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4.450 At paragraph 6 of its opening oral statement, the United States stated that "acceptance of Mexico's interpretation of 'laws or regulations' to include obligations owed to 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 to be free to breach any of its WTO obligations". At paragraph 7, it further states that in such a case "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)". Mexico addressed those issues in the opening session in detail, at paragraphs 59 to 72 of its oral statement,132 but would like to add that this is an incorrect but highly � albeit unintentionally � revealing statement in that it assumes that all WTO Members that are parties to other international treaties will ordinarily refuse to submit to dispute settlement under those treaties, just as the United States has done in this case. 4.451 In its opening statement, Mexico pointed out clearly that a Member must do more than merely claim that a treaty has been breached in order to satisfy the necessity test; in addition, it must comply with all the requirements established under Article XX(d), and its action is further subject to review by means of the DSU. If a State sought to secure another Member's compliance with another treaty through Article XX(d) without first invoking that treaty's dispute settlement mechanism, the obvious answer of a WTO Panel would be that Article XX(d) cannot be used as a means of forum shopping. The Member in question would have to use the proper forum, that is, the one established by the other treaty. 4.452 Moreover, the Panel should note the theoretical dimension of the United States' argument. Frankly, the situation it poses is purely hypothetical. It would arise only if WTO Members were sued pursuant to other international treaties owing to presumed breaches under such treaties, and refused to submit to dispute settlement mechanisms under such treaties. The first question that arises is: why would WTO Members invoke a GATT 1994 exception when the treaties with which they seek to secure compliance have mechanisms to resolve disputes arising thereunder? If both States submit to the stipulated mechanism to settle their dispute, that will be the end of the matter. 4.453 There should not be any doubt: Mexico does not consider that the US attitude with regard to this case is the regular conduct of the community of States. Mexico does not suppose that States ordinarily commit acts giving rise to international complaints by other States and then refuse to submit such acts to review under established dispute settlement mechanisms. International practice shows that States regularly comply with agreements to submit to dispute settlement procedures. Mexico's participation in this and other proceedings corroborates this fact. In its first written submission, Mexico showed how on the three other occasions where a NAFTA panel was requested, the respondent agreed to appoint panellists. The United States was the respondent party in two of the three cases and its measures were challenged successfully. 4.454 Mexico has made it clear that this case presents extraordinary circumstances in which a dispute exists regarding compliance by a State � the United States � with its international obligations, and that State has refused to submit to a dispute settlement mechanism expressly established by exploiting a deficiency in the procedure for the appointment of panellists. 4.455 Mexico maintains that in these extraordinary circumstances, the GATT 1994 allows the affected State to adopt measures to secure the obstructionist State's compliance, and to protect its legitimate interests by rebalancing the situation and re-establishing the status quo ante. The only reason why Mexico has invoked Article XX(d) in this case is that it cannot have access to the NAFTA dispute settlement mechanism, which has been blocked by the United States.
4.456 In paragraph 11 of its opening statement, the United States claimed that "international trade agreements, such as the NAFTA and the WTO Agreement, are not laws and are not enforceable in US courts". This is a mischaracterization of US law and of the NAFTA itself. 4.457 The starting point is the US Constitution. Article VI, Clause 2 states that international treaties, as well as the Constitution itself and the laws of the United States, "shall be the Supreme Law of the Land". With regard to treaties subscribed by the US that are international trade agreements, such as the WTO and NAFTA, for purposes of its domestic law the United States has chosen to ratify those agreements as if they were domestic legislation, and the US Congress has provided that in such circumstances those agreements are not self-executing at the domestic level. 4.458 Nevertheless, the simple reason why the NAFTA is not a law which is enforceable by private parties in the US courts is that the NAFTA Parties expressly agreed in Article 2021 that they would not provide for a right of action under their domestic law to secure another Party's compliance with its NAFTA obligations. In the NAFTA the Parties expressly agreed not to provide for 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. In other words, it would have been unnecessary to prohibit such a domestic cause of action if the NAFTA could never have the effect of a law in the internal legal order of the United States. In its second written submission, Mexico quotes NAFTA Article 2012 at footnote 59 and notes the implementing action taken by Canada and the United States. In the absence of such a NAFTA provision, any NAFTA Party could have made NAFTA enforceable by private right of action before its domestic courts. 4.459 However, barring a private cause of action in the courts of each NAFTA Party does not mean that NAFTA has no domestic legal effect in each Party. 4.460 Interestingly, Section 102(c) of the NAFTA Implementation Act states that "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�". Thus, US law expressly provides that international trade agreements are directly enforceable in judicial actions brought by the federal government. For the WTO, this is implemented in 19 USC 3512(b)(2)(A), which provides:
4.461 Further, the United States actually retained a type of domestic right of petition in Section 301 of its Trade Act of 1974, which permits private parties to petition the United States Trade Representative to secure compliance with the NAFTA by another NAFTA Party. Clearly, international treaties, including trade agreements, are treated as "laws" in the United States. 4.462 The recent court decision in the Corus Staal case, cited by the United States in its opening statement does not support its proposition that trade agreements are not laws. Rather, that decision found that a private party could not rely on the WTO Anti-Dumping Agreement or WTO panel decisions as a basis for overturning the US Commerce Department's interpretation of US anti-dumping law. That is a much narrower point. 4.463 Accordingly, the position of the United States that there is an absolute separation between laws and regulations, as internal obligations, and international treaties, as international obligations, and that in no circumstances can international agreements be law, is incorrect. It is clear that the three NAFTA Parties, like many other countries, consider international treaties to be laws. This contradicts the United States position on the ordinary meaning of the terms "laws and regulations". 4.464 The Panel should appreciate as well that, as Mexico pointed out, when the drafters wished to limit the meaning of the terms, they did do expressly. As the United States pointed out in its opening statement, when they wished to refer to international law as excluding domestic law, they did so clearly through the use of the term "international law". Equally, when they wanted to refer to the domestic law as excluding international law they used formulas such as "laws and regulations of a Member", "its laws and regulations", "the laws and internal regulations", etc. Article XX(d) is not the only case in the WTO Agreements in which the formula "laws and regulations" is used without qualification and, accordingly, it cannot be presumed that it excludes international treaties.
4.465 At paragraphs 16 and 17 of its opening statement, the US alleges that Mexico has not made it clear why it believes that its measures are necessary to secure compliance with NAFTA. Mexico thinks that it has made this point perfectly clear, but for the assistance of the United States, it will set out its reasoning in summary form as follows:
4.466 In paragraph 17 of its opening statement, the US points out that Mexico contends that "by hurting US exports of HFCS through its discriminatory tax, Mexico will 'induce' sweetener producers to come to the 'negotiating table'". This is not what Mexico submitted. Mexico's rebuttal argument is clearly expressed at paragraphs 82 and 83 of its second written submission. The concrete point is that, even though the measures adopted by Mexico have not yet resolved the dispute, they have had an effect aimed at resolution, even if this has been a minor one. As an example, Mexico referred to a news report that quotes the President of the National Chamber of the Sugar and Alcohol Industries, who points out that the tax motivated the US producers to sit down again at the negotiating table, whereas previously they had not had any communication with the Mexican industry. Admittedly, having the United States comply with its international obligations is not the same as having the producers of both countries establish contact; however, the fact that the US maintains a position of complete intransigence does not make the measure any less necessary. Mexico would regret it if the US chose to maintain that position of absolute intransigence, as seems to have been suggested.
4.467 In paragraph 18 of its opening statement, the United States offers a new argument. It suggests that the anti-dumping measures adopted by Mexico with respect to HFCS imports altered the balance of rights and obligations under the NAFTA. This is incorrect. Mexico conducted an anti-dumping investigation pursuant to the request of the domestic industry. It concluded that dumping was occurring and that there was injury to the domestic industry, and it imposed anti‑dumping measures. The measures were challenged through the WTO dispute settlement procedures and NAFTA's Chapter Nineteen. Mexico submitted to both proceedings. When the panellists concluded that Mexico had not satisfied the requirements needed to impose the measures, Mexico revoked the corresponding administrative resolution, cancelled the bond posted, and the anti-dumping duties were refunded. Mexico did not alter the balance of rights and obligations of the NAFTA. It considered that it had a right and it exercised it. After it was challenged successfully, Mexico revoked the measures and cancelled their effects. Moreover, the Mexican measures did not inhibit HFCS imports. It must not be forgotten that during that period approximately 3 million tons of HFCS entered the Mexican market.
4.468 The argument that the United States attributes to Mexico at paragraph 20 of its opening statement is also incorrect. In its second written submission, as well as in its opening statement, Mexico alluded to the general law principle stated by the Permanent Court of International Justice in the Chorz�w Factory case pursuant to which a party cannot argue in its favour that another party has not complied with an obligation or that it has not had recourse to some means of redress when, by way of an illegal act, that party has prevented the other party from complying with its obligation or from having recourse to a tribunal that would have been otherwise available. Mexico has also alluded to other rules of international law. It considers that WTO panels and the Appellate Body can consider and apply them. Mexico refers the Panel to paragraphs 110 of Mexico's first written submission and 14 to 18 of its second written submission. 4.469 Mexico considers that the measures at issue in this dispute are justified pursuant to the principles and rules of international law, including the NAFTA and the rules of customary international law. Mexico submits that the Panel can consider such rules, but it has not requested the Panel to rule that, in the scope of the WTO, the measures are justified based on rules of international law. Mexico relies on its defence in the application of Article XX(d) of the GATT 1994.
4.470 At paragraph 22 of its opening statement, the United States refers to Articles 7 and 11 of the DSU and argues that WTO panels "are 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". Mexico agrees with this general statement, but reminds the Panel that the United States has made erroneous submissions on crucial points regarding the meaning of these provisions.
4.471 Throughout this proceeding, Mexico has urged the Panel to recognize the substantial prejudice resulting from the United States' refusal to cooperate in good faith in the international arena to resolve a legitimate dispute regarding the bilateral sweeteners trade, in addition to an abuse of the proceedings. The Panel is a jurisdictional body that operates under international law rules, and it should not condone the US conduct. 4.472 Mexico has meticulously documented the origins of the bilateral dispute, the efforts it has made to resolve it legally through all means, the United States' persistent refusal to submit to the NAFTA's dispute settlement mechanism, and the serious prejudice that resulted and still can result for Mexico. 4.473 There is not the least doubt that the United States has abused the proceedings, even this Panel's proceeding. It has refused to submit to the established mechanism to settle disputes, a mechanism that it negotiated and subscribed to in an international treaty, has engaged in forum shopping and has not only presented to the Panel an incomplete overview of the pertinent facts, but has also made false statements. 4.474 In deliberating on this case, consider the detailed account of the facts that Mexico has offered, including the repeated efforts to establish an arbitral panel under the NAFTA and to find a solution to the dispute, an account plainly established, in many instances in official documents drawn up by the United States itself.
