CHILE – PRICE BAND SYSTEM AND SAFEGUARD MEASURES RELATING TO CERTAIN AGRICULTURAL PRODUCTS
Document: Report of the Panel
Date: 3 May 2002
Document codes: WT/DS207/R
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

CHILE – PRICE BAND SYSTEM AND
SAFEGUARD MEASURES RELATING TO
CERTAIN AGRICULTURAL PRODUCTS
Report of the Panel
The report of the Panel on is being circulated to all Members, pursuant to the DSU. The report is being
circulated as an unrestricted document from 3 May 2002 pursuant to the Procedures for the
Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in
accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be
limited to issues of law covered in the Panel report and legal interpretations developed by the Panel.
There shall be no ex parte communications with the Panel or Appellate Body concerning matters
under consideration by the Panel or Appellate Body.
Note by the Secretariat : This Panel report shall be adopted by the Dispute Settlement Body (DSB) within
60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by
consensus not to adopt the report. If the Panel report is appealed to the Appellate Body, it shall not be
considered for adoption by the DSB until after the completion of the appeal. Information on the current status
of the Panel report is available from the WTO Secretariat

I. INTRODUCTION
1.1 On 5 October 2000, Argentina requested consultations with Chile pursuant to Article XX III:1
of the General Agreement on Trade and Tariffs 1994 (the "GATT 1994") and Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") – insofar
as it is an elaboration of Article XXIII:1 of the GATT 1994 – as well as Article 14 of the Agreement
on Safeguards and Article 19 of the Agreement on Agriculture. This request was related to the
Chilean Price Band System (hereafter "the Chilean PBS") and the imposition by the Chilean
authorities of provisional and definitive safeguard measures on imports of wheat, wheat flour and
edible vegetable oils.
1
1.2 The consultations took place on 21 November 2000, but the parties failed to reach a mutually
satisfactory solution. On 19 January 2001, Argentina requested the Dispute Settlement Body (the
"DSB") to establish a panel, pursuant to Article XXIII of the GATT 1994, Articles 4 and 6 of the
DSU, Article 19 of the Agreement on Agriculture and Article 14 of the Agreement on Safeguards, in
order to examine the Chilean PBS, its provisional and definitive safeguard measures on imports of
wheat, wheat flour and edible vegetable oils, and the extension of those measures.
2
1.3 At its meeting on 12 March 2001, the DSB established a panel in accordance with Article 6 of
the DSU. At that meeting, the parties agreed that the Panel should have standard terms of reference.
The terms of reference of the panel were, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Argentina in document WT/DS207/2, the matter referred to the DSB by Argentina
in that document, and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
3
1.4 On 7 May 2001, Argentina requested the Director-General to determine the composition of
the panel, pursuant to paragraph 7 of Article 8 of the DSU. This paragraph provides:
"If there is no agreement on the panelists within 20 days after the date of the
establishment of a panel, at the request of either party, the Director-General, in
consultation with the Chairman of the DSB and the Chairman of the relevant Council
or Committee, shall determine the composition of the panel by appointing the
panelists whom the Director-General considers most appropriate in accordance with
any relevant special or additional rules or procedures of the covered agreement or
covered agreements which are at issue in the dispute, after consulting with the parties
to the dispute. The Chairman of the DSB shall inform the Members of the
composition of the panel thus formed no later than 10 days after the date the
Chairman receives such a request."
1.5 On 17 May 2001, the Director-General accordingly composed the Panel as follows:
Chairman: Mr. Hardeep Puri
Members: Mr. Ho-Young Ahn
Mr. Michael Gifford

1 WT/DS207/1.
2 WT/DS207/2.
3 WT/DS207/3.

1.6 Australia, Brazil, Colombia, Costa Rica, the European Communities, Ecuador, El Salvador,
Guatemala, Honduras, Japan, Nicaragua, Paraguay, the United States and Venezuela reserved their
rights to participate in the panel proceedings as third parties.
1.7 The Panel met with the parties on 12-13 September and 21-22 November 2001. It met the
third parties on 13 September 2001.
1.8 The Panel submitted its interim report to the parties on 21 February 2002. On 28 February
2002, Chile submitted comments and requested the revision and clarification of certain aspects of the
interim report. Chile also requested the Panel to hold a further meeting with the parties, pursuant to
Article 15 of the DSU and paragraph 16 of the Panel's Working Procedures. On 28 February 2002,
Argentina submitted general comments to the inte rim report. An Interim Review meeting was held
with the parties on 14 March 2002. The Panel gave the parties the opportunity to submit further
comments the following day. The Panel submitted its final report to the parties on 4 April 2002.
II. FACTUAL ASPECTS
2.1 The dispute concerns two distinctive matters: (A) Chile's Price Band System ("PBS") and (B)
Chile's provisional and definitive safeguards measures on imports of wheat, wheat flour and edible
vegetable oils, as well as the extension of those measures.
A. CHILE'S PRICE BAND SYSTEM
1. Regulatory framework
2.2 Chile's regulations on its PBS are contained in Law 18.525 on the Rules on the Importation of
Goods4, as amended. In particular, Article 12 of Law 18.525 provides for the methodology for the
calculation of the price bands. This Article reads as follows:5
"For the sole purpose of ensuring a reasonable margin of fluctuation of domestic
wheat, oil-seeds, edible vegetable oils and sugar prices in relation to the international
prices for such products, specific duties are hereby established in United States dollars
per tariff unit, or ad valorem duties, or both, and rebates on the amounts payable as
ad valorem duties established in the Customs Tariff, which could affect the
importation of such goods.
The amount of these duties and rebates, established in accordance with the procedure
laid down in this Article, shall be dete rmined annually by the President of the
Republic, in terms which, applied to the price levels attained by the products in
question on the international markets, make it possible to maintain a minimum cost
and a maximum import cost for the said products during the internal marketing season
for the domestic production.
For the determination of the costs mentioned in the preceding paragraph, the monthly
average international prices recorded in the most relevant markets during an
immediately preceding period of five calendar years for wheat, oil-seed and edible
vegetable oils and ten calendar years for sugar shall be taken into consideration.
These averages shall be adjusted by the percentage variation of the relevant average

4 Law 18.525, Official Journal of the Republic of Chile, 30 June 1986.
5 Consolidated version of Law 18.525, Official Journal of the Republic of Chile, 30 June 1986 as
amended by Law No. 18.591, Official Journal, 3 January 1987 and by Law No. 18.573, Official Journal,
2 December 1987. This consolidated text was includ ed in Annex CHL-2 to Chile's First Written Submission
(footnotes omitted).

price index for Chile's foreign trade between the month to which they correspond and
the last month of the year prior to that of the determination of the amount of duties or
rebates, as certified by the Central Bank of Chile. They shall then be arranged in
descending order and up to 25 per cent of the highest values and up to 25 per cent of
the lowest values for wheat, oil-seed and edible vegetable oils and up to 35 per cent of
the highest values and up to 35 per cent of the lowest values for sugar shall be
removed. To the resulting extreme values there shall be added the normal tariffs and
costs arising from the process of importation of the said products. The duties and
rebates determined for wheat shall also apply to meslin and wheat flour. In this last
case, duties and rebates established for wheat shall be multiplied by the factor 1.56.
The prices to which these duties and rebates are applied shall be those applicable to
the goods in question on the day of their shipment. The National Customs
Administration shall notify these prices on a weekly basis, and may obtain
information from other public bodies for that purpose."
2.3 Chile submitted a copy of Law No. 19.772
6, amending Article 12 of Law 18.525 at the second
substantive meeting. Article 2 of Law No. 19.772, which entered into force on 19 November 2001,
adds the following paragraph to Article 12 of Law 18.525:
"The specific duties resulting from the application of this Article, added to the
ad valorem duty, shall not exceed the base tariff rate bound by Chile under the World
Trade Organization for the goods referred to in this Article, each import transaction
being considered individually and using the c.i.f. value of the goods concerned in the
transaction in question as a basis for calculation. To that end, the National Customs
Service shall adopt the necessary measures to ensure that the said limit is maintained."
2. Workings of the PBS
2.4 As a matter of practice, Chile's applied tariff rates are significantly below its bound rate. In
the case of wheat, wheat flour, and edible vegetable oils, the applied rate can be increased by means of
duty increases provided through the operation of the PBS.
7 In each case, the PBS involves an upper
and a lower threshold determined on the basis of certain international prices. The bands for each
product are determined once every year through a Presidential decree when a table is published
containing reference prices and related specific duties. Chile also sets weekly "reference prices" based
on prices in certain foreign markets. A duty increase is triggered when the "reference price", lies
below the lower threshold of the band. The duty increase is equivalent to the absolute difference
between the lower threshold of the band and the "reference price". Conversely, a tariff rebate is
triggered when the "reference price" lies above the price that determines the upper threshold of the
band. The rebate (which cannot be greater than the applied ad valorem rate) is equivalent to the
absolute difference between the "reference price" and the upper threshold of the band.
2.5 Article 12 of Law No. 18.525 foresees the application of specific duties expressed in US
dollars per tariff unit or ad valorem duties, or both, as well as rebates on the amount payable as
specific or ad valorem duties or both. For this purpose, Article 12 empowers the President of the
Republic of Chile to issue decrees determining the price bands annually. These bands are calculated
on the basis of average monthly prices observed for the last 60 months on specific exchanges. In the
case of wheat, the calculation is based on Hard Red Winter No. 2, f.o.b. Gulf (Kansas Exchange),

6 Official Journal of the Republic of Chile, 19 November 2001.
7 As indicated in paragraph 2.3 above, Chile has informed the Panel that pursuant to Law 19.772
effective on 19 November 2001, the combination of the applied ad valorem rate and the PBS duty increase are
capped at the bound ad valorem rate. Prior to that, the combination did at times surpass the bound rate.

while for oils, it is based on the price of crude soya bean oil, f.o.b. Illinois, on the Chicago Exchange.8
As regards wheat flour, the price band for wheat is used to calculate the duty or rebate, which is then
multiplied by a factor of 1.56 to obtain the specific duty or rebate for wheat flour. 9 These average
prices are adjusted by the percentage variation in the external price index (IPE) drawn by the Central
Bank of Chile. After the prices have been readjusted, they are listed in descending order, with up to
25 per cent of the highest and lowest values being eliminated for wheat and edible vegetable oils.
Tariff and importation costs (such as freight, insurance, opening of a letter of credit, interest on credit,
taxes on credit, customs agents' fees, unloading, transport to the plant and wastage costs) are added to
those prices thus determined in order to fix the lower and upper thresholds on a c.i.f. basis.
2.6 When a shipment of a product subject to the PBS arrives at the border for importation into
Chile, the customs authorities determine the total am ount of applicable duties as follows. The first
step is to apply the ad valorem duty. Afterwards, the so-called "reference price" applicable to that
given shipment has to be identified. This reference price is not the transaction price but a price which
is determined weekly (every Friday) by the Chilean authorities by using the lowest f.o.b. price for the
product in question on foreign "markets of concern to Chile".
10 In the case of edible oils, the weekly
reference price corresponds to the lowest f.o.b. price in force on the markets of concern to Chile for
any of the types of covered edible vegetable oils. Unlike the prices used for the composition of the
PBS, the reference prices are not subject to adjustment for "usual import costs".
11 The applicable
reference price for a particular shipment is determined in reference to the date of the bill of lading.
The reference price can be consulted by the public at the offices of the Chilean customs authorities.
2.7 Once the customs authorities have identified the reference price applicable to that given
shipment, they proceed to levy the duties. These wi ll differ according to the position of the reference
price as regards the upper and lower thresholds of the price band. If the reference price falls below the
lower threshold, the customs authorities will levy an 8 per cent ad valorem duty (MFN duty), plus an
additional specific duty. This additional specific duty will equal the difference between the reference
price and the lower threshold. If the reference price is between the lower and upper thresholds, the
customs authorities will only apply the 8 per cent ad valorem duty. If the reference price is higher
than the upper threshold, the customs authorities will grant a rebate on the 8 per cent ad valorem duty
equal to the difference between the upper threshold and the reference price.
B. CHILE'S SAFEGUARD MEASURES
1. Regulatory Framework
2.8 The Chilean regulatory framework for the conduction of safeguards investigations and the
eventual imposition of safeguards measures is contained in Law No. 19.612 of 28 May 1999 12 and its
implementing Decree No. 909 of the Ministry of Finance of 17 June 1999. 13 Chile notified both legal
instruments to the WTO on 23 June 1999.14

8 See Chile's response to question 10 (CHL) of the Panel.
9 Article 12 of Law 18.525 and its amendment stipulates that the duties and rebates applicable to wheat
flour shall be the same as for wheat, adjusted by a conversion factor of 1.41. This conversion factor was raised
to 1.56 by Law 19.446 (extended by Law 19.604) (see Annex ARG-2).
10 With respect to wheat, these "markets of concern" include Argentina, Canada Australia and the
United States. See Chile's response to question 9(c) (CHL) of the Panel.
11 See Chile's response question 9 (CHL) of the Panel.
12 Official Journal of the Republic of Chile, 31 May 1999.
13 Official Journal of the Republic of Chile, 25 June 1999.
14 Document G/SG/N/1/CHL/2 of 24 August 1999 containing Law 19.612 and Law 18.525 (as amended
by Law 19.612) as well as Decree 909/99 of the Ministry of Finance.

2. Provisional and definitive safeguard measures
2.9 On 23 August 1999, the Ministry of Agriculture of Chile filed a request before the National
Commission in charge of investigating distortions in the prices of imported goods (hereinafter "the
Commission") to initiate ex officio a safeguards investigation on products subject to the PBS, that is,
wheat, wheat flour, sugar and edible vegetable oils. The Chilean Ministry of Agriculture also
requested the Commission to recommend the imposition of provisional safeguard measures. At its
Session No. 181 held on 9 September 1999, the Commission decided to initiate a safeguards
investigation against imports of wheat, wheat flour, sugar and edible vegetable oils.
15 Imports of
sugar, however, are not part of the present dispute. The decision to initiate is contained in Minutes of
Session No. 181 of the Commission. The notice of initiation of the investigation was published in the
Official Journal of the Republic of Chile on 29 September 1999 and notified to the WTO on
25 October 1999.16 Accordingly, the investigation was initiated on 30 September 1999.
2.10 At its Session No. 185 held on 22 October 1999, the Commission decided to recommend to
the President of the Republic the imposition of provisional safeguard measures. The Commission's
recommendations are contained in its Minutes of Session No. 185. Upon the recommendation of the
Commission, the President through the Ministry of Finance imposed provisional safeguard measures
on imports of wheat, wheat flour and edible vegetable oils by Exempt Decree No. 339 of
26 November 1999.
17 Chile made an advance notification of these measures on 2 November 1999. 18
The provisional safeguard measure consisted of an ad valorem tariff surcharge, corresponding to the
difference between the general tariff added to the ad valorem equivalent of the specific duty
determined by the PBS and the bound tariff in the WTO for these products.
2.11 At its Session No. 189 on 25 November 1999, the Commission held a public hearing in order
to receive the views of the interested parties in the safeguards investigation. The arguments of the
parties are annexed to its Minutes of Session No. 189. At its Session No. 193 held on 7 January 2000,
the Commission recommended the imposition of definitive safeguard measures. The
recommendations of the Commission are contained in Minutes of Session No. 193. On 18 January
2000, Chile notified the WTO of the finding by the Commission of threat of injury to its domestic
industry for products subject to the Chilean price band system, and of that Commission's
recommendation to the President of Chile to impose definitive safeguard measures.
19
2.12 On 22 January 2000, Exempt Decree No. 9 of the Ministry of Finance of Chile was published
in the Official Journal, imposing definitive safeguard measures for one year on imports of wheat,
wheat flour and edible vegetable oils. As in the case of the provisional measures, the definitive
measures consisted, for each import transaction, of an " ad valorem tariff surcharge, corresponding to
the difference between the general tariff added to the ad valorem equivalent of the specific duty

15 The products concerned by the investigation pro cedure and the application of safeguard measures
are: wheat, classified under tariff heading 1001.9000; wheat flour, classified under tariff heading 1101.0000;
sugar, classified under tariff headings 1701.1100; 1701.1200; 1700.9100 and 1701.9900; and edible vegetable
oils, classified under tariff headings 1507.1000; 1507.9000; 1508.1000; 1508.9000; 1509.1000; 1509.9000;
1510.0000; 1511.1000; 1511.9000; 1512.1110; 1512.1120; 1512.1910; 1512.1920; 1512.2100; 1512.2900;
1513.1100; 1513.1900; 1513.2100; 1513.2900; 1514.1000; 1514.9000; 1515.2100; 1515.2900; 1515.5000
and 1515.9000.
16 Document G/SG/N/6/CHL/2 of 2 November 1999.
17 Exempt Decree No. 339 of 19 November 1999, published in the Official Journal of the Republic of
Chile, 26 November 1999.
18 Document G/SG/N/7/CHL/2 of 10 November 1999.
19 Document G/SG/N/8/CHL/1 of 7 February 2000.

determined by the mechanism set out in Article 12 of Law 18.525 [i.e., the PBS] - and its relevant
annual implementing decrees - and the level bound in the WTO for these products".20
3. Extension of the safeguard measures
2.13 By Order No. 792 of 10 October 2000, the Chilean Ministry of Agriculture requested the
Commission to consider an extension of the definitive safeguard measures imposed by Exempt Decree
No. 9 of the Ministry of Finance of Chile on imports of wheat, wheat flour and edible vegetable oils.
At its Session No. 222 held on 3 November 2000, the Commission decided to initiate a procedure for
the purpose of deciding whether to extend the definitive safeguard measures. The notice of initiation
was published on 4 November 2000. At its Session No. 223 on 13 November 2000, the Commission
held a public hearing. The details of the hearing are contained in its Minutes of Session No. 223.
2.14 At its Session No. 224 held on 17 November 2000, the Commission decided to recommend
the extension of the definitive safeguard measures established by Exempt Decree No. 9 of the
Ministry of Finance. The decision of the Commi ssion is contained in Minutes of Session No. 224.
Further to this decision, the extension of the safeguard measures was imposed by Exempt Decree No.
349 of the Ministry of Finance of 25 November 2000.
21 This Decree provides for an extension of the
safeguard measures, as described in paragraph 2.12 above, for one year from the date of their expiry.
In practice, they were extended until 26 November 2001. Chile notified the WTO of the extension of
the measure on 11 December 2000.
22 23
2.15 The extension measures for wheat and wheat flour were withdrawn by Exempt Decree
No. 244 of the Ministry of Finance published on 27 July 2001. 24 The termination of these measures
was notified to the WTO on 9 August 2001.25
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 For the reasons put forward, Argentina requests that the Panel:
− conclude that the Chilean PBS is inconsistent with Article II.1(b) of the GATT 1994
and Article 4.2 of the Agreement on Agriculture;
− find that the safeguards investigation and the safeguard measures are inconsistent with
Article XIX of the GATT 1994 and Articles 2, 3, 4, 5, 6 and 12 of the Agreement on
Safeguards; and
− rule on all of the claims made so as to avoid any unnecessary future proceedings if the
findings are eventually overturned, bearing in mind that the Appellate Body exercises
procedural economy.
3.2 In light of facts and law put forward, Chile requests that the Panel:
− conclude that the PBS is in compliance with Article II.1(b) of the GATT 1994 and
Article 4.2 of the Agreement on Agriculture;

20 Exempt Decree No. 9 of the Ministry of Finance.
21 Published in the Official Journal on 25 November 2000.
22 Document G/SG/N/14/CHL/1 of 22 December 2000.
23 Chile stated that the extension measure for edible vegetable oils expired on 26 November 2001
(Exempt Decree No. 559 from the Ministry of Finance).
24 See Chile's response to question 16 (ARG, CHL) of the Panel.
25 Document G/SG/N/10/CHL/1/Suppl. 3 of 16 August 2001.

− find that: (i) both the provisional and definitive measures that are the subject of
consultations and this procedure are not in force; and (ii) the extension measures, the
only ones in effect at present, were not the subject of WTO consultations, and
therefore that the Panel should not rule on whether the measures in effect are
consistent with specific provisions of the WTO Agreements;
− in the event that the Panel considers that it can rule on the consistency of the Chilean
measures with Articles 2, 3, 4, 6, and 12 of the Agreement on Safeguards, as well as
Article XIX of the GATT 1994, conclude that these are in compliance with the
aforementioned Articles.
IV. ARGUMENTS OF THE PARTIES
A. A
RGUMENTS RELATING TO CHILE'S PRICE BAND SYSTEM
1. Procedural arguments
(a) Burden of proof
4.1 Argentina refers to Article 3.8 of the DSU which reads:
"In cases where there is an infringement of obligations assumed under a covered
agreement, the action is prima facie to constitute a case of nullification or impairment.
This means that there is normally a presumption that a breach of the rules has an
adverse impact on other Members parties to that covered agreement, and in such
cases, it shall be up to the Member against whom the complaint has been brought to
rebut the charge."
4.2 As regards the alleged violation of Article II:1(b) of the GATT 1994, Argentina claims that it
has established a prima facie case before the Panel by providing evidence and legal arguments that
suffice to demonstrate that the Chilean measure at issue (the PBS) is inconsistent with Chile's
obligations under Article II:1(b) of the GATT 1994. Consequently, Argentina contends that Chile has
acknowledged that it imposed duties in excess of its tariff binding. Nor has it refuted the argument
that the PBS potentially violates Chile's commitments in its national schedule. As regards the alleged
violation of Article 4.2 of the Agreement on Agriculture, Argentina claims that, by presenting legal
arguments sufficient to demonstrate that the Chilean measure under review (the PBS) is inconsistent
with Chile's obligations under Article 4.2 of the Agreement on Agriculture, since it is among the
"measures of the kind which have been required to be converted", it has once again established a
prima facie case before the Panel. Argentina contends that, as in the case of Article II:1(b), Chile has
not only failed to provide any evidence or arguments to refute Argentina's claims, but on the contrary,
it has acknowledged that the PBS imposes a "levy" on "imports" which "varies" according to the day
of shipment.
26
4.3 Argentina also claims that, given that Chile is ma intaining mandatory legislation contrary to
the provisions of the Agreement, there is a presumption of nullification or impairment of the rights
accruing to Argentina and it is therefore up to Chile to rebut the charge. 27 Argentina further alleges
that the Chilean PBS does not qualify for any of the exceptions provided for either in Article 5
(special safeguard provisions) or in Annex 5 of the Agreement on Agriculture. As regards the special
safeguard provisions in Article 5 of the Agreement on Agriculture, Argentina considers that the
Chilean PBS does not qualify for the Article 4.2 exception for two reasons: (i) the possibility of

26 Argentina refers to para. 38 of Chile's First Written Submission.
27 See Argentina's First Written Submission, para. 61.

invoking this special provision expired on 31 December 2000; (ii) even if the provision were still
valid, it would not apply, because Chile's Schedule does not designate wheat, wheat flour and edible
vegetable oils with the symbol "SSG" (special safeguard) as required in Article 5.1.
4.4 Chile submits that Argentina has totally failed to comply with its obligation to prove that the
Chilean PBS constitutes a variable levy or is otherwise inconsistent with Article 4.2 of the Agreement
on Agriculture.
28
2. Substantive arguments
(a) Infringement of Article II:1(b) of the GATT 1994
4.5 Argentina makes two claims with respect to Article II:1(b) of the GATT 1994:
4.6 The PBS as such violates Article II:1(b) of the GATT 1994 since its application has led Chile
in specific cases to collect duties in excess of the rates bound in its National Schedule No. VII
4.7 The PBS also violates Article II:1(b) of the GATT 1994 because, by its structure, design and
mode of application, it potentially leads to the application of specific duties in violation of the bound
tariff of 31.5 per cent.29
(i) Whether the application of the PBS has led to customs duties higher than bound tariffs
4.8 Argentina submits that the violation by Chile of its obligations under Article II:1(b) of the
GATT 1994 has been recognized by Chile and proven in practice. In Argentina's view, whilst the
possibility to exceed the bound tariff is sufficient, in itself, to establish violation of Article II:1(b),
Chile has in fact imposed tariffs exceeding the bound rate since 1998 and has acknowledged doing so
on several instances.30 In this regard, Argentina refers to the meeting of the Committee on Agriculture
of 24-25 June 1999 where the representative of Chile stated that "in some cases, the applied tariff was
greater than the bound commitment." 31 32 According to Argentina, this statement constitutes an
acknowledgement that Chile has violated its obligations under Article II:1(b) of the GATT 1994. 33
Argentina also refers to statements by Chile 34 in the Dispute Settlement Body, to various documents
relating to its safeguards investigation 35 as well as Chile's First Written Submission 36 Additionally,
Argentina states that Chile has been systematically violating its WTO commitments since 1998. 37
Argentina claims that this repeated, successive and consistent acknowledgement by Chile of its own
violation, in particular during the proceedings before this Panel, is more than sufficient for this Panel
to find that the PBS is inconsistent with Article II.1(b) of the GATT 1994. 38 In particular, Argentina
contends that, contrary to what Chile claims 39, Chile imposed on Argentina effective ad valorem
customs duties of up to 64.41 per cent for oils and 60.25 per cent for wheat flour, in violation of

28 See Chile's First Written Submission, para. 43.
29 See Argentina's Second Oral Statement, para. 4.
30 See Argentina's First Written Submission, para. 46.
31 Argentina quotes a Note by the Secretariat. Summary Report of the Meeting held on 24-25 June
32 See Argentina's First Written Submission, para. 38.
33 See Argentina's First Written Submission, para. 39.
34 See Argentina's First Written Submission, paras. 39-42.
35 Argentina refers to Order 850 of the Ministry of Agriculture of Chile and Order 662 of the same
Ministry.
36 Argentina refers to paras. 24, 25 and 26 of Chile's First Written Submission.
37 See Argentina's First Written Submission, para. 5.
38 See Argentina's First Oral Statement, para. 5.
39 Argentina refers to para. 23 in fine of Chile's First Written Submission.

Article II.1(b), as confirmed by the actual documentation processed by Chilean customs. 40 Argentina
considers that this confirms that violation is not merely a theoretical possibility, but is something that
actually occurred and that will necessarily continue to occur if the system in force is maintained. 41 If
Chile were to apply a specific duty whose ad valorem equivalent did not violate its tariff binding, its
acknowledgement, that "[t]he Government of Chile therefore deliberately decided to allow the price
band to operate at full regime, failing to comply with its commitment"
42 would, according to
Argentina, be absurd.43
4.9 Chile acknowledges that the total tariff applied to imports of milling wheat has, on occasion,
exceeded Chile's tariff binding under the GATT 1947. Chile observes that with respect to the
1990-1995 period, this happened during 1990 and 1991. Chile submits that the reasons why it
exceeded its tariff binding under the GATT 1947 can be found in the existence of unforeseen
circumstances which, at the time, caused a spectacular fall in the price of imports of certain products
included in the price band. Chile claims that these circumstances were of so extraordinary a nature
that Chile, at the time, could not reasonably foresee that a situation in which it was forced to exceed its
tariff binding under the GATT 1947 – subsequently under the GATT 1994 – would recur. Chile
stresses that these circumstances were not only extraordinary for Chile, but for the other GATT
contracting parties as well, including Argentina an d the third parties to this Panel. Indeed, Chile
submits these countries never filed a complaint to the effect that their rights under the Treaty were
being affected by the PBS nor did they challenge the system and its operation during the Uruguay
Round negotiations, in spite of their knowledge that Chile had exceeded its bound tariff owing to force
majeure.
44
4.10 Argentina contends that Chile has not refuted Argentina's allegations that it has actually
exceeded its bound tariff, and that, as its previous recognition in this respect in various WTO fora
indicate, Chile has not even tried to refute them. Argentina further submits that, added to all this is the
evidence that Chile itself has contributed to these proceedings in its note dated 5 October 2001, in
which its Permanent Representative to the WTO provides a series of statistical tables as a supplement
to its reply to question 12(b) of the Panel. In Argentina's view, these tables specifically show that in
all of the monthly series for "other wheat and meslin" (tariff heading 1001.90.00) from January 1998
to January 2001, the Chilean Ministry of Finance itself confirms that Chilean Customs systematically
and continuously levied amounts ranging from 36.1 per cent to 67.1 per cent on average for the month
of December 1999 on the totality of imports from any WTO Member, exceeding its bound duty.
Examining the same submission by Chile with respect to edible vegetable oils, Argentina finds that
the figures indicate that the binding was systematically exceeded as from June 1999. Argentina
submits that these figures reach as much as 70.8 per cent in some instances, i.e. more than double
Chile's binding under the WTO.
45
(ii) Can the PBS as such lead to customs duties higher than bound tariffs
4.11 Argentina claims that the PBS potentially violates Article II:1(b) of the GATT 1994.
Argentina argues that the obligation contained in Article II:1(b) of the GATT has been clearly
specified by GATT/WTO precedent. In this regard, Argentina claims that it has been pointed out that,
when a bound tariff has been recorded in a Member's schedule, that bound tariff constitutes a
maximum limit of the duties that can legally be applied to products subject to the binding or, in the
circumstances of this case, the limit for the combination of the normal customs duty and the specific

40 See Argentina's First Written Submission, para. 47, and Annex ARG-15.
41 See Argentina's First Oral Statement, paras. 7-8.
42 Argentina quotes para. 25 of Chile's First Written Submission.
43 See Argentina's First Oral Statement, para. 9.
44 See Chile's response to question 12(c) (CHL) of the Panel.
45 See Argentina's Rebuttal, paras. 18-21 and Annex ARG40.

duty applied in accordance with the PBS.46 Furthermore, Argentina contends that the WTO obligation
contained in Article II:1(b) of the GATT is violated not only when, in a specific instance, a higher rate
than the bound tariff is in fact applied, but also when the challenged measure is structured and
designed in such a way as to make it possible for situations to arise in which the bound tariff is
exceeded.47 In Argentina's view, the PBS, by its design, structure and mode of application, has the
capacity to cause Chile inevitably to violate its tariff binding. 48 49 Argentina states that, in cases in
which the customs reference price for the day of shipment is lower than a given level, the tariffs
effectively applied by Chile exceed the bound rate of 31.5 per cent. 50 Argentina presents a
mathematical formulation of the working of the Chilean PBS which presumes that there are only two
relevant prices to be considered for the purposes of such an analysis, i.e. the "transaction price" and
the "reference price" and that these prices are, in general, not equal. Argentina argues that its
analysis51 shows that, when the c.i.f. import price and the f.o.b. reference price for a given shipment
are below the price band floor beyond a point X (the "break even point"), the result of applying the
variable specific duty is to exceed the WTO bound ceiling. In other words, Argentina explains, in
order to demonstrate that the bound rate has been exceeded, the specific duty must be converted into
an ad valorem tariff, for which purpose the c.i.f. import price appearing in the invoices is used.
Argentina argues that, at least in circumstances in which the reference price and the c.i.f. invoice price
are below the break even point, the bound tariff (31.5 per cent) will be exceeded by the sum of the
general tariff (8 per cent) and the specific price band tariff converted into an ad valorem rate. 52
Argentina further submits that the bound level would al so be violated in eith er of the two following
situations: if the transaction price were equal to the mentioned break even price and the reference
price were lower than both, or if the reference price were equal to the break even price and the
transaction price were lower than both.
53 Consequently, Argentina argues, the lack of a so-called "cap
system", added to the discretion allowed in fixing the reference price, means that in a low international
price scenario, the effective level of ad valorem equivalents levied can exceed the bound level in
Chile's National Schedule for the products subject to the band. 54
4.12 In reference to the above 55, Chile states that Argentina acknowledges that the duty may be,
and generally has been lower, than Chile's bound tariff and that, in fact, when international prices are
high, the PBS may lower the import duty even as far as zero.56
4.13 In Argentina's view, the mandatory nature of the Law and the decrees establishing the
specific duties leave no alternative to Chile's customs officials but to levy the duty which, depending
on the price of the goods, could potentially - at a certain price level - lead to a breach in Chile's WTO
obligations. Argentina affirms that neither Chilean law nor its implementing regulations impose any
limit that could prevent this from happening. Argentina further asserts that the Law as such, being
mandatory, necessarily leads - in accordance with th e fluctuation of international prices - to the
violation of tariff commitments.
57 Argentina considers that Article XVI:4 of the Marrakesh
Agreement Establishing the World Trade Organization (the "WTO Agreement") and GATT/WTO
precedents confirm that legislative provisions as such, however they may be applied in specific cases,

46 See Argentina's First Written Submission, para. 23.
47 See Argentina's First Written Submission, para. 25.
48 See Argentina's First Oral Statement, para. 4.
49 See Argentina's First Written Submission, para. 27.
50 See Argentina's First Written Submission, para. 28.
51 See Argentina's First Written Submission, paras. 29-30 and Annex ARG-12.
52 See Argentina's First Written Submission, para. 31.
55 Chile refers to para. 28 of Argentina's First Written Submission.
56 See Chile's First Written Submission, para. 19.
57 See Argentina's First Written Submission, para. 32.

can violate the provisions of the GATT and the WTO. 58 Argentina asserts that, regarding what Chile
stated in the DSB, it is important to point out that unilateral statements by Members in the context of a
dispute settlement proceeding have legal effects. In support of this statement, Argentina cites the case
United States – Sections 301-310 of the Trade Act of 1974 .59 According to Argentina, the
acknowledgement by Chile that the bound rate has been exceeded proves that even if Article 12 of
Law 18.525 were to be interpreted as not being mandatory, but as granting discretionary powers to the
Executive, it would nevertheless have to be considered inconsistent with Article II:1(b) of the GATT
1994.
60
4.14 Chile argues that paragraph (a) of Article II:1 of the GATT lays down a general prohibition
on granting to imports treatment less favourable than that provided in the Member's Schedule.
Paragraph (b), Chile says, "prohibits a specific kind of practice that will always be inconsistent with
paragraph (a): that is, the application of ordinary customs duties in excess of those provided for in the
Schedule".
61 In Chile's view, Article II simply acts as a ceiling for customs duties so that Members
are obliged to refrain from imposing import duties or other import charges that exceed the tariff
commitments a Member has fixed in its own Schedule. Chile contends that specific tariff systems are
not inconsistent with the obligations laid down in Article II:1(b) of the GATT. In reference to the
Appellate Body's ruling in Argentina – Footwear (EC) , Chile concludes that the sole fact that a PBS
imposes a specific import duty as well as an 8 per cent ad valorem duty (and in some instances a
reduced ad valorem duty), does not mean that the Law is inconsistent with the obligation under
Article II:1(b). As long as the Chilean PBS involves the application of a tariff duty which, when
translated into ad valorem terms does not exceed Chile's commitment to 31.5 per cent, the PBS, in
Chile's view, is not inconsistent with the obligations under Article II:1(b). 62 Thus, Chile contends, so
long as the rate of duty applied is at, or below, the bound rate, Article II does not prohibit the
application of any rate of duty, whether expressed in specific or ad valorem t e r m s , o r s o m e
combination of specific and ad valorem terms. Chile further claims that Article II does not prevent a
party from changing the rate of duty that is applied, provided that the bound ceiling rate is respected.63
4.15 Argentina claims that, contrary to the above 64, it in no way it questions Chile's right to apply
specific duties on its imports. Argentina explains that what it is saying is that the PBS inevitably leads
to the possibility of levying duties in excess of Chile's tariff binding, and this is in fact what
happened.65 Argentina further clarifies that the Chilean PBS is not a specific duty. In Argentina's
view, we are not dealing with a specific duty which constitutes an "ordinary customs duty" - a duty
which, since it does not result in the levying of duties in excess of the bound rate, would not be the
subject of a complaint by Argentina with respect to Article II:1(b) of the GATT 1994. Argentina
considers that the PBS is a surcharge whose structure, design and mode of application potentially
leads to a violation of Chile's binding.
66
4.16 Argentina considers that it is neither the intentions or the declarations of Chile with respect to
its readiness to obtain a waiver nor the issue of whether or not it deliberately permitted the full-scale
application of the price band that the Panel should be evaluating. Rather, in Argentina's view, what
counts in determining consistency or inconsistency is whether by its structure and design, the system
could cause Chile to impose customs duties in excess of its tariff bindings in its National Schedule.
Argentina submits that the example given starting with paragraph 29 of Argentina's First Written

58 See Argentina's First Written Submission, para. 36 and footnote 25.
59 WT/DS152/R, paras. 7.118 and 7.125.
60 See Argentina's First Written Submission, para. 43 and footnote 25.
61 See Chile's First Written Submission, para. 21.
62 See Chile's First Written Submission, para. 23. See also para. 23 of Chile's First Oral Statement.
63 See Chile's First Oral Statement, para. 24.
64 Argentina refers to paras. 22 and 23 of Chile's First Written Submission.
65 See Argentina's First Oral Statement, para. 7.
66 See Argentina's Rebuttal, paras. 23-24.

Submission, presented in graphic form in Annex ARG-12, shows how the application of a reference
price – set by the implementing authority at its own discretion – in certain conditions (drop in
international prices) necessarily leads, in relation to the transaction price, to the bound tariff being
exceeded. Argentina claims that exceeding the bound tariff is not merely a theoretical possibility, but
a practical fact. Argentina reminds that this is illustrated in Annexes ARG-14 and 15, and was
recognized by Chile itself. It further affirms that it could not be otherwise, since the system does not
have any safety mechanism against such violation (Article II.1(b)).
67
4.17 Chile clarifies that the price bands operate in accordance with the law. Chile contends that
the WTO Agreements, including Schedule VII, were approved by the Chilean Congress as a Law and
with the hierarchy of an international treaty. Therefore, Chile explains, the WTO Agreements
override existing law to the extent there is a conflict, and cannot be amended by future law. Chile
argues that, from a legal point of view, the system cannot automatically exceed the bound rate. 68 In
response to a question of the Panel, Chile explains that, as both the legislation governing the price
band and the Marrakesh Agreement Establishing the WTO with its annexed Agreements, are part of
the Chilean legal order, the customs authorities are su bject to that order. Chile claims that there was
no reason to presume that the duties resulting from the application of the PBS would exceed the WTO
tariff binding.69 To prevent this from happening again, it further explains, Chile has adopted a new
law that assures that the duties created under the PBS will not exceed Chile's bound rates.70
4.18 Chile argues that its Government deliberately decided to allow the price band to operate at
full regime, failing to comply with its commitmen t, in order to protect thousands of small-scale
agricultural producers with low incomes from an economic and social catastrophe. Chile adds that its
Government first informed its trade partners of the situation and started informal consultations with
the view to obtaining a waiver from Chile's commitments under the WTO Agreements pursuant to
Article IX of the WTO Agreement. Chile claims that it adopted this course of action in order to give
temporary relief to producers who faced a financial crisis. According to Chile, its major trade partners
were opposed to the granting of such a waiver and instead suggested that Chile should apply a
safeguard or renegotiate the tariff bound under Article XXVIII of the GATT 1994.
71 Chile argues that
this was when Chile imposed a safeguard measure under Article XIX of the GATT and the Agreement
on Safeguards, which has been contested by Argentina. Chile then claims that the above shows that
Chile's failure to comply with its commitments was not the result of the automatic functioning of the
PBS but was the result of a deliberate decision by its Government, which then did everything possible
to obtain the required legal backing in accordance with the WTO's relevant provisions.72 Chile further
argues that the situation at the root of the problem was not of its but rather was due to the massive
subsidization from some other prominent countries.73
4.19 Argentina submits that Chile's argument to the effect that Chile's failure to comply with its
commitments was not the result of the automatic functioning of the PBS but was the result of a
deliberate decision by its Government74, is incomprehensible because it is the system itself, by its very
structure and design, that automatically leads to the violation since it lacks any safety mechanism
against exceeding the bound rate. Argentina argues that a customs official has no choice but to
impose the duties established by the system, regardless of whether the Chilean Government
deliberately permits it or not. And indeed, Argentina affirms, far from supporting Chile's attempt at

67 See Argentina's First Oral Statement, paras. 15-17.
68 See Chile's First Oral Statement, para. 63.
69 See Chile's response to question 12 (CHL) of the Panel.
70 See Annex CHL-7.
71 See also Chile's First Oral Statement, para. 30.
72 See Chile's First Written Submission, para. 25.
73 See Chile's First Oral Statement, para. 30.
74 See Argentina's First Oral Statement, para. 9, which refers to para. 25 of Chile's First Written
Submission.

justification, the suggestion that this was the result of a deliberate decision implies a further
recognition that the Chilean Government maintains legislation that is inconsistent with its WTO
obligations.75 Argentina submits that the continuation of the violation constitutes a flagrant breach by
Chile of the principle of pacta sunt servanda and of its international commitments and that Chile is
not meeting its WTO obligations in good faith.76 Whatever the case, Argentina submits, the argument
is irrelevant, since Chile has no way of preventing the system, by its design and structure, from
"automatically" violating Article II.1(b) of the GATT 1994, regardless of whether it was deliberate or
not.77 In Argentina's view, the working of the PBS affects the predictability of the tariff concessions
negotiated by Chile during the Uruguay Round and has been recognized as inconsistent with
Article II:1(b) in various GATT/WTO precedents.78
4.20 According to Chile, while the PBS formula may appear complex, it is fully transparent and
predictable. Chile submits that, contrary to Argentina's claim79, there are no discretionary elements in
the calculation to enable manipulation of the duty or rebate by officials. Chile argues that, contrary to
assertions in some submissions, its PBS in no way depends on or uses domestic prices, or transaction
prices, or target prices of any kind, to compute the duty or rebate. The objective of the system is to
moderate the effect on Chile's market of short-term violent fluctuations in the international prices of
these commodities. For this purpose, Chile claims, the band follows over time the trend in
international prices, and uses duties or rebates.
80 In its view, this series of monthly price averages
(5 years means 60 monthly prices) is ranked, and the highest 25 per cent of the monthly prices is
disregarded, as well as the lowest 25 per cent of monthly prices. According to Chile, this means that,
in the descending list of average prices, the 16 th lowest monthly price and the 44 th lowest monthly
price constitute the f.o.b. price for the ceiling and the floor, respectively. Chile explains that these two
f.o.b. prices are adjusted to present the band in terms of import cost. Such an adjustment considers
fixed and variable costs normally paid in import transactions, such as transportation, unloading,
customs duties, cost of opening a letter of credit, interests, and ad valorem rate. For simplicity, Chile
explains, the annual decree that reports the band for each good contains a table for a range of f.o.b.
prices and their corresponding rebate or duty when they fall outside the band. According to Chile, for
the actual calculation of the specific duty or rebate, the National Customs Authority reports on a
weekly basis the lowest price for the product quoted in a major commodity market relevant for Chile.
Chile explains that this price is the f.o.b. price to be used in the table to determine the specific duty or
rebate for all transactions which shipment occurred in the same week. Chile maintains that when the
exporter decides to ship, he knows the duty or rebate. It is Chile's opinion that the trends in
international prices are necessarily transmitted to the band, though smoothed over time. In this regard,
Chile emphasizes that the band is determined without regard to domestic or target prices, and without
regard to the actual transaction price, except in calculating the ad valorem (8 per cent) duty.
81
4.21 Argentina submits that Chile not only has not refuted the formal demonstration submitted by
Argentina of the potential violation of the binding by the PBS or the arguments supporting that
demonstration but, that, on the contrary, it acknowledged this inconsistency of the PBS with
Article II:1(b) of the GATT 1994. Argentina refers to Chile's replies to the Panel where, allegedly,
Chile recognizes, in response to specific questions, that the mode of calculation of the amount of the
surcharge applied by customs on top of the regular tariff of 8 per cent potentially leads to the
collection of an ad valorem equivalent in excess of the 31.5 per cent binding.
82 According to

75 See Argentina's First Oral Statement, para. 13.
76 See Argentina's Rebuttal, paras. 29-30.
77 See Argentina's First Oral Statement, para. 14.
78 See Argentina's First Written Submission, para. 31.
79 Chile refers to para. 16 of Argentina's First Oral Statement.
80 See Chile's First Oral Statement, paras. 10-11.
81 See Chile's First Oral Statement, paras. 12-18.
82 See Argentina's Rebuttal, para. 28 which refers to Chile's response to question 10(k) of the Panel.

Argentina, it is therefore difficult to understand how Chile can argue that when the WTO obligations
entered into force it was unaware that the PBS would cause it to exceed its tariff binding, given the
system's structure, design and mode of application.83
4.22 At the second substantive meeting, Chile indicates that Chile's domestic measures have now
been strengthened by Law 19.722 which makes explicit that there is such an automatic cap system that
will prevent recurrence of a breach of the binding in circumstances not justified under WTO rules.
84
4.23 Regarding the new legislation presented by Chile, Argentina declares that it is not in position
to confirm the precise content of the Chilean exhibit given that Argentina does not have adequate
information to express a definitive view on this is sue. On the other hand, Argentina argues, the PBS
has already caused nullification or impairment to Argentina and in this regard Argentina wants to
reserve its rights. Argentina submits that in case of no ruling by the Panel, Chile could easily change
its law. Additionally, in case the Panel follows Argentina's suggestion and rules on the issues as
reflected in Argentina's request for the establishment of the Panel, the Panel's report will have a
normative value which Chile will have to take into account. Argentina concludes that the new Chilean
law, from Argentina's point of view, shows that Chile acknowledges that its PBS violates Article II of
GATT 1994.
85
(iii) Article XIX as an exception to Article II of the GATT 1994
4.24 Chile argues that Article XIX constitutes an exception to the other WTO rules, including
those in Article II of the GATT 1994. 86 In particular, Chile contends that Article XIX explicitly
provides that a Member country "shall be free" to suspend an obligation or withdraw or modify a
concession where necessary to prevent or remedy serious injury.87 It submits that Article XIX and the
Agreement on Safeguards allow a temporary waiver of concessions and the suspension of certain
commitments. Chile claims that a Member country that has adopted a safeguard measure under
Article XIX and the Agreement on Safeguards has not violated its commitments on tariff concessions
as long as the safeguard measure remains in force, which is currently the case for Chile.
88
4.25 Argentina submits that Chile's argument on Article XIX of the GATT 1994 whereby this
would provide Chile with a legal umbrella enabling it to exceed the bound tariff, is erroneous from a
legal point of view and should be rejected by the Panel. Argentina does not deny that it is
theoretically possible, in applying a safeguard, to exceed the bound level, since safeguards are applied
as a temporary measure in emergency situations to provide relief for the affected industry, subject to
the requirements laid down in the Agreement on Safeguards. However, Argentina goes on to explain
that, following the sequence of that Agreement, the bound rate may only legitimately be exceeded
once the requirements of the Agreement on Safeguards have been met, and not in a case such as this
one, where the bound level was exceeded before the requirements for applying safeguards had been
verified. Argentina contends that the central issue in its claim in this respect is not the failure to
comply with Article XIX and the Agreement on Safeguards, but the violation of Article II.1(b). It
claims that the Panel will evaluate the consistency of the Chilean safeguard measure with Article XIX
and the Agreement on Safeguards at the appropriate time. At this point, Argentina argues, the Panel is
called upon to rule on the inconsistency of the PBS with Article II.1(b). Argentina submits that this is
an independent claim, with a different and separate legal basis from the safeguards claim, and happens
to coincide for a limited period of time with the period of application of the safeguards for certain

83 See Argentina's Rebuttal, para. 28 which refers to Chile's response to question 12(a) of the Panel.
84 See Chile's Second Oral Statement, para. 11.
85 See Argentina's response to question 45 (ARG) of the Panel.
86 See Chile's First Written Submission, para. 26.
87 See Chile's First Oral Statement, para. 28.
88 See Chile's First Written Submission, para. 26.

products. As an example, Argentina refers to the lifting by Chile of its safeguards on wheat and wheat
flour while maintaining its PBS which, by its design and structure, potentially violates Chile's bound
tariff. Argentina argues that, if one was to follow Chile's argument, the safeguards would have to be
maintained as long as the PBS was in force, regardless of the requirements laid down in the
Agreement on Safeguards. Argentina further submits that, in case there should still be any doubts,
Chile acknowledged before the Committee on Safeguards itself that the price bands as such were not
safeguards.
89 90
4.26 Argentina submits that safeguard measures are emergency measures, which are applied only
after each and every one of the requirements laid down in Article XIX of the GATT 1994 and in the
Agreement on Safeguards has been met. Argentina contends that they are not measures that can be
applied to cover up or justify the violation of obligations arising from the national schedules. In
Argentina's view, it would be unthinkable for the Panel even to consider such a possibility. Argentina
submits that Chile is trying to distort the content of the obligations imposed by Article XIX of the
GATT 1994 and the Agreement on Safeguards.91
(b) Violation of Article 4.2 of the Agreement on Agriculture
4.27 Argentina considers that the PBS, in addition to violating the obligations contained in
Article II:1(b) of the GATT 1994, is inconsistent with Article 4.2 of the Agreement on Agriculture
because by its structure and design it lacks, as an instrument limiting access to markets, the kind of
transparency and predictability that only ordinary customs duties can provide. Argentina submits that,
in spite of the express prohibition contained in Article 4.2 of the Agreement on Agriculture, Chile
maintains a measure which should have been tariffied and included in its Schedule.
92
(i) Whether the PBS is a measure prohibited under Article 4.2 and should have been tariffied
4.28 Argentina argues that, prior to the negotiation of the WTO Agreement on Agriculture, a
number of countries used a wide variety of non-tariff measures to limit imports of agricultural
products. One of the most important results of the negotiations was the agreement to "tariffy" these
measures - i.e. to prohibit the use of all non-tariff measures with respect to agricultural products, and
to require their replacement with bound tariffs. This was achieved in Article 4.2 of the WTO
Agreement on Agriculture.
93 Argentina claims that the scope of Article 4.2 of the Agreement on
Agriculture is all-inclusive and, therefore, no non-tariff measures of any kind can be maintained. It
explains that, although an illustrative list of non-tariff measures is provided, in which variable levies
are specifically included, Article 4.2 of the Agreement on Agriculture also expressly covers "similar
border measures other than ordinary customs duties".94
4.29 Argentina claims that Chile could have tariffied its non-tariff measures at the time of the
Uruguay Round adopting a level of protection higher than the current bound rate of 31.5 per cent.
Since it did not do so, it is in violation of Article 4.2 of the Agreement on Agriculture because any
variable duty applied on an agricultural product – regardless of its "quantum" with respect to its
binding – is inconsistent with Article 4.2, which was designed precisely to avoid such a situation.
95
Argentina submits that the Chilean PBS fits perfectly into the category of measures that Article 4.2,
footnote 1, identifies as being as inconsistent with the obligations negotiated under the Agreement on

89 Argentina refers to Document G/SG/Q2/CHL/5 of 27 September 2000, p. 6, response to question 19.
See Argentina's First Oral Statement, paras. 18-22 and footnote 7.
90 See Argentina's First Oral Statement, paras. 18-22.
92 See Argentina's Rebuttal, paras. 34-35.
93 See Argentina's First Written Submission, para. 49.
94 See Argentina's First Written Submission, para. 51.
95 See Argentina's First Written Submission, paras. 57-58.

Agriculture.96 Argentina is therefore of the view that the maintenance by Chile after the Uruguay
Round of its mandatory legislation imposing variable specific duties is inconsistent with its
obligations under Article 4.2 of the Agreement on Agriculture.97
4.30 Argentina submits that even if the PBS were not considered a variable levy, it is a similar
measure which should have been tariffied by Chile. Article 4.2 of the Agreement on Agriculture
expressly prohibits the maintenance of "measures of the kind which have been required to be
converted into ordinary customs duties." Argentina argues that it is precisely by reading the words
"shall not maintain" and "of the kind" together with the non-exhaustive list in the footnote that one
arrives at the concept of similar border measures that are not ordinary customs duties. Argentina
explains that this is what qualifies the PBS as something which should have been tariffied in the
Uruguay Round, which was not tariffied, which Chile continues to maintain, and which it justifies by
an interpretation of Article 4.2 and its footnote that reduces the terms of the text to inutility (contrary
to the principle of effectiveness in treaty interpretation). Ultimately, Argentina argues, both the text of
the Article and the wording of the footnote aim to cover a whole universe of measures which may not
be identified and which do not constitute ordinary customs duties.
98
4.31 Chile considers that Argentina's argument that the Chilean PBS was and is indisputably a
variable levy, which not only might have been tariffied but in fact had to be tariffied 99, is absurd and
does not correspond to the normal practice of negotiations among Members of the WTO. In this
regard, Chile argues that if there had been an intention to prohibit the Chilean PBS, neither Argentina
nor any other Member of the WTO put forward this argument during the negotiations of the
Agreement on Agriculture. 100 Chile further claims that Argentina's interpretation of Chile's
obligations under the Agreement on Agriculture differs totally from the interpretation which
Argentina itself has used in its actions and the interpretation of other Members of the WTO when
negotiating tariff schedules under the Agreement on Agriculture and applying it. It considers that, for
Argentina's argument to be valid, Argentina would have to show not only that the Chilean price band
is a "variable levy" or "similar border measure", within the meaning of footnote 1, but also that
Article 4.2 prohibits such measures. Chile alleges that Argentina's argument falls short on both
points.
101 In Chile's view, reading Article 4.2, including its footnotes, in its context and in light of its
object and purpose, it is clear that Article 4.2 does not prohibit the Chilean PBS. Indeed, Chile
explains, Argentina and its supporters under Article 4.2 rely in their interpretation not on the text that
was negotiated and implemented, but rather on the agreement that those countries appear now to wish
they had negotiated.102
4.32 Chile submits that Article 4.2 is oddly phrased, and the footnote uses terms such as "variable
import levy" or "non-tariff measures maintained by state enterprises" that are not defined and whose
contours are not immediately obvious. The text refe rs to "measures which have been required to be
converted into ordinary customs duties". In Chile's view, that text would suggest that elsewhere in the
WTO Agreements there is or was some provision that requires the conversion and explains what has
to be converted, but there is no such provision elsewhere. However, Chile contends, the agreed
Uruguay Round tariff schedules, which were negotiated during and after the drafting of the text of
Article 4.2 and which entered into force at the same time as the Agreement on Agriculture manifest
the results of the "conversion" process. Chile explains that these negotiations and the results of those
negotiations are relevant context in seeking to understand whether a particular measure is one of the

96 See Argentina's First Written Submission, para. 59.
97 See Argentina's First Written Submission, para. 57.
98 See Argentina's First Oral Statement, paras. 39-40.
99 Chile refers to paras. 57-58 of Argentina's First Written Submission.
100 See Chile's First Written Submission, para. 42.
101 See Chile's First Written Submission, para. 30.
102 See also Chile's First Oral Statement, paras. 34-36.

