DOMINICAN REPUBLIC � MEASURES AFFECTING
THE IMPORTATION AND INTERNAL
SALE OF CIGARETTES

Report of the Panel

(Continued)

E. GUATEMALA

1. Introduction

5.164 Guatemala stated that it would limit its comments to certain issues relating to the proper legal interpretation of various Articles of the GATT.

2. The stamp requirement for imported and domestic cigarettes

5.165 In paragraph 28 of its first written communication, the Dominican Republic states that:

"There is nothing discriminatory about the stamp requirement specified in Article 37 of Decree No. 79-03 of 4 February 2003 and Article 2 of Decree 130-02 of 11 February 2002".

5.166 Further, in Paragraph 37, the Dominican Republic maintains that:

"Accordingly to Article 37 of Decree 79-03, both the domestic producer and the importer of cigarettes are required to affix stamps in the presence and under the supervision of the DGII inspector".

5.167 Based on this reasoning, the Dominican Republic suggests that a Member may meet the requirement of Article III:4, by according to like products of any other Member, formally identical treatment to that it accords to its own like products.

5.168 Guatemala claims that the obligation of "treatment no less favourable" contained in Article III.4 is not, in essence, limited to de jure discrimination. Therefore, the term "treatment no less favourable" in Article III.4 of the GATT should be interpreted to include de facto, as well as de jure, discrimination.

5.169 More specifically, formally identical treatment shall be considered to be less favourable if it modifies the conditions of competition in the relevant market to the detriment of imported goods.

5.170 From that, and given the absence of de jure discrimination in the present case, the Panel should then turn to the question of whether the application of formally identical rules, nevertheless modified conditions of competition for importers.³⁸⁶

5.171 In its first written submission, Honduras claims that:

"� by requiring that the tax stamp of cigarette packages be affixed in the territory of the Dominican Republic, the Dominican Republic accords treatment less favourable to imported cigarettes than that accorded to domestic cigarettes, in a manner inconsistent with Article III.4 of the GATT."³⁸⁷

5.172 For imported cigarettes, the stamp can only be placed on the cellophane of each cigarette packet after it is imported into the Dominican Republic, but prior to its sale. In contrast, domestic producers can place the stamp in their own premises without any adjustment or cost.

5.173 This, as Honduras affirms, derives in additional steps and costs, which as a result, modify the conditions of competition in the relevant market for imported cigarettes.

5.174 The cost of adjusting to this requirement linked with the fact that domestic producers do not have to undergo these additional steps, predominantly burdens importers, thus affecting the internal sale of imported cigarettes.

5.175 Therefore, the requirement to affix the stamp in the Dominican Republic discriminates against imported cigarettes by increasing the cost of imported cigarettes. This additional cost places imported goods in a disadvantageous competitive situation vis � vis the like domestic products.

5.176 Consequently, it can be concluded that the requirement to affix the stamp in the Dominican Republic modifies the conditions of competition for imported cigarettes in the Dominican Republic. This de facto discrimination reflects the less favourable treatment granted by Dominican Republic to imported cigarettes, thereby, violating Article III.4 of the GATT.

5.177 It is worth noting that the Dominican Republic recognizes that the non-discrimination obligation in Article III:4 "�requires Members to refrain from modifying or upsetting those conditions of competition to the detriment of importers in a manner that affords protection to the domestic producers."³⁸⁸

5.178 However, by stating that "the effect that the measure has on imports is negligible" , the Dominican Republic asserts, "(�) complying with the stamp requirement of the Dominican Republic can hardly have any commercial or protective discriminatory effect at all".

5.179 Guatemala rejects the notion advanced by the Dominican Republic that a discriminatory measure, in violation of Article III.4, is justified by the minimal adverse effects generated by such discrimination.

5.180 The contention that the effect of the measure is so small that its trade effects are negligible³⁸⁹, minimal or nil, and thus, did not nullify or impair benefits under the GATT, is irrelevant due to two essential factors. On the one hand, the presumption of nullification or impairment following a prima facie violation operates as an irrefutable presumption (Article 3.8 of the DSU). On the other hand, Panels dealing with claims under GATT Article III have refined and clarified this notion. The GATT Panel on US-Tobacco noted:

"�previous panels had rejected arguments of de minimis trade consequences and had found that the size of the trade impact of a measure was not relevant to its consistency with Article III [of GATT]".³⁹⁰

5.181 For the reasons above, Guatemala considers that the requirement to affix a stamp in the territory of the Dominican Republic is inconsistent with Article III:4 of the GATT.

3. The transitional surcharge on imports

5.182 In its first written submission, the Dominican Republic does not contest the fact that the transitional surcharge is an "other duty or charge" within the meaning of Article II:1 (b) of the GATT.³⁹¹

5.183 Paragraph 1 of the Uruguay Round Understanding on the Interpretation of Article II:1(b) of the GATT 1994 ("the Understanding") reads:

"� in order to ensure transparency of the legal rights and obligations deriving from paragraph 1(b) of Article II, the nature and level of any 'other duties or charges' levied on bound tariff items, as referred in that provision, shall be recorded in the Schedules and concessions annexed to GATT 1994 against the tariff item to which they apply. It is understood that such recording does not change the legal character of 'other duties or charges'."

5.184 According to the second paragraph of the Understanding:

"� the date as of which "other duties or charges" are bound, for the purposes of Article II, shall be 15 April 1994. 'Other duties or charges' shall therefore be recorded in the Schedules at the levels applying on this date."

5.185 From the above, Guatemala would conclude that if "other duties or charges" were not recorded but are nevertheless levied, they are inconsistent with Article II:1(b), in light of the Understanding on the Interpretation of Article II:1(b).

5.186 Guatemala notes that the Dominican Republic did not record the transitional surcharge established by Article 2 of Decree 646-03 of 30 June 2003 in the "other duties and charges" column of its Schedule.

5.187 Guatemala is of the view that Article II:1(b) sets forth the legal obligation of contracting parties to refrain from the application of "other duties and charges" that were not specified in each country's Schedule.

5.188 Guatemalan exporters have assessed their competitive position on the basis of the inscribed duties and charges of the Dominican Republic. For that reasons, the transitional surcharge undermines the legitimate expectations upon which these actions were based and severely disrupts the trade conditions upon which Guatemalan exporters had relied.

5.189 Consequently, Guatemala agrees with Honduras that the Dominican Republic's transitional surcharge on imports is in violation of Article II:1(b) second sentence, because Dominican Republic failed to record it in the "other duties and charges" column of its Schedule, as it should have done in the light of the Understanding on Article II:1(b).

5.190 Finally, Guatemala notes that the Dominican Republic argues that its Schedule of Concessions contains "other duties and charges" up to the level of 30 per cent. Even if the recording was to be found WTO consistent for the products listed therein, the transitional surcharge, nevertheless, remains WTO inconsistent in its application to the rest of the products.

F. UNITED STATES

1. Introduction

5.191 The United States takes no position on the measures at issue. However, the United States does have a systemic interest in the analysis of two GATT 1994 provisions: Article III:4 and Article X:3. The United States offers the following thoughts.

2. Legal aspects

5.192 As the Panel knows, Article III:4 provides that products of the territory of a Member imported into the territory of another Member must be afforded treatment no less favourable than that accorded to like products of national origin in respect of laws, regulations, and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution, or use. Note Ad Article III of GATT 1994 provides that such measures may be applied at the point of importation; application at the border does not alter the fact that the measure is an internal one.

5.193 The necessary consequence of Note Ad Article III is that under Article III:4, the border may be a locus of application for a Member administering laws, regulations, and requirements affecting the internal sale of imported and domestic goods. In this dispute, however, a question has arisen as to whether a measure results in the imported good being provided with treatment less favourable than that accorded to the like domestic product, simply because the measure is being applied in the territory of a Party � at the border. To put it another way: does Article III:4 in the context of this dispute require that a Member apply its measure in the territory of the exporting Member, rather than at the border?

5.194 Honduras appears to be arguing that because the Dominican Republic permits the tax stamp to be affixed on domestic cigarettes at the domestic production facility, the Dominican Republic must also allow the stamp to be affixed on foreign cigarettes at the foreign production facility � in other words, the Dominican Republic may not require the tax stamp to be affixed in the territory of the Dominican Republic.³⁹² Honduras thus alleges that the mere requirement that the tax stamp be affixed in the territory of the Dominican Republic results in discriminatory effects in the form of, inter alia, additional packaging steps and additional costs.

5.195 The gist of Honduras's argument therefore appears to be that Article III:4 may require that a Member apply a measure in the territory of the exporting Member, rather than at the border � and that the mere application of a measure at the border may result in a violation of Article III:4. The United States does not believe that Article III:4 can be so interpreted. Such an interpretation ignores Article III's recognition of the border as a permissible site of application. Indeed, a finding of a breach of Article III:4 cannot rest simply on where the measure is being applied to imported products.

5.196 Moreover, the fundamental purpose of Article III is not to eliminate every perceived differential between domestic and imported goods, even those incidental to the inherent differences between imported and domestic goods. Instead, as the Appellate Body counselled in Japan � Alcoholic Beverages II, the "fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures" and to ensure that such measures are not applied so as to afford protection to domestic production.³⁹³ Rather, Article III:4 does not require identical treatment so long as the treatment afforded to imported products is no less favourable than the treatment afforded to domestic products. In other words, like imported and domestic products may be treated differently so long as the different treatment does not result in less favourable treatment for imported products.

5.197 The United States is aware that in considering the language of Article III:2, first sentence, the Appellate Body concluded that the analysis was simple � either taxes on the imported product are in excess of those on the domestic like product, or they are not. If the taxes are in excess, then the measure providing for those taxes is inconsistent with Article III:2, first sentence. In Japan � Alcoholic Beverages II, the Appellate Body stated that "[e]ven the smallest amount of 'excess' is too much", and no trade effects or de minimis test is necessary.³⁹⁴

5.198 The Appellate Body's analysis of Article III:2, first sentence, however, is not automatically applicable to every provision of Article III. Indeed, the Appellate Body did not apply it to the second sentence of Article III:2 in that very same dispute.³⁹⁵ The Appellate Body considered that:

"[T]here may be an amount of excess taxation that may well be more of a burden on imported products than on domestic 'directly competitive or substitutable products' but may nevertheless not be enough to justify a conclusion that such products are 'not similarly taxed' for the purposes of Article III:2, second sentence. We agree with the Panel that this amount of differential taxation must be more than de minimis to be deemed 'not similarly taxed' in any given case."³⁹⁶

5.199 Likewise, it cannot be assumed that the Appellate Body's Article III:2, first sentence, analysis is applicable to Article III:4. To the contrary, the Appellate Body in the Korea � Various Measures on Beef dispute noted that a measure might produce "incidental effects" but that such effects might not have "decisive implications" for an examination of whether the measure is inconsistent with Article III:4. In that dispute, the Appellate Body examined the existence of a "dual retail system" in Korea: one for imported beef, and a second for domestic beef. The Appellate Body stated:

"[E]ven if we were to accept that the dual retail system 'encourages' the perception of consumers that imported and domestic beef are 'different', we do not think it has been demonstrated that such encouragement necessarily implies a competitive advantage for domestic beef. Circumstances like limitation of 'side-by-side' comparison and 'encouragement' of consumer perceptions of 'differences' may be simply incidental effects of the dual retail system without decisive implication of the issue of consistency with Article III:4."³⁹⁷

5.200 In short, the Appellate Body was reiterating that under Article III:4 like imported and domestic products may be treated differently so long as the different treatment does not result in less favourable treatment for imported products. Therefore, to the extent that the application of a measure at the border results in differential, "incidental effects", those incidental effects do not necessarily mean that an Article III:4 violation has occurred.

5.201 Finally, the United States would like to briefly comment on Honduras's argument regarding Article X:3. According to Honduras, the Dominican Republic's administration of its Selective Consumption Tax is inconsistent with Article X:3(a) because the Dominican Republic allegedly disregarded the actual retail selling price when determining the tax base. However, to the extent that Honduras relies on Article X:3(a) to challenge the substance of the Selective Consumption Tax, the United States wishes simply to note that Article X:3(a) concerns the administration of a measure, not the substance of the measure itself.

VI. INTERIM REVIEW

6.1 On 28 September 2004, both Honduras and the Dominican Republic informed the Panel that they have no comments on the interim report issued to the parties on 21 September 2004. None of the parties requested a meeting with the Panel on the interim report in due time. Accordingly, based on Article 15.2 of the DSU, the Panel's interim report became the Panel's final report. The Panel made editorial corrections in a few places.

