DISPUTE SETTLEMENT

DS: Peru — Additional Duty on Imports of 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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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: 27 November 2014
Appellate Body Report circulated: 20 July 2015
Article 21.3(c) Arbitration Report circulated: 16 December 2015

  

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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 Guatemala.

On 12 April 2013, Guatemala requested consultations with Peru with respect to the imposition by Peru of an “additional duty” on imports of certain agricultural products, such as rice, sugar, maize, milk and certain dairy products.

Guatemala claims that the measure at issue is inconsistent with:

  • Article 4.2 and footnote 1 of the Agreement on Agriculture;
     
  • Articles II:1(a), II:1(b), X:1, X:3(a), XI and XI:1 of the GATT 1994; and
     
  • Articles 1, 2, 3, 5, 6 and 7 of the Customs Valuation Agreement.

On 13 June 2013, Guatemala requested the establishment of a panel.  At its meeting on 25 June 2013, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 23 July 2013, the DSB established a panel. Argentina, China, El Salvador, the European Union, India and the United States reserved their third party rights.  Subsequently, Brazil, Ecuador, Honduras and Korea reserved their third party rights. Following the agreement of the parties, the panel was composed on 19 September 2013.

On 17 March 2014, the Chair of the panel informed the DSB that the panel expects to issue its final report to the parties by September 2014, in accordance with the timetable adopted after consultation with the parties. On 25 September 2014, the Chair of the panel informed the DSB that in light of modifications to the timetable that were requested by the parties, the panel expects to issue its final report to the parties in October 2014.

On 27 November 2014, the panel report was circulated to Members.

This dispute concerns the additional duties imposed by Peru on imports of certain agricultural products (dairy products, corn, rice and sugar). These duties are determined using a mechanism known as the Price Range System (PRS), which operates on the basis of: (i) a range constituted by a floor price and a ceiling price, which reflect international prices over the last 60 months; and (ii) a reference price published every two weeks, reflecting the average international market price for each product concerned. An additional duty is applied if the reference price of the affected product is lower than the floor price. Conversely, if the reference price exceeds the ceiling price, the applicable tariff is reduced.

Guatemala argued that Peru's additional duties are: (i) variable import levies, minimum import prices, or at least border measures similar to variable import levies or minimum import prices, and thus, should have been converted into ordinary customs duties under Article 4.2 of the Agreement on Agriculture; and (ii) “other duties or charges” different from ordinary customs duties, which had not been registered in Peru's Schedule of Concessions, and are therefore in breach of Article II:1(b) of the GATT 1994. Guatemala raised additional claims under Articles X:1 and X:3(a) of the GATT 1994, regarding the publication and administration of the measure. Guatemala also raised alternative claims under Articles 1, 2, 3, 5, 6 and 7 of the Customs Valuation Agreement.

Peru argued that the additional duties form part of its tariff and are, therefore, ordinary customs duties. Peru also argued that, under the Free Trade Agreement (FTA) signed between Guatemala and Peru in December 2011, Peru was allowed to maintain its PRS. Consequently, the good faith requirement contained in Articles 3.7 and 3.10 of the DSU prevents Guatemala from challenging the PRS in WTO dispute settlement proceedings. Moreover, Peru argued that, by means of the FTA, the parties had modified their reciprocal WTO rights and obligations; accordingly, the FTA, which allows the use of the PRS, should prevail.

The Panel found no evidence that Guatemala brought these proceedings in a manner contrary to its good faith obligations under Articles 3.7 and 3.10 of the DSU. Therefore, the Panel found no reason to refrain from assessing Guatemala's claims.

The Panel also found that, because the FTA has not entered into force, its provisions were not at the time of the panel report binding on the parties. Accordingly, it was not necessary for the Panel to express any opinion on whether the parties may, by means of an FTA, modify between themselves their rights and obligations under the WTO covered agreements.

