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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. Panels and the Appellate Body have referred to the Preamble in a
number of cases. For example, in EC — Bananas III the Appellate
Body referred to the Preamble in the context of addressing the
relationship between the Agreement on Agriculture and Article XIII of
the GATT 1994:
“The question remains whether the provisions of the Agreement on
Agriculture allow market access concessions on agricultural products
to deviate from Article XIII of the GATT
1994. The preamble of the Agreement
on Agriculture states that it establishes ‘a basis for initiating
a process of reform of trade in agriculture’ and that this 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’. The
relationship between the provisions of the GATT 1994 and of the Agreement
on Agriculture is set out in Article 21.1 of the Agreement on
Agriculture: …
Therefore, the provisions of the GATT 1994, including
Article XIII,
apply to market access commitments concerning agricultural products,
except to the extent that the Agreement on Agriculture contains
specific provisions dealing specifically with the same matter.”(1)
2. In Canada — Dairy, the Panel referred to the Preamble and
identified the “main purpose” of the Agreement on Agriculture:
“As enunciated in the preamble to the Agreement on Agriculture, the
main purpose of the Agreement is to ‘establish a basis for initiating
a process of reform of trade in agriculture’ in line with, inter
alia, the long-term objective of establishing ‘a fair and
market-oriented agricultural trading system’. This objective is
pursued in order ‘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’.”(2)
3. In Canada — Dairy (Article 21.5 — New Zealand and US),
the Panel considered that Article 9.1(c) “should be read having regard
to the object and purpose” of the Agreement on Agriculture, and
considered that “the Preamble of the Agreement on Agriculture provides
useful guidance to identify the object and purpose of that Agreement”.
After quoting several recitals from the Preamble, the Panel stated that:
“This language makes clear that the working assumption in
agricultural trade is not that of a market free of government
intervention. The establishment of a fair and market-oriented
agricultural trading system, through progressive reductions in
agricultural support and protection, is the long-term objective, and the
Agreement on Agriculture has established a ‘basis for
initiating the process of reform’ aimed at achieving that long-term
objective. In the meantime, markets subject to a certain degree of
government regulation would appear to be rather the rule in agricultural
trade, and regulation-free markets the exception. Claiming that, under
Article 9.1(c), the right benchmark to determine whether a ‘payment’
exists is the extent to which government has decided to intervene in the
market, depending on whether a good is destined by the buyer for export
or not, ignores that fundamental economic reality, as reflected in the
object and purpose of the Agreement on Agriculture.”(3)
4. In Chile — Price Band System, the Appellate Body recalled
the Preamble prior to addressing the specific issues raised under
Article 4.2 of the Agreement on Agriculture:
“Before addressing these specific issues appealed by Chile, we
recall that the preamble to the Agreement on Agriculture states
that an objective of that Agreement is ‘to establish a fair and
market-oriented agricultural trading system’, and to initiate a reform
process ‘through the negotiation of commitments on support and
protection and through the establishment of strengthened and more
operationally effective GATT rules and disciplines’. The preamble
further states that, to achieve this objective, it is necessary to
provide for reductions in protection, ‘resulting in correcting and
preventing restrictions and distortions in world agricultural markets,’
through achieving ‘specific binding commitments,’ inter alia,
in the area of market access.
We are certainly aware of the importance of agricultural and primary
products to many developing country Members of the WTO. We are mindful
also that the significance of trade in such products is reflected in a
number of places in the covered agreements, including the Agreement
on Agriculture. In the preamble to the Agreement on Agriculture,
it is said that developed country Members agreed that, in implementing
their commitments on market access, they ‘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’.”(4)
5. The Panel in Turkey — Rice explained that:
“The objectives of the Agreement on Agriculture are described in
its preamble: ‘to establish a fair and market-oriented agricultural
trading system’, and to initiate a reform process ‘through the
negotiation of commitments on support and protection and through the
establishment of strengthened and more operationally effective GATT
rules and disciplines’. To achieve this objective, the preamble states
that it is necessary to provide for reductions in protection, ‘resulting
in correcting and preventing restrictions and distortions in world
agricultural markets’, through achieving ‘specific binding
commitments’, inter alia, in the area of market access.”(5)
Part I
II. Article 1
back to top
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)
(a) AMS
6. The Panel in Korea — Various Measures on Beef, in a
finding later reversed by the Appellate Body(6), 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’.(7)
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’.(8)
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’.(9)”(10)
7. The Appellate Body then 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 as Korea had no
specific “constituent data and methodology” for beef, its Current
AMS for beef 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’.(11) 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.(12)
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.”(13)
8. In Korea — Various Measures on Beef, the Panel also held
that Korea had miscalculated 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
7 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.”(14)
(b) “support”
9. The Panel on US — Upland Cotton commented regarding “support”:
“Disciplines on ‘support’ are one of the three pillars of the Agreement
on Agriculture, which uses the word ‘support’ interchangeably
with ‘domestic support’. Neither are defined terms, although
Articles 3.2, 6.1, 6.3,
7.1 and 7.2(a) clarify their meaning somewhat by
referring to ‘support in favour of domestic producers’ or ‘domestic
support in favour of agricultural producers’. …
Annex 3 sets out at great length a methodology for measuring the
support granted by those measures which are calculated or can be
calculated in an Aggregate Measurement of Support (‘AMS’). Paragraph
1 of Annex 3 lists the following types of support:
‘market price support, non-exempt direct payments, or any other
subsidy not exempted from the reduction commitment (“other non-exempt
policies”)’
The residual type of support in this list refers to any ‘other’
subsidy and paragraph 2 refers to ‘subsidies’ under
paragraph 1. We
can also note that the first two types of support in the list are price
and income support, which are terms used in paragraph 1 of Article XVI
of the GATT 1994 to illustrate the word ‘subsidy’. It is
clear from all these references that all relevant types of support for
the purposes of the Agreement on Agriculture are subsidies.
An important feature of the Agreement on Agriculture is that
it defines in detail the domestic support measures exempt from
reduction commitments, rather than those which are subject to
reduction commitments. It is therefore inappropriate to attempt to give
an exhaustive definition of ‘support’. It is also unnecessary to do
so due to the detailed methodology for measuring support contained in
the text.”(15)
(c) Article 1(c)
10. In Canada — Dairy, the Appellate Body interpreted “revenue
foregone” in relation to scheduled commitments under Article
9.1:
“In terms of [Article 1(c)], ‘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.”(16)
2. Article 1(e)
(a) “subsidies”
11. 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”.(17)
12. In US — FSC, the Appellate Body, noting “that the Agreement
on Agriculture does not contain a definition of the terms ‘subsidy’
or ‘subsidies’”(18), 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.”(19)
13. As regards the definition of a subsidy under the SCM Agreement,
see Article 1 of the Chapter on the SCM
Agreement.
(b) “contingent upon export performance”
14. 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.”(20)
15. The Appellate Body further noted that “provision of subsidies
under the FSC measure is dependent or conditional upon
either the exportation of ‘export property’, or, in the case
of services provided before exportation, at the very least, the anticipation
of that exportation. For these reasons, we find that the FSC measure
involves ‘subsidies contingent upon export performance’ under the Agreement
on Agriculture.”(21)
16. The compliance Panel in US — FSC found that the
statutory provision at issue, “by virtue of the requirement of ‘use
outside the United States’, involved export subsidies as defined in
Article 1(e) of the Agreement on Agriculture for the purposes of Article
10.1 of the Agreement on Agriculture”.(22)
17. With respect to the issue of whether the challenged United States
export credit guarantee programmes constitute “export subsidies”
within the meaning of Article 10.1 of the Agreement on
Agriculture, the
Panel in US — Upland Cotton looked to Article 1(e) of the
Agreement on Agriculture for guidance before ultimately concluding that
it did not see why the concept of “export subsidy” in Article 10.1
of the Agreement on Agriculture should differ from that of the SCM
Agreement:
“Article 1(e) of the Agreement on Agriculture states that
the term ‘export subsidies’ ‘refers to subsidies contingent upon
export performance, including the export subsidies listed in Article 9
of this Agreement’. According to its own terms, and read in
conjunction with Article 1(e) of the Agreement on Agriculture,
Article 10.1 covers any subsidy contingent on export performance that is
not listed in Article 9.1.”(23)
18. The compliance Panel in the same dispute also looked to the SCM
Agreement:
“The Agreement on Agriculture does not generally define the
meaning of the term ‘export subsidies’. Article 1(e) of the
Agreement provides that export subsidies are ‘subsidies contingent
upon export performance, including the export subsidies listed in
Article 9 of this Agreement’. Panels and the Appellate Body have, in
interpreting the meaning of ‘export subsidies’ in Article
10.1,
relied, inter alia, on the relevant provisions of the SCM
Agreement (including Articles 1 and 3 and items of the Illustrative
List) as ‘context’.(24) These provisions define what measures
constitute, respectively, ‘subsidies’, and ‘export subsidies’,
for the purposes of the SCM Agreement.”(25)
19. As regards the concept of export contingency under the SCM
Agreement, see Article 3.1(a) of the Chapter on the SCM
Agreement.
3. Article 1(h)
20. 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 6–8
above.
