WT/DS461/AB/R  
 
7 June 2016  
(16-3060)  Page: 1/52  
  Original: English  
 
 COLOMBIA – MEASURES RELATING TO THE IMPORTATION OF 
TEXTILES, APPAREL AND FOOTWEAR 
AB-2016-1 
Report of the Appellate Body 
 
 
 
 WT/DS461/AB/R 
 
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  Table of Contents 
 
1  INTRODUC TION ........................................................................................................... 8  
2  ARGUMENTS OF TH E PARTICIP ANTS .......................................................................... 11  
3  ARGUMENTS OF THE TH IRD PARTICIP ANTS ............................................................... 12  
4  ISSUES RAISED IN  THIS APPEAL ............................................................................... 12  
5  ANALYSIS OF THE APPELLATE BODY .......................................................................... 13  
5.1  Article II:1(a) an d (b) of th e GATT 1994 ....................................................................... 13 
5.1.1   The Panel's findings ............................................................................................... 13 
5.1.2   Whether the Panel acted incons istently with Article 11 of the DSU ................................ 15 
5.1.3   Completion of the legal analysis .............................................................................. 19 
5.2  Article XX(a) of the GATT 1994 .................................................................................... 24 
5.2.1   The Panel's findings ............................................................................................... 24 
5.2.2   Whether the Panel erred under Article XX(a) in finding that Colombia had failed to 
demonstrate that the compound tariff is a measure "necessary to protect public 
morals" ............................................................................................................... 26 
5.2.3   Completion of the legal analysis .............................................................................. 35 
5.3  Article XX(d) of the GATT 1994 .................................................................................... 40 
5.3.1   Whether the Panel erred under Article XX(d) in finding that Colombia had failed to 
demonstrate that the compound tariff is a measure "necessary to secure compliance with laws or regulations which are not inconsistent" with the 
GATT 1994 ........................................................................................................... 40
 
5.3.2   Completion of the legal analysis .............................................................................. 45 
5.4  Chapeau of Articl e XX of th e GATT 1994 ....................................................................... 48 
6  FINDINGS AND CONCLUSIONS ................................................................................... 49  
6.1  Article II:1(a) an d (b) of th e GATT 1994 ....................................................................... 49 
6.2  Article XX(a) of the GATT 1994 .................................................................................... 49 
6.3  Article XX(d) of the GATT 1994 .................................................................................... 50 
6.4  Chapeau of Articl e XX of th e GATT 1994 ....................................................................... 51 
6.5  Recommendation ....................................................................................................... 52 
 WT/DS461/AB/R 
 
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  ABBREVIATIONS USED IN THIS REPORT 
Abbreviation Description 
Anti-Dumping Agreement Agreement on Implem entation of Article VI of the General 
Agreement on Tariffs and Trade 1994  
Colombia's Customs Tariff Adopted pursuant to Decree No. 4927 of 26 December 2011, and 
subsequently amended by, for purposes of this dispute, Decrees 
No. 074 of 23 January 2013 and No. 456 of 28 February 2014  
Customs Valuation Agreement Agreement on Implementation of Article VII of the General 
Agreement on Tariffs and Trade 1994 
Decree No. 074 Decree of the President of the Re public of Colombia No. 074 of 
23 January 2013, partially amending the Customs Tariff (Panel 
Exhibits PAN-2 and COL-16)  
Decree No. 456 Decree of the President of  the Republic of Colombia No. 456 of 
28 February 2014, partially amending the Customs Tariff (Panel 
Exhibits PAN-3 and COL-17)  
Decree No. 4927 Decree of the President of the Re public of Colombia No. 4927 of 
26 December 2011, adopting the Customs Tariff and other 
provisions (Panel Exhibit PAN-1, co ntaining extracts of Chapters 61 
through 64)  
DIAN Dirección de Impuestos y Aduanas Nacionales  
(National Customs and Excise Directorate) 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement 
of Disputes 
FATF Financial Action Task Force 
f.o.b. free on board 
FTA free trade agreement 
GATS General Agreement on Trade in Services 
GATT 1994 General Agreement on Tariffs and Trade 1994 
Panel Report Panel Report, Colombia – Measures Relating to the Importation of 
Textiles, Apparel and Footwear , WT/DS461/R, 27 November 2015 
Plan Vallejo Special Import-Export Systems for Capital Goods and Spare Parts 
TBT Agreement Agreement on Technical Barriers to Trade 
UIAF Unidad de Información y Análisis Financiero   
(Information and Financial Analysis Unit) 
Working Procedures Working Procedures for Appellate Review, WT/AB/WP/6, 16 August 
2010 
WTO World Trade Organization 
 WT/DS461/AB/R 
 
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  PANEL EXHIBITS CITED IN THIS REPORT 
Panel 
Exhibit(s) Description 
COL-6 Ministerio del Interior y de Justicia, "Política Nacional Contra las Drogas"  
(Ministry of the Interior and Justice, National Anti-Drug Policy )  
COL-8 World Customs Organization, Illicit Trade Report 2012 
COL-10 Ministerio de Hacienda y Crédito Público, Dirección de Impuestos y Aduanas 
Nacionales, Unidad de Información y Anális is Financiero de Colombia, "Tipologías 
de Lavado de Activos Relacionadas con Contrabando", enero de 2006 
(Ministry of Finance and Public Credit, National Customs and Excise Directorate, 
and Information and Financial Analysis Unit, Money Laundering Typologies Related 
to Smuggling , January 2006) 
COL-11 Financial Action Task Force (FATF), Trade-Based Money Laundering , 23 June 2006  
COL-12 Financial Action Task Force (FATF), Money Laundering Vulnerabilities of Free Trade 
Zones , March 2010  
COL-19 Consejo Nacional de Política Económica y Social, "Política Nacional Anti-Lavado de 
Activos y Contra la Financiación del Terrorismo", 18 de enero de 2013 
(National Council for Economic and Social Policy, National Policy against Money 
Laundering and the Financing of Terrorism , 18 January 2013)  
COL-27 Ministro de Justicia y del Derecho, Observatorio de Drogas de Colombia, 
"El Problema de las Drogas en Colombia, Acciones y Resultados 2011-2013" 
(Ministry of Justice and Law, Drugs Observatory, The Drug Problem in Colombia, 
Actions and Results 2011-2013 ) 
COL-30 Charts containing import data submitted by Colombia with its opening statement at 
the first Panel meeting  
COL-33 Departamento Nacional de Planeación, "Plan Nacional de Desarrollo 2010-2014" 
(extractos) 
(National Planning Department, National Development Plan 2010-2014 (extracts))  
PAN-1 Decreto del Presidente de la República de Colombia No. 4927 del 26 de diciembre 
de 2011, por el cual se adopta el Arancel de Aduanas y otras disposiciones  
(extractos de los Capítulos 61-64)  
(Decree of the President of the Republic of Colombia No. 4927 of 26 December 
2011, adopting the Customs Tariff and other provisions) (extracts of Chapters 61 
through 64)) 
PAN-2 / 
COL-16 Decreto del Presidente de la República de Colombia No. 074 del 23 de enero de 
2013, por el cual se modifica parcialmente el Arancel de Aduanas  
(Decree of the President of the Republic of Colombia No. 074 of 23 January 2013, 
partially amending the Customs Tariff) 
PAN-3 / 
COL-17 Decreto del Presidente de la República de Colombia No. 456 del 28 de febrero 
de 2014, por el cual se modifica parcialmente el Arancel de Aduanas   
(Decree of the President of the Republic  of Colombia No. 456 of 28 February 2014, 
partially amending the Customs Tariff) 
 WT/DS461/AB/R 
 
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  CASES CITED IN THIS REPORT 
Short Title Full Case Title and Citation 
Argentina – Financial Services Appellate Body Report, Argentina – Measures Relating to Trade in Goods and 
Services , WT/DS453/AB/R  and Add.1, adopted 9 May 2016 
Argentina – Textiles and 
Apparel Appellate Body Report, Argentina – Measures Affect ing Imports of Footwear, 
Textiles, Apparel and Other Items , WT/DS56/AB/R  and Corr.1, adopted 22 
April 1998, DSR 1998:III, p. 1003 
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R , adopted 6 November 1998, DSR 1998:VIII, p. 3327 
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded 
Tyres , WT/DS332/AB/R , adopted 17 December 2007, DSR 2007:IV, p. 1527 
Canada – Aircraft  
(Article 21.5 – Brazil) Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW , 
adopted 4 August 2000, DSR 2000:IX, p. 4299 
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R , adopted 30 July 1997, DSR 1997:I, p. 449 
Canada – Renewable Energy 
/ Canada – Feed-in Tariff Program  Appellate Body Reports, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program , WT/DS412/AB/R  / WT/DS426/AB/R , adopted 24 May 2013, DSR 
2013:I, p. 7 
Canada – Wheat Exports and 
Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/AB/R , adopted 27 September 2004, 
DSR 2004:VI, p. 2739 
China – Rare Earths Appellate Body Reports, China – Measures Related to  the Exportation of Rare 
Earths, Tungsten, and Molybdenum , WT/DS431/AB/R  / WT/DS432/AB/R  / 
WT/DS433/AB/R , adopted 29 August 2014, DSR 2014:III, p. 805 
Dominican Republic – Import 
and Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the 
Importation and Internal Sale of Cigarettes , WT/DS302/AB/R , adopted 19 May 
2005, DSR 2005:XV, p. 7367 
EC – Asbestos Appellate Body Report, European Communities – Meas ures Affecting Asbestos 
and Asbestos-Containing Products , WT/DS135/AB/R , adopted 5 April 2001, 
DSR 2001:VII, p. 3243 
EC – Bed Linen  
(Article 21.5 – India) Appellate Body Report, European Communities – An ti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from In dia – Recourse to Article 21.5 of the 
DSU by India , WT/DS141/AB/RW , adopted 24 April 2003, DSR 2003:III, 
p. 965 
EC – Export Subsidies on 
Sugar Appellate Body Report, European Communities – Export Subsidies on Sugar , 
WT/DS265/AB/R , WT/DS266/AB/R , WT/DS283/AB/R , adopted 19 May 2005, 
DSR 2005:XIII, p. 6365 
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R , WT/DS48/AB/R , adopted 13 February 1998, DSR 
1998:I, p. 135 
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R , adopted 23 July 
1998, DSR 1998:V, p. 2031 
EC – Sardines Appellate Body Report, European Communities – Trade Description of 
Sardines , WT/DS231/AB/R , adopted 23 October 2002, DSR 2002:VIII, p. 3359 
EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the 
Importation and Marketing of Seal Products , WT/DS400/AB/R  / 
WT/DS401/AB/R , adopted 18 June 2014 
EC – Selected Customs 
Matters Appellate Body Report, European Communities – Selected Customs Matters , 
WT/DS315/AB/R , adopted 11 December 2006, DSR 2006:IX, p. 3791 
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – An ti-Dumping Duties on 
Malleable Cast Iron Tube or  Pipe Fittings from Brazil , WT/DS219/AB/R , 
adopted 18 August 2003, DSR 2003:VI, p. 2613 
EC and certain member 
States – Large Civil Aircraft Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 1 
June 2011, DSR 2011:I, p. 7 WT/DS461/AB/R 
 
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  Short Title Full Case Title and Citation 
Japan – Agricultural 
Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R , adopted 19 March 1999, DSR 1999:I, p. 277 
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of Apples , 
WT/DS245/AB/R , adopted 10 December 2003, DSR 2003:IX, p. 4391 
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/AB/R , 
WT/DS84/AB/R , adopted 17 February 1999, DSR 1999:I, p. 3 
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguar d Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R , adopted 12 January 2000, DSR 
2000:I, p. 3 
Korea – Various Measures on 
Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled 
and Frozen Beef , WT/DS161/AB/R , WT/DS169/AB/R , adopted 10 January 
2001, DSR 2001:I, p. 5 
Mexico – Taxes on Soft 
Drinks Appellate Body Report, Mexico – Tax Measures on  Soft Drinks and Other 
Beverages , WT/DS308/AB/R , adopted 24 March 2006, DSR 2006:I, p. 3 
Thailand – Cigarettes 
(Philippines) Appellate Body Report, Thailand – Customs and Fiscal  Measures on Cigarettes 
from the Philippines , WT/DS371/AB/R , adopted 15 July 2011, DSR 2011:IV, 
p. 2203 
US – Anti-Dumping and 
Countervailing Duties (China) Appellate Body Report, United States – Definitive Anti-Dumping and 
Countervailing Duties on Certain Products from China , WT/DS379/AB/R , 
adopted 25 March 2011, DSR 2011:V, p. 2869 
US – Carbon Steel Appellate Body Report, United States – Countervai ling Duties on Certain 
Corrosion-Resistant Carbon Stee l Flat Products from Germany , 
WT/DS213/AB/R  and Corr.1, adopted 19 December 2002, DSR 2002:IX, 
p. 3779 
US – Continued Zeroing Appellate Body Report, United States – Continued Ex istence and Application of 
Zeroing Methodology , WT/DS350/AB/R , adopted 19 February 2009, DSR 
2009:III, p. 1291 
US – COOL Appellate Body Reports, United States – Certain Country of Origin Labelling 
(COOL) Requirements , WT/DS384/AB/R  / WT/DS386/AB/R , adopted 23 July 
2012, DSR 2012:V, p. 2449 
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R , adopted 20 April 
2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475) 
US – Gambling Panel Report, United States – Measures Affecting the Cross-Border Supply of 
Gambling and Betting Services , WT/DS285/R , adopted 20 April 2005, as 
modified by Appellate Body Report WT/DS285/AB/R, DSR 2005:XII, p. 5797 
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R , adopted 20 May 1996, DSR 1996:I, p. 3 
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain 
Hot-Rolled Steel Products from Japan , WT/DS184/AB/R , adopted 23 August 
2001, DSR 2001:X, p. 4697 
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of 
Fresh, Chilled or Frozen Lamb Me at from New Zealand and Australia , 
WT/DS177/AB/R , WT/DS178/AB/R , adopted 16 May 2001, DSR 2001:IX, 
p. 4051 
US – Large Civil Aircraft 
(2nd complaint) Appellate Body Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23 March 2012, DSR 
2012:I, p. 7 
US – Oil Country Tubular 
Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R , 
adopted 17 December 2004, DSR 2004:VII, p. 3257 
US – Section 211 
Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations 
Act of 1998 , WT/DS176/AB/R , adopted 1 February 2002, DSR 2002:II, p. 589 
US – Shrimp Appellate Body Report, United States – Import Proh ibition of Certain Shrimp 
and Shrimp Products , WT/DS58/AB/R , adopted 6 November 1998, DSR 
1998:VII, p. 2755 
US – Tuna II (Mexico) Appellate Body Report, United States – Measures Concerning the Importation, 
Marketing and Sale of Tuna and Tuna Products , WT/DS381/AB/R , adopted 13 
June 2012, DSR 2012:IV, p. 1837 WT/DS461/AB/R 
 
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  Short Title Full Case Title and Citation 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R , adopted 21 March 2005, DSR 2005:I, p. 3 
US – Upland Cotton  
(Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse 
to Article 21.5 of the DSU by Brazil , WT/DS267/AB/RW , adopted 20 June 
2008, DSR 2008:III, p. 809 
US – Wheat Gluten Appellate Body Report, United States – Definitive  Safeguard Measures on 
Imports of Wheat Gluten fro m the European Communities , WT/DS166/AB/R , 
adopted 19 January 2001, DSR 2001:II, p. 717 
US – Zeroing (EC) Appellate Body Report, United States – Laws, Regulations and Methodology for 
Calculating Dumping Margins ("Zeroing") , WT/DS294/AB/R , adopted 9 May 
2006, and Corr.1, DSR 2006:II, p. 417 
 WT/DS461/AB/R 
 
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  WORLD TRADE ORGANIZATION  
APPELLATE BODY 
  
Colombia – Measures Relating to the 
Importation of Textiles, Apparel and Footwear 
 
Colombia, Appellant  
Panama, Appellee  
 
China, Third Participant  
Ecuador, Third Participant  
El Salvador, Third Participant  
European Union, Third Participant 
Guatemala, Third Participant  
Honduras, Third Participant 
Philippines, Third Participant  
United States, Third Participant  
 AB-2016-1 
 Appellate Body Division:  
 
Zhang, Presiding Member Servansing, Member Van den Bossche, Member 
 
  
1  INTRODUCTION 
1.1.  Colombia appeals certain issues of law and legal interpretations developed in the 
Panel Report, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear
1 
(Panel Report). The Panel was established on 25 September 2013 to consider a complaint by Panama
2 with respect to a measure taken by Colombia affecting imports of textiles, apparel, and 
footwear. 
1.2.  This dispute concerns the imposition by Co lombia of a "compound tariff" on the importation 
of certain textiles, apparel, and footwear classified under Chapters 61 through 64 of Colombia's Customs Tariff.
3 The compound tariff was introduced by Decr ee of the President of the Republic of 
Colombia No. 074 of 23 January 20134 (Decree No. 074), which was subsequently "replace[d] and 
repeal[ed]"5 by Decree of the President of the Republ ic of Colombia No. 456 of 28 February 20146 
(Decree No. 456). Decree No. 456 entered into force on 30 March 2014 for a period of two years7, 
and was recently extended until 30 July 2016.8 
1.3.  The compound tariff is composed of an ad valorem  levy, expressed as a percentage of the 
customs value of goods, and a specific levy, expressed in units of currency per unit of 
measurement.9 While the ad valorem  component of the compound tariff is 10% for all products 
regardless of their value, the specific component varies depending on the product and the declared free on board (f.o.b.) price in respect of two thresholds: (i) for products classified in 
                                               
1 WT/DS461/R, 27 November 2015. 
2 Request for the Establishment of a Pane l by Panama, WT/DS461/3, 20 August 2013. 
3 Panel Report, para. 2.1. The rele vant chapters of Colombia's Cust oms Tariff are: (i) Chapter 61 – 
"Articles of apparel and clothing acce ssories, knitted or crocheted"; (ii) Chapter 62 – "Articles of apparel and 
clothing accessories, not knitted or crocheted"; (iii) Ch apter 63 – "Other made up textile articles; sets; worn 
clothing and worn textile articles; rags"; and (iv) Ch apter 64 – "Footwear, gaiters and the like; parts of such 
articles". (Ibid., fn 58 to para. 7.24) 
4 Decree of the President of the Republic of Colombia No. 074 of 23 January 2013, partially amending 
Colombia's Customs Tariff (Panel Exhibits PAN-2 and COL-16). Decree No. 074 came into effect on 1 March 2013 and remained in force for one year. (Panel Report, para. 7.31) 
5 Panel Report, para. 7.37. 
6 Decree of the President of the Republic of Colombia No. 456 of 28 February 2014, partially amending 
Colombia's Customs Tariff (Panel Exhibits PAN-3 and COL-17). 
7 Panel Report, paras. 2.7 and 7.31. For the products concerned, Decree No. 456 modifies Colombia's 
Customs Tariff adopted pursuant to Decree No. 4927 of 26 December 2011 (Decree No. 4927), which establishes ordinary customs duties in Colombia. (Decree of the President of the Republic of Colombia No. 4927 of 26 December 2011, adopting the Customs Tariff and other provisions. (See Panel Exhibit PAN-1, containing 
extracts of Chapters 61 through 64) See also Panel Report, para. 7.141) 
8 Colombia's response to ques tioning at the oral hearing. 
9 Panel Report, para. 2.4. WT/DS461/AB/R 
 
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  Chapters 61, 62, and 63 (textiles and articles of apparel), and under tariff line 6406.10.00.00 of 
Chapter 64 of the Customs Tariff (uppers of footwear  and parts thereof, other than stiffeners), the 
specific levy is US$5/kg when the declared f.o.b. price is US$10/kg or less, and US$3/kg when the declared f.o.b. price is greater than US$10/kg; and (ii) for products classified in Chapter 64 
(footwear), with the exception of those under heading 64.06 (parts of footwear), the specific levy 
is US$5/pair when the declared f.o.b. price is US$7/pair or less, and US$1.75/pair when the declared f.o.b. price is greater than US$7/pair.
10 When, in a single transaction, some goods under 
the same subheading are imported at prices at or  below and others at prices above the respective 
threshold, the compound tariff payable is 10% ad valorem  plus the highest specific levy applicable, 
i.e. US$5/kg or US$5/pair, depending on the classification of the goods.11 Finally, with respect to 
certain imports of goods, the compound tariff does not apply.12 
1.4.  Panama claimed before the Panel that the compound tariff imposed by Colombia is 
inconsistent with Article II:1(a) and (b) of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Colombia's Schedule of Concessions.
13 Furthermore, in response to the defences 
invoked by Colombia, Panama requested the Panel to reject the argument that the compound tariff 
is justified under the general exceptions set out in Article XX(a) and Article XX(d) of the GATT 1994.
14 Finally, Panama requested the Panel to suggest, in accordance with Article 19.1 of 
the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), that 
Colombia introduce a cap mechanism that would guarantee compliance with the relevant bound tariffs, or, alternatively, that it revert to an ad valorem  tariff system, without exceeding the bound 
levels of 35% and 40% ad valorem  depending on the product.
15 
1.5.  Colombia requested that the Panel reject Panama's claims in their entirety.16 Colombia 
contended that the compound tariff is a measure designed to combat illegal trade operations that are not covered by Article II:1 of the GATT 1994 an d that Panama had not presented any evidence 
to support a prima facie  case that the compound tariff results in a breach of the levels bound in 
Colombia's Schedule of Concessions.
17 In the event that the Panel were to find that the measure at 
issue is inconsistent with any of the obligations under Article II:1 cited by Panama, Colombia 
maintained that the measure is justified under the general exceptions set out in Article XX(a) and 
Article XX(d) of the GATT 1994.18 Finally, Colombia requested the Panel to refrain from making 
suggestions as to the manner in which Colombia could comply with a recommendation of the Dispute Settlement Body (DSB) to bring the measure at issue into conformity with its World Trade 
Organization (WTO) obligations.
19 
1.6.  In the Panel Report, circulated to Members of the WTO on 27 November 2015, the Panel 
found that the measure at issue is structured and designed to be applied to all imports of the 
products concerned, without distinguishing between "licit" and "illicit" trade, and that no provision 
in Colombia's legal system bans the importation of goods whose declared prices are below the thresholds established in the measure.
20 In the light of these findings, the Panel did not consider it 
necessary to rule on Colombia's claim that the obligations contained in Article II:1(a) and (b) of 
the GATT 1994 are not applicable to illicit trade.21 
1.7.  The Panel found that the compound tariff co nstitutes an ordinary customs duty that exceeds 
the levels bound in Colombia's Schedule of Concessions, and is therefore inconsistent with the first 
sentence of Article II:1(b) of the GATT 1994, an d accords treatment less favourable than that 
                                               
10 Panel Report, para. 7.25. 
11 Panel Report, para. 7.26. 
12 The compound tariff does not apply to: (i) import s of goods from countries with which Colombia has 
signed free trade agreements, in which subheading s subject to Decree No. 456 have been negotiated; 
(ii) imports of goods entering certain regions of Colombia designated as Special Customs Regime Zones; and (iii) imports of goods under the Special Import-Export Systems for Capital Goods and Spare Parts, also known 
as the "Plan Vallejo" (i.e. production inputs, which ar e subsequently processed or used to manufacture goods 
for export). (Panel Re port, paras. 7.27-7.30) 
13 Panel Report, para. 3.1. 
14 Panel Report, para. 3.2. 
15 Panel Report, para. 3.3. 
16 Panel Report, para. 3.4. 
17 Panel Report, para. 3.4. 
18 Panel Report, para. 3.4. 
19 Panel Report, para. 3.5. 
20 Panel Report, para. 8.1. 
21 Panel Report, para. 8.1. WT/DS461/AB/R 
 
