1 - Dispute settlement between developing countries: Argentina and Chilean price bands

Summary

The WTO is playing a novel role in regional trade relations. Access to a multilateral dispute settlement system is helping to scrutinize and anchor the more lax regional disciplines. Although accessible only to highly profitable sectors because participation is too costly and time consuming, the WTO provides the intangible benefit of exposure. Pressure through exposure can help countries unable or unwilling to retaliate to obtain more favourable results than in bilateral or regional instances. In fact, WTO rulings act as a magnifying glass of countries' (WTO-incompatible) trade policies. In this picture, reputation, a high-value asset to attract business and negotiate trade agreements, is thus at stake. A dispute between Argentina and Chile over variable levies for edible vegetable oils is a case in point.

The problem in context

After a tariff reclassification in 1999, the Chilean price band system (PBS) resulted in higher customs duties for edible vegetable oils. In normal circumstances Argentina might have been able to absorb the drop that this implied in market share, but the restriction came in a very threatening international context for the sector. This is a flagship sector in Argentina: it weighs heavily in trade and production and thus its interests cannot be dismissed lightly. As a result, this issue became the first legally handled dispute with a regional partner to be submitted to the WTO. Due to the number of coterminous issues that peppered the relationship between the two countries, shelving for political reasons was always a risk.