III. Article 2
and Annex 1
back to top
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. Text of Annex 1
Annex 1: Product Coverage
1. This Agreement shall cover the following products:
|
(i) |
HS Chapters 1 to 24 less fish and fish products, plus* |
|
(ii) |
HS Code |
2905.43 |
(mannitol) |
|
|
HS Code |
2905.44 |
(sorbitol) |
|
|
HS Heading |
33.01 |
(essential oils) |
|
|
HS Headings |
35.01 to 35.05 |
(albuminoidal substances, modified starches, glues) |
|
|
HS Code |
3809.10 |
(finishing agents) |
|
|
HS Code |
3823.60 |
(sorbitol n.e.p.) |
|
|
HS Headings |
41.01 to 41.03 |
(hides and skins) |
|
|
HS Heading |
43.01 |
(raw furskins) |
|
|
HS Headings |
50.01 to 50.03 |
(raw silk and silk waste) |
|
|
HS Headings |
51.01 to 51.03 |
(wool and animal hair) |
|
|
HS Headings |
52.01 to 52.03 |
(raw cotton, waste and cotton carded or combed) |
|
|
HS Heading |
53.01 |
(raw flax) |
|
|
HS Heading |
53.02 |
(raw hemp) |
2. The foregoing shall not limit the product coverage of the
Agreement on the Application of Sanitary and Phytosanitary Measures.
* The product descriptions in round brackets are not necessarily
exhaustive
C. Interpretation and Application of Article 2 and Annex 1
21. In Canada — Dairy, the Panel referred to
Article 2 in
finding that the Agreement on Agriculture was applicable in that case:
“Both complainants invoke the Agreement on Agriculture.
Article 2
of this agreement provides that it applies to the agricultural products
listed in Annex I. The ‘agricultural products’ set out in
Annex I include the products at issue in this dispute (butter, cheese and ‘other
milk products’), all of which fall under HS Chapter 4. We thus find
that the Agreement on Agriculture applies to the issue at hand.”(26)
22. In Chile — Price Band System, the Panel noted that:
“[T]he Chilean PBS applies exclusively to agricultural products, as
defined in Annex 1 to the Agreement on
Agriculture. Consequently, the
provisions of the Agreement on Agriculture are applicable to the Chilean
PBS.”(27)
23. In US — Upland Cotton, the Panel observed that “Article
2 and Annex I of the Agreement on Agriculture set out the product
coverage of that agreement; the core distinction between ‘scheduled’
and ‘unscheduled’ products is rooted in the scheduled commitments
under the Agreement on Agriculture”.(28) The Panel concluded that
upland cotton, and the other agricultural products eligible under the
export credit guarantee programmes at issue, are products covered by the
Agreement on Agriculture.(29) The Panel in US — Upland Cotton also
referred to Article 2 as relevant context for the purpose of
interpreting the term “commodity” in Article
13(b)(ii):
“The word ‘commodity’ must be read in the context of
Article 2
of the Agreement on Agriculture which provides that the agreement
applies to the products listed in Annex 1 to the
Agreement. The product
coverage of the Agreement is narrower than this dictionary definition,
because it covers only agricultural products and not all things of use
or value nor all things that are the object of trade nor all raw
materials. The product coverage of the Agreement is broader than an
agricultural crop because it covers products such as livestock, meat,
dairy products and wool. All products within the coverage of the
Agreement are covered by the chapeau of paragraph (b) and there is no
reason to assume that support to any of them is excluded from the scope
of the condition in subparagraph
(ii). Therefore, we will treat the word
‘commodity’, in this context, as basically synonymous with one of
the ‘agricultural products’ defined in Article 2 and
Annex 1 but it
cannot be assumed that any provision which refers to ‘agricultural
products’, as defined, necessarily applies to a commodity within the
meaning of Article
13(b)(ii).”(30)
24. In US — Upland Cotton, the Panel also referred to
Article 2 in the context of finding that it could not directly transpose
the findings of the panel and Appellate Body in US — FSC to the
case before it:
“The ETI Act of 2000 examined in the US — FSC (Article 21.5
— EC) dispute applies in respect of a range of industrial and
agricultural products. It therefore applies not only with respect to
products falling within the product scope of the Agreement on
Agriculture, but also in respect of products outside that scope. By
contrast, the measure subject to this particular claim by Brazil is the
ETI Act of 2000 in respect of upland cotton only. As we have
already noted, upland cotton falls within the product scope of the Agreement
on Agriculture.”(31)
25. In EC — Chicken Cuts, the Appellate Body referred to
Annex 1 in the context of examining the link between the Harmonized
System and the WTO Agreements:
“This close link to the Harmonized System is particularly true for
agricultural products.(32)
Annex 1 to the Agreement on Agriculture,
which forms an integral part of that Agreement, defines the product
coverage of that Agreement by reference to headings of the Harmonized
System, both at the level of whole chapters and at the four-digit level
in respect of specific products. Moreover, it is undisputed that the
Uruguay Round tariff negotiations for agricultural products were held on
the basis of the Harmonized System and that all WTO Members have
followed the Harmonized System in their Schedules to the GATT 1994 with
respect to agricultural products.”(33)
Part II
IV. Article 3
back to top
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 3.1
26. In EC — Export Subsidies on Sugar, the Appellate Body
referred to Article 3.1 in the context of finding that the normal rules
of treaty interpretation apply in interpreting export subsidy
commitments specified in a Member’s Schedule under the Agreement on
Agriculture:
“A preliminary question for our consideration is what rules apply
in interpreting export subsidy commitments specified in a Member’s
Schedule under the Agreement on Agriculture. We observe that
Article II:7 of the General Agreement on Tariffs and Trade 1994 (the
‘GATT 1994’) provides that the ‘Schedules annexed to this
Agreement are hereby made an integral part of Part I of this
Agreement.’
Furthermore, Article 3.1 of the Agreement on Agriculture provides
that ‘export subsidy commitments in Part IV of each Member’s
Schedule … are hereby made an integral part of [the] GATT 1994.’
The applicable rules for interpreting the provisions of the GATT 1994
are the ‘customary rules of interpretation of public international law’.(34)
The Appellate Body has held that these rules are codified in the Vienna
Convention on the Law of Treaties(35) (the ‘Vienna Convention’).
As provisions of a Member’s Schedule are ‘part of the terms of the
treaty’, they are subject to these same rules of treaty
interpretation.(36) Accordingly, these rules apply in interpreting
Footnote 1. We note that no participant or third participant in this
appeal contests the applicability of these rules in interpreting
Footnote 1.”(37)
27. In EC — Export Subsidies on Sugar, the Appellate Body
stated that:
“We do not see Article 3.1 as permitting a Member to limit
subsidization to whatever commitment it chooses to specify in its
Schedule without regard to Members’ obligations under the Agreement
on Agriculture. Rather, with respect to export subsidy commitments,
we see Article 3.1 as requiring a Member to limit its subsidization to
the budgetary outlay and quantity reduction commitments specified in its
Schedule in accordance with the provisions of the Agreement on
Agriculture. This is also clear from the provisions of Article
9.2(a) of the Agreement, which requires adherence by a Member in each
year of the implementation period to the budgetary outlay and quantity
‘reduction commitments’, as specified in the Member’s Schedule.”(38)
28. In EC — Export Subsidies on Sugar, the Appellate Body
also referred to Article 3.1 in the context of clarifying the hierarchy
between the Agreement on Agriculture and the export subsidy commitments
in a Member’s schedule:
“As we noted above, Footnote 1, being part of the European
Communities’ Schedule, is an integral part of the GATT 1994 by virtue
of Article 3.1 of the Agreement on Agriculture. Therefore,
pursuant to Article 21 of the Agreement on Agriculture, the
provisions of the Agreement on Agriculture prevail over Footnote 1. We, therefore,
do not agree with the European Communities that ‘there is no hierarchy
between the export subsidy commitments in a Member’s schedule and the Agreement
on Agriculture.’(39)
2. Article 3.2
29. 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 stated
that:
“It is … 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.”(40)
3. Article 3.3
30. With respect to Members’ export subsidy commitments and related
waivers, see also paragraph 82 below.
31. 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.”(41)
32. The Appellate Body in 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.”(42)
33. In EC — Export Subsidies on Sugar, the Appellate Body
found that Article 3.3 required Members to schedule their export subsidy
commitments in terms of both budgetary outlay and quantity commitments
levels:
“Article 3.3 does not … explicitly state that export subsidy
commitments must be specified in a Member’s Schedule in terms of both
budgetary outlay and quantity commitment levels. At the same
time, Article 3.3 does not explicitly state that a Member may specify
its commitment level in terms of either of the two forms of commitments.
In our view, the use of the conjunctive ‘and’, and the corresponding
use of the word ‘levels’ in the plural, suggest that the drafters of
the Agreement intended that both types of commitments must be specified
in a Member’s Schedule in respect of any export subsidy listed in
Article 9.1”.(43)
Part III
V. Article 4
back to top
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
34. 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’.(44) 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 …”(45)
(b) Notification requirements
35. With respect to the notification requirements concerning tariff
quotas and other quotas, see paragraph 173
below.(46)
2. Article 4.1
36. 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.
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
37. 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. The Appellate Body first
focused 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.(47) 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.(48) 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.”(49)
Footnote 1
38. The Appellate Body in 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 37 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.”(50)
Article 5 as
context for Article 4.2 interpretation
39. The Appellate Body in Chile — Price Band System further
indicated that the context of Article 4.2 confirms its interpretation
(see paragraph 37 above). In this regard, the Appellate Body referred to
Article 5.1 as an illustration that the phrase “have been required to
be converted” in Article 4.2 is broader in scope than the phrase “have
been converted” in Article 5.1:
“[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.(51)
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.
…
… [T]he 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.(52)”(53)
Subsequent practice
40. 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” 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(54) 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.(55)
(ii) “converted”
41. 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’.(56) The word ‘converted’
connotes ‘changed in their nature’, ‘turned into something
different’.(57) 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.”(58)
(iii) “ordinary customs duties”
42. 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)”.(59) The Panel further found that the term “ordinary
customs duty” has a “normative connotation”.(60) 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.’(61) (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, in 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 a 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’.(62) A Member’s
Schedule imposes obligations on the Member who has made the concessions.
