WORLD TRADE  
ORGANIZATION  WT/DS302/AB/R 
25 April 2005 
 (05-1669) 
 Original:   English 
  
 
     
 
    
 
     
 
 
DOMINICAN REPUBLIC – MEASURES AFFECTING THE IMPORTATION  
AND INTERNAL SALE OF CIGARETTES 
 
  
AB-2005-3 
    
 
     
 
   
Report of the Appellate Body  WT/DS302/AB/R 
 Page i 
 
 
 
I. Introduction................................................................................................................... ..............1  
II. Arguments of the Participants and the Third Participants ..........................................................3  
A. Claims of Error by the Dominican Republic – Appellant.............................................. 3 
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in 
Relation to the Tax Stamp Requirement...........................................................3  
2. Completing the Analysis under Article XX of the GATT 1994 .......................6  
3. The Conformity of the Panel's Examination of Exhibits DR-8 and DR-
29 with Article 11 of the DSU ..........................................................................7  
B. Arguments of Honduras – Appellee ............................................................................... 8 
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in 
Relation to the Tax Stamp Requirement...........................................................8  
2. Completing the Analysis under Article XX of the GATT 1994 .....................10  
3. The Conformity of the Examination of Exhibits DR-8 and DR-29 with 
Article 11 of the DSU .....................................................................................11  
C. Claims of Error by Honduras – Appellant................................................................... 12 
1. Article III:4 of the GATT 1994 and the Bond Requirement...........................12  
2. Article XX(d) of the GATT 199 4 and the Bond Requirement .......................13  
3. Article 11 of the DSU and the Panel's Consideration of the Bond 
Requirement "As Such" ..................................................................................13  
4. The Timing of Payment of the Selective Consumption Tax and the 
Panel's Terms of Reference.............................................................................14  
D. Arguments of the Dominic an Republic – Appellee ...................................................... 14 
1. Article III:4 of the GATT 1994 and the Bond Requirement...........................14  
2. Article XX(d) of the GATT 199 4 and the Bond Requirement .......................15  
3. Article 11 of the DSU and the Panel's Consideration of the Bond 
Requirement "As Such" ..................................................................................16  
4. The Timing of Payment of the Selective Consumption Tax and the 
Panel's Terms of Reference.............................................................................17  
E. Arguments of the Third Participants............................................................................ 18 
1. China...............................................................................................................18  
2. European Communities...................................................................................19  
3. United States...................................................................................................20  
III. Issues Raised in this Appeal ................................................................................................... ..21 
IV. The Necessity Analysis under Article XX(d) of the GATT 1994 in relation to the Tax 
Stamp Requirement.............................................................................................................. .....22  
V. The Conformity of the Examination of Exhib its DR-8 and DR-29 with Article 11 of the 
DSU ............................................................................................................................ ..............29  
VI. Article III:4 of the GATT 1994 and the Bond Requirement.....................................................34  WT/DS302/AB/R 
Page ii  
 
VII.
 Article 11 of the DSU and the Panel's Cons ideration of the Bond Requirement "As 
Such".......................................................................................................................... ...............40  
VIII. The Panel's Treatment of Honduras' Contentions Regarding the Timing of Payment of 
the Selective Consumption Tax ................................................................................................46  
IX. Findings and Conclusions....................................................................................................... ..50 
 
Annex 1 Notification of an Appeal by the Dominican Republic under Article 16.4 and  
Article 17 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes (DSU), and under Rule 20(1) of the Working Procedures for Appellate 
Review   
 
 Annex 2 Notification of an Other Appeal by  Honduras under Article 16.4 and Article 17  
of the Understanding on Rules and Pro cedures Governing the Settlement of  
Disputes (DSU), and under Rule 23(1) of the Working Procedures for Appellate 
Review  
  WT/DS302/AB/R 
 Page iii 
 
 
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Australia – Salmon  Appellate Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, 
DSR 2000:VI, 2985 
Canada – Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada – Pharmaceutical 
Patents  Panel Report, Canada – Patent Protection of Pharmaceutical Products , 
WT/DS114/R, adopted 7 April 2000, DSR 2000:V, 2289 
Canada – Wheat Exports and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/AB/R, adopted 27 September 2004 
Chile – Alcoholic Beverages  Appellate Body Report, Chile – Taxes on Alcoholic Beverages , WT/DS87/AB/R, 
WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, 281 
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R, adopted 
23 October 2002 
Dominican Republic – Import 
and Sale of Cigarettes Panel Report, Dominican Republic – Measures Affecting the Importation and 
Internal Sale of Cigarettes , WT/DS302/R, 26 November 2004 
EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting Asbestos and 
Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001, DSR 
2001:VII, 3243 
EC – Bananas III  Appellate Body Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September 1997, 
DSR 1997:II, 591 
EC – Bananas III   
(Article 21.5 – Ecuador)  Panel Report, European Communities – Regime for the Importation, Sale and 
Distribution of Bananas – Recourse to Article 21.5 of the DSU by Ecuador , 
WT/DS27/RW/ECU, adopted 6 May 1999, DSR 1999:II, 803 
EC – Bed Linen  (Article 21.5 – India)
  Appellate Body Report, European Communities – Anti-Dumping Duties on Imports 
of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by 
India , WT/DS141/AB/RW, adopted 24 April 2003  
EC – Hormones  Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, 
DSR 1998:I, 135 
EC – Poultry  Appellate Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 1998, 
DSR 1998:V, 2031 
EC – Sardines  Appellate Body Report, European Communities – Trade Description of Sardines , 
WT/DS231/AB/R, adopted 23 October 2002 
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti-Dumping Duties on 
Malleable Cast Iron Tube or Pipe Fittings from Brazil , WT/DS219/AB/R, adopted 
18 August 2003 
Guatemala – Cement I  Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, 
DSR 1998:IX, 3767 WT/DS302/AB/R 
Page iv  
 
Short Title Full Case Title and Citation 
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, 9 
India – Patents (US)  Panel Report, India – Patent Protection for Pharmaceutical and Agricultural 
Chemical Products,  Complaint by the United States , WT/DS50/R, adopted 
16 January 1998, as modified by the Appellate Body Report, WT/DS50/AB/R, 
DSR 1998:I, 41 
Japan – Agricultural Products II  Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, 277 
Japan – Film  Panel Report, Japan – Measures Affecting Consumer Photographic Film and 
Paper , WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179 
Korea – Alcoholic Beverages  Appellate Body Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/AB/R, 
WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3 
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3 
Korea – Various Measures on 
Beef  Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and 
Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, 
DSR 2001:I, 5 
US – 1916 Act  Appellate Body Report, United States – Anti-Dumping Act of 1916 , 
WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X, 4793 
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Steel Flat Products from Germany , WT/DS213/AB/R 
and Corr.1, adopted 19 December 2002 
US – Corrosion-Resistant Steel Sunset Review
  Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on 
Corrosion-Resistant Carbon Steel Flat Products from Japan , WT/DS244/AB/R, 
adopted 9 January 2004  
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-
Rolled Steel Products from Japan , WT/DS184/AB/R, adopted 23 August 2001, 
DSR 2001:X, 4697 
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R, 7 April 2005 
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 
US – Section 301 Trade Act  Panel Report, United States – Sections 301-310 of the Trade Act of 1974 , 
WT/DS152/R, adopted 27 January 2000, DSR 2000:II, 815 
US – Section 337  GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , adopted 
7 November 1989, BISD 36S/345 
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Wheat Gluten from the European Communities , WT/DS166/AB/R, 
adopted 19 January 2001, DSR 2001:II, 717 
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R and Corr.1, adopted 
23 May 1997, DSR 1997:I, 323 
 
  WT/DS302/AB/R 
 Page 1 
 
 
WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
Dominican Republic – Measures Affecting 
the Importation and Internal Sale of Cigarettes  
 
Dominican Republic, Appellant/Appellee  
Honduras, Appellant/Appellee  
 
China, Third Participant  
El Salvador, Third Participant 
European Communities, Third Participant  
Guatemala, Third Participant  
United States, Third Participant 
  AB-2005-3 
  Present:  
 Baptista, Presiding Member 
 Lockhart, Member  Sacerdoti, Member  
  
I. Introduction 
1. The Dominican Republic and Honduras each a ppeals certain issues of law and legal 
interpretations developed in the Panel Report,  Dominican Republic – Me asures Affecting the 
Importation and Internal Sale of Cigarettes  (the "Panel Report").
1  The Panel was established on 
9 January 2004 to consider claims by Honduras in respect of five measures taken by the Dominican 
Republic in connection with the importation and intern al sale of cigarettes.  Honduras made claims in 
respect of these measures under various provisions of Articles II, III, X, and XI of the General 
Agreement on Tariffs and Trade 1994 (the "GATT 1994").  The Dominican Republic requested the 
Panel to dismiss all of Honduras' claims, and also submitted that certain of the Dominican Republic's 
measures could be justified under the terms of Articles XX(d) and XV:9(a) of the GATT 1994.   
2. The Panel Report was circulated to Members of the World Trade Organization (the "WTO") 
on 26 November 2004.  The Panel found that:  the imposition by the Dominican Republic of a two 
percent transitional surcharge for economic stabili zation is an "other duty or charge" that is 
inconsistent with Article II:1(b) of the GATT 19942;  the imposition by the Dominican Republic of a 
foreign exchange fee constitutes an "other duty or ch arge" that is inconsistent with Article II:1(b) of 
the GATT 1994 and that cannot be justified as an exchange restriction within the meaning of  
                                                      
1WT/DS302/R, 26 November 2004. 
2Panel Report, para. 8.1(b).  WT/DS302/AB/R 
Page 2  
 
Article XV:9(a) of the GATT 1994
3;  and, that the requirement of the Dominican Republic that a tax 
stamp be affixed to all cigarette packets in its te rritory and under the supervision of the local tax 
authorities is inconsistent with Article III:4 of the GATT 1994, which cannot be justified under 
Article XX(d) of the GATT 1994.  The Panel reco mmended that the Dispute Settlement Body (the 
"DSB") request the Dominican Republic to bring th ese measures into conformity with its obligations 
under the GATT 1994.4   
3. The Panel made additional findings of incons istency with respect to certain rules and 
administrative practices used by the Dominican Rep ublic to determine the tax base for the purpose of 
applying the Selective Consumption Tax, which we re no longer in force at the time of the Panel 
Report.5  The Panel, however, declined to make an y recommendations to the DSB regarding these 
measures as they were no longer in force.6   
4. The Panel found that Honduras had failed to establish that the requirement by the Dominican 
Republic that importers and domestic producers pos t a bond of five million pesos (RD$5 million) is 
inconsistent with Article XI:1 or, alterna tively, with Article III:4, of the GATT 1994.7   
5. On 24 January 2004, the Dominican Republic no tified the DSB of its intention to appeal 
certain issues of law covered in the Panel Report and certain legal interpre tations developed by the 
Panel, pursuant to paragra ph 4 of Article 16 of the  Understanding on Rules and Procedures 
Governing the Settlement of Disputes   (the "DSU"), and filed a Notice of Appeal 8 pursuant to Rule 20 
of the  Working Procedures for Appellate Review  (the " Working Procedures ").9  On 31 January 2005, 
the Dominican Republic filed its appellant's submission.10  On 7 February 2005, Honduras notified the 
DSB of its intention to appeal certain issues of law covered in the Panel Report and certain legal 
interpretations developed by the Panel, pursuant to Article 16.4 and Article 17 of the DSU, and filed a 
Notice of Other Appeal11 pursuant to Rule 23(1) of the Working Procedures .  On 8 February 2005, 
Honduras filed its other appellant's submission.12  On 18 February 2005, the Dominican Republic and 
                                                      
3Panel Report, paras. 8.1(c) and 8.1(d).  
4Ibid., para. 8.2.  
5Ibid., paras. 8.1(b)-8.1(d).  
6Ibid., para. 8.3.  The Panel also found that Honduras had failed to establish that the Dominican 
Republic legislation for the determination of the tax base for the Selective Consumption Tax subjected imported 
cigarettes to taxes in excess of those applied to like domestic products. ( Ibid., para. 8.3(a)) 
7Ibid., para. 8.1(f).  
8WT/DS302/8, 24 January 2005 (attached as Annex 1 to this Report). 
9WT/AB/WP/5, 4 January 2005. 
10Pursuant to Rule 21(1) of the  Working Procedures . 
11WT/DS302/9, 7 February 2005 (attached as Annex 2 to this Report).  
12Pursuant to Rule 23(3) of the Working Procedures .   WT/DS302/AB/R 
 Page 3 
 
 
Honduras each filed an appellee's submission.13  On the same day, China,  the European Communities, 
and the United States each filed a third participant's submission.14  Also on 18 February 2005, 
Guatemala notified its intention to appear at  the oral hearing as a third participant.15  El Salvador 
notified its intention to appear at the oral hearing on 7 March 2005.16      
6. The oral hearing in this appeal was held on 9 March 2005.  The participants and third 
participants presented oral arguments and respond ed to questions posed by the Members of the 
Division hearing the appeal.  
II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by the Dominican Republic – Appellant 
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in Relation 
to the Tax Stamp Requirement  
7. The Dominican Republic submits that, in cons idering whether the Dominican Republic's tax 
stamp measure was justified under Article XX(d) of the GATT 1994, the Panel was "reviewing the 
decision making" of the Dominican Republic's authorities.17  As such, the Panel should have afforded 
the Dominican Republic a margin of discretion and should have assessed whether the Dominican 
Republic had a reasonable basis for its measure.  
8. The Dominican Republic claims that the Panel erred in interpreting and applying the term 
"necessary" in Article XX(d) of the GATT 1994.  Th e Dominican Republic points to the Reports of 
the Appellate Body in  Korea – Various Measures on Beef   and  EC – Asbestos  and contends that 
determining whether a measure is "necessary" under Article XX(d) involves, in every case, a process 
of weighing and balancing a series of factors.  According to the Dominican Republic, a panel must 
weigh and balance:  the trade impact of the measure ;  the importance of the interests protected by the 
measure;  the contribution of the measure to the end pursued;  and, the existence of alternative 
measures that a Member could reasonably be expect ed to employ.  The Panel erred by analyzing only 
the existence of reasonably available alternatives to the tax stamp measure, and by failing to analyze, 
weigh, and balance the other relevant factors.  Th e Dominican Republic points out that it is unlikely  
                                                      
13Pursuant to Rule 22 of the Working Procedures.  
14Pursuant to Rule 24(1) of the Working Procedures .  
15Pursuant to Rule 24(2) of the Working Procedures . 
16Pursuant to Rule 24(4) of the Working Procedures .  
17Dominican Republic's appellant's submission, para. 27. WT/DS302/AB/R 
Page 4  
 
that each factor will "indicate the same degree of necessity".
18  Therefore, a panel must ascertain the 
collective strength of the factors.  This requires a pa nel to consider the weight of each factor and to 
balance their relative weights, so as to determin e whether, collectively, they render the measure 
necessary.   
9. According to the Dominican Republic, a prope r weighing and balanci ng of the relevant 
factors leads to the conclusion that the tax stamp requirement is "necessary" within the meaning of 
Article XX(d) of the GATT 1994.  As regards the firs t factor, namely the trade impact of the measure, 
the Dominican Republic underlines that the Panel ac knowledged that the trade impact of the tax stamp 
requirement is minimal.  The Dominican Republic asserts that the Appellate Body has indicated that a measure with "a relatively slight  impact upon imported products might more easily be considered as 
'necessary' than a measure with inte nse or broader restrictive effects."
19  For the Dominican Republic, 
the findings of the Panel in this respect dictate th at, in the overall weighing and balancing of all the 
relevant factors, the tax stamp requirement may be more easily considered to be "necessary".   
10. On the second factor—the importance of the interests protected by the measure—the 
Dominican Republic reiterates that the tax stamp requirement is designed to secure tax compliance 
and prevent deceptive practices, and that these intere sts are important.  The Dominican Republic notes 
that the Panel acknowledged that the prevention of ta x evasion is an important interest and recalls the 
Appellate Body's view that the "more vital or im portant those common interests or values are, the 
easier it would be to accept as 'necessary' a meas ure designed as an enforcement instrument."20  The 
Dominican Republic adds that the link between cigarette smuggling and public health is well-
established;  consequently, as the tax stamp requireme nt aims to prevent the smuggling of cigarettes, 
it also helps to ensure the health and well-bei ng of citizens, "both of which are interests of 
fundamental and critical importance".21  The Dominican Republic argues that, in the overall weighing 
and balancing, it should be easier to accept the tax stamp requirement as a "necessary" enforcement 
instrument because of the value and im portance of the interests it protects. 
                                                      
18Dominican Republic's appellant's submission, para. 32. 
19Ibid., para. 34 (quoting Appellate Body Report, Korea – Various measures on Beef , para. 163). 
20Ibid., para. 37 (quoting Appellate Body Report, Korea – Various measures on Beef , para. 162). 
21Ibid., para. 40.  WT/DS302/AB/R 
 Page 5 
 