4.475 The US has provoked an unfair interaction between the NAFTA and the WTO Agreement, resulting from the automatic operation of the WTO's DSU and Chapter Eleven of the NAFTA, and the corresponding lack of automaticity in the operation of NAFTA's Chapter Twenty, due to the US refusal to appoint panellists in a proceeding that presently requires the good faith and cooperation of both disputing Parties. On the one hand, Mexico has given its consent ex ante to submit to WTO dispute settlement proceedings and to NAFTA's Chapter Eleven. The United States, however, has exploited the fault in the panellist appointment process under NAFTA's Chapter Twenty and has for many years been able to avoid submitting to the dispute settlement system. 4.476 There is more than a little irony in this case:
4.477 Mexico urges the Panel to reflect deeply on the inequity of this situation. It is fundamentally unfair to reward the obstructing respondent, who now comes here asking the Panel to consider only a small part of the dispute between the parties. With all due respect, it would bring international dispute settlement mechanisms into disrepute to reward a State that has avoided international cooperation. 4.478 The equities are in Mexico's favour and the prejudice that Mexico is suffering cannot be understated:
4.479 The United States would like to emphasize what this dispute is about. This dispute is about Mexico's obligations under Article III of the GATT 1994 and the consistency of Mexico's tax measures with those obligations. Throughout these proceedings, and again in its opening statement, however, Mexico has done its utmost to avoid any discussion of this issue. Instead, Mexico has chosen to focus its response in these proceedings on an unprecedented reading of Article XX(d) and a recasting of this dispute as one about United States obligations under the NAFTA. As the United States has maintained throughout these proceedings, and continues to maintain, both Mexico's Article XX(d) defence and its efforts to recast this dispute as one under NAFTA are unsustainable. To avoid repetition on these points, the United States would like to refer the Panel to its prior submissions for the many reasons why Mexico's XX(d) defence must fail and why its discussions of NAFTA in these proceedings are simply not relevant to task before this Panel. Instead, the United States will use its closing statement to respond to some specific points raised in the various sections of Mexico's opening statement.
4.480 Turning to the first two sections of Mexico's statement (its introduction and discussion of the relevance of the NAFTA dispute), Mexico makes three assertions there and one omission that merit some remarks. 4.481 First, Mexico continues to fault the United States in these proceedings for not discussing Mexico's grievances under the NAFTA. Yet, even Mexico admits that Mexico's grievances under the NAFTA are outside the Panel's terms of reference and, therefore, not issues which this Panel may issue findings on in this dispute. Accordingly, rather than engage on issues that are clearly outside this Panel's terms of reference, the United States has chosen to remain focused on the issues that actually are within the Panel's terms of reference � namely the consistency of Mexico's tax measures with Mexico's WTO obligations. 4.482 Second, Mexico asserts that the United States does not see any "link" between HFCS and cane sugar. This, of course, is not the United States view. The United States agrees with Mexico, for example, that HFCS and cane sugar are directly competitive and substitutable products. What the United States claims are not linked, however, are Mexico's obligations under the WTO Agreement and United States obligations under the NAFTA. That is, nothing in the WTO Agreement makes the obligations Mexico owes the United States under Article III of the GATT 1994 contingent on Mexico's view of whether the United States has complied with obligations under the NAFTA. 4.483 Third, Mexico asserts that Article 31(3) of the Vienna Convention requires panels to consider any relevant standards or norms applicable to the relations of the parties to a treaty. And, therefore, Mexico asserts that the Panel must consider the NAFTA in this dispute. Article 31(3) of the Vienna Convention, however, pertains to the interpretation of the terms of a treaty, and provides that "relevant rules of international law applicable in the relations between the parties" shall be taken into account along with the context of the treaty's terms. Mexico has not identified any terms of the WTO Agreement for which it might be using the NAFTA or "general principles of international law" as relevant context for interpretation of the meaning of the WTO Agreement's terms. Mexico reference to Article 31(3) does not change the fact that interpretation and application of the NAFTA are outside the Panel's terms of reference. 4.484 Fourth, as to Mexico's omission, Mexico fails to explain how the Panel could consider whether Mexico's tax measures are necessary to secure United States compliance with the NAFTA, if the Panel does not first examine what the terms of the NAFTA are and whether United States actions are consistent with those terms. Yet, these issues as to the interpretation and application of the NAFTA are the precise issues Mexico has already conceded are outside this Panel's terms of reference. Thus, the very determination that Mexico's Article XX(d) defence calls upon the Panel to make � namely, United States compliance with the NAFTA � is the very determination Mexico asserts is not within the Panel's authority to make. 4.485 Mexico's suggestion that the Panel might consider the "facts" of the NAFTA, and take as "background" that a dispute under the NAFTA prompted Mexico's tax measures and gave rise to the present WTO dispute, does not save its Article XX(d) defence. The fact that the NAFTA exists or that a dispute exists thereunder, does not answer the question of whether Mexico's tax measures constitute measures to secure compliance with alleged United States obligations to provide market access for Mexican sugar under the NAFTA (that is, assuming for the moment the NAFTA obligations fall within the scope of "laws or regulations"). With respect to supposed factual issues such as those in paragraph 36 of Mexico's opening statements, the United States would like to come back to those later in writing. 4.486 Turning to the next section of Mexico's statement as to the recommendations a WTO panel is permitted to make, Mexico contends that per Article XXIII of the GATT, the recommendations a WTO panel might make in a given dispute are more flexible than suggested by the United States. This is simply not true. DSU Article 19.1 definitively answers the question of what types of recommendations WTO panels are permitted to make � that is, if a panel finds a Member in breach of its WTO obligations, it "shall recommend that the Member concerned bring the measure into conformity" with the relevant covered agreement.
4.487 With respect to Mexico's points on Article III:2 and III:4, the United States has already addressed the issues Mexico raises in the United States second submission and responses to questions. The United States will not repeat those responses now, other than to make three brief points. One, as the United States has said before, a measure may constitute both a breach of Article III:2 and III:4. Two, Mexico has not rebutted the evidence and arguments presented by the United States that Mexico's tax measures constitute a form of dissimilar taxation within the meaning of Article III:2 or a law affecting the internal sale and use of imported products within the meaning of Article III:4. Three, it is Mexico that has chosen to alter the conditions of competition by applying tax measures that discriminate against soft drinks and syrups as well as against sweeteners. Specifically, Mexico's tax measures constitute an excise tax on soft drinks and syrups containing HFCS. The United States has demonstrated how that tax translates linearly into a conditional tax on HFCS and, in fact, as a prohibitive excise tax on HFCS. It, therefore, falls under Article III:2. Mexico's tax measures are also measures "affecting" the use of imported HFCS. The measures punish bottlers for using imported HFCS. Mexico's tax measures, therefore, fall under Article III:4. If there is overlap with respect to Articles III:2 and III:4 in this dispute, it is because the particular tax measures Mexico has chosen to apply are discriminatory excise taxes on one product that also punishes the bottler for using imported inputs to make that product. 4.488 Turning to Article XX(d) and the specific points Mexico raises there. The first point is that, despite Mexico's assertions otherwise, Mexico most clearly has not met its burden of proof with respect to its Article XX(d) defence. Under that burden, Mexico must put forth facts and arguments sufficient to establish that its tax measures are, first, justified under paragraph (d) as measures "necessary to secure compliance with laws or regulations" and, second, applied in manner that is in keeping with the chapeau to Article XX. As late as this second meeting of the Panel, however, Mexico has yet to marshal any legal argument under the relevant rules of treaty interpretation to support its assertion that the phrase "laws or regulations" encompasses United States obligations under the NAFTA or to provide any factual support for its contention that its tax measures secure, or even contribute, to United States compliance with alleged NAFTA obligations, much less that its tax measures are necessary to such compliance. 4.489 Mexico's comments in paragraphs 9 and following of its closing statement on the status of the NAFTA under United States law, to the extent the United States has been able to understand them, do not appear accurate or complete. However, unfortunately the United States is not in a position to comment in more detail on those paragraphs on such short notice. 4.490 More generally, the United States fails to see how Mexico's more general point assists its position. Mexico seems to say that different countries treat the relationship between their international obligations and their internal laws in different ways. The United States fails to see why that would be an argument in favour of interpreting the words "laws or regulations" in Article XX(d) of the GATT as applying to international agreements. If anything, Mexico's point highlights the difference between international obligations, and internal laws and regulations. 4.491 Further to this point, the phrase "laws or regulations" within Article XX(d) means the "laws or regulations" of the Member claiming the Article XX(d) exception; not the laws or regulations of the Member against whom it has invoked its Article XX(d) exception. Therefore, by way of example, Mexico might invoke Article XX(d) as justification for a measure to secure compliance with its own laws or regulations, but not the laws or regulations of other Members. Said another way, Mexico cannot assert an Article XX(d) defence for measures to enforce United States domestic law. 4.492 The United States' second point is that in its opening statement � and perhaps this is a reflection of Mexico's recognition of where acceptance of its Article XX(d) defence may lead � Mexico suggests that its reading of Article XX(d) is not as broad as it might first appear. That is, Mexico suggests that its reading of Article XX(d) only applies in situations where (i) a genuine dispute exists under an international agreement; (ii) dispute settlement under that international agreement has not resolved the dispute; (iii) diplomatic efforts have also not resolved that dispute; (iv) the domestic industry of the Member invoking Article XX(d) has suffered some type of harm as a result of the dispute under the international agreement; and (v) the relevant international agreement is not a WTO agreement. This new reading of Article XX(d), however, does not get us past the fact that Article XX(d) does not apply to obligations under an international agreement. Nor does it get us past the fact that, under Mexico's reading of Article XX(d), any Member, who believes that another Member has breached obligations owed under an international agreement, would be free to breach its WTO obligations, provided the Member claimed to have exhausted other avenues to resolve the dispute and to have a domestic industry in need of assistance. Despite Mexico's claims, this would be an extremely broad exception to WTO rules. 4.493 Finally, no less than two pages from the end of its opening statement, Mexico tries to refute some of the points the United States offers, based on application of the rules of treaty interpretation, as to why the phrase "laws or regulations" means the domestic laws or regulations of the Member claiming the Article XX(d) exception. Mexico's arguments here, however, do not save its Article XX(d) defence. For example, the fact that Article XVI:4 of the Marrakesh Agreement includes the word "its" before "laws, regulations and administrative procedures" only re‑emphasizes the United States point that "laws or regulations" as used in the WTO Agreement is understood to mean the domestic laws or regulations of WTO Members, not obligations under international agreements or under general principles of international law. In the numerous instances where the WTO Agreement references "laws" or "regulations" some are proceeded by the word "its" or the word "their" (referring to a Member's, or Members' in the plural, laws and regulations); others are simply preceded by "the" or no article at all, as in Article XX(d). What is clear, however, is that when the WTO drafters meant to refer to international law, they did so expressly, as in Articles 3.2 of the DSU and 17.6 of the Anti-Dumping Agreement. 4.494 Moreover, contrary to Mexico's assertion, the United States is not reading "national" or "domestic" into the text of Article XX(d). Rather, the ordinary meaning of the phrase "laws or regulations" interpreted in its context and in light of the WTO Agreement's object and purpose leads to the conclusion that phrase "laws or regulations" with no qualifying adjective proceeding it, means the domestic laws or regulations of the Member claiming the Article XX(d) exception. V. ARGUMENTS OF THE THIRD PARTIES 5.1 The arguments presented by Canada, China, the European Communities, Guatemala and Japan in their written submissions and oral statements are reflected in the summaries below.139
