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DISPUTE SETTLEMENT: DISPUTE DS207

Chile — Price Band System and Safeguard Measures Relating to Certain Agricultural Products

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

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See also: One-page summary of key findings of this dispute

Appellate Body and Panel Compliance Reports (Article 21.5) Adopted

Complaint by Argentina. 

On 19 May 2004, Argentina requested consultations under Article 21.5 of the DSU.  On 29 December 2005, Argentina, considering that the measures adopted by Chile to implement the recommendations and rulings of the DSB were inconsistent, inter alia , with Article 4.2 of the Agreement on Agriculture, the second sentence of Article II:1(b) of the GATT 1994, and hence, Article XVI:4 of the WTO Agreement, requested the establishment of an Article 21.5 compliance panel.  At its meeting on 20 January 2006, the DSB agreed to refer the matter raised by Argentina to the original panel.  Australia, Colombia, the European Communities and the United States reserved their third party rights.  Subsequently, Brazil, Canada, China, Peru and Thailand reserved their third party rights.

On 4 April 2006, the parties agreed on the composition of the Panel. On 8 June 2006, the Chairman of the Panel informed the DSB that it would not be possible to circulate its report within 90 days after the date of referral to the original panel due to time required for the translation of the submissions. The Panel expects to complete its work by November 2006. On 13 November 2006, the Chairman of the Panel informed the DSB that on 23 October 2006, the Panel had issued its final report to the parties in the dispute. However, due to the time required for the translation of the report into French and Spanish, the Panel would not be able to circulate the report to Members within the 90-day period foreseen in Article 21.5 of the DSU. The Panel indicated that it expected to circulate its report to Members by mid-December 2006, at the latest.

On 8 December 2006, the Article 21.5 panel report was circulated to Members.  The Panel found that:

• by continuing to maintain a border measure similar to a variable import levy and to a minimum import price, Chile was acting in a manner inconsistent with Article 4.2 of the Agreement on Agriculture and had failed to implement the recommendations and rulings of the DSB.
    
• it was unnecessary, for the resolution of the dispute, to make separate findings under Articles II:1(b) of GATT 1994 and XVI:4 of the WTO Agreement.

On 5 February 2007, Chile notified its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the Panel. On 19 February 2007, Argentina notified its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the Panel. On 30 March 2007, the Chairman of the Appellate Body informed the DSB that due to the time required for completion and translation of the report, the Appellate Body would not be able to circulate its report within 60 days. It estimated that the report would be circulated no later than 7 May 2007.

On 7 May 2007, the Appellate Body report was circulated to Members. The Appellate Body found:

• that the Panel did not err in its allocation of the burden of proof;
    
• that the Panel did not err in its interpretation of Article 4.2 and footnote 1 of the Agreement on Agriculture, or in its application of those provisions to the measure at issue, and, therefore (i) upheld the Panel's finding that the measure at issue is a border measure similar to a variable import levy and to a minimum import price within the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture; and (ii) upheld the Panel's finding that, by maintaining a border measure similar to a variable import levy and and to minimum import price, Chile is acting inconsistently with its obligations under Article 4.2 of the Agreement on Agriculture and has not implemented the recommendations and rulings of the DSB.
    
• that the Panel did not fail to discharge its duties under Article 11 of the DSU to conduct an objective assessment of the matter before it or under Article 12.7 of the DSU to set out a basic rationale for its findings; and
    
• in the light of these findings, that because the condition on which Argentina's other appeal is predicated had not been fulfilled, it was not necessary to consider that appeal.

At its meeting on 22 May 2007, the DSB adopted the Article 21.5 Appellate Body report and the panel report, as upheld by the Appellate Body report.

Appellate Body and Panel Reports Adopted

On 5 October 2000, Argentina requested consultations with Chile concerning:

• the price band system established by Law 18.525 (as subsequently amended by Law 18.591 and Law 19.546), as well as implementing regulations and complementary and/or amending provisions; and
   
• the provisional safeguard measures adopted on 19 November 1999 by Decree No. 339 of the Ministry of Economy and the definitive safeguard measures imposed on 20 January 2000 by Decree No. 9 of the Ministry of Economy on the importation of various products, including wheat, wheat flour and edible vegetal oils.