"kind which ha[s] been required to be converted into ordinary customs duties." Chile notes that price
band systems were not among the measures that in the negotiations were required to be converted into
ordinary customs duties. Chile indicates that, while the European Communities did convert its
variable import levies into ordinary customs duties in the Uruguay Round negotiations, the EC's
conversion – and the acceptance of that conversion by other Members – put in place a system that
clearly still has a duty that varies by a formula. Although the European Communities system is not at
issue, Chile contends, that system and its conversion was a central issue in the Uruguay Round
negotiations, and it is relevant in assessing the meaning of the less-than-crystal-clear words of
Article 4.2 that Members did not object to that system.
103
4.33 Chile submits that, even if the contested law was considered a variable levy or similar border
measure, quod non, it is not inconsistent with Article 4.2 of the Agreement on Agriculture. In Chile's
view, Article 4.2 prohibits "any measures of the kind which have been required to converted into
ordinary customs duties." Chile's price band mechanism is not a measure of this type, and Chile is not
barred from maintaining this measure.
104 Chile argues that Article 4.2 does not prohibit measures that
do not have to be tariffied. 105 In reference to the above tariffication argument by Argentina 106, Chile
submits that the obligations in Article 4.2 relate only to non-tariff barriers and that this is clearly stated
in footnote 1, which specifically excludes ordinary customs duties. According to Chile, the PBS only
covers the payment of customs duties. Moreover, Chile argues, it was not required to eliminate its
PBS nor to replace it by a bound duty system during the Uruguay Round. Chile claims that it has
maintained its PBS in an open and transparent fashion before, during and after the Uruguay Round
negotiations. Chile argues that, unlike the variable levies in the EC, which were not bound and had to
be replaced by bound duties, the Chilean duties were bound at 35 per cent for the products affected by
the PBS, even before the Uruguay Round, and were quite openly bound at lower levels as part of the
Round after finalization of the Agreement on Agriculture. Hence, in Chile's view, it was quite clear
for the other Members at that time that Chile was neither "tariffying" its PBS, nor eliminating or
replacing it. On these grounds, Chile considers that it is inexplicable why Argentina, more than six
years after the entry into force of the Uruguay Round Agreements, decided that the Chilean PBS had
suddenly become a variable levy that Chile should have eliminated when the WTO Agreements
entered into force.
107 108
4.34 Chile considers that Article 4.2 is oddly phrased, in that it appears to be cross-referencing
some obligation or other agreement in which measures had "been required" to be converted from
measures of one type to "ordinary duties". The odd syntax of Article 4.2, Chile claims, must be given
meaning. Chile notes that it would have been very easy, if negotiators had so agreed, to write a
prohibition of all non-tariff barriers. According to Chile, however, that is manifestly not what was
done, notwithstanding the current arguments of Argentina and some third country participants.
Indeed, to Chile's regret in many respects, there is no such obligation or simple prohibition elsewhere
in the Agreement on Agriculture. Chile contends that the only place in the Agreement in which
tariffication is mentioned is in the agreed tariff schedules of Members and in the Annex 5 reference to
countries allowed to engage in delayed tariffication.
109
4.35 Chile claims that Argentina interprets Article 4.2 as containing a total prohibition against non-
tariff barriers, including those listed in footnote 1 and that such an interpretation is based on
unsustainable arguments, is excessively broad and is not justified in the light of the principles of

103 See Chile's Rebuttal, paras. 28-29.
104 See Chile's First Oral Statement, para. 50.
105 See Chile's First Written Submission, paras. 30-31.
106 Chile refers to para. 49 of Argentina's First Written Submission.
107 See Chile's First Written Submission, paras. 33-35.
108 See para. 4.97 below.
109 See Chile's First Oral Statement, paras. 51-52.

interpretation of treaties in the Vienna Convention on the Law of Treaties (hereafter "the Vienna
Convention"). In this regard, Chile refers to Article 31 of the Vienna Convention and the principle of
effectiveness, as having been used by the Appellate Body. In this regard, Chile submits that Argentina
disregards the usual meaning of the terms of Article 4.2 in its context and effectively ignores the
qualifier that the measures that must not be maintained or reverted to are "measures of the kind which
have been required to be converted into ordinary customs duties". Consequently, in Chile's view, not
only do all non-tariff measures of the kind described in footnote 1 not have to be abolished, but only
those of the kind that have been specified must be converted into ordinary customs duties. Chile
argues that the drafters did not have the intention to include a total prohibition of non-tariff measures
but, instead, they introduce qualifying and limitative te rms with the intention of giving the Article the
meaning that only measures of the kind which have been required to be converted are prohibited.
110 111
4.36 Chile explains that there is also no definition of the "inclusive" terms of footnote 1, which is
an odd mix of measures. Not all of those measures are prohibited under any other rule of the WTO,
though arguably many were prohibited and many or most have been subject to abuses of various sorts
over the years. In these circumstances, Chile argues, it is particularly important in trying to discern
the meaning of Article 4.2 to examine the contemporaneous practice in the tariff agreements of the
Members and negotiators in determining which measures were considered to be of the "type" which
had to have been converted, and which were not. Chile affirms that the intent cannot be determined
simply by looking at the bare words of individual "measures" listed in footnote 1 to Article 4.2. For
example, Chile explains that footnote 1 refers to "non-tariff measures maintained through state-trading
enterprises". Chile considers that such a term, taken literally, could mean any action of a state agency
or state-owned enterprise. In Chile's view, how ever, it is obvious that Members did not have to
convert all their state enterprise activities into tariff s, nor did they have to abolish those enterprises or
activities or convert them into ordinary customs duties. Chile claims that such a broad reading was
not intended derives knowledge from the contemporaneous conduct of the negotiators. Similarly,
Chile argues, it is evident that neither Chile, nor, insofar as Chile is aware, any other Member was
required or even urged to "convert" a PBS. Chile contends that these measures were at all times
openly and transparently maintained, but, because they were not non-tariff barriers, they were not
required to be converted into some new form of ordinary duties.
112
4.37 Chile notes that Article 4.2 is different from other obligations not only in its peculiar syntax,
which it claims must be given meaning, but because the conversion process involved a privilege as
well as an obligation. Chile argues that measures that were properly subject to Article 4.2 were not
simply required to be eliminated or modified, as in ordinary WTO rules, but that, instead, the
requirement was to change the form of the trade restriction from a non-tariff barrier to a tariff barrier.
Chile claims that, together with the "requiremen t" to remove certain measures, came the right to
increase duties without compensation to other trading partners, even if the duties had been bound at a
lower level. Chile argues that the tariff rate quotas that were allowed, at tariffs often enormously
higher than previous bound rates, have frequently proven to be scarcely less effective protection than
the non-tariff barriers they replaced. Chile claims that this element of privilege was even greater,
considering that many of the measures that were required to be converted were at risk of being found
inconsistent with GATT rules or losing privileged waivers. Chile concludes that there was little or no
incentive to refuse to "convert" a measure, if that had been believed to be legally "required", since
conversion carried the privilege of substantially raising duties on the "converted" product, without the
need to compensate trading partners, as is normally required under Article II and Article XXVIII.
Chile states that, having waited, Argentina is now saying that Chile must eliminate the PBS because it
is banned by Article 4.2, but it is also saying that it is too late for Chile to get the offsetting benefit of

110 See Chile's First Written Submission, paras. 54-56.
111 Chile cites the Appellate Body report on US – Gasoline (WT/DS2/AB/R) adopted 20 May 1996,
DSR 1996:I,3, p.17.
112 See Chile's First Oral Statement, paras. 53-56.

increasing its tariffs. Chile contends that such an argument cannot be sustained. Chile claims that the
reason why Chile did not convert its price band mechan ism was and is that Article 4.2 did not require
such a conversion and certainly does not now require simple elimination of the price band without
tariffication. While Argentina and others may have wanted to negotiate a ban that would have
included price band systems, that was not what was agreed.113
4.38 Chile submits that the unusual use of the present perfect tense – "have been required" - can be
easily understood in the context of the agricultural negotiations during the Uruguay Round. Chile
argues that Article 4.2 logically refers to measures of the kind which, at the time the WTO entered
into force, "have been required" to be converted. This was not the case for the price bands of Chile
and other countries. In this regard, Chile claims that it was not required and would not be required to
convert its PBS because it already operated as a tariff and not as a non-tariff measure, and was
therefore already subject to binding in accordance with Article II. 114 Chile refers to Article 31.3(b) of
the Vienna Convention which provides that "Any subsequent practice in the application of the treaty
which establishes the agreement of the parties regard ing its interpretation shall be taken into account,
together with the context" when interpreting its terms. In this regard, Chile refers to the interpretation
by the Appellate Body of the "essence" of su ch subsequent practice whereby this lies in a
"'concordant, common and consistent' sequence of acts or pronouncements which is sufficient to
establish a discernable pattern implying the agreement of the parties regarding its interpretation".
115
Chile considers that the subsequent practice supports Chile's position as regards Article 4.2. In Chile's
view, this subsequent practice convincingly shows that, despite the Members' intention to reduce the
number of non-tariff barriers and other measures covered, their intention was not to prohibit all such
measures. Chile goes further to argue that the first evidence of State practice is precisely the Chilean
PBS which was implemented in the 1980s and is still in place today. Chile notes that Argentina's first
written submission does not refer to any record of the negotiations of the Agreement on Agriculture
that proves that Chile was asked to convert its price bands into tariff measures. Chile therefore
concludes that the system was not a measure of the kind "which have been required to be converted"
in order to allow Chile to sign the WTO Agreements.
 Chile submits that, in addition to the Chilean
PBS, there are other systems with duties that vary according to external factors and some that common
sense leads one to equate with variable levies, and which are not required to be converted into a fixed
tariff regime. In this regard, Chile refers to Argentina's customs duty on sugar imports 116 and to the
EU current duty system on imports of wheat and other cereals. 117 In Chile's view, this evidence of
practices by States is not confined simply to countries that import agricultural products but also
includes major agricultural exporters. In Chile's opinion, it is possible that many agricultural
exporting countries might initially have wished to proh ibit all levies that fluctuated or varied for any
reason and some Members certainly envisaged the possibility of exerting pressure to impose this
interpretation of Article 4.2 during the tariff negotiations that accompanied negotiations on the text of
the Agreement on Agriculture. Nevertheless, Chile argues, irrespective of the original negotiating
goals of some of the Members, the prohibition now claimed by Argentina was not agreed. Chile
further notes that the agricultural exporters did not wish to eliminate the Chilean PBS as a whole
because it is transparent and predictable and can re sult in the application of duties lower than the
bound tariff. Chile concludes by saying that this evidence of State practice (and consequently of the
general context of Article 4.2) is "concordant, common and consistent" not only with the ordinary

113 See Chile's First Oral Statement, paras. 57-61.
114 See Chile's First Written Submission, para. 57.
115 Chile refers to Japan – Alcoholic Beverages (Appellate Body report, Japan – Taxes on Alcoholic
Beverages ("Japan – Alcoholic Beverages II "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted on
1 November 1996, DSR 1996:I, 97), p. 13.
116 Chile refers to Decree No. 797/92 of 19 May 1992 of the Argentine Ministry of the Economy, Public
Works and Services (Official Journal of 21 May 2001).
117 Chile refers to the Commission Regulation (EC) No. 1249/96 of 28 June 1996 on rules of
application for Council Regulation (EEC) No. 1766/92 on cereal sector import duties.

meaning of the terms contained in Article 4.2, but also with the objective and purpose of this
Article.118
4.39 Chile contends that the object and purpose of the Agreement on Agriculture is consistent with
Chile's interpretation of Article 4.2. This object and purpose, Chile claims, can easily be seen in its
provisions, including the Preamble, and in the structure and outcome of the negotiations on agriculture
during the Uruguay Round. The Preamble to the Agreement on Agriculture starts by indicating that
Members have decided "to establish a basis for initiating a process of reform of trade in agriculture in
line with the objectives of the negotiations as set out in the Punta del Este Declaration". It continues
by "Recalling" that the "long-term" objectives of the process include "a fair and market-oriented
agricultural trading system" and "substantial progressive reductions in agricultural support and
protection sustained over an agreed period of time". One apparently more short-term commitment is
"to achieving specific binding commitments" in several areas, including "market access". Chile also
refers to the Punta del Este Ministerial Declaration as it fixes the goals for the forthcoming
negotiations on agriculture.
119 In Chile's view, it is obvious that the object and purpose of the
Uruguay Round negotiations was to reduce barriers to trade in agricultural products, while at the same
time acknowledging that it would be a long-term process. It further notes that Article 20 of the
Agreement on Agriculture underlines this by calling fo r negotiations to continue the reform process
and stating that further commitments will be necessary to achieve the long-term objectives envisaged
in the Preamble. Argentina's interpretation of Article 4.2, Chile claims, is not in harmony with this
object and purpose. In this regard, Chile argues that Argentina suggests that, Chile could have raised
its tariff protection for the products in question through tariffication, which is contrary to Chile's
decision to lower the tariff. 120 Furthermore, it claims that Argentina appears to believe that Chile
should have applied a single invariable duty on all imports. Chile contends that the result would
undoubtedly be less liberalization of trade than that currently existing under the PBS, in which the
tariff usually applied is much lower than the bound tariff that Chile has the right to apply.121
4.40 Argentina submits that, contrary to what Chile argues, Article 4.2 and its footnote No. 1 are
not open to different interpretations, as this would be contrary to the interpretation of treaties in
accordance with the Vienna Convention. In Argentina's view, an interpretation of the text as well as
the context, object and purpose of the Agreement indicates that mechanisms such as the price band are
clearly covered by the said Article . In other words, even if the PBS were not considered to be a
variable levy, it is clearly a similar border measure regulated by Article 4.2 of the Agreement on
Agriculture which constitutes a "lex specialis" vis-à-vis the GATT 1994. Argentina considers that the
determining criterion for the inclusion of these mechanisms among the measures which have been
required to be converted into ordinary customs duties does not, and cannot be an exhaustive list of the
different schemes. Argentina contends that this is due to the obvious impossibility of listing all of the
measures which, by their nature, are infinite, since they depend exclusively on human ingenuity in
designing any non-tariff barrier.
122
4.41 Argentina argues that an intelligent interpretation of Article 4.2 of the Agreement on
Agriculture must also take account of the principle of effectiveness (ut res magis valeat quam pereat),
a fundamental principle in the interpretation of treaties which forms part of the general rule of
interpretation laid down in Article 31 of the Vienna Convention. Argentina submits that, in the
framework of the WTO, this principle has been upheld in the case US - Gasoline and has been
recognized and applied systematically in successive rulings of the Appellate Body. 123 Argentina

118 See Chile's First Written Submission, paras. 58-65.
119 See para. 68 of Chile's First Written Submission.
120 Chile refers to para. 57 of Argentina's First Written Submission.
121 See Chile's First Written Submission, paras. 66-70.
122 See Argentina's Rebuttal, paras. 38-39.
123 See Argentina's Rebuttal, para. 40 and footnote 26.

contends that Article 4.2 of the Agreement on Agriculture would be without effectiveness if one
accepts Chile's interpretation that the PBS did not need to be tariffied because Argentina did not
challenge "the system and its operation during the Uruguay Round negotiations". 124 According to
Argentina, applying the rule of effectiveness to the interpretation of Article 4.2 of the Agreement on
Agriculture125 means ensuring that non-tariff measures - such as the Chilean price band system -
cannot be maintained or reverted to after the entry into force of the Agreement. Consequently,
Argentina argues, the only possible approach - assuming an analysis based on the text, context, object
and purpose of the Agreement on Agriculture - is to analyse each case individually in terms of the
nature and the economic effects of the system as compared to the scenario of ordinary customs duties,
in order to determine which measures are covered by footnote 1 to Article 4.2 of the Agreement on
Agriculture. Argentina submits that if the analysis of the nature and effects were not the right
approach, obligations such as "[M]embers shall not maintain, resort to or revert to …" and the phrase
in the footnote "… and similar border measures other than ordinary customs duties …" would be
pointless.
126
4.42 As regards Chile's argument whereby the PBS is not a variable levy, Argentina submits that
anything that does not constitute an ad valorem tariff, a specific duty or a combination of the two,
cannot under any circumstances qualify as an ordinary customs duty. Consequently, in Argentina's
view, in accordance with the Agreement on Agriculture, if a measure does not come under one of that
Agreement's exceptions, it is inconsistent. Argentina explains that the wording of Article 4.2 reflects
the scope and complexity of the entire range of distortionary measures that Members must dismantle,
refrain from reverting to in the future or refrain fr om maintaining where they are inconsistent with the
new obligations negotiated under the Uruguay Round. The diversity of non-tariff measures to be
dismantled and the possibility of some of them not being dismantled following the conclusion of the
Uruguay Round is expressed in the word "shall not maintain". Argentina argues that, had there not
been the possibility that some of the measures "which have been required to be converted into
ordinary customs duties" would remain in force after the Uruguay Round, the text would merely have
stated "… shall not resort to, or revert to". In Argentina's view, the words "shall not maintain" only
make sense where there is a possibility that a measure could remain in force. Argentina further argues
that, at the same time, the fact that Chile has bound tariffs for certain products such as wheat, wheat
flour and pure vegetable oils in no way means that the PBS does not have to be tariffied, i.e. converted
into an ordinary customs duty, since the Chilean bound tariff was 35 per cent
127 before the Uruguay
Round, and was brought down to 31.5 per cent for those products. Neither Chile's schedule of
bindings prior to the Uruguay Round – National Schedule No. VII – nor its schedule resulting from
the Uruguay Round, records the variable levy that Chile has applied and continues to apply. This is
contrary to the clear requirement in Article 4.2, which prohibits the maintenance of "measures of the
kind" which have been required to be converted into ordinary customs duties.
128
4.43 Chile claims that there are logical economic policy reasons why the price band system or
other systems with "duties that vary" were not prohibited under Article 4.2. Chile submits that the
only trade restrictive effect of the price band system is caused by the imposition of a duty. Since
under the rules of the GATT, Chile's obligation is to respect its tariff binding, Chile could honour this
obligation by applying its duty at the bound level of 31.5 per cent at all times. Instead, Chile applies a

124 Chile's response to question 12(d) of the Panel.
125 Argentina cites the following: "The rule of effectiveness merely means that a treaty clause must be
interpreted in such a way as to enable it to 'display its practical or useful effects', or in more modern terms, to
fulfil its object and purpose." Conf. Diaz de Velasco, Instituciones de Derecho Público, Ed. Tecnos, 1996,
p. 188.
126 See Argentina's Rebuttal, paras. 41-43.
127 See Argentina's First Oral Statement, para. 29, which refers to para. 24 of Chile's First Written
Submission.
128 See Argentina's First Oral Statement, paras. 25-29.

price band system in which the applied duty is usually below the bound rate, and can even be zero.
Chile refers to Argentina's argument that the Chilean PBS has additional restrictive effects other than
the duties because of the system's alleged complexity and lack of transparency and predictability.
Chile notes that its system for varying the duties applied within the bound cap is still less restrictive of
trade than if Chile applied its duties at the bound rate. Chile contends that there is no requirement that
a duty system be simple and there is no prohibition on variation, so long as the bound level is
respected.
129
4.44 Chile submits that it is not arguing that the only measures prohibited by Article 4.2 are those
that were in fact converted into ordinary customs duties. Chile contends that the fact that PBS duties
were not converted and were not requested to be converted is another supporting indication that the
Chilean PBS is not a measure of the kind that had been required to be. Chile submits that, where the
scope of a term is in doubt, as is the case with the term "variable import levies", it is particularly
important to examine context and negotiating history. Chile also notes that it had no incentive to
maintain a measure that could be converted, because the conversion process included the right to raise
bound duties to account for the price effects of those non-tariff barriers that had to be converted.
 130
4.45 Chile submits that, in the event that the Panel had any doubts over the correct interpretation of
Article 4.2, the legal principle in dubio mitius, which the Appellate Body has endorsed, would suggest
that vagueness and ambiguity should not be resolved against Chile, but rather against the complaining
party that seeks to invalidate Chile's long standing system. Chile submits that the principle of
in dubio mitius holds that "[i]f the meaning of a term is ambiguous, that meaning is to be preferred
which is less onerous to the party assuming an obligation, or which interferes less with the territorial
and personal supremacy of a party, or involves less general restrictions upon the parties." 131 C h i l e
considers that its PBS is consistent with Article 4.2 by any reasonable interpretation, applying the
rules of interpretation of the Vienna Convention, but this interpretive principle lends further force to
that conclusion.132
4.46 Argentina contends that Chile erroneously invokes the principle of in dubio mitius to deprive
the obligation contained in Article 4.2 of the Agreement on Agriculture of its content, when that
principle – as defined by the Appellate Body
133 – is only relevant as a supplementary means of
interpretation, to which there is no need to resort in this case. 134 Argentina explains that Chile does
this by shifting the responsibility for requiring it to convert its system into a tariff to the complainant.
It adds that the obligation not to maintain a meas ure that is incompatible with its WTO obligations
rests with Chile (Article XVI.4 of the WTO Agreement). Argentina having provided sufficient
evidence to prove that the Chilean PBS is a "variable levy" or a "similar measure", in the absence of
any rebuttal by Chile, there is no reason to resort to a supplementary means of interpretation ( in dubio
mitius) when Article 31 of the Vienna Convention suffices to clarify the meaning of the provision
(Article 4.2 of the Agreement on Agriculture: prohib ition to maintain), and to apply it to the facts of
the case. In other words, the PBS is included among the "measures of the kind" which have been
required to be converted into ordinary customs duties precisely because it is a "variable levy" or
"similar measure".135

129 See Chile's Rebuttal, paras. 35-36.
131 Chile quotes the Appellate Body report on EC – Hormones (WT/DS26/AB/R, WT/DS48/AB/R)
adopted on 13 February 1998, footnote 268 (DSR 1998:I, 135).
133 Argentina refers to the Appellate Body report on EC – Hormones (WT/DS26/AB/R,
WT/DS48/AB/R) adopted on 13 February 1998, footnote 268, (DSR 1998:I, 135).
134 See Argentina's Second Oral Statement, para. 28.
135 See Argentina's Second Oral Statement, para. 29.

(ii) Whether the PBS is a variable levy or a similar border measure
4.47 Argentina argues that the term "variable levies" means "complex systems of import
surcharges intended to ensure that the price of a product on the domestic market remains unchanged
regardless of price fluctuations in exporting countries". 136 With this definition in mind, Argentina
considers that the Chilean PBS unquestionably applies variable levies on imports of wheat, wheat
flour and edible vegetable oils. Argentina explains that, when the Chilean customs reference price is
lower than the floor of the price band, the shipment is subject to a variable specific duty (in addition to
the customs duty normally applied) amounting to the difference between the price band floor and the
f.o.b. reference price provided by customs for the day on which the bill of lading of the imported
goods in question was issued. The percentage of such duties applied to each shipment would vary
according to the c.i.f. price.
137 The nature of the PBS as a variable tariff, in Argentina's view, is
recognized by the WTO Secretariat's 1997 Report on Trade Policy Review of Chile, where it is said
that "[t]he price stabilization mechanism works as a variable levy since the duty imposed on these
goods varies according to their import price."
138 139 Argentina further submits that Chile itself has
admitted that its system imposes a "levy" on "imports" which "varies" according to the day of
shipment.140 Consequently, Argentina claims, it is a variable import levy.141
4.48 Argentina initially argues that, since, in the PBS, a specific duty is a variable which depends
on the relationship between domestic prices and export prices, the system defines the specific duty
(variable in accordance with the f.o.b. reference price of the day) to be applied for each shipment.
According to Argentina,this results in a differen t tariff for each shipment that was sought to be
eliminated via the tariffication process of the Uruguay Round for agricultural products. It is
Argentina's view that, under the PBS, Chile imposes more than "ordinary customs duties". Argentina
alleges that, on shipments whose price is below the floor of the price band, Chile imposes a border
adjustment measure which is a form of variable tariff. Argentina argues that, regardless of what a
Member might choose to call its border adjustment measure, that measure is prohibited if it is
anything other than "ordinary customs duties".
142
4.49 Chile argues that the Agreement on Agriculture does not contain any definition of what is
meant by variable levy nor is there any definition elsewhere in the WTO. Chile considers that it is
apparent that it is not sufficient simply to say that any levy that varies is a "variable levy", because all
levies in one sense or another vary. In Chile's view, a uniform specific duty varies when measured in
ad valorem terms, and an ad valorem duty by definition produces a different specific rate of duty,
dependent on the value of a product.143 Chile further claims that the definition used by Argentina144 is
based on a commentator's views and does not actually support Argentina's position either. Chile
argues that its price band mechanism does not keep the domestic market price unchanged, nor is it
intended or designed to do so. Rather, it continues, Chile's system is designed to moderate the effect
of fluctuations in international prices on the Chilean market.
145 Chile submits that, in its PBS, the
critical variable is the difference between world prices at the time of shipment and world prices over

136 Argentina is using a definition provided in Goode, Walter, Dictionary of Trade Policy Terms
(Centre for International Economic Studies, University of Adelaide, 1997), p. 250. See Argentina's First Written
Submission, para. 52.
137 See Argentina's First Written Submission, para. 54.
138 Argentina quotes the Trade Policy Review Body, Trade Policy Review of Chile, Report by the
Secretariat, WT/TPR/S/28 (7 August 1997), para. 38.
139 See Argentina's First Written Submission, para. 55.
140 Argentina refers to para. 38 of Chile's First Written Submission.
142 See Argentina's First Written Submission, para. 56.
143 See Chile's First Oral Statement, para. 38.
144 See Argentina's First Written Submission, para. 52.
145 See Chile's First Oral Statement, para. 40.

the last five years. Chile's domestic price plays no role in this formula, nor does the actual transaction
price of the product make any difference. Chile concludes that price competition is possible, not only
between products of different countries imported into Chile, but also between imports and Chilean
products.146
4.50 In response to the above argument by Argentina 147, Chile argues that the tariff does vary
according to the date of export, but does not vary acco rding to the shipment (for example, even if the
transaction prices are different, two shipments exported on the same date will have to pay the same
import duty in Chile). Chile further argues that nowhere is it stated that a tariff measure becomes a
"variable levy" simply because the tariff level varies frequently.148 Chile also indicates that Argentina
omitted to mention certain critical aspects of the texts in question and their application. 149 As regards
Argentina's argument that the WTO itself has recognized that the PBS is a variable levy, 150 Chile
claims that the referred to report by the Secretariat for the Trade Policy Review Mechanism (TPRM)
only contains the opinions and statements of the Secretariat, not those of the WTO, and reminds
Argentina that the opinions in the TPRM may not be used in dispute settlement procedures. In
addition, Chile indicates that, in the statement quoted by Argentina, the Secretariat does not assert that
the Chilean PBS is a variable levy but that it "works as" a variable levy, because the levy varies
according to the import price.
151
4.51 In response to Chile's argument that domestic prices are not used, Argentina argues that
nonetheless it is not within the WTO's competence per se to provide for mechanisms which regulate
or moderate fluctuations in international prices. 152 On the contrary, Argentina considers that the
primary objective of the WTO is confined – as regards access mechanisms – to the promotion of
transparent, non-distortionary, predictable systems that contribute to the liberalization of trade. And
indeed, the PBS is the very type of mechanism which, since it lacks transparency and is distortionary
and unpredictable, conflicts with the Uruguay Round commitment not to maintain "measures of the
kind". In Argentina's view, all systems of variable levies have similar characteristics and a similar
objective, i.e. to preserve the domestic market, to a greater or lesser extent, from the evolution of the
international market. As instruments, these mechanisms provide a minimum threshold of protection
which in some instances, as in the case of the bands, is virtually impassable in situations where prices
drop. Argentina argues that, here, it is of little importance whether the threshold parameters are fixed
on the basis of a domestic target price or on the basis of representative averages from international
markets over the past years. According to Argen tina, what is important is to ensure that these
mechanisms have the same transparency, predictability and consequent effective access level as
"ordinary customs duties" would have provided".
153
4.52 Chile submits that imports can in fact enter the Chilean market at prices below the price band
floor. According to Chile, there are two situations in which this can happen: (i) Since the specific
duties are calculated in the middle of the year and are applied during the following year, there are
import cost components that can change during that period. For example, Chile explains, international
freight costs for the products may decrease, sometimes rather sharply. Chile further alleges that, in
some cases, specific tariff headings are shipped at special prices, using ships that are heading for Chile
in any case, with or without cargo. Chile explains that, similarly, there are trade operations carried out
in better conditions than those foreseen when establishing the weekly reference price, which means

146 See Chile's First Oral Statement, para. 43.
147 Chile refers to para. 56 of Argentina's First Written Submission.
148 See Chile's First Written Submission, para. 40.
149 See Chile's First Written Submission, para. 32.
150 Chile refers to para. 55 of Argentina's First Written Submission.
151 See Chile's First Written Submission, para. 39. See also para. 41 of Chile's First Oral Statement.
152 Argentina refers to para. 36 of Chile's First Oral Statement.
153 See Argentina's Rebuttal, paras. 60-62 and Annexes ARG-41 and ARG-42, and Argentina's Second

that the import cost is also below the estimated price band floor. (ii) The effective import price may
possibly be lower than the reference price determined for the date of a particular import and,
consequently, the product may be charged a lower specific duty upon entry, remaining below the price
band floor.154
4.53 Chile considers that, going beyond the incontrovertible fact that Chile applies a price band, it
is essential to understand that the PBS imposes a duty that varies only according to the date on which
the export took place, in accordance with the prevailing price on international markets, and in relation
to the levels of the same price over the previous five years. Chile claims that the duty does not vary
according to the amount of the transaction or the corresponding invoice and does not change either
according to the domestic market price. Consequently , it is Chile's view that the PBS does not in any
way resemble a variable levy such as those imposed by the old European Communities system for
several years prior to the entry into force of the Agreement on Agriculture; it is not similar either to
minimum import price schemes, which occasionally utilize duties in order to force a rise in low import
prices until they are comparable to the minimum domestic landed price fixed. Chile contends that the
differences between the PBS and the old European Communities system are more than semantic.
According to Chile, the PBS does not act as a non-ta riff barrier to prevent the import of goods whose
price is lower than the price under the band nor to force an increase in this price until it reaches a
certain domestic level.
155
4.54 Argentina claims that Chile's submission makes a partial and erroneous interpretation of the
definition of a variable levy 156 provided in Argentina's submission. 157 Argentina asserts that the
definition in fact covers various elements that could be examined separately and that must be
interpreted as a single whole. The definition begins by recognizing that a variable levy implies
"complex systems of import surcharges". Argentina argues that, in the specific case of the Chilean
PBS, two elements of the definition apply: complexity, and the imposition of variable levies in
addition to the general tariff. Moreover, any PBS presupposes the application of a levy in addition to
the general tariff (i.e. a surcharge) which varies, not with respect to the transaction value but in
accordance with some type of mathematical relationship between the reference price fixed arbitrarily
and some threshold price or parameter. These elements alone are evidence enough of the complexity
of the system. Argentina explains that the third element of the definition, namely ensuring "that the
price of a product on the domestic market remains unchanged", needs to be interpreted intelligently
and in accordance with the text of the definition (and the ultimate purpose of the provisions of the
Agreement on Agriculture). Specifically, in a low international prices scenario, the distortionary
effect of the Chilean PBS is reflected, in particular, in the artificial change in the competition situation
on the domestic market owing to the fact that once the reference price of the system has been
activated, the domestic market becomes, to a large extent, impervious to price signals from the
international market.
158
4.55 Chile submits that, if the term "variable levy" had been intended to have the broad meaning
urged by Argentina and certain third parties, it is impossible to explain why Argentina would maintain
a sugar import system that is not distinguishable in any relevant way from the Chilean system that
Argentina is challenging. Further, Chile argues, it is impossible to reconcile this attempt to stretch the
meaning of "variable levy" with the position adopted by WTO Members, including Argentina, Brazil
and the United States, in the Uruguay Round negotiations after the text on the Agreement on
Agriculture had been agreed. Recalling that Chile's system has been openly and transparently in effect
since 1983, Chile adds, it is inexplicable why WTO Members raised no objection to the Chilean PBS

154 See Chile's response to question 46 (CHL) of the Panel.
155 See Chile's First Written Submission, paras. 37-38. See also para. 42 of Chile's First Oral Statement.
156 See para. 4.48 above.
157 Argentina refers to para. 37 of Chile's First Written Submission.
158 See Argentina's First Oral Statement, paras. 29-33.

and similar PBSs of other countries without demanding tariffication or change. Chile explains that
Members accepted the system of the European Communities which clearly continues to levy duties
that vary with the difference between European Communities and world prices. Chile contends that it
is not arguing that a failure to challenge an illegal measure at the first opportunity means that a WTO
Member forfeits the right ever to challenge that measure. However, Chile does contend that – in
interpreting a term of art like "variable levy" that is not defined in the Agreement, –it is highly
relevant to examine the conduct of the negotiators at the time of the negotiations and in the
implementation of those negotiations. Chile submits that this context uniformly supports the view that
the Chilean PBS is not a variable levy within the meaning of footnote 1.
159
4.56 Chile contests Argentina's suggestion that an element of the test to determine whether a given
import duty is a forbidden variable levy might be the frequency or degree of changes in the tariff and
the complexity of the system.160 Chile contends that, aside from being vague and even illogical, none
of Argentina's suggested rules, definitions and tests is set out in the Agreement on Agriculture or any
other WTO agreement, and none of these suggestions has any legal status. Chile submits that nothing
in the WTO prescribes how frequently an applied tariff can be changed or on what basis, so long as
the binding is respected. Chile considers that its syst em in fact is transparent, and changes in the duty
from week to week are normally modest, based on a formula utilizzing objective criteria. However,
Chile adds, neither Article 4.2 nor its footnote requires that Chile's system meet these tests.
161
4.57 Chile considers that an analysis of the relevant provisions of the WTO according to the
principles laid down in the Vienna Convention shows that the Chilean PBS does not constitute a
variable levy nor any other form of non-tariff barrier within the meaning of Article 4.2. 162 Chile
alleges that its PBS does not come within the scope of footnote 1 to Article 4.2 of the Agreement on
Agriculture. In Chile's view, this is obvious because footnote 1 does not include PBS. This omission,
in Chile's view, cannot be attributed to the fact that the concept of price bands was not understood at
the time of the negotiations on the Agreement on Agriculture since, on the contrary, price bands were
widely used in Latin America in 1994 and continue to be used today. Chile claims that the negotiators
in the WTO, Argentina in particular, undoubtedly knew of such regimes and specifically decided not
to include them within the list of measures covered by footnote 1.
163 Chile submits that the price band
is a specific tariff that fluctuates according to exte rnal factors. In Chile's view, variable import levies
are measures that were habitually used in Europe, particularly in the EC, to oblige the price of
imported products to rise up to the level fixed by the EC. Chile explains that, typically, and
sometimes exclusively, there were no bound tariffs for products subject to variable levies in the EC.
According to Chile, the purpose of variable levi es was in fact to erect a virtually insurmountable
barrier against imported products compared with European like products so that exporters were unable
to compete with the prices in the European Communities and thereby undermine the EC's domestic
price support system.
164 On those grounds, Chile claims that its PBS is nothing more than an ordinary
customs duty, with a rate that is adjusted to refl ect the trend in current world prices compared with
world prices in the past. It further deduces that a more competitive supplier would not lose his
opportunity to win a larger share of the market by offering lower prices, as was the case with the
variable levy schemes in Europe.
165

159 See Chile's First Oral Statement, paras. 44-47.
160 Chile refers to paras. 30-33 of Argentina's Oral Statement.
161 See Chile's Rebuttal, paras. 24-25.
162 See Chile's First Written Submission, para. 43.
163 See Chile's First Written Submission, para. 44.
164 In footnote 35 to its First Written Submission, Chile refers to the definition of variable levy as a duty
under the European Community's Common Agricultural Po licy by Merritt R. Blakeslee & Carlos A. Garcia, The
Language of Trade: A Glossary of International Trade Terms 167-168 (3rd. ed. 1999).
165 See Chile's First Written Submission, para. 45.

4.58 Chile argues that, in reference to the example of the EC's variable levies, unlike PBSs or other
ordinary duties, a variable levy, like other typical non-tariff barriers, removes any incentive to
compete on price in the products concerned. Chile submits that the special scope of application of
Article 4.2 reflects the consensus that existed among those taking part in the negotiations on
agriculture in the Uruguay Round that it was necessary to discourage non-tariff barriers because they
are less transparent and give a higher and more unconditional level of protection than tariffs. Chile
claims that its PBS, however, imposes a specific ta riff on certain agricultural products. It further
explains that, even though the duty applied varies, it does not change according to the import price or
the domestic market price in Chile, but compensates for the difference between a representative global
price and a price fixed in the same way corresponding to the previous five years, deducting maximum
and minimum prices.
166
4.59 Argentina submits that, the first step, according to the procedure for interpretation laid down
by the Vienna Convention , would be to produce a textual definition of the concept of "variable levy",
a definition which, in Argentina's view, does have its importance as a means of defining the scope of
the obligations, and ensures that the literal meaning incorporates the economic and commercial reality
that the words are supposed to reflect. Argentina contends that a variable levy can be defined
textually as a customs charge in the form of a levy, duty or fee which varies over time – in other
words, a duty applied by customs with an in-built pattern of variation based on extraneous factors and
which is designed to increase or reduce the isolation of the domestic market. According to Argentina,
in GATT/WTO terms, and from a legal point of view based on a textual interpretation, the parameters
defining the variation of a levy must be extraneous to the transaction price or the physical
characteristics of the product, which are the elements of "ordinary customs duties" par excellence.
Argentina claims that an interpretation of the word s of Article 4.2 such as the one mentioned in the
previous paragraphs is supported by the Article's context, Article 4.1, and the title of the Article,
which refer, respectively, to the national schedule s as the instrument in which the commitments must
be specified, i.e. the result of the tariffying and the market access, which is ultimately what is affected
by systems such as the PBS – illegal under Article 4.2 because their effects are reflected in the greater
or lesser isolation they cause. Argentina submits that, if it is argued that a textual and contextual basis
is not sufficient to define a variable levy, one should turn to the object and purpose of the provision, in
accordance with Article 31 of the Vienna Convention, i.e. making the rules and disciplines of the
GATT/WTO in the agricultural sector more effective.
167 168
4.60 Argentina furthermore does not agree with Chile's argument whereby it assimilates all
variable levies with those applied by the Euro pean Communities "at the time the negotiations were
held".169 Argentina argues that Chile's extensive comparison and contrast of its price band system
with that of the European Communities does not alter the fact that Chile's measure is a variable levy
which, like the EC's measure, is specifically design ed to ensure that local producers remain isolated
from price competition from more efficient foreign producers. 170 Argentina claims that Chile, in
differentiating its system from the one applied by the European Communities (which would seem to
be the only definition that Chile accepts of a variable levy), defines its PBS exactly as Argentina
defines a variable levy in paragraph 53 of its first written submission. In that paragraph, Argentina
states, elaborating on the definition of variable levies in paragraph 52, that it considers a variable levy
to be "a duty which varies in accordance with the export market price." Argentina argues that,
similarly, Chile maintains that "the Chilean PBS, however, imposes a specific tariff on certain
agricultural products. Even though the duty applied varies, it does not change according to the import

166 See Chile's First Written Submission, para. 49.
167 Argentina refers to the Preamble to the Agreement on Agriculture speaks of "… correcting and
preventing restrictions and distortions in world agricultural markets".
168 See Argentina's Rebuttal, paras. 45-47.
169 See First Written Submission by Chile, para. 49.

price or the domestic market price in Chile, but compensates for the difference between a
representative global price (the price of hard red winter No. 2 f.o.b. from the Gulf (United States)) and
a price fixed in the same way corresponding to the previous five years …". 171 Argentina submits that
this Chilean definition coincides precisely with Argentina's definition of a variable levy. It further
argues that this definition by Chile reinforces the concept of variability of the levy. In reference to
paragraph 38 of Chile's written submission, Argentina claims that Chile recognizes firstly that the levy
varies, and secondly, that it varies at least in accordance with Argentina's second observation
concerning the concept of a variable levy, i.e. in accordance with the export market price.
172
4.61 Argentina contends that the test for determining whether a PBS is or is not a measure of this
kind begins with an analysis of the characteristics in order to determine to what extent the particular
characteristics of variable levies (i.e. variability, application at the border, and existence of
determining extraneous factors) contributes to the objective of ensuring greater or lesser isolation of
the domestic market. Argentina argues that, even if it were argued that the Chilean PBS is any way
different from a variable levy, it cannot be denied that it comprises the elements that are common to
that type of levy. Argentina claims that absolute identity is certainly not required; what is required is
a resemblance or similar nature, in other words the mechanisms, structures and mode of application
must resemble each other. In Argentina's view, it is important to see whether the measure under
examination, in this case the Chilean PBS, fits with the final objective of Article 4.2 of the Agreement
on Agriculture and its footnote in particular, and with the objective of tariffication of agriculture in
general, in conformity with the Agreement – i.e. to enhance transparency through the establishment of
tariffs that discipline agricultural trade and to improve the predictability of such trade through
"specific binding commitments" in the area of "market access". Argentina submits that, if upon
examining the most common elements of a variable levy the PBS were considered to lack absolute
identity and therefore fall outside that category, the economic effects of the PBS surely constitute a
clear basis for determining the degree of "similarity" of the measure within the meaning of footnote 1
to Article 4.2 of the Agreement on Agriculture.
173
4.62 Chile submits that its PBS is not a "similar border measure" because neither by its operation
nor in its context is it similar to the non-tariff barriers described in footnote 1, but rather it corresponds
to the category of measure which, in accordance with this footnote, fall outside its scope. 174 C h i l e
considers that footnote 1 makes explicit that "similar border measures" do not include ordinary
customs duties. Chile submits that the Chilean price band mechanism restricts trade only through
duties, and that these duties do not operate as a minimum price system or other non-tariff barrier.
Rather, Chile explains, the PBS, like other ordinary duties, allows price competition. 175 Chile notes
that, although the Agreement on Agriculture does not define "ordinary customs duties", it is obvious
that the PBS falls within the term because it only imposes duties. In Chile's view, the system is
subject to the obligations in Article II of the GATT 1994, in the same way as all the other products
subject to a bound tariff as such. Chile argues that no waivers are envisaged and conformity with the
WTO Agreement is not due to any agriculture-specific provision. Chile claims that, consequently, the
most reasonable interpretation of the text of footnote 1 is that the PBS is outside the scope of the
measures covered by the obligations in Article 4.2.
176
4.63 Argentina argues against Chile's statement that "the price band system … corresponds to the
category of measure which, in accordance with this footnote, fall outside its scope". 177 Argentina

171 Argentina refers to para. 49 in fine of Chile's First Written Submission.
172 See Argentina's First Oral Statement, paras. 33-37.
173 See Argentina's Rebuttal, paras. 55-57.
174 See Chile's First Written Submission, para. 46.
175 See Chile's First Oral Statement, para. 48.
176 See Chile's First Written Submission, para. 47.
177 Argentina refers to para. 46 of Chile's First Written Submission.

contends that Chile fails to identify the characteristics which would enable the PBS to be covered by
the exceptions in footnote 1 of Article 4.2 of the Agreement on Agriculture. It is Argentina's
understanding that Article 4.2 of the Agreement on Agriculture and footnote 1 thereto expressly
prohibit Members from maintaining, resorting to or reverting to "any measures of the kind which have
been required to be converted into ordinary customs duties", establishing a limited number of
exceptions in the case of "special safeguard provisions" (Article 5), "special treatment with respect to
paragraph 2 of Article 4" (Annex 5), and "measures maintained under balance-of-payments provisions
or under other general, non-agriculture-specific provisions of GATT 1994 or of the other multilateral
trade agreements in Annex 1A to the WTO Agreement." In Argentina's view, the Chilean PBS does
not meet the requirements for being considered as a special safeguard measure under Annex 5 or
Article 5 of the Agreement on Agriculture nor, clearly, is it a measure "… maintained under balance-
of-payments provisions". Nor can the PBS be covered by the third hypothesis "… other general, non-
agriculture-specific provisions of GATT 1994", since the Chilean PBS is applied exclusively in the
agricultural sector. Thus, Argentina contests Chile's argument with respect to the PBS that "no
waivers are envisaged and conformity with the WTO Agreement is not due to any agriculture-specific
provision."
178 Consequently, Argentina rejects Chile's argument that " … the most reasonable
interpretation of the text of footnote 1 is that the price band system is outside the scope of the
measures covered by the obligations in Article 4.2."
179 180
4.64 In Chile's view, a "minimum import system" or a "variable levy" might be considered a non-
tariff measure insofar as the systems could operate to exclude low-priced goods and preclude price
competition. However, Chile adds, it must be conceded that a prohibitive tariff has similar effects, but
clearly is not prohibited by Article 4.2. Thus, Chile concludes, given the imprecision of the language
of Article 4.2, it may be necessary, as with other measures, to examine which of such measures were
considered to be of the type that required conversion into ordinary customs duties in the Uruguay
Round. Chile is not aware of any objective test of "similarity" within Article 4.2 or elsewhere in the
WTO. In Chile's view, it seems probable that the category of "similar border measures" was intended
to capture measures that were the same as those "required to be converted", but which were simply
labelled differently. Given the vagueness of the terms for those measures specifically named and
given the apparent absurdity of a literal or dictionary approach, Chile considers that it is evident that a
cautious approach is necessary, and that it would be prudent to decide cases as narrowly as possible,
rather than attempting on the basis of a single dispute to enunciate broad rules not written in the text
and not agreed by the negotiators.
181
4.65 Argentina contends that the essential features that determine whether a measure is a "variable
levy" or a "minimum import price" basically relate to the effects of the measure. Argentina considers
that the basic effects of a variable levy or minimum import price, as well as any other non-tariff
measure within the meaning of Article 4.2 of the Agreement on Agriculture, are lack of transparency
and predictability and consequent nullification or impairment of market access. In Argentina's view,
the degree of similarity must once again be analysed in terms of undesired economic effects
(mentioned in the reply to question 6(a)) which are present to a greater or lesser degree in the case of
all "measures of the kind which have been required to be converted into ordinary customs duty",
whether those listed specifically in footnote 1 to Article 4.2 of the Agreement on Agriculture or those
covered by the concept of "similar border measures other than ordinary customs duties".
182
4.66 Chile agrees that the mere fact that a duty may or does vary does not mean that the duty is a
prohibited variable levy. In Chile's view, were the rule otherwise, a Member could never change its

178 Argentina refers to para. 47 of Chile's First Written Submission.
179 Argentina refers to para. 47 of Chile's First Written Submission.
180 See Argentina's Rebuttal, paras. 79-83.
181 See Chile's response to question 6 (ALL) of the Panel.
182 See Argentina's response to question 6 (ALL) of the Panel.

applied rate of duty and indeed would have to offer guarantees that the applied rate would not vary,
independent of any binding. Obviously, Chile adds, there is nothing in any WTO rule to suggest that
whether a measure is a variable levy depends on the scope and frequency of variation. Chile contends
that, if it is accepted that the purpose of Article 4.2 is to address non-tariff barriers, then it might be
considered that the defining characteristic should be whether the measure has the effect of a
quantitative limitation, in the way a minimum import price system can effectively prevent imports of
goods below a certain price. However, Chile affirms, it must be conceded that there is no such test in
the language of the Agreement, and it is easy to demonstrate that the negotiators of the Agreement on
Agriculture allowed conversion into ordinary duties in a way that is often prohibitive of any imports
not within the preferential tariff rate quota. Chile considers that, in such circumstances, it may be that
the European Communities are correct to say that th e dispositive issue, at least in the case of a
measure whose restriction is accomplished through a customs duty, is whether there is a ceiling
binding, in which case the frequency, scope or criteria for variability are irrelevant under
Article 4.2.
183
4.67 Argentina submits that an infringement of Article 4.2 of the Agreement on Agriculture is not
contingent on whether or not the bound tariff has been violated. It further states that if, as Chile
claims, the variability of a measure were irrelevant as long as the bound level was not exceeded,
Article 4.2 of the Agreement on Agriculture and its footnote would lose their effectiveness in that the
obligation would be limited exclusively to the application of "cap" mechanisms to the different
variable levy schemes, making their mandatory tariffication as stipulated in Article 4.2 of the
Agreement on Agriculture unnecessary and rendering their operation immutable. In Argentina's view,
there is no legal justification whatsoever for such an interpretation, which would in any case be absurd
from an economic standpoint. Argentina is of the opinion that Chile cannot disregard the value of
certainty in economics and trade and the inconvenience of having to deal with such volatile access
mechanisms as variable levies. Indeed, it says, the use of the PBS is yet another factor of uncertainty,
and compared with ordinary customs duties which, as already stated
184, are not subject to the
variability of the system at issue, it would add to the cost of any commercial planning scheme.185
4.68 Argentina submits that Chile has recognized that the category "similar border measures" was
included in footnote 1 to Article 4.2 of the Agreem ent on Agriculture for the purposes of disciplining
similar measures to those which have been required to be converted, but which were labelled
differently.186 Argentina contends that this is exactly what the price band system is. In Argentina's
view, it is therefore contradictory for Chile to maintain, on the one hand, that it is unaware of the
existence of a similarity test for categorising a measure as one of those which must be tariffied, while
on the other hand recognizing what that category includes. 187
4.69 Argentina further contends that the only alternative for defining whether a measure such as
the PBS is a variable levy or a similar border measure is to analyse the effects of the measure.
Argentina submits that this is so clear that Chile it self recognized it in its reply to question 6 of the
Panel, in which it states that a variable levy is a non-tariff measure "insofar as the system operates to
exclude low priced goods and preclude price competition." 188 In Argentina's view, this means that
Chile upholds Argentina's economic impact analysis criterion. 189 As also upheld by Chile 190,
Argentina adds, the PBS is designed to moderate the effects of international price fluctuations. It is

183 See Chile's response to question 8 (ALL) of the Panel.
184 See Argentina's Rebuttal, paras. 69 and 70.
185 See Argentina's Second Oral Statement, para. 21.
186 Argentina refers to Chile's response to question 6 (ALL) of the Panel.
187 See Argentina's Rebuttal, paras. 58-59.
189 See Argentina's Second Oral Statement, para. 19.
190 Argentina refers to para. 11 of Chile's First Written Submission.

implemented through a system which avoids or moderates the effects of the transmission 191 of those
prices to the domestic market, using as a trigger price or a reference price for the application or
calculation of the specific duties the "lowest f.o.b. price for the product quoted in a major commodity
market relevant for Chile".192 According to Argentina, this shows that Chile expressly recognizes that
the PBS has effects other than those of an ordinary customs duty. Argentina claims that this is
because unlike the PBS, both ad valorem tariffs and specific tariffs or a combination of the two
always result in direct transmission to the domestic market of changes in international prices.
193
4.70 In Argentina's view, the most important aspects of variable levies and other similar measures
that are inconsistent with Article 4.2 are those that relate to the effect of their application, i.e. lack of
transparency, lack of predictability and consequent impairment. The Chilean system incorporates all
three of these characteristics, so that even if it is not a variable levy, it at least constitutes a similar
border measure. 194 According to Argentina, this is impor tant because, in economic terms, these
measures, as opposed to ordinary customs duties result in undesirable effects. Argentina explains that
the PBS used by Chile is activated when the reference price fixed by the implementing authority falls
below a certain threshold parameter, commonly know n as the floor of the price band. According to
Article 1 of the decrees establishing the duties, the reference price is the lowest f.o.b. price recorded
for a given date in international markets representative of the product. Argentina submits that the lack
of clarity surrounding the methodology for fixing the reference price, as illustrated in the paragraph of
Chile's submission containing a brief description of the system
195, is evidence of the lack of
transparency in implementing the system.
4.71 As regards the lack of predictability , Argentina contends that this is due to the fact that the
level of the levies is not determined according to the transaction price, but according to a reference
price of which the exporter has no knowledge until shortly before the transaction takes place, since it
is fixed at short intervals (on a weekly basis). Acco rding to Argentina, this implies that a transaction
price on the market may, on a given date, be subject to a relatively low effective duty, while on a
subsequent date a higher effective duty, or even one that violates the WTO bound level, may be
applied for the same transaction value. Argentina submits that this fact, although sufficient in itself to
establish a violation of Article 4.2, added to the fact that the PBS does not have any safety mechanism
(cap) to ensure that the bound level is not exceeded, illustrates that the unpredictability in case of a
significant fall in prices is total for the purposes of efficient commercial planning With a cap, the
unpredictability would be partial. Argentina claims that, even assuming that the bound level is not
exceeded, the variability of the system increases with the liberalization of trade in the sector.
Consequently, Argentina concludes, we end up with an absurd commercial situation in which the
lower the customs duty, the lower the level of predictability, since the level of variability of the system
increases. Argentina's view is that, contrary to what Chile claims in its first submission, the Chilean
PBS is distortionary, since the more competitive th e price, the higher the relative level of levies
applied to each shipment. As a demonstration of this statement, Argentina refers to its Annex
ARG-37 which contains a chart illustrating the relationship between the monthly average reference
price fixed by Chilean customs and the corresponding prices of edible vegetable oils of Argentine
origin. Argentina submits that this is particularly true for a producer like Argentina whose prices are
perfectly correlated with international prices. Moreover, although Argentina is an efficient producer,
the fact is that the reference prices fixed by the Chilean authorities for almost all of the most important
products in terms of commercial value traded by Argentina are below the f.o.b. quotations for
shipments from Argentina. In other words, Argen tina affirms, the Chilean PBS ensures that the more

191 Argentina refers to para. 18 of Chile's First Written Submission.
192 Argentina refers to para. 17 of Chile's First Written Submission.
193 See Argentina's Rebuttal, paras. 53-54.
194 See Argentina's First Oral Statement, para. 38.
195 Argentina refers to para. 15 of Chile's First Written Submission.

efficient the exporter, the greater the relative impact of tariff duties. In its view, this sort of
"competitive penalization" is even more regressive when international prices are low.196
4.72 Argentina argues that the variability of the PBS makes any effective commercial planning
impossible owing to the unpredictability factor. Argentina affirms that this is clearly reflected by a
simple statistical indicator such as the standard deviation coefficient, i.e. the ratio between the
standard deviation and the arithmetic mean, for the total effective level (as a percentage over the
transaction value) of duties applied to imports, measured on the basis of monthly averages. Argentina
explains that it has made an analysis of the PBS variability on the basis of Chilean statistics for wheat
products and soya bean oil – in the case of wheat, for 1996/1997 and in the case of soya bean oil, for
the period 1996/1998. These years were selected because in none of them, with the exception of 1998
for milling wheat, was the bound level of 31.5 per cent exceeded (or if so, only marginally).
Argentina submits that the comparison made on this basis reveals that for crude soya bean oil, the
deviation coefficient amounted to 28.5 per cent and 31.7 per cent for the years 1996 and 1997 – i.e.
the variation of the total effective level of duties fo r that product was, with respect to the arithmetic
mean, 31.5per cent as a monthly average for the mentioned period. With respect to milling wheat, the
indicators were 153.5 per cent, 27.5 per cent and 15.5 per cent respectively for 1996, 1997 and 1998.
In other words, the variation of the total effective level of duty for that product was, with respect to the
arithmetic mean, 65.5 per cent on average. These levels of variation, amounting to practically
one-third against the annual average in the case of oils and two-thirds in the case of milling wheat,
result exclusively from the operation of the PBS, since the effective level of ordinary customs duties
by definition does not vary, or if so, it varies with a frequency that is totally predictable. Argentina
explains that, if one adds to these considerations the fact that, as explained at length in previous
submissions, the system lacks transparency, that the duties resulting from the PBS are fixed at very
frequent intervals (one week) and that the potential range of variation is of 31.5 per cent ad valorem,
only an extraordinarily audacious and broad interpretation of the Agreement on Agriculture could
include a system of this nature among the "ordinary customs duties".
197
4.73 Chile submits that, while Argentina has objected to the frequency and degree of changes that
Chile makes to its applied duties and to the alleged complexity and lack of predictability and
transparency of those changes, none of those considerations change the character of the duties from
"ordinary customs duties". Further, far from being prejudicial to trade, it is clear that, relative to
maintenance of the duty at the bound ceiling rate, the price band system duties result in less restrictive
rather than more restrictive treatment of imports.198
4.74 Chile disagrees with Argentina's claim that its PBS affects trade security and predictability 199
by stating that the Chilean formula is totally transparent and on the day a product is shipped the duty is
known.200
(iii) Distinction between variable levy or similar border measure and ordinary customs duty
4.75 In Argentina's view, the criteria for distinguishing between a "variable levy" or "similar
border measure", within the meaning of Article 4.2 of the Agreement on Agriculture, and an "ordinary
customs duty", are based on the fact that the application of an ordinary customs duty is determined by
the transaction price – ad valorem duty – or the physical characteristics (weight/volume) – specific
duty – or a combination of the two. Ultimately, Argentina concludes, it is the economic effects –

196 See Argentina's First Oral Statement, paras. 41-51.
197 See Argentina's Rebuttal, paras. 64-69.
199 Chile refers to para. 31 of Argentina's First Written Submission.
200 See Chile's First Written Submission, para. 50.

deriving from the features of a variable levy or a similar border measure – which result in their being
given a legal status distinct from "ordinary customs duties".201
4.76 Argentina affirms that the term "ordinary cu stoms duties" within the meaning of
Article II:1(b) of the GATT 1994 cannot at the same time be considered "a measure of the kind which
have been required to be converted into ordinary customs duties" within the meaning of Article 4.2 of
the Agreement on Agriculture. Argentina considers that, in addition to listing certain cases, by
exclusion footnote 1 to that Article clearly defines "measures of the kind which have been required to
be converted into ordinary customs duties" as "similar boarder measures other than ordinary customs
duties". In Argentina's view, the meaning of the term "ordinary customs duties" under Article II:1(b)
of the GATT 1994 and Article 4.2 of the Agreement on Agriculture is the same. Argentina explains
that there are no legal grounds whatsoever in the texts of the WTO Agreements for contending that the
same term, "ordinary customs duties", must be interpreted differently. Argentina concludes that, in
the absence of any clear indication to the contrary, we must assume that the identical terms reflect
identical concepts. Argentina claims that "ordinary customs duties" are those which by their nature
are perfectly predictable and transparent, and which owing to their total permeability to the
international market ensure competition in the do mestic market. Argentina further specifies that
"ordinary customs duties" are ad valorem tariffs, specific duties or a combination of the two.
Argentina clarifies that a measure " … of the kind which has been required to be converted into
ordinary customs duties" can never, by definition, constitute an "ordinary customs duty". Otherwise,
Argentina adds, one would be depriving Article 4.2 of the Agreement on Agriculture of its
effectiveness.
202
4.77 In Argentina's view, "ordinary customs duties" in the meaning of the first sentence of
Article II:1(b) of the GATT 1994 are those which, in their different forms (ad valorem duties, specific
duties or a combination of the two), set the maximum effective protection level permitted at
customs.203 Argentina contends that the concept of "o rdinary customs duties" applies to the means of
levying customs duties which provide a degree of certainty, stability and predictability. It further
affirms that, under Article II:1(b) of the GATT 1994, other duties or charges are merely those that do
not constitute "ordinary customs duties", such as the other duties or charges which appear in
columns 6 and 8 of the national schedules, as appropriate. "Other duties or charges of any kind"
within the meaning of Article II:1(b) of the GATT 1994, Argentina explains, cannot be considered as
"similar border measures other than ordinary customs duties". Argentina argues that the bound duty
level for what is considered to be "other duties and charges of any kind" is the rate registered in that
column. Consequently, Argentina concludes, that le vel is the one to be considered in determining
inconsistency with Article II:1(b) of the GATT 1994, without prejudice to the consistency of other
duties or charges with other obligations under the GATT 1994.
204
4.78 In Argentina's view, these levels of variability are more akin to exchange quotations than to
ordinary customs duties which, by their nature do not vary (or at least vary in a totally predictable
manner as in the case of specific duties) and do not cause isolation from the international market.
Argentina stresses that the above estimates were made (with the exception of 1998 for milling wheat)
on the basis of the bound level not being exceeded. Obviously, it concludes, the indicators are even
more eloquent in the case of series in which Article II:1(b) of the GATT 1994 was violated.
205

201 See Argentina's response to question 8 (ALL) of the Panel.
202 See Argentina's response to questions 1 and 2 (ALL) of the Panel.
203 In this regard, Argentina quotes para. 5.4 of the Panel report in European Economic Community –
Regulation on Imports of Parts and Components, adopted on 16 May 1990, BISD 37S/132.
204 See Argentina's response to question 3 (ALL) of the Panel.
205 See Argentina's Rebuttal, paras. 70-71.

4.79 Chile submits that there is no definition of "ordinary" customs duties or of "other" duties and
charges in any of the WTO Agreements including the WTO Understanding on the Interpretation of
Article II:1(b). However, in Chile's view, it is not necessary for the resolution of this dispute to
develop a comprehensive rule for determining what assessments might be "ordinary customs duties"
as opposed to "other duties or charges". Chile asserts that the tariffs resulting from the PBS are
collected in the same way and at the same time as other ordinary Chilean duties. Chile claims that it
has never listed the additional specific duties or the rebates from the ad valorem duty as "other duty or
charge", nor have any Members so treated the Chilean PBS. In this dispute, Chile contends,
Argentina's complaint is that the PBS can result in a breach of Chile's bindings, not that the PBS is an
"other" charge that would be illegal in any manifestation or amount because it was never scheduled as
an "other" charge in accordance with the Ur uguay Round Understanding on the Interpretation of
Article II:1(b). Chile submits that, if the duties from a PBS could be regarded as an "other" duty or
charge as opposed to an ordinary customs duty, then Chile could have escaped any liability for any of
the system's mandatory effects merely by scheduling the PBS as an "other" charge or duty, since
Article II:1(b) and the Understanding permit "other" du ties or charges at any level, if they are the
result of a mandatory system properly scheduled as an other duty or charge. Had Chile attempted to
do so, it is certain, in Chile's view, that other Members would have challenged that action in the WTO,
and doubtless would have succeeded. However, Chile considers that it properly never sought to claim
that the PBS was an exempt other duty or charge.
4.80 Chile considers that the measures listed in the footnote to Article 4.2 are non-tariff measures,
and therefore are unlikely to involve "other duties or charges", except as an incidental aspect of the
non-tariff barrier. It is conceivable, Chile argues, that a minimum import price system, which is one
of the measures prohibited by Article 4.2, could be enforced through a measure that might be
considered an "other duty or charge" under Article II:1(b).
206 Chile notes that Article II has always
prohibited new or higher "other" duties and charges on bound products, but the Understanding on
Article II:1(b) created a more transparent and effe ctive mechanism for enfor cement in regard to such
charges. Chile contends that the prohibition regarding other duties and charges for products subject to
a binding is such that, even if ordinary duties are applied at a rate below the bound rate, no new or
higher "other duty or charge" than that in effect on the scheduled date (or pursuant to mandatory
scheduled legislation) can be imposed on that product, even if the amount involved would not, when
added to the ordinary duty applied, exceed the bound ordinary rate. In Chile's view, it is clear that in
this dispute Argentina has never complained that the PBS per se was an illegal "other duty or charge,"
but rather has complained that the PBS can result in ordinary duties in excess of the bound rate. Chile
adds that its schedule is consistent with this interpretation, in that the price band system was not listed
as an "other duty or charge".
207
4.81 Chile submits that Argentina's suggested tests of what is a permissible "ordinary customs
duty" are not logical and would not achieve the objectives of freer trade in agriculture. Chile argues
that many, if not most, protectionist non-tariff barriers are simple, transparent and highly predictable
whilst perfectly legal sanitary and phytosanitary measures and many legal activities of state
enterprises are far from transparent, simple or even predictable. Chile considers that the degree of
prejudice or trade restriction caused by a duty is clearly not the basis for determining its legality.
Chile submits that a high duty applied at a high bound rate is legal, but damaging. It further submits
that the tariff rate quotas that Members were permitted to adopt remain highly restrictive and
prejudicial to the interests of export nations.
208

206 Chile refers to paras. 88-89 of the Panel report in EEC - Programme of Minimum Import Prices,
Licences and Surety Deposits for Certain Processed Fruits and Vegetables, adopted on 18 October 1978,
BISD 25S/68.
207 See Chile's response to question 3 (ALL) of the Panel.
208 See Chile's Rebuttal, paras. 26-27.

4.82 Chile notes that the United States, as a third party in the dispute, in response to the Panel
questions has introduced argument for the first time that the duties resulting from the price band
system should be considered "other" duties or charges" under Article II:1(b) and that these duties
should therefore be regarded as prohibited by the terms of Article II:1(b) and the Understanding on the
Interpretation of Article II:1(b).209 Chile considers that it is correct that other duties and charges are
flatly prohibited unless scheduled in accordance with the Understanding. However, Chile submits, the
PBS is and always has been treated as an ordinary customs duty, subject to the binding, and not an
"other duty or charge."210 In Chile's view, it is clear that all Members up to now have treated the PBS
duties as ordinary customs duties rather than "other" duties. Chile contends that neither Argentina nor
any other WTO Member (including the United States) has made this argument in the nearly 20 years
that Chile has maintained the price band system, and, of course, Chile has never treated the price band
system as an "other " duty or charge. Chile submits that, had Chile inscribed the price band duties as
an "other" duty or charge within six months of entry into force of the Uruguay Round, then Chile
would have had the right pursuant to the Understa nding to maintain the price band system duties at
any level, since Article II allows such "other" duties at the level required by mandatory legislation that
has been scheduled. Chile concludes that, in that case, other WTO Members would surely have
immediately challenged Chile's attempt wrongly to obtain beneficial treatment for the PBS by
pretending that the PBS was an exempt "other duty".
211
4.83 Chile argues that the Panel has ample basis to reject the U.S. argument. In its view, in the
absence of a definition of an "ordinary customs duty" in the text of the WTO Agreements, the United
States attempts to invent one to serve its argument. Chile submits that the United States bases its
argument first on an English language dictionary of the word "ordinary", which the dictionary defines
as "regular, normal customary or usual." In response to Panel questions, Chile points out that, in
Spanish, the terms used instead of ordinary or "ordinario" is "propiamente dicho". Chile submits that
the slightly different translation is indicative of a term of art, though admittedly neither "ordinary" nor
"propiamente dicho" is instructive without consider ing the other elements of interpretation called for
in the Vienna Convention. Chile contests the United States' statement, allegedly without authority,
that what should be "regular, normal, customary or usual" is the form of the customs duty. Chile
considers that Article II:1(b) and the Understandi ng do not speak of "forms" of customs duties and
that the "authority" claimed by the United States for this proposition is a baffling reference to a
Uruguay Round negotiating proposal that called for agreement to express tariff equivalents in
ad valorem or specific terms.
212 Chile submits that, even if the United States' argument were accepted
that ordinary duties are ad valorem, specific or a combination, the Chilean duty would still meet the
United States' definition of ordinary, since the Chilean duty is a combination of an ad valorem and a
specific duty. In the Chilean PBS, the PBS duty, while calculated according to the PBS formula, is a
specific duty per unit of volume or weight of the product, which is added to (or rebated from) the
ad valorem duty. Chile concludes that unsupported United States (and Argentine) assertions aside,
there is nothing in the Article II:1(b) that limits how a specific or ad valorem rate may be set, so long
as the bound rate is respected.213 Chile also contests the United States' argument whereby the Chilean
PBS is not an ordinary customs duty in the sense of Article II on grounds of an alleged "lack of
transparency and definiteness." Chile argues that there is nothing in Article II that supports
fabrication of such a test, which is itself rather lacking in transparency and definiteness. Chile further
argues that the test is also illogical, since other duties now must be transparent, and definite in the
sense of the limitations on level provided in Article II. Chile contends that it would be circular at best
to say that by inscribing the nature and level of other charges, those "other" duties then become

209 Chile refers to United States' responses to question 3(b) and 3(c) (ALL) of the Panel.
212 See Chile's Rebuttal, paras. 11-12.

ordinary duties. 214 Chile further quotes an official "Foreign Trade Barriers" Report of the United
States Trade Representative for 2001, in which the USTR treats the PBS as part of the ordinary
customs duties of Chile. Chile argues that it is rather remarkable that a country like the United States
with a significant export interest and who was certainly a major participant in the Uruguay Round
negotiations would only claim to discover in the autumn of 2001 that, come to think of it, those price
bands have been flatly illegal for years.
215
4.84 In Chile's view, a measure that is already a bound "ordinary customs duty" subject to the
provisions of Article II:1(b) cannot be considered a measure "of the kind which have been required to
be converted" into an ordinary customs duty in the sense of Article 4.2. Chile considers that the term
"ordinary customs duties" has the same meaning in Article 4.2 of the Agreement on Agriculture as it
has in Article II:1(b) of the GATT. Chile notes that the term "ordinary" in the English language of
both Article II and Article 4.2 is expressed in the same way in the Spanish and French texts of those
Articles, even though the choice of terms in Spanish and French " propiamente dichos " and
"proprement dit" does not follow the usual dictionary translation into Spanish or French of the English
word "ordinary".
216 Chile alleges that, in addition to illustrating the hazards of a simple dictionary
approach to treaty interpretation, this identical somewhat unusual translation in both Articles is further
indication of the intent that the terms have the same meaning. It should be noted, Chile adds, that the
term "ordinary customs duties" does not, by itself, carry the connotation in Article II that the duties are
already or necessarily bound, but rather is something that can be bound pursuant to Article II.
However, in Article 4.2, it appears from context that a measure that was "converted" into an ordinary
customs duty was intended to mean made into a bound ordinary customs duty.
217
(c) Relation between Article II:1(b) of the GATT 1994 and Article 4.2 of the Agreement on
Agriculture
4.85 Chile points out that all parties to the dispute agree that "ordinary customs duties" has the
same meaning in Article 4.2 and its footnote as in Article II:1(b) of the GATT 1994. It further states
that Argentina, however, never faces up to the contradiction in the Argentine position under
Article II:1(b) and Article 4.2. Chile explains that, under Article II:1(b), Argentina complains that the
PBS duties have resulted and could result in a breach of Chile's bindings - the bindings on ordinary
customs duties. Under Article 4.2, however, to avoid conceding that the Chilean PBS duties are
ordinary customs duties exempt from Article 4.2, Argentina attempts to invent a new definition of
what is an ordinary customs duty as opposed to a "variable import levy" or "similar" measure. The
Argentine definitions, however, are simply fabricated by Argentina, without foundation in the text of
the Agreement, and without logic and coherence as a matter of treaty interpretation.
218
4.86 Chile submits that Argentina's complaint under Article II:1(b) properly treats the PBS duties
as "ordinary customs duties", even though Argentina has tried to ignore the implications of its own
claim. Chile argues that Argentina's claim under Article II of the GATT is that the PBS duties and the
ad valorem duties can potentially result in total applied rate of duty above the bound rate. Chile
contends that, if Argentina had considered, erroneou sly, that the price band duties were an "other"
duty or charge, then Argentina woul d have claimed that the price band duties were flatly prohibited,
regardless of whether the binding is breached. The reason is that Article II:1(b) unconditionally
prohibits "other" duties and charges that have not been scheduled, without regard to whether those
"other" duties and charges, when added to ordinary customs duties, would result in a breach of the

215 See Chile's Second Oral Statement, paras. 16-17.
216 Chile refers to Robert Collins French-English, English-French Dictionary 472 (Beverly T. Atkins
et al., 2nd ed. 1987). The Oxford Spanish Dictionary 1390 (Beatriz Galimberti Jarman et al., eds., 1994).
217 See Chile's response to questions 1 and 2 (ALL) of the Panel.
218 See Chile's Second Oral Statement, para. 23.

binding on ordinary customs duties. Because the PBS duties are ordinary duties, Chile naturally has
never scheduled the price band duties as an other duty or charge. In Chile's view, it is puzzling that
Argentina asserts in paragraph 24 of its second submission that the price band duties are not an
ordinary customs duty but rather a "surcharge" ( sobretasa) – a term not used in Article II:1(b).
However, it adds, even in paragraph 24, Argentina does not claim that the PBS duties are therefore
prohibited under Article II:1(b), as would be the case if they were unscheduled "other" duties or
charges. Rather, Argentina simply argues that the " sobretasa" together with the ad valorem duty can
potentially result in a breach of the binding.
219
4.87 Chile submits that the nature of Argentina's complaint and argumentation under
Article II:1(b) demonstrates that, for purposes of Argentina's complaint under Article II:1(b),
Argentina regards the PBS duties as ordinary customs duties. Chile argues that if Argentina
considered PBS duties to be "other" duties, then it would make no sense for Argentina to concede that
the PBS duties do not necessarily breach the binding, but rather are only " potencialmente
violatorio".220 Likewise, there would have been no need for Argentina in its first submission to set out
an elaborate formula for determining when the PBS duties would have the effect of breaching the
31.5 per cent binding because under Article II:1(b) and the Understanding, "other" duties or charges
are prohibited at any level, if they were not properly and timely inscribed in a Member's schedule.
Chile affirms that it is transparent in its schedule that Chile made no attempt to list the PBS duties as
other duties or charges, because, of course, the PBS duties are ordinary customs duties and have
always been so treated.
221
4.88 Argentina, in reference to the above argument by Chile to the effect that it did not register its
PBS because the duties resulting from it were "ordinary customs duties", states that, in fact, Chile is
merely recognizing that while the resulting duties could be ordinary customs duties
222, the PBS as
such cannot, since it does not have any limit as to the duties it is capable of imposing and varies over a
wide range – both above and below the bound level – with a frequency that makes it incomparable to
ordinary customs duties. 223 Argentina explains that what counts under Article 4.2 of the Agreement
on Agriculture, which is a lex specialis vis-à-vis Article II:1(b) of the GATT 1994, is that the price
band system, as its name suggests, is a "system" (a series of elements which interact to produce a
result) and not an "ordinary customs duty". Argentina submits that the PBS, by its very nature –
"variable levy" or "similar measure" – is one of the "measures of the kind" which have been required
to be converted into "ordinary customs duties". It contends that it is the system that was required to be
converted (the PBS) that is inconsistent with Article 4.2 of the Agreement on Agriculture, and not the
duties resulting from that system. Chile itself has said that "Chile's price band system duties are not
variable import levies within the meaning of Article 4.2 of the Agriculture Agreement".224 Regardless
of the status of the duties resulting from the application of the PBS, Argentina submits, the system as
such has been shown by Argentina to be "a variab le levy" or similar measure within the meaning of
Article 4.2 of the Agreement on Agriculture.225
4.89 Argentina submits that the obligation contained in the first part of Article II:1(b) of the
GATT 1994 is a separate obligation and different from the obligation laid down in Article 4.2 of the
Agreement on Agriculture.
226 It further explains that Article 4.2 of the Agreement on Agriculture
prohibits certain measures involving restriction of market access independently of any breach of

219 See Chile's Second Oral Statement, paras. 13-14.
220 Chile refers to para. 21 of Argentina's Oral Statement.
221 See Chile's Rebuttal, paras. 18-20.
222 Argentina refers to para. 20 in fine of Chile's Rebuttal.
223 See Argentina's Second Oral Statement, para. 14.
224 Argentina refers to Chile's Rebuttal, title preceding para. 23.
225 See Argentina's Second Oral Statement, para. 15.

