Colombia Loses
Compound Tariff Case at WTO Appellate Body
Plea of
Curbing Illicit Trade and Money Laundering Not Allowed
The
WTO’s highest court has said that a Colombian compound tariff on imports of
textiles, apparel, and footwear is inconsistent with global trade rules,
despite reversing some of an earlier panel’s (DS461) findings.
The Colombian compound tariff has been in place since
2013, with the tariff made up of a combination of 10 percent of the import
price as well as a “specific component,” the latter of which varies according
to the import price and customs classification.
The dispute began three years ago, when Panama filed
its consultations request at the WTO in June 2013. At the time, Panama argued
that the compound tariff violated Article II of the General Agreement on
Tariffs and Trade (GATT) and Colombia’s goods schedule.
A panel was established in September 2013 to hear the
case, and last November ruled largely in favour of
Panama’s claims. Two months later, Colombia appealed certain legal aspects of
the panel report.
The
case had brought forward the issue of illicit financial flows and how to design
measures aimed at reducing them without running afoul of WTO rules, given that
Colombia has argued throughout the proceedings that this compound tariff was
meant to address the problem of money laundering.
Specifically, Bogotá suggested that the affected
imports can be the product of “illicit trade,” brought across its borders at
“artificially low prices” as part of a scheme to launder money which, in turn,
helps fuel drug trafficking and armed conflict domestically.
When
defending its compound tariff to the earlier dispute panel, Colombia claimed
that GATT Article II does not apply to “illicit trade,” which its compound
tariff purportedly meant to address.
According to GATT Article II, WTO members must grant
the trade of fellow members with “treatment no less favourable”
than what has been agreed under its goods schedule. This requires, among other
provisions, the application of ordinary customs duties not greater than those
provided in such schedules.
Last November, the panel found it unnecessary to decide
whether GATT Article II applies to “illicit trade,” concluding that the
compound tariff is still greater than the ceilings Colombia agreed to under its
goods schedule.
The Appellate Body said that “illicit trade” should
indeed be covered by that GATT provision. According to their ruling, the
earlier panel’s finding that the compound tariff did not solely cover the
alleged illicit trade implied that the measure could still apply to “illicit
trade,” and therefore a legal interpretation on the relationship between
Article II and “illicit trade” should have been made by the panel.
The Appellate Body nonetheless rejected Colombia’s
argument, finding that the scope of that GATT provision is not “qualified in
respect of the nature or type of imports, or the reason or function of the
transaction, in a manner that excludes what Colombia considers to be illicit
trade” from the requirements to fulfil the bound tariff commitment.
The WTO judges added that legitimate policy objectives
– including those aimed at tackling money laundering – should be considered
through the GATT’s “general exceptions.”
Ultimately, the Appellate Body sided with the panel and
found that the compound tariff exceeds Colombia’s tariff ceilings.