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I. Preamble back to top
A. Text of the Preamble
Members,
Having decided to establish a basis for initiating a process of
reform of trade in agriculture in line with the objectives of the
negotiations as set out in the Punta del Este Declaration;
Recalling that their long-term objective as agreed at the Mid-Term
Review of the Uruguay Round “is to establish a fair and
market-oriented agricultural trading system and that a reform process
should be initiated through the negotiation of commitments on support
and protection and through the establishment of strengthened and more
operationally effective GATT rules and disciplines”;
Recalling further that “the
above mentioned long-term objective
is to provide for substantial progressive reductions in agricultural
support and protection sustained over an agreed period of time,
resulting in correcting and preventing restrictions and distortions in
world agricultural markets”;
Committed to achieving specific binding commitments in each of the
following areas: market access; domestic support; export competition;
and to reaching an agreement on sanitary and phytosanitary issues;
Having agreed that in implementing their commitments on market
access, developed country Members would take fully into account the
particular needs and conditions of developing country Members by
providing for a greater improvement of opportunities and terms of
access for agricultural products of particular interest to these
Members, including the fullest liberalization of trade in tropical
agricultural products as agreed at the Mid-Term Review, and for
products of particular importance to the diversification of production
from the growing of illicit narcotic crops;
Noting that commitments under the reform programme should be made
in an equitable way among all Members, having regard to non-trade
concerns, including food security and the need to protect the
environment; having regard to the agreement that special and
differential treatment for developing countries is an integral element
of the negotiations, and taking into account the possible negative
effects of the implementation of the reform programme on
least-developed and net food importing developing countries;
B. Interpretation and Application of the Preamble
1. “objectives of the negotiations as set out in the Punta del
Este Declaration”
1. The objectives of the Uruguay Round negotiations in the
agriculture sector are set out in the Ministerial Declaration on the
Uruguay Round.(1)
2. Long-term objective of the reform process and the Mid-Term Review
2. At the Mid-Term Review of the Uruguay Round, Ministers agreed on
the long-term objective of the Uruguay Round negotiations in the
agriculture sector.(2)
Part I
II. Article 1
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A. Text of Article 1
Article 1: Definition of Terms
In this Agreement, unless the context otherwise requires:
(a) “Aggregate Measurement of Support” and “AMS” mean the
annual level of support, expressed in monetary terms, provided for an
agricultural product in favour of the producers of the basic
agricultural product or non-product-specific support provided in
favour of agricultural producers in general, other than support
provided under programmes that qualify as exempt from reduction under
Annex 2 to this Agreement, which is:
(i) with respect to support provided during the base period,
specified in the relevant tables of supporting material incorporated
by reference in Part IV of a Member’s Schedule; and
(ii) with respect to support provided during any year of the
implementation period and thereafter, calculated in accordance with
the provisions of Annex 3 of this Agreement and taking into account
the constituent data and methodology used in the tables of supporting
material incorporated by reference in Part IV of the Member’s
Schedule;
(b) “basic agricultural product” in relation to domestic
support commitments is defined as the product as close as practicable
to the point of first sale as specified in a Member’s Schedule and
in the related supporting material;
(c) “budgetary outlays” or “outlays” includes revenue
foregone;
(d) “Equivalent Measurement of Support” means the annual level
of support, expressed in monetary terms, provided to producers of a
basic agricultural product through the application of one or more
measures, the calculation of which in accordance with the AMS
methodology is impracticable, other than support provided under
programmes that qualify as exempt from reduction under Annex 2 to this
Agreement, and which is:
(i) with respect to support provided during the base period,
specified in the relevant tables of supporting material incorporated
by reference in Part IV of a Member’s Schedule; and
(ii) with respect to support provided during any year of the
implementation period and thereafter, calculated in accordance with
the provisions of Annex 4 of this Agreement and taking into account
the constituent data and methodology used in the tables of supporting
material incorporated by reference in Part IV of the Member’s
Schedule;
(e) “export subsidies” refers to subsidies contingent upon
export performance, including the export subsidies listed in Article 9
of this Agreement;
(f) “implementation period” means the six-year period
commencing in the year 1995, except that, for the purposes of Article
13, it means the nine-year period commencing in 1995;
(g) “market access concessions” includes all market access
commitments undertaken pursuant to this Agreement;
(h) “Total Aggregate Measurement of Support” and “Total AMS”
mean the sum of all domestic support provided in favour of
agricultural producers, calculated as the sum of all aggregate
measurements of support for basic agricultural products, all
non-product-specific aggregate measurements of support and all
equivalent measurements of support for agricultural products, and
which is:
(i) with respect to support provided during the base period (i.e.
the “Base Total AMS”) and the maximum support permitted to be
provided during any year of the implementation period or thereafter
(i.e. the “Annual and Final Bound Commitment Levels”), as
specified in Part IV of a Member’s Schedule; and
(ii) with respect to the level of support actually provided during
any year of the implementation period and thereafter (i.e. the “Current
Total AMS”), calculated in accordance with the provisions of this
Agreement, including Article 6, and with the constituent data and
methodology used in the tables of supporting material incorporated by
reference in Part IV of the Member’s Schedule;
(i) “year” in paragraph (f) above and in relation to the
specific commitments of a Member refers to the calendar, financial or
marketing year specified in the Schedule relating to that Member.
B. Interpretation and Application of Article 1
1. Article 1(a)(ii)
3. The Panel on Korea
— Various Measures on
Beef, in a finding
later reversed by the Appellate Body(3), agreed with the complainants
that Korea had provided domestic support to its beef industry in
excess of its commitment levels for 1997 and 1998. In its
notifications, Korea had determined that its Current AMS for beef was
below the de minimis threshold as set out in Article
6.4; as a result,
Korea argued, this domestic support item did not have to be included
in the calculation of its Current Total AMS. The Panel found that
Korea’s calculations in this respect were in error. Korea argued
that its calculation was correct, because it was based on the “constituent
data and methodology” used in its Schedule, in accordance with
Articles 1(a)(ii) and 1(h)(ii) of the Agreement on Agriculture. The
Appellate Body, with respect to the calculation of the Current AMS,
first recalled the wording of Article 1(a)(ii)
of the Agreement on
Agriculture which contains the definition of the term “Current AMS”
stating:
“To determine whether Korea’s Current AMS for beef exceeds 10
per cent of total value of beef production, we refer again to Article 1(a)(ii)
of the Agreement on Agriculture, which defines Current AMS.
Under this provision, Current AMS is to be
‘calculated in accordance with the provisions of
Annex 3 of this
Agreement and taking into account the constituent data and methodology
used in the tables of supporting material incorporated by reference in
Part IV of the Member’s Schedule; … (emphasis added)’
Article 1(a)(ii) contains two express requirements for calculating
Current AMS. First, Current AMS is to be ‘calculated in accordance
with the provisions of Annex 3 of this Agreement’. The ordinary
meaning of ‘accordance’ is ‘agreement, conformity, harmony’.(4)
Thus, Current AMS must be calculated in ‘conformity’ with the
provisions of Annex 3. Second,
Article 1(a)(ii) provides that the
calculation of Current AMS is to be made while ‘taking into account
the constituent data and methodology used in the tables of supporting
material incorporated by reference in Part IV of the Member’s
Schedule.’ ‘Take into account’ is defined as ‘take into
consideration, notice’.(5) Thus, when Current AMS is calculated, the
‘constituent data and methodology’ in a Member’s Schedule must
be ‘taken into account’, that is, it must be ‘considered’.(6)”(7)
4. The Appellate Body subsequently held that
Article 1(a)(ii) accorded “higher priority” to the provisions of
Annex 3 than to
“constituent data and methodology” contained in a Member’s
Schedule, but noted that in the case before it, it was not necessary
to decide a conflict between the two, because there was no specific
Korean “constituent data and methodology”. As a result, the
Current AMS was to be calculated in accordance with the provisions of
Annex 3:
“Looking at the wording of Article 1(a)(ii)
itself, it seems to
us that this provision attributes higher priority to ‘the provisions
of
Annex 3’ than to the ‘constituent data and methodology’. From
the viewpoint of ordinary meaning, the term ‘in accordance with’
reflects a more rigorous standard than the term ‘taking into account’.
We note, however, that the Panel did not base its reasoning on this
apparent hierarchy as between ‘the provisions of
Annex 3’ and the
‘constituent data and methodology’.(8) Instead, the Panel considered
that where no support was included in the base period calculation for
a given product, there is no ‘constituent data or methodology’ to
refer to, so that the only means available for calculating domestic
support is that provided in
Annex 3. As beef had not been included in
Supporting Table 6 of Korea’s Schedule LX, Part
IV, Section I, the
Panel concluded that
Annex 3 alone is applicable for the purposes of
calculating current non-exempt support in respect of Korean beef.
In the circumstances of the present case, it is not necessary to
decide how a conflict between ‘the provisions of
Annex 3’ and the
‘constituent data and methodology used in the tables of supporting
material incorporated by reference in Part IV of the Member’s
Schedule’ would have to be resolved in principle. As the Panel has
found, in this case, there simply are no constituent data and
methodology for beef.(9) Assuming arguendo that one would be justified
— in spite of the wording of Article 1(a)(ii)
— to give priority to
constituent data and methodology used in the tables of supporting
material over the guidance of
Annex 3, for products entering into the
calculation of the Base Total AMS, such a step would seem to us to be
unwarranted in calculating Current AMS for a product which did not
enter into the Base Total AMS calculation. We do not believe that the
Agreement on Agriculture would sustain such an extrapolation. We,
therefore, agree with the Panel that, in this case, Current AMS for
beef has to be calculated in accordance with the provisions of
Annex 3, and with these provisions alone.”(10)
5. Further, in Korea
— Various Measures on
Beef, the Panel held
that Korea had calculated its Current AMS for beef on the basis of a
fixed external reference price for the period 1989–1991, rather than
the period 1986–88, as set forth in paragraph 9 of Annex
3. Korea
argued that its use of the period 1989–1991 was justified, because
this period was referred to in the constituent data and methodology
(used with respect to products other than beef) contained in a table
of supporting material incorporated in its Schedule. The Appellate
Body agreed with the Panel and recalled its findings referenced in
paragraph 4 above:
“The Panel found that in both 1997 and 1998 Korea miscalculated
its fixed external reference price, contrary to Article 6 and
paragraph 9 of Annex 3, by using a fixed external reference price
based on data for 1989–1991. Korea justifies this choice by invoking
the ‘constituent data and methodology’ used in its Supporting
Table 6 for all products other than rice, i.e., for barley, soybean,
maize (corn) and rape seeds. In Supporting Table 6, all these products
use the period 1989–1991 for the fixed external reference price.
We have already explained above that we share the Panel’s view
with respect to Korea’s argument on ‘constituent data and
methodology’ used in the table of supporting material. We agree with
the Panel that, in this case, Current AMS for beef has to be
calculated in accordance with
Annex 3. According to
Annex 3, ‘[t]he
fixed external reference price shall be based on the years 1986 to
1988’. We, therefore, also agree with the Panel that in calculating
the product specific AMS for beef for the years 1997 and 1998, Korea
should have used an external reference price based on data for
1986–1988, instead of data for 1989–1991.”(11)
2. Article 1(e)
(a) Definition of the term “subsidy”
6. In Canada
— Dairy, the Appellate Body recalled its finding in
Canada — Aircraft where it had stated that a subsidy “arises where
the grantor makes a ‘financial contribution’ which confers a ‘benefit’
on the recipient, as compared with what would have been otherwise
available to the recipient in the marketplace”.(12)
7. In US — FSC, the Appellate Body, noting “that the
Agreement on
Agriculture does not contain a definition of the terms ‘subsidy’
or ‘subsidies’”(13), reiterated the approach it followed in
Canada — Dairy as follows:
“Therefore, in this case, we will consider, first, whether the
FSC measure involves a transfer of economic resources by the grantor,
which in this dispute is the government of the United States, and,
second, whether any transfer of economic resources involves a benefit
to the recipient.”(14)
8. As regards the definition of a subsidy under the
SCM Agreement,
see Section I.B.2(a) of the Chapter on the SCM Agreement.
(b) “contingent upon export performance”
9. In US — FSC, the Appellate Body interpreted the requirement of
export contingency also with reference to the SCM Agreement, stating
that:
“We see no reason, and none has been pointed out to us, to read
the requirement of ‘contingent upon export performance’ in the
Agreement on Agriculture differently from the same requirement imposed
by the SCM Agreement. The two Agreements use precisely the same words
to define ‘export subsidies’. Although there are differences
between the export subsidy disciplines established under the two
Agreements, those differences do not, in our view, affect the common
substantive requirement relating to export contingency. Therefore, we
think it appropriate to apply the interpretation of export contingency
that we have adopted under the SCM Agreement to the interpretation of
export contingency under the Agreement on Agriculture.”(15)
10.
As regards the concept of export contingency under the
SCM Agreement, see Section III.B.1 of the Chapter on the SCM
Agreement.
3. Article 1(h)
11.
In Korea
— Various Measures on Beef, the Panel and the
Appellate Body addressed Korea’s argument that its method for
calculation of domestic support was justifiable because it was based
upon “the constituent data and methodology used in the tables of
supporting material incorporated by reference in Part IV of the Member’s
Schedule”, although it was not consistent with the methodology set
out in Annex 3 to the Agreement on Agriculture. See
paragraphs 3–5 above.
III. Article 2
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A. Text of Article 2
Article 2: Product Coverage
This Agreement applies to the products listed in
Annex 1 to this Agreement, hereinafter referred to as agricultural products.
B. Interpretation and Application of Article 2
No jurisprudence or decision of a
competent WTO body.
Part II
IV. Article 3
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A. Text of
Article 3
Article 3: Incorporation of Concessions and Commitments
1. The domestic support and export subsidy commitments in Part IV
of each Member’s Schedule constitute commitments limiting
subsidization and are hereby made an integral part of GATT 1994.
2. Subject to the provisions of
Article 6, a Member shall not
provide support in favour of domestic producers in excess of the
commitment levels specified in Section I of Part IV of its Schedule.
3. Subject to the provisions of
paragraphs 2(b) and 4 of Article
9,
a Member shall not provide export subsidies listed in paragraph 1 of
Article 9 in respect of the agricultural products or groups of
products specified in Section II of Part IV of its Schedule in excess
of the budgetary outlay and quantity commitment levels specified
therein and shall not provide such subsidies in respect of any
agricultural product not specified in that Section of its Schedule.
B. Interpretation and Application of Article 3
1. Article 3.2
12.
In Korea — Various Measures on Beef, examining whether Korea’s
domestic support to its cattle industry was consistent with Articles
3, 6 and 7 of the Agreement on Agriculture, the Panel indicated, in a
statement subsequently not reviewed by the Appellate Body:
“It is, therefore, clear that Article 3 provides that support in
favour of domestic producers (and here explicit reference is made to
‘subject to Article 6’) cannot exceed the level of support
provided for in a Member’s schedule. So, when assessing the WTO
compatibility of domestic support, two parameters are indicated: first
the provisions of Article 6 which refer to the object of those same
‘commitments’ on domestic support; and second, Section I of Part
IV of a Member’s schedule.”(16)
2. Article 3.3
13.
With respect to Members’ export subsidy commitments and
related waivers, see also paragraphs 54–80
below.
14.
In US
— FSC, the Appellate Body explained the obligations set
forth in Article 3.3 by distinguishing two distinct types of “commitments”:
“Under Article 3, Members have undertaken two different types of
‘export subsidy commitments’. Under the first clause of Article 3.3, Members have made a commitment that they will not ‘provide
export subsidies listed in paragraph 1 of Article 9 in respect of the
agricultural products or groups of products specified in Section II of
Part IV of its Schedule in excess of the budgetary outlay and quantity
commitments levels specified therein’. This is the commitment for
scheduled agricultural products.
…
Under the second clause of Article 3.3, Members have committed
not
to provide any export subsidies, listed in Article 9.1, with respect
to unscheduled agricultural products. This clause clearly also
involves ‘export subsidy commitments’ within the meaning of
Article 10.1. Our interpretation of this term is confirmed by the
title of Article 9, which is ‘Export Subsidy Commitments’.
Consistently with our reading of that term, Article 9.1 relates both
to (1) the commitments made for scheduled agricultural products, under
the first clause of Article 3.3, and to (2) the general prohibition,
in the second clause of Article 3.3, against providing export
subsidies listed in Article 9.1 to unscheduled agricultural products.”(17)
15.
The Appellate Body on
US — FSC further stated that with regard
to unscheduled products, Members are prohibited from providing any
export subsidies, while in respect of scheduled agricultural products
the “nature of the commitment made under the first clause of Article 3.3
is different”:
“With respect to unscheduled agricultural products, Members are
prohibited under Article 3.3 from providing any export subsidies as
listed in Article 9.1.
