WT/DS308/R 
 Page C-1 
 
 
 ANNEX C 
 
RESPONSES AND COMMENTS BY THE PARTIES AND THIRD PARTIES 
TO QUESTIONS POSED BY THE PANEL AND OTHER PARTIES  
 
Contents Page 
Annex C-1 Responses by Mexico to Questions Posed by the Panel after the First 
Substantive Meeting C-2 
Annex C-2 Responses by the United States to Questions Posed by the Panel and 
Mexico after the First Substantive Meeting C-24 
Annex C-3 Responses by Mexico to Questions Posed by the Panel after the Second 
Substantive Meeting C-46 
Annex C-4 Responses by the United States to Questions Posed by the Panel after the 
Second Substantive Meeting C-69 
Annex C-5 Comments by Mexico on the United States' Responses to Questions 
Posed by the Panel after the Second Substantive Meeting C-91 
Annex C-6 Comments by the United States on Mexico's Responses to Questions 
Posed by the Panel after the Second Substantive Meeting C-97 
Annex C-7 Responses by Guatemala to Questions Posed by the Panel after the First 
Substantive Meeting C-110 
 
 WT/DS308/R 
Page C-2  
 
 ANNEX C-1
∗ 
 
RESPONSES BY MEXICO TO QUESTIONS POSED BY THE PANEL  
AFTER THE FIRST SUBSTANTIVE MEETING 
 
(20 December 2004) 
 
 FOR BOTH PARTIES:
 
 
1. Mexico has alluded to the exercise of "judi cial economy" as a reference for its argument 
that panels have certain implied jurisdictional powers that would allow them to decline from 
exercising substantive jurisdiction.  Could Pa rties please comment on the relevance of the 
exercise of "judicial economy" in the context of  Mexico's request for the present Panel to 
decline to exercise its jurisdiction.  
 As discussed in Mexico's oral statement at the first substantive meeting with the Panel, Mexico is not arguing that the Panel could decline to exercise jurisdiction for reasons of judicial 
economy.  The legal base for Mexico's request is broader and derives from the Panel's nature as an 
adjudicative body.  As such, the Panel has inhere nt powers, as do other international tribunals and 
bodies, to refrain from taking jurisdiction.  The exercise of judicial economy is germane to Mexico's 
request on at least three different counts.   First, neither the Dispute Settlement U nderstanding nor any of the WTO agreements 
explicitly refers to the principle of judicial econo my.  However, there is no question that WTO panels 
may apply that principle, and this confirms that th ey have implied, inherent or incidental powers.
1 
  Second, the exercise of judicial economy illustrate s the fact that panels have refrained from 
exercising validly established substantive jurisdiction over certain claims before them.  In order to 
ensure the effective settlement of di sputes for the benefit of all Members, panels may, by law, decline 
jurisdiction in respect of certain complaints. 
  Third, the exercise of judicial economy show s that, notwithstanding Article 7.2 of the DSU, 
which provides that panels shall address the rele vant provisions in an y covered agreement or 
agreements cited by the parties to the dispute, WTO panels may decide to refrain from ruling on 
certain complaints or arguments brought by the parties in dispute. 
 
2. Could Parties please comment whether they are of the view that there is nothing in the 
WTO agreements that explicitly spells out the implied jurisdictional power that panels may 
have that allows them to decline to exercise subs tantive jurisdiction, as Mexico has suggested.  
Or do they rather consider that there is nothing in the WTO agreements that explicitly rules out 
the existence of such power?  If there are no such explicit rules in the WTO agreements, then 
what conclusions, if any, should the present Pane l draw in order to respond to Mexico's request 
to decline to exercise its jurisdiction? 
 
 As Mexico explained in its oral statement at  the first substantive meeting, international 
tribunals have certain implied ju risdictional powers that derive from their nature as adjudicative 
bodies, and there is no provision in the WTO agreemen ts that explicitly rule s out or excludes such 
                                                     
 
∗ Annex C-1 contains the responses by Mexico to questions posed by the Panel after the first 
substantive meeting.  This text was originally submitted in Spanish by Mexico. 
1 Contrary to what the United States suggests at  paragraph 4 of its closin g statement at the first 
substantive meeting with the Panel.  WT/DS308/R 
 Page C-3 
 
 
 powers.  By implicit consent, the Panel may have  recourse to and apply the principles of public 
international law.  As international adjudicativ e bodies, WTO panels too have such incidental 
jurisdiction.  
3. Can Parties please comment whether, in thei r opinion, it would be appropriate for the 
Panel to look at the issues concerning bilatera l trade in sweeteners between Mexico and the 
United States which have been raised by Mexico in this case.  
 Yes.  It is not only appropriate but necessary in  this case for the Panel to look at the issues 
relating to the bilateral agreem ent governing trade in sweeteners between Mexico and the United 
States.  As already explained, the WTO agreements  cannot be considered in technical isolation from 
international law.  The circumstances relating to this bilateral agreement do not only explain the 
factual context in which Mexico's measures aro se – to which the United States has omitted all 
reference – but also demonstrate that the Mexican  Congress was prompted by the failure of NAFTA's 
Annex 703.2 to provide the anticipated access for Me xican sugar to the U.S. market.  The United 
States not only denied trade access but also refused  to have the dispute resolved in the forum 
stipulated in NAFTA Chapter Twenty.  This gene rated an imbalance in the Mexican sugar market, 
because while the United States prevented Mexican sugar from entering its market, sugar was being 
displaced by imports of HFCS from the United St ates and domestic producti on of HFCS using maize 
imported from the United States into the Mexican mark et, thus deepening the crisis in the Mexican 
sugar sector – as documented by the United States Department of Agriculture. 
 
 The issues concerning bilateral trade in sweet eners between Mexico and the United States are 
legally relevant both to Mexico's request for the Pa nel to deliver a preliminary ruling and to Mexico's 
defence under GATT Article XX(d).  
 As regards Mexico's request for the Panel to deliver a preliminary ruling, the issues 
concerning bilateral trade in sweeteners show that the United States claims in this case are 
inextricably linked to a larger dispute outside the scope of the WTO.  They also show that the underlying or predominant elements of the disput e between the two countries derive from rules of 
international law that do not come within the WTO am bit.  In short, the issues to which the Panel 
refers concern claims that fall within the scope of other rules of international law but are at the heart 
of the dispute between Mexico and the United States .  In Mexico's view, the United States claims in 
these proceedings before the WTO cannot be deci ded separately from Mexico's claims under NAFTA. 
  Regarding Mexico's defence under GATT Article XX(d), the issues concerning bilateral trade 
in sweeteners between Mexico and the United St ates explain why the Mexican Congress took action 
to rebalance the situation by adopting the measures in  question.  In other words, had the United States 
complied with its NAFTA obligations from the outse t, Mexico would not have been compelled to 
implement measures in order to ensure United States compliance with NAFTA.  
4. Can Parties indicate whether, in their op inion, is there anything in the North American 
Free Trade Agreement (NAFTA) that would prev ent the United States from bringing the 
present case to the WTO dispute settlement system.  
 No.  The relevant provision of NAFTA  is Article 2005, which provides that: 
 
"1. Subject to paragraphs 2, 3 and 4, disputes regarding any matter arising under 
both this Agreement and the General Agreement on Tariffs and Trade , any agreement 
negotiated thereunder, or any successor agre ement (GATT), may be settled in either 
forum at the discretion of the complaining Party. WT/DS308/R 
Page C-4  
 
 2. Before a Party initiates a dispute settlement proceeding in the GATT against 
another Party on grounds that are substantially  equivalent to those available to that 
Party under this Agreement, that Party shall notify any third Party of its intention.  If 
a third Party wishes to have recourse to  dispute settlement procedures under this 
Agreement regarding the matter, it shall inform promptly the notifying Party and 
those Parties shall consult with a view to  agreement on a single forum.  If those 
Parties cannot agree, the dispute normall y shall be settled under this Agreement. 
3. In any dispute referred to in paragraph 1 where the responding Party claims 
that its action is subject to Article 104 (R elation to Environmental and Conservation 
Agreements) and requests in writing that  the matter be considered under this 
Agreement, the complaining Party may, in respect of that matter, thereafter have 
recourse to dispute settlement proce dures solely under this Agreement. 
4. In any dispute referred to in para graph 1 that arises under Section B of 
Chapter Seven (Sanitary and Phytosanitary  Measures) or Chapter Nine (Standards-
Related Measures): 
(a) concerning a measure adopted or maintained by a Party to protect its human, 
animal or plant life or health, or to protect its environment, and 
(b) that raises factual issues concerni ng the environment, health, safety or 
conservation, including directly related scientific matters, 
where the responding Party requests in writi ng that the matter be considered under 
this Agreement, the complaining Party may, in respect of that matter, thereafter have 
recourse to dispute settlement proce dures solely under this Agreement. 
5. The responding Party shall deliver a copy of a request made pursuant to 
paragraph 3 or 4 to the other Parties and to its Section of the Secretariat.  Where the 
complaining Party has initiated dispute se ttlement proceedings regarding any matter 
subject to paragraph 3 or 4, the responding Pa rty shall deliver its request no later than 
15 days thereafter.  On receipt of such re quest, the complaining Party shall promptly 
withdraw from participation in those pro ceedings and may initiate dispute settlement 
procedures under Article 2007. 
6. Once dispute settlement procedures ha ve been initiated under Article 2007 or 
dispute settlement proceedings have b een initiated under the GATT, the forum 
selected shall be used to the exclusion of  the other, unless a Party makes a request 
pursuant to paragraph 3 or 4. 
7. For purposes of this Article, disput e settlement proceedings under the GATT 
are deemed to be initiated by a Part y's request for a panel, such as under 
Article XXIII:2 of the General Agreement on Tariffs and Trade 1947 , or for a 
committee investigation, such as under Article 20.1 of the Customs Valuation Code." 
5. If, as requested by Mexico, the Panel were to  decline to exercise its jurisdiction in favour 
of NAFTA, could the Parties please comme nt how the NAFTA system would deal 
comprehensively with all the issues that Mexico considers affect the bilateral trade in sweeteners 
between Mexico and the United States.  Coul d the Parties please also comment whether the 
NAFTA system could provide the same remedies th at the United States is seeking in this case 
under the WTO. 
  WT/DS308/R 
 Page C-5 
 
 
 As Mexico explained in its First Written Subm ission and its oral arguments at the meeting 
with the Panel – and as confirmed by the representative of the United States – Mexico's request for the establishment of a NAFTA Chapter Twenty arbitral  panel remains valid and the dispute is still 
pending.  The case has not moved forward because the United States has refused to appoint panelists. 
 
 The Panel will recall that the United States invokes only Article III of the GATT 1994 in 
these proceedings and that NAFTA Article 301 expressl y incorporates that Article.  Therefore, this 
dispute falls within both the NAFTA and the WTO ambits.   Since Mexico has requested the Panel to dec line jurisdiction in favour of the NAFTA forum, 
and notwithstanding the Article 2005 requirement to select a forum, Mexico agrees to submit the 
dispute as a whole, including the United Stat es claims under Article III of the GATT 1994 (and 
NAFTA Article 301), to a NAFTA Chapter Twenty arbitral panel.   Concerning the question whether the NAFTA di spute settlement system provides the same 
remedies that the United States is seeking un der the WTO, Mexico notes that:  (i) The WTO 
obligation invoked in this case, i.e. Article III, is expressly and fully incorporated in NAFTA, so that 
the right of action is the same;  and (ii) if it is  found that a party has breached a NAFTA obligation, 
Articles 2018 and 2019 relating to implementation and non-implementation of the final report of an 
arbitral panel, including the matter of suspension of  benefits, are equivalent to the WTO provisions 
and might even prove more effective, since ther e are fewer stages in NAFTA than under the DSU. 
 
 In this connection, it should be pointed out that NAFTA Chapter Twenty is derived from the 
GATT dispute settlement system and the Ur uguay Round document known as the Dunkel text. 
 
6. If, as requested by Mexico, the Panel were to  decline to exercise its jurisdiction in favour 
of NAFTA, could the Parties please comment wheth er the United States right to request a panel 
under NAFTA to examine the claims that have been  brought to this Panel may be affected by 
the United States having previously brought this same case to the WTO. 
 
 See Mexico's response to question 5.  7. Could the Parties please inform the Panel what is the present state of the dispute that Mexico has brought against the United States under NAFTA concerning the bilateral trade in sweeteners.  
 In its First Written Submission (see paras. 66 to 77), Mexico gave a detailed account of the 
development and current state of the proceedings initiated by Mexico under NAFTA Chapter Twenty.  
The representative of the United States confirmed at the Panel meeting that Mexico's request for the 
establishment of an arbitral panel remained valid and that the dispute was still pending (it was listed 
as pending on the website of the Office of the Unite d States Trade Representative until March of this 
year and, although it was removed from the list shortly before these WTO proceedings began, the 
United States has confirmed that it remains pending). 
 
 The NAFTA proceedings stalled at the stage of constituting the arbitral panel because of the United States' refusal to appoint panelists and to  agree on the appointment of a chairperson, in 
addition to the instructions given to its own Sec tion of the NAFTA Secretariat (an administrative unit 
answerable to the Department of Trade) not to do so, subsequent to Mexico's insistence.  To date, 
more than four years after Mexico requested the estab lishment of an arbitral panel – and more than six 
years after the initiation of the procedure through its request for consultations – the panel has not been 
established.  WT/DS308/R 
Page C-6  
 
  Although negotiations between the two Parties ha ve been conducted at various times since 
NAFTA came into effect, they have proved fruitless.   The Mexican sugar industry underwent a serious crisis during that period.  Concern over the 
financial situation of sugar mills and the economic a nd social effects that further deterioration might 
have entailed for the sector compelled the Federa l Government to intervene in September 2001 by 
expropriating 27 of the country's 61 sugar mills.  The expropriation process re-established a certain 
degree of financial stability, but the surpluses rema ined without finding their way into the United 
States market and represented a continuing threat to the sector.  The Mexican Congress accordingly decided to take measures to rebala nce the country's sweeteners sector. 
 
 Mexico notes that the adoption of the tax was we lcomed with enthusiasm by the United States 
industry because agreement had been reached be tween the two countries.  Unfortunately but 
predictably, such enthusiasm dropped off when the United States initiated these proceedings before 
the WTO and when three firms producing HFCS for the Mexican market brought NAFTA Chapter 
Eleven claims for damages against Mexico. 
 
8. The Panel has noted that in paragraph 2(g) of the written version of its oral statement 
dated 2 December, Mexico has stated that it "triggered the dispute settlement mechanism [in NAFTA]" ("activó el mecanismo de solución de controversias") concerning its complaint against the United States related to the bilateral trade in sweeteners.  Could the Parties please 
clarify when are dispute settlement procedures in NAFTA considered to have been triggered 
("activados"). 
 
 The NAFTA dispute settlement mechanism compri ses three stages, each stage having to reach 
completion before the next one can be initiated. 
 
 First, Article 2006 provides that any Party ma y request consultations with any other Party 
regarding any actual or proposed measure or any ot her matter that it considers might affect the 
operation of the Agreement.  Mexico formally requ ested consultations with the United States on 13 
March 1998.  The consultations took place on 15 April 1998 but failed to resolve the matter. 
 
 Second, Article 2007 provides that if the consultin g Parties fail to resolve a matter pursuant to 
Article 2006 within a specified period (45 days at mo st), any of the Parties may request in writing a 
meeting of the Free Trade Commission (FTC).  The FTC is comprised of the foreign trade ministers of the three Parties to NAFTA.  Mexico initiall y requested a meeting of the FTC on 13 November 
1998 and confirmed its request on 5 January 1999.  The FTC eventually convened on 15 November 
1999, but this too failed to settle the dispute. 
  Third, Article 2008 provides that if the FTC has convened pursuant to Article 2007(4), and 
the matter has not been resolved within a specified period, any c onsulting Party may request in 
writing the establishment of an arbitral panel.  On delivery of the request, the FTC is required to 
establish an arbitral panel, comprising five members, two of whom are appointed by each Party and 
the chairperson is selected by agreement among the Parties or chosen by lot among the members of a 
roster of panelists, which should have been drawn up  by the FTC when the tr eaty entered into force 
but has not been established to date (basically as a result of the United States' refusal).  In the absence 
of such a roster, there is no mechanism for appoint ing panelists if a Party refuses to do so.  Mexico 
formally requested the establishment of a pane l, in accordance with NAFTA Article 2008, on 17 
August 2000.  The panel has not  been constituted so far. 
  NAFTA does not regard the consultations st age under Article 2006 as part of the dispute 
proceedings, and establishes the "initiation of procedur es" as of the time of the request to the FTC.  
The consultations stage must be completed, however , before a meeting of the FTC can be requested.   WT/DS308/R 
 Page C-7 
 
 
 Thus, when Mexico said that it "triggered" ("activó") the dispute settlement procedures, it was 
referring to the initiation of the procedure through th e submission of its request for consultations on 
13 November 1998, that is, more than six years ago.  
9. The Panel notes that, in its first submission dated 1 November, Mexico did not present 
any responses as to the substance of the alleged violations of Article III of the GATT 1994 
claimed by the United States in its first submission (except by saying that any violations would be justified under Article XX(d) of the GATT ).  Could the Parties please comment what 
conclusions, if any, should the Panel draw fr om Mexico's lack of response on the claims under 
Article III.  Should the Panel consider the eviden ce on the record and, drawing the appropriate 
legal conclusions from the fact that Mexico ha s not raised any substantive defence against the 
United States' claims under Article III, undertake an examination of whether the conditions required by the different provisions of Article III are met, before making its findings? 
 
 The only conclusion that the Panel should draw from Mexico's decision not to respond on the 
United States claims under GATT Article III is that  (assuming that the Panel takes jurisdiction) 
Mexico has no objection to the Panel proceeding with consideration of its defence on the basis of the 
presumption that the measures at issue are inconsis tent with Article III of the GATT 1994.  This does 
not mean that Mexico agrees that its measures are in effect inconsistent. 
  Neither does the above mean that the Panel c ould make its findings without prior examination 
of whether the conditions required by the different pr ovisions of Article III are met.  In this regard, 
Mexico notes that the United States, as the comp laining party, bears the burden of making a prima 
facie case that these conditions are met, on the basis of  the facts of this case.  In accordance with the 
general principles of international law, the bur den of proof rests with the asserting party:  
 
"As for the burden of proof, ... we note that  it is for the party asserting a fact, claim or 
defence to bear the burden of providing proof thereof.  Once that party has put forward sufficient evidence to raise a presu mption that what is claimed is true, the 
burden of producing evidence shifts to the other party to rebut the presumption. Thus, 
in this case, including the claims under Articl es III and X, it is for the United States to 
bear the burden of proving its claims.  Once it has raised a presumption that what it 
claims is true, it is for Japan to addu ce sufficient evidence to rebut any such 
presumption."
2 
 In Turkey – Textiles , the Panel summed up the rules on burden of proof as follows: 
 
"(a) it is for the complaining party to establish the violation it alleges; 
(b) it is for the party invoking an excep tion or an affirmative defense to prove 
that the conditions contained therein are met;  and 
(c) it is for the party asserting a fact to prove it."3 
Mexico's decision not to respond on the Unite d States claims does not  release the United 
States from the obligation to prove the facts it as serts and to establish the alleged violations. 
 10. In its oral statements, the European Communities raised issues concerning the treatment accorded in Mexico to soft drinks sweetened with beet sugar.  Could Parties share 
                                                     
 
2 Japan – Film , Report of the Panel, para. 10.372. 
3 Turkey – Restrictions on Imports of Textile and Clothing Products , WT/DS34/R, Report of the Panel, 
adopted on 19 November 1999, para. 9.57. WT/DS308/R 
Page C-8  
 
 with the Panel any views they may have regarding  the treatment accorded in Mexico to soft 
drinks and syrups sweetened with products diff erent from cane sugar and High-Fructose Corn 
Syrup (HFCS), such as, for example, beet sugar and saccharine.  Would these soft drinks and syrups (those sweetened with products different from cane sugar and HFCS) be covered by the 
scope of the United States' claims? 
 
 The only soft drinks, syrups or concentrates for preparing soft drinks that are exempt from the 
IEPS are those sweetened with cane sugar.  Soft drinks sweetened with any other sweetener are 
subject to the tax.  11. Could the Parties please clarify whether, in  their opinion, a measure, as applied to a 
product, may be at the same time an "internal tax measure" for such a product within the meaning of Article III:2 of the GATT, as well as a "law or regulation affecting the use" of such product within the meaning of Article III:4. 
  Mexico understands this question as stemmi ng from the United States contention regarding 
the consistency of the measures at issue with Article III:2 and III:4 of the GATT 1994.  Mexico 
believes that the United States, as the complaining party, bears the burden of establishing that the 
measures are covered by both Article III:2 and Artic le III:4.  Mexico has already indicated that it does 
not intend to respond on the United States claims in this respect, but it wishes to emphasize that prior 
WTO findings suggest that "internal taxes or other internal charges" should be examined in the light 
of Article III:2. 
  In Argentina – Measures Affecting the Export of Bovine Hides and the Import of Finished 
Leather , the Panel considered whether the measures at  issue, in establishing a mechanism for the 
collection of certain taxes, were covered by Artic le III:2.  The Panel found that the measures imposing 
charges generated a pecuniary burden and, as such, fell within the scope of Article III:2: 
 
"We consider that RG 3431 and RG 3543 are properly viewed not as taxes in their own right, but as mechanisms for the collection of the IVA and IG.  What is special, however, about RG 3431 and RG 3543 as mechanisms for the collection of the IVA and IG is that they provide for the impositi on of charges.  We recall that Article III:2 
covers "charges of any kind " (emphasis added).  The term "charge" denotes, inter 
alia, a "pecuniary burden" and a "liability to  pay money laid on a person...".  There 
can be no doubt, in our view, that both RG 3431 and RG 3543 impose a pecuniary burden and create a liability to pay money.  Moreover, the charges provided for in RG 3431 and RG 3543 represent advance paymen ts of the IVA and IG.  RG 3431 and 
RG 3543 in effect impose on importers part of  their definitive IVA and IG liability.  It 
is clear to us, therefore, that the charges in question qualify as tax measures.  As such, 
they fall to be assessed under Article III:2."
4 
 This suggests that if the measure is a tax it should be assessed under Article III:2. 
 
12. Could the Parties please comment whether, in their opinion, the Panel could accept the 
contentions made by the United States of the issues regarding their claims under Article III of 
the GATT and at what level.  Is there any difference in the manner in which the Panel should treat facts and legal arguments in the case? 
 
 Please refer to Mexico's response to question 9. 
 
                                                     
 
4 Argentina – Measures Affecting the Export of Bovine Hides and the Import of Finished Leather , 
WT/DS155/R and Corr.1, Report of the Panel, adopted on 16 February 2001, paras. 11.143 and 11.144.  WT/DS308/R 
 Page C-9 
 
 
 13. Are any soft drinks or sweetened syrups other than those sweetened with cane sugar 
exempted from the tax?  Are soft drinks or sw eetened syrups from any particular origin 
exempted from the tax? 
 
 The only soft drinks, syrups or concentrates for preparing soft drinks that are exempt from the 
IEPS are those sweetened with cane sugar, regardless of their country of origin. 
 
14. Does the difference in the treatment between "transfers" and "importations", if there is 
such a difference, also apply to the tax imposed  by Mexico on the "agency, representation, 
brokerage, consignment and distribution" of imported soft drinks and sweetened syrups? 
 
 No.  The agency, representation, brokerage, cons ignment and distribution tax is determined in 
the same manner for both do mestic and im ported products. 
 
15. In the view of the Parties, are sweeteners, when they are used as inputs in the 
preparation of soft drinks and syrups, subject to the tax measures at issue in this case, or are 
taxes only applied to the soft drinks and syrups? 
 
 The tax applies to soft drinks, syrups or concentrates as final products, whether for direct 
consumption or for addition of only natural or mine ral water for consumption.  In other words, if the 
above-mentioned products are prepar ed with different raw materials, these will not be subject to the 
IEPS because they are not included in the scope of the law. 
 
16. In paragraph 17 of the written version of  its oral statement dated 3 December, the 
European Communities stated that "the Panel m ay take into account that at the time [the] 
Mexican measure was imposed, a certain percentage of soft drinks produced in Mexico were 
equally sweetened with HFCS, and thus affected by the higher taxation."  Could Parties please 
share with the Panel any comments they may have  on this assertion and what consequences, if 
any, should this fact have for the Panel's analysis.  
 The statement by the Europ ean Communities is broadly corr ect.  When the measure was 
imposed, both sugar and HFCS were being used as sw eeteners by the Mexican soft drinks industry.  
The decision by the Mexican Congress to impose the IEPS was prompted by the fact that HFCS was 
displacing Mexican sugar away from the soft drinks  market segment while Mexico was impeded, as a 
result of the actions and omissions of the United St ates, from exporting its surplus sugar to the United 
States.  The issue raised by the Eu ropean Communities to which the Pane l refers is therefore relevant 
to the Panel's analysis of the underlying purpose of Mexico's measures. 
 
17. China expressed in its oral statement of 3 December that "when the tax law says that it 
is applicable to a product… the scope of taxati on will not extend to the components of the taxed 
product."  Do Parties have any comment on this assertion? 
 
 Please refer to the response to question 15. 
 
18. Could the Parties please inform the Panel whether they agree that imported soft drinks 
and sweetened syrups are "alike" to Mexican do mestic soft drinks and sweetened syrups.  Do 
the Parties consider that imported soft drinks and sweetened syrups are "directly competitive 
or substitutable" with Mexican domestic soft drinks and sweetened syrups. 
 
 Mexico repeats that it has not taken any position on the issues whether imported soft drinks and sweetened syrups are "like" Mexican domestic so ft drinks and sweetened syrups, or imported soft 
drinks and sweetened syrups are "directly comp etitive or substitutable " products in respect of 
Mexican soft drinks and sweetened syrups.  As Mexi co states in its response to question 41, it has no WT/DS308/R 
Page C-10  
 
 objection to the Panel proceeding on the basis of the presumption that the measures at issue are 
inconsistent with Article III of the GATT 1994.    However, Mexico recalls that it is for the United States, as the complaining party in this 
dispute, to adduce sufficient eviden ce to raise the presumption that each of its claims is true, including 
its claims that imported soft drinks and sweeten ed syrups are "like" domestic soft drinks and 
sweetened syrups and imported soft drinks and sweetened syrups are "directly competitive or 
substitutable" products in respect of Mexi can soft drinks and sweetened syrups. 
 
19. Could the Parties please also inform th e Panel whether they agree that High-Fructose 
Corn Syrup (HFCS) is "alike" to cane sugar, for the purpose of Article III:4.  
 Mexico repeats that it has taken no stand on the question whether HFCS is "like" cane sugar for the purposes of Article III:4.  As Mexico argue d at paragraph 112 of its  First Written Submission, 
HFCS and cane sugar are substitutabl e products in certain applications. 
 
 Moreover, Mexico emphasizes that in order to  establish a violation of Article III:4, three 
elements have to be shown, i.e.,. that the importe d and domestic products at issue are "like products";  
that the measure at issue is a "law, regulation or re quirement affecting their internal sale, offering for 
sale, purchase, transportation, distribution or u se";  and that the imported products are afforded 
treatment no less favourable than that accord ed to like products of national origin. 
 
 As the complaining party in this dispute, it is  for the United States to show each one of those 
elements.  This means that the United States must come forward with suffici ent evidence to raise a 
presumption, including that HFCS is "like"  cane sugar for the purposes of Article III:4. 
 20. China expressed in its oral statement of 3 December its opinion that the question of "whether the conclusion that cane sugar and HFCS are 'like products' under Article III:4 [cannot] be exclusively established by referring to  the analysis on 'directly competitive and 
substitutable product' in the meaning of Article III:2 second sentence."  Do Parties have any comment on this assertion? 
  Mexico has no particular comments to make on China's assertion.  It would merely recall that 
in Japan – Taxes on Alcoholic Beverages , the Appellate Body explained the possible differences in 
the "likeness" of products, depending on the provisions in  question.  In order to show that the meaning 
of the term "like products" varies according to different provisions of the WTO Agreements, the 
Appellate Body evoked the image of an accordion: 
 
"No one approach to exercising judgemen t will be appropriate for all cases.  The 
criteria in Border Tax Adjustments  should be examined, but there can be no one 
precise and absolute definition of what is "like".  The concept of "likeness" is a 
relative one that evokes the image of an accordion.  The accordion of "likeness" 
stretches and squeezes in different places as different provisions of the WTO 
Agreement  are applied.  The width of the accord ion in any one of those places must 
be determined by the particular provision in  which the term "like" is encountered as 
well as by the context and the circumstances that prevail in any given case to which that provision may apply.  We believe th at, in Article III:2, first sentence of the 
GATT 1994, the accordion of "likeness" is meant to be narrowly squeezed."
5 
 The Appellate Body also found that "direc tly competitive or substitutable" is a broader 
category and that "[h]ow much broader that category of "directly competitive or substitutable 
                                                      
5 WT/DS8, DS10 & DS11, Report of the Appellate Body, adopted on 1 November 1996, p. 21.  WT/DS308/R 
 Page C-11 
 
 
 products" may be in any given case is a matter for the panel to determine based on all the relevant 
facts in that case".6 
 
21. If the tax measures imposed by Mexico have any effect on High-Fructose Corn Syrup 
(HFCS), in the view of the Parties, should they be more properly examined in this regard – with 
respect to their effect on HFCS – under Article III:2 or under Article III:4 of the GATT 1994?  
 Mexico's position is that the Panel should dec line jurisdiction and refer consideration of the 
merits of the United States claims under Article III:2 and III:4 of the GATT 1994 to a NAFTA arbitral 
panel.  Mexico stresses that NAFTA Article 301 expressly incorporates Article III of the GATT 1994.  
Should the Panel reject Mexico's request for a prelim inary ruling, Mexico considers that the burden of 
proving that the measures at issue apply to and have an effect on HFCS rests with the United States as 
the complaining party.  Furthermore, since th e United States has raised both Article III:2 and 
Article III:4 in respect of the effects on HFCS of th e measures at issue, it is for the United States to 
make a prima facie case that meets all the criteria in both provisions, based on the facts of this case. 
 
22. Could the Parties please comment whether,  in their opinion, the bookkeeping and 
reporting requirements identified by the United St ates inter alia in paragraph 4.(2) of its first 
submission should be considered as separate measures from the tax on soft drinks and the 
distribution tax.  In the opinion of the Parties,  should the Panel make a separate determination 
on the consistency of those bookkeeping and reporting requirements with the provisions of the 
GATT 1994, even if it found that the tax on  soft drinks and the distribution tax were 
inconsistent with the GATT 1994? 
 
 The bookkeeping requirements are laid down in the Reglamento de la Ley del Impuesto 
Especial sobre Producción y Servicios (Regulations of the Law on the Special Tax on Products and 
Services) published on 15 May 1990, the Resolución Miscelánea Fiscal Para 2003 (Miscellaneous 
Tax Decision For 2003, Title 6) published on 31 March 2003, and the Miscelánea Fiscal Para 2004 
(Miscellaneous Tax Decision For 2004, Title 6) published on 30 April 2004.  These instruments are 
regulations of the Law on the IEPS and relate to th e administration of various aspects of the IEPS.  
  As such, they are elements of the same measure and are inseparably linked to it.  
 
23. Could the Parties please comment whether,  in their opinion, the bookkeeping and 
reporting requirements identified by the United St ates, inter alia in paragraph 4.(2) of its first 
submission, should be considered as internal measures which affect the internal use of High-Fructose Corn Syrup (HFCS). 
  Please refer to the response to question 22. 
 
24. In paragraph 6 of the written version of its oral statement dated 3 December, 
Guatemala stated that "the Panel should respond to Mexico's request and consider, in its deliberations, the importance that the sugar activi ty has in Mexico and the implications for the 
country of the reforms undertaken in this sector ".  Could Parties share any views they may 
have regarding Guatemala's statement and, particularly, in what manner, if any, should the Panel consider it in its deliberations th e factors highlighted by Guatemala. 
 
 The Panel should consider the factors highli ghted by Guatemala in considering Mexico's 
defence under Article XX(d) of the GATT 1994.  These are relevant factors for the interpretation and 
application of Article XX in the circumstances of this  dispute.  For example, given the importance of 
the Mexican sugar industry, the Panel, in weighing  up and assessing whether the measures at issue are 
                                                     
 
6 Id., p. 25. WT/DS308/R 
Page C-12  
 
 "necessary" within the meaning of Article XX(d), s hould consider that implementation of the United 
States NAFTA market access commitments regarding sugar is a vital interest of Mexico.  To paraphrase the words of the Appellate Body in Korea – Various Measures on Beef , the more vital or 
important those common interests or values are,  the easier it will be to accept as "necessary" a 
measure designed as an enforcement instrument.
7  The measures are also relevant in light of Mexico's 
status as a developing country. 
 
25. Could the Parties please confirm whether they consider that Article XX(d) of the GATT 
1994 would justify measures adopted by on e Member which are "necessary to secure 
compliance" by another Member with internationa l obligations arising from a treaty which is 
not part of the WTO "covered agreements".  Are there any WTO or GATT precedents which 
could be relevant for this question? 
 
 Mexico considers that, in the circumstances of  this case, the Mexican measures are justifiable 
under Article XX(d) as "necessary to secure compliance" by another Member with its international 
obligations arising from a treaty which is not part  of the WTO "covered agreements".  As far as 
Mexico is aware, there are no WTO or GATT preceden ts for this question.  Mexico also underscores 
that there are no prior WTO or GATT findings that exclude such an interpretation.  However, as 
discussed in the response to question 26, Article XX should be interpreted in an organic manner, in 
keeping with developments on the international playing field.  
 As regards the United States position that, although a "law", NAFTA is not part of the "laws" 
of the kind contemplated in Article XX(d), Mexico notes that this finds no basis either in the text of the Article itself or the covered agreements, or in the negotiating history or case law.  Article 38 of the 
Statute of the International Court of Justice in cludes among the sources of international law "(a) 
international conventions, whethe r general or particular, establishing rules expressly recognized by 
the contesting states".
8 
  The United States routinely labels its papers and arguments in the NAFTA context as "legal 
submissions".  To illustrate this point, Mexico re fers the Panel to the United States NAFTA Chapter 
Eleven argumentation in The Loewen Group, Inc. and Raymond L. Loewen  v. United States of 
America .  A few extracts from the U.S. Counter-Memoria l show that the United States refers to its 
"legal argument"
9;  submits that, "as a legal matter", the claimants in this case did not attempt to meet 
"the requisite elements of th e national treatment standard"10;  and agrees that an Article invoked by 
the claimants stipulates a "standard of treatment est ablished by customary international law" and that 
a certain phraseology in respect of this standard ha s been incorporated by the United States "into its 
various bilateral investment treaties"11.  There is no doubt whatsoever that NAFTA, as an 
international treaty that is to be interpreted in accordance with the rules of  customary international 
law, is a law.12 
  As regards prior WTO or GATT findings, Mexico  is of the view that Article XX should be 
interpreted in conformity with the rules of customary international law, having regard to 
developments on the international legal scene sin ce the negotiation of Article XX in 1947.  In 
particular, the community of States is more concerned today about the protection of trade interests 
than it was when the GATT was negotiated.  A review  of Article XX exceptions shows that only three 
                                                     
 
7 WT/DS169/AB/R, Report of the Appellate Body, adopted on 10 January 2001, paras. 161-163. 
8 Article 38(1) of the Statute of the International Court of Justice. 
9 Exhibit MEX-32. Extracts from the Counter-Memorial of the United States of America in The 
Loewen Group, Inc. and Raymond L. Loewen v. The United States of America, footnote 1. 
10 Id., p. 118. 
11 Id., p. 172. 
12 See NAFTA Article 102:2.  WT/DS308/R 
 Page C-13 
 
 
 expressly or implicitly concern an activity that could arise within the territory of the Member seeking 
to justify its measures.13  There is nothing in the other exceptions to suggest territorial delimitation of 
their application, and it can be assumed that the GATT negotiators foresaw that Article XX would be able to respond to developments on the international scene.  
 A good example of such developments is the US – Shrimp case, in which the United States 
was able to justify measures inconsistent with Ar ticle XI of the GATT 1994 on the grounds that they 
were measures "necessary to project animal life or health" and "relating to the conservation of exhaustible natural resources if such measures are ma de effective in conjunction with restrictions on 
domestic production or consumption".  Nothing in th e wording of the relevant Article XX exceptions 
establishes territorial delimitation, and the United St ates considered that it was entitled to adopt trade 
restrictions with regard to activities carried out in the territorial waters or exclusive economic zones of 
other Members.
14 
  If subparagraphs (b) and (g) can involve m easures by other States or activities conducted 
outside the territory of the Member that invokes Ar ticle XX, then the same logic obviously applies to 
subparagraph (d), which can be interpreted along similar lines. 
  US – Shrimp illustrates another point already raised by Mexico in its First Written 
Submission, namely the Appellate Body's readiness to permit the United States to justify a measure 
under GATT Article XX without this requiring the conclusion of an international agreement on 
fisheries resources.  Specifically, the Appellate Body stated: 
 
"Under the chapeau of Article XX, an im porting Member may not treat its trading 
partners in a manner that would constitute 'arbitrary or unjustifiable discrimination'.  
With respect to this measure, the Unite d States could conceivably respect this 
obligation, and the conclusion of an inte rnational agreement might nevertheless not 
be possible despite the serious, good  faith efforts of the United States .  Requiring that 
a multilateral agreement be  concluded  by the United States in order to avoid 
'arbitrary or unjustifiable discrimination' in  applying  its measure would mean that 
any country party to the negotiations with  the United States, whether a WTO Member 
or not, would have, in effect, a veto over whether the United States could fulfill its 
WTO obligations .  Such a requirement would not be reasonable.  For a variety of 
reasons, it may be possible to conclude an agreement with one group of countries but 
not another.  The conclusion of a multilat eral agreement requires the cooperation and 
commitment of many countries.  In  our view, the United States cannot be held to 
have engaged in 'arbitrary or unjustifiabl e discrimination' under Article XX solely 
because one international negotiation resu lted in an agreement while another did 
not."15. [Emphasis added.] 
 The Appellate Body was not prepared to pr event a Member from adopting measures that 
would otherwise have been contrary to the GATT, on the grounds that the bona fide  efforts by that 
Member to negotiate an internati onal agreement had proved fruitless. 
 
 The same principles should apply with regard to Article XX(d).  Mexico has provided ample 
evidence of its bona fide efforts, throughout the relevant period, to resolve the dispute before being 
compelled to adopt the measures now being complained of.  (In this connection,  Mexico notes that the 
United States has formally acknowledged that it has "a dispute with Mexico over the precise terms of 
                                                      
13 I.e., subparas. (c), (g,) and (i). 
14 Not only in the Shrimp case but also in US – Tuna  the United States considered that Article XX 
entitled it to respond under that Article to actions by other States relating to its natural resources. 
15 US – Shrimp (Article 21.5 – Malaysia) , para. 123. WT/DS308/R 
Page C-14  
 
 those NAFTA obligations"
16, although it was quick to add that, in its view, it has been "acting in full 
conformity with our obligations regarding sugar under the NAFTA"). 
  The United States' consistent thwarting of Mexico 's efforts to constitute an arbitral panel to 
decide whether the United States has met its intern ational obligations under NAFTA contradicts the 
firmness with which the latter assertion was made.  A State which affirms that it fully complies with 
its obligations under a given treaty has nothing to fear  from submitting to the jurisdiction of an arbitral 
panel.  
26. Do Parties consider that the manner in wh ich the US – Shrimp case was resolved in the 
WTO, and particularly the manner in which e fforts at international cooperation were taken 
into account in the analysis of the defence under Article XX of the GATT, is relevant for the 
present case? 
 
 Mexico considers that the manner in which US – Shrimp was resolved in the WTO is highly 
relevant for the present case.  In its response to qu estion 25, Mexico gave its views on the relevance of 
two matters at issue in US – Shrimp which this Panel should address. 
  The US – Shrimp  case also provides an example of the Appellate Body's evolutionary 
interpretation of WTO law in considering rules of in ternational law which lie outside the ambit of the 
WTO.  For instance, the Appellate Body interprete d the chapeau of Article XX, "seeking additional  
interpretative guidance, as appropriate, from the general principles of international law ", particularly 
the principle of good faith and the doctrine of abus de droit.
17  [Emphasis added.]  It also found that 
the term "exhaustible natural resources" in Article XX(d) "must be read by a treaty interpreter in the 
light of contemporary concerns of the community of  nations about the protection and conservation of 
the environment [not as it was understood in 1947]".18  To Mexico's mind, that same reasoning applies 
in the case of Article XX(d).  Given the importance of international law and treaty compliance in 
present-day international relations, a restri ctive interpretation should be dismissed. 
 
 Comments on questions for the United States 
 
 Mexico reserves the right to comment in its second written submission on the responses by 
the United States.  Nevertheless, it respectfu lly submits the following preliminary remarks. 
  Mexico would be interested to see and exam ine the United States response to question 32.  
Mexico wishes to emphasize that, notwithstanding the apparent simplicity of the United States claim, 
it believes that the United States intends to remain in  breach of its international obligations and once 
again to disrupt the balance in bilateral trade in sweeteners achieved through application of the IEPS. 
  Mexico would be interested to see the respon se of the United States to question 33.  In the 
NAFTA Chapter Twenty case, Mexico has so far:  
• held informal consultations with the United States; 
 
• held formal Article 2006 consultations with the United States; 
 
• twice requested meetings of the Free Trade Commission with a view to reaching 
agreement under Article 2007; 
 
                                                     
 
16 Closing statement of the United States at the first substantive meeting, para. 9. 
17 Report of the Appellate Body, WT/DS58, adopted on 6 November 1998, para. 158. 
18 Id., para. 130.  WT/DS308/R 
 Page C-15 
 
 
 • requested the establishment of an arbitral pa nel and has sought to appoint panelists to 
that end; 
 
• given the United States' refusal, attempted to have the U.S. Section of the NAFTA 
Secretariat nominate the panelists who had not been appointed; 
 
• after the United States stalled the pro cedure, held numerous consultations and 
negotiations with U.S. officials with a view to resolving the problem;  and 
 
• urged industries in both countries to negotiate an agreement that could serve as a basis 
for an accord between the two governments. 
  In the meantime, as HFCS continued to disp lace sugar in the Mexican market, the United 
States allowed only small quantities of Mexican sugar to enter its own market.  The only options for 
Mexico's sugar mills – at a time when pressure  from sugar surpluses (largely generated by 
competition with HFCS) exacerbated the serious economic  crisis affecting the sector – were either to 
undergo vast losses by disposing of surplus production in the global market at extremely low prices 
compared to those in the United States and Mexican ma rkets, or to place the sugar in storage and bear 
the high costs and the price pressures that might ensu e.  As regards the latter option, Mexico points 
out that the Government inter alia  subsidized the storage of 600,000  tonnes of sugar.  Meanwhile, the 
United States is seeking to maximize the economic benefits – by restricting access for Mexican sugar 
to its market and attempting to disrupt the bala nce achieved through the IEPS – for its own sugar, 
HFCS and maize industries, so that the Mexican ma rket alone would suffer the effects, regardless of 
the potential economic and social consequences.  Pene tration of HFCS in the Mexican market resulted 
solely from NAFTA, just as Mexico's rights to acce ss the United States sugar market arise only from 
NAFTA.  The United States' refusal to honour its in ternational commitments entitles Mexico to take 
measures to restore the status quo ante . 
 
