Document: REPLIES BY CHILE TO QUESTIONS POSED BY THE PANEL FOR BOTH PARTIES
Document codes: WT/DS207/RW
Complainant: Argentina
Respondent: Chile
Third parties: Australia, Brazil, Canada, China, Colombia, Costa Rica, EU, Ecuador, El Salvador, Guatemala, Honduras, Japan, Nicaragua, Paraguay, Peru, Thailand, Venezuela, U.S.
Dispute stage: Implementation & Compliance
Agreements cited: Art. XIX:1, II  GATT 1994Art. 4  AgricultureArt. 2, 3, 4, 5, 6, 12  Safeguards

ANNEX F-3*

REPLIES BY CHILE TO QUESTIONS POSED BY THE PANEL

FOR BOTH PARTIES

1. Article 21.5 of the DSU provides that:

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

 The Chilean measure taken to comply with the DSU's recommendations and rulings consists
in the establishment of specific duties, in United States dollars, and of rebates on the amounts payable
as ad valorem duties established in the Customs Tariff, which could affect the importation of wheat
and wheat flour, in the manner indicated by Law 19 .897 of 2003 and the Regulation thereto contained
in Ministry of Finance Supreme Decree 831 of 2003. This measure is substantially different from the
price band system (PBS). Although some headings we re retained, this was done for reasons unrelated
to compliance, and certainly has no effect on the consistency of the new measure with Chile's WTO
obligations.

 The foregoing is a consequence of the implemen ting action taken by Chile on the basis of the
recommendations of the DSB, which only questioned cer tain characteristics of the PBS that made it
inconsistent with specific obligations under the WTO Agreements, namely the following.

– Weekly determination of a reference price, established in a manner that was neither
transparent nor predictable (paragraphs 247 to 250 of the Appellate Body Report).

– Variability of specific duties, in relation to their weekly application, to compensate
for fluctuations in international prices (p aragraph 260 of the Appellate Body Report),
but also, and more importantly, in relation to the fact that different duties could be
applied on the same date to different import operations.

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

 There is no connection. Chile has already indicated in response 1 what measures it had to
adopt in order to comply with the recommendations and rulings of the DSU, and these constitute the
framework or terms of reference for this proceeding under Article 21.5 of the DSU.

 Despite the assertion made by Argentina in its re buttal, this is not a new claim with respect to
a new measure. On the contrary, Argentina claims that the Chilean measure is inconsistent with

* Annex F-3 contains the Replies by Chile to Questions Posed by the Panel. This text was originally
submitted in Spanish by Chile.

Article II:1(b), second sentence of the GATT 1994, because of an alleged failure to comply with
Article 4.2 of the Agreement on Agriculture. As a result of this alleged in consistency, as Argentina
sees it, the Chilean measure is a measure "other than an ordinary customs duty" and therefore
constitutes "other duties or charges". Failure to r ecord the measure in the corresponding column of a
Member's Schedule of Concessions is alleged to entail a violation of the above mentioned second
sentence of Article II:1(b) of the GATT 1994. This reas oning on the part of Argentina is said to be
valid for both the PBS and the Chilean measure in force since 2003, and Argentina should therefore
have raised this question at that time.

 Finally, it may be recalled that the Appellate Body reversed the original Panel's finding in
respect of the second sentence of Article II:1(b) of the GATT 1994, since that question was not before
the Panel.
1

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

 Chile's contention is that, if a party decides not to challenge certain aspects of a measure and
subsequently raises such a challenge at the stag e of discussion of the other Member's implementation
of measures in response to DSB recommendations (Article 21.5), then the due process rights and
guarantees of the latter Member would be jeopardized. Article 21.5 proceedings are abbreviated, and
their purpose is to analyse the measures that have been taken to comply with DSB recommendations
and rulings. There can therefore be no discussion in these proceedings of claims and arguments
concerning the original measure or unchanged aspect s of the original measure forming part of
compliance, which the complaining party did not wish to raise in the original proceedings. Canada is
correct when it points out that Members must act in good faith and this means that, in Article 21.5
proceedings, no claims or arguments may be presented that could have been raised in the original
proceedings and were not – either by way of a litigation tactic, by oversight or because other claims or
arguments were raised in error, as is the case unde r Article II:1(b) in this dispute. Canada may be
right in the sense that there is no obligation on a Me mber to put forward all its claims or arguments,
but not doing so has a "consequence".

 The Panel in EC – Bed Linen (Article 21.5 – India) ruled on that consequence as follows:
2

The possibility for manipulative or abusive liti gation tactics that would be opened by
allowing Members an opportunity to obtain a ruling in an Article 21.5 [proceeding]
that they could have sought and obtained in the original dispute would, in our view, be
inestimably harmful to the effective operation of the dispute settlement system. We
hasten to emphasize that we do not consider that India has engaged in any such harmful
tactics, or has engaged in this dispute se ttlement procedure in anything other than
entirely good faith in an effort to resolve the di spute, as required by Article 3.10 of the
DSU. We nonetheless consider that a claim which, as a legal and practical matter,
could have been raised and pursued in the original dispute, but was not, cannot be

1 Report of the Appellate Body, paragraph 288(a).
2 Report of the Article 21.5 Panel in EC – Bed Linen (WT/DS141/RW), paragraph 6.43.

raised on the same facts and legal premises in an Article 21.5 proceeding to determine
the existence or consistency of measures ta ken to comply with the recommendation of
the DSB in the original dispute. In our view, this ruling furthers the object and purpose
of the DSU (footnote omitted).

 As the Article 21.5 Panel noted in US – Countervailing Measures on Certain EC Products , a
Member cannot be precluded from "raising claims that it did not raise in the original proceedings,
provided that these claims concern the measures ta ken to comply and are included in the Panel
request". However, in that dispute (as in this one), the question is whether that conclusion should also
apply to new claims where the measure taken to co mply is unchanged from the original measure and
thus allegedly inconsistent with WTO obligations in ways identical to (not different from) the original
measure. It should be recalled that this also applies to the factor of 1.56.

 On that occasion, the Panel stated:
3

In this dispute, this Panel confronts the issue of whether to consider new claims on
aspects of the original measure that a re unchanged and were not challenged in the
original proceedings. The purpose of Ar ticle 21.5 is to provide an expeditious
procedure to establish whether a Me mber has properly implemented the
DSB recommendations and rulings. Admitting such a new claim would mean providing
the European Communities with a second chance to raise a claim that it failed to raise
in the original proceedings.

 In short, the decision (for example, what Canada calls "split claims"), omission (the factor of
1.56 in Argentina's case) or error (Argentina's complaint concerning Article II:1(b)) involved in
raising only certain claims or arguments in the origin al proceedings cannot be justified at the cost of
calling in question the due process guarantees protecting the respondent.

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

 The Chilean measure challenged by Argentina in these proceedings is an ordinary customs
duty and the only guarantees of certainty or predictability required by the GATT for market access are
laid down, firstly, in Article II:1(b), first sente nce, which provides that a Member may not impose
customs duties in excess of the levels bound in the appropriate Schedule and, secondly, in Article X:1,
which provides that trade legislation by whic h customs duties are imposed shall be published
promptly so that due acquaintance therewith can be gained. The Chilean measure fully complies with
both those requirements of the GATT 1994.

 Nonetheless, in the determination of the specific duty provided for by Law 19.897,
parameters are used which, with the sole excep tion of the reference price, entail no degree of
uncertainty since their values are determined in th e Law itself. Regarding the reference price, the
degree of uncertainty associated therewith depends on international market behaviour and trends, but
that does not make the policy more uncertain than the international market itself. Nor, by the way, is
it made more uncertain than any other ordinary customs duty, which may change at any time without
prior notice to traders. Traders have no abso lute certainty today about what the Chilean ad valorem
duty will be in the future, they only know that it w ill be no higher than the Chilean tariff bound in the
Uruguay Round. Nor, for their part, do Argentine e xporters know what their own taxes will be in the
future, such as the withholding taxes on exports of wheat and wheat flour applied by Argentina.

3 Report of the Article 21.5 Panel in US – Countervailing Measures on Certain EC Products
(WT/DS212/RW), paragraph 7.74.

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

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

 (b) In this respect, can Argentina commen t on Chile's statement that it has taken
the necessary steps to ensure that duties never exceed its tariff rate level bound
in the WTO (see, for example, paragraph 37 of Chile's first submission). In the
opinion of the Parties, what is at issue in these proceedings, the level of the duties
or their alleged variability, or both?

 In Chile's opinion, since Law 19.897 replaced the duties resulting from the PBS by an
ordinary customs duty (the specific duty under consid eration), it is not necessary to discuss whether,
as a result of the application of the above-mentione d law, the burden is higher or lower than in the
past, except to the extent that the specific duty applied exceeds the tariff bound by Chile in the
Uruguay Round, which is not the case.

 Thus, the analysis of an ordinary customs duty must be limited to questions of level
(i.e. whether or not it exceeds the bound level). Ar gentina seeks to evade this simple restriction by
casting doubt on the status of "ordinary customs duty" vested in the specific duty established by
Law 19.897. As it seeks to categorize the duty as something similar to a variable levy or minimum
import price, Argentina should concentrate on proving, inter alia , the alleged variability of the
measure.

 (c) Could Chile clarify whether the new formula also means that specific tariff
rebates under the amended PBS would be higher than those generated by the
previous method of calculation.

 The current calculation method in any event generates lower values for specific duties and
tariff rebates, compared with the ones previous ly applied under the PBS. This finding was
demonstrated in paragraphs 175-178 of Chile's Fi rst Written Submission in respect of the specific
duty.

*Under the PBS

 In the case of the tariff rebate, under the PBS formula the import cost was previously defined
as follows:

IC
i = fc + (1+vc) * FOBi,
Where,
IC
i = product import cost i;
fc = sum of fixed costs;
vc = aggregate of variable costs, and
FOB
i = FOB price of the product i.

 The tariff rebate was then determined by subt racting the ceiling import cost from the value of
the reference price expressed as the import cost described above:

REBATE = IC
rp-ICceiling,
where "rp" represents the reference price.

 By substitution the following formula is obtained:

REBATE = fc + (1 + vc)* FOB
rp- (fc + (1+ vc)* FOBceiling)
REBATE = fc + (1 + vc)* (FOBrp – fc – (1 + vc)* FOBceiling
REBATE = (1 + vc)* (FOBrp – FOBceiling)

 It should be recalled that "vc" corresponded to the variable import costs equivalent to a set of
expenditures incurred in a commercial import operati on and that they include the costs associated
with credit operations, insurance, agents' fees and the customs duty, all of which are applied on a
percentage basis to the amount of the import operation.

*Under Law 19.897

 The current formula for calculating the rebate is expressed as follows:

REBATE = (1 + 0.06)* (FOB
rp – FOBceiling)

 The difference between the current method of calculating the tariff rebate and the method
provided for in the PBS lies in the elimination of the set of costs associated with importation (vc)
which are not perfectly identical values for any operation, leaving only the applied ad valorem
customs tariff.

 The conclusion to be drawn from the foregoing is that the value of the va riable costs used in
the PBS (vc) is always greater than the customs dut y alone, so that the rebates determined by means
of the procedures laid down in Law 19.897 are always smaller than those that would be determined
using the PBS procedure for the same reference price.

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

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

 (b) Can Chile confirm whether the relevant legal instruments grant any discretion
to Chilean authorities in this regard. If so, has such discretion ever been
exercised? Please provide examples and evidence, if any, to support your
answer.

 In its oral statement, Chile drew the Panel's at tention to a series of false allegations made by
Argentina. At that time, Chile did not respond to each and every one of them, and merely referred, by
way of example, to two allegations made in Arge ntina's oral statement. We now once again find
ourselves faced with assertions which, whether deliber ate or not, at least reflect a serious lack of
rigour on the part of Argentina.

 In paragraph 80 of its oral statement, Arge ntina attributes to Chile the contention that
Law 19.897 gives it discretion to decide whether or not to impose duties. It bases this argument on
paragraph 93 of Chile's First Wr itten Submission and paragraphs 101 and 120 of Chile's Rebuttal.
However, a reading of the paragraphs in question enables this assertion to be rejected.

 Paragraph 93
4 states that, under Law 19.897, the specific duty or rebate is established by
decree and its amount remains unchanged until it is changed or cancelled by a more recent
administrative act. Paragraph 101 5 refers to the fact that the speci fic duties applied require a specific
administrative act to establish them, and in the absence of this act, the duty does not vary in amount.
Finally, paragraph 120 6 states that the tariff charge determin ing the specific duty remains constant
until changed or cancelled by a more recent administrative act.

 In none of these paragraphs does Chile mention whether or not the Law grants discretion to
the administrative authority. Chile considers that discretion in imposing a specific duty (or rebate) is
not an element that was considered by the Appellate Body (AB) for the purposes of the application of
specific duties.

 As Argentina correctly points out in paragra ph 80 of its oral statement, it is obvious that
ad valorem duties can change and no one can guarantee ot herwise. That is what happens with any
ordinary customs duty. However, Argentina vitiates its analysis of the AB ruling when it associates
automatic and continuous variability with discretion in issuing the Decree.

 The key to this point is contained in paragraph 233 of the AB Report
7, which concludes that
the level at which ordinary customs duties are applied can be varied by a legislature, but such duties
will not be automatically and continuously variable. To vary the applied rate of duty in the case of

4 93. Under Law 19.897, however, a specific duty (or rebate, or neither) is fixed by legal directive in
the form of a decree issued by the Ministry of Finance and remains unchanged for two months, during which the
duty applies on all import transactions, without the slightest variation and regardless of the amount of the
transaction, until it is changed or cancelled by a more recent administrative act.
5 101. In its First Written Submission, Chile pointed out that under the changes introduced by
Law 19.897 the specific duties applied require a specific administrative act to establish them and in the absence
of this act the duty does not vary in amount. The situ ation was different under the PBS, where, because of its
structure, the duties applied to two simultaneous impor t transactions varied without the intervention of any
administrative act, which led to the assessment of diff erent import duties, even when the value (transaction
price) and volume (metric units) of the goods were identical. Today, two simultaneous import transactions, with
the same transaction value and volume, will always pay the same import duty. Thus, Chile has implemented the
rulings and recommendations of the DSB.
6 120. The specific duty does not prevent the entry of imports priced below a threshold or entry price,
inasmuch as the floor price is not a threshold price or an internal market price or linked therewith, and is not an
entry price. The tariff charge determining the specific duty remains constant until changed or cancelled by a
more recent administrative act. Theref ore, the specific duties do not have the fundamental ch aracteristics of a
variable levy as described in paragraph (c).
7 233. To determine what kind of variability makes an import levy a "variable import levy", we turn to
the immediate context of the other words in footnote 1. The term "variable import levies" appears after the
introductory phrase "[t]hese measures include". Article 4. 2 - to which the footnote is attached – also speaks of
"measures". This suggests that at least one feature of "variable import levies" is the fact that the measure itself –
as a mechanism – must impose the variability of the duties. Variability is inherent in a measure if the measure
incorporates a scheme or formula that causes and ensure s that levies change automatically and continuously.
Ordinary customs duties, by contrast, are subject to discrete changes in applied tariff rates that occur
independently, and unrelated to such an underlying scheme or formula. The level at which ordinary customs
duties are applied can be varied by a legislature, but such duties will not be automatically and continuously
variable. To vary the applied rate of duty in the cas e of ordinary customs duties will always require separate
legislative or administrative action, whereas the ordinary meaning of the term "variable" implies that no such
action is required.

ordinary customs duties will always require separate legislative or administrative action,
whereas the ordinary meaning of the term "variable" implies that no such action is required.

 As can be seen, the AB requires separate legislative or administrative action, but not
discretionary or mandatory action, since variability, as it points out, is associated with the fact that the
measure itself, as a mechanism, imposes the variability of the duties, but not with how it is generated.
Thus, variability is inherent in a measure if the measure incorporates a scheme or formula that causes
and ensures that levies change automatically and continuously. Under Law 19.897, once a duty or
rebate is applied, the tax burden is not ch anged automatically and continuously, but a new
administrative act is necessarily required.

