its Exhibits. Argentina has explained all the pr oblems with this graph and the conclusions Chile
draws from it.
 27 Furthermore, it is not clear what is the source of that graph. Chile states that "The
sources of the information, both da ily and monthly, are clearly indicated in all cases (SAGPyA and
ODEPA)"28, but it is clear that in para. 154 of Chile's first written submission there is no indication of
the sources of the information used to produce the graph.

Furthermore, there are inconsistencies in what Chile apparently is purporting to show. It is not clear
whether Argentine FOB price is compared against "Chilean wheat prices", "wheat wholesale prices"
or just against the "entry price":

• In paragraph 154 Chile states: "The graph below shows the trends in Chilean wheat
prices and in f.o.b. prices of Argentine bread wheat …"
• The legend of the graph reads "wheat wholesale price"
• In paragraph 155 Chile states: "What clearly emerges is that the entry price of wheat
exhibits the same behaviour as its f.o.b. price…"
During the meeting of the Panel with the Par ties on 1 August Chile exposed in a PowerPoint
presentation what appeared to be the same graph. Argentina specifically asked, through an oral
question, if that graph showed the same wheat wholesale prices Chile had included in its graph in
paragraph 154 of its first submission. Chile's answ er was affirmative. However, Argentina neither
received an electronic or paper copy of that graph nor of the remaining PowerPoint computer
presentation. In fact, Argentina has never seen the numerical basis of that graph

In spite of all these inconveniences resulting from Chile 's lack of clarity and, what is worse,
supporting evidence, Argentina made its best effort to describe what it can be observed in that graph.
29

27 See Rebuttal by Argentina, para. 61- 66 and Oral Statement by Argentina 30-31.
28 See Rebuttal by Chile, footnote 25.
29 Rebuttal by Argentina, paras. 68-70

A careful study of the graph, including a comparis on of the trends of each the "bread wheat FOB
Argentine port price" (lower line) and the "wh eat wholesale price" (upper line) shows that during
most of the period both prices moved in different directions. In fact, both prices showed an opposite
trajectory during the following periods:

• February-March 2004
• March-April 2004
• May-June 2004
• June-July 2004
• July-August 2004
• August-September 2004
• September-October 2004
• December 2004 – January 2005
• January-February 2005
• February-March 2005
• April-May 2005
• May-June 2005
• July-August 2005
• September-October 2005
• November-December 2005

Therefore, Chile statements that "[t]he price cu rves indicate that…the variation [of Chilean wheat
prices] is very similar to that of export prices of Argentine wheat…"
30 and "the entry price of wheat
exhibits the same behaviour as its f.o.b. price, which demonstrates price transmission and therefore
the connection between the Chilean and the international market" 31 are baseless from every point of
view.

9. Do the Parties consider that the ac tual transaction value of a good is always unrelated to
its FOB valuation? If not, what adjustments should be made to the FOB price to get an
estimate of the transaction value?

Answer to Question 9:

From a theoretical point of view, the actual transa ction value of a good has to be related to its FOB
valuation. If one considers the transaction value as the invoice FOB price, then no adjustments are
necessary. If one considers the transaction value as th e CIF price one possible adjustment could be to
turn the invoice FOB price into a CIF price.

10. Do the Parties consider that the actual tr ansaction value of wheat and wheat flour is
always unrelated to its FOB valuation? If not, what adjustments should be made to the FOB
price to get an estimate of the transaction value of wheat and wheat flour?

Answer to Question 10:

The actual transaction value of wheat and wheat flour is related to its FOB valuation. If one considers
the transaction value as the invoice FOB price, then no adjustments are necessary. If one considers the
transaction value as the CIF price one possible adjustme nt could be to turn the invoice FOB price into

a CIF price. Argentina has provided several exam ples on how this was done for the purposes of this
dispute in the case of wheat
32 and in the case of wheat flour.33

11. Can it be said that the reference price as defined under the PBS is used as part of a
scheme or formula for the calculation of addition al duties or rebates (as the case may be) at the
customs border, prior to the entry of wheat and wheat flour into the Chilean customs territory?

Answer to Question 11:

Yes.

In the case of wheat Article 14 of Decree 831/2003 pr ovides that "the specific duties applied to wheat
imports … will correspond to the difference between th e floor price and the reference price …
multiplied by the factor one (1) plus that Customs Tariff's general ad valorem tariff.

 Specific duty = (Floor value in force – Reference price) * ( 1 + ad valorem tariff )"34

Article 16 of Decree 831/2003 provides that "In the case of wheat flour the duties and rebates
determined for wheat, multiplied by the factor of 1,56 will be applied.

Specific duty or rebate to
the tariff for wheat flour = Specific duty or rebate to the tariff for wheat * 1,56
35

In this case, it is clear that the formula for the calculation of specific duties to be levied on wheat flour
imports includes the specific duty for wheat, it theref ore incorporates the Reference Price used in the
formula to calculate that duty.

These formulas are contained in the Law 19.897 and Decree 831/2003 and that is an incontestable
fact.

12. Article 7 of Chilean Supreme Decree No. 831 provides that the FOB reference price for
wheat "correspond[s] to the average of the da ily prices recorded in the markets specified in
Article 8 over a period of 15 days counted retroactively from the 10
th day of the month in which
the relevant decree is to be published".

 (d) Do the Parties concur that the reference price used to trigger the calculation of
additional duties (or rebates) changes six times in the course of any 12-month
period?

32 See Argentina's First Written Submission, footnote 104: "… To arrive at the [wheat] CIF value the
FOB value was multiplied by 1.23, because the CIF value is generally (subject to pe riodic variations) 23 per
cent higher than the FOB value for wheat, calculating maritime freight from Buenos Aires to Chile at US$24 per
tonne and 0.5 per cent for insurance, on the basis of information provided by SAGPyA's Food and Agricultural
Market Directorate. The calculations leading to the inde x 1.23 are presented in Exhibit ARG-25, taking as a
basis the FOB prices, Argentine port, reported by ODEPA and carrying out the above-mentioned calculation."
See also Exhibit ARG-25.
33 See Argentina's First Written Submission, footnot e 108: "… The [wheat flour] CIF value is
calculated from the FOB value, plus land freight and insurance. Normally, in the case of wheat flour, freight and
insurance represent 40 per cent of the FOB value. This information was obtained from examples of actual export
operations provided by the Argentine Federation of the Milling Industry (FAIM) and presented in Exhibit
ARG-26 …" See also Exhibit ARG-26.
34 See ARG-2 (emphasis added, unofficial translation).
35 See ARG-2 (emphasis added, unofficial translation).

Answer to Question 12(d):

Yes, the reference price used to trigger the calculation of additional duties (or rebates) changes six
times in the course of any 12-month period.36

13. Do the Parties consider that the fixing of reference prices for a period of 60 days
constitutes a cumulative insulation factor, in view of the fixing of price bands for a period of
11 years?

Answer to Question 13

Yes. The fixing of reference prices for a period of 60 days constitutes a cumulative insulation factor
for two main reasons.

First, as Argentina pointed out in its First Writte n Submission, given that under the "old" PBS
reference prices were adjusted every week in accordance with the lowest FOB price in any external
"market of concern" during the previous week, the amended PBS disconnects the Chilean market
from international price developments even more than the original PBS.

Under the "new" PBS the reference prices used to calculate the specific duty for wheat and wheat
flour are set 6 times a year,
37 that is, with a period of validity of 2 months during which the
transmission of world market prices is disconnected.

Consequently, the "new" reference prices, and the "new" PBS that determines them, are not only less
representative of the world market but also impede the transmission of international price
developments to the Chilean market even more than the original reference prices and PBS.
38

The charts in Exhibits ARG-15 and ARG-17 illustrate the development of the reference prices and the
prices of wheat FOB Argentina and FOB Gulf of Me xico, respectively, during the period of validity
of the amended PBS. For each period, the disc onnection between the FOB prices and the reference
prices, after the reference price has been set for two months, is clearly discernible. The tables that
provided the information on which these charts ar e based can be found in Exhibits ARG-16 and
ARG-18, respectively.

It is surprising to note the insulation from intern ational prices that actually occurred during the period
in which the operation of the PBS led to the application of specific duties. It can be seen both from the
chart showing the relationship between the refere nce price and the Argentine port price of bread
wheat during the period of operation of the am ended PBS (ARG-15) and from that showing the
relationship between the reference price and the Gulf of Mexico price of Soft Red Winter No. 2 wheat
(ARG-17) that the disconnection occurs irrespective of the period of the year with respect to which
the relationship is considered. That is to say, th e reference price is disconnected from the FOB prices
in the markets of concern both when the referenc e price is based on the Argentine FOB price and
when it is based on the Gulf of Mexico FOB pri ce, although the disconnection between the reference
price and the Argentine FOB price is even greater wh en the reference price is calculated on the basis
of the Gulf of Mexico FOB price and vice versa.

36 See Exhibit ARG-6.
37 See Exhibit ARG-2 (Supreme Decree No. 831 of the Chilean Ministry of Finance, Articles 5 and 7
and the "Summary Table for the application of paragraph 2" of the Annex) and Exhibit ARG-6 (History of the
application of the amended PBS).
38 This without prejudice to the inconsistencies found by the Appellate Body with respect to the
reference prices in the original PBS.

For example, if we consider the relationship be tween the reference price and the FOB price for
Argentine bread wheat (Exhibits ARG-15 and ARG-16), we find disconnections over the entire period
of validity of the amended PBS, but especially in February, early April, the end of May and early
June, July, August, early September, end of Oc tober and mid-December 2004 and end of February,
March, early April, end of July, end of August and beginning of September 2005.

Likewise, if we analyse the relationship between the reference price and the FOB price Gulf of
Mexico (Exhibits ARG-17 and ARG-18), we note disc onnections over the entire period of validity of
the amended PBS, but especially at the end of Janua ry and beginning of Februa ry, April, end of May
and early June, July, September, and early October 2004, January, February, March, early April, early
August, early October and end of November 2005, and January and early February 2006.

As a specific example of this insulation (among ma ny others), consider what happened when the
reference price was set at 108.64 US$/tonne betw een 16 February and 15 April 2005, on the basis of
the average of the daily prices for wheat FOB Argentine port . The reference price thus determined
and fixed for two months did not reflect in absolute terms the increasing trend of those same FOB
prices for Argentine bread wheat which, during that period, reached 140 US$/tonne,
39 close to the
band ceiling from which the PBS provides for the gran ting of rebates rather than the levying of
specific duties, which clearly reveals the enormous arbitrariness in the setting of the reference prices.

In the case of wheat flour, the disconnection is even greater. Thus, as flour is a product of wheat, its
FOB price is naturally higher since to the cost of the wheat the millers add the cost of milling plus a
profit margin. Accordingly, the FOB price of wheat flour is always
 higher than the reference price
calculated on the basis of wheat, as can be seen simp ly by glancing at the chart in Exhibit ARG-19
and the table in Exhibit ARG-20. The substantia l disconnection observed between the FOB price of
Argentine wheat flour and the reference price on th e basis of which the specific duties are applied
during the entire period of validity of the amended PBS speaks for itself and shows the distortion
faced by Argentine exporters of wheat flour when trying to enter the Chilean market.

In paragraph 180 of its First Written Submission Chile seeks to argue that there cannot be
overcompensation and that "the objective is not to maintain a parity price" [sic], simply because duties
are now assessed six times a year rather than 52 times a year as in the original PBS:

"A further point which demonstrates that there cannot be overcompensation and that
the objective is not to maintain a parity pr ice is that today – unlike under the former
PBS when duties were assessed once a week (i.e. 52 times a year) – the duties or
rebates assessed are valid for two months (i .e. six a year), and during that period are
completely disconnected from what may o ccur in the reference, or any other,
markets."
Now the PBS is inconsistent "only" 6 times a y ear. Chile's arguments speak for themselves. In
particular, the last part of the paragraph cited "...the duties or rebates assessed are valid for two
months (i.e. six a year), and during that period are completely disconnected
 from what may occur in
the reference, or any other, markets", simply verifies and confirms that under the "new" PBS the
reference prices provide for a pe riod of validity of 2 months during which the transmission of world
market prices is completely disconnected.40

Second, as Argentina maintained in its Oral Stat ement, the problem with the amended PBS's
reference price is that, compared to the original PB S, the insulating consequences are much worse. In

39 See Exhibit ARG-16.
40 Argentina's First Written Submission, paragraph 206.

fact, international price developments of an extense period of the year are not reflected at all by the
amended PBS.

Below, Argentina has attached th e Chart for the Application of paragraph 2 of Decree 831/2003

los precios de referencia
Período de
publicación del
decreto
Períodos de vigencia de
los derechos específicos
o rebajas
Mercado de mayor
relevancia
26 nov – 10 dic
27 ene – 10 feb
27 mar – 10 abr
27 may – 10 jun
27 jul – 10 ago
26 sep – 10 oct
11-15 diciembre
11-15 febrero
11-15 abril
11-15 junio
11-15 agosto
11-15 octubre
16 dic – 15 feb
16 feb – 15 abr
16 abr – 15 jun
16 jun – 15 ago
16 ago – 15 oct
16 oct – 15 dic
Trigo pan argentino
Trigo pan argentino
Trigo pan argentino
Soft Red Winter N° 2
Soft Red Winter N° 2
Soft Red Winter N° 2

According to Chart 2 of the Annex to the Decr ee 831/2003 (shown above), the relevant prices leading
to the establishment of the reference price, are t hose recorded between 26 November to 10 December,
27 January to 10 February, 27 March to 10 April, 27 May to 10 Jun, 27 July to 10 August, and
26 September to 10 October (See first column on the le ft). Those are the relevant time periods for the
calculation of the reference prices. These groups of days account for a total of 90 days. Taking into
account that a year has 365 days, that is less than 25 per cent of the year. More explicitly,
international price developments r ecorded during 275 days or 75 per cent of the year will never be
reflected in the reference price. For the amende d PBS the international prices recorded during all
those 275 days simply do not exist. As regards to the daily prices r ecorded during each day of each of
the 15-day periods that form the remaining 90 days, they are reflected after they are recorded, with a
delay ranging from 6 days to two months.
41

Thus, the situation now is even worse than with the original WTO-inconsistent PBS. In fact, although
completely full of distortive effects, the original PBS, at least took into account all the 52 weeks of
each year to establish the weekly reference price. As it is clear now, for the amended PBS only 13 of
those weeks (25 per cent of the year) are now relevant.

In short, Chile wants this Pane l to find that the amended PB S reflects international price
developments, overlooking the fact that the floor and ceiling prices, will never transmit international
prices. For the other fundamental feature for the assessment of duties, the reference price, prices
recorded during 275 days of the year cannot be reflected: simply they do not exist.

14. What significance, if any, do Parties attribute to the fact that the amended PBS provides
that references prices are established bimonthly instead of weekly, as was the case previously?

Answer to Question 14

There are two answers for this question. One is from the point of view of the insulation, which has
already been addressed in the answer to question 13 above.

41 For example, the prices recorded between 27 Ja nuary and 10 February, will be reflected in the
reference price established for the period 16 February to 15 April.

The other one is from the point of view of the variability of the PBS and the reference prices. In this
respect, the variability remains, re gardless the fact that references prices are established bimonthly
instead of weekly.

In accordance to what the United States stated during the meeting of Panel with third parties, we
cannot see, nor Chile has identified, a basis for a distinction between a variation once every two
months rather than once every week.
42 Despite the fact that the variation of the reference price is no
longer weekly but bimonthly, that variation is continuous and automatic.

Graph I below shows the variation of the reference price since the amended PBS is in force. It can
clearly be seen that despite Chile's arguments , variability in the reference price remains.
43 The fact
that the reference price varies bimonthly rather than weekly has not changed its intrinsic and visible
variability.

42 Oral Statement by the United States, para. 13.
43 Numeric data supporting this graph can be seen in Exhibit ARG-38. The source is ODEPA (Chile).

GRAPH I

Reference Price variability since the amended PBS is in force
(December 2003 - August 2006)
100.00
110.00
120.00
130.00
140.00
150.00
160.00
170.00
16/dic/03 - 15/f
eb/04
16/feb/04 - 15/abr/04
16/abr/04 - 15/ju
n/04
16/jun/04 -
 15/ago/04
16/ago/04 - 15/oct/04
16/oct/04 -
 15/dic/04
16/dic/04 - 15/f
eb/05
16/feb/05 - 15/abr/05
16/abr/05 - 15/ju
n/05
16/jun/05 -
 15/ago/05
16/ago/05 - 15/oct/05
16/oct/05 -
 15/dic/05
16/dic/05 - 15/f
eb/06
16/feb/06 - 15/abr/06
16/abr/06 - 15/ju
n/06
16/jun/06 -
 15/ago/06
U$S/Tonne
Source: own elaboration based on ODEPA (Chile)

Moreover, in the right circumstances, that is to say , if the reference price is situated below the band
floor – as happened between December 2004 and April 2005 – every two months an exporter of wheat
or wheat flour to the Chilean market will face a specific duty different from that established during the
previous two-month period. This is clear fro m the table and the chart in Exhibits ARG-23 and
ARG-24, which illustrate the operation of the am ended PBS between 16 December 2004 and 15 April
2005. Moreover, if we consider what can happen over a longer period of time, what an exporter
experiences is the continuous variability of the dutie s, resulting from the continuous variation of the
reference price. This is apparent from the table and the chart in Exhibits ARG-21 and ARG-22, which
illustrate the variability of the specific duties that would have resulted if the present amended PBS had
operated with the average prices re corded between 1986 and the present on the markets of concern to
Chile.

15. The amended PBS provides that the same reference price still applies to all goods falling
within the same product category, regardless of the origin of the goods, and regardless of the
transaction value of the shipment. Could Parti es please comment on the effects of this feature
on the transmission of international price developments into the Chilean market.

Answer to Question 15

When examining the original PBS reference prices, the Appellate Body said:

Furthermore, under Chile's system, the sa me weekly reference price applies to
imports of all goods falling within the sa me product category, regardless of the
origin of the goods, and regardless of the transaction value of the
shipment…Therefore, the way in which Chile's weekly reference prices are
determined contributes to giving Chile's pri ce band system the effect of impeding the
transmission of international price developments to Chile's market.
44
The Appellate Body saw the insulating effects of a measure that among other features had no relation
with the transaction value of the shipments. That feature, according to the Appellate Body, "…
contribute[d] to … impeding the transmission of inte rnational price developments to Chile's market."

The reason is straightforward: as stated in res ponse to question 10 the actual transaction value of
wheat and wheat flour is related to its FOB valuati on. The particular transaction value of a shipment
reflects the FOB price of a specific type of product, from a specific origin and in a specific point in
time. That is, the transaction value of a shipment of Soft White Winter Nº2 wheat, departing from
Canada on 16 August 2006 will be very close (if not equal) to the FOB price of Soft White Winter
Nº2 in the same Canadian port on that date. In other words: the transaction value of a shipment clearly
reflects the price of the respective good shipped in its port of shipment for that specific date. Simply
put: the transaction value is the best "vehicle" from the undistorted transmission of international
prices. No notion of "Reference Pr ice" can come even close to tr ansmit international prices as real
transaction values do. That is why the absence of any relati on to the transaction value in the amended
PBS impedes the transmission of international price developments to Chile's market.

In its Oral Statement Argentina further developed why the fact that the same reference price still
applies to all goods falling within the same product category, regardless of the origin of the goods,
impedes the transmission of international price developments to Chile's market. Regarding the
insulation consequences deriving from the fact that the amended PBS reference prices are based on
only two predetermined markets of concern (i.e. re gardless of the origin of the goods), Argentina
recalled that bread wheat is sold -at least- in tw o other markets than the ones selected by Chile and
which are not reflected on the reference price: Chicago and Kansas.
45

Regardless, Chile has tried to justify the establishm ent of the reference prices based on FOB prices in
Argentina and United States, because according to Chile, "[i]n the last six years (2000-2006) 40 per
cent of Chilean wheat imports came from the Un ited States and 31 per cent from Argentina".
46 It is
strange that Chile does not provide a reference quoti ng the source of that information. Nevertheless,
Argentina had access to Chile's own records for the period during which the amended PBS has been
in force. Those records show that during the tw o complete years since the establishment of the
amended PBS (i.e. 2004-2005), Canada has always been a larger exporter of wheat to Chile than the
United States, either in volume as well as in amount. Exhibit ARG-31 is a printout of ODEPA's
(Chile's official source) webpage showing Chile's records of wheat imports for 2004 and 2005. As it is

44 Chile – Price Band System, Report of the Appellate Body, paras. 250.
45 First Written Submission by Argentina, para. 218.
46 Rebuttal by Chile, para. 72.

clear from the first page of this exhibit, in 200 4 Canada exported around 54 thousand tons of wheat
while the United States accounted for almost 40 thousand tons. In 2005, the difference between
Canada and the United States has been even larg er: Canada accounted for almost 40 thousand tons
while the United States accounted for around 20 thousand tons. 47 It is clear that Canada has been a
relevant exporter to Chile. However for Chile's PBS, this is meaningless. Although Canada is
certainly a market of concern for Chile, the ame nded PBS will never reflect Canada's relevance in
Chilean foreign trade of wheat, nor Canadian prices will be reflected in Chile's internal markets.

Therefore, Chile's argument that the amended PBS "reference prices now correspond to f.o.b. prices
on the two markets of most concern for Chile"
48 is baseless. To put it in the Appellate Body words, it
is not by any means certain that the reference price used under the PBS is representative of the current
world market price, and it is certainly not representative of prices in all markets of concern.49

The logical consequence of this is that the amended PBS will not transmit
 Canadian prices nor the
prices of wheat being imported from any origin different from Argentina or the Gulf of Mexico.
Moreover, should Argentina or the United States became less relevant for Chile's foreign trade in the
future and another Member became more relevant (like it happened w ith Canada during 2004 and
2005) the amended PBS will prevent the prices of th at new trade partner be transmitted to Chile's
internal market.

