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8.26 In order to examine this claim, and taking into account the fact that Mexico has chosen not to respond to the claims that the measures are inconsistent with Article III, the Panel will consider the United States' legal arguments, as well as all the available evidence.
8.27 The United States argues that beet sugar and cane sugar are "like products" within the meaning of the first sentence of Article III:2 of the GATT 1994. Indeed, the United States asserts that, although Article III:2 does not require that products be identical to be considered alike, cane and beet sugar are virtually identical with respect to their physical properties and end-uses, are distributed in the same manner to consumers (in this case, producers of soft drinks and syrups) that use them interchangeably and are both classified under heading 1701 of the Harmonized System.220 8.28 The consistent interpretation of dispute settlement bodies under the GATT 1947 and the WTO has been that the determination that products are "like" under Article III:2, first sentence, must be done "on a case-by-case basis, by examining relevant factors".221 These factors include "the product's end-uses in a given market; consumers' tastes and habits, which change from country to country; the product's properties, nature and quality."222 Another relevant factor identified by the Appellate Body is tariff classification, which, if sufficiently detailed, "can be a helpful sign of product similarity", and has been used for this purpose in several adopted panel reports.223 The Appellate Body has added that the definition of "like products" in Article III:2, first sentence, must be construed narrowly.224 8.29 In order to address the likeness requirement of the first sentence of Article III:2, the Panel will therefore consider, on the basis of the evidence presented by the parties, the products' properties, nature and quality; their end-uses in a given market; consumers' tastes and habits; and the tariff classification of the products based on the Harmonized System. It will construe the test of likeness in a narrow manner, as has been consistently done under the first sentence of Article III:2 of the GATT 1994.225
8.30 Physically and chemically, beet sugar and cane sugar are forms of sucrose (a combination of glucose and fructose bonded together) with an identical molecular structure. The main difference between these two forms of sugar is the source from which they are derived, sugar beets and sugar cane respectively.226 8.31 Both beet sugar and cane sugar are sweeteners and, more precisely, nutritive sweeteners or sweeteners with a caloric content (as opposed to non-nutritive or non-caloric sweeteners, such as saccharine). As such, both may be used as a sweetener in the industrial production of various products, including the soft drinks and syrups that are involved in the present dispute.227
8.32 For the particular end-use that is relevant in this case, the production of soft drinks and syrups, there is no difference between beet sugar and cane sugar. Producers can use beet sugar or cane sugar, or any combination of the two, when preparing soft drinks and syrups.228 8.33 Being virtually identical in their physical properties and end-uses, beet sugar and cane sugar can be distributed in the same manner, and industrial consumers (in this case, the producers of soft drinks and syrups) can use them interchangeably. In so far as a choice is made between them it will be based on availability and price.229
8.34 With regard to consumers' perceptions and behaviour in respect of the products, the Panel notices that both beet sugar and cane sugar are almost identical "sugars". There does not seem to be a conspicuous difference in taste between the two products.230 Furthermore, for the particular end-use that is relevant in this case, i.e. the production of soft drinks and syrups, any difference in taste between beet sugar and cane sugar is even less noticeable. Consumers of soft drinks and syrups would not be aware that one type of sugar has been used, rather than the other, since the use of one or the other does not alter the taste of the product, nor is it normally indicated on the labelling of the soft drink or syrup. The United States has quoted a major soft drink producer who states that "[b]ecause there is no noticeable taste difference, bottlers have the option of using either high fructose corn syrup (HFCS), beet sugar or cane sugar, depending on availability and cost."231
8.35 Beet sugar and cane sugar are both classified under Harmonized System heading 1701.232
8.36 Having considered the above factors, the Panel concludes that beet sugar and cane sugar are "like products" within the meaning of the first sentence of Article III:2, as sweeteners in the production of soft drinks and syrups.
8.37 Having determined that beet sugar and cane sugar are "like products" within the meaning of the first sentence of Article III:2 of the GATT 1994, the Panel will now examine whether, through the soft drink tax and the distribution tax, Mexico is subjecting, directly or indirectly, imported products to internal taxes in excess of those applied, directly or indirectly, to like domestic products. 8.38 The United States argues that, by imposing a tax on soft drinks and syrups because they are sweetened with sweeteners other than cane sugar, Mexico has also imposed a tax on the sweeteners themselves. It further argues that, while the tax rate on the soft drinks and syrups is 20 per cent ad valorem, the effective rate of the tax, when calculated on the value of the sweeteners in the soft drinks and syrups, far exceeds that figure. This is because the value of the sweeteners is only a fraction of that of the soft drinks or syrups of which they form part. According to the United States, the soft drink tax and the distribution tax result in an effective tax rate of nearly 400 per cent on beet sugar, which is clearly a tax "in excess" of that applied to the like domestic product for the purposes of the first sentence of Article III:2.233 8.39 The Panel will focus its analysis on two questions: (i) whether beet sugar contained in soft drinks and syrups is "subject, directly or indirectly," to the soft drink tax and the distribution tax; and, (ii) whether the soft drink tax and the distribution tax subject imported beet sugar to internal taxes "in excess of" those applied to domestic cane sugar.
8.40 Article III:2 of the GATT 1994 does not cover all internal taxes and internal charges, but only those internal taxes or internal charges that are "applied" by Members, directly or indirectly, to products. The Article also refers in its first sentence to products that are "subject, directly or indirectly, to internal taxes or other internal charges". In the context of the present case, the two expressions (that "a tax be applied on a product" and that "a product be subject to a tax") can be taken to have a common meaning that involves the existence of a link between the relevant tax and the taxed product. 8.41 Although they are contained in the same legislative instrument (the LIEPS), the soft drink tax and the distribution tax are distinct measures that operate in different ways. The United States has asked the Panel to make findings on the consistency of each of these measures (as well as of the bookkeeping requirements) with Mexico's obligations under the GATT 1994.234 Accordingly, the Panel will consider separately whether beet sugar is subject to internal taxes in the form of the soft drink tax or the distribution tax, or both.
8.42 The first sentence of Article III:2 refers to internal taxes or other internal charges that are applied "directly or indirectly" to products. It also refers to products that are subject "directly or indirectly" to internal taxes or other internal charges of any kind. The provision thus requires some connection, even if indirect, between the respective internal taxes or other internal charges, on the one hand, and the taxed product, on the other. The qualifying expression "directly or indirectly" does not eliminate the requirement for such a connection. 8.43 The soft drink tax is regulated by the Law on the Special Tax on Production and Services (Ley del Impuesto Especial sobre Producci�n y Servicios, or LIEPS)235 and its implementing legislation. The tax is triggered by the importation or the internal transfer of soft drinks and syrups containing sweeteners other than cane sugar and it is charged on the importer or the purchaser as a percentage of the value of the soft drinks or syrups.236 Because the tax is not proportional to the value of non-cane sweeteners in the drink or syrup, it might be argued that beet sugar is not subject directly to the tax. However, because, as explained in the following paragraph, beet sugar is subject at least indirectly to the tax, the point need not be decided here. 8.44 In regard to the question of the indirect imposition of the soft drink tax on sweeteners, it is significant that: (a) it is the presence of non-cane sugar sweeteners that provides the trigger for the imposition of the tax; and, (b) the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener, and thereby to fall on the sweetener. The Appellate Body has said that "Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products".237 Taxes directly imposed on finished products can indirectly affect the conditions of competition between imported and like domestic inputs and therefore come within the scope of Article III:2, first sentence.238 Indeed, in a previous case the word "indirectly" was considered to cover, inter alia, taxes that are imposed on inputs.239 8.45 Given the facts just stated, the Panel concludes that the operation of the soft drink tax in regard to sweeteners is a factor influencing such competitive relationship and that such non-cane sugar sweeteners are therefore "subject � to" the tax, albeit that the relationship is indirect. Consequently, non-cane sugar sweeteners are indirectly subject to the soft drink tax when they are used for the production of soft drinks and syrups.
8.46 The distribution tax is also regulated by the LIEPS and its implementing legislation.240 However, the degree of connection between the tax and the relevant products is more remote in the case of the distribution tax than in the case of the soft drink tax. 8.47 The "distribution tax" is a tax on the provision of certain services when those services are provided "for the purpose of transferring" certain products, including soft drinks and syrups.241 In general, it is not evident that the distribution tax is a tax imposed on products, even indirectly. According to some of the criteria used in a previous WTO case, there may be reasons to consider the distribution tax as a tax on services rather than on products.242 It is not triggered by the sales of the relevant products, but rather by the provision of services related to those products243; it is imposed at ad valorem rates, not on the price of the relevant products, but rather on the value of the related services provided244; a special section of the LIEPS245, separate from the section governing taxes on products, is only applicable to this tax; and, the person legally liable for the payment of the tax is the supplier of the service and not the producer of the relevant products (although the producers are obliged by law to retain the tax246). 8.48 Until January 2002, the LIEPS imposed payment of the distribution tax on the provision of services related to all soft drinks and syrups, regardless of the sweetener used. Since January 2002, and as a result of amendments introduced in the LIEPS, payment of the distribution tax has been exempted for the provision of services related to soft drinks sweetened with cane sugar. Pursuant to this amendment, the distribution tax is now imposed on certain services related to one group of soft drinks and syrups, while the same services related to another group of soft drinks and syrups are exempted from the tax, based only on whether those soft drinks and syrups are sweetened with cane sugar or with non-cane sugar sweeteners. 8.49 In the case of the soft drink tax, it was noted that the imposition of the tax creates a connection such that non-cane sugar sweeteners, such as beet sugar, can also be regarded to be indirectly subject to such tax, because the tax is based solely on the nature of the sweetener used, and because the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener, and thereby to fall on the sweetener.247 The imposition of the distribution tax creates a similar connection, considering again that it is based solely on the nature of the sweetener used, and that the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener, and thereby to fall on the sweetener. Thus, while on its face the distribution tax is a tax directly applied on the provision of certain services, in the circumstances of this case, it is also an tax indirectly applied on non-cane sugar sweeteners when they are used for the production of soft drinks and syrups. 8.50 In conclusion, the distribution tax is a tax indirectly imposed on non-cane sugar sweeteners, such as beet sugar.
8.51 If the soft drink tax and the distribution tax are regarded as taxes indirectly imposed on non-cane sugar sweeteners248, the evidence supports the conclusion that they subject beet sugar to internal taxes in excess of those applied to cane sugar. Indeed, the soft drink tax subjects the importation or the internal transfer of a certain group of soft drinks, those sweetened with non-cane sugar sweeteners, to the payment of a 20 per cent ad valorem tax.249 As for the distribution tax, assuming that the services provided have some value, the 20 per cent ad valorem tax on those services will result in an additional tax on non-cane sugar sweeteners. 8.52 The Appellate Body has said that even the smallest amount of excess of the tax that imported products are subject to over the tax applied to like domestic products will satisfy the "in excess" criterion in Article III:2, first sentence. It has also made clear that the prohibition of discriminatory taxes in this provision is not conditional on a "trade effects test", nor qualified by a de minimis standard.250 8.53 The United States contends that under the soft drink tax and the distribution tax the effective tax rate to which non-cane sugar sweeteners in soft drinks and syrups are subject is as high as 400 per cent.251 Mexico does not dispute this figure. In any event, it is clear that, in ad valorem terms, the indirect tax burden on beet sugar as an input resulting from the 20 per cent tax on the value of the finished soft drinks or syrups and that resulting from the 20 per cent tax on the value of services associated with the soft drinks or syrups, based solely on the use of that non-cane sugar sweetener, would have to be compared with the corresponding burden on cane sugar, the like domestic product, which is zero per cent. In each case, there can be no doubt that the one is "in excess" of the other. 8.54 The United States contends that almost all imported products are being taxed in excess of like domestic products as a result of the application of the soft drink tax and the distribution tax, and that the only sweetener exempted from the measures (cane sugar ) is almost exclusively a domestic product. As the following paragraphs explain, the Panel finds that the facts of the case support this contention. However, the Panel refrains from ruling on whether such a finding is necessary in order for the United States to establish its claim under Article III:2, first sentence, of the GATT 1994. 8.55 As described above, the IEPS establishes a different regime for two groups of soft drinks and syrups. One group of soft drinks and syrups is subject, inter alia, to the payment of a soft drink tax and a distribution tax, while the other group is exempted from these taxes. The criterion established by the Mexican legislation for the division of soft drinks and syrups into these two groups is whether the soft drinks and syrups are sweetened with cane sugar or with non-cane sugar sweeteners, such as beet sugar. 8.56 Mexico produces cane sugar for the use of the soft drink and syrup industry. Most sugar consumed in Mexico is locally produced.252 In the five years from 1997 to 2001, cane sugar represented less than 1 per cent each year of total Mexican imports of sweeteners.253 Unlike the United States, Mexico does not produce beet sugar. Consequently, any soft drinks containing beet sugar would contain an imported sweetener. 8.57 Although there is no record of imports of beet sugar into Mexico, not even incorporated in imported soft drinks, the soft drink tax and the distribution tax alter the conditions of competition to the detriment of beet sugar, making it less likely that there would be imports of beet sugar. As the European Communities indicates in its third party submission, in some WTO Members beet sugar may be the sweetener of choice for the production of soft drinks and syrups.254 8.58 The Panel therefore concludes that the situation where beet sugar is liable to higher taxes than those applied to cane sugar is in effect one where imported products are subject to taxes in excess of those applied to the like domestic products.
8.59 For the reasons stated above, the Panel concludes that the soft drink tax and the distribution tax indirectly subject beet sugar imported into Mexico to internal taxes in excess of those indirectly applied to like domestic products, and are in this respect inconsistent with Article III:2, first sentence, of the GATT 1994.