 Thus, regarding Argentina's analysis as to whether Law 19.897 gives discretion to the
authorities, it can be stated that the wording of th e law is dictated more by reasons of legislative
technique than by a purpose associated with the DSB's rulings. As Chile has stated
8, its measure is
designed to afford additional protection above the 6 per cent ad valorem tariff that Chile applies to all
its imports. Consequently, the legislature's intenti on was that duties and rebates should be applied in
accordance with Law 19.897.

 Furthermore, and following Argentina's r easoning, it could be argued that Law 19.897
authorizes the administrative authority to fix a duty or rebate six times a year, but does not determine
the occasions for so doing, a matt er governed by Decree 831 which, moreover, may be modified by
the same administrative authority by means of a ne w decree. To date, the Minister of Finance has
regularly issued decrees establishing a specific duty or tariff rebate. What is more, and even though
the Law does not so require, in addition to decrees im posing specific duties or tariff rebates, decrees
have also been issued in accord ance with the dates established in Decree 831, in cases where Chile
has not imposed specific duties or tariff rebates, that is, in cases where only payment of the
ad valorem tariff has been required.

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

 No. With the changes introduced by Chile by means of Law 19.897, the price bands no
longer operate as a scheme or formula for the calcula tion of duties or rebates at the border, in the
manner indicated by the DSB in the original proceedings.

 Currently, Law 19.897 establishes a single specific duty (or tariff rebate) applicable to every
import operation. This duty, like any other ordina ry customs duty, remains invariable until it is
changed by an administrative act.

 The other parameters laid dow n in Law 19.897 are no longer part of a scheme or formula, as
they were under the PBS, but are elements for defining the framework of the border protection applied
by the Chilean Government.

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

 (a) Notwithstanding the fact that FOB pri ces do not reflect all the costs associated
with traded wheat and wheat flour, do th e Parties consider that the price of the

8 Paragraph 25 of Chile's oral statement.

goods (normally reflected in the related commercial documents, such as invoices)
can serve as the starting point to determine the full transaction value?

 The value or price recorded in a transaction document corresponds to the amount that the
buyer will pay the seller for the product. If the tr ansaction is an import transaction and, as normally
occurs, is based on delivery at the port of origin (f.o.b.), it then corresponds to the actual transaction
value, which is the definitive value for both seller and buyer. However, the buyer has other costs
associated with transport of the goods and entry into the country of destination, including processing
costs. Thus, the actual transaction price for the buyer constitutes the starting point for determining the
total transaction value entailed by the importation of the product.

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

 The price quotations or reports issued by the markets correspond to indicative values for
transactions involving goods in trade, without necessar ily reflecting the value of any one particular
transaction. The price that is fixed between buyer and seller may be based on an international market
quotation, but will be determined in accordance wi th other parameters such as quality, quantity,
delivery point, date of receipt, inter alia, so that the international price does not necessarily reflect the
product value agreed by buyers a nd sellers between themselves. However, as international prices are
indicative of price levels and trends on world mark ets, they serve as reference or approximation for
estimating the cost of an import, whether at c.i.f. level or as an entry price, if all the costs are known
that go to make up the c.i.f. price or the entry price.

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

 Yes. This is the way in which economic st udies are usually carried out: if the required
information is available, it is used, otherwise approximations are made on the basis of reference
values representative of commercial operations. Th is is the way in which countries' levels of
protection, such as nominal protection and effective protection indicators, are calculated.

 In the case of studies on nominal and effective protection, the method involves comparison of
entry prices subject or not subject to border measures and seeks to measure the degree of difference in
the level and behaviour of internal prices in re lation to what would occur if border protection
measures were not applied.

 Using these economic price analysis techniques, based on data estimates or approximations,
an assessment can be made of price behaviour and the extent to which domestic prices are associated
with international prices.

 Moreover, the usual way of evaluating pri ce transmission is by means of methods that
measure how international or border price fluctua tions are reflected in domestic prices, generally
using an indicator known as price transmission elasticity.

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

 No. The f.o.b. valuation of a good is the actual transaction price of a good if it corresponds to
the price recorded in the documents or invoi ces of the commercial import operation and if it
constitutes the final transaction value for the seller and the buyer.

 If it is wished to determine or estimate a valu e at a level different from the import operation,
that is, at c.i.f. or domestic market level, on the basis of the price paid by the buyer, the costs of
transporting the good must be added in order to estimat e or calculate the c.i.f. value, and the costs of
entry into the destination country (commissions, sanitary inspection, credits, tariffs, unloading and
internal freight, etc) must be added to determine its domestic market value.

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

 In the case of wheat and wheat flour, the situati on is exactly the same as that described in the
previous response (No. 9). In other words, the f.o.b. price recorded in the commercial operation
documents corresponds to the actual transaction valu e for buyer and seller, even though other costs
have to be added in order to determine the full transaction value for the buyer.

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

 Since a Ministry of Finance decree enacted under Law 19.897 establishes a specific duty or a
rebate on the amount payable as customs duty, the de termination of the reference price is no longer
relevant for the calculation of duties or rebates, as it was under the PBS, where traders were required
to have knowledge of that price in order to calculate the tariff charge at the border.

 Today, when traders enter with their products, they are aware of the amount of the ad valorem
tariff and the specific duty or rebate on the ad valorem tariff, as the case may be, which have been
previously established by the authority. In both cases, as in all countries where customs duties are
applied, the reasons for fixing the tariff charge or the procedures whereby it is determined are not
relevant to traders, or at least do not constitute a requirement under WTO rules, insofar as the tariff
charge does not exceed the level of Chile's bound tariff.

12. Article 7 of Chilean Supreme Decree 831 provides that the FOB reference price for
wheat "correspond[s] to the average of the da ily prices recorded in the markets specified in
Article 8 over a period of 15 days counted retroactively from the 10
th day of the month in which
the relevant decree is to be published".

 (a) Could Chile explain what is the rationale for taking into account only the last
15 days when calculating each of the six reference prices which are to be
maintained for a period of 60 days?

 First of all, it should be mentioned that the re ference price is not maintained for a period of
sixty days. This parameter is used only once, when it is necessary to calculate specific duties or
rebates (six times a year). The level of protection additional to the ad valorem tariff provided by the
specific duty (or the rebate, as the case may be) is maintained unaltered for a period of two months,
during which time the reference price has no bearing on commercial operations.

 It has been estimated that the average price ove r the period of at least fifteen days closest to
the date of calculation of the duty or rebate (corresponding roughly to ten working days) is the
minimum necessary for the result to be representative of the conditions prevailing at that time on the

market, so as to prevent that av erage from potentially being influenced by extreme quotations which
occasionally appear in the market and which do not n ecessarily reflect the level and trend of prices at
that point in time.

 (b) Can Chile comment on how representati ve is the reference price for wheat?

 The reference price is based on information generated in the international markets and
supplied by reliable sources. At the time it is calcula ted, therefore, it is representative of trends in the
international market. However, it should be point ed out that the reference price is used as an
instrument to facilitate determination of the leve l of protection for wheat, and that it has no useful
bearing on commercial operations in that product. Accordingly, its representativeness at each point in
time is of no relevance.

 If the reference price were calculated more fre quently, for example, every fifteen days or
every month, that would not change its representativ eness, inasmuch as it is only an indicator of the
level of international prices at the time when the reference price is calculated. Any reference price
calculated in January will doubtless not be representativ e of prices for subsequent months, or even for
the months preceding January.

 It is important to emphasize that, if Chile's measure used a more frequently calculated
reference price and determined duties or reba tes with the same degree of frequency, it would
undoubtedly constitute a mechanism for correcting diffe rential increases or reductions in international
prices, as was the case with the PBS, which did so every week, thus making it difficult for fluctuations
in international prices to be transmitted to the domestic market.

 (c) Can Chile also respond in this regard to Argentina's assertion during the
substantive meeting with the Panel ( see paragraphs 64 and 65 of the written
version of Argentina's oral statement) that the fact that the amended
PBS considers only the prices of 90 days out of the year makes the situation
"even worse than with the original WTO-inconsistent PBS". (Original
emphasis.)

 Law 19.987 differs from the PBS in the method of applying duties and rebates. The
PBS provided for adjustments to entry prices to comp ensate for fluctuations in international prices by
means of the weekly adjustment of duties and rebat es. Under this procedure, it was essential that the
reference price accurately reflect what was happening in wheat transactions so that the optimum level
of compensation could be calculated, and also that it be as low as possible to prevent any import
operation in particular from being unable to reach th e band floor level. That procedure does not exist
under the current law, and compensation is irrelevant , since once the duties or rebates are determined,
it is these values which are fixed and applied fo r a period of two months, without regard to
developments in international pri ces during that period of application, in the same way as with any
ordinary customs duty.

 Again, the comparison is not relevant because t oday the specific duty or rebate is not intended
to maintain a correspondence with international pr ices, nor is it intended to compensate for ups and
downs in international prices so that they are not transmitted to the domestic market.

 It is necessary to point out that, under the PB S, specific duties and rebates were calculated
once a year for a series of possible prices, so that the reference price was the key variable in the
mechanism as it was the parameter required for ascerta ining what duty or rebate would be in force in
any particular week of the year. In that case, the reference price was an important element in the
market, because it dictated the level of border protection.

 Under Law 19.897, the duty or rebate is si mply established and published every two months,
so that the market no longer needs to ascertain, es timate or take into account a reference price, but
only the value of the duty or rebate applied, which, moreover, are not constantly adjusted in line with
the changes in any reference price.

 The latter situation is not worse and is not WTO-inconsistent, since it is precisely this
dissociation of applied duties and rebates from the in ternational price or from a reference price which
is one of the inherent characteristics of ordinary customs duties.

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

 The determination as to whether to apply specific duties, rebates or neither of the two is made
six times a year, hence the level of protection may also change six times a year. The reference price
used for this determination is calculated with the same frequency, six times a year, and logically may
change just as frequently.

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

 The reference price is not maintained unchanged for 60 days, nor is it used during that period
for any particular purpose. The specific duty or rebate, or the non-application thereof, is what remains
unchanged for 60 days. The reference price does not constitute an insulation factor in any way.
Whether a particular market, like that of Chile, is insulated from international markets is measured
through the behaviour of domestic prices.

 When there is price transmission, and interna tional market fluctuations are transmitted to the
local market, domestic prices exhibit a pattern of behaviour and a trend similar to that shown by
international prices, even though that behaviour is attenuated by the existence of border duties or
other factors (costs) not necessarily related to the market for the product (oil, exchange rate, harvest
periods). Even with extremely high levels of bor der duties, there is no guarantee of domestic market
insulation, only a higher level of protection.

 Insulation of the domestic market from the in ternational market is achieved by applying
measures that prevent transmission of variations, for example through variable levies determined on a
case by case basis or frequently adjusted in a direction and amount contrary to the trend in
international prices.

 Nor does the fixing of other parameters of th e system constitute an insulation factor, since
market insulation is measured and must be measured in relation to the way in which domestic prices
behave vis a vis fluctuations and trends in international prices.

 If Chilean policy used no parameter to determin e the level of protection desired for wheat, but
maintained its method of modifying the specific duty or rebate every two months, the levels thereof
being determined by the authority without recour se to support mechanisms, the situation would be
that Chile would have a policy for the application of duties and rebates that would be fixed bimonthly.
In a situation like the one described, there would be no discussion concerning the level of
international prices, the reference price or any othe r parameter, since there would be only an applied
duty or rebate.

 In such a scenario there would certainly be no questioning of whether or not the policy is
WTO-consistent, but questions w ould undoubtedly be raised concerning the level of duties and
rebates, and perhaps as to how the authority determines those levels.

 Under such a scenario we would undoubtedly not be involved in this Panel proceeding, since
for one thing the national authority has sovereign di scretion to determine the duties and rebates that it
deems appropriate domestically, and for another th e only WTO commitment in such circumstances is
that the level of protection at the border should not exceed the bound tariff rate.

 In practice, the scenario described is the one that actually establishes current policy on wheat
and wheat flour. It is no different in its ope ration from simply imposing duties and rebates on a
two-monthly basis, as established by an administrative act.

 Nor is it possible to question how the authority determines the level of protection, the type of
information it uses or any action that comes within its field of competence, provided that the law and
international commitments are respected.

 Chile has taken the view that its policy must be completely transparent and non-discretionary,
that even the authority's own actions are subject to bounds or restrictions, so as to prevent conflicts of
interest within the country.

 The supporting elements for this objective, such as the parameters and the formula used, are
designed exclusively to establish guidelines for action by the authority in order to achieve the level of
protection that Chile deems appropriate for wheat and wheat flour. These parameters have no other
purpose and have no bearing on the way in which duti es and rebates are applied. The same results
could doubtless be obtained without using them, albeit with a lower level of transparency and with an
element of discretion.

 It is for this reason that Chile has stressed that the substance of this dispute should focus on
how the policy of border protection is applied and what results are observed in the market, none of
them being different from what occurs with ordinary customs duties.

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

 In Chile's opinion, the establishment of referenc e prices is no longer relevant. It has already
been mentioned that, under the PBS, the reference price was determined weekly by Customs and was
to be considered by economic operators in each im port operation, which produced the effect that the
duties collected were constantly adjusted, even during those weekly periods.

 As was also stated before, under Law 19.897, reference prices are not established bimonthly,
but are an element used by the administrative authority to fix the specific duty to be imposed on
imports, and it is that specific duty (or rebate), and not the reference price, which is currently
applicable for a period of two months.

 However, under the PBS, the determination of a weekly specific duty using a reference price
calculated weekly was extremely important as it fac ilitated rapid adjustment in the level of border
protection which, if applied inversely to changes in international prices, served to compensate for
such price changes by impeding the transmission of ex ternal price variations. At the same time, this
weekly determination caused uncertainty by preven ting traders from being informed 52 times a year
of the level of border protection or the reference price that would be applied to them.

 Under Law 19.897, the duty, rebate or neither of the two is determined six times a year.
Unlike the PBS, the fixed duty or rebate cannot be used to compensate for external price variations
and are values established by a public and publicised administrative act.

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

 It is Chile's understanding that the Panel is referring to the specific duty established under
Law 19.897 and not to the reference price. Assuming that we are talking about the specific duty, the
Panel's statement would read as follows: " ... the same specific duty still applies to all goods falling
within the same product category, regardless of the origin of the goods, and regardless of the
transaction value of the shipment". These three features are not novel, as they are features common to
any tariff applied in the form of a specific duty. And like any specific duty, this specific duty in
particular does not impede the transmission of prices to the Chilean market.

 In particular, if different duties were applied according to the origin of the goods, that would
violate the MFN principle, by discriminating in trade against certain countries that could apply a
higher tariff charge. If different duties were app lied according to the value of the shipment, that
would discriminate against and probably punish operations effected at lower prices. At the same time,
the application of a uniform duty for all products under a tariff item affords equality of treatment to all
commercial operations, enabling lower-priced products also to enter at lower prices, and not limiting
commercial opportunities.

 It should be pointed out that, according to economic theory, it is the price itself which
transmits all the information on international market s to domestic markets. Tariffs will always distort
such information by inserting an arbitrary wedge (but a legitimate one from the standpoint of the
WTO agreements) in the price variable. Consequen tly, since the transmission of prices will never be
perfect where a (specific or ad valorem) tariff exists, in the case of the specific duty established by
Law 19.897, such transmission occurs, but as with any specific duty or ordinary customs duty, it is not
perfect.

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

 In general terms, the answer should be affirm ative. However, in Chile's opinion, Argentina
erroneously interprets the AB's rulings and the changes introduced by Law 19.897, and attempts to
draw parallels between the current regulations and the system that existed under the PBS.

 At the present time, the tariff charge on wheat and wheat flour in Chile consists of the amount
of the specific duty (or rebate) and the ad valorem tariff. Both duties are applied in the same manner
to every import operation. A change in th is tariff charge requires a change in the ad valorem tariff or
specific duty.

 A change in the ad valorem tariff will require compliance w ith the rules governing enactment
of the law as contained in the Constitution, which, as is the case in most States, do not provide for
parameters for defining the application of a six per cent tariff, for example, and the same is true for
practically the entire universe of tariff headings in Chile. Still less do they provide for the periodicity
of possible changes to ad valorem duties. What Argentina regards as an obvious lack of transparency
and predictability is not, since the commitment by WTO Members under GATT Article II is not to
demonstrate the reasons for establishing a specific ta riff charge or to maintain their customs duties

unaltered, but as the DSB has indicated, predictab ility is determined by WTO Members' commitment
not to exceed the bound tariff.

