Mexico tax measures on soft drinks and other beverages


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World Trade

Organization







WT/DS308/10

6 December 2005






(05-5832)










Original: Spanish


MEXICO – TAX MEASURES ON SOFT DRINKS AND

OTHER BEVERAGES
Notification of an Appeal by Mexico under Article 16.4 and Article 17 of the
Understanding on Rules and Procedures Governing the Settlement of


Disputes (DSU) and Rule 20(1) of the Working

Procedures for Appellate Review

The following notification dated 6 December 2005, from the delegation of Mexico, is being circulated to Members.



_______________

Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review, Mexico hereby notifies its decision to appeal to the Appellate Body certain issues of law dealt with in the Report of the Panel on Mexico – Tax Measures on Soft Drinks and Other Beverages (WT/DS308/R) (the "Panel Report") and certain legal interpretations developed by the Panel in this dispute.


1. Mexico seeks review by the Appellate Body of the Panel's legal conclusion that it has no discretion to decline to exercise jurisdiction in this case and its determination that, even if it had such discretion, the facts in the record do not justify a refusal by the Panel to exercise jurisdiction in this case. This conclusion is in error and is based on erroneous findings on issues of law and related legal interpretations concerning Articles 3, 7, 11 and 19 of the DSU and Articles XXII and XXIII of the GATT 1994. These errors are contained, inter alia, in paragraphs 7.1 to 7.18, 8.215 to 8.230 and 9.1 of the Panel Report.
2. Mexico seeks review by the Appellate Body of the Panel's legal conclusion that the challenged tax measures are not justified under Article XX of the GATT 1994 as measures necessary to secure United States compliance with laws or regulations which are not inconsistent with the provisions of the GATT 1994. This conclusion is in error and is based on erroneous findings on issues of law and related legal interpretations concerning Article XX of the GATT 1994. Paragraphs 8.168 to 8.204 and 9.3 of the Panel Report, among others, contain such errors, including the following:


              1. The Panel's interpretation and application of the expression "to secure compliance" in Article XX(d) of the GATT 1994 and its conclusion that it 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.1

              2. The Panel's conclusion that the challenged tax measures "are not designed to secure compliance" within the meaning of Article XX(d) of the GATT 1994 and are not eligible for consideration under Article XX(d) of the GATT 1994.2

              3. The Panel's interpretation and application of the phrase "laws or regulations" contained in Article XX(d) of the GATT 1994 and its conclusion that this phrase does not cover international treaties such as NAFTA.3

              4. The Panel's failure to consider whether the Mexican measures are "necessary" to secure compliance with a law that is not inconsistent with the provisions of the GATT 1994.4

3. Mexico seeks review by the Appellate Body, in the light of DSU Article 11, of the Panel's conclusion that "Mexico has not established that its measures contribute to securing compliance in the circumstances of this case".5 This conclusion does not reflect an objective approach to analysis of the available evidence on the effects of the Mexican measures, and is inconsistent with the treatment given by the Panel to relevant evidence. Accordingly, this conclusion is inconsistent with the Panel's duty to make an objective assessment of the matter before it.
4. Mexico considers that the Panel also failed to make an objective assessment of the matter before it, including the facts of the case, inconsistently with its obligation under Article 11 of the DSU, with respect to Mexico's request for determinations of fact, status and relevance of the NAFTA dispute between the parties.6
5. Mexico also considers that, in concluding that international countermeasures cannot qualify for consideration as measures designed to "secure compliance" within the meaning of Article XX(d) of the GATT 19947, the Panel improperly increased the obligations of WTO Members and reduced the rights of Members under the covered agreements.
6. In the event that the Appellate Body reverses the Panel's conclusion that Mexico's tax measures are not justified under Article XX(d) of the GATT 1994, Mexico requests that the Appellate Body complete the legal analysis under Article XX of the GATT 1994.
Those provisions of the covered agreements which Mexico considers the Panel to have interpreted or applied erroneously include Articles XX, XXII and XXIII of the GATT 1994 and Articles 3, 7, 11 and 19 of the DSU.

__________



1WT/DS308/R, 7 October 2005.

2These measures are described in more detail in paragraphs 2.2-2.5 of the Panel Report.

3Panel Report, para. 4.2.

4North American Free Trade Agreement (the "NAFTA").

5Panel Report, para. 3.2.

6Ibid.