FOR MEXICO:
 
 
34. Mexico has stated in paragraph 94 of its first submission that "this Panel has certain 
implied jurisdictional powers that derive from its nature as an adjudicative body".  This 
implied or incidental jurisdiction would include the power to decide whether it should refrain from exercising substantive jurisdiction that ha s been validly established.  At the same time, 
Mexico seems to recognize that the United Stat es has the right to bring this case to the WTO 
dispute settlement system.  Could Mexico please confirm whether it indeed believes the United 
States has this right. 
 
 Mexico does not dispute the fact that the Un ited States is entitled to recourse under the WTO 
dispute settlement mechanism and may request the esta blishment of a panel.  Nonetheless, the right of 
a WTO Member to resort to WT O dispute settlement does not preclude another WTO Member from 
requesting the Panel to decline jurisdiction.  Me xico's request is perfectly legitimate in the 
extraordinary circumstances of this case, especially in  view of the existence of a forum that is in a 
better position to address the whole of the dispute between the two countries.   Furthermore, the right of the United States to bring this case before the WTO is not absolute.  
Any panel clearly has discretion to refrain from exercising substantive jurisdiction in certain 
circumstances.  Mexico refers to such powers at pa ragraphs 30 to 36 of its oral statement at the first 
substantive meeting with the Panel.  It also does so  in its response to question 35, in connection with 
its responses to questions 1 and 2.  WT/DS308/R 
Page C-16  
 
 35. Could Mexico please clarify, in its opin ion, what would be the legal base for these 
specific jurisdictional powers and for the discretion that the Panel may have under those powers to abstain from exercising its jurisdiction.  Coul d Mexico please clarify what bearing, if any, 
would Articles 7 and 11 of the WTO Dispute Se ttlement Understanding have on its reply.  
Would Mexico's request affect in any way the t erms of reference for this Panel approved by the 
WTO's Dispute Settlement Body on 6 July 2004?  
 Mexico has already explained the legal base for its request for a preliminary ruling in 
paragraphs 30 to 36 of its oral statement at th e first substantive meeting and in its responses to 
questions 1 and 2.  Mexico believes that the implied or incidental jurisdiction mentioned earlier is also 
inherent in the terms of reference of panels, whic h are international tribunals within the meaning of 
international law.   Articles 7 and 11 of the DSU laying down the terms of reference and function of WTO panels 
do not prevent panels from exercising such implie d or incidental powers to decline substantive 
jurisdiction in certain circumstances, in particul ar the extraordinary circumstances of this case. 
  As regards Article 7, Mexico does not argue that the Panel has jurisdiction to decide the claim 
brought by the United States.  Mexico's request for a preliminary ruling lies at a different level.  Only 
once substantive jurisdiction has va lidly been established does a panel have implied discretion, as 
does any other international tribunal, to refrain from taking jurisdiction in certain circumstances.  
Article 7 of the DSU does not specifically address the matter. 
 
 Article 11 of the DSU requires panels to assi st the DSB in discharging its responsibilities 
under the DSU and the covered agreements.  It also  provides that a panel should " make an objective 
assessment of the matter before it, including an obj ective assessment of the facts " and "make such 
other findings" as may be appropriate.  The Appe llate Body used the phrase "make such other 
findings" as the basis for confirming that panels may exercise judicial economy – a legal principle 
applied by international tribunals that is not  expressly referred to in the WTO Agreements.
19  I n  
Mexico's view, this phrase also confirms the right  of panels to abstain from exercising validly 
established jurisdiction in certain circumstances, su ch as those of this case, once they have made "an 
objective assessment of the matter" and have found th at it would be possible and more constructive in 
the interests of securing a fairer and more positiv e solution for the case to be heard by another 
international tribunal with jurisdicti on over all of the claims at issue. 
  Mexico believes that its request does not in an y way affect this Panel's terms of reference, 
because, in considering Mexico's request, the Pa nel would be assessing the matter submitted to the 
DSB by the United States and, in issuing the pre liminary ruling requested by Mexico, the Panel would 
be making "such other findings" as would assist the DSB in discharging its responsibilities..   Lastly, Mexico notes that the United States has failed to identify any other provision or cite 
any other legal source in rebuttal to Mexico's argume nt that the Panel indeed has implied discretion to 
decline jurisdiction. 
 
36. Mexico has referred in its first submission and in its oral statement to its preoccupation 
that findings made by this Panel could eventually h ave an effect on claims that in other fora are 
being brought against the Mexican state.  Could Me xico please clarify what are these claims in 
other fora?  In what manner does Mexico believe  that the findings made by this Panel could 
eventually have an effect on those claims.  
                                                     
 
19 See US – Wool Shirts and Blouses , pp. 17-19.  WT/DS308/R 
 Page C-17 
 
 
  As stated in its First Written Submission,  Mexico is presently facing three NAFTA 
Chapter Eleven claims for monetary damag es, involving four separate claimants, i.e, Corn Products 
International, Inc . (CPI), Archer Daniels Midland Co.  (ADM) , A.E. Staley Manufacturing Co.  
(Staley) and Cargill , all of which are producers of HFCS.  With the exception of Cargill , each of 
these producers has submitted its claim to arbitration;  Cargill  has notified its intention to do so but 
has not yet been able to formally file its claim for procedural reasons.  All the claimants argue that the 
IEPS – i.e. the very same measure that is being considered by this Panel – violates Mexico's 
obligations in respect of United States inv estors under the NAFTA chapter on investment. 
  The request for arbitration filed by CPI is re presentative of all these claims, in that it argues 
that the IEPS violates Articles 1102 (National Tr eatment), 1106 (Performance Requirements), and 
1110 (Expropriation and Compensation).   Mexico would like to provide the Panel with specific information regarding these claims and 
the manner in which they could be affected by these WTO proceedings.  As the Panel will see, 
Mexico cannot jeopardize its litigating position thro ugh speculation about the various ways in which 
the WTO proceedings could interact with Chapter Eleven proceedings and influence the tribunals 
concerned.  Evidently, the claima nts in these cases would use any finding that this Panel might make 
in connection with a violation of Article III as ev idence that Mexico denied national treatment in 
breach of NAFTA Article 301 (since it incorporates GATT Article III) and would probably argue that Mexico also denied national treatment to Unite d States investors producing HFCS for sale in the 
Mexican market.  Mexico will have a great deal to  say about the interacti on between Articles 301 and 
1102.  However, should this Panel find a violati on of Article III that is not justifiable under 
Article XX, the claimants will clearly demand that th e Chapter Eleven tribunals base their findings on 
those made by the Panel.  
 For prudential reasons, Mexico will not go into  further detail on these cases but would draw 
the Panel's attention to a recent instance in which it w as insisted before a Chapte r Eleven tribunal that 
a WTO ruling makes a prima facie case of breach of  one or more obligations under this chapter of 
NAFTA.  In Canfor Corporation  v. United States of America, the claimant argues inter alia  that the 
United States, in refusing to implement the DS B decision in the well-known Byrd Amendment case 
(formally entitled United States – Continued Dumping and Subsidy Offset Act of 2000 ), has breached 
NAFTA Chapter Eleven.
20 
 
37. The Panel has noted that in paragraph 38 of  the written version of its oral statement, 
Mexico has stated that the WTO case on Argentina – Poultry differs from the present case in several important aspects and that it may not be  used as a precedent.  Could Mexico please 
explain, in its opinion, in what ways do the two cases differ and why should the Argentina – 
Poultry case not be relevant as a precedent. 
 
 Mexico agrees that Argentina – Poultry differs from this case in several major respects and is 
therefore not a relevant precedent.  First, the measure before the WTO Panel in Argentina – Poultry 
had previously been the subject of a dispute unde r MERCOSUR.  In this case, the situation does not 
involve two successive claims in two separate foru ms in respect of the same measure adopted by a 
WTO Member against another WTO Member.  The key difference in this case is that a WTO Member (Mexico) is seeking to secure compliance with a re gional free trade agreement (NAFTA), because the 
regional trade treaty's dispute settlement mechan ism has proved ineffective as a result of the 
intransigence of another WTO Member (United States). 
 
                                                     
 
20 The United States challenged the jurisdiction of this tribunal and a hearing on jurisdiction was held 
from 7 to 9 December 2004.  The documents and transcripts are available on the U.S. Department of State 
website at:  http://www.state.gov/s/l/c7424.htm . WT/DS308/R 
Page C-18  
 
  Second, as far as Mexico is aware, the measures at issue in Argentina – Poultry were not 
adopted in response to actions or om issions of the complaining party in a regional trade context.  This 
is a crucial distinctive factor:  In Argentina – Poultry , the claims before the WTO were not brought in 
the framework of a broader dispute on matters lyi ng beyond the scope of the WTO.  In other words, 
the disagreement between the parties did not stem from rules of international law that cannot be 
judicially enforced in the WTO. 
  To Mexico's knowledge, no WTO panel or Appellate Body has ev er addressed a situation in 
which a WTO Member brought a claim before a WTO panel concerning a measure adopted by another Member, without the panel having jurisdic tion to consider the counterclaim for breach of 
another international agreement.  The extraordin ary circumstances of this case were not present in 
Argentina – Poultry . 
 
38. The Panel has noted that in paragraph 35 of  the written version of its oral statement, 
Mexico has stated that it does not simply ask for the Panel to decline its jurisdiction, but that it 
decline its jurisdiction in favour of NAFTA?  Could Mexico comment in what manner could the 
Panel decline its jurisdiction in favour of NAFTA.  What would be, in practical terms, the significance of that action, if taken by the Panel? 
 
 The purpose of the statement in paragraph 35 w as to specify that – unlike the action taken by 
the United States – Mexico's request for a preliminary ruling is not aimed at evading the dispute 
settlement system.  On the contrary, Mexico is seek ing to ensure that all the claims, including those 
before this Panel, are resolved in the appropriate  forum.  Mexico submits that the NAFTA Chapter 
Twenty dispute settlement mechanism is the only av ailable forum that is appropriate to hear the 
claims of both parties in the light of all the facts and relevant rights and obligations. 
 
 Mexico considers that the Panel could declin e jurisdiction in favour of NAFTA simply by 
deciding in favour of Mexico's request for a preliminary ruling.  With such a decision, NAFTA would inevitably become the only appropriate forum for addr essing the claims of both parties.  However, the 
Panel could include in its findings the recommendation that the parties take steps to settle the dispute 
on trade in sweeteners under NAFTA.  
 In practice, the United States would not suffer an y prejudice, since the claims of violation of 
Article III of the GATT 1994 would be heard as clai ms of violation of NAFTA Article 301, while 
Mexico could submit its own claim of breach of NAFTA provisions.  
39. The Panel notes that in paragraph 105 of it s first submission, Mexico has indicated that 
"the Panel, in the course of its deliberations, [sho uld] give the fullest weight to Mexico's status 
as a developing country".  The Panel has also no ted that in paragraph 10 of the written version 
of its oral statement, Mexico has stated that "t he Panel must consider [Mexico's] condition as a 
developing country".  Could Mexico please clarify in what manner should the Panel consider Mexico's condition as a developing country in  its consideration of the case.  Does Mexico 
furthermore consider that there are any "special and differential treatment" provisions in the 
WTO agreements which are relevant to the present case and which should be taken into account 
by the Panel? 
 
 The relevant provisions of the WTO Agreemen ts are designed to afford the developing 
countries more favourable treatment and specify  the parameters necessary for their economic 
advancement.  These are summed up at paragraphs 106 to 108 of Mexico's First Written Submission.  
Mexico considers that these provisions establish broa der and more flexible parameters so that the 
developing countries can adopt measures to prevent or  address social crises.  Mexico submits that the 
actions taken to rebalance the situ ation of trade in sweeteners with the United States are consistent 
with the principles and objectives in the WTO provisi ons relating to special and differential treatment  WT/DS308/R 
 Page C-19 
 
 
 for the developing countries.  Mexico points out, moreover, that lifting the measures at issue would 
adversely affect the lives of millions of Mexicans and to that extent would be inconsistent with the 
objectives and principles of the WTO Agreements.  
40. The Panel has noted that in paragraph 96 of its first submission, Mexico stated that "if 
the Panel does take jurisdiction, Mexico intends ... to defend its actions in WTO terms".  Could 
Mexico please elaborate on this assertion and ad vance, for the Panel's benefit, information on 
how would it defend its actions in WTO terms. 
 
 Mexico considers it inappropriate to discuss the measures at issue solely in GATT terms, 
since the underlying or predominant elements of this dispute derive  from rules of international law 
that cannot be judicially enforced in the WTO.  As  Mexico has already explai ned, the United States 
claims cannot be divorced from the broader context of  the NAFTA dispute between the parties.  This 
is why Mexico has raised a preliminary objection th at the Panel has jurisdiction over only part of the 
dispute, namely that part which the United Stat es considers might be to its advantage to present. 
 
 Nevertheless, should the Panel decide to take jurisdiction, Mexico's defence is based on 
Article XX(d) of the GATT 1994.  The statement by  Mexico to which the Panel refers was merely 
intended to advise the Panel that, as an alternative de fence, the measure being challenged is justifiable 
in WTO terms, that is, under Article XX(d) of the GATT 1994. 
 
 Mexico's arguments in this respect are contai ned in paragraphs 115 to 138 of Mexico's First 
Written Submission.  Mexico reserves the right to expand on these arguments in its second written 
submission. 
 
41. Can Mexico explain if, in its view, the tax measures challenged by the United States are 
consistent with Article III of the GATT. 
 
 As Mexico explained in its response to ques tions from the Panel at the first substantive 
meeting, Mexico has decided not to respond to the United States claims that the measures at issue are 
inconsistent with GATT Article III.  Therefore, Mexi co has no objection to the Panel proceeding with 
consideration of its defence on the basis of a pr esumption that the measures being challenged are 
inconsistent with Article III of the GATT 1994, without prejudice to Mexico's response to question 9. 
 
42. Could Mexico provide figures on the Mexican market of sweeteners for the production of soft drinks and sweetened syrups for the most  recent ten years of available information.  In 
particular, could Mexico provide information on :  (a) yearly Mexican production of High-
Fructose Corn Syrup (HFCS), of cane sugar and of  other sweeteners, in value and kilograms;  
(b)  yearly Mexican consumption of HFCS, of ca ne sugar and of other sweeteners, in value and 
kilograms, by the Mexican producers of soft drin ks and sweetened syrups;  (c) yearly Mexican 
exports, if any, of HFCS, of cane sugar and of other sweeteners Could Mexico please provide 
figures on the Mexican market for soft drinks and on the Mexican market for sweetened syrups;  
and, (d) yearly Mexican imports (by origin), if any, of HFCS, of cane sugar and of other 
sweeteners for the production of soft drinks and sweetened syrups.  
 Please refer to Exhibit MEX – 33 for Mexico's responses to questions 42(a) and (b).   Please refer to Exhibit MEX – 34 for Mexico's response to question 42(c). 
 
 Mexico is trying to obtain the data requested in question 42(d).  WT/DS308/R 
Page C-20  
 
 43. Could Mexico identify the main producers of soft drinks and sweetened syrups in the 
Mexican market.  Could it also clarify whether,  for each producer, the products are sweetened 
with High-Fructose Corn Syrup (HFCS), cane sugar or other sweeteners. 
 
 Mexico is trying to put this information together .  It has not yet been able to do so, largely 
because of the holiday period. 
 
44. Could Mexico provide figures on the import s of soft drinks and sweetened syrups into 
Mexico and indicate which of those soft drinks and sweetened syrups are sweetened with High-
Fructose Corn Syrup (HFCS), which are sweetene d with cane sugar, and which are sweetened 
with other sweeteners.  
 Since all soft drinks are imported under the same  tariff heading, there are no figures available 
to distinguish between imported soft drinks swee tened with cane sugar a nd imported soft drinks 
sweetened with HFCS. 
 
45. Could Mexico please clarify whether the ex pression "transfers" ("enajenaciones") used 
in Article 8.I. of the Law on the Special T ax on Production and Services (Ley del Impuesto 
Especial sobre Producción y Servicios), includes the importation of goods.  Are all imported soft drinks and sweetened syrups covered by the tax?  
 The term " enajenación " does not include importation, because the Law is divided into 
Chapters, one of which deals with tr ansfer and another with importation. 
  Under the Law as it stands, all imported soft drinks, syrups and concentrates for preparing soft drinks are subject to taxation, regardless of  whether or not they are sweetened only with cane 
sugar. 
  However, as of 1 January 2005, imported soft drinks, syrups and concentrates for preparing 
soft drinks will be exempt from payment of the IEPS, as long as they are sweetened only with cane sugar.  46. Does Mexico agree that, under the Law on the Special Tax on Production and Services (Ley del Impuesto Especial sobre Producción y Se rvicios), all soft drinks and sweetened syrups 
are subject to the payment of taxes, but domestic transfers of soft drinks and syrups sweetened with cane sugar are exempted?  
 Mexico does not agree, because transfers of soft  drinks, syrups or concentrates for preparing 
soft drinks of Mexican origin are afforded the sa me treatment as domestic transfers of imported soft 
drinks syrups or concentrates for preparing soft drinks.   The Law on the IEPS makes no distinction in respect of the origin of the product (imported or domestic) when it comes to determining whether transfer  within the national territory is subject to or 
exempt from the tax.  The criterion for determini ng whether a soft drink, syrup or concentrate for 
preparing a soft drink is subject to or exempt from th e tax at the time of transfer is whether or not the 
product is sweetened only with cane sugar.  
47. If the answer to the question in the p receding paragraph is "yes", would the Panel be 
correct in its understanding that the exemption under Article 8.I.(f) of the Law on the Special 
Tax on Production and Services only applies to th e transfer of domestic soft drinks and syrups 
sweetened with "cane sugar" and that it does no t apply to imported soft drinks and syrups, 
regardless of the sweetener used (including cane  sugar)?  Conversely, if the answer to the 
question in the preceding paragraph is "no", co uld Mexico please provide the legal basis for  WT/DS308/R 
 Page C-21 
 
 
 including importations within the term "tra nsfers" and information on documented cases 
where importations have been granted the exemption contained in Article 8.I.? 
 
 The provision in subparagraph (g) of the Law on the IEPS regulates only the exemption concerning the transfer of soft drinks, syrups and concentrates.  It does not cover the importation of 
such products, which is not part of the Chapter in question. 
  The Law on the IEPS does not provide any exceptional treatment for imports of XXX sweetened only with cane sugar.  
 The exception provision concerning importation of soft drinks, syrups or concentrates for 
preparing soft drinks sweetened only with cane sugar will come into effect on 1 January 1995. 
 
48. Could Mexico please explain the practi cal manner in which the Special Tax on 
Production and Services (Impuesto Especial so bre Producción y Servicios) is imposed on 
transfers (including the importation) of soft dr inks and sweetened syrups.  Are all transfers 
subject to the tax?  Which transfers, if any, are exempted?  Who pays the tax at each transfer?  
Are there any rebates, refunds or tax credits provided for persons who pay the tax? 
 
 The IEPS is incurred in respect of all transf ers or imports of soft drinks, syrups and 
concentrates for preparing soft drinks.  The only excep tion in the current Law concerns the transfer of 
soft drinks, syrups and concentrates for prepari ng soft drinks which are sweetened only with cane 
sugar.   The tax is calculated on the sales price of soft dr inks, syrups or concentrates for preparing soft 
drinks, at the applied ( ad valorem ) rate, and is paid by the buyer to the individual or entity effecting 
the transfer, the latter being required to inform the Ministry of Finance and Public Credit (SHCP) of 
tax payments on a monthly basis, using the appropriate official form.   There is a crediting mechanism available to ta xpayers in respect of the tax incurred on the 
purchase of soft drinks, syrups or concentrates for preparing soft drinks and of the tax paid on imports of such goods.  To trigger the crediting mechanism,  the tax must have been expressly incurred by the 
taxpayer and be recorded separately in the sup porting documentation, in accordance with the 
requirements of Article 29 and 29A of the Federal Tax Code. 
  Given that the tax is calculated on a monthl y basis, and only for taxpayers with a positive 
balance for the relevant month, the balance may be used for the sole purpose of offsetting taxes due in 
the coming months, until such amount is exhausted. 
  There is no "tax credit" of any kind for those paying the IEPS applicable to soft drinks.  
49. In paragraph 19 of the written version of  its oral statement dated 3 December, the 
European Communities stated that "HFCS is a 'syrup or concentrate for preparing soft drinks' 
falling under Article 2.I(H) [of the Law], which is therefore subject to the 20% tax".  Could 
Mexico please clarify to the Panel whether the statement made by the European Communities is 
correct. 
 
 Under Article 2.I(H) of the Law on the IEPS, th e tax applies to syrups and concentrates for 
preparing soft drinks expended in open containers  using automatic, electrical or mechanical devices. 
  In the case at hand, HFCS as such cannot be c onsidered to be a syrup or concentrate for 
obtaining a soft drink, as it contains no flavouring and is used as a raw material of the final product 
(i.e. the soft drink). WT/DS308/R 
Page C-22  
 
  
 The best example of the above is soft dri nks expended in movie theatres, in which the 
concentrate or syrup is mixed, usually with mineral water, to produce the soft drink.  
50. Could Mexico please explain the practical manner in which the bookkeeping and 
reporting requirements identified by the Unit ed States are imposed.  Are all economic agents 
involved in the importation, production, distribut ion, sale of soft drinks and sweetened syrups 
subject to these requirements?  Which persons  or transactions, if any, are exempted? 
 
 All IEPS taxpayers are subject to the bookkeepin g requirements in the Federal Tax Code, its 
Regulations and the Regulations of the Law on the IEPS, including a breakdown of  operations by rate.  
Accounting records must be kept at the taxpayer's fi scal domicile for as long as may be stipulated in 
the Federal Tax Code.   The Regulations of the Law on the IEPS stipulates that taxpayers are to record: 
 
I. The value of operations or activiti es liable to the tax, according to the 
respective rates; 
II. the amount of refunds, rebates or ta x credits, according to the respective 
rates; 
III. for producers, details of volume and value of raw materials purchased, 
production volumes and losses. 
 For the time being, only transfers of soft dr inks, syrups and concentrates for preparing soft 
drinks sweetened only with cane sugar are exempt fro m payment of the IEPS.  As of 1 January 2005, 
imports of soft drinks, syrups and concentrates fo r preparing soft drinks sweetened with cane sugar 
will be also exempt on importation. 
 
51. The Panel has noted that in paragraph 48 of  the written version of its oral statement 
dated 2 December, Mexico has stated that "Mexico considers that, in any event, its measures are legitimate according to international law".  Coul d Mexico please elaborate on that assertion?  Is 
Mexico referring in particular to its defence under Article XX of the GATT.  
 The assertion does not only refer to Mexico's defence under Article XX of the GATT 1994.  
Mexico's measures are also legitimate under customar y international law, which includes the right to 
take action when a State impedes the operation of a regional treaty's dispute settlement mechanism. 
  In Mexico's view, WTO law (that is, the cove red agreements) is part of the much broader 
corpus of rules of public international law.  To th at extent, the rules of customary international law 
continue to operate, including with respect to th e obligations of each WTO Member;  they are not 
excluded from its scope by the WTO Agreements.  In other words, WTO obligations are not the only rules of international law governing relations am ong WTO Members.  WTO obligations can always 
be supplemented by or vary according to the WTO Member because of other rules of international 
law. 
 
 The Panel needs to address th ese issues, however, since Mexico 's measures are justified under 
Article XX(d) of the GATT 1994.  Article XX(d) is  a general exception to the disciplines of the 
GATT 1994 (including Article III) that is expressly pr ovided for in the WTO Agreements.  The Panel 
should consider these matters because of the appl icability of Article XX(d) and for the reasons 
explained at paragraph 48 of Mexico's oral statement. 
  WT/DS308/R 
 Page C-23 
 
 
  In sum, Mexico's position is that the Mexican measures are justified both under the GATT 
1994 and by virtue of Mexico's international ri ghts beyond the scope of the WTO Agreements.  
However, in these proceedings Mexico is not request ing the Panel to consider its measures outside the 
WTO ambit.  WT/DS308/R 
Page C-24  
 
 ANNEX C-2 
 
RESPONSES BY THE UNITED STATES TO QUESTIONS  
POSED BY THE PANEL AND MEXICO AFTER  
THE FIRST SUBSTANTIVE MEETING  
 
(20 December 2004) 
  
QUESTIONS POSED BY THE PANEL
 
 
FOR BOTH PARTIES:  
 
1. Mexico has alluded to the exercise of "judi cial economy" as a reference for its argument 
that panels have certain implied jurisdictional powers that would allow them to decline from 
exercising substantive jurisdiction.  Could Pa rties please comment on the relevance of the 
exercise of "judicial economy" in the context of  Mexico's request for the present Panel to 
decline to exercise its jurisdiction.  
 
 Mexico is confusing two wholly separate concepts – "judicial economy" is distinct from "substantive jurisdiction."
1  Judicial economy is not a concept whereby panels decline to exercise 
substantive jurisdiction either over a dispute or certain  claims forming the basis of a dispute.  Rather, 
judicial economy is a concept under which panels – recognizing that they have substantive 
jurisdiction and in their exercise of that jurisdiction  – decline to make findings on certain claims 
when resolution of such claims is not necessary in order for the panel to fulfill its mandate.  A panel's 
mandate is to make findings to "assist the DSB in making the recommendations and providing the  
rulings provided for in the covered agreements."2  This mandate is found in Article 11 of the DSU as 
well as in the standard terms of reference provided in  Article 7.1 of the DSU and this Panel's terms of 
reference in particular.  Judicial economy is a well-recognized and common-sense concept under the 
DSU.  However, there is no basis in the DSU for a panel to decline to carry out the functions for 
which the DSB established it nor to disregard the task s that the DSB assigned to it.  Accordingly, the 
concept of "judicial economy" does not support Mexi co's position that panels have certain implied 
jurisdictional powers to decline to ex ercise substantive jurisdiction.   
  The Appellate Body's examin ation of judicial economy in Australia – Salmon  is illustrative.  
In that dispute, the Appellate Body accepted th at panels may exercise judicial economy, but it 
considered the concept in keeping with the purpose of WTO dispute settlement and a panel's mandate.  
This is in contrast to Mexico's request for the Pa nel to decline jurisdiction which even Mexico admits 
finds no basis in the DSU or elsewhere in th e WTO Agreement.  The Appellate Body in Australia – 
Salmon stated: 
 
"The principle of judicial economy has to be applied keeping in mind the aim of the 
dispute settlement system.  This aim is to resolve the matter at issue and "to secure a 
positive solution to a dispute".   To provide only a partial resolution of the matter at 
issue would be false judicial economy.  A panel has to address those claims on which a finding is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to a llow for prompt comp liance by a Member 
                                                     
 
1 The United States notes that "substantive jurisdic tion" is not a term used in the DSU or the WTO 
agreements.  Accordingly, th e United States assumes that by "substantive jurisdiction" Mexico is referring to 
carrying out the terms of reference of the Panel. 
2 DSU, Art. 11.  WT/DS308/R 
 Page C-25 
 
 
 with those recommendations and rulings in order to ensure effective resolution of 
disputes to the benefit of all Members.3 
 The Appellate Body's finding in US – Wool Shirts  is also instructive: "A panel need only 
address those claims which must be addressed in orde r to resolve the matter in issue in the dispute."4  
"The 'matter in issue' is the 'matter referred to the DSB' pursuant to Article 7 of the DSU."5  The Panel 
cannot resolve the matter in dispute – i.e., the US claims that Mexico's tax measures are inconsistent 
with Article III of the GATT – unless it exercises ju risdiction over that matter and issues findings 
thereon.   
2. Could Parties please comment whether they a re of the view that there is nothing in the 
WTO agreements that explicitly spells out the implied jurisdictional power that panels may 
have that allows them to decline to exercise subs tantive jurisdiction, as Mexico has suggested.  
Or do they rather consider that there is nothing in the WTO agreements that explicitly rules out 
the existence of such power?  If there are no such explicit rules in the WTO agreements, then 
what conclusions, if any, should the present Pane l draw in order to respond to Mexico's request 
to decline to exercise its jurisdiction?  
 
 Under the provisions of the WTO Agreement, a panel lacks the power to decline to "exercise 
substantive jurisdiction" over a matter which has been properly brought before it.  For the reasons that 
follow, Mexico's request not only lacks any basis in  the WTO Agreement but is, in fact, incompatible 
with it.  Specifically, Mexico's request for the Pane l to decline to exercise jurisdiction over this 
dispute is incompatible with Articles 11 and 7 of th e DSU and the Panel's terms of reference.  Mexico 
is simply inviting the Panel to breach its oblig ations under the DSU just  as (or perhaps because) 
Mexico has breached its own WTO obligations.   Article 11 of the DSU provides that panels shall make "findings as will assist the DSB in 
making the recommendations and in giving the rulings provided for in the covered agreements."  The 
Panel's terms of reference provide that the Panel shall "make such findings as will assist the DSB in 
making the recommendations or in giving th e rulings provided for in [the GATT 1994]."
6  For  the  
Panel to decline to exercise jurisdiction over this dispute would mean that the Panel would make no 
findings on the US claims that Mexico's tax meas ures are inconsistent with Article III of the GATT 
1994.  This in turn would leave the DSB unabl e to make any recommendations or rulings in 
accordance with the rights and obligations under the DSU and the GATT 1994.  Such a result is 
incompatible with the text of the DSU.  As not ed above, it would require a panel to disregard the 
reason for its existence and the mandate given it by the DSB.   Mexico's request is also incompatible with Article 7 of the DSU and the Panel's terms of 
reference.  Article 7.1 of the DSU states that pane ls (with standard terms of reference as this Panel 
has) are required " to examine ... the matter" referr ed to the DSB by the complaining party and "to 
make such findings as will assist the DSB" in maki ng recommendations and rulings.  Article 7.2 of 
the DSU further states that panels " shall address  the relevant provisions in  any covered agreement or 
                                                     
 
3 Appellate Body Report, Australia – Measures Affecting Importation of Salmon , WT/DS18/AB/R, 
adopted 6 November 1998, para. 223.  In Australia – Salmon , while the Appellate Body recognized the use of 
judicial economy, it did not accept that particular panel's exercise of it.  
4 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses 
from India (US – Wool Shirts ), WT/DS33/AB/R and Corr.1, adopted 23 May 1997, p. 19; see also Appellate 
Body Report , United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth 
Carbon Steel Products Originating in the United Kingdom (US – Lead Bismuth II)  , WT/DS138/AB/R, adopted 
7 June 2000, para. 70 (quoting the Appellate Body in Wool Shirts ). 
5 Appellate Body Report, US – Wool Shirts , p. 19, n. 30. 
6 WT/DS308/5.Rev.1. WT/DS308/R 
Page C-26  
 
 agreements cited by the parties" to a dispute.
7  The Panel's own terms of reference in this dispute 
instruct the Panel "to examine ... the matter refe rred to the DSB by the United States" – the 
consistency of Mexico's tax measures with Article  III of the GATT – and "to make such findings as 
will assist the DSB in making" the recommendations and rulings provided for under that Agreement.8   
 
 These conclusions with respect to Articles 11 and 7 of the DSU are supported by the context 
provided by other provisions of the DSU.  Article  3.3 of the DSU provides that "[r]ecommendations 
or rulings made by the DSB shall be aimed at  achieving a satisfactory settlement of the matter in 
accordance with the rights and obligations u nder [the DSU] and under the covered agreements ."9  
Article 3.7 provides that the "aim of the dispute se ttlement system is to secure a positive solution to a 
dispute,"10 and Article 3.2 states that the dispute settleme nt system "serves to preserve the rights and 
obligations of Members unde r the covered agreements."11  Article 12.7 provides that where the parties 
have not resolved the dispute, "the report of the panel shall set out the findings of fact, the 
applicability of relevant provisions and the basi c rationale behind any findings and recommendations 
that it makes."  An approach that  would permit a panel to decline to exercise jurisdiction over a 
dispute would be contrary to the ordinary meani ng of those provisions and fail to preserve the rights 
and obligations at issue in the dispute.   The text of the DSU cannot be rendered inutile, as it would be were a panel to grant a party's 
request for the panel to decline to exercise juri sdiction over a dispute.  As the Appellate Body 
recognized in the earlier case regarding Mexico's  antidumping measures on HFCS, "as a matter of due 
process, and the proper exercise of the judicial functi on, panels are required to address issues that are 
put before them by the parties to a dispute."
12  
  The United States also refers the Pane l to the Appellate Body report in India – QRs cited by 
the United States in its oral statement and the panel's findings in United States – FSC  and Turkey – 
Textiles .
13  In the FSC dispute, for example, the Unite d States argued that text in the SCM Agreement 
stating that "Members shall normally attempt to resolve their differences using the facilities of existing bilateral tax treaties or other specific international mechanisms" "expressly directs WTO Members to resolve certain issues ra ised by exemptions from direct taxes in an appropriate tax forum 
before resorting to WTO dispute settlement."
14  The panel disagreed, stating that the text cited by the 
United States did not provide "a clear and unambiguous  basis for circumscribing the right to resort to 
WTO dispute settlement at any time."15  The panel explained: 
 
                                                      
7 DSU Art. 7.2 (emphasis added). 
8 WT/DS308/5/Rev.1. 
9 DSU Art. 3.3 (emphasis added). 
10 DSU Art. 3.7. 
11 DSU Art. 3.2. 
12 Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) 
from the United States – Recourse to Article 21.5 of the DSU by the United States (Mexico – Corn Syurp (21.5) ), 
WT/DS132/AB/RW, adopted 21 November, para. 36. 
13 Appellate Body Report, India – Quantitative Restrictions on Imports of Agricultural, Textile and 
Industrial Products , WT/DS90/AB/R, adopted on 22 September 1999, para. 84; Panel Report, United States – 
Tax Treatment for "Foreign Sales Corporations" , WT/DS108/R, adopted as modified on 20 March 2000, paras. 
7.12-7.19;  Panel Report, Turkey – Restrictions on Imports of Textile and Clothing Products (Turkey – Textiles ), 
WT/DS34/R, adopted as modified 19 November 1999, paras. 9. 15-9.17 (rejecting Turkey 's argument that the 
appropriate forum for resolution of India's claims under the GATT 1994 was in the first instance the WTO 
Textile Monitoring Body (TMB) and, therefore, that the panel lacked  jurisdiction over the dispute until India's 
remedies under the TMB had been exhausted). 
14 Panel Report, US – FSC , para. 7.12. 
15 Panel Report, US – FSC , para. 7.19.  WT/DS308/R 
 Page C-27 
 
 
 "Under Article XXIII of GATT 1994, the DSU and Article 4 of the SCM Agreement, 
a Member has the right to resort to WTO dispute settlement at any time by making a request for consultations in a manner c onsistent with those provisions.  This 
fundamental right to resort to dispute settlement is a core element of the WTO 
system.  Accordingly, we believe that a panel should not lightly infer a restriction on 
this right into the WTO Agreement; rather , there should be a clear and unambiguous 
basis in the relevant legal instruments for concluding that such a restriction exists."
16 
 Finally, we note that Mexico does not contest that the US claims have been properly brought 
before this Panel and even concedes that this Panel has " prima facie jurisdiction" over those claims. 
 
 For all the foregoing reasons, there is absolute ly no basis for the Panel to grant Mexico's 
request.  
3.  Can Parties please comment whether, in th eir opinion, it would be appropriate for the 
Panel to look at the issues concerning bilatera l trade in sweeteners between Mexico and the 
United States which have been raised by Mexico in this case.  
 
 To the extent the Panel's question is dir ected at knowing whether it may interpret the 
provisions of the NAFTA and determine whether certain  obligations thereunder ha ve or have not been 
met, the answer is no.  Such an examination would clearly exceed the Panel's mandate.  The DSB 
established this Panel to "examine, in the light of the relevant provisions of  the covered agreements 
cited by the United States in document WT/DS308/ 4, the matter referred to the DSB by the United 
States in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."
17  The relevant provision 
of the covered agreements cited by the United Stat es is Article III of the GATT 1994 and the matter 
referred to the DSB by the United States is the cons istency of Mexico's tax measures with Article III 
of the GATT 1994.18  These terms of reference define the limited mandate for which this Panel was 
established.  The Panel's mandate simply does not extend to examining the issues raised by Mexico 
that the United States has breached its NAFTA obliga tions with respect to market access for Mexican 
sugar or has "refus[ed] to submit" to  dispute settlement under the NAFTA.   
  Moreover, it would be inappropriate for the Panel substantively to address these "bilateral 
trade in sweeteners" issues because, with respect to Mexico's request for the Panel to decline 
jurisdiction, the Panel lacks the power to dec line jurisdiction over the matter for which it was 
established (much less in favor of dispute settlement  under NAFTA) and, with respect to Mexico's 
Article XX(d) defense, obligations under internati onal agreements such as the NAFTA are not "laws 
or regulations" within the meaning of Article XX(d). 
 
4. Can Parties indicate whether, in their op inion, is there anything in the North American 
Free Trade Agreement (NAFTA) that would prev ent the United States from bringing the 
present case to the WTO dispute settlement system.  
 
 Nothing in the WTO Agreement precludes a Member from exercising its rights under the 
WTO Agreement – including the right to bring a claim under the DSU – based on the terms of the 
NAFTA.  Similarly, there is nothing in the WTO Ag reement which would authorize a panel to fail to 
make the findings, rulings and r ecommendations required by DSU Article 11 based on the terms of 
the NAFTA.  Having said this, there is nothing in the NAFTA that provides that the United States 
may not bring the present dispute to the WTO dis pute settlement system, although the United States 
                                                     
 
16 Panel Report, US – FSC, para. 7.17. 
17 WT/DS308/5.Rev.1. 
18 WT/DS308/4. WT/DS308/R 
Page C-28  
 
 notes that a determination of rights and obligations under the NAFTA is outside this Panel's terms of 
reference.  
5. If, as requested by Mexico, the Panel were to  decline to exercise its jurisdiction in favour 
of NAFTA, could the Parties please comment how the NAFTA system would deal 
comprehensively with all the issues that Mexico considers affect the bilateral trade in sweeteners 
between Mexico and the United States.  Coul d the Parties please also  comment whether the 
NAFTA system could provide the same remedies th at the United States is seeking in this case 
under the WTO. 
  For the reasons set forth above, there is no b asis in the WTO Agreement for Mexico's request 
that the Panel decline to exercise it s jurisdiction in this dispute.  This is the case regardless of how the 
NAFTA system would deal with matters that were not  identified in the US panel request and, thus, are 
not within the Panel's terms of reference of this dispute.    
 Furthermore, not even the WTO deals "compreh ensively" with issues.  Mexico has raised a 
number of issues that are distinct, some involvi ng measures by Mexico, some involving alleged 
measures by the United States.  The DSU, in Artic le 3.10, explicitly requires that complaints and 
counter-complaints on distinct matters not be linked.  Accordingly, Mexico could not even request the 
WTO to make "comprehensive" findings on these various  matters, even if they were all WTO matters.  
Mexico certainly cannot then expect a WTO pane l to seek a comprehensive solution through other 
means.  
  That said, the NAFTA system could not provide  the same remedies that the United States is 
seeking under the WTO.  To take just one exampl e, the remedies under the NAFTA are limited to 
NAFTA concessions.  WTO remedies are broader. 
 
6.  If, as requested by Mexico, the Panel were to  decline to exercise its jurisdiction in favour 
of NAFTA, could the Parties please comment wheth er the United States right to request a panel 
under NAFTA to examine the claims that have been brought to this Panel may be affected by the United States having previously brought this same case to the WTO.  
  As discussed above, there is no basis in the WTO Agreement for Mexico's request that the 
Panel decline to exercise its jurisdiction in this dispute.  This is the case regardless of how US 
NAFTA rights would be affected by this dispute.   Having said this, Article 2005(6) of the NAFTA states: "Once dispute settlement procedures 
have been initiated under Article 2007 or dispute se ttlement proceedings have  been initiated under the 
GATT, the forum selected shall be u sed to the exclusion of the other, unless the Party makes a request 
pursuant to paragraph 3 and 4." Article 2005(3) and (4) deal with matters concerning certain 
environmental,  health or safety related issues.  Article 2005(7) states: "For purposes of this Article, 
dispute settlement proceedings under the GATT are deem ed to be initiated by a Party's request for a 
panel, such as under Article XXIII:2 or the General Agreement on Tariffs and Trade 1947 , or for a 
committee investigation, such as under Article 20.1 of the Customs Valuation Code."   
 
7. Could the Parties please inform the Panel what is the present state of the dispute that 
Mexico has brought against the United States under NAFTA concerning the bilateral trade in sweeteners.  
 
 The United States recalls again that NAFTA dis pute settlement matters are outside the Panel's 
terms of reference.  That said, the dispute Mexico has brought against the United States under 
NAFTA (regarding the US tariff-rate-quota on Mexi can sugar) is presently in the panelist selection 
stage.  Prior to that stage, the United States a nd Mexico engaged in cons ultations pursuant to the  WT/DS308/R 
 Page C-29 
 
 
 NAFTA's dispute settlement provisions, and, ha ving been unable to resolve the matter through 
consultations, the NAFTA Free Trade Commission estab lished a panel.  In addition, the United States 
and Mexico, as well as their affected industries, ha ve held negotiations throughout this period, as 
recently as October 2004 (affected industries) a nd March 2003 (governments of United States and 
Mexico). 
 
8. The Panel has noted that in paragraph 2(g) of the written version of its oral statement 
dated 2 December, Mexico has stated that it "triggered the dispute settlement mechanism [in 
NAFTA]" ("activó el mecanismo de solución de controversias") concerning its complaint 
against the United States related to the bilateral trade in sweeteners.  Could the Parties please 
clarify when are dispute settlement procedures in NAFTA considered to have been triggered 
("activados").  
 
 The United States recalls again that NAFTA dispute settlement matters are not within the Panel's terms of reference.  That said, it is unc lear what Mexico means by "triggered the [NAFTA] 
dispute settlement mechanism," which consists of several phases. 
 
