PERU – ADDITIONAL DUTY ON IMPORTS OF CERTAIN
AGRICULTURAL PRODUCTS

REPORT OF THE PANEL

TABLE OF CONTENTS

1   INTRODUCTION................................................................................................................ 14

1.1   Complaint by Guatemala................................................................................................... 14

1.2   Panel establishment and composition.............................................................................. 14

1.3   Panel proceedings............................................................................................................ 14

2   FACTUAL ASPECTS............................................................................................................ 15

2.1   Introduction..................................................................................................................... 15

2.2   Measures at issue............................................................................................................. 15

3   PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS.................................. 17

4   ARGUMENTS OF THE PARTIES......................................................................................... 18

5   ARGUMENTS OF THE THIRD PARTIES............................................................................. 18

6   INTERIM REVIEW............................................................................................................. 18

7   FINDINGS......................................................................................................................... 22

7.1   Preliminary considerations................................................................................................ 22

7.1.1   Introduction.................................................................................................................. 22

7.1.2   The Panel's terms of reference...................................................................................... 22

7.1.3   Function of the Panel and standard of review................................................................ 23

7.1.4   Interpretation of the relevant rules of the agreements................................................. 23

7.1.5   Burden of proof............................................................................................................. 24

7.1.6   Order of analysis............................................................................................................ 25

7.2   The question of whether the Panel should refrain from examining Guatemala's claims... 26

7.2.1   Introduction.................................................................................................................. 26

7.2.2   The content of the FTA and its legal status.................................................................... 27

7.2.2.1   Chronology of events relating to the negotiation and entry into force of the FTA....... 27

7.2.2.2   Content of the FTA...................................................................................................... 28

7.2.3   Main arguments of the parties....................................................................................... 30

7.2.3.1   Peru............................................................................................................................ 30

7.2.3.2   Guatemala.................................................................................................................. 31

7.2.4   Main arguments of the third parties.............................................................................. 33

7.2.4.1   Argentina.................................................................................................................... 33

7.2.4.2   Brazil........................................................................................................................... 33

7.2.4.3   Colombia.................................................................................................................... 33

7.2.4.4   United States.............................................................................................................. 34

7.2.4.5   European Union.......................................................................................................... 34

7.2.5   Assessment by the Panel.............................................................................................. 35

7.2.5.1   The principle of good faith under Articles 3.7 and 3.10 of the DSU............................. 36

7.2.5.2   Whether Peru has shown that Guatemala did not initiate the present procedure in good faith 39

7.2.5.3   Conclusion.................................................................................................................. 41

7.3   Description of the facts.................................................................................................... 42

7.3.1   History of the Price Range System................................................................................ 42

7.3.2   The PRS and how it operates......................................................................................... 44

7.3.2.1   Introduction............................................................................................................... 44

7.3.2.2   The PRS...................................................................................................................... 44

7.3.2.3   Objectives of the PRS................................................................................................. 45

7.3.2.4   Products subject to the PRS....................................................................................... 45

7.3.2.5   The methodology for calculating duties or tariff rebates............................................ 48

7.3.2.6   The historical application of the PRS........................................................................... 52

7.3.3   Peru's tariff policy and the recording of tariffs in its schedule of concessions............... 62

7.4   The question of whether the duties resulting from the PRS are inconsistent with Article 4.2 of the Agreement on Agriculture......................................................................................................... 63

7.4.1   Introduction.................................................................................................................. 63

7.4.2   Main arguments of the parties....................................................................................... 63

7.4.2.1   Guatemala's claim...................................................................................................... 63

7.4.2.2   Peru's defence............................................................................................................ 69

7.4.3   Main arguments of the third parties.............................................................................. 73

7.4.3.1   Argentina.................................................................................................................... 73

7.4.3.2   Brazil........................................................................................................................... 73

7.4.3.3   Colombia.................................................................................................................... 74

7.4.3.4   Ecuador...................................................................................................................... 74

7.4.3.5   United States.............................................................................................................. 75

7.4.3.6   European Union.......................................................................................................... 76

7.4.4   Assessment by the Panel.............................................................................................. 76

7.4.4.1   Article 4.2 of the Agreement on Agriculture............................................................... 76

7.4.4.2   The question of whether the duties resulting from the PRS are variable import levies, minimum import prices or similar border measures............................................................................................ 84

7.5   The question of whether the duties resulting from the PRS are inconsistent with the second sentence of Article II:1(b) of the GATT 1994................................................................................................ 95

7.5.1   Introduction.................................................................................................................. 95

7.5.2   Main arguments of the parties....................................................................................... 96

7.5.2.1   Guatemala's claim...................................................................................................... 96

7.5.2.2   Peru's defence............................................................................................................ 98

7.5.3   Main arguments of the third parties............................................................................ 100

7.5.3.1   Colombia.................................................................................................................. 100

7.5.3.2   United States............................................................................................................ 100

7.5.3.3   European Union........................................................................................................ 100

7.5.4   Assessment by the Panel............................................................................................ 101

7.5.4.1   Introduction............................................................................................................. 101

7.5.4.2   The obligation under the second sentence of Article II:1(b) of the GATT 1994........ 101

7.5.4.3   Definition of "other duties or charges"..................................................................... 102

7.5.4.4   Assessment of "other duties or charges" in accordance with the obligations contained in the Understanding on the Interpretation of Article II:1(b) of the GATT 1994................................ 107

7.5.4.5   Conclusion................................................................................................................ 107

7.6   The question of whether Peru has acted inconsistently with Article X:1 of the GATT 1994 108

7.6.1   Introduction................................................................................................................ 108

7.6.2   Main arguments of the parties..................................................................................... 108

7.6.2.1   Guatemala's claim.................................................................................................... 108

7.6.2.2   Peru's defence.......................................................................................................... 109

7.6.3   Main arguments of the third parties............................................................................ 110

7.6.3.1   United States............................................................................................................ 110

7.6.3.2   European Union........................................................................................................ 110

7.6.4   Assessment by the Panel............................................................................................ 110

7.6.4.1   Introduction............................................................................................................. 110

7.6.4.2   The publication requirement under Article X:1 of the GATT 1994............................. 111

7.6.4.3   Conclusion................................................................................................................ 114

7.7   The question of whether Peru has acted inconsistently with Article X:3(a) of the GATT 1994 114

7.7.1   Introduction................................................................................................................ 114

7.7.2   Main arguments of the parties..................................................................................... 115

7.7.2.1   Guatemala's claim.................................................................................................... 115

7.7.2.2   Peru's defence.......................................................................................................... 116

7.7.3   Main arguments of the third parties – European Union............................................... 117

7.7.4   Assessment by the Panel............................................................................................ 117

7.7.4.1   Article X:3(a) of the GATT 1994................................................................................. 117

7.7.4.2   General considerations............................................................................................. 118

7.7.4.3   Measures covered.................................................................................................... 118

7.7.4.4   Meaning of administration........................................................................................ 118

7.7.4.5   The requirement of reasonableness......................................................................... 119

7.7.4.6   Conclusion................................................................................................................ 120

7.8   Alternative claim under the Customs Valuation Agreement........................................... 120

7.9   The question of whether, by means of the FTA, the parties modified their WTO rights between themselves............................................................................................................................................... 121

7.9.1   Introduction................................................................................................................ 121

7.9.2   Main arguments of the parties..................................................................................... 121

7.9.2.1   Peru.......................................................................................................................... 121

7.9.2.2   Guatemala................................................................................................................ 122

7.9.3   Main arguments of the third parties............................................................................ 123

7.9.3.1   Brazil......................................................................................................................... 123

7.9.3.2   United States............................................................................................................ 124

7.9.3.3   European Union........................................................................................................ 124

7.9.4   Assessment by the Panel............................................................................................ 125

7.10   Special and differential treatment................................................................................. 125

8   CONCLUSIONS AND RECOMMENDATION...................................................................... 126

LIST OF ANNEXES

ANNEX A

WORKING PROCEDURES OF THE PANEL

ANNEX B

ARGUMENTS OF THE PARTIES

GUATEMALA

PERU

ANNEX C

ARGUMENTS OF THIRD PARTIES

CASES CITED IN THIS REPORT

GATT PANEL REPORTS

ABBREVIATIONS USED IN THIS REPORT

1  INTRODUCTION

1.1  Complaint by Guatemala

1.1.  On 12 April 2013, Guatemala requested consultations with Peru pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article 19 of the Agreement on Agriculture, Article 19 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (Customs Valuation Agreement) and Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994), with respect to the imposition by Peru of an "additional duty" on imports of certain agricultural products.^[1]

1.2.  Consultations were held on 14 and 15 May 2013, but failed to resolve the dispute.^[2]

1.2  Panel establishment and composition

1.3.  On 13 June 2013, Guatemala requested the Dispute Settlement Body (DSB) to establish a panel pursuant to Articles 4.7 and 6 of the DSU, Article 19 of the Agreement on Agriculture, Article 19 of the Customs Valuation Agreement and Article XXIII:2 of the GATT 1994, with the standard terms of reference provided for in Article 7.1 of the DSU.^[3] At its meeting on 23 July 2013, the DSB established a panel pursuant to the request of Guatemala in document WT/DS457/2, in accordance with Article 6 of the DSU.^[4]

1.4.  The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by Guatemala in document WT/DS457/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.^[5]

1.5.  On 19 September 2013, the parties agreed to the following composition of the Panel:

Chairman:       Mr Gary Horlick

Members:       Ms Enie Neri de Ross

                   Mr Miguel Rodríguez Mendoza

1.6.  Argentina, Brazil, China, Colombia^[6], Ecuador, El Salvador, the European Union, Honduras, India, the Republic of Korea and the United States reserved their right to participate in the panel proceedings as third parties.

1.3  Panel proceedings

1.7.  After consultations with the parties, the Panel adopted its working procedures on 8 October 2013^[7] and its timetable on 4 October 2013. The timetable was modified on 17 February 2014 and 10 April 2014, at the suggestion of the Panel in the first instance, and of the parties in the second.

1.8.  Guatemala made its first written submission on 29 October 2013. Peru made its first written submission on 9 December 2013. On 20 December 2013, the Panel received third-party written submissions from Argentina, Brazil, Colombia, the European Union and the United States.

1.9.  The Panel held the first substantive meeting with the parties on 14 and 15 January 2014. A session with the third parties took place on 14 January 2014. The Panel addressed questions to the parties and third parties before the substantive meeting, on 10 January 2014. The Panel also addressed written questions to the parties and third parties after the meeting, which were transmitted to the parties on 21 January 2014 and to the third parties on 22 January 2014. On 29 January 2014, the following third parties furnished written responses to the Panel's questions: Argentina, Brazil, Colombia, Ecuador, the European Union and the United States. The parties furnished their written responses to the Panel's questions on 5 February 2014.

1.10.  The parties presented their second written submissions to the Panel on 5 March 2014.

1.11.  The Panel held the second substantive meeting with the parties on 2 and 3 April 2014. The Panel sent questions to the parties before the second substantive meeting on 31 March 2014. The Panel also addressed written questions to the parties after the meeting, which were transmitted to the parties on 10 April 2014. On 1 May 2014, the parties furnished written responses to the Panel's questions, and on 12 May each party submitted comments on the responses provided by the other party.

1.12.  During the proceedings, the Panel reminded the parties of its readiness, under the terms of the last sentence of Article 11 of the DSU, to consult with them and give them adequate opportunity to develop a mutually satisfactory solution.

1.13.  The Panel submitted the descriptive (factual and argument) sections of its final report to the parties on 12 June 2014. On the same date, the Panel informed Argentina, Brazil, China, Colombia, Ecuador, El Salvador, the European Union, Honduras, India, the Republic of Korea and the United States that the descriptive part of the report would contain a summary of the arguments of each of them. On 24 June, Peru submitted its comments on the descriptive part of the report; on the same date, Guatemala notified that it had no comments.

1.14.  The Panel issued its interim report to the parties on 12 August 2014. On 26 August, both Guatemala and Peru submitted written requests for the Panel to review specific aspects of the interim report. Neither of the parties requested a further meeting with the Panel to discuss the issues identified in their respective written comments. On 4 September, each of the parties submitted written comments to the Panel on the other party's request for review.

1.15.  The Panel submitted its final report to the parties on 2 October 2014.

2  FACTUAL ASPECTS

2.1  Introduction

2.1.  In this section of the Report, the Panel will describe the measure at issue. The parties disagree on a number of factual issues. To the extent that it is necessary for the Panel to resolve those disputed factual issues, it will do so in its findings.

