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WORLD TRADE
ORGANIZATION

WT/DS308/R
7 October 2005

(05-4310)

  Original: English


 MEXICO � TAX MEASURES ON SOFT DRINKS
AND OTHER BEVERAGES


Report of the Panel
 

(Continued)


H. SECOND WRITTEN SUBMISSION OF THE UNITED STATES

1. Introduction

4.226 In its first submission, the United States established a prima facie case that Mexico's tax measures on HFCS and soft drinks and syrups sweetened with HFCS are inconsistent with Articles III:2 and III:4 of the GATT 1994. Mexico has not rebutted that case and instead has attempted to change the subject by asserting that the United States is in breach of its obligations under the NAFTA and that this alleged breach justifies a request for the Panel to refuse to address the Article III claims or, in the alternative, that this alleged breach justifies Mexico's tax measure under Article XX(d) of the GATT 1994. The Panel has already rejected Mexico's request for it to decline to address the United States Article III claims and the United States respectfully requests it to reject likewise Mexico's Article XX(d) defence.

4.227 Mexico cannot, and does not, rely on the text of the GATT to support its Article XX(d) defence. All Mexico is able to offer in support of its contentions that Article XX(d) covers another Member's obligations under an international agreement is that neither a panel nor the Appellate Body has ever rejected these specific contentions and that unspecified "principles of international law" exist which override the ordinary meaning of the text of the WTO Agreement. There is no basis for this argument, which is wholly contrary to the customary principles of treaty interpretation applicable under Article 3.2 of the DSU.

4.228 United States obligations under the NAFTA are simply not an issue this Panel need ever reach to resolve the matter before it; there is no basis for the Panel to conclude that "laws or regulations" encompass another Member's obligations under an international agreement. This conclusion can, and should, be reached without ever considering the meaning of various NAFTA provisions or the obligations allegedly owed Mexico by the United States under the NAFTA.

4.229 Mexico's approach to this dispute has had the effect of narrowing the issues before the Panel to (1) confirming that the United States has established a prima facie case that Mexico's tax measures are inconsistent with Articles III:2 and III:4 of the GATT 1994 and (2) examining the merits of Mexico's contention that its tax measures are justified under Article XX(d) of the GATT 1994.

2. Mexico's tax measures are inconsistent with Article III of the GATT 1994

(a) Burden of proof

4.230 Mexico has indicated that the Panel should construe its non-response to the United States claims to mean that, once the Panel has satisfied itself that the United States has met its burden to establish a prima facie case under Article III, Mexico does not object to the Panel proceeding on the presumption that its tax measures are incompatible with Article III. The United States does not disagree with this approach.

4.231 Confirmation that the United States has established a prima facie case of inconsistency in this dispute should not be an arduous task. The United States evidence is uncontested and in some instances is confirmed by Mexico.

4.232 The Panel may find it useful to draw upon the panels' approach in US � Shrimp and Turkey � Textiles, where the panels undertook a brief analysis confirming that the complaining party had made its prima facie case and then proceeded to examine the defending party's affirmative defence. Proceeding on the same basis in this dispute, the Panel should find the United States has met its burden of proof and that Mexico's tax measures are in breach of its obligations under Articles III:2 and III:4 of the GATT 1994.

(b) Mexico's tax measures are inconsistent with Article III of the GATT 1994

4.233 As reviewed in the United States first submission, Mexico applies a 20 per cent tax on the internal transfer and importation of soft drinks and syrups ("HFCS soft drink tax") and a 20 per cent tax on the representation, brokerage, agency, consignment and distribution of soft drinks and syrups ("distribution tax"). Mexico further subjects the internal transfer of soft drinks and syrups to certain bookkeeping and reporting requirements ("reporting requirements"). Mexico exempts from these taxes and reporting requirements transfers of soft drinks and syrups sweetened exclusively with cane sugar. Thus, Mexico applies a 20 per cent tax on the importation of soft drinks and syrups (regardless of sweetener) and a 20 per cent tax on the internal transfer, as well as on the representation, brokerage, agency, consignment and distribution, of soft drinks and syrups sweetened with any sweetener other than cane sugar. Internal transfers of soft drinks and syrups sweetened with any sweetener other than cane sugar are further subject to the reporting requirements.

4.234 For the reasons outlined at greater length in previous submissions, Mexico's tax measures are inconsistent with Article III of the GATT 1994. First, Mexico's HFCS soft drink and distribution taxes are inconsistent with Article III:2 as a discriminatory tax on imported, non cane sugar sweeteners for use in soft drinks and syrups. These non cane sugar sweeteners include HFCS, as highlighted in the United States first submission, as well as beet sugar as addressed in more detail below. The HFCS soft drink and distribution taxes are inconsistent with both the first and second sentences of Article III:2. That said, the United States has focused its arguments under Article III:2 with respect to HFCS on the second sentence. As detailed below, the United States has focused its arguments regarding beet sugar on the first sentence of Article III:2.

4.235 Second, Mexico's HFCS soft drink and distribution taxes are inconsistent with Article III:2 of the GATT 1994 as discriminatory taxes on imported soft drinks and syrups. When collected "at the time or point of importation," Mexico's HFCS soft drink tax discriminates on its face against imports, as only domestic transfers of soft drinks and syrups are subject to the cane sugar-only exemption. When collected on subsequent internal transfers of imported soft drinks and syrups, Mexico's HFCS soft drink and distribution taxes discriminate de facto against imported soft drinks and syrups made with non-cane sugar sweeteners including HFCS and beet sugar.

4.236 Third, Mexico's HFCS soft drink and distribution taxes are inconsistent with Article III:4 of the GATT 1994 as a law affecting the internal sale and use of non cane sugar sweeteners including HFCS and beet sugar. As discussed in the United States responses to questions, to the extent a measure that discriminates against imported product takes the form of dissimilar taxation affecting the internal sale, offering for sale, purchase, transportation, distribution or use of the imported product, that measure may breach both Articles III:2 and III:4 of the GATT 1994. This is the case with the HFCS soft drink and distribution taxes as applied to non-cane sugar sweeteners.

4.237 Fourth, Mexico's reporting requirements are inconsistent with Article III:4 of the GATT 1994 as requirements affecting the internal sale and use of non cane sugar sweeteners including HFCS and beet sugar.

(i) Mexico's tax measures on non-cane sugar sweeteners are inconsistent with Article III:2 of the GATT 1994

The United States has established a prima facie case that the HFCS soft drink and distribution taxes are inconsistent with Article III:2, second sentence

4.238 The United States has met its prima facie burden of establishing that Mexico's HFCS soft drink tax is inconsistent with the second sentence of Article III:2. Mexico's distribution tax is also inconsistent with the second sentence of Article III:2 of the GATT 1994. The distribution tax discriminates against HFCS for use in soft drinks and syrups in the same manner as the HFCS soft drink tax.

4.239 Mexico has confirmed that HFCS and cane sugar compete and are substitutes as sweeteners for soft drinks and syrups. Mexico has also confirmed that it imposed the taxes to stop the displacement of Mexican cane sugar by imported HFCS as a sweetener for soft drinks and syrups. With respect to this latter admission and despite Mexico's claim to the contrary, it is not possible to reach any other conclusion than a measure designed to stop the displacement of domestic production by imported products is a measure to protect domestic production. Because Mexico has not rebutted the United States prima facie case, the United States respectfully requests that the Panel find that the HFCS soft drink and distribution taxes as applied to HFCS for use in soft drinks and syrups are inconsistent with Mexico's obligations under the second sentence of Article III:2 of the GATT 1994.

The HFCS soft drink and distribution taxes are inconsistent with Article III:2, first sentence, with respect to beet sugar

4.240 Although the focus of United States argumentation in this dispute has been the discrimination Mexico's tax measures impose on HFCS, and this remains the principal concern of the United States, Mexico's HFCS soft drink and distribution taxes discriminate against all non-cane sugar sweeteners as sweeteners for soft drinks and syrups. These non-cane sugar sweeteners include not only HFCS but also beet sugar.

4.241 Beet and cane sugar are "like" products. In its first submission, the United States explained that in their refined form (the form required to produce soft drinks and syrups) beet sugar is "chemically and functionally identical" to cane sugar. Beet and cane sugar are both "a form of sucrose" with the same molecular structure. In fact, cane and beet sugar are equally 99.95 per cent sucrose with the remaining 0.05 per cent consisting of trace minerals and proteins. Cane and beet sugar may be used for identical purposes, including as a sweetener for soft drinks and syrups. Because they are virtually identical with respect to physical properties and end-uses, they are distributed in the same manner and consumers (in this case, soft drink and syrup producers) use them interchangeably. For example, as the EC mentioned in its third party statement to the Panel, European soft drink producers sweeten their products with beet sugar. Beet and cane sugar are equally classified under HS heading 1701. Although "like" products need not be identical products, cane and beet sugar are nearly that. Beet sugar is, thus, "like" cane sugar within the meaning of the first sentence of Article III:2.

4.242 As was demonstrated for HFCS in the United States first submission, the incidence of the tax on beet sugar used as a sweetener for soft drinks and syrups is much greater than the nominal 20 per cent tax on non-cane sugar sweetened soft drinks and syrups. With respect to beet sugar, the HFCS soft drink and distributions taxes amount to nearly a 400 per cent tax on the use of beet sugar. A nearly 400 per cent tax that is not applied to the like domestic product is clearly a tax in "excess of" within the meaning of GATT Article III:2, first sentence.

4.243 The application of the HFCS soft drink and distribution taxes to beet sugar � a nearly identical product � highlights the truly protectionist purpose of Mexico's tax measures. In providing a tax exemption for soft drinks and syrups sweetened only with cane sugar, which is almost exclusively a domestic product in Mexico, but not for soft drinks and syrups sweetened with the nearly identical sweetener, beet sugar, which is exclusively an imported product, Mexico designed its tax measures to protect domestic production.

4.244 Because beet and cane sugar are "like" products but only beet sugar when used as a sweetener for soft drinks and syrups is subject to taxation, the HFCS soft drink and distribution taxes are inconsistent with the first sentence of Article III:2 of the GATT 1994 as taxes applied on imports in excess of those applied to like domestic products. Accordingly, the United States respectfully requests that the Panel find the HFCS soft drink and distribution taxes inconsistent with Article III:2.

(ii) Mexico's tax measures on soft drinks and syrups are inconsistent with Article III:2 of the GATT 1994

The United States has established a prima facie case that the HFCS soft drink and distribution taxes with respect to soft drinks and syrups are inconsistent with Article III:2, first sentence

4.245 The United States has also established a prima facie case that Mexico's HFCS soft drink and distribution taxes are inconsistent with the first sentence, or in the alternative, the second sentence of Article III:2 of the GATT 1994 with respect to soft drinks and syrups sweetened with HFCS. The United States has demonstrated that soft drinks and syrups sweetened with HFCS are "like" (or, with respect to the second sentence claim, "directly competitive or substitutable" with) soft drinks and syrups sweetened with Mexican cane sugar. The United States has also demonstrated that by providing an exemption from the HFCS soft drink and distribution taxes only for the internal transfer of soft drinks and syrups sweetened exclusively with cane sugar, Mexico applies a tax to imported soft drinks and syrups � which are nearly all sweetened with non-cane sugar sweeteners � in "excess of" that applied to the like domestic product. Based on these demonstrations, the United States has established a prima facie case that Mexico's HFCS soft drink and distribution taxes are inconsistent with the first sentence of Article III:2.

4.246 The United States has further demonstrated that Mexico's taxation of soft drinks and syrups made with non-cane sugar sweeteners is applied so as to afford protection to Mexican production of soft drinks and syrups, which even before imposition of Mexico's tax measures were largely sweetened with cane sugar. Therefore, the United States has also established a prima facie case of inconsistency with the second sentence of Article III:2 with respect to imported soft drinks and syrups. Mexico has not rebutted this case nor the case with respect to soft drinks and syrups under the first sentence of Article III:2. Accordingly, on the basis of the United States prima facie case, the United States respectfully requests that the Panel find the HFCS soft drink and distribution taxes with respect to soft drinks and syrups are inconsistent with the first sentence, or in the alternative, the second sentence, of Article III:2 of the GATT 1994.

The HFCS soft drink and distribution taxes are inconsistent with Article III:2, first sentence, with respect to soft drinks and syrups sweetened with beet sugar

4.247 Mexico's soft drink and distribution taxes discriminate against all non-cane sugar-sweetened soft drinks and syrups. These non-cane sugar-sweetened soft drinks and syrups include not only soft drinks and syrups sweetened with HFCS, but also those sweetened with beet sugar.

4.248 The discrimination against soft drinks and syrups sweetened with beet sugar, coupled with the fact that these soft drinks and syrups are "like" those sweetened with cane sugar, renders the HFCS soft drink and distribution taxes inconsistent with the first sentence of Article III:2 of the GATT 1994 with respect to beet sugar-sweetened soft drinks and syrups, just as it does for soft drinks and syrups sweetened with HFCS.

4.249 As noted above, the United States explained in its first submission that beet and cane sugar are "chemically and functionally identical" and may be used interchangeably as a sweetener for soft drinks and syrups. As beet and cane sugar are virtually identical, it follows that soft drinks and syrups sweetened with them are as well and, therefore, that soft drinks and syrups sweetened with beet sugar are "like" those sweetened with cane sugar.

4.250 In addition, soft drinks and syrups sweetened with beet sugar are "like" soft drinks and syrups sweetened with cane sugar because they share the same physical properties, end-uses, consumer preferences and tariff classification. Specifically, each of the physical characteristics described in the United States first submission with respect to HFCS- and cane sugar-sweetened soft drinks and syrups equally apply with respect to soft drinks and syrups sweetened with beet sugar. With respect to chemical composition, as stated above, cane and beet sugar are 99.95 per cent the same chemical compound. The identity of the chemical make-up of soft drinks and syrups sweetened with cane versus beet sugar is, therefore, even greater. To be exact, that would make beet sugar- and cane sugar-sweetened soft drinks 99.99 per cent identical. Moreover, as noted in the United States first submission, the ingredient label on a can of soda reads the same (both in Mexico and the United States, as well as in Europe) regardless of whether it is sweetened with HFCS, beet sugar or cane sugar.

