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DOMINICAN REPUBLIC � MEASURES AFFECTING
7.156 Under Article 37 of the Decree 79-03 of 4 February 2003,517 and under Decree 130-02 of 11 February 2002,518 the Dominican Republic requires that a stamp be affixed to all cigarette packets in the territory of the Dominican Republic and under the supervision of the local tax authorities. This requirement applies both to domestic and imported cigarettes. 7.157 Article 37 of the Decree 79-03 of 4 February 2003 provides the following:
7.158 The relevant parts of Decree 130-02 of 11 February 2002 provide the following:
7.159 The Panel will refer to the requirement that a stamp be affixed on cigarette packets in the territory of the Dominican Republic and under the supervision of local tax authorities, upon importation and even after customs clearance as the "tax stamp requirement".
7.160 Honduras argues that the tax stamp requirement accords less favourable treatment to imported cigarettes than that accorded to like domestic cigarettes, in a manner inconsistent with Article III:4 of the GATT 1994. Honduras admits that the tax stamp requirement is applicable to both domestic and imported cigarettes and, as such, it is a formally identical treatment for both domestic and imported products.519 However, in its view, the formally identical requirement of affixing stamps in the Dominican Republic results in additional steps and costs for importers of cigarettes.520 7.161 The Dominican Republic�s first defence is that the tax stamp requirement does not accord less favourable treatment to imported cigarettes than that accorded to like products of national origin. In its opinion, the tax stamp requirement is not applied so as to afford protection to the domestic producers.521 The imports of cigarettes from Honduras have increased significantly in 2003 and the first trimester of 2004, both in absolute volumes and in market share.522 Any difference in the conditions of competition between imported and domestic products, in respect of compliance with the tax stamp requirement, would be a result of the inherent differences between imported and domestic products.523 The Dominican Republic�s alternative defence is that the tax stamp requirement is necessary to secure compliance with the Dominican Republic�s tax laws and regulations. Therefore, should it be found prima facie to be inconsistent with Article III:4, the tax stamp requirement should benefit from the application of Article XX(d) of the GATT 1994 and be declared WTO-compatible.524
7.162 Under Article III:4 of the GATT 1994:
7.163 The Appellate Body has stated that
7.164 There is no disagreement between the parties that imported and domestic cigarettes are "like products". As expressed by the Dominican Republic, "[l]ikeness of these products is not at issue in this dispute."526 7.165 Honduras has presented physical evidence of cigarettes exported to the Dominican Republic, as well as cigarettes domestically produced in the Dominican Republic.527 From the available evidence, the Panel is satisfied that both imported and domestic cigarettes have similar physical properties, are made from similar materials, and have a similar presentation; they have the same end-use (i.e. they are smoked by consumers); and they are classified under the same tariff heading 2402.20.00. Available evidence presented by the parties also indicates that, within the general product description, cigarettes are presented to consumers distinguished by brands. Under the identification of these brands, and within specific price segments, cigarettes compete against each other and are interchangeable for consumers (that is, consumers may switch from one brand to another). 7.166 The Panel therefore is of the view that imported cigarettes and domestic Dominican Republic cigarettes are like products within the meaning of Article III:4 of the GATT.
7.167 Honduras argues that the fulfilment of the tax stamp requirement is a prerequisite for withdrawing imported cigarettes from the warehouse in order that they may be distributed and sold in the Dominican Republic and, therefore, affects the internal sale of imported cigarettes.528 7.168 The Dominican Republic replies that the tax stamp requirement does not affect the internal sale, offering for sale, or distribution of cigarettes. In its opinion, the requirement does not directly govern the conditions of sale or purchase of cigarettes, nor does it adversely modify the conditions of competition between domestic and imported products, to the detriment of imported products.529 7.169 With respect to whether the tax stamp requirement affects the "internal sale" of cigarettes, the Panel notes that, as stated by the Appellate Body, the ordinary meaning of the word "affecting" implies a measure that has "an effect on" and thus indicates a broad scope of application. In the words of the Appellate Body:
7.170 The Panel notes that, under Article 37 of the Decree 79-03 of 4 February 2003, "Domestic producers and importers of cigarettes and cigars shall affix a stamp to cigarette packets or cigar boxes at the time of production or importation".531 The Dominican Republic states that no packet of domestic cigarettes may leave the production factories and enter the stream of commerce unless the tax inspector is satisfied that it bears a tax stamp. Likewise, no packet of imported cigarettes can leave the bonded warehouse unless the tax stamps are affixed to each cigarette packet in the presence of a tax inspector.532 7.171 In light of the previous factors, the Panel considers that the tax stamp requirement is an internal regulation that affects the internal sale and offering for sale of cigarettes in the domestic market of the Dominican Republic within the meaning of Article III:4 of the GATT.
7.172 Honduras indicates that the tax stamp requirement modifies the conditions of competition for imported cigarettes in the Dominican Republic to the detriment of imported cigarettes and therefore treats imported cigarettes less favourably than the like domestic products.533 Domestic producers of cigarettes may purchase tax stamps in advance and affix those stamps to cigarette packets in the course of their production process and prior to the final packaging of the product. For those domestic producers, the production process is therefore a continuous one, after which cigarettes may be sold on the domestic market.534 For imported cigarettes, the affixing of the tax stamps in the territory of the Dominican Republic requires a separate process, after the cigarettes have been produced and packed in the exporting country. Foreign producers are not allowed to affix the stamp on their own premises abroad. This additional process requires re-opening the boxes and cartons of cigarettes, affixing the stamps to the individual cigarette packets (over the cellophane), and repackaging the cartons and boxes.535 All these additional steps would require the importers to hire additional labour to carry out these tasks in the Dominican Republic while domestic producers would not have to undergo these additional steps. Honduras has provided physical evidence of cigarette packets as they are wrapped in different stages of the production and transportation processes, in order to highlight the additional steps that are undertaken in the territory of the Dominican Republic.536 7.173 Citing reports from private consultants, Honduras submits that the additional cost to importers from affixing the tax stamps in the territory of the Dominican Republic would be US$0.9 per thousand cigarettes, that is, 9.70 per cent of the c.i.f. average price, whereas it estimates that the cost to a domestic producer in the Dominican Republic would be around $0.01 per thousand cigarettes, that is, 0.1 per cent of the c.i.f. average cost. Honduras additionally indicates that the fact that stamps on imported cigarettes are placed over the cellophane detracts from the overall presentation of the final product, as compared to the presentation of domestic cigarette packets where stamps are placed on the packet during the production process before the cellophane wrap is applied.537 7.174 In the opinion of the Dominican Republic, the tax stamp requirement is applied equally to importers and to domestic producers. The Dominican Republic adds that Honduras has not presented any evidence to establish that the tax stamp requirement accords less favourable treatment to imported cigarettes, nor has it demonstrated that the measure has protective application. Therefore, in its view, Honduras has not established a prima facie case of inconsistency of the measure with Article III:4. In its view, Honduras has only submitted evidence to show that the importer bears certain costs as a result of its method of affixing stamps in the Dominican Republic. Those additional costs would be associated with compliance with non-discriminatory internal measures and would result from inherent differences in the normal conditions under which imported products compete with domestic products. They would be inevitably linked to the condition of imported products. The Dominican Republic further adds that many of the additional steps that Honduras has identified as a result of the tax stamp requirement are in fact either steps that domestic producers also have to perform (such as to manually cut tax stamps for each of the cigarettes packets before they can be affixed) or avoidable steps which are the result of the technology used by the importer. In its view, the importer could avoid unpacking cigarettes from cartons before affixing stamps, if it packaged individual cigarette packets into boxes. 7.175 The Dominican Republic expresses its opinion that, even assuming that the cost estimates provided by Honduras are correct, and assuming further that they cannot be reduced by reasonable means, the effect that the tax stamp requirement has on importers is negligible. Based on Honduras's own estimates, it calculates that the annual cost of complying with the tax stamp requirement for the Honduran firm exporting cigarettes into the Dominican Republic would be US$65,641. This importer is part of the second largest tobacco company in the world with 15 per cent of the world market. The world sales of this tobacco company were over $37 billion in 2003. In the Dominican Republic's opinion, the measure is commercially irrelevant and lacks any protective effect, as demonstrated by the fact that imports by the Honduran firm into the Dominican Republic increased by more than 80 per cent in value in 2003, compared with the previous year. 7.176 Honduras rebuts the latter arguments by identifying the specific steps that both domestic producers and importers take in their production and packaging processes, and signalling the specific additional steps that in its view importers have to adopt as a direct result of the tax stamp requirement. Honduras has also produced a statement from the private exporter of cigarettes into the Dominican Republic, who claims that the wrapping is needed to avoid packets deteriorating during the manufacturing process and when the cartons are opened in the country of destination in order to affix the tax stamps. The exporter also claims that, without the wrapping, the packets would be exposed to environment conditions without the protection afforded by the cellophane, which would have an adverse effect on the product. Without proper wrapping, cigarettes would lose their firmness and moisture-holding properties and their visual quality, as well as being more prone to damage during transit. They would not therefore meet the quality standards acceptable to the consumers in the Dominican Republic. 7.177 The Dominican Republic also argues that the additional steps performed by importers are the result of inherent differences in the normal conditions under which imported products compete with domestic products, and as such they are inevitably linked to the condition of imported products. In its view, costs associated with compliance with legitimate regulatory policies and laws of an importing country should not be considered "additional costs". Those costs are an unavoidable consequence of trading goods across borders and a result of the geographical and jurisdictional circumstances that separate importers from domestic producers. It is incumbent on rational economic players to factor those costs into their total cost of production and to take the necessary steps to reduce the costs and thus increase their margin of profit. 7.178 Honduras replies that the additional costs result from the imposition of the tax stamp requirement and are not inherent costs that arise from doing business. In Honduras's view, the inherent costs of doing business would include freight charges and insurance premiums. Any costs incurred as a result of governmental action could not be considered "inherent costs". 7.179 Honduras claims additionally that the fact that the stamp on imported cigarettes is placed over the cellophane on each individual packet aesthetically detracts from the overall presentation of the final product. Cigarettes manufactured in the Dominican Republic are allowed to have the tax stamp added to the packet before the cellophane wrap is applied and during the production process. Stamps are uniformly affixed by machine under the cellophane wrapping of each individual packet of cigarettes. However, because of the tax stamp requirement, in the case of imports, such stamps are affixed manually on the cellophane wrapping of each individual packet to minimize costs. Inevitably, the result is not uniform and the risk of technical and other imperfections is increased. As a result, for purposes of final presentation to the end consumer, imported cigarettes are not as attractively packaged as domestic cigarettes and conditions of competition are distorted to the detriment of imported cigarettes at the point of sale to end consumers. Aesthetics are an important element in competition. Honduras admits that, through the use of a different technology, imported cigarettes could also be packaged in a similar manner to domestic cigarettes, by unwrapping and rewrapping each individual packet, but this would entail substantial costs and investment.
7.180 Both parties agree that the tax stamp requirement � i.e. the requirement that a tax stamp must be affixed on cigarette packets in the territory of the Dominican Republic and under the supervision of Dominican Republic tax authorities � applies to both domestic and imported cigarettes and is, as such, a formally identical requirement. 7.181 The Panel notes, however, that in the view of the complaining party, this formal equality itself results in less favourable treatment being accorded to imported cigarettes as compared to domestic cigarettes, since tax stamps may be affixed on packets of domestic cigarettes as part of the production process, while in the case of imported cigarettes an additional process has to be undertaken, which entails added costs. 7.182 The Panel agrees that the relevant test for whether a measure is consistent with Article III:4 of the GATT is not whether the measure accords a treatment which is formally the same for both imported and like domestic products, but rather whether it accords a treatment for imported products which is not less favourable than the one granted to like domestic products. In fact, as noted by a previous panel, there are cases in which formally equal rules may accord a treatment for imported products which is less favourable than the one granted to like domestic products:
7.183 The Panel thus considers that the fact that the tax stamp requirement is applied equally � i.e. in a formally identical manner � to domestic and imported cigarettes does not automatically make it compatible with Article III:4. The Panel then needs to look at whether that formally equal measure results in a treatment that is less favourable for imported cigarettes.
7.184 The Panel considers that there is evidence that there are some steps performed by importers, specifically associated with compliance with the tax stamp requirement, which are not necessary for domestic producers, i.e. those related to unpacking and repacking of boxes in order to affix the stamps. Domestic producers of cigarettes are able to affix tax stamps as part of their production process. They are thus relieved of having to unwrap cigarette packages in order to affix stamps and of later having to rewrap those packages. 7.185 The Panel also notes that it is satisfied with the evidence presented by Honduras on the reasons argued by the private exporter to why cigarettes cannot be exported between the countries concerned, either unpackaged (loose) or packaged but not over-wrapped in cellophane. The Panel finds no reason to doubt the technical explanation on the justification for wrapping the cigarette packages in cellophane. The evidence presented by Honduras coincides with the common knowledge that tobacco products are delicate and may lose their physical characteristics, including their moisture-retaining characteristics and visual appeal for consumers, if they are not conserved properly. Additionally, the Panel considers that it would not be reasonable to presume that a private exporter would engage in additional steps and assume additional costs in its production process without justification. The Panel is thus satisfied by the evidence that cigarettes could not be exported either loose or in unwrapped packets, without having the quality of the product altered. As a result, the affixation of tax stamps on individual packets in the territory of the Dominican Republic would require, in the case of imported cigarettes, that cigarette packages be unwrapped before the stamps are affixed, and later rewrapped. 7.186 For the preceding reasons, the Panel considers that Honduras has presented a prima facie case that the tax stamp requirement imposes on importers of cigarettes the burden of performing additional steps to those performed by domestic producers of the like products. The Dominican Republic has not shown that the additional steps undertaken by the importer are either avoidable, or the result of the technology used by importers. Rather, in the Panel's view, they are related to the tax stamp requirement itself.
7.187 The Panel does not consider that the Dominican Republic has demonstrated that the costs resulting from the tax stamp requirement can be considered as "inevitably linked to the condition of imported products". On the contrary, they are the result of a measure adopted voluntarily by a Member. The Dominican Republic could have chosen not to impose a tax stamp requirement, or to have imposed a different type of tax stamp requirement. The Panel therefore does not find that the measure is a necessary result from inherent differences in the normal conditions under which imported products compete with domestic products.
7.188 The Panel notes that the Dominican Republic has not disputed Honduras's assertion that complying with the tax stamp requirement may imply additional costs for the importer of almost 10 per cent of the c.i.f. average price of the products, when the equivalent costs for domestic producers would be one hundredth of that amount, i.e. 0.1 per cent of the c.i.f. average price of the products. 7.189 The Panel is not convinced about the relevance of the comparison, suggested by the Dominican Republic, between the additional costs generated on importers by compliance with the tax stamp requirement and the world sales of those importers. Nor does it consider that the fact that those importers have increased their exports to the Dominican Republic necessarily means that the measure does not grant a less favourable treatment to imports. 7.190 The Panel recalls that the Appellate Body has stated that:
7.191 In light of the preceding arguments, the Panel considers that Article III:4 does not call for an examination of the impact of a measure on the global sales of a particular firm, but rather on the impact that the measure may have on the competitive conditions for imported products in relation to domestic products in the relevant market. In the present case, the relevant market would be that of cigarettes in the Dominican Republic. It is thus irrelevant whether the costs of complying with the measure may be negligible in relation to the global sales of an importer. 7.192 Similarly, the Panel is not persuaded by the argument concerning the increase of exports of cigarettes from Honduras to the Dominican Republic. Even if imports have increased, that fact does not per se exclude the possibility that conditions of competition between imported and domestic products in a particular market could still be affected. Arguably, imports could have increased even further, had the imported products not received a treatment that was less favourable than the one accorded to like domestic products.
7.193 The Dominican Republic has not disputed Honduras's argument that placing the stamp on imported cigarettes over the cellophane on each individual packet aesthetically detracts from the overall presentation of the final product.540 Honduras has provided physical evidence of packets of imported cigarettes after the affixation of the stamp in the Dominican Republic, as well as evidence of packets of domestic cigarettes, in order to highlight how, in its view, from an aesthetic standpoint, domestic cigarettes look better packaged than imported cigarettes.541 7.194 The Panel is satisfied with the evidence that from an aesthetic point of view, the tax stamp requirement results in imported cigarette packets having a less smooth presentation than like domestic cigarettes. The Panel is of the view that, other conditions being equal, a consumer may prefer a product that is more attractively packaged over one that is less attractively packaged. While the importer could surely engage in additional processes to produce a cigarette packet that is similarly presented to the like domestic product, this would in turn entail further additional costs and the less favourable treatment for imported products would thus still exist.
