WT/DS308/AB/R (6 March 2006)
Mexico – Tax Measures on Soft Drinks and Other
Beverages.
1.
Mexico appeals
certain issues of law and legal interpretations developed in the Panel Report, Mexico – Tax Measures on Soft Drinks and
Other Beverages (the "Panel Report"). The Panel was established to consider a complaint by the United
States concerning certain tax measures and bookkeeping requirements imposed by
Mexico on soft drinks and other beverages that use sweeteners other than cane
sugar.
2.
The measures
challenged by the United States include:
(i) a 20 per cent tax on the transfer or, as applicable, the importation
of soft drinks and other beverages that use any sweetener other than cane sugar
(the "soft drink tax"); (ii)
a 20 per cent tax on specific services (commission, mediation, agency,
representation, brokerage, consignment, and distribution), when such services
are provided for the purpose of
transferring products such as soft drinks and
other beverages that use any sweetener other than cane sugar (the
"distribution tax"); and
(iii) a number of requirements imposed on taxpayers subject to the soft drink
tax and to the distribution tax (the "bookkeeping
requirements"). Before the Panel,
the United States claimed that these measures are inconsistent with paragraphs
2 and 4 of Article III of the General
Agreement on Tariffs and Trade 1994 (the "GATT 1994").
3.
In its first
written submission to the Panel, Mexico requested that the Panel decide, as a
preliminary matter, to "decline to exercise its jurisdiction in this case"
and that it "recommend to the parties that they submit their respective
grievances to an Arbitral Panel, under Chapter Twenty of the NAFTA, which can
address both Mexico's concern with respect to market access for Mexican cane
sugar in the United States under the NAFTA and the United States' concern with
respect to Mexico's tax measures."
Mexico also stated that, in the event the Panel decided to exercise
jurisdiction, the Panel should find that the measures are justified pursuant to
Article XX(d) of the GATT 1994.
4.
On 18 January
2005, the Panel issued a preliminary ruling in which it rejected Mexico's
request. In doing so, the Panel
concluded that, "under the DSU, it had no discretion to decide whether or
not to exercise its jurisdiction in a case properly before it.” The Panel added that, "even if it had
such discretion, the Panel did not consider that there were facts on record
that would justify the Panel declining to exercise its jurisdiction in the present
case.”
5.
In its Report,
circulated to Members of the World Trade Organization (the "WTO") on
7 October 2005, the Panel concluded that:
(a) With respect to Mexico's soft drink
tax and distribution tax:
(i) As imposed on sweeteners, imported beet
sugar is subject to internal taxes in excess of those
applied to like domestic sweeteners, in a
manner inconsistent with Article III:2, first sentence, of the GATT
1994;
(ii) As imposed on sweeteners, imported HFCS
is being taxed dissimilarly compared with the directly
competitive or substitutable products, so as to afford protection to the
Mexican domestic production of cane sugar, in
a manner inconsistent with Article III:2, second sentence, of the
GATT 1994;
(iii) As imposed on sweeteners, imported beet sugar and HFCS are accorded less favourable treatment than that accorded to like products of national origin, in a
manner inconsistent with Article III:4 of the GATT 1994;
(iv)
As imposed on
soft drinks and syrups, imported soft drinks and syrups sweetened with non-cane
sugar sweeteners (including HFCS and beet sugar) are subject to internal taxes in excess of those applied to like
domestic products, in a manner inconsistent with Article III:2,
first sentence, of the GATT 1994.
(b) With respect to Mexico's bookkeeping
requirements: As imposed on
sweeteners, imported beet sugar and HFCS are
accorded less favourable treatment than that accorded to like products of national origin, in a manner
inconsistent with Article III:4 of the GATT 1994.
The
Panel rejected Mexico's defence under Article XX(d) of the GATT 1994,
concluding 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."y The
Panel therefore recommended
"that the Dispute Settlement Body
request Mexico to bring the inconsistent measures … into conformity with its
obligations under the GATT 1994."
6.