5.2 The Panel has invited the parties and third parties to comment on Mexico's request for a preliminary ruling on whether the Panel should decline to exercise its jurisdiction in this dispute. 5.3 Canada's statement will therefore address the two following questions:
5.4 For reasons that Canada will briefly elaborate, the answer to the first question is, yes, the Panel should make a preliminary ruling. The answer to the second question is, no, the panel should not � and cannot � decline to exercise its jurisdiction. 5.5 Mexico asserts that this Panel (i) has the competence to decline to exercise its jurisdiction in its entirety; and (ii) should do so in this case. Because a finding in favour of Mexico on these two points would render moot any consideration of the United States' claims on their merits, this issue should be dealt with at the earliest stages of the proceedings. 5.6 The WTO jurisprudence is clear on the need to raise and consider jurisdictional objections in a timely manner. The Appellate Body in US � 1916 Act stressed that an objection to jurisdiction should be raised as early as possible in the panel process because "the vesting of jurisdiction in a panel is a fundamental prerequisite for lawful panel proceedings".140 5.7 The Appellate Body further emphasised this point in Mexico � Corn Syrup where it stated that panels must address and dispose of certain issues of a fundamental nature such as jurisdiction in order to satisfy themselves that they have authority to proceed in a particular matter.141 5.8 Mexico's request that the Panel decline to exercise its jurisdiction, is not, as such, a challenge or objection to the Panel's jurisdiction. Canada does not understand Mexico to be suggesting that the Panel does not have authority to proceed. On the contrary, Mexico has recognised in its first submission that this Panel has prima facie jurisdiction to hear this case.142 However, whether the question raised is a panel's authority to proceed to hear the claims on their merits, as in the case of a jurisdictional objection, or, as in this case, the Panel's discretion to proceed, the issues in both situations are of a fundamental nature. From a practical standpoint, were the Panel to find that it could and should accede to Mexico's request, the consequences would be the same as if the Panel were to find that it did not have jurisdiction: it would obviate the need to consider the complainant's claims or to make further recommendations to the Dispute Settlement Body. 5.9 In the light of the Appellate Body's guidance in the case of jurisdictional objections and given that Mexico's request was duly formulated within the terms of paragraph 13 of the Panel's Working Procedures, it would be appropriate, and indeed preferable, for the Panel to deal with this issue on a preliminary basis. 5.10 Canada is therefore of the view that the Panel should decide this issue by means of a preliminary ruling rather than deal with the matter in its final report. 5.11 Mexico relies on the principle of "judicial economy" to argue that the Panel may decline to exercise its jurisdiction when one of the parties refuses to take the matter in dispute before what Mexico asserts is the appropriate forum.143 5.12 Canada does not agree with Mexico that the Panel has the authority to decline to exercise its jurisdiction in this case. 5.13 Article 3.2 of the Dispute Settlement Understanding expressly recognises that the dispute settlement system serves to preserve the rights and obligations of WTO Members under the covered agreements. Accordingly, as set out in Article 11 of the DSU, a panel has a responsibility to make an objective assessment of the matter before it, including an assessment of the conformity with the relevant covered agreements of the measure at issue. 5.14 This Panel was established with the standard terms of reference set out Article 7.1 of the DSU. According to these terms of reference the Panel is charged with examining the matter before it in the light of the relevant covered agreements and making such findings as necessary to assist the Dispute Settlement Body in making recommendations or rulings. Article 3.4 of the DSU provides that these recommendations or rulings are to be aimed at achieving a satisfactory settlement of the matter in accordance with the rights and obligations of the parties under the relevant covered agreements.144 5.15 The United States, in this case, claims that Mexico's tax measures are inconsistent with Mexico's obligations under Article III of the GATT 1994. The GATT 1994 is a covered agreement in Appendix 1 of the DSU. Nevertheless, Mexico suggests, that based on the principle of "judicial economy" the Panel could in this case simply decline to exercise its undisputed jurisdiction. The Panel simply cannot do this. 5.16 "Judicial economy" is nothing more than a principle by which a tribunal may choose to limit its findings to those necessary to resolve the dispute. It cannot override the express provisions of the DSU, nor the rights and obligations, of parties and of panels, that flow from those provisions. In particular, "judicial economy" cannot be applied to relieve a panel of its duty to make the findings that are necessary to resolve a dispute. Thus, in Australia - Salmon, the Appellate Body emphasized that the principle of "judicial economy" must be applied keeping in mind the aim of the dispute settlement system, which is to resolve the matter at issue and "to secure a positive solution to a dispute".145 5.17 For the Panel to do as Mexico asks and abstain entirely from making findings in this case would be a gross misapplication of the principle of "judicial economy". To do so would be contrary to the Panel's duty under Article 11 of the DSU, contrary to the Panel's terms of reference, and contrary to the aims of resolving the matter at issue and securing a positive solution to the dispute. In short, the Panel cannot accede to Mexico's request without disregarding critical provisions of the DSU and undermining the effective functioning of the WTO dispute settlement process. 5.18 For these reasons, Canada respectfully submits that the Panel must deny Mexico's request to decline to exercise its jurisdiction in this case.
5.19 China notices that this dispute raises some important issues in the interpretation and application of GATT 1994 Article III. In this submission, China will focus on two issues:
5.20 In the opinion of the United States, HFCS and cane sugar have been dissimilarly taxed by the "HFCS soft drink tax" in the meaning of GATT Article III:2, second sentence. This raises an issue with regard to the interpretation and application of GATT Article III:2, second sentence: that is whether a product (HFCS in this case), can be deemed to be taxed simply because it is a component of another product, soft drinks taxed by IEPS measure in the meaning of GATT Article III:2, second sentence. 5.21 Taking into account Mexico's HFCS soft drink tax measure itself and paragraph 2 of Article III of GATT 1994, China understands that products subject to the HFCS soft drink tax are soft drinks and syrups sweetened with HFCS, not the HFCS itself when used as a component in making the products, soft drinks and syrups. As such China cannot concur with the United States' interpretation of the applicability of the HFCS soft drink tax on HFCS used as sweetener in soft drinks and syrups, other than the soft drinks and syrups using HFCS as sweetener. 5.22 Moreover, in the context of GATT Article III:2, second sentence, the word "apply" when used in defining the scope of a statute, shall be read as application of a tax to the objects explicitly referred to in the language of the statutes, and not any others that have not been explicitly defined as applicable in the statute. This is supported by the dictionary explanation of "apply" both in the legal and ordinary sense of the word. 5.23 From the above, China believes that "apply" leads to an explicit referring of object. In other words, from the point of view of the measure at issue, the word "apply" in Article III:2 of GATT 1994, as well as the word "taxed product" in paragraph 2 of Ad Article III shall be construed narrowly and the application of principles in Article III:2 of GATT 1994 shall not be extended to an item not explicitly defined within the scope of the HFCS soft drink tax. 5.24 On this issue, the United States claims that HFCS and cane sugar are "like products" within the meaning of Article III:4 of GATT 1994. The United States also believes that HFCS imported from United States competed successfully whereas Mexican bottlers were rapidly and increasingly substituting HFCS for sugar, and that led the Mexican Congress to impose the HFCS Soft Drink Tax and Distribution Tax.146 5.25 In proving the likeness of HFCS and cane sugar within the meaning of Article III:4, United States mentions four elements relevant to the like product inquiry that the Appellate Body examined more extensively in EC � Asbestos.147 It seems that the United States' assertion of likeness of cane sugar of Mexican origin with the US-imported HFCS is built first on its belief of a competitive relationship between cane sugar and HFCS, which is, as the United States citing the Appellate Body in EC � Asbestos148, "fundamentally" of like products under Article III:4 of the GATT.149 5.26 It is noteworthy that based on its understanding of some of the precedent panel and/or Appellate Body reports, the United States tends to equate the two distinct concepts, the "like products" within the meaning of Article III:4 of GATT 1994 and "directly competitive and substitutable products" within the meaning of Article III:2 of GATT 1994, second sentence. However, this approach calls for further analysis. 5.27 Recognizing the relevancy of competitiveness and substitutability to product likeness under Article III:4 of GATT 1994, China notes that the Appellate Body in EC � Asbestos had further pointed out that "We are not saying that all products which are in some competitive relationship are 'like products' under Article III:4." Furthermore, the Appellate Body concluded that the scope of "like" in GATT Article III:4 is broader than the scope of "like" in GATT Article III:2 first sentence, but not broader than the combined product scope of two sentences of Article III:2, i.e. both "like product" and the "directly competitive and substitutable" products.150 5.28 In addition, while acknowledging the four elements criteria as "a framework for analysing the 'likeness' of products on a case-by-case basis", the Appellate Body has emphasized that:
5.29 In view of the different language of GATT Articles III:2 and GATT Article III:4, and the reluctance of the Appellate Body to equate the product scope of GATT Article III:4 with that of GATT Article III:2, second sentence, China believes that the scope of "like products" in the meaning of Article III:4 should not be taken as identical to "direct competitive and substitutable" within the meaning GATT Article III:2, second sentence. Otherwise, the drafters of GATT1994 and/or the Appellate Body would have specified in that regard, and therefore it deserves a separate and full-length analysis in an assertion of likeness of products. 5.30 Subject to further analysis of application of the four elements criteria by the United States in this case, China expects that the panel will evaluate all factors pertinent to this case in determining the likeness of products under Article III:4 in this case.