The Schedule of one Member, and even the scheduling practice of 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.(63) In this case the Panel Report contains
no support for the conclusion that the scheduling activity of 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 at hand, the ad valorem duty
is calculated on the value of 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.”(64)
43. The Appellate Body in 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”:(65)
“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.(66)”(67)
44. The Appellate Body in 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).”(68)
45. The Appellate Body in 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’.”(69)
Measure resulting in ordinary customs duties
46. 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.”(70)
(iv) Timing of the obligation
47. The Appellate Body in 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”.(71)
(b) Relation with Article XI of GATT and its Ad Note
48. The Panel in Korea
— Various Measures on Beef 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.”(72)
(c) Special treatment
49. 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 to Article 4.2
(a) “quantitative import restrictions”
50. In Turkey — Rice the Panel found that Turkey had failed
to grant Certificates of Control to import rice outside its tariff rate
quota which was characterized as a quantitative import restriction. In
its analysis the Panel found a lack of transparency and predictability:
“The Panel recalls that in Chile — Price Band System, when
referring to ‘variable import levies’ within the meaning of footnote
1 to Article 4.2, the Appellate Body noted some features that are
present in such measures:
‘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 … [A]n 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. [Footnote omitted]
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.’(73)
In the present dispute, the challenged measure does not affect the
level of duties, but rather the quantities of product that can enter the
Turkish market. We find, however, that the features of ‘lack of
transparency and lack of predictability’ that result from Turkey’s
decision to deny or fail to grant Certificates of Control to import rice
outside of the tariff rate quota are similar to those observed by the
Appellate Body Report in Chile — Price Band System. Even
without any systematic intention to restrict the importation of rice at
a certain level, the lack of transparency and of predictability of
Turkey’s issuance of Certificates of Control to import rice is
similarly liable to restrict the volume of imports.
In conclusion, we consider that there is sufficient evidence
regarding the manner in which, from September 2003 and for different
periods of time, Turkey has denied or failed to grant Certificates of
Control to import rice outside of the tariff rate quota, to characterize
this measure as a quantitative import restriction. Through this
practice, the Turkish authorities have restricted the importation of
rice for periods of time. This conduct can, therefore, be considered as
a measure of the kind which have been required to be converted into
ordinary customs duties under Article 4.2 of the Agreement on
Agriculture.”(74)
(b) “variable import levies”
51. In Chile — Price Band System, the Appellate Body,
reversing the Panel’s interpretation of this term(75), 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”.(76)
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.(77) An ‘import’ levy is, of course, a duty
assessed upon importation. A levy is ‘variable’ when it is ‘liable
to vary’.(78) 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).(79) 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.”(80)
52. The Appellate Body in Chile — Price Band System (Article
21.5 — Argentina), while observing that import levies could be
characterized by certain additional features which include a “lack of
transparency and a lack of predictability”, noted that these features
should not be understood as a necessary condition for a measure to be a
“variable import levy”:
“The Appellate Body further observed that variable import levies
are characterized by certain additional features which include ‘a lack
of transparency and a lack of predictability in the level of duties that
will result from such measures’. In making this statement, the
Appellate Body was not identifying a ‘lack of transparency’ and a
‘lack of predictability’ as independent or absolute characteristics
that a measure must display in order to be considered a variable import
levy. Rather, the Appellate Body was simply explaining that the level of
duties generated by variable import levies is less transparent and less
predictable than is the case with ordinary customs duties.”(81)
53. Regarding whether a measure ceases to be similar to a “variable
import levy” because it is subject to a tariff cap, see paragraphs 61–62
below.
(c) “minimum import prices”
54. In Chile — Price Band System, 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.(82)’
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.’(83) 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.’(84) (emphasis added)
… the participants said they do not object to the Panel’s
definition of a ‘minimum import price’…”(85)
(d) “discretionary import licensing”
55. The Panel in Turkey — Rice examined the question whether
Certificates of Control issued by Turkey were “import licences” and
whether the issuance of these certificates constituted “discretionary
import licensing”. Recalling that the term “import licence” is not
defined in the Agreement on Agriculture or elsewhere in the WTO
Agreement, and recalling the definition of “import licensing” in the
Agreement on Import Licensing Procedures, the Panel noted:
“[N]ot all documents giving the permission to import may be
necessarily considered to be ‘import licences’. As noted by the
parties, the importation process is often a complex procedure during
which a number of steps must be completed in order to obtain the
permission to import certain products. Throughout this process,
governments may require that written documents be obtained and then
produced to certify the completion of certain steps and thus the
compliance with certain legal requirements, in order to allow the
importation of goods and their final entry into the importing market.
Each of these steps and documents may serve particular objectives.
Strictly speaking, these special documents, when used for purposes such
as sanitary and phytosanitary control, customs clearance, payment of
taxes or duties, are not to be considered as ‘import licences’.
… not all practices of ‘import licensing’ would be ‘discretionary
import licensing’. ‘Discretionary’ is defined as ‘pertaining to
discretion [or] left to discretion’. ‘Discretion’ can be
characterized in turn as the ‘[f]reedom to decide or act as one thinks
fit, absolutely or within limits; having one’s own judgement as the
sole arbiter’.
…
… ‘discretionary import licensing’ … appears as one of the
measures in the indicative list of ‘measures of the kind which have
been required to be converted into ordinary customs duties’. The
object and purpose of Article 4 of the Agreement on
Agriculture, ‘to
achieve improved market access conditions for imports of agricultural
products by permitting only the application of ordinary customs duties’(86),
would be undermined if Members could decide, at their discretion,
whether or not to grant permission for the importation of a good, or if
they could decide, at their discretion, whether or not to grant a
document that is indispensable for such importation.
This interpretation is consistent with the definition agreed by WTO
Members in the context of the Import Licensing Agreement. Article 1.1 of
the Import Licensing Agreement and its footnote, when defining import
licensing, refer to licensing and ‘other similar administrative
procedures’. We note in this regard that the footnote to the Annual
Questionnaire on import licensing procedures, adopted by the WTO
Committee on Import Licensing, indicates that ‘similar procedures’:
‘[A]re understood to include technical visas, surveillance systems,
minimum price arrangements, and other administrative reviews effected
as a prior condition for entry of imports.’(87)”(88)
56. Applying this analysis to the measures at issue, the Panel in Turkey
— Rice noted that regarding ‘whether a measure may be
characterized as an ‘import licence’ or a conduct as an ‘import
licensing’ practice, the proclaimed objectives of a particular
document or requirement are not the main issue to consider in this
dispute” and it concluded that “regardless of the purported
objectives of the Certificates of Control, the decision to stop granting
such documents for periods of time has served as an instrument for
administering trade”.(89) The Panel concluded generally:
“[W]ithout necessarily having to articulate a general definition of
what constitutes an ‘import licence’ or a practice of ‘import
licensing’, we find that the discretionary use by authorities in an
importing country of the concession, or refusal to grant, a particular
document which is necessary for the importation of a good, as an
instrument to administer trade, in this case can be safely characterized
as a practice of ‘discretionary import licensing’ under footnote 1
to Article 4.2 of the Agreement on Agriculture.”(90)
(e) “similar border measures”
(i) Concept of similarity
57. 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.(91) 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’.(92)
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.”(93)
58. The Appellate Body in Chile — Price Band System (Article
21.5 — Argentina) remarked that when approaching an empirical
basis to determine similarity it “should entail both an analysis of
the extent of such shared characteristics and a determination of whether
these are sufficient to render the two things similar”. In doing so,
the Appellate Body saw no error in the Panel’s analysis which took
careful account of the design and structure:
“[I]n advocating that the issue of similarity be approached ‘on
an empirical basis’, the Appellate Body was contrasting this to, and
counselling against, an approach that focused on the fundamental
nature of the shared characteristics. The proper approach should,
instead, entail both an analysis of the extent of such shared
characteristics and a determination of whether these are sufficient to
render the two things similar. Such characteristics can be identified
from an analysis of both the structure and design of a measure as
well as the effects of that measure. Thus, we do not consider that the
Panel would have needed, as Chile’s argument seems to imply, to focus
its examination primarily on numerical or statistical data
regarding the effects of that measure in practice. Where it exists,
evidence on the observable effects of the measure should, obviously, be
taken into consideration, along with information on the structure and
design of the measure. The weight and significance to be accorded to
such evidence will, as is the case with any evidence, depend on the
circumstances of the case.(94)
59. The Appellate Body in 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”.(95)
60. The Appellate Body in Chile — Price Band System (Article
21.5 — Argentina) further clarified that an examination of “similarity”
cannot be made in the abstract:
“We recall that an examination of ‘similarity’ cannot be made
in the abstract: it necessarily involves a comparative analysis. That
analysis can be undertaken by comparing the measure at issue with at
least one of the listed measures which, by definition, have
characteristics different from the characteristics of an ordinary
customs duty. The term ‘ordinary customs duties’ in footnote 1 forms
part of the phrase ‘similar border measures other than ordinary
customs duties’. This phrase contains no punctuation, which suggests
that the phrase as a whole defines a relevant concept for purposes of
footnote 1. As we see it, ‘other than ordinary customs duties’ is an
adjectival phrase that qualifies the term ‘similar border measures’.