7.195 In order to determine whether the requirement that tax stamps be affixed only in the territory of the Dominican Republic and under the supervision of tax authorities accords less favourable treatment to imported cigarettes than to like domestic products, the Panel is guided by the statement from the Appellate Body that the assessment should focus on examining "whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products".542 7.196 In this respect, the Panel finds that, although the tax stamp requirement is applied in a formally equal manner to domestic and imported cigarettes, it does modify the conditions of competition in the marketplace to the detriment of imports. The tax stamp requirement imposes additional processes and costs on imported products. It also leads to imported cigarettes being presented to final consumers in a less appealing manner. 7.197 The Panel notes that, in this case, the differences in the conditions between imported and domestic products mean that the Dominican Republic should not apply the tax stamp requirement in a formally identical manner that does not take those differences into account, since this would, in practice, accord less favourable treatment to imported products. On the contrary, the Dominican Republic could have chosen to apply the requirement in a different manner to imported products, to ensure that the treatment accorded to them is de facto not less favourable. 7.198 Therefore, for the reasons indicated above, the Panel concludes that the requirement imposed by the Dominican Republic that a tax stamp be affixed to all cigarette packets in its own territory and under the supervision of the local tax authorities accords less favourable treatment to imported cigarettes than that accorded to the like domestic products, in a manner inconsistent with Article III:4 of the GATT 1994.
7.199 The Dominican Republic claims that Article III:1 has a particular contextual significance in interpreting Article III:4, so the Panel must consider whether the tax stamp requirement has a protective application, i.e. whether it is applied so as to afford protection to domestic producers. In its view, it is up to Honduras to provide evidence to demonstrate that the measure has protective application and Honduras has not submitted evidence to establish that the tax stamp requirement is applied so as to afford protection to domestic producers of cigarettes. The Dominican Republic considers that an examination of the design, architecture, and revealing structure of the requirement to affix a stamp in the territory of the Dominican Republic quickly reveals that the measure is not applied so as to afford protection to domestic producers. 7.200 Honduras replies by arguing that protection afforded to domestic production should not be a decisive element in establishing a violation of Article III:4. In its opinion, since Honduras has established that the tax stamp requirement accords "less favourable treatment" to imported cigarettes, the Panel should likewise conclude that the measure is applied "so as to afford protection to domestic production". 7.201 The Panel recalls in this respect the opinion of the Appellate Body:
7.202 Having reached the conclusion that the tax stamp requirement accords less favourable treatment to imported cigarettes than that accorded to like domestic products, the Panel thus finds that there is protection of the like domestic products. The Panel does not consider it necessary to make a separate and additional determination on whether the tax stamp requirement has protective application or is applied so as to afford protection to domestic producers of cigarettes. Indeed, the Appellate Body has expressed that:
7.203 The Dominican Republic requests that, should the Panel find that the tax stamp requirement is inconsistent with Article III:4 of the GATT 1994, it should nonetheless find that the measure is justified by Article XX(d) of the GATT. In the Dominican Republic's opinion, the requirement is a measure that is necessary to secure compliance with the Dominican Republic tax laws and regulations, which themselves are consistent with the GATT, and to prevent smuggling of cigarettes. The tax stamp would serve as a mark to alert the Dominican Republic tax authorities that the applicable taxes have been collected and would ensure that cigarettes continue to enter the Dominican Republic through regular and legitimate channels of commerce, preventing smugglers from selling unstamped and undeclared cigarettes in the domestic market. The Dominican Republic argues that the collection of tax revenue (and, conversely, the prevention of tax evasion) is a most important interest for any country and particularly for a developing country such as the Dominican Republic. The Dominican Republic argues that there is international agreement that tax stamps are a legitimate, internationally recognized method to prevent the smuggling of cigarettes and the resulting loss of tax revenue. In its opinion, the effective enforcement of the measure requires the presence of inspectors from its tax authority, the Direcci�n General de Impuestos Internos (the Directorate General of Internal Taxes, DGII), at the production facilities of domestic producers and .at the facilities of importers of cigarettes at the time the stamps are affixed. The Dominican Republic has also expressed that there is evidence that allowing tax stamps to be shipped and affixed abroad would result in forgery of such tax stamps and smuggling of the products in question. The Dominican Republic argues that it has no reasonable GATT consistent alternative for dealing with the problem of smuggling and tax evasion in the case of cigarettes. None of the possible alternatives can secure the same zero tolerance level of enforcement that the Dominican Republic has chosen to pursue with regard to tax collection and the prevention of cigarette smuggling, and to which it is entitled. One possible alternative would be to allow stamps to be affixed abroad. In the Dominican Republic's opinion, this would lead to smuggling, forgery and tax evasion. Another alternative is to have an inspector in each of the cities in the world in which cigarettes are or could be produced for export to the Dominican Republic, which could not be reasonably expected of the Dominican Republic. Moreover, in the Dominican Republic's view, the requirement is not applied in a manner that constitutes either arbitrary or unjustifiable discrimination between countries where the same conditions prevail, nor a disguised restriction on international trade. 7.204 Honduras replies to this defence by arguing that the Dominican Republic has not established that the tax stamp requirement is justified under Article XX(d) as is its burden, since Article XX(d) is an affirmative defence. In Honduras's view, the Dominican Republic has not demonstrated that the tax laws and regulations that would be enforced through the requirement are consistent with the GATT, nor has it demonstrated that the requirement is indeed a measure to secure compliance with those tax laws and regulations. Honduras further adds that, in its view, the Dominican Republic's Selective Consumption Tax, as described in Honduras's request for the establishment of a panel, is inconsistent with the Dominican Republic's obligations as set out in Articles III:2, III: 4, X:1 and X:3(a) of the GATT. Honduras argues additionally that the tax stamp requirement is not "necessary" to secure compliance with the tax laws and regulations of the Dominican Republic. Honduras argues that the Dominican Republic has less trade-restrictive alternatives available for use to enforce a tax stamp requirement. For example, Honduras mentions that, just as tax stamps are made available to domestic producers to enable them to affix the stamps in the course of the actual production process, they could also be made available to producers abroad for affixation on packets of cigarettes in the course of their own production process, prior to importation into the Dominican Republic. The authenticity of the stamps could be verified at the time of importation. Moreover, just as domestic producers are held accountable and are required to keep track of their inventory of tax stamps, the same conditions could be imposed on importers. As an added precaution, and as an alternative which is also less trade-restrictive, Honduras proposes that the Dominican Republic could resort to pre-shipment inspection and certification, through a reputable company, at the expense of the importer, in order to ensure that the tax stamps of the Dominican Republic are duly affixed to cigarettes in the exporting country. Finally, Honduras claims that the Dominican Republic has not demonstrated that the tax stamp requirement is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination.
7.205 According to paragraph (d) and the chapeau of Article XX of the GATT 1994:
7.206 As the Appellate Body has explained, the analysis of a measure under one of the paragraphs of Article XX is "two-tiered":
7.207 More specifically with relation to paragraph (d), the Appellate Body has also stated that:
7.208 The Panel will thus examine the Dominican Republic's arguments under Article XX(d), by looking first at whether the tax stamp requirement is necessary to secure compliance with the tax laws and regulations that have been identified by the Dominican Republic. Only if the Panel finds that the measure is necessary to secure compliance with the Tax Code of the Dominican Republic and therefore is provisionally justifiable under Article XX(d), would it proceed to examine whether it also meets the requirements of the chapeau of the Article, i.e. whether the different treatment constitutes a means of "arbitrary or unjustifiable discrimination between countries where the same conditions prevail", or a "disguised restriction on international trade."
7.209 In order to be justified by paragraph (d) of Article XX of the GATT 1994, a measure needs to be "necessary" to secure compliance with laws or regulations which are not inconsistent with the provisions of the GATT. This in turn means that the Dominican Republic has to prove that three conditions are met: (i) that the tax laws and regulations (which would be enforced through the requirement) are not inconsistent with the GATT; (ii) that the tax stamp requirement is a measure to secure compliance with those tax laws and regulations of the Dominican Republic; and, (iii) that the tax stamp requirement is necessary to achieve that objective. 7.210 The Panel notes that the Dominican Republic has claimed that the tax stamp requirement secures compliance with its tax laws and regulations generally, and more specifically with the provisions governing the Selective Consumption Tax. These tax laws and regulations have not been found to be inconsistent with provisions of the GATT. In the present case, Honduras has made claims against the Dominican Republic's laws and regulations governing the Selective Consumption Tax. However, those claims are limited to a specific aspect of those laws and regulations, namely the manner in which the Dominican Republic determines the value of imported cigarettes for the purpose of applying the Selective Consumption Tax. The tax stamp requirement is not specifically linked to that particular aspect of the laws and regulations. 7.211 In conclusion, the Panel considers that for the purpose of examining the Dominican Republic's arguments under Article XX(d), it may preliminarily assume that the tax laws or regulations, which would be enforced through the tax stamp requirement, are not inconsistent with the provisions of the GATT.
7.212 The Panel will now examine whether the tax stamp requirement is "necessary" to secure compliance with the Dominican Republic's tax laws and regulations. 7.213 The Panel begins by recalling several statements made by the Appellate Body. On the one hand, the Appellate Body has clarified that, in order to be considered "necessary" to secure compliance, a measure does not need to be "indispensable". On the other hand, it should not just be simply "making a contribution to". In the words of the Appellate Body:
7.214 The Appellate Body has also clarified that the necessity of a measure may also be examined in the light of factors such as: the relative importance of the common interests or values that the law or regulation to be enforced is intended to protect (the more vital or important those common interests or values are, the easier it would be to accept as "necessary" a measure designed as an enforcement instrument); the extent to which the measure contributes to the realization of the end pursued, the securing of compliance with the law or regulation at issue (the greater the contribution, the more easily a measure might be considered to be "necessary"); and, the restrictive impact of the measure on imported goods (a measure with a relatively small impact upon imported products might more easily be considered as "necessary" than a measure with intense or broader restrictive effects). Again, in the words of the Appellate Body:
7.215 The Panel finds no reason to question the Dominican Republic's assertions in the sense that the collection of tax revenue (and, conversely, the prevention of tax evasion) is a most important interest for any country and particularly for a developing country such as the Dominican Republic. The Panel also notes that, although it has already found that the tax stamp requirement modifies the conditions of competition in the marketplace to the detriment of imported cigarettes, Honduras has still been able to export cigarettes to the Dominican Republic and, in fact, its exports have increased quite significantly over the last few years. So the Panel may assume that the measure has not had any intense restrictive effects on trade. Having said that, the Panel will focus its analysis on whether the tax stamp requirement is in fact necessary to secure compliance with the Dominican Republic tax laws and regulations and to prevent smuggling of cigarettes. 7.216 In support of its argument on the international recognition of tax stamps as a legitimate method to prevent the smuggling of cigarettes and the resulting loss of tax revenue, the Dominican Republic has cited a 2002 document from a non-governmental association, the International Conference on Illicit Tobacco Trade (ICITT)549, as well as the World Health Organization (WHO) Framework Convention on Tobacco Control of 2003.550 Both parties have agreed that these documents are not legally binding on them. The ICITT document points out that labelling "is particularly useful to constrain the distribution of contraband and as such is necessary to identify the manufacturer, country of origin/destination, and the legal status of the product (i.e. tax or duty paid or exempt)". The ICITT document identifies "tax stamps" as one practice available for the purpose of labelling. The WHO Framework Convention on Tobacco Control, which has not entered in force, calls upon Parties to "�ensure that all unit packets and packages of tobacco products and any outside packaging of such products are marked to assist Parties in determining the origin of tobacco products, and in accordance with national law and relevant bilateral or multilateral agreements, assist Parties in determining the point of diversion and monitor, document and control the movement of tobacco products and their legal status." The WHO Framework Convention also calls upon Parties to "monitor and collect data on cross-border trade in tobacco products, including illicit trade, and exchange information among customs, tax and other authorities, as appropriate". In the view of the Dominican Republic, properly enforced tax stamps are required to mark, monitor, and collect data regarding cross-border trade in cigarettes in accordance with the WHO Framework Convention. 7.217 In light of the available information, the Panel does not disagree with the Dominican Republic's argument that tax stamps may be a useful instrument to monitor tax collection on cigarettes and, conversely, to avoid tax evasion. Indeed, as expressed by both parties, several countries have tax stamp regulations applicable to products such as matches, alcoholic beverages and tobacco products. As the Dominican Republic has noted, goods subject to tax stamp requirements tend to be mass-consumed products, that are susceptible to being smuggled. These products tend to be subject to high levels of taxes, which make them an important source of governmental revenue, but also make them more prone to smuggling. 7.218 Even admitting that tax stamps can generally be used to monitor tax collection, the specific tax stamp requirement in place in the Dominican Republic would still need to be justified. As mentioned, under the Dominican Republic's tax stamp requirement, tax stamps must be affixed in the Dominican Republic and under the supervision of the Dominican Republic tax authorities. 7.219 The Dominican Republic has argued that the effective enforcement of its legislation requires the presence of inspectors from its tax authority, the Direcci�n General de Impuestos Internos (the Directorate General of Internal Taxes, DGII), at the production facilities of domestic producers and the facilities of importers of cigarettes at the time the stamps are affixed. It has also expressed that there is evidence in the Dominican Republic that allowing tax stamps to be shipped and affixed abroad would result in forgery of such tax stamps and smuggling of the products in question. It has further added that it does not have the right nor the resources to relocate DGII officials to foreign countries to enforce its own domestic laws abroad. Such an alternative would not be sufficient for the Dominican Republic to achieve the zero tolerance level of enforcement that it has chosen to pursue with regard to tax collection and cigarette smuggling. 7.220 However, Honduras claims that there are other less-trade restrictive alternatives available to the Dominican Republic that would avoid illicit trade in tobacco products, such as allowing stamps to be affixed in the exporting country or permitting pre-shipment inspections.
7.221 In the Dominican Republic's view, affixing stamps abroad may result in the forgery of tax stamps. When the stamps are affixed in front of a DGII agent, there is no risk of forgery, whereas allowing stamps to be affixed abroad has resulted, in the case of alcohol, in smuggling and tax evasion, as well as in forgery of tax stamps. The Dominican Republic has presented two sets of evidence related to smuggling in alcohol products, as support for its assertions. 7.222 As Exhibit DR-8, the Dominican Republic has submitted "Evidence of forgery, smuggling, and tax evasion resulting from allowing the affixation of Dominican Republic tax stamps abroad for alcoholic beverages". The documents contain information on a batch of alcoholic beverages seized in a commercial establishment in July 2001, as well as a memo DAT-No. 46, dated 6 April 2004, signed by the person in charge of the Department of Alcohol and Tobacco of the DGII.551 The Dominican Republic claims that this exhibit contains physical evidence of forged tax stamps for alcoholic beverages. However, these documents do not suggest that forgery of tax stamps was an element. The alcoholic drinks seized in July 2001 seem to have been smuggled from a neighbouring country. Forgery of tax stamps is not mentioned in the documents. 7.223 Memo DAT-No. 46, dated 6 April 2004, is also included as part of Exhibit DR-8. In that memo, the Department of Alcohol and Tobacco of the DGII explicitly states that only the National Treasury would be in a position to confirm whether a set of tax stamps were forged. The same memo expresses doubts on the validity of a group of � cent stamps, based on the fact that the stamps have a seven figure number, whereas since 2002 tax stamps have eight figure numbers and that the type of numbers printed on the stamps is different from the type of numbers usually delivered by the National Treasury. The Panel does not find, however, that this memo adds any conclusive elements as relate to the relationship between the seizure of alcoholic beverages and the possible forgery of tax stamps, since the seizure occurred in the year 2001, whereas the doubts expressed about the stamps refer to the format of stamps since 2002. 7.224 As Exhibit DR-29, the Dominican Republic has submitted "Further evidence of smuggling of alcoholic beverages into the Dominican Republic". The documents contain information on a batch of garlic and alcoholic beverages seized in March 2002. Again, nothing in these documents suggests that forgery of tax stamps was an element. Indeed, in this case, the merchandise seized was not only alcoholic beverages, but also garlic, which does not carry tax stamps. 7.225 The Dominican Republic claims that the manner in which the official records in the Dominican Republic are kept makes it difficult for the authorities to provide an overall or general assessment of the extent of forgery of tax stamps and smuggling of alcoholic beverages. However, it indicates that there is physical evidence of forged tax stamps for alcoholic beverages (contained, inter alia, in Exhibit DR-8). By contrast, there would be no evidence of forgery of tax stamps for cigarettes. The only difference between the two is that stamps for alcoholic beverages can be affixed outside the territory of the Dominican Republic, whereas stamps for cigarettes can only be affixed in the presence of inspectors from the tax authorities. Therefore, the Dominican Republic concludes that "not requiring that stamps be affixed in the presence of DGII inspectors leads to forgery of tax stamps. Conversely, requiring that tax stamps be affixed in the presence of DGII inspectors in the territory of the Dominican Republic would possibly eliminate and certainly reduce the likelihood of tax stamps being forged."552 7.226 Even assuming arguendo that Exhibit DR-8 contains evidence that forgery of tax stamps may occur, the Panel finds no supporting evidence in Exhibits DR-8 and DR-29 to the Dominican Republic's assertion that there is a causal link between allowing stamps to be affixed abroad and the forgery of tax stamps. The fact that two events may occur simultaneously (affixation of tax stamps abroad and forgery of tax stamps) does not necessarily imply that those two events are correlated, much less that they are causally linked. On the contrary, that same evidence seems to indicate that smuggling and tax evasion may occur even in products not usually subject to tax stamps (i.e. garlic), and to emphasize the importance of police enforcement of tax laws and regulations, even at the point of commercial establishments. While tax stamps may be a useful instrument for that enforcement, it does not necessarily follow that those stamps have to be affixed in the territory of the Dominican Republic and in front of a DGII agent. In the opinion of the Panel, the tax stamp requirement, as currently in place in the Dominican Republic, would only serve to guarantee that those tobacco products that enter legally into the country and go through the proper customs procedures will carry authentic tax stamps as a proof that the appropriate tax has been paid. That requirement, in and of itself, would not prevent the forgery of tax stamps, nor smuggling and tax evasion. From the evidence submitted by the Dominican Republic itself, the Panel would be inclined to believe that other factors, such as security features incorporated into the tax stamps (to avoid forgery of stamps or make it more costly) and police controls on roads and at different commercial levels (such as at the points of production, introduction into the country, distribution, and sale), may play a more important role in preventing the forgery of tax stamps, the tax evasion, and the smuggling of tobacco products.