Article II:1(b) of the GATT 1994 (Schedules of Concessions). 227 It will later specify that Article 4.2
of the Agreement on Agriculture is lex specialis vis-à-vis Article II:1(b) of the GATT 1994.228
4.90 Chile considers that the prohibitions in Article 4.2 apply without regard to whether the
measures breach a tariff binding. In Chile's view, for example, it is obvious on the face of the
Agreement that one of the main purposes of Article 4.2 was to prevent a Member who had had the
privilege of converting a non-tariff measure into an often prohibitively high tariff from then
proceeding to restore that or some other non-tariff barrier at a later date. However, Chile argues, a
measure that could violate Article II of the GATT 1994 is not likely to be a non-tariff measure
prohibited under Article 4.2, unless the measure has non-tariff components as well.
229
4.91 Argentina argues that the only way of evaluating whether a measure which was maintained is
inconsistent with Article 4.2 of the Agreement on Agriculture, particularly if it is a measure similar to
those listed in footnote 1, is by analysing its economic effects as compared to ordinary customs duties.
Consequently, Argentina submits, not having been tariffied and the results of the process not having
been included in the corresponding schedule, failing a waiver or renegotiation of the commitments,
the price band system is clearly in violation of Article 4.2 of the Agreement on Agriculture, even
without exceeding the bound level.
230 Argentina further claims that Chile itself admits that Article 4.2
of the Agreement on Agriculture can be violated without violating Arti cle II:1(b) of the GATT
1994.231
4.92 Argentina does not agree with the argument developed by the European Communities
whereby a measure that would meet the test set out by the Appellate Body in Argentina – Footwear,
Textiles and Apparel, and would therefore not be contrary to Article II of GATT 1994, would not be
subject to any further obligation in Article 4.2 of the Agreement on Agriculture. The European
Communities consider that such a conclusion would stand even if the measure in question resulted in
the application of a "duty that varies" – inasmuch as this "variation" is maintained below the ceiling
written in the Member's tariff binding. Thus , in the European Communities' view, the decisive
element which distinguishes an "ordinary customs duty" from a "variable levy" is the existence of a
ceiling in the tariff binding. Argentina considers that the European Communities are trying to link
different obligations laid down in different agreemen ts. In Argentina's view, Article II:1(b) of the
GATT 1994 lays down the obligation to refrain from levying "ordinary customs duties" in excess of
the bound duties set forth in the national schedules. On the other hand, Argentina explains, Article 4.2
of the Agreement on Agriculture lays down the obligation to change all "measures of the kind which
have been required to be converted into ordinary customs duties", as well as the obligation to refrain
from maintaining, resorting to, or reverting to any measures of the kind set forth in the non-exhaustive
list in the footnote. Argentina notes that, at the same time, the difference between the application of
specific duties – in the case cited by the European Communities (violation of the bound level,
Article II:1(b) of the GATT 1994) – and the Chilean PBS (Article 4.2 of the Agreement on
Agriculture) lies in the total predictability and transparency for the purposes of commercial planning
in the first case (application of specific duties with a ceiling), and the total absence of predictability
and transparency for the purposes of commercial planning in the second case (application of a variable
duty or similar measure). Argentina concludes that the European Communities' interpretation of the
obligations under Article 4.2 of the Agreement on Agriculture deprives of its effectiveness a provision
that was painstakingly negotiated by Members. As stated in Article 21 of the Agreement on
Agriculture, Argentina submits, the obligations under the GATT 1994 apply with respect to
agricultural trade to the extent that the specific Agreement concluded on agriculture does not provide

227 See Argentina's response to question 4 (ALL) of the Panel.
228 See Argentina's Second Oral Statement, para. 15.
229 See Chile's response to question 4 (ALL) of the Panel.
230 See Argentina's Rebuttal, paras. 50-51.
231 Argentina refers to Chile's response to question 4 (ALL) of the Panel.

otherwise.232 Argentina explains that the Members agreed, in the case of agriculture, that a certain
kind of measures would be "required to be converted into ordinary customs duties", i.e. tariffied with a
view to eliminating their distortionary effects and lack of transparency and predictability. These
effects, Argentina asserts, which distinguish the "measures of the kind" that must be tariffied from
"ordinary customs duties", are independent of any ceiling.233
4.93 In Chile's view, the above argument of the European Communities may be correct, although it
would note that Chile has pointed out several bases for concluding that the Chilean PBS is not
prohibited by Article 4.2, so it is not necessary to resolve the issue whether the existence of a binding
by itself is sufficient to make a duty that varies not a prohibited measure under Article 4.2. While it is
obvious that the mere existence of a binding on a product does not permit resorting or reverting to a
prohibited non-tariff barrier on such product, Chile contends, the European Communities' distinction
is salient for a measure whose only protection is achieved via a duty, where the degree of variation
does not add any protection greater than that achieved if the duty were applied at the bound level.
Chile believes that the logic behind accepting the European Communities' argument lies in three
points: First, as Argentina has conceded, not every duty that varies is banned, since that would imply
a rule that countries cannot change their applied rates, even to reduce them, even if bound rates are
respected. Chile's annual reduction of its applied rates would become a prohibited variable levy, by
such an absurd test. Argentina arguments notwithstanding, there is nothing in the WTO establishing
rules about degree, frequency or predictability of variations. Second, the most important objective
characteristic of the "conversion" of the European Communities' variable levies appears to be the
binding of duties, and the European Communities' conversion was subject to ample discussion and
negotiation by all parties before the WTO agreements went into force. It thus would seem to Chile
that the European Communities were entitled to think all parties understood its conversion to be
adequate. Indeed, Chile explains, the only complaints about the European Communities' conversion
were that the levy did not vary enough. Chile considers that, while the European Communities'
system is certainly not at issue in this dispute, it is reasonable to look at the practice of such a major
Member, and the attitude of other Members toward that practice in establishing how it would
implement the obligations even before the entry into force of the WTO agreement. Third, and most
important, varying the applied rate below the bound level is less, not more protective than a perfectly
legal system in which the applied rate is simply maintained at the bound level. According to Chile,
while Argentina has tried to suggest that the variability of a duty is an additional barrier to trade,
Argentina has no evidence for that proposition. Chile submits that it is undeniable that every Member
has a right to apply its duties at all times at the level of its bindings. Chile claims that, in theory and in
fact, it is impossible to see how it can be less advantageous to trade of other countries if instead of
constantly applying duties at the bound rate, a Member maintains a system in which the duties
assessed are usually less than the permissible bound rate, at least so long as the ceiling binding is
honoured or an appropriate exception invoked. In Chile's view, the variation of the applied rates
below the bound rates may mean that Members cannot rely on always having the benefit predictability
of the voluntary benefit of lower rates than the tariff binding, but Members have no right to such lower
rates in any event. Thus, Chile concludes, it is reasonable to assert that, in the case of measures whose
only protective effect is through a duty, there is no basis for complaint about a duty that varies, so long
as the ceiling binding and other obligations such as MFN are respected.
 234

232 Argentina refers to Article 21 of the Agreement on Agriculture and quotes para. 353 of the Panel
report in Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (WT/DS161/R, WT/DS169/R)
adopted on 10 January 2001, as modified by the Appellate Body report, as follows: "the provisions of the GATT
1994 apply to market-access commitments concerning agricultural products, except to the extent that the
Agreement on Agriculture contains specific provisions dealing with the same matter."
233 See Argentina's response to question 5 (ALL) of the Panel.
234 See Chile's response to question 5 (ALL) of the Panel.

(i) Other issues of interpretation relating to Article 4.2 of the Agreement on Agriculture
Relevance of the Chile-Mercosur Economic Complementarity Agreement No. 35
4.94 Chile refers to Article 24 of its Economic Complementarity Agreement ("ECA") No. 35 with
Mercosur after the Uruguay Round where it is stated that the parties, Mercosur (including Argentina)
and Chile recognize the existence of the PBS and establish certain rules to the effect that Chile will
not add new products to the system nor modify it with the intention of imposing more stringent
restrictions. Chile claims that, according to the pr inciples of international law, therefore, Argentina
recognized and accepted the existence of the system that it is now trying to contest in a different legal
framework.
235 In response to a question by the Panel, Chile clarifies that, by "the principles of
international law", it means any collection of standards which, although not necessarily a treaty or a
conventional source of rights and obligations, governs and determines international relations between
States and other subjects of international law. In this particular case, Chile adds, it was referring to the
following principles: the principle of good fait h: "good faith shall govern the relations between
states", as well as the performance of treaties concluded by them. According to Chile, Argentina is
one of the States that participated in the Uruguay Round negotiations, and when the trade agreements
were adopted, although it definitely knew of the PBS, it never suggested, in this forum, that it be
eliminated, modified or replaced by a system of the bound duties. Chile submits that it is hardly in a
position to do so since Argentina itself has its own PBS with respect to sugar imports. Subsequently,
during the negotiation of ECA 35 between Mercosur and Chile, Argentina, although aware of the
existence of the PBS and its technical aspects, did not suggest or require its elimination, modification
or replacement by Chile with a system of bound duties. Even more importantly, Chile claims, the
PBS was one of the trade issues that was expressly discussed and negotiated between Chile and
members of Mercosur. Chile submits that the parties expressed their explicit and unequivocal
acceptance of the price band and its technical aspects by including in Article 24 of ECA 35
236 a
provision which directly mentions the system. Nevertheless, Chile adds, four years later Argentina
itself tried to challenge the very system whose consistency with the WTO it had already accepted
internationally, under a different legal framework. In Chile's opinion, this international behaviour
clearly contradicts the principle of good faith whic h should govern international relations and the
performance of treaties that have been negotiated, signed and ratified.
237
4.95 Chile further mentions the principle of pacta sunt servanda : every treaty in force is binding
upon the parties to it and must be performed by them in good faith. According to Chile, this principle
has a natural, complementary and explicit link with the principle of good faith, and hence the above
remarks fully apply. Chile contends that Argentina and the other members of Mercosur undertook, in
ECA 35, to respect the PBS unless Chile, following the entry into force of the Agreement, were to
include new products, to modify the mechanisms or to apply them in such a way as to undermine
Mercosur's market access conditions. Although none of the above has occurred, Chile stresses,
Argentina has challenged the system, using a differ ent legal framework to do so. Under the rules of
international law on interpretation of treaties, Chile explains, ECA 35 constitutes an additional
relevant context for interpreting the conformity of the PBS with the WTO and its Agreements. In
conclusion, Chile asserts, the conduct of Argentina and the other participants in the negotiation of
ECA 35 suggests that all of the Mercosur member countries viewed the PBS as a legitimate measure
that was permitted under the WTO and required disciplines under ECA 35 so that the member
countries of Mercosur could obtain a benefit beyond what they had already obtained as Members of

235 See Chile's First Written Submission, para. 36.
236 Chile quotes Article 24 of ECA 35 which reads as follows: "In using the PBS foreseen in its
domestic legislation for the import of goods, Chile undertakes, in the framework of this Agreement, not to
include new products or to modify the mechanisms or apply them in such a way as may undermine Mercosur's
market access conditions."
237 See Chile's response to question 13 (CHL) of the Panel.

the WTO as a result of Chile's tariff concessions. According to Chile, this is obvious, since if
members of Mercosur had felt that the entire PBS was illegal under the WTO Agreement on
Agriculture (as Argentina is now claiming in this dispute), then it would have been unnecessary and
indeed pointless to negotiate limitations, as they did, on the use of the system under the ECA. Chile
indicates that it does not claim or even attempt to argue that Argentina is not entitled to submit its
complaint before the WTO on the basis of its new theory that the PBS is illegal under Article 4.2 on
the Agreement on Agriculture (although Chile obviously considers that this theory is absolutely
without merit). What Chile does maintain is that Argentina's prior conduct – both during the Uruguay
Round negotiations and during the negotiation of ECA 35 – shows that Argentina did not, and does
not, understand Article 4.2 to be a rule that prohibits the PBS, but on the contrary, it understands that
Article to be a rule which permits the PBS. In Chile's view, this understanding constitutes a relevant
context under the rules of international law for interpreting the meaning of Article 4.2. Chile clarifies
that it is not asking the Panel to decide on the interpretation of ECA 35, as this would not be within its
jurisdiction and competence. What Chile has done, it explains, is to introduce this Agreement merely
as yet another element in the relevant context substantiating Chile's understanding of the interpretation
of Article 4.2 in relation to its PBS.
 Chile further clarifies that it is not suggesting that the
interpretation of WTO rules depends on who the parties to a dispute are. In Chile's view, the ECA is a
relevant context because it shows that prominent Members of the WTO, including those that are
parties to this dispute, negotiated another agr eement immediately following the negotiation of the
WTO Agreements, on a basis which suggests that they understood the WTO Agreements did not, and
do not, prohibit the Chilean PBS.
238
4.96 Argentina rejects the above argument that it bases its claim on a "new theory that the PBS is
illegal under Article 4.2 of the Agreement on Agriculture". 239 Argentina is not aware of the existence
of different theories concerning the obligations under Article 4.2 of the Agreement on Agriculture.
Argentina assumes that there are measures that are either consistent or inconsistent with the provisions
of the Agreement on Agriculture in general, and measures that are inconsistent with Article 4.2 of the
Agreement on Agriculture in particular. Consequently, Argentina submits that all that is needed is to
apply the Vienna Convention to the interpretation of the scope of the obligations.
240 Argentina
contends that, in its international relations and in respect of treaties it has concluded with other States,
it acts in conformity with the general principles of public international law. Argentina submits that,
contrary to what Chile has claimed 241, in bringing its complaint concerning the inconsistencies of the
PBS with Article 4.2 of the Agreement on Agriculture before the WTO, Argentina acted in conformity
with the principle of good faith and the principle of pacta sunt servanda . However, Argentina
submits, Chile's conduct in maintaining provisions under its domestic legal system which violate
Article XVI.4 of the Marrakesh Agreement Establishing the WTO after accepting the covered
agreements is contrary to the principle of good faith in the fulfilment of agreements and in the actions
of States, particularly when Chile has recognized that it has done this "deliberately".
242
4.97 Chile clarifies that the ECA 35 did not deal directly with the issue of whether the PBS was or
was not, for the purposes of the WTO, an ordinary customs duty or some other kind of duty, charge or
tax. However, it is clear that none of the parties considered that the duties under the PBS were "other
duties" under the WTO, since Chile did not include them as such in its tariff schedule, and the other
Members did not attack them as such under the WTO. 243 It further clarifies that it has never said that
Argentina's acceptance of the price band in ECA 35 was an exception to the WTO. Chile explains
that what it has said is that Argentina, through WTO, wants to upset the balance of rights and

238 See Chile's response to question 13(a) (CHL) of the Panel.
239 Argentina refers to Chile's response to question 13(a) (CHL) of the Panel.
240 See Argentina's Rebuttal, paras. 36-37.
241 Argentina refers to Chile's response to question 13(a) (CHL) of the Panel.
242 See Argentina's Rebuttal, paras. 84-85.
243 See Chile's response to question 13(a) (CHL) of the Panel.

obligations assumed under their bilateral agreement, since Argentina made Chile pay to retain the
price band in the bilateral agreement as if Argentina also considered the price band valid under
WTO.244
4.98 Argentina considers that Chile's argument that Argentina recognized and accepted the
existence of the [price band] system 245 in the framework ECA 35 ignores the essence of the WTO
obligations contained in the "covered agreements" whose "enforcement" is achieved through the DSU.
In this respect, Argentina submits that WTO pr ecedent makes it clear that it is the commitments
assumed under the WTO and not the bilateral agreements that constitute the relevant obligations of a
Member under that Agreement. In other words, ther e are different legal frameworks: in one of them,
the WTO, paragraph 4 of Article XVI lays down the obligation for Members to bring all of their
legislation into conformity with the WTO Agr eements, while in another, completely different
framework – the regional Latin American Integr ation Association (LAIA) - relations between
Mercosur and Chile are governed by ECA 35, which covers an ambitious agenda and in which the
provisions cited by Chile could be given any number of meanings, as has been recognized by Brazil,
another member of ECA 35, in its third party submission. 246 Argentina submits that a simple
reference to the PBS in the framework of a regional agreement can in no way be understood as a
waiver of WTO obligations. Argentina declares that if a Member could be released from its WTO
obligations and could obtain a sort of immunity against scrutiny of its measures on the basis of
provisions to which it has adhered in other legal frameworks, such as regional agreements, the very
basis of the multilateral trading system would be affected.
247
4.99 Argentina submits that each international treaty is an independent legal instrument and
should therefore be considered as a self-sufficient entity based on the principle of pacta sunt servanda.
Argentina stresses that the ECA 35 does not have an auxiliary or complementary nature with respect
to the WTO agreements: the ECA 35 does not clarify, complement, amend or modify the agreements
covered by the Marrakesh Agreement. Argentina further submits that Chile is wrong to invoke
ECA 35 in its defence in that ECA 35 does not say that Argentina "recognized and accepted" the
Chilean PBS. On the contrary, Argentina contends, as Chile itself admits, the ECA 35 is the result of
negotiations which led to the application of certain restrictions, albeit insufficient, to the PBS.
248
Argentina claims that, as Chile recognizes, the ECA 35 requires Chile to refrain from increasing the
market distortions caused by the PBS by not addi ng new products or making it more stringent and
more restrictive of trade. In Argentina's understanding, far from accepting the PBS, Mercosur,
through the ECA 35, tried to limit and restrict it. Argentina concludes that Chile's comments
249
ultimately lead to the conclusion with respect to the ECA 35 that by permitting the PBS to operate at
full regime, making the system more restrictive, in spite of Mercosur's attempts to impose limits on
the system, Chile has in fact violated ECA 35, the very Agreement behind which it is now trying to
hide.
250
4.100 According to Argentina, WTO Members cannot opt to disregard their WTO obligations
simply because they have signed less restrictive agreements. A contrario, Argentina argues, if one
was to consider, for the sake of argument, that we are not dealing with two separate and distinct legal
frameworks, as Argentina contends, and if ultimately, although nothing prevented Argentina from
filing a complaint with the WTO, the ECA 35 served as a context for the analysis of the inconsistency
of the Chilean price band system vis-à-vis Article 4.2 of the Agreement on Agriculture, in Argentina's

244 See Chile's First Oral Statement, para. 65.
245 Argentina refers to para. 36 of Chile's First Written Submission by Chile.
246 Argentina refers to p. 4 of Brazil's Third Party Submission.
247 See Argentina's First Oral Statement, paras. 59-61.
248 Argentina refers to para. 36 of Chile's First Written Submission.
249 Argentina refers to para. 25 of Chile's First Written Submission
250 See Argentina's Rebuttal, paras. 86-91.

view, it would have to begin by pointing out that Chile explicitly recognizes that the "ECA No. 35 did
not deal directly with the issue of whether the price band system was or was not, for the purposes of
the WTO, an ordinary customs duty or some other kind of duty, charge or tax … ". 251 Argentina
further argues that, if ECA 35 were even considered an "additional relevant 'context, Chile itself has
also recognized that it did not include the PBS' as such in its tariff schedule" 252 either in the WTO, or
in the Annex and Additional Notes to ECA 35. Ar gentina considers that, "if the ECA 35 did not 'deal
directly with the issue', and if there is an opinion to the effect that the PBS does not constitute another
duty", and if Chile also failed to include the PBS as such in its tariff schedule and in the Annexes and
Additional Notes to ECA 35, it is difficult to se e how ECA 35 can serve as a context for the
interpretation of obligations under Article 4.2 of the Agreement on Agriculture. Argentina further
argues that if the Panel were to consider that the ECA 35 provides a guide, because Chile itself
excluded the PBS from its tariff schedule and because it takes the view that no preferences - the very
purpose of ECA 35 - are applicable to the price band system, this reinforces the idea that the PBS is
not a tariff – in WTO terms, "an ordinary customs duty" – but rather, it is what Argentina has been
claiming it to be from the beginning of these proceedings, i.e. a "variable levy" or a "similar border
measure" which is inconsistent with Article 4.2 of the Agreement on Agriculture.
253
Prior knowledge, negotiating history and subsequent practice
4.101 Chile submits that the PBS has been in effect since 1983, having been established by law, and
that the system is used by some countries of the Andean Community and was used by some Central
American countries. It explains that, throughout the late 80s and early 90s, the World Bank
encouraged countries, at least in Latin America, to convert their quantitative restrictions to price
bands, which are more market oriented schemes. Chile contends that Argentina has a system similar
to Chile's price band for imports of sugar that considers an additional duty that is the result of the
difference of two prices; one called ¨Guía de Base¨ which is the result of the average international
prices of the last eight years and the other called ¨Guía de Comparación¨ which is the London price.
4.102 Argentina considers that Chile's vague and general argument concerning the existence of
PBSs in Latin America is irrelevant in justifying the kind of violation resulting from the Chilean PBS.
Argentina is of the view that Chile's statement is not based on any concrete evidence of the existence
of several PBSs in the region, and even if there were several, their mere existence would not suffice to
make the Chilean system consistent with WTO rules - that, after all, is the subject of this
proceeding.
254 It further argues that the prior existence of the Chilean PBS and its subsequent
maintenance following the entry into force of the Agreement on Agriculture does not preclude the fact
that the system was contrary to Article 4.2 and its footnote. In Argentina's view, Article 28 of the
Vienna Convention clearly states that the "provisions [of a treaty] do not bind a party in relation to any
act or fact which took place … before the date of entry into force of the treaty with respect to that
party." In this regard, Argentina considers that there was no possibility of filing a complaint prior to
the entry into force of WTO Agreements on 1 January 1995. Argentina therefore concludes that
Chile's argument that neither Argentina nor any other Member filed a complaint previously is without
foundation. On the other hand, Argentina adds, as from the entry into force of the Agreements – i.e.
the date on which the Members assumed the positive obligation to bring their domestic regulations
into conformity with the system (pursuant to Article XVI.4 of the WTO Agreement) and to put an end
to any measure that is inconsistent with the system - the Chilean measure has been liable to
questioning under the DSU, not only as a result of previous rules, but because of what is expressly
stipulated in Article 4.2 of the Agreement on Agriculture itself, since Chile has continued to maintain
a measure which should have been converted into a regular customs duty. Argentina submits that this

251 Argentina refers to Chile's response to question 13(c) of the Panel.
252 Argentina refers to Chile's response to question 13(c) of the Panel.
253 See Argentina's Rebuttal, paras. 92-96.
254 See Argentina's First Oral Statement, para. 58.

provision must be interpreted in the light of Article XVI.4 of the WTO Agreement, which also lays
down an obligation for Members to act, in the fo llowing terms: "Each Member shall ensure the
conformity of its laws, regulations and administrative procedures with its obligations as provided in
the annexed Agreements." Argentina considers that the fact that prior to the complaint filed by
Argentina there had not been any other complaints lodged by Argentina or any other Member of the
WTO does not lead to a presumption that the PBS is consistent with Article II.1(b) of the GATT 1994
or with Article 4.2 of the Agreement on Agriculture since there is no WTO rule precluding
Argentina's right to file a complaint for violation of both Article 4.2 and Article II.1(b) of the GATT
1994. If there had been such a rule, Argentina submits, it would have been up to Chile to include it in
these proceedings as a legal basis for its general assertions.
255
4.103 Chile agrees that there is no doctrine of estoppel in the WTO nor any other rule or practice in
the WTO that provides that a measure cannot be challenged if its removal was not specifically
addressed in negotiations or if the challenge is not made within some specific period after entry into
force. However, Chile contends that Argentina misunderstands Chile's argument. Chile argues that
there is no evidence that PBS were considered measures that had to be converted into ordinary
customs duties, while the context of other parts of the WTO agreement, the negotiating history, and
subsequent practice all support Chile's view that the PBS duties are not prohibited.
256 Chile further
indicates that, under Article 32 of the Vienna Convention, the negotiating history is a valid tool for
interpretation in case of doubt. Chile insists that Chile's negotiators recall that both the Secretariat and
other delegations confirmed orally that the price band system was not a measure requiring conversion
to ordinary duties, and claims that neither Argentina nor any interested party has offered any evidence
to the contrary. Chile also stresses that subsequent practice supports Chile's view that the price band
system is not a measure prohibited by Article 4.2. Chile mentions that Argentina has a sugar import
duty system that Chile is confident Argentina would not maintain if it believed the validity of any of
the interpretations it asserts against Chile. Chile submits that, while it might be argued that Chile's
system or that of other Andean countries, or Argentina's sugar system is too small in its effects to be
worth a challenge, the same could hardly be said of the EC's system. In Chile's view, the reason that
PBS or the systems of the European Communities or Argentina were not challenged in the WTO has
nothing to do with forbearance. Rather, it is because these measures are ordinary customs duties that
are subject to the disciplines of Article II:1(b), but are not prohibited by Article 4.2.
257
4.104 Argentina asserts that following the end of the Uruguay Round, "subsequent practice" (within
the meaning of Article 31 of the Vienna Convention ) - if any - relevant to define the content of the
provisions of the text of Article 4.2 of the Agreement on Agriculture, which are not ambiguous, is the
practice of the Members of the WTO. In this sense, Argentina submits, the only existing practice
within the WTO, provides precisely the opposite outcome to what Chile has submitted before this
Panel. Argentina quotes paragraphs 47 and 48 of document WT/L/77, containing the Report of the
Working Party on the Accession of Ecuador to the WTO and indicates that the excerpt clearly shows
that the overwhelming majority of WTO Members has agreed, within a formal context (that is, during
the discussions leading to the accession of Ecuador to WTO) – reflected in a WTO official instrument
– that PBSs are incompatible with WTO rules. Argentina concludes that this is the only relevant
WTO practice
258 in the sense of Article 31.3(b) of the Vienna Convention , since it reflects the opinio
juris of all WTO Members and not that of isolated Members.259

255 See Argentina's First Oral Statement, paras. 52-57.
256 See Chile's Second Oral Statement, para. 30.
257 See Chile's Rebuttal, paras. 30-34.
258 Argentina adds as defined by the Appellate Body on Japan – Alcoholic Beverages II
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R) adopted on 1 November 1996 (DSR 1996:I, 97).
259 See Argentina's response to question 41 (ARG) of the Panel.

4.105 In response to a question by the Panel, Chile indicates that it believes that the text and context
leave no ambiguity that the Chilean PBS is not a measure prohibited by Article 4.2. However, it adds,
if the Panel is in doubt, the negotiating history and state practice are legitimate supplementary
interpretive aids, and these all support Chile's position that Article 4.2 does not prohibit the Chilean
PBS. Chile contends that there are four elements of this practice: first, the existence of similar
measures to those of Chile in other countries (including Argentina and the European Community);
second, the absence of "conversion" except by binding of the duty by any other Member having such a
measure; third the absence of any challenge of such measures under Article 4.2, and fourth, the
initiation of dispute settlement challenges of the European Community's system in 1995-1997 by
Canada, the United States, Thailand and Uruguay under provisions of the GATT 1994 and the
Ccustoms Valuation Agreement, but never on grounds of a violation of Article 4.2. Chile submits that
this practice, like the negotiating history and the tariff negotiations, does not by itself prove that the
negotiators of Article 4.2 did not intend to prohibit duties that vary in the sense of the Chilean,
Andean, Argentine or European Communities system. However, it argues, the practice, context and
negotiating history all support the logical reading of Article 4.2, i.e. that the Article does not prohibit
the Chilean PBS, at least so long as it operates within a system of bound ordinary customs duties.
260
4.106 In response to a question by the Panel as regards Argentina's reference to the Working Party
Report on Ecuador's accession to the WTO, Chile submits that it includes the comment that "some
members of the working party" thought that Ecuador's price band system was contrary to WTO rules.
However, it argues, the discussion in paragraphs 42 to 48 of the Working Party Report does not reveal
any general agreement that Ecuador's system was inconsistent with WTO rules. Chile submits that,
even among those who voiced the view that Ecuador's system was inconsistent with the WTO, there
does not even appear to have been agreement on what rules might be infringed, and in no case is there
a specific reference to Article 4 of the Agreement on Agriculture. Chile contends that it is recorded
that one Member thought that Ecuador should tariffy under the Agricultural Agreement. On the other
hand, it explains, it is also noted that members of the Working Party who questioned Ecuador's system
thought that it should either be eliminated or br ought into conformity with WTO rules, which implies
that even these Members, or at least some of them, thought that price bands per se are not illegal.
Chile claims that Ecuador itself ultimately committed to phase out its price band system over time "in
order to comply with the provisions of the WTO Agreement on Agriculture." The Working Party took
note of that commitment, but taking note of such a commitment, Chile argues, does not constitute
acceptance that eliminating the price band system was required by the WTO. Chile submits that it is
well known that it is a normal part of the accession process for existing Members to request an
acceding Members to undertake changes in policies and practices, even if such changes are not
required by the general rules of the WTO.
261
Secretariat's advice
4.107 Chile claims that it has received advice from th e GATT Secretariat according to which the
PBS would not be inconsistent with its obligatio ns under either the GATT or the draft Agreement on
Agriculture then under negotiation. Chile qualifies this statement by explaining that, during the 80s
and the beginning of the 90s, i.e. during the Uruguay Round negotiations, the World Bank encouraged
various countries, at least in Latin America, to c onvert their quantitative restrictions into price bands,
which are mechanisms that permit competition. Chile claims that, on at least one occasion, during a
seminar for Central American countries, in response to the concern that had been expressed over the
maintenance of these mechanisms, a letter was presented originating in the GATT Secretariat arguing
that it was not necessary to tariffy price bands since they were unrelated to the domestic price -
provided the price bands were maintained within the bound levels.
262 Chile later clarifies that it was

260 See Chile's response to question 42 (CHL) of the Panel.
261 See Chile's response to question 42 (CHL) of the Panel.
262 See Chile's response to question 14 (CHL) of the Panel.

not a participant in the seminar (though some Chileans were present in their capacity as consultants or
representatives of intergovernmental organizations) and that, since the letter was not addressed to
Chile, Chile has been unable to get a copy of the said letter. It further adds that the date of the seminar
is equally unclear but it could have taken place in 1993. 263 Chile further claims that the advice given
in that letter was subsequently endorsed orally by the delegations with which Chile was engaged in
direct negotiations (United States, European Communities and New Zealand, among others) as well as
in oral opinions provided by the Secretariat prior to the conclusion of the Uruguay Round.
264
4.108 Argentina responds that Chile has not submitted any documentary evidence regarding the
above alleged advice by the Secretariat. Secondly, the Chilean argument in paragraph 31 of its second
written submission refers simply to an oral confirmation rather than to a letter, and speaks not only of
the Secretariat but of other delegations that allegedly stated that there was no need to tariffy the PBS.
Argentina can merely state that evidence that has not been brought cannot be refuted, and takes the
view that the Panel cannot accept the Chilean argument that evidence that has not been brought can be
an additional tool for interpretation under Article 32 of the Vienna Convention .
265 Argentina
contends that, in view of Chile's alleged "letter … from an authority of the GATT Secretariat arguing
that it was not necessary to tariffy price bands", the value of the report by the Secretariat in the 1997
Trade Policy Review of Chile takes on particular importance. That report, Argentina explains, is an
institutional opinion by the WTO Secretariat, and it recognizes that "the [Chilean] price stabilization
mechanism works as a valuable levy …".
266 Argentina further indicates that the Trade Policy Review
Mechanism (TPRM) undeniably provides for a thorough examination of the trade policies of Members
and the extent to which they have adapted or failed to adapt to GATT/WTO rules. It claims that there
can be little doubt as to its relative weight and value in trying to understand whether the PBS
constitutes a variable levy or a similar border measure, since unlike the elusive mention of an alleged
letter that Chile has not identified or submitted during these proceedings, it represents a respectable
technical opinion, made available to all WTO Members in the form of a report.
267
4.109 Chile contends that the above-mentioned statement by the TPRM does not represent a legal
conclusion let alone a conclusion under Article 4.2. Further, the Secretariat did not say that the price
band system is a variable levy but that it "works as" a variable levy, because the levy varies according
to the import price. In Chile's view, statements in the TPRM are not supposed to be used in dispute
settlement, under explicit WTO rules.
268
B. ARGUMENTS RELATING TO CHILE'S SAFEGUARD MEASURES
1. Procedural arguments
(a) Terms of reference
(i) Measures which are no longer in force
4.110 Chile notes that Argentina requested consultations with Chile on 5 October 2000 under the
WTO's dispute settlement procedure concerning th e consistency of the provisional and definitive
safeguard measures applicable to imports of wheat, wheat flour and edible vegetable oils. Chile states
that the provisional measures ceased to have effect on 22 January 2000, the date on which the
definitive measures on the same products entered into force. The Chilean authority decided to extend

263 See Chile's response to question 40 (CHL) of the Panel.
264 See Chile's response to question 14 (CHL) of the Panel.
265 See Argentina's Second Oral Statement, para. 28.
266 Argentina refers to the Trade Policy Review Body, Trade Policy Review of Chile, Report by the
Secretariat, WT/TPR/S/28 (7 August 1997), para. 38.
267 See Argentina's Rebuttal, paras. 76-78.
268 See Chile's First Written Submission, para. 39,. See also para. 41 of Chile's First Oral Statement.

the safeguard measures as of 26 November 2000 269 for a period of one year from the date of their
expiry.270 Chile contends that, although the mechanism for applying the extension measures is the
same as that determined in the previous decree on definitive measures, this does not constitute
grounds for asserting that this is the same measure that has been extended over a period of time as
though they were one and the same. Chile submits that these new extended measures are the result of
the receipt of new information, interested parties were given a hearing, which concluded with a
recommendation on extension, and this was adopted under a new decree. Chile argues that the
Chilean authorities might not have decided on an extension. If that had been the case, Chile affirms,
the definitive measures would have ceased to have effect simply because the time-limit had been
reached as according to Chilean legislation, the maximum duration of a safeguard measure, (including
the period of the provisional measure) is one year, without prejudice to extension, which also may not
exceed one year.
271 Chile explains that an extension cannot take effect automatically, it requires a new
decision adopting it, which constitutes a new measure, meaning that it is a new measure whether or
not it is substantially identical to the definitive measure that preceded it.272
4.111 Chile submits that when, on 19 January 2001, Argentina requested the establishment of a
panel on this dispute, neither the provisional nor the definitive measures were in effect. Chile argues
that, if it is presumed that the Chilean provisional and definitive safeguard measures were inconsistent
with certain provisions of the Agreements, then the objective of the dispute settlement mechanism
invoked by Argentina should be to conclude that the measures must be withdrawn by Chile. Chile
refers to the line of reasoning adopted by the Appellate Body in the dispute United States - Import
Measures on Certain Products from the European Communities when it determined that a panel erred
in recommending that the DSB request the Member to bring into conformity with its WTO obligations
a measure which the Panel found no longer existed.
273 For these reasons, Chile considers that
Argentina should have respected the provision in Article 3.7 of the DSU: "Before bringing a case, a
Member shall exercise its judgement as to whether action under these procedures would be fruitful."274
4.112 Chile refers to Argentina's statement whereby it "requests the Panel to rule on all of the claims
made so as to avoid any unnecessary future proceedings if the findings are eventually overturned,
bearing in mind that the Appellate Body exercises procedural economy".
275 Chile submits that the
application of the principle of judicial economy by a panel means that it is not necessary to address all
the claims made by the parties but only those that must be addressed in order to resolve the matter, in
which case a finding is necessary to enable the DSB to make sufficiently precise recommendations
and rulings to allow prompt compliance by a Member with those recommendations and rulings. 276
Chile wonders how would it be possible for the Panel to recommend that Chile bring its provisional
and definitive safeguard measures into conformity if such measures are not being applied. Hence,
Chile requests the Panel to find that the provisional safeguard measures (adopted under Decree
No. 339, published on 19 November 1999) and the definitive safeguard measures (adopted under
Decree No. 9, published on 22 January 2000) were not in effect so it is not possible to make a
recommendation that Chile bring these measures into conformity with its WTO obligations.
277

269 Exempt Decree of the Ministry of Finance No. 349, published on 25 November 2000.
270 See Chile's First Written Submission, paras. 74-78.
271 Chile refers to Law No. 18.525, Article 9. Law notified in Document G/SG/N/1/CHL/2.
272 See Chile's First Written Submission, paras. 79-82.
273 Chile refers to document WT/DS165/AB/R, para. 81.
274 See Chile's First Written Submission, paras. 83-88.
275 Chile refers to para. 266 of Argentina's First Written Submission.
276 Chile refers to the Appellate Body report on United States – Safeguard Measures on Imports of
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia (" US – Lamb ") (WT/DS177/AB/R,
WT/DS178/AB/R) para. 191, adopted on 16 May 2001.
277 See Chile's First Written Submission, paras. 89-91.

4.113 Argentina considers that the provisional and definitive safeguard measures, even though they
may have been repealed following their extension in some cases (specifically, in the case of wheat and
wheat flour), require a specific ruling by the Panel because they form part of its terms of reference.
Argentina argues that, since they come under the Panel's terms of reference, the Panel is required,
under Article 7.1 of the DSU, to examine them, in the light of the relevant provisions in the
Agreement, as part of the matter referred to the DSB. Argentina contends that the fact that the
definitive measure was repealed is irrelevant for the purposes of a ruling, since Chile explicitly
recognized that it resorted to safeguards "to obta in the required legal backing in accordance with the
WTO's relevant provisions".
278 Argentina submits that safeguard measures may only be applied in
accordance with procedures of the Agreement on Safeguards and in conformity with the strict
standards established therein. It considers that Ch ile's recognition that it only sought to "obtain the
required legal backing" is in fact a negation of the multilateral commitment to apply safeguards only
in conformity with the provisions of the Agreement on Safeguards. 279 In Argentina's view, no
interpretation of the Safeguard Agreement, however broad, would enable it to conclude that the
"extension" is a new safeguard measure. Argentina contends that extension is not a notion that exists
independently of other provisions of the Agreement on Safeguards. Argentina further submits that the
Agreement must be interpreted as a single whole, and not as a series of separate articles. Argentina
argues that when a Member, by a resolution or some other administrative act, decides to "extend" an
existing measure, it is not converting it into a new measure.
280
4.114 Argentina argues that Chile continues to apply a safeguard measure on oils for precisely the
same reason it applied all of its previous measures (including their extensions), i.e. because there was
a PBS that was inconsistent with the WTO and caused it to violate its tariff binding. Argentina claims
that, as long as the PBS is in force, the same situation can recur. In Argentina's view, if there is no
ruling by the DSB establishing the inconsistency of the safeguard measures, the situation could recur,
since the attempt at ex-post facto justification will have escaped the scrutiny of the DSB. Argentina
submits that it is this very possibility of reintroducing measures for the same reasons that caused them
to be adopted originally that has led to consistent rulings on repealed measures both prior to the WTO
and under the WTO.
 281
(ii) The decision on extension was not the subject of consultations between the parties
4.115 Chile claims that Argentina, when requesting consultations under the WTO dispute settlement
procedure, only identified the provisional and definitive safeguard measures applied to certain goods
subject to price bands. Chile indicates that the consultations were held on 21 November 2000 but,
when requesting the establishment of a panel, as noted in its communication of 19 January 2001 282,
Chile explains that Argentina nonetheless included in its request the provisional measures, the
definitive measures and the decision to extend the safeguards. Chile notes that Argentina included in
its request Chilean measures (the extension of the safeguards) that were not the subject of prior
discussion during a WTO consultation procedure and this was recognized by Argentina itself in its
request for the establishment of a panel. Chile considers that such recognition does not constitute
sufficient grounds in terms of a WTO Member's obligation to respect the DSU. Chile submits that this
is not a minor question nor simply a formality, but concerns respect for a basic guarantee of due
process in the defence of the interests of a Member of the WTO.
283

278 Argentina refers to Chile's First written submission, para. 25 in fine.
279 See Argentina's First Oral Statement, paras. 65-67.
280 See Argentina's First Oral Statement, paras. 82-85.
281 S ee Argentina's First Oral Statement, paras. 67-69 and footnote 19; Argentina's Second Oral
Statement, para. 36 and footnote 28.
282 Chile refers to WT/DS207/2.
283 See Chile's First Written Submission, paras. 92-94.

4.116 Chile recalls that, on 1 February 2001, at the first meeting of the DSB at which Argentina
requested the establishment of a panel, Chile drew attention to this anomaly 284 and Argentina replied
that "the subject of the extension of the measure was included in the request for consultations since
there was a legal similarity between the original measure and the subsequent extension thereof". 285
Subsequently, Chile continues, at the DSB meeting on 12 March 2001 286, Argentina again requested
the establishment of a panel and mentioned the various consultations held by the parties 287, which,
combined with its theory of the "legal similarity" of the definitive measures and the extension,
intimate that Chile tacitly accepted that the extension measure was included in the consultations.
Chile explains that the DSB decided to establish a panel with the standard terms of reference
contained in Article 7 of the DSU 288 to examine the matter brought up by Argentina in its
communication requesting the establishment of the panel. Chile questions whether these terms of
reference could allow examination of another matter that was not included in the consultations. Chile
further questions whether the DSB, with its terms of reference, can disregard certain provisions in the
DSU that require a panel only to consider a matter that has previously been discussed in valid
consultations at the WTO. Chile submits that, like all WTO Members, it is seeking to resolve the
dispute with Argentina in good faith and considers that its good faith cannot lead to neglect of
important provisions in the DSU that guarantee proper defence.
289
4.117 Argentina submits that, contrary to what Chile maintains, the then possible extensions of the
definitive measures were in fact discussed during the consultations held with Chile. In this regard,
Argentina claims that, between 5 October 2000 when Argentina requested consultations, and
21 November 2000 when the consultations were actually held, Argentina learned that the Chilean
Ministry of Agriculture had requested the extension of the measures (3 November 2000), after which,
on 13 November 2000, Argentina participated in the hearing before the Commission. Subsequently,
Argentina explains, on 17 November 2000, the Argentine Mission in Geneva transmitted to the
Chilean Mission a written questionnaire in which some of the questions referred to the extension of
the definitive measures.
290 Argentina argues that, even if the extension of the definitive measures
were not considered to have been properly addressed, this would not prevent them from being rightly
subject to the jurisdiction of the Panel, as was recently confirmed by the Appellate Body.
291
4.118 Chile argues that the DSU states the following: the dispute settlement system is a central
element in providing security and predictability to the multilateral trading system (Article 3.2); no
solution to a dispute should nullify or impair benefits accruing to any Member (Article 3.5); any
request for consultations (to be valid in the WTO) must be submitted in writing and identify the
measures at issue, the reasons and basis for the complaint and, lastly, be notified to the DSB
(Article 4, paragraphs 2 and 4); the intervention of a panel may only be requested within a period
calculated from the date of receipt of the request for the holding of consultations (Article 4,
paragraphs 7 and 8); and the request for establishment of a panel must refer to the consultations
(Article 6.2). It further argues that, in the report of the Appellate Body in Brazil – Export Financing
Programme for Aircraft, it is stated that: "Articles 4 and 6 of the DSU … set forth a process by which
a complaining party must request consultations, and consultations must be held, before a matter may
be referred to the DSB for the establishment of a panel."
292 Chile explains that it has met with
Argentina on a number of occasions in order to find a comprehensive solution to this dispute.

284 Chile refers to WT/DSB/M/98, para. 83.
285 Ibid., para. 84.
286 Chile refers to WT/DSB/M/101.
287 Ibid., para. 52.
288 Ibid., para. 57.
289 See Chile's First Written Submission, paras. 95-97.
290 See Argentina's First Oral Statement, paras. 78-80.
291 See Argentina's Second Oral Statement, para.37 and footnote 32.
292 Chile refers to WT/DS46/AB/R, adopted on 20 August 1999, para. 131.

Nevertheless, it says, this does not mean that, quod non, Argentina had called for valid consultations
in the WTO on the extension measures because it did not request such consultations in writing and
made no notification to the WTO to this effect. 293 Chile submits that, for a question to be considered
as properly addressed in a consultation proceeding under the WTO, the measure at issue first has to be
identified in writing, and that document must be notified to the DSB. Chile submits that Argentina
never submitted a written request for consultations with Chile, nor provided the DSB notification
thereof, in which it mentioned the extension measures at issue. Chile considers that, if due process is
to be guaranteed, it is essential that the DSU requirements with respect to the formalization of a claim
under the dispute settlement system be respected, since this is what enables a Member to whom a
claim is addressed to lay the foundations for its defence on the basis of the indications contained in the
written request for consultations.
294
4.119 Chile submits that, in this particular case, the extension measures contain the same provisions
as the definitive safeguard measures. In this respect, there is similarity, which Chile does not deny.
Nevertheless, Chile argues, the extension was the result of a new request that gave rise to a new
process, with a public hearing, and to subsequent determinations based on the evidence considered on
that occasion. Chile contends that, even though the content of the final measure (extension) is
identical to that in the previous measure, the new measure only exists because the competent Chilean
authority formally had to issue a new administrative act that completed and validated the extension,
otherwise the previous measure would have expired, and nothing more. Chile submits that the
situation would have been different if the original measure had been automatically extended within a
specified period without any interested party contesting it, as this would have lent weight to the
Argentine theory of an alleged "legal similarity", but quite clearly this is not the case.
295
4.120 Argentina argues there are absolutely no legal grounds for accepting, as a possible
interpretation of Article 6.2 of the DSU, that the extensions of Chile's definitive measures lack a legal
identity with the safeguard measures, nor does such a suggestion make any sense. In Argentina's
view, the fact that they were extended through a new decree is the logical result of the fact that the
definitive measure had an expiry date. Otherwise, Argentina affirms, it would have violated various
paragraphs of Article 7 of the Agreement on Safe guards (7.1, 7.2, 7.3 and 7.6). Argentina contends
that the legal identity of the measure is confirme d by the fact that the same authority issued the
extension, through the same Commission, because the measure applies to the same products and
because the measures apply exactly the same remedy.
296
4.121 Argentina claims that to agree on the issue raised by Chile would be to negate "due process",
to the detriment of Argentina, by restricting access to jurisdiction. It considers that the security and
predictability of the multilateral trading system would be seriously undermined since this could lead to
a situation in which a safeguard measure which is extended will never be subject to scrutiny by the
DSU.297
4.122 Argentina argues that, given that under the Safeguards Agreement, "extension" is not an
independent notion, it goes without saying that if the definitive measure is inconsistent, that
inconsistency does not cease with the extension of the measure. Argentina points out that if the
original measure had been repealed, and if Exempt Decree No. 349 adopting the extension had been a
new measure, Chile's way of proceeding would still be inconsistent with Article 7.5 of the Agreement

293 See Chile's First Written Submission, paras. 98-100.
294 See Chile's response to question 30(a) (ARG, CHL) of the Panel.
295 See Chile's First Written Submission, paras. 101-103.
296 See Argentina's First Oral Statement, paras. 75-76.
297 See Argentina's First Oral Statement, para. 77.

on Safeguards which prohibits new measures from being reintroduced until a specified period of time
has elapsed.298
4.123 Chile submits that Argentina is attempting to establish an innovative theory resting on the
existence of a legal identity between the extension measures and the definitive safeguard measure and
in this way make up for its failure to refer to these extensions anywhere in its request for consultations
under the DSU. Accordingly, Chile adds, it states that this identity exists because the extensions were
adopted by the same authority, through the same Commission, that they apply to the same products
and that they apply the same remedy. Chile contends that these elements on which Argentina bases its
theory of legal identity do not prove that identity. According to Chile, the construction of Article 7.2
points to the contrary of Argentina's argument, i.e. that extensions, from a substantive point of view,
are measures that are distinct from the definitive measures. Indeed, an examination of the paragraph
reveals that the reference to Articles 2, 3, 4 and 5 merely imposes procedural or formal requirements
in circumstances for which the substantive aspects are laid down in the paragraph itself and consist in
the competent authority finding that a safeguard measure continues to be necessary to prevent or
remedy serious injury and that there is evidence that the industry is adjusting.
299
(iii) Withdrawal of some of the extension measures
4.124 Chile informs that, following this First Written Submission, the extension measures for wheat
and for wheat flour were withdrawn by Exempt Decr ee No. 244 of the Ministry of Finance published
on 27 July 2001. On these grounds, Chile submits that there is no point, from the legal point of view,
in the Panel issuing recommendations on the consistency of these measures with the WTO obligations
contained in the WTO Agreements, having found that the measures are no longer in force. Chile
submits that, as stipulated in Article 3.7 of the DSU, "[t]he aim of the dispute settlement mechanism is
to secure a positive solution to a dispute", and "[i]n the absence of a mutually agreed solution, the first
objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures
concerned if these are found to be inconsistent with the provisions of any of the covered agreements."
Thus, Chile argues, where a panel concludes that a measure is inconsistent with a covered agreement,
it recommends that the Member concerned bring the measure into conformity with that agreement.
This is stipulated in Article 19.1 of the DSU, which goes on to say that the panel may suggest ways in
which the Member concerned could implement the recommendations. Chile argues that the entire
reasoning behind Article 19.1 presupposes the existence of a measure, one that is in force. According
to Chile, if the measure does not exist, the panel does not have the authority to ask that a Member be
recommended to bring the measure into conformity with a provision of the WTO Agreements, much
less suggest ways in which the recommendation could be implemented.
300
4.125 Argentina, on the contrary, considers that a ruling by the Panel on the inconsistency of the
safeguard measures, even those that were recently repealed, would in fact have practical consequences
in that as long as the price band system remains in force there is a possibility that these measures
could be re-introduced – i.e. as long as the same reasons that caused them to be adopted in the first
place remain.301 Argentina refers to Chile's explicit acknowledgement that it resorted to safeguards
"to obtain the required legal backing"302 and submits that this constitutes a negation of the multilateral
commitment to apply safeguards only in conf ormity with the Agreement on Safeguards and
Article XIX of the GATT 1994 and demonstrates that as long as the price band system exists, there
will be a risk of the situation recurring. Argentina contends that Chile continues to apply safeguard
measures for the same reason that it applied the previous measures, i.e. because of a price band system

298 See Argentina's First Oral Statement, paras. 88-89.
299 See Chile's Second Oral Statement, paras. 56-60.
300 See Chile's response to question 16 (ARG, CHL) of the Panel.
302 Argentina refers to para. 25 in fine of Chile's First Written Submission.

that is inconsistent with the WTO and which, by its structure, design and mode of application causes it
to violate its binding.303
4.126 Chile considers that the above argumentation is fundamentally at odds with the foundations of
the WTO dispute settlement system, in that it presumes that a WTO Member is acting in bad faith
with the intention of taking advantage of the system . In Chile's view, this argument disregards the
nature of the dispute settlement system, the aim of which is to "secure a positive solution to a dispute",
clearly preferring a "solution mutually acceptable to the parties to a dispute".304
(b) Burden of proof
4.127 Argentina alleges that each one of Chile's violations of the GATT 1994 and the Agreement
on Safeguards, establish prima facie presumption that the safeguard measures applied by Chile are in
violation of their obligations under those Agreements. Hence, according to the general rules of
application of the burden of proof, it is up to Chile to demonstrate that it has not violated them.
Argentina submits that Chile has not supplied a single argument to refute that presumption but that, on
the contrary, it has recognized that the safeguard measures were inconsistent with its WTO
obligations.
305
4.128 Chile submits that, in every statement made before this Panel, Argentina has based the above
argument on a serious error of law. In Chile's view, Argentina considers that in a prima facie
presumption, what is presumed is the violations committed by a Member of its obligations under the
Agreements covered by the dispute. However, Chile argues, according to Article 3.8 of the DSU, this
clearly is not the case: Chile contends that what is presumed is not the violations or inconsistencies,
but something quite different, the nullification or impairment of the benefits accruing under the
covered agreements that these inconsistencies ma y cause with respect to the Member or Members
bringing the complaint. Chile stresses that the consequences of this error of law committed by
Argentina are not insignificant. In this regard, Chile submits that, if the fact to be presumed were the
violation of the obligations laid down in the WTO Agreements, the mere presentation of claims and
arguments would suffice to establish the presumption, and there would be no need to submit precise,
concordant and complete evidence to the Panel of the irrefutable truth of these claims. Chile further
submits that this would of course be inadmissible under the DSU, since it would free the complaining
Member from the obligation and burden of proving the facts on which its arguments rest, and the
report of the Panel would be based on mere presum ption. In addition, Chile contends that Argentina
has neither produced nor brought before the Panel sufficient, precise and concordant evidence to
establish irrefutably that Chile violated its obligations under Article XIX of the GATT 1994 and the
Agreement on Safeguards. Consequently, Chile argues, Argentina can hardly be presumed to have
suffered nullification or impairment of the benefits accruing to it under those Agreements as a result
of Chile's safeguard measures. Chile submits that it has submitted complete and sufficient evidence
during these proceedings of the full consistency of its measures with the mentioned Agreements.
Chile objects to Argentina's statement to the effect that Chile recognized that its safeguard measures
were inconsistent with its obligations under the WTO. Chile claims that Argentina has clearly taken a
hypothetical statement out of its context in order to use it for its own purposes since this statement was
made by Chile in connection with its position on the Panel's lack of jurisdiction to rule on measures
that were not in force, and not with any violation of or inconsistency with a covered agreement.
306

303 See Argentina's response to question 16 (ARG, CHL) of the Panel.
304 See Chile's Rebuttal, paras. 41-42.
305 See Argentina's Rebuttal, paras. 100-101.
306 See Chile's Second Oral Statement, paras. 48-52.

4.129 Argentina argues that this prima facie presumption exists because of the proofs submitted in
these proceedings and not – as Chile argues – by a mere presentation of claims and arguments in
connection with Article 3.8 of the DSU, which Argentina has not argued.
2. Substantive arguments
4.130 Argentina claims that Chile initiated the safeguards investigation on imports of vegetable
oils, wheat and wheat flour in order to provide a legal justification for its PBS. According to
Argentina, the safeguards case served to confirm that the PBS violated Chile's obligations under the
WTO, since Chile acknowledged that, under that system, it exceeded its bound tariff. Given the true
objective behind its investigation, Argentina argues, it comes as no surprise that the Commission
(i.e. the competent Chilean authority) was unable to comply with any of the requirements of the
Agreement on Safeguards.307 In particular, Argentina submits that the Chilean investigation to impose
definitive safeguard measures and the identical extension of those measures on imports of edible
vegetable oils, wheat and wheat flour, is inconsistent with Article XIX of the GATT 1994 and with
Articles 2, 3, 4, 5, 6 and 12 of the Agreement on Safeguards.
4.131 Chile submits that the object and purpose of the investigation initiated by Chile for the
application of the provisional safeguard measure, the definitive measure and subsequently the
extension thereof, as well as the adoption of those measures, was not in any way to provide a legal
justification of its price band system. The object and purpose of the measures was to enable Chile to
readjust, temporarily, the balance between itself and, without distinction as to origin, other exporting
countries, in respect of the level of concessions, in the wake of unexpected and unpredicted
developments as a result of which imports of agricultural products under the band genuinely and
substantially threatened to cause serious injury to the domestic industry producing like or directly
competitive products. These unexpected developments essentially consisted of an unusual and
unpredicted persistence of very low international prices which affected agricultural products,
including those covered by the price band, and which, in their turn, had such an impact on import
trends that Chile was faced with a threat of serious injury to the domestic industry in question.
308
Chile submits that it is not correct to state, as Argentina does, that the purpose of the safeguard
measures is to justify the PBS as such because the purpose of a safeguard is to give the domestic
industry temporary protection and, in Chile's particular case, this is limited to a period that may not
exceed one year. Chile submits that it could hardly try to "justify" a longstanding permanent
mechanism known to all Chile's trade partners - in cluding Argentina - which had been notified to the
WTO and appeared in many free trade agreements - including one signed with Argentina - by means
of a temporary safeguard measure for such a limited period.309
(a) Compliance with the notification and prior consultation requirements
4.132 Argentina claims that Chile violated Article XIX.2 of the GATT 1994 and Article 12.1(a) of
the Agreement on Safeguards by failing to comply with the notification requirements laid down in
Article 12.1(a) and 12.2 and by not holding prior consultations with Members having a substantial
interest as exporters of the product concerned, as required by Article 12.3 and 12.4.
4.133 Argentina claims that the Appellate Body has already ruled on the criteria for the application
of Article 12.1(a) that must be met in order to comply with the text. 310 In Argentina's view, Chile's
conduct does not, however, comply with the prov isions of Article 12.1 of the Agreement on

307 See Argentina's First Written Submission, para. 76.
308 See Chile's Second Oral Statement, paras. 43-45.
309 See Chile's First Written Submission, paras. 120-122.
310 Argentina refers to the Appellate Body report on US –Wheat Gluten, (WT/DS166/AB/R) adopted on
19 January 2001, paras. 105 and 106.