This language will, therefore, inform a panel’s analysis of whether a
measure is ‘similar’ to one of the categories of measures listed in
footnote 1. We observe, as well, that the structure and logic of
footnote 1 make clear that variable import levies and minimum import
prices cannot be ordinary customs duties. The same is true for border
measures similar to variable import levies and to minimum import prices.”(96)
(ii) Relevance of tariff caps in the similarity analysis
61. 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.(97)
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.”(98)
62. The Appellate Body in Chile — Price Band System found
support for this view in the context of Article 4.2, including the
Guidelines attached to Annex 5 of the Agreement on
Agriculture, 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(99) 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. 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.”(100)
(iii) Common features of border measures
63. In Chile — Price Band System, the Appellate Body noted
that all border measures listed in the footnote to Article 4.2 have the
object and effect of distorting trade:
“[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.”(101)
(f) “other than ordinary customs duties”
64. In Chile — Price Band System (Article 21.5 — Argentina),
the Appellate Body rejected Chile’s contention that the Panel erred in
omitting “to undertake a separate and independent analysis of whether
the measure at issue is ‘other than ordinary customs duties’”. “Having
found that the measure was similar to a variable import levy and to a
minimum import price, the Panel could properly conclude from these
findings that ‘as such, it is not an ordinary customs duty’”(102):
“… [W]e are of the view that inconsistency with
Article 4.2 can
be established when it is shown that a measure is a border measure
similar to one of the measures explicitly identified in footnote 1. A
separate analysis of whether, or an additional demonstration that, the
measure is ‘other than ordinary customs duties’ may also be
undertaken to confirm such a finding. However, these are not
indispensable for reaching a conclusion on the categories listed in
footnote 1.”(103)
(g) Exceptions in Footnote 1
65. The Panel in India — Quantitative Restrictions considered
a discretionary import licensing regime governing imports of both
industrial and agricultural products. India argued that these measures
fell within the exception provided in Footnote 1 for “measures
maintained under balance-of-payments provisions”. The Panel found that
the measures violated Article 4.2:
“In paragraph 5.139 above, we found that the measures at issue
violate Article XI:1 of the GATT
1994, which is equally applicable to
industrialized and agricultural products. In paragraph 5.223 above, we
also found that the measures at issue were not justified under Article
XVIII:B and violated Article
XVIII:11. India did not contest that
Article 4.2 was applicable to the agricultural products subject to the
measures at issue. We agree with India’s claims that the question of
the consistency of India’s import restrictions with Article 4.2
depends on their consistency with Article XVIII:B. We therefore
conclude that the Indian restrictions are not ‘measures maintained
under balance-of-payments provisions’ within the meaning of footnote 1
to Article 4.2 of the Agreement on Agriculture.
Since India does not invoke any of the other exceptions contained in
the footnote to Article 4.2, we find that the measures at issue violate
Article 4.2 of the Agreement on Agriculture.”(104)
(h) Relation with Article 4.2
66. The Appellate Body in Chile — Price Band System referred
to the wording of footnote 1 to the Agreement on Agriculture as
confirmation of its interpretation(105) of the phrase “measures which
have been required to be converted into ordinary customs duties” of
Article 4.2. See paragraph 38 above.
5. Relationship with other WTO Agreements
(a) GATT 1994
67. The Appellate Body in Chile — Price Band System, in
examining the concept of ordinary customs duties under Article 4.2 of
the Agreement on Agriculture, referred to Article II:1(b) of the GATT
1994. See paragraphs 41–45 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 Article II:1(b) of the GATT 1994
to resolve this dispute.(106)
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 per cent, the base trigger level shall equal 125 per
cent;
(b) where such market access opportunities for a product are greater
than 10 per cent but less than or equal to 30 per cent, the base trigger
level shall equal 110 per cent;
(c) where such market access opportunities for a product are greater
than 30 per cent, the base trigger level shall equal 105 per cent.
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 per cent 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 per cent 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 per
cent but less than or equal to 40 per cent of the trigger price, the
additional duty shall equal 30 per cent of the amount by which the
difference exceeds 10 per cent;
(c) if the difference is greater than 40 per cent but less than or
equal to 60 per cent of the trigger price, the additional duty shall
equal 50 per cent of the amount by which the difference exceeds 40 per
cent, plus the additional duty allowed under (b);
(d) if the difference is greater than 60 per cent but less than or
equal to 75 per cent, the additional duty shall equal 70 per cent of the
amount by which the difference exceeds 60 per cent of the trigger price,
plus the additional duties allowed under (b) and (c);
(e) if the difference is greater than 75 per cent of the trigger
price, the additional duty shall equal 90 per cent of the amount by
which the difference exceeds 75 per cent, 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)
68. In EC — Poultry, Brazil argued that the European
Communities had failed to comply with Article 5 of the Agreement on
Agriculture in implementing special safeguard measures for imports of
poultry meat outside tariff quotas. The Panel found 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 this finding, the
Appellate Body first explored the practical significance of this issue,
and then went on to distinguish between entry into the customs territory
on the one hand, and 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.”(107)
69. The Appellate Body in 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.’ (108)
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.(109) 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.”(110)
70. The Appellate Body in EC — Poultry found support for its
finding referenced in paragraph 69 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.” (111)
71. The Appellate Body in EC — Poultry, after making the
findings referenced in paragraphs 68–70
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.(112) 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’.”(113)
72. As a result of the reasoning referenced in
paragraphs 68–71 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.”(114)
2. Article 5.5
73. 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.”(115)
3. Article 5.7
(a) Notification requirements
74. With respect to notification requirements concerning the special
safeguard provisions, see paragraphs 173–177
below.
4. Relation of Article 5 with other articles
75. The Appellate Body in Chile — Price Band System (Article
21.5 — Argentina) identifies Article 5 as an exception to the
obligations that Article 4.2 imposes to all WTO Members:
“In the original proceedings, the Appellate Body acknowledged the
importance of agricultural products to many developing country Members
of the WTO, and the role of special and differential treatment for
developing country Members under the Agreement on Agriculture. At
the same time, the Appellate Body recognized that the requirements of
the Agreement on Agriculture apply to developing country Members
except where otherwise provided. Article 4.2 expressly identifies two
exceptions to the obligations that it imposes on all WTO Members,
namely, Article 5 and Annex 5 to the Agreement on Agriculture.
Annex 5 exempts developing country Members from these disciplines in
specific circumstances. Article 5 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’. The
provisions of Article 5 establish the conditions in which a Member may
have recourse to such a special safeguard, set out rules on the form and
duration of such safeguard measures, and establish certain transparency
requirements that attach to their use. One circumstance in which a
qualifying Member may be authorized to adopt a special safeguard is when
the price of imports of a relevant agricultural product falls below a
specified trigger price. However, pursuant to Article
5, a special
safeguard can be imposed only on those agricultural products for which
measures within the meaning of footnote 1 were converted into ordinary
customs duties and for which a Member has reserved in its Schedule of
Concessions a right to resort to these safeguards. Because Chile
reserved no such right in respect of wheat and wheat flour, Chile cannot
avail itself of the mechanism set out in Article 5 for imports of these
products.
The existence of an exemption from the market access requirements in
the form of a special safeguard under Article 5 suggests that this
provision (in addition to Annex 5) was the narrowly circumscribed
vehicle to be used by those Members who reserved their rights to do so
in order to derogate from the requirements of Article
4.2. We note that
paragraph 9 of Article 5 provides that Article 5 is to remain in force
for the duration of the process of reform. Negotiations for the process
of reform are envisaged in Article 20 of the Agreement on Agriculture
and form part of the Doha Development Agenda.(116) The establishment
of a special safeguard mechanism for developing country Members forms
part of the Doha Work Programme on agriculture.(117) We, however, are
charged with reviewing the Panel’s interpretation of an existing
obligation. We recall, in this regard, that Article 4.2 must be
interpreted in a way that does not deprive Article 5 of proper meaning
and effect.”(118)
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 per cent 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 per cent 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 per cent.
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 per cent 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
76. With respect to the notification requirements concerning domestic
support, see paragraphs 173–177
below.
2. Article 6.2
77. The “Mid-Term Review Agreement” referred to in
paragraph 2 is
the package of results adopted by the Uruguay Round Trade Negotiations
Committee at its mid-term review held in Montreal on 5–9 December 1988
and in Geneva on 5–8 April 1989, also referenced in the second
paragraph of the preamble to the Agreement on Agriculture.(119)
78. See also
Article 13(b) of the
Agreement.
3. Article 6.3
79. In the dispute on US — Upland Cotton, the Panel and
Appellate Body examined the issue of whether Article 3.1(b) of the SCM
Agreement is inapplicable to payments that are consistent with a Member’s
domestic support reduction commitments under Article 6.3 of the
Agreement on Agriculture. The Appellate Body agreed with the Panel that
“Article 6.3 does not provide that compliance with such ‘domestic
support reduction commitments’ shall necessarily be considered to be
in compliance with other applicable WTO obligations. Nor does it contain
an explicit textual indication that otherwise prohibited measures are
necessarily justified by virtue of compliance with the domestic support
reduction commitments.”(120)
“Article 6.3 does not explicitly refer to import substitution
subsidies. Article 6.3 deals with domestic support. It establishes only
a quantitative limitation on the amount of domestic support that
a WTO Member can provide in a given year. The quantitative limitation in
Article 6.3 applies generally to all domestic support measures that are
included in a WTO Member’s AMS. Article 3.1(b) of the SCM Agreement prohibits subsidies that are contingent — that is, ‘conditional’
— on the use of domestic over imported goods.
