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WTO ANALYTICAL INDEX: AGREEMENT ON AGRICULTURE Agreement on Agriculture |
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> Preamble
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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;
1. "objectives of the negotiations as set out in the Punta del Este Declaration" 1. The objectives of the Uruguay Round negotiations in the agriculture sector are set out in the Ministerial Declaration on the Uruguay Round.(1) 2. Long-term objective of the reform process and the Mid-Term Review 2. At the Mid-Term Review of the Uruguay Round, Ministers agreed on the long-term objective of the Uruguay Round negotiations in the agriculture sector.(2)
Part I
II. Article 1 back to top 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.
3. The Panel on Korea - Various Measures on Beef, in a finding later reversed by the Appellate Body(3), agreed with the complainants that Korea had provided domestic support to its beef industry in excess of its commitment levels for 1997 and 1998. In its notifications, Korea had determined that its Current AMS for beef was below the de minimis threshold as set out in Article 6.4; as a result, Korea argued, this domestic support item did not have to be included in the calculation of its Current Total AMS. The Panel found that Korea's calculations in this respect were in error. Korea argued that its calculation was correct, because it was based on the "constituent data and methodology" used in its Schedule, in accordance with Articles 1(a)(ii) and 1(h)(ii) of the Agreement on Agriculture. The Appellate Body, with respect to the calculation of the Current AMS, first recalled the wording of Article 1(a)(ii) of the Agreement on Agriculture which contains the definition of the term "Current AMS" stating:
"To determine whether Korea's Current AMS for beef exceeds 10 per cent
of total value of beef production, we refer again to Article 1(a)(ii) of
the Agreement on Agriculture, which defines Current AMS. Under
this provision, Current AMS is to be 'calculated in accordance with the provisions of Annex 3 of this Agreement and taking into account the constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member's Schedule; ... (emphasis added)'
Article 1(a)(ii) contains two express requirements for calculating Current AMS. First, Current AMS is to be 'calculated in accordance with the provisions of Annex 3 of this Agreement'. The ordinary meaning of 'accordance' is 'agreement, conformity, harmony'(4). Thus, Current AMS must be calculated in 'conformity' with the provisions of Annex 3. Second, Article 1(a)(ii) provides that the calculation of Current AMS is to be made while 'taking into account the constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member's Schedule'. 'Take into account' is defined as 'take into consideration, notice'(5). Thus, when Current AMS is calculated, the 'constituent data and methodology' in a Member's Schedule must be 'taken into account', that is, it must be 'considered'.(6)" (7) 4. The Appellate Body subsequently held that Article 1(a)(ii) accorded "higher priority" to the provisions of Annex 3 than to "constituent data and methodology" contained in a Member's Schedule, but noted that in the case before it, it was not necessary to decide a conflict between the two, because there was no specific Korean "constituent data and methodology". As a result, the Current AMS was to be calculated in accordance with the provisions of Annex 3: "Looking at the wording of Article 1(a)(ii) itself, it seems to us that this provision attributes higher priority to 'the provisions of Annex 3' than to the 'constituent data and methodology'. From the viewpoint of ordinary meaning, the term 'in accordance with' reflects a more rigorous standard than the term 'taking into account'.
We note, however, that the Panel did not base its reasoning on this apparent hierarchy as between 'the provisions of Annex 3' and the 'constituent data and methodology'.(8) Instead, the Panel considered that where no support was included in the base period calculation for a given product, there is no 'constituent data or methodology' to refer to, so that the only means available for calculating domestic support is that provided in Annex 3. As beef had not been included in Supporting Table 6 of Korea's Schedule LX, Part IV, Section I, the Panel concluded that Annex 3 alone is applicable for the purposes of calculating current non-exempt support in respect of Korean beef.
In the circumstances of the present case, it is not necessary to decide how a conflict between 'the provisions of Annex 3' and the 'constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member's Schedule' would have to be resolved in principle. As the Panel has found, in this case, there simply are no constituent data and methodology for beef.(9) Assuming arguendo that one would be justified - in spite of the wording of Article 1(a)(ii) - to give priority to constituent data and methodology used in the tables of supporting material over the guidance of Annex 3, for products entering into the calculation of the Base Total AMS, such a step would seem to us to be unwarranted in calculating Current AMS for a product which did not enter into the Base Total AMS calculation. We do not believe that the Agreement on Agriculture would sustain such an extrapolation. We, therefore, agree with the Panel that, in this case, Current AMS for beef has to be calculated in accordance with the provisions of Annex 3, and with these provisions alone."(10) 5. Further, in Korea - Various Measures on Beef, the Panel held that Korea had calculated its Current AMS for beef on the basis of a fixed external reference price from the period 1989-1991, rather than the period 1986-88, as set forth in paragraph 9 of Annex 3. Korea argued that its use of the period 1989-1991 was justified, because this period was referred to in the constituent data and methodology (used with respect to products other than beef) contained in a table of supporting material incorporated in its Schedule. The Appellate Body agreed with the Panel and recalled its findings referenced in paragraph 4 above: "The Panel found that in both 1997 and 1998 Korea miscalculated its fixed external reference price, contrary to Article 6 and paragraph 9 of Annex 3, by using a fixed external reference price based on data for 1989-1991. Korea justifies this choice by invoking the 'constituent data and methodology' used in its Supporting Table 6 for all products other than rice, i.e., for barley, soybean, maize (corn) and rape seeds. In Supporting Table 6, all these products use the period 1989-1991 for the fixed external reference price.
