ANNEX B
Arguments Of The participants
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Contents
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Page
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Annex B-1
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Executive summary of Peru's
appellant's submission
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B-2
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Annex B-2
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Executive summary of
Guatemala's other appellant's submission
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B-7
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Annex B-3
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Executive summary of Peru's
appellee's submission
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B-9
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Annex B-4
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Executive summary of
Guatemala's appellee's submission
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B-10
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Annex B-1
EXECUTIVE SUMMARY OF Peru's APPELLANT's SUBMISSION
I. INTRODUCTION
1.
This appeal will
determine whether Peru may maintain its Price Range System ("PRS")
for certain designated goods in its bilateral trade with Guatemala. This is a
surprising question to be placed before the WTO dispute settlement system
because Peru and Guatemala already addressed this issue in their 2011 Free
Trade Agreement ("FTA"). The FTA states expressly that "Peru may
maintain its Price Range System" for certain designated products from
Guatemala. It also states that, in the event of any inconsistency between the
FTA and the WTO, the provisions of the FTA would prevail.
2.
After having
expressly accepted in the FTA the right of Peru to maintain the PRS, Guatemala
has sought to neutralize this provision through the use of the WTO dispute
settlement system. Such an approach should be of grave concern to the Appellate
Body, and indeed to all WTO Members.
3.
Peru has signed
the FTA but, in light of Guatemala's WTO challenge, has not ratified it. While
Peru wants the FTA to enter into force, it is unwilling to give Guatemala the
benefits of the FTA in light of Guatemala's attempt to use the WTO dispute
settlement system to rewrite or delete a key provision of the bilateral
agreement. Peru cannot accept Guatemala's attempt to secure through the WTO
what it failed to achieve during the negotiating process for the FTA.
4.
Unfortunately,
the Panel in this dispute rewarded Guatemala for its two-track approach. It
ruled that Guatemala did not act inconsistently with its good faith obligations
under DSU Articles 3.7 and 3.10. It also ruled that, by maintaining
the PRS, Peru violated its obligations under Article 4.2 of the Agreement on
Agriculture and under the second sentence of Article II:1(b) of the GATT 1994.
The Appellate Body should reverse these findings and declare them to be moot
and without legal effect. It should also complete the analysis and find that
Guatemala acted inconsistently with its good faith obligations under the DSU.
1 FACTUAL BACKGROUND
5.
The measure in
dispute is the additional duties resulting from the PRS. The Panel properly
found that Guatemala challenged the additional duties, rather than the
calculation mechanism (the PRS) as such.
6.
The additional
duties have been part of Peru's tariff policy since 1991, with modifications to
the underlying calculation methodology occurring over the years, but without
changes in the nature of the duties. They were part of Peru’s tariff policy
when Peru scheduled its tariff commitments at the end of the Uruguay Round. Of
the subsequent modifications, the most relevant occurred in 2001, when Supreme
Decree No. 115-2001-EF refined the calculation methodology, establishing for
the first time an upper range that would allow for the rebate of duties. When
considered with the existing lower range, a "price range system"
resulted.
7.
The additional
duties resulting from the PRS applied to specific agricultural imports from
Guatemala (and other countries) for many years. Because it was important to
both Peru and Guatemala, the two countries agreed to include the issue in the
negotiation of their FTA.
8.
In the resulting
FTA, Peru and Guatemala agreed to eliminate custom tariffs on goods originating
in the other Party, "in accordance with Annex 2.3". Annex 2.3, in
turn, expressly provides that "Peru may maintain its Price Range
System" with respect to certain designated products. Such products are
designated with an asterisk in Peru's FTA Tariff Schedule, and are the same
products Peru listed as having differential bound tariff treatment at the
formation of the WTO. Peru and Guatemala confirmed their "existing mutual
rights and obligations under the WTO Agreement", and this would include
the WTO provisions cited by Guatemala in this dispute. The Parties agreed to a
specific exception to such WTO rights and obligations by agreeing that, in the
event of any inconsistency between the FTA and the WTO Agreements, the FTA
"shall prevail to the extent of the inconsistency". Thus, the
provision through which the Parties agreed that "Peru may maintain its
Price Range System" was part of the balance of the rights and obligations
negotiated and agreed by the two countries.
9.
After reaching a
final agreement and concluding negotiations, the FTA was (a) signed by both
parties on 6 December 2011; (b) approved by the Guatemalan Congress; and (c)
formally ratified by the Guatemalan President. Guatemala notified Peru in 2014
that it had fulfilled the legal requirements for the entry into force of the
FTA. In parallel, Guatemala had by then initiated proceedings in the WTO
seeking a ruling that Peru must "dismantle" the PRS.
2 THE PANEL ERRED IN LAW BY FAILING TO FIND THAT GUATEMALA ACTED
INCONSISTENTLY WITH ITS GOOD FAITH OBLIGATIONS UNDER DSU ARTICLES 3.7
AND 3.10
10.
Peru argued
before the Panel that by using the WTO dispute settlement system to challenge
Peru's specific duties, Guatemala violated the obligation to engage in WTO
dispute settlement procedures in good faith. The Panel erred in law by finding
that Guatemala had not violated DSU Articles 3.7 and 3.10, and by not
dismissing Guatemala's claims on this basis.
11.
Peru does not
consider that Guatemala is procedurally barred from bringing a WTO claim
against the PRS. Rather, the Panel should have found that Guatemala's actions –
using the WTO dispute settlement system to nullify a provision of the FTA
– were contrary to Guatemala's good faith obligations under DSU Articles 3.7
and 3.10.
12.
WTO panels have
the authority to determine that WTO Members have brought a claim contrary to
the principles of good faith, as found by the Appellate Body in US – Offset Act (Byrd Amendment). Yet, in the present
dispute, the Panel declined to rule that Guatemala acted contrary to the
principles of good faith. It reviewed a number of factors and then stated its
conclusions as follows: "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." While the Panel purported to base its conclusion on
"no evidence", its rulings on this issue were founded on its own
failure to apply the correct legal principles. The Panel's findings on good
faith are thus vitiated by errors of law.
