INTRODUCTION ..............................................................................................................C-54 II. SCOPE OF THE PRESENT ARTICLE 21.5 PROCEEDINGS ....................................C-55
Date: 24 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

TABLE OF REPORTS CITED

Short title Full title and reference
Chile – Price Band System Panel Report " Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products" , adopted
23 October 2002.
Chile – Price Band System Appellate Body Report " Chile – Price Band System and Safeguard
Measures Relating to Cert ain Agricultural Products"
, adopted 23 October 2002.
EC – Bed Linen (Article 21.5 – India) Appellate Body Report " European Communities – Anti-Dumping
Duties on Imports of Cotton-Type Bed Linen from India – Recourse by
India to Article 21.5 of the DSU", , adopted
24 April 2003.
EC – Poultry Cuts (Article 21.3)

Award of the Arbitrator, " European Communities – Customs
Classification of Frozen Boneless Chicken Cuts" . Arbitration under
Article 21.3(c) of the DSU, and
Canada – Aircraft
(Article 21.5 – Brazil)
Appellate Body Report " Canada – Measures Affecting the Export of
Civilian Aircraft". Recourse by Brazil to Article 21.5 of the DSU,
, adopted 21 July 2000.
US – Softwood Lumber IV
(Article 21.5 – Canada)
Appellate Body Report, United States – Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from
Canada. Recourse by Canada to Article 21.5 of the DSU,
, adopted 20 December 2005.
US – Countervailing Measures on
Certain EC Products
(Article 21.5 – EC)
Panel Report " United States – Countervailing Measures on Certain EC
Products – Recourse by the European Communities to Article 21.5 of
the DSU", , adopted 27 September 2005.

I. INTRODUCTION
1. In its written rebuttal Chile will show, as clearly and technically as possible, without resorting
to euphemisms or pleas that add no value to th e discussion, that it did correctly understand the
Appellate Body's conclusions, as well as Argentina' s arguments, even though it certainly does not
agree with them. Chile considers that those arguments are based on a misunderstanding of the
Appellate Body's conclusions, especially with respec t to the characteristics that make a levy that
varies a "variable levy" inconsistent with Article 4.2 of the Agreement on Agriculture and a minimum
import price a border measure inconsistent with that same article.
2. Since, in its rebuttal, Argentina
1 calls into question the defence offered by Chile, we consider
it our duty to make it clear to the members of the Panel that what is important is to examine how Chile
has implemented the recommendations and rulings of the DSB rather than to attempt to refute each
and every one of the claims raised by Argentina, especially those that do not fit in with the findings of
the DSB. Chile's objections to Argentina's claims and arguments will become clear from reading our
arguments, since Argentina's analysis is based on an approach different from that taken by the
Appellate Body in reaching its decisions and displa ys an ignorance of the changes introduced by Law
19.897 and Regulation No. 831/2003.
3. If Chile were to confine itself to refuting each of Argentina's claims individually, it would
lose the opportunity to focus on the issues of releva nce to a recourse to Article 21.5 of the DSU.
Moreover, proceeding in that way would be of littl e use in helping the members of the Panel to
understand how the changes which Chile has introdu ced have made it possible to implement the
recommendations of the DSB in full.
4. Since for Argentina 2 the measure is still similar to a variable import levy and/or a minimum
import price, the point of departure can only be th at indicated by the Panel and the Appellate Body
with respect to the elements which make up such measures. As no definition of these terms exists,
Chile must seek one in the rulings and recommendations of the DSB.
5. Chile has defined a "variable levy" as it was understood by the Appellate Body and as we
believe it to be understood by the Members of the WTO, although apparently not by Argentina. The
Appellate Body has stated, and Chile agrees, that a levy is not necessarily a "variable levy" just
because it varies, not even if it incorporates a fo rmula that makes the variability automatic and
continuous.3 This is not a sufficient condition. It is also necessary to make sure that there is no
transmission of international prices to domestic prices . To prevent variations in international prices
being reflected in the domestic market, a price must be "sustained", a questionable feature of "variable
levy" systems. In the opinion of the Appellate Body, the PBS did precisely this because certain
features – that is to say, only some of them – made it non-transparent and unpredictable.
6. In amending its legislation, in accordance with the recommendations and rulings of the DSB,
Chile dealt with these "certain features" identified, analysed and questioned by the Appellate Body.
Without them it is impossible to sustain a price, as Chile comprehensively showed in its First Written
Submission, and the system now in force is not in consistent with the aforementioned Article 4.2,
although Argentina takes a different view.
7. The original panel noted that whereas variable levies are generally based on the difference
between a governmentally determined threshold and the lowest world market offer price, minimum
import price schemes generally operate in relation to the actual transaction value of the imports.

1 Argentina's Second Written Submission, paragraph 14.
2 Argentina's Second Written Submission, paragraph 12.
3 Paragraph 234 of the Appellate Body Report

8. At present, in Chile, specific duties are applied by decree and do not vary throughout the
period of validity of that decree, that is to say, the duty is the same irrespective of the transaction price
or a governmentally determined price. For the system to have been comparable with a minimum
price, a specific price would have had to have been established and, in all cases, a duty equivalent to
the difference between that price and the transaction value of an import would have had to have been
demanded, a situation which does not exist in Chil e either by design or through the effects of the
duties applied. Thus, from this standpoint, the syst em currently in force is likewise not inconsistent
with the aforementioned Article 4.2.
9. Argentina says that Chile should have abolished its PBS because the Appellate Body so
established.4 Firstly, we do not share this view because nowhere in its report does the Appellate Body
require (or even recommend) Chile to abolish its PBS. Secondly, it is settled WTO case-law that
Members have a measure of discretion in selecting th e means of implementation. And, thirdly, the
Appellate Body does not say what Argentina claims it does, because although it may be true that if a
measure was inconsistent with Article 4.2 it would not be possible to continue levying duties resulting
from the application of that measure, if the measure in question was not inconsistent with that article –
like the system in force since the enactment of Law 19.897 and its Regulations – then those duties
could be levied.
10. For the sake of an orderly discussion, this written submission will follow the outlines of
Argentina's rebuttal (hereinafter, the Rebuttal or Second Written Submission), although this should
not be taken to imply that we agree with that order or, for that matter, with the arguments used by our
neighbour country. On the contrary, while follo wing Argentina's structure, we will address those
aspects that are worth refuting from the technical poi nt of view but at the same time centre the
analysis on that which is relevant to the Panel's decision.
11. Finally, as part of this effort to focus on the essentials of the dispute, it is worth commenting
on paragraph 14 of the Rebuttal. In its First Written Submission, Chile actually refrained from
refuting several of Argentina's erroneous statemen ts because, through a biased interpretation of the
Appellate Body's conclusions, they sought to l ead the discussion toward nonessential issues. As
follows from the aforementioned paragraph, Argentin a now seeks to lead the discussion towards what
it considers to be the central issue by trying to organize Chile's arguments "according to how they
presumably should correspond to the Argentine claims".5
II. SCOPE OF THE PRESENT ARTICLE 21.5 PROCEEDINGS
12. Chile shares the view expressed by Argentina in paragraph 18 of its Rebuttal, which also
reflects the findings of the Appellate Body, that is, that the consistency of a measure taken to comply
should be examined in the light of the covered agre ements. However, the point raised by Chile in
Section IV.1 of its First Written Submission is very different.
13. Argentina does not base its claims or arguments on new inconsistencies; on the contrary, it
focuses on Article 4.2 of the Agreement on Agriculture. What Argentina does is to offer a (in Chile's
view, mistaken) reading of what the Appellate Body understood to be the lack of transparency and
predictability of certain features of the PBS a nd the insulation that it produces with respect to
domestic prices.
14. In its First Written Submission, Chile showed wh at was the correct interpretation of the scope
of the recommendations and rulings of the DSB. In its Rebuttal, Argentina confines itself to claiming

4 Paragraph 317 of the Rebuttal
5 Paragraph 14 of Argentina's Rebuttal

that Chile misinterpreted the findings and c onclusions of the Panel and the Appellate Body
6, without
explaining why Chile failed to interpret them corr ectly, or giving its own interpretation (presumably
the correct one) of the scope of these findings and co nclusions. Argentina merely transcribes the final
paragraphs of the reports of the original panel and the Appellate Body, which only recommended that
the DSB request Chile to brings its PBS into conformity.
15. As we stated in paragraph 67 ff. of our Firs t Written Submission, the determination of the
scope of "measures taken to comply" should incl ude the examination of the recommendations and
rulings in the original report or reports adopted by the DSB, as the Appellate Body stated in US –
Softwood Lumber IV (Article 21.5 – Canada), recommendations and rulings which, being a "final
resolution" of the dispute, cannot have a broad interpretation without thereby impairing the due
process rights of the parties to the dispute.
16. Therefore, in analysing the "measures taken to comply", an Article 21.5 panel and the
Appellate Body must necessarily study the scope of the recommendations and rulings of the DSB.
Argentina, moreover, appears to be aware of this standard when in paragraph 102 of its Rebuttal it
states: "Thus, there can be no doubt that Argentina is applying the findings of the Appellate Body
with respect to the transparency and predictability of the floor and ceiling of the original PBS to the
way in which those parameters are established in the amended PBS".
17. However, even though Argentina's starting point appears to be correct, the end result is wrong
because in its claims and arguments it applies an erroneous interpretation of the findings of the
Appellate Body, as Chile showed in its First Written Submission.
18. In other words, although an Article 21.5 review may not be confined to the claims, arguments
and factual circumstances relating to the measure th at formed the subject of the original proceedings
7
and although, on the contrary, the analysis may be conducted from a standpoint different from that
taken by the original panel, this must necessarily be based on the findings and conclusions of the
original proceedings. It is these findings and c onclusions, expressed in a recommendation, that must
be "implemented" and not something which another Member would prefer to believe.
19. Paragraph 261 of the Appellate B ody's report cited by Argentina 8 says precisely what Chile
maintains, namely, that the Appellate Body did no t question all the features of the PBS but only
certain features. This paragraph expressly refers to "… all these specific features of Chile's price band
system." That is to say, it is not a question of any feature, as Argentina alleges, but of (1) specific
(and thus limited) features and (2) features analysed by the Appellate Body. If it had wanted to refer
to any feature of the PBS, the Appellate Body woul d have used other terms such as, for example, the
features of the PBS. However, it did not.
20. Support for this interpretation comes from the phrase in the above-mentioned paragraph 261
of the Appellate Body's report which reads: "… particular configuration and interaction ..."
(underlining added). The word "particular" sugg ests that the PBS was, in the Appellate Body's
opinion, inconsistent with Article 4.2 not only because it possessed certain features but also because
of the special or unique way in which these featur es were configured and interacted. Thus, the
Appellate Body itself said that it was not going to take any view on "the consistency with WTO
obligations of price band systems in general, or th e consistency with WTO obligations of any specific
price band system that may be applied by any other Member".9

6 Paragraph 20 of the Rebuttal
7 Canada – Aircraft (Article 21.5 – Brazil), Appellate Body Report, WT/DS70/AB/RW, paragraph 41.
8 Paragraph 26 of the Rebuttal
9 Paragraph 203 of the Appellate Body Report.