Article 10.1 prevents the application of export
subsidies which ‘results in, or which threatens to lead to,
circumvention’ of that prohibition. Members would certainly have ‘found
a way round’, a way to ‘evade’, this prohibition if they could
transfer, through tax exemptions, the very same economic resources
that they are prohibited from providing in other forms under Articles 3.3 and 9.1. Thus, with respect to the prohibition against providing
subsidies listed in Article 9.1 on unscheduled agricultural products,
we believe that the FSC measure involves the application of export
subsidies, not listed in Article 9.1, in a manner that, at the very
least, ‘threatens to lead to circumvention’ of that ‘export
subsidy commitment’ in Article 3.3.
With respect to scheduled agricultural products, the nature of the
commitment made under the first clause of Article 3.3
is different.
Members are not subject to a general prohibition against providing
export subsidies as listed in Article 9.1; rather, there is a limited
authorization for Members to provide such subsidies up to the level of
the reduction commitments specified in their Schedule.
…
As regards scheduled products, when the specific reduction
commitment levels have been reached, the limited authorization to
provide export subsidies as listed in Article 9.1
is transformed,
effectively, into a prohibition against the provision of those
subsidies.
…
In our view, Members would have found ‘a way round’, a way to
‘evade’, their commitments under Articles 3.3 and
9.1, if they
could transfer, through tax exemptions, the very same economic
resources that they were, at that time, prohibited from providing
through other methods under the first clause of Article 3.3 and under
9.1.”(18)
Part III
V. Article 4
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A. Text of
Article 4
Article 4: Market Access
1. Market access concessions contained in Schedules relate to
bindings and reductions of tariffs, and to other market access
commitments as specified therein.
2. Members shall not maintain, resort to, or revert to any measures
of the kind which have been required to be converted into ordinary
customs duties(1), except as otherwise provided for in Article 5 and
Annex 5.
(footnote original) 1 These measures include quantitative import
restrictions, variable import levies, minimum import prices,
discretionary import licensing, non-tariff measures maintained through
state-trading enterprises, voluntary export restraints, and similar
border measures other than ordinary customs duties, whether or not the
measures are maintained under country-specific derogations from the
provisions of GATT 1947, but not measures maintained under
balance-of-payments provisions or under other general,
non-agriculture-specific provisions of GATT 1994 or of the other
Multilateral Trade Agreements in Annex 1A to the WTO
Agreement.
B. Interpretation and Application of Article 4
1. General
(a) Purpose of Article 4
16.
In Chile
— Price Band System, the Appellate Body explained the
background of the negotiations which produced the text of Article
4,
“which is the main provision of Part III of the Agreement on
Agriculture”, and indicated that Article 4 “is appropriately
viewed as the legal vehicle for requiring the conversion into ordinary
customs duties of certain market access barriers affecting imports of
agricultural products”:
“[W]e turn now to Article
4, which is the main provision of Part
III of the Agreement on Agriculture. As its title indicates, Article 4
deals with ‘Market Access’.(19) During the course of the Uruguay
Round, negotiators identified certain border measures which have in
common that they restrict the volume or distort the price of imports
of agricultural products. The negotiators decided that these border
measures should be converted into ordinary customs duties, with a view
to ensuring enhanced market access for such imports. Thus, they
envisioned that ordinary customs duties would, in principle, become
the only form of border protection. As ordinary customs duties are
more transparent and more easily quantifiable than non-tariff
barriers, they are also more easily compared between trading partners,
and thus the maximum amount of such duties can be more easily reduced
in future multilateral trade negotiations. The Uruguay Round
negotiators agreed that market access would be improved — both in the
short term and in the long term — through bindings and reductions of
tariffs and minimum access requirements, which were to be recorded in
Members’ Schedules.
Thus, Article 4 of the Agreement on Agriculture is appropriately
viewed as the legal vehicle for requiring the conversion into ordinary
customs duties of certain market access barriers affecting imports of
agricultural products …”(20)
(b) Notification requirements
17.
With respect to the notification requirements concerning tariff
quotas and other quotas, see paragraph 116
below.(21)
2. Article 4.1
18.
In EC
— Bananas III, the Appellate Body upheld the Panel’s
finding that Article 4.1 cannot be interpreted so as to allow an
inconsistency with GATT Article XIII of the European Communities
import scheme for bananas. See paragraph 126
below.
3. Article 4.2
(a) “any measures which have been required to be converted into
ordinary customs duties”
(i) Interpretation
Ordinary meaning in its context and in light of its object and
purpose
19.
In Chile
— Price Band System, the Appellate Body interpreted
the ordinary meaning of the phrase “measures which have been
required to be converted into ordinary customs duties”, in its
context and in light of its object and purpose.(22) The Appellate Body
first focussed on the present perfect tense in that phrase (“have
been required”) and considered that “Article 4.2 was drafted in
the present perfect tense to ensure that measures that were required
to be converted as a result of the Uruguay Round — but that had not
been converted — could not be maintained, by virtue of that Article,
from the date of the entry into force of the WTO Agreement on 1
January 1995”. The Appellate Body therefore concluded that this
phrase could not be interpreted as limiting the obligation “only to
those measures which were actually converted, or were requested to be
converted, into ordinary customs duties by the end of the Uruguay
Round”:
“Article 4.2 of the Agreement on Agriculture should be
interpreted in a way that gives meaning to the use of the present
perfect tense in that provision — particularly in the light of the
fact that most of the other obligations in the Agreement on
Agriculture and in the other covered agreements are expressed in the
present, and not in the present perfect, tense. In general,
requirements expressed in the present perfect tense impose obligations
that came into being in the past, but may continue to apply at
present.(23) As used in
Article 4.2, this temporal connotation relates
to the date by which Members had to convert measures covered by
Article 4.2 into ordinary customs duties, as well as to the date from
which Members had to refrain from maintaining, reverting to, or
resorting to, measures prohibited by Article 4.2. The conversion into
ordinary customs duties of measures within the meaning of Article 4.2
began during the Uruguay Round multilateral trade negotiations,
because ordinary customs duties that were to ‘compensate’ for and
replace converted border measures were to be recorded in Members’
draft WTO Schedules by the conclusion of those negotiations. These
draft Schedules, in turn, had to be verified before the signing of the
WTO Agreement on 15 April 1994. Thereafter, there was no longer an
option to replace measures covered by Article 4.2
with ordinary
customs duties in excess of the levels of previously bound tariff
rates. Moreover, as of the date of entry into force of the WTO
Agreement on 1 January 1995, Members are required not to ‘maintain,
revert to, or resort to’ measures covered by Article 4.2
of the
Agreement on Agriculture.
If Article 4.2 were to read ‘any measures of the kind which
are
required to be converted’, this would imply that if a Member — for
whatever reason — had failed, by the end of the Uruguay Round
negotiations, to convert a measure within the meaning of Article 4.2,
it could, even today, replace that measure with ordinary customs
duties in excess of bound tariff rates.(24) But, as Chile and Argentina
have agreed, this is clearly not so. (footnote omitted) It seems to us
that Article 4.2 was drafted in the present perfect tense to ensure
that measures that were required to be converted as a result of the
Uruguay Round — but were not converted — could not be maintained, by
virtue of that Article, from the date of the entry into force of the
WTO Agreement on 1 January 1995.
Thus, contrary to what Chile argues, giving meaning and effect to
the use of the present perfect tense in the phrase ‘have been
required’ does not suggest that the scope of the phrase ‘any
measures of the kind which have been required to be converted into
ordinary customs duties’ must be limited only to those measures
which were actually converted, or were requested to be converted, into
ordinary customs duties by the end of the Uruguay Round. Indeed, in
our view, such an interpretation would fail to give meaning and effect
to the word ‘any’ and the phrase ‘of the kind’, which are
descriptive of the word ‘measures’ in that provision. A plain
reading of these words suggests that the drafters intended to cover a
broad category of measures. We do not see how proper meaning and
effect could be accorded to the word ‘any’ and the phrase ‘of
the kind’ in Article 4.2 if that provision were read to include only
those specific measures that were singled out to be converted into
ordinary customs duties by negotiating partners in the course of the
Uruguay Round.”(25)
Footnote 1
20.
The Appellate Body on
Chile — Price Band
System, referred to
the wording of footnote 1 to the Agreement on Agriculture as
confirmation of its interpretation of the phrase “measures which
have been required to be converted into ordinary customs duties”
(see paragraph 19 above):
“The wording of footnote 1 to the Agreement on Agriculture
confirms our interpretation. The footnote imparts meaning to Article 4.2
by enumerating examples of ‘measures of the kind which have been
required to be converted’, and which Members must not maintain,
revert to, or resort to, from the date of the entry into force of the
WTO Agreement. Specifically, and as both participants agree (footnote
omitted), the use of the word ‘include’ in the footnote indicates
that the list of measures is illustrative, not exhaustive. And,
clearly, the existence of footnote 1 suggests that there will be ‘measures
of the kind which have been required to be converted’ that were not
specifically identified during the Uruguay Round negotiations. Thus, in our view, the illustrative nature of this list lends
support to our interpretation that the measures covered by Article 4.2
are not limited only to those that were actually converted, or were
requested to be converted, into ordinary customs duties during the
Uruguay Round.
Footnote 1 also refers to a residual category of ‘similar border
measures other than ordinary customs duties’, which indicates that
the drafters of the Agreement did not seek to identify all ‘measures
which have been required to be converted’ during the Uruguay Round
negotiations. The existence of this residual category confirms our
interpretation that Article 4.2 covers more than merely the measures
that had been specifically identified or challenged by other
negotiating partners in the course of the Uruguay Round.”(26)
Article 5: As Context for Article 4.2
Interpretation
21.
The Appellate Body on
Chile — Price Band System further
indicated that the context of Article 4.2 confirms its interpretation
(see paragraph 19 above). In this regard, the Appellate Body referred
to Article 5.1 as an illustration that “where the drafters of the
Agreement on Agriculture wanted to limit the application of a rule to
measures that have actually been converted, they used specific
language expressing that limitation”:
“[T]he context of Article 4.2
confirms our interpretation.
Article 5.1 of the Agreement on Agriculture, the only provision in
addition to Article 4 that is included in Part III of that Agreement,
specifies that a Member may, under certain conditions, impose a
special safeguard on imports of an agricultural product ‘in respect
of which measures referred to in [Article 4.2] have been converted
into an ordinary customs duty’. (emphasis added) In our view, the
phrase ‘have been required to be converted’ in Article 4.2
has a
broader connotation than the phrase ‘have been converted’ in
Article 5.1.(27) Therefore, it is perfectly apt that
Article 5.1 speaks
of such special safeguards only with respect to those agricultural
products for which measures covered by Article 4.2
‘have been
converted’ — that is, have in fact already been converted — into
ordinary customs duties.
Article 5.1 illustrates that, where the
drafters of the Agreement on Agriculture wanted to limit the
application of a rule to measures that have actually been converted,
they used specific language expressing that limitation.”(28)
22.
The Appellate Body on
Chile — Price Band System further
considered that Article 5 lends contextual support to its
interpretation of
Article 4.2 (see paragraph 19 above) since “the
existence of a market access exemption in the form of a special
safeguard provision under Article 5 implies that
Article 4.2 should
not be interpreted in a way that permits Members to maintain measures
that a Member would not be permitted to maintain but for Article
5”:
“Article 5, also found in Part III of the Agreement on
Agriculture on ‘Market Access’, lends contextual support to our
interpretation of Article 4.2. In our view, the existence of a market
access exemption in the form of a special safeguard provision under Article 5 implies that
Article 4.2 should not be interpreted in a way
that permits Members to maintain measures that a Member would not be
permitted to maintain but for Article
5, and, much less, measures that
are even more trade-distorting than special safeguards. In particular,
if Article 4.2 were interpreted in a way that allowed Members to
maintain measures that operate in a way similar to a special safeguard
within the meaning of Article 5 — but without respecting the
conditions set out in that provision for invoking such measures — it
would be difficult to see how proper meaning and effect could be given
to those conditions set forth in Article 5.(29)”(30)
Subsequent practice
23.
In Chile
— Price Band System, Chile had argued that, in
interpreting this Article 4.2 phrase, it was “highly relevant”
that no country that had a price band system in place before the
conclusion of the Uruguay Round had actually converted it into
ordinary customs duties. The Appellate Body looked into the
possibility that this practice could be considered “subsequent
practice”(31) pursuant to Article 31(3)(b) of the Vienna Convention
and therefore a practice relevant to the interpretation of Article 4.2. The Appellate Body referred to its definition of “subsequent
practice” in its Report in Japan — Alcoholic Beverages(32) and noted
that neither the Panel record nor the submissions of the parties
suggested that there was a discernible pattern of acts or
pronouncements implying an agreement among WTO Members on the
interpretation of Article 4.2. The Appellate Body thus concluded that
this practice of some Members alleged by Chile did not amount to a “subsequent
practice” within the meaning of Article 31(3)(b) of the Vienna
Convention.(33)
(ii) “converted”
24.
In Chile
— Price Band System, the Appellate Body looked at the
meaning of “converted” in the phrase “any measures which have
been required to be converted into ordinary customs duties” and
concluded, on the basis of the dictionary meanings of “convert”
and “converted” that those measures “had to be transformed into
something they were not — namely, ordinary customs duties”. In this
case, Chile had argued that its price band system was not a measure of
the kind which had been required to be converted, but rather a system
for determining the level of the resulting ordinary customs duties.
The Appellate Body considered that the “mere fact that … measures
result in the payment of duties does not exonerate a Member from the
requirement not to maintain, resort to, or revert to those measures”:
“Article 4.2 speaks of ‘measures of the kind which have been
required to be converted into ordinary customs duties’. The word ‘convert’
means ‘undergo transformation’.(34) The word ‘converted’
connotes ‘changed in their nature’, ‘turned into something
different’.(35) Thus, ‘measures which have been required to be
converted into ordinary customs duties’ had to be transformed into
something they were not — namely, ordinary customs duties. The
following example illustrates this point. The application of a ‘variable
import levy’, or a ‘minimum import price’, as the terms are used
in footnote 1, can result in the levying of a specific duty equal to
the difference between a reference price and a target price, or
minimum price. These resulting levies or specific duties take the same
form as ordinary customs duties. However, the mere fact that a duty
imposed on an import at the border is in the same form as an ordinary
customs duty, does not mean that it is not a ‘variable import levy’
or a ‘minimum import price’. Clearly, as measures listed in
footnote 1, ‘variable import levies’ and ‘minimum import prices’
had to be converted into ordinary customs duties by the end of the
Uruguay Round. The mere fact that such measures result in the payment
of duties does not exonerate a Member from the requirement not to
maintain, resort to, or revert to those measures.”(36)
(iii) “ordinary customs duties”
25.
In Chile
— Price Band System, the Appellate Body reversed the
Panel’s definition of “ordinary customs duty”. The Panel had
found that “[a]ll ‘ordinary’ customs duties may … be said to
take the form of ad valorem or specific duties (or combinations
thereof)”.(37) The Panel further found that the term “ordinary
customs duty” has a “normative connotation”.(38) The Appellate
Body disagreed:
“We do not agree with the Panel’s reasoning that, necessarily,
‘[a]s a normative matter, … those scheduled duties always relate
to either the value of the imported goods, in the case of ad valorem
duties, or the volume of the imported goods, in the case of specific
duties.’(39) (emphasis in original, underlining added) Indeed, the
Panel came to this conclusion by interpreting the French and Spanish
versions of the term ‘ordinary customs duty’ to mean something
different from the ordinary meaning of the English version of that
term. It is difficult to see how, doing so, the Panel took into
account the rule of interpretation codified in Article 33(4) of the
Vienna Convention whereby ‘when a comparison of the authentic texts
discloses a difference of meaning …, the meaning which best
reconciles the texts … shall be adopted.’ (emphasis added).
We also find it difficult to understand how the Panel could find
‘normative’ support for its reasoning by examining the Schedules
of WTO Members. We have observed in previous case that ‘[t]he
ordinary meaning of the term “concessions” suggests that a Member
may yield rights and grant benefits, but it cannot diminish its
obligations’.(40) A Member’s Schedule imposes obligations on the
Member who has made the concessions. The Schedule of one Member, and
even the scheduling practice a number of Members, is not relevant in
interpreting the meaning of a treaty provision, unless that practice
amounts to ‘subsequent practice in the application of the treaty’
within the meaning of Article 31(3)(b) of the Vienna Convention.(41) In
this case the Panel Report contains support for the conclusion that
the scheduling activity WTO Members amounts to ‘subsequent practice’.