4.251 Furthermore, although in the United States most regular soft drinks and syrups are sweetened with HFCS and in Mexico with cane sugar, in the EC (as the EC mentioned in its third party submission and statement to the Panel) soft drinks and syrups are sweetened with beet sugar. There is no indication that consumers in Europe use soft drinks and syrups sweetened with beet sugar for end-uses that in any way differ from the end-uses for soft drinks and syrups in the United States or Mexico. As discussed in the United States first submission, Coca-Cola, the world largest soft drink producer attests that "[b]ecause there is no noticeable taste difference, bottlers have the option of using either high fructose corn syrup (HFCS), beet sugar or cane sugar, depending on availability and cost." Also as discussed in the United States first submission, United States soft drink and syrup producers generically refer to the sweetener component as "sugar", not cane or beet sugar or HFCS. With respect to tariff classification, there is no separate classification for soft drinks and syrups based on the type of sweetener used, as Mexico confirmed in its responses to the Panel's questions.

4.252 Although soft drinks and syrups sweetened with beet sugar are "like" soft drinks and syrups sweetened with cane sugar, only the former is subject to a 20 per cent tax on its importation and internal transfer (the HFCS soft drink tax) as well as on its distribution, representation, brokerage, agency, and consignment (the distribution tax). As explained in the United States first submission, as well as above, in Mexico soft drinks and syrups are largely sweetened with cane sugar. This was true even before imposition of Mexico's discriminatory taxes. Soft drinks and syrups produced in the United States and elsewhere, however, are sweetened largely with non-cane sugar sweeteners. A 20 per cent tax applied to beet sugar-sweetened soft drinks and syrups that is not applied to "like" cane sugar-sweetened soft drinks is, therefore, a tax applied on imports from the United States and elsewhere "in excess of" that applied to the like domestic product.

4.253 Because beet- and cane sugar-sweetened soft drinks and syrups are "like" products, but only beet sugar-sweetened soft drinks and syrups are subject to taxation, the HFCS soft drink and distribution taxes are also inconsistent with the first sentence of Article III:2 of the GATT 1994 as taxes applied on imported beet sugar-sweetened soft drinks and syrups in excess of those applied to like domestic soft drinks and syrups sweetened with cane sugar.

4.254 The United States notes that, in its responses to the Panel's questions, Mexico raised for the first time that, due to an amendment made to the IEPS during the Panel proceedings effective January 1, 2005, the HFCS soft drink tax allows the same tax exemption for importations of cane sugar-only soft drinks and syrups as it does for their internal transfer. This fact, however, should not change the Panel's analysis in this dispute. The 1 January 2005 amendment to the HFCS soft drink tax is outside the Panel's terms of reference. The Panel should, therefore, not take into account the 1 January 2005 amendment to the IEPS in evaluating the United States claims that Mexico's tax measures as described in its request for a panel are inconsistent with Mexico's obligations under Article III of the GATT 1994.

4.255 In any event, the amendment does not change the de facto discrimination that exists with respect to the internal transfer and distribution of imported soft drinks and syrups sweetened with non-cane sugar sweeteners. The 1 January 2005 amendment only affects importations of soft drinks and syrups and, therefore, does not change the de facto discrimination that exists with respect to the internal transfer and distribution of imported soft drinks and syrups sweetened with non-cane sugar sweeteners.

The United States has established a prima facie case that Mexico's tax measures affecting the use of HFCS are inconsistent with Article III:4 of the GATT 1994

4.256 In addition to being inconsistent with Article III:2, first and second sentences, of the GATT 1994, the United States has also established a prima facie case that Mexico's tax measures (HFCS soft drink tax, distribution tax and reporting requirements) are inconsistent with Article III:4 as measures affecting the use of HFCS as a sweetener for soft drinks and syrups. Mexico has not rebutted this case. Therefore, on the basis of the United States prima facie case, the United States respectfully requests the Panel to find the HFCS soft drink and distribution taxes and reporting requirements on HFCS for soft drink and syrup use to be inconsistent with Article III:4 of the GATT 1994.

4.257 Mexico's HFCS soft drink and distribution taxes and reporting requirements are also inconsistent with Article III:4 of the GATT 1994 as applied to beet sugar. As stated above, cane and beet sugar are "like" products within the meaning of the first sentence of Article III:2. Indeed, beet and cane sugar are nearly identical products. Further, the discrimination imposed on beet sugar by Mexico's tax measures discriminate against beet sugar just as they do HFCS by offering an advantage on the use of cane sugar (which is almost exclusively a domestic product) that it does not equally offer on beet sugar (which is exclusively an imported product). Specifically, Mexico's tax measures provide a complete tax exemption for use of the domestic product, cane sugar, while denying that same exception to like imported products, whether HFCS or beet sugar. Mexico's HFCS soft drink and distribution taxes and reporting requirements are, therefore, also inconsistent with Article III:4 as applied to beet sugar.

3. Mexico's tax measures are not justified under Article XX(d) of the GATT 1994

4.258 Mexico asserts that, even if its tax measures are inconsistent with Article III, they are nevertheless justified as "necessary to secure compliance" with United States obligations under the NAFTA. Mexico contends that Article XX(d) of the GATT 1994 provides an exception for such measures. Mexico is incorrect. Article XX(d) provides an exception for measures necessary to secure compliance with "laws or regulations." It does not provide an exception for measures to secure compliance with obligations under an international agreement. In arguing to the contrary, Mexico attempts to construct an entirely new Article XX exception. This new exception would offer WTO Members a free pass from their WTO obligations any time a Member believes obligations owed it under the WTO Agreement or any other international agreement have not been fulfilled. Such an exception would fundamentally undermine the dispute settlement system established in the WTO Agreement and should be rejected.

4.259 The party who invokes Article XX(d) as an affirmative defence bears the burden of proof with respect to each element of that defence. Thus, in this dispute Mexico must establish and prove that it has met each of the elements required for invocation of an Article XX(d) defence.

4.260 The elements required to invoke Article XX(d) are that the measure at issue must: (1) concern compliance with "laws or regulations" which are not inconsistent with the GATT; (2) be designed to "secure compliance" with such laws or regulations; and (3) be "necessary" to secure such compliance. If these elements are met, the measure will be provisionally justified under paragraph (d). However, for an Article XX defence to be successful, the application of the measure in question must also comply with the chapeau to Article XX. Whether the measure is provisionally justified under paragraph (d) should be examined prior to considering whether the application of the measure is consistent with the chapeau.

4.261 Mexico's tax measures do not qualify for an Article XX(d) defence. They are not provisionally justified under paragraph (d) nor are they consistent with the requirements of the chapeau. The failure of Mexico's Article XX(d) defence begins with the first step of the analysis as its tax measures do not concern compliance with "laws or regulations." The Panel may reject Mexico's Article XX(d) defence on this basis alone and, for this reason, it need not examine further whether Mexico's tax measures are "necessary to secure compliance" or in keeping with the chapeau. That said, for the sake of completeness, the United States has provided an analysis of each of the elements required to justify a measure under Article XX(d), including the elements of the chapeau.

(a) United States' obligations under the NAFTA are not "laws or regulations"

4.262 Mexico's argument that Article XX(d) provides a legal justification for the HFCS tax depends on reading the phrase "laws or regulations" in Article XX(d) to include obligations under international agreements. Such a reading would be contrary to the text of Article XX(d), read in its context and in light of the object and purpose of the GATT 1994.

4.263 As explained in the United States responses to the Panel's questions, the ordinary meaning of "laws or regulations" is the domestic laws or regulations of a government. The phrase "laws or regulations" is not defined as including obligations under an international agreement, which have a different meaning.

4.264 This interpretation of the ordinary meaning of "laws or regulations" is supported by the context in which the phrase "laws or regulations" appears � namely, Article XX of the GATT and more broadly the GATT and the WTO Agreement as a whole. In particular, Article XX itself distinguishes between "laws" and "regulations" on the one hand and "obligations" under an international agreement on the other. Thus, while Article XX(d) provides a defence for measures necessary to secure compliance with "laws or regulations," Article XX(h) provides a defence for measures "undertaken in pursuance of obligations under any intergovernmental commodity agreement." There would be no reason for the different phrasing had the drafters intended "law or regulations" to mean the same thing as "obligations under" an international agreement. Indeed, reading "laws or regulations" to include obligations under "international agreements" would render Article XX(h) redundant.

4.265 Other provisions of the GATT further support the distinction between "laws" and "regulations" on the one hand and "agreements" and "obligations" on the other hand. The United States cited several examples in its responses to the Panel's questions. The United States emphasizes that none of those examples supports Mexico's contention that the phrase "laws or regulations" in Article XX(d) includes obligations under an international agreement. To the contrary, the cited examples reinforce that "laws or regulations" in the context of Article XX(d) mean the domestic laws and regulations of a government.

4.266 Further, variations on the phrase "laws or [and] regulations" appear many times in a number of the WTO agreements, each time referring to domestic laws and regulations, not treaties. For instance, Article XVI:4 of the Marrakesh Agreement Establishing the WTO provides that "[e]ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements."

4.267 Moreover, Article 23 of the DSU provides "[w]hen Members seek the redress of a violation of obligations... under the covered agreements ... they shall have recourse to, and abide by, the rules and procedures of this Understanding." Since the WTO Agreement is an international agreement, Mexico's reading of Article XX(d) would authorize unilateral action by any Member to secure compliance with another Member's obligations under the WTO Agreement. Such a result, however, would be in clear conflict with Article 23, not to mention render it meaningless. Mexico's reading of Article XX(d) would also render redundant Article 22 of the DSU, which prescribes rules for the suspension of concessions, including seeking authorization to do so from the DSB. Mexico's interpretation of Article XX(d), however, would permit suspension of concessions without DSB authorization and without any requirement to adhere to the rules established in Article 22 of the DSU.

4.268 Mexico's reading of "laws or regulations" is not only incompatible with the ordinary meaning of the term based on the customary rules of treaty interpretation, but has other far-reaching consequences as well. The threat presented by Mexico's concept of Article XX(d) can best be understood by exploring where such a use of Article XX(d) would lead. If "laws or regulations" are read to include international agreements, then any Member can invoke Article XX(d) as justification for actions depriving others of their rights under the GATT to the extent needed to "secure compliance" with any other international agreement. For example, Mexico's reading would also authorize trade measures by any Member to coerce compliance by another Member with treaty-based boundary claims or other international agreements.

4.269 Against the above, Mexico has offered little in support of its proposition that "laws or regulations" may include obligations owed it under the NAFTA or any other international agreement. Mexico's point that "there are no GATT or WTO precedents that reject Mexico's interpretation" only highlights the fact that not a single WTO Member or GATT 1947 contracting party has advocated such a position before a dispute settlement panel. In fact, every GATT or WTO dispute settlement proceeding in which Article XX(d) has been invoked, other than Mexico's in this dispute, has involved a domestic law enforcing another domestic regime. In US � Shrimp, on which Mexico repeatedly relies (including for its contention that Article XX(d) encompasses obligations under an international agreement), the United States did not argue that its import ban was necessary to secure enforcement of the Inter-American Convention on the Protection and Conservation of Sea Turtles. Instead, it raised its Article XX defence under the exception "relating to the conservation of exhaustible natural resources," citing the Inter-American Convention as evidence that sea turtles constituted an exhaustible natural resource and that its import ban was not arbitrary or unjustifiable discrimination.

4.270 Moreover, Mexico appears to argue, on the one hand, that Article XX(d) must be "interpreted in accordance with the customary rules of international law" but, on the other hand, must be interpreted "with a view to the change[] in the international legal milieu that have occurred since Article XX was drafted in 1947." The customary rules of interpretation applicable in WTO dispute settlement provide that the terms of a treaty are to be interpreted based on their ordinary meaning in their context and in light of the treaty's object and purpose. Mexico makes no effort to interpret Article XX(d) by reference to this fundamental rule, and does not explain how or why its vague and unsupported references to "changes in the international milieu" should affect the analysis under this rule. Indeed, there is no basis for concluding that they should.

4.271 Mexico also offers that "laws or regulations" encompass obligations under an international agreement because the Statute of the International Court of Justice "defines" "international law" to include "international conventions." Mexico's reasoning is circular. Mexico has not established that phrase "laws or regulations" as used in Article XX(d) means or includes "international law." As explained above, "laws or regulations" mean the domestic laws or regulations of a government. It is, therefore, irrelevant whether international conventions are included in the "definition" of "international law." Moreover, there is a clear textual difference between "laws or regulations" and "international law." For starters, one uses the singular "law" while the other uses the plural "laws." While one may speak of international "law" in the same sense as one speaks about "common law" or the "law of the sea," international law is not ordinarily used in the plural. For example, Article 3.2 of the DSU provides that the dispute settlement system serves to clarify the provisions of the covered agreements "in accordance with the customary rules of interpretation of public international law." The difference in usage of "laws" versus "law" in the Spanish and French texts is even more striking.

4.272 Moreover, the fact that the United States may refer to arguments raised in the context of NAFTA proceedings as "legal" arguments does not make United States obligations under the NAFTA "laws or regulations" under Article XX(d). Mexico's argument merely assumes the conclusion that "laws or regulations" include international agreements, simply because international agreements provide international legal obligations. The argument does not address the point, however, of whether obligations � legal or otherwise � under an international agreement are included "laws or regulations" within the meaning of Article XX(d).

4.273 Finally, the United States is compelled to point out that, contrary to Mexico's suggestion in response to question No. 25 of the Panel, the United States has not conceded that NAFTA is a law. Rather, as explained in the United States opening statement, while a Member may adopt domestic laws in order to implement the terms of an international agreement, such as the NAFTA, obligations owed that Member by another Member under the terms of that agreement do not constitute "laws or regulations" within the meaning of Article XX(d).

(b) Mexico's tax measures are not designed to "secure compliance"

4.274 Even if one could read "laws or regulations" to mean obligations owed another Member under an international agreement, Mexico's tax measures are not designed to "secure compliance" within the meaning of Article XX(d) of the GATT 1994.

4.275 Although Mexico claims to have imposed its tax measures to secure or induce United States compliance with the NAFTA, Mexico's position presupposes that the United States is not in compliance with its NAFTA obligations. This position, however, is Mexico's own determination. To be clear, it is the firm view of the United States that it is in full compliance with its NAFTA obligations on market access for Mexican cane sugar. That Mexico disagrees on this point does not convert its allegation that the United States has not complied with its NAFTA obligations into a breach of that agreement. Mexico's tax measures cannot be designed to secure "compliance" with obligations the United States does not have or with obligations it has already fulfilled.