13.
The Panel erred
in law by assuming that the legal status of the FTA was dispositive to its
ruling on good faith. The Panel considered that the legal status of the FTA –
rather than the actions of Guatemala in bringing this dispute – to be
determinative to the issue of whether Guatemala acted consistently with its
obligations under DSU Articles 3.7 and 3.10. The Panel stated that "[t]he
mere signing of a treaty, before it enters into force, imposes only limited obligations
on the parties", and that it could not "attribute to the FTA a legal
value that it does not currently possess". But it is critical to stress
that the task before the Panel was to determine whether
Guatemala's use of the WTO dispute settlement system to nullify a provision of
the FTA was consistent with DSU Articles 3.7 and 3.10. That the FTA
is not in force does not preclude finding a good faith violation when a party
waives a right, consents to conduct, or acts to nullify the object and purpose
of a treaty not yet in force.
14.
The Panel failed
to interpret and correctly apply Articles 3.7 and 3.10 of the DSU because it
limited its analysis only to the situation in which Guatemala "expressly
waived the right to bring a case with respect to the PRS or recognized the
consistency of that measure with the WTO agreements". Yet the
Appellate Body made clear in EC – Bananas III (Article
21.5 – Ecuador II)/ EC – Bananas III (Article 21.5 – US), that WTO
Members may waive rights either explicitly or by necessary implication.
Moreover, Members may waive substantive, in addition to procedural, rights and
may do so unilaterally.
15.
The International
Law Commission (ILC) Draft Articles on Responsibility of States for
Internationally Wrongful Acts ("ILC Articles") provide further
support for the proposition that the Panel erred in law by ruling that WTO
Members can only waive their WTO rights "expressly", or through
treaties that are ratified and in force. ILC Articles 20 and 45 codify general
principles of law and are directly relevant in this context.
16.
Guatemala waived its right explicitly because it agreed explicitly that Peru may
maintain the PRS. In the alternative, the Panel should have
concluded, on the basis of the uncontested facts before it, that Guatemala
waived its rights by necessary implication.
17.
Whether the
waiver by Guatemala is considered to be explicit or implied, the status of the
FTA has no bearing on the issue of whether Guatemala acted contrary to its good
faith obligations under DSU Article 3.7 and 3.10. If the Panel had focused on
the conduct of Guatemala, rather than whether the FTA was in force, it could
only have concluded that Guatemala acted inconsistently with DSU Articles 3.7
and 3.10.
18.
A party's conduct
in violation of Article 18 of the Vienna Convention on the Law of Treaties
("Vienna Convention") may also demonstrate a lack of good faith. An
action by a state to defeat the object and purpose of a treaty, particularly a
treaty explicitly permitted by GATT Article XXIV and GATS Article V, can indeed
constitute evidence of a lack of good faith under DSU Articles 3.7 and 3.10,
and it is an error of law to dismiss the possibility of examining such actions.
3 THE PANEL ERRED IN LAW BY FINDING THAT PERU ACTED INCONSISTENTLY
WITH ARTICLE 4.2 OF THE AGREEMENT ON AGRICULTURE
19.
The Panel’s
finding that Peru violated Article 4.2 of the Agreement on Agriculture is based
on legal error. The Panel improperly interpreted the provision in isolation of
other relevant rules, and it misapplied the Appellate Body’s clarifications of
Article 4.2.
20.
DSU Article 3.2
requires panels to interpret the existing provisions of the WTO Agreements
"in accordance with customary rules of interpretation of public
international law". Among these customary rules of interpretation of
public international law is Article 31(3)(c) of the Vienna Convention, which
requires the treaty interpreter to take into account relevant rules of
international law applicable in the relations between the parties. The Panel
erred in its interpretation of Article 4.2 by failing to take into account the
FTA as a relevant rule of international law applicable in the relations between
Peru and Guatemala within the meaning of Article 31(3)(c) of the Vienna
Convention.
21.
The Panel refused
to take the FTA into account because it is not in force. However, treaties that
are not in force, or have not been ratified by the disputing parties, can and
have been used as "relevant rules of international law" for the
purposes of Article 31(3)(c) of the Vienna Convention. The FTA is a "rule
of international law" that is "relevant" and
"applicable" between Peru and Guatemala, who are the relevant
"parties".
22.
If the Panel had
properly interpreted Article 4.2 of the Agreement on Agriculture in light of
the requirements of Article 31(3)(c) of the Vienna Convention, it should not
have found Peru to have violated its obligations under Article 4.2 of the
Agreement on Agriculture.
23.
Articles 20 and
45 of the ILC Articles are also "relevant rules of international law
applicable in the relation between the parties" within the meaning of
Article 31(3)(c). Guatemala, by ratifying the FTA, has validly consented to
Peru's maintenance of the PRS within the meaning of ILC Article 20,
and has validly waived any claim it may have had against this measure within
the meaning of ILC Article 45. The Panel erred in law by failing to take into
account ILC Articles 20 and 45 as relevant rules of international law
applicable in the relations between the parties when interpreting Article 4.2
of the Agreement on Agriculture.
24.
The Panel also
failed to take into account the FTA as a "subsequent agreement between the
parties regarding the interpretation of the treaty or the application of its
provisions", as required by Article 31(3)(a) of the Vienna Convention. Had
the Panel done so, it should have found that Peru did not violate Article 4.2
of the Agreement on Agriculture by maintaining the PRS. In US – Clove
Cigarettes, the Appellate Body found that a "subsequent
agreement" in the sense of Article 31(3)(a) of the Vienna Convention
may take various forms. In Peru's view, it is not limited to a decision adopted
by all WTO Members. That is one form of subsequent agreement, but it is not
exhaustive of the forms that could validly apply under Article 31(3)(a). The
Panel was required by Article 3.2 of the DSU to take into account the FTA,
which constitutes a "subsequent agreement between the parties regarding
the interpretation of the treaty or the application of its provisions".
The Panel’s failure to do so constitutes an error of law.
25.
