98/618/EC: Commission Decision of 23 October 1998 under the provisions of Council Regulation (EC) No 3286/94 concerning measures maintained by the Republic of Argentina on the export of bovine hides and the import of finished leather (notified under document number C(1998) 3206)
Date: 1998-10-23
Institutions: European Commission
Subjects: Argentina, cattle, export, leather, leather industry, restriction on competition

L 295/46

EN

Official Journal of the European Communities

4. 11. 98

COMMISSION DECISION

of 23 October 1998

under the provisions of Council Regulation (EC) No 3286/94 concerning meas-
ures maintained by the Republic of Argentina on the export of bovine hides and
the import of finished leather

(notified under document number C(1998) 3206)

(98/618/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 3286/94 of
22 December 1994 laying down Community procedures
in the field of the common commercial policy in order to
ensure the exercise of
the Community’s rights under
international trade rules, in particular those established
under the auspices of
the World Trade Organisation
(WTO) (1), as amended by Regulation (EC) No 356/95 (2),
and in particular Articles 13 and 14 thereof,

After consulting the Advisory Committee,

Whereas:

(1)

(2)

A. PROCEDURE

On 8 January 1997 the Commission received a
complaint pursuant to Article 4 of Regulation (EC)
No 3286/94 (hereafter
‘Regulation'). The
complaint was lodged by Cotance, the Confedera-
tion of National Associations of Tanners and
Dressers of the European Community, on behalf of
those of its members that are engaged in produc-
tion and/or finishing of bovine leather.

the

The complainant alleged that a number of Argen-
tinian measures on the export of raw and semi-
tanned bovine hides and the import of finished
leather are inconsistent with several provisions of
the Agreement establishing the World Trade
Organisation (hereafter ‘WTO Agreement') and its
Annexes and that
these measures are causing
adverse trade effects to its member companies. On
that basis the complainant asked the Commission
to take the necessary actions to convince Argentina
to repeal these practices consisting of: (a) a de facto
export ban on raw hides;
(b) a customs control
procedure for raw hides in which experts of the
Argentinian tanning industry participate;
the
payment of additional value added tax and a stat-

(c)

(3)

(4)

(5)

istic duty on finished leather imports; and (d) the
advance payment of turnover tax when importing
finished leather.

The complaint contained sufficient prima facie
evidence to justify the initiation of a Community
examination procedure pursuant to Article 8 of the
Regulation. Consequently, an examination pro-
cedure was initiated on 26 February 1997 (3).

Following the initiation of the Community exam-
ination procedure the Commission conducted an
in-depth legal and factual investigation. Based on
the findings of this investigation the Commission
reached the conclusions which are indicated below.

B. FINDINGS REGARDING THE EXISTENCE OF

AN OBSTACLE TO TRADE

The investigation revealed that
the Argentinian
export regime for raw and semi-tanned bovine
hides operate as a de facto export prohibition. It
appears that, since 1972, the Argentinian author-
ities have shown a constant will to prohibit the
export of raw and semi-tanned bovine hides by
means of
various measures, which all have
succeeded in considerably restricting and finally
making impossible the export of raw and semi-
tanned bovine hides. Before 1972 there were
regular and important trade flows in hides between
Argentina and the Community.

that

The fact
this export regime succeeded in
reaching its objective is demonstrated by the
following elements: (a) the Argentinian authorities
admit that there have been no (legal) exports of raw
and semi-tanned bovine hides since 1987; (b) hide
traders state that it is impossible to buy hides in
Argentina for export purposes; and (c) the Argen-
tinian tanning industry admits that the Argentinian
hide market is not a free market. Furthermore, by
availing themselves of Article XI:2(a) of GATT

(1) OJ L 349, 31. 12. 1994, p. 71.
(2) OJ L 41, 23. 2. 1995, p. 3.

(3) OJ C 59, 26. 2. 1997, p. 6.