We have already explained above that we share the Panel's view with respect to Korea's argument on "constituent data and methodology" used in the table of supporting material. We agree with the Panel that, in this case, Current AMS for beef has to be calculated in accordance with Annex 3. According to Annex 3, "[t]he fixed external reference price shall be based on the years 1986 to 1988". We, therefore, also agree with the Panel that in calculating the product specific AMS for beef for the years 1997 and 1998, Korea should have used an external reference price based on data for 1986-1988, instead of data for 1989-1991."(11) (a) Definition of the term "subsidy" 6. In Canada - Dairy, the Appellate Body recalled its finding in Canada - Aircraft where it had stated that a subsidy "arises where the grantor makes a 'financial contribution' which confers a 'benefit' on the recipient, as compared with what would have been otherwise available to the recipient in the marketplace".(12) 7. In US - FSC, the Appellate Body, noting "that the Agreement on Agriculture does not contain a definition of the terms 'subsidy' or 'subsidies'"(13), reiterated the approach it followed in Canada - Dairy as follows: "Therefore, in this case, we will consider, first, whether the FSC measure involves a transfer of economic resources by the grantor, which in this dispute is the government of the United States, and, second, whether any transfer of economic resources involves a benefit to the recipient."(14) 8. As regards the definition of a subsidy under the SCM Agreement, see Section II.B.2(a) of the Chapter on the SCM Agreement. (b) "contingent upon export performance" 9. In US - FSC, the Appellate Body interpreted the requirement of export contingency also with reference to the SCM Agreement, stating that: "We see no reason, and none has been pointed out to us, to read the requirement of 'contingent upon export performance' in the Agreement on Agriculture differently from the same requirement imposed by the SCM Agreement. The two Agreements use precisely the same words to define 'export subsidies'. Although there are differences between the export subsidy disciplines established under the two Agreements, those differences do not, in our view, affect the common substantive requirement relating to export contingency. Therefore, we think it appropriate to apply the interpretation of export contingency that we have adopted under the SCM Agreement to the interpretation of export contingency under the Agreement on Agriculture."(15) 10. As regards the concept of export contingency under the SCM Agreement, see paragraphs 85-97 of the Chapter on the SCM Agreement. 11. In Korea - Various Measures on Beef, the Panel and the Appellate Body addressed Korea's argument that its method for calculation of domestic support was justifiable because it was based upon "the constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member's Schedule", although it was not consistent with the methodology set out in Annex 3 to the Agreement on Agriculture. See paragraphs 3-5 above.
III. Article 2 back to top Article 2: Product Coverage This Agreement applies to the products listed in Annex 1 to this Agreement, hereinafter referred to as agricultural products.
No jurisprudence or decision of a competent WTO body.
Part II
IV. Article 3 back to top 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.
12. In Korea - Various Measures on Beef, examining whether Korea's domestic support to its cattle industry was consistent with Articles 3, 6 and 7 of the Agreement on Agriculture, the Panel indicated, in a statement subsequently not reviewed by the Appellate Body: "It is, therefore, clear that Article 3 provides that support in favour of domestic producers (and here explicit reference is made to 'subject to Article 6') cannot exceed the level of support provided for in a Member's schedule. So, when assessing the WTO compatibility of domestic support, two parameters are indicated: first the provisions of Article 6 which refer to the object of those same 'commitments' on domestic support; and second, Section I of Part IV of a Member's schedule."(16) 13. With respect to Members' export subsidy commitments and related waivers, see also paragraphs 54-79 below. 14. In US - FSC, the Appellate Body explained the obligations set forth in Article 3.3 by distinguishing two distinct types of "commitments": "Under Article 3, Members have undertaken two different types of 'export subsidy commitments'. Under the first clause of Article 3.3, Members have made a commitment that they will not 'provide export subsidies listed in paragraph 1 of Article 9 in respect of the agricultural products or groups of products specified in Section II of Part IV of its Schedule in excess of the budgetary outlay and quantity commitments levels specified therein'. This is the commitment for scheduled agricultural products. ... Under the second clause of Article 3.3, Members have committed not to provide any export subsidies, listed in Article 9.1, with respect to unscheduled agricultural products. This clause clearly also involves 'export subsidy commitments' within the meaning of Article 10.1. Our interpretation of this term is confirmed by the title of Article 9, which is 'Export Subsidy Commitments'. Consistently with our reading of that term, Article 9.1 relates both to (1) the commitments made for scheduled agricultural products, under the first clause of Article 3.3, and to (2) the general prohibition, in the second clause of Article 3.3, against providing export subsidies listed in Article 9.1 to unscheduled agricultural products."(17) 15. The Appellate Body 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."(18)
Part III
V. Article 4 back to top 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.
16. In Chile - Price Band System, the Appellate Body explained the background of the negotiations which produced the text of Article 4, "which is the main provision of Part III of the Agreement on Agriculture", and indicated that Article 4 "is appropriately viewed as the legal vehicle for requiring the conversion into ordinary customs duties of certain market access barriers affecting imports of agricultural products": "[W]e turn now to Article 4, which is the main provision of Part III of the Agreement on Agriculture. As its title indicates, Article 4 deals with "Market Access".(19) During the course of the Uruguay Round, negotiators identified certain border measures which have in common that they restrict the volume or distort the price of imports of agricultural products. The negotiators decided that these border measures should be converted into ordinary customs duties, with a view to ensuring enhanced market access for such imports. Thus, they envisioned that ordinary customs duties would, in principle, become the only form of border protection. As ordinary customs duties are more transparent and more easily quantifiable than non-tariff barriers, they are also more easily compared between trading partners, and thus the maximum amount of such duties can be more easily reduced in future multilateral trade negotiations. The Uruguay Round negotiators agreed that market access would be improved-both in the short term and in the long term-through bindings and reductions of tariffs and minimum access requirements, which were to be recorded in Members' Schedules.
Thus, Article 4 of the Agreement on Agriculture is appropriately viewed as the legal vehicle for requiring the conversion into ordinary customs duties of certain market access barriers affecting imports of agricultural products..."(20) 17. With respect to the notification requirements concerning tariff quotas and other quotas, see paragraph 105 below.(21) 18. In EC - Bananas III, the Appellate Body upheld the Panel's finding that Article 4.1 cannot be interpreted so as to allow an inconsistency with GATT Article XIII of the European Communities import scheme for bananas. See paragraph 113 below. (a) "any measures which have been required to be converted into ordinary customs duties" Ordinary meaning in its context and in light of its object and purpose 19. In Chile - Price Band System, the Appellate Body interpreted the ordinary meaning of the phrase "measures which have been required to be converted into ordinary customs duties", in its context and in light of its object and purpose.(22) The Appellate Body first focussed on the present perfect tense in that phrase ("have been required") and considered that "Article 4.2 was drafted in the present perfect tense to ensure that measures that were required to be converted as a result of the Uruguay Round-but that had not been converted - could not be maintained, by virtue of that Article, from the date of the entry into force of the WTO Agreement on 1 January 1995". The Appellate Body therefore concluded that this phrase could not be interpreted as limiting the obligation "only to those measures which were actually converted, or were requested to be converted, into ordinary customs duties by the end of the Uruguay Round": "Article 4.2 of the Agreement on Agriculture should be interpreted in a way that gives meaning to the use of the present perfect tense in that provision-particularly in the light of the fact that most of the other obligations in the Agreement on Agriculture and in the other covered agreements are expressed in the present, and not in the present perfect, tense. In general, requirements expressed in the present perfect tense impose obligations that came into being in the past, but may continue to apply at present.(23) As used in Article 4.2, this temporal connotation relates to the date by which Members had to convert measures covered by Article 4.2 into ordinary customs duties, as well as to the date from which Members had to refrain from maintaining, reverting to, or resorting to, measures prohibited by Article 4.2. The conversion into ordinary customs duties of measures within the meaning of Article 4.2 began during the Uruguay Round multilateral trade negotiations, because ordinary customs duties that were to 'compensate' for and replace converted border measures were to be recorded in Members' draft WTO Schedules by the conclusion of those negotiations. These draft Schedules, in turn, had to be verified before the signing of the WTO Agreement on 15 April 1994. Thereafter, there was no longer an option to replace measures covered by Article 4.2 with ordinary customs duties in excess of the levels of previously bound tariff rates. Moreover, as of the date of entry into force of the WTO Agreement on 1 January 1995, Members are required not to 'maintain, revert to, or resort to' measures covered by Article 4.2 of the Agreement on Agriculture.
