A World Trade Organization (“WTO”) panel has ruled against Peru’s Price Range System (“PRS”) for import duties on several of Guatemala’s key agricultural exports.

Under the PRS, Peru maintains a floor price and ceiling price for affected products, which it updates every two weeks to reflect changes to international reference prices. Guatemala brought the challenge on June 13, 2013, asserting, among others, four primary arguments:

  • That the PRS establishes a variable levy and a minimum import price, both of which are prohibited by Article 4.2 of the WTO Agreement on Agriculture;
  • That the PRS is inconsistent with Article II:1(b) of the General Agreement on Tariffs and Trade (“GATT 1994”) because it results in duties in excess of ordinary customs duties that are not part of Peru’s scheduled concessions;

  • That Peru’s actions are inconsistent with Article X:1 of the GATT 1994 because it administers the PRS in an opaque manner by failing to publish key data and methodology for its calculations; and

  • That Peru violates Article X:3(a) of the GATT 1994 because it administers the PRS in a manner that conflicts with the requirements of its own legislation.[1]

Before reaching the merits of the dispute, the WTO panel addressed Peru’s claim that Guatemala brought its challenge in bad faith in violation of Article 3.10 of the WTO Understanding on the Rules and Procedures Governing the Settlement of Disputes (“DSU”). Specifically, Peru asserted that Guatemala agreed to Peru’s use of the PRS as part of a free trade agreement (“FTA”) they concluded in December 2011.

The panel found that Peru failed to demonstrate bad faith on the part of Guatemala in bringing its claims before the WTO Dispute Settlement Body (“DSB”). The panel noted that Article 3.7 of the DSU allows Members to exercise their own judgment as to whether to bring a claim, and that DSU Article 3.10 clarifies that such steps should not be construed as “contentious acts” in and of themselves. The panel observed that, although the parties negotiated and signed an FTA allowing for Peru’s PRS, the FTA had not yet been ratified by all parties and, therefore, had no legal effect. Having dismissed Peru’s preliminary challenge to the dispute, the panel turned to the substantive issues.

Addressing Guatemala’s claims under Article 4.2 of the Agriculture Agreement, the panel found that the PRS is not tantamount to a minimum import price because the PRS does not inherently prevent imports at below-floor prices from entering the market. However, the panel agreed with Guatemala that the PRS measure violates Peru’s obligations under that provision by creating variable import levies. Under the PRS, a new reference price is calculated every two weeks using a formula and methodology that is not transparent. The result is an unpredictable fluctuation of import duties. Thus, the panel held that Peru’s PRS is inconsistent with Article 4.2 of the Agriculture Agreement.

The panel also agreed with Guatemala that the additional duties imposed under the PRS constitute import duties beyond ordinary customs duties that were not included in Peru’s Schedule of Concessions during the negotiation of the WTO agreements. Thus, the panel held that the PRS violates Article II:1(b) of the GATT 1994.

Regarding Guatemala’s claims under Articles X:1 and X:3(a) of the GATT 1994, the panel determined that it was not necessary for it to reach any conclusions based on its previous findings. Additionally, the panel declined to opine on whether Members can amend, via an FTA, their rights and obligations under the WTO agreements as between themselves because the FTA at issue in this dispute has not entered into force.

[1] Guatemala also raised several arguments in the alternative that relied upon the Customs Valuation Agreement. The panel did not reach these alternative arguments in its decision.