9. The Panel notes that, in its first submission dated 1 November, Mexico did not present 
any responses as to the substance of the allege d violations of Article III of the GATT 1994 
claimed by the United States in its first submissi on (except by saying that any violations would 
be justified under Article XX(d) of the GATT ).  Could the Parties please comment what 
conclusions, if any, should the Panel draw from Mexico's lack of response on the claims under 
Article III.  Should the Panel consider the eviden ce on the record and, drawing the appropriate 
legal conclusions from the fact that Mexico ha s not raised any substantive defence against the 
United States' claims under Article III, undert ake an examination of whether the conditions 
required by the different provisions of Articl e III are met, before making its findings?  
 
 The Panel should construe Mexico's lack of  response on US claims under Article III of the 
GATT 1994 to mean that Mexico does not contest that its tax measures are in breach of its Article III obligations.  The panel in US – Shrimp  took the US statement that it did not dispute that the measure 
at issue "amounts to a restriction on the importation of  shrimp within the meaning of Article XI:1 of 
GATT 1994" to mean that the United States "basically admits that a given measure amounts to a 
restriction prohibited by GATT 1994."
19  Similarly, the panel in Turkey – Textiles  found that "given 
the absence of a defense by Turkey (other than its defense based on Article XX IV of GATT) to India's 
claims that discriminatory import restrictions have been imposed, India has made a prima facie case 
of violation of Articles XI  and XIII of GATT."20  Accordingly, in this dispute the Panel should 
undertake a brief analysis confirming that the United States has made its prima facie  case.  In this 
regard, all uncontested facts presented by the Un ited States should be accepted for purposes of the 
Panel's factual and legal findings in this dispute.   In light of Mexico's decision not to contest the Article III breach and the extensive evidence 
and argumentation the United States submitted in its  first submission, the Panel should similarly 
conclude that the United States has made a prima facie case of Mexico's breach of the provisions of 
Article III at issue in this dispute.  
 
10. In its oral statements, the European Communities raised issues concerning the 
treatment accorded in Mexico to  soft drinks sweetened with beet sugar.  Could Parties share 
with the Panel any views they may have regardi ng the treatment accorded in Mexico to soft 
drinks and syrups sweetened with products diff erent from cane sugar and High-Fructose Corn 
                                                     
 
19 Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products , 
WT/DS58/R, adopted 6 November 1998, para. 7.15. 
20 Panel Report, Turkey – Textiles , para. 9.66. WT/DS308/R 
Page C-30  
 
 Syrup (HFCS), such as, for example, beet sugar and saccharine.  Would these soft drinks and 
syrups (those sweetened with products different from cane sugar and HFCS) be covered by the 
scope of the United States' claims? 
 
 Mexico's tax measures also treat beet suga r and non-nutritive sweeteners such as saccharine 
less favorably than cane sugar.  In particular , as explained in the US First Written Submission 
(paras. 38-39), Mexico's tax measures (as embodied in the IEPS) apply to all sweeteners other than 
cane sugar and all soft drinks and syrups made with  any sweetener other than cane sugar.  Mexico's 
tax measures, therefore, afford the same less favor able treatment and impose the same excess taxation 
on all non-cane sugar sweeteners – including beet sugar and saccharine – and soft drinks and syrups 
made with those sweeteners as it does on HFCS a nd soft drinks and syrups made with HFCS.  
  The United States notes that beet sugar is chemically and functionally identical to cane 
sugar.
21   It is, therefore, "like" and "directly competitive or substitutable" with cane sugar.  Thus, 
Mexico's tax measures also breach the provisions of Article III with respect to beet sugar and soft 
drinks sweetened with beet sugar, and the Panel s hould so find.  Having said this, as Mexico has made 
clear, its measures are intended to discriminate agai nst HFCS and soft drinks and syrups sweetened 
with HFCS and this is the focus of the US complaint.  
11. Could the Parties please clarify whether, in  their opinion, a measure, as applied to a 
product, may be at the same time an "internal tax measure" for such a product within the 
meaning of Article III:2 of the GATT, as well as a "law or regulation affecting the use" of such 
product within the meaning of Article III:4.  
 
 The IEPS is both an "internal tax" on HFCS for use in soft drinks and syrups within the meaning of Article III:2 and a "law ... affecting the internal ... use" of HFCS within the meaning of 
Article III:4.  The United States refers th e Panel to its response to Question 21. 
 
12. Could the Parties please comment whether, in their opinion, the Panel could accept the 
contentions made by the United States of the i ssues regarding their claims under Article III of 
the GATT and at what level.  Is there any difference in the manner in which the Panel should treat facts and legal arguments in the case?  
 
 In light of the evidence and arguments set forth in the US first submission and Mexico's decision not to respond, the Panel should find that the United States has established a prima facie  
breach of each of the cited provisions of GATT 19 94 Article III, as set forth in the US request for 
findings in paragraph 163 of its firs t submission.  Like the panels in US – Shrimp  and Turkey – 
Textiles , this Panel should undertake a brief analys is confirming that the US has made its prima facie  
case.  In this regard, all uncontested  facts should be taken as given. 
 
13. Are any soft drinks or sweetened syrups other than those sweetened with cane sugar 
exempted from the tax?  Are soft drinks or sw eetened syrups from any particular origin 
exempted from the tax? 
 
 The text of the IEPS before the Panel provid es that with the exception of the public sales 
exemption,
22 all soft drinks or syrups other than those sweetened solely with cane sugar are subject to 
the tax.23  Article 1(I) of the IEPS taxes the "transfer in  national territory, or as applicable, the final 
importation, of goods identified in the Law."  Artic le 2(I)(G) and (H) apply the 20 percent tax rate to 
                                                      
21 US First Written Submission, para. 22. 
22 See US First Written Submission, para. 41(discussing the public sales exemption). 
23 See Exhibit US-4A and US-4B (Ley Del Impuesto Especial Sobre Produccióny y Servicios (IEPS), 
Dec. 31, 2003); US First Written Submission, paras. 37-47 (quoting relevant portions of the IEPS).  WT/DS308/R 
 Page C-31 
 
 
 the "transfer or, as applicable, the importation of" soft  drinks and syrups.  Similarly, Article 1(II) taxes 
the "provision of services indicated in this Law" and Article 2(II) applies the 20 percent tax to the 
provision of services ( i.e. representation, brokerage, agency, cons ignment and distribution) "for the 
purpose of transferring" soft drinks and syrups.  Articles 1 and 2 make no distinction between soft 
drinks and syrups based on the type  of sweetener used.  That distinction appears in Article 8 of the 
IEPS which exempts from payment of the tax "transfe rs" of the "goods referred to in Article 2(I)(G) 
and (H) of this Law,  provided only sugarcane is used  as a sweetener."  Therefor e, the only soft drinks 
and syrups exempt from the IEPS are t hose sweetened only with cane sugar. 
  The tax does not exempt soft drinks and sy rups imported from any particular country from 
payment of the tax. The IEPS taxes the importation of all soft drinks and syru p regardless of the type 
of sweetener used.
24  Soft drinks and syrups of Mexican origin, however, if sweetened only with cane 
sugar are exempt for the IEPS.  
14. Does the difference in the treatment between "transfers" and "importations", if there is 
such a difference, also apply to the tax imposed  by Mexico on the "agency, representation, 
brokerage, consignment and distribution" of imported soft drinks and sweetened syrups? 
 
 The text of the IEPS before the Panel app ears to distinguish between "transfers" and 
"importations."  As mentioned above, Article 1(I) of  the IEPS taxes the "transfer in national territory, 
or as applicable, the final importation, of goods iden tified in the Law."  Article 2(I)(G) and (H) also 
specify that the tax applies to the"transfer or, as applicable, the importation of" soft drinks and 
syrups."  Article 8 of the IEPS, however, specifies that the tax "shall not be paid [o]n the following 
transfers" and identifies soft drinks and syrups  sweetened only with cane sugar as exempt from the 
tax.  Article 8 does not include reference to "im portation" as do Articles 1 and 2 of the IEPS.  Thus, 
only internal transfers of soft drinks and syr ups are subject to the exemption provided for in 
Article 8.
25 
  After importation, however, a soft drink or syr up may be transferred internally.  Therefore, if 
that soft drink or syrup were sweetened only with  cane sugar, it would be subject to the exemption 
provided for in Article 8.  
 As for the tax on the agency, representation, br okerage, consignment and distribution of soft 
drinks and syrups ("distribution tax"), Article 2(II) of the IEPS states that it applies to representation, 
brokerage, agency, consignment and distribution "for  the purpose of transferring" soft drinks and 
syrups.  The United States understands the exemption fo r internal transfers of soft drinks and syrups 
provided for in Article 8 of the IEPS to cover both an  exemption from the tax on internal transfers of 
soft drinks and syrups (the HFCS soft drink tax as referenced in the US first submission) and the 
distribution tax.
26  
 
15. In the view of the Parties, are sweeteners, when they are used as inputs in the 
preparation of soft drinks and syrups, subject to the tax measures at issue in this case, or are taxes only applied to the soft drinks and syrups?  
 
 The IEPS applies a 20 percent tax on the importation,  internal transfer and distribution of soft 
drinks and syrups sweetened with any sweetener othe r than cane sugar.  The IEPS is both a tax on soft 
drinks and syrups and a tax on non-cane sugar sweeteners such as HFCS.  
                                                     
 
24 See Exhibit US-4A and US-4B (IEPS, Dec. 31, 2003), Arts 1, 2 and 8.. 
25 See Exhibit US-4A and US-4B (IESP, De c. 31, 2003), Arts. 1, 2 and 8. 
26 See Exhibit US-4A and US-4B (IEPS, Dec. 31, 2003), Arts 1, 2 and 8.. WT/DS308/R 
Page C-32  
 
  Specifically, on the one hand, the IEPS is a tax on soft drinks and syrups – in particular on 
soft drinks and syrups imported from the United St ates where HFCS is the dominant soft drink and 
syrup sweetener.  On the other hand, the IEPS is a tax on HFCS for soft drink and syrup use.  The 
IEPS happens to apply this tax at the time when th e soft drink or syrup containing HFCS is sold or 
distributed.  (It should be pointed out that by doing so, Mexico is able to convert the 20 percent tax on 
the soft drink or syrup to a 400 percent tax on the HFCS  in that soft drink or syrup).  The timing of tax 
collection, however, does not change the fact that it  is the use of HFCS as a sweetener in the soft 
drink or syrup that determines whet her any tax is owed.  Thus, even  though the IEPS more directly 
applies to soft drinks and syrups, it is also a tax on the HFCS used to make those soft drinks and 
syrups.  In fact, Mexico essentially concedes this po int when it states that the IEPS was imposed to 
stop the displacement of cane sugar by HFCS. 
 
16. In paragraph 17 of the written version of  its oral statement dated 3 December, the 
European Communities stated that "the Panel m ay take into account that at the time [the] 
Mexican measure was imposed, a certain percentage  of soft drinks produced in Mexico were 
equally sweetened with HFCS, and thus affected by the higher taxation."  Could Parties please 
share with the Panel any comments they may have on this assertion and what consequences, if any, should this fact have for the Panel's analysis.  
 
 At the time the IEPS was imposed on soft drinks and syrups, some Mexican soft drink bottlers, as recounted in the US submission, were be ginning to use blends of HFCS and cane sugar to 
sweeten their soft drinks.
27  By 2001, the year prior to imposition of the IEPS on soft drinks and 
syrups, nutritive sweetener consumption by the soft drink industry was 30 percent HFCS and 70 
percent cane sugar.28   The use of blends of HFCS and cane sugar by the Mexican soft drink industry 
demonstrates that HFCS and cane sugar as sweeteners for soft drinks and syrups are interchangeable 
and, prior to the tax, competed h ead-to-head in the Mexican market.  It likewise demonstrates that soft 
drinks and syrups sweetened with HFCS and soft drinks and syrups sweetened with cane sugar were 
also competing in the Mexican market prior to im position of the IEPS on soft  drinks and syrups.  
Nevertheless, at the time Mexico imposed its tax, cane sugar remained the dominant sweetener for 
Mexican soft drinks and syrups as compared to US soft drinks and syrups which were sweetened with 
HFCS.  
 The United States does not otherwise see the releva nce of the EC's statement.  In this regard, 
we note that the fact that some domestic producer s may be affected by a measure does not excuse a 
breach of Article III.  In the Chile – Alcoholic Beverages  report, the Appellate Body found that, 
although domestic products comprised the majority of sal es subject to the highest tax rate, that tax rate 
as applied to imported products nonetheless constitut ed a breach of Article III:2, second sentence.  
"The relative proportion of domestic versus imported products within a particular fiscal category is 
not, in and of itself, decisive of the appropriate ch aracterization of the total impact of the New Chilean 
System under Article III:2, second sentence, of the GATT 1994."
29 
 
17. China expressed in its oral statement of 3 December that "when the tax law says that it 
is applicable to a product ... the scope of taxatio n will not extend to the components of the taxed 
product."  Do Parties have any comment on this assertion?  
 
 The United States does not agree with Chin a's assertion.  As stated in response to 
Question 15, the IEPS is both a tax on soft drinks  and syrups and a tax on non-cane sugar sweeteners 
such as HFCS. 
                                                      
27 US First Written Submission, para 34. 
28 US First Written Submission, para. 23 and Exh. US-8. 
29 Appellate Body Report, Chile – Taxes on Alcoholic Beverages , WT/DS87/AB/R, WT/DS110/AB/R, 
adopted 12 January 2000, para. 67.  WT/DS308/R 
 Page C-33 
 
 
  
 In any event, Article III:2 of the GATT 1994 covers  taxes applied, "directly or indirectly", to 
imported products.  China's reliance on the Ad Note to GATT Article III:2 is misplaced.  The Ad Note 
clarifies the types of products covered by the sec ond sentence as compared to the first sentence of  
GATT Article III:2 ( i.e., that the first sentence covers " like" products while the second covers 
"directly competitive or substitutable" products).  It does not undo the fact that Article III:2 disciplines 
taxes applied, directly or indirectly, to a product.   Thus, as a legal matter, the United States does not 
agree with China's interpretation of Article  III:2 as stated in its oral statement. 
 
18. Could the Parties please inform the Panel whether they agree that imported soft drinks 
and sweetened syrups are "alike" to Mexican dom estic soft drinks and sweetened syrups.  Do 
the Parties consider that imported soft drinks and sweetened syrups are "directly competitive or substitutable" with Mexican domestic soft drinks and sweetened syrups.  
 
 The United States first submission, at paragra phs 63 through 83, explains that imported soft 
drinks and syrups sweetened with HFCS are like products relative to Mexican domestic soft drinks 
and syrups sweetened with cane sugar.  Paragra phs 141-145 of the same submission argue in the 
alternative that these two groups of products are directly competitive or substitutable.  
 
19.  Could the Parties please also inform th e Panel whether they agree that High-Fructose 
Corn Syrup (HFCS) is "alike" to cane sugar, for the purpose of Article III:4.  
 
 HFCS is "like" cane sugar for purposes of Artic le III:4 as discussed in paragraphs 156-58 of 
the US first submission.  Paragraphs 103-105 of th e same submission note that in a 1998 antidumping 
determination on HFCS imports from the United St ates, the Mexican government determined that 
cane sugar and HFCS are "like" products fo r the purposes of Mexico's antidumping law and 
Article 2.6 of the Antidumping Agreement 
 
20. China expressed in its oral statement of 3 December its opinion that the question of 
"whether the conclusion that cane sugar and HFCS are 'like products' under Article III:4 [cannot] be exclusively established by referring to  the analysis on 'directly competitive and 
substitutable product' in the meaning of Article III:2 second sentence."  Do Parties have any 
comment on this assertion?  
 
 The analysis presented in the US First Written Submission that HFCS is "like" cane sugar for 
purposes of Article III:4 is supported by more than a reference to its analyses of why HFCS and cane sugar are directly competitive or substitutable fo r purposes of Article III:2, second sentence.  The 
United States refers the panel to its first submission at paragraphs 156-58. 
 
21. If the tax measures imposed by Mexico have any effect on High-Fructose Corn Syrup 
(HFCS), in the view of the Parties, should they be more properly examined in this regard – with respect to their effect on HFCS – under Article III:2 or under Article III:4 of the GATT 1994?  
  The IEPS as a tax on HFCS may properly be ex amined under both Article III:2 and III:4 of 
the GATT 1994.    Article III:2 prohibits dissimilar taxation of  imported and domestic products.  Article III:4 
prohibits less favorable treatment of imported produc ts as compared to domestic products with respect 
to laws affecting their internal sale, use, etc.  T hus, to the extent the less favorable treatment of the 
imported product takes the form of dissimilar taxati on that affects its internal sale, use, etc., the 
measure at issue may constitute a breach of both Articles III:2 and III:4 of the GATT 1994.  WT/DS308/R 
Page C-34  
 
  In the context of this dispute, the measure at issue is the IEPS.  The IEPS imposes a tax on 
HFCS for use in soft drinks and syrups; cane sugar fo r use in soft drinks and syrups is exempt from 
the tax.  As a result, the IEPS applies a tax on HFCS that is not similarly applied to cane sugar within 
the meaning of Article III:2.  Through this dissim ilar taxation (a 400 percen t tax on HFCS and no tax 
on cane sugar), the IEPS also affects the internal sale and use of HFCS and affords it less favorable 
treatment than cane sugar within the meaning of Article III:4.  With respect to the bookkeeping and 
reporting requirements imposed by the IEPS, these requirements are not in themselves a tax and, 
therefore, are appropriately viewed as requirements affecting the internal use of HFCS within the meaning of Article III:4.  
 Articles III:2 and III:4 also overlap in the imported and domestic products to which they 
apply.  The first sentence of Article III:2 addr esses "like" products while the second sentence of 
Article III:2 addresses "directly competitive or substi tutable" products.  Article III:4 addresses "like" 
products.  While the analysis of whether an impor ted and domestic product are "like" or "directly 
competitive or substitutable" under Article III:2 is not identical to the analysis of whether the products 
are "like" under Article III:4, there is nothing in the text of either Article that prevents "like" products 
within the meaning of Article III:4 from also bei ng "like" or "directly competitive or substitutable 
products" within the meaning of Article III:2 or vice versa.   In the context of this dispute, HFCS and cane sugar are both "like" products within the meaning of Article III:4
30 and "like" and "directly competitive or substitutable" products within the 
meaning of Article III:2.31 
  In Indonesia – Autos , for example, the complaining parties argued that a local content 
requirement required to obtain a lower tax rate constituted a breach of Indonesia's obligations under 
Article 2 of the Agreement on Trade-Related Investment Measures ("TRIMS") and Articles III:2 and 
III:4 of the GATT 1994.  Article 2 of TRIMS read in conjunction with its annex prohibits local 
content requirements that are inconsistent with Ar ticle III:4 of the GATT.  The panel first examined 
whether the local content requirement was a breach of Article 2 of TRIMS and, specifically, whether the local content requirement was "inconsistent with  the obligation of national treatment provided for 
in paragraph 4 of Article III of the GATT 1994."  Having found the local content requirement a 
breach of Article 2 of TRIMS, the panel exercised  judicial economy with respect to the separate 
Article III:4 claim.  The panel then examined whet her taxing imported cars at a higher rate because 
they lacked a certain percentage of local content was a breach of Article III:2, first sentence.  The 
panel found in the affirmative.  Thus, in Indonesia – Autos , the panel found it proper to examine the 
same local content requirement under both Article 2 of TRIMS (which includes examination of the 
measure's consistency with GATT Article III:4) and under Article III:2 of the GATT.
32 
 
22. Could the Parties please comment whether,  in their opinion, the bookkeeping and 
reporting requirements identified by the United St ates inter alia in paragraph 4.(2) of its first 
submission should be considered as separate measures from the tax on soft drinks and the distribution tax.  In the opinion of the Parties,  should the Panel make a separate determination 
on the consistency of those bookkeeping and reporting requirements with the provisions of the 
GATT 1994, even if it found that the tax on  soft drinks and the distribution tax were 
inconsistent with the GATT 1994?  
 
 The United States considers the bookkeeping and reporting requirements, the HFCS soft drink tax, and the distribution tax to be  separate measures, even though they share the common context of 
                                                     
 
30 US First Written Submission, paras. 156-158. 
31 US First Written Submission, paras. 94-130. 
32 See Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, 
WT/DS55/R, WT/DS59/R, WT/DS64/R, adopted on 23 July 1998, paras. 14.83-14.117.  WT/DS308/R 
 Page C-35 
 
 
 the IEPS and its application to soft drinks a nd syrups.  The Panel should make findings on the 
consistency of each of these measures with Mexico 's obligations under the GATT 1994.  With respect 
to the bookkeeping and reporting requirements, the United States notes that imposition of these 
requirements on soft drinks and syrups sweetened with HFCS (or other non- cane sugar sweeteners) 
but not on soft drinks and syrups sweetened only with cane sugar affords imported HFCS less 
favorable treatment than Mexican cane sugar.33  Regardless of whether Mexico continued to tax 
HFCS sweetened soft drinks and syrups dissimilarl y from, or in excess of, cane sugar sweetened soft 
drinks and syrups, imposition of bookkeeping and reporting requirements with respect to HFCS-
sweetened soft drinks and syrups (for example a requirement to report a bottler's top 50 customers) 
that are not also applied to cane sugar-sweetened  soft drinks and syrups would continue to 
disadvantage the use of HFCS as compared to cane s ugar as a sweetener for soft drinks in Mexico.  A 
complete resolution of this dispute therefore re quires separate findings, rulings and recommendations 
with respect to the bookkeeping and reporting requirements.   The United States draws attention to the Appella te Body's discussion of judicial economy in 
Australia – Salmon .  There the Appellate Body found the pa nel in error for not making findings with 
respect to certain kinds of salmon.  The Appellate Body explained that to make findings with respect 
to only one kind of salmon would leave the DSB unable to make sufficiently precise 
recommendations and rulings so as to allow for co mpliance by the defending party with is WTO 
obligations.
34   
 
23. Could the Parties please comment whether,  in their opinion, the bookkeeping and 
reporting requirements identified by the United St ates, inter alia in paragraph 4.(2) of its first 
submission, should be considered as internal measures which affect the internal use of High-Fructose Corn Syrup (HFCS).  
  The bookkeeping and reporting requirements are internal measures which affect the internal 
sale and use of HFCS.  Specifically, the bookke eping and reporting requirements are imposed 
pursuant to a Mexican law, the IEPS.  The IEPS taxes the internal transfer of soft drinks and syrups 
sweetened with HFCS or other non-cane sugar swee teners.  The IEPS requires individuals and entities 
subject to the IEPS ( i.e., those transferring soft drinks and syrups sweetened with HFCS or other non-
cane sugar sweeteners) to follow certain bookkeepin g and reporting requirements.  Soft drinks and 
syrups sweetened with cane sugar are exempt fro m the IEPS and, therefore, also exempt from the 
bookkeeping and reporting requirements.     These bookkeeping and reporting requirements in clude the requirements, for example, to 
provide an annual listing of the goods "produced, tr ansferred or imported in the previous year, as 
regards consumption by state and the corresponding tax, as well as the services provided by 
establishment in each state" and to report quarterly  "information regarding [the taxpayer's] 50 main 
clients and suppliers."
35  Compliance with these requirements demand both the time and expense of 
doing so in addition to the risk that business sensitiv e information, such as a producer's top clients and 
suppliers, may not be adequately safeguarded .  Accordingly, the bookkeeping and reporting 
requirements impose a burden on the use of HFCS that is not also applied to cane sugar. 
 
 As prior panels have explained, the word "a ffecting" in Article III:4 of the GATT has been 
interpreted to cover not only la ws and regulations which directly  govern the conditions of sale or 
purchase but also any laws or regulations which mi ght adversely modify the conditions of competition 
                                                      
33 US First Written Submission, paras. 159-161. 
34 Appellate Body Report, Australia – Salmon , paras. 223-226. 
35 US First Written Submission, para. 46. WT/DS308/R 
Page C-36  
 
 between domestic and imported products.
36  Imposing a burden on the use of HFCS that is not also 
imposed on the use of cane sugar (or, said another wa y, granting an advantage to the use of cane sugar 
that is not also granted to HFCS) has an impact  on the conditions of competition between cane sugar 
and imported HFCS and, thus, affects the use of HFCS in Mexican soft drink and syrup production.37  
The Appellate Body has previously found a tax exemption granted conditional on use of domestic 
content to be a law affecting the internal use of an imported product.38  
 
24. In paragraph 6 of the written version of its oral statement dated 3 December, 
Guatemala stated that "the Panel should respond to Mexico's request and consider, in its deliberations, the importance that the sugar activi ty has in Mexico and the implications for the 
country of the reforms undertaken in this sector ".  Could Parties share any views they may 
have regarding Guatemala's statement and, particularly, in what manner, if any, should the Panel consider it in its deliberations the factors highlighted by Guatemala.  
 
 The United States does not consider that the im portance of the sugar industry in Mexico is 
relevant to whether Mexico's discriminatory tax on HFCS soft drinks and syrups sweetened with 
HFCS is consistent with its obligations under Articles III:2 and III:4 of the GATT nor to whether 
Mexico's discriminatory tax is justified under Ar ticle XX(d).   The United States also considers its 
domestic HFCS industry and its ability to export to Mexico important.  The importance of a domestic 
industry does not justify discriminating against like and directly competitive or substitutable imported 
products.  Indeed, if the suggested approach is to  excuse discrimination based on the importance of a 
domestic industry, then such an approach would have  the perverse result that the larger the adverse 
trade impact of the discrimination, the more easily a Member could discriminate.  
 
25. Could the Parties please confirm whether th ey consider that Article XX(d) of the GATT 
1994 would justify measures adopted by on e Member which are "necessary to secure 
compliance" by another Member with internationa l obligations arising from a treaty which is 
not part of the WTO "covered agreements".  Are there any WTO or GATT precedents which could be relevant for this question?  
 
 Article XX(d) of the GATT does not justify measures adopted by one Member to secure 
compliance by another Member with international oblig ations arising from a treaty which is not part 
of the WTO "covered agreements."   
  The United States is not aware of any prior GATT or WTO panel or Appellate Body reports 
addressing whether Article XX(d) of the GATT justif ies measures adopted by one Member to secure 
compliance by another Member with international obl igations arising from a treaty which not part of 
the WTO "covered agreements."  The United States not es that in all prior reports where a Contracting 
Party or WTO Member has asserted an Article XX(d ) defense, the "law or regulation" with which 
compliance was sought has universally been an internal law or regulation of the defending party.  
                                                     
 
36 See, e.g., GATT Panel Report, Italian Discrimination Against Imported Agricultural Machinery , 
L/833, adopted 23 October 1958, BISD 7S/60 , para. 12; Panel Report, Canada – Certain Measures Affecting the 
Automotive Industry , WT/DS139/R, WT/DS142/R, adopted 19 June 2000, para. 10.80; see also US First Written 
Submission, para. 159. 
37 See US First Written Submission, para. 160. 
38 Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse 
to Article 21.5 of the DSU by the European Communities , WT/DS108/AB/RW, adopted 29 January 2002, 
paras. 212-213.  WT/DS308/R 
 Page C-37 
 
 
 26. Do Parties consider that the manner in wh ich the US - Shrimp case was resolved in the 
WTO, and particularly the manner in which ef forts at international cooperation were taken 
into account in the analysis of the defence under Article XX of the GATT, is relevant for the 
present case?  
  The issue of international cooperation that arose in US – Shrimp  is not relevant to Mexico's 
Article XX(d) defense.     Contrary to Mexico's contention, the Appellate  Body's discussion of efforts at international 
cooperation in US – Shrimp  are not supportive of Mexico's defense under Article XX(d).  In US – 
Shrimp , the Appellate Body considered efforts at in ternational cooperation in the context of the 
chapeau to Article XX, specifically whether the United States import ban on shrimp – which the 
Appellate Body had already found to be "relating to  the conservation of exhaustible natural resources" 
under subparagraph (g) with respect to sea turtles –  was, nonetheless, "applied in a manner which 
would constitute a means of arbitrary or unjus tifiable discrimination between countries where the 
same conditions prevail."  In answering the ques tion, the Appellate Body in its original report 
concluded that the US import ban was applied in an manner resulti ng in arbitrary and unjustifiable 
discrimination inter alia  because, prior to imposing its ban, the United States had engaged in 
negotiations with some exporting countries, but had not engaged in negotiations on a solution to the 
protection of sea turtles with each country affected by the import ban and, in particular, with the 
complaining parties in the dispute.  The Appellate  Body considered it arbitrary and unjustifiable to 
negotiate with only some countries but to impose the ban on all of them.
39 
  This is not the situation in the present case.   First, the Appellate Body's discussion of 
international negotiations in US – Shrimp concerned the chapeau to Article XX, specifically the 
application
 of a measure and the words "arbitrary or unju stifiable discrimination."  Prior to examining 
the chapeau, however, the Appellate Body had alr eady found the US ban to be "relating to the 
conservation of" sea turtles and, therefore, to have met the requirements of subparagraph (g).  In the 
present dispute, Mexico cannot show that its ta x measures meet the requirements of any of the 
subparagraphs of Article XX.  Therefore, the ques tion of whether Mexico's tax measures are applied 
in a manner that is "arbitrary or unjustifiable" under the chapeau is simply not relevant.  Mexico has 
not demonstrated that its tax measures are "necessary to secure compliance with laws or regulations" 
within the meaning of paragraph (d).  Further, ther e is no issue here of Mexico's having attempted to 
negotiate with some countries but not others befo re imposing its tax measures.  For that reason as 
well, US – Shrimp  is not relevant. 
 
FOR THE UNITED STATES:  
 
27. Could the United States please clarify wheth er, in its opinion, the measures at issue are 
inconsistent with Article III "on their face"  (de jure) or "as applied " (de facto).  
 
 The IEPS is inconsistent with GATT Artic le III because it discriminates against imported 
HFCS and soft drinks and syrups made with HFCS .  The IEPS discriminates against HFCS and soft 
drinks and syrups made with HFCS both on its face ( de jure ) and in fact ( de facto ).40 
 
                                                      
39 Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products , 
WT/DS58/AB/RW, adopted 21 November 2001, paras. 122-123 (summarizing its early findings), 128. 
40 The United States would respectfully suggest that "in fact" is a better term to use for " de facto " than 
"as applied" since to the uninformed reader, "as applied" could be confused with the challenge to a measure "as 
such" versus "as applied."  For exampl e, a measure could breach an obligation de facto  without having ever 
been applied because its design, struct ure or architecture are such as to de monstrate the discrimination by origin 
even though the measure on  its face does not specify  origin as a criterion. WT/DS308/R 
Page C-38  
 
  First as a tax on soft drinks and syrups, the IEPS discriminates de jure and de facto against  
soft drinks and syrups imported from the United States.  The IEPS discriminates de jure against 
imported soft drinks and syrups by  allowing a tax exemption for certain Mexican produced soft drinks 
and syrups – those sweetened only with cane s ugar – but denying that same exemption to the 
importation of soft drinks and syrups sweetened with HFCS or any other sweetener, including cane 
sugar. 
  The IEPS discriminates de facto against imported soft drinks and syrups by taxing the internal 
sale and distribution of soft drinks and syrups sw eetened with HFCS, but not the internal sale and 
distribution of soft drinks and syrups sweetened onl y with cane sugar.  As detailed in the US first 
submission, soft drinks and syrups sweetened with HFCS and soft drinks and syrups sweetened with 
cane sugar are "like products."
41  As also detailed in the US first submission, most soft drinks and 
syrups produced in the United States are sweeten ed with HFCS, while cane sugar is the dominant 
sweetener in Mexican produced soft drinks and syrups.42   Consequently, by taxing the internal sale 
and distribution of soft drinks and syrups sweetene d with HFCS, the IEPS taxes soft drinks and syrups 
imported from the United States.  At the same time, the IEPS exempts from the tax the type of soft 
drinks and syrups produced most widely in Mexi co – those sweetened with cane sugar.  In this 
manner, the IEPS constitutes de facto  discrimination against soft dri nks and syrups imported from the 
United States and sweetened with HFCS.   Second, as a tax on HFCS for use in soft drinks and syrups, the IEPS discriminated de facto 
against imported HFCS.  As explained in the US fi rst submission, cane sugar is by far the dominant 
sweetener in Mexico comprising between 90 and 95 percent of Mexican sweetener production prior to 
imposition of the IEPS.
43  HFCS on the other hand dominates sweetener imports comprising over 99 
percent of sweetener imports prior to imposition of the IEPS.44   Accordingly, by taxing the internal 
transfer and distribution of soft drinks and syrups  sweetened with HFCS but not those sweetened only 
with cane sugar, the IEPS de facto aims at the imported sweetener, HFCS, while excluding from 
taxation the domestic sweetener, Mexican can e sugar. The IEPS bookkeeping and reporting 
requirements similarly discriminate de facto  against imported HFCS. 
 
28. Could the United States please clarify the units in which the different figures contained 
in its Exhibit US-8, part of its first submission, are provided.  
 
 As contained in Exhibit US-8, all consumption figures are in metric tons unless otherwise indicated; the first set of GDP figures are in pesos;  the second set of GDP figures are in US dollars; 
per capita GDP figures are in US dollars.  HFCS figures are provided on a "dry basis."  
 For ease of reference, the United States has a ttached Exhibit US-57.  Exhibit US-57 is the 
same as Exhibit US-8 except with the addition of units for each set of figures provided therein.  
 
29. Could the United States please confirm wh ether, in its opinion, the challenged tax 
measures are applied by Mexico "so as to afford protection" to its domest ic production of soft 
drinks and syrups?  If so, how are those tax me asures applied so as to afford protection to 
domestic production of soft drinks and syrups?  Or  are they instead, or additionally, applied by 
Mexico so as to afford protection to its domestic production of cane sugar?  
 
 The IEPS is applied by Mexico "so as to afford  protection" to domestic production of soft 
drinks and syrups as well as "so as to afford protection" to domestic production of cane sugar. 
                                                     
 
41 US First Written Submission, paras 64-83. 
42 US First Written Submission, paras. 30-34, 86. 
43 US First Written Submission, paras 24, 137. 
44 US First Written Submission, para. 25, 137.  WT/DS308/R 
 Page C-39 
 
 
  
 As the Appellate Body has re lated on more than one occasion: 
 
"an examination in any case of whether dissi milar taxation has been applied so as to 
afford protection requires a comprehensive and objective analysis of the structure and 
application of the measure in question on domestic as compared to imported 
products.  We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its struct ure, and its overall application to ascertain 
whether it is applied in a way that affords protection to domestic products."
45  
 With respect to soft drinks and syrups, the I EPS is structured and applied such that imported 
soft drinks and syrups are subject to a 20 percent tax,46 while soft drinks and syrups sweetened with 
cane sugar and produced in Mexico are exempt from that tax.47   A 20 percent tax that applies to 
imported soft drinks and syrups but not to domestic  soft drinks and syrups clearly disadvantages 
imports in favor of domestic production and, t hus, affords protection to domestic production. 
 
 With respect to HFCS, the IEPS is structured  and applied such that the imported sweetener 
HFCS is subject to a 400 percent tax on its use in so ft drinks and syrups while the domestic sweetener 
cane sugar is exempt from that tax.48   A 400 percent tax that applies to the imported sweetener HFCS 
but not to the domestic sweetener cane sugar clearly disadvantages HFCS – in fact, effectively prohibits its use – in favor of domestic production of cane sugar and, thus, affords protection to 
domestic production of cane sugar.
49   
 
 As concerns HFCS, the protectionist struct ure of the IEPS is confirmed by a series of 
legislative statements and judicial interpretations  that the purpose of the IEPS is to protect the 
Mexican cane sugar industry.50  The stated purpose of the IEPS to protect the Mexican cane sugar 
industry does not, however, detract from the fact that the IEPS is also structured and applied so as to 
discriminate against imported soft drinks and syrups  and afford protection to  domestic production of 
soft drinks and syrups.    As the first US submission has discussed, the tax on soft drinks and syrups that are not 
exclusively sweetened with cane sugar has as an obj ect to afford protection to domestic production of 
cane sugar.  However, because Mexico essentiall y requires its domestic soft drink and syrup 
producers to use high-priced Mexican sugar, the tax necessarily must also protect these downstream 
producers against imports of competing soft drinks  and syrups sweetened with lower-cost sweeteners 
such as HFCS.  
30. The Panel has noted that in paragraph 8 of  the written version of its oral statement 
dated 2 December, the United States has stated that "NAFTA is not a 'law or regulation,' and 
Mexico's tax is not 'necessary to secure compliance.'"  Could th e United States please elaborate 
on those two assertions.  In particular, why does the United States consider that Mexico's taxes 
may not be considered "necessary" to secure compliance?  
                                                     
 
45 Appellate Body Report, Japan – Taxes on Alcoholic Beverages  (Japan – Alcoholic Beverages II ), 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 31; see also Appellate Body 
Report, Chile – Taxes on Alcoholic Beverages (Chile – Alcoholic Beverages ), WT/DS87/AB/R, 
WT/DS110/AB/R, adopted 12 January 2000, para. 61. 
46 See supra  US Response to Question 27 (discussing how the IEPS de jure and de facto  discriminates 
against imported soft drinks and syrups). 
47 US First Written Submission, paras. 149-52. 
48 US First Written Submission, paras. 45, 131. 
49 US First Written Submission, paras. 134-138.  
50 US First Written Submission, para. 139. WT/DS308/R 
Page C-40  
 
  
 The US statement that "NAFTA is not a 'law  or regulation'" was made in the context of 
rebutting Mexico's contention that a breach of its  Article III obligations was necessary to secure 
compliance with obligations Mexico has unilatera lly and erroneously determined that the United 
States has breached under the NAFTA, without any findi ng by a NAFTA panel to that effect.  As the 
United States explained in its oral statement, how ever, international obligations owed Mexico by 
other countries under the NAFTA and other internationa l agreements are not "laws" or "regulations" 
within the meaning of Article XX(d).
51  As contained in Article XX(d), "laws or regulations" means 
the laws and regulations of a state, not an intern ational agreement or obligations assumed thereunder.  
 
 This interpretation of "laws or regulations" is based on the ordinary meaning of those words.  
Black's Law Dictionary defines the word "laws":  
"Rules promulgated by government as a means to an ordered society.  Strictly 
speaking, session laws or statutes and not decisions of court; though in common 
usage refers to both legislative and court made law , as well as to administrative rules, 
regulations and ordinances."
52 
 It defines the word "regulations": 
 
"Such are issued by various go vernmental departments to carry out the intent of the 
law.  Agencies issue regulations to guide th e activity of those regulated by the agency 
and of their own employees to ensure uniform application of the law."53 
 In contrast, Black's Law Dictionary defines "international agreement": 
 
"Treaties and other agreements of a contr actual character between different countries 
or organizations of states (foreign) creating legal rights and obligations."54 
 Thus, the ordinary meaning of "laws" and "regulat ions" is that these are rules (e.g, in the form 
of a statute) issued by a government and not obligations under an international agreement. 
  This interpretation is suppor ted by the context in which "laws or regulations" appear – 
namely, Article XX of the GATT and more broadly the GATT and the WTO Agreement as a whole.  
In particular, Article XX itself distinguishes betw een "laws" and "regulations" on the one hand and 
"obligations" under an international agreement on th e other.  Thus, while Article XX(d) provides a 
defense for measures necessary to secure compliance with "laws or regulations," Article XX(h) provides a defense for measures "undertaken in pur suance of obligations under any intergovernmental 
commodity agreement." There would be no reason fo r the different phrasing had the drafters intended 
"law or regulations" to mean the same thing as "obligations under" an international agreement. 
 
 Other provisions of the GATT support the distin ction between "laws" and "regulations" on 
the one hand and "agreements" and "obligations" on the other.   For example, Article X:1 makes a 
distinction between  "laws, regula tions, judicial decisions and admi nistrative rulings" and "agreements 
affecting international trade policy between  government[s]"  Article X:1 states:   
 
"Laws, regulations, judicial decisions and administrative rulings of general 
application, made effective by any contr acting party, pertaining to the classification 
                                                     
 
51 US First Oral Statement, para. 9. 
52 Black's Law Dictionary 887 (1990) (emphasis added).   
53 Black's Law Dictionary 1286 (1990) (emphasis added). 
54 Black's Law Dictionary  816 (1990).  WT/DS308/R 
 Page C-41 
 
 
 or the valuation of products for customs purposes, or to rates of duty, taxes or other 
charges, or to requirements, restrictions or prohibitions on imports or exports or on 
the transfer of payments therefor, or affecting their sale, distribution, transportation, insurance, warehousing inspection, exhibition, processing, mixing or other use, shall be published promptly in such a manner as to enable governments and traders to 
become acquainted with them .  Agreements affecting international trade policy which 
are in force between the government or a governmental agency of any contracting 
party and the government or governmental agency of any other contracting party 
shall also be published".
55 
 Article III of the GATT distinguishes an "internal tax" from a "trade agreement" and 
"obligation" thereunder.   Article III:3 states:  
 
"With respect to any existing internal tax which is inconsistent with the provisions of 
paragraph 2, but which is specifically author ized under a trade agreement , in force on 
April 10, 1947, in which the import dut y on the taxed product is bound against 
increase, the contracting party imposing the tax shall be free to postpone the 
application of the provisions of paragra ph 2 to such tax until such time as it can 
obtain release from the obligations of such trade agreement in order to permit the increase of such duty to the extent necessary to compensate for the elimination of the 
protective element of the tax." 
 Further, "obligations under this Agreement" appears throughout the GATT – itself an 
international agreement.
56  Not once does the GATT reference " laws under this Agreement." In 
addition, Article XXI:(c) references "obligations under the United Nations Charter"; it similarly does 
not reference "laws" under the Charter.  This phrasi ng is, of course, in recognition of the fact that 
commitments under an international agre ement are "obligations" not "laws." 
 