The Panel also
erred by misapplying the Appellate Body’s clarifications of the obligations of
Article 4.2 of the Agreement on Agriculture. The Panel's findings regarding
Article 4.2 are erroneous and its analysis is incomplete. A thorough analysis
applying the proper legal standards demonstrates that the additional duties do
not violate Peru's obligations under Article 4.2 of the Agreement on
Agriculture.
26.
First, the PRS
does not share with variable import levies the characteristic of having a
threshold or minimum price. The existence of a threshold price – a common
characteristic of both minimum import prices and variable import levies – was
found to be absent in the Peruvian system, unlike in Chile –
Price Band System, and the Panel confirmed that the floor price used
in the PRS does not act as a threshold preventing entry of imports priced below
it. The Panel then found that the specific duties resulting from the PRS are no
different than ordinary customs duties in this regard. Although no one characteristic
may be determinative, a specific finding that the Peruvian measure contains no
threshold or minimum price means that there is an important difference between
the Peruvian measure and a variable import levy. Imports subject to the
additional duties resulting from the PRS can enter Peru at any price; no
imports are prohibited from entering Peru by the PRS or any resulting duties.
27.
The Panel also
erred in assessing inherent variability, treating this characteristic as if it
were sufficient to qualify the measure as prohibited by Article 4.2 of the
Agreement on Agriculture. While the Panel correctly stated the test, it
incorrectly applied that test. In the end, it relied too heavily on the use of
a "scheme or formula" in the calculation methodology, even though it
acknowledges that the formula itself may not produce any variability at all in
the duty level. As a result of this approach, the Panel reached the wrong
conclusion, and one that does not withstand scrutiny.
28.
As an initial
matter, the Panel's analysis of variability confuses the measure at issue with
the methodology used to calculate the reference price and the potential duty.
The distinction is clear, and it is extremely relevant for the Panel's analysis
of the measure – particularly the analysis of the important characteristic of
inherent variability. The measure at issue in the dispute – the additional
duties resulting from the PRS – cannot vary with any regularity, and are not
inherently variable. The only regularity is the fact that the calculation
mechanism – the PRS – continuously functions, but it does not always result in
additional duties. There is no inherent variability in the additional duties.
29.
The Panel erred
in its legal analysis regarding the predictability and transparency of the measure
at issue. The Panel committed three legal errors in assessing the measure's
level of transparency and predictability. First, the Panel conflated the
opportunity to perform calculations to predict the additional duties with a
lack of transparency and predictability. Second, the Panel applied the
erroneous test proposed by Guatemala that a measure's variability could prevent
it from being transparent and predictable even after the Panel confirmed that
variability is a separate analysis from transparency and predictability. Third,
the Panel erroneously concluded the measure lacked transparency and
predictability because it is based on an exogenous factor – international
prices – when the Appellate Body has held that ordinary customs duties may be
calculated on the basis of exogenous factors.
30.
The Panel also
erred in its legal analysis of the supposed inhibition of the transmission of
international prices to the domestic market. Its reliance solely on a
theoretical analysis was legal error. An empirical approach by the Panel would
have shown that the specific duties resulting from the PRS act like ordinary
customs duties with respect to the transmission of international prices to the
domestic market. The PRS does not distort or impede the transmission of international
prices to the domestic market in a way that is different than other ordinary
customs duties.
31.
The Panel claimed
that the additional duties were more like prohibited variable import levies
than they were like permissible ordinary customs duties. Its actual analysis
does not comply with the requirements of Article 11 of the DSU. Although the
Panel said that it was doing a comparative analysis, it did not compare
variable import levies and ordinary customs duties with respect to any
characteristics. It merely asserted differences, and it often assumed that the
ordinary customs duty would necessarily remain unchanged. Thus, there is no
real comparison underlying the alleged "comparative" analysis on
which the Panel relies.
4 THE PANEL ERRED IN LAW BY FINDING THAT PERU ACTED INCONSISTENTLY
WITH ARTICLE II:1(B) OF THE GATT 1994
32.
The Panel’s
finding that Peru violated the second sentence of Article II:1(b) of the
GATT 1994 is based on legal error. Just as it did in its interpretation of
Article 4.2 of the Agreement on Agriculture, the Panel improperly interpreted
Article II of the GATT 1994 in isolation of other relevant rules.
33.
The arguments
presented above by Peru in the context of Article 4.2 of the Agreement on
Agriculture apply, mutatis mutandis,
to the arguments under GATT Article II:1(b). That is, a proper interpretation
of Article II:1(b) of the GATT 1994 would have required the Panel to take into
account: (1) the Peru-Guatemala FTA as a relevant rule of international law
within the meaning of Article 31(3)(c) of the Vienna Convention; (2) Articles
20 and 45 of the ILC Articles as relevant rules of international law within the
meaning of Article 31(3)(c) of the Vienna Convention; and (3) the FTA as a
"subsequent agreement between the parties" within the meaning of
Article 31(3)(a) of the Vienna Convention. If the Panel had properly
interpreted Article II:1(b) of the GATT 1994 by taking these instruments into
account, it should have found that Peru did not violate the second sentence of
GATT Article II:1(b) by maintaining the PRS.
34.
The Article II
analysis also falls short of the Panel’s obligations under DSU Article 11.
While the Panel properly framed the important Article II issue in the case, it
then decided not to engage in an assessment of the relevant facts. Instead, the
Panel found a violation of Article II:1(b) of the GATT 1994 not because of its
analysis of the requirements of Article II:1(b) and the design, structure and
architecture of the Peruvian measure, but rather because of its conclusion that
the duties resulting from the PRS are "at least […] similar" to the
class of measures referred to as "variable import levies" in the
Agreement on Agriculture. Having done so, the Panel explicitly did "not
deem it necessary to rule" on the aspects of the PRS that might, in fact,
reveal that the PRS is more appropriately considered to be an ordinary customs
duty within the meaning of both Article II of the GATT 1994 and Article
4.2 of the Agreement on Agriculture.
35.