21. However, when one reads Argentina's submissions it is clear that all this analysis by the
Appellate Body has been ignored and that Arge ntina argues by citing isolated passages from the
reports or sentences from Chile's arguments that are incomplete or taken out of context, thereby
developing a reasoning that somehow distorts th e meaning and scope of the recommendations and
rulings of the DSB.
22. Moreover, even though it runs counter to its main tactic of questioning the system in general,
starting with paragraph 111, Argentina attempts to identify these special features, despite the fact that
the Appellate Body has already done so in its report. Argentina, however, seeks them primarily in the
Panel Report, particularly in its paragraphs 7.44 and 7.61.
23. However, the first of these paragraphs does not mention any different circumstance
10, in the
determination of the reference prices, not subse quently picked up by the Appellate Body and taken
into account by Chile in enacting Law 19.897 and it s Regulations. That is to say, the difficulties
encountered by exporters in knowing how the refere nce price was arrived at are, as the Panel said,
factors unknown.
24. Furthermore, Argentina itself appears to acknowledge this, since in paragraph 115 it mentions
the "crucial stages" identified by the Panel which ar e nothing other than those always referred to by
Chile (because the Appellate Body so concluded): th e determination of the reference price; the
determination of the floor and ceiling; and the conversion to c.i.f. prices.
25. In the next paragraph Argentina identifies th e paragraphs of the A ppellate Body's report
which incorporate the findings of the original pane l and which, again, side with Chile. Even though
Argentina neglects to mention the paragraphs of that report in which the Appellate Body explains how
the specific characteristics of the PBS are actually ma nifested, for example, paragraphs 249 and 251,
the first two references coincide with what Chile has said. However, an inspection of the third reveals
another error in Argentina's conclusions, possibly at tributable to its partial reading of the Appellate
Body's report. The paragraph in question states:11
"The fact that duties resulting from Chile's price band system are 'capped' at 31.5 per
cent ad valorem merely reduces the extent of the trade distortions in that system by
reducing the extent to which those duties fluctuate. It does not, however, eliminate
those distortions. Moreover, the cap does not eliminate the lack of transparency, or
the lack of predictability, in the fluctuat ion of the duties resulting from Chile's price
band system. Thus, the fact that Chile's price band system is subject to a 'cap' may be
said to make this system less inconsistent with Article 4. 2. But this is not enough.
Article 4.2 not only prohibits 'similar bo rder measures' from being applied to some
products, or to some shipments of some products with low transaction values, or
the imposition of duties on some products in an amount beyond the level of a
bound tariff rate. Article 4.2 prohibits the application of such 'similar border
measures' to all products in all cases."
26. The text is the conclusion of the analysis made by the Appellate Body concerning the
incorporation of a bound tariff "cap" in the PBS. However, it is not necessary to analyse the whole of
the reasoning and its context, since a mere reading of the paragraph is sufficient to reveal Argentina's
misinterpretation. The analysis of the incorpor ation of the bound tariff cap made by the Appellate
Body naturally incorporates the other elements of its analysis concerning the PBS where, as has been
pointed out, the application of the system led to two simultaneous transactions being assessed with

10 Nor does paragraph 7.63 of the original panel's report, since they were also picked up by the
Appellate Body.
11 Appellate Body Report, paragraph 259.

different specific duties, all of which led the Appellate Body to conclude that the system was
inconsistent with Article 4.2 of the Agreement on Agriculture.
27. Having performed this analysis, the Appellate B ody also considered whether the existence of
the cap had any relevance. Its reply can be found in the paragraph cited where it concludes that it did
not, since the existence of the cap did not affect its conclusion that the PBS was a measure similar to
variable import levies and minimum import prices. In this context, Argentina's reference to the
fluctuation of duties (which is unrelated to the va riability) concerns the possible interference from the
application of the cap which, as the A ppellate Body pointed out, "does not eliminate the lack of
transparency or the lack of predictability".
28. Furthermore, in paragraph 118 of its Rebuttal, Argentina acknowledges that the reports of the
original panel and the Appellate Body did not address all the "specific features of the PBS". If these
other features were not addressed, there cannot have been a finding and, therefore, Argentina cannot
conclude that these other features also form part of the Appellate Body's conclusion in the sense that
they suffer from a lack of transparency or predic tability. Quite simply, the Appellate Body did not
address them (and did not rule on them) because they were not "such fundamental and central aspects"
of the PBS. In other words, they were not what made the PBS a measure similar to a variable import
levy or minimum import price.
1. Spirit of Article 4 of the Agreement on Agriculture
29. Article 4.2 of the Agreement on Agriculture does not contain the words transparency and
predictability. The Appellate Body noted that the measures mentioned in the footnote to that article
"have in common also that they disconnect domes tic prices from international price developments,
and thus impede the transmission of worl d market prices to the domestic market."
12 Later, in
examining variable levies, the Appellate Body pointed out that they have additional features (over and
above the variability of the duties), including a lack of transparency and predictability. Features
which also contribute to distorting the prices of im ports by impeding the transmission of international
prices to the domestic market.13
30. Consequently, in the light of these references, it is difficult to argue that the requirements of
transparency and predictability are part of the "spirit" 14 or "requirements derived" 15 from Article 4 of
the Agreement on Agriculture. Ar gentina appears to extend the Appellate Body's analysis of certain
additional features of variable levies – an analysis that was applied to the PBS - to any measure
envisaged in Article 4.2. That is to say, to create obligations where the negotiators did not.
31. In other words, Argentina appears to claim that any measure applied in the agricultural sector
that is not transparent and/or predictable is in consistent with Article 4.2 of the Agreement on
Agriculture.
III. THE SYSTEM IN FORCE SINCE THE ENACTMENT OF LAW 19.897 AND ITS
REGULATIONS DOES NOT DISCONNECT THE INTERNATIONAL MARKET
32. At the beginning of Section B.5 of its Rebuttal, Argentina transcribes parts of paragraphs 180
and 181 of Chile's First Written Submission wit hout explaining why it did so. However, the
underlining would appear to suggest that what con cerns our neighbour is the fact that the specific
duties (or rebates) assessed unde r the law currently in force ar e unrelated to the commercial

12 Paragraph 227 of the Appellate Body Report.
13 Paragraph 234 of the Appellate Body Report.
14 Paragraph 120 of the Rebuttal
15 Paragraph 121 of the Rebuttal

transactions. Or as stated in other paragraphs of its Rebuttal 16, the resulting duties are unaffected by
changes in international prices.
33. This shows that Argentina, despite the explanati ons offered by Chile (as, for example, in the
part of paragraph 181 of its First Written Submissi on that Argentina does not transcribe), still fails to
understand how the system established by Law 19.897 ope rates. The fact that the duties (or rebates)
applicable are unrelated to the value of intern ational transactions and international prices, as
Argentina repeatedly asserts, is an inherent feature of any specific duty . It is in the nature of these
duties to be applied independently of the transacti on value, thereby allowing goods to enter at any
price subject to the application of a given speci fic duty, which in this case does not vary for two
months with the price of the goods or with world pri ce trends. That is to say, international prices may
fall (or rise) during the application of a specific dut y but the latter will remain the same, and therefore
the entry price will necessarily reflect any fluctuations.
34. More particularly, Chile cannot let pass the assertion in paragraph 143 of Argentina's
Rebuttal. Chile's alleged "confession" should necessarily end with the words "transaction value" since
Chile never said that the duties applied "are … in sulating Chile's market from international price
developments". Firstly, because it is logically inco rrect and, secondly, because it would confirm what
Argentina claims, which we certainly do not accept. Without prejudging Argentina's motivation, we
regret all assertions of this kind as they merely confuse the issue.
35. In order to defend its position that the distortion of price transmission "is a feature
challengeable as such" 17 Argentina refers to paragraphs 250 a nd 251 of the Appellate Body's report.
However, a reading of these paragraphs leads to quite the opposite conclusion.
36. The relevant part of paragraph 250 reads as follows:
"Therefore, the way in which Chile's we ekly reference prices are determined
contributes to giving Chile's price band system the effect of impeding the
transmission of international price devel opments to Chile's market" (underlining
added).
37. While the relevant part of 251 states:
"… it would nevertheless remain that the other parameter – Chile's weekly reference
prices – is liable to distort – if not disconnect – that transmission by virtue of the way
it is determined on a weekly basis" (underlining added).
38. In the first citation, the Appellate Body notes that the lack of transmission is the effect 18 of the
way in which the reference prices are determined, i.e., the cause. In the second, the Appellate Body
makes this point again, with respect to the reference prices being determined on a weekly basis.
39. In support of its argument Argentina also ma kes reference to the much-mentioned paragraph
261.19 But once again, this paragraph states precisely the opposite. Namely, that no particular feature
of the PBS has the effect of disconnecting Chile's market from international price developments.

16 For example, paragraphs 53 and 143.
17 Paragraph 31 of the Rebuttal.
18 According to the Dictionary of the Spanish Academy:
Effect (from Lat. effectus) 1. That which follows by virtue of a cause.
19 Paragraph 33 of the Rebuttal.

40. Finally, Argentina has been unable to point to any paragraph of the Appellate Body's report in
which it is indicated that the lack of transmission is not the effect of the lack of transparency and
predictability of certain features of the PBS but a fe ature proper, separate and challengeable in itself.
Unfortunately for Argentina, this paragraph does not exist, because the disconnection of the domestic
market or lack of transmission of international prices is the consequence (and often the deliberate
objective) of the lack of transparency and predicta bility of certain features of the measures listed in
the footnote to Article 4.2 of the Agreement on Agri culture, of which, in the opinion of the Appellate
Body, the PBS was one.
41. Nevertheless, to clarify the issue for the Panel, Chile will review the various points raised by
Argentina in its efforts to prove the disconnection of Chile's market from international markets and
show that, in addition to having no basis in the recommendations and rulings of the DSB, they are
incorrect.
1. The overcompensation alleged by Argentina does not exist
42. In its Rebuttal, Argentina
20 challenges paragraphs 165 ff. of Chile's First Written Submission
and concludes, firstly, that "contrary to what Ch ile says, paragraph 260 of the Appellate Body Report
is an integral part of its conclusions." Secondly, it adds that Chile appears not to have read paragraph
261, from which, in its opinion, it is clear that the words "conclusion" and "these specific features"
can only refer to paragraph 260.
43. Chile has already referred to this point and h as given clear expression to the reasoning of the
Appellate Body, which, indeed, calls for nothing mo re than an attentive reading of the relevant
paragraphs taken in conjunction.
44. Likewise, although this dispute may have been unique in several respects, it is not because
Chile has alleged that the Appellate Body erred in its analysis, as Argentina says. 21 T h e
misconstruction arises from a lack of clarity in Chile's explanation of how the PBS operated. The fact
that Chile failed to explain its operation properly cannot justify its now being argued that the PBS
functioned differently from the way it did during the original dispute.
45. Chile's intention was simply to show that there was no overcompensation either in the past or
now following the changes. Chile is not evading its responsibility for the misconstruction, but that
does not invalidate what it said in its First Written Submission.
46. Moreover, with respect to the existence of overcompensation, Chile showed that such
overcompensation does not exist.22
47. Argentina refers to its mathematical demonstra tion of overcompensation in paragraphs 127 to
132 of its First Written Submission, where it conclud es that as international prices – for both wheat
and flour – fall, Chilean entry prices increase.
48. Argentina's error is rooted in the fact that it di sregards the existence of a definite schedule for
the application of specific duties or rebates, or neither. This schedule is as follows:23
From 16 December to 15 February;
From 16 February to 15 April;

20 Rebuttal, paragraph 37 ff.
21 Paragraph 40 of the Rebuttal.
22 Section V.5 of Chile's First Written Submission.
23 Article 5 of the Regulations.