7.227 The Appellate Body has referred to the issue of the "necessity" of a measure in the presence of other reasonably available, less-GATT inconsistent, measures. In the words of the Appellate Body:
7.228 Even assuming that the Dominican Republic has chosen to pursue a zero tolerance level of enforcement with regard to tax collection and cigarette smuggling, it is the Panel's opinion that the Dominican Republic, as the party raising this particular defence, has not discharged its duty to prove why other, reasonably-available, less-GATT inconsistent, measures would not be able to achieve that same level of enforcement. More specifically, the Dominican Republic has not proved why, for example, providing secure tax stamps to foreign exporters, so that those tax stamps can be affixed on cigarette packets in the course of their own production process and prior to importation into the Dominican Republic, would not be equivalent to the current tax stamp requirement in terms of allowing it to secure the same high level of enforcement with regard to tax collection and the prevention of cigarette smuggling. The Panel recalls that, as part of an alternative which would be less trade-restrictive, Honduras proposed that the Dominican Republic could resort to pre-shipment inspection and certification, through a reputable company, at the expense of the importer, in order to ensure that the tax stamps of the Dominican Republic are duly affixed to cigarettes in the exporting country. Honduras has presented as Exhibit HOND-29 a letter of 26 April 2004 from the representative of an international inspection and certification company which refers to the availability of those services. 7.229 The Panel notes additionally that the Dominican Republic argues that the requirement that a tax stamp be affixed to all cigarette packets in the territory of the Dominican Republic and under the supervision of the local tax authorities is necessary in order to secure a zero tolerance level of enforcement that the Dominican Republic has chosen to pursue with regard to tax collection and the prevention of cigarette smuggling, and to which it is entitled. The Dominican Republic, however, also admits that despite its efforts to curb the smuggling of cigarettes, its country is not exempt from this problem and has presented evidence that there are still documented cases of smuggling of cigarettes for retail in the Dominican Republic.554 The Panel thus finds no evidence to conclude that the tax stamp requirement secures a zero tolerance level of enforcement with regard to tax collection and the prevention of cigarette smuggling. 7.230 Since the Dominican Republic has not proved why other, reasonably available, less-GATT inconsistent, measures would not be able to achieve that same level of enforcement that it has chosen to attain, it is the Panel's opinion that the Dominican Republic has not proven that the tax stamp requirement is a measure which is "necessary" to secure compliance with the Dominican Republic's tax laws and regulations. 7.231 In light of the preceding considerations, and since the tax stamp requirement has not been found to be a "necessary" measure to secure compliance with the Dominican Republic's tax laws and regulations, the Panel does not need to analyse the elements contained in the chapeau of Article XX of the GATT 1994, i.e. whether the different treatment constitutes a means of "arbitrary or unjustifiable discrimination between counties where the same conditions prevail", or a "disguised restriction on international trade." 7.232 In conclusion, the Panel considers that the Dominican Republic has failed to establish that the tax stamp requirement is justified under Article XX(d) of the GATT 1994.
7.233 For the reasons indicated above, the Panel's overall conclusion with respect to the requirement that a tax stamp be affixed to all cigarette packets in the territory of the Dominican Republic and under the supervision of the local tax authorities is that the measure is, as such, inconsistent with Article III:4 of the GATT 1994 and that it is not justified under Article XX, paragraph (d) of the GATT 1994.
7.234 Under Article 376 of the Dominican Republic Tax Code555 and Article 14 of Decree 79-03556, the Dominican Republic imposes the requirement, for both importers and domestic producers of cigarettes, to post a bond (bond requirement). 7.235 According to Article 376 of the Dominican Republic Tax Code:
7.236 Article 14 (Bond) of Decree 79-03 extends the requirement to importers of cigarettes and sets the conditions for the bond:
7.237 The Panel will refer to this measure, as regulated in the Dominican Republic legislation, as the "bond requirement". 7.238 Honduras claims that the bond requirement is a restriction on the importation of cigarettes into the Dominican Republic that is inconsistent with Article XI:1 of the GATT 1994. Honduras argues alternatively that, should the Panel consider that the bond requirement is an internal measure, rather than a restriction on importation, it should find that it is inconsistent with Article III:4 of the GATT, because it modifies the conditions of competition between imported and domestic cigarettes. 7.239 The Dominican Republic responds that the bond requirement is outside of the scope of Article XI:1 of the GATT, since it is neither a restriction nor a prohibition on the importation of cigarettes. In its opinion, the bond requirement is an internal measure that applies equally to imported and domestic cigarettes, rather than a measure on the importation of cigarettes. The Dominican Republic additionally claims that the bond requirement is also outside of the scope of Article III:4 of the GATT, because it does not affect the "internal sale, offering for sale, purchase, transportation, distribution or use" of imported cigarettes. Should the Panel consider that the bond requirement affects the internal sale, offering for sale, purchase, transportation, distribution or use of cigarettes, the Dominican Republic argues that it is nevertheless not inconsistent with Article III:4, because it does not accord less favourable treatment to imported cigarettes than that accorded to like domestic products. Finally, the Dominican Republic argues that, should the Panel find that the bond requirement is inconsistent with either Article XI:1 or Article III:4 of the GATT, it should also consider that it is justified by the general exception provided in Article XX(d) of the GATT, because it is necessary to secure compliance with Dominican Republic tax laws and regulations which are not inconsistent with the provisions of the GATT and it is consistent with the chapeau of Article XX. 7.240 Honduras rebuts the Dominican Republic's defence under Article XX(d) of the GATT. In its view, the Dominican Republic has not discharged its burden of establishing that the bond requirement is justified under Article XX(d), since it has not proven that the requirement is consistent with the provisions of the GATT, nor has it proven that the bond requirement is a measure to secure compliance with the Tax Code, including the Selective Consumption Tax, the ITBIS and the Income Tax. Finally, Honduras claims that the Dominican Republic has not proven that the bond requirement is necessary to secure compliance with the Selective Consumption Tax.
7.241 Honduras has made alternative claims against the bond requirement under Article XI:1 and Article III:4 of the GATT. Since the latter claim is only relevant in the event that the Panel finds that the measure is not an import restriction, the Panel will begin by considering Honduras's claim under Article XI:1.
7.242 Honduras claims that the bond requirement is a restriction on the importation of cigarettes into the Dominican Republic that is inconsistent with Article XI:1 of the GATT 1994. Honduras argues that the measure falls under Article XI:1 of the GATT, rather than under Article III:4, based on two factors. First, in its opinion the bond requirement is related to "the opportunities for importation itself, i.e. entering the market". The bond is required for both domestic and imported cigarettes prior to their entry into the domestic market. In Honduras's view, the bond requirement is a condition for the importation of cigarettes, that is, importation would not be allowed unless the bond requirement were complied with. It therefore operates as a "restriction" within the meaning of Article XI:1 of the GATT. Second, Honduras considers that the bond requirement falls under Article XI:1 of the GATT, because the Dominican Republic has acknowledged that it does not affect the internal sale, offering for sale, or distribution of cigarettes and is therefore not subject to Article III:4. 7.243 The Dominican Republic responds that the bond requirement is outside of the scope of Article XI:1 of the GATT, since it is neither a restriction nor a prohibition on the importation of cigarettes. According to the Dominican Republic, Honduras�s argument that the bond requirement is within the scope of Article XI:1 is based on an incorrect assertion that the bond requirement is a "condition" for the importation of cigarettes into the Dominican Republic that applies "prior" to their importation. The Dominican Republic argues that, under its domestic law, compliance with the bond requirement is legally irrelevant to the clearance of imports at customs. There is no law or regulation in the Dominican Republic that states that the bond must be provided as a condition of, or prior to, the importation of cigarettes. Article 14 of Decree 79-03, which extends the bond requirement under Article 376 of the Dominican Republic Tax Code to importers of alcoholic beverages and tobacco products, does not state that the bond requirement is a condition for importation of such products, but only provides that importers and domestic producers of cigarettes alike must post a bond. However, Article 40 of Decree 79-03, which requires that importers of cigarettes obtain an import licence from the DGII and lists the conditions for obtaining the licence, does not include the posting of a bond as a condition. 7.244 The Dominican Republic adds that its customs authorities neither require nor check whether an importer has posted a bond before admitting cigarettes into the territory. In support of this assertion, the Dominican Republic has produced evidence to the effect that the firm British American Tobacco Rep�blica Dominicana, the sole importer of cigarettes from Honduras had not posted a bond, nor had it been required by Customs to do so, yet it had been importing cigarettes from Honduras for several years.557 7.245 The Dominican Republic thus argues that the bond requirement is an internal measure that applies equally to imported and domestic cigarettes, rather than a measure "on the importation" of cigarettes. It recalls the statement from the panel in EC � Asbestos, to the effect that, when the applied measure leads to the same result for both the imported product and the like domestic product, it falls within the terms of Note Ad Article III and is therefore subject to Article III:4. 7.246 Finally, the Dominican Republic argues that, even assuming arguendo that the bond requirement is a measure "on the importation" of cigarettes, Honduras has not established that the measure prohibits or restricts the importation of cigarettes into the Dominican Republic. To this effect, the Dominican Republic again recalls the fact that the importer of cigarettes from Honduras has been allowed to import cigarettes into the Dominican Republic and other territories for the past two years, without having posted the bond. This would demonstrate that the authorities of the Dominican Republic do not require, either de jure or de facto, the posting of the bond as a pre-requisite for the admission of cigarettes into the territory of the Dominican Republic. The Dominican Republic concludes that the Panel should find that the bond requirement is not a measure on the importation of cigarettes and is consequently outside the scope of Article XI:1 of the GATT. Should the Panel find otherwise, the Dominican Republic requests it to rule that the bond requirement is not a prohibition or restriction on the importation of cigarettes into the Dominican Republic and therefore is not inconsistent with Article XI:1.
7.247 According to Article XI:1 of the GATT:
7.248 Article XI:1 of the GATT covers prohibitions and restrictions, other than duties, taxes or other charges, on the importation or the exportation of products. A previous WTO panel recalled some of the GATT/WTO precedents on Article XI:1 and declared that:
7.249 Although Article XI:1 of the GATT covers prohibitions and restrictions imposed on the importation and exportation of products, Honduras has clarified that its claim is that the bond requirement is a restriction on the importation of cigarettes. The Panel will thus seek to determine whether the bond requirement falls within the scope of Article XI:1 of the GATT, by looking at whether the measure is a restriction on the importation of cigarettes.