4.276 Furthermore, as Mexico itself has confirmed, its tax measures apply to soft drinks and syrups and non-cane sugar sweeteners imported from any WTO Member, not just those from the United States. At no point, however, has Mexico explained how taxing soft drinks and syrups in this manner in any way contributes to United States compliance with the NAFTA. Rather, regardless of the source of the soft drinks and syrups or non-cane sugar sweeteners, a tax on their transfer or use protects Mexico's own cane sugar industry.

(c) Mexico's tax measures are not "necessary"

4.277 Even assuming arguendo that Mexico's tax measures somehow contributed to NAFTA compliance, they are not "necessary" to secure such compliance as required by Article XX(d).

4.278 In determining the necessity of a measure, the Appellate Body has characterized Article XX(d) as involving a "process of weighing and balancing a series of factors which prominently include [1] the contribution made by the compliance measure to the enforcement of the law or regulation at issue, [2] the importance of the common interests or values protected by that law or regulation, and [3] the accompanying impact of the law or regulation on imports or exports." Mexico's tax measures come up considerably short in this balance.

4.279 First, as reviewed above, Mexico's tax measures do not contribute to enforcement of the NAFTA and have done nothing to contribute to the resolution of the dispute the United States and Mexico have over their obligations under NAFTA. Second, with respect to the "common interests or values" that Mexico's tax measures are designed to protect, these are nothing more than the interests of Mexican sugar producers to be protected from competition from imported HFCS and other non-cane sugar sweeteners. The protection of a domestic industry from imports cannot be an "important" interest in the context of Article XX.

4.280 Third, Mexico's tax measures have had a devastating effect on imports. The first United States submission explained, for example, that Mexico's tax measures have so severely penalized the use of imported HFCS, that since their enactment, Mexican imports of HFCS have fallen to less than 6 per cent of their pre-tax level and use of imported HFCS as a sweetener soft drinks and syrups has ceased. It is difficult to understand how this harm imposed on HFCS and soft drinks and syrups sweetened with HFCS is designed to "secure compliance" with unrelated provisions under the NAFTA on market access for sugar.

4.281 In analysing the extent to which a measure is "necessary," prior panels have also considered whether an alternative measure that is not inconsistent with the GATT is reasonably available. Mexico had any number of alternative measures reasonably available to it � short of breaching its national treatment obligations � to assist its domestic cane sugar industry and/or resolve its disagreement with the United States over the exact terms of the NAFTA. As the party invoking Article XX(d), Mexico bears the burden of demonstrating that this was not in fact the case. Mexico has not done so. For example, Mexico has yet to explain why it is necessary to breach its national treatment obligations owed to all WTO Members to resolve a bilateral trade dispute with the United States.

4.282 Mexico's suggestion that no alternative measures were available to it because the "United States has refused to submit to dispute settlement" under the NAFTA and "has preferred to drag on bilateral discussions" is misplaced on several levels. In the first instance, the United States has not "refused" to submit to dispute settlement under the NAFTA. In fact, the United States has engaged in and completed two of the NAFTA's three "stages" of dispute settlement. The United States is currently engaged in the third stage. Mexico's suggestion that the United States is somehow "blocking" the process in breach of its obligations under the NAFTA is, again, based on Mexico's own interpretation of the NAFTA and its own determination as to whether the United States is acting in accordance those obligations. For the record, the United States does not view any of its actions as being inconsistent with the provisions of the NAFTA's dispute settlement mechanism.

4.283 For this reason and the others stated above, Mexico has failed to demonstrate that its tax measures are provisionally justified under Article XX(d) as measures "necessary to secure compliance with laws or regulations." The United States respectfully requests that the Panel find to this effect, in which case it would not be necessary to further consider Mexico's arguments with respect to the chapeau of Article XX. If a measure does not meet the requirements of one of the paragraphs of Article XX(d), it is not relevant whether it meets the elements of the chapeau.

(d) Mexico's tax measures are incompatible with the chapeau to Article XX

4.284 Should the Panel, nonetheless, continue its analysis, it should also find that Mexico has failed to demonstrate that its tax measures meet the requirements of the chapeau to Article XX because Mexico's application of its tax measures amounts to a disguised restriction on international trade.

4.285 The chapeau generally works to prevent the abuse of the exceptions of Article XX by providing that measures falling within one of its paragraphs must not be applied in a manner that constitutes "a means of arbitrary or unjustifiable discrimination between countries" or a "disguised restriction on trade." "[D]isguised restrictions" embrace "restrictions amounting to arbitrary or unjustifiable discrimination in international trade taken under the guise of a measure formally within the terms of an exception listed in Article XX." Because Mexico's tax measures do not meet the elements of paragraph (d), Mexico cannot possibly demonstrate that application of its tax measures are "formally within the terms of an exception listed in Article XX" and applied in a manner that does not constitute arbitrary or unjustifiable discrimination or a disguised restriction on trade.

4.286 Further, Mexico has openly stated that its tax measures are designed to protect its cane sugar industry. Yet, in asserting its Article XX(d) exception, Mexico contends that its tax measures are designed to secure United States compliance with the NAFTA. In other words, Mexico claims its tax measures are, for purposes of asserting its Article XX(d) defence, measures to secure United States compliance with NAFTA. But this asserted purpose of its tax measures does not match with the repeated statements by the Mexican Government and Supreme Court, as documented in the United States first submission, that its tax measures are designed to protect Mexican production of cane sugar. Accordingly, Mexico's tax measures are not in fact a legitimate Article XX(d) measure, but rather are nothing more than disguised restrictions on trade � namely, measures to protect its domestic cane sugar industry from imported HFCS.

4.287 Mexico's references to US � Shrimp in this respect are essentially irrelevant. Mexico has referred to US � Shrimp to argue that an attempt to negotiate an agreement is sufficient to authorize a WTO Member to breach its WTO obligations. Mexico's argument does not reflect a correct reading of the report in that dispute. In US � Shrimp, the measure at issue had already been found to be provisionally justified under Article XX(g) as a measure relating to the conservation of a natural resource. As stated above, Mexico cannot provisionally justify its tax measures under Article XX(d). Moreover, US � Shrimp does not stand for the proposition that once a Member attempts to negotiate a solution to a "dispute," it is then free to breach its WTO obligations.

4.288 In sum, Mexico's tax measures are not provisionally justified under Article XX(d), nor are they applied in a manner consistent with its chapeau. There is no Article XX exception for measures designed to secure a Member's compliance with obligations owed another Member under an international agreement � whether that agreement is the WTO Agreement, the NAFTA or any other international agreement. The Panel should reject Mexico's Article XX(d) defence accordingly.

4.289 Mexico makes other general assertions about "international law" and its importance. Leaving aside the fact that Mexico has not identified what principles of "international law" these may be, the rights and obligations of WTO Members are found in the text of the WTO Agreement, and with respect to whether Mexico is entitled to an exception for its tax measures under Article XX(d), in the text of Article XX(d).

4. Conclusion

4.290 For the reasons set out above, the United States respectfully requests the Panel to find that Mexico's tax measures are:

With respect to sweeteners:

(1) inconsistent with GATT Article III:2, second sentence, as a tax applied on imported HFCS which is "directly competitive or substitutable" with Mexican cane sugar which is "not similarly taxed" (HFCS soft drink tax);

(2) inconsistent with GATT Article III:2, second sentence, as a tax applied on the agency, representation, brokerage, consignment and distribution of HFCS which is "directly competitive or substitutable" with Mexican cane sugar which is "not similarly taxed" (distribution tax);

(3) inconsistent with GATT Article III:2, first sentence, as a tax applied on imported beet sugar which is "like" Mexican cane sugar and is taxed "in excess of" Mexican cane sugar (HFCS soft drink tax);

(4) inconsistent with GATT Article III:2, first sentence, as a tax applied on the agency, representation, brokerage, consignment and distribution of beet sugar "in excess of those applied to like domestic products" (distribution tax);

(5) inconsistent with GATT Article III:4 as a law that affects the internal use of imported HFCS and imported beet sugar and accords HFCS and beet sugar "treatment ... less favourable than that accorded to like products of national origin" by:

(a) taxing soft drinks and syrups that use HFCS or beet sugar as a sweetener (HFCS soft drink tax),

(b) taxing the agency, representation, brokerage, consignment and distribution of soft drinks and syrups sweetened with HFCS or beet sugar (distribution tax), and

(c) subjecting soft drinks and syrups sweetened with HFCS or beet sugar to various bookkeeping and reporting requirements (reporting requirements);

With respect to soft drinks and syrups:

(6) inconsistent with GATT Article III:2, first sentence, as a tax applied on imported soft drinks and syrups sweetened inter alia with HFCS and beet sugar," in excess of those applied to like domestic products" (HFCS soft drink tax);

(7) inconsistent with GATT Article III:2, first sentence, as a tax applied on the agency, representation, brokerage, consignment and distribution of soft drinks and syrups sweetened inter alia with HFCS and beet sugar, "in excess of those applied to like domestic products" (distribution tax);

(8) inconsistent with GATT Article III:2, second sentence, as a tax applied on imported soft drinks and syrups sweetened with HFCS, which are directly competitive or substitutable with domestic soft drinks and syrups which are "not similarly taxed" (HFCS soft drink tax); and

(9) inconsistent with GATT Article III:2, second sentence, as a tax applied on the agency, representation, brokerage, consignment and distribution of soft drinks and syrups sweetened with HFCS, which are directly competitive or substitutable with domestic soft drinks and syrups which are "not similarly taxed" (distribution tax).

I. SECOND WRITTEN SUBMISSION OF MEXICO

1. Introduction

4.291 Mexico received the Panel's decision to refuse to decline its jurisdiction with disappointment, particularly since, as the Panel will see, the second round of written submissions allows Mexico to elaborate upon its earlier submissions in light of certain admissions made by the United States.

4.292 The key facts have been established, particularly in light of certain admissions made by the United States. They raise legal issues of fundamental importance in terms of the GATT's interaction with the institutions and rules of a regional free trade agreement authorized by its Article XXIV.

4.293 The question presented for this Panel, is how should it respond to this dispute which has arisen under a free trade agreement authorized by GATT Article XXIV. The parties are agreed that this Panel does not have jurisdiction over the NAFTA or disputes arising thereunder.

4.294 The Panel should find that it would be both artificial and highly prejudicial to Mexico to treat the United States' complaint as anything other than an attempt to present to its advantage a narrow slice of a larger dispute that plainly falls outside of the WTO's jurisdiction. Equity is in Mexico's favour:

� Treating the dispute as purely a WTO dispute rewards the United States for engaging in forum shopping while it continues to block Mexico's good faith attempts to resolve its long-standing grievance.

� It is entirely possible � indeed likely � that if this Panel were to make the rulings requested by the United States, its findings would directly contradict those made by a NAFTA Panel presented with the same facts.

� A side effect of the United States' complaint that would cause additional harm is the possibility of collateral findings of fact being made by this Panel which could be used by the NAFTA Chapter Eleven claims against Mexico. This Panel is being asked to determine legal issues in a narrower legal context (the GATT 1994) that may prejudge the resolution of the same and additional issues under a different, broader set of treaty rules (the NAFTA).

4.295 In short, accepting the United States' arguments will not "secure a positive solution" to the dispute, which is the very aim of the WTO dispute settlement mechanism. It is likely to exacerbate the dispute.

2. Review of the facts

4.296 The United States has tried to characterize some of the facts in a way that reflects less poorly on its intransigence; but, other than to deny a NAFTA breach57, it has not contradicted any Mexican factual assertion as to its conduct in the events giving rise to this dispute or as to the serious consequences of the limited access to the United States' market for the Mexican sugar industry and the millions of people who depend upon it.58

3. The United States' response

(a) The United States' characterization of the NAFTA dispute

4.297 The United States accuses Mexico of failing to obtain a panel finding of breach of the NAFTA when it has entirely blocked Mexico's efforts to establish the Panel. The United States goes further to argue that the Panel must not take the United States' own conduct in creating this impasse into account.

(b) General comment on the United States' position

4.298 International law, of which WTO law is a part, does not support the United States' claim. As the Permanent Court of International Justice observed in the Chorz�w Factory (Merits) Case:

"[O]ne party cannot avail himself of the fact that the other has not fulfilled some obligation, or has not had recourse to some means of redress, if the former party has, by some illegal act, prevented the latter from fulfilling the obligation in question, or from having recourse to the tribunal which would have been open to him."59

4.299 This is a recognized general principle of international law.60 The United States' conduct is highly relevant to the Panel's consideration of whether, through the measure at issue, Mexico is justifiably seeking to secure the United States' compliance with the NAFTA.

4.300 The United States appears to contend that, pursuant to its terms of reference, the Panel cannot examine rules of international law other than those set out in the WTO "covered agreements".

4.301 WTO jurisprudence confirms that WTO panels and the Appellate Body can fall back on, and even apply, principles of customary international law in WTO disputes.

4.302 WTO panels are also to interpret the WTO agreements in accordance with the customary rules of interpretation in international law. The Vienna Convention on the Law of Treaties, which has repeatedly been held to codify such rules, provides in Article 31(3) that, in interpreting a treaty, account shall be taken not only of the treaty itself (i.e., GATT 1994), but also of "any relevant rules of international law applicable in the relations between the parties".

(c) The United States cannot specify what other avenues were open to Mexico

4.303 Although it says that Mexico should have taken other action to protect its interests, the United States does not specify what such action should have been. The United States ignores the fact that Mexico exhausted all diplomatic and other efforts before adopting the measure. In the meantime, its industry faced a severe financial crisis that threatened to become a social one.

4.304 Moreover, the United States has implicitly conceded that it continues to adhere to its view that a State has the right to take unilateral action to protect its interests, as a perfectly justified response, given the failure of bilateral efforts to resolve the problem, due to the intransigence of another State in blocking resort to and the operation of a non-WTO treaty dispute settlement mechanism. Thus, the United States has not ruled out taking the same sort of action as Mexico did.

(d) The United States' practice under the NAFTA

4.305 Since NAFTA's entry into force, the United States has also taken rebalancing action.

4.306 After NAFTA's entry into force, Canada raised its tariffs on certain agricultural products on an MFN basis when implementing the Uruguay Round results. Canada applied its new agricultural tariffs on imports of United States-originating agricultural products. The United States argued this was contrary to NAFTA's Article 302, which prohibits a Party from increasing any existing customs duty on an originating good.