From 16 April to 15 June;
From 16 June to 15 August;
From 16 August to 15 October;
From 16 October to 15 December.
49. What Argentina calls "additional evidence"
24 corresponds to two specific dates (from 15 to 16
December 2004 and from 15 to 16 February 2005) when the border tariffs changed as a result of the
above-mentioned schedule. These moments in time at which what Argentina calls
"overcompensation" can occur are a reflection of the change in specific duties. Naturally, if the duty
changes – as a consequence of price developments on the markets of concern – there will be a change
in specific duties (or rebates or nothing will happen) . This adjustment may be greater on the dates on
which one market of concern is ch anged for another, but that will onl y reflect the difference of prices
between the United States and Argentina at the changes of season.
50. Nevertheless, this change does not mean that domestic prices are disconnected from
international ones but rather that once the change has occurred domestic prices go back to following
the international trend, albeit with a greater (or lesser) difference between the two, which will depend
on the price variation on the markets of concern before and after the change.
51. The situation is exactly the same if we consider what happens when an ad valorem duty
changes, and is even clearer in countries with seasonal tariffs, where the protection changes (rises or
falls) on the day that the tariff changes. In other words, the day on which an increase (or reduction) in
the duties applied by a Member takes effect th e "overcompensation" a lleged by Argentina (or
under-compensation) will always follow, but imme diately afterwards international prices will
continue being reflected in the domestic market prices.
52. Finally, it should be noted that Argentina's dem onstration with respect to wheat flour suffers
from the same defects as in the case just mentioned.
2. The "modified system" does not moderate the fluctuations of world market prices
53. In Section 2.2 of its Rebuttal, Argentina persis ts in referring to the dates on which the tariffs
change in accordance with the pre-established sch edule, arguing that this seasonality constitutes a
defect. However, the border duties levied by Chile on wheat and wheat flour behave in the same way
as an ordinary customs duty.
54. Although Argentina says otherwise, Exhibits ARG-11 and ARG-12, together with the graph
mentioned in paragraph 154 of Ch ile's First Written Submission, show that there is a correlation
between international prices, entry prices and the domestic price.
25 Nevertheless, this correlation
clearly cannot be perfect, as Argentina seems to believe. 26 Firstly, as has been repeatedly pointed out,
the fact is that the tariffs on wheat change in accordance with a pre-establi shed schedule. This
explains the specific changes to which Argentina refers in paragraph 71 of its submission.

24 Paragraph 133 of Argentina's First Written Submission.
25 According to paragraph 64 of Argentina's Rebuttal, Exhibits ARG-11 and ARG-12 cannot be an
"illustration" of the same as the graph in paragraph 154 of Chile's submission because the former are based on
daily data and the latter on monthly data. Without getting into a semantic discussion of the meaning of the word
"illustration", Chile would like to make it clear that irres pective of the period of measurement of the
information, the objective is to observe the behaviou r of the variables in time, and in this respect the
information provided by Chile "shows" the same thing . The sources of the information, both daily and
monthly, are clearly indicated in all cases (SAGPyA and ODEPA).
26 Paragraphs 68 and 69 of the Rebuttal.

55. Secondly, the Chilean graph cited by Argentin a in paragraphs 68 and 69 compares the trend
in the f.o.b. price for Argentine bread wheat with the price of wheat on the wholesale market
("wholesale wheat price"), and not with the entry price
, as Argentina suggests. The price of wheat –
and its fluctuations – on the wholesale market is heavily influenced by the domestic wheat supply
naturally available during the harvest months (Decemb er to March). Thus, it is impossible to claim a
complete connection, as Argentina seeks to do.
56. In paragraph 59 of the Rebuttal, Argentina again misunderstands the changes introduced by
Law 19.897. It notes that the specific duties do not vary and from that it deduces non-compliance
with the recommendations and rulings of the DS B insofar as the transaction price is of no
consequence, in circumstances in which, as has rep eatedly been pointed out, Chile applies a specific
duty. Moreover, citing
27 the Appellate Body on the disconnection of the reference price under the
PBS, Argentina asserts that this disconnection is maintained. This assertion is false.
57. Finally, Chile would like to comment on paragraph 66 of Argentina's Rebuttal. This reads:
"Therefore, the Chilean graph does not represent only the periods in which the bands
were activated, or the periods relevant for the analysis, but the trend in FOB prices for
Argentine bread wheat and the Chilean en try price from December 2003 to February
2006. In fact, as follows from Exhibit ARG- 6, specific duties were applied between
December 2004 and April 2005, due to the pr ices recorded by wheat on the markets
of concern from the entry into force of the amended PBS. 28 This is the relevant
period for observing the behaviour of the amended PBS. As distinct from the Chilean
graph, Exhibit ARG-12 plots only the period of application of specific duties."
58. Argentina is apparently seeking to introduce a new assessment parameter for the rulings and
recommendations of the DSB, the "relevant period". In addition to it being odd that measures should
have to be judged on the basis of the effects they produce in certain periods, with any Member being
able to define which periods are most relevant, th e argument is at least as strange when contrasted
with what Argentina has been insinuating throughout the present dispute.
3. The parameters of the Law are not insulating Chile's market
59. In Sections 2.3 and 2.4 of the Rebuttal, Argentina argues that the changes introduced by Chile
have not contributed to improving the insulation of domestic prices from international price variations
because the floor, ceiling and reference price para meters are not now directly linked with the
international prices in effect.
(a) Floor and ceiling
60. Contrary to what Argentina says 29, there are no explanations, evidence or arguments in
Sections 2.5 and 2.6 of its First Written Submission to confirm that the current parameters mentioned
above are insulating Chile's domestic market from in ternational price fluctuations. The sections in
question only conclude that these parameters are perfectly well known and that therefore transparency
exists in this respect.
61. Argentina appears to interpret the Appellate Body report as requiring specific changes in the
PBS, in the sense that the floors and ceilings, like the reference prices used for determining the
specific duties (or rebates or neither), should be est ablished strictly as a function of the international

27 Paragraph 60 of the Rebuttal.
28 Rebates were also applied from December 2003 to August 2004.
29 Paragraphs 80 and 88 of the Rebuttal.

prices in effect. If so, it would be helpful if Argentina were to indicate the precise part of the
Appellate Body's report on which its interpretation is based.
62. It can be inferred from Argentina's reasoning th at to prevent disconnection and allow price
transmission it is essential that prices be based on in ternational prices. Nevertheless, Argentina fails
to offer any argument or demonstration that could be regarded as positive proof of this. Chile, on the
other hand, does demonstrate the existence of pri ce transmission following the changes introduced by
Law 19.897.30
63. In fact, Chile clearly explains that the floor and ceiling parameters (and reference prices)
have, as a product of the new law, the sole purpo se of making it possible to determine the border
protection that will be applied to wheat and wheat flour in accordance with a pre-established schedule.
From a reading of Argentina's submissions it follows that it is perfectly familiar with the parameters
in question, that is to say that the changes have achieved the objective of ensuring transparency.
64. In spite of this, Section 2.3 of Argentin a's Second Written Submission goes further and
questions the origin of the floor and ceiling pa rameters. Thus, Argentina appears to take
"transparency" to mean the impl ementation by Chile of a paramete r selection mechanism that would
have been acceptable to Argentina.
65. The origin of the parameters is not relevant for determining whether or not Law 19.897 is in
conformity with Chile's WTO commitments. They make it possible to estab lish, transparently and
predictably, the border protection which Chile, like any other Member of the WTO, has independently
found to be reasonable and appropriate for wheat a nd wheat flour. Argentina appears to take the
requirements of transparency to the extreme. Ho wever, there is no WTO provision that obliges a
Member to provide explanations of why it has estab lished a particular level of tariff protection, why
the levels are differentiated or why they are lower th an the bound tariff level. All it is obliged to do is
to honour its commitments, that is to say, not to exceed the bound tariff level.
66. Obviously, any change in the parameters will affect the level of protection granted to these
products. For example, if the floor parameter were established at 110 dollars, the resulting level of
protection would be lower. On the other hand, if it were established at 140 dollars, the resulting
protection would be higher.
67. Finally, the reduction of the floor parameter from 128 to 114 dollars and the ceiling parameter
from 148 to 134 dollars has nothing to do with the objectives of preventing the disconnection of the
domestic market and improving price transmission. Its purpose is gradually, over a period of years, to
improve access to the Chilean market. Chile clearl y explains and demonstrat es that improvement in
market access in Section V.6. of its First Written S ubmission. In this connection, it is important to
note that at no point did the Appellate Body lay down such an improvement in access conditions as a
requirement; nevertheless Chile independently judg ed it desirable to implement the aforementioned
reduction.
(b) Reference prices
68. According to paragraph 91 of the Rebuttal, Ch ile has been unable to show that Argentina
interprets the conclusions of th e Appellate Body in a broad a nd comprehensive manner. A good
example of this is paragraph 82 of the Rebuttal. In that paragraph, Argentina appears to be saying that
the way in which the specific du ties are assessed on the basis of Law 19.897 and its Regulations is
insulating the Chilean market from international price developments.

30 Section V.3. of Chile's First Written Submission.

69. The Appellate Body noted that this insulati on occurred, as far as the determination of
reference prices is concerned, for two reasons only. The first was because the prices were set in a way
that was neither transparent nor predictable, the second because they were set on a weekly basis.
31
70. Nevertheless, in adapting its legislation, Chile corrected these aspects also, as explained in
paragraphs 111 ff. of its First Wr itten Submission. Now, however, Ar gentina alleges that Chile was
required not only to publish the reference markets but also to explain why it chose those markets 32,
adding that the reference price cannot be mainta ined unchanged and ought to be linked with the
transaction value.
71. Under the PBS the reference price was never linked with the transaction value, but in
addition, as there was no relevant provision in the laws and regulations, it was possible for the
"markets of concern" to be chosen arbitrarily by the authorities for price maintenance purposes. In
other words, it was possible to seek a reference pric e that enabled the amount of the specific duties to
be "inflated", a term used by the Appellate Body in referring to the conversion to c.i.f. prices 33 but
equally valid here, precisely because the end purpose was to maintain a price.
72. The reference prices now correspond to f.o.b. prices on the two markets of most concern for
Chile. According to recent world statistics 34, the United States is the world's leading producer and
exporter of wheat, with Argentina being the second largest producer and exporter in the southern
hemisphere (after Australia). In the last six y ears (2000-2006) 40 per cent of Chilean wheat imports
came from the United States and 31 per cent from Argentina.
73. Consequently, in order to determine the reference prices, valid sources of information for both
these origins were sought. In the case of the Unite d States, that source is the Chicago Exchange
(http://www.cbot.com/), the world's largest agricultural commodity futures market. This is the source
for the Gulf f.o.b. price of Soft Red Winter No. 2 wheat . In the case of Argentina, the source of
information is the Department of Agri culture, Livestock, Fisheries and Food
(http://www.sagpya.mecon.gov.ar/) of the Ministry of the Economy, which regularly publishes figures
for bread wheat, Argentine port (so-called Official Fob Price ) in the form of an average for various
ports.
74. These two wheat varieties are similar and the prices are taken on the basis of the
corresponding times for harvesting and marketing.
75. It is curious that Argentina should questi on the importance of its market for wheat
35, which is
one of the markets of concern for determining th e reference price, or the seasonality of wheat
production in the two hemispheres and that in one ha lf of the year the United States market should be
of greater concern and in the other half that of Argentina. But it is even stranger that Argentina
should claim to be unaware of the source of the information for the f.o.b. price of bread wheat,
Argentine port, even though in its two submissions it cites the official source, i.e., SAGPyA, in almost
all its examples.
76. The reason why Chile has recourse to an offici al source (SAGPyA) is precisely that indicated
by Argentina.36

31 Paragraph 247 of the Appellate Body Report.
32 Paragraph 108 of the Rebuttal.
33 Paragraph 250 of the Appellate Body Report.
34 FAO statistics (http://faostat.fao.org/).
35 For example, paragraph 108 of the Rebuttal.
36 Paragraph 132 of Argentina's Second Written Submission.