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1994, which is an exemption to the obligation not
to maintain prohibitions or restrictions on exports,
the Argentinian authorities appear to suggest that
the country is maintaining an export prohibition,
or at least export restrictions, in the sense of Article
XI:1. Finally, an analysis based on Argentinian and
US prices shows that, even after allowing for the
export duty on bovine hides which exists in Argen-
tina,
should
the price of Argentinian hides
normally have reached a level at which it would
have been possible to export.

factual evidence indicates

that Argentina
This
maintains a de facto ban on the export of raw and
semi-tanned bovine hides. Moreover, the invest-
igation uncovered at least one government measure
(namely the authorisation granted to the tanning
industry to participate in customs control proced-
ures of hides before export) designed to enforce this
ban. Export prohibitions
are
expressly ruled out by Article XI of GATT 1994.
This provision thus provides the Community a
right of action within the meaning of Article 2(1) of
the Regulation against Argentina.

restrictions

or

(6)

(7)

Personnel appointed by the Argentinian chamber
for the tanning industry are authorised to assist the
Argentinian customs authorities in carrying out
customs controls of raw and semi-tanned bovine
hides before exports. Apart from being part of the
export regime designed to make exports of hides
impossible, this practice is in itself challengable
under the provisions of GATT 1994. The participa-
tion of representatives of an industry which has an
obvious interest in impeding the export of its raw
material does not guarantee the impartial manage-
ment of such procedure in the sense of Article
X:3(a) of GATT 1994.

Therefore, with regard to this practice Article X:3(a)
of GATT 1994 read in conjunction with Article
XI:1 constitute international trade rules conferring
on the Community a right of action within the
meaning of Article 2(1) of the Regulation.

Argentina applies an ‘additional VAT' of 9 % on
imported products. In practice this means that the
VAT rate for imported goods is 30 % instead of
21 % for goods purchased on the domestic market.
The VAT rate for imported goods is thus discrim-
inatory when compared to the rate applied on
domestic sales. The fact that the ‘additional' VAT is
only an instalment that can be deducted from the
this
settlement of VAT does not affect
final
analysis. Therefore the additional VAT is to be
considered as a breach of the national treatment
principle enshrined in Article III:2 of GATT 1994

rule
which constitutes
conferring the Community a right of action within
the meaning of Article 2(1) of the Regulation.

an international

trade

(8)

(9)

(10)

Operators who import foreign goods into Argen-
tina must pay an ‘advance turnover tax' of 3 % of
the price of the goods. Although it is treated as a
credit for the taxpayer when he presents his tax
declaration it clearly implies a discrimination in
favour of Argentinian input material for the manu-
facture and finished consumer goods. Therefore,
also with regard to this ‘advance turnover tax',
Article III:2 of GATT 1994 constitutes an inter-
national trade rule conferring the Community a
right of action within the meaning of Article 2(1) of
the Regulation.

these
Under
considers that
well-founded.

the Commission
circumstances
the complainant’s allegations are

The Commission nonetheless considers that refer-
ence to the above legal bases does not rule out
recourse to any other pertinent provision of the
WTO Agreement and of the Agreements annexed
to it, which could be of use in procedures before
the WTO.

C. FINDINGS REGARDING ADVERSE TRADE

EFFECTS

(11) At present, the export prohibition makes it totally
impossible for Community tanners to purchase raw
bovine hides in Argentina, although this invest-
igation has
reasons,
Community
interested in
sourcing bovine hides from Argentina.

shown that,
tanneries

various

very

are

for

(12) Despite Argentina’s important hide production, its
contribution to international trade in bovine hides
is negligible. Argentina’s
absence from inter-
national trade in this commodity reduces the inter-
national availability of
this product and conse-
quently affects the Community tanning sector’s
security of supply.

(13)

(14)

The Argentinian measures on the export of bovine
hides entail a further risk of further proliferation of
export
regard, Argentina’s
In this
Mercosur partners may be a matter for concern.

restrictions.

The Community tanning sector depends heavily on
imported hides. As a result of export restrictions
maintained by Argentina and subsequently by
tanneries need more supplying
other countries,
countries for an ever growing part of their supplies,
which implies increasing uncertainty and addi-
tional costs.

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(15) As a result of the export measures, the Argentinian
market is insulated from the casual movements of
world market prices, which leads to an artificial
reduction of the local price for Argentinian hides.

(16)

Because raw material prices are artificially low,
Argentinian tanners have a cost advantage over
foreign manufacturers that have to pay prices influ-
enced by the world markets. Given the high share
of raw material in leather production costs, the cost
advantage of Argentinian tanners
therefore
considerable. It is therefore established that, with
an artificially cheap raw material, Argentinian
bovine leather
their EC
competitors substantially.

tanners can undercut

is

(17) Argentina has significantly increased its exports of
finished leather since the implementation of export
restrictions as from 1972. Since the Argentinian
from a considerable
leather producers benefit
unfair competitive advantage,
it is clear that an
important part of their export successes stem from
this advantage. Under normal and fair circum-
stances of competition, Community tanners could
at least have held part of the market shares that are
now held by Argentinian leather throughout the
world.