VII. FINDINGS

A. CLAIMS OF THE PARTIES

1. The claims of Honduras

7.1 Honduras has made claims in respect of five different measures: (i) the imposition of a 2 per cent transitional surcharge for economic stabilization on all imported goods is inconsistent with Article II:1(b) and, consequently, is also inconsistent with Article II:1(a) of the GATT 1994; (ii) the levying of a 10 per cent foreign exchange fee on all imports is inconsistent with Article II:1(b) and, consequently, is also inconsistent with Article II:1(a); (iii) the requirement that tax stamps be affixed to cigarette packets in the territory of the Dominican Republic under the supervision of the local tax authorities accords less favourable treatment to imported cigarettes and violates Article III:4 of the GATT 1994; (iv) the requirement that importers of cigarettes post a bond of RD$5 million at the time of importation is inconsistent with Article XI:1, or, in the alternative, is inconsistent with Article III:4 of the GATT 1994; and (v) the rules and practices used in determining the value of imported cigarettes as tax bases for the application of the Selective Consumption Tax (SCT), including the failure to publish the survey used to determine the SCT tax bases are inconsistent with Article III:2, Article X:3(a) and Article X:1 of the GATT 1994.

7.2 Honduras requests the Panel to recommend that the DSB request the Dominican Republic to bring these measures into conformity with the GATT 1994.

2. The defence of the Dominican Republic

7.3 The Dominican Republic does not disagree that the transitional surcharge is an "other duty or charge"(ODC). However, it argues that the Dominican Republic has recorded 30 per cent ODCs applied to cigarettes as of 15 April 1994 in its Schedule of Concessions. The 2 per cent transitional surcharge is well below the level of ODC recorded in the Schedule, and therefore, it is not inconsistent with Article II:1(b) and Article II:1(a) of the GATT 1994. The foreign exchange fee is an exchange restriction applied in accordance with Articles of Agreement of the International Monetary Fund and therefore is justified by Article XV:9(a) of the GATT 1994. Alternatively, the Dominican Republic claims that the foreign exchange fee is an "other duty or charge" and the application of a 10 per cent foreign exchange fee plus the 2 per cent transitional surcharge is not "in excess of" the level of 30 percent recorded ODCs on cigarettes in its Schedule, and therefore, the foreign exchange fee is consistent with Article II:1(b) and Article II:1(a) of the GATT 1994.

7.4 In respect of the tax stamp requirement, the Dominican Republic claims that Honduras has not established that the tax stamp requirement accords less favourable treatment to imported cigarettes and consequently, there is no violation of Article III:4. On the bond requirement, the Dominican Republic claims that the measure is an internal measure that falls under Article III:4, rather than under Article XI:1 and since it does not accord less favourable treatment to imported products, it is consistent with Article III:4. The Dominican Republic also claims that should the Panel find that the tax stamp requirement and the bond requirement are inconsistent with Article III:4, they are nevertheless justified by Article XX(d) of the GATT 1994 because they are both necessary to secure compliance with the Dominican Republic's Tax Code which itself is consistent with the GATT 1994 and that their application satisfies the requirements of the chapeau of Article XX.

7.5 As to the measure on the determination of the Selective Consumption Tax bases for imported cigarettes, including the publication of relevant surveys, the Dominican Republic claims that Articles 367 and 375 of the Tax Code have been amended by Law 3-04 which entered into force on 15 January 2004. As the amended Tax Code changed the essence of the old measure, the Dominican Republic contends that the claims that Honduras made with respect to the old measure are moot and should be dismissed by the Panel.

7.6 The Dominican Republic requests the Panel to dismiss all the claims made by Honduras in its submissions.

B. ORDER OF ANALYSIS

7.7 The Panel considers that Honduras has made claims under five separate measures in this dispute. The failure to publish the survey used to determine tax bases as prescribed in paragraph 2 of its panel request is not an independent measure, rather, it forms part of the rules and practices by which the Dominican Republic determines the Selective Consumption Tax base for imported cigarettes.

7.8 The Panel recalls the ruling of the Appellate Body in Australia � Salmon:

"This aim [of the dispute settlement system] is to resolve the matter at issue and to 'secure a positive solution to a dispute'. To provide only a partial resolution of the matter at issue would be false judicial economy. A panel has to address claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings for purpose of prompt compliance by a Member with those recommendations and rulings...".³⁹⁸

7.9 As the five measures challenged by Honduras are all independent measures, the Panel is of the view that a solution could only be secured in this dispute by examining and making findings on each and every measure, although not necessarily on each claim. Leaving any one measure unaddressed would, in the view of the Panel, lead to a partial resolution of the dispute.

7.10 Accordingly, the Panel considers it appropriate to examine claims made by Honduras under each measure in the following order: (i) the imposition of transitional surcharge for economic stabilization; (ii) the levying of foreign exchange fee; (iii) the requirement that tax stamps be affixed to cigarette packets in the territory of the Dominican Republic; (iv) the requirement that importers of cigarettes post a bond of RD$5 million at the time of importation; and (v) the rules and practices in determining the value of imported cigarettes as tax bases for the application of the Selective Consumption Tax, including the failure to publish the survey used to determine the SCT tax bases.

C. THE IMPOSITION OF TRANSITIONAL SURCHARGE FOR ECONOMIC STABILIZATION

1. The measure at issue

7.11 The Dominican Republic imposes a surcharge on the importation of all goods under the name "transitional surcharge for economic stabilisation" (recargo transitorio de estabilizaci�n econ�mica). This surcharge was first established by Article 2 of Decree 646-03 of 30 June 2003.³⁹⁹ The surcharge rate is 2 per cent of the c.i.f. value of the imported goods.

7.12 Decree 646-03 was replaced by a new law after the date of the establishment of the Panel. The Dominican Republic informed the Panel that its Congress approved Law 2-04, which established a temporary 2 per cent surcharge on all goods imported into the Dominican Republic with a few exceptions.⁴⁰⁰ This law entered into force on 15 January 2004, after the establishment of the Panel on 9 January 2004.⁴⁰¹ The rate of the surcharge provided by Law 2-04 is the same as the rate provided in the previous Decree. Article 4 of Law 2-04 also provides that the transitional surcharge shall expire, at the latest, on 31 December 2004.

2. Introduction

7.13 Honduras claims that this transitional surcharge measure is inconsistent with Article II:1(b) of the GATT 1994. It also points out the consequential violation of Article II:1(a) in the text of a footnote in its first written submission. In light of the arguments and debates made by the parties during the Panel proceedings, the Panel considers it necessary to address a series of issues logically linked to the claim of inconsistency with Article II:1(b) of the GATT 1994 raised by Honduras. These issues include: (i) which legal instrument constitutes the measure to be examined by the Panel; (ii) whether the transitional surcharge is an "other duty or charge" under Article II:1(b) of GATT 1994; (iii) whether the surcharge has been properly recorded in the Schedule of Concessions of the Dominican Republic and the nature of the recorded measure; (iv) whether the right to challenge the recording expired three years after the incorporation of the Uruguay Round Schedule; (v) whether the surcharge is inconsistent with Article II:1(b); (vi) whether the measure is limited to cigarette products; and (vii) whether the surcharge is inconsistent with Article II:1(a).

3. Which legal instrument constitutes the measure to be examined by the Panel

(a) Arguments of the parties

7.14 Honduras claimed that Decree 646-03 of 30 June 2003 prescribed a "transitional surcharge for economic stabilization". Article 2 of the Decree requires that a 2 per cent surcharge, calculated on the c.i.f. value of all goods imported into the Dominican Republic be levied. Honduras indicates that this surcharge applies to both bound and unbound items.⁴⁰²

7.15 The Dominican Republic informed the Panel in its first written submission that Decree 646-03 is no longer in force. It has been replaced by Law 2-04 of 4 January 2004.⁴⁰³ In its reply to panel questions, the Dominican Republic confirmed that Law 2-04 entered into force on 15 January 2004, the day following its publication, in accordance with Article 1 of the Dominican Republic Civil Code.⁴⁰⁴

7.16 Honduras argues that what is relevant for the Panel's terms of reference is the "transitional surcharge for economic stabilization" in substance rather than the legal acts in their original or modified forms. Therefore, the measure, "transitional surcharge for economic stabilisation", as provided in both Decree 646-03 and Law 2-04 should be analysed by the Panel.⁴⁰⁵

7.17 The Dominican Republic also confirmed that Law 2-04 has not changed the essence of the transitional surcharge measure as provided in Decree 646-03.⁴⁰⁶ One minor change is the list of exceptions introduced by paragraph I to Article 1 of Law 2-04. The Dominican Republic considers that the measure that the Panel should examine is the 2 per cent surcharge mandated by Law 2-04, but only as it applies to cigarettes.⁴⁰⁷

(b) Analysis by the Panel

7.18 Decree 646-03 provides in Article 2 that "[a] transitional surcharge for economic stabilization shall be applied amounting to 2 per cent of the c.i.f. value of all goods under the tariff headings of the Harmonized Commodity Description and Coding System that are entered for consumption". Law 2-04 provides the following:

"Article 1 A temporary surcharge of 2 per cent is hereby established on all goods imported into the Dominican Republic under the regime of customs clearance for consumption, included in the nomenclature of the Harmonized Commodity Description and Coding System.

Paragraph I The following shall be exempted from this surcharge: final importation of goods for personal use that are duty-free under the special regimes on: passenger luggage, disabled persons, Dominican personnel abroad and diplomatic representatives accredited to the Dominican Republic. Also exempt are final imports not subject to import duties, made by institutions in the public sector, diplomatic and consular missions and international organizations. The same exemption shall apply to final imports of samples and parcels exempt from tariff duties."

7.19 It is clear to the Panel that Law 2-04 does not change the essence of the measure. The exception list in Paragraph I to Article 1 of Law 2-04 concerns only imports relating to: (i) goods for personal use by passengers, disabled persons and diplomatic representatives; (ii) goods imported by public institutions and diplomatic missions; and (iii) goods imported as samples or parcels that are exempted from paying tariff duties. The substance of the transitional surcharge for economic stabilization, i.e. the 2 per cent charge on the c.i.f. value of the imported products, is unchanged in the new legal instrument Law 2-04. It is the Panel's understanding that Honduras is challenging the measure as it affects commercial imports into the Dominican Republic, rather than the measure as it affects non-commercial imports exempted from paying the surcharge by Paragraph I to Article 1 of Law 2-04. In this sense, the Panel is of the view that there is no difference between the measure as provided in Decree 646-03 and that as provided in Law 2-04 with regard to the claim of Honduras in this dispute.

7.20 Given that the amendment was made after the Panel was established, the question is whether the Panel has the authority to examine the measure as provided by the new legal instrument � Law 2 04. In this respect, the Panel recalls that a number of previous panels have examined measures amended either after the consultation stage of dispute settlement proceedings, such as in Brazil � Aircraft, or, after the establishment of a panel, such as in Chile � Price Band System. The Appellate Body stated in Chile � Price Band System that

"... generally speaking, the demand of due process are such that a complaining party should not have to adjust its pleadings throughout dispute settlement proceedings in order to deal with a disputed measure as a 'moving target'. If the terms of reference in a dispute are broad enough to include amendments to a measure... and if it is necessary to consider an amendment in order to secure a positive solution, to the dispute... then it is appropriate to consider the measure as amended in coming to a decision in a dispute" (emphasis original).⁴⁰⁸

7.21 The Panel considers that in this dispute, the terms of reference for this Panel refer to the transitional surcharge for economic stabilization measure, which is essentially the same as the measure amended by Law 2-04. The parties also explicitly agree that the amendment by Law 2-04 does not change the essence of the surcharge. The terms of reference of this Panel are broad enough to include the new law. The Panel also considers it necessary to examine Law 2-04 to secure a positive solution to the matter mandated to this Panel since Decree 636-03 has been replaced by Law 2-04. The Panel therefore considers that the measure to be examined is the transitional surcharge for economic stabilization measure as provided by the new legal instrument Law 2-04.

4. Whether the transitional surcharge is an "other duty or charge" under Article II:1(b) of the GATT 1994

(a) Arguments of the parties

7.22 Honduras claims that the surcharge is imposed on, or in connection with, the importation of all goods due to the fact that it is levied on the c.i.f. value of all goods included in the Harmonized Commodity Description and Coding System and which fall under the regime of custom clearance for consumption as provided by the Decree.⁴⁰⁹ Honduras also argues that the obligation to pay the surcharge arises concurrently with the customs duty payable, and is thus an obligation separate from the obligation to pay the customs duty. Therefore, the surcharge is an "other duty or charge" within the meaning of Article II:1(b). Honduras indicates that for cigarette products, the bound rate of tariff duty for the Dominican Republic is 40 per cent, and the surcharge is imposed in addition to that duty.⁴¹⁰

7.23 The Dominican Republic explains that it does not contest the fact that the transitional surcharge is an ODC within the meaning of Article II:1(b). However, the Dominican Republic disagrees with the argument by Honduras that the Dominican Republic has not recorded the ODCs into its Schedule of Concessions.⁴¹¹

(b) Analysis by the Panel

7.24 The Panel agrees with the parties that the surcharge as it is applied in Law 2-04 is imposed on, or in connection with, the importation of all goods with a few exceptions prescribed in paragraph I to Article 1 of Law 2-04. It is imposed on these imported products in addition to tariff duties on these products. It is clearly a border measure.