7.250 Honduras bases its argument that the bond requirement is a "restriction" within the meaning of Article XI:1 of the GATT in the assertion that the measure operates as a pre-condition for the importation of cigarettes. 7.251 In support of its claim, Honduras has quoted the statement of a previous panel, to the effect that:
7.252 The Panel agrees with the preceding statement, and recalls the following paragraph of the same report, in the sense that in order to find whether a particular measure can be described as a "restriction on importation", it is necessary to identify it as a condition that has a limiting effect on importation itself. In the words of that panel:
7.253 From a factual standpoint, the Panel has received evidence that for at least two years the importer of Honduran cigarettes has been able to import into the Dominican Republic from Honduras and other origins, even without having posted the bond required by Article 14 of the Decree 79-03. Indeed, Dominican Republic imports of cigarettes from Honduras have increased significantly during the last two years, even though the importer had not posted a bond. The Panel does not find evidence to support Honduras's claim that importation is not allowed into the Dominican Republic unless the bond requirement is complied with. 7.254 By examining the Dominican Republic regulations which govern the bond requirement, the Panel is not convinced that the requirement is a limiting condition on the importation of cigarettes. 7.255 While the domestic regulations have extended to importers the bond requirement � originally applicable under Article 376 of the Tax Code only to manufacturers of tobacco products �, no domestic rule establishes that, in the absence of a bond, cigarettes would not be allowed in the country. If anything, the available evidence points to the contrary, that in practice cigarettes may be imported even if the importer has not posted a bond. The Dominican Republic has additionally declared that the failure of an importer to post a bond would lead to the imposition of sanctions for the non-compliance of formal tax obligations under Article 257 of the Tax Code, but not to the prevention of imports. 7.256 The Panel notes additionally that the bond requirement is imposed on both domestic producers and importers of cigarettes. In fact, the measure is more stringent on domestic producers, since in their case the bond requirement is an explicit condition for obtaining a licence. Indeed, under Article 8 (General provisions) of Decree 79-03, "[a]ny person, company or corporation wishing in the future to engage in the manufacture or importation of alcohol products, or the importation and manufacture of tobacco products and by-products, shall apply to the Directorate-General of Taxes for authorization to establish that kind of business". While Article 9 (General requirements for installing wineries and alcohol products and tobacco products factories) of Decree 79-03, specifies that "[a]ny manufacturer of the products specified in the preceding Article must comply with", inter alia, post a bond "in accordance with Article 14 of these Regulations", Article 40 (Register and licensing of importers) has no equivalent obligation for importers. Article 35 (Licence for manufacturers of tobacco products) of Decree 79-03 confirms that the bond is a requisite for domestic manufacturers wishing to obtain a licence:
7.257 The Panel notes that, in the case of imported cigarettes, the bond is not enforced either at the time or at the point of importation. Indeed, under Article 14 of the Decree 79-03, the bond is posted both by importers and local manufacturers with the Directorate General of Internal Taxes, and not with customs authorities. The Dominican Republic has informed that, after the bond is posted with the Directorate General of Internal Taxes, it is then sent to the National Treasury (Tesorer�a Nacional) for safekeeping. The Dominican Republic has added that it is not the customs authorities, but the internal tax authorities, who would verify that the bond has been posted. 7.258 Most importantly, the Panel is not persuaded that the bond requirement is a restriction "on the importation" of cigarettes. Article XI:1 of the GATT does not cover any restriction, but only those restrictions that are instituted or maintained by any Member "on the importation" (or exportation) of products. In the expression "on the importation" � read in the context of an Article that is entitled "General Elimination of Quantitative Restrictions" �, the ordinary meaning of the word "on" suggests that it is a preposition denoting a relation.561 In that sense, the expression "on the importation" would be akin to "with respect to the importation". Indeed, the panel on India � Autos, considering the ordinary meaning of the phrase "restriction on importation", reached a similar conclusion. "An ordinary meaning of the term 'on', relevant to a description of the relationship which should exist between the measure and the importation of the product, includes 'with respect to', 'in connection, association or activity with or with regard to'.562 In the context of Article XI:1, the expression 'restriction� on importation' may thus be appropriately read as meaning a restriction 'with regard to' or 'in connection with' the importation of the product."563 Even if, arguendo, the bond requirement could be considered to be a limiting condition, the Panel still does not find evidence that it is a condition specifically related to the importation of cigarettes, nor that it is instituted or maintained "with regard to" or "in connection with" the importation of cigarettes. 7.259 The Panel finds support in its interpretation from the text of Note Ad Article III of the GATT. According to the first paragraph of this Note,
7.260 The Panel thus considers that, under Note Ad Article III, even if a measure is collected or enforced at the time or point of importation, that does not mean it falls outside the scope of Article III, as long as it applies similarly to the imported product and to the like domestic product. In the present case, the measure is not even applied at the time or point of importation, which would make it more clearly fall under Article III. 7.261 With regard to the statement of a previous panel, to the effect that Article XI of the GATT applies in cases "where the opportunities for importation itself, i.e. entering the market, are affected"564, the Panel considers that the expression "entering the market" was used by that panel as an expression equivalent to "importation itself". However, there are barriers to entry in a specific market that do not affect only imports but also domestic supply. In the Panel's view, not every measure affecting the opportunities for entering the market would be covered by Article XI, but only those measures that constitute a prohibition or restriction on the importation of products, i.e. those measures which affect the opportunities for importation itself. 7.262 The fact that the amount of the bond is the same for domestic producers and importers, creates an additional reason to doubt that it may constitute a restriction on imports. Any added requirement, particularly if it leads to significant costs, may constitute a barrier to entry in a specific market which may affect all possible entrants, not only importers. However, Article XI:1 of the GATT does not prohibit all barriers to entry into a market, but only those that constitute prohibitions or restrictions imposed on the importation or on the exportation of products. 7.263 Furthermore, the Panel does not consider that a requirement that creates costs which are not associated with sales (i.e. are decoupled from sales) would automatically create a disincentive to increase supply of a specific product. Quite the contrary, a supplier that has already taken the decision to enter a market and has incurred a fixed-amount payment would have the incentive to recover that cost by selling more. So, in principle, a bond for an amount that is not linked to sales may be less likely to constitute a restriction on imports. However, a bond for an amount which is tied to sales (such as seems to be suggested by Honduras) could serve as a disincentive to import. In fact, as the imports of cigarettes from Honduras have been increasing in the most recent years, the per unit cost of complying with the bond requirement, has been steadily decreasing. In conclusion, an added cost that is associated with the volume of sales of imported goods would be more likely to restrict imports as compared to a cost that is not linked to sales. 7.264 Honduras also argues that the bond requirement falls under Article XI:1 of the GATT, because, in its opinion, the Dominican Republic acknowledged that the requirement does not affect the internal sale, offering for sale, or distribution of cigarettes and is therefore not subject to Article III:4. The Panel, however, recalls that Honduras has made an alternative claim under Article III:4 of the GATT. Honduras has argued that, should the Panel consider that the bond requirement is an internal measure rather than a restriction on importation, it should find that it is inconsistent with Article III:4 of the GATT, because it modifies the conditions of competition between imported and domestic cigarettes. As a rebuttal to this specific alternative claim, the Dominican Republic argues that the bond requirement is outside the scope of Article III:4 because it does not affect the internal sale, offering for sale, or distribution of cigarettes. The Panel notes that Honduras itself has argued that parties are allowed to make alternative claims and to raise alternative defences and that the legal arguments presented by any party in support of a particular claim or defence cannot, and should not be, invoked against it in the assessment of an alternative claim or defence. The Panel thus considers that the legal argument presented by the Dominican Republic that the bond requirement does not affect the internal sale, offering for sale, or distribution of cigarettes, should only be analysed in the context of Honduras's alternative claim under Article III:4 of the GATT. 7.265 For the preceding reasons, and from the available evidence, the Panel is not persuaded by Honduras's argument that the bond requirement is related to the opportunities for importation itself of cigarettes into the Dominican Republic market. Nor is the Panel convinced that the requirement is a condition for the importation of cigarettes, that is, that importation would not be allowed unless the bond requirement had been complied with. The Panel therefore does not consider that there is evidence that the bond requirement operates as a restriction on the importation of cigarettes, within the meaning of Article XI:1 of the GATT. 7.266 In conclusion, the Panel considers that Honduras has failed to establish that the bond requirement imposed by the Dominican Republic operates as a restriction on the importation of cigarettes, in a manner inconsistent with Article XI:1 of the GATT 1994.
7.267 Honduras claims that, should the Panel consider that the bond requirement does not fall under Article XI:1 of the GATT, then it should find that it is inconsistent with Article III:4, because it accords less favourable treatment to imported cigarettes than to the like domestic products. In the opinion of Honduras, the less favourable treatment results from the modification of the conditions of competition between imported and domestic cigarettes. The bond requirement creates a disincentive against importing cigarettes, as compared to buying from domestic producers, for any local buyer who wishes to purchase them for resale. 7.268 Honduras additionally argues that the bond requirement also accords less favourable treatment to importers in the context of the liability and payment for the Selective Consumption Tax. For both imported and domestic cigarettes, the bond requirement would be an accessory obligation related to a principal obligation � the payment of the Selective Consumption Tax. The Selective Consumption Tax on imported cigarettes is collected in its entirety upon importation. However, the Selective Consumption Tax on domestic cigarettes may be paid up to the twentieth day of the month following that in which the sale is made. Therefore, for domestic producers, there is a tax liability the non-payment of which the bond properly secures. However, for imported cigarettes, since the Selective Consumption Tax accrues and is immediately paid upon importation, there is no similar tax liability. Furthermore, domestic producers can collect the Selective Consumption Tax in advance as part of the purchase price paid by buyers. This accords domestic producers the opportunity to earn interest income on the Selective Consumption Tax for a period of 20-50 days. On the other hand, importers have to pay the Selective Consumption Tax in advance. This entails either financing costs or opportunity costs on the part of the importers. 7.269 Finally, Honduras claims that the required bond has been set at a fixed amount of RD$5million that must be posted by each importer and domestic producer. There is no direct relationship between the amount required to be guaranteed (i.e. the fixed amount of the bond) and the actual amount giving rise to the Selective Consumption Tax which is dependent upon variable factors such as monthly volumes of sales and variations in the retail selling price according to market factors. The two amounts are not commensurate. 7.270 The Dominican Republic responds that the bond requirement is an internal measure that applies equally to both imported and domestic products, but is nevertheless outside the scope of Article III:4 because it does not affect the "internal sale, offering for sale, purchase, transportation, distribution or use" of imported cigarettes. Importers of cigarettes are not precluded by the bond requirement from clearing the cigarettes through customs, selling or offering them for sale, transporting them, or distributing them within the territory of the Dominican Republic, nor are consumers in any way precluded by the bond requirement from buying or using the imported cigarettes. The Dominican Republic adds that, even assuming that the bond requirement does affect the internal sale, offering for sale, purchase, transportation, distribution, or use of imported cigarettes, it would not be inconsistent with Article III:4 since it does not accord to imported cigarettes treatment "less favourable than that accorded to like products of national origin". The Dominican Republic adds that, even assuming that the bond requirement does affect the internal sale, offering for sale, purchase, transportation, distribution, or use of imported cigarettes, it would nevertheless not be contrary to Article III:4 since it does not accord to imported cigarettes treatment "less favourable than that accorded to like products of national origin", because it is applied equally to domestic and imported cigarettes and does not modify the conditions of competition in the domestic market to the detriment of imported products. In its view, Honduras is challenging the timing of the payment of the Selective Consumption Tax, rather than the bond requirement itself.
7.271 Under Article III:4 of the GATT:
7.272 The Appellate Body has stated that:
7.273 As mentioned before,566 the Dominican Republic has admitted that "[t]here is no disagreement between the parties that imported and domestic cigarettes are 'like products'. Likeness of these products is not at issue in this dispute." The Panel has already assumed that imported cigarettes and domestic Dominican Republic cigarettes are like products within the meaning of Article III:4 of the GATT.
7.274 Honduras does not argue that the bond requirement affects the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes. In fact, under its main claim under Article XI:1 of the GATT, it argued exactly the opposite, i.e. that the bond requirement does not affect the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes, and therefore is not subject to Article III:4. 7.275 Honduras adds, however, that its arguments under Article XI:1 should not qualify in any way its claim under Article III:4. The statement that the bond requirement does not affect the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes, and therefore is not subject to Article III:4, was only in comment on a point made by a third party that Article III, and not Article XI, applied to the measure. Honduras has clarified that it presents one set of facts to the Panel -not two-, upon which it makes alternative claims under Article XI:1 and Article III.4 of the GATT. In its view, parties are allowed to make alternative claims and to raise alternative defences and the legal arguments presented by any party in support of a particular claim or defence cannot, and should not be, invoked against it in the assessment of an alternative claim or defence. Thus, the legal arguments presented by Honduras to justify its claim under Article XI:1 of the GATT should not be invoked against it in assessing its alternative claim under Article III:4. 7.276 The Dominican Republic argues that, although the bond requirement is an internal measure that applies equally to both imported and domestic products, it is nevertheless outside the scope of Article III:4 because it does not affect the internal sale, offering for sale, purchase, transportation, distribution or use of imported cigarettes. Neither of these "specific transactions" covered by Article III:4 would be affected by the bond requirement under Article 14 of Decree 79-03. The Dominican Republic recalls that Honduras acknowledged that fact.567 In the view of the Dominican Republic, importers of cigarettes would not be precluded by the bond requirement from clearing cigarettes through customs, selling or offering them for sale, transporting them, or distributing them within the territory of the Dominican Republic. Neither would consumers in any way be precluded by the bond requirement from buying or using the imported cigarettes. As evidence of its argument, the Dominican Republic recalls that the sole importer of cigarettes from Honduras, British American Tobacco Rep�blica Dominicana, imported and sold cigarettes in the Dominican Republic for the past two years, despite not having posted a bond. The Dominican Republic concludes that, since the bond requirement is outside the scope of Article III:4, it cannot be contrary to that provision. 7.277 The Panel acknowledges that Honduras has presented alternative claims against the bond requirement and that it has expressly asked that the arguments it has presented under Article XI:1, should not qualify its alternative claim under Article III:4. The Panel sees no reason to disregard that request and will therefore not take into account at this point Honduras's statement that the bond requirement does not affect the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes, and therefore is not subject to Article III:4. 7.278 As mentioned before, and with respect to whether the bond requirement affects the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes, the Panel notes that, as stated by the Appellate Body, the ordinary meaning of the word "affecting" implies a measure that has "an effect on" and thus indicates a broad scope of application.568 In light of the broad scope of application of the expression "affecting", under Article III:4 of the GATT it would not be necessary to prove that the bond requirement precludes importers from clearing cigarettes through customs, selling or offering them for sale, transporting them, or distributing them within the territory of the Dominican Republic. Nor would it be necessary to prove that the bond requirement precludes consumers from buying or using imported cigarettes. It would be enough to demonstrate that the measure has "an effect on" the internal sale, offering for sale, purchase, transportation, distribution, or use of cigarettes. 7.279 The Panel notes that, under Article 14 of Decree 79-03 of 4 February 2003, both importers and local manufacturers of tobacco products shall post a bond with the Directorate General of Internal Taxes. Under the evidence provided by the Dominican Republic, an importer or a local manufacturer of tobacco products who did not comply with the bond requirement, or any other formal obligation, would be subject to the application of sanctions such as fines. Any person wishing to engage in the internal sale, offering for sale and purchase of cigarettes in the domestic market of the Dominican Republic, as manufacturer or importer, would thus have to comply with the bond requirement or else run the risk of being the subject of internal sanctions. 7.280 In light of the previous factors, and of the broad scope of application of the expression "affecting" contained in Article III:4 of the GATT, the Panel considers that the bond requirement can be considered as an internal regulation that "affects" the internal sale, offering for sale and purchase of cigarettes in the domestic market of the Dominican Republic within the meaning of Article III:4 of the GATT.
7.281 Honduras argues that the less favourable treatment results from the modification of the conditions of competition between imported and domestic cigarettes. The bond requirement would adversely modify the incentives for a local buyer who wishes to purchase imported cigarettes for sale. In its opinion, a company that sells cigarettes in the Dominican Republic has two options, either to buy from a domestic producer or to import. If that company were to purchase from a domestic producer, it would not have to post a bond. However, if that company were to import cigarettes, it would have to post a bond and thus incur additional costs. Therefore, there would be a built-in disincentive against importing cigarettes, as compared to buying from domestic producers. 7.282 The Panel is not persuaded by this argument, because Honduras is comparing operations at different commercial levels. According to the available information, the cigarette market in the Dominican Republic is dominated by a reduced number of suppliers, either domestic producers or importers. Three firms (two domestic producers and one importer) represented almost 100 per cent of the local market of cigarettes. Furthermore, the local importer of Honduran cigarettes in the Dominican Republic, British American Tobacco Rep�blica Dominicana, is related with the manufacturer. In the light of that evidence, in the example presented by Honduras, a more correct description would be that a local company that intends to sell cigarettes in the Dominican Republic would have two options, either to buy from a domestic producer or to buy from the importer. In neither case would it need to post a bond, since the posting of a bond is only required from manufacturers and importers. Alternatively, any new entrant in the market to supply cigarettes in the Dominican Republic, either as producer or as importer, would have to post a bond in an equivalent manner. 7.283 For the reasons expressed above, the Panel is not convinced by Honduras's argument that, for any local buyer who wishes to purchase cigarettes for sale, the bond requirement creates a disincentive against importing cigarettes, as compared to buying them from domestic producers.