Regarding the fact that the amended PBS provides that the same reference price still applies to all
goods falling within the same product category or quality of concern, Chile's amended PBS
establishes the references prices based on only two of those qualities, namely "Bread Wheat,
Argentine Port" and "Soft Red Winter". However, there are many types or qualities involved in the
international trade of wheat. Indeed, according to Chile's own records there are at least two other
qualities or types of wheat relevant for Chile: "Soft White Winter No 2" and "Western White Winter
No 2". At this respect in Exhibit ARG-33, ODEPA 's prices record for different qualities of wheat
since 1991 can be observed. In the first and second columns the FOB prices for the two qualities of
concern relevant for the amended PBS can be seen. In the third and fourth columns, ODEPA records
the FOB price for the two other qualities just mentioned: "Soft White Winter No 2" and "Western
White Winter No 2". Thus, according to its own reco rds there are at least two other qualities or types
of wheat relevant for Chile. Theref ore, it is clear that Chile knows th at there are at least two, and
presumably more, other relevant qualities of concer n and probably Chile knew it at the time the PBS
was amended.

Furthermore, it is noteworthy that among the -at least - four relevant qualities and markets of concern,
Chile chose those qualities that since 1991 have been th e lowest priced. In Page 4 of the same Exhibit
ARG-33 the average of the prices of these four cate gories recorded since 1991 are highlighted at the
bottom. Clearly, the qualities "Bread Wheat, Argentin e Port" and "Soft Red Winter" have the lowest
FOB prices. Thus, the gap between the reference pri ce and the floor price is further expanded, more
duties are levied and the entry price is higher th an if Chile took into account all the qualities of
concern. Again, it is useful recalling that the Appe llate Body found that "[u]nder Chile's price band
system, the price used to set the w eekly reference price is the lowest f.o.b. price observed, at the time
of embarkation, in any foreign 'market of concern' to Chile for 'qualities of products actually liable to
be imported to Chile'".
50

47 In the written version of the Oral Statement by Argentina, para. 54, where it reads "million" it should
be read "thousand"; where it reads "millions" it should be read "thousands". Argentina's argument is not altered
in its substance.
48 Rebuttal by Chile, para. 72.
49 Chile – Price Band System, Report of the Appellate Body, para 249.
50 Chile – Price Band System, Report of the Appellate Body, para. 249 (Underlining added).

Additionally, Chile does actually import wheat of qualities different from those used for the
calculation of the reference prices. In Exhibit ARG-34 a selection of import data from the Chamber of
Commerce of Santiago de Chile (in Spanish "Camar a de Comercio de Santiago de Chile") for 2004
and 2005 can be observed. On the first page it can be seen that, for example, in March 2004, Chile
imported wheat of the type "Soft White". Similarl y, on the second page of the same Exhibit, for
example, in July 2005, Chile imported wheat of the type "Canadian 3WR". Page 3 of the same Exhibit
shows imports to Chile of wheat of the type "Western Red Spring" and "Canadian 1WR". So, not only
Chile imports wheat of qualities different from thos e taken into account for the establishment of the
reference prices but also Chile applies to tho se imports reference prices based on the two
predetermined qualities of concern established by the amended PBS.

Summing up, through the reference prices, the amended PBS will not transmit
 to the Chilean market
of the prices of other qualities of wheat than the ones establis hed as "relevant" by the legislation
enforcing the PBS. By not taking into account all th e relevant markets and qualities of concern for the
calculation of the reference prices, the amended PBS also insulates Chile's market from international
price developments. In fact, if an exporter ships any other type or quality of wheat rather than "Bread
Wheat, Argentine Port" or "Soft Red Winter No. 2" , Chile will apply to that shipment a reference
price and levy specific duties based on one of tho se two qualities, different from the quality actually
being imported. It is worth recalling again at this point that the Appellate Body found that the "…
reference price used under Chile's Price band system is certainly not representative of an average of
current lowest prices found in all markets of concern".51

16. Do the Parties agree that the specific duti es or rebates under Chile's PBS are calculated
according to "a formula or scheme" which involves several parameters?

Answer to Question 16:

Argentina's answer is Yes. The specific duties or rebates under Chile's PBS are calculated according
to "a formula or scheme" which involves several parameters.

Article 14 of Decree 831/2003 provides that "the specific duties applied to wheat imports…will
correspond to the difference between the floor price and the reference price… multiplied by the factor
one (1) plus that Customs Tariff's general ad valorem tariff.

 Specific duty
 or rebate = (Floor value in force – Reference price) * ( 1 + ad valorem tariff )"
52

Article 16 of Decree 831/2003 provides that "In the case of wheat flour the duties and rebates
determined for wheat, multiplied by the factor of 1,56 will be applied".

 Specific duty or rebate to
 the tariff for wheat flour = Specific duty or rebate to the tariff for wheat * 1,56
53

These formulas are contained in the Law 19.897 and Decree 831/2003 and that is an incontestable
fact.

51 Chile – Price Band System, Report of the Appellate Body, para. 249 (Emphasis in the original,
underlining added).
52 See ARG-2 (emphasis added, unofficial translation).
53 See ARG-2 (emphasis added, unofficial translation).

17. Argentina has stated in paragraph 229 of its first submission that "the way in which
Chile determined the factor 1.56 is not transparent, since in its legislation Chile has neither
explained nor justified in any way the basis on which it was established".

 (a) Could Argentina clarify whether in its view this particular fact per se would
make the amended measure inconsistent with the WTO covered agreements.

Answer to Question 17(a)

The fact that "the way in which Chile determined th e factor 1.56 is not transparent" is a cumulative
intransparent factor that makes the amended PBS inconsistent with the WTO covered agreements. It is
another specific feature of Chile's price band system that renders the whole system inconsistent with
Article 4.2 of the Agreement on Agriculture.

 (b) If so, could Argentina identify the relevant legal basis.

Answer to Question 17(b)

The relevant legal basis in the WTO covered agreements not to maintain an intransparent border
measure is Article 4.2 of the Agreement on Agriculture and its footnote 1.

When finding the original PBS inconsistent with Article 4.2, the Appellate Body, inter alia, held:

"… [W]e place considerable importance on the intransparent … way in which the
"highest and lowest f.o.b. prices" that have been selected are converted to a c.i.f. basis
by adding "import costs". As Chile conced es, no published legislation or regulation
sets out how these "import costs" are calculated.
In addition to the lack of transparency … inherent in how Chile's price bands are
established, we see similar shortcomings in the way the other essential element of
Chile's price band system … is determined…"
54
The fact that no legislation or regulation set out how the price bands we re calculated, led the
Appellate Body to find the lack of transparency to be inherent in how Chile's price bands were
established.

Similarly, the fact that Law 19.897 and Decree 831/2003 do not set out how the factor of 1,56 was
calculated leads to the conclusion that the establishment of the factor of 1,56 was not transparent.

Therefore, according to the Appellate Body, Chile is under the legal obligation to explain the basis on
which the factor 1,56 was determined.

 (c) Could Argentina elaborate on the reason why the lack of explanation or
justification as to the exact figure of the factor fixed by Chile would per se affect
market access for imports of agricultural products.

Answer to Question 17(c)

As pointed out above, the fact that no legislation explained how the price bands were calculated, led
the Appellate Body to find that the lack of transp arency was inherent in how Chile's price bands were
established.55

54 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.

The Appellate Body found that the lack of transparen cy contributed to distorting the prices of imports
by impeding the transmission of international prices to the domestic market:

"… This lack of transparency … will also contribute to distorting the prices of
imports by impeding the transmission of international prices to the domestic
market".
56
In addition, in assessing the original PBS, the Appellate Body found that:

"… As Argentina stresses, the amount of a duty is not the only concern of Chile's
trading partners. As Argentina argues, signi ficant for traders, also, are the lack of
transparency of certain features of Chile's price band system …" 57
The Appellate Body emphasized that it reached its conclusion regarding the inconsistency with the
WTO covered agreements

"… on the basis of the particular configur ation and interaction of all these specific
features of Chile's price band system ..."
 58
Consequently, the lack of explanation or justification as to the exact figure of the factor fixed by Chile
leads to a lack of transparency which, according to the Appellate Body, affects market access for
imports of wheat and wheat flour.

18. Citing the original Panel's finding in par agraph 7.36 to the effect that "minimum import
prices generally operate in relation to the actual transaction value" (emphasis added), Chile
claims that the specific duties resulting from th e new PBS are not based on transaction values,
and therefore they are not "variable import levi es" (see, for example, paragraph 114 of its
rebuttal submission). Do the Parti es consider that minimum import prices always operate in
relation to actual transaction values?

Answer to Question 18

Argentina has already clarified why the PBS is a border measure similar to a minimum import price. 59
In spite of that, Chile has repeatedly argued th at unlike its PBS, "minimum import price schemes
generally operate in relation to the actual transaction value of the imports". 60 Chile has repeatedly
emphasized that, because the PBS does not operate in relation to the actual transaction value but to a
reference price, it is not similar to a minimum import price.

First, Argentina has not argued that the PBS is identical to a minimum import price. Rather,
Argentina's argument is that the amended PBS is a border measure similar to a minimum import
price. The fact that the PBS does not operate in re lation to the actual transaction value of the imports
does not mean it is not similar to a minimum import price. Chile's PBS needs not to be identical to
variable import levies or minimum import prices to be a prohibited measure, provided that the
amended PBS bears sufficient resemblance to the me asures listed in footnote 1 to Article 4.2 of the

55 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.
56 Chile – Price Band System, Report of the Appellate Body, para. 234.
57 Chile – Price Band System, Report of the Appellate Body, para. 258.
58 Chile – Price Band System, Report of the Appellate Body, para. 261.
59 Rebuttal by Argentina, Section B.5, Oral Statement by Argentina, paras. 85 to 90.
60 Rebuttal by Chile, para. 7.

Agreement on Agriculture. Indeed, that same reaso ning was developed by the original Panel and
upheld by the Appellate Body.61

Second, the Panel described "minimum import prices" as follows: "schemes [that] generally
 operate in
relation to the actual transaction value of the imports". 62 The Appellate Body did not reverse that
finding. The word "generally" implies "usually", but not "always". 63 This is an important distinction.
If the Panel had meant "always", it would have so stated. Therefore, there are some cases where
border measures do not operate in relation to the actual transaction value of the imports, but are
similar to minimum import prices, just like the amended PBS.

In fact, the original PBS, like the amended PBS, did not have any relation with the actual transaction
value of the imports. In spite of that, the Panel a nd the Appellate Body in the original proceedings
found that the old PBS was a border measure simila r to a minimum import price. Indeed, the absence
of any relation with the transaction value of th e shipments was an aspect of the old PBS that
contributed to enhance the distorting effects of the old PBS
64 and contributes to enhance the distorting
effects of the amended PBS as well.

19. In the view of the Parties, what would be the defining characteristic to determine
whether a system operates as a minimum import price? Would that defining characteristic be
the fact that the system operates in relation to the actual transaction value of the imports?
Would it be the fact that it leads to a certain entry price into the domestic market?

Answer to Question 19

The Appellate Body found in this dispute that:

"The term 'minimum import price' refers generally to the lowest price at which
imports of a certain product may enter a Member's domestic market."
65
Therefore, the term 'minimum import price' refers ge nerally to the lowest price at which imports of a
certain product may enter a Member's domestic market.

Whether a system operates as
 a minimum import price should be dete rmined by looking at its effects ,
assessing its consequences. This is regardless of whet her the system operates in relation to the actual
transaction value of the imports or not.66

The fact that the system leads to a certain entry pr ice into the domestic market, as the Appellate Body
implied, may be a defining characteristic to determine whether a system operates as a minimum
import price. If that system tends to elevate the entry price of imports to above a certain explicit or
implicit lowest threshold, it therefore operates as
 a minimum import price.

20. Can Argentina comment on Chile's statemen t in paragraph 143 of its first submission,
that "the mere fact that the duties and rebates, or the non-application thereof, are established
for a sufficiently long period of time provides certainty that any variations in international

61 Chile – Price Band System, Report of the Appellate Body, para. 243 and 244.
62 Chile – Price Band System, Report of the Panel, para. 7.36(e). Emphasis added.
63 The definition of " generally ", insofar as relevant, is: "usually, or in most situations". Cambridge
Advanced Learner's Dictionary in http://dictionary.cambridge.org/.
64 Chile – Price Band System, Report of the Appellate Body, para. 250.
65 Chile – Price Band System, Report of the Appellate Body, paragraph 236.
66 See Argentina's answer to question 18.

prices that may occur over this period will be tran smitted to domestic wheat prices". In Chile's
view, does this statement imply that this "mere fact" per se is decisive?

Answer to Question 20

Chile seeks to show that, as a consequence of the PBS, Chilean import prices for wheat and wheat
flour follow a pattern similar to that of the FOB pr ice and that, therefore, there is no insulation from
the international market. Chile argues that, being est ablished for a "sufficiently long" period of time,
the specific duties of the modified PBS allow intern ational price variations to be transmitted to the
price of wheat:

"In Chile today, the mere fact that the duties and rebates, or the non-application
thereof, are established for a sufficiently long period of time provides certainty that
any variations in international prices that may occur over this period will be
transmitted to domestic wheat prices.
Thus, the conclusion is that, if the floor price is not a minimum price, if the specific
duties and their method of application do not continuously entail import price
corrections and if import prices, as Argentina shows in Exhibits ARG-11 and
ARG-12, follow a pattern similar to that of the f.o.b. price of wheat, Chile's wheat
import duties – even if they do undergo va riations – do not constitute a variable duty
within the meaning of Article 4.2 of the Agreement on Agriculture."
67
First, Argentina disagrees with Chile's qualifying the period of two months as "sufficiently long".
There is no legal basis to assert that two months is sufficient for a period to be considered long. In
accordance to what the United States stated during the meeting of Panel with third parties, we cannot
see, nor Chile has identified, a basis for a distin ction between a variation once every two months
rather than once every week. 68 Indeed, if that period of two months is compared against the period of
time that remains until 2014, it does not look long at a ll. If one takes into account that the PBS has no
end date, then that period of two months starts looking short rather than long.

Second, it is worth noting that Chile makes special reference to Exhibits ARG-11 and ARG-12, since
it is precisely those exhibits that clearly show ho w Chile's statement that "import prices...follow a
pattern similar to that of the f.o.b. price of wheat"
69 is without foundation.

Exhibits ARG-11 and ARG-12 contain a table and a ch art, respectively, which show what happened,
in the case of wheat, with the imposition of speci fic duties as from 16 December 2004. They show
how – at the same time as FOB prices, Argentine port , were falling – the Chilean entry price, with the
imposition of specific duties, rose substantially, thereby demonstrating a total disconnection from
international price developments.

From 1 December 2004 the FOB price of bread wheat, Argentine port, fell steadily, a trend which was
to be maintained until approximately 4 Janua ry 2005. Specifically, the initial FOB price on
1 December was US$119 per tonne, whereas at the e nd of the trend, on 4 January 2005, the price
stood at US$109 per tonne.

If we consider the trend in the Chilean entry price as a consequence of the operation of the PBS, we
observe the exact opposite: the entry price rose. In fact, from 1 December the Chilean entry price for
Argentine bread wheat was tending to fall which, si nce the band was not active, reflected the falling

67 Chile's First Written Submission, paras. 143 and 144.
68 Oral Statement by the United States, para. 13.
69 Chile's First Written Submission, paragraph 144.

trend in FOB prices, Argentine port. However, wh en the band was activated on 16 December 2004
and specific duties were imposed, the Chilean en try price rose suddenly from US$149.94 per tonne to
approximately US$162.93 per tonne . This happened as a result of th e operation of the modified PBS
itself and the imposition of specific duties.

Moreover, on 16 February 2005 Chile established a new reference price below the band floor and
lower than that in force during the previous two-mo nth period. Therefore specific duties higher than
during the previous period were imposed. On the basis of the FOB price for bread wheat, Argentine
port, corresponding to a shipment arriving in Chile on 15 February, the reference price for that date
(and the two previous months) was US$114.50 per tonne . The Chilean entry price on that date, when
specific duties of US$14.30 were imposed, was US$153.81 per tonne.

On the next day, 16 February 2005, Chile establis hed a new reference price at US$108.64 per tonne,
5.12 per cent less than the previous figure. However, the FOB price for Argentine bread wheat did not
change and, therefore, neither did the CIF value. Nonetheless, when the specific duties resulting from
the PBS were applied, the Chilean entry price rose from US$153.81 to US$160.01 per tonne.

In conclusion, it is clear from Exhibits ARG-11 a nd ARG-12 that, contrary to the Chilean claims, the
import prices for wheat do not follow a pattern similar to that of the FOB price of wheat . In particular,
on 16 December 2004, the entry price rose whereas the FOB price fell, and on 16 February 2005,
whereas the FOB price remain ed steady, the entry price increased. However much Chile would have
the Panel believe the contrary, the natural tendency of the modified PBS is to move in the opposite
direction to international price trends. A nd it could not be otherwise since the PBS would make no
sense if that were not its purpose.

If Chile wanted import prices to follow the same pa ttern as FOB prices, it would only need to apply
an ordinary customs duty . Chile knows this, but Chile is not applying an ordinary customs duty
precisely in order to avoid the effects of ordinary customs duties and be able to insulate the Chilean
market from international market developments. It is pure logic.

In this connection, it is astonishing that Chile asserts that the duties resulting from the PBS are
unaffected by changes in world prices:

"... the duty or rebate, or the non-applica tion thereof, operates in such a way as to
allow the transmission of international price variations to the domestic market. That
is to say, once the duty has been fixed, traders can capture the benefits of decreases in
international prices, because changes in world prices do not affect the duty
 that they
are required to pay."70 (Underlining added)
Chile's description of its modified PBS is simp ly wrong. The specific duties remain unchanged only
during the two months stipulated in Decree 831/20 03. At the end of these two months, the specific
duty will necessarily change because the reference pri ce will have changed. Whenever, while situated
below the band floor, the prices on the markets of concern (Argentine bread wheat or Soft Red
Winter No. 2, Gulf of Mexico) vary, the specific dut y applied will necessarily change. That is to say,
as the FOB prices on the two markets of concern fall the specific duty will increase.

70 Chile's First Written Submission, paragraph 152.

As Argentina explained in its First Submission, this is a simple mathematical conclusion that follows
from the PBS formula, according to which:

Specific duty
71 = ( Band floor
price - Reference price ) * ( 1 +
General ad valorem
tariff in force,
Customs Tariff

 = ( US$128 - Reference price ) * ( 1 + 6% )

Moreover, this can be seen from the ODEPA data themselves.
72 As the reference prices varied due to
changes in the prices on the markets of concern, the specific duties changed.

Third, Chile misleadingly states that overcompensati on only occurred in two specific dates: from
15 to 16 December 2004 and from 15 to 16 February 2005. Afterwards "international prices will
continue being reflected in the domestic prices".
73 There are many problems with this reasoning.

On the one hand, it must be clear at this stage that international prices are not reflected in the domestic
prices due to the amended PBS. As follows from the PBS formula, for the modified PBS not to
elevate the entry price of imports to Chile above th e price band floor, an improbable condition must
be satisfied: the reference price (calculated on a FOB basis) must be higher than the CIF price of an
individual export transaction by more than US$7,2453 per tonne or, what amounts to the same thing,
the CIF price of that transaction must be lower than the reference price by more than US$7,2453 per
tonne. In other words, as far as the CIF price of an individual export transaction exceeds the reference
price, or falls below that price by no more than US$7,2453 per tonne, the entry price of that
transaction will be above the band floor.

Argentina is sure that at least two out of three Members of this Panel remember the notion of the
break even point from the original proceeding. In that case, Argentina demonstrated how, after a
break even point was reached, the duties resulting from the PBS violated Chile's consolidated tariff
binding, therefore infringing Article II of the GATT 1994. Chile has now established a new break
even point: the point were the reference price exceeds the CIF price by US$7,2453 per tonne.

Argentina showed how improbable reaching that break even point is.
74 As far as that point is not
reached, the modified PBS will mathematically elevat e the entry price of imports to Chile above the
price band floor. Chile explicitly recognized that FOB prices are always lower than CIF prices. 75 As
the reference price is calculated on a FOB basis, therefore the condition cannot be fulfilled: the
modified PBS will always tend to elevate the entr y price of imports to Chile above the price band
floor.

Bearing this formula in mind, it is easy to see that, even if international prices were reflected in the
domestic prices after the initial overcompensation as Chile states, the amended PBS provides an end
to any transmission when the entry price approaches th e band floor. Due to the formula, the PBS will
not allow any transmission of international prices in the case that the entry price falls below the floor
price. Simply put: the formula, together with the ba nd floor, work as a "brake" for the decline in the
entry price and for any transmission of international prices below the level of the floor. If a decline in
international prices cannot be reflected below the price band floor, then it is impossible to argue that
the amended PBS reflects international prices.

71 In accordance with Article 14 of Dec. 831/2003. See Exhibit ARG-2.
72 See Exhibit ARG- 6, in particular the periods 16/Dec/04 – 15/Feb/05 and 16/Feb/05 – 15/Apr/05.
73 Rebuttal by Chile, para. 51.
74 First Written Submission by Argentina, paras. 109-114.
75 See Rebuttal by Argentina, paras. 164 to 169.

On the other hand, the initial overcompensation wh ich, according to Chile, takes place at the
beginning of the two-month period, inevitably taints th e rest of that period: the level of duties and the
entry price after that moment will be affected by the original overcompensation. In fact, if
overcompensation did not occur, the level of duti es and the entry price resulting from the two-month
period would be lower. Thus, the effects of overcom pensation taint and affect the level of duties and
entry price resulting from the PBS, which are higher than they would be if overcompensation simply
did not exist.