2.2  Measures at issue

2.2.  In its request for the establishment of a panel, Guatemala identified the measure at issue in this dispute as "the additional duty imposed by Peru on imports of certain agricultural products, such as milk, maize, rice and sugar" (referred to as "affected products"). As described by Guatemala, the measure has the following characteristics: (a) it has been in force since 22 June 2001; (b) it consists of a variable levy that is imposed in addition to the ordinary customs duty; (c) it is determined by using a mechanism known as the "Price Range System" (PRS) which, in its turn, operates on the basis of two components: (i) a range made up of a floor price and a ceiling price which reflect the international price over the last 60 months for the affected products; and (ii) a c.i.f. reference price which is published every two weeks and which reflects the average international market price for the affected products; (d) it may result in the imposition of an import levy on the affected products when the international reference prices of those products are below certain (floor price) levels, or in tariff rebates when these reference prices are above certain (ceiling price) levels; (e) both the price range and the c.i.f. reference prices vary periodically as a result of the application of certain formulas to the circumstances in the markets for the affected products; the price range varies every six months, while the c.i.f. reference prices vary every 15 days; (f) its amount is specific and is expressed in United States dollars (USD) per metric ton; and (g) it is payable upon importation of the affected products, together with the ordinary customs duties and other import taxes on the affected products.^[8] Hereinafter, the Panel will refer to this measure as "the duties resulting from the PRS".

2.3.  In its request for the establishment of a Panel, Guatemala identified the following legal instruments in which it believed the measure at issue to be contained^[9]:

a.      Supreme Decree No. 115‑2001‑EF, published in the Official Journal "El Peruano" on 22 June 2001;

b.     Supreme Decree No. 124‑2002‑EF, published in the Official Journal "El Peruano" on 17 August 2002;

c.      Supreme Decree No. 153‑2002‑EF, published in the Official Journal "El Peruano" on 27 September 2002.

d.     Supreme Decree No. 174‑2002‑EF, published in the Official Journal "El Peruano" on 15 November 2002.

e.     Supreme Decree No. 184‑2002‑EF, published in the Official Journal "El Peruano" on 27 November 2002;

f.       Supreme Decree No. 197‑2002‑EF, published in the Official Journal "El Peruano" on 30 December 2002;

g.     Supreme Decree No. 003‑2006‑EF, published in the Official Journal "El Peruano" on 13 January 2006;

h.     Supreme Decree No. 121‑2006‑EF, published in the Official Journal "El Peruano" on 20 July 2006;

i.        Circular INTA‑CR.62‑2002 of 26 August 2002 of the National Technical Customs Department;

j.       the Supreme Decrees published semi‑annually containing the customs tables for determining the floor and ceiling prices of the price range;

k.      the Vice‑Ministerial Resolutions published every two weeks, containing the c.i.f. reference prices; and

l.        any other regulation, instruction, administrative or judicial practice, methodology or guideline, whether currently in force or adopted subsequently, that amends, supplements, complements, develops or is otherwise related to the aforementioned regulatory instruments.

3  PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.1.  Guatemala requests that the Panel find that:

a.      The duties resulting from the PRS are inconsistent with Article 4.2 of the Agreement on Agriculture, as they constitute variable import levies or measures similar to variable import levies;

b.     The duties resulting from the PRS are inconsistent with Article 4.2 of the Agreement on Agriculture, as they constitute minimum import prices or measures similar to minimum import prices;

c.      The duties resulting from the PRS are duties or charges inconsistent with the second sentence of Article II:1(b) of the GATT 1994;

d.     Peru's actions are inconsistent with Article X:1 of the GATT 1994, inasmuch as:

i.        it fails to publish the international prices used as a basis for calculating the floor price and the reference price, despite the fact that these international prices are an essential element of the measure at issue;

ii.       it has failed to publish the content of the "import costs", which is an essential element of the measure at issue; and

iii.     it has failed to publish the methodology for determining the amounts for freight and insurance, which is an essential element of the measure at issue;

e.     Peru's actions are inconsistent with Article X:3(a) of the GATT 1994, because it administers the measure in question in a manner that is not reasonable given its failure to observe the requirements of its own legislation. Specifically, Peru's failure to comply with its own legislation is shown by the following practices:

i.        extending the validity of the Customs Tables;

ii.       calculating the price ranges for dairy products by reference price intervals and not for each individual value;

iii.     calculating additional duties or customs rebates for two categories of rice (pounded and paddy rice); and

iv.     calculating and updating the reference price for dairy products monthly rather than fortnightly.

3.2.  In the event that the Panel considers that the duties resulting from the PRS are ordinary customs duties, Guatemala requests the Panel to find that Peru's actions are inconsistent with Articles 1, 2, 3, 5, 6 and 7 of the Customs Valuation Agreement, and in particular with Articles 7.2(f) and 7.2(g) of that Agreement, since Peru does not determine the customs value of the goods subject to the PRS in accordance with those provisions, but instead determines the customs value of those goods through the use of minimum, arbitrary or fictitious customs values.

3.3.  In accordance with the second sentence of Article 19.1 of the DSU, Guatemala requests the Panel to suggest that Peru should completely dismantle the measure at issue, and at the same time eliminate the duties resulting from the PRS and the PRS itself.

3.4.  In response to Peru's assertions, Guatemala requests that the Panel reject the allegation that Guatemala has not acted in good faith.

3.5.  Peru maintains that, although Members are entitled to engage in procedures in the framework of the WTO dispute settlement system, they must do so in a manner consistent with the requirements established in the DSU, including Articles 3.7 and 3.10 thereof. Peru requests that the Panel find that Guatemala did not act in good faith in initiating these proceedings, and consequently requests the Panel not to analyse Guatemala's claims.

3.6.  Should the Panel decide to examine Guatemala's claims, Peru requests that they be rejected in their entirety by the Panel. In particular, Peru asserts that the duties resulting from the PRS are ordinary customs duties within the meaning of the first sentence of Article II:1(b) of the GATT 1994 and that they therefore stand outside the scope of the second sentence of that Article as well as Article 4.2 of the Agreement on Agriculture. Peru also asserts that the measure at issue is neither the same as nor sufficiently similar to the measures listed in footnote 1 of the Agreement on Agriculture and that Peru has complied with the obligations set forth in Article X:1 and Article X:3(a) of the GATT 1994. Lastly, according to Peru, Guatemala's claims based on the Customs Valuation Agreement must be rejected since that agreement is not applicable to specific duties.

3.7.  Finally, in the event that the Panel finds that the measure at issue is inconsistent with provisions of the WTO agreements, Peru considers that an inconsistency would be generated between the Free Trade Agreement signed in December 2011 by Peru and Guatemala (FTA) and the WTO agreements, in regard to which the terms of the FTA should prevail.

4  ARGUMENTS OF THE PARTIES

4.1.  The arguments of the parties are reflected in the executive summaries provided to the Panel in accordance with paragraph 20 of the Working Procedures (see Annexes B‑1, B‑2, B‑3 and B‑4).

5  ARGUMENTS OF THE THIRD PARTIES

5.1.  The arguments of Argentina, Brazil, Colombia, Ecuador, the European Union, and the United States are reflected in the executive summaries provided to the Panel in accordance with paragraph 21 of the Working Procedures (see Annexes C‑1, C‑2, C‑3, C‑4, C‑5 and C‑6). China, El Salvador, Honduras, India and the Republic of Korea did not submit written or oral arguments to the Panel.

6  INTERIM REVIEW

6.1.  In accordance with Article 15.3 of the DSU, this section of the report sets out the Panel's response to the parties' arguments made at the interim review stage, providing explanations where necessary. This section forms an integral part of the Panel's findings in the present case. The Panel thoroughly examined the parties' requests for review and took them into account before issuing this final report. As explained below, the Panel modified aspects of its report in the light of the parties' comments when it considered it appropriate to do so.^[10]

6.2.  Guatemala requests the Panel to make it clear at the end of paragraph 2.2 that it has used an abbreviated form, throughout the report, to refer to the measure at issue. Guatemala also suggests adjusting the way in which the Panel refers to the measure in two entries in the interim report.^[11] Peru opposes Guatemala's request, as it considers that the way in which the report refers to the measure at issue reflects the Panel's analysis.^[12] The Panel added a final sentence at the end of paragraph 2.2, based on the text suggested by Guatemala. The Panel also adjusted the language in various paragraphs of the report, in order to use a single identifying term for the measure at issue (the "duties resulting from the PRS"). These adjustments were made in paragraph 7.321, at the request of Guatemala, and in the other following paragraphs of the report: 2.2, 3.1, 3.2, 3.3., 3.6, 7.40, 7.55, 7.99, 7.101, 7.113, 7.114, 7.126, 7.141, 7.149, 7.163, 7.164, 7.174, 7.308, 7.309, 7.312, 7.313, 7.314, 7.315, 7.317, 7.318, 7.319, 7.321, 7.325, 7.326, 7.327, 7.330, 7.333, 7.339, 7.344, 7.348, 7.349, 7.350, 7.351, 7.352, 7.358, 7.359, 7.360, 7.364, 7.366, 7.367, 7.368, 7.371, 7.400, 7.417, 7.418, 7.419, 7.439, 7.443, 7.460, 7.461, 7.494, 7.495, 7.496, 7.497, 7.499, 8.1 and 8.7. For the same reason, the Panel made a similar adjustment to the title of section 7.4.4.2.3, at the request of Guatemala, and to the titles of the other following sections and subsections of the report: 7.3.2.5, 7.3.2.5.3, 7.3.2.6.3, 7.4.2.1.1, 7.4.2.1.1.1, 7.4.2.1.2, 7.4.4.2, 7.4.4.2.4, 7.4.4.2.4.4, 7.4.4.2.5 and 7.4.4.2.7.

6.3.  With regard to the claim concerning the existence of minimum import prices or measures similar to minimum import prices, Guatemala requests that a review be made of the sections summarizing its arguments on an alleged de facto threshold.^[13] Peru opposes Guatemala's request which it considers would amount to adducing arguments already put forward by the parties, with a view to changing the Panel's analysis.^[14] The Panel modified paragraphs 7.209 and 7.223, and introduced a new paragraph supplementing the former paragraph 7.353, in order to give a more precise reflection of the parties' arguments. In the light of Guatemala's request, the Panel also modified the language of paragraph 7.365 and inserted a new paragraph after that paragraph.

6.4.  Guatemala requests that, in the description of the basic aspects of the structure and operation of the PRS contained in paragraph 7.317, the Panel should refer to the fact that, on various occasions, both the floor price and the ceiling price had been extended for successive periods, instead of being updated.^[15] Peru considers that the addition is unnecessary, since this matter is dealt with in other sections of the report.^[16] As a supplement to the summary of the basic aspects of the structure and operation of the PRS, the Panel added a further section at the end of paragraph 7.317, based on the text suggested by Guatemala.

6.5.  In the same paragraph 7.317, Guatemala requests that the description of the PRS be supplemented by a reference to the fact that the customs tables announce the resulting duties and rebates.^[17] Peru does not consider this addition to be necessary, but does not oppose it.^[18] The Panel modified subparagraph (b) of paragraph 7.317, on the basis of the text suggested by Guatemala.

6.6.  Peru requests that paragraph 7.319 of the report provide clarification of its position regarding the way in which the customs tables and reference prices are published.^[19] Guatemala makes no comments on this point. In the light of Peru's request, the Panel made a clarificatory adjustment to paragraph 7.319 of the report, as well as to paragraph 7.239.

6.7.  Peru requests modification of the reference in paragraph 7.321 of the report to the fact that the PRS contains a scheme or formula which causes and ensures automatic and continuous revision of the applicable duties. In Peru's opinion, the formula used by the PRS cannot ensure revisions of the applicable duties.^[20] Guatemala opposes Peru's request and considers that the affirmation contained in the report that the PRS ensures the revision of the applicable duties is correct.^[21] The Panel rejects Peru's request, considering that the description contained in the paragraph corresponds to the description of the facts as reflected in the evidence and the arguments submitted by the parties.

6.8.  Guatemala requests that paragraphs 7.322 and 7.323 include a reference to a similar finding issued by the Panel and the Appellate Body in Chile - Price Band System (Article 21.5 – Argentina), as well as a reference to Guatemala's second written submission.^[22] Peru disagrees with the findings contained in these paragraphs of the report. Furthermore, Peru considers that, since the paragraphs in question contain factual findings, it would be unnecessary for the Panel to cite a different case.^[23] The Panel considers that, inasmuch as the paragraphs in question contain factual findings, it is inappropriate to add the references to a different case or to Guatemala's second written submission, as requested by Guatemala.