7.25 The surcharge is based on the value of the imported products, rather than any service rendered by the custom authorities. Therefore, it is not a fee or charge that falls under Article VIII of the GATT 1994. It is not an internal tax either since it does not apply to domestic products. To summarize, the surcharge is neither an ordinary customs duty, nor a charge or duty that falls under Article II:2 of the GATT 1994. The Panel agrees with the parties that as a border measure, the surcharge as prescribed in Law 2-04 is an "other duty or charge" within the meaning of Article II:1(b) of the GATT 1994.

5. Whether the surcharge has been properly recorded in the Schedule of Concessions of the Dominican Republic and the nature of the recorded measure

(a) Arguments of the parties

7.26 Honduras submits that the Dominican Republic did not record the transitional surcharge for economic stabilization in its Schedule of Concessions. In the view of Honduras, paragraphs 1 and 2 of the "Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994" require that WTO Members record all "other duties and charges" in their Schedule as applied as of 15 April 1994. The Dominican Republic did not record the surcharge as it did not exist at the date of 15 April 1994.⁴¹²

7.27 The Dominican Republic responds that it did record ODCs applied to cigarettes as of 15 April 1994 in its Schedule.⁴¹³ On 14 September 1994, the Dominican Republic notified its addition of "other duties and charges" to its Schedule XXIII, which was circulated by the Preparatory Committee for the World Trade Organization to all Members in document G/SP/3 on 12 October 1994. In the circulated list, a rate of 30 per cent ODC was included for cigarette products under tariff heading 2402.⁴¹⁴

7.28 The Dominican Republic submits that its notification was filed with the WTO Secretariat in accordance with paragraph 7 of the Understanding, within six months of the date of the deposit of its original Schedule on 15 April 1994. It also indicates that there was a cover note stating that "if no objection is notified to the Secretariat within thirty days from the date of this document, the rectifications to Schedule XXIII � Dominican Republic will be deemed to be approved and will be annexed to the Protocol Supplementary to the Marrakesh Protocol to the General Agreement on Tariff and Trade". In the view of the Dominican Republic, since no objection was raised by any WTO Member, the addition of the notified ODCs to its Schedule was therefore approved.⁴¹⁵

7.29 Honduras contends however, that paragraph 1 of the Understanding requires that both the nature and the level of the ODCs be recorded in the Schedule and that both elements are bound. Moreover, as provided by paragraph 1 of the Understanding, the recording does not change the legal character of "other duties or charges".⁴¹⁶

7.30 Honduras also argues that what the Dominican Republic actually inscribed into its Schedule was an internal tax as applied on 15 April 1994. The list added to the Schedule was entitled "Lista de productos importados que pagan el Impuesto Selectivo en Aduanas" (List of imported products subject to the Selective Tax at Customs), whereas chapter IV of its Law 11-92 in force on 15 April 1994 also contained a list of imported products subject to the Selective Consumption Tax, which was entitled "Lista de productos importados que pagar�n el Impuesto Selectivo en Aduanas" (List of imported products subject to the Selective Tax payable at Customs). They both refer to " Impuesto Selectivo", that is, the Selective Consumption Tax. Moreover, the products listed in notification G/SP/3 and in Law 11-92 as well as the respective ad valorem tax rates for these products are identical. Honduras considers that the inscription of an internal tax into the Schedule has no legal effect. In the view of Honduras, if a Member has recorded an internal tax in its Schedule of Concessions, the recording does not change the nature of that tax into an "other duty or charge" under Article II:1(b) of the GATT1994.⁴¹⁷

7.31 Honduras contends that the nature of the recorded "Impuesto Selectivo" is not the same as the surcharge measure currently applied. The "Impuesto Selectivo" is an internal tax while the surcharge is a border measure on the importation of all products. Therefore, in the view of Honduras, the Dominican Republic did not record the transitional surcharge as an ODC in its Schedule.⁴¹⁸ Honduras also argues that, in any event, the Dominican Republic could not have recorded the transitional surcharge due to the fact that the transitional surcharge was first imposed on 30 June 2003.⁴¹⁹ In the view of Honduras, the recording of an internal tax, which falls under Article III:2, does not change the nature of that tax into "other duties and charges" falling under Article II:1(b).⁴²⁰

7.32 The Dominican Republic submits, in its response to a question from the Panel, that the heading " Lista de productos importados que pagan el Impuesto Selectivo en Aduanas" of the list in the notification of 14 September 1994 was a mistake. It admitted that there was correspondence between the recorded level of ODCs and the Selective Consumption Tax in force on 14 September 1994. However the level of ODCs recorded was never intended to substitute or replace the Selective Consumption Tax. What was covered under that heading was the level of ODCs that the Dominican Republic decided to record in its Schedule. The Dominican Republic argues that it reserved its right to impose ODCs up to that level.⁴²¹

7.33 In response to this argument, Honduras contends that as the Dominican Republic acknowledged the mistake in the heading and the equivalence between the recorded levels of ODCs and the Selective Consumption Tax, the Dominican Republic has the burden of establishing the existence of another law as the basis of the ODCs applied as of 15 April 1994.⁴²²

(b) Analysis by the Panel

7.34 The Panel is aware of the fact that the Dominican Republic did notify the "Additions to Schedules Annexed to the Marrakesh Protocol to the GATT 1994" on 14 September 1994 and that the Preparatory Committee for the World Trade Organization circulated the document on 12 October 1994 as document G/SP/3. The cover note states that "if no objection is notified to the Secretariat within thirty days from the date of this document, the rectifications to Schedule XXIII � Dominican Republic will be deemed to be approved and will be annexed to the Protocol Supplementary to the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994". There was no objection during the specified period of time and therefore, the Panel considers that the notification was deemed as approved.⁴²³

7.35 Under paragraph 7 of the Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994, any ODCs omitted from a Schedule at the time of deposit of the instrument incorporating the Schedule into GATT 1994 shall be added to it within six months of the date of deposit of the instrument. The Panel notes that this notification was made within six months of deposit of the instrument incorporating the Schedules of Concessions into GATT 1994 on the date of 15 April 1994, consistent with the requirement of paragraph 7 of the Understanding. Therefore, the recording of these additions in the Dominican Republic's Schedule of Concessions was procedurally appropriate and the additions have been deemed properly approved since no objections were raised by any Member.

7.36 The Panel also takes note of Honduras's argument that the Dominican Republic did not record the transitional surcharge into its Schedule since it did not exist on 15 April 1994. Rather, in the view of Honduras, what the Dominican Republic recorded was the Selective Consumption Tax as applied in 1994. In this regard, the Panel considers it necessary and appropriate to compare the list of products in the notification document (G/SP/3) and the list of imported products subject to the Selective Consumption Tax pursuant to the law in force in 1994. In this task, the Panel will use the evidence provided by the Dominican Republic in Exhibit- DR-19 as the basis of the ODC notification made by the Dominican Republic in 1994, and the evidence provided by Honduras in Exhibit- HOND-18 as the law governing the Selective Consumption Tax as applied in 1994 (Title IV of Law 11-92) since the Panel has noticed that the parties have not contested the accuracy or authenticity of these two items of evidence during the proceedings.

7.37 On the titles of the two product lists, the one in the notification "Additions to Schedules Annexed to the Marrakesh Protocol to the GATT 1994" in document G/SP/3 is named "Lista de productos importados que pagan el Impuesto Selectivo en Aduanas", whereas the title of product list subject to the Selective Consumption Tax in 1994 according to chapter IV of Law 11-92 in force in 1994 was "Lista de productos importados que pagar�n el Impuesto Selectivo en Aduanas." Although the wording is slightly different, the meaning of the titles is one and the same, that is, "List of imported products subject to the Selective Tax payable at Customs". The Panel notes that although Title IV of Law 11-92 actually contained two separate products lists, one for domestic products and one for imported products, both imported and domestic products included in the two lists in chapter VI of Title IV of Law 11-92 were subject to the Selective Consumption Tax. Since the title of the product list in the G/SP/3 notification was the same as the title of the imported product list contained in Law 11-92, the Panel understands that the nature of the measure as reflected in the G/SP/3 notification was an internal tax, specifically, the Selective Consumption Tax.

7.38 With regard to the scope of the products included in the G/SP/3 notification, a comparison reveals that all the 70 tariff lines of products as listed in the G/SP/3 notification were actually included, in the meantime, in the list of imported products that were subject to the Selective Consumption Tax under Title IV of Law 11-92. The tax rates for these products in Law 11-92 were exactly the same as the ad valorem rates set for the corresponding products in the notification in document G/SP/3. The Dominican Republic has also admitted that there was a correspondence between the recorded ODC level and the level of Selective Consumption Tax in force on 14 September 1994. The tax in Title IV of Law 11-92 and the "duty" in the notification were all on ad valorem basis. The only difference is that 14 additional tariff lines of products listed under Title IV of Law 11-92 were not listed in the G/SP/3 notification, which concerns certain kinds of vehicles only. In evaluating these facts, the Panel considers that the tariff lines and the levels of rates in the G/SP/3 notification were all taken from the list of imported products and the rates thereof in Law 11-92, which was the law governing the Selective Consumption Tax as applied in 1994.

7.39 On the question of what ODC was actually applied at the time of the notification, the Dominican Republic admits in its response to questions from the Panel, that the only "other duties and charges" applied in 1994 was the 1.5 per cent foreign exchange fee. But it argues that the ODC notification in document G/SP/3 was different from the Selective Consumption Tax applied to imported products at that time. The heading of the product list in the 1994 notification was a mistake and the intention of the Dominican Republic was to reserve, through recording ODCs, the right to apply ODCs up to the reserved level.⁴²⁴ It is clear to the Panel that the products on the notified list in G/SP/3 were only subject to the Selective Consumption Tax, not to an equal amount of additional "other duties and charges" back in 1994. Under such circumstance, the nature of the recorded measure has not been established to be an ODC by the Dominican Republic. In fact, these products in the notification list were only subject to a 1.5 per cent of foreign exchange fee pursuant to a Monetary Board Resolution in force in 1994, which, in the view of the Panel, was not specifically notified at that time.

7.40 As a result, the Panel's factual assessment is that the transitional surcharge did not exist in 1994 and that what the Dominican Republic notified in document G/SP/3 was the product list and the ad valorem Selective Consumption Tax rates as applied to these imported products under Law 11-92 in force in 1994. The Panel finds that although the Dominican Republic followed the appropriate procedure in making the notification and the notification was deemed approved after 30 days, the Dominican Republic actually notified its Selective Consumption Tax product list and the relevant rates under the name of "other duties and charges". In the Panel's view, the Dominican Republic has not proved its argument that the recorded measure is in fact in the nature of an "other duty or charge".

6. Whether the right to challenge the existence of the measure and the nature of the measure in the recording expired three years after the incorporation of the Uruguay Round Schedule

(a) Introduction

7.41 The Dominican Republic argues that neither the existence of the ODC as of 1994 nor the nature of the recorded measure can be legally challenged three years after the incorporation of the Uruguay Round Schedules of Concessions and that therefore, the notification in document G/SP/3 can serve as a legal basis to demonstrate the consistency of the surcharge and the foreign exchange fee measures with Article II:1(b), second sentence. The Panel is of the view that the answer to the issue of any limitation on the right of challenge can only be obtained by resorting to relevant paragraphs of the Understanding on the Interpretation of Article II:1(b) of the GATT 1994 because it is the Understanding that governs the process of the recording of ODCs during and after the Uruguay Round. The Panel therefore will proceed by analysing relevant paragraphs of the Understanding that the parties invoked and debated during the proceedings.