Safeguards nor with the Appellate Body's conclusions on application of this Article . Argentina
explains that this can be seen simply by comparing the date on which the Committee on Safeguards
was notified of the initiation of the investigation and the date on which the initiation effectively
commenced. Argentina indicates that the notification was in fact made on 25 October 1999, whereas
the investigation was initiated on 30 September 1999. 311 In view of this, Argentina argues that it is
obvious that Chile did not comply with the requirements in Article 12.1(a) of the Agreement on
Safeguards. This means that the requirement on "immediacy", which must be met if the notification is
to be considered as having been made in due form, was not respected. Argentina says that the result
was that the Committee on Safeguards and the Members of the WTO were not given sufficient time to
examine the notification.312
4.134 As regards the infringement of Article 12.2 of the Agreement on Safeguards, Argentina
argues that it is clear that the elements which the Appellate Body considers to be minimum
requirements for the notification were not present as far as the product and the definition of domestic
industry are concerned, and there was no analysis of the factors.
313 314 Argentina argues that Chile did
not submit any argument to rebut the fact that its notification did not contain "all pertinent
information".315
4.135 Argentina claims that Chile violated Article 12.3 and 12.4 of the Agreement on Safeguards.
It did not give Argentina, which is a substantial supplier of wheat, wheat flour and edible vegetable
oils, the opportunity to hold consultations, either immediately after the imposition of the provisional
measure or prior to the application of its definitive measure. Argentina argues that Chile failed to
comply with these requirements in the Agreement on Safeguards inasmuch as the date of application
of safeguard measures was 26 November 1999 whereas the notification to the Committee on
Safeguards was dated 1 December 1999. It should also be noted that Argentina had to request the
consultations indicated in the last sentence of Article 12.4.
316 317
4.136 Reading Argentina's claim regarding notifications and consultations 318, Chile submits that
Argentina only referred to the following measures by Chile: (a) notice of initiation of the investigation
in 1999; (b) the provisional measure; and (c) the definitive measure adopted in January 2000. Chile
argues that this clarification is necessary because, if Argentina wishes the Panel to make a concrete
ruling, it should have made clear to which Chilean notifications it was referring and in what way it
considered that these violated the actual provisions of the WTO Agreements, which Argentina does
not specify at all. If the Panel should rule on the conformity of the timing of Chile's notification of
initiation of the procedure, (rather than the provisional and definitive measures, which were not yet in
effect), Chile recalls that a recommendation by the Panel may only refer to the conformity of the
measure as regards Chile's obligations under the WTO Agreements. Consequently, Chile argues, the
Panel cannot conclude, as Argentina indicates – that "Chile's conduct does not, however, comply with
the provisions of Article 12.1 of the Agreement on Safeguards nor with the Appellate Body's
conclusions on application of this Article ."
319 Chile submits that, when the DSB adopts findings by

311 Argentina refers to Chile's notification to the Committee on Safeguards, dated 25 October 1999,

312 See Argentina's First Written Submission, paras. 253-257.
313 Argentina refers to the Appellate Body report on Korea – Definitive Safeguard Measure on Imports
of Certain Dairy Products (Korea – Dairy) , WT/DS98/AB/R adopted on 12 January 2000, paras. 107, 108 and
109.
314 See Argentina's First Written Submission, para. 258.
315 See Argentina's Second Oral Statement, para. 40 and footnote 34.
316 Argentina refers to its notification to the Committee on Safeguards, dated 28 December 1999,

317 See Argentina's First Written Submission, paras. 259-265.
318 Chile refers to paras. 253-265 of Argentina's First Written Submission.
319 Ibid., para. 255.

the Appellate Body in the context of a specific dispute, it does so in order to require a WTO Member
to bring the disputed measures into conformity w ith its obligations under certain provisions of the
WTO Agreements. Consequently, Chile contends, Argentina's assertion that "Chile's conduct does not
comply … with the Appellate Body's conclusions" in the text mentioned above can only constitute
Argentina's own opinion, but not a recommendation by the Panel. Chile then refers to Argentina's
statement that "Chile's notification did not provide 'all pertinent information', in violation of
Article 12.2 …"
320. Chile argues that, as Argentina does not specify to which Chilean notification it
refers, Chile is obliged to assume, by reading the next paragraph in the submission, that the measures
in question are only the provisional and definitive measures. In this context, Chile emphasizes that the
extension measure was not the subject of a WTO consultation procedure. Chile submits that
Argentina tries to restrict the scope of the Agreement on Safeguards so that measures are only adopted
on the basis of definition of a like product 321, but not including directly competitive products. In any
event, Chile points out that Article 12.2 refers to "all relevant information" on the one hand and, on
the other, specifically states "precise description of the product involved". Chile argues that this
precise description of the product is the identification of the product (like or directly competitive) to
which the safeguard measure applies. According to Chile, all Chile's notifications determine quite
clearly which products are the subject of the procedure and, subsequently, the measures. 322
4.137 Chile explains that it notified the WTO Committee on Safeguards of its intention to apply a
provisional measure on 2 November 1999. 323 It further explains that this provisional measure was
eventually applied as of 26 November 1999. Chile affirms that it complied with the requirement to
notify the intended measure before it was adopted, as called for by Article 12.4 of the Agreement on
Safeguards and, at the same time, gave the Members of the WTO the opportunity to examine the
measure, as required by Article XIX:2 of the GATT. Chile contends that Argentina's assertion that,
on 1 December 1999, Chile notified the provisional measure adopted on 26 November 1999
324 is not
relevant because, as already stated, Article 12.4 requires notification of the intention to adopt a
provisional measure before it is imposed, which Chile did. Chile further adds that it subsequently
notified the decree by which the provisional measure was adopted, something that Article 12.4 does
not require. Chile also refers to Argentina's statement that Chile "did not give … the opportunity to
hold consultations, … immediately after the imposition of the provisional measure … ."
325 Chile
disagrees with this Argentine reasoning because it goes beyond the actual requirements in Article 12.3
in relation to Article 12.4 of the Agreement on Safeguards. According to Chile, Article 12.4 of the
Agreement on Safeguards in fact deals exclusively with the obligations to notify and consult with
regard to those provisional safeguard measures referred to in Article 6 of the Agreement on
Safeguards. Chile submits that, when Argentina claims that it "had to request the consultations
indicated in the last sentence of Article 12.4"
326, this appears to suggest – although it is not expressly
stated – that Chile should have indicated in its not ification that it would give sufficient opportunity to
hold consultations. Chile claims that this assumption is not admissible because it is not a requirement
of the Agreement on Safeguards. The last part of Article 12.4 provides that "Consultations shall be
initiated immediately after the measure is taken", and here the imperative tone is directed both at the
Member imposing the provisional measure and any other WTO Member interested in holding
consultations, so responsibility in this respect does not only lie with the notifying Member. Chile
submits that it has always been ready to hold c onsultations with any Member who shows an interest
and understands that, in the light of the provisions in the Agreement on Safeguards, notification to the
Committee on Safeguards suffices to show its willingness to hold consultations with any party that so

320 Ibid., para. 263.
321 Ibid., para. 263.
322 See Chile's First Written Submission, paras. 212-216.
323 Chile refers to G/SG/N/7/CHL/2.
324 Chile refers to para. 265 of Argentina's First Written Submission.
325 Chile refers to para. 264 of Argentina's First Written Submission.
326 Ibid., para. 265.

requests. Chile submits that the Agreement on Safeguards does not provide for an obligation to "offer
consultations" which must be performed by providing a written statement to that effect to WTO
Members.327
4.138 As regards Chile's claim that by merely notifying the measures, it had complied with its
obligation under the provisions of Article 12 to offer to hold consultations, Argentina contends that
the obligation to provide adequate opportunity fo r consultations both prior to and following the
adoption of the measure to be a separate obligation under the Agreement. Argentina submits that
Chile violated the above-mentioned Articles by failing to indicate expressly its readiness to offer these
consultations. Argentina considers that there are no grounds for considering that the mere notification
of measures is tantamount to offering to hold consultations.328
4.139 In response to the above argument, Argentina recalls that Article XIX.2 of the GATT 1994
expressly stipulates the following: "Before any contracting party shall take action … it shall give
notice in writing to the CONTRACTING PARTIES … and shall afford the CONTRACTING
PARTIES and those contracting parties having a substantial interest … an opportunity to consult with
it in respect of the proposed action." Argentina contends that this clearly shows that the obligation to
notify and to offer consultations are two different obligations for which, contrary to what Chile has
claimed, mere notification is not equivalent to of fering consultations. Indeed, Argentina adds, the
obligation to "afford … an opportunity" does not constitute and cannot constitute, "an obligation of
immediate availability", as Chile contends, nor can it be considered to have been met merely because
"Chile was … ready to hold consultations".
329
(b) Unforeseen developments
4.140 Argentina claims that Chile has infringed Article XIX:1(a) of the GATT 1994 and Article 3.1
of the Agreement on Safeguards by not identifying or making any findings with respect to unforeseen
developments justifying the imposition of safeguard measures.
4.141 Argentina explains that, pursuant to Article XIX:1(a), safeguard measures (emergency
measures) shall be taken as a result of unforeseen developments. In this regard, Argentina refers to
various examples of the Appellate Body's interpretation of the concept of "unforeseen
developments".
330 Argentina submits that, as established by the Appellate Body in US – Lamb331, the
requirement of increased imports resulting from "unforeseen developments" is a fundamental
characteristic of a safeguard measure because it lies at the beginning of a "logical continuum" of
events justifying the invocation of a safeguard measure.332 In Argentina's view, for a Member to apply
a safeguard measure in a manner consistent with its WTO obligations, it must, before applying the
measure, have demonstrated as a matter of fact that as a result of unforeseen circumstances there has
been an increase in imports which causes or threatens to cause serious injury to the domestic industry,
and that consequently, the adoption of an emergency measure is justified. This demonstration of fact
and of law, and the findings and reasoned conclusions, must be included in the report of the competent
authority in accordance with Article 3.1 of the Agreement on Safeguards. 333 Argentina claims that
neither the investigation conducted by the Commission, nor the WTO notifications, reveal that Chile

327 See Chile's First Written Submission, paras. 217-221.
328 See Argentina's First Oral Statement, para. 110.
329 See Argentina's Second Oral Statement, para. 40.
330 See Argentina's First Written Submission, para. 78.
331 Argentina refers to the Appellate Body report on US – Lamb (WT/DS177/AB/R, WT/DS178/AB/R)
adopted on 16 May 2001, paras. 71-74.
332 See Argentina's First Written Submission, para. 79.
333 See Argentina's First Written Submission, para. 83.

demonstrated, as a matter of fact, that the safeguard measure in question was applied, inter alia, "as a
result of unforeseen developments".334
4.142 Chile points out that the reason why the Commission recommended the application of
safeguards on products subject to price bands was the continued existence of unusually low prices
over a period that could not be considered transitory. Chile contends that the unforeseen
developments correspond to this special situation of global prices. Chile submits that the level of the
bound tariff had been exceeded on previous occasions, but only for very short periods that did not
justify the introduction of changes. On this occasion, Chile argues, the period was much longer and
made it necessary to find a solution. Chile submits that keeping the band within the bound tariff
would result in the serious injury explained in the submission. In Chile's view, the unforeseen
development in this case is the continued existen ce of very low international prices for much longer
periods, which greatly exceeded the forecasts by experts. Chile argues that a fall in international
prices to such low levels over such a long period is unusual and unpredictable, especially in the case
of products whose price fluctuates considerably. Chile submits that the trend in international prices of
wheat (hard red winter No. 2, Gulf, and Argentine bread wheat), and soya bean oil (Illinois crude soya
bean oil and Buenos Aires crude soya bean oil) show marked and persistent decreases between 1997
and 2000.
335
4.143 Argentina submits that the fall of international prices was not an unforeseen development,
nor was it unexpected or unusual. In Argentina's view, the creation of the price band system in 1986
clearly shows that Chile knew of, and had even tried to regulate, the alleged negative effects of these
economic developments (variations in international commodity prices). Argentina concludes that the
developments that led to the application of the safeguards were not unforeseen developments under
the terms of Article XIX.1(a) of the GATT 1994.
336
4.144 Chile notes that the purpose of the price bands has always been simply to moderate the strong
short-term fluctuations in international prices of the products subject to the system, and not to
compensate for medium- and long-term trends in those prices, so that the "fall in international prices
to such low levels and for such a long period … " was a development that could not reasonably be
foreseen.
337 However, Chile argues, the preliminary question of fact which led Chile to adopt its
safeguard measures was not these short-term fluctuations; quite to the contrary, it was the continued
persistence of very low international prices over a long period of time. Chile submits that it is these
developments that were obviously entirely unforeseen, and that Chile was not reasonably in a position
to foresee. In Chile's view, these circumstances therefore fall outside the object and scope of the price
band system.338
4.145 As regards Argentina's claim that there is no mention of unforeseen developments as a
preliminary question in the Minutes of the Commission, Chile submits that the relevant examination
and finding is recorded in the last part of the penultimate paragraph on page 3 of the Minutes of
Session No. 193.339 Argentina affirms that none of the Commission records even mention unforeseen
developments.340

334 See Argentina's First Written Submission, paras. 80-82.
335 See Chile's First Written Submission, paras. 141-144.
336 See Argentina's First Oral Statement, para. 95.
338 See Chile's Second Oral Statement, para. 65.
339 See Chile's Second Oral Statement, para. 66.
340 See Argentina's Second Oral Statement, para. 42.

(c) Appropriate investigation
4.146 Argentina claims that Chile has infringed paragraphs 1 and 2 of Article 3 of the Agreement
on Safeguards on the grounds that the competent Chilean authorities did not conduct an appropriate
investigation.
4.147 Argentina submits that it did not have the opportunity to participate fully in the investigation.
In this connection Argentina stresses that it did not have access to any public summary of any
confidential information on which the Chilean authorities may have relied. 341 Argentina states that
Chile failed to conduct an appropriate investigation because none of the Minutes of the Commission
contain any reference suggesting that the information submitted by the Argentine exporters was
analysed.342
4.148 As regards Argentina's argument that it did not have the opportunity to participate fully in the
investigation, Chile argues that for it to be relevant, Argentina should have explained to the Panel the
reason why it did not have the opportunity to participate in the investigation conducted by the Chilean
authorities. Chile issued a Law (and regulations) giving the competent authority powers regarding
safeguards. This Law was published in full in the Chilean Official Journal in May 1999 and the
relevant regulations were published in the Chilean Official Journal in June 1999. These two
notifications, which were public, are acknowledged by Argentina in its first written submission. 343 In
addition, Chile argues, all this Chilean legislation was notified to the WTO on 23 July 1999, as can be
seen from document G/SG/N/1/CHL/2, as Argentina acknowledges in its first written submission.
Chile further submits that the safeguards investigation into goods subject to price bands was initiated
in accordance with the notice published by the inve stigating authority in the Chilean Official Journal
on 29 September 1999, which clearly showed that the investigation was initiated on
30 September 1999. This fact is recognized by Argentina in its first written submission.
344 O n 2 9
October 1999, the Government of the Argentine Republic became party to the investigation,
submitting a document setting out its position and requesting to take part in the public hearing.
During the procedure, the Chilean investigating authority held a public hearing on 25 November 1999,
as can be seen from the Minutes of Session No. 189. The notice of a public hearing was published in
the Official Journal and was contained in Chile's notification to the WTO.
345 On 23 November 1999,
in a letter from the Technical Secretariat, the Embassy of Argentina was given confirmation of the
public hearing and asked to confirm whether it would attend, which Argentina did on 24 November.
The Argentine Embassy in Chile took part in the hearing and presented its arguments. Its chargé
d'affaires ad interim, a Minister and two Counsellors were present. A representative of the Argentine
Milling Industry Federation and a representative of the Chamber of the Argentine Oil Industry
(CIARA) also participated. Furthermore, Chile states, when the investigating authority decided to
examine the request for an extension of the safeguard measures, it announced in the Official Journal
346
that a public hearing would be held on Monday, 13 November 2000. 347 Chile submits that the
following took part in the public hearing before the investigating authority and put forward their
arguments: the Argentine Embassy in Chile, represented by a Minister and a Counsellor; the
Attorney for Molinos Río de la Plata (Argentine oil exporter); the Argentine Cereals Exporters
Center; and the Executive Director of the Argentine Milling Industry Federation.
348 Chile therefore

341 See Argentina's First Written Submission, paras. 84-86.
343 Chile refers to para. 66 of Argentina's First Written Submission.
344 Ibid., para. 68.
345 Chile refers to G/SG/N/6/CHL/2.
346 Chile refers to the Official Journal of 4 November 2000.
347 Chile submits that this was notified to the WTO on 9 November 2000 in document

348 Session of the Commission on Distortions No. 223 of 13 November 2000.

argues that the foregoing shows that Argentina had sufficient opportunity to participate in the
proceedings of the investigating authority.349
4.149 Chile contests Argentina's argument whereby, in the investigation, the Chilean Authority
based itself on confidential information. Chile po ints out that the investigating authority collected
information and reached its conclusions on the basi s of all the information gathered in the public
record, that besides the information of the petition, contains the information and opinions rendered by
the interested parties to the investigation - public hearing included – and the information gathered
from other sources such as the Chilean Customs Service, the Central Bank of Chile and sectorial
information from official sources (Office of Agricultural Studies and Policies (ODEPA). 350
According to Chile, there are thus no non-confidenti al summaries of confidential information because
there was no confidential information discussed. Consequently, Chile submits, the situation envisaged
in paragraph 1 of Article 3 of the Agreement on Safeguards did not exist, as Argentina claims. Chile
adds that the information on these products is fully available to the public through an official body, the
Office of Agricultural Studies and Policies (ODEPA), which keeps public statistics for the agricultural
sector that are used by the Commission. Chile claims that Argentina also had an opportunity for
access to the relevant file, which contained the submissions by other interested parties, and examined
and obtained copies of all the information it requested.
351
(d) Whether Chile failed to publish a report setting forth reasoned conclusions and findings
4.150 Argentina claims that Chile has infringed Articles 3.1 and 4.2(c) of the Agreement on
Safeguards on the grounds that the competent Chilean authorities did not publish a report setting forth
their reasoned conclusions and findings reached on issues of fact and law.
4.151 According to Argentina, Articles 3.1 and 4.2(c) lay down very specific requirements
concerning the content of the determination that the competent authorities must publish. Article 3.1
stipulates that "... the competent authority shall publish a report setting forth their findings and
reasoned conclusions reached on all pertinent issues of fact and law." whilst Article 4.2(c) refers to
Article 3.1, and lays down the additional requirement that the "competent authorities shall publish
promptly, in accordance with the provisions of Article 3, a detailed analysis of the case under
investigation as well as a demonstration of the relevance of the factors examined". Argentina submits
that the Appellate Body in Argentina – Footwear (EC)
352 and US – Wheat Gluten 353has ruled that the
national authorities must explain how they arrived at their conclusions, based on the information and
that the findings of the competent authorities must be contained in the decision itself.354
4.152 Argentina submits that the verb "to publish" implies "to make public" through a report,
published in some official medium, setting forth the investigating authority's findings of fact and law
in accordance with Article 3.1 of Agreement on Safeguards. The Agreement on Safeguards uses the
verb "publish" instead of referring to a "public" document. There may be documents which by their
nature are "public", and hence accessible to anyone, but which are not "published" in any medium –
an act designed to facilitate consultation of the said document.
355
4.153 Argentina argues that the Chilean Commission did not publish any report showing that it had
examined all of the relevant information and including either a demonstration of the critical
circumstances justifying the provisional measure or an examination of the relevant information and of

349 See Chile's First Written Submission, paras. 126-133.
350 See Chile's response to question 17 of the Panel.
351 See Chile's First Written Submission, paras. 134-137.
352 WT/DS121/R, adopted 12 January 2000, as modified by the Appellate Body report.
353 WT/DS166/R, adopted 19 January 2001, as modified by the Appellate Body report.
354 See Argentina's First Written Submission, paras. 87-94 and footnotes 50 and 51.
355 See Argentina's response to question 18 (ARG, CHL) of the Panel.

the conclusions with respect to increase in imports, like product, domestic industry, analysis of
factors, threat of serious injury, causal link and unforeseen circumstances, either for the provisional
measure or for the definitive measure, as required by Articles 2 and 4 of the Agreement on
Safeguards. In Argentina's opinion, the findings of law of the Commission (Minutes of Session Nos.
181, 185, 193 and 224) serving as a basis for its investigation and its conclusions merely cite numbers
and figures relating to imports and economic and financial indices of the "industries". Argentina
submits that all of the information supplied is taken directly from the Ministry of Agriculture's
application for the initiation of an investigation, but was apparently never verified by the Commission
and there was never the slightest confirmation of its accuracy.
4.154 In fact, Argentina claims, the Commission never submitted any review or analysis of the
documentation backing its estimates, nor did it seek out any evidence that might shed doubt on its
information or seriously consider the arguments of the parties in evaluating the imports or the state of
the domestic industry. On these grounds Argentina submits that the Commission of Chile infringed
Articles 3.1 and 4.2(c) of the Agreement on Safeguards, and failed to provide a reasoned and adequate
explanation of how the facts support their determination. Argentina contends that neither the
investigation conducted by the Commission, nor its findings and conclusions of fact and of law can
back any safeguard measure, either provisional or de finitive - as originally applied - or their identical
extension.
356 In particular, Argentina stresses that the Minutes of the Commission which according to
Chile constitute the public official report do not contain any report demonstrating the existence of
critical circumstances justifying the provisional measures, nor do they contain an examination of the
relevant information and the conclusions concerning increased imports, the like product, the domestic
industry, the analysis of the factors, the threat of serious injury, causality and unforeseen
developments, either in the case of the provisional measures or in the case of the definitive measures,
as required by Articles 3.1 and 4.2(c) of the Agreement on Safeguards.
357
4.155 Chile submits that, to make the procedure consistent with the provision of the Agreement on
Safeguards, what the Commission does is to make the Minutes public, placing them at the disposal of
the interested parties once the decree or the excerpt from the resolution, as appropriate, has been
published.
358 Chile explains that the examination made by the investigating authority, as a whole, as
well as its findings and recommendations, are contained in the respective records, which are public.
Chile contests Argentina's claim that the investigating authority did not publish any report containing
its findings359 and submits that all the Minutes of its sessions are public and that any interested party
may obtain a copy of the records. 360 In this regard, Chile indicates that the Commission published
prior notice in the Chilean Official Journal of both the initiation of the investigation and the various
public hearings conducted throughout the course of the investigation. As a result, Chile continues,
Argentina had the opportunity to become an interest ed party to the investigation and thus was able to
fully participate in all public hearings related to the safeguard measures. Chile further states that,
although Argentina claims that the Commission violated the Agreement on Safeguards by not
publishing a single document, the Commission did in fact make available to the public all Minutes
from the case which contained the Commission's complete "findings and reasoned conclusions
reached on all pertinent issues of fact and law." Moreover, Chile argues, contrary to Argentina's
allegations, the data on which these findings were based were all verified with the official records of
the National Customs Service, the Central Bank, Reuters and official publications of ODEPA
361,
thereby ensuring the accuracy of the data. Chile also indicates that the Commission made available all
Minutes in this case to the public which include the Commission's findings of both fact and law.

356 See Argentina's First Written Submission, paras. 91-94.
358 See Chile's response to question 18 (ARG, CHL) of the Panel.
359 Chile refers to para. 92 of Argentina's First Written Submission.
360 Chile refers to Annex 6 to its First Written Submission.
361 See Chile's response to question 17 of the Panel.

Chile contends that although the Commission did not publish one consolidated report, nothing in
Article 3 of the Agreement on Safeguards requires that the findings to be all contained in one
document as opposed to a series of documents.362
4.156 Chile further submits that, by stating that "apparently" no verification was done, Argentina
highlights the weakness of its argument. Moreover, the word "appearance" is alien to the concept of
"findings of fact and of law". Chile submits that, in any case that comes before it, the Chilean
authority must verify the information submitted and, in this particular case, it verified the information
with the official records of the National Customs Service, the Central Bank and the sectoral
information in official sources such as those published by the Office of Agricultural Studies and
Policies (ODEPA), which are widely known in Chile, so Argentina's assumption that the authority did
not take the trouble to carry out a responsible verification of the information in question is without
foundation. Chile argues that Argentina notes the existence of "incomprehensible" differences in data
but that these are simply the result of the revision and verification of the information between the time
the investigation was initiated and the time the measures were adopted because there were marginal
corrections to the information on oil imports on the basis of official information from the National
Customs Service.
363
4.157 Argentina argues that the law establishes seven members of the Commission, two of whom
are members of the Central Bank. Moreover, Law 19.612 stipulates that the approval of three quarters
of the members of the Commission is required for decisions on safeguards. Argentina submits that,
when the Commission of Chile voted to recommend the application of provisional and definitive
safeguard measures, the relevant legal Minutes (Minutes of Session Nos. 185 and 193) reveal that the
"majority" of the members of the Commission approved the decision, with the representatives of the
Central Bank abstaining. Argentina argues that, if one checks the attendance of these sessions as
established in the records, given the abstention of the Central Bank representatives, these measures
appeared not to have met the requirement of approval by the competent Chilean authority as provided
for in Chile's own legislation.
364
4.158 Chile365 points out that Law No. 19.383, published in the Official Journal of 5 May 1995,
introduces an amendment to Article 11 of Law No. 18.525 to allow the participation of a
representative of the Ministry of Agriculture in the Commission. Consequently, there are eight, not
seven, members of this Commission; Chile assumes that Argentina based its argument on an old text
of the Chilean Law, an issue that is relevant because the current Chilean law was duly notified to the
WTO on 23 July 1999. 366 Regarding the quorum for attendance and voting at sessions Nos. 185 and
193, Chile notes that on both occasions the eight members were present and that the respective votes
were taken with the sole abstention of the two members representing the Central Bank, which means
that six out of eight members voted in favour of the measure, representing 75 per cent or three
quarters. Chile also notes that this is an essential requirement of Chilean law when a proposed
safeguard measure exceeds the bound tariff and that these three quarters also constitute a "majority",
as shown by the records. Chile therefore considers that the statements by the complainant have no
foundation, and this is confirmed by the lack of conviction with which Argentina claims in this
connection, that the Chilean measures "appeared not to have met" the legal requirement.
367

362 See Chile's First Oral Statement, para. 72.
363 See Chile's First Written Submission, paras. 145-150.
364 See Argentina's First Written Submission, footnote 54.
365 Chile refers to footnote 54 of Argentina's First Written Submission.
366 Chile submits that the updated text of its Law was notified to the WTO in document

367 See Chile's First Written Submission, para. 139.

4.159 In response to a question from the Panel, Chile explains that the Commission gathers together
all of the information submitted by the interested parties both during the public hearing and in the
course of the investigation, and prepares a technical report, which is examined during a final meeting
of the Commission (to take place within 90 days of the initiation of the investigation), after which the
Commission decides whether or not to recommend the application of definitive measures.368
4.160 Argentina claims that, although Chile asserts that it is a condition for all safeguards
investigations, a technical report was not prepared prior to the recommendation to apply provisional
measures, or another one prepared prior to the recommendation to apply definitive measures. 369
Argentina further claims that, despite the above, Chile had already replied that the Minutes of the
Commission "constitute the only official report of the investigating authority". Argentina considers
that this contradiction suggests that in the present case, these technical reports were not prepared, or
that they do not form part of the official report of the investigating authority.
370
4.161 Chile, in reference to Argentina's statement that the Minutes constitute the only official report
of the investigating authority and that they do not appear to have met any of the requirements for
resorting to the application of measures 371, considers that it should be borne in mind that the
Commission bases its recommendations on all of the information gathered and evaluated in the course
of the investigation. Chile explains that, for each stage of the investigation, the Commission receives
a technical report prepared by its Technical Secretariat, in addition to the public Minutes which
contains all of the information gathered during the process, including the public versions of
confidential information. The technical report is a supporting document which helps the Commission
in making decisions and summarizes the information pertaining to the case. This report, together with
the initial application and all of the documents supplied by the other interested parties and the
information gathered by the Technical Secretariat itself throughout the investigation, including the
information from the public hearing, makes up the information used by the Commission as a basis for
its decisions. The technical report is classified as restricted since it is an internal working document,
and above all because it is not binding vis-à-vis the decisions taken by the Commission.
372
4.162 Argentina states that in spite of what Chile argues, the Commission based its
recommendations on all the facts analysed during th e investigation, and that argument does not alter
the fact that the only Chilean official report does not contain the requirements set forth in the
Agreement on Safeguards.
4.163 Chile states that the report is also restricted because it includes all of the confidential
information contributed by the interested parties as such, on condition that it will not be disclosed.
Chile indicates that this explains why the report is not placed at the disposal of any of the interested
parties in the procedure. In the case at issue, Chile adds, although there was no confidential
information, the non-binding nature of the report vis-à-vis the final recommendation of the
Commission was maintained, and hence, the report was not made available to the parties. Chile adds
that this report does not constitute the document containing the findings and reasoned conclusions
reached on issues of fact and law whose publication is required under Article 3.1 of the Agreement on
Safeguards. The report required under that Article, as stated, is made up of the Minutes of the
Commission. Chile explains that these Minutes co ntain its recommendations and the findings of fact
and law supporting those recommendations. Chile further submits that, as part of the investigation
process, the Technical Secretariat, an entity whic h assists the Commission – i.e. the investigating
authority – in its work, assumes an active investig ative role, establishing and verifying the accuracy

368 See Chile's response to question 17 (CHL) of the Panel.
369 Argentina refers to Chile's response to question 17 of the Panel.
371 Chile refers to paras. 91 and 92 of Argentina's First Oral Statement
372 See Chile's Rebuttal, paras. 60-62.

and relevance of the evidence submitted, gathering additional information, clarifying different
elements and supplementing the information provided by the parties with information available from
other sources. Consequently, Chile submits, the Commission plays a pro-active role in verifying the
information supplied by the parties and supplementing it where necessary.373
(e) Like product
4.164 Argentina claims that Chile has infringed Article XIX:1(a) of the GATT 1994 and
Articles 2.1, 4.1(c) and 4.2(a) of the Agreement on Safeguards on the grounds that the competent
Chilean authorities failed to define the like product properly.
4.165 Argentina submits that, pursuant to all three above-mentioned Articles, it is the "domestic
industry" thus defined that must be examined under Article 4.2(a) to determine whether the increase in
imports has caused serious injury or threat thereof. In Argentina's view, the Commission failed to
identify the like product and did not conduct an analysis of the like product or products. Argentina
therefore concludes that the entire analysis of the increase in imports and the determination of threat
of serious injury is based on a mistaken premise which is devoid of legal validity.
374 Argentina
indicates that the Appellate Body has ruled that the wording of Article 4.1(c) is "clear and express" in
stating that the term "domestic industry extends solely to the producers … of the like or directly
competitive products."375 It further indicates that the Appellate Body also observed that "[t]he
conditions in Article 2.1, therefore, relate in several important respects to the specific products. In
particular, Argentina argues, according to Article 2.1, the legal basis for imposing a safeguard
measure exists only when imports of a specific product have prejudicial effects on domestic producers
of products that are 'like or directly competitive' with that imported product." 376 Argentina submits
that the Chilean Commission did not conduct that analysis. In Argentina's view, it is clear that, in this
case, there were important elements to be identified concerning the issue of the like product.
Argentina quotes the Appellate Body which mainta ined that "input products can only be included in
defining the 'domestic industry' if they are 'like or directly competitive' with the end products".
377
Once again, Argentina claims, this analysis did not take place. Argentina also refers to the Appellate
Body statement
378 whereby "the data before the competent authorities must be sufficiently
representative to give a true picture of the 'domestic industry'". Argentina claims that, in this case,
there is no way that the Panel could even consider the matter, since no like product was defined, nor
were the producers of the like product identified. Thus, the decision does not meet the most
elementary requirements of Articles 2.1, 4.1(c) and 4.2(a) of the Agreement on Safeguards. 379
Argentina claims that the Commissi on did not provide a legal analysis of how it arrived at these
categories and how it determined that they constituted the "domestic industry that produces like or
directly competitive products" in accordance with Article 2.1 of the Agreement on Safeguards.
4.166 Argentina submits that, as regards edible vegetable oils, the Chilean Commission provides no
reasonable explanation of why it appears to have grouped together colza (rape) seeds and various
types of edible oils to form a single "product" for its investigation. According to Argentina, Chile is
applying its price band to 25 different tariff items of the Harmonized System for edible vegetable oils
- "products" which range from olive oil to palm oil, at various stages of processing (crude and
refined). Argentina claims that, of these 25 items, Chile only records imports 21 different types of oil.

373 See Chile's Rebuttal, paras. 63-65.
374 See Argentina's First Written Submission, paras. 95-98.
375 Argentina refers to the Appellate Body report on US – Lamb (WT/DS177/AB/R, WT/DS178/AB/R)
adopted on 16 May 2001, para. 84.
376 Ibid., para. 86.
377 Ibid., para. 90.
378 Ibid., para. 132.
379 See Argentina's First Written Submission, paras. 99-101.

Moreover, Argentina explains, Chile only produces colza (rape) and sunflower seeds and colza (rape)
oil with seed produced locally, and a bit of soya b ean oil with imported beans. In Argentina's view, it
is not very clear on what basis the Commission dete rmined the like product and the industry, and
which domestic products are "like" or "directly competitive". Argentina claims that, when the
Commission makes an estimate of threat of injury to the domestic industry, it refers indiscriminately
to producers of rape, to the extracting industry and to the refining industry, without making it clear
which is the domestic industry that is allegedly threatened with injury by imports of edible vegetable
oils.
380
4.167 Argentina submits that, as regards wheat flour, the Commission does not in fact provide any
analysis of the wheat flour category to determine which products are "like" products or "directly
competitive" with the imports. Argentina argues that the Commission merely states that "… for these
purposes, flour represents an alternative way of importing wheat if direct imports prove to be more
costly or are subject to higher tariffs, so it is necessary to apply a treatment similar to that applied to
wheat". Similarly, Argentina submits, Chile states in its notification to the WTO of threat of serious
injury that "[i]f the mechanism applied to wheat is not also applied to imports of wheat flour, a large
increase in imports of wheat flour could cause injury similar to that caused to wheat production by
imports of wheat."
381 382
4.168 As far as wheat is concerned, Argentina submits that the Commission failed to carry out a
legal analysis concerning the definition of the like product. In Argentina's view, it is not clear whether
durum wheat has been subsumed under pasta and wheat under flour in its definition of "product", or
whether other forms of wheat have also been included.383
4.169 Chile claims not to understand Argentina's reasons for limiting its understanding of the legal
requirements for the imposition of a safeguard measure solely to determination of a like product.
Chile contends that Article XIX:1(a) of the GATT 1994 in fact refers to "like or directly competitive
products". Article 2.1 of the Agreement on Safeguards provides that "domestic industry that produces
like or directly competitive products", and Article 4.1(c) then refers to the "domestic industry",
defining it as the producers as a whole of "the like or directly competitive products …". In this
connection, Argentina cites the ruling of the Appellate Body in the case "US – Lamb", indicating that
"The conditions in Article 2.1, therefore, relate in several important respects to specific products. In
particular, according to Article 2.1, the legal basis for imposing a safeguard measure exists only when
imports of a specific product have prejudicial effects on domestic producers of products that are 'like
or directly competitive' with that imported product."
384 Chile does not understand, therefore, why
Argentina considers that the Commission should only have identified the like product.385 Chile argues
that it is a fact that the categories of products involved correspond to products in the PBS which, in
turn, was established some time ago and grouped categories of products that were directly
competitive. In other words, if the PBS had not taken into account each agricultural product and its
respective like or directly competitive products, the application of the system would have been
ineffective. Nevertheless, Chile claims, as can be seen from the records, the Commission reaffirmed
the analysis in that respect. Chile has specified each and every one of the products involved in the
investigation and in the subsequent application of measures through its tariff position, its SACH code,
Chile's harmonized system, taking into account as well, the explanatory notes to this system.
386

380 See Argentina's First Written Submission, paras. 104-106.
381 Argentina quotes document G/SG/N/8/CHL/1, subpara. 1(iv).
382 See Argentina's First Written Submission, para. 107.
383 See Argentina's First Written Submission, para. 108.
384 Chile refers to para. 99 of Argentina's First Written Submission.
385 Chile refers to para. 98 of Argentina's First Written Submission.
386 See Chile's First Written Submission, paras. 151-156.

4.170 In response to the above argumentation, Argentina submits that, it never suggested that the
determination of the like product was the sole legal requirement for the imposition of safeguard
measures. According to Argentina, one of the basic requirements laid down in the Agreement on
Safeguards is the identification of a like or directly competitive product so that the authorities can then
make their determinations with respect to increase d imports, serious injury and causality. Argentina
affirms that it is hard to understand why Chile repeats 387 the quotation made by Argentina in its first
written submission from paragraph 86 of the Appellate Body report in United States – Lamb , which
states, precisely, that the legal basis for imposing a safeguard measure exists only when imports of a
specific product have prejudicial effects on domestic producers of products that are "like or directly
competitive" with that imported product. In fact, Argentina adds, although there were important
elements relating to the issue of the like product and the producers of the like product that needed to
be identified in this case, the Commission did not carry out any analysis, and it was therefore
impossible to identify the industries affected. In the case of oils, Argentina explains, the Commission
refers indiscriminately to producers of rape, to the extracting industry and to the refining industry.
Argentina further argues that Chile states that the Commission Minutes contain an analysis of the
"directly competitive products" because the Commission repeated the analysis conducted when the
price band system was introduced.
388 However, Argentina argues, that analysis could not have been
included in any of the records. Argentina repeats that the Minutes that served as a basis for the
investigation and conclusions of the Commission contained no more than citations of numbers and
figures relating to imports and financial and economic indices of the "industries", with information
taken directly from the Ministry of Agriculture's application for the initiation of an investigation and
no analysis or conclusions as to its accuracy.389
4.171 Chile contends that the Commission acted consistently with Article XIX of the GATT 1994
and Articles 2.1, 4.1(c) and 4.2(a) of the Agreement on Safeguards by confirming not once but twice
that both subject product categories were comprised of like or directly competitive products. Chile
explains that the Commission confirmed that the categories of products chosen for the safeguard
measure corresponded exactly to the categories used for the price band system, thereby assuring that
the categories were comprised of only directly competitive products. Moreover, Chile argues, the
Commission did an independent analysis of both wheat and wheat flour as well as the category
comprising edible vegetable oils.
390
4.172 As regards wheat and wheat flour, Chile explains that, in view of the inherent nature of the
products under investigation, domestic wheat was considered to be a like product to imported wheat
since the imports correspond to the same product at the agricultural production level. It indicates that
the same conclusion was reached for flour, which would be a like product to imported flour. In this
connection, Chile explains, the Commission also took account of the fact that flour constitutes an
alternative way of importing wheat if the import of wheat as such proves to be more costly or subject
to a higher tariff: imported flour is directly competitive with domestic wheat in view of the fact that
the latter is used almost exclusively for producing flour.
391 Thus, Chile argues, the Commission found
that wheat flour has a high rate of substitutability with wheat and thus the two products are directly
competitive.
392 Chile contests Argentina's statement that the Commission does not provide any
analysis to determine which products are like and directly competitive with imports of wheat flour. 393
Chile argues, establishing a safeguard for wheat and failing to do so for flour would be perfectly
useless because imports would then tend to be in the form of flour. This was why a price band

387 Argentina refers to para. 153 of Chile's First Written Submission.
388 Argentina refers to para. 155 of Chile's First Written Submission.
389 See Argentina's Rebuttal, paras. 115-118.
390 See Chile's First Oral Statement, para. 75.
391 See Chile's response to question 27(a) (CHL) of the Panel.
392 See Chile's First Oral Statement, para. 75.
393 Chile refers to para. 107 of Argentina's First Written Submission.

directly related to that for wheat was then established for flour. In addition, Argentina states that it is
not clear whether the Commission subsumed durum wheat for pasta and wheat for flour in its
definition of product. 394 Chile notes in this connection that imports of wheat subject to safeguards
correspond to those under tariff heading 1001.9000, which only includes imports of wheat for making
bread and pastry products, as determined in Minutes of Session No. 193. Imports of wheat for pasta
are classified under another tariff heading (1001.1000) therefore, identification of the tariff headings
makes it clear which products are covered by the investigation.
395
4.173 As regards edible vegetable oils, Chile contests Argentina's statement that "it is not very clear
on what basis the Commission determined the like product and the industry". 396 In this connection,
Chile notes that rape-seed oil produced domestically is a like product to the other oils to which the
measure applied because (i) they are physically and chemically very similar; (ii) they are consumed
without distinction; (iii) they have the same final use; (iv) they utilize the same channels of
distribution. Chile submits that one indicator of this is the wording on the labelling of edible
vegetable oils for consumption, where the reference is usually only to vegetable oils or a mixture
thereof, without specifying which oils. Chile claims that, from the point of view of the consumers,
which is the relevant factor when determining if the products are directly competitive, it cannot be
said that they are different products.
397
4.174 Argentina considers the above as ex post facto explanations by Chile.398 Argentina considers
that Chile cannot simply claim that the Commission took the above parameters into account without
indicating in what part of the report the said analysis and its conclusions can be found. Argentina
argues that Chile itself recognizes that the implementing authority merely identified the products
under investigation by their tariff heading. Argentina submits that this does not constitute a sufficient
analysis of the like product for the purposes of applying a safeguard measure – on the contrary, it
confirms that the parties are speaking of the same products that are subject to the price band system.
399
(f) Increase of imports
4.175 Argentina claims that the competent Chilean authorities failed to demonstrate an increase in
imports under Article XIX.1(a) of the GATT 1994 and Articles 2.1 and 4.2(a) of the Agreement on
Safeguards. Argentina contends that the increased imports is a fundamental requirement for the
imposition of a safeguard measure provided for in the Articles concerned. 400
4.176 Argentina claims that an analysis of the content of the Minutes and notifications reveals that
Chile did not demonstrate that there were increased imports, and hence failed to comply with its
obligations under Article XIX:1(a) and Articles 2.1 and 4.2(a) of the Agreement on Safeguards.
Argentina refers to Argentina – Footwear (EC) where the Panel stated that "[t]he Agreement on
Safeguards requires an increase in imports as a basic prerequisite for the application of a safeguard
measure. The relevant provisions are in Articles 2.1 and 4.2(a)"
401 and "[t]hus, to determine whether
imports have increased in 'such quantities' for purposes of applying a safeguard measure, these two
provisions require an analysis of the rate and amount of the increase in imports, in absolute terms and

394 Chile refers to para. 108 of Argentina's First Written Submission.
395 See Chile's First Written Submission, paras. 157-159.
396 Chile refers to para. 105 of Argentina's First Written Submission.
397 See Chile's First Written Submission, paras. 160-162 and Chile's First Oral Statement, para. 75.
398 Argentina refers to para. 75 of Chile's First Oral Statement.
400 See Argentina's First Written Submission, para. 109.
401 Argentina refers to the Panel report on Argentina – Safeguard Measures on Imports of Footwear
("Argentina – Footwear (EC)) ", (WT/DS121/R) adopted on 12 January 2000, as modified by the Appellate
Body report, para. 8.138.

as a percentage of domestic production." 402 Argentina argues that the increase in imports has to have
already occurred when the decision is made. In this regard, it refers to the Panel report in Argentina –
Footwear (EC) which maintained that " … if only a threat of increased imports is present, rather than
actual increased imports, this is not sufficient determination of the existence of a threat of serious
injury due to a threat of increased imports would amount to a determination based on allegation of
conjecture rather than one supported by facts as required by Article 4.1(b)" 403 According to
Argentina, the report of the Panel in US – Wheat Gluten confirmed this general notion, noting that
Article XIX:1(a) and Article 2.1 of the Agreement on Safeguards contains "the initial threshold
requirement that there be an increase in imports."404
4.177 Argentina also refers to Argentina –Footwear (EC) , where the Appellate Body established
that the examination of the increase in imports must include an analysis of the trends over the period
of investigation, and that recent imports must also be examined. 405 Argentina reminds that the
Appellate Body maintained that "not just any increased quantities of imports will suffice." … "[T]he
increase in imports must have been recent enough, sudden enough, sharp enough and significant
enough, both quantitatively and qualitatively to cause or threaten to cause 'serious injury'." 406
Argentina claims that Chile has not demonstrated a real increase in imports. Argentina submits that,
in fact, the Commission does not bother with the question of whether imports increased. On the
contrary, Argentina argues, it simply reaches an unfounded conclusion: "There were noticeable
differences between recent import prices resulting from full application of the band and prices
resulting from imposition of a tariff ceiling of 31.5 per cent. This substantiates the forecast of a
greatly accelerated increase in imports that would occur (or has already occurred) unless the full duties
specified in the bands are applied. …"
407 Argentina further argues that, even if this analysis had any
validity, quod non, the Commission did not provide objective evidence of its effect, nor did it specify
to what degree imports would have increased. Argentina submits that an analysis of this type does not
provide a sufficient basis for concluding that imports were in "increased" quantities, as required by
Articles 2.1 and 4.2(b) of the Agreement on Safeguards. 408 Argentina concludes that what counts in
deciding on the application of safeguard measures being a demonstration of the actual increase in
imports and affirms that Chile provided no such demonstration either for wheat, or for wheat flour, or
for edible vegetable oils.
409
4.178 Argentina considers that the decision of the Commission to recommend the extension of the
measures (Minutes of Session No. 224) contains some data in addition to that contained in the related
documents. However, Argentina argues, the new data on which the extension is based suffers from
the same shortcomings as the original investigation. Argentina submits that the Chilean Commission
failed to demonstrate that imports were in such increased quantities as to justify the imposition of a
safeguard measure. For all of these reasons Argentina concludes that the Chilean Commission failed
to demonstrate that edible vegetable oils, wheat or wheat flour were being imported in increased
quantities, absolute or relative.
410

402 Ibid., para. 8.141.
403 Ibid., para. 8.284.
404 Argentina quotes the Panel report on United States – Definitive Safeguard Measures on Imports of
Wheat Gluten from the European Communities ("US – Wheat Gluten "), (WT/DS166/R) adopted on 19 January
2001, as modified by the Appellate Body report, para. 8.31.
405 Argentina quotes the Appellate Body report on Argentina – Footwear (EC) , (WT/DS121/AB/R)
adopted on 12 January 2000, para. 129.
406 Ibid., para. 131.
407 Argentina quotes the notification on threat of serious injury, G/SG/N/8/CHL/1, item 2 in fine.
408 See Argentina's First Written Submission, paras. 110-115.
409 See Argentina's Second Oral Statement, para. 44.
410 See Argentina's First Written Submission, paras. 116-118.

4.179 Chile submits that Chile considers that the requirement regarding an increase in imports and
the impact of the PBS in this case are factors that cannot be examined separately. It refers to Minutes
of Session No. 224411 which states the following: "(i) In examining imports, the Commission took into
consideration the fact that, for each of the products investigated, the normal functioning of the PBS
had been decisive in containing an increase in imports and, consequently, the trend in imports cannot
be examined without taking this factor into ac count. The analysis by the Commission takes into
account the period from the adoption of each safeguard measure in effect for each product.
Nevertheless, for the purposes of comparison and evaluation, information for previous periods is also
taken into account."
412
4.180 Chile submits that it does not follow either from the letter of Article XIX.1 of the GATT 1994
and Article 7 of the Agreement on Safeguards, or from their object and purpose, that an extension
measure requires that the competent authority find for a second time that there is an increase in
imports to justify an extension. Chile argues that, taken literally, Article 7.2, refers to Articles 2, 3, 4
and 5, however as indicated earlier it refers only to procedural aspects regulated by those Articles and
not to substantive aspects. Chile further argues that, if Argentina were right, there would be an
essential contradiction between the requirements laid down in the last part of paragraph 2 and the
requirement of a further increase in imports established in Article 2. Chile contends that, if one
assumes that prior to the adoption of an extension, there must be a definitive measure whose object,
inter alia, is to counteract the threat of injury presented by an increase in imports, there would be no
reason for requiring evidence of the fact that the domestic industry is adjusting. Chile wonders how
would it be possible for there to be any adjustment to a further increase in imports if the definitive
measure were still in force.
413
4.181 In response to the above argumentation, Argentina submits that Minute 193 – which provides
the outcome of the Commission's investigation for the definitive safeguard measures – is not
WTO-consistent since, by not following the procedural requirements established in the Agreement on
Safeguards, it does not meet any of the substantive conditions, compliance of which is necessary for
any safeguard measure in order for it to be lawful. Therefore, it affords no legal basis for the
application of the definitive safeguard measures. As a result, Minute 224, which is legally premised
on Minute 193, can not possibly justify the extension of such WTO-inconsistent safeguard measures.
Thus, the measures, whether as originally applied or as extended, are WTO-inconsistent. In addition,
Argentina also maintains that Minute 224 itself violates various provisions of the Agreement on
Safeguards as previously elaborated in various submissions by Argentina.
414
(i) Edible vegetable oils
Initiation of the investigation
4.182 Argentina submits that, with respect to oils, Minutes of Session No. 181 of the Commission
states that: "Imports of oils pursued a growth trend, increasing from 82,000 tons in 1990 to 171,000
tons in 1998, reflecting a growth of 110 per cent for the period." Argentina considers that it is easy to
understand the irrelevance of the data evaluated. In this regard, Argentina quotes the Appellate Body
in Argentina – Footwear (EC) :
415 "... the competent authorities are required to consider the trends in
imports over the period of investigation (rather than just comparing the end points)". Argentina
submits that in this case, when Chile decided to initiate the safeguards investigation, it did so on the

411 Chile quotes the Minutes No. 224, II.(i) of 17 November 2000.
412 See Chile's First Written Submission, para. 170.
413 See Chile's Second Oral Statement, paras. 61-63.
414 See Argentina's response to question 50 of the Panel.
415 Argentina quotes the Appellate Body report on Argentina – Footwear (EC) , (WT/DS121/AB/R)
adopted on 12 January 2000, para. 129.

basis of an "end point to end point" analysis only, considering the increase in imports between 1990
and 1998, without analysing the rate and amount of the increase in imports, in absolute terms and as a
percentage of domestic production. Consequently, Argentina claims, the analysis carried out by the
Chilean authorities is inconsistent with the obligations contained in Article 4.2 (a). Argentina explains
that this was the Panel's interpretation in Argentina – Footwear (EC) , and it was confirmed by the
Appellate Body, which stated with respect to the increase in imports in absolute terms that it is not
enough to carry out an analysis from end point to end point, rather it is necessary to consider the
intervening trends (up or down and the importance of mixing them to determine an increase in the
amount) (rate and amount). 416 According to the interpretation of the requirements made by the
Appellate Body in the same case, Argentina submits that "the increase in imports must have been
recent enough, sudden enough, sharp enough, and significant enough, both quantitatively and
qualitatively, to cause or threaten to cause 'serious injury'". 417 Argentina further submits that it is
incomprehensible that Chile should have presented different data in Minutes of Session No. 181 from
the data it provided in Minutes of Session No. 224 for imports of oils between 1990 and 1998 or, at
least, there is no explanation of this difference in figures.418
4.183 Chile contests Argentina's statement whereby Chile decided to initiate the safeguards
investigation into edible vegetable oils only on the basis of an "end point to end point" analysis (for
the years 1990 and 1998).
419 Chile notes that, when determining the measures, the Commission's
analysis did not only consider the most recent trend but also developments and other factors that had
affected the situation of such imports, as can be seen from Minutes of Session No. 193. Chile also
contests Argentina's claim regarding "incomprehensible" differences in the data (paragraph 125),
which in any event are deemed to be marginal, can be explained as a result of the revision and
verification of the information provided by Chile.
420
Provisional safeguards
4.184 Argentina submits that, regarding imports, Minutes of Session No. 185 of the Commission
merely states that "... the Commission took into account the increase that would have occurred during
the agricultural season 1999/2000 on the hypothesis of the bound import tariff of 31.5 per cent instead
of the duties applicable under the price band. On the basis of this information provided in the
application, the Commission estimated that the increase in imports would correspond, at least, to the
volume needed to cover the production deficit resulting from the decrease in production under the
related headings". In Argentina's view, the Minutes did not present any information with respect to an
increase in imports in absolute terms or relative to domestic production and on whether the imports
were under such conditions as to cause or threaten to cause serious injury, so that Chile once again
failed to comply with its obligations under Articles 2.1 and 4.2 (a).
 421
4.185 Chile disagrees with Argentina's claim and refers to the import statistics before the
Commission, updated in the Annex to Minutes of Se ssion No. 224. Chile explains that, under the
tariff heading corresponding to mixtures of oils (1517.9000), increasing quantities of edible vegetable
oils started to be imported. This situation led to an increase of 45 per cent in imports of this product in
1999 and an increase of 431 per cent in 2000. Consequently, in 2000, 70 per cent of the imports of
edible vegetable oils into Chile were classified as "m ixtures" of oils. In Chile's view, this is relevant
because, for example, between 1990 and 1996, this share did not exceed 0.4 per cent. The dramatic

416 Ibid., para. 129.
417 Argentina quotes the Appellate Body report on Argentina – Footwear (EC) , (WT/DS121/AB/R)
adopted on 12 January 2000, para. 131.
418 See Argentina's First Written Submission, paras. 119-125.
419 Chile refers to Argentina's First Written Submission, para. 121.
420 See Chile's First Written Submission, paras. 172,-173.
421 See Argentina's First Written Submission, paras. 126-127.

increase in imports of mixtures of oils is reflected in an increase in total imports of vegetable oils
(pure oils and mixtures of oils) of 16 per cent in 2000 compared with the volume imported the
previous year. As a result of this situation, Chile argues, the Commission received a request to
investigate the situation affecting mixtures of oils and initiated a safeguards investigation into this
product. As shown in Minutes of Session No. 229, during this investigation the relationship between
oils and mixtures of oils and the substantial increase in imports of the latter became evident. This
situation led to the adoption of a provisional safeguard measure for mixtures of oils.422
4.186 In response to the above argumentation, Argentina submits that the Chilean reference to the
increase in imports of mixtures of oils has no relevance in determining the safeguard measures and
that Chile recognizes that imports of edible vegetable oils declined.423
Definitive safeguards
4.187 Argentina submits that Minutes of Session No. 193 of the Commission determines, with
respect to imports of the two main edible vegetable oils only, that they increased by 23 per cent in
1998 as compared to the previous year. However, Argentina argues, it then goes on to point out that
"... these imports dropped by 24 per cent ..." during the most recent period, which, according to the
Appellate Body, is ultimately the relevant period for the application of the measure. Argentina further
submits that the same Minutes also state that "... from 1993 to 1997, the level of imports is similar",
i.e. there was no increase in imports either, even if we consider a series of more than ten years, as
recorded in the notifications that we shall examine in detail further on, placing the recent behaviour of
imports in the broader context of their trend which, at best, was stable. Argentina indicates that
Chile's notification to the WTO of 7 February 2000 on finding a serious injury or threat thereof, in the
section on increased imports, repeats what was mentioned in Minutes of Session No. 193, that imports
of the two main vegetable oils fell by 24 per cent during the most recent period.
424
4.188 Chile argues that an increase in imports is a basic requirement for the imposition of safeguard
measures and submits that Minutes of Session No. 193 shows that "[i]mports of the two major
products in the edible vegetable oils sector increased by 23 per cent in 1998 compared with the
previous year. Over the first ten months of 1999, imports fell by 24 per cent. Regarding this decrease,
the Commission notes that in 1999 there was an abnormal situation due to the behaviour of importers
as a result of the tariff disputes concerning the headings under which oils should be imported. From
1993 to 1997, the level of imports recorded is similar."
425
Extension of the measures
4.189 Argentina submits that Minutes of Session No. 224 of the Commission also states that "…
Imports of edible vegetable oils fell by 37 per cent in the period January to September 2000 compared
with the same period in the previous year. In 1999, these imports fell by 22 per cent. The level of
imports from 1993 to 1997 is similar." Argentina argues that, although an end point to end point
analysis does not help in determining the applicatio n of a measure, it does help to show the trend in
imports, as sanctioned by the Appellate Body in Argentina – Footwear (EC) , and, in this case, the
trend is, to say the least, erratic and moreover was clearly downward during the period 1998-1999 (the
most recent), both as regards the headings subject to safeguards and the others.
 426

422 See Chile's First Written Submission, paras. 167-169.
424 See Argentina's First Written Submission, paras. 128-130.
425 See Chile's First Written Submission, para. 166.
426 See Argentina's First Written Submission, paras. 131-133.

4.190 Argentina submits that, in Chile's notification to the WTO dated 22 December 2000 –
extending the measure in effect – the wording in the section on vegetable oils repeats that contained in
Minutes of Session No. 224 to the effect that "… Impor ts of edible vegetable oils fell by 37 per cent in
the period January to September 2000 compared with the same period in the previous year. In 1999,
these imports fell by 22 per cent. From 1993 to 1997 the level of imports is similar." Argentina
contends that, when it decided to extend the safeguard measures by means of Minutes of Session
No. 224, Chile recognized that there had been a sign ificant fall in imports, which in all respects is
totally inconsistent with its WTO obligations. Argentina also refers to data provided by other
sources
427 which would show a net fall in imports in 1999 and 2000 both for soya bean and sunflower
oils, which account for over 90 per cent of all Chile's imports of oil under the tariff headings subject to
the safeguard. In Argentina's view, these data prove that there has been no increase in imports of
edible vegetable oils in absolute terms nor do any of the Minutes or notifications provide any
information concerning increased imports relative to domestic production or under such conditions as
to cause or threaten to cause serious injury. Ar gentina therefore submits that Chile fails to comply
with the obligations under Article XIX.1(a) and Articles 2.1 and 4.2(a) of the Agreement on
Safeguards.
428
4.191 In this regard, Chile quotes the following excerpt of Minutes of Session No. 224:429
"(i) In examining imports, the Commission took into consideration the fact that, for
each of the products investigated, the normal functioning of the price band system had
been decisive in containing an increase in imports and, consequently, the trend in
imports cannot be examined without taking this factor into account. The analysis by
the Commission takes into account the period from the adoption of each safeguard
measure in effect for each product. Nevertheless, for the purposes of comparison and
evaluation, information for previous periods is also taken into account."
(ii) Wheat flour
Initiation of the investigation
4.192 Argentina submits that, when considering imports, Minutes of Session No. 181 simply states
that "...for flour, there was an increase of over 80 per cent during the past year and the first six months
of the last three years show increases of 321 per cent, 23 per cent and 15 per cent." Argentina alleges
that this conclusion is not based on concrete statistical data, as can been seen from the information
provided by the actual petitioner and from the data of the Commission itself in Minutes of Session No.
224, which show a marked downward trend as of 1996.
430
4.193 Chile contests Argentina's statement 431 that Minutes of Session No. 181 on the initiation of
the investigation determined that, for wheat flour, over the past year there was an increase of over 80
per cent and that the first six months of the last three years show increases of 321 per cent, 23 per cent
and 15 per cent, which, according to Argentina, "are not based on concrete statistical data", because
Minutes of Session No. 224 showed a marked downward trend as of 1996. Chile points out that this
apparent contradiction is simply due to the fact that a different period was taken as a basis for
comparison because, for the initiation of the inve stigation, the Commission took the half-yearly trend
for the previous three years, whereas Minutes of Session No. 224 refers to a longer period and an

427 Argentina refers to data provided by the Argentine Embassy in Chile, based on Chilean customs
figures, published by the firm "Intelecta".
428 See Argentina's First Written Submission, paras. 134-140.
429 Chile quotes the Minutes No. 224, II.(i) of 17 November 2000.
430 See Argentina's First Written Submission, paras. 141-142.
431 Chile refers to paras. 141-142 of Argentina's First Written Submission.

annual not half-yearly trend. Chile claims that this is shown by the Minutes, which states "[i]mports
of wheat flour fluctuate as far as increases and decreases are concerned, but this can be explained by
their low volume. Nevertheless, the Commission notes that for these purposes wheat flour represents
an alternative way of importing wheat if direct imports prove to be more costly or are subject to a
higher tariff, so it is necessary to apply a trea tment similar to that appl icable to wheat. The
Commission considers that if the total duties determined by the band were not applied and the duty
was limited to a maximum tariff of 31.5 per cent, the result would be a very rapid increase in imports
of the product." Noting both the levels and the rates of increase, the Commission concluded that the
trend had been erratic during the period 1990 - January-September 2000. Chile submits that the mere
fact that Minutes of Session No. 181 refers to a particular period does not mean that the Commission
considered other data or did not take into account other periods in its analysis. In any event, Chile
adds, the most important element when analysing the trend in imports of wheat flour is that they are an
alternative product to imports of wheat and the Commission gave priority to this argument over and
above the trend in imports itself.
432
Provisional safeguards
4.194 Argentina contends that, as in the case of oils, Minutes of Session No. 185 do not provide
any information (data, statistics, etc.) concerning an increase in imports in absolute terms or relative to
domestic production under such conditions as to cause or threaten to cause serious injury, thereby
failing to comply with the obligations under Article 2.1.433
Definitive safeguards
4.195 Argentina submits that Minutes of Session No. 193 indicate that: "... Imports of wheat flour
fluctuate, but this can be explained by their low volume. Nevertheless, the Commission notes that for
these purposes wheat flour represents an alternative way of importing wheat if direct imports prove to
be more costly or are subject to a higher tariff, so it is necessary to apply a treatment similar to that
applicable to wheat." Argentina considers that the conclusion drawn by the Commission nullifies any
subsequent inference by Chile from the figures because it acknowledges that these fluctuate and
concern low volumes. Argentina submits that, in fact, there is a downward trend.
434 Argentina
submits that it can also be seen that the Minutes do not provide any data or statistics on imports of
wheat flour, and therefore, the resolution on the application of definitive safeguard measures to wheat
flour is extremely imprecise and partial. Argentina claims that, in the notification to the WTO dated
7 February 2000, concerning the existence of serious injury or threat of serious injury, the section
concerning increased imports repeats the wording in Minutes of Session No. 193 regarding
fluctuations in the volume of imports of wheat flour without specifying the period taken into account.
In any event, Argentina concludes, the trend is downward rather than fluctuating, as can be seen from
the information given by Chile in Minutes of Session No. 224.
435
Extension of the measures
4.196 Argentina submits that, like Minutes of Session No. 193, Minutes of Session No. 224 also
state that "...imports of wheat flour fluctuate as far as increases and decreases are concerned...".
Argentina claims that the tables accompanying the Mi nutes contradict the statement in the text since
they clearly show a downward trend in imports of wheat flour:436 Argentina indicates that the Minutes
later state that "[t]he Commission considered that if the total duties determined by the band were not

432 See Chile's First Written Submission, paras. 174-179.
433 See Argentina's First Written Submission, para. 143.
434 See Argentina's First Written Submission, para. 144.
435 See Argentina's First Written Submission, paras. 145-147.
436 See Argentina's First Written Submission, paras. 148-150.

applied, and the duty was limited to a maximum tariff of 31.5 per cent, the result would be a very
rapid increase in imports of the product." In Argentina's view, it would appear that the Chilean
authorities consider that an alleged increase in imports, which in fact did not occur when the measure
was applied, could provide grounds for applying the measure. In this connection, Argentina submits
that it must be borne in mind that a decision to apply a measure must be based on concrete facts and
not on estimates or conjecture.
437 Argentina indicates that Chile's notification to the WTO dated
22 December 2000 concerning the extension of the existing measure states once again that imports of
wheat flour show an erratic pattern of increases and decreases, and reads "if the total duties
determined by the band were not applied, and the duty was limited to a maximum tariff of
31.5 per cent, the result would be a very rapid increase in imports of the product". Argentina claims
that Table 3 of Minutes of Session No. 224 is attached to the notification and shows a clear downward
trend in imports of wheat flour. Argentina submits that, based on the figures in the Decree extending
the measure and its notification: imports of wheat flour showed a marked downward trend in 1998 and
1999 after peaking in 1996; the volume of imports of wheat flour fell by 21 per cent in 1998 compared
with 1997; imports fell by a further 11 per cent during the first nine months of 2000 compared with
the same period in 1999.
438
(iii) Wheat
Initiation of the investigation
4.197 Argentina contends that, as far as wheat is concerned, it can be seen that Chile decided to
initiate the safeguards investigation by means of Minutes of Session No. 181 on the basis of partial
data that do not give an overall view of the tre nd, particularly since the imports peaked in 1996 and
this did not occur subsequently.439
Provisional safeguards
4.198 Argentina submits that, with regard to wheat imports, Minutes of Session No. 185 do not
provide any information either to justify the application of provisional safeguard measures to imports
of wheat.440
Definitive safeguards
4.199 Argentina submits that, as regards imports of wheat, Minutes of Session No. 193 indicate
that, although there was an increase in imports from 1993 to 1996, these fell in 1997 and only rose by
6 per cent in 1998 compared with the previous year. They also indicate that, over the first ten months
of 1999, imports increased by 281 per cent in comparison with the same period the previous year.
Argentina further submits that, in the publication by ODEPA entitled El Pulso de la Agricultura of
February 1999, No. 27 there are specific references to the seriousness of the drought in 1998/1999.
According to this publication, 55 per cent of the agricultural communities were in a state of alert.
Argentina claims that, in its report on the first half of 1999, the Chilean Ministry of Agriculture stated
that the drought during the 1998/1999 season had led to a decrease in the area under cultivation and a
fall in wheat yields and production throughout Chile. Consequently, Argentina submits, it is clear that
this factor, which was not taken into account in the relevant Record, had a decisive effect on domestic
production of wheat and possibly on other products subject to the safeguard, and, as a result, on
imports. Argentina indicates that the section on increased imports in the notification to the WTO

437 Argentina refers to the Panel report on Argentina – Footwear (EC) , (WT/DS121/R) adopted on
12 January 2000, as modified by the Appellate Body report, para. 8.284.
438 See Argentina's First Written Submission, paras. 151-155.
439 See Argentina's First Written Submission, para. 156.
440 See Argentina's First Written Submission, para. 157.