8.60 The United States also requests the Panel to find that two of the challenged tax measures, the soft drink tax and the distribution tax, are inconsistent with the second sentence of Article III:2, because directly competitive or substitutable products � HFCS and cane sugar � are not taxed similarly and protection is thereby afforded to domestic production. 8.61 The United States argues that HFCS and cane sugar are "directly competitive or substitutable" products when used as sweeteners for soft drinks and syrups. The United States further contends that, as a result of the soft drink tax and the distribution tax, HFCS and cane sugar are not being similarly taxed in Mexico. According to the United States, the incidence of the taxes on HFCS for the production of soft drinks and syrups is much greater than the 20 per cent tax that is imposed on the final soft drinks and syrups. The United States claims that this dissimilar taxation is being applied by Mexico so as to afford protection to domestic production, inconsistently with the second sentence of GATT Article III:2.255 8.62 Mexico's only response to the United States' claim under the second sentence of Article III:2, regarding the treatment of HFCS, is that its measures are not intended to afford protection to its domestic production within the meaning of Article III of the GATT.256 8.63 The second sentence of Article III:2 of the GATT 1994 says:
8.64 In turn, paragraph 1 of Article III of the GATT states:
8.65 Finally, the Ad Note to Article III:2 of the GATT provides:
8.66 There are three elements to be considered to determine whether a measure is inconsistent with Article III:2, second sentence: first, whether the imported products and the domestic products are "directly competitive or substitutable products" which are in competition with each other; second, whether the directly competitive or substitutable imported and domestic products are "not similarly taxed;" and third, whether the dissimilar taxation of the directly competitive or substitutable imported and domestic products is "applied ... so as to afford protection to domestic production."257
8.67 Ad Note to paragraph 2 of Article III makes it clear that to fall within the scope of paragraph 2, second sentence, it is sufficient that the relevant products be "directly competitive or substitutable". 8.68 The Appellate Body has said that products are "directly competitive or substitutable" if they are interchangeable or if they offer "alternative ways of satisfying a particular need or taste".258 The phrase connotes a relationship between imported and domestic products at issue that can be essentially described as "in competition" in the marketplace.259 In order to make this assessment, GATT and WTO bodies have examined the following factors: the competitive conditions between the products in the relevant market, in the light of the nature of both products, their physical characteristics, their common end-uses, consumers' perceptions and behaviour in respect of the products, and the products' tariff classifications.260 The Panel will examine these factors in respect of HFCS and cane sugar.
8.69 Both HFCS and cane sugar are sweeteners and, more precisely, nutritive sweeteners or sweeteners with a caloric content (as opposed to non-nutritive or non-caloric sweeteners, such as saccharine).261 As such, both may be used, during an industrial process, for the purpose of sweetening products such as the soft drinks and syrups that are involved in the present dispute. 8.70 Physically, although not identical, HFCS and cane sugar have similar characteristics. They are both combinations of glucose and fructose, albeit in different proportions. In the case of HFCS, the precise proportions of glucose and fructose depend on the grade of the HFCS. The United States has provided evidence regarding the existence of three types of HFCS: HFCS-42, HFCS-55 and HFCS-90. The number stands for the percentage of fructose in the product. HFCS-42 and HFCS-55 are the grades most commonly used in the production of soft drinks and syrups. In these two formulations, the proportions of glucose and fructose in HFCS are similar to those in cane sugar. This similarity is deliberate, since HFCS is designed to mimic sugar as far as possible, so that it can be used as an alternative industrial sweetener. HFCS-90 may also be used as a sweetener for soft drinks and syrups if it is blended with HFCS-42 to produce HFCS-55. While HFCS is always liquid, sugar can also be consumed in liquid form, particularly for industrial uses such as the production of soft drinks and syrups. Indeed, as part of the process of producing soft drinks and syrups, cane sugar is mixed with water to produce a sugar syrup, which is then added to other ingredients to produce the soft drink or syrup.262
8.71 Cane sugar and HFCS may serve the same end-use, i.e., to be sweeteners in the production of soft drinks and syrups. Indeed, the evidence suggests that HFCS was developed mainly as a cost-effective alternative to sugar for the production of soft drinks. Producers of soft drinks and syrups will decide whether to use cane sugar or HFCS � or, indeed, beet sugar � or any combination of those sweeteners, very largely on the basis of their relative prices.263 Some producers may even use blends of sugar and HFCS.264
8.72 Concerning consumers' perceptions, the Panel has already noted that the sweeteners in the present case are an input used in the production of a final product, i.e., soft drinks and syrups. The immediate consumers of the sweeteners are the industrial producers of soft drinks and syrups. The evidence suggests that these producers consider HFCS and cane sugar to be completely interchangeable and will substitute HFCS for cane sugar, if that reduces costs. According to the United States Department of Agriculture, "HFCS deliveries have shown strong growth from the period when first introduced in the 1970s up to the late 1990s. In the period up to 1986, HFCS growth came at the expense of corresponding reductions in sugar deliveries. After 1986, strong demand for carbonated soft drinks helped promote strong demand for HFCS. Since 1999, soft drink consumption growth has fallen and with it, the demand for HFCS."265 8.73 In the particular case of Mexico, the evidence indicates that, as HFCS became available, and before the tax measures were imposed, Mexican producers of soft drinks and syrups started substituting it for cane sugar. The United States Department of Agriculture estimated that "prior to the imposition of the tax in January 2002, Mexico's soft drink industry was using 450,000-480,000 mt of HFCS, or between 75 and 80 percent of total HFCS consumption of 600,000 mt, dry basis".266 When the Mexican Government imposed measures on HFCS (such as anti-dumping duties and the tax measures challenged under the present case), the producers switched back to cane sugar. The United States has also pointed to the fact that industrial producers of fruit and vegetable juices, which are not subject to the IEPS, have continued using HFCS. All this evidence indicates that industrial consumers of sweeteners regard cane sugar and HFCS as interchangeable products for producing soft drinks and syrups.267 8.74 As for final consumers, the evidence indicates that the consumers of soft drinks and syrups do not differentiate between products sweetened with cane sugar and those sweetened with HFCS. HFCS and cane sugar are similar in terms of smell and colour: both are odourless and, when presented as liquids, colourless. The taste, colour and other physical characteristics of soft drinks and syrups sweetened with HFCS and cane sugar are indistinguishable.268 Furthermore, Mexican labelling regulations do not make a distinction between the different sweeteners, so a bottler can switch between different mixtures of HFCS and cane sugar without changing the labelling, and the consumer will not be aware which of them is being used.269 The Panel may therefore conclude that, as between HFCS and cane sugar, the specific caloric sweetener used is not a factor that Mexican consumers take into account when choosing a soft drink or syrup.270
8.75 Both cane sugar and HFCS are described as "sugars" in the Harmonized System. Cane sugar occupies heading 1701 of the Harmonized System, while HFCS is classified within heading 1702, together with liquid sugar and invert sugar, as part of the group "other sugars". Both products are therefore part of Harmonized System Chapter 17, "Sugars and sugar confectionery".271
8.76 The determination that HFCS and cane sugar may be regarded as "directly competitive or substitutable products" for producing soft drinks and syrups is supported by a similar conclusion reached by other bodies. In a press bulletin issued in 2003, the Mexican Ministry of Economics announced, in response to requests from industrial consumers of sugar in Mexico, the approval of an import quota of refined sugar as a "preventive measure", in case domestic production was insufficient to satisfy domestic demand. The bulletin goes on to state that the concerns of the industrial consumers of sugar were "mainly the consequence of the entry into force of the Special Tax on Production and Services (IEPS) for soft drinks elaborated with fructose, which generated a replacement of fructose with sugar in the sweeteners market of approximately 500 thousand tonnes..." (Dichas preocupaciones son consecuencia fundamentalmente de la entrada en vigor del Impuesto Especial sobre Producci�n y Servicios (IEPS) para refrescos elaborados con fructuosa y que gener� una sustituci�n de fructuosa por az�car en el Mercado de edulcorantes de aproximadamente 500 mil toneladas).272 8.77 A decision by the Mexican Federal Competition Commission in June 1999 similarly concluded that "Refined sugar is used mainly in the production of bottled refreshments, while standard sugar is used in various branches of the food industry. High fructose corn syrup (HFCS) is a substitute mainly for refined sugar" (El az�car refinada se utiliza principalmente en la producci�n de refrescos embotellados, mientras que el az�car est�ndar es empleada en diversas ramas de la industria alimentaria. El jarabe de ma�z de alta fructuosa (jmaf) es sustituto principalmente del az�car refinada.).273 An earlier report of the same Mexican Federal Competition Commission had defined HFCS as a "close substitute for refined sugar in processing soft drinks" (un sustituto cercano del az�car refinada en la elaboraci�n de bebidas gaseosas).274
8.78 For the reasons indicated above, the Panel concludes that HFCS and cane sugar are "directly competitive or substitutable products" for producing soft drinks and syrups, within the meaning of Article III:2, second sentence.
8.79 For the Panel to conclude that an imported product is being "not similarly taxed" when compared to a directly competitive or substitutable domestic product, within the meaning of the second sentence of Article III:2 of the GATT 1994, it must determine that the tax burden on the imported product is heavier than on the domestic product, and that this difference is more than de minimis.275 8.80 The Panel has already determined that the soft drink tax and the distribution tax are indirectly applied to non-cane sugar sweeteners.276 8.81 The evidence indicates that, as a result of the application of the soft drink tax and the distribution tax, HFCS is being taxed dissimilarly compared to cane sugar. Indeed, as has been noted, the soft drink tax subjects the importation and the internal transfer of a certain group of soft drinks, those sweetened with non-cane sugar sweeteners, to the payment of a 20 per cent ad valorem tax. As for the distribution tax, assuming that the services provided have some value, the 20 per cent ad valorem tax on those services will result in an additional tax indirectly imposed on non-cane sugar sweeteners. When considered as a tax on the input, in ad valorem terms the actual tax burden that the soft drink tax and the distribution tax impose on non-cane sugar sweeteners (in particular, on HFCS), is higher than the rate of 20 per cent tax imposed on the finished product. Indeed, the actual tax burden on the input would be relative to the proportion that the value of the input represents of the price of the finished product and the value of the services provided. 8.82 The United States contends that under the soft drink tax and the distribution tax the effective tax rate to which non-cane sugar sweeteners in soft drinks and syrups are subject is as high as 400 per cent.277 Mexico does not dispute this figure. In any event, it is clear that the burden on sweeteners resulting from the 20 per cent tax on the value of the finished soft drinks or syrups and that resulting from the 20 per cent tax on the value of services associated with the soft drinks or syrups, based solely on the use of non-cane sugar sweeteners, would have to be compared with the corresponding burden on cane sugar, the like domestic product, which is zero per cent. The term "not similarly taxed" is taken to mean a difference in tax that is more than de minimis.278 The Panel is in no doubt that in each case the difference in taxation between soft drinks or syrups sweetened with HFCS and those sweetened with cane sugar is more than de minimis. Consequently, a product (HFCS) which is being taxed at considerably more than 20 per cent is not being "similarly taxed" to one (cane sugar) which is subject to no tax. 8.83 For these reasons, the Panel concludes that the difference in taxation between imported HFCS and domestic cane sugar, resulting from the application of the soft drink tax and the distribution tax, is more than de minimis and the two products are therefore "not similarly taxed".
8.84 The last issue to be considered by the Panel in regard to Article III:2, second sentence, is whether the soft drink tax and the distribution tax are being applied "so as to afford protection" to Mexican domestic production. The United States argues that, with respect to HFCS, the soft drink tax and the distribution tax afford protection to Mexican domestic production of cane sugar.279 8.85 For a violation of Article III:2, second sentence, it is not enough that imports and directly competitive or substitutable domestic products be dissimilarly taxed, the relevant tax must also be applied "so as to afford protection" to domestic production. In that regard, as explained by the Appellate Body:
8.86 The design and operation of the soft drink tax and the distribution tax indicate that they afford protection to Mexican production of cane sugar. These taxes apply to the importation and internal transfers of all soft drinks and syrups, except for internal transfers of soft drinks and syrups sweetened with cane sugar. As the Panel has already determined, this means that the challenged measures mostly affect imported sweeteners as opposed to domestic like products.281 Mexican production of sweeteners for soft drinks and syrups is concentrated on cane sugar, whereas imports of sweeteners were overwhelmingly concentrated on HFCS (until this trade ceased, coinciding with the imposition of the taxes). 8.87 The magnitude of the tax differential between imported and domestic products, resulting from the application of the soft drink tax and the distribution tax, is additional evidence of the protective effect of the measure on Mexican domestic production of sugar. As has been already noted, the 20 per cent tax rate on the finished soft drinks and syrups constitutes a tax on HFCS as an input that is considerably more than 20 per cent.282 8.88 The finding that the tax measures have a protective effect is in line with the general character of the measures taken by Mexico in recent years in the sugar sector.283 Mexico has been able to maintain a relatively protected market for sugar.284 This has allowed Mexico to maintain relatively high domestic prices for sugar, compared to international prices. According to the available data, most sugar consumed in Mexico is domestically produced, since Mexico imports very small quantities of sugar. Indeed, annual Mexican imports of sugar in the period 1995-2003, never exceeded 2.65 per cent of its domestic consumption and, in seven out of the nine years that comprise this period, they were below 1 per cent of domestic consumption.285 8.89 Mexico does not deny the importance it attributes to the protection of its cane sugar industry. Although Mexico states that its tax measures were "not intended to afford protection to domestic production within the meaning of Article III of the GATT 1994"286, it acknowledges that the IEPS was one of a number of measures adopted by the Mexican authorities to alleviate the adverse economic situation experienced by its domestic sugar industry. Indeed, it has expressed its agreement with the United States' observation that the challenged measures were imposed to "stop the displacement of domestic cane sugar by imported HFCS and soft drinks and syrups sweetened with HFCS".287 Mexico claims, however, that its tax measures are not intended to afford protection to domestic production within the meaning of Article III of the GATT 1994, but were rather adopted as a response to the impairment of Mexico's rights under the NAFTA regarding market access opportunities for its sugar exports to the United States' market.288 8.90 In its various submissions in this case, Mexico describes at length the economic and social importance of its sugar sector. For example, it says that "in Mexico the cultivation of sugarcane is widespread and crucial to the rural economy. It is a vital cash crop for many relatively poor farmers in 15 of Mexico's 32 states. There are some 155,000 cane growers in Mexico and it is estimated that nearly 3 million people in rural Mexico depend on the sugarcane crop."289 Mexico adds that: "Sugarcane is the leading and most important crop in Mexico. The cultivated field area is twice that of tomatoes, corn, carrots, and potatoes."290 According to its figures, 1.5 per cent of the Mexican workforce depends directly on its sugar industry.291 Sugar cane generates higher returns to the farmers than any other crop, in terms of production value per harvested hectare.292 8.91 The protective effect of the measure on Mexican domestic production of sugar does not seem to be an unintended effect, but rather an intentional objective. The Appellate Body has cautioned against ascribing too much importance to the subjective legislative intent of legislators and regulators in the drafting of a particular measure, to determine whether the measure is applied so as to afford protection to domestic production, particularly when that declared intent is that protectionism was not an objective.293 However, the declared intention of legislators and regulators of the Member adopting the measure should not be totally disregarded, particularly when the explicit objective of the measure is that of affording protection to domestic production. Indeed, the Appellate Body has confirmed that statements made by government representatives of a Member, admitting to the protective intent of a measure, may be relevant as part of a number of considerations in reaching the conclusion that a measure is applied so as to afford protection to domestic production.294 8.92 In this respect, the United States has presented a copy of the written record of the debate that took place in December 2001 in the Mexican Congress on the bill that proposed the amendments to the LIEPS that would put in place the measures at issue. During that debate, a member of the Mexican Congress presented the bill on behalf of the committee that had drafted it (the Committee of Treasury and Public Credit of the Chamber of Deputies (Comisi�n de Hacienda y Cr�dito P�blico). During his presentation, the representative of the committee declared, after explaining to the chamber the taxes that would be imposed on soft drinks and syrups, "[w]e legislators, however, have the commitment to protect the national sugar industry, because a great number of Mexicans' subsistence depends on it. To that effect, it is proposed that the tax on soft drinks be applied only to those [soft drinks] that for their production utilize fructose instead of cane sugar".295 8.93 In March 2002, the Mexican Executive exempted, inter alia, all imports and transfers of soft drinks and syrups (and not only those of soft drinks and syrups sweetened with cane sugar) from payment of the soft drink tax. The Mexican Supreme Court of Justice was asked by the Chamber of Deputies of the Mexican Congress to annul that exemption on the grounds that the exemption was unconstitutional. When considering the case, the Supreme Court of Justice stated that:
8.94 The Mexican Supreme Court of Justice looked at the report of the Committee of Treasury and Public Credit of the Mexican Chamber of Deputies and at the statement made to the chamber by the representative of that committee to which we have referred. From those documents, the Court concluded that "the legislator's intent when extending the aforementioned tax to gasified waters, soft drinks, hydrating drinks and other taxed goods and activities, when they use fructose in their production rather than cane sugar, was that of protecting the sugar industry". The Court concluded that the Executive had violated, not only the fiscal objective of the measure, but "also its extra-fiscal objective that was expressed in the legislative procedure, that is the protection of the domestic sugar industry".297 The exemption granted by the Mexican Executive was thus annulled. 8.95 Having considered all these factors, the Panel concludes that the soft drink tax and the distribution tax are being applied so as to afford protection to Mexican domestic production of cane sugar.