6.9.  Peru requests that, in paragraph 7.323, the Panel should make it clear that the PRS legislation makes no mention of the possibility of extending the customs tables, and that such extensions are acts within the discretion of the Peruvian Executive.^[24] Guatemala does not object to the report mentioning that the PRS legislation makes no reference to the possibility of extending the customs tables.^[25] However, Guatemala does object to the assertion in the report that the act of extending the customs tables is a discretionary act on the part of the Peruvian Executive, but is not opposed to it being indicated that Peru has made that assertion.^[26] Pursuant to Peru's request, the Panel made some clarificatory adjustments to paragraph 7.323. In addition, in paragraph 7.151, the Panel included a reference to the fact that the PRS legislation makes no mention of the possibility of extending the customs tables. The Panel does not consider it appropriate to affirm, as a matter of fact, that such extensions are a discretionary act on the part of the Peruvian Executive, as this point is disputed between the parties, and in the Panel's opinion was not conclusively demonstrated in the course of the proceedings. However, Peru's arguments in this respect are reflected in the report, for example in paragraph 7.480.

6.10.  Guatemala requests clarification by the Panel of the findings contained in paragraphs 7.332 to 7.335. In this connection, Guatemala disagrees with the assertion that Peru used futures prices to make price estimates.^[27] Guatemala also considers that, in the wording of the interim report, the findings contained in paragraphs 7.332 to 7.335 do not reflect the totality of the arguments, the evidence or the estimates submitted by the parties.^[28] In this connection, Peru considers that the description given by the Panel is correct and does not need to be modified. In Peru's opinion, the additions proposed by Guatemala are incorrect and do not include the rebuttals submitted by Peru.^[29] Pursuant to Guatemala's request, the Panel modified the language contained in paragraphs 7.332 to 7.335, taking into account Peru's comments, and inserted a new paragraph after the former paragraph 7.332.

6.11.  Guatemala requests the Panel to delete the word "average" from the phrase "average reference price" in paragraphs 7.337, 7.344 and 7.345. In Guatemala's opinion, the mere fact that a reference price is applied (instead of the transaction value of a particular consignment), regardless of whether it corresponds to an average, entails a systemic lack of transparency and predictability.^[30] Peru opposes this request as it considers that the reference price is an average, and that the elimination of that term would obscure the real facts of the case.^[31] The Panel considers that the use of the term "average" in the description of the reference price does not affect the substance of its analysis. In addition, as is explained in the report, the reference price is an average. For these reasons, in the light of Guatemala's request, the Panel adjusted the wording of paragraphs 7.337, 7.344 and 7.345.

6.12.  Guatemala requests the Panel to include in paragraph 7.346 a reference to certain paragraphs from its opening statement at the first meeting of the Panel and its responses to the Panel's questions.^[32] Peru opposes this request as it considers that the paragraph in question constitutes a factual finding and that the Panel is under no obligation to repeat every argument of the parties on the matter.^[33] The Panel included the references mentioned by Guatemala because it considered that they give context to the finding set out in paragraph 7.346.

6.13.  Guatemala requests that paragraph 7.352 be modified in order to avoid any confusion between the functions of the Panel and the possibility that the Appellate Body may complete the analysis on a specific point.^[34] Peru opposes the wording proposed by Guatemala, considering that a panel is not authorized to leave the analysis of certain aspects to the Appellate Body.^[35] The Panel modified paragraph 7.352, on the basis of the text suggested by Guatemala and taking Peru's observations into account.

6.14.  Guatemala requests that the report reflect its arguments regarding ten factors which Guatemala identified as grounds for considering that the duties resulting from the PRS are a measure other than an ordinary customs duty. Guatemala also asks the Panel to issue a finding with regard to those factors.^[36] Peru opposes Guatemala's requests. In Peru's opinion, Guatemala's request concerning the ten factors that are said to make the duties resulting from the PRS a measure other than ordinary customs duties neither refers to specific aspects of the interim report nor identifies a specific section of the report. Peru points out in addition that Guatemala's request would lead the Panel to make new findings without giving the parties an opportunity to make comments.^[37] Regarding Guatemala's request that the report reflect its arguments in respect of the factors purporting to show that the duties resulting from the PRS are a measure other than ordinary customs duties, the Panel adjusted the last part of paragraph 7.376; it inserted a new paragraph after that paragraph; and it also inserted a new paragraph after paragraph 7.387; all with the aim of reflecting the parties' arguments on the matter more extensively. The Panel considers it unnecessary to issue the additional and separate findings requested by Guatemala on this point. In this connection, the Panel made some explanatory adjustments to paragraphs 7.370 and 7.417.

6.15.  Guatemala asks that the report provide a better account of its arguments concerning Peru's proposal that consideration be given to whether the challenged measure is an ordinary customs duty on the basis of positive criteria. In this connection, Guatemala suggests that the wording of paragraph 7.377 be modified, and that an adequate description be given of its response to the arguments set forth by Peru, as described in paragraph 7.386.^[38] Peru does not oppose the change proposed by Guatemala to paragraph 7.377, to the extent that the Panel may consider that the change in question is a more precise reflection of Guatemala's position on the matter. However, Peru is opposed to revising the description of its arguments in paragraph 7.386.^[39] The Panel modified paragraph 7.377 on the basis of the wording suggested by Guatemala. In order to describe Guatemala's arguments, the Panel also inserted an additional section at the end of the same paragraph, as well as an additional paragraph immediately thereafter. The Panel did not modify the description of Peru's arguments, but did include in footnote 469 to paragraph 7.385 an additional reference to a written communication in which Peru explained the basis of some of its arguments.

6.16.  Guatemala asks that the report reflect the arguments of the parties as to whether the price range system of Peru has existed since 1991 or since 2001.^[40] Concerning this request, Peru is opposed to the Panel including new analyses in the report without giving the parties an opportunity to submit comments on the subject.^[41] Pursuant to Guatemala's request, the Panel modified the last part of paragraph 7.382, in order to reflect Guatemala's arguments on this point, and included a new footnote to paragraph 7.388 in order to identify the written submissions in which Peru refers to this topic.

6.17.  Guatemala requests the Panel to explain in more detail the reasons why it considers that issuing findings with respect to Guatemala's claims under Articles X:1 and X:3(a) of the GATT 1994 would not help the DSB in making precise recommendations to allow for prompt compliance by Peru.^[42] Peru opposes Guatemala's request and states that the interim review would not be the appropriate stage for the Panel to include a new analysis in the report concerning the consistency of the challenged measure with Article X of the GATT 1994.^[43] In this connection, the Panel rejects Guatemala's request, as it considers that paragraphs 7.461 and 7.495 provide sufficient explanation as to why, given the finding that the duties resulting from the PRS are inconsistent with Peru's substantive obligations under the WTO agreements, it is unnecessary to take up the additional matter of whether certain elements of the system are in addition consistent with the obligations contained in Articles X:1 and X:3(a) of the GATT 1994.

6.18.  Guatemala refers to Peru's argument to the effect that, through the FTA, the parties modified their mutual rights under the WTO agreements. In this connection, Guatemala requests that the findings contained in paragraphs 7.520 to 7.522 of the report should mention the fact that Peru's argument would call for the Panel to interpret the content of the FTA, which would go beyond the Panel's terms of reference.^[44] Peru opposes Guatemala's request and asserts that the interim review would not be the appropriate stage for the Panel to modify its analysis.^[45] In this connection, the Panel rejects Guatemala's request, considering that paragraphs 7.521 and 7.522 make it sufficiently clear that, since the FTA has not entered into force, it is unnecessary for the Panel to rule on the argument put forward by Peru.

6.19.  Guatemala requests that paragraph 8.7 of the report be amended so as not to refer to the measure at issue. In its opinion, it is wrong to state that Guatemala identified the measure at issue as the additional duty imposed by Peru on imports of certain agricultural products and that it did not challenge the PRS as such.^[46] Peru considers that Guatemala's request is contrary to the Panel's obligation to issue reasoned conclusions.^[47] In this connection, the Panel rejects Guatemala's request, since the measure at issue was identified in the request for the establishment of a panel submitted by Guatemala, in the manner described in paragraph 8.7 of the report.

6.20.  In the light of the requests made by the parties during the review stage^[48], and in order to reflect the arguments of the parties more precisely, the Panel made adjustments to the following paragraphs: 7.40, 7.169, 7.170, 7.171, 7.203, 7.216, 7.330, 7.381 and 7.439. It also made minor corrections to the following paragraphs: 7.46, 7.92 and 7.321, as well as to the title of section 7.5.

6.21.  The Panel also made additional typographical corrections to the following paragraphs: 1.13, 2.2, 3.1, 7.9, 7.10, 7.26, 7.62, 7.67, 7.69, 7.88, 7.125, 7.145, 7.146, 7.174, 7.178, 7.183, 7.198, 7.215, 7.222, 7.223, 7.227, 7.250, 7.272, 7.288, 7.304, 7.369, 7.370, 7.383, 7.423, 7.494, 7.496, 7.512, 7.514, 7.521 and 8.3, as well as to the title of section 7.4.

7  FINDINGS

7.1  Preliminary considerations

7.1.1  Introduction

7.1.  The Panel considers that, before proceeding to assess the issues raised in the present dispute, it would be useful to describe the legal framework it will apply with respect to its terms of reference, its task, the standard of review, treaty interpretation, the burden of proof and the order of analysis.

7.1.2  The Panel's terms of reference

7.2.  This Panel was established by the DSB on 23 July 2013, with the following standard terms of reference:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by Guatemala in document WT/DS457/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.^[49]

7.3.  In accordance with Article 6.2 of the DSU, the request for the establishment of a panel "shall ... identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly."

7.4.  Accordingly, the terms of reference of this Panel are delimited by the measures identified and the claims put forward by Guatemala in its panel request submitted on 13 June 2013.^[50]

7.1.3  Function of the Panel and standard of review

7.5.  Article 11 of the DSU indicates that the function of panels is "to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements". Further, Article 3.4 of the DSU provides that:

Recommendations or rulings made by the DSB shall be aimed at achieving a satisfactory settlement of the matter in accordance with the rights and obligations under this Understanding and under the covered agreements.

7.6.  To this end, and as required by Article 11 of the DSU, a panel should "make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements". It should also make such "findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements."

7.7.  As regards the legal assessment, that is, the analysis of the consistency or inconsistency of the challenged measures with the applicable provisions, the obligation on a panel to make an objective assessment of the matter means that it may "freely ... use arguments submitted by any of the parties – or ... develop its own legal reasoning – to support its own findings and conclusions on the matter under its consideration".^[51]

7.1.4  Interpretation of the relevant rules of the agreements

7.8.  In its objective assessment of the matter before it, the Panel may be called upon to clarify the scope of certain provisions of the covered agreements cited by the parties. In this connection, Article 3.2 of the DSU states that the WTO dispute settlement system serves to "clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law."

7.9.  The "customary rules of interpretation of public international law" referred to by the DSU are the rules of interpretation that have attained the status of general customary international law, as codified in the Vienna Convention on the Law of Treaties of 1969 (Vienna Convention).^[52] The Appellate Body explained that these "rules of treaty interpretation … apply to any treaty, in any field of public international law, and not just to the WTO agreements. These rules of treaty interpretation impose certain common disciplines upon treaty interpreters, irrespective of the content of the treaty provision being examined and irrespective of the field of international law concerned".^[53]

7.10.  Article 31 of the Vienna Convention contains a general rule of interpretation to the effect that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose".^[54] Under the terms of Article 31.2 of the Vienna Convention, the context for the purpose of the interpretation of a treaty shall comprise the text of the relevant agreement, including its preamble and annexes.

7.11.  Article 32 of the Vienna Convention provides that recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31 leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable.^[55] The Appellate Body emphasized that Article 32 does not define exhaustively the supplementary means of interpretation to which an interpreter may have recourse, so that an interpreter has a certain flexibility in considering relevant supplementary means in a given case so as to assist in ascertaining the common intentions of the parties.^[56]

7.12.  Article XVI of the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement) indicates that the legal texts of the WTO are equally authentic in their English, French and Spanish versions.^[57] In view of the foregoing, and in accordance with the provisions of Article 33 of the Vienna Convention, the terms of the covered agreements are presumed to have the same meaning in each authentic text, and in the event that a difference of meaning is disclosed, the meaning that best reconciles the three texts, having regard to the object and purpose of the treaty, shall be adopted.^[58]

7.1.5  Burden of proof

7.13.  Although the DSU does not contain any express provision governing the burden of proof, by application of the general principles of law the WTO dispute settlement system has traditionally recognized that the burden of proof lies with the party asserting a fact, whether that party be the claimant or the defendant.^[59]

7.14.  Accordingly, in a proceeding the burden of proving that the impugned measure is inconsistent with the relevant provisions of covered agreements initially lies with the complainant. Once the complainant has made a prima facie case for such inconsistency, the burden shifts to the defendant, who must in turn rebut the alleged inconsistency.^[60] A prima facie case is one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party.^[61] In the words of the Appellate Body:

[as] a general matter, the burden of proof rests upon the complaining Member. That Member must make out a prima facie case by presenting sufficient evidence to raise a presumption in favour of its claim. If the complaining Member succeeds, the responding Member may then seek to rebut this presumption. Therefore, under the usual allocation of the burden of proof, a responding Member's measure will be treated as WTO-consistent, until sufficient evidence is presented to prove the contrary.^[62] (emphasis original)

7.15.  The Appellate Body added in this respect that precisely how much and precisely what kind of evidence will be required for the complaining party to establish its case will necessarily vary from measure to measure, provision to provision, and case to case.^[63] In any event, it should be borne in mind that, in the context of the WTO dispute settlement system:

A prima facie case must be based on "evidence and legal argument" put forward by the complaining party in relation to each of the elements of the claim. A complaining party may not simply submit evidence and expect the panel to divine from it a claim of WTO-inconsistency. Nor may a complaining party simply allege facts without relating them to its legal arguments.^[64] (emphasis original; footnotes omitted)

7.16.  In the matter before us, and by application of the foregoing criteria, it lies with Guatemala to make out a prima facie case for the violations of the provisions of the WTO covered agreements it has invoked. If Guatemala succeeds in making a prima facie case for its claims, it will then be for Peru to rebut them.