"As Argentina shows in Exhibit ARG-4, there are at least 4 (four) different prices
quoted for Argentine bread wheat (Port of Bu enos Aires, Port of Bahía Blanca, Port
of Quequén, and Port of Rosario)."
77. Chile simply did not find any justification for pi cking out any one of the ports in particular,
particularly as there were official figures published by the Government of Argentina.
78. Finally, Argentina appears to question the pr ice calculation formula, that is to say, the
averaging which reflects the variations of the pri ce of the product on this market better than taking a
price on a particular date (which could be very high or very low depending on the circumstances).
79. On the other hand, Argentina appears to get things mixed up when in paragraph 84 of its
Rebuttal it makes a partial quotation from Chile's First Written Submission where it is said that during
the two months in which the specific duties remain unchanged, they are completely disconnected from
what may occur in the reference ma rkets. According to Argentina, this confirms its claim that
because they remain in effect for two months th e reference prices disconnect price transmission.
Without wishing to be too insistent, it is clear that if the specific duties (or rebates) remain unchanged
for a long period of time, world price developments will be transmitted to the domestic market since
there is no way of "managing" the reference prices to increase the resulting specific duties and thereby
sustain a price to prevent world price developments from being reflected internally.
80. Argentina claims that Chile has argued that the system in force would be inconsistent only six
times a year. 37 Chile has shown that the system is always consistent . There are no time-related
inconsistencies as seems to be alleged by Arge ntina, which by focusing its arguments on these
bimonthly "overcompensations" (even though it could only offer two examples: 15 and 16 December
2004 and 15 and 16 February 2005) would appear to be saying that only on these days is Chile in
violation of its WTO obligations.
IV. OTHER CLAIMS UNDER ARTICLE 4.2 OF THE AGREEMENT ON
AGRICULTURE
81. Chile has developed the line of reasoning pursued by the Appellate Body and shown how it
has complied with the recommendations and rulings of the DSB. At the same time, it has provided
evidence to show how in presenting its arguments Ar gentina has distorted the findings of the Panel
and the Appellate Body.
82. Nevertheless, below, for the benefit of the present Panel and to facilitate Argentina's
understanding, Chile will deal with the relevant arguments raised by Argentina in Section B.2-6.
1. The "modified system" is transparent and predictable
83. Although Chile has dealt with Argentina's arguments relating to the scope of the present
proceedings, it is also necessary to respond to Arge ntina's observations in paragraphs 91 ff. Apart
from declaring that Chile misreads its position a nd trying to discredit the "only example" given,
Argentina is unable to show that the Appellate B ody has set a standard concerning transparency and
predictability in the way in which the bands were established.
84. Paragraph 247 of the Appellate B ody's report which refers to "how Chile's price bands are
established" is not preceded by any paragraph i ndicating how the bands are established other than
paragraph 246. And the latter refe rs only to "the intransparent and unpredictable way in which the
'highest and lowest f.o.b. prices'… are converted to a c.i.f. basis". Thus, the Appellate Body did not

37 Paragraph 84 of the Rebuttal.

say that all the elements of the way in whic h the floors and ceilings were established were
non-transparent and unpredictable.
85. Why not? Because all the elements were transp arent and predictable, even though they were
questionable for other reasons, for example, because th ey could have had the effect of impeding price
transmission, but not because they were non-transparent or unpredictable

86. Finally, Argentina is mistaken in claiming th at the factor of 0.985 was established in a
non-transparent manner.38 This factor is established in the Law and is known by all and the fact that it
is being applied up until 2014 is a guarantee of its predictability for market operators.
87. Chile has explained the real meaning and sc ope of the references to transparency and
predictability made by the Appellate Body. However, it must also deal with certain claims raised by
Argentina in its Rebuttal since they are particul arly serious – not because of their substance but
because of the errors they contain.
88. Argentina states:39
"With regard to the Argentine allegation th at the amended PBS is neither transparent
nor predictable, in paragraph 114 of its submission Chile acknowledges that, due to
the change in price, the importer (and hence the exporter) does not know in advance
the amount of the specific duties payable:
'With the entry into force of Law No. 19.897, the reference price ceased to constitute
one of the elements needed by importers to ascertain the amount of duty payable
upon import'." (Underlining added).
89. Although Chile believes that this statement by Argentina reflects its misunderstanding of the
changes introduced by Law 19.897, this does not de tract from the seriousness of the matter since in
taking sentences out of context and drawing errone ous conclusions it could mislead the members of
the Panel. The text cited is the conclusion of previous reasoning relating to the questioning by the
Appellate Body of the way in which the reference price was established and set under the PBS, when
that price had to be known by the importers in order for them to be able to calculate the specific duty
payable. After the changes introduced by Law 19.897, the specific duty is now determined by a
decree of the Ministry of Finance and therefore neither the exporter nor the importer needs to know
the reference price (as was the case under the PB S) in order to know the amount of specific duty
payable.
90. In paragraphs 128 to 137 of Section B.3. of its Rebuttal, Argen tina disparages Chile's
arguments concerning predictability in the determination of duties and rebates. 40 Curiously, Argentina
bases its case on the "inability" of its exporters, firstly, to find out about the conditions of access to the
Chilean wheat market and, secondly, reasonably to foresee the international prices in effect at the time
their transactions take place.

38 Certainly, the second half of pa ragraph 247 does not serve Argentina's purpose because it relates to
the lack of transparency and predictability of the way in which the reference prices are determined.
39 Argentina's Second Written Submission, paragraphs 105 and 106.
40 Section V.4. of Chile's First Written Submission.

91. With regard to its exporters, Argentina states that:41
"If an exporter decides to export wheat to Chile in March 2007, the first thing he has
to do, in addition to dealing with his own business, is to find out ..."
92. Argentina then lists the additional factors that the Argentine exporter wanting to export to
Chile has to find out. This implies that it is not part of his own business as such – but an additional
task – to find out about the conditions of access to his chosen export market, all of which are clearly
set out in the Chilean Law and its Regulations and, moreover, published on the Internet. Nor
apparently is it part of an Argentine exporter' s own business to have a reasonable knowledge of the
international prices prevailing at the time his transa ctions take place. In these circumstances, one
might well ask what is part of the "own business" of an Argentine exporter.
93. Even though Chile does not know precisely how these exporters operate, it does not seem
reasonable to assume such ignorance . Chile's arguments are not based solely on theory but also on
how the international trade in agricultural commodities operates in practice.
94. An example is provided by the case of Chilean , and doubtless Argentinean, exporters of fresh
apples to the European market. They are thoroughl y familiar with the mark et access system with
which they have to deal. They know that at cer tain times of the year the border duties assessed will
vary with the entry price prevailing at the time of arrival of the shipment. Although they do not know
in advance what that entry price will be and hen ce the exact amount of the duty payable, they can
reasonably predict it. This is clearly an indispensable requirement for staying in business.
95. Argentina appears to be arguing, indirectly, that the Argentine exporter does not know today
the precise customs duty that will be payable on wheat in March 2007 and that this is a violation of
WTO rules. But, clearly, there is no WTO requireme nt that the precise level of customs duties must
be known a certain period of time in advance of their entering into force and there can be no guarantee
that, for example, the ad valorem duties applied by WTO Members will be the same in March 2007 as
they are today.
96. In fact, to take the same example of the Argen tine exporter, it might be asked whether, in the
light of what has happened in recent years, that e xporter could predict whether or not in 2007 he will
be paying taxes on his exports in Argentina and how much they might be. Certainly Chile cannot be
blamed for this lack of predictability.
2. The "modified system" is not a measure similar to a variable import levy
97. As Chile pointed out in its First Written Submission 42, even though the decisive feature of the
variable levies prohibited under footnote 1 to Article 4 is their variabilit y, this alone is not conclusive,
since an ordinary customs duty can also be desc ribed in this way. Thus, the Appellate Body
observed:43
".... A Member may, fully in accordance with Article II of the GATT 1994, exact a
duty upon importation and periodically change the rate at which it applies that
duty (provided the changed rates remain below the tariff rates bound in the
Member's Schedule).* This change in the applied rate of duty could be made, for
example, through an act of a Member's legislature or executive at any time .
Moreover, it is clear that the term 'variable import levies' as used in footnote 1 must

41 Paragraph 130 of Argentina's Second Written Submission.
42 Chile's First Written Submission, paragraphs 90 ff.
43 Appellate Body Report, paragraph 232.

have a meaning different from 'ordinary customs duties', because 'variable import
levies' must be converted into 'ordinary customs duties'. Thus, the mere fact that
an import duty can be varied cannot, alone, bring that duty within the category
of 'variable import levies' for purposes of footnote 1" (our highlighting).
98. In its First Written Submission, Argentina – in Section C3.1 – stated that "[T]he amended
PBS contains a formula that causes import duties to vary automatically and continuously" and divided
its analysis into three parts, i.e., variation that is automatic and continuous.
99. In order to prove the alleged variability, Argen tina shows that the specific duties have varied
since the PBS came into existence. However, Ch ile has never suggested otherwise, and neither did
the Appellate Body in the paragraph just cited.
100. As far as automaticity is concerned, although Argentina focused its analysis on dictionary
definitions, the heart of the matter does not lie there but in the findings of the Appellate Body in this
respect. The Appellate Body found as follows:
44
"[T]he level at which ordinary cu stoms duties are applied can be varied by a legislature, but
such duties will not be automatically and continuously variable. To vary the applied rate of
duty in the case of ordinary customs duties will always require separate legislative or
administrative action, whereas the ordinary meaning of the term 'variable' implies that no such
action is required."
101. In its First Written Submission, Chile pointed out that under the changes introduced by Law
19.897 the specific duties applied require a specific administrative act to establish them and in the
absence of this act the duty does not vary in am ount. The situation was different under the PBS,
where, because of its structure, the duties applie d to two simultaneous import transactions varied
without the intervention of any administrative act, which led to the assessment of different import
duties, even when the value (transaction price) a nd volume (metric units) of the goods were identical.
Today, two simultaneous import transactions, with the same transaction value and volume, will
always pay the same import duty . Thus, Chile has implemented the rulings and recommendations of
the DSB.
102. With respect to continuous variation, in its First Written Submission Argentina states
"[D]espite the fact that the variation of the specific duties is no longer weekly but bimonthly, that
variation is continuous."
45 The proof offered consists of the table and chart in Exhibits ARG-23 and
ARG-24, which are supposed to illustrate "the ope ration of the amended PBS between 16 December
2004 and 15 April 2006"46, and moreover the table and chart in Exhibits ARG-21 and ARG-22, which
illustrate the variability of the specific duties. 47 On this basis, Argentina concludes that it "has shown
that the amended PBS includes a formula that ma kes the variability of the duties automatic and
continuous".48
103. It will again be appreciated how that analysis differs from the findings of the DSB and the
changes introduced by Chile. Argen tina's reasoning contains an obvious non sequitur. It again seeks
to show that the duties vary, but only to conclude that this variation is c ontinuous, without providing
any evidence of this, which is what counts.