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  envisaged in Colombia's Schedule of Concessions, in a manner inconsistent with Article II:1(a) of 
the GATT 1994, in the following instances22: 
a. for imports of products classified in Chapters 61, 62, and 63, and under tariff 
line 6406.10.00.00 of Chapter 64 of Colombia's Customs Tariff: 
i. the tariff consisting of an ad valorem  component of 10% plus a specific component of 
US$5/kg, when the f.o.b. import price is US$10/kg or less; 
ii. the tariff consisting of an ad valorem component of 10% plus a specific component of 
US$5/kg, when, in a single transaction, some products under the same subheading 
are imported at f.o.b. prices above and othe rs at f.o.b. prices below the threshold of 
US$10/kg; and 
iii. with regard to subheading 6305.32, the tariff consisting of an ad valorem  component 
of 10% plus a specific component of US$3/kg, when the f.o.b. import price is greater 
than US$10/kg but lower than US$12/kg; and 
b. for imports of products classified under various tariff headings of Chapter 64 of 
Colombia's Customs Tariff subject to the measure at issue: 
i. the tariff consisting of an ad valorem  component of 10% plus a specific component of 
US$5/pair, when the f.o.b. import price is US$7/pair or less; and 
ii. the tariff consisting of an ad valorem  component of 10% plus a specific component of 
US$5/pair, when, in a single transaction, some products under the same subheading are imported at f.o.b. prices above and othe rs at f.o.b. prices below the threshold of 
US$7/pair. 
1.8.  Thus, according to the Panel, the ad valorem  equivalent of the compound tariff necessarily 
exceeds the levels bound in Colombia's Schedule of Concessions in the following circumstances: 
Products covered Declared f.o.b. price Formula for calculating the 
compound tariff 
Chapters 61, 62, and 63, and 
Chapter 64, tariff line 
6406.10.00.00  Prices of US$10/kg or less 10% ad valorem  plus US$5/kg 
Chapter 63, subheading 
6305.32  Prices above US$10 and below 
US$12/kg 10% ad valorem  plus US$3/kg 
Chapters 61, 62, and 63, and 
Chapter 64, tariff line 
6406.10.00.00  Some prices above and others 
below US$10/kg when 
imported under the same 
subheading  10% ad valorem  plus US$5/kg 
Chapter 64, except for 
heading 64.06 Prices of US$7/pair or less 10% ad valorem  plus 
US$5/pair 
Chapter 64, except for 
heading 64.06 Some prices above and others 
below US$7/pair when 
imported under the same subheading  10% ad valorem  plus 
US$5/pair 
Source: Panel Report, para. 7.187. 
1.9.  With respect to Colombia's recourse to cert ain of the general exceptions under Article XX of 
the GATT 1994, the Panel found that Colombia had fa iled to demonstrate that the compound tariff 
is a measure necessary to protect public morals within the meaning of Article XX(a), or necessary to secure compliance with Article 323 of Colombia's Criminal Code within the meaning of Article XX(d).
23 The Panel further found that, even assuming that Colombia had succeeded in 
                                               
22 Panel Report, paras. 8.2-8.4. 
23 Panel Report, paras. 8.5-8.6. WT/DS461/AB/R 
 
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  demonstrating that its measure is provisionally justified under Article XX(a) or Article XX(d), the 
compound tariff is not applied in a manner th at meets the requirements of the chapeau of 
Article XX.24  
1.10.  In accordance with Article 19.1 of the DS U, the Panel recommended that Colombia bring the 
measure at issue into conformity with its obligations under the GATT 1994, but refrained from 
making a suggestion as to the manner in which Colombia could do so.25 
1.11.  On 22 January 2016, Colombia notified the DSB, pursuant to Articles 16.4 and 17 of the 
DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain legal 
interpretations developed by the Panel, and filed a Notice of Appeal and an appellant's submission 
pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures for Appellate Review26 
(Working Procedures). On 9 February 2016, Panama filed an appellee's submission.27 
On 12 February 2016, the European Union filed a third participant's submission.28 On the same 
day, China, Ecuador, El Salvador, Guatemala, Ho nduras, the Philippines, and the United States 
each notified its intention to appear at the oral hearing as a third participant.29 
1.12.  By letter of 22 March 2016, the Chair of th e Appellate Body notified the Chair of the DSB 
that the Appellate Body would not be able to circulate its Report in this appeal within the 60-day period pursuant to Article 17.5 of the DSU, or within the 90-day period pursuant to the same 
provision.
30 The Chair of the Appellate Body explained that this was due to a number of factors, 
including the overlap in the composition of the Divisions in appeals concurrently pending before the Appellate Body, constraints resulting from the need for Spanish-speaking staff of which the Appellate Body Secretariat has only a limited num ber, and the need to translate documents from 
Spanish into English for non-Spanish-speaking Appellate Body Members and staff. On 
11 April 2016, the Chair of the Appellate Body informed the Chair of the DSB that the Report in these proceedings would be circulated no later than 7 June 2016.
31 
1.13.  The oral hearing in this appeal was held on 4-5 April 2016. The participants and 
five third participants (China, the European Union, Guatemala, Honduras, and the United States) made opening and/or closing statements. The part icipants and third participants responded to 
questions posed by the Members of the Appe llate Body Division hearing the appeal. 
1.14.  By letter of 1 June 2016, the participants and third participants were informed that, in 
accordance with Rule 15 of the Working Procedures , the Appellate Body had notified the Chairman 
of the DSB of its decision to authorize Mrs Yuej iao Zhang, the Presiding Member of the Division 
hearing this appeal, to complete the disposition of this appeal even though her second term as 
Appellate Body Member was due to expire before  the completion of the appellate proceedings. 
2  ARGUMENTS OF THE PARTICIPANTS  
2.1.  The claims and arguments of the participan ts are reflected in the executive summaries of 
their written submissions provided to the Appellate Body.
32 The Notice of Appeal and the executive 
summaries of the participants' written submissions are contained, respectively, in Annexes A and B 
of the Addendum to this Report.33 
                                               
24 Panel Report, para. 8.7. 
25 Panel Report, paras. 8.9-8.10. 
26 WT/AB/WP/6, 16 August 2010. 
27 Pursuant to Rule 22 of the Working Procedures. 
28 Pursuant to Rule 24(1) of the Working Procedures. 
29 Pursuant to Rule 24(2) of the Working Procedures. 
30 WT/DS461/7. 
31 WT/DS461/8. 
32 Pursuant to the Appellate Body Communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in Appellate 
Proceedings". (WT/AB/23, 11 March 2015) 
33 WT/DS461/AB/R/Add.1. WT/DS461/AB/R 
 
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  3  ARGUMENTS OF THE THIRD PARTICIPANTS 
3.1.  The arguments of the European Union, as third participant, are reflected in the executive 
summary of its written submission provided to the Appellate Body34, contained in Annex C of the 
Addendum to this Report.35 
4  ISSUES RAISED IN THIS APPEAL 
4.1.  The following issues are raised in this appeal: 
a. with respect to Article II:1(a) and (b) of the GATT 1994: 
i. whether the Panel acted inconsistently with its duty to make an objective 
assessment of the matter pursuant to Article 11 of the DSU, including an objective assessment of the applicability of the relevant covered agreements, in concluding that it was not necessary to issue a finding as to whether or not the obligations of 
Article II:1(a) and (b) of the GATT 1994 apply to what Colombia considers to be 
illicit trade; and 
ii. whether Article II:1(a) and (b) of the GATT 1994 applies to what Colombia 
considers to be illicit trade; and whether the Panel erred in the application of 
Article II:1(b) in finding that the measure did not incorporate a legislative ceiling;  
b. with respect to Article XX(a) of the GATT 1994: 
i. whether the Panel erred in the interpretation and application of Article XX(a) in 
finding that Colombia failed to demonstrate that the measure is "necessary to protect public morals", and, in particular: 
 whether the Panel erred by imposing an incorrect legal standard in its 
analysis of whether the measure at issue is "designed" to protect public 
morals; and 
 whether the Panel erred in its analysis of whether the measure is "necessary" 
to protect public morals by imposing an incorrect legal standard in assessing 
the contribution of the measure towards its objective, and by failing to undertake a proper weighing and balancing of the relevant factors; and 
ii. whether the Panel acted inconsistently with its duty to make an objective 
assessment of the matter pursuant to Article 11 of the DSU in its assessment of certain evidence provided by Colombia; 
c. with respect to Article XX(d) of the GATT 1994: 
i. whether the Panel erred in the interpretation and application of Article XX(d), for 
the same reasons it erred in the interpretation and application of Article XX(a), in finding that Colombia failed to demonstrate that the measure is "designed" and 
"necessary" to secure compliance with laws or regulations that are not inconsistent 
with the GATT 1994; and 
d. with respect to the chapeau of Article XX of the GATT 1994: 
i. whether the Panel erred in the interpreta tion and application of the chapeau of 
Article XX, and acted inconsistently with its duty to make an objective assessment of the matter pursuant to Article 11 of the DSU, in finding that the measure is not 
applied in a manner that meets the requir ements of the chapeau of Article XX. 
                                               
34 Pursuant to the Appellate Body Communication on "Executive Summaries of Written Submissions in 
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in Appellate 
Proceedings". (WT/AB/23, 11 March 2015) 
35 WT/DS461/AB/R/Add.1. WT/DS461/AB/R 
 
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  5  ANALYSIS OF THE APPELLATE BODY 
5.1  Article II:1(a) and (b) of the GATT 1994 5.1.  Colombia appeals the Panel's finding that it was "not necessary for the Panel to issue a 
finding on whether or not the obligations of Article II:1 of the GATT 1994 can be extended to 'illicit 
trade'".
36 Colombia argues that, in reaching this finding, the Panel failed to make an objective 
assessment of the matter before it, as required un der Article 11 of the DSU. In the event that we 
reverse this finding of the Panel, Colombia requests us to complete the legal analysis and find 
that: (i) Article II:1(a) and (b) of the GATT 1994 does not apply to illicit trade; and (ii) because 
imports priced below the thresholds set out in the measure at issue are imported at artificially low prices that do not reflect market conditions, the compound tariff does not violate Article II:1(a) and (b) of the GATT 1994.
37 
5.2.  We begin by recalling the Panel's findings concerning Article II:1(a) and (b) of the GATT 1994 
before turning to address Colombia's  claim under Article 11 of the DSU. 
5.1.1  The Panel's findings 
5.3.  The Panel first addressed Colombia's argument that "Article II of the GATT 1994 only 'covers 
licit trade and cannot cover operations where ther e are indications that they are being conducted 
at artificially low prices in order to launder money'."38 In this connection, Colombia asserted that 
the terms "commerce" and "importation" in Article II:1(a) and (b) of the GATT 1994, respectively, 
refer only to licit trade and cannot be extended to trade operations conducted for the purpose of 
laundering money or for other illicit purposes.  
5.4.  The Panel began its analysis by noting that Colombia's argument would be pertinent only if 
the Panel were to make two determinations: (i) that the trade affected by the measure at issue is 
illicit trade; and (ii) that the obligations contained in Article II:1(a) and (b) of the GATT 1994 do not apply to illicit trade.
39 
5.5.  Turning to the issue of whether the trade affe cted by the measure is illicit, the Panel pointed 
out that the covered agreements contain no definition of "illicit trade".40 Thereafter, the Panel 
reviewed the definitions of the concept of illicit trade in various international instruments furnished 
by Colombia.41 The Panel observed that the factor common to the various definitions of illicit trade 
cited by Colombia is that they all refer to "illegal" activities, i.e. "activities that have been prohibited by law".
42 However, the Panel added that the compound tariff applies to all imports of 
products classified in Chapters 61, 62, 63, and 64 of Colombia's Customs Tariff (except for those 
classified under some tariff lines of heading 64.06). The Panel pointed out that the "[i]mposition of 
the compound tariff on imports is not preceded by any declaration on the part of the judicial or administrative authorities that the operation constitutes an unlawful act, nor is it even associated 
with the commission of any unlawful act."
43 Moreover, the Panel noted that Colombia had not 
identified any legal rule prohibiting the importation of goods at prices lower than the thresholds determined in the measure at issue. Therefore, in the Panel's view, "the compound tariff is applied 
to all imports of the products in question, without distinguishing as to whether the operations are 
lawful or unlawful" and "is not structured or desi gned to apply solely to operations which have 
been classified as 'illicit trade'".
44 
5.6.  The Panel also noted that the compound tariff does not apply to: (i) imports from countries 
with which Colombia has signed trade agreements in which Colombia's Customs Tariff subheadings 
subject to the measure at issue have been negotiated; (ii) goods entering Special Customs Regime 
                                               
36 Panel Report, para. 7.108. See also para. 8.1; and Colombia's Notice of Appeal, para. 5. 
37 Colombia's Notice of Appeal, para. 7. 
38 Panel Report, para. 7.59 (quoting Colombia's firs t written submission to the Panel, para. 67; and 
second written submission to the Panel, para. 37). See also para. 7.85. 
39 Panel Report, paras. 7.91 and 7.104. 
40 Panel Report, para. 7.93. 
41 Panel Report, paras. 7.94-7.97. 
42 Panel Report, para. 7.105. 
43 Panel Report, para. 7.105. 
44 Panel Report, para. 7.106. WT/DS461/AB/R 
 
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  Zones; and (iii) goods entering Colombian territory under the Special Import-Export Systems for 
Capital Goods and Spare Parts (Plan Vallejo). In the Panel's opinion, this supports the conclusion that "in Colombia's legal system there is no rule prohibiting or restricting what Colombia considers 'illicit trade', that is, the import of goods whose declared prices are below the thresholds provided 
for in Decree No. 456".
45  
5.7.  For these reasons, the Panel concluded that "a finding as to whether or not the obligations in 
Articles II:1(a) and II:1(b) of the GATT 1994 are applicable to 'illicit trade' would be merely 
theoretical and would be neither necessary nor of practical use in achieving a satisfactory 
settlement of the matter placed before [the] Panel."46 As a result, the Panel considered it 
unnecessary to issue a finding on whether or not the obligations of Article II:1 of the GATT 1994 extend to illicit trade. 
5.8.  The Panel then examined whether the compo und tariff exceeds the bound rates in Colombia's 
Schedule of Concessions. The Panel noted that the "complex feature"
47 of the present dispute is 
that the bound tariff rates in Colombia's Schedule of Concessions are expressed in ad valorem  
terms, whereas the compound tariff contains both an ad valorem  and a specific component. In 
order to compare the tariff treatment accorded under the compound tariff with the bound rates 
established in Colombia's Schedule of Concessions, the Panel relied on a "break-even price" for 
each tariff subheading.48 Having reviewed the arithmetical calculations furnished by Panama in 
respect of each scenario of the application of the compound tariff, the Panel concluded that Panama's calculations were correct and that, in the instances identified in the Panel Report, the compound tariff " necessarily  exceeds the levels bound in Colombia's Schedule of Concessions of 
35% and 40% ad valorem  (depending on the subheading)".
49  
5.9.  The Panel also examined whether, as argued  by Colombia, the measure at issue incorporates 
a legislative ceiling that prevents the bound tariff rates in Colombia's Schedule of Concessions 
from being exceeded.50 Referring to the Appellate Body report in Argentina – Textiles and Apparel , 
the Panel noted that it is possible for a Member to  establish a legislative ceiling or cap that would 
ensure that, even if the type of duty applied diffe rs from the type provided for in that Member's 
Schedule of Concessions, its ad valorem  equivalent would not exceed the bound rates provided for 
in that Schedule.51 
5.10.  However, in the Panel's view, the legislative ceiling referred to by Colombia applies only to 
imports at prices above the prescribed thresholds. Therefore, it would not apply to other imports, 
in particular, to imports priced below the thresh olds or to imports under the same subheading, 
when, in a single transaction, some imports are priced above and others are priced below the relevant threshold.
52 Moreover, the Panel recalled that, even with respect to imports entering at 
prices above the thresholds, it had found that, at least in the case of imports classified under 
heading 6305.32, at prices higher than US$10/kg but lower than US$12/kg, the compound tariff exceeds the bound tariff rates in Colombia's Schedule of Concessions. As a result, the Panel was 
not convinced by Colombia's argument that the measure incorporates a legislative ceiling that 
would prevent the compound tariff from resulting in duties that exceed Colombia's bound rates.
53 
5.11.  The Panel consequently concluded that, in the instances identified in the Panel Report, the 
compound tariff necessarily exceeds the bound tari ff rates in Colombia's Schedule of Concessions 
and is therefore inconsistent with Article II:1(a) and (b) of the GATT 1994.54  
                                               
45 Panel Report, para. 7.107. 
46 Panel Report, para. 7.108. 
47 Panel Report, para. 7.145. 
48 Panel Report, paras. 7.146-7.148. 
49 Panel Report, para. 7.189. (emphasi s original) See also para. 7.187. 
50 Panel Report, para. 7.182 (referring to Colombia's first written submission to the Panel, 
paras. 63-64). 
51 Panel Report, para. 7.184 (referring to Appellate Body Report, Argentina – Textil es and Apparel , 
para. 54). 
52 Panel Report, para. 7.185. 
53 Panel Report, para. 7.186. 
54 Panel Report, paras. 7.189 and 7.193-7.194. WT/DS461/AB/R 
 
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  5.1.2  Whether the Panel acted inconsistently with Article 11 of the DSU 
5.12.  Colombia contends that, in stating that it was not necessary for the Panel to make a finding 
on whether or not the obligations of Article II:1 of  the GATT 1994 extend to illicit trade, the Panel 
failed to make an objective assessment of the matter before it, as required under Article 11 of the 
DSU, including an objective assessment of the app licability of and conformity with the relevant 
covered agreements.55 We note that, in response to questioning at the oral hearing, Colombia 
explained that, when it uses the term "illicit trade", it is referring to transactions at prices at or 
below the thresholds incorporated in the measure at issue for which there is a very high chance 
that such transactions are being used for money laundering purposes.56 
5.13.  For Colombia, "[t]he only conceivabl e way the Panel could have … escape[d] the 
interpretative question was if it had found … that none of the imports subject to [the measure] 
involved illicit trade."57 However, Colombia points out that the Panel never made such a finding. 
Instead, in Colombia's view, in some of its statements, "the Panel acknowledged that imports subject to Decree 456 could involve illicit trade"
58, and therefore had to examine whether or not 
Article II:1(a) and (b) applies to illicit trade. Colombia further submits that "no prior panel has 
decided that it would only proceed with the interpretation [of a particular provision] after having affirmatively determined that the challenged measure only covered the type of conduct that was 
allegedly excluded from that provision"
59, and that the Panel "improperly dodged its interpretative 
function by first concluding that the challenged measure did not cover solely illicit trade".60 In 
Colombia's view, the Panel's decision not to address the interpretative issue before it constitutes false judicial economy and a violation of Colombia's due process rights.
61 
5.14.  Colombia further points out that the Panel failed to examine the relevance of the thresholds 
incorporated into the measure at issue, which, as Colombia had argued before the Panel, "reflected 
a distinction between licit imports, on the one hand, and imports that Colombia had determined 
were imported at artificially low prices to launder money, on the other hand".62 Moreover, 
Colombia contends that, in concluding that there is no rule under Colombian law prohibiting the importation of goods at prices lower than the thresholds determined in the measure, the Panel 
failed to take into account Colombia's argument that Article 323 of Colombia's Criminal Code 
prohibits a broad array of conduct, including money laundering.
63 Finally, Colombia takes issue 
with the Panel's statement that the fact that imports from free trade agreement (FTA) partners or under the Plan Vallejo may be subject to lower tariffs upon entering Colombia "supports the 
conclusion that in Colombia's legal system there is no rule prohibiting or restricting what Colombia 
considers 'illicit trade'."
64 
5.15.  In response, Panama argues that no provision in the covered agreements precluded the 
Panel from proceeding in the manner it did.65 Moreover, Panama asserts that the obligation of a 
panel to clarify the scope of existing provisions arises to the extent that such clarification may be 
                                               
55 Colombia's Notice of Appeal, para. 5;  appellant's submission, paras. 49-50. 
56 The Panel noted that, in some parts of its statemen ts before the Panel, Colombia referred to illicit 
trade as "imports effected at artifi cially low prices which are used for money laundering", whereas, in other 
parts of its statements, Colombia referre d to "the 'high risk' of imports at below-threshold prices being used for 
money laundering". (Panel Report, para. 7.352 (quoting Colombia's responses to Panel questions No. 1, para. 4, and No. 6, para. 14; and referring to Colombia's  first written submission to  the Panel, paras. 35, 60, 
66, 73, and 93, respectively)) 
57 Colombia's appellant's submission, para. 41. 
58 Colombia's appellant's submission, para. 41 (referring to Panel Report, paras. 7.359, 7.366, 7.375, 
and 7.434). 
59 Colombia's appellant's submissi on, para. 44. (emphasis original) 
60 Colombia's appellant's submission, para. 47. Colombia  also refers to Articles 3.2 and 12.7 of the DSU 
in support of its claim under Articl e 11 of the DSU. (Ibid., para. 38) 
61 Colombia's appellant's su bmission, paras. 52-61. 
62 Colombia's appellant's submission, para. 65 (referri ng to Colombia's first written submission to the 
Panel, paras. 30-35 and 66-67; and second written submission to the Panel, paras. 30-37). 
63 Colombia's appellant's submission, para. 72 (referring  to Colombia's second written submission to the 
Panel, paras. 41-42). 
64 Colombia's appellant's submission, para . 75 (quoting Panel Report, para. 7.107). 
65 Panama points out that nothing in Articles 3.2, 11, and 12.7 of the DSU requires a panel to resolve 
each issue raised by a party without being able to assess  whether or not the resolution of that issue will assist 
in securing a positive solution to a dispute. (Panama's appellee's submission, paras. 3.15-3.16) WT/DS461/AB/R 
 
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  pertinent in the light of the specific facts of the dispute.66 In Panama's view, having found that the 
measure at issue is neutral in terms of the lawf ulness or unlawfulness of the trade affected, the 
Panel correctly concluded that it was unnecessary for it to address the interpretative issue.67 
5.16.  We note that Article 11 of the DSU provides, in relevant part: 
Article 11 
Function of Panels  
The function of panels is to assist the DSB in discharging its responsibilities under this 
Understanding and the covered agreements. Accordingly, a panel should make an 
objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in the covered agreements. 
5.17.  The Appellate Body remarked in US – Hot-Rolled Steel  that Article 11 of the DSU imposes 
upon panels a comprehensive obligation to make an "objective assessment of the matter", which 
embraces "all aspects of a panel's examination of the 'matter', both factual and legal".
68 Thus, 
panels are required to make an "objective assessment of the facts", of the "applicability" of the covered agreements, and of the "conformity" of the measure at issue with the covered 
agreements.
69 With respect to "the applicability of … the relevant covered agreements", a panel is 
required to conduct an objective assessment of whether the obligations in the covered agreements, with which an inconsistency is claimed, are relevant and applicable to the case at hand. The touchstone of this obligation is that a panel's assessment must be "objective".  
5.18.  With regard to a panel's assessment of the facts of the case, Article 11 requires a panel to 
"consider all the evidence presented to it, assess its credibility, determine its weight, and ensure that its factual findings have a proper basis in that evidence".
70 In addressing a panel's 
assessment of the facts, the Appellate Body has stated that a panel is "expected to provide 
reasoned and adequate explanations and coherent reasoning".71 We would also expect a panel to 
provide reasoned and adequate explanations and coherent reasoning when assessing the 
applicability of the covered agreements.  
5.19.  As noted, Colombia's claim under Article 11 of the DSU is that the Panel failed to make an 
objective assessment of the applicability of Article II:1 of the GATT 1994 to what Colombia considers to be illicit trade. We note that, ordinarily, in structuring its analysis, a panel would first 
identify which provisions of the covered agreements are applicable in the light of its terms of 
reference, and would then interpret those provisions as appropriate. In this dispute, the Panel stated that Colombia's argument that the obligations under Article II:1(a) and (b) of the 
GATT 1994 do not extend to illicit trade "would on ly be pertinent if the Panel determine[d] as a 
factual issue that, as asserted by Colombia, the trade affected by the measure at issue is 'illicit trade'".
72 Thus, the Panel appears to have considered that it would be required to address the 
interpretative issue under Article II:1(a) and (b) of  the GATT 1994 only if it were to find that the 
trade affected by the measure was illicit trade. 
                                               