Fourth, the situation is not different with what occurre d in the original proceedings. According to the
original PBS, the specific duties were established for a period of one week.
76 Assuming arguendo that
overcompensation only took place at the beginning of that period of one week, it nevertheless affected
the level of duties and the entry price for the rest of that period. That was enough for the Appellate
Body to find that the original PBS overcompe nsated for the decreases in international prices. 77 The
situation with the amended PBS is worse: while in the original PBS the effects of overcompensation
tainted the level of duties and the entry price for a week, now that period has been extended to two
months. The fact is that Chile has not been able to rebut Argentina's arguments regarding the
overcompensation produced by the amended PBS and recognized by Chile itself.78

It is paradoxical that what Chile refers to as a f eature of the modified PBS that helps to transmit
international price developments (i.e., the fact th at the duty is unaffected by international price
changes during the two-month period) is precisely a feature that insulates the Chilean market from
international prices. At this point, Argentina woul d kindly refer the Panel to Argentina's answers to
questions 13 and 14 above.

21. During the meeting with the Panel, the EC stated that, in its view,

"it is only when the measures clearly have sufficient similarity to measures
coming under the scope of Article 4.2 – th at is features unique to the measures
listed in the footnote to Article 4.2 are also found in the measures challenged –
that there is a possible violation of Article 4.2. The existence of features which
are not unique to the measures found under Article 4.2 cannot be sufficient, on
their own, to render a measure inconsistent with Article 4.2" (see paragraph 9 of
the written version of the EC's oral statement).
Could the Parties comment on the EC's statement.
Answer to Question 21

Argentina does not see a legal basis to assert that the features found in the measures challenged have
to be unique to the measures listed in the footnote 1 to find a possible violation of Article 4.2. The EC
has not made reference to any WTO jurisprudence.

Article 4.2 and footnote 1, in its relevant part, state:

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

76 Chile – Price Band System, Report of the Appellate Body, paras. 21 to 29.
77 Chile – Price Band System, Report of the Appellate Body, para. 260.
78 First Written Submission by Argentina, Section C.I.2.2.

1These measures include quantitative import r estrictions, variable import levies,
minimum import prices, discretionary import licensing, non-tariff measures
maintained through state-trading enterpri ses, voluntary export restraints, and similar
border measures other than ordinary customs duties…
The Appellate Body found that the category of me asures covered by Article 4.2 and footnote 1 is
rather broad, including measures of the kind , not restricted only to those specific measures that were
singled out to be converted into ordinary customs:

"… giving meaning and effect to the use of the present perfect tense in the phase
"have been required" does not suggest that the scope of the phrase "any measures of
the kind which have been required to be converted into ordinary customs duties" must
be limited only to those measures which were actually converted, or were
 requested to be converted, into ordinary customs duties by the end of the Uruguay
Round. Indeed, in our view, such an inte rpretation would fail to give meaning and
effect to the word " any" and the phrase " of the kind ", which are descriptive of the
word "measures" in that provision. A pl ain reading of these words suggests that the
drafters intended to cover a broad categor y of measures. We do not see how proper
meaning and effect could be accorded to the word "any" and th e phrase "of the kind"
in Article 4.2 if that provision were read to include only those specific measures that
were singled out to be converted into ordinary customs duties by negotiating partners
in the course of the Uruguay Round."
79
In particular, the word "include" indicates that the list of measures in footnote 1 is illustrative and that
there may be further measures that may fall under the category of the kind covered by Article 4.2:

"… the use of the word "include" in the f ootnote indicates that the list of measures is
illustrative, not exhaustive. And, clearly, th e existence of footnote 1 suggests that
there will be "measures of the kind which ha ve been required to be converted" that
were not specifically identified during the Uruguay Round negotiations. Thus, in
our view, the illustrative nature of this list lends support to our interpretation that the
measures covered by Article 4.2 are not limited only to those that were actually
converted, or were requested to be convert ed, into ordinary customs duties during the
Uruguay Round.80
However, it is clear that to be "similar", Chile's amended PBS must have sufficient resemblance or be
of the same kind as at least one of the specific categories of measures listed in footnote 1. The
Appellate Body found:

"To be 'similar', Chile's price band system—in its specific factual configuration—
must have … sufficient 'resemblance or likeness to', or be 'of the same nature or kind'
as, at least one of the specific categories of measures listed in footnote 1."
81
(Emphasis in the original)
The Appellate Body did not assert that to find a possibl e violation of Article 4.2 the features found in
the measures challenged have to be unique to the measures listed in the footnote to Article 4.2. All
that the Appellate Body stated is that, in the case of the original PBS, it needed to determine whether

79 Chile – Price Band System, Report of the Appellate Body, para. 208.
80 Chile – Price Band System, Report of the Appellate Body, para. 209.
81 Chile – Price Band System, Report of the Appellate Body, para. 227.

that measure shared sufficient features with "minimum import prices" or "variable import levies" to be
of the same kind, and thus prohibited by Article 4.2:

"We turn next to the Panel's determination that Chile's price band system is a border
measure similar to 'variable import levies' and 'minimum import prices'. We must
determine whether Chile's price band syst em—in its particular features—shares
sufficient features with these two categories of prohibited measures to resemble, or
'be of the same nature or kind' and, thus , also to be prohibited by Article 4.2."
82
(Emphasis in the original).
Finally, the Appellate Body found that the PBS could be similar to the categories of prohibited
measures listed in footnote 1 in terms of its effect:

"… Chile's price band system can still have the effect of impeding the transmission
of international price developments to the dom estic market in a way similar to that of
other categories of prohibited measures listed in footnote 1 …" 83 (Emphasis in the
original).
Therefore, Argentina does not see a legal basis to assert that the features found in the measures
challenged have to be unique to the measures listed in the footnote 1 to find a possible violation of
Article 4.2.

22. Can the Parties provide a copy of the relevant sections of the documents " Historia de la
Ley. Compilación de textos of iciales del debate parlamentario " to which Argentina refers
throughout its first written submission.

Answer to Question 22

The relevant sections of the documents "Historia de la Ley. Compilación de textos oficiales del debate
parlamentario" to which Argentina refers throughout its first written submission are submitted in
Exhibit ARG-37.

23. Can the Parties confirm whether Decree No. 401 of 15 June 2006 by the Ministry of
Finance of Chile is the latest decree issued pursuant to the PBS.

Answer to Question 23

Decree No. 401 of 15 June 2006 by the Ministry of Finance of Chile is th e latest decree issued
pursuant to the PBS. However, according to Decree 831/2003, a new Decree pursuant to the PBS
applicable to wheat and wheat flour imports is being established on 16 th August 2006, the date on
which these answers are submitted to the Panel.

24. Could the Parties comment on the "understanding which Chile later repudiated" that
Argentina refers to in paragraph 11 of its first written submission. Would such understanding
have any relevance in the present case?

Answer to Question 24

As Argentina stated in its first written submission, after the expiring of the reasonable period Chile
had for the implementation of the recommendations and rulings of the DSB in December 2003,

82 Chile – Price Band System, Report of the Appellate Body, para. 239.
83 Chile – Price Band System, Report of the Appellate Body, para. 246.

bilateral negotiations were begun early in 2004 with a view to achieving the implementation regarding
to wheat and wheat flour.

Those negotiations led to a mutually agreed settleme nt of the dispute at that very moment. That
understanding is not relevant now in the present case.

Argentina mentioned it as background in its First Written Submission to show that Argentina made all
its efforts in an attempt to reach a mutually agreed solution of the dispute and not to recur to this
dispute settlement proceedings for the second time, in conformity with DSU Article 3.7.

FOR ARGENTINA

25. In the light of Argentina's statement in paragraphs 301 and 302 of its rebuttal
submission, can Argentina clarify whether the am ended PBS contains specific new features that
would, in its opinion, violate the second sentence of Article II:1(b) of the GATT 1994 in a way
that the original PBS did not. If so, can Arge ntina identify those specific new features of the
amended PBS that would be in violation of Arti cle II:1(b), and in what manner those features
differ from the ones in the original PBS.

Answer to Question 25:

The amended PBS is a new measure containing a new scheme or formula for the calculation of
additional duties at the customs border, prior to th e entry of wheat and wheat flour into the Chilean
customs territory. The amendments introduced by Chile turned the PBS into a completely new
measure as Chile has recognized.
84 Chile has changed both the way in which the floor and ceiling
prices are established and the way in which the re ference prices are calculated, as well as the method
of calculating the specific duties. Ch ile has also changed the products subject to the PBS. Argentina
has extensively developed how the amended PBS contains specific new features that have rendered it
to be a new and different measure. Argentina woul d kindly refer the Panel to Section B of its First
Written Submission, paragraphs 18 to 66.

Whether the original PBS through its specific featur es violated the second sentence of Article II.1.b)
of GATT 1994 was not part of the Appellate Body findings
85, and it was not a claim raised by
Argentina in the original proceedings, as the Appellate Body found86 and Chile recognized.87

As Argentina stated in paragraphs 301 and 302 of its rebuttal submission, the claim with respect to the
second sentence of Article II.1(b) of the GATT 1994 relates to the whole of the modified PBS.

In this regard, by being a new measure that was not before the original panel, the relevant facts
bearing upon the modified PBS are obviously different from the relevant facts relating to the original
PBS, in that, on the basis of the particular confi guration described above, th e amended PBS is not an
ordinary customs duty.

By not being an ordinary customs duty, the amende d PBS constitutes "other duties or charges" in the
sense of the second sentence of Arti cle II:(1)(b) of the GATT 1994. By not being recorded in the
corresponding column of Chile's Schedule of Conces sions (No. VII), as it is mandated by paragraph 1

84 See Status Reports submitted by Chile WT/DS207/15/Add.1, of 28 October 2003, third paragraph:
"We repeat that the new price band system…" and WT/DS207/15/Add.3, of 14 January 2004, second paragraph:
"… the new price band system entered into force on 16 December 2003 …" (underlining added).
85 Chile – Price Band System, Report of the Appellate Body, para. 288.
86 Chile – Price Band System, Report of the Appellate Body, para. 165.
87 Chile's First Written Submission, paragraph 48.

of the Understanding on the Interpretation of Artic le II:1(b) of the GATT 1994, the amended PBS
violates the second sentence of that Article.

As Chile explicitly recognized,
88 Argentina did not raise nor pursu ed a claim in relation to that
provision during the original proceedings. It is indeed a new claim that Argentina has the right to raise
in the frame of a proceeding under Article 21.5 of the DSU.

It is therefore natural that, in this regard, Arge ntina submitted a claim pertinent to the modified PBS
that is different from those that were pertinent to the original PBS.

In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body held:

"... in carrying out its review under Article 21.5 of the DSU, a panel is not confined to
examining the 'measures taken to comply ' from the perspective of the claims,
arguments and factual circumstances that related to the measure that was the subject
of the original proceedings. Although th ese may have some relevance in proceedings
under Article 21.5 of the DSU, Article 21.5 proceedings involve, in principle, not the
original measure, but rather a new and different measure
 which was not before the
original panel. In addition, the relevant facts bearing upon the 'measure taken to
comply' may be different from the relevant facts relating to the measure at issue in the
original proceedings. It is natural, therefore, that the claims, arguments and factual
circumstances which are pertinent to the 'measure taken to comply' will not,
necessarily, be the same as those which were pertinent in the original dispute.
Indeed, the utility of the review envisage d under Article 21.5 of the DSU would be
seriously undermined if a panel were restricted to examining the new measure from
the perspective of the claims, arguments and factual circumstances that related to the
original measure, because an Article 21.5 panel would then be unable to examine
fully the 'consistency with a covered agreem ent of the measures taken to comply', as
required by Article 21.5 of the DSU."
89 (Underlining added.).
In the present Article 21.5 proceedings there w ould be no "second chance" to establish what was
claimed but not proved in the original proceedings as in the case of EC – Bed Linen (Article 21.5 –
India) since, as Chile states and agrees: "Argentina did not in fact ever raise the claims it now wishes
to bring". 90 Consequently, this is the "first chance" to establish a new claim which Argentina is
entitled to raise.

The claim relating to the second sentence of Article II:1(b) of the GATT 1994 is a new claim with
respect to a new measure and, therefore, falls within the terms of reference of the present DSU
Article 21.5 Panel.

26. Referring to its claim under Article II: 1(b) of the GATT 1994, Argentina declared
during the substantive meeting with the Panel ( see paragraph 115 of the written version of its
oral statement) that it "could never have raised this same claim during the original
proceedings" Can Argentina explain the reason why it could not have raised its claim under
Article II:1(b) of the GATT 1994 in the orig inal proceedings? Is Argentina arguing that the
original PBS was not inconsistent with the second sentence of Article II:1(b) of the GATT 1994,
while the amended PBS is inconsistent? Is that circumstance (the fact that it could not have
raised this particular claim in the original proceedings), in Argentina's view, an appropriate test
to assess whether the claim falls within the Panel's mandate?

88 First Written Submission by Chile, para. 48.
89 WT/DS70/AB/RW, paragraph 41.
90 Chile's First Written Submission, paragraph 48.

Answer to Question 26

First, it should be undisputed at this stage that the amended PBS is a new measure . In fact, as Chile
itself has stated on at least two occasions, the modified PBS is a "new" PBS.91

Argentina could never have made this same clai m relating to the same PBS aspects during the initial
stage of the present dispute, as Chile maintains 92, since the modified PBS is a measure different from
the PBS which formed the subject of the original proceedings. As Chile has pointed out, this is a
"new" PBS.

In Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body held that Article 21.5 proceedings
involve not the original measure but rather a ne w and different measure which was not before the
panel and it was natural, therefore, that, as the relevant facts bearing upon the "measure taken to
comply" were different from the relevant facts relating to the original measure, the claims, arguments
and factual circumstances pertinent to the "measu re taken to comply" would not necessarily be the
same as those which were pertinent in the original dispute.93

As the panel found in EC – Bed Linen (Article 21.5 – India) , in Canada – Aircraft (Article 21.5 –
Brazil), Canada had implemented the recommendation of the DSB by adopting a new and different
measure. In the Article 21.5 proceeding, Brazil made claims regarding that measure that it had not
made in the original dispute. Canada objected to claims raised by Brazil against the new measure on
the grounds that no similar claims had been ra ised against the original measure. Had Canada's
objection been upheld, Brazil would have been barre d from making claims that could not have been
raised in the original proceedings.
94 The Appellate Body agreed with the panel's conclusion.95

In the present dispute the situation is similar. The modified PBS is a new measure that was not before
the original panel. The relevant facts bearing upon the modified PBS are obviously different from the
relevant facts relating to the original PBS. It is therefore natural that Argentina should present claims,
arguments and factual circumstances pertinent to th e modified PBS that are different from those that
were pertinent to the original PBS.

In the present Article 21.5 proceedings, Argentina, like Brazil in Canada – Aircraft (Article 21.5 –
Brazil), raises claims relating to the second sentence of Article II:1(b) of the GATT 1994 in respect of
the modified PBS that it did not raise
 in the original dispute. Chile, like Canada in that dispute,
challenges the claims raised by Argentina against th e modified PBS arguing that no claims relating to
the second sentence of Article II:1(b) of the GATT 1 994 were raised against the original PBS. If the
Panel were to uphold the Chilean challenge, Argentina, like Brazil in that dispute, would not have the
opportunity to raise claims that could not have b een raised in the original proceedings, because the
modified PBS is a new and different measure that was not before the original panel.

Finally, in Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body warned against the
consequences of undermining the utility of the review envisaged under Article 21.5 of the DSU and
the ability of a panel to examine fully the "consis tency with a covered agreement of the measures

91 See Status Reports submitted by Chile WT/DS207/15/Add.1, of 28 October 2003, third paragraph:
"We repeat that the new price band system…" and WT/DS207/15/Add.3, of 14 January 2004, second paragraph:
"… the new price band system entered into force on 16 December 2003 …" (underlining added).
92 Chile's First Written Submission, paragraphs 50 and 56.
93 Canada – Aircraft (Article 21.5 – Brazil), Appellate Body Report, paragraph 41 (underlining added).
94 WT/DS141/RW, paragraph 6.48.
95 EC – Bed Linen (Article 21:5 – India), Appellate Body Report, paragraph 88.

taken to comply", as required by Article 21.5 of the DSU, that could result if a Panel were restricted to
examining the new measure only from the perspective of the claims related to the original measure:

"Indeed, the utility of the review envisaged under Article 21.5 of the DSU would be
seriously undermined
 if a panel were restricted to examining the new measure from
the perspective of the claims, arguments and factual circumstances that related to the
original measure, because an Article 21.5 panel would then be unable to examine
fully the "consistency with a covered agreem ent of the measures taken to comply", as
required by Article 21.5 of the DSU."
96
In this case, the consequences against which the Appellate Body warned would take place if this Panel
were restricted to examining the new PBS from the perspective of the claims that related to the
original PBS. Its ability to examine fully the "cons istency with a covered agreement" of the amended
PBS, as required by Article 21.5 of the DSU would be seriously impaired.

Second, as it was already stated 97, whether the original PBS was inconsistent with the second
sentence of Article II:1(b) of the GATT 1994 was not part of the Appellate Body findings in the
original proceedings.

Third, as stated before, Argentina could not have rai sed this particular claim in the original
proceedings.

However, even if Argentina could have raised its Article II:1(b) GATT 1994 claim in the original
proceedings, quod non, that circumstance is not
 an appropriate test to assess whether the claim falls
within the Panel's mandate.

A panel is not prohibited from considering arguments and claims on the sole basis that they could
have been raised during the origin al proceedings with respect to a different original measure. As
Canada stated in its oral intervention:

Where the measure is appropriately befo re a panel, and the DSB has made no
findings or recommendations in respect of such measure or the claims made by the
complaining party, a panel may not then rej ect such claims or arguments on the sole
basis that they could have been raised previously.
98
First, there is no legal basis in any provision of the DSU to assert that a party cannot raise a claim
before an Article 21.5 panel because a possibility existed that it could have raised the same claim
during the original proceeding when the original measure was not the measure at issue in the
compliance proceedings. What is more, Chile has not made reference to any legal provision in support
of this argument. Argentina shares Brazil's view on this point:

Not surprisingly, Chile does not cite to any treaty text in order to support its
approach. In fact, this is because there is nothing in the text of the DSU that
precludes a complaining Member from bringing a claim that was not brought in the
original proceedings. According to the DSU, Article 21.5 proceedings may, in
principle, involve claims made under any provision of any covered agreement.
99

96 WT/DS70/AB/RW, Appellate Body Report, paragraph 41. (underlining added).
97 See Argentina's answer to question 25 above.
98 Third Party Oral Statement by Canada, para. 6.
99 Third Party Oral Statement by Brazil, para. 18.

Second, Argentina cannot recall any WTO jurisprudence that supports Chile's argument that a party
cannot raise a claim before an Article 21.5 panel because a possibility existed that it could have raised
the same claim during the original proceeding, wh en the original measure was not the measure at
issue in the compliance proceedings.

Furthermore, Argentina is not aware of any provisi on in the DSU or WTO jurisprudence that required
a complaining party to bring all its possible claims at once in the original proceedings. As Brazil
stated,

… Chile's approach [would] add a new and undue burden on the complaining party,
since it would force it to prosecute every conceivable violation in the original
proceedings in order to preserve its rights on implementation.
100
If Chile's argument were accepted, the door would be open to a whole new set of controversial
procedural claims during DSU Article 21.5 proceedings concerning whether certain claims could have
possibly been made with respect to the original measur e, even if, as in the present case, the original
measure was different, in its particular configurat ion and features, to the measure at issue in the
compliance proceeding.101

Finally, in this case, given that the amended PBS is a new and different measure, the claim related to
Article II:1(b) GATT 1994 is, in any event, differe nt from the Article II:1(b) GATT 1994 claim that
could eventually have been raised in the orig inal proceedings, as far as it challenges a different
measure including a whole new configuration and f eatures. Although the EC did not completely agree
with all of Argentina's arguments, it is telling that it shared Argentina's a pproach regarding whether
this claim falls within the Panel's mandate:

As regard the claim made by Argentina relating to the second sentence of Article II: 1
(b) of the GATT, and in the view of the EC , what counts in this context is again the
fact that the new measure (the revised PBS) has created a new set of regulatory and
factual circumstances which imply that the claim is new insofar that it is directed
against a different set of measures under a diffe rent set of "relevant facts". Therefore,
the fact that a similar claim may have been brought against a similar measure in the
original dispute should be held as irrelevant
.102
27. Can Argentina also clarify whether the amended PBS contains specific new features that
would, in its opinion, violate Article XVI:4 of the WTO Agreement in a way that the original
PBS did not. If so, can Argentina identify those specific new features of the amended PBS that
would be in violation of Article XVI:4, as well as the manner in which those features differ from
the ones in the original PBS.

Answer to Question 27

The claim with respect to Article XVI:4 of the WT O Agreement relates to the modified PBS in its
entirety rather than to one aspect or specific new features in particular.

The amended PBS is a new measure containing a new scheme or formula for the calculation of
additional duties at the customs border, prior to th e entry of wheat and wheat flour into the Chilean
customs territory. The amendments introduced by Chile turned the PBS into a completely new

100 Third Party Oral Statement by Brazil, para. 16.
101 See Third Party Oral Statement by Canada, para. 9.
102 Third Party Oral Statement by the European Communities, para. 19 (underline added).

measure as Chile has recognized. 103 Chile has changed both the way in which the floor and ceiling
prices are established and the way in which the re ference prices are calculated, as well as the method
of calculating the specific duties. Ch ile has also changed the products subject to the PBS. Argentina
has extensively developed how the amended PBS contains specific new features that have rendered it
to be a new and different measure. Argentina woul d kindly refer the Panel to Section B of its First
Written Submission, paragraphs 18 to 66.

Thus, Argentina could never have raised its cl aim of violation of Article XVI:4 of the WTO
Agreement during the original proceedings as far as the amended PBS is a new measure, different in
many ways from the original PBS.

There is no legal basis to assert that a WTO Member cannot raise new claims with respect to new
measures under Article 21.5 proceedings.