[N]ot each and every duty that is calculated on the basis of the
value and/or volume of imports is necessarily an ‘ordinary customs
duty’. For example, in the case hand, the ad valorem duty is
calculated on the value the imports. The calculation of the specific
duty resulting from Chile’s price band system is, on the other hand,
based, not only on the difference between the lower threshold of the
price band and the applicable reference price, but also on the volume
per unit of the imports.”(42)
26.
The Appellate Body on
Chile — Price Band System also disagreed
and thus reversed the Panel’s finding that the term “ordinary
customs duty”, as used in Article 4.2 of the Agreement on
Agriculture, is to be understood as “referring to a customs duty
which is not applied to factors of an exogenous nature”:(43)
“Surely Members will ordinarily take into account the interests
of domestic consumers and domestic producers in setting their applied
tariff rates at a certain level. In doing so, they will doubtless take
into account factors such as world market prices and domestic price
developments. These are exogenous factors, as the Panel used that
term. According to the Panel, duties that are calculated on the basis
of such exogenous factors are not ordinary customs duties. This would
imply that such duties be prohibited under Article II:1(b) of the GATT
unless recorded in the “other duties or charges” column of a
Member’s Schedule. We see no legal basis for such a conclusion.(44)”(45)
27.
The Appellate Body on
Chile — Price Band System further noted
that “in examining Article 4.2 of the Agreement on Agriculture, the
second sentence of Article II:1(b) of the GATT 1994, does not specify
what form ‘other duties or charges’ must take to qualify as such
within the meaning of that sentence”:
“We further note, in examining Article 4.2
of the
Agreement on Agriculture, that the second sentence of Article II:1(b) of the GATT
1994, does not specify what form ‘other duties or charges’ must
take to qualify as such within the meaning of that sentence. The Panel’s
own approach of reviewing Members’ Schedules reveals that many, if
not most, ‘other duties or charges’ are expressed in ad valorem
and/or specific terms, which does not, of course, make them ‘ordinary
customs duties’ under the first sentence of Article
II:1(b).”(46)
28.
The Appellate Body on
Chile — Price Band
System, pointed to
Article II:2 of the GATT 1994 and Annex 5 to the Agreement on
Agriculture as contextual support for interpreting the term “ordinary
customs duties”:
“As context for this phrase in Article 4.2
of the Agreement on Agriculture, we observe that
Article II:2 of the GATT 1994 sets out
examples of measures that do not qualify as either ‘ordinary customs
duties’ or ‘other duties or charges’. These measures include
charges equivalent to internal taxes, anti-dumping and countervailing
duties, and fees or other charges commensurate with the cost of
services rendered. They too may be based on the value and/or volume of
imports, and yet Article II:2 distinguishes them from ‘ordinary
customs duties’ by providing that ‘[n]othing in [Article
II] shall
prevent any Member from imposing’ them ‘at any time on the
importation of any product’.
Contextual support for interpreting the term ‘ordinary customs
duties’ also appears in Annex 5 to the Agreement on Agriculture.
Annex 5, read together with the Attachment to Annex 5 (‘Guidelines
for the Calculation of Tariff Equivalents for the Specific Purpose
Specified in Paragraphs 6 and
10 of this Annex’), contemplates the
calculation of ‘tariff equivalents’ in a way that would result in
ordinary customs duties ‘expressed as ad valorem or specific rates’.
We do not find an obligation in either of those provisions that would
require Members to refrain from basing their duties on what the Panel
calls ‘exogenous factors’. Rather, all that is required is that
‘ordinary customs duties’ be expressed in the form of ‘ad
valorem or specific rates’.”(47)
Measure resulting in ordinary customs duties
29.
In Chile
— Price Band System, Argentina had argued before the
Panel that Chile’s price band system was a measure “of the kind
which has been required to be converted into ordinary customs duties”
and which, by the terms of Article 4.2 of the Agreement on
Agriculture, Members are required not to maintain. Chile had refuted
such an allegation and claimed that the duties resulting from its
price band system were “ordinary customs duties” and that its
price band system was merely a system for determining the level of
those duties and, therefore, consistent with Article 4.2. The
Appellate Body agreed with the Panel as regards the inconsistency of
Chile’s price band system with Article 4.2
(although not as regards
the Panel’s reasoning) and found that “the fact that the duties
that result from the application of Chile’s price band system take
the same form as ‘ordinary customs duties’ does not imply that the
underlying measure is consistent with Article 4.2
of the Agreement on
Agriculture.”(48)
(iv) Timing of the obligation
30.
The Appellate Body on
Chile — Price Band System concluded that
“the obligation in Article 4.2 not to ‘maintain, resort to, or
revert to any measures of the kind which have been required to be
converted into ordinary customs duties’ applies from the date of the
entry into force of the WTO Agreement — regardless of whether or not a
Member converted any such measures into ordinary customs duties before
the conclusion of the Uruguay Round”.(49)
(b) Relation with Article XI of GATT and its
Ad Note
31.
The Panel on
Korea — Various Measures on
Beef, in a statement
not reviewed by the Appellate Body, held with respect to a certain
practice of the Korean state trading agency for beef imports:
“[W]hen dealing with measures relating to agricultural products
which should have been converted into tariffs or tariff-quotas, a
violation of Article XI of GATT and its Ad Note relating to
state-trading operations would necessarily constitute a violation of Article 4.2
of the Agreement on Agriculture and its footnote which
refers to non-tariff measures maintained through state-trading
enterprises.”(50)
(c) Special treatment
32.
With respect to the special treatment in connection with
paragraph 2 of Article 4, see Article 5, Section VI
below, and Annex 5, Section XXVII below.
4. Footnote 1
(a) “variable import levies”
33.
In Chile
— Price Band System, the Appellate Body, which
overturned the Panel’s interpretation of this term(51), noted that the
“WTO Members have not chosen to define [this] ‘term of art’ in
the Agreement on Agriculture or anywhere else in the WTO Agreement”.(52),
The Appellate Body concluded that a variable import duty requires the
presence of both a formula causing automatic and continuous
variability of duties and additional features that undermine the
object and purpose of Article 4 because they include a lack of
transparency and a lack of predictability in the level of duties that
will result from such measures:
“In examining the ordinary meaning of the term ‘variable import
levies’ as it appears in footnote 1, we note that a ‘levy’ is a
duty, tax, charge, or other exaction usually imposed or raised by
legal execution or process.(53) An ‘import’ levy is, of course, a
duty assessed upon importation. A levy is ‘variable’ when it is
‘liable to vary’.(54) This feature alone, however, is not conclusive
as to what constitutes a ‘variable import levy’ within the meaning
of footnote 1. An ‘ordinary customs duty’ could also fit this
description. 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).(55) 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 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.
To determine what kind of variability makes an import levy a ‘variable
import levy’, we turn to the immediate context of the other words in
footnote 1. The term ‘variable import levies’ appears after the
introductory phrase ‘[t]hese measures include’. Article 4.2
— to
which the footnote is attached — also speaks of ‘measures’. This
suggests that at least one feature of ‘variable import levies’ is
the fact that the measure itself — as a mechanism — must impose the
variability of the duties. Variability is inherent in a measure if the
measure incorporates a scheme or formula that causes and ensures that
levies change automatically and continuously. Ordinary customs duties,
by contrast, are subject to discrete changes in applied tariff rates
that occur independently, and unrelated to such an underlying scheme
or formula. The level at which ordinary customs duties are applied can
be varied by a legislature, but such duties will not be automatically
and continuously variable. To vary the applied rate of duty in the
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.
However, in our view, the presence of a formula causing automatic
and continuous variability of duties is a necessary, but by no means a
sufficient, condition for a particular measure to be a ‘variable
import levy’ within the meaning of footnote 1. (footnote omitted)
‘Variable import levies’ have additional features that undermine
the object and purpose of Article 4, which is to achieve improved
market access conditions for imports of agricultural products by
permitting only the application of ordinary customs duties. These
additional features include a lack of transparency and a lack of
predictability in the level of duties that will result from such
measures. This lack of transparency and this lack of predictability
are liable to restrict the volume of imports. … an exporter is less
likely to ship to a market if that exporter does not know and cannot
reasonably predict what the amount of duties will be. (i) This lack of
transparency and predictability will also contribute to distorting the
prices of imports by impeding the transmission of international prices
to the domestic market.”(56)
34.
As regards the question whether a measure ceases to be similar
to a “variable import levy” because it is subject to a tariff cap,
see paragraphs 38–39 below.
(b) “minimum import prices”
35.
In Chile
— Price Band System, unlike with the definition of “variable
import levies” (see paragraph 33 above), the Appellate Body did not
overturn the Panel’s interpretation of the term “minimum import
price” and simply noted that the parties did not disagree with it.(57)
The Appellate Body, after indicating that the “term ‘minimum
import price’ refers generally to the lowest price at which imports
of a certain product may enter a Member’s domestic market” and
that “no definition has been provided by the drafters of the
Agreement on Agriculture”, quoted the Panel’s description of “minimum
import prices” as follows:
“The term ‘minimum import price’ refers generally to the
lowest price at which imports of a certain product may enter a Member’s
domestic market. Here, too, no definition has been provided by the
drafters of the Agreement on Agriculture. However, the Panel described
‘minimum import prices’ as follows:
‘[these] schemes generally operate in relation to the actual
transaction value of the imports. If the price of an individual
consignment is below a specified minimum import price, an additional
charge is imposed corresponding to the difference.(58)’
The Panel also said that minimum import prices ‘are generally not
dissimilar from variable import levies in many respects, including in
terms of their protective and stabilization effects, but that their
mode of operation is generally less complicated.’(59) The main
difference between minimum import prices and variable import levies
is, according to the Panel, that ‘variable import levies are
generally based on the difference between the governmentally
determined threshold and the lowest world market offer price for the
product concerned, while minimum import price schemes generally
operate in relation to the actual transaction value of the imports.’(60)
(emphasis added)
… the participants said they do not object to the Panel’s
definition of a ‘minimum import price’…”(61)
(c) “similar border measures”
(i) Concept of similarity
36.
In Chile
— Price Band System, the Appellate Body agreed with
the Panel’s definition of the term “similar” as “having a
resemblance or likeness”, “of the same nature or kind”, and “having
characteristics in common”. The Appellate Body, however, disagreed
with the Panel’s emphasis on the degree to which measures share
characteristics of a “fundamental” nature.(62) The Appellate Body
found that the appropriate approach to determine similarity was to ask
“whether two or more things have likeness or resemblance sufficient
to be similar to each other”. The Appellate Body further considered
that, for a measure to be “similar” to a border measure, it must
have “sufficient ‘resemblance or likeness to’, or be ‘of the
same nature or kind’ as, at least one of the specific categories of
measures listed in footnote 1”:
“We agree with the first part of the Panel’s definition of the
term ‘similar’ as ‘having a resemblance or likeness’, ‘of
the same nature or kind’, and ‘having characteristics in common’.(63)
However, in our view, the Panel went unnecessarily far in focusing on
the degree to which two measures share characteristics of a ‘fundamental’
nature. We see no basis for determining similarity by relying on
characteristics of a ‘fundamental’ nature. The Panel seems to
substitute for the task of defining the term ‘similar’ that of
defining the term ‘fundamental’. This merely complicates matters,
because it raises the question of how to distinguish ‘fundamental’
characteristics from those of a less than ‘fundamental’ nature.
The better and appropriate approach is to determine similarity by
asking the question whether two or more things have likeness or
resemblance sufficient to be similar to each other. In our view, the
task of determining whether something is similar to something else
must be approached on an empirical basis.
… To be ‘similar’, Chile’s price band system
— in its
specific factual configuration — must have, to recall the dictionary
definitions we mentioned, sufficient ‘resemblance or likeness to’,
or be ‘of the same nature or kind’ as, at least one of the
specific categories of measures listed in footnote 1.”(64)
37.
The Appellate Body on
Chile — Price Band System stressed that
“any examination of similarity presupposes a comparative analysis”
and therefore, to determine whether a measure is “similar” within
the meaning of footnote 1, it is necessary to “identify with which
categories that [measure] must be compared”.(65)
(ii) Relevance of tariff caps in the similarity analysis
38.
In Chile
— Price Band System, Chile had argued that the Panel
had failed to take proper account of the fact that the total amount of
duties that may be levied as a result of Chile’s price band system
was “capped” at the level of the tariff rate of 31.5 per cent ad
valorem bound in Chile’s Schedule. The Appellate Body thus
considered whether Chile’s price band system ceases to be similar to
a “variable import levy” because it is subject to a cap. The
Appellate Body concluded:
“[W]e find nothing in Article 4.2
to suggest that a measure
prohibited by that provision would be rendered consistent with it if
applied with a cap. Before the conclusion of the Uruguay Round, a
measure could be recognized as a ‘variable import levy’ even if
the products to which the measure applied were subject to tariff
bindings.(66) And, there is nothing in the text of
Article 4.2 to
indicate that a measure, which was recognized as a ‘variable import
levy’ before the Uruguay Round, is exempt from the requirements of Article 4.2
simply because tariffs on some, or all, of the products to
which that measure now applies were bound as a result of the Uruguay
Round.”(67)
39.
The Appellate Body on
Chile — Price Band
System, found support
for this view in the context of Article 4.2. which includes the
Guidelines for the Calculation of Tariff Equivalents for the Specific
Purpose Specified in Paragraph 6 and
10 of this Annex (“Guidelines”),
which are an Attachment to Annex 5 on Special Treatment with respect
to Paragraph 2 of Article 4 and Articles II and
XI of the GATT 1994.
“The context of Article 4.2
lends support to this interpretation.
That context includes the Guidelines for the Calculation of Tariff
Equivalents for the Specific Purpose Specified in Paragraph 6 and
10 of this Annex (‘Guidelines’), which are an Attachment to Annex 5
on Special Treatment with respect to Paragraph 2 of Article 4. Both
the Attachment and the Annex form part of the Agreement on
Agriculture. Paragraph 6 of the Guidelines(68) envisages that tariff
equivalents resulting from conversion of measures within the meaning
of Article 4.2 may exceed previous bound rates. This implies that,
even if the product to which that measure applied was in fact subject
to a tariff binding before the Uruguay Round, conversion of that
measure may nevertheless have been required. Therefore, a measure
cannot be excluded per se from the scope of Article 4.2
simply because
the products to which that measure applies are subject to a tariff
binding.
Relevant context can also be found in Articles II and
XI of the GATT 1994. If Members were free to apply a measure with a ‘cap’
—
which, in the absence of that ‘cap’, would be a prohibited ‘variable
import levy’ — Article 4.2 would, in our view, add little to the
longstanding requirements of Articles II:1(b) and
XI:1 of the GATT 1947. In fact, Chile concedes that the scope of measures prohibited by
Article 4.2 extends beyond the tariffs in excess of bound rates that
are prohibited by Article II and the ‘restrictions other than taxes,
duties and charges’ that are prohibited by Article
XI:1. (footnote
omitted) In any event, it is difficult to see why Uruguay Round
negotiators would ‘compensate’ Members for converting prohibited
measures by permitting them to raise tariffs on certain products,
while permitting those Members to retain those measures and, at the
same time, impose those higher tariffs on those same products. It is
not clear why, if this were so, a Member would ever have converted a
measure. All that a Member would have had to do to comply with Article 4.2
would have been to adopt a tariff binding — even at a higher level
— on the products covered by the original measure. Had this been the
intention of the Uruguay Round negotiators, there would have been no
need to list price-based measures in footnote 1 among the categories
of measures prohibited by Article 4.2. The drafters of the Agreement
on Agriculture simply could have adopted a requirement that all
tariffs on agricultural products be bound.”(69)
(iii) Common features of border measures
40.
In Chile
— Price Band System, the Appellate Body noted that
trade distortive objectives and effects are common to all border
measures:
“[W]e note that all of the border measures listed in footnote 1
have in common the object and effect of restricting the volumes, and
distorting the prices, of imports of agricultural products in ways
different from the ways that ordinary customs duties do. Moreover, all
of these measures have in common also that they disconnect domestic
prices from international price developments, and thus impede the
transmission of world market prices to the domestic market.”(70)
(d) Relation with Article 4.2
41.
The Appellate Body on
Chile — Price Band
System, referred to
the wording of footnote 1 to the Agreement on Agriculture as
confirmation of its interpretation(71) of the phrase “measures which
have been required to be converted into ordinary customs duties” of Article 4.2. See
paragraph 20 above.
C. Relationship with other WTO Agreements
1. GATT 1994
42.