5.31 In its defence, Mexico has stated that it considers that the dispute before the Panel has its roots in a wider dispute with the United States in the context of NAFTA. For this reason, Mexico has requested the Panel to issue a preliminary ruling by which the Panel should decline to exercise its jurisdiction. 5.32 In its defence, Mexico has recognised that the Panel does have prima facie jurisdiction to hear the case brought by the United States. However, Mexico also submits that the Panel has competence to decline to exercise its jurisdiction. In support of this view, Mexico refers in particular to the possibility for WTO panels to exercise "judicial economy". Mexico further submits that the United States case is part of a larger dispute under NAFTA, and that addressing the United States claims under the GATT would therefore not secure a positive solution to the dispute. 5.33 Article 11 of the DSU describes the function of panels as requiring the Panel to make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and to make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. This function is also reflected in the standard terms of reference provided for in Article 7 (1) of the DSU. 5.34 In the present case, the United States claims are based on Article III of the GATT 1994, i.e. a provision of a covered agreement. There is no doubt, and Mexico does not contest, that the Panel therefore has jurisdiction to examine the United States claims under this provision, and to make findings to assist the DSB in making appropriate recommendations. 5.35 The EC does not agree, however, that the Panel could decline to exercise this jurisdiction on the basis of the notion of "judicial economy". In accordance with the jurisprudence of the Appellate Body, the notion of judicial economy enables a Panel to omit making a finding on a specific claim, when such a finding is not necessary for resolving the dispute under the covered agreements, for instance because the measure has already been found to be in violation of another provision of the covered agreements. In contrast, the notion of judicial economy does not entitle a panel to abstain completely from making findings in a dispute properly before it. 5.36 In support of its view, Mexico has referred to the GATT Panel Report in US � Nicaraguan Trade . However, in this case, which predates the entry into force of the WTO Agreement, the Panel's terms of reference specifically excluded consideration of the United States' defence under Article XXI(b)(iii) of the GATT 1994. Accordingly, this report cannot serve as precedent for the present Panel, which has standard terms of reference in accordance with Article 7 (1) of the DSU. 5.37 The European Communities would like to add that it is not unusual that the same dispute might arise, fully or partially, under the WTO and under international agreements outside the WTO. This should not necessarily prevent a WTO panel from resolving a dispute properly brought before it. A recent example in point would be Argentina � Poultry Anti-Dumping Duties, in which the Panel considered the dispute despite the fact that the same measures had previously been the subject of dispute settlement under Mercosur. 5.38 The EC takes note that Mexico has also complained that the United States has not agreed to submit the broader dispute to dispute settlement under NAFTA. The EC is not in a position to comment on the dispute settlement procedures under NAFTA. However, the absence of recourse to dispute settlement under NAFTA cannot justify an exercise of "judicial economy" on the part of a WTO panel. Whether the attitude of the United States might be legally relevant in other regards under the WTO agreements, for instance from the point of view of good faith or estoppel, need not be further examined here, since Mexico has not so far raised this question.
5.39 The EC is not in a position to comment on Mexico's dispute with the United States under NAFTA. However, since Mexico has evoked the NAFTA context in the present dispute, the EC considers it appropriate to offer some preliminary remarks regarding the relationship between the WTO Agreements and other international agreements. 5.40 In accordance with Articles 7(1) and 11 of the DSU, the function of the Panel is to make findings in the light of the provisions of the covered agreements. However, this does not mean that the Panel cannot take into account other provisions of international law, when such provisions are relevant to the dispute before it. In fact, the Appellate Body has confirmed that the WTO Agreements are not to be read in "clinical isolation" from public international law. In the view of the EC, it is therefore not excluded that applicable rules of international law may also include bilateral or multilateral agreements between the parties, when such rules are relevant for the decision of a dispute before a panel. 5.41 In the present case, Mexico has so far not invoked any specific provision of NAFTA or general rules of public international law in its defence against the claims of the United States. The Panel may therefore not need to address the complex question of the relationship between the WTO agreements and other bilateral or multilateral agreements. However, should this issue arise, the EC submits that the Panel should approach it bearing in mind the fundamental importance of this question and taking into account the considerations set out above.
5.42 As regards the United States claim under the first sentence of Article III:2 GATT, the United States has explained in considerable detail that beverages sweetened with HFCS and beverages sweetened with cane sugar are like products. The EC shares this analysis of the United States. The EC would like to add, however, that this applies not only in the comparison of beverages sweetened with HFCS and cane sugar. For instance, it is clear that beverages sweetened with other types of sugar, and notably with beet sugar as the main type of sugar produced in the EC, would equally have to be considered to be "like" beverages sweetened with cane sugar. 5.43 As regards the question whether the Mexican measure involves taxation of imported beverages in excess of domestic beverages, the United States analysis appears to be based on a comparison between beverages sweetened with HFCS and beverages sweetened with cane sugar. The understanding therefore seems to be that all beverages sweetened with cane sugar, whether domestic or imported, are exempted from the Mexican tax measure. However, in the factual part of the United States submission, the United States has interpreted the Mexican measure to impose the tax on imported beverages sweetened with any sweetener, including beverages sweetened with cane sugar. If this interpretation, on which Mexico has not so far commented, were correct, then at least as far as beverages sweetened with cane sugar are concerned, the Mexican measure would clearly constitute taxation of imported beverages in excess of domestic beverages, i.e. de jure discrimination against imports. 5.44 In contrast, the situation may be somewhat different in so far as the United States challenges the Mexican taxation of imports of HFCS-sweetened beverages. The United States submits that whereas virtually all beverages produced in the United States are sweetened with HFCS, all beverages regular soft drinks and syrups produced in Mexico are sweetened with cane sugar. Whereas this may be true at present, this statement was not true at the time the Mexican measure was adopted. In fact, the United States itself submits that before the imposition of the Mexican tax measure, Mexican soft drink producers had begun to switch over to use of HFCS, and that accordingly a sizeable proportion of soft drinks produced in Mexico was sweetened with HFCS. 5.45 It still appears that at the time the Mexican measure was adopted, a significant proportion of beverages produced in Mexico were sweetened with cane sugar, whereas virtually all beverages produced in the United States were sweetened with HFCS. To this extent, it may be justified to consider that the Mexican measure overall involved taxation of imported products in excess of domestic products. Moreover, it can be argued that by maintaining the tax measure in a situation where virtually all beverages produced in Mexico are sweetened with cane sugar, whereas imported beverages are sweetened with other sweeteners, Mexico effectively also taxes imported products in excess of domestic products. 5.46 In response to the United States claim under the second sentence of Article III:2 of the GATT 1994, given in particular the introductory language of the Ad note to Article III:2 of the GATT 1994, it might be questioned whether a measure which is incompatible with the first sentence of Article III:2 of the GATT 1994 can also be incompatible with the second sentence thereof. In any event, should the Panel find that the Mexican treatment of imported beverages is incompatible with the first sentence of Article III:2 GATT, it may no longer need to address the United States claim under the second sentence. 5.47 As regards discriminatory taxation of HFCS and other sweeteners, the second sentence of Article III:2 of the GATT 1994 provides that no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. The Ad note to Article III:2 provides further that a "tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product, and, on the other hand, a directly competitive or substitutable product which was not similarly taxed". 5.48 In its submission, the United States has discussed whether HFCS and cane sugar can be regarded as directly competitive or substitutable products. In this respect, the EC would remark that there are certain differences between HFCS and cane sugar as regards end-uses and consumer preferences. In particular, HFCS is exclusively used in industrial production of beverages and possibly other products. In contrast, cane sugar is also used in households for a variety of purposes, which is not the case for HFCS. This notwithstanding, the EC would agree that there is a considerable overlap in end-uses and preferences between HFCS and cane sugar. For this reason, the EC can agree with the United States submission that HFCS and cane sugar are directly competitive or substitutable products at least to the extent that use for the sweetening of beverages is concerned. 5.49 Furthermore, it follows from the United States submission that HFCS is largely imported from the United States, whereas cane sugar is largely a domestic and not an imported product in Mexico. Accordingly, it can be considered that the Mexican measure involves taxation of imported products in excess of domestic products.
5.50 The EC cannot comment on Mexico's claim against the United States under NAFTA. However, the EC considers that Mexico's defence under Article XX(d) of the GATT 1994 in the present case raises serious systemic issues and therefore warrants several remarks. 5.51 First, Article XX(d) justifies only measures necessary to secure compliance with "laws or regulations". Such laws or regulations must be laws or regulations applicable in the internal legal order of the WTO Member in question. At a general level, the European Communities would not exclude that an international agreement concluded by a WTO Member might also constitute a "law or regulation" within the meaning of Article XX(d) of the GATT 1994, provided that the agreement is directly applicable in the internal legal order of such member, and is therefore capable of being directly enforced on individuals. However, Mexico has not provided any information on the status of NAFTA in its internal legal order. More importantly still, it appears that the provisions invoked by Mexico impose obligations primarily on the United States, and are therefore not capable of being enforced in the legal order of Mexico. 5.52 Secondly, the measure must be necessary to "secure compliance" with the law or regulation. As just set out, this compliance must be secured within the legal order of the Member in question. The object and purpose of measures under Article XX(d) of the GATT 1994 is not to secure compliance with the obligations incumbent on other WTO Members under public international law. This is also apparent from the examples listed in Article XX(d) of the GATT 1994, which include customs enforcement, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices. 5.53 Third, the EC notes that the Mexican measure does not only apply to beverages sweetened with HFCS imported from the United States, but would also apply to, for instance, beverages sweetened with beet sugar imported from any other WTO Member, including the EC. It is clear, that this could not be justified as securing compliance with obligations under NAFTA. 5.54 At a systemic level, Mexico's interpretation would transform Article XX(d) of the GATT 1994 into an authorisation of counter-measures within the meaning of public international law. It must be assumed, however, that if the contracting parties had intended such an interpretation, they would have expressed this in a clearer way. Moreover, under customary international law, as codified in the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts, counter-measures are subject to strict substantive and procedural conditions, which are not contained in Article XX(d) of the GATT 1994. 5.55 The EC notes that Mexico has not so far justified its measure as a counter-measure under customary international law. Such a justification would already meet the objection that the Mexican measure does not only apply to products from the United States, but from anywhere. In any event, should Mexico still attempt such a justification, then this would also raise the difficult question of whether the concept of counter-measures is available to justify the violation of WTO obligations. In accordance with Article 50 of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts, this would not be the case if the WTO agreements are to be considered as a lex specialis precluding the taking of counter-measures. This complex question has been addressed in the report of the International Law Commission at its fifty-third session.