Rather, as Argentina and Chile have already cited, in EC – Bed Linen (Article 21.5 – India) , the
Appellate Body held that:

"… This implies that an Article 21.5 panel is not confined to examining the 'measures
taken to comply' from the perspective of the claims, arguments, and factual
circumstances relating to the measure th at was the subject of the original
proceedings... Indeed, a complainant in Ar ticle 21.5 proceedings may well raise new

claims, arguments, and factual circumstances different from those raised in the
original proceedings …" 104 (underlining added, footnotes omitted)
28. Assuming that the Panel were to agree with Argentina's claim that the amended
measure is in breach of Article 4.2 of the Ag reement on Agriculture, could Argentina explain
why, in its opinion, the Panel would then need to make a separate finding, or should then make
a separate finding, on whether the same measure also results in a violation of Article II:1(b) of
the GATT 1994 in order to resolve this dispute. Could Argentina please refer in its reply to the
statement made by the Appellate Body in paragraph 190 of its report in Chile – Price Band
System.

Answer to Question 28

Argentina is fully convinced that this Panel need s to make a separate finding on whether the amended
PBS results in a violation of Article II:1(b) of the GATT 1994 in order to resolve this dispute.

In US – Anti-Dumping Measures on Oil Country Tubular Goods, after finding that "Mexico ha[d] not
explained why an additional finding…[was] necessary to resolve the dispute"
105, the Appellate Body
found that there was not a necessity of such an addi tional finding. It logically follows that in a case
where a party does explain the necessity of a separat e finding in order to ensure the resolution of a
dispute a panel is allowed to make such an additional finding.

This finding was perfectly consistent with the Appellate Body previous finding in Australia – Salmon.
According to the Appellate Body, the principle of j udicial economy has to be applied keeping in mind
the aim of the dispute settlement system. This aim is to resolve the matter at issue and "to secure a

103 See Status Reports submitted by Chile WT/DS207/15/Add.1, of 28 October 2003, third paragraph:
"We repeat that the new price band system …" and WT/DS207/15/Add.3, of 14 January 2004, second
paragraph: "… the new price band system entered into force on 16 December 2003 …" (underlining added).
104 EC – Bed Linen (Article 21.5 – India), Appellate Body Report, paragraph 79.
105 WT/DS282/AB/R, para. 282

positive solution to a dispute".
106 To provide only a partial resolution of the matter at issue would be
false judicial economy. In particular, the Appellate Body said that a panel:

"… has to address those claims on which a finding is necessary in order to enable the
DSB to make sufficiently precise recomme ndations and rulings so as to allow for
prompt compliance by a Member with those recommendations and rulings 'in order to
ensure effective resolution of disputes to the benefit of all Members'[according to
DSU article 21.1]."107 (Underlining added)
Under the circumstances of the present case, the necessity of a finding to determine whether the PBS
is inconsistent with Article II:(1)(b) of GATT 1994 is clear. This panel has to address this claim,
because it is necessary in order to enable the DS B to make sufficiently precise recommendations and
rulings so as to allow for prompt compliance by Chile and to ensure an effective and positive
resolution of this dispute.

Argentina completely agrees with the Appellate Body , who stated that a finding that Chile's PBS is
inconsistent with Article 4.2 of the Agreement on Agriculture means that the duties resulting from the
application of that PBS cannot longer be levied because such PBS cannot longer exist.
108

It was precisely on the basis of that reasoning that the Appellate Body held that:

"… if we were to find first that Chile's price band system is inconsistent with
Article 4.2 of the Agreement on Agriculture , we would not need to make a separate
finding on whether the price band system also results in a violation of Article II:1(b)
of the GATT 1994 in order to resolve this dispute."
109
However, at that time, the Appellate Body could not forsee that Chile would confidently ignored this
finding, arguing that nowhere in the Appellate Body Report it is mandated that Chile had to eliminate
the PBS. Consequently, more than three years and a half after the adoption of the Panel and Appellate
Body reports by the DSB, the dispute remains unsolved.

Evidently, according to the reading Chile made of th e Appellate Body's finding, it was not as clear to
Chile as it was for the Appellate Body and for Ar gentina that the PBS was a measure not to be
maintained. Indeed, Chile did maintain its PBS although it was found to be inconsistent with
Article 4.2 of the Agreement on Agriculture.

It is evident that, under these particular circumstances, a finding regarding Argentina's claim about the
amended PBS inconsistency with the second sentence of Article II:(1)(b) of GATT 1994 results to be
necessary to make it clear to Chile that the amende d PBS is a measure not to be maintained, and to
secure, finally, a definitive solution to the dispute.

By virtue of the particular circumstances presen t in the current proceedings, a separate finding
determining whether the PBS is in consistent with Article II:(1)(b ) of GATT 1994, results to be
necessary, inter alia, for the following reasons.

First, Argentina has fully proved in these proceedings that the amended PBS is inconsistent with
Article II:(1)(b) of GATT 1994. However, without a separate finding, Chile would try to maintain its
PBS with "cosmetic amendments" in flagrant violation with that provision.

106 DSU, Article 3.7.
107 Australia-Salmon, WT/DS18/AB/R, Report of the Appellate Body, para. 223 (underlining added).
108 Chile – Price Band System, Report of the Appellate Body, paragraph 190.
109 Chile – Price Band System, Report of the Appellate Body, paragraph 190.

In spite of the Appellate Body findings, the circumstances of this case demonstrate that for Chile to
dismantle its amended PBS, a finding of inconsis tency with Article 4.2 may not be enough. Chile
should have dismantled its PBS app lied to wheat and wheat flour as Chile did with respect to edible
vegetable oils.

The explicit wording of Article 4.2 of the Agreement on Agriculture mandates that Members "… shall
not maintain … measures of the kind which have been require d to be converted into ordinary customs
duties …". 110 Thus, according to Article 4.2 of the Agreement on Agriculture , Chile could not
maintain its PBS after a WTO inconsistency ruling. As the Appellate Body established "… Article 4.2
was drafted in the present perfect tense to ensure that measures that were required to be converted as a
result of the Uruguay Round—but were not converted —could not be maintained, by virtue of that
Article …". 111 Indeed, that interpretation is confirmed by the wording of footnote 1 to the Agreement
on Agriculture . That footnote gives meaning to Article 4.2 by enumerating examples of measures
other than ordinary customs duties which, accord ing to the Appellate Body, "…Members must not
maintain, revert to, or resort to, from the date of the entry into force of the WTO Agreement ".112
Moreover, the Appellate Body established that the obligation "not [to] maintain" such measures
underscores the fact that "… Members must not continue to apply measures covered by Article 4.2
from the date of entry into force of the WTO Agreement".113

Chile maintained the PBS arguing that nowhere in the Appellate Body Report it is mandated that
Chile had to eliminate it. Chile insists in ignori ng an explicit finding of the Appellate Body, who
stated that a finding that Chile's PBS is inconsistent with Article 4.2 of the Agreement on Agriculture
means that the duties resulting from the application of that PBS cannot longer be levied because such
PBS cannot longer exist:

"… a finding that Chile's price band system as such is a measure prohibited by
Article 4.2 would mean that the duties r esulting from the application of that price
band system could no longer be levied—no matter what the level of those duties may
be. Without a price band system, there could be no price band duties."
114
The Appellate Body went further and established that:

"A plain reading of Article 4.2 and footnot e 1 makes clear that, if Chile's price band
system falls within any one of the categor ies of measures listed in footnote 1, it is
among the 'measures of the kind which have been required to be converted into
ordinary customs duties', and thus must not be maintained, resorted to, or reverted to,
as of the date of entry into force of the WTO Agreement."115
It is evident now that it was not clear to Chile as it was for the Appellate Body that if the PBS fell
within any one of the categories of the measures li sted in footnote 1, it was a measure not to be
maintained. However, contrary to the Appellate Body's explicit finding, Chile maintained its PBS
although it fell within one of the categories of measur es listed in footnote 1. The fact that a measure
prohibited by Article 4.2 of the Agreement on Agriculture could not be maintained was completely
ignored by Chile who maintained the PBS with "cosmetic amendments". This is the reason why
Argentina had to resort to the WTO dispute settleme nt proceedings for the second time. That is why,

110 Emphasis added.
111 Chile – Price Band System, Report of the Appellate Body, para. 207.
112 Chile – Price Band System, Report of the Appellate Body, para. 209.
113 Chile – Price Band System, Report of the Appellate Body, para. 212. (Underlining added).
114 Chile – Price Band System, Report of the Appellate Body, paragraph 190.
115 Chile – Price Band System, Report of the Appellate Body, para. 221.

under the circumstances of this case , a separate finding of inconsistency with Article II:(1)(b) of
GATT 1994 is also required.

Second, DSU Article 3.7 provides that "… the first obj ective of the dispute settlement mechanism is
usually to secure the withdrawal of the measures con cerned if these are found to be inconsistent with
the provisions of any of the covered agreements". Given the measures taken to comply by Chile
preceding Argentina's recourse to DSU Article 21 .5, a separate finding of inconsistency with
Article II:(1)(b) of GATT 1994 by this Panel will certainly contribute to achieving the
abovementioned first objective of the dispute settlement mechanism.

Third, the Appellate Body has established that pane l rulings in compliance proceedings should not
"lead to a potentially 'never-ending cycle' of disput e settlement proceedings and inordinate delays in
the implementation…".
116 Despite Argentina's claims and what the Appellate Body has established,
experience in this case tells that a finding of inconsistency with Article 4.2 may not lead to a positive
solution of the dispute by Chile, again, maintaini ng its PBS with "cosmetic amendments". This could
lead to that potentially "never-ending cycle" of di spute settlement proceedings. It is precisely to avoid
this result that Argentina respectfully requests th is Panel to address its Article II:(1) (b) of GATT
1994 claim.

In light of the above reasons and facts and consis tent with what the Appellate Body established in
Australia – Salmon and US – Anti-Dumping Measures on Oil Country Tubular Goods , Argentina
respectfully asks the Panel to make a separate finding under Article II:(1)(b) of GATT 1994, and to
secure by this separate finding an effective and definitive resolution of this old dispute, preventing a
never-ending cycle of dispute settlement proceedings.

29. Referring to the way the amended PBS has worked in practice, Chile has asserted in
paragraphs 173 and 174 of its rebuttal submission that:

"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 have 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.
From 13 January to 15 June 2006 whea t imports were entering Chile subject
only to the general ad valorem tariff, extending even further the period of
improved access conditions."
Based on the information available, does Argentina agree with Chile's statement?

Answer to Question 29

Argentina disagrees.

First, Chile puts forward arguments that, according to Chile itself, are not part of the present dispute.
Chile has stated that "… the conditions of access for wheat lie [lay] outside the scope of the present
dispute …". 117 Afterwards it maintained that "[t]he basis of this dispute is not … how often [customs
duties] are applied."118

116 United States-Tax Treatment For "Foreign Sales Corporations" Second Recourse to Article 21.5 of
the DSU by the European Communities, Report of the Appellate Body, WT/DS108/AB/RW2, para. 86.
117 Rebuttal by Chile, para. 163.
118 Rebuttal by Chile, para. 171 (underline added).

Second, Argentina disagrees with the statement "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".

As Argentina pointed out
119, access conditions continue to be unfavourable despite the duties
allegedly being applied on fewer occasions than in the case of the original PBS. Chile's argument
amounts to saying that exporters of wheat and wheat flour to Chile should not be concerned about the
distorting effects of the modified PBS, since under the modified PBS the distorting effects resulting
from the application of specific duties occurred " only" 17 times, whereas under the original PBS they
would have occurred 27 times. Chile claims that th is represents an improvement in conditions of
access. There is no
 improvement. Chile's reasoning has no basis in the WTO Agreements and, in
particular, not in the DSU or the Agreement on Agriculture. A measure taken to comply is not "less"
inconsistent because the inconsistency occurs on fe wer occasions than in the case of the original
measure. There is no basis for drawing such a conclusion.

30. In paragraph 77 of its rebuttal submission, Argentina suggests that Chile should explain
the criteria that led it to fixing the floor and ceiling of the band at US$128 and US$148 per
tonne, respectively. Could Argentina clarify wh ether, in its view, Chile is under a legal
obligation to advance that explanation and, if so, could Argentina identify the relevant legal
basis in the WTO covered agreements.

Answer to Question 30

The legal basis in the WTO covered agreements not to maintain an intransparent border measure is
Article 4.2 of the Agreement on Agriculture and its footnote 1.

When finding the original PBS inconsistent with Article 4.2, the Appellate Body, inter alia, held:

"… [W]e place considerable importance on the intransparent and unpredictable way
in which the 'highest and lowest f.o.b. pri ces' that have been selected are converted to
a c.i.f. basis by adding 'import costs'. As Chile concedes, no published legislation or
regulation sets out how these "import costs" are calculated.
In addition to the lack of transparency and the lack of predictability that are inherent
in how Chile's price bands are established, we see similar shortcomings in the way the
other essential element of Chile's price band system … is determined …"
120
(Emphasis added)
The fact that no legislation set out how the price bands were calculated, led the Appellate Body to find
the lack of transparency to be inherent in how Chile's price bands were established.

Similarly, the fact that Law 19.897 and Decree 831/2003 do not set out the criteria that led Chile to
fixing the floor and ceiling of the band at US$128 and US$148 per tonne, respectively, lead to the
conclusion that the establishment of the floor and ceiling was not transparent.

Therefore, Chile is under the legal obligation to adva nce the criteria that led it to fixing the floor and
ceiling of the band at US$128 and US$148 per tonne, respectively.

119 Rebuttal by Argentina, para. 208-209.
120 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.

As pointed out above, the fact that no legislation explained how the price bands were calculated, led
the Appellate Body to find the lack of transparency to be inherent in how Chile's price bands were
established.
121

The Appellate Body found that the lack of transparen cy contributed to distorting the prices of imports
by impeding the transmission of international prices to the domestic market.
122

Afterwards, in assessing the original PBS, the Appellate Body found that:

"… As Argentina stresses, the amount of a duty is not the only concern of Chile's
trading partners. As Argentina argues, signi ficant for traders, also, are the lack of
transparency of certain features of Chile's price band system …"
123
The Appellate Body emphasized that it reached its conclusion regarding the inconsistency with the
WTO covered agreements

"… on the basis of the particular configur ation and interaction of all these specific
features of Chile's price band system ..."
124
Consequently, the lack of explanation or justification as to the criteria that led Chile to fixing the floor
and ceiling of the band at US$128 and US$148 per tonne, respectively, leads to a lack of transparency
which, according to the Appellate Body, affects per se market access for imports of wheat and wheat
flour.

Regarding the transparency requirement derived from Ar ticle 4.2 and footnote 1, the original Panel in
these proceedings found that:

"… all the measures listed there are instrume nts which are characterized either by a
lack of transparency and predictability, or impede transmission of world prices to the
domestic market, or both".
125
Moreover, the original Panel also observed:

"… several crucial stages of the operation of the Chilean PBS are characterized by a
considerable lack of transparency and pred ictability. For instance, exporters can be
expected to have difficulties knowing how th e applicable Reference Price is arrived
at."
126
Those findings are completely applicable to the amended PBS.

Finally, in its analysis of whether the original PBS was a border measure similar to a variable import
levy and a minimum import price, the original Pa nel in these proceedings found, in a finding not
reversed by the Appellate Body:

"… we have already highlighted the feat ures of the Chilean PBS which reveal its
intrinsically unstable, intransparent and unpredictable nature, as well as the

121 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.
122 Chile – Price Band System, Report of the Appellate Body, para. 234.
123 Chile – Price Band System, Report of the Appellate Body, para. 258.
124 Chile – Price Band System, Report of the Appellate Body, para. 261.
125 Chile – Price Band System, Report of the Panel, paragraph 7.34.
126 Chile – Price Band System, Report of the Panel, paragraph 7.44.

since in its legislation Chile has neither explaine d nor justified in any way the basis on which it was
established; (3) the 1,56 factor is baseless from a te chnical or price-based point of view. Therefore, it
is an argument that support the claim of inconsis tency of the amended PBS with Article 4.2 of the
Agreement on Agriculture.

Chile has not argued that the claim related to Article 4.2 of the Agreement on Agriculture is not within
the terms of reference of this Panel. Thus, this Panel is completely free to accept and analyze
Argentina's arguments in relation to the factor of 1,56
132 in order to find that the amended PBS is
inconsistent with Article 4.2 of the Agreement on Agriculture.

In the alternative , if this Panel found the argument in rela tion to the factor of 1,56 constitute a new
"claim", the fact that these Article 21.5 proceedin gs are the first chance fo r Argentina to raise the
argument could constitute one of th e appropriate tests to assess whet her the issues relating to factor
1.56 fall within this Panel's mandate, because the am ended PBS is a new measure, different from the
original PBS and, therefore, Argentina could not have raised the arguments in relation to that factor in
the original proceedings.

Despite the fact that the factor 1.56 was formally maintained in the modified PBS, Argentina's
arguments relating to that factor are included in the terms of reference of the present Panel inasmuch
as Chile has changed the basis to which that factor is applied and hence the result of its application.

If both the basis and the duties resulting from the appli cation of the factor 1.56 in the modified PBS
are necessarily different from the basis and the dutie s resulting from the application of the factor 1.56
in the original PBS, then the relative weight of th e factor 1.56 has also changed in the measures taken
to comply.

In this respect, it should be recalled that the speci fic duty or rebate for wheat, which constitutes the
basis of calculation to which the factor 1.56 is applied to arrive at the specific duty or rebate for wheat
flour, is calculated from the difference between the floor or ceiling price and the reference price by
multiplying that difference by 1 plus the ad valorem tariff. Given that Chile has changed both the way
in which the floor and ceiling prices are calculated
133 and the way in which the reference prices are
established134, as well as the method of calculating the specific duties 135, the basis to which the factor
1.56 is applied and the results of its application have necessarily changed. The application of the
factor 1.56 in the modified PBS results in a diffe rent amount of duties and forms part of both the
measure itself and its method of application.

In other words, the consequences of applying the fa ctor 1.56 in the modified PBS are different from
the consequences of applying it in the original PBS.

In conclusion, just as the panel in US – Countervailing Measures on Certain EC Products
(Article 21.5 – EC) held that the claims relating to the Section 129 affirmative likelihood-of-
subsidization re-determination fe ll within the panel's terms of reference because the basis
 for that re-
determination was different from that for the affirmat ive determination in the original sunset review,
the arguments relating to the factor 1.56 fall within the terms of reference of the present Panel since
the basis on which that factor is calculated is also different from that in the original PBS.

132 Consequently, it is not applicable to the factor of 1,56 what was said in the cases EC – Bed Linen
(Article 21.5 – India) and US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) as those
cases dealt with the admissibility of entertaining claims and not arguments.
133 Argentina's First Written Submission, Section B.3.3.
134 Argentina's First Written Submission, Section B.3.4.
135 Argentina's First Written Submission, Section B.3.5.2.

Thus, the new arguments relating to the factor 1.56 rela te to an aspect of the measure taken to comply
that has changed with respect to the original m easure. Consequently, the Panel should conclude that
Argentina's arguments concerning the factor 1.56 fall within its terms of reference.

In Canada – Aircraft (Article 21.5 – Brazil)
 136, the Appellate Body held that Article 21.5 proceedings
involve not the original measure but rather a ne w and different measure which was not before the
panel and it was natural, therefore, that, as the relevant facts bearing upon the "measure taken to
comply" were different from the relevant facts relating to the original measure, the claims, arguments
and factual circumstances pertinent to the "measu re taken to comply" would not necessarily be the
same as those which were pertinent in the original dispute.

As the panel found in EC – Bed Linen (Article 21.5 – India) , in Canada – Aircraft (Article 21.5 –
Brazil) Canada had implemented the recommendation of the DSB by adopting a new and different
measure. In the Article 21.5 proceeding, Brazil made claims regarding that measure that it had not
made in the original dispute. Canada objected to claims raised by Brazil against the new measure on
the grounds that no similar claims had been rai sed against the original measure. Had Canada's
objection been upheld, Brazil would have been barre d from making claims that could not have been
raised in the original proceedings.137 The Appellate Body agreed with the panel's conclusion.138

In the present dispute the situation is similar. Th e factor 1.56 – as a changed aspect of the measure
taken to comply – was not before the original panel. As pointed out above, the relevant facts bearing
upon the factor 1.56 are obviously different
 from the relevant facts relating to the factor 1.56 in the
original PBS. It is therefore natural that Argentina should present arguments and factual
circumstances pertinent to the factor 1.56 in the m odified PBS that are different from those that were
pertinent to the factor 1.56 in the original PBS.

In the present Article 21.5 proceedings, Argentina, like Brazil in Canada – Aircraft , puts forward
arguments relating to the factor 1.56 that it did not raise
 in the original dispute. Chile, like Canada in
that dispute, challenges these arguments claiming that they should have been raised in the original
proceedings. If the Panel were to uphold the Chilean ch allenge, Argentina, like Brazil in that dispute,
would not have the opportunity to put forward arguments that could not have been raised in the
original proceedings, as the factor 1.56 is a changed aspect of the measure taken to comply.

Moreover, Chile's due process rights have not been unduly impaired in these proceedings since in
changing the factual basis on which the factor 1.56 would be applied and hence the results of applying
it Chile could have anticipated that new arguments relating to that factor would be raised.

In this connection, in US – Countervailing Measures on Certain EC Products (Article 21.5 – EC), the
panel held that:

"… The United States itself introduced the i ssue of treatment of evidence by revising
the entire likelihood-of-subsidization determ ination and by changing the legal basis
of the affirmative conclusion of like lihood of continuation or recurrence of
subsidization. The United States therefor e could have anticipated a claim on the
USDOC's treatment of evidence. Accordingly, the Panel concludes that the European
Communities' claim on evidence falls within this Panel's mandate."
139

136 WT/DS70/AB/RW, paragraph 41.
137 WT/DS141/RW, paragraph 6.48.
138 WT/DS141/AB/RW, paragraph 88.
139 WT/DS212/RW, Report by the Panel, paragraph 7.71.

