Document: WT/DS207/RW Page B-1 ANNEX B THIRD PARTY SUBMISSION BY BRAZIL (12 MAY 2006) INTRODUCTION As stated during the original Panel and the Appe llate review stages, Brazil's interest in this dispute focuses on the operation of the Price Band System (PBS), its implications on the flow of
Date: 12 May 2006
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 B

THIRD PARTY SUBMISSION BY BRAZIL
(12 MAY 2006)

INTRODUCTION

 As stated during the original Panel and the Appe llate review stages, Brazil's interest in this
dispute focuses on the operation of the Price Band System (PBS), its implications on the flow of
commerce and its legality vis-à-vis the multilateral trading rules. Th e impact of such a measure and
the fact that other products (wheat, wheat flour a nd sugar) are still subject to it motivated Brazil to
submit once again its views on the case before this Panel.1

2. Chile claims that the adoption of Law nr. 19. 897/2003 and of Decree nr. 831/2003 enacted by
the Minister of Finance brought its Price Band Syst em into conformity with its obligations under
Article 4.2 of the Agreement on Agriculture, as recommended by the DSB.
2 While this is true in
respect of edible vegetable oils – and Argentina recognizes it 3 -, the same cannot be said of other
products still within the scope of the Chilean BPS, namely wheat and wheat flour, which were the
object of the original Panel, though the PBS also affects sugar. Indeed, in Brazil's opinion, compliance
with the DSB recommendations and rulings would have been achieved in regard to those two products
had Chile dealt with them in the same way it did wi th edible vegetable oils, simply by extinguishing
the Price Band System.

3. Argentina argues that the Chilean Price Band Sy stem is inconsistent, as such and as applied,
with Article 4.2 of the Agreement on Agri culture; Article II:1(b) of the GATT 1994 and
Article XVI:4 of the Marrakesh Agreement Establishing the . Brazil will
center its analysis on the consistency of said mechanism with Article 4.2 of the Agreement on
Agriculture and Article II:1(b) of the GATT 1994. This focus, however, should not prejudge any view
Brazil may have on the other claim made by Argent ina, relating to Article XVI:4 of the Marrakesh
Agreement Establishing the World Trade Organization.

THE APPELLATE BODY'S CONCLUSIONS

4. The Appellate Body's findings and conclusions in the original dispute could not be clearer. In
regard to Article 4.2 of the Agreement on Agriculture, the Appellate Body:

• upheld the Panel's finding, in paragraphs 7.47 and 7.65 of the Panel Report, that
Chile's price band system is a border measure similar to variable import levies and
minimum import prices;

• upheld the Panel's finding, in paragraphs 7. 102 and 8.1(a) of the Panel Report, that
Chile's price band system is inconsistent with Article 4.2 of the Agreement on
Agriculture.
4

1 In spite of the fact that Chile's price band system al so applies to sugar, in its request for establishment
of this Panel (WT/DS207/18) and throughout the original proceedings, Argentina mentioned two of the products
subject to the PBS only (wheat and wheat flour).
2 See para. 4 of Chile's first written submission.
3 See para. 8 of Argentina's first written submission.
4 See para. 288 of the Appellate Body Report.

5. In order to assess the consistency of Chile's Price Band System with the aforesaid article, the
Panel and the Appellate Body examined the definiti on of "similarity". They also found necessary to
identify the categories with which the system should be compared, deciding to resort to the same ones
that were identified by Argentina: "variable impor t levies" and "minimum import prices", within the
meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture.

6. With a view to determining whether the PB S would fall under the first category of measures,
"variable import levies", the Appellate Body went on to confirm that, whereas the presence of a
formula causing automatic and continuous va riability of the duties is a necessary
 condition for a
particular measure to be a "variable import levy ", this variability is "by no means a sufficient
condition for a particular measure to be a variable import levy" 5, as meant by footnote 1. "The lack of
transparency and predictability will also contribute to distorting the prices of imports by impeding the
transmission of international prices to the domestic market".6

7. Similarly, this same standard, lack of tran sparency and predictability, was applied by the
Appellate Body in examining whether the PBS could be characterized as a "minimum import price".
The Appellate Body considered "minimum import pri ce" as referring generally to the lowest price at
which imports of a certain product may enter a Member's domestic market.
7

8. The Panel and the Appellate Body understood "lack of transparency and predictability" to
mean that "no published legislation or regulation in Chile sets out which international markets are
used for the calculation of the PBS values and refere nce price, or how the "usual import costs" which
are added to the f.o.b. prices are calculated". Exporter s, in this case, could "be expected to encounter
serious difficulties in their commercial planning effort s in a system where weekly variations in duties
are based on factors unknown. […] Such lack of pred ictability must affect the competitive conditions
of imports vis-à-vis domestic production".
8