44 Appellate Body Report, paragraph 233.
45 Argentina's First Written Submission, paragraph 266.
46 Argentina's First Written Submission, paragraph 268.
47 Argentina's First Written Submission, paragraph 269.
48 Argentina's First Written Submission, paragraph 270.

104. Argentina's only argument is that the variation is bimonthly. However, continuous variation
has nothing to do with the fact that once the specific duty has been fixed it is changed every two
months. Moreover, the argument contradicts the fi ndings of the Appellate Body which observed that
the duties can be periodically changed without the variation being continuous on that account. Putting
Argentina's argument into practice would mean maintaining that any seasonal duty or scheduled
reduction in ad valorem tariffs would be tantamount to the establishment of a variable import levy.
105. In this connection, Argentina raises an interesting question concerning the reduction in Chile's
ad valorem tariff, to the effect that there was no schem e or formula that caused and ensured that the
tariff would change (be reduced) automatically and continuously.49 The text of Law 19.589, appended
as Exhibit CHL – 8, demonstrates the exact opposite. When it was enacted, a plan for the progressive
and automatic reduction of Chile's general tariff from 11 per cent to 6 per cent between January 1999
and January 2003 was established. No one could maintain that, despite this continuous, automatic and
planned variation, Chile's general ad valorem tariff is not an ordinary customs duty.
106. Finally, the Appellate Body observed that va riable import levies have additional features
which undermine the object and purpose of Article 4 of the Agreement on Agriculture. These
additional features include a lack of transparency and a lack of predictability in the level of the duties
that would result from the application of these measures, elements no longer present following the
changes that Chile has made to its legislation.
107. Thus, there being no variability – a necessary condition for any variable import levy – there is
no inconsistency with Article 4.2 of the Agreement on Agriculture. Moreover, even if there were still
variability, it would not be sufficient since the addi tional features identified by the Appellate Body
would have to exist and these were addressed by Law 19.897 and its Regulations.
3. The "modified system" does not sustain a price
108. In paragraph 139 of its Rebuttal, Argentina stated that Chile contradicts the terms of its Law
and Regulations by asserting that the specific duties ar e not a variable levy inasmuch as they are not
intended to sustain a price50, quoting the text of the legislation which reads:
"The amount of such duties and rebates sha ll be established … in terms which, when
applied to the price levels attained by th e products in question on the international
markets, allow domestic market stability"51 (emphasis added).
109. Leaving aside the arguments mentioned above, th ere is no such contradiction. Chile has
established a mechanism for stabilizing the domestic market, which is a completely different thing
from sustaining prices. Stabilizing means preventing sudden and extreme changes that affect
activity, whereas sustaining means defending or supporting an activity through improved prices.52
110. First of all , the current system envisages the appli cation of specific duties, rebates on the
amounts payable as ad valorem duties under the customs tariff, a nd the application of the general
tariff alone. Where tax rebates or the general tari ff alone are applied, the imported product enters the

49 Paragraph 154 of the Rebuttal.
50 Chile's First Written Submission, paragraph 133.
51 See Law 19.897, Article 1, second paragraph, and Decree No. 831/2003, Article 1, second paragraph,
in Exhibits CHL-1 and CHL-2, respectively.
52 The same stability as established by Decree 797/92 (still in force) of the Argentine Republic which
defines the measure Additional Sugar Import Duties and stipulates, inter alia: "… it is desirable to put into effect
Article 673 of the Argentine Customs Code in order to stabilize the internal price in periods of severe distortion
on the world market."

country with advantages over other traded products or on the same terms as other products, as the case
may be. In neither case is any price sustained.
111. Secondly, as Chile argued and explained in Section V.1 and 2 of its First Written Submission,
all the parameters currently in use, i.e., the fl oor and ceiling prices and the reference price, are
expressed in terms of f.o.b. prices. The f.o.b. price for any individual commercial transaction is
always lower than the c.i.f. price, the entry price a nd the domestic price. A simple review of the basic
legislation is enough to show that it is impossible to sustain any price, as Chile demonstrated in
Section V.1 and 2.
112. According to Argentina, in paragraph 143 of its Rebuttal:
"Leaving aside Chile's virtual ' confession' that the duties resulting from the PBS are
unrelated to the transaction value and are therefore insulating Chile's market from
international price developments…" (highlighting added).
113. As already explained, Chile makes no confession but rather an assertion, by pointing out that:
"Under Law 19.897, however, a specific duty (o r rebate, or neither) is fixed by legal
directive in the form of a decree issued by the Ministry of Finance and remains
unchanged for two months, during which the duty applies on all import transactions,
without the slightest variation and regardless of the amount of the transaction, until it
is changed or cancelled by a more recent administrative act."
53
114. It is perfectly true that specific duties and tax rebates do not depend on the transaction value,
which makes it possible to assert that since the ch anges introduced in 2003 Chile has not applied
variable levies or similar measures and, therefore, is not insulating the domestic market but rather the
exact opposite, that is, allowing the transmission of international prices.
115. Later, Argentina states that the Appellate Body did not establish that "a variable duty may be
the kind of duty which is used to sustain a domestic or a minimum entry price" 54, as Chile explained
in its First Written Submission.55 Argentina adds:
"In this dispute, the Appellate Body has cl early defined the necessary, sufficient and
additional features that characterize variable import levies. These features do not
include the sustaining of entry prices, c.i.f. prices or domestic market prices or price
'adjustment', as Chile maintains"56 (original emphasis).
116. The Appellate Body did not have to define th ese features inasmuch as they had already been
defined within the context of the WTO and can be found in the Panel's report. 57 These fundamental
characteristics of variable import levies and minimum import prices are:
"(a) Variable levies generally operate on the basis of two prices: a threshold, or
minimum import entry price and a border or c.i.f. price for imports. The
threshold price may be derived from and linked to the internal market
price as such, or it may correspond to a governmentally determined
(guide or threshold) price which is above the domestic market price . The

53 Chile's First Written Submission, paragraph 93.
54 Argentina's Rebuttal, paragraph 149.
55 Chile's First Written Submission, paragraphs 139 to 144.
56 Argentina's Rebuttal, paragraph 150.
57 Paragraph 7.36 of the Panel Report, WT/DS207/R

import border or price reference may correspond to individual shipment
prices but is more often an administratively determined lowest world market
offer price. (Emphasis and underlining added.)
(b) A variable levy generally represents the difference between the threshold
or minimum import entry price and th e lowest world market offer price
for the product concerned. In other words, the variable levy changes
systematically in response to movements in either or both of these price
parameters. (Emphasis and underlining added.)
(c) Variable levies generally operate so as to prevent the entry of imports
priced below the threshold or minimum entry price . In this respect, i.e.
when prevailing world market prices are low relative to the threshold price,
the protective effect of a variable levy rises, in terms of the fiscal charge
imposed on imports, whereas this ch arge declines in the case of ad valorem
tariffs or remains constant in the case of specific duties. (Emphasis and
underlining added.)
(d) In addition to their protective effects, the stabilization effects of variable
levies generally play a key role in in sulating the domestic market from
external price variations. (Emphasis added.)
(e) Notifications on minimum import prices indicate that these measures are
generally not dissimilar from variable levies in many respects , including
in terms of their protective and stabilization effects, but that their mode of
operation is generally less complicated. Whereas variable import levies are
generally based on the difference betw een the governmentally determined
threshold and the lowest world market offer price for the product concerned ,
minimum import price schemes genera lly operate in relation to the
actual transaction value of the imports . If the price of an individual
consignment is below a specified mini mum import price, an additional
charge is imposed corresponding to the difference ." (Emphasis and
underlining added.)
117. From these fundamental character istics it is clear that a variable levy or minimum import
price is intended to sustain a price and that that price is measured as an entry price, as an internal
price, as a value linked to the internal price, or as an administratively determined price which is above
the domestic price.
118. Under the present system, the floor price is not an entry price, is not fixed on the basis of the
internal price, is not linked with it, and is not fixed at a price above it. For its part, the reference price
is not a border price or expressed in c.i.f. terms. Neither does it correspond to the price of a shipment,
nor is it a lowest world market offer price or dete rmined administratively. Therefore, the current
parameters do not have the fundamental charac teristics of a variable levy as described in
paragraph (a).
119. The specific duty is not "the difference betw een … the import entry price and the lowest
world market offer price for the product concerned". Nor does the specific duty "change
systematically in response to movements in either or both of these price parameters"; on the contrary,
it remains fixed for an extended period, regardless of what happens to these parameters. Therefore,
the specific duties do not have the fundamental char acteristics of a variable levy as described in
paragraph (b).

120. The specific duty does not prevent the entry of imports priced below a threshold or entry
price, inasmuch as the floor price is not a thres hold price or an internal market price or linked
therewith, and is not an entry price. The tariff ch arge determining the specific duty remains constant
until changed or cancelled by a more recent administ rative act. Therefore, the specific duties do not
have the fundamental characteristics of a variable levy as described in paragraph (c).
121. The mechanism currently in force allows international price variations to be transmitted to the
domestic market, inasmuch as the specific duties and rebates are not adjusted on the basis of what
happens to external prices or adjusted for the prices of shipments, as Chile showed in Section V of its
First Written Submission. Therefore, the specific duties do not have the fundamental characteristics
of a variable levy as described in paragraph (d).
122. The specific duties are not determined as a f unction of the actual transaction value of the
imports, nor do they correspond to the difference betw een the entry price or threshold and the actual
transaction value, as would be the case with a mini mum import price. Therefore, the specific duties
do not have the fundamental characteristics of a variable levy or minimum import price as described
in paragraph (e).
123. Consequently, the current parameters do not possess any of the fundamental characteristics
which the WTO itself has defined and discussed for variable import levies and minimum import
prices. Therefore, the Chilean system estab lished by Law 19.897 and its Regulations is not
inconsistent with the Article 4.2 in question.
124. Argentina also claims that Chile appears not to understand the Argentine argument which
uses dispersion (standard deviation) analysis solely
 to show that Chile is applying a formula that
causes import duties to vary continuously. It adds that this demonstration does not constitute the basis
for all of its reasoning concerning variable levies.58
125. Then, in paragraph 157, Argentina states that:
"As Chile points out, the existence of a dut y that varies or has varied, even though a
necessary condition, is not sufficient for it to be described as a variable levy. It is one
feature that must be present as a necessary condition, but it is not sufficient."
126. Chile shares the view expressed by Argentina in the preceding paragraph, but cannot agree
that the dispersion exercise in Section C.I.3 of its First Written Submission shows that the measure
applied in Chile is similar to a variable levy. The only conclusion that can be drawn from this
demonstration is, as has already been pointed out, that the specific duties vary, something which Chile
has never denied.
4. The "modified system" is not a measure similar to a minimum import price
127. In Section V.1 of its First Written Submission, Chile addressed the arguments put forward by
Argentina in Section C.2.1 headed "Specific du ties resulting from the amended PBS tend to elevate
the entry price of imports to Chile above the price band floor".
59
128. Chile showed that the system in force, based on Law 19.897 and its Regulations, is neither a
minimum import price nor similar to such a price, bearing in mind the fundamental characteristics of
measures of that kind identified by the WTO.