4.307 In addition to initiating NAFTA's Chapter Twenty dispute settlement proceedings (to which Canada submitted), the United States took the same action as the Canadian action of which it complained; that is, it rebalanced the situation in view of Canada's action.

4.308 This United States action is inconsistent with the position now taken in the United States' response to Panel question No. 30, but consistent with United States' practice in other contexts: for example, in response to a measure taken by France under a bilateral civil aviation agreement which severely limited United States' carriers from changing the gauge of aircraft for flights into Paris, the United States imposed substantial restrictions on Air France's ability to fly into the United States in order to induce France to submit the dispute to arbitration under the treaty. The arbitral tribunal later upheld the United States' measures as a lawful and generally proportionate measure intended to induce France to submit to dispute settlement.61

(e) The United States' statements before the WTO on taking unilateral action outside of the WTO

4.309 The Panel will be aware of the European Communities' complaint in US � Section 301 Trade Act.62 The European Communities challenged the WTO-consistency of a United States statute that conferred certain retaliatory powers on the Executive Branch, contending that the statute mandated action inconsistent with United States' obligations under the WTO Agreements, specifically the DSU.

4.310 Paragraphs 4.133-4.136 of the Panel Report record the United States' explanation that it distinguished between retaliating against a WTO trading partner for matters governed by the WTO (in which case it would invoke DSU procedures before imposing retaliatory measures) and imposing measures on a WTO trading partner for matters falling within a non-WTO agreement (in which case, it considered itself free to impose sanctions where another State blocked the operation of a dispute settlement mechanism).

4.311 The United States plainly reserved its right to take unilateral action against another WTO Member in relation to non-WTO covered agreements such as NAFTA.

4.312 The Panel concluded that, having regard to the statutory scheme and to representations made to it by the United States during the course of the proceeding, section 304 could be applied consistently with United States' WTO obligations. However, it is plain from the structure of the United States law, the Statement of Administrative Action, the United States' statements to the Panel, and from the Panel Report itself63, that these all related solely to the situation where the United States considered that another WTO Member had violated a WTO covered agreement. The United States did not repudiate its legal right to take action where, for example, a State blocked the operation of a non-WTO trade agreement's dispute settlement mechanism.

4. Legal submissions

(a) This Panel's powers under the applicable "covered agreements" are broader and more flexible than the United States contends

4.313 The United States has contended that the Panel "cannot resolve the matter in dispute" (emphasis added) � i.e., the United States claims that Mexico's tax measures are inconsistent with Article III of the GATT � unless it issues findings of breach.64 This argument attempts to constrain the Panel more tightly than the actual text of GATT 1994 or the DSU either provides or requires.

4.314 It warrants noting that, having directed the Panel to Articles 11 and 7 of the DSU, the United States does not take the crucial next step of turning to what the applicable covered agreement, GATT 1994, actually requires a panel to do. Since the DSU refers to the GATT 1947 in this regard, Mexico will focus on that agreement.65

4.315 Article XXII did not require a panel to make a ruling of breach; rather, it mandated the Contracting Parties "to consult with any contracting party or parties in respect of any matter for which it has not been possible to find a satisfactory solution through consultation under paragraph 1." (emphasis added) The article's reference to parties in the plural indicates that its purpose was to assist disputing parties in finding satisfactory solutions to their differences, precisely what Mexico is asking this Panel to do.

4.316 Similarly, Article XXIII:2 provided for the referral of a matter (including an alleged failure of a Contracting Party to carry out its obligations under the GATT or a Contracting Party's application of a measure which conflicts with the provisions of the GATT) to the CONTRACTING PARTIES.

4.317 Three points warrant noting: First, Articles XXII and XXIII conferred discretion upon the CONTRACTING PARTIES (and panels acting at their behest). Second, neither set limits on a panel's power to shape its recommendations or make a "ruling in the matter" in response to the facts peculiar to a particular case. To the contrary, they are to determine what is appropriate in the circumstances. Finally, these remedies were available to the CONTRACTING PARTIES in situations where a breach of the GATT was alleged.

4.318 GATT's dispute settlement procedures evolved, but when it came to creating the WTO's dispute settlement system in the early 1990s, the drafters did not amend GATT Articles XXII and XXIII when GATT 1947 became GATT 1994.

4.319 This affirmation of the flexibility expressly reserved by and to the CONTRACTING PARTIES some 47 years after GATT 1947's entry into force shows that the WTO Members sought to retain a measure of flexibility in dispute settlement proceedings involving GATT 1994.

4.320 The flexibility that GATT's drafters established is preserved in the DSU: "In the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements � " (emphasis added)

4.321 Article 11 of the DSU contemplates other possibilities that the United States has chosen to ignore. Thus, it would be within the Panel's discretion, based on an objective assessment of the matter before it, to recommend what steps the parties should take to "secure a positive solution to the dispute".

(b) Mexico's measures can be justified under Article XX(d)

(i) The United States' position on Article XX(d) is internally inconsistent

4.322 The United States' suggestion that an international treaty cannot be a "law" within the meaning of Article XX(d) is contradicted by paragraph 54 of the United States' response to the Panel's questions, where it is stated:

"Article XX(d) of the GATT does not justify measures adopted by one Member to secure compliance by another Member with international obligations arising from a treaty which is not part of the WTO 'covered agreements.'"(emphasis added)

4.323 This contemplates that Article XX(d) justifies GATT-inconsistent measures adopted by one WTO Member to secure another Member's compliance with obligations under a WTO covered agreement. Nothing in the GATT suggests that the term "laws" encompasses only the WTO "covered agreements", but not other international treaties that are not only not inconsistent with the provisions of GATT 1994 but are expressly authorized by Article XXIV.

4.324 The United States reviews the wording of various GATT 1994 provisions to point out that different words (laws, regulations, obligations, etc.) are used in different places.

4.325 On the United States' reading of the GATT, it has obligations under the NAFTA, but those obligations are not to be confused with "law". Therefore, it says that Article XX(d) is not available to Mexico to justify a measure designed to secure United States' compliance with its admitted obligations that exist only by virtue of an international legal instrument enforceable (theoretically, at least66) by law.

4.326 Mexico observed that international law is no less law than domestic law. In fact, the United States concedes that it entered into international legal obligations vis-�-vis Mexico. The definition of "international agreement" cited by the United States supports this view: "treaties and other agreements of a contractual character between different countries � creating legal rights and obligations".67

4.327 The United States argues that the drafters of Article XX(d) precluded the justification offered by Mexico because, rather than using "obligations", they used the word "laws". Yet this ignores the fact that laws by definition encompass obligations. In other words, the term "laws" includes obligations under international treaties.68 Accordingly, the relevant question regarding the meaning of "laws or regulations" in these proceedings is whether these terms include international law.

4.328 In short, if, as the United States contends, measures taken to enforce the WTO covered agreements can be justified under Article XX(d) as "necessary to secure compliance with laws � which are not inconsistent with the provisions of this Agreement", the text can equally support other laws such as Article XXIV free trade agreements which, as Mexico pointed out, are "not inconsistent with the provisions of" GATT 1994.

(ii) Article XX(d) of the GATT 1994 can justify measures necessary to secure compliance with laws or regulations applicable outside the territorial jurisdiction of the Member taking the measure

4.329 As discussed in Mexico's response to question No. 25 from the Panel, GATT and WTO jurisprudence interpreting Article XX of the GATT confirms that other paragraphs of the GATT General Exceptions clause are capable of being interpreted to encompass otherwise GATT inconsistent measures relating to measures of other States or to activities occurring outside of the territory of the State invoking Article XX. For example, in paragraphs 5.15 and 5.16 of its Report, the GATT Panel US � Tuna (EEC) stated as follows:

"The Panel noted that two previous panels have considered Article XX(g) to be applicable to policies related to migratory species of fish, and had made no distinction between fish caught within or outside the territorial jurisdiction of the contracting party that had invoked this provision."

The Panel then observed that measures providing different treatment to products of different origins could in principle be taken under other paragraphs of Article XX and other Articles of the General Agreement with respect to things located, or actions occurring, outside the territorial jurisdiction of the party taking the measure. An example was the provision in Article XX(e) relating to products of prison labour. It could not therefore be said that the General Agreement proscribed in an absolute manner measures that related to things or actions outside the territorial jurisdiction of the party taking the measure."69 (emphasis added)

4.330 In its second submission to the WTO panel in US � Shrimp, the United States argued strenuously that the US � Tuna (EEC) panel had rejected Thailand's argument that Article XX implicitly contained a territorial jurisdiction limitation.70

4.331 The Appellate Body found that there was no valid reason for supporting the conclusion that either Article XX(b) or (g) apply only to policies in respect of things located or actions occurring within the territorial jurisdiction of the Member taking the measure. Against this background, a territorial jurisdiction limitation equally need not be read into Article XX(d). In Mexico's view, paragraph (d) of Article XX can encompass measures necessary to secure compliance with laws that bind the two (or more) States concerned.

(iii) The United States' distinction is not borne out in NAFTA itself

4.332 The United States' very strict dualist separation between international and domestic law is overstated when United States treaty practice is taken into account.71

4.333 The United States has viewed the NAFTA as creating obligations that redound to the benefit of private parties and while it does not confer a right of action upon private parties, its domestic law provides a mechanism for interested persons to secure another Party's compliance with NAFTA by petitioning the United States government to take action against that Party. Mexico understands that, under United States law, the Office of the United States Trade Representative is legally obliged to fully investigate such a complaint and to take action against the other Party if it concludes that the other Party may be in breach of the Treaty.

(c) The nature of the Mexican measures

4.334 In its response to questions, the United States makes much of its effort to protect the multilateral system.72 It is true that Mexico's measures do not distinguish between HFCS imports from the United States and other WTO Members. Indeed, they do not distinguish between imported fructose and domestically produced fructose. This is because of the nature of the trade.

4.335 The measures related virtually exclusively to the United States, not to other WTO Members. Mexico appreciates that other Members have a systemic interest in the matter, but the fact is that the trade was overwhelmingly one that arose under the NAFTA and was supplied by the United States. The measures are a response to its persistent refusal to respond to Mexico's repeated efforts to resolve the dispute.73

(d) The measures at issue meet the necessity test under Article XX(d) of the GATT 1994

4.336 The United States argues that Mexico's tax measures cannot be necessary to secure compliance with the NAFTA.74 It maintains its position that none of the Mexican or United States concerns about the dispute over bilateral trade in sweeteners has been resolved. In short, the United States suggests that because the measures at issue have so far not succeeded in securing United States compliance with the NAFTA, they cannot be necessary within the meaning of Article XX.

4.337 Mexico has three responses to this argument:

� First, in Korea � Various Measures on Beef, the Appellate Body did not rule that only measures that actually secure compliance with the law or regulation at issue can be deemed "necessary" within the meaning of Article XX(d). Rather, it stated that "[t]he greater the contribution [to the realization of the end pursued], the more easily a measure might be considered to be 'necessary'".75 Measures that make a lesser contribution to securing compliance with a law or regulation may also be "necessary".

� Second, from Mexico's perspective, the measures at issue actually greatly contribute to the end pursued by Mexico, that is, the securing of United States compliance with the NAFTA. The record evidence reveals that the adoption of the tax initially created the desired dynamic to secure the United States' compliance or otherwise arrive at a mutually satisfactory resolution. This interest dissipated when the United States launched this WTO proceeding, but the proceeding itself is further evidence that the Mexican measures had their intended effect of attracting United States attention with a view to resolving the dispute over its compliance with NAFTA. Mexico believes that if this Panel upholds Mexico's position, the measures will induce the United States to finally resolve the entire dispute.

� Third, conversely, if the Panel accedes to the United States' arguments, it will damage Mexico's prospects for securing United States' compliance with the NAFTA. The Panel will have assisted the United States in continuing to block any resolution of Mexico's grievance. This would be plainly unfair.

5. The United States has not responded to Mexico's arguments that the measures meet the requirements of the chapeau of Article XX of the GATT 1994

4.338 In its previous submission, Mexico established prima facie that the measures at issue meet the requirements of the chapeau of Article XX of the GATT 1994. In this regard, Mexico notes that the United States has not responded to the substance of its arguments. Accordingly, should the Panel determine that the measures are provisionally justified under paragraph (d), it should also find that the measures are not applied in a manner that creates arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade.

4.339 Mexico's good faith efforts to resolve this long-standing dispute clearly meet the requirements set out by the Appellate Body in US � Shrimp.

6. Conclusion

4.340 Mexico reiterates its request that this Panel take particular care in formulating its findings and recommendations so as not to suggest that it is definitively interpreting the parties' respective rights and obligations under the NAFTA. Mexico nevertheless requests that in applying Article XX of the GATT 1994 and in deciding as to the scope and content of any recommendations that it may issue, the Panel consider the undisputed facts of the United States' admission of the existence of a NAFTA dispute and its failure to rebut Mexico's allegations that it has refused to submit to the NAFTA dispute settlement procedure.

4.341 For the foregoing reasons and those set out in Mexico's prior submissions, Mexico reiterates its request that the United States' complaint be rejected.

J. OPENING STATEMENT OF THE UNITED STATES AT THE SECOND MEETING OF THE PANEL

1. Introduction

4.342 This statement will briefly review the status of this dispute, and will principally focus on responding to the arguments presented by Mexico concerning Article XX(d) in its second submission.

2. Status of this dispute

4.343 This dispute, as the Panel is well aware, and despite Mexico's repeated attempts to argue otherwise, concerns Mexico's obligations under the WTO Agreement and certain tax measures that Mexico imposes on non-cane sugar sweeteners and soft drinks and syrups. Mexico readily admits that it imposed these tax measures to stop the displacement of Mexican cane sugar by imports of HFCS from the United States.

4.344 The United States first and second submissions and responses to Panel questions have presented all of the facts and argument necessary to establish a prima facie case that Mexico's tax measures on soft drinks and syrups � contained in the IEPS � are in breach of its obligations under Articles III:2 and III:4 of the GATT 1994. Mexico has not contested any of those facts or arguments. Accordingly, the United States will focus here on Mexico's alleged defence under Article XX(d) of the GATT 1994.

3. Article XX(d) � "laws or regulations"

4.345 Under this defence, Mexico contends that its tax measures are necessary to secure United States compliance with the NAFTA and, therefore, justified as an exception to WTO rules under Article XX(d). As the party asserting it, Mexico bears the burden of proof on this defence. Mexico has not met that burden and, therefore, cannot justify its tax measures under Article XX(d).