(18) Most EC bovine leather tanners have lost market
shares in the Community since the beginning of
the decade, while Argentina increased its market
share in a number of Community Member States.
Here again parts of these market share gains are
due to the Argentinian tanners’ unfair competitive
advantage.

(19)

and endanger

in these products

The Argentinian measures on exports of raw and
semi-tanned bovine hides seriously impede trade
the
flows
Community tanning industry’s security of supply
in raw materials. They also result
in an unfair
competitive
for Argentinian leather
advantage
producers, which allows them to undercut prices of
their EC competitors. Therefore, the Commission
concluded that abovementioned effects do consti-
tute adverse trade effects within the meaning of
Article 2(4) of
the
Commission found that, as in the event of an
Argentinian
of
Community leather they may discourage processors
from buying Community leather,
the additional
VAT on imports and the advance payment of
income tax raised on imports result in potentially
adverse trade effects that are likely to develop into
actual trade effects within the meaning of Article
2(4) of the Regulation.

the Regulation. Moreover,

upswing

demand

the

in

(20)

(21)

(22)

(23)

(24)

D. COMMUNITY INTEREST

Ensuring that WTO partners fully comply with
their obligations is of the utmost importance for
the Community which has committed itself to the
same obligations.

react against

the Community does not

the
If
present barriers to trade, the number of countries
maintaining export restrictions or prohibitions may
increase further in the coming years, adding new
and severe distortions to trade, which will further
affect Community producers of leather.

The Argentinian practices affect a Community
tanning industry which is faced with increasing
low-cost competition from Asian and Latin Amer-
ican tanners. In a world leather market where the
number of participants is growing,
the market
share available to each is getting smaller and
smaller. In such a context any unfair competitive
advantage leads to severe market distortions, and
should therefore effectively be challenged.

E. CONCLUSIONS AND MEASURES TO BE

TAKEN

The investigation has established that it will take
no remedy other than a radical change in the
regime applicable in Argentina to exports of bovine
hides and imports of finished leather to eliminate
the actual and potential adverse trade effects of
abovementioned obstacles to trade.

Intensive discussions have been held with the rel-
evant Argentinian authorities to discuss this matter
further aimed at finding an amicable solution to
the problems concerning hide and leather trade.
More particularly, the Commission services met the
Argentinian authorities on 30 and 31 March 1998
in Buenos Aires. On this occasion, the Argentinian
authorities agreed to the objective of fully liber-
alising their hide exports by January 2000 and
accepted to notify the phasing out scheme of the
export
tax on bovine hides to the WTO. The
Argentinian authorities also showed a certain flex-
ibility and agreed to explore the possible means to
regulation authorising the
amend the customs
Argentinian leather
industry to participate in
customs control of hides before export.

However, despite their expressed willingness to
find a mutually satisfactory solution and after five
months of discussing the modalities of such a solu-
tion with the Commission, the Argentinian author-

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ities have so far failed to notify their objective of
fully liberalising trade in hides and the phasing out
scheme of the export tax on bovine hides to the
WTO, and have not yet amended the Regulation
on customs control of hides before export.

(25)

In these circumstances, it appears that the interests
of
for initiation of WTO
dispute settlement proceedings,

the Community call

HAS DECIDED:

Article 1

The tacit export prohibition on bovine hides, the
1.
participation of representatives of the tanning industry in
customs control procedures of hides before export, the
additional value added tax on imported products and the
turnover tax maintained by the
advance payment of
Republic of Argentina constitute an ‘obstacle to trade'

within the meaning of Article 2 of Council Regulation
(EC) No 3286/94.

2.
The Community will commence action against the
Republic of Argentina under the Understanding on the
Rules and Procedures for the Settlement of Disputes and
other relevant WTO provisions with a view to securing
removal of the obstacle to trade.

Article 2

This Decision shall apply from the date of its publication
in the Official Journal of the European Communities.

Done at Brussels, 23 October 1998.

For the Commission

Leon BRITTAN

Vice-President