Peru-Additional Duty on Imports of Certain Agricultural Products (Complainant: Guatemala)

JurisdictionDerecho Internacional
CourtWorld Trade Organisation Appellate Body
JudgeNeri De Ross,Graham,Horlick,Chairman,Bhatia,Rodriguez Mendoza,Zhang
Docket Number(WT/DS457/R)(WT/DS457/AB/R)
Date31 July 2015

World Trade Organization, Panel.

Appellate Body.

(Horlick, Chairman; Neri De Ross and Rodriguez Mendoza, Members)

(Bhatia, Presiding Member; Graham and Zhang, Members)

(WT/DS457/R)

(WT/DS457/AB/R)

Peru-Additional Duty on Imports of Certain Agricultural Products (Complainant: Guatemala)1

Economics, trade and finance — World Trade Organization — General Agreement on Tariffs and Trade — Agreement on Agriculture — Tariffs — Bilateral free trade agreements — Whether parties to WTO and GATT may modify their obligations by bilateral agreement — Dispute settlement mechanism

Treaties — Interpretation — WTO agreements — Free Trade Agreements — Vienna Convention on the Law of Treaties, 1969, Article 31 — Whether declaratory of customary international law — Context — Common intention of Parties — Subsequent agreement under Article 31(3)(a) of Vienna Convention — Relevant rules of international law applicable in relations between Parties under Article 31(3)(c)

Treaties — Application — Good faith — Entry into force — Vienna Convention on the Law of Treaties, 1969, Article 18 — Object and purpose — Dispute Settlement Understanding, 1994, Articles 3.7 and 3.10 — Waiver of right to challenge measure before WTO dispute settlement proceedings — Whether waiver explicit — Institution of proceedings — Abuse of right

Treaties — Interpretation — WTO agreements — Free Trade Agreements — Dispute Settlement Understanding, 1994, Article 3.2 — Vienna Convention on the Law of Treaties, 1969, Article 31 — International Law Commission Articles on the Responsibility of States for Internationally Wrongful Acts, 2001 — Article 20 — Consent — Article 45 — Invocation of responsibility — Whether interpretation or modification

Sources of international law — WTO agreements — Other international rules — Vienna Convention on the Law of Treaties, 1969 — Free Trade Agreements — Modification of WTO rights and obligations — Applicable law — Vienna Convention, Article 41 — Marrakesh Agreement Establishing the WTO, 1994, Article X — GATT 1994, Article XXIV — GATS, 1995, Article V — 1979 Enabling Clause — Lex specialis

Summary:4The facts:- Guatemala (“the complainant”) brought a complaint under the Dispute Settlement Understanding 1994 (“the DSU”)5 of the World Trade Organization (“WTO”) against Peru (“the respondent”) concerning Peru's Price Range System (“the PRS”), a mechanism used to calculate and impose additional import duties for certain agricultural products.6 Both Parties were WTO Members. They had also concluded a bilateral free trade agreement on 6 December 2011 (“the FTA”), which due to non-ratification by the respondent was not yet in force.7

The complainant requested consultations on 12 April 20138 and the establishment of a panel on 13 June 2013.9 The complainant's principal

claims were that the PRS resulted in “variable import levies” inconsistent with Article 4.2 of the Agreement on Agriculture, 1994 (“AoA”),10 “other duties or charges” inconsistent with Article II:1(b) of the General Agreement on Tariffs and Trade, 1994 (“the GATT 1994”),11 and that these duties were not administered in a transparent manner, being therefore inconsistent with Articles X:1 and X:3(a) of the GATT 1994.12

The respondent rejected these claims and argued that, in any event, the PRS was permitted under the FTA, in particular its Annex 2.3(9). 13 Thus, the respondent argued, because the complainant had agreed upon the maintenance of the PRS in the FTA, its subsequent initiation of WTO proceedings was contrary to its good faith obligations under Articles 3.7 and 3.10 of the DSU.14 The respondent also argued that, even if an inconsistency between the PRS and the WTO agreements were to be found, the FTA would still prevail by virtue of its Article 1.3.2, which provided that in the event of an inconsistency between the FTA and the WTO agreements the former would prevail

unless otherwise provided in the FTA in accordance with the Vienna Convention on the Law of Treaties, 1969 (“the Vienna Convention”)

First, the respondent argued that although the FTA was not yet in force, both Parties were obliged to act in good faith and in a manner that would not defeat the object and purpose of the treaty, pursuant to Article 18 of the Vienna Convention.15 Since the complainant had first agreed to the maintenance of the PRS in the FTA, (implicitly) waiving its right to challenge the measure, but had subsequently brought proceedings regarding that same measure, this defeated the object and purpose of the FTA by nullifying the content of its Annex 2.3(9). This was an act contrary to good faith under Article 18 of the Vienna Convention, and meant that the complainant had instituted the proceedings contrary to the good faith obligation under Articles 3.7 and 3.10 of the DSU.

