1、BOVINE HIDES AND THE IMPORT OF FINISHED LEATHERArbitrationunder Article 21.3（c） of theUnderstanding on Rules and Procedures Governing the Settlement of DisputesAward of the ArbitratorFlorentino P. FelicianoI.Introduction1.On 16February2001, the Dispute Settlement Body （the DSB） adopted the Panel Rep
2、ort in Argentina Measures Affecting the Export of Bovine Hides and the Import of Finished Leather （Argentina Hides and Leather）. At the DSB meeting of 12 March 2001, Argentina informed the DSB, pursuant to Article21.3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes（
3、the DSU）, that it would implement the recommendations and rulings of the DSB in this dispute and that it would require a reasonable period of time to do so, under the terms of Article21.3 of the DSU.2.In view of its inability to reach an agreement with Argentina on the period of time reasonably requ
4、ired for implementation of those recommendations and rulings, the European Communities requested that such period be determined by binding arbitration pursuant to Article 21.3（c） of the DSU.3.By joint letter of 12 June 2001, Argentina and the European Communities notified the DSB that they had agree
5、d that the duration of the for implementation should be determined through binding arbitration, under the terms of Article 21.3（c） of the DSU, and that I should act as Arbitrator. The parties also indicated in that letter that they had agreed to extend the time-period for the arbitration, which shal
6、l be completed no later than 90 days after the date of the appointment of the arbitrator. Notwithstanding this extension of the time-period, the parties stated that the arbitration award would be deemed to be an award made under Article21.3（c） of the DSU. My acceptance of this designation as Arbitra
7、tor was conveyed to the parties by letter of 12 June 2001.4.Written submissions were received from Argentina and the European Communities on 3July2001, and an oral hearing was held on 18 July 2001.II.Arguments of the PartiesA.Argentina5.Argentina requests the arbitrator to fix the at forty-six month
8、s and fifteen days, so that that period of time will expire on 31 December 2004. 6.Argentina submits that the text of Article 21.3（c） of the DSU makes it clear that the 15-month period provided as a guideline is merely indicative. Article 21.3（c） speaks of the possibility of fixing a period of longe
9、r than 15 months for the implementation of the recommendations and rulings of the DSB. According to Argentina, the circumstances in this particular dispute warrant the granting of a period longer than 15 months for the implementation of the DSB recommendations and rulings.7.Since 1992, Argentina has
10、 been working on a programme to combat tax evasion and reform its tax system. The cornerstone of this programme is the system of percepciones and retenciones applied to the Impuesto al Valor Agregado （the IVA） and the Impuesto de GananciasIG）. This programme ties in, both economically and legally, w
11、ith the objective of reducing the fiscal deficit. The programme has been explicitly backed by various international financial agencies, in particular, the International Monetary Fund （the IMF）. The agreements concluded with the IMF set out a number of quantitative targets, notably for the levels of
12、fiscal deficit, primary spending and public debt, that are monitored on a quarterly basis throughout the period covered by the programme. Failure of Argentina to achieve these targets would preclude disbursement of the funds otherwise available under the agreements.8.Argentina stresses that its fisc
13、al position has seriously deteriorated over the past years, essentially as a result of the fall in tax revenue brought about by the economic recession that began in the third quarter of 1998 in the wake of the 1997 Asian crisis. In this context of economic recession, Argentina sought to reduce the d
14、eficit by increasing taxes, and reducing primary spending. These efforts must continue this year and over the next few years.9.Under these circumstances, Argentina argues that legal and fiscal difficulties would result from eliminating the extra financial burden imposed on importers as a result of t
15、he advances on the IVA and IG at rates higher than those applied to domestic transactions, through a downward equalization of the rates applied to imports.10.Argentina, at the same time, contends that although in theory it would be possible to comply with the findings of the Panel through an upward
16、equalization of the rates of the said payments on account, that is, by increasing the rates for domestic transactions, the effects of such a measure on Argentinas current situation, when the country is trying to recover from recession, would make the measures politically and economically unfeasible.