9. Therefore, considering that the formul a contained in that system resulted in:

• automatic and continuous variability of the duties and;
• lack of transparency and predictability in the level of duties resulting from the
application of such measures,

the Panel and the Appellate Body concluded that the original Chilean Price Band System was a border
measure similar to a variable import levy and a minimum import price, other than ordinary customs
duties, within the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture falling under
the prohibited categories of measures listed therein. The Chilean PBS was, thus, a measure of the kind
which has been required to be converted into ordinary customs duties. And, "by maintaining a
measure which should have been converted, Chile h as acted inconsistently with Article 4.2 of the
Agreement on Agriculture".
9

THE NEW CHILEAN PRICE BAND SYSTEM

10. In order to comply with the DSB recomme ndations and rulings, Ch ile ceased to apply the
price band system to edible vegetable oils. As to wheat and wheat flour, it adopted Law
nr. 19.897/2003 and Decree nr. 831/2003, which wo uld have purportedly implemented those rulings
by means of:

5 See para. 234 of the Appellate Body Report.
6 Id. ib.
7 See para. 236 of the Appellate Body Report.
8 See para. 7.44 of the Panel Report.
9 See para. 7.102 of the Panel Report.

• eliminating the "variability" inherent in the measures10 and
• providing the PBS with transparency and predictability.

11. As regards "variability", Chile argues that unde r the new PBS the specific duty, rebate or their
non-application are now established for a two-month period, without varying every week in
accordance with the reference price, as was the case before. During this two-month period, the
specific duty is applicable to every import transa ction, with no variation and "regardless of the
transaction price".
11 Furthermore, today, the specific duties, rebate or their non-application are
determined by a decree of the Minister of Finance, whereas in the previous system there was no need
for a legislative or an authority act to set out said duties, since they would be established and vary in
an automatic and continuous manner.12

12. Chile contends that the twelve-month automa tically and continuously variable specific duty
was substituted by a specific duty that is established by decree or an act of an authority (therefore
supposedly no longer automatic), which remains fi xed for periods of two months. By purportedly
eliminating the automatic and continuous nature of the specific duties and changing the period of
validity of i) the reference price, from one week to two months13, and ii) the bands, from one to eleven
years, Chile claims to have eliminated the va riability aspect of the BPS, as well its lack of
transparency.

13. Even assuming, for the sake of argument, th at the system is more transparent after Law
nr. 19.897/2003 and Decree nr. 831/2003, transparency alone is not sufficient to render the PBS
consistent with the multilateral trading rules.

14. With respect to the lack of predictability, Chile contends th at the 11-year bands and the two-
month specific duties may provide the e xporter with the necessary predictability of the level of
specific duty to be paid, considering that the duties, rebates or their non-application are established for
a span long enough to afford security to the exporter.
14

15. This is only partially true. First, because the 11-year period has the side effect of aggravating
the distortion of domestic price vis-à-vis international ones. While such a long period may afford
some predictability, the new PBS is more rigid and inflexible, given that, in practice, the Chilean
market will be insulated from fluctuations in the world prices for eleven years. Should there be a
significant downward movement in the international wheat prices, the 0.985 factor may not be
sufficient to account for the necessary reductions in the lower and upper thresholds of the price bands.
Hence, in spite of the application of the 0.985 multiplier, one of the main elements of the SBP (the
bands themselves) will remain virtually unchanged fo r more than a decade, preventing the fluctuation
of international prices from being transmitted to the Chilean market.

16. Second, the new PBS contributes to distorting the prices of imports even more, inasmuch as a
new coefficient is added to the formula used to calcu late the duty level. Under the previous system, if
the weekly reference price fell be low the lower threshold of the price band, a specific duty equal to
the difference between the reference price and the lower threshold would be levied.
15 In the current
system, the specific duty level is magnified by the introduction of a new unexpected multiplier
consisting of 1 plus the general ad valorem duty in force.

10 See para. 92 of Chile's first written submission
11 Ibid., para. 93
12 Ibid., para. 92
13 See para. 21 of the Appellate Body Report and para. 39 of Chile's first written submission.
14 See para. 143 of Chile's first written submission.
15 See para. 29 (b) iii of the Appellate Body Report.