8.96 For the reasons given above, the Panel concludes that the dissimilar taxation imposed on directly competitive or substitutable imports (HFCS) and domestic products (cane sugar) is applied in a way that affords protection to domestic production, and that the tax measures are therefore inconsistent with Article III:2, second sentence, of the GATT 1994.
8.97 The United States requests the Panel to find that the challenged tax measures (the soft drink tax, the distribution tax and the bookkeeping requirements) are inconsistent with Article III:4 of the GATT 1994, because they are internal measures that affect the internal use and sale of imported non-cane sugar sweeteners and accord those non-cane sugar sweeteners treatment that is less favourable than that accorded to like products of national origin, i.e. cane sugar. 8.98 The United States claims that beet sugar, HFCS and cane sugar, as sweeteners for soft drinks and syrups, are "like products"; that the three challenged tax measures (the soft drink tax, the distribution tax and the bookkeeping requirements) affect 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); that producers of soft drinks and syrups who use imported beet sugar or HFCS to sweeten their products do not enjoy the same advantage; and that the three measures therefore accord 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 therefore inconsistent with Article III:4 of the GATT 1994.298 8.99 Mexico does not respond to the United States' claims in this regard.299 8.100 Under Article III:4 of the GATT 1994:
8.101 The Appellate Body has said that "[f]or a violation of Article III:4 to be established, three elements must be satisfied: that the imported and domestic products at issue are 'like products'; that the measure at issue is a 'law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation, distribution, or use'; and that the imported products are accorded 'less favourable' treatment than that accorded to like domestic products".300 8.102 The Panel has already determined that the soft drink tax and the distribution tax, as applied on beet sugar and HFCS, are internal taxes inconsistent with Article III:2 of the GATT 1994. Consequently, the Panel need not proceed any further in respect of these two measures. Nevertheless, the Panel will analyse the United States' claims against the soft drink tax and the distribution tax under Article III:4, in the event that either or both of the two measures should be considered more properly as measures affecting the internal use of sweeteners, rather than as internal taxes on sweeteners.
8.103 The United States argues that, as sweeteners for the production of soft drinks and syrups, beet sugar, HFCS and cane sugar are "like products" within the meaning of Article III:4. In its opinion, cane and beet sugar are not only "like", but are almost identical. HFCS and cane sugar, on the other hand, are near perfect substitutes as sweeteners in soft drinks and syrups.301 8.104 The analysis of the likeness between imported and domestic products for the purpose of Article III:4 covers the characteristics of the relevant products and the extent of the competitive relationship between them. The Appellate Body has said that:
8.105 Beet sugar and cane sugar have already been found to be like products within the meaning of the first sentence of Article III:2 of the GATT 1994, as sweeteners in the production of soft drinks and syrups.303 Since the Appellate Body has clarified that "that the scope of 'like' in Article III:4 is broader than the scope of 'like' in Article III:2, first sentence"304, it follows that beet sugar and cane sugar are like products within the meaning of Article III:4. 8.106 As regards the likeness of cane sugar and HFCS, the factors to be taken into account � the products' properties, nature and quality; their end-uses in a given market; consumers' tastes and habits; and the tariff classification of the products � are the same as those examined by the panel when considering whether the two products were "directly competitive or substitutable" under Article III:2, second sentence.305 It is not necessary for the Panel to repeat its factual conclusions regarding those factors. All that is necessary is that the Panel should consider, in the light of those factual conclusions, whether, and to what extent, the products involved are, or could be, in a competitive relationship in the marketplace and satisfy the "like products" criterion in Article III:4. The Panel is satisfied that the facts amply demonstrate that, as sweeteners for soft drinks and syrups, cane sugar and HFCS are in a close competitive relationship and that they undoubtedly can be considered as "like products" under Article III:4.
8.107 The United States claims that the LIEPS "affects" the use of beet sugar and HFCS, because they grant producers of soft drinks and syrups an advantage (an exemption from the three challenged tax measures: the soft drink tax, the distribution tax and the bookkeeping requirements) that is conditional on the use of a domestic sweetener, cane sugar. The added burdens imposed on the use of beet sugar and HFCS would influence the producers' choice of sweeteners. In the United States' opinion, the best evidence of this effect is the fact that, after imposition of the tax measures, all Mexican bottlers of soft drinks and syrups that were using HFCS, reverted to use of cane sugar. The United States thus concludes that the LIEPS is a law "affecting" the "internal use" of beet sugar and HFCS.306 8.108 The term "affecting" in the expression "laws, regulations and requirements affecting [the] internal sale, offering for sale, purchase, transportation, distribution or use" in Article III:4 of the GATT 1994 has a broad scope. As articulated in WTO and GATT jurisprudence, it "cover[s] not only laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between domestic and imported products.307" 308 8.109 The Panel has already concluded that two of the measures challenged by the United States under Article III:4 of the GATT 1994 (the soft drink tax and the distribution tax) are imposed on imported sweeteners in a manner inconsistent with Article III:2.309 The facts that were analysed by the Panel and led it to consider that the two taxes "apply" to imported sweeteners,310 also support the conclusion that these taxes "affect" imported sweeteners. 8.110 The LIEPS exempts producers of soft drinks and syrups from payment of the soft drink tax, contingent on the use of cane sugar as a sweetener. On the other hand, producers of soft drinks and syrups that use any other sweetener to sweeten their products, including beet sugar or HFCS, do not enjoy the same exemption. Similarly, the LIEPS imposes a distribution tax on the provision of certain services, when these services are provided for the purpose of transferring soft drinks and syrups sweetened with non-cane sugar sweeteners. Providers of the same services, when the soft drinks and syrups are sweetened with cane sugar, are exempted from the distribution tax.311 8.111 The LIEPS also imposes a number of requirements (referred to in this case as the "bookkeeping requirements") on taxpayers who are subject to the soft drink tax and the distribution tax.312 The bookkeeping requirements include the following obligations:
8.112 These bookkeeping requirements impose a burden on producers of soft drinks and syrups in addition to the payment of the soft drink tax and the distribution tax. However, this burden does not extend to producers who use cane sugar rather than beet sugar or HFCS as a sweetener. In light of the previous considerations and the broad scope of the expression "affect the internal sale, offering for sale, purchase, transportation, distribution, or use of imported products", the Panel considers that these bookkeeping requirements affect the "use" of imported beet sugar and HFCS by the soft drinks industry. 8.113 For the reasons indicated above, the Panel concludes that the soft drink tax, the distribution tax and the bookkeeping requirements may be considered as measures that affect the internal use in Mexico of non-cane sugar sweeteners, such as beet sugar and HFCS, within the meaning of Article III:4 of the GATT 1994.
8.114 The United States argues that the IEPS accords less favourable treatment to imports than that accorded to like products of national origin. In the United States' opinion, this is because in relation to their use in the production of soft drinks and syrups, the challenged measures bestow a substantive advantage on cane sugar that is not extended to non-cane sugar sweeteners, such as beet sugar or HFCS. The United States does not contend that the challenged measures overtly discriminate between imported and domestic products, but that they result in the latter being treated less favourably in practice. Since in Mexico cane sugar is almost exclusively a domestically produced sweetener, while HFCS is mostly an imported product and beet sugar is exclusively an imported product, this advantage in fact implies that the measures afford imported HFCS and beet sugar less favourable treatment than that accorded to the like product of national origin, cane sugar.318 8.115 The United States contends that almost all imported products are being accorded less favourable treatment as a result of the application of the challenged measures, since almost all imported products are comprised of non-cane sugar sweeteners and the only sweetener exempted from the measures (cane sugar) is almost exclusively a domestic product. As the following paragraphs explain, the Panel finds that the facts of the case support this contention. However, the Panel refrains from ruling on whether such a finding is necessary in order for the United States to establish its claim under Article III:4 of the GATT 1994. 8.116 The LIEPS establishes a different regime for two groups of soft drinks and syrups. One group of soft drinks and syrups is subject to the payment of a soft drink tax and a distribution tax and to the fulfilment of certain bookkeeping requirements, while the other group is exempted from these taxes and requirements. The criterion established by the Mexican legislation for the division of soft drinks and syrups into these two groups is whether the soft drinks and syrups are sweetened with cane sugar or with non-cane sugar sweeteners, such as beet sugar or HFCS. These measures have the effect of penalizing the consumption of non-cane sugar sweeteners by industrial producers of soft drinks and syrups. Producers who opt for the use of non-cane sugar sweeteners, such as beet sugar or HFCS, in the preparation of their soft drinks and syrups are subject to the payment of taxes and to the completion of requirements that are not demanded of those producers who use cane sugar instead. 8.117 The challenged measures create an economic incentive for producers to use cane sugar as a sweetener in the production of soft drinks and syrups, instead of other non-cane sugar sweeteners such as beet sugar or HFCS. This incentive is created by conferring an advantage (the exemption from the soft drink tax, the distribution tax and the bookkeeping requirements) on those producers that use cane sugar instead of non-cane sugar sweeteners, such as beet sugar or HFCS. These measures do not legally impede producers from using non-cane sugar sweeteners, such as beet sugar or HFCS. However, they significantly modify the conditions of competition between cane sugar, on the one hand, and non-cane sugar sweeteners, such as beet sugar or HFCS, on the other. Indeed, there is evidence that the imposition of these measures reverted the trend that was seemingly under way in the Mexican market towards the replacement of cane sugar as an industrial sweetener in the production of soft drinks and syrups, for non-cane sugar sweeteners, such as HFCS.319 8.118 The description of the soft drink tax, the distribution tax, and the bookkeeping requirements, and the fact that they are imposed only on soft drinks and syrups that contain non-cane sugar sweeteners, leaves no doubt that the soft drinks and syrups sweetened with beet sugar and HFCS are less favourably treated. The measures therefore alter the conditions of competition in the Mexican market in favour of cane sugar and to the detriment of non-cane sugar sweeteners, such as beet sugar or HFCS, according a less favourable treatment to the latter than that accorded to cane sugar. 8.119 The evidence demonstrates that, although on their face the challenged measures do not distinguish between imported and domestic sweeteners, the distinction they make between the use of cane sugar and non-cane sugar sweeteners is, in fact, one that distinguishes between imported and domestic sweeteners. Domestically produced sweeteners in Mexico consist overwhelmingly of cane sugar. In the years prior to the imposition of the challenged measures, production of HFCS started to develop in Mexico, mainly to satisfy the demand for sweeteners by the domestic soft drinks and syrups industry. However, even in 2001, when HFCS reached its highest share of the Mexican sweetener market, it still represented less than 10 per cent, with cane sugar accounting for almost all the rest. Coinciding with the imposition of the challenged measures, Mexican production of HFCS started to decline.320 8.120 In turn, before the challenged measures were instituted, as a group imported sweeteners in Mexico were overwhelmingly constituted by non-cane sugar sweeteners. In the five years from 1997 to 2001, non-cane sugar sweeteners, consisting almost entirely of HFCS, represented almost 100 per cent of total Mexican imports of sweeteners. Imports of cane sugar during that period represented less than 1 per cent of total Mexican imports of sweeteners in each year.321 8.121 In conclusion, it is evident that in practice the challenged measures detrimentally affect the competitive situation of the imported sweeteners that the producers of soft drinks and syrups could have chosen (mostly HFCS), when compared to that of the most widely available domestic sweetener (i.e., cane sugar). 8.122 Consequently, the Panel finds that the challenged measures accord less favourable treatment to imported non-cane sugar sweeteners, such as beet sugar and HFCS, than that accorded to like products of national origin.
8.123 For the reasons indicated (and subject to the qualification made above322, regarding the Panel's findings that the soft drink tax and the distribution tax are inconsistent with Article III:2 as regards imported beet sugar and imported HFCS), the Panel concludes that, through the soft drink tax, the distribution tax and the bookkeeping requirements, Mexico accords less favourable treatment to imported non-cane sugar sweeteners, such as beet sugar and HFCS, than that accorded to like products of national origin, i.e., cane sugar. These measures are therefore inconsistent with Article III:4 of the GATT 1994.