7.1.6  Order of analysis

7.17.  The Appellate Body has stated that, as a general principle, panels are free to structure the order of their analysis as they see fit. Except insofar as there may be a mandatory sequence of analysis, deviation from which would lead to an error of law and/or affect the substance of the analysis itself, panels have discretion to structure the order of their analysis.^[65] The Panel also recalls that, although panels may, in structuring their analysis, take account of the manner in which a complainant presents its claims, they may also follow a different sequential order.^[66] In the present case, the Panel will determine the order of analysis by focusing on the structure and logic of the provisions at issue in this dispute.^[67]

7.18.  First of all, the Panel notes that Peru has requested it to find that Guatemala did not act in good faith in engaging in the present procedure and therefore to refrain from examining Guatemala's claims.^[68] Peru's request constitutes a preliminary question so that, if it were accepted, the Panel would not proceed to consider Guatemala's substantive claims. Accordingly, the Panel will begin by examining this argument put forward by Peru.

7.19.  If, after analysing the above‑mentioned preliminary question, the Panel concludes that it should continue with the analysis, it will proceed to consider the main substantive provisions invoked by Guatemala, that is to say, Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994. With respect to the order in which these two provisions should be analysed, the Appellate Body has expressed a preference for beginning with Article 4.2 of the Agreement on Agriculture. In this connection, in the original proceedings in Chile – Price Band System, the Appellate Body stated:

It is clear, as a preliminary matter, that Article 4.2 of the Agreement on Agriculture applies specifically to agricultural products, whereas Article II:1(b) of the GATT applies generally to trade in all goods. Moreover, Article 21.1 of the Agreement on Agriculture provides, in relevant part, that the provisions of the GATT 1994 apply "subject to the provisions" of the Agreement on Agriculture. In our Report in EC – Bananas III, we interpreted Article 21.1 to mean that:

… the provisions of the GATT 1994 … apply to market access commitments concerning agricultural products, except to the extent that the Agreement on Agriculture contains specific provisions dealing specifically with the same matter …

[A]s we see it, the difference between the two provisions is that Article 4.2 of the Agreement on Agriculture deals more specifically with preventing the circumvention of tariff commitments on agricultural products than does the first sentence of Article II:1(b) of the GATT 1994 …

[A]ny finding under Article II:1(b) of the GATT 1994 would be subject to further inquiry under the Agreement on Agriculture. In contrast, if we were to find first that Chile's price band system is inconsistent with Article 4.2 of the Agreement on Agriculture, we would not need to make a separate finding on whether the price band system also results in a violation of Article II:1(b) of the GATT 1994 in order to resolve this dispute.^[69] (footnote - citing Appellate Body Report, EC ‑ Bananas III, para. 155 - omitted; emphasis original)

7.20.  The Panel does not find any justification for departing from the Appellate Body's reasoning in the circumstances of the present dispute. Therefore, in the event that the Panel rejects the preliminary argument regarding the alleged lack of good faith, it will commence its analysis of the main substantive provisions invoked by Guatemala with Article 4.2 of the Agreement on Agriculture. The Panel will then consider, if appropriate, Guatemala's claims under Article II:1(b) of the GATT 1994.

7.21.  After analysing, if necessary, the claims concerning the main substantive provisions invoked by Guatemala, the Panel will address, if appropriate, the provisions concerning the application of the measure, that is to say, Articles X:1 and X:3(a) of the GATT 1994.

7.22.  Subsequently, if the Panel finds that the measure at issue is an ordinary customs duty, it will consider Guatemala's claims with respect to the Customs Valuation Agreement.

7.23.  Peru has raised an additional argument in case the Panel finds the measure at issue to be inconsistent with any of the provisions identified by Guatemala. In that case, Peru asserts that, under the FTA between Peru and Guatemala, the parties modified, as between themselves, their reciprocal obligations under the WTO agreements, and that the provisions of the FTA should prevail. Given the conditional nature of this argument, the Panel will consider this defence only if it decides that the measure at issue is inconsistent with any of the provisions identified by Guatemala.

7.2  The question of whether the Panel should refrain from examining Guatemala's claims

7.2.1  Introduction

7.24.  As a preliminary issue, Peru refers to the FTA between Peru and Guatemala signed in December 2011.^[70] Peru asserts that, under the FTA, Guatemala agreed that Peru could maintain its PRS.^[71] Peru argues that, therefore, in initiating this procedure against the PRS, Guatemala is violating the obligation to engage in WTO dispute settlement procedures in good faith.^[72] Thus, according to Peru, the Panel should not consider Guatemala's claims.^[73]

7.25.  Peru maintains that its PRS is consistent with WTO rules, but even if the Panel were to find that it is not, there would be an inconsistency between the FTA and the WTO agreements. This is because the FTA allows Peru to maintain the PRS, whereas the WTO agreements would prohibit it from doing so. In the presence of such inconsistency, by virtue of the provisions of its Article 1.3.2, the FTA would prevail. This would result in the modification, between the parties, of any provision of the WTO agreements that prohibits the PRS.^[74]

7.26.  Guatemala rejects Peru's argument that in the present proceedings it has acted contrary to good faith.^[75] According to Guatemala, a Member can only be found to have acted in breach of good faith if that Member challenges a measure after having clearly stated that it would not do so.^[76] Guatemala maintains that no waiver or modification of Guatemala's rights in the WTO with respect to the PRS can be inferred from the FTA.^[77]

7.27.  Furthermore, Guatemala maintains that Peru's request would require the Panel to rule on the consistency of Guatemala's actions with the provisions of the FTA, and this, in Guatemala's opinion, would lead the Panel to act outside its terms of reference.^[78] Guatemala points out that the Panel is not competent to hear disputes unrelated to the WTO covered agreements. Guatemala adds that the FTA is not a legal vehicle for waiving or modifying rights and obligations contained in the WTO Agreement.^[79]

7.28.  Peru's arguments raise two separate issues. The first is whether Guatemala engaged in the present procedure in a manner inconsistent with the good faith required by the DSU and whether this means that the Panel should therefore refrain from considering Guatemala's claims. The Panel will consider this aspect as a preliminary matter and, in the light of its conclusions, decide whether it should proceed with the consideration of the Guatemalan claims.

7.29.  The second is whether – assuming that the Panel finds that the measure at issue is inconsistent with any of Peru's obligations under the provisions of the covered agreements – it can be considered that under the FTA the parties have modified, as between themselves, their reciprocal obligations under the WTO agreements, and if so, whether the provisions of the FTA should take precedence. Given the conditional nature of this Peruvian argument, the Panel will examine this defence only if it decides that the measure at issue is inconsistent with any of the provisions identified by Guatemala.

7.2.2  The content of the FTA and its legal status

7.30.  As a preliminary step, consideration will be given to Peru's argument that the Panel should refrain from examining Guatemala's claims on the grounds that Guatemala engaged in the present procedure in a manner contrary to the good faith required by the DSU. The Panel will begin by describing the relevant facts relating to the FTA, together with the provisions of the FTA invoked by the parties to the dispute.

7.2.2.1  Chronology of events relating to the negotiation and entry into force of the FTA

7.31.  The negotiations that led to the signing of the FTA arose out of the general negotiating framework agreed between Peru and various Central American countries (Costa Rica, Guatemala, Honduras and Panama) on 16 October 2010 at the VI^th Ministerial Meeting of the Latin American Pacific Arc Forum.^[80] Guatemala and Peru signed the FTA on 6 December 2011.^[81]

7.32.  The FTA was approved by the Guatemalan Congress on 4 July 2013, by Decree No. 5‑2013 published in the Journal of Central America (Guatemala's official journal) on 23 July 2013.^[82] In December 2013, Guatemala initiated the procedures for ratification of the FTA by the President of the Republic.^[83] On 5 March 2014, Peru received a communication from Guatemala, dated 21 February 2014, notifying it that Guatemala had fulfilled the legal requirements for the entry into force of the FTA.^[84]

7.33.  As matters stand at the close of these proceedings, the available evidence indicates that Peru has not ratified the FTA. Peru has stated that, under Article 57 of its Political Constitution, the President of the Republic can ratify the FTA without having to obtain the prior approval of the Congress.^[85] Peru has stated its intention that the FTA should enter into force, and consequently has not ruled out expressing its consent to be bound by the FTA, "provided that the balance agreed between Peru and Guatemala therein is respected".^[86] However, Peru has stated that it "is not proceeding with the exchange of notifications at this time since the case brought by Guatemala has created uncertainty with regard to the existence of the balance negotiated".^[87]

7.2.2.2  Content of the FTA

7.34.  The parties identified the following provisions of the FTA as relevant to the analysis of their arguments with regard to whether the Panel should reject Guatemala's claims.

7.35.  The preamble to the FTA states:

The Government of the Republic of Peru, on the one part, and the Government of the Republic of Guatemala, on the other part, being resolved to:

STRENGTHEN the special bonds of friendship and cooperation between them and promote regional economic integration;

FOSTER the creation of an expanded and secure market for the goods and services produced in their respective territories;

PROMOTE comprehensive economic development in order to reduce poverty;

ENCOURAGE the creation of new employment opportunities and improve working conditions and living standards in their respective territories;

ESTABLISH clear and mutually advantageous rules governing their trade;

GUARANTEE a predictable legal and commercial framework for trade and investment;

RECOGNIZE that the promotion and protection of investment by one Party in the territory of the other Party will contribute to enhancing the flow of investment and stimulate mutually advantageous trading activity;

PREVENT distortions in their reciprocal trade;

PROMOTE the competitiveness of their enterprises in global markets;

FACILITATE trade by promoting efficient and transparent customs procedures that ensure predictability for their importers and exporters;

STIMULATE creativity and innovation and promote trade in innovative sectors of their economies;

PROMOTE transparency in international trade and investment;

PRESERVE their capacity for safeguarding public welfare; and

BUILD ON their respective rights and obligations under the Marrakesh Agreement Establishing the World Trade Organization, and other treaties to which they are parties^[88],

7.36.  Article 1.1 of the FTA provides as follows:

The Parties to this Treaty, in accordance with the provisions of Article XXIV of the WTO General Agreement on Tariffs and Trade 1994 and Article V of the WTO General Agreement on Trade in Services, hereby establish a free trade area. (emphasis original)

7.37.  Article 1.2 identifies as objectives of the FTA:

(a)  encouraging the expansion and diversification of trade between the Parties;

(b)     removing unnecessary barriers to trade and facilitating the cross‑border movement of goods and services between the Parties;

(c)  promoting conditions of free competition within the free trade area;

(d)  expanding the opportunities for investment within the territories of the Parties;

(e)     appropriately and effectively protecting and enforcing intellectual property rights in the territory of each Party, while taking into consideration the balance between the rights and obligations deriving therefrom; and

(f)      creating effective procedures for the application and observance of this Treaty, for its joint administration, and for preventing and settling disputes.

7.38.  Article 1.3 of the FTA, on the relationship with other international agreements, stipulates that:

1.    The Parties confirm their existing mutual rights and obligations under the WTO Agreement and other agreements to which they may be parties.

2.    In the event of any inconsistency between this Treaty and the agreements referred to in paragraph 1, this Treaty shall prevail to the extent of the inconsistency, unless otherwise provided in this Treaty.

7.39.  Where tariff elimination is concerned, paragraph 2 of Article 2.3 of the FTA establishes that:

Except as otherwise provided in this Treaty, each Party shall eliminate its customs tariffs on goods originating in the other Party, in accordance with Annex 2.3.