If Article 4.2 were to read 'any measures of the kind which are required to be converted', this would imply that if a Member-for whatever reason-had failed, by the end of the Uruguay Round negotiations, to convert a measure within the meaning of Article 4.2, it could, even today, replace that measure with ordinary customs duties in excess of bound tariff rates.(24) But, as Chile and Argentina have agreed, this is clearly not so. (footnote omitted) It seems to us that Article 4.2 was drafted in the present perfect tense to ensure that measures that were required to be converted as a result of the Uruguay Round-but were not converted-could not be maintained, by virtue of that Article, from the date of the entry into force of the WTO Agreement on 1 January 1995.
Thus, contrary to what Chile argues, giving meaning and effect to the use of the present perfect tense in the phase 'have been required' does not suggest that the scope of the phrase 'any measures of the kind which have been required to be converted into ordinary customs duties' must be limited only to those measures which were actually converted, or were requested to be converted, into ordinary customs duties by the end of the Uruguay Round. Indeed, in our view, such an interpretation would fail to give meaning and effect to the word 'any' and the phrase 'of the kind', which are descriptive of the word 'measures' in that provision. A plain reading of these words suggests that the drafters intended to cover a broad category of measures. We do not see how proper meaning and effect could be accorded to the word 'any' and the phrase 'of the kind' in Article 4.2 if that provision were read to include only those specific measures that were singled out to be converted into ordinary customs duties by negotiating partners in the course of the Uruguay Round."(25) Footnote 1 20. The Appellate Body 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 19 above): "The wording of footnote 1 to the Agreement on Agriculture confirms our interpretation. The footnote imparts meaning to Article 4.2 by enumerating examples of 'measures of the kind which have been required to be converted', and which Members must not maintain, revert to, or resort to, from the date of the entry into force of the WTO Agreement. Specifically, and as both participants agree (footnote omitted), the use of the word 'include' in the footnote indicates that the list of measures is illustrative, not exhaustive. And, clearly, the existence of footnote 1 suggests that there will be 'measures of the kind which have been required to be converted' that were not specifically identified during the Uruguay Round negotiations. Thus, in our view, the illustrative nature of this list lends support to our interpretation that the measures covered by Article 4.2 are not limited only to those that were actually converted, or were requested to be converted, into ordinary customs duties during the Uruguay Round.
Footnote 1 also refers to a residual category of 'similar border measures other than ordinary customs duties', which indicates that the drafters of the Agreement did not seek to identify all 'measures which have been required to be converted' during the Uruguay Round negotiations. The existence of this residual category confirms our interpretation that Article 4.2 covers more than merely the measures that had been specifically identified or challenged by other negotiating partners in the course of the Uruguay Round."(26) Article 5 as context for Article 4.2 interpretation 21. The Appellate Body in Chile - Price Band System further indicated that the context of Article 4.2 confirms its interpretation (see paragraph 19 above). In this regard, the Appellate Body referred to Article 5.1 as an illustration that " where the drafters of the Agreement on Agriculture wanted to limit the application of a rule to measures that have actually been converted, they used specific language expressing that limitation": "[T]he context of Article 4.2 confirms our interpretation. Article 5.1 of the Agreement on Agriculture, the only provision in addition to Article 4 that is included in Part III of that Agreement, specifies that a Member may, under certain conditions, impose a special safeguard on imports of an agricultural product 'in respect of which measures referred to in [Article 4.2] have been converted into an ordinary customs duty'. (emphasis added) In our view, the phrase 'have been required to be converted' in Article 4.2 has a broader connotation than the phrase 'have been converted' in Article 5.1.(27) Therefore, it is perfectly apt that Article 5.1 speaks of such special safeguards only with respect to those agricultural products for which measures covered by Article 4.2 'have been converted'-that is, have in fact already been converted-into ordinary customs duties. Article 5.1 illustrates that, where the drafters of the Agreement on Agriculture wanted to limit the application of a rule to measures that have actually been converted, they used specific language expressing that limitation."(28) 22. The Appellate Body in Chile - Price Band System further considered that Article 5 lends contextual support to its interpretation of Article 4.2 (see paragraph 19 above) since "the existence of a market access exemption in the form of a special safeguard provision under Article 5 implies that Article 4.2 should not be interpreted in a way that permits Members to maintain measures that a Member would not be permitted to maintain but for Article 5": "Article 5, also found in Part III of the Agreement on Agriculture on "Market Access", lends contextual support to our interpretation of Article 4.2. In our view, the existence of a market access exemption in the form of a special safeguard provision under Article 5 implies that Article 4.2 should not be interpreted in a way that permits Members to maintain measures that a Member would not be permitted to maintain but for Article 5, and, much less, measures that are even more trade-distorting than special safeguards. In particular, if Article 4.2 were interpreted in a way that allowed Members to maintain measures that operate in a way similar to a special safeguard within the meaning of Article 5-but without respecting the conditions set out in that provision for invoking such measures-it would be difficult to see how proper meaning and effect could be given to those conditions set forth in Article 5.