5.56 Guatemala is grateful for the opportunity to participate in this meeting and to express its views. It is participating in this dispute because it has a trade interest and a systemic interest in matter at issue. 5.57 Guatemala's trade interest in this dispute is as outlined below. 5.58 In spite of the various distortions and problems connected with access to international markets, Guatemala has an efficient and productive sugar sector. Indeed, Guatemala ranks seventh among the world's leading sugar exporters; its production costs are among the lowest, and its output per hectare among the highest. 5.59 Sugar production in Guatemala is not only an important source of subsistence in the rural areas, but it provides benefits and elementary social assistance152 to the population of Guatemala, including education and health programmes developed and promoted by sugar producers. 5.60 Thus, given the characteristics of the Mexican sugar industry153, Guatemala understands the decisive role played by that industry in Mexico's development. 5.61 In view of the above, Guatemala thinks that the Panel should heed Mexico's call154 to consider, in the course of its deliberations, the importance of the sugar industry in Mexico, and the implications for the country of reforms to that sector. 5.62 As regards Guatemala's systemic interest in this dispute, there are two specific elements to be mentioned. 5.63 The first is to ensure that the WTO agreements, in particular the Dispute Settlement Understanding and Articles III and XX of the GATT, are properly interpreted. 5.64 It is in this context that Guatemala would like to express its views regarding the Government of Mexico's request that the Panel decline to exercise its jurisdiction.155 5.65 Guatemala considers that the dispute settlement system serves to preserve the rights and obligations of Members under the covered agreements.156 5.66 In this dispute, the United States considered Mexico's tax measures to be inconsistent with its obligations under Article III of the GATT 1994, and therefore requested the Dispute Settlement Body to establish a panel pursuant to Article 6 of the DSU to examine the matter, with the standard terms of reference as set out in Article 7.1 of the DSU.157 5.67 In Guatemala's view, the Panel's task is to examine the complaint brought by the United States with respect to the violation of a covered agreement in order to preserve the rights of that Member under that agreement. 5.68 Moreover, according to Article 7 of the DSU, the terms of reference and jurisdiction of a panel are determined by the complaint brought by the complaining party, which must satisfy the requirements laid down in Article 6 of the DSU. 5.69 On that basis, Guatemala considers that the Panel has the jurisdiction to examine the matter at issue. However, as confirmed by the Appellate Body158 and pursuant to Article 6.1 of the DSU, the establishment of a panel by the DSB is practically automatic, and as the DSB does not scrutinize requests for the establishment of a panel in detail, it is incumbent upon the Panel to examine the request carefully to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU. 5.70 The second element of systemic interest to Guatemala is the importance of regional trade agreements for the multilateral trading system. 5.71 The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico has been the main source of inspiration or the model for other WTO Members in negotiating free trade agreements. 5.72 NAFTA is a framework of model regulations for the expansion of free and fair trade among its members. This fact should be stressed in order to remind the parties to the present dispute of the importance of NAFTA in the context of international trade. 5.73 Furthermore, NAFTA also comprises various mechanisms for settling trade disputes between its members. 5.74 In its first written submission, Mexico sets forth a number of circumstances relating to NAFTA obligations. Guatemala is not in a position to pass judgement in that respect, nor will it take a stance as to whether or not there has been any kind of violation of NAFTA rules. However, Guatemala would like to mention two basic points that are of its interest. 5.75 Firstly, Guatemala considers the WTO dispute settlement mechanism to be a system that brings legal certainty to trade relations between Members, and hence, there is nothing to prevent a party from resorting to the system in relation to matters covered by the WTO agreements. However, it is preferable for members of an agreement to seek practical solutions that help to strengthen free trade within the dispute settlement mechanism provided for under that agreement. 5.76 Secondly, free trade agreements like NAFTA must be seen as milestones in the process of liberalizing multilateral trade. Free trade agreements are not at variance with the multilateral trading system � on the contrary, they are complementary. 5.77 Thus, it is impermissible to impede the exercise rights or to try to evade obligations under one of these forums by resorting to the other. Moreover, a violation of a rule under a free trade agreement cannot in itself be "isolated" or "exempt" from repercussions in the multilateral trading system; consequently, it is equally impermissible for Members to adopt unilateral measures to try to correct the situation. Such measures are a threat to the multilateral trading system. 5.78 Finally, Guatemala considers that, to the extent that these free trade agreements fit together to form the "multilateral system", Members should try to ensure that the commitments assumed thereunder are not merely rhetorical and that any conflicts or disputes arising from those agreements are settled by consensus.
5.79 The United States claims that provisions which tax imported soft drinks and other beverages (hereinafter collectively "soft drinks") as well as imported syrups, concentrates, powders, essences and extracts that can be diluted to produce such beverages (hereinafter collectively "syrups") and the agency, representation, brokerage, consignment and distribution (hereinafter collectively "distribution") of soft drinks and syrups sweetened with HFCS pursuant to IEPS, are inconsistent with Article III:2, first sentence. 5.80 As confirmed by the Appellate Body in Japan � Alcoholic Beverages II, a tax measure is inconsistent with the first sentence of Article III:2 when: (i) the taxed imported and domestic products are "like," and (ii) the taxes applied to the imported products are "in excess of" those applied to like domestic products.159 As regards the "in excess of" requirement, past panels have established that "[e]ven the smallest amount of 'excess' is too much"160 and the prohibition thereof is "not conditional on a 'trade effects test' nor is it qualified by a de minimis standard."161 In the present case, it is relatively straightforward that the second requirement of "in excess of" will be met, since imported soft drinks and syrups as well as the distribution of soft drinks and syrups using HFCS are taxed an additional 20 per cent as opposed to products using cane sugar or the distribution thereof. Accordingly, the determination of "like products" becomes crucial in finding whether there is a violation of the first sentence of Article III:2 in the present case. 5.81 Japan would like to address one preliminary point before going into the issue of determining what "like products" under the first sentence of Article III:2 are. In its first written submission, the United States compares soft drinks and syrups sweetened with HFCS and those sweetened with cane sugar to be "like products".162 However, the IEPS on its face does not discriminate against imports of soft drinks and syrups sweetened with HFCS, as those produced domestically are also subject to the same taxation as imports, and an issue of whether such comparison is appropriate arises. The first sentence of Article III:2 settles this issue by stipulating that such an origin neutral measure can also be challenged under Article III:2. The first sentence of Article III:2 clearly stipulates that the comparison to be made is between internal taxes on 'imported products and � those applied to like domestic products.'"163 In other words, the point of contention in a case regarding the first sentence of Article III:2 is whether imported products are similar enough to be considered "like" domestic products that are accorded more favourable treatment. If this is established, it is irrelevant whether an imported product and an identical domestic product of the particular import are treated equally under the tax measure.164 Therefore, the point of contention the United States has raised is appropriate. 5.82 As to the interpretation of "like products" under the first sentence of Article III:2, there is no treaty-mandated definition of how this shall be determined or a closed list of criteria.165 The Appellate Body in Japan � Alcoholic Beverages II confirmed the "practice under the GATT 1947 of determining whether imported and domestic products are 'like' on a case-by-case basis," following the approach the Working Party Report on Border Tax Adjustments had taken to set out a case-by-case interpretation of what "like products" shall mean within different provisions of the GATT 1947.166 167 5.83 In interpreting the scope of "like products" under the first sentence of Article III:2 in a case-by-case manner, previous panel and appellate body reports have employed a list of criteria, of which commonly employed criteria are: (i) the product's properties, nature and quality, (ii) product's end-uses in a given market, (iii) consumer's tastes and habits and (iv) tariff classification.168 5.84 As a corollary of the fact that the products compared in likeness in each individual case are different and therefore necessitate a case-by-case analysis, it is also apparent that when applying a set of criteria to determine "likeness," the weight put on each criterion should be adjusted to accommodate the characteristics of the products concerned in individual cases. In other words, one criterion may be more decisive than others in a particular case, and the decisive criterion may differ from case to case.169 5.85 The analysis of the correct application of the above criteria is mainly factual. Therefore, Japan, at this juncture, will confine its comments on the following points. 5.86 Firstly, in light of the fact that the products concerned in the case at hand are soft drinks and syrups, which are articles of taste to be provided to consumers, and the similarity between such products with alcoholic beverages contemplated in Japan � Alcoholic Beverages II in the sense that both are beverages (or extracts which can be diluted into beverages) for mass consumption, Japan is of the view that the four criteria above are helpful in determining whether the products concerned are "like products." Therefore it is appropriate to apply these criteria as the United States has pointed out in its submission. 5.87 Furthermore, due to the similarities between such products concerned in Japan � Alcoholic Beverages II and those in the case at hand, it should be of reference that in Japan � Alcoholic Beverages II, the likeness between shochu and vodka was determined based on the similarities in physical characteristics and end-uses of products, stating that both are "white/clean spirits, made of similar raw materials, and the end-uses were virtually identical." The Panel on Japan � Alcoholic Beverages II also noted that shochu and vodka were classified in the same heading under Japan's tax classification at the time, and were covered by the same Japanese tariff binding at the time of its negotiation.170 5.88 Secondly, with regard to the criterion of consumer's tastes and habits, in the present case, the consumers of soft drinks and syrups are individuals in Mexico. Accordingly, the relevant evidence would be results of consumer surveys conducted on consumers in Mexico. However, the current consumer perception may not be available due to the imposition of the tax measure, which has the effects of restricting the production and importation of soft drinks and syrups sweetened by HFCS. In this respect, the statement made by the Panel in Japan � Alcoholic Beverages II should be recalled:
5.89 Thirdly, the United States, in its submission, has referred to the Mexican tariff schedule.172 It should be noted that in order to apply the criterion of tariff classification, consideration should be given on whether the particular tariff classification is not too broad to be used for such comparison.173
5.90 The United States alleges that taxes pursuant to IEPS is inconsistent with the second sentence of Article III:2 of the GATT as taxes applied on imported HFCS, imported soft drinks and syrups, and the agency, representation, brokerage, consignment and distribution of soft drinks and syrups sweetened with HFCS. 5.91 As provided in the second sentence of Article III:2 and confirmed by the Appellate Body report in Japan � Alcoholic Beverages II174, whether a tax measure is inconsistent with the second sentence of Article III:2 is determined by three separate elements: (i) whether the products concerned are directly competitive or substitutable, (ii) whether the directly competitive products are "not similarly taxed"; and (iii) whether the dissimilar taxation is applied "so as to afford protection to domestic production." 5.92 With regard to the first element above, Japan agrees with the United States that, in assessing the competitive relationship between products, the criteria should be determined on a "case-by-case" basis in light of the relevant facts in the case.175 Examples of specific criteria employed to determine whether products are "directly competitive or substitutable" are: physical characteristics, the channels of distribution, the end-uses of the products, price relationship (including cross-price elasticities) among other relevant characteristics176, which should be considered in view of the relevant "market place."177 5.93 The United States, in its submission, refers to the results of the SECOFI anti-dumping investigation of HFCS published on 23 January 1998 as Mexico's determination that cane sugar and HFCS share the same essential physical characteristics.178 Japan is concerned, however, whether the likeness issue in an anti-dumping case could be equated with the issue of direct competitiveness under Article III:2.179 5.94 With regard to the second element, "the amount of differential taxation must be more than de minimis to be deemed 'not similarly taxed' in any given case".180 Although "whether any particular differential amount of taxation is de minimis or is not � must � be determined on a case-by-case basis181," in the present case, it appears relatively clear that an additional tax of 20 per cent in question is beyond de minimis. 5.95 With regard to the third element, whether a tax measure is applied "so as to afford protection" to domestic products is determined through the "design, architecture and structure" of the measure, and is not an issue of intent182, as the United States has rightly claimed. Thus, an examination of the stated objectives of the particular tax measure is irrelevant in determining any inconsistency with the second sentence of Article III:2 as a general rule. However, neither the complainant nor the panel is prevented from examining the relevancy between the features of a measure revealed by the "design, architecture and structure" and the stated objective of such a measure. In Chile - Alcoholic Beverages, the Appellate Body confirmed that a panel can "try to relate the observable structural features of the measure with its declared purposes, a task that is unavoidable in appraising the application of the measure as protective or not of domestic production."183 To this extent, the United States' reference to the Mexican objectives of the tax measure could be relevant.184 VI. INTERIM REVIEW 6.1 The Panel issued its interim report to the parties on 27 June 2005. On 11 July 2005, the United States and Mexico submitted written comments and requested the Panel to review precise aspects of the interim report. On 25 July 2005, the United States and Mexico submitted written comments on each other's comments and requests for interim review. 6.2 The Panel has modified its report, where appropriate, in light of the parties' comments and requests, as explained below. The Panel has also made certain revisions and technical corrections for the purposes of clarity and accuracy. References to paragraph numbers and footnotes in Section VI of this report refer to those in the interim report, except as otherwise noted.