7.40.  The parties have indicated that, during the negotiation of the FTA, they discussed what should be the treatment under the PRS for imports originating in Guatemala. The parties agreed that Peru would grant Guatemala a tariff quota free of "tariffs, including those deriving from the application of the Price Range System" for imports of certain products of Guatemalan origin, namely: cheese, food preparations and preparations of a kind used in animal feeding.^[89] Peru has indicated that Guatemala requested that its sugar exports should also be free of tariffs, including the price range system.^[90] However, Guatemala and Peru failed to arrive at an agreement on this latter aspect.^[91] Finally, with respect to the PRS, paragraph 9 of Annex 2.3 to the FTA states that:

Peru may maintain its Price Range System, established in Supreme Decree No. 1152001EF and the amendments thereto, with regard to the products subject to the application of the system marked with an asterisk (*) in column 4 of Peru's Schedule as set out in this Annex.^[92]

7.41.  With respect to disputes that may arise under the FTA and other trade agreements, Article 15.3 of the FTA provides as follows:

In the event of any dispute that may arise under this Treaty or under another free trade agreement to which the disputing Parties are party or the WTO Agreement, the complaining Party may choose the forum for settling the dispute.^[93] (emphasis original)

7.42.  Finally, Article 19.5 of the FTA stipulates that:

This Treaty shall enter into force sixty (60) days after the date on which the Parties exchange written notifications confirming that they have completed their respective legal procedures or on the date on which the Parties so agree.^[94]

7.2.3  Main arguments of the parties

7.2.3.1  Peru

7.43.  Peru claims that Guatemala is seeking the "complete dismantlement" of the PRS through these proceedings, after having explicitly recognized, in the FTA, that Peru could maintain it.^[95] In Peru's opinion, this conduct is contrary to the obligation on Guatemala, under articles 3.7 and 3.10 of the DSU, to engage in dispute settlement procedures under the DSU in good faith.^[96]

7.44.  Peru requests the Panel to make an objective assessment of the content of the FTA as a relevant factual matter, in order to verify whether Guatemala engaged in the present procedure in a manner contrary to good faith.^[97]

7.45.  Peru maintains that, pursuant to articles 3.7 and 3.10 of the DSU, good faith is a requirement as to the admissibility of a Member initiating a procedure under the WTO dispute settlement system.^[98] Peru explains that its argument that Guatemala has not acted in good faith does not entail application of the estoppel principle in this case.^[99]

7.46.  Peru considers that the obligation on Members to exercise their judgement as to whether bringing a case would be fruitful, in accordance with article 3.7 of the DSU, is not a matter of self‑regulation.^[100] According to Peru, the presumption that a Member has engaged in a procedure in good faith (identified by the Panel in EC – Export Subsidies on Sugar) can be refuted.^[101] Given the possibility of refuting that presumption, Peru considers that the Panel may determine that action under the present procedure would not be fruitful.^[102]

7.47.  In Peru's opinion, pursuant to Article 3.10 of the DSU, any action that implies bringing a case contrary to good faith is prohibited. According to Peru, actions contrary to good faith include cases where a Member initiates a dispute with the intention of causing injury to another Member or impairing its rights, in order to waste time, as a retaliatory measure, or when the action diametrically contradicts what has been agreed in a free trade agreement.^[103]

7.48.  Peru maintains that the FTA was adopted and ratified by Guatemala and Peru, but is not yet in force. In addition, neither of the two Parties has expressed the intention of not being party to the FTA. Therefore, in accordance with the provisions of Article 18 of the Vienna Convention^[104], Guatemala is obliged not to defeat the object and purpose of the FTA through actions that would render the provisions of the treaty meaningless.^[105] Peru states that Article 18 of the Vienna Convention is applicable as an expression of the principle of good faith.^[106] In addition, Peru asserts that, in order to find that Guatemala has not acted in good faith, the Panel need only determine that Guatemala violated Article 18 of the Vienna Convention.^[107]

7.49.  According to Peru, paragraph 9 of Annex 2.3 to the FTA is a clear expression of Guatemala's willingness to agree that Peru could maintain the PRS.^[108] Peru also asserts that, given the bilateral nature of the FTA, the object and purpose of the treaty includes all the rules contained therein.^[109] Peru adds that bringing a case aimed at the dismantlement of the PRS "would eviscerate" paragraph 9 of Annex 2.3 to the FTA, leaving it inoperative, and would constitute an action tending to defeat the object and purpose of the FTA.^[110]

7.50.  Consequently, Peru contends that Guatemala did not initiate these proceedings in good faith and requests the Panel to reject Guatemala's claims in limine.^[111]

7.51.  Peru observes that, when one party is not satisfied with what was negotiated in a bilateral treaty establishing that its provisions would take precedence over WTO provisions with which it might conflict, allowing that party to have recourse to the WTO to contest what was agreed in the treaty "undermines both the WTO system and the basic principles of international law, since it constitutes an open abuse of rights which cannot be permitted".^[112]

7.2.3.2  Guatemala

7.52.  Guatemala asserts that it acted with "the utmost caution and in the most cooperative spirit" in these proceedings, and therefore rejects any allegation of a lack of good faith.^[113]

7.53.  In Guatemala's view, Peru's request concerning violation of the provisions of the FTA would require the Panel to act outside its terms of reference.^[114] Guatemala asserts that panels cannot rule on disputes unrelated to the WTO covered agreements.^[115] Guatemala adds that the Panel is not precluded from assessing the FTA as a factual matter and from making factual findings in that respect.^[116]

7.54.  With regard to Article 3.7 of the DSU, Guatemala maintains that the obligation to exercise judgement as to whether bringing a case would be fruitful entails a decision by each Member, which a panel must presume to be made in good faith.^[117] According to Guatemala, Article 3.7 of the DSU does not limit a Member's discretion with respect to the outcome of exercising its judgement as to whether engagement in a procedure would be fruitful. Consequently, Guatemala maintains that the outcome of that exercise could not be questioned by the respondent Member or by a panel.^[118]

7.55.  Guatemala indicates that, under Article 3.10 of the DSU, it can only be found that a Member engaged in a procedure in a manner contrary to good faith if, before initiating the dispute, the Member in question clearly expressed its waiver of the right to challenge the measure in question.^[119] Guatemala contends that paragraph 9 of Annex 2.3 to the FTA cannot be read as an explicit or implicit waiver of any of Guatemala's WTO rights, including the right to bring a complaint under the DSU with regard to the PRS or the duties resulting from the PRS.^[120] Guatemala does not agree with Peru's reading of what was agreed in the FTA. In particular, Guatemala considers that Article 1.3.1 of the FTA, read in conjunction with paragraph 9 of Annex 2.3 to the FTA, grants Peru the right to maintain the PRS for a limited number of products, without in any way affecting Peru's obligation to comply with the WTO Agreement.^[121]

7.56.  In addition to the foregoing, Guatemala rejects the possibility for a Member to waive – through a free trade agreement – its right to bring a case in the WTO. According to Guatemala, under the legal framework of the WTO, a waiver of that kind would have to be made through a mutually agreed solution in accordance with Article 3.5 of the DSU or a multilateral agreement.^[122]

7.57.  Guatemala argues that Peru is requesting the Panel to act outside its terms of reference, since it would be required to verify whether an act by Guatemala defeats the object and purpose of a non‑WTO treaty.^[123] In any event, Guatemala considers that the initiation of these proceedings does not defeat the object and purpose of the FTA because: (a) under Chapter 15 of the FTA, Guatemala is allowed to bring a case before the WTO; (b) Guatemala has not in any way waived its right to challenge the PRS; (c) there is no conflict whatsoever between the provisions of the FTA and those of the WTO agreements^[124]; and (d) under Article 1.3.1 of the FTA, the parties confirm their rights and obligations under the WTO Agreement.^[125] Lastly, Guatemala adds that Peru's arguments regarding Article 18 of the Vienna Convention are invalidated by Peru's apparent expression of the wish not to be bound by the FTA.^[126]

7.58.  Guatemala adds that, since the FTA has not been accepted by all WTO Members, it cannot be used to interpret the provisions of the covered agreements, or in particular Articles 3.7 and 3.10 of the DSU.^[127]

7.59.  Guatemala considers that its arguments remain valid regardless of whether or not the FTA is in force. In its view, the fact that the FTA has not entered into force strengthens the argument that this Treaty cannot be used to interpret the WTO agreements.^[128]

7.60.  Guatemala concludes by expressing concern at the effects that would be produced by acceptance of Peru's arguments. In particular, it considers that, if WTO Members were permitted to waive their right to challenge measures through free trade agreements, even before a dispute might arise in respect of such measures, "the door would be opened dangerously wide for political pressures and negotiating power imbalances to impair the rights of smaller and weaker parties".^[129]

7.2.4  Main arguments of the third parties

7.2.4.1  Argentina

7.61.  Argentina considers that, although the FTA has not entered into force, Guatemala and Peru, by virtue of having signed it, are subject to the obligation not to defeat its object and purpose.^[130] In Argentina's view, a price range system lacks transparency and impairs the predictability of trade. The foregoing is incompatible with collaboration and the promotion of trade sought by an agreement like the FTA. Argentina concludes that the search for ways of further opening up trade should not be hampered by obstacles "such as certain measures which, by their inherent characteristics, tend to impair transparency and predictability, and thus to restrict trade".^[131]

7.2.4.2  Brazil

7.62.  Brazil considers that a free trade agreement may be relevant to the determination of the parties' rights and obligations in their bilateral relations and that, in accordance with the provisions of Article XXIV of the GATT 1994, it may also serve as a context for assessing the rights and obligations of a WTO Member. However, given that the FTA has not entered into force, it is not relevant to the assessment of the present case.^[132] Brazil adds that Article 18 of the Vienna Convention could be relevant within the scope of the FTA, but is not relevant in the context of a dispute concerning the compatibility of the challenged measure with WTO provisions.^[133] In addition, the Appellate Body was clear about the fact that panels and the Appellate Body must presume that the decision of any Member to initiate a case is made in good faith.^[134] Brazil asserts that nothing in the DSU authorizes a panel to exclude the alleged violation of a WTO rule from its jurisdiction.^[135]

7.2.4.3  Colombia

7.63.  Colombia considers that Articles 3.7 and 3.10 of the DSU must form part of the objective analysis of a complaint that panels must make in accordance with Article 11 of the DSU.^[136] Basing itself on Appellate Body statements, Colombia maintains that Articles 3.10 and 4.3 of the DSU require Members to act in good faith when initiating a dispute, and that Article 3.10 is one of the few provisions of the DSU that expressly limits the right of Members to bring a complaint.^[137] In the context of Articles 3.7 and 3.10 of the DSU, the doctrine of the abuse of rights may be interpreted as the requirement to refrain from using the dispute settlement mechanism without the motivation to find a solution to the dispute or for the purpose of causing prejudice to one of the Members. Thus, the limits to the exercise of the right to initiate a dispute would lie in the absence of "a genuine intention to resolve the conflict".^[138] Finally, Colombia states that the PRS does not per se defeat the object and purpose of the FTA or the rules contained in Article 4 of the Agreement on Agriculture.^[139]

7.2.4.4  United States

7.64.  The United States considers that the FTA is irrelevant to the adjudication of this matter, since the determination as to whether a measure is consistent with a covered agreement does not hinge on the terms of a treaty such as the FTA which does not form part of the covered agreements.^[140] Nor does the United States consider Article 18 of the Vienna Convention to be relevant to an assessment as to whether Guatemala is entitled to assert a claim under the DSU.^[141] The United States considers that the Panel must reject Peru's requests, inasmuch as they imply that the Panel should make findings regarding obligations other than those contained in the covered agreements and should refrain from making findings on claims relating to violations of those agreements.^[142] With regard to Article 3.7 of the DSU, the United States considers that the Appellate Body left it to Members to determine when to bring an action and made it clear that a procedure under the DSU would be presumed to be initiated in good faith.^[143] Furthermore, the United States considers that Article 3.10 of the DSU places no obligation on a Member, but is confined to setting out a common understanding of how Members will act under the dispute settlement mechanism.^[144]

7.2.4.5  European Union

7.65.  The European Union considers that a Member may waive its rights under the WTO agreements. For the purpose of determining whether a Member has undertaken to refrain from challenging a measure, the subsequent agreements between the parties regarding the interpretation of a treaty and any rules of international law applicable between the parties may be relevant for the interpretation of the covered agreements. The European Union suggests in this connection that the Panel is empowered to consider whether the FTA contains a clear commitment on Guatemala's part to refrain from challenging the PRS in the WTO.^[145] The European Union argues that Article 18 of the Vienna Convention may be relevant to the extent that the FTA contains a clear commitment by Guatemala to refrain from challenging the PRS in the WTO.^[146] The European Union also considers that the doctrine of abuse of rights prohibits a Member from exercising a right for a purpose other than the one for which the right was established. In the case of the dispute settlement mechanism, the purpose is to secure a positive solution to a dispute.^[147] The European Union contends that the central issue for determining the existence of any element preventing Guatemala from initiating these proceedings is whether, under the FTA, Guatemala made a clear commitment to refrain from bringing a case against the PRS before the WTO.^[148]