(29)"(30) Subsequent practice 23. In Chile - Price Band System, Chile had argued that, in interpreting this Article 4.2 phrase, it was "highly relevant" that no country that had a price band system in place before the conclusion of the Uruguay Round had actually converted it into ordinary customs duties. The Appellate Body looked into the possibility that this practice could be considered "subsequent practice"(31) pursuant to Article 31(3)(b) of the Vienna Convention and therefore a practice relevant to the interpretation of Article 4.2. The Appellate Body referred to its definition of "subsequent practice" in its Report in Japan - Alcoholic Beverages(32) and noted that neither the Panel record nor the submissions of the parties suggested that there was a discernible pattern of acts or pronouncements implying an agreement among WTO Members on the interpretation of Article 4.2. The Appellate Body thus concluded that this practice of some Members alleged by Chile did not amount to a "subsequent practice" within the meaning of Article 31(3)(b) of the Vienna Convention.(33) 24. In Chile - Price Band System, the Appellate Body looked at the meaning of "converted" in the phrase "any measures which have been required to be converted into ordinary customs duties" and concluded, on the basis of the dictionary meanings of "convert" and "converted" that those measures "had to be transformed into something they were not-namely, ordinary customs duties". In this case, Chile had argued that its price band system was not a measure of the kind which had been required to be converted, but rather a system for determining the level of the resulting ordinary customs duties. The Appellate Body considered that the "mere fact that ... measures result in the payment of duties does not exonerate a Member from the requirement not to maintain, resort to, or revert to those measures": "Article 4.2 speaks of 'measures of the kind which have been required to be converted into ordinary customs duties'. The word 'convert' means 'undergo transformation'.(34) The word 'converted' connotes 'changed in their nature', 'turned into something different'.(35) Thus, 'measures which have been required to be converted into ordinary customs duties' had to be transformed into something they were not-namely, ordinary customs duties. The following example illustrates this point. The application of a 'variable import levy', or a 'minimum import price', as the terms are used in footnote 1, can result in the levying of a specific duty equal to the difference between a reference price and a target price, or minimum price. These resulting levies or specific duties take the same form as ordinary customs duties. However, the mere fact that a duty imposed on an import at the border is in the same form as an ordinary customs duty, does not mean that it is not a 'variable import levy' or a 'minimum import price'. Clearly, as measures listed in footnote 1, 'variable import levies' and 'minimum import prices' had to be converted into ordinary customs duties by the end of the Uruguay Round. The mere fact that such measures result in the payment of duties does not exonerate a Member from the requirement not to maintain, resort to, or revert to those measures."(36) (iii) "ordinary customs duties" 25. In Chile - Price Band System, the Appellate Body reversed the Panel's definition of "ordinary customs duty". The Panel had found that "[a]ll "ordinary" customs duties may ... be said to take the form of ad valorem or specific duties (or combinations thereof)".(37) The Panel further found that the term "ordinary customs duty" has a "normative connotation".(38) The Appellate Body disagreed: "We do not agree with the Panel's reasoning that, necessarily, '[a]s a normative matter, ... those scheduled duties always relate to either the value of the imported goods, in the case of ad valorem duties, or the volume of the imported goods, in the case of specific duties.'(39) (emphasis in original, underlining added) Indeed, the Panel came to this conclusion by interpreting the French and Spanish versions of the term 'ordinary customs duty' to mean something different from the ordinary meaning of the English version of that term. It is difficult to see how, 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'.(40) A Member's Schedule imposes obligations on the Member who has made the concessions. The Schedule of one Member, and even the scheduling practice 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.(41) 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."(42) 26. 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":(43) : "Surely Members will ordinarily take into account the interests of domestic consumers and domestic producers in setting their applied tariff rates at a certain level. In doing so, they will doubtless take into account factors such as world market prices and domestic price developments. These are exogenous factors, as the Panel used that term. According to the Panel, duties that are calculated on the basis of such exogenous factors are not ordinary customs duties. This would imply that such duties be prohibited under Article II:1(b) of the GATT unless recorded in the "other duties or charges" column of a Member's Schedule. We see no legal basis for such a conclusion(44)."(45) 27. The Appellate Body 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)."(46) 28. The Appellate Body in Chile - Price Band System, pointed to Article II:2 of GATT 1994 and Annex 5 to the Agreement on Agriculture as contextual support for interpreting the term "ordinary customs duties": "As context for this phrase in Article 4.2 of the Agreement on Agriculture, we observe that Article II:2 of the GATT 1994 sets out examples of measures that do not qualify as either 'ordinary customs duties' or 'other duties or charges'. These measures include charges equivalent to internal taxes, anti-dumping and countervailing duties, and fees or other charges commensurate with the cost of services rendered. They too may be based on the value and/or volume of imports, and yet Article II:2 distinguishes them from 'ordinary customs duties' by providing that ''[n]othing in [Article II] shall prevent any Member from imposing' them 'at any time on the importation of any product'.