Furthermore, Argentina's arguments relating to the f actor 1.56 were not brought up at a late stage of
the Article 21.5 proceedings. Thus, due process has no t been adversely affected, as shown by the fact
that Chile was able to rebut these arguments in its First Written Submission.

In the light of the above, should the Panel consider that the arguments put forward by Argentina in
relation to the factor 1.56 constitute a new clai m, Argentina respectfully requests that the Panel
consider the said arguments, since they fall within the terms of reference of the present Panel, and find
that the factor 1.56 is a specific feature of the modified PBS that is impeding enhanced access to
Chile's market, in a manner inconsistent with Article 4.2 of the Agreement on Agriculture.
140

32. In paragraphs 196 to 201 of its rebuttal s ubmission, Chile has explained the technical
reasons for using a factor of 1.56 to assess the duti es or rebates applicable to wheat flour. Chile
has stated that the reason for increasing the duty (or rebate) by a certain proportion "is simply
to maintain a similar nominal level of protectio n for both products". Chile argues that the
factor it has used for wheat flour has undergone occasional adjustments to take account of the
relation between the prices of the two products and since 1996 has been fixed at 1.56. Chile set
the value at 1.56 taking into consideration the information available at that time, which
"indicated that between January 1986 and December 1995 (the period of application of the
band at that time), the average ratio of the price of flour to the price of wheat was 1.566". Can
Argentina comment on Chile's assertions in this regard, as well as on the evidence submitted as
Exhibits CHL-9, CHL-10 and CHL-11.

Answer to Question 32

As Argentina has already stated, it is telling that Chile has not argued in its submissions that the factor
of 1,56 does not distort the transmission of intern ational prices. Indeed, Argentina showed how, for
many reasons, the factor of 1,56 insulates the entr y price for wheat flour from international price
developments:

First, wheat flour exporters have to pay specifi c duties which not only bear no relation to the
transaction value but also bear no relation to the pr oduct in question, since they are calculated on the
basis of those applied to another product, namely, wheat.

Second, Chile's only justification for its application is that the factor has been fixed at 1,56 since 1996
because "between January 1986 and December 1995, th e average ratio of the price of flour to the
price of wheat was 1,566". Therefore, as Chile re cognizes, the factor was "built into" the Chilean
legislation and it has remained "unchanged" ever since.

In an effort to give any validity to its argument, Chile submitted Exhibits CHL-9 (Table of wholesale
prices for wheat and wheat flour), CHL-10 (Graph of wholesale prices for wheat and wheat flour) and
CHL-11 (Graph showing the relation between the price of wheat flour and the price of wheat) that
show that the average ratio of the price of flour to the price of wheat was 1.566 between January 1986
and December 1995.

Those Exhibits reflect a price relation that was, at least, eight years old at the time of the entry into
force of the amended PBS. Moreover, the delay w ith regard to any meaningful price relation has
reached a decade at the time of these compliance proceedings.

140 Argentina's First Written Submission, Section C.I.2.7.

On the other hand, as it has been already stated 141, in the case of Argentina, if the FOB prices of bread
wheat and wheat flour 142 since the amended PBS came into force are taken into account, the average
price ratio is 1.3, as it has been shown in Exhibit ARG-29.

Moreover, in paragraphs 196 to 201 Chile has not explained the "technical" reasons for using a factor
of 1,56. In fact, Chile explicitly acknowledged that the reason for establishing the factor at 1,56 "…is
simply to maintain a similar nominal level of protection for [wheat and wheat flour]".
143 Clearly, this
is not a technical explanation. If Chile had provide d the technical explanation given by the Chilean
Executive it should be clear that the technical ratio is 1,3. In 1993, the Message of the Chilean
Executive relating to the amendment of Article 12 of Law 18.525 stated: "… It is proposed to
establish specific duties and rebates on the impor tation of flour and calculate their amount by
multiplying the duties and rebates determin ed for wheat by the coefficient 1.3 which is the technical
production ratio …"
144 (Emphasis added)

Even if the reason for the establishment of the fact or was the technical production ratio, the factor
should not have "undergone occasional adjustments to take into account the relation between the
prices of the two products". Technical ratios are not adjusted due to any price relation because they
are just that: technical.

Thus, in addition to not having any relation to the tr ansaction value, to the product in question, and to
the technical production ratio between wheat and wheat flour, Chile applies a factor that is different
from the price relation in, at least, one of Chile's mark ets of concern and, at the time of the entry into
force of the amended PBS, reflected a price relation th at was, at least, eight years old, and at the time
of these compliance proceeding the delay with regard to any meaningful price relation has reached a
decade. This is how Chile purports to justify the application of the factor of 1,56.

Therefore, the factor of 1.56 used to multiply the duties and rebates determined for wheat in order to
calculate the duties and rebates applicable to wheat flour is not transparent and insulates the entry
price for wheat flour from international price developm ents to an even greater extent than that for
wheat, this being another specific feature of the am ended PBS that prevents enhanced access to the
Chilean market, in a manner inconsistent with Article 4.2 of the Agreement on Agriculture.

33. In paragraph 232 of its first submission, Argentina states that the factor applied to
determine the specific duties of wheat flour was the "technical ratio established by Chile in Law
19.193 which, in 1997, extended the specific duties and tariff rebates of the price band for wheat
to wheat flour". Chile has argued in footnote 38 of its first submission that Argentina's
statement includes factual errors. Could Argentina please comment on Chile's argument,
taking also into account Chile's Exhibit CHL-5.

Answer to Question 33

On the basis of the history of the Chilean legislati on, it might be speculated that the application of a
factor to the specific duties established for wheat in order to determine the specific duties applicable
to wheat flour could be based on a price rela tionship derived from a technical production ratio
between wheat and wheat flour. Flour being a produc t of wheat, its price is naturally higher since to
the cost of the wheat the millers add the cost of milling plus a profit margin. This relationship is valid

141 First Written Submission by Argentina, para. 231.
142 Both are products whose markets are considered to be of concern to Chile in establishing the
reference prices of the amended PBS.
143 Rebuttal by Chile, para. 197.
144 " History of the Law. Compilation of official texts of the parliamentary debate. Law 19.193 ".
Library of the National Congress. Santiago, Chile, 1997. See Exhibit ARG-37, page 19.

at international level. In the case of Argentina, if the FOB prices of bread wheat and wheat flour
145
since the amended PBS came into force are take n into account, the average price ratio is 1.3. 146 That
is, the price of wheat flour is approximately 30 per cent higher than that of wheat.

Moreover, this was the technical ratio proposed by the Chilean Executive at the moment of passing
the bill for the approval of Law 19.193 which, in 1993, extended the specific duties and tariff rebates
of the price band for wheat to wheat flour. At that time, the Message of the Chilean Executive relating
to the amendment of Article 12 of Law 18.525 stated: "… It is proposed to establish specific duties
and rebates on the importation of flour and calculate their amount by multiplying the duties and
rebates determined for wheat by the coefficient 1.3 which is the technical production ratio …"
147
(Emphasis added)

Notwithstanding the above, the factor was fixed in 1,41 and that is what Chile shows in Exhibit
CHL-5 containing Law No. 19.193.

However, successive amendments incorporated in th e legislation led to an increase in this figure.
Thus, Chile decided to raise the coefficient from 1.41 to 1.56 without any justification, thereby
distorting –to an ever greater extent- the entry price for Chilean wheat flour imports.

As noted by a Chilean legislator during the deba te on the bill – later Law 19.446 – extending the
system for setting the duties and rebates for wheat flour:

"Has any justification been given for in creasing the factor from 1.41 to 1.56?
Absolutely none … The Executive has s ubmitted a measure without providing any
data that might support … the raising of the factor from 1.41 to 1.56 …"
148
Thus, in addition to not having any relation to the tr ansaction value, to the product in question, and to
the technical production ratio between wheat and wheat flour, Chile applies a factor that is different
from the price relation in, at least, one of Chile's mark ets of concern and, at the time of the entry into
force of the amended PBS, reflected a price relation th at was, at least, eight years old, and at the time
of these compliance proceeding the delay with regard to any meaningful price relation has reached a
decade. This is how Chile purports to justify the application of the factor of 1,56.

Therefore, the factor of 1.56 used to multiply the duties and rebates determined for wheat in order to
calculate the duties and rebates applicable to wheat flour is not transparent and insulates the entry
price for wheat flour from international price developm ents to an even greater extent than that for
wheat, this being another specific feature of the am ended PBS that prevents enhanced access to the
Chilean market, in a manner inconsistent with Article 4.2 of the Agreement on Agriculture.

34. Argentina has stated in paragraph 199 of it s first submission that the way in which Chile
determined the 0.985 adjustment factor for the band floor and ceiling prices was not
transparent, that Chile did not explain how this factor was calculated, nor what basis there was
for this factor in the legislation that established the amended PBS.

145 Both are products whose markets are considered to be of concern to Chile in establishing the
reference prices of the amended PBS.
146 See Exhibit ARG-29.
147 " History of the Law. Compilation of official texts of the parliamentary debate. Law 19.193 ".
Library of the National Congress. Santiago, Chile, 1997. See Exhibit ARG-37, page 19.
148 Senator Piñera, 24 January 1996. In "History of the Law. Compilation of official texts of the
parliamentary debate. Law 19.446 ". Library of the National Congress. Santiago, Chile, 1997. See Exhibit
ARG-37, page 14.

 (a) Could Argentina clarify whether in its view this particular fact per se would
make the amended measure inconsistent with the WTO covered agreements.

Answer to Question 34(a):

The fact that "the way in which the factor 0.985 w as determined is not transparent. Chile has not
explained how it was calculated, or what basis there may be for this factor in the legislation that
established the amended PBS" is a cumulative intr ansparent factor that makes the amended PBS
inconsistent with the WTO covered agreements. It is another specific feature of Chile's amended PBS
that renders the whole system inconsistent with Article 4.2 of the Agreement on Agriculture.

 (b) If so, could Argentina identify the relevant legal basis.

Answer to Question 34(b):

The relevant legal basis in the WTO covered agreements not to maintain an intransparent border
measure is Article 4.2 of the Agreement on Agriculture and its footnote 1.

When finding the original PBS inconsistent with Article 4.2, the Appellate Body, inter alia, held:

"… [W]e place considerable importance on the intransparent … way in which the
"highest and lowest f.o.b. prices" that have been selected are converted to a c.i.f. basis
by adding 'import costs'. As Chile con cedes, no published legislation or regulation
sets out how these "import costs" are calculated.
In addition to the lack of transparency … inherent in how Chile's price bands are
established, we see similar shortcomings in the way the other essential element of
Chile's price band system … is determined …"
149
The fact that no legislation set out how the price bands were calculated, led the Appellate Body to find
the lack of transparency to be inherent in how Chile's price bands were established.

Similarly, the fact that Law 19.897 and Decree 831/2003 do not set out how the way in which the
factor 0.985 was determined lead to the conclusion that the establishment of the factor 0.985 was not
transparent.

Therefore, Chile is under the lega l obligation to explain the way in which it determined the 0.985
adjustment factor for the band floor and ceiling prices.

 (c) Could Argentina elaborate on whether such lack of explanation by Chile would
per se affect market access for imports of agricultural products.

Answer to Question 34(c)

As pointed out above, the fact that no legislation explained how the price bands were calculated, led
the Appellate Body to find the lack of transparency to be inherent in how Chile's price bands were
established.150

The Appellate Body found that the lack of transparen cy contributed to distorting the prices of imports
by impeding the transmission of international prices to the domestic market.
151

149 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.
150 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.

Afterwards, in assessing the original PBS, the Appellate Body found that:

"… As Argentina stresses, the amount of a duty is not the only concern of Chile's
trading partners. As Argentina argues, signi ficant for traders, also, are the lack of
transparency of certain features of Chile's price band system …"
152
The Appellate Body emphasized that it reached its conclusion regarding the inconsistency with the
WTO covered agreements

"… on the basis of the particular configur ation and interaction of all these specific
features of Chile's price band system ..."
 153
Regarding the context of the terms in footnote 1, the original Panel in these proceedings found that:

"… all the measures listed there are instrume nts which are characterized either by a
lack of transparency and predictability, or impede transmission of world prices to the
domestic market, or both."154
Moreover, the original Panel also observed:

"… several crucial stages of the operation of the Chilean PBS are characterized by a
considerable lack of transparency and pred ictability. For instance, exporters can be
expected to have difficulties knowing how th e applicable Reference Price is arrived
at."
155
Those findings are completely applicable to the amended PBS.

Finally, in its analysis of whether the original PBS was a border measure similar to a variable import
levy and a minimum import price, the original Pa nel in these proceedings found, in a finding not
reversed by the Appellate Body:

"… we have already highlighted the feat ures of the Chilean PBS which reveal its
intrinsically unstable, intransparent and unpredictable nature, as well as the
insulation of the domestic market from international price competition which it
achieves ..."
156 (Emphasis added).
Regardless the fact it did not find useful to endor se the characteristics identified by the Panel as being
of a "fundamental" nature, the Appellate Body established in paragraph 234 of its Report:

"… [T]his lack of transparency and this lack of predictability are liable to restrict the
volume of imports … This lack of transparency and predictability will also contribute
to distorting the prices of imports by impeding the transmission of international prices
to the domestic market".

151 Chile – Price Band System, Report of the Appellate Body, para. 234.
152 Chile – Price Band System, Report of the Appellate Body, para. 258.
153 Chile – Price Band System, Report of the Appellate Body, para. 261.
154 Chile – Price Band System, Report of the Panel, paragraph 7.34.
155 Chile – Price Band System, Report of the Panel, paragraph 7.44.
156 Chile – Price Band System, Report of the Panel, paragraph 7.61.

Moreover, in paragraph 258 of its Report the Appe llate Body held that "… significant for traders,
also, are the lack of transparency of certain features of Chile's price band system …"

As the Appellate Body held with respect to the original PBS
157 and Argentina maintains with respect
to the amended PBS: "… we reach our conclu sion [regarding the inconsistency with the WTO
covered agreements] on the basis of the particular configuration and interac tion of all these specific
features of Chile's price band system …" (underlining added)

Consequently, the lack of explanation or justification as to the exact figure of the factor fixed by Chile
leads to a lack of transparency which, according to the Appellate Body, affects market access for
imports of wheat and wheat flour.

35. Could Argentina comment on Chile's argument in paragraph 103 of its first submission,
that "a simple glance at the charts presented by Argentina" shows how the specific duties have
remained constant for the duration of Law No. 19.897 and its Regulations, leading it to conclude
that it is impossible to maintain a minimum import price.

Answer to Question 35

Chile's argument in paragraph 103 of Chile's fi rst submission is completely unsubstantiated.
Argentina fully disagrees with that statement.

Paragraph 103 is within of Section 2 of part IV of Chile's first submission. Section 2 title reads
"Appellate Body Analysis And Law 19.897 And Its Regulations". In this Section Chile gives its
interpretation on the Appellate Body findings and how the legislation enforcing the amended PBS has
allegedly addressed those findings. In particular, pa ra. 103 is within subsection (b) "Minimum Import
Prices". Section (b) includes only three paragraphs: 101, 102 and 103.

In para. 101 Chile provides the Appellate Body's alleged definition of minimum import prices and
variable import levies:

According to the Appellate Body, minimum import prices are not very different from
variable levies, except that their mode of operation is less complicated. The main
difference between the two is that vari able levies are 'generally based on the
difference between the governmentally dete rmined threshold and the lowest world
market offer price for the product concer ned, while minimum import price schemes
generally operate in relation to the actual transaction value of the imports". (footnote
omitted).
In para. 102 Chile appears to provide the alleged definition of "variability":

Thus, variability is the difference between the governmentally determined threshold
and the actual transaction value, which will differ from one transaction to another and
will hence change the duty without any legislative or administrative action.
That is Chile's whole basis to conclude in para. 103 that:

A simple glance at the charts presented by Argentina shows how the specific duties
remained constant and made it impossible to maintain a minimum import price for the
duration of Law 19.897 and its Regulations.

157 Chile – Price Band System, Report of the Appellate Body, para. 261.

That's all. No more explanations. No more comments. End of Section IV.2.b. End of the story.

Chile's line of argumentation speaks for itself. Ch ile's conclusion in para. 103 is not based on
evidence. It is not even reasoned. Although Chile re fers to the "charts presented by Argentina", there
is no single Chart identified or cited by Chile in para. 103 or in the section in which para. 103 is
located. In fact, there is not even one
 reference to any Chart presented by Argentina under whole
Section "Appellate Body Analysis And Law 19. 897 And Its Regulations". Chile's "glance" at
Argentina's charts must have been so "simple" that Chile probably supposed it did not need to provide
further explanations. This is how Chile purports to convince this Pane l that the amended PBS is not a
border measure similar to a minimum import price.

Argentina was required by the Panel to make comme nts on Chile's assertion. The lack of clarity and
objectivity of Chile's argument makes it difficult to comment on. Chile states that "…it impossible to
maintain a minimum import price for the duratio n of Law 19.897 and its Regulations". Argentina
would kindly refer the Panel to the sections of its submissions and oral statements where Argentina
clarified why the amended PBS is a border measur e similar to a minimum import price, including
references to the graphs, charts, statistics and mathematic formulas Chile failed to identify.
158

36. Argentina has quoted, in paragraph 272 of its first submission, paragraph 234 of the
Appellate Body's report in Chile – Price Band System , stating that "an exporter is less likely to
ship to a market if that exporter does not kno w and cannot reasonably predict what the amount
of duties will be". Does Argentina consider that an exporter would not know better and
reasonably predict what the amount of duties will be when the formula to calculate those duties
is published, fixed and capped at 31.5 per cent, even if specific figures in the formula are set by
the importing country without providing a justification?

Answer to Question 36

The fact that the formula used to calculate the amount of duties is published, fixed and capped at 31.5
per cent is not relevant to whether an exporter might know better and reasonably predict what the
amount of duties will be in the future.

The source of the lack of transparency and pr edictability of the amount of the duties and the
inconsistency related to it, as Argentina has explained, lays elsewhere.

Argentina's argument is that "the lack of transparen cy and the lack of predictability of the duty level
that result from the amended PBS are additional f eatures that undermine the object and purpose of
Article 4 of the Agreement on Agriculture".
159 This is because an exporter is less likely to ship to a
market if that exporter does not know and cannot reasonably predict what the amount of duties will
be, as it is the case with the amended PBS.160

The Appellate Body found the original PB S inconsistent with Article 4.2 of the Agreement on
Agriculture because, inter alia, the lack of transparency and the lack of predictability of the duty level
was an additional feature that undermined the ob jective of achieving improved access conditions for
imports of agricultural products.
161 Thus, the issue was not whether the formula to calculate those
duties was published, fixed and capped at 31.5 per cent, but whether the duty level resulting from the
amended PBS was transparent or predictable, which, in the case of the PBS, it was not.

158 Argentina's First Written Submission, para. 99-124 , 159-173; Rebuttal by Argentina, paras. 160-
205, Oral Statement by Argentina, para. 32-41, 85-90; and Closing Statement by Argentina, para. 21
159 First Written Submission by Argentina, para. 271 and ss.
160 Rebuttal by Argentina, para. 128 and ss., Oral Statement by Argentina, para. 76 and ss.
161 Chile – Price Band System, Report of the Appellate Body, para. 234.

Argentina has extensively explained why the le vel of duties resulting from the amended PBS is
neither transparent nor predictable as well.162

The fact that the formula is published does not elim inate the distortion in the transmission of world
market prices to Chile's market, nor it makes the PBS more transparent or predictable. The formula is
a means to the lack of transparen cy and predictability in the level of duties, which still remain. When
the Appellate Body made its assessment about whet her the original PBS was similar to a variable
import levy it said:

… [T]he presence of a formula causing auto matic and continuous variability of duties
is a necessary … condition for a particular measure to be a "variable import levy"
within the meaning of footnote 1.
163
For the Appellate Body the "presence" of a formul a causing automatic and continuous variability of
duties was a necessary condition for a particular me asure to be a "variable import levy" within the
meaning of footnote 1. The Appellate Body did not specified whether that "presence" had to be
"published". Thus, the fact that the formula used to calculate the amount of duties is published is not
relevant to whether an exporter might know better and reasonably pr edict what the amount of duties
will be in the future.

Although the formula is fixed, the relevant issue is that the reference prices and specific duties are not
fixed. They are variable and they are fundamental co mponents of that formula. In particular, the
specific duties are liable to vary every two months as far as the reference price, when varying, falls
below the floor price. In the amended PBS it is guaranteed that, if the required conditions are met, an
exporter will mandatorily face a different duty every two months. 164 In fact, contrary to what Chile
has asserted in its submissions 165, the PBS Law and Regulation give no discretion to Chile to decide
whether or not to impose the duties: if the refe rence prices fall below the band floor, specific duties
will be levied. The lack of transparency and predic tability are inherent to the amended PBS, because
of the reasons Argentina has described in the answer to this question and along its submissions.166

With regard to the fact that the duty level is cappe d at 31.5 per cent, the Appellate Body stated that
"… the existence of [a] tariff binding will not eliminate the distortion in the transmission of world
market prices to Chile's market…where the comb ination of the duties resulting from Chile's price
band system, when added to the applied ad valorem duty rate, remains below Chile's bound rate of
31,5 per cent ad valorem".
167 In this regard, the lack of transparen cy and predictability in the level of
duties, even below Chile's bound rate of 31,5 per cent, still remains. The Appellate Body, accordingly
observed:

"This argument by Chile compels us to consider whether Chile's price band system
ceases to be similar to a 'variable import levy' because it is subject to a cap. In doing
so, we find nothing in Article 4.2 to suggest that a measure prohibited by that
provision would be rendered consistent with it if applied with a cap. Before the
conclusion of the Uruguay Round, a measure could be recognized as a 'variable

162 First Written Submission by Argentina, para. 271 an d ss., Rebuttal by Argentina, para. 89 and ss,
138 and ss.
163 Chile – Price Band System, Report of the Appellate Body, para. 234.
164 Rebuttal by Argentina, para. 145.
165 First Written Submission by Chile, para. 93 and Rebuttal by Chile para. 101 and 120.
166 First Written Submission by Argentina, para. 271 an d ss., Rebuttal by Argentina, para. 89 and ss,
138 and ss.
167 Chile – Price Band System, Report of the Appellate Body, para. 257.

import levy' even if the products to which the measure applied were subject to tariff
bindings. And, there is nothing in the text of Article 4.2 to indicate that a measure,
which was recognized as a 'variable import levy' before the Uruguay Round, is
exempt from the requirements of Article 4.2 simply because tariffs on some, or all, of
the products to which that measure now applies were bound as a result of the
Uruguay Round."
168
The presence or absence of a cap to the tariff binding is not essential in determining whether or not
Chile's PBS is similar to a measure prohibited by Arti cle 4.2 or if the level of the duties is transparent
or predictable. That argument advanced by Chile could not persuade the Appellate Body during the
original proceeding. Argentina would kindly refer the Panel to the further analysis the Appellate Body
developed with respect to this issue in paras. 255 to 259 to its Report.