dated 7 February 2000 on finding a serious injury or threat thereof repeats the wording in Minutes of
Session No. 193.441
4.200 Chile submits that an increase in imports is a basic requirement for the imposition of
safeguard measures and quotes Minutes of Session No. 193 442 which reads: "Imports of wheat (in
tonnes) increased by 6 per cent in 1998 compared with the previous year. Over the first 10 months of
1999, imports increased by 281 per cent in comparison with the same period the previous year. From
1993 up to 1996, there was an increase in imports, which then fell in 1997. Import of wheat flour
fluctuated, but this can be explained by their low volume."443
4.201 In response to the above argument, Argentina claims that that increase is irrelevant in order
to decide the application of a safeguard measure considering that the 511,187 tons imported in 1999
represented almost 30 per cent less of the total imported in 1996 (638,946 tons) as shown by data
provided by Chile in Minutes of Session No. 224.444
Extension of the measures
4.202 Argentina refers to Minutes of Session No. 224 which state that "[d]espite the fact that
imports of wheat (in tons) fell by 18 per cent in the period January to September 2000 compared with
the corresponding period for 1999, the Commission took into account that, in annual terms, imports
remained above the annual average for the period 1990-1999." In Argentina's view, it is clear that the
figures given do not suffice for the purpose of deciding whether or not to extend the safeguard
measure and, in light of the interpretation given by the panel in Argentina - Footwear (EC) concerning
the increase in imports in absolute terms to the ef fect that an end point to end point comparison does
not suffice and that intervening trends (up or down and the importance of mixing them in order to
determine an increase in the amount), the rate and amount, within a fixed period of investigation, must
be analysed, which is not the case in this instance, serious doubts are cast on the consistency and
coherence of the figures. Argentina therefore claims that it does not suffice to consider different
figures for incomplete periods in some cases or figures that are not viewed as a whole, because this
deprives the period of any relevance. Argentina further argues that, bearing in mind that in the same
Argentina – Footwear (EC) case the Appellate Body considered that the increase in imports must have
been recent enough, sudden enough, sharp enough and significant enough, both quantitatively and
qualitatively, to cause or threaten to cause "serious injury", the decrease of 18 per cent in imports of
wheat during the most recent period is decisive for invalidating the application of the measure.
445
4.203 Argentina explains that, regarding wheat imports, the Minutes include a Table 1 with figures
which, on the one hand, do not show a growing trend in imports of wheat and, on the other, indicate
that the trend is to say the least erratic. Consequently, Argentina submits as particularly serious, the
fact that Minutes of Session No. 224, which extend the safeguard measures for one year, not only fail
to record an increase in imports of wheat but acknowledge a fall of 18 per cent in the most recent
period,. According to Argentina, Minutes of Session No. 224 and the notification of the extension
also contain figures on imports of "other wheat", which reached a peak in 1996 and then declined.
Argentina argues that, although imports increased in 1999, this increase has been estimated on the
basis of historically low levels such as those in 1997 and 1998. Imports fell again in the year 2000.
Argentina claims that the section on wheat imports in the notification to the WTO dated 22 December
2000 concerning the extension of the existing measure repeats the wording in Minutes of Session No.
224 of the Commission: "[d]espite the fact that wheat imports (in tons) fell by 18 per cent in the

441 See Argentina's First Written Submission, paras. 158-159.
442 Chile quotes the Minutes No. 193 of 7 January 2000.
443 See Chile's First Written Submission, para. 164.
445 See Argentina's First Written Submission, paras. 160-163.

period January to September compared with the corresponding period for 1999, the Commission took
into account that, in annual terms, imports remained above the annual average for the period
1990-1999." Argentina questions the relevance this statement has in support of the decision to apply a
safeguard measure. Argentina indicates that it has also obtained figures concerning Chilean imports
of wheat (tariff heading 1001.9000 - Wheat, other) from other sources 446 for the last three full years.
According to Argentina, these figures clearly show the fall in wheat imports in the year 2000. In any
event, Argentina states, as far as this product is concerned, the impact of the drought in 1998/1999
must be taken into account and yet was not considered by the Chilean authorities under "other
factors".447
(g) Evaluation of all relevant factors
4.204 Argentina contends that the competent Chilean authorities did not evaluate all relevant
factors of an objective and quantifiable nature having a bearing on the situation of the industry, as
required by Article 4.2(a) of the Agreement on Safeguards. In particular, Argentina considers that the
determination of threat of serious injury made by the Chilean authority applying the measure is not
supported by the evidence obtained during the investigation. Argentina maintains that the
determination of threat of serious injury by the Commission is inconsistent because of two instances
of non-compliance: (i) contrary to their obligations under Article 4.2 of the Agreement on Safeguards,
the Chilean authorities did not evaluate all the factor s related to the situation of the industry; (ii) the
findings and conclusions of the Commission regarding the factors investigated were not substantiated
by evidence.
 448
4.205 Argentina notes that neither the Minutes of the Commission nor the notifications to the WTO
contain any analysis of each of the factors specified in Article 4.2(a) during the investigation period,
but only isolated data referring to some of the factors related to the appraisal of an alleged threat of
injury. Argentina explains that, for example, neither the Minutes nor the notifications contain any
evaluation of the rate and amount of the increase in imports, the share of the domestic market taken by
imports, nor any figures regarding sales, productivity, capacity utilization, profits and losses,
employment or any other relevant factor concerni ng the situation of the domestic industry. In
Argentina's view, this does not mean that the competent authority must confine itself to examining the
factors listed in the Agreement on Safeguards, but it does mean that, at the very least, it should
examine these factors, because Article 4.2(a) uses the words "in particular" when referring to them.
For example, Argentina adds, in addition to the afor ementioned profitability (profits and losses), the
competent authority should have examined cash flow s in the major firms in this sector. Argentina
submits that the investigation carried out by the Commission did not comply with the provisions of the
Agreement on Safeguards because it did not evaluate all relevant factors and did not undertake a
substantive analysis of each factor. Argentina suggests that the Commission may have simply
accepted the information on the industry's indicators submitted by the petitioner, in this particular case
the Ministry of Agriculture. Argentina considers that the Final Determination does not really contain
data but only some partial statistics for the three products mentioned therein. It further explains that it
is only possible to extract some isolated data that are not very clear because there is no sequential
information of the type needed to undertake comparisons. In Argentina's opinion, it is not possible
either to identify the source of the statistics on which the investigation was based nor the process by
which the statistics were verified and re-evaluated in terms of their reliability. Furthermore, Argentina
affirms, the data themselves appear to be based on some type of "forecast" because the text is written
in the conditional tense. Argentina contends that, it has not proved possible to identify any analytical
basis to substantiate the forecast. Argentina also contends that the comparison between the periods

446 Argentina refers to data provided by the Argentine Embassy in Chile, based on Chilean customs
figures, published by the firm "Intelecta".
447 See Argentina's First Written Submission, paras. 164-172.
448 See Argentina's First Written Submission, paras. 173-176.

examined is not very clear and the data given have not been evaluated in relation to previous years.
According to Argentina, in essence, the data do not prove anything concerning the existence of a
serious threat of injury to the industry. Argentina submits that the gravity of the measure adopted by
the Commission is not justified by the mere statement that "limiting import duties to 31.5 per cent at a
time when international prices for these products have fallen obviously constitutes a threat of serious
injury ..."
449 450
4.206 Chile submits that Article 4.2(a) requires Members to "evaluate all relevant factors of an
objective and quantifiable nature" when investigating whether the increased imports have caused or
are threatening to cause serious injury. Although Article 4.2 does contain certain factors to be
evaluated, the Article does not contain a definitive list, thereby leaving Members latitude and even a
duty to determine what are the relevant factors in particular cases.451
4.207 Argentina disagrees with the above interpretation of Article 4.2 by Chile452 and considers that
this interpretation is definitely contrary to the actual text of the Article, according to which Chile had a
minimum obligation to analyse the factors mentioned therein – given that the Article refers to them "in
particular" – aside from other relevant factors.453 Argentina argues that this interpretation is consistent
with different Appellate Body precedents as in " Argentina – Footwear (EC) "454, and " US –
Lamb"455.456
4.208 Chile submits that the Chilean authority complied with the requirement to evaluate all
relevant factors laid down in Article 4.2(a) of the Agreement on Safeguards. As indicated in that
paragraph, "all relevant factors" must be analysed. Chile submits that relevance is fundamental when
considering factors affecting injury or threat of injury and it must be considered on a case-by-case,
product-by-product basis. Chile maintains that the Commission therefore considered it highly relevant
to include the impact of the PBS on trade flows in th e products investigated that were subject to price
bands. It further argues that failing to take this impact into account would have been inconsistent with
Article 4.2(a). Chile explains that during the investigation period, the band functioned with positive
specific tariffs. It would be simply inadmissible not to take into account the existence of this tariff and
its effect on the flow of imports and "consequently, the trend in imports cannot be analysed without
taking into account this factor".
457 Chile indicates that this is why the authority considered it
necessary to evaluate the injury that would have been caused to domestic industry in the absence of
the band during the period prior to application of the safeguards. In this connection, Chile submits
that Minutes of Session Nos. 181, 185, 193 and 224 again refer to the impact that would have been
caused by failure to apply safeguards. The effects of the increase in imports take into account both the
income level of producers and the value of production, the decrease in net profits, including losses, as
well as the physical downturn in the domestic industry which would be absorbed by imports and,
lastly, the effect on employment. Chile claims that this analysis was undertaken for each and every
one of the products covered by the investigation, namely, wheat, wheat flour and oils.
458
4.209 Chile contests Argentina's claims that it did not evaluate "all the relevant factors", as required
by Article 4.2(a) of the Agreement on Safeguards. Chile submits that the Agreement on Safeguards

449 Argentina quotes the notification of threat of serious injury, G/SG/N/8/CHL/1, p. 1; see also
Minutes No. 193, p. 2, and Minutes No. 224, pp. 1 and 2.
450 See Argentina's First Written Submission, paras. 177-182.
451 See Chile's First Oral Statement, para. 78.
452 Argentina refers to para. 78 of Chile's First Oral Statement.
454 WT/DS121/AB/R, adopted 12 January 2000, para. 121.
455 WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, para. 127.
456 See Argentina's Rebuttal, footnote 85.
457 Chile quotes the Minutes No. 224, Commission on Distortions, 17 November 2000.
458 See Chile's First Written Submission, paras. 180-182.

does not determine nor specify what is the proper method for deciding on the relevance of the factors,
so Argentina's statement in its claim regarding the need to consider "for example, (…) cash flows in
the major firms in this sector" 459 should not be taken into account because the relevance of factors is
the result of the criteria used by the investigating body and may vary from case to case. Chile further
submits that, if the Agreement on Safeguards itself lists certain aspects that should be given particular
attention and does not include the factors cited by Argentina, Chile does not consider that it violated
this Article by not including a separate analysis of cash flows in the major firms. Moreover, Chile
argues, for this type of product, the most important factor is price. Chile refers to US – Lamb , and
submits that the Appellate Body clearly indicated "that the competent authorities are not required 'to
show that each listed injury factor is declining' but, rather, they must reach a determination in light of
the evidence as a whole".
460 461 Chile submits that failure to include a factor that in Argentina's
opinion, was decisive or critical, even if it really was, which remains subject to discussion – does not
suffice to affirm non-compliance with the Agreement on Safeguards. Furthermore, Argentina
indicates that "[i]t appears that the Commission simply accepted the information on the industry's
indicators …", but does not reject the factors taken into account. Consequently, Chile argues, these
factors cannot be nullified simply because another additional factor was not taken into account in the
investigation. Chile submits that this would only apply to the extent that the information included did
not, as a whole, lead to an appropriate conclusion.
462
4.210 In response to a question from the Panel, Chile explains that all of the factors on which the
Commission had information were considered. It adds that the factors that were not considered were
those for which information was unavailable from public sources and could not be found by
consulting other sources either.463
4.211 In response to Argentina's claim that the gravity of the measure adopted by the Commission is
not justified by the mere statement that "limiting import duties to 31.5 per cent at a time when
international prices for these products have fallen obviously constitutes a threat of serious injury" 464,
Chile submits that Minutes of Session No. 193 contain detailed information concerning the serious
injury to the domestic industry concerned if the recommended measures are not applied. In addition,
Chile claims, Argentina fails to draw attention to other Minutes that formed an integral part of the
investigation, namely, Minutes of Session No. 181 of 9 September 1999 and Minutes of Session
No. 185 of 22 October 1999, where the injury to the domestic industry that would occur if the
recommended measures were not adopted is confirmed and explained in detail.
465
Edible vegetable oils
4.212 Argentina contends that it is not clear what type of product or industry is being examined
under the heading "vegetable oils", and therefore, it is impossible to determine the relevance of the
information obtained in the investigation or whether such data are representative of the industry. It
further states that it is impossible to determine what periods are being examined because no dates are
given. Argentina affirms that, although the Commission highlights decreases in production and
employment levels, reading the documents it is not clear whether the slowdown in the production of
edible vegetable oils did in fact occur or would occur. In addition, Argentina points out that the
Commission does not deal either with the other factors listed in Article 4.2(a), namely, the share of the

459 Chile refers to para. 179 of Argentina's First Written Submission.
460 Chile quotes WT/DS177/AB/R, WT/DS178/AB/R, para. 144.
461 See Chile's First Written Submission, paras. 183-186.
462 See Chile's First Written Submission, para. 187.
463 See Chile's response to question 21(b) (CHL) of the Panel.
464 Chile refers to footnote 88 of Argentina's First Written Submission where Argentina refers inter alia
to Minutes No. 193, p. 2, and Minutes No. 224, pp. 1 and 2.
465 See Chile's First Written Submission, para. 188.

domestic market taken by imports, changes in the level of sales, productivity, capacity utilization,
profits and losses, inter alia.466 In Argentina's view, although the extension of the safeguard measure,
reported in Minutes of Session No. 224 and in the notification of extension, includes some additional
data, the following points should be made: Firstly, the data are not analysed in the aforementioned
Record; secondly, the figures contained in the tabl es attached to the Minutes imposing the measure in
fact invalidate any possible determination of threat of injury. For example, Argentina explains, prices
appear to have risen significantly between 1996 and 1999 in terms of pesos and then stabilized during
the period examined for the year 2000.467
4.213 Argentina indicates that Table 16 of Minutes of Session No. 224 recommending the
extension contains figures relating to colza (rape) and sunflower, in terms of area sown, harvest and
yield. In Argentina's opinion, it is not clear why these seeds should be representative of the edible oils
industry because no explanation of their relevance is given. Argentina submits that, in any event, it
can easily be seen that the total number of hectares sown and harvested increased sharply in the period
beginning in 1998, and sowing increased threefold between 1997 and 1999, returning to the 1998 level
in the year 2000, although the figure was still higher than that for the previous years, and that harvests
reached their maximum level in 1999 following an increase in 1998. In terms of employment,
Argentina adds, the figures presented relate solely to the seed sector and there is no information at all
on the milling and refining sector, which raises doubts as to their relevance. Nevertheless, Argentina
argues, the number of people employed increased in 1998 and 1999.
468
4.214 Chile contests the above statement from Argentina that the data provided "in fact invalidate
any possible determination of threat of injury. 469 In Chile's view, Argentina's assertion regarding
rising prices is based on only one of the three columns in Table 12, attached to Minutes of Session
No. 224 (for the purpose of determining the price in question), and is precisely the column that does
not contain any adjustment for national currency. Chile argues that Argentina does not refer to the
other prices shown. In column two of this table, Chile submits, it is clearly indicated that the prices in
United States dollar terms decreased over the same period.
470
4.215 In response to a question by the Panel, Chile explains that, in the case of the oil industry, the
relevant factors analysed by the Commission were the rate and amount of the increase in imports, the
share of the domestic market taken by increased imports, production (in the case of oils, only
production information was available, which in any case is similar to the level of sales), capacity
utilization, and profits and losses. Domestic prices were also evaluated. Chile also indicates that no
information was available concerning productivity and employment in the oils industry.471
4.216 With respect to Chile's reply to question 21 of the Panel regarding the factors that it
investigated, Argentina argues that, apart from the fact that it is impossible to find any reference in
any of the Records to the share of the market taken by imports or changes in the level of sales, for
example, it must be stressed that the findings and conclusions of the Commission were not supported
by evidence.472
4.217 In reference to the above argument on lack of information on productivity and employment,
Argentina claims that Chile is contradicting itself since the Commission, having stated that it did not

466 Argentina refers to Minutes No. 193, p. 4. See also the notification of threat of serious injury,
G/SG/N/8/CHL/1, pp. 1 and 2.
467 See Argentina's First Written Submission, paras. 183-187.
468 See Argentina's First Written Submission, para. 188.
469 Chile refers to para. 187 of Argentina's First Written Submission.
470 See Chile's First Written Submission, para. 189.
471 See Chile's response to question 21(a) (CHL) of the Panel.

have data on productivity and employment in the oils industry, then claims that the information
provided by the sector via the questionnaires was sufficient.473
Wheat flour
4.218 Argentina submits that, as far as wheat flour is concerned, in its final determination the
Commission did not provide any evidence of the factors of injury specified in Article 4.2(a) of the
Agreement on Safeguards.
474 Argentina explains that the notification of threat of serious injury
simply indicates that: "[i]f the mechanism applied to wheat is not also applied to imports of wheat
flour, a large increase in imports of wheat flour could cause injury similar to that caused to wheat
production by imports of wheat." On the basis of the information in the final determination and the
notification of extension, Argentina considers to be obvious that the most important change in the
price of wheat flour – at least at the global level and in terms of pesos – occurred during the period
1996/1997, when prices fell by almost 20 per cent. Argentina claims that this trend was reversed in
1998, however, and again in 1999, and, after having reached a peak in 1999, prices stabilized in
2000.
475 Accordingly, Argentina submits that, in the case of wheat flour, no factor was evaluated in
the final determination and this cannot be compensa ted by a vague reference to the situation in the
wheat production industry.476
Wheat
4.219 Argentina contends that, in its final determination, the Commission refers to some indicators,
but it does not provide any analysis of the figures or their relevance. It is thus impossible to see,
according to Argentina, whether the factors of injury were examined on the basis of the same period
of time because there is no reference whatsoever in this regard. Regarding the figures given,
Argentina explains, the wide range in some of the figures such as the reduction in the net profit
margin, which ranges from 20 to 90 per cent, is striking, an aspect for which the Chilean authorities
offer no explanation. Although Argentina could consider that one of the reasons for this might be the
grouping of different products in the same section, or the scale of production or any other factor, this
is not explained. Argentina further states that the final determination does not analyse the factors
listed in Article 4.2(a) of the Agreement on Safeguards concerning market share, changes in the level
of sales or productivity. In this regard, Argentina claims that the document determining the extension
and the notification of the extension for the first time provides certain data on the industry, but the
time scales given are not evaluated by the Commission on Distortions in the determination itself.
Argentina concludes that there are no substantiated conclusions in respect of the few data furnished
and that, moreover, even the information itself does not prove the existence of a threat of serious
injury.
477
4.220 Argentina explains that Table 9 on domestic prices expressed in pesos ("Domestic prices,
wheat") shows the largest drop between the years 1996 and 1997. Prices then increased in 1997/1998
and 1998/1999, falling by only 1.5 per cent in 1999 /2000. Concerning the area sown, 1998 was
essentially the same as 1997, but harvests increased by 14 per cent and yield by 16 per cent.
Argentina submits that, contrary to what is alleged by Chile, this shows that the sector not only
increased production but also productivity. Argentina further submits that, although the
aforementioned reduction occurred in 1999, in 2000 the sown area, harvests and yield all increased.
Although in historic terms annual variations are quite normal and decreases in one year are followed
by increases, Argentina argues, the years 1997 and 1998 appear to have been years of strong growth

474 Argentina refers to Minutes No. 193, p. 4.
475 Argentina refers to Minutes No. 224, notification of extension, G/SG/N/14/CHL/1, p. 16, Table 10.
476 See Argentina's First Written Submission, paras. 191-193.
477 See Argentina's First Written Submission, paras. 194-197.

both as far as sowing and harvesting are concerned. Argentina thus conclude that there is no
evaluation of all the factors, as required by the Agreement on Safeguards, because there are no
references to the share of the domestic market taken by imports, changes in the level of sales,
productivity, capacity utilization, profits and losses, etc. 478
4.221 In response to a question by the Panel, Chile explains that, in the case of wheat, the relevant
factors analysed by the Commission were the rate and amount of the increase in imports (in absolute
and relative terms), the share of the domestic market taken by increased imports, production (no
information available on sales), productivity, profits and losses, and employment. Surface area and
domestic prices were also considered. Chile indicates that the capacity utilization was not evaluated
because it was not relevant to this agricultural crop, as stated in Minutes of Session No. 193.479
4.222 In reference to the above on the lack of relevance of the capacity utilization factor, Argentina
recalls that according to panel and Appellate Body precedents, the investigating authority cannot
refrain from analysing factors listed in Article 4.2(a) of the Agreement on Safeguards, let alone
provide an ex post facto justification during the dispute settlement proceeding of why it did not
analyse a factor. Argentina questions how the Commission managed to determine, in Minutes of
Session No. 185, that "[t]he number of registered farms would decrease by 25,000 from a total of
89,700. The sown area would decrease from the current 370,000 hectares to 243,000. 390,000
tonnes, i.e. 28 per cent of the current total, would no longer be produced", without analysing capacity
utilization, which is absolutely necessary in order to determine threat of injury. Consequently,
contrary to the requirements laid down in Article 4.1(b) of the Agreement on Safeguards, this
conclusion was based on conjectures and remote possibilities.
480 In connection with the same answer
given by Chile to question 21, Argentina highlights its inconsistency with the answer given by Chile
to question 35, since, according to Argentina, in the first one Chile states that the CCommission on
Distortions analysed the rate and amount of the increase in imports in absolute and relative terms,
while in the second one Chile points out that the Commission focused its analysis of imports on their
evolution in absolute terms, without mentioning where that analysis could be found in the Minutes of
the Commission.481
(h) Threat of injury
4.223 Argentina claims that the Chilean authorities did not prove the existence of a threat of serious
injury in the terms laid down in Article XIX:1(a) of the GATT 1994 and Article 4.1(a), 4.1(b) and
4.2(a) of the Agreement on Safeguards.
4.224 Argentina elaborates on the existing case law of the Appellate Body. In this regard, it
indicates that the Appellate Body stated that, in making a determination of threat of injury, the concept
of "serious injury" was essential and panels must be mindful of the very high standard of injury
implied by these terms
482 and that "… there must be a high degree of likelihood that the anticipated
serious injury will materialize in the very near future". 483 In Argentina's view, the information
submitted by the Commission does not, however, define the extraordinary circumstances that would
justify imposition of a safeguard measure. Argentina indicates that, as regards the period of review
for the evaluation of the relevant factors when dete rmining threat of injury, the Appellate Body has
ruled that it must be determined "… whether there is an appropriate temporal focus for the competent

478 See Argentina's First Written Submission, paras. 198-200.
479 See Chile's response to question 21(a) (CHL) of the Panel.
480 See Argentina's Rebuttal, paras. 131-132.
482 Argentina refers to the Appellate Body report on US – Lamb, (WT/DS177/AB/R, WT/DS178/AB/R)
adopted on 16 May 2001, para. 126.
483 Ibid., para. 125.

authorities' 'evaluation' of the data in determining that there is a 'threat' of serious injury in the
imminent future".484 Argentina also indicates that the Appellate Body also stated that "… data relating
to the most recent past will provide competent authorities with an essential, and, usually, the most
reliable, basis for a determination of a threat of serious injury".485 486
4.225 Argentina submits that, in its determinations, the Commission repeatedly relies on forecasts,
hypotheses and conjecture in order to establish the threat of serious injury which its domestic
industries are allegedly experiencing, in violation of Article 4.1(b) and the principles laid down by the
Appellate Body. It argues that the Commission's determinations employ the conditional tense and
lack any basis or proof. Argentina provides some specific examples below: (i) Minutes of Session No.
181 of the Commission containing the decision to initiate the investigation states with regard to the
three products that: "The quantification of the injury was based on forecasts that were made on the
basis of the hypothesis of application of the bound ta riff of 31.5 per cent and the effect this would
have on a series of variables for each of the products in question". (ii) In the case of wheat, the
Commission states that: " the application of the price band mechanism has ensured that the injury is
not significant. If application of the price band were limited to a total duty of 31.5 per cent, domestic
prices would fall and affect the producers' income levels". (iii) Minutes of Session No. 185
recommending application of the provisional safeguard measure states that: "With regard to injury,
the Commission had before it the information contained in the application, which quantifies the injury
on the basis of forecasts elaborated according to a hypothesis of application of the bound tariff of
31.5 per cent and the effect this would have on a series of variables for each of the products in
question." (iv) In the case of oils, the same Minutes simply conclude that " … the ceiling of 31.5 per
cent would lower the price and value of production … "
487
4.226 Chile contends that a "threat of serious injury" means serious injury that is "clearly
imminent", according to Article 4.1(b) of the Agreement on Safeguards. It further submits that
Article 2.1 of the Agreement on Safeguards, when referring to an increase in imports (in absolute or
relative terms), also indicates that such imports must be "under such conditions as to cause or threaten
to cause serious injury to the domestic industry …". Chile argues that the Chilean authorities
followed an analytical forward-looking approach based on the facts when determining the threat of
serious injury. In this regard, Chile refers to the analysis of the "threat of injury" done by the
Appellate Body in the United States – Lamb Meat where it said that "this term is concerned with
'serious injury' which has not yet occurred, but remains a future event whose actual materialization
cannot, in fact, be assured with certainty"
488 and emphasized that "in order to constitute a 'threat', the
serious injury must be 'clearly imminent'. The word 'imminent' relates to the moment in time when the
'threat' is likely to materialize". 489 Chile further submits that the Appellate Body later states that "as
facts, by their very nature, pertain to the present and the past, the occurrence of future events can
never be definitively proven by facts. There is, therefore, a tension between a future-oriented 'threat'
analysis, which, ultimately, calls for a degree of 'conjecture' about the likelihood of a future event, and
the need for a fact-based determination … Thus, a fact-based evaluation, under Article 4.2(a) of the
Agreement on Safeguards must provide the basis for a projection that there is a high degree of
likelihood of serious injury to the domestic industry in the very near future."
490 Chile considers that, in

484 Ibid., para. 127.
485 Ibid., para. 137.
486 See Argentina's First Written Submission, paras. 202-207.
487 See Argentina's First Written Submission, paras. 208-213.
488 Chile quotes the Appellate Body report on US – Lamb , (WT/DS177/AB/R, WT/DS178/AB/R)
adopted on 16 May 2001, para. 125.
489 Ibid.
490 Ibid., para. 136.

accordance with this statement, a threat of serious injury must always be based on a projection, which
must be consistent with the data on which it is based.491
4.227 Chile submits that, in the case of the goods investigated, according to the Commission, it is
irrefutable that the local and the imported product are easily interchangeable. Clearly, this was also
taken into account when analysing the threat of injury. Chile argues that the close relationship
between agricultural commodities and products that require a certain degree of processing that allow
them to be considered directly competitive has been described above. Chile explains that the
Commission based its threat determination on the price of the products corresponding to each sector of
the production industry involved, which is a key element when determining injury for such
products.
492 Chile considers that this way of assessing threat of injury meets the requirements of
Article 4.1(c) of the Agreement on Safeguards. Chile further submits that when it was noted that the
price band for oils could not operate to the full, it was verified that, in the absence of a safeguard, its
incomplete functioning would in the short term lead to a serious impairment for agricultural
producers, given the agreed conditions under which the product was marketed. Chile explains that
competition from imported oil at very low prices would lead to a very low domestic price for the
agricultural producer, which would absorb the whole of the reduction, with significant losses that are
estimated in the submission. In the medium term, Chile states, the producers might cease to sow and
the industrial plants would lose profits because they had no product to process. Chile contends that,
once again, in the case of a band that is only partly functioning and in the absence of any safeguard
measure, the price the industry would have to pay would fall to such a level that agricultural producers
would lose the volume estimated as threat of injury; not because of inefficient management but
because of a change in the rules of the game fixed prior to the sowing season. In addition, Chile
declares, if the industry met its commitment to pay a predetermined price, it would suffer losses.
Chile argues that, in either of the two cases, in the following season, there would be a sharp fall in
prices and, as a result, in the area sown, with the result that there would be an internal deficit, an
increase in imports and greater injury.
493 Chile adds that the Commission took notice of the fact that if
the price band system was limited to a 31.5 percent ad valorem ceiling, prices would drop even further
raising the likelihood of serious injury even more. Accordingly, Chile submits, the Commission based
its threat determination on a consistent basis in the record
494 and took account of the fact that the
normal functioning of the price band had been decisive in containing an increase in imports and the
resulting injury.495
4.228 Argentina, in reference to the above argumentation by Chile 496, submits that, in none of the
Minutes did the Commission analyse or even define the affected industry and that the correlation of
prices is not, in itself, sufficient for the purposes of determining the existence of a threat of injury.
Argentina repeats that Chile did not demonstrate that increased imports threatened to cause serious
injury to the domestic industry, but rather, used hypothetical and unsubstantiated circumstances for the
sole purpose of not complying with its obligation to apply its WTO tariff binding of 31.5 per cent
applying safeguard measures to justify the inconsistency of its price band system. In addition,
Argentina, in reference to Chile's statement
497 that the Commission took account of the fact that the
normal functioning of the price band had been decisive in containing an increase in imports and the
resulting injury, wonders how, without an increase in imports – since the price band was functioning
at full regime – and without threat of injury, given the existence of the price band, could the
Commission find that there was a threat of injury. Argentina concludes that Chile is trying to argue

491 See Chile's First Written Submission, paras. 190-195.
492 See also Chile's First Oral Statement, para. 79.
493 See Chile's First Written Submission, paras. 196-199.
494 See Chile's First Oral Statement, para. 79.
495 See Chile's response to question 22(a) (CHL) of the Panel.
496 Argentina refers to para. 79 of Chile's First Oral Statement.
497 Argentina refers to Chile's response to question 22(a) (CHL) of the Panel.

before the Panel, as a justification of its violation of Article II:1(b) of the GATT 1994, the application
of safeguard measures, while on the other hand, it is trying to justify the non existence of imports in
such quantities and the absence of evidence of threat of injury by pointing to the existence of the price
band system which it maintained in violation of Article 4.2 of the Agreement on Agriculture.498
(i) Causal link
4.229 Argentina maintains that Chile did not comply with its obligations under Articles 4.2(b) and
2.1 of the Agreement on Safeguards inasmuch as it did not establish any causal link between the
alleged increase in imports and the alleged threat of injury to the domestic industry. Argentina also
considers that Chile failed to comply with its obligations under Article XIX.1(a) of the GATT 1994
and Articles 2.1 and 4.2(b) of the Agreement on Safeguards inasmuch as it did not establish any causal
link between the existence of factors other than th e increase in imports which at the same time were
causing injury to the domestic industry.499
4.230 Argentina contends that, in this case, contrary to what is required in the above-mentioned
Articles, there was no evidence of an increase in imports or threat of serious injury. Argentina
indicates that the Appellate Body Report in Argentina – Footwear (EC) stated that a causal link
cannot exist if there is no increase in imports or serious injury. 500 However, in order to conclude its
examination of the inconsistencies in the findings of the Commission, Argentina also considers that
there is no evidence of the existence of a causal link.
501
4.231 As far as the determination of a causal link is concerned, Argentina notes first and foremost
that the alleged threat of serious injury to the domestic industry evaluated by Chile is not based on a
threat caused by increased imports but is related to Chile's obligation in the WTO to apply the bound
tariff of 31.5 per cent. Argentina indicates that this is specifically stated in Minutes of Session
No. 181 of the Commission, which reads: "[t]he quantification of injury was based on forecasts that
were made on the basis of the hypothesis of applic ation of the bound tariff of 31.5 per cent and the
effect this would have on a series of variables for each of the products in question". Likewise,
Argentina contends, Minutes of Session No. 185 state that: "[r]egarding imports, the Commission
took into account the increase that would have occurred during the 1999/2000 agricultural season on
the hypothesis of application of the bound import tariff of 31.5 per cent instead of the duties
applicable under the price band." Argentina also refers to Minutes of Session No. 224 in order to
claim that this reconfirms that "[i]n examining imports, the Commission took into account the fact
that, for each of the products investigated, the normal operation of the price bands had been decisive
in curbing an increase in imports and, consequently, the trend in imports cannot be analysed without
taking this factor into account …". In Argentina's view, this clearly shows that it was not increased
imports that led to the application and extension of the safeguard measures but the hypothesis of
application of the bound tariff.
502
4.232 Argentina fails to understand how a simple statement such as "given the recent and future
situation of international prices …" 503, without any analytical support, can constitute the basis for
determining the existence of a causal link. Argentin a affirms that Chile failed to comply with its
obligations under Articles 4.2(b) and 2.1 of the Agreement on Safeguards by not establishing a causal
link between the alleged increase in imports and th e alleged injury to the domestic industry. In

498 See Argentina's Rebuttal, paras. 137-142.
499 See Argentina's First Written Submission, paras. 238-239.
500 Argentina quotes the Appellate Body report on Argentina – Footwear (EC) , (WT/DS121/AB/R)
adopted on 12 January 2000, para. 145.
501 See Argentina's First Written Submission, para. 217.
502 See Argentina's First Written Submission, paras. 218-222.
503 Argentina refers to Minutes No. 224, p. 5, para. 3.

Argentina's opinion, as the Appellate Body stated in the US – Wheat Gluten case: "We begin our
reasoning with the first sentence of Article 4.2(b). That sentence provides that a determination 'shall
not be made unless [the] investigation demonstrates … the existence of the causal link between
increased imports … and serious injury or threat thereof.' (emphasis added). Thus, the requirement for
a determination under Article 4.2(a), is that 'the causal link' exists. The word 'causal' means 'relating
to a cause or causes', while the word 'cause', in turn, denotes a relationship between at least two
elements, whereby the first element has, in some way, 'brought about' 'produced' or 'induced' the
existence of the second element. The word 'link' indicates simply that increased imports have played
a part in, or contributed to, bringing about serious injury so that there is a causal 'connection' or
'nexus' between these two elements. Taking these words together, the term 'the causal link' denotes,
in our view, a relationship of cause and effect such that increased imports contribute to 'bringing
about', 'producing' or 'inducing' the serious injury."
504 Argentina refers now to Argentina –
Footwear (EC), where the Panel determined a three-stage sequence to justify the causal link (the
Appellate Body supported this method and approach).505 Argentina adds that, regarding the last stage
of the causal link in US – Wheat Gluten and US – Lamb , the Appellate Body supported a "logical
process" for the competent authorities' determinat ion of "whether 'the causal link' exists between
increased imports and serious injury, and whether this causal link involves a genuine and substantial
relationship of cause and effect between these two elements", in accordance with the obligations under
Article 4.2(b).
506 This process means separating the injurious effect of increased imports from the
injury caused by other factors. Argentina claims that the Appellate Body considers that Article 4.2(b)
presupposes that the injurious effects caused to the domestic industry by the increased imports must be
distinguished from the injurious effects caused by other factors. 507 In this regard, Argentina mentions
that the Appellate Body noted that "[w]hat is important in this process is separating or distinguishing
the effects caused by the different factors in bringing about the 'injury'."508 509
4.233 Argentina examines the application of the three-stages methodology designed by the
Appellate Body to this case: (i) Simultaneity of the trends: Argentina indicates that the determinations
do not contain sufficient bases to conclude that the trends are simultaneous. Indeed, Argentina states,
the import trends have not been analysed in relation to the changes in the industry's economic and
financial indicators. In fact, this could not have been done because the Minutes do not contain any
analysis nor sufficient data for this purpose. What is even worse is that the period examined for the
indicators of threat of injury are not even know n, so the authorities could not have analysed the
relative fluctuations in trends. (ii) Conditions of competition (under such conditions): Argentina
explains that the few references to prices which appear in the Minutes clearly do not allow any
analysis of the conditions of competition between the imported product and the like product.
Consequently, Chile could hardly try to establish the existence of a causal link under specified
conditions of competition. (iii) Other factors caused injury to Chile's domestic industry producing
wheat, wheat flour and edible vegetable oils, but not increased imports: Argentina indicates that the
third element of a causation analysis is the consideration of whether factors other than increased

504 Argentina quotes the Appellate Body report on US – Wheat Gluten , (WT/DS166/AB/R) adopted on
19 January 2001, para. 67.
505 Argentina quotes the Panel report on Argentina – Footwear (EC) , (WT/DS121/R) adopted on
12 January 2000, as modified by the Appellate Body report, para. 8.229, and Appellate Body report on
Argentina – Footwear (EC) , (WT/DS121/AB/R), adopted on 12 January 2000, paras. 144 and 145. S ee
Argentina's First Written Submission, footnote 117.
506 Argentina quotes the Appellate Body report on US – Lamb , (WT/DS177/AB/R, WT/DS178/AB/R)
adopted on 16 May 2001, para. 177.
507 Argentina quotes the Appellate Body report on US – Wheat Gluten, (WT/DS166/AB/R), adopted on
19 January 2001, para. 69.
508 Ibid., para. 68.
509 See Argentina's First Written Submission, paras. 223-226.

imports are causing or threatening to cause serious injury to the domestic industry. If so,
Article 4.2(b) requires that such injury not be attributed to increased imports.510
4.234 Argentina claims that the Commission did not undertake an analysis to evaluate the injury or
threat of injury to the domestic wheat, wheat flour and edible vegetable oils industry caused by "other
factors". As an example, Argentina indicates that, although the Commission showed that international
prices were falling, this was not properly evaluated and, bearing in mind that these are agricultural and
agro-industrial products, climatic conditions within Chile – which are extremely relevant to the local
supply situation – were not evaluated. 511 Argentina asserts that the request for extension of the
measure by the Chilean Ministry of Agriculture 512, clearly shows that the low level of international
prices was one of the Chilean Ministry of Agricult ure's main concerns. Argentina argues that the
Commission did not evaluate this ad ditional factor – namely, international prices – in terms of their
impact on the domestic industry, distinguishing this effect from the effect of imports. 513 Argentina
further states that the ODEPA Publication " El Pulso de la Agricultura " of February 1999, No. 27,
contains specific references to the seriousness of the drought in 1998/1999. According to this
publication, Argentina claims, 55 per cent of agricultural communities were in a state of alert. In its
report on the first half of 1999, the Chilean Ministry of Agriculture stated that the drought during the
1998/1999 season had led to a decrease in the area under cultivation and a fall in the yield and
production of wheat throughout Chile.
514 Argentina submits that the Commission did not analyse this
factor, even though it had a decisive effect on domestic wheat production of wheat and possibly on
other products subject to the safeguard. 515
4.235 As regards Argentina's statement that the Chil ean authorities did not make any determination
of a causal link in any Minutes or notification516, Chile points out that, as shown in Minutes of Session
No. 193, the Commission took into account the fact that average c.i.f. prices of Chilean imports were
closely related to world prices (trend in commodities). In fact, Chile argues, the correlation
coefficient calculated between the average c.i.f. price and the international price over two periods, for
wheat and oil, was 91 per cent and 92 per cent respectively. Chile explains that these variables are
therefore closely related, so it can be stated that the trend in domestic prices is strongly affected by the
trend in import costs.
517
4.236 As regards the above argumentation, Argentina considers that Chile's claim whereby the
relationship between prices of Chilean imports and world prices proved that there was a causal link is
worthless since the causal link must be between the increase in imports and the threat of injury. 518
Argentina further argues that the correlation of prices is not, in itself, sufficient for the purposes of
determining the existence of a threat of injury. Argentina further argues that if one delves deeper into
Chile's analysis, and checks this statement in Minutes of Session No. 193 against the graph showing
the evolution of the international price of soya bean oil (US$/ton),
519 one would find that there are
inconsistencies in this reasoning. Argentina points out that this graph shows a sharp fall in
international prices between November 1998 and September 2000, whereas according to Minutes of
Session No.193, "imports [of oils] fell by 24 per cent…" during the first ten months of 1999. In

510 See Argentina's First Written Submission, paras. 228-231.
511 See Argentina's First Written Submission, paras. 232-234.
512 Argentina refers to the request for extension of the safeguard measure for price-band-related
products, Ministry of Agriculture, Order No. 792, 10 October 2000. (See Annex ARG-22).
513 See Argentina's First Written Submission, paras. 235-236.
514 Argentina refers to the Temporada Agrícola , No. 13, first half of 1999, ISSN 0717-0386,
Government of Chile, ODEPA (Ministry of Agriculture), pp. 21 and 22, attached as Annex ARG-30.
515 See Argentina's First Written Submission, para. 237.
516 Chile refers to para. 218 of Argentina's First Written Submission.
517 See Chile's First Written Submission, paras. 200-203.
518 See Argentina's First Oral Statement, para. 105.
519 Argentina refers to para. 201 of Chile's First Written Submission.

Argentina's view, the alleged inverse correlation be tween international prices – their fall – and the
evolution of imports – their increase – is not valid. To illustrate this, Argentina has provided, as
Annex ARG-35, two graphs that show a direct correlation between the fall in international prices and
the decrease in imports, based on the graph which Chile itself provided in its submission and on
import data for soya bean oil provided in Table 7 of Minutes of Session No. 224. Argentina claims
that there could hardly have been a threat of injury when the trends presented by Chile itself point to
the contrary.
520
4.237 Chile stresses that it had already stated that the Commission, in explaining the threat of injury
situation, took account of the following information: the evolution of imports – bearing in mind that
the operation of the price band had been decisive in containing their increase; the correlation between
international prices, import prices and domestic prices; and the low level of international prices. This
was the basis for the prediction that a rapidly accelerating increase in imports would occur if the total
duties under the price band were not applied, and led the Commission to the conviction that there was
an imminent threat of injury. In Chile's view, th is is particularly true for commodity type products,
such as those at issue. Regarding Argentina's claim that the inverse correlation between the fall in
international prices and the increase in imports was not valid in the case of oils, Chile submits that two
factors must be borne in mind: (i) that the opera tion of the price bands was decisive in containing
imports; and (ii) that since 1999 there has been an abnormal situation in the pattern of imports -
explaining their decrease - owing to the disputes concerning the tariff headings under which oils
should be imported. Chile further submits that, with respect to the impact of these disputes, Minutes
of Session No. 224 point out that a close look at these headings reveals an increase in imports of
vegetable oils, and not a decrease.
521
4.238 Specifically with respect to oils, Argentina submits that the Commission failed to take into
account in its causation analysis a number of other factors which had been raised by the Oil Industry
Association of the Argentine Republic (CIARA) in th e proceedings. In particular, Argentina submits
that the Commission failed to analyse the shift of the industry to more profitable sectors; the increase
in local demand for seed; the elasticity of oil-seed supply in relation to the real tariff on oils; whether
the threat of injury to the industry would be eliminated by the transfer of the input price increase
resulting from the increased tariff to consumers, or wh ether on the contrary, the threat of injury to the
industry was attributable to the tariff increase that caused the increase in the sales price of oils
generating a fall in demand; imports as a commercial strategy of the Chilean oils industry deriving
from the shortage of local sources of supply; the sustained growth of the economy, the increase in
domestic demand, the increase or variations in private consumption and the increase in GDP in
relation to imports of oils over the past decade; the population growth and increase in per capita
consumption; the fact that international prices causing the variation in tariffs under the price band do
not affect oil-seed production; the structural problems of oil-seed production; the shift of the industry
to more profitable sectors; the analysis of other factors affecting agricultural production must take
account of meteorological circumstances that could have affected productivity and profitability of the
crop.
522
(j) Whether Chile's safeguard measure was not limited to the extent necessary to remedy injury
and to facilitate adjustment
4.239 Argentina submits that Chile's safeguard measure violates Articles XIX.1(a) of the GATT
1994 and Articles 3.1 and 5.1 of the Agreement on Safeguards because it was not limited to the extent
necessary to remedy injury and to facilitate adjustment.

520 See Argentina's First Oral Statement, paras. 101-103.
521 See Chile's Rebuttal, paras. 68-69.
522 See Argentina's response to question 24 (ARG) of the Panel.

4.240 Argentina contends that the Commission did not consider whether or not the measure was
"necessary" to prevent injury and facilitate readjustment and no substantive analysis was undertaken
(for example, "reasoned conclusion"). Argentina argues that Chile based its safeguard measure on the
difference between the bound tariff and the combinatio n of the PBS duty and applied rate, and this is
in no way related to a threat of injury from imports.523
4.241 Argentina noted that Chile's Ministry of Agriculture stated that: "The surcharge will allow
the current level of tariffs on products subject to the band system to be maintained in order to meet
Chile's obligations to the World Trade Organization (WTO) in 1994." 524 Argentina claims that, in
violation of Articles XIX.1(a) of the GATT 1994 and 5.1 of the Agreement on Safeguards, the
Commission did not prove that its safeguard measur e was necessary to remedy serious injury and
facilitate the readjustment of the industry. Argentina argues that, in Korea - Dairy , the Appellate
Body considered that Article 5.1 imposed an "obligation" to ensure that the safeguard measure was
applied only to the extent "necessary".
525 526
4.242 Chile submits that, in accordance with its obligations under the Agreement on Safeguards, it
instituted a measure that protected its domestic producers from serious injury, but which provided no
further amount of protection. Chile explains that, having found the requisite conditions justifying a
safeguard action, the action recommended by the Commission and taken by the Government involved
the least possible trade disruption consistent with preventing serious injury: an increase in duties to
enable the price band to apply without regard to the bound level of duties. Chile further explains that
the Chilean Safeguard Law only allows imposition of duties; it does not allow a quota. It limits the
safeguards to one year plus an additional year. Chile submits that, in this particular case, the
Commission recommended that the surcharge be in the form of the duty in excess of the bound rate
under the price band, instead of a flat surcharge. Chile argues that the flat surcharge would have to
have been very high, while the price band could result in lower rates, as indeed has been the case.
527
4.243 Chile explains that the safeguard measures applied by Chile include a special mechanism for
their application, which is based on the same world price considerations as those in the PBS.
According to Chile, this means in practice that the measure is one of variable applications in order to
reflect in the most appropriate way the impact of imports in relation to the injury suffered by the
domestic industry. Chile argues that the variable nature of the measure means that there is an
immediate response to trends in the injury, so that the measure can be automatically adjusted to the
necessary level to remedy the injury. In Chile's view, this flexibility can be seen in the fact that there
were periods when, even though the measure had been decreed, tariff surcharges were not applied.
Chile submits that the authority showed its intention not to apply a safeguard higher than that strictly
necessary by calculating it on a weekly basis so as not to give the industry producing the product
subject to the safeguard protection over and above the minimum required.
528
4.244 Argentina, in reference to Chile's statement to the effect that the safeguard measures applied
by Chile include a special mechanism for their application, which is based on the same world price
considerations as those in the price band system 529, submits that, if this is the case, Chile's actual
mechanism for the application of safeguard measures violates the Agreement on Safeguards, which
does not take world prices as a basis, but rather, imports in such increased quantities, absolute or

523 See Argentina's First Written Submission, paras. 240-242.
524 Argentina quotes "El Pulso de la Agricultura", No. 32, ODEPA publication, Ministry of Agriculture
(December 1999), attached as Annex ARG-31.
525 Argentina quotes the Appellate Body report on Korea – Dairy, WT/DS98/AB/R, adopted on
12 January 2000, para. 96.
526 See Argentina's First Written Submission, paras. 243-245.
527 See Chile's First Oral Statement, paras. 81-82.
528 See Chile's First Written Submission, paras. 207-209.
529 Argentina refers to para. 207 of Chile's First Written Submission.

relative to domestic production, and under such conditions as to cause or threaten to cause serious
injury to the domestic industry that produces like or directly competitive products.530
4.245 Chile submits that its statement did not refer to the increase in imports as a requirement for
the application of a safeguard measure, but rather, as Argentina itself mentions, to the mode of
operation of the adopted measure, which was fixed in accordance with the proportionality requirement
established in Article 5 of the Agreement on Safeguards for the purpose of preventing the imminent
injury that threatened the domestic industry affected and to permit its adjustment.
531
4.246 Argentina argues that the serious injury cannot be repaired and the adjustment made with
identical measures, both for the definitive safeguards and their extensions. It further submits that it is
also hard to understand how these measures - which, according to Chile itself, were justified by the
threat of injury caused by a fall in international pr ices – could be maintained over time in a market in
which there could necessarily always be price fluctuations. In Argentina's view, the adjustment does
not depend on the Chilean industry, but on the evolution of international market conditions. Argentina
contends that, following Chile's logic, if the fall in prices were to persist, the safeguards would have to
be permanent. Conversely, it adds, the proposed remedy is so far from meeting the requirements of
Article 5.1 of the Agreement on Safeguards that an increase in international prices would lead to the
termination of the measures independently of the state of the industry or of any other economic factor
that could have a bearing on the industry.
532
4.247 In reference to the above argumentation of Argentina, Chile stresses that the problem was not
the short-term fluctuation in prices, but the sharp and sustained fall in those prices over a long period.
Contrary to Argentina's assertion, Chile adds, if the fall in prices were to persist, the measures would
not be permanent, but would be applied for the time necessary to facilitate adjustment and adaptation
to the new price conditions, and in any case, for not more than two years. Chile considers that, in this
scenario, as in the case of an increase in prices, the measures would continue to be applied in full
conformity with Article 5.1 of the Agreement on Safeguards, since the purpose of their adoption and
the amount involved was limited to what was necessary to prevent serious injury and facilitate
adjustment.
533
4.248 Chile submits that the short period during which the measures were applied together with the
safeguard formula adopted was based on considerations of proportionality which maintained domestic
competition without neutralizing or equalizing domestic prices and international prices. Chile also
notes that based on the facts of this case the purpose of the safeguards must be to prevent a threat of
serious injury from materializing and not to repair serious injury that has already taken place.
According to Chile, it is perfectly logical that the extension measures should have adopted the same
formula as the definitive measures, because in spite of the recovery shown by the domestic industry,
the measures, as established, continued to be necessary to prevent serious injury.
534
(k) Provisional measures
4.249 Argentina claims that the competent Chilean authorities did not comply with Article XIX:2
of the GATT 1994 and Article 6 of the Agreement on Safeguards, which lay down the requirements
for the application of provisional measures.

531 See Chile's Second Oral Statement, paras. 46.47.
532 See Argentina's First Oral Statement, para. 107.
533 See Chile's Rebuttal, paras. 72-73.
534 See Chile's Second Oral Statement, paras. 72-73.

4.250 Argentina contends that both Article XIX.2 of the GATT 1994 and Article 6 of the
Agreement on Safeguards provide that "critical circumstances" must exist before provisional measures
can be adopted. In other words, Argentina claims, the authority may only adopt provisional measures
in circumstances "where delay would cause damage which it would be difficult to repair". Article 6
also states that such measures may be taken "pursuant to a preliminary determination that there is clear
evidence that increased imports have caused or are threatening to cause serious injury". Argentina
claims that the resolution of the Commission recommending the adoption of provisional measures
("provisional determination") does not in any way analyse why a delay would cause damage which it
would be difficult to repair.
535 Consequently, Argentina considers, in the light of the text itself, the
resolution of the Commission does not comply with the requirements of Article 6. Argentina indicates
that, furthermore, the provisional resolution of the Commission fails to comply with Articles 2.1, 4.1
and 4.2, as well as Articles 3.1 and 4.2(c) of the Agreement on Safeguards, because there is no
evaluation of "like product", and an increase in imports a threat of injury or a causal link are not
proven.
536
4.251 Argentina explains that the analysis of the Commission is divided into three categories of
product but there is no examination of whether this categorization of "like product" and "domestic
industry" is in conformity with Articles 2.1, 4.1(c) and 4.2(b) of the Agreement on Safeguards. 537 In
Argentina's opinion, the Commission does not undertake any analysis of increased imports but simply
concludes that imports would increase if duties were limited to the bound tariff. 538 T h e r e i s n o
evidence, however, that imports did in fact increase. The sole reference to increased imports is on
page 2 of the Resolution where the authorities indicate that they based their recommendation on
"available evidence" which shows the "possibility" of an increase in imports of the products in
question "if the tariff falls to 31.5 per cent" - in other words, Argentina claims, the level bound by
Chile. However, not even in this case is the relevant information provided. Argentina also indicates
that the analysis of the indicators of threat of injury are incomplete because not all the factors have
been evaluated, as required by Article 4.2(a) of the Agreement on Safeguards.
539 Argentina contends
that, even for those factors that have been evaluated, the analysis has no meaning because there is no
investigation period and no reference to any other period that might give an overall view of the
relevance of the "decreases" inferred.
540 According to Argentina, it appears that the figures are simply
forecasts because the findings are set out in the conditional tense. Argentina argues that the basis for
such forecasts and their source are not identified. 541 For the foregoing reasons, Argentina claims that
the provisional resolution does not comply with Article 4.2(a).542
4.252 Argentina contends that there is no analysis of causality. 543 In other words, Argentina
explains, there is no attempt to relate the trends in imports (which are not provided) with the trends in
indicators for the industry (in the few cases where these are provided the data are not specified).
Consequently, Argentina claims that the resoluti on does not comply with Article 4.2(b) of the
Agreement on Safeguards.
544
4.253 Chile submits that Minutes of Session No. 185, of 22 October 1999, sets out the critical
circumstances and assessments required in orde r to determine the need for the recommended

535 Argentina refers to Minutes No. 185.
536 See Argentina's First Written Submission, paras. 246-248.
537 Argentina refers to Minutes No. 185.
538 Ibid.
539 Ibid.
540 Ibid.
541 Ibid.
542 See Argentina's First Written Submission, paras. 249-251.
543 Argentina refers to Minutes No. 185.
544 See Argentina's First Written Submission, para. 252.

provisional measures, as required by Article XIX:2 of the GATT 1994 and Article 6 of the Agreement
on Safeguards.545
4.254 Chile explains that if Chile's bound rate of 31.5 percent was observed in the future, the
Commission estimated that imports would increase dramatically causing significant injury to the
wheat, sugar and oils producers. Given the price elasticity of the products, it could be calculated that
there would be a significant import surge, a decline in prices and serious injury to Chilean producers.
Therefore, the Commission properly found that any delay in adopting a safeguard measure would
cause damage which "would be difficult to repair".
546
4.255 Argentina considers this an ex post facto explanation. Argentina also questions to what
"factual basis" is Chile referring when Chile itself considers the elasticity of products to be "given",
without bothering to make any analysis in this respect. Argentina states that it is incorrect for Chile to
suggest that "it could be calculated" that there would be a significant import surge, a decline in prices
and serious injury to Chilean producers, without actually making any calculation. Argentina submits
that Article 6 of the Agreement on Safeguards clearly stipulates that such a measure may only be
taken "pursuant to a preliminary determination that there is clear evidence that increased imports have
caused or are threatening to cause serious injury".
547
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The main arguments of those third parties to these proceedings which have submitted their
commentaries to the Panel, i.e., Brazil, Colombia, Ecuador, the European Communities, Guatemala,
Japan, Paraguay, the United States and Venezuela are as follows:
A. BRAZIL
5.2 Brazil submits that an examination of the Chilean PBS, as well as of the detailed Argentine
explanation of how the system operates can give th e impression that it is a very complex mechanism,
devised with an almost scientific zeal. However, in Brazil's view, the PBS is, at heart, very simple. If
one discards all the tables, measurements and equations, Brazil argues, what is left is a weekly
reference price that determines the additional duty that will tax imports of wheat, wheat flour,
vegetable oils and sugar. Brazil explains that this weekly reference price, which is fixed by the
Chilean Government, substitutes for the transacti on value contained in the invoice. According to
Brazil, an element that is very clear, and that is not contested by Chile in its first submission to the
Panel, is that the price band system has allowed for the violation of Chile's bound tariffs for the
products under consideration, as well as for sugar.
5.3 Brazil argues that, in theory, Chile is correct in claiming that the adoption of safeguards could
legally justify the violation of bound rates. The point is that in the current case, the violation of bound
tariffs occurred before the safeguards were even envisaged. Moreover, it remains to be seen whether
the safeguards were justified. Brazil contends that, in case they are found not to be justified, Chile
will have automatically incurred a violation of Article II.1 of GATT 1994. Brazil further stresses that
the current design of the price band system allows for violations of the bound rates. Brazil agrees with
Argentina that the Chilean price band system is suspiciously similar to what Article 4.2 of the
Agreement on Agriculture sought to eliminate: it operates as a variable levy that is modified weekly; it
includes reference prices which are not allowed under Article 4.2, if they constitute minimum prices;
it also contains elements of the modality of special safeguards provided for in Article 5.1(b) of the
Agreement on Agriculture. According to Brazil, the problem, as Argentina rightly pointed out, is that

545 See Chile's First Written Submission, para. 210.
546 See Chile's First Oral Statement, para. 83.
547 See Argentina's Rebuttal, paras.150-151.

Chile does not have the legal right to use such an instrument. It may be argued that as long as Chile
does not violate its bound tariff the operation or characteristics of its price band system are irrelevant
and that the claim under Article 4.2 is useless. Brazil notes, however, that the objective of the Chilean
system is to create exactly the type of barrier that Article 4.2 of the Agreement on Agriculture sought
to eliminate.
5.4 Brazil submits that Chile's argument to the effect that the PBS is an ordinary customs duty is a
surprising affirmation because, at the regional level, Chile argues exactly the contrary: since the surtax
that results from the operation of the price band system is not a tariff, tariff preferences are not
applicable. Brazil points out that this difference in interpretation is currently one of the difficulties in
the tariff negotiations concerning sugar. Brazil adds that Chile's reference to the ECA 35, which
includes Brazil, can also be used as an example of misuse, by Chile, of a line of reasoning that could
be summarized as "since you did not complain before, you cannot complain now". Brazil cannot find
any provisions in the WTO Agreements that impose time-limits or expiration dates on Argentina's
right to claim a violation of Article II.1 of GATT 1994 and of Article 4.2 of the Agreement on
Agriculture in the current dispute. In addition, Brazil notes that the language in ECA 35 that refers to
the price band system can be read in different ways and that Chile's reading does not stress the fact
that the system can be questioned if it has a negative impact on trade.
5.5 In response to a question by the Panel, Brazil submits that a duty cannot at the same time be
considered an "ordinary customs duty" and "a measure of the kind which have been required to be
converted into ordinary customs duties". In Brazil's view, the term "ordinary" refers to customs duty
as such: it can be an " ad valorem" tax, a specific duty or a combination of both. It further explains
that the term "ordinary" is used to qualify a general import tax that is not "all other duties or charges
of any kind". Brazil notes that, in the case of agri cultural products, and, in particular, those affected
by the Chilean PBS, Article II can not be read independently from Article 4.2 of the Agreement on
Agriculture. Brazil contends that a Member may have an additional tax that applies to all imports, like
a "statistics tax", or an administrative tax, that applies to all imported products. It could even be a flat
tax, with no relation to the value of the import transaction. In Brazil's view, the distinction should be
made between "ordinary customs duties" and "other" duties, which are not "customs duties" in nature;
the text in Article II:1(b) establishes a parallel between "customs duties" and "duties or charges"
which are not properly characterized as "customs duties". These are, it explains, simply "imposed on
or in connection with the importation". Brazil consid ers that this distinction is also apparent in the
structure of the Schedule of Concessions, since these "other" duties must be recorded in the
appropriate column of the Schedule. Finally, Brazil points out that the Understanding on the
Interpretation of Article II:1(b) of the GATT 1994 creates legal obligations concerning "other duties
and charges" that are different from those regarding "ordinary" customs duties.
5.6 Brazil submits that the objective of Article 4.2 of the Agreement on Agriculture is to
guarantee tariffication, or, to follow the line of inquiry of the Panel, to guarantee that Members would
simplify matters by resorting solely to "ordinary customs duties" and, therefore, in order to comply
with that Article,"similar border measures other than ordinary customs duties" should have been,
converted into "ordinary customs duties". In Brazil's view, the measures listed in the footnote of
Article 4.2 of the Agreement on Agriculture are the ones which "have been required to be converted
into ordinary customs duties". "Other duties and charges" were not required to be converted into
"ordinary customs duties" in the Uruguay Round sinc e they could have been consolidated into the
appropriate column of the Schedule. Therefore, Brazil submits, "similar border measures" as referred
to in the footnote of Article 4.2 of the Agreement on Agriculture is distinct from "other duties or
charges of any kind" mentioned in Article II:1(b) of the GATT 1994. Since the end of the Uruguay
Round, however, they fall within the prohibition of Article II:1(b), last sentence. Brazil submits that a
violation would exist if these "other duties or charges of any kind" had not been recorded in the
Schedule of Concessions or had been raised or changed in such a way as to violate commitments
recorded in the column reserved for "Other Duties and Charges".

5.7 Brazil explains that a variable levy is a duty that is modified in accordance to criteria related
to "various values in different instances or at different times" based on exogenous factors (such as
historical and current world prices), as determined by any specific mechanism by a Member.
According to Brazil, the objective of this measure is to control prices of imports in order to meet or
approach a domestic target price that isolates the domestic production marketing from international
current prices. Brazil affirms that the PBS is a good example of a variable levy. On the other hand,
Brazil argues, a minimum import price is a price , other than the transaction value of the imported
product, which is the minimum price at which a product can enter a market. It can be used to
calculate the duty to be applied or to trigger the operation of the variable levy. Brazil submits that the
term "include" in footnote 1 to Article 4.2 of the Agreement on Agriculture indicates that the list is
illustrative and not exhaustive.
5.8 As regards Chile's claim that the PBS is a type of measure that is used in all Latin America,
Brazil fails to see the relevance of such an affirmation since, in its view, the fact that a measure is of
widespread use does not make it legal. Brazil explains that one of the main justifications put forward
by those that defend the maintenance of the price band system in Chile is the supposed existence of
widespread subsidization by other WTO Members for the agricultural products protected by the
system. Brazil contends that the price band system, apart from the Chilean explanation concerning
supposed "price stabilization" needs, is justified internally as a means to counter agricultural subsidies.
In Brazil's view, the main problem here is that by doing so Chile treats equally countries that foster
their exports by means of export subsidies and those that do not. In the case of sugar, for instance, the
main suppliers for the Chilean markets are Guatemala, Argentina and Brazil, countries widely known
for not subsidizing their exports. Brazil submits that if it is Chile's intention to counter agricultural
subsidies, the WTO provides a wide range of more selective and accurate measures in order to do so.
5.9 Brazil is of the view that the safeguards were used by Chile as an ex post facto justification for
a violation of bound rates and as a means to justify new violations. Brazil submits that Chile itself
recognizes that safeguards were resorted to as a second best option as a means to legalize the violation
of the bound rates. In Brazil's view, this should be sufficient to invalidate the measures, since there is
a clear violation of the procedures contained in the Agreement on Safeguards. Brazil contends that it
would certainly be very convenient if every time a Member decided to violate its bound tariffs it could
simply apply safeguards a posteriori as a means of obtaining legal justification. Brazil argues that this
kind of procedure, though, was certainly not in the minds of the drafters of the Agreement on
Safeguards, who were trying to avoid the proliferation of the so-called grey area measures that existed
before the conclusion of the Uruguay Round. Brazil further submits that the Agreement on
Safeguards calls for very special situations and for the respect of clearly stipulated procedures and that
this is even more applicable if one considers measures to protect agricultural products, which were
some of the favourite targets of grey area measures.
5.10 As regards price stabilization, Brazil stresses that Articles 2 and 4 of the Agreement on
Safeguards make no direct reference to such issues. It submits that safeguards were not devised to
deal with the objective of guaranteeing the stabilization of prices of certain agricultural products. As
regards Chile's reference to the lack of justification for questioning a measure no longer in place,
Brazil submits that, although it respects the importance of the principle contained in Article 3.7 of the
DSU, it is concerned with the possibility that if the measures applied by Chile are left unexamined,
they could lead to similar measures against the same products or other goods. Brazil submits that if
the safeguards were applied incorrectly and unjustifiably, this should be known; otherwise, Members
could have an incentive for maintaining an illegal measure up to the moment when a panel was
convened.