6.3 The United States suggests certain changes to correct clerical errors contained in the different sections of the interim report, and to further clarify the report. The Panel has taken account of the United States' suggestions and modified most of the indicated paragraphs. The Panel has also made some additional clerical and editorial changes throughout the report. It has also corrected the numbers of paragraphs from the English and Spanish versions of the interim report issued to the parties. 6.4 Mexico notes that its comments on the United States' responses to questions posed by the Panel after the second substantive meeting had not been included in Annex C of the interim report. The Panel has amended this omission for the final report.
6.5 The Unites States requests the Panel to modify the interim report's language in certain paragraphs in order to better reflect the facts demonstrated by evidence submitted by the parties. The United States also suggests that some cross-references and citation of evidence be added to the text of the Report. The Panel has modified the language of the report and added the references as requested, as well as other references not indicated by the United States.
6.6 The United States suggests modifications in certain paragraphs of the interim report, relating to Mexico's arguments. The Panel has decided to keep the relevant text as it had been originally presented by Mexico.
6.7 Mexico requests the Panel to amend paragraph 7.15 of the interim report, in order to clarify that the Panel's findings, conclusions and recommendations in the report only relate to Mexico's rights and obligations under the WTO Agreements, and not to Mexico's rights and obligations under other international agreements or other obligations under international law. Mexico also requests the Panel to delete paragraph 7.16, since in its opinion its measures would be justified under the NAFTA if the dispute were to be submitted in its entirety to dispute settlement under the mechanism established by this agreement. 6.8 The Panel has modified paragraph 7.15 of the interim report, as requested by Mexico, and modified paragraph 7.16 in order to clarify its meaning. The Panel has also made other minor changes.
6.9 The parties request a number of modifications and minor corrections in the text of the report. Such requests have been duly considered and adopted, where appropriate, by the Panel. Some suggestions, however, have not been accepted as they would have improperly altered the substance of the findings, as noted below. 6.10 The United States requests the deletion of paragraphs 8.54, 8.115 and 8.153 of the interim report, since in its opinion they did not adequately reflect the United States arguments on the different treatment received by domestic and imported products as a result of the application of the soft drink tax, the distribution tax and the bookkeeping requirements. The Panel rejects the request to delete the paragraphs. However, in the light of the United States request, the Panel clarified their language. The Panel's reasoning is in fact based on the United States argument, supported by factual evidence, that most imports are being discriminated against. 6.11 Mexico disagrees with the description made by the Panel in paragraph 8.162, in fine, of the interim report.185 Mexico considers that the paragraph wrongfully suggested that Mexico's position was that certain rules of international law were irrelevant for the purpose of interpreting Article XX of the GATT 1994. Mexico states that the Panel could resort to rules of international law other than the WTO Agreements to evaluate whether its measures were justified as measures necessary to secure compliance by the United States with the NAFTA. Mexico further states that its position throughout the dispute was that such measures were justified under international law. Mexico wishes to note these points for the record, but requests no specific action from the Panel. 6.12 The United States requests the revision of paragraphs 8.184 and 8.185 of the interim report. In its opinion, the Panel's analysis should focus on whether Mexico has met the burden of proof of its affirmative defence (which it has not, in the view of the United States) and not on what it means to enforce or to secure compliance. The United States suggests that the Panel consider the contribution that the measures at issue have made to securing compliance on the part of the United States, rather than focus on whether the outcome of such measures is "certain" or "uncertain". Mexico expressed its strong objection to the United States' request, and asked the Panel to reject it. Although it expresses its disagreement with the Panel's conclusions, Mexico is of the view that paragraphs 8.184 to 8.187 of the interim report need to be maintained, being germane to the Panel's finding that Mexico failed to demonstrate that the impugned measures were intended to secure compliance with laws or regulations that are not inconsistent with the GATT 1994. The Panel has retained the concerned paragraphs, although it has introduced changes in order to clarify their meaning. The Panel notes that its reasoning does not focus on whether the achievement of Mexico's objective through the measures at issue is certain or uncertain. Rather, the Panel considers that international countermeasures (as the ones allegedly imposed by Mexico) are intrinsically unable to secure compliance of laws and regulations. In contrast, national measures are, beyond particular factual considerations, usually in a position to achieve to achieve that objective, through the use of coercion, if necessary. 6.13 The United States raises an additional argument in support of the Panel's finding in paragraphs 8.184 and 8.185 of the interim report that Mexico's tax measures do not qualify under Article XX(d) of the GATT 1994, namely that the parties to the NAFTA (including Mexico) agreed on the mechanism necessary to resolve any dispute concerning compliance with that agreement. The argument has not been raised in the course of the dispute, until the interim review stage. Moreover, the United States has not requested consideration of such an argument in the final report. 6.14 The United States questions the use of the Appellate Body Report on US � Gambling in support of the Panel's conclusion that "the uncertain outcome of international countermeasures is a reason for disqualifying them as measures eligible for consideration under Art. XX(d)" in paragraphs 8.186 and 8.187 of the interim report. The United States argues that the referred case was not considering the necessity of a measure "to secure compliance with a law or regulation", but rather for the protection of public morals or the maintenance of public order. The United States adds that the Appellate Body did not say that a measure with uncertain results could never qualify as a reasonably available alternative, but rather it concluded, on the basis of the facts presented in that case, that a process of negotiation about regulation of a service was not an alternative "capable of comparison" to a measure restricting the service. The Panel agrees with the United States on the different context of the US � Gambling findings and those of the present case, but it considers that the reference is worthy of being kept as confirmation of the view that the uncertain outcome of international countermeasures is a reason for disqualifying them as measures eligible for consideration under Article XX(d). 6.15 With relation to paragraph 8.192 of the interim report, the United States requests the Panel to consider some of its arguments related to the meaning of the word "law", such as a definition of the term "laws" previously recalled in its submissions, the importance of the use of the word "laws" in plural in Article XX(d) of the GATT 1994 and the different translation into French and Spanish of the word "law", as used in Article XX(d) and in Article 3.2 of the DSU. Mexico did not oppose this request. The Panel has included the appropriate references to the definition presented by the United States and its other arguments related to the ordinary meaning of the word "law", which were considered in the course of the proceedings. 6.16 Finally, the United States requests the deletion of paragraph 8.234 of the interim report, which referred to Mexico's allegations that questioned whether the United States had acted in good faith in the course of the proceedings. Mexico expressly states that it does not object to deleting such paragraph. The Panel has accepted the request. VII. PRELIMINARY RULING
7.1 On 18 January 2005, the Panel issued a preliminary ruling, rejecting Mexico's request for the Panel to decline to exercise its jurisdiction in the case in favour of an Arbitral Panel under Chapter Twenty of the North American Free Trade Agreement (NAFTA).186 The Panel concluded that, under the DSU, it had no discretion to decide whether or not to exercise its jurisdiction in a case properly before it. Furthermore, even if it had such discretion, the Panel did not consider that there were facts on record that would justify the Panel declining to exercise its jurisdiction in the present case. The Panel informed the parties that it would provide them with a detailed reasoning for that ruling in its final report. 7.2 In order to issue its preliminary ruling, the Panel considered Mexico's request as well as the arguments presented by the United States, the complaining party in the case, and by the third parties. Nothing in the DSU, or in the Panel's working procedures, required the Panel to address Mexico's request in a preliminary ruling. Instead, the Panel could have waited to rule on the request until its final report. It was the Panel's opinion, however, that both the parties and the panel proceeding were better served by an early ruling on the request. Had it been appropriate for the Panel to decline to exercise its jurisdiction, an early decision to this effect would have saved time and resources. On the other hand, if the Panel � as in the event it did � rejected Mexico's request, an early decision would allow the parties to concentrate on the other aspects of the dispute. 7.3 In view of the above, the Panel issued a preliminary ruling rejecting Mexico's request that it decline to exercise its jurisdiction in the case.
7.4 Both parties agreed that the Panel had jurisdiction to hear the United States' claims in the present case.187 The Panel's jurisdiction in this case was thus not challenged by either of the parties. In light of the above, the Panel was satisfied that it had proper jurisdiction in this case and therefore the authority to consider and make rulings and recommendations on the matters raised by the parties.