37. In paragraph 23 of its report in Chile – Price Band System , the Appellate Body stated
that "[while t]here is no Chilean legislation or regulation, which specifies the international
'markets of concern' to be used to calculat e the applicable reference prices" it seemed,
nevertheless, "that the markets and qualities cho sen [were] intended to be representative of
products actually 'liable' to be imported to Chile." Argentina notes as much in paragraph 39 of
its first written submission. Does Argentina co nsider that the markets and the qualities chosen
in the amended PBS to calculate the reference prices are likewise intended to be representative
of products actually "liable" to be imported in to Chile? If not, in what respect does the fact
that markets and qualities are now explicitly indi cated make it less likely than before that they
would be intended to be representative?

Answer to Question 37

The markets and the qualities cho sen in the amended PBS to cal culate the reference prices are not
representative of products actually "liable" to be imported into Chile. The fact that markets and
qualities are now explicitly indicated has only clarify th at, by not taking into account all the relevant
markets and qualities of concern for the calculati on of the reference prices, the amended PBS
insulates Chile's market from international price developments.

In its First Written Submission, in its Rebuttal a nd its Oral Statement, Argentina pointed out the
problems with the markets and the qualities chosen in the amended PBS to calculate the reference
prices.

The fact that the amended PBS provides that the sa me reference price still applies to all goods falling
within the same product category, regardless of the origin of the goods, and regardless of the
transaction value of the shipment, means that the Chilean market is disconn ected from international
price developments, as referred by Argentina in its answer to question N° 15. Argentina has
demonstrated that the amended PBS reference prices, by the way they are established, are neither
transparent nor predictable and insulate the Chilean market from international price developments.

Regarding the fact that the amended PBS provides that the same reference price still applies to all
goods falling within the same product category, re gardless of its origin, Argentina has already
highlighted that, contrary to what the Appellate Body established,
169 Chile did not explain how the
qualities and markets of concern were selected. As in the case of the PBS in its original form, there is
no legislation or regulation governing the amended PBS that specifies how or on what basis the
"markets of concern" and "qualities of concern" are selected. Therefore, the reference price selection
process has not been transparent.

168 Chile – Price Band System, Report of the Appellate Body, para. 254 (footnotes omitted)
169 Chile – Price Band System, Report of the Appellate Body, para 249.

The disconnection of the amended PBS reference pr ices from the international price developments
also derives from the fact that Chile's amended PBS establishes the references prices based on only
two qualities of concern, namely "Bread Wheat, Argentine Port" and "Soft Red Winter". However, as
it was already stated, there are many types or qualitie s involved in the international trade of wheat. As
Argentina has shown from Chile's own records 170, there are at least two other qualities or types of
wheat relevant for Chile ("Soft White Winter No 2" and "Western White Winter No 2").

What is worse is that among the -at least- four relevant qualities and markets of concern shown by
Argentina on the basis of Chile's own records, Chile chose those qualities that since 1991 have been
the lowest priced
. Thus, the gap between the reference price and the floor price is further expanded,
more duties are levied and the entry price is higher than if Chile took into account all the qualities of
concern, disconnecting also in this way the amended PBS reference prices from the international price
developments.

Even if that was not enough, Argentina has also shown
171 that Chile does actually import wheat of
qualities different from those used for the calculation of the reference prices. Thus, not only Chile
imports wheat of qualities different from those ta ken into account for the establishment of the
reference prices but also Chile applies to tho se imports reference prices based on the two
predetermined qualities of concern established by the amended PBS.

On the other hand, the reference prices also insu late the Chilean market from international price
developments as a result of their being established on the basis of the average of the daily prices
recorded on only two predetermined markets
. That predetermination of the markets prevents Chile
from ensuring that the reference prices are representative of actual world market prices.

Regarding the insulation consequen ces deriving from the fact that the amended PBS reference prices
are based on only two predetermined markets of con cern, Argentina has already recalled that bread
wheat is sold -at least- in two other markets th an the ones selected by Chile and which are not
reflected on the reference price: Chicago and Kansas. 172 Thus, the fact that the legislation specifies
that only two markets are to be regarded as being of concern for the determination of reference prices
disconnects Chile's domestic market from international price developments.

Argentina has already pointed out the problems relate d to the selection of the daily price quoted for
"Bread Wheat, Argentine Port " as the basis for establishing the market of concern for the first half of
the year is not transparent either, since the prices vary with the choice of Argentine port. Moreover, as
Argentina has demonstrated in Exhibit ARG-32, the quotation " Bread Wheat, Argentine Port " (or its
translation to Spanish "Trigo Pan Puerto Argentino") is not published by SAGPyA on a daily basis. 173
Chile did not provide evidence of the quotation " Bread Wheat, Argentine Port ", under that specific
denomination, being published by SAGPyA on a da ily basis, which is the only basis on which the
15-day reference prices can be calculated.174

170 Exhibit ARG-33.
171 Exhibit ARG-34.
172 First Written Submission by Argentina, para. 218.
173 See SAGPyA's web page: http://www.sagpya.mecon.gov.ar/scripts/0-2/fobtodo.asp
174 The only evidence submitted by Chile arguing that SAGPyA publishes the quotation " Bread Wheat,
Argentine Port " (FOB Puertos Argentinos), CHL-12 and CHL-14, shows FOB prices on a monthly basis.
Argentina stresses again that the reference price is calculated on the average of a 15-day period. Therefore, only
quotations on a daily basis, as the ones submitted by Argentina in Exhibit ARG-32, are useful for that
calculation.

Therefore, unless Argentina had initiated this disput e, wheat and wheat flour exporters from all over
the world would have not
 known where to look for the future reference price. No matter what
"abilities" and market knowledge the exporters had 175, it would have been very difficult for them to
establish the future amount of duties resulting from the difference between an intransparent future
reference price and the floor price. In fact, wheat and wheat flour exporters will not find the quotation
"Bread Wheat, Argentine Port " ("Trigo Pan Puerto Argentino") on a daily basis because it is not
published by SAGPyA on that basis.

Regarding the problems with the source for the establishment of the reference prices for the second
semester (Soft Red Winter No.2 wheat), Chile gave an ex-post clarification stating that it uses the
information from the Chicago Board of Trade (http://www.cbot.com).
176 In this case, as Argentina has
already pointed out, the information is not publicly av ailable; it is paid information. It is an extra
charge exporters face for accessing the Chilean market.177

Summing up, through the reference prices, the amen ded PBS impedes the transmission to the Chilean
market of the prices of other qualities of wheat. By not taking into account all the relevant markets
and qualities of concern for the calculation of the re ference prices, the amended PBS also insulates
Chile's market from international price developments. In fact, if an exporter ships any other type or
quality of wheat rather than "Bread Wheat, Argentine Port" or "Soft Red Winter No. 2", Chile will
apply to that shipment a referenc e price and levy specific duties based on one of those two qualities,
different from the quality actually being imported.

It is worth recalling at this point what the Appellate Body found:

"… the reference price used under Chile's Price band system is certainly not
representative of an average of current lowest prices found in all
 markets of
concern."178
38. With respect to the previous Question, can Argentina comment on the relevance of its
assertion during the substantive meeting with th e Panel, regarding the fact that the amended
PBS would not reflect Canada's relevance in Chilean foreign trade of wheat, nor would
Canadian prices be reflected in Chile's internal markets.

Answer to Question 38:

Regarding the fact that the amended PBS would not reflect Canada's relevance in Chilean foreign
trade of wheat, nor would Canadian prices be refl ected in Chile's internal markets, as Argentina
asserted during the substantive meeting with the Panel, that is another proof that the amended PBS is
certainly not representative of prices found in all markets of concern and of the current world market
price.179

Chile has tried to justify the establishment of the reference prices based on FOB prices in Argentina
and United States, because according to Chile, "[ i]n the last six years (2000-2006) 40 per cent of
Chilean wheat imports came from the United States and 31 per cent from Argentina"
180, Argentina has

175 First Written Submission by Chile, para. 162.
176 Rebuttal by Chile, para. 73.
177 See http://www.esignal.com/cbot/pricing/default.asp. Esignal.com is a sub page (link) of
CBOT.com where pricing information is provided.
178 Chile – Price Band System, Report of the Appellate Body, para. 249 (Emphasis in the original,
underlining added).
179 Chile – Price Band System, Report of the Appellate Body, para. 249.
180 Rebuttal by Chile, para. 72.

demonstrated that, according to Chile's official source, for the period during which the amended PBS
has been in force 181, Canada has always been a larger exporter of wheat to Chile than the United
States, either in volume as well as in amount.

In Exhibit ARG-31, first page, it is possible to observe that in 2004 Canada exported around
54 thousand tons of wheat while the United States accounted for almost 40 thousand tons. The second
page of the same Exhibit shows wheat imports to Chile for 2005, where the difference between
Canada and the United States is even larger: Canada accounted for almost 40 thousand tons while the
United States accounted for around 20 thousand tons.
182

Thus, it is clear that Canada has been a relevant ex porter to Chile. However for Chile's PBS, this is
meaningless. Although Canada is certainly a mark et of concern for Chile, the amended PBS will
never reflect Canada's relevance in Chilean fore ign trade of wheat, nor Canadian prices will be
reflected in Chile's internal markets.

Therefore, Chile's argument that the amended PBS "reference prices now correspond to f.o.b. prices
on the two markets of most concern for Chile"
183 is baseless.

To put it in the Appellate Body words, it is not by any means certain that the reference price used
under the PBS is representative of the current world market price, and it is certainly not representative
of prices in all markets of concern.
184

39. Argentina has noted in paragraphs 41 and 219 of its first submission and then in
paragraphs 131 and 132 of its rebuttal, that und er the amended PBS there is no indication of
which Argentine port is of concern for the purposes of calculating the reference price. Could
Argentina clarify whether, in its view, Chile is under a legal obligation to identify such ports
and, if so, could Argentina identify the relevant legal basis in the WTO covered agreements.

Answer to Question 39

Chile's obligation is to provide a transparent and predictable border measure. The relevant legal basis
in the WTO covered agreements not to maintain an intransparent and unpredictable border measure is
Article 4.2 of the Agreement on Agriculture and its footnote 1.

When finding the original PBS inconsistent with Article 4.2, the Appellate Body, inter alia, held:

"… [W]e place considerable importance on the intransparent … way in which the
"highest and lowest f.o.b. prices" that have been selected are converted to a c.i.f. basis
by adding 'import costs'. As Chile con cedes, no published legislation or regulation
sets out how these "import costs" are calculated.
In addition to the lack of transparency … inherent in how Chile's price bands are
established, we see similar shortcomings in the way the other essential element of
Chile's price band system—the reference price—is determined …"
185

181 Exhibit ARG-31.
182 In the written version of the Oral Statement by Argentina, para. 54, where it reads "million" it
should be read "thousand"; where it reads "millions" it should be read "thousands". Argentina's argument is not
altered in its substance.
183 Rebuttal by Chile, para. 72.
184 Chile – Price Band System, Report of the Appellate Body, para 249.
185 Chile – Price Band System, Report of the Appellate Body, paras 246 in fine and 247.

The fact that no legislation set out how the price bands were calculated, led the Appellate Body to find
the lack of transparency to be inherent in how Chile's price bands were established.

Similarly, the fact that Law 19.897 and Decree 831/2003 do not set out which Argentine port is of
concern for the purposes of calculating the reference price lead to the conclusion that the calculation
of the reference prices is not transparent.

Therefore, Chile is under the legal obligation to i ndicate which Argentine port is of concern for the
purposes of calculating the reference price.

Further to Law N° 19.897, Decree N° 831/2003 states in its Article 7 that the reference price for
wheat will correspond to the averag e daily prices recorded in the most relevant markets over a period
of 15 calendar days counted backwards from the tenth day of the month in which the decree is
published. In its turn, Article 8 establish the most relevant markets for wheat in Chile and provide
that, during the application period extending from 16 December to 15 June of the following year, the
most relevant market will be that for Argentine bread wheat and the prices will correspond to the
daily prices quoted for that product f.o.b. Argentine port.

Argentina has already pointed out the problems with the sources for the reference price.

Chile stated that for the first semester "the sour ce of information is the Department of Agriculture,
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".
186

However, Argentina has already shown in Exhi bit ARG-32 that the quotation "Bread Wheat,
Argentine Port" is not published by SAGPyA on a daily basis.
187 Chile did not provide evidence of the
quotation " Bread Wheat, Argentine Port ", under that specific denomination, being published by
SAGPyA on a daily basis, which is the only basis on which the 15-day reference prices can be
calculated.188

Therefore, unless Argentina had initiated this disput e, wheat and wheat flour exporters from all over
the world would have not
 known where to look for the future reference price. No matter what
"abilities" and market knowledge the exporters had 189, it would have been very difficult for them to
establish the future amount of duties resulting from the difference between an intransparent future
reference price and the floor price. Now, it is clear that SAGPyA does not publish what Chile affirms.
In fact, wheat and wheat flour exporters will not find the quotation " Bread Wheat, Argentine Port "
("Trigo Pan Puerto Argentino") on a daily basis because it is not published by SAGPyA on that basis.

In fact, the legislation enforcing the amended PB S is intransparent and inaccurate and leads to
confusion. Thus, the fact that that under the am ended PBS there is no indication of which Argentine
port is of concern for the purposes of calculating the reference price is another cumulative factor that
makes the amended PBS inconsistent with Article 4.2 of the Agreement on Agriculture.

186 Rebuttal by Chile, para. 73.
187 See SAGPyA's web page: http://www.sagpya.mecon.gov.ar/scripts/0-2/fobtodo.asp
188 The only evidence submitted by Chile arguing that SAGPyA publishes the quotation " Bread Wheat,
Argentine Port " (FOB Puertos Argentinos), CHL-12 and CHL-14, shows FOB prices on a monthly basis.
Argentina stresses again that the reference price is calculated on the average of a 15-day period. Therefore, only
quotations on a daily basis, as the ones submitted by Argentina in Exhibit ARG-32, are useful for that
calculation.
189 First Written Submission by Chile, para. 162.

As the Appellate Body found with respect to the original PBS and Argentina maintains with respect to
the amended PBS,

"… These additional features include a lack of transparency and a lack of
predictability in the level of duties that will result from such measures. This lack of
transparency and this lack of predictab ility are liable to restrict the volume of
imports… [A]n exporter is less likely to sh ip to a market if that exporter does not
know and cannot reasonably predict what the amount of duties will be. This lack of
transparency and predictability will also cont ribute to distorting the prices of imports
by impeding the transmission of international prices to the domestic market."
190
40. Argentina has noted in paragraph 66 of its first submission that "[s]o far the bimonthly
decrees [under the amended PBS] appear not to i ndicate the reference price calculated for each
period". Could Argentina clarify whether, in its view, this particular fact per se would make the
amended measure inconsistent with the WTO c overed agreements and, if so, could Argentina
identify the relevant legal basis.

Answer to Question 40:

The particular fact that the bimonthly decrees appear not to indicate the reference price calculated for
each period is another cumulative factor that makes the amended PBS inconsistent with the WTO
covered agreements.

The legal basis in the WTO covered agreements not to maintain a border measure intransparent and
unpredictable is Article 4.2 of the Agreement on Agriculture and its footnote 1.

Regarding the context of the terms in footnote 1, the original Panel in these proceedings found that:

"… all the measures listed there are instrume nts which are characterized either by a
lack of transparency and predictability, or impede transmission of world prices to the
domestic market, or both."
191
Moreover, the original Panel also observed:

"… several crucial stages of the operation of the Chilean PBS are characterized by a
considerable lack of transparency and pred ictability. For instance, exporters can be
expected to have difficulties knowing how th e applicable Reference Price is arrived
at."192
Those findings are completely applicable to the amended PBS.

Finally, in its analysis of whether the original PBS was a border measure similar to a variable import
levy and a minimum import price, the original Pa nel in these proceedings found, in a finding not
reversed by the Appellate Body:

"… we have already highlighted the feat ures of the Chilean PBS which reveal its
intrinsically unstable, intransparent and unpredictable nature, as well as the

190 Chile – Price Band System, Report of the Appellate Body, para. 234. (Footnote omitted).
191 Chile – Price Band System, Report of the Panel, paragraph 7.34.
192 Chile – Price Band System, Report of the Panel, paragraph 7.44.

insulation of the domestic market from international price competition which it
achieves ..."
193 (Emphasis added)
Regardless the fact it did not find useful to endor se the characteristics identified by the Panel as being
of a "fundamental" nature, the Appellate Body established in paragraph 234 of its Report:

"… [T]his lack of transparency and this lack of predictability are liable to restrict the
volume of imports … This lack of transparency and predictability will also contribute
to distorting the prices of imports by impeding the transmission of international prices
to the domestic market."
Moreover, in paragraph 258 of its Report the Appellate Body held:

"… significant for traders, also, are the l ack of transparency of certain features of
Chile's price band system …"
As the Appellate Body held with respect to the original PBS
194 and Argentina maintains with respect
to the amended PBS:

"… we reach our conclusion [regarding th e inconsistency with the WTO covered
agreements] on the basis of the particular configuration and interaction of all these
specific features of Chile's price band system …" (Underlining added)
41. Argentina has noted in paragraph 183 of its first submission that "the amended PBS
does not ensure that the price of wheat flour impo rts falls in tandem with the falling prices of
wheat flour on the world market". Argentin a has added in paragraph 187 of its first
submission that, "[b]y not fully reflecting falls in world prices in domestic prices and impeding
the transmission of international price develo pments to the Chilean market..." the amended
PBS is inconsistent with Article 4.2 of the Agreement on Agriculture. Could Argentina clarify
whether, in its view, there is a legal obligation under the WTO covered agreements that a
measure such as Chile's PBS should: (i) ensure that entry prices of imports rise or fall in
tandem with rising or falling world market prices; (ii) fully reflect any increases or falls in
world prices in domestic prices; and, (iii) ensure the transmission of international price
developments to the relevant domestic market. If so, could Argentina identify the relevant legal
basis for such obligation.

Answer to Question 41

The legal basis for such an obligation is Article 4 of the Agreement on Agriculture, which is the main
provision of Part III of that Agreement and, as its title indicates, deals with "Market Access". The
provision that more specifically address the obligation reproduced in the Panel's question 41 is
Article 4.2.

Article 4.2 states in its relevant part:

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

1These measures include quantitative import r estrictions, variable import levies,
minimum import prices, discretionary import licensing, non-tariff measures
maintained through state-trading enterpri ses, voluntary export restraints, and similar
border measures other than ordinary customs duties…
Footnote 1 together with Article 4.2 provide that, by not being ordinary customs duties, quantitative
import restrictions, variable import levies, minimum import prices, discretionary import licensing,
non-tariff measures maintained through state-trad ing enterprises, voluntary export restraints, and
similar border measures other than ordinary customs duties, shall not be maintained, resorted to, or
reverted to.

In other words, all the measures listed in footnote (including similar border measures) are inconsistent
with Article 4.2 because they are not ordinary cust oms duties and cannot be maintained, resorted to,
or reverted to.

The Appellate Body stated that those measures ha ve also in common that they disconnect domestic
prices from international price developments, and thus impede the transmission of world market
prices to the domestic market:

"… we note that all of the border measures listed in footnote 1 have in common the
object and effect of restricting the volumes, and distorting the prices, of imports of
agricultural products in ways different from the ways that ordinary customs duties do.
Moreover, all of these measures have in common al so that they disconnect domestic
prices from international price developments , and thus impede the transmission of
world market prices to the domestic market."195 (Underlining added)
If the measures listed in footnote 1 impede the transmission of world market prices to the domestic
market and by being maintained, resorted to or reve rted to, violate Article 4.2, therefore Article 4.2
includes the legal obligation that a border meas ure (such as Chile's PBS) should ensure the
transmission of international price developments to the relevant domestic market.

The Appellate Body also found that:

"Variable import levies" have additiona l features that undermine the object and
purpose of Article 4, which is to achieve improved market access conditions for
imports of agricultural products by perm itting only the application of ordinary
customs duties. These additional features include a lack of transparency and a lack of
predictability in the level of duties that will result from such measures … This lack of
transparency and predictability will also cont ribute to distorting the prices of imports
by impeding the transmission of international prices to the domestic market
.196
(footnotes omitted, underlining added)
If variable import levies, by lacking transparen cy and predictability, impede the transmission
international prices to the domestic market, and by being maintained, resorted to or reverted to,
violate Article 4.2, therefore Article 4.2 includes the legal obligation that a border measure (such as
Chile's PBS) should ensure the transmission of international prices to the domestic market.

195 Chile – Price Band System, Report of the Appellate Body, para. 227.
196 Chile – Price Band System, Report of the Appellate Body, para. 233.