The Panel failed
to comply with its obligations under DSU Article 11. Facts are necessary to
understand the measure, and a proper understanding of the measure is necessary
to determine whether it is an "ordinary customs duty" within the
meaning of Article II of GATT 1994. Peru submits that this is particularly true
in a case such as this where the Member scheduled the duties pursuant to the
rules established for the negotiation and specifically differentiated in its
scheduled the agricultural products that would be subject to a different and
higher tariff ceiling.
36.
The Panel
committed legal error, and the Appellate Body should declare as moot and with
no legal effect the Panel's conclusion that Peru violated the second sentence
of Article II:1(b) of the GATT 1994. Should the Appellate Body decide to complete
the analysis, it has the necessary facts and argument in the record of the
Panel proceedings, as aptly summarized by the Panel before it decided not to
assess the facts.
Annex B-2
EXECUTIVE SUMMARY OF Guatemala'S OTHER APPELLANT'S SUBMISSION
1.
Guatemala seeks
review by the Appellate Body of the Panel's findings that the measure at issue
is not a "minimum import price[] … and similar border measure" within
the meaning of Article 4.2 and footnote 1 of the Agreement on Agriculture.
A.
THE MEASURE AT ISSUE
2.
The measure at
issue in this dispute is Peru's Price Range System (PRS) and the "variable
additional duty" imposed thereunder. The Panel Report contains a detailed
description of the design, structure and operation of the PRS[11],
its objectives[12],
and the products to which it applies[13].
Paragraph 7.317 of the Panel Report also contains a summary of this
description.
B.
THE ISSUE BEFORE THE
PANEL
3.
Guatemala claimed
that the measure at issue is a minimum import price or similar border measure
that is inconsistent with Article 4.2 of the Agreement on Agriculture.
Peru argued that the measure was not inconsistent with Article 4.2 it
lacked a "target price" and, therefore, did not seek to equalize the
price of every import with the floor price.
C.
THE PANEL'S ANALYSIS
4.
The Panel found
that the measure at issue does not constitute a minimum import price, stating
that "there is no evidence at all that the additional duties resulting
from application of the PRS directly ensure that imported products subject to
the PRS will not enter the Peruvian market at a price lower than a certain
threshold".[14]
The Panel stated that the measure at issue operated in the same manner as a
specific import tariff".[15]
The Panel also found that Peru's measure is not a measure "similar"
to a minimum import price because: (a) the PRS does not operate in relation
to the actual transaction value; (b) Peru demonstrated that some imports over
the 13-year duration of the PRS entered below the floor price; and (c), the
measure did not impose an implicit or de facto threshold, given that an
ordinary customs duty in the form of a specific tariff would have the same
effect as the measure at issue.
D.
THE PANEL ERRED IN
CONCLUDING THAT THE MEASURE AT ISSUE IS NOT COVERED BY ARTICLE 4.2 EITHER AS
MINIMUM IMPORT PRICE OR AS A MEASURE SIMILAR TO A MINIMUM IMPORT PRICE
The
Panel made the following legal errors:
5.
First, the Panel adopted an excessively narrow legal standard, requiring
that, in order to constitute a minimum import price, a measure must impose
duties based on the transaction value and has to prevent, in each and every
instance, that a product enter below a given threshold.
6.
In the original Chile – Price Band System dispute, the Appellate Body
indicated that "minimum import price schemes generally operate in relation
to the actual transaction value of the imports" (emphasis added), implying
that a minimum import price may occasionally not operate in relation to the
actual transaction value.[16]
7.
Similarly, the
correct legal characterization of a measure is not affected by the fact that
the measure may not produce its intended effects with respect to 100 per cent
of imports.[17]
8.
Furthermore, the
reference price of Peru's PRS is designed to operate as a substitute or proxy
for the typical transaction value of any given shipment, in any given
fortnight.
9.
Second, in its finding that Peru's measure is not a minimum import price,
the Panel also relied on the legally-incorrect proposition that, if Guatemala's
claim were accepted, any ordinary customs duty in the form of a specific tariff
would constitute a minimum import price.
10.
Even if Peru's
measure does not, in every single instance, equalize entry prices with the
floor price, it nevertheless equalizes entry prices with another implicit (or
de facto) threshold[18],
consisting of the sum of the lowest transaction price and the duty resulting
from the PRS.
11.
Third, in its finding that the measure at issue was not even similar to a
minimum import price, the Panel applied exactly same legal standard it used to
determine whether the measure was a minimum import price. This fails to give
any meaning to the term "similar" in Article 4.2 and footnote 1.
12.
Fourth, the Panel incorrectly found that Peru's measure is not similar to
a minimum import price because it does not impede imports from entering Peru at
a price below a certain threshold and the PRS do not operate differently than
ordinary customs duties. Even if it is accepted that the floor price does not
constitute a minimum threshold, the undisputed evidence makes clear that the measure
imposes an implicit de facto threshold. Moreover, this threshold operates very
differently than a specific tariff, in that it is based on the sum of the
administratively chosen lowest transaction value from the previous fortnight
and a variable additional duty that was calculated on data including that
lowest transaction value. A specific ordinary customs duty simply does not
operate in this manner.
E.
REQUEST FOR
COMPLETION OF THE LEGAL ANALYSIS
13.
The conditions
articulated by the Appellate Body for it to complete the analysis are met in
this case. Using the correct legal standard for determining whether a measure
is a minimum import price, the Appellate Body should find that this measure is
a minimum import price, regardless of the fact that it is applied to a proxy
reference price and that a few transactions may enter below the threshold of
the floor price. In addition, it is an undisputed fact that the measure ensures
that goods will not enter at a price below the implicit or de facto threshold
value.
14.
Even if the
Appellate Body were to adopt a narrow reading of the term "minimum import
price", such that the above features of the PRS were to fall short of that
standard; Guatemala believes that the system must qualify, at the very least,
as a measure similar to a minimum import price.
15.