58 Paragraph 156 of the Rebuttal.
59 Argentina's First Written Submission, Section C.2.1, paragraphs 99 to 124.

129. Among other things, Chile establishes the indisputab le fact that in any ordinary individual
trade transaction the f.o.b. price is always lower th an the c.i.f. price and does not "tend" to it, as
Argentina maintains.
130. In this respect, in Section 5 of its Rebutta l, Argentina states that Chile, with these
arguments60, "seeks to distort what Argentina said in its First Written Submission" and that Argentina
would prefer "to think of it as an error of interpretation".
131. Chile neither intended nor intends to distort arguments or figures of any kind or source.
Neither is it an error of interpretation. In fact, in paragraph 163 of the Rebuttal, Argentina states
"Clearly, Argentina tried to demonstrate the exact opposite of what Chile alleges,
namely, that the CIF price is naturally higher than the FOB price" (original
emphasis).
132. Whereas in paragraph 99 of its First Written Submission it says that:
"Below, Argentina will show mathematically – using the PBS formula contained in
Law 19.897 and Decree 831/2003 – how specific duties resulting from the amended
PBS tend to elevate the entry price of imports to Chile above the price band floor …"
(emphasis added).
133. Chile's interpretation of all the arguments a nd methods incorporated in Section C.2.1 of
Argentina's First Written Submission is correct. In that Section Argentina seeks to show that the
specific duties tend to elevate the entry price of imports to Chile "above the price band floor".
134. Chile cannot accept that the entire section in ques tion was used by Argentina solely to show
that "the CIF price is naturally higher than the FOB price".
135. Even though Chile has already shown that this is self-evident, it is worth noting that all the
values used as parameters (floor, ceiling and refere nce prices) are expressed in f.o.b. terms.
Therefore, in any ordinary individual trade transacti on, the c.i.f. price and the entry price of that
transaction will always be higher than the f.o.b. price, although not necessarily higher than the floor
price.
136. This is because the floor price is not a threshold, an entry price or a minimum import price. It
is not, nor is it intended to be, a price that impedes trade or prevents the transmission of international
prices. The floor price is simply a parameter that impacts solely on the assessment of the specific
duties, and those duties do not have as either th eir object or the result of their application the
maintenance of border or entry prices or their adjustment to the floor price
137. In their turn, the specific duti es assessed naturally increase th e entry price, by the same
amount for any transaction, a universal and natural characteristic of ordinary customs duties.
Although that is certainly true, it does not form the substance of this dispute, which is that the result of
their application does not constitute a measure similar to a variable levy or a minimum import price.
138. Therefore, any mathematical demonstration provided by Argentina, even though unnecessary,
will show that the specific duties increase the entry pr ice, like any ordinary customs duty. That is not
a sufficient condition for asserting that , solely because they increase the entry price, they constitute a
measure similar to a minimum import price.

60 Paragraph 161 of the Rebuttal.

139. As the Panel report states in describing the fu ndamental characteristics of measures of this
kind, "minimum import price scheme s generally operate in relation to the actual transaction value of
the imports. If the price of an individual consignm ent is below a specified minimum import price, an
additional charge is imposed corresponding to the difference".
61
140. Chile does not determine specific duties in relati on to the actual transaction value nor is their
amount equal to the difference between that actual transaction value and a minimum import price. In
fact, neither is the floor price a c.i.f. price or an entry price. Consequently, the floor price is not
similar to or the same as a minimum entry price, and the application of specific import duties is not
inconsistent with Article 4.2 of the Agreement on Agriculture.
141. Continuing its argument, in paragraphs 170 to 177, Argentina maintains that Chile is mistaken
in its analysis when it compares the floor price with the series of f.o.b. prices plus specific duties
during the only four months in which the latter were applied and states that "[t]he relevant comparison
as far as this dispute is concerned is with the behaviour of the entry price of wheat imports to Chile".
62
142. Chile agrees that what is important (in the presen t dispute) is what happens to entry prices.
Chile has already shown, using Argentina's own info rmation, that entry prices for wheat imports to
Chile follow a pattern similar to that displayed by th e international price. However, it has also shown
that the domestic price of wheat has likewise followe d a pattern similar to that of the international
price, thereby confirming that the Chilean market is connected with the international one and that the
modified system allows variations in external prices to be transmitted to the local market.
143. Moreover, in paragraphs 130 to 132 of its First Written Submi ssion, Chile explains how, in
the event of the floor price being interpreted as a minimum entry price, the actual evidence of its
application shows that that price is not maintain ed inasmuch as it is not a minimum price and the
specific duty is not the difference between the floor price and the actual transaction value.
144. As already explained at some length, the floor pri ce is expressed in f.o.b. terms, so that it is
not pertinent (or consistent) to compare it with a c.i.f. value or an entry price. Therefore, in order to
verify that the specific duty applied is not the same as the difference between the floor price and the
actual transaction value, and to confirm that the ap plication of the specific duty does not lead to a
price equal to the floor price, a comparison was made using prices expressed in the same market
terms, namely, f.o.b.
145. If the floor price were a minimum import price, the result of applying the specific duties
would be that minimum price. In its First Written Submission, Chile shows that out of 81 days on
which specific duties were applied, on 46 per cent of those days the sum of the f.o.b. price and the
specific duty in force was less than the floor price.
146. In paragraphs 179 to 184 of its Rebuttal, Arge ntina explains the contents of Exhibit ARG-11,
which formed part of its First Written Submission, gi ven that Chile used that information and had to
make changes on finding that the data in that Exhi bit differed from the series of daily f.o.b. prices for
Argentine bread wheat published by the Department of Agriculture, Livestock, Fisheries and Food of
the Republic of Argentina.
147. From the explanation that Argentina gave in its Rebuttal, Chile understands that for the
purpose of its demonstrations Argentina made a time adjustment to the daily data, advancing them by
15 days relative to the actual date on which those pr ices were in effect, so that by taking into account

61 Chile – Price Band System, Panel Report, paragraph 7.36.e.
62 Paragraph 172 of the Rebuttal.

the time required to transport the goods it could simu late the price at which exports would arrive in
Chile after shipment. Chile welcomes Argentina's explanation.
148. However, Chile must point out that, while acknowledging the time adjustment made by
Argentina to the daily price figures for Argentine bread wheat, for the purposes of Chile's arguments
those prices should have been those in effect on the day they represent, inasmuch as the time
adjustment made by Argentina was used to simula te the effect of an actual trade transaction and
compare that f.o.b. price with the floor price and the entry price that would result from applying to
that f.o.b. price the specific duties in force.
149. This calls for two comments. Firstly, the Chil ean system provides for the application of the
same specific duties to all imports made during the period in which they are in force, without
distinction as to origin, date of shipment or the actual transaction value, like ordinary customs duties
(specific duties). Therefore, it is not necessary to make any sort of time adjustment for transport
since, like the general ad valorem tariff, the specific duty is applied to all transactions on an equal
basis.
150. Secondly, the relevance of this time adjust ment presupposes that the application of the
specific duties is linked with the actual transaction value, which is why a comparison is made with
what would happen to the entry price for this simu lated value of the actual price. However, the
specific duties do not depend on the actual transaction va lue; on the contrary, they are independent of
it, and as long as they apply do not vary with chang es in international prices, which does not prevent
such changes being reflected in the entry price and the domestic price.
151. Thus, entry prices follow a pattern different from that of the reference prices which are used
as parameters, and moreover are not linked with or adjusted to the floor price level. This is because
entry prices are not linked with the parameters or with the specific duties, but with international
prices. Chile has already shown that entry pr ices and domestic prices are connected with the
international market.
152. Elsewhere63, Argentina questions Chile's description of the use of only f.o.b. prices, claiming
that the specific duty does not include f.o.b. prices and that it "includes" nothing. The Law and its
Regulations stipulate that all the parameters used should be expressed in f.o.b. terms, and that both the
specific duties and the tax rebates should be assessed us ing those parameters, i.e., f.o.b. prices, as the
sole reference.
153. Argentina's comments relate to paragraphs 175 to 179 of Chile's First Written Submission, in
which it was demonstrated that the specific duti es assessed are always less than those that were
assessed under the PBS for the same re ference price, with a view to showing that wheat now enjoys
more favourable conditions of access.
154. This demonstration is based on the possibility of expressing the import cost in the following
form:
(1) ICi = a + b * FOBi,
where,
ICi = product import cost i;
a = sum of fixed costs;
b = aggregate of variable costs; and
FOB
i = f.o.b. price of the product i.

63 Argentina's Rebuttal, paragraphs 189 to 196.

155. The PBS used this expression to determine the specific duties (SD) as follows:
(2) SD = IC
floor - ICrp, where "rp" represents the reference price.
156. Substituting, we obtain:
(3) SD = a + b * FOBfloor– (a + b * FOBrp)
(4) SD = a + b * FOBfloor – a – b* FOBrp
(5) SD = b * (FOBfloor – FOBrp)
157. The last of these expressions, (5), is that u sed by the PBS to calculate the specific duties
applied weekly to wheat imports.64 As explained in the First Written Submission, the factor "b" is the
aggregate of the variable costs incurred in a normal import process, including the general ad valorem
tariff.
158. From expression (5) it follows that the specifi c duty is less for any reference price as its
determination includes only the general ad valorem tariff (1+0.06) and excludes all the variable costs
incurred in a normal import process, this be ing because the latter are nontransparent and
unpredictable, whereas the general ad valorem duty is known. All this is reflected in the following
expression contained in the Regulations implementing the Law:
 (6) SD = (1+ 0.06) * (FOB floor– FOBrp)

159. Argentina continues its argument, in paragraphs 197 to 204 of its Rebuttal, by seeking to
show that "Chile gets the definition of the duty established on the basis of a minimum import price
completely wrong". In this connection, Chile we lcomes the clarifications offered by Argentina
insofar they contribute to a better understanding of the Chilean arguments, especially those contained
in paragraph 198:
"In this same dispute, the Panel held th at a minimum price scheme operates in
relation to the actual transaction value of the imports. The Appellate Body
incorporated this aspect of minimum import prices in its report. In its reasoning,
Chile calculates the duty resulting from a minimum price on the basis of the
difference between the band floor and the reference price . The reference price –
which has nothing to do with the transaction value – is simply an average price
on a market of concern." (Emphasis added. Original italics. Footnotes omitted.)
160. In fact, what Chile demonstrated with its ar guments is what Argentina asserts in this
paragraph, namely, that the reference price "has not hing to do with the transaction value", because the
Chilean system is actually neither a minimum import price nor similar to one, just as it is neither a
variable import levy nor similar to one.
161. Finally, Argentina ends the arguments in Section 5 of its Rebuttal by asserting that:
"If Chile had used the formula which fo llows from the Appellate Body report, it
would have arrived at the same conclusi on as that reached by the Appellate Body
with respect to the original PBS and by Ar gentina with respect to the amended PBS,
namely, that the entry price of imports to Chile, under the amended PBS, is higher

