DISPUTE SETTLEMENT

DS: Argentina — Measures Relating to Trade in Goods and Services

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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Current status

 

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Key facts

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 30 September 2015
Appellate Body Report circulated: 14 April 2016

  

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Latest document

  

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Summary of the dispute to date

The summary below was up-to-date at

Consultations

Complaint by Panama.

On 12 December 2012, Panama requested consultations with Argentina with respect to certain measures imposed by Argentina that affect trade in goods and services.  Panama alleges that various Argentine measures are applied exclusively in respect of certain countries listed in the Regulations to the Income/Profit Tax Law, Decree 1344/98, as amended by Decree 1037/00.

Panama claims that the measures are inconsistent with:

  • Articles II:1, XI, XVI and footnote 8, and XVII of the GATS; and
     
  • Articles I:1, III:2, III:4 and XI:1 of the GATT 1994.

On 21 December 2012, the European Union requested to join the consultations.  On 28 December 2012, the United States requested to join the consultations. On 13 May 2013, Panama requested the establishment of a panel. At its meeting on 24 May 2013, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 25 June 2013, the DSB established a panel. Australia, China, Ecuador, the European Union, Guatemala, Honduras, India and the United States reserved their third party rights. Subsequently, Brazil, Oman, the Kingdom of Saudi Arabia and Singapore reserved their third party rights. On 30 October 2013, Panama requested the Director-General to compose the panel. On 11 November 2013, the Director-General composed the panel.

On 28 April 2014, the Chair of the panel informed the DSB that the start of the proceedings was deferred owing to the unavailability of panelists and senior Secretariat lawyers. The panel therefore expects to issue its final report to the parties by mid-2015.

On 30 September 2015, the panel report was circulated to Members.

Summary of key findings

This dispute concerns eight financial, taxation, foreign exchange and registration measures imposed by Argentina mostly on services and service suppliers from jurisdictions that do not exchange information with Argentina for the purposes of fiscal transparency (“non-cooperative jurisdictions”).

The measures at issue in this dispute are the following:

  • Withholding tax on payments of interest or remuneration (measure 1);
  • Presumption of unjustified increase in wealth (measure 2);
  • Transaction valuation based on transfer prices (measure 3);
  • Payment received rule for the allocation of expenditure (measure 4);
  • Requirements relating to reinsurance services (measure 5);
  • Requirements for access to the Argentine capital market (measure 6);
  • Requirements for the registration of branches (measure 7); and,
  • Foreign exchange authorization requirement (measure 8).

Concerning the GATS discrimination claims, the Panel found that:

(i) measure 1 (withholding tax on payments of interest or remuneration), measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), measure 4 (payment received rule for the allocation of expenditure), measure 5 (requirements relating to reinsurance services), measure 6 (requirements for access to the Argentine capital market), measure 7 (requirements for the registration of branches) and measure 8 (foreign exchange authorization requirement) are inconsistent with Article II:1 of the GATS because Argentina accords to services and service suppliers of non-cooperative jurisdictions less favourable treatment than that it accords to like services and service suppliers of cooperative jurisdictions; and,

(ii) measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), and measure 4 (payment received rule for the allocation of expenditure) are not inconsistent with Article XVII of the GATS because Argentina does not modify the conditions of competition in favour of Argentine services or service suppliers compared to like services or service suppliers of non-cooperative jurisdictions, in the relevant services and modes of supply in which Argentina has scheduled specific commitments.

Concerning the GATS market access claims in respect of measure 5, the Panel dismissed the claims under (i) Article XVI:2(a) of the GATS because measure 5 (requirements relating to reinsurance services) was not covered by that provision; and (ii) Article XVI:1 of the GATS because Panama failed to make a prima facie case.