4.346 The fundamental flaw in Mexico's defence is that Article XX(d) pertains to "laws or regulations," not obligations owed Mexico under the NAFTA or any other international agreement. Thus, the energy Mexico has expended attempting to convince the Panel that its tax measures are "necessary" or "justifiable," because Mexico has "exhausted" efforts to find a solution to the NAFTA sugar dispute, are simply efforts to distract attention from the fact that Mexico is unable to sustain its assertion that "laws or regulations" means or includes obligations under an international agreement.

4.347 As the United States explained in its second submission and in response to the Panel's questions, the phrase "laws or regulations" means rules promulgated by a government such as statutes or administrative rules � in other words, the domestic laws or regulations of the Member applying the measure at issue. This is the interpretation of the phrase "laws or regulations" derived from application of the Vienna Convention rules of treaty interpretation. These rules direct the treaty interpreter to the ordinary meaning of the terms of the treaty in their context and in light of the treaty's object and purpose.76 As demonstrated in the United States responses to questions and second submission, the ordinary meaning of "laws or regulations" is the domestic laws or regulations of the Member claiming the Article XX(d) exception. This meaning is supported by (1) the dictionary definition of the words "laws" and "regulations"; (2) the use of the words "laws" and "regulations" as opposed to the words "obligations" or "agreements" used in Article XX and elsewhere in the GATT 1994 and the WTO Agreement77; and (3) the effect on the WTO Agreement of reading the phrase "laws or regulations" to include obligations under international agreements.78 The United States has already detailed each of these points in previous submissions. The United States emphasizes here that acceptance of Mexico's interpretation of "laws or regulations" to include obligations owed Mexico under the NAFTA would open the door for any Member to claim that a breach of the WTO Agreement, or some other treaty, by another Member meant that the Member was free to breach any of its WTO obligations. Such a reading of Article XX(d) would nullify Article 23 of the DSU, render Article 22 of the DSU meaningless, and significantly undermine the effective functioning of the WTO dispute settlement system.

4.348 Such a reading would also mean that WTO panels and the Appellate Body would be called upon to examine any treaty that was the subject of such a claim of breach to determine if the trade measures adopted were "necessary to secure compliance" with that treaty. To do so would require WTO panels or the Appellate Body to determine if there was, in fact, a breach of the underlying agreement. In other words, WTO dispute settlement would become a forum of general dispute resolution for all international agreements, and all such agreements would be in effect incorporated into, and enforced by, the WTO Agreement by virtue of Article XX(d). This cannot possibly be what Mexico, let alone other WTO Members, intends. Ironically, it would also mean that with each additional international agreement a Member enters into, the more it diminishes the benefits secured under the WTO Agreement: the Member's WTO rights would be subject to being infringement by any party with whom it had entered into an international agreement so long as the party claimed the WTO breach was to secure compliance with the non-WTO Agreement.

4.349 Despite the serious, even astounding, implications of what Mexico argues, it is surprising how little Mexico has provided in support of its contention that United States obligations under the NAFTA constitute "laws or regulations" within the meaning of Article XX(d). Other than the mere assertion that "laws" as used in Article XX(d) includes international agreements79, the only support Mexico offers is that Article 38 of the International Court of Justice (ICJ) Statute includes "international conventions" as a source of "international law"80, that "treaties" like "laws" create legal obligations81, and that paragraphs (b) and (g) of Article XX are not limited to measures relating to "policies in respect of things located or actions occurring within the territorial jurisdiction of the Member taking the measure."82 The latter of these arguments is essentially irrelevant. The question is not whether the measure at issue relates to actions occurring outside the territorial jurisdiction of the Member taking the measure. In the disputes cited by Mexico83, the measure at issue was a domestic law applied within the jurisdiction of the Member taking the measure, and none of these disputes, of course, was interpreting "laws or regulations" under Article XX(d). Rather, the question is whether Article XX(d) applies to obligations owed by another Member under an international agreement. It does not. The reference to the ICJ Statute likewise misses the point and for the same reason. Mexico has yet to demonstrate that the phrase "laws or regulations" means or includes "international law" or that the creation of "legal obligations" is synonymous with the word "laws."

4.350 In particular, whatever is included in the scope of "international law," there is a textual difference between the words "international law" and the word "laws" which, of course, is the actual word used in Article XX(d). In Article XX(d) and throughout the WTO Agreement, the word "laws" is used to refer to domestic laws.84 By contrast, in the two instances where the WTO Agreement references the words "international law" � in Article 3.2 of the DSU and Article 17.6 of the Antidumping Agreement � the word "law" appears in the singular and is proceeded by the word "international." As noted in the United States second submission, the Spanish and French texts of the Agreement use entirely different words to refer to "international law" as contained in Articles 3.2 and 17.6, than they do to refer to "laws" as contained in Article XX(d).85 To borrow a quote from Mexico's second submission and Mexico's opening statement at this meeting: "[A] treaty interpreter is not entitled to assume that the use of different words in a treaty was merely inadvertent or 'accidental.'"86

4.351 Moreover, "laws" as it appears in Article XX(d) is used in conjunction with the word "regulations." As the United States has explained, "regulations" are defined as instruments "issued by various governmental departments to carry out the intent of the law."87 Thus, a reading of the phrase "laws or regulations" to mean the domestic laws or regulations of the Member applying the measure at issue attributes the same scope to the word "laws" as it does to the word "regulations." Mexico's reading, on the other hand, creates an asymmetry between the scope of the word "laws" and the word "regulations" as used in Article XX(d). Under Mexico's reading, only the former captures instruments that are not solely domestic in scope.

4.352 Mexico's argument that international agreements create "legal obligations" is likewise without merit.88 The mere fact that international agreements create "obligations" between States, that are referred to as "legal," does not address the question of whether obligations under an international agreement � whether legal or otherwise � fall within the scope of the phrase "laws or regulations" in Article XX(d). Mexico has not demonstrated that "legal obligations" assumed by the United States under the NAFTA constitute "laws" within the meaning of Article XX(d). In this regard, the United States points out that in the United States, international trade agreements, such as the NAFTA and the WTO Agreement, are not laws and are not enforceable in United States courts.89 That interested parties in the United States may ask the United States Trade Representative to seek our trading partners' compliance with those agreements, contrary to Mexico's suggestion90, does not make those agreements "laws."

4.353 Rather than demonstrate that the phrase "laws or regulations" means or includes "international law" or international agreements, Mexico, instead, argues that the United States "must explain why the term 'laws' as used in Article XX(d) cannot include international law."91 Mexico forgets its burden of proof. It is Mexico's burden, as the party asserting the defence, to establish that its tax measures qualify as measures "necessary to secure compliance with laws or regulations" within the meaning of Article XX(d). Throughout these proceedings, however, Mexico has been unable to demonstrate that obligations owed Mexico under an international agreement constitute "laws or regulations." Without such a demonstration, Mexico cannot justify its tax measures by way of Article XX(d).

4. Article XX(d) � "necessary to secure compliance"

4.354 Despite being unable to demonstrate that "laws or regulations" actually means or includes international agreements, Mexico makes much of its allegedly exhaustive efforts to resolve the dispute it has with the United States over market access for cane sugar under the NAFTA. On the basis of these efforts, Mexico insists that its tax measures are "necessary to secure compliance" and in keeping with the chapeau to Article XX. As the United States explained in its second submission and responses to questions, these efforts do not render Mexico's tax measures "necessary" or designed to "secure compliance" within the meaning of paragraph (d); they also do not mean that Mexico's tax measures are applied in a manner that is consistent with the chapeau to Article XX. Rather than repeat what was said in our earlier submissions, the United States will focus on two points regarding Mexico's second submission.

4.355 The first relates to Mexico's insistence that its tax measures "relate[] virtually exclusively to the United States" and are "directed against the United States."92 To support this assertion, Mexico explains that most imports of HFCS and soft drinks come from the United States and "arose under the NAFTA."93 Mexico then concludes that its tax measures are, therefore, a response to the United States "refusal" to resolve the NAFTA sugar dispute. The United States presumes Mexico included this point in response to the United States point that breaching obligations owed WTO Members other than the United States cannot be necessary to secure United States compliance with the NAFTA.94 Mexico's response, however, incorrectly assumes that a measure may avoid a breach of Article III simply because it affects only a small amount of trade. To quote the Appellate Body:

"Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products. ... [I]t is irrelevant that 'the trade effects' of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non‑existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products."95

Regardless of the share of Mexican HFCS imports formerly accounted for by products of Members other than the United States, Mexico's tax measures would still treat the products of those other Members less favourably than the products of Mexico, in violation of Article III of the GATT. Therefore, Mexico still has not answered the question why such less favourable treatment of other Members' products is necessary to secure United States compliance with the NAFTA.

4.356 In pointing out that its tax measures are targeted "virtually exclusively" at the United States, Mexico appears to state that its tax measures also discriminate de facto against imports from the United States vis-�-vis imports from other countries. Apparently Mexico is conceding a breach of Article I of the GATT 1994, as well as Article III in this dispute, although Article I is not within this Panel's terms of reference.96

4.357 The second point is that Mexico continues to be unable to explain why the discrimination imposed on imported HFCS as a result of Mexico's tax measures is necessary to secure United States compliance with the NAFTA. This owes to the fact that Mexico cannot explain why stopping the displacement of Mexican cane sugar by imported HFCS is anything more than a means to protect its cane sugar industry. In other words, while Mexico attributes much harm to its cane sugar industry because of the displacement of cane sugar by imported HFCS, Mexico has yet to explain how stopping this displacement through its discriminatory tax measures would result in United States compliance with alleged NAFTA obligations. Even greater opportunities to export "displaced" Mexican cane sugar are merely another means to aid Mexico's cane sugar industry; they are not means to secure United States compliance with alleged NAFTA obligations. In short, Mexico has explained why it believes helping its cane sugar industry is necessary. It has also explained how measures which stop or counteract the displacement of cane sugar may contribute to this. Yet, neither explanation addresses why Mexico's tax measures constitute measures to secure compliance with the NAFTA, much less necessary ones.

4.358 The closest Mexico comes to stating why it believes its tax measures are "necessary to secure compliance" with the NAFTA, is its contention that, by hurting United States exports of HFCS through its discriminatory tax measures, Mexico will "induce" sweetener producers to come to the "negotiating table."97 Even if Mexico's contention were correct, inducing sweetener producers to engage in negotiations is not the same thing as securing United States compliance with the NAFTA.

4.359 Moreover, the United States points out that Mexico's tax measures could not have even been "necessary" to stop the displacement of Mexican cane sugar by imported HFCS as a result of "preferential access" for HFCS under the NAFTA.98 This is because Mexico did not provide such preferential access at the time it imposed its tax measures. Rather, from 1997 through May of 2002, Mexico imposed WTO- and NAFTA-inconsistent anti-dumping duties on HFCS from the United States.99 In other words, Mexico has already adversely altered the balance of rights and obligations under the NAFTA, which was negotiated as a set of mutual concessions. Now Mexico is withdrawing concessions under the WTO, concessions which were never negotiated on the basis of other concessions granted under the NAFTA.

5. Issues relating to Mexico's "preliminary ruling" request

4.360 Aside from its Article XX(d) defence, Mexico raises a number of other issues in the course of these proceedings that are simply not relevant to resolution of this dispute. In its second submission, for example, Mexico continues to argue points only relevant � if at all � to its already-rejected request for a preliminary ruling. These points include Mexico's assertions that "this is a NAFTA dispute,100" that a finding of WTO-inconsistency will prejudice on-going or future NAFTA proceedings101, that the Panel need not issue findings on the consistency of Mexico's tax measures with Mexico's WTO obligations102, and that the United States does not have the right, or does not deserve, to bring this dispute before the WTO.103 The Panel has already considered these issues in rejecting Mexico's request for a preliminary ruling and in concluding that the Panel "does not have the discretion, as argued by Mexico, to decide not to exercise its jurisdiction in a case that has been properly brought before it."104 These issues also do not bear on whether Mexico's tax measures are consistent with Article III or justified under Article XX(d). They are, therefore, not issues that this Panel needs to consider further.

6. "General principles of international law"

4.361 Mexico has also attempted to justify its tax measures under "general principles of international law." The matter in dispute, however, concerns the consistency of Mexico's tax measures with Mexico's obligations under the WTO Agreement � namely, whether Mexico's tax measures are consistent with Article III and, if not, whether they are justified under Article XX(d). Issues Mexico raises concerning justifications for its tax measures under "general principles of international law" are, therefore, not issues this Panel need, or should, resolve.

4.362 That said, Mexico's suggestion that its tax measures are somehow justified as a matter of "general principles of international law" � although still irrelevant to the consistency of Mexico's tax measures with Mexico's WTO obligations � does raise some concerns which merit a couple of brief remarks.

4.363 First, the WTO dispute settlement system exists to resolve WTO disputes, that is, disputes over Members' rights and obligations under the covered agreements.105 Accordingly, when a WTO panel is established, it is established to examine the relevant provisions of the covered agreements and "to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."106 A WTO panel's mandate simply does not extend to determining the rights and obligations of countries under general principles of international law. Thus, in this dispute, the Panel's mandate is limited to determining the consistency of Mexico's tax measures with Mexico's obligations under the covered agreements. Just as the Panel's mandate does not extend to examining United States obligations under the NAFTA,107 it does not extend to examining Mexico's rights under general principles of international law.

4.364 Second, exceptions to WTO rules are expressly stated in the text of the WTO Agreement. Yet, nothing in the text of the WTO Agreement provides that a measure that is otherwise WTO-inconsistent might be justified under the WTO Agreement so long as it comports with some (unspecified) general principles of international law. Moreover, there is no basis for a panel to graft general principles of international law onto the rights and obligations agreed upon by WTO Members and expressed in the text of the WTO Agreement. In fact, the Appellate Body has already rejected the notion that a principle of international law � whether recognized or not � might be used as grounds for justifying measures that are otherwise inconsistent with a Member's obligations under the WTO Agreement.108

4.365 Mexico's reliance on the Appellate Body reports in EC � Bananas III, US � Wool Shirts and Blouses, India � Patents (US) and Canada � Aircraft in this regard are inapposite. Although the Appellate Body did refer in those reports to non-WTO tribunals' practice regarding certain procedural issues, it did not rely on that practice as the basis for its findings. Instead, in each of the reports cited by Mexico109, the Appellate Body concluded that the text of the DSU and other provisions of the WTO Agreement supported the panel's findings with respect to the relevant procedural issue, noting, in addition, that non-WTO tribunals had similarly viewed the issue.110 These reports do not support Mexico's contention that its tax measures � which are inconsistent with Article III and not excepted under Article XX � are nevertheless justified under the WTO Agreement due to a "recognized general principle of international law."