8.124 The United States requests the Panel to find 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 soft drinks and syrups sweetened with HFCS and beet sugar in excess of the taxes applied to the like domestic product, i.e., soft drinks and syrups sweetened with cane sugar.323 8.125 With regard to the soft drink tax, the United States argues that the measure is imposed at the time of importation into Mexico of all soft drinks and syrups, regardless of the type of sweetener used.324 The tax is also imposed on internal transfers of soft drinks and syrups, except for those exclusively sweetened with cane sugar (and with the exception of public sales). The distribution tax is imposed on the provision of certain services (agency, representation, brokerage, consignment and distribution) for soft drinks and syrups, except for those exclusively sweetened with cane sugar.325 8.126 The United States observes that the vast majority of soft drinks and syrups produced in Mexico are sweetened with cane sugar, while in the United States the sweetener of choice for soft drink and syrup production is HFCS.326 Since soft drinks and syrups sweetened with non-cane sugar sweeteners, such as HFCS and beet sugar, and Mexican domestic soft drinks and syrups sweetened with cane sugar are "like" products, the United States submits that the imposition of the soft drink tax and the distribution tax subjects imported products to taxes higher than those applied to the like domestic product, in a manner inconsistent with the first sentence of Article III:2 of the GATT 1994. 8.127 Mexico does not respond to these United States' claims.327 8.128 As was done with respect to the treatment accorded to beet sugar, the Panel will analyse the consistency of the challenged measures with Article III:2, first sentence, by considering two questions. First, whether the imported and domestic products are like products. Second, whether the imported products are subject to taxes in excess of those applied to the like domestic products.328
8.129 The United States contends that imported soft drinks and syrups and domestic soft drinks and syrups are alike, because soft drinks and syrups sweetened with non-cane sugar sweeteners including HFCS and beet sugar (which are mostly imported), are like those sweetened with cane sugar (which are mostly domestic)329. According to the United States, soft drinks sweetened with non-cane sugar sweeteners, in particular, with HFCS and beet sugar, and those sweetened with cane sugar, have "virtually identical" characteristics in terms of physical properties, end-uses, consumer tastes and habits, and tariff classification.330 8.130 Under the principles established by previous GATT and WTO dispute settlement bodies, the Panel will determine the "likeness" of the products by examining the products' properties, nature and quality; their end-uses in the given market; consumers' perceptions and behaviour; and the products' tariff classification.331
8.131 Regarding the physical characteristics of the soft drinks, both types of products (soft drinks and syrups sweetened with non-cane sugar sweeteners and soft drinks and syrups sweetened with cane sugar) are virtually identical. They have identical physical appearances. They are virtually indistinguishable by the human body, since they contain similar amounts of calories and are digested and absorbed in the same manner. Since caloric non-cane sugar sweeteners (HFCS and beet sugar) and cane sugar have a very similar chemical composition, it follows that soft drinks and syrups sweetened with non-cane sugar sweeteners and soft drinks and syrups sweetened with cane sugar have nearly the same chemical composition. In countries such as Mexico and the United States, both types of soft drinks and syrups are usually indistinguishable on the basis of their ingredient labels, since both generally bear the same ingredient inscription on the label.332
8.132 As the United States has contended, it is evident that soft drinks and syrups, regardless of the caloric sweetener used, share identical end-uses. Both types of products may be drunk for quenching thirst, providing energy or nourishment, or for socialization; they may be drunk straight or mixed with other beverages; they may be consumed before, after or during meals; and they may be consumed at home or in public places alike, regardless of whether they are sweetened with HFCS or beet sugar or with cane sugar.333 8.133 The evidence also indicates that, regardless of the caloric sweetener used, soft drinks and syrups use similar distribution channels. The United States has quoted major producers of soft drinks (Coca-Cola and the Pepsi Bottling Group) to the effect that there are no differences in the distribution channels used for these products. Retail seems to be the primary distribution channel in both Mexico (where most soft drinks are sweetened with cane sugar) and the United States (where most soft drinks are sweetened with HFCS). Considering the evidence, there is no indication that channels of distribution for major producers of soft drinks in Mexico changed during the 1990s through 2001, even though the producers switched from cane sugar to a blend of HFCS and sugar, and then again to cane sugar during this period.334
8.134 Regarding consumer tastes and preferences, the United States has indicated that surveys and taste tests conducted by soft drinks bottlers demonstrate that consumers do not show any consistent pattern of preference for soft drinks sweetened with sugar versus soft drinks sweetened with HFCS, nor do they detect any significant difference in taste and sweetness.335 There is also evidence that in Mexico, under labelling regulations, labels will generally identify "all monosaccharides and disaccharides that are present in a non-alcoholic food or beverage" as "sugars" (az�cares), so that consumers may not even be aware of the specific type of caloric sweetener used.336 Also, marketing strategies in Mexico seem not to have changed when the largest local bottler of soft drinks switched to a blend of sugar and HFCS, instead of pure cane sugar, from 1996 through 2003.337 All these facts support the conclusion that there is no perceived consumer preference for any of the considered products based exclusively on the type of caloric sweetener that is used. Indeed, the difficulty for consumers to distinguish between soft drinks and syrups sweetened with HFCS and those sweetened with cane sugar is not a matter of chance. HFCS was designed to mimic sugar as much as possible, in order to be an alternative industrial sweetener.338
8.135 With respect to their tariff classification, Mexico does not draw any distinction between soft drinks and syrups on the basis of the type of sweetener used (cane sugar, beet sugar or HFCS). Its tariff schedule classifies soft drinks and syrups as follows:
8.136 In view of these considerations, the Panel concludes that soft drinks and syrups sweetened with HFCS and soft drinks and syrups sweetened with cane sugar are "like products" for the purposes of Article III:2, first sentence of the GATT 1994. HFCS and cane sugar have a slight difference in the exact ratio of their components (i.e. fructose to glucose)340, but the difference between both products is not enough to make soft drinks sweetened with one or the other not "like". Likewise, the Panel finds that soft drinks and syrups sweetened with beet sugar and soft drinks and syrups sweetened with cane sugar are "like products" for the purposes of this provision. In fact, the two are virtually identical.
8.137 Having determined that soft drinks and syrups sweetened with beet sugar and HFCS may be regarded as "like products" when compared with soft drinks and syrups sweetened with cane sugar, the Panel will now turn to the issue of whether, through the soft drink tax and the distribution tax, Mexico is subjecting, directly or indirectly, imported products to internal taxes in excess of those applied, directly or indirectly, to like domestic products, in a manner inconsistent with the first sentence of Article III:2 of the GATT. 8.138 The challenged tax measures (soft drink tax and the distribution tax) are applied at different points in time. First, at the time of importation, the soft drink tax is applied to all imported soft drinks and syrups, regardless of the sweetener used. Second, once imported soft drinks and syrups clear customs and enter into the Mexican market, the soft drink tax is applied to soft drinks sweetened with non-cane sugar sweeteners upon each internal transfer (with the exception of public sales). Third, the distribution tax is applied to soft drinks and syrups sweetened with non-cane sugar sweeteners on the provision of certain services within Mexico. The Panel will examine the challenged tax measures considering these three points in time to determine whether they are imposed on imported soft drinks and syrups in excess of the taxes imposed on like domestic soft drinks and syrups.341
8.139 At the time when the DSB established this Panel and approved its terms of reference, Mexico was imposing a 20 per cent tax (the soft drink tax) on "all imported soft drinks and syrups" at the point of importation, regardless of the sweetener used.342 The United States argues that this tax discriminated on its face against imports, since it was not applied to domestic products.343
8.140 In November 2004, the Mexican Congress amended the LIEPS with the effect that, from January 2005, imported soft drinks and syrups qualify for the exemption from payment of the soft drink tax, as long as they are sweetened exclusively with cane sugar.344 8.141 The United States argues that the Panel should not take such amendment into consideration, because it is outside the Panel's terms of reference. It submits that the measures before the Panel are Mexico's tax measures as they stood when this Panel was established, which were embodied in the text of the LIEPS published on 1 January 2002 and its subsequent amendments published on 30 December 2002 and 31 December 2003.345 Mexico responds that the Panel has the power to consider the amendments to the LIEPS in the context of this dispute. In its opinion, the obligation contained in Article 11 of the DSU, under which a Panel must assist the DSB in discharging its responsibilities under the DSU by making an objective assessment of the matter before it, require panels to take into account events which occurred during the proceedings, including amendments to the measures at issue.346 8.142 In respect of these arguments, the Panel first notes that the entry into force of the amendments to the LIEPS occurred after the date of establishment of the Panel (6 July 2004).347 The parties do not claim that the amendments are within the Panel's terms of reference. In its request for the establishment of a panel in this case, the United States identified the measures at issue as the "Law on the Special Tax on Production and Services (Ley del Impuesto Especial sobre Producci�n y Servicios or "IEPS") published on 1 January 2002 and its subsequent amendments published on 30 December 2002 and 31 December 2003".348 The specific reference made by the United States to "subsequent amendments published on 30 December 2002 and 31 December 2003" is not broad enough to include further amendments that came after the establishment of the Panel349, and consideration of such amendments does not seem necessary to secure a positive solution to the present dispute for the reasons explained below. 8.143 Several previous panels have refrained from making findings on measures terminated before their establishment.350 In Argentina � Textiles and Apparel, the panel declined to rule on a measure that was "revoked before the Panel was established and its term of reference set, i.e. before the Panel started its adjudication process"351, even though the measure had been included in its terms of reference. The panel cited in its support the statement of the Appellate Body that the aim of dispute settlement is not:
8.144 In the present case, however, the amendments to the LIEPS entered into force on 1 January 2005, which was six months after the establishment of the Panel. Furthermore, the effects of the new amendments seem to be limited to only part of the claims against the challenged measures, i.e. the imposition of the soft drink tax to all imported soft drinks and syrups at the point of importation, regardless of the sweetener used. The Panel recalls that the Appellate Body has said that "the demands of due process are such that a complaining party should not have to adjust its pleadings throughout dispute settlement proceedings in order to deal with a disputed measure as a 'moving target'."353 Given its terms of reference354, in the light of the obligations contained in Article 11 of the Dispute Settlement Understanding, and without an agreement between the parties to terminate the proceedings as regards this aspect of the contested measures, the Panel considers there is no basis for it to abstain from ruling on the complaint made by the United States. Indeed, several panels have reached the same conclusion, when examining measures terminated before or during the panel process.355
8.145 The Panel will therefore examine the soft drink tax as it stood on 6 July 2004, in respect of its application at the point of importation.356 There is no question that the imported soft drinks and syrups were directly subject to the soft drink tax. The same tax is also directly applied on internal transfers of the product domestically, as long as the soft drinks or syrups are not sweetened with cane sugar.357 According to Ad Article III of the GATT 1994:
8.146 The Panel has already discussed the meaning of the term "in excess of".358 This term has been interpreted very strictly, and encompasses even the slightest difference in the level of taxes. The Appellate Body has said that "[e]ven the smallest amount of 'excess' is too much. 'The prohibition of discriminatory taxes in Article III:2, first sentence, is not conditional on a "trade effects test" nor is it qualified by a de minimis standard.'"359 There can be no doubt that a tax difference of 20 per cent can be regarded as "in excess".
8.147 Since at the point of importation all imported soft drinks and syrups, whether sweetened with cane or beet sugar or with HFCS, were subject to a tax in excess of the tax applied to the like domestic products (soft drinks and syrups sweetened with cane sugar), the soft drink tax is in this respect inconsistent with Article III:2, first sentence, of the GATT 1994.
8.148 Mexico also imposes a 20 per cent soft drink tax on internal transfers of soft drinks and syrups sweetened with non-cane sugar sweeteners, including HFCS and beet sugar. An exemption from this tax is available only for those soft drinks and syrups that are sweetened with cane sugar.360 The United States claims that this aspect of the tax constitutes de facto discrimination and is inconsistent with Article III:2, first sentence, of the GATT 1994.361 8.149 The Panel has already concluded that, in regard to internal transfers, as a result of the soft drink tax, beet sugar used as a sweetener in soft drinks and syrups is subject, directly or indirectly, to a tax in excess of that applied to the like domestic product, because of the non-application of that tax when the sweetener used is cane sugar and considering that the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener.362 By the same logic, the Panel finds that the soft drinks and syrups sweetened with beet sugar or HFCS are subject, directly or indirectly, to the soft drink tax. Furthermore, as concluded above363, a difference of 20 per cent tax undoubtedly meets the "in excess of" criterion. Finally, the Panel notes that soft drinks and syrups imported into Mexico are sweetened primarily with non-cane sugar sweeteners (HFCS or beet sugar), whereas Mexican domestic soft drinks and syrups are sweetened primarily with cane sugar.364 Since the latter are the main beneficiaries of the exemption from the tax, and using the logic that it applied to the discrimination regarding sweeteners365, the Panel concludes that, although the soft drink tax does not on its face distinguish between imported and domestic products, it has this result in practice.
8.150 The United States also claims that the distribution tax of 20 per cent, which is charged on representation, brokerage, agency, consignment and distribution provided in relation with soft drinks or syrups sweetened with non-cane sugar sweeteners, is inconsistent with Article III:2, first sentence. This is because no such tax is applied to such services when provided in relation to soft drinks or syrups sweetened with cane sugar. In this instance also the United States argues that the discrimination is de facto.366 8.151 The distribution tax is imposed on certain services provided for the purpose of transferring one group of soft drinks and syrups, while the same services related to another group of soft drinks and syrups are exempted from the tax, based only on the consideration of whether those soft drinks and syrups are sweetened with cane sugar or with non-cane sugar sweeteners. 8.152 The Panel has already concluded that the imposition of the distribution tax, based solely on the nature of the sweetener used, and considering that the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener, creates a connection such that the tax can also be regarded as a tax indirectly imposed on non-cane sugar sweeteners.367 By the same logic, the Panel finds that, while on its face the distribution tax is a tax on the provision of certain services, in the circumstances of this case, it is also a tax applied indirectly on soft drinks and syrups. Furthermore, as concluded above368, assuming that the services provided have some value, the 20 per cent ad valorem tax on those services will result in an additional tax on soft drinks and syrups sweetened with non-cane sugar sweeteners. That figure would have to be compared with the tax rate applied to the provision of services related to soft drinks and syrups sweetened with cane sugar, the like domestic product, which is zero per cent. There can be no doubt that the former is "in excess" of the latter. Finally, using the same logic that it applied to the discrimination regarding the soft drink tax369, the Panel concludes that, although the distribution tax does not on its face distinguish between imported and domestic products, it has this result in practice.
8.153 Considering the respective groups of products that are subject to the soft drink tax and the distribution tax, domestic soft drinks and syrups are the main beneficiaries of the tax exemption under the LIEPS. Indeed, most domestic soft drinks and syrups in Mexico are sweetened with cane sugar, while most imported soft drinks and syrups are sweetened with non-cane sugar sweeteners, such as HFCS. 8.154 In light of the above, a soft drink tax and a distribution tax imposed only on soft drinks and syrups with non-cane sugar sweeteners, most of which are imported, and not applied to soft drinks and syrups sweetened with cane sugar, most of which are domestic, may be regarded as a tax imposed on imports "in excess of" that imposed on like domestic products.