 
11. The third factor addressed by the Dominican Re public is the contribution of the measure to 
the ends pursued.  The Dominican Republic contends that affixation of tax stamps in the presence of a 
tax inspector contributes more to the prevention of tax evasion than affixation abroad, without the 
presence of a tax inspector.  The Dominican Republic  underlines that affixing the stamp abroad would 
make it possible for cigarettes smuggled into the Do minican Republic to be sold as stamped, while 
evading import taxes.  Such a situation is prevented by the requirement to affix stamps in the 
Dominican Republic in the presence of a tax inspector , except if the stamp is forged.  Thus, for the 
Dominican Republic, the tax stamp requirement no t only seeks to ensure the authenticity of tax 
stamps, but also "contributes importantly to re ducing the volume of smuggled cigarettes and 
increasing the volume of cigarettes bearing 'authentic tax stamps' ".22   
12. As regards the question of the existence of  alternative measures that a Member could 
reasonably be expected to employ in place of  the GATT-inconsistent measure, the Dominican 
Republic submits that the Panel wrongly concluded that  an alternative measure is reasonably available 
in this case.  According to the Dominican Republic, the measur e to which the Panel alluded—
providing secure tax stamps to foreign exporters a nd affixing the stamps abroad, possibly under the 
supervision of a reputable company that would c onduct pre-shipment inspection and certification—is 
not an alternative that is reasonably available b ecause it would increase the risk of smuggling and tax 
evasion, as compared with the tax stamp requirement, and, therefore, would be less likely to secure the goals pursued by the tax stamp requirement.  The Dominican Republic points to evidence that 
cigarette producers actively collaborate in the smuggling of cigarettes.  It also points to evidence of a 
higher prevalence of smuggling of alcoholic beve rages, which it argues results from allowing the 
affixation of tax stamps outside of the territory of the Dominican Republic.   
13. On this basis, the Dominican Republic submits that the Panel erred in finding that the 
Dominican Republic's tax stamp requirement is not "necessary" in the sense of Article XX(d) of the 
GATT 1994.  It requests the Appellate Body to re verse the Panel's finding in this regard.   
                                                     
 
22Dominican Republic's appellant's submission, para. 45. WT/DS302/AB/R 
Page 6  
 
14. In response to information concerning the recent modification of the tax stamp measure 
referred to by Honduras in its open ing statement at the oral hearing
23, the Dominican Republic 
confirmed that a new decree had been passed that a ltered the application of the tax stamp requirement 
and allowed tax stamps to be affixed abroad.24  The Dominican Republic, however, considers that the 
new measure reflects a change in the level of en forcement that it seeks to achieve.  It therefore 
continues to maintain that only the affixation of stamps in the territory of the Dominican Republic, 
under the supervision of its tax authorities, can ach ieve its desired level of enforcement against 
smuggling and tax evasion.     
2. Completing the Analysis under Article XX of the GATT 1994  
15. In the event that the Appellate Body agrees with the Dominican Republic and reverses the 
Panel's finding that the tax stamp requirement is not "necessary" in the sense of paragraph (d) of Article XX of the GATT 1994, the Dominican Republic  requests the Appellate Body to complete the 
legal analysis of its defence under Article XX  of the GATT 1994 and find that the tax stamp 
requirement is not inconsistent with the GATT 1994.   
16. The Dominican Republic submits that its tax stamp requirement is necessary to secure 
compliance with its Tax Code.  It does so by aler ting the Dominican Republic tax authorities that the 
applicable taxes have been collected and thereb y prevents tax evasion.  Further, the tax stamp 
requirement prevents cigarette smuggling because ci garettes are smuggled specifically to evade taxes 
and other applicable laws.  The Dominican Repub lic observes that Honduras has not challenged the 
GATT-consistency of its Tax Code and itself noted th at the Dominican Republic has the right to levy 
duties and taxes upon cigarettes.  On this basis, the Dominican Republic submits that its tax stamp 
measure properly falls within the ambit of paragraph (d) of Article XX.   
17. The Dominican Republic also submits that the tax stamp requirement is applied in a manner 
that satisfies the chapeau of Article XX of the GA TT 1994.  The tax stamp requirement is not applied 
                                                     
 
23Paragraph 7 of Honduras' opening statement reads: 
Honduras is surprised that the Dominican Republic is taking [the position 
that affixing tax stamps abroad is not a reasonably av ailable alternative 
measure].  In October 2004, it enacted Decree No. 1360 – 04 to modify Article 37 of the Decree 79-03 in order to allow importers to affix the tax 
stamp abroad at the time of production.  Pursuant to this Regulation, 
Honduras exported a cigarette shipment  two weeks ago with the tax stamps 
affixed at the point of production.  Honduras assumes that the Dominican 
Republic still maintains its interest of maintaining tax collection and 
preventing smuggling and forgery.  Therefore, by allowing the tax stamps to be affixed abroad, the Dominican Republic has acknowledged that this 
alternative measure is r easonably available and can contribute to the ends 
pursued. ... (footnotes omitted) 
24Dominican Republic's response to questioning at the oral hearing.  WT/DS302/AB/R 
 Page 7 
 
 
in a manner that discriminates between different fo reign supplying countries or between domestic and 
foreign suppliers of cigare ttes.  Indeed, Honduras has not made alle gations to the contrary.  Moreover, 
even if the Appellate Body were to find that the me asure is applied in a discriminatory manner, there 
is nothing to suggest that any such discrimination is arbitrary or unjustifiable.  Nor is there anything to 
suggest that the tax stamp requirement is applied in a manner that constitutes a disguised restriction 
on international trade.   
3. The Conformity of the Panel's Examin ation of Exhibits DR-8 and DR-29 
with Article 11 of the DSU  
18. The Dominican Republic contends that the Pane l failed to make an objective assessment of 
the facts of the case, contrary to Article 11 of the DSU, by misinterpreting evidence submitted in 
Exhibits DR-8 and DR-29 and by  misunderstanding the proposition in support of which these exhibits 
were introduced.  Although it recognizes that panels enjoy a margin of discretion in their appreciation 
of the evidence before them, according to the Domi nican Republic, the Panel in this case exceeded the 
bounds of this discretion because an objective trie r of facts could not have reached the Panel's 
conclusion on the basis of the evidence presented.    
19. The Dominican Republic sought to demonstrate th rough Exhibits DR-8 and DR-29 "that, in 
the case of alcohol, a product in respect of which ta x stamps can be affixed abroad:  (a) there is 
smuggling into the territory of the Dominican Republic;  and (b) tax stamps are forged."25  The Panel, 
however, misread the letter incorporated in E xhibit DR-8 (Memo DAT-No. 46) and erroneously 
concluded that it did not demonstrate the forgery of tax stamps.  The Panel also misunderstood the 
proposition for which Exhibit DR-8 was offered.  Th e exhibit was offered as evidence of the existence 
of forgery of tax stamps, on the one hand, and smuggling of products, on the other.  The Panel, 
however, incorrectly focussed on the relationship be tween smuggling and forgery.  Exhibit DR-29, for 
its part, was offered for its probative value as to  the smuggling of alcohol into the Dominican 
Republic.  The Panel, however, simply disregarded the evidence in Exhibit DR-29, and mistakenly 
took it as evidence of forgery of tax stamps.  Exhibi t DR-29 was not offered as evidence of forgery of 
tax stamps.  In addition, the Pane l concluded that these two exhibits did not establish the existence of 
a causal link between allowing stamps to be affixe d abroad and forgery of tax stamps.  However, 
according to the Dominican Republic, there is irrefu table evidence on record that demonstrates that, 
whereas alcoholic beverages—which may be st amped outside the Dominican Republic—are  
                                                      
25Dominican Republic's appellant's submission, para. 79.  WT/DS302/AB/R 
Page 8  
 
smuggled with forged tax stamps, this practically ne ver happens with cigarette s.  The Panel failed to 
appreciate these facts as well.  The Dominican Republic concludes that the Panel's findings, 
purportedly based on Exhibits DR-8 and DR-29, are wrong, and could not have been reached by an 
objective trier of facts.  The Panel therefore failed to comply with its duty under Article 11 of the DSU.   
B. Arguments of Honduras – Appellee 
1. The Necessity Analysis under Article XX(d) of the GATT 1994 in Relation 
to the Tax Stamp Requirement  
20. Honduras argues that the Dominican Republic has mischaracterized its appeal as one 
regarding the interpretation and application of Article XX(d) of the GATT 1994 to the tax stamp 
requirement, whereas, in reality, the Dominican Re public is asking the Appellate Body to reassess the 
evidence that was before the Panel and come to a different conclusi on.  According to Honduras, the 
Dominican Republic has not demonstrated that the Panel misinterpreted or misapplied the "necessity" 
test under Article XX(d).  Honduras also submits th at the Dominican Republic has not demonstrated 
any legal errors in the Panel's findings;  rather, the Dominican Republic is seeking to re-argue the 
facts of the case and the conclusions that it considers should be drawn.     
21. Moreover, according to Honduras, the Dominican Republic is attempting to introduce new 
factual elements in alleging that cigarette produ cers collaborate in smuggling, and that it would not, 
therefore, be appropriate to cede any control ove r the tax stamping process to producers.  Honduras 
observes that there is no undisputed evidence upon which to base this assertion and urges the 
Appellate Body to disregard these allegations.  In  addition, the Dominican Republic is seeking to 
introduce the protection of human health as an obj ective to be secured by the discriminatory aspects 
of the tax stamp requirement.  However, the Do minican Republic has not demonstrated why its 
measure protects human health.  Honduras notes that protection of human health is dealt with under 
Article XX(b), not Article XX(d), and that arguments  regarding human health were not made before 
the Panel.  There are, therefore, no factual fi ndings that would support the Dominican Republic's 
arguments regarding human health and the Appe llate Body should give them "no credence".26 
22. Turning to the substantive question of whether the tax stamp requirement is "necessary" in the 
sense of Article XX(d) of the GATT 1994, Hondu ras disagrees with the Dominican Republic's 
submission that the Panel failed to weigh and balance the factors identified by the Appellate Body in  
Korea – Various Measures on Beef   as relevant to the assessment of necessity under Article XX(d).   
                                                      
26Honduras' appellee's submission, para. 22.  WT/DS302/AB/R 
 Page 9 
 
 
In Honduras' view, the Panel properly examined the relative importance of the interest served by the 
measure at issue.  Honduras contests the Dominican  Republic's assertion, which was not put forward 
before the Panel, that the measure aims to protect human life or health.  The thrust of the tax stamp 
requirement is fiscal in nature, which, although important, is not on a par with the protection of 
human life or health.  According to Honduras, the Pa nel also examined the extent to which the tax 
stamp requirement contributes to securing compliance with the Dominican Republic's tax laws and 
regulations.  The Panel found that the Dominica n Republic had not proven that discriminatory 
enforcement of the tax stamp requirement facilita tes the prevention of tax evasion and smuggling.  
Moreover, the Dominican Republic did not provide th e text of any laws against smuggling with which 
the tax stamp requirement would secure compliance.  The Panel also examined whether the tax stamp 
requirement had restrictive effects on international co mmerce.  Although, in this regard, the Panel felt 
it could assume that the measure did not have "intense restrictive effects on trade"27, the fact that it 
went on to consider less-trade restrictive alternativ es demonstrates that it considered the measure had 
at least some adverse affect on trade.  In the view  of Honduras, contrary to the submission of the 
Dominican Republic, the Panel properly weighe d and balanced these considerations.   
23. The Panel also properly identified a less-trad e restrictive alternative to the tax stamp 
requirement imposed by the Dominican Republic, in  accordance with the ap plicable standard for 
evaluating whether a measure is "necessary" in the sense of Article XX(d).  The Panel was correct to 
find that allowing stamps to be affixed abroad, coupl ed with pre-shipment inspection and certification, 
would achieve the same level of enforcement.  Honduras dismisses the two factors raised by the 
Dominican Republic in seeking to rebut the Panel's fi nding in this regard.  First, with respect to the 
Dominican Republic's argument that cigarette producers actively collude in the smuggling of 
cigarettes, Honduras submits that this is an  ex post facto   justification for the measure, which, in any 
event, is merely an unsubstantiated assertion.  The same is true of the Dominican Republic's second 
argument, namely the allegedly higher rate of smug gling that occurs with respect to alcohol resulting 
from the affixation of stamps outside of the terr itory of the Dominican Republic.  The Dominican 
Republic has a weak factual basis upon which to assert that there is a higher prevalence of smuggling 
with respect to alcohol and there is no eviden ce of a causal relationship between the tax stamp 
requirement for cigarettes and the allegedly lower level of smuggling.  Against that background, the 
Panel correctly found that allowing importers to affix stamps abroad during the production process 
would achieve the same level of enforcement as the existing measure;  that this alternative measure 
would be administratively feasible for the Dominica n Republic;  and that this alternative measure 
would be less-trade restrictive than the current measure.   
                                                      
27Honduras' appellee's submission, para. 51 (quoting Panel Report, para. 7.215).  WT/DS302/AB/R 
Page 10  
 
24. Because the Dominican Republic has not demonstr ated why the Panel erred in its application 
of the necessity test under Article XX(d), the Appe llate Body should uphold the Panel's analysis. 
25. At the oral hearing, Honduras drew attention to  the fact that, in October 2004, the Dominican 
Republic enacted a new Decree modifying the tax stamp requirement so as to allow importers to affix tax stamps abroad, at the time of production.
28  Pursuant to this new measure, Honduras recently 
exported to the Dominican Republic a shipment of ci garettes with stamps attached at the factory.  
With these developments in mind, Honduras e xpressed surprise that the Dominican Republic 
continues to maintain that the on ly measure reasonably available to it is affixation of tax stamps 
within the Dominican Republic, under the supervisi on of the tax authorities.  Honduras nevertheless 
confirmed that it requests the Appellate Body to ru le on the WTO-consistency of the original measure 
embodying the tax stamp requirement, and re quested that the Appellate Body make a 
recommendation under Article 19.1 of the DSU re questing the Dominican Republic to bring its 
measure into conformity with its obligations under the GATT 1994.  
2. Completing the Analysis under Article XX of the GATT 1994  
26. Honduras contends that, even if the Appellate Bo dy were to reverse the finding of the Panel 
regarding the interpretation and application of  the "necessity" test under Article XX(d) of the 
GATT 1994, it would have to find, in any event, that the Dominican Republic did not demonstrate 
that the measure at issue meets th e requirement of the chapeau to Article XX.  Honduras observes that 
an analysis under the chapeau would require the Appellate Body to focus upon "the  application   of 
the [tax stamp] measure and not the measure  as such ".29  The burden of proof in  such an analysis falls 
upon the party raising the defence.  In Honduras'  submission, the Dominican Republic did not 
discharge its burden under the chapeau before the Panel;  nor has it done so before the Appellate 
Body.  The Dominican Republic has not presented any evidence to substantiate its assertions that the 
tax stamp requirement is applied in a manner that is consistent with the chapeau.  Indeed, there are no 
factual findings by the Panel regarding the applica tion of the chapeau.  Nor are there undisputed facts 
on the record.  It is not, therefore, legally possible for the Appellate Body to complete the analysis in 
this case. 
27. Honduras further submits that, even if the Appella te Body were nevertheless to complete the 
analysis under the chapeau to Article XX of the GATT 1994, it should find that the tax stamp requirement is applied in a manner that constitutes arbitrary or unjustifiable discrimination between 
countries where the same conditions prevail.  H onduras points to evidence in Exhibit DR-3 that 
                                                     
 
28See paragraph 7 of Honduras' opening statement,  supra , footnote 23. 
29Honduras' appellee's submission, para. 75. (original emphasis)   WT/DS302/AB/R 
 Page 11 
 
 
suggests that, in practice, the Dominican Republic a llows domestic producers to deduct the cost of tax 
stamps from their eventual liability under the Sele ctive Consumption Tax.  This deduction is not 
authorized on the face of the legislation governing the application of the tax stamp requirement, and is 
not available to importers.  This differential in  the treatment of importe rs and domestic producers 
constitutes both arbitrary and unjustifiable discriminati on, and, therefore, is inconsistent with the 
chapeau to Article XX.  
3. The Conformity of the Examination of Exhibits DR-8 and DR-29 with  
Article 11 of the DSU  
28. Honduras submits that the Panel made an objectiv e assessment of the facts of the case and did 
not exceed the bounds of its discretion in its consid eration of Exhibits DR-8 and DR-29.  Honduras 
observes that the Dominican Republic, in its first writ ten submission to the Panel, argued that Exhibit 
DR-8 provided evidence regarding smuggling and tax evasion, " as well as   forgery of tax stamps".30  
The Dominican Republic also entitled Exhibit DR -8 "Evidence of forgery, smuggling and tax 
evasion".  The Dominican Republic is therefore wrong,  in its appeal, to blame the Panel for finding 
that Exhibit DR-8 provided no evidence as to the re lationship between smuggling and forgery of tax 
stamps.  Any reasonable trier of facts could have co nstrued the evidence as the Panel did:  that is, as 
referring to a single case in which alcohol products were smuggled into the Dominican Republic with 
forged tax stamps.  Indeed, the Panel correctly  found that the evidence in Exhibit DR-8 was 
completely unrelated to any problem of forgery and that Memo DAT-No. 46, which was included in 
Exhibit DR-8, did not prove the occurrence of forg ery in stamps.  Honduras does not consider that 
certain minor errors by the Panel in its characteri zation of the evidence was anything more than an 
inconsequential mistake.  Such minor errors do not  constitute an egregious error by the Panel that 
would warrant a finding that the Panel failed to me et its obligations under Article 11 of the DSU.   
29. With respect to Exhibit DR-29, Honduras recalls  that panels enjoy broad discretion to choose 
which evidence to utilize in making findings and that  panels are not required to accord to factual 
evidence the same weight as do the parties.  Agains t that background, the Panel committed no error in 
deciding not to deal with Exhibit DR-29.  The Panel was not bound to draw the same conclusion from this evidence as the Dominican Re public wanted it to draw.    
                                                     
 
30Honduras' appellee's submission, para. 101 ( quoting the Dominican Republic's first written 
submission to the Panel, para. 61). (emphasis added by Honduras) WT/DS302/AB/R 
Page 12  
 