Contextual support for interpreting the term 'ordinary customs duties' also appears in Annex 5 to the Agreement on Agriculture. Annex 5, read together with the Attachment to Annex 5 ('Guidelines for the Calculation of Tariff Equivalents for the Specific Purpose Specified in Paragraphs 6 and 10 of this Annex'), contemplates the calculation of 'tariff equivalents' in a way that would result in ordinary customs duties 'expressed as ad valorem or specific rates'. We do not find an obligation in either of those provisions that would require Members to refrain from basing their duties on what the Panel calls 'exogenous factors'. Rather, all that is required is that 'ordinary customs duties' be expressed in the form of 'ad valorem or specific rates'."(47) Measure resulting in ordinary customs duties 29. In Chile - Price Band System, Argentina had argued before the Panel that Chile's price band system was a measure "of the kind which has been required to be converted into ordinary customs duties" and which, by the terms of Article 4.2 of the Agreement on Agriculture, Members are required not to maintain. Chile had refuted such an allegation and claimed that the duties resulting from its price band system were "ordinary customs duties" and that its price band system was merely a system for determining the level of those duties and, therefore, consistent with Article 4.2. The Appellate Body agreed with the Panel as regards the inconsistency of Chile's price band system with Article 4.2 (although not as regards the Panel's reasoning) and found that "the fact that the duties that result from the application of Chile's price band system take the same form as "ordinary customs duties" does not imply that the underlying measure is consistent with Article 4.2 of the Agreement on Agriculture."(48) 30. 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".(49) (b) Relation with Article XI of GATT and its Ad Note 31. The Panel on Korea - Various Measures on Beef, in a statement not reviewed by the Appellate Body, held with respect to a certain practice of the Korean state trading agency for beef imports: "[W]hen dealing with measures relating to agricultural products which should have been converted into tariffs or tariff-quotas, a violation of Article XI of GATT and its Ad Note relating to state-trading operations would necessarily constitute a violation of Article 4.2 of the Agreement on Agriculture and its footnote which refers to non-tariff measures maintained through state-trading enterprises."(50) 32. With respect to the special treatment in connection with paragraph 2 of Article 4, see Article 5, Section VI below, and Annex 5, Section XXVII below. 33. In Chile - Price Band System, the Appellate Body, which overturned the Panel's interpretation of this term(51), noted that the "WTO Members have not chosen to define [this] "term of art" in the Agreement on Agriculture or anywhere else in the WTO Agreement".(52), The Appellate Body concluded that a variable import duty requires the presence of both a formula causing automatic and continuous variability of duties and additional features that undermine the object and purpose of Article 4 because they include a lack of transparency and a lack of predictability in the level of duties that will result from such measures: "In examining the ordinary meaning of the term 'variable import levies' as it appears in footnote 1, we note that a 'levy' is a duty, tax, charge, or other exaction usually imposed or raised by legal execution or process.(53) An 'import' levy is, of course, a duty assessed upon importation. A levy is 'variable' when it is 'liable to vary'.(54) This feature alone, however, is not conclusive as to what constitutes a 'variable import levy' within the meaning of footnote 1. An 'ordinary customs duty' could also fit this description. A Member may, fully in accordance with Article II of the GATT 1994, exact a duty upon importation and periodically change the rate at which it applies that duty (provided the changed rates remain below the tariff rates bound in the Member's Schedule).(55) This change in the applied rate of duty could be made, for example, through an act of a Member's legislature or executive at any time. Moreover, it is clear that the term 'variable import levies' as used in footnote 1 must have a meaning different from 'ordinary customs duties', because 'variable import levies' must be converted into 'ordinary customs duties'. Thus, the mere fact that an import duty can be varied cannot, alone, bring that duty within the category of 'variable import levies' for purposes of footnote 1.
To determine what kind of variability makes an import levy a 'variable import levy', we turn to the immediate context of the other words in footnote 1. The term 'variable import levies' appears after the introductory phrase ''[t]hese measures include'. Article 4.2-to which the footnote is attached-also speaks of 'measures'. This suggests that at least one feature of 'variable import levies' is the fact that the measure itself-as a mechanism-must impose the variability of the duties. Variability is inherent in a measure if the measure incorporates a scheme or formula that causes and ensures that levies change automatically and continuously. Ordinary customs duties, by contrast, are subject to discrete changes in applied tariff rates that occur independently, and unrelated to such an underlying scheme or formula. The level at which ordinary customs duties are applied can be varied by a legislature, but such duties will not be automatically and continuously variable. To vary the applied rate of duty in the case of ordinary customs duties will always require separate legislative or administrative action, whereas the ordinary meaning of the term 'variable' implies that no such action is required.
However, in our view, the presence of a formula causing automatic and continuous variability of duties is a necessary, but by no means a sufficient, condition for a particular measure to be a 'variable import levy' within the meaning of footnote 1. (footnote omitted) 'Variable import levies' have additional features that undermine the object and purpose of Article 4, which is to achieve improved market access conditions for imports of agricultural products by permitting only the application of ordinary customs duties. These additional features include a lack of transparency and a lack of predictability in the level of duties that will result from such measures. This lack of transparency and this lack of predictability are liable to restrict the volume of imports. ... an exporter is less likely to ship to a market if that exporter does not know and cannot reasonably predict what the amount of duties will be. (i) This lack of transparency and predictability will also contribute to distorting the prices of imports by impeding the transmission of international prices to the domestic market."(56) 34. As regards the question whether a measure ceases to be similar to a "variable import levy" because it is subject to a tariff cap, see paragraphs 38-39 below. 35. In Chile - Price Band System, unlike with the definition of "variable import levies" (see paragraph 33 above), the Appellate Body did not overturn the Panel's interpretation of the term "minimum import price" and simply noted that the parties did not disagree with it.(57) The Appellate Body, after indicating that the "term "minimum import price" refers generally to the lowest price at which imports of a certain product may enter a Member's domestic market" and that "no definition has been provided by the drafters of the Agreement on Agriculture", quoted the Panel's description of "minimum import prices" as follows: "The term 'minimum import price' refers generally to the lowest price at which imports of a certain product may enter a Member's domestic market. Here, too, no definition has been provided by the drafters of the Agreement on Agriculture. However, the Panel described 'minimum import prices' as follows:
'[these] schemes generally operate in relation to the actual transaction value of the imports. If the price of an individual consignment is below a specified minimum import price, an additional charge is imposed corresponding to the difference.'(58)
The Panel also said that minimum import prices 'are generally not dissimilar from variable import levies in many respects, including in terms of their protective and stabilization effects, but that their mode of operation is generally less complicated.'(59) The main difference between minimum import prices and variable import levies is, according to the Panel, that 'variable import levies are generally based on the difference between the governmentally determined threshold and the lowest world market offer price for the product concerned, while minimum import price schemes generally operate in relation to the actual transaction value of the imports.'(60) (emphasis added)
..., the participants said they do not object to the Panel's definition of a 'minimum import price'..."(61) 36. In Chile - Price Band System, the Appellate Body agreed with the Panel's definition of the term "similar" as "having a resemblance or likeness", "of the same nature or kind", and "having characteristics in common". The Appellate Body, however, disagreed with the Panel's emphasis on the degree to which measures share characteristics of a "fundamental" nature.(62) The Appellate Body found that the appropriate approach to determine similarity was to ask "whether two or more things have likeness or resemblance sufficient to be similar to each other". The Appellate Body further considered that, for a measure to be "similar" to a border measure, it must have "sufficient 'resemblance or likeness to', or be 'of the same nature or kind' as, at least one of the specific categories of measures listed in footnote 1": "We agree with the first part of the Panel's definition of the term 'similar' as 'having a resemblance or likeness', 'of the same nature or kind', and 'having characteristics in common'.(63) However, in our view, the Panel went unnecessarily far in focusing on the degree to which two measures share characteristics of a 'fundamental' nature. We see no basis for determining similarity by relying on characteristics of a 'fundamental' nature. The Panel seems to substitute for the task of defining the term 'similar' that of defining the term 'fundamental'. This merely complicates matters, because it raises the question of how to distinguish 'fundamental' characteristics from those of a less than 'fundamental' nature. The better and appropriate approach is to determine similarity by asking the question whether two or more things have likeness or resemblance sufficient to be similar to each other. In our view, the task of determining whether something is similar to something else must be approached on an empirical basis.