7.5 In considering Mexico's request, the Panel first addressed whether it had the discretion to decline to exercise its jurisdiction to hear and decide a case properly brought before it. 7.6 The Panel recalled that Article 11 of the DSU states that:
7.7 In the context of Mexico's request, the term "discretion" would imply that the Panel has the power to decide whether or not to act. Indeed, discretion may be said to exist only if a legal body has the freedom to choose among several options, all of them equally permissible in law. It seems that such freedom for a panel would exist within the framework of the DSU only if a complainant did not have a legal right to have a panel decide a case properly before it. 7.8 As the Appellate Body has stated, the aim of the WTO dispute settlement system is to resolve the matter at issue in particular cases and to secure a positive solution to disputes.188 A panel has thus to address the claims on which a finding is necessary to enable the DSB to make sufficiently precise recommendations or rulings to the parties. A panel would seem therefore not to be in a position to choose freely whether or not to exercise its jurisdiction. Were a panel to choose not to exercise its jurisdiction in a particular case, it would be failing to perform its duties. More specifically, the panel would be failing to perform its duty to make "an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and to make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements...". 7.9 Moreover, the Panel recalled that, under Articles 3.2 and 19.2 of the DSU, a panel may not add to or diminish the rights and obligations of WTO Members provided in the covered agreements. If a WTO panel were to decide not to exercise its jurisdiction in a particular case, it would diminish the rights of the complaining Member under the DSU and other WTO covered agreements. In this regard, the Panel also recalled Article 23 of the DSU, which provides that Members of the WTO "shall" have recourse to, and abide by, the rules and procedures of the DSU when they seek the redress of a violation of obligations or other nullification or impairment of benefits under the WTO covered agreements. In the Panel's view, the terms of Article 23 of the DSU make it clear that a WTO Member that considers that any of its WTO benefits have been nullified or impaired as a result of a measure adopted by another Member has the right to bring the case before the WTO dispute settlement system. 7.10 That being said, the Panel would point out that it makes no findings about whether there may be other cases where a panel's jurisdiction might be legally constrained, notwithstanding its approved terms of reference. In any event, such a situation would be distinguishable from the case before this Panel, where Mexico argued that the Panel legally had the discretion not to exercise its jurisdiction and requested the Panel to apply such discretion. 7.11 Mexico has argued that the United States' claims are linked to a broader dispute between the two countries related to trade in sweeteners under a regional treaty, the NAFTA.189 In Mexico's opinion, under those circumstances, it would not be appropriate for the Panel to issue findings on the merits of the United States' claims.190 In this regard, Mexico emphasized that its request to the Panel was not so much that the Panel decline to exercise its jurisdiction, but rather that it decline to exercise it "in favour of a NAFTA Chapter Twenty Arbitral Panel". In Mexico's opinion, only such a panel under the NAFTA would be in a position to "address the dispute as a whole".191 7.12 According to the information supplied by Mexico, there is a differing interpretation between Mexico and the United States regarding the conditions provided under the NAFTA for access of Mexican sugar to the United States' market.192 The United States has acknowledged that there is such a difference which has resulted in a dispute under the NAFTA that "is presently in the panelist selection stage".193 7.13 However, Mexico did not argue, nor is there any evidence on record to indicate, that there are legal obligations under the NAFTA or any other international agreement to which Mexico and the United States are both parties, which might raise legal impediments to the Panel hearing this case or to the United States bringing its complaint to the WTO. Indeed, when specifically questioned on this point by the Panel, Mexico responded that there was nothing in the NAFTA that would prevent the United States from bringing the present case to the WTO dispute settlement system.194 Mexico further added that it did not challenge the United States' right to bring its complaint to the WTO dispute settlement system nor to request the establishment of the Panel.195 7.14 Moreover, neither the subject matter nor the respective positions of the parties are identical in the dispute under the NAFTA which has been mentioned by Mexico and the dispute before us. In the present case, the complaining party is the United States and the measures in dispute are allegedly imposed by Mexico. In the NAFTA case, the situation appears to be the reverse: the complaining party is Mexico and the measures in dispute are allegedly imposed by the United States. As for the subject matter of the claims, in the present case the United States is alleging discriminatory treatment against its products resulting from internal taxes and other internal measures imposed by Mexico. In the NAFTA case, instead, Mexico is arguing that the United States is violating its market access commitments under the NAFTA. 7.15 The Panel was mindful that, under Article 3.10 of the DSU, Members should not link "complaints and counter-complaints in regard to distinct matters". In other words, even conceding that there seems to be an unresolved dispute between Mexico and the United States under the NAFTA, the resolution of the present WTO case cannot be linked to the NAFTA dispute. In turn, any findings made by this Panel, as well as its conclusions and recommendations in the present case, only relate to Mexico's rights and obligations under the WTO covered agreements, and not to its rights and obligations under other international agreements, such as the NAFTA, or other rules of international law. 7.16 The Panel additionally noted that Mexico has not argued that its challenged tax measures have been mandated or authorized under the rules of the NAFTA.196 7.17 Even assuming, for the sake of argument, that a panel might be entitled in some circumstances to find that a dispute would more appropriately be pursued before another tribunal, this Panel believes that the factors to be taken into account should be those that relate to the particular dispute. We understand Mexico's argument to be that the United States' claims in the present case should be pursued under the NAFTA, not because that would lead to a better treatment of this particular claim, but because it would allow Mexico to pursue another, albeit related, claim against the United States. The Panel fears that if such a matter were to be considered then there would be no practical limit to the factors which could legitimately be taken into account, and the decision to exercise jurisdiction would become political rather than legal in nature.
7.18 For the reasons indicated above, the Panel decided to reject Mexico's request for the Panel to decline to exercise its jurisdiction in the case in favour of an Arbitral Panel under Chapter Twenty of the North American Free Trade Agreement (NAFTA). The Panel concluded that, under the DSU, it has no discretion to decide whether or not to exercise its jurisdiction in a case properly before it. Furthermore, even if it had such discretion, the Panel did not consider that there were facts on the record that would justify the Panel declining to exercise its jurisdiction in the present case. VIII. FINDINGS
8.1 The United States' claims concern three measures adopted by Mexico, namely: a "soft drink tax", a "distribution tax" and a number of "bookkeeping requirements". The "soft drink tax" is a 20 per cent ad valorem tax on the transfer or, as applicable, the importation of certain soft drinks and syrups. The "distribution tax" is a 20 per cent tax on the provision of specific services (commission, mediation, agency, representation, brokerage, consignment and distribution), when these services are provided for transferring certain soft drinks and syrups. Finally, the "bookkeeping requirements" are a number of requirements imposed on taxpayers subject to the "soft drink tax" and to the "distribution tax". 8.2 The United States has submitted claims regarding the treatment that Mexico accords both to imports of soft drinks and syrups and to imports of non-cane sugar sweeteners, such as beet sugar and HFCS. The United States emphasizes that although the measures at issue are imposed by Mexico on soft drinks and syrups, this is a dispute which fundamentally concerns the treatment accorded to sweeteners.197 8.3 Mexico does not contest that this is mainly a dispute about the treatment of sweeteners, rather than about the treatment of soft drinks and syrups. Mexico agrees with the United States that, although the measures at issue are taxes that apply to soft drinks and syrups, these measures were imposed to "stop the displacement of domestic cane sugar by imported HFCS and soft drinks and syrups sweetened with HFCS". Mexico contends, however, that the dispute concerns, not just the treatment of imported sweeteners in Mexico, but is part of a broader dispute with the United States concerning the bilateral trade in sweeteners under a regional trade agreement, the NAFTA.198 8.4 Accordingly, the Panel will first examine the United States' claims regarding the treatment of imported non-cane sugar sweeteners in Mexico and will then turn to its claims regarding the treatment of imported soft drinks and syrups.
8.5 With respect to the sweeteners, the United States claims that that the soft drink tax and the distribution tax are inconsistent with both Articles III:2 and III:4 of the GATT 1994, whereas the bookkeeping requirements are inconsistent with Article III:4 of the GATT 1994.199
8.6 The United States argues that both the soft drink tax and the distribution tax, as they are applied to beet sugar and to HFCS, are inconsistent with the first sentence and with the second sentence of Article III:2 of the GATT 1994, respectively.200 8.7 The United States contends that beet sugar and cane sugar are "like" products, but that only beet sugar when used as a sweetener for soft drinks and syrups is subject to the soft drink tax and the distribution tax. According to the United States, this results in imported beet sugar being subject to taxes in excess of those applied to like domestic products, and that the taxes are therefore inconsistent with the first sentence of Article III:2 of the GATT 1994.201 8.8 The United States also contends that HFCS and cane sugar are directly competitive or substitutable products and that the soft drink tax and the distribution tax result in imported HFCS being taxed dissimilarly compared to domestic cane sugar in a manner so as to afford protection to Mexican domestic production. According to the United States, the soft drink tax and the distribution tax are therefore inconsistent with the second sentence of Article III:2 of the GATT 1994.202
8.9 The United States further argues that the soft drink tax, the distribution tax and the bookkeeping requirements, as they are applied on HFCS and beet sugar, are inconsistent with Article III:4 of the GATT 1994. 8.10 The United States says that, as sweeteners for soft drinks and syrups, beet sugar, HFCS and cane sugar are "like products" within the meaning of Article III:4 of the GATT 1994. It adds that the Special Tax on Production and Services (Impuesto Especial sobre Producci�n y Servicios, or IEPS)203 affects the use of beet sugar and HFCS, by conditioning access to an advantage (the exemption from the tax) on use of a domestic sweetener (cane sugar). Producers of soft drinks and syrups who use imported beet sugar or HFCS to sweeten their products do not enjoy the same advantage. The IEPS thus accords less favourable treatment to imports than to like Mexican domestic products. The United States concludes that the soft drink tax, the distribution tax and the bookkeeping requirements are inconsistent with Article III:4 of the GATT 1994.204
8.11 As noted above, the United States presents claims in relation to sweeteners under both Articles III:2 and III:4 of the GATT 1994. These claims have not been presented as alternatives. Rather, the United States argues that the IEPS as a tax on non-cane sugar sweeteners may be examined under both paragraphs. In its view, the IEPS is both an "internal tax" on non-cane sugar sweeteners for use in soft drinks and syrups within the meaning of Article III:2 and a "law ... affecting the internal ... use" of non-cane sugar sweeteners within the meaning of Article III:4.205 The United States argues that Article III:2 prohibits dissimilar taxation of imported and domestic products, while Article III:4 prohibits less favourable treatment of imported products as compared to domestic products with respect to laws affecting their internal sale, use, etc. Thus, to the extent the less favourable treatment of the imported product takes the form of dissimilar taxation that affects its internal sale and use, the measure at issue may constitute a breach of both Articles III:2 and III:4 of the GATT 1994.206 8.12 The United States argues that, if there is overlap with respect to Articles III:2 and III:4 in this dispute, it is only "because of the particular tax measures Mexico has chosen to employ to discriminate against [non-cane sugar sweeteners]". In its opinion, "a discriminatory excise tax on a product, which also punishes users of that product for using imported inputs, would fit under both provisions".207 8.13 Mexico responds that, under previous WTO jurisprudence, when a measure, such as in this case, is an internal tax or other internal charge, it should be assessed under Article III:2 of the GATT 1994, and not under Article III:4. Non-fiscal regulations, on the other hand, would be covered by Article III:4.208
8.14 The Panel asked the parties whether a particular order should be followed when dealing with the United States' claims under Articles III:2 and III:4 of the GATT. As noted, in Mexico's opinion, WTO jurisprudence suggests that, if the challenged measure constitutes a tax measure, it should be assessed under Article III:2 of the GATT 1994, whereas a non-fiscal regulation would be covered by Article III:4 of the GATT 1994.209 In turn, the United States does not express any strong preference on the order in which to analyse the claims. However, it suggests that the Panel could employ the same order used by the United States in its submissions, i.e., first Article III:2 and then Article III:4.210 8.15 Accordingly, the Panel will begin its analysis regarding the treatment accorded to sweeteners by Mexico under the challenged measures, by examining whether the soft drink tax and the distribution tax are internal taxes within the meaning of Article III:2. If the measures are internal taxes under Article III:2, the Panel will then continue its analysis on whether the measures are consistent with the requirements of Article III:2.