Article 6.3 does not authorize subsidies that are contingent on the
use of domestic over imported goods. It only provides that a WTO Member
shall be considered to be in compliance with its domestic support reduction
commitments if its Current Total AMS does not exceed that Member’s
annual or final bound commitment level specified in its Schedule. It
does not say that compliance with Article 6.3 of the Agreement on
Agriculture insulates the subsidy from the prohibition in Article
3.1(b).”(121)
VIII. Article 7
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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
1. Paragraph 2
80. In Korea — Various Measures on Beef, the Panel found
that Korea’s Current AMS for beef exceeded the de minimis level
set out in Article 6.4 and was therefore inconsistent with Article
7.2(a); the Appellate Body reversed this determination as the Panel had
used a methodology inconsistent with Article 1(a)(ii) and
Annex 3; see
paragraphs 6–7 above.
2.
Relationship
with Annex 2
81. See the material on Annex
2 below.
Part V
IX. Article 8
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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. Waivers from export subsidy commitments
82. On 22 October 1997, the General Council decided to grant Hungary
a limited waiver from its export subsidy commitments until 31 December
2001, in accordance with Article IX of the WTO
Agreement.(122)
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 per cent 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 per cent and 79 per cent
of the 1986–1990 base period levels, respectively. For developing
country Members these percentages shall be 76 and 86 per cent,
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
83. With respect to notification requirements concerning export
subsidies, see paragraphs 173–177
below.
2. Article 9.1(a)
(a) “direct subsidies, including payments-in-kind”
84. The Panel in 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.”(123)
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’.”(124)
(b) “governments or their agencies”
85. In Canada — Dairy, the Appellate Body addressed the
phrase “governments or their agencies” and upheld the Panel’s
finding that the Canadian milk marketing boards at issue were “agencies”
of the government:
“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.”(125)
(c) “contingent on export performance”
86. In US — Upland Cotton, the Appellate Body analysed “Step
2” payments to exporters of US upland cotton, which were payable based
on proof of export of eligible cotton by the exporter, and agreed with
the Panel that these payments were “contingent on export performance”.(126)
Consequently the Appellate Body found that these payments were also
export-contingent for purposes of Article 3.1(a) of the SCM
Agreement.(127)
3. Article 9.1(c)
(a) “payments”
(i) A payment includes a payment-in-kind
87. 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. 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’.(128) (emphasis added) Similarly, the Shorter
Oxford English Dictionary describes a ‘payment’ as a ‘sum of
money (or other thing) paid’.(129) (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.”(130)
88. The Appellate Body in 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.(131) 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.”(132)
89. The Appellate Body in 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).”(133)
90. The Appellate Body in 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.”(134)
(135)
(ii) Cross-subsidization as a payment
91. In EC — Export Subsidies on Sugar, the Appellate Body
examined the EC sugar regime, in which all “C sugar” could not be
disposed of in the EC internal market and could only be exported without
further processing. The Appellate Body agreed with the Panel that
because C sugar “must be exported”, then “advantages, payments or
subsidies to C sugar, that must be exported, are subsidies ‘on the
export’ of that product.”(136) The Appellate Body found that because C
sugar “must be exported”, “[i]t follows that payments in the form
of ‘cross-subsidization’ are, by definition, ‘payments’ ‘on
the export’”(137).
(iii) Benchmark to be applied when assessing payments
92. The Appellate Body in 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.(138)
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).”(139)
93. The Appellate Body in 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.”(140)
94. The Appellate Body in 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.(141) 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.(142) 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.(143)
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.”(144)
95. The Appellate Body in 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’.”(145)
96. The Appellate Body in 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.”(146)
97. The Appellate Body in 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.”(147)
(b) “financed by virtue of governmental action”
(i) Meaning of governmental action
98. The Appellate Body in 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’.(148)
(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.’(149) 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.”(150)
(ii) Meaning of
“financed”
99. The Appellate Body in 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.(151) 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.”(152)
(iii) Link between governmental action and the
financing of
payments
100.
When examining the link required between governmental action and
the financing of payments under Article 9.1(c), the Panel in 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.”(153) 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.”(154) 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,(155)
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.”(156)
101.
The Appellate Body in 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.”(157) (emphasis added)
102.
The Appellate Body in 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.”(158)
103.
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”).(159) However, the
Appellate Body did not make any further findings on the meaning of “financed
by governmental action” at that stage of the proceedings.
104.
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’.”(160)
105.
The Appellate Body in Canada — Dairy (Article 21.5 — New
Zealand and US II) considered the fact 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.”(161)
106.
The Appellate Body in 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’.(162) 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.”(163)
107.
The Appellate Body in 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.”(164)
4. Article 9.1(d)
(a) “costs of marketing”
108.
In US — FSC, the measure at issue provided an income
tax credit (directly reducing income tax liability for certain US
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).(165) 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”.(166) 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.”(167)
5. Article 9.2
109.
The Appellate Body in EC — Export Subsidies on Sugar found
that “the use of the conjunctive ‘and’, and the corresponding use
of the word ‘levels’ in the plural, suggest that the drafters of the
Agreement intended that both types of commitments [budgetary outlays and
quantity commitment levels] must be specified in a Member’s Schedule
in respect of any export subsidy listed in Article
9.1.”(168) The
Appellate Body further found “contextual support for the above
interpretation in Article 9.2(b)(iv)”:
“This provision prescribes the export subsidy commitment levels to
be reached at the conclusion of the implementation period (and to be
maintained thereafter), and those commitment levels are expressed in
terms of both budgetary outlays and quantities. We do not see how a
Member could comply with Article 9.2(b)(iv), or for that matter
Article 9.2(a), without having specified its export subsidy commitments in terms
of both budgetary outlays and quantities. We also consider it
significant that both Article 9.2(b)(iii) and
Article 9.2(b) (iv) use
the expression ‘budgetary outlays for export subsidies and the
quantities benefiting from such subsidies’. (emphasis
added) This shows the drafters’ recognition of the need to address the
budgetary outlays and quantities together.”(169)
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
110.
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.”(170)
(b) “export subsidies not listed in paragraph 1 of Article 9”
111.
The Appellate Body in US — FSC and the Panel in US
— Upland Cotton both applied the interpretation of export
contingency under the SCM Agreement to the interpretation of export
contingency under the Agreement on Agriculture; see paragraphs 14–18
above, under Article 1(e).
(c) “applied in a manner which results in, or which threatens to
lead to circumvention”
(i) Threat of circumvention
112.
In US — FSC, the Appellate Body examined the measures
at issue in relation to Article 10.1:
“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’.”(171)
113.
In US — Upland Cotton, the Appellate Body rejected an
argument that the concept of “threat” in
Article 10.1 of the
Agreement of Agriculture obliges Members to take affirmative,
precautionary steps to prevent circumvention:
“Nor are we prepared to accept Brazil’s suggestion that the
concept of ‘threat’ in
Article 10.1 should be read in a manner that
requires WTO Members to take ‘anticipatory or precautionary action’.
The obligation not to apply export subsidies in a manner that ‘threatens
to lead to’ circumvention of their export subsidy commitments does not
extend that far. There is no basis in
Article 10.1 for requiring WTO
Members to take affirmative, precautionary steps to ensure that
circumvention of their export subsidy reduction commitments does not
occur.”(172)
(ii) Relevance of a measure’s structure and characteristics
in respect of “threat of circumvention”
114.
In US — FSC, the Appellate Body pointed out the
relevance of the structure and characteristics of the tax measure at
issue, in relation to
Article 10.1:
“In determining whether the FSC measure in this case is ‘applied
in a manner which … threatens to lead to circumvention of export
subsidy commitments’, it is important to consider the structure and
other characteristics of that measure. The FSC measure creates, in
itself, a legal entitlement for recipients to receive export
subsidies, not listed in Article 9.1, with respect to agricultural
products, both scheduled and unscheduled. As we understand it, that
legal entitlement arises in the recipient when it complies with the
statutory requirements and, at that point, the government of the United
States must grant the FSC tax exemptions. There is, therefore, no
discretionary element in the provision by the government of the FSC
export subsidies. If the statutory eligibility requirements are met,
then an FSC is entitled by law to the statutorily established tax
exemption. Furthermore, there is no limitation on the amount of exempt
foreign trade income that may be earned by an FSC. Therefore, the legal
entitlement that the FSC measure establishes is unqualified as to the amount
of export subsidies that may be claimed by FSCs. There is, in other
words, no mechanism in the measure for stemming, or otherwise
controlling, the flow of FSC subsidies that may be claimed with respect
to any agricultural products. In this respect, the FSC measure is
unlimited.”(173)
115.
In US — Upland Cotton, the Appellate Body explained
that its findings in US — FSC were not intended to imply that a
“threat” of circumvention requires an unconditional legal
entitlement to receive an export subsidy:
“A proper reading of the Appellate Body’s statement in US —
FSC, however, reveals that it did not intend to provide an
exhaustive interpretation of threat of circumvention under Article 10.1
of the Agreement on Agriculture. In noting that the measure at
issue in that dispute created a ‘legal entitlement’ and had no ‘discretionary
element’, the Appellate Body was merely describing characteristics of
the measure at issue in that case that it found relevant for its
analysis of ‘threat’. In other words, the Appellate Body did not
foreclose, in US — FSC, the possibility that a measure that
does not create a ‘legal entitlement’ or that has a ‘discretionary
element’ could be found to ‘threaten[] to lead to circumvention’
under Article 10.1 of the Agreement on Agriculture.”(174)
(iii) Difference in nature of “circumvention” in
respect of scheduled and unscheduled products
116.
In US — FSC, the Appellate Body pointed out that the
nature of “circumvention” of export subsidy commitments may differ
depending on whether the measure at issue applies to scheduled or
unscheduled products:
“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 Article 3.3 and under 9.1.”(175)
117.