 With respect to the fact that Mexico's ta x measures are not "necessary to secure compliance," 
the United States points out that the Panel need not  even reach the issue.  Because US obligations 
under the NAFTA are not "laws or regulations," Mexico's tax measures cannot be "necessary to secure compliance with laws or regulations."     In any event, Mexico's tax measures are not "necessary to secure compliance" with US 
NAFTA obligations.  In the first instance, Mexico's  contention is based on its own determination that 
United States is not already in compliance with t hose obligations.  As Mexico even admits, however, 
there is a genuine disagreement between Mexico  and the United States over the market access 
commitments undertaken by both side during the NAFTA negotiations.   Me xico's tax measure, 
therefore, cannot be necessary to secure compliance with US NAFTA obligations when it even admits 
there are different understanding regarding what those obligations are.  
  Moreover, negotiations between the United St ates and Mexico, as well as private sector 
interests, concerning the bilateral sweeteners trad e under the NAFTA have been on-going.  In fact, 
during the consultation phase of this dispute, Mexico acknowledged these discussions and expressed 
its belief that requesting a WTO panel was premature given these ongoing discussions.
57  It is difficult 
to understand how Mexico's tax measures are a res ponse to the failure of these discussions, and 
                                                      
55 GATT Art. X:1 (emphasis added). 
56 See, e.g., GATT Arts. XII:4(d), XV:6, XVIII:12, XVIII:16, XVIII:18, XVIII:21, XVIII:22, XIX:1 
and XXIII. 
57 See Dispute Settlement Body:  Minutes of the Meeting Held on 22 June 2004 , WT/DSB/M/171, 
para. 26. WT/DS308/R 
Page C-42  
 
 therefore in Mexico's eyes "necessary", when th e discussions continued well after enactment of 
Mexico's tax measures even through the consultation phase of this dispute.  
  In addition, as the Appellate Body stated in Korea – Beef ,  whether a measure is "necessary" 
involves the extent to which the measure contributes to the enforcement of the law or regulation at 
issue, the measure's impact on trade and the impor tance of the law or regulation to be enforced.
58  
While Mexico apparently attributes a great deal of importance to a viable cane sugar industry and its 
ability to export, the United States has difficulty understanding how a breach of Mexico's WTO 
obligations contributes to these goals.  As reviewed  in our first written submission, this breach has 
had a devastating impact on US HFCS exports to  Mexico.  It has not, however, solved any of 
Mexico's or the US concerns under the NAFTA and, in fact, has only contributed to the tensions on 
both sides.   Moreover, Mexico's tax measures apply not just to imports from the United States, but imports from any country.  Again, the United States finds it difficult to understand how, in seeking to 
enforce the alleged obligations of the United St ates under the NAFTA,  it is necessary to breach the 
national treatment obligations Mexico has undertaken with respect to every other WTO Member.    Furthermore, no matter what Mexico's co mplaint might be, Mexico could have sought 
NAFTA compliance through any number of means – dipl omatic or otherwise – short of breaching its 
WTO obligations. 
 
31. Could the United States please comment on Mexico's assertion that the list of laws and 
regulations in paragraph (d) of Article XX is illu strative and not exhaustive.  What conclusion, 
if any, should be drawn from this fact?  
  The United States agrees that the laws and re gulations listed in Artic le XX(d) is illustrative 
and not exhaustive.  Specifically, the laws and regul ations listed in Article XX(d) are introduced by 
the word "including" indicating that what follows is not an exhaustive list but rather examples of what comprise "laws or regulations."   However, any additional items to those illustrate d in the list would still need to be "laws and 
regulations."  As explained above, this would ex clude obligations under international agreements.  
The mere fact that the listing is illustrative cannot be  construed to mean that "laws and regulations" as 
used in Article XX(d) also encompass obligations  of another WTO Member under an international 
agreement.  32. Could the United States please comment on Mexico's assertion that its tax measures are necessary to secure compliance by the United Stat es with international obligations arising under 
the North American Free Trade Agreement.  
 
 The United States refers to the Panel to its response to Question 30.  33. Assuming that the tax measures applied by Mexico were to be examined under Article XX(d) of the GATT, could the United States suggest whether in its opinion there are alternative measures which would be reasonably available to Mexico and which would achieve the same objective.  
 
                                                     
 
58 Appellate Body Report in Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef , 
WT/DS 161/AB/R, WT/DS169/AB/R, adopted on 10 January 2001, paras. 163-64.  WT/DS308/R 
 Page C-43 
 
 
  Mexico could have sought to achieve its b ilateral trade objectives with the United States 
through any of the diplomatic means customarily em ployed in trade negotiations; it did not have to 
breach its multilateral trade obligations to the United States.  
FOR MEXICO:
 
 
37. The Panel has noted that in paragraph 38 of  the written version of its oral statement, 
Mexico has stated that the WTO case on Argentina - Poultry  differs from the present case in 
several important aspects and that it may not be  used as a precedent.  Could Mexico please 
explain, in its opinion, in what ways do the two cases differ and why should the Argentina - 
Poultry case not be relevant as a precedent.   
 Argentina – Poultry is an example of a dispute in whic h the responding party asked the panel 
to refrain from making findings on the issues in the dispute due to dispute settlement proceedings 
under a non-WTO agreement.  The panel rejected Argentina's request.  The panel explained that 
proceedings under a non-WTO tribunal (MERCUSOR) did not impose obligations on a WTO panel to 
find in a particular way and that Argentina's request  had "no basis in Article 3.2 of the DSU, or any 
other provision."
59 
  The Panel may find the panel's findings in Argentina – Poultry  as useful guidance in this 
dispute because it presents a similar situation to what Mexico argues in this dispute.  In both disputes 
the responding party argues that dispute settlement  proceedings before a non-WTO tribunal (whether 
those that have already occurred or may occur someti me in the future) justify the panel from declining 
to make findings on claims within the pane l's terms of reference.  The panel in Argentina – Poultry 
rejected the responding party's contention, as should the Panel in this dispute.  42. Could Mexico provide figures on the Mexican market of sweeteners for the production of soft drinks and sweetened syrups for the most  recent ten years of available information.  In 
particular, could Mexico provide informatio n on:  (a) yearly Mexican production of 
High-Fructose Corn Syrup (HFCS), of cane sugar and of other sweeteners, in value and kilograms;  (b)  yearly Mexican consumption of HFCS, of cane sugar and of other sweeteners, in 
value and kilograms, by the Mexican producers of soft drinks and sweetened syrups;  (c) yearly 
Mexican exports, if any, of HFCS, of cane su gar and of other sweeteners Could Mexico please 
provide figures on the Mexican market for so ft drinks and on the Mexican market for 
sweetened syrups;  and, (d) yearly Mexican import s (by origin), if any, of HFCS, of cane sugar 
and of other sweeteners for the production of soft drinks and sweetened syrups.  
  As an initial comment, the United States notes that the data presented in the US first 
submission more than adequately sat isfies the US burden to establish a prima facie  case on its 
Article III claims.  That data comes from a variety of official sources including from the Mexican Government itself.  Mexico has not contested this data, and it should therefore be taken as a given for 
purposes of this dispute.  
 The United States notes, however, that the info rmation requested of Mexico regarding the 
Mexican sweeteners market appears in the US first submission as follows:    
(a) yearly Mexican production of HFCS in metric tons:  US First Written 
Submission, para. 24 (company data) and footnote 38 (FAS data); Exhibit 
US-11A through 11E (FAS data); 
                                                     
 
59 Panel Report, Argentina - Definitive Anti-Dumping Duties on Poultry from Brazil (Argentina – 
Poultry ), WT/DS241/R, adopted 19 May 2003, para. 7.41. WT/DS308/R 
Page C-44  
 
 (b) yearly Mexican production of cane sugar in metric tons: Exhibit US-11A 
through 11E (FAS data); Exhibit US-15 (FAS data); 
(c) yearly Mexican consumption of HFCS by Mexican producers of soft drinks 
and syrups: Exhibit US-8 and Exhibit US-57 (attached as revised Exhibit-8) (ERS data); 
(d) yearly Mexican consumption of can e sugar by Mexican producers of soft 
drinks and syrups: Exhibit US-8 and Exhibit US-57 (attached as revised Exhibit-8) (ERS data); 
(d) yearly Mexican exports of HFCS:  Exhibit US-11A through 11E (Mexico 
Secretary of Economy data); 
(e) yearly Mexican exports of cane suga r:  Exhibit US-11A through 11E (Mexico 
Secretary of Economy data); 
(f) yearly Mexican imports of HFCS:  Exhibit US-10 ( from the US) (Mexico 
Secretary of Economy data); Exhibit US-11A through US-11E ( by country) (Mexico Secretary of Economy data); and 
(f) yearly Mexican imports of cane sugar:  Exhibit US-15 (from US and world) 
(Mexico Secretary of Economy data); Exhibit US-11A through US-11E (by country) (Mexico Secretary of Economy data). 
 Additionally, information on Mexican soft drink and syrup imports appears in the US first 
submission at Exhibit US-13.  Information on Mexican soft drink and syrup production and 
consumption can be found in the US first submission inter alia  at paragraphs 28 and 30, Exhibit US-
16, Exhibit US-18, Exhibit US-19, Exhibit US-23 and Exhibit US-48. 
 
43. Could Mexico identify the main producers of soft drinks and sweetened syrups in the 
Mexican market.  Could it also clarify whether,  for each producer, the products are sweetened 
with High-Fructose Corn Syrup (HFCS), cane sugar or other sweeteners.  
 
 The main producers of soft drinks and syrups in the Mexican market are identified in the US 
first submission at paragraph 31.  Mexican soft  drink and syrup producers using HFCS/cane sugar 
pre- and post-imposition of the IEPS are identified in the US first submission at paragraphs 30 and 34.  
The use of HFCS verus cane sugar by Mexican soft drink and syrup producers is contained in Exhibit 
US-8 and Exhibit US-57 (attached to this response as revised Exhibit US-8).    
 
QUESTION POSED BY MEXICO
 
  Does the United States continue to adhere to th e view expressed in the quotation cited  at 
paragraph 126 of Mexico's  First Written Submission? 
  The cited quotation helps explains why the United States actively supported the transition 
from the General Agreement on Tariffs and Trade 1947  (to which this quotation relates) to the DSU.  
In this connection, it is interesting that Mexico chose to leave off the sen tence immediately following 
the quotation it cites.  That sentence reads:  "The wa y to minimize or avoid un ilateralism was to create 
a credible multilateral system – by strengthening the existing system."
60  This is, of course, what the 
Uruguay Round participants did in concluding the Uruguay Round negotiations on the DSU. 
                                                      
60 GATT Document C/163 of March 16, 1989, p. 4.  WT/DS308/R 
 Page C-45 
 
 
  
 The United States is now seeking recourse to that dispute settlement system, as is its right under the WTO Agreement.  The United States assume s that Mexico, by citing to this quotation, 
supports the US position on a credible multilateral di spute settlement system and the United States 
welcomes Mexico's support.  
 WT/DS308/R 
Page C-46  
 
 ANNEX C-3
∗ 
 
RESPONSES BY MEXICO TO QUESTIONS POSED BY THE PANEL  
AFTER THE SECOND SUBSTANTIVE MEETING  
 
(15 March 2005) 
  
FOR BOTH PARTIES:
 
 
52. The Panel recalls that, in its response to Panel questions Nos. 45 and 50, Mexico stated that "as of 1 January 2005, imported soft dri nks, syrups and concentrates for preparing soft 
drinks will be exempt from payment of the IEPS, as long as they are sweetened only with cane 
sugar."  Could parties please provide more informat ion in this regard?  The Panel further notes 
that, in its rebuttal submission, the United States has said that "The January 1, 2005 
amendment to the HFCS soft drink tax is outside the Panel's terms of reference".  Do parties 
have any additional comments on the matter?  Could they please explain how the new amendment works and how it has changed the previous relevant provisions of the law. 
 
 The new amendment creates an additional exem ption from the payment of the IEPS tax.  It 
provides that imports of soft drinks, syrups and c oncentrates for preparing soft drinks are exempted 
from the IEPS payment provided that on ly cane sugar is used as a sweetener: 
 
"Article 13.- The tax established under this Law is not payable, in the following 
imports: 
V.  Those of goods referred to in subsections (G) and (H) of section I of Article 2 of 
this Law, provided that  they use only cane sugar as a sweetener."
1 
 In Mexico's view, the Panel has the power to  consider the amendment to the IEPS in the 
context of this dispute.    
 In past disputes, some panels have considered  whether to take into account amendments made 
to the measures in the course of the procedure.  While some panels have declined to have them 
examined, at least two panels have taken into acc ount the most recent evolutions of the measures at 
issue in their analysis.   In the context of the GATT 1947, the panel in Thailand – Cigarettes  took into account, in 
drawing its conclusions as to the consistency of the measures submitted to it, an amendment of the 
measures on the basis of which it concluded that th e measures at issue were no longer inconsistent 
with Article III:2 of the GATT.  The panel found th e "current" measures no longer to be in violation.
2  
  More recently in India – Measures Affecting the Automotive Sector , the Panel noted that if the 
most recent evolutions of the measu res at issue are not taken into acc ount in a panel's assessment of 
                                                     
 
∗ Annex C-3 contains the responses by Mexico to questions posed by the Panel after the second 
substantive meeting.  This text was originally submitted in Spanish by Mexico. 
1 See Decreto por el que se reforman y adicionan diversas disposiciones de la Ley del Impuesto 
Especial sobre Producción y Servicios published in the Diario Oficial de la Federación (Mexican Official 
Gazette) on 1 December 2004.  Exhibit MEX-46 . 
2 The panel concluded that "[t]he current regulations relating to the excise, business and municipal 
taxes on cigarettes are consistent with Thailand's obliga tions under Article III of the General Agreement".  See 
Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes , BISD 37S/200, para. 88.    WT/DS308/R 
 Page C-47 
 
 
 the matter before it, "there may be a significant ri sk that the resulting ruling could remain of very 
uncertain value even as of the date of release of the Panel's report, as well as potentially be internally 
inconsistent in making a recommendation to bring into  conformity measures alleged to have ceased to 
have an effect".3  The Panel also made the following finding: 
 
In light of the foregoing, the Panel felt that it would not be making an "objective 
assessment of the matter before it", or  assisting the DSB in discharging its 
responsibilities under the DSU in accordance with Article 11 of the DSU, had it chosen not to address the impact of events having taken place in the course of the proceedings, in assessing the appropriateness of making a recommendation under 
Article 19.1 of the DSU.
4 
 Accordingly, Article 11 of the DSU requires panels to take into account events which 
occurred in the course of the proceedings, incl uding amendments to the measures at issue. 
 
53. In its response to Panel question No. 46, Mexico  stated that the "soft drinks tax", as it 
had been in place before December 2004, did no t discriminate based on the origin of the 
product.  Does Mexico mean that internal transf ers of imported soft drinks are exempt from the 
"soft drinks tax" as long as those soft drinks are sweetened with cane sugar under the measures 
at issue, even though no exemption is allowed for the same imported products at the time of 
importation?  In other words, is it correct to  understand that the "soft drinks tax" operates 
differently depending on the two specific times when the tax is imposed, i.e., upon importation 
and upon any internal transfer occurred within the market?  Could the United States also 
provide its comments? 
 
 Prior to the 1 January 2005 amendment referred to in Question 52, the tax operated differently 
depending on whether it was imposed at the time of im portation or at the time when internal transfer 
occurred within the national territory.  As a result of the new amendment, imports of soft drinks, 
syrups and concentrates for preparing soft drinks that use only cane sugar as a sweetener receive the same exempt treatment that applies to internal  transfers that take place in national territory. 
 
54. Do the parties view the so-called "boo kkeeping requirements" as a separate measure 
from the "soft drinks tax" and the "distribution tax", or rather as a measure which is ancillary 
to the two last.  If it is an ancillary measure,  would that fact have any consequence on the way 
the Panel should analyse those "bookkeeping requirements"? 
 
 As discussed in Mexico's response to Qu estion 22, the bookkeeping requirements are 
contained in the Reglamento de la Ley del Impuesto Especial sobre Producción y Servicios published 
on 15 May 1990, the Resolución Miscelánea Fiscal Para 2003 (Title 6) published on 31 March 2003 , 
and the Resolución Miscelánea Fiscal Para 2004 (Title 6) published on 30 April 2004.  These 
instruments implement and are relevant to the ad ministration of various aspects of the IEPS tax.  
Thus, these are elements belonging to the same measur e, and are linked inseparably to it.  They are 
not a "separate measure".  
 Mexico believes that this fact should not ha ve any consequence on the way the Panel should 
analyse those "bookkeeping requirements".  As the complaining Party, the United States must establish that those requirements fall within the scope of Articles III:2 and III:4 of the GATT.  
                                                     
 
3 India – Measures Affecting the Automotive Sector , Report of the Panel, WT/DS146/R and 
WT/DS175/R, adopted on 5 April 2002, para. 8.26. 
4 Id., para. 8.28. WT/DS308/R 
Page C-48  
 
 55. The Panel recalls that, in its response to Panel question No. 21, the United States 
asserted that "The IEPS as a tax on HFCS may properly be examined under both Article III:2 
and III:4 of the GATT 1994".  During the second substantive meeting (paragraph 53 of written 
version), Mexico expressed its doubts that, as  a matter of WTO law, a same measure may 
violate both Article III:2 and Article III:4.  Do th e parties have additional views on the matter?  
Could they also clarify whether, if in a partic ular case, simultaneous claims were raised against 
the same measure under both Article III:2 and III:4 , a panel should proceed in any particular 
order when dealing with such claims? 
 
 Mexico reiterates its view that WTO jurisprude nce suggests that if a measure constitutes a tax 
measure, it should be assessed under Article III:2 of  the GATT 1994 whereas non-fiscal regulation is 
covered by Article III:4.  In the light of the a bove, Mexico doubts that simultaneous claims can be 
raised against the same measure under both Ar ticle III:2 and Article III:4 (See Second Oral 
submission of Mexico, paras. 53-54 and Answers of Me xico to Questions of the Panel in Relation to 
the First Substantive Meeting with the Parties, page 8).  In Mexico's view, if the measure constitutes a 
tax measure, the appropriate assessment is under Article III:2.   
 
56. Does the so-called "distribution tax" opera te on its own or is it dependent on the 
operation of the "soft drinks tax"?  Does its existence depend on the "soft drinks tax"?  Is it in any other manner linked to the so-called "soft drinks tax"? 
  The tax on certain services – i.e. commercial intermediation, dealer, agency, representation, 
brokerage, consignment, and distribution services in r espect of soft drinks and syrups sweetened with 
sweeteners other than cane sugar – is independent of that on the transfer of the goods that are subject 
to the tax, and the law regulates such activities in a different manner.    57. In the view of the parties, can Article III:2 of the GATT cover a measure that imposes a tax on services related to specific products? 
 
 Article III:2 of the GATT 1994 expressly refers to  "internal taxes or other internal charges" 
applied to the " products  of the territory of any contracting party imported into the territory of any 
other contracting party".  In Mexico's view, thus , Article III:2 of the GATT 1994 covers tax measures 
that apply to products.   
 
58. During the second substantive meeting (par agraph 33 of written version), Mexico has 
said that its measures may be justified under the NAFTA.  Further, in its closing statements, Mexico argued that a NAFTA panel could find th at the tax measures imposed by Mexico would 
be acceptable countermeasures.  Does the United  States agree with this statement?  Could 
Mexico please elaborate on its statements and provide reference to the provisions of the NAFTA 
agreement under which its measures would be justified. 
 
 The Panel will appreciate that for obvious reasons, Mexico does not wish to address the 
arguments that it might advance before another panel or arbitral tribunal in the future.  Therefore, 
Mexico will sketch out the basis of its legal positio n, taking note of the United States' position on the 
adoption of countermeasures.  
First, in order to understand the legality of  countermeasures under the NAFTA, it is necessary 
to refer to NAFTA Articles 2003, 2004 et seq .  As pointed out in Mexico's previous submissions, in 
NAFTA Chapter Twenty, which estab lishes the treaty's general dispute settlement mechanism, the 
Parties agreed to cooperate " at all times " and  to " make every attempt  through cooperation and 
consultations to arrive at a mutually satisfactory resolution of any matter that might affect … [the] 
operation" of the Agreement (Article 2003).  They also agreed to apply the provisions of Chapter 
Twenty to "the avoidance or settlement of all disputes between the Parties regarding the interpretation  WT/DS308/R 
 Page C-49 
 
 
 or application of [the] Agreement or whenever a Pa rty considers that an actual or proposed measure of 
another Party is or would be inconsistent w ith the obligations of [the] Agreement or cause 
nullification or impairment … ".  [Emphasis added.]   NAFTA Chapter Twenty was described as follows  by the United States in a very recent 
pleading (filed 4 February 2005) before an arbitral tribunal: 
 
"… The Chapter Twenty mechanis m has an unusually broad reach
:  it applies to all 
disputes concerning "the interpretation or app lication of this Agreement or wherever a 
Party considers that an actual or propo sed measure of another Party is would be 
inconsistent with the obliga tions of this Agreement."5  [Emphasis added.] 
 The underlying fundamental obligation is that  the NAFTA Parties shall cooperate in good 
faith in resolving disputes and if they cannot agree on a satisfactory resolution, they shall submit to the jurisdiction of an independent arbitral panel.    
 Second, Chapter Twenty does not permit a Party to refuse to resolve a dispute either through 
consultations or an arbitral panel proceeding.  No thing in the NAFTA authorizes a Party to decline to 
participate in dispute settlement proceedings , and so avoid having its measures scrutinized.  The fact 
that Chapter Twenty does not allow a Party to "sel f-judge" the merits of another Party's complaint or 
the legality of its measures makes eminent sense:  if  it were left to potential respondents to determine 
whether or not to submit to an arbitral panel, they  would be tempted to refuse to submit to the dispute 
settlement mechanisms except in ca ses in which they considered th ey faced no significant exposure 
(this was apparently the United States' concern about  the GATT system when it made the statement to 
the GATT Council quoted at paragraph 126 of  Mexico's First Written Submission). 
  Third, the question that arises when a Party wr ongly refuses to submit to  dispute settlement is 
what avenues of redress are available to the comp lainant at international law and to induce the 
obstructionist State to participate in the dispute settle ment mechanisms.  This leads Mexico to the next 
relevant provision of the NAFTA:  The treaty is to be  interpreted, according to Article 102(2), "in the 
light of its objectives … and in accordance with applicable rules of international law ".  [Emphasis 
added.]  Article 1131(1) contains the same require ment (tribunals constitute d under the NAFTA have 
given a broad meaning to the phrase "app licable rules of international law".
6) 
 
 It is well established at international law and in the NAFTA jurisprude nce that the rules of 
customary international law continue to appl y between States unless amended or rescinded by 
agreement between the latter.  This is a point that  both Mexico and the United States have made on a 
number of occasions.  In the Loewen  case, for example, the United States discussed a submission by 
Mexico in which Mexico had pointed out the care th at should be taken to ensure the existence of a 
rule of customary international law said to constitut e an applicable rule of international law.  The 
United States commented:  
"1. The Governing Law  
The Government of Mexico submits that , as provided in NAFTA Article 1131(1), the 
Tribunal must decide this matter in accord ance with the terms of the Agreement and 
                                                     
 
5 Objection to Jurisdiction of Respondent United States of America in Tembec Inc., Tembec 
Investments Inc. and Te mbec Industries Inc., v. United States of America .  Exhibit MEX-47. 
6 For example, in S.D. Myers, Inc . v. Canada , the tribunal held that when applying NAFTA 
Article 1105, a determination of breach "must [in addition to taking into accoun t certain factors] also take into 
account any specific rules of international law that are applicable to  the case".  Award, para. 263.  Exhibit 
MEX-48. WT/DS308/R 
Page C-50  
 
 applicable rules of international law.  The United States agrees with Mexico and 
submits, respectfully, that this point is an important one. 
Unlike common-law courts, an international tr ibunal is not authorized to make law or 
otherwise to rely on considerations that are not recognized rules of international law.  
Rather, as Mexico correctly observes, a tribunal constituted under NAFTA Chapter 
Eleven may apply as the rule of decision only the terms of the Agreement and 
applicable rules of international law.  A rule may be considered to form part of 
customary international law only where the existence of the rule is established by 
general and consistent prac tice of States followed by them from a sense of legal 
obligation.  If there is no widespread or substantial uniformity of State practice with 
regard to the rule in question, then that rule cannot be regarded as one of customary 
international law and, therefore, cannot govern the resolution of the dispute .   
... B. Other Sources of Governing Law  The Government of Mexico observes correc tly that customary international law is 
determined by international custom as ev idence of the general practice accepted as 
law, and offers comment on several sources of international law and their varying 
degrees of authoritativeness.  The United St ates agrees with Mexico that customary 
international law is defined by State prac tice and that only those rules that have 
gained widespread acceptan ce as law may be considered as part of customary 
international law."
7   
 [Emphasis added;  footnotes omitted.] 
  Later in the same proceeding, the United Stat es and the claimants disagreed as to whether the 
customary international law rule of continuous nationality of claims continued to exist under the 
NAFTA.  The United States asserted in this regard  (and the Tribunal ultimately agreed with it
8) that: 
 
"Loewen does not contest (nor could it) that the NAFTA, by its express terms, 
incorporates rules of international law to supply the rules of decision in Chapter 
Eleven disputes.  See NAFTA Article 1131 ("A Tribunal ... shall decide the issues in 
dispute in accordance with this Agreement and applicable rules of international law.")  
At the same time, Loewen argues that this particular  rule of international law (i.e., 
that of continuous nationality) was selectively and conveniently excluded from 
NAFTA Chapter Eleven by the Agreement's other express terms.  As the United States has already shown, however, and as we reconfirm below, Chapter Eleven contains no such express terms that can fa irly be construed to derogate from the 
customary international law requirement of continuous nationality through the date of 
the award. 
... 
                                                     
 
7 Response of the United States of America to the November 9, 2001 Submissions of the Governments 
of Canada and Mexico Pursuant to NAFTA Article 1128 in The Loewen Group International, Inc. and Raymond 
L. Loewen v. United States of America , page 1.  Exhibit MEX-49. 
8 See the Final Award, paras. 228 et seq . "Respondent correctly contends that Article 1131 requires the 
Tribunal to decide the issues  in accordance with 'applicab le rules of international law'."  The tribunal then 
proceeded to find that the continuous nationality rule continued to apply to the NAFTA although not expressly 
provided therein.  Exhibit MEX-50.  WT/DS308/R 
 Page C-51 
 
 
 As the United States has demonstrated, customary international law requires that a 
claimant maintain a nationality other than that of the respondent State from the date 
of injury (the dies a quo ) through the date of the award (the dies ad quem ).  NAFTA 
Chapter Eleven was drafted against this legal background and explicitly incorporates 
"applicable rules of international law"  as part of the Agreement.  (NAFTA 
Article 1131(1);  Decision on Jurisdiction para. 50).  This Tribunal has already 
recognized that "an important principle of international law should not be held to have been tacitly dispensed with by an international agreemen t, in the absence of 
words making clear an intent to do so."  (Decision on Jurisdiction para. 76.)  Therefore, in the absence of an express de rogation, the rule of continuous nationality, 
like other rules of international law, applies to NAFTA Chapter Eleven claims . 
... … A customary international law rule, which supplies the rule of decision by virtue 
of NAFTA Article 1131(1) unless overridden by an  explicit, contrary provision of the 
Agreement, need not be further codified in  the NAFTA in order to apply to a Chapter 
Eleven claim."
9   
 [Emphasis added;  italics in original;  footnotes excluded.] 
  Under both Article 102(2) and Article 1131, not only Chapter Eleven but the NAFTA as a 
whole is to be interpreted in accordance with its ow n terms and the applicable rules of international 
law, including the Vienna Convention on the Law of  Treaties.  The customary international law rules 
concerning countermeasures are applicable when, by reason of one Party's obstructionism, a treaty's 
dispute settlement mechanism breaks down and the co mplainant State is unable to secure independent 
third party consideration of its grievance.     If this were not the case, it would be open to a potential respondent to refuse to submit to the 
agreed dispute settlement mechanis ms and then to argue that the complainant had no right to take 
countermeasures to protect its own interests (which in itself disproves the proposition), thereby undermining the body of agreed rights and obligations.  Any State would be able to violate the Treaty with impunity.  However, customary internationa l law establishes relevant rules under which an 
injured State clearly has the right to take action to  redress the situation, and to encourage use of these 
existing institutional mechanisms.   
 
 Mexico has persuasive arguments that could be put to a NAFTA panel or arbitral tribunal.   
  For example, Mexico would direct the Panel's attention to the Air Services Agreement 
Arbitration award (see Exhibit MEX-37).  In that case, the United States successfully justified the 
adoption of measures intended to induce France to s ubmit to dispute settlement under their bilateral 
air services treaty after France had imposed certain re strictions that the United States considered were 
inconsistent with France's treaty obligations.  The United States in fact took more severe action 
against French carriers than France did against the US carrier.  The US action was nevertheless upheld 
by the international tribunal.    
 Mexico finds that award to be particularly appo site because the facts of the case were far less 
egregious than the facts of the instant case and the rationale of the US countermeasures was similar to 
Mexico's rationale.  The parallels and relevant findings include the following: 
 
                                                     
 
9 Reply of the United States of America on Matters of Jurisdiction and Competence, pp. 9-11.  Exhibit 
MEX-51. WT/DS308/R 
Page C-52  
 
 • First, it was the United States that successf ully defended its countermeasures.  The 
award thus provides evidence of what the US view is when it is a complainant facing an obstructing respondent. 
 
• Second, as in the instant case, the measures were taken to induce France to submit to 
dispute settlement under the applicable treaty.  They were upheld in the face of an 
obligation which required the parties to ma ke a good faith effort to negotiate on 
issues of potential controversy.  The US measures were upheld although France 
quickly agreed to submit the matter to an in ternational tribunal.  Unlike the US in this 
case, France did not drag on the dispute for over 6 years. 
 
• Third, although the tribunal held that it mu st be satisfied with a "very approximative 
appreciation" of the proportionality of the m easures, it declined to find that the US 
measures were "clearly disproportionate" in comparison to France's measures which 
gave rise to the dispute.
10 
 
• Fourth, the tribunal considered that in add ition to the commercial issues at stake, the 
systemic issues arising under the treaty were also relevant to its consideration of the countermeasures.
11  Mexico has a systemic interest  in having the United States submit 
to NAFTA dispute settlement. 
 
• Fifth, the tribunal considered that the aim of countermeasures "is to restore equality 
between the Parties and to encourage them  to continue negotiations with mutual 
desire to reach an acceptable solution.  It found that "the United States countermeasures restore in a negative way the symmetry of the initial positions."
12  
This is precisely what Mexico sought to do, to return the bilatera l trade in sweeteners 
to the status quo ante , and to induce the United States to submit to the NAFTA 
dispute settlement mechanism in complia nce with its obligations thereunder. 
 
• Finally, the tribunal emphasized the need  to accompany counte rmeasures with "a 
genuine effort at resolving the dispute" but found it impossible "to lay down a rule 
prohibiting the use of countermeasures dur ing negotiations, especially where such 
countermeasures are accompanied by an offer for a procedure affording the possibility of accelerating the solution of the dispute".
13  Over a period of more than 
six years, Mexico has repeatedly sought in  good faith to resolve the dispute in many 
ways, but to no avail, given the position maintained by the United States. 
 
 The essential finding of the tribunal was that: 
 
81. … If a situation arises which, in one St ate's view, results in a violation of an 
international obligation by another State, th e first State is entitled, within the limits 
set by the general rules of international law pertaining to the use of armed force, to 
affirm its rights through "counter-measures".   
 This remains an accurate statement of the law. 
  Mexico has also reviewed the United States' pleadings in the Air Services Agreement  case.  
Interestingly, in support of its argument that a State may temporarily suspend treaty rights pending 
                                                     
 
10 Air Services Agreement Arbitration award, para.83. 
11 Id. 
12 Id., para. 90. 
13 Id., para. 91.  WT/DS308/R 
 Page C-53 
 
 
 arbitration, the United States invoked Article 27 of  the 1935 Harvard Draft Convention on the Law of 
Treaties, which provided that:  
(a) If a State fails to carry out in good faith its obligations under a treaty, any other party 
to the treaty, acting within a reasonable time after the failure, may seek from a 
competent international tribunal or authority a declaration to the effect that the treaty 
has ceased to be binding upon it in the sense of calling for further performance with 
respect to such State. 
(b) Pending agreement by the parties upon and decision by a competent international 
tribunal or authority, the party which seeks such a declaration may provisionally 
suspend performance of its obligations under the treaty vis-à-vis  the State charged 
with failure .   
(c) A provisional suspension of performance by the party seeking such a declaration will 
not be justified definitively until a decision to this effect has been rendered by the competent international tribunal or authority.  [Emphasis added.] 
 The United States cited with approval the draf ters' commentary on Article 27 of the Harvard 
Draft, which reads as follows:  
It is apparent, therefore, that it might frequently be within the power of the state alleged to have committed the breach to prev ent or delay submission of the matter to 
an international tribunal or authority simply by neglecting or refusing to agree upon 
any such tribunal or authority, or by denying that tribunals or authorities which it 
already had agreed upon for certain purposes possess jurisdiction to make the sort of 
declaration referred to in this article.  Furthermore, even after the states concerned have agreed upon a competent international tr ibunal or authority, a considerable time 
will necessarily elapse before it can render its  decision.  In consideration of these 
facts, and in view of the further fact th at continued performance of its obligations 
under a treaty vis-à-vis a state charged with breach thereof might prove costly or even 
involve irreparable damage to the state seek ing the declaration, if the decision is 
ultimately in its favor, it seems only reasonable to permit the latter state to suspend the performance of its own obligations under the treaty vis-à-vis the state charged 
with failure pending agreement upon a competen t international tribunal or authority, 
and pending final decision by such authority.
14 
 This view is both logical and consistent w ith the rules of customary international law on 
countermeasures.  At international law, a State may, under certain circumstances, take action to 
redress a particular situation.  
 In its Second Oral Statement, the United States alleged that Mexico had relied on 
"out-of-context citations made by the United States in connection with the Air Services Agreement of 
1946 (as well as the GATT 1947, the NAFTA and the WTO Section 301  panel proceeding)".
15  
Mexico rejects any suggestion that any of the p assages it quoted from US statements were taken out 
of context.  The hedging on what was actually said by the United States (i.e., "Whatever statements the United States may or may not ha ve made in these contexts … "
16) should be seen for what it is:  an 
                                                      
14 Department of State, Office of the Legal Adviser, Digest of United States Practice in International 
Law, 1978, p. 775.  Exhibit MEX-52. 
15 Second Oral Statement of the United States, para. 25. 
16 Id. WT/DS308/R 
Page C-54  
 
 attempt to resile from the effect of its official statements for the purposes of this proceeding, while 
preserving the United States' ability to rely on them when it suits its own interests. 
  The United States Department of State considered the Air Services Agreement  award to be an 
excellent statement of the law in 1997 when it provi ded the United States' comments on the then draft 
Articles on State Responsibility for internationally  wrongful acts, under consideration by the 
International Law Commission:    
The United States agrees that under custom ary international law an injured State 
takes countermeasures "in order to induce [the wrongdoing State] to comply with its 
obligations".  See Draft Article 47(1).  S ee also Case Concerning the Air Services 
Agreement of March 27, 1946 Between the United States of America and France , 
18 R.I.A.A.  417, 443 (1978) [hereinafter Air Services Case] stat ing that an injured 
State "is entitled … to affirm its rights through 'counter-measures'").17  
 In a six-page discussion of countermeasures, the United States cited the Air Services 
Agreement Arbitration award with approval no less than nine times, six times more than the next most 
frequently cited case ( Case Concerning the Gabcikovo-Nagymaros Project ).  The Panel will see from 
reviewing the State Department document that the award is cited for the right to impose 
countermeasures during negotiations an d in support of the principle that they should be compared to 
the act motivating them and that there should be some  degree of equivalence with the alleged breach.  
Indeed, the award is relied upon to criticize th e ILC's attempt to introduce a more restrictive 
proportionality test (the award in this case had app lied a not "clearly disproportionate" standard), 
saying that the ILC's proposed interpretation "does not accord with customary practice".18   
  In contrast with the United States' position, in  the instant case, it must be appreciated, among 
other things, that: 
 
 a. Mexico adopted the measure at issu e only after having exha usted unsuccessfully, 
during several years, all other efforts; 
  b. during that period of time the Mexican sugar segment suffered a real damage as a 
result of the United States' denial of givi ng the negotiated access to its market, while 
HFCS continued to gain market share in Mexico; 
  c. Mexico confined the adopted measure to the sweeteners sector (years before, the 
United States itself had established the sugar-HFCS link); 
 
 d. Mexico's measure was entirely proportiona te (not "clearly disproportionate");  and 
  e. as the United States Department of Agricu lture repeatedly reported, the United States 
was at all material times fully aware of the adverse impact of its continued failure to 
submit the Mexican market access grievance to dispute settlement. 
 
 With respect to Mexico's having chosen to use taxation measures, Mexico would point out 
that customary international law gives a State wi de discretion in formulating countermeasures.  
Subject to very basic requirements (such as not violating human rights obligations or contravening the laws of armed conflict) it is free to choose the fo rm and type of such measures.  In this case, the 
                                                     
 
17 Draft Articles on State Responsibility for internationally wrongful acts:  Comments of the 
Government of the United States of America, 22 October 1997.  Exhibit MEX-53. 
18 Id.  WT/DS308/R 
 Page C-55 
 
 
 measures were intended to deal with the displaceme nt of sugar by HFCS, pending a resolution of the 
dispute.   Finally, Mexico also wishes to re-emphasi ze that the United States has claimed the same 
right, both in the GATT and under the NAFTA , and in fact has taken such action vis-à-vis  Canada.  
This is evidence of relevant State practice under the NAFTA (see Article 31 of the Vienna 
Convention.  
59. Do the parties consider that the NAFTA Agreement is part of the United States' 
domestic "laws or regulations"?  What implic ation would that fact have for the expression 
"laws or regulations" as used in paragraph (d) of Article XX of the GATT in this dispute?  
 This question follows the United States' practi ce of qualifying the terms "laws or regulations" 
by including a word that is not contained in Ar ticle XX(d), namely, "domestic".  Mexico has argued 
that it is not correct to read into Article XX(d)  a word that is not actually in the text.   
 
 The more salient point is that although NAFTA is  an international treaty, it plainly has effects 
in the domestic legal orders of all three NAFTA  Parties that go beyond implementing action taken by 
any particular signatory.  Mexico pointed out at th e Second Substantive Meeting that the three Parties 
expressly agreed not to establish a cause of action wh ich would permit a private party to sue another 
NAFTA Party in its domestic courts for breach of the tr eaty.  The implication of this is that had they 
not so agreed, it would have been permissible for a Party to create such cause of action.   
  The United States in fact reserved standing for itself to have a cause of action under the NAFTA and Canada retained a discretionary power v ested in its Attorney General to decide whether 
to consent to a cause of action to enforce any right or obligation that arises under the NAFTA.
19  
NAFTA also contains a provision (Article 2020)  permitting the Free Trade Commission to submit 
agreed interpretations of the NAFTA to domestic c ourts or administrative tribunals (or for each Party 
to do so in the absence of  such agreement) "[i]f an issue of interpretation or application of [the] 
Agreement arises in any" such domestic judicial or administrative proceeding.  It would be unnecessary to so provide if the treaty had no effect  in the domestic legal order of a Party.   
 
 The strict separation between international obl igations and domestic law advocated by the 
United States is not borne out by the treaty itself.  The implication of this point is simply that if, as here, an international treaty breaks down by reas on of a Party's obstruction, it would be open to 
another State adversely affected thereby to seek to  secure compliance with its terms and action taken 
by that State would be justified under Article  XX(d) of the GATT 1994 (in circumstances which 
Mexico has already explained in detail and will not repeat here). 
 
60. As parties are aware, the Appellate Body has stated that, in order to evaluate the 
"necessity" of a measure under Article XX(d), a panel would need to examine, among other 
factors, "the relative importance of the common in terests or values that the law or regulation to 
be enforced is intended to protect" (Appella te Body Report, Korea – Various Measures on 
Beef).  Could parties please explain, in thei r view, what would be "the common interests or 
values" that the NAFTA Agreement is intended to protect. 
 
 The best evidence of the important common in terests and values that the NAFTA is intended 
to protect is contained in the Preamble and Objectiv es provisions of the Treaty.  The three Parties took 
care to express their common interests or values.  In the Preamble these include: 
 
                                                     
 
19 See Footnote 59 of Mexico's Second Written Submission. WT/DS308/R 
Page C-56  
 
 • Strengthening "the special bonds of fr iendship and cooperation among" the three 
nations; 
 
• contributing to "the harm onious development and expa nsion of world trade and 
provid[ing] a catalyst to broa der international cooperation"; 
 
• creating "an expanded and secu re market for the goods
 and services produced in 
…[the signatories'] territories"; 
 
• establishing "clear and mutually advantageous rules  governing their trade"; 
 
• building "on their respective rights and obligations under the General Agreement on 
Tariffs and Trade  and other multilateral and bilate ral instruments of cooperation"; 
 
• creating "new employment opportunities a nd improve[ing] working conditions and 
living standards in their respective territories";  and  
 
• preserving the Parties' "flexibility to  safeguard the public welfare". 
[Emphasis added.] The Agreement's objectives, set forth in Article 102, are to inter alia : 
 
• "Eliminate 
barriers to trade  in, and facilitate the cross-border movement of, goods and 
services between the territories of the Parties"; 
 
• "promote conditions of fair competition  in the free trade area"; 
 
• "create effective procedures for the implementation and application of this 
Agreement, for its joint administration and for the resolution of disputes ";  and 
 
• "establish a framework for further trilatera l, regional and multila teral cooperation to 
expand and enhance the benefits  of this Agreement".   
  [Emphasis added.]   On 4 February 2005, the United States affirm ed, in a pleading filed in the defence of a 
NAFTA Chapter Eleven claim, that the NAFTA Pa rties attach great importance to the effective 
resolution of disputes under the NAFTA.  It stated: 
 
The final element of the Vienna Convention's cardinal rule of treaty interpretation focuses on the treaty's object and purpose.  NAFTA Article 102 states in pertinent part as follows: 
The objectives of this Agreement, as elaborated more specifically through its 
principles and rules, … are to: 
(e) create effective procedures … for the resolution of disputes … 
As demonstrated below, a review of the NAFTA's various rules for dispute resolution 
reveals an overriding concern with promoti ng effective dispute resolution procedures 
and avoiding the inefficacies that resu lt from redundant proceedings between the 
same parties before different dispute resolution panels  …  WT/DS308/R 
 Page C-57 
 
 
 Much scholarly attention h as been focused on the prolif eration of international 
tribunals in recent decades.  One conseque nce of this phenomenon is that claimants 
have expanded opportunities to submit th e same dispute simultaneously or 
consecutively to multiple fora, giving rise to redundant proceedings.  Redundant 
proceedings present the risk of conflicting judgments, undermine the principle of 
finality, present the possibilit y of double recovery for cl aimants, are burdensome and 
unfair to the respondent, represent a poor use of judicial and arbitral resources and 
have potentially negative syst emic implications for international law and international 
dispute resolution generally .20   
[Italics in original;  underlining added;  footnotes omitted.] 
 Mexico shares this view.  In the light of the importance that the United States confers to 
effective NAFTA dispute settlement proceedings, a nd to the consequences and risks that it notes 
would arise from redundant proceedings, Mexico seri ously questions the position of the United States 
in instituting WTO proceedings in respect of a porti on of the broader bilateral dispute, whereas it has 
repeatedly refused to submit to the NAFTA mech anism;  Mexico seriously questions the total 
omission of the United States in its First Written S ubmission to make any reference to this broader 
dispute, and the position it has advanced on the re levance of the dispute and of the corresponding 
facts;  Mexico questions as well the position the United States has advanced on the recommendations 
that the Panel can make;  and particularly questio ns the false statements that the United States has 
made to the Panel with regard to the status of  the NAFTA proceeding requested by Mexico.  The 
United States' conduct is especially open to criticis m, considering the position that the United States 
has taken in the case referred to above, a position that reinforces Mexico's arguments in the present 
case.   Mexico does not see how the United States' c onduct in contributes to any of the NAFTA's 
values and objectives, and questions how a WTO pa nel could contribute to finding a favourable 
solution to disputes by rewarding the United States for its conduct.   
 