The Appellate Body on
Chile — Price Band
System, in examining
the concept of ordinary customs duties under Article 4.2
of the
Agreement on Agriculture, referred to Articles II:1(b)
of the GATT
1994. See paragraphs 24–28 above. The Appellate Body also indicated
that if it were to find that Chile’s price band system was
inconsistent with Article 4.2 of the Agreement of Agriculture, it
would not need to make a separate finding on whether Chile’s price
band system also results in a violation of Articles II:1(b) of the GATT
1994 to resolve this dispute.(72)
VI. Article 5
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A. Text of
Article 5
Article 5: Special Safeguard Provisions
1. Notwithstanding the provisions of
paragraph 1(b) of Article II
of GATT 1994, any Member may take recourse to the provisions of
paragraphs 4 and 5 below in connection with the importation of an
agricultural product, in respect of which measures referred to in
paragraph 2 of Article 4 of this Agreement have been converted into an
ordinary customs duty and which is designated in its Schedule with the
symbol “SSG” as being the subject of a concession in respect of
which the provisions of this Article may be invoked, if:
(a) the volume of imports of that product entering the customs
territory of the Member granting the concession during any year
exceeds a trigger level which relates to the existing market access
opportunity as set out in paragraph 4; or, but not concurrently:
(b) the price at which imports of that product may enter the
customs territory of the Member granting the concession, as determined
on the basis of the c.i.f. import price of the shipment concerned
expressed in terms of its domestic currency, falls below a trigger
price equal to the average 1986 to 1988 reference price(2) for the
product concerned.
(footnote original) 2 The reference price used to invoke the
provisions of this subparagraph shall, in general, be the average
c.i.f. unit value of the product concerned, or otherwise shall be an
appropriate price in terms of the quality of the product and its stage
of processing. It shall, following its initial use, be publicly
specified and available to the extent necessary to allow other Members
to assess the additional duty that may be levied.
2. Imports under current and minimum access commitments established
as part of a concession referred to in paragraph 1 above shall be
counted for the purpose of determining the volume of imports required
for invoking the provisions of subparagraph 1(a) and
paragraph
4, but
imports under such commitments shall not be affected by any additional
duty imposed under either subparagraph 1(a) and
paragraph 4 or
subparagraph 1(b) and paragraph 5 below.
3. Any supplies of the product in question which were
en route on
the basis of a contract settled before the additional duty is imposed
under subparagraph 1(a) and paragraph
4 shall be exempted from any
such additional duty, provided that they may be counted in the volume
of imports of the product in question during the following year for
the purposes of triggering the provisions of subparagraph 1(a)
in that
year.
4. Any additional duty imposed under
subparagraph 1(a) shall only
be maintained until the end of the year in which it has been imposed,
and may only be levied at a level which shall not exceed one third of
the level of the ordinary customs duty in effect in the year in which
the action is taken. The trigger level shall be set according to the
following schedule based on market access opportunities defined as
imports as a percentage of the corresponding domestic consumption(3)
during the three preceding years for which data are available:
(footnote original)
3 Where domestic consumption is not taken into
account, the base trigger level under subparagraph 4(a) shall apply.
(a) where such market access opportunities for a product are less
than or equal to 10 percent, the base trigger level shall equal 125
percent;
(b) where such market access opportunities for a product are
greater than 10 percent but less than or equal to 30 percent, the base
trigger level shall equal 110 percent;
(c) where such market access opportunities for a product are
greater than 30 percent, the base trigger level shall equal 105
percent.
In all cases the additional duty may be imposed in any year where
the absolute volume of imports of the product concerned entering the
customs territory of the Member granting the concession exceeds the
sum of (x) the base trigger level set out above multiplied by the
average quantity of imports during the three preceding years for which
data are available and (y) the absolute volume change in domestic
consumption of the product concerned in the most recent year for which
data are available compared to the preceding year, provided that the
trigger level shall not be less than 105 percent of the average
quantity of imports in (x) above.
5. The additional duty imposed under
subparagraph 1(b) shall be set
according to the following schedule:
(a) if the difference between the c.i.f. import price of the
shipment expressed in terms of the domestic currency (hereinafter
referred to as the “import price”) and the trigger price as
defined under that subparagraph is less than or equal to 10 percent of
the trigger price, no additional duty shall be imposed;
(b) if the difference between the import price and the trigger
price (hereinafter referred to as the “difference”) is greater
than 10 percent but less than or equal to 40 percent of the trigger
price, the additional duty shall equal 30 percent of the amount by
which the difference exceeds 10 percent;
(c) if the difference is greater than 40 percent but less than or
equal to 60 percent of the trigger price, the additional duty shall
equal 50 percent of the amount by which the difference exceeds 40
percent, plus the additional duty allowed under (b);
(d) if the difference is greater than 60 percent but less than or
equal to 75 percent, the additional duty shall equal 70 percent of the
amount by which the difference exceeds 60 percent of the trigger
price, plus the additional duties allowed under (b) and (c);
(e) if the difference is greater than 75 percent of the trigger
price, the additional duty shall equal 90 percent of the amount by
which the difference exceeds 75 percent, plus the additional duties
allowed under (b), (c) and (d).
6. For perishable and seasonal products, the conditions set out
above shall be applied in such a manner as to take account of the
specific characteristics of such products. In particular, shorter time
periods under subparagraph 1(a) and paragraph
4 may be used in
reference to the corresponding periods in the base period and
different reference prices for different periods may be used under
subparagraph 1(b).
7. The operation of the special safeguard shall be carried out in a
transparent manner. Any Member taking action under subparagraph 1(a)
above shall give notice in writing, including relevant data, to the
Committee on Agriculture as far in advance as may be practicable and
in any event within 10 days of the implementation of such action. In
cases where changes in consumption volumes must be allocated to
individual tariff lines subject to action under paragraph 4, relevant
data shall include the information and methods used to allocate these
changes. A Member taking action under paragraph 4 shall afford any
interested Members the opportunity to consult with it in respect of
the conditions of application of such action. Any Member taking action
under subparagraph 1(b) above shall give notice in writing, including
relevant data, to the Committee on Agriculture within 10 days of the
implementation of the first such action or, for perishable and
seasonal products, the first action in any period. Members undertake,
as far as practicable, not to take recourse to the provisions of
subparagraph 1(b) where the volume of imports of the products
concerned are declining. In either case a Member taking such action
shall afford any interested Members the opportunity to consult with it
in respect of the conditions of application of such action.
8. Where measures are taken in conformity with
paragraphs 1 through
7 above, Members undertake not to have recourse, in respect of such
measures, to the provisions of paragraphs 1(a) and
3 of Article XIX of
GATT 1994 or paragraph 2 of Article 8 of the Agreement on
Safeguards.
9. The provisions of this Article shall remain in force for the
duration of the reform process as determined under Article
20.
B. Interpretation and Application of Article 5
1. Article 5.1(b)
43.
In EC — Poultry, Brazil argued that the European Communities
had failed to comply with Article 5 of the Agreement on Agriculture in
the implementation of the special safeguard measures for imports of
poultry meat outside tariff quotas. The European Communities contested
the finding of the Panel that the phrase in Article 5.1(b) “on the
basis of the c.i.f. import price” referred to the c.i.f. price plus
import duties. Reversing the Panel’s findings on Article 5.1(b), the
Appellate Body first explored the circumstances in which this specific
question could become relevant and then went on to distinguish between
an entry into the customs territory on the one hand, and an entry into
the domestic market on the other:
“This dispute has no practical significance if both the c.i.f.
import price and the c.i.f. import price plus customs duties fall
above or below the trigger price. If both prices are above the trigger
price, then additional duties cannot be imposed. And, if both prices
fall below the trigger price, then additional duties may be imposed
regardless of which definition of the relevant import price is
adopted. However, the practical significance of this dispute becomes
apparent whenever the trigger price falls between the other two
prices, that is, when the trigger price is greater than the c.i.f.
import price but smaller than the c.i.f. import price plus customs
duties. … [I]f the relevant price is defined as the c.i.f. import
price plus customs duties, additional duties may not be imposed since
the relevant price is well above the trigger price. If, on the other
hand, it is defined as the c.i.f. import price only (that is, without
customs duties), additional duties may be imposed because the relevant
price is below the trigger price. Thus, to adopt one definition,
rather than another, will determine whether or not an importing Member
may impose additional safeguard duties.
…
The relevant import price in Article 5.1(b)
is described as ‘the
price at which imports of that product may enter the customs territory
of the Member granting the concession, as determined on the basis of
the c.i.f. import price of the shipment concerned’. It is noteworthy
that the drafters of the Agreement on Agriculture chose to use as the
relevant import price the entry price into the customs territory,
rather than the entry price into the domestic market. This suggests
that they had in mind the point of time just before the entry of the
product concerned into the customs territory, and certainly before
entry into the domestic market, of the importing Member. The ordinary
meaning of these terms in Article 5.1(b) supports the view that the
‘price at which that product may enter the customs territory’ of
the importing Member should be construed to mean just that — the price
at which the product may enter the customs territory, not the price at
which the product may enter the domestic market of the importing
Member. And that price is a price that does not include customs duties
and internal charges. It is upon entry of a product into the customs
territory, but before the product enters the domestic market, that the
obligation to pay customs duties and internal charges accrues.”(73)
44.
The Appellate Body on EC — Poultry then noted that the
Agreement on Agriculture does not define the term “c.i.f. import
price”, but considered the customary usage of this term in
international trade:
“Article 5.1(b) also states that the relevant import price is to
be ‘as determined on the basis of the c.i.f. import price of the
shipment concerned’. (emphasis added) The Panel interprets this
phrase to mean ‘that the market entry price is something that has to
be constructed using the c.i.f. price as one of the parameters.’(74)
We disagree. In the light of our construction of the preceding phrase
‘the price at which imports of the product may enter the customs
territory of the Member granting the concession’, we conclude that
the phrase ‘as determined on the basis of the c.i.f. import price of
the shipment concerned’ in Article 5.1(b)
refers simply to the
c.i.f. price without customs duties and taxes. There is no definition
of the term ‘c.i.f. import price’ in the Agreement on Agriculture
or in any of the other covered agreements. However, in customary usage
in international trade, the c.i.f. import price does not include any
taxes, customs duties, or other charges that may be imposed on a
product by a Member upon entry into its customs territory.(75) We think
it significant also that ordinary customs duties are not mentioned as
a component of the relevant import price in the text of Article 5.1(b).
Article 5.1(b) does not state that the relevant import price
is ‘the c.i.f. price plus ordinary customs duties’. Accordingly,
to read the inclusion of customs duties into the definition of the
c.i.f. import price in Article 5.1(b) would require us to read words
into the text of that provision that simply are not there.”(76)
45.
The Appellate Body on EC — Poultry found support for its
finding referenced in paragraph 44 above in the context of
Article 5.1(b):
“This reading of the text of Article 5.1(b)
is supported by our
reading of the context of that provision in accordance with Article 31
of the Vienna Convention, which specifies that the ordinary meaning of
the terms of a treaty should be interpreted in their context.
We look first to the rest of Article
5.1. In considering when
additional special safeguard duties under Article 5.1(b)
may be
imposed, the relevant import price must be compared with a trigger
price. According to Article 5.1(b), this trigger price is ‘equal to
the average 1986 to 1988 reference price for the product concerned’.
Footnote 2 to Article 5.1(b) states:
The reference price used to invoke the provisions of this
subparagraph shall, in general, be the average c.i.f. unit value of
the product concerned, or otherwise shall be an appropriate price in
terms of the quality of the product and its stage of processing. It
shall, following its initial use, be publicly specified and available
to the extent necessary to allow other Members to assess the
additional duty that may be levied.
Thus, the reference price with which the relevant price is compared
under Article 5.1 does not include ordinary customs duties. It is
simply the average c.i.f. import price of the product concerned during
the reference period, 1986–1988. Given this definition of the
reference price, it could not have been the intention of the drafters
to compare a c.i.f. price exclusive of customs duties for the
reference period with a c.i.f. price inclusive of such duties today.
Paragraph 5 of Article 5 is also part of the context of
Article 5.1(b). This provision establishes a link between the amount of the
additional duty to be imposed and the difference between the c.i.f.
import price of the shipment and the trigger price. According to the
schedule contained in paragraph 5, when the difference between the
c.i.f. import price of the shipment and the trigger price is not
greater than 10 per cent, no additional duty shall be imposed. When
the difference is greater than 10 per cent, additional duties may be
imposed. The amount of the additional safeguard duties increases as
the difference in the two prices increases. We see no reference in
paragraph 5 to ‘c.i.f. import price plus ordinary customs duties’.
The price used to determine when the special safeguard may be
triggered and the price used to calculate the amount of the additional
duties must be one and the same.”(77)
46.
The Appellate Body on EC — Poultry, after making the findings
referenced in paragraphs 43–45 above, considered what it termed two
“anomalies” which would arise under the interpretation given to Article 5.1(b)
by the Panel:
“Certain anomalies would arise from the interpretation adopted by
the majority of the Panel. One of these anomalies was cited in the
opinion of the dissenting member of the Panel.(78) If tariffication of
non-tariff barriers on a certain product took the form of specific
duties that were greater than the trigger price, then an importing
Member may never be able to invoke Article 5.1(b). The truth of this
observation is evident from the fact that the c.i.f. import price plus
customs duties may never fall below the trigger price. This
consequence is not limited to the case of specific duties that exceed
the trigger price. It could also occur in cases where tariffication
takes the form of ad valorem duties. We know that tariffication has
resulted in tariffs which are, in a large number of cases, very high.
The probability is strong, therefore, that the ad valorem duties could
exceed the percentage decrease in the c.i.f. import price by a
substantial margin. In such cases, the decrease in the c.i.f. price
would have to be very deep before the relevant import price would fall
below the trigger price. Thus, the provisions of Article 5.1(b)
would
not be operational in many cases. It is doubtful that this was
intended by the drafters of the ‘Special Safeguard Provisions’.
Another anomaly that would arise from defining the relevant import
price as the c.i.f. import price plus ordinary customs duties would be
that the right of Members to invoke the provisions of Article 5.1(b)
would depend on the level of tariffs resulting from tariffication.
Faced with a certain decline in the c.i.f. price — say, 20 per cent
—
some Members would find themselves in a situation where they could not
invoke the price safeguard; others would have the right to do so. The
first category would comprise those Members with a relatively high
level of tariffied duties; the second would be those with a relatively
moderate level. Thus, the rights of Members would ultimately depend on
the level of their tariffied duties. It is doubtful, too, that this
was intended by the drafters of the ‘Special Safeguard Provisions’.”(79)
47.
As a result of the reasoning referenced in paragraphs 43–46
above, the Appellate Body in EC — Poultry concluded:
“[W]e interpret the ‘price at which the product concerned may
enter the customs territory of the Member granting the concession, as
determined on the basis of the c.i.f. import price’ in Article 5.1(b)
as the c.i.f. import price not including ordinary customs
duties.”(80)
2. Article 5.5
48.
Regarding Article 5.5, in EC —
Poultry, the Appellate Body
examined whether it was permissible for the importing Member to offer
the importer a choice between the use of the c.i.f price of the
shipment as provided in that provision, and another method of
calculation which departs from this principle. Under the relevant
regulation, the European Communities calculated a periodic
representative price, based, inter alia, in part on prices in
third country markets and prices at various stages of marketing within
the European Communities. The Commission, in its determination of the
trigger price for the purposes of the special safeguard provision,
would use this “representative price”, unless the importer
specifically requested the use of the c.i.f. price, conditional upon
the presentation of certain documents and the lodging of a security by
the importer. The Appellate Body held as follows:
“[N]either the text nor the context of Article
5.5 of the
Agreement on Agriculture permits us to conclude that the additional
duties imposed under the special safeguard mechanism in Article 5 of
the Agreement on Agriculture may be established by any method other
than a comparison of the c.i.f. price of the shipment with the trigger
price.”(81)
3. Article 5.7
(a) Notification requirements
49.
With respect to notification requirements concerning the
special safeguard provisions, see paragraphs
116–118
below.
Part IV
VII. Article 6
back to top
A. Text of
Article 6
Article 6: Domestic Support Commitments
1. The domestic support reduction commitments of each Member
contained in Part IV of its Schedule shall apply to all of its
domestic support measures in favour of agricultural producers with the
exception of domestic measures which are not subject to reduction in
terms of the criteria set out in this Article and in Annex 2 to this
Agreement. The commitments are expressed in terms of Total Aggregate
Measurement of Support and “Annual and Final Bound Commitment Levels”.