The PRS and the
variable additional duties have, at the very least, strong "likeness"
or "resemblance" to a minimum import price scheme. Such
"likeness" or "resemblance" exists both for the individual
components of the regime, as well as for the system as a whole. The reference
price, the price range floor and the implicit threshold bear strong
"likeness" or "resemblance" to a transaction value, a
minimum threshold and a minimum import price. The declared goal of the PRS is
to "neutralize" and "stabilize" fluctuations in
international prices.[19]
F.
CONCLUSION
16.
Guatemala
respectfully requests the Appellate Body to reverse the Panel's findings
in paragraphs 7.370, 7.371 and 8.1(c) of the Panel Report and complete the
legal analysis concerning Guatemala's claim that Peru's measure is a
minimum import or a measure similar to a minimum import price within the
meaning of Article 4.2 of the AoA.
annex B-3
EXECUTIVE SUMMARY OF Peru's APPELLEE's SUBMISSION
1.
The Panel
correctly determined that the additional duties did not constitute a minimum
import price, were not similar to a minimum import price, and were like an
ordinary customs duty. The Appellate Body should reject Guatemala’s invitation
to re-weigh the evidence and reject Guatemala’s requested findings.
2.
An interpretation
of Peru’s obligations under Article 4.2 of the Agreement on Agriculture must
consider the Peru-Guatemala Free Trade Agreement ("FTA") including
the good faith obligations of Guatemala under the DSU, and the understanding reached
by the parties that Peru may maintain the Peruvian Price Range System
("PRS"). Even if the Appellate Body reaches the merits of Guatemala’s
appeal, it should uphold the Panel’s conclusions that the measure at issue is
not – and is not similar to – a minimum import price.
3.
The Panel
correctly found that the additional duties do not have an explicit threshold.
It employed the correct legal standard to determine that the measure did not
constitute a minimum import price and properly evaluated the evidence proving
that the measure’s "design, structure, and effect" do not create a
threshold price. Nowhere does the Panel suggest an inflexible standard which
would require that imports enter above the alleged threshold in "each and
every instance", nor a legal standard that would disqualify any system
using a reference price "based on an average of world prices" from
being a minimum import price.
4.
The evidence
presented showed that adding the additional duties to the freely established
transaction price yielded landed, duty-paid prices that were both above and
below the floor price in the PRS. Guatemala mischaracterizes the data and the
Panel's analysis regarding imports entering below the floor price. Peru
provided data in the aggregate and for individual fortnights showing up to 100%
of transactions for a product entering below the floor price in certain
fortnights.
5.
Nor is the
reference price a proxy for transaction prices, which would be impossible
because, among other reasons, the PRS uses international prices (not
transaction prices) for four "marker products", not all forty-seven
products to which the measure applies. Moreover, no pattern of
"self-correct[ion]" results from the fortnightly updating of the
reference price. The data shows that imports enter the Peruvian market at
prices below the lower band of the PRS on a regular basis.
6.
The Panel also
correctly found that the additional duties do not have an implicit threshold.
The "lowest transaction recorded in the international reference market
during the previous fortnight" is a factor that is irrelevant to the PRS
and any resulting duties and does not prevent operators from transacting at any
price.
7.
The Panel applied
the correct legal test for determining that the measure is not similar to a
minimum import price. The Panel's analysis showed that the Peruvian measure
does not have similar characteristics to a minimum import price, and in fact
operates no differently than an ordinary customs duty. The Appellate Body
should reject Guatemala's request to reverse the Panel’s finding that the
Peruvian measure is not, and is not similar to, a minimum import price.
annex b-4
EXECUTIVE SUMMARY OF Guatemala's
APPELLEE'S SUBMISSION
I. Introduction
1.
Guatemala
requests the Appellate Body to dismiss Peru's appeal in its entirety.
II. Background
to this dispute
2.
The Panel
correctly defined the measure at issue as "the duties resulting from the
PRS".1
This is consistent with the content of Guatemala's request for the
establishment of a panel.2 In this context, Peru's
arguments that the Panel should have only examined the variable duties
themselves without looking at their underlying mechanism (i.e. the PRS) are
without merit.
3.
Paragraph 9 of
Annex 2.3 to the FTA cannot be read as a waiver – explicit or implicit – of the
right to bring a complaint under the DSU with regard to the PRS or the duties
resulting from the PRS. Article 1.3.1 of the FTA makes clear that Guatemala
fully reserved its rights under the WTO Agreements. Article 2.3.1 of the
FTA, read in conjunction with paragraph 9 of Annex 2.3 to the FTA does not in
any way waive or reduce Peru's obligation to
comply with the WTO Agreements. Rather, it grants Peru the right to
maintain the PRS for a limited number of products3, but only as long as it does so in a manner consistent with its
obligations under the WTO Agreements.
4.
The phrase
"may maintain the PRS" in paragraph 9 of Annex 2.3 cannot be
interpreted as prejudging the consistency or inconsistency of the PRS with
Article 4.2 of the Agreement on Agriculture or Article II of the GATT of 1994.
There is nothing to suggest that the Parties intended to interpret the WTO
Agreements through the FTA, let alone modify their WTO obligations.
III. Peru's new arguments under Articles 31.3(a)
and 31.3(c) of the Vienna Convention are not properly within the scope of this
appeal
5.
Guatemala raises
a procedural objection to Peru's arguments relating to the FTA and the Articles
20 and 45 of the ILC Articles in the context of Articles 31.3(a) and 31.3(c) of
the Vienna Convention.4
These arguments are entirely new, were never raised before the Panel, and are
not properly within the scope of this appeal.
6.
The Appellate
Body has previously found that new arguments must be excluded from the scope of
an appeal when their consideration would necessitate consideration of new
facts.5
Furthermore, the Appellate Body has also exclude new arguments when there were
no relevant legal findings or legal interpretations by a panel, in particular
when the inability of the panel to address the issues now being raised was
"due to the failure of the respondent Member properly to litigate the
matter before the Panel".6 Moreover, the Appellate Body has consistently stated that due
process rights of a party would be infringed if issues were raised and decided
on appeal without having been first examined by a panel.
7.