8.155 For the reasons given above, the Panel concludes that, at the time of establishment of this Panel, the soft drink tax, as applied by Mexico at the point of importation, subjected soft drinks and syrups imported into Mexico to internal taxes in excess of those directly applied to like domestic products, in a manner inconsistent with Article III:2, first sentence, of the GATT 1994. 8.156 The Panel also finds that the soft drink tax, as applied on internal transfers in Mexico, subjects imported soft drinks and syrups to internal taxes in excess of those directly applied to like domestic products, in a manner inconsistent with Article III:2, first sentence, of the GATT 1994. 8.157 Finally, the Panel finds that the distribution tax, as applied on the provision of certain services, when those services are provided for the purpose of transferring soft drinks and syrups sweetened with non-cane sugar sweeteners, subjects imported soft drinks and syrups to internal taxes in excess of those indirectly applied to like domestic products, in a manner inconsistent with Article III:2, first sentence, of the GATT 1994.
8.158 The United States also argues that two of the challenged tax measures, specifically the soft drink tax and the distribution tax, are inconsistent with the second sentence of Article III:2 of GATT 1994, because soft drinks and syrups sweetened with HFCS and beet sugar and the directly competitive or substitutable products, i.e., soft drinks and syrups sweetened with cane sugar, are dissimilarly taxed, so as to afford protection to domestic production.370 8.159 The United States presents this claim only as an alternative should the Panel not consider that soft drinks and syrups sweetened with HFCS and those sweetened with cane sugar are like products, and that the soft drink tax and the distribution tax are in this respect inconsistent with Article III:2, first sentence, of the GATT 1994.371 8.160 Mexico's only response to this claim is that its measures are not intended to afford protection to its domestic production within the meaning of Article III of the GATT.372 8.161 The panel has already determined that the soft drink tax and the distribution tax, as applied by Mexico on soft drinks and syrups, are inconsistent with Article III:2, first sentence, of the GATT 1994.373 Since the condition set by the United States has therefore not been fulfilled, the Panel will not address this claim.
8.162 As described above, for the most part Mexico has not presented rebuttal arguments regarding the United States' claims under Article III of GATT 1994. Mexico argues, however, that if the IEPS taxes are found by the Panel to violate Article III, the measures are nevertheless justifiable under Article XX(d) of GATT 1994.374 In its opinion, the measures are "necessary to secure compliance" by the United States with the United States' obligations under the NAFTA, an international agreement that is a law not inconsistent with the provisions of the GATT 1994.375 Mexico does not claim any justification for its measures other than that provided through Article XX(d). Furthermore, although Mexico has characterized its actions as an exercise of countermeasures, as recognized under international law376, it does not seem to be suggesting that the international law rules governing such actions should affect the interpretation of Article XX(d). 8.163 The United States responds that, although Article XX(d) of GATT 1994 permits a WTO Member to maintain measures that are "necessary to secure compliance with laws or regulations which are not inconsistent" with the provisions of the GATT 1994, the NAFTA is not a "law or regulation," and Mexico's taxes are not "necessary to secure compliance." In its opinion, nothing in Article XX(d) supports the contention that a WTO Member may violate its WTO obligations in order to punish another Member because the former thinks that the latter has not complied with its obligations under another international agreement.377 The United States adds that Mexico's measures are also incompatible with the requirements of the chapeau to Article XX .378 8.164 According to the chapeau and paragraph (d) of Article XX of the GATT:
8.165 The Panel will follow the well-established two-tiered process of analysis elaborated by the Appellate Body in US � Gasoline:
8.166 The burden lies on Mexico, as the party invoking the affirmative defence provided by Article XX(d), to demonstrate that the measures which the Panel has found to be inconsistent with Article III, satisfy the requirements of the invoked defence.380 8.167 Regarding the first stage in the application of Article XX, the Panel will follow the order of analysis set out by the Appellate Body:
8.168 Mexico argues that the challenged tax measures are "designed to secure compliance" by the United States with the NAFTA, a law that is not inconsistent with the provisions of the GATT 1994.383 8.169 In order to determine whether a measure may be considered to be "designed to secure compliance", the Panel will look at the meaning of the expression "to secure compliance". It will then examine the issue of the design of the measures. Finally, it will address the issue of whether the NAFTA may be considered to be part of the laws and regulations covered by paragraph (d).
8.170 Mexico argues that the tax measures at issue are justifiable under Article XX(d) as "necessary to secure compliance" by the United States with the United States' obligations under the NAFTA. In Mexico's opinion, this provision allows WTO Members to adopt measures that are necessary to secure compliance by another Member with the latter's international obligations arising from a treaty that is not one of the WTO "covered agreements". Mexico refers to its IEPS taxes on soft drinks and syrups as "temporary and proportionate measures" intended to induce the United States to comply with what Mexico says are its NAFTA obligations regarding market access conditions for Mexican sugar or to submit to dispute settlement procedures under the NAFTA regarding these obligations.384 Mexico also speaks of the measures as intended to rebalancing its market so that Mexican surplus sugar that could have been exported to the United States can be sold locally.385 While acknowledging that there are no WTO or GATT precedents to support an interpretation that Article XX(d) would justify such measures, Mexico argues that there are none that deny it.386 8.171 The United States responds that Article XX(d) does not provide an exception for measures to secure compliance with obligations of a WTO Member under another international agreement. In the first place, the United States argues that obligations under an international agreement are not covered by the expression "laws or regulations".387 According to the United States, the ordinary meaning of the terms "laws or regulations" encompasses only the domestic laws or regulations of a government; it does not include obligations under an international agreement, which have a different meaning.388 The United States submits that such interpretation of the ordinary meaning of "laws or regulations" is supported by the context in which the terms appear � namely, Article XX of the GATT and more broadly the GATT and the WTO Agreement as a whole.389 In its opinion, Mexico's interpretation would allow any WTO Member to invoke Article XX(d) as a justification for actions depriving other Members of their rights under the GATT to the extent needed to "secure compliance" with any other international agreement.390 8.172 The United States further argues that, even if "laws or regulations" could be read to include obligations owed by one WTO Member to another under an international agreement, Mexico's tax measures are not designed to "secure compliance" within the meaning of Article XX(d) of the GATT 1994. In this regard, Mexico's position presupposes that the United States is not in compliance with its NAFTA obligations, a matter that has not been proved by Mexico, that is currently being disputed in the NAFTA forum and that would anyhow be outside the Panel's terms of reference. The United States adds that Mexico has not explained how its tax measures are designed to secure compliance by the United States, considering that the measures apply to soft drinks and syrups and non-cane sugar sweeteners imported from any WTO Member, and not just those from the United States. Rather, in its opinion, those taxes protect Mexico's own cane sugar industry.391 8.173 The Panel commences its analysis of the issue by recalling that, in order to be justified by Article XX(d), a measure must be "necessary to secure compliance with laws or regulations that are not inconsistent with the provisions of the GATT 1994".392 8.174 The word "compliance" may be defined as "the action of complying with a request, command, etc.", while in that sense to "comply" with is to "act in accordance with".393 In turn, to "secure" may be defined as to "make (something) certain or dependable. Now [especially] ensure (a situation, outcome, result, etc.)".394 8.175 The context in which the expression is used makes clear that "to secure compliance" is to be read as meaning to enforce compliance. Firstly, the provision is addressing compliance with "laws or regulations", and these characteristically concern obligations rather than requests, and compliance is secured by enforcement through the use of force by the authorities, if necessary. Secondly, the examples of measures that are given in the latter part of paragraph (d) all concern that concept (the terms used in these examples are "enforcement" (twice), "protection", and "prevention").395 8.176 This interpretation is confirmed by consideration of the travaux pr�paratoires of GATT 1947. The strong language used in the phrase "to secure compliance" differs from that contained in early drafts of the Charter for an International Trade Organization (ITO), a weaker "to induce compliance".396 There is also evidence that negotiators were aware of the issue of countermeasures. During the negotiations on the ITO Charter, India proposed the inclusion (in the provision that would be the basis for Article XX of the GATT) of a paragraph that would allow a country "temporarily to discriminate against the trade of another Member when this is the only effective measure open to it to retaliate against discrimination practised by that Member in matters outside the purview of the [International Trade] Organization, pending a settlement of the issue through the United Nations".397 The proposal was not accepted.398 8.177 The interpretation is also confirmed by the Appellate Body's use of the expression "enforcement instrument" when referring to measures covered by paragraph (d).399 Indeed, Mexico has also referred to measures "designed as an enforcement instrument", when referring to the measures that would be covered by paragraph (d).400 8.178 The identification of the phrase "to secure compliance" with the notion of enforcement has important implications for the arguments presented by Mexico. The context of Mexico's action is essentially international. Countermeasures have an intrinsic inter-state character, and there is no concept of private action against a state being justifiable on this basis. On the other hand, the notion of enforcement contains a concept of action within a hierarchical structure that is associated with the relation between the state and its subjects, and which is almost entirely absent from international law (action under Chapter VII of the United Nations Charter is arguably an exception, but it has no relevance in the present dispute401). The possibility for states to take countermeasures, that is to try by their own actions to persuade other states to respect their obligations, is itself an acknowledgement of the absence of any international body with enforcement powers. In contrast to this, the capacity to enforce laws and regulations through the use of coercion, if necessary, is perhaps the most important of the features that distinguish states from other kinds of bodies. 8.179 The examples provided in Article XX(d) serve to reinforce the conclusion that this provision is concerned with action at a domestic rather than international level. Customs, monopolies, patents, trade marks and copyrights, and deceptive practices are in essence matters that are regulated under domestic law. It can be argued that the topics covered by these examples are all capable of being the subjects of international agreements.402 However, the same point could be made of almost any aspect of national law, and the argument does not detract from the basic point that these examples essentially concern aspects of domestic law which make use of systems of enforcement. Thus, there could be domestic customs laws without international agreements, but international agreements on customs without domestic law would be meaningless. Of course, these topics are listed in Article XX(d) merely as examples, so they cannot of themselves be taken as providing conclusive support for the Panel's conclusions. Nevertheless, they provide a significant indicator of the intended interpretation. 8.180 The Panel will return to the notion of enforcement in its discussion of "laws or regulations"403, but before leaving the current topic it is worth noting that the Draft Articles on Responsibility of States for internationally wrongful acts adopted by the International Law Commission404 do not speak of enforcement when addressing the use of countermeasures. Rather, paragraph 1 of Article 49 states that "[a]n injured State may only take countermeasures against a State which is responsible for an internationally wrongful act in order to induce that State to comply with its obligations under Part Two. " Nor is the notion of enforcement used in the Commentary on the articles, except in regard to procedures within the European Union, which because of its unique structures and procedures is obviously a special case.405 8.181 For these reasons the Panel concludes that the phrase "to secure compliance" in Article XX(d) does not apply to measures taken by a Member in order to induce another Member to comply with obligations owed to it under a non-WTO treaty.
8.182 In Korea � Various Measures on Beef, the Appellate Body said that:
8.183 In that case, the Appellate Body was confirming the decision of the panel which said that:
8.184 The question of whether the measure identified by Mexico is designed to secure compliance is therefore one that must be addressed by the Panel. The considerations that influenced the Panel in reaching a conclusion regarding the phrase "to secure compliance"408 are also relevant to answering this question. 8.185 The panel additionally notes that, when enforcement action is taken within a Member's legal system there will normally be no doubt, provided the action is pointed at the right target, that it will achieve that target. At least, there is no systemic problem in arriving at that conclusion, because the State by its very nature is usually in a position to achieve that enforcement, through the use of coercion, if necessary. However, the situation is quite different when one considers international relations. Mexico argues that its tax measures are designed to secure compliance by the United States with obligations Mexico considers the United States to have under the NAFTA. Regardless of the issue of Mexico's actual intentions regarding its measures, the effectiveness of those measures in achieving their stated goal � that of bringing about a change in the behaviour of the United States � seems to the Panel to be inescapably uncertain. 8.186 In this regard, Mexico has not explained how its measures will make any significant contribution to securing compliance on the part of the United States, and much less how they will perforce bring about such a change of conduct. Mexico has claimed only that the measures have had the effect of "attracting the attention" of the United States.409 Attracting the attention of a Member is not equivalent to securing compliance of that Member with a law or regulation. Even conceding that the measures may have "attracted the attention of the United States", at most this would imply the beginning of a process between the parties with uncertain results. The Panel mentions these considerations principally in order to reinforce its conclusion that the outcome of international countermeasures, such as those adopted by Mexico, is inherently unpredictable, and that they are therefore not eligible to be considered as measures "to secure compliance" within the meaning of Article XX(d). However, even if the assumption were to be made in the abstract that international countermeasures are potentially capable of qualifying as measures designed to secure compliance, the Panel's conclusion would be that Mexico has not established that its measures contribute to securing compliance in the circumstances of this case. 8.187 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) is to be found in the Appellate Body Report in the US � Gambling case. When considering whether a measure could be considered to be "necessary", the Appellate Body dismissed the idea that consultations between the Members concerned could constitute a reasonably available alternative:
8.188 As indicated by the Appellate Body, measures that are of uncertain outcome do not qualify as reasonably available alternatives when considering whether a measure is necessary to secure compliance with a law or regulation. Following a similar rationale, in order to qualify as a measure "to secure compliance", it would seem that there should be a degree of certainty in the results that may be achieved through the measure. Such certainty is inherently absent in the case of international countermeasures. 8.189 Finally, it should be noted that, as regards the design of the measures, the Panel has already determined that, by their design and operation, the challenged tax measures afford protection to Mexican domestic production.411 The measures apply to imported soft drinks and syrups, and particularly to those produced with non-cane sugar sweeteners, from all origins. Even Mexico acknowledges that its measures are intended to rebalance its sugar market, so that surplus sugar that could otherwise have been exported to the United States could be sold in the Mexican domestic market.412 These considerations serve to further undermine Mexico's claim that, in the circumstances of this case, its measures are designed to secure compliance with laws or regulations. 8.190 For these reasons, the Panel is not convinced by Mexico's argument that the challenged tax measures are designed to secure compliance by the United States with laws or regulations.