2. In accordance with the Mid-Term Review Agreement that government
measures of assistance, whether direct or indirect, to encourage
agricultural and rural development are an integral part of the
development programmes of developing countries, investment subsidies
which are generally available to agriculture in developing country
Members and agricultural input subsidies generally available to
low-income or resource-poor producers in developing country Members
shall be exempt from domestic support reduction commitments that would
otherwise be applicable to such measures, as shall domestic support to
producers in developing country Members to encourage diversification
from growing illicit narcotic crops. Domestic support meeting the
criteria of this paragraph shall not be required to be included in a
Member’s calculation of its Current Total AMS.
3. A Member shall be considered to be in compliance with its
domestic support reduction commitments in any year in which its
domestic support in favour of agricultural producers expressed in
terms of Current Total AMS does not exceed the corresponding annual or
final bound commitment level specified in Part IV of the Member’s
Schedule.
4. (a)
A Member shall not be required to include in the calculation
of its Current Total AMS and shall not be required to reduce:
(i) product-specific domestic support which would otherwise be
required to be included in a Member’s calculation of its Current AMS
where such support does not exceed 5 percent of that Member’s total
value of production of a basic agricultural product during the
relevant year; and
(ii) non-product-specific domestic support which would otherwise be
required to be included in a Member’s calculation of its Current AMS
where such support does not exceed 5 percent of the value of that
Member’s total agricultural production.
(b) For developing country Members, the de minimis percentage under
this paragraph shall be 10 percent.
5. (a)
Direct payments under production-limiting programmes shall
not be subject to the commitment to reduce domestic support if:
(i) such payments are based on fixed area and yields; or
(ii) such payments are made on 85 percent or less of the base level
of production; or
(iii) livestock payments are made on a fixed number of head.
(b) The exemption from the reduction commitment for direct payments
meeting the above criteria shall be reflected by the exclusion of the
value of those direct payments in a Member’s calculation of its
Current Total AMS.
B. Interpretation and Application of Article 6
1. Notification requirements
50.
With respect to the notification requirements concerning
domestic support, see paragraphs 116–118
below.
VIII. Article 7
back to top
A. Text of
Article 7
Article 7: General Disciplines on Domestic Support
1. Each Member shall ensure that any domestic support measures in
favour of agricultural producers which are not subject to reduction
commitments because they qualify under the criteria set out in Annex 2
to this Agreement are maintained in conformity therewith.
2. (a)
Any domestic support measure in favour of agricultural
producers, including any modification to such measure, and any measure
that is subsequently introduced that cannot be shown to satisfy the
criteria in Annex 2 to this Agreement or to be exempt from reduction
by reason of any other provision of this Agreement shall be included
in the Member’s calculation of its Current Total AMS.
(b) Where no Total AMS commitment exists in Part IV of a Member’s
Schedule, the Member shall not provide support to agricultural
producers in excess of the relevant de minimis level set out in
paragraph 4 of Article 6.
B. Interpretation and Application of Article 7
51.
No jurisprudence or decision of a competent WTO body.
1. Relationship with Annex 2
52.
In order to consult the criteria established in Annex
2, see
Section XXIV below.
Part V
IX. Article 8
back to top
A. Text of
Article 8
Article 8: Export Competition Commitments
Each Member undertakes not to provide export subsidies otherwise
than in conformity with this Agreement and with the commitments as
specified in that Member’s Schedule.
B. Interpretation and Application of Article 8
1. General
53.
With respect to Members’ export subsidy commitments, see
paragraphs 14–15 above and paragraphs
54–80 below.
2. Waivers from export subsidy commitments
54.
On 22 October 1997, the General Council decided to grant a
waiver from the export subsidy commitments to Hungary, in accordance
with Article IX of the WTO Agreement.(82) See Chapter on the WTO
Agreement, Section X.B.3 for a list of the waivers currently in force.
X. Article 9 back to top
A. Text of
Article 9
Article 9: Export Subsidy Commitments
1. The following export subsidies are subject to reduction
commitments under this Agreement:
(a) the provision by governments or their agencies of direct
subsidies, including payments-in-kind, to a firm, to an industry, to
producers of an agricultural product, to a cooperative or other
association of such producers, or to a marketing board, contingent on
export performance;
(b) the sale or disposal for export by governments or their
agencies of non-commercial stocks of agricultural products at a price
lower than the comparable price charged for the like product to buyers
in the domestic market;
(c) payments on the export of an agricultural product that are
financed by virtue of governmental action, whether or not a charge on
the public account is involved, including payments that are financed
from the proceeds of a levy imposed on the agricultural product
concerned or on an agricultural product from which the exported
product is derived;
(d) the provision of subsidies to reduce the costs of marketing
exports of agricultural products (other than widely available export
promotion and advisory services) including handling, upgrading and
other processing costs, and the costs of international transport and
freight;
(e) internal transport and freight charges on export shipments,
provided or mandated by governments, on terms more favourable than for
domestic shipments;
(f) subsidies on agricultural products contingent on their
incorporation in exported products.
2. (a)
Except as provided in subparagraph
(b), the export subsidy
commitment levels for each year of the implementation period, as
specified in a Member’s Schedule, represent with respect to the
export subsidies listed in paragraph 1 of this
Article:
(i) in the case of budgetary outlay reduction commitments, the
maximum level of expenditure for such subsidies that may be allocated
or incurred in that year in respect of the agricultural product, or
group of products, concerned; and
(ii) in the case of export quantity reduction commitments, the
maximum quantity of an agricultural product, or group of products, in
respect of which such export subsidies may be granted in that year.
(b) In any of the second through fifth years of the implementation
period, a Member may provide export subsidies listed in paragraph 1
above in a given year in excess of the corresponding annual commitment
levels in respect of the products or groups of products specified in
Part IV of the Member’s Schedule, provided that:
(i) the cumulative amounts of budgetary outlays for such subsidies,
from the beginning of the implementation period through the year in
question, does not exceed the cumulative amounts that would have
resulted from full compliance with the relevant annual outlay
commitment levels specified in the Member’s Schedule by more than 3
percent of the base period level of such budgetary outlays;
(ii) the cumulative quantities exported with the benefit of such
export subsidies, from the beginning of the implementation period
through the year in question, does not exceed the cumulative
quantities that would have resulted from full compliance with the
relevant annual quantity commitment levels specified in the Member’s
Schedule by more than 1.75 percent of the base period quantities;
(iii) the total cumulative amounts of budgetary outlays for such
export subsidies and the quantities benefiting from such export
subsidies over the entire implementation period are no greater than
the totals that would have resulted from full compliance with the
relevant annual commitment levels specified in the Member’s
Schedule; and
(iv) the Member’s budgetary outlays for export subsidies and the
quantities benefiting from such subsidies, at the conclusion of the
implementation period, are no greater than 64 percent and 79 percent
of the 1986–1990 base period levels, respectively. For developing
country Members these percentages shall be 76 and 86 percent,
respectively.
3. Commitments relating to limitations on the extension of the
scope of export subsidization are as specified in Schedules.
4. During the implementation period, developing country Members
shall not be required to undertake commitments in respect of the
export subsidies listed in subparagraphs (d) and
(e) of paragraph 1 above, provided that these are not applied in a manner that would
circumvent reduction commitments.
B. Interpretation and Application of Article 9
1. General
(a) Notification requirements
55.
With respect to notification requirements concerning export
subsidies, see paragraphs 116–118
below.
2. Article 9.1(a)
(a) “direct subsidies, including payments-in-kind”
56.
The Panel on Canada — Dairy held that “‘payments-in-kind’
are a form of direct subsidy” and that “a determination in the
instant matter that ‘payments-in-kind’ exist would also be a
determination of the existence of a direct subsidy.” (Emphasis
added)(83) The Appellate Body disagreed and held, inter alia, that “[w]here
the recipient gives full consideration in return for a ‘payment-in-kind’
there can be no ‘subsidy’, for the recipient is paying
market-rates for what it receives”:
“In our view, the term ‘payments-in-kind’ describes one of
the forms in which ‘direct subsidies’ may be granted. Thus,
Article 9.1(a) applies to ‘direct subsidies’, including ‘direct
subsidies’ granted in the form of ‘payments-in-kind’. We believe
that, in its ordinary meaning, the word ‘payments’, in the term
‘payments-in-kind’, denotes a transfer of economic resources, in a
form other than money, from the grantor of the payment to the
recipient. However, the fact that a ‘payment-in-kind’ has been
made provides no indication as to the economic value of the transfer
effected, either from the perspective of the grantor of the payment or
from that of the recipient. A ‘payment-in-kind’ may be made in
exchange for full or partial consideration or it may be made
gratuitously. Correspondingly, a ‘subsidy’ involves a transfer of
economic resources from the grantor to the recipient for less than
full consideration. As we said in our Report in Canada — Aircraft, a
‘subsidy’, within the meaning of Article 1.1 of the SCM
Agreement,
arises where the grantor makes a ‘financial contribution’ which
confers a ‘benefit’ on the recipient, as compared with what would
have been otherwise available to the recipient in the marketplace.
Where the recipient gives full consideration in return for a ‘payment-in-kind’
there can be no ‘subsidy’, for the recipient is paying market
rates for what it receives. It follows, in our view, that the
mere fact that a ‘payment-in-kind’ has been made does not, by
itself, imply that a ‘subsidy’, ‘direct’ or otherwise, has
been granted.
[T]he Panel erred in finding that ‘a determination in the instant
matter that “payments-in-kind” exist would also be a determination
of the existence of a direct subsidy.’ The Panel should have
considered whether the particular ‘payment-in-kind’ that it found
existed was a ‘direct subsidy’. Instead, because the Panel assumed
that a ‘payment-in-kind’ is necessarily a ‘direct subsidy’, it
did not address specifically either the meaning of the term ‘direct
subsidies’ or the question whether the provision of milk to
processors for export under Special Classes 5(d) and 5(e) constitutes
‘direct subsidies’.”(84)
(b) “governments or their agencies”
57.
In Canada — Dairy, the Appellate Body addressed the phrase “governments
or their agencies” and held that the fact that such an agency enjoys
a “degree of discretion” does not remove its quality of being a
government agency:
“According to Black’s Law Dictionary, ‘government’ means,
inter alia, ‘[t]he regulation, restraint, supervision, or
control
which is exercised upon the individual members of an organized jural
society by those invested with authority’. (emphasis added) This is
similar to meanings given in other dictionaries. The essence of ‘government’
is, therefore, that it enjoys the effective power to ‘regulate’,
‘control’ or ‘supervise’ individuals, or otherwise ‘restrain’
their conduct, through the exercise of lawful authority. This meaning
is derived, in part, from the functions performed by a government and,
in part, from the government having the powers and authority to
perform those functions. A ‘government agency’ is, in our view, an
entity which exercises powers vested in it by a ‘government’ for
the purpose of performing functions of a ‘governmental’ character,
that is, to ‘regulate’, ‘restrain’, ‘supervise’ or ‘control’
the conduct of private citizens. As with any agency relationship, a
‘government agency’ may enjoy a degree of discretion in the
exercise of its functions.”(85)
3. Article 9.1(c)
(a) “payments”
(i) A payment includes a payment-in-kind
58.
In Canada — Dairy, the Appellate Body interpreted the term “payments”
to include a transfer of resources other than money, including a “payment-in-kind”:
“We have found that the word ‘payments’, in the term ‘payments-in-kind’ in
Article 9.1(a), denotes a transfer of economic
resources.(86) We believe that the same holds true for the word ‘payments’
in Article 9.1(c). The question which we now address is whether, under
Article 9.1(c), the economic resources that are transferred by way of
a ‘payment’ must be in the form of money, or whether the resources
transferred may take other forms. As the Panel observed, the
dictionary meaning of the word ‘payment’ is not limited to
payments made in monetary form. In support of this, the Panel cited
the Oxford English Dictionary, which defines ‘payment’ as ‘the
remuneration of a person with money or its equivalent’.(87) (emphasis
added) Similarly, the Shorter Oxford English Dictionary describes a
‘payment’ as a ‘sum of money (or other thing) paid’.(88)
(emphasis added) Thus, according to these meanings, a ‘payment’
could be made in a form, other than money, that confers value, such as
by way of goods or services. A ‘payment’ which does not take the
form of money is commonly referred to as a ‘payment in kind’.
We agree with the Panel that the ordinary meaning of the word ‘payments’
in Article 9.1(c) is consistent with the dictionary meaning of the
word. Under Article 9.1(c), ‘payments’ are ‘financed by virtue
of governmental action’ and they may or may not involve ‘a charge
on the public account’. Neither the word ‘financed’ nor the term
‘a charge’ suggests that the word ‘payments’ should be
interpreted to apply solely to money payments. A payment made in the
form of goods or services is also ‘financed’ in the same way as a
money payment, and, likewise, ‘a charge on the public account’ may
arise as a result of a payment, or a legally binding commitment to
make payment by way of goods or services, or as a result of revenue
foregone.”(89)
59.
The Appellate Body on Canada — Dairy considered that the
context of Article 9.1(c) also supported a reading of the word “payments”
that covered “payments-in-kind”.
“The context of Article
9.1(c) also supports a reading of the
word ‘payments’ that embraces ‘payments-in-kind’. That context
includes the other sub-paragraphs of Article 9.1. As the Panel
explained, none of the export subsidies listed in Article
9.1 is
restricted to grants made solely in money form and several expressly
involve subsidies granted in a form other than money.(90) Under
Article 9.1(a), ‘payments-in-kind’ are specifically included as a form of
‘direct subsidies’. Similarly, under Articles
9.1(b), the export
subsidy identified may involve the disposal of agricultural goods at
less than domestic price. Under Article
9.1(e), the provision of
transport services for export shipments at prices lower than the price
charged for domestic shipments is also an export subsidy. Thus, each
of these three sub-paragraphs of Article 9.1 specifically contemplates
that the export subsidy may be granted in a form other than a money
payment.
The context, in our view, also includes Article 1(c) of the
Agreement on Agriculture. In terms of that provision, ‘revenue
foregone’ is to be taken into account in determining whether ‘budgetary
outlay’ commitments, made with respect to export subsidies as listed
in Article 9.1, have been exceeded. In our view, the foregoing of
revenue usually does not involve a monetary payment. Thus, if a
restrictive reading of the words ‘payments’ were adopted, such
that ‘payments’ under Article 9.1(c) had to be monetary, no
account could be taken, under Article 9.1(c), of ‘revenue foregone’.
This would, we believe, prevent a proper assessment of the commitments
made by WTO Members under Article 9.2, as envisaged by
Article 1(c) of
the Agreement on Agriculture. We, therefore, prefer a reading of
Article 9.1(c) that allows full account to be taken of ‘revenue
foregone’. The contrary view would, in our opinion, elevate form
over substance and permit Members to circumvent the subsidy
disciplines set forth in Article 9 of the Agreement on Agriculture.”(91)
60.
The Appellate Body on Canada — Dairy acknowledged that Article
9.1(c) did not refer explicitly to “payments-in-kind”, unlike
other provisions of the Agreement on Agriculture, but held that the
purpose of its express inclusion was “to counter any suggestion that
the ordinary meaning of the terms ‘direct subsidies’ and ‘direct
payments’ does not include ‘payments-in-kind’’’:
“It is true, as Canada argues, that Article
9.1(c) does not
expressly include ‘payments-in-kind’ within its scope, whereas
Article 9.1(a) and paragraph 5 of Annex 2 to the Agreement on
Agriculture do. However, we do not regard the express inclusion of ‘payments-in-kind’
in these two provisions as necessarily implying the exclusion of ‘payments-in-kind’ under
Article 9.1(c). In
Article 9.1(a) and in paragraph 5
of Annex 2, the term ‘payments-in-kind’ is used in conjunction
with the words ‘direct subsidies’ and ‘direct payments’,
respectively. We believe that reference is made to ‘payments-in-kind’
in these two provisions to counter any suggestion that the ordinary
meaning of the terms ‘direct subsidies’ and ‘direct payments’
does not include ‘payments-in-kind’. By contrast, since the
ordinary meaning of the word ‘payments’ in Article
9.1(c) includes
‘payments-in-kind’, there was no need for ‘payments-in-kind’
to be expressly provided for. Moreover, if ‘payments-in-kind’ are
included in the qualified concept of ‘direct payments’ under Annex
2, paragraph 5, it would be incongruous to exclude them from the
broader concept of ‘payments’ in Article
9.1(c).”(92)
61.
The Appellate Body on Canada — Dairy consequently agreed with
the Panel that the ordinary meaning of the word “payments” in Article
9.1(c) encompassed “payments” in forms other than money,
including revenue foregone:
“In our view, the provision of milk at discounted prices to
processors for export under Special Classes 5(d) and 5(e) constitutes
‘payments’, in a form other than money, within the meaning of Article
9.1(c). If goods or services are supplied to an enterprise, or
a group of enterprises, at reduced rates (that is, at below
market-rates), ‘payments’ are, in effect, made to the recipient of
the portion of the price that is not charged. Instead of receiving a
monetary payment equal to the revenue foregone, the recipient is paid
in the form of goods or services. But, as far as the recipient is
concerned, the economic value of the transfer is precisely the same.