61. Could parties share their views on whether a successful invocation of an Article XX(d) 
defence would require that the contested measure be  necessary to prevent or correct a breach of 
the underlying "law or regulation"? 
  As discussed in paragraphs 82-83 of Me xico's Second Written Submission, a successful 
invocation of an Article XX(d) defence does not re quire that the contested measure perfectly secure 
compliance with the law or regulation at issue.  In Korea – Beef , the Appellate Body stated that "[t]he 
greater the contribution [to the realization of the end pursued], the more easily a measure might be considered to be 'necessary'".
21  This statement implies that measures that make a less than perfect 
contribution to the securing of comp liance with the law or regulation at issue may still be considered 
to be necessary (according to the Appellate Body's reasoning in a similar, hypothetical case in which 
an import tax measure is adopted in order to secu re compliance with a given law or regulation, the 
fact of opting for tax payment rather than securing strict compliance with the law or regulation in question does not imply that the measure is not neces sary and is not justifiable under Article XX(d)).  
Accordingly, measures that contribute to securing compliance with the law or regulation at issue, 
which, in Mexico's view, includes measures that are instruments to prevent or correct a breach of the 
underlying law or regulation, can be jus tified under Article XX(d) of the GATT 1994. 
 
                                                     
 
20 Objection to Jurisdiction of Respondent United States of America in Tembec Inc., Tembec 
Investments Inc. and Te mbc Industries Inc., v. United States of America , Exhibit MEX-47. 
21 Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef , WT/DS161, Report of the 
Appellate Body, adopted on 10 January 2001, para. 163. WT/DS308/R 
Page C-58  
 
 62. Is there any provision in the NAFTA Agreement that can be considered equivalent to 
Article 23(2) of the DSU in the sense that a unilateral determination by a party that a violation has occurred, or that its benefits have been nullif ied or impaired or that the attainment of any 
objective of the covered agreement has been impede d, is prohibited and such decisions can only 
be made through recourse to dispute settlement in accordance with the rules and procedures 
under that Agreement?  
 There is no analogous provision in the NAFTA.     Under Article 2019, entitled "Non-Implementati on – Suspension of Benefits", a Party may 
suspend the application, to the Party violating th e treaty or causing benefits to be nullified or 
impaired, of benefits of equivale nt effect only if no agreement has been reached on a resolution of the 
dispute after the arbitral panel has issued its fina l report.  However, as discussed in the answer to 
Question 58, the dispute settlement mechanism est ablished under NAFTA Chapter Twenty (which 
includes Article 2019) is predicated upon a panel be ing established and composed and being able to 
carry out its task, which includes issuing a final repor t.  Obviously, if a panel cannot be created in the 
first place, the whole dispute settlement mechan ism is frustrated, including the operation of 
Article 2019, and it then falls to the aggrieved Party to exercise its other rights at international law. 
 
63. In its second written submission and also during the second substantive meeting 
(paragraphs 43-52 of written version), Mexico has stated that a WTO panel does not have a 
legal obligation to issue findings on the claims raised by a complaining Member, but rather has 
the flexibility to decide whether to issue rulings  or to make recommendations, as appropriate.  
Is it the parties' view that that discretion, if it in fact exists, is vested by the WTO agreements on 
panels or rather on the Dispute Settlement Body (or the Contracting Parties acting jointly, in 
the case of the GATT)? 
 
 In Mexico's view, the exercise of the discretion rests in the first instance with the Panel.  As 
the GATT 1947 system evolved, the CONTRACTING PARTIES delegated to panels the power of 
reviewing complaints and making recommendations .  Indeed, they were empowered to draft 
recommendations which could then be acted upon by the CONTRACTING PARTIES.    
 An example of this process is the Jamaica – Margins of Preference  case, where the panel 
concluded that Jamaica's tariffs we re not consistent with commitment s previously made on its behalf 
by Great Britain but that in the circumstances it was appropriate that a waiver (the proposed terms of 
which were drawn up by the pane l) should be given by the CONTRACTING PARTIES (which 
waiver was duly given).
22  This is sensible because the panel is  closest to the complexities of the case 
and therefore in the best position to determ ine the appropriateness of its recommendations. 
  The drafters of the DSU did not amend the GATT 1947 when they created the WTO and this 
became the GATT 1994.  They in fact affirmed, in  Article 3 of the DSU, their adherence to the 
principles set forth in Articles XXII and XXIII of the GATT 1947.  Consequently, Mexico sees no justification for reviewing the approach un der which panels are empowered to make 
recommendations.   
 
64. Mexico has said throughout the case that the Panel would not need to interpret NAFTA 
rules.  However, in an Article XX(d) defence, a panel may need to interpret the underlying "law 
or regulation" to assess whether a measure is ac tually justified.  Would that mean, in the 
parties' opinion, that this Panel may in fact have to interpret NAFTA rules?  
                                                     
 
22 Jamaica – Margins of Preference , Report of the Panel, adopted on 2 February 1971, BISD 18S/183.  WT/DS308/R 
 Page C-59 
 
 
  The position of Mexico has been and remains that  this Panel has no jurisdiction to determine 
disputes arising under the NAFTA.  The broader NAFTA dispute to which Mexico has alluded 
comprises two central matters (among others):  whet her the United States has br eached its obligations 
established under NAFTA Annex 703.2 and whether Me xico's countermeasures were justifiable under 
the NAFTA in light of the United States' refusal to submit to dispute settlement under Chapter XX.  
Mexico has not asked the Panel to resolve those matters.   
  Nevertheless, this does not mean that the Pane l cannot consider the facts relevant to this 
dispute, for example:  that the NAFTA exists;  that it provides for a specific regime applicable to the 
bilateral sugar trade;  that a dispute between Me xico and the United States exists about this trade 
regime (as part of the relevant facts, Mexico refe rred to the letters exchanged between the parties in 
1993 and expressed its opinion about their content and validity);  that the NAFTA establishes a 
mechanism to resolve disputes regarding the interpreta tion or application of the treaty;  that Mexico 
activated that dispute settlement mechanism (Mexico requested consu ltations pursuant to the relevant 
provisions of the treaty, and those consultations were  held but did not resolve the dispute, and Mexico 
then requested a meeting of the Free Trade Commissi on, which was held but also failed to resolve the 
dispute);  that Mexico requested the establishment of an arbitral panel and made all efforts to have the 
panel constituted, but the United States has refused to designate panelists (and even instructed its 
Secretariat Section not to do so);  and that until now Mexico's request remains pending, but the arbitral panel has not been established and Me xico's attempts to find a solution through the 
institutional mechanisms have been frustrated by the United States' acts and omissions.   
 
 These are all matters of fact that the Panel can  consider, determine by the record evidence and 
decide on as such (i.e.  as matters of fact).  In some cases the eviden ce comprises communications 
exchanged between Mexico and the United States (fo r example the letters regarding the establishment 
of an arbitral panel);  in others, for example, the text of certain NAFTA provisions (e.g., the relevant 
provisions of Annex 703.2 or of Chapter XX).  Mexi co has submitted this evidence for the Panel to 
see and consider.  The fact that the Panel cannot resolve the disput e that has arisen under the NAFTA 
does not mean that it cannot review the relevant provisions of the treaty and that it should reject or ignore the other evidence submitted by Mexico.     It is conceivable that the United States coul d have contested, for example, that the NAFTA 
contains a Chapter XX that includ es a mechanism as described by Mexico.  Nothing would prevent 
the Panel from considering the text of the treaty to determine that, indeed, it contains a Chapter XX.  
The same situation could arise with a specific provision of Annex 702.3.  In this case, however, there is no disagreement between Mexico and the United Stat es with regard to the f undamental facts of that 
dispute. 
 
 It is quite different for the Panel to examin e the evidence and make a finding, as an issue of 
fact, that Mexico has alleged that the United St ates has breached the NAFTA, which the United States 
disputes (even though it has refused to submit the matte r to independent review) than for the Panel to 
make a legal determination as to whether Mexico is right in asserting that the United States has breached the NAFTA or whether the US contentions are correct.   
 
 It is incorrect to suggest that a panel can neve r state an opinion on an international treaty other 
than the WTO.  Hypothetically, an issue in dispute c ould be whether the law or regulation at issue, for 
example, the IEPS Law or the NAFTA, is not incons istent with the provisions of the GATT 1994.  In 
that case the panel would have to formulate an opinion regarding the content of the law or the 
international treaty, as the case may be.  That does not mean that by doing so the panel would be 
deciding a matter of internal law as if it were a nationa l court, or resolving the correct interpretation of 
the treaty as if it were a Chapter XX arbitral pane l.  Moreover, in a dispute with regard to the 
consistency of a free trade agreement with Article  XXIV of GATT 1994, a panel would have to reach WT/DS308/R 
Page C-60  
 
 an opinion on whether the terms of the treaty comp lied with the requirements for the establishment of 
a free trade zone.     In the present case, as an element of the ex ercise of its jurisdiction over the covered 
agreements generally and Article XX (d) in particular, the Panel is invested with the power to review 
and consider the general dispute settlement chapte r of the NAFTA and to determine whether, as 
contended by Mexico and fully subs tantiated by the record evidence (which has not been contested by 
the United States), the United States failed to submit to NAFTA dispute settlement in order to resolve 
Mexico's grievance.  This does not involve fine poi nts of law peculiar to the free trade agreement and 
the essential facts have not been disputed after tw o rounds of written and oral submissions and the 
filing of evidence.  The issue is essentially one of fact  to be determined by reference to the plain text 
of Chapter Twenty and does not involve the kind of evidence that would be put before a NAFTA panel or the kind of interpretation that  would be required of the latter.   
  The Panel must take cognizance of these matte rs because they are a central underpinning to 
the Panel's determination of whether GATT Arti cle XX(d) can be invoked to justify Mexico's 
measures.  
65. In the view of the parties, does the provision contained in Article 3.10 of the DSU, 
whereby it is "understood that complaints and co unter-complaints in regard to distinct matters 
should not be linked" have any relevance for the present case? 
 
 No.     First, as a matter of fact, the Panel's consider ation of Mexico's measures taken in response to 
the United States' measures cannot be considered to be  the linking of distinct matters.  They are all a 
part of a larger dispute over NAFTA sweeteners trade.   
  Second, in Mexico's view the reference to "complaints and counter-complaints" in 
Article 3.10 of the DSU refers to claims and count er-complaints that both arise under the WTO.  In 
the instant case, Mexico has not submitted a counter -complaint, which does not mean that the Panel 
cannot consider the issues regarding the broader NAFTA  dispute.  Mexico has been clear with regard 
to the jurisdiction of this Panel for considering, on the one hand, and resolving, on the other, the 
NAFTA dispute (See answer to Question 64).     Mexico has pointed out that an arbitral panel under NAFTA Chapter XX is the appropriate body to resolve the dispute entirely and it is in this context that it has requested a particular 
recommendation from this Panel.  For the reasons set  out in the first paragraph to this question 
(question 65), as long as complaints and counter-c omplaints exist under the NAFTA, a single panel 
could address them (similarly as Article 3.10 establish es that similar issues can be linked under the 
WTO).  In fact, NAFTA Article 2007 (Commissi on – Good Offices, Conciliation and Mediation) 
grants a specific power to the Free Trade Commissi on (FTC) to join different matters together.  
Article 2007(6) permits the Commission to consolidat e two or more proceedings before it regarding 
the same measure.  This would deal with the situ ation where Mexico and Canada, for example, sought 
to challenge the same US measure.  Paragraph 6 then states:  
… The Commission may consolidate two or  more proceedings regarding other 
matters before it pursuant to this Article that it determines are appropriate to be 
considered jointly.  WT/DS308/R 
 Page C-61 
 
 
 66. Could the parties please expand upon the views they hold regarding the relevance of 
Article 23 of the DSU to the present dispute? 
 
 Mexico does not believe that Article 23 is re levant in this case.  As explained before, 
Mexico's measure at issue is intended to secure the United States' compliance with its obligations 
established in a treaty authorized by Article XXIV of  the GATT 1994 and, to that extent, it is justified 
under Article XX(d) of the GATT 1994.  Article 23 of the DSU does not deal with this issue.  It is a provision that refers to entirely different questions :  (a) a violation of provisions of the covered 
agreements  has occurred, benefits deriving from those agreements  have been nullified or impaired, or 
the attainment of any objective of the covered agreements  has been impeded;  (b) the determination of 
the reasonable period of time for implementing panel and Appellate B ody recommendations and 
rulings;  and (c) the suspension of concessions or other obligations.  
67. In the view of the parties, does the list of subjects contained in paragraph (d) of 
Article XX (customs enforcement;  enforcement of  monopolies;  protection of patents, trade 
marks and copyrights;  and prevention of decep tive practices) suggest that there are certain 
types of laws or regulations which would be covered by the exception contained in that 
provision?  Can parties suggest any GATT or WT O precedents that may throw light on this 
issue? 
 
 Clearly, the list of subjects contained in pa ragraph (d) of Article XX is illustrative.  The 
clause is preceded of the words "such as", which m eans "for example".  In other words, it provides 
examples of certain types of laws or regulati ons which might be covered by the Article XX(d) 
exception.  As the United States noted in paragraph 81 of its Answers to the Panel's Questions after 
the First Substantive Meeting, the list in Ar ticle XX(d) is illustrative and not exhaustive. 
 
 Mexico notes that the disputes listed at foot note 64 of the United States' Second Written 
Submission include instances in which the underlying law or regulation concerned subjects other than 
those contained in the list of Article XX(d).  
68. In the opinion of the parties, does Articl e 60 of the Vienna Convention on the Law of 
Treaties codify a principle of international law by  which a material breach of a bilateral treaty 
by one of the parties may allow the other to in voke that breach as a ground for, inter alia, 
suspending the operation of that treaty in whole or in part, but not for suspending the operation 
of a different multilateral treaty? 
 
 Although the conditions for the taking of countermeasures at customary international law and 
for the suspension of treaties under Article 60 of th e Vienna Convention are similar, they are not 
identical.  As the International Law Commission commented on countermeasures: 
 
(4) Countermeasures are to be clearly distinguished from the termination or suspension of treaty relations on account of the material breach of the treaty by another State, as provided for in Article 60 of the Vienna Convention on the Law of 
Treaties.  Where a treaty is terminated or  suspended in accordance with Article 60, 
the substantive legal obligations of the States parties will be affected, but this is quite 
different from the question of responsibility that may already had arisen from the breach.  Countermeasures involve conduc t taken in derogation from a subsisting 
treaty obligation but justified as a necessary and proportionate response to an 
internationally wrongful act of the State against which they are taken.  They are WT/DS308/R 
Page C-62  
 
 essentially temporary measures, taken to achieve a specified end, whose justification 
terminates once the end is achieved.
23 
 Thus, it is not necessary for the Panel to answer  this question, which raises many issues that 
fall outside of the relevant matters in this dispute.  
 That being said, there are parallels between treaty suspension and countermeasures.  Both are 
based on the old rule of law expressed in the maxim inadimplenti non est adimplendum  and have their 
roots in the notion of contractual balance, that is , the necessity of maintaining the balance between the 
action required of one party and the action required of another party unde r an international treaty.  If 
one party materially breaches the treaty the other can su spend its operation in whole or in part or take 
countermeasures as the case may be.   
  Mexico observes that in drawing the distincti on between bilateral and multilateral treaties, the 
Vienna Convention does not contemplate the unusual legal question presented to the Panel in this 
case:  that the WTO obligation alle ged to have been violated is identical  to the obligation contained in 
the NAFTA, the agreement under which the dispute arose.  We are not dealing with different 
obligations expressed in two different treaties but ra ther the same obligation set forth in identical 
terms in both treaties .  Thus, if Mexico is said to be alte ring the operation of the NAFTA, that can 
legitimately and reasonably be considered to be a matter governed purely by the NAFTA insofar as 
the other NAFTA Party, the object of the suspension or countermeasures, is concerned.  In Mexico's 
view, it would be one thing if a measure allegedl y violated WTO obligations that do not carry a 
correlative obligation in the NAFTA;  it is another when it allegedly violates NAFTA obligations that 
also exist in the GATT 1994.   The Panel's question replicates the assumption contained in Article 60 of the Vienna Convention but requires further examination because it is critically important to understand the legal 
relationship between the NAFTA and the WTO Ag reement.  The questio n as posed assumes that 
material breach of a bilateral treaty may be invoked by one of the parties as a ground for, inter alia , 
suspending the operation of that treaty in whole or in part, "but not for suspending the operation of a 
different multilateral treaty".  [Emphasis in original.]   In the light of the undisputed facts, Mexi co does not accept that th e United States has WTO 
rights that are separable from those at issue in th e larger NAFTA dispute, as it stated in its Second 
Written Submission.  That is, while other WTO Me mbers may have rights enforceable in the WTO, 
Mexico does not accept that the United States has rights that are additional to its NAFTA rights.  This 
is a NAFTA dispute.  Therefore, the assumption cont ained in the question is not valid in this case.   
 69. Could parties expand on their views of  whether the challenged measures may be 
considered to be a "disguised restriction on international trade" or an "arbitrary or 
unjustifiable discrimination between countries where the same conditions prevail", under the 
chapeau of Article XX? 
 
 The challenged measures cannot be considered to  be a "disguised restriction on international 
trade" or an "arbitrary or unjustifiable discrimin ation between countries where the same conditions 
prevail", under the chapeau of Article XX of GAT T 1994.  As discussed in paragraphs 136 to 138 of 
Mexico's First Written Submission, the measures at  issue constitute a proportionate, legitimate and 
legally justified response to actions and omissions of the United States.  It is directly related to the 
                                                     
 
23 United Nations Organization.  International Law Co mmission, Report on the work of its fifty-third 
session (23 April – 1 June and 2 July – 10 August 2001), p. 358, available on line at: 
http://www.un.org/law/ilc/reports/2001/2001report.htm.   WT/DS308/R 
 Page C-63 
 
 
 long-standing bilateral dispute that has arisen unde r the NAFTA regarding trade in sweeteners and the 
United States' persistent refusal to resolve it.     For the same reasons, the measures do not cons titute "arbitrary or unjustifiable discrimination 
between countries where the same conditions prevai l".  Any discrimination that may result from the 
application of the measures is perfectly justifiabl e.  The measures relate virtually exclusively to 
Mexico's trade with the United States.  By any objective standards, Mexico's measures have been 
applied reasonably with due regard to the international legal rights and obligations of both countries.   
 
FOR THE UNITED STATES:
 
  Mexico will not respond to the questions fo r the United States in this document, but it 
reserves its right to comment on the answers that  the United States will provide in due course. 
 
FOR MEXICO:
 
 
81. Regarding the tax that Mexico applies on the provision of certain services (commercial intermediation, dealership, mediation, agency,  representation, brokerage, consignment, and 
distribution, the so-called "distribution tax") fo r the purpose of transferring goods specified in 
Section I(A), (B), (C), (G) and (H) of Article 2:I, could Mexico please explain what is the nature of services such as "commercial intermediation, dealership, mediation, agency, representation, 
brokerage, consignment, and distribution" (com isión, mediación, agencia, representación, 
correduría, consignación y distribución) and for ea ch of those services, how are they related to 
certain products, including the soft drinks at issue (but also to other products, such as alcoholic 
beverages, cigarettes and other tobacco products)? 
  Commercial intermediation, dealership, medi ation, agency, representation, brokerage, 
consignment, and distribution are legal terms of a commercial nature, that refer to the use by 
producers or importers of goods of intermediation servi ces in activities such as the sale of soft drinks, 
alcoholic beverages, cigarettes and other tobacco  products.  An example would be the commercial 
intermediation concept, defined by Article 273 of the Mexican Commercial Code as the mandate 
applied to commercial acts.
24 The tax base used for its calculation corresponds to the value of the 
agreed remuneration for the services.   
 
82. Could Mexico please provide the following information regarding the operation of the 
"distribution tax":  
 (a) The Panel notes that, according to the legislation that has been provided, the 
"distribution tax" seems to be imposed at an ad valorem rate of 20 per cent, not 
of the price of the soft drinks or syrups , but rather on the value of the services 
provided.  Could Mexico please explain if, in practice, the value of the services provided would in any manner be linked to the value of the goods related to those services or to the volume of the products to be transferred? 
 
 (b) Does the value of the services differ in cases where taxes are exempted for the 
transfer of products sweetened with cane sugar? 
  (c) Could Mexico please explain if, accordin g to the legislation, the person legally 
liable for the payment of the tax is the supplier of the service.  If so, could 
Mexico please clarify what effect, if any,  does the fact that the producers seem to 
retain the tax and pay it directly to the tax authorities have in practice.  
                                                     
 
24 Available at http://www.diputados.gob.mx/leyinfo . WT/DS308/R 
Page C-64  
 
  
A. The distribution of goods that are subject to the IEPS tax is exempt from the tax payment 
unless services of commercial intermediation, which involve the participation of third parties through which the transfer of the goods ta kes place, are used.  If the manufacturers, 
producers, bottlers or importers do not separately co ntract with third parties for the transfer or 
distribution of the goods, they are not required to pay the IEPS tax on commercial 
intermediation services.   
  The IEPS tax is calculated on the value of the service provided (i.e., on the agreed 
consideration) that the parties freely determine. 
 
B. In accordance with Article 2, Section II (A), of the IEPS Law, services of commercial 
intermediation, mediation, agency, representati on, brokerage, consignment, and distribution, 
are not subject to the IEPS tax when they are re lated to transfers of goods that are not subject 
to the IEPS tax.   
 
 In the present case, since the transfer of goods sw eetened with cane sugar is not subject to the 
IEPS tax, neither are the commercial interm ediation services linked to such goods.   
 The value of the services is determined by contract between the parties.    
C. In accordance with Articles 1, Section II and 2, Section II, Subsection (a) of the IEPS Law, 
individuals and legal pe rsons that supply services of commercial intermediation, mediation, 
agency, representation, brokerage, consignment, and distribution are subject to the IEPS tax with regard to transfers of beverages w ith an alcoholic content and beer, alcohol, 
denaturalized alcohol, non-crystallized honey,  processed tobacco, soft drinks and its 
concentrates.   
 Notwithstanding that the above-mentioned persons  are subject to the I EPS tax, they are not 
the ones that make the actual tax payment.  In  accordance with Article 5-A of the IEPS Law, 
manufacturers, producers, bottlers or importe rs that through commercial intermediaries, 
mediators, agents, representatives, brokers, consigners, and distributors, transfer the 
aforementioned goods must retain the tax appli cable to these  services and pay it to the tax 
authorities. 
 
The tax retaining feature is a measure of tax control to improve efficiency in the exercise of tax administration powers, since the obligation of  paying the tax is concentrated in a more 
limited and better identified number of taxpaye rs, as is the case with the manufacturers, 
producers, bottlers or importers.   
 
83. In its first written submission and also during the second substantive meeting 
(paragraph 18 of written version), Mexico said that the tax measures were "not intended to 
afford protection to domestic production within the meaning of Article III of the GATT 1994".  
Could Mexico please elaborate on this assertion.  In Mexico's opinion, does the intent of a 
measure relate to the expression contained in Arti cle III:1 that measures should not be applied 
"so as to afford protection to domestic production"? 
 
 Mexico recognizes that in the ordinary course of WTO dispute settlement, intent is not considered when applying Article III.  However, the Air Services Agreement  award makes clear that 
where States find it necessary to take action to protect their interests when international disputes arise, 
they do act with intent.  In the unusual circumstanc es of this case, Mexico has taken action to protect 
its legitimate legal interests under another international treaty, und er which an unusual dispute has 
arisen.  Accordingly, in Mexico's view, the Panel should take such intent into consideration.    WT/DS308/R 
 Page C-65 
 
 
  
 The United States presented this dispute as one  in which Mexico had taken action out of 
purely protectionist motives in order to give undue advantage to its industry in the face of competition 
from HFCS.  This is incorrect.  
 Due to the relationship between sugar and HFCS in the market, the United States' restrictions 
on US market access for Mexican sugar caused a seri ous imbalance in the Mexican market.  While the 
US HFCS and that produced in Mexico from US co rn displaced sugar in the Mexican market, the 
generated sugar surpluses did not find a way out in to the US market because of the restrictions 
adopted by the United States.  Any of the alternatives - exporting to the international market where 
the prices are much lower or se lling the excess supply in the domestic market, which would have 
resulted in the collapse of the domestic price - wo uld have been extremely costly.  The measures 
adopted by the Mexican Government to alleviate the industry's situation were not enough.  Many 
sugar mills faced a severe liquidity crisis, which put the whole sector at risk;  it is a politically, 
socially and economically sensitive sector, because  a very large number of people with limited 
resources depend on it for their subsistence.   
  Mexico attempted to resolve the situation thro ugh all possible ways.  It exhausted all efforts, 
without success.  Due to the persistent refusal of  the United States to submit to the institutional 
mechanism for resolving the dispute, Mexico took measures to rebalance the situation.  In  clear 
contrast with the restrictions adopted by the Un ited States on Mexican sugar imports, Mexico did not 
seek to disrupt a negotiated balance for the benefit of its producers, but it was forced to restore the 
balance that the United States had altered.  Had th e United States not broken the balance established 
in the NAFTA, it would not have been necessary fo r Mexico to adopt the tax measures at issue. 
 
84. During the second substantive meeting, Mexi co made reference to specific provisions in 
the WTO covered agreements that use expressions such as "laws", "regulations", 
"international law" in different forms.  Coul d Mexico identify more precisely those specific 
provisions. 
 
 In the Second Substantive Meeting, Mexico pointed out that Article XX(d) of the GATT is 
not the only provision where reference is made to  laws, regulations and ot hers types of measures 
without qualifying them as domestic.  In the agreem ents, there are numerous references to different 
types of measures.  In some cases, it is specified  that the provision relates to domestic measures, 
through expressions such as "its laws and regulati ons" (to refer to a Member's measure), "national 
legislation", "a Member's legislation" or of a "non Member", etc.  When refe rence to international law 
was intended to exclude domestic law, a qualifying term was used as well.  In other cases, there was 
no express distinction.  Exhibit Mex-  55 contains an illustrative list of the use of such terms for both 
situations.   
  In Mexico's view, when the drafters intended to limit such terms to internal measures, they 
did so expressly.  The Panel must avoid unduly restri cting the terms of Article XX(d) considering the 
implications that this could have for other provisions of the covered agreements in which the drafters 
did not make the distinction expressly. 
 
85. In paragraph 70 of its second written subm ission, Mexico observed that "international 
law is no less law than domestic law" and adde d that "[t]he NAFTA has effect in the internal 
legal order of its signatories."  Could Mexico please elaborate on that statement.  Does Mexico 
mean that the NAFTA agreement is part of Mexican domestic law and how would Mexico 
sustain that assertion by reference to its law? 
 
 Please see the answer to Question 59.  WT/DS308/R 
Page C-66  
 
  Due to the constitutional system of incorpora tion of international law under Mexican law, in 
Mexico international treaties, including the NAFTA , are internal laws that do not require further 
implementation action.  In this way, they have di rect and immediate effects in the internal legal 
system.  86. Could Mexico please explain why it cons iders that its measures "actually greatly 
contribute to the end pursued by Mexico, that  is, the securing of US compliance with the 
NAFTA" (paragraph 83 of its second written submission).  
 No amount of formal requests for panels, intern ational cooperation or other steps that Mexico 
has taken over more than six years has induced the Un ited States to resolve the dispute.  Mexico noted 
a substantial increase in US expressions of concern after it finally adopted measures to rebalance the 
Mexican market.  Obviously, the US HFCS industry  and various other sectors are concerned about measures, and they have communicated that to the US authorities.  This dispute is evidence of the 
seriousness with which the Mexican measures were vi ewed by the United States.  The United States is 
relying upon this Panel to find the measures inc onsistent with the GATT 1994, in the hopes that 
Mexico will then lose the leverage that it has obtained.   Mexico strongly believes that if the Panel do es not reward the United States for its conduct, 
including forum shopping, and finds that Mexico's measures are justified under Article XX of the 
GATT 1994, the circumstances will finally be ripe for a mutually satisfactory resolution of the 
dispute. 
 
87. In its second written submission (paragra ph 14) and also during the second substantive 
meeting (paragraph 37 of written version), Me xico has referred to "a general principle of 
international law" by which "one party cannot av ail himself of the fact that the other has not 
fulfilled some obligation, or has not had recourse to  some means of redress, if the former party 
has, by some illegal act, prevented the latter fr om fulfilling the obligation in question, or from 
having recourse to the tribunal which would have been open to him".  Could Mexico clarify 
what is the "illegal act" that it is alleging the United States is committing in this regard? 
 
 Please see the response to Question 58. 
 
 There are two breaches of the NAFTA at issue he re:  the denial of market access for Mexican 
sugar, agreed under the NAFTA and more critically , the persistent refusal to submit to dispute 
settlement, thus preventing Mexico fro m resolving its first grievance.  It lies ill in the mouth of the 
United States to complain that in the absence of a panel ruling, Mexico made a unilateral 
determination that the United States had breached  the NAFTA when the United States prevented 
Mexico from using the recourse available to it under Chapter Twenty of the NAFTA.  
88. During the second substantive meeting (paragraph 20 of its closing statement), Mexico 
recalled Article 19.1 of the DSU, under which "[w] here a panel… concludes that a measure is 
inconsistent with a covered agreement, it shall recommend that the Member concerned bring 
the measure into conformity with that agreem ent".  Mexico argued, however, that that 
provision does not prevent a panel from issuin g other resolutions or recommendations.  Could 
Mexico clarify whether it is arguing that a panel may make these other resolutions or 
recommendations in addition to recommending  that a Member bring its measures into 
conformity or instead of recommending that a Member bring its measures into conformity. 
 
 Please see the answer to Question 63.   WT/DS308/R 
 Page C-67 
 
 
  If the Panel finds that the measure at issue is inconsistent with the GATT 1994, it should 
recommend that Mexico bring its measure into conform ity with this agreement, but nothing impedes it 
from making other recommendations pursuant to Article XXIII of the GATT 1994.  
89. In its first submission, Mexico expressed it s belief "that the only fair and appropriate 
course of action [in this case] would be for bo th parties to agree to submit their respective 
grievances to a NAFTA Chapter Twenty Arbitral Pane l, as the only body in which the dispute – 
both parties' complaints – [could] be considered fu lly in light of all of their respective rights and 
obligations" (paragraph 12).  Mexico will recall that in its question No. 5, the Panel asked if parties could comment on "how the NAFTA syst em would deal comprehensively with all the 
issues that Mexico considers affect the bilatera l trade in sweeteners between Mexico and the 
United States".  In its response to that question, Mexico stated that it would agree "to submit the dispute as a whole, including the United  States claims under Arti cle III of the GATT 1994 
(and NAFTA Article 301), to a NAFTA Chapter Twen ty arbitral panel".  Could Mexico please 
clarify whether, according to NAFTA rules, a NAFTA Chapter Twenty Arbitral Panel could 
deal comprehensively with both a United States claim against the tax measures imposed by 
Mexico and the Mexican complaint on the United  States' market access commitments for sugar 
under the NAFTA.  Would that mean that NAFT A panels may accumulate in a single case 
complaints and counter-complaints  in regard to different matters? 
 
 Please see the answer to Question 65.   
 
90. Could Mexico please provide information on  any measures it may have had in place 
during the last five years (such as tariffs, quantit ative restrictions, trade preferences, subsidies, 
anti-dumping measures, countervailing measures, sanitary or phytosanitary measures) that 
have affected the importation or domestic sales of the products that are relevant for the present 
case (soft drinks;  hydrating or rehydrating dri nks;  concentrates, powders, syrups, essences or 
flavour extracts that can be diluted to produce so ft drinks and hydrating or rehydrating drinks;  
and, syrups or concentrates for preparing soft drinks sold in open containers which use automatic, electric or mechanical equipment, cane sugar, beet sugar, and High-Fructose Corn 
Syrup, HFCS). 
  In the last five years, Mexico has adopted the following measures:  
 
• the Decreto por el que se modifican diversos ar anceles de la tarifa de la ley del 
Impuesto General de Importación  published on 11 October de 2001, which 
established an MFN tariff for HFCS; 
 
• the Decreto por el que se establece la Tasa Aplicable para el 2002 del Impuesto 
general de Importación para las Mercancías Originarias de América del Norte, la 
Comunidad Europea, los Estados de la Asoc iación Europea de Libre Comercio, el 
Estado de Israel, El Salvador, Guatemal a, Honduras, Nicaragua, Costa Rica, 
Colombia, Venezuela, Bolivia, Chile y la República Oriental del Uruguay,  published 
on 31 December 2001, which established an import quota for HFCS imported under 
the NAFTA; 
 
• the Acuerdo por el que se establece un cupo de  importación para la fructosa de los 
Estados Unidos de América,  published on 22 April 2002 in the Mexican Official 
Gazette, which established the impor t quota for the 2001-2002 harvest; 
 
• the Ley del Impuesto Especial sobre Producción y Servicios  (the measure at issue in 
this dispute);  and  WT/DS308/R 
Page C-68  
 
  
• the Resolución por al que se da cumplimiento a la decisión del panel binacional del 
15 de abril de 2002, encargado de la impugnació n al informe de devolución de la 
autoridad investigadora del 23 de noviemb re de 2001, del caso MEX-USA-98-1904-
01, revisión de la resolución final de la investigación antidumping sobre las 
importaciones de jarabe de maíz de a lta fructosa, mercancía clasificada en las 
fracciones arancelarias 1702.40.99 y 1702.60.01 de la Tarifa de la Ley del Impuesto General de Importación, originarias de los Estados Unidos de América, 
independientemente del país de proceden cia, emitida por la ahora Secretaría de 
Economía, y publicada el 23 de enero de 1998,  published on 13 May 2002, which 
revoked the previous resolution adopted in January 1998 through which 
countervailing duties were imposed on US HFCS imports into Mexico. 
  Although Mexico has adopted in the last five years measures that have affected imports and 
sales in the domestic market of the products that are relevant for the present case, only two of those 
measures were adopted in response to the United St ates' refusal to comply with the conditions for 
access of Mexican sugar under the term s established in NAFTA Annex 703.2. 
 
91. In response to Panel questions Nos. 42 and 43 addressed to parties after the first 
substantive meeting, Mexico informed the Panel th at it would be attempting to provide further 
information.  Has Mexico been able to obtain this additional information? 
  The Government does not have the information requested by the Panel. 
   WT/DS308/R 
 Page C-69 
 
 
 ANNEX C-4 
 
RESPONSES BY THE UNITED STATES TO QUESTIONS 
POSED BY THE PANEL AFTER THE SECOND SUBSTANTIVE MEETING  
 
(15 March 2005) 
  
BOTH PARTIES
 
 
52. The Panel recalls that, in its response to Pa nel questions Nos. 45 and 50, Mexico stated 
that "as of 1 January 2005, imported soft dri nks, syrups and concentrates for preparing soft 
drinks will be exempt from payment of the IEPS, as long as they are sweetened only with cane 
sugar."  Could parties please provide more informat ion in this regard?  The Panel further notes 
that, in its rebuttal submission, the United States has said that "The January 1, 2005 
amendment to the HFCS soft drink tax is outside the Panel's terms of reference."  Do parties 
have any additional comments on the matter? Could they please explain how the new amendment works and how it has changed th e previous relevant provisions of the law.  
 
 The measures within a panel's terms of refe rence are those identified in the panel request.
1  
The US panel request in this dispute does not iden tify the January 1, 2005 amendment, principally 
because the amendment was published on December 3, 2004, nearly six months after June 10, 2004, 
the date of the panel request.2  The January 1, 2005 amendment is, th erefore, outside this Panel's terms 
of reference.  As a result, the Panel should not  make findings on the January 1, 2005 amendment. 
  The Panel also should not consider the January  1, 2005 amendment in making findings on the 
IEPS as it existed at the time of the US panel reque st.  First, the United States has established a prima 
facie  case that Mexico's tax measures (as they existed at the time of the US panel request) are 
inconsistent with Mexico's oblig ations under Article III of the GATT 1994.  Mexico has not rebutted 
that case and, in fact, Mexico has stated that it does not contest that its tax measures breach Article III.  
  Second, although the January 1, 2005 amendment is  outside the Panel's terms of reference, the 
United States would note that the amendment in  actuality does not appear to eliminate the 
discrimination Mexico's tax measures impose on soft  drinks and syrups imported from the United 
States. As mentioned below, the January 1, 2005 amendment appears simply to amend the IEPS to 
substitute one form of discrimina tion against imports for another.
3  
 
 Third, there is the concern expressed by the Appellate Body in Chile – Price Bands  of a 
"moving target."  In that report,4 the Appellate Body stated that "a practice of amending measures 
during dispute settlement proceedings if such chang es are made with a view to shielding a measure 
                                                      
1 Appellate Body Report, United States – Subsidies on Upland Cotton , WT/DS267/AB/R, para. 284;  
Appellate Body Report,  United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel 
Flat Products from Germany, WT/DS213/AB/R, adop ted 19 December 2002,  para. 124. 
2 WT/DS308/4. 
3 In this regard, the Panel should find the IEPS inco nsistent with Article III of the GATT even if it were 
to assesses the IEPS inclusive of the January 1, 2005 amendment.     
4 In Chile – Price Bands , although the Appellate Body upheld the panel's decision to make findings on 
the measure inclusive of amendments made to the measur e after the panel's establishment, the Appellate Body 
did so after first concluding that the amended measure "[ did] not change the price band system into a measure 
different  from the price band system that was in force before the Amendment."  Appellate Body Report,  Chile – 
Price Band System and Safeguard Measures Relating to Certain Agricultural Products , WT/DS207/AB/R, 
adopted 23 October 2002, para. 137.  As stated above, the Panel's terms of reference in this dispute do not 
include the January 1, 2005 amendment to the IEPS.  WT/DS308/R 
Page C-70  
 
 from scrutiny by a panel or by us" was not to be condoned and that "genera lly speaking, the demands 
of due process are such that a complaining party should not have to adjust its pleadings throughout 
dispute settlement proceedings in order to deal with a disputed measure as a 'moving target.'"
5 The 
United States shares the concern of the Appellate Body  in that it should not have to – indeed the DSU 
does not ask it to – adjust its arguments in this dis pute to take into account an amendment to Mexico's 
tax measures that was published nearly six months af ter its panel request and that was notified to the 
Panel only after its first meeting with the parties.6 
  With respect to the operation of the January 1, 2005 amendment, it amends Article 13 of the IEPS to add soft drinks and syrups  (products identified in Article 2(g) and (h) of the IEPS) sweetened 
exclusively with cane sugar to the list of imports exempt from the IEPS.  In the limited time the 
United States has had to understand the amendment, the amendment appears to be limited to the application of the IEPS to importations of soft drinks and syrups and not to affect the IEPS as it 
applies to the internal transfer or distribution of  imported soft drinks and syrups sweetened with non-
cane sugar sweeteners.  It also does not appear to have any effect on the way in which the IEPS 
discriminates against imported non-canes sugar sweeten ers used to produce soft drinks and syrups in 
Mexico.    As to importations, it appears that the Ja nuary 1, 2005 amendment amends the IEPS to 
exempt importations of soft drinks and syrups sw eetened exclusively with cane sugar from the IEPS, 
whereas prior to the amendment the IE PS subjected all soft drinks and syrups regardless of the type of 
sweeteners used to the IEPS.  The January 1, 2005 amendment thus appears to extend the same 
exemption afforded to the internal transfer of soft drinks and syrups sweetened exclusively with cane 
sugar to the importation of soft drinks and syrups sweetened exclusively with  cane sugar.  In this 
regard, the amendment appears to continue to disc riminate against like or directly competitive or 
substitutable imports from the United States.
7  
 
53. In its response to Panel question No. 46, Mexico  stated that the "soft drinks tax", as it 
had been in place before December 2004, did no t discriminate based on the origin of the 
product.  Does Mexico mean that internal transf ers of imported soft drinks are exempt from the 
"soft drinks tax" as long as those soft drinks are sweetened with cane sugar under the measures 
at issue, even though no exemption is allowed for the same imported products at the time of 
                                                      
5 Appellate Body Report,  Chile – Price Band System and Safe guard Measures Relating to Certain 
Agricultural Products , WT/DS207/AB/R, adopted 23 October 2002, para. 144.   
6 Faced with similar situations, prior panels have ma de findings with respect to measures within their 
terms of reference that were (or allegedly were) amended or terminated after the date of the panel request.  See  
Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain , 
WT/DS276/R, adopted 30 August 2004, as amended by the Appellate Body Report, WT/DS276/AB/R, 
para. 6.259 (noting that the substantive terms of the amended and unamended measures were essentially the same and that a ruling on the unamended measure would be meaningful for resolution of the dispute); Panel 
Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products ("Chile – 
Price Band System "), WT/DS207/R, adopted as modified by the Appellate Body on 23 October 2002, 
paras. 7.124 7-125 (making findings on an expired preliminary safeguard measure and noting the complaining 
party's argument that it had suffered nullification or impairment as a result of the expired measure); Panel 
Report , Indonesia – Certain Measures Affecting the Automobile Industry,  WT/DS54/R, WT/DS55/R, 
WT/DS59/R, WT/DS64/R, adopted 23 July 1998, para. 14.9 (making findings w ith respect to a measure 
Indonesia alleged had been terminated). The Canada – Wheat and Indonesia – Autos panels note several 
disputes in which findings were made on allegedly terminated or amended measures.   Panel Report, Canada – 
Wheat, para. 6.259 n.334; Panel Report, Indonesia – Autos , para. 149 n.642.  
7 The exemption for internal transfer s is specified in Article 8 of the IEPS, whereas the January 1, 2005 
amendment adds the exemption for imports of soft drinks and syrups sweetened exclusively with cane sugar to 
the list of imports already exempted in Article 13 of the IEPS. See Se Reforman Y Adicionan Diversas 
Disposiciones De La Ley Del Impuesto Especial Sobre Producción Y Servicios , Diario Oficial (Dec. 1, 2004).  WT/DS308/R 
 Page C-71 
 
 
 importation?  In other words, is it correct to  understand that the "soft drinks tax" operates 
differently depending on the two specific times when the tax is imposed, i.e., upon importation and upon any internal transfer occurred within the market?  Could the United States also 
provide its comments?  
 Although on its face the IEPS exempts internal tr ansfers of soft drinks and syrups sweetened 
exclusively with cane sugar and does not disti nguish in this regard between imported and 
domestically produced soft drinks and syrups, as the United States has explained, in providing an 
exemption for the internal transfer of soft drinks  and syrups sweetened exclusively with cane sugar, 
the IEPS discriminates de facto  against imports from the United States which are sweetened with non-
cane sugar sweeteners.  Mexico's respon se to Question 46 simply ignores this de facto discrimination. 
 