7.284 Honduras also argues that the bond requirement results in a less favourable treatment for imported cigarettes in the context of the liability that the bond would serve to cover. In its view, for both imported and domestic cigarettes, the bond requirement is a supplementary obligation related to the principal obligation which is the payment of the Selective Consumption Tax. However, with respect to imported cigarettes, the Selective Consumption Tax is collected in its entirety upon importation. On the other hand, for domestic cigarettes, the Selective Consumption Tax may be paid up to the 20th day of the month following that in which the sale is made. Therefore, for domestic producers, the bond serves as a security in the event that the tax obligation is not properly discharged, while for imported cigarettes, as the importers pay the full amount of the Selective Consumption Tax upon importation, there is no liability that the bond requirement would serve to secure. 7.285 The Dominican Republic responds that the fact that the importer is required to pay the Selective Consumption Tax upon importation does not mean that no tax liability can arise after cigarettes have cleared customs. It could be the case that the Selective Consumption Tax originally assessed at the time of importation may have been insufficient to cover the tax liability of the importer. As a result, the tax for a particular importer and transaction may have to be adjusted. Under the Dominican Republic law, its tax authorities retain the right to conduct reassessments and adjust the tax liability of any taxpayer, including importers and domestic producers equally, within three years after the initial payment of the relevant tax. The Dominican Republic claims that instances in which its tax authority has adjusted the amount of taxes due, after the tax had been paid, are frequent. The Dominican Republic adds that, although Article 376 of the Tax Code appears to refer only to the Selective Consumption Tax, in practice its tax authority treats the bond as a guarantee of compliance with other internal tax obligations incumbent on the domestic producer and the importer of cigarettes, including the tax on the transfer of goods and services ("ITBIS") (Articles 335 through 360 of the Dominican Republic Tax Code), and the income tax (Articles 267 through 334 of the Dominican Republic Tax Code). 7.286 The Panel will consider the argument presented by Honduras in the sense that there is no liability that the bond requirement would serve to secure, as well as the two responses from the Dominican Republic: (i) that the bond serves as a guarantee of tax liabilities in the event of latter reassessments and adjustments of the tax liability of taxpayers; and, (ii) that it serves as a guarantee of compliance with internal tax obligations other than the Selective Consumption Tax. 7.287 In support of its argument that tax liabilities may arise after cigarettes have cleared customs, since tax authorities retain the right to conduct reassessments and adjust the tax liability of any taxpayer, the Dominican Republic has referred to Article 21 of its Law 11-92, Dominican Republic Tax Code, as well as to Article 118 of its Law 3489. Article 21 of the Dominican Republic Tax Code, Law 11-92, reads as follows:
7.288 Article 118 of the Dominican Republic Law 3489, as modified by the Law 68 of 31 December 1982, states the following:
7.289 In support of its argument, the Dominican Republic has presented a list of taxpayers that have had their taxes reassessed in the period from March 2003 to April 2004. According to that evidence, the Dominican Republic conducted 494 reassessments of taxes in that period. The Dominican Republic has also presented copies of letters from its customs authorities to different importers in which they are informed that the tax liabilities have been reassessed and that they should make the corresponding payments. In the list provided by the Dominican Republic, the firm British American Tobacco Rep�blica Dominicana, the importer of cigarettes from Honduras, appears as one of the taxpayers that had their tax liabilities reassessed. 7.290 Honduras responds to this argument, by stating that, from the evidence presented by the Dominican Republic, it appears tax reassessments have been made with respect to unpaid customs duties and other charges, and not the Selective Consumption Tax. Therefore, there would be no evidence that the reassessments are necessary to cover shortfalls in the collection of the Selective Consumption Tax, nor that the bond requirement secures the payment of the Selective Consumption Tax after reassessments. Indeed, the reassessment of the tax liabilities of the importer of cigarettes from Honduras was related to the importation of merchandising material and not of tobacco products. Honduras also pointed to the fact that many of the taxpayers on the list of reassessments had not posted bonds. 7.291 As mentioned above, the Dominican Republic further argues that its tax authority treats the bond as a guarantee of compliance with internal tax obligations other than the Selective Consumption Tax, such as the tax on the transfer of goods and services ("ITBIS") and the income tax. The Dominican Republic acknowledges that there is no explicit provision in its legislation that authorizes the use of the bond as a guarantee of compliance for internal tax obligations other than the Selective Consumption Tax. Nevertheless, it declares that, in practice, and in exercise of its broad powers to ensure the proper and effective enforcement of the tax laws, the Dominican Republic tax authorities regard the bond as a guarantee of compliance for internal tax obligations other than the Selective Consumption Tax. In support of its argument, the Dominican Republic has presented a copy of a written declaration to that effect from its Director General of Internal Taxes.569 7.292 In view of the preceding elements, the Panel finds that the evidence available does not support Honduras's assertion that there is no liability that the bond requirement would serve to secure. While the importers may pay in full at the moment of importation their obligations under the Selective Consumption Tax and other applicable taxes, the Dominican Republic has demonstrated that its tax authorities have the legal powers to reassess and eventually readjust the applicable tax liabilities for a period of up to three years. If a readjustment occurs as a result of a reassessment, then the importer may be asked to make a new payment. The bond would serve to guarantee this payment, if the importer does not pay in time. Even assuming arguendo the validity of Honduras's argument that there have been no reassessments for the payment of the Selective Consumption Tax on imports of cigarettes, that does not mean that those reassessments could not occur. A bond is a guarantee to avoid some of the damage that may result in the event that a particular situation may occur. The fact that a bond is not used, does not necessarily mean that a bond requirement is unjustified. 7.293 While the Dominican Republic has admitted that there is no explicit legal provision that authorizes the use of the bond as a guarantee of compliance for internal tax obligations other than the Selective Consumption Tax, the Panel finds that there is no reason to question its assertion that, in practice and in the exercise of its enforcement powers, the Dominican Republic tax authorities regard the bond as a guarantee of compliance for internal tax obligations such as the tax on the transfer of goods and services ("ITBIS") and the income tax. 7.294 For the reasons expressed above, the Panel is not convinced by Honduras's argument that the bond requirement results in a less favourable treatment for imported cigarettes, because for those cigarettes there is no liability that the bond requirement would serve to secure.
7.295 Finally, Honduras claims that the less favourable treatment for imported cigarettes would also result from the fact that the required bond has been set at a fixed amount of RD$5million that must be posted by each importer and domestic producer. In its opinion, there would be no direct relationship between the amount required to be guaranteed (i.e. the fixed amount of the bond) and the actual amount giving rise to the Selective Consumption Tax which would be dependent upon variable factors such as monthly volumes of sales and variations in the retail selling price according to market factors. The two amounts would not be commensurate. Honduras suggests that, since two domestic manufacturers have a higher market share than the importer of Honduran cigarettes, the per unit cost of the bond (the result of dividing the cost of the bond by the number of cigarettes sold) would be higher for imported cigarettes than for domestic cigarettes. 7.296 The Dominican Republic responds that the bond amounts do not have to be linked to the potential tax liabilities of the producers or the importers, or to any other factors. In its opinion, no such link would be reasonable, especially since the underlying tax obligations that the bond is intended to secure are not discriminatory. The Dominican Republic argues that, provided that the amount and the terms of the bond requirement are non-discriminatory, and in the absence of evidence that demonstrates that the bond is applied in a discriminatory manner, that bond would not be contrary to Article III of the GATT. 7.297 The Panel is not convinced by the argument that, in and of itself, the fact that the amount of the bond is the same for domestic producers and importers, creates less favourable treatment for imported cigarettes than for the like domestic products. Honduras has not presented evidence to that effect, other than the assertion that the per unit cost of the bond would be higher for imported than for domestic cigarettes. 7.298 The Panel recalls that the Appellate Body has declared that:
7.299 The Panel notes that, under the domestic regulations, the required bond must be issued by an insurance company or banking institution accredited in the Dominican Republic. The effective cost that the bond has on domestic producers and importers is thus the fee charged by the financial institution that issues the bond. According to the evidence provided by Honduras, in the specific case of the importer of cigarettes from that country, the annual fee charged by the insurance company that issued the bond was RD$84,000 (approximately US$1,873571). When divided by the annual imports of cigarettes made by that same company, the cost of the bond would be equivalent to RD$0.9 (or approximately 2 cents of a US dollar) per thousand cigarettes. That annual value is equivalent to 0.2 per cent of the value of cigarette imports made by the importer in the year 2003.572 The Panel also notes that the cost of complying with the bond requirement has been diminishing for the importing company in the recent years, since its imports have increased while the bond amount has remained the same. Had the importer posted a bond in the years 2001 and 2002 for the same cost, the cost of that bond would have represented 0.64 per cent and 0.41 per cent, respectively, of the value of cigarette imports made by the importer in those two years. 7.300 By definition, any expense that is fixed (i.e. not related to volumes of production) may lead to different costs per unit among supplier firms. As long as the difference in costs does not alter the conditions of competition in the relevant market to the detriment of imported products, that fact in itself should not be enough to conclude that the expense creates a less favourable treatment for imported products. 7.301 In light of the preceding arguments, the Panel considers that Honduras has not presented evidence to support its argument that the different cost per unit generated by complying with the bond requirement has a detrimental impact on the competitive conditions for imported products in relation to domestic products in the Dominican Republic cigarette market.
7.302 Honduras also argues that the bond requirement accords less favourable treatment to imported products as a result of the timing for the payment of the Selective Consumption Tax. Honduras states that, with respect to imported cigarettes, the Selective Consumption Tax is collected in its entirety upon importation whereas, for domestic cigarettes, the tax may be paid up to the twentieth day of the month following that in which the sale is made. Both domestic producers and importers collect the Selective Consumption Tax from consumers at the time of the sale. This would accord to domestic producers the opportunity to earn interest income on the money they receive as payment of the Selective Consumption Tax for the period between the time of the purchase and the time they have to remit that amount to the tax authorities. Importers, on the other hand, would have the added financial cost or opportunity cost of having to advance the money for payment of the tax. 7.303 The Dominican Republic responds that Honduras is challenging the timing of the payment of the Selective Consumption Tax, rather than the bond requirement itself. The difference in the timing would not explain how the bond per se affects the conditions of competition of importers. In the opinion of the Dominican Republic, the difference in the timing of the payment of the Selective Consumption Tax is not tied to or contingent on the bond and it is not within the terms of reference of the Panel. Moreover, the fact that domestic producers pay the Selective Consumption Tax after the sale of the cigarettes, while importers pay it at the time of importation, would not render the tax inconsistent with Article III of the GATT, since Note Ad Article III clarifies that Members may collect or enforce internal taxes or measures in the case of imported products at the time or point of importation. 7.304 According to the evidence presented by the parties, Article 369 of the Dominican Republic Tax Code provides that "[i]n the case of imported goods, the [Selective Consumption Tax] shall be assessed and paid concurrently with the corresponding customs duties...". With regard to domestic products, however, Article 368 of the Tax Code provides that "In the case of transfers and provision of services the tax shall be assessed and paid monthly... For the purposes of these articles, taxpayers shall submit a sworn statement of transfers and provision of services carried out in the preceding month... and shall simultaneously pay the tax. The submission of the sworn statement and the payment of the tax shall be effected within the time-limit laid down for the assessment and payment of the tax on the transfer of industrialized goods and services." Paragraph (c) of Article 353 of the Tax Code deals with the sworn statements and declares that "[t]he statement shall be filed in the course of the first twenty (20) days of each month, even if there is no tax to pay". 7.305 Since domestic producers can collect the Selective Consumption Tax as of the time of the sale of the packet of cigarettes, this accords them the opportunity to earn interest income on the money they receive as payment of the Selective Consumption Tax for the period, if any, between the time of the purchase and the time they have to remit that amount to the tax authorities. However, importers would have to assume the opportunity cost or financial cost of having to advance the money for payment of the tax. 7.306 The Panel recalls that, in its request for the establishment of the Panel, Honduras described its claim against the bond requirement in the following manner:
7.307 Whether imported cigarettes may be accorded less favourable treatment than the like domestic products due to the difference in the time of payment of the Selective Consumption Tax is, in the opinion of the Panel, a different issue from the bond requirement, although the two may be tangentially related. Although the bond would serve as a guarantee for the payment of the Selective Consumption Tax and other liabilities, if there was any challenge against the conditions for payment of the tax, that challenge would not have to do with the bond requirement, but with the rules on the tax itself. The time of payment of the Selective Consumption Tax is not part of the bond requirement. 7.308 The claim on the bond requirement is part of the terms of reference of the Panel. There is, however, nothing in the request for establishment of the Panel that would lead to the conclusion that the Panel would be asked to make any finding regarding the difference in timing of the payment of the Selective Consumption Tax between domestic producers and importers. The Panel therefore concludes that Honduras's claim regarding the different costs for domestic producers and importers arising from the time of payment of the Selective Consumption Tax is not directly related with the bond requirement and it is not within the Panel's terms of reference.
7.309 In order to determine whether the requirement that importers and domestic producers of cigarettes must post a bond accords less favourable treatment to imported cigarettes than to like domestic products, the Panel is guided by the statement from the Appellate Body in the sense that the assessment should focus on examining "whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products".573 7.310 In this respect, the Panel finds that the bond requirement is applied in an equal manner, both formally and in practice, to domestic and imported cigarettes. The Panel considers that Honduras has not demonstrated how the identical treatment accorded to domestic and imported cigarettes in respect of the bond requirement modifies the conditions of competition to the detriment of imported products. 7.311 In conclusion, the Panel considers that Honduras has failed to establish that the bond requirement imposed by the Dominican Republic accords less favourable treatment to imported cigarettes than that accorded to the like domestic products, in a manner inconsistent with Article III:4 of the GATT 1994.
7.312 The Dominican Republic requests that, should the Panel find that the bond requirement is inconsistent with Article III:4 of the GATT 1994, it should nonetheless find that the measure is justified by Article XX(d) of the GATT. In the Dominican Republic's opinion, the requirement is a measure that is necessary to secure compliance with the Dominican Republic tax laws and regulations, which are themselves consistent with the GATT. The bond is required to secure the payment of a tax with respect to only certain products, i.e. alcoholic beverages and cigarettes, because of the risk of smuggling of these products. The tax stamp would serve as a mark to indicate to Dominican Republic tax authorities that the applicable taxes have been collected and would ensure that cigarettes continue to enter the Dominican Republic through regular and legitimate channels of commerce, thus preventing smugglers from selling unstamped and undeclared cigarettes in the domestic market. Moreover, in the Dominican Republic's view, the requirement is not applied in a manner that constitutes either arbitrary or unjustifiable discrimination between countries where the same conditions prevail, nor a disguised restriction on international trade. The Dominican Republic also argues that there are no reasonable alternatives to the bond requirement available to secure the same level of compliance with the Selective Consumption Tax for cigarettes. 7.313 Honduras replies to this defence by arguing that the Dominican Republic has not established that the bond requirement is justified under Article XX(d) as is its burden, since Article XX(d) is an affirmative defence. In Honduras's view, the Dominican Republic has not demonstrated that the tax laws and regulations that would be enforced through the requirement are consistent with the GATT, nor has it demonstrated that the requirement is indeed a measure to secure compliance with those tax laws and regulations. Honduras argues additionally that the bond requirement is not "necessary" to secure compliance with the tax laws and regulations of the Dominican Republic. The Selective Consumption Tax is imposed on many products, and the bond is only required for tobacco and cigarettes. In its opinion, if the bond were necessary to secure compliance with the Selective Consumption Tax, then presumably, it should be applied to all products subject to the tax. It adds that, if all imported products have to pay the Selective Consumption Tax upon importation at the border, there is no justification why the bond requirement on imported cigarettes is necessary to secure compliance with a Selective Consumption Tax that has already been paid.
7.314 According to paragraph (d) and the chapeau of Article XX of the GATT:
7.315 An analysis under the Article XX(d) defence raised by the Dominican Republic would only be relevant if the Panel had found that the bond requirement is inconsistent with Article X:1 of the GATT 1994 or, alternatively, with Article III:4. Since the Panel has not found the bond requirement to be inconsistent with either one of those articles, it does not need to consider the Article XX(d) defence argued by the Dominican Republic.
7.316 For the reasons indicated above, the Panel is unable to accept Honduras's claims under Article XI:1 of the GATT 1994, and its alternative claims under Article III:4, against the requirement that importers and domestic producers of cigarettes must post a bond.