(b) Arguments of the parties

7.42 The Dominican Republic argues that based on paragraphs 4 and 5 of the Understanding on the Interpretation of Article II:1(b), the right to challenge the existence and the consistency of the level of the ODCs with those actually applied as of 15 April 1994 expired three years after the deposit of the instrument incorporating its Schedule into the GATT 1994. Making reference to a Secretariat note on the negotiation of the Understanding during the Uruguay Round, the Dominican Republic submits that paragraph 4 of the Understanding provides a three-year limit to challenging either the existence or the recorded level of ODCs. Therefore, it contends that Honduras is barred from making the claim that the Dominican Republic did not record the transitional surcharge and the foreign exchange fee as ODCs into its Schedule and the claim that such ODCs did not exist as of 15 April 1994.⁴²⁵

7.43 The Dominican Republic also argues that the language of paragraph 1 does not preclude the recording of an ODC that did not exist in 1994 but which a Member wished to reserve for future use and that the "nature" and the "level" of a recorded ODC can only be challenged during the three-year period following the recording of an ODC in a Member's Schedule.⁴²⁶

7.44 The Dominican Republic contends that even if the recording or the existence could be challenged after the expiry of the three-year period, such a challenge must be brought under the relevant paragraphs of the Understanding. In the opinion of the Dominican Republic, given that Honduras has not made any claims under the Understanding in its request for the establishment of the panel, it may not be allowed to challenge the recording and the existence of the surcharge and the foreign exchange fee.⁴²⁷

7.45 The Dominican Republic therefore concludes that Honduras' argument that these measures are inconsistent with Article II:1(b) because they were not recorded in the Schedule of the Dominican Republic or because they did not exist as of 15 April 1994 must be dismissed by the Panel.⁴²⁸

7.46 However, Honduras argues that Article II:1(b), read together with the Understanding on the Interpretation of Article II:1(b), requires Members not to impose any ODCs in excess of those imposed on 15 April 1994. Paragraph 1 of the Understanding requires that Members record both the nature and the level of ODCs in their Schedules of Concessions and that both the nature and the level recorded are bound.⁴²⁹ Honduras argues that the recording of an internal tax in a Member's Schedule does not change the nature of that tax into an other duty or charge falling under Article II:1(b).⁴³⁰

7.47 Honduras also argues that the recording of the Selective Consumption Tax into the Schedule does not give the Dominican Republic the authority to levy other types of duties or charges up to that level today. The current transitional surcharge and the foreign exchange fee were not "properly recorded" in the Schedule.⁴³¹ In the view of Honduras, Schedules of Concessions may yield rights but they cannot diminish obligations under the GATT. In its opinion, allowing Members to record other duties or charges that were not imposed as of 15 April 1994 would diminish the rights of other Members under Article II:1(b).⁴³²

7.48 On the right to challenge recorded ODCs, Honduras argues that paragraph 5 of the Understanding provides that the recording of "other duties or charges" is without prejudice to their consistency with rights and obligations under GATT 1994 and that Members retain the right to challenge that consistency at any time.⁴³³ Honduras considers that the sole exception to the right of challenge is paragraph 4 of the Understanding and the Dominican Republic has the burden of establishing that this exception applies to the surcharge and the foreign exchange fee.⁴³⁴

7.49 Honduras submits that paragraph 4 applies to "other duties or charges" imposed on bound items which had been the subject of previous concessions. In its view, the three-year limitation applies only to the challenge of the "existence of an ODC" at the time of the original binding of the item, as well as the challenge of the consistency of the level of ODCs with the previously bound level.⁴³⁵ It does not apply to any product that has not been the subject of a previous concession. In this dispute Honduras is challenging a recording of an alleged ODC which was not in fact imposed as of 15 April 1994 at the end of Uruguay Round. Therefore, in the view of Honduras, paragraph 4 does not apply and paragraph 5 is applicable.⁴³⁶

7.50 Analysing the text of the second sentence of paragraph 4 of the Understanding, Honduras argues that the phrases original binding in relation to the challenge of non-existence of an ODC and previously bound level in relation to the challenge of consistency of the recorded level confirm that the subject matter of the two sentences in paragraph 4 is the same, that is, ODCs in respect of a tariff item that had previously been the subject of a concession.⁴³⁷

7.51 On the issue whether Honduras could challenge the recording of ODCs without making a claim directly under the Understanding in its panel request, Honduras argues that the Understanding is part of the context of Article II:1(b). Therefore, the references to Article II:1(b) in the panel request necessarily include references to the Understanding. Honduras also argues that in any event, the Dominican Republic as a defending party has raised the recording of ODCs pursuant to the Understanding as its principal defence.⁴³⁸

7.52 The Dominican Republic responds that the second sentence of paragraph 4 limits to three years the right of Members to challenge either the existence or the recorded level of an ODC regardless of whether or not the tariff item involved had been the subject of a previous concession. In its view, only the first sentence of paragraph 4 refers to the situation where a tariff item has previously been the subject of a concession.⁴³⁹

7.53 In the opinion of the Dominican Republic, the wording in the second sentence of paragraph 4 "existed at the time of the original binding" contemplates only the situation of an initial event. Therefore, the phrase "original binding" includes not only situations where tariff items were subject to concessions prior to the Uruguay Round, but also situations where tariff items were initially subject to concessions in the Uruguay Round.⁴⁴⁰

(c) Analysis by the Panel

7.54 The Panel considers that the basic argument made by Honduras in this respect is that there is no valid recording in the Schedule of Concessions of the Dominican Republic that can be used as the legal basis for the application of the current surcharge measure since the measure did not exist as of 15 April 1994 and therefore, the current surcharge as an "other duty or charge" is in excess of what is recorded in the Schedule.

7.55 The Panel understands that Honduras has raised objections to the substantive validity of the recorded additions in the notification of the "Additions to schedules annexed to the Marrakesh Protocol to the GATT 1994" in document G/SP/3, specifically: (i) that the nature of the recorded measure was not an ODC within the meaning of Article II:1(b), but rather, an internal tax; and (ii) that such ODCs did not exist in 1994. The Dominican Republic then rebutted these objections on the following ground that such challenges or objections could only be raised within a three-year period after the incorporation of the Schedule into the GATT 1994 and that the three year period had expired. Under such circumstances, the Panel considers that it is obliged to first determine whether such challenges of or objections to the recording are permitted by Article II:1(b) and the Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994.

7.56 The core issue that the Panel has to explore is what aspects of the recording are subject to the limitation of the three-year challenge period under paragraph 4 of the Understanding and what aspects are still challengeable after the expiration of the three-year period. Paragraph 4 of the Understanding provides the following:

"Where a tariff item has previously been the subject of a concession, the level of 'other duties or charges' recorded in the appropriate Schedule shall not be higher than the level obtaining at the time of the first incorporation of the concession in that Schedule. It will be open to any Member to challenge the existence of an 'other duty or charge', on the ground that no such 'other duty or charge' existed at the time of the original binding of the item in question, as well as the consistency of the recorded level of any 'other duty or charge' with the previously bound level, for a period of three years after the date of entry into force of the WTO Agreement or three years after the date of deposit with the Director-General of the WTO of the instrument incorporating the Schedule in question into GATT 1994, if that is a later date."(emphasis added)

7.57 It is clear to the Panel that the first sentence of paragraph 4 addresses the specific situation where a tariff item has been the subject of a "previous" concession, i.e. a concession made in any negotiating round "before" or "prior to" the Uruguay Round. The obligation in the first sentence is that the recorded level be no higher than the level bound at the time of the first incorporation of the item in the Schedule.

7.58 In this regard, the Panel also notes that the travaux pr�paratoires confirm that the intention behind paragraph 4 is to prevent the breaching of earlier bindings in recording the ODCs as applied on 15 April 1994, which was the newly agreed applicable date for the recording of ODCs. In other words, the intention of paragraph 4 was to ensure that the level of ODCs recorded on the newly agreed date of 15 April 1994 would not be higher than any previously bound level of ODCs. A Secretariat note on "Article II:1(b) OF THE GENERAL AGREEMENT" circulated during the process of negotiation explained:

"If it were felt desirable to achieve the fullest possible transparency and to minimize the technical complexity of the entries to be made in the Schedules, the Group might consider that for all bound items, whatever the date of their first incorporation into GATT Schedules, the applicable date should become the same. If it were decided that for example the date of the Uruguay Round Protocol should be the applicable date, all ODCs would be bound at the levels in force at the date of the Uruguay Round tariff protocol, provided that these levels were not in themselves illegal �i.e., in breach of an earlier bindings."⁴⁴¹ (emphasis added)

7.59 Although due to the complexity of the negotiating process, one can not really expect to find explicit positions by each Member on all the issues concerning the text of the Understanding, the Panel did find at least one document that clearly set out the view of one Member on relevant issues:

"2. Having regard to the provisions of paragraph 2 of Article II, it is clear that the term 'other duties and charges' does not include internal tax, anti-dumping or countervailing duties, and fees or other charges commensurate with the cost of services rendered. ...

3. ...

4. Taking into consideration of the above-mentioned aspects, India is willing to support the following:

i) the date of the Uruguay Round Protocol should be the applicable date;

ii) all the 'other duties and charges' should be bound at the levels in force on the date of the Uruguay Round Protocol, provided that those levels are not in themselves in breach of earlier bindings (emphasis added); and

iii) for a period of three years following the date of the aforesaid Protocol there should be the possibility of challenging the recorded 'other duties and charges' on the basis of their inconsistency with earlier bindings."⁴⁴² (emphasis added)

7.60 Paragraph 2 of the Understanding is relevant to the interpretation of paragraph 4. Paragraph 2 provides:

"The date as of which 'other duties or charges' are bound, for the purposes of Article II, shall be 15 April 1994. 'Other duties or charges' shall therefore be recorded in the Schedules at the levels applying on this date. At each subsequent renegotiation of a concession or negotiation of a new concession the applicable date for the tariff item in question shall become the date of the incorporation of the new concession in the appropriate Schedule. However, the date of the instrument by which a concession on any particular tariff item was first incorporated into GATT 1947 or GATT 1994 shall continue to be recorded in column 6 of the Loose-leaf Schedules."

7.61 Reading paragraph 2 and the first sentence of paragraph 4 together makes clear: (i) that the obligation is to record the ODC levels applied as of 15 April 1994; (ii) for future renegotiation or negotiation of a concession, the applicable date for recording of ODCs will be the date of the incorporation of the new concessions into the Schedule; (iii) in case a previous lower level of ODC was bound at the time of the original incorporation of the item into the Schedule prior to the Uruguay Round, that earlier bound level shall be recorded rather than the level as applied on the date of 15 April 1994; (iii) if the level bound at the time of the original incorporation of the item was higher than that applied as of 15 April 1994, the level applied on 15 April 1994 shall be recorded and bound.⁴⁴³ Such understanding is also confirmed by the travaux pr�paratoires as indicated in paragraphs 7.58 and 7.59.

7.62 The second sentence of paragraph 4 provides a limitation in time of the right to challenge the existence and the level of the ODCs recorded in the Schedule. In this regard, the three-year challenge period is limited to challenges based on: (i) the non-existence of a recorded ODC at the time of the original binding of the item; or (ii) the inconsistency of the recorded level of ODC with the previous bound level. The question is whether the second sentence can be interpreted separately from the first sentence of paragraph 4 in which the level of recorded ODC is required to be no higher than the level obtained at the time of the first incorporation of the item into the Schedule, prior to the Uruguay Round.

7.63 The Panel is of the view that the logic of the whole paragraph 4 is one and the same, that is, to prevent, in the process of the recording of ODCs during the Uruguay Round, the breach of earlier bindings made in previous rounds when concessions were first incorporated into the Schedules of Concessions. The three-year limitation on the right of challenge is prescribed precisely for the same general obligation, i.e. "no breach of earlier bindings" in the recorded level of ODCs.

7.64 The word "existence" in the second sentence of paragraph 4 should not be completely detached from the phrase "the consistency of the recorded level". Rather, in the Panel's view, they are closely linked to each other. Strictly speaking, if the previous bound level of the ODC prior to the Uruguay Round is "zero", then a challenge to the consistency of the recorded level of ODC with the previous bound level �zero� also constitutes a challenge to the "existence" of the ODC at the time of the original binging made prior to the Uruguay Round. To put it in other words, a challenge to the existence of an ODC at the time of the original binding is equivalent to a challenge to the consistency of the recorded level with a specific "zero" level of ODC that had been bound in a previous round. The Panel understands that under paragraph 4, it is intended that the comparison be made between the recorded level and the level "at the time of the original binding", which is also the time of "the first incorporation of the item" or, "the previous bound time". Legally speaking, these three different expressions written in the first and second sentence of paragraph 4 actually refer to the same time.

7.65 The close relationship between a challenge to the existence and a challenge to the consistency in level, whereby the former challenge is logically one specific type of the latter, implies that both categories of challenges must be based on a comparison of the recorded ODC with the bound level (or existence) at the previous bound time, i.e. the time of the first incorporation of the item, which is also the time of the original binding of the item.

7.66 The ordinary meaning of the word "original" in the second sentence of paragraph 4 of the Understanding, read in its context means "first, earliest, early",⁴⁴⁴ or, "existing or belonging at or from the beginning or early stage, primary, initial, innate",⁴⁴⁵ all of which refer to the time prior to the time of the drafting of the Understanding in the Uruguay Round which is the time that the concession was first incorporated in previous rounds with respect to the tariff item concerned.

7.67 Therefore, the Panel finds that, the second sentence of paragraph 4 provides that the right to challenge the existence of the ODC at the time of the original binding of the item, i.e. the time of the first incorporation of the item in a previous round, and the right to challenge the consistency of the recorded level of the ODC with the previous bound level, that is, the level bound at the time of the first incorporation of the item prior to the Uruguay Round, expired three years after the entry into force of the WTO Agreement or three years after the deposit of the instrument incorporating the Schedule into the GATT 1994, whichever is later. For the Dominican Republic, the date of deposit of its instrument incorporating the Schedule into GATT 1994 is 7 February 1995.⁴⁴⁶ Therefore, after 7 February 1998, no Member could challenge the Dominican Republic's recording of ODCs on the ground of the non-existence of the ODC in previous bound time when a tariff item was first incorporated in its Schedule or could challenge the consistency of the level with the previous lower bound level.