Argentina considered that these measures raised questions concerning the obligations of Chile under various agreements. According to Argentina, the provisions with which the measures relating to the said price band system are inconsistent, include, but are not limited to, the following: Article II of the GATT 1994, and Article 4 of the Agreement on Agriculture. According to Argentina, the provisions with which the safeguard measures are inconsistent, include, but are not limited to, the following: Articles 2, 3, 4, 5, 6 and 12 of the Safeguards Agreement, and Article XIX:1(a) of the GATT 1994.

On 19 January 2001, Argentina requested the establishment of a panel. At its meeting on 1 February 2001, the DSB deferred the establishment of a panel. Further to a second request to establish a panel by Argentina, the DSB established a panel at its meeting of 12 March 2001. Australia, Brazil, Colombia, Costa Rica, the EC, Ecuador, El Salvador, Guatemala, Honduras, Japan, Nicaragua, Paraguay, the US and Venezuela reserved their third party rights. On 7 May 2001, Argentina requested the Director-General to determine the composition of the Panel. On 17 May 2001, the Panel was composed.

On 23 November 2001, the Panel informed the DSB that it would not be able to complete its work in six months due to the scheduling requests of the parties. The Panel expected to complete its work by the end of March 2002. On 3 May 2002, the Panel circulated its report to Members. The Panel concluded that:

1. the Chilean PBS is inconsistent with Article 4.2 of the Agreement on Agriculture and Article II:1(b) of GATT 1994;
    
2. as regards the Chilean safeguard measures on wheat, wheat flour and edible vegetable oils:
    
1. Chile has acted inconsistently with Article 3.1 of the Agreement on Safeguards by not making available the relevant minutes of the sessions of the CDC through an appropriate medium so as to constitute a “published” report;
    
2. Chile has acted inconsistently with Article XIX:1(a) of GATT 1994 because the CDC failed to demonstrate the existence of unforeseen developments, and Article 3.1 of the Agreement on Safeguards because the CDC’s report did not set out findings and reasoned conclusions in this respect in its report;
    
3. Chile has acted inconsistently with Article XIX:1(a) of GATT 1994 and Articles 2 and 4 of the Agreement on Safeguards because the CDC failed to demonstrate the likeness or direct competitiveness of the products produced by the domestic industry, and, consequently, failed to identify the domestic industry;
    
4. Chile has acted inconsistently with Article XIX:1(a) of GATT 1994 and Articles 2.1 and 4.2(a) of the Agreement on Safeguards because the CDC failed to demonstrate the increase in imports of the products subject to the safeguard measures required by those provisions;
    
5. Chile has acted inconsistently with Article XIX:1(a) of the GATT 1994 and Article 4.1(a), 4.1(b) and 4.2(a) of the Agreement on Safeguards because the CDC did not demonstrate the existence of a threat of serious injury;
    
6. Chile has acted inconsistently with Articles 2.1 and 4.2(b) of the Agreement on Safeguards because the CDC did not demonstrate a causal link;
    
7. Chile has acted inconsistently with Article XIX:1(a) of GATT 1994 and Article 5.1 of the Agreement on Safeguards because the CDC did not ensure that the measures were limited to the extent necessary to prevent or remedy injury and facilitate adjustment;
    
8. Argentina failed to establish that Chile has acted inconsistently with the requirement of Articles 3.1 and 3.2 of the Agreement on Safeguards to conduct an “appropriate investigation” because Argentina allegedly did not have a full opportunity to participate in the investigation and did not have access to any public summary of the confidential information on which the Chilean authorities may have based their determination.

On 24 June 2002, Chile notified its decision to appeal to the Appellate Body certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel.

On 23 September 2002 the report of the Appellate Body was circulated. The Appellate Body:

1. found that the Panel acted inconsistently with Article 11 of the DSU by making its finding, in paragraph 7.108 of the Panel Report, that the duties resulting from Chile’s price band system are inconsistent with Article II:1(b) of the GATT 1994, on the basis of the second sentence of that provision, which was not before the Panel, and, therefore, reverses this finding;
    
2. decided that the Panel did not err in choosing to examine Argentina’s claim under Article 4.2 of the Agreement on Agriculture before examining Argentina’s claim under Article II:1(b) of the GATT 1994;
    
3. with respect to Article 4.2 of the Agreement on Agriculture:
    
1. upheld the Panel’s finding, in paragraphs 7.47 and 7.65 of the Panel Report, that Chile’s price band system is a border measure that is similar to variable import levies and minimum import prices;
    
2. reversed the Panel’s finding, in paragraphs 7.52 and 7.60 of the Panel Report, that an “ordinary customs duty” is to be understood as “referring to a customs duty which is not applied on the basis of factors of an exogenous nature”;
    
3. upheld the Panel’s finding, in paragraphs 7.102 and 8.1(a) of the Panel Report, that Chile’s price band system is inconsistent with Article 4.2 of the Agreement on Agriculture;
    
4. decided, in the light of these findings, that it was not necessary to rule on whether Chile’s price band system is consistent with the first sentence of Article II:1(b) of the GATT 1994.