17. As Argentina correctly points out,

parámetros, se ha mantenido inalterado. Es decir, siguen existiendo los parámetros de
piso y techo y la figura de los precios de referencia".
16
18. Brazil is of the view that the changes introduced in the system by Law nr. 19.897/2003 and
Decree nr. 831/2003 were cosmetic ones. They are insufficient to render the Chilean Price Band
System consistent with multilateral trading rules, since the fundamental elements of the mechanism
remained unchanged. The current design of the PBS aggravates the already existing disconnection
between domestic from international price developments, thus impeding more rigidly the transmission
of world market prices to the domestic market.

19. The revised PBS still resorts to measur es expressly prohibited by the Uruguay Round
Agreements as contained in Article 4.2 footnote 1 of the Agreement on Agriculture. If the system
operated until 2003 as a border measure similar to a variable levy modified weekly, now it behaves as
a border measure similar to a variable levy revised every two months. The reference price (defined on
a weekly or two-month basis), fixed by the Minister of Finance, continues to be a border measure to
some extent similar to a minimum import price acting as a substitute for the transaction value
contained in the invoice.

20. The PBS, under its current structure, results in controlling prices of imports in order to meet
or converge to a target price that isolates the domes tic market from actual international prices. Its
effect is to create the type of barrier that Ar ticle 4.2 of the Agreement on Agriculture sought to
eliminate.

21. Were the Panel to confirm the insufficiency of the measures taken by Chile to comply with
the DSB rulings, then it would be finding that the Ch ilean Price Band System continues to operate as
border measure similar to a variable levy that relies on reference prices which are not allowed under
Article 4.2 footnote 1 of the Agreement on Agricu lture and that the present reference prices still
constitute a border measure similar to minimum import prices, as set out in said article. Therefore,
Chile would be maintaining measures of the kind which had been required to be converted into
ordinary customs duties at the end of the Uruguay Round. And, again, by maintaining a measure
which should have been converted, it would be in breach of Article 4.2 of the foregoing Agreement.

22. With a view to implementing the DSB decisi ons thoroughly, Chile could have treated wheat
and wheat flour as it did with edible vegetable oils , putting an end once and for all to the applicability
of the price band system to those products.
17

ARGENTINA'S CLAIM UNDER ARTICLE II:1(B) OF THE GATT 1994

23. Regarding Argentina's claim with respect to Article II:1(b) of the GATT 1994, Brazil stresses
that the conclusion reached by the Appellate Body – to the effect that such a claim was not properly
before the original Panel – should not prevent Ar gentina from presenting it before this Article 21.5
Panel. As Argentina recalled,

16 See para. 36 of Argentina's first written submission
17 Brazil notes that the same parameters (price bands, reference prices and the multiplier [1+ ad
valorem tariff in force]) are also applicable to sugar.

"In carrying out its review under Article 21.5 of the DSU, a panel is not confined to
examining the 'measures taken to comply ' from the perspective of the claims,
arguments and factual circumstances that re lated to the measure that was the subject
of the original proceedings. (…) Indeed, the utility of the review envisaged under
Article 21.5 of the DSU would be seriously u ndermined if a panel were restricted to
examining the new measure from the perspective of the claims, arguments and factual
circumstances that related to the origin al measure, because an Article 21.5 panel
would then be unable to examine fully the 'consistency with a covered agreement of
the measures taken to comply', as required by Article 21.5 of the DSU".18
24. In analysing Argentina's "claim" under Ar ticle II of the GATT 1994, the Appellate Body
ruled on a formal matter, i.e., the difference between making a general reference to an article in the
Panel request and actually developing a claim under th at article. The situation would be different had
the Appellate Body considered the measure itself vis-à-vis the above-mentioned article.

25. Considering that neither findi ng nor conclusion were reached wi th respect to the substance of
Article II:1(b) itself, Brazil sees no reason why Argentina should be prevented from including that
claim in its request for the establishment of Article 21.5 Panel and elaborating it as appropriate before
this Panel.

26. Moreover, Brazil is of the opinion that if th is Panel finds that the Chilean Price Band System
remains inconsistent with Article 4.2 of the Agre ement on Agriculture, then it would also conclude
that such a measure constitutes "oth er duties or charges", within the meaning of Article II:1(b) of the
GATT 1994, and should have been scheduled under the column for "other duties or charges"
governed by the second sentence of Article II:1(b).

CONCLUSION

27. Brazil respectfully submits that the Panel fi nd the Chilean Price Band System continues to be
in breach of Article 4.2 of the Agreement on Agricu lture and is inconsistent with the second sentence
of Article II:1(b) of the GATT 1994.

18 See para. 41 of the Appellate Body Report on Canada – Aircraft (Article 21.5 – Brazil).