8.16 The general rule is that the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence.211 Following this principle, the Appellate Body has explained that the complaining party in any given case should establish a prima facie case of inconsistency of a measure with a provision of the WTO covered agreements, before the burden of showing consistency with a provision or defending it under an exceptional provision is taken on by the defending party.212 According to the Appellate Body, a prima facie case is "one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case."213 To establish a prima facie case, the party asserting a particular claim must adduce evidence sufficient to raise a presumption that what is claimed is true. In this regard, precisely how much and precisely what kind of evidence will be required to establish a presumption that a claim is valid will necessarily vary from case to case.214 8.17 In this case, the initial burden of proof rests upon the United States, as a complainant, to establish its prima facie case that the measures at issue are inconsistent with certain provisions of the WTO covered agreements. The burden will then be on Mexico to rebut such a claim. 8.18 In assessing the parties' claims and arguments in this case, the Panel notes that, other than to argue that the measure is not applied "so as to afford protection", Mexico does not respond to the United States' claims on the alleged violations of Article III of the GATT 1994. However, Mexico does not concede to the United States' claims on the alleged violations of Article III, nor does it agree that its tax measures are in violation of Article III. Mexico submits that its decision not to respond to the United States claims does not release the United States from its obligation as a complainant to establish a prima facie case, and that the Panel should make findings only after an examination of whether the conditions required by the different provisions of Article III have been met.215 8.19 In this regard, the United States argues that it should not be an arduous task for the Panel to confirm that it has established a prima facie case of inconsistency in this dispute. According to the United States, it has put forward more than ample evidence and legal arguments in its two submissions, its oral statements and responses to the Panel's questions, and all the uncontested facts that have been presented by the United States should be accepted for purposes of the Panel's factual and legal findings in this dispute. The United States also draws the Panel's attention to the approach in US � Shrimp and Turkey � Textiles, where the panels undertook a brief analysis, based on the evidence before them, confirming that the complaining parties had made their prima facie case and then proceeded to examine the respondents' affirmative defence under Articles XX and XXIV of the GATT 1994, respectively when, as in this case, the respondents did not make any rebuttals to the complainants' claims.216 8.20 The assessment of the consistency of the measures at issue with Article III entails an examination of factors such as like products, excessive or dissimilar taxation between imported and domestic products, protection of domestic industry, and less favourable treatment afforded to imported products. Therefore, to determine whether the United States has established its Article III claims, the Panel will need to examine the claims, arguments and evidence submitted by the parties for each legal requirement under the relevant provision of Article III while, at the same time, being mindful of the relatively succinct analytical approach adopted by the panels in US � Shrimp and Turkey � Textiles in the absence of any counter-arguments by the respondent.217
8.21 The United States claims that two of the challenged tax measures, specifically the soft drink tax and the distribution tax, are inconsistent with the first sentence of Article III:2, because they are internal taxes imposed on imported beet sugar in excess of the taxes applied to a like domestic product, in this instance, cane sugar. 8.22 The United States argues that beet sugar and cane sugar are "like" products and that the incidence of the challenged taxes on the non-cane sugar sweeteners (in this case, beet sugar) for the production of soft drinks and syrups is much greater than the nominal 20 per cent tax on the final soft drinks and syrups. Such taxes, which are not applied to the like domestic product, would be inconsistent with the first sentence of Article III:2 of the GATT 1994. 8.23 Mexico does not respond to the United States' claims in this regard.218 8.24 Under the first sentence of Article III:2 of the GATT 1994:
8.25 As articulated by the Appellate Body in its report in Canada � Periodicals, the analysis of whether a measure is inconsistent with the first sentence of Article III:2 of the GATT 1994 involves a two-step test:
131 See paras. 4.347 and 4.348 of this report, above. 132 See paras. 4.426 to 4.439 of this report, above. 133 See para. 4.352 of this report, above. 134 See paras. 4.357 and 4.358 of this report, above. 135 See para. 4.358 of this report, above. 136 See para. 4.359 of this report, above. 137 See para. 4.361 of this report, above. 138 See para. 4.363 of this report, above. 139 The summaries of the third parties' arguments are based on the executive summaries submitted by the third parties to the Panel, in the case of China, the European Communities and Japan; and on the oral statements submitted by Canada and Guatemala. 140 Appellate Body Report on US � 1916 Act, para 54. 141 Appellate Body Report on Mexico �Corn Syrup (Article 21.5 � US), para 36. 142 Translation of the first written submission of Mexico, at para 93. 143 Ibid. at para 97. 144 Articles 7.1 and 3.4 of the DSU. 145 Report of the Appellate Body on Australia � Salmon, para. 223. 146 Id. 147 Appellate Body Report on EC � Asbestos, para.101. 148 Appellate Body Report on EC � Asbestos, para.98-99. 149 United States first written submission, para.157. 150 Appellate Body Report on EC � Asbestos, para. 99. 151 Appellate Body Report on EC � Asbestos, paras.102. 152 The unique initiatives that make Guatemala the world leader in social activities promoted by the sugar industry have contributed, in particular, to the eradication of childhood blindness and the significant decline in the infant mortality rate. 153 Section II A of the first written submission of Mexico, 1 November 2004. 154 Section III C of the first written submission of Mexico, 1 November 2004. 155 Section III B of the first written submission of Mexico, 1 November 2004. 156 Article 3.2 of the DSU. 157 Document WT7DS308/4 of 11 June 2004. 158 Appellate Body Report on EC � Bananas III, paragraph 142. 159 Appellate Body Report on Japan � Alcoholic Beverages II, Section H.1, pp.18-19, DSR 1996:I, 97, at 111. 160 Id., Section H.1.(b), p.23, DSR 1996:I, 97, at 115. 161 Id., Section H.1.(b), p.23, DSR 1996:I, 97, at 115; GATT Panel Report, US � Malt Beverages para. 5.6. See also, Brazil � Internal Taxes, para.16; US � Superfund, para. 5.1.9; Japan � Alcoholic Beverages I para.5.8. 162 United States first written submission, Section V.B.1, para. 76. 163 Panel Report on Japan Alcoholic Beverages I, para. 5.5(a). 164 See GATT Panel Report on Japan � Alcoholic Beverages I, para.5.5. 165 Appellate Body Report on EC � Asbestos, para.102. 166 The Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18 states that such interpretation "would allow a fair assessment in each case of the different elements that constitute a 'similar� product." See also Panel Report, Japan � Alcoholic Beverages II, , para. 6.21. 167 Appellate Body Report on Japan � Alcoholic Beverages II , Section. H.1.(a), p.20, DSR 1996:I, 97, at 113. 168 Id.,Section. H.1.(a), pp.20-22, DSR 1996:I, 97, at 113-114. 169 See Appellate Body Report on EC � Asbestos, para.146. 170 Panel Report on Japan � Alcoholic Beverages II, para. 6.23. 171 Id., Panel Report, para.6.28. 172 United States first written submission, Section V.B.1(d), paras.3-4. 173 Appellate Body Report on Japan � Alcoholic Beverages II , Section H.1.(a), p.22, DSR 1996:I, 97, at 115. 174 Id., Section H.2., p.24, , DSR 1996:I, 97, at 116. 175 United States first written submission, Section V.C.1(a), para. 15 (however, the relevant page number of the AB Report referred to in the US submission should be 25, not 20). See also Panel Report on Japan � Alcoholic Beverages II, para. 6.22. 176 Appellate Body Report on Japan � Alcoholic Beverages II , Section H.2(a), p.25; GATT Panel Report on Japan � Alcoholic Beverages I, para. 6.22; Panel Report on Chile � Alcoholic Beverages, para. 7.30. 177 GATT Panel Report on Japan � Alcoholic Beverages I, para. 6.22, Appellate Body Report, Japan � Alcoholic Beverages II, Section H.2(a), p.25, , DSR 1996:I, 97, at 117. 178 United States first written submission, V.C.1(i), para.23. 179 GATT Panel Report on Japan � Alcoholic Beverages I, para. 5.6 stated that: "The Panel was aware of the more specific definition of the term 'like product' in Article 2:2 of the 1979 Antidumping Agreement (BISD 26S/172) but did not consider this very narrow definition for the purpose of antidumping proceedings to be suitable for the different purpose of GATT Article III:2." 180 Appellate Body Report on Japan � Alcoholic Beverages II , Section H.2.(b), p. 27, DSR 1996:I, 97, at 119; Panel Report on Japan � Alcoholic Beverages II , para.6.33. 181 Id. 182 The Appellate Body in Japan � Alcoholic Beverages II set out as follows:
183 Appellate Body Report on Chile � Alcoholic Beverages, para. 72. 184 United States first written submission, V.C.1(c), para. 36. 185 The interim report in Spanish, as issued to the parties, erroneously identified this paragraph as 8.180. 186 See Annex B to this Report. 187 Mexico's first written submission, para. 93. Mexico's response to Panel question No. 35. United States' written version of oral statements during the first substantive meeting of the parties with the Panel, para. 13. United States' response to Panel question No. 2, para. 10. 188 Appellate Body Report on Australia � Salmon, para. 223. 189 Mexico's first written submission, paras. 88-92. 190 Ibid., paras. 102-103. 191 Ibid., para. 13. 192 Ibid., paras. 5, 27-77. 193 United States' response to Panel question No. 7, para. 20. 194 Mexico's response to Panel question No. 4. 195 Mexico's response to Panel question No. 34. 196 However, Mexico has argued that under the NAFTA the examination of the challenged tax measures could be linked to its complaint regarding the United States' market access commitments for Mexican sugar. See, Mexico's second written submission, para. 6. See also, Mexico's response to Panel question No. 58. But see, United States' response to Panel question No. 58, paras. 22-24. 197 United States' first written submission, para. 1. 198 Mexico's first written submission, paras. 1-14 and 111. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 36. 199 United States' second written submission, paras. 10-13 200 United States' second written submission, paras. 14, 15 and 18. 201 United States' second written submission. paras. 18-22. 202 United States' first written submission, paras. 93, 94 and 131-140. 203 For the remainder of this Section, we will refer to the Mexican Special Tax on Production and Services as IEPS and to the Law that regulates such tax (the Law on the Special Tax on Production and Services, Ley del Impuesto Especial sobre Producci�n y Servicios) as LIEPS. 204 United States' first written submission, paras. 22, 153-162. United States' second written submission, paras. 12, 13 and 34-36. 205 United States response to Panel question No. 11, para. 26. 206 United States response to Panel question No. 21, para. 43. 207 United States response to Panel question No. 55, para. 16. 208 Mexico's response to Panel questions Nos. 11 and 55. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, paras. 53-54. 209 Mexico's response to Panel questions Nos. 11 and 55. 210 United States response to Panel question No. 55, para 17. 211 Appellate Body Report on US � Shirts and Blouses, p. 14, DSR 1997:I, p. 323 at p. 335. Panel Report on US � Shrimp, para. 7.14. 212 Appellate Body Report on EC � Hormones, para. 104. 213 Ibid. 214 Appellate Body Report on US � Shirts and Blouses, p. 14, DSR 1997:I, p. 323 at p. 335. 215 Mexico's response to Panel questions Nos. 9, 18 and 41. 216 United States response to Panel question No. 9, paras. 22-23; and question No. 12, para. 27. United States second written submission, para. 6. Written version of United States oral statement during second substantive meeting of the Panel with the parties, para. 3. 217 United States' second written submission, paras. 18-22. 218 Mexico's first written submission, para. 114. Mexico's response to Panel question No. 9. 219 Appellate Body Report on Canada � Periodicals, pp. 22-23, DSR 1997:I, p. 449, at p. 465-66. |
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