7.317 The Dominican Republic levies a Selective Consumption Tax on certain products, such as cigarettes. By the date of establishment of the Panel, the Selective Consumption Tax was charged on cigarettes at a 50 per cent ad valorem rate. 7.318 By the date of establishment of the Panel, under the Dominican Republic legislation, there were three different rules under which the tax base for cigarettes could have been determined by the authorities, for the purpose of applying the Selective Consumption Tax: (i) Under the rule contained in Article 367(b) of the Dominican Republic Tax Code, the tax base for domestic cigarettes would be the retail selling price obtained from average-price surveys conducted by the Dominican Republic Central Bank, whereas the tax base for imported cigarettes would be the retail price used for the nearest similar product on the domestic market, that is to say the closest substitute; (ii) Under Article 3 of Decree 79-03 (Regulation on the Implementation of Section IV of the Tax Code), the tax base for both domestic and imported cigarettes would be calculated on the basis of the average market price according to the Central Bank's survey, however for new tobacco products not appearing in the survey on which the retail sale price was determined, the tax base would be the price of the nearest like product in the local market; or (iii) Under Article I of General Rule 02-96 issued by the Directorate General of Internal Taxes of the Dominican Republic, the tax base would be the retail price, determined by increasing the list price (excluding cash and trade discounts, grants and the like) by 20 per cent. 7.319 According to Honduras, in practice, the tax for domestic cigarettes was based on the average retail selling price of each brand, as provided in a survey of the average prices conducted by the Central Bank of the Dominican Republic whereas, by contrast, the tax base for imported cigarettes was calculated on the value of the "nearest similar product on the domestic market." Honduras concludes that this difference in approach resulted in certain lower-priced imported cigarettes being taxed at a rate higher than the one which would have corresponded according to their actual selling price and, in consequence, at a rate that was higher than the rate applied to the like domestic products, which sold for the same retail selling price. 7.320 To support its claim, Honduras has provided information on the retail selling price of different brands of cigarettes sold in the Dominican Republic market and the respective level of tax paid by each brand (during the period 17 March 2003 � 1 August 2003):
7.321 Honduras claims that, under the rules in force on the date of establishment of the Panel, the Dominican Republic determined the tax base for cigarettes in a manner that resulted in certain lower-priced imported cigarettes being taxed at a rate higher than the one which would have corresponded according to their actual selling price. 7.322 Honduras argues that the Dominican Republic taxed domestic cigarettes based on the average retail selling price of each brand, as provided in a survey of the average prices conducted by the Central Bank of the Dominican Republic whereas, by contrast, the tax base for imported cigarettes was calculated on the value of the "nearest similar product on the domestic market." Honduras concludes that this difference in approach resulted in certain lower-priced imported cigarettes being taxed at a rate higher than corresponded according to their actual selling price and, in consequence, at a rate that was higher than the rate applied to the like domestic products, which sold for the same retail selling price. 7.323 Honduras states that its claims in relation to the determination of the tax base for the purpose of application of the Selective Consumption Tax are two-fold. On the one hand, Honduras claims that the Dominican Republic established the tax base for certain imported cigarettes on the basis of what it determined to be the retail selling price of the "nearest similar product", whereas it established the tax base for domestic cigarettes on their actual retail selling prices obtained from average-price surveys conducted by the Central Bank. In this sense, the claim is directed against the rules for the determination of the tax base for cigarettes, contained in Article 367(b) of the Dominican Republic Tax Code. On the other hand, Honduras also claims that in practice the Dominican Republic authorities have taxed lower-priced imported cigarettes at a rate higher than the one which corresponded according to their actual selling price, which has meant that certain imported cigarettes have been taxed at a higher rate than the like domestic products which were sold for the same retail selling price as the imported products. This latter claim is directed to the administration of the tax laws. 7.324 The Dominican Republic replies that Honduras's claims are moot, since they are based on an outdated version of Article 367 of the Tax Code of the Dominican Republic. Law 3-04, published on 14 January 2004, amended Articles 367 and 375 of the Tax Code and established a specific and identical tax base and tax rate for the Selective Consumption Tax on imported and domestic cigarettes � i.e. RD$0.48 per cigarette. Thus, under the current Article 367 of the Tax Code, the retail price of cigarettes is no longer relevant for determining the tax base of the Selective Consumption Tax. Rather, the tax base is now determined on the basis of the number of cigarette packets transferred or imported. Also, the "nearest similar product in the domestic market" plays no role in the determination of the tax base. The Panel should thus abstain from making findings or issuing recommendations to the WTO Dispute Settlement Body, regarding laws and practices of the Dominican Republic that have been withdrawn because a recommendation in these circumstances would constitute a legal error and would be devoid of purpose, because there is no evidence that the measures are still in place or have lingering effects, because there is no evidence that the Dominican Republic will reintroduce the withdrawn measures, and because the measures were revoked before the Panel began its adjudication process. 7.325 Honduras replies in turn that, when the Panel was established, the provisions that constitute the basis for Honduras's claims were in force. The Panel is competent, and indeed has the legal obligation, to examine the measures existing as of that date, since the "matter" before a panel is determined by its terms of reference. Honduras claims that it has made a prima facie case, which the Dominican Republic has not rebutted. In its opinion, the Dominican Republic has acknowledged that, for determining the nearest similar product to imported cigarettes, it used criteria other than the retail selling prices. These criteria were not stated in any of the regulations governing the Selective Consumption Tax. 7.326 The Dominican Republic explains that the reason why imported Viceroy cigarettes were taxed at a higher rate than domestic L�der cigarettes during 2003, is because its tax authorities determined that the nearest similar cigarettes to the imported Viceroy in the domestic market were Marlboro, and not L�der. The Dominican Republic authorities considered that the pricing policies of the importer could not, by themselves, be relied on to determine the nearest similar product in the domestic market and therefore used other factors, including the declared customs value of the imported cigarettes. This determination was based on the customs value officially declared by the importer of Viceroy during the year 2002 and part of 2003. According to the declared customs values, the average prices of Viceroy in the first eight months of 2003 were higher than the average prices for cigarettes of the brand name Belmont and Kent by 10 per cent and 5.8 per cent, respectively. In the year 2002, according to the declared customs value of the same importer, the average price of Viceroy cigarettes was 15.8 per cent and 9.1 per cent higher than the average retail prices for Belmont and Kent, respectively. The Dominican Republic argues that, given the disparity and inconsistency in the information provided by the importer, the tax authorities determined that the nearest similar product in the domestic market for Viceroy cigarettes was Marlboro. In its opinion, the pricing policy for Viceroy cigarettes constitutes an anti-competitive practice on the part of the importer, which could be subject to an anti-dumping investigation.
7.327 Under the first sentence of Article III:2 of the GATT:
7.328 The Appellate Body has stated that there are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence.574
7.329 With respect to the likeness of the product, the Panel is aware that the finding that a product is alike under Article III:4, does not necessarily make it alike under Article III:2, first sentence. In this respect, the Panel keeps in mind the statement of the Appellate Body that:
7.330 The Panel finds that imported cigarettes can generally be considered as like products to domestic Dominican Republic cigarettes within the meaning of the first sentence of Article III:2 of the GATT. Indeed, the available evidence demonstrates that both imported and domestic cigarettes have similar physical properties; they are made from similar materials; have a similar presentation; they have the same end-use (i.e. they are smoked by consumers); and they are classified under the same tariff heading 2402.20.00. 7.331 However, for the purpose of the analysis within the first sentence of Article III:2 of the GATT, a narrowly construed interpretation of the likeness requirement, would require the Panel to additionally consider the fact that, within the general product description, cigarettes are presented to consumers distinguished by brands. Under the identification of these brands, cigarettes compete within specific price segments against each other. The distinction between different price segments may be particularly important for the analysis under Article III:2 of the GATT, since the Selective Consumption Tax was applied on an ad valorem basis, i.e. was related to the price of the product. 7.332 The Dominican Republic has argued that its tax authorities determined that the nearest similar cigarettes to the imported Viceroy in the domestic market were those distinguished with the brand Marlboro, and not L�der. This argument would be equivalent to expressing that imported Viceroy cigarettes were not similar to domestic L�der, but rather to domestic cigarettes Marlboro. The Dominican Republic justified this determination by arguing that its custom authorities considered that the Viceroy cigarettes were similar in quality to domestic higher-priced Marlboro and Kent, and not to the lower-priced L�der, since the declared customs value of Viceroy cigarettes was higher than the price of L�der and even of Marlboro and Kent. In the Dominican Republic's opinion, prices of cigarettes are a function of their quality and therefore the higher-priced Viceroy cigarettes were not similar to L�der. In the words of the Dominican Republic, "[t]he declared customs value of the imported cigarettes was... a factor used by the authorities of the Dominican Republic to compare the domestic and the imported cigarettes and determine which was the most similar product to the imported cigarettes in the domestic market..."576 7.333 The Panel agrees with the Dominican Republic that quality is an important factor in the determination of the likeness of products. However, it does not think that values declared by importers for customs purposes can be the only factor used in order to determine the quality of a product. The Dominican Republic admits that the imported Viceroy cigarettes had the same retail selling price as the domestic L�der cigarettes. The Panel believes that, if prices of a product are to be considered as a function of their quality, then the actual price of the product in the marketplace should be in principle more relevant than the value declared in customs. 7.334 The Dominican Republic has argued that the pricing policies of the importer were "inconsistent and incongruous", but it has not presented any evidence of reasons why the retail selling price of Viceroy cigarettes should have been disregarded for the determination of the likeness of the product, other than the fact that the price did not match with the value declared in customs. There is no evidence either to support the Dominican Republic's argument that the pricing policy for Viceroy cigarettes is an anti-competitive practice on the part of the importer. 7.335 In light of the above, the Panel does not find that the possible discrepancy between the retail selling price information and the declared customs value for Viceroy cigarettes is per se a factor that indicates that the retail selling price is irrelevant as a factor to determine the likeness of those imported cigarettes to the domestic products. 7.336 In conclusion, the Panel finds that imported cigarettes can generally be considered as like products to domestic Dominican Republic cigarettes within the meaning of the first sentence of Article III:2 of the GATT. When analysing the application of the Selective Consumption Tax, the Panel will consider as products "alike" to the imported cigarettes, those domestic cigarettes that were sold at a similar price and, more specifically, will consider that Viceroy cigarettes imported in the Dominican Republic are alike to domestic L�der cigarettes.
7.337 The Panel will begin by considering the Dominican Republic's argument that the amendments incorporated into the Dominican Republic legislation through Law 3-04 would prevent the Panel from making findings or issuing recommendations regarding the application of the Selective Consumption Tax to certain imported cigarettes. Only if the Panel decides to disregard that argument, would it then move to consider the substantive claims raised by Honduras in the sense that the Dominican Republic taxed imported cigarettes in excess of the like domestic products in a manner inconsistent with Article III:2, first sentence, of the GATT 1994.
7.338 The Dominican Republic does not rebut the substance of Honduras's claims regarding the application of the Selective Consumption Tax to certain imported cigarettes. Its main response has been that those claims are moot, since they are based on an outdated version of Article 367 of the Tax Code of the Dominican Republic. 7.339 From the available evidence, the Panel is aware that, on 14 January 2004, Law 3-04 which amended Articles 367 and 375 of the Tax Code, was published in the Dominican Republic Official Gazette (Gaceta Oficial). As a result of the amendments, a specific and identical tax base and tax rate were established for the Selective Consumption Tax on imported and domestic cigarettes � i.e. RD$0.48 per cigarette. The Dominican Republic has also indicated that the amendments introduced by Law 3-04 entered into force on 15 January 2004, the day following the publication of the Law, in accordance with Article 1 of the Dominican Republic Civil Code. 7.340 The Panel notes that the entry into force of the amendments incorporated to the Dominican Republic Tax Code occurred after 9 January 2004, date of the establishment of the Panel. 7.341 The Panel believes that the fact that the Dominican Republic Tax Code was modified does not automatically mean that the Panel should abstain from analysing Honduras's claims regarding the application of the Selective Consumption Tax to certain imported cigarettes. Indeed, the Panel will consider whether the amendments incorporated to the measure by the Dominican Republic prevent it from making findings on Honduras's claims in this regard. 7.342 Some previous panels have refrained from making findings on measures terminated before the establishment of those panels.577 In the Argentina � Textiles and Apparel case, the panel declined to rule on a measure that was "revoked before the Panel was established and its term of reference set, i.e. before the Panel started its adjudication process"578, even though the measure was included in that panel's terms of reference. The Argentina � Textiles and Apparel panel cited to that effect the statement of the Appellate Body that the aim of dispute settlement is not:
7.343 In the present case, however, the amendments to the measure did not occur before, but after the date of the establishment of the Panel (9 January 2004). Indeed, the Dominican Republic has informed the Panel that Law 3-04 entered into force on 15 January 2004, that is after the terms of reference of the Panel had been approved by the WTO Dispute Settlement Body. Under those terms of reference, in the light of its duties contained in Article 11 of the Dispute Settlement Understanding, and in the absence of an agreement from the parties to terminate the proceedings as regards this contested measure, the Panel considers that it would be inappropriate to abstain from making findings with respect to the application of the Selective Consumption Tax to certain imported cigarettes. Indeed, several panels have reached a similar conclusion, when examining measures terminated before or during the panel process. 7.344 For these reasons, the Panel does not find that the amendments incorporated by the Dominican Republic to Articles 367 and 375 of the Tax Code, through Law 3-04, prevent it from making findings on Honduras's claims with respect to the application of the Selective Consumption Tax to certain imported cigarettes.580
7.345 Since the Panel has decided not to abstain from making findings with respect to the application of the Selective Consumption Tax, it will now look at Honduras's claims with respect to the Dominican Republic legislation, before Law 3-04 entered into force, to find whether that legislation subjected imported cigarettes to a Selective Consumption Tax in excess of that applied to like domestic products. 7.346 The Panel recalls that the Appellate Body has established a strict standard for the term "in excess of" under Article III:2, first sentence:
7.347 Before Law 3-04, the Selective Consumption Tax on cigarettes in the Dominican Republic was imposed on an ad valorem basis. In an ad valorem system, the payable tax at any given time is a function of the tax rate and of the tax base. Honduras has not presented a claim against the rate at which the Selective Consumption Tax was charged on cigarettes. Instead, Honduras claims that, under the rules in force before Law 3-04, the Dominican Republic determined the tax base for cigarettes in a manner that resulted in certain imported cigarettes being taxed at a rate higher than the one that corresponded according to their actual selling price. 7.348 As mentioned582, under the Dominican Republic legislation, there were three different rules under which the tax base for cigarettes could be determined by the authorities, for the purpose of applying the Selective Consumption Tax. The general rule was contained in Article 367(b) of the Dominican Republic Tax Code. Under this rule, the tax base for domestic cigarettes was the retail selling price obtained from average-price surveys conducted by the Dominican Republic Central Bank, whereas the tax base for imported cigarettes was the retail price used for the nearest similar product on the domestic market, that is to say the closest substitute. This rule created two different methods to calculate the tax base, one applicable to domestic cigarettes and one applicable to imported cigarettes. 7.349 Decree 79-03 contained the Regulation on the Implementation of Section IV of the Dominican Republic Tax Code. Under Article 3 of the Decree 79-03, the tax base for both domestic and imported cigarettes was calculated on the basis of the average market price according to the Central Bank's survey, however for new tobacco products not appearing in the survey on which the retail sale price was determined, the tax base was the price of the nearest like product in the local market. As was the case in the rule contained in Article 367(b) of the Dominican Republic Tax Code, Article 3 of the Decree 79-03 created two different methods to calculate the tax base. However, the methods were not dependent on whether cigarettes were domestic or imported, but rather on whether the cigarettes had appeared in the survey on which the retail sale price was determined. 7.350 Finally, General Rule 02-96 issued by the Directorate General of Internal Taxes of the Dominican Republic contains special regulations for the determination of the tax base for the Selective Consumption Tax on alcohol, beer and tobacco products. According to Article I of General Rule 02-96, the tax base of tobacco products would be the retail price, determined by increasing the list price (excluding cash and trade discounts, grants and the like) by 20 per cent. There was only one method to calculate the tax base of cigarettes and no distinction between domestic or imported products. 7.351 As regards the legislation, the Panel finds that only Article 367(b) of the Dominican Republic Tax Code created any distinction in the treatment between domestic and imported cigarettes. That treatment, however, did not lead per se to imported cigarettes being subject to internal taxes in excess of those applied to like domestic cigarettes. It only meant that, while the tax base for domestic cigarettes would be the retail selling price obtained from the average-price surveys, the tax base for imported cigarettes would be determined on the basis of the retail price for the nearest similar product (closest substitute) on the domestic market. There is no reason to presume that the determination of the nearest similar product would lead to imported cigarettes being charged a tax in excess to that applied to domestic cigarettes. 7.352 Furthermore, the Panel assumes that the rules contained in the Dominican Republic Tax Code would have been interpreted in the light of the implementing regulations, such as those contained in the Decree 79-03 - Regulation on the Implementation of Section IV of the Dominican Republic Tax Code and in General Rule 02-96 issued by the Directorate General of Internal Taxes. Under the regulations implementing the Tax Code, the tax base would only be determined on the price of the nearest like product in the local market in the case of new tobacco products not appearing in the respective survey. Neither these regulations, nor General Rule 02-96, distinguished between imported and domestic cigarettes. The Dominican Republic has furthermore declared that the method actually applied for the determination of the tax base of cigarettes was the one contained in General Rule 02-96. 7.353 In light of the above, the Panel finds no evidence that the Dominican Republic legislation for the determination of the base for the Selective Consumption Tax, before the entry into force of Law 3-04, subjected imported cigarettes to internal taxes in excess of those applied to like domestic products.
7.354 The Panel will now turn to the question of whether, in practice and before Law 3-04 entered into force, the Dominican Republic authorities have taxed lower-priced imported cigarettes at a rate higher than the one which would have corresponded according to their actual selling price, which has meant that those imported cigarettes have been subject to taxes in excess of those applied to the like domestic products. 7.355 Honduras argues that the Dominican Republic taxed domestic cigarettes based on the average retail selling price of each brand, as provided in a survey of the average prices conducted by the Central Bank whereas, by contrast, the tax base for imported cigarettes was calculated on the value of the "nearest similar product on the domestic market." Honduras concludes that this difference in approach resulted in certain lower-priced imported cigarettes being taxed at a rate higher than the one which would have corresponded according to their actual selling price and, in consequence, at a rate that was higher than the rate for the like domestic products, which sold for the same retail selling price. 7.356 The Dominican Republic does not dispute the fact that certain imported cigarettes have been taxed at a rate higher than would have corresponded according to their selling price and, in consequence, at a rate that was higher than the rate imposed on the domestic products which sold for the same retail selling price. The Dominican Republic argues, however, that the situation occurred because its tax authorities considered that the retail selling price information provided by the importer was not reliable and decided that the nearest similar cigarettes to the imported ones were from a domestic brand that sold at a different selling price. 7.357 According to the available evidence, during the year 2003, the retail selling prices for imported cigarettes under the brand Viceroy and domestic cigarettes under the brand L�der were the same, i.e. RD$18 per packet.583 However, these cigarettes were not taxed on the same basis. While each packet of Viceroy cigarettes paid RD$6.54 in Selective Consumption Tax, a packet of L�der only paid RD$5.34. That means that, while the actual tax burden for Viceroy cigarettes was 36.33 per cent of its retail selling price, for L�der it was 29.66 per cent. 7.358 In light of the preceding considerations, the Panel concludes that there is evidence to indicate that, during the year 2003, the Dominican Republic authorities imposed the Selective Consumption Tax on certain imported cigarettes in excess to the rates applied on the like domestic products, in a manner inconsistent with Article III:2, first sentence, of the GATT.