B. COLOMBIA
5.11 Colombia is convinced that the Chilean PBS is consistent with Article 4 of the Agreement on
Agriculture. Colombia suggests that the Panel conducts a legal analysis linking the two measures in
question, namely the imposition of the safeguard and the application of the price band system. In its
opinion, the consistency of the measures applied by Chile should be analysed using a combined
approach that establishes a close relationship between the two, given that Chile has used the PBS as a
mechanism for applying the safeguard measure which is also an issue in this dispute.
5.12 Colombia submits that, in examining the consistency of the measures applied by Chile with
the latter's commitments in the WTO, the Panel must make an interpretation that links Articles 4 and
 21 of the Agreement on Agriculture, Articles II and XIX of the General Agreement, and the
Agreement on Safeguards. In Colombia's view, such an analysis would enable the Panel to
distinguish between two different scenarios for the PBS, namely its application in normal
circumstances and its use as a safeguard measure. In normal circumstances, and as mentioned above,
price bands are consistent with Article 4 of the Agreement on Agriculture. From a systemic
perspective, Colombia argues, it is crucial to take account of each and every one of the elements set
forth in Article XIX of the GATT when analysing the consistency of the safeguard measure applied by
Chile. In addition to the points mentioned by Argentina in its written submission, another factor needs
to be considered, namely the "effect" of the obligations incurred by a contracting party under the
General Agreement. In Colombia's view, the term "effect" specified in Article XIX implies that a
Member making use of a safeguard measure must be able to demonstrate that, within the period
defined by it for analysing the other requisite vari ables, imports to its territory complied with the
obligations under the GATT, which obviously also include tariff concessions. Colombia considers
that this requirement must be fulfilled in additi on to the provision of evidence regarding unforeseen
developments and factors relating to trends in imports, serious injury and the causal link. Colombia
submits that the fact that Chile has exceeded the bound level implies that the safeguard measure
applied fails to meet one of the essential requirements of Article XIX of the General Agreement,
which is that the trend in imports, the injury and the causal link should result precisely from a scenario
under which tariffs are lower than or at least equivalent to the bound level. Colombia submits that the
safeguard measures applied by Chile are inconsistent inasmuch as they establish the use of a PBS, a
mechanism that does not guarantee that the safeguard is applied exclusively to the extent necessary to
remedy the injury.
5.13 According to Colombia, the process of determining whether the Chilean PBS is consistent
with Article 4 of the Agreement on Agriculture would certainly require prior demonstration that, as a
result of the Uruguay Round, these systems were tariffied because they were classified as variable
levies or as border measures other than customs duties. Colombia disagrees with Argentina's
interchangeable use of the terms "variable levies" and "variable tariffs" since it believes them to mean
different things. Colombia explains that considering that the PBS does not correspond to the
definition of variable levies, (a special term used in the Agreement on Agriculture that is not
equivalent to variable tariffs) but on the contrary fall within the definition of customs duties, they are
consistent with Article 4 of the Agreement on Agriculture. Colombia is of the opinion that a ruling on
the inconsistency of the Chilean PBS with Article 4 of the Agreement on Agriculture would imply that
this type of mechanism has been classified as a variable levy and that therefore any tariff undergoing
change within a specified period of time would fall within this category.
5.14 Colombia considers that to be able to answer the question of whether the Chilean PBS is
consistent with Article II of the GATT, the Panel first needs to examine the normal operation of the
price band system and determine whether its structure includes factors that would make it possible to
exceed the bound tariff. As a second step, Colombia explains, the Chilean measure might be found to
be consistent if it could be regarded as a safeguard that meets the requirements of Article XIX of the
GATT - in which case it would be possible to exceed the bound level. Should the Panel find that the

Chilean safeguard was not applied in accordance with all the requirements set forth in Article XIX and
the Agreement on Safeguards, Colombia argues, the price band system would be inconsistent with
Article II of the General Agreement.
C. ECUADOR
5.15 Ecuador emphasizes that both the Argentine and Chilean assessments of the issue should be
understood in the light of the close interrelationship between the application of the Chilean price band
system and the application of safeguards. In Ecuador's view, only the question of the consistency of
the Chilean measure as a whole has been brought before this Panel and, therefore, the Panel should
only rule on the consistency or inconsistency of the Chilean measure in question with the WTO rather
than conduct a conceptual analysis of the PBS.
5.16 Ecuador considers that PBSs can be operated differently from the one implemented in Chile
and remain consistent with WTO rules, that is to say, respecting bound tariff levels and other
commitments under Article II of the GATT 1994 as well as the market access commitments referred
to in the Agreement on Agriculture, specifically under Article 4. According to Ecuador, PBSs do not
necessarily constitute variable tariffs as described in the footnote to Article 4 of the Agreement on
Agriculture, especially if such systems are applied in a transparent and predictable manner with the
simple aim of counteracting major swings in the international prices of a limited number of
agricultural products, thereby guaranteeing acceptable domestic production conditions. If PBSs are
used as tariff measures, Ecuador argues, they do not require tariffication in order to be consistent with
Uruguay Round provisions. Moreover, Ecuador ar gues, GATT-WTO regulations allow the tariff
levels applicable to imports to be altered provid ed that they do not exceed the maximum levels and
that the market access conditions bound in Members' schedules are guaranteed. Ecuador further
submits that the implementation of PBSs also treats all Members to which the MFN tariff applies
without distinction, and applies equally to all goods classified under the same tariff subheading which
reach port within a period of time determined sufficiently in advance and with sufficient predictability,
independently of the country of origin, the import or export agent and the customs value of the
product. Ecuador concludes that this is clearly a tariff system and it will not therefore have had to be
tariffied since it complies with the letter and spirit of Article 4 of the Agreement on Agriculture. In
Ecuador's view, any PBS based on the relevant international agricultural product prices is as
predictable as regards the applicable tariffs as any other tariff-setting system, in that the tariff payable
depends on the customs value of the goods. It is Ecuador's opinion that a tariff-setting system which
clearly establishes the mechanism for modifying tariffs and furnishes adequate and timely information
on such changes should be considered predictable as regards the application of such tariffs. Moreover,
Ecuador adds, if such a mechanism for modifying tariffs is disassociated from the domestic market
conditions of the importing country and precludes discretionary intervention by the competent
authorities, the system is also highly transparent.
D. E
UROPEAN COMMUNITIES
5.17 In the European Communities' view, the most important question that the Panel should
address first, is whether the extension of Chile's definitive safeguard measure is properly before it.
The European Communities consider that the Chilean safeguard measure which is in force (the
definitive measure, as extended) is not a separate measure from the one on which consultations were
held, and in any event is properly before the Panel in accordance with the relevant provisions of the
DSU. The European Communities fully agree with Chile that no DSB action can to any extent modify
the provisions of the DSU, including those concerning consultations prior to dispute settlement. It is
the view of the European Communities that abidance by those provisions has however to be reviewed
also in the light of the other WTO provisions relevant in each particular case. The European
Communities contend that the issue of whether the extension of a definitive safeguard measure under
the Agreement on Safeguards constitutes the continuation of the original measure, or rather a different

measure, should be examined first of all in the light of Article 7 of the Agreement on Safeguards,
containing specific indications in this respect. The European Communities submit that the language
of Article 7.1, specifically the reference to one period of duration, already suggests that an extension is
not separate from the original measure, and that the only effect of an extension is to change its
duration or in other words extend "the period". Further, it adds, Article 7.2 dictates the conditions for
such extension to be decided, and allows Members to extend a definitive safeguard measure.
According to the European Communities, the reference in the wording to the measure (in force) in the
singular indicates that, in the mind of the drafters of the Agreement on Safeguards, Article 7.2 was not
to regulate the adoption of a new and separate measure, but simply refers to the possibility of
modifying "the period" of the same measure. In the same vein, the last sentence of Article 7.4 refers
to "[a] measure extended under paragraph 2". The European Communities submit that this is further
supported by Article 7.3 which, by determining the total duration of safeguard relief, that provision
makes a reference, on the one hand, to the "provisional measure", and, on the other hand, to the initial
application and extension of a (same) safeguard measure. The European Communities point out that
Article 7 includes the above language notwithstanding the fact that in order to authorize extensions it
requires the collection and evaluation of new data. Thus, the European Communities argue, the fact
that the extension is the result of the evaluation of different data compared to the original definitive
measure does not affect the categorization of the extension, contrary to Chile's contention. The
European Communities conclude that, even if, the continued duration of the measure requires a new
expression of will on the part of the domestic authorities, in the light of the clear wording of Article 7
this alone is not sufficient to make the relevant decision a new "measure". The European
Communities submit that if Chile was correct in arguing that the extension of its definitive safeguard
measure constitutes a separate measure from the one originally taken on 20 January 2000, by the very
adoption of such alleged separate measure Chile would be in breach of Article 7.5 of the Agreement
on Safeguards since it clearly results from the wording of this provision that a WTO Member cannot
apply two "separate" measures in a row on the same product or products. As a last remark on this
issue, the European Communities recall the obligation of progressive liberalization set out in
Article 7.4 of the Agreement on Safeguards which provides that if one and the same definitive
measure is extended, the period of extension is also subject to the "progressive liberalization"
obligation. The European Communities argue that if a Member could at pleasure categorise the
extension of a definitive measure as a separate measure, simply based on its domestic legislation, it
could effectively extend the duration of safeguard relief at full level by a series of allegedly "separate"
measures and thus easily escape the obligation of progressive liberalization.
5.18 The European Communities submit that even if the extension were a separate measure, it
would still be properly before the Panel. The European Communities explain that Chile relies on
several provisions of the DSU as well as on certain Appellate Body pronouncements which, in their
view, do not support Chile's contention. As to the DSU, the European Communities agree with Chile
when it points out that pursuant to Article 3.4 DSB recommendations and rulings aim at a satisfactory
solution of a dispute, and that pursuant to Article 3.3 a dispute arises when a Member's rights are
nullified or impaired by a measure taken by another. In the European Communities' view, there
appears however to be little doubt that all Chilean measures referred to by Argentina in its request for
Panel establishment were "taken". Likewise, the European Communities argue, it is correct that under
Article 3.7 of the DSU the main aim of the dispute settlement mechanism is to secure a positive
solution to a dispute, preferably through the removal of a measure found to be inconsistent with the
WTO. Chile does not dispute, however, that the extension of the definitive safeguard measure is in
force – so that, if required by WTO rules, it could be removed. As regards the Appellate Body
pronouncements referred to by Chile, the European Communities submit that they also do not support
Chile's objection. Chile first refers to Brazil – Aircraft in support of essentially a "due process rights"
defence and, in this case, does not support Chile's claim that review of the extension by the Panel
would violate such rights. The European Communities submit that, as in that case, the extension of
the definitive safeguard measure at issue in the present dispute concerns the same "matter" and, as
Chile expressly admits, corresponds exactly to the original definitive measure, apart from the duration.

According to the European Communities, it is thus clear that the matter and the applicable regime for
which the establishment of the panel was requested are the same as those on which consultations were
held. The European Communities contend that the responding party's rights of defence are therefore
in no way impaired. The European Communities explain that Chile further refers to the Appellate
Body report in United States - Import Measures on Certain Products from the European
Communities.548 However, the European Communities explain, the application of the very criteria laid
down by the Appellate Body in th at report would confirm that the extension of Chile's definitive
safeguard measure at issue in this dispute is not a separate and distinct measure from the one on which
the parties held consultations.
5.19 Further to receiving the news that the Chilean safeguard measure, as extended, was terminated
as far as imports of wheat and wheat flour are concerned, the European Communities note that, in its
view, the Panel is entitled to continue its review of Chile's safeguard measure, as extended, including
the parts of such measure which have been term inated. The European Communities assume that in
any event, those products continue to be subject to the price band system as such.
5.20 The European Communities recall that domestic authorities are under a duty to evaluate all
facts before them or that should have been before them in accordance with the WTO safeguards
regime.
549 In the European Communities' view, this broad obligation of the domestic authorities is
paralleled by a broad review that panels are called to exercise on safeguard measures. The European
Communities submit that the Panel is not limited in its review by the "record of investigation".
5.21 The European Communities submit that all the basic requirements for the adoption of
safeguard measures must be met and demonstrated before a safeguard measure is taken, and all must
be accounted for in the report of the competent authorities. The general issue raised by Chile's
measure, as extended, is that in a number of respects Chile's competent authorities failed to properly
examine and evaluate, or to examine and evaluate at all, whether the requirements for the adoption of
a safeguard measure were met. The European Communities submit that this consideration applies in
the first place to the decisions (Exempt Decrees) of the Ministry of Finance, which Chile identified as
its "measures" in its notifications to the WTO. In its view, those measures themselves simply
establish the type and duration of the safeguard relief accorded, and contain no reference or analysis
whatsoever of the underlying justifications. The same consideration largely applies to the
Recommendations of the Commission. The European Communities add that the decrees establishing
the provisional measure, the definitive measure and the extension, include no reference to either of
those Recommendations or to the Minutes of the Co mmission's investigation. Rather, each of those
decisions refers to a different document ( oficio reservado ) of the Commission's President. The
European Communities submit that it has not had the benefit of examining such oficios reservados
and it is not clear to the Community whether the Recommendations reprinted in the Minutes of the
meetings of the Commission of Distortions actually correspond to the "official communications"
referred to in the Decrees or not. If they do not, the European Communities cannot see how those
Recommendations may be examined as relevant basis for the decrees.
5.22 The European Communities submit that the safeguard measure taken and identified by Chile
does not include any "demonstration as a matter of fact" that certain circumstances constituted
"unforeseen developments". The same applies to the Recommendations of the Commission reprinted
in the Minutes of its meetings. The fact that Chile submits before the Panel that the time extension of
the downwards price trends on the international markets constitutes such "unforeseen development" is

548 The European Communities refer to the Appellate Body report on United States – Import Measures
on Certain Products from the European Communities ("US – Certain EC Products" ), (WT/DS165/AB/R)
adopted on 10 January 2001, Chile's First Written Submission, para. 87.
549 The European Communities refer to the Panel report on Korea – Dairy, (WT/DS98/AB/R) adopted
on 12 January 2000, as modified by the Appellate Body report, paras. 7.30-31, 7.54.

not capable of redressing a flaw in the competent authorities' determinations. The European
Communities explain that the imports analysis of Chile's authorities seems to have taken into account
not only the actual increase in imports observed, but also the fact that the operation of the price band
system has contained a greater increase. In the view of the European Communities, the "threat of
increased imports" is not the standard laid down in the WTO safeguard regime.
5.23 As regards Chile's analysis of the domestic industry, the European Communities submit that,
as a matter of principle the fact that an analysis of the competitive relationship between some of the
products subject to the safeguard measure may have been conducted for the adoption of the price band
system does not absolve Chile from fulfilling the requirements of the WTO safeguard regime and
conduct an investigation in accordance with those requirements. As regards Chile's analysis of the
serious injury or threat thereof caused by the increased imports, the European Communities submit
that even assuming that the Recommendation in Minutes of Session No. 193 forms part of Chile's
safeguard measure, the factors which must be examined under Article 4.2(a) of the Agreement on
Safeguards are disposed of in a few lines per type of imported product under investigation, simply
stating the conclusions at which the Commission arrived without any further explanation or
elaboration. Moreover, this does not address the issue of whether other "relevant factors" may have
existed and possibly be brought to the attention of the domestic authorities. There are even fewer
indications as concerns the causal relation between the increased imports and the serious injury or
threat thereof.
5.24 As regards the PBS, the European Communities take the view that assessing the violation of
Article II:1(b) of GATT 1994 is sufficient for the Panel to conclude that, by adopting and maintaining
its price band system, Chile has violated its WTO obligations. By its structure and design, that system
takes away the predictability as to the maximum amount of Chile's tariff protection, which the other
WTO Members thought they had achieved by negotiating tariffs with Chile. What is more, it alters
the balance of concessions carefully achieved through the Uruguay Round.
5.25 The European Communities submit that Article 4.2 prohibits the maintenance, after the entry
into force of the WTO Agreement, of pre-Uruguay Round measures "which have been required to be
converted into ordinary customs duties" (i.e. to be "tariffied"). It also prohibits the introduction
ex novo of the same types of measures, as well as their re-introduction. In the European Communities'
view, given that the obligations in Article 4.2 concern measures that had to be converted into ordinary
customs duties, it necessarily follows that measures which already fall within the definition of
"ordinary customs duties" do not need "conversion". As a result, the European Communities argue,
measures that are "ordinary customs duties" in the sense of Article II:1(b), as interpreted by the
Appellate Body, are not caught by the obligations of Article 4.2 of the Agreement on Agriculture.
The European Communities contend that a measure that would meet the test set out by the Appellate
Body in Argentina – Textiles and Apparel , and would therefore not be contrary to Article II:1(b) of
GATT 1994, would not be subject to any further obligation in Article 4.2 of the Agreement on
Agriculture. This conclusion stands even if the measure in question resulted in the application of a
"duty that varies" - inasmuch as this "variation" is maintained below the ceiling written in the
Member's tariff binding. Thus, the European Communities submit, the decisive element which
distinguishes an "ordinary customs duty" from a "variable levy" is the existence of a ceiling in the
tariff binding. The European Communities consider that the term "variable import levies" does not
include all "duties which vary" or all duties which vary according to certain parameters.
5.26 In response to a question from the Panel concerning the concept of ordinary customs duties,
the European Communities explain that, under GATT 1947, there seems to have been no agreement
among the contracting parties that the clause "ordinary customs duties" would be limited to particular
types of duties. The only indication in connection with that clause in the Analytical Index to the
GATT turns on a formal distinction, namely on whether a certain duty is or is not inscribed in the
columns of a contracting party's Schedules. The European Communities refer to Argentina – Textiles

and Apparel where the Appellate Body further clarified that the only limit imposed by Article II:1(b)
on the WTO Members relates to the maximum amount of tariff protection that they are allowed to
apply once they have a binding in their Schedules. The European Communities explain that the
Appellate Body excluded that, other than the requ irement of an upper limit on the amount of duties,
Article II:1(b) of GATT 1994 imposes any other limit, notably on the type of duty that can be
indicated in the column "ordinary customs dutie s". The European Communities submit that, even
under GATT 1947, it had been noted, in respect of variable duties:"[i]t is obvious that, if any such
duty or levy is imposed on a ‘bound' item, the rate must not be raised in excess of what is permitted by
Article II of the Agreement."
550 In the European Communities' view, it is clear that this position can
only be correct if it is first assumed that variable levies may fall within the scope of Article II of
GATT 1994.
5.27 In practice, the European Communities explain, the types of duties inscribed by the
contracting parties to GATT 1947 in the column "ordinary customs duties" of their Schedules have
greatly varied, including, inter alia, forms of duties commonly designed as "specific duties",
"ad valorem duties", "mixed" duties, and also tariff quotas. The European Communities submit that it
should however be clear that categories like "specific duties", or " ad valorem" duties are not given
legal relevance in Article II:1(b) of the GATT 1994, and are not in any way mandatory under such
provision. Accordingly, they do not in any way limit the liberty of WTO Members as to the device,
the mention of which, in the column "ordinary customs duties" of their Schedule, indicates how those
Members ensure that they will not exceed their bindings. The European Communities in particular
disagree that certain basic, if not simplified, definitions set out for the purposes of economic theory
may be of great assistance in identifying the content of legal obligations agreed upon by sovereign
WTO Members, if those Members did not incorporat e such definitions in the legal texts which they
agreed.
5.28 In the European Communities' view, the Chilean PBS is a measure that falls and can be
reviewed under Article II:1(b) of GATT 1994 as an ordinary customs duty. The European
Communities submit that the Chilean PBS does not always result in the application of an additional, or
"supplementary" duty to the one recorded in the "ordinary customs duty" column in Chile's Schedule.
Quite to the contrary, it argues, there are cases in which, depending on the import prices, the
"ordinary" duty is returned in full or in part. Therefore, the European Communities argue, the PBS
seems more a mechanism for the application of Chile's "ordinary customs duty" rather than a separate
and supplementary duty.
5.29 As regards the difference between "ordinary customs duties" and "other duties and charges",
the European Communities explain that Article II:1(b) also provides with respect to "other duties and
charges" that they cannot exceed a given amount, but gives no indication as to whether certain "types"
of duties would or would not be considered as "other duties and charges". The European
Communities submit that the similarity of language compared to that used for the "ordinary customs
duties" suggest that the second sentence of Article II:1(b) has to be read similarly to the first sentence,
that is, as only embodying an obligation not to exceed the amounts of "other duties and charges"
provided for in their domestic le gislation. The European Communities contend that, in practice, the
expression "other duties or charges" in Article II:1(b) has been deemed to cover measures such as
stamp duties, statistical fees, revenue fees.
551 As for the Understanding on Article II:1(b) of GATT
1994, while obliging Members to record their "other duties and charges" in their Schedule, on penalty

550 The European Communities refer to the Contracting Parties to the General Agreement on Tariffs and
Trade, Questions Relating to Bilateral Agreements, Discrimination and Variable Taxes , Note by the Executive
Secretary, L/1636, 21 November 1961, p. 3, para. 7 (also excerpted in Analytical Index to the GATT , 1995,
Vol. I, p. 72).
551 The European Communities refer to the Analytical Index to the GATT, 1995, Vol. I, p. 78.

of losing their right to apply such "other duties and charges" 552, the European Communities explain, it
does not limit the types of duties that can be scheduled as "other duties and charges". The European
Communities conclude that the difference between "ordinary customs duties" and "other duties and
charges" is mainly based on a formal criterion (that is, where in a Member's Schedule a "duty or
charge" is recorded), but is not based on a difference in the types of duties that fall under one or the
other category.
5.30 The European Communities consider that, as the principal obligation in the second sentence
of Article II:1(b) is to refrain from imposing "other duties and charges" in excess of those provided for
in domestic legislation (and, after the entry into force of the Understanding on Article II:1(b) of GATT
1994, in excess of those recorded in a Member's Schedule), these measures are also characterized by a
ceiling. It concludes that, as such, they cannot be assimilated to the measures referred to in footnote 1
to Article 4.2 of the Agreement on Agriculture, including the measures "similar" to those expressly
listed in the first part of the footnote The Euro pean Communities further explain that, given that a
separate obligation not to exceed the level of "other duties and charges" is laid down in Article II:1(b)
compared to that laid down for "ordinary customs dut ies", there is a separate ceiling for such "other
duties and charges". In the European Communities' view, the basic obligation not to exceed the
ceiling has not been changed by the Understanding on Article II:1(b) of GATT 1994, which simply
adds, for reasons of transparency, that the ceiling must be recorded in the Schedules.
5.31 The European Communities consider that the obl igation in Article 4.2 of the Agreement on
Agriculture is not "independent" of the one in Article II:1(b) of GATT 1994 insofar as the
interpretation of Article 4.2 is concerned. In fact the latter provision employs the same language
"ordinary customs duty", which also appears in Artic le II:1(b), without any specific definition of such
term being provided either in the Agreement on Agriculture or elsewhere in the WTO Agreement.
The European Communities submit that the term "ordinary customs duty" is only found in one
provision of GATT 1994, namely Article II and conclude s that it is therefore to that provision and to
its interpretation given over time that one must turn to understand the content of the main obligation in
Article 4.2. The European Communities admit that it is nonetheless correct that there is a distinct and
additional obligation in Article 4.2 of the Agreement on Agriculture, thus an added value compared to
Article II:1(b) of GATT 1994. The European Communities explain that that obligation is the
obligation to "tariffy" and not to revert, maintain or resort to measures that were required to be
"tariffied". In fact, Article II of GATT 1994 does not provide an obligation to eliminate certain forms
of import protection other than tariff protection, nor to limit tariff protection by binding maximum
amounts for agricultural products. The European Communities explain that it merely imposes, if and
when a Member has decided to place a maximum limit on its right to tariff protection by inscribing a
binding in its Schedule, that such a Member cannot come back on its decision (except of course by
fulfilling the requirements in Article XXV III of GATT 1994). According to the European
Communities, if a Member had not "tariffied" and then applied a variable import levy, it will in certain
cases violate Article 4.2 of the Agreement on Agricu lture without, however, simultaneously violating
Article II:1(b) of GATT 1994.
5.32 As regards footnote 1 to Article 4.2 of the Agreement on Agriculture ("similar border
measures other than ordinary customs duties"), the European Communities contend that this residual
list is important because it indicates that the list of measures which had to be "tariffied" (and which
cannot be reintroduced, maintained or introduced) is not exhaustive and because it implies that the
measures expressly listed in footnote 1 share some common feature (which in turn also has to be
shared by non-listed measures in order for these measures to fall under the residual clause), and that
the obligation to "tariffy" all those measures has a single rationale. The European Communities
submit that, setting aside "variable import levies", all measures listed in the first part of footnote 1

552 The European Communities refer to the Understanding on the Interpretation of Article II:1(b) of the
General Agreement on Tariffs and Trade 1994, paras. 3, 7.

have in common the effect of eliminating price competition, and of preventing imports. This indeed is
the effect of quantitative import restrictions, but also of minimum import prices, discretionary import
licensing, non-tariff measures through state trading enterprises, voluntary export restraints. The
European Communities recall that this feature was also highlighted in the debates on "variable levies"
under GATT 1947. In fact, "variable import duties" were criticized under GATT 1947 where they had
the capacity of always perfectly offsetting the difference in prices between imports and domestic
products, thus, the capacity of always eliminating imports' price competitive advantage vis-à-vis
domestic products, ultimately operating like a quantitative restriction. The European Communities
submit that these effects, however, are only characteristic of variable levy systems which can
"fluctuate" freely, without any upper limit. In fact onl y in that case will a variable levy system allow
exactly to offset import prices lower than domestic prices and thus operate like a quantitative
restriction. By contrast, the European Communities argue, a variable import levy with an upper limit
will not ensure perfect equalization of imports' and domestic products' prices in every case. There will
still be the possibility of imports at a price level with respect to which the application of the highest
possible duty within the upper limit does not fully eliminate the price differential compared to
domestic products. Therefore, the European Communities conclude, the reference, in footnote 1 to
Article 4.2 of the Agreement on Agriculture, to "variable import levies" to be tariffied, must be read as
a reference to variable levy systems which have the characteristic of eliminating price competition
between imports and domestic products and of operating as import restrictions – which, in turn, means
variable levy systems characterized by the absence of any upper limit to the maximum duty that may
result from their application. According to th e European Communities, Chile's price band system
does not always result in the perfect equalization of prices of imports and domestic products. In fact,
the European Communities explain, because there is a band, there is an upper limit beyond which the
duty resulting from the application of the system cannot increase any further – no matter how low the
import price. Therefore, the European Communitie s submit, in certain cases of particularly low
import prices (thus of particularly strong price competition), the duty cannot offset exactly the price
differential with domestic prices.
E. G
UATEMALA
5.33 Guatemala declares that it shares Argentina's view that, inasmuch as the price band system
implies the application of a tariff that exceeds the 31.5 per cent commitment by Chile or there is a risk
that this will occur, the price band system is inconsistent with obligations under Article II.1(b) of the
GATT 1994. As regards Chile's argument that the very low bound tariff, together with the drastic fall
in international prices for many agricultural products, explain to a large degree why Chile was forced
to resort to the safeguards, Guatemala submits that this clearly shows that Chile departed from the
legitimate object and purpose of the safeguard measure. As regards Chile's acknowledgement that it
deliberately decided to allow the price band to op erate at full regime, failing to comply with its
commitment, Guatemala concludes that Chile imprope rly used this safeguard measure as a tool to
provide a temporary solution to its violations of the WTO Agreements and thereby invalidate all the
action taken by the Chilean authority.
5.34 Guatemala considers that, even though Chile is trying to make the Member affected and all
Members of the WTO responsible for monitoring Chile's compliance with the Agreements, putting
forward in its defence acquiescence and estoppel, what is certain is that such a form of defence has not
been accepted in our dispute settlement system, according to which every Member of the WTO is
empowered to question measures by other Members that violate the WTO Agreements. Furthermore,
Guatemala adds, according to Article XVI:4 of the Agreement Establishing the WTO "Each Member
shall ensure the conformity of its laws, regulations and administrative procedures with its obligations
as provided in the annexed Agreements".
5.35 In general, Guatemala considers that both the imposition of the safeguard measure and its
extension fail to comply with some of the provisions of the Agreement on Safeguards. As regards the

concept of "unforeseen developments" in Article XIX of the GATT 1994, Guatemala submits that it
implies a pressing need for action that was possibly not foreseen or expected and this must be proved
by the competent authority. In Guatemala's view, this concept per se must be assessed. In
Guatemala's reading of the Appellate Body precedents, the Appellate Body appears to suggest two
circumstances that must be taken into account when demonstrating the unforeseen developments,
namely, an examination of the changes that may be considered an unforeseen development and an
explanation of that interpretation. In this case, Guatemala declares not seeing an indication that the
Chilean authority demonstrated the existence of an "unforeseen development" as required by
Article XIX of the GATT 1994. Moreover, it adds, we cannot see in which part of the administrative
file or with which resolution the Chilean authority complied by indicating that it had taken into
account the unforeseen development, as required by Chilean legislation itself in Article 17 of the
Regulations on the Application of Safeguard Measures (Decree No. 909). Hence, Guatemala supports
Argentina's claim that the Government of Chile acted inconsistently with Article XIX of the GATT by
not having demonstrated, prior to application of the safeguard measure, as a matter of "fact" the
existence of an "unforeseen development".
5.36 Guatemala considers that Article 3.1 of the Agreement on Safeguards lays down an obligation
that goes beyond the mere fact of making a file available to the public. It claims that simply
examining a file does not allow interested parties to know which questions of fact and law were
analysed by the competent authority when setting forth its findings and conclusions. Guatemala notes
that the Chilean authority did not comply either wi th the obligation to provide copies to interested
parties. Hence, Guatemala considers that the Government of Chile acted inconsistently with
Articles 3.1 and 4.2(c) of the Agreement on Safeguards inasmuch as the Chilean authority did not
comply with the obligation to publish a report or detailed analysis and simply provided access to the
public file or furnished "copies" thereof.
5.37 Guatemala contends that the first thing that the Chilean authority should have done prior to
imposing a safeguard measure was to determine whether imports of a particular product had affected
domestic producers of products that were "like" or "directly competitive" with that imported product.
Moreover, in this particular case, the investigatin g authority should have carried out such an analysis
for each of the products subject to the safeguard measure, namely, wheat, wheat flour and edible
vegetable oils. In Guatemala's opinion, even if the price band system operating in Chile took into
account each agricultural product and its corresponding like or directly competitive products, this does
not absolve the Chilean authority from carrying out its own analysis in order to comply with
Article XIX.1(a) of the GATT 1994 and Articles 2.1, 4.1(c) and 4.2 of the Agreement on Safeguards.
Guatemala contends that it could not find in any pa rt of Chile's submission "references" that would
allow it to find in the Minutes the analysis carried out by the Commission. Furthermore, Guatemala
submits, it is a matter for concern that none of the Minutes in the file (Minutes of Session No. 181 of
9 September 1999, Minutes of Session No. 185 of 22 October, Minutes of Session No. 193 of 7
January 2000, and Minutes of Session No. 224 of 17 November 2000) contain this analysis.
Accordingly, Guatemala supports Argentina's claim that the Government of Chile acted inconsistently
with Article XIX.1(a) of the GATT 1994 and Articles 2.1, 4.1(c) and 4.2 of the Agreement on
Safeguards. In Guatemala's view, the Minutes do not mention any analysis of the like or directly
competitive product that should have been carrie d out by the competent authority pursuant to the
aforementioned Articles. Likewise, and as a result of the foregoing, Guatemala considers that the
Chilean authority could not have determined which products constituted the domestic industry
because the entire evaluation which the Chilean authority made in relation to this concept is inevitably
wrong and cannot be remedied.
5.38 As regards the increased imports requirement, Guatemala considers that the periods examined
by Chile do not allow any proper conclusions to be drawn regarding the trend in imports. In this
regard, Guatemala explains that the Chilean authority sometimes evaluated short-term trends and in
other instances evaluated data corresponding to l ong-term trends. In Guatemala's view, evaluating

data in isolation or placing emphasis on some data corresponding to a particular number of years
while at the same time leaving aside other data for more recent periods can indubitably lead to errors.
Far from showing that there was an increase in imports, Guatemala contends, the Chilean authority
recognizes that, in recent periods, there has been a decrease in imports of products affected by the
safeguard measure. Guatemala further submits that the competent authority did not carry out a serious
analysis in order to determine that the "alleged increase" in imports was taking place "under such
conditions" as to cause or threaten to cause serious injury. Guatemala therefore supports the claim by
the Government of Argentina that the Government of Chile acted in a manner inconsistent with
Article XIX.1(a) of the GATT 1994 and Articles 2.1 and 4.2(a) of the Agreement on Safeguards.
5.39 Guatemala points out that Argentina claims that the determination by Chile of the existence of
threat of injury is inconsistent with Article 4.2(a) because the Chilean authority did not properly
evaluate "all relevant factors", as required by that Article . Guatemala agrees that the Chilean
authority did not evaluate "all relevant factors" since it could not find in the Commission's Minutes
any kind of evaluation of the relevant factors set out in Article 4.2. of the Agreement on Safeguards.
Although it is true there are isolated data or a stra ightforward list of some of these factors, Guatemala
submits, this does not mean that the Chilean authority complied with its obligation "to evaluate" these
factors, as required by Article 4.2. Guatemala further submits that Article 4.2 imposes on the Chilean
authority the obligation to provide a reasoned and adequate explanation of its determination. In the
Commission's Records, however, Guatemala finds no kind of explanation that would allow it to
understand the analysis and the criteria used by the Chilean authority in order to understand how such
factors confirmed its determination.
5.40 Guatemala supports Argentina's claim that the Chilean authority failed to comply with its
obligations under Article XIX.1(a) of the GATT 1994 and Articles 2.1 and 4.2(b) of the Agreement on
Safeguards for the following reasons: (i) in document G/SG/Q2/CHL/5 of 27 September 2000, Chile
indicates that the cause of the injury was the significant fall in international prices. This statement can
be found in several parts of the administrative file. In Guatemala's view, the Chilean authority was
obliged to examine "other factors", which were referred to by various parties during the administrative
proceedings. However, Guatemala contends, the file does not contain any analysis by the Chilean
authority showing that it examined these "other fa ctors" mentioned during the procedure. (ii) the
Chilean authority did not make a "determination" within the meaning of Article 4.2(b) because it did
not manage to establish the existence of a causal link between the increased imports and the injury or
threat of serious injury. In Guatemala's view, the Chilean authority did not undertake an evaluation of
the "other factors" and therefore was not empowered to determine or to ensure that the alleged injury
or threat of injury was attributable to the increased imports. Guatemala concludes that the Chilean
authority could not find that the "alleged increase in imports" was the cause of the injury or threat of
injury.
F. J
APAN
5.41 Japan is concerned with the consistency of Chile's measures with relevant WTO rules on
several points. Japan indicates that there is a possibility that taxes or surcharges in excess of Chile's
bound tariff rate agreed in the Uruguay Round may be imposed under this PBS on its face. Japan
further indicates that it is not necessarily clear whether the following basic requirements for applying
safeguard measures are fulfilled so that, as the Chilean Government insists, such measures are
justified: (a) the demonstration of the existence of unforeseen developments; (b) the proof of a causal
link between increase of imports and serious injury; and (c) the proper definition of "like or directly
competitive products" and "domestic industry." In this regard, Japan argues that, although the
existence of a directly competitive relationship between materials (primary products) and final
products (in this case, wheat and wheat flour) seems not to be demonstrated, producers of the both
products are included in the "Domestic Industry" in the meaning of Article 4.1(c) of the Agreement of
Safeguards.

5.42 Furthermore, Japan notes that the Agreement on Safeguards does not allow a Member to
adopt safeguard measures before the investigation. In any event, Japan submits, careful consideration
is called for in order to ensure that the measures inconsistent with Article II:1(b) of the GATT 1994
are not justified as measures taken under the Agreement on Safeguards.
5.43 Japan is of the view that Article 4.2 of the Agreement on Agriculture does not regulate the
tariff level but prohibits certain forms of border measures other than ordinary customs duties, except
as otherwise provided for in Article 5 and Annex 5 of this Agreement. Thus, Japan considers, insofar
as a measure does not fall into such measures so regulated by Article 4.2, the measure does not give
rise to violation under Article 4.2 of Agreement on Agriculture.
5.44 According to Japan, since Chile made tariff concessions for wheat, wheat flour and edible
vegetable oils in the Uruguay Round, Article II:1(b) of the GATT 1994 does not allow Chile to levy
ordinary customs duties in excess of those set forth and provided for in Chile's Schedule of
Concessions. While Article II:1(b) of the GATT 1994 also provides for "other duties or charges", if
the "specific duty" based on the Chilean PBS is not set forth as "other duties or charges" in the
Schedule, Japan is of the view that it is inconsis tent with Article II:1(b) of the GATT 1994 to the
extent that the applied rate inclusive of the added "specific duty" exceeds the bound rate of
concessions.
G. P
ARAGUAY
5.45 Paraguay considers that when a bound tariff has been recorded in a Member's Schedule, this
tariff constitutes the maximum limit of duties that can legally be applied to the products bound.
Paraguay agrees with the Appellate Body's statement in Argentina – Textiles and Apparel553 regarding
the structure and form of the measure inasmuch as it considers that, although in certain cases the
implementation of Chile's price band system does not violate its obligations under the Agreements, on
other occasions the system jeopardizes the rights of other Members, and so automatically becomes
inconsistent with the Agreements. Paraguay refers to Chile's statement to the effect that the sharp and
sustained fall in international prices of the agricultural products made it no longer possible to maintain
the system without exceeding the level of bound dutie s and declares that this appears to suggest that
Chile had failed to comply with its obligations under Article II of the GATT 1994.
5.46 Paraguay also claims that Chile has not provided any solid legal grounds for its statement that
the PBS is not a variable import levy nor a similar border measure within the meaning of footnote 1
and that it does not come under the scope of Article 4.2 but is rather a specific tariff that fluctuates
according to external factors. Paraguay is of th e opinion that, even though it is not specifically
mentioned in the text, Chile's price band system is one of the measures which the drafters of
Article 4.2 of the Agreement on Agriculture, and in particular of footnote 1, were seeking to prevent.
5.47 As regards Chile's safeguard measures, Paraguay finds that, if the PBS was fully applied in
Chile in order to maintain a stable domestic pric e, away from the fluctuation of products in global
markets, the argument that the rapid fall in global prices had caused or threatened to cause serious
injury to Chilean producers is inconsistent. Paraguay declares that, by recognizing that the measures
in force in Chile are being analysed by this Panel, it is tacitly concluding that they are merely an
extension of the original measure, and that Chile's argument that the extension is a different measure
is out of place because neither the nature nor the characteristics of the original measure have altered -
there has merely been an extension of the implementation period. Paraguay further submits that Chile
adopted the safeguard measures after it had infringed its bound tariffs by applying the price band
system. In Paraguay's view, this means that it used the safeguard measures as a mechanism for

553 Appellate Body report on Argentina – Textiles and Apparel (WT/DS56/AB/R) adopted 22 April
1998, DSR 1998:III, 1003, para. 62.

legalizing those violations, contrary to both the objective and nature of such measures. At the same
time, Paraguay considers that Chile has not acted in accordance with Article XIX of the GATT 1994,
since it failed to demonstrate the existence of unforeseen developments prior to applying the safeguard
measure. Paraguay further submits that Chile has not convincingly demonstrated injury or threat of
injury caused by increased imports. Paraguay considers that such injury or threat thereof can be
imputed to other factors, for example international product prices, and this is clearly proscribed in
Article 4.2(b) of the Agreement on Safeguards.
H. U
NITED STATES
5.48 The United States disagrees with the interpretation of Article 4.2 of the Agreement on
Agriculture advanced in Chile's first submission. According to the US, Chile's argument is two-fold:
(1) the price band regime is not a "variable import levy" within the meaning of Article 4.2 and,
therefore, is not proscribed by Article 4.2 and (2) even if it is a variable levy, the system was not
"required to be converted into ordinary customs duties" during the Uruguay Round tariffication
exercise and, hence, is not in violation of Article 4.2. As regards the second argument, the United
States considers that it raises a fundamental interpretive issue regarding Article 4.2. According to the
US, Chile effectively reads Article 4.2 as only prohibiting Members from using "any measures that
have been converted into ordinary customs duties." According to this argument, if an agriculture-
specific non-tariff barrier existed at the time of the Agreement on Agriculture's entry into force, but
was not "converted" into a tariff at that time by a Member, then the measure must not "have been
required to be converted" and, accordingly, falls outside the scope of Article 4.2's prohibition. The
United States submits that this strained reading of Article 4.2 ignores key parts of the text as well as
the object and purpose of the provision. The United States explains that, read according to its ordinary
meaning, Article 4.2 imposes a general requirement to eliminate and refrain from using or readopting
any agriculture-specific non-tariff barriers and to use a system of tariff-only protection. Therefore, the
United States argues, if the Chilean PBS is a variable import levy, it (and all other variable import
levies) is prohibited by the express language of Article 4.2 and its accompanying footnote, regardless
of whether Chile actually tariffied the levy in its Schedule of tariff commitments. In the United States'
view, Chile's interpretation of Article 4.2 fails to give all of the terms of that provision "meaning and
effect" and does not read those terms according to their ordinary meaning. One phrase that Chile
quotes but then disregards is "of the kind." The United States claims that, according to its ordinary
meaning, "kind" refers to a "class, sort, or type," indicating that Article 4.2 prohibits general classes,
sorts, or types of non-tariff measures, not simply those particular, country-specific measures that were
actually tariffied in the Uruguay Round. According to the US, Chile's interpretation not only denies
meaning to the phrase "of the kind," it also renders inutile the verb "maintain." The United States
submits that if the only measures that Article 4.2 prohibits are non-tariff barriers that were, in fact,
tariffied in the Uruguay Round, then the language in Ar ticle 4.2 that Members shall not "revert to"
such measures would suffice. Thus, Chile's reading contravenes the general rule of treaty
interpretation that no terms of a treaty (in this case, "maintain" and "resort to") shall be reduced to
redundancy or inutility. The United States argues that the requirement that a Member shall not
"maintain" a prohibited measure contemplates that there could be some measures "which have been
required to be converted into ordinary customs duties" that were not, in fact, converted . The United
States submits that such measures, even if they had not been converted, would still be prohibited and
actionable under Article 4.2.
5.49 The United States also disagrees with Chile's assertions that its measures are immunized from
challenge because (1) its price band system has not previously been challenged and (2) other Members
allegedly use similar measures. The United States submits that, according to paragraph 3 of the
Marrakesh Protocol, there is no waiver of Members' rights to challenge Chile's variable import levy
merely because Chile submitted its Schedule for multilateral examination. The United States further
submits that Chile's (or other Members') use of WTO-inconsistent measures does not rise to the level
of "subsequent practice" that establishes the parameters of Article 4.2's prohibition.

5.50 As regards Chile's second argument, the United States submits that Chile's price band regime
clearly falls within the ordinary meaning of the term "variable import levies" as used in footnote 1 to
Article 4.2 when interpreted in light of its context, object and purpose. The price band mechanism
varies the import levy assessed depending on the relationship between historical and current world
prices. Chile has not offered any interpretation of the ordinary meaning of "variable import levy" that
demonstrates that its price band regime is not encompassed by this term. However, the United States
does not fully subscribe to Argentina's definition of a variable import levy as an import surcharge that
"ensures" that the domestic market price "remains unchanged regardless of price fluctuations in
exporting countries." In the US' view, variable import levies may be effected through a number of
possible mechanisms, which may or may not "ensure" a specific domestic price. It further adds that a
variable levy, however it is designed, prevents or ameliorates price variability in the domestic market
caused by movements in import prices. The United States argues that Chile's price band regime does
exactly that by calculating the import levy as the difference between a present "target" price and a
current world price.
5.51 The United States defines a variable levy as an "assessment, duty, or tax" that has "different
values in different instances or at different times " as determined by an administrative, formulaic
mechanism. This mechanism, it explains, defines parameters based on any number of exogenous
factors, such as a target price (e.g., historical world prices) and a current price (e.g., a reference price),
to set the levy. The levy at any particular point in time is determined on the basis of those exogenous
factors so as to prevent or ameliorate price variability in the domestic market caused by movements in
import prices. The United States also defines a minimum import price as a similar mechanism
whereby the price of each import shipment is compared to an officially established "minimum import
price," often based on an internal domestic support price. The United States explains that where the
declared value (i.e., transaction value) of the specific shipment is lower than the minimum import
price, a penalty, additional charge, or duty is often then assessed, which may be equal to the difference
between the minimum import price and the declared value.
5.52 The United States claims that Chile's argument to the effect that its price band mechanism
cannot be a variable levy because it is not identical to the EC's pre-Uruguay Round variable levy
regime actually serves to highlight the price band system's operation as a variable import levy. The
United States explains that the main distinctions that Chile points to are that its system uses a moving
five-year average "band" of past world prices to establish a minimum (and maximum) target price,
whereas the EC's prior variable levy system used an internal European Communities price to set the
target price, and that the price band system uses a current international reference price, whereas the
European Communities system used a shipment-specific invoice price. The United States submits that
these are distinctions without a difference since how Chile sets its target price and current price does
not fundamentally distinguish its regime. Rather, the United States argues, it is the fact that the levy
varies based on exogenous factors, such as world prices, not the particular factors used to determine
the levy amount, that defines the price band mechanism as a variable levy. The United States adds
that another distinction Chile draws is that, unlike the prior European Communities variable levy
regime, the price band system permits low-cost foreign producers to compete on the basis of price.
The United States contends that, while it is te chnically true that the system does not completely
eliminate price competition, this does not fully capture the economic impact of Chile's price band
regime. The United States explains that, when international prices decline, the variable levy assessed
under Chile's price band regime exacts a higher duty, on an ad valorem basis, on low-cost goods than
it does from high-cost goods. Thus, the United States argues, the prohibition on variable import levies
in Article 4.2 serves to eliminate the disproportionate impact of these measures on low-cost producers.
The United States contends that Chile's definition of "ordinary customs duty" would also capture the
EC's prior variable import levy, which was a specif ic duty that fluctuated, in part, on the basis of
external world price factors. Thus, Chile's definition cannot be accepted as it does not distinguish the
very European Communities measure that Chile has conceded is a prohibited "variable import levy."
The United States submits that the term "ordinary customs duties" is generally recognized to refer to

specific duties that are based on a physical quantity or measure of imported product or ad valorem
duties that are based on a fixed percentage of the value of the imported product. It concludes that such
ordinary customs duties do not vary based on world and/or domestic prices.
5.53 The United States submits that, even if the Panel were to conclude that Chile's price band
mechanism is not a "variable import levy," the price band regime is a "similar border measure" that is
prohibited under footnote 1 to Article 4.2. The United States contends that, due to the similarities in
both structure and effect between Chile's price band system and measures recognized by Chile as
being variable import levies, the Chilean regime must at least be a prohibited "similar border
measure."
5.54 In response to a question from the Panel, the United States submits that, pursuant to the
customary rules of interpretation of international law, which are reflected in Article 31(1) of the
Vienna Convention, the duty of a treaty interpre ter is to determine the meaning of a term in
accordance with the ordinary meaning to be given to the term in its context and in light of the object
and purpose of the treaty. Accordingly, the term "o rdinary" should be defined in accordance with its
ordinary meaning in its context in Article II:1(b). The United States explains that the dictionary
definition of "ordinary" is "belonging to the regular or usual order or course; . . . occurring in the
course of regular custom or practice; regular, normal, customary, usual."
554 The United States
indicates that, in its context as an adjective of "customs duty," the term can be understood to refer to
those types of customs duties that have been the customary, usual types of customs duties used by
Members. The United States submits that the regular, normal forms of customs duties used in
international trade (both now and at the time of the Uruguay Round) are the ad valorem duty and the
specific duty (or compound rates based on combinations of the two). It contends that a review of
Members' domestic tariff schedules (including Chile's) would reveal that the "regular, normal,
customary, usual" forms of customs duties expressed therein are ad valorem or specific duties. The
United States notes that this understanding of "ordinary customs duties" was apparently expressed
during the process of tariffication in the Uruguay Round in which border measures other than ordinary
customs duties were converted into tariff equivalents. 555 Thus, "ordinary customs duties" are
ad valorem and/or specific customs duties inscribed in a country's domestic tariff schedule with a rate
expressed for each individual tariff heading.556
5.55 Finally, the United States notes that Chile's domestic tariff schedule confirms that the levy
imposed through Chile's price band mechanism is not an "ordinary customs duty." It explains that for
all Chilean products, even those on which it imposes price bands, under the column labelled "duties,"
the Chilean tariff schedule shows only an ad valorem rate. For products subject to price bands,
however, the product description following the tariff number indicates a footnote. The United States
points out that the footnote text discloses that an additional "specific duty" is imposed (no rate is
specified) and refers to the decree then in effect. However, it adds, such decrees only establish the
price band mechanism, that is, a list of international reference prices with the corresponding additional
duty to be charged. The United States submits that an importer seeking to ascertain what duty would
be imposed on imports would also have to know the Chilean customs authority's weekly determination
of the current international reference price. Thus, it concludes, the rate of customs duty imposed
through the price band mechanism is neither disclosed by Chile's national tariff schedule nor disclosed
by the decree establishing the price band mechanism. The United States indicates that this
complicated levy mechanism differs importantly fr om "ordinary customs duties" in its lack of
transparency and definiteness.

554 The United States refers to The Oxford English Dictionary, p. 912 (2d edition).
555 The United States refers to the Framework Agreement on Agriculture Reform Programme, Draft
Text By the Chairman , Multilateral Trade Negotiations, The Uruguay Round, Group of Negotiations on Goods,
Negotiating Group on Agriculture, MTN.GNG/NG5/W/170, 11 July 1990, p. 8.
556 The United States refers to the GATT Analytical Index, § II.A.2(3), p. 78 (1995 ed.).

5.56 In response to a question by the Panel, the United States suggests that the category of "all
other duties and charges of any kind" in Article II:1(b) of GATT 19994, second sentence cannot
usefully be defined "positively". It submits that the very use of the term "all other" means that this
category of duties and charges must be described "n egatively," that is, in terms of what it is not.
According to the US, this category consists of all import duties and charges "of any kind" that are not
"ordinary customs duties." The United States further notes that "all other" duties or charges are
generally prohibited under Article II:1(b), second sentence, and the Understanding on the
Interpretation of Article II:1(b) of the GATT 1994 unless they have been separately inscribed in a
Member's Schedule in accordance with the Understanding. The United States also indicates that it is
conceivable that some "similar border measures" within the meaning of footnote 1 to Article 4.2 of the
Agreement on Agriculture might in some circumstances be considered "other duties or charges of any
kind" within the meaning of Article II:1(b), seco nd sentence, of GATT 1994, provided that any such
measure constitutes a duty or a charge and is imposed "on or in connection with the importation" of a
product. However, it explains, the Understanding on the Interpretation of Article II:1(b) of the GATT
1994 requires such a "similar border measure" that is an "other duty or charge" to be inscribed in a
Member's Schedule. In this regard, the United States considers it relevant to note that Chile has not
recorded any such "other duty or charge" for wheat, wheat flour, or edible vegetable oils. The United
States is of the opinion that a Member generally may not impose an "other duty or charge" at all
unless it is bound in the Member's schedule. It explains that if such a duty or charge is omitted from a
Schedule a Member may not subsequently add such duties or charges to its Schedule.
5.57 In response to a question by the Panel, the United States indicates that it considers it neither
essential nor necessarily helpful to designate a degree of similarity that is required to be met in order
for a measure to qualify as a "similar border measure." The notion of degree of similarity is, the
United States believes, intrinsic to the term itself an d is to be taken into account in the determination
of whether something is "similar" or not similar. The United States notes that the plain text of
footnote 1 does not further modify the term similar, e.g., "very similar" or "somewhat similar." The
United States explains that the ordinary dictionary meaning of "similar" is "having a marked
resemblance or likeness; of a like nature or kind."
557 Thus, it contends, a measure at issue should
"resemble" the mechanics, structure, and operation of a listed measure. The United States submits
that whether the measures share sufficient characteristics with each other to qualify as being "similar"
to each other is a matter that must be determined on a case-by-case basis according to a Panel's best
judgement. The United States argues that in interpreting the term "similar border measures," it is
important to look to the object and purpose of Article 4.2 and footnote 1. Article 4.2 prohibits any
and all measures that have been required to be converted into ordinary customs duties, regardless of
the degree to which such measures disadvantage imports. The United States considers that two of the
goals of Article 4.2's tariffication process were the achievement of transparency in import barriers and
the advantage of fixed tariffs for the promotion of trade in agricultural products. Thus, in the US'
view, when determining whether a measure is a "similar border measure," it is enough that the
measure is similar to a listed measure in its mechanics, structure, and operation, regardless of its
efficacy. Finally, the United States notes that footnote 1 states that "these measures include" the listed
measures and "similar border measures." Thus, it concludes, the identified measures and "similar"
border measures of footnote 1 are not an all-inclusive list of the measures that have been required to
be converted into ordinary customs duties. According to the US, measures that are not "similar" to the
specifically listed measures could still be prohibited by Article 4.2.
5.58 The United States agrees with Argentina's claim that Chile's price band system, as
implemented through laws, regulations, and "complimentary provisions and/or amendments," is
inconsistent with Article II:1(b) of the GATT 1994. The United States argues that Chile concedes in
its First Submission that the price band system will result in a breach of its tariff bindings if
international prices are sufficiently low but seeks to excuse the breach on the basis that its

557 The United States refers to The Oxford English Dictionary, p. 490 (2d edition).

Government consciously took the decision to allow the price bands to operate in full trespassing the
bound rate The United States submits that this concession should itself suffice for the Panel to find a
breach of Article II. The United States notes that the deliberateness of the breach is irrelevant because
Article II is concerned not with good or bad intentions but with the "treatment" accorded to the
commerce of another Member. The United States concludes that because violations of Chile's bound
rates may occur and have occurred precisely because of the "structure and design" of the price band
system, such as Chile's failure to cap the specific duties that could be applied to particular shipments,
the price band system is inconsistent with Chile's obligations under Article II. The United States
further submits that the price band system is mandatory, does not impose any ad valorem cap on the
duties that can be collected on a particular shipment, and continues in effect to this day. Thus, it
argues, regardless of the operation or legal status of Chile's safeguard measures, Chile continues to
apply measures that are inconsistent with its tariff bindings under Article II.
5.59 In response to a question by the Panel, the United States disagrees with the implied assertion
in the European Communities' oral statement to the ef fect that a measure that is not inconsistent with
Article II of GATT 1994 cannot be prohibited unde r Article 4.2 of the Agreement on Agriculture.
According to the United States, the statement of the European Communities suggests that Article II
would delimit the "scope of Article 4.2" but this reverses the proper order of the analysis. The United
States is of the opinion that Article 4.2 must be interpreted first as the lex specialis applicable to
"measures of the kind which have been required to be converted into ordinary customs duties" that are
applied to agricultural products. The United States concludes that because price bands are a "variable
import levy" or "similar border measure", they are prohibited under the terms of that provision, which
makes no reference to the existence of a tariff binding. The United States explains that Article II:1(b)
allows a Member to assess ordinary customs duties not in excess of the level bound in its Schedule.
However, it argues, the levies assessed by the Chilean PBS are not "ordinary customs duties."
Therefore, the United States concludes, the Euro pean Communities' assertion that the Chilean price
bands are being "maintained" under Article II of GATT 1994 cannot be credited. The United States
further indicates that, contrary to the EC's assertion that a tariff binding is all that separates a variable
import levy from an ordinary customs duty, the Agreement on Agriculture draws a marked distinction
between the two. The United States explains that Article 4.2 sets the scope of its prohibition as
"measures of the kind which have been required to be converted into ordinary customs duties," and
footnote 1 identifies one such measure as the "variable import levy." Thus, in its view, any valid
interpretation of Article 4.2 must make sense of that distinction.
5.60 In response to a question by the Panel, the United States considers that Members have the
right to alter their ordinary customs duties on items so long as those duties do not exceed the relevant
tariff binding. It clarifies that this is different, however, from a variable levy, where the value of the
levy is not set and then altered in succession. The United States submits that because the variable levy
mechanism creates impediments to trade regardless of whether a tariff binding is exceeded, Members
agreed in the Agreement on Agriculture to refrain from maintaining, resorting to, or reverting to
variable import levies and similar border measures.
5.61 As regards Chile's safeguards measures, the United States submits that competent authorities
must base their determination concerning increased imports on objective (i.e., unbiased) data and that
they should consider carefully data from the more recent past in the context of examining the entire
period of investigation. The United States claims that both Argentina and Chile appear to be relying
in their submissions on information that was not in the Minutes compiled and considered by the
Chilean competent authorities. In the United States' view, such extra-record information should not be
considered by the Panel in this dispute. The United States explains that the review of the serious
injury determination of a competent authority is to be conducted based on the information that was
before the authority at the time of its investigation. The United States submits that by relying on new
information that was never before the Chilean competent authorities, both Argentina and Chile would
have this Panel become another authority before which evidence could be submitted on the underlying

facts. The United States is of the opinion that, in that case, the process would be exactly the de novo
review which has been condemned by the Appellate Body. The United States further submits that, in
considering Argentina's claims regarding Chile's provisional safeguard measure, the Panel should keep
in mind that Article 6 of the Agreement on Safeguards places a special obligation on a party imposing
a provisional safeguard – that there be "clear evidence that increased imports have caused or are
threatening to cause serious injury". The United St ates explains that "clear" means "[e]asily seen ( lit.
& fig. ); distinctly visible; intelligible, perspicuous, unambiguous; manifest, evident."
558 Thus, the
United States argues, if the Panel concludes that the evidence upon which Chile relied for its
provisional measure was ambiguous, the Panel should find that measure to be inconsistent with the
Agreement on Safeguards. The United States points out that, in performing this evaluation, the Panel
should note that the Article 6 standard is different from, and distinctly higher than, the standard
Article 4 requirements for imposition of a definitive safeguard measure. In this regard, the United
States submits that mixed evidence might be sufficient to support a definitive safeguard measure, but
still be insufficient to support a provisional measure.
5.62 The United States further argues that Chile is mistaken in treating the extension as an entirely
new measure. However, it adds, Article 7.2 also establishes that Articles 2 through 5 regulate the
procedures used in an extension proceeding. The United States explains that Article 7.2 itself
provides the substantive standard, which conflicts in important ways with the substantive requirements
of Articles 2 through 5. Thus, the United States concludes, Argentina errs in arguing that Chile was
obligated to satisfy the substantive requirements of Articles 2.1 and 4.2 of the Agreement on
Safeguards that imports be increasing before extending its safeguard measures.
I. V
ENEZUELA
5.63 Venezuela agrees with Argentina that preservation of the commitments made within the
framework of tariff negotiations is a key element of the multilateral system and that the principle of
predictability and certainty of tariff concessions granted has been recognized in a number of
precedents as a fundamental part of the structure of the GATT/WTO system. Venezuela does not
however agree with those who interpret Members' obligations under Article II:1(b) of the GATT 1994
as requiring a constant tariff. Venezuela is of the opinion that, provided that the ceiling established by
the bound tariff in Members' respective Schedules of commitments is not exceeded, the fluctuation in
either direction and with greater or lesser frequency of the tariff actually applied to imports does not
constitute a violation of Article II:1(b) of the GATT 1994, nor does it affect the predictability or
certainty of the tariff concessions.
5.64 Venezuela is of the opinion that, to settle this dispute, the Panel needs to take into
consideration what was meant by variable levies at the time of the negotiation of the Agreement on
Agriculture. Venezuela believes that the term "variable levy" in footnote 1 to Article 4.2 of the
Agreement on Agriculture refers to levies design ed to cover the difference between the price of
imports at the border and an official price below which foreign goods cannot be admitted. This
implies, it argues, a different tariff for each import, even where applied to identical products at the
same time. Venezuela considers that there are significant differences between these "variable levies"
and the variable duties resulting from PBS. These differences, it explains, relate to both the objectives
and nature of these two types of measures: whereas the objective of the variable levies which in our
opinion are proscribed by footnote 1 to Article 4.2 of the Agreement on Agriculture was to "insulate"
the domestic market from fluctuations on the international market, the objective of PBSs is to stabilize
domestic prices by in fact passing on the trends in the international prices of the products concerned
for a specific period. Venezuela stresses that particularly low international prices might lead to a tariff

558 The United States refers to The New Shorter Oxford English Dictionary , vol. 1, p. 414 and explains
that the entry for the adjective "clear" contains 15 definitions. The quoted text is the definition most clearly
applicable to "evidence."

increase up to the bound level in each Member's schedule of commitments, but high international
prices can lead to a tariff reduction.
5.65 In response to a question by Argentina, Venezuela stresses that PBSs may be set up
differently from the one used by Chile, and may be compatible with WTO rules. It is Venezuela's
understanding that the Chilean PBS, as it currently ope rates, can in certain circumstances result in the
application of specific duties to products subject to the system. Specific duties, Venezuela explains,
consist in a specific amount collected for a given quantity (unit/kilo/litre) of the imported good, and
are not based on the value of the good. Thus, it concludes, as Argentina in fact points out in its
question, the transaction value is not used to determine the amount of the specific duties. Venezuela
submits that specific duties are permitted under WTO rules, and are applied by certain Members, to
agricultural goods in particular.
5.66 In response to a question by the Panel regarding the definition of ordinary customs duty,
Venezuela explains that the Kyoto Convention defines customs duties as "the duties laid down in the
Customs tariff to which goods are liable on entering or leaving the Customs territory". Venezuela
further explains that the term "ordinary", as translated into Spanish (" propiamente dicho"), means "as
such", which amounts to repeating the above definition. Venezuela indicates that a distinction must
be made between duties and charges such as those involved in paying a service (freight, insurance,
customs service fee), and ordinary customs duties, which are fiscal contributions collected by Customs
on goods from another country. Venezuela explains that what distinguishes an "ordinary customs
duty" from a "variable duty" is not the existence of a bound "ceiling" or maximum applicable level
according to each party's schedule. In Venezuela's opinion, a customs duty is valid in the WTO as
long as it does not exceed the indicated "ceiling", while the "variable levy", which is prohibited by the
footnote to Article 4.2 of the Agreement on Agriculture, is a levy which involves a different tariff for
each import transaction, even for identical products at the same time.
5.67 In response to a question by the Panel, Venezuela explains that "similar border measures other
than ordinary customs duties" within the meaning of footnote 1 to Article 4.2 of the Agreement on
Agriculture cannot be considered "other duties or charges of any kind" within the meaning of
Article II:1(b), second sentence, of GATT 1994. Venezuela contends that the obligations established
by the two Articles are different.
VI. INTERIM REVIEW
6.1 The Panel issued its interim report on 21 February 2002. On 28 February 2002, Chile
provided comments and requested the revision and clarification of certain aspects of the interim
report. Chile also requested that the Panel hold a further meeting with the parties pursuant to Article
15 of the DSU and paragraph 16 of the Panel's Working Procedures. Argentina provided general
comments in a letter dated 28 February 2002. The Panel held a meeting on 14 March 2002. Both
parties made oral statements and were given the opportunity to provide written statements by close of
business the next day.
559

559 At the beginning of the meeting, Chile complained that the Panel had impaired Chile's rights of
defense and due process, by (1) not having postponed the first substantive meeting with the parties as requested
by Chile; (2) having given insufficient time for preparation of written comments on the interim report; (3)
having one Panel member participating in the interim review meeting through a telephone link, rather than
through physical presence; and (4) organizing a session of limited duration as a result of a Panel member's
scheduling constraints.
The Chairman of the Panel responded to Chile's comments at the meeting that the Panel had shown
maximum flexibility towards both parties throughout the proceedings and had always tried to accommodate
requests for schedule modifications by both parties and in agreement with both parties. Indeed, all requests
made by the parties at the organizational meeting were met. With regard to the postponement of the first

6.2 With regard to paragraphs 7.3 to 7.8 of the interim report, Chile argued that a distinction must
be drawn between Articles 1 and 2 of Law 19.722. According to Chile, Article 2 is the provision that
expressly and conclusively states that the total of the specific duties resulting from application of the
price band system and the general ad valorem (most-favoured-nation) tariff may not exceed the bound
tariff. Chile submits that this provision does not require any further implementation as it is a law and
as such applies in Chile as of its publication in the Diario Oficial de la República de Chile , which
occurred on 19 November 2001. Chile argues that the case of Article 1 of this Law is different in that
it has to be implemented by the customs authoritie s, who took an active part in the elaboration,
discussion and drafting of this Law. This implementation took effect at the same time as the
publication of the Law, in the form of Exempt Resolution No. 4326, published in the Diario Oficial de
la República de Chile on the same date as Law 19.722, i.e. 19 November 2001. Argentina responded
that Chile did not inform the Panel about the existence of Exempt Resolution No. 4326 prior to the
interim review meetings, and that Argentina could therefore not have been aware of this Exempt
Resolution.
6.3 We note that Chile did not request any specific action by the Panel in this respect and, taking
note of the late submission of this evidence by Chile, we consider that no changes to the interim report
are warranted by Chile's comments.
6.4 With respect to paragraphs 7.17, 7.18 and 7.19, Chile argued that the Panel is mistaken in
attributing to Chile the argument that the fact that the PBS was not challenged or that there were no
requests to tariffy the measure, either during or after the Uruguay Round negotiations (particularly on
the Agreement on Agriculture), means that the PBS cannot be challenged or considered a measure
prohibited by Article 4.2. According to Chile, it had argued that the absence of any challenge or
request, before, during or after the negotiations is valid evidence in support of Chile's position
regarding the correct interpretation of Article 4.2. Chile therefore requests the Panel to reformulate or
delete these paragraphs. Argentina considered that the Panel had correctly understood and reflected
Chile's arguments, and cited a passage in Chile's rebuttal submission which it considered to confirm
this understanding.
6.5 In paragraph 7.17 we summarize Chile's interpretative argument regarding Article 4.2 as
follows:
Chile argues that the phrase "of the kind which have been required to be
converted" and the illustrative list in footnote 1 contain two separate
conditions to be met for a measure to be prohibited under Article 4.2: only
those measures listed in footnote 1 which effectively "have been required to
be converted into ordinary customs duties" would be prohibited under Article
4.2. Chile argues that no other Member has ever requested Chile to "tariffy"
its PBS during the Uruguay Round negotiations, and that, therefore, its PBS

substantive meeting, the Chilean request was received only about a week in advance. The Panel and Secretariat
expended considerable efforts to accommodate the request but were unable to find another time feasible for all
the Panelists and the parties. It should also be noted that there were fourteen third parties whose interests needed
to be taken into account. With respect to the time provided for written comments on the interim report, we note
that the time accorded was consistent with Appendix 3 to the DSU. Furthermore, Chile did not request an
extension. Regarding the use of teleconference, this was not the first time this has been used in panel
proceedings and is related to the constraints imposed by Article 8.1 of the DSU as regards the individuals
eligible to serve as panelists, who, given their required seniority or expertise, may be expected to face
scheduling conflicts more than once. Regarding the limited duration of the interim review meeting, it should be
noted that an inquiry was made of Chile as to whether they could start the meeting one hour earlier, but Chile
felt unable to accommodate that request. In any event, th e Chairman also indicated the Panel's readiness to hold
an additional session should Chile so desire. Chile did not react to the Chairman's comments and suggestion.

is not a measure "of the kind which [has] been required to be converted into
ordinary customs duties".
In paragraph 7.18, we state that such an interpretation "would imply that Members decided to forego
their right to challenge measures which had not been specifically identified and converted at the end
of the Uruguay Round" (emphasis added).
6.6 We note that in para. 56 of its first submission, Chile states,
In its arguments, Argentina disregards the usual meaning of the terms of
Article 4.2 in its context and effectively ignores the qualifier that the
measures that must not be maintained or reverted to are "measures of the
kind which have been required to be converted into ordinary customs duties".
Consequently, not only do all non-tariff measures of the kind described in
footnote 1 not have to be abolished, but only those of the kind that have been
specified must be converted into ordinary customs duties. If the intention of
those who drafted Article 4.2 had in fact been as Argentina argues, it would
have been extremely easy for them to draw up an obligation to prohibit "all
measures of the kind listed in footnote 1". But they did not do this; and
anyone interpreting the treaty cannot disregard the drafters' decision to
include, in its place, qualifying and limitative terms with the intention of
giving the Article the meaning that only measures of the kind which have
been required to be converted are prohibited. (emphasis added)
6.7 In light of the above, we are of the view that we have accurately summarized Chile's
arguments. Chile appears to be arguing that we examined their position as an estoppel argument. We
recognized explicitly that Chile was not doing this in paragraphs. 7.79 and 7.100 and footnote 654 of
this report.
6.8 With respect to paragraphs 7.28 to 7.32 of the interim report, Chile considered that the text did
not accurately reflect Chile's arguments. In Chile's view, it has made it clear that its argument is that a
measure which is a customs duty as such cannot be considered a measure which, according to Article
4.2 of the Agreement on Agriculture, would have to be converted. Chile argues that it never claimed
that Article 4.2 was confined to measures prohibited under Article XI of GATT 1994, nor did
Argentina or the third parties to this dispute. Acco rding to Chile, "[t]he Panel should not explicitly or
implicitly misinterpret the points of view of the parties or third parties", and therefore requested the
Panel to reformulate or delete these paragraphs. Argentina considered that the Panel had correctly
understood and reflected Chile's arguments.
6.9 In para. 7.28 of the interim report, we stated,
As a preliminary matter, we note Chile's statement that "the obligations in
Article 4.2 only relate to non-tariff barriers"
560 whereas "the PBS only
covers the payment of customs duties "561. Although Chile concedes that
there is no such test in the language of the Agreement on Agriculture, it also
asserts that "it might be considered that the defining characteristic should be
whether the measure has the effect of a quantitative limitation".
562 Thus,

560 (original footnote) Chile's First Written Submission, para. 33. Chile's reply to Panel question 6.
Emphasis added.
561 (original footnote) Ibid. Emphasis added.
562 (original footnote) Chile's response to Panel question 8. Emphasis added.