 In Chile's opinion, the same reasoning a pplies to the specific duties established by
Law 19.897. These are identical to those imposed by many WTO country Members, and have been
recognized by the WTO. The only difference between the imposition of the specific duty under
Law 19.897 and the ad valorem tariff is that the calculation of the amount of the specific duty is not
left to the discretion of the administrative authorit y, but that the law sets out the prescribed conditions
and level of protection.

 In view of the foregoing, in response to th e question whether the specific duties imposed by
Chile are calculated in accordance with a mechanism which in cludes various parameters, strictly
speaking the answer must be affirmative. Howeve r, there is a qualitative difference compared with
previous practice under the PBS, which Argentina do es not appear to understand in this dispute.
Today, the parameters of the law are used to calcu late the amount of the specific duty, but the same
duty is applied to any import operation at the borde r. Under the PBS, on the other hand, the specific
duty was not established by the administrative author ity, but a series of combined parameters were
applied independently of the authority; these para meters were not a tool for calculating the duty but
ultimately determined the level of the duty, and thei r interaction caused variations in the amount of
the duties in a manner similar to variable import levi es, with the result that, as was pointed out by the
AB, two simultaneous operations could be subject to different duties.

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

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

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

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

 (d) Can Chile comment on this point

 Regarding point (d), in the first place Chile cons iders that it is for Argentina to substantiate its
own claims for the Panel's benefit. By way of a general comment, Argentina seeks to extend the
scope of the Appellate Body's pronouncements on the question of transparency.

 In fact, the AB based its conclusions rega rding the lack of transparency on certain
characteristics of the PBS and its particular confi guration and interaction (in the same way as for the
determination of import costs a nd reference price under the PBS). 9 Moreover, it should be
remembered that the factor of 1.56 was not challenged by Argentina in those proceedings , and
consequently Chile reiterates that this claim by Ar gentina does not fall within the terms of reference
for these proceedings, as was indicated in the first10 and second11 submissions by Chile.

9 See paragraphs 246, 247, 249 and 258 of the AB report.
10 First written submission of Chile, paragraphs 58 to 63.
11 Second written submission of Chile, paragraphs 182 to 195.

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

 No. To secure a minimum price, it is necessary to be aware of the actual transaction value or
some supplementary information enabling an accurate estimate to be made by using an alternative
price as a means of determining a level of prot ection sufficient to cover or exceed the minimum
import price. This can be done by using administra tive or market values equal to or lower than the
lowest possible price for an actual commercial tran saction. However, this is not sufficient to
maintain a minimum price, for which purpose an op erational mechanism is required to preclude the
possibility of any particular shipment entering at a va lue lower than the minimum price. It is for this
reason that the actual transaction value is usually employed, inasmuch as it serves effectively to
prevent the entry of products below the mini mum price since it is applied on an operation by
operation basis.

 Where the transaction value is not used to determine the customs duty required and the
mechanism does not take account of a high frequen cy of application, administrative prices or
extremely low reference prices are normally used to ensure attainment of the objective over a long
period of time. This is because prices even lowe r than those used could appear in the course of
application, thereby nullifying the desired effect.

 Where the mechanism operates on a frequent application basis, weekly for example,
sufficiently low comparison parameters, albeit within customary international price ranges, are used:
in this case, it is sufficient to ascertain the lowest price for the period of application, since if
commercial operations at lower prices are found to exist, this difference is rapidly adjusted in
subsequent application of the measure.

 Minimum prices are determined at local market level in units equivalent to the domestic price
or at entry price level, which corresponds to a stage pr ior to entry into the local market. In any event,
it is absolutely essential that the minimum price be determined in a market position that enables the
necessary correction or compensation to be applied by means of measures (duties or taxes), so as to
maintain the minimum price. It is for this r eason that use is commonly made of the price on the
market in which typical transactions in the product occur: the wholesale or consumer market. This
ensures that that price, at the level of interest to the local market, is maintained.

 Where the minimum price is fixed below the local market level, that is, at the entry price or
c.i.f. price level, the mechanism does not necessar ily apply a domestic price because there may, and
normally do, exist differences in commercial operations which cause the final price within the country
to be non-uniform for all traders or commercial ope rations. For example, differences resulting from
economies of scale applied by enterprises, which enable the largest ones to secure lower freight costs,
credit interest rates, storage and other credit associated with the import and market operation. In such
cases, a minimum entry price or c.i.f. price can be secured, but not a minimum price at the level of the
domestic market, which is what is normally of interest to countries.

 The foregoing explains why minimum import prices are usually based on the actual
transaction value: because the latter is the one most frequently applied (one for each commercial
operation); and why they are fixed at domestic ma rket level: because that is precisely where the
minimum price is wished to be reflected.

 In the case of Law 19.897, the bimonthly establishment of the duty does not serve to correct
the value of imports and thereby to maintain a mini mum price. The determination of the floor value
at f.o.b. level makes that possibility even more remo te, since substantial costs have to be incurred for
the purpose of placing the product on the local market, mo st of which, such as freight costs and credit
interest payments, for example, are beyond admini strative control and are factors that frequently
produce major economies of scale for importing compan ies. In this connection, low frequency of
application and the use of f.o.b. values means that the current mechanism is unable to maintain an
entry or local market price at c.i.f. level, sin ce the specific duties correspond to an ordinary customs
duty.

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

 The defining characteristic of a minimum import price is the impossibility for any commercial
operation to be expressed in terms of a price lower than the established price.

 The operation of a minimum import price in re lation to the actual transaction value is the
mechanism by which the minimum price can be guaranteed with absolute certainty; in fact, this is the
perfect scenario, since every operation can be corre cted independently, leaving no gaps that would
impair the threshold value. This is in fact the basic characteristic.

 Where the measure is indicative of a domestic market entry price, this would not necessarily
be a defining characteristic of a minimum entry price, since the possibility of that price being
genuinely indicative would depend on the mechanism applied. Indeed, if there are no mechanisms for
adjusting the values of imports in order to approach or approximate the indicative price, the desired
effect will not be achieved.

 In other words, if an indicative price is determin ed and, at a particular point in time, a certain
level of duty is required to obtain that price on the basis of existing import values, if that duty is not
changed over a long period of time and the import prices vary, the entry values or prices will vary in
line with trends in import or international prices.

 In such circumstances, a mechanism is require d that is capable of correcting the level of
protection whenever import prices deviate or change level. That is to say, when there is a high
frequency of changes in the duty, the most extreme example of which is its determination on a case-
by-case basis when the value of each commercial operation is used.

20. Can Argentina comment on Chile's statemen t in paragraph 143 of its first submission,
that "the mere fact that the duties and rebates, or the non-application thereof, are established
for a sufficiently long period of time provides certainty that any variations in international
prices that may occur over this period will be tran smitted to domestic wheat prices". In Chile's
view, does this statement imply that this "mere fact" per se is decisive?

 The Appellate Body held that the PBS was a measure similar to a variable import levy and/or
a minimum import price. An important factor in arriving at this conclusion was the variability of
duties, whereby two shipments entered at the same point in time could be subject to different duties.

 Pursuant to Law 19.897, the Ministry of Finance decree fixes a specific duty or tariff rebate or
provides for payment of the ad valorem duty only. Taking the example of the application of a specific
duty, Ministry of Finance Decree 88, published in the Official Journal of 14 February 2005, provided
for the payment of a specific duty of 0.0205 US$/kg. As a result, all imports of wheat and wheat flour

into Chile were subject to payment of the specific duty and to payment of the ad valorem tariff of
6 per cent between 16 February and 15 April.

 Consequently, and inasmuch as this was an ordina ry customs duty, if international prices rose,
the entry price rose, and if international prices fell, the entry price also fell.

 This was not the case under the PBS, where Cust oms on a weekly basis adjusted the reference
price to the lowest price on the international mark ets, a fact which, in the AB's opinion, prevented
domestic prices from following – or at least failed to guarantee their following – variations in
international prices, even though they did not do so automatically.

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

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

 What the Panel offers for comment is only a part of paragraph 9 of the EC's statement at the
recent meeting. Chile agrees with the EC's contention that the paragraph in question should be read in
its entirety. In other words, Chile supports the fundamental point raised by the EC, namely that the
GATT neither regulates nor precludes variation in th e establishment of customs duties (provided that
they do not exceed the level bound in the Schedu le), that the GATT makes no reference to the
predictability of the change in a customs duty (with out prejudice to its appropriate publication) or to
the frequency of the variation in the said customs duty, so that the question to be analysed is whether
any of these situations could give rise to an incons istency with the provisions of Article 4.2 of the
Agreement on Agriculture. That is precisely the point to be kept in mind in relation to the EC's
further argument, and it is this last part of the paragraph that the Panel separates for comment.

 The Chilean measure contained in Law 19.897 and the Regulation thereto, which is an
ordinary customs duty, possesses parameters that render determinable the establishment of specific
duties (or rebates), which is to be done every two months, but this variation in no sense implies the
configuration of any of the situations referred to in Article 4.2 of the Agreement on Agriculture.

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

 This is a public document, published by the Li brary of the Chilean National Congress, and it
contains the opinions formulated by government au thorities and parliamentarians in the legislative
approval discussion process. In this connection, Ch ile would remind the Panel of what was stated by
the WTO Appellate Body in Japan – Alcoholic Beverages:

"it is not necessary for a panel to sort throug h the many reasons legislators and regulators
often have for what they do and weigh the rela tive significance of those reasons to establish

legislative or regulatory intent. [...] This is an issue of how the measure in question is
applied."
12

 Chile has provided only one copy (Exhibit CHL-15) of this document since, as will be noted
by the Panel, it is a voluminous document of more than 150 pages in Spanish, and it is not available as
an electronic file.

23. Can the Parties confirm whether Decree 401 of 15 June 2006 by the Ministry of Finance
of Chile is the latest decree issued pursuant to the PBS.

 Pursuant to the last paragraph of Article 1 of Law 19.897, Article 5 of Decree 831 established
the periods of validity of each supreme decree determining duties or rebates on wheat and wheat flour.
Since the law came into effect, 16 decrees have been issued, the last one to have been published being
Decree 401 of 15 June 2006, which will remain in force until 15 August 2006. However, pursuant to
the provisions of that enactment, between 11 and 15 August it will be necessary to issue a new decree
establishing the new duty or rebate, or neither of the two, to be applied during the period from
16 August to 15 October 2006.

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

 In paragraph 11 of its first written submission, Argentina states that various negotiations in
2004 and 2005 led "to an understanding which Chile later repudiated". This assertion by Argentina is
incorrect. Moreover, Chile considers that any b ilateral negotiation that produces a mutually agreed
settlement in respect of a dispute already brought before the WTO can only be discussed within the
Organization after the parties have notified the settlement to the DSB and the competent
WTO councils and committees.

FOR CHILE

47. The Panel has noted that edible vegetable o ils have ceased to be subject to the PBS since
the entry into force of Law No. 19.897 (see, for example, Argentina's first submission,
paragraphs 8 and 22. Argentina's rebuttal subm ission, paragraph 317). Can Chile describe the
trade regime applicable to imports of edible ve getable oils, after they were excluded from the
PBS.

 A decision was taken, in keeping with Chile's trade liberalization policy, to restrict the
application of Law 19.897 to wheat, wheat flour and s ugar, thereby excluding all edible vegetable oils
falling under Chapter 15 of the Harmonized Customs Tari ff, products with regard to which the former
system was already inoperative at the time of the change of law.

 As of the entry into force of the new Law, imports of these products come under a general
regime, that is to say, they are subject to a ta riff of 6 per cent, with the exception of those from
countries with which Chile has established tariff preferences, in which case the tariff is lower.

48. Could Chile explain what the rationale is for setting the year 2014 as the date for the
President to evaluate the modalities and conditions of application of the PBS.

12 Japan – Alcoholic Beverages , Appellate Body, Document WT/DS8/AB/R WT/DS10/AB/R
WT/DS11/AB/R, pages 30 and 31.

 Pursuant to Law 19.897, in 2014 the President of the Republic will evaluate the modalities
and conditions of application of the Law, taking in to consideration international market conditions,
the requirements of the industrial, productive and c onsumer sectors and Chile's trade obligations at
that date. The latter was key in determining the tim e-frame, mainly because of the effects of the tariff
liberalization established under various bilateral ag reements, such as the Free Trade Agreement with
the US, a major wheat producer, wh ereby wheat and wheat flour will be subject to a zero tariff as of
2015. An analysis of the scenario of reduced borde r protection for wheat thus led to the conclusion
that, at the levels fixed for 2014, the chances of spec ific duties being applied would be virtually nil or,
were they to be applied, their effect would be ma rginal, meaning that the policy would in fact be non-
operational.

49. In paragraph 108 of its first submission, Ch ile argues that the level of protection granted
by the PBS will be gradually reduced from 2007 onwards "culminating with the application of
duties or rebates in 2014". Could Chile clarify the meaning of "culminate" vis-à-vis paragraph
4 of Article 1 of the aforementioned law, insofar as it states that "[i]n 2014, the President of the
Republic shall evaluate the modalities and conditions of application of the price band system,
taking into consideration international market conditions, the requirements of the industrial,
productive and consumer sectors and Chile's trad e obligations at that date." Please respond
taking into account the statement of Argentina in paragraph 33 of its first submission, that "the
floor and ceiling prices of the bands will be mainta ined, except for the fact that they have now
been established – in principle – for 11 years, whereas under the previous system they were
determined annually".

 Law 19.897 provides for the application of duties and rebates until 2014. The protection
granted to wheat and wheat flour under current legislation therefore terminates at that date.

 Furthermore, Article 1.4 of the Law states that, in 2014, the President of the Republic shall
evaluate the modalities and conditions of application of the price band system in accordance with the
factors specified in the Law.

 In the light of these two provisions, the a pplication of duties and rebates under current
legislation terminates in 2014. If a decision is taken in 2014 to alter this situation, the President of the
Republic will have to submit a draft law for approval by the Legislature; that is to say, for the
measure to remain in place, specific legislation will have to be introduced on the issue. Such a
measure would, in any case, be new.

 Contrary to Argentina's assertions, Chile has no facts on which to affirm that Law 19.897 has
been established "in principle" for 11 years, given that , in a country governed by the rule of law, such
as Chile, the decisions of the Executive and the Legisl ature at that date cannot be anticipated, nor can
there be any guarantee that the Law, as it exists today, will remain unchanged until that year. Chile
can only state that, in its present form, the measu re allows duties or rebates on amounts payable as
duties to be fixed only up until 2014.

50. Chile has asserted in paragraph 118 of its rebuttal submission that, under the present
PBS, "the floor price is not an entry price, is not fixed on the basis of the internal price, is not
linked with it, and is not fixed at a price above it" (emphasis added). Chile has stated what the
price band floor is not, could it define for the Panel its understanding of what the floor price is?

 The band floor is one of the objective paramete rs established for the calculation of the tariff
level for border protection for wheat and wheat flour. It may be used only on the dates on which such
protection is to be determined, i. e., six times per year, and only if another of the objective parameters
provided for in Law 19.897, namely the reference price, is lower.

 As is stated in the documents submitted by Ch ile to the Panel, fixing and gradually lowering
this value, known as the floor price, enables a maximum level of border protection, as permitted by
the WTO for its Members, to be established. Th is would apply to both wheat and wheat flour in
accordance with a pre-established sche dule for purposes of transparency and predictability. A trader
monitoring international prices - on the basis of wh ich the reference price is determined - could
therefore estimate in advance the level of protec tion his product would face upon entering the Chilean
market as from the year in which these values were fixed. It should be pointed out that since
Law 19.897 entered into effect, specific duties have only been established for a limited period; most
of the time goods are subject only to the 6 per cent ad valorem duty, with rebates being granted the
rest of the time.