7.68 However, paragraph 4 only deals with challenges regarding the consistency of the level of the recorded ODC with the level applied at the time of the first incorporation of the item prior to the Uruguay Round and the existence of the ODC at that time. The possibility of all other challenges is addressed under paragraph 5 of the Understanding:

"The recording of 'other duties or charges' in the Schedules is without prejudice to their consistency with rights and obligations under GATT 1994 other than those affected by paragraph 4 (emphasis added). All Members retain their right to challenge, at any time, the consistency of any 'other duties or charges' with such obligations"

7.69 It is clear that paragraph 5 of the Understanding allows all types of challenges to be made based on all GATT articles, except those that fall under paragraph 4. One specific challenge made by Honduras is that the recorded ODC did not exist as of 15 April 1994, which, in the opinion of the Panel, is a challenge of the existence of the ODC during the Uruguay Round, rather than a challenge of existence of an ODC at the time of the original binding of the item, i.e. at the time of the first incorporation of the item prior to Uruguay Round. Therefore, it is not subject to the three-year limitation under the second sentence of paragraph 4 and the challenge is permitted by paragraph 5 of the Understanding.

7.70 The Panel recalls the fact that the surcharge has been applied since October 2003. It clearly did not exist as of 15 April 1994. The recording of a measure which did not exist as of 15 April 1994 is therefore not legally valid as it does not meet the obligation under paragraph 2 which requires that ODCs be recorded at the levels applied on 15 April 1994.

7.71 The Panel considers that the other specific challenge made by Honduras that the nature of the recorded measure is not an ODC within the meaning of Article II:1(b) is also clearly a challenge that falls outside of the scope of paragraph 4 and is therefore permitted by paragraph 5 of the Understanding.

7.72 In this regard, the Panel notes that paragraph 1 of the Understanding also provides: "... the nature and level of any 'other duties or charges' levied on bound tariff items, ... shall be recorded in the Schedules of Concessions annexed to the GATT 1994 against the tariff item to which they apply. It is understood that such recording does not change the legal character of 'other duties or charges' (emphasis added)". Based on this paragraph, the Panel understands that the recording of the nature of the measure is a necessary part of the recorded content and it also constitutes an element that is bound in the Schedule. Therefore, in case what was recorded is not in the nature or legal character of an ODC, the recording can not be invoked to justify a current ODC measure due to the difference in nature of the two measures.

7.73 In the Panel's view, a recording of the Selective Consumption Tax, i.e. an internal measure, into the Schedule, as the Dominican Republic did in 1994, does not change the recorded content into a legally valid "other duty or charge" that can be invoked to justify the currently applied surcharge and the foreign exchange fee, which are both in the nature of an ODC.

7.74 The Panel recalls the Dominican Republic's argument that, even if the recording could be challenged after three years, such challenge has to be brought under the relevant paragraphs of the Understanding. The Dominican Republic contends that, since Honduras failed to specify any paragraph of the Understanding in its Panel request, it cannot be allowed to bring the challenge.

7.75 On this point, the Panel considers that it was the Dominican Republic that invoked the recording of the ODCs in an exhibit presented together with its first written submission to justify its surcharge and foreign exchange fee measures.⁴⁴⁷ Honduras then raised objections regarding the existence of the ODC back in 1994 and regarding the nature of the recorded measure, citing requirements in certain paragraphs of the Understanding. The Dominican Republic subsequently rebutted such objections arguing that paragraph 4 of the Understanding prohibits the challenge to the existence, nature and level of the recorded ODCs after the three-year time period expired. Honduras responded that paragraph 4 deals only with a specific situation where a tariff item had been bound prior to the Uruguay Round whereas the challenges raised by Honduras concerned the non-existence of ODC as of 15 April 1994 as well as the nature of the recorded measure in the Schedule, which are not within the scope of paragraph 4. The Panel notes that during the proceedings, both parties actually invoked the Understanding in support of their own arguments relating to the claim made by Honduras under Article II:1(b).

7.76 The Panel believes that as context for Article II:1(b) of the GATT 1994, it is relevant and in fact necessary to consider and to apply the relevant paragraphs of the Understanding for the purpose of the interpretation of Article II:1(b) in examining the claim of Honduras made under Article II:1(b). Moreover, since the Understanding was also actually invoked by both Honduras in explaining the applicable date and the content of the recording⁴⁴⁸ and by the Dominican Republic in arguing the expiry of the right of challenge to the recording under paragraphs 4 and 5 of the Understanding⁴⁴⁹, the Panel is obliged to address the arguments made by the parties concerning relevant paragraphs of the Understanding in order to assess how relevant paragraphs of the Understanding contribute to the interpretation and application of Article II:1(b).

7.77 The Panel recalls that the panel in India � Quantitative Restrictions considered Article XVIII:B and the 1994 Understanding on Balance-of-payments Provisions in its analysis of the US claim under Article XVIII:11 of the GATT 1994, although both were not raised in the request for the establishment of that panel. The reason was that both Article XVIII:B and the 1994 Understanding are part of the context of Article XVIII:11 and that the defending party had invoked Article XVIII:B as a defence. The panel stated: "the defending party is not restricted in the provisions of the Marrakesh Agreement ... that it can invoke in its defence. In this circumstance, the Panel finds it relevant to consider the provisions of Article XVIII:B and the 1994 Understanding as part of the context in deciding on the claims of the United States [of inconsistency with Article XVIII:11 of the GATT] and to examine them in relation to the defence raised [under Article XVIII:B] by India."⁴⁵⁰

7.78 The situation in this dispute is similar to that in India � Quantitative Restrictions. Since the Understanding is part of the context of Article II:1(b) of the GATT 1994 and the Dominican Republic has actually invoked the Understanding to raise argument concerning the recording of ODCs and the expiry of the right of challenge to such recording, the Panel is in a position to address various arguments made by parties on the relevant paragraphs of the Understanding, i.e. to examine them in relation to the defence of the Dominican Republic and to the counter arguments by Honduras even though the Understanding was not included in the request for the establishment of the Panel. The Panel considers that the arguments that parties made under the Understanding are not independent of the claim or defence under Article II:1(b). Rather, in the Panel's view, they are closely linked to the claim and the defence under Article II:1(b). For these reasons, the Panel considers that it is permitted and in fact it is also necessary to address relevant paragraphs of the Understanding for its findings on the claim of inconsistency of the surcharge and the foreign exchange fee measures with Article II:1(b) of the GATT 1994.

7.79 On the other hand, the Panel is also aware that such assessment should be made only to the extent necessary for the Panel to make a finding under Article II:1(b) of the GATT 1994. The Panel is not authorized to make independent conclusions on the consistency of the surcharge measure or foreign exchange fee with any paragraphs of the Understanding since the paragraphs of the Understanding have not been specifically set out in the panel request as part of the mandate of this Panel.

7. Whether the surcharge is inconsistent with Article II:1(b) of the GATT 1994

(a) Arguments of the parties

7.80 Honduras argues that Article II:1(b), second sentence, read together with the Understanding, prohibits Members from imposing "other duties or charges" in excess of the binding recorded in the "other duties and charges" column of the Member's Schedule. Since the Dominican Republic did not record the 2 per cent surcharge into its Schedule, the surcharge, in the view of Honduras, is "in excess of" that set out in its Schedule. Therefore, it is inconsistent with the obligation under Article II:1(b) of the GATT 1994.⁴⁵¹ It is consequently also inconsistent with the general prohibition set out in Article II:1(a) of the GATT1994.⁴⁵²

7.81 The Dominican Republic contends it did record ODCs in its Schedule and that the properly recorded level of "other duties and charges" on cigarettes is 30 per cent. Since the total level of ODCs currently imposed on cigarettes by the Dominican Republic, including the transitional surcharge, is less than 30 per cent, the transitional surcharge is consistent with Article II:1(b), second sentence.⁴⁵³ Consequently, in the view of the Dominican Republic, there is no inconsistency of the surcharge with Article II:1(a) either due to the fact that Honduras's claim of inconsistency of the surcharge with Article II:1(a) is derived from the inconsistency of the surcharge with Article II:1(b).⁴⁵⁴

7.82 Honduras submits that the Dominican Republic actually inscribed its internal tax as applied on 15 April 1994 into its Schedule. Honduras considers that the inscription of an internal tax into the Schedule has no legal effect.⁴⁵⁵ Honduras contends that the nature of the recorded " Impuesto Selectivo" is not the same as the surcharge measure currently applies. The "Impuesto Selectivo" is an internal tax while the transitional surcharge is a border measure on the importation of all products. Therefore, in the view of Honduras, the Dominican Republic had not properly recorded the transitional surcharge as an ODC in its Schedule.⁴⁵⁶ Honduras argues that the recording of an internal tax which falls under Article III:2 does not change the nature of that tax into "other duty or charge" which falls under Article II:1(b).⁴⁵⁷ It also argues that the Dominican Republic could not have recorded the transitional surcharge due to the fact that the transitional surcharge was first imposed on 30 June 2003.⁴⁵⁸ Honduras therefore concludes that the transitional surcharge is inconsistent with Article II:1(b) as it has not been recorded in the Dominican Republic's Schedule of Concessions.⁴⁵⁹

7.83 Honduras also argues in its oral statement during the first substantive meeting of the Panel that the surcharge currently applied by the Dominican Republic is inconsistent with Article II:1(b) of the GATT because it is also imposed on other products not listed in the controversial notification of "Additions to Schedules Annexed to the Marrakesh Protocol to the GATT 1994, Schedule XXIII � Dominican Republic" in document G/SP/3.⁴⁶⁰

(b) Analysis by the Panel

7.84 The Panel recalls its previous factual findings in paragraph 7.40 that the Dominican Republic has actually recorded in its Schedule the Selective Consumption Tax as applied to selected imported products under Law 11-92 in force as of 15 April 1994. The fact that the Selective Consumption Tax was applied both to imported and domestic products makes it clear that it was in the nature of an internal tax. Article II:1(b) and Article II:2(a) make a distinction between an ODC that is subject to a bound requirement and an internal tax that is not subject to any bound requirement, but rather, subject to Article III requirements. Article II:2 also makes it clear that the two are mutually exclusive. If a measure is in the nature of an internal tax, it cannot be an ODC. Likewise, if a measure is in the nature of an ODC, it cannot be an internal tax. For these reasons, the Panel reconfirms its findings that the Dominican Republic has not established that the nature of the measure recorded in the Schedule of the Dominican Republic is an ODC measure within the meaning of Article II:1(b), rather than an internal tax measure, specifically, the Selective Consumption Tax measure.

7.85 The Panel recalls that in previous paragraphs, it has made the following findings: (i) the Dominican Republic has not established that the recorded measure is in the nature of an ODC and therefore it can not be invoked as a legal basis to justify the application of the transitional surcharge measure, which is an ODC measure under Article II:1(b);⁴⁶¹ (ii) the recording of a measure which did not exist as of 15 April 1994 is not legally valid as it failed to meet the requirement under paragraph 2 of the Understanding;⁴⁶² (iii) both the challenge to the existence of the ODC on the date of 15 April 1994 and the challenge to the nature of the recorded ODC are permitted by paragraph 5 of the Understanding.⁴⁶³

7.86 The Panel therefore finds that there is no legally valid recording of "other duties or charges" as required by the Understanding in the Dominican Republic's Schedule of Concessions. The recording of the Selective Consumption Tax, i.e. an internal tax, can not be used as legal basis to justify the current ODC measures, specifically, the transitional surcharge and the foreign exchange fee measures.

7.87 Article II:1(b) of the GATT 1994 provides:

"The products described in Part I of the Schedule relating to any contracting parties. Which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempted from ordinary custom duties in excess of those set forth and provided therein. Such products shall also be exempted from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date."

Paragraph 2 of the Understanding on the Interpretation of Article II:1(b) provides more details on the bound date:

"The date as of which 'other duties or charges' are bound, for the purposes of Article II, shall be 15 April 1994. 'Other duties or charges' shall therefore be recorded in the Schedules at the levels applying on this date."

Paragraph 7 of the Understanding provides:

"'Other duties or charges' omitted from a Schedule at the time of deposit of the instrument incorporating the Schedule in question into GATT 1994 � , shall not subsequently be added to it and any 'other duties or charges� recorded at a level lower than that prevailing at the applicable date shall not be restored to that level unless such additions or changes are made within six months of the date of deposit of the instrument."

7.88 Reading Article II:1(b) together with paragraphs1, 2, 7 and 4 of the Understanding as context, the Panel considers that the obligation under Article II:1(b), second sentence is for Members to record in their Schedules, within six months of the date of deposit of the instrument, all ODCs as applied on 15 April 1994 unless those levels breach previous bound levels of ODCs.⁴⁶⁴ In case any Member did not record the ODCs in the Schedule within six months of the date of deposit of the said instrument, the right to record it in the Schedule and to invoke it expired after six months. In the context of the recording requirements as prescribed in the Understanding, the meaning of Article II:1(b), second sentence is specifically that imported products shall be exempted from all "other duties or charges" of any kinds in excess of those as validly recorded in the Schedule of the Member concerned.