66 Panama's appellee's submission, para. 3.16. 
67 Panama's appellee's submission, para. 3.17; response to questioning at the oral hearing. 
68 Appellate Body Report, US – Hot-Rolled Steel , para. 54. 
69 Appellate Body Report, US – Hot-Rolled Steel , para. 54. 
70 Appellate Body Reports, China – Rare Earths , para. 5.178 (quoting Appellate Body Report,  
Brazil – Retreaded Tyres , para. 185, in turn referring to Appellate Body Reports, EC – Hormones , 
paras. 132-133; Australia – Salmon , para. 266; EC – Asbestos , para. 161; EC – Bed Linen (Article 21.5 – 
India) , paras. 170, 177, and 181; EC – Sardines , para. 299; EC – Tube or Pipe Fittings , para. 125;  
Japan – Apples , para. 221; Japan – Agricultural Products II , paras. 141-142; Korea – Alcoholic Beverages , 
paras. 161-162; Korea – Dairy , para. 138; US – Carbon Steel , para. 142; US – Gambling , para. 363; US – Oil 
Country Tubular Goods Sunset Reviews , para. 313; and  EC – Selected Customs Matters , para. 258). 
71 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , fn 618 to para. 293. At the same 
time, we note that a panel is not obligated to consider  each and every argument put forward by the parties in 
support of their respecti ve claims, as long as it completes an object ive assessment of the matter before it, in 
accordance with Article 11 of the DS U. (See Appellate Body Reports, EC and certain member States – Large 
Civil Aircraft , para. 894; Dominican Republic – Import  and Sale of Cigarettes , para. 125; and EC – Poultry , 
para. 135) 
72 Panel Report, para. 7.104. WT/DS461/AB/R 
 
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  5.20.  As a general principle, panels have a degr ee of discretion to structure the order of their 
analysis as they see fit, while ensuring "that th ey proceed on the basis of a properly structured 
analysis to interpret the substantive provisions at issue".73 The fact that a panel first seeks to 
determine the coverage of the measure at issue in order to assess whether it is necessary to 
engage with an interpretative question is not, in itself, incorrect. Indeed, a panel may refrain from 
ruling on the scope of a particular provision in circumstances where it establishes that the measure does not even address the conduct that a particular party alleges is outside the scope of that 
provision. In doing so, however, a panel must not structure its analysis in a manner that prevents 
it from acting in accordance with its duty to conduct an objective assessment of the matter, as required under Article 11 of the DSU, including, where implicated, an objective assessment of the applicability of the relevant covered agreements. 
5.21.  Colombia also argues that the Panel's obligation to make an objective assessment of the 
applicability of Article II:1(a) and (b) in this disp ute derives from Articles 3.2, 11, and 12.7 of the 
DSU, and that, by failing to resolve the interpretative issue before it, the Panel failed to fulfil its 
obligations under these provisions.
74 We note that, although in its appellant's submission Colombia 
refers to Articles 3.2 and 12.7 of the DSU in support of its claim under Article 11 of the DSU, it has not referred to these provisions in its Notice of Appeal. We therefore do not understand Colombia 
to have raised separate claims of error under these provisions and do not address them as such. 
5.22.  We recall that, at the outset of its analysis, the Panel explained that it was going to 
determine whether or not "the trade affected by the measure at issue is 'illicit trade'".
75 In doing 
so, the Panel stated the following: 
The factor common to the various definitions of "illicit trade" cited by Colombia is that 
they all refer to "illegal" activities, that is, activities that have been prohibited by law. In the light of the actual terms of the meas ure that is the subject of this dispute, 
however, the compound tariff applies to all imports of products classified in 
Chapters 61, 62, 63 and 64 of Colombia's Customs Tariff (except for some tariff lines 
of heading 64.06). For each category of prod uct, the compound tariff has two different 
levels, one that is lower (10% ad valorem and US$3/kg or 10% ad valorem and 
US$1.75/pair, depending on the products concerned) and one that is higher (10% ad valorem and US$5/kg or 10% ad valorem and US$5/pair, depending on the 
products concerned). In the specific case of the highest levels of the compound tariff, 
which correspond to some of the instances identified by Panama as inconsistent with 
Articles II:1(a) and II:1(b) of the GATT 1994, the compound tariff applies to all imports of the products concerned when they are effected at prices below the 
thresholds provided for in Decree No. 456. Imposition of the compound tariff on 
imports is not preceded by any declaration on the part of the judicial or administrative authorities that the operation constitutes an unlawful act, nor is it even associated 
with the commission of any unlawful act. Moreover, Colombia has not identified any 
legal rule prohibiting the import of goods at prices lower than the thresholds determined in Decree No. 456.
76 
5.23.  On this basis, the Panel concluded that the compound tariff applies to all imports without 
distinguishing whether or not they are lawful, and that the measure at issue "is not structured or 
designed to apply solely to operations which have been classified as 'illicit trade'".77  
5.24.  Colombia argues that the Panel failed to  e n g a g e  w i t h  C o l o m b i a ' s  a r g u m e n t  t h a t  " t h e  
thresholds incorporated into Decree 456 reflected a distinction between licit imports, on the one 
hand, and imports that Colombia had determined were imported at artificially low prices to launder money, on the other hand."
78 Colombia further points out that, in reaching its conclusion that "in 
Colombia's legal system there is no rule prohibiting or restricting what Colombia considers 'illicit 
                                               
73 Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 127. See also para. 126. 
74 Colombia's appellant's submission, para. 38. 
75 Panel Report, para. 7.104. 
76 Panel Report, para. 7.105. 
77 Panel Report, para. 7.106. 
78 Colombia's appellant's submission, para. 65 (referri ng to Colombia's first written submission to the 
Panel, paras. 30-35 and 66-67; and second written submission to the Panel, paras. 30-37). WT/DS461/AB/R 
 
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  trade'"79, the Panel failed to consider the relevance of Article 323 of Colombia's Criminal Code.80 
That provision, as Colombia noted, criminalizes money laundering activities.81 
5.25.  Although the Panel did not expressly analys e the implications of the above arguments for its 
understanding of the measure at issue, we note that the Panel did subsequently address similar 
arguments in analysing Colombia's defences under Article XX of the GATT 1994. As we discuss 
further below, the Panel was of the view that Colombia had failed to demonstrate that import transactions priced at or below the thresholds set out in the measure were necessarily at artificially 
low prices and were being undervalued for money laundering purposes.
82 This conclusion is in 
keeping with the Panel's finding, in the context of its analysis under Article II:1 of the GATT 1994, that the compound tariff "applie[s] to all imports of the products in question, without distinguishing as to whether the operations are lawful or unlawful".
83 Moreover, although the Panel 
did not refer to Article 323 of Colombia's Criminal Code in this section of its Report, it subsequently 
remarked that "there is no indication that the importation of products at prices below the thresholds established in Decree No. 456 automatically results in the imposition of some other 
type of measure (distinct from the compound tariff ) or any particular follow-up of the products or 
importers involved."
84 This observation supports the Panel's understanding that, while Article 323 
of Colombia's Criminal Code prohibits money laundering, there is no rule in Colombia's legal 
system prohibiting or restricting what Colombia considers illicit trade. In addition, this observation 
supports the Panel's conclusion that no finding of illegality is required in respect of an import transaction priced at or below the relevant thre shold before applying the compound tariff. Thus, 
we do not consider that the Panel would have reached a different conclusion had it expressly 
referred to Colombia's assertions regarding the thresholds set out in the measure at issue, or to 
any consequence that the importation of goods priced at or below such thresholds would have under Article 323 of Colombia's Criminal Code. 
5.26.  However, we disagree with the Panel's conclusion that it was not necessary for it to 
interpret Article II:1(a) and (b) of the GATT 1994 because the compound tariff is not structured or designed to apply "solely to operations which have been classified as 'illicit trade'".
85 The Panel's 
statement that the measure does not apply "solely" to illicit trade operations implies that the 
measure applies, or could apply, to some transactions classified by Colombia as illicit trade.86 The 
fact that there is no legal rule establishing that every  transaction priced at or below the thresholds 
is deemed an illegal or illicit transaction does not preclude the possibility that some  such 
transactions nevertheless involve what Colombia considers to be illicit trade. In our view, the 
Panel's finding that the compound tariff does not distinguish between licit and illicit trade further indicates that the measure does or could cover what Colombia considers to be illicit trade. 
5.27.  In these circumstances, we do not consider  that the Panel could have refrained from ruling 
on the interpretative issue before it simply because the challenged measure did not "solely" cover the type of transactions that Colombia maintained was outside the scope of the applicable 
provision. Rather, given that this statement of the Panel implies that the measure at issue applies, 
or could apply, to some transactions considered by Colombia to be illicit trade, the Panel was, in our view, required to address the interpretative issue before it pertaining to the scope of 
                                               
79 Panel Report, para. 7.107. 
80 Colombia's appellant's submission, para. 72. Colombia  notes that "[t]he fact that the Criminal Code 
does not specifically define imports below the thresholds as a criminal act is immaterial. The fact remains that use of imports at artificially low prices to launder mone y falls within the offense of 'money laundering' and may 
be subject to criminal pros ecution." (Ibid., para. 73) 
81 Panel Report, para. 7.335 (referring to Colombia's second written submission to the Panel, para. 41; 
and joint study prepared by Colombia's Ministry of Fi nance and Public Credit, National Customs and Excise 
Directorate, and Information and Financial Analysis Unit, Money Laundering Typologies Related to Smuggling , 
January 2006 (Panel Exhibit COL-10), p. 8). See also Colombia's appellant's submission, para. 72. 
82 See infra, paras. 5.53-5.55. 
83 Panel Report, para. 7.106. 
84 Panel Report, para. 7.390. 
85 Panel Report, para. 7.106. 
86 We further note that, as discuss ed in section 5.2.2 of this Report, the Panel subsequently made 
findings in its Report that indicated that the measure at  issue could apply to some products that are imported 
at artificially low prices for money laundering purposes. (See infra, paras. 5.85-5.89) WT/DS461/AB/R 
 
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  Article II:1(a) and (b) of the GATT 1994.87 The Panel's conclusion that it was not necessary for it 
to interpret Article II:1 of the GATT 1994 does not follow logically from its previous finding indicating that the measure applies, or could appl y, to some illicit trade. We therefore consider 
that the Panel did not provide coherent reasoning, and that the basis upon which it refrained from 
interpreting Article II:1(a) and (b) of the GATT 1994 was flawed. 
5.28.  We therefore find that the Panel acted inco nsistently with its duty under Article 11 of the 
DSU to make an objective assessment of the matter, including an objective assessment of the 
applicability of the relevant covered agreements, in finding that it was unnecessary for the Panel to 
interpret the scope of Article II:1(a) and (b) of the GATT 1994. Consequently, we reverse the 
Panel's finding, in paragraphs 7.108 and 8.1 of it s Report, that it was unnecessary for the Panel to 
issue a finding as to whether or not Article II:1(a) and (b) of the GATT 1994 applies to illicit trade.  
5.1.3  Completion of the legal analysis  
5.29.  Having reversed the Panel's finding that it was unnecessary for the Panel to interpret the 
scope of Article II:1(a) and (b) of the GATT 1994, we  turn to Colombia's request that we complete 
the legal analysis and find that Article II:1(a) and (b) does not apply to illicit trade and that, 
because imports priced at or below the thresholds are imported at artificially low prices that do not reflect market conditions, the compound tariff does not violate Article II:1(a) and (b) of the 
GATT 1994.
88 
5.30.  At the outset, we note that, on a number of occasions, the Appellate Body has completed 
the legal analysis with a view to facilitating the prompt settlement and effective resolution of the dispute.
89 The Appellate Body has completed the legal analysis when sufficient factual findings by 
the panel and undisputed facts on the panel record allowed it to do so.90 In addition to the lack of 
factual findings by the panel and undisputed facts on the panel record, the reasons that have prevented the Appellate Body from completing the analysis include "the complexity of the issues, 
the absence of full exploration of the issues before  the panel, and, consequently, considerations for 
parties' due process rights".
91 
5.31.  For Colombia, the term "commerce" in Article II:1(a) and the term "importation" in 
Article II:1(b) do not cover what Colombia considers to be illicit trade.92 Colombia argues that 
other provisions of the covered agreements, in particular, Article VII:2(a) and (b) of the GATT 1994 and Article 1.1 of the Agreement on  Implementation of Article VII of the 
General Agreement on Tariffs and Trade 1994 (Cus toms Valuation Agreement), provide contextual 
support for its interpretation of Article II:1 of the GATT 1994.
93 Colombia also contends that its 
interpretation of the terms in Article II:1 is consistent with the object and purpose of the GATT 1994, as reflected in the preamble.
94 In support of its interpretation, Colombia refers to the 
                                               
87 At the same time, we do not agree with Colombia that the Panel's decision not to address the 
interpretative issue before it cons titutes judicial economy. The Pane l did not refrain from interpreting 
Article II:1(a) and (b) due to  its disposition of another legal claim. Rather, having found that the compound 
tariff is not designed or structured to apply solely to il licit trade, the Panel considered that it was not necessary 
for it to proceed to interpret Article II:1(a) and (b). (Panel Report, para. 7.108) 
88 Colombia's Notice of Appeal, para. 7. 
89 See e.g. Appellate Body Reports, Australia – Salmon , paras. 117-136; US – Wheat Gluten , 
paras. 80-92; and Canada – Aircraft (Article 21.5 – Brazil) , paras. 43-52. 
90 See e.g. Appellate Body Reports, US – Gasoline , p. 19, DSR 1996:I, p. 18; Canada – Periodicals , 
p. 24, DSR 1997:I, p. 469; Australia – Salmon , paras. 117-118; US – Lamb , paras. 150 and 172;  
US – Section 211 Appropriations Act , para. 352; EC and certain member States – Large Civil Aircraft , 
paras. 1174-1178; and US – Large Civil Aircraft (2nd complaint) , paras. 1272-1274. The Appellate Body did not 
complete the legal analysis in situations where the fa ctual findings by the panel and undisputed facts on the 
panel record were insufficient for the Appellate Body to conduct its own analysis . (See e.g. Appellate Body 
Reports, EC – Hormones , para. 251;  US – Upland Cotton , para. 693; US – Zeroing (EC) , paras. 228 and 243; 
EC – Selected Customs Matters , para. 286; US – Continued Zeroing , para. 194; US – Anti-Dumping and 
Countervailing Duties (China) , para. 537; EC and certain member States – Large Civil Aircraft , paras. 736, 
990, and 993; and US – COOL , para. 481) 
91 Appellate Body Reports, Canada – Renewable Energy/Canada – Feed-in Tariff Program , para. 5.224 
(referring to Appellate Body Report, EC – Export Subsidies on Sugar , fn 537 to para. 339). 
92 Colombia's appellant's submission, paras. 100 and 102. We recall that, for Colombia, transactions at 
artificially low prices used for money laundering purposes constitute illicit trade. 
93 Colombia's appellant's submission, paras. 103-106. 
94 Colombia's appellant's submission, para. 107. WT/DS461/AB/R 
 
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  doctrine of abus de droit  and to several decisions of investment tribunals, which have refused to 
extend the protection of bilateral and regional investment treaties to illegal investments.95  
5.32.  Panama responds that the terms "comme rce" and "importation" are not subject to any 
qualification and that there is therefore no basis in the text of Article II:1(a) and (b) for excluding 
from its coverage any particular type of import transaction.96 Moreover, for Panama, Article VII:2 
of the GATT 1994 and the Customs Valuation Agreement do not provide context for the interpretation proposed by Colombia since imports with different declared values do not cease to 
be subject to the disciplines of the GATT 1994.
97 Panama points out that Colombia's interpretation 
of Article II:1 seeks to curtail the disciplines of  the covered agreements with respect to what a 
Member unilaterally considers to be illicit trade, and that such an interpretation would be contrary to the purpose of the GATT 1994 of reducing ba rriers to international trade and eliminating 
discrimination. Finally, in Panama's view, Colombia's concern that certain imports could be used to 
commit unlawful acts could be addressed under Article XX of the GATT 1994.
98 
5.33.  We note that Article II:1 of the GATT 1994 provides, in relevant part: 
Article II 
Schedules of Concessions 
1. (a) Each Member shall accord to the commerce of the other Members treatment 
no less favourable than that provided for in the appropriate Part of the 
appropriate Schedule annexed to this Agreement. 
 (b) The products described in Part I of the Schedule relating to any Member, 
which are the products of territories of other Members, shall, on their 
importation into the territory to which the Schedule relates, and subject to the 
terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. 
Such products shall also be exempt from all other duties or charges of any 
kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily 
required to be imposed thereafter by legislation in force in the importing 
territory on that date. 
5.34.  Article II:1 of the GATT 1994 serves the im portant function of preventing Members from 
applying duties that exceed the bound rates agreed to in tariff negotiations and incorporated into 
their Schedules of Concessions.
99 Article II:1(a) provides that a Member shall accord to the 
"commerce" of other Members treatment no less favourable than that provided for in its Schedule. The term "commerce" is defined as referring broadly to the exchange of goods such that, in this 
provision, the "commerce" of a Member should be understood to refer to all such exchanges of 
that Member.
100 W e  d o  n o t  s e e  t h a t  t h e  s c o p e  o f  t h i s  t e r m ,  a s  i t  a p p e a r s  i n  A r t i c l e  I I : 1 ( a ) ,  i s  
qualified in respect of the nature or type of "commerce", or the reason or function of the 
transaction, in a manner that excludes what Colombia considers to be illicit trade.  
5.35.  The first sentence of Article II:1(b) provides that products described in a Member's 
Schedule shall, on their importation into that Member's territory, be exempt from ordinary 
                                               
95 Colombia's appellant's submission, paras. 109-110. With regard to the doctrine of abus de droit , 
Colombia explains that the behaviour of "[e]xporters th at demand that tariffs not exceed the bindings, while 
colluding in illicit trade by providing a false invoice with an artificially low price, results in the abusive exercise of rights." (Ibid., para. 109) 
96 Panama's appellee's submission, para. 3.47. 
97 Panama's appellee's submission, para. 3.48. 
98 Panama's appellee's submission, para. 3.47. 
99 Appellate Body Report, Argentina – Textil es and Apparel , para. 47. 
100 The term "commerce" is defined as "buying and se lling; the exchange of merchandise or services, 
especially on a large scale". ( Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University 
Press, 2007), Vol. 1, p. 462) WT/DS461/AB/R 
 
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  customs duties in excess of those set out in the Schedule.101 Article II:1(b) thus provides that the 
products described in a Member's Schedule may not, "on their importation", be subject to ordinary customs duties, or other duties or charges, that ex ceed that Member's bound tariff rates. The term 
"importation" refers generally to the action of bringing in goods from another country.
102 Thus, as 
with the term "commerce", we do not see that the scope of the term "importation" is qualified in 
respect of the nature or type of imports, or the reason or function of the transaction, in a manner 
that excludes what Colombia co nsiders to be illicit trade.  
5.36.  Moreover, we note that Article II:2 of the GATT 1994 provides immediate context for the 
obligations contained in Article II:1 by setting out instances in which the obligations of Article II:1 do not apply. Article II:2 provides that nothing in Article II, including Article II:1(b), shall prevent a Member from imposing on the importation of a product: (i) a charge equivalent to an internal tax 
imposed consistently with Article III:2 of the GATT 1994 in respect of a like domestic product; 
(ii) an anti-dumping or countervailing duty applied consistently with Article VI of the GATT 1994; or (iii) fees or other charges commensurate with the cost of services rendered. The three instances 
identified in Article II:2, in which the obligations set out in Article II:1 do not apply, constitute a 
closed list. In our view, the fact that Article II:2 sets out a closed list of instances in which bound tariff rates may be exceeded provides further support for a reading of Article II:1 that does not 
exclude what Colombia considers to be illicit trade.  
5.37.  Colombia further asserts that Article VII:2(a) and (b) of the GATT 1994 and the Customs 
Valuation Agreement provide contextual support for its interpretation of Article II:1 of the 
GATT 1994. Specifically, for Colombia, goods imported at artificially low prices with the purpose of 
laundering money cannot be considered to reflect "actual value" under Article VII:2 of the 
GATT 1994, or "transaction value" under Article 1.1 of the Customs Valuation Agreement.
103 In 
response, Panama points out that Article V II:2 of the GATT 1994 and the Customs Valuation 
Agreement do not provide context for the interpretation proposed by Colombia since imports with 
different declared values do not cease to be subject to the disciplines of the GATT 1994.104  
5.38.  Article VII:2(a) of the GATT 1994 provides  that the value of an imported product for 
customs purposes should be based on the "actual value" of the imported merchandise, and should 
not be based on "arbitrary or fictitious values". The "actual value" is further defined in Article VII:2(b) as "the price at which, at a ti me and place determined by  the legislation of the 
country of importation, such or like merchandise is sold or offered for sale in the ordinary course of 
trade under fully competitive conditions."
105 The general valuation principles set out in Article VII 
of the GATT 1994 are further elaborated in the Cu stoms Valuation Agreement. Article 1.1 of the 
Customs Valuation Agreement stipulates that "[t]he customs value of imported goods shall be the 
transaction value, that is the price actually paid or payable for the goods when sold for export to 
the country of importation adjusted in accordance with the provisions of Article 8" of the Customs 
Valuation Agreement.106 Where it is not possible to determine the customs value of imported 
                                               
101 In Argentina – Textiles and Apparel , the Appellate Body stated in respect of the relationship between 
Article II:1(a) and Article II:1(b) that "[p]aragraph (b) proh ibits a specific kind of prac tice that will always be 
inconsistent with paragraph (a): that is, the application of  ordinary customs duties in excess of those provided 
for in the Schedule." (Appellate Body Report, Argentina – Textiles and Apparel , para. 45) We note that the 
term "importation" also appears in Article II:1(b), second sentence, and Article II:1(c) of the GATT 1994. 
102 The term "importation" is defined as "the action of importing or bringing in something, specifically 
goods from another country". ( Shorter Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford 
University Press, 2007), Vol. 1, p. 1339) 
103 Colombia's appellant's submission, paras. 105-106. 
104 Panama's appellee's submission, para. 3.48. 
105 We further note that the Ad Note to paragraph 2 of Article VII pr ovides that the "actual value" may 
be represented by the invoice price,  plus any non-included charges for legitimate costs that are proper 
elements of actual value, and any ab normal discount or othe r reduction from the ordina ry competitive price. 
106 Article 1.1(a)-(d) of the Customs Valuation Agreement further specifies circumstances in which 
customs value need not be based on transaction valu e. In particular, the transaction value may not be 
acceptable when there are certain restrictions on the disposition or use of the goods by the buyer; the sale or 
price is subject to some condition or consideration for which a value cannot be determined with respect to the 
goods being valued; some part of the proceeds accrue to  the seller; or where, unde r certain circumstances, the 
buyer and seller are related. WT/DS461/AB/R 
 
