Assignment 1: Study the WTO dispute of Argentina - Measures Affecting Imports of

Footwear, Textiles, Apparel and Other Items, 1998 (DS56).

Question: You are counsel of the complainant. Present to your client the following issues:

1. Summary of factual information

Complainant: United States
Respondent: Argentina
Facts: On 4 October 1996, the US requested consultations with Argentina concerning
certain measures maintained by Argentina affecting imports of textiles, apparel, footwear and
other items, in particular, measures imposing specific duties on various textile, apparel or
footwear items allegedly in excess of the bound rate of 35 per cent ad valorem provided in
Argentina's Schedule LXIV and measures imposing a statistical tax of 3 per cent ad valorem
on imports from all sources other than MERCOSUR countries. The US alleged that these
measures constituted violations of Article II and Article VIII of GATT 1994.
Rules: Art. II:1(b) and Art. VIII:1(a) GATT 1994

2. Legal issues of the case.

Both of the parties raised various questions during the consultation but generally
regarding the two following issues:

1. Article II of GATT: Does the imposition of minimum specific duties by Argentina,

which has bound the tariffs at issue at an ad valorem rate, constitute a violation of
Article II? Has Argentina imposed duties in excess of its bound rate of 35 per cent ad
valorem?

2. Article VIII of GATT: What are the criteria for application of Article VIII’s limits
on charges and fees imposed in connection with importation? Is the statistical tax of
three per cent ad valorem collected by Argentina on imports in violation of Article
VIII of GATT?

3. Legal arguments of the complainant.

3.1 Argument of the USA on violation of Article II in relation to the implementation
of Argentina’s Schedule LXIV.

The point of view of the US in this case can be clearly seen in the paragraph 3.51 and
3.52, specifically:

First, in the matter of specific duties instead of ad valorem duties, the US wanted to
prove that the Argentina’s change in duty was inconsistent with its Schedule. In the

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paragraph 3.62, the US stated the Article II:1(a) GATT 1994 to argue that WTO Members
had to accord to other Members treatment no less favourable than that provided for [...] in
the appropriate Schedule. Moreover, in paragraph 3.64, the US also stated the case in 1995
related to Austria’s Schedule and its regime on changing the specific duties into ad valorem
duties, this case supported an argument that a change of duty was permissible only through
negotiation under Article XXVIII1. In addition, the US said that Argentina chose to bind itself
to an ad valorem tariff, however, it imposed specific duties instead, this could allow for
certain goods to be subject to import duties higher than 35 per cent ad valorem and by that,
violated the Article II GATT.2

Secondly, regarding the violation as a result of exceeding the bound rate duty, from
paragraph 3.87 to paragraph 3.89, a case was cited by the US, which is EEC-Import Regime
for Bananas, with this case, the US desired to prove that complainants did not need to prove
that specific duties actually exceeded a binding.

Thirdly, in connection with the imposition of duties exceeding the bound rate, the
methodology used by the US varied raging from paragraph 3.117 to paragraph 3.119, the US
had based on the data provided by Argentina and identified more than 100 HS categories of
Argentina’s duties on average, were higher than 35 per cent ad valorem.

3.2 The US’s argument on the statistical tax levied by Argentina.

The argument of The United State on Argentina’s three per cent ad valorem import tax;
this tax was a charge on imported products inconsistent with Argentina’s obligations under
Article VIII GATT 1994.
Firstly, Article VIII:1(a) implied that the charge be "limited in amount to the
approximate cost of services rendered" was "actually a dual requirement, because the
charge in question had first to involve a 'service' rendered and then the level of the charge had
not to exceed the approximate cost of that “service”3.4
Secondly, in the report on United States - Customs User Fee, it indicated that ad
valorem fee approximating the actual costs of services could be consistent with Article VIII,

1
The United States referred to the Report of the Ninth Session Working Party on Schedules on Transposition of Schedule
XXXVII (Turkey), L/294, adopted on 20 December 1954, BISD 3S/127, which mentioned, at paras. 3-4, that "no provision
in the General Agreement [...] authorizes a contracting party to alter the structure of bound rates of duty from a specific to
an ad valorem basis. [...] The obligations of contracting parties are established by the rates of duty appearing in the
schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances
adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into
ad valorem rates of duty can be made only under some procedure for the modification of concessions