7.359 As it has concluded that the Dominican Republic has acted in a manner inconsistent with Article III:2, first sentence, the Panel will consider if it should make any recommendations to the WTO Dispute Settlement Body regarding whether the Dominican Republic should bring its measures into conformity with its obligations under the GATT 1994. 7.360 In this regard, the Panel recalls that, as of 14 January 2004, Law 3-04 amended Articles 367 and 375 of the Dominican Republic Tax Code. As a result of the amendments, the ad valorem system previously in force for the application of the Selective Consumption Tax was replaced by a specific and identical tax base and tax rate on imported and domestic cigarettes. 7.361 The measure contested by Honduras, and found by the Panel to be inconsistent with Article III:2, first sentence of the GATT, relates to the determination of the tax base for imported cigarettes and was only relevant when the Selective Consumption Tax was charged on an ad valorem basis. Indeed, the amendments incorporated by the Dominican Republic in its Tax Code change the essence of the measure challenged by Honduras. Under the new legislation, the Selective Consumption Tax on cigarettes is not levied on an ad valorem basis, but on a specific amount (RD$0.48 per cigarette), without distinguishing between imported and domestic cigarettes. The new law would prevent the situation under which certain imported cigarettes were taxed at a higher rate than the like domestic products. 7.362 In conclusion, the Panel clarifies that its findings in relation with the determination of the tax base for the application of the Selective Consumption Tax to certain imported cigarettes refer to the Dominican Republic Tax Code before it was amended by Law 3-04 of January 2004. The amendments enacted through Law 3-04 have changed the essence of the regulations used to determine the tax base for the Selective Consumption Tax on cigarettes from that of the challenged measure. The new legislation falls outside of the terms of reference of the Panel. 7.363 Since the measure, as analysed by the Panel, is no longer in force, the Panel does not find it appropriate to recommend to the WTO Dispute Settlement Body that it make any request to the Dominican Republic regarding this measure.
7.364 For the reasons indicated above, the Panel's overall conclusion is that, during the year 2003, the Dominican Republic imposed in practice a Selective Consumption Tax on certain imported cigarettes in excess of the rates applied to the like domestic products, in a manner inconsistent with Article III:2, first sentence, of the GATT 1994.
7.365 As explained above, the Dominican Republic levies a Selective Consumption Tax on certain products, such as tobacco cigarettes. By the date of establishment of the Panel, and before the Dominican Republic Tax Code was amended through Law 3-04 of January 2004, the Selective Consumption Tax was charged on cigarettes at a 50 per cent ad valorem rate. 7.366 Before the amendments to the Tax Code, the Dominican Republic legislation contained three different rules under which the tax base for cigarettes could have been determined by the authorities, for the purpose of applying the Selective Consumption Tax: (i) Under the rule contained in Article 367(b) of the Dominican Republic Tax Code, the tax base for domestic cigarettes would be the retail selling price obtained from average-price surveys conducted by the Dominican Republic Central Bank, whereas the tax base for imported cigarettes would be the retail price used for the nearest similar product on the domestic market, that is to say the closest substitute; (ii) Under Article 3 of the Decree 79-03 (Regulation on the Implementation of Section IV of the Tax Code), the tax base for both domestic and imported cigarettes would be calculated on the basis of the average market price according to the Central Bank's survey, however for new tobacco products not appearing in the survey on which the retail sale price was determined, the tax base would be the price of the nearest like product in the local market; or (iii) Under Article I of General Rule 02-96 issued by the Directorate General of Internal Taxes of the Dominican Republic, the tax base would be the retail price, determined by increasing the list price (excluding cash and trade discounts, grants and the like) by 20 per cent. 7.367 The determination of the nearest similar domestic product in the Dominican Republic market was important in order to apply the Selective Consumption Tax on imported cigarettes. Indeed, the determination of the "nearest similar product" was relevant for the imposition of the Selective Consumption Tax on imported cigarettes, at least under the rules contained in Article 367(b) of the Dominican Republic Tax Code and in Article 3 of Decree 79-03 (Regulation on the Implementation of Section IV of the Tax Code). 7.368 However, neither Article 367(b) of the Tax Code, nor Article 3 of the Regulation 79-03, nor Article I of the General Rule 02-96, contained any rules on how the "nearest similar product" with respect to imported cigarettes would be determined. 7.369 Honduras's claim in this regard is that the Dominican Republic failed to establish and apply transparent and generally applicable criteria for determining the value of imported cigarettes and, in particular, failed to establish and apply such criteria for the identification of the "nearest similar" product in the domestic market. The measure at issue is thus an alleged omissive conduct on the part of the Dominican Republic.
7.370 Honduras claims that, in the absence of rules, the Dominican Republic authorities had wide scope to determine the "nearest similar product" for the purpose of applying the Selective Consumption Tax on imported cigarettes. According to Honduras, the Dominican Republic authorities administered the provisions governing the Selective Consumption Tax in a manner that is not reasonable; in particular, with respect to determination of the "nearest similar product on the domestic market". Honduras submits that there is no adequate reason for the Dominican Republic to have disregarded the actual retail selling price of domestic L�der cigarettes when determining the tax base for imported Viceroy cigarettes. As stated above, both Viceroy and L�der have the same retail selling price. Honduras concludes that the failure to establish and apply transparent and generally applicable criteria for determining the value of imported cigarettes, in particular the failure to establish and apply such criteria for the identification of the "nearest similar" product in the domestic market, constitutes an unreasonable administration of the provisions governing the Selective Consumption Tax and is inconsistent with Article X:3(a) of the GATT. 7.371 The Dominican Republic replies that Honduras's claim is moot, since it is based on an outdated version of Article 367 of the Tax Code of the Dominican Republic. Law 3-04, published on 14 January 2004, amended Articles 367 and 375 of the Tax Code and established a specific and identical tax base and tax rate for the Selective Consumption Tax on imported and domestic cigarettes � i.e. RD$0.48 per cigarette. The determination of the "nearest similar product" is no longer relevant for determining the tax base of the Selective Consumption Tax. Rather, the tax base is now determined on the basis of the number of cigarette packets transferred or imported. The Panel should abstain from making findings or issuing recommendations to the WTO Dispute Settlement Body, regarding laws and practices of the Dominican Republic that have been withdrawn, because a recommendation in these circumstances would constitute a legal error and would be devoid of purpose, because there is no evidence that the measures are still in place or have lingering effects, because the measures were revoked before the Panel began its adjudication process and because there is no evidence that the Dominican Republic will reintroduce the withdrawn measures.
7.372 Under Article X:3(a) of the GATT 1994:
7.373 In turn, the "laws, regulations, decisions and rulings" described in paragraph 1 of Article X are as follows:
7.374 The Appellate Body has clarified that Article X deals with "the publication and administration of 'laws, regulations, judicial decisions and administrative rulings of general application', rather than [with] the substantive content of such measures".584 7.375 In order to analyse the claim presented by Honduras under Article X:3(a) of the GATT, the Panel would have to determine: (a) whether the provisions governing the Selective Consumption Tax are part of the "laws, regulations, decisions and rulings" of the kind described in Article X:1 of the GATT; and, if so, (b) whether the Dominican Republic has not administered those provisions in a uniform, impartial and reasonable manner, in particular with respect to determination of the "nearest similar product on the domestic market".
7.376 The relevant provisions as regard the claim raised by Honduras are those contained in Article 367(b) of the Dominican Republic Tax Code, in Article 3 of the Decree 79-03 and in Article I of General Rule 02-96. Al of these provisions relate to the application of the Selective Consumption Tax. 7.377 The Panel finds that these provisions can be considered to be covered by the description contained in Article X:1 of the GATT. They are indeed: (a) laws or regulations, (b) made effective by the Dominican Republic, and, (c) pertaining to rates of taxes.
7.378 Honduras's claim centres on an alleged omissive conduct on the part of the Dominican Republic, constituted by its failure to comply with a positive obligation, that of administering its laws and regulations, of the kind described in Article X:1, in a uniform, impartial and reasonable manner. 7.379 The Panel agrees that a Member may act in a manner inconsistent with its obligations under the covered WTO agreements, not only by adopting a particular positive conduct, but also by failing to adopt a conduct, i.e. by an omission, when the relevant rule imposes an obligation to adopt a specific action. 7.380 The Dominican Republic has admitted that, before the approval of Law 3-04, there were three different provisions under which the tax base for cigarettes could have been determined, for the purpose of applying the Selective Consumption Tax, namely: Article 367(b) of the Tax Code, Article 3 of the Decree 79-03 and Article I of General Rule 02-96.585 Each one of these provisions contained a different methodology for the determination of the tax base. 7.381 Despite the existence of these three different provisions, the Dominican Republic has declared that, in practice, the methodology used prior to Law 3-04, to determine the tax base for the Selective Consumption Tax on domestic cigarettes, followed General Rule 2-96.586 Under General Rule 2-96, the tax base should have been, for both imported and domestic cigarettes, the retail price determined by increasing the list price (excluding cash and trade discounts, grants and the like) by 20 per cent. General Rule 2-96 made no distinction between imported and domestic cigarettes. The Selective Consumption Tax on both imported and domestic cigarettes would be based on their respective retail selling price. General Rule did not contemplate the possibility of using a "nearest similar product" in the domestic market, in order to determine the tax base on imported cigarettes. 7.382 However, the available evidence and the Dominican Republic's own admission is that its authorities used a different methodology in order to determine the tax base for imported cigarettes. According to the Dominican Republic, "[t]he amount of the Selective Consumption Tax per cigarette packet that was applied to the imported product was equal to the amount of the tax that applied to the domestic cigarette".587 The Dominican Republic thus admits that it used a "nearest similar product" in the domestic market in order to determine the tax base for imported cigarettes. While both Article 367(b) of the Tax Code and Article 3 of the Decree 79-03 would allow for the use of a "nearest similar product", the Dominican Republic has not argued that it relied on either of these provisions. Indeed, the methodologies contained in both Article 367(b) of the Tax Code and Article 3 of the Decree 79-03 were based on average-price surveys conducted by the Dominican Republic Central Bank. The Dominican Republic has admitted that it had never issued such surveys, "due to the unbridled inflation unleashed by the macroeconomic crisis experienced by the Dominican Republic in recent years".588 7.383 Under Article X:3(a) of the GATT, Members must administer the provisions described in Article X:1 "in a uniform, impartial and reasonable manner". Honduras's claim is that the Dominican Republic administered the provisions governing the Selective Consumption Tax in an unreasonable manner. The Panel considers that the obligation under Article X:3(a) of the GATT is that Members administer the provisions covered by that Article in a uniform manner, in an impartial manner, and in a reasonable manner. These are not cumulative requirements. A member may thus act in a breach of its obligations under Article X:3(a) of the GATT, if it administers the provisions in an unreasonable manner, even if there is no evidence that that Member has also administered the provisions in a non-uniform manner or in a partialized manner. The Panel will thus limit its analysis to Honduras's claim, that is, whether the Dominican Republic administered the provisions in an unreasonable manner. 7.384 The Panel recalls furthermore that the reasonableness required by Article X:3(a) does not refer to the laws and regulations, but to the administration of those laws and regulations. 7.385 Read in the context of Article X, which is entitled "Publication and Administration of Trade Regulations", the ordinary meaning of the word "reasonable", refers to notions such as "in accordance with reason", not irrational or absurd", "proportionate", "having sound judgement", "sensible", "not asking for too much", "within the limits of reason, not greatly less or more than might be thought likely or appropriate", "articulate".589 7.386 In the present case, the requirement of reasonableness, turns on the question of whether it may be considered reasonable that the Dominican Republic administered the provisions governing the Selective Consumption Tax, in particular with respect to the determination of the tax base for the application of the tax on cigarettes, and the use in this regard of the "nearest similar product on the domestic market", in a manner that was not clearly supported by any particular rule in force at the time. 7.387 By its own admission,590 it is clear that the Dominican Republic did not clearly support its determination of the tax base for the application of the Selective Consumption Tax on imported cigarettes on any one of the three methodologies contained in the legislation in force at the time. Furthermore, the Dominican Republic authorities disregarded the actual retail selling price of cigarettes to determine the "nearest similar product on the domestic market". The Dominican Republic has argued that the decision to disregard the retail selling price was taken based on the value declared at customs by the importer. In its own words, "[t]he authorities of the Dominican Republic relied on several factors, including the declared customs value of the imported cigarettes, whenever there was evidence that the pricing policies of the importer alone could not be relied on to determine the nearest similar product in the domestic market".591 However, there is no evidence that the decision was based on any particular provision of the Dominican Republic law in force at the time. Indeed, the Dominican Republic legislation does not appear to grant discretion to the authorities to deviate from the methods described, nor does it grant discretion to disregard retail selling prices and to favour customs-declared values. There is furthermore no evidence that the Dominican Republic authorities notified the importers about the alleged discrepancy between the customs value and the selling price information, nor about the motivation for its decision to disregard retail selling prices. 7.388 The Panel thus finds that the manner in which the Dominican Republic administered the provisions governing the Selective Consumption Tax, in particular with respect to the determination of the tax base for the application of the tax on cigarettes, and the use in this regard of the "nearest similar product on the domestic market", was unreasonable. The fact that the Dominican Republic authorities did not support its decisions regarding the determination of the tax base for imported cigarettes by resorting to the rules in force at the time and that they decided to disregard retail selling prices of imported cigarettes, is not "in accordance with reason", "having sound judgement", "sensible", "within the limits of reason", nor "articulate".
7.389 As it has concluded that the Dominican Republic acted in an unreasonable manner, the Panel will consider if it should make any recommendations to the WTO Dispute Settlement Body regarding whether the Dominican Republic should bring its conduct in conformity with its obligations under the GATT 1994. 7.390 In this regard, the Panel notes that this claim, too, is based on the situation that existed in the Dominican Republic before Law 3-04 amended Articles 367 and 375 of the Dominican Republic Tax Code. As a result of the amendments, the ad valorem system previously in force for the application of the Selective Consumption Tax was replaced by a specific and identical tax base and tax rate on imported and domestic cigarettes. 7.391 The conduct contested by Honduras relates to the determination of the tax base for imported cigarettes and was only relevant when the Selective Consumption Tax was charged on an ad valorem basis. Indeed, the amendments incorporated by the Dominican Republic in its Tax Code change the essence of the measure challenged by Honduras under this claim, too. Under the new legislation, the Selective Consumption Tax on cigarettes is not levied on an ad valorem basis, but on a specific amount (RD$0.48 per cigarette), without distinguishing between imported and domestic cigarettes. The new law would prevent the situation under which the Dominican Republic authorities determined the tax base for the application of the tax on cigarettes and used a "nearest similar product on the domestic market". 7.392 In conclusion, the Panel clarifies that its findings in relation with the unreasonable administration of the provisions governing the Selective Consumption Tax refer to the situation that existed before the Dominican Republic Tax Code was amended by Law 3-04 of January 2004. 7.393 Since the conduct, as analysed by the Panel, no longer persists, the Panel does not find it appropriate to recommend to the WTO Dispute Settlement Body that it make any request to the Dominican Republic regarding this conduct.
7.394 In conclusion, the Panel finds that the Dominican Republic administered the provisions governing the Selective Consumption Tax, in particular with respect to the determination of the tax base for the application of the tax on cigarettes, and the use in this regard of the "nearest similar product on the domestic market", in a manner that was unreasonable and therefore inconsistent with Article X:3(a) of the GATT 1994.