51. Could Chile comment on the following section of Law No. 19.897 which describes how
the system as a whole is to be re-assessed at th e end of the first implementation period through
2014, and the factors to be taken into account:

"In 2014, the President of the Republic shall evaluate the modalities and
conditions of application of the price band system, taking into consideration
international market conditions, the requi rements of the industrial, productive
and consumer sectors and Chile's trade obligations at that date." (Emphasis
added).
In view of the above, would this mean that, despite Chile's assertion that the floor price "is not
fixed on the basis of the internal price", internal market conditions are indeed among the
essential factors that are, by law , considered by the Government of Chile in fixing all the
required methodological PBS parameters, including the floor price?

 No. The factors specified in Article 1.4 ar e not related to the way in which Law 19.897 is
structured at present, rather they refer to the c onditions to be evaluated by the President of the
Republic when the application of duties and rebates terminates in 2014.

 None of these characteristics comes under th e parameters currently provided for in
Law 19.897. This Law pertains to internationa l market conditions, with reference to existing
distortions in such markets and the outcome of WTO multilateral negotiations. The requirements of
the industrial, productive and consumer sectors ar e related to how the protection afforded under
Law 19.897 affects the various economic agents. Finally , Chile's trade obligations at that date relate
to the fact that Chile has signed a number of trade agreements which could have an impact on wheat
and wheat flour protection.

52. Can Chile explain the nature and the parame ters on the basis of which the floor and
ceiling of the band were determined. How were the threshold figures of US$128 and US$148
eventually determined?

 These values were determined in accordance with Law 19.897, which establishes that "the
values considered shall be the floor and ceiling pr ices used for wheat and sugar in the drafting of
Chilean Ministry of Finance Exempt Decrees Nos. 266 and 268, published in the Official Journal of
16 May 2002, in United States dollars f.o.b. per tonne".

 Accordingly, the f.o.b. equivalents were de termined on the basis of the floor and ceiling
prices provided for in Decree No. 266 of May 2002, e xpressed at import cost level, by deducting all
import costs applicable to an ordinary trading tr ansaction at the date of entry into force of the
Law (second half of 2003).

53. Could Chile elaborate on how the fact that the price band floor and ceiling have been set
at US$128 and 148 leads to compliance with the DSB's rulings and recommendations in the
original case.

 The reference value parameters established by the Chilean measure as the floor (US$128) and
ceiling (US$148) prices are an objective element, inter alia , for determining the ordinary customs
duty, as a specific duty or a rebate, as the case may be. These parameters are fully consistent with the
recommendations adopted by the DSB in this disput e. In this connection, special consideration
should be given to the fact that, in the context of those recommendations, paragraph 261 of the Report
of the Appellate Body states that, in assessing the PB S, "no one feature is determinative of whether a
specific measure creates intransparent and unpredic table market access conditions". In the same
paragraph, the AB declares that it reached its conc lusion "on the basis of the particular configuration
and interaction of all these specific features" of the PBS. This necessarily leads to the conclusion that
the isolated analysis of a single parameter of th e Chilean measure is inappropriate; rather, this
measure must be assessed with regard to the config uration and interaction of all of its features in
relation to its consistency with the specific and pe rtinent obligations under the WTO Agreements at
issue in this dispute.

54. Could Chile comment on Argentina's st atement in paragraph 41 of its rebuttal
submission that the floor and ceiling of the band "are two figures chosen arbitrarily and
without the use of any criterion. They could be CIF, FOB or ex-works. It is simply not known
and there is no way of knowing, unless Chile w ere to make more transparent its reasons for
setting the floor and ceiling of the band at US$128 and US$148 per tonne, respectively".
(Original emphasis).

 Firstly, the origin of these amounts has been br oadly explained in the Chilean submissions.
Furthermore, in Chile's opinion, the said paragraph 41 is based on an incorrect interpretation of the
recommendations and rulings of the DSB. Argentina claims that the values are not f.o.b. values in
spite of the fact that the Law states this to be th e case. Chile has shown that the values used are f.o.b.
values and has demonstrated how they operated under Law 19.897.

 Moreover, Argentina takes the transparency re quirement established by the AB to extremes
which, if accepted, would render virtually all or dinary customs duties WTO-inconsistent. As
previously noted, the AB found a lack of transpar ency and predictability in certain features of the
PBS, which made it a measure similar to those listed in footnote 1 to Article 4.2. of the Agreement on
Agriculture.

 To maintain that the transparency requirement applies in the terms set out by Argentina would
mean that almost all ad valorem duties would not be transparent and would therefore cease to be
ordinary customs duties upon being characterized as measures similar to those in the above-mentioned
footnote 1. In point of fact, few, if any, laws state reasons for the establishment of an ad valorem
duty. On the basis of Argentina's argument, we c ould maintain that such tariffs are "figures chosen
arbitrarily and without the use of any criterion".

 However, this is not the case for the obligati ons under Article II of the GATT. It would occur
to very few countries, as Ar gentina claims, that these ad valorem duties would be WTO-inconsistent,
given that the amount established by Members is one which is "simply not known and there is no way
of knowing", unless the Parties had made "more transparent [their] reasons for setting" it.

55. Could Chile explain the rationale behind the introduction of a multiplier consisting of
1 plus the generally applicable ad valorem duty, for the purposes of calculating the specific duty,
in cases where the reference price falls below the lower threshold price.

 In order to determine the specific duty under th e PBS, consideration was given to a series of
fixed and variable costs involved in an or dinary import process, including the general ad valorem
tariff. To make determination of the duty more tr ansparent and predictable, Law 19.897 excluded all
these costs, other than the general tariff (given that this is a known value), from the calculation of the
duty. The following formula for calculating th e specific duty was therefore established in the
Regulation to the Law:

SD = (1+ 0.06) * (FOB
floor – FOB rp)

 It should be pointed out that, on the basis of this formula, it follows that the specific duty
under current Chilean policy is less for any reference price, given that its determination includes only
the general ad valorem tariff and excludes all the other variable costs which formed part of the PBS.

 For a more detailed explanation of this formula, see the reply to Question 5.(c).

56. Could Chile explain what the rationale is for setting the adjustment factor at precisely
0.985.

 As has already been explained
13, the price band system was modified in response to a broad
political consensus, as well as an agreement between the various actors involved, with regard to the
level of protection which should be granted to wheat and wheat flour in Chile.

 Pursuant to this agreement, Chile maintain ed a level of protection in addition to the
ad valorem tariff on products under the bands, allowing producers to be protected from distortions in
international markets, without overprotecting them , on the condition that such protection would be
reduced and the market fully liberalized on a gradual basis. Moreover, the decision to do this has also
been incorporated in the negotiations relating to some of Chile's regional trade agreements.

 Additional protection was consequently calcu lated for the sector up to 2014 and a factor
enabling a gradual reduction of protection was applie d. It may be added, by way of background
information, that, in line with the historical average prices for wheat, the band is likely to be
inoperative by 2014 since it will be lower than international prices.
14

57. Is Chile arguing in section V.1 of its fi rst submission (paragraphs 121-132), that the
reason why the floor of the price band may not be considered as a minimum import price is that
it has now been established on a FOB basis? Does that also mean that the reason why the
original PBS was found to be similar to a mini mum import price was because the floor of the
price band was established on a CIF basis?

 One feature of Law 19.897 is that the parameter used is expressed on an f.o.b. basis, but this
is neither the only nor the most relevant one. Law 19.897 provides for the establishment of specific
duties which correspond to ordinary customs duties and the existence of parameters supporting their
determination does not alter this situation.

 With regard to the PBS, the band floor price w as fixed at domestic market level as an import
cost directly comparable to the domestic price, not on a c.i.f. basis. This is one of the features of
minimum import prices, but was not by itself sufficient to justify a finding that the PBS was similar to
a minimum import price.

13 Paragraph 28 of Chile's oral statement.
14 See Response No. 48 to the questions by the Panel.

 Other features include the non-transparent me thod of calculating the reference price, the
determination of the reference price on a weekly basis and the fact that this price is fixed on the basis
of the lowest price in the markets of concern. To this can be added the absence of public and official
documents containing definitions of the markets of concern and of the reference price itself and,
finally, the features of lack of transparency and predictability.

58. Can Chile respond to Argentina's assertio n during the substantive meeting with the
Panel (see paragraph 33 of the written version of Argentina's oral statement) that "when
specific duties are applied the entry price is always above US$128 per tonne". If it does not
agree with this statement, can Chile provide evidence of actual situations under the amended
PBS when imports of wheat or wheat flour have entered the market at prices lower than the
lower threshold of the price band.

 In paragraph 33, Argentina states that it h as shown mathematically and empirically that the
specific duties resulting from Law 19.897 tend to elev ate the entry price of imports above US$128.
Argentina goes on to assert that when specific duties are applied entry prices are always above
US$128, as allegedly confirmed by Chile.

 Firstly, Argentina's mathematical demonstra tion (see Section C.I.2.1. of the First Written
Submission by the Republic of Argentina) only reveal s that, given that the floor price is determined
on an f.o.b. basis and the entry price is calculated on the basis of a c.i.f. value (corresponding to an
f.o.b. price plus international freight and insurance) and total tariffs, the likelihood of the entry price
exceeding the floor price is very high. Clearly, this is true even without the application of tariffs
(either ad valorem or specific) being taken into consideration.

 Secondly, the actual data on the c.i.f. prices of imports from Argentina for the period from
16 December 2003 to 15 December 2005 confirm the above (see Exhibit CHL-16). Throughout the
period, the c.i.f. prices are between 22 and 107 pe r cent higher than the floor price (US$128). Given
that the entry prices correspond to the c.i.f. prices, pl us tariffs, it is clearly very difficult for them to
fall below US$128, irrespective of whether or not specific duties are applied.

 Nevertheless, and as shown mathematically by Argentina, the unlikely but not impossible
situation could arise whereby, once a specific duty has been established, international prices fall
substantially, which in turn is reflected in c.i.f. prices low enough to result in entry prices of below
US$128.

59. In paragraphs 161 to 163 of its first submission, Chile argues that "traders have
information that enables them to predict wheat pr ice levels in the short and medium terms, and
hence information to foresee the level of specific dut ies that might be levied on wheat imports to
Chile in the near future" and that "[i]t is pr actically impossible for wheat traders not to know
or not to use" information on trading in financ ial derivatives on wheat, which include at least
futures contracts, from commodity exchanges in the US and Argentina, in order to conduct
their businesses. Would it be right then to presuppose the intervention of professional wheat
traders in every transaction involving the importatio n of wheat into Chile? If so, does this fact
have any bearing in conditions of market access into Chile for imports of wheat and wheat
flour?

 As has been noted throughout this process, in formation on the conditions of application of
duties and rebates for wheat and wheat flour is publ ic and easily accessible to any Chilean citizen or
foreigner, whether or not professionally engaged in foreign trade. The same is true for information on
the payment of ad valorem duties, customs provisions, certification requirements and other issues
related to import trade as such. Anyone wishing to know the conditions of access to the Chilean
market for wheat and wheat flour can therefore ha ve recourse to public and easily accessible sources

of information, as well as being able to carry out all the procedures necessary for a foreign trade
operation directly.

 Nevertheless, in Chile, as in most countries, international goods transactions are conducted by
professionals who obviously have a better and more thorough command of all the elements involved
in import and export operations. This activity, the world over, implies an awareness of a considerable
amount of background information, in addition to the ordinary duties themselves. The case of wheat
and wheat flour in Chile is no exception.

 The fact that transactions are conducted by "p rofessionals" cannot therefore be interpreted as
being a consequence of the conditions of application of wheat and wheat flour tariffs.

60. In paragraph 72 of its rebuttal submission, Chile stated that "[t]he reference prices now
correspond to f.o.b. prices on the two markets of most concern for Chile … In the last six years
(2000-2006) 40 per cent of Chilean wheat imports came from the United States and 31 per cent
from Argentina." In this regard, can Chile respond to Argentina's assertion during the
substantive meeting with the Panel (see paragraph 54 of the written version of Argentina's oral
statement) that, "[a]lthough Canada is certainly a market of concern for Chile, the amended
PBS will never reflect Canada's relevance in Ch ilean foreign trade of wheat, nor Canadian
prices will be reflected in Chile's internal markets".

 With regard to Argentina's assertions in pa ragraph 54 of the written version of its oral
statement, we wish to clarify the following:

• The information submitted by Chile on average wheat imports for the period 2000-
2006, that contained in Argentine Exhibit ARG-31 on imports in 2004 and 2005, and
that submitted by Chile in Exhibit CHL-13 on imports in 2002 and 2003 all
 originate
from the same source.

• The source of this information is www.odepa.gob.cl.

 As was indicated by Chile in its oral statemen t (see paragraph 59 of the written version), the
markets used to establish the reference prices meet two conditions:

• Firstly, two markets are recognized wo rldwide as reference markets for the
international price of wheat of the category in question (i.e. wheat classified under
tariff heading 1001.90). These apparently also serve as reference markets for the
Argentine Government. Exhibit CHL-12 c ontains a table published by Argentina's
Secretariat of Agriculture, Livestock, Fisheries and Food ( Secretaría de Agricultura,
Ganadería, Pesca y Alimentos , SAGPyA, www.sagpya.gov.ar
) with information for
its users on international prices and entitled: "Trends in the external prices of the
main cereals" ( Evolución de los precios exter nos de los principales granos ). The
prices "FOB GOLFO" and "FOB PTOS. ARG." ("f.o.b. Gulf" and "f.o.b. Argentine
ports") are quoted for wheat.

• Secondly, they correspond to wheat from two of the markets of most concern to
Chile. In point of fact, in the two years prior to the entry into force of Law 19.897,
the period taken into consideration when developing the modifications to the PBS,
they were actually the most relevant ma rkets. Even if a longer price series is
considered (2000-2006), the figures show that they continue to be the most relevant
markets.

 The existence of a number of wheat-expor ting countries (Australia, Canada, France, inter
alia) and, at the same time, of several varie ties of wheat falling under the classification 1001.9000
does not make the reference markets used or va rieties of wheat selected any less representative .
Given that wheat is a commodity, and bearing in mi nd differences in quality, the international prices
of wheat from a number of sources are unquestionably related.

61. In paragraph 41 of its first submission, Argentina argues that the amended regulations
do not specify which relevant port will be cons idered in order to determine the relevant FOB
"Argentine port" prices used to calculate the reference prices. In paragraph 132 of its rebuttal
submission (see Exhibit ARG-4), Argentina noted the existence of prices for at least four
different ports ( Buenos Aires, Bahía Blanca, Quequén, and Rosario ). Chile has responded in
paragraph 77 of its rebuttal submission that it "did not find any justification for picking out any
one of the ports in particular, particularly as there were official figures published by the
Government of Argentina". Could Chile:

 (a) Provide any evidence that demonstrat es the way in which market information
from Argentina is actually used for the purpose of calculating the reference
price;

 The source of information for " Trigo Pan Argentine Port" ( Trigo Pan Puerto Argentino )
prices, also known as the "Official Price of Trigo Pan " ( Precio Oficial del Trigo Pan ), is the
Secretariat of Agriculture, Livestock, Fisheries and Food (SAGPyA)
(http://www.sagpya.mecon.gov.ar/
), under Argentina's Ministry of the Economy. The Office for
Agricultural Research and Policy ( Oficina de Estudios and Políticas Agrarias , ODEPA), under the
Chilean Ministry of Agriculture, takes these prices directly from the SAGPyA website on a daily
basis.

 With regard to differences in the names of pr ice series, we would make the following points:

• The SAGPyA publishes daily and monthly repor ts on these prices. Chile has already
submitted, in Exhibit CHL-14, two monthl y series from the SAGPyA website which
contain the same information, albeit with different series names.

• The Directorate of Agrifood Markets ( Dirección de Mercados Agroalimentarios ,
DIMEAGRO), under the SAGPyA, publishes daily official prices under the name
"Trigo Pan f.o.b. Argentine Ports" ( Trigo Pan f.o.b. Puertos Argentinos ) (see Exhibit
CHL-17).

• The Buenos Aires Cereals Exchange ( Bolsa de Cereales de Buenos Aires ) publishes
the daily prices "f.o.b. Argentine Ports" ( f.o.b. Puertos Argentinos ), the source of
information for which is the SAGPyA. Exhibit CHL-17 also contains information
from the Exchange's website. The information on wheat in the table is identical to
that set out in Argentine Exhibit ARG-32.