2
Panel Report, para. 3.81
3
The United States referred to the Panel Report on United States - Customs User Fee, adopted on 2 February 1988, BISD
35S/245, para. 69.
4
Panel Report, para. 3.253

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but such a charge had to have a maximum to ensure that importers of high-value goods did
not pay excessive amounts5.6 Argentina’s tax was levied on an ad valorem basis with no
ceiling. The tax as assessed on many goods was not in proportion to the cost of any service
rendered.7
Thirdly, in the GATT precedent against France in 1952, The United States had
maintained that the French "statistical and customs control" taxes violated Article VIII:1
since the proceeds of this tax were also used for funding social security benefits to farmers.
France acknowledged the infringement and subsequently abolished the tax 8. Additionally, the
charge was in fact no more than a taxation of imported merchandise was confirmed by
Argentina’s representation that it imposed the tax to raise revenue to meet IMF obligations. 9
Finally, the US pointed out that Argentina had essentially admitted that the purpose of
the statistical tax was a "taxation of imports [...] for fiscal purposes" in contravention of
Article VIII. Based on such specific criteria, the analysis of statistical tax were for "fiscal
purposes" as that meaning was used in Article VIII:1(a). 10

4. The opinion of the DSB. Comment on it.

Basically, the Appellate Body upheld the findings and conclusion of the Panel that (a)
the minimum specific duties imposed by Argentina on textiles and apparel are inconsistent
with the requirements of Article II of GATT; and (b) the statistical tax of three per cent ad
valorem imposed by Argentina on imports is inconsistent with the requirements of Article
VIII of GATT11. Specifically:
(a) Based on the calculation principle of Argentina's system of minimum specific import
duties, it could be deduced that “the ad valorem equivalent of the specific duty is
greater than 35 per cent for all imports at prices below the representative international
price; it is less than 35 per cent for all imports at prices above the representative
international price. Therefore, collecting the higher of the two values means applying
the bound tariff rate of 35 per cent ad valorem to the range of prices above the
representative international price, and applying the minimum specific import duty with
an ad valorem equivalent of more than 35 per cent to the range of prices below the
representative international price”12. Thus, the Appellate Body concluded “the
5
Ibid. para. 86, where the Panel concluded that "the term 'cost of services rendered' [...] in Article VIII:1(a) must be
interpreted to refer to the cost of the customs processing for the individual entry in question, and accordingly that the ad
valorem structure of the United States merchandise processing fee was inconsistent with, [...] Article VIII:1(a) to the
extent that it caused
fees to be levied in excess of such costs".
6
Para 3.255, Panel Report
7
Para 3.257, Panel Report
8
See para. 98 document SR.9/28.
9
Para 3.264, Panel Report
10
Para 3.272, Panel Report.
11
Panel Report, para. 7.1
12
Appellate Body Report, para. 51

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 structure and design of the Argentine system is such that for any DIEM ... the possibility
remains that there is a ‘break-even’ price below which the ad valorem equivalent of the
customs duty collected is in excess of the bound ad valorem rate of 35 per cent” 13. This
was inconsistent with GATT Art. II:1(b), first sentence, since Argentina applied a type
of duty different from the type provided for in its Schedule 14 to the extent that it results
in ordinary customs duties being levied in excess of those provided for in its Schedule 15.

(b) With regard to the statistical tax’s mechanism and its “fiscal” purpose, the Panel argued
that (i) The levying of statistical tax on an ad valorem basis with no ceiling is clearly not
related to the cost of the service rendered because high-price items necessarily will bear
a much greater tax burden than low-price goods, yet the service accorded to both is
essentially the same16; and (ii) “Not only does Article VIII of GATT expressly prohibit
such measures for fiscal purposes but that clearly a measure for fiscal purposes will
normally lead to a situation where the tax results in charges being levied in excess of
the approximate costs of the statistical services rendered” 17. For those reasons, the
Appellate Body upheld the Panel's findings that the statistical tax on imports violated
Argentina's obligations under Art. VIII:1(a) "to the extent it results in charges being
levied in excess of the approximate costs of the services rendered as well as being a
measure designated for fiscal purposes"18.
Besides, concerning the "Memorandum of Understanding" between Argentina and the
IMF, the Appellate Body agreed with the Panel that no other international agreements or
understandings regarding the WTO and IMF justified a conclusion that a Member's IMF
commitments prevail over its GATT Art. VIII obligations19.