We, therefore, uphold the Panel’s finding, in paragraph 7.101 of
the Panel Report, that the provision of discounted milk to processors
or exporters under Special Classes 5(d) and 5(e) involves ‘payments’
within the meaning of Article 9.1(c) of the Agreement on
Agriculture.”(93)
(94)
(ii) Benchmark to be applied when assessing payments
62.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) explained the importance of a benchmark when assessing
if the measure at issue involves “payments” under Article
9.1(c):
“Thus, the determination of whether ‘payments’ are involved
requires a comparison between the price actually charged by the
provider of the goods or services — the prices of CEM in this case
—
and some objective standard or benchmark which reflects the proper
value of the goods or services to their provider — the milk producer
in this case. We do not accept Canada’s argument that as the
producer negotiates freely the price with the processor, and CEM
prices are, therefore, market-determined, it is not necessary to
compare these prices with an objective standard.
Article 9.1(c) of the Agreement on Agriculture does not expressly
identify any standard for determining when a measure involves ‘payments’
in the form of payments-in-kind. The absence of an express standard
in Article 9.1(c) may be contrasted with several other provisions
involving export subsidies which do provide an express standard. Thus,
for instance, even within Article 9.1 itself,
sub-paragraphs (b) and
(e) expressly provide that the domestic market constitutes the
appropriate basis for comparison.(95)
We believe that it is significant that Article
9.1(c) of the
Agreement on Agriculture does not expressly identify a standard or
benchmark for determining whether a measure involves ‘payments’.
It is clear that the notion of ‘payments’ encompasses a diverse
range of practices involving a transfer of resources, either monetary
or in-kind. Moreover, the ‘payments’ may take place in many
different factual and regulatory settings. Accordingly, we believe
that it is necessary to scrutinize carefully the facts and
circumstances of a disputed measure, including the regulatory
framework surrounding that measure, to determine the appropriate basis
for comparison in assessing whether the measure involves ‘payments’
under Article 9.1(c).”(96)
63.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) rejected the Panel’s suggestion that the domestic
market provided the “right benchmark” for the dispute.
“The domestic price in this case is an administered price fixed
by the Canadian government as part of the regulatory framework
established by it for managing the supply of milk destined for
consumption in the domestic market. As with administered prices in
general, this price expresses a government policy choice based, not
only on economic considerations, but also on other social objectives.
The Canadian regulatory framework for managing domestic milk supply,
including the establishment of the administered price, is not in
dispute in this case. There can be little doubt, however, that the
administered price is a price that is favourable to the domestic
producers. Consequently, sale of CEM by the producer at less than the
administered domestic price does not, necessarily, imply that the
producer has foregone a portion of the proper value of the milk to it.
In the situation where the producer, rather than the government,
chooses to produce and sell CEM in the marketplace at a price it
freely negotiates, we do not believe it is appropriate to use, as a
basis for comparison, a domestic price that is fixed by the
government.”(97)
64.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) also rejected an alternative “benchmark” which
relied on world market prices.
“The alternative ‘benchmark’ which the Panel relied upon to
determine whether CEM prices involve ‘payments’ was the terms and
conditions on which alternative supplies are available to processors
on world markets, through IREP.(98) In reviewing this benchmark, we
recall that, in these proceedings, the standard used to determine
whether there are ‘payments’ under Article
9.1(c) must be based on
the proper value of the milk to the producer, in order to determine
whether the producer foregoes a portion of this value. If a producer
wishes to sell milk for export processing, it is obvious that the
price of the milk to the processor must be competitive with world
market prices. If it is not, the processor will not buy the milk, as
it will not be able to produce a final product that is competitive in
export markets. Accordingly, the range of world market prices
determines the price which the producer can charge for milk destined
for export markets.(99) World market prices do, therefore, provide one
possible measure of the value of the milk to the producer.
However, world market prices do not provide a valid basis for
determining whether there are ‘payments’, under Article
9.1(c) of
the Agreement on Agriculture, for, it remains possible that the reason
CEM can be sold at prices competitive with world market prices is
precisely because sales of CEM involve subsidies that make it
competitive. Thus, a comparison between CEM prices and world market
prices gives no indication on the crucial question, namely, whether
Canadian export production has been given an advantage. Furthermore,
if the basis for comparison were world market prices, it would be
possible for WTO Members to subsidize domestic inputs for export
processing, while taking care to maintain the price of these inputs to
the processors at a level which equalled or marginally exceeded world
market prices. There would then be no ‘payments’ under Article
9.1(c) of the Agreement on Agriculture and WTO Members could easily
defeat the export subsidy commitments that they have undertaken in
Article 3 of the Agreement on Agriculture.(100)
We do not, therefore, accept that world market prices are an
appropriate basis for determining whether sales of CEM by producers
involve ‘payments’ under Article 9.1(c)
of the Agreement on
Agriculture.”(101)
65.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) indicated that a number of possible measures for
assessing the value of milk existed:
“We turn now to determine the appropriate standard for assessing
whether sales of CEM by producers involve ‘payments’ under Article 9.1(c) of the Agreement on Agriculture. We reiterate that the standard
must be objective and based on the value of the milk to the producer.
Although the proceeds from sales at domestic or world market prices
represent two possible measures of the value of milk to the producer,
we do not see these as the only possible measures of this value. For
any economic operator, the production of goods or services involves an
investment of economic resources. In the case of a milk producer,
production requires an investment in fixed assets, such as land,
cattle and milking facilities, and an outlay to meet variable costs,
such as labour, animal feed and health-care, power and administration.
These fixed and variable costs are the total amount which the producer
must spend in order to produce the milk and the total amount it must
recoup, in the long-term, to avoid making losses. To the extent that
the producer charges prices that do not recoup the total cost of
production, over time, it sustains a loss which must be financed from
some other source, possibly ‘by virtue of governmental action.”(102)
66.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US II) considered that the average total cost of
production benchmark should be an industry-wide average:
“We believe that the standard for determining the existence of
‘payments’, under Article 9.1(c), should reflect the fact that the
obligation at issue is an international obligation imposed on Canada.
The question is not whether one or more individual milk producers,
efficient or not, are selling CEM at a price above or below their
individual costs of production. The issue is whether Canada, on a
national basis, has respected its WTO obligations and, in particular,
its commitment levels. It, therefore, seems to us that the benchmark
should be a single, industry-wide cost of production figure, rather
than an indefinite number of cost of production figures for each
individual producer. The industry-wide figure enables cost of
production data for producers, as a whole, to be aggregated into a
single, national standard that can be used to assess Canada’s
compliance with its international obligations.
By contrast, if the benchmark were to operate at the level of each
individual producer, there would be a proliferation of standards,
requiring individual-level inquiry and application of Article
9.1(c),
as if the obligations under the Agreement on Agriculture involved
rights and obligations of individual producers, rather than WTO
Members.”(103)
67.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US II) agreed with the Panel that certain imputed costs
and selling costs should be included in the cost of production
benchmark:
“We, therefore, find that the COP standard for determining
whether ‘payments’ exist, under Article
9.1(c) of the Agreement on
Agriculture, includes all monetary and non-monetary economic costs of
production, such as the costs of family labour and management, and of
owner’s equity.
…
Accordingly, we find that any transport, marketing, and
administrative costs are to be included in the COP standard applied
under Article 9.1(c), as are any costs of acquiring and retaining
quota.”(104)
(b) “financed by virtue of governmental action”
(i) Meaning of governmental action
68.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) considered the meaning of the term “governmental
action” under Article 9.1(c):
“We recall that, in the original proceedings, the role of the
government in managing the supply of milk for export was manifest. We
stated that:
‘[G]overnmental action’ is not simply involved; it is, in fact,
indispensable to enable the supply of milk to processors for export,
and hence the transfer of resources, to take place. In the regulatory
framework, ‘government agencies’ stand so completely between the
producers of the milk and the processors or the exporters that we have
no doubt that the transfer of resources takes place ‘by virtue of
governmental action’.(105) (emphasis added)
Although the phrase ‘financed by virtue of governmental action’
must be understood as a whole, it is useful to consider separately the
meaning of the different parts of this phrase. Taking the words ‘governmental
action’ first, we observe that the text of Article
9.1(c) does not
place any qualifications on the types of ‘governmental action’
which may be relevant under Article 9.1(c). In the original
proceedings, we stated that ‘[t]he essence of “government” is
… that it enjoys the effective power to “regulate”, “control”
or “supervise” individuals, or otherwise “restrain” their
conduct, through the exercise of lawful authority.’(106) In our
opinion the word ‘action’ embraces the full range of these
activities, including governmental action regulating the supply and
price of milk in the domestic market.”(107)
(ii) Meaning of “financed”
69.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) considered the meaning of this term under Article
9.1(c):
“[I]t will not be sufficient simply to demonstrate that a payment
occurs as a consequence of governmental action because the word ‘financed’,
in Article 9.1(c), must also be given meaning.
The word ‘financed’ might be given a rather specific meaning
such that it would be confined to the financing of ‘payments’ in
monetary form or to the funding of ‘payments’ from government
resources. However, we have already recalled that ‘payments’,
under Article 9.1(c), include payments-in-kind, so the word ‘financed’
needs to cover both the financing of monetary payments and
payments-in-kind.(108) In addition,
Article 9.1(c) explicitly excludes
a reading of the word ‘financed’ whereby payments must be funded
from government resources, as the provision states that payments can
be financed by virtue of governmental action ‘whether or not a
charge on the public account is involved’. Thus, under Article
9.1(c), it is not necessary that the economic resources constituting
the ‘payment’ actually be paid by the government or even that they
be paid from government resources. Accordingly, although the words ‘by
virtue of’ render governmental action essential, Article
9.1(c) contemplates that payments may be financed by virtue of governmental
action even though significant aspects of the financing might not
involve government.”(109)
(iii) Link between governmental action and the financing of
payments
70.
When examining the link required between governmental action
and the financing of payments under Article
9.1(c), the Panel on
Canada — Dairy (Article 21.5 — New Zealand and US) considered that
governmental action should be “indispensable” to the financing of
payments, and “establish[es] the conditions which ensure that the
payment … takes place.”(110) Further, the Panel indicated that for
the “by virtue of” test of Article 9.1(c)
to be met “it must be
established that a payment would not be financed … but for
governmental action.”(111) This “but for” standard would be met if
the following two requirements were established:
“[T]hat governmental action, de jure or
de facto: (i) prevents
Canadian milk producers from selling more milk on the regulated
domestic market, at a higher price, than to the extent of the quota
allocated to them; and (ii) obliges Canadian milk processors to export
all milk contracted as lower priced commercial export milk, and,
accordingly, penalizes the diversion by processors of milk contracted
as commercial export milk to the domestic market. As explained below,(112) only if both those requirements were to be met, governmental
action could be said to be indispensable for the transfer of resources
to take place: the lower priced commercial export milk would not have
been available to Canadian processors for export but for these
governmental actions, taken together.”(113)
71.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) confirmed that mere governmental action would not be
sufficient for a finding that an export subsidy existed under Article
9.1(c) and expanded on the meaning of the words “by virtue of”:
“The words ‘by virtue of‘ indicate that there must be a
demonstrable link between the governmental action at issue and the
financing of the payments, whereby the payments are, in some way,
financed as a result of, or as a consequence of, the governmental
action.”(114) (emphasis added)
72.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US) indicated that establishing such a link would be more
difficult in cases involving payments-in-kind.
“[T]he link between governmental action and the financing of
payments will be more difficult to establish, as an evidentiary
matter, when the payment is in the form of a payment-in-kind rather
than in monetary form, and all the more so when the payment-in-kind is
made, not by the government, but by an independent economic operator.”(115)
73.
Further, the Appellate Body in Canada — Dairy (Article 21.5 —
New Zealand and US) indicated that it disagreed with the Panel’s
findings that governmental action had “oblige[d]” or “drive[n]”
producers to sell commercial export milk (“CEM”).(116)
However, the
Appellate Body did not make any further findings on the meaning of “financed
by governmental action” at that stage of the proceedings.
74.
In Canada — Dairy (Article 21.5 — New Zealand and US II) the
Appellate Body considered the meaning of “financed by government
action” in light of the ordinary meaning of the word “financing”
but, on the other hand, the fact that Article
9.1(c) expressly states
that “payments” need not involve “a charge on the public account”.
It summed up as follows:
“Accordingly, even if government does not fund the payments
itself, it must play a sufficiently important part in the process by
which a private party funds ‘payments’, such that the requisite
nexus exists between ‘governmental action’ and ‘financing’.”(117)
75.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US II) considered the facts of the dispute and agreed with
the Panel that a significant percentage of producers were likely to
finance sales of commercial export milk (“CEM”) at below the costs
of production as a result of participation in the domestic market and,
further, that payments made through the supply of CEM at below the
costs of production were financed by virtue of “governmental action”
within the meaning of Article 9.1(c) of the Agreement on
Agriculture:
“It falls now to consider the role of the Canadian government in
financing payments made on the sale of CEM. We have agreed with the
Panel that a significant percentage of producers are likely to finance
sales of CEM at below the costs of production as a result of
participation in the domestic market. Canadian ‘governmental action’
controls virtually every aspect of domestic milk supply and
management. [footnote omitted] In particular, government agencies fix
the price of domestic milk that renders it highly remunerative to
producers. Government action also controls the supply of domestic milk
through quota, thereby protecting the administered price. The
imposition by government of financial penalties on processors that
divert CEM into the domestic market is another element of governmental
control over the supply of milk. Further, the degree of government
control over the domestic market is emphasized by the fact that
government pools, allocates, and distributes revenues to producers
from all domestic sales. Finally, governmental action also protects
the domestic market from import competition through tariffs. [footnote
omitted]
In our view, the effect of these different governmental actions is
to secure a highly remunerative price for sales of domestic milk by
producers. In turn, it is due to this price that a significant
proportion of producers covers their fixed costs in the domestic
market and, as a result, has the resources profitably to sell export
milk at prices that are below the costs of production.”(118)
76.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US II) dismissed an objection that this reasoning brings
“cross-subsidization” under Article 9.1(c)
of the Agreement on
Agriculture:
“We have explained that the text of Article
9.1(c) applies to any
‘governmental action’ which ‘finances’ export ‘payments’.
The text does not exclude from the scope of the provision any
particular governmental action, such as regulation of domestic
markets, to the extent that this action may become an instrument for
granting export subsidies. Nor does the text exclude any particular
form of financing, such as ‘cross-subsidization’. Moreover, the
text focuses on the consequences of governmental action (‘by virtue
of which’) and not the intent of government. Thus, the provision
applies to governmental action that finances export payments, even if
this result is not intended. As stated in our Report in the first
Article 21.5 proceedings, this reading of Article
9.1(c) serves to
preserve the legal ‘distinction between the domestic support and
export subsidies disciplines of the Agreement on Agriculture’.(119)
Subsidies may be granted in both the domestic and export markets,
provided that the disciplines imposed by the Agreement on the levels
of subsidization are respected. If governmental action in support of
the domestic market could be applied to subsidize export sales,
without respecting the commitments Members made to limit the level of
export subsidies, the value of these commitments would be undermined. Article
9.1(c) addresses this possibility by bringing, in some
circumstances, governmental action in the domestic market within the
scope of the ‘export subsidies’ disciplines of Article
3.3.”(120)
77.
The Appellate Body on Canada — Dairy (Article 21.5 — New
Zealand and US II) considered that the “payments” at issue were
not financed “by virtue of” another form of governmental action in
the dispute, which was an exemption for processors from paying the
higher domestic price for milk when they purchased commercial export
milk:
“We do not believe that this action influences the ‘financing’
of payments by the producer. Certainly, this action explains why the
processor of CEM is not required to pay the higher domestic price for
CEM. However, the mere fact that the processor is not obliged to buy
CEM at the domestic price does not demonstrate a link between this
exemption and the financing of payments by the producer on the sale of
CEM. The exemption is, in short, not linked to the mechanism by which
the producer funds the payments.”(121)
4. Article 9.1(d)
(a) “costs of marketing”
78.