C. Claims of Error by Honduras – Appellant 
1. Article III:4 of the GATT 1994 and the Bond Requirement
 
30. Honduras challenges the Panel's conclusion that  the bond requirement does not accord less 
favourable treatment to imported cigarettes in te rms of Article III:4 of the GATT 1994.  Honduras 
submits that the Panel failed to recognize that the bond requirement imposes an "extra burden" on 
imported products compared with domestic produc ts.  According to Honduras, the bond requirement 
secures only the payment of the Selective Consump tion Tax.  Whereas the importer has to pay the 
amount due for the Selective Consumption Tax prio r to importation and has to post a bond to secure a 
tax liability that has already been discharged, the domestic producer has until the twentieth day of the 
month following the taxable transaction to pay the Selective Consumption Tax.31  Honduras contends 
that this lack of symmetry between the liabilities secured by the bond constitutes an "extra hurdle" or 
"extra burden" for imported products.32  Also, Honduras argues that the Panel erred in finding that the 
Dominican Republic has demonstrated that its tax authorities have the legal powers to reassess and adjust the applicable tax liabilities fo r a period of up to three years. 
31. Honduras submits that the bond requi rement creates situations in  which imported products are 
accorded conditions of competition less favourable th an those accorded to domestic products.  In 
particular, Honduras underlines that, as in 2003 "the  amount of Selective Consumption Tax imposed 
on domestic cigarettes ... was about  three times higher   than the amount imposed on imported 
cigarettes ... the per-unit cost of the bond require ment for imported cigarettes was ... three times 
higher than for domestic products."
33  For Honduras, this illustrates that the bond requirement creates 
situations in which imported products are accord ed conditions of competition less favourable than 
those accorded to domestic products. 
32. Honduras also considers that the Panel erred in its  evaluation of the per-unit cost of the bond.  
According to Honduras, the Panel should have examined the conditi ons of competition established by 
the legislation, rather than the market situation in which the bond requirement was applied.  In any 
event, Honduras notes that the bond requirement wa s introduced in March 2003 and argues that the 
per-unit cost determined by the Panel was incorrect , because it was based on the volume of imports in 
the years 2000-2002, and on the cost charged by  financial institutions for a bond fee in 2004.34  
Honduras adds that, as the Panel did not determine th e per-unit cost for domestic producers, it could  
                                                      
31Honduras' other appellant's submission, para. 63. 
32Ibid. 
33Ibid., para. 70. (original emphasis)   
34Ibid., para. 44.  WT/DS302/AB/R 
 Page 13 
 
 
not compare the per-unit costs between imported pro ducts and domestic like products.   Accordingly, 
Honduras argues, the Panel did not have any basi s upon which to conclude that there was no less 
favourable treatment being accorded to imports.  Finally, Honduras submits that the Panel erred 
because it stated that the fact that a fixed expen se (that is, an expense not  related to volume of 
production) may lead to different per-unit costs among supplier firms is not in itself enough to 
conclude that the expense creates less favourable treatment for imported products. 
2. Article XX(d) of the GATT 1994 and the Bond Requirement  
33. At the oral hearing, Honduras responded to the claim raised by the Dominican Republic that, 
even if the Appellate Body accepts Honduras' appe al under Article III:4 of the GATT 1994 against the 
bond requirement, the measure is nevertheless ju stified under Article XX(d) of the GATT 1994.  
Honduras submits that the Dominican Republic must have in place alternative measures for products, 
other than cigarettes and alcohol, that are also s ubject to the Selective Consumption Tax.  These 
alternative measures would be reasonably available to  secure compliance with tax laws in the case of 
cigarettes as well.  In Honduras' view, the Appella te Body should find that the Dominican Republic 
has not proven that its bond requirement is n ecessary to secure compliance with its tax laws.   
3. Article 11 of the DSU and the Panel's Consideration of the Bond 
Requirement "As Such"  
34. Honduras claims that the Panel failed to make an  objective assessment of the matter before it, 
contrary to Article 11 of the DSU, in finding that  the bond requirement secured obligations other than 
the Selective Consumption Tax.  Honduras emphasizes that its claims relate to the bond requirement 
as such, independently from the application of that le gislation in specific circumstances.  According to 
Honduras, the Panel did not, however, consider the le gislative basis of the bond requirement as such, 
but instead relied upon a letter from the Dominican Republic Director-General of Internal Taxes 
(referred to as Exhibit DR-12) that contradicted the terms of the underlying legislation.  Honduras 
argues that, in analyzing its cl aim against the bond requirement as such, the Panel "should have 
properly examined only ... the terms of the legi slation and [should] not have relied on the 
unsubstantiated views of one officer of an agency of the Dominican Republic".35  Honduras finds 
support for its view in the Report of the Appellate Body in  India – Patents (US) , where the Appellate 
Body found that certain "administrative instructions " regarding the application of India's Patents Act 
were insufficient to alter the WTO-inconsistent natu re of that legislation because they appeared to 
contradict the terms of that legislation. 
                                                      
35Honduras' other appellant's submission, para. 22. WT/DS302/AB/R 
Page 14  
 
4. The Timing of Payment of the Selec tive Consumption Tax and the Panel's 
Terms of Reference  
35. Honduras submits that the Panel erred in treati ng certain contentions regarding the timing of 
payment of the Selective Consumption Tax as a separate claim outside of the Panel's terms of reference.  Honduras submits that these contentions we re simply arguments in support of its claim that 
the bond requirement violated Article III:4 of th e GATT 1994.  Honduras asks the Appellate Body to 
reverse the Panel's finding that these contentions were outside the Panel's terms of reference. 
D. Arguments of the Dominican Republic – Appellee 
1. Article III:4 of the GATT 1994 and the Bond Requirement
 
36. The Dominican Republic submits that the Panel correctly interpreted the term "treatment no 
less favourable" in Article III:4 of the GATT 1994 and requests the Appella te Body to reject 
Honduras' appeal against this finding.  The Dominican Republic submits that Honduras advocates an erroneous interpretation of Article III:4.   
37. According to the Dominican Republic, the Panel reached its conclusion with respect to the 
application of Article III:4 after properly identifying  that Article III:4 requires an analysis of the 
conditions of competition prevailing between imports and like domestic  products and having 
examined the impact of the bond requirement upon cond itions of competition in the relevant market.  
The Dominican Republic submits that Honduras' main  criticism is that the Panel considered the 
relevant market to determine whether the bond requirement accords less favourable treatment to 
imported cigarettes.  For the Dominican Republic, however, an examination of whether a measure 
accords less favourable treatment to imports requires a panel to analyze the "thrust and effect" of the 
measure on conditions of compe tition in the relevant market.
36  This means that the existence of 
formally different treatment is not sufficient to show  a violation of Article III:4.  By the same token, 
the need for close scrutiny of the "effect" of a measure means that formally identical treatment is not 
necessarily consistent with Article III:4.  Inst ead, the application of Article III:4 depends upon 
whether the measure in question modifies the conditions  of competition to the detriment of importers.  
The question that a panel must answer, therefore, is whether the measure gives domestic producers a 
competitive advantage in the relevant market.   
                                                      
36Dominican Republic's appellee's submission, para. 46 (referring to Appellate Body Report, Korea – 
Various Measures on Beef , para. 142).   WT/DS302/AB/R 
 Page 15 
 
 
38. According to the Dominican Republic, Honduras' objection to the Panel's approach is based 
on the untenable proposition that, in a case where a Me mber challenges a measure "as such", alleging  
de facto  less favourable treatment, a panel cannot look beyond the text of the measure itself to 
consider the factual evidence that would prove  de facto   discrimination.  The Dominican Republic 
notes that, although Honduras recognizes that the bond requirement imposes formally equal treatment, 
Honduras would preclude examination of evidence other than the text of the legislation in examining 
whether the formally equal treatment under the law nevertheless establishes  de facto   discrimination.   
39. The Dominican Republic argues that Honduras' pos ition is contrary to WTO jurisprudence on 
national treatment, in which panels and the A ppellate Body have  consistently looked to the 
application of the measure in question, its operati on, and its effects on the conditions of competition 
in the relevant market.  The Dominican Republic poi nts to the approach taken to the analysis of 
de facto   discrimination by the Appellate Body in  Canada – Autos  and in Chile – Alcoholic 
Beverages   and by panels in  EC – Bananas III (Article 21.5 – Ecuador) , Canada – Pharmaceutical 
Patents , and  Japan – Film  in support of its argument that Honduras is incorrect to claim on appeal 
that the Panel should have examined the effect of the bond requirement without looking at the 
relevant market or the application of the measure , and without considering evidence beyond the four-
corners of the Dominican Republic legislation.  
40. The Dominican Republic observes that the Pane l considered the evidence adduced by the 
Dominican Republic to rebut the charges raised by Honduras that the bond requirement was 
inconsistent with Article III:4 of the GATT 1994.   The Dominican Republic submits that Honduras 
failed to present any evidence to show that the bond requirement did, in fact, alter the conditions of 
competition in the relevant market.  The Panel was correct, therefore, to find that Honduras had failed 
to establish that the bond requirement accords less favourable treatment to imported cigarettes.  The 
Panel properly found that the bond requirement does not create a disincentive to import cigarettes; 
that the bond requirement secures the payment of tax liabilities for imported cigarettes;  and that a 
bond for a fixed amount can secure the payment of a va riable tax liability and s till be consistent with 
Article III:4 of the GATT 1994.   
2. Article XX(d) of the GATT 1994 and the Bond Requirement  
41. In the event that the Appellate Body reverses  the Panel's finding with respect to the bond 
requirement under Article III:4 of the GATT 1994 and finds that the bond requirement accords less 
favourable treatment to imported cigarettes, the Do minican Republic requests the Appellate Body to 
find that the bond requirement is nevertheless jus tified as necessary to secu re compliance with GATT-
consistent laws and regul ations under Article XX(d) of the GATT 1994.   WT/DS302/AB/R 
Page 16  
 
42. The Dominican Republic submits that Article XX(d) requires a two-step analysis.  First, the 
measure must be provisionally justified under Ar ticle XX(d).  Secondly, it must comply with the 
requirements of the chapeau to Article XX.  The Dominican Republic says that its measure secures 
compliance with its tax laws and regulations, and th at these tax laws and regulations are consistent 
with the GATT 1994.  The Dominican Republic refers  to certain findings by the Panel, which, it 
claims, substantiate these assertions.  The Dominican  Republic also argues that the bond requirement 
is "necessary" to secure compliance with the tax laws and regulations of the Dominican Republic, in 
the sense that it is "indispensable".   Moreover, even if the Appellate Body were to find that the bond 
requirement is not indispensable, an appropriate wei ghing and balancing of the four factors identified 
for the analysis of necessity in  Korea – Various Measures on Beef   demonstrates that the measure in 
question remains necessary in the sense of Article  XX(d).  The measure therefore satisfies the 
requirements of Article XX(d) and is provis ionally justified under that provision.   
43. In addition, the Dominican Republic submits that  its measure is not applied in a manner that 
discriminates between countries where the same  conditions prevail and that any alleged 
discrimination is neither arbitrary nor unjustifiabl e.  The Dominican Republic also submits that the 
bond requirement is not applied in a manner that co nstitutes a disguised restriction on international 
trade.  Accordingly, in addition to being provisiona lly justified under paragraph (d) of Article XX, the 
bond requirement also satisfies the conditions of the chapeau to Article XX.  It therefore meets the 
requirements of Article XX of the GATT 1994 and thus  falls within the general exception provided by 
that provision.       
3. Article 11 of the DSU and the Panel's Consideration of the Bond 
Requirement "As Such"  
44. The Dominican Republic submits that the Panel made an objective assessment of the facts of 
the case in addressing Honduras' "as such" claim ag ainst the bond requirement.  It accordingly 
requests the Appellate Body to reject Honduras' appeal in this regard. 
45. The Dominican Republic submits that the Appella te Body has said it will interfere with a 
panel's appreciation of the eviden ce before it only if it is satisfied that the panel "exceeded its 
discretion" and, in effect, made an "egregious error".37  It observes that Honduras has made a claim 
against legislative provisions establishing the bond requirement "as such".  Honduras' claim thus 
focuses on the meaning of a municipal law of the Dominican Republic.  In addressing the meaning of municipal law, panels must examine the law as a ma tter of fact, taking into account the evidence as to 
the meaning of the law presented by the parties.  In ascertaining the meaning of a municipal law, 
                                                     
 
37Dominican Republic's appellee's submission, para. 23 (quoting Appellate Body Report, Canada – 
Wheat Exports and Grain Imports , para. 186).     WT/DS302/AB/R 
 Page 17 
 
 
nothing precludes a panel from considering statem ents made by representatives of the responding 
Member regarding that law;  indeed, such statemen ts have been relied upon by  panels (such as in  
US – Section 301 Trade Act ) and the Appellate Body (for example, in  US – Hot-Rolled Steel ) in the 
past.   
46. In this case, the Panel correctly treated the meaning of the Dominican Republic's municipal 
law as a fact whose meaning was to be proved by evid ence.  The Panel thus considered the text of the 
legislation itself, as well as a letter from the Director-G eneral of Internal Taxes,  the senior official of 
the Dominican Republic responsible for administering the relevant matter at the municipal level.  
Honduras did nothing to rebut the contents of the letter, other than to claim it was inadmissible as evidence. 
47. The Dominican Republic contests Honduras' as sertion that the letter from the Director-
General of Internal Taxes is inconsistent with th e wording of Article 376 of the Tax Code.  Nothing 
on the face of the law precludes the bond from being applied to fiscal obligations other than the Selective Consumption Tax.  The Dominican Repub lic also disagrees with the position of Honduras 
that the letter should have been disregarded as it was somehow tainted because it came from an 
official of the Dominican Republic.  The Domini can Republic says that a Member is obliged under 
Article 3.10 of the DSU to engage in dispute settlement "in good faith".  Representations by a 
Member made during dispute settlement therefore ca nnot be presumed to be tainted, merely because 
they are made in dispute settlement.   
4. The Timing of Payment of the Selec tive Consumption Tax and the Panel's 
Terms of Reference  
48. The Dominican Republic argues that the Panel wa s correct in concluding that the timing of 
the payment of the Selective Consumption Tax, as a separate claim, was outside the terms of 
reference of the Panel.  The Dominican Republic no tes that the timing of payment of the Selective 
Consumption Tax was not addressed in Honduras' request  for the establishment of the Panel;  nor was 
it addressed in Honduras' first written submission to th e Panel.  Rather, it was mentioned for the first 
time in a single paragraph of Honduras' second writte n submission to the Panel.  According to the 
Dominican Republic, the Panel did not overlook the di stinction between claims and arguments.  The 
Panel was well aware of this dis tinction and correctly distinguishe d between the argument made by 
Honduras in support of its legal claim that the bond re quirement was inconsistent with Article III:4 of 
the GATT 1994, and its veiled claim that the differe nce in timing of the payment of the Selective 
Consumption Tax accorded less favourable treatment to importers.   WT/DS302/AB/R 
Page 18  
 
E. Arguments of the Third Participants 
1. China
 
(a) The necessity analysis under Article XX(d) of the GATT 1994 in 
relation to the tax stamp requirement 
49. China notes that a party invoking Article XX(d) of the GATT 1994 must demonstrate that its 
measure is "necessary" to secure compliance with GATT-consistent laws or regulations.  China 
synthesizes the jurisprudence of the Appellate Body  on this issue as suggesting that "necessary" in 
this context should mean "almost indispensable".38  China also observes that the Appellate Body has 
set out a number of factors that need to be cons idered in assessing whether a measure is "necessary".  
These include three factors identified in  Korea – Various Measures on Beef :  the contribution of the 
measure to the ends pursued;  the importance of the interests protected;  and the trade impact of the 
measure.  There is also another factor from earlier  jurisprudence, which the Appellate Body described 
as "encapsulating" these three factors, namely, the ex istence of reasonably available alternatives to the 
impugned measure that are consistent, or less incons istent, with other GATT provisions.  In China's 
view, the three factors identified in Korea – Various Measures on Beef  have not replaced the 
traditional test.  However, the application of all re levant factors may have an impact on the burden of 
proof:  if a party invoking Article XX(d) demonstrat es that its measure stands up with respect to the 
first three factors, then it has established a  prima facie   case that Article XX(d) applies;  the burden 
then shifts to the other party to rebut this presump tion.  This could be achieved by demonstrating the 
existence of a GATT-consistent alternative measure.   
(b) Article III:4 of the GATT 1994 and the bond requirement 
50. With respect to Honduras' appeal regarding th e application of Article III:4 of the GATT 1994 
to the bond requirement, China submits that less fa vourable treatment in the sense of Article III:4 is 
judged by reference to modification of the conditions  of competition.  The term "no less favourable" 
is unqualified and is thus not subject to a  de minimis   exception;  any less favourable treatment is 
inconsistent with Article III:4.  China also notes that  formal equality of treatment is not sufficient to 
show equally favourable treatment if  it is demonstrated that, in pr actice, less favour able treatment 
results.     
                                                      