7.89 There is no legally valid recording of "other duties or charges" as required by the Understanding in the Schedule of Concessions of the Dominican Republic. For all legal and practical purposes, what was notified by the Dominican Republic in document G/SP/3 is equivalent to "zero" in the Schedule. The Panel finds that the surcharge as an "other duty or charge" measure is applied in excess of the level "zero" pursuant to the Schedule. Therefore, the surcharge measure is inconsistent with Article II:1(b) of the GATT 1994.

7.90 The fact that the surcharge and foreign exchange fee are currently applied to products outside the scope of those selected products as listed in G/SP/3 notification constitutes an additional reason for the Panel to find that they are inconsistent with Article II:1(b) because for these products outside the scope of the notified list, nothing has been recorded in the Schedule, whether legally valid or not. Therefore, any amount of surcharge or foreign exchange fee is actually "in excess of" the level of "zero" pursuant to the Schedule of the Dominican Republic.

8. Whether the measure is limited to cigarette products

(a) Arguments of the parties

7.91 Honduras argued in its oral statement during the first substantive meeting of the Panel that the surcharge currently applied by the Dominican Republic is inconsistent with Article II:1(b) of the GATT 1994. One reason given by Honduras for such claim is that the surcharge is imposed also on other products not listed in the controversial addition of ODCs in the Schedule of Concessions in 1994.⁴⁶⁵

7.92 Rebutting this argument of Honduras, the Dominican Republic contends that the product coverage with respect to the surcharge and foreign exchange fee measures has been limited to cigarettes from the early stage of the proceedings.⁴⁶⁶ The Dominican Republic submits that Honduras claimed in its first written submission that the surcharge and the foreign exchange fee are inconsistent with Article II:1(b) as they apply to the bound item of cigarettes.⁴⁶⁷ The scope of the product coverage has therefore been confined to cigarettes. Expanding this scope of product coverage would, in the view of the Dominican Republic, affect the right of the Dominican Republic to defend itself and undermine the principles of due process, equity and good faith.⁴⁶⁸

7.93 Honduras argues however, that the text of the Panel request with regard to transitional surcharge has an "all encompassing nature" and that its claims of violation of Article II:1(b) and Article II:1(a) are made with respect to any imported good. The panel request has put the Dominican Republic and third parties on notice that the claims are made with respect to all imported goods. Therefore, Honduras considers that the transitional surcharge, as it applies to products other than cigarettes, is within the mandate of the Panel.⁴⁶⁹ Honduras submits that from the language in its request for the establishment of the Panel, the foreign exchange fee as it applies to products other than cigarettes is within the terms of reference of the Panel.⁴⁷⁰

(b) Analysis by the Panel

7.94 On the issue of whether the measure to be examined by the Panel is limited to the transitional surcharge as applied to cigarette products, i.e. excluding the examination of the application of the surcharge to other products, the Panel believes that it is necessary to analyse the text of the panel request to determine whether it is limited to the application of the surcharge to cigarette products.

7.95 The request for the establishment of this panel provides:

"The Dominican Republic levies a transitional surcharge for economic stabilization in accordance with Decrees 646-03 and 693-03, a surcharge which currently amounts to 2 per cent of the c.i.f. value of the imported goods. Honduras considers that the surcharge constitutes a charge imposed on or in connection with importation inconsistent with Article II:1(a) and (b) of the GATT."

7.96 On the measure of foreign exchange fee, the panel request provides similar language:

"The Dominican Republic levies a foreign exchange fee in accordance with the Seventeenth Resolution of the Monetary Board dated 24 January 1991 as amended, inter alia, by... and the First Resolution of 22 October 2003. The fee is currently 10 per cent 'calculated on the value of the imports'. Honduras considers that this fee constitutes a charge imposed on or in connection with importation which does not meet the requirements laid down in Article II:1(a) and (b) of the GATT. Honduras also considers that the fee constitutes an exchange action frustrating the intent of the provisions of the GATT and that it is therefore inconsistent with Article XV:4 of the GATT."

7.97 It is clear to the Panel that the request describes the transitional surcharge for economic stabilization measure and the foreign exchange fee measure in a general manner without mentioning product coverage. The claim that Honduras made in respect of surcharge is that "the surcharge constitutes a charge ... inconsistent with Article II:1(a) and (b) of the GATT". The claim with respect to the foreign exchange fee is that "this fee constitutes a charge ... which does not meet the requirements laid down in Article II:1(a) and (b)". There is no specific indication of product coverage in the panel request with respect to these two measures.

7.98 The Dominican Republic argues that the product coverage with respect to the surcharge and the foreign exchange fee measures has been limited to cigarette products from the early stage of the proceedings. It notes that Honduras stated in its first written submission that these two measures are inconsistent with Article II:1(b) for the bound item of cigarettes. The Dominican Republic also pointed out that the title of this dispute refers only to cigarettes.

7.99 In this regard, a reading of paragraphs 50 and 51 of the first written submission of Honduras indicates that Honduras used the application of the surcharge measure on cigarette products to illustrate that the surcharge is applied to a bound item cigarettes in addition to the tariff duty on that item; therefore, it falls under Article II:1(b). Similarly, paragraphs 61 and 62 also explain that the foreign exchange fee applies to the bound item cigarettes in addition to its tariff rate; hence, it also falls under Article II:1(b). While these could be seen as arguments or examples used by Honduras to support its claims that the two measures in question fall under Article II:1(b) and that they are inconsistent with Article II:1(b), the Panel considers that it is not sufficient to conclude that these arguments or examples effectively limited the product scope of the two measures to cigarettes only. In fact, in the first written submission of Honduras, there are general claims that the 2% surcharge itself is inconsistent with Article II:1(b)⁴⁷¹ and that the foreign exchange fee itself is inconsistent with Article II:1(b).⁴⁷² For these reasons, the Panel considers that Honduras has not limited in its first submission, the product coverage of its claims on the surcharge and foreign exchange fee measures solely to cigarette products.

7.100 Such conclusion is further supported by the written replies to a Panel question by the third parties El Salvador and Nicaragua. Both of them argue that the panel request has put third parties on notice that the scope of products with regard to these two measures is not confined to cigarettes⁴⁷³

7.101 Even assuming that Honduras did focus its arguments more on cigarette products in its first written submission in arguing the inconsistency of the surcharge and foreign exchange fee measures, the fact that it made additional argument regarding other products not excluded by its Panel request during the first substantive meeting of the Panel, would have given the Dominican Republic sufficient opportunities to respond to it in its second written submission or during the second substantive meeting of the Panel. The Panel does not see how the opportunity to respond to such argument is limited in the proceedings. Therefore, the Panel considers that it has not been presented with a convincing case that a due process issue would arise if the Panel does not exclude from its consideration new arguments made by Honduras concerning other products at the first substantive meeting.

7.102 On the importance of the title of the dispute to the determination of the mandate of this Panel, the Panel is of the view that it is the panel request, rather than the title of the dispute that defines the terms of reference of the Panel. In fact, in some cases, the title of a dispute does not make any reference to the name of product at all.⁴⁷⁴ In other cases, the title contains the names of certain products, but not all those products addressed in the dispute. In Argentina - Textiles, the products listed in the title of that case are "footwear, textiles, apparel and other items" , which did not preclude that panel from examining a separate "statistical tax measure" which was set out in the panel request and which was applied to all imported products.⁴⁷⁵ Similarly, the Argentina � Hides and Leather panel also examined a separate value-added tax measure in respect of all imported products beyond those specified in the title of that dispute.⁴⁷⁶ Therefore, the Panel considers that the title of the dispute is not relevant in determining the scope of product coverage under each measure set out in the panel request.

7.103 For these reasons, the Panel considers that the product coverage under both the transitional surcharge measure and the foreign exchange fee measure includes all imported products.

9. Whether the surcharge is inconsistent with Article II:1(a) of the GATT 1994

7.104 The Panel is aware that Honduras made arguments regarding Article II:1(a) only in a footnote, not in the text of its written submission. The Panel has already found in paragraphs 7.89 and 7.90 that the surcharge is inconsistent with Article II:1(b) of the GATT 1994. Under the guidance of the principle of judicial economy, the Panel considers it unnecessary to address the claim under Article II:1(a) for the resolution of this dispute. Therefore, it refrains from making any findings under Article II:1(a).

D. THE LEVYING OF THE FOREIGN EXCHANGE FEE

1. The measure at issue

7.105 The Dominican Republic imposes a foreign exchange fee (comisi�n de cambio) on all imports. This fee was originally introduced by the Seventeenth Resolution of the Dominican Republic's Central Bank Monetary Board dated 24 January 1991 and amended, inter alia, by the First Resolution of 27 September 2001, the First Resolution of 20 August 2002, and the First Resolution of 22 October 2003. The rate of the foreign exchange fee was 2.5 per cent when it was originally introduced. It was later changed to 1.5 per cent, 5 per cent, 4.75 per cent, and then to its current level of 10 per cent by the First Resolution of 22 October 2003. The current 10 per cent foreign exchange fee is calculated on the value of the imports at the selling exchange rate for foreign currency. The surcharge applies to both bound and unbound items. According to the First Resolution of the Monetary Board of 22 October 2003, the 10 per cent foreign exchange fee is transitional in nature and would be eliminated at a time when such elimination would not entail a negative impact on macroeconomic stability. The phasing out of this transitional foreign exchange fee in future would depend on the reform of the tax system currently under consideration and the economic stabilization negotiations with the IMF.⁴⁷⁷

2. Introduction

7.106 Honduras claims that the foreign exchange fee as an "other duty or charge" is inconsistent with Article II:1(b) of the GATT 1994. The Dominican Republic contends that the fee is an exchange restriction justified under Article XV:9(a). It states that should the Panel find to the contrary, it is nevertheless consistent with Article II:1(b) since it was recorded in the Schedule. Given its terms of reference and in light of the parties' claims and arguments during the proceedings, the Panel considers it necessary to examine the matter by analysing the following legal issues: (i) whether the foreign exchange fee is an ODC as recorded in the Schedule; (ii) whether the foreign exchange fee is inconsistent with Article II:1(b); (iii) whether the foreign exchange fee is an "exchange restriction" under Article XV:9(a); (iv) whether the fee is imposed "in accordance with" Articles of Agreement of the IMF; and (v) whether the measure is justified under Article XV:9(a) of the GATT.

7.107 As to the order of analysis of the claim made by Honduras and the defence made by the Dominican Republic, the Panel considers it necessary to first examine the claim of inconsistency of the fee with Article II:1(b). Both parties agree that Article XV of the GATT is an exception or an affirmative defence. The Panel agrees with this characterization of Article XV. That means that it serves as a justification for inconsistency with other provisions of the GATT. If there is no inconsistency with other GATT provisions in the first place, there is no need to have recourse to any affirmative defence for justification. Therefore, the Panel should begin its analysis with the claim under Article II:1(b) of the GATT 1994.

3. Whether the foreign exchange fee is an ODC as recorded in the Schedule of the Dominican Republic

(a) Arguments of the parties

7.108 Honduras argues that the foreign exchange fee is an "other duty or charge". It is imposed at the same time as ordinary customs duties and it is imposed on all imported goods, including both bound and unbound items.⁴⁷⁸ Honduras considers that it is applied on the value of imports and at the time of importation and, as such, is a duty or charge other than "ordinary customs duties" imposed on, or in connection with, importation, within the meaning of Article II:1(b).⁴⁷⁹

7.109 Honduras argues that the Understanding requires that all duties or charges, other than ordinary customs duties, be recorded in Members' Schedules of Concessions and that the foreign exchange fee was not recorded in the Schedule of Concessions of the Dominican Republic.⁴⁸⁰ In its view, the Dominican Republic had not recorded ODCs, including the foreign exchange fee, in its Schedule, just as it had not recorded the surcharge in its Schedule.⁴⁸¹ Honduras argues that Article II:1(b), second sentence read together with the Understanding, prohibits Members from imposing "other duties or charges" other than those recorded in the ODC column of that Member's Schedule after 15 April 1994. Therefore, the foreign exchange fee is inconsistent with Article II:1(b), second sentence.⁴⁸²

7.110 The Dominican Republic replies that the foreign exchange fee is consistent with Article II:1(b) because the Dominican Republic recorded a 30% level of ODCs applied to cigarettes products as of 15 April 1994. The Dominican Republic argues that, since the total level of ODCs applied to cigarettes product, including the 10% foreign exchange fee, is less than 30%, there is no inconsistency with Article II:1(b).⁴⁸³

7.111 Honduras argues, on the other hand, that the Dominican Republic did not record the foreign exchange fee in its Schedule, just as it did not record the surcharge measure in it Schedule. What the Dominican Republic had recorded was the " Impuesto Selectivo", i.e. an internal tax enforced at the border for certain imported products. The nature of the " Impuesto Selectivo" is different from the foreign exchange fee, which is a border measure imposed on the importation of all products.⁴⁸⁴ Honduras considers that its arguments regarding the claim that the Dominican Republic did not record surcharges in its Schedule also apply to the claim that the Dominican Republic did not record the foreign exchange fee in its Schedule.⁴⁸⁵

7.112 The Dominican Republic argues that, even assuming that it did not properly record the transitional surcharge and the foreign exchange fee in its Schedule, paragraphs 4 and 5 of the Understanding prohibit Members from challenging the existence of the foreign exchange fee at the original binding time and from challenging the consistency of its level after the three-year period has expired.⁴⁸⁶ The Dominican Republic considers that the fact Honduras has not invoked any paragraph of the Understanding in its panel request also prohibits it from making a challenge under the Understanding.⁴⁸⁷

(b) Analysis by the Panel

7.113 Although there is no definition of what constitutes an "other duty or charge" in the GATT 1994 and in the "Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994", the ordinary meanings of Article II:1(b) and Article II:2 make it clear that any fee or charge that is in connection with importation and that is not an ordinary customs duty, nor a tax or duty as listed under Article II:2 (internal tax, anti-dumping duty, countervailing duty, fees or charges commensurate with the cost of services rendered) would qualify for a measure as an "other duties or charges" under Article II:1(b).