Regarding Argentina's defences under the GATS, the Panel found that:

(i) measure 1 (withholding tax on payments of interest or remuneration), measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), measure 4 (payment received rule for the allocation of expenditure), measure 7 (requirements for the registration of branches) and measure 8 (foreign exchange authorization requirement) are not justified under Article XIV(c) of the GATS because they fail to meet the requirements under the chapeau (no arbitrary discrimination) given the distortions created by the manner in which Argentina designates cooperative and non-cooperative countries; and,

(ii) measure 5 (requirements relating to reinsurance services) and measure 6 (requirements for access to the Argentine capital market) are not justified under paragraph 2(a) of the Annex on Financial Services because, in the absence of a rational relationship of cause and effect between the measures and the prudential reasons, they were not taken “for prudential reasons”.

The Panel further exercised judicial economy with respect to Argentina's defence under Article XIV(d) of the GATS because measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices) and measure 4 (payment received rule for the allocation of expenditure) were found not to be inconsistent with Article XVII of the GATS.

With respect to Panama's claims under the GATT 1994, the Panel dismissed the claims under: (i) Article I:1 with respect to measure 2 (presumption of unjustified increase in wealth) and measure 3 (transaction valuation based on transfer prices) and Article III:4 with respect to measure 3 (transaction valuation based on transfer prices) because Panama failed to make a prima facie case; and (ii) Article XI:1 because measure 3 (transaction valuation based on transfer prices) is in the nature of a tax and therefore not covered by that provision. Accordingly, the Panel exercised judicial economy on Argentina's defence under Article XX(d) of the GATT.

On 27 October 2015, Panama notified the DSB of its decision to appeal to the Appellate Body certain issues of law covered in the panel report. On 2 November 2015, Argentina notified the DSB of its decision to cross-appeal.

On 22 December 2015, the Chair of the Appellate Body notified the DSB that the Appellate Body would not be able to circulate its Report within 90 days, and indicated that the Report in this appeal would be circulated to Members no later than 19 April 2016. On 7 April 2016, the Chair of the Appellate Body notified the DSB that the Appellate Body would circulate its Report on 14 April 2016.

On 14 April 2016, the Appellate Body report was circulated to Members.

Panama and Argentina each appealed different findings by the Panel with respect to Panama's claims under Articles II:1 and XVII of the GATS, and with respect to Argentina's defence under Article XIV of the GATS and paragraph 2(a) of the GATS Annex on Financial Services. The Panel's findings under the GATT 1994 were not subject to appeal.

Concerning the Panel's findings on the GATS discrimination claims under Article II:1 (most-favoured-nation obligation) and Article XVII (national treatment obligation)

The Panel found that the relevant services and service suppliers are “like” under both Articles II:1 and Article XVII of the GATS, because the eight challenged measures provide for differential treatment on the basis of the origin of the services and service suppliers at issue. Argentina claimed on appeal that the Panel erred in its analysis of the likeness of services and service suppliers under Articles II:1 and XVII of the GATS.

The Appellate Body found that the likeness of services and service suppliers may be established on the basis of certain criteria relating to the competitive relationship between the services and service suppliers at issue. Alternatively, likeness may be presumed where a measure provides for differential treatment based exclusively on the origin of the services and service suppliers concerned. The Appellate Body found that in its analysis under Article II:1 of the GATS, the Panel did not make a finding that the distinction between cooperative and non‑cooperative countries in the measures at issue was based exclusively on origin, and that the Panel erred in finding likeness “by reason of origin” in the absence of such a finding. The Appellate Body considered that the Panel was thus required to undertake an analysis of likeness on the basis of various criteria relevant for an assessment of the competitive relationship of the services and service suppliers of cooperative and non-cooperative countries and found that the Panel had failed to do so. Because the Panel's finding of likeness under Article XVII of the GATS was based on its finding of likeness under Article II:1, the Appellate Body found that the Panel erred also in its analysis under Article XVII. Consequently, the Appellate Body reversed the Panel's findings of likeness of the services and service suppliers at issue under Articles II:1 and XVII of the GATS. 

The Panel also found that that the eight measures are inconsistent with the most-favoured nation obligation in Article II:1 because they accord less favourable treatment to services and service suppliers of non-cooperative countries in comparison to those from cooperative countries, but that the three measures (measures 2, 3, and 4) that Panama claimed were also in violation of the national treatment obligation do not favour Argentine services and service suppliers and are thus not inconsistent with Article XVII of the GATS. Panama alleged that the Panel erred in finding that an assessment of “treatment no less favourable” under Articles II:1 and XVII of the GATS had to take into account “regulatory aspects” relating to services and service suppliers.