The Panel in US — FSC (Article 21.5 — EC) found that
the legislation at issue contained subsidies contingent on export
performance under Article 1(e) of the Agreement on
Agriculture. The
Panel found that the United States had acted inconsistently with Article
10.1 by “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.(176) 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’.(177)
We note that the Act creates a legal entitlement for recipients to
receive export subsidies, not listed in Article 9.1(178), 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 extra-territorial 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.(179)
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.(180)
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 Articles 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 …’.”(181)
2. Article 10.2
(a) Work in the WTO on development of disciplines on export credits
pursuant to Article 10.2
118.
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 in the agenda for the Committee’s
regular meetings.(182)
“In paragraph 4 of the NFIDC Decision (see below), Ministers agreed
‘to ensure that any agreement relating to agricultural export credits
makes appropriate provision for differential treatment in favour of
least-developed and net food-importing developing countries.’ The
Singapore Ministerial Declaration provided that paragraph 4 would ‘be
taken fully into account in the agreement to be negotiated on
agricultural export credits.’(183) The General Council further endorsed
this objective in relation to work on export credits under Article
10.2,
at its meeting on 18 October 2000.”(184)
119.
At the Doha Ministerial Meeting, Members approved the following
recommendations, which had been submitted to the Committee on
Agriculture for its 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 OECD, 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.(185)”
120.
The Committee on Agriculture has pursued its work on the
implementation of Article 10.2 and of the related provisions of the
Marrakesh NFIDC Decision on the basis of the foregoing recommendation.
The Committee’s work is reflected in its reports to the General
Council contained in G/AG/16 (2003) and G/AG/16/Add.1 (2006).
121.
On 1 August 2004, the General Council adopted a Framework for
Establishing Modalities in Agriculture.(186)
122.
In December 2005, the Hong Kong Declaration reaffirmed Members’
commitment to the development of internationally-agreed disciplines for
export credits.(187)
123.
Revised Draft Modalities for Agriculture were circulated in
December 2008.(188)
(b) Application of Article 10.1 to export credit guarantees, export
credits or insurance programmes
124.
In US — Upland Cotton the Appellate Body upheld the
Panel’s finding that Article 10.2 of the Agreement on Agriculture does
not exempt or “carve out” export credit guarantees from the export
subsidy disciplines in Article 10.1 of that
agreement.(189)
“We agree with the Panel’s view that Article 10.2 does not
expressly exclude export credit guarantees from the export subsidy disciplines
in Article 10.1 of the Agreement on Agriculture. As the Panel
observes, were such an exemption intended, it could have been easily
achieved by, for example, inserting the words ‘[n]ot with-standing the
provisions of Article 10.1’, or other similar language at the
beginning of Article 10.2. Article 10.2
does not include express
language suggesting that it is intended as an exception, nor does it
expressly state that the application of any export subsidy disciplines
to export credits or export credit guarantees is ‘deferred’, as the
United States suggests. Given that the drafters were aware that
subsidized export credit guarantees, export credits and insurance
programmes could fall within the export subsidy disciplines in the Agreement
on Agriculture and the SCM Agreement, it would be expected
that an exception would have been clearly provided had this been the
drafters’ intention.
Moreover, as the Panel explained, Article 10.2
‘contrasts starkly
with the text of other provisions in the covered agreements, which
clearly carve out or exempt certain products or measures from certain
obligations that would otherwise apply pending the development of
further multilateral disciplines’. The Panel referred to Article
6.1(a) and the footnote 24 to Article 8.2(a) of the SCM Agreement and
Article XIII of the General Agreement on Trade in Services, which
expressly indicate that existing disciplines do not apply pending the
negotiation of future disciplines. However, Article 10.2 does not
expressly exclude the application of the existing disciplines in the Agreement
on Agriculture until such time as the specific disciplines on export
credits, export credit guarantees and insurance programmes are
internationally agreed upon.
The Panel rejected the United States’ submission that Brazil’s
approach would render Article 10.2 irrelevant. In the Panel’s view,
‘the purpose of any eventual disciplines could be further to
facilitate the determination of when export credit guarantee programmes
in respect of agricultural products constitute export subsidies per
se by developing and refining existing disciplines’. Put another
way, ‘the work envisaged in Article 10.2 would presumably elaborate
further and more specific disciplines that could facilitate
identification of the extent to which such export credit guarantee
programmes constitute export subsidies, or to what extent export credit
guarantee programmes are not permitted’. The use of the term ‘development’
in Article 10.2 is consistent with this view. The definitions of the
term ‘development’ include: ‘[t]he action or process of
developing; evolution, growth, maturation; … a gradual unfolding, a
fuller working-out’ and ‘[a] developed form or product … an
addition, an elaboration’. This suggests that the disciplines to be
internationally agreed will be an elaboration of the export subsidy
disciplines that are currently applicable.
This interpretation is consistent with the reference in
Article 10.2
to internationally agreed disciplines ‘to govern the provision of’
export credits, export credit guarantees or insurance programmes;
alternatively, Article 10.2 could have referred to internationally
agreed disciplines ‘to govern’ export credits, export credit
guarantees or insurance programmes. The latter formulation (‘to govern’)
would have been broader in scope, whereas the formulation used in Article 10.2
(‘to govern the provision’) is narrower. If the
drafters had intended that currently no disciplines at all would apply
to export credit guarantees, export credits and insurance programmes, it
would have made more sense for them to have chosen the broader
formulation ‘to govern’. The drafter’s choice of the narrower
formulation ‘to govern the provision of’ suggests that export credit
guarantees, export credits and insurance programmes are not ‘undisciplined’
in all respects, and that the disciplines to be developed have to do only
with their provision. In other words, export credit
guarantees, export credits and insurance programmes are governed by
Article 10.1 of the Agreement on Agriculture, but WTO Members
will develop specific disciplines on the provision of these instruments.”(190)
125.
In US — Upland Cotton, the Appellate Body found further
support for this reading of Article 10.2 in its context in light of the
object and purpose of the Agreement on Agriculture:
“Although Article 10.2 commits WTO Members to work toward the
development of internationally agreed disciplines on export credit
guarantees, export credits and insurance programmes, it is in Article
10.1 that we find the disciplines that currently apply to export
subsidies not listed in Article 9.1. A plain reading of
Article
10.1 indicates that the only export subsidies that are excluded from its
scope are those ‘listed in paragraph 1 of Article 9’. The United
States and Brazil agreed that export credit guarantees are not listed in
Article 9.1. Thus, to the extent that an export credit guarantee meets
the definition of an ‘export subsidy’ under the Agreement on
Agriculture, it would be covered by Article
10.1. Article 1(e) of
the Agreement on Agriculture defines ‘export subsidies’ as
‘subsidies contingent upon export performance, including the
export subsidies listed in Article 9 of this Agreement’. (emphasis
added) The use of the word ‘including’ suggests that the term ‘export
subsidies’ should be interpreted broadly and that the list of export
subsidies in Article 9 is not exhaustive. Even though an export credit
guarantee may not necessarily include a subsidy component, there is
nothing inherent about export credit guarantees that precludes such
measures from falling within the definition of a subsidy. An export
credit guarantee that meets the definition of an export subsidy would be
covered by Article 10.1 of the Agreement on Agriculture because
it is not an export subsidy listed in Article 9.1 of that
Agreement.”(191)
3. Article 10.3
(a) Partial reversal of burden of proof
126.
In Canada — Dairy (Article 21.5 — New Zealand and US II),
the Appellate Body explained that Article 10.3 provides a special rule
for proof of export subsidies that applies in certain disputes under
Articles 3, 8, 9 and
10. Article 10.3 partially reverses the usual rules
on burden of proof as follows:
“Pursuant to Article 3 of the Agreement on Agriculture, a
Member is entitled to grant export subsidies within the limits of
the reduction commitment specified in its Schedule. Where a Member
claims that another Member has acted inconsistently with Article 3.3 by
granting export subsidies in excess of a quantity commitment level,
there are two separate parts to the claim. First, the responding
Member must have exported an agricultural product in quantities
exceeding its quantity commitment level. If the quantities exported do
not reach the quantity commitment level, there can be no violation of
that commitment, under Article 3.3. However, merely exporting a product
in quantities that exceed the quantity commitment level is not
inconsistent with the commitment. The commitment is an undertaking to
limit the quantity of exports that may be subsidized and not a
commitment to restrict the volume or quantity of exports as such.
The second part of the claim is, therefore, that the responding Member
must have granted export subsidies with respect to quantities exceeding
the quantity commitment level. There is, in other words, a quantitative
aspect and an export subsidization aspect to the claim.
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)”.
…
“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.”(192)
(b) Limitation in scope to scheduled products
127.
In US — FSC, the Panel found that Article 10.3 does not
apply in respect of unscheduled products.(193)
128.
In US — Upland Cotton, the Appellate Body also reasoned
that Article 10.3 only applies to scheduled products, not unscheduled
products:
“We disagree with the Panel’s view that Article 10.3 applies to unscheduled
products. Under the Panel’s approach, the only thing a complainant
would have to do to meet its burden of proof when bringing a claim
against an unscheduled product is to demonstrate that the
respondent has exported that product. Once that has been established,
the respondent would have to demonstrate that it has not provided an
export subsidy. This seems to us an extreme result. In effect, it would
mean that any export of an unscheduled product is presumed to be
subsidized. In our view, the presumption of subsidization when exported
quantities exceed the reduction commitments makes sense in respect of a scheduled
product because, by including it in its schedule, a WTO Member is
reserving for itself the right to apply export subsidies to that
product, within the limits in its schedule. In the case of unscheduled
products, however, such a presumption appears inappropriate. Export
subsidies for both unscheduled agricultural products and industrial
products are completely prohibited under the Agreement on Agriculture
and under the SCM Agreement, respectively. The Panel’s
interpretation implies that the burden of proof with regard to the same
issue would apply differently, however, under each Agreement: it would
be on the respondent under the Agreement on Agriculture, while it
would be on the complainant under the SCM Agreement.”(194)
4. Article 10.4: International food aid
(a) Relationship between Articles 10.4 and 10.1
129.