64 In the case of tax rebates (TR) the expression was:
 TR = = b * (FOBrp - FOBceiling)

than it would be if Chile were to apply a minimum import price at price band floor
level."65
162. In fact, if Chile had used the formula which follows from the Appellate Body report it would
have arrived at the same conclusion, and that is precisely why Chile did not use the same formula ,
so that there was no inconsistency with Article 4.2 of the Agreement on Agriculture.
5. The "modified system" improves the conditions of access to the Chilean market
163. Even though the conditions of access for wheat lie outside the scope of the present dispute,
they naturally form part of the anticipated results . Therefore, Chile addressed this point by showing
that with the changes introduced by Law 19.897 the conditions of access are more favourable than
they would have been if the PBS66 were in force.
164. However, Argentina interprets Ch ile's arguments in a way that is not consistent with what
Chile actually said. In point of fact, when Chile states that "In conclusion, the period of application of
duties under the new regime was shorter by 10 weeks, while that of rebates was longer by eight
weeks, which represents an effec tive increase in favourable conditions for grain imports compared to
what might have occurred under the mechanism prior to modification" 67, it is basing itself on a
simulation of what would have happened if the PBS had continued in force.
165. Thus, the figures presented in Exhibit CHL-7 co rrespond to the daily series of international
prices for bread wheat, f.o.b. Argentine port , and Soft Red Winter No. 2 wheat, f.o.b. Gulf of Mexico ,
used to simulate the application of the PBS. A ll the information in that exhibit comes from ODEPA,
i.e., from Chile's Ministry of Agriculture, and is based on statistics published by Argentina's
Department of Agriculture, Livestock, Fisheries and Food (the same source as used by the other party)
and Chicago Exchange statistics published by Reuters.68
166. As explained in paragraph 183 of Chile's First Written Submission, the exercise consisted in
simulating the operation of the PBS "with the refere nce price per week calculated on the basis of the
prices in effect. This was done by taking the week ly average from Friday to Thursday of each of the
prices considered, selecting the lowest and comparing it with the floor and ceiling prices so as to
determine whether duties or rebates had applied in the week following the calculation. This method
was applied to the period from 16 December 2003 to 13 January 2006". The procedure is the same as
that used in the PBS.
167. An important difference between the system in force and the PBS is that in the latter the
specific duties and rebates were calculated weekly, so that they were linked with the international
prices in effect. Now, instead of being linked with the international prices in effect the specific duties
and rebates, once made official by the authorities, remain fixed for two months.
168. Argentina questions the results of the exercise although it also uses them to draw conclusions
which cannot be derived from these results. Chile 's simulation shows that the present mechanism
gives fewer weeks of application of specific duties a nd more weeks of application of tax rebates than
would have been the case under the PBS.

65 Argentina's Rebuttal, paragraph 204.
66 Chile's First Written Submission, Section 6 "Cha nge in conditions of access as a result of Law
No. 19.897".
67 Chile's First Written Submission, paragraph 185.
68 Chile is sorry that the unintentional omission of the source of the information should have led to
confusion, since it had assumed it to be obvious that both parties to the dispute were using the same source,
namely, ODEPA, which is characterized by its transp arency and reliability and the availability of the
information to the general public.

169. It is true that in this simulation we used only two prices for determining the market low and
selecting it as the reference price. However, the c onclusions would not have been any different if we
had use more prices to find the market low. In fact , if there had been prices lower than those used in
the exercise, then, where the application of specific duties is concerned, what would have happened is
that the duties assessed would have been higher an d duties would probably have been applied during
more weeks. In other words, it would merely ha ve confirmed what Chile is saying, namely, that
better conditions of access now exist. In the case of tax rebates, the situation is similar: if lower prices
had existed they would have resulted in a sma ller rebate or the application of the general ad valorem
tariff only. If there had been prices higher than those used, the amount of the rebates would have been
greater and there would have been more weeks with re bates being applied. In other words, this would
again merely have confirmed what Chile has said, namely, that the conditions of access have
improved.
170. At the same time, Chile also considers irrelevant Argentina's arguments to the effect that:
"… this is the same as saying that exporters of wheat and wheat flour to Chile should
not be concerned about the distorting effects of the amended PBS, since under the
amended PBS the distorting effects resultin g from the application of specific duties
occurred 'only' 17 times, whereas under the original PBS they would have occurred
27 times. Chile alleges that this means an improvement in conditions of access ".
69
171. The basis of this dispute is not the trade-distor ting effect of customs duties or how often they
are applied. The mere existence of customs duties, of whatever kind, is enough to distort trade, in
other words it is an inherent feature of those duties and not something peculiar to the Chilean system.
172. Finally, Argentina develops a line of reasoni ng based on the number of times the current
system and the PBS were applied or would have b een applied, as the case may be, in relation to the
occasions on which specific duties and tax rebates were assessed. Firstly, it should be noted that in
connection with most of its arguments, with this one exception, Argentina always considers the period
of application to be that in which specific duti es were assessed, leaving out completely the other
periods, certainly much longer, in which rebates, or nothing at all, were applied. Secondly, it seems
obvious, to Chile at least, that applying specific du ties is not the same as applying tax rebates, and it
does not seem reasonable to combine the two concepts and periods of application in order to assert
that the two policies are similar. If, as Argentin a says, the specific duty has a distorting effect, by
increasing the entry price, the tax rebate also has a distorting effect by reducing the entry price to the
point of leaving the trade transactions without a tariff charge.
173. In 35 (32.1 per cent) of the 109 weeks in which the current system has been in force
(16 December 2003 to 13 January 2006) tax rebates ha ve been applied, in 17 (15.6 per cent) specific
duties have been applied, and in 57 (52.3 per cent) only the general ad valorem tariff has been
applied.
174. From 13 January to 15 June 2006 wheat imports were entering Chile subject only to the
general ad valorem tariff, extending even further the period of improved access conditions.
(a) Effects of the scheduled reduction in the floor and ceiling prices
175. In its First Written Submission, Chile showed how a gradual process of reduction of the
border protection for wheat and wheat flour had been built in. In particular, as a result of the
scheduled reduction in the floor and ceiling prices, the amount of the specific duties will always be
less than that currently being assessed, just as the probability of duties being assessed will also always

69 Argentina's Rebuttal, paragraph 208.

be less. Argentina disregards the evidence produ ced by Chile and offers its own hypothetical
examples, seeking to show the contrary, that is to say, that in 2014 the specific duties will be equal to
or greater than those in force at the beginning of 2005.70 That, however, is mere supposition.
176. Chile could "invent" dozens of reference prices to show that from a certain date there will
only be rebates. That is not the point. What Ch ile showed is that using the same reference price –
which is something certain and not hypothetical – the parameters based on the scheduled reduction in
floor and ceiling prices will always result in a lower specific duty. In other words, its impact will be
less. Chile did not say that the reference price used in its example would be in effect in 2014, since it
is impossible to know that so far in advance.
177. When Chile says that the scheduled reduction in the floor and ceiling prices will translate into
less border protection, it states a true fact. In its First Written Submission it showed mathematically
what will actually happen in the future, namely, that to the extent that the floor price is reduced, the
specific duties assessed will always be less than they are at present. The following example illustrates
this situation. Using the scheduled floor prices and a reference price of 100 dollars per tonne, we
obtain:
 SD 2003-2007 = 1.06 * (128 - 100) = 29.68
 SD 2007-2008 = 1.06 * (126 - 100) = 27.56
 SD 2008-2009 = 1.06 * (124 - 100) = 25.44
 SD 2009-2010 = 1.06 * (122 - 100) = 23.32
 SD 2010-2011 = 1.06 * (120 - 100) = 21.20
 SD 2011-2012 = 1.06 * (118 - 100) = 19.08
 SD 2012-2013 = 1.06 * (116 - 100) = 16.96
 SD 2013-2004 = 1.06 * (114 - 100) = 14.84

178. That is to say that for the same reference pr ice the specific duties assessed will always be less
than those that would have been assessed before the floor price was reduced. This holds for any
reference price level.
179. Clearly, if in this exercise the reference pr ice were less than 100 dollars, the specific duties
would be higher than those calculated, but neve rtheless those duties would decrease with time. For
example, using the value of 94.92 dollars per tonne proposed by Argentina in paragraph 226 of its
Rebuttal, we obtain:
SD2003-2007 = 1.06 * (128 - 94.92) = 35.06
SD2007-2008 = 1.06 * (126 - 94.92) = 32.95
SD2008-2009 = 1.06 * (124 - 94.92) = 29.08
SD2009-2010 = 1.06 * (122 - 94.92) = 28.70
SD2010-2011 = 1.06 * (120 - 94.92) = 26.58
SD2011-2012 = 1.06 * (118 - 94.92) = 24.46
SD2012-2013 = 1.06 * (116 - 94.92) = 22.34
SD2013-2004 = 1.06 * (114 - 94.92) = 20.22
180. In other words, if this reference price were to apply this year, the resulting specific duty
would be 35.06 dollars per tonne, whereas in 2014 the resulting specific duty would be 20.22 dollars
per tonne, or 42.3 per cent less than that which would be assessed currently.
181. Chile did not use different values for the refere nce price to show that the nominal protection
for wheat will be lower. This would not be consis tent with an evaluation methodology. It is a fact

70 Paragraphs 221 and 222 of the Rebuttal.

that the conditions of access to the Chilean market have changed since the scheduled reduction in the
general ad valorem tariff, from 35 per cent in 1984 to 6 per cent as from 2003.
71 The same will
happen on the wheat market following the entry into force of Law 19.897 for that product.
V. THE CLAIMS RELATING TO THE FACTOR OF 1.56 AND ARTICLE II:1.B,
SECOND SENTENCE, OF THE GATT 1994 DO NOT FALL WITHIN THE TERMS
OF REFERENCE OF THE PRESENT PANEL
1. The factor of 1.56 does not fall within the terms of reference of the present Panel
182. In seeking to show that the factor of 1.56 falls within the terms of reference of the present
Panel, Argentina bases its reasoning on two premises. The first, that its questioning is not a claim but
an argument.72 The second, that this is a new argument re lating to an aspect of the measure taken to
comply that has changed.
183. Argentina's questioning is an independent claim and not an argument to illustrate a claim. In
fact, the word questioning used by Argentina shows it to be asserting that Chile has infringed a
specific provision of a specific agreement. Accord ing to the Spanish Academy, to question means: 1.
tr. To dispute about a doubtful point, by puttin g forward reasons, evide nce and grounds for and
against. In other words, questioning is something di fferent from arguments or reasons, evidence and
grounds.
184. By applying the reference to Korea – Dairy Products in the Rebuttal to Argentina's First
Written Submission, it is possible to distinguish the claim – "The factor of 1.56 ... insulates the entry
price of wheat flour from international price developments" – from the arguments – the specific
duties on wheat flour are calculated on the basis of those applied to another product 73 and the way in
which that factor was established is not transparent.74
185. Therefore, it is clearly a question of an indepe ndent claim that Argentina is making at this
stage of the proceedings and one which it did not ma ke in the original dispute although it could have
done so, since Argentina itself acknowledges that that f actor had already been in effect for more than
ten years.
186. In seeking support for its arguments, Argentina repe atedly asserts that the factor of 1.56 is an
aspect that has changed relative to the PBS or an aspect of the measure taken to comply that has
changed relative to the original measure. 75 However, it is a factor that has been in existence since
1993 and which in its present form has been in e ffect since 1996, as Argentina itself observes in its
First Written Submission.76
187. It should be pointed out that in all the texts cited in this dispute, the factor is always similarly
expressed. Thus, for determining the duties and rebates for wheat flour, "the duties and rebates
determined for wheat shall be multiplied by a factor of 1.41"77 or "there shall be applied the duties and