38China's third participant' s submission, para. 6.   WT/DS302/AB/R 
 Page 19 
 
 
2. European Communities  
(a) The necessity analysis under Article XX(d) of the GATT 1994 in 
relation to the tax stamp requirement 
51. The European Communities considers that the Pa nel was correct to find that the tax stamp 
requirement was not justified by the provisions of Article XX(d) of the GATT 1994.  The European Communities submits that the Panel properly applie d the test outlined by the Appellate Body in 
Korea – Various Measures on Beef for determining whether a measure is "necessary" in terms of 
Article XX(d).  The European Communities argues that the Panel correctly took into account the 
importance of the common interest served by the tax stamp requirement and the contribution of the tax stamp requirement to the objective pursued.  The European Communities questions the Panel's 
assumption that the measure in question had no "intense restrictive effects on trade"
39;  however, 
given that the Panel properly weighe d the other relevant considerations —in particular the existence of 
alternative measures—the European  Communities considers that this assumption did not affect the 
Panel's ultimate conclusion.  The European Commun ities agrees with the finding of the Panel that 
less-trade restrictive alternatives to the tax stam p requirement were available to the Dominican 
Republic.  The European Communities notes that the sale of tax stamps abroad is a commonly used 
practice.  It submits that the risk of forgery is minimal and that implementation of this measure would 
not raise implementation difficulties.  Furthermore, such a measure would inevitably be less-trade restrictive.  Accordingly, the European Commun ities maintains that the Panel did not err in its 
analysis of the tax stamp requirement  under Article XX(d) of the GATT 1994. 
(b) Article III:4 of the GATT 1994 and the bond requirement 
52. The European Communities also su bmits that the Panel was correct  in finding that the fees 
incurred as a result of the bond requirement did not r esult in "less favourable treatment" for importers 
in the sense of Article III:4 of the GATT 1994.  The European Communities notes that the fixed 
amount of the bond accords formally equal treatment  to importers and domestic producers.  The 
question whether it nevertheless results in  de facto   discrimination requires an analysis of the facts of 
the case to determine whether the measure alters  the conditions of competition.  The European 
Communities recalls that the Panel noted that the co sts entailed by the bond requirement were so low 
as to be unlikely to adversely affect the conditions of competition prevailing in the marketplace.  As a 
matter of principle, the European Communities agre es with this analysis;  conditions of competition 
are not affected by a marginal, negligible differen ce in costs.  The European Communities also points 
to the principle elaborated in paragraph 1 of Artic le III, which indicates that internal measures should 
                                                     
 
39European Communities' third participant's submission, para. 22 (quoting Panel Report, para. 7.215).    WT/DS302/AB/R 
Page 20  
 
not be applied so as to afford protection to dom estic production.  A measure with formally equal 
treatment and minimal or negligible practical conse quences is unlikely to be applied so as to afford 
protection.   
(c) Article 11 of the DSU and the Panel's consideration of the bond 
requirement "as such" 
53. The European Communities submits that the Panel made an objective assessment of 
Honduras' claims regarding the bond requirement, cons istent with the requirements of Article 11 of 
the DSU.  According to the European Communities, the matter before the Panel was defined, in the 
first place, by Honduras' request for the establishment of the Panel.  Honduras' panel request referred 
not only to the legislation establishing the bond requi rement, but also to "practices" under the bond 
requirement.  Accordingly, it was appropriate for th e Panel to consider such practices in addressing 
Honduras' claims against the bond requirement.  Th e European Communities t hus disagrees with the 
position of Honduras regarding the import of  India – Patents (US) .  Contrary to the position of 
Honduras,  India  – Patents (US) , in which the panel reviewed practices as well as the underlying 
legislation, would tend to confirm the approach of th e Panel in this case.  Indeed, it is consistent with 
the object and purpose of the DSU for a panel to take into account all relevant elements for its determinations regarding the matter before it.   
3. United States
 
(a) The necessity analysis under Article XX(d) of the GATT 1994 in 
relation to the tax stamp requirement 
54. The United States argues that the Panel's interpretation of the term "necessary" in 
Article XX(d) adds to and diminishes WTO Memb ers' rights and obligations under the GATT 1994.  
The United States raises three concerns with the Pa nel's interpretation.  First, the United States 
considers incorrect the notion that Article XX(d) requires a Member to select a less GATT-
inconsistent alternative where no GATT- consistent alternative is availabl e.  There is nothing to justify 
use of a concept of degrees of inconsistency in th e application of Article XX(d).  Moreover, such a 
concept would be difficult to administer and is logically incoherent.  In this case, the Panel 
characterizes as "less GATT-inconsistent" possibl e alternative measures that are "less trade-
restrictive".40  In so doing, the Panel impermissibly impor ts into Article XX(d) a requirement that a 
Member use a less-trade restrictiv e measure, if one is available.  There is no basis in the GATT 1994 
for doing so.  Secondly, the United States submits  that the Panel has distorted the meaning of 
"necessary" in Article XX(d) by equating it with "s ufficient", implying that a measure that does not 
                                                      
40United States' third participant's submission, para. 7.  WT/DS302/AB/R 
 Page 21 
 
 
succeed in securing compliance with  a Member's desired level of protection is not "necessary".  
Thirdly, the United States argues that a measure th at would involve continuation of a risk that a 
Member seeks to avoid cannot be a reasonably ava ilable alternative to an impugned measure.  The 
United States emphasizes the right of Members to de termine their own desired level of protection.   
(b) Article III:4 of the GATT 1994 and the bond requirement 
55. The United States also suggests that, in its appeal  regarding the application of Article III:4 of 
the GATT 1994 to the bond requirement, Honduras mischaracterizes the standard for finding 
"treatment no less favourable" under Article III:4.  The United States submits that the Panel properly 
articulated the relevant test as one based on the conditions of competition prevailing in the market, 
and correctly found that the differences in the pe r-unit costs of the bond were not in themselves 
sufficient to demonstrate that importers received l ess favourable treatment.  In addition, according to 
the United States, throughout its appeal, Honduras alleges that the Panel improperly applied 
Article III:4 because it took into account the market pe rformance of importers in the past years as the 
decisive element, rather than the bond itself.  However, although Honduras criticizes the Panel for 
examining the market performance of importers, acc ording to the United States, it is Honduras that 
improperly seeks a finding of less favourable treatment on this basis.  
III. Issues Raised in this Appeal 
56. The following issues are ra ised in this appeal: 
(a) whether the Panel erred in finding that th e tax stamp requirement is not justified 
under Article XX(d) of the GATT 1994, based on its interpretation and application of 
the term "necessary" in that provision;   
(b) whether the Panel failed to make an objective assessment of the facts of the case, as 
required by Article 11 of the DSU, in its examination of Exhibits DR-8 and DR-29; 
(c) whether the Panel erred in finding that Honduras failed to establish that the bond 
requirement accords less favourable treatme nt to imported cigarettes than that 
accorded to like domestic products, in a manne r inconsistent with Article III:4 of the 
GATT 1994; 
(d) whether the Panel failed to make an objec tive assessment of the matter before it, as 
required by Article 11 of the DSU, in its c onsideration of Honduras' claim against the 
bond requirement "as such";  and, WT/DS302/AB/R 
Page 22  
 
(e) whether the Panel erred in finding that H onduras' contentions regarding the timing of 
payment of the Selective Consumption Tax represented a separate claim outside the 
Panel's terms of reference. 
IV. The Necessity Analysis under Article XX(d) of the GATT 1994 in relation to the Tax 
Stamp Requirement 
57. The Dominican Republic requires that tax stamps  be affixed to cigarette packets in the 
territory of the Dominican Republic under the supe rvision of the Dominican Republic's tax authorities 
(the "tax stamp requirement").  The Panel found that  the tax stamp requirement is inconsistent with 
the national treatment obligation set out in Article III:4 of the GATT 1994.
41  According to the Panel, 
although the tax stamp requirement is applied in a formally equal manner to  domestic and imported 
cigarettes, it modifies the conditions of competition in the marketplace to the detriment of imports.  
The Panel found that the tax stamp requirement resu lts in additional processes and costs for imported 
products, and leads to imported cigarettes being pr esented to final consumers in a less appealing 
manner.  Having found that the tax stamp requireme nt was inconsistent with Article III:4 of the 
GATT 1994, the Panel then examined the Dominica n Republic's argument, under Article XX(d) of 
the GATT 1994, that the tax stamp requirement is ne cessary to secure compliance with the Dominican 
Republic tax laws and regulations, to fight tax evasi on, and to prevent smuggling of cigarettes.  The 
Panel concluded that the Dominican Republic had faile d to establish that the tax stamp requirement is 
justified under Article XX(d) of the GATT 1994.42 
58. On appeal, the Dominican Republic limits its challenge to the Panel's finding that the tax 
stamp requirement is not justif ied under Article XX(d) of the GATT 1994.  The Dominican Republic 
does not appeal the Panel's finding that the tax stam p requirement is inconsistent with the national 
treatment obligation set out in Article III:4 of th e GATT 1994.  Therefore, we need not express any 
view on the finding under Article III:4.   
59. In considering the Dominican Republic's argume nt under Article XX(d), the Panel began its 
analysis by assuming that the tax laws and regu lations to be enforced through the tax stamp 
requirement are not inconsistent with the provisi ons of the GATT 1994.  The Panel then examined 
whether the tax stamp requirement is "necessary" to secure compliance with those laws and 
regulations.  The Panel acknowledged that "the co llection of tax revenue (and, conversely, the 
prevention of tax evasion) is a most import ant interest" for the Dominican Republic.43  The Panel also 
                                                      
41Panel Report, paras. 7.198 and 8.1(e).  
42Ibid., paras. 7.232, 7.233 and 8.1(e).  
43Ibid., para. 7.215.  WT/DS302/AB/R 
 Page 23 
 
 
said that "the measure has not had any intense restrictive effects on trade".44  The Panel found, 
however, no supporting evidence "that there is a causal  link between allowing stamps to be affixed 
abroad and the forgery of tax stamps."45  According to the Panel, the requirement of affixing tax 
stamps in the Dominican Republic and under the su pervision of the Dominican Republic authorities 
"would only serve to guarantee that those tobacco produc ts that enter legally into the country and go 
through the proper customs procedures will carry authen tic tax stamps as a proof that the appropriate 
tax has been paid."46  The Panel added that the tax stamp re quirement, "in and of itself, would not 
prevent the forgery of tax stamps, nor smuggling and tax evasion."47  In the opinion of the Panel, the 
Dominican Republic did not discharge its duty to prove why other reasonably available GATT-
consistent or less GATT-inconsistent measures would not be able to achieve the level of enforcement 
with regard to tax collection a nd cigarette smuggling that the Dominican Republic sought to attain 
with the tax stamp requirement.48  For the Panel, a reasonably available alternative to the tax stamp 
requirement would be to provide secure  tax stamps to foreign exporters.49  In this light, the Panel 
concluded that the tax stamp requirement is not "necessary" to secure compliance with the Dominican 
Republic's tax laws and regulations.  Accordingly, the Panel found that the tax stamp requirement is 
not justified under Article XX(d) of the GATT 1994.50  
60. The Dominican Republic claims that the Panel erred in interpreting and applying the term 
"necessary" in Article XX(d) of the GATT 1994.  The Dominican Republic relies mainly on the 
Appellate Body Report in  Korea – Various Measures on Beef , contending that, determining whether 
a measure is "necessary" under Article XX(d), invol ves in every case a process of weighing and 
balancing a series of factors.51  According to the Dominican Republic, a panel must weigh and 
balance the following four factors as part of the necessity analysis:  (1) the trade impact of the 
measure;  (2) the importance of the interests protect ed by the measure;  (3) the contribution of the 
measure to the end pursued;  and (4) the existence of alternative measures that a Member could 
reasonably be expected to employ.52  Thus, "the Panel improperly in terpreted and applied the term 
                                                      
44Panel Report, para. 7.215. 
45Ibid., para. 7.226. 
46Ibid. 
47Ibid. 
48Ibid., para. 7.228. 
49Thus, tax stamps would be affixed on cigarette packets in the course of the foreign manufacturer's 
production process and prior to importation into the Dominican Republic. 
50Given its conclusion that the tax stamp requirement is not "necessary" under Article XX(d), the Panel 
considered that it did not need to analyze consiste ncy of the measure with th e chapeau of Article XX. 
51Dominican Republic's appellant's submission, para. 30 (referring to Appellate Body Report, Korea – 
Various Measures on Beef , para. 164). 
52Ibid., para. 31. WT/DS302/AB/R 
Page 24  
 
'necessary' because it failed to exam ine fully all the factors relevant to determining whether a measure 
is 'necessary' under Article XX(d), including weighing and balancing them, as required by 
Article XX(d)."
53  The Dominican Republic adds that a prope r weighing and balancing of the relevant 
factors leads to the conclusion that the tax stamp requirement is "necessary" within the meaning of 
Article XX(d) of the GATT 1994.  In particular, the  Dominican Republic contends that affixation of 
tax stamps in the presence of a tax inspector cont ributes more to the prevention of tax evasion than 
affixation abroad, without the presence of a tax in spector.  The Dominican Republic underlines that 
affixing the stamp abroad would make it possible for cigarettes smuggled into the Dominican Republic to be sold as stamped, while evading im port taxes.  This would be prevented by the 
requirement to affix stamps in the Dominican Re public in the presence of a tax inspector, unless the 
stamp is forged.  Thus, for the Dominican Repub lic, the tax stamp requirement not only seeks to 
ensure the authenticity of tax stamps, but also "contributes importantly to reducing the volume of 
smuggled cigarettes and increasing the volume of cigarettes bearing 'authentic tax stamps'."
54   
61. Regarding the question of the existence of alternative measures that a Member could 
reasonably be expected to employ in place of  the GATT-inconsistent measure, the Dominican 
Republic submits that the Panel erred in concluding that an a lternative measure is reasonably 
available.  According to the Dominican Republic , the alternative identified by the Panel—providing 
secure tax stamps to foreign exporters—is not a reasonably available alternative because it would 
increase the risk of smuggling and tax evasion, as  compared with the tax stamp requirement, and, 
therefore, would be less likely to secure the goals pursued by the tax stamp requirement.  
62. For Honduras, the Dominican Republic's contentio n that the Panel did not properly weigh and 
balance the relevant factors in its analysis under Article XX(d) should be rejected.  Honduras 
maintains that "the Panel properly set out and applie d the appropriate factors in its assessment of the 
measure under Article XX(d)."55  Honduras adds that "the  Panel did examine the relevant factors in its 
assessment of whether there were less trade rest rictive alternative measures that the Dominican 
Republic could have employed."56 
                                                      
53Dominican Republic's appellant's submission, para. 30. 
54Ibid., para. 45. 
55Honduras' appellee's submission, para. 37.   
56Ibid., para. 65.  WT/DS302/AB/R 
 Page 25 
 
 
63. At the oral hearing, Honduras drew attenti on to the fact that, on 25 October 2004, the 
Dominican Republic enacted a new decree modifying the tax stamp requirement to allow tax stamps 
to be affixed abroad at the time of production.57  The Dominican Republic confirmed that it had 
enacted the new decree.  Honduras stated that, pursu ant to this new measure, it had recently exported 
to the Dominican Republic a shipment of cigarettes with stamps attached at the factory.  Honduras 
expressed surprise that, in these circ umstances, the Dominican Republic continues to maintain that the 
only measure reasonably available to it is affixa tion of tax stamps within the Dominican Republic, 
under the supervision of the tax authorities.  Both participants nevertheless requested the Appellate 
Body to rule on whether the original measure is justified under Article XX(d) of the GATT 1994. 
64. We begin our consideration of Article XX(d) by  noting that the analysis of a measure under 
Article XX is two-tiered: 
In order that the justifying protec tion of Article XX may be extended 
to it, the measure at issue must not only come under one or another of 
the particular exceptions - para graphs (a) to (j) - listed under 
Article XX;  it must also satisfy the requirements imposed by the opening clauses of Article XX.  The analysis is, in other words, two-tiered:  first, provisional justification by reason of characterization of the measure under XX(g);  second, further appraisal of the same 
measure under the introductory clauses of Article XX.
58 
65. In  Korea – Various Measures on Beef , the Appellate Body explained the analysis to be 
undertaken in considering the justification of  a measure under paragraph (d) of Article XX: 
For a measure ... to be justified pr ovisionally under pa ragraph (d) of 
Article XX, two elements must be s hown.  First, the measure must be 
one designed to "secure compliance" with laws or regulations that are 
not themselves inconsistent with some provision of the GATT 1994.  Second, the measure must be "necessary" to secure such compliance.
59  
66. The Appellate Body also explained that determ ining whether a measure is "necessary" within 
the meaning of Article XX(d): 
                                                      
57The new decree was enacted after th e issuance of the Panel Report to the parties on 20 October 2004.  
We also referred to the enactment of the new decree in paragraph 14 of this Report. 
58Appellate Body Report, US – Gasoline , p. 22, DSR 1996:I, 3, at 20. 
59Appellate Body Report, Korea – Various Measures on Beef , para. 157.  WT/DS302/AB/R 
Page 26  
 
... involves in every case a process of weighing and balancing a series of factors which prominently include the contribution made by the compliance measure to the enforcement of the law or regulation at issue, the importance of the common interests or values protected by that law or regulation, and the accompanying impact of the law or 
regulation on imports or exports.
60  
67. The Appellate Body also referre d to the GATT panel report in  US – Section 337 , in particular 
to the statement that a Member's inconsistent measure cannot be deemed to be necessary "if an 
alternative measure which it could reasonably be expected to employ  and which is not inconsistent 
with other GATT provisions is available to it."61 
68. In  EC – Asbestos , the Appellate Body considered whet her the measure challenged in those 
proceedings was "necessary" to protect public hea lth within the meaning of Article XX(b) of the 
GATT 1994.  The Appellate Body stated that "i n determining whether a suggested alternative 
measure is 'reasonably available', several factors mu st be taken into account, besides the difficulty of 
implementation." 62  Relying on its Report in  Korea – Various Measures on Beef ,  the Appellate Body 
reiterated, in the context of Article XX(b), that "one aspect of the 'weighing and balancing process … 
comprehended in the determination of whether a WT O-consistent alternative measure' is reasonably 
available is the extent to which the alternative measure 'contributes to the realization of the end 
pursued'."63  Another factor to be taken into account in determining whether an alternative measure is 
reasonably available is the importance of  the interests or values pursued:  " '[t]he more vital or 
important [the] common interests or values' pursued, the easier it would be to accept as 'necessary' 
measures designed to achieve those ends." 64   
69. In US – Gambling, the Appellate Body considered the "necessity" test in the context of 
Article XIV of the General Agreement on Trade in Services.   The Appellate Body confirmed that an 
assessment of the "necessity" of a measure involv es a weighing and balancing of "the 'relative 
importance' of the interests or values furthered by  the challenged measure", along with other factors, 
which will usually include "the contribution of the measu re to the realization of the ends pursued by it  
                                                      