7.2.5  Assessment by the Panel

7.66.  Peru claims that Guatemala did not initiate this procedure in good faith, mainly because Guatemala accepted the maintenance of the PRS in the FTA and subsequently sought its dismantlement in the context of the present proceedings.^[149] The Panel has carefully considered the arguments put forward by Peru. As the parties have observed, the assessment of this matter could have important systemic consequences.^[150]

7.67.  The Panel is aware that trade relations between WTO Members are often not regulated solely and exclusively by the rules contained in the WTO agreements. On the contrary, these relations are frequently governed by a complex framework that includes not only the rules of the WTO but also other international commitments, including those derived from regional and bilateral trade agreements. The WTO agreements recognize this reality, as is clear, for example, from Article XXIV of the GATT 1994, the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation (Enabling Clause), adopted by the GATT Contracting Parties in 1979^[151], and Article V of the General Agreement on Trade in Services. At the same time, these provisions impose certain conditions in the event that a Member, in the context of a regional or bilateral agreement, requests exemption from any of its obligations under the WTO agreements.^[152] As the Appellate Body has observed, in performing its task of clarifying provisions of the covered agreements in the context of a specific dispute, a panel cannot read the texts of the agreements "in clinical isolation from public international law".^[153]

7.68.  However, this Panel's task is circumscribed by the terms of reference conferred upon it by the DSU. These terms of reference delimit the Panel's authority as follows:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by Guatemala in document WT/DS457/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.^[154] (emphasis added)

7.69.  For this reason, the Panel is only authorized to rule on the invocation of any rule of public international law applicable to the relations between the parties to the extent that the invocation of that rule of international law is based on a relevant provision of the covered agreements that has been invoked by one of the parties to the dispute. In this specific case, the Panel's assessment of the argument put forward by Peru is limited to examining whether Peru has succeeded in showing that Guatemala engaged in the present procedure in a manner contrary to good faith and, if so, what consequences might flow from that finding, in the light of Articles 3.7 and 3.10 of the DSU.^[155]

7.70.  The Panel will commence its examination by recalling the scope of Members' obligations, under Articles 3.7 and 3.10 of the DSU, that are relevant to the analysis of the present case. The Panel will go on to examine whether Peru has shown that Guatemala engaged in the present procedure in a manner contrary to its obligation to do so in good faith.

7.2.5.1  The principle of good faith under Articles 3.7 and 3.10 of the DSU

7.71.  The first sentence of Article 3.7 of the DSU, to which the parties refer, stipulates that:

Before bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful.

7.72.  In Mexico – Corn Syrup (Article 21.5 – US), the Appellate Body examined a Mexican argument with respect to the alleged failure on the part of the United States to meet the requirement laid down in the first sentence of Article 3.7 of the DSU in initiating the compliance procedure in that case.^[156] In its analysis, the Appellate Body considered that the first sentence of Article 3.7 "reflects a basic principle that Members should have recourse to WTO dispute settlement in good faith, and not frivolously set in motion the procedures contemplated in the DSU".^[157]

7.73.  In the same report, the Appellate Body referred to its finding in EC – Bananas III with respect to the broad discretion accorded to every Member in deciding whether the action of bringing a case would be fruitful.^[158] In view of this broad discretion, the Appellate Body maintained that panels "must presume, whenever a Member submits a request for establishment of a panel, that such Member does so in good faith, having duly exercised its judgement as to whether recourse to that panel would be 'fruitful'".^[159] The Appellate Body also pointed out that the first sentence of Article 3.7 of the DSU "neither requires nor authorizes a panel to look behind that Member's decision and to question its exercise of judgement".^[160] Therefore, the Appellate Body considered that the panel in that case was not obliged to consider this issue on its own motion.^[161] However, the Appellate Body's ruling does not indicate whether the presumption that a Member is acting in good faith and has duly exercised its judgement as to whether recourse to a panel would be fruitful is a rebuttable presumption.

7.74.  Guatemala and Peru disagree about the scope of the findings of the Appellate Body in Mexico – Corn Syrup (Article 21.5 – US) with respect to Article 3.7 of the DSU. According to Guatemala, in that case the Appellate Body clearly found that a panel cannot question a Member's exercise of judgement as to whether initiation of a dispute settlement procedure would be fruitful.^[162] For its part, Peru maintains that, despite the existence of a presumption, that presumption is rebuttable.^[163]

7.75.  As pointed out by the Appellate Body, Article 3.7 of the DSU is an expression of the principle that Members should have recourse to the dispute settlement procedure in good faith.^[164] In addition, the Appellate Body indicated that every Member should exercise its judgement as to whether the initiation of a procedure would be fruitful and that it was not for a panel to question the outcome of such exercise of judgement. On the contrary, a panel should presume good faith.^[165] The Panel does not find any support either in the text of Article 3.7 of the DSU or in panel or Appellate Body reports that would allow it, in the circumstances of the present case, to do anything other than presume that Guatemala duly exercised its judgement as to whether the initiation of this procedure would be fruitful.

7.76.  Nevertheless, the Panel recalls the Appellate Body's consideration in EC – Export Subsidies on Sugar of an argument by the European Communities concerning the application of the principle of estoppel in that dispute. The Appellate Body ruled in the following terms on the limits that the DSU imposes on the right of Members to submit a claim:

The principle of estoppel has never been applied by the Appellate Body. Moreover, the notion of estoppel, as advanced by the European Communities, would appear to inhibit the ability of WTO Members to initiate a WTO dispute settlement proceeding. We see little in the DSU that explicitly limits the rights of WTO Members to bring an action; WTO Members must exercise their "judgement as to whether action under these procedures would be fruitful", by virtue of Article 3.7 of the DSU, and they must engage in dispute settlement procedures in good faith, by virtue of Article 3.10 of the DSU. This latter obligation covers, in our view, the entire spectrum of dispute settlement, from the point of initiation of a case through implementation. Thus, even assuming arguendo that the principle of estoppel could apply in the WTO, its application would fall within these narrow parameters set out in the DSU.^[166]

7.77.  Within this context, the Panel considers that the assessment of whether an action was brought in good faith can also be guided by the provisions of Article 3.10 of the DSU. Accordingly, the Panel will examine the content and scope of Article 3.10.

7.78.  The first sentence of Article 3.10 of the DSU, to which the parties refer, reads as follows:

It is understood that requests for conciliation and the use of the dispute settlement procedures should not be intended or considered as contentious acts and that, if a dispute arises, all Members will engage in these procedures in good faith in an effort to resolve the dispute.

7.79.  In the past, the Appellate Body and some panels have assessed the scope of this provision. The question of whether the behaviour of one of the parties over the course of a dispute settlement procedure could be deemed to have been limited by virtue of this provision has been analysed on several occasions.^[167] In some of these cases, the Appellate Body pointed out that Article 3.10 obliges Members to participate in dispute settlement proceedings in good faith.^[168]

7.80.  The Appellate Body^[169] has also assessed the possible impact on a panel's terms of reference of failure to comply with the requirements of Article 3.10 of the DSU with regard to initiating a dispute settlement procedure in good faith. In the light of Peru's claim that Guatemala did not engage in the present procedure in good faith, the Panel will proceed to examine the considerations mentioned by the Appellate Body concerning how to determine whether a Member initiated a procedure in a manner contrary to good faith.

7.81.  In EC – Export Subsidies on Sugar, the Appellate Body stressed that Articles 3.7 and 3.10 are among the few provisions that expressly limit the right of Members to bring an action.^[170] The Appellate Body referred to the Panel's finding in that case that it had not been possible to identify any facts or statements made by the complainants where they had admitted that the measure challenged was WTO‑consistent or where they had undertaken not to take legal action against the European Communities.^[171] The Appellate Body also noted that the Panel had found no evidence of a shared understanding of the Schedule of Concessions, as alleged by the European Communities, that would shelter the measure.^[172] The Appellate Body concluded that it had seen nothing in the Panel record to suggest that the complaining Members had acted inconsistently with the principle of good faith.^[173]

7.82.  In EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5 – US), the Appellate Body reviewed the way in which the Panel in that case had assessed a European Communities' argument concerning lack of jurisdiction to examine the substance of the complainants' request. The argument made by the European Communities was that the understandings on bananas signed with the complainants prevented the latter from initiating compliance proceedings under Article 21.5 of the DSU. The legal basis used by the European Communities for alleging this limitation was Article 3.10 of the DSU. In its analysis, the Appellate Body stated that "the complainants could be precluded from initiating Article 21.5 proceedings by means of these Understandings only if the parties to these Understandings had, either explicitly or by necessary implication, agreed to waive their right to have recourse" to those proceedings.^[174] The Appellate Body also expressed the view that the relinquishment of rights granted by the DSU could not be lightly assumed and therefore the language in the Understandings must "reveal clearly that the parties intended to relinquish their rights".^[175] The Appellate Body added that "irrespective of the type of proceeding, if a WTO Member has not clearly stated that it would not take legal action with respect to a certain measure, it cannot be regarded as failing to act in good faith if it challenges that measure".^[176]

7.83.  Guatemala considers that this Appellate Body opinion is unequivocal in circumscribing the legal standard for assessing whether a Member has acted in contravention of its obligation to bring a case in good faith.^[177] In other words, in Guatemala's view, an action would be confirmed as being contrary to the obligation to engage in a procedure in good faith, under the terms of Article 3.10 of the DSU, only if the bringing of the case were preceded by an express waiver on the part of the complaining Member of its right to challenge the measure in question. However, Peru does not agree that this is the only case in which there could be an infringement of the obligation to act in good faith. In this connection, Peru maintains that "there could be various ways of engaging in a procedure in bad faith"; an example could be when a Member engages in a procedure with the intention of causing injury to another Member or impairing its rights.^[178]

7.84.  The Panel does not consider it appropriate to make a general statement intended to cover all the possible situations in which it might be found that a Member engaged in a procedure in the absence of good faith. The Panel's assessment should be made within the strict context of the present dispute and in the light of the evidence which each of the parties has submitted. In any event, pursuant to the observations of the Appellate Body in EC – Bananas III (Article 21.5 ‑ Ecuador II) / EC – Bananas III (Article 21.5 – US)^[179] and in EC – Export Subsidies on Sugar^[180], the Panel finds it useful to base its analysis on the question of whether Guatemala, before engaging in this procedure, expressly waived the right to bring a case with respect to the PRS or recognized the consistency of that measure with the WTO agreements.^[181] The Panel does not find in the arguments put forward by Peru and in the particular circumstances of the present case any reason for taking additional situations into consideration. In particular, the Panel does not find any evidence to suggest that the complaining party engaged in this procedure with the intention of causing injury to another Member or impairing its rights. In this connection, the Panel recalls that Article 3.10 of the DSU states that "[i]t is understood that requests for conciliation and the use of the dispute settlement procedures should not be intended or considered as contentious acts".

7.85.  In addition, Peru asserts that Guatemala failed to comply with the procedural requirement under the DSU to act in good faith, inasmuch as the initiation of the present procedure defeats the object and purpose of the FTA.^[182]

7.86.  Peru maintains that, even though the FTA is not yet in force, neither of the signatories has expressed the intention of not being party to the treaty.^[183] In its opinion, in accordance with Article 18 of the Vienna Convention, both parties are obliged to refrain from acts which would defeat the object and purpose of the FTA by rendering the provisions of the treaty meaningless.^[184] Peru points out that both Peru and Guatemala are parties to the Vienna Convention.^[185]

7.87.  Peru asserts that Article 18 of the Vienna Convention can be instructive in determining whether a State has not acted in good faith in the context of a treaty that has been signed but is not yet in force.^[186] According to Peru, this does not mean that the Panel has to assess whether there has been a violation of Article 18; Peru proposes that the Panel take Article 18 of the Vienna Convention into consideration as an expression of the principle of good faith applicable to the present case.^[187] For its part, Guatemala considers that the Panel would be acting outside its terms of reference if it were to rule on Peru's arguments relating to Article 18 of the Vienna Convention.^[188] Guatemala also maintains that bringing the present case does not defeat the object and purpose of the FTA^[189] and that, in any case, Peru's arguments concerning Article 18 of the Vienna Convention are invalidated by Peru's statement that it does not wish to be bound by the FTA.^[190]

7.2.5.2  Whether Peru has shown that Guatemala did not initiate the present procedure in good faith

7.88.  To begin with, the parties agree that the FTA has not yet entered into force.^[191] Peru's argument to the effect that paragraph 9 of Annex 2.3 to the FTA contains an undertaking by Guatemala not to challenge the PRS is limited by this undisputed fact. An international treaty only begins to produce legal effects and bind the parties from the moment it enters into force. The mere signing of a treaty, before it enters into force, imposes only limited obligations on the parties, fundamentally that of refraining from acting in such a way as to defeat the object and purpose of the treaty. To impose, as an effect of the signing of a treaty, legal consequences that go beyond those indicated in Article 18 of the Vienna Convention would blur the difference between a treaty in force and one that is not yet in force. Thus, the Panel cannot attribute to the FTA a legal value that it does not currently possess.