71 If in 1984 any goods had entered at a c.i.f. price of 100 dollars per tonne, they would have had to pay
35 dollars per tonne in duty (35 per cent ad valorem). Other goods entered in 2004 at a c.i.f. price of 583.40
dollars per tonne would have had to pay 35 dollars per tonne in duty (6 per cent ad valorem). In no way can it
be concluded from this equality of the duty on both cons ignments that the conditions of access were the same in
1984 and 2004.
72 Paragraph 247 of the Rebuttal.
73 Paragraph 228 of the Rebuttal.
74 Paragraph 229 of the Rebuttal.
75 For example, paragraphs 271, 278, 281, 282 of the Rebuttal.
76 Paragraph 232 of Argentina's First Written Submission.
77 Law 19.193.

rebates determined for wheat multiplied by a factor of 1.56". 78 In other words, as a mathematical
calculation.
188. Despite the above, Argentina adds a new element by maintaining that the "basis" on which the
factor of 1.56 is applied is different under the scheme introduced by Law 19.897 and its Regulations
and is therefore a new aspect of the modified measure.
189. However, in its First Written Submission Argentin a bases its claim mainly on the fact that the
factor in question translates into the application to a product (wheat flour) of specific duties which,
rather than being linked to that product, are derived from the duties applied to another product
(wheat), adding that the price relationship between the two could be based on a technical production
ratio between flour and wheat. Moreover, in Argen tina's opinion, "this relationship is valid at
international level".79 Argentina concludes by stating that, in its own case, this technical ratio would
be approximately 1.3, "that is, the price of wheat flour is approximately 30 per cent higher than that of
wheat".
190. In its Rebuttal, Argentina adds a new element never previously mentioned. According to
Argentina, the difference between now and the PBS is that the factor is applied on a completely
different basis. Consequently, the result of applying it is also different. Therefore, it is a changed
aspect that can be included within the terms of reference of the present Panel.
191. As an initial response, it should be pointed out that what Argentina originally questioned was
the factor of 1.56, whereas now it is questioning the b asis on which the factor is applied. In Chile's
opinion, these are two very different things and certa inly in most of its submissions Argentina has
sought to question the basis on which the specifi c duties are assessed under Law 19.897 (from which
the duties applicable to wheat flour are determined).
192. Then again, a more detailed analysis of US – Countervailing Measures on Certain EC
Products (Article 21.5 – EC) would show that this precedent cannot be used in this case since it
concerns a dispute about subsidies in which the ch ange in the basis of a re-determination is an
essential element for determining the likelihood of subsidization. Finally, any change in the basis will
necessarily affect the result. In this case, the consequences are the same now as under the PBS: an
increase in the specific duties applie d to flour by a factor of 1.56 relative to the duties applied to
wheat, and in its First Written Submission Argentin a questioned this increase for being higher than
the technical ratio which it calculated would be corr ect, i.e., 1.3, and because "in its legislation Chile
has neither explained nor justified in any way the basis on which it was established".80
193. In other words, it would appear that only on 19 April 2006 did Argentina notice that the factor
of 1.56 in effect since 1996 is not transparent and increases the insulation of the domestic market from
international price developments.
194. Chile does not question the right of any Member to raise a new claim relating to an aspect of
the measure taken to comply that constitutes a ne w or changed element of the original measure nor
dispute the validity of the precedents cited in this respect in the Rebuttal, but Argentina bases its
argument on an erroneous premise. As we have shown, the factor of 1.56 is not a new or changed
element of the original measure and therefore Arge ntina should have introduced it into the original
dispute, being precluded from doing so at this late stage.

78 Article 1 of Law 19.897.
79 Paragraph 231 of the Rebuttal.
80 Paragraph 229 of Argentina's First Written Submission.

195. Allowing Argentina to have this "second chance" (as it was called by the Appellate Body in
EC – Bed Linen (Article 21.5 – India) and by the Panel in US – Countervailing Measures on Certain
EC Products (Article 21.5 – EC) ) to take issue with the factor of 1.56 before this Panel would be to
call into question Chile's due process rights to a proper defence of its duties.
(a) Technical basis of the factor of 1.56
196. Without prejudice to the foregoing, Chile will explain the technical reasons for using a factor
of 1.56 to assess the duties or rebates applicable to wheat flour.
197. As Argentina acknowledges when it refers to the ("internationally valid") technical
production ratio, the specific duty or rebate, as appropr iate, for wheat flour is determined simply by
multiplying the duty or rebate in effect for wheat imports by a factor of 1.56. The reason for
increasing the duty (or rebate) by a certain proportion is simply to maintain a similar nominal level of
protection for both products. As is well known, one of the characteri stics of specific duties is that
their impact is inversely proportional to the price of the product. In other words, the greater the value
of the product the less protection the tariff provi des. Wheat flour is a processed product whose
essential raw material is wheat. Therefore, the price of wheat flour will be directly related to the price
of wheat, but will always be higher.
198. If the same specific duty were levied on both products, the protection provided for wheat
flour would be reduced as compared with that for wheat, which would indirectly favour flour imports.
In fact, this is precisely what Argentina does w ith its differential export tax mechanism, which
provides for exports with a higher value added to pa y significantly lower taxes than exports of basic
products, the object being to give industrial exports an artificial advantage.
199. Differential tariffs for products with higher va lue added are a reality throughout the world,
including in Argentina itself. Moreover, there are no rules establishing the precise amount by which
the tariffs on products higher up the processing chain have to be increased. It would be extremely
difficult to arrive at any consensus on this.
200. The factor used by Chile has undergone occasional adjustments to take account of the relation
between the prices of the two products and since 19 96 has been fixed at 1.56. In formulating Law
19.446
81 which set that value consideration was given to the information available at that time.
201. This indicated that between January 1986 a nd December 1995 (the period of application of
the band at that time), the average ratio of th e price of flour to the price of wheat was 1.566. 82
Therefore, this was the factor that was built into the Chilean legislation and it has remained
unchanged ever since.
2. Argentina's claim with respect to the second sentence of Article II:1(b) of the
GATT 1994 likewise does not fall within the terms of reference of the present Panel
202. As Chile has pointed out, Argentina acknowledg es that during the original proceedings it
never raised a claim relating to the second sen tence of Article II:1(b) of the GATT 1994. 83 Therefore,
the discussion should focus on whether it is a question of a claim relating to the new measure or one
relating to the PBS.

81 Exhibit CHL–6.
82 Exhibits CHL–9, 10 and 11.
83 Paragraph 295 of the Rebuttal.

203. As Chile understands it, Argentina is claiming that a violation of Article 4.2 of the Agreement
on Agriculture would automatically translate into a violation of Article II:1(b), second sentence, of the
GATT 1994, insofar as the Member had not incorporat ed the measure in its Schedule. And that
would apply both to the PBS and to any other measure that violates Article 4.2.
204. Accordingly, this is a claim which Argentina should have raised and substantiated in the
original proceedings, because, in accordance with its reasoning in the Rebuttal, the PBS would also
have been found to be in violation of Article II:1(b) once it had been concluded that it was
inconsistent with the aforementioned Article 4.2. However, Argentina did not do so and cannot raise
the claim before this Panel.
205. Contrary to what Argentina maintains, Chile's due process rights are being seriously impaired
by this decision to introduce at this stage a substa ntive claim such as that relating to Article II:1(b),
second sentence. Argentina, on the other hand, appears to rely on the reference cited in paragraph 310
of its Rebuttal. But this relates to arguments which could not be rebutted in good time and not to
claims, as in the present case.
206. Consequently, Argentina's claims relating to the factor of 1.56 and to the alleged
inconsistency with the second sentence of Article II: 1(b) of the GATT 1994 fall outside the terms of
reference of the present Panel, insofar as they con cern aspects relating to the original measure (PBS)
which Argentina could have raised in the original dispute but did not.
VI. CONCLUSION
207. Argentina has been unable to show that the current scheme based on Law 19.897 is
preventing the transmission of international prices to the Chilean market or restricting the volume of
imports. On the contrary, it insists that there is a la ck of transparency and predictability in irrelevant
aspects of the scheme in force. Chile has shown that the lack of transparency and predictability of
certain aspects of the PBS were called into ques tion precisely because they led to the insulation of
domestic prices. These defects having been corr ected and other changes introduced, the current
scheme does not produce the effects which Appellate Body identified as being the common object and
purpose of the measures listed in Article 4.2 of th e Agreement on Agriculture. Argentina has been
unable to prove that Law 19.897 and its Regulations generate those effects.
208. As a last resort, Argentina claims that Ch ile should have abolished its PBS because the
Appellate Body so established. 84 Even though we may agree with the Appellate Body that duties
resulting from the application of a measure inconsis tent with Article 4.2. of the Agreement on
Agriculture cannot go on being levied, the fact that the current system based on Law 19.897 and its
Regulations is not inconsistent with that provision allows Chile to continue levying any specific duties
that may be applicable.
209. Furthermore, it should be recalled that, as stated in the Article 21.3 arbitration in EC – Poultry
Cuts, "the implementing Member has a measure of discretion in selecting the means of
implementation that it deems most appropriate". 85 Therefore, Argentina cannot oblige Chile to
comply in a particular way with the recommendations and rulings of the DSB.
210. Members of the Panel, Law 19.897 and its sub sequent Regulations established a mechanism
which on the basis of transparent and predictable parameters makes it possible to establish specific
duties or rebates, or neither of the two, on wh eat and wheat flour in accordance with world market

84 Paragraph 317 of the Rebuttal.
85 EC – Poultry Cuts (Article 21.3) , Award of the Arbitrator (WT/DS269/13 and WT/DS286/15),
paragraph 49.

developments, including references to one of the mark ets of most concern, namely, that of Argentina.
These duties or rebates remain unchanged for two mont hs, which allows varia tions in international
prices to be reflected in domestic prices. Thus, if the international price falls, the internal price falls
by a similar amount and if the intern ational price rises, the internal pr ice rises in the sa me way. This
is not what variable import levies or minimum import prices do.
211. Therefore, the system in force in Chile up to 2014 is not inconsistent with Article 4.2 of the
Agreement on Agriculture and hence does not violat e paragraph 4 of Article XVI of the Marrakesh
Agreement Establishing the World Trade Organizati on. Chile requests the present Panel to find
accordingly, while rejecting Argentina's claims in relation to the alle ged inconsistency with
Article II:1(b), second sentence, of the GATT 1994 and in relation to the factor of 1.56 for wheat
flour, inasmuch as neither was properly brought before it.