7The Panel's preliminary ruling is reproduced as Annex B to the Panel Report.

8Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU").

9Panel Report, para. 7.1.

10Ibid.

11High-fructose corn syrup ("HFCS").

12Panel Report, para. 9.2. (original underlining)

13Ibid., para. 9.3.

14Ibid., para. 9.5.

15WT/DS308/10 (attached as Annex I to this Report).

16WT/AB/WP/5, 4 January 2005.

17Pursuant to Rule 21(1) of the Working Procedures. A courtesy English translation of Mexico's appellant's submission, prepared by Mexico, was provided to the participants and third participants on 16 December 2005.

18Pursuant to Rule 22(1) of the Working Procedures.

19Pursuant to Rule 24(1) of the Working Procedures.

20Pursuant to Rule 24(2) of the Working Procedures.

21At the oral hearing, Mexico stated that its arguments are set out in it's appellant's and oral submissions. Mexico added, however, that it would not object should the Appellate Body decide to accept the amicus  brief. The United States noted that the  amicus  brief had been received late in the proceedings and that it presented new arguments and claims of error that were not part of Mexico's Notice of Appeal. Accordingly, while taking the view that the Appellate Body had the authority to accept the brief, the United States argued that it should decline to do so in the circumstances of this dispute.

1Mexico's appellant's submission, para. 64 ("obliga a un Grupo Especial de la OMC a abordar las reclamaciones").

2Ibid., para. 65 ("facultades implícitas en relación con su competencia").

3Mexico's appellant's submission, para. 73 ("los elementos predominantes de una disputa derivan de reglas del derecho internacional").

4Ibid. ("foro adecuado").

5Ibid.

6Ibid., para. 67 ("función jurisdiccional").

7See  ibid., paras. 73-74. The passage of the ruling that Mexico refers to reads as follows:

… one party cannot avail himself of the fact that the other has not fulfilled some obligation … if the former party has … prevented the latter … from having recourse to the tribunal which would have been open to him.



(Permanent Court of International Justice, Factory at Chorzów (Germany v. Poland) (Jurisdiction), 1927, PCIJ Series A, No. 9, p. 31) (underlining added by Mexico omitted)

8Mexico's appellant's submission, para. 98 ("destino"; "resultado").

9Ibid., para. 102 ("aun si el resultado de la medida es totalmente incierto, impredecible, bien puede estar 'destinada a lograr la observancia de las leyes y reglamentos' en el sentido del artículo XX(d)").

10Ibid., para. 104 ("el resultado incierto de las contramedidas internacionales es una razón para excluirlas como medidas que pueden ser objeto de consideración, en el marco del inciso (d) del artículo XX") (quoting Panel Report, para. 8.187).

11Mexico's appellant's submission, paras. 174 and 177-178 (referring to Appellate Body Report,
US – Shrimp (Article 21.5 – Malaysia), paras. 123-124 and 128-130).

12Mexico's appellant's submission, para. 173 ("retorsiones sectoriales limitadas al segmento del mercado relevante (i.e., el mercado de los edulcorantes)"). Mexico asserts that the facts of this case are similar to the situation examined by the Appellate Body in  US – Shrimp (Article 21.5 – Malaysia). Mexico explains that, in that dispute, the Appellate Body found that a United States unilateral measure was not inconsistent with the chapeau of Article XX of the GATT 1994. According to Mexico, in that case, the Appellate Body did not require the United States to conclude an international agreement with the disputing parties, but rather required it to have made good faith efforts in that direction. In this case, Mexico argues that it has sought to resolve the dispute through NAFTA and bilateral negotiations, but "the United States has essentially blocked Mexico's ability to have its grievance resolved." (Mexico's appellant's submission, paras. 174-181 ("Estados Unidos esencialmente ha bloqueado la posibilidad de México para resolver su agravio."))

13Ibid., para. 182 ("una respuesta proporcional, legítima y legalmente justificada a las acciones y omisiones de Estados Unidos").

14Ibid., heading III.E ("independiente y adicional").

15Panel Report, para. 8.186. See also, Mexico's Notice of Appeal, para. 3.

16Mexico's appellant's submission, para. 166 ("la consecución de los objetivos de las contramedidas puede llevar tiempo").

17United States' appellee's submission, para. 124.

18Ibid., para. 127 (quoting Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 36).