In US — FSC, the measure at issue created a reduction of income
tax liability for certain United States’ corporations, provided,
inter alia, that these corporations incurred a certain portion of
their marketing expenses abroad. The Panel found that the United
States’ measure constituted a subsidy to “reduce the costs of
marketing exports”, within the meaning of paragraph
1(d).(122) The
Appellate Body disagreed and held, inter alia, that “income tax
liability under the FSC measure arises only when goods are actually
sold for export, that is, when they have been the subject of
successful marketing. Such liability arises because goods have, in
fact, been sold, and not as part of the process of marketing them”.(123)
(Emphasis original) The Appellate Body ultimately concluded that “if
income tax liability arising from export sales can be viewed as among
the ‘costs of marketing exports’, then so too can virtually any
other cost incurred by a business engaged in exporting”:
“We turn, first, to the word ‘marketing’ in
Article 9.1(d),
which is at the heart of the phrase ‘to reduce the costs of
marketing exports’ in Article 9.1(d). Taken alone, that word can
have, as the Panel indicated, a range of meanings. The Panel noted the
Webster’s Dictionary meaning, according to which ‘marketing’ is
the ‘aggregate of functions involved in transferring title and in
moving goods from producer to consumer including among others buying,
selling, storing, transporting, standardizing, financing, risk bearing
and supplying market information’. … The New Shorter Oxford
Dictionary provides a similar meaning: ‘The action, business, or
process of promoting and selling a product …’. However, we must
look beyond dictionary meanings, because, as we have said before, ‘dictionary
meanings leave many interpretive questions open.’
The text of Article 9.1(d)
lists ‘handling, upgrading and other
processing costs, and the costs of international transport and freight’
as examples of ‘costs of marketing’. The text also states that ‘export
promotion and advisory services’ are covered by Article
9.1(d),
provided that they are not ‘widely available’. These are not
examples of just any ‘cost of doing business’ that ‘effectively
reduce[s] the cost of marketing’ products. Rather, they are specific
types of costs that are incurred as part of and during the process of
selling a product. They differ from general business costs, such as
administrative overhead and debt financing costs, which are not
specific to the process of putting a product on the market, and which
are, therefore, related to the marketing of exports only in the
broadest sense.
…
Income tax liability under the FSC measure arises only when goods
are actually sold for export, that is, when they have been the subject
of successful marketing. Such liability arises because goods have, in
fact, been sold, and not as part of the process of marketing them.
Furthermore, at the time goods are sold, the costs associated with
putting them on the market — costs such as handling, promotion and
distribution costs — have already been incurred and the amount of
these costs is not altered by the income tax, the amount of which is
calculated by reference to the sale price of the goods. In our view,
if income tax liability arising from export sales can be viewed as
among the ‘costs of marketing exports’, then so too can virtually
any other cost incurred by a business engaged in exporting.”(124)
XI . Article 10
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A. Text of
Article 10
Article 10: Prevention of Circumvention of Export Subsidy Commitments
1. Export subsidies not listed in
paragraph 1 of Article 9 shall
not be applied in a manner which results in, or which threatens to
lead to, circumvention of export subsidy commitments; nor shall
non-commercial transactions be used to circumvent such commitments.
2. Members undertake to work toward the development of
internationally agreed disciplines to govern the provision of export
credits, export credit guarantees or insurance programmes and, after
agreement on such disciplines, to provide export credits, export
credit guarantees or insurance programmes only in conformity
therewith.
3. Any Member which claims that any quantity exported in excess of
a reduction commitment level is not subsidized must establish that no
export subsidy, whether listed in Article 9 or not, has been granted
in respect of the quantity of exports in question.
4. Members donors of international food aid shall ensure:
(a) that the provision of international food aid is not tied
directly or indirectly to commercial exports of agricultural products
to recipient countries;
(b) that international food aid transactions, including bilateral
food aid which is monetized, shall be carried out in accordance with
the FAO “Principles of Surplus Disposal and Consultative Obligations”,
including, where appropriate, the system of Usual Marketing
Requirements (UMRs); and
(c) that such aid shall be provided to the extent possible in fully
grant form or on terms no less concessional than those provided for in
Article IV of the Food Aid Convention 1986.
B. Interpretation and Application of Article 10
1. Article 10.1
(a) Export subsidy commitments
79.
In US — FSC, the Appellate Body interpreted the term “export
subsidy commitments” to have “a wider reach [than reduction
commitments] that covers commitments and obligations relating to both
scheduled and unscheduled agricultural products”:
“The word ‘commitments’ generally connotes ‘engagements’
or ‘obligations’. Thus, the term ‘export subsidy commitments’
refers to commitments or obligations relating to export subsidies
assumed by Members under provisions of the Agreement on
Agriculture,
in particular, under Articles 3, 8 and
9 of that Agreement.
…
We also find support for this interpretation of the term ‘export
subsidy commitments’ in Article 10 itself, which draws a
distinction, in sub-paragraphs 1 and
3, between ‘export subsidy
commitments’ and ‘reduction commitment levels’. In our view, the
terms ‘export subsidy commitments’ and ‘reduction commitments’
have different meanings. ‘Reduction commitments’ is a narrower
term than ‘export subsidy commitments’ and refers only to
commitments made, under the first clause of Article
3.3, with respect
to scheduled agricultural products. It is only with respect to
scheduled products that Members have undertaken, under Article
9.2(b)(iv) of the Agreement on Agriculture, to reduce the level of
export subsidies, as listed in Article 9.1, during the implementation
period of the Agreement on Agriculture. The term ‘export subsidy
commitments’ has a wider reach that covers commitments and
obligations relating to both scheduled and unscheduled agricultural
products.”(125)
(b) “applied in a manner which results in, or which threatens to
lead to circumvention”
80.
In US — FSC, the Appellate Body made a number of observations
relevant to the interpretation of the phrase “applied in a manner
which results in, or which threatens to lead to, circumvention”:
“We turn next to whether the subsidies under the FSC measure are
‘applied in a manner which results in, or which threatens to lead
to, circumvention of export subsidy commitments’. (emphasis added)
The verb ‘circumvent’ means, inter alia, ‘find a way round,
evade …’. Article 10.1 is designed to prevent Members from
circumventing or ‘evading’ their ‘export subsidy commitments’.
This may arise in many different ways. We note, moreover, that, under
Article 10.1, it is not necessary to demonstrate actual ‘circumvention’
of ‘export subsidy commitments’. It suffices that ‘export
subsidies’ are ‘applied in a manner which … threatens to lead to
circumvention of export subsidy commitments’.
…
Article 10.1 prevents the application of export subsidies which ‘results
in, or which threatens to lead to, circumvention’ of that
prohibition. Members would certainly have ‘found a way round’, a
way to ‘evade’, this prohibition if they could transfer, through
tax exemptions, the very same economic resources that they are
prohibited from providing in other forms under Articles 3.3 and
9.1.
…
Given that the nature of the ‘export subsidy commitment’
differs as between scheduled and unscheduled products, we believe that
what constitutes ‘circumvention’ of those commitments, under
Article 10.1, may also differ.
As regards scheduled products, when the specific reduction
commitment levels have been reached, the limited authorization to
provide export subsidies as listed in Article 9.1 is transformed,
effectively, into a prohibition against the provision of those
subsidies. However, as we have seen, the FSC measure allows for the
provision of an unlimited amount of FSC subsidies, and scheduled
agricultural products may, therefore, benefit from those subsidies
when the reduction commitment levels specified in the United States’
Schedule for those agricultural products have been reached. In our
view, Members would have found ‘a way round’, a way to ‘evade’,
their commitments under Articles 3.3 and 9.1, if they could transfer,
through tax exemptions, the very same economic resources that they
were, at that time, prohibited from providing through other methods
under the first clause of Articles 3.3 and under
9.1.”(126)
81.
The Panel on US — FSC (Article 21.5 — EC) indicated that the
Act concerned contained subsidies contingent on export performance
under Article 1(e) of the Agreement on Agriculture. The United States
was found to have acted inconsistently with
Article 10.1 for “applying
the export subsidies, with respect to both scheduled and unscheduled
agricultural products, in a manner that, at the very least,
threaten[ed] to circumvent its export subsidy commitments under
Article 3.3 of the Agreement on Agriculture”:
“Turning to the issue of whether the export subsidies are ‘applied
in a manner which results in, or which threatens to lead to,
circumvention of export subsidy commitments’ within the meaning of
Article 10.1 of the Agreement on Agriculture, we derive guidance from
the approach of the Appellate Body in the original dispute and
consider the structure and other characteristics of the measure.(127) We
recall that the term ‘export subsidy commitments’, defining the
obligations that are to be protected under
Article 10.1 of the
Agreement on Agriculture, ‘… covers commitments and obligations
relating to both scheduled and unscheduled agricultural products’.(128)
We note that the Act creates a legal entitlement for recipients to
receive export subsidies, not listed in Article 9.1
(129), with respect
to both scheduled and unscheduled agricultural products. Upon
fulfilment by the taxpayer of the conditions stipulated in the Act,
the United States government must provide the tax exclusion. As there
is no limitation on the amount of extraterritorial income, and thus on
the amount of qualifying foreign trade income, that may be claimed in
respect of eligible transactions, the amount of export subsidies is
unqualified.(130)
Thus, with respect to unscheduled agricultural products, we believe
that the Act involves the application of export subsidies, not listed
in Article 9.1, in a manner that, at the very least, ‘threatens to
lead to circumvention’ of that ‘export subsidy commitment’ in
Article 3.3.
With respect to scheduled agricultural products, we observe that
the measure allows for the provision of an unlimited amount of
subsidies, and scheduled agricultural products may, therefore, benefit
from those subsidies even after the reduction commitment levels
specified in the United States’ Schedule for those agricultural
products have been reached. Thus, we find that the Act is applied in a
manner that, at the very least, threatens to lead to circumvention of
the export subsidy commitments made by the United States, under the
first clause of Article 3.3, with respect to scheduled agricultural
products.(131)
We note that, in these proceedings, the United States does not
contest that, if the measure gives rise to subsidies contingent upon
export performance under the Agreement on Agriculture, then these
subsidies would violate its obligations under
Article 10.1 and 8 of
the Agreement on Agriculture.
We therefore conclude that the United States has acted
inconsistently with its obligations under
Article 10.1 of the
Agreement on Agriculture by applying the export subsidies, with
respect to both scheduled and unscheduled agricultural products, in a
manner that, at the very least, threatens to circumvent its export
subsidy commitments under Article 3.3 of the Agreement on
Agriculture.
Furthermore, by acting inconsistently with
Article 10.1, the United
States has acted inconsistently with its obligation under Article 8 of
the Agreement on Agriculture ‘not to provide export subsidies
otherwise than in conformity with this Agreement …’.”(132)
2. Article 10.2
82.
At its meeting of 18 October 2000, the General Council agreed
to instruct the Committee on Agriculture to include an item on the
implementation of Article 10.2 of the Agreement on Agriculture in the
agenda of the regular meetings of the Committee on Agriculture.(133)
83.
At its meeting of 18 October 2000, the General Council also
stated that:
“[I]n pursuing their work on export credits in accordance with
Article 10.2, Members will of course take into account the provisions
of paragraph 4 of the Marrakesh Decision on net food-importing
countries, in which Ministers had agreed that any agreement on export
credits should ensure appropriate provision for differential treatment
in favour of least-developed and net food-importing developing
countries.(134)”
84.
At the Doha WTO Ministerial, Members approved the following
recommendations, which had been submitted to the Committee on
Agriculture for their consideration:
“a) That the focus of the work in the regular Committee meetings
would be on the implementation of Article 10.2
and the disciplines
foreseen therein, whereas the Special Session negotiations would focus
on the proposals tabled or to be tabled on export credit practices;
b) that, without prejudice to further work to be undertaken in the
regular meetings of the Committee as provided for in subparagraph (I)
above, in the event that a Sector Understanding on agricultural export
credits is concluded at the OEC, the Committee would, as envisaged in
the report of the Committee on Agriculture to the Singapore WTO
Ministerial (G/L/131, paragraph 11), consider how any such
understanding could be multilateralized within the framework of the
Agreement on Agriculture and how the provisions of paragraph 4 of
the Marrakesh NFIDC Decision have been taken into account; and
c) that the Committee on Agriculture should submit a report to the
General Council on this subject following its regular September 2002
meeting.(135)”
85.
Pursuant to the above implementation agenda, the Committee in
its regular meetings under the provisions of Article 18.6 while
considering the development of internationally agreed disciplines to
govern the provision of export credits, export credit guarantees or
insurance programmes, took into account the provisions of paragraph 4
of the NFIDC Decision.(136)
86.
With respect to the Decision on Measures Concerning the
Possible Negative Effects of the Reform Programme on Least-Developed
and Net Food-Importing Developing Countries (the “NFIDC Decision”),
see Section XXIX below.
3. Article 10.3
(a) Export credits, export credit guarantees and insurance
programmes
87.
With respect to the different treatment of developing Members
in respect of agricultural export credits, export credit guarantees or
insurance programmes, see paragraph 103
below.
(b) Burden of proof
88.
In Canada — Dairy (Article 21.5 — New Zealand and US
II), the
Appellate Body explained that Article 10.3 of the Agreement on
Agriculture provides a special rule for proof of export subsidies that
applies in certain disputes under Articles 3,
8, 9 and 10 of the
Agreement on Agriculture. Article 10.3 partially reverses the usual
rules on burden of proof as follows:
“Under the usual rules on burden of proof, the complaining Member
would bear the burden of proving both parts of the claim. However, Article
10.3 of the Agreement on Agriculture partially alters the
usual rules. The provision cleaves the complaining Member’s claim in
two, allocating to different parties the burden of proof with respect
to the two parts of the claim we have described.
Consistent with the usual rules on burden of proof, it is for the
complaining Member to prove the first part of the claim, namely that
the responding Member has exported an agricultural product in
quantities that exceed the responding Member’s quantity commitment
level.
If the complaining Member succeeds in proving the quantitative part
of the claim, and the responding Member contests the export
subsidization aspect of the claim, then, under Article
10.3, the
responding Member ‘must establish that no export subsidy … has
been granted’ in respect of the excess quantity exported.”
(emphasis added)
89.
With respect to the export subsidization part of the claim, the
complaining Member, therefore, is relieved of its burden, under the
usual rules, to establish a prima facie case of export subsidization
of the excess quantity, provided that this Member has established the
quantitative part of the claim.(137)
4. Article 10.4
90.
With respect to international food aid, see Article 16 and
paragraphs 3(i) and (ii) of the Decision on Measures Concerning the
Possible Negative Effects of the Reform Programme on Least-Developed
and Net Food-Importing Developing Countries (the “NFIDC Decision”).
Section XVII below and paragraph 131 below.
91.
The Chairman of the General Council referred a proposal by the
African Group to the Committee on Agriculture for its consideration.(138) On 14 July 2003 he submitted a report to the General
Council on the status of the proposal and the progress made with
regards to it.(139) In the proposal it was suggested that developed
country Members undertake in their schedule of commitments to make
contributions towards a revolving fund for normal levels of food
imports, providing food aid in fully grant form, and maintaining food
aid levels consistently with recommendations and rules under the Food
Aid Convention.
Footnotes:
1. BISD 33S/19, Part
I, Section D.
back to text
2. MTN.TNC/11, pp. 6–7.
back to text
3. See Appellate Body Report on
Korea — Various Measures on Beef,
paras. 126, 127 and 129. back to text
4. (footnote original) The New Shorter Oxford English
Dictionary, (Clarendon Press, 1993), Vol. I, p. 15. back to text
5. (footnote original) Ibid. back to text
6. (footnote original) We note that this difference is not reflected in the wording of the definition of Current Total AMS in
Article 1(h). Article 1(h)(ii) provides that Current Total AMS is to be calculated “in accordance with the provisions of this Agreement, including
Article 6,
and with the constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member’s Schedule”. (emphasis added)
back to text
7. Appellate Body Report on
Korea — Various Measures on Beef, para.
111. back to text
8. (footnote original) On the contrary, the Panel opines that the
“constituent data and methodology” has an important role to play in
ensuring that the calculation of support to any given product is
calculated in subsequent years consistently with support calculated in
the base period. Panel Report, para. 811. back to text
9. (footnote original) … In other words, there is no
data
(product) in respect of which the methodology of Schedule LX of Korea
(that is, the use of figures for the years 1989–1991) could be applied,
in so far as beef is concerned. back to text
10. Appellate Body Report on
Korea — Various Measures on Beef, paras. 112–114. back to text
11. Appellate Body Report on
Korea — Various Measures on Beef, paras. 117–118. back to text
12. Appellate Body Report on
Canada — Dairy, para. 87. back to text
13. Appellate Body Report on
US — FSC, para. 136. back to text
14. Appellate Body Report on
US — FSC, para. 137. back to text
15. Appellate Body Report on
US — FSC, para. 141. This was confirmed
in the Appellate Body Report on
US — FSC (Article 21.5 — EC), paras 192–195. back to text
16. Panel Report on
Korea — Various Measures on Beef, para. 803. back to text
17. Appellate Body Report on
US — FSC,
paras. 145–146. back to text
18. Appellate Body Report on
US — FSC,
paras. 150–152. back to text
19. (footnote original) Part III contains only one other provision,
namely, Article 5, which provides for a special safeguard mechanism that
may be used to derogate from the requirements of Article 4 when certain
conditions are met. We will discuss Article 5 later in this section. back to text
20. Appellate Body Report on
Chile — Price Band System, paras. 200–201. back to text
21. G/AG/2, pp.
2–4.
back to text
22. See Section III.B.1 of the Chapter on the
DSU. back to text
23. (footnote original) G. Leech and J. Svartvik,
A Communicative
Grammar of English, (Longman, 1979), paras 112–119. R. Quirk and S.