The Appellate Body found that, under Article II:1 and Article XVII of the GATS, a measure fails to confer “treatment no less favourable” if it modifies the conditions of competition to the detriment of services or service suppliers of any other Member in comparison to like services or service suppliers of, respectively, any other country or the Member imposing the contested measure. In the Appellate Body's view, the Panel adopted an erroneous legal standard under these provisions whereby an analysis of the “regulatory aspects” could potentially render a measure consistent with Articles II:1 and XVII, even if the measure modifies the conditions of competition to the detriment of like services or service suppliers of any other Member. The Appellate Body considered that, where a measure is inconsistent with the non-discrimination provisions of the GATS, regulatory aspects or concerns that could potentially justify such a measure are more appropriately addressed in the context of the relevant exceptions. The Appellate Body therefore found that the Panel erred in its interpretation of Articles II:1 and XVII of the GATS in finding that an analysis of “treatment no less favourable” had to take into account “regulatory aspects” relating to services and service suppliers, which, in this dispute, concerned whether Argentina was able to have access to tax information on foreign suppliers. Recalling its reversal of the Panel's findings on likeness, the Appellate Body found that the Panel's findings on “treatment no less favourable” lack a proper basis and cannot stand, and therefore reversed the Panel's conclusions under both Article II:1 and Article XVII of the GATS.

Concerning the Panel's findings on Argentina's defence under Article XIV of the GATS (General Exceptions)

Before the Panel, Argentina sought to defend six of its measure (measures 1, 2, 3, 4, 7, and 8) under Article XIV(c) of the GATS, but did not succeed because the Panel found that it granted cooperative country status to countries with which it does not have an agreement that allows effective exchange of such information, and thus did not comply with the chapeau of Article XIV.

Although Argentina did not appeal the Panel's ultimate rejection of its defence, Panama appealed the Panel's intermediate finding that the six measures concerned were “necessary to secure compliance with” certain GATS-consistent Argentine laws and regulations within the meaning of paragraph (c) of Article XIV. The Appellate Body rejected Panama's allegation that, in applying Article XIV(c) to the six measures, the Panel failed to focus its analysis on the relevant aspects of the measures that gave rise to the findings of inconsistency with Article II:1 of the GATS. The Appellate Body further found that Panama did not demonstrate that the Panel erred in finding that the measures at issue are designed and “necessary” to secure compliance with the relevant Argentine laws or regulations.  In particular, the Appellate Body found that the Panel analysed not only whether the measures secure compliance with the objectives of the relevant laws or regulations, but also with specific provisions of such laws and regulations. As for the analysis of “necessity”, the Appellate Body found that Panama had not established that the Panel had erred in its assessment of the contribution and trade-restrictiveness of the measures at issue, or in its weighing and balancing of the relevant necessity factors.

Concerning the Panel's findings on Argentina's defence under Paragraph 2(a) of the GATS Annex on Financial Services (measures taken for “prudential reasons”)

Paragraph 2(a) of this Annex allows Members to take “measures for prudential reasons” “[n]otwithstanding any other provisions” of the GATS, provided that certain conditions are met. The Panel concluded that two of the challenged measures (measures 5 and 6) were not justified by paragraph 2(a) of the GATS Annex on Financial Services because they were not adopted “for prudential reasons” within the meaning of the provision.

Argentina did not appeal this conclusion, although Panama appealed an aspect of the Panel's interpretation under this provision. The Appellate Body disagreed with Panama's assertion that paragraph 2(a) of the Annex covers only measures constituting “domestic regulation”, finding, instead, the provision does not restrict the types of measures that may fall within the scope of this provision in the manner asserted by Panama. The Appellate Body thus agreed with the Panel that “paragraph 2(a) of the Annex on Financial Services covers all types of measures affecting the supply of financial services within the meaning of paragraph 1(a)” of the Annex.

At its meeting on 9 May 2016, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

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