19Ibid., para. 129 (quoting Mexico's appellant's submission, para. 68).

20Ibid. (referring to Appellate Body Report, US – Wool Shirts and Blouses, p. 19, DSR 1997:I, 323, at 340; and to Appellate Body Report, Canada – Wheat Exports and Grain Imports, para. 133).

21Ibid., para. 130.

22The United States observes that Article 3.2 of the DSU and Article 17.6 of the Anti-Dumping Agreement  also use the term "law" in the singular when referring to "public international law".

23United States' appellee's submission, para. 37.

24Ibid., para. 85. (footnote omitted)

25Ibid., para. 41.

26Ibid., para. 54 (referring to Panel Report, paras. 8.175 and 8.178).

27United States' appellee's submission, para. 70 (quoting Mexico's appellant's submission, paras. 104-105).

28Ibid., para. 71.

29Ibid. (original emphasis)

30Ibid., para. 72. (footnote omitted)

31Ibid., para. 96.

32Ibid., para. 97.

33Ibid.

34According to the United States, the Appellate Body rulings in US – Shrimp (Articles 21.5 – Malaysia) do not support Mexico's position, because that dispute did not involve a disagreement about the commitments made under an international agreement. (United States' appellee's submission, paras. 109-110)

35Ibid., para. 114.

36Ibid., para. 118.

37China's third participant's submission, para. 5.

38Ibid., para. 6.

39Ibid., para. 7.

40European Communities' third participant's submission, para. 8.

41Ibid., paras. 10-11.

42Ibid., para. 44.

43Japan's third participant's submission, para. 22.

1Panel Report, para. 7.18.

2Ibid., para. 8.198.

3Ibid., para. 8.186.

1Panel Report, para. 7.1.

2Ibid.

3Ibid.

4Ibid., para. 7.7.

5Ibid.

6Ibid., para. 7.8 (referring to Appellate Body Report, Australia – Salmon, para. 223).

7Ibid.

8Ibid., para. 7.9.

9Ibid.

10Mexico's appellant's submission, para. 65 ("tienen ciertas facultades implícitas en relación con su competencia, las cuales derivan de su propia naturaleza como órganos jurisdiccionales").

11Ibid., para. 73 ("los elementos predominantes de una disputa derivan de reglas del derecho internacional, cuyo cumplimiento no puede reclamarse en el marco OMC, por ejemplo las disposiciones del TLCAN"; "cuando una de las partes contendientes se rehúsa a someterse al foro adecuado").

12Ibid.

13Ibid., para. 65 ("Nada en el ESD ... explícitamente descarta que ... existan").

14Ibid., para. 72 ("el Grupo Especial debió haber ejercido esa facultad en las circunstancias de esta disputa").

15United States' appellee's submission, para. 125.

16China's third participant's submission, para. 6.

17European Communities' third participant's submission, para. 8.

18Mexico's appellant's submission, para. 71 ("México no discute que el Grupo Especial tiene competencia para resolver la reclamación que Estados Unidos ha interpuesto") (quoting Mexico's response to Question 35 posed by the Panel; Panel Report, p. C-16). Mexico confirmed this point in response to questioning at the oral hearing.

19Panel Report, para. 7.13. In response to questioning at the oral hearing, Mexico argued that the panel in Argentina – Poultry Anti-Dumping Duties "at least contemplated the existence of a situation where an impediment found in another agreement might give rise to declining jurisdiction". The panel in Argentina – Poultry Anti-Dumping Duties referred to Article 1 of the Protocol of Olivos, which provides that, once a party decides to bring a case under either the MERCOSUR or WTO dispute settlement forum, that party may not bring a subsequent case regarding the same subject-matter in the other forum, and went on to state:

The Protocol of Olivos ... does not change our assessment, since that Protocol has not yet entered into force, and in any event it does not apply in respect of disputes already decided in accordance with the MERCOSUR Protocol of Brasilia. Indeed, the fact that parties to MERCOSUR saw the need to introduce the Protocol of Olivos suggests to us that they recognised that (in the absence of such Protocol) a MERCOSUR dispute settlement proceeding could be followed by a WTO dispute settlement proceeding in respect of the same measure.