Chile appears 563 to argue that Article 4.2 was not meant to prohibit
measures taking the form of duties le vied by customs authorities, but only
"non-tariff barriers" or quantitative restrictions. Along those lines, "similar
border measures" would need to have the effect of a quantitative restriction.
(emphasis added)
6.10 In addressing Chile's comments, we first recall that Chile explicitly made the argument at one
point in its submissions that "it might be considered that the defining characteristic should be whether
the measure has the effect of a quantitative limitation". Thus, by complaining about the way the Panel
has summarized its argument, while not withdrawing the quoted statement, Chile must be drawing a
distinction between measures whose defining characteristic is that they have the effect of a
quantitative limitation, on the one hand, and quantitative restrictions, on the other. In the absence of
any explanation by Chile, however, as to what such difference could be, we have proceeded by
verbatim quoting Chile, while at the same time j uxtaposing this argument with Chilean statements
which could suggest a different path of reasoning. The issue, however, is of considerable importance
for the purpose of interpreting Article 4.2 and must therefore be addressed in any event.
6.11 In light of Chile's comments, we have amended the third sentence of paragraph 7.28.
6.12 Similarly, we have also amended the second sentence of paragraph 7.29.
6.13 With respect to paragraph 7.39 of the interim report, Chile argued that the Panel mistakenly
describes the structure and operation of the Chilean PBS as "rather complex". In Chile's view, the
PBS is not complex at all. Argentina recalled that Chile itself, in its first written submission, had
stated that "the price band formula may appear complex", and considered that the Panel's conclusion
corresponds to an objective analysis.
6.14 We have reviewed the descriptions provided by the parties, including their answers to many
questions by the Panel, and in light of this do not consider that Chile's comments in this respect
warrant any changes to the interim report.
6.15 In the same paragraph, Chile claims that the Panel incorrectly states that the Chilean customs
authorities determine the total amount of duty applicable. According to Chile, this is not correct
because the calculation is made by the customs agents, which are private service organizations that
provide services to importers, who must use such agents in their dealings with the customs authorities.
The calculation made by these individuals may be su bject to revision by the authorities, in the same
way as annual income tax declarations. Argentina responded that this factual information was not
provided by Chile until the interim review meeting and should therefore not be taken into account by
the Panel. According to Chile, the information was not provided earlier because the Panel never put a
question to Chile regarding this matter.
6.16 In the second sentence of paragraph 7.39 of the interim report, we stated,
When a product covered by the Chilean PBS arrives at the border for
importation into Chile, Chilean customs authorities will determine the total
amount of applicable duties. (emphasis added)
6.17 We note that the factual correction proposed by Chile is based on new information not
presented to us before the interim review. Accordin g to Chile, the use of the term "determine" in the

563 (original footnote) Chile has also argued that "despite the Members' intention to reduce the number
of non-tariff barriers and other measures covered, their intention was not to prohibit all such measures". Chile's

interim report is not correct, because the calculation of the applicable duties is made by private
customs agents and then revised by the customs authorities. Since the customs authorities may revise
the "declared" duties, however, it appears to us that it is the customs authorities who, at the end of the
day, determine the total amount of applicable duties, "in the same way as annual income tax
declarations". Nonetheless, as we wish our description of the operation of the Chilean PBS to be as
accurate as possible, we have changed the second sentence of paragraph 7.39.
6.18 With respect to paragraph 7.41 of the interim report, Chile argues that the Panel did not take
account of the facts and the evidence put forward by Chile to the effect that its PBS is legally subject
to Chile's tariff binding within the WTO for products covered by the system. According to Chile, by
disregarding this fact, the Panel fails to recognize that it is perfectly possible for the import cost of a
product subject to the PBS to be lower than the ba nd's lower threshold. Argentina responds that the
Panel is not even addressing the bound level of Chile in paragraph 7.41 of the interim report, since it
has analyzed the PBS as challenged by Argentina in these procedures. The bound level of Chile is by
no means part of the Panel's argument in paragraph 7.41. Argentina therefore concludes that Chile's
comments are of no relevance and are not related to the Panel's findings.
6.19 In paragraph 7.7 of our report, we state that "[w]e can only assess the relevance of the change
introduced by Chile to the WTO-consistency of its PBS after having determined what Chile's
obligations are with respect to its PBS under the provisions of GATT 1994 and the Agreement on
Agriculture included in Argentina's request for establishment." We therefore agree with Chile that, in
line with this reasoning, we should assess the relevance of the cap introduced by Chile in the course of
the proceedings. We consider, however, that the change introduced by Chile is of limited relevance to
our findings, and does not detract from their validity. We have amended paragraph 7.41 accordingly.
6.20 Chile stated that it could agree, in general te rms, with the content of original footnote 599 of
the interim report (new footnote 607 of the final report). According to Chile, however, the last
sentence is inaccurate because, even though the published price for markets of concern is always taken
into account, the individual prices of trade transactions are not considered. Consequently, in Chile's
view, there may be imports from one of these markets at prices lower than the published prices
(perhaps because of payment terms, the need to sell , the time of sale, etc.). Argentina recalled that
Chile did not respond to part (b) of question 46 of the Panel, which specifically requested: "In this
connection, have goods entered the Chilean market at prices below the lower level end of price band?
If so, please identify as many instances as possible, and provide supporting documentation".
Argentina also posited that in terms of the PBS mech anics, the freight is far from being an element of
any operational significance. According to Argent ina, the irrelevance of the eventual freight
variations is clearly reflected in the example provided by Chile itself in its answer to question 46,
which shows an import cost differential, in perc entage terms, of less th an 2 % (US$ 213/US$210).
Argentina considered that it forcefully proved the insulation effects of the PBS in exhibit ARG-41.
According to Argentina, the referred exhibit s hows that for a period of 24 months the weekly
reference price set by the Chilean authorities was systematically lower than the weekly average f.o.b.
quotations in Argentina. Therefore, Argentina argues, it can hardly be argued, as Chile did, that the
entry of imports at costs below the lower end of the PBS could be of any significance, either in terms
of import cost differential or in volume.
6.21 Much like the situations already discussed in the footnote, Chile has merely described a
situation where the Chilean authorities relies on a published price and, therefore, may mistakenly not
accurately identify the true lowest price. We decline to further amend this footnote.
6.22 According to Chile, original footnote 602 of the interim report (new footnote 611 of the final
report) is correct, but incomplete. Chile considers that if the trend continued for a further year, this
would be reflected in the band for the following years because the new year would be incorporated in
the system for five years. According to Chile, this shows that market trends are incorporated,

although in an attenuated form. With reference to paragraph 7.43 of the interim report, Chile
reiterated that an Argentine exporter can export at an f.o.b. price lower than the reference price, if it is
an Argentine price, because this is fixed on the basis of the prices published for the market as a whole,
but many transactions take place at varying levels, either higher or lower. Taking into account the
comments in the preceding two points, Chile requested the Panel to clarify why, in its opinion, despite
the examples cited by Chile, which are not hypothetical but have occurred in practice, there can be no
imports at f.o.b. prices lower than the reference price. In Argentina's view, the content of footnote 611
and the development of paragraph 7.43 are self-explanatory and require no further elaboration.
6.23 In light of Chile's comments, and in line with our changes to paragraph 7.41, we have changed
paragraph 7.43.
6.24 With respect to paragraph 7.44 of the interim report, Chile argued that exporters do not
encounter problems in finding out exactly what the reference price is at any given time. Chile claims
that (1) since 1997, information on the reference price has been given on the web page of the National
Customs Service; (2) any exporter's representative or customs agent in Chile has been able to consult
the Customs Service directly; (3) this information is regularly transmitted to the Customs Chambers,
composed of the various customs agents. Argentina reiterated that the Panel's finding that the PBS is
characterized by a lack of transparency and predictability is based on an objective analysis of the
evidence and facts submitted, as well as on the analysis of the way the PBS operates.
6.25 We note that we addressed Chile's first argument, raised only in its comments on the
descriptive part, in paragraph 7.44 and footnote 604. We further note that the second and third
arguments, both related to the role of private customs agents, have been raised for the first time by
Chile during the interim review. Notwithstanding the novel character of these arguments, we have
changed the second sentence of paragraph 7.44.
6.26 With respect to the same paragraph, Chile argued that it is incorrect to state that no regulation
or legislation provides that the relevant date is the date of the bill of lading because this is contained in
the last paragraph of Article 12 of Law 18.525. Argentina pointed out that it does not arise from the
paragraph under discussion that the Panel had concluded this, particularly considering that the Panel
has quoted the full text of Article 12 of Law 18.525 in the descriptive part of the interim report,
paragraph 2.2.
6.27 We agree with Chile that the text of the interim report required clarification in this respect,
and have changed the fifth and sixth sentences of paragraph 7.44.
6.28 With respect to paragraph 7.46, Chile argued that it would appear that the Panel wishes its
conclusion on similarity to be a question of fact, which, in Chile's view, is quite clearly wrong. What
is a question of fact is the operation of the PBS. The degree of similarity and how such similarity is
assessed or determined is obviously a question of law. Argentina noted that in the Panel's
consideration of the fact of whether the PBS constitutes a measure similar to those listed in footnote 1
to Article 4.2 of the Agreement on Agriculture, the Panel defined – as a factual matter – the PBS as a
hybrid instrument sharing the characteristics of both a variable levy and a minimum import price.
6.29 In consideration of Chile's comment, we consider that the interpretation of what constitutes a
"variable import levy", " minimum import price" and "similar" border measure is, of course, a matter
of law. Whether or not an existing border measure, however, is, in fact, similar to a variable import
levy or minimum import price, requires an assessment of the factual evidence submitted. Such an
assessment is simply an application of the law, as interpreted by us, to the facts of this case. Our
determination of whether or not a particular measure is "similar to" any of the measures listed in
footnote 1 is roughly analogous to a determination of whether two products are "like" or "directly

competitive or substitutable" in the context of Article III of GATT 1994. We therefore decline to
make the requested change.
6.30 Regarding the conclusions on other means of interpretation and specifically in relation to ECA
35 and the regulation laid down therein, Chile argued that Article 24 of ECA 35 constitutes
recognition that both parties have the same understanding concerning the scope and content of the
Agreement on Agriculture and, in consonance with this understanding, both parties agreed to this
provision in good faith. Chile requested that, if the Panel considers that this provision does not reflect
such an understanding, it clarifies what, in its view, is the meaning of this provision. Argentina
considered that Chile's request of clarifications from the Panel about Article 24 of the ACE 35 is not
appropriate, since the Panel itself has made its rulings and Chile has made no specific comments about
the paragraphs of the Interim Report addressing this matter. Consequently, the Panel should not
consider Chile's comments to this paragraph.
6.31 We take note of Chile's arguments but fail to see what changes, if any, Chile considers are
warranted by its comment. In our view, our conclusions in this regard are explained sufficiently and
we decline to make any changes in this regard.
6.32 With respect to paragraphs 7.112, 7.113 and 7.124, Chile requested the Panel to clarify what it
means by "to secure a positive solution" to the dispute and how making findings on measures that
have expired would fulfil this objective, "as it is not mentioned in any part of the interim report".
Argentina considered that the Panel has clarified what it understands by "to secure a positive solution"
to the dispute and why the making of findings regarding "expired" measures would meet this
objective.
6.33 We fail to see the relevance of Chile's comments as they relate to paragraphs 7.112 and 7.113.
In paragraph 7.115, we conclude that we do not find it necessary to make findings regarding the
provisional safeguard measures in order to "secure a positive solution to the dispute", a phrase drawn
verbatim from Article 3.7 of the DSU. Chile's comment as regards paragraph 7.124 is addressed
below.
6.34 With respect to paragraphs 7.124 and 7.125, Chile considered that it has demonstrated that,
following the entry into force of Law 19.722, the specific duties resulting from the PBS would no
longer exceed the bound tariff, so the situation could not recur. Chile asked how findings by the Panel
on these measures will help in reaching a prompt settlement of the overall dispute or a positive
solution thereof. Argentina considered that Chile's comment on the sense of making findings
regarding expired safeguard measures is clearly explained by the Panel both in paragraph 7.125 and in
paragraphs 7.6 and 7.7 relating to the relevance of Law 19.722 to analyze the consistency of the
Chilean measures vis-à-vis WTO obligations. Argentina considered that this is strengthened by the
Panel's conclusion of the partial identity between the Chilean PBS and the safeguard measures.
6.35 We consider that we have clearly explained in paragraph 7.125 of our report why making
findings on the withdrawn definitive safeguard measures is in our view necessary to ensure a prompt
settlement of the overall dispute.
6.36 With respect to paragraphs 7.116 to 7.120, Chile claimed that the Panel confines itself to
citing extracts from the text of Article 7 to support its position that an extension is not a measure
distinct from the definitive safeguard measure, but merely an extension of the duration of that
measure. According to Chile, nowhere does the Panel give consideration to the textual and
substantive arguments put forward by Chile in support of the opposite view. Chile requested the Panel
to explain why it only cited certain paragraphs of Article 7 to substantiate its conclusion, and why it
did not undertake a more in-depth analysis of Article 7 for this purpose, as Chile argued in its
submissions. Argentina responded that the Panel starts paragraph 7.116 by mentioning and

specifically considering the two objections made by Chile, and, thus, that the Panel did consider those
objections. Argentina also argued that Chile did not identify what those arguments of text and
substance are that have not been considered by the Panel. According to Argentina, Chile limits itself
to make a general comment with no specific detail about the arguments that in its view are missing.
6.37 We take note of Chile's comments, but consider that our report sets out in sufficient detail
why we consider that Chile's arguments in this respect cannot be endorsed. We therefore decline to
change these paragraphs.
6.38 With respect to paragraphs 7.131 and 7.179, Chile claimed that the Panel did make use of the
Minutes of Session No. 224 to reject previous records and to make comments that go beyond a finding
of inconsistency with the WTO rules. According to Chile, paragraph 7.179 is "one example".
According to Chile, the Panel specifically uses the minutes of session No. 224 to link the drop in
production in the period mentioned in this paragraph to drought and thus reject the minutes of session
No.193, because they do not contain any analysis of injury caused by other factors. Argentina
considered that the Panel can use the Minutes of Session No. 224 as factual evidence, as suggested by
Chile itself, and that the Panel has done so in order to clarify and complement the minutes of session
No. 193, taking into account its complete lack of data.
6.39 In commenting on Chile's arguments, we first note that Chile refers to paragraph 7.179 as only
"one example", but does not provide any other such "examples". The one concrete example given by
Chile to support its allegation that the Panel does not adhere to the rule it sets out in paragraph 7.131
concerns a subsidiary finding by the Panel on causation, where the Panel has already found on other
grounds that the CDC failed to establish a proper causal link (see paragraphs 7.176 and 7.177). In
paragraph 7.179, the Panel, addressing a particular argument by Argentina, finds that the CDC should
have examined the other factor, i.e. drought, to which Argentine exporters had drawn its attention
during the investigation. Argentina had raised the argument and adduced evidence showing that the
competent authorities must have been aware of the possible impact of the drought factor. It was the
failure by the CDC to investigate or evaluate this factor which we find fault with.
564 The minutes of
session No. 224 are therefore merely used as an observation on our earlier finding, consistently with
paragraph 7.131, not as a basis for our finding. To avoid any misunderstanding in this respect, we
have changed paragraph 7.179.
6.40 With respect to paragraph 7.128, Chile claimed that the Panel does not conform to the usual
meaning of the word "publish" and, by analogy, refers to the publication requirement in the Anti-
Dumping and Subsidies Agreements of the WTO. According to Chile, in no part of its arguments
does the Panel explain the reasons why this usual meaning does not reflect the real scope and meaning
of the obligation to publish required by Article 3.1, nor why, referring to context in determining such a
meaning, the WTO Anti-Dumping and Subsidies Agr eements apply. Argentina considered that the
Panel made use of the methods of interpretation in compliance with the DSU in order to make findings
regarding the obligations contained in Article 3.1 of the Safeguards Agreement.
6.41 In our view, the explanation in paragraph 7.128 is sufficient. We refer both to the dictionary
meaning of the term and, in accordance of Articl e 31 of the Vienna Convention, the context provided
by the WTO Agreement and its annexes. We therefore take note of Chile's comments, but consider
that they do not warrant any change to paragraph 7.128.

564 It should be recalled that, according to the Appellate Body in US – Wheat Gluten , "the competent
authorities – and not the interested parties – [are required] to evaluate fully the relevance, if any, of 'other
factors'", and "where the competent authorities do not have sufficient information before them to evaluate the
possible relevance of […] an 'other factor', they must fully investigate that 'other factor' […]"Appellate Body

6.42 With respect to paragraphs 7.171 and 7.172, Chile stated that it cannot understand how the
Panel could find that the Minutes of the CDC do not indicate whether the data used to determine the
threat of injury were, or were not, based on the most recent past and on data for the entire investigative
period. According to Chile, it is obviously not necessary for the Minutes to state explicitly and
specifically the commencement and the end of the period within which the data were collected when
this is clear from the context of the Minutes and its considerations and conclusions. Chile requests the
Panel to explain why it considered that the data relating to the most recent past should have been
indicated in explicit and specific terms by the investigating authorities, without meeting the obligation
in Article 4.2(a) of the Agreement on Safeguards, when this can be clearly derived from the Minutes,
and on what legal grounds the Panel based its conclusion. Argentina responded that if the CDC
neither provided in its minutes the data of the most recent past, nor analyzed them in the context of all
the investigative period – which was not even determined –, Chile cannot expect the Panel to conclude
that it did comply with its obligations under Article 4.2(a) of the Agreement on Safeguards.
6.43 In consideration of Chile's argument, we observe that we can only determine whether data for
the most recent past have been used, if the published report indicates what the period of examination
is in the first place. Contrary to Chile's allega tion, in our view this is not clear "from the context of
the Minutes". We therefore consider that no change to our report is warranted in this respect.
6.44 Also as regards paragraph 7.172, Chile argued that it is not clear what led the Panel to
conclude that the CDC's projection of what would have occurred if the PBS had not been fully applied
did not suffice to substantiate its determination of threat of injury. Chile stated that it fails to
understand how the Panel reached this conclusion, bearing in mind that the factor analysed is not
injury already caused but the threat of injury. According to Chile, the foregoing indicates that,
following the Panel's line of reasoning, the Panel focused on actual injury rather than on threat of
injury. Chile acknowledges that when the safeguards were adopted, the PBS was operating and
sometimes, as Chile has acknowledged, the bound tariff was exceeded. In Chile's view, however, this
does not detract from the fact that it is perfectly legitimate for the CDC to have estimated what would
occurred in the domestic industry in the absence of this situation (exceeding the binding), precisely
because the safeguard justifies exceeding the th reshold in the WTO. According to Chile, by
forecasting what would have occurred in the abse nce of unrestricted operation of the PBS, the CDC
did not fail to extrapolate from current trends but, quite the contrary, based its determination of threat
of injury on these trends. According to Argentina, the threat of injury claimed by Chile was not
backed by a projection of the future condition of the industry based on recent data in the context of the
investigation period, but based on the hypothesis of the injury that would be produced if the measure
were to be removed, reasoning that is contrary to the prescriptions of Article 4.1(b) and Appellate
Body precedents.
6.45 We consider that our report leaves no doubt that we were addressing Chile's argument
regarding the presence of a threat of injury, not actual injury. We agree with Argentina that Chile's
argument in its interim review comments requires a hypothesis of the state of the industry in the
absence of the PBS. We do not see how use of a hy pothesis in any form is sufficient to satisfy the
requirements of the Agreement on Safeguards. We therefore do not consider that Chile's comments
warrant any change to our report.
6.46 As regards the quotation from Chile's reply to question 7(b) from the Panel in paragraph
7.173, Chile claimed that this is only given in part as the reply did not solely refer to the situation that
would have occurred if a measure already adopted were withdrawn, but also to the situation that
would have occurred if an initial measure had not been adopted. Argentina considered that the Panel
used Chile's answer to question 7(b) in an adequate manner.
6.47 The paragraph of Chile's answer which we did not quote in the report reads:

Similarly, in the process of determining whether or not the conditions for
adopting an initial safeguard measure have been met, it is also possible to
consider what would happen if a measure, then in force, were withdrawn ,
given that when a safeguard measure, whether provisional or definitive, is
adopted, there has to be a need to prevent or remedy serious injury.
(emphasis added)
6.48 Quite clearly, and contrary to Chile's assertion, this paragraph does not address "the situation
that would have occurred if an initial measure had not been adopted". On the contrary, its proposition
is to envisage what would happen if an existing measure were to be withdrawn. We consider that the
last sentence of paragraph 7.173 explicitly rejects this argument presented by Chile. In any event, as
noted above, we do not see how it advances Chile's position if the investigating authorities had
substituted one hypothesis for another.
6.49 With respect to paragraph 7.185, Chile pointed out to the Panel that the fact of using an
Appellate Body report ( US – Line Pipe ) which has not yet been adopted "appears to indicate on the
Panel's part excessive zeal to determine inconsistency of the safeguards adopted by Chile with Article
XIX:1(a) of the GATT and Article 5.1 of the AS." Argentina responded that the Panel used as a legal
precedent for the interpretation of the obligation contained in article 5.1 of the Safeguards Agreement,
the Appellate Body report in Korea – Dairy . Argentina considered that the Panel quotes the
referenced Appellate Body report with the purpose of additionally pointing out that Chile did not
refute the prima facie case presented by Argentina only once it had determined the inconsistency of
Chile's safeguard measures with Article 5.1 of th e Safeguards Agreement. In addition, Argentina
recalls that the report was adopted by the DSB on 8 March 2002.
6.50 We note that the Appellate Body report on US – Line Pipe referred to in our report was, in
fact, adopted by the DSB on 8 March 2002. Moreover, we consider that Chile's comments would not,
in any event, have warranted any change to our report. We noted the US – Line Pipe decision as
further support for a conclusion we reached independently. In our view, we would have been remiss
in our duties to do otherwise.
6.51 With respect to the interim report's section on the extension of the safeguard measures, Chile
made three comments. Firstly, if the Panel determin es that this claim does not come within its terms
of reference, Chile does not understand the purpose and object of the Panel's finding of inconsistency,
whether indirect or implicit, as clearly shown in paragraph 7.198, and why the Panel did not rather
simply declare that it had no mandate to reach a finding on this aspect. Secondly, taking into account
Chile's comments that the definitive safeguard measures and the extension measures are identical
measures, Chile requested that, if the Panel insists on making findings of indirect inconsistency with
Article 7 of the Agreement on Safeguards, even though this issue is outside its Terms of Reference, it
should review the findings on the basis of the arguments put forward by Chile but disregarded by the
Panel. Thirdly, Chile did not find any argument in the Panel's analysis that explains the reasons it
took into account when determining that a definitive safeguard measure, assuming that it is
inconsistent with the Agreement on Safeguards, cannot be "remedied" through an extension. In
Chile's view, if the Panel, despite the fact that it has no mandate on this issue, also puts forwards
arguments and makes an indirect finding of incons istency of the extension of the Chilean safeguard
measures with Article 7 of the Agreement on Safeguards, it must legally substantiate its arguments
and findings. Chile therefore requested the Panel to revise this section on the basis of the arguments
put forward. Regarding Chile's three comments on this issue, Argentina agreed with the Panel that the
inconsistency of a definitive measure cannot be "cured" with the extension of the same measure. In
Argentina's view, the Panel has analyzed in extenso and concluded that the extensions of safeguard
measures are not new measures different to the definitive measure. Therefore, and in agreement with
the finding of inconsistency of the definitive measures with different provisions of the Safeguards

Agreement, there is no other way for the Panel but to conclude that "[s]uch inconsistency cannot of
course be 'cured' by a decision to extend their duration".
6.52 In consideration of Chile's comments, we note that in paragraph 7.198 we stated:
If the definitive safeguard measures are inconsistent with Chile's obligations
under the Agreement on Safeguards, such inconsistency can of course not be
"cured" by a decision to extend their duration. On the contrary, the decision
to extend their duration must, by definition, be tainted by inconsistency as
well. We recall, however, that Article 7 of the Agreement on Safeguards,
which sets out the conditions for an extension, is not within our Terms of
Reference. We will therefore refrain from making any finding regarding the
consistency of the decision to extend the safeguard measures' duration with
Article 7 of the Agreement on Safeguards. (emphasis added)
6.53 Consequently, we clearly and explicitly refrained from making any finding of inconsistency
with Article 7, considering that such a claim is not within our Terms of Reference. For the same
reasons, we did not present any conclusion regarding the consistency of the extension of the definitive
safeguard measure in Section VIII of our report.
VII. FINDINGS
A. T
HE CHILEAN PRICE BAND SYSTEM
1. Requested findings
7.1 Argentina requests that the Panel conclude that the Chilean PBS is inconsistent with
Article II:1(b) of the GATT 1994 and Article 4.2 of the Agreement on Agriculture. Argentina argues
that the Chilean PBS violates Article II:1(b) of the GATT 1994 since its application can result and has
repeatedly resulted in the collection of duties in excess of the rates bound in Chile's National Schedule
No. VII, i.e. 31.5 per cent. Argentina also considers that the PBS, in addition to violating the
obligations contained in Article II:1(b) of the GATT 1994, is inconsistent with Article 4.2 of the
Agreement on Agriculture, because Chile maintains a measure of the kind which has been required to
be converted into ordinary customs duties pursuant to Article 4.2 of the Agreement on Agriculture.
7.2 Chile requests that the Panel conclude that the PBS is consistent with both Article II:1(b) of
the GATT 1994 and Article 4.2 of the Agreement on Agriculture.
2. Amendment to Article 12 of Law 18.525 in the course of the panel proceedings
7.3 At the second meeting with the parties, the Panel was informed by Chile that a new law
19.722 had entered into force on 19 November 2001 which inserts the following paragraph after the
last paragraph of Article 12 of Law 18.525:
"The specific duties resulting from the application of this Article, added to the
ad valorem duty, shall not exceed the base tariff rate bound by Chile under the World
Trade Organization for the goods referred to in this Article, each import transaction
being considered individually and using the c.i.f. value of the goods concerned in the
transaction in question as a basis for calculation. To that end, the National Customs
Service shall adopt the necessary measures to ensure that the said limit is maintained."

7.4 According to Chile:
"(…) these Chilean actions have eliminated the measures that Argentina has
challenged before this Panel under Article II of the GATT 1994 […]. Even if
Argentina were correct in every respect in its allegations under those WTO provisions
-- which Chile denies -- it is difficult to understand how, in terms of the purpose of
the dispute settlement system, there could be a more "positive solution" to the dispute
for Argentina than […] the enactment of legislation assuring that the tariff binding
will not be breached in the future."
565
7.5 Our understanding from Chile's explanation is that this amendment to Article 12 of
Law 18.525 puts in place a cap on the Chilean PBS duties to avoid that those duties, in conjunction
with the 8 per cent applied rate, exceed the 31.5 per cent bound rate. Argentina has informed us in
this respect that it:
"(…) is not in position to confirm the precise content of the Chilean Exhibit given that
Argentina does not have adequate information to express a definitive view on this
issue. As far as Argentina knows, Chile has not yet even issued the regulations
necessary to implement the new measure."566
7.6 We note in this respect that the Panel in Indonesia – Autos stated that:
"(…) [i]n previous GATT/WTO cases, where a measure included in the terms of
reference was otherwise terminated or amended after the commencement of the panel
proceedings, panels have nevertheless made findings in respect of such a measure."567
7.7 We see no reason to deviate from this practice of other panels. Furthermore, we note that we
would be prejudging our examination of Argentina's claims regarding the Chilean PBS if we were to
accept without further analysis that the change introduced by Chile is relevant to the consistency of
the Chilean PBS with its obligations under the WTO Agreement. We can only assess the relevance of
the change introduced by Chile to the WTO-consistency of its PBS after having determined what
Chile's obligations are with respect to its PBS under the provisions of GATT 1994 and the Agreement
on Agriculture included in Argentina's request for establishment. We would be acting in a manner
inconsistent with our duties under Article 11 of th e DSU if we were to refrain from making findings
for the sole reason that Chile amended the challenged measure at a late stage of the proceedings.

565 Chile's Oral Statement at the second meeting with the parties, para. 6.
566 Argentina's response to question 45 of the Panel.
567 Panel report on Indonesia – Certain Measures Affecting the Automobile Industry ("Indonesia –
Autos "), WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1, 2, 3, 4, adopted 23 July 1998. The
panel referred to: the panel report on United States - Measures Affecting Imports of Wool Shirts and Blouses
from India ("US – Wool Shirts and Blouses) , WT/DS33/R, adopted on 23 May 1997; the US restriction was
withdrawn shortly before the issuance of the panel report; panel report on EEC - Restrictions on Imports of
Dessert Apples, Complaint by Chile , adopted on 22 June 1989, BISD 36S/93; panel report on EEC-Restrictions
on Imports of Apples, Complaint by the United States , adopted on 22 June 1989, BISD 36S/135; panel report on
United States - Prohibition of Imports of Tuna and Tuna Products from Canada , adopted on 22 February 1982,
BISD 29S/91; panel report on EEC - Restrictions on Imports of Apples from Chile , adopted on 10 November
1980, BISD 27S/98; and panel report on EEC - Measures on Animal Feed Proteins , adopted on 14 March 1978,
BISD 25S/49. The panel noted that in the panel report on United States - Section 337 of the Tariff Act of 1930 ,
BISD 36S/345, adopted on 7 November 1989, the challenged measure was amended during the panel process
but the panel refused to take into account such amendment. The panel on Indonesia – Autos
 noted that this was
also the line taken by the Appellate Body in Argentina - Textiles and Apparel , WT/DS56/AB/R, adopted on
22 April 1998, para. 64.

7.8 We will therefore examine the Chilean PBS as challenged by Argentina in these proceedings,
and make findings accordingly.
3. Order of the Panel's analysis
7.9 Argentina argues that the Chilean PBS is inconsistent with both Article II:1(b) of GATT 1994
and Article 4.2 of the Agreement on Agriculture. Both Argentina and Chile have first presented their
arguments regarding Article II:1(b) of GATT 1994, and subsequently regarding Article 4.2 of the
Agreement on Agriculture.
568 We will first examine whether we should conduct our analysis in the
same order, or whether it would be more appropriate to start our analysis with the Agreement on
Agriculture, and only then turn to GATT 1994.
7.10 Article II:1(b) of GATT 1994 provides:
"The products described in Part I of the Schedule relating to any contracting party,
which are the products of territories of other contracting parties, shall, on their
importation into the territory to which the Schedule relates, and subject to the terms,
conditions or qualifications set forth in that Schedule, be exempt from ordinary
customs duties in excess of those set forth and provided therein. Such products shall
also be exempt from all other duties or charges of any kind imposed on or in
connection with the importation in excess of those imposed on the date of this
Agreement or those directly and mandatorily required to be imposed thereafter by
legislation in force in the importing territory on that date."
7.11 Article 4.2 of the Agreement on Agriculture provides:
"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."
1 These measures include quantitative import restrictions, variable import levies, minimum
import prices, discretionary import licensing, non-tariff measures maintained through state-
trading enterprises, voluntary export restraints, and similar border measures other than
ordinary customs duties, whether or not the measures are maintained under country-specific
derogations from the provisions of GATT 1947, but not measures maintained under balance-
of-payments provisions or under other general, non-agriculture-specific provisions of
GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO
Agreement.
7.12 The Appellate Body explained in its report on EC – Bananas III 569 that a panel should start
with an examination of the claims under the agreement which "deals specifically, and in detail," with
the matter at issue. 570 Consequently, in determining under which agreement we should proceed with
first – GATT 1994 or the Agreement on Agriculture –, we will examine which agreement deals
specifically and in detail with the matter at issue.
7.13 We note in this respect that the Chilean PBS applies exclusively to agricultural products, as
defined in Annex 1 to the Agreement on Agriculture. Consequently, the provisions of the Agreement
on Agriculture are applicable to the Chilean PBS.

568 We also note, however, that Argentina has asserted that the Agreement on Agriculture is
lex specialis vis-à-vis GATT 1994.
569 Appellate Body report, European Communities – Regime for the Importation, Sale and Distribution of
Bananas ("EC – Bananas III "), WT/DS27/AB/R, adopted 25 September 1997.
570 Ibid., para. 204.

7.14 The general aim of the Uruguay Round negotiations on agriculture was to "achieve greater
liberalisation of trade in agriculture and bring all measures affecting import access and export
competition under strengthened and more operationally effective GATT rules and disciplines". 571 As
explained by the Panel in Canada – Measures Affecting the Importation of Milk and the Exportation of
Dairy Products, the object and purpose of the resulting Agreement on Agriculture is:
"to 'establish a basis for initiating a process of reform of trade in agriculture'572 in line
with, inter alia, the long-term objective of establishing 'a fair and market-oriented
agricultural trading system'. 573 This objective is pursued in order 'to provide for
substantial progressive reductions in agricultural support and protection sustained over
an agreed period of time, resulting in correcting and preventing restrictions and
distortions in world agricultural markets'."574 575
7.15 We consider that Article 4.2 is central to the establishment and protection of a fair and
market-oriented agricultural trading system in the area of market access. Members "committed to
achieving specific binding commitments [on, inter alia,] market access". 576 In particular, following
Ministerial Mid-term review of the Uruguay Round negotiations and the December 1991 Draft Final
Act, the negotiations on agricultural market access were undertaken on the premise that trade in
agriculture was to be conducted on the basis of bound ordinary customs duties and that border
measures other than ordinary customs duties would be prohibited.
577 This involved the conversion of
a wide range of border measures into ordinary customs duties, a process which has commonly been
referred to as "tariffication". In general terms, the purpose of this exercise was to enhance
transparency and predictability in agricultural trade, establish or strengthen the link between domestic
and world markets, and allow for a progressive negotiated reduction of protection in agricultural trade.
Article 4.2 of the Agreement on Agriculture, by prohibiting Members from maintaining, resorting to,
or reverting to any measures of the kind which have been required to be converted into ordinary
customs duties, accordingly provides the legal underpinning for what, in ordinary parlance, is referred
to as a "tariff-only" regime for trade in agriculture.
7.16 We note that Article 4.2 of the Agreement on Agriculture and Article II:1(b) of GATT 1994
both use the phrase "ordinary customs duties". Prov ided this phrase has the same meaning in both
provisions,
578 neither provision can therefore be interpreted independently from the other. However,
having regard to the above, we believe that Article 4.2 of the Agreement on Agriculture deals more
specifically and in detail with measures affecting market access of agricultural products. 579 We will

571 Punta del Este Declaration, Ministerial Declaration on the Uruguay Round, MIN.DEC,
20 September 1986, p. 6.
572 (original footnote) Preambular paragraph 1.
573 (original footnote) Preambular paragraph 2.
574 (original footnote) Preambular paragraph 3.
575 Panel Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy
Products ("Canada – Dairy "), WT/DS103/R, WT/DS113/R, adopted 27 October 1999, as modified by the
Appellate Body report, WT/DS103/AB/R, WT/DS113/AB/R and Corr.1, paras. 7.25-7-26.
576 Preambular paragraph 4.
577 MTN.TNC/W/FA, para. 1 of Part B, Annex 3, Section A, at L.25:
The policy coverage of tariffication shall include all border measures other than ordinary
customs duties […]
578 See para. 7.48 below.
579 We also note in this respect that Article 21.1 of the Agreement on Agriculture provides that "[t]he
provisions of GATT 1994 […] shall apply subject to the provisions of this Agreement." The Appellate Body, in
its report on EC – Bananas III has commented on this provision,

therefore start our analysis with an examination of the Chilean PBS under Article 4.2 of the Agreement
on Agriculture.
4. The Chilean PBS and Article 4.2 of the Agreement on Agriculture
(a) Is the Chilean PBS a measure of the kind which has been required to be converted into
ordinary customs duties?
7.17 This dispute revolves mainly around the question of what "kind" of measures have been
required to be "tariffied", i.e. converted into ordinary customs duties, at the end of the Uruguay
Round. Argentina and Chile disagree as to whether the Chilean PBS is such a measure "of the kind
which [has] been required to be converted into ordinary customs duties". According to Argentina,
although the Chilean PBS duties constitute ordinary customs duties for the purpose of Article II:1(b)
of GATT 1994, the Chilean PBS per se constitutes a measure of the kind which has been required to
be converted into ordinary customs duties. According to Chile, the Chilean PBS duties are ordinary
customs duties. Chile argues that the phrase "of the kind which have been required to be converted"
and the illustrative list in footnote 1 contain two separate conditions to be met for a measure to be
prohibited under Article 4.2: only those measures listed in footnote 1 which effectively "have been
required to be converted into ordinary customs duties" would be prohibited under Article 4.2. Chile
argues that no other Member has ever requested Chile to "tariffy" its PBS during the Uruguay Round
negotiations, and that, therefore, its PBS is not a measure "of the kind which [has] been required to be
converted into ordinary customs duties".
7.18 Substantial elements of Article 4.2 would in our view be rendered void of meaning if that
provision were to be read as only prohibiting those specific measures which other Members actually
and specifically required to be converted and which were in practice converted at the end of the
Uruguay Round. We believe that such an interpretation, which would imply that Members decided to
forego their right to challenge measures which had not been specifically identified and converted at
the end of the Uruguay Round, is not tenable. Pursuant to Article 4.2, measures of the kind which
have been required to be converted cannot be maintained, resorted to or reverted to by any Members,
whether or not the Member concerned in fact took advantage of the tariffication modalities. Thus,
firstly, the insertion of the phrase "of the kind" between "measures" and "which have been required" in
Article 4.2, as well as the reference to " similar border measures" in footnote 1, indicates that the
drafters of the Agreement were aware of the fact that all the specific measures subject to tariffication
might not be precisely identified at the time of the conclusion of the Uruguay Round in April 1994 or,
in some cases, could be subject to the provisions of Annex 5 of the Agreement. On the other hand,
what was clear at that time by virtue of Article 4.2 was that all measures "of the kind" would become
prohibited for all Members as from the subsequent entry into force of the WTO, whether or not the
measures concerned had or had not in fact been converted into ordinary customs duties in accordance
with the Uruguay Round "tariffication" modalities. A fortiori, the mere fact that Members did not
single out a specific measure at the end of the Uruguay Round and requested its tariffication at such
time does not imply that the measure enjoys thereafter immunity from challenge in WTO dispute
settlement. Secondly, by prohibiting all Members from maintaining such measures, the drafters of the
Agreement also clearly envisaged the possibility that a Member at the end of the Uruguay Round had
in place measures "of the kind which have been required to be converted", but decided not to convert
those measures. The decision whether to tariffy a particular border measure, to eliminate that
measure, or to adopt some other course, was a matter for each participant in the negotiations to decide.

Therefore, the provisions of the GATT 1994 […] apply to market access commitments
concerning agricultural products, except to the extent that the Agreement on Agriculture
contains specific provisions dealing specifically with the same matter.
Appellate Body report, EC – Bananas III, para. 155.

It can therefore not be argued that only those measures which in practice were "tariffied" in
accordance with the Uruguay Round tariffication modalities are measures "of the kind which have
been required to be converted" for the purposes of Article 4.2.
7.19 Furthermore, we note that "measures of the kind which have been required to be converted"
include the measures listed in footnote 1. The measures listed in footnote 1 are therefore not
exhaustive, rather they are examples of "measures of the kind" and serve an illustrative purpose. We
also note in this respect that footnote 1 is inserted in the text of Article 4.2 at the end of the phrase
"measures of the kind which have been required to be converted into ordinary customs duties". The
first sentence of footnote 1 reads "[t]hese measures include […]". Consequently, the phrase "these
measures" in footnote 1 refers back to the entire phrase "measures of the kind which have been
required to be converted into ordinary customs duties", and the specific measures listed in footnote 1
are all example of "measures of the kind which have been required into ordinary customs duties",
provided they are not "maintained under balance- of-payments provisions or under other general, non-
agriculture-specific provisions of GATT 1994 or the other Multilateral Trade Agreements in
Annex 1A to the WTO Agreement". In our view, Chile's position that a measure listed in footnote 1 is
only prohibited under Article 4.2 if such a measure, in addition, had been singled out, or challenged,
by other negotiators and "been required to be converted into ordinary customs duties" would logically
only be tenable if footnote 1 had been inserted immediately following the term "measures" in the text
of Article 4.2, rather than following the entire phr ase ending with "ordinary customs duties". If that
were the case, the specific measures listed in footnote 1 could indeed have been examples of measures
susceptible to being considered of the kind which have been required to be converted, and not of
measures necessarily being of such a kind. As we explained, however, the text provides differently.
7.20 Argentina has argued that the Chilean PBS is a "variable import levy", a "minimum import
price", or, in any event, a "similar border measur e other than ordinary customs duties", within the
meaning of footnote 1. As explained above, if the Chilean PBS constitutes a measure listed in
footnote 1, including such a "variable import levy", "minimum import price" or "similar border
measure", it will be a measure "of the kind which [has] been required to be converted into ordinary
customs duties", provided it is not "maintained und er balance-of-payments provisions or under other
general, non-agriculture-specific provisions of GATT 1994 or the other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement". Thus, pursuant to footnote 1, for a measure to be
considered "of the kind which [has] been required to be converted into ordinary customs duties" and
thus prohibited for the purposes of Article 4.2, we need to establish that:
(a) it is a quantitative import restriction, a variable import levy, a minimum import price,
discretionary import licensing, a non-tariff measure maintained through state-trading
enterprises, a voluntary export restraint, or a similar border measure other than
ordinary customs duties;
(b) it is not maintained under balance-of-payments provisions or under other general,
non-agriculture-specific provisions of GATT 1994 or the other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement.
7.21 Below we will address each of these requirements separately.
(i) Is the Chilean PBS a border measure similar to those listed in footnote 1?
7.22 Argentina argues that the Chilean PBS is a "variable import levy", a "minimum import price",
or a border measure similar to these measures. Chile argues that its PBS does not constitute any of
those measures.

7.23 We note that the illustrative list of footnote 1 contains, on the one hand, specific measures (i.e.
"quantitative import restrictions", "variable import levies", etc.), and, on the other hand, a residual
category of measures ("similar border measures other than ordinary customs duties"). Consequently,
if the Chilean PBS is a border measure other than an ordinary customs duty which is similar to any of
the preceding examples, it would be a measure of the kind which has been required to be converted for
the purposes of Article 4.2, provided it is not maintained under balance-of-payments provisions or
under other general, non-agriculture-specific provisions of GATT 1994 or the other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement.
7.24 We recall that, subject to the proviso that it is not maintained under balance-of-payments
provisions or under other general, non-agriculture-specific provisions of GATT 1994 or the other
Multilateral Trade Agreements in Annex 1A to the WTO Agreement, a measure explicitly listed in
footnote 1 will ipso facto be of the kind which has been required to be converted into ordinary
customs duties. Consequently, such measure is necessarily not, at the same time, an ordinary customs
duty. For the same reason, we consider that a measure which is "similar to" any of the measures listed
in footnote 1 will also be "other than ordinary customs duties". Our findings regarding one of those
two aspects can therefore be expected to reinforce our findings regarding the other. For the sake of
clarity and comprehensive analysis, however, we will address each of those two aspects in separate
sections.
"Border measure"
7.25 The Chilean PBS applies exclusively to imported goods and is enforced at the border by
Chilean customs authorities. It is therefore clear that the Chilean PBS is a border measure.
"Similar to" a "variable import levy" or a "minimum import price"
Determination of the meaning of "similar to a variable import levy or a minimum import price"
7.26 First, as regards the term "similar", dictionari es define this term as "having a resemblance or
likeness"
580, "of the same nature or kind" 581, and "having characteristics in common". 582 T w o
measures are in our view "similar" if they share some, but not all, of their fundamental characteristics.
If two measures share all of their fundamental characteristics, they are identical rather than similar. A
border measure should therefore have some fundamental characteristics in common with one or more
of the measures explicitly listed in footnote 1. It is then a matter of weighing the evidence to
determine whether the characteristics are sufficiently close to be considered "similar".
7.27 Second, as regards the measures in footnote 1 referenced by Argentina, it has been pointed out
by Chile that the exact features of terms of art such as "variable import levy" and "minimum import
price" may be difficult to establish on the basis of the text of the Agreement. We note in that respect
that "variable import levy" and "minimum import price" are terms which may often be understood by
the drafters of trade agreements in reference to one or more particular schemes used by one or more
Members. In that sense, they could indeed be referred to as "terms of art". Nonetheless, we recall that
these terms are subject to the rules of treaty inte rpretation laid down in Articles 31, 32 and 33 of the
Vienna Convention. According to Article 31 of the Vienna Convention, we should first determine the
ordinary meaning of the terms, in their context, and in light of the Agreement's object and purpose.
Pursuant to that same provision, we should al so take into account certain other international
agreements and relevant rules of international law, as well as subsequent practice. Only if necessary
to resolve ambiguity or to confirm the ordinary meaning determined using the tools offered by

580 The New Shorter Oxford English Dictionary (L. Brown, Ed.), at 2865.
581 Ibid.
582 Webster's Encyclopaedic English Dictionary, at 957.

Article 31, Article 32 instructs us to take recourse to supplementary means, including the preparatory
work and the circumstances of the treaty's conclusion. Accordingly, below we will proceed by first
examining the ordinary meaning of these terms. In addition, we will draw, as appropriate, on other
means of interpretation, including those categorized by the Vienna Convention as supplementary
means.
7.28 As a preliminary matter, we note Chile's statement that "the obligations in Article 4.2 only
relate to non-tariff barriers" 583 whereas "the PBS only covers the payment of customs duties ".584
Although Chile concedes that there is no such test in the language of the Agreement on Agriculture, it
also asserts that "it might be considered that the defining characteristic should be whether the measure
has the effect of a quantitative limitation".585 This would seem to imply that Article 4.2 was not meant
to prohibit measures taking the form of duties levied by customs authorities but only "non-tariff
barriers" or quantitative restrictions.586587 Along those lines, "similar border measures" would need to
have the effect of a quantitative restriction.
7.29 We cannot agree with the proposition that only measures with the effect of a quantitative
restriction are measures of the kind which have been required to be converted into ordinary customs
duties. Such a proposition rests on the assumption that the generic term "tariffs" can be equated with
the specific phrase "ordinary customs duties". This assumption is in our view flawed: Article II:1(b)
of GATT 1994 makes clear that the un iverse of "tariffs" is not made up of "ordinary customs duties"
alone, but also includes "other duties". By deliberately limiting the mandatory result of the conversion
required by Article 4.2 to "ordinary customs duties", the drafters of the Agreement on Agriculture did
not exclude the possibility that certain other types of "tariffs" would need to be converted as well. If
the drafters of the Agreement on Agriculture would have wanted to require conversion of only
measures "other than tariffs", they would have sa id so, and they would not have used the specific
phrase "ordinary customs duties". If they only wanted to require conversion of quantitative
restrictions, they could have drawn on the langua ge of Article XI:1 of GATT 1994, for instance,
which prohibits "prohibitions or restrictions other than duties, taxes or other charges ", without
distinguishing between "ordinary customs duties" and other types of duties or charges.
588
7.30 Certainly, there may be some degree of co-extensiveness between the scope of "restrictions
other than duties, taxes or other charges" with the scope of "similar border measures other than
ordinary customs duties".589 We consider that "restrictions other than duties, taxes or other charges"

583 Chile's First Written Submission, para. 34. Chile's response to question 6 of the Panel. Emphasis
added.
584 Ibid. Emphasis added.
585 Chile's response to question 8 of the Panel. Emphasis added.
586 We note that Chile has also argued that "despite the Members' intention to reduce the number of
non-tariff barriers and other measures covered, their intention was not to prohibit all such measures". Chile's
587 Chile has also argued that "despite the Member s' intention to reduce the number of non-tariff
barriers and other measures covered, their intention was not to prohibit all such measures". Chile's first
submission, para. 59. Emphasis added.
588 This does not mean that that Members cannot schedule other duties or charges with respect to goods
covered by the Agreement on Agriculture in the corresponding column of their Schedules. We are only saying
that, if a measure is "of the kind which has been required to be converted into ordinary customs duties", it cannot
take another form than an ordinary customs duty. Article 4.2 of the Agreement on Agriculture does not, of
course, prevent Members from maintaining as other duties or charges measures which are not of that kind.
589 As we will indicate below, under GATT 1947, a panel considered a minimum import scheme, for
instance, a restriction within the meaning of Art XI:1. Pursuant to footnote 1 of the Agreement on Agriculture,
"minimum import prices" are now measures of the kind which have been required to be converted into ordinary
customs duties. Similarly, with respect to state trading operations, the panel in Korea – Measures Affecting
Imports of Fresh, Chilled and Frozen Beef found that:

will be apprehended by the measures referred to by footnote 1 to the Agreement on Agriculture,
including "similar border measures other than ordinary customs duties". However, this does not imply
that, therefore, all "similar border measures other than ordinary customs duties" need to have the
effect of a quantitative restriction. In our view, the scope of footnote 1 to the Agreement on
Agriculture certainly extends to measures within the scope of Article XI:1 of GATT 1994, but also
extends to other measures than merely quantitative restrictions. The group of measures included in
"duties, taxes or other charges" is clearly broader than only "ordinary customs duties", and includes in
our view "other duties or charges of any kind" (o r, at least, "other duties") within the meaning of
Article II:1(b), second sentence, of GATT 1994. Consequently, the fact that a measure is not a
"restriction other than duties, taxes or other charges" within the meaning of Article XI:1 of GATT
1994 does not prevent that measure from being a "similar border measure other than ordinary customs
duties" within the meaning of footnote 1 to the Agreement on Agriculture. The "restrictions other
than" referred to in Article XI:1 of GATT 1994 constitute a narrower category than the "similar border
measures other than" in footnote 1 to the Agreement on Agriculture.
7.31 We find our reasoning confirmed in Annex 5 to the Agreement on Agriculture. Paragraphs 6
and 10 of that Annex both provide that " ordinary customs duties" "shall be established on the basis of
tariff equivalents to be calculated in accordance with the guidelines prescribed in the attachment
hereto" (emphasis added). This language makes clear that the generic term "tariff" is to be
distinguished from the phrase "ordinary customs dutie s", in that the former merely refers to the
numerical form of any duty, whereas the latter connotes a specific type of duty. Put simply, all
ordinary customs duties are tariffs, but not all tariffs are ordinary customs duties.
7.32 Finally, we see no reason why all the measures listed in footnote 1 should a priori be
considered restrictions within the meaning of Article XI:1 of GATT 1994. On the contrary, it is clear
that the measures listed in the footnote to Article 4.2 include a number of measures whose status under
Article XI:1 was never definitively resolved under the GATT 1947. These measures included price-
related measures such as variable levies, as well as measures which could be used to the same effect,
such as voluntary restraint agreements and non-tariff measures applied through state trading
enterprises. Moreover, one of the principal objectives of the Uruguay Round negotiations on
agriculture, as stated in the 1986 Punta Del Este Declaration, was strengthened and more operationally
effective GATT rules and disciplines, in line with Recommendations adopted by the Contracting
Parties at their Fortieth Session in November 1984. In these recommendations explicit reference was
made to the elaboration of approaches, as a basis for possible negotiations, of appropriate rules and
disciplines "relating to voluntary restraint agreem ents, to variable levies and charges, to unbound
tariffs, and to minimum import price arrangements", and in so doing made a distinction between these
measures (for which there were no specific and explicit GATT rules and disciplines)
590 and
"quantitative restrictions and other related measures". 591 In our view the object and purpose of
Article 4.2 is to bring measures whose definitive legal status had long remained unresolved, including

when dealing with measures relating to agricultural products which should have been
converted into tariffs or tariff-quotas, a violation of Article XI of GATT and its Ad Note
relating to state-trading operations would necessarily constitute a violation of Article 4.2 of the
Agreement on Agriculture and its footnote which refers to non-tariff measures maintained
through state-trading enterprises.
Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef ("Korea –
Various Measures on Beef "), WT/DS161/R, WT/DS169/R, adopted 10 January 2001, as modified by the
Appellate Body report, WT/DS161/AB/R, WT/DS169/AB/R, para. 762.
590 We note that a particular minimum import price sc heme was found inconsistent with Article XI by a
panel under GATT 1947 ( EEC – Programme of Minimum Import Prices, Licences and Surety Deposits for
Certain Processed Fruits and Vegetables, adopted 18 October 1978, BISD 25S/68). Nonetheless, it was a price-
based measure other than a traditional quantitative restriction such as a quota.
591 BISD, 33S/19, at 24; 31S/10, at 11.

price-related border restrictions, under more effective GATT disciplines on the basis of an explicit
prohibition, in order to protect a regime for agricultural products based on the use of ordinary customs
duties which resulted from the Uruguay Round negotiations. Accordingly, we consider that the scope
of the Article 4.2 prohibition is broader than that of Article XI:1.
7.33 We will now turn to an interpretive analysis of the specific measures in footnote 1 with which
Argentina argues, the Chilean PBS is similar: "variable import levy" and "minimum import price".
7.34 As regards the literal meaning of "variable import levy", we note that a levy is a duty or
charge; an import levy is a duty assessed upon importation; a levy is variable when it is "liable to
vary"592. These features can of course not be conclusive as to what constitutes a "variable import
levy", since any "ordinary customs duty" could also fit this description: Members may periodically
change the level or type 593 of their applied rates, provided they remain below the bound rate. Thus,
mere variability does not distinguish ordinary customs duties from "variable import levies". As
regards the literal meaning of "minimum import pric e", on the other hand, this phrase would logically
refer to a certain price level below which imported products may not enter a Member's market. 594 As
regards the context of those terms in footnote 1, we note that all the measures listed there are
instruments which are characterized either by a lack of transparency and predictability, or impede
transmission of world prices to the domestic market, or both.
7.35 We consider, however, that the text and context of "variable import levy" and "minimum
import price" alone do not enable us to determine the meaning of those terms without ambiguity. The
determination of their meaning should therefore include an analysis which "go[es] beyond a purely
grammatical or linguistic interpretation".595 Pursuant to Article 32 of the Vienna Convention, we will
take recourse to supplementary means of interpretation. In this case, we consider that certain
documents, which predate the entry into force of the Agreement on Agriculture but are strictly
speaking not part of the preparatory work
596, can shed light on what the WTO Members meant to
express by using those "terms of art".597

592 The New Shorter Oxford English Dictionary (L. Brown, Ed.), at 3547.
593 Appellate Body report, Argentina – Textiles and Apparel , WT/DS56/AB/R and Corr.1, adopted
22 April 1998, para. 46.
594 We consider that, as a practical matter, this could result from a prohibition on imports priced below
the minimum, or because such imports are subject to an additional charge in order to raise their entry price
above the specified minimum.
595 Sinclair, The Vienna Convention on the Law of Treaties (2nd ed., 1984), p. 121.
596 We believe that Article 32 of the Vienna Convention allows us to use such documents, to which all
GATT Contracting Parties had access before and during the negotiations of the Uruguay Round, as a
supplementary means of interpretation. First, in our view, they are part of "the circumstances of the conclusion"
of the WTO Agreement, including the Agreement on Agriculture. Second, it should be recalled that a treaty
interpreter is not restricted to the supplementary means explicitly listed in Article 32 of the Vienna Convention.
The use of the term "including" clearly indicates that the supplementary means explicitly mentioned by article
32 are not the only ones a treaty interpreter can have recourse to (Yasseen, L'interprétation des traités d'après la
Convention de Vienne sur le Droit des Traités, Rec., 1976-III, at 79 and 98; Sinclair, The Vienna Convention on
the Law of Treaties, supra, at 153). As stated by Mr. Ago at the 872
nd meeting of the ILC,
[…] the word "including" made it clear that recourse could be had to means other than
preparatory work or the circumstances of the conclusion of the treaty, though it probably
would be wiser not to mention them expressly.
(Yb.ILC, 1966, Vol. I, Part II, 202, at para.50.)
We see no reason why we could not draw on the referenced GATT 1947 documents pursuant to
Article 32 of the Vienna Convention. As stated by Mr. Yasseen, then Chairman of the ILC, at its 873
rd meeting:

7.36 Both variable levies and minimum import price arrangements, along with other border
restrictions, were the subject of extensive examination in bodies established by the GATT Contracting
Parties. These included Committee II (1958-1962); the post-Kennedy Round Agriculture Committee
(1967-1973); and the Committee on Trade in Agriculture (1982-1986) which developed the
parameters for negotiations in the Uruguay Round on improved and more operationally effective
GATT rules and disciplines for trade in agriculture. The work of these Committees was undertaken
on the basis, inter alia , of notifications by Members covering all instruments of support and
protection. Thus, in the case of the 1982-1986 Committee on Trade in Agriculture, reference was
made in the information provided by the Contracting Parties to the GATT 1947 provisions under
which individual border measures were being maintained.
598 On the basis of the notifications
submitted on variable levies and minimum import prices, as well as the related examinations
undertaken by Contracting Parties, it appears to us that such measures can be analysed as generally
having the following fundamental characteristics:
599
(a) Variable levies generally operate on the basis of two prices: a threshold, or minimum
import entry price and a border or c.i.f. price for imports. The threshold price may be
derived from and linked to the internal market price as such, or it may correspond to a
governmentally determined (guide or threshold) price which is above the domestic
market price. The import border or price reference may correspond to individual

[T]he very nature of a convention as an act of will made it essential to take into account all the
work which had led to the formation of that will - all material which the parties had had
before them when drafting the final text.
(Yb.ILC, 1966, Vol. I, Part. II, 204, at para. 25. Emphasis added.)
597 We note that GATT 1947 jurisprudence provides only limited guidance in this respect.
As regards variable import levies, the Panel in The Uruguayan Recourse to Article XXIII (adopted
16 November 1962, BISD 11S/95, 100) examined a number of measures described as "import charges" (varying
according to divergences between domestic prices an d imported prices but not exceeding the bound rate);
"variable surtaxes" (charged over and above the normal duties and varying from time to time to take account of
differences between domestic and imported prices); "variable import levies" (raising the price of the imported
product approximately to the levels maintained for the domestic product); "variable charges" (price supplements
levied in order to maintain the price of imported products at the level of the like domestic products) ( Ibid., at
104, 107, 134, and 143). The Panel did not consider it "appropriate to examine the consistency or otherwise of
these measures under the [GATT 1947]", although it considered that there were "a priori grounds for assuming
that those measures could have an adverse effects on Uruguayan exports." ( Ibid., at 135)
As regards minimum import prices, we note that the Panel in EEC – Programme of Minimum Import
Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables (adopted 18 October 1978,
BISD 25S/68) ruled that a particular minimum import price scheme maintained by the EC was inconsistent with
Article XI of GATT 1947 ( Ibid., para. 4.14.). The Panel in that case considered that the minimum import price
system, as enforced by the additional security, was a restriction other than duties, taxes, or other charges within
the meaning of Article XI:1, although one member of the Panel considered that the minimum import price
system was not being enforced in a manner which would qualify it as a restriction within the meaning of
Article XI:1 (Ibid., para. 4.9).
598 AG/W/2 and "Information on Measures Affecting Trade" in the series AG/FOR/…
599 Reports of Committee II - Programme for expansion of international trade - Agricultural protection:
Second Report, BISD 9S/110, 116 (paragraph 13(b)); Third Report, BISD 10S/135, 137 (Committee's "General
Findings", at paragraph 6); Report of Committee II on the consultation with the European Economic Community
– L/1910 ( "Technical Discussion" of variable levy and import reference prices at pp.5 to 33 - report adopted 16
November 1962: SR.20/12). Agriculture Committee (1967-1973): COM.AG/W/68/Add.3 and COM.AG/W/84
and Addenda thereto ("Import Measures –Variable Levies and Other Special Charges"). Committee on Trade in
Agriculture (1983-1986): AG/W/2 and AG/FOR/REV - country by country series – "Information on Measures
Affecting Trade"; AG/W/12, paras. 22 to 31.

shipment prices but is more often an administratively determined lowest world market
offer price.
(b) A variable levy generally represents the difference between the threshold or minimum
import entry price and the lowest world market offer price for the product concerned.
In other words, the variable levy changes systematically in response to movements in
either or both of these price parameters.
(c) Variable levies generally operate so as to prevent the entry of imports priced below
the threshold or minimum entry price. In this respect, i.e. when prevailing world
market prices are low relative to the threshold price, the protective effect of a variable
levy rises, in terms of the fiscal charge imposed on imports, whereas this charge
declines in the case of ad valorem tariffs or remains constant in the case of specific
duties.
(d) In addition to their protective effects, the stabilization effects of variable levies
generally play a key role in insulating the domestic market from external price
variations.
(e) Notifications on minimum import prices indicate that these measures are generally not
dissimilar from variable levies in many respects, including in terms of their protective
and stabilization effects, but that their mode of operation is generally less
complicated. Whereas variable import levies are generally based on the difference
between the governmentally determined threshold and the lowest world market offer
price for the product concerned, minimum import price schemes generally operate in
relation to the actual transaction value of the imports. If the price of an individual
consignment is below a specified minimum import price, an additional charge is
imposed corresponding to the difference.
7.37 These fundamental characteristics of variable import levies and minimum import prices,
which can be distilled from the pre-Uruguay Round notifications and examination thereof by the
GATT Contracting Parties, provide in our view a useful indication of what GATT Contracting Parties
understood to constitute variable import levies and minimum import prices. To that extent, we believe
that they are also helpful in interpreting those terms as they appear in Article 4.2 of the Agreement on
Agriculture. In conclusion, we consider that a measure will be similar to a variable import levy or
minimum import price if, based on a weighing of the evidence before us, it shares sufficiently the
fundamental characteristics outlined above.
Application of the Panel's interpretation of "similar to a variable import levy or a minimum import
price" to the Chilean PBS
7.38 We now turn to an examination of the Chilean PBS in light of the meaning of "similar border
measures other than ordinary customs duties", as determined above. In particular, we will examine
whether the Chilean PBS is similar to a variable import levy or a minimum import price, taking into
account the fundamental characteristics of those measures outlined above.
7.39 We will first recall the rather complex structure and operation of the Chilean PBS. When a
product covered by the Chilean PBS arrives at the border for importation into Chile, Chilean customs
authorities will determine whether the total amount of applicable duties declared by the importer
corresponds to the amount due under Chilean legislation, and, if necessary, revise the amount
accordingly. In application of the Chilean PBS, they will levy an 8 per cent ad valorem duty, plus an
"additional specific duty" if an administratively de termined lowest offer price from a selected foreign
market (hereinafter referred to as "the Reference Price") falls below the lower threshold of the PBS.