In US — Upland Cotton, the Appellate Body remarked that
“each paragraph in Article 10 pursues [the] aim” of “Prevention of
Circumvention of Export Subsidy Commitments” and that “Article 10.4
provides disciplines to prevent WTO Members from circumventing their
export subsidy commitments through food aid transactions”.(195) The
Appellate Body commented further:
“… we do not see Article 10.4
as excluding international food aid
from the scope of Article 10.1. International food aid is covered by the
second clause of Article 10.1 to the extent that it is a ‘non-commercial
transaction’. Article 10.4 provides specific disciplines that may be
relied on to determine whether international food aid is being ‘used
to circumvent’ a WTO Member’s export subsidy commitments. … The
measures in Article 10.2 and the transactions in
Article 10.4 are both
covered within the scope of Article 10.1. As Brazil submits, ‘Article
10.4 provides an example of specific disciplines that have been agreed
upon for a particular type of measure and that complement the general
export subsidy rules’ but, like Article 10.2, it does not ‘establish
any exceptions for the measures that [it] covers’. WTO Members are
free to grant as much food aid as they wish, provided that they do so
consistently with Article 10.1 and 10.4.”(196)
(b) International food aid
130.
Regarding 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”). See also
the material under Article 16 and starting at
paragraph 215 below.
131.
The Food Aid Convention 1986 was replaced by the Food Aid
Convention 1999, a separate legal instrument under the International
Grains Agreement, administered by the Food Aid Committee utilizing the
services of the Secretariat of the International Grains Council. The
Food Aid Convention was adopted under the auspices of the United Nations
on 24 March 1999, and entered into force provisionally on 1 July 1999
for an initial duration of three years; the Food Aid Committee has
extended the Convention several times pending the outcome of the Doha
negotiations on agriculture. In December 2010, the Food Aid Committee
agreed to begin the formal process of renegotiating the Convention.(197)
Footnotes:
1. Appellate Body Report,
EC — Bananas III, para. 155. back to text
2. Appellate Body, Canada — Dairy, para. 7.25. back to text
3. Panel Report, Canada — Dairy (Article 21.5 — New Zealand
and US), paras. 6.19–6.20. back to text
4. Appellate Body Report, Chile — Price Band System, paras.
196–197. back to text
5. Panel Report, Turkey — Rice, para. 7.56. back to text
6. See Appellate Body Report, Korea — Various Measures on Beef,
paras. 126, 127 and 129. back to text
7. (footnote original) The New Shorter Oxford English Dictionary (Clarendon
Press, 1993), Vol. I, p. 15. back to text
8. (footnote original) Ibid. back to text
9. (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
10. Appellate Body Report, Korea — Various Measures on Beef,
para. 111. back to text
11. (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
12. (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
13. Appellate Body Report, Korea — Various Measures on Beef,
paras. 112–114. back to text
14. Appellate Body Report, Korea — Various Measures on Beef,
paras. 117–118. back to text
15. Panel Report, US — Upland Cotton, paras. 7.420–7.423. back to text
16. Appellate Body Report, Canada — Dairy, para. 110. back to text
17. Appellate Body Report, Canada — Dairy,
para. 87. back to text
18. Appellate Body Report, US — FSC, para. 136. back to text
19. Appellate Body Report, US — FSC, para. 137. back to text
20. Appellate Body Report, US — FSC, para. 141. back to text
21. Appellate Body Report, US — FSC, para. 142. back to text
22. Panel Report, US — FSC (Article 21.5 — EC), para.
8.122; upheld by Appellate Body Report, US — FSC
(Article 21.5 —
EC), paras. 194–196. back to text
23. Panel Report, US — Upland Cotton,
para. 7.796. back to text
24. (footnote original) See Appellate Body Report, US — FSC, paras. 136–141;
Panel Report, US — FSC (Article
21.5 — EC), para. 8.116; Appellate Body Report, US — FSC (Article 21.5 — EC),
paras. 187–196; Panel Report, US — Upland Cotton,
paras. 7.797–7.803; Panel Report, Canada —
Dairy (Article 21.5 — New Zealand and US), paras. 5.152–5.162,
Panel Report, Canada — Dairy, paras. 7.125 ff. This last panel
considered that Article 9.1 of the Agreement on Agriculture can also
serve as “context” to interpret the meaning of “export subsidy”
under Article 10.1 of the Agreement. back to text
25. Panel Report, US — Upland Cotton
(Article 21.5 — Brazil),
para. 14.45. back to text
26.
Panel Report, Canada — Dairy, para. 7.18. back to text
27. Panel Report, Chile — Price Band System, para. 7.13. back to text
28. Panel Report, US — Upland Cotton,
para. 6.37. back to text
29. Panel Report, US — Upland Cotton,
para. 7.199. back to text
30. Panel Report, US — Upland Cotton,
para. 7.480. back to text
31. Panel Report, US — Upland Cotton,
para. 7.970. back to text
32. (footnote original) In response to questioning at the oral
hearing, the participants noted that the so-called Modalities Paper
provides that market access commitments relating to agricultural
products had to be based on the Harmonized System. (Articles 3(3)(i) and
3 (3)(ii) of the Modalities for the Establishment of Specific Binding
Commitments Under the Reform Programme, MTN.GNG/MA/W/24, 20 December
1993). back to text
33. Appellate Body Report, EC — Chicken Cuts, para. 189. back to text
34. (footnote original) Article 3.2 of the
DSU. back to text
35. (footnote original) Done at Vienna, 23 May 1969, 1155 UNTS
331; 8 International Legal Materials 679. In US — Gasoline,
the Appellate Body stated:
[The] general rule of interpretation [as set out in Article 31(1) of
the Vienna Convention on the Law of Treaties] has attained the status of
a rule of customary or general international law. As such, it forms part
of the “customary rules of interpretation of public international law”
which the Appellate Body has been directed, by Article 3(2) of the DSU,
to apply in seeking to clarify the provisions of the General
Agreement and the other “covered agreements” of the Marrakesh
Agreement Establishing the World Trade Organization (the “WTO
Agreement”).
(Appellate Body Report, US — Gasoline, p. 17, DSR 1996:I, 3,
at 16) (footnotes omitted) back to text
36. (footnote original) Appellate Body Report, EC —
Computer Equipment, para. 84. See also Appellate Body Report,
EC — Bananas III, para. 154. back to text
37. Appellate
Body Report, EC — Export Subsidies on Sugar,
paras. 166–167. back to text
38. Appellate Body Report, EC — Export Subsidies on Sugar,
para. 209. back to text
39. Appellate Body Report, EC — Export Subsidies on Sugar,
para. 222. back to text
40. Panel Report, Korea — Various Measures on Beef, para.
803. back to text
41. Appellate Body Report, US — FSC, paras. 145–146. back to text
42. Appellate Body Report, US — FSC, paras. 150–152. back to text
43. Appellate Body Report, EC — Export Subsidies on Sugar,
para. 193. back to text
44. (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
45. Appellate Body Report, Chile — Price Band System, paras.
200–201. back to text
46. G/AG/2, pp. 2–4. back to text
47. (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
48. (footnote original) Bound tariffs could, however, be
renegotiated pursuant to Article XXVIII of the GATT
1994. back to text
49. Appellate Body Report, Chile — Price Band System, paras.
206–208. back to text
50. Appellate Body Report, Chile — Price Band System, paras.
209–210. back to text
51. (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
52. (footnote original) We note that Chile has not reserved, in
its 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
53. Appellate Body Report, Chile — Price Band System, paras.
211, 217. back to text
54. “… 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, Japan — Alcoholic
Beverages, para. 107. back to text
55. Appellate Body Report, Chile — Price Band System, paras.
213–214. back to text
56. (footnote original) The New Shorter Oxford Dictionary,
L. Brown (ed.) (Clarendon Press), 1993, Vol. I, p. 502. back to text
57. (footnote original) Ibid. back to text
58. Appellate Body Report, Chile — Price Band System, para.
216. back to text
59. 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, Chile — Price Band System, para. 7.52. back to text
60. 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, Chile — Price Band System, para. 7.52. back to text
61. (footnote original) Ibid., para. 7.52. back to text
62. (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
63. (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
64. Appellate Body Report, Chile — Price Band System,
paras.
271, 272 and 274. back to text
65. 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, Chile — Price Band System, para. 7.52. back to text
66. (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
67. Appellate Body Report, Chile — Price Band System,
para.
273. back to text
68. Appellate Body Report, Chile — Price Band System,
para.
275. back to text
69. Appellate Body Report, Chile — Price Band System,
paras.
276–277. back to text
70. Appellate Body Report, Chile — Price Band System,
para.
279. back to text
71. Appellate Body Report, Chile — Price Band System,
para.
212. back to text
72. Panel Report, Korea — Various Measures on Beef, para.
762. back to text
73. (footnote original) Appellate Body Report on Chile —
Price Band System, para. 234. back to text
74. Panel Report, Turkey — Rice, paras. 7.119–7.121. back to text
75. 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, 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, Chile — Price Band System,
para. 262. back to text
76. Appellate Body Report, Chile — Price Band System,
para.
229. back to text
77. (footnote original) The New Shorter Oxford English Dictionary,
supra, footnote 190, p. 1574. back to text
78. (footnote original) Ibid., p. 3547. back to text
79. (footnote original) Appellate Body Report, Argentina
— Textiles and Apparel, supra, footnote 55, para. 46. back to text
80. Appellate Body Report, Chile — Price Band System,
paras.