8.191 As noted above, the United States argues that the phrase "laws or regulations" in paragraph (d) covers only internal or domestic laws and regulations, and does not extend to international obligations owed to Mexico by other countries under the NAFTA, and other international agreements. It contends that both the ordinary meaning of the terms "laws or regulations", as well as the context in which the terms appear � namely, Article XX of the GATT and more broadly the GATT and the WTO Agreements � support its interpretation that they are limited to domestic laws or regulations.413 In the view of the United States, Mexico has not established that the phrase "laws or regulations" as used in Article XX(d) means or includes "international law" or obligations owed to Mexico under an international agreement such as the NAFTA.414 8.192 Mexico responds that international agreements that are incorporated into domestic law, and the legal obligations arising from those agreements, would be covered by the phrase "laws or regulations". It argues that "international law is no less law than domestic law". In its opinion, "[t]he mere characterization of a rule as an obligation under an international agreement does not mean that such a rule is not also a 'law' within the meaning of Article XX(d)."415 8.193 The Panel commences its examination of the phrase "laws or regulations" by noting that "law" can be defined as a "rule of conduct imposed by secular authority" or as "[a]ny of the body of individual rules in force in a State or community"416, while "regulation" can be defined as a "rule prescribed for controlling some matter, or for the regulating of conduct".417 However, these definitions are too general to resolve the question of the meaning of these terms in Article XX(d),418 and in particular whether, as argued by Mexico, they include the rules of international agreements, such as those of the NAFTA. Nor does the Panel find guidance in this regard from the use of the plural form of the word "laws" in paragraph (d); nor from the different use of the word in the Spanish and French text of the GATT 1994 and the DSU.419 For the answer to this question it is necessary to look at the context in which the words occur. This context includes the other terms of paragraph (d) as well as the other provisions of GATT 1994, and indeed of the WTO covered agreements. 8.194 The phrase "laws or regulations" is most closely linked with the opening words of the paragraph: "to secure compliance with". Furthermore, in looking for the meaning of these words, the Panel found it necessary to look at the whole expression "to secure compliance with laws or regulations". It therefore follows logically that the conclusions reached in that analysis must also apply in the present context. Consequently, the conclusion that these words refer to enforcement action within a particular domestic legal system, and that they do not extend to international action of the type taken by Mexico, necessarily applies to both parts of this expression. 8.195 Both parties have sought to invoke the use of the terms "laws" and "regulations" elsewhere in the GATT 1994 and in other WTO agreements in support of their respective suggested interpretations.420 The use of these terms in the text of the GATT 1994421 and the WTO Agreement422 suggests that such terms relate principally to domestic rules issued by the authorities of Members (or of GATT contracting parties) and not to obligations under international agreements. At the same time, it should be noted that in a limited number of instances, the WTO Agreement refers to "regulations" adopted by the WTO Ministerial Conference423, and to "financial regulations" adopted by the General Council424, suggesting that the term "regulation" may also be associated to acts adopted by international bodies. The Panel does not find that this last consideration gives any decisive indication of the meaning of "laws or regulations" in Article XX(d), and in particular does not detract from the conclusion it has reached by considering the immediate context of the phrase. 8.196 The Panel does not see that the issue of the possible direct effect of an international agreement in domestic law is relevant in the present context. Whether or not an agreement has that effect, it retains its international character, and it is that character and the international character of the obligations that arise from it which lead to the possible use of countermeasures to encourage respect for those obligations. Thus, even if some of the rules of the agreement become part of national law as a result of a doctrine of direct effect, it remains the case that it is the international dimension of the agreement's rules that needs to be considered when interpreting the phrase "laws or regulations". 8.197 Finally, the Panel observes that, even if it were to assume that the expression "laws or regulations" in Article XX(d) could include international agreements such as the NAFTA, it would in any event conclude that, on the facts of the case, because of the uncertainty of their consequences, the challenged measures are not designed "to secure compliance with laws or regulations which are not inconsistent with the provisions" of GATT 1994.
8.198 For the reasons indicated above, the Panel concludes that Mexico has not demonstrated that the challenged measures are designed "to secure compliance with laws or regulations", within the meaning of Article XX(d) of the GATT 1994.
8.199 Mexico argues that the challenged tax measures are "necessary" to secure compliance by the United States with its own obligations under the NAFTA, a law that is not inconsistent with the provisions of the GATT 1994.425 8.200 Mexico argues that the measures at issue have "to a large extent" contributed to the end pursued, that is, securing the United States' compliance with the NAFTA. In its opinion, the evidence reveals that the adoption of the IEPS tax created a "desired dynamic to secure the United States' compliance or otherwise arrive at a mutually satisfactory resolution of the dispute". Mexico adds that the measures have had the effect of "attracting the attention" of the United States.426 As evidence to support its assertion, Mexico has presented a newspaper article on the effect of the IEPS tax in the bilateral sweeteners dispute between Mexico and the United States under the NAFTA. In the article, the president of the Mexican National Chamber of the Sugar and Alcohol Industries is quoted as saying: "Thanks to the tax, they [American sugar and corn growers, sugar refiners, and HFCS producers] are sitting at the negotiating table�Without the tax, they would not even answer the telephone."427 8.201 The United States responds that, even assuming arguendo that Mexico's tax measures contributed to NAFTA compliance, they are not "necessary" to secure such compliance as required by Article XX(d).428 8.202 Having found that Mexico, as the responding party invoking the affirmative defence, has not established that the challenged measures are designed to secure compliance with laws or regulations, under the terms of Article XX(d) of the GATT 1994, the Panel concludes that it does not need to determine whether such measures are "necessary" to secure such compliance by the United States. In some disputes, where a party fails to establish one of the elements of its case, the panel, with a view to assisting the Appellate Body may nevertheless proceed to rule on the remaining elements. However, such an approach is not possible in the present case because the question of whether a measure is "necessary" cannot be examined without taking into account the particular nature of that measure, especially the way in which it secures compliance with laws or regulations. In other words, the elements that Mexico must establish are so closely related that the Panel, having found that the measures do not meet the criterion that they are designed "to secure compliance", cannot meaningfully provide any additional analysis about whether the measures are necessary "to secure compliance".
8.203 As Mexico has failed to justify provisionally the challenged measures, it is not necessary for the Panel to consider whether the measures are consistent with the chapeau of Article XX.
8.204 For the reasons given above, the Panel concludes that Mexico has not established that the challenged measures are justified under Article XX of the GATT 1994.
8.205 Mexico requests that, if the Panel exercises its jurisdiction, it should refrain from making certain findings that could jeopardize Mexico's ability to mount a proper defence in international proceedings that are taking place in other fora. More specifically, Mexico requests that the Panel recommend that the parties (Mexico and the United States) take steps to resolve their sweeteners trade dispute within the NAFTA framework. Mexico also asks the Panel to employ particular care in terms of how it formulates its findings and recommendations, making clear that its findings apply solely to the parties' respective rights and obligations under the WTO agreements and cannot be taken to pre-judge legal rights under other rules of international law.429 In response to questions from the Panel, Mexico has clarified that the international proceedings that it is referring to, are three investor � State disputes under Chapter Eleven of the NAFTA, in which claims for monetary damages have been presented against Mexico.430 8.206 After being informed of the Panel's preliminary ruling regarding its decision to exercise jurisdiction, Mexico has reiterated its view that the present dispute is one more properly dealt with under the NAFTA and has repeated its argument that the Panel has broad powers of discretion under the GATT and the DSU to decide whether or not to issue findings in a matter that has been brought before it. In Mexico's opinion, this Panel does not have a legal obligation to issue findings on the claims raised by the United States. The relevant provisions in GATT and the DSU do not say that a panel must issue findings of breach on the merits of a claim. 431 8.207 Mexico states that neither Article XXII nor Article XXIII of GATT establish an obligation for panels to issue findings. In particular, Article XXIII:2 only provides that a matter (including an alleged failure of a Member to carry out its obligations or a Member's application of a measure which conflicts with the agreements) may be referred to the CONTRACTING PARTIES. Upon such referral, the CONTRACTING PARTIES shall promptly investigate the matter and shall make appropriate recommendations to the contracting parties which they consider to be concerned, or give a ruling on the matter, as appropriate. When dealing with a dispute, CONTRACTING PARTIES would thus have two options, "as appropriate": (i) to make recommendations to the contracting parties concerned; or, (ii) to issue a ruling in the matter. Articles XXII and XXIII of the GATT would confer this discretion upon the CONTRACTING PARTIES (and upon panels acting at their behest). Panels would have the power to determine what is appropriate in the circumstances of each particular case, even in situations where a breach of the agreements was alleged. 8.208 Mexico argues further that, when the WTO was created, this flexibility was preserved. The drafters of the WTO's dispute settlement system did not amend GATT Articles XXII and XXIII when GATT 1947 became GATT 1994. Moreover, in Article 3 of the DSU, the Members stated that they affirmed their adherence to the principles for the management of disputes heretofore applied under Articles XXII and XXIII of GATT 1947, and the rules and procedures as further elaborated and modified herein. This flexibility is further illustrated by Article 3.7 of the DSU: "... The aim of the dispute settlement mechanism is to secure a positive solution to a dispute. A solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred". The flexibility is further preserved in the same paragraph: "In the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements�" The inclusion of the qualifying word "usually" was intentional, in case of unusual circumstances in which the withdrawal of the measures concerned would not result in a positive solution to a dispute. It is thus open to panels to make other findings in order to secure a positive solution to a dispute. Article 11 of the DSU clarifies that it is within the Panel's discretion, based on an objective assessment of the matter before it, to recommend what steps the parties should take to "secure a positive solution to the dispute". This flexibility is confirmed by the terms of reference of this Panel: "To examine, in the light of the relevant provisions of the covered agreements cited by the United States in document WT/DS308/4, the matter referred to the DSB by the United States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements". 8.209 Mexico argues that, in this case, issuing findings would not secure a positive solution to the dispute. Findings would not lead to a mutually acceptable solution to the parties if Mexico continues to be blocked in having its grievance under the NAFTA resolved. The Panel should aim to treat both parties fairly. 8.210 Mexico requests that the Panel take particular care in formulating its findings and recommendations so as not to suggest that it is interpreting the two parties' rights and obligations under the NAFTA.432 8.211 Mexico additionally requests the Panel to make the following determinations of fact, whatever its resolution on the merits of this dispute may be. First, that Mexico and the United States have negotiated a bilateral preferential trade regime for sweeteners, which includes HFCS and sugar, products that compete in certain market segments. Second, that a legitimate broader dispute exists between Mexico and the United States regarding access of Mexican sugar to the US market. Third, that Mexico has exhausted all efforts to resolve that dispute through diplomatic channels, bilateral consultations and negotiations, and through NAFTA's Chapter Twenty dispute settlement mechanism. Fourth, that, notwithstanding the fact that Mexico requested the establishment of a NAFTA arbitral panel in 2000, to date the United States has not appointed panellists and has thus frustrated Mexico's attempt to resolve its grievances under the NAFTA. Fifth, that the tax measures at issue are a response to the United States' refusal to submit to NAFTA's dispute settlement; a response that seeks to induce the United States to do so, as well as to rebalance Mexico's market which has been affected by the sugar production surplus resulting in part from United States' HFCS imports and HFCS production from corn imported from the United States. Sixth, that the United States has stated that under international law it can validly adopt counter-measures when another State refuses to submit to dispute settlement mechanisms.433 8.212 Finally, Mexico requests the Panel, in the course of its deliberations, to give the fullest weight to Mexico's status as a developing country and to the fact that agrarian reform entails a lengthy process of adjustment.434 8.213 The United States responds to Mexico's arguments in this regard, by stating that they are not relevant to the resolution of this dispute. In the United States' opinion, Mexico's assertions that this is a NAFTA dispute and that a finding of WTO-inconsistency could prejudice Mexico's interests in on-going or future NAFTA proceedings, do not bear on whether Mexico's tax measures are consistent with Article III of the GATT 1994 or justified under Article XX(d). They are, therefore, not issues that this Panel needs to consider further. The United States adds that Mexico is incorrect in arguing that the Panel need not limit its recommendations in this dispute to a request that Mexico bring its WTO-inconsistent tax measures into compliance. Panel recommendations are limited to recommendations that WTO-inconsistent measures be brought into conformity with the covered agreements. This limitation is explicitly provided for in Article 19.1 of the DSU.435 8.214 Regarding Mexico's request that the Panel make certain determinations of fact, the United States responds that most of the facts identified by Mexico involve determinations of contested legal issues. The United States also disputes many of the facts identified by Mexico. It additionally argues that these determinations do not concern facts that this Panel needs to determine in order to fulfil its mandate in this dispute, which concerns the consistency of Mexico's tax measures with Mexico's WTO obligations and not the United States' actions under the NAFTA. The United States concludes that the Panel should not agree to make the determinations of fact requested by Mexico.436
8.215 Mexico has made a variety of requests regarding the findings and recommendations that the Panel might make. Most of these requests rest on the premise that the Panel has discretion as to what it may do in this regard, in support of which Mexico has made a number of arguments. The Panel will commence its analysis by examining these. In essence, Mexico argues that the Panel has discretion to depart from the procedure stated in Article 19.1 of the DSU:
8.216 In support of its arguments, Mexico has referred to Article 3.1 of the DSU437, which states that:
8.217 Mexico seems to invoke Article 3.1 of the DSU merely in order to address the text of Articles XXII and XXIII of the GATT. Since the latter provisions are explicitly included in WTO law as part of the GATT 1994, there is no need to invoke Article 3.1 of the DSU for this purpose. Mexico has not referred to any other matters that would require the invocation of Article 3.1. 8.218 Despite Mexico's argument438, the Panel does not find anything in Article XXII of the GATT which suggests that panels have the discretion not to issue rulings and recommendations in disputes where they have found measures to be inconsistent with WTO obligations. 8.219 As to Article XXIII of the GATT, Mexico points to several features in Article XXIII:2 in support of its contentions. This paragraph states in its relevant parts that:
8.220 Mexico claims that the use of the phrase "as appropriate" gives discretion to panels whether or not to issue rulings. In the first place, it is clear that, even if such discretion exists, it is given to CONTRACTING PARTIES (and their equivalent under the WTO, the DSB), and not to panels. More generally, it must be borne in mind that the use of panels in dispute settlement was not specifically envisaged in the text of the GATT adopted in 1947, but was developed in the following years. The topic was the subject of a number of decisions of the CONTRACTING PARTIES during this period.440 Many of the elements of these decisions have now been absorbed into the DSU. Terms in Article XXIII:2 should therefore not be read in isolation. In particular, the Panel regards it as significant that none of the DSU provisions touching on the powers of panels in regard to making recommendations qualifies those powers with the phrase "as appropriate". The relevant DSU provisions are considered below. 8.221 Mexico also claims support for its arguments from the use of the word "or" that connects the two options open to the CONTRACTING PARTIES: to make recommendations, and to give a ruling.441 The Panel is not aware of any authoritative interpretation of the term "ruling". However, it does not find that in this context the word "or" indicates that the two options are mutually exclusive. The term most likely includes a panel's conclusion that the respondent Member's measures are inconsistent with particular WTO obligations. Such a conclusion would invariably be accompanied by a recommendation. Consequently, whether in relation to the Panel in making proposals to the DSB, or to the DSB itself, this use of the word merely serves to present a list of the actions that may be taken. It does not indicate that the Panel has the flexibility that is claimed by Mexico. 8.222 Apart from these specific points, Mexico argues that Articles XXII and XXIII of the GATT confer "discretion upon the Contracting Parties (and panels acting at their behest)".442 The Panel does not see how these provisions can in general be read as giving discretion to either the CONTRACTING PARTIES or panels. 8.223 Mexico seeks support for its position from several provisions of the DSU. The Panel will examine these in turn in order to determine the present legal situation. 8.224 Mexico claims that Article 3.7 of the DSU confirms the flexibility accorded to panels.443 This provision states that:
8.225 Mexico refers in particular to the second and fourth sentences. Regarding the former, the Panel's view is that the statement that "[t]he aim of the dispute settlement mechanism is to secure a positive solution to the dispute" is too general to be set against the precise rules that define the role of panels. Regarding the fourth sentence ("[i]n the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements"), the Panel notes that it simply describes the desired outcome of dispute settlement proceedings, when a finding of inconsistency has already been made by the DSB and no other mutually acceptable solution has been reached between the parties. The word "usually" in the phrase "is usually to secure the withdrawal of the measures concerned" does not have the implications given to it by Mexico. This phrase must be read in conjunction with the remainder of the paragraph, which addresses the fall-back solutions to be adopted when immediate withdrawal of the measure is not achieved. These in effect state what should happen in other-than-usual cases. Consequently, Article 3.7 of the DSU does not confer a general discretion on panels to make any kind of recommendations they might think appropriate in a particular case. 8.226 Mexico has also invoked Article 11 of the DSU in support of its contentions.444 That provision reads:
8.227 Mexico points to the use of the word "should" rather than "shall" as an indication that panels have a discretion in these matters.445 It acknowledges that "should" can mean "shall"446, but says that this interpretation cannot be assumed. In fact, the obligatory nature of the panels' duties under Article 11 has been repeatedly emphasized by the Appellate Body.447 Indeed, the importance of the topics covered by this provision would not allow for any other interpretation. 8.228 Mexico has also argued that the terms of reference of this Panel confirm the notion that the Panel has flexibility to decide whether to issue findings on the claims. Mexico has recalled the terms of reference of this Panel: "[t]o examine... the matter referred to the DSB by the United States... and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements" (emphasis added by Mexico).448 The Panel notes that this formulation follows the standard terms of reference stated in Article 7.1 of the DSU, and that in its mention of recommendations and rulings it directly reflects the terms of Article XXIII:2 of the GATT, which also refers to the making of recommendations "or" the giving of a ruling.449 Consequently, the explanation that the Panel gave above in order to show that Article XXIII:2 provides no basis for Mexico's argument is also applicable in regard to the terms of reference. 8.229 Finally, the Panel returns to Article 19.1 of the DSU:
8.230 While Article 19.1 allows panels (and the Appellate Body) to suggest ways in which the Member concerned can implement the appropriate recommendations, this provision also confirms the Panel's earlier conclusion452 that it is a legal obligation for panels (and for the Appellate Body), once they have concluded that a measure is inconsistent with a covered agreement, to recommend that the Member concerned bring the measure into conformity with that agreement. Since the Panel has concluded that it does not have discretion to depart from the procedure stated in Article 19.1, there is no occasion for it to consider the various ways in which Mexico requested that such discretion should be exercised. Mexico does not request the Panel to make suggestions of the kind described in the second sentence of Article 19.1. In any event, since Mexico's interest lies in having the Panel issue recommendations directed at what the United States should do, such a step would serve no purpose.