7.89.  The Panel has also taken note of Peru's argument according to which, by having challenged the PRS through the present procedure, Guatemala is defeating the object and purpose of the FTA, within the meaning of Article 18 of the Vienna Convention. In this connection, Peru has pointed out that its argument does not mean that it is asking the Panel to determine whether or not Guatemala is defeating the object and purpose of the FTA.^[192]

7.90.  The relevant part of Article 18 of the Vienna Convention provides as follows:

A State is obliged to refrain from acts which would defeat the object and purpose of a treaty when:

(a) it has signed the treaty or has exchanged instruments constituting the treaty subject to ratification, acceptance or approval, until it shall have made its intention clear not to become a party to the treaty …

7.91.  In the opinion of some scholars, the obligation contained in Article 18 of the Vienna Convention is in the nature of a customary rule of public international law.^[193] In the circumstances of this dispute, it is not necessary for the Panel to rule on the applicability of this obligation. In any case, as emerges from the text, the provision does not require a signatory to comply with the terms of a treaty which it has not yet ratified, and does not even require the signatory not to act in a manner inconsistent with that treaty. The only obligation is to refrain from acts which would prevent it from being in a position to comply with the treaty once the latter enters into force or which would invalidate the object and purpose of the treaty.^[194]

7.92.  The Panel is not convinced that the violation by a Member of the obligation contained in Article 18 of the Vienna Convention with respect to a treaty that does not form part of the WTO covered agreements can constitute evidence of lack of the good faith required by Articles 3.7 and 3.10 of the DSU. In any event, and even assuming for the sake of argument that this were so, Peru's argument would require it to be shown that Guatemala's action, in initiating the present procedure, constitutes an act which has the effect of defeating the object and purpose of the FTA. This, in turn, would require the Panel to determine what is the object and purpose of the FTA. The Panel notes that the parties hold significantly divergent opinions on this issue.^[195] In any event, to make a determination as to what is the object and purpose of the FTA would be to go beyond the terms of reference entrusted to this Panel by the DSB.^[196]

7.93.  Finally, Peru has suggested that a Member could also act in a manner contrary to its obligation to engage in a procedure in good faith if it does so: (a) with the intention of causing injury to another Member or impairing its rights; (b) solely to waste time; (c) as a means of retaliation; or (d) in a way diametrically contradicting what has been agreed in a free trade agreement.^[197] However, Peru has not claimed or demonstrated that Guatemala's conduct matches any of these circumstances. Accordingly, it is not necessary to rule on whether, in any of the circumstances listed by Peru, a panel would be precluded from ruling on a claim lodged under the DSU.

7.94.  Peru has also proposed that, in its assessment of the obligation to engage in a procedure in good faith, the Panel should take into consideration the doctrine of abuse of rights.^[198] Peru affirms that Guatemala has committed an abuse of its rights by "seeking … to invoke the rules of the DSU in relation to situations which, having regard to its own circumstances, it has considered consistent with the framework of the WTO Agreement".^[199] In explaining the doctrine of abuse of rights as an expression of the principle of good faith, Peru referred to the observations of the Appellate Body in US - Shrimp:

The chapeau of Article XX is, in fact, but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states. One application of this general principle, the application widely known as the doctrine of abus de droit, prohibits the abusive exercise of a state's rights and enjoins that whenever the assertion of a right "impinges on the field covered by [a] treaty obligation, it must be exercised bona fide, that is to say, reasonably."^[200] An abusive exercise by a Member of its own treaty right thus results in a breach of the treaty rights of the other Members and, as well, a violation of the treaty obligation of the Member so acting.^[201]

7.95.  The Appellate Body's approach indicates that a right will be exercised abusively when its assertion unreasonably interferes with the sphere covered by an obligation arising out of a treaty. This would occur when a Member initiates a dispute settlement procedure in a manner contrary to good faith, along the lines described above. Thus, in the Panel's opinion, the elements mentioned by Peru as forming part of the doctrine of abuse of rights coincide with those which the Appellate Body has identified as situations in which a Member acts inconsistently with its obligation to engage in a procedure in good faith. For this reason, the Panel does not find that the doctrine of abuse of rights would add anything to the elements already mentioned as being relevant for the purpose of assessing whether Guatemala engaged in the present procedure in good faith.

7.2.5.3  Conclusion

7.96.  On the basis of these considerations, the Panel finds no evidence that Guatemala has engaged in the present procedure in a manner contrary to the good faith obligations contained in Articles 3.7 and 3.10 of the DSU. In the light of this decision on the preliminary issue raised by Peru, the Panel will proceed to examine Guatemala's claims under Article 4.2 of the Agreement on Agriculture.

7.3  Description of the facts

7.97.  Before commencing its examination of Guatemala's claims, the Panel will give a description of the facts cited by the parties as forming the basis of the present dispute.

7.98.  The Panel notes that the measure at issue identified by Guatemala in its request for the establishment of a panel, submitted on 13 June 2013, is:

[T]he additional duty imposed by Peru on imports of certain agricultural products, such as milk, maize, rice and sugar (hereinafter affected products).^[202]

7.99.  Guatemala explains that the characteristics of the measure include the fact that:

[I]t is determined by using a mechanism known as the "Price [Range] System" which, in its turn, operates on the basis of two components: (i) a [range] made up of a floor price and a ceiling price which, in accordance with the applicable regulations, reflect the international price over the last 60 months for the different products concerned; (ii) a c.i.f. reference price, which is published every two weeks and which, in accordance with the applicable regulations, reflects the average international market price for the different products concerned …^[203]

7.100.  This section will describe the facts relating to the history of the PRS, the PRS in force and the way it has operated since entering into force, as well as the relevant issues concerning Peru's tariff policy and the way in which Peru bound its tariffs in its Schedule of Concessions.

7.3.1  History of the Price Range System

7.101.  Peru maintains that it established a system of specific duties in 1991 and has applied it ever since, and that the PRS is merely the same system, improved and adapted.^[204] Guatemala rejects this claim and maintains that Supreme Decree No. 115‑EF‑2001 tacitly repealed the 1991 system of specific duties and established the PRS, for which reason the latter is a separate measure.^[205]

7.102.  In support of its argument concerning the continuity between the system of specific duties introduced in 1991 and the PRS, Peru has provided the Panel with the texts of some of the instruments that established and modified the system between 1991 and 2001. These instruments are described below.

7.103.  Supreme Decree No. 016‑1991‑AG of 30 April 1991 regulated the imposition of a specific duty on certain food products comprising 18 tariff lines. The duty was calculated on the basis of an international reference price, fixed weekly, and customs tables, revised semi‑annually.^[206]

7.104.  According to Article 1 of Supreme Decree No. 016‑1991‑AG, "the specific duty, expressed in United States dollars per metric ton, shall be determined in accordance with the respective customs tables … on the basis of the lowest f.o.b. price of the product on the international market on the date of shipment of the goods, as evidenced by the date of the bill of lading or waybill". Article 2 of the same decree provided that a reference price, based on the weekly average of the closing f.o.b. spot prices for the previous week, would be supplied weekly by the Ministry of Agriculture to the Ministry of the Economy and Finance which, in its turn, would communicate it to the National Customs Supervisory Authority. Article 3 of Supreme Decree No. 016‑1991‑AG also indicated that the specific duty would be applied at the point in time at which the import duties became due. Finally, Article 4 provided that the revenue collected by levying the specific duty would be used to establish a support fund for the agricultural sector.

7.105.  Article 2 and Annex No. 1 of Ministerial Resolution No. 258‑91‑EF‑10 of 12 June 1991 identified the reference sources which the Peruvian authorities would use to calculate the specific duties.^[207] Article 3 of the Ministerial Resolution made it clear that a product‑specific reference price would be reported to customs, and would be used to apply the specific duty, regardless of the source from which the product was purchased or the price indicated in the commercial invoice. Article 5 of Ministerial Resolution No. 258‑91‑EF‑10 also indicated that the Ministry of the Economy and Finance would communicate the reference prices to the Peruvian National Customs Supervisory Authority and would publish them in the Official Journal "El Peruano" on the day after that on which they were received from the Ministry of Agriculture.

7.106.  Ministerial Resolution No. 0768‑91‑AG of 31 October 1991 provided that the minimum f.o.b. reference price used to establish specific duties higher than zero would be calculated from the simple arithmetic mean of the f.o.b. prices for the past 60 months. These prices would be updated every six months, by eliminating the prices corresponding to the earlier six months and incorporating those corresponding to the latest six months at the time of updating.^[208]

7.107.  Supreme Decree No. 114‑93‑EF of 27 July 1993 modified the tariff lines subject to specific duties.^[209] Article 2 of this decree established that the specific duty would be expressed in "US dollars per metric ton" and would be determined on the basis of the customs table on the date of shipment of the goods, in accordance with the date indicated on the bill of lading or the waybill. Article 3 entrusted the Central Reserve Bank of Peru with the task of semi‑annually reviewing and updating the customs tables for approval by Supreme Decree endorsed by the Ministers of the Economy and Finance and of Agriculture. Article 5 entrusted the Central Reserve Bank of Peru with the task of informing the Ministries of the Economy and Finance and of Agriculture, on a weekly basis, of the average f.o.b. reference prices; these f.o.b. reference prices would be published by the Ministry of the Economy and Finance in a ministerial resolution. Annex IV of the Supreme Decree added an adjustment for a proportion of the standard price deviation and established the following "inter-product proportionality factors": "in the case of flour and pasta, the specific duty is 30% above the specific duty for wheat, and in the case of paddy rice, the specific duty is equal to 70% of the duty on pounded rice. In the case of dairy products, the specific duty applied to skimmed milk powder and anhydrous milk fat is the same as the duty applied to whole milk powder".^[210]

7.108.  Supreme Decree No. 133‑94‑EF of 6 October 1994 introduced some adjustments to the sources of information on reference prices and a methodology for calculating a floor price.^[211] Under the Supreme Decree, information on average f.o.b. reference prices would be provided weekly to the Ministries of the Economy and Finance and of Agriculture by the Central Reserve Bank of Peru in respect of products subject to the specific duty, except in the case of dairy products, for which information would be provided fortnightly. According to Annex IV of the Supreme Decree in question, the floor price is calculated as "the average of the past 60 monthly observations of the international f.o.b. prices inflated by the United States Consumer Price Index. This average is adjusted by the proportion of the standard deviation with respect to the average floor price [indicated in Annex II]".The same annex provides that the final calculation of the "surcharge" (also referred to in the Supreme Decree as "specific duty") is based on the difference between the floor price and the f.o.b. reference price, multiplied by an adjustment factor associated with import expenses.

7.109.  Supreme Decree No. 083‑98‑EF of 5 August 1998 excluded certain tariff lines from the scope of the specific duty and updated the sources of information for the calculation of reference prices.^[212] Supreme Decree No. 133‑99‑EF of 11 August 1999 modified the reference sources for calculating the floor price of some of the products subject to the specific duty.^[213]

7.110.  Supreme Decree No. 015‑2001‑EF of 29 January 2001 updated the information on the reference sources for calculating the customs tables and the reference price for rice, maize and sugar; further, for the purposes of the methodology used to calculate the customs tables, it eliminated the standard deviation from the floor price calculation.^[214]

7.111.  Supreme Decree No. 021‑2001‑EF of 5 February 2001 repealed Supreme Decree No. 015‑2001‑EF and made some adjustments to the calculation of the specific duties. Supreme Decree No. 021‑2001‑EF introduced a timetable for updating the customs tables; confirmed the reference sources for the calculation of the customs tables, and the reference price for rice, maize and sugar; and reintroduced the standard deviation from the floor price calculation and the compilation of the customs tables.^[215]

7.112.  Supreme Decree No. 15-2001-EF, of 21 June 2001, established the PRS applicable to imports of various agricultural products. The preamble to the Supreme Decree included the following two paragraphs:

Whereas Supreme Decree No. 016‑91‑AG established a Specific Duty System imposing a levy on imports of certain agricultural products and that system was modified by Supreme Decree No. 021‑2001‑EF, which established the need to formulate a proposal for improving the variable specific duty methodology;

Whereas, following review and evaluation of the above‑mentioned System, it was deemed necessary to refine it and to bring it into line with the needs of national agriculture, so as to enable domestic producers to plan their investments under conditions of reduced uncertainty …^[216]

7.3.2  The PRS and how it operates

7.3.2.1  Introduction

7.113.  As previously mentioned^[217], in its request for the establishment of a panel, Guatemala identified the measure at issue as "the additional duty imposed by Peru on imports of certain agricultural products" and explained that this duty was calculated by means of the PRS.