The Appellate Body went further and found:

In our view—even though Chile's price bands are set in relation to world prices from
a past five-year period—Chile's price band system can still have the effect of
impeding the transmission of international price developments
 to the domestic market
in a way similar to that of other cat egories of prohibited measures listed in
footnote 1.197
If the measures listed in footnote 1 have the effect of impeding the transmission of international price
developments to the domestic market and by being maintained, resorted to or reverted to, violate
Article 4.2, therefore Article 4.2 includes the lega l obligation that a border measure (such as Chile's
PBS) should ensure the transmission of internatio nal price developments to the relevant domestic
market.

Furthermore, the Appellate Body highlighted several characteristics of the original PBS that had the
effect of impeding the transmission of international price development to Chile's market:

"… Therefore, the way in which Chile's weekly reference prices are determined
contributes to giving Chile's price band system the effect of impeding the
transmission of international price developments to Chile's market.198
… continuing with our hypothesis, even if we were to assume that one of the two
parameters––Chile's annual price band thresholds––does not distort the transmission
of world market prices to Chile's market, it would nevertheless remain that the other
parameter––Chile's weekly reference pri ces––is liable to distort—if not disconnect—
that transmission by virtue of the way it is determined on a weekly basis.
Consequently, even in such a hypothetical case, the duties resulting from Chile's price
band system, which are equal to the differ ence between these two parameters, would
not transmit world market price developments to Chile's market in the same way as
'ordinary customs duties'."199
In the end, just one paragraph after the above quoted, the Appellate Body concluded that the way
Chile's original PBS was designed (including the particular features identified) and its overall nature

"… [were] sufficiently 'similar' to the features of both of those two categories of
prohibited measures to make Chile's price band system—in its particular features—a
'similar border measure' within the meaning of footnote 1 to Article 4.2."
The features identified by the Appellate Body in pa ras. 250 and 251 cited above led to the conclusion
that Chile's price band system – in its particular features – was "similar border measure" within the
meaning of footnote 1 to Article 4.2. Argentina reca lls that the Appellate Body said that all of the
border measures listed in footnote 1 "… have in common also that they disconnect domestic prices
from international price developments, and thus impede the transmission of world market prices to the
domestic market."200 Therefore, Article 4.2 includes the legal obligation that a border measure (such
as Chile's PBS) should ensure the transmission of international pri ce developments to the relevant
domestic market.

197 Chile – Price Band System, Report of the Appellate Body, para. 246.
198 Chile – Price Band System, Report of the Appellate Body, para. 250.
199 Chile – Price Band System, Report of the Appellate Body, para. 251.
200 Chile – Price Band System, Report of the Appellate Body, para. 227.

Article 4.2 of the Agreement on Agriculture also includes the legal obligation that a border measure
(such as Chile's PBS) should ensure that entry pri ces of imports rise or fall in tandem with rising or
falling world market prices and reflect falls in wo rld prices in domestic prices. In this regard, the
Appellate Body said:

Therefore, contrary to what Chile contends, Chile's price band system does not
simply ensure a reasonable margin of fluc tuation of domestic prices. In our view,
"such reasonable margin of fluctuation" would mean that duties resulting from Chile's
price band system would ensure that declines in world prices would not be fully
reflected in domestic prices. However, when international prices fall
, and when the
weekly reference prices are below the lower thresholds of Chile's price bands, the
total duties applied to particular shipment s will, in many cases, result in an overall
entry price of that shipment that rises rather than falls. Therefore, Chile's price
band system does not merely moderate the e ffect of fluctuations in world market
prices on Chile's market because it does not ensure that the entry price of imports to
Chile falls in tandem with falling world market prices —albeit to a lesser extent than
the decrease in those prices. Nor does it tend only to "compensate" for these price
declines. Instead, specific duties resulting from Chile's price band system tend to
"overcompensate" for them, and to elevate the entry price of imports to Chile above
the lower threshold of the relevant price ba nd. In these circumstances, the entry price
of such imports to Chile under Chile's pri ce band system is even higher than if Chile
simply applied a minimum import price at the level of the lower threshold of a
Chilean price band. Therefore, we disagree with Chile that its price band system
simply "moderates the effect of fluctuations in international prices on Chile's market".
Chile's price band system tends to "overcom pensate" for the effect of decreases in
international prices on the domestic market when weekly reference prices are set
below the lower threshold of the relevant price band—up to the level at which Chile's
tariff binding imposes a limit on the amount of duties that can be levied.
201 (emphasis
in the original; footnotes omitted; underlining added)
In sum, in the cited paragraph, the Appellate Bo dy found that, due to the original PBS, when
international prices fell, the total duties applied to particular shipments would, in many cases, result in
an overall entry price of that shipment that rose rath er than fell. In addition, the Appellate Body found
that the original PBS did not ensure that the entry price of imports to Chile fell in tandem with falling
world market prices. Those findings (among others) led to the conclusion that Chile's original PBS
was a border measure similar to "variable import levies" and "minimum import prices" within the
meaning of footnote 1 and Article 4.2 of the Agreement on Agriculture:

We emphasize that we reach our conclu sion on the basis of the particular
configuration and interaction of all these specific features
 of Chile's price band
system. In assessing this measure, no one feature is determinative of whether a
specific measure creates intransparent and unpredictable market access conditions.
Nor does any particular feature of Chile's price band system, on its own, have the
effect of disconnecting Chile's market from international price developments in a way
that insulates Chile's market from the tr ansmission of international prices, and
prevents enhanced market access for imports of certain agricultural products.
We, therefore, uphold the Panel's finding, in paragraph 7.47 of the Panel Report, that
Chile's price band system is a "border measure similar to 'variable import levies' and

201 Chile – Price Band System, Report of the Appellate Body, para. 260.

'minimum import prices'" within the meani ng of footnote 1 and Article 4.2 of the
 Agreement on Agriculture.
202 (Underlining added)
Thus, the fact that due to the original PBS when international prices fell, th e total duties applied to
particular shipments would, in many cases, result in an overall entry price of that shipment that rose
rather than fell, and the fact that the original PB S did not ensure that the entry price of imports to
Chile fell in tandem with falling world market prices , led to the conclusion that Chile's original PBS
was a border measure similar to "variable import levies" and "minimum import prices" within the
meaning of footnote 1 and Article 4.2 of the Agreement on Agriculture. Therefore, this provision
includes the legal obligation that a border measure (such as Chile's PBS) should ensure that entry
prices of imports rise or fall in tandem with rising or falling world market prices and reflect falls in
world prices in domestic prices.

42. In paragraph 92 of its first submission, Ar gentina reads paragraph 260 of the Appellate
Body's report in Chile – Price Band System , as stating that under the previous PBS "the duties
resulting from the System ensured that falls in world prices were not fully reflected in domestic
prices" (original emphasis). Please contrast this reading with the Appellate Body's statement in
the same paragraph that a "reasonable margin of fluctuation of domestic prices... would mean
that duties resulting from Chile's [PBS] would en sure that declines in world prices would not be
fully reflected in domestic prices".

Answer to Question 42

Argentina's main argument in relation to this poi nt is that the amended PBS disconnects the Chilean
market from international price developments in a way that insulates the Ch ilean market from the
transmission of international prices203, in a manner similar to the original PBS.

Appellate Body's statement that a "reasonable marg in of fluctuation of domestic prices... would mean
that duties resulting from Chile's [PBS] would ensu re that declines in world prices would not be
fully reflected in domestic prices" means that a "moder at[ion of] the effect of fluctuations in world
market prices on Chile's market" 204 might be reasonable. However, when that statement is read in the
context of the rest of paragraph 260, it is clear th at the specific duties resulting from the Chilean price
band system tended to elevate the entry price of Chilean imports above the price band floor; that the
Chilean price band system tended to "overcompensate" for the effect of decreases in international
prices on the domestic market when weekly referenc e prices are set below the price band floor; that
the entry price of Chilean imports under Chile's pr ice band system was even higher than if Chile
simply applied a minimum import price at the level of the price band floor; and that the PBS did not
ensure that the entry price of imports to Chile fell in tandem with falling world market prices. In that
context, that "reasonable margin of fluctuation" an d that reflection of "declines in world prices … in
domestic prices" did not exist at all

Argentina has demonstrated that the amended PBS continues to elevate the entry price of imports to
Chile above the price band floor; continues to "overcompensate" for the effect of decreases in
international prices on the domestic market when re ference prices are set below the price band floor;
continues to make the entry price of Chilean imports higher than if Chile applied a minimum import
price at the level of the price band floor, and continues failing to ensure that the entry price of imports
to Chile falls in tandem with falling world market pr ices. On top of that Argentina has demonstrated

202 Chile – Price Band System, Report of the Appellate Body, para. 261-262.
203 See for example, Argentina's First Written Submi ssion, paras. 95 and 98 and Argentina's Oral
Statement paras. 121-122.
204 Chile – Price Band System, Report of the Appellate Body, para. 260.

why the amended PBS is a border measure similar to a minimum import price or a variable import
levy.

In this respect, it is clear that Chile's amended PBS does not merely moderate the effect of
fluctuations in world market prices on Chile's market. In fact, that "reasonable margin of fluctuation"
and that reflection of "declines in world prices … in domestic prices" the A ppellate Body referred to
does not exist at all
 in the amended PBS either.

43. Does Argentina consider that the fixing of price bands for a period of 11 years
constitutes a factor of insulation, despite the scheduled reduction of the band's floor and ceiling
by way of the application of the 0.985 adjust ment factor? How would Argentina define
"insulation" versus "stability", in view of Chile's explan ations in paragraphs 183 to 192 of its
first submission, regarding "gradual" market access improvement?

Answer to Question 43:

The fixing of price bands for a period of 11 years does constitute a factor of insulation, despite the
scheduled reduction of the band's floor and ceiling by way of the application of the 0.985 adjustment
factor because, as it was explained in Argentina's answer to question 34 (c), due to the factor of 0.985
the band floor and ceiling prices vary without any relation to world market or historical prices.
Neither do they vary as a function of the transact ion value, a characteristic shared by the entire
PBS.205

Thus, the floor and ceiling prices, two fundamental el ements (together with the reference prices) for
establishing the level of the specific duties applicable to wheat and wheat flour, will decrease, as from
December 2007, in a fixed, automatic and autonomous manner. That is to say, the way in which the
floor and ceiling prices are to be adjusted bears no relation to international price developments.

Even if this relation were based on an assumed decl ine in the international prices of wheat after 2007,
it is surprising how Chile could, in 2003, predic t the course of those prices over a period beginning
four (4) years later and allegedly ending eleven (11) years after the establishment of the amended
PBS.

The fixing of price bands for a period of 11 years has transformed the PBS into a more rigid and
inflexible system. Indeed, the 11-year period has th e side effect of aggravating the distortion of
domestic price vis-à-vis international ones.

In practice, the Chilean market will be insulated fro m fluctuations in the world prices for eleven years
or even more, taking into account that the amended PBS has no end date.

As Brazil stated, "… Should there be a significan t downward movement in the international wheat
prices, the 0.985 factor may not be sufficient to account for the necessary reductions in the lower and
upper thresholds of the price bands. Hence, in spite of the application of the 0.985 multiplier, one of
the main elements of the PBS (the bands themselves ) will remain virtually unchanged for more than a

205 Note that the Appellate Body held that even if it were assumed that one feature of Chile's price band
system was not similar to the features of "variable import levies" and "minimum import prices" because the
thresholds of Chile's price bands varied in relation to—albeit historic—world market prices rather than domestic
target prices, this would not change its overall assessment of Chile's price band system (Report of the Appellate
Body, paragraph 251).

decade, preventing the fluctuation of internati onal prices from being transmitted to the Chilean
market."
206

Chile's explanations in paragra phs 183 to 192 of its first submi ssion regarding "gradual" market
access improvement are baseless. As Argentina has al ready pointed out, there are several errors in
those explanations:

First, what Chile argues that "… the period of applic ation of duties under the new regime was shorter
by 10 weeks, while that of rebates was longer by 8 weeks, which represents an effective increase in
favourable conditions for grain imports compared to what might have occurred under the mechanism
prior to modification", amounts to saying that exporte rs of wheat and wheat flour to Chile should not
be concerned about the distorting effects of the modified PBS, since under the modified PBS the
distorting effects resulting from the application of specific duties occurred "only" 17 times, whereas
under the original PBS they would have occurred 27 times. That cannot obviously represent an
improvement in conditions of access. Wheat and wheat flour exporters are not rejoiced because they
have faced distortions resulting from specific duties for "only" 17 weeks. These are Chile's grounds
for arguing that the modified PBS has improved c onditions of access. Chile's argument is without
foundation.

Access conditions continue to be unfavourable despite the duties allegedly being applied on fewer
occasions than in the case of the original PBS. Ch ile's reasoning has no basis in the WTO Agreements
and, in particular, not in the DSU or the Agreement on Agriculture. A measure taken to comply is not
"less" inconsistent because the inconsistency occurs less frequently than in the case of the original
measure. There is no basis for drawing such a conclusion.

Second, as Argentina has already stated in its Rebuttal, it is interesting to note the table which Chile
itself introduces in paragraph 183, which confirms that the modified PBS is very similar to the
original PBS. The period between 16 December 2003 and 13 January 2004, during which the
modified PBS was not applied, was 57 weeks long. This means that the PBS was applied for 52 weeks
(out of a total of 109). Following the same reasoni ng, the original PBS would not have been applied
during 55 weeks, that is to say it would have been applied during 54. Thus, the original PBS would
have been applied for 50 per cent of the time, wh ereas the modified PBS was applied for 48 per cent
of the time. Clearly, the two systems are very similar and, therefore, the degrees of distortion they
cause are also similar.

Third, regarding Chile's argument that "[T]he scheduled reduction of the floor and ceiling prices is a
scenario under which, irrespective of international price levels, the amount of the specific duties will
increasingly diminish compared to those currently being established, just as the probability of duties
actually being assessed will increasingly diminish"
207, Argentina has already stated that that argument
is simply wrong. The reality is that neither the amount of the specific duties nor the probability of
their being assessed is "irrespective of international price levels" a nd indeed the opposite is true: the
amount of the specific duties and the probability of their being assessed do depend on international
price levels.

Both Law 19.897 and Decree 831/2003 refer to precisel y that, i.e., the dependence of the amount of
the specific duties on international price levels in the following terms: "The amount of such duties and
rebates shall be established … in terms which, when applied to the price levels attained by the
products in question on the international markets , allow domestic market stability." (Underlining
added)

206 Chile – Price Band System … Recourse to Article 21.5 of the DSU, Third Party Submission by
Brazil, paragraph 15.
207 Chile's First Written Submission, paragraph 186.

In addition, as Argentina showed in its Rebuttal , this is also clear from the following simple example:

According to the "History of application of the modified PBS"
208, between 16 December 2004 and
15 December 2005 the PBS floor price for wheat wa s (and is) US$128 per tonne. The reference price
between 16 December 2004 and 15 February 2005 was established at US$114.50 per tonne. This gave
a specific duty of US$14.30 per tonne.

In accordance with Art. 6 of Decree 831/2003, between 16 December 2011 and 15 December 2012
the PBS floor price for wheat will be US$118 per t onne. If the reference pr ice is established at
US$103.7 per tonne during any two mont hs of that year, the specific duty during that period will be
US$14.30 per tonne, the same as established on 16 Dece mber 2004. Even if the reference price is less
than US$103.7 per tonne, the specific duty will naturally be higher and not lower, as Chile argues.

When this reasoning is applied to the example gi ven by Chile in paragraphs 187 and 188 of its
submission, it becomes clear that the Chilean example has no foundation, being only necessary to
consider its basic assumption, namely, that in no less than eight years' time (2014) the reference price
will be the same as it is today (2006), according to Chile's example. The fact is that there is no
evidence for determining today that in eight years' ti me the reference price will be the same. What is
more probable is that the reference price will cha nge, as has always happened since the establishment
of the modified PBS.

Thus, the amount of the specific duties and the probability of their being assessed will depend on
international price levels. It is by no means sure that these amounts and the probability of their being
assessed will increasingly diminish, as Chile argues. The Chilean argument is incorrect and without
foundation.

In paragraph 191, Chile returns to the untenable ar gument that according to the historical wheat price
series the probability of wheat prices standing be low US$114 per tonne (i.e., the floor price in 2014)
is 23.9 per cent, as compared with 46.1 per cent for the probability of prices lying below US$128 per
tonne. Argentina has already stated the problems presented by arguments of this kind:
209

First of all and again, the modified PBS is not "less" inc onsistent because the inconsistency will arise
on fewer occasions in the future than at present. There is no basis for making an assertion of this kind.

Second, according to Chile's reasoning, there is a more than 46 per cent probability, while the floor is
situated at US$128 per tonne, of wheat and wheat fl our exporters experiencing the distortions caused
by specific duties. That is not encouraging for exporters planning to export wheat and wheat flour to
Chile up to December 2007. Argentina recalls that until then the floor price will remain at US$128 per
tonne. Therefore, the probability indicated by Chile is not at all encouraging.

Third, Chile indicates neither the source of its information nor the numerical basis for the
calculations made to arrive at the conclusion reached in this paragraph. Chile simply fails to provide
any evidence at all.

Fourth, even if Chile's reasoning had any validity, Ch ile's calculations are wrong. Chile takes only
the lowest future floor price of all those sche duled under Decree 831/2003, i.e., US$114 per tonne,
corresponding to 2014. Chile should have incorporated in its calculations a weighting that takes into
account the time during which the price of Argentine bread wheat lay below the future floor prices not
considered by Chile: 126, 124, 122, 120, 118 and 116 US$ per tonne. As those prices are all higher

208 Exhibit ARG-6.
209 Rebuttal by Argentina, paras. 231 to 238.

than US$114 per tonne, the percentage should logically be higher than the 23.9 per cent calculated by
Chile.

Argentina reiterates that the way in which the floor and ceiling of the modified PBS are established
has transformed the PBS into a more rigid and inflexible system.
210

Chile concludes in paragraph 192 by referring to a process of gradual reduction of border protection
of wheat, stating that "[B]oth of the above results – that is, the reduction of duties by 2014 and the
lesser probability of duty assessment – demonstrate th at the current policy has an in-built process of
gradual reduction of border protection of wheat".211 (original underlining)

To sum up, Chile wrongly disregards the fact that the level of specific duties resulting from the PBS
obviously depends on international pr ice levels, attempting to argue that in 8 (eight) years time the
reference price will be the same as it is at present. Moreover, Chile repeats the argument that the
modified PBS will be "less" inconsistent in the future because the inconsistency will arise on fewer
occasions than at present, while basing its case on ca lculations made without providing the source of
the evidence and without including most of the relevant period of application of the modified PBS up
to 2014.

Moreover, Chile chooses to disregard the fact that by keeping the floor and ceiling inflexible the
modified PBS insulates the domestic market from in ternational price developments. This is the basis
for its concluding that the modified PBS ("the current policy") has an in-built process of gradual
reduction of border protection of wheat. Chile's conclusion has no basis in fact or in law.

In view of the above comments on Chile's explan ations in paragraphs 183 to 192 of its first
submission, Argentina refers now to the definition of the terms "insulation" versus "stability".

The definition of " insulation", insofar as relevant, is: "protection of something from outside
influences". The definition of " stability", insofar as relevant, is: "whe n something is not likely to
move or change".
212

Taking into account the definitions cited above and the fact that both Law 19.897 and Decree
831/2003 make it mandatory for specific duties to be established "… in terms which … allow
domestic market stability
", the purpose of the amended PBS seems to be even worse than that alleged
by Argentina. The amended PBS not only insulates or "protect Chilean market from international
price developments" but what is worse, seeks not to allow domestic market prices "to move or
change", despite international price developments.

Therefore, it appears that the measures taken to comply refute by themselves Chile's argument
regarding "gradual" market access improvement.

210 As Brazil has pointed out:
"… the 11-year period has the side effect of aggravating the distortion of domestic prices vis-à-vis
international ones. While such a long period may afford some predictability, the new PBS is more rigid and
inflexible, given that, in practice, the Chilean market will be insulated from fluctuations in the world prices for
eleven years. Should there be a sign ificant downward movement in the international wheat prices, the 0.985
factor may not be sufficient to account for the necessary reductions in the lower and upper thresholds of the
price bands. Hence, in spite of the application of the 0.985 multiplier, one of the main elements of the PBS (the
bands themselves) will remain virtually unchanged for more than a decade, preventing the fluctuation of
international prices from being transmitted to the Chilean market". Chile – Price Band System … Recourse to
Article 21.5 of the DSU, Third Party Submission by Brazil, paragraph 15.
211 Chile's First Written Submission, paragraph 192.
212 Both definitions from Cambridge Advanced Learner's Dictionary in
http://dictionary.cambridge.org/.

44. Argentina has stated in paragraph 241 of its first submission that "variability is
inherent in the amended PBS since it incorporates a plan or formula that causes and ensures the
automatic and continuous modification of the levies and, moreover, lacks the required
transparency and predictability, in a manne r inconsistent with Article 4.2 of the Agreement on
Agriculture". Could Argentina clarify whether, in its view, "variability of duties" and "lack of
transparency and predictability" are two differen t and separate factors, or rather variability of
duties will necessarily be linked to a lack of transparency and predictability.

Answer to Question 44

The Appellate Body stated that:

"… at least one feature of "variable import levies" is the fact that the measure itself
– as a mechanism – must impose the variability of the duties. Variability is inherent
in a measure if the measure incorporates a scheme or formula that causes and ensures
that levies change automatically and con tinuously. Ordinary customs duties, by
contrast, are subject to discrete chang es in applied tariff rates that occur
independently, and unrelated to such an underlying scheme or formula. …"
213
In addition the Appellate Body observed:

"… [T]he presence of a formula causing automatic and continuous variability of
duties is a necessary, but by no means a sufficient, condition for a particular
measure to be a "variable import levy" with in the meaning of footnote 1. "Variable
import levies" have additional features that undermine the object and purpose of
Article 4, which is to achieve improve d market access conditions for imports of
agricultural products by permitting only the application of ordinary customs duties.
These additional features include a lack of tran sparency and a lack of predictability in
the level of duties that will result from such measures. This lack of transparency and
this lack of predictability are liable to r estrict the volume of imports. As Argentina
points out, an exporter is less likely to ship to a market if that exporter does not know
and cannot reasonably predict what the amount of duties will be. This lack of
transparency and predictability will also cont ribute to distorting the prices of imports
by impeding the transmission of international prices to the domestic market."
214
From these statements by the Appellate Body it follows that:

 (a) The presence of a formula causing automatic and continuous variability of duties is a
necessary condition for a particular measure to be a "variable import levy" within the
meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture; and, moreover,

 (b) the lack of transparency and the lack of predictability in the level of duties that will
result from the application of variable import levies are additional features that
undermine the object and purpose of Article 4 of the Agreement on Agriculture ,
which is to achieve improved market acces s conditions for imports of agricultural
products by permitting the application of ordinary customs duties only.