8.231 As for the factual determinations requested by Mexico, the Panel notes that some of the facts included in its request have been taken into account and noted in the findings, to the extent that those facts are relevant for the resolution of the matter put before this Panel. 8.232 Both parties acknowledge that there is a dispute between them concerning the United States' commitments under the NAFTA regarding the access of Mexican sugar to the United States market.453 However, that is a separate dispute from the one that has been brought before this Panel. First, it is a dispute regarding obligations under a different international agreement, the NAFTA. Second, the DSU and the terms of reference approved by the DSB define the limits of the matter that is before of this Panel. Article 3.10 of the DSU states that WTO Members understand that "complaints and counter-complaints in regard to distinct matters should not be linked". Consequently, even if, arguendo, the dispute between Mexico and the United States regarding access of Mexican sugar in the United States market were a matter under the WTO covered agreements, a Panel could not link the complaints and counter-complaints related to distinct matters in one single case.
8.233 Mexico requests the Panel, in the course of its deliberations, to give the fullest weight to Mexico's status as a developing country and to the fact that agrarian reform entails a lengthy process of adjustment.454 8.234 The Panel is aware of the crucial importance of the provisions on special and differential treatment in the WTO agreements in general, and of Article 12.11 of the DSU in particular. During the Panel proceedings, the Panel has taken into account Mexico's status as a developing country, inter alia, when establishing the timetable for the panel process, and has accorded flexibility within that timetable for the receipt of Mexico's submissions and responses. In the course of these proceedings, however, Mexico has raised no specific provisions on differential and more-favourable treatment for developing country Members that require additional consideration.455
8.235 In light of the above considerations, the Panel will follow Article 19.1 of the DSU as regards the recommendations that it makes. IX. CONCLUSIONS AND RECOMMENDATION 9.1 For the reasons indicated in this report, the Panel has determined that, under the DSU, it has no discretion to decline to exercise its jurisdiction in the case that has been brought before it. 9.2 With respect to the United States' claims, the Panel concludes as follows:
9.3 With respect to Mexico's invocation of Article XX(d) of the GATT 1994, the Panel concludes that the challenged tax measures are not justified as measures that are necessary to secure compliance by the United States with laws or regulations which are not inconsistent with the provisions of the GATT 1994. 9.4 Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. The Panel concludes that, to the extent that the measures listed above are inconsistent with the GATT 1994, they have nullified or impaired benefits accruing to the United States under that agreement. 9.5 Having concluded that it has no discretion to depart from the procedure stated in Article 19.1 of the DSU, the Panel recommends that the Dispute Settlement Body request Mexico to bring the inconsistent measures as listed above into conformity with its obligations under the GATT 1994.
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220 United States' second written submission, para. 19. 221 Appellate Body Report on Canada � Periodicals, p. 21, DSR 1997:I, p. 449, at p. 466. See also, Appellate Body Report on Japan � Alcoholic Beverages II, p. 20, DSR 1996:I, p. 97, at p. 113. 222 GATT Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18, as quoted in Appellate Body Report on Japan � Alcoholic Beverages II, p. 20, DSR 1996:I, p. 97, at p. 113. 223 Appellate Body Report on Japan � Alcoholic Beverages II, pp. 21-22, DSR 1996:1, p. 97, at p. 114. 224 Ibid., pp. 19-21, DSR 1996:1, p. 97, at 112-114. 225 Appellate Body Report on Canada � Periodicals, p. 21, DSR 1997:I, p. 449, at p. 468. See also, Appellate Body Report on Japan � Alcoholic Beverages II, pp. 19-21, DSR 1996:1, p. 97, at pp. 112-114. 226 United States' first written submission, para. 22. United States' second written submission, para. 19. 227 United States' first written submission, paras. 8 and 29. United States' second written submission, para. 19. 228 United States' first written submission, para. 77. United States' second written submission, paras. 19, 27-29. See also United States' responses to Panel question No. 74, para 68. Exhibit US-40 (a), paras. 412, 415, 416, and 425 (original in Spanish). 229 United States' first written submission, para. 109. United States' second written submission, paras. 19, 27-29. European Communities' third party written submission, para. 25. Exhibit US-40 (a), paras. 367 and 407 (original in Spanish). 230 Exhibit US-40 (a), paras. 355 and 391 (original in Spanish). 231 United States' first written submission, para. 77. United States' second written submission, paras. 19, 27-29. See also United States' response to Panel question No. 74, para 68. 232 United States' second written submission, para. 19. See also United States' response to Panel question No. 74, para. 68. 233 United States' second written submission, para. 20. United States response to Panel question No. 15, para. 33, and question No. 74, paras. 71-73. 234 United States response to Panel question No. 22, para. 48. 235 As noted, for the remainder of this Section, we will refer to the Mexican Law on the Special Tax on Production and Services as LIEPS and to the tax itself (Special Tax on Production and Services, Impuesto Especial sobre Producci�n y Servicios) as IEPS. 236 Mexico's response to Panel question No. 48. 237 Appellate Body Report on Japan � Alcoholic Beverages II, p. 16, DSR 1996:1, p. 97, at p. 110. 238 Cf., Appellate Body Report on Canada � Periodicals, p. 19, DSR 1997:I, p. 449, at pp. 464-465. 239 GATT Panel Report on Japan � Alcoholic Beverages I , para. 5.8. See also, Panel Report on Canada � Periodicals, paras. 3.49 and 5.29. 240 Mexico's response to Panel questions Nos. 81-82. 241 LIEPS, article 2 (II.A). Although the tax is also imposed on the provision of services related to other products, such as alcoholic beverages, cigarettes and other tobacco products. 242 Appellate Body Report on Canada �Periodicals, pp. 17-18, DSR 1997:1, p. 449, at pp. 463-464. See also, Panel Report on Canada �Periodicals, paras. 5.28-5.29. 243 LIEPS, article 2 (II.A). 244 Ibid., Articles 17 and 3(XII). 245 Ibid., Chapter IV of the Law. 246 Ibid., Article 5-A. 247 See para. 8.44 above. 248 See paras. 8.45 and 8.50 above. 249 United States response to Panel question No. 74, paras. 72-75. 250 Appellate Body Report on Japan � Alcoholic Beverages II, p.23, DSR 1996:1, p. 97, at p. 115. 251 United States' second written submission, para. 20. 252 Exhibit US-15. 253 United States' first written submission, paras. 19, 20, 23-26 and 56. See also United States' response to Panel question No. 74, paras. 70 and 75. Exhibit US-42. 254 European Communities' third party written submission, para. 25. 255 United States' first written submission, paras. 93-140. United States' second written submission, paras. 14-16. 256 Mexico's first written submission, section III.D. Mexico's response to Panel question No. 83. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 18. 257 Appellate Body Report on Japan � Alcoholic Beverages II, p.24, DSR 1996:1, p. 97, at p. 116. 258 Appellate Body Report on Korea � Alcoholic Beverages, para. 115. 259 Ibid., para. 114. 260 See, for example, Appellate Body Report on Japan � Alcoholic Beverages II, p. 25, DSR 1996:1, p. 97, at p. 117. 261 United States' first written submission, para. 29. 262 United States' first written submission, paras. 96-102 and 107. United States response to Panel question No. 72, paras. 56-60. Exhibits US-22 and US-40 (a), paras. 339 to 426 (especially paras. 350 to 355, original in Spanish). 263 Exhibit US-40 (a), para. 355 (original in Spanish). 264 United States' first written submission, paras. 106-113. Exhibit US-27. 265 United States Department of Agriculture, "Sugar and Sweeteners Outlook" (May 27, 2004), Exhibit US-21, p. 19. 266 Ibid., p. 23. 267 United States' first written submission, paras. 14, 34, and 106-113. Exhibits US-26 and US-27. 268 Exhibit US-22. 269 Exhibit US-37 (a), table 1 (original in Spanish). 270 United States' first written submission, paras. 99, 100 and 111. Exhibit US-40 (a), para. 391 (original in Spanish). 271 United States' first written submission, para. 117. 272 Exhibit US-53 (original in Spanish). 273 Exhibit US-56 (original in Spanish). 274 Exhibit US-55 (original in Spanish). 275 Appellate Body Report on Japan � Alcoholic Beverages II, p. 27, DSR 1996:1, p. 97, at p. 119. 276 See paras. 8.45 and 8.50 above. 277 United States' second written submission, para. 20. 278 Appellate Body Report on Japan � Alcoholic Beverages II, p. 27, DSR 1996:1, p. 97, at p. 119. 279 United States response to Panel question No. 29, para. 68. 280 Appellate Body Report on Japan � Alcoholic Beverages II, p. 29, DSR 1996:I, p. 97, at p. 120. 281 See para.8.56, above. 282 See para. 8.82 above. 283 See, for example, Mexico's first written submission, para. 52. See also, United States' first written submission, footnote 30. United States' comments to Mexico's response to Panel question No. 90, para. 48. Exhibits US-59, US-61, US-62, US-63, US-64 and US-65. 284 Cf. Appellate Body Report on Japan � Alcoholic Beverages II, p. 31, DSR 1996:I, p. 97, at p. 122. See also, Panel Report on Japan � Alcoholic Beverages II, para. 6.35. 285 United States' first written submission, para. 20. Exhibit US-42. 286 Mexico's first written submission, section III.D. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 18. 287 Mexico's first written submission, para. 111. United States' first written submission, para. 3. 288 Mexico's response to Panel question No. 83. 289 Mexico's first written submission, para. 4. 290 Ibid., para. 16. 291 Ibid., para. 17. 292 Ibid., para. 20. 293 Appellate Body Report on Japan � Alcoholic Beverages II, pp. 27-28, DSR 1996:I, p. 97, at pp. 119. 294 Appellate Body Report on Canada � Periodicals, pp. 30-32, DSR 1997:1, p. 449, at pp. 475-476. 295 Exhibit US-28, US-29 (original in Spanish) and US-34(a), page 90 (original in Spanish). 296 Exhibit US-31 (original in Spanish). 297 Ibid. 298 United States' first written submission, paras. 155-162. United States' second written submission, paras. 34-36. 299 Mexico's first written submission, para. 114. Mexico's response to Panel question No. 9. 300 Appellate Body Report on Korea � Various Measures on Beef, para. 133. 301 United States' first written submission, paras. 155-162. United States' second written submission, paras. 34 and 36. 302 Appellate Body Report on EC � Asbestos, para. 99. 303 See para. 8.36 above. 304 Appellate Body Report on EC � Asbestos, para. 99. Cf. Appellate Body Report on Japan � Alcoholic Beverages II, p. 19-21, DSR 1996:I, p. 97, at pp. 112-114. 305 See paras. 8.69 to 8.77 above. 306 United States' first written submission, para. 160. United States' second written submission, para. 34. United States response to Panel question No. 11, para. 26; question No. 21, para. 44; and question No. 55, para. 14. 307 (footnote original) Panel Report on Italy � Agricultural Machinery, para. 12. 308 See, for example, Panel Report on Canada � Autos, para. 10.80. 309 See paras. 8.59 and 8.96 above. 310 See paras. 8.42 to 8.45 and 8.46 to 8.50 above. See also, para. 8.80 above. 311 United States' first written submission, paras. 159-160. United States' second written submission, paras. 34-36. United States response to Panel question No. 74, paras. 72-75. 312 Mexico's response to Panel questions Nos. 22 and 50. United States response to Panel question No. 74, para. 76. 313 LIEPS, article 19(VI). 314 LIEPS, article 19(VIII). 315 LIEPS, article 19(X). 316 LIEPS, article 19(XI). 317 LIEPS, article 19(XIII). 318 United States' first written submission, paras. 161-162. United States' second written submission, paras. 34 and 36. 319 United States' first written submission, paras. 25-26. United States response to Panel question No. 72, para. 59. 320 United States' first written submission, paras. 16 and 23-25. See also, Exhibits US-11(b), US-11(c), US-11(d) and US-11(e). 321 United States' first written submission, para. 25. See also Exhibit US-42. 322 See para. 8.102 above. 323 United States' first written submission, paras. 57 and 62-90. United States' second written submission, paras. 23 and 25-31. 324 United States response to Panel question No. 13, para. 29 and question No. 14, paras. 30-32. 325 United States' first written submission, paras. 59, 60, 85 and 89. United States' second written submission, para. 9. 326 United States' first written submission, para. 56. 327 Mexico's first written submission, para. 114. Mexico's response to Panel question No. 9. 328 Appellate Body Report on Canada � Periodicals, p. 24, DSR 1997:I, p. 449, at p. 465-466. 329 United States second written submission, para. 23. 330 United States first written submission, paras. 66-83. United States second written submission, paras. 23 and 26-29. United States responses to Panel question No.. 18, para. 39, and question No. 74, paras. 68 and 69. 331 Appellate Body Report on Canada � Periodicals, p. 21, DSR 1997:I, p. 449, at p. 466. See also, Appellate Body Report on Japan � Alcoholic Beverages II, pp. 21-22, DSR 1996:I, p. 97, at p. 113. 332 Exhibits US-22 and US-37(a), table 1 (original in Spanish). 333 United States first written submission, para. 72 and footnote 117. Exhibit US-38. 334 United States first written submission, paras. 73-76. Exhibits US-16, US-18, US-19, US-20, US-24 and US-39. 335 United States first written submission, paras. 77, 78 and 99. 336 United States first written submission, paras. 68-71 and 111. Exhibits US-36 and US-37. 337 United States first written submission, para. 81. 