(Panel Report, Argentina – Poultry Anti-Dumping Duties, para. 7.38) (footnote omitted)


20Thus, Mexico suggested that, in the circumstances of this dispute, it would not have been "appropriate" for the Panel "to issue findings on the merits of the United States' claims." (Panel Report, para. 7.11 (referring to Mexico's first written submission to the Panel, paras. 102-103))

21Mexico's appellant's submission, para. 72 ("debió haber ejercido esa facultad en las circunstancias de esta disputa").

22Ibid., para. 65 ("tienen ciertas facultades implícitas en relación con su competencia, las cuales derivan de su propia naturaleza como órganos jurisdiccionales").

23Appellate Body Report, US – 1916 Act, footnote 30 to para. 54. See also Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 53. In that dispute, the Appellate Body also stated that:

… panels have to address and dispose of certain issues of a fundamental nature, even if the parties to the dispute remain silent on those issues. ... [P]anels cannot simply ignore issues which go to the root of their jurisdiction—that is, to their authority to deal with and dispose of matters. Rather, panels must deal with such issues—if necessary, on their own motion—in order to satisfy themselves that they have authority to proceed.

(Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 36)


24Appellate Body Report, EC – Hormones, footnote 138 to para. 152. See also Appellate Body Report, US – FSC (Article 21.5 – EC), paras. 247-248.

25Appellate Body Report, US – Wool Shirts and Blouses, p. 19, DSR 1997:I, 323, at 340. Mexico referred, in its appellant's submission, to a panel's discretion to apply judicial economy as "an example of situations where WTO panels have refrained from exercising validly established jurisdiction on certain claims that are before them." (Mexico's appellant's submission, para. 68 ("un ejemplo de situaciones en las que grupos especiales de la OMC se han abstenido de resolver ciertas reclamaciones sobre las cuales tienen competencia sustantiva validamente establecida")) Mexico clarified at the oral hearing, however, that "it is clear that in the context of the exercise of judicial economy a panel cannot decline entirely to exercise jurisdiction." The United States noted, in this regard, that the doctrine of judicial economy "does not relieve a panel from its duty to carry out its mandate under Articles 7 and 11 of the DSU to resolve the dispute" before it. (United States' appellee's submission, para. 130)

26Appellate Body Report, Australia – Salmon, para. 223.

27Appellate Body Report, India – Patents (US), para. 92.

28Mexico's appellant's submission, para. 65 ("Nada en el ESD ... explícitamente descarta que ... existan").

29The Panel's terms of reference in this dispute were as follows:

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.

(WT/DS308/5/Rev.1, para. 2)



30In this regard, we further note the Appellate Body's statement that, "as a matter of due process, and the proper exercise of the judicial function, panels are required to address issues that are put before them by the parties to a dispute." (Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 36)

31Appellate Body Report, Canada – Aircraft, para. 187 (quoting The Concise Oxford English Dictionary (Clarendon Press, 1995), p. 1283).

32See, for instance, Appellate Body Report, EC – Export Subsidies on Sugar, paras. 329 and 335. See also Appellate Body Report, Canada – Aircraft, paras. 187-188; and Appellate Body Report, EC – Hormones, para. 133.

33Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 89. (footnote omitted)

34(emphasis added) Thus, the Appellate Body has explained that there is "little in the DSU that explicitly limits the rights of WTO Members to bring an action". (Appellate Body Report, EC – Export Subsidies on Sugar, para. 312) In a similar vein, the Appellate Body has also observed that a WTO "Member has broad discretion in deciding whether to bring a case against another Member under the DSU." (Appellate Body Report, EC – Bananas III, para. 135) Further, Article 3.7 of the DSU states that "[b]efore bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful." (emphasis added) Finally, Article 3.10 of the DSU stipulates that "if a dispute arises, all Members will engage in these procedures  in good faith in an effort to resolve the dispute." (emphasis added)

35Article 3.2 of the DSU provides that "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements."

Article 19.2 of the DSU states that "[i]n accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements."



36Panel Report, para. 7.8.

37See  supra, para. 1 and footnote Error: Reference source not found thereto.

38Mexico's appellant's submission, para. 73.