They will apply only the 8 per cent ad valorem duty if the same Reference Price is between the lower
and upper thresholds of the PBS. They will grant a "rebate" on the 8 per cent ad valorem duty if the
Reference Price is above upper threshold of the PBS. The PBS is determined annually on the basis of
f.o.b. prices observed on a particular international market over the course of the preceding 60
months600, which are adjusted in accordance with a Central Bank of Chile index, and listed in
descending order. The lower and upper thresholds of the PBS are obtained by discarding 25 per cent
at the bottom and at the top of that list and adding "usual import costs" to the prices. 601 The lowest
and highest prices which are obtained after these operations constitute the lower and upper thresholds
of the PBS. The specific duties and rebates corresponding to different f.o.b. prices are published in
the Official Journal of Chile. The Reference Price is determined weekly, every Friday, using the
lowest f.o.b. price for the covered products on foreign "markets of concern to Chile". 602 Unlike the
prices used for the composition of the PBS, it is not subject to adjustment for "usual import costs". 603
The applicable Reference Price for a particular shipme nt is determined in reference to the date of the
bill of lading. The Reference Price is not published, but can be consulted by the public at the offices
of the Chilean customs authorities. 604 As indicated, if the Reference Price falls below the lower
threshold of the PBS, an "additional specific duty" will be levied in addition to the 8 per cent ad
valorem applied rate. We will term this additional du ty the PBS duty. The PBS duty will equal the
difference between the Reference Price applicable on the date of the bill of lading and the lower
threshold of the PBS.
7.40 The stated objective of the Chilean PBS is to "ensur[e] a reasonable margin of fluctuation of
domestic wheat, oil-seed, edible vegetable oil and sugar prices in relation to the international prices
for such products"605, by "introducing a controlled distortion which maintains a minimum import cost
if the international price is too low […]". 606 As explained below, on the basis of the evidence before
us, we consider that the Chilean PBS has many fundamental characteristics of both a variable import
levy and a minimum import price.
7.41 The Chilean PBS operates on the basis of two pr ices: the lower threshold of the PBS and the
Reference Price. The variable PBS duty represents the difference between the lower threshold of the
PBS and the lowest relevant market price for the product concerned. Generally, a covered product
will not be able to enter the Chilean market at an import cost below the lower threshold of the PBS.
607

600 The international markets used for the calculation of the PBS are, according to Chile's response to
questions 9(c) and (e) of the Panel, Hard Red Winter No. 2 on the Kansas Exchange, f.o.b Gulf, for wheat, and
Crude Soya Bean Oil on the Chicago Exchange, f.o.b. Illinois.
601 Chile's first submission, para. 15(h).
602 With respect to wheat, these "markets of concern" include Argentina, Australia, and Canada. Chile's
response to question 9(c) of the Panel.
603 Chile's response to question 9(d) of the Panel.
604 Chile's response to question 10(e) of the Panel. However, in contrast to this response, in its
comments on the draft descriptive part of this report, Chile requested the following text to be inserted:
The reference price is published weekly on the webpage of the Chilean Customs Service. It is
also distributed to all Chilean Customs branches and Customs Chambers (formed by Customs
Agents) through official communications.* [a newly inserted footnote referred to
www.aduana.cl.]
Nowhere in its submissions or answers did Chile provide this information. Argentina, however,
appears to confirm that the daily Reference Prices are currently available on the referenced website, in a footnote
to the Panel's last question to Argentina (see Argentina's response to question 53 of the Panel). We have no
means of knowing, though, as of when this information would have been made available through the internet.
605 Article 12 of Law 18.525.
606 Chile's response to question 9(f) of the Panel. Emphasis added.
607 In its response to the Panel's question regarding this matter, Chile has indicated that the import price
can nevertheless go below the lower threshold in two instances. First, when international freight costs decrease

Indeed, for all practical purposes, and subject to the exceptional instance where the total applied duties
would exceed Chile's 31.5 per cent bound rate in the absence of an effective cap, 608 the PBS duty will
equal the difference between the lower threshold of the PBS and the Reference Price. As a result,
whenever the Reference Price falls below the lower PBS threshold, and subject to the exceptional
instance where the total applied duties would exceed Chile's 31.5 per cent bound rate in the absence of
an effective cap, a duty will be applied equalling the difference between those two values. The
Reference Price is the lowest f.o.b. price observed at the time of the shipment in the markets of
concern to Chile. Consequently, if we take the example of an exporter from a "market of concern to
Chile" for the purpose of setting a particular week's Reference Price, unless he exports his product at
such a low price below the lower threshold of the PBS that the total applied duties would exceed
Chile's bound rate in the absence of an effective cap, he will generally not be able to export his
product at a duty-paid price below the lower PBS threshold, because even if he can export at a lower
price than exporters from other markets of concern, a PBS duty will still be applied for an amount
equal to the difference between the weekly Reference Price, set on the basis of the fob price in his
market (which is the lowest among the markets of concern to Chile), and the lower threshold of the
PBS. Imports from other markets will, by operation of the system, normally come in at higher f.o.b.
prices. Thus, the Chilean PBS operates to insulate the Chilean market from world market prices.
609
7.42 This insulation of the Chilean market from world market prices is accentuated by the fact that
the PBS thresholds are determined, inter alia, after discarding 25 per cent of "atypical observations" at
the bottom and at the top. By eliminating the lowest quarter of prices observed, Chile substantially

sharply. Second, when the import price is lower than the Reference Price. This reply by Chile, however, does
not invalidate our view that the lower threshold operates generally as a minimum import price. First, we had
asked Chile whether "goods [have] entered the Chilean market at prices below the lower end of price band", and,
if so, "to identify as many instances as possible, and provide supporting documentation" (Question 46). Chile,
however, has not provided us with any such evidence. Second, Chile's reply to Question 46 refers to two
hypothetical instances which merely confirm that the purpose of the measure is to function as a type of
minimum import price and that this measure, if implemented "correctly", in fact operates that way. The first
scenario results only from the requirement of Article 12 of Law 18.525 that freight costs be estimated. If
Chilean authorities make a wrong estimation, it appears possible that the actual c.i.f price might be a little lower
than the lower PBS threshold. This scenario, however, is contingent upon the Chilean authorities themselves not
adequately making the estimation required by law. Th e second scenario would only arise either if Chilean
authorities fail to identify the lowest f.o.b. price on the markets of concern, or in the equally marginal hypothesis
that an exporter from a market other than those of concern to Chile would export to Chile at a price below the
Reference Price. Exporters from markets of concern to Chile cannot, by definition, undercut the lowest price set
by themselves.
608 Chile has stated that the total applied duties exceeded the bound rate only "on occasion", and that the
circumstances leading to this exceeding of its bound rate were of "an extraordinary nature". See para. 4.9 of our
report. In such exceptional instances, it is possible that the imported product comes in at a total import cost
below the lower threshold of the PBS. However, even then, a cap at any level, whether it be 80, 50 or 31.5 per
cent may ameliorate the inhibition of the transfer of world market prices into the Chilean market which results
from the PBS, but it cannot eliminate it.
609 This can be expressed mathematically in the following way:
Where Imp = Import price; CIF = c.i.f. price; PB = lower threshold of the Price Band; RP = Reference
Price; r = applied ad valorem rate; (PB - RP) = Price Band duties:
(a) Imp = CIF + (PB - RP) + (CIF x r)
(b) Imp + RP = CIF + PB + (CIF x r)
(c) CIF ≥ RP
(d) Therefore, after removing CIF and RP from the equation: Imp ≥ PB + (CIF x r)

increases the likelihood that the lower threshold of the PBS will equal or exceed the higher internal
price. Chile admits that "25 per cent may seem excessive", but explains that "this percentage is linked
to the actual purpose of the [PBS], which is to maintain a domestic price that is related to international
prices in the medium term".610 In our view, by discarding 25 per cent of the lowest 60-month values
observed, the PBS clearly eliminates much more than just "atypical observations". In fact, by not
accounting for the lowest of each four observed prices over the course of five years, the PBS may
result in the imposition of highly trade-distortive duties.
611
7.43 For example, an Argentinean wheat exporter will generally not be able to export wheat at an
f.o.b. price below the Reference Price, since Argentina is "a market of concern to Chile". If the
Argentinean wheat exporter becomes more efficient and can export at lower f.o.b. prices to Chile, the
Reference Price will fall accordingly. The lower the Reference Price, the larger the gap between the
lower threshold and the Reference Price, and the greater the PBS duty. If Argentinean wheat
exporters happen to export at the Reference Price level, their wheat will normally enter Chile at a total
import cost equal to the lower threshold of the PBS. If Argentinean wheat exporters can only export
at an f.o.b. price above the applicable Reference Price – because exporters from other relevant markets
produce more efficiently – their wheat will come in at a total import cost which normally exceeds the
lower threshold of the PBS.
7.44 Moreover, we observe that several crucial stages of the operation of the Chilean PBS are
characterized by a considerable lack of transparency and predictability. For instance, exporters can be
expected to have difficulties knowing how the applicable Reference Price is arrived at. No legislation
or regulation in Chile specifies which international markets are used for the calculation of the
Reference Price. Chile's replies to the Panel's questions indicate that these are "markets of concern to
Chile". Chile has informed the Panel that it uses the lowest f.o.b. price on these markets of concern to
determine the Reference Price. None of these practices appear to be provided for in Chilean
legislation or regulation. Article 12 of Law 18.525 only provides that the relevant date is the date of
the bill of lading. When asked whether the Reference Prices, determined on a weekly basis, are
published, Chile informed the Panel that they are "available to the public at the National Customs
Service". In its comments on the descriptive part of our report, however, Chile has added that they are
also available now through a Chilean governmental website.
612 Moreover, as regards the application
of the Chilean PBS to the edible vegetable oils identified by reference to 25 tariff lines, Chile has
stated that "[i]n general, the Reference Price has coincided with the price of crude soya bean oil, but in
some cases it has corresponded to that of crude sunflowerseed oil". 613 Apparently, there is no means
of knowing when one or the other Reference Price will be used. Furthermore, although the PBS
values themselves are published each year, exporters have no means of knowing how the PBS values
are actually arrived at: no published legislation or regulation in Chile sets out which international
markets are used for the determination of the PBS values, or how the "usual import costs" which are
added to the f.o.b. prices are calculated. It appears to us that exporters can be expected to encounter
serious difficulties in their commercial planning efforts in a system where weekly variations in duties
are based on factors unknown, i.e. the future evolution of prices in "markets of concern to Chile".
Such lack of predictability must affect the competitive conditions of imports vis-à-vis domestic
production.

610 Chile's response to question 10(d) of the Panel.
611 For example, if prices on the international market were stable or rose during the first four years of
the 60 month period, and have steadily declined during the last year of the 60 month period, to a price level
below the lowest price in any of the first four years, the values corresponding to that last year would all be
discarded in application of the 25 per cent rule. As a re sult, if the trend of decreasing prices continues or even
simply halts without rebounding during the period immediately following the 60 month period, all imports
during that period will nevertheless be subject to PBS duties equalling the difference between current
international prices and much higher international prices of more than a year earlier.
612 See footnote 604.
613 Chile's response to question 43(a) of the Panel.

7.45 We recognize that, on the face of it, the Chilean PBS does not share all the characteristics of
both "variable import levies" and "minimum import prices". First, whereas a "variable import levy"
will generally use as a reference price an administratively determined lowest world market offer price,
a "minimum import price" will generally use the actual transaction value of the imported good. The
Reference Price used in the context of the Chilean PBS is clearly disconnected from the actual
transaction value, unlike minimum import price schemes. It does use a lowest "market of concern"
price, however, similar to the lowest market offer price generally used in variable import levy
schemes. Second, the lower threshold of the Chilean PBS is not explicitly derived from, or linked to,
an internal market-related price, as is often th e case in variable import levy schemes. Instead, it
corresponds to an administratively determined threshold price which may, but will not necessarily, be
equal to or above the domestic market price. Nonetheless, we consider that, on the basis of the
evidence before us, it cannot be excluded that the lower threshold of the PBS, given the way in which
it is designed, particularly with the many adjustments made by the administering agencies to the basic
world market price quotations employed, including for inflation, operates in practice as a "proxy" for
such internal prices. It should be recalled in th is respect that the PBS thresholds are determined,
inter alia, after discarding 25 per cent of "atypical observations" at the bottom and at the top
614, hence
substantially increasing the likelihood that the lower threshold of the PBS will equal or exceed the
higher internal price.
7.46 We consider that the Chilean PBS is a hybrid instrument, which has most, but not all, of its
characteristics in common with either or both a variable import levy and a minimum import price.
After careful assessment of the evidence before us, however, we consider as a factual matter that the
Chilean PBS shares sufficient fundamental characteristics with those schemes for it to be considered
similar to them, and that the observed difference s between the Chilean PBS and either of those
schemes are not of such a nature as to detract from this similarity.
7.47 We therefore find that the Chilean PBS is a border measure "similar to" both a "variable
import levy" and a "minimum import price".
"Other than ordinary customs duties"
Determination of the meaning of "ordinary customs duties"
7.48 We have already noted above that our findings regarding "similar to variable import levy and
minimum import price" and "other than ordinary customs duties" are mutually reinforcing.
615 We also
note that, in Chile's view, the Chilean PBS duties constitute "ordinary" customs duties.
7.49 We recall that the use of the phrase "ordinary cu stoms duties" is common to Article II:1(b) of
GATT 1994 and Article 4.2 of the Agreement on Agriculture. Given the central place of this phrase in
both provisions, it would appear that the scope of th e obligations resulting from these provisions is, in
part, determined by the interpretation of that phrase. We note in this respect that the parties616 and third
parties to this dispute all agree that the phrase must have the same meaning in both provisions. We see
no reason to disagree with this proposition. Nothing in the text of either GATT 1994 or the Agreement
on Agriculture suggests that this identical phrase should be given a different meaning in each of those
two provisions. On the contrary, it appears from the drafting history of Article 4.2 of the Agreement on
Agriculture that the drafters of that Agreemen t actually drew on Article II:1(b) of GATT 1947 with

614 We consider that the fact that the PBS operates symmetrically by rebating import duties when world
prices are relatively high is not a relevant consideratio n for the purposes of our examination of whether the PBS
is a measure of the kind prohibited under Article 4.2.
615 See para. 7.24 above.
616 Responses by Argentina and Chile to question 2 of the Panel.

respect to the use of the term "ordinary".617 Article II:1(b) of GATT 1994 provides therefore relevant
context for the interpretation of this phrase in Article 4.2 of the Agreement on Agriculture.
7.50 Neither Article II:1(b) of GATT 1994 nor Ar ticle 4.2 of the Agreement on Agriculture,
however, defines explicitly what should be understood by "ordinary" customs duties. Both provisions
do give some indication as to what is not an "ordinary" customs duty. On the one hand, Article II:1(b) of
GATT 1994 distinguishes "ordinary" customs duties in its first sentence from "all other duties or charges
of any kind imposed on, or in connection with, the importation" in its sec ond sentence. The latter
category of "other duties or charges of any kind" appears to be a residual category, encompassing duties
or charges imposed on or in connection with importation which cannot be considered "ordinary"
customs duties.618 On the other hand, Article 4.2 prohibits Members from maintaining, resorting to, or
reverting to any measures of the kind which have been required to be converted into ordinary customs
duties. As indicated above, all the measures listed in footnote 1 are, by definition, not "ordinary"
customs duties.
7.51 We note that "ordinary customs duties" appear in the co-authentic French and Spanish
versions as "droits de douane proprement dits" and " derechos de aduana propiamente dichos". The
dictionary meaning of "ordinary" is "occurring in regular custom or practice", "of common or
everyday occurrence, frequent, abundant", "of the usual kind, not singular or exceptional,
commonplace, mundane".
619 " Propiamente dicho " has been translated as "true (something)" or
"(something) in the strict sense". 620 " Proprement dit " has been explained as " au sens exact et
restreint, au sens propre " and " stricto sensu".621 It appears from these dictionary meanings that the
English text, on the one hand, and the French and Spanish texts, on the other, differ in terms of the
perspective from which they define "ordinary": the use of "ordinary" in the English text appears to
define a particular kind of "customs duties" in reference to the frequency w it h w h ich su c h cu s to m s
duties can be found, whereas the French and Spanish texts suggest that the narrow sense of the term
"customs duties" is being referred to. Thus, the English version describes a particular kind of customs

617 We also note in this regard that an earlier draft text of the Agreement on Agriculture by the
Chairman used the phrase "normal customs duties" ("Framework Agreement on Agriculture Reform
Programme, Draft Text by the Chairman", MTN.GNG/NG5/W/170, para. 12). The fact that the drafters of the
Agreement on Agriculture subsequently replaced "normal" with "ordinary" confirms in our view that the phrase
"ordinary customs duties" in Article 4.2 of the Agreement on Agriculture was drawn from Article II:1(b) of
GATT 1994 and intended to have the same meaning.
618 According to the Report of the Review Session Working Party on "Schedules and Customs
Administration" (L/329, adopted 26 February 1955, 3S/205, 209, para. 7), "[i]t is considered that the language of
this sentence [, the second sentence of Art II:1(b),] is all-inclusive […]". A WTO panel considered as "duties or
charges of any kind" certain interest charges, costs and fees. See Panel report on United States – Import
Measures on Certain Products from the European Communities , WT/DS165/R and Add.1, adopted
10 January 2001, as modified by the Appellate Body report, WT/DS165/AB/R. GATT working parties and panels
have considered as "duties or charges of any kind" certain import surcharges, interest charges and costs in
connection with the lodging of an import deposit, and charges imposed by import monopolies. See Contracting
Parties Decision, French Special Temporary Compensation Tax on Imports (" France – Compensation Tax
 "),
17 January 1955, BISD 3S/26; Panel report, EEC – Programme of Minimum Import Prices, Licences and Surety
Deposits for Certain Processed Fruits and Vegetables (" EEC – Minimum Import Prices "), adopted
18 October 1978, BISD 25S/68; Panel Report, Republic of Korea – Restrictions on Imports of Beef – Complaint
by Australia, New Zealand, and the United States ("Korea – Beef "), adopted 7 November 1989, BISD 36S/202.
We also note that the Report of the Working Party on the accession of the Democratic Republic of the Congo
states that "revenue duties", which were levied only on imports, at the border and in addition to the regular
customs duties, were to be considered an "other duty or charge of any kind" (L/3541, adopted 29 June 1971,
paras. 8-10).
619 The New Shorter Oxford English Dictionary (L. Brown, Ed.), 4th edition, at 2018.
620 Collins Spanish-English Dictionary, 14th edition, at 201.
621 Le Petit Robert Dictionnaire de la Langue Française (J. Rey-Debove and A. Rey, Eds.), 2 nd edition,
at 2022.

duty from an empirical perspective, whereas the French and Spanish versions describe it from a
normative perspective. We will therefore proceed to examine what should be considered "ordinary"
both on an empirical and a normative basis.622
7.52 Article II:1(b), first sentence, of GATT 1994 provides that Members cannot impose "ordinary
customs duties" in excess of those listed in their Schedules. As an empirical matter, we observe that
Members, in regular practice, invariably express commitments in the ordinary customs duty column of
their Schedules as ad valorem or specific duties, or combinations thereof. 623 All "ordinary" customs
duties may therefore be said to take the form of ad valorem or specific duties (or combinations
thereof).624 As a normative matter, we observe that those scheduled duties always relate to either the
value of the imported goods, in the case of ad valorem duties, or the volume of the imported goods, in
the case of specific duties. Such ordinary customs duties, however, do not appear to involve the
consideration of any other, exogenous, factors, such as, for instance, fluctuating world market prices.
We therefore consider that, for the purpose of Article II:1(b), first sentence, of GATT 1994 and
Article 4.2 of the Agreement on Agriculture, an "ordinary" customs duty, that is, a customs duty senso
strictu, is to be understood as referring to a customs duty which is not applied on the basis of factors
of an exogenous nature.
7.53 The above determination of the ordinary meaning of "ordinary customs duties" confirms that
there is a normative dimension to the term "ordinary", and that a "tariff" must have certain
fundamental characteristics for such a "tariff" to be considered an "ordinary" customs duty. For this
reason, we disagree with an argument presented by the European Communities, apparently endorsed
by Chile.
625 According to this position:
"(…) the decisive element which distinguishes an 'ordinary customs duty' from a
'variable import levy' is the existence of a ceiling in the tariff binding."626
7.54 This position appears to be based on the proposition that the phrase "ordinary customs duties"
in the first sentence of Article II:1(b) would have been interpreted by the Appellate Body in its report
on Argentina – Textiles and Apparel as including any kind of duties on imports, and that, according to

622 We note that the panel in Canada – Patent Protection of Pharmaceutical Products (" Canada –
Pharmaceutical Patents") was confronted with an analogous situation when examining the various dictionary
meanings of the term "normal":
As so defined, the term can be understood to refer either to an empirical conclusion about what
is common within a relevant community, or to a normative standard of entitlement. The Panel
concluded that the word "normal" was being used in Article 30 in a sense that combined the
two meanings.
Panel report, Canada – Pharmaceutical Patents , WT/DS114/R, adopted 7 April 2000, para. 7.54 in
fine.
623 We also note that the Attachment to Annex 5 to the Agreement on Agriculture ("Guidelines for the
Calculation of Tariff Equivalents for the Specific Pur pose Specified in Paragraphs 6 and 10 of this Annex")
provides, in its paragraph 1, that "[t]he calculation of the tariff equivalents, whether expressed as ad valorem or
specific rates, shall be made using …."
624 We do not believe, however, that, conversely, the fact that a duty ultimately is labelled as an
ad valorem or specific duty necessarily qualifies that duty as an ordinary customs duty. As a matter of fact,
quite some "other duties or charges", registered as such in the "other duties and charges" column of Members'
Schedules, appear to be expressed in specific or ad valorem terms. Put another way, a duty or charge can be
expressed either in ad valorem or specific terms, but nevertheless not constitute an "ordinary" customs duty.
625 Chile has stated that the position expressed by the European Communities "may be correct". Chile's
response to question 5 of the Panel.
626 Oral Statement by the European Communities, para. 38 in fine.

that report, the imposition of any kind of duties is consistent with Article II:1(b) provided that such
duties do not exceed the bound rate for "ordinary customs duties".627
7.55 We disagree with the proposition that the imposition of any kind of duties is consistent with
Article II:1(b) provided that such duties do not exceed the bound rate for "ordinary customs duties".
In our view, the cited Appellate Body report cannot be read as suggesting that any duty or charge can
be considered an "ordinary customs duty" as long as the total amount of applied duties does not
exceed the bound rate for "ordinary customs duties". As already indicated, whether or not a duty can
be considered "ordinary" is not merely and simply a function of whether or not a Member applies a
total amount of duties and charges in excess of the bound rate for "ordinary customs duties". If this
view were to be accepted, the distinction between "ordinary" and "other" duties in the first and second
sentence of Article II:1(b), and the corresponding existence of two separate columns in the Schedules,
would be rendered void of all meaning, particul arly in light of the Uruguay Round Understanding on
the Interpretation of Article II:1(b) of the GATT 1994. We do not believe either that this view was
espoused by the Appellate Body in the cited report. In that report, the question of whether or not the
duties at issue constituted "ordinary customs duties" was not even addressed by the Appellate Body.
The Appellate Body merely stated:
"The principal obligation in the first sentence of Article II:1(b) […] requires a
Member to refrain from imposing ordinary customs duties in excess of those provided
for in that Member's Schedule. However, the text of Article II:1(b), first sentence,
does not address whether applying a type of duty different from the type provided for
in a Member's Schedule is inconsistent in itself, with that provision."628
7.56 Thus, the Appellate Body stated what the obligation of the first sentence of Article II:1(b),
regarding the application of "ordinary customs duties", entails. The Appellate Body recalled that there
may be various "types" of duties within the category of "ordinary customs duties", and that applying a
"type" of duty different from the "type" recorded in the Schedule is not necessarily inconsistent with
the first sentence of Article II:1(b). By different "types" of duties, however, the Panel and the
Appellate Body were merely referring to the distinction between ad valorem and specific duties. 629
Both parties, as well as the Panel and the Appellate Body, agreed in that case that the specific and
ad valorem duties in question were all "ordinary" customs duties. Thus, the issue was not whether
Argentina's applied duties were "ordinary", but rather whether Argentina could apply one type of
ordinary customs duty even though its WTO Schedule identified another type of ordinary customs
duty. In our view, therefore, it is clear that th e cited Appellate Body report has no bearing on the
question before us, i.e. what distinguishes an "ordinary" customs duty from other duties and charges.
7.57 We find our interpretation of what constitutes an "ordinary" customs duty confirmed by our
analysis of the object and purpose of the Agreement on Agriculture. The object and purpose of this
Agreement is, according to the Panel in Canada - Dairy,
"to 'establish a basis for initiating a process of reform of trade in agriculture'630 in line
with, inter alia, the long-term objective of establishing 'a fair and market-oriented
agricultural trading system'. 631 This objective is pursued in order 'to provide for
substantial progressive reductions in agricultural support and protection sustained over

627 Ibid., para. 36 in fine : "[…] measures that are 'ordinary customs duties' in the sense of Article
II:1(b), as interpreted by the Appellate Body […]". In the preceding paragraphs the European Communities
provided its reading of the Appellate Body report on Argentina – Textiles and Apparel.
628 Appellate Body report on Argentina – Textiles and Apparel, para. 46. Emphasis in original.
629 Ibid., para. 50.
630 (original footnote) Preambular paragraph 1.
631 (original footnote) Preambular paragraph 2.

an agreed period of time, resulting in correcting and preventing restrictions and
distortions in world agricultural markets.632
The general aim of the Uruguay Round negotiations on agriculture was to 'achieve
greater liberalization of trade in agriculture and bring all measures affecting import
access and export competition under strengthened and more operationally effective
GATT rules and disciplines'."
633 […] 634
7.58 As indicated earlier, an important aspect of this exercise was the "tariffication" process,
involving the conversion of certain, particularly distortive trade barriers into ordinary customs duties.
Key objectives of tariffication were to make agricultural market access conditions more transparent
and predictable, and establish or strengthen the link between national and international agricultural
markets. As stated in the Punta del Este Ministerial Declaration on the Uruguay Round:
"Contracting Parties agree that there is an urgent need to bring more discipline and
predictability to world agricultural trade by correcting and preventing restrictions and
distortions including those related to structural surpluses so as to reduce the
uncertainty, imbalances and instability in world agricultural markets."635
7.59 As explained by the Panel in Turkey – Textiles , this object and purpose is based on the
premise that ordinary customs duties "are GATT's border protection 'of choice'" because they "permit
the most efficient competitor to supply imports", and are "more transparent price-based" measures.
636
7.60 In our view, customs duties of the ordinary kind scheduled by the GATT Contracting Parties
since 1947 and thereafter the WTO Members, which ar e exclusively based on either the value or the
volume of the goods or a combination thereof (i.e. not based on exogenous factors), were considered
by the Uruguay Round negotiators to be most amenable to achieving the objectives of progressively
reducing protection in agricultural markets through tariff reductions and ensuring predictability and
more transparent, price-based competition. By no longer allowing for instruments of protection
which, through the use of exogenous factors
637, result in highly uncertain and unstable levels of
protection often isolating the domestic market from international price competition, the drafters of the
Agreement on Agriculture decided to bring such instruments under "strengthened and more
operationally effective GATT rules and disciplines", in pursuit of the long-term objective of
establishing a fair and market-oriented agricultural trading system.
Application of the Panel's interpretation of "other than ordinary customs duties" to the Chilean PBS
7.61 In our analysis of whether the Chilean PBS is a border measure similar to a variable import
levy and a minimum import price, we have already highlighted the features 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. Nonetheless, in furtherance

632 (original footnote) Preambular paragraph 3. Emphasis added.
633 (original footnote) Punta del Este Declaration, Ministerial Declaration on the Uruguay Round,
MIN.DEC, 20 September 1986, p. 6.
634 Panel report on Canada – Dairy, paras. 7.25-7-26.
635 Punta del Este Declaration, Ministerial Declaration on the Uruguay Round, MIN.DEC,
20 September 1986, p. 6. (Emphasis added). We recall th at the objectives of the Punta del Este Declaration are
explicitly referenced in the first tiret of the Preamble to the Agreement on Agriculture.
636 Panel report, Turkey – Restrictions on Imports of Textile and Clothing Products ("Turkey – Textiles"),
WT/DS34/R, adopted 19 November 1999, as modified by the Appellate Body report, WT/DS34/AB/R,
paras. 9.63-9.65. Emphasis added.
637 This can include both quantitative restrictions and certain price-based border measures. See our
discussion at para. 7.32 above.

of our analysis, we will more explicitly contrast some other aspects of the structure and operation of
the Chilean PBS with those of an "ordinary" customs duty.
7.62 Most importantly, we note that the Chilean PBS duties are neither in the nature of ad valorem
duties, nor specific duties, nor a combination thereof 638, in the sense that they are not just assessed on
the transaction value of individual shipments, nor just on the volume of the goods. The amount of the
applicable duty is a function of a price which is di sconnected from the actual transaction value of the
imported good. In fact, the applicable duty is determined on the basis of exogenous price factors, i.e.
the lower threshold of the PBS and the Reference Price.639
7.63 We also note that several features of the Chilean PBS are bound to artificially inflate this
margin between the lower threshold of the PBS and the Reference Price, and, consequently, the level
of the applicable PBS duty. Most strikingly, the level of the lower threshold of the PBS is
considerably raised over that of the Reference Price by discarding the lowest 25 per cent of all
observed international market prices over the preceding 60 months. The prices observed on "markets
of concern" used for the calculation of the Reference Price do not undergo the same operation.
Second, as confirmed by Chile, the f.o.b. prices used for the PBS values are adjusted, inter alia, for
"usual import costs", whereas the f.o.b. prices used for the Reference Prices are not.
640 T h e s e
differences can in our view only result in increasing the margin between the lower threshold of the
PBS and the Reference Price, and thus the applicable PBS duty.
641 We find that those aspects of the
structure and operation of the Chilean PBS do not reflect the structure and operation of an "ordinary"
customs duty.
7.64 Finally, we note that under the Chilean PBS, the Reference Price, and therefore the applicable
duty or rebate, is determined in reference to the da te of the bill of lading. Consequently, when two
shipments from two different exporting Members leave their respective port of origin on two different
dates, but arrive at the Chilean port of entry at the same time, they can be assessed a different duty, to
the extent that the Reference Price may very well vary as regards those two shipments. We are fully
aware that Argentina did not present any claim unde r Article I of GATT 1994, and that no such claim
is therefore within our Terms of Reference. Whereas we cannot and do not make any finding of law
regarding the consistency of the Chilean PBS with Article I of GATT 1994, we do find, as a matter of
fact, that the Chilean PBS inherently carries the risk of resulting in higher duties on one shipment than

638 In addition, in light of the object and purpose of the Agreement on Agriculture, we consider that a
measure such as the Chilean PBS may be considerably less amenable to negotiated reduction than an ordinary
customs duty, in particular in the absence of an effective "cap". In the case before us, Chile has at an advanced
stage in the proceedings argued that a recent legislative amendment constitutes such a "cap" on the Chilean PBS.
We do not need to decide, however, whether or not th e Chilean PBS would therefore become more amenable to
progressive reduction, as we consider that several aspects of the structure and operation of the Chilean PBS quite
clearly distinguish this measure from an ordinary customs duty.
639 It is not a combined duty either, which is a straightforward ad valorem duty plus a specific duty
levied simultaneously. We also note that, although Chile calls the PBS duty a "specific" duty when the
Reference Price falls below the lower PBS threshold, the applicable PBS rebate is expressed ad valorem when
the Reference Price is higher than the upper PBS threshold.
640 Chile's response to question 9(e) of the Panel.
641 We also note that Chile uses different markets to determine the PBS values, on the one hand, and the
Reference Price, on the other. Normally, fluctuations of international prices can be most adequately measured
by making inter-temporal comparisons of prices on one and the same international market. Although the
products to the Chilean PBS are commodities, it cannot be entirely excluded that the prices observed on the
Kansas or Chicago Exchanges (used for the calculation of the PBS values) are different from those observed on
the "markets of concern to Chile" (used for the calculatio n of the Reference Price). Indeed, the evidence before
us is that Argentina is often the most important designat ed "market of concern to Chile", not the United States.
Consequently, it cannot be entirely excluded that a low Reference Price today may not be fully reflected in the
PBS values 60 months later, faulting the inter-temporal comparison of international prices.

on another, despite the fact that those shipments arrive at the same time at the Chilean border, which is
not consistent with the characteristics of an "ordinary" customs duty.
Conclusion
7.65 In light of our findings above, we conclude that the Chilean PBS is a border measure similar
to a variable import levy and a minimum import price, other than ordinary customs duties, within the
meaning of footnote 1 to the Agreement on Agriculture.
(ii) Is the Chilean PBS "maintained under balance-of-payment provisions or under other general,
non-agriculture specific provisions of GATT 1994 or of the other Multilateral Trade
Agreements in Annex 1A to the WTO Agreement"?
7.66 Chile has not asserted a defence of the Chilean PBS under Article 4.2 of the Agreement on
Agriculture in reference to the balance-of-payment provisions of GATT 1994 or other general, non-
agriculture specific provisions of the Multilateral Trade Agreements in Annex 1A other than GATT
1994. Regarding the relationship between Article 4.2 of the Agreement on Agriculture and
Article II:1(b) of GATT 1994, Chile has stated that "[t]he prohibitions in Article 4.2 of the Agreement
on Agriculture apply without regard to whether the measures breach a tariff binding".
642 At the same
time, however, Chile has also stated that the following position, expressed by the European
Communities in the course of these proceedings, "may be correct":643
"(…) a measure that would meet the te st set out by the Appellate Body in Argentina –
Footwear, Textiles and Apparel , and would therefore not be contrary to Article II of
GATT 1994, would not be subject to any further obligation in Article 4.2 of the
Agreement on Agriculture. This conclusion stands even if the measure in question
resulted in the application of a 'duty that varies' – inasmuch as this 'variation' is
maintained below the ceiling written in the Member's tariff binding. Thus, the
decisive element which distinguishes an "ordinary customs duty" from a "variable
levy" is the existence of a ceiling in the tariff binding."
644
7.67 In light of Chile's position, we consider that we should address the argument advanced by the
European Communities.
7.68 According to the European Communities, Article II:1(b) of GATT 1994 is a "non-agriculture-
specific" provision of GATT 1994 under which a measure such as the Chilean PBS could be
maintained, provided it does not exceed the "ordinar y customs duties" binding. Consequently, if the
measure is consistent with Article II:1(b) of GATT 1994, it would not be subject to the obligation laid
down in Article 4.2 of the Agreement on Agriculture. We cannot agree. First, the text of footnote 1
makes clear that the drafters of the Agreement on Agriculture did not mean to exempt from the
obligation of Article 4.2 all measures maintained under any "general, non-agriculture-specific"
provision of GATT 1994. Footnote 1 only excludes from the scope of Article 4.2 measures
maintained under balance-of-payment provisions or under other general, non-agriculture specific
provisions of GATT 1994. The use of the term "other" before "general, non-agriculture specific
provisions" makes clear that balance-of-payment prov isions are one example of what is meant by the
category of "general, non-agriculture-specific" provisions of GATT 1994 and the other Annex 1A
Agreements. Balance-of-payment measures can be adopted in accordance with Article XII of GATT
1994. Article XII is clearly in the nature of an exception to the general obligations of GATT 1994. In
our view, therefore, footnote 1 was meant to exclude from the scope of Article 4.2 only those

642 Chile's response to question 4 of the Panel.
643 Chile's response to question 5 of the Panel.

measures which are maintained on the basis of GATT 1994 provisions which allow Members, subject
to certain conditions, to act inconsistently with their general obligations under GATT 1994.
Article XIX regarding safeguard measures 645 and Article XX regarding general exceptions, for
instance, would in our view provide other exam ples of such "general, non-agriculture-specific
provisions".
7.69 Second, we note that Article 21.1 of the Agreement on Agriculture provides,
"The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex
1A to the WTO Agreement shall apply subject to the provisions of this Agreement."
7.70 In commenting on this provision, the Appellate Body stated in EC – Bananas III:
"Therefore, the provisions of the GATT 1994 […] apply to market access
commitments concerning agricultural products, except to the extent that the
Agreement on Agriculture contains specific provisions dealing specifically with the
same matter."
646
7.71 If the general rule is that the provisions of GATT 1994 only apply to market access
commitments concerning agricultural products to the extent that the Agreement on Agriculture does
not contain specific provisions dealing specifically with the same matter, it is difficult to see why the
drafters of the Agreement on Agriculture would have turned that rule in effect upside down in
footnote 1 by excluding from the scope of the Agreement on Agriculture's market access obligations
those measures maintained in accordance with the general obligations of GATT 1994. If this view
were to be accepted, footnote 1 would be rendering Article 21.1 void of meaning as regards the
Agreement on Agriculture's market access provisions. A treaty interpreter, however, may not adopt a
reading that would result in reducing whole clau ses or paragraphs of a treaty to redundancy or
inutility.
647 In our view, such an interpretation requires us in this case to read footnote 1 as excluding
from the scope of Article 4.2 those measures which Members are allowed to maintain in accordance
with the provisions in GATT 1994 laying down exceptions to the general obligations of GATT 1994,
such as its balance-of-payment provisions.
7.72 We find this interpretation confirmed by the preparatory work of the Agreement on
Agriculture. The agriculture section of the 1991 Draft Final Act provides:
"The policy coverage of tariffication shall include all border measures other than
ordinary customs duties* such as […]." 648
* Excluding measures maintained for balance-of-payments reasons or under general safeguard
and exception provisions (Articles XII, XVIII, XIX, XX and XXI of the General Agreement).
7.73 We consider that this language confirms that the drafters of the Agreement on Agriculture did
not intend to include Article II of GATT in the ca tegory of "other general, non-agriculture specific
provisions of GATT 1994".
7.74 We note that, in any event, the question of whether or not the Chilean PBS duties have
exceeded the "ordinary customs duties" binding of 31.5 per cent only becomes relevant after it has

645 We note that Chile has invoked Article XIX of GATT 1994 with respect to Argentina's claims
regarding Article II:1(b) of GATT 1994, but that it has not done so with respect to Argentina's claim under
Article 4.2 of the Agreement on Agriculture.
646 Appellate Body report on EC – Bananas III, para. 155.
647 Appellate Body report, US – Gasoline, WT/DS2/AB/R, adopted 20 May 1996, at 21.
648 MTN.TNC/W/FA, para. 1 of Part B, Annex 3, Section A, at L.25. Emphasis added.

been determined that the Chilean PBS duties do indeed constitute such "ordinary" customs duties. As
we have indicated earlier, in our view, the Chilean PBS is a border measure similar to a variable
import levy and a minimum import price, other than ordinary customs duties. The corresponding
binding of 31.5 per cent is therefore irrelevant for the purpose of assessing the Chilean PBS duties'
consistency with Article II:1(b) of GATT 1994. We will revert to this matter below, in our discussion
of Argentina's claim under Article II:1(b) of GATT 1994.
(b) Other tools of interpretation
7.75 Chile has argued that the Panel, in its inte rpretation of Article 4.2, should draw on the
following elements:
(a) "state practice", including: the alleged existence in other Members of measures
similar to the Chilean PBS; the fact that these Members never converted their
measures to ordinary customs duties; and the absence of any challenge of such
measures on the basis of Article 4.2;
(b) Article 24 of Economic Complementarity Agreement No. 35 ("ECA 35") between
Chile and MERCOSUR;
(c) negotiating history of Article 4.2 of the Agreement on Agriculture, including
communications by or with individual members of the GATT Secretariat.
7.76 We will first examine to what extent Articles 31 and 32 of the Vienna Convention instruct or
allow us to consider these elements in our interpretation of Article 4.2, in particular the question as to
whether Article 4.2 was meant to prohibit measures such as the Chilean PBS. Only if we find that we
should consider some or all of these elements for the purpose of interpreting Article 4.2, we will
subsequently address them.
7.77 According to Article 31 of the Vienna Conven tion, we should draw, as context, on any
agreement relating to "the treaty", i.e. the WTO Agreement
649, which was made between all the parties
in connection with the conclusion of the WTO Agreement, as well as any instrument which was made
by one or more parties in connection with the conclusion of the WTO Agreement and accepted by the
other parties as an instrument related to the WTO Agreement. We should also take into account any
subsequent agreement between the parties regarding th e interpretation of the treaty or the application
of its provisions; any subsequent practice in the application of the treaty which establishes the
agreement of the parties regarding its interpretation; and any relevant rules of international law
applicable in the relations between the parties. Finally, according to Article 32 of the Vienna
Convention, we may draw on preparatory work and circumstances of the Treaty's conclusion to
confirm the ordinary meaning or to resolve ambiguity.
(i) "state practice"
7.78 Presumably, by referring to these elements under the banner of "state practice", Chile is
suggesting that we consider these elements either as "any subsequent practice in the application of the
treaty which establishes the agreement of the parties regarding its interpretation" under Article 31, or
as a supplementary means of interpretation under Article 32 of the Vienna Convention. First, we do
not consider that the alleged "state practice" can be qualified as subsequent practice within the

649 Legally speaking, the Agreement on Agriculture is part of an annex (Annex 1A) to the WTO
Agreement. When Article 31 Vienna Convention speaks of "the treaty", it is the WTO Agreement as a whole
which should be referred to.

meaning of Article 31 of the Vienna Convention. As stated by the Appellate Body in its report on
Japan – Alcoholic Beverages II650:
"(…) in international law, the essence of subsequent practice in interpreting a treaty
has been recognized as a 'concordant, common and consistent' sequence of acts or
pronouncements which is sufficient to establish a discernable pattern implying the
agreement of the parties regarding its interpretation.651 An isolated act is generally not
sufficient to establish subsequent practice652; it is a sequence of acts establishing the
agreement of the parties that is relevant."653
7.79 Thus, first, the mere fact that Argentina or other Members did not challenge the Chilean PBS
through the WTO dispute settlement system until recently does not constitute a "sequence of acts or
pronouncements".654 Second, the fact that a few Members of the WTO would have in place measures
similar to the Chilean PBS is not a "sufficiently concordant, common and consistent sequence of acts"
establishing the agreement of the WTO Members regarding the interpretation of Article 4.2 of the
Agreement on Agriculture.
655 We will address the question of state practice as a supplementary means
of interpretation below.

650 Japan – Alcoholic Beverages II , WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted
1 November 1996, p. 13. Emphasis added.
651 (original footnote) Sinclair, supra, p. 137; Yasseen, "L'interprétation des traités d'après la
652 (original footnote) Sinclair, footnote 24, p. 137.
653 (original footnote) (1966) Yearbook of the International Law Commission, Vol. II, p. 222; Sinclair,
supra, footnote 24, p. 138.
654 We note in this respect that Chile is not arguing estoppel. See Chile's response to question 13(a) of
the Panel.
655 We note in this respect that Argentina has drawn our attention to the July 1995 Report of the
Working Party on the Accession of Ecuador, which was adopted by consensus and which shows that several
Members considered an Ecuadorian PBS inconsistent with various covered agreements, including the
Agreement on Agriculture:
Some members noted that the use of minimum import prices and variable charges appeared to
be in conflict with Ecuador's obligations under Articles II, VI and VII of the General
Agreement 1994, the WTO Customs Valuation Agreement and the WTO Agreement on
Agriculture. In their view, Ecuador should either phase out this mechanism or bring it into
conformity with the aforesaid obligations. (WT/L/77, para. 42)
In response, the Ecuadorian delegate has been recorded to state that,
in order to comply with the provisions of the WTO Agreement on Agriculture, Ecuador would
gradually eliminate the price band system within a seven year period in accordance with the
time table annexed to Ecuador's Protocol of A ccession. During the period for the phase-out of
this mechanism, Ecuador would not enlarge the coverage of the system nor reintroduce
products back into the system. The Working Party took note of these commitments.
(WT/L/77, para. 48)
In our view, however, in the absence of more specific information regarding the structure and operation
of the measure at issue in this report, we cannot determine to what extent this measure is comparable to the
Chilean PBS, and, consequently, assess its relevance for our analysis. We are therefore not in a position to take
this into account.

(ii) Article 24 of Economic Complementarity Ag reement No. 35 ("ECA 35") between Chile and
MERCOSUR
7.80 ECA 35 between Chile and MERCOSUR was signed on 25 June 1996 and entered into force
on 1 October of that year. Article 24, which is listed under the heading "Customs Valuation", reads:
"When using the Price Band System provided for in its domestic legislation
concerning the importation of goods, the Republic of Chile commits, within the
framework of this Agreement , neither to include new products nor to modify the
mechanisms or apply them in such a way which would result in a deterioration of the
market access conditions for MERCOSUR."656
7.81 According to Chile, by signing ECA 35 657, Argentina has expressed the understanding that
Article 4.2 does not prohibit the Chilean PBS, because it would not have negotiated Article 24 of ECA
35 if the Chilean PBS was prohibited outright under Article 4.2 of the Agreement on Agriculture.
7.82 Article 31 of the Vienna Convention instructs us to consider other international agreements
for the purpose of interpreting Article 4.2 of the Agreement on Agriculture, provided they meet certain
conditions. In our view, however, it is clear th at ECA 35 does not meet the conditions of the
agreements referred to in Article 31 of the Vienna Convention. First, ECA 35 is clearly not an
"agreement relating to the Treaty which was made between all the parties in connection with the
conclusion of the Treaty ", nor an "instrument which was made by one or more parties in connection
with the conclusion of the Treaty and accepted by the other parties as an instrument related to the
Treaty".
7.83 Second, ECA 35 is in our view not a "subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions". Leaving aside the question of whether
such an agreement should be concluded between all parties to the WTO Agreement – which we need
not address –, it suffices to note that the Preamble to ECA 35 reads:
"(…) the Marrakesh Agreement establishing the World Trade Organization
constitutes a framework of rights and obligations to which the commercial policies
and compromises of the present Agreement shall adjust."
658
7.84 If the policies and compromises embodied in ECA35 have to "adjust to" the WTO Agreement,
we find it difficult to see how ECA35 could be an agreement "regarding the interpretation" or "the
application" of the WTO Agreement.
7.85 Finally, Article 24 of ECA 35 does not constitute in our view a "relevant rule of international
law applicable in the relations between the parties". Again, leaving aside the question of whether such
a rule of international law should be applicable between all parties to the WTO Agreement, the
language of ECA 35 itself makes clear that Article 24 cannot be "relevant" to the interpretation of
Article 4.2 of the Agreement on Agriculture. First, the Preamble states that the commercial policies
and compromises of ECA 35 shall "adjust to" the WTO framework of rights and obligations. A
fortiori, Article 24 of ECA 35 cannot influence the interpretation of the WTO Agreement. Second,
Chile's commitment regarding its PBS in Article 24 of ECA 35 has been explicitly made "within the
framework of" ECA 35. Such language suggests that the parties to ECA 35 did not intend to exclude

656 Our translation. Emphasis added.
657 ECA 35 provides that the " partes contractantes" (contracting parties) are Chile and MERCOSUR,
and that Argentina is a "parte signataria" (signatory party).
658 Our translation. Emphasis added.

the possibility that different commitments regardin g the Chilean PBS may have been or will be made
in the context of other international agreements.
7.86 In any event, even if we were somehow to take into account Article 24 of ECA 35 for the
purpose of interpreting Article 4.2 of the Agreement on Agriculture, quod non, we would fail to see
how a simple stand-still commitment by Chile vis-à-vis MERCOSUR and its members regarding its
PBS would detract from the position that the Chilean PBS is a measure "of the kind which ha[s] been
required to be converted into ordinary customs duties" within the meaning of Article 4.2 of the
Agreement on Agriculture.
(iii) Negotiating history of Article 4.2
7.87 Chile is of the view that the text and contex t of Article 4.2 leave no ambiguity that its PBS is
not a prohibited measure. However, according to Ch ile, should the Panel consider that there is any
ambiguity, the negotiating history of the Article 4.2 will demonstrate that the negotiators did not
intend to prohibit the maintenance of the PBS.
7.88 We note that Chile links its arguments regarding the negotiating history with elements of
subsequent practice and maintains that under the general rubric of "state practice" it becomes clear
that Members did not consider the PBS inconsistent with Article 4.2. We have already dealt with the
issue of subsequent practice above; here we will turn to the issue of the negotiating history.
7.89 Article 32 of the Vienna Convention provides that:
"Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of Article 31, or to determine the
meaning when the interpretation according to Article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable."
7.90 Chile has argued that the PBS was in place before the start of the Uruguay Round and,
therefore, all Uruguay Round negotiators were fully aware of its existence when preparing the text of
Article 4.2. According to Chile, none of the negotiators required that it be converted.
7.91 We cannot agree with Chile's position that it results from the negotiating history of Article 4.2
that the Chilean PBS is not a measure of the kind which has been required to be converted. As we
have discussed extensively above, the text and context of Article 4.2 make it clear that Article 4.2 and
footnote 1 both are provisions of general application. Article 4.2 refers to measures of the kind that
were to be converted. Footnote 1 provides an illustrative list of such measures, but generalizes to
include other similar border measures. Thus, neither the text of the Article nor the footnote
contemplate the need for negotiators to conclusively agree on what measures should be converted.
Quite the contrary; there was a textual requirement that measures of this kind were not to be
maintained. Thus, the lack of an explicit agreement that the PBS was required to be converted does
not help Chile's argument.
659
7.92 We can find no evidence in the negotiating history that it was intended by the negotiators to
exclude the Chilean PBS from coverage of Article 4.2. We note, for example, that the Draft Final Act
version of Article 4.2 provided that:

659 See para. 7.18 above.

"Participants undertake not to resort to, or revert to, any measures which have been
converted into ordinary customs duties pursuant to concessions under this
agreement."660
7.93 As can be seen, this text used different language. It referred to a requirement that any
measures which actually had been converted, would not be resorted to or reverted to. In contrast,
Article 4.2 requires that Members not " maintain, resort to or revert to any measure of the kind which
have been required to be converted." (emphasis ad ded) So, the word "maintain" was added implying
that not every measure had been explicitly addressed because there is no reason to have a prohibition
on maintaining a measure which had been explicitly negotiated out of existence. The prohibition on
reverting to or resorting to would have been sufficie nt otherwise. This is made conclusively clear by
the addition of the phrase "of the kind" which broadened the language of Article 4.2 beyond those
which had actually been subject to negotiations.
7.94 Chile has also reported that during the early 90s, during a seminar held in a Central-American
country, "a letter was presented from an authority of the GATT Secretariat arguing that it was not
necessary to tariffy price bands since they were unrelated to the domestic price – provided the price
bands were maintained within the bound levels." 661 Chile was unable to produce the said letter.
However, even if we had been able to verify the exac t contents of said letter, we consider that such a
letter could not have changed our interpretation of Article 4.2 of the Agreement on Agriculture. The
mere fact that an individual in the GATT Secretariat might have made a statement – orally or in
writing – along the lines described by Chile is not determinative. The WTO Agreement gives the
Ministerial Conference and the General Council the exclusive right to adopt interpretations of the
WTO Agreement. 662 While the Secretariat has in the past, and will in the future be requested to
provide advice to Members of the WTO, we believe the general rule of reserving the legal right to
adopt interpretations to the Members to be the appropriate standard in this context, while, of course,
recognizing that the WTO rules were not in force at the time in question.663
7.95 The Secretariat's advice might prove a part of a more comprehensive compilation of
preparatory work if there were evidence that negotiators specifically adopted an approach
recommended by the Secretariat, but that is not the case here. Even at face value, the advice
referenced by Chile would appear to have been isolated advice offered at a regional seminar held in
Central America. There is a complete lack of comprehensive evidence in this case that would
correspond with any such advice. Indeed, Chile's argument seems to turn more on the silence of the
negotiators regarding its PBS rather than positive evidence that it was intended to be excluded from
the application of Article 4.2.
664

660 MTN.GNG/W/FA, p. L.3.
661 Chile's response to question 14 of the Panel.
662 Article IX:2 of the Marrakesh Agreement establishing the WTO.
663 In any event, we note that, on the one hand, Chile tabled its negotiating offer on the basis of the
Draft Final Act modalities and draft rules on agriculture on 5 March 1992, and, on the other hand, has stated that
"[t]he date of the seminar is […] unclear but it could have taken place in 1993." (Chile's response to question
40 of the Panel).
664 In this context, we also note that Argentina has referred to the WTO Secretariat's 1997 Trade Policy
Review Report on Chile, which reads that "[t]he price stabilization mechanism works as a variable levy"
(WT/TPR/S/28, para. 38). We consider that such a Report should not be taken into account in the context of
dispute settlement proceedings. Paragraph A(i) unequivocally states,
[The Trade Policy Review Mechanism] is not, however, intended to serve as a basis for the
enforcement of specific obligations under the Agreements or for dispute settlement procedures
[…].

7.96 Chile's general argument regarding "state practice" is in many ways like a non-violation
argument.665 In effect, Chile argues that it had a reasonable expectation that it was not required to
convert. The nature of Chile's argument can be seen in light of Chile's affirmation that it is not
arguing that Argentina is legally estopped from pursuing the claim against the PBS system. Rather,
Chile argues all of this constitutes the broader interpretative context. In other words, Chile should not
now be required to convert a system that it had a reasonable basis for concluding was not prohibited
by article 4.2. Of course, non-violation is not at all applicable here given the fact that Chile as a
respondent could not raise a non-violation claim.
7.97 Chile's "negotiating history" argument might have served as a valid defence by Chile had
Argentina argued that it had a non-violation claim under Article 26 of the DSU. In such a case, the
existence of the PBS since 1983 would be an issue, inter alia, which Argentina would have to explain
if it were to establish all the elements of a non-violation claim.
7.98 There is another aspect of the contrast betw een violation and non-violation claims which is
useful to note here. As the Appellate Body pointed out in EC – Computer Equipment , non-violation
rests on reasonable expectations in a primarily bilateral context whereas violation claims rest
ultimately in a multilateral context. In order to serve as a useful tool in a violation context, there must
be positive evidence in the negotiating history of a common understanding of the various parties to the
negotiation.
666 Hence the need for some comprehensive evidence of negotiators' intentions to sustain a
defence667 based on preparatory work.668

Consequently, we will disregard the information contained in the report referred to by Argentina
665 See Article 26.1 of the DSU ("Non-Violation Complaints of the Type Described in Paragraph 1(b)
of Article XXIII of GATT 1994 ") and Article XXIII:1(b) of GATT 1994. The Appellate Body has stated with
respect to Article XXIII:1(b) of GATT 1994,
Article XXIII:1(b) sets forth a separate cause of action for a claim that, through the application
of a measure, a Member has "nullified or impaired" "benefits" accruing to another Member,
"whether or not that measure conflicts with the provisions" of the GATT 1994. Thus, it is not
necessary, under Article XXIII:1(b), to establis h that the measure involved is inconsistent
with, or violates, a provision of the GATT 1994. Cases under Article XXIII:1(b) are, for this
reason, sometimes described as "non-violation" cases; we note, though, that the word "non-
violation" does not appear in this provision. (Appellate Body report, European Communities –
Measures Affecting Asbestos and Asbestos-Containing Products ("EC – Asbestos
 "),
WT/DS135/AB/R, adopted 5 April 2001, para. 185)
According to the Panel in Japan – Measures Affecting Consumer Photographic Film and Paper:
"[t]he text of Article XXIII:1(b) establishes three elements that a complaining party must
demonstrate in order to make out a cognizable claim under Article XXIII:1(b): (1) application
of a measure by a WTO Member; (2) a benefit accruing under the relevant agreement; and
(3) nullification or impairment of the benefit as the result of the application of the
measure."
[footnote omitted] (Panel report, Japan – Measures Affecting Consumer Photographic Film
and Paper, WT/DS44/R, adopted 22 April 1998, para. 10.41)
666 Appellate Body report, European Communities – Customs Classification of Certain Computer
Equipment ("EC – Computer Equipment "), WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted
22 June 1998, at para. 93.
667 We note in this regard that this issue of ex amining preparatory work in accordance with Article 32
of the Vienna Convention has been raised by Chile as a defence. Argentina has made its arguments based upon
a textual analysis.
668 For example, even if we had considered the evidence of GATT Secretariat advice probative, it
would have needed to be seen as part of a comprehensive multilateral pattern of advice combined with
negotiators' actions.