The Panel found that Peru acted inconsistently with its obligation under Article 4.2 of the Agreement of Agriculture by maintaining measures of the kind that were required to be converted into ordinary customs duties. In particular, the Panel found that the additional duties resulting from the PRS constitute variable import levies or, at least, share sufficient characteristics with variable import levies to be considered border measures similar to variable import levies, within the meaning of footnote 1 to the Agreement on Agriculture.

The Panel also found that the additional duties resulting from the PRS do not constitute minimum import prices, and do not share sufficient characteristics with minimum import prices in order to be considered border measures similar to minimum import prices, within the meaning of footnote 1 to the Agreement on Agriculture.

The Panel found that the additional duties resulting from the PRS cannot be considered ordinary customs duties. In the Panel's view, those duties are “other duties or charges imposed on, or in connection with, importation”, within the meaning of the second sentence of Article II:1(b) of the GATT 1994. Peru had not registered any such “other duties or charges” in its Schedule of Concessions. Therefore, by imposing these duties, Peru is acting inconsistently with its obligations under the second sentence of Article II:1(b) of the GATT 1994.

Having decided that the additional duties resulting from the PRS are inconsistent with Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994, the Panel considered it unnecessary to make additional findings under Articles X:1 or X:3(a) of the GATT 1994.

Given that the Panel found that the additional duties resulting from the PRS were not ordinary customs duties, the Panel did not address Guatemala's alternative claims under the Customs Valuation Agreement.

Bearing in mind that Guatemala contested the additional duties resulting from the PRS but not the PRS itself, the Panel did not consider it appropriate to use its discretion under the second sentence of Article 19.1 of the DSU to suggest that the mechanism underlying the calculation of the additional duties be eliminated. Instead, the Panel recommended that Peru be requested to bring its measure into conformity with its WTO obligations.

On 3 December 2014, Peru and Guatemala requested the DSB to adopt a draft decision extending the 60-day time period stipulated in Article 16.4 of the DSU, no earlier than 9 February 2015 and no later than 25 March 2015. At its meeting on 17 December 2014, the DSB agreed that, it shall no later than 25 March 2015, adopt the panel report unless (i) the DSB decides by consensus not to do so or (ii) Guatemala or Peru notifies the DSB of its decision to appeal the panel report.

On 25 March 2015, Peru notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation in the panel report. On 30 March 2015, Guatemala notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation in the panel report.

On 20 July 2015, the Appellate Body issued its Report in DS457. The appeal was completed in 117 days.

Good faith under Articles 3.7 and 3.10 of the DSU

  • The Appellate Body found that Peru's arguments on appeal pertain to issues of law covered in the Panel Report and legal interpretations developed by the Panel, and thus do not constitute a “new defence”.
     
  • As there was no clear stipulation in the FTA of a relinquishment by Guatemala of its right to have recourse to the WTO dispute settlement mechanism, the Appellate Body found that Guatemala could not be considered to have acted contrary to its good faith obligations under Articles 3.7 and 3.10.

Article 4.2 of the Agreement on Agriculture — “variable import levies”

  • The Appellate Body ruled that a “variable import levy” is “inherently” variable because it incorporates a scheme or formula that causes and ensures that levies change automatically and continuously. The Appellate Body dismissed Peru's arguments and found that Peru had not established that the Panel erred in its assessment of “inherent variability”.
     
  • The Appellate Body rejected Peru's challenge regarding the Panel's assessment of the “additional features” of “variable import levies”, finding that the Panel had not erred in its analysis.
     
  • The Appellate Body rejected Peru's challenge under Article 11 of the DSU because it related to the legal standard applied by the Panel under Article 4.2 of the Agreement on Agriculture, and not the Panel's objective assessment of the evidence before it.

Article II:1(b) of the GATT 1994

  • The Appellate Body found that the Panel was correct in taking into account its finding under Article 4.2 of the Agreement on Agriculture when reaching the finding that the additional duties are not “ordinary customs duties” under Article II:1(b) of the GATT 1994.
     