4.366 Mexico's contention likewise does not find support in its out-of-context citations to statements made by the United States in connection with the Air Services Agreement of 1946111, the GATT 1947112, the NAFTA113, or another WTO dispute settlement proceeding.114 Whatever statements the United States may or may not have made in these contexts � over half of which pre-date United States obligations under the WTO Agreement � such statements cannot be used as grounds to create new exceptions to WTO rules.

4.367 In addition to its defence under Article XX(d) and assertion of a "right to take unilateral action" under general principles of international law, Mexico contends � in what appears to be an argument recycled from its failed request for a preliminary ruling � that the Panel need not limit its recommendations in this dispute to a request that Mexico bring its WTO-inconsistent tax measures into compliance.115 Mexico is incorrect.116 Panel recommendations are limited to recommendations that WTO-inconsistent measures be brought into conformity with the covered agreements.117 This limitation is explicitly provided for in Article 19.1 of the DSU which provides: "Where a panel ... concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement."

7. Conclusion

4.368 Therefore, in this dispute, for the reasons already stated and in its prior submissions, the United States respectfully requests the Panel to find that Mexico's tax measures are inconsistent with Articles III:2 and III:4 of the GATT 1994 and not justified under Article XX(d), and recommend that Mexico bring its WTO-inconsistent tax measures into conformity with its obligations under the GATT 1994.

K. OPENING STATEMENT OF MEXICO AT THE SECOND MEETING OF THE PANEL

1. Introduction

4.369 Mexico will focus on the essence of the dispute as it has developed through the parties' written and oral submissions and their responses to the questions posed by the Panel. At the heart of this case lies the following question:

"What can a WTO Member that seeks to secure compliance with a free trade agreement do when another Party blocks dispute settlement under the said agreement even while it acknowledges the existence of a legitimate dispute?"

4.370 Mexico's response is that in such extraordinary circumstances, international law, including the WTO Agreement, does not preclude a WTO Member from taking measures to secure the other Member's compliance with its treaty obligations and to rebalance the situation under the free trade agreement.

4.371 The United States' position in this case has been ambiguous. When it is the complainant, its position is clear: it claims a legal right not only to take counter-measures, but to do so prior to submitting the matter to dispute settlement.

4.372 In this case, however, the United States finds itself in the position of being the obstructing respondent and does not wish to admit that its long-standing view as to the rights of the obstructed complainant State must apply equally when it is the recalcitrant party. Yet it is obvious that, if the United States has this right as the obstructed complainant, it cannot logically contend that it does not accrue to another State that is obstructed by the United States.

4.373 This is why the United States avoided answering the question that Mexico put to it at the end of the first substantive meeting with the Panel. The obvious conclusion is that the United States agrees with Mexico's view that a NAFTA party has the legal right to take action to protect its interests when another Party has obstructed NAFTA's dispute settlement process. But the United States does not want to admit to that in writing.

4.374 Nevertheless, as Mexico showed in its second written submission, there is evidence from the NAFTA that confirms that this is the United States position. Mexico reviewed that evidence at paragraphs 27 to 36 of its second submission. Mexico directs the Panel both to the United States tariffs imposed in response to Canada's tariffs in the NAFTA dispute on Tariffs Applied by Canada to Certain US-Origin Agricultural Products and to the Memorandum of Understanding signed by two United States cabinet secretaries who undertook not to "take countermeasures inconsistent with the NAFTA or the GATT" during a 12‑month period. That evidence is fully consistent with the United States statement to the GATT Council to which Mexico referred in its first written submission (paragraph 126).

4.375 The measure at issue resulted from Mexico's complaint in the context of NAFTA that:

� the United States failed to comply with its NAFTA market access commitments for sugar from Mexico;

� the United States' refusal to admit Mexican sugar into its market caused a serious sugar surplus in the Mexican market that led to severe financial stress in the Mexican sugar industry;

� US-originating HFCS made substantial inroads into the Mexican sweeteners market, displacing sugar from important sectors and further contributing to increasing the sugar surplus;

� Mexico was forced to take other measures at considerable public expense to alleviate the impact of the surplus in its market;

� throughout this time, Mexico pressed for a resolution of the dispute concerning its NAFTA rights by all means, including recourse to the specific dispute settlement mechanism and to negotiations and bilateral consultations;

� the United States steadfastly refused to permit the NAFTA dispute settlement system to discharge its function of assisting the disputing parties in achieving a mutually satisfactory solution to the dispute.

4.376 After exhausting all alternative means, the Mexican Congress adopted the measure challenged by the United States in this proceeding.

4.377 The United States has been forced to admit that there is a genuine dispute between the parties that has not been resolved, but insists that this is not relevant to the issues before the Panel. In the face of all of the evidence and the fact that it has been almost five years since Mexico requested the establishment of an arbitral panel under NAFTA Chapter Twenty � which request is still pending � the United States now claims that it has not impeded the operation of this dispute settlement mechanism. It contends that Mexico has simply "attempted to change the subject" by informing the Panel of the existence and relevance of the larger dispute within the NAFTA (United States second written submission, paragraph 1).

4.378 These contentions are not borne out by the record. Mexico submits that the NAFTA dispute is highly relevant to the issues before this Panel.

4.379 Indeed, the United States goes even further. In its most recent written submission, the United States affirms that there is no link between its HFCS case and Mexico's claim with regard to the market access commitments for Mexican sugar. For example, in paragraph 64 of its second written submission, the United States notes:

"It is difficult to understand how this harm imposed on HFCS and soft drinks and syrups sweetened with HFCS is designed to 'secure compliance' with unrelated provisions under the NAFTA on market access for sugar."

4.380 With all due respect, this is an absurd statement. As Mexico showed in its first written submission, the United States Trade Representative himself, Michael Kantor, established the link between HFCS and sugar in 1993, when he proposed negotiating the exchange of letters. Paragraphs 37 to 51 of Mexico's first written submission refer to that and Mexico submitted the letter in which that link is established in this proceeding:

" ...

I propose that we exchange side letters to clarify that, in determining a party's 'net production surplus' status, sugar will be considered to include raw or refined sugar derived directly or indirectly from sugar cane or sugar beets, liquid refined sugar, and high fructose corn sweetener � ".118

4.381 Moreover, the United States claim is based entirely in the full substitutability of HFCS for sugar in certain industrial uses. The United States Department of Agriculture's market studies corroborate this:

" ...

The Mexican sugar industry wants the US sugar quota to be higher, in agreement with the higher Mexican sugar production. Basically, the Mexican sugar industry is not against US HFCS imports into Mexico; what they want is to gain access for more than the 25,000 MT of sugar currently allowed under the TRQ for Mexico. With the high levels of imported HFCS and higher levels of sugar production, the sugar industry claims there is danger of a closing of 15 to 20 mills, resulting in layoff of about 100,000 workers."119

4.382 In Mexico's opinion, it is an affront to this Panel to deny the link between HFCS and sugar, when the United States was the first to establish it.

4.383 In this submission, Mexico will elaborate upon these issues. It will also respond to the main arguments that are invoked by the United States in its rebuttal submission against Mexico's defence under Article XX(d) of the GATT 1994.

2. The relevance and status of the NAFTA dispute

4.384 Mexico proposes to start by making a few points about the approach taken by the United States in this case, with particular reference to its rebuttal submission.

4.385 First, the United States continues to wrongly argue that the adoption of the measures by Mexico was to protect the domestic production of cane sugar.120 Mexico insists, and it should now be perfectly clear, that the intent behind Mexico's measures was to secure the United States' compliance with its NAFTA obligations while it rebalanced its market. But for the United States' refusal to resolve the dispute through the NAFTA mechanism, the Mexican measures would never have been necessary.

4.386 The Panel should be aware that this was not in a situation where, with no treaty-based expectation of being able to export sugar surpluses to the United States market, Mexico generated a surplus. Quite the contrary: the bilateral trade regime negotiated in the NAFTA foresaw the Mexican sugar industry's modernization (after the privatization that was taking place while the NAFTA was being negotiated) and expressly contemplated that any surpluses generated could be exported to the United States market. Both parties were fully conscious of the competition between sugar and HFCS, and that HFCS access to the Mexican market would contribute to generating surpluses. The regime established in NAFTA Annex 703.2 regarding trade in sugar and syrups deals exclusively with the sugar surplus exports during the transition period.

4.387 The United States subsequently refused to allow the agreed access to Mexican sugar, in order to protect its own sugar industry from competing with Mexican sugar, yet nevertheless sought to ensure that HFCS, either US-originating or locally produced from United States corn, had free access to the Mexican market, without regard to the consequences for the Mexican sugar industry.

4.388 Mexico submitted the matter to the NAFTA dispute settlement mechanism, but the United States obstructed its operation by refusing to appoint panellists and even forbade the United States Section of the NAFTA Secretariat � in charge of administering the proceedings � to do so when Mexico requested the appointment of panellists. The United States now seeks to convince this Panel that it has not obstructed the operation of dispute settlement proceedings and that it is seemingly normal that some five years later the proceedings are still in the panellist appointment stage. Under such circumstances the best answer it can offer to this Panel is that all of this is simply irrelevant to the claim it has submitted under the DSU.

4.389 The Panel should be aware of the fact that during the years before the Mexican Congress adopted this tax over 3 million tons of HFCS were sold into the Mexican market, thereby exacerbating the effect of the NAFTA-induced surplus on the Mexican industry and cane sugar sector. What segment of the Mexican market has HFCS taken? The soft drinks segment.

4.390 The IEPS tax on soft drinks sweetened with sweeteners other than cane sugar constitutes a temporary response to the United States action aimed at a rebalancing of the situation pending a resolution of the bilateral sweeteners trade dispute. When the facts surrounding the measures' enactment are taken into account, it cannot reasonably be maintained that the purpose of the IEPS tax is simply to protect the Mexican sugar producers from import competition.

4.391 The United States did not bring this factual context to the Panel's attention. Mexico urges the Panel to re-read the United States' first written submission and see just how much now undisputed factual context was omitted when it brought this case forward.

4.392 Once it was confronted with all the facts, the United States simply made superficial assertions about the rightness of its position under the NAFTA while simultaneously urging the Panel not to look at the underlying wider dispute.

4.393 Mexico requests the Panel to take note of the extensive documentary evidence that it has adduced in this proceeding. Mexico's first written submission contains 29 annexes which include contemporaneous letters regarding the establishment of the NAFTA arbitral panel. Mexico meticulously sought to demonstrate through contemporaneous documents how the dispute arose, what steps Mexico took to resolve the dispute in accordance with the procedures set out in the NAFTA, how the United States blocked Mexico's efforts through its acts and omissions, and the serious consequences of the United States' obstructionism for the Mexican productive sectors.

4.394 None of that documentary evidence was contested, still less rejected, by the United States.

4.395 Mexico's first written submission set out Mexico's efforts to resolve the underlying dispute in great detail and in a carefully documented fashion. Mexico does not have to rehearse them here.

4.396 When it was finally cornered on its steadfast refusal to subject itself to the NAFTA dispute settlement mechanism, the United States weakly claimed that the NAFTA parties are presently "engaged in the third stage" of the dispute settlement process, namely, the panellist selection stage.121 This is simply not true. After having forbidden its NAFTA Secretariat Section to appoint panellists, the United States took no further action. Yet now the United States cannot bring itself to admit that it has obstructed a dispute settlement mechanism in precisely the manner for which it has criticized so many other States.

4.397 Mexico has been placed in an extraordinarily difficult situation by the United States manipulation of the dispute settlement mechanisms of the NAFTA and WTO. But the Panel must recognize that Mexico submitted to its jurisdiction, and has presented its legal arguments in good faith. Further, Mexico has been scrupulous in presenting the underlying facts to the Panel. The United States has not disputed those underlying facts, and has not submitted any evidence to refute Mexico's evidence.

4.398 So Mexico is greatly troubled when during the first substantive meeting and in its second written submission the United States makes statements such as "The United States is currently engaged in the third stage" of the NAFTA dispute settlement procedure. The uncontradicted evidence is that it has been almost five years since Mexico requested the formation of an arbitral panel under NAFTA Chapter Twenty and that the United States refused to cooperate in naming arbitrators. The United States even gave instructions to its NAFTA Secretariat Section to abstain from appointing them. For the United States now to argue that the dispute settlement proceeding is still ongoing, and that it has complied with its NAFTA dispute settlement obligations, is not only false but demeaning to the integrity of this arbitration proceeding.

4.399 The Panel should reject the United States' attempt to argue that it is, in good faith, actually trying to allow the NAFTA panel to discharge its duty. The Panel should also reject the United States' arguments that its own conduct is irrelevant to asserting its legal rights in this forum. It should reject its request to ignore the circumstances of the wider dispute arising under the NAFTA and its own actions in this regard. It should also reject the suggestion that there is no link between sugar and HFCS and that the measure at issue did not have the purpose of securing United States' compliance with the NAFTA. Lastly, the United States' hope that this Panel will dignify and indeed reward its intransigence and obstructive conduct in the context of international cooperation should be rejected.

4.400 Mexico agrees that this Panel has no jurisdiction to decide whether the United States has failed to comply with its market access commitments or indeed whether Mexico's rebalancing measures are justified under the NAFTA. Mexico has not asked this Panel to decide the NAFTA dispute. The point is simple: it is one thing to say that a WTO panel cannot decide a dispute under a treaty different from the "covered agreements" and is quite another thing to say that a WTO panel cannot consider the facts of a dispute arising under another treaty that has also given rise to the dispute before it. Mexico submits that the Panel can and must consider the totality of the facts relating to the measure that is the subject of this dispute. These facts explain the history of the dispute between the two parties, Mexico's good faith efforts to resolve it, and the failure of those efforts owing to the United States' acts and omissions. The United States has not and cannot take issue with the facts as a whole. The Panel to take these facts into consideration for a variety of reasons:

� to explain the intent of the measures;

� to explain the serious prejudice that Mexico is suffering as a result of United States forum shopping while continuing to obstruct the resolution of Mexico's grievance in the NAFTA forum;

� to explain that Mexico has a bona fide position that the measures can be justified under the NAFTA and that the entire dispute could be resolved there;

� to support Mexico's position that the measures can be justified under GATT 1994 Article XX(d); and

� because all the facts should be taken into consideration by the Panel when it formulates recommendations for the resolution of this portion of the dispute.