 Chile considers that there is enough ev idence to show that the price series " Trigo Pan
Argentine Port" ( Trigo Pan Puerto Argentino ) and "Official Price of Trigo Pan" (Precio Oficial del
Trigo Pan) are identical.

 (b) Clarify whether the use of an "average of different ports" for the determination
of the reference price, in the case of wheat prices from Argentina, is a
mandatory feature of the PBS and, if so, identify the relevant legal basis.

 There is no legal obligation to use an average of different ports as a reference price. Article 8
of Regulation 831 provides that:

 "The market of most concern for wheat, during the period of application of duties and rebates
from 16 December to 15 June of the following year, shall be that of Trigo Pan Argentino and
the prices shall correspond to the daily prices quoted for that product f.o.b. Argentine
port … ".

 In the context of the changes required to est ablish duties and rebates in a transparent and
predictable manner, it was necessary to select a refere nce price reflecting the level of the f.o.b. prices
of Trigo Pan Argentino. Chile considered that the prices which have been published by the Argentine
Government for more than 30 years
 under the title " Trigo Pan Argentine Port" ( Trigo Pan Puerto
Argentino), nowadays also entitled "Official Prices of Trigo Pan " ( Precios Oficiales Trigo Pan ),
constituted accurate data on this leve l, which originated, moreover, from a reliable source. This price
series has traditionally represented the price level at various Argentine ports.

62. Could Chile comment on Argentina's statement in paragraph 66 of its first submission
in the sense that "[s]o far, the bimonthly d ecrees appear not to indicate the reference price
calculated for each period".

 Argentina's statement appears to be the r esult of its failure to appreciate the changes
introduced by Chile. As has repeatedly been poi nted out, under Law 19.897, the reference price is
the price used by the administrativ e authority to determine the framework of protection applicable at
the border, protection which is currently determined by a decree establishing a specific duty or a
rebate on the ad valorem tariff, payable on all imports into Chile. Therefore, as distinct from the
situation under the PBS, under Law 19.897 the publicati on of the reference price is of no relevance as
far as the importer is concerned.

 In fact, as also pointed out, under the PBS, the administrative authority established the
specific duty (or rebate) once a year for a given price series and that corresponding to each import
transaction was determined by the commercial oper ator on the basis of the tables of prices and
associated duties already mentioned, in accordance with the date of shipment of the goods, and the
reference price published by customs. Now, all th at has been replaced, as appropriate, by a specific
duty in dollars per kilo or a rebate in dollars per tonne, applied at the border together with the
ad valorem tariff.

63. Law 19.897 states that the FOB reference pric e "shall consist of the average of the daily
international prices … recorded in the most relevant markets over a period of 15 calendar
days … " Can Chile explain the way in which these average prices are obtained. Does Chile
transform these daily averages into monthly averages? If so, how is this transformation done?
By using weighted averages of the daily prices or simple averages? Can Chile provide evidence
to support its response.

 As noted in Chile's Second Written Submissi on (paragraph 73), the sources of information
are:

• For Soft Red Winter No. 2 wheat, the Gulf f.o.b. price published by the Chicago
Exchange (http://www.cbot.com/

• For Trigo Pan, f.o.b. Argentine port, the price (also known as the "Official Price"),
published by the Secretariat of Agriculture, Livestock, Fisheries and Food
(http://www.sagpya.mecon.gov.ar/

 ODEPA records these prices daily . In addition, since 1975, ODEPA has published an
historical series of monthly prices for both products on its web page (www.odepa.gob.cl).

 The reference price for each period of applicati on is the average of the daily prices recorded
on the previous 15 calendar days reckoned retrospectively from the 10
th day of the month of
publication of the corresponding decree. In making the calculation, days on which no figures were
recorded (weekends and public holidays) are disregarded.

 The daily prices considered are:

• During the six-month period from 16 June to 15 December: Soft Red Winter No. 2
wheat

• During the six-month period from 16 December to 15 June: Trigo Pan , f.o.b.
Argentine port (also known as the "Official Price")

 It is a question of a simple average of daily prices. There are no transformations of any kind.

 For further clarification concerning how the calculation is made, Exhibit CHL-16 can be
revised using the information requested in question 73 . For example, to determine the amount of the
rebates during the period from 16 February 2005 to 15 April 2005, the daily price data from
27 January 2004 to 10 February 2005 were used:

Day Date Trigo Pan Argentino
 f.o.b. US$/tonne
1 Tuesday 27/ January/ 2004 162
2 Wednesday 28/ January/ 2004 158
3 Thursday 29/ January/ 2004 156
4 Friday 30/ January/ 2004 154
5 Saturday 31/ January/ 2004 -
6 Sunday 01/ February/ 2004 -
7 Monday 02/ February/ 2004 154
8 Tuesday 03/ February/ 2004 154
9 Wednesday 04/ February/ 2004 153
10 Thursday 05/ February/ 2004 153
11 Friday 06/ February/ 2004 153
12 Saturday 07/ February/ 2004 -
13 Sunday 08/ February/ 2004 -
14 Monday 09/ February/ 2004 153
15 Tuesday 10/ February/ 2004 153

 Average 154.82

 The simple average of the 15 days with data amounts to US$154.82 per tonne. Therefore the
rebate is equal to US$154.82 less US$148, multiplied by 1.06. The result of the operation is a rebate
of US$7.23 per tonne.

64. In paragraph 142 of its first submission, Chile argues that a border measure which
maintains a stable relative price allows for th e transmission of external variations to the
domestic market, "albeit to a different extent". What would be the permissible "different

extent" which would allow for sufficient transmissi on of prices so that a market would not be
considered to be insulated?

 A simple way of assessing the relationship between two prices is to divide one by the other.
In this case, for example, by calculating the ratio of the domestic price of wheat in Chile to the f.o.b.
price for Argentine exports.

Price of wheat in Chile Domestic to international price ratio = Price f.o.b. Argentina

 Bearing in mind that the domestic price is affected by other factors, such as the seasonal
supply at harvest time and changes in freight cost s, the ratio cannot be stable over each calculation
period. However, its behaviour should be char acterized by a relatively small deviation from the
average.

 This can be measured by calculating the coefficient of variation of the data series, i.e., the
standard deviation of the series divided by the mean.

 Even though the maximum value which a coeffici ent of variation should have for the series to
be stable is not perfectly definable, that value should be as low as possible.

 In comparing the Chilean price with the Argentine export price, it would be reasonable to
conclude that if the variability was not more than 15 per cent then prices were being satisfactorily
transmitted, bearing in mind the various other factors that affect the domestic price and the fact that
there are also other markets supplying the product to Chile whose prices do not necessarily behave in
the same way as Argentine prices.

 For greater clarity, it should be pointed out that the greater the distance between the prices
compared the greater the possible variability, gi ven that they will be separated by greater
intermediation costs. In other words, the ratio of a domestic price to an f.o.b. price may be expected to
be more variable than the ratio of a domestic price to a c.i.f. price.

 During the period from January 2004 to June 2006, the coefficient of variation (or variability
about the mean) of the ratio of the domestic price of wheat in Chile to the f.o.b. price of Argentine
wheat was 9.5 per cent.

 The coefficient of variation of this ra tio between January 2000 and December 2003 was
16.7 per cent.

 Although it is hard to say what would be a re asonable level of variability that would confirm
the presence of price transmission, there can be no doubt that during th e period of validity of
Law 19.897 the variability has been reduced and low enoug h to be explicable in terms of other factors
and the existence of other markets that also supply wheat for Chile.

Ratio of the price of wheat in Chile to the export price for Argentine wheat
Month F.o.b. price Argentina Chilean domestic
price Price ratio
Jan-00 99.29 176.52 1.78
Feb-00 102.43 176.64 1.72
Mar-00 106.22 190.93 1.80
Apr-00 113.72 193.54 1.70
May-00 126.29 188.51 1.49

Ratio of the price of wheat in Chile to the export price for Argentine wheat
Month F.o.b. price Argentina Chilean domestic
price Price ratio
Jun-00 129.05 187.45 1.45
Jul-00 130.43 185.30 1.42
Aug-00 128.59 184.49 1.43
Sep-00 127.45 184.63 1.45
Oct-00 131.38 184.61 1.41
Nov-00 130.14 174.75 1.34
Dec-00 115.32 157.51 1.37
Jan-01 117.18 162.61 1.39
Feb-01 124.60 171.12 1.37
Mar-01 122.05 164.48 1.35
Apr-01 124.28 163.09 1.31
May-01 131.86 163.35 1.24
Jun-01 130.50 162.03 1.24
Jul-01 125.05 160.02 1.28
Aug-01 122.96 161.27 1.31
Sep-01 119.65 155.79 1.30
Oct-01 126.00 145.95 1.16
Nov-01 120.18 151.46 1.26
Dec-01 108.94 153.36 1.41
Jan-02 112.05 152.33 1.36
Feb-02 116.68 155.07 1.33
Mar-02 114.68 159.12 1.39
Apr-02 123.10 163.23 1.33
May-02 135.73 163.13 1.20
Jun-02 151.26 158.45 1.05
Jul-02 168.77 156.52 0.93
Aug-02 179.91 160.73 0.89
Sep-02 195.71 164.83 0.84
Oct-02 186.14 163.18 0.88
Nov-02 141.91 168.94 1.19
Dec-02 129.58 164.06 1.27
Jan-03 143.73 170.40 1.19
Feb-03 147.00 167.81 1.14
Mar-03 151.75 170.70 1.12
Apr-03 149.50 176.30 1.18
May-03 162.52 176.00 1.08
Jun-03 160.70 173.92 1.08
Jul-03 159.27 176.84 1.11
Aug-03 164.25 176.53 1.07
Sep-03 160.41 184.15 1.15
Oct-03 165.45 190.34 1.15
Nov-03 169.65 191.44 1.13
Dec-03 163.39 191.56 1.17
Jan-04 162.50 205.58 1.27
Feb-04 150.80 187.55 1.24
Mar-04 154.61 182.30 1.18
Apr-04 163.11 182.23 1.12

Ratio of the price of wheat in Chile to the export price for Argentine wheat
Month F.o.b. price Argentina Chilean domestic
price Price ratio
May-04 161.25 177.19 1.10
Jun-04 147.57 180.28 1.22
Jul-04 139.48 183.73 1.32
Aug-04 125.52 184.63 1.47
Sep-04 127.41 175.22 1.38
Oct-04 124.50 179.97 1.45
Nov-04 117.05 165.91 1.42
Dec-04 112.11 160.37 1.43
Jan-05 107.62 163.87 1.52
Feb-05 115.75 163.59 1.41
Mar-05 132.18 159.56 1.21
Apr-05 137.57 168.92 1.23
May-05 137.48 177.38 1.29
Jun-05 136.24 183.07 1.34
Jul-05 144.86 186.79 1.29
Aug-05 142.14 195.72 1.38
Sep-05 134.18 191.37 1.43
Oct-05 135.20 189.65 1.40
Nov-05 136.77 190.72 1.39
Dec-05 131.37 200.49 1.53
Jan-06 136.23 202.37 1.49
Feb-06 141.65 206.18 1.46
Mar-06 139.45 207.95 1.49
Apr-06 142.11 213.29 1.50
May-06 160.67 209.95 1.31
Jun-06 183.71 203.09 1.11
Source: ODEPA (www.odepa.gob.cl)

65. Can Chile comment on the graph presented by Argentina as Exhibit ARG-35 during the
substantive meeting with the Panel, according to which "when international prices fall, specific
duties rise" (see paragraph 69 of the written vers ion of Argentina's oral statement during the
substantive meeting with the Panel).

 The graph presented by Argentina in Exhibit AR G-35 contains two curves: the reference price
index curve and the specific duty index curve, for the period from 1 November 2004 to 25 April 2005.
The graph does not include actual international prices for that period. Accordingly, Chile cannot agree
with the statement "when international prices fa ll, specific duties rise" made by Argentina in
connection with this graph.

 The graph confirms that, in fact, when the re ference price falls below US$128, a specific duty
is applied, in accordance with a pre-established schedule. It also confirms that the greater the fall, the
higher the specific duty applicable. Therefore, what can be stated is that, regardless of the level of the
international prices prevailing during the period in question, specific duties amounting to US$14.3 per
tonne were collected between 16 December 2004 and 15 February 2005 and specific duties amounting
to US$20.5 per tonne between 16 February 2005 and 15 April 2005.

66. Chile has cited the case of "seasonal ta riffs" and "entry prices" in support of its
arguments relating to "overcompensation" (see, for example, paragraphs 51 and 94 of its

rebuttal submission). Can Chile confirm whethe r it reserved its right in its WTO Schedule to
apply seasonal tariffs in respect of wheat and whea t flour. How does Chile justify the fact that
the applied duties may potentially change six times in the course of any 12-month period, if,
unlike some other WTO Members, it has not reserved the right to do so in its Schedule?

 Chile's tariff commitment for wheat and wheat flour in the Uruguay Round (UR) was to
reduce the tariff of 35 per cent previously bound to 31 .5 per cent. Nevertheless, in Chile, as in many
other countries, the applied tariffs are lower than the WTO bound levels. In the case of wheat and
wheat flour, it was determined that they would r eceive protection additional to that provided by the
general ad valorem tariff, which is well below 31.5 per cen t, but still within the bound level. The
tariffs applied by Chile to wheat and wheat flour ma y, in fact, change six times a year, but they may
never exceed Chile's bound tariff under the WTO.

 In the UR there was no obligation to "reserve a right" subsequently to change the tariffs if
those changes are made within the bound levels. Therefore, there was no possibility of Chile's
reserving a right of this kind. Countries are at liberty to set the tariff levels they consider appropriate
and to change them, provided that they apply ordinary customs duties and the bound level is
respected. The duties and rebates resulting from Law 19.897 are ordinary customs duties.

67. Could Chile comment on Argentina's argument in paragraphs 97, 125-158 and 185 of its
first submission, that the specific duties resultin g from Chile's PBS tend to overcompensate for
falling world market prices when the reference price is set below the lower threshold of the
price band, elevating the entry price of impo rts above the band floor. The Panel has noted
Chile's comments in paragraphs 49-51 of its rebuttal submission. Is the Panel correct in
understanding that Chile is acknowledging that this "overcompensation" may occur, and in fact
has occurred, but that it is limited in time?

 Chile does not acknowledge the existence of compensation or overcompensation in the
application of the duty or rebate to wheat and wheat flour imports. Compensation consists in
establishing a tariff that makes it possible to achieve a certain level for a specific price. In that case,
overcompensation would mean that the proceeds of the application of a tariff would exceed that level.
Law 19.897 establishes a duty or a rebate and not a mechanism designed to "compensate" for changes
in the value of imports or the change in international prices.

 What Chile does believe and acknowledge is that whenever custom s duties are modified,
there is a change in the total ta riff charge affecting all imports, which increases when duties rise and
decreases when they fall or when a rebate is app lied. These differences also arise when countries
change their tariffs, but do not constitute compen sation or overcompensation or undercompensation,
but merely a new tariff charge which may be higher or lower than that which previously existed.

68. Can Chile respond to Argentina's assertio n during the substantive meeting with the
Panel (see paragraphs 40 and 41 of the written version of Argentina's oral statement) that, while
overcompensation may take place at the beginning of the two-month period, it "inevitably taints
the rest of that period" because "the level of duties and the entry price after that moment will
be affected by the original overcompensation".

 Chile has shown that in no circumstances do the effects produced by a change in the tariffs in
force constitute or take the form of compensa tion. Therefore, there is no possibility of
"overcompensation" and Argentina's statement does not make sense.

69. In response to Argentina's arguments regar ding "overcompensation", Chile has stated
in paragraph 51 of its rebuttal submission that the situation described by Argentina would be
"exactly the same if we consider what happens when an ad valorem duty changes", adding that

this would be "even clearer in countries with seasonal tariffs, where the protection changes
(rises or falls) on the day that the tariff ch anges". Is Chile in some manner linking the
functioning of the PBS to the way in which seasonal tariffs work?

 The similarity between the duties and re bates established under Law 19.897 and seasonal
tariffs is that in both cases, within the same cal endar year, there are changes in the levels of
protection. It was only in this sense that Chile used seasonal tariffs as an example.