... To be 'similar', Chile's price band system-in its specific factual configuration-must have, to recall the dictionary definitions we mentioned, sufficient 'resemblance or likeness to', or be 'of the same nature or kind' as, at least one of the specific categories of measures listed in footnote 1."(64) 37. The Appellate Body 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 within the meaning of footnote 1, it is necessary to identify with which categories that [measure] must be compared".(65) (ii) Relevance of tariff caps in the similarity analysis 38. In Chile - Price Band System, Chile had argued that the Panel had failed to take proper account of the fact that the total amount of duties that may be levied as a result of Chile's price band system was "capped" at the level of the tariff rate of 31.5 per cent ad valorem bound in Chile's Schedule. The Appellate Body thus considered whether Chile's price band system ceases to be similar to a "variable import levy" because it is subject to a cap. The Appellate Body concluded: "[W]e find nothing in Article 4.2 to suggest that a measure prohibited by that provision would be rendered consistent with it if applied with a cap. Before the conclusion of the Uruguay Round, a measure could be recognized as a "variable import levy" even if the products to which the measure applied were subject to tariff bindings.(66) And, there is nothing in the text of Article 4.2 to indicate that a measure, which was recognized as a "variable import levy" before the Uruguay Round, is exempt from the requirements of Article 4.2 simply because tariffs on some, or all, of the products to which that measure now applies were bound as a result of the Uruguay Round."(67) 39. The Appellate Body in Chile - Price Band System, found support for this view in the context of Article 4.2. which includes the Guidelines for the Calculation of Tariff Equivalents for the Specific Purpose Specified in Paragraph 6 and 10 of this Annex ("Guidelines"), which are an Attachment to Annex 5 on Special Treatment with respect to Paragraph 2 of Article 4. and Articles II and XI of the GATT 1994. "The context of Article 4.2 lends support to this interpretation. That context includes the Guidelines for the Calculation of Tariff Equivalents for the Specific Purpose Specified in Paragraph 6 and 10 of this Annex ('Guidelines'), which are an Attachment to Annex 5 on Special Treatment with respect to Paragraph 2 of Article 4. Both the Attachment and the Annex form part of the Agreement on Agriculture. Paragraph 6 of the Guidelines(68) envisages that tariff equivalents resulting from conversion of measures within the meaning of Article 4.2 may exceed previous bound rates. This implies that, even if the product to which that measure applied was in fact subject to a tariff binding before the Uruguay Round, conversion of that measure may nevertheless have been required. Therefore, a measure cannot be excluded per se from the scope of Article 4.2 simply because the products to which that measure applies are subject to a tariff binding.
Relevant context can also be found in Articles II and XI of the GATT 1994. If Members were free to apply a measure with a 'cap'-which, in the absence of that 'cap', would be a prohibited 'variable import levy'-Article 4.2 would, in our view, add little to the longstanding requirements of Articles II:1(b) and XI:1 of the GATT 1947. In fact, Chile concedes that the scope of measures prohibited by Article 4.2 extends beyond the tariffs in excess of bound rates that are prohibited by Article II and the 'restrictions other than taxes, duties and charges' that are prohibited by Article XI:1. (footnote omitted) In any event, it is difficult to see why Uruguay Round negotiators would 'compensate' Members for converting prohibited measures by permitting them to raise tariffs on certain products, while permitting those Members to retain those measures and, at the same time, impose those higher tariffs on those same products. It is not clear why, if this were so, a Member would ever have converted a measure. All that a Member would have had to do to comply with Article 4.2 would have been to adopt a tariff binding-even at a higher level-on the products covered by the original measure. Had this been the intention of the Uruguay Round negotiators, there would have been no need to list price-based measures in footnote 1 among the categories of measures prohibited by Article 4.2. The drafters of the Agreement on Agriculture simply could have adopted a requirement that all tariffs on agricultural products be bound."(69) (iii) Common features of border measures 40. In Chile - Price Band System, the Appellate Body noted that trade distortive objectives and effects are common to all border measures: "[W]e note that all of the border measures listed in footnote 1 have in common the object and effect of restricting the volumes, and distorting the prices, of imports of agricultural products in ways different from the ways that ordinary customs duties do. Moreover, all of these measures have in common also that they disconnect domestic prices from international price developments, and thus impede the transmission of world market prices to the domestic market."(70) 41. 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(71) of the phrase "measures which have been required to be converted into ordinary customs duties" of Article 4.2. See paragraph 20 above.
42. 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 24-28 above. The Appellate Body also indicated that if it were to find that Chile's price band system was inconsistent with Article 4.2 of the Agreement of Agriculture, it would not need to make a separate finding on whether Chile's price band system also results in a violation of Article II:1(b) of the GATT 1994 to resolve this dispute.(72)
VI. Article 5 back to top Article 5: Special Safeguard Provisions 1. Notwithstanding the provisions of paragraph 1(b) of Article II of GATT 1994, any Member may take recourse to the provisions of paragraphs 4 and 5 below in connection with the importation of an agricultural product, in respect of which measures referred to in paragraph 2 of Article 4 of this Agreement have been converted into an ordinary customs duty and which is designated in its Schedule with the symbol "SSG" as being the subject of a concession in respect of which the provisions of this Article may be invoked, if:
(a) the volume of imports of that product entering the customs territory of the Member granting the concession during any year exceeds a trigger level which relates to the existing market access opportunity as set out in paragraph 4; or, but not concurrently:
(b) the price at which imports of that product may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price of the shipment concerned expressed in terms of its domestic currency, falls below a trigger price equal to the average 1986 to 1988 reference price(2) for the product concerned.
(footnote original) 2 The reference price used to invoke the provisions of this subparagraph shall, in general, be the average c.i.f. unit value of the product concerned, or otherwise shall be an appropriate price in terms of the quality of the product and its stage of processing. It shall, following its initial use, be publicly specified and available to the extent necessary to allow other Members to assess the additional duty that may be levied.
2. Imports under current and minimum access commitments established as part of a concession referred to in paragraph 1 above shall be counted for the purpose of determining the volume of imports required for invoking the provisions of subparagraph 1(a) and paragraph 4, but imports under such commitments shall not be affected by any additional duty imposed under either subparagraph 1(a) and paragraph 4 or subparagraph 1(b) and paragraph 5 below.