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  goods based on the transaction value, the Customs Valuation Agreement provides for 
five alternative valuation methods.107 
5.39.  While Article VII:2 of the GATT 1994 provides that the value of a product for customs 
purposes should be based on "actual value" and not on "arbitrary or fictitious values" or sales on 
other than "fully competitive conditions"108, these provisions do not support a reading of 
Article II:1 of the GATT 1994 that excludes from its disciplines transactions that are at "artificially 
low prices", "do not result from market operations", or are otherwise classified as illicit trade.109 
Rather, Article VII:2 of the GATT 1994 and the Customs Valuation Agreement have a different 
focus than Article II:1 of the GATT 1994 in that  they set out conditions in which customs 
authorities may adjust or reject the declared value of goods and instead rely upon alternative methods for determining the value of those goods for customs purposes. Thus, where a declared 
value of a transaction is rejected because it is unduly low, the result under the Customs Valuation 
Agreement would be that the value for customs purp oses would be adjusted or determined in an 
alternative manner. This value would subsequently serve as the basis for any imposition of a tariff 
in accordance with Article II:1 of the GATT 1994.  The existence of such alternative methods for 
determining the customs value under these provisions confirms that the underlying transaction remains subject to the bound tariff rates pursua nt to Article II:1 of the GATT 1994 and the 
relevant part of a Member's Schedule. This further supports our understanding that the scope of 
Article II:1(a) and (b) of the GATT 1994 does not exclude what Colombia considers to be illicit trade.  
5.40.  Colombia further contends that the object and purpose of the GATT 1994, as reflected in the 
preamble, supports its interpretation of Article II:1(a) and (b).
110 Specifically, Colombia points out 
that the criminal activities associated with illicit trade reduce standards of living, generate economic distortions that hurt employment, and reduce real income.
111 We recall that the 
Appellate Body has previously stated that the GATT 1994 strikes a balance between Members' 
obligations, on the one hand, and their rights to adopt measures seeking to achieve legitimate policy objectives, on the other hand.
112 To effectuate such a balance, Article XX of the GATT 1994 
contains a number of exceptions that reflect important societal objectives other than trade 
liberalization, which may be relied upon in seeking to justify an otherwise GATT-inconsistent measure. The GATT 1994 thus preserves the right of Members to pursue legitimate policy objectives, including addressing concerns relating to, in casu , money laundering, through the 
general exceptions set out in Article XX. 
5.41.  Moreover, we note that Colombia's interpretation would allow a Member to exclude from the 
scope of Article II:1(a) and (b) of the GATT 1994 tr ade activities that it has unilaterally determined 
to be illicit under its domestic law. Such an interpretation would mean that, in respect of 
concessions inscribed in a Member's Schedule, the scope of a Member's obligation could vary depending on what is defined as illicit or asserted to be illicit under that Member's domestic law. 
As we see it, such an approach to the interpretation of Article II:1(a) and (b) would create 
uncertainty as to the scope of coverage of tariff concessions undertaken by Members. 
5.42.  Finally, we note that Colombia also takes issue with the Panel's finding that the measure at 
issue does not incorporate a legislative ceiling that prevents the compound tariff from resulting in 
duties that exceed the bound rates in Colombia's Schedule of Concessions.
113 In particular, for 
Colombia, Article II:1(a) and (b) does not impose an obligation on Members to ensure that their 
                                               
107 These methods are: (i) transaction value of identi cal goods (Article 2); (ii) transaction value of 
similar goods (Article 3); (iii) deductive value (Article 5); (iv) computed value (Article 6); and (v) residual or fall-back method (Article 7). 
108 The Ad Note to paragraph 2 of Article VII defines "actual value" and refers to "any abnormal discount 
or other reduction from the ordinary competitive price". It  also describes the term "in the ordinary course of 
trade … under fully competitive conditions" as "excluding  any transaction wherein the buyer and seller are not 
independent of each other and price is not the sole consideration." 
109 Colombia's appellant's submission, para. 105. 
110 The preamble of the GATT 1994 provides that the relations of Members "in the field of trade and 
economic endeavour should be  conducted with a view to raising standa rds of living, ensuri ng full employment 
and a large and steadily growing volume of real income  and effective demand, developing the full use of the 
resources of the world and expanding th e production and exchange of goods". 
111 Colombia's appellant's submission, para. 107. 
112 Appellate Body Report, US – Shrimp , para. 156. 
113 Colombia's appellant's submission , paras. 83-84; response to qu estioning at the oral hearing. WT/DS461/AB/R 
 
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  bound rates are not exceeded when goods are imported at artificially low prices. Therefore, for 
Colombia, the legislative ceiling need not apply to imports priced at or below the thresholds that are not covered by Article II:1 of the GATT 1994. Mo reover, in Colombia's view, the Panel's finding 
that the legislative ceiling does not apply to  imports classified under heading 6305.32 of 
Colombia's Customs Tariff, entering at prices above US$10/kg but below US$12/kg, may indicate 
that the legislative ceiling does not apply in that particular scenario, but cannot serve as a basis for an overall conclusion that the legislative ceilin g does not ensure conformity with Article II:1 of 
the GATT 1994.
114  
5.43.  On the basis of our interpretation of Article II:1(a) and (b) of the GATT 1994 developed 
above, we do not find support for Colombia's argument that a legislative ceiling need not apply to imports priced at or below the thresholds incorporated in the measure at issue. We do not see that 
Article II:1(a) and (b) excludes from its scope transactions that Colombia considers to be illicit 
because they are at artificially low or below market prices for money laundering purposes. We therefore do not consider that a measure that fails to ensure that such transactions do not exceed 
Colombia's bound tariff rates can operate as a legislative ceiling. Moreover, Colombia does not 
contest the Panel's finding that imports classified under heading 6305.32 of the Customs Tariff, entering at prices above US$10/kg but below US$12/kg, exceed the rate bound in Colombia's 
Schedule of Concessions.
115 We recall that the Appellate Body, in Argentina – Textiles and Apparel , 
explained that "it is possible, under certain circ umstances, for a Member to design a legislative 
'ceiling' or 'cap' on the level of duty applied wh ich would ensure that, even if the type of duty 
applied differs from the type provided for in that Member's Schedule, the ad valorem equivalents 
of the duties actually applied would not exceed the ad valorem duties provided for in the Member's 
Schedule."116 For the foregoing reasons, contrary to the notion of a legislative ceiling articulated by 
the Appellate Body, the price thresholds set out in Colombia's measure do not ensure that duties 
imposed on certain imports do not exce ed Colombia's bound tariff rates.  
5.44.  As we have noted, apart from the grounds of appeal identified and addressed above, 
Colombia has not challenged the Panel's findings regarding the instances in which the application 
of the compound tariff results in a duty that exceeds the bound tariff rates in Colombia's Schedule 
of Concessions. We therefore see no grounds to disturb the Panel's findings that the compound 
tariff necessarily exceeds Colombia's bound tariff rates in the instances set out in paragraphs 7.164 and 7.180 of its Report.  
5.45.  In sum, we do not see that the text of Article II:1(a) and (b) of the GATT 1994 excludes 
what Colombia classifies as illicit trade. Moreover, the context provided in Articles II:2 and VII:2 of the GATT 1994 and the Customs Valuation Agreemen t supports our view that the scope of 
Article II:1(a) and (b) of the GATT 1994 is not limited in the manner suggested by Colombia. We 
also consider that our interpretation regarding the scope of Article II:1(a) and (b) of the GATT 1994 is in keeping with the object and purpose of the GATT 1994, and that a Member 
seeking to address concerns regarding money laundering may do so through the general 
exceptions contained in Article XX of the GATT 1994. We recall that we have reversed the Panel's finding, in paragraphs 7.108 and 8.1 of the Pane l Report, that it was unnecessary for the Panel to 
issue a finding as to whether or not Article II:1(a) and (b) of the GATT 1994 applies to illicit trade. 
However, in the light of our interpretation of Arti cle II:1(a) and (b), we see no grounds to disturb 
the Panel's findings that the compound tariff necessarily exceeds Colombia's bound tariff rates in the instances set out in paragraphs 7.164 and 7.180 of its Report.  
5.46.  We therefore find, for imports of products classified in Chapters 61, 62, 63, and 64 (except 
for heading 64.06 but including tariff line 6406.10.00. 00) of Colombia's Customs Tariff, that, in the 
instances identified in the Panel Report, the compound tariff exceeds the bound tariff rates in 
Colombia's Schedule of Concessions, and is therefore inconsistent with Article II:1(a) and (b) of 
the GATT 1994. Consequently, we uphold the Panel's findings, in paragraphs 7.189, 7.192-7.194, 
and 8.2-8.4 of its Report. 
5.47.  Before turning to our analysis of Colombia 's defences under Article XX(a) and Article XX(d) 
of the GATT 1994, we wish to remark that our anal ysis set out above should not be understood to 
suggest that Members cannot adopt measures seeking to combat money laundering. This aim, 
                                               
114 Colombia's appellant's submission, para. 88. 
115 Colombia's response to ques tioning at the oral hearing. 
116 Appellate Body Report, Argentina – Textil es and Apparel , para. 54. WT/DS461/AB/R 
 
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  however, cannot be achieved through interpreting Article II:1 of the GATT 1994 in a manner that 
excludes from the scope of that provision what a Member considers to be illicit trade. A Member's right to adopt and pursue measures seeking to address concerns relating to money laundering can be appropriately preserved when justified, for example, in accordance with the general exceptions 
contained in Article XX of the GATT 1994. 
5.2  Article XX(a) of the GATT 1994 5.48.  We now address Colombia's appeal of the Panel's finding that Colombia had failed to 
demonstrate that the compound tariff is a measure necessary to protect public morals within the 
meaning of Article XX(a) of the GATT 1994. We begin by summarizing relevant aspects of the 
Panel's findings before turning to ex amine Colombia's claims on appeal. 
5.2.1  The Panel's findings 
5.49.  The Panel structured its analysis of whethe r the compound tariff is a measure necessary to 
protect public morals within the meaning of Arti cle XX(a) of the GATT 1994 by assessing, first, 
whether Colombia had shown that the compound tariff has been adopted or enforced, or is 
designed, to protect public morals; and, second, whether the compound tariff is necessary to 
protect public morals.
117 
5.50.  The Panel began by considering whether Colombia had shown that the declared policy 
objective of combating money laundering is one of the policies designed to protect public morals in 
Colombia. The Panel noted that money laundering is criminal conduct in Colombia under Article 323 of its Criminal Code, and that Colombia had submitted documents showing that combating money laundering is an important policy objective for Colombia.
118 In the Panel's view, 
Colombia presented sufficient evidence to demonstr ate the existence of a real and present concern 
in Colombia with regard to money laundering, as well as with regard to the way in which money laundering is linked with drug trafficking and other criminal activities and with Colombia's internal 
armed conflict. Consequently, the Panel concluded that combating money laundering is one of the 
policies designed to protect public morals in Colombia.
119 
5.51.  The Panel then turned to examine whether the compound tariff is itself designed to combat 
money laundering. The Panel examined the text of Decree No. 456 and observed that it does not 
contain "any statement of reasons or recitals indica ting that the objective of the compound tariff is 
to combat money laundering".120 
5.52.  Turning to the design, architecture, an d structure of the compound tariff, the Panel 
considered that Colombia made a series of interconnected assumptions that required verification, 
namely: (i) that the thresholds established in the measure reflect "market conditions" so that any price below them is "artificially low"; (ii) that products imported at prices below the thresholds 
established in the measure are being undervalued; and (iii) that imports of goods subject to the 
compound tariff at prices below the thresholds established in the measure are being used for money laundering purposes.
121 
5.53.  As to whether the thresholds established in the measure reflect "market conditions" so that 
any price below them is "artificially low", the Panel highlighted Colombia's statement that the studies and calculations used as a basis for determining the price thresholds are confidential, but that Colombia had offered a general explanation of the methodology used for determining the 
price thresholds.
122 In the light of these considerations, the Panel considered it "impossible" to 
verify, on the basis of the information availabl e, whether the thresholds established in the 
                                               
117 Panel Report, para. 7.330. 
118 Panel Report, para. 7.335. The Panel referred to several documents submitted by Colombia, including 
National Planning Department, National Development Plan 2010-2014  (extracts) (Panel Exhibit COL-33); 
Ministry of the Interior and Justice, National Anti-Drug Policy  (Panel Exhibit COL-6); and National Council for 
Economic and Social Policy, National Policy against Money Laundering and the Financing of Terrorism , 
18 January 2013 (Panel Exhibit COL-19).  
119 Panel Report, paras. 7.338-7.339. 
120 Panel Report, para. 7.347. 
121 Panel Report, para. 7.353. 
122 Panel Report, para. 7.354. The Panel noted that Colombia had indicated that the price thresholds are 
based on domestic and inte rnational market prices.  WT/DS461/AB/R 
 
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  measure reflect the prices of transactions under normal market conditions for the products in 
question.123 In particular, the Panel pointed out that Colombia had not explained how the 
calculation of single price thresholds establis hed on a fixed basis for each of the two broad 
categories of products covered by this dispute ca n be useful for determining market prices and the 
levels below which import prices must be considered "artificially low", without an examination of 
the specific characteristics of the particular transaction concerned.124 The Panel added that it was 
not clear how the methodology used by Colombia takes into account the possible differences that 
could exist between the import prices of the differe nt products, within each of the broad categories 
covered by these thresholds, in terms of factors such as: production costs; component materials; quality levels; trademarks; seasonality, consumer tastes, and preferences; and the actual nature of the products in question.
125 The Panel concluded that, while it could not be ruled out that the 
importation of goods at prices below the thresholds established in the measure could reflect 
"artificially low" prices, Colombia had not shown that the thresholds "could be decisive in establishing that the  importation of goods at prices below those thresholds is necessarily  taking 
place at 'artificially low' prices that do not reflect real prices or market conditions".
126 
5.54.  In assessing whether there was any evidence that the products imported at prices below the 
thresholds established in the measure are being undervalued, the Panel noted that "[t]he notion of 
underinvoicing or undervaluation pertains to a situation in which the price declared on the invoice 
for a particular transaction is lower than the price actually paid or payable."127 Then, the Panel 
observed that "[t]he studies contributed by the parties are not conclusive with respect to whether the undervaluation occurs exclusively or even preponderantly in connection with imports of 
products with 'low' prices."
128 As a result, the Panel stated that, "insofar as the thresholds 
established in Decree No. 456 were determined on a fixed basis for broad categories of products and without examining the specific characteristi cs of the transaction concerned, there is no 
indication that products imported at prices below the thresholds established in Decree No. 456 are 
necessarily being undervalued."
129 
5.55.  The Panel then turned to examine whet her there was any evidence that the products 
subject to the compound tariff upon importation into Colombia are being undervalued for money 
laundering purposes. In this regard, the Panel stated that the information available suggests that the undervaluation of imports is one of the methods used for money laundering detected by Colombian authorities.
130 The Panel, however, highlighted that not every undervaluation operation 
in an international trade transaction is for money laundering purposes. The Panel added that the 
undervaluation of imports is just one of the many methods used for money laundering, and that smuggling involving imports as a modus operandi  for money laundering does not constitute one of 
the most commonly used methods.
131 On this basis, the Panel concluded that, "even assuming, for 
the sake of argument, that products imported at prices below the thresholds established in Decree No. 456 are being undervalued, there is no ev idence that this necessarily means that the 
undervaluation in question is for money laundering purposes."
132 
                                               
123 Panel Report, para. 7.355. 
124 Panel Report, para. 7.355. 
125 Panel Report, para. 7.357. 
126 Panel Report, para. 7.359. (emphasis original) 
127 Panel Report, para. 7.363. 
128 Panel Report, para. 7.364. 
129 Panel Report, para. 7.365. 
130 Panel Report, para. 7.366. In support of this pr oposition, the Panel referred to a joint study 
conducted by Colombia's Ministry  of Finance and Public Credit, Dirección de Impuestos y Aduanas Nacionales 
(DIAN) (National Customs and Excise Directorate) and Unidad de Información y Análisis Financiero  (UIAF) 
(Information and Financial Analysis Unit), which identifies some of the most common methods (known as "typologies") used for laundering money and financing terrorism by means of smuggling operations. The Panel indicated that the typologies include the "payment in kind for illicit activities with goods smuggled into the national territory" and the "transport of money of illicit origin to another country to purchase goods which are 
introduced into the local country by means of technical smuggling based on underinvoicing". Colombia stated before the Panel that both typologies  correspond to the sort of practice s that the compound tariff seeks to 
combat. (Ibid., paras. 7.369-7.370 (referring to Ministry  of Finance and Public Credit, National Customs and 
Excise Directorate, and Informat ion and Financial Analysis Unit, Money Laundering Typologies Related to 
Smuggling , January 2006 (Panel Exhibit COL-10); and quoting Colombia's response to Panel question No. 44, 
para. 101)) 
131 Panel Report, paras. 7.374-7.375. 
132 Panel Report, para. 7.376. WT/DS461/AB/R 
 
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  5.56.  Next, the Panel examined certain exemptions from the compound tariff. The Panel noted, 
first, that imports into Special Customs Regime Zones could be used for money laundering, and that Colombia had not indicated what measures it is taking to deal with the risk of money laundering in connection with these imports. Second , in respect of goods entering Colombia under 
the Plan Vallejo, the Panel did not rule out the possibility that companies participating in the 
Plan Vallejo might use imports for money laundering. Third, in respect of the exemption from the compound tariff for imports from co untries with which Colombia has trade agreements in force, the 
Panel stated that this exemption is related to the negotiation of the relevant tariff subheadings in 
the respective agreement, rather than to the existence of customs cooperation and information 
exchange mechanisms, as Colombia had allege d. Therefore, the Panel concluded that the 
exemptions from the compound tariff are unrelated to, and inconsistent with, the measure's 
alleged objective of combating money laundering.
133 
5.57.  The Panel then stated that the fact that the measure would remain in force for a period of 
two years is not in keeping with the measure's alleged objective of combating money 
laundering.134 Moreover, for the Panel, the fact that imports of products at prices below the 
thresholds established in the measure are not prohibited under Colombian legislation and are not automatically subject to some type of measure ot her than the compound tariff would appear to be 
inconsistent with the compound tariff's objective.
135 
5.58.  For the foregoing reasons, the Panel consid ered that the design, architecture, and revealing 
structure of the compound tariff did not make it possible to conclude that there is a relationship between the compound tariff and the declared objective of combating money laundering. Thus, the 
Panel found that Colombia had failed to demonstrate that the compound tariff is designed to 
combat money laundering.
136 Consequently, the Panel concluded that, although Colombia had 
demonstrated that combating money laundering is one of the policies designed to protect public 
morals in Colombia, it had not shown that the compound tariff is a measure designed to protect 
public morals.137 
5.59.  Having made this finding, the Panel stated that, since it had concluded that Colombia had 
failed to demonstrate that the compound tariff is designed to combat money laundering, there 
should be no need to examine whether the compound  tariff is necessary to protect public morals. 
However, the Panel indicated that, "in order to be exhaustive in its analysis", it would continue with its evaluation by assuming, for the sake of argument, that the compound tariff is designed to 
combat money laundering.
138 
5.60.  In the context of its analysis of "necessity ", the Panel concluded that, even though Colombia 
had demonstrated that the objective of combating money laundering in Colombia serves societal 
interests that could be described as vital and important in the highest degree, Colombia had not 
demonstrated the contribution of the compound tariff to the alleged objective of combating money laundering. For this reason, and taking into account the restriction on international trade caused 
by the compound tariff, the Panel found that Colombia had failed to show that the compound tariff 
is a measure necessary to combat money laundering.
139 Consequently, the Panel concluded that 
Colombia had failed to demonstrate that the compound tariff is a measure necessary to protect public morals within the meaning of Article XX(a) of the GATT 1994.
140 
5.2.2  Whether the Panel erred under Article XX( a) in finding that Colombia had failed to 
demonstrate that the compound tariff is a measure "necessary to protect public morals" 
5.61.  Colombia appeals the Panel's findings that Colombia had failed to demonstrate that the 
compound tariff is a measure "designed" to protect public morals, and that it is "necessary" to 
                                               
133 Panel Report, para. 7.388. 
134 Panel Report, para. 7.389. 
135 Panel Report, paras. 7.390-7.391. In addition, the Panel observed that Panama submitted evidence 
of statements made by high-ranking  Colombian officials suggesting that the compound tariff was imposed to 
protect the textiles sector from unfair competition, revi talize industry, and protect do mestic production. (Ibid., 
para. 7.392) 
136 Panel Report, para. 7.400. 
137 Panel Report, para. 7.401. 
138 Panel Report, para. 7.402. 
139 Panel Report, para. 7.445. See also para. 7.470. 
140 Panel Report, paras. 7.471 and 8.5. WT/DS461/AB/R 
 
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  protect public morals, within the meaning of  Article XX(a) of the GATT 1994. We begin by 
assessing Colombia's claim concerning the Panel's finding regarding the "design" of the measure. 
5.62.  Colombia argues that the Panel erred under Article XX(a) of the GATT 1994 by requiring 
Colombia to demonstrate the "effect iveness" of the challenged measure as part of establishing that 
the measure is "designed" to protect public morals.141 According to Colombia, the "effectiveness" 
of the challenged measure goes to the contribution of the measure to the objective pursued, which, under Appellate Body jurisprudence, is a matter that is relevant to the "necessity" analysis, 
rather than to the consideration of whether the measure is "designed" to protect public morals. 
Colombia considers that the Panel required it to demonstrate that imported products covered by the measure are necessarily being undervalued and used for money laundering purposes, which focuses on the degree to which the measure is co ntributing to its objective. Therefore, in 
Colombia's view, the Panel erred by conflating the analysis of the "design" of the measure with the 
subsequent and more exhaustive analysis of th e "necessity" of the measure under Article XX(a).
142 
5.63.  Colombia submits that, even if it was appropriate for the Panel to examine the contribution 
of the measure in the context of assessing its "design", the Panel erred by imposing an "overly 
demanding" standard of the term "to protect" public morals that is inconsistent with Article XX(a).
143 In particular, Colombia considers that the Panel, in essence, required that the 
measure satisfy a "100% effectiveness standard"144, which is neither required, nor possible to 
meet, under Article XX(a). According to Colombia, the Panel imposed a standard that required Colombia to demonstrate that each and every transaction priced below the thresholds established in the measure involved money laundering. This is because the Panel required evidence "that 
demonstrated that products at prices below the threshold established in Decree 456 were 
necessarily  imported at artificially low prices that did not reflect market conditions, that the 
thresholds themselves necessarily  reflected artificially low prices, and that imports at prices below 
the thresholds necessarily  were being used to launder money".
145 
5.64.  In response, Panama argues that, given that the parties disagreed about the objective of 
the measure, the Panel was required to examine the design, structure, and architecture of the 
measure.146 In particular, Panama considers that the Panel was required to examine the 
relationship amongst low-priced imports, the alleged undervaluation, and the alleged money laundering.
147 Given that the price thresholds established in the compound tariff are established on 
a fixed basis for a wide range of diverse products, Panama considers that the Panel rightly found 
that it is not possible to conclude that all products imported at prices below the thresholds are 
necessarily undervalued. Moreover, the Panel found that it was not possible to conclude that every instance of undervaluation is necessarily used for money laundering purposes. This is because the 
undervaluation activity can be used to evade taxes or capital controls. Panama contends that, in 
both instances, the Panel could have omitted using the word "necessarily" without affecting the validity of its conclusions. Panama does not consider that the Panel was assessing the "necessity" 
of the compound tariff in its examination of the "design" of the measure at issue.
148 
5.65.  Panama also contends that, contrary to Colombia's assertion, the Panel did not seek to 
determine whether the compound tariff achieves "100% effectiveness" in eradicating the undervaluation of imports for money laundering purposes.
149 Rather, the Panel focused on whether 
the measure had been conceived to address problems relating to undervaluation and money 
laundering.150 Panama points out that, at this point of its analysis, the Panel did not make a ruling 
about the measure's concrete results in eradicating or mitigating undervaluation or money 
laundering. Rather, the Panel's findings challenged by Colombia are part of a broader set of 
                                               
141 Colombia's appellant's submission, para. 120. 
142 Colombia's appellant's submission, paras. 120-123.  Colombia adds that the Panel's assessment of 
the term "to protect" goes beyond what has been required  in the past by panels an d the Appellate Body. (Ibid., 
para. 124) 
143 Colombia's appellant's subm ission, heading section V.B. 
144 Colombia's appellant's submission, para. 127. 
145 Colombia's appellant's submission, para. 130. (emphasis original) 
146 Panama's appellee's submission, para. 4.4. Panama recalls its contention be fore the Panel that the 
real objective of the measure is the protection of Colombia's textile and footwear industry.  
147 Panama's appellee's submission, para. 4.5. 
148 Panama's appellee's submission, para. 4.6. 
149 Panama's appellee's submission, para. 4.7. 
150 Panama's appellee's submission, para. 4.7. WT/DS461/AB/R 
 