39In its appellant's submission, Mexico explains that, in 1998, it initiated NAFTA dispute settlement proceedings because it was of the view that the United States was acting inconsistently with its obligation under the NAFTA relating to market access for Mexican sugar to the United States market. In 2000, Mexico requested the establishment of a panel under Article 2008 of the NAFTA. Subsequently, according to Mexico, it appointed its panelists to the NAFTA panel; however, the United States failed to appoint its panelists and also instructed the United States' Section of the NAFTA Secretariat not to appoint panelists. (Mexico's appellant's submission, paras. 15-27)

As a result, "[n]o further step could be taken by Mexico to form the NAFTA panel and have its grievance heard." (Mexico's appellant's submission, para. 28 ("No había otros pasos que México pudiera dar conforme a las disposiciones del tratado para conseguir integrar el panel y que su agravio fuera oído")) Mexico explains that it subsequently adopted the measures at issue in this dispute "to compel the United States to comply with its obligations and [to] protect [Mexico's] own legal and commercial interests." (Ibid., para. 42 ("para mover a Estados Unidos a cumplir con sus obligaciones, a la vez que protegió [los] legítimos intereses jurídicos y comerciales [de México]"))

The United States disputes these arguments by Mexico and argues that "the Appellate Body [should not] undertake itself to assess the correctness of Mexico's assertions as to what the NAFTA requires." (United States' appellee's submission, para. 18) It submits that, if the WTO dispute settlement were to "become a forum for WTO Members to ... obtain findings as to the consistency of another Member's measure with any non-WTO agreement", this "would be a departure from the function the WTO dispute settlement system was established to serve". (Ibid., para. 41) The United States also submits that "it is in full compliance with its obligations under NAFTA's dispute settlement mechanism." (Ibid., para. 84)

While these NAFTA issues have been described by the parties by way of background to the WTO dispute, neither the Panel or the Appellate Body was called upon to examine these issues.



40Panel Report, para. 7.14. The Panel noted, in this regard, that:

[i]n the present case, the complaining party is the United States and the measures in dispute are allegedly imposed by Mexico. In the NAFTA case, the situation appears to be the reverse: the complaining party is Mexico and the measures in dispute are allegedly imposed by the United States. As for the subject matter of the claims, in the present case the United States is alleging discriminatory treatment against its products resulting from internal taxes and other internal measures imposed by Mexico. In the NAFTA case, instead, Mexico is arguing that the United States is violating its market access commitments under the NAFTA.



41Mexico's response to questioning at the oral hearing.

42Article 2005.6 of the NAFTA provides:

Once dispute settlement procedures have been initiated under Article 2007 or dispute settlement proceedings have been initiated under the GATT, the forum selected shall be used to the exclusion of the other, unless a Party makes a request pursuant to paragraph 3 or 4. (emphasis added)



43Mexico's response to questioning at the oral hearing.

44In this context, Mexico has alluded to paragraph 7.38 of the Panel Report in Argentina – Poultry Anti-Dumping Duties. See also  supra, footnote Error: Reference source not found.

45Mexico's appellant's submission, para. 73 ("[es] cuestion[able]").

46See Panel Report, para. 7.14.

47Mexico's appellant's submission, para. 73 ("cuestiona que sus obligaciones sean aplicables frente a Estados Unidos a la luz del siguiente principio general del derecho internacional"). The passage of the ruling that Mexico refers to reads as follows:

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



(Permanent Court of International Justice, Factory at Chorzów (Germany v. Poland) (Jurisdiction), 1927, PCIJ Series A, No. 9, p. 31) (underlining added by Mexico omitted)

48We also note that the ruling of the PCIJ in the Factory at Chorzów case relied on by Mexico was made in a situation in which the party objecting to the exercise of jurisdiction by the PCIJ was the party that had committed the act alleged to be illegal. In the present case, the party objecting to the exercise of jurisdiction by the Panel (Mexico) relies instead on an allegedly illegal act committed by the other party (the United States).

49Panel Report, paras. 7.1 and 7.18.

1Therefore, we express no view on the Panel's interpretation of Article III in this case.

2Panel Report, para. 8.162 (referring to Mexico's first written submission to the Panel, paras. 117-118 and 125).

3Ibid., para. 8.163.

4Ibid., para. 8.175. (emphasis added)

5Ibid., para. 8.178.

6Ibid., para. 8.179.

7Ibid., para. 8.181.

8Panel Report, para. 8.185.

9Ibid., para. 8.186.

10Ibid.

11Ibid.

12Ibid., para. 8.190. (original emphasis)

13Ibid., para. 8.194.

14Ibid.

15Ibid., para. 8.197.

16Panel Report, para. 8.198.

17Ibid., para. 8.202.

18Ibid., para. 8.203.