70. In Section II.5 of its first submission (paragraphs 40-45), Chile has referred to the
principle of legality of taxation within its domest ic legal system. Could Chile elaborate on its
arguments in this regard? Is Chile arguing that it has experienced difficulties to comply with
the DSB's rulings and recommendations in the orig inal case that may be explained because of
limitations in its domestic law? If not, plea se explain the relevance of the section identified
above.

 No. Chile has not experienced difficulties in complying with the DSB's rulings and
recommendations; on the contrary, it has amended its le gislation to make it fully consistent with its
WTO obligations.

 The reference to the principle of legality of taxation was intended to facilitate understanding
of the changes introduced by Chile and goes to the heart of the paradox posed by the present dispute.

 If Chile had amended the PBS by giving the administrative authority the power to establish
specific duties or to increase the ad valorem duty at its discretion, as happens in many legal systems,
we would be unlikely to be facing the present proceeding, as long as the bound tariff rate was not
exceeded.

 However, in Chile, under the Constitution, it is not possible for the administrative authority to
establish specific duties arbitrarily; instead the institu tion, modification and abolition of taxes must be
determined by law.

 This explains why, although under Law 19. 897 the PBS was modified by establishing a
specific duty, the law also had to take into c onsideration all the parameters necessary for the
administrative authority (the Ministry of Finance) to be able to determine the amount of that duty.
15

 Under the present rules, the parameters no lo nger form part of a scheme or formula that
provides for automatic and continuous variability, as under the PBS; instead parameters such as
reference, floor and ceiling prices and markets of c oncern are only used by the authority to determine
the amount of the specific duty applicable to imports.

 Curiously, on the basis of the Appellate Body's conclusions, Argentina applies the
transparency and predictability requirements to a ll the parameters considered by Chile, although the
omission of those parameters woul d have brought Chile into full compliance with the rulings and
recommendations of the DSB.

71. Can Chile confirm whether it has reserved the right in its WTO Schedule to apply the
Special Agricultural Safeguard (SSG, i.e. Article 5 of the Agreement on Agriculture), which is
an exception to Article 4.2 of the Agreement on Ag riculture. If it has not reserved such right,

15 Another possibility would have been to establish the protection additional to the ad valorem tariff
directly by law, but as already noted the price bands are intended to correct the distortions on the international
markets and not to overprotect the domestic productive sector, a possible consequence of establishing protection
by law due to the greater rigidity as regards modification.

can Chile justify the fact that the applied duti es are calculated based on a scheme which would
appear to be more flexible and permissive than Article 5 in many respects, since it:

 (a) Is not designed to respond to surges of im ports or price falls only, as in the case
of the SSG provisions, but has a "stabilization" objective;

 (b) Compensates for more than the full difference between a reference price and a
price floor, due to the application of a multiplier in the price-gap formula;
whereas the remedy foreseen under the SSG is calculated based on a degressive
schedule of cumulative additional duties;

 (c) Allows Chile to modify trigger factor s six times a year, whereas the trigger price
under SSG provisions is fixed and unchanging (linked to the 1986-88 base
period);

 (d) Is not subject to prior notice, whereas transparency and notification
requirements must be complied under Article 5 of the Agreement on
Agriculture, prior to the activation of the SSG;

 (e) Does not appear to allow for goods in transit under the bimonthly reference
price adjustments, while Article 5.3 of the Agreement on Agriculture provides
that no additional duty under Articles 5.1(a) and 5.4 may be imposed.

 Chile would like to point out that the Special Agricultural Safeguard (SSG) of the Agreement
on Agriculture (AA) is an exceptional mechanism that allows certain Members to exceed their
WTO bound tariff commitment.

 Law 19.897 now in force in Chile (and before that the PBS) provides for additional protection
for wheat and wheat flour, over and above the 6 per ce nt MFN tariff in force, on condition that Chile's
WTO bound tariff of 31.5 per cent is not exceeded. Ther efore, it would be wrong to draw parallels or
comparisons between the two, and especially to cl aim that the SSG mechan ism of the AA constitutes
a model for establishing the tariff levels in a country Member.

 Moreover, Chile is unfamiliar w ith the details of the operation of the SSG given that it did not
have the right to reserve its use for any product sinc e it was not subject to the "tariffication" process.
As was pointed out in the answer to question 66, before the UR Chile already had a bound tariff of
35 per cent as its sole border protection.

72. Developing the information supplied by the Parties, in particular in paragraph 154 of
Chile's first submission and Argentina's exhibi ts ARG-11 and ARG-12, could Chile provide the
following additional information on total import flows into Chile for:

 (a) HS positions 1001.9000 (wheat) and 1101.0000 (wheat flour or meslin) – Separate
table outputs;

 (b) Reporting periods: 2004 and 2005;

 (c) Frequency: monthly and quarterly;

 (d) Units of measure: in US$, in quantity units (wheat equivalent), and in
CIF import unit values (proxy for "entry prices");

 (e) Data to be ranked by major origin of imports.

 See Exhibit CHL-18.

 The source of the information is www.odepa.gob.cl

73. Behaviour of price indicators
: Without prejudice to the Parties' position as regards the
relevant reporting periods, relevant price series, markets of concerns, seasonality, etc., the Panel
would like to enhance its understanding of the is sues and parameters involved. To facilitate the
Panel's examination of these matters on a comparable basis, could Chile plot the following data
in one single graph, providing the sources and methodologies used to derive each data series:

 (a) Reporting period: 16 December 2003 to 15 December 2005;

 (b) Chilean wholesale price;

 (c) Applicable reference prices and price floor during that period;

 (d) For the periods 16 December to 15 June: daily prices quoted for Trigo Pan
Argentino FOB Argentine port;

 (e) For the periods 16 June to 15 December: daily prices quoted for SRW no.2 FOB
Gulf of Mexico;

 (f) Entry prices in the Chilean customs te rritory (i.e. duty-paid for wheat and wheat
flour).

 Set out below is the graph requested, based on the information contained in Exhibit CHL-16.
The sources of the information presented in that Exhibit are as follows:

 (1) Wholesale Market Price: monthly prices on the Santiago wholesale market
(www.odepa.gob.cl

 (2) Floor: floor price established in Law 19.897 (US$128)

 (3) Ceiling: ceiling price established in Law 19.897 (US$ 148)

 (4) Reference value: reference price calculated on the basis of Law 19.897 and the
Regulation thereto (see answer 63).

 (5) Argentine Trigo Pan: daily price series published by SAGPyA.

 (6) Soft Red Winter No. 2: daily pri ce series published by the Chicago Exchange.

 (7) Law Specific Duty: duty calculated as (floor price – reference price) x 1.06

 (8) Law Rebate: rebate calculated as (reference price – ceiling price) x 1.06

 (9) C.i.f. values: actual monthly average values (US$/tonne) of Chilean imports of wheat
of all origins (www.odepa.gob.cl

 (10) Ad valorem duty: MFN tariff of 6 per cent

 (11) Entry Price: entry price calculated as: c.i.f. x (1 + 6%) + specific duty or tariff
rebate, as appropriate.

 (12) Maximum rebate according to c.i.f.: ma ximum rebate in US$/tonne to be deducted
from the ad valorem tariff payable, in order not to exceed 6 per cent of the c.i.f. price

 (13) Maximum Specific Duty to 31.5%: maximum specific duty in US$/tonne in order
not to exceed 31.5%.

Wheat: Chilean Wholesale Market, Argentine Trigo Pan f.o.b., Soft Red Winter
Nª2 and Entry Prices
50
100
150
200
250
300
350
16/12/03
16/01/04
16/02/04
16/03/04
16/04/04
16/05/04
16/06/04
16/07/04
16/08/04
16/09/04
16/10/04
16/11/04
16/12/04
16/01/05
16/02/05
16/03/05
16/04/05
16/05/05
16/06/05
16/07/05
16/08/05
16/09/05
16/10/05
16/11/05
USD / ton
Wholesale Market Price Reference Value Argentine Trigo Pan Soft Red Winter N° 2 Entry Price
Source: See answer number 73

74. In paragraph 58 of its rebuttal submission, Chile appears not to share Argentina's views
regarding the most relevant period for plotting the data. Could Chile indicate which period, if
any in particular, it considers relevant for the Panel to examine the data elements relating to the
functioning of the PBS?

 The measure in question
 is the specific duty or rebate or neither of the two, established under
Law 19.897. In Chile's opinion, the right way to assess whether this measure takes into account the
rulings and recommendations of the DSB with regard to the PBS is, firstly, to analyse the structure of
the measure (which corresponds to an ordinary customs duty). Then, if it were necessary to assess the
effect of the measure over time, all the available information from the time during which it has been
in force should be used. In other words, from 16 December 2003 to the last period available.

 To analyse only the period during which the specific duty applied was positive (i.e., from
16 December 2004 to 15 April 2005), as suggested by Argentina, would mean using partial
information about the measure in order to skew the an alysis. In this case, it could be argued that the
supposed "variability" of the duty alleged by Arge ntina does not exist since during the entire period
the duty was the same or, at most, varied once (w hich would likewise not constitute what has been
called variability of the duties), when the duty changed from 0.0143 US$/kg to 0.0205 US$/kg on
16 February 2005.

 Moreover, if Argentina's request concerning the "relevant period" were to be accepted,
Argentina would have to revise its arguments – agains t the system as a whole – and restrict its claims
solely to what happened in the period which, in its opinion, is the "relevant" one (i.e., the period in
which the specific duty was positive).

75. Pending the receipt of the detailed informat ion requested above, the Panel has examined
the graph supplied by Chile under paragraph 154 of its first submission (Domestic and
International Prices for Wheat (US$/tonne), wh ich is based on monthly data). In that
paragraph, Chile submits that the Chilean whol esale price for wheat has varied and that "the
variation is very similar to that of export pri ces of Argentine wheat, confirming the connection
of Chilean wheat prices to the international grain market".

 (a) How does Chile explain the fact that during the periods March-April 2004;
May-October 2004; December 2004-March 2005; April-June 2005;
July-August 2005; and November-December 2005, the domestic and
international prices have actually evolved in opposite directions?

 The graph supplied by Chile under paragraph 15 4 of its First Written Submission shows that
the fluctuations in international prices over time ar e in fact transmitted to domestic prices. Price
transmission is an effect that should be observed ov er a time series; therefore it cannot be measured
at one or two isolated points. In addition to cons ideration of the differences in the costs of importing
from different suppliers and the special circumstan ces that determine prices on the domestic market, a
fundamental aspect that should be kept in mind is the fact that changes in international prices will
necessarily be reflected in the domestic prices with a certain time lag.

 Two prices which can be compared at the same moment of time are the actual c.i.f. prices of
the imports and the entry prices (c.i.f. plus tariffs). In all the months mentioned the c.i.f. and entry
prices were moving in the same direction (see Exhibit CHL-16).

 (b) What could be, in Chile's opin ion, the factors accounting for this?

 As already noted, there are many possible expl anations why at a particular moment of time
the international price should rise and the domestic price fall. These include: the time lag in price

transmission, exchange rate fluctuations, changes in transport costs, changes in interest rates, changes
in the cost of insurance, the quantity and quality of the product imported during a particular month,
etc.

 (c) Does Chile consider that "the competitive conditions of imports vis-à-vis
domestic production" might have been "affected" during at least some of the
above periods, in particular when international prices were decreasing while
internal prices were increasing? Please take into consideration in this regard the
statement in paragraph 7.44 of the Panel's report in Chile – Price Band System.

 Chile does not consider that the competitive conditions of imports vis-à-vis domestic
production were affected during any of the periods mentioned under (a).

 Paragraph 7.44 of the Panel Report, cited in this question, deals with th e lack of transparency
and predictability in the determina tion of PBS reference prices, prior to the modifications introduced
by Law 19.897 and its Regulations. Chile does not see the connection between the Panel's findings on
that occasion with respect to the "markets of concer n for Chile" and the main thrust of the question,
namely, the existence of price transmission.

 (d) Can Chile contrast the observations presented under the preamble of this
question, and its own statement in paragraph 142 of its rebuttal submission, to
the effect that it "has also shown that the domestic price of wheat has …
followed a pattern similar to that of the international price … and that the
modified system allows variations in ext ernal prices to be transmitted to the local
market" (emphasis added).

 Price trends must necessarily be assessed on the basis of a series of prices rather than on the
basis of spot situations which are, by definition, the result of transitory market conditions, which
could be influenced by a whole range of factors (exc hange rate, internal supply, origin of the imports,
quantity and quality of the imports, interest rates, transport costs, insurance costs, etc.), not to mention
the time lag required for the domestic markets to respond to international price trends.

 In this context, Chile's statement with regard to the transmission of international prices to the
domestic market is perfectly valid, regardless of the f act that at certain particular moments of time the
international price on a specific market may fall while the domestic price rises or vice versa.

76. Can Chile please clarify which are the "charts presented by Argentina" to which it
refers in paragraph 103 of its first submission.

 Paragraph 103 of Chile's Firs t Written Submission refers to the charts presented by Argentina
in Exhibits ARG-12 and ARG-14.

 The chart ARG-12 and the table of data in ARG-11 corroborate the statement made in
paragraph 103 and the information contained in an swer 58 of this questionnaire: throughout the
period the c.i.f. prices are above the floor of US$128, so that it is impossible to claim that this is a
price indicative of the domestic market, given that this price is not even close to that at which wheat is
traded in Chile.

77. Can Chile please indicate the source of th e information contained in the chart regarding
"Domestic and International Prices of Wheat" in paragraph 154 of its first submission.

 The sources of the information are: ODEPA (www.odepa.gob.cl ) for domestic wheat prices
(Wholesale Market Price) and SAGPyA (www.sagpya.gov.ar ) for the f.o.b. prices of Trigo Pan
(Official Prices or Trigo Pan Prices, f.o.b. Argentine Port).

ANNEX F-4

REPLIES BY CHILE TO QUESTIONS POSED BY ARGENTINA

1. Can Chile explain what did its Government mean when, at the time of proposing the
passing of the bill for the approval of Law 19.897, stated: "Through this bill the Government
has corrected … formal aspects challenged [by the WTO] while fully protecting the spirit of the
bands … "?

 Contrary to what Argentina appears to be argui ng, Chile has stated that the relevant issue in
these proceedings is not the intentions of the Par ties, let alone the statements by their authorities
1, but
the manner in which the recommendations and rulings of the DSB are complied with in practice.

 If statements by the authorities or even the lega l texts were sufficient, there would be no need
to resort to these proceedings, since the drafting hist ory of the law and the text itself would obviously
show compliance with the rulings and recommendations of the DSB. Moreover, on the basis of that
argument, it would suffice for Members implementing measures to "affirm" compliance when
amending or adopting such measures, if such were the proof needed to demonstrate this at a later
stage. In fact, the message from the President of th e Republic attached to the draft law states that the
latter's objectives include "harmonization with th e principles established in the WTO ruling".
Likewise, when referring to the content of the dr aft, the message states that the draft makes
adjustments to the PBS "that ensure its consiste ncy with the rulings and recommendations of the
WTO Dispute Settlement Body".

 Nevertheless, what is asserted in the messag e appears to be insufficient. However, the
question posed provides an opportunity to emphasi ze how, from the substantive and procedural
standpoints, Chile has been mindful at all times of the requirements of the DSB and of the need to
modify the price bands in accordance with the WTO's rulings. The excerpt cited is a response to the
oral statement made by the then Minister for Finance, Mr Nicolás Eyzaguirre, in the hall of the Senate
on 6 August 2003.

 In order to be understood, the quotation needs to be read in context. Its scope plainly emerges
from the preceding paragraph, in which the Minister states: "First, why are we discussing this?
Because there is a legal vacuum that has impede d continuity in agriculture? No. Because the
Government intends to change the rules of the ga me in agriculture? No, again. We are discussing
these matters because the World Trade Organization h as objected to the way in which the price bands
are calculated, the transparency thereof and the mechanisms for setting them".