4.401 As Mexico has stated, the United States' conduct is highly relevant to the Panel's consideration of whether, through the measures at issue, Mexico is justifiably seeking to secure the United States' compliance with the NAFTA. In evaluating that issue, the Panel can consider the rules of customary international law and general principles of law even if they are not expressly set out in the WTO "covered agreements".

4.402 Pursuant to Article 31(3) of the Vienna Convention on the Law of Treaties, in interpreting the WTO "covered agreements" (including the GATT 1994), this Panel must take into account "any relevant rules of international law applicable in the relations between the parties". Clearly, the NAFTA sets out such rules for the relations between Mexico and the United States which are relevant to the present dispute. Consequently, the Panel is entitled to take notice of evidence supporting Mexico's arguments.

4.403 For the reasons set out above, Mexico requests the Panel to make the following determinations of fact � which it will address further below � whatever its resolution on the merits of this dispute may be:

� Mexico and the United States negotiated the sweeteners bilateral preferential trade regime which includes HFCS and sugar, products that compete in certain market segments;

� a legitimate broader dispute exists between Mexico and the United States regarding access of Mexican sugar to the United States market;

� Mexico has exhausted all efforts to resolve that dispute through diplomatic channels, bilateral consultations and negotiations, and through NAFTA's Chapter Twenty dispute settlement mechanism;

� notwithstanding the fact that Mexico requested the establishment of a NAFTA arbitral panel in 2000, to date the United States has not appointed panellists and has thus frustrated Mexico's attempt to resolve its grievances under the NAFTA;

� the tax measure at issue is a response to the United States' refusal to submit to NAFTA dispute settlement, one which seeks to induce the United States to do so as well as to rebalance Mexico's market which has been affected by the sugar production surplus resulting in part from United States HFCS imports and HFCS production from corn imported from the United States; and

� the United States has stated that under international law it can validly adopt counter-measures when another State refuses to submit to dispute settlement mechanisms.

4.404 Lastly, in considering the applicability of the provisions of the GATT 1994 in this dispute pursuant to Article 11 of the DSU, Mexico urges the Panel to bear in mind the following general principle of international law enunciated by the Permanent Court of International Justice:

"[O]ne party cannot avail himself of the fact that the other has not fulfilled some obligation, or has not had recourse to some means of redress, if the former party has, by some illegal act, prevented the latter from fulfilling the obligation in question, or from having recourse to the tribunal which would have been open to him."122

4.405 The United States has violated its commitment to submit to NAFTA dispute settlement and thereby prevented Mexico from having its sugar market access rights clarified. It has then criticized Mexico for unilaterally determining that the United States has violated the NAFTA without having first obtained a panel report in its favour.

4.406 The United States has also attempted to draw a line between this slice of the dispute and the larger NAFTA dispute. It says that whatever has occurred under the NAFTA is entirely separate from the matter before this Panel. It suggests that consequently this Panel has no right even to take those facts into consideration here. The United States' position is plainly wrong.

4.407 Mexico would ask the Panel to refer to the opening paragraph of NAFTA Article 2005 which permits a complainant to settle "disputes regarding any matter arising under both this Agreement", i.e., NAFTA, "and the General Agreement on Tariffs and Trade � in either forum". Thus, the text of the NAFTA makes it clear that disputes like this one arise under both agreements, not one or the other. The dispute is not separable from the NAFTA. Nor is it one which arises exclusively under the WTO.

4.408 Mexico has already pointed out that the only WTO provision at issue in this case, Article III of the GATT 1994, is expressly incorporated into the NAFTA by Article 301. In that sense, Mexico is thus speaking of precisely the same obligation incorporated in two agreements, the GATT 1994 and a free trade agreement signed pursuant to Article XXIV thereof.

4.409 Mexico recognizes that this Panel cannot resolve the NAFTA dispute, but insists that the Panel can take notice of it. Ignoring these facts would reward the United States for persistently obstructing the operation of the NAFTA dispute settlement mechanism by frustrating the attempt to resolve a legitimate dispute which it acknowledges to exist between the parties, by forum shopping, and it will not contribute to achieving the main objective of the DSU's dispute settlement mechanism � that of finding a positive solution to the dispute � but rather will preserve the inequity of the United States conduct and the obvious prejudice suffered by Mexico.

3. The Panel has greater flexibility to formulate recommendations than the United States admits

4.410 In its second written submission, Mexico pointed out that under the DSU the Panel has greater flexibility to formulate recommendations than the United States is prepared to recognize. The United States simply asks the Panel to ignore its own actions, to find that there was a breach of the GATT, and to recommend that Mexico bring the measure into compliance with the GATT 1994.

4.411 The United States devotes much time and attention to Article 11 of the DSU and the Panel's terms of reference, but does not address what the GATT 1994 � the applicable covered agreement � actually requires a panel to do. As Mexico noted, Articles XXII and XXIII of the GATT 1947 do not support the conclusion asserted by the United States.

4.412 Article XXII did not require a panel to make a ruling of breach as claimed by the United States; rather, it mandated the Contracting Parties "to consult with any contracting party or parties in respect of any matter for which it has not been possible to find a satisfactory solution through consultation under paragraph 1". (Emphasis added).

4.413 Similarly, Article XXIII:2 provided for the referral of a matter (including an alleged failure of a Contracting Party to carry out its obligations under the GATT or a Contracting Party's application of a measure which conflicts with the provisions of the GATT) to the CONTRACTING PARTIES. Upon such referral, the CONTRACTING PARTIES:123

"[S]hall promptly investigate any matter so referred to them and shall make appropriate recommendations to the contracting parties which they consider to be concerned, or give a ruling on the matter, as appropriate." (emphasis added)

4.414 The GATT's drafters thus contemplated either the making of "appropriate recommendations to the contracting parties � concerned" or a "ruling on the matter", again, "as appropriate". Thus: (i) one remedy available to the CONTRACTING PARTIES was recommendatory; and (ii) the other, the possibility of a ruling, was itself made conditional upon its appropriateness.

4.415 Three points warrant noting: First, Articles XXII and XXIII conferred discretion upon the CONTRACTING PARTIES (and panels acting at their behest). Second, neither Article sets limits on the CONTRACTING PARTIES (or a panel's) power to shape its recommendations or make a "ruling in the matter" in response to the facts peculiar to a particular case. To the contrary, they (or a panel) are to determine what is appropriate in the circumstances. Third, these remedies were available to the CONTRACTING PARTIES in situations where breach of the GATT was alleged.

4.416 The flexibility that the GATT's drafters established is preserved in the DSU: "In the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements" (Emphasis added.) The inclusion of the qualifying word "usually" was intentional. The DSU's drafters could have used the mandatory "shall be to secure the withdrawal �" or have amended GATT Articles XXII and XXIII when the GATT 1947 became the GATT 1994, but chose not to.

4.417 In short, it is not correct to maintain that the only "rulings" provided for in the GATT are findings of breach followed by a recommendation to withdraw the measures at issue. It is open to panels to make other findings in order to secure a positive solution to a dispute.

4.418 This is confirmed by the terms of reference that established this Panel:

"To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS308/4, the matter referred to the DSB by the United States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements." (emphasis added)

4.419 Article 11 of the DSU contemplates possibilities that the United States has chosen to ignore. Thus, it would be within the Panel's discretion, based on an objective assessment of the matter, to recommend what steps the parties should take to "secure a positive solution to [the] dispute". Since the United States claims that it shares Mexico's disappointment at the parties' inability to resolve the larger dispute, it should welcome the recommendation that Mexico is requesting from the Panel.

4. The two Article III obligations at issue

4.420 Mexico wishes to comment briefly on the United States argument that the same measures may breach both Article III:2 and Article III:4 of the GATT 1994.124 As a matter of WTO law, Mexico doubts that this is possible. Indeed, the excerpt of the Appellate Body Report in ECAsbestos quoted by the United States does not support the proposition that there is an overlap in the scope of coverage of these two distinct paragraphs of Article III. On the contrary, it suggests that fiscal regulation is covered by a specific provision, namely, Article III:2, while non-fiscal regulation is covered by another provision, namely Article III:4. To be sure, in the paragraph quoted by the United States, the Appellate Body was not even discussing the question of whether the same measure could be examined under both Article III:2 and Article III:4. It was examining a totally different legal issue, that is, the meaning of the term "like" in both provisions.

4.421 In its responses to the questions of the Panel, Mexico also noted that WTO jurisprudence actually suggests that measures taking the form of "internal taxes or other charges" should be examined under Article III:2.125 The Panel should note that the brief comment on this legal point does not qualify Mexico's intention as regards addressing the United States' arguments under Article III of the GATT 1994, but is made simply because, like all other WTO Members, Mexico has a systemic interest in the correct interpretation of that provision.

5. Mexico's defence under Article XX(d) of the GATT 1994

4.422 As previously explained, irrespective of whether the measures at issue are inconsistent with Article III of the GATT 1994, Mexico believes that they are justified under Article XX(d). The allegations made by the United States against Mexico's defence warrant a response.

4.423 At paragraph 39 of the United States' second written submission, it is contended that "Mexico must establish and prove that it has met each of the elements required for invocation of an Article XX(d) defence". Mexico acknowledges that as the party who has invoked an affirmative defence, it has the initial burden of proof on this issue. However, the United States is mischaracterizing the applicable rules on the allocation of the burden of proof by suggesting that the burden of proving that its measures are saved by Article XX(d) rests solely on Mexico's shoulders.

4.424 Simply put, pursuant to the well-known rules governing the allocation of the burden of proof, the onus is on Mexico to raise a presumption that what it claims is true. In other words, Mexico's burden is to make out a prima facie case that its measures are justified under Article XX(d) of the GATT 1994. Once it has done so, the burden then shifts to the United States to rebut that prima facie case.

4.425 Mexico has put forward sufficient evidence and legal arguments to establish a prima facie case that its measures are justified under Article XX(d), and maintains that the United States has failed to rebut its arguments and evidence.

4.426 The United States' primary argument is that Mexico attempts to construct a new Article XX exception by claiming that the NAFTA constitutes "laws or regulations" within the meaning of paragraph (d) of that provision, and that such an exception would "fundamentally undermine the dispute settlement system established in the WTO Agreement".126 This doomsday scenario does not withstand scrutiny.

4.427 It is wrong to say that Mexico's interpretation would offer WTO Members carte blanche to breach from their WTO obligations whenever a Member claims that obligations owed to it under any international agreement have not been fulfilled. This is not Mexico's position nor is it in accordance with the facts of this case.

4.428 Mexico does not contend that the mere claim of a WTO Member that another Member has breached an international treaty is enough to justify the adoption of measures that could be inconsistent with WTO provisions. The Panel should be aware that there is a legitimate dispute between the parties, as recognized by the United States, regarding its NAFTA market access commitments and that Mexico considers that the United States has breached those NAFTA market access obligations. Nevertheless, the measure adopted by the Mexican Congress is not simply a response to this claim raised by Mexico.

4.429 Nor does Mexico request that this Panel issue a finding that the United States has breached its NAFTA market access commitments in order to conclude that the measure is justified under GATT 1994 Article XX(d).

4.430 The United States trivializes Mexico's position.

4.431 There should be no doubt for this Panel that the United States has impeded Mexico's access to the NAFTA dispute settlement mechanism and, therefore, that it has made it impossible for Mexico to obtain a resolution of its grievance with regard to the market access conditions under that Treaty. There should be no doubt that Mexico has also exhausted diplomatic channels, bilateral negotiations, and international cooperation without success. Nor should this Panel have any doubt as to the prejudice that the Mexican industry has suffered.

4.432 The measure adopted by the Mexican Congress occurred only after all other efforts had failed. It is not about a mere claim that the United States has breached its market access obligations. Mexico has plainly demonstrated that the United States has prevented it from gaining access to the dispute settlement mechanism. This is not a mere allegation and, naturally, it is not a question that can be resolved by a NAFTA arbitral panel. This is a question of fact that this Panel can clearly decide based on the evidence filed in this proceeding.

4.433 Mexico's position is that, in such circumstances, the tax measure at issue is justified under Article XX(d) of GATT 1994.

4.434 The United States' argument further trivializes the application of Article XX(d), because such application is subject to a number of requirements. In the first place, as in all matters affecting the WTO, a Member's invocation of an exception is subject to the dispute settlement mechanism. Second, contrary to the United States' assertion, Article XX(d), by its own terms, is restricted to measures necessary to secure compliance with those laws or regulations which are not inconsistent with the provisions of the GATT 1994.

4.435 The mere confirmation that the terms "laws and regulations" in Article XX(d) include international law would not mean that all measures related to the enforcement of international law would ipso facto be justified under that provision. Demonstrating that the measures for which the exception is claimed are related to "laws and regulations" which are not inconsistent with the GATT is only the first element that needs to be established.

4.436 In addition, as the Appellate Body clarified in Korea � Various Measures on Beef, (1) the measures must be designed to "secure compliance" with such "laws or regulations"; (2) they must be "necessary" to secure such compliance; and (3) they must also comply with the requirements of the chapeau to Article XX. In short, for an Article XX(d) defence to be successful, it does not suffice to allege that the measures at issue are related to the enforcement of "laws or regulations". Article XX is structured and has always been interpreted so as to avoid any abuse by WTO Members.

4.437 Were any other WTO Member to seek to justify a measure related to the enforcement of an international treaty under Article XX, it would be subject to the same strict process of justification and review.

4.438 Moreover, Mexico is not arguing that Article XX(d) would be available to justify measures aimed at securing Members' compliance with obligations owed under the WTO Agreement. Nor does Mexico's reading of Article XX(d) mean that unilateral action to counter a breach of the provisions of the WTO Agreement would be authorized.127 This is yet another example of a non-existent systemic concern that the United States incorrectly believes would arise should Mexico's interpretation be upheld by this Panel. Mexico recognizes that Article 23 of the DSU prevents a WTO Member from seeking redress of a violation of WTO obligations other than by having recourse to the rules and procedures of the DSU. But Article 23 of the DSU says nothing about measures aimed at securing compliance with other international agreements that are not inconsistent with the GATT. At most, Article 23 can only exclude measures aimed at securing compliance with obligations under the WTO Agreement from the scope of measures potentially authorized by Article XX(d) of the GATT 1994.