19Ibid., para. 8.204.

20Mexico's appellant's submission, para. 79 and footnote 49 thereto.

21Ibid., para. 126.

22Ibid., para. 129 ("suficientemente amplia para incluir tratados internacionales, como el TLCAN").

23Ibid. ("el empleo de los términos "leyes" y "reglamentos" en el resto del GATT de 1994 y en otros Acuerdos de la OMC no demuestran que los tales términos excluyen las reglas del derecho internacional"). (footnote omitted)

24United States' appellee's submission, para. 30 (referring to definitions in Black's Law Dictionary, (1990), p. 816).

25Ibid., para. 37.

26Ibid., para. 38. (footnote omitted)

27Appellate Body Report, Korea – Various Measures on Beef, para. 157.

28Ibid.

29Ibid. (referring to Appellate Body Report, US – Gasoline, pp. 22-23, DSR 1996:I, 3, at 20-21; Appellate Body Report, US – Wool Shirts and Blouses, pp. 14-16, DSR 1997:I, 323, at 335-337; and GATT Panel Report, US – Section 337, para. 5.27).

30United States' appellee's submission, footnote 62 to para. 39; Mexico's response to questioning at the oral hearing.

31Panel Report, footnote 419 to para. 8.193; United States' appellee's submission, para. 31.

32In some WTO Members, certain international rules may have direct effect within their domestic legal systems without requiring implementing legislation. In such circumstances, these rules also become part of the domestic law of that Member.

33 The European Communities notes that:

[i]t is entirely possible that international agreements may be incorporated into the domestic legal order in such a way that they can be invoked as against individuals, and enforce[d] against them. If this is the case, the international agreement, albeit international in origin, may be regarded as having become an integral part of the domestic legal order of such Member, and thus a law or regulation within the meaning of Article XX (d) [of the] GATT [1994].



(European Communities' third participant's submission, para. 41)

34The participants agree that the list in Article XX(d) is not exhaustive. (See Mexico's response to Question 67 posed by the Panel after the second Panel meeting; Panel Report, p. C-61; United States' response to Question 31 posed by the Panel after the first Panel meeting; Panel Report, p. C-42; and United States' response to Question 67 posed by the Panel after the second Panel meeting; Panel Report, pp. C-79-C-80)

35European Communities' third participant's submission, para. 38.

36The United States also points out that the terms "laws or regulations" are qualified by the requirement that they not be "inconsistent" with the GATT 1994. The United States explains that the word "inconsistent" appears elsewhere in the GATT 1994 in connection with domestic measures. In contrast, when referring to treaty obligations, the WTO agreements use the word "conflict". (United States' appellee's submission, para. 33) In our view, this distinction supports the position that the terms "laws or regulations" refer to the rules that are part of the domestic legal system of a WTO Member, including international rules that have been incorporated or have direct effect in a particular domestic legal system.

37United States' appellee's submission, para. 34.

38If an international commodity agreement contains GATT-inconsistent provisions, Article XX(h) would still serve the purpose of justifying such an agreement, even if it could not be justified under Article XX(d).

39United States' appellee's submission, para. 35; China's third participant's submission, para. 21.

40The Panel noted that there are examples of international "regulations" within the WTO agreements themselves. The Panel cited, as examples, Article VI of the Marrakesh Agreement Establishing the World Trade Organization  that refers to "regulations" to be adopted by the Ministerial Conference, and Article VII that refers to "financial regulations" to be adopted by the General Council and to the "regulations" of the GATT 1947. (Panel Report, footnotes 423 and 424 to para. 8.195) Article XXIV of the GATT 1994 also uses the term "regulations" when referring to rules applied by free trade areas or customs unions. Nevertheless, we agree with Japan that, in these instances, the context makes it clear that the regulations are international in character. (Japan's third participant's submission, paras. 17-19)

41Appellate Body Report, Korea – Various Measures on Beef, para. 157.

42Panel Report, para. 8.175.

43Ibid., para. 8.185.

44Ibid., para. 8.186. See also Mexico's appellant's submission, paras. 104-116.

45The European Communities and Japan agree with Mexico that the Panel erred in implying that whether a measure falls within the meaning of the phrase "to secure compliance" depends on the degree of certainty that the measure will achieve its intended results. (European Communities' third participant's submission, para. 26; Japan's third participant's submission, para. 10)

46Panel Report, paras. 8.187-8.188 (referring to Appellate Body Report, US – Gambling, para. 317).