3. Any supplies of the product in question which were en route on the basis of a contract settled before the additional duty is imposed under subparagraph 1(a) and paragraph 4 shall be exempted from any such additional duty, provided that they may be counted in the volume of imports of the product in question during the following year for the purposes of triggering the provisions of subparagraph 1(a) in that year.
4. Any additional duty imposed under subparagraph 1(a) shall only be maintained until the end of the year in which it has been imposed, and may only be levied at a level which shall not exceed one third of the level of the ordinary customs duty in effect in the year in which the action is taken. The trigger level shall be set according to the following schedule based on market access opportunities defined as imports as a percentage of the corresponding domestic consumption(3) during the three preceding years for which data are available:
(footnote original) 3 Where domestic consumption is not taken into account, the base trigger level under subparagraph 4(a) shall apply.
(a) where such market access opportunities for a product are less than or equal to 10 percent, the base trigger level shall equal 125 percent;
(b) where such market access opportunities for a product are greater than 10 percent but less than or equal to 30 percent, the base trigger level shall equal 110 percent;
(c) where such market access opportunities for a product are greater than 30 percent, the base trigger level shall equal 105 percent.
In all cases the additional duty may be imposed in any year where the absolute volume of imports of the product concerned entering the customs territory of the Member granting the concession exceeds the sum of (x) the base trigger level set out above multiplied by the average quantity of imports during the three preceding years for which data are available and (y) the absolute volume change in domestic consumption of the product concerned in the most recent year for which data are available compared to the preceding year, provided that the trigger level shall not be less than 105 percent of the average quantity of imports in (x) above.
5. The additional duty imposed under subparagraph 1(b) shall be set according to the following schedule:
(a) if the difference between the c.i.f. import price of the shipment expressed in terms of the domestic currency (hereinafter referred to as the "import price") and the trigger price as defined under that subparagraph is less than or equal to 10 percent of the trigger price, no additional duty shall be imposed;
(b) if the difference between the import price and the trigger price (hereinafter referred to as the "difference") is greater than 10 percent but less than or equal to 40 percent of the trigger price, the additional duty shall equal 30 percent of the amount by which the difference exceeds 10 percent;
(c) if the difference is greater than 40 percent but less than or equal to 60 percent of the trigger price, the additional duty shall equal 50 percent of the amount by which the difference exceeds 40 percent, plus the additional duty allowed under (b);
(d) if the difference is greater than 60 percent but less than or equal to 75 percent, the additional duty shall equal 70 percent of the amount by which the difference exceeds 60 percent of the trigger price, plus the additional duties allowed under (b) and (c);
(e) if the difference is greater than 75 percent of the trigger price, the additional duty shall equal 90 percent of the amount by which the difference exceeds 75 percent, plus the additional duties allowed under (b), (c) and (d).
6. For perishable and seasonal products, the conditions set out above shall be applied in such a manner as to take account of the specific characteristics of such products. In particular, shorter time periods under subparagraph 1(a) and paragraph 4 may be used in reference to the corresponding periods in the base period and different reference prices for different periods may be used under subparagraph 1(b).
7. The operation of the special safeguard shall be carried out in a transparent manner. Any Member taking action under subparagraph 1(a) above shall give notice in writing, including relevant data, to the Committee on Agriculture as far in advance as may be practicable and in any event within 10 days of the implementation of such action. In cases where changes in consumption volumes must be allocated to individual tariff lines subject to action under paragraph 4, relevant data shall include the information and methods used to allocate these changes. A Member taking action under paragraph 4 shall afford any interested Members the opportunity to consult with it in respect of the conditions of application of such action. Any Member taking action under subparagraph 1(b) above shall give notice in writing, including relevant data, to the Committee on Agriculture within 10 days of the implementation of the first such action or, for perishable and seasonal products, the first action in any period. Members undertake, as far as practicable, not to take recourse to the provisions of subparagraph 1(b) where the volume of imports of the products concerned are declining. In either case a Member taking such action shall afford any interested Members the opportunity to consult with it in respect of the conditions of application of such action.
8. Where measures are taken in conformity with paragraphs 1 through 7 above, Members undertake not to have recourse, in respect of such measures, to the provisions of paragraphs 1(a) and 3 of Article XIX of GATT 1994 or paragraph 2 of Article 8 of the Agreement on Safeguards.
9. The provisions of this Article shall remain in force for the duration of the reform process as determined under Article 20."
43. In EC - Poultry, Brazil argued that the European Communities had failed to comply with Article 5 of the Agreement on Agriculture in the implementation of the special safeguard measures for imports of poultry meat outside tariff quotas. The European Communities contested the finding of the Panel that the phrase in Article 5.1(b) "on the basis of the c.i.f. import price" referred to the c.i.f. price plus import duties. Reversing the Panel's findings on Article 5.1(b), the Appellate Body first explored the circumstances in which this specific question could become relevant and then went on to distinguish between an entry into the customs territory on the one hand, and an entry into the domestic market on the other: "This dispute has no practical significance if both the c.i.f. import price and the c.i.f. import price plus customs duties fall above or below the trigger price. If both prices are above the trigger price, then additional duties cannot be imposed. And, if both prices fall below the trigger price, then additional duties may be imposed regardless of which definition of the relevant import price is adopted. However, the practical significance of this dispute becomes apparent whenever the trigger price falls between the other two prices, that is, when the trigger price is greater than the c.i.f. import price but smaller than the c.i.f. import price plus customs duties. ... [I]f the relevant price is defined as the c.i.f. import price plus customs duties, additional duties may not be imposed since the relevant price is well above the trigger price. If, on the other hand, it is defined as the c.i.f. import price only (that is, without customs duties), additional duties may be imposed because the relevant price is below the trigger price. Thus, to adopt one definition, rather than another, will determine whether or not an importing Member may impose additional safeguard duties. ... The relevant import price in Article 5.1(b) is described as 'the price at which imports of that product may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price of the shipment concerned'. It is noteworthy that the drafters of the Agreement on Agriculture chose to use as the relevant import price the entry price into the customs territory, rather than the entry price into the domestic market. This suggests that they had in mind the point of time just before the entry of the product concerned into the customs territory, and certainly before entry into the domestic market, of the importing Member. The ordinary meaning of these terms in Article 5.1(b) supports the view that the 'price at which that product may enter the customs territory' of the importing Member should be construed to mean just that - the price at which the product may enter the customs territory, not the price at which the product may enter the domestic market of the importing Member. And that price is a price that does not include customs duties and internal charges. It is upon entry of a product into the customs territory, but before the product enters the domestic market, that the obligation to pay customs duties and internal charges accrues."(73) 44. The Appellate Body 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.'(74) We disagree. In the light of our construction of the preceding phrase 'the price at which imports of the product may enter the customs territory of the Member granting the concession', we conclude that the phrase 'as determined on the basis of the c.i.f. import price of the shipment concerned' in Article 5.1(b) refers simply to the c.i.f. price without customs duties and taxes. There is no definition of the term 'c.i.f. import price' in the Agreement on Agriculture or in any of the other covered agreements. However, in customary usage in international trade, the c.i.f. import price does not include any taxes, customs duties, or other charges that may be imposed on a product by a Member upon entry into its customs territory.(75) We think it significant also that ordinary customs duties are not mentioned as a component of the relevant import price in the text of Article 5.1(b). Article 5.1(b) does not state that the relevant import price is 'the c.i.f. price plus ordinary customs duties'. Accordingly, to read the inclusion of customs duties into the definition of the c.i.f. import price in Article 5.1(b) would require us to read words into the text of that provision that simply are not there."(76) 45. The Appellate Body in EC - Poultry found support for its finding referenced in paragraph 44 above in the context of Article 5.1(b): "This reading of the text of Article 5.1(b) is supported by our reading of the context of that provision in accordance with Article 31 of the Vienna Convention, which specifies that the ordinary meaning of the terms of a treaty should be interpreted in their context.