 Seen in its context, the quotation is self-e xplanatory. The Minister was expressing the
Government's opinion that the changes introduced by Chile remedied the aspects, which in his view
were formal aspects, challenged by the DSB, whilst adhering to the underlying spirit of the Chilean
price bands, which is to afford additional protection above the 6 per cent ad valorem tariff on certain
agricultural products, without, however, overprotecting such products to the detriment of the other
economic operators, who might possibly be affected by such protection.

 It seems unnecessary to expand any further on th e matter, but the history of the Law includes
numerous statements by Government authoriti es, reiterating how the changes introduced by
Law 19.897 comply with the recommendations and rulings of the DSB.

* Annex F-4 contains the Replies by Chile to Questions Posed by Argentina. This text was originally
submitted in Spanish by Chile.
1 See Response 22 by Chile to the Panel.

Ordinary customs duties

2. The Appellate Body established that " … all that is required is that ordinary customs
duties … be expressed in the form of ad valorem or specific rates". Furthermore, the Appellate
Body established that "the fact that the duties that result from the application of Chile's PBS
take the same form as "ordinary customs duties" does not imply that the underlying measure is
consistent with Article 4.2 of the Agreement on Agriculture".

 (a) Is the amended PBS, the underlying measure as expressed in Law 19.897 and
Decree 831/2003 and not the resulting duties, expressed in the form of ad
valorem or specific duties?

 (b) If the answer is affirmative, please id entify how is it expressed in the form of
ad valorem or specific rates?

 (c) If the answer is negative, how can Chile affirm that the amended PBS is an
ordinary customs duty?

 References to the Appellate Body's statemen ts are the key to understanding the ruling on the
PBS and ultimately to understanding how the change s introduced by Law 19.897 have fully complied
with the rulings and recommendations of the DSB.

 The Appellate Body held that the PBS was a measure similar to those listed in footnote 1 to
Article 4.2 of the Agreement on Agriculture, but before addressing the issue of how much or what
kind of "similarity", it identified with what the PBS was required to be similar, concluding that the
PBS was similar to a variable import levy and/or a minimum import price. In order to determine
when the measure was similar, the Appellate Body interpreted both te rms using the rules codified in
the Vienna Convention , discussing the ordinary meaning of th ese terms in their context and in the
light of their object and purpose.

 In the case of variable levies, the Appellate Body concludes that what distinguishes them
from ordinary customs duties is variability. Howeve r, this feature alone is not conclusive, since an
"ordinary customs duty" can also be varied and, fully in accordance with Article II of the GATT 1994,
an import duty may be established, and the rate at which the duty is applied may be changed
periodically (provided that the changed rate remains below the tariff rates bound in the Member's
Schedule).
2 Such a change in the applied rate can be made at any time, for example, through an
act of a Member's legislature or executive.

 In order to determine what kind of variability makes an import levy a variable import levy,
the Appellate Body turns to the i mmediate context of the other words in footnote 1 to Article 4.2,
concluding that at least one feature of variable import levies is the fact that the measure itself – as a
mechanism – must impose the variability of the duties. Variability will be inherent in a measure
if the measure incorporates a scheme or formula that causes and ensures that levies change
automatically and continuously.

 As was noted by the Appellate Body itself, "[t]he level at which ordinary customs duties are
applied can be varied by a legislature, but such duties will not be automatically and continuously
variable. To vary the applied rate of duty in the ca se of ordinary customs duties will always

2 Report of the Appellate Body in Argentina – Textiles and Apparel, supra, footnote 56, para. 46.

require separate legislative or administrative action, whereas the ordinary meaning of the term
"variable" implies that no such action is required".
3

 The Appellate Body added that the presence of a formula causing automatic and
continuous variability of duties was a necessary , but by no means a sufficient, condition for a
particular measure to be a variable import levy, specifying that there are additional features that
undermine the object and purpose of Article 4, including, inter alia, lack of transparency and lack of
predictability in the level of duties that will result from the application of such measures, which are
liable to restrict the volume of imports.

 The Appellate Body reaches a conclusion similar to the above as regards minimum import
prices, except for the fact that minimum import pr ice schemes generally operate in relation to the
actual transaction value of the imports.
4

 Pursuing its analysis, the Appellate Body undertook to establish whether the PBS was similar
to the measures listed in footnote 1 to Article 4.2, c oncluding that the task must be approached on an
empirical basis"
5, and notes that all of the border measures listed in footnote 1 have in common:

 – The object and effect of restricting the volumes and distorting the prices of imports of
products in ways different from the ways that ordinary customs duties do;

 – that they disconnect domestic prices from international price developments, and thus
impede the transmission of world market prices to the domestic market.

 Nonetheless, this is not sufficient. In order to be "similar", the PBS, in its specific factual
configuration, must have sufficient resemblance or likeness to, or be of the same nature or kind as, at
least one of the specific categories of measures listed in footnote 1.

 The Appellate Body agrees with the Panel's vi ew in considering the PBS to be a measure
similar to variable import levies or minimum import prices but disagrees with the importance placed
by the Panel on the question of whether or not Chil e's price bands were related to domestic target
prices or domestic market prices.

 Assessment of the price bands requires taking into account factors other than world market
prices, among which the Appellate Body emphasiz es the fact that the prices which represent the
highest 25 per cent as well as the lowest 25 per cent of the world prices from the past five years are
discarded, and the intransparent and unpredictable way in which the "highest and lowest f.o.b. prices"
that have been selected are converted to a c.i.f. basis by adding "import costs".

 The Appellate Body also saw the following similar shortcomings in the way the other
essential elements of Chile's PBS, that is, the reference prices, were determined:

 – The reference price was set on a weekly b asis, in a way that was neither transparent
nor predictable.

 – No Chilean legislation or regulation sp ecified how the international "markets of
concern" and the "qualities of concern" are selected.

3 Para. 233.
4 Report of the Panel, para. 7.36(e).
5 Para. 226.

 – The process of selecting the reference pr ices was not transparent, and it was not
predictable for traders.

 – The same weekly reference price applied to imports of all goods falling within the
same product category, regardless of the or igin of the goods, and regardless of the
transaction value.

 – Moreover, unlike the five-year average monthly prices used in the calculation of
Chile's annual price bands, the lowest "marke t of concern" price used to determine
the weekly reference price is not adjust ed for "import costs", and thus is not
converted from an f.o.b. basis to a c.i.f. basis.

 In the Appellate Body's view, although ther e are some dissimilariti es between the PBS and
the features of minimum import prices and variable import levies, the way in which Chile's system
was designed and the way it operated in its overall nature were sufficiently "similar" to the features of
the prohibited measures to make the price band system, in its particular features, a "similar border
measure" within the meaning of footnote 1 to Article 4.2, although the duties resulting from
application of the PBS took the same form as "ordinary customs duties".

 As Chile has repeatedly stated throughout the course of these proceedings, there was no
specific duty applicable under the PBS but a system essentially based on three parameters: the date of
shipment of the goods, the reference price set by Customs and the table of duties and rebates
associated with the reference price on the date of shipment.

 The combination of these factors ultimately de termined the duty payable, which could vary
from one operation to another, meaning that two consignments arriving on the same day could be
charged different duties. Moreover, since the duti es associated with the reference prices were set on
an annual basis, whereas the reference prices were published on a weekly basis, the price was adjusted
on an ongoing basis to the band floor.

 As a result, duties applied under the PBS vari ed automatically and continuously, without
executive or legislative action. However, in additi on to variability, which is a necessary, though not a
sufficient, condition, the Appellate Body ruled on the other features of the PBS that made it similar to
the measures listed in footnote 1, which were ch aracterized by their lack of transparency and
predictability.

 The changes introduced by Law 19.897 substan tially modified the operation of Chile's price
bands, by incorporating all the recommendations and rulings of the DSB.

 The variability of the duties was eliminated . Today, the duties are no longer adjusted
automatically and continuously but derive from an administrative act which sets the amount of a
specific duty or tariff rebate, so that as long as a specific duty remains in effect different operations
cannot be charged different duties: the duty remain s the same for as long as it is not changed through
an administrative act.

 Predictability being a necessary condition, this would suffice to establish the WTO
consistency of Law 19.897. Nevertheless, should ev en that not be sufficient, Law 19.897 also takes
all the elements identified by the Appella te Body which made the PBS a measure similar to those
listed in footnote 1 to Article 4.2 and corrects them according to the terms specified in the Appellate
Body's ruling.

 If, as the Appellate Body held, in order to be "similar" the PBS in its specific factual
configuration had to have sufficient resemblance or likeness to, or be of the same nature or kind as, at

least one of the specific categories of measures listed in footnote 1, the elimination of all the features
identified by the Appellate Body means that Law 19.897 is clearly no longer a similar measure, since
it no longer has "sufficient resemblance or likeness to" and is no longer "of the same nature or kind".

3. Where in the text of Law 19.897 and Decree 831/2003 can the ad valorem or specific rate
be found (excluding the resulting duties)?

 Article 1, paragraph 1, of Law 19.897 reads as follows:

"There shall be established specific duties in United States dollars per tariff unit and
rebates on the amounts payable as ad valorem duties under the Customs Tariff, which
could affect the importation of wheat, wheat flour and sugar, as stipulated in this
law."
 As has been stated repeat edly, in the WTO customs duties on merchandise imports may be
levied on an ad valorem basis (percentage of value) or on a specific basis ($7 per 100 kg.). In both
instances, tariffs on imports give a price advant age to similar locally produced goods and raise
revenues for the Government.
6

 As a result of the changes introduced by Law 19.897, imports of wheat and wheat flour are
subject to payment of a specific duty in dollars per tonne, exactly as specified in the description
provided in the glossary of WTO terms.

 The reference by Argentina to the resulting duti es, as indicated in the previous question, is
based on the Appellate Body's conclusions and in f act relates to the way in which the PBS used to
operate, levying duties that were not ultimately ordi nary customs duties. Law 19.897 provides for the
application of a specific duty that is set by a supr eme decree of the Minister for Finance applicable to
any import operation, which can be changed only through a new administrative act.

4. The Appellate Body established that " … ordinary customs duties … are … unrelated to
… an underlying scheme or formula." It is clear that the amended PBS, the underlying
measure that, among other features, contains a formula. Then, how could Chile argue that the
amended PBS is an ordinary customs duty?

 As indicated in the response to question 2, Law 19.897 eliminated the application of a
formula for the determination of duties resulting from the price bands and established a specific duty
in dollars per tonne, which is set once every two months by the Minister for Finance through a
supreme decree.

 This specific duty satisfies all the requiremen ts of ordinary customs duties. Argentina's
misunderstanding stems from the fact that Law 19. 897 retained terms used under the PBS, such as
reference prices, floor and ceiling prices and the exis tence of markets of concern. However, these
elements are no longer part of a system for the de termination of the resulting duty in terms of a
formula, as concluded by the DSB, but they no w serve as parameters enabling the administrative
authority to determine the margin of protection for wheat and wheat flour through the establishment
of a particular specific duty (or rebate, as the case may be).

 Under Law 19.897, the parameters are not part of the scheme or formula as they used to be
under the PBS; rather, they are elements that elim inate the Chilean authorities' discretion to establish
the tariff charge on wheat and wheat flour, with th e proviso that the tariff charge in question may
never exceed Chile's bound tariff under the WTO.

6 http://www.wto.org/english/thewto_e/glossary_e/glossary_e.htm

5. In para. 2 of its Oral Statement Chile recognized that the amended PBS is a
"mechanism". How can Chile explain that the amended PBS, the underlying measure, not the
resulting duties, is expressed in the form of ad valorem or specific rates?

 Paragraph 2 only mentions that the PBS shoul d not be compared with Law 19.897, because
these are two completely different mechanisms. Ch ile does not consider it strange to use the term
"mechanism" in this context, and would even agree that there are mechanisms for the collection of
ordinary customs duties.

 Nevertheless, it cannot be conc luded from the above, as Argentina does, that Chile recognizes
that it applies a mechanism and therefore a measure similar to the PBS. Chile has clearly established
its position throughout the course of this dispute and trusts that the consistency analysis of
Law 19.897 will be technical and exacting.

 If mentioning the mere use of terms could be used as evidence in these proceedings, the Panel
should reach conclusive findings in favour of Chile 's position. Firstly, because the sole reading of
paragraph 2 shows that Chile does not use the term "mechanism" in the sense suggested by Argentina.
But furthermore, because if the same parameter is used, there is no dispute in these proceedings,
because in all of its presentations Argen tina has consistently referred to the specific duties applied by
Chile. Solely by way of example, in its first written submission Argentina used this expression in
referring to the duties under Law 19.897 on more than forty occasions (i.e. in paragraphs 99, 105, 109,
123, 126, 133, 134, 135, 136, 138, 139, 140, 149, 150, 151, 152, 154, 155, 156, 165, 171, 174, 175,
176, 177, 179, 181, 182, 197, 206, 209, 212, 213, 224, 226, 228, 231, 250, etc.).

Article 4.2 of the Agreement on Agriculture

6. What is for Chile the meaning of the terms " … Members shall not maintain … any
measures of the kind which have been required to be converted into ordinary customs duties …"?

 It would be pointless to elaborate on an interp retation of this provision, since the Appellate
Body gave a general interpretative analysis of Article 4.2 of the Agreement on Agriculture in
paragraphs 204 to 217 of its Report, which was adopted by WTO Members, including Chile,
convened as the Dispute Settlement Body. Consequen tly, the meaning of the terms contained in the
provision is set out therein.

7. Chile stated that " … all it is obliged to do [a Member] of the WTO is to honour its
commitments, that is to say, not exceed the bound tariff level".
7 Furthermore Chile stated that
" … any WTO Member can do what it wants to up to the level of its binding commitments … " 8

 (a) What does Chile consider is the object and purpose of Article 4.2 of the
Agreement on Agriculture?

 The object and purpose of Article 4.2 of the Ag reement on Agriculture is to require Members
not to maintain, resort to, or revert to certain kinds of measures with a view to implementing their
commitments on market access for imports of agricu ltural products. This provision applies to any
measures of the kind which have been required to be converted into ordinary customs duties.
Footnote 1 to Article 4.2 contains an illustrative list of such measures.

7 Rebuttal by Chile, para. 65 in fine.

 Thus the object of Article 4.2 (supplemented by its footnote 1) is to prohibit measures that
restrict the volumes and distort the prices of imports of agricultural products in ways different from
the ways that ordinary customs duties do. The measures prohibited under Article 4.2 also have in
common that they disconnect domestic prices from in ternational price devel opments and impede the
transmission of world market prices to the domestic market.

 (b) Does Chile consider that Article 4.2 of the Agreement on Agriculture contains an
obligation not to exceed the tariff binding?

 The obligation not to exceed th e level bound in the appropriate Schedule is laid down in
Article II.1 of the GATT 1994.

 (c) Does Chile consider that, even if a measure does not exceed the bound tariff
level, it can still violate Article 4.2 of the Agreement on Agriculture?

 The Appellate Body found nothing in Article 4.2 of the Agreement on Agriculture to suggest
that a measure prohibited by that provision (other than an ordinary customs duty) would be rendered
consistent with it if applied with a cap.
9 As an additional consideration, specific duties (or rebates)
applied in conformity with Law 19.897 constitute ordinary customs duties.

8. The Appellate Body stated that:

"'Variable import levies' have additional features that undermine the object and
purpose of Article 4 … . These additional features include a lack of
transparency and a lack of predictability in the level of duties that will result
from such measures"
10
 Also, the Appellate Body established that:

" … significant for traders, also, are the lack of transparency of certain features
of Chile's price band system; the unpredictability of the level of duties … These
specific characteristics of Chile's price band system prevent enhanced market
access for imports of agricultural produc ts, contrary to the object and purpose
of Article 4."
11
 Chile stated that " … in examining variable levies, the Appellate Body pointed out that
they have additional features (over and above th e variability of the duties), including a lack of
transparency and predictability".12

 (a) Does Chile consider that transparency and predictability are features inherent
to variable import levies?

 (b) Does Chile consider that variable import levies are inconsistent with Article 4.2?

 (c) Are transparency and predictability requirements of Article 4.2? Please explain
your answer.

 (d) Do transparency and predictability have any meaning within Article 4.2?

9 See para. 254 of the Report of the Appellate Body.
10 Report of the Appellate Body, para. 234.
11 Report of the Appellate Body, para. 258.
12 Rebuttal by Chile, para 29.