7.395 As explained above592, under the Dominican Republic legislation, before the Tax Code was amended through Law 3-04 of January 2004, the base for the application of the Selective Consumption Tax on cigarettes was to be established through average-price surveys conducted by the Dominican Republic Central Bank. Indeed, Article 367(b) of the Dominican Republic Tax Code established that the tax base for domestic cigarettes was the retail selling price obtained from average-price surveys conducted by the Dominican Republic Central Bank, whereas the tax base for imported cigarettes was the retail price used for the nearest similar product on the domestic market, that is to say the closest substitute. Both the tax base of domestic and imported cigarettes would thus ultimately be based on these average-price surveys. Article 3 of Decree 79-03 stated that the tax base for both domestic and imported cigarettes was to be calculated on the basis of the average market price according to the Central Bank's survey. 7.396 Honduras's claim in this regard is that the Dominican Republic failed to publish, or make otherwise available to importers, any of these surveys. The measure at issue is thus an alleged omissive conduct on the part of the Dominican Republic.
7.397 Honduras claims that the Dominican Republic failed to publish, or make otherwise available to importers, the average-price surveys of cigarettes conducted by the Dominican Republic Central Bank. These surveys were to be used to determine the retail selling price for cigarettes and thus to determine the tax base for the application of the Selective Consumption Tax on cigarettes. Honduras therefore argues that the information contained in the surveys was of critical importance to traders. As a result of the failure to publish these surveys, traders were not apprised of the basis upon which their products would be taxed. Honduras concludes that the failure to publish, or make otherwise available to importers, the average-price surveys is inconsistent with Article X:1 of the GATT. 7.398 The Dominican Republic replies that Honduras's claim is moot, since it is based on an outdated version of Article 367 of the Tax Code of the Dominican Republic. Law 3-04, published on 14 January 2004, amended Articles 367 and 375 of the Tax Code and established a specific and identical tax base and tax rate for the Selective Consumption Tax on imported and domestic cigarettes � i.e. RD$0.48 per cigarette. The Central Bank average-price surveys of cigarettes are no longer relevant for determining the tax base of the Selective Consumption Tax. Rather, the tax base is now determined on the basis of the number of cigarette packets transferred or imported. The Dominican Republic adds that it had never issued such surveys, nor relied on them to determine the tax base on cigarettes, due to the inflation experienced by the Dominican Republic in recent years.593 In its opinion, the Panel should abstain from making findings or issuing recommendations to the WTO Dispute Settlement Body, regarding the publication of the Central Bank average-price surveys, because a recommendation in these circumstances would constitute a legal error and would be devoid of purpose.
7.399 Under Article X:1 of the GATT 1994:
7.400 As mentioned before, the Appellate Body has clarified that Article X deals with "the publication and administration of 'laws, regulations, judicial decisions and administrative rulings of general application', rather than [with] the substantive content of such measures".594 7.401 In order to analyse the claim presented by Honduras under Article X:3(a) of the GATT, the Panel would have to determine: (a) whether the average-price surveys of cigarettes conducted by the Dominican Republic Central Bank are part of the "laws, regulations, judicial decisions and administrative rulings of general application" of the kind described in Article X:1 of the GATT; and, if so, (b) whether the Dominican Republic did not promptly publish those surveys in such a manner as to enable governments and traders to become acquainted with them.
7.402 Honduras has argued that the Dominican Republic's Central Bank average-price surveys of cigarettes are part of the regulations or administrative rulings of general application pertaining to the determination of the Selective Consumption Tax. Therefore, in its view, the survey is a component of the legislation on the Selective Consumption Tax, covered by Article X:1 of the GATT. 7.403 The Dominican Republic has responded that the surveys were not a law, a regulation, a judicial decision, nor an administrative ruling. In its opinion, the surveys are therefore outside of the scope of Article X of the GATT. 7.404 The Panel considers that the average-price surveys of cigarettes conducted by the Dominican Republic Central Bank would clearly not be either laws, regulations or judicial decisions. Laws and regulations are general acts with a legal content issued by state authorities invested with normative powers. Judicial decisions are pronouncements with the force of res judicata issued by judicial authorities as a result of a legal process. The Central Bank surveys would not fit in any of those categories. 7.405 Had the Central Bank average-price surveys been used, under the Dominican Republic legislation they would have provided the authorities with the tax base for the application of the Selective Consumption Tax on cigarettes. The Panel thus finds that, while the surveys may have not been, in themselves, administrative rulings of general application, they would constitute an essential element of an administrative ruling: the determination of the tax base for cigarettes. 7.406 In other words, the establishment of the tax base for cigarettes, and not the surveys in themselves, may be considered as an administrative ruling of general application. Once the Dominican Republic authorities had determined the tax base for cigarettes at a specific amount, that ruling would be applicable for the importation of all cigarettes within the description, until a new tax base had been set. The Central Bank average-price surveys would be a part of the administrative ruling. Indeed, an essential part, since under the Dominican Republic legislation, the tax base for cigarettes would be obtained through the surveys. 7.407 In order to become acquainted with the process of establishing the tax base for the application of the Selective Consumption Tax on cigarettes, governments and traders would be entitled to obtain information on the results of the survey, as well as on the methodology used in order to conduct the survey. 7.408 In conclusion, the Panel finds that, under the Dominican Republic legislation before the Tax Code was amended through Law 3-04 of January 2004, the average-price surveys of cigarettes conducted by the Dominican Republic Central Bank were part of the administrative determination of the tax base for cigarettes, and as such were covered by the scope of "administrative rulings of general application" described in Article X:1 of the GATT.
7.409 Honduras has claimed that the Dominican Republic failed to publish, or otherwise make available to importers, any of the average-price surveys of cigarettes. As a result, traders were not apprised of the basis upon which their products would be taxed.595 7.410 The Dominican Republic admits that the surveys were not published, nor made otherwise available, since they were never issued, nor relied on in order to determine the tax base on cigarettes. The Dominican Republic adds that, due to the high levels of inflation experienced in recent years, "the average retail prices in a survey by the Central Bank would have been an inadequate basis on which to determine the tax base of the Selective Consumption Tax, both for imported and domestic products".596 7.411 Honduras has responded that "[t]he fact that the country was experiencing high levels of inflation made the survey exercise all the more useful, and its publication necessary to make the taxpayers acquainted with the conditions under which the Selective Consumption Tax is applied".597 7.412 There is thus no controversy among the parties that the Central Bank average-price surveys of cigarettes were not published by the Dominican Republic. Indeed, Honduras has provided evidence that an importing firm requested the Dominican Republic authorities for a copy of the surveys.598 7.413 The Panel does not contest the Dominican Republic's argument that, in a high inflation situation, a survey of prices may provide an inadequate basis on which to determine the tax base of the Selective Consumption Tax. Even assuming that, however, the Panel notes that the average-price surveys were mandatorily required by the Dominican Republic legislation in order to determine the base for the application of the Selective Consumption Tax to cigarettes. 7.414 The Panel thus considers that, under its Article X:1 obligations, the Dominican Republic should have either published the information related to the Central Bank average-price surveys of cigarettes or, alternatively, publish its decision to not conduct these surveys and to resort to an alternative method, in such a manner as to enable governments and traders to become acquainted with the method it would use in order to determine the tax base for the Selective Consumption Tax on cigarettes.
7.415 As it has concluded that the Dominican Republic failed to publish the information related to the Central Bank average-price surveys of cigarettes, the Panel will consider if it should make any recommendations to the WTO Dispute Settlement Body regarding whether the Dominican Republic should bring its conduct in conformity with its obligations under the GATT 1994. 7.416 In this regard, the Panel notes that this claim is also based on the situation that existed in the Dominican Republic before Law 3-04 amended Articles 367 and 375 of the Dominican Republic Tax Code. As a result of the amendments, the ad valorem system previously in force for the application of the Selective Consumption Tax was replaced by a specific and identical tax base and tax rate on imported and domestic cigarettes. 7.417 The conduct contested by Honduras relates to the determination of the tax base for imported cigarettes and was only relevant when the Selective Consumption Tax was charged on an ad valorem basis. Indeed, the amendments incorporated by the Dominican Republic in its Tax Code change the essence of the measure challenged by Honduras through this claim, too. Under the new legislation, the Selective Consumption Tax on cigarettes is not levied on an ad valorem basis, but on a specific amount (RD$0.48 per cigarette), without distinguishing between imported and domestic cigarettes. The Central Bank average-price surveys of cigarettes would become irrelevant under the new law, as the means to determine the tax base for the application of the tax on cigarettes. 7.418 In conclusion, the Panel clarifies that its findings in relation with the publication of the information related to the Central Bank average-price surveys of cigarettes refer to the situation that existed before the Dominican Republic Tax Code was amended by Law 3-04 of January 2004. 7.419 Since the conduct, as analysed by the Panel, no longer persists, the Panel does not find it appropriate to recommend to the WTO Dispute Settlement Body that it make any request to the Dominican Republic in this regard.
7.420 In conclusion, the Panel finds that the Dominican Republic failed to publish promptly, and in such a manner as to enable governments and traders to become acquainted with it, the information related to the Central Bank average-price surveys of cigarettes. This conduct was inconsistent with the Dominican Republic's obligations under Article X:1 of the GATT 1994. VIII. CONCLUSIONS AND RECOMMENDATIONS 8.1 The Panel concludes as follows:
8.2 The Panel recommends that the Dispute settlement Body request the Dominican Republic to bring these inconsistent measures as listed above into conformity with its obligations under the GATT 1994. 8.3 The Panel additionally concludes that, with relation to the situation existing at the time of the establishment of the Panel, and before Law 3-04 entered into force in the Dominican Republic:
With relation to the conclusions in the preceding paragraph, the Panel abstains from making any recommendations to the Dispute Settlement Body, since the measures are no longer in force.
517 Decree 79-03, supra note 8. 518 Decree 130-02, supra note 9. 519 First written submission of Honduras, 16 March 2004, para. 76. 520 Ibid., para. 77. 521 First written submission of the Dominican Republic, 13 April 2004, para. 30. 522 Ibid., para. 45. Oral statement of the Dominican Republic to the Panel, 11 May 2004, para. 45. 523 First written submission of the Dominican Republic, 13 April 2004, paras. 4 and 39-42. 524 Ibid., 97 and 100-140. 525 Appellate Body Report, Korea � Various Measures on Beef, para. 133. 526 First written submission of the Dominican Republic, 13 April 2004, para. 32. 527 See physical evidence provided by Honduras, marked Exhibits HOND-23(a) to 23(c), HOND-24(a) to 24(c), HOND-25(a) to 25(n), HOND-26(a) to (26(c), and HOND-27(a) to 27(n). 528 First written submission of Honduras, 16 March 2004, para. 75. 529 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 64. First written submission of Honduras, 16 March 2004, para. 66. 530 Appellate Body Report, EC � Bananas III, para. 220. 531 Decree 79-03, supra note 8. 532 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 68, para. 75. 533 First written submission of Honduras, 16 March 2004, para. 84. 534 First oral statement of Honduras, para. 48. 535 First written submission of Honduras, 16 March 2004, para. 78. 536 Ibid., para. 79. See physical evidence provided by Honduras, marked Exhibits HOND-23(a) to 23(c), HOND-24(a) to 24(c), and HOND-25(a) to 25(n). 537 First written submission of Honduras, 16 March 2004, paras. 81 and 82. 538 GATT Panel Report, US � Section 337, para. 5.11. 539 Appellate Body Report, Japan � Alcoholic Beverages II, p.16. 540 See physical evidence provided by Honduras, marked Exhibits HOND-24(a) to 24(c), HOND-25(a) to 25(n), and HOND-27(a) to 27(n). 541 See physical evidence provided by Honduras, marked Exhibits HOND-24(a) to 24(c), HOND-25(a) to 25(n), and HOND-27(a) to 27(n). 542 Appellate Body Report, Korea �Various Measures on Beef, para. 137. 543 Appellate Body Report, EC � Asbestos, para. 100. 544 Appellate Body Report, EC � Bananas III, para. 216. 545 Appellate Body Report, US � Gasoline, p. 22. 546 Appellate Body Report, Korea � Various Measures on Beef, para. 157. 547 Appellate Body Report, Korea � Various Measures on Beef, para. 161. 548 Appellate Body Report, Korea � Various Measures on Beef, paras. 162-63. 549 See International Conference on Illicit Tobacco Trade, supra note 46. 550 See WHO Framework Convention on Tobacco Control, supra note 47 (emphasis added). 551 See information submitted by the Dominican Republic as Exhibit DR-8. 552 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 74, para. 83. 553 Appellate Body Report, EC � Asbestos, paras. 171. 554 Dominican Republic, First Written Submission to the Panel, 13 April 2004, para. 105. See also, information submitted by the Dominican Republic as Exhibit DR-16. 555 Dominican Republic Tax Code, supra note 10. 556 Decree 79-03, supra note 8. 557 See Certification by the Director General of Customs and Certification by the Directorate General of Internal Taxes, supra note 120. 558 Panel Report, India � Quantitative Restrictions, paras. 5.128-5.129. 559 Panel Report, India � Autos, para. 7.269. 560 Ibid., para. 7.270. 561 The New Shorter Oxford English Dictionary, supra note 52, Vol. II, pp. 1,995-1,996. 562 (Footnote original) Webster's New Encyclopedic Dictionary, 1994 ed. 563 Panel Report, India � Autos, para. 7.257. 564 Panel Report, India � Autos, para. 7.224. 565 Appellate Body Report, Korea � Various Measures on Beef, para. 133. 566 See supra Paragraph 7.164. 567 See Second written submission of the Dominican Republic, 10 June 2004, para.34. 568 See supra Paragraph 7.169. Appellate Body Report, EC � Bananas III, para. 220. 569 See Letter from the Director General of Internal Taxes, supra note 39. 570 Appellate Body Report, Japan � Alcoholic Beverages II, p.16. 571 Exchange rate between the Dominican Republic Peso and the United States Dollar, as of 31 July 2004. 572 Comments by Honduras on the Replies of the Dominican Republic to question No. 109 addressed by the Panel, 21 July 2004, para. 1. 573 Appellate Body Report, Korea � Various Measures on Beef, para. 137. 574 Appellate Body Report, Canada � Periodicals, pp. 22-23. 575 Appellate Body Report, Japan � Alcoholic Beverages II, p. 21. 576 Dominican Republic, Reply to Questions 151-156 from the Panel, 14 July 2004, para. 51. 577 See, for example, Panel report, US � Gasoline, and Panel Report, Argentina � Textiles and Apparel. 578 Panel report, Argentina � Textiles and Apparel, para. 6.13. 579 Appellate Body Report, US � Wool Shirts and Blouses, p. 19. 580 See, for example, Panel Report, US � Certain EC Products; Panel Report, US � Wool Shirts and Blouses; Panel Report, Indonesia � Autos; Panel Report, Chile � Price Band System; and, Panel Report, Canada � Wheat Exports and Grain Imports. 581 Appellate Body Report, Japan � Alcoholic Beverages II, p.23. See also, Panel Report, Argentina � Hides and Leather, para. 11.243. 582 See supra Paragraph 7.318 583 See price information provided by the parties. First written submission of Honduras, 16 March 2004, p. 12. Attestations of the retail selling price for cigarettes with the brand Viceroy and copy of an invoice for cigarettes with the brand L�der, provided by Honduras as Exhibit HOND-9. Retail selling price by name brand of cigarettes (2003), provided by the Dominican Republic as Exhibit DR-34. 584 Appellate Body Report, EC � Poultry, para. 115. 585 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 97, para. 121. 586 Ibid., reply to question No. 98, para. 122. 587 Ibid. 588 Ibid., reply to question No. 104, para. 129. 589 The New Shorter Oxford English Dictionary, supra note 52, Vol. II, p. 2,496. 590 See Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 100, para. 124-125. 591 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 103, para. 128. 592 See supra Paragraph 7.318 593 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 104, para. 129. 594 Appellate Body Report, EC � Poultry, para. 115. 595 First written submission of Honduras, 16 March 2004, paras. 30, 40, 108, and 110. 596 Replies of the Dominican Republic to questions addressed by the Panel, reply to question No. 104, para. 129. 597 Replies of Honduras to questions addressed by the Panel, reply to question No. 134. 598 See information provided by the Dominican Republic as Exhibit HOND-17. 599 See paras. 7.40 and 7.73. 600 See paras.7.25, 7.86 and 7.90. 601 See paras. 7.115, 7.121 and 7.122. 602 See paras. 7.145, 7.154 and 7.155. 603 See paras. 7.198, 7.232 and 7.233. 604 See paras. 7.265, 7.266, 7.311 and 7.316. 605 See para 7.353. 606 See paras. 7.358 and 7.364. 607 See paras. 7.388 and 7.394. 608 See para. 7.420. |
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