7.114.  In this section, the Panel will describe the PRS and the duty or the tariff rebates that it can generate, together with the way in which the system has operated since it was first established.

7.3.2.2  The PRS

7.115.  Supreme Decree No. 115‑2001‑EF^[218], published on 22 June 2001, established the PRS applicable to imports of various tariff lines for rice, maize, milk and sugar.

7.116.  According to Article 1 of Supreme Decree No. 115‑2001‑EF, the PRS was established "for the purpose of applying variable duties additional to the tariff", when the international reference prices for the products subject to the PRS are lower than certain floor price levels, and tariff rebates, when those reference prices are higher than certain ceiling price levels.^[219]

7.117.  On the website of Peru's Ministry of the Economy and Finance the PRS is illustrated as follows^[220]:

7.3.2.3  Objectives of the PRS

7.118.  In the preamble to Supreme Decree No. 115‑2001‑EF the objectives of the PRS are described as follows^[221]:

Whereas national agricultural production is being adversely affected by distortions reflected in uncertainty and instability of domestic prices and national production and due, in particular, to the agricultural policies implemented by the main food producing and exporting countries;

Whereas the Price Range System is a stabilization and protection mechanism that makes it possible to neutralize the fluctuations of international prices and limit the negative effects of the fall in those prices;

Whereas the System in question constitutes an appropriate means of improving the levels of competitiveness of domestic producers, by giving the market clear signals with regard to trends in prices, thereby allowing economic agents to operate efficiently and productively …

7.119.  On the website of the Ministry of the Economy and Finance, it is stated that the PRS "is intended to stabilize the costs of importing the products included in the System by ensuring effective prices both for the producer, by means of a floor price, and for the consumer, through a ceiling price, and applying Variable Additional Duties or Tariff Rebates on the c.i.f. value".^[222]

7.3.2.4  Products subject to the PRS

7.120.  The PRS is applicable to various tariff lines for four agricultural products, namely, rice, sugar, yellow maize and milk.

7.121.  Annex I to Supreme Decree No. 115‑2001‑EF, as amended^[223], identifies the following tariff lines subject to the PRS, and indicates whether the products concerned are "marker" products or "associated" products.

7.122.  Annex II to Supreme Decree No. 115‑2001‑EF defines marker products as products whose international prices are used for calculating the ranges, and associated products as products obtained by processing or mixing of marker products or capable of replacing a marker product for industrial use or consumption.

7.123.  As can be seen from Annex I to Supreme Decree No. 115‑2001‑EF, each of the four agricultural products subject to the PRS includes a tariff line that functions as a marker product and various lines that function as associated products.

7.124.  The current marker products, identified in Annex IV to Supreme Decree No. 115‑2001‑EF, are: (a) No. 2 yellow maize (tariff line 1005.90.11.00); (b) white rice (tariff line 1006.30.00.00); (c) refined white sugar (tariff line 1701.99.00.90); and (d) whole milk, in powder, not containing added sugar (tariff line 0402.21.19.00).

7.125.  According to Article 8 of Supreme Decree No. 115‑2001‑EF, the variable additional duties or tariff rebates for associated products will be equal to the variable additional duty or tariff rebate for their marker product. Therefore, for the purposes of the PRS, only the values for the customs tables and reference prices corresponding to the four marker products will be calculated and these values will be used for the associated products.

7.3.2.5  The methodology for calculating duties or tariff rebates

7.126.  The methodology for calculating duties or tariff rebates resulting from the PRS includes various steps and mathematical formulas and consists of two essential components: (a) a price range with a ceiling price and a floor price; and (b) a reference price. Each of these components, steps and mathematical formulas is described below.

7.3.2.5.1  The floor and ceiling prices

7.3.2.5.1.1  The reference markets

7.127.  Point 2 of Annex II to Supreme Decree No. 115‑2001‑EF stipulates that the range corresponding to each marker product is to be based on international prices expressed in United States dollars (USD) per metric ton, with the markets indicated in Annex IV to the Decree being used for reference purposes.

7.128.  The current international reference markets are as follows^[224]:

7.3.2.5.1.2  Calculation of the confidence interval

7.129.  To determine the floor price and the ceiling price it is first necessary to establish a confidence interval, using the following methodology, described in point 3.1 of Annex II to Supreme Decree No. 115‑2001‑EF:

a.      The monthly average f.o.b. prices for the past 60 months^[225] corresponding to the marker product on the international reference market are taken and converted into constant US dollars using as an inflator the United States Consumer Price Index with base equal to 100 in May or November of the last year, as appropriate.

b.     The average of the series is calculated from the following formula:

Pm = {sum (PNt / IPC) / 60}

Where:

Pm = Simple average

PNt = Monthly nominal international price

IPC = United States Consumer Price Index.

c.      The confidence interval is determined by adding a standard deviation to the f.o.b. average of the series to establish the upper bound and subtracting a standard deviation to establish the lower bound, using the following formulas:

Upper bound = Pm + DS

Lower bound = Pm ‑ DS

Where:

DS = Standard deviation

d.     Extreme values located above and below the confidence interval are discarded.

7.3.2.5.1.3  Calculation of the floor price

7.130.  Point 3.2 of Annex II to Supreme Decree No. 115‑2001‑EF stipulates that the floor price is determined by calculating a new average with the values recorded within the confidence interval, using the following formula:

Pfloor = {sum (PNt/ lPC) / N }

Where:

N = Number of observations within the confidence interval

7.131.  In the case of the sugar range, the floor price calculation includes an adjustment factor that increases the floor price by 10.7% by means of the following formula:

Pfloor = {sum (PNt/ lPC) / N } * 1.107^[226]

7.3.2.5.1.4  Calculation of the ceiling price

7.132.  Point 3.3 of Annex II to Supreme Decree No. 115‑2001‑EF indicates that the ceiling price is obtained by adding to the floor price a standard deviation of the original series, using the following formula:

Pceiling = Pfloor + DS

7.3.2.5.1.5  Conversion of the ceiling and floor prices to c.i.f. prices

7.133.  Point 4 of Annex II to Supreme Decree No. 115‑2001‑EF states that the floor and ceiling prices expressed in f.o.b. terms are to be converted into c.i.f. terms by adding the following freight and insurance costs, as indicated in Annex V to that Supreme Decree.

7.134.  Annex V to Supreme Decree No. 115‑2001‑EF indicates the General Secretariat of the Andean Community as the source of the freight and insurance costs. These values coincide with the costs indicated in Annex 3 to Decision 371 of the Andean Price Band System.^[227] Decision 371 contains no explanation as to how these values were determined.

7.3.2.5.1.6  The semi‑annual updating of the ceiling and floor prices and their publication in the customs tables

7.135.  Article 7 of Supreme Decree No. 115‑2001‑EF indicates that the Central Reserve Bank of Peru will semi‑annually review and update the customs tables used to determine the floor and ceiling prices, for approval by supreme decree issued by the Constitutional President of the Republic of Peru with the endorsement of the Ministers of the Economy and Finance and of Agriculture. In accordance with Article 6 and point 3.3 of Annex II to Supreme Decree No. 115‑2001‑EF, the floor and ceiling prices are to be adjusted semi‑annually by updating the respective price series, the inflator index and the amounts of freight and insurance. The customs tables are valid for six months (from 1 January to 30 June and from 1 July to 31 December of each year) and are to be published before 30 June and 31 December of each year.

7.3.2.5.2  Reference prices

7.3.2.5.2.1  Calculation of reference prices

7.136.  Article 4 of Supreme Decree No. 115‑2001‑EF stipulates that reference prices are to be published every two weeks and must reflect the average price obtained from the price quotations observed on the international reference markets of Annex IV, as described above.^[228]

7.137.  Moreover, according to Article 5 of Supreme Decree No. 115‑2001‑EF, the reference prices are to be converted into c.i.f. terms by applying the freight and insurance costs of Annex V.

7.3.2.5.2.2  Fortnightly updating of the reference prices and their publication by means of vice‑ministerial resolutions

7.138.  Article 7 of Supreme Decree No. 115‑2001‑EF stipulates that, on the first working day of each fortnight, the Central Reserve Bank of Peru will provide the Ministries of the Economy and Finance and of Agriculture with the average of the c.i.f. reference prices for the immediately preceding fortnight.

7.139.  According to the same article, the Ministry of the Economy and Finance is to publish these reference prices by means of a vice‑ministerial resolution issued by the Vice‑Minister of the Economy.^[229]

7.3.2.5.3  Determination of the duties or tariff rebates

7.140.  Point 1 of Annex III to Supreme Decree No. 115‑2001‑EF stipulates that a "variable additional duty" is to be applied if the reference price is lower than the c.i.f. floor price. The "variable additional duty" is equal to the difference between the floor price and the reference price multiplied by one plus the factor associated with the marker product import costs.

7.141.  The amount of the "variable additional duty" is calculated by means of the following formula:

DA = (1 + b) (Pfloor – Pr)

Where:

DA = Additional duty

Pr = c.i.f. reference price

b = Costs associated with import expenses:

12% or 20% of the ad valorem tariff plus the "corresponding additional tariff surcharge (according to the product)", with an additional 3% for import expenses.

7.142.  Article 4 of Supreme Decree No. 153‑2002‑EF of 26 September 2002 stipulates that:

The variable additional duties resulting from the application of the provisions of the Price Range System …, plus the ad valorem c.i.f. duties, may not exceed the basic standard tariff bound by Peru with the World Trade Organization for the subheadings included in the [PRS], each import transaction being considered individually and the c.i.f. value of the goods included in the transaction concerned being taken as the basis for calculation.^[230]

7.143.  Where tariff rebates are concerned, according to point 2 of Annex III to Supreme Decree No. 115‑2001‑EF they are to be applied to marker products whenever the c.i.f. reference price is higher than the c.i.f. ceiling price. The tariff rebate is equal to the difference between the reference price and the ceiling price, multiplied by one plus the factor associated with the marker product import costs.

7.144.  The tariff rebates are calculated by means of the following formula:

RA = (1 + b) (Pr – Pceiling)

RA = Tariff rebate

7.145.  Article 8 of Supreme Decree No. 115‑2001‑EF explains that "[i]n no circumstances shall the tariff rebate exceed the sum payable by the importer as the ad valorem duty and additional tariff surcharge corresponding to each product". It should be noted that all the products subject to the PRS have an ad valorem tariff of 0%, except for three tariff lines for maize, which are subject to a 6% tariff (1108.12.00.00, 1108.13.00.00 and 3505.10.00.00).^[231] Accordingly, at least at present, only these three products could obtain tariff rebates, where applicable.

7.146.  Finally, point 2 of Annex III to Supreme Decree No. 115‑2001‑EF states that, where the reference price is equal to the floor price or the ceiling price, or lies between these two limits, only the corresponding tariff is to be paid and neither variable additional duties nor tariff rebates shall be applied.

7.147.  Article 8 of Supreme Decree No. 115‑2001‑EF explains that the "variable additional duties" and "tariff rebates" are to be expressed in US dollars per tonne. These additional duties or rebates shall be determined on the basis of the customs tables in force on the date of registration of the import declaration by applying the reference prices for the previous fortnight. In this connection, previous fortnight shall mean the period between the first and the fifteenth or between the sixteenth and the last day of each month, as appropriate.^[232]

7.148.  Point 3(f) of Circular INTA‑CR.62‑2002 of 26 August 2002 explains that, if on the date of registration of the single customs declaration the supreme decree or ministerial resolution updating the customs tables or determining the c.i.f. reference prices has not been published, the calculation shall be made on the basis of the table and price indicated in the immediately previous publication. In such cases, the authorities shall record the circumstances so that, once the corresponding values have been published, unpaid taxes can, where appropriate, be assessed for collection or so that, in the event of an overpayment, a refund can be requested.^[233]

7.149.  Finally, point 3(c) of the same circular states that "the variable additional duties" should be paid by the importer in the customs office, together with the import duties and other import taxes.

7.3.2.6  The historical application of the PRS

7.3.2.6.1  Floor and ceiling prices

7.150.  As already explained, under the Peruvian legislation, the floor prices and ceiling prices that form the price range are reproduced in customs tables which are valid for six months and are to be published before 30 June and 31 December each year. The legislation also states that the Central Reserve Bank of Peru shall review and update the customs tables semi‑annually, for approval by supreme decree.

7.151.  From 2001 to 2014 customs tables have been in force for every period. However, these customs tables have not always been updated semi‑annually in accordance with Supreme Decree No. 115‑2001‑EF. On several occasions, the customs tables have been extended instead of being updated, despite this possibility not being provided for in the PRS regulations, and on other occasions the customs tables have been replaced for only one product.^[234]

7.152.  The following table reflects the instances in which the Peruvian authorities have updated, extended or replaced customs tables over the years of existence of the PRS: