Agreement On Agriculture

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WTO ANALYTICAL INDEX: AGREEMENT ON AGRICULTURE

Agreement on Agriculture
The texts reproduced here do I. Preamble back to top

not have the legal standing of
the original documents which are A. Text of the Preamble
entrusted and kept at the WTO
Secretariat in Geneva. Members,
> Preamble
> Article 1 Having decided to establish a
> Article 2 basis for initiating a process of reform of
> Article 3
> Article 4
trade in agriculture in line with the
> Article 5 objectives of the negotiations as set out
> Article 6 in the Punta del Este Declaration;
> Article 7
> Article 8
> Article 9
Recalling that their long-term
> Article 10 objective as agreed at the Mid-Term
> Article 11 Review of the Uruguay Round “is to
> Article 12 establish a fair and market-oriented
> Article 13
agricultural trading system and that a
> Article 14
> Article 15 reform process should be initiated
> Article 16 through the negotiation of commitments
> Article 17 on support and protection and through
> Article 18
the establishment of strengthened and
> Article 19
> Article 20 more operationally effective GATT rules
> Article 21 and disciplines”;
> Annex 1
> Annex 2
Recalling further that “the above
> Annex 3 mentioned long-term objective is to
> Annex 4 provide for substantial progressive
> Annex 5 reductions in agricultural support and
> Relationship with other WTO protection sustained over an agreed
Agreements
> Decision on Measures period of time, resulting in correcting
Concerning the Possible and preventing restrictions and
Negative Effects of the Reform distortions in world agricultural
Programme on Least-Developed markets”;
and Net Food-Importing
Developing Countries (The
“NFIDC Decision”) Committed to achieving specific
binding commitments in each of the
following areas: market access;
> Analytical Index main page
domestic support; export competition;
and to reaching an agreement on
sanitary and phytosanitary issues;
Having agreed that in

implementing their commitments on
market access, developed country
Members would take fully into account
the particular needs and conditions of
developing country Members by
providing for a greater improvement of
opportunities and terms of access for
agricultural products of particular
interest to these Members, including the
fullest liberalization of trade in tropical
agricultural products as agreed at the
Mid-Term Review, and for products of
particular importance to the
diversification of production from the
growing of illicit narcotic crops;
Noting that commitments under

the reform programme should be made
in an equitable way among all Members,
having regard to non-trade concerns,
including food security and the need to
protect the environment; having regard
to the agreement that special and
differential treatment for developing
countries is an integral element of the
negotiations, and taking into account
the possible negative effects of the
implementation of the reform
programme on least-developed and net
food importing developing countries;
B. Interpretation and Application of the

Preamble
1. “objectives of the negotiations as set out in
the Punta del Este Declaration”
1. The objectives of the Uruguay Round
negotiations in the agriculture sector are set
out in the Ministerial Declaration on the
Uruguay Round.(1)
2. Long-term objective of the reform process
and the Mid-Term Review
2. At the Mid-Term Review of the Uruguay
Round, Ministers agreed on the long-term
objective of the Uruguay Round negotiations in
the agriculture sector.(2)
Part I
II. Article 1 back to top
A. Text of Article 1
Article 1: Definition of Terms
In this Agreement, unless the context
otherwise requires:
(a) “Aggregate Measurement of

Support” and “AMS” mean the annual
level of support, expressed in monetary
terms, provided for an agricultural
product in favour of the producers of the
basic agricultural product or non-
product-specific support provided in
favour of agricultural producers in
general, other than support provided
under programmes that qualify as
exempt from reduction under Annex 2 to
this Agreement, which is:
(i) with respect to support

provided during the base period,
specified in the relevant tables
of supporting material
incorporated by reference in Part
IV of a Member’s Schedule; and
(ii) with respect to support

provided during any year of the
implementation period and
thereafter, calculated in
accordance with the provisions of
Annex 3 of this Agreement and
taking into account the
constituent data and
methodology used in the tables
IV of the Member’s Schedule;
(b) “basic agricultural product” in
relation to domestic support
commitments is defined as the product
as close as practicable to the point of
first sale as specified in a Member’s
Schedule and in the related supporting
material;
(c) “budgetary outlays” or “outlays”

includes revenue foregone;
(d) “Equivalent Measurement of

Support” means the annual level of
support, expressed in monetary terms,
provided to producers of a basic
agricultural product through the
application of one or more measures,
the calculation of which in accordance
with the AMS methodology is
impracticable, other than support
provided under programmes that qualify
as exempt from reduction under Annex 2
to this Agreement, and which is:

provided during the base period,
specified in the relevant tables
IV of a Member’s Schedule; and
(ii) with respect to support

provided during any year of the
implementation period and
thereafter, calculated in
accordance with the provisions of
Annex 4 of this Agreement and
taking into account the
(e) “export subsidies” refers to

subsidies contingent upon export
performance, including the export
subsidies listed in Article 9 of this
Agreement;
(f) “implementation period” means

the six-year period commencing in the
year 1995, except that, for the purposes
of Article 13, it means the nine-year
period commencing in 1995;
(g) “market access concessions”

includes all market access commitments
undertaken pursuant to this Agreement;
(h) “Total Aggregate Measurement of

Support” and “Total AMS” mean the sum
of all domestic support provided in
favour of agricultural producers,
calculated as the sum of all aggregate
measurements of support for basic
agricultural products, all non-product-
specific aggregate measurements of
support and all equivalent
measurements of support for agricultural
products, and which is:

provided during the base period
(i.e. the “Base Total AMS”) and
the maximum support permitted
to be provided during any year of
the implementation period or
thereafter (i.e. the “Annual and
Final Bound Commitment
Levels”), as specified in Part IV
of a Member’s Schedule; and
(ii) with respect to the level of

support actually provided during
any year of the implementation
period and thereafter (i.e. the
“Current Total AMS”), calculated
in accordance with the provisions
of this Agreement, including
Article 6, and with the
(i) “year” in paragraph (f) above and

in relation to the specific commitments
of a Member refers to the calendar,
financial or marketing year specified in
the Schedule relating to that Member.
B. Interpretation and Application of Article 1

1. Article 1(a)(ii)
3. The Panel on Korea — Various Measures on
Beef, in a finding later reversed by the
Appellate Body(3), agreed with the
complainants that Korea had provided domestic
support to its beef industry in excess of its
commitment levels for 1997 and 1998. In its
notifications, Korea had determined that its
Current AMS for beef was below the de minimis
threshold as set out in Article 6.4; as a result,
Korea argued, this domestic support item did
not have to be included in the calculation of its
Current Total AMS. The Panel found that
Korea’s calculations in this respect were in
error. Korea argued that its calculation was
correct, because it was based on the
“constituent data and methodology” used in its
Schedule, in accordance with Articles 1(a)(ii)
and 1(h)(ii) of the Agreement on Agriculture.
The Appellate Body, with respect to the
calculation of the Current AMS, first recalled
the wording of Article 1(a)(ii) of the Agreement
on Agriculture which contains the definition of
the term “Current AMS” stating:
“To determine whether Korea’s Current
AMS for beef exceeds 10 per cent of
total value of beef production, we refer
again to Article 1(a)(ii) of the
Agreement on Agriculture, which
defines Current AMS. Under this
provision, Current AMS is to be
‘calculated in accordance with

the provisions of Annex 3 of this
Agreement and taking into
account the constituent data and
IV of the Member’s Schedule; …
(emphasis added)’
Article 1(a)(ii) contains two express

requirements for calculating Current
AMS. First, Current AMS is to be
‘calculated in accordance with the
provisions of Annex 3 of this
Agreement’. The ordinary meaning of
‘accordance’ is ‘agreement, conformity,
harmony’.(4) Thus, Current AMS must be
calculated in ‘conformity’ with the
provisions of Annex 3. Second, Article
1(a)(ii) provides that the calculation of
Current AMS is to be made while ‘taking
into account the constituent data and
methodology used in the tables of
supporting material incorporated by
reference in Part IV of the Member’s
Schedule.’ ‘Take into account’ is
defined as ‘take into consideration,
notice’.(5) Thus, when Current AMS is
calculated, the ‘constituent data and
methodology’ in a Member’s Schedule
must be ‘taken into account’, that is, it
must be ‘considered’.(6)”(7)
4. The Appellate Body subsequently held that
Article 1(a)(ii) accorded “higher priority” to the
provisions of Annex 3 than to “constituent data
and methodology” contained in a Member’s
Schedule, but noted that in the case before it,
it was not necessary to decide a conflict
between the two, because there was no specific
Korean “constituent data and methodology”. As
a result, the Current AMS was to be calculated
in accordance with the provisions of Annex 3:
“Looking at the wording of Article 1(a)
(ii) itself, it seems to us that this
provision attributes higher priority to
‘the provisions of Annex 3’ than to the
‘constituent data and methodology’.
From the viewpoint of ordinary meaning,
the term ‘in accordance with’ reflects a
more rigorous standard than the term
‘taking into account’.
We note, however, that the Panel did

not base its reasoning on this apparent
hierarchy as between ‘the provisions of
Annex 3’ and the ‘constituent data and
methodology’.(8) Instead, the Panel
considered that where no support was
included in the base period calculation
for a given product, there is no
‘constituent data or methodology’ to
refer to, so that the only means
available for calculating domestic
support is that provided in Annex 3. As
beef had not been included in
Supporting Table 6 of Korea’s Schedule
LX, Part IV, Section I, the Panel
concluded that Annex 3 alone is
applicable for the purposes of
calculating current non-exempt support
in respect of Korean beef.
In the circumstances of the present

case, it is not necessary to decide how a
conflict between ‘the provisions of
Annex 3’ and the ‘constituent data and
methodology used in the tables of
supporting material incorporated by
reference in Part IV of the Member’s
Schedule’ would have to be resolved in
principle. As the Panel has found, in this
case, there simply are no constituent
data and methodology for beef.(9)
Assuming arguendo that one would be
justified — in spite of the wording of
Article 1(a)(ii) — to give priority to
constituent data and methodology used
in the tables of supporting material over
the guidance of Annex 3, for products
entering into the calculation of the Base
Total AMS, such a step would seem to us
to be unwarranted in calculating Current
AMS for a product which did not enter
into the Base Total AMS calculation. We
do not believe that the Agreement on
Agriculture would sustain such an
extrapolation. We, therefore, agree with
the Panel that, in this case, Current AMS
for beef has to be calculated in
accordance with the provisions of Annex
3, and with these provisions alone.”(10)
5. Further, in Korea — Various Measures on
Beef, the Panel held that Korea had calculated
its Current AMS for beef on the basis of a fixed
external reference price for the period 1989–
1991, rather than the period 1986–88, as set
forth in paragraph 9 of Annex 3. Korea argued
that its use of the period 1989–1991 was
justified, because this period was referred to in
the constituent data and methodology (used
with respect to products other than beef)
contained in a table of supporting material
incorporated in its Schedule. The Appellate
Body agreed with the Panel and recalled its
findings referenced in paragraph 4 above:
“The Panel found that in both 1997 and
1998 Korea miscalculated its fixed
external reference price, contrary to
Article 6 and paragraph 9 of Annex 3, by
using a fixed external reference price
based on data for 1989–1991. Korea
justifies this choice by invoking the
‘constituent data and methodology’ used
in its Supporting Table 6 for all products
other than rice, i.e., for barley,
soybean, maize (corn) and rape seeds. In
Supporting Table 6, all these products
use the period 1989–1991 for the fixed
external reference price.
We have already explained above that

we share the Panel’s view with respect
to Korea’s argument on ‘constituent
data and methodology’ used in the table
of supporting material. We agree with
the Panel that, in this case, Current AMS
for beef has to be calculated in
accordance with Annex 3. According to
Annex 3, ‘[t]he fixed external reference
price shall be based on the years 1986 to
1988’. We, therefore, also agree with
the Panel that in calculating the product
specific AMS for beef for the years 1997
and 1998, Korea should have used an
external reference price based on data
for 1986–1988, instead of data for 1989–
1991.”(11)
2. Article 1(e)
(a) Definition of the term “subsidy”
6. In Canada — Dairy, the Appellate Body
recalled its finding in Canada — Aircraft where
it had stated that a subsidy “arises where the
grantor makes a ‘financial contribution’ which
confers a ‘benefit’ on the recipient, as
compared with what would have been otherwise
available to the recipient in the marketplace”.
(12)
7. In US — FSC, the Appellate Body, noting
“that the Agreement on Agriculture does not
contain a definition of the terms ‘subsidy’ or
‘subsidies’”(13), reiterated the approach it
followed in Canada — Dairy as follows:
“Therefore, in this case, we will
consider, first, whether the FSC measure
involves a transfer of economic
resources by the grantor, which in this
dispute is the government of the United
States, and, second, whether any
transfer of economic resources involves
a benefit to the recipient.”(14)
8. As regards the definition of a subsidy
under the SCM Agreement, see Section I.B.2(a)
of the Chapter on the SCM Agreement.
(b) “contingent upon export performance”
9. In US — FSC, the Appellate Body
interpreted the requirement of export
contingency also with reference to the SCM
Agreement, stating that:
“We see no reason, and none has been
pointed out to us, to read the
requirement of ‘contingent upon export
performance’ in the Agreement on
Agriculture differently from the same
requirement imposed by the SCM
Agreement. The two Agreements use
precisely the same words to define
‘export subsidies’. Although there are
differences between the export subsidy
disciplines established under the two
Agreements, those differences do not, in
our view, affect the common substantive
requirement relating to export
contingency. Therefore, we think it
appropriate to apply the interpretation
of export contingency that we have
adopted under the SCM Agreement to
the interpretation of export contingency
under the Agreement on
Agriculture.”(15)
10. As regards the concept of export
contingency under the SCM Agreement, see
Section III.B.1 of the Chapter on the SCM
Agreement.
3. Article 1(h)
11. In Korea — Various Measures on Beef, the
Panel and the Appellate Body addressed Korea’s
argument that its method for calculation of
domestic support was justifiable because it was
based upon “the constituent data and
methodology used in the tables of supporting
material incorporated by reference in Part IV of
the Member’s Schedule”, although it was not
consistent with the methodology set out in
Annex 3 to the Agreement on Agriculture. See
paragraphs 3–5 above.
III. Article 2 back to top
Article 2: Product Coverage
This Agreement applies to the
products listed in Annex 1 to this
Agreement, hereinafter referred to as
agricultural products.

No jurisprudence or decision of a
competent WTO body.
Part II
IV. Article 3 back to top

Article 3: Incorporation of Concessions and
Commitments
1. The domestic support and export
subsidy commitments in Part IV of each
Member’s Schedule constitute
commitments limiting subsidization and
are hereby made an integral part of
GATT 1994.
2. Subject to the provisions of Article

6, a Member shall not provide support in
favour of domestic producers in excess
of the commitment levels specified in
Section I of Part IV of its Schedule.
3. Subject to the provisions of

paragraphs 2(b) and 4 of Article 9, a
Member shall not provide export
subsidies listed in paragraph 1 of Article
9 in respect of the agricultural products
or groups of products specified in
Section II of Part IV of its Schedule in
excess of the budgetary outlay and
quantity commitment levels specified
therein and shall not provide such
subsidies in respect of any agricultural
product not specified in that Section of
its Schedule.

1. Article 3.2
12. In Korea — Various Measures on Beef,
examining whether Korea’s domestic support to
its cattle industry was consistent with Articles
3, 6 and 7 of the Agreement on Agriculture, the
Panel indicated, in a statement subsequently
not reviewed by the Appellate Body:
“It is, therefore, clear that Article 3
provides that support in favour of
domestic producers (and here explicit
reference is made to ‘subject to Article
6’) cannot exceed the level of support
provided for in a Member’s schedule. So,
when assessing the WTO compatibility of
domestic support, two parameters are
indicated: first the provisions of Article
6 which refer to the object of those
same ‘commitments’ on domestic
support; and second, Section I of Part IV
of a Member’s schedule.”(16)
2. Article 3.3
13. With respect to Members’ export subsidy
commitments and related waivers, see also
paragraphs 54–80 below.
explained the obligations set forth in Article 3.3
by distinguishing two distinct types of
“commitments”:
“Under Article 3, Members have
undertaken two different types of
‘export subsidy commitments’. Under
the first clause of Article 3.3, Members
have made a commitment that they will
not ‘provide export subsidies listed in
paragraph 1 of Article 9 in respect of the
agricultural products or groups of
products specified in Section II of Part IV
of its Schedule in excess of the
budgetary outlay and quantity
commitments levels specified therein’.
This is the commitment for scheduled
agricultural products.
…
Under the second clause of Article 3.3,
Members have committed not to provide
any export subsidies, listed in Article
9.1, with respect to unscheduled
agricultural products. This clause clearly
also involves ‘export subsidy
commitments’ within the meaning of
Article 10.1. Our interpretation of this
term is confirmed by the title of Article
9, which is ‘Export Subsidy
Commitments’. Consistently with our
reading of that term, Article 9.1 relates
both to (1) the commitments made for
scheduled agricultural products, under
the first clause of Article 3.3, and to (2)
the general prohibition, in the second
clause of Article 3.3, against providing
export subsidies listed in Article 9.1 to
unscheduled agricultural products.”(17)
15. The Appellate Body on US — FSC further
stated that with regard to unscheduled
products, Members are prohibited from
providing any export subsidies, while in respect
of scheduled agricultural products the “nature
of the commitment made under the first clause
of Article 3.3 is different”:
“With respect to unscheduled
agricultural products, Members are
prohibited under Article 3.3 from
providing any export subsidies as listed
in Article 9.1. Article 10.1 prevents the
application of export subsidies which
‘results in, or which threatens to lead
to, circumvention’ of that prohibition.
Members would certainly have ‘found a
way round’, a way to ‘evade’, this
prohibition if they could transfer,
through tax exemptions, the very same
economic resources that they are
prohibited from providing in other forms
under Articles 3.3 and 9.1. Thus, with
respect to the prohibition against
providing subsidies listed in Article 9.1
on unscheduled agricultural products,
we believe that the FSC measure
involves the application of export
subsidies, not listed in Article 9.1, in a
manner that, at the very least,
‘threatens to lead to circumvention’ of
that ‘export subsidy commitment’ in
Article 3.3.
With respect to scheduled agricultural

products, the nature of the commitment
made under the first clause of Article
3.3 is different. Members are not subject
to a general prohibition against
providing export subsidies as listed in
Article 9.1; rather, there is a limited
authorization for Members to provide
such subsidies up to the level of the
reduction commitments specified in
their Schedule.
…
As regards scheduled products, when the
specific reduction commitment levels
have been reached, the limited
authorization to provide export
subsidies as listed in Article 9.1 is
transformed, effectively, into a
prohibition against the provision of
those subsidies.
…
In our view, Members would have found
‘a way round’, a way to ‘evade’, their
commitments under Articles 3.3 and 9.1,
if they could transfer, through tax
exemptions, the very same economic
resources that they were, at that time,
prohibited from providing through other
methods under the first clause of Article
3.3 and under 9.1.”(18)
Part III
V. Article 4 back to top
Article 4: Market Access
1. Market access concessions
contained in Schedules relate to bindings
and reductions of tariffs, and to other
market access commitments as specified
therein.
2. Members shall not maintain, resort

to, or revert to any measures of the kind
which have been required to be
converted into ordinary customs
duties(1), except as otherwise provided
for in Article 5 and Annex 5.
(footnote original) 1 These measures include

quantitative import restrictions, variable import
levies, minimum import prices, discretionary
import licensing, non-tariff measures maintained
through state-trading enterprises, voluntary export
restraints, and similar border measures other than
ordinary customs duties, whether or not the
measures are maintained under country-specific
derogations from the provisions of GATT 1947, but
not measures maintained under balance-of-
payments provisions or under other general, non-
agriculture-specific provisions of GATT 1994 or of
the other Multilateral Trade Agreements in Annex
1A to the WTO Agreement.

1. General
(a) Purpose of Article 4
16. In Chile — Price Band System, the
Appellate Body explained the background of the
negotiations which produced the text of Article
4, “which is the main provision of Part III of the
Agreement on Agriculture”, and indicated that
Article 4 “is appropriately viewed as the legal
vehicle for requiring the conversion into
ordinary customs duties of certain market
access barriers affecting imports of agricultural
products”:
“[W]e turn now to Article 4, which is the
main provision of Part III of the
Agreement on Agriculture. As its title
indicates, Article 4 deals with ‘Market
Access’.(19) During the course of the
Uruguay Round, negotiators identified
certain border measures which have in
common that they restrict the volume or
distort the price of imports of
agricultural products. The negotiators
decided that these border measures
should be converted into ordinary
customs duties, with a view to ensuring
enhanced market access for such
imports. Thus, they envisioned that
ordinary customs duties would, in
principle, become the only form of
border protection. As ordinary customs
duties are more transparent and more
easily quantifiable than non-tariff
barriers, they are also more easily
compared between trading partners, and
thus the maximum amount of such
duties can be more easily reduced in
future multilateral trade negotiations.
The Uruguay Round negotiators agreed
that market access would be improved —
both in the short term and in the long
term — through bindings and reductions
of tariffs and minimum access
requirements, which were to be
recorded in Members’ Schedules.
Thus, Article 4 of the Agreement on

Agriculture is appropriately viewed as
the legal vehicle for requiring the
conversion into ordinary customs duties
of certain market access barriers
affecting imports of agricultural
products …”(20)
(b) Notification requirements
17. With respect to the notification
requirements concerning tariff quotas and other
quotas, see paragraph 116 below.(21)
2. Article 4.1
18. In EC — Bananas III, the Appellate Body
upheld the Panel’s finding that Article 4.1
cannot be interpreted so as to allow an
inconsistency with GATT Article XIII of the
European Communities import scheme for
bananas. See paragraph 126 below.
3. Article 4.2
(a) “any measures which have been required to
be converted into ordinary customs duties”
(i) Interpretation
Ordinary meaning in its context and in light of
its object and purpose
Appellate Body interpreted the ordinary
meaning of the phrase “measures which have
been required to be converted into ordinary
customs duties”, in its context and in light of its
object and purpose.(22) The Appellate Body
first focussed on the present perfect tense in
that phrase (“have been required”) and
considered that “Article 4.2 was drafted in the
present perfect tense to ensure that measures
that were required to be converted as a result
of the Uruguay Round — but that had not been
converted — could not be maintained, by virtue
of that Article, from the date of the entry into
force of the WTO Agreement on 1 January
1995”. The Appellate Body therefore concluded
that this phrase could not be interpreted as
limiting the obligation “only to those measures
which were actually converted, or were
requested to be converted, into ordinary
customs duties by the end of the Uruguay
Round”:
“Article 4.2 of the Agreement on
Agriculture should be interpreted in a
way that gives meaning to the use of the
present perfect tense in that provision —
particularly in the light of the fact that
most of the other obligations in the
Agreement on Agriculture and in the
other covered agreements are expressed
in the present, and not in the present
perfect, tense. In general, requirements
expressed in the present perfect tense
impose obligations that came into being
in the past, but may continue to apply at
present.(23) As used in Article 4.2, this
temporal connotation relates to the date
by which Members had to convert
measures covered by Article 4.2 into
ordinary customs duties, as well as to
the date from which Members had to
refrain from maintaining, reverting to,
or resorting to, measures prohibited by
Article 4.2. The conversion into ordinary
customs duties of measures within the
meaning of Article 4.2 began during the
Uruguay Round multilateral trade
negotiations, because ordinary customs
duties that were to ‘compensate’ for
and replace converted border measures
were to be recorded in Members’ draft
WTO Schedules by the conclusion of
those negotiations. These draft
Schedules, in turn, had to be verified
before the signing of the WTO
Agreement on 15 April 1994. Thereafter,
there was no longer an option to replace
measures covered by Article 4.2 with
ordinary customs duties in excess of the
levels of previously bound tariff rates.
Moreover, as of the date of entry into
force of the WTO Agreement on 1
January 1995, Members are required not
to ‘maintain, revert to, or resort to’
measures covered by Article 4.2 of the
Agreement on Agriculture.
If Article 4.2 were to read ‘any measures

of the kind which are required to be
converted’, this would imply that if a
Member — for whatever reason — had
failed, by the end of the Uruguay Round
negotiations, to convert a measure
within the meaning of Article 4.2, it
could, even today, replace that measure
with ordinary customs duties in excess of
bound tariff rates.(24) But, as Chile and
Argentina have agreed, this is clearly not
so. (footnote omitted) It seems to us
that Article 4.2 was drafted in the
present perfect tense to ensure that
measures that were required to be
converted as a result of the Uruguay
Round — but were not converted — could
not be maintained, by virtue of that
Article, from the date of the entry into
force of the WTO Agreement on 1
January 1995.
Thus, contrary to what Chile argues,

giving meaning and effect to the use of
the present perfect tense in the phrase
‘have been required’ does not suggest
that the scope of the phrase ‘any
measures of the kind which have been
required to be converted into ordinary
customs duties’ must be limited only to
those measures which were actually
converted, or were requested to be
converted, into ordinary customs duties
by the end of the Uruguay Round.
Indeed, in our view, such an
interpretation would fail to give
meaning and effect to the word ‘any’
and the phrase ‘of the kind’, which are
descriptive of the word ‘measures’ in
that provision. A plain reading of these
words suggests that the drafters
intended to cover a broad category of
measures. We do not see how proper
meaning and effect could be accorded to
the word ‘any’ and the phrase ‘of the
kind’ in Article 4.2 if that provision were
read to include only those specific
measures that were singled out to be
converted into ordinary customs duties
by negotiating partners in the course of
the Uruguay Round.”(25)
Footnote 1
20. The Appellate Body on Chile — Price Band
System, referred to the wording of footnote 1
to the Agreement on Agriculture as
confirmation of its interpretation of the phrase
“measures which have been required to be
converted into ordinary customs duties” (see
paragraph 19 above):
“The wording of footnote 1 to the
Agreement on Agriculture confirms our
interpretation. The footnote imparts
meaning to Article 4.2 by enumerating
examples of ‘measures of the kind which
have been required to be converted’,
and which Members must not maintain,
revert to, or resort to, from the date of
the entry into force of the WTO
Agreement. Specifically, and as both
participants agree (footnote omitted),
the use of the word ‘include’ in the
footnote indicates that the list of
measures is illustrative, not exhaustive.
And, clearly, the existence of footnote 1
suggests that there will be ‘measures of
the kind which have been required to be
converted’ that were not specifically
identified during the Uruguay Round
negotiations. Thus, in our view, the
illustrative nature of this list lends
support to our interpretation that the
measures covered by Article 4.2 are not
limited only to those that were actually
converted, or were requested to be
converted, into ordinary customs duties
during the Uruguay Round.
Footnote 1 also refers to a residual

category of ‘similar border measures
other than ordinary customs duties’,
which indicates that the drafters of the
Agreement did not seek to identify all
‘measures which have been required to
be converted’ during the Uruguay Round
negotiations. The existence of this
residual category confirms our
interpretation that Article 4.2 covers
more than merely the measures that had
been specifically identified or
challenged by other negotiating partners
in the course of the Uruguay
Round.”(26)
Article 5: As Context for Article 4.2
Interpretation
System further indicated that the context of
Article 4.2 confirms its interpretation (see
paragraph 19 above). In this regard, the
Appellate Body referred to Article 5.1 as an
illustration that “where the drafters of the
Agreement on Agriculture wanted to limit the
application of a rule to measures that have
actually been converted, they used specific
language expressing that limitation”:
“[T]he context of Article 4.2 confirms
our interpretation. Article 5.1 of the
Agreement on Agriculture, the only
provision in addition to Article 4 that is
included in Part III of that Agreement,
specifies that a Member may, under
certain conditions, impose a special
safeguard on imports of an agricultural
product ‘in respect of which measures
referred to in [Article 4.2] have been
converted into an ordinary customs
duty’. (emphasis added) In our view, the
phrase ‘have been required to be
converted’ in Article 4.2 has a broader
connotation than the phrase ‘have been
converted’ in Article 5.1.(27) Therefore,
it is perfectly apt that Article 5.1 speaks
of such special safeguards only with
respect to those agricultural products
for which measures covered by Article
4.2 ‘have been converted’ — that is,
have in fact already been converted —
into ordinary customs duties. Article 5.1
illustrates that, where the drafters of
the Agreement on Agriculture wanted to
limit the application of a rule to
measures that have actually been
converted, they used specific language
expressing that limitation.”(28)
System further considered that Article 5 lends
contextual support to its interpretation of
Article 4.2 (see paragraph 19 above) since “the
existence of a market access exemption in the
form of a special safeguard provision under
Article 5 implies that Article 4.2 should not be
interpreted in a way that permits Members to
maintain measures that a Member would not be
permitted to maintain but for Article 5”:
“Article 5, also found in Part III of the
Agreement on Agriculture on ‘Market
Access’, lends contextual support to our
interpretation of Article 4.2. In our
view, the existence of a market access
exemption in the form of a special
safeguard provision under Article 5
implies that Article 4.2 should not be
interpreted in a way that permits
Members to maintain measures that a
Member would not be permitted to
maintain but for Article 5, and, much
less, measures that are even more
trade-distorting than special safeguards.
In particular, if Article 4.2 were
interpreted in a way that allowed
Members to maintain measures that
operate in a way similar to a special
safeguard within the meaning of Article
5 — but without respecting the
conditions set out in that provision for
invoking such measures — it would be
difficult to see how proper meaning and
effect could be given to those conditions
set forth in Article 5.(29)”(30)
Subsequent practice
23. In Chile — Price Band System, Chile had
argued that, in interpreting this Article 4.2
phrase, it was “highly relevant” that no country
that had a price band system in place before
the conclusion of the Uruguay Round had
actually converted it into ordinary customs
duties. The Appellate Body looked into the
possibility that this practice could be
considered “subsequent practice”(31) pursuant
to Article 31(3)(b) of the Vienna Convention and
therefore a practice relevant to the
interpretation of Article 4.2. The Appellate
Body referred to its definition of “subsequent
practice” in its Report in Japan — Alcoholic
Beverages(32) and noted that neither the Panel
record nor the submissions of the parties
suggested that there was a discernible pattern
of acts or pronouncements implying an
agreement among WTO Members on the
interpretation of Article 4.2. The Appellate
Body thus concluded that this practice of some
Members alleged by Chile did not amount to a
“subsequent practice” within the meaning of
Article 31(3)(b) of the Vienna Convention.(33)
(ii) “converted”
Appellate Body looked at the meaning of
“converted” in the phrase “any measures which
have been required to be converted into
ordinary customs duties” and concluded, on the
basis of the dictionary meanings of “convert”
and “converted” that those measures “had to
be transformed into something they were not —
namely, ordinary customs duties”. In this case,
Chile had argued that its price band system was
not a measure of the kind which had been
required to be converted, but rather a system
for determining the level of the resulting
ordinary customs duties. The Appellate Body
considered that the “mere fact that … measures
result in the payment of duties does not
exonerate a Member from the requirement not
to maintain, resort to, or revert to those
measures”:
“Article 4.2 speaks of ‘measures of the
kind which have been required to be
converted into ordinary customs duties’.
The word ‘convert’ means ‘undergo
transformation’.(34) The word
‘converted’ connotes ‘changed in their
nature’, ‘turned into something
different’.(35) Thus, ‘measures which
have been required to be converted into
ordinary customs duties’ had to be
transformed into something they were
not — namely, ordinary customs duties.
The following example illustrates this
point. The application of a ‘variable
import levy’, or a ‘minimum import
price’, as the terms are used in footnote
1, can result in the levying of a specific
duty equal to the difference between a
reference price and a target price, or
minimum price. These resulting levies or
specific duties take the same form as
ordinary customs duties. However, the
mere fact that a duty imposed on an
import at the border is in the same form
as an ordinary customs duty, does not
mean that it is not a ‘variable import
levy’ or a ‘minimum import price’.
Clearly, as measures listed in footnote 1,
‘variable import levies’ and ‘minimum
import prices’ had to be converted into
ordinary customs duties by the end of
the Uruguay Round. The mere fact that
such measures result in the payment of
duties does not exonerate a Member
from the requirement not to maintain,
resort to, or revert to those
measures.”(36)
(iii) “ordinary customs duties”
Appellate Body reversed the Panel’s definition
of “ordinary customs duty”. The Panel had
found that “[a]ll ‘ordinary’ customs duties may
… be said to take the form of ad valorem or
specific duties (or combinations thereof)”.(37)
The Panel further found that the term “ordinary
customs duty” has a “normative connotation”.
(38) The Appellate Body disagreed:
“We do not agree with the Panel’s
reasoning that, necessarily, ‘[a]s a
normative matter, … those scheduled
duties always relate to either the value
of the imported goods, in the case of ad
valorem duties, or the volume of the
imported goods, in the case of specific
duties.’(39) (emphasis in original,
underlining added) Indeed, the Panel
came to this conclusion by interpreting
the French and Spanish versions of the
term ‘ordinary customs duty’ to mean
something different from the ordinary
meaning of the English version of that
term. It is difficult to see how, doing so,
the Panel took into account the rule of
interpretation codified in Article 33(4) of
the Vienna Convention whereby ‘when a
comparison of the authentic texts
discloses a difference of meaning …, the
meaning which best reconciles the texts
… shall be adopted.’ (emphasis added).
We also find it difficult to understand

how the Panel could find ‘normative’
support for its reasoning by examining
the Schedules of WTO Members. We
have observed in previous case that
‘[t]he ordinary meaning of the term
“concessions” suggests that a Member
may yield rights and grant benefits, but
it cannot diminish its obligations’.(40) A
Member’s Schedule imposes obligations
on the Member who has made the
concessions. The Schedule of one
Member, and even the scheduling
practice a number of Members, is not
relevant in interpreting the meaning of a
treaty provision, unless that practice
amounts to ‘subsequent practice in the
application of the treaty’ within the
meaning of Article 31(3)(b) of the
Vienna Convention.(41) In this case the
Panel Report contains support for the
conclusion that the scheduling activity
WTO Members amounts to ‘subsequent
practice’.
[N]ot each and every duty that is

calculated on the basis of the value
and/or volume of imports is necessarily
an ‘ordinary customs duty’. For
example, in the case hand, the ad
valorem duty is calculated on the value
the imports. The calculation of the
specific duty resulting from Chile’s price
band system is, on the other hand,
based, not only on the difference
between the lower threshold of the
price band and the applicable reference
price, but also on the volume per unit of
the imports.”(42)
System also disagreed and thus reversed the
Panel’s finding that the term “ordinary customs
duty”, as used in Article 4.2 of the Agreement
on Agriculture, is to be understood as “referring
to a customs duty which is not applied to
factors of an exogenous nature”:(43)
“Surely Members will ordinarily take into
account the interests of domestic
consumers and domestic producers in
setting their applied tariff rates at a
certain level. In doing so, they will
doubtless take into account factors such
as world market prices and domestic
price developments. These are
exogenous factors, as the Panel used
that term. According to the Panel,
duties that are calculated on the basis of
such exogenous factors are not ordinary
customs duties. This would imply that
such duties be prohibited under Article
II:1(b) of the GATT unless recorded in
the “other duties or charges” column of
a Member’s Schedule. We see no legal
basis for such a conclusion.(44)”(45)
System further noted that “in examining Article
4.2 of the Agreement on Agriculture, the
second sentence of Article II:1(b) of the GATT
1994, does not specify what form ‘other duties
or charges’ must take to qualify as such within
the meaning of that sentence”:
“We further note, in examining Article
4.2 of the Agreement on Agriculture,
that the second sentence of Article
II:1(b) of the GATT 1994, does not
specify what form ‘other duties or
charges’ must take to qualify as such
within the meaning of that sentence.
The Panel’s own approach of reviewing
Members’ Schedules reveals that many,
if not most, ‘other duties or charges’ are
expressed in ad valorem and/or specific
terms, which does not, of course, make
them ‘ordinary customs duties’ under
the first sentence of Article II:1(b).”(46)
System, pointed to Article II:2 of the GATT 1994
and Annex 5 to the Agreement on Agriculture as
contextual support for interpreting the term
“ordinary customs duties”:
“As context for this phrase in Article 4.2
of the Agreement on Agriculture, we
observe that Article II:2 of the GATT
1994 sets out examples of measures that
do not qualify as either ‘ordinary
customs duties’ or ‘other duties or
charges’. These measures include
charges equivalent to internal taxes,
anti-dumping and countervailing duties,
and fees or other charges commensurate
with the cost of services rendered. They
too may be based on the value and/or
volume of imports, and yet Article II:2
distinguishes them from ‘ordinary
customs duties’ by providing that
‘[n]othing in [Article II] shall prevent any
Member from imposing’ them ‘at any
time on the importation of any product’.
Contextual support for interpreting the

term ‘ordinary customs duties’ also
appears in Annex 5 to the Agreement on
Agriculture. Annex 5, read together with
the Attachment to Annex 5 (‘Guidelines
for the Calculation of Tariff Equivalents
for the Specific Purpose Specified in
Paragraphs 6 and 10 of this Annex’),
contemplates the calculation of ‘tariff
equivalents’ in a way that would result
in ordinary customs duties ‘expressed as
ad valorem or specific rates’. We do not
find an obligation in either of those
provisions that would require Members
to refrain from basing their duties on
what the Panel calls ‘exogenous
factors’. Rather, all that is required is
that ‘ordinary customs duties’ be
expressed in the form of ‘ad valorem or
specific rates’.”(47)
Measure resulting in ordinary customs duties
29. In Chile — Price Band System, Argentina
had argued before the Panel that Chile’s price
band system was a measure “of the kind which
has been required to be converted into ordinary
customs duties” and which, by the terms of
Article 4.2 of the Agreement on Agriculture,
Members are required not to maintain. Chile
had refuted such an allegation and claimed that
the duties resulting from its price band system
were “ordinary customs duties” and that its
price band system was merely a system for
determining the level of those duties and,
therefore, consistent with Article 4.2. The
Appellate Body agreed with the Panel as regards
the inconsistency of Chile’s price band system
with Article 4.2 (although not as regards the
Panel’s reasoning) and found that “the fact that
the duties that result from the application of
Chile’s price band system take the same form as
‘ordinary customs duties’ does not imply that
the underlying measure is consistent with
Article 4.2 of the Agreement on
Agriculture.”(48)
(iv) Timing of the obligation
System concluded that “the obligation in Article
4.2 not to ‘maintain, resort to, or revert to any
measures of the kind which have been required
to be converted into ordinary customs duties’
applies from the date of the entry into force of
the WTO Agreement — regardless of whether or
not a Member converted any such measures into
ordinary customs duties before the conclusion
of the Uruguay Round”.(49)
(b) Relation with Article XI of GATT and its Ad
Note
31. The Panel on Korea — Various Measures
on Beef, in a statement not reviewed by the
Appellate Body, held with respect to a certain
practice of the Korean state trading agency for
beef imports:
“[W]hen dealing with measures relating
to agricultural products which should
have been converted into tariffs or
tariff-quotas, a violation of Article XI of
GATT and its Ad Note relating to state-
trading operations would necessarily
constitute a violation of Article 4.2 of
the Agreement on Agriculture and its
footnote which refers to non-tariff
measures maintained through state-
trading enterprises.”(50)
(c) Special treatment
32. With respect to the special treatment in
connection with paragraph 2 of Article 4, see
Article 5, Section VI below, and Annex 5,
Section XXVII below.
4. Footnote 1
(a) “variable import levies”
Appellate Body, which overturned the Panel’s
interpretation of this term(51), noted that the
“WTO Members have not chosen to define [this]
‘term of art’ in the Agreement on Agriculture
or anywhere else in the WTO Agreement”.(52),
The Appellate Body concluded that a variable
import duty requires the presence of both a
formula causing automatic and continuous
variability of duties and additional features that
undermine the object and purpose of Article 4
because they include a lack of transparency and
a lack of predictability in the level of duties
that will result from such measures:
“In examining the ordinary meaning of
the term ‘variable import levies’ as it
appears in footnote 1, we note that a
‘levy’ is a duty, tax, charge, or other
exaction usually imposed or raised by
legal execution or process.(53) An
‘import’ levy is, of course, a duty
assessed upon importation. A levy is
‘variable’ when it is ‘liable to vary’.(54)
This feature alone, however, is not
conclusive as to what constitutes a
‘variable import levy’ within the
meaning of footnote 1. An ‘ordinary
customs duty’ could also fit this
description. A Member may, fully in
accordance with Article II of the GATT
1994, exact a duty upon importation and
periodically change the rate at which it
applies that duty (provided the changed
rates remain below the tariff rates
bound in the Member’s Schedule).(55)
This change in the applied rate of duty
could be made, for example, through an
act of a Member’s legislature or
executive at any time. Moreover, it is
clear that the term ‘variable import
levies’ as used in footnote 1 must have a
meaning different from ‘ordinary
customs duties’, because ‘variable
import levies’ must be converted into
‘ordinary customs duties’. Thus, the
mere fact that an import duty can be
varied cannot, alone, bring that duty
within the category of ‘variable import
levies’ for purposes of footnote 1.
To determine what kind of variability

makes an import levy a ‘variable import
levy’, we turn to the immediate context
of the other words in footnote 1. The
term ‘variable import levies’ appears
after the introductory phrase ‘[t]hese
measures include’. Article 4.2 — to
which the footnote is attached — also
speaks of ‘measures’. This suggests that
at least one feature of ‘variable import
levies’ is the fact that the measure itself
— as a mechanism — must impose the
variability of the duties. Variability is
inherent in a measure if the measure
incorporates a scheme or formula that
causes and ensures that levies change
automatically and continuously.
Ordinary customs duties, by contrast,
are subject to discrete changes in
applied tariff rates that occur
independently, and unrelated to such an
underlying scheme or formula. The level
at which ordinary customs duties are
applied can be varied by a legislature,
but such duties will not be automatically
and continuously variable. To vary the
applied rate of duty in the case of
ordinary customs duties will always
require separate legislative or
administrative action, whereas the
ordinary meaning of the term ‘variable’
implies that no such action is required.
However, in our view, the presence of a

formula causing automatic and
continuous variability of duties is a
necessary, but by no means a sufficient,
condition for a particular measure to be
a ‘variable import levy’ within the
meaning of footnote 1. (footnote
omitted) ‘Variable import levies’ have
additional features that undermine the
object and purpose of Article 4, which is
to achieve improved market access
conditions for imports of agricultural
products by permitting only the
application of ordinary customs duties.
These additional features include a lack
of transparency and a lack of
predictability in the level of duties that
will result from such measures. This lack
of transparency and this lack of
predictability are liable to restrict the
volume of imports. … an exporter is less
likely to ship to a market if that
exporter does not know and cannot
reasonably predict what the amount of
duties will be. (i) This lack of
transparency and predictability will also
contribute to distorting the prices of
imports by impeding the transmission of
international prices to the domestic
market.”(56)
34. As regards the question whether a
measure ceases to be similar to a “variable
import levy” because it is subject to a tariff
cap, see paragraphs 38–39 below.
(b) “minimum import prices”
35. In Chile — Price Band System, unlike with
the definition of “variable import levies” (see
paragraph 33 above), the Appellate Body did
not overturn the Panel’s interpretation of the
term “minimum import price” and simply noted
that the parties did not disagree with it.(57)
The Appellate Body, after indicating that the
“term ‘minimum import price’ refers generally
to the lowest price at which imports of a
certain product may enter a Member’s domestic
market” and that “no definition has been
provided by the drafters of the Agreement on
Agriculture”, quoted the Panel’s description of
“minimum import prices” as follows:
“The term ‘minimum import price’
refers generally to the lowest price at
which imports of a certain product may
enter a Member’s domestic market.
Here, too, no definition has been
provided by the drafters of the
Agreement on Agriculture. However, the
Panel described ‘minimum import
prices’ as follows:
‘[these] schemes generally

operate in relation to the actual
transaction value of the imports.
If the price of an individual
consignment is below a specified
minimum import price, an
additional charge is imposed
corresponding to the difference.
(58)’
The Panel also said that minimum import

prices ‘are generally not dissimilar from
variable import levies in many respects,
including in terms of their protective
and stabilization effects, but that their
mode of operation is generally less
complicated.’(59) The main difference
between minimum import prices and
variable import levies is, according to
the Panel, that ‘variable import levies
are generally based on the difference
between the governmentally
determined threshold and the lowest
world market offer price for the product
concerned, while minimum import price
schemes generally operate in relation to
the actual transaction value of the
imports.’(60) (emphasis added)
… the participants said they do not

object to the Panel’s definition of a
‘minimum import price’…”(61)
(c) “similar border measures”
(i) Concept of similarity
Appellate Body agreed with the Panel’s
definition of the term “similar” as “having a
resemblance or likeness”, “of the same nature
or kind”, and “having characteristics in
common”. The Appellate Body, however,
disagreed with the Panel’s emphasis on the
degree to which measures share characteristics
of a “fundamental” nature.(62) The Appellate
Body found that the appropriate approach to
determine similarity was to ask “whether two or
more things have likeness or resemblance
sufficient to be similar to each other”. The
Appellate Body further considered that, for a
measure to be “similar” to a border measure, it
must have “sufficient ‘resemblance or likeness
to’, or be ‘of the same nature or kind’ as, at
least one of the specific categories of measures
listed in footnote 1”:
“We agree with the first part of the
Panel’s definition of the term ‘similar’
as ‘having a resemblance or likeness’,
‘of the same nature or kind’, and
‘having characteristics in common’.(63)
However, in our view, the Panel went
unnecessarily far in focusing on the
degree to which two measures share
characteristics of a ‘fundamental’
nature. We see no basis for determining
similarity by relying on characteristics of
a ‘fundamental’ nature. The Panel
seems to substitute for the task of
defining the term ‘similar’ that of
defining the term ‘fundamental’. This
merely complicates matters, because it
raises the question of how to distinguish
‘fundamental’ characteristics from those
of a less than ‘fundamental’ nature. The
better and appropriate approach is to
determine similarity by asking the
question whether two or more things
have likeness or resemblance sufficient
to be similar to each other. In our view,
the task of determining whether
something is similar to something else
must be approached on an empirical
basis.
… To be ‘similar’, Chile’s price band

system — in its specific factual
configuration — must have, to recall the
dictionary definitions we mentioned,
sufficient ‘resemblance or likeness to’,
or be ‘of the same nature or kind’ as, at
least one of the specific categories of
measures listed in footnote 1.”(64)
System stressed that “any examination of
similarity presupposes a comparative analysis”
and therefore, to determine whether a measure
is “similar” within the meaning of footnote 1, it
is necessary to “identify with which categories
that [measure] must be compared”.(65)
(ii) Relevance of tariff caps in the similarity
analysis
38. In Chile — Price Band System, Chile had
argued that the Panel had failed to take proper
account of the fact that the total amount of
duties that may be levied as a result of Chile’s
price band system was “capped” at the level of
the tariff rate of 31.5 per cent ad valorem
bound in Chile’s Schedule. The Appellate Body
thus considered whether Chile’s price band
system ceases to be similar to a “variable
import levy” because it is subject to a cap. The
Appellate Body concluded:
“[W]e find nothing in Article 4.2 to
suggest that a measure prohibited by
that provision would be rendered
consistent with it if applied with a cap.
Before the conclusion of the Uruguay
Round, a measure could be recognized
as a ‘variable import levy’ even if the
products to which the measure applied
were subject to tariff bindings.(66) And,
there is nothing in the text of Article 4.2
to indicate that a measure, which was
recognized as a ‘variable import levy’
before the Uruguay Round, is exempt
from the requirements of Article 4.2
simply because tariffs on some, or all, of
the products to which that measure now
applies were bound as a result of the
Uruguay Round.”(67)
System, found support for this view in the
context of Article 4.2. which includes the
Guidelines for the Calculation of Tariff
Equivalents for the Specific Purpose Specified
in Paragraph 6 and 10 of this Annex
(“Guidelines”), which are an Attachment to
Annex 5 on Special Treatment with respect to
Paragraph 2 of Article 4 and Articles II and XI of
the GATT 1994.
“The context of Article 4.2 lends support
to this interpretation. That context
includes the Guidelines for the
Calculation of Tariff Equivalents for the
Specific Purpose Specified in Paragraph
6 and 10 of this Annex (‘Guidelines’),
which are an Attachment to Annex 5 on
Special Treatment with respect to
Paragraph 2 of Article 4. Both the
Attachment and the Annex form part of
the Agreement on Agriculture.
Paragraph 6 of the Guidelines(68)
envisages that tariff equivalents
resulting from conversion of measures
within the meaning of Article 4.2 may
exceed previous bound rates. This
implies that, even if the product to
which that measure applied was in fact
subject to a tariff binding before the
Uruguay Round, conversion of that
measure may nevertheless have been
required. Therefore, a measure cannot
be excluded per se from the scope of
Article 4.2 simply because the products
to which that measure applies are
subject to a tariff binding.
Relevant context can also be found in

Articles II and XI of the GATT 1994. If
Members were free to apply a measure
with a ‘cap’ — which, in the absence of
that ‘cap’, would be a prohibited
‘variable import levy’ — Article 4.2
would, in our view, add little to the
longstanding requirements of Articles
II:1(b) and XI:1 of the GATT 1947. In
fact, Chile concedes that the scope of
measures prohibited by Article 4.2
extends beyond the tariffs in excess of
bound rates that are prohibited by
Article II and the ‘restrictions other than
taxes, duties and charges’ that are
prohibited by Article XI:1. (footnote
omitted) In any event, it is difficult to
see why Uruguay Round negotiators
would ‘compensate’ Members for
converting prohibited measures by
permitting them to raise tariffs on
certain products, while permitting those
Members to retain those measures and,
at the same time, impose those higher
tariffs on those same products. It is not
clear why, if this were so, a Member
would ever have converted a measure.
All that a Member would have had to do
to comply with Article 4.2 would have
been to adopt a tariff binding — even at
a higher level — on the products covered
by the original measure. Had this been
the intention of the Uruguay Round
negotiators, there would have been no
need to list price-based measures in
footnote 1 among the categories of
measures prohibited by Article 4.2. The
drafters of the Agreement on
Agriculture simply could have adopted a
requirement that all tariffs on
agricultural products be bound.”(69)
(iii) Common features of border measures
Appellate Body noted that trade distortive
objectives and effects are common to all border
measures:
“[W]e note that all of the border
measures listed in footnote 1 have in
common the object and effect of
restricting the volumes, and distorting
the prices, of imports of agricultural
products in ways different from the ways
that ordinary customs duties do.
Moreover, all of these measures have in
common also that they disconnect
domestic prices from international price
developments, and thus impede the
transmission of world market prices to
the domestic market.”(70)
(d) Relation with Article 4.2
System, referred to the wording of footnote 1
to the Agreement on Agriculture as
confirmation of its interpretation(71) of the
phrase “measures which have been required to
be converted into ordinary customs duties” of
Article 4.2. See paragraph 20 above.
C. Relationship with other WTO Agreements

1. GATT 1994
System, in examining the concept of ordinary
customs duties under Article 4.2 of the
Agreement on Agriculture, referred to Articles
II:1(b) of the GATT 1994. See paragraphs 24–28
above. The Appellate Body also indicated that if
it were to find that Chile’s price band system
was inconsistent with Article 4.2 of the
Agreement of Agriculture, it would not need to
make a separate finding on whether Chile’s
price band system also results in a violation of
Articles II:1(b) of the GATT 1994 to resolve this
dispute.(72)
VI. Article 5 back to top
Article 5: Special Safeguard Provisions
1. Notwithstanding the provisions of
paragraph 1(b) of Article II of GATT
1994, any Member may take recourse to
the provisions of paragraphs 4 and 5
below in connection with the
importation of an agricultural product,
in respect of which measures referred to
in paragraph 2 of Article 4 of this
Agreement have been converted into an
ordinary customs duty and which is
designated in its Schedule with the
symbol “SSG” as being the subject of a
concession in respect of which the
provisions of this Article may be
invoked, if:
(a) the volume of imports of

that product entering the
customs territory of the Member
granting the concession during
any year exceeds a trigger level
which relates to the existing
market access opportunity as set
out in paragraph 4; or, but not
concurrently:
(b) the price at which imports

of that product may enter the
granting the concession, as
determined on the basis of the
c.i.f. import price of the
shipment concerned expressed in
terms of its domestic currency,
falls below a trigger price equal
to the average 1986 to 1988
reference price(2) for the
product concerned.
(footnote original) 2 The reference price used to

invoke the provisions of this subparagraph shall, in
general, be the average c.i.f. unit value of the
product concerned, or otherwise shall be an
appropriate price in terms of the quality of the
product and its stage of processing. It shall,
following its initial use, be publicly specified and
available to the extent necessary to allow other
Members to assess the additional duty that may be
levied.
2. Imports under current and

minimum access commitments
established as part of a concession
referred to in paragraph 1 above shall be
counted for the purpose of determining
the volume of imports required for
invoking the provisions of subparagraph
1(a) and paragraph 4, but imports under
such commitments shall not be affected
by any additional duty imposed under
either subparagraph 1(a) and paragraph
4 or subparagraph 1(b) and paragraph 5
below.
3. Any supplies of the product in
question which were en route on the
basis of a contract settled before the
additional duty is imposed under
subparagraph 1(a) and paragraph 4 shall
be exempted from any such additional
duty, provided that they may be counted
in the volume of imports of the product
in question during the following year for
the purposes of triggering the provisions
of subparagraph 1(a) in that year.
4. Any additional duty imposed under

subparagraph 1(a) shall only be
maintained until the end of the year in
which it has been imposed, and may only
be levied at a level which shall not
exceed one third of the level of the
ordinary customs duty in effect in the
year in which the action is taken. The
trigger level shall be set according to
the following schedule based on market
access opportunities defined as imports
as a percentage of the corresponding
domestic consumption(3) during the
three preceding years for which data are
available:
(footnote original) 3 Where domestic consumption

is not taken into account, the base trigger level
under subparagraph 4(a) shall apply.
(a) where such market access

opportunities for a product are
less than or equal to 10 percent,
the base trigger level shall equal
125 percent;
(b) where such market access

greater than 10 percent but less
than or equal to 30 percent, the
base trigger level shall equal 110
percent;
(c) where such market access

greater than 30 percent, the
base trigger level shall equal 105
percent.
In all cases the additional duty

may be imposed in any year where the
absolute volume of imports of the
product concerned entering the customs
territory of the Member granting the
concession exceeds the sum of (x) the
base trigger level set out above
multiplied by the average quantity of
imports during the three preceding years
for which data are available and (y) the
absolute volume change in domestic
consumption of the product concerned
in the most recent year for which data
are available compared to the preceding
year, provided that the trigger level
shall not be less than 105 percent of the
average quantity of imports in (x) above.
5. The additional duty imposed under

subparagraph 1(b) shall be set according
to the following schedule:
(a) if the difference between

the c.i.f. import price of the
shipment expressed in terms of
the domestic currency
(hereinafter referred to as the
“import price”) and the trigger
price as defined under that
subparagraph is less than or
equal to 10 percent of the trigger
price, no additional duty shall be
imposed;
(b) if the difference between

the import price and the trigger
price (hereinafter referred to as
the “difference”) is greater than
10 percent but less than or equal
to 40 percent of the trigger
price, the additional duty shall
equal 30 percent of the amount
by which the difference exceeds
10 percent;
(c) if the difference is greater

than 40 percent but less than or
equal to 60 percent of the trigger
40 percent, plus the additional
duty allowed under (b);
(d) if the difference is greater

than 60 percent but less than or
equal to 75 percent, the
additional duty shall equal 70
percent of the amount by which
the difference exceeds 60
percent of the trigger price, plus
the additional duties allowed
under (b) and (c);
(e) if the difference is greater

than 75 percent of the trigger
75 percent, plus the additional
duties allowed under (b), (c) and
(d).
6. For perishable and seasonal

products, the conditions set out above
shall be applied in such a manner as to
take account of the specific
characteristics of such products. In
particular, shorter time periods under
subparagraph 1(a) and paragraph 4 may
be used in reference to the
corresponding periods in the base period
and different reference prices for
different periods may be used under
subparagraph 1(b).
7. The operation of the special

safeguard shall be carried out in a
transparent manner. Any Member taking
action under subparagraph 1(a) above
shall give notice in writing, including
relevant data, to the Committee on
Agriculture as far in advance as may be
practicable and in any event within 10
days of the implementation of such
action. In cases where changes in
consumption volumes must be allocated
to individual tariff lines subject to
action under paragraph 4, relevant data
shall include the information and
methods used to allocate these changes.
A Member taking action under paragraph
4 shall afford any interested Members
the opportunity to consult with it in
respect of the conditions of application
of such action. Any Member taking
action under subparagraph 1(b) above
shall give notice in writing, including
relevant data, to the Committee on
Agriculture within 10 days of the
implementation of the first such action
or, for perishable and seasonal products,
the first action in any period. Members
undertake, as far as practicable, not to
take recourse to the provisions of
subparagraph 1(b) where the volume of
imports of the products concerned are
declining. In either case a Member
taking such action shall afford any
interested Members the opportunity to
consult with it in respect of the
conditions of application of such action.
8. Where measures are taken in

conformity with paragraphs 1 through 7
above, Members undertake not to have
recourse, in respect of such measures,
to the provisions of paragraphs 1(a) and
3 of Article XIX of GATT 1994 or
paragraph 2 of Article 8 of the
Agreement on Safeguards.
9. The provisions of this Article shall

remain in force for the duration of the
reform process as determined under
Article 20.

1. Article 5.1(b)
43. In EC — Poultry, Brazil argued that the
European Communities had failed to comply
with Article 5 of the Agreement on Agriculture
in the implementation of the special safeguard
measures for imports of poultry meat outside
tariff quotas. The European Communities
contested the finding of the Panel that the
phrase in Article 5.1(b) “on the basis of the
c.i.f. import price” referred to the c.i.f. price
plus import duties. Reversing the Panel’s
findings on Article 5.1(b), the Appellate Body
first explored the circumstances in which this
specific question could become relevant and
then went on to distinguish between an entry
into the customs territory on the one hand, and
an entry into the domestic market on the other:
“This dispute has no practical
significance if both the c.i.f. import
price and the c.i.f. import price plus
customs duties fall above or below the
trigger price. If both prices are above
the trigger price, then additional duties
cannot be imposed. And, if both prices
fall below the trigger price, then
additional duties may be imposed
regardless of which definition of the
relevant import price is adopted.
However, the practical significance of
this dispute becomes apparent whenever
the trigger price falls between the other
two prices, that is, when the trigger
price is greater than the c.i.f. import
price but smaller than the c.i.f. import
price plus customs duties. … [I]f the
relevant price is defined as the c.i.f.
import price plus customs duties,
additional duties may not be imposed
since the relevant price is well above
the trigger price. If, on the other hand,
it is defined as the c.i.f. import price
only (that is, without customs duties),
additional duties may be imposed
because the relevant price is below the
trigger price. Thus, to adopt one
definition, rather than another, will
determine whether or not an importing
Member may impose additional
safeguard duties.
…
The relevant import price in Article
5.1(b) is described as ‘the price at which
imports of that product may enter the
granting the concession, as determined
on the basis of the c.i.f. import price of
the shipment concerned’. It is
noteworthy that the drafters of the
Agreement on Agriculture chose to use
as the relevant import price the entry
price into the customs territory, rather
than the entry price into the domestic
market. This suggests that they had in
mind the point of time just before the
entry of the product concerned into the
customs territory, and certainly before
entry into the domestic market, of the
importing Member. The ordinary
meaning of these terms in Article 5.1(b)
supports the view that the ‘price at
which that product may enter the
customs territory’ of the importing
Member should be construed to mean
just that — the price at which the
product may enter the customs
territory, not the price at which the
product may enter the domestic market
of the importing Member. And that price
is a price that does not include customs
duties and internal charges. It is upon
entry of a product into the customs
territory, but before the product enters
the domestic market, that the obligation
to pay customs duties and internal
charges accrues.”(73)
44. The Appellate Body on EC — Poultry then
noted that the Agreement on Agriculture does
not define the term “c.i.f. import price”, but
considered the customary usage of this term in
international trade:
“Article 5.1(b) also states that the
relevant import price is to be ‘as
determined on the basis of the c.i.f.
import price of the shipment
concerned’. (emphasis added) The Panel
interprets this phrase to mean ‘that the
market entry price is something that has
to be constructed using the c.i.f. price
as one of the parameters.’(74) We
disagree. In the light of our construction
of the preceding phrase ‘the price at
which imports of the product may enter
the customs territory of the Member
granting the concession’, we conclude
that the phrase ‘as determined on the
basis of the c.i.f. import price of the
shipment concerned’ in Article 5.1(b)
refers simply to the c.i.f. price without
customs duties and taxes. There is no
definition of the term ‘c.i.f. import
price’ in the Agreement on Agriculture
or in any of the other covered
agreements. However, in customary
usage in international trade, the c.i.f.
import price does not include any taxes,
customs duties, or other charges that
may be imposed on a product by a
Member upon entry into its customs
territory.(75) We think it significant also
that ordinary customs duties are not
mentioned as a component of the
relevant import price in the text of
Article 5.1(b). Article 5.1(b) does not
state that the relevant import price is
‘the c.i.f. price plus ordinary customs
duties’. Accordingly, to read the
inclusion of customs duties into the
definition of the c.i.f. import price in
Article 5.1(b) would require us to read
words into the text of that provision that
simply are not there.”(76)
45. The Appellate Body on EC — Poultry
found support for its finding referenced in
paragraph 44 above in the context of Article
5.1(b):
“This reading of the text of Article
5.1(b) is supported by our reading of the
context of that provision in accordance
with Article 31 of the Vienna
Convention, which specifies that the
ordinary meaning of the terms of a
treaty should be interpreted in their
context.
We look first to the rest of Article 5.1. In

considering when additional special
safeguard duties under Article 5.1(b)
may be imposed, the relevant import
price must be compared with a trigger
price. According to Article 5.1(b), this
trigger price is ‘equal to the average
1986 to 1988 reference price for the
product concerned’. Footnote 2 to
Article 5.1(b) states:
The reference price used to

invoke the provisions of this
subparagraph shall, in general,
be the average c.i.f. unit value
of the product concerned, or
otherwise shall be an appropriate
price in terms of the quality of
the product and its stage of
processing. It shall, following its
initial use, be publicly specified
and available to the extent
necessary to allow other
Members to assess the additional
duty that may be levied.
Thus, the reference price with which the

relevant price is compared under Article
5.1 does not include ordinary customs
duties. It is simply the average c.i.f.
import price of the product concerned
during the reference period, 1986–1988.
Given this definition of the reference
price, it could not have been the
intention of the drafters to compare a
c.i.f. price exclusive of customs duties
for the reference period with a c.i.f.
price inclusive of such duties today.
Paragraph 5 of Article 5 is also part of

the context of Article 5.1(b). This
provision establishes a link between the
amount of the additional duty to be
imposed and the difference between the
c.i.f. import price of the shipment and
the trigger price. According to the
schedule contained in paragraph 5, when
the difference between the c.i.f. import
price of the shipment and the trigger
price is not greater than 10 per cent, no
additional duty shall be imposed. When
the difference is greater than 10 per
cent, additional duties may be imposed.
The amount of the additional safeguard
duties increases as the difference in the
two prices increases. We see no
reference in paragraph 5 to ‘c.i.f.
import price plus ordinary customs
duties’. The price used to determine
when the special safeguard may be
triggered and the price used to calculate
the amount of the additional duties must
be one and the same.”(77)
46. The Appellate Body on EC — Poultry,
after making the findings referenced in
paragraphs 43–45 above, considered what it
termed two “anomalies” which would arise
under the interpretation given to Article 5.1(b)
by the Panel:
“Certain anomalies would arise from the
interpretation adopted by the majority
of the Panel. One of these anomalies
was cited in the opinion of the
dissenting member of the Panel.(78) If
tariffication of non-tariff barriers on a
certain product took the form of specific
duties that were greater than the trigger
price, then an importing Member may
never be able to invoke Article 5.1(b).
The truth of this observation is evident
from the fact that the c.i.f. import price
plus customs duties may never fall below
the trigger price. This consequence is
not limited to the case of specific duties
that exceed the trigger price. It could
also occur in cases where tariffication
takes the form of ad valorem duties. We
know that tariffication has resulted in
tariffs which are, in a large number of
cases, very high. The probability is
strong, therefore, that the ad valorem
duties could exceed the percentage
decrease in the c.i.f. import price by a
substantial margin. In such cases, the
decrease in the c.i.f. price would have
to be very deep before the relevant
import price would fall below the trigger
price. Thus, the provisions of Article
5.1(b) would not be operational in many
cases. It is doubtful that this was
intended by the drafters of the ‘Special
Safeguard Provisions’.
Another anomaly that would arise from

defining the relevant import price as the
c.i.f. import price plus ordinary customs
duties would be that the right of
Members to invoke the provisions of
Article 5.1(b) would depend on the level
of tariffs resulting from tariffication.
Faced with a certain decline in the c.i.f.
price — say, 20 per cent — some
Members would find themselves in a
situation where they could not invoke
the price safeguard; others would have
the right to do so. The first category
would comprise those Members with a
relatively high level of tariffied duties;
the second would be those with a
relatively moderate level. Thus, the
rights of Members would ultimately
depend on the level of their tariffied
duties. It is doubtful, too, that this was
intended by the drafters of the ‘Special
Safeguard Provisions’.”(79)
47. As a result of the reasoning referenced in
paragraphs 43–46 above, the Appellate Body in
EC — Poultry concluded:
“[W]e interpret the ‘price at which the
product concerned may enter the
granting the concession, as determined
on the basis of the c.i.f. import price’ in
Article 5.1(b) as the c.i.f. import price
not including ordinary customs
duties.”(80)
2. Article 5.5
48. Regarding Article 5.5, in EC — Poultry,
the Appellate Body examined whether it was
permissible for the importing Member to offer
the importer a choice between the use of the
c.i.f price of the shipment as provided in that
provision, and another method of calculation
which departs from this principle. Under the
relevant regulation, the European Communities
calculated a periodic representative price,
based, inter alia, in part on prices in third
country markets and prices at various stages of
marketing within the European Communities.
The Commission, in its determination of the
trigger price for the purposes of the special
safeguard provision, would use this
“representative price”, unless the importer
specifically requested the use of the c.i.f.
price, conditional upon the presentation of
certain documents and the lodging of a security
by the importer. The Appellate Body held as
follows:
“[N]either the text nor the context of
Article 5.5 of the Agreement on
Agriculture permits us to conclude that
the additional duties imposed under the
special safeguard mechanism in Article 5
of the Agreement on Agriculture may be
established by any method other than a
comparison of the c.i.f. price of the
shipment with the trigger price.”(81)
3. Article 5.7
(a) Notification requirements
49. With respect to notification requirements
concerning the special safeguard provisions, see
Part IV
VII. Article 6 back to top
Article 6: Domestic Support Commitments
1. The domestic support reduction
commitments of each Member contained
in Part IV of its Schedule shall apply to
all of its domestic support measures in
favour of agricultural producers with the
exception of domestic measures which
are not subject to reduction in terms of
the criteria set out in this Article and in
Annex 2 to this Agreement. The
commitments are expressed in terms of
Total Aggregate Measurement of Support
and “Annual and Final Bound
Commitment Levels”.
2. In accordance with the Mid-Term

Review Agreement that government
measures of assistance, whether direct
or indirect, to encourage agricultural
and rural development are an integral
part of the development programmes of
developing countries, investment
subsidies which are generally available
to agriculture in developing country
Members and agricultural input subsidies
generally available to low-income or
resource-poor producers in developing
country Members shall be exempt from
domestic support reduction
commitments that would otherwise be
applicable to such measures, as shall
domestic support to producers in
developing country Members to
encourage diversification from growing
illicit narcotic crops. Domestic support
meeting the criteria of this paragraph
shall not be required to be included in a
Member’s calculation of its Current
Total AMS.
3. A Member shall be considered to be

in compliance with its domestic support
reduction commitments in any year in
which its domestic support in favour of
agricultural producers expressed in
terms of Current Total AMS does not
exceed the corresponding annual or final
bound commitment level specified in
Part IV of the Member’s Schedule.
4. (a) A Member shall not be

required to include in the calculation of
its Current Total AMS and shall not be
required to reduce:
(i) product-specific
domestic support which
would otherwise be required
to be included in a Member’s
calculation of its Current AMS
where such support does not
exceed 5 percent of that
Member’s total value of
production of a basic
agricultural product during
the relevant year; and
(ii) non-product-specific
domestic support which
would otherwise be required
to be included in a Member’s
calculation of its Current AMS
where such support does not
exceed 5 percent of the value
of that Member’s total
agricultural production.
(b) For developing country

Members, the de minimis
percentage under this paragraph
shall be 10 percent.
5. (a) Direct payments under
production-limiting programmes shall
not be subject to the commitment to
reduce domestic support if:
(i) such payments are
based on fixed area and
yields; or
(ii) such payments are

made on 85 percent or less of
the base level of production;
or
(iii) livestock payments are

made on a fixed number of
head.
(b) The exemption from the

reduction commitment for direct
payments meeting the above
criteria shall be reflected by the
exclusion of the value of those
direct payments in a Member’s
calculation of its Current Total
AMS.

1. Notification requirements
50. With respect to the notification
requirements concerning domestic support, see
VIII. Article 7 back to top
Article 7: General Disciplines on Domestic
Support
1. Each Member shall ensure that any
domestic support measures in favour of
agricultural producers which are not
subject to reduction commitments
because they qualify under the criteria
set out in Annex 2 to this Agreement are
maintained in conformity therewith.
2. (a) Any domestic support

measure in favour of agricultural
producers, including any modification to
such measure, and any measure that is
subsequently introduced that cannot be
shown to satisfy the criteria in Annex 2
to this Agreement or to be exempt from
reduction by reason of any other
provision of this Agreement shall be
included in the Member’s calculation of
its Current Total AMS.
(b) Where no Total AMS

commitment exists in Part IV of a
Member’s Schedule, the Member
shall not provide support to
agricultural producers in excess
of the relevant de minimis level
set out in paragraph 4 of Article
6.

51. No jurisprudence or decision of a
competent WTO body.
1. Relationship with Annex 2
52. In order to consult the criteria
established in Annex 2, see Section XXIV below.
Part V
IX. Article 8 back to top
Article 8: Export Competition Commitments
Each Member undertakes not to
provide export subsidies otherwise than
in conformity with this Agreement and
with the commitments as specified in
that Member’s Schedule.

1. General
53. With respect to Members’ export subsidy
commitments, see paragraphs 14–15 above and
2. Waivers from export subsidy commitments
54. On 22 October 1997, the General Council
decided to grant a waiver from the export
subsidy commitments to Hungary, in accordance
with Article IX of the WTO Agreement.(82) See
Chapter on the WTO Agreement, Section X.B.3
for a list of the waivers currently in force.
X. Article 9 back to top
Article 9: Export Subsidy Commitments
1. The following export subsidies are
subject to reduction commitments under
this Agreement:
(a) the provision by

governments or their agencies of
direct subsidies, including
payments-in-kind, to a firm, to
an industry, to producers of an
agricultural product, to a
cooperative or other association
of such producers, or to a
marketing board, contingent on
export performance;
(b) the sale or disposal for

export by governments or their
agencies of non-commercial
stocks of agricultural products at
a price lower than the
comparable price charged for the
like product to buyers in the
domestic market;
(c) payments on the export of

an agricultural product that are
financed by virtue of
governmental action, whether or
not a charge on the public
account is involved, including
payments that are financed from
the proceeds of a levy imposed
on the agricultural product
concerned or on an agricultural
product from which the exported
product is derived;
(d) the provision of subsidies

to reduce the costs of marketing
exports of agricultural products
(other than widely available
export promotion and advisory
services) including handling,
upgrading and other processing
costs, and the costs of
international transport and
freight;
(e) internal transport and

freight charges on export
shipments, provided or mandated
by governments, on terms more
favourable than for domestic
shipments;
(f) subsidies on agricultural

products contingent on their
incorporation in exported
products.
2. (a) Except as provided in

subparagraph (b), the export subsidy
commitment levels for each year of the
implementation period, as specified in a
Member’s Schedule, represent with
respect to the export subsidies listed in
paragraph 1 of this Article:
(i) in the case of budgetary

outlay reduction
commitments, the maximum
level of expenditure for such
subsidies that may be
allocated or incurred in that
year in respect of the
agricultural product, or group
of products, concerned; and
(ii) in the case of export

quantity reduction
commitments, the maximum
quantity of an agricultural
product, or group of
products, in respect of which
such export subsidies may be
granted in that year.
(b) In any of the second

through fifth years of the
implementation period, a
Member may provide export
subsidies listed in paragraph 1
above in a given year in excess of
the corresponding annual
commitment levels in respect of
the products or groups of
products specified in Part IV of
the Member’s Schedule, provided
that:
(i) the cumulative amounts

of budgetary outlays for such
subsidies, from the beginning
of the implementation period
through the year in question,
does not exceed the
cumulative amounts that
would have resulted from full
compliance with the relevant
annual outlay commitment
levels specified in the
Member’s Schedule by more
than 3 percent of the base
period level of such
budgetary outlays;
(ii) the cumulative

quantities exported with the
benefit of such export
subsidies, from the beginning
of the implementation period
through the year in question,
does not exceed the
cumulative quantities that
annual quantity commitment
levels specified in the
Member’s Schedule by more
than 1.75 percent of the base
period quantities;
(iii) the total cumulative

amounts of budgetary outlays
for such export subsidies and
the quantities benefiting
from such export subsidies
over the entire
implementation period are no
greater than the totals that
annual commitment levels
specified in the Member’s
Schedule; and
(iv) the Member’s

budgetary outlays for export
subsidies and the quantities
benefiting from such
subsidies, at the conclusion
of the implementation
period, are no greater than
64 percent and 79 percent of
the 1986–1990 base period
levels, respectively. For
developing country Members
these percentages shall be 76
and 86 percent, respectively.
3. Commitments relating to
limitations on the extension of the scope
of export subsidization are as specified
in Schedules.
4. During the implementation period,

developing country Members shall not be
required to undertake commitments in
respect of the export subsidies listed in
subparagraphs (d) and (e) of paragraph 1
above, provided that these are not
applied in a manner that would
circumvent reduction commitments.

1. General
(a) Notification requirements
55. With respect to notification requirements
concerning export subsidies, see paragraphs
116–118 below.
2. Article 9.1(a)
(a) “direct subsidies, including payments-in-
kind”
56. The Panel on Canada — Dairy held that
“‘payments-in-kind’ are a form of direct
subsidy” and that “a determination in the
instant matter that ‘payments-in-kind’ exist
would also be a determination of the existence
of a direct subsidy.” (Emphasis added)(83) The
Appellate Body disagreed and held, inter alia,
that “[w]here the recipient gives full
consideration in return for a ‘payment-in-kind’
there can be no ‘subsidy’, for the recipient is
paying market-rates for what it receives”:
“In our view, the term ‘payments-in-
kind’ describes one of the forms in
which ‘direct subsidies’ may be granted.
Thus, Article 9.1(a) applies to ‘direct
subsidies’, including ‘direct subsidies’
granted in the form of ‘payments-in-
kind’. We believe that, in its ordinary
meaning, the word ‘payments’, in the
term ‘payments-in-kind’, denotes a
transfer of economic resources, in a
form other than money, from the
grantor of the payment to the recipient.
However, the fact that a ‘payment-in-
kind’ has been made provides no
indication as to the economic value of
the transfer effected, either from the
perspective of the grantor of the
payment or from that of the recipient. A
‘payment-in-kind’ may be made in
exchange for full or partial consideration
or it may be made gratuitously.
Correspondingly, a ‘subsidy’ involves a
transfer of economic resources from the
grantor to the recipient for less than full
consideration. As we said in our Report
in Canada — Aircraft, a ‘subsidy’, within
the meaning of Article 1.1 of the SCM
Agreement, arises where the grantor
makes a ‘financial contribution’ which
confers a ‘benefit’ on the recipient, as
compared with what would have been
otherwise available to the recipient in
the marketplace. Where the recipient
gives full consideration in return for a
‘payment-in-kind’ there can be no
‘subsidy’, for the recipient is paying
market rates for what it receives. It
follows, in our view, that the mere fact
that a ‘payment-in-kind’ has been made
does not, by itself, imply that a
‘subsidy’, ‘direct’ or otherwise, has
been granted.
[T]he Panel erred in finding that ‘a

determination in the instant matter that
“payments-in-kind” exist would also be a
determination of the existence of a
direct subsidy.’ The Panel should have
considered whether the particular
‘payment-in-kind’ that it found existed
was a ‘direct subsidy’. Instead, because
the Panel assumed that a ‘payment-in-
kind’ is necessarily a ‘direct subsidy’, it
did not address specifically either the
meaning of the term ‘direct subsidies’ or
the question whether the provision of
milk to processors for export under
Special Classes 5(d) and 5(e) constitutes
‘direct subsidies’.”(84)
(b) “governments or their agencies”
addressed the phrase “governments or their
agencies” and held that the fact that such an
agency enjoys a “degree of discretion” does not
remove its quality of being a government
agency:
“According to Black’s Law Dictionary,
‘government’ means, inter alia, ‘[t]he
regulation, restraint, supervision, or
control which is exercised upon the
individual members of an organized jural
society by those invested with
authority’. (emphasis added) This is
similar to meanings given in other
dictionaries. The essence of
‘government’ is, therefore, that it
enjoys the effective power to ‘regulate’,
‘control’ or ‘supervise’ individuals, or
otherwise ‘restrain’ their conduct,
through the exercise of lawful authority.
This meaning is derived, in part, from
the functions performed by a
government and, in part, from the
government having the powers and
authority to perform those functions. A
‘government agency’ is, in our view, an
entity which exercises powers vested in
it by a ‘government’ for the purpose of
performing functions of a
‘governmental’ character, that is, to
‘regulate’, ‘restrain’, ‘supervise’ or
‘control’ the conduct of private citizens.
As with any agency relationship, a
‘government agency’ may enjoy a
degree of discretion in the exercise of
its functions.”(85)
3. Article 9.1(c)
(a) “payments”
(i) A payment includes a payment-in-kind
interpreted the term “payments” to include a
transfer of resources other than money,
including a “payment-in-kind”:
“We have found that the word
‘payments’, in the term ‘payments-in-
kind’ in Article 9.1(a), denotes a
transfer of economic resources.(86) We
believe that the same holds true for the
word ‘payments’ in Article 9.1(c). The
question which we now address is
whether, under Article 9.1(c), the
economic resources that are transferred
by way of a ‘payment’ must be in the
form of money, or whether the
resources transferred may take other
forms. As the Panel observed, the
dictionary meaning of the word
‘payment’ is not limited to payments
made in monetary form. In support of
this, the Panel cited the Oxford English
Dictionary, which defines ‘payment’ as
‘the remuneration of a person with
money or its equivalent’.(87) (emphasis
added) Similarly, the Shorter Oxford
English Dictionary describes a ‘payment’
as a ‘sum of money (or other thing)
paid’.(88) (emphasis added) Thus,
according to these meanings, a
‘payment’ could be made in a form,
other than money, that confers value,
such as by way of goods or services. A
‘payment’ which does not take the form
of money is commonly referred to as a
‘payment in kind’.
We agree with the Panel that the

ordinary meaning of the word
‘payments’ in Article 9.1(c) is consistent
with the dictionary meaning of the
word. Under Article 9.1(c), ‘payments’
are ‘financed by virtue of governmental
action’ and they may or may not involve
‘a charge on the public account’.
Neither the word ‘financed’ nor the
term ‘a charge’ suggests that the word
‘payments’ should be interpreted to
apply solely to money payments. A
payment made in the form of goods or
services is also ‘financed’ in the same
way as a money payment, and, likewise,
‘a charge on the public account’ may
arise as a result of a payment, or a
legally binding commitment to make
payment by way of goods or services, or
as a result of revenue foregone.”(89)
59. The Appellate Body on Canada — Dairy
considered that the context of Article 9.1(c)
also supported a reading of the word
“payments” that covered “payments-in-kind”.
“The context of Article 9.1(c) also
supports a reading of the word
‘payments’ that embraces ‘payments-in-
kind’. That context includes the other
sub-paragraphs of Article 9.1. As the
Panel explained, none of the export
subsidies listed in Article 9.1 is
restricted to grants made solely in
money form and several expressly
involve subsidies granted in a form other
than money.(90) Under Article 9.1(a),
‘payments-in-kind’ are specifically
included as a form of ‘direct subsidies’.
Similarly, under Articles 9.1(b), the
export subsidy identified may involve
the disposal of agricultural goods at less
than domestic price. Under Article
9.1(e), the provision of transport
services for export shipments at prices
lower than the price charged for
domestic shipments is also an export
subsidy. Thus, each of these three sub-
paragraphs of Article 9.1 specifically
contemplates that the export subsidy
may be granted in a form other than a
money payment.
The context, in our view, also includes

Article 1(c) of the Agreement on
Agriculture. In terms of that provision,
‘revenue foregone’ is to be taken into
account in determining whether
‘budgetary outlay’ commitments, made
with respect to export subsidies as listed
in Article 9.1, have been exceeded. In
our view, the foregoing of revenue
usually does not involve a monetary
payment. Thus, if a restrictive reading
of the words ‘payments’ were adopted,
such that ‘payments’ under Article
9.1(c) had to be monetary, no account
could be taken, under Article 9.1(c), of
‘revenue foregone’. This would, we
believe, prevent a proper assessment of
the commitments made by WTO
Members under Article 9.2, as envisaged
by Article 1(c) of the Agreement on
Agriculture. We, therefore, prefer a
reading of Article 9.1(c) that allows full
account to be taken of ‘revenue
foregone’. The contrary view would, in
our opinion, elevate form over substance
and permit Members to circumvent the
subsidy disciplines set forth in Article 9
of the Agreement on Agriculture.”(91)
acknowledged that Article 9.1(c) did not refer
explicitly to “payments-in-kind”, unlike other
provisions of the Agreement on Agriculture, but
held that the purpose of its express inclusion
was “to counter any suggestion that the
ordinary meaning of the terms ‘direct subsidies’
and ‘direct payments’ does not include
‘payments-in-kind’’’:
“It is true, as Canada argues, that
Article 9.1(c) does not expressly include
‘payments-in-kind’ within its scope,
whereas Article 9.1(a) and paragraph 5
of Annex 2 to the Agreement on
Agriculture do. However, we do not
regard the express inclusion of
‘payments-in-kind’ in these two
provisions as necessarily implying the
exclusion of ‘payments-in-kind’ under
Article 9.1(c). In Article 9.1(a) and in
paragraph 5 of Annex 2, the term
‘payments-in-kind’ is used in
conjunction with the words ‘direct
subsidies’ and ‘direct payments’,
respectively. We believe that reference
is made to ‘payments-in-kind’ in these
two provisions to counter any suggestion
that the ordinary meaning of the terms
‘direct subsidies’ and ‘direct payments’
does not include ‘payments-in-kind’. By
contrast, since the ordinary meaning of
the word ‘payments’ in Article 9.1(c)
includes ‘payments-in-kind’, there was
no need for ‘payments-in-kind’ to be
expressly provided for. Moreover, if
‘payments-in-kind’ are included in the
qualified concept of ‘direct payments’
under Annex 2, paragraph 5, it would be
incongruous to exclude them from the
broader concept of ‘payments’ in Article
9.1(c).”(92)
consequently agreed with the Panel that the
ordinary meaning of the word “payments” in
Article 9.1(c) encompassed “payments” in forms
other than money, including revenue foregone:
“In our view, the provision of milk at
discounted prices to processors for
export under Special Classes 5(d) and
5(e) constitutes ‘payments’, in a form
other than money, within the meaning
of Article 9.1(c). If goods or services are
supplied to an enterprise, or a group of
enterprises, at reduced rates (that is, at
below market-rates), ‘payments’ are, in
effect, made to the recipient of the
portion of the price that is not charged.
Instead of receiving a monetary payment
equal to the revenue foregone, the
recipient is paid in the form of goods or
services. But, as far as the recipient is
concerned, the economic value of the
transfer is precisely the same.
We, therefore, uphold the Panel’s

finding, in paragraph 7.101 of the Panel
Report, that the provision of discounted
milk to processors or exporters under
Special Classes 5(d) and 5(e) involves
‘payments’ within the meaning of Article
9.1(c) of the Agreement on
Agriculture.”(93) (94)
(ii) Benchmark to be applied when assessing
payments
(Article 21.5 — New Zealand and US) explained
the importance of a benchmark when assessing
if the measure at issue involves “payments”
under Article 9.1(c):
“Thus, the determination of whether
‘payments’ are involved requires a
comparison between the price actually
charged by the provider of the goods or
services — the prices of CEM in this case
— and some objective standard or
benchmark which reflects the proper
value of the goods or services to their
provider — the milk producer in this
case. We do not accept Canada’s
argument that as the producer
negotiates freely the price with the
processor, and CEM prices are,
therefore, market-determined, it is not
necessary to compare these prices with
an objective standard.
Article 9.1(c) of the Agreement on

Agriculture does not expressly identify
any standard for determining when a
measure involves ‘payments’ in the form
of payments-in-kind. The absence of an
express standard in Article 9.1(c) may be
contrasted with several other provisions
involving export subsidies which do
provide an express standard. Thus, for
instance, even within Article 9.1 itself,
sub-paragraphs (b) and (e) expressly
provide that the domestic market
constitutes the appropriate basis for
comparison.(95)
We believe that it is significant that

Agriculture does not expressly identify a
standard or benchmark for determining
whether a measure involves ‘payments’.
It is clear that the notion of ‘payments’
encompasses a diverse range of
practices involving a transfer of
resources, either monetary or in-kind.
Moreover, the ‘payments’ may take
place in many different factual and
regulatory settings. Accordingly, we
believe that it is necessary to scrutinize
carefully the facts and circumstances of
a disputed measure, including the
regulatory framework surrounding that
measure, to determine the appropriate
basis for comparison in assessing
whether the measure involves
‘payments’ under Article 9.1(c).”(96)
(Article 21.5 — New Zealand and US) rejected
the Panel’s suggestion that the domestic market
provided the “right benchmark” for the dispute.
“The domestic price in this case is an
administered price fixed by the
Canadian government as part of the
regulatory framework established by it
for managing the supply of milk destined
for consumption in the domestic market.
As with administered prices in general,
this price expresses a government policy
choice based, not only on economic
considerations, but also on other social
objectives. The Canadian regulatory
framework for managing domestic milk
supply, including the establishment of
the administered price, is not in dispute
in this case. There can be little doubt,
however, that the administered price is
a price that is favourable to the
domestic producers. Consequently, sale
of CEM by the producer at less than the
administered domestic price does not,
necessarily, imply that the producer has
foregone a portion of the proper value
of the milk to it. In the situation where
the producer, rather than the
government, chooses to produce and sell
CEM in the marketplace at a price it
freely negotiates, we do not believe it is
appropriate to use, as a basis for
comparison, a domestic price that is
fixed by the government.”(97)
(Article 21.5 — New Zealand and US) also
rejected an alternative “benchmark” which
relied on world market prices.
“The alternative ‘benchmark’ which the
Panel relied upon to determine whether
CEM prices involve ‘payments’ was the
terms and conditions on which
alternative supplies are available to
processors on world markets, through
IREP.(98) In reviewing this benchmark,
we recall that, in these proceedings, the
standard used to determine whether
there are ‘payments’ under Article
9.1(c) must be based on the proper
value of the milk to the producer, in
order to determine whether the
producer foregoes a portion of this
value. If a producer wishes to sell milk
for export processing, it is obvious that
the price of the milk to the processor
must be competitive with world market
prices. If it is not, the processor will not
buy the milk, as it will not be able to
produce a final product that is
competitive in export markets.
Accordingly, the range of world market
prices determines the price which the
producer can charge for milk destined
for export markets.(99) World market
prices do, therefore, provide one
possible measure of the value of the
milk to the producer.
However, world market prices do not

provide a valid basis for determining
whether there are ‘payments’, under
Agriculture, for, it remains possible that
the reason CEM can be sold at prices
competitive with world market prices is
precisely because sales of CEM involve
subsidies that make it competitive.
Thus, a comparison between CEM prices
and world market prices gives no
indication on the crucial question,
namely, whether Canadian export
production has been given an advantage.
Furthermore, if the basis for comparison
were world market prices, it would be
possible for WTO Members to subsidize
domestic inputs for export processing,
while taking care to maintain the price
of these inputs to the processors at a
level which equalled or marginally
exceeded world market prices. There
would then be no ‘payments’ under
Agriculture and WTO Members could
easily defeat the export subsidy
commitments that they have undertaken
in Article 3 of the Agreement on
Agriculture.(100)
We do not, therefore, accept that world

market prices are an appropriate basis
for determining whether sales of CEM by
producers involve ‘payments’ under
Agriculture.”(101)
(Article 21.5 — New Zealand and US) indicated
that a number of possible measures for
assessing the value of milk existed:
“We turn now to determine the
appropriate standard for assessing
whether sales of CEM by producers
involve ‘payments’ under Article 9.1(c)
of the Agreement on Agriculture. We
reiterate that the standard must be
objective and based on the value of the
milk to the producer.
Although the proceeds from sales at

domestic or world market prices
represent two possible measures of the
value of milk to the producer, we do not
see these as the only possible measures
of this value. For any economic
operator, the production of goods or
services involves an investment of
economic resources. In the case of a
milk producer, production requires an
investment in fixed assets, such as land,
cattle and milking facilities, and an
outlay to meet variable costs, such as
labour, animal feed and health-care,
power and administration. These fixed
and variable costs are the total amount
which the producer must spend in order
to produce the milk and the total
amount it must recoup, in the long-
term, to avoid making losses. To the
extent that the producer charges prices
that do not recoup the total cost of
production, over time, it sustains a loss
which must be financed from some other
source, possibly ‘by virtue of
governmental action.”(102)
(Article 21.5 — New Zealand and US II)
considered that the average total cost of
production benchmark should be an industry-
wide average:
“We believe that the standard for
determining the existence of
‘payments’, under Article 9.1(c), should
reflect the fact that the obligation at
issue is an international obligation
imposed on Canada. The question is not
whether one or more individual milk
producers, efficient or not, are selling
CEM at a price above or below their
individual costs of production. The issue
is whether Canada, on a national basis,
has respected its WTO obligations and,
in particular, its commitment levels. It,
therefore, seems to us that the
benchmark should be a single, industry-
wide cost of production figure, rather
than an indefinite number of cost of
production figures for each individual
producer. The industry-wide figure
enables cost of production data for
producers, as a whole, to be aggregated
into a single, national standard that can
be used to assess Canada’s compliance
with its international obligations.
By contrast, if the benchmark were to

operate at the level of each individual
producer, there would be a proliferation
of standards, requiring individual-level
inquiry and application of Article 9.1(c),
as if the obligations under the
Agreement on Agriculture involved
rights and obligations of individual
producers, rather than WTO
Members.”(103)
(Article 21.5 — New Zealand and US II) agreed
with the Panel that certain imputed costs and
selling costs should be included in the cost of
production benchmark:
“We, therefore, find that the COP
standard for determining whether
‘payments’ exist, under Article 9.1(c) of
the Agreement on Agriculture, includes
all monetary and non-monetary
economic costs of production, such as
the costs of family labour and
management, and of owner’s equity.
…
Accordingly, we find that any transport,
marketing, and administrative costs are
to be included in the COP standard
applied under Article 9.1(c), as are any
costs of acquiring and retaining
quota.”(104)
(b) “financed by virtue of governmental action”
(i) Meaning of governmental action
(Article 21.5 — New Zealand and US) considered
the meaning of the term “governmental action”
under Article 9.1(c):
“We recall that, in the original
proceedings, the role of the government
in managing the supply of milk for
export was manifest. We stated that:
‘[G]overnmental action’ is not

simply involved; it is, in fact,
indispensable to enable the
supply of milk to processors for
export, and hence the transfer of
resources, to take place. In the
regulatory framework,
‘government agencies’ stand so
completely between the
producers of the milk and the
processors or the exporters that
we have no doubt that the
transfer of resources takes place
‘by virtue of governmental
action’.(105) (emphasis added)
Although the phrase ‘financed by virtue

of governmental action’ must be
understood as a whole, it is useful to
consider separately the meaning of the
different parts of this phrase. Taking the
words ‘governmental action’ first, we
observe that the text of Article 9.1(c)
does not place any qualifications on the
types of ‘governmental action’ which
may be relevant under Article 9.1(c). In
the original proceedings, we stated that
‘[t]he essence of “government” is … that
it enjoys the effective power to
“regulate”, “control” or “supervise”
individuals, or otherwise “restrain” their
conduct, through the exercise of lawful
authority.’(106) In our opinion the word
‘action’ embraces the full range of these
activities, including governmental action
regulating the supply and price of milk
in the domestic market.”(107)
(ii) Meaning of “financed”
(Article 21.5 — New Zealand and US) considered
the meaning of this term under Article 9.1(c):
“[I]t will not be sufficient simply to
demonstrate that a payment occurs as a
consequence of governmental action
because the word ‘financed’, in Article
9.1(c), must also be given meaning.
The word ‘financed’ might be given a

rather specific meaning such that it
would be confined to the financing of
‘payments’ in monetary form or to the
funding of ‘payments’ from government
resources. However, we have already
recalled that ‘payments’, under Article
9.1(c), include payments-in-kind, so the
word ‘financed’ needs to cover both the
financing of monetary payments and
payments-in-kind.(108) In addition,
Article 9.1(c) explicitly excludes a
reading of the word ‘financed’ whereby
payments must be funded from
government resources, as the provision
states that payments can be financed by
virtue of governmental action ‘whether
or not a charge on the public account is
involved’. Thus, under Article 9.1(c), it
is not necessary that the economic
resources constituting the ‘payment’
actually be paid by the government or
even that they be paid from government
resources. Accordingly, although the
words ‘by virtue of’ render
governmental action essential, Article
9.1(c) contemplates that payments may
be financed by virtue of governmental
action even though significant aspects of
the financing might not involve
government.”(109)
(iii) Link between governmental action and the
financing of payments
70. When examining the link required
between governmental action and the financing
of payments under Article 9.1(c), the Panel on
Canada — Dairy (Article 21.5 — New Zealand
and US) considered that governmental action
should be “indispensable” to the financing of
payments, and “establish[es] the conditions
which ensure that the payment … takes
place.”(110) Further, the Panel indicated that
for the “by virtue of” test of Article 9.1(c) to be
met “it must be established that a payment
would not be financed … but for governmental
action.”(111) This “but for” standard would be
met if the following two requirements were
established:
“[T]hat governmental action, de jure or
de facto: (i) prevents Canadian milk
producers from selling more milk on the
regulated domestic market, at a higher
price, than to the extent of the quota
allocated to them; and (ii) obliges
Canadian milk processors to export all
milk contracted as lower priced
commercial export milk, and,
accordingly, penalizes the diversion by
processors of milk contracted as
commercial export milk to the domestic
market. As explained below,(112) only if
both those requirements were to be
met, governmental action could be said
to be indispensable for the transfer of
resources to take place: the lower
priced commercial export milk would
not have been available to Canadian
processors for export but for these
governmental actions, taken
together.”(113)
(Article 21.5 — New Zealand and US) confirmed
that mere governmental action would not be
sufficient for a finding that an export subsidy
existed under Article 9.1(c) and expanded on
the meaning of the words “by virtue of”:
“The words ‘by virtue of‘ indicate that
there must be a demonstrable link
between the governmental action at
issue and the financing of the payments,
whereby the payments are, in some
way, financed as a result of, or as a
consequence of, the governmental
action.”(114) (emphasis added)
(Article 21.5 — New Zealand and US) indicated
that establishing such a link would be more
difficult in cases involving payments-in-kind.
“[T]he link between governmental
action and the financing of payments
will be more difficult to establish, as an
evidentiary matter, when the payment is
in the form of a payment-in-kind rather
than in monetary form, and all the more
so when the payment-in-kind is made,
not by the government, but by an
independent economic operator.”(115)
73. Further, the Appellate Body in Canada —
Dairy (Article 21.5 — New Zealand and US)
indicated that it disagreed with the Panel’s
findings that governmental action had
“oblige[d]” or “drive[n]” producers to sell
commercial export milk (“CEM”).(116)
However, the Appellate Body did not make any
further findings on the meaning of “financed by
governmental action” at that stage of the
proceedings.
74. In Canada — Dairy (Article 21.5 — New
Zealand and US II) the Appellate Body
considered the meaning of “financed by
government action” in light of the ordinary
meaning of the word “financing” but, on the
other hand, the fact that Article 9.1(c)
expressly states that “payments” need not
involve “a charge on the public account”. It
summed up as follows:
“Accordingly, even if government does
not fund the payments itself, it must
play a sufficiently important part in the
process by which a private party funds
‘payments’, such that the requisite
nexus exists between ‘governmental
action’ and ‘financing’.”(117)
considered the facts of the dispute and agreed
with the Panel that a significant percentage of
producers were likely to finance sales of
commercial export milk (“CEM”) at below the
costs of production as a result of participation
in the domestic market and, further, that
payments made through the supply of CEM at
below the costs of production were financed by
virtue of “governmental action” within the
meaning of Article 9.1(c) of the Agreement on
Agriculture:
“It falls now to consider the role of the
Canadian government in financing
payments made on the sale of CEM. We
have agreed with the Panel that a
significant percentage of producers are
likely to finance sales of CEM at below
the costs of production as a result of
participation in the domestic market.
Canadian ‘governmental action’ controls
virtually every aspect of domestic milk
supply and management. [footnote
omitted] In particular, government
agencies fix the price of domestic milk
that renders it highly remunerative to
producers. Government action also
controls the supply of domestic milk
through quota, thereby protecting the
administered price. The imposition by
government of financial penalties on
processors that divert CEM into the
domestic market is another element of
governmental control over the supply of
milk. Further, the degree of government
control over the domestic market is
emphasized by the fact that government
pools, allocates, and distributes
revenues to producers from all domestic
sales. Finally, governmental action also
protects the domestic market from
import competition through tariffs.
[footnote omitted]
In our view, the effect of these different

governmental actions is to secure a
highly remunerative price for sales of
domestic milk by producers. In turn, it is
due to this price that a significant
proportion of producers covers their
fixed costs in the domestic market and,
as a result, has the resources profitably
to sell export milk at prices that are
below the costs of production.”(118)
dismissed an objection that this reasoning
brings “cross-subsidization” under Article 9.1(c)
of the Agreement on Agriculture:
“We have explained that the text of
Article 9.1(c) applies to any
‘governmental action’ which ‘finances’
export ‘payments’. The text does not
exclude from the scope of the provision
any particular governmental action, such
as regulation of domestic markets, to
the extent that this action may become
an instrument for granting export
subsidies. Nor does the text exclude any
particular form of financing, such as
‘cross-subsidization’. Moreover, the text
focuses on the consequences of
governmental action (‘by virtue of
which’) and not the intent of
government. Thus, the provision applies
to governmental action that finances
export payments, even if this result is
not intended. As stated in our Report in
the first Article 21.5 proceedings, this
reading of Article 9.1(c) serves to
preserve the legal ‘distinction between
the domestic support and export
subsidies disciplines of the Agreement
on Agriculture’.(119) Subsidies may be
granted in both the domestic and export
markets, provided that the disciplines
imposed by the Agreement on the levels
of subsidization are respected. If
governmental action in support of the
domestic market could be applied to
subsidize export sales, without
respecting the commitments Members
made to limit the level of export
subsidies, the value of these
commitments would be undermined.
Article 9.1(c) addresses this possibility
by bringing, in some circumstances,
governmental action in the domestic
market within the scope of the ‘export
subsidies’ disciplines of Article
3.3.”(120)
considered that the “payments” at issue were
not financed “by virtue of” another form of
governmental action in the dispute, which was
an exemption for processors from paying the
higher domestic price for milk when they
purchased commercial export milk:
“We do not believe that this action
influences the ‘financing’ of payments
by the producer. Certainly, this action
explains why the processor of CEM is not
required to pay the higher domestic
price for CEM. However, the mere fact
that the processor is not obliged to buy
CEM at the domestic price does not
demonstrate a link between this
exemption and the financing of
payments by the producer on the sale of
CEM. The exemption is, in short, not
linked to the mechanism by which the
producer funds the payments.”(121)
4. Article 9.1(d)
(a) “costs of marketing”
78. In US — FSC, the measure at issue created
a reduction of income tax liability for certain
United States’ corporations, provided, inter
alia, that these corporations incurred a certain
portion of their marketing expenses abroad. The
Panel found that the United States’ measure
constituted a subsidy to “reduce the costs of
marketing exports”, within the meaning of
paragraph 1(d).(122) The Appellate Body
disagreed and held, inter alia, that “income tax
liability under the FSC measure arises only when
goods are actually sold for export, that is, when
they have been the subject of successful
marketing. Such liability arises because goods
have, in fact, been sold, and not as part of the
process of marketing them”.(123) (Emphasis
original) The Appellate Body ultimately
concluded that “if income tax liability arising
from export sales can be viewed as among the
‘costs of marketing exports’, then so too can
virtually any other cost incurred by a business
engaged in exporting”:
“We turn, first, to the word ‘marketing’
in Article 9.1(d), which is at the heart of
the phrase ‘to reduce the costs of
marketing exports’ in Article 9.1(d).
Taken alone, that word can have, as the
Panel indicated, a range of meanings.
The Panel noted the Webster’s
Dictionary meaning, according to which
‘marketing’ is the ‘aggregate of
functions involved in transferring title
and in moving goods from producer to
consumer including among others
buying, selling, storing, transporting,
standardizing, financing, risk bearing
and supplying market information’. …
The New Shorter Oxford Dictionary
provides a similar meaning: ‘The action,
business, or process of promoting and
selling a product …’. However, we must
look beyond dictionary meanings,
because, as we have said before,
‘dictionary meanings leave many
interpretive questions open.’
The text of Article 9.1(d) lists ‘handling,

upgrading and other processing costs,
and the costs of international transport
and freight’ as examples of ‘costs of
marketing’. The text also states that
‘export promotion and advisory services’
are covered by Article 9.1(d), provided
that they are not ‘widely available’.
These are not examples of just any ‘cost
of doing business’ that ‘effectively
reduce[s] the cost of marketing’
products. Rather, they are specific types
of costs that are incurred as part of and
during the process of selling a product.
They differ from general business costs,
such as administrative overhead and
debt financing costs, which are not
specific to the process of putting a
product on the market, and which are,
therefore, related to the marketing of
exports only in the broadest sense.
…
Income tax liability under the FSC
measure arises only when goods are
actually sold for export, that is, when
they have been the subject of successful
marketing. Such liability arises because
goods have, in fact, been sold, and not
as part of the process of marketing
them. Furthermore, at the time goods
are sold, the costs associated with
putting them on the market — costs such
as handling, promotion and distribution
costs — have already been incurred and
the amount of these costs is not altered
by the income tax, the amount of which
is calculated by reference to the sale
price of the goods. In our view, if
income tax liability arising from export
sales can be viewed as among the ‘costs
of marketing exports’, then so too can
virtually any other cost incurred by a
business engaged in exporting.”(124)
XI . Article 10 back to top
Article 10: Prevention of Circumvention of
Export Subsidy Commitments
1. Export subsidies not listed in
paragraph 1 of Article 9 shall not be
applied in a manner which results in, or
which threatens to lead to,
circumvention of export subsidy
commitments; nor shall non-commercial
transactions be used to circumvent such
commitments.
2. Members undertake to work toward

the development of internationally
agreed disciplines to govern the
provision of export credits, export credit
guarantees or insurance programmes
and, after agreement on such
disciplines, to provide export credits,
export credit guarantees or insurance
programmes only in conformity
therewith.
3. Any Member which claims that any

quantity exported in excess of a
reduction commitment level is not
subsidized must establish that no export
subsidy, whether listed in Article 9 or
not, has been granted in respect of the
quantity of exports in question.
4. Members donors of international

food aid shall ensure:
(a) that the provision of

international food aid is not tied
directly or indirectly to
commercial exports of
agricultural products to recipient
countries;
(b) that international food aid

transactions, including bilateral
food aid which is monetized,
shall be carried out in
accordance with the FAO
“Principles of Surplus Disposal
and Consultative Obligations”,
including, where appropriate,
the system of Usual Marketing
Requirements (UMRs); and
(c) that such aid shall be

provided to the extent possible
in fully grant form or on terms no
less concessional than those
provided for in Article IV of the
Food Aid Convention 1986.

1. Article 10.1
(a) Export subsidy commitments
interpreted the term “export subsidy
commitments” to have “a wider reach [than
reduction commitments] that covers
commitments and obligations relating to both
scheduled and unscheduled agricultural
products”:
“The word ‘commitments’ generally
connotes ‘engagements’ or ‘obligations’.
Thus, the term ‘export subsidy
commitments’ refers to commitments or
obligations relating to export subsidies
assumed by Members under provisions of
the Agreement on Agriculture, in
particular, under Articles 3, 8 and 9 of
that Agreement.
…
We also find support for this
interpretation of the term ‘export
subsidy commitments’ in Article 10
itself, which draws a distinction, in sub-
paragraphs 1 and 3, between ‘export
subsidy commitments’ and ‘reduction
commitment levels’. In our view, the
terms ‘export subsidy commitments’ and
‘reduction commitments’ have different
meanings. ‘Reduction commitments’ is a
narrower term than ‘export subsidy
commitments’ and refers only to
commitments made, under the first
clause of Article 3.3, with respect to
scheduled agricultural products. It is
only with respect to scheduled products
that Members have undertaken, under
Article 9.2(b)(iv) of the Agreement on
Agriculture, to reduce the level of
export subsidies, as listed in Article 9.1,
during the implementation period of the
Agreement on Agriculture. The term
‘export subsidy commitments’ has a
wider reach that covers commitments
and obligations relating to both
scheduled and unscheduled agricultural
products.”(125)
(b) “applied in a manner which results in, or
which threatens to lead to circumvention”
80. In US — FSC, the Appellate Body made a
number of observations relevant to the
interpretation of the phrase “applied in a
manner which results in, or which threatens to
lead to, circumvention”:
“We turn next to whether the subsidies
under the FSC measure are ‘applied in a
manner which results in, or which
threatens to lead to, circumvention of
export subsidy commitments’. (emphasis
added) The verb ‘circumvent’ means,
inter alia, ‘find a way round, evade …’.
Article 10.1 is designed to prevent
Members from circumventing or
‘evading’ their ‘export subsidy
commitments’. This may arise in many
different ways. We note, moreover,
that, under Article 10.1, it is not
necessary to demonstrate actual
‘circumvention’ of ‘export subsidy
commitments’. It suffices that ‘export
subsidies’ are ‘applied in a manner
which … threatens to lead to
circumvention of export subsidy
commitments’.
…
Article 10.1 prevents the application of
export subsidies which ‘results in, or
which threatens to lead to,
circumvention’ of that prohibition.
Members would certainly have ‘found a
way round’, a way to ‘evade’, this
prohibition if they could transfer,
through tax exemptions, the very same
economic resources that they are
prohibited from providing in other forms
under Articles 3.3 and 9.1.
…
Given that the nature of the ‘export
subsidy commitment’ differs as between
scheduled and unscheduled products, we
believe that what constitutes
‘circumvention’ of those commitments,
under Article 10.1, may also differ.
As regards scheduled products, when the

specific reduction commitment levels
have been reached, the limited
authorization to provide export
subsidies as listed in Article 9.1 is
transformed, effectively, into a
prohibition against the provision of
those subsidies. However, as we have
seen, the FSC measure allows for the
provision of an unlimited amount of FSC
subsidies, and scheduled agricultural
products may, therefore, benefit from
those subsidies when the reduction
commitment levels specified in the
United States’ Schedule for those
agricultural products have been
reached. In our view, Members would
have found ‘a way round’, a way to
‘evade’, their commitments under
Articles 3.3 and 9.1, if they could
transfer, through tax exemptions, the
very same economic resources that they
were, at that time, prohibited from
providing through other methods under
the first clause of Articles 3.3 and under
9.1.”(126)
81. The Panel on US — FSC (Article 21.5 —
EC) indicated that the Act concerned contained
subsidies contingent on export performance
under Article 1(e) of the Agreement on
Agriculture. The United States was found to
have acted inconsistently with Article 10.1 for
“applying the export subsidies, with respect to
both scheduled and unscheduled agricultural
products, in a manner that, at the very least,
threaten[ed] to circumvent its export subsidy
commitments under Article 3.3 of the
Agreement on Agriculture”:
“Turning to the issue of whether the
export subsidies are ‘applied in a
manner which results in, or which
threatens to lead to, circumvention of
export subsidy commitments’ within the
meaning of Article 10.1 of the
Agreement on Agriculture, we derive
guidance from the approach of the
Appellate Body in the original dispute
and consider the structure and other
characteristics of the measure.(127) We
recall that the term ‘export subsidy
commitments’, defining the obligations
that are to be protected under Article
10.1 of the Agreement on Agriculture,
‘… covers commitments and obligations
relating to both scheduled and
unscheduled agricultural products’.(128)
We note that the Act creates a legal

entitlement for recipients to receive
export subsidies, not listed in Article 9.1
(129), with respect to both scheduled
and unscheduled agricultural products.
Upon fulfilment by the taxpayer of the
conditions stipulated in the Act, the
United States government must provide
the tax exclusion. As there is no
limitation on the amount of
extraterritorial income, and thus on the
amount of qualifying foreign trade
income, that may be claimed in respect
of eligible transactions, the amount of
export subsidies is unqualified.(130)
Thus, with respect to unscheduled

agricultural products, we believe that
the Act involves the application of
export subsidies, not listed in Article
9.1, in a manner that, at the very least,
‘threatens to lead to circumvention’ of
that ‘export subsidy commitment’ in
Article 3.3.
With respect to scheduled agricultural

products, we observe that the measure
allows for the provision of an unlimited
amount of subsidies, and scheduled
agricultural products may, therefore,
benefit from those subsidies even after
the reduction commitment levels
specified in the United States’ Schedule
for those agricultural products have
been reached. Thus, we find that the
Act is applied in a manner that, at the
very least, threatens to lead to
circumvention of the export subsidy
commitments made by the United
States, under the first clause of Article
3.3, with respect to scheduled
agricultural products.(131)
We note that, in these proceedings, the

United States does not contest that, if
the measure gives rise to subsidies
contingent upon export performance
under the Agreement on Agriculture,
then these subsidies would violate its
obligations under Article 10.1 and 8 of
the Agreement on Agriculture.
We therefore conclude that the United

States has acted inconsistently with its
obligations under Article 10.1 of the
Agreement on Agriculture by applying
the export subsidies, with respect to
both scheduled and unscheduled
agricultural products, in a manner that,
at the very least, threatens to
circumvent its export subsidy
commitments under Article 3.3 of the
Agreement on Agriculture. Furthermore,
by acting inconsistently with Article
10.1, the United States has acted
inconsistently with its obligation under
Article 8 of the Agreement on
Agriculture ‘not to provide export
subsidies otherwise than in conformity
with this Agreement …’.”(132)
2. Article 10.2
82. At its meeting of 18 October 2000, the
General Council agreed to instruct the
Committee on Agriculture to include an item on
the implementation of Article 10.2 of the
Agreement on Agriculture in the agenda of the
regular meetings of the Committee on
Agriculture.(133)
83. At its meeting of 18 October 2000, the
General Council also stated that:
“[I]n pursuing their work on export
credits in accordance with Article 10.2,
Members will of course take into account
the provisions of paragraph 4 of the
Marrakesh Decision on net food-
importing countries, in which Ministers
had agreed that any agreement on
export credits should ensure appropriate
provision for differential treatment in
favour of least-developed and net food-
importing developing countries.(134)”
84. At the Doha WTO Ministerial, Members
approved the following recommendations,
which had been submitted to the Committee on
Agriculture for their consideration:
“a) That the focus of the work in the
regular Committee meetings would be
on the implementation of Article 10.2
and the disciplines foreseen therein,
whereas the Special Session negotiations
would focus on the proposals tabled or
to be tabled on export credit practices;
b) that, without prejudice to further

work to be undertaken in the regular
meetings of the Committee as provided
for in subparagraph (I) above, in the
event that a Sector Understanding on
agricultural export credits is concluded
at the OEC, the Committee would, as
envisaged in the report of the
Committee on Agriculture to the
Singapore WTO Ministerial (G/L/131,
paragraph 11), consider how any such
understanding could be multilateralized
within the framework of the Agreement
on Agriculture and how the provisions of
paragraph 4 of the Marrakesh NFIDC
Decision have been taken into account;
and
c) that the Committee on Agriculture

should submit a report to the General
Council on this subject following its
regular September 2002 meeting.(135)”
85. Pursuant to the above implementation
agenda, the Committee in its regular meetings
under the provisions of Article 18.6 while
considering the development of internationally
agreed disciplines to govern the provision of
export credits, export credit guarantees or
insurance programmes, took into account the
provisions of paragraph 4 of the NFIDC Decision.
(136)
86. With respect to the Decision on Measures
Concerning the Possible Negative Effects of the
Reform Programme on Least-Developed and Net
Food-Importing Developing Countries (the
“NFIDC Decision”), see Section XXIX below.
3. Article 10.3
(a) Export credits, export credit guarantees and
insurance programmes
87. With respect to the different treatment
of developing Members in respect of agricultural
export credits, export credit guarantees or
insurance programmes, see paragraph 103
below.
(b) Burden of proof
88. In Canada — Dairy (Article 21.5 — New
Zealand and US II), the Appellate Body
explained that Article 10.3 of the Agreement on
Agriculture provides a special rule for proof of
export subsidies that applies in certain disputes
under Articles 3, 8, 9 and 10 of the Agreement
on Agriculture. Article 10.3 partially reverses
the usual rules on burden of proof as follows:
“Under the usual rules on burden of
proof, the complaining Member would
bear the burden of proving both parts of
the claim. However, Article 10.3 of the
Agreement on Agriculture partially
alters the usual rules. The provision
cleaves the complaining Member’s claim
in two, allocating to different parties
the burden of proof with respect to the
two parts of the claim we have
described.
Consistent with the usual rules on

burden of proof, it is for the complaining
Member to prove the first part of the
claim, namely that the responding
Member has exported an agricultural
product in quantities that exceed the
responding Member’s quantity
commitment level.
If the complaining Member succeeds in

proving the quantitative part of the
claim, and the responding Member
contests the export subsidization aspect
of the claim, then, under Article 10.3,
the responding Member ‘must establish
that no export subsidy … has been
granted’ in respect of the excess
quantity exported.” (emphasis added)
89. With respect to the export subsidization
part of the claim, the complaining Member,
therefore, is relieved of its burden, under the
usual rules, to establish a prima facie case of
export subsidization of the excess quantity,
provided that this Member has established the
quantitative part of the claim.(137)
4. Article 10.4
90. With respect to international food aid,
see Article 16 and paragraphs 3(i) and (ii) of the
Decision on Measures Concerning the Possible
Negative Effects of the Reform Programme on
Least-Developed and Net Food-Importing
Developing Countries (the “NFIDC Decision”).
Section XVII below and paragraph 131 below.
91. The Chairman of the General Council
referred a proposal by the African Group to the
Committee on Agriculture for its consideration.
(138) On 14 July 2003 he submitted a report to
the General Council on the status of the
proposal and the progress made with regards to
it.(139) In the proposal it was suggested that
developed country Members undertake in their
schedule of commitments to make contributions
towards a revolving fund for normal levels of
food imports, providing food aid in fully grant
form, and maintaining food aid levels
consistently with recommendations and rules
under the Food Aid Convention.
Footnotes:
1. BISD 33S/19, Part I, Section D. back to text
2. MTN.TNC/11, pp. 6–7. back to text
3. See Appellate Body Report on Korea — Various Measures
on Beef, paras. 126, 127 and 129. back to text
4. (footnote original) The New Shorter Oxford English
Dictionary, (Clarendon Press, 1993), Vol. I, p. 15.
back to text
5. (footnote original) Ibid. back to text
6. (footnote original) We note that this difference is not
reflected in the wording of the definition of Current Total
AMS in Article 1(h). Article 1(h)(ii) provides that Current
Total AMS is to be calculated “in accordance with the
provisions of this Agreement, including Article 6, and with
the constituent data and methodology used in the tables of
supporting material incorporated by reference in Part IV of
the Member’s Schedule”. (emphasis added) back to text
7. Appellate Body Report on Korea — Various Measures on
Beef, para. 111. back to text
8. (footnote original) On the contrary, the Panel opines
that the “constituent data and methodology” has an
important role to play in ensuring that the calculation of
support to any given product is calculated in subsequent
years consistently with support calculated in the base
period. Panel Report, para. 811. back to text
9. (footnote original) … In other words, there is no data
(product) in respect of which the methodology of Schedule
LX of Korea (that is, the use of figures for the years 1989–
1991) could be applied, in so far as beef is concerned.
back to text
Beef, paras. 112–114. back to text
Beef, paras. 117–118. back to text
12. Appellate Body Report on Canada — Dairy, para. 87.
back to text
13. Appellate Body Report on US — FSC, para. 136.
back to text
back to text
15. Appellate Body Report on US — FSC, para. 141. This was
confirmed in the Appellate Body Report on US — FSC
(Article 21.5 — EC), paras 192–195. back to text
16. Panel Report on Korea — Various Measures on Beef,
para. 803. back to text
17. Appellate Body Report on US — FSC, paras. 145–146.
back to text
back to text
19. (footnote original) Part III contains only one other
provision, namely, Article 5, which provides for a special
safeguard mechanism that may be used to derogate from
the requirements of Article 4 when certain conditions are
met. We will discuss Article 5 later in this section.
back to text
20. Appellate Body Report on Chile — Price Band System,
paras. 200–201. back to text
21. G/AG/2, pp. 2–4. back to text
22. See Section III.B.1 of the Chapter on the DSU.
back to text
23. (footnote original) G. Leech and J. Svartvik, A
Communicative Grammar of English, (Longman, 1979),
paras 112–119. R. Quirk and S. Greenbaum, A University
Grammar of English, (Longman, 1979), paras. 328–330.
back to text
24. (footnote original) Bound tariffs could, however, be
renegotiated pursuant to Article XXVIII of the GATT 1994.
back to text
27. (footnote original) In this context, we note that a
special safeguard can be imposed only on those agricultural
products for which a Member has reserved its right to do so
in its Schedule. back to text
29. (footnote original)We note that Chile has not reserved,
in it Schedule, the right to apply special safeguards. In
response to questioning at the oral hearing, no participant
suggested that the interpretation of Article 4.2 should be
different depending on whether or not a Member reserved
such a right. back to text
31. See Section III.B.1(iii)(c) of the Chapter on the DSU.
back to text
32. “… a ‘concordant, common and consistent’ sequence of
acts or pronouncements which is sufficient to establish a
discernible pattern implying the agreement of the parties
[to a treaty] regarding its interpretation.” Appellate Body
Report on Japan — Alcoholic Beverages, para. 107.
back to text
34. (footnote original) The New Shorter Oxford Dictionary,
L. Brown (ed.) (Clarendon Press), 1993, Vol. I, p. 502.
back to text
37. The Panel found that “[a]s an empirical matter, we
observe that Members, in regular practice, invariably
express commitments in the ordinary customs duty column
of their Schedules as ad valorem or specific duties, or
combinations thereof. All ‘ordinary’ customs duties may
therefore be said to take the form of ad valorem or specific
duties (or combinations thereof).” Panel Report on Chile —
Price Band System, para. 7.52. back to text
38. The Panel had found that “[a]s a normative matter, we
observe that those scheduled duties always relate to either
the value of the imported goods, in the case of ad valorem
duties, or the volume of imported goods, in the case of
specific duties.” Panel Report on Chile — Price Band
System, para. 7.52. back to text
39. (footnote original) Ibid., para. 7.52. back to text
40. (footnote original) Appellate Body Report, EC —
Bananas III, supra, footnote 58, para. 154. Panel Report in
United States Restrictions on Imports of Sugar, adopted 22
June 1989, BISD 36S/331, para. 5.2. back to text
41. (footnote original) Appellate Body Report, European
Communities — Customs Classification of Certain Computer
Equipment, WT/DS62/AB/R, WT/DS67/AB/R,
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851,
paras. 84, 90 and 93. See also our paras. 213–214 of this
Report. back to text
paras. 271, 272 and 274. back to text
43. The Panel had found that “for the purpose of Article
II:1(b), first sentence, of GATT 1994 and Article 4.2 of the
Agreement on Agriculture, an ‘ordinary’ customs duty, that
is, a customs duty senso strictu, is to be understood as
referring to a customs duty which is not applied on the basis
of factors of an exogenous nature”. Panel Report on Chile —
44. (footnote original) We stated in Argentina — Textiles
and Apparel, supra, footnote 55, para. 46, that “a tariff
binding in a Member’s Schedule provides an upper limit on
the amount of duty that may be imposed, and a Member is
permitted to apply a rate of duty that is less than that
provided for in its Schedule.” Thus, the fact that the “cap”
(recorded in the “ordinary customs duty” column of a
schedule) is a specific or an ad valorem duty does not mean
that a Member will not apply a tariff at a lower rate, or that
the rate it applies will not be based on what the Panel calls
“exogenous” factors. Indeed, as we noted above, it is
difficult to conceive that a Member would ever make
changes to its applied tariff rate except based on exogenous
factors such as the interests of domestic consumers or
producers. back to text
50. Panel Report on Korea — Various Measures on Beef,
51. The Panel had concluded that it could not develop an
interpretation of the term “variable import levies” solely on
the basis of the methods of interpretation codified in Article
31 of the Vienna Convention. and decided, therefore, to
have recourse to “supplementary means of interpretation”
within the meaning of Article 32 of that Convention. This
led to the Panel’s identification of what it described as
“fundamental characteristics” of “variable import levies”.
Panel Report on Chile — Price Band System, paras. 7.35–
7.36. The Appellate Body, nevertheless, upheld the Panel’s
finding, in para. 7.47 of the Panel Report, that Chile’s price
band system is a “border measure similar to ‘variable
import levies’ and ‘minimum import prices’ within the
meaning of footnote 1 and Article 4.2 of the Agreement on
Agriculture”. Appellate Body Report on Chile — Price Band
System, para. 262. back to text
Dictionary, supra, footnote 190, p. 1574. back to text
54. (footnote original) Ibid., p. 3547. back to text
55. (footnote original) Appellate Body Report, Argentina —
Textiles and Apparel, supra, footnote 55, para. 46.
back to text
58. (original footnote) Panel Report, para. 7.36(e).
back to text
62. The Panel’s reasoning was the following: “First, as
regards the term ‘similar’, dictionaries define this term as
‘having a resemblance or likeness’, ‘of the same nature or
kind’, and ‘having characteristics in common’. Two
measures are in our view ‘similar’ if they share some, but
not all, of their fundamental characteristics. If two
measures share all of their fundamental characteristics,
they are identical rather than similar. A border measure
should therefore have some fundamental characteristics in
common with one or more of the measures explicitly listed
in footnote 1. It is then a matter of weighing the evidence
to determine whether the characteristics are sufficiently
close to be considered ‘similar’.” Panel Report on Chile —
Dictionary, supra, [ ], p. 2865. back to text
para. 228. In this case, Chile’s price band system was
compared to and found to be sufficiently similar to a
“variable import levy” and “minimum import price” to make
it a “similar border measure”. Para. 252. back to text
66. (footnote original) In this respect, we note that, as
illustrated by documents from GATT 1947, Contracting
Parties to GATT 1947 regarded import levies which were
applied to products subject to a tariff binding as variable
import levies in spite of the existence of that binding:
The General Agreement contains no provision on the use
of “variable import levies”. It is obvious that if any such
duty or levy is imposed on a ‘bound’ item, the rate must
not be raised in excess of what is permitted by Article II … .
(emphasis added)
See Note by the Executive Secretary on “Questions relating
to Bilateral Agreements, discrimination and Variable
Taxes”, dated 21 November 1961, GATT document L/1636,
68. (footnote original) Paragraph 6 provides:
Where a tariff equivalent resulting from these guidelines is
negative or lower than the current bound rate, the initial
tariff equivalent may be established at the current bound
rate or on the basis of national offers for that product.
(emphasis added) back to text
71. For this interpretation, see para. 19 of this Chapter.
back to text
73. Appellate Body Report on EC — Poultry, paras. 143 and
145. back to text
74. (footnote original) Panel Report, para. 278.
back to text
75. (footnote original) We note that the Incoterms 1990 of
the International Chamber of Commerce explains what the
acronym “c.i.f.” means “cost, insurance and freight”, but
does not give a definition of “c.i.f. import price”. However,
according to customary usage in international trade, c.i.f.
import price, or simply c.i.f. price, is equal to the price of
the product in the exporting country plus additional costs,
insurance and freight to the importing country. This
definition may also be inferred from paragraph 2 of the
Attachment to Annex 5 of the Agreement on Agriculture.
back to text
76. Panel Report on EC — Poultry, para. 146. back to text
77. Appellate Body Report on EC — Poultry, paras. 147–150.
back to text
78. (footnote original) Panel Report, para. 291.
back to text
79. Appellate Body Report on EC — Poultry, paras. 151–152.
back to text
80. Appellate Body Report on EC — Poultry, para. 153.
back to text
81. Appellate Body Report on EC — Poultry, para. 168.
back to text
82. WT/L/238. back to text
83. Panel Report on Canada — Dairy, para. 7.43.
back to text
84. Appellate Body Report on Canada — Dairy, paras. 87–88.
back to text
back to text
86. (footnote original) Supra, para. 87. back to text
87. (footnote original) Panel Report, para. 7.92.
back to text
88. (footnote original) The Shorter Oxford English
Dictionary, C.T. Onions (ed.) (Guild Publishing, 1983), Vol.
II, p. 1532. back to text
89. Appellate Body Report on Canada — Dairy, paras. 107–
108. back to text
90. (footnote original) See Panel Report, para. 7.95.
back to text
110. back to text
back to text
114. back to text
94. The Panel on Canada — Dairy (Article 21.5 — New
Zealand and US II) recalled that, as found by the Panel
(Panel Report on Canada — Dairy, para. 7.101) and
confirmed by the Appellate Body (Appellate Body Report on
Canada — Dairy, para. 112) in the original Canada — Dairy
case, a payment under Article 9.1(c) includes a “payment-
in-kind.” This finding had been reaffirmed by the Panel
(Panel Report on Canada — Dairy (Article 21.5 — New
Zealand and US), para. 6.12) and Appellate Body (Appellate
Body Report on Canada — Dairy (Article 21.5 — New Zealand
and US), paras. 71 and 76) in the first Canada — Dairy
compliance case. The point had not been re-argued by the
parties before The Panel on the second Canada — Dairy
compliance case: Panel Report on Canada — Dairy (Article
21.5 — New Zealand and US II), para. 5.26. back to text
95. (footnote original) See also, items (c), (d), (f), (g), (h),
(j) and (k) of the Illustrative List of the SCM Agreement,
each of which expressly identifies one or more benchmarks
to be used as a basis for comparison in determining whether
a measure involves export subsidies. See further,
paragraphs 8 and 13 of Annex 3, and paragraph 2 of Annex
4, of the Agreement on Agriculture, which expressly
identify one or more benchmarks for calculating the amount
of domestic support. back to text
96. Appellate Body Report on Canada — Dairy (Article 21.5
— New Zealand and US), paras. 74–76. back to text
— New Zealand and US), para. 81 back to text
98. (footnote original) Panel Report, paras. 6.22 ff. See,
supra, para. 67. We note that, in examining the terms and
conditions on which IREP is available, the Panel focused
exclusively on the requirements to obtain a discretionary
permit and to pay an administrative fee. In assessing
whether alternative sources of supply are available on more
favourable terms, we consider that panels should take
account of all the factors which affect the relative
“attractiveness” in the marketplace of the different goods
or services. The primary consideration must be price, while
the importance of administrative formalities will depend on
their nature and characteristics. For instance, if an import
permit were granted to importers as a matter of course, in
the context of straightforward import procedures, and if
import fees were only administrative charges to cover
expenses, these formalities would be unlikely, on their own,
to mean that imports were available on less favourable
terms and conditions. back to text
99. (footnote original) New Zealand acknowledged, before
the Panel, that the price of CEM “will be essentially world
market prices”. (New Zealand’s first submission to the
Panel, para. 4.05) Canada also argued that the processor
offers producers a price for CEM that is based on world
market conditions. (Canada’s first submission to the Panel,
para. 37; Canada’s second submission to the Panel, para.
13; Canada’s oral statement before the Panel, paras. 21,
30, 49 and 51; Canada’s appellant’s submission, para. 39
and footnote 32 thereto.) back to text
100. (footnote original) We note that none of the
participants in these proceedings argued that world market
prices are the appropriate benchmark for determining
whether supplies of CEM involve “payments” within the
meaning of Article 9.1(c) of the Agreement on Agriculture.
See also, supra, footnote 43. back to text
— New Zealand and US) paras. 83–85. back to text
— New Zealand and US II), paras. 95–96. back to text
— New Zealand and US II), paras. 110 and 116. back to text
105. (footnote original) Appellate Body Report on Canada —
Dairy, supra, footnote 2, para. 120. back to text
106. (footnote original) Ibid., para. 97. back to text
— New Zealand and US), paras. 111 and 112. back to text
108. (footnote original) Supra, para. 71. back to text
— New Zealand and US), para. 114. back to text
110. Panel Report on Canada — Dairy (Article 21.5 — New
Zealand and US), paras. 6.38, 6.40 and 6.44. back to text
Zealand and US), paras. 6.39. back to text
112. (footnote original) See paragraphs 6.43–6.48 below [of
the Report]. back to text
Zealand and US), paras. 6.42. The Panel found that these
requirements were satisfied — a finding which led Canada to
appeal. back to text
— New Zealand and US II), para. 133. back to text
— New Zealand and US II), paras. 144–145. back to text
122. Panel Report on US — FSC, para. 7.155. back to text
back to text
back to text
125. Appellate Body Report on US — FSC, paras. 144 and
147. back to text
This was confirmed by the Panel Report on US — FSC (Article
21.5 — EC), paras. 8.117–8.122. back to text
127. (footnote original) Original Appellate Body Report,
supra, note 1, para. 149. back to text
supra, note 1, paras. 144–147. back to text
129. (footnote original) See supra, note 219. back to text
130. (footnote original) See also original Appellate Body
Report, supra, note 1, para. 149. back to text
supra, note 1, para. 152. back to text
132. Panel Report on US — FSC (Article 21.5 — EC), paras.
8.117–8.122. back to text
133. WT/GC/M/59, para. 20. back to text
134. WT/GC/M/59, para. 21. back to text
135. WT/MIN(01)/17, para. 2.3. The text of the
recommendations is contained in document G/AG/11,
136. G/L/719, para. 4 (i). back to text
— New Zealand and US II), paras. 71–73 and 75. back to text
138. TN/CTD/W/3/Rev.2. back to text
139. G/AG/17 and G/AG/17/Corr.1. back to text
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Agreement On Agriculture

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Agreement On Agriculture

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WTO ANALYTICAL INDEX: AGREEMENT ON AGRICULTURE

The texts reproduced here do I. Preamble back to top

Having agreed that in

Noting that commitments under

B. Interpretation and Application of the

II. Article 1 back to top

(a) “Aggregate Measurement of

(i) with respect to support

(ii) with respect to support

(c) “budgetary outlays” or “outlays”

(d) “Equivalent Measurement of

(i) with respect to support

(ii) with respect to support

(e) “export subsidies” refers to

(f) “implementation period” means

(g) “market access concessions”

(h) “Total Aggregate Measurement of

(i) with respect to support

(ii) with respect to the level of

(i) “year” in paragraph (f) above and

B. Interpretation and Application of Article 1

‘calculated in accordance with

Article 1(a)(ii) contains two express

We note, however, that the Panel did

In the circumstances of the present

We have already explained above that

III. Article 2 back to top

B. Interpretation and Application of Article 2

IV. Article 3 back to top

2. Subject to the provisions of Article

3. Subject to the provisions of

B. Interpretation and Application of Article 3

With respect to scheduled agricultural

V. Article 4 back to top

2. Members shall not maintain, resort

(footnote original) 1 These measures include

B. Interpretation and Application of Article 4

Thus, Article 4 of the Agreement on

If Article 4.2 were to read ‘any measures

Thus, contrary to what Chile argues,

Footnote 1 also refers to a residual

We also find it difficult to understand

[N]ot each and every duty that is

Contextual support for interpreting the

To determine what kind of variability

However, in our view, the presence of a

‘[these] schemes generally

The Panel also said that minimum import

… the participants said they do not

… To be ‘similar’, Chile’s price band

Relevant context can also be found in

C. Relationship with other WTO Agreements

VI. Article 5 back to top

(a) the volume of imports of

(b) the price at which imports

(footnote original) 2 The reference price used to

2. Imports under current and

4. Any additional duty imposed under

(footnote original) 3 Where domestic consumption

(a) where such market access

(b) where such market access