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  findings seeking to determine whether the measure's real objective is to address undervaluation as 
a means of money laundering.151  
5.66.  In order to analyse Colombia's claim on appeal, we first set out key aspects of the legal 
standard under Article XX(a) of the GATT 1994. Article XX(a), together with the introductory 
clause of Article XX, reads as follows:  
Article XX 
General Exceptions 
Subject to the requirement that such measures are not applied in a 
manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement 
shall be construed to prevent the adoption or enforcement by any 
Member of measures: 
(a)  necessary to protect public morals; 
5.67.  We recall that the analysis of a measure under Article XX of the GATT 1994 is two-tiered, 
such that a panel must first examine whether the measure falls under one of the exceptions listed 
in the paragraphs of Article XX, before considering the question of whether the measure satisfies 
the requirements of the chapeau of Article XX.
152 Moreover, the Appellate Body has explained that 
provisional justification under one of the paragraphs of Article XX requires that a challenged measure "address the particular interest specified in that paragraph", and that "there be a sufficient nexus between the measure and the interest protected".
153 "The required nexus – or 
'degree of connection' – between the measure and th e interest is specified in the language of the 
paragraphs themselves, through the use of terms such as 'relating to' and 'necessary to'" in 
Article XX.154 In order to establish whether a measure is justified under Article XX(a), the analysis 
proceeds in two steps. First, the measure must be "designed" to protect public morals.155 Second, 
the measure must be "necessary" to protect such public morals. 
5.68.  With respect to the analysis of the "design" of the measure, the phrase "to protect public 
morals" calls for an initial, threshold examination in order to determine whether there is a 
relationship between an otherwise GATT-inconsistent measure and the protection of public morals.
156 If this initial, threshold examination reveals that the measure is incapable of protecting 
public morals, there is not a relationship between the measure and the protection of public morals 
that meets the requirements of the "design" step . In this situation, further examination with 
regard to whether this measure is "necessary" to protect such public morals would not be required. This is because there can be no justification under Article XX(a) for a measure that is not 
"designed" to protect public morals.
157 However, if the measure is not incapable of protecting 
                                               
151 Panama's appellee's submission, para. 4.7. Panama recalls that the Panel also examined the text of 
the measure, the exemptions from the compound tariff, the period of validity of the measure, and the legal 
consequences of importing goods be low the thresholds established by the measure. (Ibid., para. 4.8) 
152 See Appellate Body Report, US – Gasoline , p. 22, DSR 1996:I, p. 20. See also Appellate Body 
Reports, Dominican Republic – Import  and Sale of Cigarettes , para. 64; US – Shrimp , paras. 118-120; and 
Brazil – Retreaded Tyres , para. 139. 
153 Appellate Body Reports, EC – Seal Products , para. 5.169 (quoting Appellate Body Report,  
US – Gambling , para. 292). 
154 Appellate Body Report, US – Gambling , para. 292. 
155 In this dispute, the Panel noted that the term "public morals" denotes standards of right and wrong 
conduct maintained by or on behalf of a community or nation. (Panel Report, para. 7.299 (quoting Panel 
Report, US – Gambling , para. 6.465). See also para. 7.334) 
156 Recently, the Appellate Body examined in Argentina – Financial Services  a defence under 
Article XIV(c) of the General Agreement on Trade in Se rvices (GATS), in which it made similar observations 
regarding the phrase "to secure comp liance". (Appellate Body Report, Argentina – Financial Services , 
para. 6.203) We recall that Article XIV of the GATS sets  out the general exceptions from obligations under that 
Agreement in a manner similar to Ar ticle XX of the GATT 1994. The Appellate Body has indicated that, where 
similar language is used in both provisions, previous decisions under Article XX of the GATT 1994 are relevant for the analysis under Article XIV of  the GATS. (Appellate Body Report, US – Gambling , para. 291) We consider 
that the reverse is also true.  
157 See Appellate Body Reports, Argentina – Financial Services , para. 6.203; and Mexico – Taxes on Soft 
Drinks , para. 72. WT/DS461/AB/R 
 
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  public morals, this indicates the existence of a relationship between the measure and the 
protection of public morals. In this situation, further examination of whether the measure is "necessary" is required under Article XX(a). 
5.69.  In order to determine whether such a rela tionship exists, a panel must examine evidence 
regarding the design of the measure at issue, including its content, structure, and expected 
operation.
158 We note that a measure may expressly mention an objective falling within the scope 
of "public morals" in that society.159 However, an express reference to such objective may not, in 
and of itself, be sufficient to establish that the measure is "designed" to protect public morals for 
purposes of substantiating the availability of  the defence under Article XX(a). Conversely, a 
measure that does not expressly refer to a "public  moral" may nevertheless be found to have such 
a relationship with public morals following an a ssessment of the design of the measure at issue, 
including its content, structure, and expected operation.  
5.70.  We do not see the examination of the "design" of the measure as a particularly demanding 
step of the Article XX(a) analysis. By contrast, the assessment of the "necessity" of a measure 
entails a more in-depth, holistic analysis of the relationship between the measure and the 
protection of public morals. The Appellate Body has explained that a necessity analysis involves a process of "weighing and balancing" a series of fa ctors, including the importance of the societal 
interest or value at stake, the contribution of the measure to the objective it pursues, and the 
trade-restrictiveness of the measure.
160 In most cases, a comparison between the challenged 
measure and possible alternatives should subsequently be undertaken.161 
5.71.  Regarding the specific factors of the "necessity" analysis, we first note that it entails "an 
assessment of the 'relative importance' of the in terests or values furthered by the challenged 
measure".162 The more vital or important the interests or values that are reflected in the objective 
of the measure, the easier it would be to accept a measure as "necessary".163 
5.72.  A panel must also examine the contribution of the measure to the objectives pursued by it. 
In assessing this factor, "a panel's duty is to assess, in a qualitative or quantitative manner, the extent of the measure's contribution to the end pu rsued, rather than merely ascertaining whether 
or not the measure makes any contribution."
164 This is because "[t]he greater the contribution, the 
more easily a measure might be considered to be 'necessary'."165 The Appellate Body has indicated 
that there is no "generally applicable standard requiring the use of a pre-determined threshold of contribution in analysing the necessity of a measure under Article XX of the GATT 1994".
166 Since 
a measure's contribution is only one component of the necessity calculus under Article XX, the 
assessment of whether a measure is "necessary" cannot be determined by the degree of contribution alone, but will depend on the manner in which the other factors of the "necessity" 
standard inform the analysis.
167 
5.73.  Another relevant factor in conducting a "necessity" analysis is the restrictiveness of the 
measure in respect of international commerce. In assessing this factor, "a panel must seek to 
assess the degree of a measure's trade-restrictiveness, rather than merely ascertaining whether or 
not the measure involves some restriction on trade."168 As with the assessment of a measure's 
contribution to its objective, the examination of a measure's trade-restrictiveness may be done in a qualitative or quantitative manner. The Appella te Body has stated that "[a] measure with a 
                                               
158 See Appellate Body Reports, US – Shrimp , paras. 135-142; and EC – Seal Products , para. 5.144. 
159 In discerning the objective of a measure, a panel is  not limited to the text or preamble of a measure, 
or to a respondent's characterization of the objective in  WTO dispute settlement proceedings; it may also look 
at other evidentiary elements such as  the design, structure, and operation of the measure in making its own 
determination of a measure's objective. (Appellate Body Reports, EC – Seal Products , para. 5.144) 
160 See Appellate Body Reports, Korea – Various Measures on Beef , para. 164; US – Gambling , 
para. 306; Brazil – Retreaded Tyres , para. 182; and EC – Seal Products , para. 5.169. 
161 Appellate Body Reports, EC – Seal Products , para. 5.169 (referring to Appellate Body Reports,   
US – Gambling , para. 307; and Korea – Various Measures on Beef , para. 166). 
162 Appellate Body Report,  US – Gambling , para. 306 (referring to Appellate Body Reports,  
Korea – Various Measures on Beef , para. 162; and EC – Asbestos , para. 172). 
163 Appellate Body Report, Korea – Various Measures on Beef , para. 162. 
164 Appellate Body Report, Argentina – Financial Services , para. 6.234. 
165 Appellate Body Report, Korea – Various Measures on Beef , para. 163. 
166 Appellate Body Reports, EC – Seal Products , para. 5.213. 
167 Appellate Body Reports, EC – Seal Products , para. 5.215. 
168 Appellate Body Report, Argentina – Financial Services , para. 6.234. WT/DS461/AB/R 
 
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  relatively slight impact upon imported products might more easily be considered as 'necessary' 
than a measure with intense or broader restrictive effects."169  
5.74.  As we have noted, in most cases, a pa nel must then compare the challenged measure and 
possible alternative measures that achieve the same level of protection while being less trade 
restrictive.170 The Appellate Body has explained that an alternative measure may be found not to 
be "reasonably available" where "it is merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where the measure imposes an undue burden on 
that Member, such as prohibitive costs or substantial technical difficulties".
171  
5.75.  The Appellate Body has noted that "the very  utility of examining the interaction between the 
various factors of the necessity analysis, and conducting a comparison with potential alternative measures, is that it provides a means of testing these factors as part of a holistic weighing and 
balancing exercise".
172 In this respect, the weighing and balancing exercise can be understood as 
"a holistic operation that involves putting all the variables of the equation together and evaluating them in relation to each other after having examined them individually, in order to reach an 
overall judgement."
173  
5.76.  Finally, we observe that the "design" and "necessity" steps of the analysis under 
Article XX(a) are conceptually distinct, yet related, aspects of the overall inquiry to be undertaken 
into whether a respondent has established that the measure at issue is "necessary to protect 
public morals".174 As the assessment of these two steps is not entirely disconnected, there may, in 
fact, be some overlap in the sense that certain evidence and considerations may be relevant to both aspects of the defence under Article XX(a). We note, in particular, that, in the context of the 
"design" step of the analysis, a panel is not precluded from taking into account evidence and 
considerations that may also be relevant to the examination of the contribution of the measure in the context of the "necessity" analysis.  
5.77.  We observe that, once an analysis of the "design" of a measure reveals that the measure is 
not incapable of protecting public morals, such that there is a relationship between the measure and the protection of public morals, a panel may not refrain from conducting the "necessity" step 
of the analysis. The Appellate Body has emphasized that "[a] panel must not … structure its 
analysis of the ["design" step] in such a way as to lead it to truncate its analysis prematurely and thereby foreclose consideration of crucial aspects of the respondent's defence relating to the 'necessity' analysis."
175 As we have noted, the "necessity" analysis involves weighing and 
balancing the relative importance of the societal interest or value at stake, the degree of 
contribution, and the degree of trade-restrictiveness so as to determine whether the measure is "necessary" to protect public morals.
176 Whether a particular degree of contribution is sufficient for 
a measure to be considered "necessary" cannot be  answered in isolation from an assessment of 
the degree of the measure's trade-restrictiveness and of the relative importance of the interest or 
value at stake. For example, a measure making a lim ited contribution to protecting public morals 
may be justified under Article XX(a) in circumstances where the measure has only a very low 
trade-restrictive impact, taking into account the importance of the specific interest or value at stake; similarly, it may be that a measure making a significant contribution is not justified under Article XX(a) if that measure is highly trade rest rictive. Thus, if a panel finds some degree of 
contribution, but ceases to analyse the other factors (the degree of trade-restrictiveness and the 
relative importance of the interest or value at stake), a weighing and balancing exercise cannot be 
                                               
169 Appellate Body Report, Korea – Various Measures on Beef , para. 163. 
170 Appellate Body Reports, EC – Seal Products , para. 5.169. In EC – Seal Products , the Appellate Body 
recalled that, in US – Tuna II (Mexico) , it had identified in the context of Article 2.2 of the Agreement on 
Technical Barriers to Trade (TBT Agreement) circumstance s in which a comparison with possible alternative 
measures may not be required, for instance, when the chal lenged measure is not trade restrictive, or when it 
makes no contribution to the obje ctive. (Appellate Body Reports, EC – Seal Products , fn 1181 to para. 5.169 
(referring to Appellate Body Report, US – Tuna II (Mexico) , fn 647 to para. 322)) 
171 Appellate Body Report,  US – Gambling , para. 308. 
172 Appellate Body Reports, EC – Seal Products , para. 5.215. (fn omitted) 
173 Appellate Body Report, Brazil – Retreaded Tyres , para. 182. 
174 Appellate Body Report, Argentina – Financial Services , para. 6.205. 
175 Appellate Body Report, Argentina – Financial Services , para. 6.203. 
176 As we have also noted, in most cases, a panel must then compare the challenged measure and 
possible alternative measures that achieve the same level of protection while being less trade restrictive. (Appellate Body Reports, EC – Seal Products , para. 5.169) WT/DS461/AB/R 
 
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  conducted, and thus a proper consideration of  a respondent's defence that the measure is 
necessary is foreclosed.  
5.78.  With these considerations in mind, we now turn to assess Colombia's challenge to the 
Panel's finding that Colombia had failed to demonstrate that the measure is "designed" to protect 
public morals. 
5.79.  Colombia alleges that the Panel applied an "overly demanding"177 legal standard in 
assessing whether the compound tariff is a meas ure "designed" to protect public morals, by 
erroneously importing aspects of the "necessity" analysis. Colombia considers that the standard 
applied by the Panel in the context of its analysis  of the "design" of the measure focused on the 
degree to which the measure is contributing to its objective. According to Colombia, the assessment of the contribution of the measure is an aspect that may be examined under the 
"necessity" analysis, but not during the consideration of whether the measure is "designed" to 
protect public morals. Therefore, in Colombia's view, the Panel conflated the analysis of whether 
the measure is one "to protect public morals" with the subsequent and more exhaustive analysis of 
"necessity". 
5.80.  As highlighted above, in the context of an assessment of the "design" of a measure, the 
examination of the relationship between the meas ure and the protection of public morals under 
Article XX(a) does not, a priori , exclude from its scope an assessment of evidence and 
considerations that may also be relevant in the context of the "necessity" step of the analysis. Indeed, the examination of whether a measure is "designed" to protect public morals may involve scrutinizing a range of evidence and considerations  related to the measure at issue, including the 
texts of statutes and/or regulations, the measure' s legislative history, the measure's objective, and 
other evidence regarding its content, structure, and expected operation. Thus, an assessment of aspects that are related to a measure's contribution to its objective may also be of relevance for 
determining whether a measure is "designed" to protect public morals under Article XX(a). 
Consequently, to the extent that Colombia argues  that the Panel erred in its analysis of the 
"design" of the measure for the mere reason that it examined evidence and considerations related 
to an analysis of the contribution of the measure, we disagree. 
5.81.  However, the thrust of Colombia's claim of error is that the Panel applied an "overly 
demanding" legal standard in assessing whether the compound tariff is a measure "designed" to protect public morals.
178 We therefore review the relevant findings by the Panel to determine 
whether Colombia is correct in asserting that the Panel improperly applied the legal standard in 
assessing the "design" of the measure under Article XX(a) of the GATT 1994. 
5.82.  The Panel began by finding that "combating money laundering is one of the policies 
designed to protect public morals in Colombia."179 Having made this finding, the Panel turned to 
assess whether the compound tariff is itself "des igned" to combat money laundering. Since the 
parties disagreed with regard to the nature of the objective of the measure, the Panel indicated 
that it would "make an objective assessment as to whether the compound tariff is, in fact, 
designed to combat money laundering" by assessing the design, architecture, and revealing structure of the compound tariff, as well as all of the available evidence.
180  
5.83.  The Panel examined the text of the meas ure and noted that neither Decree No. 456 nor the 
previous Decree No. 074 contains any statement of reasons indicating that the objective of the 
compound tariff is to combat money laundering.181 Then, the Panel turned to analyse other aspects 
relating to the design, architecture, and structure of the compound tariff. In this context, the Panel 
decided to verify the "series of interconnected assumptions" that, in the Panel's view, were the 
basis of Colombia's argument.182 The Panel therefore examined: (i) whether the thresholds 
established in the measure reflect "market conditions" so that any price below them is "artificially 
low"; (ii) whether products imported at prices below the thresholds established in the measure are 
                                               
177 Colombia's appellant's subm ission, heading section V.B. 
178 Colombia also contends that the Panel "requi red an erroneous 100% ef fectiveness standard". 
(Colombia's appellant's submission, para. 129) 
179 Panel Report, para. 7.339. 
180 Panel Report, para. 7.343. 
181 Panel Report, para. 7.347. 
182 Panel Report, para. 7.353. WT/DS461/AB/R 
 
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  being undervalued; and (iii) whether imports of goods subject to the compound tariff at prices 
below the thresholds established in the measure are being used for money laundering purposes.  
5.84.  The Panel's conclusions regarding these "assumptions" were that: (i) Colombia had not 
shown that the thresholds "could be decisive in establishing that the  importation of goods at prices 
below those thresholds is necessarily  taking place at 'artificially low' prices that do not reflect real 
prices or market conditions"183; (ii) there was "no indication that products imported at prices below 
the thresholds established in Decree No. 456 are necessarily  being undervalued"184; and (iii) even 
assuming that products imported at prices below the thresholds established in the measure are 
being undervalued, there was "no evidence that this necessarily  means that the undervaluation in 
question is for money laundering purposes".185 On the basis of these conclusions and certain 
additional considerations, the Panel concluded that "a connection between the compound tariff and 
the alleged objective of combating money laundering ha[d] not been demonstrated", and that it 
was not "possible to conclude that there is a relationship between the compound tariff and the declared objective of combating money laundering".
186 Accordingly, the Panel concluded that 
Colombia had "failed to demonstrate that the compound tariff is designed to combat money 
laundering".187 
5.85.  Having set out the main aspects of the Panel's analysis, we note that there is a tension 
between some of the Panel's intermediate findings and the conclusions it reached concerning the 
"design" of the measure. In particular, we note that, although the Panel concluded that Colombia had failed to establish a relationship between the compound tariff and the objective of combating money laundering, this conclusion is belied by findings indicating that the compound tariff is not 
incapable of combating money laundering, such that there is a relationship between that measure 
and the protection of public morals.  
5.86.  In respect of the question of whether prices below the thresholds set out in the measure are 
"artificially low", we note the Panel's finding that "it cannot be ruled out that the importation of 
goods at prices below the thresholds established in Decree No. 456 could, in practice, reflect 'artificially low' prices that do not reflect market conditions."
188 We consider that, by stating that 
"it cannot be ruled out" that goods imported at prices below the thresholds reflect "artificially low" 
prices, the Panel acknowledged that at least some transactions at or below the thresholds could reflect such prices.
189 In other words, this finding by the Panel shows that at least some goods 
imported at prices at or below the thresholds set out in the measure could reflect "artificially low" 
prices and thus would not reflect market conditions.190  
5.87.  We also observe the Panel's finding that "the information available suggests that the 
undervaluation of imports is, in fact, one of the methods used for money laundering detected by 
the Colombian authorities."191 In this regard, the Panel examined a joint study prepared by 
Colombia's Ministry of Finance and Public Credit, Dirección de Impuestos y Aduanas Nacionales  
(DIAN) (National Customs and Excise Directorate) and Unidad de Información y Análisis Financiero  
(UIAF) (Information and Financial Analysis Unit)192, which identifies methods used in Colombia for 
laundering money. On the basis of this joint study, the Panel explained that one of the methods for laundering money that the compound tariff seeks to combat is the "transport of money of illicit origin to another country to purchase goods which are introduced into the local country by means 
                                               
183 Panel Report, para. 7.359. (emphasis original) 
184 Panel Report, para. 7.365. (emphasis added) 
185 Panel Report, para. 7.376. (emphasis added) 
186 Panel Report, para. 7.399. 
187 Panel Report, para. 7.400. 
188 Panel Report, para. 7.359. 
189 We note that, before the Panel, Colombia stated th at "it use[d] the term 'underinvoicing' to refer in 
shorthand form to imports at artificially low prices that  do not correspond to real or market prices." (Panel 
Report, para. 7.362 (quoting Colombia's response to Panel question No. 41, para. 98)) 
190 We note that the Panel made some additional find ings in assessing the contribution of the measure 
under the "necessity" analysis that further demonstrate the Panel's understanding that at least some of the products at issue priced at or below the thresholds could be imported into Colombia at artificially low prices and 
thus could be undervalued. For instance, the Panel held that "it cannot be ruled out that the existence of lower prices for some of the imports considered by Colombia indicates the existence of undervaluation practices." 
(Panel Report, para. 7.421) 
191 Panel Report, para. 7.366. 
192 Money Laundering Typologi es Related to Smuggling , January 2006 (Panel Exhibit COL-10). WT/DS461/AB/R 
 
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  of technical smuggling based on underinvoicing".193 These findings indicate recognition by the 
Panel that, in Colombia, one of the methods used to launder money is the undervaluation of imports. This is further supported by additional  observations by the Panel about the phenomenon 
of trade-based money laundering as recognized by international bodies. As the Panel observed, the 
World Customs Organization refers to trade-based money laundering as "the process of 
legitimizing the proceeds of crime by disguising th em in the form of a payment for an international 
trade transaction".
194 The Panel also noted that a study by an intergovernmental body, the 
Financial Action Task Force (FATF), similarly refers to trade-based money laundering as "the 
process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origin".
195 Furthermore, we note that the Panel 
stated that "the information available suggests that not every … undervaluation operation in an 
international trade transaction is for money laundering purposes."196 In our view, the Panel's 
finding that "not every" undervaluation operation is for money laundering purposes amounts to an acceptance that at least some of the undervaluation operations can be carried out in order to 
launder money.  
5.88.  We also note that, in assessing the co ntribution of the measure under the "necessity" 
analysis
197, the Panel addressed Colombia's contention that the compound tariff reduces the 
incentives for using textile, apparel, and footwear imports to launder money. According to 
Colombia, the compound tariff leads to an increase in the unit price of apparel and footwear imports, thereby reducing the artificially high profit margin, which is the incentive for using these imports to launder money.
198 While the Panel did not make a definitive finding that the compound 
tariff has discouraged undervaluation practices carried out for money laundering purposes199, the 
Panel did make several findings that support Colo mbia's position that the compound tariff could 
reduce the incentive of using undervalued imports to launder money. In addition to finding that 
"since the compound tariff entered into force, Colombian imports of the products in question have 
declined and average import prices have increased"200, the Panel also accepted that "the 
compound tariff could reduce the incentives for importing textile products, apparel and footwear at 
prices below the thresholds laid down in Decree No. 456."201 Similarly, in stating that "the effect of 
the compound tariff would be limited to reducing th e profit margin of the persons intending to use 
imports for money laundering purposes"202, the Panel recognized, in our view, that goods imported 
at prices at or below the thresholds for money laundering purposes would be subject to the 
disincentive created by the higher specific duties that apply to these goods. 
5.89.  Taking the above Panel findings together, we consider that the Panel itself recognized that 
the compound tariff is not incapable of combating money laundering, such that there is a 
relationship between that measure and the protecti on of public morals. We recall that the Panel 
concluded that Colombia had failed to establish a relationship between the compound tariff and the 
                                               
193 Panel Report, para. 7.370 (quoting Colombia's response to Panel question No. 44, para. 101). 
194 Panel Report, para. 7.367 (referring to World Customs Organization, Illicit Trade Report 2012  (Panel 
Exhibit COL-8), p. 34). 
195 Panel Report, para. 7.367 (referring to Financial Action Task Force (FATF), Trade-Based Money 
Laundering , 23 June 2006 (Panel Exhibit COL-11), p. 3). 
196 Panel Report, para. 7.374. 
197 We recall that the Panel stated that, since it had conclu ded that Colombia had failed to demonstrate 
that the compound tariff is "designed" to combat mo ney laundering, there should be no need to examine 
whether the compound tariff is "nece ssary" to protect public morals. Howe ver, the Panel indicated that, "in 
order to be exhaustive in its analys is", it would continue with its evaluation by assuming, for the sake of 
argument, that the compound tariff is "designed" to combat money laundering. (Panel Report, para. 7.402) 
198 Panel Report, para. 7.410 (referring to Colombia's first written submission to the Panel, paras. 37, 
87, and 99; and opening statement at the first Panel meet ing, paras. 31 and 33). Colo mbia also argued before 
the Panel that the compound tariff has resulted in a change in the composition of imports of the products in question, which would indicate that the measure has di scouraged the undervaluation of such imports. (Ibid. 
(referring to Colombia's opening statement at the firs t Panel meeting, paras. 30 and 32; response to Panel 
question No. 57; and charts containing  import data submitted by Colombia  with its opening statement at the 
first Panel meeting (Panel Exhibit COL-30)) 
199 We are cognizant that the Panel ultimately found th at "the fact that the compound tariff has had a 
greater effect on lower-priced, as compared  with higher-priced, products does not in itself  prove that the 
compound tariff has helped to discourage the use of 'artificially low' prices or undervaluation for money 
laundering purposes." (Panel Report, para. 7.430 (emphasis added)) 
200 Panel Report, para. 7.428. 
201 Panel Report, para. 7.435. 
202 Panel Report, para. 7.436. WT/DS461/AB/R 
 