The group agrees to Panel's conclusion that Argentina's conduct was violated GATT
rules, in particular:
The footwear case provides an example of the complexities of World Trade
Organization (WTO) rules on the use of safeguards, and of the interaction of multilateral and
regional processes of liberalization. As a result both of Argentina's unilateral liberalization
and the removal of barriers within Mercosur, imports of footwear increased rapidly. As
Mercosur provides no intra-regional safeguard mechanism, the government of Argentina
responded by applying import relief and WTO safeguards against third countries. The WTO
Dispute Settlement Body addressed these measures and as a consequence, Argentina

13
Appellate Body Report, para. 53
14
A bound rate of duty of 35 per cent ad valorem with respect to textiles, apparel and footwear imported into Argentina.
15
Appellate Body Report, para. 55
16
Panel Report, para. 6.75 and 6.77
17
Panel Report, para. 6.78
18
Panel Report, para. 6.80
19
Appellate Body Report, para. 74

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dismantled most of them, leading to four main conclusions: The jurisprudence of the WTO's
Appellate Body has created serious uncertainty as to when a country can use safeguards. This
does not contribute to the political balance that has to be maintained when developing
countries implement trade liberalization programs. In fact, it detracts from this crucial goal. It
is an error to negotiate ambiguous multilateral agreements on the expectation that the WTO
Dispute Settlement mechanism will clarify them. An overvalued currency heightened the
industry's problems20. In the case of footwear, the decline in imports following the recent
devaluation was more important than that following the implementation of earlier relief
measures. The political economy of liberalization also indicates the need for regional
agreements to include adequate transition mechanisms that will facilitate adjustment to free
trade and to maintain support for it.
Both the Panel and later the Appellate Body adopted a similar criterion to that of the
EC, in the sense of analyzing compliance with the rules without linking the argument to the
existence of a program to curb imports, which as said, was undertaken in the context of a far-
reaching unilateral liberalization program undertaken before the Uruguay Round agreements
were signed. The jurisprudence of the Appellate Body in this and other safeguard cases has
been strongly criticized by Sykes (2003)21.
For the United States, the Panel had to bear in mind the negative effects on the
functioning of the WTO dispute settlement if Members were permitted to evade panel review
of WTO-ill egal measures by simply withdrawing one type of measure and introducing
another. If the test advo cated by Argentina, i.e. no examination of any withdrawn measure
by any panel, was used then Members may be inclined to introduce slightly revised measures
to avoid panel review. If the Panel were to agree with Argentina, Members trying to escape
WTO review would be able to delay the establishment of a panel indefinitely by withdrawing
one measure and imposing another in its place. Argentina’s position was not only inconsistent
with prior practice, it also would subvert the ability of the DSB to solve trade problems. The
Panel should advance the objectives of the DSB and take care to refrain from unduly
restricting the scope of its review 22. The United States considered that Argentina was asking
the Panel to create a new exception not found anywhere in the body of the GATT or the
WTO Agreement and in direct contravention of Article 3 DSU, which provided that decisions
of the DSB could not add to or diminish the rights or obligations of WTO Members.

20
The World Trade Organization: An Analysis of Disputes, UNC School of law, volume 25, number 1, pg 134

WTO Safeguards and Trade Liberalization - Lessons from the Argentine Footwear Case, Elías Baracat and Julio J.
21

Nogués

22
Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, Report of the Panel pg 68

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 REFERENCES

1. SÁEZ, S., (2005): Keeping Animal Spirits Asleep: The Case of Chile, World Bank
Staff Working Papers (forthcoming).
2. SALAZAR DE BUCKLE, T. (2001), The Leather Global Value Chain and The
World Leather Footwear Market, Report to UNIDO, Vienna.
3. SHETTY, S. (1995), Structural Changes and Competitive Strategies of the U.S.
Footwear Industry in the 1990´s, U.S. Department of Commerce: Washington DC.
4. SYKES, A. (2003), The Safeguard Mess: A Critique of WTO Jurisprudence, World
Trade Review, 2, 3, November.
5. TRADE DEVELOPMENT COUNCIL (2003) Hong Kong´sKong’s Footwear
Industry,
6. www.TDCtrade.com , Hong Kong.
7. WTO (1999a), ArgentinaSafeguard Measures on Imports of Footwear: Report of the
Appellate Body, WTO, WT/DS121/AB/R.