60Appellate Body Report, Korea – Various Measures on Beef , para. 164.  
61Ibid., para. 165 (quoting GATT Panel Report, US – Section 337 , para. 5.26). 
62Appellate Body Report, EC – Asbestos , para. 170. 
63Ibid.,. para. 172 (quoting Appellate Body Report, Korea – Various Measures on Beef , paras. 166 
and 163). 
64Ibid., para. 172 (quoting Appellate Body Report, Korea – Various Measures on Beef , para. 162).  WT/DS302/AB/R 
 Page 27 
 
 
[and] the restrictive impact of th e measure on international commerce."65   The Appellate Body went 
on to explain that: 
A comparison between the challenged measure and possible 
alternatives should then be undertaken, and the results of such 
comparison should be considered in the light of the importance of the 
interests at issue.  It is on the basis of this "weighing and balancing" and comparison of measures, taking into account the interests or values at stake, that a panel determines whether a measure is "necessary" or, alternatively, whether another, WTO-consistent 
measure is "reasonably available".
66 
70. The Appellate Body Reports in  Korea – Various Measures on Beef ,  EC – Asbestos   and  
US – Gambling   indicate that, in the assessment of whethe r a proposed alternative to the impugned 
measure is reasonably available, factors such as the trade impact of the measure, the importance of the 
interests protected by the measure, or the contribut ion of the measure to the realization of the end 
pursued, should be taken into account in the analys is.  The weighing and balancing process of these 
three factors also informs the determination whethe r a WTO-consistent alternative measure which the 
Member concerned could reasonably be expected to  employ is available, or whether a less WTO-
inconsistent measure is reasonabl y available.  Furthermore, in US – Gambling ,  the Appellate Body 
indicated: 
An alternative measure may be  found not to be "reasonably 
available", however, where it is merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties.  Moreover, a 
"reasonably available" alternative measure must be a measure that 
would preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued ... .
67   
71. In assessing whether a WTO-consistent measure was reasonably available, the Panel in the 
present case discussed the factors identified by the A ppellate Body in previous appeals, namely, the 
importance of the interests protected by the tax stamp requirement, its trade impact and its contribution to the realization of the end pursued.  As regards the first factor, "the Panel [did] not 
disagree with the Dominican Republic's argument that tax stamps may be a useful instrument to 
monitor tax collection on cigarettes and, conversely, to avoid tax evasion."
68  The Panel also 
recognized that "the collection of tax revenue (and,  conversely, the prevention of tax evasion) is a 
                                                      
65Appellate Body Report,  US - Gambling , para. 306. 
66Ibid., para. 307. 
67Ibid., para. 308. 
68Panel Report, para. 7.217. WT/DS302/AB/R 
Page 28  
 
most important interest for any country and particularly for a developing country such as the 
Dominican Republic."
69  With respect to the trade impact of the measure, the Panel noted that the tax 
stamp requirement did not prevent Honduras from e xporting cigarettes to the Dominican Republic and 
that its exports had increased significantly over recent years.70  Accordingly, the Panel assumed "that 
the measure has not had any inten se restrictive effects on trade."71  As far as the third factor is 
concerned, the Panel noted the Dominican Republic's  claim that "the tax st amp requirement secures 
compliance with its tax laws and regulations gene rally, and more specifically with the provisions 
governing the Selective Consumption Tax."72  The Panel, however, was of the view that the tax stamp 
requirement was of limited effectiveness in pr eventing tax evasion and cigarette smuggling.  
According to the Panel, requiring that tax stamps  be affixed in the Dominican Republic under the 
supervision of the tax authorities "in and of itself,  would not prevent the forgery of tax stamps, nor 
smuggling and tax evasion."73  In this respect, the Panel indicated that other factors, such as security 
features incorporated into the tax stamps, or poli ce controls on roads and at different commercial 
levels, would play a more important role in preventing forgery of tax stamps, tax evasion and 
smuggling of tobacco products.74  Having considered the importance of the interests protected by the 
tax stamp requirement, its trade impact, and its cont ribution to the realization of the end pursued, we 
are of the view that the Panel conducted an appropri ate analysis, following the approach set out in the 
Appellate Body Reports in  Korea – Various Measures on Beef   and in  EC – Asbestos , and affirmed 
in  US - Gambling .  We see no error in the approach taken by th e Panel or in the results of its analysis.  
We note that, in this particular case, the Panel's conclusion concerning the contribution of the measure 
to the realization of the end pursued is based on fi ndings of fact (limited effectiveness of the tax stamp 
requirement in preventing forgery, smuggling and ta x evasion;  greater effectiveness and efficiency of 
measures such as security features incorporated into the tax stamps or police controls) that have not 
been challenged under Article 11 of the DSU and, ther efore, fall outside the scope of appellate review. 
72. Having assessed the importance of the interests protected by the tax stamp requirement, its 
trade impact, and its contribution to the realizati on of the end pursued, the Panel also considered 
whether a WTO-consistent alternative measure is reasonably available to secure compliance with the 
Dominican Republic's tax laws and re gulations appropriate to the leve l of enforcement pursued by the 
Dominican Republic.  In the light of its analysis of the relevant factors, especially the measure's 
contribution to the realization of the end pursued, the Panel opined that the alternative of providing 
                                                      
69Panel Report, para. 7.215. 
70Ibid. 
71Ibid. 
72Ibid., para. 7.210. 
73Ibid., para. 7.226. 
74Ibid.   WT/DS302/AB/R 
 Page 29 
 
 
secure tax stamps to foreign exporters, so that tho se tax stamps could be affixed on cigarette packets 
in the course of their own production process, prior to importation, would be equivalent to the tax 
stamp requirement in terms of allowing the Domi nican Republic to secure the high level of 
enforcement it pursues with regard to tax coll ection and the prevention of cigarette smuggling.75  The 
Panel gave substantial weight to its finding that th e tax stamp requirement is of limited effectiveness 
in preventing tax evasion and cigarette smuggling;  in  particular, it found "no evidence to conclude 
that the tax stamp requirement secures a zero tolerance level of enforcement with regard to tax 
collection and the prevention of cigarette smuggling."76  We consider that the Panel conducted an 
appropriate analysis, following the approach set out in  Korea – Various Measures on Beef   and in  
EC – Asbestos , and affirmed in  US - Gambling .  We see no reason to disturb the Panel's conclusions 
in respect of the existence of a reasonably availabl e alternative measure to the tax stamp requirement.  
73. In the light of these considerations, we  uphold   the Panel's finding, in paragraphs 7.232, 
7.233 and 8.1(e) of the Panel Report, that the ta x stamp requirement is not "necessary" within the 
meaning of Article XX(d) of the GATT 1994 and, th erefore, is not justified under Article XX(d) of 
the GATT 1994.  
74. The Dominican Republic requests us to complete  the legal analysis under Article XX of the 
GATT 1994 should we find that the Panel misinterpreted or misapplied the term "necessary" in Article XX(d) of the GATT 1994.  As we agree with the Panel's interpretation of the term "necessary" 
and we uphold the Panel's finding that the tax st amp requirement is not "necessary" within the 
meaning of Article XX(d) of the GATT 1994, th e contingency on which the Dominican Republic's 
request is based does not arise and, therefore, there is no need for us to complete the legal analysis 
under Article XX of the GATT 1994. 
V. The Conformity of the Examination of Exhibits DR-8 and DR-29 with Article 11 of the 
DSU 
75. We turn next to consider the Dominican Republic 's claim on appeal that the Panel erred in its 
appreciation of the evidence in Exhibits DR-8 and DR-29, such that it failed to make an objective 
assessment of the facts as required by Article 11 of  the DSU.  According to the Dominican Republic, 
this evidence relates to "tax evasion, smuggling, and forgery of tax stamps with respect to alcohol 
products".
77  The Dominican Republic sought to demonstr ate, through Exhibits DR-8 and DR-29, 
                                                      
75Panel Report, para. 7.228. 
76Ibid., para. 7.229. 
77Dominican Republic's appellant's submission, para. 79.  WT/DS302/AB/R 
Page 30  
 
"that, in the case of alcohol, a product in respect of which tax stamps can be affixed abroad:  (a) there 
is smuggling into the territory of the Domini can Republic;  and (b) tax stamps are forged."
 78 
76. Article 11 of the DSU requires that a panel,  inter alia : 
... make an objective assessment of th e matter before it, including an 
objective assessment of the facts of  the case and the applicability of 
and conformity with the relevant covered agreements, and make such 
other findings as will assist the DSB in making the recommendations 
or in giving the rulings provided for in the covered agreements.   
77. In EC – Hormones ,  the first appeal presenting an Article 11 challenge to a Panel's fact-
finding79, the Appellate Body identified the "duty to ma ke an objective assessment of the facts [as], 
among other things, an obligation to consider the evidence presented to a panel and to make factual 
findings on the basis of that evidence."80  The Appellate Body also observed in that appeal that the: 
[d]etermination of the credibility and weight properly to be ascribed 
to (that is, the appreciation of) a given piece of evidence is part and parcel of the fact finding process and is, in principle, left to the 
discretion of a panel as the trier of facts.
 81 
78. The Appellate Body has consistently emphasized, since  EC – Hormones ,  that, within the 
bounds of their obligation under Article 11 to make an objective assessment of  the facts of the case, 
panels enjoy a "margin of discretion" as triers of fact. 82  Panels are thus "not required to accord to  
                                                      
78Dominican Republic's appellant's submission, para. 79.  
79Prior to  EC – Hormones , an Article 11 claim was raised on appeal in  US – Wool Shirts and Blouses , 
but that claim dealt solely with "whether Article 11 of the DSU  entitles a complaining party to a finding on each 
of the legal claims it makes to a panel". (Appellate Body Report, US – Wool Shirts and Blouses , p. 17, 
DSR 1997:I, 323, at 338)  As such, the claim did not ch allenge the panel's "assessment of the facts of the case".  
In addition, in  Canada – Periodicals , the appellant raised Article 11 when challenging the panel's reliance on a 
"hypothetical example" to make a determination of "like products" under Article III:2 of the GATT 1994. 
(Appellate Body Report,  Canada – Periodicals , p. 5, DSR 1997:I, 449, at 452)  The Appellate Body, however, 
made no ruling as to the panel's compliance with Article 11. ( Ibid., pp. 20-23, DSR 1997:I, 449, at 465-468) 
80Appellate Body Report, EC – Hormones , para. 133. 
81Ibid., para. 132.   
82Appellate Body Report, EC – Asbestos , para. 161.  See also, for example, Appellate Body Report, EC – 
Tube or Pipe Fittings , para. 125;  Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, 
and 181;  Appellate Body Report, EC – Sardines , para. 299;  Appellate Body Report, Korea – Alcoholic 
Beverages , paras. 161-162;  Appellate Body Report, Japan – Agricultural Products II , paras. 141-142;  Appellate 
Body Report, US – Wheat Gluten , para. 151;  Appellate Body Report, Australia – Salmon , para. 266;  and 
Appellate Body Report, Korea – Dairy , para. 138.    WT/DS302/AB/R 
 Page 31 
 
 
factual evidence of the parties the same meaning and weight as do the parties" 83 and may properly 
"determine that certain elements of evidence shoul d be accorded more weight than other elements".84 
79. Consistent with this margin of discretion, th e Appellate Body has recognized that "not every 
error in the appreciation of the evidence (although it may give rise to a question of law) may be characterized as a failure to make an  objective assessment of the facts."
 85  When considering claims 
under Article 11 of the DSU, the Appellate Body  does not "second-guess the Panel in appreciating 
either the evidentiary value of … studies or the c onsequences, if any, of alleged defects in [the 
evidence]".86  Indeed: 
[i]n assessing the panel's appreci ation of the evidence, we cannot 
base a finding of inconsistency under Article 11 simply on the conclusion that we might have r eached a different factual finding 
from the one the panel reached.  Rather, we must be satisfied that the 
panel has exceeded the bounds of its discretion, as the trier of facts, 
in its appreciation of the evidence.
 87 
Where participants challenging a panel's fact-finding  under Article 11 have fail ed to establish that a 
panel exceeded the bounds of its discretion as the trier of facts, the Appellate Body has not interfered 
with the findings of the panel.88 
80. The Dominican Republic alleges that the Panel erred in its appreciation of Exhibits DR-8 
and DR-29 because:  (1) the Panel "misread"89 a letter from the  Direccíon General de Impuestos 
Internos   ("DGII") dated 6 April 2004 ("Memo DAT-No. 46", included in Exhibit DR-8)90, confusing 
the stamps of half a cent (discontinued) and the curre nt stamps of RD$0.50 in attributing to the half a 
cent stamps the reasons why the RD$0.50 stamps are forged;  (2) the Panel "misunderstood the  
                                                      
83Appellate Body Report, Australia – Salmon , para. 267. 
84Appellate Body Report, EC – Asbestos , para. 161. 
85Appellate Body Report, EC – Hormones , para. 133. 
86Appellate Body Report, EC – Asbestos , para. 177 (quoting  Appellate Body Report, Korea – Alcoholic 
Beverages , para. 161).  
87Ibid., para. 159 (quoting Appellate Body Report, US – Wheat Gluten , para. 151). 
88See, for example, Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 170;  
Appellate Body Report, US – Carbon Steel , para. 142 (quoting Appellate Body Report, US – Wheat Gluten , 
para. 151). 
89Dominican Republic's appellant's submission, para. 83.  See also  ibid., paras. 84-85. 
90Apart from Memo DAT-No. 46, Exhibit DR-8 submitted by the Dominican Republic to the Panel 
comprises a compilation of documents providing information on a batch of alcoholic beverages seized in a 
commercial establishment in July 2001.   WT/DS302/AB/R 
Page 32  
 
proposition for which Exhibit DR-8 was offered"
91;  (3) the Panel "disregarded"92 the evidence in 
Exhibit DR-2993;  and (4) the Panel erred in concluding  "that Exhibits DR-8 and DR-29 do not 
establish a causal link between allowing stamps to  be affixed abroad and forgery of tax stamps."94 
81. As regards the first allegation of the Domini can Republic (misreading Memo DAT-No. 46), 
we do not see in the Panel's treatment of Memo DAT-No. 46 any error that would amount to a violation of Article 11 of the DSU.  The Panel did not give "conclusive"
95 weight to Memo  
DAT-No. 46 in considering whether forgery of tax st amps is possible, justifying its position on two 
bases:  first, Memo DAT-No. 46 does not definitely establish that the tax stamps referred to therein 
were forged, as, in that letter, "the Department of Alcohol and Tobacco of the DGII explicitly states 
that only the National Treasury would be in a posi tion to confirm whether a set of stamps were 
forged"96;  secondly, the seizure documented in Exhibit DR-8 occurred in the year 2001, whereas, in 
Memo DAT-No. 46, "the doubts expressed about the stamps refer to the format of stamps since 
2002."97  In our view, the approach followed by the Panel and its decision not to give "conclusive" 
weight to Memo DAT-No. 46 fall within its margin  of discretion as the trier of facts and are, 
therefore, consistent with the obligations of panels  set out in Article 11 of the DSU.  We acknowledge 
that the Panel, in its description of Memo DAT-No. 46, appears to have confused the stamps of half a 
cent (discontinued) and the current stamps of RD$0. 50, in attributing to the half cent stamps details 
suggesting forgery of the RD$0.50 stamps.  However, th is did not play a role in the reasoning that led 
the Panel not to give conclusive weight to Memo DA T-No. 46.  Accordingly, we are of the view that 
the Panel did not commit an error in the appreciati on of the evidence that "may be characterized as a 
failure to make an objective assessment of the facts."98 
82. The Dominican Republic also submits that  the Panel "misunderstood the proposition for 
which Exhibit DR-8 was offered99, because "[t]he Panel ... incorr ectly focused on the relationship 
between smuggling and forgery"100, whereas "Exhibit DR-8 was offered as evidence of (a) smuggling  
                                                      