Peru's new
arguments should be excluded because:
·
The Appellate
Body might have to review and consider new facts;
·
Peru's arguments
do not address issues of law covered in the panel report or the Panel's legal
interpretations. As in US – FSC, the
Panel did not address the issues now raised by Peru because Peru failed to
raise these issues during the panel proceedings. The lack of relevant panel
findings is "due to the failure of [Peru] properly to litigate the matter
before the Panel";7 and
·
Consideration of
these new arguments would violate Guatemala's due process rights. Peru had
ample opportunity to raise these arguments before the Panel; however, Peru
chose to raise entirely different arguments. Guatemala's ability to properly
respond and argue this case before the Appellate Body, during the short
deadlines applicable in appellate proceedings, should not be affected by Peru's
choice to drop its previous arguments and explore new ones. Moreover, Peru
relies on new materials of a length of approximately 2,000 pages, none of which
it has submitted with its appellant's submission.
IV. The appellate Body should uphold the panel's
findings under article 4.2 of the agreement on agriculture and should
reject peru's new arguments under article 31 of the vienna convention
8.
Peru raises
numerous objections to the Panel's finding that the PRS duties are a variable
import levy or a measure similar to a variable import levy. All of these
arguments should be dismissed.
-
(a) The Appellate Body should reject Peru's contention that the PRS duty
"does not share with variable import levies the characteristic of having a
threshold or minimum import price"
9.
Peru argues that
the Panel could not find that the variable additional duty was a variable
import levy because it does not entail a threshold or minimum import price.
According to Peru, the Panel "inexplicably" did not apply its
analysis from the minimum import price section to its reasoning with respect to
a variable import levy.8
10.
Peru's argument
is incorrect because variable import levies and minimum import prices are two
distinct concepts; therefore, a variable import levy does not require for its
existence a minimum price component. Inherent variability has to do with
periodic automatic changes in the level of the duty without any particular
prescribed minimum or maximum level for that duty. The Appellate Body's
definition of a variable import levy from Chile – Price Band System
(21.5 – Argentina) does not even refer to a threshold, much less to
a threshold that would simultaneously satisfy the definition of a minimum
threshold for a minimum import price.
-
(b) The Appellate Body should reject Peru's claims that the Panel
improperly treated the measure's inherent variability as sufficient for a
finding under Article 4.2
11.
Peru is incorrect
in arguing that the Panel's analysis confuses the measure at issue with the
methodology used to calculate the reference price and the potential duty".9 The Panel could not have drawn this distinction, because it is
impossible to divorce the PRS duty from the way in which they are calculated.
Moreover, Guatemala explicitly challenged the PRS duties as calculated by the
PRS regime, in its panel request and its submissions. The Appellate Body has
also held that the form of a duty is not decisive for its legal
characterization and that it is necessary to consider how it has been
calculated.
12.
Guatemala also
rejects Peru's arguments that the PRS duty is not variable because, since 2001,
the PRS has not always given rise to a duty. However, that absence of duties during
a certain period is not relevant for the periods in which the PRS duty was in fact imposed. During these periods, the duty varied,
due to its inherent variability.
13.
Finally, contrary
to Peru's arguments, the variability of the PRS duties cannot be compared to
the normal variability of ordinary customs duties. Referring to an example put
by Guatemala before the Panel, the PRS has been updated over 400 times since
2001, whereas the ordinary customs duty for boneless bovine meat was changed
only seven times over the past 23 years. This demonstrates that the PRS, and
its variable import duties, operates very different from ordinary customs
duties.
-
(c) The Panel did not err when analyzing the lack of predictability and
transparency of the measure at issue
14.
Peru incorrectly
argues that the PRS duties are just as predictable and transparent as ordinary
customs duties. This is incorrect, because ordinary customs duties remain the
same until they are modified, whereas the PRS duties are guaranteed to change
every fortnight. Contrary to Peru's arguments, economic operators are not
better off because they know the abstract components on the basis of which the
variable additional duty is calculated. Rather, the system guarantees them
uncertainty, due to an unpredictable, ever-changing duty. Peru cannot claim
that it publishes in advance all the actual data on which the duty will be
calculated, which would be impossible because the data do not exist at present
and are therefore unpredictable. Moreover, Peru does not even publish all of
the historical data on which the past duties were based. To access certain
data, economic operators require a fee-based subscription to internet websites.
15.
Guatemala also
demonstrated before the Panel that it is impossible to guess or estimate the
level of future duties, be it in the short or long run. The Panel therefore
correctly concluded that, even if operators may attempt to estimate future
duties, this does not afford them a level of transparency and predictability
comparable to that afforded by an ordinary customs duty.
16.
The duties are
also unpredictable and intransparent because Peru publishes the reference price
on average on day eight of any given fortnight. Moreover, shipments from
foreign ports may leave their port of departure without knowing what the
applicable duty will be on arrival, which adds to the lack of predictability
and transparency.
17.
Finally, contrary
to its arguments, Peru is not precluded by the Panel's finding from taking into
account international price fluctuations when setting the level of duties
through discrete, independent acts of its authorities. Rather, Peru may not
take into account international prices by embedding them into an automatic
formula that generates a periodically-changing import duty.
-
(d) The Panel did not err in finding that the PRS and the PRS duties
inhibit the transmission of international prices to the domestic market
18.
The Panel
correctly found that, in the short run, the variable additional duty isolates
Peru's internal market entirely from international price fluctuations. This is
because the variable additional duty fills the gap between international prices
and the price range floor price. In the medium and long run, the system at
least severely distorts the transmission of international prices. The Panel
correctly relied on these elements and did not conduct, as Peru argues, a
merely "theoretical" analysis.
19.
Peru proposed a
novel test to the Panel, never previously required by panels or the Appellate
Body, pursuant to which a duty is not a variable import levy under Article 4.2
unless an econometric study demonstrates the absence of any correlation between
international and domestic prices. The Panel correctly rejected this novel test
because factors other than an import levy can impact the transmission of
international prices. For instance, Peru exempts the majority of its sugar
imports from the PRS. Guatemala also pointed out numerous other methodological
problems and errors in Peru's analysis.
20.