 The response to questions (a), (c), and (d) is identical. Chile complied with the
recommendations and rulings of the DSB by enacti ng Law 19.897 and the regulation thereto, and in
so doing it took special account of the findings set out in the Report of the Appellate Body, which are
contained in the ruling of the DSB. Consequently , the response to Argentina's concerns regarding
"transparency" and "predictability" can be found in the Report adopted by the Body in question.

 As to the response to question 8(b), in Chile's view a variable import levy is a category of
measure identified in footnote 1 to Article 4.2 of the Agreement on Agriculture.

9. Could an intransparent and unpredictabl e border measure applied to agricultural
imports be consistent with article 4.2?

 The Appellate Body referred to transparency and predictability in the manner in which the
duties were determined according to certain specific features of the PBS analysed at the time, "on the
basis of the particular configuration and interaction" of all of these specific features. In assessing the
PBS, the Appellate Body held that no one featur e was determinative of whether a specific measure
created intransparent and unpredictable market access conditions.
13

 Chile has corrected these particular features, and today the application of specific duties (or
rebates) under the current measure is very far from being intransparent and unpredictable.

10. Does Chile consider that the lack of transmi ssion of international prices developments is
a feature that renders a border measure applied to the agricultural imports inconsistent with
Article 4.2 of the Agreement on Agriculture? If no, please explain.

 The explanation was given by the Appellate Body itself when it stated that the measures
referred to in Article 4.2 of the Agreement on Agri culture "have in common also that they disconnect
domestic prices from international price developmen ts, and thus impede the transmission of world
market prices to the domestic market".
14

Floor and ceiling of the PBS

11. How do the floor and ceiling prices transmit international price developments if they are
fixed?

 The sole purpose of the floor and ceiling prices under Law 19.897 is to permit the calculation
of duties and tariff rebates. The fact that they are fixed values does not impede the transmission of
international prices, because it is the way in which the duties and tariff rebates are determined that
allows price transmission.

12. On what basis did Chile establish the floor in US$128 per tonne?

 The determination of the floor price is consis tent with the provisions of Law 19.897, which
stipulates that "the values considered shall be the floor and ceiling prices used for wheat and sugar in
the drafting of Chilean Ministry of Finance exempt decrees No. 266 and No. 268, published in the
Official Journal of 16 May 2002, expressed in United States dollars f.o.b. per tonne".

 Details of how the price of US$128 was obtained can be found in the response to question 52
of the Questions Posed by the Panel to the Parties.

13 Report of the Appellate Body, para. 261.
14 Report of the Appellate Body, para. 227.

13. On what basis did Chile establish the ceiling in US$148 per tonne?

 The determination of the ceiling price is consis tent with the provisions of Law 19.897, which
stipulates that "the values considered shall be the floor and ceiling prices used for wheat and sugar in
the drafting of Chilean Ministry of Finance exempt decrees No. 266 and No. 268, published in the
Official Journal of 16 May 2002, expressed in United States dollars f.o.b. per tonne".

 Details of how the price of US$148 was obtained can be found in the response to question 52
of the Questions Posed by the Panel to the Parties.

14. On what basis was the fixed factor 0.985 established?

 The factor of 0.985 corresponds to a reduction of 1.5 per cent. Chile considered that over and
above the changes necessary to co mply with the recommendations and rulings of the DSB, a gradual
reduction in the additional pr otection above the 6 per cent ad valorem tariff under Law 19.897 for
wheat and wheat flour was appropriate. A reduction of 1.5 per cent was estimated to be sufficient.

15. How does the fixed factor of 0.985 allow the transmission of international prices
fluctuations?

 The 1.5 per cent reduction in the floor and ceiling prices as of 2008 is not intended for, nor is
it related to, the transmission of international prices. It is simply what was considered the appropriate
way of gradually reducing the protection afforded to wheat and wheat flour.

Reference Price

16. How can Chile affirm that the referen ce prices fully reflect international price
developments when they only account for the prices recorded during 90 out of 365 days?

 The reference prices are parameters for determining the level of duties or rebates. They are
determined six times a year, so there is no need to use these values more than the same number of
times. The average of 15 days reckoned retrospec tively is a good reflection of international price
levels whenever a duty or rebate has to be establis hed. For a better understanding of the matter, see
the response to question 12(c) of the Questions of the Panel to the Parties.

17. In connection with the transparency a nd predictability of the reference prices:

Articles 7 and 8 of Decree 831/200 3 establish that the reference price for wheat will result from
the average of the daily FOB prices of, inter alia , "Bread Wheat Argentine Port" during a
period of 15 days before day "10" of the month in which the respective Decree for the
establishment of the reference price is published.
15 In its Rebuttal, Chile clarified that the basis
of the daily FOB prices for "Bread Wheat Argent ine Port" was SAGPyA (Argentina's Official
Source).

On the other hand, during the hearing, the Chilean delegate from ODEPA appeared to
recognize that SAGPyA does not publish "Bread Wheat Argentine Port" under that specific
denomination on a daily
 basis. Argentina argued that the only "Bread Wheat FOB price" is
published on a daily basis by SAGPyA is the "Official FOB Price" and, therefore, there is an
inconsistency between what the Decree establishes and what SAGPyA publishes on a daily basis.
The Chilean delegate from ODEPA appeared to recognize that, in effect, ODEPA bases its

15 ARG-2.

average "Bread Wheat Argentine Port" FOB price on SAGPyA's daily "Official FOB Price".
Furthermore Chile provided two exhibits (C HL-12 and 14) which only showed monthly
averages.

 (a) Does Chile consider that SAGPyA publish "Bread Wheat Argentine Port" FOB
price on a daily basis? Could you please provide evidence?

 (b) Does ODEPA base its "Bread Wheat Argentine Port" FOB price on SAGPyA's
daily "Official FOB Price"?

 (c) If the answer is yes, is there an inconsistency between Decree says to be the basis
for the calculation of the reference price and what SAGPyA publishes?

 (d) Does Chile consider that, if an exporter resorts to SAGPyA's website, he will be
able to find "Bread Wheat Argentine Port" FOB prices under that specific
denomination?

 At the hearing, Chile explained that SAGPyA published the official prices of Trigo Pan under
two denominations: " Precio Oficial " (Official Price) and " Precio Puertos Argentino " (Price
Argentine Ports). To illustrate this point, Ch ile provided two exhibits (CHL-12 and CHL-14)
containing series of monthly prices that use both denominations.

Response to (a)

 Yes. Through the Directorate of Agrif ood Markets (DIMEAGRO), SAGPyA publishes the
"información diaria de cotizaciones" (daily quotations bulletin) for Trigo Pan "FOB Argentine Ports"
on a daily basis. This quotation corresponds to th e "Official Price" it publishes in the section on
international prices. Exhibit CHL-17 contains a printout of the information supplied by DIMEAGRO.

 The information can also be downloaded directly from the following web pages:

 www.sagpya.mecon.gov.ar/new/0-0/program as/dma/Cartilla_Granos/01_cartilla_actual.php

 www.sagpya.mecon.gov.ar/new/0-0 /agricultura/diario/cartilla.XLS

 Additionally, Exhibit CHL-17 contains a prin tout of the web page of the Buenos Aires
Cereals Exchange with the daily wheat prices for the month of July 2006, under the denomination
"cotizaciones FOB Puertos Argentinos " (quotations FOB Argentine Ports). The information was
supplied by SAGPyA and is identical to the data provided by Argentina in Exhibit ARG – 32. This
information can be found at:

 www.bolcereales.com.ar/precios.asp?idioma=esp

Response to (b)

 Chile uses the official source , which is SAGPyA. In the light of the foregoing, it is plain that
the Official Price corresponds to the quotation for Trigo Pan "FOB Argentine Ports".

Response to (c)

 No, in view of the evidence provided. The fact that there are two denominations for the same
series of prices does not constitute inconsistency with the Decree.

Response to (d)

 Yes.

Variable import levies

18. Chile stated that "Law 189.897 abolished the variability component. Now the specific
duty by legal directive in the form of a decree issued by the Ministry of finance …". 16

The relevant part of Law 19.897 states that "specific duties must be established when the
reference price is below the floor price of 128 dolla rs for wheat. In the ca se of wheat flour, the
duties and rebates determined for wheat multiplied by a factor of 1.56 shall be applied "
(emphasis added). In its turn, Article 13 of Decree 831/2003 reads: "In each Supreme Decree
issued in accordance with this regulation specific duties shall be established … if the reference
price is below the floor price … " (emphasis added).

Argentina argued that Law 19.897 and Decree 831/2003 make it mandatory for specific duties to
be established when the reference price is below the band floor and that expressions of the type
"must be established " and " shall be applied " mean that when the reference price is below the
floor price the application of specific duties w ill be mandatory and automatic. Therefore, the
PBS is applied automatically, directly and unfailingly.17

 (a) Does the Chilean Executive have an y discretion no to impose specific duties
when the reference price falls below the floor price (today at US$128)?

 (b) If the answer is affirmative, Could Chile explain what is the discretion Chilean
Executive has?

 (c) If the answer is negative, does Chile agree that the amended PBS provides for
" … the presence of a formula causing automatic … variability of duties"? 18

 In its response to question 2 from Argentina, Chile specified the substance and scope of the
variability component of the duties and how such variability had been abolished under Law 19.897.

 Furthermore, in its response to question 6 of the Panel, Chile developed its position
concerning the mandatory or discretionary nature of th e rules set forth in the Law. In this connection,
it not only pointed out that this does not appear to be covered by the Appellate Body's analysis, but it
also indicated that the way in which the rules are worded has to do with the method of drafting legal
rules in Chile rather than with any consid eration regarding Chile's obligations under the
recommendations and rulings of the DSB.

 Chile sees the legal provision as being intended to afford an additional margin of protection
for wheat and wheat flour (above the ad valorem tariff) where the requirements and conditions
stipulated in the Law are fulfilled, which may even lead to a reduction in payment of the tariff when
the need for such protection does not arise.

 Moreover, even if we accept Argentina's a pproach, we cannot analyse the actual wording of
the provision cited without bearing in mind Article 1, paragraph 1, of the Law, which, despite what
Argentina suggests, provides that "[t]here shall be established specific duties in United States dollars

17 First Written Submission by Argentina, paras. 263 and 264.
18 Report of the Appellate Body, para. 233.

per tariff unit and rebates on the amounts payable as ad valorem duties under the Customs Tariff,
which could affect the importation of wheat, wheat flour and sugar, as stipulated in this law".

Calculation of the resulting duties

19. In the amended PBS the specific duty is magnified by the introduction of a multiplier
consisting of 1 plus the general ad valorem duty in force. Which was the purpose of adding this
new coefficient?

 Under the PBS, a series of fixed and variab le costs incurred in a normal import process,
including the general ad valorem tariff, were considered in determining specific duties. As a way of
making duty determination more tr ansparent and predictable, under Law 19.897 all such costs except
the general tariff, because this is a known value, we re excluded from calculation of the duties. Thus,
the following formula for calculating the specific duties was established in the Law's Regulations:

 SD = (1 + 0.06) * (FOB
floor – FOB rp)

 It should be emphasized that from this expressi on it follows that under Chile's current policy
the specific duty is lower for any given reference pr ice, as its determination includes only the general
ad valorem tariff and excludes all the other variable costs that previously formed part of the PBS.

 For further details of this expression, see Chile 's response to question 5(c) of the Panel.

Terms of reference

20. In Korea – Dairy Products the Appellate Body established "By ' claim' we mean a claim
that the respondent party has violated, or nullif ied or impaired the benefits arising from an
identified provision of a particular agreement".19

In paragraph 7 of its Oral Statement Chile affirms that it has applied the approach in Korea –
Dairy Products to show that Argentina's argument in relation to the factor of 1.56 is an
"independent claim".

In paragraph 184 of its Rebuttal, Chile clarifie d what it argues is Argentina's claim: "The
factor of 1.56 … insulates the entry price of wh eat flour from international price developments"

 (a) Can Chile identify the provision supposedly violated in Argentina's alleged claim
regarding the factor of 1.56?

 (b) Did Argentina identify any provision of any particular agreement violated by the
insulation by the factor of 1.56 of the entry price of wheat flour from
international price developments?

 (c) Did Argentina separately identify the claim regarding the factor of 1.56 in its
DSU Art. 21.5 Panel request?

21. In its Oral Statement (paragr aph 9) Chile states that " … the basis for the application of
the factor … was the PBS itself … ". It is undisputed that the amended PBS is a new measure.
Does Chile agree that the amended PBS has modified:

19 Korea – Dairy Products , Report of the Appellate Body, para. 139, WT/DS98/AB/R (emphasis
added).

 (a) How floor prices are established?

 (b) how reference prices are calculated?

 (c) how specific duties are calculated?

22. If the answers to the above questions are affirmative, does Chile agree that the basis for
the application of the factor of 1.56 has changed with respect to the original measure? If the
answers are negative, please explain how would then the PBS be consistent with Art. 4.2 AoA?

23. If the answer to question 21 is affirmativ e, Why cannot Argentina raise the argument in
relation to the factor of 1.56 in the 21.5 proceedings if the basis for its application has changed?

Response to questions 20 to 23:

 It was Argentina that claimed that the factor of 1.56 as applied would not be in compliance
with Chile's WTO obligations. In stating that this is an "an independent claim"
20 by Argentina, Chile
was merely emphasizing that Argentina did not question that factor in the original Panel's proceedings
and that that was where it should have done so; hence this issue does not fall within the terms of
reference for the current proceedings, as Chile ha s demonstrated in its second written submission
(Rebuttal).21

 Pursuant to the recommendations and rulings of the DSB, Chile implemented a new measure
(Law 19.897 and its Regulations) w ith its parameters for establishi ng and setting specific duties (or
rebates).

 If Argentina failed to take issue with the fact or of 1.56 in a timely and appropriate manner, it
was not for the original Panel or the Appellate Body to rule on this matter, a circumstance that is
determinative of Chile's obligation to implement its compliance measures by conforming with what
was decided and adopted by the DSB, changing what it was required to change and without changing
what it was not obligated to change.

 This was acknowledged by the Appellate Body in EC – Bed Linen (21.5 India) when it stated
that "India seeks to challenge an aspect of the orig inal measure which has not changed, and which the
European Communities did not have to change, in order to comply with the DSB recommendations
and rulings to make that measure consistent with the European Communities' WTO obligations".
22

Minimum import prices

27. Argentina has argued that the amended PBS is a measure similar to minimum import
prices. Chile has persistently objected that statem ent. In that sense, could Chile please explain
what did the Chilean Executive mean when, at the time of proposing the passing of the bill
corresponding to Law 19.897, stated the following:

" … I would like to draw the attention of members to a fact that has not been brought out or
emphasized sufficiently in this debate. With this bill (Law 19.897) we are fixing - not
stabilizing - a price … for wheat that stays the same for four years, regardless of fluctuations in

20 Rebuttal by Chile, para. 185.
21 Rebuttal by Chile, paras. 182 to 195.
22 Report of the Appellate Body in EC – Bed Linen (Article 21.5 – India), para. 87.

the international markets … pr ice security is not just for four years but up to 2014 … "
(emphasis added).23

 Argentina's reference needs to be understood in the context of the debate and the discussion
that took place during the preparation of the law.

 The assessment of the similarity of Law 19.897 to a minimum import price should not be
conducted in the light of an isolated statement taken out of context but in relation to the way in which
the Law operates – or at least in the light of the words of the message from the Executive attached to
the draft tabled in Congress. However, Argentina has not succeeded in demonstrating that in practice
Law 19.897 establishes a minimum price or at least is a measure similar to a minimum price, nor does
it make any reference whatsoever to the message underpinning the draft, which, on the contrary,
repeatedly asserts that its objective was to bring the price band legislation into line with the
WTO rulings and recommendations.

 Moreover, if Argentina fully understood the changes introduced by Law 19.897, it could not
fail to conclude that the assertion it makes in this question is technically wrong.

23 Chilean Minister of Agriculture, 5 August 2003."History of the Law. Compilation of official texts of
the parliamentary debate. Law 19.897". Library of the National Congress. Santiago, Chile, 2003.