  • The Appellate Body rejected Peru's challenge under Article 11 of the DSU because it related to the legal standard applied by the Panel under Article II:1(b) of the GATT 1994, and not the Panel's objective assessment of the evidence before it.

Relationship between WTO and FTA provisions

  • The Appellate Body found that Peru's arguments regarding the interpretation of certain WTO provisions in accordance with Article 31(3) of the Vienna Convention concerned issues of law covered in the Panel Report and legal interpretations developed by the Panel, and that it would consider them on appeal to the extent that this would not require the Appellate Body to solicit or review new facts.
     
  • Peru argued on appeal that the Panel erred in its interpretation of Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994 because it failed to take into account under Article 31(3) of the Vienna Convention the relevant provisions of the FTA and ILC Articles 20 and 45. The Appellate Body found that these arguments amounted to arguing that, by means of the FTA, Peru and Guatemala actually modified these WTO provisions between themselves. In any event, the Appellate Body considered that both the FTA and ILC Articles 20 and 45 were not “relevant” to the interpretation within the meaning of Article 31(3)(c), and that the FTA was not a subsequent agreement “regarding the interpretation” of the WTO provisions within the meaning of Article 31(3)(a). The Appellate Body also considered that such alleged modifications would not be subject to Article 41 of the Vienna Convention about inter se modifications of multilateral treaties, but rather to the specific WTO provisions in Article XXIV of the GATT 1994.
     
  • The Appellate Body, therefore, found that the Panel did not commit an error by not interpreting the WTO provisions at issue taking into account the provisions of the FTA and ILC Articles 20 and 45 under Article 31(3) of the Vienna Convention.

Article 4.2 of the Agreement on Agriculture — “minimum import price” and “similar border measures”

  • The Appellate Body rejected Guatemala's claim that the Panel erred in its interpretation of “minimum import price”. The Appellate Body, however, found that the Panel erred in its analysis of whether the measure at issue is a “minimum import price” by not sufficiently engaging with the relevant elements of the design, structure, and operation of the measure at issue.
     
  • The Appellate Body rejected Guatemala's claim that the Panel erred by conflating the legal standards for “minimum import price” and “similar border measures”. The Appellate Body, however, found that the Panel erred in its analysis of whether the measure is a border measure “similar” to a “minimum import price” by not sufficiently analysing the design, structure and operation of the measure at issue.
     
  • As for Guatemala's request for completion of the legal analysis, the Appellate Body concluded that it is not possible to complete the legal analysis given that the Panel record did not contain sufficient undisputed facts concerning to what extent the explicit or the implicit threshold identified by Guatemala serves as a minimum import price threshold.

At its meeting on 31 July 2015, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

On 31 August 2015, Peru informed the DSB that, pursuant to Article 21.3 of the DSU, it intended to implement the DSB's recommendations and rulings in this dispute. On 1 October 2015, Guatemala requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. On 9 October 2015, the parties agreed on Mr Ricardo Ramírez-Hernández to serve as the Arbitrator pursuant to Article 21.3(c) of the DSU. On 9 October 2015, Mr Ramírez-Hernández accepted the appointment.

On 16 December 2015, the Award of the Arbitrator was circulated to the Members of the WTO. The Arbitrator determined the reasonable period of time as 7 months and 29 days from the adoption of the Panel and Appellate Body Reports. The reasonable period of time will thus expire on 29 March 2016.

 

Implementation of adopted reports

On 29 March 2016, Peru informed the DSB that, in order to bring the additional duties resulting from the application of the Price Range System into line with Peru's WTO obligations, it has revised the Price Range System in line with the DSB's recommendations. Peru thus informed the DSB that it had adopted the necessary measures to comply with the recommendations and rulings in this dispute.

On 11 April 2016, Guatemala and Peru informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

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