91Dominican Republic's appellant's submission, para. 87. 
92Ibid., para. 89. 
93Exhibit DR-29 submitted by the Dominican Republic to the Panel contains information on a batch of 
garlic and alcoholic beverages seized in March 2002. 
94Dominican Republic's appellant's submission, para. 91. 
95Panel Report, para. 7.223. 
96Ibid. 
97Ibid. 
98Appellate Body Report, EC – Hormones , para. 133. 
99Dominican Republic's appellant's submission, para. 87. 
100Ibid., para. 88.  WT/DS302/AB/R 
 Page 33 
 
 
and, separately, (b) forgery of tax stamps of a product in respect of which the Dominican Republic 
allows stamps to be affixed outside its territory."101  In our view, the Panel did not act in a manner 
inconsistent with Article 11 of the DSU in not fi nding that Memo DAT-No. 46 "adds any conclusive 
elements as relate to the relationship between th e seizure of alcoholic beverages and the possible 
forgery of tax stamps".102  A panel does not act in a manner inc onsistent with Article 11 of the DSU 
simply because it draws inferences from some of the evidence that do not coincide with the reason for 
which a party adduced it.103 
83. Thirdly, the Dominican Republic contends that, "[w]ith respect to Exhibit DR-29, the Panel 
simply disregarded the evidence therein"104, but offers no reason in support of this assertion.  We have 
no reason to conclude that the Panel did not examine Exhibit DR-29.  On the contrary, the Panel noted 
that Exhibit DR-29 "contain[s] information on a ba tch of garlic and alcoholic beverages seized in 
March 2002"105, which suggests that the Panel did consid er the evidence therei n.  The Dominican 
Republic may object to the fact that the Panel did not ascribe as much weight to Exhibit DR-29 as the 
Dominican Republic would have wished, but this ca nnot be characterized as a failure to make an 
objective assessment of the facts as required by Article 11 of the DSU.  As to the Dominican 
Republic's assertion that the Panel re ferred to Exhibit DR-29 in the context of a statement it made on 
the forgery of tax stamps, whereas Exhibit DR-29 was to serve the purpose of demonstrating that alcoholic beverages are being smuggl ed, we observe that a panel does not act in a manner inconsistent 
with Article 11 of the DSU if it draws inferences fro m some of the evidence that do not coincide with 
the reason for which a party adduced it. 
84. The Dominican Republic disagrees with the Pane l's position that Exhibits DR-8 and DR-29 
do not establish a causal link between allowing stamps to be affixed abroad and forgery of tax stamps.  It contends that such a causal link exists, basing its contention on an inference it draws from evidence 
of smuggling and forgery of tax stamps with respect to alcohol products.
106  However, a mere 
divergence of views between a party and a panel on the inferences to be drawn from pieces of 
evidence is not a sufficient ground to conclude that the Panel failed to "make ... an objective 
assessment of the facts of the case".  The Dominican  Republic has not explained why the divergence  
                                                      
101Dominican Republic's appellant's submission, para. 88. 
102Panel Report, para. 7.223. 
103Appellate Body Report, Australia – Salmon , para. 267. 
104Dominican Republic's appellant's submission, para. 89. 
105Panel Report, para. 7.224. 
106The Dominican Republic made this clarification in response to our questioning at the oral hearing.  
According to the Dominican Republic, Exhibits DR-8 and DR-29 relate to "tax evasion, smuggling, and forgery 
of tax stamps with respect to alcohol products". (Dominican Republic's appellant's submission, para. 79) WT/DS302/AB/R 
Page 34  
 
of views between it and the Panel on the inferenc es to be drawn from Exhibits DR-8 and DR-29 
would amount to a failure to "make ... an objective ass essment of the facts of the case".  Therefore, we 
are of the opinion that the Panel did not act in a ma nner inconsistent with Article 11 of the DSU in 
stating that it "finds no supporting evidence in Exhi bits DR-8 and DR-29 to the Dominican Republic's 
assertion that there is a causal link between allowing stamps to be affixed abroad and the forgery of 
tax stamps."
107 
85. In sum, we conclude that the Panel did not fa il to comply with the obligations set out in 
Article 11 of the DSU in respect of Exhibits DR-8 and DR-29.  Accordingly, we  find  that the Panel 
did not fail to make an objective assessment of the facts of the case, as required by Article 11 of the 
DSU, in its appreciation of the evidence in Exhibits DR-8 and DR-29.  
VI. Article III:4 of the GATT 1994 and the Bond Requirement 
86. We now move to consider Honduras' appeal rega rding the application of Article III:4 of the 
GATT 1994 to the requirement, imposed by the Domi nican Republic, that importers and domestic 
producers of cigarettes post a bond to ensure payment of taxes (the "bond requirement").  The Panel 
found that "the bond requirement is applied in an  equal manner, both formally and in practice, to 
domestic and imported cigarettes"108, and that "Honduras has failed to establish that the bond 
requirement ... accords less favourable treatment to imported cigarettes than th at accorded to the like 
domestic products, in a manner inconsiste nt with Article III:4 of the GATT 1994."109   
87. In reaching this conclusion, the Panel noted that the Dominican Republic's tax law imposes 
the requirement to post a bond on both importers and domestic producers of cigarettes.110  The Panel 
rejected the argument of Honduras that the bond requi rement creates a disin centive against importing 
cigarettes.  The Panel reasoned that a local compa ny that intends to sell cigarettes in the Dominican 
Republic has two options:  either to buy from a do mestic producer or to buy from an importer.  In 
neither case would the local company need to post a bond, because the posting of a bond is requested 
only from manufacturers and importers.111  Honduras also argued that the bond requirement results in  
                                                      
107Panel Report, para. 7.226. 
108Ibid., para. 7.310. 
109Ibid., para. 7.311. 
110Ibid., para. 7.234;  the amount of the bond is RD$5 million for both importers and domestic 
producers:  Article 14 of Decree 79 -03, Exhibit HOND-4 submitted by Honduras to the Panel.  The Panel noted 
that "[a]ccording to the ev idence provided by Honduras, in the specifi c case of the importer of cigarettes from 
that country, the annual fee char ged by the insurance company that  issued the bond was RD$84,000 
(approximately US$1,873)". ( Ibid.,  para. 7.299) 
111Ibid., para. 7.282.  WT/DS302/AB/R 
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less favourable treatment for imported cigarettes because it serves to guarantee the payment of a tax 
(the "Selective Consumption Tax") that is fully co llected upon importation.  This is in contrast to 
domestic cigarettes, where payment of the Selec tive Consumption Tax does not fall due until the 
twentieth day of the month following that in which the cigarettes are sold.  The Panel discarded this 
argument, finding that "the evidence available does not support Honduras' assertion that there is no 
liability that the bond requirement would serve to secure."112  For the Panel, "the Dominican Republic 
... demonstrated that its tax authorities have the le gal powers to reassess and eventually readjust the 
applicable tax liabilities for a period of up to three years."113  Thus, the importer may be asked to 
make a new payment as a result of the readjustme nt, and the bond would serve to guarantee this 
payment.114  Furthermore, the Panel relied on a writte n declaration from the Director-General of 
Internal Taxes115 to find that, in the exercise of its enfo rcement powers, the Dominican Republic tax 
authorities regard the bond as a guarantee of complian ce with internal tax obligations other than the 
Selective Consumption Tax.116  Finally, the Panel concluded that "Honduras has not presented 
evidence to support its argument that the different cost per unit generated by complying with the bond 
requirement has a detrimental impact on the comp etitive conditions for impor ted products in relation 
to domestic products in the Domi nican Republic cigarette market."117  
88. On appeal, Honduras challenges the Panel's c onclusion that the bond requirement does not 
accord less favourable treatment in terms of Artic le III:4 of the GATT 1994.  Honduras submits that 
the Panel failed to recognize that the bond requi rement imposes an "extra burden" on imported 
products compared with domestic products.  Acco rding to Honduras, the bond requirement secures 
only the payment of the Selective Consumption Tax118;  whereas "an importer has to pay the amount 
due for the Selective Consumption Tax prior to im portation and has to post a bond to secure a tax 
liability that has already been discharged", "the domestic producer has up to 20 days following the 
month in which the transaction was made to pay the Selective Consumption Tax..119  Honduras  
                                                      
112Panel Report, para. 7.292. 
113Ibid. 
114Ibid. 
115Letter from the Director-General of Internal Taxes, Exhibit DR-12 submitted by the Dominican 
Republic to the Panel. 
116Panel Report, paras. 7.291 and 7.293. 
117Ibid., para. 7.301. 
118Honduras' other appellant's submission, para. 60. 
119Ibid., para. 63. WT/DS302/AB/R 
Page 36  
 
contends that "this lack of symmetry between th e liabilities that bond secures ... constitutes an 'extra 
hurdle' or 'extra burden' for imported products."
120   
89. Honduras also submits that the Panel erred becau se it evaluated the current per-unit cost of 
the bond fee for a specific importer in the light of its volume of imports for 2001-2003.121  According 
to Honduras, the Panel should have examined the conditions of competition established by the 
legislation, rather than the market situati on in which the bond requirement was applied.122  I n  a n y  
event, Honduras notes that the bond requirement wa s introduced in March 2003 and argues that the 
per-unit cost determined by the Panel was incorrect , because it was based on the volume of imports in 
the years 2000-2002, and on the cost charged by financial institutions for a bond fee in 2004.123  
Honduras adds that, as the Panel did not determine the per-unit cost for domestic producers, it could 
not compare the per-unit costs between imported pro ducts and domestic like products.  Accordingly, 
Honduras argues, the Panel "did not have any basi s upon which to conclude that there was no less 
favourable treatment being accorded to imports."124  Finally, Honduras submits that the Panel erred 
because it stated that the fact that a fixed expe nse (i.e., an expense not related to volume of 
production) may lead to different per-unit costs among supplier firms is not "in itself ... enough to 
conclude that the expense creates a less favourable treatment for imported products."125 
90. The Dominican Republic contests Honduras' appeal  of the Panel's findings regarding the bond 
requirement under Article III:4 of the GATT 1994.  Th e Dominican Republic contends that the Panel 
correctly concluded that the bond requirement does not modify the conditions of competition to the 
detriment of the imported cigarettes, and that it s hould not be presumed that any difference in the per-
unit cost of the bond modifies the conditions of competiti on and is inconsistent w ith Article III:4.  The 
Dominican Republic also submits that, in the even t the Appellate Body reverses the Panel's finding 
regarding the bond requirement under Article III:4, the Appellate Body should nevertheless find that 
the bond requirement is justified unde r Article XX(d) of the GATT 1994. 
91. In  Korea – Various Measures on Beef ,  the Appellate Body stated that, under Article III:4 of 
the GATT 1994, the question of whether: 
                                                      
120Honduras' other appellant's submission, para. 63. 
121Ibid., para. 33;  Panel Report, paras. 7.299-7.300. 
122Honduras' other appellant's submission, paras. 30-42. 
123Ibid., para. 44. 
124Ibid., para. 45. 
125Panel Report, para. 7.300;  Honduras' othe r appellant's submission, paras. 48-54.  WT/DS302/AB/R 
 Page 37 
 
 
... imported products are treated "less favourably" than like domestic products should be assessed ... by examining whether a measure modifies the  conditions of competition   in the relevant market to the 
detriment of imported products.
126 
92. In  EC – Asbestos , the Appellate Body said the following about "less favourable treatment" as 
embodied in Article III:4 of the GATT 1994: 
The term "less favourable treatment" expresses the general principle, 
in Article III:1, that internal regul ations "should not be applied … so 
as to afford protection to domestic production".  If there is "less 
favourable treatment" of the group of "like" imported products, there 
is, conversely, "protection" of the group of "like" domestic products.
127 
93. Therefore, the question that a panel must answer  in an analysis under Article III:4 is whether 
the measure at issue modifies the conditions of compe tition in the relevant market to the detriment of 
imported products.  In other words, a measure acco rds less favourable treatment to imported products 
if it gives domestic like products a competitive adva ntage in the market over imported like products.  
In this respect, we note that the bond requireme nt applies equally to importers and domestic 
producers, and is fixed at RD $5 million (indexed for inflation)128 for both importers and domestic 
producers.129   
94. Honduras acknowledges that the bond requirement  is imposed equally on importers and 
domestic producers, but nevertheless claims that it accords less favourable treatment to imported 
cigarettes.  Honduras argues that the bond require ment imposes an "extra burden" on imported 
products compared with domestic products because, as far as importers are concerned, the secured tax 
liability is non-existent or smaller than that of domestic producers.  We rec ognize that a measure that 
applies equally to importers and domestic producer s might, in some circumstances, nevertheless be 
inconsistent with Article III:4 of the GATT 1994.130  In this case, however, the Panel did not rely in its 
reasoning exclusively on the equal application of  the bond requirement to importers and domestic 
producers.  The Panel rejected Honduras' argume nt "that the bond requirement results in a less 
                                                      
126Appellate Body Report,  Korea – Various Measures on Beef , para. 137. (original emphasis) 
127Appellate Body Report,  EC – Asbestos , para. 100. 
128The bond of RD$5 million represents approximately US$110,000. 
129Article 14 of Decree 79-03, Exhibit HOND-4 submitted by Honduras to the Panel. 
130We note that in Korea – Various Measures on Beef , the Appellate Body stated: 
A formal difference in treatment between imported and like domestic 
products is ... neither necessary, nor sufficient, to show a violation of 
Article III:4.   
(Appellate Body Report, Korea – Various Measures on Beef , para. 137) WT/DS302/AB/R 
Page 38  
 
favourable treatment for imported cigarettes, because for those cigarettes there is no liability that the 
bond requirement would serve to secure."
131  The Panel did so on the basis of two findings of fact.  
First, the Panel found that the Dominican Republic tax authorities have the legal power to reassess 
and eventually adjust the tax liabilities as they rela te to the payment of the Selective Consumption 
Tax for a period of up to three years, and that the bond would serve to guarantee any payment resulting from the reassessment.
132  Honduras does not make a claim under Article 11 of the DSU 
against this finding of fact.  Hence, we do not disturb it.   
95. Secondly, the Panel found that, in the exerci se of their broad enforcement powers, the 
Dominican Republic tax authorities may use the bond to  enforce tax liabilities other than the Selective 
Consumption Tax.133  Honduras challenges this finding of fact  under Article 11 of the DSU.  In the 
next section of this Report, we expl ain why we reject this claim.  As we find no reason to dispute the 
Panel's findings of fact regarding the reassessment of the Selective Consumption Tax and the possible 
uses of the bond, we consider that the Panel did not improperly reject Honduras' argument "that the bond requirement results in a less favourable treat ment for imported cigarettes, because for those 
cigarettes there is no liability that th e bond requirement would serve to secure".
134 
96. Nor do we accept Honduras' argument that th e bond requirement accords "less favourable 
treatment" to imported cigarettes because, as the sales of domestic cigarettes are greater than those of imported cigarettes on the Dominican Republic market , the per-unit cost of the bond requirement for 
imported cigarettes is higher than for domestic products.
135  The Appellate Body indicated in  Korea – 
Various Measures on Beef   that imported products are treated less favourably than like products if a 
measure modifies the conditions of competition in the relevant market  to the detriment of imported 
products .136  However, the existence of a detrimenta l effect on a given imported product resulting 
from a measure does not necessarily imply that this  measure accords less favourable treatment to 
imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign 
origin of the product, such as the market share of th e importer in this case.  In this specific case, the 
mere demonstration that the per-unit cost of th e bond requirement for imported cigarettes was higher 
than for some domestic cigarettes during a particular period is not, in our view,  sufficient   to establish 
"less favourable treatment" under Article III:4 of the GATT 1994.  Indeed, the difference between the  
                                                      
131Panel Report, para. 7.294. 
132Ibid., para. 7.292. 
133Ibid., para. 7.293. 
134Ibid., para. 7.294. 
135Honduras' other appellant's submission, para. 70. 
136Appellate Body Report, Korea – Various Measures on Beef , para. 137.  WT/DS302/AB/R 
 Page 39 
 
 
per-unit costs of the bond requirement alleged by Ho nduras is explained by the fact that the importer 
of Honduran cigarettes has a smaller market share than two domestic producers137 (the per-unit cost of 
the bond requirement being the result of dividing the cost of the bond by the number of cigarettes sold 
on the Dominican Republic market).  In this case, the difference between the per-unit costs of the 
bond requirement alleged by Honduras does not de pend on the foreign origin of the imported 
cigarettes.  Therefore, in our view, the Panel w as correct in dismissing the argument that the bond 
requirement accords less favourable treatment to im ported cigarettes because the per-unit cost of the 
bond was higher for the importer of Honduran cigarettes than for two domestic producers. 
97. Honduras also submits that the Panel erred becau se it evaluated the current per-unit cost of 
the bond fee for the importer of Honduran cigarettes in the light of the volume of imports for  2001-2003.
138  Honduras considers that the Panel's calculati on is incorrect and that, in any event, it 
should also have calculated the per-unit cost fo r domestic producers.  In our view, the Panel 
committed no error in seeking to make an illustrative evaluation of the per-unit cost of the bond fee 
with respect to the importer of Honduran cigarettes.   First, we note that the Panel performed this 
exercise in response to Honduras' argument that the per-unit cost of the bond would be higher for the 
importer of Honduran cigarettes than for two do mestic producers, because each of these domestic 
manufacturers has a larger mark et share than that of the importer of Honduran cigarettes.139  Secondly, 
the calculation was merely illustrative:  the Panel wanted a rough estimate of what the bond 
requirement meant for the importer of Honduran ci garettes in terms of cost.  The Panel was not 
seeking to compare this cost with the per-unit cost  of the bond for the two domestic producers, as it 
assumed, from the outset of its analysis, that the per-unit cost of the bond would be higher for the 
importer as a result of its smaller market share.  Although methodologies other than that followed by 
the Panel might have produced more accurate resu lts of the per-unit cost, the Panel was merely 
seeking to arrive at a rough estimate of the cost of the bond requirement to the importer and hence its 
approach was adequate for its purposes.  The calcu lation carried out by the Panel shows that the bond 
requirement represents a very small cost for the impo rter—"equivalent to 0.2 per cent of the value of 
cigarette imports made by the importer in the year 2003."140  
                                                      
137Before the Panel, Honduras suggested that "since two domestic manufacturers have a higher market 
share than the importer of Honduran cigarettes, the per unit cost of the bond (the result of dividing the cost of 
the bond by the number of cigarettes sold) would be highe r for imported cigarettes than for domestic cigarettes." 
(Panel Report, para. 7.295) 
138Honduras' other appellant's submission, para. 33;  Panel Report, paras. 7.299-7.300. 
139Panel Report, para. 7.295. 
140Ibid., para. 7.299. WT/DS302/AB/R 
Page 40  
 