Moreover, as
Guatemala has previously pointed out, Peru's test has no basis in the treaty
text and case law. It would also introduce an "economic effects" test
into Article 4.2, which test has been consistently rejected by GATT and WTO
panels and the Appellate Body.
21.
In reality, Peru's
appeal is directed at how the Panel weighed the evidence. However, the fact
that Peru disagrees with the Panel does not mean that the Panel erred.
22.
Peru is incorrect
in arguing that ordinary customs duties distort international prices in the
same manner as its PRS duties. To the contrary, as Guatemala's charts
demonstrate, ordinary customs duties merely track international price
fluctuations and do not impede or distort their transmission on the domestic
market.
23.
Peru is also
incorrect in comparing its PRS to the price band system in Chile –
Price Band System; on those aspects mentioned by Peru, the Peruvian
PRS is very similar to, or even more distorting than, the Chilean PBS.
24.
Should the
Appellate Body decide to address the substance of Peru's new arguments,
Guatemala submits that these arguments should be rejected, for the following
reasons.
25.
First, that the
Panel did not err in not engaging in the legal analysis proposed by Peru, because
it was not obliged to do so. The Appellate Body has consistently held that
panels are not required to address all arguments raised by the parties to the
dispute.10 Contrary to Peru's arguments under
Article 3.2 of the DSU, the Panel's faithful adherence to the Vienna Convention
is discernible throughout its report.11 To the extent that Peru argues that
the Panel erred by not making arguments for Peru that Peru itself did not make,
Guatemala requests the Appellate Body to reject Peru's contentions.
26.
Second, Guatemala
argues that Peru's argument is fundamentally flawed, because Peru is not asking
the Appellate Body to interpret WTO
provisions – that is, Article 4.2 of the Agreement on Agriculture, Article
II:1(b) of the GATT 1994 and Articles 3.7 and 3.10 of the DSU – in a particular
manner, but rather to modify or amend them, apply them in a
particular fashion or to apply the provisions of
the FTA or the ILC Articles. The Appellate Body has consistently
drawn a clear line between "interpretation" and "application"
of law.12 Peru's arguments would have the
Appellate Body do something that far exceeds the interpretative exercise
envisaged in Article 3.2 and, therefore, is beyond the competence of the
Appellate Body.
27.
Third, Peru's
reading of Article 31 of the Vienna Convention with respect to Article 4.2 of
the Agreement on Agriculture is wrong as a matter of substance. Specifically:
·
The Appellate
Body should reject Peru's argument that Article 31.3(c) requires that the FTA
be taken into consideration as a "rule of international law applicable in
the relations between the parties". The FTA is not "applicable"
and is not a "rule of international law" because it is not yet in
force. It is also not "relevant" to Article 4.2, because it does not
purport to interpret Article 4.2. Moreover, the term "parties" in
Article 31.3(c) refers to the parties of the treaty being interpreted, not the
parties to the dispute. In any event, Peru's argument would require that the
Appellate Body resolve a dispute between Guatemala and Peru concerning a
non-WTO treaty;
·
Second, Peru
incorrectly asserts that Article 4.2 should be interpreted in the light of
Articles 20 and 45 of the ILC Articles on State Responsibility, by virtue of
Article 31.3(c) of the Vienna Convention. Peru does not demonstrate why these
provisions of the ILC Articles are "rules of international law".
Additionally, Article 20 and 45 of the ILC Articles are not
"relevant" to Article 4.2 as both sets of provisions do not address
the same subject matter.
·
Finally, the Appellate
should reject Peru's argument that the FTA is a subsequent agreement, within
the meaning of Article 31.3(a) of the Vienna Convention, and should inform the
interpretation of Article 4.2 of the Agreement on Agriculture. As noted, the
FTA is not in force and is therefore not an "agreement" within the
meaning of Article 31.3(a). The term "parties" refers to all WTO
parties. Moreover, the FTA is not "concerned with the interpretation"
of Article 4.2 or its "application".
V. The
Panel's findings under Article II:1(B) are correct and the Appellate Body
should reject Peru's appeal from these findings
28.
Peru's appeal
arguments can be divided in two parts. First Peru incorporates its previous
arguments concerning Articles 31.3(a) and 31.3(c) of the Vienna Convention.
Second, Peru submits that the Panel acted inconsistently with its obligation
under Article 11 of the DSU by not making an objective assessment of matter
before it.
29.
As to the first
part of Peru's argumentation, Guatemala refers to its earlier rebuttal of Peru's
arguments relating to the FTA as well as Articles 20 and 45 of the ILC Articles
in the context of Articles 31.3(c) and 31.3(a) of the Vienna Convention.
30.
With respect to
Article 11 of the DSU, the Appellate Body should dismiss Peru's arguments that
the Panel acted inconsistently with this obligation for
the following reasons:
·
Peru's primary
concern appears to be that the Panel used an incorrect legal standard in making
a finding under Article II:1(b) that essentially depended on its finding under
Article 4.2. The Panel's approach, however, is correct as it reflects the
principle that measures falling within the scope of footnote 1 to Article 4.2
of the Agreement on Agriculture are, by definition, not ordinary customs
duties.
·
Peru contends
that the Panel's decision not to examine additional factual aspects of the
measure amounts to a failure to discharge its duties under Article 11 of the
DSU. However, the fact that Peru disagrees with the Panel's conclusion on the
need to examine additional facts does not mean that the Panel "deprived
Peru of an objective assessment".13
31.
In the event that
the Appellate Body reverses the Panel's finding and proceeds to complete the
legal analysis, Guatemala requests that the Appellate Body take into account
certain factual assertions that Guatemala made before the Panel and that Peru
did not contest, including the nature of Peru's measure under Peruvian law.14
VI. THE Panel did not ERR IN LAW BY FAILING TO
FIND THAT GUATEMALA ACTED INCONSISTENTLY WITH ITS GOOD FAITH OBLIGATIONS UNDER
ARTICLES 3.7 AND 3.10 OF THE DSU
32.
