Peru Appeals WTO Panel Ruling in Agricultural Duties Case

2 April 2015

The WTO’s highest court is set to hear the case between Peru and Guatemala over the former’s duties on certain agricultural imports, after Lima filed a formal notice appealing a previous dispute panel ruling last week.

At issue in the case is Peru’s “additional duty” on certain agricultural imports, such as rice, sugar, maize, milk, and certain dairy products. The panel had ruled largely in Guatemala’s favour late last year. (See Bridges Weekly, 4 December 2014)

In the appeal notice submitted last week, Peru has specifically flagged the panel’s finding that Guatemala did not violate “good faith” obligations in launching the dispute, and has also asked the Appellate Body to reconsider whether the duty violates global trade rules.    

The dispute (DS457) was launched nearly two years ago, with Guatemala filing a request for consultations in April 2013. While the panel report was circulated last November, both sides agreed to extend the usual 60-day appeal deadline through 25 March 2015.

[Editor’s Note: Guatemala has since filed its own notice of “an other appeal,” with that document circulated shortly before Bridges went to press this week. A full report on Guatemala’s appeal will be available in the next edition of Bridges.]

FTA legal status

This dispute has drawn particular attention for the questions it raises on whether and how commitments under FTAs interact with WTO obligations.

The “additional” duties imposed by Peru on these agricultural imports are determined using a mechanism known as the Price Range System (PRS). This system uses a range set by a price floor and ceiling, reflecting international prices over the last 60 months.

The measure also incorporates a reference price published biweekly, which reflects each product’s average international market price. According to that mechanism, an additional duty is applied if the reference price of the affected product is below the floor price. However, if the reference price exceeds the ceiling price, the applicable tariff is reduced.

Under the FTA signed between Peru and Guatemala in 2011, Guatemala City said that Lima could maintain its PRS. This, in Peru’s view, meant that the new FTA terms applied and that Guatemala had not acted “in good faith” by then launching a WTO complaint.

The Dispute Settlement Understanding (DSU), which sets the rules for WTO disputes, requires that members exercise judgment over whether filing a dispute would be fruitful before lodging the actual complaint.

However, Peru’s argument was rejected by the original panel, which found no evidence that Guatemala brought these proceedings in a manner contrary to good faith.

The panel also found that because the bilateral trade deal had not entered into force, its provisions were not at the time of the panel report binding on the parties, so it was not necessary for the panel to express any opinion on whether the parties had modified their WTO rights and obligations by means of an FTA.

According to the appeal notice, Peru claims the panel incorrectly interpreted the DSU articles on “good faith” in disputes, namely by assuming that the FTA’s legal status was related to the panel’s ruling on good faith.

Peru argues that the FTA’s status has no bearing on whether Guatemala acted against its good faith obligations and has asked the Appellate Body to review these findings.

Agricultural duties

Regarding the agricultural duties themselves, the panel found in November that these PRS-related duties were border measures similar to a variable import levy, while lacking in transparency and predictability and having the potential to affect import prices.

Therefore, the panel said, Lima’s policy has violated Article 4.2 of the WTO’s Agreement on Agriculture, which prohibits the use of agriculture-specific non-tariff measures unless these are consistent with other WTO rules applying to goods trade.

Furthermore, the panel agreed with Guatemala’s claim that those duties were “other duties or charges imposed on, or in connection with importation” that were not registered in Peru’s WTO concessions schedule. Therefore, by imposing these duties, Lima was found to be in violation of its obligations under the General Agreement on Tariffs and Trade’s (GATT) Article II:1(b).

The latter half of this provision essentially prohibits new import duties that were either not in place when the GATT entered into force or that were not expected due to the domestic legislation at place at that time.

In Peru’s view, the panel erred both in its interpretation of the Agreement on Agriculture’s Article 4.2 and Article II:1(b) GATT 1994 by failing to take into account the Peru-Guatemala FTA as “relevant rule of international law” applicable in the relationship between the parties, and as a “subsequent agreement between the parties” as outlined under the Vienna Convention on the Law of the Treaties.

 

In this respect, Lima has cited Articles 20 and 45 of the International Law Commission Draft articles on Responsibility of States for Internationally Wrongful Acts (ILC) as “relevant rules of international law,” which it claims the panel should have considered in its interpretation of the relevant WTO rules.

Article 20 of ILC refers to one state agreeing to another state’s undertaking a given act. That consent then “precludes the wrongfulness of that act in relation to the former state to the extent that the act remains within the limits of that consent.” Article 45 addresses the loss of the right to invoke a state’s responsibility, when the other “injured state has validly waived the claim,” or is considered to have allowed the claim to lapse by the injured state’s overall conduct.

Finally, Peru argues that the panel erred in finding that the additional duties constituted a “variable import levy or similar measure” and “other duties or charges” – matters on which it also claims the panel failed to make an objective assessment.

Next steps

The Appellate Body now has 90 days to issue its report. While it can review aspects of law – such as legal interpretation – it generally will not interfere with factual findings.

ICTSD reporting.

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