47Appellate Body Report, Korea – Various Measures on Beef, para. 164.

48We note that, at the request of the United States, the Panel clarified in the interim review phase that:

… its reasoning does not focus on whether the achievement of Mexico's objective through the measures at issue is certain or uncertain. Rather, the Panel considers that international countermeasures (as the ones allegedly imposed by Mexico) are intrinsically unable to secure compliance of laws and regulations. In contrast, national measures are, beyond particular factual considerations, usually in a position to achieve [] that objective, through the use of coercion, if necessary.



(Panel Report, para. 6.12) (original italics; underlining added)

49The European Communities notes that "even within the domestic legal order of WTO Members, enforcement of laws and regulations may not simply be taken for granted, but may depend on numerous factors". (European Communities' third participant's submission, para. 28)

50Panel Report, para. 8.178.

51Mexico's appellant's submission, paras. 174-178.

52See Appellate Body Report, US – Shrimp, paras. 2-6.

53See ibid., paras. 169-172; and Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia), para. 128. See also United States' appellee's submission, para. 108.

54United States' appellee's submission, para. 37.

55Mexico's interpretation would also undermine the limitations in paragraphs 3 and 4 of Article 22 as to the magnitude and the trade sectors in which such countermeasures could be taken. (Ibid., paras. 37-38)

56At the oral hearing, Mexico argued that the terms "laws or regulations" would not include the WTO agreements because the latter are  lex specialis.

57Article 3.2 of the DSU states that the WTO's dispute settlement system "serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements". (emphasis added)

58See  supra, para. 14.

59We note that, in its analysis, the Panel also referred to the negotiating history of the GATT 1947, and particularly to the rejection of a proposal presented by India during the negotiations on the International Trade Organization (the "ITO") Charter according to which Members would be permitted to justify, on a temporary basis, retaliatory measures under Article XX. (See Panel Report, para. 8.176 (referring to ITO Doc. E/PC/T/180 (19 August 1947), p. 97;  and "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)

60See  supra, paras. 4-6.

61See  supra, para. 9.

62See  supra, para. 9.

63Mexico's appellant's submission, para. 138.

64See, for example, Appellate Body Report, Dominican Republic – Import and Sale of Cigarettes, para. 74.

65In its Notice of Appeal, Mexico claimed that the Panel "failed to make an objective assessment of the matter before it, including the facts of the case, inconsistently with its obligation under Article 11 of the DSU, with respect to Mexico's request for determinations of fact, status and relevance of the NAFTA dispute between the parties." (Mexico's Notice of Appeal (attached as Annex I to this Report), para. 4 (referring to Panel Report, paras. 8.231 and 8.232) (footnote omitted)) Mexico also asserted that "in concluding that international countermeasures cannot qualify for consideration as measures designed to 'secure compliance' within the meaning of Article XX(d) of the GATT 1994, the Panel improperly increased the obligations of WTO Members and reduced the rights of Members under the covered agreements." (Ibid., para. 5 (referring to Panel Report, paras. 8.181 and 8.186) (footnote omitted)) Mexico did not offer arguments to support these two claims in its appellant's submission. In response to questioning at the oral hearing, Mexico confirmed that it did not intend to pursue these claims further.

66Mexico's appellant's submission, heading III.E ("independiente y adicional").

67Panel Report, paragraph 8.186. See also, Mexico's Notice of Appeal, para. 3.

68Mexico's appellant's submission, para. 167 ("Las pruebas en el expediente demuestran que las medidas en cuestión no están desprovistas de efectos que contribuyen a lograr la observancia en las circunstancias de este caso, cambiando la dinámica en la controversia derivada del TLCAN y forzando a Estados Unidos a prestar atención a los agravios de México").

69United States' appellee's submission, para. 118.

70Ibid.

1 Panel Report, paragraphs 8.170 to 8.181.

2 Panel Report, paragraphs 8.182 to 8.190 and 8.197 to 8.198.

3 Panel Report, paragraphs 8.191 to 8.197.

4 Panel Report, paragraphs 8.199 to 8.202.

5 Panel Report, paragraph 8.186.

6 Panel Report, paragraphs 8.231 and 8.232.

7 Panel Report, paragraphs 8.181 and 8.186.



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