17、 Similarly, the introduction of a system of refunding interests to importers, would involve setting up a very complex administrative mechanism to ensure accurate calculation of interest due. Moreover, it would open the door to complaints from the relevant domestic sectors, complicating further the f
18、iscal situation. 11.Argentina submits that the structure of its tax system justifies the requested time-limit. Under Argentina law, there is a set of regulations governing the conditions and time-limits for action by the national authorities in the domestic sphere. In the external sphere, there is a
19、 set of payment obligations and commitments assumed by Argentina that can only be honoured by strict compliance with the laws in force: the National Budget Law No. 25,401 of 12 December 2000 and the Fiscal Solvency Law No. 25,152 of 15 September 1999.12.Argentina describes the process by which its a
20、nnual budget is enacted as follows. In September of each year, the Executive submits to the Congress of the Nation its draft budget for the following financial year, containing estimated income and expenditure authorizations. First, it is examined by the Budget and Finance Committee of the Chamber o
21、f Deputies. Once that Committee has issued its opinion, the draft budget is examined by the Chamber, and upon approval by the Chamber of Deputies, it is passed on to the Budget and Finance Committee of the Senate before final transmission to the Senate. When it has been approved by both Chambers, it
22、 is promulgated by the Executive, which has partial veto authority. Once this process has been completed, the National Budget becomes a Law of the Nation, and can be amended only by another national law. 13.The text of the law is accompanied, inter alia, by a number of annexed tables providing a bre
23、akdown of the budgetary information （income, expenditure, financing, etc.） according to the organization of the national administration and its decentralized bodies. The tax revenue forecast is broken down according to the different taxes （IG, IVA, Personal Property Tax, etc.） and set out in detail
24、in the Executives annual letter of submission to the National Congress.14.The projected amounts are then incorporated in the final estimate of income that is ultimately approved by Congress. The specification of these amounts, once they are included in the budget, forms part of the Law and make up t
25、he estimate of income for the entire financial year; in other words, they can only be amended by another law, since any change would involve a consequential change in the expenditure/income equation and the deficit level already approved.15.Argentina further explains that, at the same time, the tax
26、system is tied to the Law on Fiscal Solvency which provides, inter alia, for the progressive reduction of the national public deficit with a view to balancing the budget by 2005. This Law establishes target deficit levels for each year, and any change in the deficit levels indicated would also requi
27、re a legislative amendment. Because of the relationship between the Law on Fiscal Solvency and the Budget Law, estimated income and expenditure will have to be adjusted in order to reduce the deficit to attain the target prescribed. The procedure will have to be applied by law in each of the succeed
28、ing financial years until the process is completed in 2005.16.The Law on Fiscal Solvency also lays down the obligation to include in the letter of submission of the annual budget a multi-year budget covering at least three years. In other words, the Executive must submit to the Congress, together wi
29、th the budget for the coming year, a multi-year projection containing estimates of income on the basis of existing tax rates which means calculating the advances in the form of needed in order to meet the objectives of the Law on Fiscal Solvency for 31 December 2004. 17.As a result, in the view of A
30、rgentina, it is not possible to amend the budget currently in force without altering its deficit target as well as the deficit target of the Law on Fiscal Solvency. Nor is it possible, in the current situation, to alter the system of customs levies. That system is not only linked to imports, but is
31、also part of a comprehensive scheme to combat tax evasion which includes levies on purchases in the domestic market and the regime. The system makes it possible to maintain better monitoring of the obligations of taxpayers while providing them with adequate incentives to declare and regularize their operations. 18.Argentina believes that a single and immediate modification of this regime involving a reduction of the rates of levies on imports would clash with the objective of the Law on Fiscal Solvency, since it would involve a significant loss in tax revenue. Moreover, the agree