98. In any event, the calculation on which Hondur as focuses is not the thrust of the Panel's 
reasoning.  For the Panel, a fixed expense, such as the annual fee for the bond, leads necessarily to 
different per-unit costs among supplier firms, to the ex tent that these firms have different volumes of 
production or volumes of sales.  The Panel was of the view that "[a]s long as the difference in costs 
does not alter the conditions of competition in the relevant market to the detriment of imported 
products, that fact in itself should not be enough to conclude that the expense creates a less favourable 
treatment for imported products."
141  We agree with the Panel, for the reasons explained above.142   
99. Accordingly, Honduras has not shown that the Panel erred in finding that the bond 
requirement does not accord less favourable treatment  to imported cigarettes within the meaning of 
Article III:4 of the GATT 1994.  Therefore, we  uphold   the Panel's finding, in paragraphs 7.311, 
7.316, and 8.1(f) of the Panel Report, that H onduras failed to establish that the bond requirement 
accords less favourable treatment to imported cigare ttes than that accorded to like domestic products, 
in a manner inconsistent with Article III:4 of the GATT 1994. 
100. Finally, we observe that the Dominican Republic  has argued that, in the event we reverse the 
Panel's finding regarding the bond requirement un der Article III:4 of the GATT 1994, we should 
nevertheless find that the bond requirement is just ified as necessary to ensure compliance with 
GATT-consistent laws and regula tions under Article XX(d) of the GATT 1994.  As we are of the 
view that the Panel committed no error in reaching its  finding under Article III:4, there is no need for 
us to undertake an analysis of the Dominican Republic's defence under Article XX(d). 
VII. Article 11 of the DSU and the Panel's Consideration of the Bond Requirement "As 
Such" 
101. We next consider Honduras' appeal, under Artic le 11 of the DSU, regarding the Panel's 
assessment of Honduras' claim against the bond require ment.  As discussed in the preceding section of 
this Report, a key argument by Honduras regarding the inconsistency of the bond requirement with 
Article III:4 of the GATT 1994 was that the bond requi rement served to guarantee liability only for 
the Selective Consumption Tax and that such liability  did not exist for importers, who must pay that 
tax in full at the time of importation.143  The Dominican Republic responded that, notwithstanding 
payment of the Selective Consumption Tax at the ti me of importation, the bond nevertheless served to 
secure payment of that tax in the ev ent of an adjustment of the taxpay ers' total liability at some point 
in the future.  The Dominican Republic also argued that: 
                                                      
141Panel Report, para. 7.300. 
142Supra , para. 96 of this Report. 
143See Panel Report, para. 7.284.   WT/DS302/AB/R 
 Page 41 
 
 
... although Article 376 of the Tax Co de appears to refer only to the 
Selective Consumption Tax, in practice [the Dominican Republic] tax authority treats the bond as a guarantee of compliance with other internal tax obligations incumben t on the domestic producer and the 
importer of cigarettes, including the tax on the transfer of goods and 
services ("ITBIS") (Articles 335 through 360 of the Dominican 
Republic Tax Code), and the income  tax (Articles 267 through 334 of 
the Dominican Republic Tax Code).
144   
In support of this second argument, the Dominican Republic "presented a copy of a written 
declaration to that effect from its Director General of Internal Taxes."145 
102. The Panel accepted the arguments of the Domi nican Republic and found "that the evidence 
available does not support Honduras's assertion that th ere is no liability that the bond requirement 
would serve to secure."146  With respect to the Dominican Republic's assertion that the bond served to 
guarantee liabilities other than the Selectiv e Consumption Tax, the Panel stated: 
While the Dominican Republic has ad mitted that there is no explicit 
legal provision that authorizes the use of the bond as a guarantee of compliance for internal tax obliga tions other than the Selective 
Consumption Tax, the Panel finds th at there is no reason to question 
its assertion that, in practice and in  the exercise of its enforcement 
powers, the Dominican Republic tax authorities regard the bond as a guarantee of compliance for internal tax obligations such as the tax on the transfer of goods and services ("ITBIS") and the income tax.
147 
103. On this basis the Panel concluded: 
For the reasons expressed above, the Panel is not convinced by 
Honduras's argument that the bond re quirement results in a less 
favourable treatment for imported cigarettes, because for those 
cigarettes there is no liability that  the bond requirement would serve 
to secure.148 
104. On appeal, Honduras claims that the Panel fa iled to make an objective assessment of the 
matter before it, contrary to Article 11 of the DSU, in finding that the bond requirement secured 
obligations other than the Selective Consumption Tax.   Honduras emphasizes that its claims relate to 
the bond requirement   as such , independently from the application of that legislation in specific 
                                                      
144Panel Report, para. 7.285.   
145Ibid., para. 7.291. 
146Ibid., para. 7.292. 
147Ibid., para. 7.293. 
148Ibid., para. 7.294.  WT/DS302/AB/R 
Page 42  
 
circumstances.
149  According to Honduras, the Panel did not, however, consider the legislative basis of 
the bond requirement as such, but instead relied upon  a letter from the Dominican Republic Director-
General of Internal Taxes (referred to as Exhibit DR-12) that contradicted the terms of the underlying 
legislation.  Honduras argues that, in analyzing its  claim against the bond requirement as such, the 
Panel "should have properly examined only ... the te rms of the legislation and [should] not have relied 
on the unsubstantiated views of one officer of an agency of the Dominican Republic."150   
105. Article 11 of the DSU provides that a panel "should make an objective assessment of the 
matter before it, including an objective assessment of  the facts of the case and the applicability of and 
conformity with the relevant covered agreem ents".  The Appellate Body underlined in  Chile – Price 
Band System   that "Article 11 obliges panels not only to make 'an objective assessment of the facts of 
the case', but also 'an objective assessment of the matter before it'".151  The "matter" is constituted by 
both the facts of the case (and, in particular, the spec ific measures at issue) as well as the legal claims 
raised.152  The corollary is that a panel is not entitled to make an assessment of a matter that is  not  
before it, for example, by making findings on a claim not raised by the complainant.153   
106. Honduras' appeal engages both dimensions of the Panel's duty under Article 11.  Honduras 
asserts that the Panel failed to make an objective assessment of the  matter  before it by failing to 
consider its claims against the bond requirement  as such .  In addition, Honduras contests the Panel's 
treatment of the  evidence  before it and contends that the Pane l erred in considering evidence that 
contradicted the terms of the legislation establishi ng the bond requirement.  These two dimensions of 
Honduras' appeal under Article 11 of the DSU are w oven together.  The central thrust of Honduras' 
appeal is that the eviden ce relevant to its "as such" claim ag ainst the bond requirement is limited to 
the express terms of the legislation establishing that requirement. 
107. In considering the first of the two dimensions of Article 11 raised in the appeal by Honduras, 
we observe that the Appellate Body has consistently affirmed the ri ght of WTO Members to challenge 
legislation laying down norms or rules "as such", as well as their right to bring claims against the 
application of such measu res in specific instances.154  In our view, Honduras' claim before the Panel 
regarding the bond requirement was clearly in the natu re of an "as such" clai m.  Indeed, as Honduras 
                                                      
149Honduras' other appellant's submission, para. 14 (referring to Appellate Body Report, US – 
Corrosion-Resistant Steel Sunset Review , para. 82).  
150Ibid., para. 22. 
151Appellate Body Report, Chile – Price Band System , para. 172.  
152Appellate Body Report, Guatemala – Cement I , para. 73. 
153Appellate Body Report, Chile – Price Band System , para. 173.  
154See for example, Appellate Body Report, US – 1916 Act , paras. 60-61;  and Appellate Body Report, 
US – Corrosion-Resistant Steel Sunset Review , para. 82.  WT/DS302/AB/R 
 Page 43 
 
 
emphasizes on appeal, the bond requirement had not been  applied to its cigarette exporter at the time 
the Panel was established.155  Having acknowledged this, however, we find no indication in the Panel 
Report to support the view that the Panel failed to  consider the bond requirement as such, and instead 
undertook an analysis of a particular app lication or applications of the law.   
108. We observe in this regard that the Panel said it would: 
... consider the argument presented by Honduras in the sense that 
there is no liability that the bond requirement would serve to secure, as well as the two responses from the Dominican Republic:  (i) that the bond serves as a guarantee of tax liabilities in the event of latter reassessments and adjustments of th e tax liability of taxpayers; and,  
(ii) that it serves as a guarantee of compliance with internal tax 
obligations other than the Selective Consumption Tax.
156     
This statement indicates that the Panel intende d to undertake a general examination of the bond 
requirement, and, in particular, the types of tax liab ilities that it serves to guarant ee.  In this statement, 
the Panel foreshadows an analysis of the characteris tics of the measure as such.  There is no indication 
in this statement that the Panel intended to consider particular applications of the measure at all.   
109. After considering the issue, the Panel f ound that the bond requirement "would serve to 
guarantee" payment of Selective Consumption Tax not paid by an importer at the time of importation, 
in the event that the tax was reassessed and adjusted subsequent to importation.157  In addition, the 
Panel found no reason to question the assertion of the Dominican Republic authorities that they 
"regard the bond as a guarantee of compliance for in ternal tax obligations such as the tax on the 
transfer of goods and services ('ITBIS') and the income tax."158  Neither of these findings refers to a 
particular application of the bond requirement; rath er, each is in the nature of a general finding 
regarding the obligations that the bond requirement , as such, secures.  We therefore reject the 
argument of Honduras insofar as it asserts that the Panel failed to examine the bond requirement as 
such, as opposed to particular applications of the bond requirement.   
110. We turn to the second dimension raised in the Article 11 appeal by Honduras and observe that 
much of Honduras' argument focuses not on the distin ction between "as such" claims and "as applied" 
claims, but rather on the nature of the  evidence  that will be relevant to an "objective assessment" of 
an "as such" claim.  Honduras thus contends that, because the "bond requirement stated unambiguously that the tax obligation secured by the bond was the Selective Consumption Tax, and 
                                                     
 
155See Honduras' other appellant's submission, paras. 3 and 14.   
156Panel Report, para. 7.286. 
157Ibid., para. 7.292.  
158Ibid., para. 7.293.  WT/DS302/AB/R 
Page 44  
 
nothing more", the "Panel should have ... examined  only ... the terms of the legislation and [should] 
not have relied on the unsubstantia ted views of one officer of an agency of the Dominican 
Republic."
159  In this way, a key basis for Honduras' a ssertion that the Panel failed to undertake the 
objective assessment required by Article 11 of the DSU is that "the Panel did not undertake an 
analysis of the legislation  alone ".160   
111. Honduras' argument in this regard takes issue with the Panel's treatment of the evidence 
before it.  The Appellate Body has emphasized repeated ly that it is generally within the discretion of 
the Panel to decide which evidence it chooses to ut ilize in making findings and that the Appellate 
Body "will not interfere lightly with the panel's exercise of its discretion".161  We note also that, in  US 
– Carbon Steel , the Appellate Body indicated that the anal ysis of a Member's municipal law (such as 
the bond requirement at issue in this dispute) requi res a panel to consider and weigh the evidence put 
forward by the parties: 
The party asserting that another party's municipal law, as such, is 
inconsistent with relevant treat y obligations bears the burden of 
introducing evidence as to the scope and meaning of such law to 
substantiate that assertion.   Such evidence will typically be produced 
in the form of the text of the relevant legislation or legal instruments, which may be supported, as appropriate, by evidence of the consistent application of such la ws, the pronouncements of domestic 
courts on the meaning of such laws , the opinions of legal experts and 
the writings of recognized scholars.  The nature and extent of the 
evidence required to satisfy the burden of proof will vary from case to case.
162   
112. Against this background, and cons istent with the view expressed by the Appellate Body in  
US – Carbon Steel , we agree with Honduras that consideration of the express wording of the text of 
legislation establishing a measure is a fundamental elem ent of an assessment of that legislation.  That 
said, however, we see no merit in the proposition advan ced by Honduras that a panel must limit itself, 
in considering a claim against legislation as such,  exclusively  to the wording of legislation itself.  
Indeed, in US – Carbon Steel , the Appellate Body recognized that different types of evidence may 
support assertions as to the meaning and scope of an impugned measure.  A panel enjoys a margin of discretion in weighing such evidence, comme nsurate with its role as trier of fact. 
                                                     
 
159Honduras' other appellant's submission, para. 22.  
160Ibid., para. 23. (emphasis added) 
161Appellate Body Report, US – Wheat Gluten , para. 151.  
162Appellate Body Report, US – Carbon Steel , para 157. (footnote omitted)   WT/DS302/AB/R 
 Page 45 
 
 
113. In this case, the Panel took into account the legal provision establishing the bond requirement 
as well as supplementary evidence, put forward by the Dominican Republic, in the form of a letter 
from the Dominican Republic Direct or-General of Internal Taxes.163  The letter from the Director-
General of Internal Taxes indicates that, in the exer cise of their broad powers to enforce the tax laws, 
the Dominican Republic tax authorities may apply th e proceeds of the bond toward payment of taxes 
other than the Selective Consumption Tax.164  The position taken by the Director-General of Internal 
Taxes in the letter relates to the scope of its enfo rcement powers with respect to the uses to which the 
bond may be put;  it is not an interpretative stat ement of Article 376 of th e Tax Code.  Honduras does 
not appear to have put forward evidence that would call into question or otherwise rebut the 
statements made in the letter of the Director-Gen eral of Internal Taxes concerning the scope of the 
enforcement powers of the Dominican Republic tax au thorities.  As the question of the possible uses 
to which the bond might be put was a contentious issue before the Panel, and because Exhibit DR-12 
provided information relevant to this issue, we do not think that the Panel exceeded its margin of 
discretion in considering and giving some weight to  that letter.  Accordingly, we reject Honduras' 
claim that the Panel failed to meets its obligations under Article 11 of the DSU in its consideration of 
this issue. 
114. Finally, we observe that the situation in this  appeal is different from that prevailing in  India – 
Patents (US) , upon which Honduras relies.  India – Patents (US)   was a case in which certain 
"administrative instructions" were held to be in sufficient evidence of India's compliance with its 
obligations under the "mailbox" requirements of the  TRIPS Agreement , whereas certain legislative 
provisions were clearly inconsistent with those ob ligations.  The panel and the Appellate Body were 
not required in  India – Patents (US)  to interpret the words of the relevant legislation  alone ,  in 
isolation from other evidence, as Honduras would have  had the Panel do in this case.  Indeed, in  
India – Patents (US) , there was a considerable amount of evidence available regarding the proper 
interpretation of the express terms of the Indian Pa tents Act, which included, but was not limited to, 
the text of the legislation itself.  The panel in that  case was thus able to balance India's assertion that 
its "administrative instructions"—which required o fficials to disregard certain mandatory provisions 
of the Patents Act—were sufficient to implement India's WTO obligations, against evidence that the 
Indian government itself considered that legi slative amendment was necessary.  Thus, in  India – 
Patents (US) , the panel made full use of the record that w as before it.  Although the record in that case 
appears to have been considerably richer than th e one available in these pr oceedings (which appears 
to consist only of the text of the measure and the le tter from the Director-General of Internal Taxes), it 
                                                      
163Exhibit DR-12 submitted by the Dominican Republic to the Panel. 
164See Panel Report, para. 7.291 (referring to Exhibit DR-12 submitted by the Dominican Republic to 
the Panel).  WT/DS302/AB/R 
Page 46  
 
appears to us that the Panel in this case also cons idered all of the evidence that was before it.  
Accordingly, although the facts of this case differ from  India – Patents (US) , the panels in each case 
followed the same—correct—approach in taking into  account relevant factual information presented 
by the parties.  
115. For all these reasons, we  find  that the Panel conducted an objective assessment of Honduras' 
claims regarding the bond requirement as su ch, consistent with Article 11 of the DSU. 
VIII.  The Panel's Treatment of Honduras' Contenti ons Regarding the Timing of Payment of 
the Selective Consumption Tax 
116. We turn, finally, to address Honduras' appeal in respect of the Panel's treatment of its 
contentions regarding the timing of paym ent of the Selective Consumption Tax. 
117. Before the Panel, Honduras claimed that th e bond requirement accorded treatment less 
favourable to imported cigarettes than to domes tic cigarettes contrary to Article III:4 of the 
GATT 1994.  This was because, according to Hondu ras, the bond served to guarantee payment only 
of the Selective Consumption Tax.  In the case of  domestic producers, the Se lective Consumption Tax 
is due on the twentieth day of the month following the taxable transaction.  By contrast, in the case of 
imports, the Selective Consumption Tax is payable immediately upon importation.  Accordingly, in 
the case of an importer, following importation there is  simply no tax liability for the bond to secure.
165  
Honduras submitted that this accorded less favourable treatment to imported cigarettes, compared to 
domestic production because: 
[t]his accords domestic producers the opportunity to earn interest 
income on the Selective Consumption Tax for a period of 20-50 
days.  On the other hand, importers have to pay the Selective 
Consumption Tax in advance.  This entails either financing costs or 
opportunity costs on the part of the importers.166 
118. Ultimately, the Panel rejected Honduras' cl aim under Article III:4 of the GATT 1994 in 
respect of the bond requirement on several grounds.  It  dealt with Honduras' contentions regarding the 
absence of tax liabilities for importers secured by th e bond in two ways.  First, it accepted the 
submissions of the Dominican Republic that, notw ithstanding the payment of Selective Consumption 
Tax at the time of importation, the bond neverthel ess served to secure tax obligations;  these included 
payment of the Selective Consumption Tax in the case of reassessment and adjustment.  The Panel 
also accepted that the tax authorities of the Dominican Republic regard the bond as security for 
                                                      