Greenbaum, A University Grammar of English, (Longman, 1979), paras.
328–330. back to text
24. (footnote original) Bound tariffs could, however, be
renegotiated pursuant to Article XXVIII of the GATT
1994. back to text
25. Appellate Body Report on
Chile — Price Band System, paras. 206–208. back to text
26. Appellate Body Report on
Chile — Price Band System,
paras. 209–210. back to text
27. (footnote original) In this context, we note that a special
safeguard can be imposed only on those agricultural products for which a
Member has reserved its right to do so in its Schedule. back to text
28. Appellate Body Report on
Chile — Price Band System,
para. 211. back to text
29. (footnote original)We note that Chile has not reserved, in it
Schedule, the right to apply special safeguards. In response to
questioning at the oral hearing, no participant suggested that the
interpretation of Article 4.2 should be different depending on whether
or not a Member reserved such a right. back to text
30.
Appellate Body Report on
Chile — Price Band System, para. 217. back to text
31. See Section III.B.1(iii)(c) of the Chapter on the
DSU. back to text
32. “… a ‘concordant, common and consistent’ sequence of acts
or pronouncements which is sufficient to establish a discernible pattern
implying the agreement of the parties [to a treaty] regarding its
interpretation.” Appellate Body Report on
Japan — Alcoholic Beverages, para. 107. back to text
33. Appellate Body Report on
Chile — Price Band System, paras. 213–214. back to text
34. (footnote original) The New Shorter Oxford
Dictionary, L. Brown
(ed.) (Clarendon Press), 1993, Vol. I, p. 502. back to text
35. (footnote original) Ibid.
back to text
36. Appellate Body Report on
Chile — Price Band System, para. 216. back to text
37. The Panel found that “[a]s an empirical matter, we observe that
Members, in regular practice, invariably express commitments in the
ordinary customs duty column of their Schedules as ad valorem or
specific duties, or combinations thereof. All ‘ordinary’ customs
duties may therefore be said to take the form of ad valorem or specific
duties (or combinations thereof).” Panel Report on
Chile — Price Band System, para. 7.52. back to text
38. The Panel had found that “[a]s a normative matter, we observe
that those scheduled duties always relate to either the value of the
imported goods, in the case of ad valorem duties, or the volume of
imported goods, in the case of specific duties.” Panel Report on
Chile — Price Band System, para. 7.52. back to text
39. (footnote original) Ibid., para. 7.52.
back to text
40. (footnote original) Appellate Body Report,
EC — Bananas III, supra, footnote 58, para. 154. Panel Report in
United States
Restrictions on Imports of Sugar, adopted 22 June 1989, BISD 36S/331,
para. 5.2. back to text
41. (footnote original) Appellate Body Report,
European Communities — Customs Classification of Certain Computer Equipment, WT/DS62/AB/R,
WT/DS67/AB/R,
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851,
paras. 84, 90 and 93. See also our paras. 213–214 of this Report. back to text
42. Appellate Body Report on
Chile — Price Band System, paras. 271,
272 and 274. back to text
43. The Panel had found that “for the purpose of
Article II:1(b),
first sentence, of GATT 1994 and Article 4.2 of the Agreement on
Agriculture, an ‘ordinary’ customs duty, that is, a customs duty
senso strictu, is to be understood as referring to a customs duty which
is not applied on the basis of factors of an exogenous nature”. Panel Report on
Chile — Price Band System, para. 7.52. back to text
44. (footnote original) We stated in
Argentina — Textiles and
Apparel, supra, footnote 55, para. 46, that “a tariff binding in a
Member’s Schedule provides an upper limit on the amount of duty that
may be imposed, and a Member is permitted to apply a rate of duty that
is less than that provided for in its Schedule.” Thus, the fact that
the “cap” (recorded in the “ordinary customs duty” column of a
schedule) is a specific or an ad valorem duty does not mean that a
Member will not apply a tariff at a lower rate, or that the rate it
applies will not be based on what the Panel calls “exogenous”
factors. Indeed, as we noted above, it is difficult to conceive that a
Member would ever make changes to its applied tariff rate except based
on exogenous factors such as the interests of domestic consumers or
producers. back to text
45. Appellate Body Report on
Chile — Price Band System, para. 273. back to text
46. Appellate Body Report on
Chile — Price Band System, para. 275. back to text
47. Appellate Body Report on
Chile — Price Band System, paras. 276–277. back to text
48. Appellate Body Report on
Chile — Price Band System, para. 279. back to text
49. Appellate Body Report on
Chile — Price Band System, para. 212. back to text
50. Panel Report on
Korea — Various Measures on Beef, para. 762. back to text
51. The Panel had concluded that it could not develop an
interpretation of the term “variable import levies” solely on the
basis of the methods of interpretation codified in Article 31 of the
Vienna Convention. and decided, therefore, to have recourse to “supplementary
means of interpretation” within the meaning of Article 32 of that
Convention. This led to the Panel’s identification of what it
described as “fundamental characteristics” of “variable import
levies”. Panel Report on
Chile — Price Band System, paras. 7.35–7.36.
The Appellate Body, nevertheless, upheld the Panel’s finding, in para.
7.47 of the Panel Report, that Chile’s price band system is a “border
measure similar to ‘variable import levies’ and ‘minimum import
prices’ within the meaning of footnote 1 and Article 4.2
of the
Agreement on Agriculture”. Appellate Body Report on
Chile — Price Band System, para. 262. back to text
52. Appellate Body Report on
Chile — Price Band System, para. 229. back to text
53. (footnote original) The New Shorter Oxford English Dictionary,
supra, footnote 190, p. 1574. back to text
54. (footnote original) Ibid., p. 3547.
back to text
55. (footnote original) Appellate Body Report,
Argentina — Textiles and Apparel, supra, footnote 55, para. 46.
back to text
56. Appellate Body Report on
Chile — Price Band System, paras. 232–234. back to text
57. Appellate Body Report on
Chile — Price Band System, para. 238. back to text
58. (original footnote) Panel Report, para. 7.36(e).
back to text
59. (footnote original) Ibid. back to text
60. (footnote original) Ibid. back to text
61. Appellate Body Report on
Chile — Price Band System, paras. 236–238. back to text
62. The Panel’s reasoning was the following: “First, as regards
the term ‘similar’, dictionaries define this term as ‘having a
resemblance or likeness’, ‘of the same nature or kind’, and ‘having
characteristics in common’. Two measures are in our view ‘similar’
if they share some, but not all, of their fundamental characteristics.
If two measures share all of their fundamental characteristics, they are
identical rather than similar. A border measure should therefore have
some fundamental characteristics in common with one or more of the measures explicitly listed in footnote 1. It is then a matter
of weighing the evidence to determine whether the characteristics are
sufficiently close to be considered ‘similar’.” Panel Report on
Chile — Price Band System, para. 7.26. back to text
63. (footnote original) The New Shorter Oxford English Dictionary,
supra, [ ], p. 2865. back to text
64. Appellate Body Report on
Chile — Price Band System, paras. 226–227. back to text
65. Appellate Body Report on
Chile — Price Band System, para. 228. In
this case, Chile’s price band system was compared to and found to be
sufficiently similar to a “variable import levy” and “minimum
import price” to make it a “similar border measure”. Para. 252. back to text
66. (footnote original) In this respect, we note that, as
illustrated by documents from GATT 1947, Contracting Parties to GATT
1947 regarded import levies which were applied to products subject to a
tariff binding as variable import levies in spite of the existence of
that binding:
The General Agreement contains no provision on the use of “variable
import levies”. It is obvious that if any such duty or levy is imposed
on a ‘bound’ item, the rate must not be raised in excess of what is
permitted by Article II … . (emphasis added)
See Note by the Executive Secretary on “Questions relating to
Bilateral Agreements, discrimination and Variable Taxes”, dated 21
November 1961, GATT document L/1636, paras. 7–8. back to text
67. Appellate Body Report on
Chile — Price Band System, para. 254. back to text
68. (footnote original) Paragraph 6 provides:
Where a tariff equivalent resulting from these guidelines is negative
or lower than the current bound rate, the initial tariff equivalent may
be established at the current bound rate or on the basis of national
offers for that product. (emphasis added) back to text
69. Appellate Body Report on
Chile — Price Band System, paras. 255–256. back to text
70. Appellate Body Report on
Chile — Price Band System, para. 227. back to text
71. For this interpretation, see
para. 19 of this Chapter. back to text
72. Appellate Body Report on
Chile — Price Band System, para. 190. back to text
73. Appellate Body Report on
EC — Poultry, paras. 143 and 145. back to text
74. (footnote original) Panel Report, para. 278.
back to text
75. (footnote original) We note that the
Incoterms 1990 of the
International Chamber of Commerce explains what the acronym “c.i.f.”
means “cost, insurance and freight”, but does not give a definition
of “c.i.f. import price”. However, according to customary usage in
international trade, c.i.f. import price, or simply c.i.f. price, is
equal to the price of the product in the exporting country plus
additional costs, insurance and freight to the importing country. This
definition may also be inferred from paragraph 2 of the Attachment to
Annex 5 of the Agreement on Agriculture. back to text
76. Panel Report on
EC — Poultry, para. 146. back to text
77. Appellate Body Report on
EC — Poultry, paras. 147–150. back to text
78. (footnote original) Panel Report, para. 291.
back to text
79. Appellate Body Report on
EC — Poultry, paras. 151–152. back to text
80. Appellate Body Report on
EC — Poultry, para. 153. back to text
81. Appellate Body Report on
EC — Poultry, para. 168. back to text
82. WT/L/238. back to text
83. Panel Report on Canada — Dairy, para. 7.43.
back to text
84. Appellate Body Report on Canada
— Dairy, paras. 87–88. back to text
85. Appellate Body Report on Canada
— Dairy, para. 97. back to text
86. (footnote original) Supra, para. 87.
back to text
87. (footnote original) Panel Report, para. 7.92.
back to text
88. (footnote original) The Shorter Oxford English
Dictionary, C.T.
Onions (ed.) (Guild Publishing, 1983), Vol. II, p. 1532. back to text
89. Appellate Body Report on Canada
— Dairy, paras. 107–108. back to text
90. (footnote original) See Panel Report, para. 7.95.
back to text
91. Appellate Body Report on Canada
— Dairy, paras. 109–110. back to text
92. Appellate Body Report on Canada
— Dairy, para. 111.
back to text
93. Appellate Body Report on Canada
— Dairy, paras. 113–114. back to text
94. The Panel on
Canada — Dairy (Article 21.5
— New Zealand and US II)
recalled that, as found by the Panel (Panel Report on Canada — Dairy,
para. 7.101) and confirmed by the Appellate Body (Appellate Body Report on Canada
— Dairy, para. 112) in the original Canada — Dairy case, a
payment under Article 9.1(c) includes a “payment-in-kind.” This
finding had been reaffirmed by the Panel (Panel Report on
Canada — Dairy
(Article 21.5 — New Zealand and US), para. 6.12) and Appellate Body
(Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), paras. 71 and 76) in the first Canada — Dairy compliance case. The
point had not been re-argued by the parties before The Panel on the
second Canada — Dairy compliance case: Panel Report on
Canada — Dairy
(Article 21.5 — New Zealand and US II), para. 5.26. back to text
95. (footnote original) See also,
items (c), (d),
(f), (g),
(h),
(j) and (k) of the Illustrative List of the SCM Agreement, each of which
expressly identifies one or more benchmarks to be used as a basis for
comparison in determining whether a measure involves export subsidies.
See further, paragraphs 8 and
13 of Annex 3, and paragraph 2 of Annex
4,
of the Agreement on Agriculture, which expressly identify one or more
benchmarks for calculating the amount of domestic support. back to text
96. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), paras. 74–76. back to text
97. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), para. 81 back to text
98. (footnote original) Panel Report, paras. 6.22
ff.
See, supra,
para. 67. We note that, in examining the terms and conditions on which
IREP is available, the Panel focused exclusively on the requirements to
obtain a discretionary permit and to pay an administrative fee. In
assessing whether alternative sources of supply are available on more
favourable terms, we consider that panels should take account of all the
factors which affect the relative “attractiveness” in the
marketplace of the different goods or services. The primary
consideration must be price, while the importance of administrative
formalities will depend on their nature and characteristics. For
instance, if an import permit were granted to importers as a matter of
course, in the context of straightforward import procedures, and if
import fees were only administrative charges to cover expenses, these
formalities would be unlikely, on their own, to mean that imports were
available on less favourable terms and conditions. back to text
99. (footnote original) New Zealand acknowledged, before the Panel,
that the price of CEM “will be essentially world market prices”.
(New Zealand’s first submission to the Panel, para. 4.05) Canada also
argued that the processor offers producers a price for CEM that is based
on world market conditions. (Canada’s first submission to the Panel,
para. 37; Canada’s second submission to the Panel, para. 13; Canada’s
oral statement before the Panel, paras. 21, 30, 49 and 51; Canada’s
appellant’s submission, para. 39 and footnote 32 thereto.) back to text
100. (footnote original) We note that none of the participants in
these proceedings argued that world market prices are the appropriate
benchmark for determining whether supplies of CEM involve “payments”
within the meaning of Article 9.1(c) of the Agreement on Agriculture.
See also, supra, footnote 43. back to text
101. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US) paras. 83–85. back to text
102. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), paras. 86–87. back to text
103. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), paras.
95–96. back to text
104. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), paras. 110 and
116. back to text
105. (footnote original) Appellate Body Report on Canada
— Dairy, supra, footnote 2, para. 120. back to text
106. (footnote original) Ibid., para. 97.
back to text
107. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), paras. 111 and 112. back to text
108. (footnote original) Supra, para. 71.
back to text
109. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), para. 114. back to text
110. Panel Report on
Canada — Dairy
(Article 21.5 — New Zealand and US), paras. 6.38, 6.40 and 6.44. back to text
111. Panel Report on
Canada — Dairy
(Article 21.5 — New Zealand and US), paras. 6.39. back to text
112. (footnote original) See paragraphs
6.43–6.48 below [of the
Report]. back to text
113. Panel Report on
Canada — Dairy
(Article 21.5 — New Zealand and US), paras. 6.42. The Panel found that these requirements were satisfied
— a finding which led Canada to appeal. back to text
114. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), para. 113. back to text
115. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), para. 113. back to text
116. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and
US), paras. 116–117. back to text
117. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), para. 133. back to text
118. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), paras.
144–145. back to text
119. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), para. 90. back to text
120. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), para. 148. back to text
121. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), para. 149. back to text
122. Panel Report on
US — FSC, para. 7.155.
back to text
123. Appellate Body Report on US — FSC, para. 131.
back to text
124. Appellate Body Report on US — FSC, paras.
129–131.
back to text
125. Appellate Body Report on US — FSC, paras. 144 and 147.
back to text
126. Appellate Body Report on US — FSC, paras.
148–152. This was
confirmed by the Panel Report on
US — FSC (Article 21.5 — EC), paras. 8.117–8.122. back to text
127. (footnote original) Original Appellate Body Report,
supra, note
1, para. 149. back to text
128. (footnote original) Original Appellate Body Report,
supra, note
1, paras. 144–147. back to text
129. (footnote original) See supra, note 219.
back to text
130. (footnote original) See also original Appellate Body Report,
supra, note 1, para. 149. back to text
131. (footnote original) Original Appellate Body Report,
supra, note
1, para. 152. back to text
132. Panel Report on
US — FSC (Article 21.5 — EC), paras. 8.117–8.122. back to text
133. WT/GC/M/59, para. 20. back to text
134. WT/GC/M/59, para. 21. back to text
135.
WT/MIN(01)/17, para. 2.3. The text of the recommendations is
contained in document G/AG/11, paras.
1–4. back to text
136. G/L/719,
para. 4 (i). back to text
137. Appellate Body Report on Canada
— Dairy (Article 21.5 — New Zealand and US II), paras.
71–73 and 75. back to text
138. TN/CTD/W/3/Rev.2. back to text
139. G/AG/17 and G/AG/17/Corr.1. back to text
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