 The Panel is correct that  IEPS operates diffe rently depending on the two specific times when 
the tax is imposed.  With respect to application at the time of importation, the IEPS applies to all soft 
drinks and syrups, even those sweetened exclusiv ely with cane sugar.  When the IEPS applies on 
internal transfers, however, it differentiates between th e type of sweetener used:  internal transfers of 
soft drinks and syrups sweetened exclusively with cane sugar are exempt from the tax.   
 
54. Do the parties view the so-called "boo kkeeping requirements" as a separate measure 
from the "soft drinks tax" and the "distribution tax", or rather as a measure which is ancillary 
to the two last.  If it is an ancillary measure,  would that fact have any consequence on the way 
the Panel should analyse those "bookkeeping requirements"? 
 While the bookkeeping and reporting requirements clearly relate to the HFCS soft drink and 
distribution taxes, they impose separate requirement s, and should be treated as separate measures.  
Compliance with Mexico's obligations under Article III requires elimination not only of its dissimilar 
taxation of non-cane sugar sweeteners such as HFCS , but also the elimination of requirements that 
disadvantage the use of imported non-cane sugar swee teners.  As explained in prior US submissions, 
the bookkeeping and reporting requirements imposed by  the IEPS disadvantage the use of import non-
cane sugar sweeteners by requiring soft drink and syrup producers who use non-cane sugar sweeteners to comply with certain bookkeeping and reporting requirements including a requirement to 
report their main 50 clients and suppliers to the Mexican Government.  These same requirements are 
not imposed on soft drink and syrup producers who u se the like domestic sweetener cane sugar.  If 
Mexico were to amend its tax measures to eliminat e the dissimilar taxation, but continued to impose 
the bookkeeping and reporting requirements, Mexico  would not have eliminated the disadvantage 
imposed on the use of imported non-cane sugar sweeten ers.  The IEPS would, therefore, continue to 
treat imported sweeteners less favorably than li ke domestic sweeteners in breach of Mexico's 
obligations under Article III:4 of the GATT 1994.  
 As the United State recalled in its responses to th e Panel's questions after the first meeting, the 
Appellate Body emphasized in Australia – Salmon  that panels are "to address those claims on which a 
finding is necessary in order to enable the DSB to make sufficiently precise recommendations and 
rulings so as to allow for prompt compliance by a Member with those recommendations and rulings in 
order to ensure effective resolution of disputes to the benefit of all Members."
8   Findings in this 
dispute that would enable the DSB to make su fficiently precise recommendations and rulings would 
be those that addressed each of the ways in wh ich Mexico discriminates against imports of non-cane 
sugar sweeteners (including HFCS and beet suga r) and imports of soft drinks and syrups.  
 
55. The Panel recalls that, in its response to Panel question No. 21, the United States 
asserted that "The IEPS as a tax on HFCS may properly be examined under both Article III:2 
                                                      
8 US Responses to the Questions of the Panel, para. 2; Appellate Body Report, Australia – Measures 
Affecting Importation of Salmon , WT/DS18/AB/R, adopted 6 November 1998, para. 223.  WT/DS308/R 
Page C-72  
 
 and III:4 of the GATT 1994".  During the second substantive meeting (paragraph 53 of written 
version), Mexico expressed its doubts that, as  a matter of WTO law, a same measure may 
violate both Article III:2 and Article III:4.  Do th e parties have additional views on the matter?  
Could they also clarify whether, if in a partic ular case, simultaneous claims were raised against 
the same measure under both Article III:2 and III:4, a panel should proceed in any particular 
order when dealing with such claims?  
 As to whether the IEPS as a tax on HFCS (H FCS soft drink and distribution taxes) may 
properly be examined under Articles III:2 and III: 4 of the GATT 1994, the United States disagrees 
with Mexico's analysis in paragraph 53 of its opening statement at the second panel meeting.  The 
HFCS soft drink and distribution taxes may properl y be analyzed under both Article III:2 and III:4 of 
the GATT. 
  By its terms, Article III:2 applies to any "inter nal taxes or other internal charges of any kind" 
which are "applied, directly or indirectly , to ... products."  As the GATT panel on Superfund Taxes  
pointed out, excise taxes are subject to Article III:2.
9 
 
 A tax subject to Article III:2, however, may al so be a law affecting imported products within 
the scope of Article III:4.  Article III:4 refers to "all laws, regulations and re quirements affecting [the] 
internal sale, offering for sale, pur chase, transportation, distribution or use" of imported products.  
Article III:4's use of the word "all" indicates that  any law, including laws imposing taxes on products, 
may fall within the scope of Article III:4, provided the law affects the internal  sale, offering for sale, 
purchase, transportation, distribution or use of impor ted products.  The terms "laws, regulations or 
requirements affecting" in Article III:4 are also "gen eral terms that have been interpreted as having a 
broad scope."10  A tax provision that influences a taxpayer's choice whether to purchase like imported 
or domestic inputs is a measure "aff ecting" the internal use of impo rted products, within the meaning 
of Article III:4.11 
 
 The HFCS soft drink and distribution taxes are both taxes "applied directly or indirectly to ... products" as well as "laws ... affecting [the] internal . .. use" of imported products.  On the one hand, 
the HFCS soft drink and distribution taxes are tax es levied "directly or indirectly" on non-cane sugar 
sweeteners.  The fact that these ta xes are collected on the transfer and distribution of the downstream 
product (soft drinks and syrups) does not change the fact that the taxes are applied to HFCS.  The 
                                                     
 
9 United States – Taxes on Petroleum and Certain Imported Substances , BISD 34S/136, 154, 
para. 5.1.1. Other examples of excise taxes evaluated under Article III:2 include various federal and state taxes 
on beer and wine in the United States, in United States – Measures Affecting Alcoholic and Malt Beverages  
(BISD 39S/206); excise taxes on cigarettes in Thailand – Restrictions on Importation of and Internal Taxes on 
Cigarettes  (BISD 37S/200) and in Dominican Republic -Measures Affecting the Importation and Internal Sale 
of Cigarettes , WT/DS302/R, paras. 7.317ff; an excise tax on automobiles in Indonesia – Autos, WT/DS54/R, 
paras. 14.104-14.114;  excise taxes on certain periodicals in Canada – Certain Measures Concerning 
Periodicals , WT/DS31/AB/R, pp. 20-23;  and excise taxes on distilled spirits in Japan–Taxes on Alcoholic 
Beverages  (WT/DS8/AB/R), Korea-Taxes on Alcoholic Beverages (WT/DS75/AB/R) and Chile-Taxes on 
Alcoholic Beverages (WT/DS87/AB/R). 
10 Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to 
Article 21.5 of the DSU by the European Communities , WT/DS108/RW, adopted 29 January 2002, as modified 
by the Appellate Body Report, WT/DS108/AB/RW, para. 8.144 (citing EC – Bananas , WT/DS27/AB/R, 
para. 220; Canada – Autos,  WT/DS139/R, para. 10.80; and Italian Agricultural Machinery , BISD 7S/60, 
para. 12); Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse 
to Article 21.5 of the DSU by the European Communities , WT/DS108/AB/RW, adopted 29 January 2002, 
para. 210. 
11 Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse 
to Article 21.5 of the DSU by the European Communities , WT/DS108/AB/RW, adopted 29 January 2002, 
paras. 212-213.  WT/DS308/R 
 Page C-73 
 
 
 United States has already demonstrated how Mexico's  tax measures on soft drinks and syrups translate 
to a prohibitive tax on HFCS12 and Mexico has stated that its tax measures target HFCS imported 
from the United States.13  The structure of Mexico's tax measures is not unlike the "internal charges" 
considered by a GATT panel in EEC – Parts and Components .   These internal charges were imposed 
on certain products assembled within the EC, if th e products in question included excessive amounts 
of imported parts and components.  The panel an alyzed the charges under Article III:2 of the GATT 
and found that the internal charge on finished prod ucts subjected imported parts and components to an 
internal charge in excess of that applied to like domestic products in breach of Article III:2.14   
  On the other hand, the HFCS soft drink and di stribution taxes are measures "affecting" the use 
of imported HFCS.  Through their application to soft  drinks and syrups sweetened with HFCS, but not 
soft drinks and syrups sweetened with Mexican cane sugar, the HFCS soft drink and distribution taxes 
provide an effective incentive for bottlers to cease using HFCS and to switch to using domestic cane 
sugar.  The HFCS soft drink and distribution taxes, therefore, fall under Article III:4.  
 If there is overlap with respect to Articles III: 2 and III:4 in this dispute, it is because of the 
particular tax measures Mexico has chosen to em ploy to discriminate against HFCS.  Indeed, a 
discriminatory excise tax on a product, which also punishes users of that product for using imported inputs, would fit under both provisions.   As to the order in which to analyze the US  claims, the United States found it helpful in its 
first and second written submissions to analyze th e consistency of the HFCS soft drink and 
distribution taxes with respect to sweeteners firs t under Article III:2 and second under Article III:4.  
The Panel could employ the same order of analysis.   With respect to the bookkeeping and reporting re quirements of the IEPS, the US challenge is 
limited to Article III:4. 
 
56. Does the so-called "distribution tax" opera te on its own or is it dependent on the 
operation of the "soft drinks tax"?  Does its existence depend on the "soft drinks tax"?  Is it in any other manner linked to the so-called "soft drinks tax"?  
 The distribution tax (i.e., the 20 percent tax imposed on the distribution, representation, 
brokerage, agency, and consignment of soft dr inks and syrups sweetened with non-cane sugar 
sweeteners) operates on its own and discriminates against imported sweeteners and soft drinks and syrups made with imported sweetene rs independently of the HFCS soft drink tax (i.e., the 20 percent 
tax imposed on the importation of soft drinks and syrups  and on the internal transfer of soft drinks and 
syrups made with non-cane sugar sweeteners).  As recounted in the US first submission,
15 the IEPS 
taxes three types of activities:  the importation, th e internal transfer and the distribution (along with 
the representation, brokerage, agency, and consignmen t) of soft drinks and syrups made with non-
cane sugar sweeteners.16  Taxation of any one of these activities results in discriminatory treatment for 
non-cane sugar sweeteners and soft drinks and syr ups made with such sweeteners and does not 
depend on whether non-cane sugar sweete ners and soft drinks and syrups made with such sweeteners 
                                                      
12 US First Written Submission, para. 45. 
13 Mexico Second Written Submission, paras. 3, 81. 
14 GATT Panel Report, EEC – Regulations on Imports of Parts and Components , BISD 37S/193, 
adopted on May 16, 1990, paras. 5.9.  The internal charge in the dispute constituted so-called "anti-circumvention duties" which the panel found constituted an "internal charge" within the meaning of Article III:2 
rather than a "customs duty" within the meaning of Article II:1(b).  Id. paras. 5.8-5.9. 
15 US First Written Submission, paras. 37-39. 
16 With respect to importations, the IEPS taxes all so ft drinks and syrups regardless of the type of 
sweetener used. See supra  response to Question 52. WT/DS308/R 
Page C-74  
 
 are also taxed on their importation, internal transfer or distribution, respectively.  Thus, for example, 
if Mexico were to amend the IEPS to eliminate th e 20 percent tax on the internal transfer of soft 
drinks and syrups made with non-cane sugar, th e IEPS would nonetheless continue to discriminate 
against imported sweeteners and soft drinks and sy rups by taxing the distribution, representation, 
brokerage, agency, and consignment of soft drinks  and syrups made with non-cane sugar sweeteners. 
 
57. In the view of the parties, can Article III:2 of the GATT cover a measure that imposes a 
tax on services related to specific products?  
 Article III:2 covers measures that subject imports  directly or indirectly to taxes in excess of 
those applied to like or directly competitive or  substitutable domestic pr oducts.  The IEPS subjects 
imported sweeteners and soft drinks and syrups made  with such sweeteners to taxation that is in 
excess of, and dissimilar from, that imposed on like and directly competitive or substitutable products produced in Mexico, namely cane sugar and soft dri nks and syrups made with cane sugar.  The IEPS 
accomplishes this by way of a 20 percent tax im posed on the importation, internal transfer and 
distribution (along with the representation, brokerag e, agency, and consignment) of soft drinks and 
syrups made with non-cane sugar sweeteners.  The fact that the distribution tax subjects imported 
sweeteners and soft drinks and syrups made with such sweeteners to excess or dissimilar taxation at 
the time they are distributed and calculates the amo unt of tax owed on the value of the distribution 
service does not remove it from the purview of Article  III:2.  The distribution tax is simply another 
means by which to subject imported sweeteners and soft drinks and syrups to excess and dissimilar taxation in breach of Article III:2. 
 
 In this regard, the United States views th e distribution tax as a tax applied on a product 
(whether soft drinks and syrups or the sweeteners th ey contain) that applies at the time the product is 
distributed and that is calculated on the value of the service rendered. The fact that the distribution tax 
involves services supplied in conjunction with partic ular goods (soft drinks and syrups sweetened 
with non-cane sugar sweeteners) does not change the fact that the distribution tax discriminates 
against those goods.  Measures can be subject to both the GATT and the GATS.  In EC – Bananas , 
for example, the Appellate Body explained that  measures "that involve a service relating to a 
particular good or a service supplie d in conjunction with a particular  good" may properly be examined 
under both the GATT and the GATS.
17 
 58. During the second substantive meeting (par agraph 33 of written version), Mexico has 
said that its measures may be justified under the NAFTA.  Further, in its closing statements, Mexico argued that a NAFTA panel could find th at the tax measures imposed by Mexico would 
be acceptable countermeasures.  Does the United  States agree with this statement?  Could 
Mexico please elaborate on its statements and provide reference to the provisions of the NAFTA 
agreement under which its measures would be justified.  
 Whether Mexico's tax measures might be ju stified under the NAFTA is not relevant to 
resolution of this dispute, which concerns the consistency of Mexico's  tax measures with its 
obligations under the WTO Agreement.    There is nothing in the text of the NAFTA provi ding parties the right to take countermeasures 
in the manner Mexico contends in this dispute.   Like the DSU, the NAFTA dispute settlement 
provisions proscribe rules for the suspension of  benefits including that any suspension be preceded  by 
a finding of breach by a NAFTA panel.
18  In addition, the suspension of benefits authorized under 
NAFTA dispute settlement provisions would be benefits accruing under the NAFTA, not those under 
                                                      
17 Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution 
of Bananas , WT/DS27/AB/R, adopted on 25 Sept. 1997, para. 221. 
18 NAFTA Arts. 2018 and 2019.  WT/DS308/R 
 Page C-75 
 
 
 another international trade agreement such as the WTO Agreement – which Mexico has breached vis-
a-vis the United States and every other WTO Member by imposing its discriminatory tax measures.    Mexico's contention that it has "directed the Panel to examples of counter-measures being taken or being reserved in the NAFTA context as we ll as to other instances where the United States 
has reserved the right to take action of the type that Mexico took"
19 is incorrect.  Neither "example" 
Mexico cites with respect to the NAFTA20 constitute an instance where a party maintained, as Mexico 
does in this dispute, that the NAFTA or any principl e of international law justified the party's breach 
of NAFTA rules.   59. Do the parties consider that the NAFTA Agreement is part of the United States' domestic "laws or regulations"?  What implic ation would that fact have for the expression 
"laws or regulations" as used in paragraph (d) of Article XX of the GATT in this dispute? 
 The NAFTA is an international agreement a nd does not have direct effect in the United 
States.  It is not self-executing.  It is also not a domestic law or regulation of the United States. The 
NAFTA has not been passed by the US Congress pur suant to its legislative powers under the US 
Constitution, nor was the NAFTA submitted  as a treaty to the US Senate for its advice and consent.  
  It was precisely because the NAFTA itself is not US law that it was necessary for Congress to 
pass implementing legislation so that US laws wo uld be changed to accord with the international 
obligations of the United States under the NAFTA.  Mexico's assertions about the NAFTA to the 
contrary are simply incorrect.
21 
  Even if the NAFTA were part of US domestic  laws or regulations, however, Mexico could 
not claim an Article XX(d) exception for a m easure necessary to secure compliance with another  
Member's laws or regulations.  Article XX(d) provides an exception for measures necessary to secure 
compliance with the laws or regulations of the Member claiming the Article XX(d) exception. In 
Korea – Beef , for example, the Appellate Body stated that  "[i]t is not open to doubt that Members of 
the WTO have the right to determine for themselves the level of enforcement of their WTO-consistent 
laws and regulations."
22  Article XX(d) is not a provision by which Members might seek to enforce 
the domestic laws and regulations of other Members.  If it were, Article XX(d) would in effect 
become a tool for one sovereign to enforce th e domestic laws and regulations of another. 
 
60. As parties are aware, the Appellate Body has stated that, in order to evaluate the 
"necessity" of a measure under Article XX(d), a panel would need to examine, among other 
factors, "the relative importance of the common in terests or values that the law or regulation to 
be enforced is intended to protect" (Appellate Body Report, Korea - Various Measures on Beef ).  
Could parties please explain, in their view, wh at would be "the common interests or values" 
that the NAFTA Agreement is intended to protect.  
                                                      
19 Mexico Second Submission, para. 8. 
20 Mexico Second Submission, paras. 27-31, 33-35 (discussing a NAFTA panel report on Agricultural 
Products and a US – Canada Memorandum of Understanding on wheat). 
21 With respect to paragraph 13, it is Mexico's reading of Corus Staal  that is too narrow.  In that case, 
Corus Staal had argued: " [the US Department of] Comme rce's zeroing methodology vi olates the United States' 
obligation to interpret section 1677(35) to conform to World Trade Organization ("WTO") decisions prohibiting 
zeroing."  The court found:   "Because zeroing is in fact permissible in ad ministrative investigations and because 
Commerce is not obligated to incorporate WTO procedures into its interpretation of US law, Corus' arguments 
fail."  The court explained:  "Neither the GATT nor any enabling international agreement outlining compliance 
therewith (e.g., the ADA) trumps domestic legislation; if US statutory provisions are inconsistent with the 
GATT or an enabling agreement, it is  strictly a matter for Congress." 
22 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, para. 176 (emphasis supplied). WT/DS308/R 
Page C-76  
 
  Because the United States does not consider th at Article XX(d) can apply to international 
obligations, the United States is not in a position to identify what "common interests or values" (as the 
Appellate Body used the phrase in Korea – Beef ) could be served by the NAFTA.  In any case, 
Mexico has certainly not identified an y such "common interests or values." 
 61. Could parties share their views on whether a successful invocation of an Article XX(d) defence would require that the contested measure be necessary to prevent or correct a breach of the underlying "law or regulation"? 
 It is difficult to comment on the issues raised  in this question in the abstract, and, for the 
reasons already described, the United States does not  consider that the Article XX(d) defense is 
available to a Member asserting the need to secu re compliance with an international agreement. 
  Having said this, the United States notes that the panel in Korea – Beef , for example, found 
that a measure that served to "prevent acts incons istent with" a Korean law (the Unfair Competition 
Act) prohibiting misrepresentation as to the origin of b eef "was put in place at least in part, in order to 
secure compliance with" that law.
23  The panel then turned to analyze whether the measure was 
"necessary to prevent misrepresenta tion as to the origin of beef."24  On appeal, however, the Appellate 
Body did not address whether "secure compliance" mi ght include "preventing" a breach of the Unfair 
Competition Act, but simply examined whether th e measure was "'necessary' to secure compliance 
with the Unfair Competition Act."25 
 
62. Is there any provision in the NAFTA Agreement that can be considered equivalent to 
Article 23(2) of the DSU in the sense that a unilateral determination by a party that a violation has occurred, or that its benefits have been nullif ied or impaired or that the attainment of any 
objective of the covered agreement has been impede d, is prohibited and such decisions can only 
be made through recourse to dispute settlement in accordance with the rules and procedures 
under that Agreement? 
 There is no provision in the NAFTA containing la nguage identical or similar to Article 23.2 
of the DSU.  There is also no provision in th e NAFTA that justifies a breach of the NAFTA on the 
fact or assertion that another party has breached its obligations under the NAFTA.  The only provision 
that would authorize a NAFTA party to take count ermeasures is Article 2019, which by its terms only 
applies "[i]f in its final report a panel has determ ined that a measures is inconsistent with the 
obligations of the [NAFTA]" and the parties have not agreed on a solution to the dispute within 30 
days.   NAFTA Article 2004 provides that except for antidumping and counter vailing duty matters 
and as otherwise provided in the NAFTA Agreement,  "the dispute settlement provisions of this 
Chapter [20] shall apply with respect to the avoidan ce or settlement of all disputes between the Parties 
regarding the interpretation or app lication of this Agreement or wherever a Party considers that an 
actual or proposed measures of another Party is or w ould be inconsistent with the provisions of this 
Agreement ...."  Article 2019 provides a right to tem porarily suspend benefits, but only after a panel 
determination under Chapter 20.  Article 2019 articulates the procedures to be followed in suspending 
benefits. 
 
                                                     
 
23 Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef , WT/DS161/R, 
WT/DS169/R, adopted on 10 January 2001, para. 658. 
24 Id., paras. 659 et seq . 
25 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, paras. 159 et seq .  WT/DS308/R 
 Page C-77 
 
 
 63. In its second written submission and also during the second substantive meeting 
(paragraphs 43-52 of written version), Mexico has stated that a WTO panel does not have a legal obligation to issue findings on the claims raised by a complaining Member, but rather has 
the flexibility to decide whether to issue rulings  or to make recommendations, as appropriate.  
Is it the parties view that that discretion, if it in  fact exists, is vested by the WTO agreements on 
panels or rather on the Dispute Settlement Body (or the Contracting Parties acting jointly, in 
the case of the GATT)?  
 For the reasons stated in prior US submissions,
26  a WTO panel does have a legal obligation 
to issue findings on the claims raised by a co mplaining party and, therefore, does not have the 
flexibility to "decide whether to issue rulings or make recommendations, as appropriate."  The Panel 
has already stated in its denial of Mexico's request for a "preliminary ruling":  "Under the 
Understanding on Rules and Procedures Governing th e Settlement of Disputes (DSU), [the Panel] 
does not have the discretion, as argued by Mexico, to decide not to exercise its jurisdiction in a case 
that has been properly brought before it."27  In stating that it did not have the discretion to decline to 
exercise jurisdiction over this dispute, the United St ates understands the Panel to  have concluded that 
it must issue findings on the US claims, as the US claims are what comprise this dispute. 
  A WTO panel likewise does not have the flexibility to decide what an "appropriate" recommendation might be.  Mexico's reliance on Artic le XXIII:2 of the GATT in this regard is 
misplaced.  Although Article XXIII:2 of the GA TT instructs the CONTRACT ING PARTIES to make 
"appropriate" recommendations, what is an "appr opriate" recommendation from a WTO panel has 
been definitively answered by Article 19.1 of the DSU.  Article 19.1 of the DSU provides:  
 
Where a panel or the Appellate Body conclud es that a measure is inconsistent with a 
covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement.  In  addition to its recommendations, the panel or 
the Appellate Body may suggest ways in which the Member concerned could 
implement the recommendations.
28 
 Therefore, pursuant to Article 19.1 of the DSU, whenever a panel finds a violation of the 
GATT or any other covered agreement, the panel must  recommend that the violation be brought into 
conformity the agreement; the panel has no discret ion to do otherwise.  Article 19.1 also does not 
provide any discretion for a panel to make any addi tional recommendations, to any party, that would 
go beyond the correction of a violation.  Mexico's  argument that Article XXIII of the GATT allows 
WTO panels greater flexibility than this simply ignores the terms of DSU Article 19.29 
 In any event, to the extent th at Article XXIII:2 continues to afford authority to make further 
recommendations (an issue which the Panel need not  reach), it affords that authority to the WTO 
Members, not a panel or the Appellate Body.    
 
64. Mexico has said throughout the case that  the Panel would not need to interpret NAFTA 
rules.  However, in an Article XX(d) defence, a panel may need to interpret the underlying "law 
                                                      
26 US Responses to Questions of the Panel after the First Meeting, paras. 1-11; US Opening Statement 
to the Panel at the First Meetin g of the Panel, paras. 13-15.  
27 Letter from the Chairman of the Panel to the Parties (Nov. 3, 2005). 
28 DSU Art. 19.1 (footnote omitted). 
29 Another panel has recently reached the conclusion that the DSU does  not authorize panels to make 
recommendations beyond the specific recommendation authorized (and mandated) by DSU Article 19.1.  Panel 
Report, European Communities – Export Subsidies on Sugar , WT/DS265/R, circulated on October 15, 2004 
(appeal on other issues pending), para 7.353. WT/DS308/R 
Page C-78  
 
 or regulation" to assess whether a measure is ac tually justified.  Would that mean, in the 
parties' opinion, that this Panel may in fact have to interpret NAFTA rules? 
 The Panel's question highlights another reas on why Mexico's Article XX(d) defense is 
untenable and why Article XX(d) does not cover m easures to secure compliance with obligations 
under an international agreement.  There is no wa y for a panel to find a measure "necessary to secure 
compliance" with obligations under an international agreement, unless it were first to determine what 
the agreement's obligations were and whether the Member against whom the measure was taken was 
not in compliance with those obligations.
30  However, as the United States articulated at the second 
panel meeting, this would effectively convert WTO dispute settlement into a forum of general dispute 
resolution for all international agreements.  The Un ited States has previously explained some of the 
difficulties and some of the implications of this proposal.31 
  Mexico apparently shares the US concern in th is regard as it has clearly stated: "This Panel 
has no jurisdiction to decide whether the Un ited States has complied with its market access 
commitments [under the NAFTA]."
32  Yet, Mexico cannot avoid the fact  that, in order for the Panel to 
determine that its tax measures are necessary to secure US compliance with the NAFTA, the Panel 
would first need to examine what the obligations of the NAFTA are and whether the United States has 
complied with those obligations.  Mexico's attempts to argue otherwise are simply a request for this 
Panel to find its tax measures jus tified under Article XX(d) without an examination of what the "laws 
or regulations" are with which compliance is sought or whether the measures for which the 
Article XX(d) exception is sought are necessary to "secu re compliance" with such laws or regulations.  
Mexico cannot avoid these examinations, however, if it is to meet its burden of proof on its 
Article XX(d) defense.   Mexico has also taken pains to explain why its  interpretation of Article XX(d) would not lead 
to the results suggested by the United States.  Me xico is incorrect.  If the Panel were to accept 
Mexico's invitation to use Article XX(d) as a mean s to justify its WTO breach, there is no reason why 
another Member could also not claim that a WTO-inconsistent measure was necessary to secure compliance with an international agreement to whic h it was a party.  To meet its burden of proof on 
any such defense, the Member would have to convince a panel, and the panel would have to 
determine, what the obligations of the internati onal agreement were and whether the Member against 
which the WTO-inconsistent measure was taken w as in compliance with those obligations.  While 
Mexico claims that the circumst ances surrounding imposition of its tax measures are "extraordinary," 
there is nothing about Mexico's interpretation of Ar ticle XX(d) that would limit its invocation to those 
"extraordinary" circumstances.
33 
 
65. In the view of the parties, does the pr ovision contained in Article 3.10 of the DSU, 
whereby it is "understood that complaints and co unter-complaints in regard to distinct matters 
should not be linked" have any relevance for the present case? 
 Mexico's complaint with respect to US obligations under the NAFTA and the present US 
complaint under the WTO Agreement are two distin ct matters.  One matter arises solely under 
NAFTA and concerns access to the US market for Mexican cane sugar; the other matter arises under 
the WTO Agreement and the GATT, and concerns prot ectionist tax discrimination by Mexico against 
imported HFCS and other sweeteners that compete with Mexican cane sugar.  
 
                                                      
30 US Opening Statement at the Second Meeting of the Panel, para. 7; US Closing Statement at the 
Second Meeting of the Panel, para. 7. 
31 US Opening Statement at the Second  Meeting of the Panel, para. 7. 
32 Mexico Opening Statement at the Seco nd Meeting of the Panel, para. 33. 
33 See Mexico Closing Statement at the Second Meeting of the Panel, paras. 2-7.  WT/DS308/R 
 Page C-79 
 
 
  Article 3.10 of the DSU concerns alleged breaches of the WTO Agreement and states that it is 
"understood that complaints and counter-complaints in  this regard to distinct matters should not be 
linked."  The Panel might view Article 3.10 as suppor ting that, even if Mexico had claimed that the 
United States were in breach of its WTO obliga tions, dispute settlement proceedings over Mexico's 
tax measures would not be the forum in which to address Mexico's separate claim against the United 
States.34  
 
66. Could the parties please expand upon the views they hold regarding the relevance of 
Article 23 of the DSU to the present dispute?  
 Article 23 is relevant context for the f act that the phrase "laws or regulations" in 
Article XX(d) does not mean or include obligations under an international agreement.  Specifically, if 
the phrase "laws or regulations" in Article XX(d ) did mean obligations under an international 
agreement, then it would also include obligations under the WTO Agreement.  Article 23 of the DSU, 
however, provides that when Members seek the redress of a violation of WTO obligations they will 
abide by DSU rules.  Mexico's reading of "law s or regulations" to mean obligations under an 
international agreement renders Article 23 of the DSU inutile.35 
 
67. In the view of the parties, does the list of subjects contained in paragraph (d) of Article XX (customs enforcement; enforcement of monopolies; protection of patents, trade 
marks and copyrights; and prevention of decep tive practices) suggest that there are certain 
types of laws or regulations which would be covered by the exception contained in that 
provision?  Can parties suggest any GATT or WTO precedents that may throw light on this 
issue? 
 While not an exhaustive list as demonstrated by the word "including" in Article XX(d), 
"[c]ustoms enforcement; the enforcement of monopoli es ..., the protection of patents, trade marks and 
copyrights, and the prevention of deceptive practices"  all suggest laws or regulations that are the 
domestic laws or regulations of the Member claiming the XX(d) exception.  As for prior GATT 1947 
or WTO reports, every other time an Article XX(d) defense has been considered in the context of 
GATT 1947 or WTO dispute settlement, the laws or regul ations at issue have been the domestic laws 
or regulations of the Member asserting the XX(d) defense.  None have involved obligations owed 
another Member under an international agreement.
36 
                                                      
34 See also  US Answers to Questions of the Panel after the First Meeting, para. 15 (referencing 
Article 3.10 of the DSU in the context of Mexico's request for a "preliminary ruling" and whether a NAFTA 
panel might deal "comprehensively" with the issues Mexico asserts are relevant in this dispute). 
35 US Second Written Submission, para. 47; US Opening Statement at the Second Meeting of the 
Panel, para. 6. 
36 See GATT Panel Report, United States – Imports of Certain Automotive Spring Assemblies , L/5333, 
adopted 26 May 1983, BISD 30S/170 (exclusion order to enforce domestic patent law); GATT Panel Report, 
United States – Section 337 of the Tariff Act of 1930,  L/6439, adopted 7 November 1989, BISD 36S/345 
(exclusion order to enforce domestic patent law); GATT Panel Report, Canada – Administration of the Foreign 
Investment Review Act , L/5504, adopted 7 February 1984, BISD 30S/140 (purchase undertakings to implement 
domestic investment screening law); GATT Panel Report,  Japan – Restrictions on Imports of Certain 
Agricultural Products , L/6253, adopted 2 February 1988, BISD 35S/163 (import restrictions to support 
domestic price stabilization schemes and an import monopoly); GATT Panel Report, EEC – Regulation on 
Imports of Parts and Components , L/6657, adopted 16 May 1990, BISD 37S/132 (measures to secure 
compliance with antidumping duties); GATT Panel Report, United States – Restrictions on Imports of Tuna , 
DS21/R, 3 September 1991, BISD 39S/155 (intermediary nations embargo to secure compliance with direct US 
embargo on certain tuna imports); GATT Panel Report, United States – Restrictions on Imports of Tuna , 
DS29/R, 16 June 1994 (intermediary nations embargo to secure compliance with direct US embargo on certain tuna imports); GATT Panel Report, United States – Measures Affec ting Alcoholic and Malt Beverages , DS23/R, 
adopted 19 June 1992, BISD 39S/206 (in-state wholesaler distributor requirement argued to be necessary to 
secure enforcement of state excise tax laws); GATT Panel Report, United States – Taxes on Automobiles, WT/DS308/R 
Page C-80  
 
  
 The negotiating history of Article XX(d) conf irms that obligations under an international 
agreement were intentionally not included in the scope of Article XX(d).  In particular, during the 
second session of the Preparatory Committee in Geneva (1947), India tabled a proposal that "a Member should be allowed temporarily to discriminat e against the trade of another Member when this 
is the only effective measure open to it to retaliate  against discrimination practised by that Member 
outside the purview of the Organization, pendi ng a settlement of the issue through the United 
Nations."
37  This proposal was forwarded to the Havana Conference but was ultimately rejected, and 
was not included in Article 45, the commercial po licy exceptions provision of the Havana Charter.  
Article XX(d) of the GATT has been unaltered since October 1947.38  
 
68. In the opinion of the parties, does Articl e 60 of the Vienna Convention on the Law of 
Treaties codify a principle of international law by  which a material breach of a bilateral treaty 
by one of the parties may allow the other to in voke that breach as a ground for, inter alia, 
suspending the operation of that treaty in whole or in part, but not for suspending the operation 
of a different multilateral treaty?  
 Interpretation and application of Article 60 of the Vienna Convention is not relevant to the 
Panel's task in this dispute, which concerns  determining whether Mexico's tax measures are 
inconsistent with Mexico's oblig ations under the WTO Agreement.  As the United States noted at the 
second panel meeting, the WTO dispute settlement syst em exists to resolve WTO disputes, that is, 
disputes over Members' rights and obliga tions under the covered agreements.39  A WTO panel's 
mandate does not extend to determining the rights and obligations of countries under general 
principles of international law or under Article  60 of the Vienna Convention in particular.40  
Moreover, Article 60 does not reflect a customary rule  of interpretation of public international law, 
the only principles of international law identified in the DSU.41 
 
 For these reasons, the Panel is not in a position to decide whether a principle such as the one 
posited in its question would be grounds for decidi ng in favor of the United States in this dispute.42 
 
                                                                                                                                                                     
DS31/R, 11 October 1994 (assessment of penalties to secure compliance with Corporate Average Fuel Economy 
law); Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline , 
WT/DS2/AB/R, adopted 20 May 1996 (b aseline establishment methods claimed necessary to secure compliance 
with US environmental laws); Panel Report, Canada – Certain Measures Concerning Periodicals , WT/DS31/R 
and Corr.1, adopted 30 July 1997 (Tariff Code 9958 impo rt restriction claimed necessa ry to secure compliance 
with Canadian income tax laws);  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 (dual retail system claimed 
necessary to secure compliance with domestic  unfair competition laws); Panel Report, Argentina – Measures 
Affecting the Export of Bovine Hides and Import of Finished Leather , WT/DS155/R and Corr.1, adopted 16 
February 2001 (special treatment of imports found nece ssary to secure compliance with value-added tax and 
income tax laws); Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported 
Grain , WT/DS276/R, adopted 27 September 2004 (laws on treatment of foreign grain claimed to be necessary 
to secure compliance with domestic laws on competition,  grain, and the Canadian Wheat Board); Panel Report, 
Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes , WT/DS302/R, 26 
November 2004 (stamp and bond requ irements claimed to be necessary to secure compliance with domestic tax 
laws and regulations).  
37 Working Party on Technical Articles, Report, E/PC/T/103 dated 16 June 1947, p. 43.  
38 GATT Analytical Index , p. 596. 
39 DSU Arts. 1.1, 3.2 and 3.4. 
40 See DSU Art. 7.1, DSU Art. 11. 
41 DSU Art. 3.2. 
42 As a subsidiary matter, we also note that by its own terms Article 60 of the Vienna Convention does 
not appear to cover situations where in response to a br each of one treaty by one party another party proposes to 
suspend benefits under a different treaty.  WT/DS308/R 
 Page C-81 
 
 
 69. Could parties expand on their views of  whether the challenged measures may be 
considered to be a "disguised restriction on international trade" or an "arbitrary or 
unjustifiable discrimination between countries where the same conditions prevail", under the 
chapeau of Article XX? 
 The United States explained in its second subm ission that Mexico's tax measures do not meet 
the requirements of the chapeau to Article XX  because: (1) Mexico's tax measures are not 
provisionally justified under any of the paragraphs  of Article XX, specifically under paragraph (d)43; 
and (2) Mexico's tax measures constitute a "dis guised restriction on international trade." 
  With respect to the latter, the United Stat es has explained that Mexico's tax measures 
constitute a "disguised restriction on  international trade" because, wh ile Mexico for purposes of its 
Article XX(d) defense argues that its tax measures are to secure compliance with the NAFTA, Mexico has been quite open in other contexts, including in this dispute, that its tax measures are applied to 
protect its domestic cane sugar industry – in partic ular, to protect its domestic cane sugar from being 
displaced by imports of HFCS from the United States.
44  The protectionist application of Mexico's tax 
measures is highlighted by the fact that to date  Mexico has been unable to explain how measures 
designed to protect its cane sugar industry and discr iminate against imports results or contributes to 
compliance with the NAFTA.45   
  Rather than demonstrate that its tax measures "are not applied  in a manner which would 
constitute a means of arbitrary or unjustifiabl e discrimination between countries where the same 
conditions prevail, or a disguised restriction on in ternational trade," Mexico has instead focused on 
whether it has made a "good faith effort" to resolve the NAFTA sugar dispute.  Most recently in its 
opening statement at the second panel meeting, Mexi co stated: "Mexico's good faith efforts to resolve 
this long-standing dispute clearly meet the re quirements set out by the Appellate Body in United 
States – Shrimp ."
46  Contrary to Mexico's belief, the ch apeau to Article XX does not contain a 
requirement that Members make a good faith effort to  negotiate before taking a measure falling within 
the scope of one of Article XX's paragraphs.  No r does the chapeau to Article XX provide that good 
faith efforts to negotiate before taking a measur e immunize the measure from constituting a means of 
arbitrary discrimination or a disguised restriction on trade.  Mexico misreads the Appellate Body 
report in US – Shrimp  in this regard.47 
 
 To date, Mexico has not even addressed how its tax measures are applied.  This is significant, 
because the chapeau to Article XX re quires that the measure not be " applied in a manner that which 
would constitute a means of arbitrary or unjustifiabl e discrimination ... or a disguised restriction on 
international trade."   Mexico's discussions of ev ents that preceded imposition of its tax measures are 
not discussions of how Mexico applies those measur es and thus Mexico has not met the requirements 
of the chapeau.  
 