On 6 December
2005, Mexico notified the Dispute Settlement Body (the "DSB") of its
intention to appeal certain issues of law covered in the Panel Report and
certain legal interpretations developed by the Panel, pursuant to Article 16.4
of the DSU, and filed a Notice of Appeal pursuant to Rule 20(1) of the Working Procedures for Appellate Review
(the "Working Procedures"). On 13 December 2005, Mexico filed an
appellant's submission. In
its appeal, Mexico challenges the Panel's preliminary ruling rejecting Mexico's
request that the Panel decline to exercise jurisdiction in this case, as well
as the Panel's findings concerning Article XX(d) of the GATT 1994. Mexico did not appeal the Panel's findings
under Article III of the GATT 1994. On 6 January 2006, the United States filed an
appellee's submission. On the same day, China, the European Communities, and
Japan each filed a third participant's submission. Also on the same day, Canada
and Guatemala each notified the Appellate Body Secretariat of its intention to
appear at the oral hearing as a third participant.
7.
By letter dated 5
January 2006, Mexico requested authorization to correct certain clerical errors
in its appellant's submission pursuant to Rule 18(5) of the Working Procedures. On 9 January 2006, the Appellate
Body Division hearing the appeal ("the Division") invited all
participants and third participants to comment on Mexico's request, in
accordance with Rule 18(5). On 11
January 2006, the United States responded that, although some of the requested
corrections are not "clearly clerical", within the meaning of Rule
18(5), "[i]n the circumstances of this dispute", the United States
did not object to Mexico's request. No
other comments were received. By letter
dated 16 January 2006, the Division authorized Mexico to correct the
clerical errors in its appellant's submission but emphasized, however, that it
had not been requested, and did not make, a finding "as to whether all of
the corrections requested by Mexico are 'clerical' within the meaning of Rule
18(5) of the Working Procedures."
8.
On 13 January
2006, the Appellate Body received an amicus
curiae brief from Cámara
Nacional de las Industrias Azucarera y Alcoholera (National Chamber of the
Sugar and Alcohol Industries) of Mexico.
The Division did not find it necessary to take the brief into account in
resolving the issues raised in this appeal.
9.
The oral hearing
in this appeal was held on 18 January 2006.
The participants and third participants presented oral arguments (with
the exception of Guatemala) and responded to questions posed by the Members of
the Division hearing the appeal.
The
following issues are raised in this appeal:
(a) whether
the Panel erred in concluding that a WTO panel "has no discretion to
decide whether or not to exercise its jurisdiction in a case properly before
it" and, if so, whether the Panel erred in declining to exercise that
discretion in the circumstances of this dispute;
(b) whether
the Panel erred in concluding that Mexico's measures do not constitute measures
"to secure compliance with laws or regulations", within the meaning
of Article XX(d) of the GATT 1994; and
(c) whether the Panel
failed to make an objective assessment of the facts of the case, as required by
Article 11 of the DSU, in concluding that "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", within
the meaning of Article XX(d) of the GATT 1994, "Mexico has not
established that its measures contribute to securing compliance in the
circumstances of this case.”
10.
For the reasons
set out in this Report, the Appellate Body:
(a)
upholds the Panel's conclusion, in paragraphs 7.1, 7.18,
and 9.1 of the Panel Report, that, "under
the DSU, it ha[d] no discretion to decline to exercise its jurisdiction in the
case that ha[d] been brought before it";
(b)
upholds the Panel's conclusion, in paragraph 8.198 of the
Panel Report, that Mexico's measures do not constitute measures "to secure
compliance with laws or regulations", within the meaning of
Article XX(d) of the GATT 1994;
(c)
rejects Mexico's claim that the Panel failed to fulfil its
obligations under Article 11 of the DSU, in finding, in paragraph 8.186 of the
Panel Report, that "Mexico has not established that its measures
contribute to securing compliance in the circumstances of this case"; and
(d)
as a consequence,
upholds the Panel's conclusion, in paragraphs 8.204 and 9.3 of the Panel
Report, that "Mexico has not established that the challenged measures are
justified under Article XX of the GATT 1994".
11.
The Appellate
Body recommends that the Dispute Settlement Body request Mexico to bring
the measures that were found in the Panel Report to be inconsistent with the
General Agreement on Tariff and
Trade 1994 into conformity with its obligations under that Agreement.