Therefore, the Appellate Body has clearly define d the necessary and the additional features of the
variable import levies: the presence of a formula causing automatic and continuous variability and
 the

213 Chile – Price Band System, Report of the Appellate Body, paragraph 233.
214 Chile – Price Band System, Report of the Appellate Body, paragraph 234.

lack of transparency and predictability in the leve l of duties that will result from such measures. It
results then that "variability of duties" and "lack of transparency and predictability" are two different
and separate factors. Argentina has shown how the amended PBS fulfils all the requisites and includes
the features referenced by the Appellate Body to be characterized as a variable import levy.
215

45. Could Argentina elaborate on the claim it has presented under paragraph 4 of
Article XVI of the WTO Agreement. Could Argentina formally identify the measure that would
be relevant in order for the Panel to be able to make findings regarding this claim.

Answer to Question 45

Article XVI:4 of the WTO Agreement establishes that "[E]ach Member shall ensure the conformity of
its laws, regulations and administrative procedures with its obligations as provided in the annexed
Agreements". (Emphasis added)

Thus, the relevant measures for the Panel to be ab le to make findings regarding Argentina's claim
under paragraph 4 of Article XVI of the WTO Agre ement, are both Law 19.897 and Decree 831/2003
enforcing the amended PBS. As Chile itself states, Decree 831/2003 is the regulations of
Law 19.897.
216

Insofar as the amended PBS enforced by Law 19. 897 and Decree 831/2003 infringes both Article 4.2
of the Agreement on Agriculture and the second sentence of Article II:1(b) of the GATT 1994, Chile
has not ensured the conformity of its Law 19.897 and Decree 831/2003 with its obligations under the
covered Agreements.

In the case United States – 1916 Anti-Dumping Act, the Panel established that:

"… if a provision of an 'annexed Agreement' is breached, a violation of Article XVI:4
immediately occurs. GATT 1994 is one of the 'annexed Agreements' within the
meaning of Article XVI:4. Since we found that provisions of Article VI of the
GATT 1994 has been breached, we conclude th at, by violating this provision, the
United States violates Article XVI:4 of the WTO Agreement".
217
Thus, being the amended PBS incons istent with Article 4.2 of the Agreement on Agriculture and the
second sentence of Article II:1(b) of the GATT 1994, Chile violates Article XVI:4 of the WTO
Agreement since, while the amended PBS remains in fo rce, Chile is not ensuring the conformity of its
Law 19.897 and Decree 831/2003 with its obligations under the WTO Agreements.

46. Can Argentina describe the evolution of Chilean wholesale prices of wheat and wheat
flour over the period January 2004 to February 2006? (See paragraph 154 of Chile's first
submission.)

Answer to Question 46

As stated in Argentina's Answer to question 8(c) above, "wholesale prices" should not be used for any
analytical purpose in this dispute. This variable is not relevant in this case. Neither the Panel nor the
Appellate Body addressed the notion of "wholesale prices" in this dispute. The relevant parameter of
comparison is between the FOB price and the entry price, as the Appellate Body established in

215 First Written Submission by Argentina, paras. 236 to 283. Rebuttal by Argentina, paras. 138 to 159.
216 See, for example, First Written Submission by Chile, paras. 31 and 32.
217 WT/DS162/R, Report of the Panel, paragraph 6.287.

paragraph 260 of its Report, Chile incorporates a new variable never addressed by the Appellate Body
nor by Argentina: the wholesale price.

Even if, in spite of the various reasons that, in its answer to question 8 (c) above, Argentina provided
for not using "wholesale prices" for any analytical purpose in this dispute the Panel found that
wholesale prices could be considered, it is difficult fo r Argentina to describe th e evolution of Chilean
wholesale prices of wheat and wheat flour over the period addressed by the Panel because all the
evidence that Chile has provided for the period Ja nuary 2004 to February 2006 is un unsupported
graph.

First, the graph in para. 154 of Chile's first written submission only addresses wheat wholesale prices.
Wheat flour wholesale prices are not addressed in that graph. In fact, wheat flour wholesale have not
been addressed in this dispute at all (at least not by Chile, Argentina the Appellate Body or the Panel).

Second, Chile never provided any chart or any further information that could clarify the numerical
data that could be the basis for the wheat "wholesal e prices" line plotted in that graph, as Argentina
did with all of its Exhibits. Argentina has expl ained all the problems with this graph and the
conclusions Chile draws from it.
 218 Furthermore, it is not clear what is the source of that graph. Chile
states that "The sources of the information, both da ily and monthly, are clearly indicated in all cases
(SAGPyA and ODEPA)"219, but it is clear that in para. 154 of Chile's first written submission there is
no indication of the sources of the information used to produce the graph.

Furthermore, there are inconsistencies in what Chile apparently is purporting to show. It is not clear
whether Argentine FOB price is compared against "Chilean wheat prices", "wheat wholesale prices"
or just against the "entry price":

• In paragraph 154 Chile states: "The graph below shows the trends in Chilean wheat
prices and in f.o.b. prices of Argentine bread wheat…"
• The legend of the graph reads "wheat wholesale price"
• In paragraph 155 Chile states: "What clearly emerges is that the entry price of wheat
exhibits the same behaviour as its f.o.b. price…"
During the meeting of this Panel with the parties, Chile exposed in a PowerPoint presentation what
appeared to be the same graph. Argentina specifically asked, through an oral question, if that graph
showed the same wheat wholesale prices Chile had in cluded in its graph in paragraph 154 of its first
submission. Chile's answer was affirmative. Ho wever, in spite of Chile's announces during the
audience, Argentina neither received an electronic or paper copy of that graph nor was provided with
the remaining PowerPoint computer presentation. In fact, Argentina has never seen the numerical
basis of that graph.

In spite of all these inconveniences resulting from Chile 's lack of clarity and, what is worse,
supporting evidence, Argentina made its best effort to describe what it can be observed in that
graph.220

A careful study of the graph, including a comparis on of the trends of each the "bread wheat FOB
Argentine port price" (lower line) and the "wheat wholesale price" (upper line), reveals that during

218 See Rebuttal by Argentina, para. 61- 66 and Oral Statement by Argentina 30-31.
219 See Rebuttal by Chile, footnote 25.
220 Rebuttal by Argentina, paras. 68-70.

most of the period both prices moved in different directions. In fact, both prices showed an opposite
trajectory during the following periods:

• February-March 2004
• March-April 2004
• May-June 2004
• June-July 2004
• July-August 2004
• August-September 2004
• September-October 2004
• December 2004-January 2005
• January-February 2005
• February-March 2005
• April-May 2005
• May-June 2005
• July-August 2005
• September-October 2005
• November-December 2005

Therefore, Chile statements that "[t]he price cu rves indicate that…the variation [of Chilean wheat
prices] is very similar to that of export prices of Argentine wheat …"
221 and "the entry price of wheat
exhibits the same behaviour as its f.o.b. price, which demonstrates price transmission and therefore
the connection between the Chilean and the international market" 222 are baseless from every point of
view.

ANNEX F-2

REPLIES BY ARGENTINA TO QUESTIONS POSED
BY THE EUROPEAN COMMUNITIES

Argentina thanks the EC for its contribution to the further clarification of the substantive obligations
derived from Article 4 of the Agreement on Agriculture.

102. Argentina argues that the Price Band System (PBS) is not predicta ble, because traders
cannot predict future developments of commodity markets, and hence cannot calculate what the
PBS duties will be in the future.

 (a) The EC notes that a WTO Member may:

(i) increase an applied duty within a bound rate without notice (Article X
GATT only requires prompt publication); and,

(ii) impose anti-dumping duties or apply a provisional safeguard measure in
certain circumstances without notice being provided to economic
operators.

 Assuming, as Argentina argues, that traders cannot predict future price
developments (despite e.g. the existen ce of futures markets etc) but, accepting
that all the other elements of the functioning of the PBS are made public, what
makes the PBS less predictable
 than the examples of governmental action given
in (i) and (ii) above?

Answer to Question 102(a):

Argentina's argument is that "the lack of transparen cy and the lack of predictability of the duty level
that result from the amended PBS are additional f eatures that undermine the object and purpose of
Article 4 of the Agreement on Agriculture". 1 This is because an exporter is less likely to ship to a
market if that exporter does not know and cannot reasonably predict what the amount of duties will
be, as the case is with the amended PBS. 2 The Appellate Body found the original PBS inconsistent
because, inter alia , the lack of transparency and the lack of predictability of the duty level was an
additional feature undermined the objective of achieving improved access conditions for imports of
agricultural products.3

With regard to the EC question, the Appellate Body stated, "… the existence of [a] tariff binding will
not eliminate the distortion in the transmission of world market prices to Chile's market … where the
combination of the duties resulting from Chile's price band system, when added to the applied
ad valorem duty rate, remains below Chile's bound rate of 31,5 per cent ad valorem".
4

1 First Written Submission by Argentina, para. 271 and ss. (underline added).
2 Rebuttal by Argentina, para. 128 and ss., Oral Statement by Argentina, para. 76 and ss.
3 Chile – Price Band System, Report of the Appellate Body, para. 234.
4 Chile – Price Band System, Report of the Appellate Body, para. 257.

Argentina has extensively explained why the le vel of duties resulting from the amended PBS is
neither transparent nor predictable.
5 In particular, the answer to the EC question in relation to point (i)
was provided in Argentina's Oral Statement, para 70 and ss.

In particular, it is obvious that applied duties can change and no one can guarantee otherwise. That is
what happens with any ordinary customs duty. Ho wever, unlike the amended PBS, ordinary customs
duties are expressed in the form of ad valorem or specific duties rates, are not similar to variable
import levies or minimum import prices, do not incl ude a formula that causes import duties to vary
automatically and continuously and, on top of that , they are transparent and predictable. The presence
or absence of a cap to the tariff binding is not essen tial in determining whether or not Chile's PBS is
similar to a measure prohibited by Article 4.2. Th at argument could not pers uade the Appellate Body
during the original proceeding.

In the case of the amended PBS, what is guaranteed is that, due to the PBS, if the required conditions
are met, an exporter will mandatorily face a different duty every two months.
6 In fact, contrary to
what Chile has asserted in its submissions 7, the PBS Law and Regulation give no discretion to Chile
to decide whether or not to impose the duties: if the reference prices fall below the band floor, specific
duties will be levied. In fact, the lack of transparency and predictability are inherent to the amended
PBS, because of the reasons Argentina has described.

With respect to point (ii) of EC's questions, it is strange that the EC tries to compare the amended PBS
with anti-dumping duties when Article II:2 GATT 1994 explicitly provides that anti-dumping duties
are not
 ordinary customs duties. In that sense, the Appellate Body said:

As context for this phrase in Article 4.2 of the Agreement on Agriculture, we observe
that Article II:2 of the GATT 1994 sets out examples of measures that do not qualify
as either "ordinary customs duties" or "o ther duties or charges". These measures
include charges equivalent to internal taxes, anti-dumping and countervailing duties,
and fees or other charges commensurate with the cost of services rendered. They too
may be based on the value and/or vol ume of imports, and yet Article II:2
distinguishes them from "ordinary customs duties" by providing that "[n]othing in
[Article II] shall prevent any Member from imposing" them "at any time on the
importation of any product".
8
 (b) Again, assuming that traders cannot predict future price developments, and
that, for commodity products, the actual price which an operator sells for is
determined by international markets, how can a trader predict the monetary
equivalent of an ad valorem tariff ? To take an example, with an ad valorem
tariff of 30%, if international prices are at $100 the tariff will be $30, if they are
at $150 the tariff will be $45 and if they a re at $50 the tariff will be $15. Recall
also that commodity prices can fluctuate substantially in periods significantly
shorter than 2 months. Can Argentina explain why the fixed specific duties of
the PBS are less predictable
 than the monetary equivalents of ad valorem tariffs?

5 First Written Submission by Argentina, para. 271 an d ss., Rebuttal by Argentina, para. 89 and ss, 138
and ss.
6 Rebuttal by Argentina, para. 145.
7 First Written Submission by Chile, para. 93 and Rebuttal by Chile para. 101 and 120.
8 Chile – Price Band System, Report of the Appellate Body, para. 276.

Answer to Question 102(b):

One of the differences betw een the amended PBS and an ad valorem duty is that, as stated before, in
the case of the amended PBS, what is guaranteed is that, due to the PBS, if the required conditions are
met, an exporter will mandatorily face a different duty every two months.9

The lack of predictability of the amended PBS is not similar to the predictability ad-valorem duties
can offer. This is because ad valorem duties do not change as a result of a pr e-established mathematic
formula inherent to those measures that guarantees the duties will vary when international prices in
relevant markets fall, as a consequence of a floor and a ceiling price, reference prices based on
predetermined markets and qualities of concern, a fact or of 1,56 and a coefficient of 0,985. Therefore,
ad-valorem duties are more predictable.

Specific duties are not "fixed" as the EC states. They are variable, and are liable to vary every two
months as far as the reference price is below the floor price. If there's any predictability related to the
specific duties, quod non , that predictability is short lived, because it will end after 60 days. In
accordance to what the United States stated during the meeting of Panel with third parties, we cannot
see, nor Chile has identified, a basis for a distin ction between a variation once every two months
rather than once every week.
10

As regards for the monetary equivalent the EC points out, as Argentina already pointed out, the
amount levied by ordinary specific duties does not vary when international prices change. In those
cases, what varies is the amount of the duty in relative terms (percentage ) with respect to the
international price but, usually, the absolute amount does not change. In the case of the amended PBS,
following the decline of the reference prices below the price band floor, the amount of the duty varies
in relative and absolute
 terms.11

103. In para. 273 of the Appellate Body report in the original dispute, the Appellate Body
states:

Surely Members will ordinarily take into account the interests of domestic
consumers and domestic producers in setting their applied tariff rates at a
certain level. In doing so, they will doubt less take into account factors such as
world market prices and domestic price developments. These are exogenous
factors, as the Panel used that term . According to the Panel, duties that are
calculated on the basis of such exogenous factors are not ordinary customs
duties. This would imply that such duties be prohibited under Article II:1(b) of
the GATT unless recorded in the "other duties or charges" column of a
Member's Schedule. We see no legal basis for such a conclusion.253
Footnote 253 reads:
We stated in Argentina – Textiles and Apparel , supra,[ ], para. 46, that "a tariff
binding in a Member's Schedule provides an upper limit on the amount of duty
that may be imposed, and a Member is permitted to apply a rate of duty that is
less than that provided for in its Schedule." Thus, the fact that the "cap"
(recorded in the ordinary customs duty" column of a schedule) is a specific or an
ad valorem duty does not mean that a Member will not apply a tariff at a lower
rate, or that the rate it applies will not be based on what the Panel calls

9 Rebuttal by Argentina, para. 145.
10 Oral Statement by the United States, para. 13.

"exogenous" factors. Indeed, as we noted above, it is difficult to conceive that a
Member would ever make changes to its applied tariff rate except based on
exogenous factors such as the interests of domestic consumers or producers.
[underlining added]
 (a) If a Member may change its tariff on the basis of developments in world
markets, and that tariff is considered an "ordinary customs duty", why is it that,
when a tariff is changed on the basis of a formula which reflects developments in
world markets, it is not an "ordinary customs duty" ? (Argentina argues that it
is a "similar border measure other than [an] ordinary customs dut[y]" in the
sense of footnote 1 to Article 4.2.)

Answer to Question 103(a)

First, the object of these proceedings are not the resulting duties, but the underlying measure, the
amended PBS.

Second, contrary to what the EC state, the fact that a Member may change its tariff on the basis of
developments in world markets does not mean that that tariff is an "ordinary customs duty". Although
the Appellate Body said that the duties resulting from the original PBS took the same form as
"ordinary customs duties", it underlined that it was not saying that they were ordinary customs duties
and that it was not trying to qualify them as "ord inary customs duties" or as "any other duties or
charges"
12

Indeed, the Appellate Body said that "… the fact th at the duties that result from the application of
Chile's price band system take the same form as 'ordinary customs duties' does not imply that the
underlying measure is consistent with Article 4.2 of the Agreement on Agriculture"
13

Third, it is obvious that Members can and will do ubtless take into account factors such as world
market prices and domestic price developments. However, the Appellate Body clearly stated that
"[o]rdinary customs duties…are subject to discret e changes in applied tariff rates that occur
independently, and unrelated to…a n underlying scheme or formula".
14 There is no doubt that the
amended PBS is related to a scheme or formula that cau ses the variation of the resulting duties.
Furthermore, according to the Appellate Body15, in order to be an ordinary customs duty, the amended
PBS should be expressed in the form of ad valorem or specific rates. However, A plain reading of
Law 19.897 and Decree 831/2003 16, the legislation enforcing the amended PBS, shows that this
measure is not expressed in the form of " ad valorem or specific rates". There is no ad valorem or
specific rate expressed in those measures. To the contrary, the amended PBS is a complex mechanism
that, as a border measure, has no resemblance with an ordinary customs duty.

 (b) In Argentina – Textiles and Apparel the Appellate Body held that the DIEM
system applied by Argentina was consistent with Article II.1(b) GATT (provided
kept within the relevant binding), and thus an "ordinary customs duty". The
DIEM system consisted of the calculation of specific duties derived from
"representative international prices" which were "adjusted from time to time".

12 Chile – Price Band System, Report of the Appellate Body, footnote 254.
13 Chile – Price Band System, Report of the Appellate Body, para. 279.
14 Chile – Price Band System, Report of the Appellate Body, para. 233.
15 Chile – Price Band System, Report of the Appellate Body, para. 277.
16 See ARG-1 and ARG-2.

 With the exception of the fact that the DIEM system representative prices were
re-calculated from "time to time" and the PBS duties are re-calculated
according to a known schedule, can Argentina identify any material differences
between the DIEM system and the PBS that leads to the conclusion that one is an
"ordinary customs duty" and the other is not ?

Answer to Question 103(b)

It is remarkable that the case the EC recalls s upports Argentina's and not Chile's arguments in these
proceedings.

First, the EC errs when stating that In Argentina – Textiles and Apparel the Appellate Body held that
the DIEM system applied by Argentina was consistent with Article II.1(b) GATT. Contrarily, the
Appellate Body finding in that case was that the DI EM regime was inconsistent with Argentina's
obligations under the WTO:

Argentina has acted inconsistently with its obligations under Article II:1(b), first
sentence, of the GATT 1994, because the DIEM regime, by its structure and design,
results, with respect to a certain range of import prices in any relevant tariff category
to which it applies, in the levying of customs duties in excess of the bound rate of 35
per cent ad valorem in Argentina's Schedule
17
Second, the issue of whether the DIEM by itself, the underlying measure was or was not an ordinary
customs duty was not addressed by the Appellate Body. That issue was not decided by the Appellate
Body18 and was not even an issue raised in appeal.19

Third, EC's interpretation of the Appellate Body's fi nding is simply wrong. Contrarily to what the EC
imply, the Appellate Body did not conclude that the Argentine DIEM regime was an ordinary customs
duty, even if kept within the relevant binding.

Along its report, the Appellate Body was careful to never refer to the DIEM regime as an ordinary

custom duty. Rather, when referring to the duties resulting from the DIEM regime, it called them just
"customs duties", without the word "ordinary". This is very clear, inter alia, from its conclusions:

For the reasons set out in this Report, the Appellate Body …modifies the Panel's
findings in paragraphs 6.31 and 6.32 of the Panel Report by concluding that the
application of a type of duty different from the type provided for in a Member's
Schedule is inconsistent with Article II:1(b), first sentence, of the GATT 1994 to the
extent that it results in ordinary
 customs duties being levied in excess of those
provided for in that Member's Schedule. In this case, Argentina has acted
inconsistently with its obligations under Ar ticle II:1(b), first sentence, of the GATT
1994, because the DIEM regime, by its structur e and design, results, with respect to a
certain range of import prices in any relevant tariff category to which it applies, in the
levying of customs duties in excess of the bound rate of 35 per cent ad valorem in
Argentina's Schedule (emphasis and underline added)20
As can be seen from the cited finding, the Appellate Body only referred to "ordinary" customs duties
when addressing Member's obligation not to apply a type of duty different from the type provided for

17 Argentina – Textiles and Apparel, Report of the Appellate Body, para. 87 (a) (underline added).
18 See Argentina – Textiles and Apparel, Report of the Appellate Body, para. 87.
19 Argentina – Textiles and Apparel, Report of the Appellate Body, para. 38.
20 Argentina – Textiles and Apparel, Report of the Appellate Body, para. 87.

in a Member's Schedule to the extent that it results in ordinary customs duties being levied in excess
of those provided for in that Schedule, in viol ation of Article II:1(b), first sentence, of the
GATT 1994. However, when addressing the DIEM regime resulting duties, the Appellate Body
referred to them just as "customs duties".
21

The result is that this finding supports Argentin a's arguments in these proceedings. Probably, in
Argentina – Textiles and Apparel the Appellate Body saw the implications of finding the DIEM
regime resulting duties as "ordinary" customs duti es, and refrained from making such a finding taking
into account the issue was not under appeal.

21 See also Argentina – Textiles and Apparel, Report of the Appellate Body, para. 55.