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  objective of combating money laundering.203 We further recall that a panel may cease its analysis 
of a defence under Article XX(a) of the GATT 1994 at the stage of assessing the "design" of the measure only where the measure at issue is incapabl e of protecting public morals, such that there 
is no relationship between the measure and the pr otection of public morals. In the light of the 
cited passages from the Panel Report, we consider that the Panel was not in a situation in which 
the measure at issue is incapable of protecting public morals. Although the Panel concluded that 
Colombia had failed to establish a relationship between the compound tariff and the objective of 
combating money laundering, we consider that this conclusion is belied by the Panel findings we 
have examined above. Indeed, we understand the Panel to have recognized that at least some goods priced at or below the thresholds could be imported into Colombia at artificially low prices for money laundering purposes, and would thus be subject to the disincentive created by the 
higher specific duties that apply to these goods. Thus, the Panel's analysis indicates that the 
compound tariff is not incapable of combating money laundering, such that there is a relationship between that measure and the protection of public morals.  
5.90.  Consequently, the Panel should not have ceased its analysis at this stage of its review of 
Colombia's defence under Article XX(a). Rather, it was incumbent on the Panel to turn to the analysis of the "necessity" of the measure to expl ore further the extent of that relationship in 
assessing the measure's contribution to the objective, and to evaluate any such contribution 
together with the other factors of the "necessity" analysis.
204 As noted, a panel errs under 
Article XX(a) if, in assessing the "design" of the measure, it does not proceed to an analysis of "necessity" once it has determined that the measure is not incapable of protecting public morals, 
such that there is a relationship between the measure and the protection of public morals. 
Otherwise, a panel would foreclose an assessment of whether the degree of contribution, when 
weighed and balanced against the degree of trade-restrictiveness and the importance of the 
interests and values at stake, is sufficient to justify the measure under Article XX(a).  
5.91.  We recall that, having found that Colomb ia had not shown that the compound tariff is a 
measure "designed" to protect public morals, the Panel stated there was no need to examine 
whether the compound tariff is "necessary" to prot ect public morals. Nevertheless, "in order to be 
exhaustive in its analysis", the Panel evaluated whether the measure is "necessary" by assuming, for the sake of argument, that the compound tariff is "designed" to combat money laundering.
205 
We note, in any event, that the Panel's ultimate conclusion as to the availability of the 
Article XX(a) defence to Colombia was founded solely on its conclusion that Colombia had not 
demonstrated that the compound tariff is  "designed" to combat money laundering. 
5.92.  In sum, the Panel erred in concluding that Colombia had failed to demonstrate that the 
measure is "designed" to combat money laundering given its recognition that the compound tariff 
is not incapable of combating money laundering, such that there is a relationship between that measure and the protection of public morals. Thus, the Panel failed to assess the "necessity" of the 
measure on the basis of a weighing and balancing exercise. Contrary to the legal standard under 
Article XX(a), the Panel prematurely ceased its analysis under this provision without proceeding to assess the degree of contribution of the measur e to its objective, together with the other 
"necessity" factors in a weighing and balancing exercise.  
5.93.  We therefore reverse the Panel's finding, in paragraph 7.400 of its Report, that Colombia 
has failed to demonstrate that the compound tari ff is "designed" to combat money laundering, and 
the Panel's finding, in paragraph 7.401 of its Report, that Colombia has not shown that the 
compound tariff is a measure "designed" to protect public morals. Since the Panel's ultimate 
findings in respect of Article XX(a) were based exclusively on these erroneous findings, we also reverse the Panel's findings, in paragraphs 7.471 and 8.5 of its Report, that Colombia has failed to 
demonstrate that the compound tariff is a measure "necessary to protect public morals" within the meaning of Article XX(a) of the GATT 1994. 
                                               
203 Panel Report, paras. 7.399-7.400. 
204 While we agree with Colombia that the Panel im posed an "overly demanding" legal standard in 
assessing whether the measure at issue is "designed" to protect public morals, we do not see that the Panel 
required that the measure at issue satisfy a "100% effe ctiveness" standard, as also contended by Colombia. 
205 Panel Report, para. 7.402. WT/DS461/AB/R 
 
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  5.94.  We note that Colombia also presented ad ditional challenges to the Panel's assessment of 
whether the measure is "designed" to protect public morals206 and raised certain claims of error 
concerning the Panel's findings in respect of the "necessity" analysis207, as well as claims under 
Article 11 of the DSU.208 Given that we have reversed the Panel's finding that Colombia has failed 
to demonstrate that the compound tariff is "designed" to protect public morals, we do not consider 
it necessary to examine Colombia's additional claims of error, including that the Panel erred in its 
"necessity" analysis under Article XX(a) of the GATT 1994, and that the Panel acted inconsistently with its duty to conduct an objective assessment of the matter under Article 11 of the DSU.  
5.2.3  Completion of the legal analysis 5.95.  Having reversed the Panel's finding that Colombia has failed to demonstrate that the 
compound tariff is a measure "designed" to protect public morals, we now turn to consider 
Colombia's request that we complete the legal analysis and find that the measure at issue is 
necessary to protect public morals and is thus justified under Article XX(a) of the GATT 1994.
209 
5.96.  Colombia maintains that we may be able to find that the compound tariff is a measure 
"designed" to protect public morals under Article XX(a) on the basis of the following: 
a. the Panel accepted that the importation of products at prices below the thresholds 
established in the measure could reflect "artificially low" prices that do not reflect market 
conditions210; 
b. the Panel found that the evidence demonstrates that Colombian authorities had 
identified the use of undervaluation as one of the mechanisms used to launder money
211; 
c. the Panel found that the use of undervaluation of imports to launder money had been 
confirmed by international organizations involved in the fight against money laundering and illicit trade
212; and 
d. the Panel found that the information available suggests that the undervaluation of 
imports is, in fact, one of the methods used for money laundering detected by the Colombian authorities.
213 
5.97.  We begin by noting that the Panel found th at Colombia had presented sufficient evidence to 
demonstrate the existence of a real and present concern in Colombia with regard to money laundering, as well as with regard to the way in which money laundering is linked with drug trafficking and other criminal activities and with Colombia's internal armed conflict. On this basis, 
in a finding that is not contested on appeal, the Panel concluded that combating money laundering 
is one of the policies designed to protect public morals in Colombia.
214 
5.98.  Since the Panel found that combating money laundering is one of the policies designed to 
protect public morals in Colombia, we now proceed to examine whether the findings by the Panel 
are sufficient to establish that the compound ta riff is a measure "desig ned" to combat money 
laundering and thus "to protect public morals" under Article XX(a) of the GATT 1994. 
                                               
206 See executive summary of Colombia's appellant's submission in Annex B-1 to this Report, paras. 25 
and 27. 
207 See executive summary of Colombia's appellant's submission in Annex B-1 to this Report, 
paras. 29-30. 
208 See executive summary of Colombia's appellant's submission in Annex B-1 to this Report, paras. 26 
and 31. 
209 Colombia's appellant's submission, paras. 201 and 243. 
210 Colombia's appellant's submission, para. 202 (referring to Panel Report, para. 7.359). 
211 Colombia's appellant's submission, para. 203 (refe rring to Panel Report, para. 7.366). Colombia also 
indicates that the Panel reiterated subsequently in its Report that "it has been shown that the undervaluation … of imports … can be used for money laundering purposes". (Colombia's appellant's submission, para. 204 (quoting Panel Report, para. 7.434)) 
212 Colombia's appellant's submission, para. 205 (ref erring to Financial Action Task Force (FATF), 
Trade-Based Money Laundering , 23 June 2006 (Panel Exhibit COL-11), p. 25). 
213 Colombia's appellant's submission, para . 206 (quoting Panel Report, para. 7.366). 
214 Panel Report, para. 7.339. WT/DS461/AB/R 
 
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  5.99.  Our prior examination of Colombia's claim of error revealed that, when several findings by 
the Panel are read together, it is clear from its analysis that the compound tariff is not incapable of combating money laundering, such that there is a relationship between that measure and the protection of public morals. Indeed, we understand the Panel to have recognized that at least 
some goods priced at or below the thresholds could be imported into Colombia at artificially low 
prices for money laundering purposes, and would thus be subject to the disincentive created by the higher specific duties that apply to these goods.  
5.100.  Therefore, on the basis of the Panel's findings, we find that the measure at issue is 
"designed" to protect public morals in Colombia within the meaning of Article XX(a) of the 
GATT 1994.  
5.101.  We now proceed to examine whether the compound tariff is a measure "necessary" to 
protect public morals under Article XX(a) of the GATT 1994. 
5.102.  We recall that a necessity analysis involves  a process of "weighing and balancing" a series 
of factors, including the importance of the societal interest or value at stake, the contribution of 
the measure to the objective it pursues, and the trade-restrictiveness of the measure.215 We 
consider that each of these factors must be demonstrated with sufficient clarity in order to conduct a proper weighing and balancing exercise that may yield a conclusion that the measure is 
"necessary". In most cases, a comparison between the challenged measure and possible 
alternatives should subsequently be undertaken.
216 
5.103.  The weighing and balancing process begins "with an assessment of the 'relative 
importance' of the interests or values furthered by the challenged measure".217 The more vital or 
important the interests or values that are reflected in the objective of the measure, the easier it 
would be to accept a measure as "necessary".218 Turning to the contribution of the measure to the 
objectives pursued by it, we recall that "[t]he greater the contribution, the more easily a measure 
might be considered to be 'necessary'."219 For this reason, the Appellate Body has emphasized that 
"in an analysis of 'necessity', a panel's duty is to assess, in a qualitative or quantitative manner, the extent of the measure's contribution to the end pursued, rather than merely ascertaining 
whether or not the measure makes any contribution."
220 The nature of the analysis for ascertaining 
a measure's contribution to the objective pursued by it can be contrasted with the type of analysis that a panel must undertake in the context of assessing the "design" of the measure under Article XX(a). Indeed, whereas an assessment of whether the measure is "designed" to protect 
public morals focuses on determining whether the measure is or is not incapable of protecting 
public morals, an examination of the measure's co ntribution to the protection of public morals 
focuses on determining the degree of such contribu tion, in a qualitative or quantitative manner.  
5.104.  Turning to an assessment of the restrictive impact of the measure on international 
commerce, the Appellate Body has stated that "[a] measure with a relatively slight impact upon imported products might more easily be considered as 'necessary' than a measure with intense or 
broader restrictive effects."
221 Consequently, in assessing a measure's trade-restrictiveness 
"a panel must seek to assess the degree of a measure's trade-restrictiveness, rather than merely ascertaining whether or not the measure involves some restriction on trade."
222  
5.105.  With these considerations in mind, we begin with the Panel's findings regarding the relative 
importance of the interests or values pursued by the challenged measure. We recall that the Panel 
noted that money laundering is criminal conduct in Colombia under Article 323 of its Criminal Code, and that Colombia had submi tted documents showing that combating money 
                                               
215 See Appellate Body Reports, Korea – Various Measures on Beef , para. 164; US – Gambling , 
para. 306; Brazil – Retreaded Tyres , para. 182; and EC – Seal Products , para. 5.169. 
216 Appellate Body Reports, EC – Seal Products , para. 5.169 (referring to Appellate Body Reports,   
US – Gambling , para. 307; and Korea – Various Measures on Beef , para. 166). 
217 Appellate Body Report,  US – Gambling , para. 306 (referring to Appellate Body Reports,  
Korea – Various Measures on Beef , para. 162; and EC – Asbestos , para. 172). 
218 Appellate Body Report, Korea – Various Measures on Beef , para. 162. 
219 Appellate Body Report, Korea – Various Measures on Beef , para. 163. 
220 Appellate Body Report,  Argentina – Financial Services , para. 6.234. 
221 Appellate Body Report, Korea – Various Measures on Beef , para. 163. 
222 Appellate Body Report,  Argentina – Financial Services , para. 6.234.  WT/DS461/AB/R 
 
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  laundering is an important policy objective for Colombia.223 In the Panel's view, Colombia 
presented sufficient evidence to demonstrate the existence of a real and present concern in Colombia with regard to money laundering, as well as with regard to the way in which money laundering is linked with drug trafficking and other criminal activities and with Colombia's internal 
armed conflict.
224 For these reasons, in a finding that is not contested on appeal, the Panel held 
that, in Colombia, the objective of combating money laundering reflects societal interests that can be described as vital and important in the highest degree.
225 We also observe that, before the 
Panel and on appeal, Panama has not denied that, for Colombia, the fight against money 
laundering is a societal interest that could be described as vital and important in the highest degree.
226 
5.106.  We now turn to examine the contribution of the measure to combating money laundering. 
Above, we have identified a numbe r of findings concerning the Panel's understanding regarding the 
relationship between the measure at issue and the objective of combating money laundering. We consider that the same findings of the Panel that led us to conclude that the compound tariff is not 
incapable of combating money laundering, such that there is a relationship between that measure 
and the protection of public morals, also indicate that there may be at least some contribution by the compound tariff to the objective of combating money laundering. We recall the Panel's finding 
that "it cannot be ruled out that the importation of goods at prices below the thresholds 
established in Decree No. 456 could, in practice, reflect 'artificially low' prices that do not reflect market conditions."
227 We further recall that the Panel found that "the information available 
suggests that the undervaluation of imports is, in fact, one of the methods used for money 
laundering detected by the Colombian authorities."228 Moreover, we noted the Panel's findings 
that, "since the compound tariff entered into forc e, Colombian imports of the products in question 
have declined and average import prices have increased"229, and that "the compound tariff could 
reduce the incentives for importing textile products, apparel and footwear at prices below the 
thresholds laid down in Decree No. 456".230 As stated above, these findings demonstrate the 
Panel's understanding that at least some goods priced at or below the thresholds could be 
imported into Colombia at artificially low prices for money laundering purposes, and would thus be 
subject to the disincentive created by the higher  specific duties that apply to these goods. 
Therefore, we consider that these findings estab lish the Panel's recognition that there may be at 
least some contribution by the measure to the objective of combating money laundering. 
5.107.  However, while the Panel's findings discussed above indicate that there may be at least 
some  contribution, they are also indeterminate as to the degree  of such contribution. For instance, 
the Panel's finding that "it cannot be ruled out that the importation of goods at prices below the 
thresholds established in Decree No. 456 could, in practice, reflect 'artificially low' prices that do 
not reflect market conditions"231 does not indicate whether the amount or proportion of goods 
imported at prices at or below the thresholds is low or high, or anywhere in between. A similar 
observation can be made in respect of the Panel's finding that "the undervaluation of imports is, in 
fact, one of the methods used for money laundering detected by the Colombian authorities."232 
Indeed, this finding does not indicate the freq uency or scope of this method as a means for 
laundering money. In this regard, we also obse rve the Panel's statement that the undervaluation 
of imports "is just one of the many methods used for money laundering".233 The Panel also 
referred to a document of the Colombian Ministry of Justice and Law indicating that, "according to 
                                               
223 The Panel referred to several documents submitted by Colombia , including National Planning 
Department, National Development Plan 2010-2014  (extracts) (Panel Exhibit COL-33); Ministry of the Interior 
and Justice, National Anti-Drug Policy  (Panel Exhibit COL-6); and Nation al Council for Economic and Social 
Policy, National Policy against Money Launde ring and the Financing of Terrorism , 18 January 2013 (Panel 
Exhibit COL-19). (Panel Report, para. 7.335) 
224 Panel Report, para. 7.338. See also paras. 7.406-7.407. 
225 Panel Report, para. 7.408. 
226 Panel Report, para. 7.405. 
227 Panel Report, para. 7.359. 
228 Panel Report, para. 7.366. 
229 Panel Report, para. 7.428. 
230 Panel Report, para. 7.435. 
231 Panel Report, para. 7.359. 
232 Panel Report, para. 7.366. 
233 Panel Report, para. 7.375. WT/DS461/AB/R 
 
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  the Office of the Attorney-General of the Nation , this modus operandi  does not constitute one of 
those most commonly employed for money laundering purposes ."234  
5.108.  Other findings by the Panel highlight the lack of sufficient clarity surrounding the amount 
or proportion of import transactions involving the products at issue that are actually used for 
money laundering purposes. In this regard, the Pane l observed that "the compound tariff does not 
directly target undervalued imports, still less imports used for money laundering, but all imports declared at below-threshold prices, regardless of whether or not there is undervaluation and 
whatever the purpose of the transaction."
235 As a consequence, the Panel concluded, "the 
compound tariff affects imports which enter at pric es below the thresholds even if there is no 
undervaluation."236 While the Panel considered that it "has been shown that the undervaluation … 
of imports … can be used for money laundering purposes", it also noted that "money laundering 
can be based on other practices or methodologies, including non-undervalued imports and overt 
smuggling."237 Moreover, according to the Panel, "the practice of undervaluation may have 
purposes other than money laundering, including tax evasion in particular."238 In this regard, the 
Panel concluded that, "even assuming, for the sake of argument, that products imported at prices 
below the thresholds established in Decree No. 456 are being undervalued, there is no evidence that this necessarily means that the undervaluation in question is for money laundering 
purposes."
239 In making these findings, we read the Panel as emphasizing that Colombia had not 
established with sufficient clarity the amount or proportion of import transactions involving the relevant products that are, in fact, und ervalued for money laundering purposes.  
5.109.  Moreover, the Panel did not have much clarity as to how effective the disincentive of the 
compound tariff is as a means of combating money laundering. The Panel acknowledged that 
imports of the products in question have declined and average import prices have increased since the compound tariff entered into force, and that the compound tariff has affected imports of 
lower-priced products to a greater extent than imports of higher-priced products.
240 Ultimately, 
however, the Panel found that "the fact that the compound tariff has had a greater effect on 
lower-priced, as compared with higher-priced, products does not in itself  prove that the compound 
tariff has helped to discourage the use of 'artificially low' prices or undervaluation for money 
laundering purposes."241 Other findings by the Panel also highlight the lack of sufficient clarity 
surrounding the effectiveness of the compound tariff as a means of combating money laundering. For instance, in assessing the existence of undervaluation of imports of textiles, apparel, and 
footwear, the Panel stated that, "[a]lthough it cannot be ruled out that some imports with low 
declared prices are being undervalued, on the basis of the information available and in view of the 
great diversity of the products considered, it is no t possible to arrive at a general conclusion as to 
the degree  of undervaluation of the imports prior to the entry into force of the compound tariff."
242 
Similarly, the Panel indicated that "the available information does not make it possible to arrive at a general conclusion concerning the degree to which, as Colombia asserts, the entry into force of 
the compound tariff has resulted in a decrease in the undervaluation index of imports of the 
relevant products."
243 
5.110.  The above considerations regarding the unc ertainty surrounding the amount or proportion 
of imported goods below the thresholds that are actually used for money laundering purposes, as 
well as the extent to which the compound tariff acts as a disincentive to money laundering, 
indicate the Panel's view that Colombia had not demonstrated with sufficient clarity the degree  of 
contribution made by the compound tariff to the objective of combating money laundering.244 The 
Panel's uncertainty is also evident in its overall conclusion that, "[t]aking into account the relevant 
facts and the relevant circumstances of the case, including the design, architecture and revealing 
                                               
234 Panel Report, para. 7.375 (referring to Ministry of Justice and Law, Drugs Observatory, The Drug 
Problem in Colombia, Actions and Results 2011-2013 (Panel Exhibit COL-27), p. 145). 
235 Panel Report, para. 7.432. 
236 Panel Report, para. 7.432. 
237 Panel Report, para. 7.434. 
238 Panel Report, para. 7.434. (fn omitted) 
239 Panel Report, para. 7.376. 
240 Panel Report, paras. 7.428-7.429. 
241 Panel Report, para. 7.430. (emphasis added) 
242 Panel Report, para. 7.415.  
243 Panel Report, para. 7.423.  
244 We note that, in assessing the "necessity" of a measure, the degree of a measure's contribution to 
its objective may be expressed in a qualitative or quantitative manner. WT/DS461/AB/R 
 
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  structure of the compound tariff, … Colombia ha[d] failed to demonstrate the contribution of the 
compound tariff to the objective of combating money laundering".245 
5.111.  Turning to the trade-restrictiveness of the measure at issue, we note that the Panel found 
that "the compound tariff is less restrictive on international trade than an import ban or a measure 
having the effects of a ban."246 This finding by the Panel reflects uncertainty as to the degree  of 
trade-restrictiveness of the measure at issue because it does not indicate how much less trade restrictive the measure is in comparison to an import ban. In this regard, we also observe that 
Colombia asserts that the trade-restrictive effect of the measure is "modest" since it is less 
restrictive on international trade than an import ban.
247 Our examination of the Panel Report 
shows that, contrary to Colombia's assertion, the Panel did not find that the trade-restrictive effect of the measure is "modest". Rather, the Panel indicated that "[t]he compound tariff has definite 
effects on international trade, by reducing the ca pacity of the products concerned to compete on 
the Colombian market, particularly when the imports are subject to the highest levels of the tariff."
248 The Panel added that "[t]his is confirmed by  the figures submitted by the parties, which 
indicate increases in import prices, as well as reductions in imports, mainly in terms of volume, but 
also in terms of value."249 On this basis, the Panel concluded that "the trade-restrictiveness of the 
compound tariff is undeniable and is recognized by both parties."250 Thus, while Colombia is not 
correct in asserting that the trade-restrictiveness of the measure is "modest", the Panel's findings 
that the measure is less restrictive than an import ban and that the trade-restrictiveness is "undeniable" do not sufficiently elucidate the degree of trade-restrictiveness of the compound 
tariff. 
5.112.  We also note that, despite acknowledging that the measure is less restrictive than an 
import ban, the Panel also raised the possibility that the compound tariff can be highly trade restrictive, and in some circumstances as restrictive as a ban. Indeed, the Panel stated that, "[b]y 
its very nature, a tariff can reduce the capacity of imports to compete in the domestic market of 
the country of importation, by increasing the price of the products. If the tariffs are too high, they can have a very restrictive, even prohibitive effect ."
251 The fact that the Panel did not or could not 
determine whether the higher specific duty had su ch a prohibitive effect further supports our view 
that the Panel was unable to determine the degree  of trade-restrictiveness of the measure. 
5.113.  The above findings by the Panel indicate  the uncertainty as to the degree to which the 
compound tariff can be considered to be less trade restrictive than an import ban, and thus 
support the view that Colombia had not established with sufficient clarity the degree of 
trade-restrictiveness of the measure.252 
5.114.  We note that our understanding of the Panel's findings examined above is in line with the 
Panel's preliminary conclusion with respect to the assessment of the "necessity" factors. We recall 
that the Panel found that, "even though Colombia ha[d] demonstrated that the objective of combating money laundering in Colombia serves social interests that could be described as vital 
and important at the highest degree, Colombia ha [d] not demonstrated the contribution of the 
compound tariff to the alleged objective of combating money laundering."
253 The Panel also held 
that, "[f]or this reason, and taking into account the restriction on international trade caused by the compound tariff, Colombia ha[d] failed to show th at the compound tariff is a measure necessary to 
combat money laundering."
254 Given our above examination of the relevant Panel findings, we 
understand that the Panel's weighing and balancing of the "necessity" factors revealed that Colombia had failed to demonstrate that the measure is "necessary" to protect public morals.
255 
                                               
245 Panel Report, para. 7.437. 
246 Panel Report, para. 7.444. 
247 Colombia's appellant's submission, para. 243. 
248 Panel Report, para. 7.442. 
249 Panel Report, para. 7.443. (fn omitted) 
250 Panel Report, para. 7.444. 
251 Panel Report, para. 7.441. (emphasis added) 
252 We note that the degree of a measure's trade-restrictiveness may be expressed in a qualitative or 
quantitative manner. 
253 Panel Report, para. 7.445. 
254 Panel Report, para. 7.445. 
255 Panel Report, para. 7.445. WT/DS461/AB/R 
 