7.114 The travaux pr�paratoires concerning the Understanding confirm such interpretation. The Secretariat note on �Article II:1(b) :OF THE GENERAL AGREEMENT� stated:

"4 The definition of ODCs falling under the purview of Article II:1(b) can only be done by exclusion �i.e. by reference to those categories of ODC not covered by it. It would be impossible, and logically fallacious, to draw up an exhaustive list of ODCs which do fall under the purview of Article II:1(b), since it is always possible for governments to invent new charges. Indeed, an attempt to provide an exhaustive list would create the false impression that charges omitted from it, or newly invented, were exempt from the II:1(b) obligation."⁴⁸⁸

7.115 The foreign exchange fee is imposed on imported products only and it is not an ordinary customs duty. It is computed on the value of imports, not on the cost of the services rendered by the customs authorities. Consequently, it is not a fee or charge that falls under Article VIII of the GATT. It is obviously not an anti-dumping or countervailing duty. Therefore, it is a border measure in the nature of an ODC within the meaning of Article II:1(b).

7.116 On the issue of whether the foreign exchange fee as an ODC has been recorded in the Schedules of Concessions of the Dominican Republic, the Panel notes that the parties made essentially the same arguments as they did on the issue of whether the surcharge measure has been recorded in the Schedule. The Panel therefore considers that the same analysis the Panel made with respect to the recording of the surcharge measure in paragraphs 7.37 to 7.40 also applies to the recording of the foreign exchange although the Panel notes that the foreign exchange fee did exist at the level of 1.5 per cent as of 15 April 1994.

7.117 Therefore, the Panel's overall factual assessment with respect to the recording of the foreign exchange fee measure is that the foreign exchange fee was applied at 1.5 per cent in 1994, but it was not recorded in the Schedule. What the Dominican Republic notified in document G/SP/3 was basically the products list and the ad valorem Selective Consumption Tax rates as applied to these imported products under Law 11-92 in force in 1994. It is clear that in fact these products were only subject to the Selective Consumption Tax, not to an equal amount of additional "other duties and charges" back in 1994.

7.118 The Panel has found in paragraph 7.40 that the Dominican Republic has actually recorded in its Schedule the Selective Consumption Tax as it applied to imported products as of 15 April 1994. The fact that the Selective Consumption Tax applied both to imported and domestic products makes it clear that it is in the nature of an internal tax. Article II:2(a) and Article II:1(b) make a distinction between an internal tax that is subject to Article III and an ODC that is subject to a bound requirement with the consequence that the two are mutually exclusive. If a measure is in the nature of an internal tax, it is not an ODC. If a measure is in the nature of an ODC, it is not an internal tax. For these reasons, the Panel finds that the Dominican Republic has not established that the nature of the measure recorded in the Schedule of the Dominican Republic is an ODC measure within the meaning of Article II:1(b) that could be invoked to justify the current ODC measure, the foreign exchange fee.

7.119 The Panel also considers that Honduras�s challenge to the nature of the recorded measure is not prohibited by paragraphs 4 and 5 of the Understanding or by the fact of absence of invocation of the Understanding in its Panel request based on the same analysis as developed by the Panel in paragraphs 7.67, 7.71 and 7.78.

7.120 The Panel recalls that the foreign exchange fee is applied to all imported products, well beyond the selective products list in the G/SP/3 notification. As the Panel found in paragraph 7.103, the foreign exchange fee as applied to products outside the scope of the products listed in the G/SP/3 notification, is within the Panel's terms of reference.

7.121 The Panel concludes for the reasons set out above, that there was no legally valid recording of any ODC measure as required by the Understanding in the Schedule of the Dominican Republic. For all legal and practical purposes, what was notified by the Dominican Republic in document G/SP/3 is equivalent to "zero" in the Schedule. The Panel finds that the foreign exchange fee is therefore applied in excess of the level of "zero" pursuant to the Schedule of the Dominican Republic and therefore is inconsistent with Article II:1(b) of the GATT 1994.

7.122 The Panel also considers that the application of foreign exchange fee to products other than those products listed in the G/SP/3 notification is in excess of the level of "zero" or "none" pursuant to the Schedule of the Dominican Republic, since nothing was recorded for these products, either as an ODC or otherwise.

4. Whether the exchange fee is an "exchange restriction" under Article XV:9 (a) of the GATT 1994

(a) Arguments of the parties

7.123 The Dominican Republic argues that the foreign exchange fee is an exchange measure justified by Article XV:9(a) of the GATT 1994. The Dominican Republic considers that Article XV:9(a) is an exception to other provisions of the GATT, including Article II. In its view, Members are entitled to use exchange controls or exchange restrictions in accordance with the Articles of Agreement of the International Monetary Fund.⁴⁸⁹

7.124 The Dominican Republic also argues that the foreign exchange fee is an "exchange restriction" because of the following features: it is prescribed by monetary authorities, not by trade or customs authorities; it applies to exchange actions, not to import transactions as such; and it is a charge on foreign exchange transactions imposed through the banking system, not a charge on import transactions levied by customs authorities.⁴⁹⁰

7.125 The Dominican Republic considers that the meaning of exchange restrictions is to be interpreted by the IMF. In this regard, it reminds the Panel of a Decision made by the Executive Directors of the Fund on 1 June 1960 stating that "[t]he guiding principle in ascertaining whether a measure is a restriction on payments and transfers for current transactions under Article VIII, Section 2, is whether it involves a direct governmental limitation on the availability or use of exchange as such".⁴⁹¹ The Dominican Republic considers that the criterion for identifying an "exchange restriction" does not involve the motive behind a measure or the effect it produces.⁴⁹² The Dominican Republic considers that the foreign exchange fee is an "exchange restriction" because paragraph 12 of the Resolution of 24 January 1991 provides that the Central Bank will levy a percentage on foreign exchange transactions.⁴⁹³

7.126 The Dominican Republic argues that the foreign exchange fee is an "exchange restriction" because it is a direct governmental limitation on the availability or use of exchange as such. It qualifies as an "exchange restriction" since it effectively and legitimately requires all payments to be channelled through the banking system.⁴⁹⁴

7.127 Honduras submits that Article XV:9(a) is an affirmative defence and the Dominican Republic bears the burden of establishing that the foreign exchange fee is justified under that Article.⁴⁹⁵

7.128 Honduras argues that in determining whether the measure is an "exchange restriction", it is legally irrelevant whether the measure is imposed by monetary authorities or by customs authorities.⁴⁹⁶ The foreign exchange fee is ostensibly on foreign exchange transactions but it is computed on the value of imports at the selling rate of foreign exchange. Honduras considers that this is not different from the "transaction value" for the purpose of the imposition of customs duties. In the view of Honduras, the foreign exchange fee is nothing more than an import charge, a trade measure within the jurisdiction of the WTO, rather than an exchange measure under Article XV:9(a).⁴⁹⁷ In the view of Honduras, the foreign exchange fee is a trade restriction as it is a restriction on the entry of products into the Dominican Republic and it is a barrier to trade as it adds to the cost of trade.⁴⁹⁸

7.129 Honduras also argues that the act that causes the imposition of the foreign exchange fee is "importation", not the purchase of foreign currency, and the amount of this fee is based on the value of imports.⁴⁹⁹ Honduras considers that the foreign exchange fee does not apply to non-import related transactions, including: (i) transactions for non-import related service; (ii) non-import related payment made by the Dominican Republic residents; and (iii) remittances of dividends from companies located in the Dominican Republic. Honduras indicates that the Resolution of 20 October 2002 confirms that this fee does not apply to "payments of external debt; repatriation of capital, remittances of dividends, technology transfers, and payments for travel expenses and medical services; credit cards and all other services".⁵⁰⁰

7.130 Honduras emphasizes that the foreign exchange fee is not an "exchange restriction" because it is not a "direct ... limitation on the availability or use of exchange as such". In the view of Honduras, "as such" in relation to "limitation on the availability or use" means that the limitation must be on access to or the use of foreign exchange, as such, or per se. Honduras contends that the Dominican Republic has not established that the foreign exchange fee imposed a limitation on access to or use of foreign exchange per se. While the foreign exchange fee increases the costs of imports, the availability of foreign exchange to pay for imports remains unrestricted.⁵⁰¹

(b) Analysis by the Panel

7.131 The Panel takes note that both parties agree that Article XV of the GATT 1994 is an exception or an affirmative defence. Although the two concepts are not identical, an exception can often be invoked as an affirmative defence. It is well established that under an exception provision, the burden is on the defending party to justify the consistency of its measure under the exception provision it invoked⁵⁰² Therefore, in this case, the Dominican Republic bears the burden to establish: (i) that the foreign exchange fee measure is an " exchange control or exchange restriction" within the meaning of Article XV:9(a); and (ii) that the measure is "in accordance with" the Articles of Agreement of the International Monetary Fund", as required by Article XV:9(a).

7.132 The Panel is also aware of the argument of the Dominican Republic that the criterion for determining whether a measure is an "exchange restriction" is "whether it involves a direct governmental limitation on the availability or use of exchange as such", as set out by a Decision of the Executive Directors of the Fund in 1960 and the fact that Honduras does not disagree with this criterion. The Panel considers that, since Article XV:9 of the GATT exempts exchange restrictions measures that are applied in accordance with the Fund Articles, from obligations under other Articles of the GATT, the guiding principle that the IMF prescribed as the criterion for the determination of what constitutes an "exchange restriction" should be respected by this Panel. Therefore, the Panel should apply this criterion in its evaluation of the measure before it.

7.133 In assessing whether the foreign exchange fee constitutes an exchange restriction, parties disagree on whether the foreign exchange fee is a "direct limitation on the availability of foreign exchange as such". The Dominican Republic considers that the fee meets the criterion because paragraph 12 of the 1991 Resolution provides that the fee is to be levied on foreign exchange transactions. It implies that the focus is exchange transaction, not the act of importation. On the other hand, Honduras argues that the fee does not apply to payments of external debt, repatriation of capital, remittances of dividends, technology transfers, and payment for travel expenses and medical services, credit cards and all other services and it is calculated on the value of imports. The fee, in the view of Honduras, is actually caused by the act of importation and therefore is a trade restriction rather than an "exchange restriction".

7.134 The Panel considers it necessary to examine the specific aspects of the current foreign exchange measure to determine whether it is in fact imposed solely on import-related exchange transactions. In this regard, the Panel notes that the 1991 Resolution provides differently from that of the later Resolution.

7.135 A reading of the 1991 Resolution reveals the nature of foreign exchange fee as it was applied in 1991. Paragraph 12 provides: "the Central Bank shall charge users of official foreign exchange transactions and commercial banks, for the delegation of foreign exchange operations, the equivalent in Dominican Pesos (RD$) of two and a half per cent (2-1/2%) of the selling exchange rate applied to each transaction". This means that the fee was originally imposed on foreign exchange transactions conducted in both official and private foreign exchange markets through either the Central Bank or commercial banks. This Resolution actually required that the foreign exchange fee be paid for all kinds of foreign currency transactions, including both selling and purchasing transactions. This measure actually increased the cost for the use of foreign currency, for all kinds of transactions regardless of whether the transaction was related to importation. The Panel considers that the foreign exchange fee as it was applied in 1991 could be characterized as an exchange measure, as it is possible that the IMF would deem the increase of cost for the availability of foreign exchange as a means of "restriction" on the availability of the foreign currency. However, it is not necessary for the Panel to decide on the measure as it was applied in 1991. The measure to be examined by the Panel for the resolution of the dispute is the currently applied foreign exchange fee measure.