Peru requests the
Appellate Body to "complete the analysis and find that Guatemala has acted
inconsistently with its obligations under DSU Articles 3.7 and 3.10".15 However, Peru explicitly admits that
it no longer argues that Guatemala is procedurally barred from bringing the
present dispute. Thus, Peru's "claims" have no procedural connection
with this dispute, which signifies that Peru is advancing new and wholly
different "claims" of its own. The Appellate Body lacks jurisdiction
to consider ab initio claims by a defending Member in dispute settlement proceedings seeking a
finding that the complaining Member has acted
inconsistently with provisions of the covered agreements.
33.
Peru contends
that "while a Member invoking WTO dispute settlement proceedings enjoys a
presumption of good faith, this presumption can be rebutted".16 However, the Appellate Body
clarified that the first sentence of Article 3.7 "neither requires nor
authorizes a panel to look behind that Member's decision and to question the
exercise of judgement".17 The first sentence of Article 3.7
simply calls on Members to reflect carefully on whether to proceed with dispute
settlement proceedings.
34.
Peru also argues
that the FTA is, in effect, a positive solution to the dispute within the
meaning of Article 3.7.18
However, the FTA does not make reference to this dispute; it was signed
before the dispute arose between the Parties; it provides for the possibility
to resort to WTO dispute settlement; and, even if it were considered as a
mutually agreed solution, it would require the valid consent of both parties to
a dispute and Peru has not given yet its consent.
35.
Peru's arguments
under Article 3.10 are without merit. First, contrary to Peru's allegations,
the Panel did not exclude that a waiver can be given implicitly. Rather, it
repeatedly referred to, and acknowledged, the Appellate Body findings in EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III
(Article 21.5 – US). The Panel was also right in concluding that the
FTA provisions at issue do not contain a waiver of anything by Guatemala,
"clear" or otherwise. Third, the Panel correctly relied on the fact
that the FTA had not yet entered into force. An alleged waiver in a bilateral agreement
cannot take effect unless that agreement is in force. Peru seeks to derive
benefits from the FTA even though it is denying Guatemala benefits under the
same FTA by refusing to ratify it.
36.
Fourth, the Panel
correctly found that, in order to reach the outcome desired by Peru, it would
have to resolve a dispute under an agreement that is not a WTO covered
agreement. Doing so would be beyond the Panel's jurisdiction. The Appellate
Body has in the past also declined to assume the role of an FTA dispute
settlement body.
37.
Fifth, an FTA is
not a permissible vehicle for a waiver under Article 3.10. WTO Members can
waive their right to bring a dispute only in a multilateral context. Moreover,
permitting WTO Members to waive their WTO rights in FTAs would be a
potentially dangerous precedent, as it would create the risk for pressures in
FTA negotiations to sign away WTO rights.
38.
With respect to
Peru's reliance on the ILC Articles, it is unclear what they add to Peru's
case. The ILC Articles would merely confirm the Appellate Body's previous
reading of Article 3.10. In reality, Peru's appeal is nothing but a
disagreement with the Panel as to whether the facts of this case demonstrate
that Guatemala clearly waived its right to bring a WTO dispute.
39.
In any event, Peru's
arguments concerning ILC Articles are not properly within the scope of this
appeal and there is no panel finding that ILC Articles 20 and 45 are customary
international law or general principles of law, such that they can qualify as a
"rule of international law" under Article 31.3(c). The Appellate Body
is not in a position to complete the analysis on this point.
40.
Finally, Peru
reads the Panel finding on Article 18 of the Vienna Convention as precluding
the possibility that "[a] party's conduct in violation of [that provision]
may also demonstrate a lack of good faith".19 However, the Panel correctly found
that, for an assessment under Article 3.10, it is immaterial whether the
relevant conduct at the same qualifies legally as an Article 18 violation or
not. What matters under Article 3.10 is whether the conduct at hand satisfies
the legal standard of a "clear" waiver of the right to bring a WTO
dispute.
VII. The
Appellate Body should reject Peru's appeal under Article 11 of the DSU
41.
In its claim
under Article 11 of the DSU regarding the Panel's Article 4.2 analysis, Peru
commits the common flaw in Article 11 claims of simply trying to re-argue the
facts and asking the Appellate Body to replace the Panel's assessment of the
facts with an assessment more to Peru's liking.
42.
Peru argues that
the Panel failed to identify the level of transparency and predictability of an
ordinary customs duty in determining that the measure at issue lacked
transparency and predictability.20 Nevertheless, Peru ignores the Panel's
statements that contain precisely the type of comparative analysis Peru appears
to be seeking.21 This flaw is also seen in Peru's
argument that the Panel failed to consider properly how the measure at issue
distorted the transmission of international prices to the domestic market
differently than an ordinary customs duty.22
43.
With respect to
Peru's Article 11 claims under Article II:1(b) of the GATT 1994, Peru's
arguments seem to be based entirely on the legal standard used by the Panel. To
the extent that the Panel analyzed the measure at issue and found that it fell
within the scope of Article 4.2 and footnote 1, the Panel was not required as a
matter of law to conduct the additional analysis sought by Peru. Any error in the Panel's approach would be an
error of law, not a violation of the Panel's obligations under Article 11 of
the DSU.
VIII. Conclusions and
request for findings
44.
For the above
reasons, Guatemala respectfully requests the Appellate Body to
·
exclude from the
scope of the appeal all of Peru's new arguments concerning the FTA and Articles
20 and 45 of the ILC Articles in the context of Articles 31.3(a) and 31.3(c) of
the Vienna Convention;
·
to refrain from
making a finding that Guatemala acted inconsistently with its obligations under
Articles 3.7 and 3.10 of the DSU;
·
to uphold the
Panel's findings that the measure at issue is a variable import levy in
violation of Article 4.2 of the Agreement on Agriculture;
·
to uphold the
Panel's findings that the measure at issue is not an ordinary customs duty in
violation of Article II:1(b) of the GATT of 1994; and
·
to uphold the
Panel's findings that there was no evidence that Guatemala brought these
proceedings in a manner contrary to good faith under Articles 3.7 and 3.10 of
the DSU.