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  5.115.  Finally, we note that, before the Panel, the parties also advanced arguments as to whether 
there are any less trade-restrictive alternatives that are reasonably available. Before the Panel, Panama presented three possible alternative measures to the compound tariff: (i) the disciplines of the Customs Valuation Agreement; (ii) customs cooperation and information exchange 
mechanisms; and (iii) the disciplines of the Agreement on Preshipment Inspection.
256 We recall 
that, "in order to qualify as an alternative, a measure proposed by the complaining Member must be not only less trade restrictive than the measure at issue, but should also 'preserve for the 
responding Member its right to achieve its desired level of protection with respect to the objective 
pursued'."
257 Given the lack of sufficient clarity regarding the degree  of contribution of the 
measure to the objective of combating money laundering, and the degree  of trade-restrictiveness 
of the measure, we see no basis to proceed with a comparison of the measure at issue with any 
possible alternative measures.  
5.116.  In sum, our assessment of the Panel's findings reveals the Panel's consideration that there 
was a lack of sufficient clarity with respect to several key aspects of the "necessity" analysis 
concerning the defence that Colombia presented to the Panel under Article XX(a). In particular, 
there was a lack of sufficient clarity regarding the degree of contribution of the measure at issue to the objective of combating money laundering and the degree of trade-restrictiveness of the 
measure. Without sufficient clarity in respect of these factors, a proper weighing and balancing 
that could yield a conclusion that the measure is "necessary" could not be conducted. In the light of these considerations, the Panel's findings support the conclusion that Colombia has not demonstrated that the conclusion resulting from a weighing and balancing exercise is that the 
measure at issue is "necessary" to protect public morals.  
5.117.  Therefore, on the basis of the Panel's findings, we find that Colombia has not 
demonstrated that the compound tariff is a measure "necessary to protect public morals" within 
the meaning of Article XX(a) of the GATT 1994. 
5.3  Article XX(d) of the GATT 1994 5.3.1  Whether the Panel erred under Article XX( d) in finding that Colombia had failed to 
demonstrate that the compound tariff is a measure "necessary to secure compliance 
with laws or regulations which are not inconsistent" with the GATT 1994 
5.118.  Colombia further appeals the Panel's finding that Colombia had failed to demonstrate that 
the compound tariff is a measure "designed" to secure compliance with laws or regulations which 
are not inconsistent with the GATT 1994, within  the meaning of Article XX(d) of the GATT 1994.
258 
According to Colombia, the Panel's conclusions regarding whether the measure is "designed" to secure compliance with Article 323 of Colombia's Criminal Code, and whether the measure is 
"necessary" to secure such compliance, are based entirely on its previous analysis under 
Article XX(a) of the GATT 1994. In Colombia's view, since the Panel's analysis under Article XX(a) is "fundamentally flawed", the Panel's analysis und er Article XX(d) "necessarily suffers from the 
same flaws".
259 Colombia requests, if we reverse the Panel's findings under Article XX(a), that we 
also reverse the Panel's findings under Article XX(d), and that we complete the legal analysis and find that the measure at issue meets the requirements of Article XX(d) of the GATT 1994.
260 
5.119.  Panama maintains that Colombia's claim of error regarding the Panel's analysis under 
Article XX(d) relies entirely on the same arguments it presented in challenging the Panel's analysis 
under Article XX(a), and that Colombia has not de veloped any arguments on appeal specific to 
Article XX(d). Characterizing Colombia's claim of error as imprecise and vague, Panama considers 
that it should be rejected.261 In addition, Panama maintains that , since the Panel did not err in its 
analysis under Article XX(a), the Panel also did not err in its analysis under Article XX(d). 
                                               
256 Panel Report, para. 7.448. 
257 Appellate Body Report,  Brazil – Retreated Tyres , para. 156 (quoting Appellate Body Report,  
US – Gambling , para. 308). 
258 Colombia's Notice of Appeal, para. 8. 
259 Colombia's appellant's submission, para. 249. 
260 Colombia's appellant's submission, paras. 249-254. 
261 Panama's appellee's submission, para. 6. 6 (referring to Appellate Body Report, Thailand – Cigarettes 
(Philippines) , para. 179). WT/DS461/AB/R 
 
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  Consequently, Panama asks that we reject Colombia's request to reverse the Panel's findings and 
complete the legal analysis under Article XX(d) of the GATT 1994.262 
5.120.  Before the Panel, Colombia asserted a defence under Article XX(d) by maintaining that the 
compound tariff is "designed" to secure comp liance with laws or regulations which are not 
inconsistent with the provisions of the GATT 1994. The Panel first found that "Colombia ha[d] 
identified Article 323 of its Criminal Code, whic h creates the crime of money laundering, as the 
anti-money laundering legislation with which it seeks to secure compliance by means of the 
compound tariff."263 The Panel then turned to assess whether Colombia had demonstrated that its 
anti-money laundering legislation is not inconsistent with the provisions of the GATT 1994. In this regard, the Panel held that "there [wa]s no reason to consider that Article 323 of the Colombian Criminal Code is itself inconsistent with the provisions of the GATT 1994."
264 These 
findings by the Panel are not appealed. 
5.121.  Next, the Panel examined whether Colombia  had demonstrated that the compound tariff is 
itself "designed" to secure compliance with Colombia's anti-money laundering legislation. The 
Panel observed that "Colombia ha[d] used the same arguments to try to show that its compound 
tariff seeks to combat money laundering as to try to  show that its compound tariff seeks to secure 
compliance with Article 323 of the Colombian Criminal Code".265 The Panel recalled its main 
findings in the context of Article XX(a), highlighting that it had found that "Colombia had not 
demonstrated a connection between the compound tariff and the alleged objective of combating money laundering."
266 In the Panel's view, the "same considerations" led it to a similar conclusion 
under Article XX(d), since the "same elements" that led the Panel to conclude that Colombia had 
failed to demonstrate that the compound tariff is  "designed" to combat money laundering also led 
it to conclude that Colombia had also failed to demonstrate that the measure is "designed" to secure compliance with Article 323 of Colombia's Criminal Code.
267 The Panel therefore concluded 
that, "[i]n fact, on the basis of the totality of the evidence, including the text of Decree No. 456, 
and the other evidence submitted by the partie s, no connection ha[d] been shown to exist 
between the compound tariff and the alleged object ive of securing compliance with the Colombian 
anti-money laundering provisions, and more sp ecifically Article 323 of the Criminal Code."268 
5.122.  As is clear from the foregoing discussion, the Panel's examination of the first step of the 
legal standard under Article XX(d) – i.e. whether the measure is "designed" to secure compliance with Article 323 of Colombia's Criminal Code – relied mainly on reasoning and findings it had 
developed in the context of its analysis under Article XX(a). We therefore focus on the relevant 
elements of the legal standard under Article XX(d) of the GATT 1994, and point to certain 
similarities with a panel's analysis of a defence under Article XX(a) of the GATT 1994, before 
turning to a more detailed assessment of the Panel's findings.  
5.123.  In Korea – Various Measures on Beef , the Appellate Body explained that, for a respondent 
to justify provisionally a measure under Arti cle XX(d) of the GATT 1994, the following two 
elements must be shown: (i) the measure must be one "designed" to secure compliance with laws 
or regulations that are not themselves inconsis tent with some provision of the GATT 1994; and 
(ii) the measure must be "necessary" to secure such compliance.
269  
5.124.  Recently, in Argentina – Financial Services , the Appellate Body addressed aspects of the 
two elements of the legal standard as it pertains to a similar exception set out in Article XIV(c) of 
the General Agreement on Trade in Services (GATS):  
With respect to the first element, the phrase "to secure compliance" circumscribes the 
scope of Article XIV(c) of the GATS, as it sp eaks to the function of the measures that 
a Member can seek to justify under this provision. This phrase calls for an initial examination of the relationship between the inconsistent measure and the relevant 
                                               
262 Panama's appellee's submission, para. 6.8. 
263 Panel Report, para. 7.508. 
264 Panel Report, para. 7.512. 
265 Panel Report, para. 7.515. 
266 Panel Report, para. 7.516. 
267 Panel Report, para. 7.517. 
268 Panel Report, para. 7.518. 
269 Appellate Body Report, Korea – Various Measures on Beef , para. 157. WT/DS461/AB/R 
 
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  laws or regulations and, for this purpose, directs panels assessing whether a measure 
secures compliance with laws or regulations to scrutinize the design of the measures sought to be justified. A measure can be said "to secure compliance" with laws or regulations when its design reveals that it secures compliance with specific rules, 
obligations, or requirements under such laws or regulations, even if the measure 
cannot be guaranteed to achieve such result with absolute certainty. The more precisely a respondent is able to identify specific rules, obligations, or requirements 
contained in the GATS-consistent laws or regulations, the more likely it will be able to 
elucidate how and why the inconsistent measure secures compliance with such laws or regulations. Yet, where the assessment of the design of the measure, including its 
content and expected operation, reveals that the measure is incapable of securing 
compliance with specific rules, obligations, or requirements under the relevant law or 
regulation, as identified by a respondent, further analysis with regard to whether this measure is "necessary" to secure such compliance may not be required. This is 
because there is no justification under Article XIV(c) for a measure that is not 
designed to "secure compliance" with a Member's laws or regulations. A panel must not, however, structure its analysis of the first element in such a way as to lead it to 
truncate its analysis prematurely and thereby foreclose consideration of crucial 
aspects of the respondent's defence relating to the "necessity" analysis. 
The second element entails a more in-depth, holistic analysis of the relationship 
between the inconsistent measure and the relevant laws or regulations. In particular, 
this element entails an assessment of whether, in the light of all relevant factors in 
the "necessity" analysis, this relationship is sufficiently proximate, such that the measure can be deemed to be "necessary" to secure compliance with such laws or 
regulations.
270  
5.125.  In addressing above the legal standard under Article XX(a), we have noted similar 
considerations pertaining to the "design" and "necessity" steps of that standard. In that context, 
we have observed that these two steps of the analysis are conceptually distinct, yet related, 
aspects of the overall inquiry to be undertaken into whether a respondent has established that the measure at issue is "necessary to protect public morals", and that such an assessment is not entirely disconnected in the sense that certain evidence and considerations may be relevant to 
both aspects of the defence. This applies equally  in the context of Article XX(d) when examining 
whether the measure at issue is "necessary to secure compliance with laws or regulations which are not inconsistent" with the GATT 1994.  
5.126.  We further recognize that, while the content of the legal standards under Article XX(a) and 
Article XX(d) differ, there are also certain similarities that are relevant for our consideration of Colombia's appeal. Under both paragraphs (a) and (d) of Article XX, justification is sought for an 
otherwise GATT-inconsistent measure. Under Article XX(a), the societal interest or value at stake 
must fall within the scope of "public morals", whereas the interests and values reflected in the "laws or regulations" under Article XX(d) are not limited in a similar way. Also, recourse to Article XX(d) requires identification of specific rules, obligations, or requirements of laws or 
regulations that are not themselves GATT-inconsis tent, while such a requirement is absent in 
Article XX(a).
271 The examination of a defence under both Article XX(a) and Article XX(d) requires 
an initial, threshold examination of the design of the measure at issue, including its content, 
structure, and expected operation. In the ca se of Article XX(a), a panel must examine the 
relationship between the measure and the protection of public morals; in the case of Article XX(d), a panel must examine the relationship between the measure and securing compliance with 
relevant provisions of laws or regulations that are not GATT-inconsistent.
272 Thus, while the terms 
                                               
270 Appellate Body Report, Argentina – Financial Services , paras. 6.203-6.204. (fns omitted) As we have 
noted supra  at footnote 156, Article XIV sets out the general exceptions from obligations under the GATS in a 
similar manner to Article XX of the GATT 1994. The Appellate Body has indicated that, since similar language is used in both provisions, previous decisions under Article XX of the GATT 1994 are relevant for the analysis under Article XIV of the GATS. (Appellate Body Report, US – Gambling , para. 291) We consider that the 
reverse is also true. 
271 Appellate Body Report, Argentina – Financial Services , para. 6.203. 
272 The Appellate Body has re marked that the objectives of, or the common interests or values protected 
by, the relevant law or regulation may assist in elucidating the content of specific rules, obligations, or 
requirements in such law or regu lation. (Appellate Body Report, Argentina – Financial Services , fn 495 to 
para. 6.203) WT/DS461/AB/R 
 
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  "to protect" and "to secure compliance" may differ, we consider that both terms involve 
establishing the existence of such a relationship. If the assessment of the design of the measure, 
including its content, structure, and expected oper ation, reveals that the measure is incapable of, 
in the case of Article XX(a), protecting public morals, or, in the case of Article XX(d), securing 
compliance with relevant provisions of laws or regulations that are not GATT-inconsistent, there is 
not a relationship that meets the requirements of the "design" step. In either situation, further 
analysis with regard to whether the measure is "necessary" would not be required. This is because 
there can be no justification under Article XX(a) for a measure that is not "designed" to protect 
public morals, just as there can be no justification under Article XX(d) for a measure that is not "designed" to secure compliance with relevant provisions of laws or regulations that are not GATT-inconsistent.
273 However, as indicated by the Appellate Body, in both cases, "[a] panel must 
not … structure its analysis of the ["design" step] in such a way as to lead it to truncate its 
analysis prematurely and thereby foreclose consideration of crucial aspects of the respondent's defence relating to the 'necessity' analysis."
274 
5.127.  In the circumstances of this case, the analys is of the "design" of the measure as it relates 
to Colombia's defences under Article XX(a) and Article XX(d) of the GATT 1994 examines what amounts to a similar relationship. In the case of Article XX(a), as we have explained, the question 
before the Panel was whether its examination of the "design" of the measure revealed that there is 
a relationship between the measure and protecting  public morals by combating money laundering. 
In the context of Article XX(d), the question befo re the Panel was whether its examination of the 
"design" of the measure revealed that there is a relationship between the measure and securing 
compliance with a specific rule, obligation, or requirement of Colombian legislation, namely, 
Article 323 of its Criminal Code, which combats money laundering by criminalizing such conduct. Thus, provided that the Panel's reasoning accounts for the differences in the legal standards under 
paragraph (a) and paragraph (d) of Article XX, we do not see that the Panel acted improperly 
simply because it relied, in the context of its application of the legal standard under Article XX(d), on reasoning it had developed in assessing Colombia's defence under Article XX(a). As the Panel 
observed, Colombia itself had presented the same  arguments and evidence in respect of both 
paragraph (a) and paragraph (d) of Article XX. In deed, in both instances, Colombia maintained 
that the compound tariff seeks to combat money laundering so as to secure compliance with Article 323 of Colombia's Criminal Code because, "by its design, [it] reduces the incentives for 
criminal groups to use imports of apparel and footwear for money laundering purposes, by means 
of artificially low prices."
275 In the context of this dispute, the objective of combating money 
laundering is also reflected in a provision of a Colombian law that combats money laundering by 
criminalizing such conduct. In these circumstances, the Panel did not act improperly by examining 
similar aspects of the manner in which the measure did or did not demonstrate a relationship to combating money laundering activities, or by relying on similar considerations and reasoning in 
reaching its conclusions under Article XX(a) and Article XX(d).
276 
5.128.  At the same time, however, we consider that the concerns we have raised in the context of 
the Panel's assessment of whether the compound tariff is "designed" to protect public morals under Article XX(a) are also relevant in the context of the assessment under Article XX(d). We 
recall that, in our examination of Colombia's claim on appeal under Article XX(a), we have 
reviewed a number of findings made by the Panel in its assessment of the relationship between the measure and combating money laundering.  
5.129.  In that prior analysis, we have noted that, with regard to whether the price thresholds set 
out in the measure are such that any price below them is "artificially low", the Panel stated that "it cannot be ruled out that the importation of goods at prices below the thresholds established in 
Decree No. 456 could, in practice, reflect 'artificially low' prices that do not reflect market 
conditions."
277 By stating that "it cannot be ruled out" that goods priced below the thresholds 
                                               
273 See Appellate Body Reports, Argentina – Financial Services , para. 6.203; and Mexico – Taxes on Soft 
Drinks , para. 72. 
274 Appellate Body Report, Argentina – Financial Services , para. 6.203. 
275 Panel Report, para. 7.515. 
276 We recall that neither party contests the Panel's conclusions that combating money laundering is a 
Colombian policy "designed" to protect public morals (Panel Report, para. 7.339), or that Article 323 of Colombia's Criminal Code forms part of legislation that criminalizes money laundering activities (para. 7.508). 
Moreover, neither party appeals the Pane l's finding that there is "no reason to consider that Article 323 of the 
Colombian Criminal Code is itself inconsistent with the provisions of the GATT 1994." (Ibid., para. 7.512) 
277 Panel Report, para. 7.359. WT/DS461/AB/R 
 
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  reflect "artificially low" prices, the Panel acknowledged that at least some transactions at or below 
the thresholds could reflect such prices. Second, the Panel found that "the information available suggests that the undervaluation of imports is, in fact, one of the methods used for money laundering detected by the Colombian authorities."
278 By making this statement, the Panel 
acknowledged that, in Colombia, one of the methods used to launder money is the undervaluation 
of imports.279  
5.130.   Moreover, we have considered that additi onal findings by the Panel show a relationship 
between the compound tariff and the money laundering activities that Colombia seeks to 
discourage through the application of the challeng ed measure. For instance, we have noted the 
Panel's findings that the compound tariff leads to an increase in the unit price of apparel and footwear imports, thereby reducing the artificially high profit margin that is the incentive for using 
these imports to launder money. The Panel found, for example, that, "since the compound tariff 
entered into force, Colombian imports of the products in question have declined and average import prices have increased."
280 In addition, the Panel also accepted that "the compound tariff 
could reduce the incentives for importing textile products, apparel and footwear at prices below 
the thresholds laid down in Decree No. 456"281, and that "the effect of the compound tariff would 
be limited to reducing the profit margin of the persons intending to use imports for money 
laundering purposes".282  
5.131.  In our view, these findings demonstrate the Panel's recognition, in respect of its analysis 
under both Article XX(a) and Article XX(d), that at least some goods priced at or below the thresholds could be imported into Colombia at artificially low prices for money laundering 
purposes, and would thus be subject to the disincen tive created by the higher specific duties that 
apply to these goods. Taking these findings together, we consider that the Panel itself recognized that the compound tariff is not incapable of securing compliance with Article 323 of 
Colombia's Criminal Code, such that there is a relationship between that measure and securing 
such compliance.  
5.132.  We recall that the Panel concluded that Colombia had failed to establish a relationship 
between the compound tariff and securing compliance with provisions of Colombian anti-money 
laundering legislation.
283 In this regard, we further recall that a panel may cease its analysis of a 
defence under Article XX(d) at the stage of assessi ng the "design" of the measure only where the 
measure at issue is incapable of securing compliance with relevant provisions of laws or 
regulations that are not GATT-inconsistent, such that there is no relationship between the measure 
and securing such compliance. In the light of the cited passages from the Panel Report, we consider that the Panel was not in a situation in which the measure at issue is incapable of 
securing such compliance. Although the Panel concluded that Colombia had failed to establish a 
relationship between the compound tariff and Article 323 of Colombia's Criminal Code, we consider that this conclusion is belied by the Panel findin gs we examined above. Indeed, we understand the 
Panel to have recognized that at least some goods priced at or below the thresholds could be 
imported into Colombia at artificially low prices for money laundering purposes, and would thus be subject to the disincentive create d by the higher specific duties that apply to these goods. Thus, 
the Panel's analysis indicates that the compound tariff is not incapable of securing compliance with 
Article 323 of Colombia's Criminal Code, such that there is a relationship between that measure 
and securing such compliance.  
5.133.  Consequently, the Panel should not have ceased its analysis at this stage of its review of 
Colombia's defence under Article XX(d). As we have  noted, a panel errs under Article XX(d) if, in 
assessing the "design" of the measure, it does not proceed to an analysis of "necessity" once it has determined that the measure is not incapable of securing compliance with relevant provisions of 
                                               
278 Panel Report, para. 7.366. 
279 The Panel made additional findings that further demonstrate the Panel's understanding regarding the 
existence of trade-based money laundering through the importation of undervalued goods. For instance, the 
Panel explained that one of the methods for laundering mo ney that the compound tariff seeks to combat is the 
"transport of money of illicit origin  to another country to purchase goods which are introduced into the local 
country by means of technical smuggling based on un derinvoicing". (Panel Report, para. 7.370 (quoting 
Colombia's response to Panel question No. 44, para. 101)) 
280 Panel Report, para. 7.428. 
281 Panel Report, para. 7.435. 
282 Panel Report, para. 7.436. 
283 Panel Report, para. 7.518. WT/DS461/AB/R 
 
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  laws or regulations that are not GATT-inconsistent, such that there is a relationship between the 
measure and securing such compliance. Otherwise, a panel would foreclose an assessment of whether the degree of contribution, when we ighed and balanced against the degree of 
trade-restrictiveness and the importance of the intere sts and values at stake, is sufficient to justify 
the measure under Article XX(d).  
5.134.  We recall that, having found that Colombia  had not shown that the compound tariff is a 
measure "designed" to secure compliance with  Article 323 of the Criminal Code, the Panel 
concluded that there was no need to examine whether the compound tariff is "necessary" to 
secure compliance with Colombian anti-money laundering legislation. Nevertheless, "in order to be exhaustive in its analysis", the Panel evaluated whether the measure is "necessary" by assuming, for the sake of argument, that the compound tariff is "designed" to secure such compliance.
284 We 
note, in any event, that the Panel's ultimate conclusion as to the availability of the Article XX(d) 
defence to Colombia was founded solely on its conclusion that Colombia had not demonstrated that the compound tariff is "designed" to secure compliance with Article 323 of 
Colombia's Criminal Code. 
5.135.  In sum, the Panel erred in concluding that Colombia had failed to demonstrate that the 
measure is "designed" to secure compliance with laws or regulations that are not 
GATT-inconsistent given its recognition that the compound tariff is not incapable of securing 
compliance with Article 323 of Colombia's Criminal Code, such that there is a relationship between 
that measure and securing such compliance. Thus, the Panel failed to assess the "necessity" of the measure on the basis of a weighing and balancing exercise. Contrary to the legal standard under 
Article XX(d), the Panel prematurely ceased its analysis under this provision without proceeding to 
assess the degree of contribution of the measur e to its objective, together with the other 
"necessity" factors in a weighing and balancing exercise.  
5.136.  We therefore reverse the Panel's finding, in paragraph 7.519 of its Report, that Colombia 
has failed to demonstrate that the compound tariff is "designed" to secure compliance with 
Article 323 of Colombia's Criminal Code. Since the Panel's ultimate findings in respect of 
Article XX(d) were based exclusively on this erroneous finding, we also reverse the Panel's 
findings, in paragraphs 7.537 and 8.6 of its Report, that Colombia has failed to demonstrate that 
the compound tariff is a measure "necessary to secure compliance with laws or regulations which are not inconsistent" with the GATT 1994, namely, Article 323 of Colombia's Criminal Code, within 
the meaning of Article XX(d) of the GATT 1994. 
5.3.2  Completion of the legal analysis 5.137.  This brings us to Colombia's request that we complete the legal analysis and find that the 
measure at issue meets the requirements set ou t in Article XX(d) of the GATT 1994. Colombia 
contends that it had demonstrated before the Panel that the measure is aimed at securing compliance with Colombian laws and regulations against money laundering and the financing of 
other criminal activities. Colombia points out that money laundering is a criminal offense in 
Colombia under Article 323 of its Criminal Code, and that the Panel found that Article 323 is consistent with the provisions of the GATT 1994.
285 Colombia adds that the use of imports of 
apparel and footwear at artificially low prices to launder money is well established by competent 
Colombian authorities286 and international bodies287, and that the Panel acknowledged that 
criminal groups use imports of apparel and footwear at artificially low prices to launder illicit money.
288 Therefore, Colombia asserts, the measure is "designed" to secure compliance with its 
anti-money laundering legislation, as it discourages  criminal groups from using imports of apparel 
and footwear at artificially low prices to launder money.289 
                                               