                                                      
43 US Second Written Submission, para. 69. 
44 US Second Written Submission, para. 70; see also Mexico First Written Submission, para. 111 
(conceding that its tax measures were imposed to stop the displacement of Mexican cane sugar by imported 
HFCS); US First Written Submission, paras. 48-55 (reco unting the numerous Mexican legislative and judicial 
statement as to the purpose of Mexi co's tax measures being to protect  its domestic cane sugar industry). 
45 US Opening Statement at the S econd Panel Meeting, para. 16. 
46 Mexico Second Written Submission, para. 85. 
47 See US Second Written Submission, para. 71; US Responses to Questions from the Panel, 
paras. 56-58. WT/DS308/R 
Page C-82  
 
 FOR THE UNITED STATES:
 
 
70. For clarification, could the United States plea se confirm that the scope of the products 
which it refers to under the expression "soft drinks  and syrups", coincides with the definitions 
used in the Mexican legislation for "soft dri nks" ("refrescos") and "hydrating or rehydrating 
drinks" ("bebidas hidratantes o rehidratantes"), currently contained in Article 3 of the Law on 
the Special Tax on Production and Services (Ley del Impuesto Especial sobre Producción y Servicios). 
 As explained in the US response to Question 71,  the term "soft drinks and syrups" as used in 
the US submissions and statements refers to the products identified in Article 2(G) and (H) of the 
IEPS. The"soft drinks" and "hydrating and rehydrat ing drinks" are two of th e products identified in 
Article 2(G).  The terms "soft drinks" and "hydrati ng and rehydrating drinks" are defined in Article 3 
of the IEPS.  
71. Could the United States please confirm that it is asking the Panel to assume that the 
information that it has provided with respect to the "likeness" and the "substituibility" of "soft 
drinks and syrups" is also applicable to the fo llowing other categories of products also falling 
within its complaint, such as "hydrating or  rehydrating drinks", "concentrates, powders, 
syrups, essences or flavour extracts that can be diluted to produce soft drinks and hydrating or 
rehydrating drinks" and "syrups or concentrates for preparing soft drinks sold in open containers which use automatic, el ectric or mechanical equipment". 
 The United States is not asking the Panel to assume  that the information that it has provided 
with respect to the likeness and th e substitutability of "soft drinks a nd syrups" is also applicable to 
"hydrating or rehydrating drinks," "concentrates, powders, syrups, essences or flavour extracts that 
can be diluted to produce soft drinks and hydratin g or rehydrating drinks" and "syrups or concentrates 
for preparing soft drinks sold in open containe rs which use automatic, electric or mechanical 
equipment."  Rather, the term "soft drinks and syru ps" as used in the US submissions and statements 
includes all products identified in Article 2(G) and 2(H) of the IEPS.
48   
  Therefore, the information the United States pr ovided with respect to"soft drinks and syrups" 
pertains to "soft drinks, hydrating and rehydr ating beverages, as well as concentrates, powders, 
syrups, flavor extracts or essences, which may be  diluted to produce soft drinks, hydrating and 
rehydrating beverages" as identified in Article 2(G)  and "syrups or concentrates for preparing soft 
drinks sold in open containers, using mechanical or  automatic equipment" identified in Article 2(H).  
The United States used the terms "soft drinks and sy rups" to avoid having to repeat the foregoing list 
each time it mentioned the products identified in Articles 2(G) and 2(H).  
 It should also be emphasized that the "like" or  "directly competitive or substitutable" analyses 
in this dispute would not be any different if co nducted individually for each product identified in 
Article 2(G) and 2(H).  This is because the di viding line between whether a product identified in 
Article 2(G) and 2(H) is subject to the IEPS is wh ether (a) it is sweetened with cane sugar (in which 
case it is not subject to the IEPS) or (b) it is sweet ened with non-cane sugar sweeteners such as HFCS 
or beet sugar (in which case it is subject to the IEPS).
49 
 
 To explain this in more concrete terms, take the example of a soft drink, such as a bottle of 
Coke, and a hydrating drink, such as a bottle of Gato rade.  A bottle of Coke sweetened with HFCS or 
beet sugar  is "like" or "directly competitive or substitutable" with a bottle of Coke sweetened with 
cane sugar for the reasons a bottle of Gatorade sweetened with HFCS or beet sugar is "like" or 
                                                      
48 US First Written Submission, paras. 1 and 37 et seq. 
49 See also US First Written Submission, para. 67.  WT/DS308/R 
 Page C-83 
 
 
 "directly competitive or substitutable" with a bottle of Gatorade sweetened with cane sugar.  The use 
of HFCS or beet sugar, on the one hand, versus can e sugar, on the other, does not change the color, 
smell, chemical composition, calories, digestion, ingredient label, end-use, distribution, tariff 
classification or consumer preference for a bottle of Coke or a bottle of Gatorade.  The same can be 
said for the use of HFCS versus cane sugar in a concentrate, powder, syrups, flavor extracts or 
essences that may be diluted to produce a finished soft drink as well as for a syrup or concentrate for 
preparing soft drinks sold in open containers, usi ng mechanical or automatic equipment (i.e., syrups 
and concentrates mixed with water, typically at a restaurant or bar, to produce a fountain drink).   Although the individual products identified in Article 2(G) and 2(H) may well be "like" or 
"directly competitive or substitutable" with each ot her (e.g., because they shar e the same end-use and 
have identical or at least very similar physical char acteristics) this is not something the needs to be 
decided in this dispute.  Rather, the relevant qu estion is whether the products identified in Articles 
2(G) and 2(H) sweetened with non-cane sugar sweetener s, such as HFCS and beet sugar, are "like" 
and/or "directly competitive or substitutable" with the products identified in Articles 2(G) and 2(H) 
sweetened with cane sugar.  The evidence provide d in the US first and second written submission 
more than amply demonstrates that the answer to this question is yes.  
72. In its first submission, the United States has stated that there are three different grades 
of High-Fructose Corn Syrup (HFCS), which h ave different industrial applications.  For 
clarification, could the United States please confirm if each of the three grades of HFCS 
(namely, HFCS-42, HFCS-55 and HFCS-90) can be  considered to be "directly competitive or 
substitutable products" with each other, as well as with cane sugar, and on what basis.  
 Because Mexico has chosen to apply its ta x measures on HFCS by taxing soft drinks and 
syrups that use HFCS, the only relevant industri al application for purposes of determining whether 
HFCS and cane sugar are "like" or "directly comp etitive or substitutable" products is their use as 
sweeteners for soft drinks and syrups.
50  As demonstrated in the US first submission, HFCS is "like" 
or "directly competitive or substitutable" with cane sugar as a sweetener for soft drinks and syrups. 
  In addition, as was similarly me ntioned in response to Question 71 with respect to soft drinks 
and syrups, the relevant inquiry in this dispute is whether HFCS is "like" or "directly competitive or 
substitutable" with cane sugar as a sweetener for soft  drinks and syrups.  Th is inquiry does not depend 
on additionally finding that HFCS-42, HFCS-55 and HFCS-90 are "like" or "directly competitive or 
substitutable" with each other.   The US first submissions more than amply demonstrate that HFCS is "like" and "directly competitive or substitutable" with cane sugar as a sweet ener for soft drinks and syrups and the "like" 
and "directly competitive or substitutable" analyses contained therein apply to the three grades of 
HFCS:  HFCS-42, HFCS-55 and HFCS-90.
51  As explained in the US first submission, although 
HFCS-55 was developed primarily as a sweetener for so ft drinks and syrups, HFCS-42 is also used as 
sweeteners for soft drinks and syrups.52  HFCS-90 may also be used as a sweetener for soft drinks and 
syrups if first blended with HFCS-42 to produce HF CS-55.  The fact that imported HFCS-90 could be 
blended to produce HFCS-55 is what led Mexico to  extend application of its antidumping duty order 
on HFCS-55 to also cover HFCS-90.53  Mexico explained: "[G]rade 90 HFCS belongs to the same 
                                                      
50 See also  US First Written Submission, para. 96. 
51 The US first submission demonstrates that HFCS and cane sugar are "directly competitive or 
substitutable" in paragraphs 94-130 and that HFCS and cane sugar are "like" in paragraphs 156-158. 
52 US First Written Submission, paras. 12-13. The a ttached Exhibit US-58 provides a listing of popular 
US soft drinks and their corresponding sweetener, HFCS-42 or HFCS-55. 
53 See "Secretaria de Comercio y Fomento Industrial, Resolucióm final de la investigación sobre 
elusión del pago de cuotas compensatorias impuestas a las importaciones de jarabe de maíz de alta fructosa WT/DS308/R 
Page C-84  
 
 family as grade 55 HFCS, despite their difference in fructose concentration.  In fact, grade 90 HFCS 
is one of the inputs in the manufacturing of grade HF CS 55, which is the main use, and explains why, 
once mixed, it is sold to the same final consum ers as the products subject to compensatory duties."
54   
  Further, as Exhibit US-10 demonstrates impor ts of HFCS-42 plummeted just as imports of 
HFCS-55 and HFCS-90 did from 2001 to 2002, the years prior to, and immediately following, 
imposition of Mexico's tax measures.
55  After imposition of Mexico's tax measures, use of HFCS in 
any grade in soft drinks and syrups became co st prohibitive and Mexican soft drink and syrup 
producers switched back to cane sugar.  The essential  point is that HFCS – of any grade – competes 
and is directly competitive with cane sugar as a sweetener for soft drinks and syrups. 
 
 In terms of physical appearance, HFCS-42, -55 and -90 are virtually identical.  They are all odorless, colorless solutions of glucose and fructose molecules and small amounts of other saccharides.  What distinguishes the three grades is  their glucose-fructose ratio.  However, for 
purposes of this dispute, the different fructose-gluc ose ratios of HFCS-42, -55 and -90 do not affect 
whether they are "like" or "directly competitive or  substitutable" with cane sugar as a sweetener for 
soft drinks and syrups.  
73. During the second substantive meeting (par agraph 36 of written version), Mexico has 
asked the Panel to make several factual determinat ions.  Does the United States concur with the 
facts listed by Mexico?  Does it dispute any specific one of them?  If possible, could the United 
States refer in its response, as appropriate, to the evidence that has been brought to the record 
by the parties.  
 Paragraph 36 of Mexico's second oral st atement requests the Panel to make six 
"determinations of fact," most of which would also involve determinations of contested legal issues.  
The United States disputes almost all of these propo sed determinations as addressed in turn below.  
These proposed determinations, however, do not concern "facts" that this Panel needs to determine to 
fulfill its mandate in this dispute – which concerns  the consistency of Mexico's tax measures with 
Mexico's WTO obligations and not alleged US ac tions under the NAFTA.  The "determinations of 
fact" Mexico identifies are, therefore, not ones this Panel should agree to make. 
  With respect to the first bullet in paragra ph 36, Mexico refers to the negotiation of a 
"preferential trade regime which includes HFCS and sugar, products that compete in certain market 
segments."  The United States agrees that there have  been trade negotiations with respect to HFCS 
and cane sugar although, as noted, the United States  does not agree with Mexico's understanding of 
the outcome of those negotiations.  The United St ates does agree that HFCS and cane sugar compete 
in certain market segments, specifically  the soft drink and syrup industry. 
 
 With respect to the second bullet in paragraph 36, the United States agrees there is a dispute 
between the United States and Mexico over the exac t terms of the NAFTA with respect to market 
                                                                                                                                                                    
 
grado 55, mercancía clasificada en la fracción arancelar ia 1702.60.01 de la Tarifa de la Ley del Impuesto 
General de Importación, originarias de los Estados Un idos de América, independientemente del país de 
procedencia," Diario Oficial  (September 8, 1998) (final decision of the investigation of circumvention of the 
payment of duties on HFCS-55). 
54 "Resolucion Por La Que Se Declara De Oficio El Inicio De La Investigacion Sobre Elusion Del Pago 
De Cuotas Compensatorias Impuestas A Las Importaciones De Jarabe De Maiz De Alta Fructosa Grado 55, 
Mercancia Clasificada En La Fraccion Arancelaria 1702.60.01 De La Tari fa De La Ley Del Impuesto General 
De Importacion, Originarias De Los Estados Unidos De America, Independientemente Del Pais De 
Procedencia," Diario Oficial  71, 72 (January 23, 1998) (decision to initiate an investigation of circumvention of 
the payment of duties on HFCS-55).   
55 Prior to 2002, Mexico's tariff schedule did not contain separate categories for HFCS-55 and HFCS-
90 but included both grades under the tariff subheading 1702.60.  WT/DS308/R 
 Page C-85 
 
 
 access for Mexican cane sugar.  Th e United States disagrees, however, with Mexico's suggestion that 
this NAFTA sugar dispute and the dispute for which this Panel was established are part of the same 
"dispute" for purposes of WTO dispute settlement.  They are not.   With respect to the third bullet in paragraph 36, although it is correct that Mexico and the 
United States have engaged in bilateral discussions  on the trade in sweeteners and dispute settlement 
under the NAFTA, the United States is not of th e view that these avenues for resolving our 
differences have been exhausted or that Mexico has tried every means – short of breaching its WTO 
obligations – to resolve its grie vances with respect to sugar under the NAFTA.  In fact, negotiations 
between the United States and Mexico as well as the private interests continue on the issue.  Mexico 
even noted before the DSB that it thought the US panel request was premature because of these 
ongoing negotiations.
56  
  With respect to the fourth bullet in para graph 36, the United States notes that Mexico's 
contention is not an assertion of fact, but rather a conclusion drawn based on Mexico's view of how 
dispute settlement (or other means to address part y grievances) should proceed under the NAFTA.  As 
the United States noted in earlier submissions, the Un ited States believes it is in full compliance with 
the dispute settlement provisions of the NAFTA.    With respect to the fifth bullet in paragraph 36, Mexico essentially raises two points, which, 
as in the fourth bullet, are not actually limited to a recitation of facts.  First, the United States has not 
refused to submit to NAFTA disput e settlement.  As stated in our r esponse to questions after the first 
meeting, the United States has engaged in cons ultations with Mexico under NAFTA's dispute 
settlement provisions and a NAFTA panel has been established.  Second, the United States does not 
agree that Mexico's tax measures are a response to a US "refusal to submit to NAFTA dispute 
settlement."  In fact, Mexico's statement is who lly inconsistent with the numerous and repeated 
statements of its legislators and Supreme Court that  Mexico's tax measures were  imposed to "protect[] 
the national sugar industry" in Mexico.  Mexico h as not contested the accuracy of these statements.  
  With respect to the sixth bullet, it is likewise not a recitation of "fact".  Rather it depends on 
Mexico's selective and out-of-context reading of st atements made by the United States, including 
statements made outside of and prior to the existe nce of the WTO dispute settlement mechanism.  For 
the record, the United States does not take the positio n that under the terms of the WTO Agreement it 
or any other Member may validly take countermeasures in the form of a WTO breach when another Member has refused to submit to an internati onal agreement's dispute settlement mechanisms.  
Furthermore, the text of the WTO Agreement does not  provide for the defense Mexico raises in this 
dispute. 
 
74. Could the United States please explain with more detail in what manner does the 
internal application of the "soft drinks tax"  and the "distribution tax" subject imported 
products to internal taxes in excess of those app lied to like domestic products, in respect to beet 
sugar.  
 As the US second submission reviews, beet sugar and cane sugar are chemically and 
functionally identical.  They have identical end-u ses. They are sold through the same channels of 
distribution and to the same customers.  They are classified under the same f our-digit tariff heading.  
Beet sugar and cane sugar are "like" products.    Because beet sugar and cane sugar are virtua lly identical, it follows that soft drinks and 
syrups sweetened with th em are also virtually identical.  The US second submission demonstrates that 
soft drinks sweetened with beet sugar have th e same physical appearance, end-uses, channels of 
                                                     
 
56 See US Responses to Questions of the Panel, para. 77. WT/DS308/R 
Page C-86  
 
 distribution, consumer preferences and tariff classifi cations as soft drinks and syrups sweetened with 
cane sugar.
57  Soft drinks and syrups sweetened with beet sugar are, therefore, "like" soft drinks and 
syrups sweetened with cane sugar.   Mexico does not produce beet sugar or soft dr inks and syrups sweetened with beet sugar.  
Under the IEPS, soft drinks and syrups that contai n any sweetener other than cane sugar are subject to 
a 20 percent tax on their importation and internal transfer (HFCS soft drink tax) as well as a 20 percent tax on their distribution, representation, brokerage, agency and consignment (distribution 
tax).
58  In addition, soft drinks and syrups sweete ned with non-cane sugar swee teners are subject to 
certain bookkeeping and reporting requirements, includi ng a requirement for the soft drink or syrup 
producer to report its top 50 suppliers and customers to the Mexican Government.59   
  Because the IEPS is structured so as to apply to  all soft drinks and syru ps and then to exempt 
only those soft drinks and syrups sweetened with cane sugar, the IEPS discriminates against all non-
cane sugar sweeteners and soft drinks and syrups made with non-cane sugar sweeteners.  HFCS and 
beet sugar are examples of non-cane sugar sweete ners and the United States has presented evidence 
that HFCS is "like" and "directly competitive or s ubstitutable with" cane sugar and that beet sugar is 
"like" cane sugar.  The United States has also presented evidence that soft drinks and syrups 
sweetened with HFCS are "like" and "directly competitive or s ubstitutable" with soft drinks and 
syrups sweetened with cane sugar and that soft drinks  and syrups sweetened with beet sugar are "like" 
and soft drinks and syrups sweetened with cane sugar.  
 
 The IEPS discriminates against imported non-can e sugar sweeteners and imported soft drinks 
and syrups sweetened with non-cane sugar sweeteners  because it applies (1) a 20 percent tax on the 
internal transfer and (2) a 20 percent tax on the dist ribution of soft drinks and syrups sweetened with 
non-cane sugar sweeteners that it does not apply to soft  drinks and syrups swee tened with cane sugar.  
The IEPS also discriminates against imported soft dr inks and syrups because it applies a 20 percent 
tax on their importation, regardless of the type of sw eetener they contain, but does not tax the internal 
transfer of soft drinks and syrups sw eetened exclusively with cane sugar.   
  As explained in the US submissions, the vast majority of soft drinks and syrups produced in the United States are sweetened with HFCS.  US pr oducers may also use beet sugar to sweeten soft 
drinks in syrups, as do their European counterparts.  By contrast, in Mexico most soft drinks and 
syrups are sweetened with cane sugar. (This is true even before application of the IEPS to soft drinks 
and syrups when cane sugar comprise over 70 percent of the sweeteners used in Mexican soft drinks 
and syrups.)
60  The IEPS, thus, subjects imported soft drinks and syrups to a 20 percent tax on their 
importation, internal transfer and distribution.  These taxes (HFCS soft drink and distribution taxes) 
do not apply to most soft drinks and syrups produced in Mexico.  The HFCS soft drink and 
distribution taxes are, therefore, taxes applied to imports "in excess of" and dissimilar than those 
applied to"like" and "directly competitive or subs titutable" domestic products.  This is the case 
regardless of whether the imported products are soft  drinks and syrups sweetened with HFCS, beet 
                                                      
57 US Second Written Submission, paras. 27-29. 
58 The IEPS accomplishes this as follows: Article 1 subjects the importation and internal transfer of, 
and the provision of certain services in connection with , goods identified in Article 2 to the provisions of the 
IEPS.  Article 2 identifies the goods subject to the IEPS as well as the tax rate for those good.  Article 2.I(G) and 
2.I(H) provide that soft drinks and syrups (see US response to Question 71) are subject to a 20 percent tax rate.  
Article 2.II identifies distribution, representation, br okerage, agency and consignment which if provided in 
connection with goods identified in Artic le 2.1(G) and (H) are subject to the IEPS.  Article 8 then provides that 
transfers of products identified in Article 2(G) and (H) are not subject to the IEPS if they are sweetened 
exclusively with cane sugar.  Article 2.II exempts the provision of services in connection with goods identified 
in Article 8. 
59 IEPS as amended, Art. 19.  See US First Written Submission, paras. 37, 46. 
60 US First Written Submission, para. 23 and Exhibits US-15 and 57.  WT/DS308/R 
 Page C-87 
 
 
 sugar or any other non-cane sugar sweetener.  Said an other way, the IEPS subjects imports to taxes in 
"excess of" and dissimilar than those applied to "l ike" and "directly competitive or substitutable" 
domestic products because the IEPS specifically ex cludes those domestic products from the scope of 
the IEPS.  
 The same is true with respect to non-cane suga r sweeteners used in soft drinks and syrups. 
Prior to application of the IEPS to soft drinks  and syrups, HFCS comprised over 99 percent of 
Mexican sweetener imports, but only between five and ten percent of Mexican sweetener 
production.
61  As for beet sugar, it is not produced in Mexi co and, therefore, to the extent it exists in 
Mexico, is an imported sweetener. 62  By subjecting soft drinks and syrups sweetened with non-cane 
sugar sweeteners to a 20 percent tax but not subjec ting soft drinks and syrups sweetened with can 
sugar to that same tax, the IEPS subjects importe d sweeteners – whether those sweeteners are HFCS 
or beet sugar – to taxation that is dissimilar and "in excess of" that applied to the like domestic 
product, cane sugar.  
 The bookkeeping and reporting requirements also  discriminate against beet sugar in the same 
manner they discriminate against HFCS.  Only so ft drinks and syrups made with non-cane sugar 
sweeteners (including HFCS and beet sugar) are subj ect to the requirements.  Exclusive use of the 
"like" and "directly competitive or substitutable" do mestic product, cane sugar, results in exemption 
from the bookkeeping and reporting requirements.  75. The Panel notes that, in its rebuttal subm ission (paragraph 53), the United States has 
said that obligations owed to a Member by another Member under the terms of an international 
agreement would not be part of the form er Member's "laws or regulations" under 
Article XX(d) of the GATT.  Does the United States mean that, in its opinion, this would always 
be the case or whether, under the facts of this particular case it considers that the United States' 
obligations under the NAFTA would not be part of a Mexico's "laws or regulations"?  
 In the US view, the international obligations  owed to one Member by another Member under 
the terms of an international agreement are not  "laws or regulations" within the meaning of 
Article XX(d).  This is true regardless of whether the international obligations asserted to be "laws or 
regulations" are US obligations under the NAFTA or any country's international obligations under any 
international agreement.  In addition, the phrase "laws or regulations" pertains to the laws or 
regulations of the Member claiming its breach of GATT rules is justified by Article XX(d).  It does 
not pertain to the laws or regulations of the Me mber whose GATT rights have been impaired by the 
other Member's GATT-inconsistent measure.   
76. The United States has argued that it "is currently engaged in the third stage" of dispute 
settlement under the NAFTA procedures, regarding  its dispute with Mexico on market access 
commitments for Mexican exports of sugar to th e United States' market.  Could the United 
States please expand on that statement.  How long  would that third stage generally take?  What 
would happen, under NAFTA rules, if the panel is not established?  
                                                     
 
61 US First Written Submission, paras. 24-25. 
62 Mexico does not import beet sugar.  This fact, however, does not change the fact that the IEPS 
discriminates against beet sugar as a sweetener for soft drinks and syrups.  For example, in EC – Bananas , the 
fact that the US "never e xported a single banana" did not change the fact the EC regime for the importation and 
sale of bananas constituted a breach of Article III o f the GATT or the presumption that the EC regime, 
therefore, nullified and impaired benef its accruing to the United States.  The Appellate Body noted that the US 
had a "potential export interest" in bananas.  See Appellate Body Report, EC – Bananas , WT/DS27/AB/R, 
adopted on 25 September 1997, paras. 208-216, 249-254. WT/DS308/R 
Page C-88  
 
  With respect to the first part of the question, under ten years of experience with WTO dispute 
settlement, dozens of panels have been formed and it is possible to discern patterns and develop 
expectations about this process.  Since the NAFTA  was implemented eleven years ago, only three 
panels have been formed (Canada Agriculture Produ cts, US Brooms, and US Trucks).  With such a 
small number of disputes, it is impossible to suggest norms or set expectations.  It is correct, as a 
matter of fact, that the time taken to constitute each  of these three panels was longer than provided for 
under the NAFTA.    With respect to the second part of the ques tion, under the NAFTA, panel establishment is 
automatic.  That is, if parties to the dispute are unable to resolve the dispute after proscribed time 
periods and one of the parties delivers a request fo r the establishment of a panel, the NAFTA Free 
Trade "Commission shall establish an arbitral panel."
63  A an arbitral panel has been "established" in 
the NAFTA sugar dispute.  Unlike the DSU, which permits a party to request that the Director-
General appoint panelists 20 days after the panel's establishment if the parties are unable to agree,64 
there is no parallel provision in the NAFTA.  As Me xico concedes: "NAFTA's  Chapter Twenty lacks 
the automaticity of the DSU."65  In this regard, the NAFTA Secretariat did not appoint panelists in the 
NAFTA sugar dispute pursuant to Mexico's request,66 because under NAFTA dispute settlement rules 
the NAFTA Secretariat does not have th e authority to appoint panelists.  
 
77. In its response to Panel question No. 30, the United States has said that there are 
alternative means "diplomatic or otherwise - short of breaching its WTO obligations" that 
Mexico could have pursued to address its concern s regarding the bilateral trade in sweeteners 
under the NAFTA, such as bilateral negotiations between governments and between the private sectors of both countries.  Could the United Stat es please elaborate on this assertion and explain 
what are some of the alternative means that Me xico could have reasonably pursued in order to 
address its concerns regarding the bilateral trad e in sweeteners under the NAFTA.  Would this 
include suspension of benefits under the NAFTA  Agreement that are not part of Mexico's 
obligations under the WTO agreements?  
 As an initial matter, the existence of "alternative measures" is an analytical tool the panels and 
the Appellate Body have employed to assess the ex tent to which a GATT-inconsistent measure, for 
which a defense under Article XX(d) is raised, is in fact "necessary."  Thus, in other disputes 
complaining parties have suggested that the ex istence of an alternative measure that secures 
compliance with the relevant laws or regulations an d that is GATT-consistent means that the disputed 
measure is not "necessary."  Whether a GATT-consis tent alternative measure exists, however, does 
not answer the question of whether the Member  invoking Article XX(d) has established that the 
dispute measure is "necessary" to secure compliance with laws or regulations.  Therefore, regardless of whether the United States identifies a GATT-consis tent alternative measure, it is Mexico's burden 
in the first instance to establish that its tax measu res are "necessary" to secure compliance with laws 
or regulations.    
                                                     
 
63 NAFTA Art. 2008(2). 
64 The Secretariat's most recent ov erview of dispute settlement cases  in WT/DS/OV22 reflects the fact 
that even panel composition in th e WTO can take a long time.  See, e.g.,  Australia – Certain Measures Affecting 
the Importation of Fresh Fruit and Vegetables (Philippines) (DS270) (panel established on Aug. 29, 2003, not 
yet composed);  Australia – Quarantine Regime for Imports  (EC) (DS287) (panel established on Nov. 7, 2003, 
not yet composed); (3) United States – Countervailing Duties on Imports of Steel Plate from Mexico  (Mexico) 
(DS280) (panel established on Aug. 29, 2003, not yet composed). 
65 Mexico Second Written Submission, para. 3. 
66 See Mexico First Written Submission, para. 75 n. 41; Mexico Second Written Submission, para. 3; 
Mexico Opening Statement at the Second  Meeting of the Panel, para. 78; Mexico Responses to the Questions of 
the Panel, p. 6 (WTO translation).  WT/DS308/R 
 Page C-89 
 
 
  With that in mind, diplomatic means ex ist under the NAFTA for Mexico to pursue its 
concerns regarding bilateral sweeteners trade, incl uding periodic meetings at official and ministerial 
level and Mexico has, in fact, pursued and is currently pursuing these means.  In addition, the 
sweeteners industries of both countries have pursu ed unofficial discussions in aid of a mutually 
acceptable solution for bilateral sweeteners trade, and these discussions continue. Industry officials 
involved in the talks brief the governments periodically.   
  It is also useful to keep in mind that the ta x measures at issue violate the GATT rights not just 
of the United States, but those of Canada, the EC and other Members.  The United States rejects the proposition that Article XX(d) can be used to reso lve disputes under other in ternational agreements, 
as Mexico has argued in this case.  However, even if such use of Article XX(d) were acceptable, it 
would not justify impairing the rights of all WTO Members because of a bilateral dispute. 
  With respect to the suspension of benefits under the NAFTA, the United States points out that 
Mexico has already suspended benefits under the NAFTA with respect to HFCS by applying 
NAFTA-inconsistent antidumping duties against HF CS imported from the United States from 1997 
through April 2002.  And with respect to sugar, as noted in the US second submission,
67 the United 
States finds it difficult to reconcile that Mexi co committed under the NAFTA to allow duty-free 
market access for a minimum of 7,258 MT of US suga r per year, with the fact that it has not provided 
this level of market acce ss in the 11 years since NAFTA's entry into force. 
 78. During the second substantive meeting (par agraph 23 of written version), the United 
States used the expression "whether recognized or  not" referring to principles of international 
law.  What would the expression " recognized or not" mean in that context?  
 The reference in paragraph 23 refe rred to paragraphs 120-125 of the Hormones  decision, in 
which the Appellate Body rejected arguments by th e EC that the "precautionary principle" is a 
"general customary rule of international law" that  would override the provisions of Articles 5.1 and 
5.2 of the SPS Agreement.  The Appellate Body fo und that it was "less than clear" that Members of 
the WTO had accepted the precautionary principle as a pr inciple of general or customary international 
law and it declined to take any position on this question. The Appellate Body then provided guidance 
that is quite germane to the present dispute.  It found that "the precautionary principle does not, by 
itself, and without a clear textual directive to that  effect, relieve a panel from the duty of applying the 
normal (i.e. customary international law) princi ples of treaty interpretation in reading the SPS 
Agreement."
68 
  Thus, general principles of international law could only be relevant if there were a clear 
textual directive in the WTO Agreement that makes th em relevant.  General pr inciples of international 
law cannot be used to override the text of the WTO Agreement, to create new exceptions to WTO 
obligations, or otherwise to abridge the rights and obligations of WTO Members.  This would be the 
case even for a "recognized" principle of intern ational law, let alone something (like the 
"precautionary principle" in Hormones ) which has not been recognized as a principle of international 
law.  79. In a preliminary response to the previous qu estion when it was posed orally by the Panel 
during the second substantive meeting, Mexico stated that it is not asking the Panel to rule on 
the dispute under NAFTA.  Could the United States'  comment on that response, particularly in 
light of the statement by the United States dur ing the second substantive meeting (paragraphs 6 
and 7 of written version) that acceptance of Mexico's interpretation of "law or regulations" to 
                                                     
 
67 US Second Written Submission, para. 58 n.79. 
68 Appellate Body Report, EC – Measures Concerning Meat  and Meat Products (Hormones) , 
WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, para. 124. WT/DS308/R 
Page C-90  
 
 include obligations owed to Mexico under the NAFTA would require WTO panels and the 
Appellate Body to determine if there was, in fact, "a breach of the underlying agreement".  
 The United States refers the Panel to its response to Question 64 above. 
 
80. Could the United States please clarify the sp ecific scope, for the purpose of this dispute, 
of each imported product group at issue that  is allegedly being discriminated against when 
compared to domestic products.  In particular, as for imported soft drinks and syrups, is the 
product scope:  (a) imported soft drinks and syrups; (b) imported soft drinks and syrups 
sweetened with nutritive sweeteners; (c) imported soft drinks and syrups sweetened with non-cane sugar sweeteners; (d) imported soft dri nks and syrups sweetened with HFCS and beet 
sugar; or (e) imported soft drinks and syrups  sweetened with HFCS?  As for imported 
sweeteners, is the product scope: (a) imported sw eeteners; (b) imported nutritive sweeteners; (c) 
imported non-cane sugar sweeteners; (d) impo rted HFCS and beet sugar; or (e) imported 
HFCS?  
 With respect to soft drinks and syrups, the answer to the question depends on the point at 
which the IEPS is being applied.  With respect to the IEPS as applied on the importation of soft drinks 
and syrups, the answer is (a): the IEPS discriminates against imported soft drinks and syrups regardless of the type of sweetener they contain.  With respect to the IEPS as applied on the internal 
transfers and the distribution, representation, broker age, agency and consignment of soft drinks and 
syrups, the answer is (c): the IESP discriminates ag ainst imported soft drinks  and syrups sweetened 
with non-cane sugar sweeteners including HFCS and beet sugar.  
 
 With respect to sweeteners, the answer is  (c): The IEPS discriminates against imported non-
cane sugar sweeteners including HFCS and beet sugar.    WT/DS308/R 
 Page C-91 
 
 
 ANNEX C-5∗ 
 
COMMENTS BY MEXICO TO THE UNITED STATES' RESPONSES TO QUESTIONS 
POSED BY THE PANEL AFTER THE SECOND SUBSTANTIVE MEETING  
 
 
 Mexico hereby submits its comments on the Un ited States' answers of 15 March 2005 to the 
Panel's questions regarding the Second Substantive Meeting with the Parties.  The United States has 
restated its earlier arguments, and Mexico has already addressed them in previous submissions.  To 
avoid repetition, Mexico will confine its comments to  certain key issues and respond to certain points 
raised by the United States that it has not addressed previously.  
Question 58 
 
Mexico notes that the United States did not answer  the question.  It did not state whether or 
not it agrees with Mexico's argument that a NAFTA  panel could find the tax measures imposed by 
Mexico to be acceptable counter-m easures.  Throughout this proceeding the United States has sought 
to avoid the matter of its position as to a State's right to take counter-measures when another State 
refuses to submit a matter to dispute settlement  under an international agreement or otherwise 
impedes the operation of the dispute settlement mechanism. 
 
 The fact that the United States has simply avoide d stating its position – in marked contrast to 
its lengthy and detailed submissions on Articles III and XX(d) of the GATT 1994 – is a further 
indication that it does not really believe that c ounter-measures cannot be justified under NAFTA.  In 
Mexico's view, the United States wants to remain  free to impose counter-measures when it is the 
complainant, and not the obstructing respondent, in  other NAFTA disputes or in other contexts.  
Otherwise, why did it not simply state that it disagrees  with Mexico's statement?  Why did it not 
reject the view expressed in the quotation at para graph 126 of Mexico's First Written Submission?  
Why did it not attempt to explain why, when its Cabinet secretaries signed an agreement undertaking 
not to adopt counter-measures inconsistent with the GATT or NAFTA for a period of twelve months, 
the term "counter-measures" as u sed there did not mean counter-m easures as discussed by Mexico in 
this case?  Why does it not provide specific details to support its contention that Mexico took its 
statements and actions "out of context"?  Why di d it not rule out taking action of the kind taken by 
Mexico?   Rather than confirming that it upholds its view  that a State may take unilateral action when 
international cooperation to resolve a problem fa ils because another State has blocked the dispute 
settlement mechanism of a treaty other than the WT O Agreement, the United States persistently tries 
to change the subject.  For example, its assertion th at "[t]here is nothing in the text of the NAFTA 
providing parties the right to take countermeasures in the manner Mexico contends in this dispute"
1 is 
misleading because it ignores the fact that: 
 
• Under Article 102(2), NAFTA as a whole is to  be interpreted in accordance with its 
terms and the "applicable ru les of international law"; 
• the applicable rules of international law include rules on counter-measures that exist 
and apply under NAFTA unless expressly modified by some treaty; 
                                                      
∗ Annex C-5 contains comments by Mexico to the United States' responses to questions posed by the 
Panel after the second substantive meeting.  This text was originally submitted in Spanish by Mexico. 
1 See para. 23. WT/DS308/R 
Page C-92  
 
 • no NAFTA provision takes precedence over such  rules, and even if Chapter Twenty 
did provide for derogation (which is does not ) the rules would still apply if, as here, a 
party obstructed consideration of a legitimate  grievance by an independent third party. 
 
 The rules of customary international law that  concern counter-measures need not be further 
codified in NAFTA in order to apply under NAFTA.  
  The United States' reference to NAFTA Articl es 2018 and 2019 is also misplaced.  First, these 
provisions govern the implementation of a NAFTA panel's final report and the suspension of benefits 
in case the parties fail to agree on the implemen tation of the panel's recommendations.  They 
presuppose that a respondent has submitted in good faith to dispute settlement .  They do not address a 
NAFTA party's right to take counter-measures when the respondent causes a breakdown of the 
dispute settlement mechanism.  The United States is confusing two distinct legal concepts:  the right 
under customary international law to take counte r-measures and the suspension of benefits under the 
agreement as a result of the latter's operation.   
 Second, as the United States pointed out, the suspension of benefits under Article 2019 must 
be "preceded by a finding of breach by a NAFTA panel".
2  However, Article 2019 does not apply if 
an arbitral panel is prevented from forming and he nce from issuing a final report.  It is precisely 
because the United States prevented a panel from form ing and resolving Mexico's claim that Mexico 
exercised its rights under customary international law.  Article 2019 has nothing to do with the use of counter-measures. 
 
 The Panel will further note that the United St ates has attempted through mere bald assertion 
to question Mexico's evidence that the United States has in the past taken, and reserved the right to 
take, action of the kind Mexico took.
3  Mexico would simply urge the Panel to review the relevant 
paragraphs of Mexico's Second Written Subm ission identified by the United States and the 
corresponding evidence, since they plainly establish th at the United States not only claimed a right to 
take counter-measures, but took such measures even before submitting to dispute settlement. 
  In short, the United States does not rule out the possibility of a NAFTA panel finding that the 
measure under challenge here is a legiti mate exercise of a counter-measure. 
 
 Finally, the United States' comments at paragraph 23 of its Answers show that it is still 
evading the fact that Mexico's action modified the treatment of HFCS under NAFTA Article 301.  
The present dispute both arises under NAFTA and is subject to NAFTA.  
Question 62 
 
 In its answer, the United States first agrees with  Mexico that there is no provision in NAFTA 
that can be considered equivalent to Article 23(2) of the DSU.  But here again, the United States is 
confusing the suspension of benefits under Article  2019 of NAFTA with the imposition of counter-
measures.  It also conveniently ignores that the ru les of international law, as the United States has 
itself held in other disputes, apply under NAFTA (in the absence of an express derogation).
4  T h e  
United States' assertion that "[t]here is … no provis ion in the NAFTA that justifies a breach of the 
NAFTA on the fact or assertion that another pa rty has breached its obligations under the NAFTA"5 
misses the point. 
                                                      
2 Ibid. 
3 See para. 24. 
4 See Mexico's answer of 15 March 20 05 to Question 58 of the Panel.  
5 See para. 31.  WT/DS308/R 
 Page C-93 
 
 
  
 The United States' repeated submissions concerning NAFTA Article 2019 only highlight the great irony in this case:  the United States is attempti ng to use against Mexico the fact that Mexico has 
been unable to obtain a finding from a NAFTA panel, when it is the United States that has blocked all 
Mexico's efforts to have a panel appointed!  It is  unfortunate – though entirely predictable – that the 
United States should complain that Mexico app lied measures in the absence of a NAFTA panel 
finding of breach, yet refuse to acknowledge that it is responsible for this state of affairs (see the 
United States' response to Question 76 where it attemp ts to obfuscate what happens when panelists are 
not appointed under NAFTA Chapter Twenty).  Mexico  reiterates that it would not have imposed the 
measure at issue had the United States subm itted to the procedure initiated by Mexico. 
 
 In any event, the United States' argument th at before taking counter-measures Mexico ought 
to have obtained a finding by a NAFTA panel that  the United States breached its obligations under 
NAFTA is untenable.  To accept it would lead to an absurd result:  as the United States pointed out in 
the Air Services Agreement Arbitration, a responden t State would be able to refuse to submit to 
dispute settlement without any fear of adverse cons equences.  In circumstan ces such as these, where 
for more than six years a NAFTA party's efforts to resolve a dispute have been frustrated by another 
NAFTA party, the former party is clearly entitled to take action to set matters straight.  Mexico again 
directs the Panel to the United States' submissions in the Air Services Agreement Arbitration and the 
commentary to the 1935 Draft Harvard Convention which it relies on.   Question 67 
 
 The United States argues in its answer to Questi on 67 that the subjects in  the indicative list of 
paragraph (d) of Article XX of the GATT 1994 all s uggest "laws or regulations that are the domestic 
laws or regulations of the Member claiming the Article XX(d) exception".
6  That is not so.  Matters 
such as customs enforcement, the enforcement of monopolies, the protection of patents, trade-marks 
and copyright are not confined to domestic law, but  are also the subject of international cooperation 
and are addressed in different international agreements.   
 
Question 73 
  In spite of the United States' assertion that it "disputes almost all of [Mexico's] proposed 
determinations [of fact]", careful review of its an swer to Question 73 reveals that it in fact concurs 
with the key facts put forward by Mexico.  These include:  
• The existence of a preferential trade regime  in sweeteners between Mexico and the 
United States which includes HFCS and sugar, two products that compete in certain 
market segments; 
• the existence of a dispute between the United States and Mexico over the terms of 
NAFTA regarding the access of Mexican sugar to the United States market;  
• Mexico properly invoked the NAFTA Chap ter Twenty dispute settlement mechanism 
to resolve that dispute; 
• in spite of Mexico's efforts, six years later the dispute between the Parties under 
NAFTA remains unresolved. 
 
                                                     
 
6 See para. 42. WT/DS308/R 
Page C-94  
 
  The United States denies thwarting Mexico's at tempts to resolve its grievance under NAFTA, 
denies that Mexico has exhausted all efforts to r esolve the dispute and denies the reasons underlying 
Mexico's measures.  But contrary to what th e United States asserts, these are issues of fact 
substantiated by the evidence on file a nd do not involve contested legal issues. 
 
 Moreover, the United States has completely ov erlooked the evidence wh ich Mexico has filed 
in this proceeding and which fully supports its po sition.  For example, the United States has not 
denied that it not only failed to appoint panelists  but instructed its Section of the NAFTA Secretariat 
not to do so.  Nor has it directed the Panel to an y evidence contradicting Mexico's assertion to that 
effect. 
 
 After two rounds of written submissions, two hearings and two rounds of responses to Panel 
questions, the United States has offered no
 evidence to support the implausible contention that it did 
try to allow a NAFTA panel to discharge its dut y of assisting the parties to find a mutually 
satisfactory solution to their dispute.  The fact th at, after so many opportunities, the United States has 
produced not a jot of evidence to counter Mexico's  evidence can lead to only one conclusion:  the 
United States blocked the formation and, he nce, the operation of the NAFTA panel. 
  The United States has provided neither an a lternative explanation nor any evidence to 
demonstrate that it is not entirely responsible for this  "lamentable state of affairs".  It has offered only 
the absurd assertion that the NAFTA parties are in th e "third stage" of panelist selection.  The Panel 
can easily make the finding of fact requested by Mexico. 
  As to the bald statement that Mexico has not exhausted all avenues for resolving the dispute, 
the United States has once again been unable to sp ecify what avenues Mexico should or could have 
followed other than those it has taken
. 
 
 As to what prompted the measure impugned in th is dispute, as Mexico has said before, it took 
the measure in response to the United States' acts a nd omissions in the NAFTA dispute in an attempt 
to secure compliance by the United States with its NAFTA obligations.  Mexico fails to see how the 
United States can contest this fact considering that  Mexico has repeatedly stated that it would not 
have imposed the measure but for the United States ' refusal to allow the NAFTA dispute settlement 
system to operate, particularly as for more than three years, the United States Department of 
Agriculture time and again drew attention to Mexico's  serious plight in its reports on the sugar sector. 
  Finally, with respect to the United States' atte mpt to dismiss as "irrelevant" its statement that 
under international law it can validly adopt counter -measures when another State refuses to submit a 
matter to the dispute settlement mechanisms, Mexico  notes that the United States has been careful not 
to deny its prior statements on that subject.  Mexi co has provided ample proof that the United States 
has consistently held this view.  Mexico further notes that the United States' "for the record" comment 
is vague and ambiguous.
7  The United States has certainly not stat ed that it will not take valid counter-
measures when another WTO Member refuses to subm it to dispute settlement under an international 
agreement. 
 
Question 76 
 
 In its answer to Question 76, the United States asserts that "… the NAFTA Secretariat did not 
appoint panelists in the NAFTA sugar dispute pursuant to Mexico's request, because under NAFTA 
dispute settlement rules the NAFTA Secretariat does not have the authority to appoint panelists."8  
That assertion as to why a NAFTA Panel has not been appointed is quite simply wrong. 
                                                      
7 See para. 67. 
8 See para. 79.  WT/DS308/R 
 Page C-95 
 
 
  
Mexico fails to see how the United States can ma ke such a statement bearing in mind that: 
 
• On 17 October 2000, Mexico sent a letter to  the United States proposing a chairman 
for the NAFTA panel; 
• on 17 November 2000, the United States rejected the proposal and indicated that it 
would make its own proposal in the week of 26 November 2000;  
• during November 2000 there was e-mail corr espondence in the course of which the 
United States said it needed more time to finalize its proposal;  however, the United 
States never proposed a chairman; 
• in view of the Secretariat's duties under NAFTA Article 2002 and the fact that the 
respondent party's Secretariat Section admi nisters the dispute settlement proceedings, 
Mexico thereafter sought to have the United States Section of the NAFTA Secretariat 
appoint panelists on behalf of the United St ates.  However, the United States blocked 
this effort by instructing the United States' Section not to appoint panelists . 
 