338 United States first written submission, para. 107. 339 United States first written submission, paras. 27 and 82. Exhibit US-43. Mexico's response to Panel question No. 44. 340 See footnote 115 of the United States first written submission. 341 United States first written submission, paras. 38-44. 342 Mexico's response to Panel question No. 45. 343 United States second written submission, para. 11. 344 Mexico's response to Panel questions Nos. 45, 50 and 52. Exhibit MEX-46. 345 United States second written submission, para. 32. United States response to Panel question No. 52, paras. 1-6. 346 Mexico's response to Panel question No. 52. 347 "Mexico � Tax Measures on Soft Drinks and other Beverages. Constitution of the Panel Established at the Request of the United States. Note by the Secretariat". Doc. WT/DS308/5/Rev.1 of 25 August 2004. 348 See, "Mexico � Tax Measures on Soft Drinks and other Beverages. Request for the Establishment of a Panel by the United States". Doc. WT/DS308/4 of 11 June 2004. 349 See, Appellate Body Report on Chile � Price Band System, para. 144. 350 See, for example, Panel report on US � Gasoline, and Panel Report on Argentina � Textiles and Apparel. 351 Panel report on Argentina � Textiles and Apparel, para. 6.13. 352 Appellate Body Report on US � Wool Shirts and Blouses, p. 19, DSR 1997:I, p. 323 at p. 340. 353 Appellate Body Report on Chile � Price Band System, para. 144. 354 See, "Mexico � Tax Measures on Soft Drinks and other Beverages. Constitution of the Panel Established at the Request of the United States. Note by the Secretariat". Doc. WT/DS308/5 of 20 August 2004. See also, "Mexico � Tax Measures on Soft Drinks and other Beverages. Request for the Establishment of a Panel by the United States". Doc. WT/DS308/4 of 11 June 2004. 355 See, for example, Panel Report on US � Certain EC Products; Panel Report on US � Wool Shirts and Blouses; Panel Report on Indonesia � Autos; Panel Report on Chile � Price Band System; and, Panel Report on Canada � Wheat Exports and Grain Imports. 356 LIEPS, article 1 (I). United States first written submission, paras. 85-86. United States second written submission, paras. 11, 23, 30-31. United States response to Panel question No. 14, para. 30; question No. 27, paras. 59-60; and question No. 74, para. 73. 357 Domestic soft drinks and syrups sweetened with cane sugar are exempted from the soft drink tax on their internal transfers under Article 8 of the LIEPS. 358 See para. 8.52 above. 359 Appellate Body Report on Japan � Alcoholic Beverages, p. 23, DSR 1996:I, p. 97, at p. 115. 360 United States response to Panel questions Nos. 14, 27 and 74. 361 United States first written submission, para. 87. United States second written submission, paras. 11, 23, 30-31 and 33. United States response to Panel question No. 14, paras. 30-31; question No. 27, paras. 59 and 61; and question No. 74, paras. 71-74. 362 See para. 8.59 above. 363 See para. 8.146 above. 364 United States first written submission, paras. 30, 32 and 35. Exhibits US-8, US-10, US-13 and US‑57. 365 See paras. 8.55 to 8.58 above. 366 United States first written submission, paras. 89-90. United States second written submission, paras. 11, 23, 30-31. United States response to Panel question No. 14, para. 32; question No. 27, paras. 59 and 61; question No. 74, paras. 71-74. 367 See para. 8.48 above. 368 See para. 8.51 above. 369 See para. 8.149 above. 370 United States first written submission, paras. 141-152. 371 United States responses to Panel questions, question No. 18, para. 39. United States second written submission, paras. 23-24. 372 Mexico's first written submission, section III.D. Mexico's responses to Panel questions, question No. 83. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 18. 373 See paras. 8.155 to 8.157 above. 374 Mexico's first written submission, paras. 115-138. 375 Mexico's first written submission, paras. 117-118 and 125. 376 See, for example, written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 3. 377 Written version of United States' oral statement during first substantive meeting of the Panel with the parties, paras. 7-8. United States second written submission, paras. 41-67. 378 United States second written submission, paras. 68-73. 379 Appellate Body Report on US � Gasoline, p. 22, DSR 1996:I, p. 3, at p. 20. 380 Appellate Body Report on Korea � Various Measures on Beef, para. 157. See also, Appellate Body Report on US � Gambling, para. 309. 381 (footnote original) Appellate Body Report, United States � Gasoline, supra, footnote 98, pp. 22-23; Appellate Body Report, United States � Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, pp. 14-16; Panel report, United States � Section 337, supra, footnote 69, para. 5.27. 382 Appellate Body Report on Korea � Various Measures on Beef, para. 157. See also, Appellate Body Report on US � Gambling, para. 295. 383 Mexico's first written submission, para. 118. 384 Written version of Mexico's oral statement during first substantive meeting of the Panel with the parties, para. 45. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 36. Mexico's response to Panel question No. 87. 385 Mexico's first written submission, para. 84. 386 Mexico's response to Panel question No. 25. 387 United States second written submission, paras. 2 and 37. 388 United States second written submission, para. 43. United States response to Panel question No. 30, para. 71. 389 United States second written submission, paras. 44-46. United States response to Panel question No. 30, paras. 72-74. 390 United States second written submission, para. 48. 391 United States second written submission, paras. 56-59. 392 See, for example, GATT Panel Report on EEC � Parts and Components, para. 5.14. 393 The New Shorter Oxford English Dictionary (Clarendon Press, 1993), Vol. I, p. 461. 394 Ibid., Vol. II, p. 2754. 395 Paragraph (d) illustrates the measures that may be covered by the provision by citing measures such as those "relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices". 396 "Preparatory Committee of the International Conference on Trade and Employment, Committee II, Report of the Technical Sub-Committee", Doc. E/PC/T/C.II/54/rev.1 (28 November 1946), p. 37. See also, Panel Report on EEC � Parts and Components, para. 5.16. Suggested Charter for an International Trade Organization of the United Nations (United States Department of State, September 1946), Article 32, p. 24. 397 Doc. E/PC/T/180 (19 August 1947), p. 97. 398 See, "Havana Charter for an International Trade Organization", United Nations Conference on Trade and Employment, Final Act and Related Documents (Lake Success, New York, April 1948), pp. 33-34. 399 Appellate Body Report on Korea � Various Measures on Beef, paras. 162-163. See also, Panel Report on US � Gasoline, para. 6.33. See also, GATT Panel Report on EEC � Parts and Components, paras. 5.17-5.18. 400 Mexico's response to Panel question No. 24. 401 A special exception for action of this kind is created by Article XXI(c) of GATT 1994. 402 Written version of Mexico's oral statement during first substantive meeting of the Panel with the parties, para. 42. See also, Mexico's response to Panel question No. 67. 403 See para. 8.199 below. 404 "Draft Articles on Responsibility of States for internationally wrongful acts" adopted by the International Law Commission at its fifty-third session (2001). 405 "Commentaries to the draft Articles on Responsibility of States for internationally wrongful acts" adopted by the International Law Commission at its fifty-third session (2001), p. 337. 406 Appellate Body Report on Korea � Various Measures on Beef, para. 157. See also, Appellate Body Report on Dominican Republic � Import and Sales of Cigarettes, para. 65. 407 Panel Report on Korea � Various Measures on Beef, para. 658. 408 See para. 8.175 above. 409 Mexico's second written submission, para. 83. 410 Appellate Body Report on US � Gambling, para. 317. 411 See para. 8.86 above. 412 Mexico's first written submission, para. 84. 413 Written version of United States' oral statement during first substantive meeting of the Panel with the parties, para. 9. United States second written submission, paras. 37 and 41-55. United States response to Panel question No. 30, paras. 72-78. 414 United States second written submission, paras. 42-55. Written version of United States' oral statement during second substantive meeting of the Panel with the parties, paras. 4-12. 415 Mexico's first written submission, para.118. Written version of Mexico's oral statement during first substantive meeting of the Panel with the parties, paras. 41-44. Mexico's second written submission, paras. 66‑73. 416 The New Shorter Oxford English Dictionary (Clarendon Press, 1993), Vol. I, pp. 1544-1545. 417 Ibid., Vol. II, p. 2530. 418 See also United States response to Panel question No. 30, para. 71. 419 The United States argues that there is a textual difference between "laws or regulations" and "international law". In support for its argument, it refers to the fact that one expression uses the singular "law" while the other uses the plural "laws". In its view, while it is possible to speak of international "law" in the same sense as to speak about "common law" or the "law of the sea", international law is not ordinarily used in the plural. It also argues that the word "law", as used in the expressions "public international law" (in Article 3.2 of the DSU) and "laws or regulations" (in Article XX(d) of the GATT 1994) has been translated differently in the Spanish and French texts of the agreements. See, United States second written submission, para. 51 and footnote 72. Written version of United States' oral statement during second substantive meeting of the Panel with the parties, para. 9. The Panel notes that the singular form of the word "law" can also be used in reference to any particular body of rules in force in a community, such as "criminal law", "commercial law" or "administrative law", without regard to whether it is domestic or international. 420 United States response to Panel question No. 30, paras. 72-74. United States second written submission, paras. 37 and 44-46. Written version of United States' oral statement during second substantive meeting of the Panel with the parties, paras. 6 and 9. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 77. Mexico's response to Panel question No. 84. 421 See, for example, Article II:5 ("tariff laws of such contracting party"); Article III:1 ("internal taxes and other internal charges, and laws, regulations and requirements"); Articles III:4 and III:8 ("laws, regulations and requirements"); Article V:3 ("applicable customs laws and regulations"); Article VII:1 (contracting party's "laws or regulations relating to value for customs purposes"); Article VIII:2 (contracting party's "laws and regulations"); Article IX:2 ("laws and regulations relating to marks of origin"); Article IX:4 ("laws and regulations of contracting parties relating to the marking of imported products"); Article X:1 ("Laws, regulations, judicial decisions and administrative rulings of general application, made effective by any contracting party "); and Article X:3(a) (contracting party's "laws, regulations, decisions and rulings"). 422 See Article XVI:4 of the WTO Agreement (Member's "laws, regulations and administrative procedures"). 423 See, for example, Articles VI:2 and VI:3 of the WTO Agreement. 424 Ibid., Articles VII:2, VII:3 and VII:4. 425 Mexico's first written submission, paras. 117 and 123-126. 426 Mexico's second written submission, para. 83. 427 Mexico's second written submission, para. 83. Exhibit MEX-8. 428 United States second written submission, paras. 60-67. 429 Mexico's first written submission, paras. 14, 104 and 110. 430 Mexico's response to Panel question No. 36. 431 Mexico's second written submission, paras. 48-64. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, paras. 43-52. 432 Mexico's second written submission, para. 86. 433 Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 36. 434 Mexico's first written submission, paras. 105-109, 137 and 139. 435 Written version of United States oral statement during second substantive meeting of the Panel with the parties, paras. 19 and 26. 436 United States response to Panel question No. 73, paras. 61-67. 437 Mexico's second written submission, para. 59. 438 Mexico's second written submission, para. 55. 439 Under the system of the GATT 1947, the expression "CONTRACTING PARTIES" in capital letters, meant the Contracting Parties "acting jointly". GATT, Article XXV:1. 440 See, for example, Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance (1979), BISD 26S/210. Doc. L/4907. See also, Decision on Improvements to the GATT Dispute Settlement Rules and Procedures (1989), Doc. L/6489. 441 Mexico's second written submission, para. 57. 442 Mexico's second written submission, para. 58. Written version of Mexico's oral statement during second substantive meeting of the Panel with the parties, para. 48. 443 Mexico's second written submission, para. 60. 444 Mexico's second written submission, para. 50. 445 Ibid. 446 Mexico cites in its support the Appellate Body Report on Canada � Aircraft, para. 187. See Mexico's second written submission, para. 50. 447 See, for example, Appellate Body Report on EC � Hormones, para. 133. See also, Appellate Body Report on Korea � Dairy, para. 137. 448 Mexico's second written submission, para. 63. 449 See paras. 8.219 to 8.222 above. 450 (footnote original) The "Member concerned" is the party to the dispute to which the panel or Appellate Body recommendations are directed. 451 (footnote original) With respect to recommendations in cases not involving a violation of GATT 1994 or any other covered agreement, see Article 26. 452 See para. 8.225 above. 453 Mexico's first written submission, paras. 1-8, 12, and 27-77. United States' response to Panel question No. 73, paras. 62-64. 454 Mexico's first written submission, paras. 105-109, 137 and 139. Mexico's response to Panel question No. 24. 455 Mexico's response to Panel question No. 39. |
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