165See Panel Report, paras. 7.268 and 7.284.  
166Ibid., para. 7.268.   WT/DS302/AB/R 
 Page 47 
 
 
payment of taxes other than the Selective Consumption Tax.167  Secondly, with respect to the 
possibility that domestic producers could earn inter est on the value of the tax liability during the 
period between a taxable transaction and the moment  when payment of the tax became due, while 
importers were forced to bear financing costs in r espect of the tax paid at the time of importation, the 
Panel found this matter to be distinct from H onduras' claims in respect of the bond requirement.168  It 
reasoned that, although the "claim on the bond requirem ent is part of the terms of reference of the 
Panel", there was "nothing in the request for est ablishment of the Panel that would lead to the 
conclusion that the Panel would be asked to make  any finding regarding the difference in timing of 
the payment of the Selective Consumption Ta x between domestic producers and importers."169  The 
Panel concluded, therefore: 
... that Honduras's claim regarding the different costs for domestic 
producers and importers arising from the time of payment of the Selective Consumption Tax is not directly related with the bond 
requirement and it is not within the Panel's terms of reference.
170 
119. On appeal, Honduras submits that the Panel erre d in treating its contentions regarding the 
timing of payment of the Selective Consumption Tax as a separate claim outside of the Panel's terms 
of reference.  Honduras submits that these contentio ns were simply arguments in support of its claim 
that the bond requirement violated Article III:4 of the GATT 1994.171 
120. We begin our analysis of this issue by observing that Article 6.2 of the DSU deals with the 
request for the establishment of a panel a nd provides, in relevant part, as follows: 
The request for the establishment of a panel shall be made in writing.  
It shall indicate whether consultati ons were held, identify the specific 
measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.  
In  US – Carbon Steel ,  the Appellate Body noted that Article 6.2 sets forth: 
                                                     
 
167Panel Report, para. 7.293.  
168Ibid., paras. 7.307-7.308.   
169Ibid., para. 7.308. 
170Ibid. 
171Honduras' other appellant's submission, paras. 76-81.  WT/DS302/AB/R 
Page 48  
 
... two distinct requirements, namely identification of  the specific 
measures at issue ,  and the provision of a  brief summary of the  legal 
basis of the complaint   (or the  claims ).  Together, they comprise the 
"matter referred to the DSB", which forms the basis for a panel's terms of reference under Article 7.1 of the DSU.
172  
The Appellate Body has consistently maintained  that, where a panel request fails to identify 
adequately particular measures or fails to specify a pa rticular claim, then such measures or claims will 
not form part of the matter covere d by the panel's terms of reference.173   
121. We also observe that the Appellate Body h as consistently distinguished between the  claims   
of a Member regarding the application of the various provisions of the  WTO Agreement , and the  
arguments  presented in support of those claims.  Claims, which are typically allegations of violation 
of the substantive provisions of the  WTO Agreement , must be set out clearly in the request for the 
establishment of a panel.  Arguments, by contr ast, are the means whereby a party progressively 
develops and supports its claims.  These do not need to  be set out in detail in a panel request;  rather, 
they may be developed in the submissions made to the panel. 174  
122. Against this background, the contentions of H onduras regarding the timing of payment of the 
Selective Consumption Tax may be characterized in two ways.  First, insofar as the contentions regarding the timing of payment of the Selec tive Consumption Tax were made in support of 
Honduras' assertion that importers bore no tax liability that would be secured by the bond 
requirement, the contentions did—as Honduras submits on appeal—comprise  arguments  in support 
of its claims regarding the bond requirement.  Nothing prevented Honduras from raising such 
arguments before the Panel, even though these ar guments were not set out in the panel request.
175  
Secondly, insofar as Honduras' contentions represent an assertion that the timing of payment of the Selective Consumption Tax resulted in a violation of Article III:4 of the GATT 1994 in itself, these 
contentions comprised a separate  claim  that was not included in the panel request.  For the reasons 
that follow, however, regardless of the way in wh ich Honduras' contentions in this regard are 
characterized, we see no error in the manner in which the Panel dealt with them.   
123. In considering Honduras' claim under Article  III:4 of the GATT 1994 regarding the bond 
requirement, the question presented to the Pane l by Honduras was whether the bond requirement 
secured any liability for importers and whether the ab sence of such liability created an imbalance in  
                                                     
 
172Appellate Body Report, US – Carbon Steel , para. 125. (original emphasis;  footnote omitted) 
173See, for example, Appellate Body Report, US – Carbon Steel , para. 171. 
174Appellate Body Report, EC – Bananas III , para. 141.  
175See Request for Establishment of a Panel by  Honduras, WT/DS302/5, 9 December 2003.  WT/DS302/AB/R 
 Page 49 
 
 
the conditions of competition between imported and dom estic cigarettes.  In addressing this issue, the 
Panel noted, in paragraph 7.284 of the Panel Repor t, Honduras' argument that, with respect to 
imported cigarettes, the Selective Consumption Tax is collected upon importation, whereas for 
domestic cigarettes, the tax may be paid up to the tw entieth day of the month following that in which 
the sale is made.  The Panel then indicated it would: 
... consider the argument presented by Honduras in the sense that 
there is no liability that the bond requirement would serve to secure, as well as the two responses from the Dominican Republic:  (i) that the bond serves as a guarantee of tax liabilities in the event of latter reassessments and adjustments of th e tax liability of taxpayers; and,  
(ii) that it serves as a guarantee of compliance with internal tax 
obligations other than the Selective Consumption Tax.
176 
124. In this way, the Panel Report shows that the Panel addressed Honduras' argument regarding 
the timing of payment for the Selective Consumption Tax and the two responses from the Dominican 
Republic as a whole.  Ultimately, the Panel found th at importers do bear liabilities that are secured by 
the bond.  Thus, although the Panel did not consider  specifically and in detail Honduras' contentions 
regarding the timing of payment of the Selectiv e Consumption Tax in its analysis of the bond 
requirement, it reached a view on the facts that was su fficient for it to reject Honduras' theory that the 
bond secured no liabilities for importers.  In that light , we do not believe that the Panel committed any 
error in the manner in which it dealt with the timi ng of payment of the Selective Consumption Tax, 
insofar as this was relevant to the question of whether the bond secures tax liability for importers.  
The Panel did not overlook or ignore the contentions  advanced by Honduras on this point.  Rather, the 
Panel Report reveals that the Panel bore these cons iderations in mind in the context of a global 
analysis of the question whether the bond secures tax liability for importers.  
125. In any event, we note that there is no oblig ation upon a panel to consider each and every 
argument put forward by the parties in support of their respective cases, so long as it completes an 
objective assessment of the matter before it,  in accordance with Article 11 of the DSU.177   
126. Nor do we see error in the Panel's finding that , insofar as Honduras' contentions represented a 
separate allegation of inconsistency with Article  III:4 of the GATT 1994, those contentions were 
 claims  in respect of a measure not specified in the request for the establishment of the Panel.  We 
also note, as pointed out by the Dominican Republic178, that the issue of the timing of payment of the 
                                                      
176Panel Report, para. 7.286. 
177Appellate Body Report, EC – Poultry , para. 135.  
178Dominican Republic's appellee's submission, para. 79.  WT/DS302/AB/R 
Page 50  
 
Selective Consumption Tax is not dealt with in the legislative provisions identified by Honduras in 
connection with its claims against the bond requirement .  In this light, we agree with the Panel that: 
[w]hether imported cigarettes may be accorded less favourable 
treatment than the like domestic produ cts due to the difference in the 
time of payment of the Selective Consumption Tax is ... a different 
issue from the bond requirement, although the two may be tangentially related.  Although the bond would serve as a guarantee for the payment of the Selec tive Consumption Tax and other 
liabilities, if there was any challenge against the conditions for 
payment of the tax, that challenge would not have to do with the 
bond requirement, but with the rules on the tax itself.  The time of payment of the Selective Consumption Tax is not part of the bond requirement.
179 
127. Accordingly, because such a challenge was not included in the panel request, we see no error 
in the Panel's finding that such a matter was outsi de its terms of reference.  For these reasons, we  find 
no error   in the Panel's treatment of Honduras' conten tions regarding the timing of payment of the 
Selective Consumption Tax.  
IX. Findings and Conclusions 
128. For the reasons set out in this Report, the Appellate Body: 
(a) finds no error   in the Panel's interpretation and ap plication of the term "necessary" in 
Article XX(d) of the GATT 1994;  finds it unnecessary   to complete the analysis of 
the Dominican Republic's defence under Article XX(d) of the GATT 1994; and, 
consequently,  upholds   the Panel's finding, in paragraphs 7.232, 7.233 and 8.1(e) of 
the Panel Report, that the tax stamp require ment is not justified under Article XX(d) 
of the GATT 1994;  
(b) finds   that the Panel made an objective assessme nt of the facts of the case, as required 
by Article 11 of the DSU, in its examin ation of Exhibits DR-8 and DR-29;  
(c) upholds   the Panel's finding, in paragraphs  7.311, 7.316, and 8.1(f) of the Panel 
Report, that Honduras failed to establish that the bond requirement accords less 
favourable treatment to imported cigarett es than that accorded  to like domestic 
products, in a manner inconsistent with Article III:4 of the GATT 1994; 
                                                      
179Panel Report, para. 7.307.   WT/DS302/AB/R 
 Page 51 
 
 
(d) finds   that the Panel made an objective assessment of the matter before it, as required 
by Article 11 of the DSU, in its consideration of Honduras' claim against the bond 
requirement "as such";  and,  
(e) finds no error   in the Panel's treatment of Hondur as' contentions regarding the timing 
of payment of the Selective Consumption Tax. 
129. At the oral hearing, the participants agreed that the tax stamp regime as a whole had been 
altered by a new decree in October 2004.180  Both participants nevertheless requested the Appellate 
Body to rule on the WTO-consistency of the origin al measure.  In view of the above, the Appellate 
Body  recommends   that the Dispute Settlement Body request  the Dominican Republic to bring the tax 
stamp requirement, found in this Report and in th e Panel Report as modified by this Report to be 
inconsistent with the GATT 1994, into conformity w ith its obligations under th at Agreement if, and to 
the extent that, the said modifications to the ta x stamp regime have not already done so.   
130. The Appellate Body also  recommends   that the Dispute Settlement Body request the 
Dominican Republic to bring its other measures, found in the Panel Report as modified by this 
Report, to be inconsistent with the GATT 1994, in to conformity with its obligations under that 
Agreement.  
                                                      
180Supra , paras. 14 and 63 of this Report.  WT/DS302/AB/R 
Page 52  
 
 
Signed in the original in Geneva this 7th day of April 2005 by:  
 
 
 
  
_________________________ 
Luiz Olavo Baptista 
Presiding Member 
 
 
 
  
 _________________________ _________________________ 
 John Lockhart Giorgio Sacerdoti 
 Member Member 
  WT/DS302/AB/R 
 Page 53 
 
 
ANNEX 1 
  
 WORLD TRADE  
ORGANIZATION  WT/DS302/8 
24 January 2005  
 (05-0297) 
 Original:   English 
 
 
DOMINICAN REPUBLIC – MEASURES AFFECTING THE IMPORTATION 
AND INTERNAL SALE OF CIGARETTES 
 
Notification of an Appeal by the Dominican Republic  
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 20(1) of the Working Procedures for Appellate Review   
   The following notification, dated 24 January 2005 , from the Delegation of the Dominican Republic, is being circulated to Members. 
 
_______________ 
 
  Pursuant to Articles 16.4 and 17.4 of the Understanding on Rules and Procedures Governing 
the Settlement of Disputes  ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the 
Dominican Republic appeals certain issues of law and legal interpretation in the Panel Report in 
Dominican Republic – Measures Affecting th e Importation and Internal Sale of Cigarettes  
(WT/DS302/R). 
 1. The Dominican Republic believes that the Pane l committed legal error in paragraphs 7.232, 
7.233, and 8.1(e) of the Panel Report, by concluding that the Dominican Republic's "tax 
stamp requirement" (Article 37 of Decree 79-03 of 4 February  2003 and Decree 130-02 of 11 
February 2002) is not justified under Article XX(d) of the GATT 1994. 
 
a. The Panel erred in interpreting and appl ying the term "necessary" in Article XX(d).  
In this regard, the Dominican Republic in tends to make arguments relating to the 
Panel's reasoning in, inter alia , paragraphs 7.213-7.230 of the Panel Report. 
 b. The Panel failed to make an objective assess ment of the facts of the case, inconsistent 
with its duty under Article 11 of the DSU, by exceeding the bounds of its discretion in 
examining evidence submitted by the Domi nican Republic regarding tax evasion, 
smuggling, and forgery of tax stamps.  Th e Panel also failed to make an objective 
assessment of the facts regarding the lack of reasonably available alternative instruments.  In this regard, the Domi nican Republic intends to make arguments 
relating to the Panel's reasoning in, inter alia , paragraphs 7.221-7.226 and 7.228-
7.229 of the Panel Report. 
 WT/DS302/AB/R 
Page 54  
 
2. In the event that the Appellate Body reve rses the Panel's conclusion that the tax stamp 
requirement is not justified under paragraph (d) of Article XX of the GATT 1994, the 
Dominican Republic requests that the Appellate  Body complete the legal analysis under 
Article XX of the GATT 1994. 
 
The provisions of the covered agreements that the Dominican Republic considers to have been 
erroneously interpreted or applied by the Pa nel include Article XX(d) of the GATT 1994 and 
Article 11 of the DSU.  
_______________  WT/DS302/AB/R 
 Page 55 
 
 
ANNEX 2 
  
 WORLD TRADE  
ORGANIZATION  WT/DS302/9 
7 February 2005  
 (05-0517) 
 Original:   English 
 
 
DOMINICAN REPUBLIC – MEASURES AFFECTING THE IMPORTATION 
AND INTERNAL SALE OF CIGARETTES 
 
Notification of an Other Appeal by Honduras  
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 23(1) of the Working Procedures for Appellate Review  
   The following notification, dated 7 February 20 05, from the Delegation of Honduras, is being 
circulated to Members. 
 
_______________ 
 
  Pursuant to Rule 23 of the Appellate Body 's Working Procedures for Appellate Review, 
Honduras hereby notifies its decision to appeal to th e Appellate Body certain issues of law covered in 
the Panel Report Dominican Republic – Measures Affecting the Importation and Internal Sale of 
Cigarettes , WT/DS302/R, (the "Panel Report") and certa in legal interpretations developed by the 
Panel in that Report.    Honduras seeks appellate review of:  
 
a) the Panel's findings and conclusion set out in paragraphs 7.291-7.294 that there are 
tax liabilities in addition to the Selective Consumption Tax that the bond requirement 
secures;   
b) the Panel's findings and conclusion, set out  in paragraphs 7.297-7.301 of the Panel 
Report, that it was not demonstrated that the fixed amount of the bond accords to 
imported cigarettes treatment less favourab le than that accorded to domestic 
cigarettes; 
c) the Panel's findings and conclusion, set out  in paragraphs 7.306-7.308 of the Panel 
Report, that the difference in timing of the payment of the Selective Consumption 
Tax between domestic producer s and importers in connection with the bond is not a 
matter within the Panel’s terms of reference; and  
d) the Panel’s conclusion, set out in para graphs 7.310-7.311, that Honduras had failed to 
establish that the bond requirement accords less favourable treatment to imported 
cigarettes than that accorded to the like domestic products. WT/DS302/AB/R 
Page 56  
 
 The above findings and conclusions ar e based on the following legal errors:  
 
− the Panel did not make an objective assessment of the matter before it, namely, 
Honduras's challenge to the bond requiremen t on its face, because it examined the 
"application" of the bond requirement, contrary to Article 11 of the Understanding on 
Rules and Procedures Governing the Settlement of Disputes  ("DSU") (paras. 7.291 – 
7.294 of the Panel Report); 
− the Panel erred in examining the market conditions in the Dominican Republic in 
order to determine the consistency of the bond requirement with Article III:4 of the 
General Agreement on Tariffs and Trade 1994  ("GATT") (paras. 7.297 – 7.301 of the 
Panel Report); 
− the Panel’s error was compounded by the f act that the Panel made unsubstantiated 
assumptions with respect to the per-unit cost of the bond fee for importers, did not 
determine the per-unit cost of the bond f ee for domestic producers and did not make 
the comparison between the per-unit cost s for importers and domestic producers 
(paras. 7.297 – 7.301 of the Panel Report); 
− the Panel erred in its finding that a differ ence in costs for importers of posting the 
bond do not alter the conditions of compe tition in the Dominican Republic’s market 
and, therefore, do not create less favourab le treatment for imported products within 
the meaning of Article III:4 of the GATT (p aras. 7.297 – 7.301 of the Panel Report); 
− the Panel failed to make a finding that im porters face an additional burden compared 
to domestic producers, even though only importers have to post the bond and pay the Selective Consumption Tax upon importation, which is contrary to the requirement of 
Article III:4 of the GATT, (paras. 7.292 – 7.294 of the Panel Report); and  
− the Panel erred in characterising the difference in timing of the payment of the 
Selective Consumption Tax in connection with the posting of the bond as a separate 
claim which was not within the terms of re ference of the Panel (paras. 7.306 – 7.308 
of the Panel Report).  
 Honduras requests the Appellate Body to rever se or modify, where appropriate, the findings 
or conclusions of the Panel.  The provisions of the WTO Agreement that Honduras considers the 
Panel to have erroneously interp reted or applied are Article III:4 of the GATT and Article 11 of the 
DSU.  
 
__________