Secondly, the respondent argued that even if the PRS were WTO-inconsistent, the FTA had effectively modified the relationship between the two Parties pursuant to Article 41 of the Vienna Convention.16 Specifically, the respondent argued that Article XXIV of the GATT 1994 expressly allowed the formation of free trade areas.17

Report of the WTO Panel (circulated 27 November 2014; adopted 31 July 2015)

Held:- The respondent had acted inconsistently with its obligations under Articles 4.2 of the AoA and II:1(b) of the GATT 1994. Inasmuch as the FTA had not entered into force, it was not necessary for the Panel to rule on whether the Parties, by means of the FTA, could modify their rights and obligations under the WTO agreements. It was recommended that the respondent bring its measure into conformity with the WTO agreements.

(1) Should it be necessary to clarify the scope of the WTO provisions invoked by the Parties, the customary rules of treaty interpretation as codified in the Vienna Convention, namely Articles 31–3, would be applicable (paras. 7.8–7.12).

(2) As a general principle of law applicable to the WTO dispute settlement system, the burden of proof lay with the Party asserting a fact (paras. 7.13–7.16).

(3) There was no evidence that the complainant had initiated the proceedings in a manner contrary to the good faith requirement of Articles 3.7 and 3.10 of the DSU.

(a) Trade relations between WTO Members were regulated not only by the WTO covered agreements, but also by a complex framework of bilateral and regional free trade agreements. Such agreements were explicitly allowed under Article XXIV of the GATT 1994 and other relevant WTO provisions, which also prescribed the specific conditions for their WTO compatibility. In interpreting the provisions of the WTO agreements, a panel was not to read them “in clinical isolation from public international law”. However, a panel's task was circumscribed by its terms of reference: a panel could only rule on the invocation of a rule of public international law applicable between the Parties if that invocation was based upon one of the provisions of the WTO covered agreements (paras. 7.67–7.69).

(b) As previously held by the Appellate Body in relation to the principle of estoppel, the application of the principle of good faith regarding the initiation of WTO dispute settlement proceedings was defined by the narrow parameters set out in the DSU, specifically its Article 3.10 (paras. 7.76–7.78).

(c) The Appellate Body had interpreted Article 3.10 of the DSU to mean that a Party would institute proceedings in breach of good faith only if it had previously explicitly abrogated its right to do so or had explicitly acknowledged the WTO consistency of the impugned measure (paras. 7.81–7.84).

(d) An international treaty only produced legal effects and bound the Parties upon entering into force. Prior to that, it only had the limited legal consequences prescribed by Article 18 of the Vienna Convention. This applied to the FTA in question. Notwithstanding whether Article 18 constituted customary international law, a treaty signatory was only obliged not to engage in conduct that would subsequently prevent it from complying with the treaty obligations or invalidate the object and purpose of the treaty. The violation by a WTO Member of the obligation under Article 18 of the Vienna Convention with respect to a treaty other than the WTO agreements did not constitute evidence of a breach of a good faith requirement under Articles 3.7 and 3.10 of the DSU. In any event, such a finding would require the Panel to engage in a determination of the FTA's object and purpose, a matter outside the Panel's terms of reference (paras. 7.88–7.92).

(e) The preconditions for an abuse of right by a WTO Member regarding the initiation of dispute settlement proceedings as interpreted by the Appellate Body coincided with those necessary for a breach of the good faith obligation under Articles 3.7 and 3.10 of the DSU, thus adding nothing in the present case (paras. 7.93–7.95).

(4) It was not necessary for the Panel to decide on whether WTO Members could, by means of the FTA, modify inter se their rights and obligations under the WTO agreements, or what the consequences of the conflict between the WTO agreements and the FTA were, since the FTA had not entered into force and thus had not started to produce legal effects (paras. 7.525–7.528).

Both the complainant and the respondent appealed certain issues of law and legal interpretations developed by the Panel pursuant to Article 17 of the DSU. The respondent argued that the complainant had waived its right to a WTO panel when it agreed, by concluding the FTA, either expressly or by necessary implication, that the respondent's PRS could be maintained. The respondent invoked Articles 20 and 45 of the International Law Commission's Articles on State Responsibility, 2001 (“the ILC Articles”).18 It asserted that the panel had failed to consider these two Articles and the FTA when interpreting Articles 4.2 of the AoA and II:1(b) of the GATT 1994, as required by Article 31(3)(a) and (c) of the Vienna Convention.19

Report of the WTO Appellate Body...

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