We look first to the rest of Article 5.1. In considering when additional special safeguard duties under Article 5.1(b) may be imposed, the relevant import price must be compared with a trigger price. According to Article 5.1(b), this trigger price is 'equal to the average 1986 to 1988 reference price for the product concerned'. Footnote 2 to Article 5.1(b) states:
The reference price used to invoke the provisions of this subparagraph shall, in general, be the average c.i.f. unit value of the product concerned, or otherwise shall be an appropriate price in terms of the quality of the product and its stage of processing. It shall, following its initial use, be publicly specified and available to the extent necessary to allow other Members to assess the additional duty that may be levied.
Thus, the reference price with which the relevant price is compared under Article 5.1 does not include ordinary customs duties. It is simply the average c.i.f. import price of the product concerned during the reference period, 1986-1988. Given this definition of the reference price, it could not have been the intention of the drafters to compare a c.i.f. price exclusive of customs duties for the reference period with a c.i.f. price inclusive of such duties today.
Paragraph 5 of Article 5 is also part of the context of Article 5.1(b). This provision establishes a link between the amount of the additional duty to be imposed and the difference between the c.i.f. import price of the shipment and the trigger price. According to the schedule contained in paragraph 5, when the difference between the c.i.f. import price of the shipment and the trigger price is not greater than 10 per cent, no additional duty shall be imposed. When the difference is greater than 10 per cent, additional duties may be imposed. The amount of the additional safeguard duties increases as the difference in the two prices increases. We see no reference in paragraph 5 to 'c.i.f. import price plus ordinary customs duties'. The price used to determine when the special safeguard may be triggered and the price used to calculate the amount of the additional duties must be one and the same."(77) 46. The Appellate Body in EC - Poultry, after making the findings referenced in paragraphs 43-45 above, considered what it termed two "anomalies" which would arise under the interpretation given to Article 5.1(b) by the Panel: "Certain anomalies would arise from the interpretation adopted by the majority of the Panel. One of these anomalies was cited in the opinion of the dissenting member of the Panel.(78) If tariffication of non-tariff barriers on a certain product took the form of specific duties that were greater than the trigger price, then an importing Member may never be able to invoke Article 5.1(b). The truth of this observation is evident from the fact that the c.i.f. import price plus customs duties may never fall below the trigger price. This consequence is not limited to the case of specific duties that exceed the trigger price. It could also occur in cases where tariffication takes the form of ad valorem duties. We know that tariffication has resulted in tariffs which are, in a large number of cases, very high. The probability is strong, therefore, that the ad valorem duties could exceed the percentage decrease in the c.i.f. import price by a substantial margin. In such cases, the decrease in the c.i.f. price would have to be very deep before the relevant import price would fall below the trigger price. Thus, the provisions of Article 5.1(b) would not be operational in many cases. It is doubtful that this was intended by the drafters of the 'Special Safeguard Provisions'.
Another anomaly that would arise from defining the relevant import price as the c.i.f. import price plus ordinary customs duties would be that the right of Members to invoke the provisions of Article 5.1(b) would depend on the level of tariffs resulting from tariffication. Faced with a certain decline in the c.i.f. price - say, 20 per cent - some Members would find themselves in a situation where they could not invoke the price safeguard; others would have the right to do so. The first category would comprise those Members with a relatively high level of tariffied duties; the second would be those with a relatively moderate level. Thus, the rights of Members would ultimately depend on the level of their tariffied duties. It is doubtful, too, that this was intended by the drafters of the 'Special Safeguard Provisions'."(79) 47. As a result of the reasoning referenced in paragraphs 43-46 above, the Appellate Body in EC - Poultry concluded: "[W]e interpret the 'price at which the product concerned may enter the customs territory of the Member granting the concession, as determined on the basis of the c.i.f. import price' in Article 5.1(b) as the c.i.f. import price not including ordinary customs duties."(80) 48. Regarding Article 5.5, in EC - Poultry, the Appellate Body examined whether it was permissible for the importing Member to offer the importer a choice between the use of the c.i.f price of the shipment as provided in that provision, and another method of calculation which departs from this principle. Under the relevant regulation, the European Communities calculated a periodic representative price, based, inter alia, in part on prices in third-country markets and prices at various stages of marketing within the European Communities. The Commission, in its determination of the trigger price for the purposes of the special safeguard provision, would use this "representative price", unless the importer specifically requested the use of the c.i.f. price, conditional upon the presentation of certain documents and the lodging of a security by the importer. The Appellate Body held as follows: "[N]either the text nor the context of Article 5.5 of the Agreement on Agriculture permits us to conclude that the additional duties imposed under the special safeguard mechanism in Article 5 of the Agreement on Agriculture may be established by any method other than a comparison of the c.i.f. price of the shipment with the trigger price."(81) 49. With respect to notification requirements concerning the special safeguard provisions, see paragraphs 105-106 below.
Part IV
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