232–234. back to text
81. Appellate Body Report, Chile — Price Band System
(Article
21.5 — Argentina), para. 156. back to text
82. (original footnote) Panel Report, para. 7.36(e). back to text
83. (footnote original) Ibid. back to text
84. (footnote original) Ibid. back to text
85. Appellate Body Report, Chile — Price Band System,
paras.
236–238. back to text
86. (footnote original) Appellate Body Report on Chile —
Price Band System, para. 234. back to text
87. (footnote original) Annex, Questionnaire on Import
Licensing Procedures, Notifications under Article 7.3 of the Agreement,
Note by the Secretariat, 20 October 1995, G/LIC/2 (emphasis added).
Under this definition, a main element considered by Members to determine
whether a measure is to be characterized as an import licensing
procedure is whether the measure has been established as a prior
condition to the entry of imports into the territory. back to text
88. Panel Report, Turkey — Rice, paras. 7.126, 7.128, 7.130–7.131. back to text
89. Panel Report, Turkey — Rice, para. 7.129. back to text
90. Panel Report, Turkey — Rice, para. 7.133. back to text
91. 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, Chile — Price Band System,
para. 7.26. back to text
92. (footnote original) The New Shorter Oxford English Dictionary,
supra, [ ], p. 2865. back to text
93. Appellate Body Report, Chile — Price Band System,
paras.
226–227. back to text
94. Appellate Body Report, Chile — Price Band System
(Article
21.5 — Argentina), para. 189. back to text
95. Appellate Body Report, 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
96. Appellate Body Report, Chile — Price Band
System (Article
21.5 — Argentina), para. 167. back to text
97. (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
98. Appellate Body Report, Chile — Price Band System,
para.
254. back to text
99. (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
100. Appellate Body Report, Chile — Price Band System,
paras.
255–256. back to text
101. Appellate Body Report, Chile — Price Band System,
para.
227. back to text
102. Appellate Body Report, Chile — Price Band System
(Article
21.5 — Argentina), para. 172. back to text
103. Appellate Body Report, Chile — Price Band System
(Article
21.5 — Argentina), para. 171. back to text
104. Panel Report, India — Quantitative Restrictions, paras.
5.241–5.242. back to text
105. For this interpretation, see para. 37 of this
Chapter. back to text
106. Appellate Body Report, Chile — Price Band System,
para.
190. back to text
107. Appellate Body Report, EC — Poultry, paras. 143 and
145. back to text
108. (footnote original) Panel Report, para. 278. back to text
109. (footnote original) We note that the Incoterms 1990 of
the International Chamber of Commerce explains that 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
110. Appellate Body Report, EC — Poultry, para. 146. back to text
111. Appellate Body Report, EC — Poultry,
paras. 147–150. back to text
112. (footnote original) Panel Report, para. 291. back to text
113. Appellate Body Report, EC — Poultry,
paras. 151–152. back to text
114. Appellate Body Report, EC — Poultry,
para. 153. back to text
115. Appellate Body Report, EC — Poultry,
para. 168. back to text
116. (footnote original) Doha Ministerial Declaration,
WT/MIN(01)/DEC/1, adopted 14 November 2001, para. 13. back to text
117. (footnote original) See paragraph 42 of Annex A of the
Decision Adopted by the General Council on 1 August 2004 (the “July
Package”), WT/L/579, as well as paragraph 7 of the Hong Kong
Ministerial Declaration, WT/MIN(05)/DEC, adopted 18 December 2005. back to text
118. Appellate Body Report, Chile — Price Band System (Article
21.5 — Argentina), paras. 173–174. back to text
119. MTN.TNC/11, p. 9. back to text
120. Panel Report, US — Upland Cotton,
para. 7.1058, quoted
and upheld in Appellate Body Report, US — Upland Cotton, para.
545. See also material under Article 3.1(b) in the Chapter on the SCM
Agreement. back to text
121. Appellate Body Report, US — Upland Cotton, paras. 544–545. back to text
122. WT/L/238. The waiver settled the dispute on Hungary —
Agricultural Products (WT/DS35). back to text
123.
Panel Report, Canada — Dairy, para. 7.43. back to text
124. Appellate Body Report, Canada — Dairy,
paras. 87–88. back to text
125. Appellate Body Report, Canada — Dairy,
para. 97. back to text
126. Appellate Body Report, US — Upland Cotton, paras. 567–583. back to text
127. Appellate Body Report, US — Upland Cotton,
para. 584. back to text
128. (footnote original) Panel Report, para. 7.92. back to text
129. (footnote original) The Shorter Oxford English Dictionary,
C. T. Onions (ed.) (Guild Publishing, 1983), Vol. II, p. 1532. back to text
130. Appellate Body Report, Canada — Dairy,
paras. 107–108. back to text
131. (footnote original) See Panel Report, para. 7.95. back to text
132. Appellate Body Report, Canada — Dairy,
paras. 109–110. back to text
133. Appellate Body Report, Canada — Dairy,
para. 111. back to text
134. Appellate Body Report, Canada — Dairy,
paras. 113–114. back to text
135. The Panel on Canada — Dairy (Article 21.5 — New Zealand
and US II) recalled that, as found by the Panel (Panel Report, Canada — Dairy, para.7.101) and confirmed by
the Appellate Body (Appellate Body Report, 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, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 6.12) and Appellate Body (Appellate Body Report, 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, Canada
— Dairy (Article 21.5 — New Zealand and US II), para. 5.26 back to text
136. Panel Report, EC — Sugar, para. 321 (cited
in
Appellate Body Report, EC — Sugar, para. 274). back to text
137.
Appellate Body Report, EC — Sugar,
para. 275. back to text
138. (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
139. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 74–76. back to text
140. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 81 back to text
141. (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
142. (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
143. (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
144. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 83–85. back to text
145. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 86–87. back to text
146. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), paras. 95–96. back to text
147. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), paras. 110 and 116. back to text
148. (footnote original) Appellate Body Report, Canada — Dairy, supra, footnote 2, para. 120. back to text
149. (footnote original) Ibid., para. 97. back to text
150. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 111 and 112; see also Appellate Body Report, EC — Export Subsidies on Sugar, para. 235. back to text
151. (footnote original), para. 71. back to text
152. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 114; see also Appellate Body Report, EC — Export Subsidies on Sugar,
para. 237. back to text
153. Panel Report, Canada — Dairy (Article 21.5 — New Zealand
and US), paras. 6.38, 6.40 and 6.44. back to text
154. Panel Report, Canada — Dairy (Article 21.5 — New Zealand
and US), paras. 6.39. back to text
155. (footnote original) See paragraphs 6.43–6.48 below [of
the Report]. back to text
156. Panel Report, 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
157. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 113; see also Appellate Body Report, EC — Export Subsidies on Sugar,
para. 237. back to text
158. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 113. back to text
159. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 116–117. back to text
160. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), para. 133. back to text
161. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), paras. 144–145. back to text
162. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US), para. 90. back to text
163. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), para. 148. back to text
164. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), para. 149. back to text
165. Panel Report, US — FSC, para. 7.155. back to text
166. Appellate Body Report, US — FSC, para. 131. back to text
167. Appellate Body Report, US — FSC,
paras. 129–131. back to text
168. Appellate Body Report, EC — Export Subsidies on Sugar,
para. 193. back to text
169. Appellate Body Report, EC — Export Subsidies on Sugar,
para. 194. back to text
170. Appellate Body Report, US — FSC,
paras. 144 and 147. back to text
171. Appellate Body Report, US — FSC,
para. 148. back to text
172. Appellate Body Report, US — Upland Cotton,
para. 707. back to text
173. Appellate Body Report, US — FSC,
para. 149. back to text
174. Appellate Body Report, US — Upland Cotton,
para. 709. back to text
175. Appellate Body Report, US — FSC,
paras. 148–152;
confirmed by the Panel Report, US — FSC (Article 21.5 — EC),
paras. 8.117–8.122. back to text
176. (footnote original) Original Appellate Body Report, supra,
note 1, para. 149. back to text
177. (footnote original) Original Appellate Body Report, supra,
note 1, paras. 144–147. back to text
178. (footnote original) See supra, note 219. back to text
179. (footnote original) See also original Appellate Body
Report, supra, note 1, para. 149. back to text
180. (footnote original) Original Appellate Body Report, supra,
note 1, para. 152. back to text
181. Panel Report, US — FSC (Article 21.5 — EC), paras.
8.117–8.122. back to text
182. WT/GC/M/59, para. 20. back to text
183. G/L/125. back to text
184. WT/GC/M/59, para. 21. back to text
185. 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
186. WT/L/579, p. 1 and Annex A. back to text
187 WT/MIN(05)/DEC, para. 6. back to text
188. TN/AG/W/4/Rev.4. back to text
189. Appellate Body Report, US — Upland Cotton,
para. 763
(e) (i). back to text
190. Appellate Body Report, US — Upland Cotton,
paras. 609–612. back to text
191. Appellate Body Report, US — Upland Cotton,
para. 615. back to text
192. Appellate Body Report, Canada — Dairy (Article 21.5 — New
Zealand and US II), paras. 70–73, 75. back to text
193. Panel Report, US — FSC, paras. 7.136–7.143. back to text
194. Appellate Body Report, US — Upland Cotton,
para. 652. back to text
195. Appellate Body Report, US — Upland Cotton,
para. 616. back to text
196. Appellate Body Report, US — Upland Cotton,
para. 619. back to text
197. G/AG/W/70/Rev.2/Add.1; see also G/AG/GEN/94. back to text
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