7.136 With regard to the currently applied foreign exchange fee measure, the Panel notes that the relevant provisions in the 1991 Resolution of the Monetary Board have been amended by later resolutions. On the issue of whether the fee is imposed on all types of transactions or solely on import-related transactions, the applicable rules are those under the Resolution of 20 August 2002. Paragraph 2 of this Resolution provides "exchange commissions shall henceforth no longer be applied to external debt service payments, capital repatriation, remittances of profits, technology transfers, sales for travel expenses and medical services, credit cards and other services".⁵⁰³ The Dominican Republic confirms in its replies to a Panel question that "[t]he foreign exchange fee applies only to importation of goods. It does not apply to foreign exchange payments of non-import related services, nor to foreign currency payments made by Dominican Republic residents, nor to remittance of dividends from companies located in the Dominican Republic".⁵⁰⁴

7.137 The Panel considers that the ordinary meaning of the "direct limitation on availability or use of exchange ... as such" means a limitation directly on the use of exchange itself, which means the use of exchange for all purposes. It cannot be interpreted in a way so as to permit the restriction on the use of exchanges that only affects importation. To conclude otherwise would logically lead to the situation whereby any WTO Member could easily circumvent obligations under Article II:1(b) by imposing a foreign currency fee or charge on imports at the customs and then conveniently characterize it as an "exchange restriction". Such types of measures would seriously discriminate against imports while not necessarily being effective in achieving the legitimate goals under the Articles of Agreement of the IMF. Therefore, the Panel finds that because the fee as currently applied is imposed only on foreign exchange transactions that relate to the importation of goods, and not on other types of transactions, it is not "a direct limitation on the availability or use of exchange as such".

7.138 The Panel takes note of the argument made by the Dominican Republic that the foreign exchange fee is approved by the IMF as a part of the stand-by arrangement between the IMF and therefore it is in accordance with the Articles of Agreement of the IMF.⁵⁰⁵ The Panel notes that paragraph 2 of Article XV provides that:

"In all cases in which the CONTRACTING PARTIES are called upon to consider or deal with problems concerning monetary reserves, balances of payments or foreign exchange arrangements, they shall consult fully with the International Monetary Fund. In such consultations, the CONTRACTING PARTIES shall accept all findings of statistical and other facts presented by the Fund relating to foreign exchange, monetary reserves and balances of payments, and shall accept the determination of the Fund as to whether action by a contracting party in exchange matters is in accordance with the Articles of Agreement of the International Monetary Fund, or with the terms of a special exchange arrangement between that contracting party and the CONTRACTING PARTIES..."(emphasis added)

7.139 The Panel considered during the proceedings that it needed to seek more information on the precise legal nature and status of the foreign exchange fee measure in the stand-by arrangement between the IMF and the Dominican Republic. Secondly, since the Dominican Republic argues that the fee is an exchange restriction and it is imposed in accordance with the Articles of Agreement of the IMF, the Panel considered that it needed to consult with the IMF based on paragraph 2 of Article XV to verify such an argument for a determination by the Panel on whether the measure is justified under Article XV:9(a) of the GATT. The core issue in this regard is whether the foreign exchange measure constitutes an "exchange restriction" in the package of the stand-by arrangement. If the answer is positive, the next issue then is whether the foreign exchange fee is "in accordance with" the Articles of Agreement of the IMF and hence justified under Article XV:9(a) of the GATT 1994.

7.140 The Panel is also aware of the provision in paragraph 8 of the 1996 Agreement between the International Monetary Fund and the World Trade Organization that "The Fund shall inform in writing the relevant WTO body (including dispute settlement panels) considering exchange measures within the Fund's jurisdiction whether such measures are consistent with the Articles of Agreement of the Fund".

7.141 The Panel also recalls a similar situation in Argentina � Textiles, where an ad valorem statistical tax was imposed allegedly for fiscal performance purposes so as to obtain IMF financing to deal with a financial crisis. That panel in that instance did not consult with the IMF. The Appellate Body considered that that panel had good reason for not consulting the IMF because the statistical tax was not one of the "problems concerning monetary reserves, balances of payments or foreign exchange arrangements". However, it nevertheless stated that "it might perhaps have been useful for the Panel to have consulted with the IMF on the legal character of the relationship or arrangement between Argentina and the IMF in this case".⁵⁰⁶

7.142 Bearing these considerations in mind, the Panel requested information on 17 May 2004 from the IMF on the following two issues: (i) how the foreign exchange fee is being implemented by the Dominican Republic; (ii) whether the foreign exchange fee as currently applied by the Dominican Republic is an "exchange control" or "exchange restriction" under the Articles of Agreement of the IMF.

7.143 On the first issue, the IMF General Counsel replied that:

"(a) The 'exchange commission' is levied under the legal authority of the Banco Central de la Rep�blica Dominicana (BCRD). Since its introduction in January 1991, the commission has undergone a number of changes in the way that it is levied. Initially, the commission was payable on sales of foreign exchange and was calculated as a percentage of the selling rate.

(b) Since August 2002, however, pursuant to the Agreement between the BCRD and the Directorate General for Customs (DGC) of August 22, 2002, the commission has been collected in its entirety by the DGC. Moreover, although the commission is still referred to as an "exchange commission" (because it is levied on the basis of the legal authority vested in the BCRD to charge a commission on sales of foreign exchange), the commission is no longer payable on sales of foreign exchange. Rather, it is payable as a condition for the importation of goods, and the amount of the commission is now calculated exclusively on the CIF valuation of the imported goods as determined by the DGC (Article 1 of the Agreement between the BCRD and the DGC). By Notice of Resolution No. 1 of the Monetary Board of October 22, 2003, the rate of the commission was increased to ten per cent in October 2003."⁵⁰⁷

7.144 On the second issue that the Panel requested information on, the reply states:

"As applied since August 2002, the exchange commission is no longer a measure subject to Fund approval. As noted above, the commission is no longer payable on sales of foreign exchange. It is payable as a condition for the importation of goods and the amount to be paid is based on the CIF value of the imported goods (rather than the amount of foreign exchange sold to an importer for the payment of goods). As such, it does not constitute a multiple currency practice or an exchange restriction notwithstanding its label or the fact that the commission is charged on the basis of the legal authority vested in the BCRD to charge an exchange commission on sales of foreign exchange. For the same reasons, it is not an exchange control measure."(emphasis added)

7.145 The Panel fully agrees with the opinion of the IMF. For the reasons set out above by the Panel and considering the opinion expressed by the IMF, the Panel finds that the foreign exchange fee measure as it is currently applied by the Dominican Republic does not constitute an "exchange restriction" within the meaning of Article XV: 9(a) of the GATT 1994.

5. Whether the fee is imposed "in accordance with" Articles of Agreement of the IMF

(a) Arguments of the parties

7.146 The Dominican Republic argues that the foreign exchange fee is applied in accordance with the Articles of Agreement of the Fund as provided in Article XV:9(a). On 29 August 2003, The Dominican Republic concluded a stand-by arrangement with the Fund by which the Dominican Republic enforced, inter alia, a non-unified exchange rate system. The stand-by arrangement incorporated performance criteria calling for full unification of the dual exchange system by the end of 2003. The Fund approved the non-unified exchange rate system. However, due to its economic performance, the Dominican Republic was unable to fulfil its commitments made in the stand-by arrangement with the Fund and requested a waiver from the Fund in January 2004 for non-observance of the performance criteria, inter alia, on the unification of the foreign exchange market and for the continuous performance criteria regarding exchange rate restrictions and multiple currency practices. The Dominican Republic submits that the Executive Board of the Fund completed its first review and the Dominican Republic understands that the Fund approved the "exchange rate restrictions and multiple currency practices". The foreign exchange fee as an exchange rate restriction, or multiple currency practice, is applied by the Dominican Republic "in accordance with" the Fund Articles of Agreement. Therefore, in the opinion of the Dominican Republic, it is permitted under Article XV:9(a) of the GATT.⁵⁰⁸

7.147 The Dominican Republic argues that Article XV:9(a) does not oblige that a measure be "required" under the terms of a stand-by arrangement. In its view, to the extent that this fee is "permitted" under the terms of the standby arrangement, this fee is "in accordance with" the Articles of Agreement of the International Monetary Fund as provided by Article XV:9(a).⁵⁰⁹ In the view of the Dominican Republic, the foreign exchange fee is justified under Article XV:9(a) of the GATT 1994 even if it is inconsistent with Article II:1(b).⁵¹⁰

7.148 Honduras argues that even assuming the foreign exchange fee is an exchange restriction or multiple currency practice, it would be justified under Article XV:9(a) only if it is used "in accordance with" the Articles of Agreement of the IMF. Sections 2 and 3 of Article VIII of the Agreement provide that exchange restrictions or multiple currency practices respectively, cannot be imposed without the approval of the IMF. Honduras considers that the Dominican Republic has not provided evidence that the IMF has approved the foreign exchange fee measure either as an exchange restriction, or as a multiple currency practice.⁵¹¹ Honduras argues that paragraph 3 of the Agreement between the International Monetary Fund and the World Trade Organization provides that the IMF "shall inform the WTO of any decisions approving restrictions on the making of payments or transfers for current international transactions, decisions approving discriminatory currency arrangements or multiple currency practices, and decisions requesting a Fund member to excise controls to prevent a large or sustained outflow of capital". Honduras submits that as of 6 May 2004, the IMF has made 31 notifications to the WTO involving 18 countries and there is no notification regarding the Fund approval of any measure taken by the Dominican Republic.⁵¹² Honduras submits that the absence of such approval by the IMF is further confirmed by the WTO Secretariat on 5 May 2004 in response to a letter from Honduras requesting the information.⁵¹³

7.149 Honduras points out that the IMF Press Release No. 04/23 of February 2004 states that "the Executive Board approved the Dominican Republic's request to waive the non-observance of ... continuous performance criteria concerning ... exchange rate restrictions and multiple currency practices". It argues that without establishing what "continuous performance criteria" concerning exchange rate restrictions and multiple currency practices have been waived, this statement cannot be used as an approval for the imposition of exchange restrictions or multiple currency practices. Moreover, Honduras contends that a waiver is not equivalent to an approval of the imposition of foreign exchange restriction or a multiple currency practices in the sense of Sections 2 and 3 of Article VIII of the Articles of Agreement of the IMF.⁵¹⁴ In its view, the Dominican Republic has not discharged its burden of establishing that the foreign exchange fee is imposed in accordance with the Articles of Agreement of the IMF in the context of Article XV:9(a).⁵¹⁵

(b) Analysis by the Panel

7.150 In fact, the reply of the IMF General Counsel concludes that since the foreign exchange commission does not constitute an exchange restriction, "the issue of its consistency or inconsistency with the Funds Articles for purpose of paragraph 8 of the Co-operation Agreement does not arise". The Panel fully agrees with this statement.

7.151 The Panel considers that even if the foreign exchange fee does constitute an "exchange restriction", Article XV:9(a) requires that it has to be applied "in accordance with" Articles of Agreement of the IMF. In light of the parties' arguments in this regard, the Panel will analyse whether the Dominican Republic has discharged its burden of demonstrating that the foreign exchange fee is "in accordance with" the Articles of Agreement of the IMF.

7.152 The Dominican Republic refers only to an IMF news release. The Panel has not been presented with a copy of the formal Decision made by IMF. The Dominican Republic referred to this decision as a "waiver". It is not clear which provision of the IMF Articles of Agreement is the legal basis of the waiver and what is the legal basis to establish that the waiver was made in accordance with the Articles of Agreement. The Dominican Republic confirmed in its replies to questions that the waiver will be valid for three months.⁵¹⁶ As a result, the legal status of the waiver after the three-month period is not clear to the Panel.

7.153 On the substance of the IMF news release, the meaning of the language that the IMF "approved the Dominican Republic's request to waive the non-observance of ... continuous performance criteria concerning ... exchange rate restrictions and multiple currency practice" is not self-evident. Does it mean that the IMF waived the obligation for the Dominican Republic to completely unify the dual exchange markets and to form one unified exchange rate? Is the foreign exchange fee one component of the "exchange rate restrictions"? The Panel considers that the foreign exchange fee measure is independent of the dual exchange rates system. Even before the dual exchange rates are unified, the foreign exchange fee can be eliminated without changing the dual exchange rate system. It is also true that, even after the dual exchange rates are unified, the foreign exchange fee can still be imposed without changing the unified exchange rate market.

7.154 For these reasons, the Panel finds that the IMF waiver decision does not constitute a legal basis for the application of the foreign exchange fee measure and the Dominican Republic has not demonstrated that the foreign exchange fee is applied "in accordance with" the Articles of Agreement of the IMF.

6. Whether the measure is justified under Article XV:9(a) of the GATT 1994

7.155 The Panel considers that Article XV:9(a) as an exception provision has to be invoked and proved by the Dominican Republic to justify the inconsistency of the foreign exchange fee measure with the second sentence of Article II:1(b). As the Panel has already found that the measure does not constitute an "exchange restriction" within the meaning of Article XV:9(a) of the GATT 1994 and that the Dominican Republic has not demonstrated that it is "in accordance with" the Articles of Agreement of the IMF, the Panel concludes that the foreign exchange fee is inconsistent with Article II:1(b) and can not be justified under Article XV:9(a) of the GATT 1994.