To plead systemic reasons for the lack of a NAFTA panel to hear Mexico's grievance is 
disingenuous to say the least.  It is thus quite ina ppropriate to attempt, as the United States does, to 
draw a parallel between the NAFTA sugar dispute a nd other disputes, including in the WTO, in which 
it may take longer than contemplated to form a panel.   There is no indication that any party to such a 
dispute has avoided submitting a grievance to dispute settlement by prolonging the panelist 
appointment process indefinitely.   Finally, the United States' assertion that a NAF TA panel has been "established" is ludicrous.  
There is no such panel;  not a single member has be en appointed.  There is no need for the Panel to 
undertake any legal interpretation of NAFTA in order to ascertain that the United States' assertion is 
wrong.   
Question 77 
  Mexico notes that the United States has avoided responding to the substance of the Panel's 
question.  While attempting to minimize the impor tance for the complaining party of identifying 
alternative measures that would secure complia nce with the relevant laws or regulations
9, the United 
States is unable to explain what alternative means Mexico could reasonably have pursued in order to 
resolve its concerns about the bila teral trade in sweeteners under NAFTA.10 
 
 Finally, the United States is wrong in its assertion that Mexico "has already suspended benefits under the NAFTA with respect to HFCS  by applying NAFTA-inconsistent anti-dumping 
duties against HFCS imported from the United States from 1997 through April 2002".
11  F i r s t ,  
application of anti-dumping duties is provided for in NAFTA and so cannot amount to suspension of 
benefits under NAFTA.  Second, when Mexico a pplied anti-dumping duties against HFCS imported 
from the United States, it was asserting a right ev en though the latter was successfully challenged 
subsequently.  Third, Mexico revoked the resolu tion imposing the anti-dumping duties, cancelled the 
                                                      
9 See para. 80. 
10 The United States recites a list of other complaints it has about Mexican measures.  The sugar 
dispute is certainly not the only one.  Mexico could list more complaints about United States measures.  None 
are material, however. 
11 See para. 83. WT/DS308/R 
Page C-96  
 
 surety and refunded the anti-dumping duties.  In short, Mexico did not upset the balance of rights and 
obligations under NAFTA.  
 
  WT/DS308/R 
 Page C-97 
 
 
 ANNEX C-6 
 
COMMENTS BY THE UNITED STATES ON MEXICO'S RESPONSES 
TO QUESTIONS POSED BY THE PANEL AFTER THE 
SECOND SUBSTANTIVE MEETING  
 
 
FOR BOTH PARTIES : 
 
Question 52  
 
 Mexico's response misinterprets Article 11 of the DSU.  Contrary to Mexico's assertion and its incorrect reading of the panel report in India – Autos ,
1 Article 11 of the DSU does not require 
panels to take into account amendments to measure s that occur after the date of the panel request. 
 
 Rather, Article 11 of the DSU requires panels to make an "objective assessment of the matter 
before it , including an objective assessment of the f acts of the case and the applicability of and 
conformity with the relevant cove red agreements...."  The "matter befo re" a panel is the matter (which 
consists of the measures at issue and the claims made  with respect to those measure) identified in the 
panel request.  Accordingly, the matter before this  Panel is the consistenc y of the tax measures 
identified in the US panel request with Mexico's  obligations under Article III of the GATT 1994.  
The tax measures identified in the US panel request are: 
 
"Law on the Special Tax on Production and Services ( Ley del Impuesto Especial 
sobre Producción y Servicios  or "IEPS") published on January 1, 2002 and its 
subsequent amendments published on D ecember 30, 2002 and December 31, 2003; 
and any related or implementing measures, including the Reglamento de la Ley del 
Impesto Especial sobre Producción y Servicios published on May 15, 1990, the 
Resolucion Miscelanea Fiscal Para 2004 (Title 6)  published on April 30, 2004, and 
the Resolucion Miscelanea Fiscal Para 2003  (Title 6) published on March 31, 2003 
which identify, inter alia , details on the scope, calculation, payment and bookkeeping 
and recording requirements of the IEPS."2 
Because the US panel request does not include the January 1, 2005 amendment, it is not within the 
Panel's terms of reference and, accordingly, is not pa rt of the "matter" of which Article 11 of the DSU 
requires the Panel to make an objective assessment.  In fact, because the January 1, 2005 amendment 
is not within the Panel's terms of reference, it is not a measure for which this Panel is authorized to 
issue findings, either alone or in connection with  the IEPS as it existed on the date of the US panel 
request. 
 While Mexico refers to India – Autos in support of its assertion that panels are required to 
take into account amendments to a measure after a pa nel request, the panel in that report did not find 
this.3  To the contrary, it made findings on the measures as they existed on the date of panel 
                                                      
1 It is evident from the quotation included in Mexico's response that the India – Autos panel's citation to 
Article 11 of the DSU was made in connection with "the appropriateness of making a recommendation under 
Article 19.1 of the DSU."  It was not made in connection with whether the panel should make findings on the 
measures at issue inclusive of subsequent amendments.  Panel Report, India – Measures Affecting the 
Automotive Sector,  WT/DS146/R, WT/DS175/R, adopted on April 5, 2002, para. 8.26; see also infra . 
2 WT/DS308/4. 
3 In fact, the panel specifically rej ected the proposition that events oc curring subsequent to the panel's 
establishment prevented it from examining the measures as they existed at the time of the panel's establishment.  
Panel Report, India – Autos , para. 7.29-7.30. WT/DS308/R 
Page C-98  
 
 establishment.
4  The context in which the panel examined  India's amended measure was to determine 
whether to make the recommendation called for under DSU Article 19.1.5   In this regard, it is worth 
noting that none of the parties, including India and the United States, considered that the panel had the 
authority to undertake this examination.6   
 
 Furthermore, the United States did not consider that the India – Autos  panel's concerns 
regarding its obligations under DS U Article 11 supported the panel's approach.  The United States 
noted that the panel had expressed a concern that it would not be carrying out its function of assisting 
the Dispute Settlement Body ("DSB") unless it revi sited the Indian measures as amended during the 
course of the proceedings.  The United States disagreed  with the panel on this point and noted that the 
panel's report – even without the additional analys is of the amended measure – would provide the 
DSB with assistance by establishing the rulings and recommendations with which India would have to 
comply.  As the Indonesia Autos  panel had noted, a revocation (or ot her elimination or amendment) of 
a challenged measure would be particularly rele vant at the implementation stage of dispute 
settlement.7 
 
 Finally, we note that even under its own terms, the analysis of the India – Autos panel would 
not apply here. That Panel noted that its approach  was not required by the DSU but instead responded 
to a very particular set of circumstances:  
"[T]he decision taken by this Panel to proceed in this way in the particular 
circumstances of this case is in no way inte nded to imply that panels have a general 
duty to systematically re-evaluate the exis tence of any violations identified before 
proceeding with making their recommendations  under Article 19.1.  This Panel is 
simply responding to the particular argum ents placed before it, where the parties 
disagree as to the implications of subsequent events on the Panel's power to make 
recommendations and rulings.  The principal aim of the Panel in proceeding in this 
manner is to discharge its duty in the most  efficient way towards resolving the matter 
at issue in this dispute."
8  
The panel also noted that the impact of the subseque nt events had been "discussed before this Panel 
from the very first stages of the proceedings" and that  the parties to the dispute had raised "a number 
of arguments ... to suggest that certain events having occurred in the course of the proceedings 
fundamentally affect the existence or persistence of the alleged violations."9  In contrast, Mexico has 
not argued that the January 1, 2005 amendment e liminates the discriminatory treatment of imports 
imposed by the IEPS.10   
 
                                                      
4 Id. paras. 7.29-7.30, 8.2-8.3. 
5 Id., para. 8.20 ("The issue is limited solely to the qu estion of whether, as argued by the respondent, 
certain events subsequent to the Panel's establishment are such as to affect the continued relevance of the Panel's 
initial findings with regard to measures clearly within its terms of reference.  This raises the issue of whether 
they should be considered, in this light, before the Panel can make appropriate recommendations as to the need 
for India to bring its measures into conformity with the GATT 1994"); see also id. , paras. 8.00-8.30, 8.32, 8.58. 
6  Dispute Settlement Body:  Minutes of the Meeting Held on 5 April 2002 , WT/DSB/M/171, paras, 12, 
15-18.  
7 This paragraph summarizes a portion of the US submission to the Appellate Body in the appeal that 
India filed from the panel report in the India – Autos  dispute.  India ultimately withdrew that appeal, as is 
evident from the minutes of the DSB referred to in the previous footnote. 
8 Panel Report, India – Autos , para. 8.30. 
9 Id., para. 8.16. 
10 See US Second Written Submission, para. 33; see also  US Answers to the Questions of the Panel 
After the Second Meeting, paras. 5-6.  WT/DS308/R 
 Page C-99 
 
 
  Therefore, for a number of reasons, the approach of the panel in India – Autos  should not be 
adopted in this dispute.  As the United St ates noted in its second submission and responses to 
questions after the second meeting, a number of pane ls have confronted the issue of how to handle 
post-panel request changes to measures within thei r terms of reference and each decided to issue 
findings on the measure as it existed at the time of the panel request.11  
 
Question 54 
 
 Mexico states that "the bookkeeping and reporting requirement are contained in the 
Reglamento de la Ley del Impuesto Especial sobre Producción y Servicios  published on May 15, 
1990, the Resolución Miscelanea Fiscal Para 2003  (Title 6) published on March 31, 2003, and the 
Resolución Miscelanea Fiscal Para 2004 (Title 6) published on April 30, 2004."12   
  To avoid confusion, the measure at issue with respect to the US claim against the 
"bookkeeping and reporting requirements" is the IEPS.
13   Article 19 of the IEPS requires producers of 
soft drinks and syrups who use sweeteners other th an cane sugar to maintain and submit the following 
to the Mexican Government:14 
 
• annual listing of the goods "produced, transfe rred or imported in the previous year, as 
regards consumption by state and the co rresponding tax, as well as the services 
provided by establishment in each state";15 
 
• quarterly reporting of  "information rega rding [taxpayers'] 50 main clients and 
suppliers";16 
 
• quarterly reporting of the "monthly reading registered by devices used to carry out 
[physical] inspection" of the volume of goods manufactured, produced, or bottled;17 
 
• quarterly reporting of the price, value and vo lume of goods transferred in the previous 
quarter;18 and 
 
• registry by importers and exporters of soft  drinks and syrups with the Ministry of 
Finance and Public Credit.19 
 
                                                      
11 US Second Written Submission, para. 32 n.47; US Answers to the Questions of the Panel After the 
Second Meeting, para. 4 n.6; see also  Panel Report, India – Autos , para. 7.26 n. 313.  The GATT panel in 
Thailand – Cigarettes also does not support Mexico's position .  GATT Panel Report, Thailand – Restrictions on 
Importation of and Internal Taxes on Cigarettes , BISD 37S/200, adopted on November 7, 1990.   In making 
findings on the measures inclusive of amendments made subsequent to the panel request, the Cigarettes  panel 
would appear to have exceeded its terms of reference, alt hough the panel's report does not reflect that either the 
parties or the panel considered this issue.  
12 Mexico Responses to Questions of the Panel After the Second Meeting, p. 3 (revised courtesy 
translation). 
13 See US First Written Submission, paras. 46, 155, 161-162 ; US Answers to the Questions of the Panel 
After the First Panel Meeting, paras. 50-52. 
14 The following list of bookkeeping and reporting requir ements contained in IEPS is cited in the US 
First Written Submission.  US Fi rst Written Submission, para. 46. 
15 IEPS as amend, Art. 19.VI, Exh. US-4. 
16 Id., Art. 19.VIII. 
17 Id. Art. 19.X. 
18 Id. Art. 19.XIII. 
19 IEPS as amended, Art. 19.XI, Exh. US-4. WT/DS308/R 
Page C-100  
 
  The "transitional provisions" of the IEPS requi re soft drink and syrup producers who use 
sweeteners other than cane sugar to maintain and report their complete inventory of taxable products 
as of December 31, 2001.
20 
  The regulations Mexico cites in response to the Panel's questions
21 guide implementation of 
the IEPS, including implementation of th e IEPS's bookkeeping and reporting requirements.22  T h e  
United States understands Mexico's statement that these regulations "are linked inseparably" to the 
IEPS to mean that Mexico understands that conform ity with its obligations under Article III:4 of the 
GATT with respect to the bookkeeping and reporting requirements (if a breach is found) requires 
elimination of the discriminatory treatment of imports imposed by the IEPS as well as by these 
implementing regulations. 
  Also, to avoid confusion, the US clai m against the IEPS's bookkeeping and reporting 
requirements is under Article III:4 of the GATT not  Articles III:4 and III:2 as Mexico's response to 
the Panel's question suggests. 
 
Question 58 
 
 As the United States has stated, whether Mexi co's tax measures are inconsistent with the 
NAFTA is not relevant to resolution of this disput e, which concerns the cons istency of Mexico's tax 
measures with its obligations under the WTO Agreement.   
 
 Mexico's response to the Panel's question does,  however, highlight the complexity of any 
"defense" Mexico might raise under the NAFTA a nd why this Panel should not take into account 
Mexico's contention that its tax measures would be consistent with the NAFTA in making findings in 
this dispute.  Whether Mexico's tax measures are inconsistent with the NAFTA is a complex legal  
determination and one this Pane l is not in a position to make.
23  As Mexico itself has made very clear, 
determination of the rights and oblig ations of parties to the NAFTA is beyond the terms of reference 
of this Panel.24    
 
Question 59 
 
 To respond to the Panel's question of whether th e NAFTA is part of US laws or regulations, 
Mexico states that "although NAFTA is an internati onal treaty, it plainly has effects in the domestic 
legal orders of all three NAFTA Parties that go beyond implementing action taken by any particular 
signatory."  Thus, when asked directly, Mexico did not assert that the NAFTA is a domestic law or 
                                                      
20 IEPS Disposiciones Transitorios (transitional provisions), Jan. 1, 2002, Art. 2, para. I(a). The 
transitional provisions were enacted as part of the IEPS  on December 30, 2001 and thus form a component of 
that measure.  See US First Written Submission, pa ra. 46 and Exh. US-4. 
21 The United States also cites these regulations in  its panel request and first written submission.  See 
WT/DS308/4; US First Written Submission, paras. 4 and 47. 
22 See US First Written Submission, para. 47. 
23 The United States does not share Mexico's view that a NAFTA Chapter 20 panel would find its tax 
measures consistent with the NAFTA, nor does it share Me xico's interpretation of the NAFTA in this regard.  In 
addition, with all respect to the experience that the members of Mexico's delegation have with proceedings 
under Chapter 11 of the NAFTA, that chapter is simply not relevant to this dispute.  It is not part of the WTO Agreement; its provisions are different from those at issue here; and it applies in investor-to-state investment 
disputes (not state-to-state trade di sputes, such as, for instance, a hypoth etical dispute between Mexico and the 
United States regarding Article 301 of the NAFTA). 
24 See, e.g.,  Mexico Responses to Questions of the Pane l After the Second Meeting, p. 17 (revised 
courtesy translation).  WT/DS308/R 
 Page C-101 
 
 
 regulation of the United States, as it seemed to  be suggesting at the second panel meeting25.  Mexico 
now appears to agree that the NAFTA is not a US law or regulation.   Contrary to Mexico's assertion, whether there is a "strict dualist separation between international obligations and dom estic law" is not the point.  The point is whether "laws or 
regulations" as the phrase is used in Article XX (d) includes international obligations under an 
international agreement.  As earlier US submissi ons and statements have explained, the ordinary 
meaning of the phrase interpreted in its context an d in light of agreement's object and purpose means 
the domestic laws or regulations of the Member claiming the Article XX(d) exception.
26  M e xi c o' s  
contention that international obligations affect domestic legal orders do es not support its argument 
that the phrase "laws or regulations" means "interna tional agreement" or "treaty."  In fact, it would 
seem to suggest that Mexico recognizes that intern ational obligations are different from the "domestic 
legal orders" they may affect.  
Question 60  
 
 In its response, Mexico identifies several "c ommon interests or values" it attributes to the 
NAFTA, for example the elimination of barriers to trade in goods and the promotion of conditions of 
fair competition in the free trade area.  Ironically , Mexico's tax measures advance neither of these 
interests or values.  Instead, Mexico's tax measure s effectively block US exports of HFCS to Mexico 
and eliminate the possibility of fair competition between HFCS and cane sugar in the Mexican 
market.  Mexico freely admits its tax measures were put in place to stop the displacement of Mexican 
cane sugar by imported HFCS (i.e., to prot ect its domestic industry from imports). 
  Mexico's citation to the US statements a bout simultaneous or redundant proceedings in 
multiple fora would appear to be inapposite.
27  The only dispute settlement forum to which the United 
States has submitted this dispute is the WTO disput e settlement mechanism.  And, despite Mexico's 
arguments otherwise, this dispute is a dispute ov er the consistency of Mexico's tax measures with 
Mexico's WTO obligations.  Mexico's NAFTA grie vances against the United States with respect to 
market access for Mexican sugar are simply a different matter.   Mexico also states in its response that the United States has made "false statements" with 
regard to the status of the NAFTA proceeding.  Th e United States trusts that this is an error in 
translation and that Mexico does not truly intend to make such a spurious charge.  The United States 
cannot see how there is any dispute that: (1) the United States has engaged in consultations with 
Mexico, both bilaterally and under the auspices of the Free Trade Commission; (2) because the 
consultations did not resolve the dispute and becau se Mexico requested a panel, a NAFTA panel was 
established; (3) the parties have not agreed on pa nel composition and, because of the lack of 
automaticity in the panelist selection stage under th e NAFTA, a panel has not yet been composed; and 
(4) the NAFTA dispute remains pending.    As mentioned at the first meeting of the Panel,
28 the fact that a NAFTA panel has not been 
composed is not indicative of a lack of dedication on the part of the parties to resolve their differences 
under the NAFTA.  Before and during these proceedi ngs before the WTO, the United States and US 
sugar producers have continued to engage with Mexico and its indus try on the NAFTA sugar issue.  
                                                      
25 Mexico Closing Statement at the Second Meeting, paras. 8-16. 
26 See, e.g., US Answers to Questions of the Panel After the First Meeting, paras. 71-74; US Second 
Written Submission, paras. 42-48; US Opening Statement at the Second Meeting, paras. 5-7.  
27 See Mexico Response to Questions of the Panel After the Second Meeting, p. 15 (revised courtesy 
translation). 
28 US Closing Statement at the First Meeting of the Panel, para. 9. WT/DS308/R 
Page C-102  
 
 The current WTO proceeding is to resolve a separat e dispute over the consistency of Mexico's tax 
measures with Mexico's obligations under the WTO Agreement.  
Question 61  
  Mexico has suggested in its response that  "measures that make some contribution " to 
securing compliance with the law or regulation at issu e which, in Mexico's view, "includes measures 
that are instruments to achieve the prevention or  correction of a breach of the underlying law or 
regulation, can be justified unde r Article XX(d) of the GATT 1994."
29 In Korea – Beef , however, the 
Appellate Body explained that "a 'necessary' measure is . . . located significantly closer to the pole of 
'indispensable' than to the opposite pole of simply 'making a contribution to."30   Mexico has made no 
attempt to explain how a measure that it concedes is merely at what the Appellate Body has called the 
"opposite pole" of "making [some] contribution to " securing compliance can meet the requirements of 
Article XX(d).  
 In this dispute, the only "contribution" Me xico claims its tax measures make to securing 
compliance with alleged NAFTA obligations is th e harm such measures cause US HFCS exporters 
which Mexico asserts creates "the desired dynamic" to "induce" the United States to change its sugar 
regime.
31  As the United States has previously stated, imposition of Mexico's discriminatory tax 
measures has not contributed to a resolution of concerns under the NAFTA.32  Mexico's response also 
implicitly concedes that Mexico does not claim th at its tax measures do anything more than "make 
some contribution to" securing compliance, and in its  closing statement at the second panel meeting, 
Mexico appears to acknowledge that any "effect aime d at resolution" its tax measures might have "has 
been a minor one."33 
 
Question 63 
  Mexico's response inexplicably continues to ignore Article 19.1 of the DSU.  Article 3.1 of 
the DSU provides that "Members affirm their adhe rence to the principles for the management of 
disputes heretofore applied under Articles XXII and XXIII of the GATT 1947, and the rules and 
procedures as further elaborated and modified herein ."  Thus, the DSU both affirmed the principles 
and modified the dispute settlement practices of the GATT, for instance adopting the negative 
consensus rule for adoption of panel reports and other important changes to GATT 1947 panel 
practice.  Even assuming Article XXIII of the GATT provided GATT panels "flexibility" in the 
recommendations they might make,34 such flexibility does not exis t under the DSU, as Article 19.1 
expressly states that "[w]here a panel or the Appellate  Body concludes that a measure is inconsistent 
with a covered agreement, it shall recommend that  the Member concerned bring the measure into 
conformity with that agreement."  Article 19. 1 further provides that "[i]n addition to its 
recommendations, the panel or Appellate Body may suggest ways in which the Member concerned 
could implement the recommendations."  Therefore,  even suggestions under Article 19.1 are limited 
                                                      
29 Mexico Responses to Questions of the Panel Afte r the Second Meeting, p.  16 (revised courtesy 
translation) (emphasis added). 
30 Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef,  
WT/DS161/AB/R, adopted on Jan. 10, 2001 , para. 161. 
31 Mexico Second Written Submission, para. 83; see also  Mexico Responses to Questions of the Panel 
After the Second Meeting, p. 28 (rev ised courtesy translation) (stating "t he US HFCS obviously is not pleased 
with the measures and they have communicated that the US authorities'). 
32 US Answers to Questions of the Pane l After the First Meeting, para. 78. 
33 Mexico Closing Statement at the Second Panel Meeting, para. 18. 
34 As the United States has already explained, any "flexibility" Article XXIII of the GATT continues to 
afford is vested in the Members acting jointly, not panels.  See US Responses to the Questions of the Panel After 
the Second Meeting, para. 35.  WT/DS308/R 
 Page C-103 
 
 
 to ways in which the Member could implemen t a recommendation to bring its measure into 
conformity and do not extend to the type of "recommendation" Mexico suggests.   It is true that in the 1971 Jamaica – Margins of Preference dispute Mexico cites, the panel 
decided to provide a ruling on Jamaica's obligations , and then drafted a waiver decision and left it to 
the GATT Council to decide whether to adopt the wa iver.  But if a WTO panel today were to make 
such a recommendation, or to make the type of  recommendations sought by Mexico during these 
panel proceedings, that panel would be acting incons istently with DSU Article 19.  The panel in the 
recent EC – Sugar report, presented with a request to perm it the defending party to correct its 
schedule of export subsidy commitments, refused to grant that request, finding that: 
 
"In the Panel's view, the European Commun ities' assertion that in the light of the 
circumstances the only course of action is for the Complainants to agree to the 
correction or revision of the European Communities' Schedule is not a matter for which the Panel has any authority as it goes beyond the scope of a panel 
recommendation which, under Article 19.1 of the DSU, should be limited to 
recommending the concerned Member "bring the measure into conformity with the Agreement on Agriculture."
35 
Question 64  
 
 In its response, Mexico lists several "facts" that it asserts the Panel can "see and consider" 
without having to determine whether the United Stat es is in breach of its NAFTA obligations.  The 
"facts" Mexico asks the panel to "see and consider ," however, do not establish the elements Mexico 
would need to establish for a defense under Ar ticle XX(d).  To sustain its defense under 
Article XX(d), Mexico must show that its tax measures are "necessary to secure compliance" with 
laws or regulations.  Even under Mexico's theory, if  the United States is already in compliance with its 
obligations under the NAFTA with respect to mark et access for Mexican sugar – as it maintains it is – 
Mexico's tax measures could not be "necessary to s ecure compliance" with those obligations.  The 
Panel, therefore, cannot assess whether Mexico's tax measures are "necessary" or are designed to 
"secure compliance" without resolving the question of whether the United States is in breach of its 
NAFTA obligations.   
 Mexico's response also appears to contradict itsel f.  On the one hand Mexico is quite clear in 
stating that the Panel does not have "jurisdiction"  to decide "whether the United States has breached 
its obligations established under NAFTA Annex 703.2, " but, on the other hand, asks the Panel to 
"determine whether ... [the United States] failed to  comply with its obligation to submit Mexico's 
grievance to dispute settlement."
36  Mexico protests that this latter inquiry "does not involve fine 
points of law peculiar to the FTA" and "is essentially one of fact to be determined by reference to the 
plain text of Chapter Twenty and does not involve the kind of evidence and interpretation that would 
be put before the NAFTA panel on the other issues."37  Yet such an undertaking would manifestly 
constitute interpretation and appli cation of the NAFTA.  The mere fact that Mexico believes the 
question of whether the United States is in brea ch of its obligations under Chapter 20 is less 
complicated than whether the United States is in br each of its NAFTA market access obligations does 
not mean the former is any less a request for this Pa nel to engage in interpre tation and application of 
the NAFTA – something Mexico has been very clear this Panel may not do.    
                                                     
 
35 Panel Report, EC – Export Subsidies on Sugar , WT/DS265/R, circulated on October 15, 2004 
(pending Appellate Body Report on other issues) para. 7.353. 
36 Mexico Response to Questions of the Panel After the Second Meeting, p. 18-19 (revised courtesy 
translation). 
37 Id. at 19 (revised courtesy translation). WT/DS308/R 
Page C-104  
 
  Mexico is also incorrect in what it identifies as "facts" and that these alleged "facts"  have not 
been disputed by the United States.
38  Mexico's assertion that "Mexico's attempts to find solution 
through the institutional mechanis m [of the NAFTA] have been frust rated by the United States' acts 
and omissions"39 is not a fact.  It is a conclusion drawn by Mexico and based on an opinion – that the 
United States does not share – of what the NAFTA  dispute settlement provisions required and how 
dispute settlement under such provision should proceed.     
  Mexico also asserts that "[i]t is incorrect to su ggest that a Panel can never state an opinion on 
an international treaty other than the WTO."
40  The US position, however, is not that "a Panel can 
never state an opinion on an international treaty ot her than the WTO" Agreement, but rather that 
nothing in this dispute calls, or provides a basis, for the Panel to do so.  This Panel was established to 
resolve a WTO dispute over the consistency of  Mexico's tax measures with Mexico's WTO 
obligations.  Opinions as to what the NAFTA obligat es parties to do, and whether the United States is 
compliance with those obligations, are not relevant to this inquiry.  Question 66 
 
 Article XXIV of the GATT states that the GA TT "shall not prevent ... the formation of ... a 
free trade area ... [p]rovided that" certain conditions are met.  Mexico's citation to Article XXIV, 
however, does not resolve the dilemma Mexico creates by reading "laws or regulations" in Article XX(d) to mean obligations under an inte rnational agreement.   If "laws or regulations" 
includes obligations under an international agr eement, as Mexico contends, then it includes 
obligations under any international agreement, in cluding the WTO Agreement.  There is nothing 
about Mexico's interpretation of the phrase "laws or regulations" that limits it to agreements 
concerning free trade areas.   Mexico's interpretati on of Article XX(d), therefore, remains in conflict 
with Article 23 of the DSU and, if accepted, would render Article 23 meaningless.  WTO Members 
would no longer be required to use and abide by DSU rules in seeking to redress a violation of 
obligations under the covered agreem ents, but would, by way of Artic le XX(d), be permitted to decide 
on their own accord when such a breach has occurred and the remedies to be taken therefor.  
 
Question 68 
  In the opinion of the parties, does Article 60 of the Vienna Convention on the Law of Treaties 
codify a principle of international law by which a ma terial breach of a bilateral treaty by one of the 
parties may allow the other to invoke that breach as a ground for, inter alia, suspending the operation 
of that treaty in whole or in part, but not for susp ending the operation of a different multilateral treaty? 
From its response, it appears Mexico shares the US view that Article 60 is not relevant to this dispute.  
 
FOR MEXICO:
 
 Question 82(a)  
 
 In response to the Panel's question, Mexico st ates that the "distribution of goods that are 
subject to the IEPS tax is exempt from the tax pa yment unless services of commercial intermediation, 
which involve the participation of a third party through which the transfer of the goods takes place, 
are used."  Although it is true that the distribution tax does not apply to goods distributed by the soft 
drink or syrup producer, this is not because the IEPS  "exempts" goods distributed by the soft drink or 
syrup producer from the distribution tax.  Rather, th is is because the distribution tax applies to goods 
                                                     
 
38 See, e.g.,  US Responses to Questions of the Panel After the Second Meeting, paras. 61-67. 
39 Mexico Response to Questions of the Panel After the Second Meeting, p. 18 (revised courtesy 
translation). 
40 Id.  WT/DS308/R 
 Page C-105 
 
 
 transferred  through the use of distribution, represen tation, brokerage, agency and consignment 
services.  Therefore, if a soft drink or syrup pr oducer acted as its own distributor, this would not 
constitute a transfer of goods through the use of distribution services.   Mexico's response to Questions 82(b) and 82(c) confirm th is interpretation.  Mexico's response to Question 82(b) states that 
the distribution tax is not applicable when the services concerned "are related to the transfer 
of goods 
that are not subject to the IEPS tax."41  Question 82(c) states that individuals and legal persons that 
supply distribution services are subject to the IEPS "with regard to the transfers  of ... soft drinks and 
its concentrates."42   
 
Question 82(c)  
 
 Although the "intent" of Mexico's tax measu res does not answer the question of whether 
Mexico's tax measures are "applied so as to afford protection to domestic production" within the 
meaning of Article III of the GATT, the numerous statements made by Mexico's legislators at the time of the IEPS's enactment demonstrate a very clear intent to protect Mexico's cane sugar industry.
43  
Mexico's Supreme Court reached the same conclusi on on multiple occasions sta ting quite plainly that 
the intent of Mexico's tax measures is to "protect the sugar industry."44  Mexico's assertions in this 
dispute that the purpose of its tax measures is to en force alleged US NAFTA obligations appear to be 
simply an attempt to rationalize the imposition of Mexico's tax measures post hoc . 
 
Question 84 
  During the second substantive meeting, Mexico made reference to specific provisions in the 
WTO covered agreements that use expressions such as "laws", "regulations", "international law" in 
different forms.  Could Mexico identify more precisely those specific provisions.  
 Mexico's response argues that there are many  references to "laws and regulations" in the 
WTO Agreement, and that when the drafters inte nded to limit these references to a Member's own 
domestic measures they did so explicitly, and that th erefore the reference to "laws or regulations" in 
the text of Article XX(d) includes not just the do mestic laws or regulations of the Member whose 
measure is at issue (here, Mexico), but also the do mestic laws or regulations of other Members, and 
international law as such.   
 
 Restating Mexico's argument fully, as above , illustrates how far Mexico's textual argument 
reaches, and how many consequences would follow  from endorsing it.  Any Member could take 
measures necessary to secure compliance with another Member's laws or regulations, or to secure 
compliance with any obligation arising under an international agreement.  
 
 Mexico has submitted a list of provisions refe rring to "laws and regula tions," although it has 
not provided any analys is of that list (and the United States has not been able to review each and 
every entry on the list).  It is obvious, however, th at while a number of the examples cited in Mexico's 
list (such as Article III:4 of the GATT) do not incl ude provisions explicitly limiting their scope to 
domestic law, they are implicitly so limited based on th e context and the func tion that the provision 
performs.  Article III:4, for instance, can by definition only concern domestic  measures.  
  Where the drafters intended to address an international agreement or international law 
generally, or the laws or regulations of a Member  other than the Member to which the right or 
                                                     
 
41 Mexico's Responses to the Questions of the Pane l After the Second Panel Meeting, p. 25 (revised 
courtesy translation) (emphasis added). 
42 Id. at 26 (revised courtesy tr anslation) (emphasis added). 
43 US First Written Submission, para. 48. 
44 Id., paras. 49-53, Exh. US-31. WT/DS308/R 
Page C-106  
 
 obligation in the relevant provision applied, they provided so explicitly and on an exceptional basis.  
As an example, the United States recalls the provisions in Article X:1 of the GATT requiring publication of international agreements affecting trade in services or goods, explicitly in addition to 
publication of "laws or regulations."  With respect to the measures of other Members, the United States notes as an example the provisions in Article 12.8 of the Agreement on Safeguards regarding 
cross-notification of other Members' measures.  
 
Question 85  
 
 In its response to the Panel's question, Mexico states that it is due to its own constitutional and 
legal system that the NAFTA has direct effect in Mexican law.  Just as it is Mexico's own 
constitutional and legal system that makes the NAFT A have direct effect in Mexico, it is the US 
constitutional and legal system that makes the NAFTA not
 have direct effect in the United States. 
 
Question 86 
  Please see comments on question 61. 
 
Question 87 
 
 In response to the Panel's question, Mexico st ates:  "There are two breaches of the NAFTA at 
issue here:  the denial of market access and the pers istent refusal to submit that grievance to dispute 
settlement when the United States has a positiv e obligation to do so under Chapter Twenty."
45  
Mexico's assertion that the United States is in  breach of NAFTA dispute settlement provisions, 
however, appears to contradict Mexico's earlier acknow ledgment of the   "lack of automaticity in the 
operation of [dispute settlement under] NAFTA's Ch apter Twenty" and the "fault in the panelist 
appointment process under NAFTA's Chapter Twenty."46  Mexico cannot conflate what it obviously 
perceives as shortcomings of the NAFTA's dispute settlement provisions with allegations that the 
United States has breached those provisions.    The United States also points out that Mexico's allegation that the United States is in breach 
of the NAFTA – either with respect to provisions on market access for sugar or relating to dispute 
settlement
47 –  are just that:  allegations.  They are not legal determinations (or "illegal acts") that this 
Panel may take as a "fact" in this dispute.  
Question 90  
  Mexico's response to this question has listed five measures by name, but has not provided any 
information on them, and has not provided texts of the measures. The United States provides these 
comments and the texts of the measures listed by Mexico. 
 
                                                     
 
45 Mexico Responses to the Questions of the Panel Af ter the Second Meeting, p.  28 (revised courtesy 
translation). 
46  Mexico Closing Statement at the Second Meeting of the Panel, para. 27. 
47 Mexico's response appears to be the first time Mexico has alleged that the United States has 
breached, in addition to market access provisions with re spect to sugar, the disput e settlement provisions of 
Chapter 20.  As the United States has read Mexico's Article XX(d) defense, Mexico claims its tax measures are 
necessary to secure compliance with alleged US obligations under the NAFTA  with respect to market access for 
Mexican sugar.  Mexico's contention here that the United States is also allegedly in  breach of NAFTA Chapter 
20 provisions demonstrates the unfortunate readiness with  which Mexico is willing to shift its position to try to 
sustain an unsustainable defense.   WT/DS308/R 
 Page C-107 
 
 
 HFCS  
 
 The first measure listed by Mexico, a notice published in the official gazette ( Diario Oficial ) 
on October 11, 2001, raised Mexico's MFN applied tariff on fructose to 156% for HS 1702.4099 and 210% for HS 1702.5001, 1702.6001, 1702.6002 and 170 2.6099, effective October 12, 2001. It is 
attached as Exhibit US-59. 
  The second measure listed by Mexico is attached  as Exhibit US-60.  In this decree, published 
on December 31, 2001 in the Diario Oficial , the Mexican government published its 2002 tariff rates 
under various preferential trade agreem ents.  Article 49 of this decree, at page 114, requires an import 
license issued by the Secretary of Economy ("SE") as a condition for importation of goods of North 
American origin at the preferential rate.  It provid es that this license is to be issued automatically 
except that if SE determines to suspend benefits  under NAFTA, as a result of non-compliance by the 
United States with its obligations regarding sweeten ers, then SE shall limit or cease to grant such 
licenses. 
 
 The third measure listed by Mexico is attached  as Exhibit US-61.  In this measure, published 
in the Diario Oficial  on April 22, 2002, Ernesto Derbez, Secretary of the Economy, refers inter alia to 
the December 31, 2001 decree, alleged US denial of sugar market access through limitation of 
Mexican sugar to a 148,000 MT TRQ, alleged fr ustration of means under the NAFTA to settle 
disputes, and the purpose of this measure as r eestablishing the balance in the sweeteners sector.  
Through the notice, SE terminates automatic licen sing and establishes a tariff rate quota of 148,000 
MT valid only through September 30, 2002, for imports  at the preferential duty rate of U.S.-origin 
merchandise classified under HS 1702.4099, 1702. 5001, 1702.6001, 1702.600 2 and 1702.6099.   
  The fourth measure listed by Mexico is the Ley del Impuesto Especial Sobre Producción y 
Servicios (IEPS), which the United States has subm itted as Exhibit US-1 (with its amendments at 
Exhibits US-2, -3 and -4).   The fifth measure is Mexico's revocation of  its WTO- and NAFTA-inconsistent antidumping 
duties on HFCS, published on May 13, 2002.    
 Because Mexico has failed to provide inform ation on other significant measures responsive to 
the Panel's request, the United States submits information on those measures as comments to Mexico's response.   (1) A resolution published in the Diario Oficial on March 1, 2002:  Acuerdo que modifica 
el similar que establece la clasificaci ón y codificación de mercancías cuya 
importación y exportación está sujeta al requis ito de permiso previo por parte de la 
Secretaría de Economía.  This resolution establishes a prior import licensing 
requirement for all imports of NAFTA orig inating goods of US origin classified 
under HS 1702.4099, 1702.5001, 1702.6001, 1702.6002, 1702.6099 and 1702.9099.  The Acuerdo que establece la clasificación y codificación de mercancías cuya 
importación y exportación está sujeta al requis ito de permiso previo por parte de la 
Secretaría de Economía ( Resolution establishing the classification and codification of 
merchandise whose importation and exportation is subject to a requirement of a prior 
licensing permit from the Secretariat of the Economy), as published in the Diario 
Oficial  on March 26, 2002 amended to December 15, 2003, is available on the SE 
website at http://www.economia.gob.mx/pics/p/p1376/A60.pdf.   Article 4 of this 
resolution provides an import licensing requirement applying to NAFTA originating goods of US origin classified unde r HS 1702.4099, 1702.5001, 1702.6001, 
1702.6002, 1702.6099 and 1702.9099.  A copy of the March 1, 2002 resolution is WT/DS308/R 
Page C-108  
 
 provided as Exhibit US-62 and a copy of the amended import licensing resolution is 
provided as Exhibit US-63. 
  (2) A decree published in the Diario Oficial  on December 31, 2002:  the Decreto por el 
que establece la Tasa Aplicable durante 2003,  del Impuesto General de Importación, 
para las mercancías originarias de America del Norte .    The text of this decree is 
provided as Exhibit US-64.   In this d ecree, the Mexican government published the 
NAFTA tariff rates to go into effect on January 1, 2003.  January 1, 2003 was the 
final date for tariff elimination for many  products under NAFTA, including fructose.  
The second transitory provision to this decree, at pages 8-9, provides that in 
conformity with the international rights a nd obligations of Mexico, from January 1, 
2003 onward, the duty-free importation of U.S.-origin products classified under HS 1702.4099, 1702.5001, 1702.6001, 1702.6002 and 1702.6099 require an import license from SE to be accorded under terms a nd conditions to be established by SE in 
a resolution (acuerdo) to be published in the Diario Oficial.  The relevant resolution 
appears to be the resolution published on March 20, 2003, discussed below.   
  (3) A resolution published in the Diario Oficial on March 20, 2003:  Acuerdo que 
establece los criterios para otorgar permisos previos por parte de la Secretaría de 
Economía, a las importaciones definitivas de fructosa originarias de los Estados 
Unidos de América .  Article 2 of this resolution pr ovides that for U.S.-origin products 
classified under HS 1702.4099, 1702.6001, 1 702.6002 and 1702.6099, in conformity 
with the international rights and obligati ons of Mexico, criteria for granting licenses 
for importation for these products will be published "when the necessary conditions 
exist for that purpose" (and not until that time).  Article 1 of this resolution provides for automatic licensing of small amounts of crystalline pure fructose classified in HS 
1702.5001; the recitals make it clear that  the automatic licensing is only provided 
because crystalline pure fructose is not produced in Mexico, it is not substitutable with sugar, and users of this product outs ide the bottling industry had been negatively 
affected by the duty on imports of this input.  Articles 3 and 4 of the March 20 resolution provide that automatic import licensing will continue for temporary importation of HFCS (for use in products to be exported) and for imports of HS 
1702.9099.  A copy of this resolution is attached as Exhibit US-65. 
  As the above measures indicate, imports of HFCS of US origin are subject to non-automatic import licensing, except for imports under HS 1702.5001 and 1702.9099 and temporary imports.  No criteria for obtaining non-automatic licenses have been  published.  In addition, imports of HFCS of 
US origin are subject to the MFN duty rate unless SE  has issued a license.  In early January, a large 
US exporter sent a truckload of HFCS as a test sh ipment to the Mexican border. The truckload was 
denied entry without reference to duty liability, because the shipment lacked  an import license. The 
company then applied to SE for an import license.  At the end of January, SE informed the company 
that the license was denied because of alleged US de nial of market access for Mexican sugar, and that 
the license would not be granted until the bilateral sugar issue has been reso lved.  Representatives of 
the company then met in Mexico Ci ty with a senior level official from SE, who informed them that 
the official had been instructed  to deny the import licenses for HFCS indefinitely, until the sugar 
market access issue is resolved.  Another compan y importing HFCS into Mexico has also informed 
the United States that SE has  denied it import licenses for HFCS, on the basis that importation of HFCS is subject to a licensing requirement and the cr iteria for such licenses ha ve not been published. 
 
Sugar 
 
 On September 26, 2003, the Mexican government  published in the Diario Oficial a decree 
establishing a tariff rate quota for sugar for the period until December 31, 2003. This decree was  WT/DS308/R 
 Page C-109 
 
 
 submitted by the United States as Exhibit US-9 and is discussed in footnote 30 of the First US 
Submission.  On November 12, 2004, the Mexican  government published a decree establishing a tariff 
rate quota for sugar, and a separate tariff rate quota for sugar of Costa Rican origin, for the period 
until December 31, 2004.  In both cases, imports with in the TRQ were channeled exclusively through 
FEESA, a Mexican government entity, as discussed in footnote 30 of the First US Submission.  
 
 WT/DS308/R 
Page C-110  
 
 ANNEX C-7∗ 
 
RESPONSES BY GUATEMALA TO QUESTIONS POSED BY 
THE PANEL AFTER THE FIRST SUBSTANTIVE MEETING 
 
(20 December 2004) 
 
 
FOR  GUATEMALA : 
 
1. In paragraph 14 of the written version of its oral statemen t dated 3 December, 
Guatemala stated that "it is incumbent on the Panel to carefully examine the [United States'] request, in order to make sure that it complies with the letter and spirit of Article 6.2 of the DSU".  Could Guatemala elaborate its statement and explain to the Panel if it has any additional views on whether, in its opinion, th e United States' request complies with Article 6.2 
of the DSU. 
  It is not for Guatemala to establish whet her the United States' request complies with 
Article 6.2 of the DSU.  
2. In paragraph 6 of the written version of its oral statement dated 3 December, 
Guatemala stated that "the Panel should respond to Mexico's request and consider, in its 
deliberations, the importance that the sugar activi ty has in Mexico and the implications for the 
country of the reforms undertaken in this sector".  Could Guatemala share any views it may have regarding this statement and, particularly, in what manner, if any, should the Panel consider in its deliberations the factors highlighted by Guatemala. 
  Guatemala has no additional comments on the matter, beyond what was said orally during the 
course of the substantive meeting.  
__________ 
  
                                                     
 
∗ Annex C-7 contains the responses by Guatemala to questions posed by the Panel after the first 
substantive meeting.  This text was originally submitted in Spanish by Guatemala.