4.439 For these reasons, Mexico's interpretation could not render Article 23 meaningless. Mexico's measures are not about securing United States compliance with the WTO "covered agreements", but with other international agreements which are not inconsistent with the GATT 1994, in this case an agreement authorized by Article XXIV. Mexico maintains that Article XX(d) of the GATT and Article 23 of the DSU can still be read harmoniously and there is no conflict between those two provisions. A WTO Member may very well implement measures to secure compliance with obligations under an international agreement without breaching its obligations under Article 23 of the DSU.

4.440 The United States also argues that reading "laws and regulations" to include international treaties would render Article XX(h) of the GATT 1994 redundant.128 Again, this is incorrect.

4.441 Article XX(h) provides a specific exception for measures "undertaken in pursuance of any intergovernmental commodity agreement". In order to invoke Article XX(h), a WTO Member does not have to establish that the agreement in question is not inconsistent with the provisions of the GATT 1994, nor does it have to demonstrate that the measure is "necessary". It has only to show that a measure was "undertaken in pursuance" of obligations under an intergovernmental commodity agreement. Article XX(h) sets out a distinct right, applicable to a special subset of "laws or regulations" or international agreements: the "intergovernmental commodity agreement[s]". Arguably, it is easier to justify a measure under Article XX(h), but the wording of that provision does not imply that "intergovernmental commodity agreement[s]" or obligations under other international agreements cannot also be "laws or regulations" within the meaning of Article XX(d).

4.442 Turning to the United States argument that the terms "laws and regulations" exclude international treaties, Mexico reiterates that nothing in the text, the context, or the object and purpose of Article XX(d) compels the restrictive interpretation that the United States urges. For the reasons set out at paragraphs 70 to 73 of Mexico's second written submission, the terms "laws and regulations" do not exclude them.

4.443 Mexico also notes that the United States keeps reading the word "domestic" into the text of Article XX(d). As Mexico noted before, when the GATT drafters wanted to limit the application of GATT provisions to domestic measures, they did so in an explicit manner. The applicable principles of treaty interpretation "neither require nor condone the imputation into a treaty of words that are not there � "129

4.444 The United States also refers to Article XVI:4 of the Marrakesh Agreement Establishing the WTO to support its view that the phrase "laws and regulations" means "domestic laws and regulations". However, a careful review of this provision actually supports Mexico's interpretation that the scope of Article XX(d) is not limited to a Member's domestic laws. In fact, Article XVI:4 of the WTO Agreement reads: "[e]ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations � ". In comparison, Article XX(d) does not read "measures � necessary to secure compliance with its laws and regulations which are not incompatible with the provision of this Agreement". Again, Mexico notes that when the GATT or WTO drafters wanted to limit the scope of certain provisions, they expressly did so.

4.445 Mexico would like to briefly address the United States' arguments that Mexico's measures are not "necessary" within the meaning of Article XX(d) of the GATT 1994. The United States' second written submission repeats the bald assertion that "Mexico had any number of alternative measures reasonably available to it� to assist its domestic cane sugar industry and/or resolve its disagreement with the United States over the exact terms of the NAFTA".130 Mexico insists that there should be no doubt for this Panel that Mexico exhausted all measures reasonably available to it, including:

� Diplomatic and international cooperation efforts, including bilateral consultations and negotiations;

� resorting to the NAFTA's dispute settlement mechanism and exhausting all efforts to establish an arbitral panel, but the United States not only refused to appoint panellists, but when Mexico requested the United States NAFTA Secretariat to do so, ordered it to abstain from appointing them;

� sponsoring negotiations between industries of both countries;

� providing relief, at considerable public expense, to its sugar industry which faced a severe financial crisis.

4.446 In summary, Mexico at all times has sought to resolve the dispute in good faith. Of course, the United States is unable to identify a single alternative measure which would have been reasonably available to Mexico to achieve its legitimate objectives.

4.447 It was only when all of these attempts had failed that Mexico took the measures now complained of. This Panel should reject the United States argument without hesitation.

4.448 Mexico would remind the Panel that virtually all the facts submitted by Mexico have been corroborated by contemporaneous reports of the United States Department of Agriculture. Mexico did not submit self-serving evidence. Our first written submission cited those USDA reports.

6. Conclusions

4.449 For the reasons set out in Mexico's prior submissions and elaborated upon in this opening statement, Mexico requests that the Panel find that Mexico's measures are justified under Article XX(d) of the GATT 1994. Accordingly, the United States' complaint must be rejected in its entirety.


To continue with  L. Closing statement of Mexico at the second meeting of the Panel

Return to Table of Contents

57 Closing statement of the United States, first meeting of the Panel, para. 9.

58 For example, it has not denied that it instructed the United States' Section of the NAFTA Secretariat not to appoint panelists after it was requested to do so by Mexico.

59 PCIJ. Ser. A, No. 17, p. 29.

60 Brownlie refers to this as an example of the International Court employing a general principle of law. See Brownlie, Principles of Public International Law , (Oxford University Press, 6th ed. ) p. 17. Exhibit MEX‑35.

61 United States response to Panel questions, para. 71. For an example of the United States taking measures in advance of a dispute panel ruling, see the Air Services Agreement of 27 March 1946 Arbitration (United States v. France), RIAA XVIII, p. 146 (1979). Exhibit MEX-37.

62 Report of the Panel on US � Section 301 Trade Act.

63 The Panel noted at para 7.13, that it was not its "task to examine any aspects of Sections 301-310 outside the EC claims. We are, in particular, not called upon to examine the WTO compatibility of US actions taken in individual cases in which Sections 301-310 have been applied. Likewise, we have not been asked to address the WTO consistency of those provisions in Section 301-310 relating to determinations and actions taken by the USTR that do not concern the enforcement of US rights under the WTO Agreement, including the provisions authorizing the USTR to make a determination as to whether or not a matter falls outside the scope of the WTO Agreements." (emphasis added)

64 United States response to Panel questions, para. 3.r

65 See Article 3(1) of the DSU.

66 The NAFTA Parties intended and considered them to be enforceable until the United States refused to participate in NAFTA dispute settlement.

67 United States response to Panel's questions, para. 71.

68 Article 38 of the Statute of the International Court of Justice.

69 GATT Panel Report on US � Tuna (EEC)  (unadopted), paras. 5.15-5.16.

70 US � Shrimp, second submission of the United States, July 28, 1997, paras. 74-76. Exhibit MEX-41.

71 In Article 2021 of the NAFTA, the Parties found it necessary to prohibit any of them from creating a domestic cause of action that would allow private parties to sue in the domestic courts of a Party in order to secure another NAFTA Party's compliance with its NAFTA obligations. Article 2021 provides that: "No Party may provide for a right of action under its domestic law against any other Party on the ground that a measure of another Party is inconsistent with this Agreement." Canada provided in its North American Free Trade Agreement Implementation Act: 6(1) No person has any cause of action and no proceedings in any kind shall be taken, without the consent of the Attorney General of Canada, to enforce or determine any right or obligation is claimed or rises solely under or by virtue of Part 1 [Implementation of Agreement Generally] or any other order or regulation made under Part 1. See exhibit MEX-42. The United States provided likewise in Section 102(c) of the North American Free Trade Agreement Implementation Act: "No person other than the United States � shall have any cause of action or defence under � the [NAFTA] or by virtue of Congressional approval thereof �." It was unnecessary for Mexico to enact a similar provision because the NAFTA has direct effect under Mexican constitutional law and therefore Article 2021, like the rest of NAFTA, had immediate effect without further implementing action. It would have been unnecessary to prohibit a domestic cause of action if the NAFTA could never have the effect of a law in the internal legal order of a Party. Removing the possibility of a private right of action did not constrain any of the Parties themselves from taking action to secure another Party's compliance with the NAFTA through executive or legislative measures. Indeed, the United States retained a domestic right of petition in section 301 of its Trade Act of 1974, which permitted a private party to petition the USTR to secure compliance with the NAFTA by another NAFTA Party. See Exhibit MEX-43.

72 "[T]he United States has difficulty understanding how a breach of Mexico's WTO obligations contributes to these goals" [para. 78], "the United States finds it difficult to understand how, in seeking to enforce the alleged obligations of the United States under the NAFTA, it is necessary to breach the national treatment obligations Mexico has undertaken with respect to every other WTO Member" [para. 79], and "no matter what Mexico's complaint might be, Mexico could have sought NAFTA compliance through any number of means - diplomatic or otherwise � short of breaching its WTO obligations" [para. 80].

73 As the International Law Commission noted in its commentary on counter-measures, "[a] second essential element of countermeasures is that they 'must be directed against' a State which has committed an internationally wrongful act�" "This does not mean that countermeasures may not incidentally affect the position of third States or indeed other third parties. ... Similarly if, as a consequence of suspension of a trade agreement, trade with the responsible State is affected and one or more companies lose business or even go bankrupt. Such indirect or collateral effects cannot be entirely avoided." See James Crawford, "The International Law Commission's Articles on State Responsibility: Introduction, Text and Commentaries", (Cambridge University Press 2002) p. 285.

74 United States response to Panel questions, paras. 75-80.

75 Appellate Body Report on Korea � Various Measures on Beef, para. 163.

76 Vienna Convention on the Law of Treaties, Art. 31(1).

77 United States responses to Panel questions, paras. 72-74; United States' second written submission, paras. 44-46.

78 United States second submission, paras. 47-48.

79 Mexico's first written submission, para. 118; Mexico's second written submission, para. 71.

80 Mexico's responses to Panel questions, p. 13 (WTO translation); see also Mexico's second written submission, para. 71 (citing Article 38 of the ICJ Statute).

81 Mexico's second written submission, paras. 69-72, 77-78; Mexico's responses to Panel questions, p. 13 (WTO translation).

82 Mexico's second written submission, paras. 74-76; Mexico responses to Panel questions, p. 13-14 (WTO translation).

83 Mexico's second written submission, paras. 74-76 (citing US � Shrimp); Mexico's responses to Panel questions, p. 13-14 (WTO translation) (citing US � Shrimp).

84 See, e.g., Marrakesh Agreement Establishing the WTO, Art. XVI:4; GATT Arts. VII:1, VIII:3 and X:1; General Agreement on Trade in Services (GATS) Arts. V:3, VI:3, XXVIII(k) and Annex on Telecommunications, para. 3(d); Agreement on Import Licensing Procedures, Art. 8.2; Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, Art. 3.2; AD Agreement, Art. 18.5; Agreement on Rules of Origin, passim; Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), preamble, Arts. 3.2, 8.1, 40.2, 63.1,63.2, and 65.3; Agreement on Preshipment Inspection, passim.

85 United States' second written submission, note 72.

86 Mexico's second written submission, para. 50 (citing the Appellate Body in EC � Hormones).

87 United States responses to Panel questions, para. 71.

88 Mexico's second written submission, paras. 69-72, 77-78.

89 Corus Staal BV v. United States, CAFC Slip Op. No.04-1107 (Jan. 21, 2005) at 9.

90 Mexico's second written submission, para. 78.

91 Mexico's second written submission, paras. 71, 73.

92 Mexico's second written submission, paras. 3, 81.

93 Mexico's second written submission, para. 81.

94 See United States' second written submission, paras. 59, 65.

95 Appellate Body Report on Japan � Alcoholic Beverages II, p. 16, DSR 1996:1, 97, at 109.

96 GATT Art. I:1.

97 Mexico's second written submission, para. 83.

98 Mexico's first written submission, paras. 5-6, 124.

99 See United States first written submission para. 14-18.

100 See, e.g., Mexico's second written submission, paras. 4, 7.

101 See, e.g., Mexico's second written submission, paras. 6, 8.

102 Mexico's second written submission, paras. 48-57.

103 See, e.g., Mexico's second written submission, paras. 8.

104 Letter from the Chairman of the Panel to Representatives of the Parties (18 January 2005) at 2.

105 DSU Arts. 1.1, 3.2 and 3.4.

106 DSU Art. 7.1(emphasis added); see also DSU Art. 11.

107 United States responses to Panel questions, para. 12.

108 Appellate Body Report on EC � Hormones, paras. 120-125.

109 Mexico's second written submission, para. 17.

110 Appellate Body Report on EC � Bananas III, paras. 10, 132-138 (considering representation by private counsel and standing and referring to DSU Article 3.7 and GATT Article XXIII); Appellate Body Report on US � Wool Shirts and Blouses, pp. 14-17, DSR 1997:I, 323, at 335, (considering the burden of proof and referring to DSU Article 3.8 and GATT Article XXIII); Appellate Body Report on India � Patents (US), paras. 64-71 (considering the ability to review municipal law and referring to the panel�s "task in determining whether India's [measures] were in conformity with India's obligations under Article 70.8(a) of the TRIPS Agreement"); Appellate Body Report on Canada � Aircraft, paras. 197-206 (considering adverse inferences and referring to the panel�s mandate, DSU Article 11 and SCM Agreement Article 4).

111 Mexico's second written submission, para. 32 (regarding a 1978 dispute over the right to operate a West Coast to Paris flight via London).

112 Mexico's second written submission, para. 23, 37-38 (regarding a 1989 statement in connection with a dispute over hormone-treated beef).

113 Mexico's second written submission, para. 33-35 (regarding a 1994 memorandum of understanding); id. paras. 28-30 (regarding a 1996 dispute over agricultural products).

114 Mexico's second written submission, paras. 40-45 (regarding US � Section 301 Trade Act).

115 Mexico's second written submission, paras. 62-64.

116 See also United States opening statement at the first meeting of the Panel, para. 12.

117 DSU Art. 19.1.

118 Mexico's first written submission, para. 41.

119 Mexico's first written submission, para. 61.

120 United States second written submission, para. 16.

121 United States second written submission, para. 66.

122 Chorz�w Factory (Merits) Case, PCIJ. Ser. A, No. 17, p. 29. (Emphasis added).

123 As practice evolved, this function was exercised by panels established by the CONTRACTING PARTIES.

124 United States second written submission, para. 12.

125 Mexico's responses to Panel questions, p. 8.

126 United States second written submission, para. 37.

127 United States second written submission, para. 47.

128 Id., para. 44.

129 Report of the Appellate Body on India � Patents, para. 46.

130 United States second written submission, para. 65.