284 Panel Report, para. 7.520. 
285 Colombia's appellant's submission, para. 250 (referring to Panel Report, para. 7.512). 
286 Colombia's appellant's submission, para. 251 (refe rring to Ministry of Finance and Public Credit, 
National Customs and Excise Directorate, an d Information and Financial Analysis Unit, Money Laundering 
Typologies Related to Smuggling , January 2006 (Panel Exhibit COL-10)). 
287 Colombia's appellant's submission, para. 251 (ref erring to Financial Action Task Force (FATF), 
Trade-Based Money Laundering , 23 June 2006 (Panel Exhibit COL-11); and  Money Laundering Vulnerabilities of 
Free Trade Zones , March 2010 (Panel Exhibit COL-12)). 
288 Colombia's appellant's submission, para. 251. 
289 Colombia's appellant's submission, para. 252. WT/DS461/AB/R 
 
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  5.138.  We begin by recalling the Panel's finding that "Article 323 of [Colombia's] Criminal Code, 
which creates the crime of money laundering, [i]s the anti-money laundering legislation with which [Colombia] seeks to secure compliance by means of the compound tariff."
290 This finding is not 
challenged on appeal. We therefore consider that, in  the circumstances of this dispute, the specific 
provision of the legislation with which Colombia seeks to secure compliance within the meaning of 
Article XX(d) of the GATT 1994 is the prohibition of money laundering set out in Article 323 of Colombia's Criminal Code.  
5.139.  Article XX(d) also indicates that the laws or regulations with which the measure at issue 
secures compliance must not be inconsistent with the provisions of the GATT 1994. In this regard, the Panel found that "there is no reason to consider that Article 323 of the Colombian Criminal Code is itself inconsistent with the provisions of the GATT 1994."
291 This 
finding is also not challenged on appeal. We therefore see no basis to consider that Article 323 is 
inconsistent with the provisions of the GATT 1994. 
5.140.  Our prior examination of Colombia's clai m revealed that, when several findings by the 
Panel are read together, it is clear from its analysis that the compound tariff is not incapable of 
securing compliance with Article 323 of Colombia's Criminal Code, such that there is a relationship between that measure and securing such compliance. Indeed, we understand the Panel to have 
recognized that at least some goods priced at or below the thresholds could be imported into 
Colombia at artificially low prices for money laundering purposes, and would thus be subject to the disincentive created by the higher specific duties that apply to these goods.  
5.141.  Therefore, on the basis of the Panel's findings, we find that the measure at issue is 
"designed" to secure compliance with laws or regulations which are not inconsistent with the 
GATT 1994, namely, Article 323 of Colombia's Criminal Code, within the meaning of Article XX(d) of the GATT 1994. 
5.142.  We now proceed to examine whether the compound tariff is a measure "necessary" to 
secure compliance with laws or regulations that are not GATT-inconsistent, within the meaning of Article XX(d) of the GATT 1994. We recall that a "necessity" analysis involves a process of 
"weighing and balancing" a series of factors, incl uding the importance of the societal interest or 
value at stake, the contribution of the measure to the objective it pursues, and the trade-restrictiveness of the measure.
292 We further recall that each of these factors must be 
demonstrated with sufficient clarity in order to conduct a proper weighing and balancing exercise 
that may yield a conclusion that the measure is "necessary". 
5.143.  Turning to Colombia's request for completion of the legal analysis, we note that Colombia 
considers that it has provided sufficient argument s and evidence to demonstrate, and that certain 
conclusions by the Panel provide a sufficient basis to find, that the measure at issue is "necessary" 
to secure compliance with Article 323 of the Criminal Code as regards money laundering operations that use undervalued imports of apparel and footwear.
293  
5.144.  With respect to the importance of the interests or values at stake, the Panel noted 
Colombia's position that such interests or values in this dispute are vital and important in the highest degree, and that Panama does not question that the fight against money laundering is a societal interest that could be characterized as vital and important in the highest degree.
294 The 
Panel therefore considered that, for reasons similar to those mentioned in its analysis under 
Article XX(a), securing compliance with Article 323 of Colombia's Criminal Code reflects societal 
                                               
290 Panel Report, para. 7.508. 
291 Panel Report, para. 7.512. 
292 See Appellate Body Reports, Korea – Various Measures on Beef , para. 164; US – Gambling , 
para. 306; Brazil – Retreaded Tyres , para. 182; and EC – Seal Products , para. 5.169. Moreover, in most cases, 
a comparison between the challenged measure and possible alternatives should subsequently be undertaken. (Appellate Body Reports, EC – Seal Products , para. 5.169 (referring to Appellate Body Report, US – Gambling , 
para. 307)) 
293 Colombia's appellant's submission, paras. 253-254 (referring to Panel Report, paras. 7.408, 7.436, 
7.444, and 7.448-7.469). 
294 Panel Report, para. 7.522. WT/DS461/AB/R 
 
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  interests that can be characterized as vital and important in the highest degree.295 We note that 
this finding is not challenged on appeal. 
5.145.  We now turn to examine the contribution  of the measure to the objective it pursues. 
Above, we have identified a numbe r of findings concerning the Panel's understanding regarding the 
relationship between the measure and the obje ctive of securing compliance with Colombian 
anti-money laundering legislation, namely, Articl e 323 of Colombia's Criminal Code. We consider 
that the same findings of the Panel that led us to conclude that the compound tariff is not 
incapable of securing compliance with Article 323 of Colombia's Criminal Code, such that there is a 
relationship between that measure and securing such compliance, also indicate that there may be at least some contribution by the compound tariff to securing such compliance. As we have noted, 
various findings of the Panel demonstrate its understanding that at least some goods priced at or 
below the thresholds could be imported into Colombia at artificially low prices for money 
laundering purposes, and would thus be subject to the disincentive created by the higher specific 
duties that apply to these goods. We therefore consider that these findings establish the Panel's 
recognition that there may be at least some contribution by the measure to securing compliance 
with Article 323 of Colombia's Criminal Code. 
5.146.  However, while the Panel's findings that  we have discussed indicate that there may be at 
least some  contribution, they are also indeterminate as to the degree  of such contribution. As we 
have noted, various findings by the Panel highlight the lack of sufficient clarity surrounding the amount or proportion of import transactions involving the products at issue that are actually used for money laundering purposes. Moreover, we have noted findings by the Panel that indicate that 
the Panel did not have much clarity as to how effective the disincentive of the compound tariff is 
as a means of combating money laundering. These considerations regarding the uncertainty surrounding the amount or proportion of imported goods below the thresholds that are actually 
used for money laundering purposes, as well as the extent to which the compound tariff acts as a 
disincentive to money laundering, indicate the Panel's view that Colombia had not demonstrated with sufficient clarity the degree  of contribution made by the compound tariff to the objective of 
combating money laundering.
296 The Panel's uncertainty is also evident in its overall conclusion 
that, "[t]aking into account the relevant facts and relevant circumstances of the case, including the design, architecture and revealing structure of the compound tariff", Colombia had "failed to 
demonstrate the contribution of the compound tariff to the objective of securing compliance with 
the Colombian anti-money laundering legislation".
297 
5.147.  Turning to the trade-restrictiveness of the measure at issue, we note that the Panel found 
that "the compound tariff is less trade-restrictive than a ban on imports".298 This finding by the 
Panel reflects uncertainty as to the degree  of trade-restrictiveness of the measure at issue because 
it does not indicate how much less trade restrictive the measure is in comparison to an import ban. We also note that, despite acknowledging that the measure at issue is less restrictive than an 
import ban, the Panel had previously raised the possibility that the compound tariff can be highly 
trade restrictive, and in some circumstances as re strictive as a ban. Indeed, the Panel stated that, 
"[b]y its very nature, a tariff can reduce the capacity of imports to compete in the domestic 
market of the country of importation, by increasing  the price of the products. If the tariffs are too 
high, they can have a very restrictive, even prohibitive effect ."
299 The fact that the Panel did not or 
could not determine whether the higher specific du ty had such a prohibitive effect further supports 
our view that the Panel was unable to determine the degree  of trade-restrictiveness of the 
measure. In our view, the above findings by the Panel indicate the uncertainty as to the degree to 
which the compound tariff can be considered to be less trade restrictive than an import ban, and thus support the view that Colombia had not established with sufficient clarity the degree of 
trade-restrictiveness of the measure.
300 
                                               
295 Panel Report, paras. 7.523-7.524. 
296 We note that, in assessing the "necessity" of a measure, the degree of a measure's contribution to 
its objective may be expressed in a qualitative or quantitative manner. 
297 Panel Report, para. 7.528. 
298 Panel Report, para. 7.530. 
299 Panel Report, para. 7.441. (emphasis added) 
300 In addition, as we have noted in  the context of our analysis under Article XX(a), given the lack of 
sufficient clarity regarding the degrees of contribution and trade-restrictiveness of the measure, there is no 
basis to proceed in comparing the measure at issue with any possible alternative measures regarding their contribution and trade-restrictiveness. WT/DS461/AB/R 
 
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  5.148.  We note that our understanding of the Panel's findings examined above is in line with the 
Panel's preliminary conclusion with respect to the assessment of the "necessity" factors. We recall 
that the Panel found that, "even though the objective of securing compliance with the Colombian anti-money laundering legislation reflects social interests that could be characterized as vital and 
important in the highest degree, Colombia ha[d] failed to demonstrate the contribution of the 
compound tariff to the alleged objective of securing compliance with the Colombian anti-money laundering legislation."
301 The Panel also held that, "[f]or this reason, and taking into account the 
restriction on international trade caused by the compound tariff, Colombia ha[d] failed to 
demonstrate that the compound tariff is a measure necessary to secure compliance with the Colombian anti-money laundering legislation and, more specifically, Article 323 of the Criminal Code."
302 Given our above examination of the relevant Panel findings, we understand that 
the Panel's weighing and balancing of the "necessity" factors revealed that Colombia had failed to 
demonstrate that the measure is "necessary" to secure compliance with laws or regulations that are not GATT-inconsistent.
303 
5.149.  In sum, our assessment of the Panel's findings reveals the Panel's consideration that there 
was a lack of sufficient clarity with respect to several key aspects of the "necessity" analysis concerning the defence that Colombia presented to the Panel under Article XX(d). In particular, 
there was a lack of sufficient clarity regarding the degree of contribution of the measure at issue to 
securing compliance with Article 323 of Colombia's Criminal Code, and the degree of trade-restrictiveness of the measure. Without sufficie nt clarity in respect of these factors, a proper 
weighing and balancing that could yield a conclusion that the measure is "necessary" could not be 
conducted. In the light of these considerations, the Panel's findings support the conclusion that 
Colombia has not demonstrated that the conclusion resulting from a weighing and balancing exercise is that the measure at issue is "necessary" to secure compliance with Article 323 of 
Colombia's Criminal Code.  
5.150.  Therefore, on the basis of the Panel's findings, we find that Colombia has not 
demonstrated that the compound tariff is a measure "necessary to secure compliance with laws or 
regulations which are not inconsistent" with the GATT 1994, within the meaning of Article XX(d) of 
the GATT 1994. 
5.4  Chapeau of Article XX of the GATT 1994 5.151.  Finally, we take note of Colombia's appeal of the Panel's findings pertaining to the chapeau 
of Article XX of the GATT 1994. Colombia clai ms that the Panel erred under Article XX and 
Article XXIV of the GATT 1994, and under Article 11 of the DSU, in rejecting Colombia's contention that an FTA-based exemption from the compound tariff is consistent with Article XXIV, and 
therefore does not contravene the requir ements of the chapeau of Article XX.
304 In addition, 
Colombia claims that the Panel erred under Article XX by failing to establish that any treatment arising from certain exemptions reflects discrimination "between countries where the same 
conditions prevail", and that the Panel also erred under Article 11 of the DSU by making the case 
for Panama, and by ignoring Colombia's arguments as to why the exemptions are justified.
305  
5.152.  We recall the Panel's finding that, becaus e Colombia had failed to demonstrate that its 
compound tariff is justified under Article XX(a) or Article XX(d) of the GATT 1994, it was not 
necessary for the Panel to analyse whether the compound tariff meets the requirements of the 
chapeau.306 Nevertheless, "in order to be exhaustive in its analysis", the Panel conducted its 
assessment of the chapeau by assuming, for the sake of argument, that Colombia had succeeded 
in showing that its measure is provisionally justified under Article XX(a) or Article XX(d) of the 
                                               
301 Panel Report, para. 7.532. 
302 Panel Report, para. 7.532. 
303 Panel Report, para. 7.532. 
304 Colombia's appellant's submission, paras. 256-280. Colombia also claims that the Panel erred under 
Article 6.2 of the DSU by allegedl y finding that Colombia's arguments concerning Article XXIV of the 
GATT 1994 were not within its terms of reference. (See ibid., para. 271; and Colombia's Notice of Appeal, para. 8) 
305 Colombia's appellant's submission, paras. 281-300.  The relevant exemptions are those for imports 
into Colombia's Special Customs Regime Zones, and under the Plan Vallejo. 
306 Panel Report, para. 7.550. WT/DS461/AB/R 
 
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  GATT 1994.307 We further recall our findings above that Colombia has not demonstrated that the 
compound tariff is provisionally justified under Article XX(a) or Article XX(d) of the GATT 1994.  
5.153.  Given these findings, we do not consider it necessary to examine Colombia's claims on 
appeal pertaining to the chapeau of Article XX of the GATT 1994. We express no view on the 
Panel's reasoning in that regard, or the Panel's findings in paragraphs 7.591 and 8.7 of its Report. 
6  FINDINGS AND CONCLUSIONS 6.1.  For the reasons set out in this Report, th e Appellate Body makes the following findings and 
conclusions. 
6.1  Article II:1(a) and (b) of the GATT 1994 6.2.  With respect to the Panel's finding that  it was unnecessary to interpret the scope of 
Article II:1(a) and (b) of the GATT 1994, we consider that this finding does not follow logically 
from its previous finding indicating that the measure applies, or could apply, to some illicit trade. 
We therefore consider that the Panel did not prov ide coherent reasoning, and that the basis upon 
which it refrained from interpreting Article II:1(a) and (b) of the GATT 1994 was flawed.  
a. We therefore find that the Panel acted inconsistently with its duty under Article 11 of the 
DSU to make an objective assessment of the matter, including an objective assessment 
of the applicability of the relevant covered agreements, in finding that it was 
unnecessary for the Panel to interpret the scope of Article II:1(a) and (b) of the 
GATT 1994.  
b. Consequently, we reverse the Panel's finding, in paragraphs 7.108 and 8.1 of the Panel 
Report, that it was unnecessary for the Panel to issue a finding as to whether or not 
Article II:1(a) and (b) of the GATT 1994 applies to illicit trade. 
6.3.  With respect to Colombia's request for completion of the legal analysis, we do not see that 
the text of Article II:1(a) and (b) of the GATT 1994 excludes what Colombia classifies as illicit 
trade. Moreover, the context provided in Ar ticles II:2 and VII:2 of the GATT 1994 and the 
Customs Valuation Agreement supports our view that the scope of Article II:1(a) and (b) of the GATT 1994 is not limited in the manner suggested by Colombia. We also consider that our 
interpretation regarding the scope of Article II:1( a) and (b) of the GATT 1994 is in keeping with 
the object and purpose of the GATT 1994, and that a Member seeking to address concerns regarding money laundering may do so through the general exceptions contained in Article XX of the GATT 1994. In the light of this interpretation of Article II:1(a) and (b) of the GATT 1994, we 
see no grounds to disturb the Panel's findings that the compound tariff necessarily exceeds 
Colombia's bound tariff rates in the instances set out in paragraphs 7.164 and 7.180 of its Report.  
a. We therefore find, for imports of products classified in Chapters 61, 62, 63, and 64 
(except for heading 64.06 but including tariff line 6406.10.00.00) of Colombia's Customs 
Tariff, that, in the instances identified in the Panel Report, the compound tariff exceeds the bound tariff rates in Colombia's Schedule of Concessions, and is therefore 
inconsistent with Article II:1(a) and (b) of the GATT 1994.  
b. Consequently, we uphold the Panel's findings, in paragraphs 7.189, 7.192-7.194, 
and 8.2-8.4 of the Panel Report. 
6.2  Article XX(a) of the GATT 1994 
6.4.  With respect to the Panel's findings under Article XX(a) of the GATT 1994, the Panel erred in 
concluding that Colombia had failed to demonstrate that the measure is "designed" to combat money laundering given its recognition that the compound tariff is not incapable of combating 
money laundering, such that there is a relationship between that measure and the protection of 
public morals. Thus, the Panel failed to assess th e "necessity" of the measure on the basis of a 
weighing and balancing exercise. Contrary to the legal standard under Article XX(a), the Panel 
                                               
307 Panel Report, para. 7.551. WT/DS461/AB/R 
 
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  prematurely ceased its analysis under this prov ision without proceeding to assess the degree of 
contribution of the measure to its objective, together with the other "necessity" factors in a weighing and balancing exercise.  
a. We therefore reverse the Panel's finding, in paragraph 7.400 of the Panel Report, that 
Colombia has failed to demonstrate that the compound tariff is "designed" to combat 
money laundering, and the Panel's finding, in paragraph 7.401 of the Panel Report, that Colombia has not shown that the compound tariff is a measure "designed" to protect 
public morals.  
b. Since the Panel's ultimate findings in respect of Article XX(a) were based exclusively on 
these erroneous findings, we also reverse the Panel's findings, in paragraphs 7.471 
and 8.5 of the Panel Report, that Colombia has failed to demonstrate that the compound 
tariff is a measure "necessary to protect public morals" within the meaning of 
Article XX(a) of the GATT 1994. 
6.5.  Given that we have reversed the Panel's finding that Colombia has failed to demonstrate that 
the compound tariff is "designed" to protect public morals, we do not consider it necessary to 
examine Colombia's additional claims of error, including that the Panel erred in its "necessity" 
analysis under Article XX(a) of the GATT 1994, and th at the Panel acted inconsistently with its duty 
to conduct an objective assessment of the matter under Article 11 of the DSU. 
6.6.  With respect to Colombia's request that we complete the legal analysis and find that the 
measure at issue is "designed" to protect public morals, our prior examination of Colombia's claim of error revealed that, when several findings by the Panel are read together, it is clear from its 
analysis that the compound tariff is not incapable of combating money laundering, such that there 
is a relationship between that measure and the prot ection of public morals. Indeed, we understand 
the Panel to have recognized that at least some goods priced at or below the thresholds could be 
imported into Colombia at artificially low prices for money laundering purposes, and would thus be 
subject to the disincentive created by the higher  specific duties that apply to these goods.  
a. Therefore, on the basis of the Panel's findin gs, we find that the measure at issue is 
"designed" to protect public morals in Colombia within the meaning of Article XX(a) of 
the GATT 1994. 
6.7.  With respect to Colombia's request that we complete the legal analysis and find that the 
measure at issue is "necessary" to protect public morals, our assessment of the Panel's findings 
reveals the Panel's consideration that there was a lack of sufficient clarity with respect to several 
key aspects of the "necessity" analysis concerning the defence that Colombia presented to the Panel under Article XX(a). In particular, there was a lack of sufficient clarity regarding the degree 
of contribution of the measure at issue to the objective of combating money laundering, and the 
degree of trade-restrictiveness of the measure. Without sufficient clarity in respect of these 
factors, a proper weighing and balancing that could yield a conclusion that the measure is 
"necessary" could not be conducted. In the light  of these considerations, the Panel's findings 
support the conclusion that Colombia has not demonstrated that the conclusion resulting from a weighing and balancing exercise is that the measure at issue is "necessary" to protect public morals.  
a. Therefore, on the basis of the Panel's findings, we find that Colombia has not 
demonstrated that the compound tariff is a measure "necessary to protect public morals" 
within the meaning of Article XX(a) of the GATT 1994. 
6.3  Article XX(d) of the GATT 1994 
6.8.  With respect to the Panel's findings under Article XX(d) of the GATT 1994, the Panel erred in 
concluding that Colombia had failed to demonstrate that the measure is "designed" to secure 
compliance with laws or regulations that are not GATT-inconsistent given its recognition that the 
compound tariff is not incapable of securing compliance with Article 323 of Colombia's Criminal Code, such that there is a relationship between that measure and securing such compliance. Thus, the Panel failed to assess the "necessity" of the me asure on the basis of a weighing and balancing 
exercise. Contrary to the legal standard under Article XX(d), the Panel prematurely ceased its WT/DS461/AB/R 
 
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  analysis under this provision without proceedin g to assess the degree of contribution of the 
measure to its objective, together with the other "necessity" factors in a weighing and balancing exercise. 
a. We therefore reverse the Panel's finding, in paragraph 7.519 of the Panel Report, that 
Colombia has failed to demonstrate that the compound tariff is "designed" to secure 
compliance with Article 323 of Colombia's Criminal Code.  
b. Since the Panel's ultimate findings in respect of Article XX(d) were based exclusively on 
this erroneous finding, we also reverse the Panel's findings, in paragraphs 7.537 and 8.6 
of the Panel Report, that Colombia has failed to demonstrate that the compound tariff is 
a measure "necessary to secure compliance with laws or regulations which are not inconsistent" with the GATT 1994, namely, Article 323 of Colombia's Criminal Code, 
within the meaning of Article XX(d) of the GATT 1994. 
6.9.  With respect to Colombia's request that we complete the legal analysis and find that the 
measure at issue is "designed" to secure compliance with laws or regulations that are not 
GATT-inconsistent, our prior examination of Colombia's claim revealed that, when several findings 
by the Panel are read together, it is clear that the Panel recognized that the compound tariff is not incapable of securing compliance with Article 323 of Colombia's Criminal Code, such that there is a 
relationship between that measure and securing  such compliance. Indeed, we understand the 
Panel to have recognized that at least some goods priced at or below the thresholds could be imported into Colombia at artificially low prices for money laundering purposes, and would thus be subject to the disincentive created by the higher  specific duties that apply to these goods.  
a. Therefore, on the basis of the Panel's findin gs, we find that the measure at issue is 
"designed" to secure compliance with laws or regulations which are not inconsistent with 
the GATT 1994, namely, Article 323 of Colombia's Criminal Code, within the meaning of 
Article XX(d) of the GATT 1994. 
6.10.  With respect to Colombia's request that we complete the legal analysis and find that the 
measure at issue is "necessary" to secure compliance with laws or regulations that are not 
GATT-inconsistent, our assessment of the Panel's findings reveals the Panel's consideration that 
there was a lack of sufficient clarity with respect to several key aspects of the "necessity" analysis 
concerning the defence that Colombia presented to the Panel under Article XX(d). In particular, there was a lack of sufficient clarity regarding the degree of contribution of the measure at issue to 
securing compliance with Article 323 of Colombia's Criminal Code, and the degree of 
trade-restrictiveness of the measure. Without sufficie nt clarity in respect of these factors, a proper 
weighing and balancing that could yield a conclusion that the measure is "necessary" could not be 
conducted. In the light of these considerations, the Panel's findings support the conclusion that 
Colombia has not demonstrated that the conclusion resulting from a weighing and balancing exercise is that the measure at issue is "necessary" to secure compliance with Article 323 of 
Colombia's Criminal Code.  
a. Therefore, on the basis of the Panel's findings, we find that Colombia has not 
demonstrated that the compound tariff is a measure "necessary to secure compliance 
with laws or regulations which are not inconsistent" with the GATT 1994, within the 
meaning of Article XX(d) of the GATT 1994. 
6.4  Chapeau of Article XX of the GATT 1994 6.11.  With respect to the Panel's findings under the chapeau of Article XX of the GATT 1994, given 
our findings that Colombia has not demonstrated that the compound tariff is provisionally justified 
under Article XX(a) or Article XX(d) of the GATT 1994, we do not consider it necessary to examine 
Colombia's claims on appeal pertaining to the chapeau of Article XX of the GATT 1994. We express 
no view on the Panel's reasoning in that regard, or the Panel's findings in paragraphs 7.591 
and 8.7 of the Panel Report.