The Appellate Body recommended that the DSB request Chile to bring its price band system, as found, in its and in the Panel Report as modified by its Report, to be inconsistent with the Agreement on Agriculture, into conformity with its obligations under that Agreement.

At its meeting on 23 October 2002, the DSB adopted the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report.

Implementation Status of Adopted Reports

At the DSB meeting of 11 November 2002, Chile stated that it intended to comply with the recommendations and rulings of the DSB. To that end, Chile was engaged in consultations with Argentina to find a mutually satisfactory solution to the dispute. Chile further stated that it would need a reasonable period of time to bring its measures into conformity with the recommendations and rulings of the DSB. On 6 December 2002, Chile informed the DSB, that to date Chile and Argentina had been unable to agree on the length of the reasonable period of time and thus Chile was requesting that the determination of the reasonable period of time be the subject of binding arbitration in accordance with Article 21.3(c) of the DSU. On 16 December 2002, Argentina and Chile informed the DSB that they have agreed to postpone the deadline for the binding arbitration which would now be completed no later than 90 days from the appointment of the arbitrator (instead of 90 days from the date of adoption of the rulings and recommendations of the DSB). Also on 16 December 2002, Argentina and Chile requested Mr. John Lockhart, Member of the Appellate Body, to act as arbitrator for the purposes of Article 21.3(c) of the DSU. On 17 December 2002, Mr. John Lockhart accepted the appointment of arbitrator.

On 17 March 2003, the arbitrator circulated its award. The Arbitrator concluded that the “reasonable period of time” that should be extended to Chile to implement the recommendations and rulings of the DSB in this dispute was 14 months (23 December 2003).

At the DSB meeting on 2 October 2003, Chile stated that on 25 September 2003 Law No 19.897 to establish a new price band system had been promulgated replacing Law No 18.525. The new Law would come into force on 16 December 2003: i.e. prior to the expiry of the reasonable period of time for compliance. Argentina raised detailed questions concerning the new Law. Chile noted the statement by Argentina and requested that Argentina make its questions available in writing.

At the DSB meeting on 7 November 2003, Chile stated that Law No 19.897 was scheduled to come into force on 16 December 2003: i.e. prior to the expiry of the reasonable period of time for compliance, and that, with this new law, Chile had complied with the DSB’s recommendations and rulings. Argentina stated that the new system did not comply fully with the recommendations and rulings of the DSB, as it retained most of the essential features of the previous system; and it was still waiting for the responses to its questions concerning the new price band system. Argentina also stated that, given the close relationship between the Chile and Argentina, it was still willing to explore the possibility of reaching a mutually satisfactory solution to this dispute.

At the DSB meeting on 1 December 2003, Chile said that it had already adopted a number of measures to comply with the DSB’s recommendations, as stated previously. Argentina reiterated its view that the measures taken by Chile to comply with the recommendations did not constitute the implementation in this case since the price band system would continue to be maintained. Argentina considered that it would be appropriate for the parties to enter into negotiations on compensation before the expiry of the deadline for implementation. Brazil said that it also considered that the measures taken for compliance by Chile were still not consistent with the provisions of the Agreement on Agriculture.

On 24 December 2003, Argentina and Chile informed the DSB that they had agreed on certain procedures under Articles 21 and 22 of the DSU.

At the DSB meeting on 23 January 2004, Chile and Argentina noted that they had concluded a bilateral agreement regarding the procedures under Articles 21.5 and 22 of the DSU. In this regard, Chile noted that the issue of sequencing between Articles 21.5 and 22 required a multilateral solution since ad hoc agreements only applied to specific disputes. Argentina noted that the parties would shortly enter into consultations regarding the implementation issues.

On 19 May 2004, Argentina requested consultations with Chile under Article 21.5 of the DSU. On 29 December 2005, Argentina requested the establishment of a panel under Article 21.5 of the DSU. At its meeting on 20 January 2006, the DSB agreed, if possible, to refer the matter raised by Argentina to the original panel.

For details of the Article 21.5 panel proceedings, see above.

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